BHEL at Glance-Correct

Chapter -1

Introduction to BHEL

BHEL is the Largest Engineering and Manufacturing Enterprise in India in the

Energy related/Infrastructure Sector Today. BHEL was established more than 50

years ago when its first plant was set up in Bhopal ushering in the indigenous

Heavy Electrical Equipment Industry in India, a dream which has been more than

realized with a well recognized track record of Performance. It is the most Important

symbol of Heavy Electrical Equipment Industry in India and ranks amongst the first

few in the world. It has been earning Profits continuously since 1971-72 and

achieved a Sales turnover of Rs. 145255 million with a profit before tax of Rs.

25644 million in 2005-2006.

BHEL caters to core Sectors of the Indian Economy viz, Power Generation &

Transmission, Industry, Transportation, Telecommunication, Renewable Energy,

Defence, etc. The wide network of BHEL’s 14 manufacturing divisions, four Power

Sector regional centers, eight service centers and 18 regional office and a large

number of Project Sites spread all over India and abroad enables the company to

promptly serve its customers and provide them with suitable products, system and

services-efficiently and at competitive prices. BHEL has already attained ISO 9000

and all the major units/divisions of BHEL have been upgraded to latest ISO 9001-

2000 version quality standard certification for Quality Management, BHEL has

secured ISO 14001 certification for Environmental Management System and

OHSAS- 18001 certification for occupational health and Safety Management

Systems for its major units/divisions.

The Company’s inherent potential coupled with its strong Performance over

the years has resulted in it being chosen as one of the “Navratna” PSUs, which

enjoy the support from the Government in their endeavors to become Global

Players. With its prudent Financial Management BHEL occupies an all-Important

niche as evident by its ranking by CII amongst top eight PSUs based on Financial

Performance.

Chapter -2

Vision Mission & Values of BHEL at a Glance

Vision

A World Class Engineering Enterprise committed to enhancing Stakeholders value.

Mission

To be an Indian Multinational Engineering Enterprise providing total Business

Solutions through Quality Products, Systems and Services in the field of Energy,

Industry, Transportation, Infrastructure and other potential area.

Values

Zeal to Excel and Zest for change.

Integrity and fairness in all matters.

Respect for dignity and potential of Individuals.

Strict adherence commitment.

Ensure speed of response.

Foster learning, creativity and teamwork.

Loyalty and pride in the Company.

2

Chapter -3

Awards

3

Chapter - 4

BHEL at a Glance

(Rs. In million)

2004-05 2005-06 CHANGE (%)

Turnover 103364 145255 40.53

Value Added 42540 56828 33.58

Employee (Nos.) 43302 42601 -1.62

Profit Before Tax 15816 25644 62.14

Profit After Tax 9534 16792 76.13

Dividend 1958 3549 81.26

Dividend Tax 266 498 87.22

Retained Earnings 7310 12745 74.35

Total Assets 144915 175060 20.80

Net Worth 60269 73014 21.15

Total Borrowings 5370 5582 3.95

Debt : Equity 0.09 0.08 -14.20

Per Share (in Rupees):

- Net worth 246.24 298.31 21.15

- Earnings 38.95 68.60 76.12

- Dividend 8.00 14.50 81.26

(US $ in million)

Turnover 2371 3270 37.90

Profit Before Tax 363 577 59.11

Profit After Tax 219 378 72.84

Conversion Rates (Rate as on 31st March):

1 US $ = Rs. 43.59 for 2004-05

1 US $ = Rs. 44.42 for 2005-06

4

Chapter - 5

BHEL, Varanasi (HERP)

(a)

History

Varanasi is endowed with five Universities, Lord Budha’s first preaching center

and many religion/ cultural centers, situated near the Holy Ganga, with Lord Kashi

Vishwanath Temple at the heart of it. HERP is located at Shivpur, 11 Kms from

main Railway station and 15 Kms from Varanasi Airport.

HERP is also situated at the center of the largest Power Belt of Northern region.

This Power Belt supplies 10650 MW of Power to the Country. In the line with

BHEL’s of providing constant service at their doorsteps, the idea of establishing

repair shop in the vicinity of Power station was mooted objective.

According, two repair plant at Bombay & Varanasi came into existence, the

foundation equipment repair sprawling in 29.8 acre area at Varanasi was laid on

20th September 1984 by Chief Minister of U.P. Shri Narayan Dutt Tiwari within a

short span of 21 month much before the schedule.

Production activities started in the Plant from 1st April 1986 having achieved Break-

even point in the second year of Production. Then HERP progressed year often

year and added to yet another at yet another feature in HERP’s cap.

Starting a manufacture of O & M spares for the boiler and boiler auxiliaries, repair

activities got a real break in 1990 when rebabitting of TG set bearing was taken up

in the Plant. Since than rebabitting of different type of bearing including an

unconventional synchronous condenser has been carried out to the entire

satisfaction of the Customers.

5

In order to maintain Growth profile, HERP expansion Project with Rs. 400 Lakhs

investment was taken up in 1992 and in hearing completion. Some new facilities

like CNC Lathe, Heat Treatment Furnace, Balancing Machine etc. have been added

to enable take up repair works as well other spares for boilers and turbines. In view

of present market Environment diversification activities like establishing of

Manufacture of Mini-Micro-Hydro Turbine components, as well as motor bearing

initiated.

Through small in size, HERP has been in adequate attention to all the facts of Plant

Operation like Computerization, Inventory Control, Quality Assurance. In order to

channel lies the creative Energy of Employees suggestion scheme and Quality

Circle and Productivity Improvement Project are in operation.

HERP takes pride in being one of Best among BHEL unit in term of value added per

Employee, because co-operation and communicate style of functioning, it has a

track reward of continuing harmonious industrial relations. Being a public sector,

HERP is aware of social responsibility as a Corporate citizen as quality of like for

the residents of the near by area.

HERP has achieved certification of ISO 9001, ISO 14001 & OHSAS 18001 and

targeted TQM score during 03-04. Unit level TQ council is committed towards

improvement on regular basis in line with the Organizational goals. The other Apex

level committee like HMC, PQC & PEC is also having meetings as per schedule for

review as per agenda keeping in view, the interests of our Stakeholders.

6

(b)

Organization Structure

Heavy Equipment Repair Plant, Varanasi has highly skilled & Dedicated

Technicians, Engineers & Specialist, With manpower strength of 127 nos

(Executive: 36 other 91). The Organization structure chart is as follows :

General Manager (HERP)

DGM (Finance) Sr. Manager (HR) AGM (Comml./Maint./Qc.)

Sr. DGM (Prodution)

AGM (MM/P&D)

Sr. Executive (HR)

Manager (Production)

DGM (Comml.) DGM (Maint./Qc.)

Sr. Manager (MM)

Sr. Manager (P&D)

A/C Manager Sr. A/C Officer A/C Officer

7

(c)

Performance

(Statistics)

1- Inventory in No. of Days:

Year Inventory in No. of Days.

2000-2001 64

2001-2002 42

2002-2003 66

2003-2004 63

2004-2005 69

2005-2006 62

8

2- Profit Before tax (PBT) Capital Employed :

Year % of PBT per Capital Employed

2000-2001 40.00

2001-2002 47.00

2002-2003 19.49

2003-2004 39.57

2004-2005 57.46

2005-2006 122.00

9

3- Monthly wise Turn Over (Rs. In Lacs):

Months 2005-2006

Actual

2006-2007

Budget

2006-07

Actual

April 258 650 652

May 302 600 608

June 350 550 633

July 360 650 650

August 376 750 776

September 405 800

October 474 900

November 582 950

December 600 950

January 593 1100

February 626 1100

March 413 1000

10

4- Trend of Material Consumption as % of GTO less Excise:

Year Material consumption %

2000-2001 46.63

2001-2002 49.00

2002-2003 45.76

2003-2004 46.08

2004-2005 49.06

2005-2006 51.00

11

5- Value Added per Employee (Rs. In Lacs):

Year Value Added /Employee

(Rs. In Lacs)

2000-2001 8.00

2001-2002 8.50

2002-2003 5.76

2003-2004 8.73

2004-2005 11.35

2005-2006 17.93

12

6- Value Added & PBT:

YearValue Added (in Lacs)

PBT Value Added Total

2000-2001 530.00 1127.00

2001-2002 557.00 1173.00

2002-2003 176.06 798.00

2003-2004 387.00 1126.00

2004-2005 619.00 1407.00

2005-2006 1396.00 2223.00

13

7- Growth HERP :

Year Turnover (in Lacs)

2000-2001 2680.00

2001-2002 2864.00

2002-2003 1780.00

2003-2004 2426.00

2004-2005 3105.00

2005-2006 5339.00

14

8- Productivity:

Year Machine Utilization (in %)

2003-2004 86.46

2004-2005 91.95

2005-2006 92.75

15

9- Economic Value Added (EVA):

YearEconomic value added

(in Lacs)

2002-2003 -42.00

2003-2004 +79.00

2004-2005 +224.00

2005-2006 +796.00

16

(d)

Products/Services

Bowl Mill XRP/XRS 623, 706HP, 783, 803, 803HP, 1003 spares.

Turbine fasteners.

Repair/Rebabbiting of TG bearings.

Rotor machining.

Spares for Boiler Auxiliaries like Coal Burners, Fuel Piping, ESP, Air Preheater &

R.C. Feeder etc.

Hydro Turbine component machining like Guide Vanes, Guide Bearings.

Tools & Tackles of Steam Turbines.

Limiter Assembly, Oil Filter Assembly & Speed Changer Assembly of Governing

System.

17

(e)

Problems of the Organization

The major Problems are as follows:

Lack of Man-Power in accordance with Production target.

Not Optimum of the Software Programming.

Lack of Industrial Security.

Not Fruitfulness of the third sift duty in the Production in accordance with the

Payout.

Applicability of Punch Card for the Works Employees, which is not better than

Automated Machine.

Lack of Interior in the Organization.

18

Chapter- 6

Comparative Statements

(i) Comparative Balance Sheet

HERP, Varanasi

As at 31st March, 2005 & 2006

(Rs. In Thousands)

Particulars

2005

(Rs.)

2006

(Rs.)

Increase/

Decrease

(Rs.)

Increase/

Decrease

(percentage)

SOURCES OF FUNDS

SHAREHOLDERS’ FUND

- Share Capital 0 0 0

- Reserves & Surplus 351849 462133 +110284 +31.34

- Funds from Head Office 2441 2441 0 0

Inter Division Accounts (Cr. Bal) 0 0 0 0

Funds to and from Corporate

Office under Centralized Cash

Credit A/C (Credit Balance)

LOANS FUNDS

Secured Loans 0 0 0 0

Unsecured Loans 0 0 0 0

Deferred Tax Liabilities

Total Liabilities 354290 464574 110284 +31.12

Application of Funds :

Fixed Assets:

Net Block 41544 38447 -3097 -7.45

19

Cont……….

Capital work in progress 352 3661 +3309 +940.05

Investments : 0 0 0 0

Inter Division Accounts (Dr. Bal) 242687 314644 +71957 +29.65

Funds to and from Corporate

office under Centralized Cash

Credit A/C (Dr. Bal.)

24623 9137 -15486 -62.9

Deferred tax Assets 0 0 0 0

Current Assets, Loans &

Advances :

Inventories 71729 148415 +76686 +106.91

Sundry Debtors 51084 85123 +34039 +66.63

Cash & Bank Balances 73 8810 +8737 +11968.5

Loans & Advances 8051 13471 +5420 +67.32

Total 130937 255819 +124834 +95.33

Less :

Current Liabilities & Provisions

Liabilities 66169 125105 +58936 +89.06

Provisions 19684 32029 +12345 +62.72

Total 85853 157134 +71281 +83.02

Net current Assets 45084 98685 53601 +118.90

Deferred tax Assets 0 0 0 0

Miscellaneous Exp. (To the

extent not written off or

adjusted) :

Deferred Revenue Exp. 0 0 0 0

Total 354290 464574 +110284 31.13

20

Interpretation:

(i) The Center’s Net Current Assets (working capital) have increased by Rs.

53601 i.e. +118.9% shows to the Sound current Financial position and Liquid

Assets like Cash in Hand & Bank, Debtors show an increase i.e. +11968.5%

& + 66.63%. This further, confirms that to the its Sound Liquidity position of

this Center. Therefore from the both position we can say that the center’s

Financial position & Liquidity both is Sound.

(ii) The comparative Balance Sheet of the Center reveals that during 2006 there

has been increase in Capital work in progress Rs. 3309 i.e. +940.05% &

decrease in Net Block Rs. –3097 i.e. –7.45%. Overall this indicates that

center’s Long-Term Financial Positions is Sound.

(iii) Reserve & Surpluses have increased from Rs. 351849 to Rs. 462133 i.e.

+31.34% which shows that the Center’s profitability is so Good.

(iv) The overall Financial Position of this Service Center’s is satisfactory.

21

(ii) Comparative Profit & Loss A/C

HERP, Varanasi

For year ending 31st March, 2005 & 2006

(Rs. In Thousands)

Particulars

2005

(Rs.)

2006

(Rs.)

Increase/

Decrease

(Rs.)

Increase/

Decrease

(percentage)

EARNINGS

Turnover 295045 389461 +94416 +32.00

Other operational Income 1527 2015 +488 +32.00

Other Income 840 557 -283 -33.7

Exchange variation (Net Cr.) 0 0 0 0

Interest Income others 39 31 -8 -20.51

Accretion/ (Decreation) to WIP &

finished goods

18102 10807 -7295 -40.3

Transfer out to other divisions 15661 144413 +128752 +822.11

Allocation of Exp. To other

division (cash Balance only)

0 0 0 0

Total 331214 547284 +216070 +65.23

OUTGOINGS

Consumptions of raw materials &

components

112792 215437 +102645 +91.00

Less-Transfer out to other divisions 0 0 0 0

Consumption of stores & spares 3515 4033 +518 +14.74

Less-Transfer out to other divisions 0 0 0 0

Transfer in materials 29989 19937 -10052 -33.51

22

Cont…….

Transfer in other services 416 61 -355 -85.34

Employee’s Remuneration &

Benefits

46391 51657 +5266 +11.35

Excise duty 41677 72061 +30384 +73.00

Erection and Engineering exp-

payment to subcontractors

305 82 -223 -73.11

Other expenses of manufacture,

Administration, selling and

distribution

27050 28411 +1361 +5.03

Exchange variation (Net Dr.) 0 0 0 0

Interest and other borrowing costs (5000) (7500) (+2500) (+50)

Depreciation, amortizations and

impairment loss

3820 4204 +384 +10.05

Provisions 3332 11603 +8271 +248.22

Less-Jobs done for internal use 0 0 0 0

Total 264287 399986 +135699 +51.34

Profit/Loss before prior period and

extra-ordinary items

66927 147298 +80371 +120.08

Income /Expenditure from extra

ordinary items

355 0 -355 -100

Income exp. From prior period

items

0 0 0 0

Profit / Loss before tax 66572 147298 +80726 +121.26

23

Cont……

Profit / Loss before tax 66572 147298 +80726 +121.26

Less: provision for taxation

For the year

For earlier years

0

0

0

0

0

0

0

0

Deferred tax 0 0 0 0

Profit/ Loss after tax 66572 147298 +80726 +121.26

Add: / Less

A- Balance of profit (loss) brought

forward from last years account

305476 351849 46373 15.18

B- Distribution of income tax

dividend provision of last years to

units

20199 37014 16815 83.24

Less: Appropriation-

- Foreign Project Reserve

- Bond Redemption Reserve

- General Reserve

- Dividend

- Proposed interim

Add: Corporate Dividend Tax

thereon

Profit / Loss carried to Balance

Sheet351849 462133 +110284 +31.34

Interpretation:

There in an increase in Profit amounting Rs. 110284 i.e. + 31.34%. It may be

concluded that there is a sufficient progress in the Center & overall profitability is

good.

24

Chapter - 7

Trend Analysis

HERP, Varanasi

Trend Percentages

(Base Year 2000-2003 =100)

1- (Rs. In Thousands)

Year Sales (Turnover)

Amount (Rs.) Trend Percentage

2002-2003 176250 100.00

2003-2004 226326 128.41

2004-2005 295045 167.40

2005-2006 389461 221.002- (Rs. In Thousands)

Year Net Sales

Amount (Rs.) Trend Percentage

2002-2003 153194 100.00

2003-2004 195866 128.00

2004-2005 254346 166.02

2005-2006 336557 220.00

3- (Rs. In Thousands)

Year Stock

Amount (Rs.) Trend Percentage

2002-2003 31964 100.00

2003-2004 41952 131.25

2004-2005 71729 224.40

2005-2006 148415 464.32

25

4- (Rs. In Thousands)

Year Profit before tax

Amount (Rs.) Trend Percentage

2002-2003 16706 100.00

2003-2004 38741 232.00

2004-2005 66572 398.50

2005-2006 147298 881.715- (Rs. In Thousands)

Year Profit

Amount (Rs.) Trend Percentage

2002-2003 276689 100.00

2003-2004 305476 110.43

2004-2005 351849 127.17

2005-2006 462133 167.02

Interpretation:

(i) The sales (Turnover) have continuously increased in all the years upto 2005-

2006. The percentage in 2006 is 221 as compared to 100 in 2002-03. The

increase in sales in quite satisfactory.

(ii) The Net sales have continuously increased in all the years upto 2005-06.

The percentage in 05-06 is 220 as compared to 100 in 2002-03. The

increase in Also quite satisfactory.

(iii) The figures of stock have also increase from 2002-03 to 2005-06. The

increase in stock is more in 2004-05 & 2005-06 as compared to earlier years.

(iv) In the profit before tax there has blaster change i.e just double in 2003-04 &

just less than 4 times in 2004-05 & unbelievable less than 9 times in 2005-

26

06. compared to 100 in 2002-03. Thus P.V.T. shows shoundness of the

organization.

(v) Profit has substantially increased in 4 years period. It has less than doubled.

The comparative increase in profit is must higher in 2005-06 as compared to

other years.

The expansion of the center is good & it has doubled and less doubled its

sales and profit in just 4 years times. The profit have increased more than

sales which shows that there is a proper control over cost of good sold. The

overall performance of concern is good.

27

Chapter - 8

Common - Size Statements

(i) Common-size Balance Sheet

HERP, Varanasi

As on 31st March, 2006

(Rs. In Thousands)

Particulars As at

31/03/06

(Amt.)

%

(Rs.)

As it

31/03/05

(Amt.)

%

(Rs.)

SOURCES OF FUNDS

SHAREHOLDERS’ FUND

- Share Capital 0 0

- Reserves & Surplus 462133 351849

- Funds from Head Office 2441 2441

Inter Division Accounts (Cr. Bal) 0 464574 100 0 354290 100

Funds to and from Corporate

Office under Centralized Cash

credit A/C (Credit Balance)

LOANS FUNDS

Secured Loans 0 0 0 0

Unsecured Loans 0 0 0 0

Deferred Tax Liabilities 0

Total Liabilities 464574 100 354290 100

28

Cont……..

As at

31/03/06

(Amt.)

%

(Rs.)

As it

31/03/05

(Amt.)

%

(Rs.)

Application of Funds :

Fixed Assets:

Net Block 38447 8.28 41544 11.73

Capital work in progress 3661 0.79 352 0.09

Investments : 0 0

Inter Division Accounts (Dr. Bal) 314644 67.73 242687 68.50

Funds to and from Corporate

Office under Centralized Cash

Credit A/C (Dr. Bal.)

9137 1.97 24623 7.00

Deferred tax Assets

Current Assets, Loans &

Advances :

Inventories 148415 71729

Sundry Debtors 85123 51084

Cash & Bank Balances 8810 73

Loans & Advances 13471 8051

Total 255819 130937

Less :

Current Liabilities &

Provisions

Liabilities 125105 66169

Provisions 32029 19684

29

Cont…….

Total 157138 85853

Net current Assets 98685 21.24 45084 12.73

Deferred tax Assets 0 0 0 0 0 0

Miscellaneous Exp. (To the

extent not written off or

adjusted) :

Deferred Revenue Exp

Total 464574 100 354290 100

Interpretation:

(i) Net block decreasing (-)

(ii) Capital work in progress increasing (+) due to Increment in Erection

/Fabrication and other i.e. construction of W.I.P. in civil, stores etc.

(iii) Investments increase (+) due to heavy reliance in investments.

(iv) Net current assets is going to double due to just doubling of current

Assets & liabilities doubling of current liabilities.

30

(ii) Common - Size Profit & Loss A/C

HERP, Varanasi

For year ending 31st March, 2006

(Rs. In Thousands)

Particulars For the

year

ended 31st

March

2006

%

(Rs.)

For the

year

ended 31st

March

2005

%

(Rs.)

EARNINGS

Turnover 38946 100 295045 100

Other operational Income 2015 0.52 1527 0.52

Other Income 557 0.14 840 0.28

Exchange variation (Net Cr.) 0 0 0 0

Interest Income others 31 0 39 0.01

Accretion/ (Decreation) to WIP &

finished goods

10807 2.77 18102 6.14

Transfer out to other divisions 144413 37.08 15661 5.30

Allocation of Exp. To other

division (cash Balance only)

0 0 0

Total 547284 140.52 331214 12.26

OUTGOINGS

Consumptions of raw materials &

components

215437 55.17 112792 38.23

Less-Transfer out to other divisions 0 0 0 0

Consumption of stores & spares 4033 1.04 3515 1.20

31Cont…….

Less-Transfer out to other divisions 0 0 0 0

Transfer in materials 19937 5.12 29989 10.16

Transfer in other services 61 0.02 416 0.14

Employee’s Remuneration &

Benefits

51657 13.27 46391 16.72

Excise duty 72061 18.5 41677 14.13

Erection and Engineering exp-

payment to subcontractors 82 0.02 305 0.10

Other expenses of manufacture,

Administration, selling and

distribution

28411 0.07 27050 9.17

Exchange variation (Net Dr.) 0 0 0 0

Interest and other borrowing costs (7500) 1.93 (5000) 1.7

Depreciation, amortizations and

impairment loss

4204 1.08 3820 1.3

Provisions 11603 3.00 3332 1.13

Less-Jobs done for internal use

Total 399986 102.7 2644287 89.58

Profit/Loss before prior period and

extra-ordinary items

147298 37.82 66927 22.68

Income /Expenditure from extra

ordinary items

0 0 335 0.11

Income exp. From prior period

items

0 0 0 0

Profit / Loss before tax 147298 37.82 66572 22.56

32Cont…….

Less: provision for taxation

For the year

For earlier years

0 0 0 0

Deferred tax 0 0 0 0

Profit/ Loss after tax 147298 66572

Add: / Less

A- Balance of profit (loss) brought

forward from last years account

351849 90.34 305476 103.53

B- Distribution of income tax

dividend provision of last years to

units

37014 9.50 22199 6.85

Less: Appropriation-

- Foreign Project Reserve

- Bond Redemption Reserve

- General Reserve

- Dividend

- Proposed interim

Add: Corporate Dividend Tax

thereon

462133 118.66 351849 119.25

Interpretation:

(i) Turnover has increase from Rs. 295045 to 389461 which shows to the

positiveness of organization.

(ii) Profit is increase from Rs. 351849 to 462133 which shows to the better

performance of the center.

Thus the overall performance is good

33

Chapter - 9

Fund Flow Analysis

HERP, Varanasi

(i) Statement of Schedule of changes in working capital:

(Rs. In Thousands)

Particulars

2005

Previous

year

(Rs.)

2006

Current

Year

(Rs.)

Effect on working

capital

Increase

(Rs.)

Decrease

(Rs.)

Current assets :

Inventories 71729 148415 76686

Sundry Debtors 51084 85123 34039

Cash & Bank balance 73 8810 8737

Loans & Advances 8051 13471 5420

Total Current Assets 130937 255819

Current liabilities

Liabilities 66169 125105 58936

Provisions 19684 32029 12345

Total current liabilities 85853 157134

Working capital 45084 98685

Net increase in working capital 53601 53601

98685 98685 124882 124882

34

(ii) Statement of Sources and Application of Funds:

HERP, Varanasi

For the year ended 31st March, 2006

(Rs. In Thousand)

Sources Rs. Application Rs.

Sale of Assets 3097 Purchase of Fixed Assets

(CWP)

3309

Funds from Operation 110284 Purchase of Investments 56471

Net increase in Working

Capital

53601

113381 113381

Working Notes:

(i) Funds from operations Rs.

Closing balance of Reserve & surplus 462133

(surplus as per profit & loss a/c)

Less: Opening balance of Reserve & surplus 351849

(surplus as per profit & loss a/c)

110284

(ii) Sales of Assets :

Opening Net Block 41544

Less: Closing Net Block 38447

3097

(iii) Purchase of fixed Assets:

(Capital work in Progress)

Closing balance of W.I.P. 3661

Less: Opening balance of W.I.P. 352

3309

35

(iv) Purchase of Investments: Rs.

Closing balance of Investment 323781

(314644+9137)

Less: Opening balance of Investment 267310

(242687 + 24623)

56471

Interpretation:

From the above statements it has been clear that there is in increase in working

capital by Rs. 53601 and Total Source is properly applied in purchase of fixed

assets (CWP) and investments & balance in Current Assets. So all the aspects are

showing goodness of the center.

36

Chapter - 10

Cash Flow Analysis

HERP, Varanasi

Cash Flow Statement

For the year ended on 31st March, 2006

(Rs. In Thousands)

2005-2006 2004-2005

A. Cash Flows from Operating Activities:

Net profit before tax 147298 66572

Adjustment for :

Depreciation 4418 3960

Deferred Revenue Expenditure 0 355

Operating Profit before working Capital changes 151716 70895

Adjustment for :

Trade & other Receivables (39459) 24970

Inventories (76686) (29777)

Trade payable & other Liabilities 71281 15775

Cash generated from Operations 106852 81863

Direct taxes & Dividend paid (37014) (20199)

Net cash Inflow from operating 69838 61664

B. Cash flows from Investing Activities

Purchase of Fixed Assets (1321) (3905)

(Increase/Decrease) in Capital work in progress (3309) (21)

Net cash used in Investing Activities (4630) (3926)

C. Cash Flows from financing activities

Interdivision fund transfer (56471) (57842)

37Cont…...

D. Net Increase /Decrease in Cash & Cash

equivalent

8737 (104)

Cash & Bank Balances

Opening Balances 73 177

Closing Balances 8810 73

Interpretation :

(i) HERP Generated Rs. 69836 Cash Flow from its Operating Activities.

(ii) HERP utilized Rs. 4630 in Acquiring Fixed Assets.

(iii) HERP Inter division Fund Transfer is Rs. 56471 under the Financing

Activities.

(iv) HERP’s Net Cash Flow from its Operating, Investment & Financing

Activities is a positive figure of Rs. 8737. The previous year had a

Negative figure of Rs. 104.

38

Chapter - 11

Ratio Analysis

HERP, Varanasi

(i) Liquidity Ratio

(Rs. In Thousand)

2005 2006

(a) Current Ratio i.e.

=

= 1.53 : 1

=

= 1.63 : 1

(b) Quick Raito i.e.=

= 0.69 : 1

or .69 times

=

= 0.68 : 1

or .68 times

(c) Cash Ratio i.e.=

= 0.00085

or .09 Approx

=

= .056

or 6% Approx

(d) Interval measure i.e. =

= 95 days

=

= 119 days

(e) Net Working Capital Ratio i.e.=

= 1.52

=

= 0.7

Summery of Liquidity Ratios :

39

Ratio 2005 2006

Current Ratio 1.53 1.63

Quick Ratio 0.69 0.66

Cash Ratio 0.00085 0.06

Interval measure (days) 95 119

Net Working Capital Ratio 1.52 0.70

Interpretation :

Thus all above ratios of liquidity are showing soundness of the liquidity of the

Center except minor negative change in the quick ratio. So we can say that

Center’s ability to meet its obligation is so sound.

(ii) Profitability Ratio

(Rs. In Thousand)

2005 2006

(a) Net Profit margin i.e.

=

= 18%

=

= 27.46%

(b) Operating Expenses Raito i.e.=

= 88.2%

=

= 96.21%

(c) Return on Investment i.e.

ROTA, RONA.

ROTA =

Where- ROTA= Return on Total Assets

=

= 41.41%

=

= 52%

RONA =

Where –RONA=Return on Net Assets

=

= 82.3%

=

= 112%

Working Notes: Rs. Rs.

40

Profit before Tax 66572 147298

Less: Tax 21119 54881

Profit After Tax 45453 92417

Summery of Profitability Ratios :

Ratio 2005 2006

Net Profit margin 18% 27.46%

Operating Expenses Ratio 88.2% 96.21%

Return on Investment (ROI)

(a) ROTA

(b) RONA

41.41%

82.3%

52%

112%

Interpretation :

(i) The Increment in Net margin in profit from 18% to 27.46% which shows

to the Management efficiency in Manufacturing, Administrating & Selling

the Products.

(ii) The Operating Ratio for HERP indicates that 96.21% in 2006 & 88.2% in

2005, which show 96.21% in 2006 & 88.2% of sales have been

consumed together by the Cost of Good Sales & other Operating

Expenses. This implies that 3.79% in 2006 & 11.8% in 2005 of sales is

left to cover Interest, Taxes & Earning to Owners.

(iii) The return on Investment under the ROTA increase 10.5% in 2006 &

RONA is also increased 29.79% in 2006.

Thus, from all above we can say that the overall performance in

effectiveness of the Center is good.

Chapter -12

41

DU Pont Analysis

(Evaluation of Firm’s earning power)

HERP, Varanai

(i) For 2006: (Rs. In Thousand)

Formula –

Where – RONA = Return on Net Assets,

EBIT = Earning before Interest & Taxes.

Sales = Net Sales

NA = Net Assets,

GP = Gross Profit

= 1.099 Or 109.9%

Working Notes: Rs.

a- Sales :

Turnover 389461

Less : Excise Duty 52904

Net Sales 336557

b- Net Assets :

FA + NCA 140793

c- Gross Profit :

Net Sales 336557

Less : Cost of Goods Sold 323832

12725

d- EBIT :

EBIT + Interest 154798

Similarly -

42

(ii) For 2005 :

RONA = 82.29%

(iii) For 2004 :

RONA = 43.76%

(iv) For 2003 :

RONA = 22.7%

Table : Analysis of Earning Power (HERP)

2003 2004 2005 2006

A. Sales /NA Turnover 1.78 2.00 2.92 2.92

B. GP/ Sales Gross Mar. 0.85 0.12 0.12 0.12

C. EBIT/GP Operating

Leverage

1.50 1.83 2.38 2.38

D. EBIT/NA (AxBxC) RONA 0.227 0.438 0.823 1.099

Interpretation :

It may be seen from above table that HERP’S RONA has shown

Improvement our years in spite of a constant gross margin and Increasing Assets

Turnover. RONA has Increased On account of a Higher Operating leverage, as

measured by EBIT /GP Ratio, employed by the Company’s Unit.

Thus, from all above we can say that Earning power of the Unit’s going in the

sound way that Indicates satisfaction in the better way.

Chapter - 13

43

LIMITATIONS OF FINANCIAL ANALYSIS:

Financial analysis is a powerful mechanisms of determining financial strength

and weaknesses of a firm But, the analysis is based on the information available in

the financial statements. Thus, the financial analysis suffers from serious inherent

limitations of financial statements. The financial analysts has also to be careful

about the impact of price level changes, window-dressing of financial statements,

changes in accounting policies of a firm, accounting concepts and conventions, and

personal judgment, etc. some of the important limitations of financial analysis are,

however, summed up as below:

(i) It is only a study of interim reports.

(ii) Financial analysis is based upon only monetary information and non-

monetary factors are ignored.

(iii) As the financial statements are prepared on the basis of going concern, it

does not give exact position. Thus accounting concepts and conventions

cause a serious limitation to financial analysis.

(iv) Analysis is only a means and not an in itself.

(v) Lack of an Underlying Theory.

(vi) Conglomerate Firms – Many firms, particularly the large ones, have

operations spanning a wide range of industries. Given the diversity of their

product lines, it is difficult to find suitable benchmarks for evaluating their

financial performance and conditions. Hence, it appears that meaningful

benchmarks may be available only for firms which have well-defined industry

classification.

(vii) Interpretation of Result – Through industry average and other yardsticks

are commonly used in financial ratios, it is somewhat difficult to judge

44

whether a certain ratio is ‘good’ or ‘bad’. A high current ratio, for example

may indicate a strong liquidity position (something good) or excessive

inventories (something bad). Likewise, a high turnover of fixed assets may

mean efficient utilization of plant and machinery or continued flogging of

more or less fully depreciated, worn out, and inefficient plant and machinery.

Another problem in interpretation arises when a firm has some favourable

ratio and some unfavorable ratios- and this is rather common. In such a

situation, it may be somewhat difficult to from an overall judgement about its

financial strength or weakness. Multiple discriminant analysis, a statistical

tool, may be employed to sort out the net effect of several ratios pointing in

different directions.

(viii) Correlation among Ratios- Notwithstanding the previous observation,

financial rations of a firm often show a high degree of correlation. Why? This

is because several ratios have more common element (sales, for example, is

used in various turnover ratios) and several items tend to move in harmony

because of some common underlying factor. In view of ratio correlations, it is

redundant and often confusing to employ a large number of ratio in financial

statements analysis. Hence it is necessary to choose a small group of ratios

from a large set of ratio. Such a selection requires a good understanding of

the meaning and limitations of various ratios and an insight into the

economics of the business.

(ix) Do not give Exact position – The financial statements are expressed in

monetary values, so they appear to give final and accurate position. The

value of fixed assets in the balance sheet neither represents the value for

which fixed assets can be sold nor the amount which will be required to

45

replace these assets. The balance sheet is prepared on the presumption of a

going concern. The concern is expected to continue in the future. So fixed

assets are shown at cost less accumulated depreciation. There are certain

assets in the balance sheet such as preliminary expenses, goodwill, discount

on issue of shares which will realize nothing at the time of liquidation though

they are shown in the balance sheet.

(x) Limited Use of a Single Ratio- A single ratio, usually, does not convey

much of a sense. To make a better interpretation a number of ratios have to

be calculated which is likely to confuse the analyst than help him in making

any meaningful conclusion.

(xi) Lack of Adequate Standards- There are no well accepted standards or

rules of thumb for all ratios which can be accepted as norms. It renders

interpretation of the ratios difficult.

(xii) Inherent Limitations of Accounting- Like financial statements, ratios also

suffer from the inherent weakness of accounting records such as their

historical nature. Ratios of the past are not necessary true indicators of the

future.

(xiii) Personal Bias- Ratio are only means of financial analysis and not an end in

itself. Ratios have to be interpreted and different people may interpret the

same ratio in different ways.

46

Chapter - 14

Findings

The results of Financial Analysis clears very well from the given below table:

S.No. Methods of Financial

Analysis

Positive (+)

/ Negative (-)

Rating

1. Comparative statements Positive (+) Sound

2. Trend Analysis Positive (+) Sound

3. Common size statements Positive (+) Sound

4. Fund Flow Analysis Positive (+) Sound

5. Cash Flow Analysis Positive (+) Sound

6. Ratio Analysis Positive (+) Sound

7. DU Pont Analysis Positive (+) Sound

47

Chapter - 15

Conclusions & Recommendations

After Optimum diagnosing of the Financial Statements & Cash flow we can say that

the Profitability and Financial soundness of this service center is too good & overall

Performance is satisfactory.

48