CONTENTS
INTRODUCTION
Financial statements are the outcome of summarizing process of
accounting. Financial statements provide a summarized view of
financial position and operations of the firm. The financial
statements s essentially is interim reports presented annually and
reflect a Division of the life of and enterprise. They are the
means to present the firms. Financial position to owners, creditors
and the general public.
As these statements are used by investors and financial analyst
to examine the firms performances in order to make investment
decisions they should be prepared very carefully and contains as
much information as possible.
According to John N. Myer,
The financial statement provide a summary of a business
enterprise, the balance sheet reflecting the assets liabilities and
capital as on a certain date and the income statement showing the
results of operations during a certain period
Financial ratio analysis is the systematic use of ratio to
interpret financial statements so that the existing strengths and
weaknesses of a firm as well as its historical performance and
current financial conditions, can be determined and there by helps
the analyst to draw conclusions regarding financial operations
like:
Short term long term planning.
Measurement and evaluation of financial performance
Study of financial trends
Decision making for investments and capital expenditure
Diagnosis of financial sickness.
The above conclusions can be drawn by reducing the information
from financial statements to a small set of indices or percentage
values that then form the basis for measuring different aspects of
firms activities.
NEED AND IMPORTANCE OF THE STUDY:
Financial management is a managerial activity, which is
concerned with the planning and controlling of the firms financial
resources. The Tobacco is one of the successful organizations in
India. It is believed that the company makes profits year after
year in spite of volatile environment. It is known fact that the
success of any organization depends upon prudent financial
management. This situation has created an interest to study and
analyze some of the financial aspect of this organization. Hence a
study has been under taken on the proposed topic Financial Analysis
through a comparative study in Tobacco.
OBJECTIVES OF THE STUDY The following are some of the objectives
that are set for the study that was conducted on the area of the
comparative analysis. To examine the solvency of the Tobacco, and
know the current financial position and liquidity position. To
assess the profitability position of the Tobacco,to make some
useful recommendations. To see whether the firm has maintained
adequate investment in current assets or not. To analyze the
financial position of the Tobacco,to know the cement sector in
India and also to know the profile of the Tobacco. To compare the
yearly performance of the common size and comparative
statements
SCOPE OF THE STUDY
The study limited to Tobacco. All the departments of Tobacco are
involved in this study. The study based on availability on Tobacco
past 5 years data. The study focuses on to find out comparative
statements.
The study also focuses on the ratios depending upon the
statements.
To understand the financial position of Tobacco for the current
year.
As it is not researchers direct observation but the secondary
sources of information provided by the company. Most of the data is
based on secondary data.
Due to time limitation only five years annual reports have taken
under the study.
The scope of the study limited to collecting the financial data
published Annual Reports of the company.
The study is confined to only one cement that is Tobacco As it
is not researchers direct observation but the secondary sources of
information provided by the company. Most of the data is based on
secondary data.
a
METHODOLOGY OF THE STUDYMethodology is a systematic procedure of
collecting information in order to analyze and verifying a
phenomenon. The collection of data is done through two principal
sources viz.
(1) Primary data
(2) Secondary data
Primary Data:
It is the information collected directly without any reference.
In the study, it was mainly interviews with concerned officer and
staffs either individually or collectively. This study does not
include any primary data.Secondary Data: The secondary data is
collected from printed books, like text books, magazines, company
website, newspaper, annual reports of Tobacco Ltd. Company and
Financial Management books.
The data includes:
1. Collections of requires data from annual report of Tobacco
Industries Limited.
2. Reference from text book and journals relating to Financial
Management and articles published in business dairies like the
Economics times, Business line etc.
LIMITATIONS OF THE STUDY
The study has been confined to know the comparative analysis of
assets and liabilities at Tobacco factory.
The study having limited scope of gathering sufficient financial
information as it is confidential.
Time period for the Project was also limited.Due to time
limitation only five years annual reports have taken under the
study. This study based on historical data and interim reports of
the Tobacco Industries Limited.
The study does not include all the aspects of Tobacco.COMPANY
PROFILE
History of the company
The Company was incorporated on 18th October, 1919 under the
Indian Companies Act, 1913, in the name and style of Tobacco Cotton
Mills Ltd. It had a Textile Mill at 42, Garden Reach Road, Calcutta
700024. The name of the Company was changed to Tobacco Industries
& Cotton Mills Ltd. on 30th August, 1961 and the same was
further changed to Tobacco Industries Limited on 9th July, 1986.
The said Textile Mill at Garden Reach Road was eventually demerged
into a separate company.
Tobacco industry is one of the leading manufacturing of cements
in India. Incorporated by the promoters of Birla Group Company. It
is a dry process cement plant. The plant capacity is 8.28 lakh per
annum .It is located at basanthnagar in karimnagar District of
Andhra Pradesh. This is 8Km. Away from the Ramagundam Railway,
linking Madras to New Delhi.
The company's first unit at Basanthnagar with a capacity of 2.1
lakh tones per annum incorporating Humboldt suspension pre -heater
system was commissioned during the year 1969. The second unit was
set up in the year 1971 with a capacity of 2.1 lakh tones per annum
and the third unit with a capacity of2.5 lakh tones per annum went
on steam in the year 1978. The coal for this company is supplied by
Singareni Collieries and the power is obtained from APSEB. The
power demand for the factory is about 21MW Tobacco got DG sets of
4MW each installed in the tear 1987.
Tobacco has set up a 15 MW captive power plant to facilitate for
an uninterrupted power supply for manufacturing of cement started
on 24th August, 1997 per hour 12 MW, actual power is 15MW.
Tobacco industry distinguished itself among all the cements
factories in India by bagging the national productivity award
consecutively for tow years that is for the year 1985-86and
1986-87.
One among of the industries gains in the country today serving
the nation on the industrial front,Tobacco industries Limited has a
chequered and eventful history dating to the twenties when the
industrial House of Birla acquired it with only a Textile Mill
under its banner in 1924.
It grew from strength to and spread its activities to never
fields like Rayon, pulp, transparent paper, Spun pipes,
Refractoriness, Tyers and other product.
Looking to the wide gap between the demand and supply of a vital
commodity Cement which plays an important role in national building
activity, the government of India had delicensed the cements
Industry in the year 1966 with a view to attract private
entrepreneurs to augment to cement production. Kesoram rose to the
occasion and decided to set up a few cement plants in the
country.
Birla supreme is a popular brand of Kesoram Cement from its
prestigious plant of Basanthnagar in A.P. which has outstanding
track record in performances and productivity serving the nation
for the last two and half decades It has proved its distinction by
bagging several national awards and state awards. It also has the
distinction of achieving optimum capacity utilization.
Kesoram offers a choice of top quality Portland cement for light
heavy constructions and allied applications. Quality is built to
every fact of the operation.
The plant layout is national to being with the lime stone is
rich in calcium carbonate a key factor the influence the quality of
the final product. The dry process, Technology used in the latest
computerized monitoring oversees. The manufacturing process samples
are sent regularly to the bureau of India Standards national
council of construction and building measures for News Papers,
Magazines hoardings etc.
Tobacco undertaking marketing activities extensively in the
states of Andhra Pradesh, Karnataka, Tamilnadu, Karla, Maharastra
and Gujarat. In A.P. sales deposits are located in different areas
like Karimnagar, Warangal, Nizamabad, Vijayawada and Nellore. In
other states it has opened around 10 depots. The market share of
Kesoram Cement in all India Cement Market is 1.19%. In A Andhra
Pradesh it is a 7.05%.
GROWTH
The First Plant for manufacturing of rayon yarn was established
at Tribeni, District Hooghly, West Bengal and the same was
commissioned in December, 1959 and the Second Plant was
commissioned in the year 1962 enabling it to manufacture 4,635
metric tons per annum (mtpa) of rayon yarn.This Unit has 6,500
metric tons per annum(mtpa)capacityason31.3.2007.
The plant for manufacturing of transparent paper was also set up
at the same location at Tribeni, District Hooghly, West Bengal, in
June, 1961. It has the annual capacity to manufacture 3,600 metric
tons per annum (mtpa of transparent paper.
The Company divered into manufacturing of Cast Iron Spun Pipes
& Pipe Fittings at Bansberia, District Hooghly, West Bengal,
with a production capacity of 45,000 metric tons per annum (mtpa)
of cast iron spun pipes and Pipe fittings in December, 1964.
The Company subsequently diversified into the manufacturing of
Cement and in 1969 established its first cement plant under the
name 'Kesoram Cement' at Basantnagar, Dist. Karimnagar (Andhra
Pradesh) and to take advantage of favourable market conditions, in
1986 another cement plant, known as 'Vasavadatta Cement', was
commissioned by it at Sedam, Dist. Gulbarga (Karnataka). The cement
manufacturing capacities at both the plants were augmented from
time to time according to the market conditions and as on 31.3.2007
have annual cement manufacturing capacities of 0.9
milliontonsand3.65milliontonsrespectively
The Company in March 1992, commissioned a plant at Balasore
known as Birla Tyres in Orissa, for manufacturing of 10,00,000 mtpa
automotive tyres and tubes in the first phase in collaboration with
Pirelli Ltd., U.K., a subsidiary company of the world famous
Pirelli Group of Italy - a pioneer in production and development of
automotive tyres in the world. The company as on 31.3.2007 had the
manufacturing capacities of 1.95 million tyres, 1.4 million tubes
and 1.1 million flaps per annum in thesaidPlant.
It has small manufacturing capacities of various chemicals at
Kharda in the State of West Bengal also. It has the annual
manufacturing capacities of 12,410 mtpa of Caustic Soda Lye, 5,045
mtpa of Liquid Chlorine, 6,205 mtpa of Sodium Hypochlorite, 8,200
mtpa of Hydrochloric Acid, 3,200 mtpa of Ferric Alum, 18,700 mtpa
of Sulphuric Acid and 1,620,000 m3 of purified Hydrogen Gas.
AWARDS:TOBACCO Bagged prestigious awards including national
award for productivity technology conservation and several state
awards for the year1984, Tobacco bagged Best family planning effort
in the state of the Federating of A.P. Chamber of commerce and
Industry. Also national award for two successive years, 1985 and
1986 and National award for Mines safety For two years 1985-86 and
1986-87.It has also bagged the National Award
For energy efficiency for the year 1989-90 for the performance
among all cement plants in India. Thus award installed by national
council for cement and building material (NCCBM) in association
with energy Govt of India.
National Award for excellence industry Best Management award of
the Govt of A.P for the year 1993.
Tobacco industry has also won the award for workers welfare
including family planning for the year 2000-01 of the federation of
Andhra Pradesh chambers of commerce and industry, which was
presented by the humble chief minister of Andhra Pradesh Sri
N.Chandra Babu naidu.
PROFILE OF CEMENT INDUSTRY:
The Indian Cement industry is the second largest cement producer
in the world, with an installed capacity of 144 million tones. The
industry has undergone rapid technological up gradation and vibrant
growth during the last two decades, and some of the plants can be
compared in every respect with the best operating plants in the
world. The industry is highly energy intensive and the energy bill
in some of the plants is as high as 60% of cement manufacturing
cost. Although the newer plants are equipped with the latest
state-of-the-art equipment, there exists substantial scope for
reduction in energy consumption in many of the older plants
adopting various energy conservation measures.
The Indian cement industry is a mixture of mini and large
capacity cement plants, ranging in unit capacity per kiln as low as
10 tpd to as high as 7500 tpd. Majority of the production of cement
in the country (94%) is by large plants, which are defined as
plants having capacity of more than 600 tpd. At present there are
124 large rotary kiln plants in the country.
The Ordinary Portland Cement (OPC) enjoys the major share (56%)
of the total cement production in India followed by Portland
Pozzolana Cement (PPC) and Portland Slag Cement (PSC). A positive
trend towards the increased use of blended cement can be seen with
the share of blended cement increasing to 43%. There is regional
imbalance in cement production in India due to the limitations
posed by raw material and fuel sources. Most of the cements plants
in India are located in proximity to the raw material sources,
exploiting the natural resources to the full extent. The southern
region is the most cement rich region while other regions have
almost same Cement production capacity.
THEROTICAL CONCEPTS
The term financial analysis refers to the process of determining
financial strength and weakness of the firm by establishing
strategic relationship between the items of the balance sheet and
profit and loss account and other operative data.
Financial analysis is a process of evaluating the relationship
between component parts of a financial statement to obtain better
understanding of a firms positions and performance.
By Metcalf and TirardFinancial statement analysis is largely
study of relationship among various financial factors in a business
as a disclosed by single set of statements. And a study of the firm
of these factors in a series of statement
By Myers
The purpose of financial analysis is to diagnose the information
contained in financial statements so as to judge the profitability
and financial soundness of the firm.
NATURE
The financial statement is prepared on the basis of recorded
facts. The recorded facts are those that can be expressed in
monitory terms. The accounting records and financial statements
prepared from those records are based on historical costs. The
financial statements are prepared periodically generally for the
accounting period.
Financial statements as composed of data, which are the result
of combination of:
Recorded facts concerning business transaction.
Convention adopted to facilitate the accounting technique.
Postulates or assumptions made to personal judgment used in the
application of the correction and postulates.
Types of financial analysis:
We can classify various types of financial analysis into
different categories depending upon
The material use
The method of operation/ modes operandi of analysis
According to material use of financial analysis is of two types:
External Analysis
Internal Analysis
EXTERNAL ANALYSIS:
The analysis is not done by outsiders who do not have access to
the detailed internal accounting records of the business firm do
not do the analysis. These outsiders include investors, potential
investors, creditors, potential creditors, government agencies,
credit agencies and the general public for financial analysis these
external parties is to the firm depend almost entirely on the
published financial statements. Thus surveys only limited purpose.
However the recent changes the government regulation requiring
business firm to make available more detailed information to the
public through audited publish account has considerably improved
the position of the external analysis.
INTERNAL ANALYSIS:
The analysis conducted by the persons who have access to the
internal accounting records of a business firm is known as internal
analysis. Such an analysis can therefore be performed by executives
and employee of the organization as well as government agencies
which have statutory powers vested in them. Financial analysis that
can be affected depending upon the purpose to be achieved.
On the basis of modus operandi:
According to the methods of operation followed in the analysis,
financial analysis can also of two types.
Horizontal analysis
Vertical analysis
Horizontal Analysis:
This makes to possible to focus attention on items have changed
significantly during period under review. It is also called as
dynamic analysis. It refers the comparison of financial data of
company several years. The figures for this type of analysis are
present horizontally over a number of columns. The figures of
various years compared with standard base year. A base year chooses
as beginning point.Vertical Analysis:
It refers to the study of relationship of the various items in
the financial statements of one accounting period. In this type of
analysis the figures from financial statements of a one year
compared with a base selected from the same years statements. It is
also known as static analysis.
Procedure of financial statement analysis:
There are three steps involved in the analysis of financial
statements those are:
(1) Selection
(2) Classification
(3) Interpretation
The first step involves selection of information relevant to the
purpose of analysis of financial statements. The second step
involved in the methodical classification of the data and third
step included drawing of interest and conclusions.
The following procedure is adopted for the analysis and
interpretation of financial statements
The analyst should acquaint himself with the principles and
postulates of accounting. He should know the plans and policies of
the management so that he may be able to find out whether these
plans are properly executed or not.
The extent of analysis should be determined so that the spear of
work may be decided. The aim is to find out the earning capacity of
the enterprise then analysis income statement will be under taken
on the other hand if financial position is to be studied then
balance sheet analysis is required.
The financial data given in the statement should be reorganized
and re-arranged. It will involve the grouping of similar data under
same heads, breaking down of individual components of statements
according to nature. The data is reduced to a standard form.
A relationship is established among financial statements with
the help of tools and techniques of analysis such as ratios,
trends.
The information interpreted in a simple and understandable way.
The significance and utility of financial data is explained for
helping in decision making.
The conclusions drawn from interpretation are presented to be
management the form of report.
Objectives of Financial Statement:
The Financial Statement are the source of information on the
basis of which conclusion are drawn about the profitability and
financial position of a concern. They are the major means employed
by firms to present their financial position of owners, creditors
and the general public. The primary objective of principles Board
of America State the following objectives of financial
statements.
Obligations of a business firm. To provide reliable information
about changes such economic resources and obligations to provide
reliable financial information about economic resources and.
To provide financial information that assists in estimating the
earning potentials of business.
To disclose to the extent possible other information to the
financial statements that is relevant to the needs of the users of
these statements.
To provide reliable information about changes in net resources
arising out of business activities.
Characteristics of Ideal Financial Statements:
The financial statements are prepared with a view to depict
financial position of the concern. A proper analysis and
interpretation of these statements enables a person to judge the
profitability of financial strength of the business. The financial
statement should be prepared in such away that they are able to
give a clear and orderly picture of the concern. The ideal
financial statements have the following characteristics.
Comparability:
The results of financial analysis should be in a way that can
also be in compared with the figures of other concerns of the same
nature.
Analytical Presentation:
The information should be analyzed in such a way that similar
data is presented at the same place a relationship can be
established in similar type of information. This will be helpful in
analysis and interpretation of data.
Brief:
Possible, the financial statements should be presented in brief.
The reader will be able to form an idea about the figures. On the
other hand, if figures are given in details then it will become
difficult to judge the working of the business.
Promptness:
The financial statement should be prepared and presented at the
earliest possible, immediately at the close financial year,
statements should be ready.
Importance of Financial Analysis:
The financial statements are mirrors, which reflect the
financial position operating strength or weakness of the concern.
The statements are useful to Management, Investor, Creditors,
Bankers, Workers, and Government and public and large. George O may
points out the following major uses of financial statements:- As a
report of steward ship
As basis of fiscal policy
To determine the legality of dividends
As guide to advice divided action
As a basis for the granting of credit
As information for prospect investors in an enterprise
As a guide to the value of investment already
As a aid to government supervision
As a basis for price or rate regulation
As basis for taxation
The utility of financial statement to different parties
Management:
The financial statements are useful for assessing the efficiency
for different cost centers. The management is able to exercise cost
control through these statements. The efficient is able to decide
the notice of the management. The Management is able to decide the
course of action to be adopted in future.
Creditors:
The trade creditors are to be paid in a short period this
liability is met over of current assets. The creditors will be
interested in current solvency of the concern. The calculation of
current ratio and liquid ratio will enable the creditors to assess
urgent financial position of the concern in relation to their
debts.
Bankers:
The Bankers are interest to see the loan amount is secure and
the customer is also able to pay the interest regularly. The
bankers will analysis the balance sheet to determine financial
strength of the concern and P&L A/c will also be studied to
find out the earning position. These statements also help the
bankers to determine the amount of securities it will ask from the
customers as a cover for the loans.
Investor:
The investors include both short term and long-term investors.
They are interested payments in the security of principle amount of
loan and regular interested payments in the concern. The investors
will study the long-term solvency of the concern will the help of
financial position but it will also study future prospects and
expansion of the concern. The possibility of paying back the loan
amount in the fact of liquidation of the concern is also taken into
considerationTrade Association:
This association provides service and protection to the member.
They may analysis the financial statements for the purpose of
providing facilities to these members. They may develop standard
ratios and design uniform system of accounting.
Stock Exchange:
The stock exchange deals in purchase and sale of different
securities of different companies. The financial statement enables
the stockbrokers to judge the financial position of different
concerns. The fixation of prices for securities etc. is also based
on these statements.
Methods of devices of Financial Analysis:
The analysis and interpretation of financial statements issued
to determine the financial position and result of operations as
well. A numbers of method of devices are used to study the
relationship between different statements. An effort is made to use
those devices, which clearly analyze the position of the
enterprise. The following methods of analysis are generally
used.
Comparative Statements
Tend Analysis
Common Size Statements
Fund flow Analysis
Cash flow Analysis
Ratio Analysis Comparative Statements: The comparative financial
statements are statements of the financial position at different
periods of time. The elements of financial position are shown in
comparative forms so as to give an idea of financial position at
two on more periods. Any statements prepared in a comparative form
for financial analysis purposes. Not only the comparison of the
figures of two periods but also be relationship between balance
sheet and income statement enables an in depth study of financial
position and operative results. The comparative statements may
show.
Absolute figures (rupees amount)
Changes in absolute figure that is increase or decrease in
absolute figures.
Absolute data in term of percentages.
The analysis is able to draw useful conclusions when figures are
given in a comparative position. The figures of sales for a
quarter, half-year or one year may tell only the present position
of sales efforts. When sales figures of current periods of time,
similarly, comparative figures will indicates the trend and
direction of financial position and operating results.
The financial data will be comparative only when same accounting
principles are used in preparing these statements. In case of any
deviation in the use of accounting principles this fact must be
mentioned at the foot of financial statements and the analysis
should be careful in using these statements. The two comparative
statements are:
Balance Sheet
Income Statement
Comparative Balance Sheet:
The Comparative balance sheet analysis is the study of the trend
of the same items, group of items and computed items in two or more
balance sheets of the same business enterprise on different dates.
The changes in periodic balance sheet items reflect the conduct of
business. The changes can be observed by comparison of the balance
sheet at the beginning and at the end of a period and these changes
can help in forming an opinion about the progress of an enterprise.
The comparative balance sheet has two columns for the data of
original balance sheet. A third column is used to shown increased
in figures. The fourth column may be added for giving percentages
of increases or decreases.
Guide lines for interpretation of Comparative Balance Sheet:
While interpreting Comparative Balance Sheet the interpreter is
expected to study the following aspects: Current financial position
and liquidity position.
Long-term financial position.
Profitability of the concern.
For studying current financial position or short-term financial
position of a concern, one should the working capital in both the
years. The excess of current assets over current liabilities will
give the figures of working capital. The increase in working
capital will mean improvement in the current financial position of
the business. An increase in current assets complained by the
increase in current liabilities of the same amount will not shown
by provement in the short-term financial position. The long-term
financial position of the concern can be analyzed by studying the
changes in fixed assets, long-term liabilities and capital. The
proper financial policy of concern will be to financial fixed
assets by the financial institutions or issue of fresh share
capital. An increase in fixed assets should be compared to the
increase in long-term loans and capital.
It is the increase in fixed assets is more the increase in
long-term securities then part of fixed assets has been financed
from the working capital. On the other hand, if the increase in
long-term securities is more than the increase in fixed assets the
fixed assets have not only been financed from long-term sources but
part of working capital has also been financed from long-term
sources. A wise policy will be finance fixed assets by raising
long-term funds.
The next aspect to be studied in comparative balance sheet
question is the profitability of the concern. The study of increase
or decrease in retained earnings various resources and surpluses
will enable the interpreter to see whether the profitability has
improved or not. An increase the balance sheet of profit and loss
accounting and other resources created from profits will means an
increase in profitability to the concern.
After studying various assets and liabilities an opinion should
be formed about the financial position of the concern. One cannot
say if short-term financial position is good then long-term
financial position must be given at the end.
Comparative Income Statement:
The comparative income statement gives and idea of the progress
of a business over a period of time. The changes in absolute data
in money values and percentages can be determined to analyze the
profitability of the business like comparative balance sheet income
statement also has four columns. First two columns give figures of
various items for two years third and fourth columns are used to
show increase or decrease in figures in absolute amounts and
percentages respectively.
1.Classification of Ratios
A) Liquidity Ratios and current assets movement or efficiency
ratios.
B) Long-term Financial or test of solvency.
C) Analysis of Profitability ratios.Analysis of capital
structures.
Liquidity RatiosSolvency RatiosProfitability RatiosCapital
Structure Ratios
1.Current Ratio
2.Quick Ratio
3.Absolute Ratio
Current Assets
Movement or Efficiency Ratios.
1. Inventory/stock turnover ratio.
2. Debtors Turnover Ratios.
3. Average Collection period.
4.Creditors Turnover Ratio
5.Average payment Ratio
6. Working capital Turnover Ratio.1. D.bt-Equity Ratio.
2. Funded debt Ratio.
3. Proprietory Ratio.
4. Solvency Ratio.
5. Proprietary Funds Ratio.
6. Fixed Assets Ratio.
7. Interest Coverage Ratio.
8. Ratio of Current assets to Proprietary funds.a) General
Profitability Ratios.
1. Gross Profit Ratios.
2. Operating Ratio.
3. Operating Profit Ratio.
4. Net Profit Ratio.
b)Overall Profitability Ratios:
1. Return on share-holders investment.
2. Return on equity capital.
3. Earning Per share.
4. Return on Capital employed.
5. Capital Turnover Ratio.
6. Dividend Yield Ratio.
7. Dividend Pay-out Ratio.
8. Earning Yield Ratio.1. Capital Gearing Ratio.
2. Total investment to Long-term Liabilities.
3.Ratio of Current Liabilities to Share holders Funds.
4.Ratio of Reserve to Equity Capital.
2. Importance and User of Ratio Analysis:
The Ratio Analysis is the one of the powerful tools of financial
analysis. It is used to analyze and interpret the financial health
of the enterprise. It is with the help of ratios that the financial
statement can be analyzed more clearly and decision made for such
analysis.
i) Importance:
1. Simplifies changes in financial condition of the
Business.
2. It facilities to inter-firm comparison which reveal strong
and weak firms.
ii) Uses:
1. It helps in decision making.
2. Help in financial forecasting and planning.
3. Financial strength and weakness can be easily
communicated.
4. Helps in effective control of business from deviations.
5. It is essential part of budgeting control and standard
costing.
6. It is helpful in assessing the financial position of the
concern where the shareholder/investor is going to invest.
7. Helps in knowing the financial position of the company to
extend credit to the concern for creditors.
8. It helps in knowing the profitability of the concern because
fringe benefits are related to the volume of profits earned.
iii) Limitations of Ratio Analysis: Ratios are based only on
information that has been recorded in the financial statement. They
suffer from inherent weakness of accounting records such as
historical approach.
Ratios are not only the indicators; they cannot be taken as
final decision regarding good or bad financial position of the
business.
Ratios will give misleading results with the effects in price
level are not taken into account.
No fixed standards can be laid down for ideal ratio; it may
differ from industry to industry.
They can be easily window dressed to present better picture of
financial and profitability of outsider.
Different people interpret ratios in different ways which leads
to bias. As it is only the means, not and end in it.
COMPUTATION OF LIQUIDITY RATIOS:
CURRENT RATIO:
CURRENT RATIO = CURRENT ASSETS
---------------------------
CURRENT LIABILITIES
QUICK RATIO:
QUICK RATIO = QUICK ASSETS
----------------------------- CURRENT LIABILITIES
CASH RATIO or ABSOLUTE LIQUID RATIO:
RATIO = CASH+MARKETABLE SECURITES
-------------- ---- -------------------
CURRENT LIABILITIES
COMPUTATION EFFICIENCY RATIOS:
STOCK TURNOVER RATIO: RATIO = COST OF GOODS SOLD
--------------------------------
AVERAGE STOCK
DEBTORS TURNOVER RATIO:
RATIO = SALES
------------- DEBTORS
WORKING CAPITAL TURNOVER RATIO:
RATIO = SALES
--------------------
NET WORKING CAPITAL
COMPUTATION FOR PROFITABILITY RATIOS:
OPERATING RATIO:
RATIO = COST OF GOODS SOLD+ALL OTHER EXPENSES
----------------------------------------------------------------
SALES
CURRENT LIABILITIES TO WORKING CAPITAL:
RATIO = CURRENT LIABILITIES
--------------------------------------
NET WORKING CAPITAL
CURRENT ASSETS TO WORKING CAPITAL:
RATIO = CURRENT ASSETS
COMPARATIVE BALANCE SHEET OF
AS ON 31ST MARCH 2004 & 2005
PARTICULARS20042005AMOUNT INCREASE OF DECREASE% CHANGE
Assets
A) Current Assets, Loans & advances
inventories1,96,03,49,2112,03,06,62,2467,03,13,0353.59
Sundry debtors 1,53,56,16,8832,00,79,43,70347,23,26,82030.76
Cash & Bank
Balances19,86,09,59024,36,78,5534,50,68,96322.7
Other current assets26,32,18,44421,90,26,144- 4,41,92,300-
16.79
Loans & Advance1,01,35,37,98389,38,37,399-11,97,00,584-
11.81
TOTAL (A)4,97,13,32,1115,39,51,48,04542,38,15,9348.53
B) Fixed Assets Gross
Block11,05,59,80,94411,46,77,72,10341,17,91,1623.72
(-) Deprecation 5,33,70,64,4925,84,76,89,13551,06,24,6039.57
Net block5,71,89,16,4525,62,00,82,968- 9,88,33,484- 1.73
(-) Lease adj A/c53,12,107--53,12,107
(+) Capital work in
progress18,19,35,0327,92,25,597-10,27,09,435-56.45
5,85,55,39,3775,69,93,08,565- 19,62,30,812- 3.33
(+) Investments39,68,35,62524,99,02,930- 14,69,32,695-37.03
TOTAL (B)62,92,23,75,0025,94,92,11,495- 34,31,63,507- 5.45
TOTAL ASSETS
(A+B)11,23,37,07,11311,34,43,59,54042,38,15,934-7.16
PARTICULARS20042005AMOUNT INCREASE OF DECREASE% CHANGE
Liabilities
A) Sources of funds Capital45,92,66,06045,74,15,090-18,50,976-
0.40
Reserves &
Surplus2,92,85,74,1553,02,74,12,3329,88,38,1773.37
TOTAL (A)3,38,78,40,2153,48,29,4229,69,89,2072.86
B) Loans & Funds
Secured loans3,80,07,02,4933,07,68,09,730- 72,39,92,763-
19.05
Unsecured loans60,83,18,7051,38,95,63,46778,12,44,762128.43
TOTAL (B)4,40,90,21,1984,46,63,73,1935,73,51,9991.30
C) Current Liabilities and Provisions
Current Liabilities17,72,82,2821,45,37,59,824- 31,90,62,458-
18.00
Provisions63,71,29,28669,43,29,8415,72,00,5558.98
Deferred tax
liability1,05,68,94,1321,24,50,69,25618,81,75,12417.80
TOTAL ( C )3,46,68,45,7003,39,31,58,921- 7,36,86,779-2.13
TOTAL LIABILITIES
(A+B+C)11,26,37,07,11311,34,43,59,5408,06,52,4277.16
INTERPRETATION:
In Current assets, inventories, sundry debtors, cash and bank
balances have increased and other current assets and loans and
advances have decreased. Overall there was an increase of 8.53% in
current assets.
Fixed assets the companys gross block has slightly increased by
3.72%. The company should try to improve its gross block. The
companys investments have decreased by 37.03%. The company should
try to improve its investments. Totally
Fixed assets have decreased to 5.45%/,In liabilities capital has
decreased to 0.40%.
Long-term debts, the companys secured loans and unsecured loans
have increased by 19.05% and 128.43%. The company should try to
reduce its unsecured loans.
Current liabilities there were increased by 18% and provision
was increased by 8.98%. The company should try to reduce its
current liabilities and provisions.COMPARATIVE BALANCE SHEET
AS ON 31ST MARCH 2005 & 2006
PARTICULARS20052006AMOUNT INCREASE OF DECREASE% CHANGE
Assets
A) Current Assets, Loans & advances
inventories2,03,06,62,2462,30,24,07,82827,17,45,58213.38
Sundry debtors 2,00,79,43,7032,01,42,28,44362,84,7400.31
Cash & Bank Balances24,36,78,55319,78,35,667- 4,58,42,686-
18.81
Other current assets21,90,26,14423,17,25,9331,26,99,7895.8
Loans & Advance89,38,37,3991,56,01,54,141- 7,37,82,198-
82.5
TOTAL (A)5,39,51,48,0456,30,63,52,21266,63,16,74212.35
B) Fixed Assets Gross
Block11,46,77,72,10311,51,53,03,7494,75,31,6464.14
(-) Deprecation 5,84,76,89,1356,32,89,51,67948,12,62,5448.23
Net block5,62,00,82,9685,18,63,52,070-43,37,30,898-7.72
(+) Capital work in
progress7,92,25,59752,84,85,36644,92,59,7695.67
5,69,93,08,5655,71,48,37,4361,55,28,8710.27
(+) Investments24,99,02,93028,19,24,4443,20,21,51412.8
TOTAL (B)5,94,92,11,4955,99,67,61,8804,75,50,3850.79
TOTAL ASSETS
(A+B)11,34,43,59,54012,30,31,14,09296,87,54,5528.45
PARTICULARS20052006AMOUNT INCREASE OF DECREASE% CHANGE
Liabilities
A) Sources of funds Capital45,74,15,09045,74,15,090NilNil
Reserves &
Surplus3,02,74,12,3323,31,40,43,69428,66,31,3629.47
TOTAL (A)3,48,29,4223,77,14,58,78428,66,31,3627.65
B) Loans & Funds
Secured loans3,07,68,09,7302,60,51,36,485-
47,16,73,245-15.33
Unsecured
loans1,38,95,63,4672,44,03,87,1251,05,08,23,65875.62
TOTAL (B)4,46,63,73,1935,04,55,23,61057,91,50,41312.96
C) Current Liabilities and Provisions
Current
Liabilities1,45,37,59,8241,85,59,95,19940,22,35,37527.67
Provisions69,43,29,84145,12,32,233- 24,30,97,608-35.01
Deferred tax
liability1,24,50,69,2561,17,89,04,2664,66,87,37,45679.84
TOTAL ( C )3,39,31,58,9213,48,61,79,1119,30,20,1902.74
TOTAL LIABILITIES
(A+B+C)11,34,43,59,54012,30,31,14,09296,87,54,5528.45
INTERPRETATION:
From the above financial years we can compare companys financial
analysis for the year 2005 & 2006.
In Current assets, the companys inventories, sundry debtors,
other current assets, loans and advances have increased but cash
and bank balance have decreased to 18.81%. The company should
maintain adequate cash resources. Overall there was an increase of
12.35% in current assets.
Fixed assets were increased by 4.14% and investment also
increased by 12.81% and there is a slight increase in total fixed
assets by 0.79%. The company should try to improve its fixed
assets.
In liabilities there was no change in capital, the company
should improve its capital and reserves and surplus have decreased
to 9.47%Long-term debts, secured loans have increased by 75.62%.
The company should decrease its unsecured loans.
Totally the companys financial analysis is satisfactory.
COMPARATIVE BALANCE SHEET
AS ON 31ST MARCH 2006 & 2007
PARTICULARS20062007AMOUNT INCREASE OF DECREASE% CHANGE
Assets
A) Current Assets, Loans & advances
inventories2,30,24,07,8282,55,18,52,44324,94,44,61510.83
Sundry debtors 2,01,42,28,4431,84,37,25,247-17,05,03,196-
8.46
Cash & Bank
Balances19,78,35,66724,83,13,6295,04,77,96225.51
Other current assets23,17,25,93328,89,28,1545,72,02,22124.68
Loans & Advance1,56,01,54,1411,16,53,13,167-
39,48,40,974-25.31
TOTAL (A)6,30,63,52,2126,09,81,32,640- 20,82,19,572-3.30
B) Fixed Assets Gross
Block11,51,53,03,74912,15,29,31,73763,76,27,9889.54
(-) Deprecation 6,32,89,51,6796,80,31,40,37847,41,88,6997.49
Net block5,18,63,52,0705,34,97,91,35916,34,39,2893.15
(+) Capital work in
progress52,84,85,3662,08,24,05,6801,55,39,20,314294.03
5,71,48,37,4367,43,21,97,0391,71,73,59,60330.05
(+) Investments28,19,24,44429,01,50,81182,26,3672.91
TOTAL (B)5,99,67,61,8807,72,23,47,8501,72,55,85,97028.77
TOTAL ASSETS
(A+B)12,30,31,14,09213,82,04,80,4901,51,73,66,39812.33
PARTICULARS20062007AMOUNT INCREASE OF DECREASE% CHANGE
Liabilities
A) Sources of funds Capital45,74,15,84045,74,15,0907500.0016
Reserves &
Surplus3,70,30,84,3003,31,40,43,69438,90,40,60611.73
TOTAL (A)4,16,05,00,1403,77,14,58,78438,90,41,35610.31
B) Loans & Funds
Secured loans4,13,36,83,5902,60,51,36,4851,52,85,47,10558.67
Unsecured loans2,07,98,60,9942,44,03,87,125-
36,05,26,131-14.77
TOTAL (B)6,21,35,44,5845,04,55,23,6101,16,80,20,97423.14
C) Current Liabilities and Provisions
Current
Liabilities1,61,23,30,5851,85,59,95,199-24,36,64,614-13.12
Provisions76,21,94,06145,12,32,23331,09,61,82868.91
Deferred tax
liability1,07,19,11,1201,17,89,04,266-10,69,93,146-9.07
TOTAL ( C )3,44,64,35,7663,48,61,79,111-3,97,43,345-1.14
TOTAL LIABILITIES
(A+B+C)13,82,04,80,49012,30,31,14,0921,51,73,66,39812.33
INTERPRETATION:
In current assets, the companys inventories, cash & bank
balances other current assets have increased but sundry debtors and
loans and advances have decreased. Overall there was increase of
3.30% in current assets. Fixed assets were increased by 9.54% and
investments also increased by 2.91%. Total assets were increase
upto 28.77%. In liabilities there was slight increase in capital of
0.00016%. The company should improve its capital and reserves and
surplus have increase by 11.73%. Long-term debts, secured loans
have increased by 56.67% and unsecured loans have decreased to
14.77%. The company should decrease its secured loans. Current
liabilities were decreased to 13.12% and provisions it was
increased by 68.91%. The company should try to decrease its
provisions.Overall the companys financial position is
satisfactory.
PARTICULARS20072008AMOUNT INCREASE OF DECREASE% CHANGE
Liabilities
A) Sources of funds
Capital45,74,15,09045,74,16,3655250.00015
Reserves &
Surplus3,31,40,43,6946,08,69,28,2762,38,38,43,97664.37
TOTAL (A)3,77,14,58,7846,54,43,44,6412,38,38,44,50157.29
B) Loans & Funds
Secured loans2,60,51,36,4856,43,19,70,1652,29,82,86,57555.59
Unsecured loans2,44,03,87,1252,29,60,29,56521,61,68,57110.39
TOTAL (B)5,04,55,23,6108,72,79,99,7302,51,44,55,14640.46
C) Current Liabilities and Provisions
Current
Liabilities1,85,59,95,1992,26,82,92,08565,59,61,50040.68
Provisions45,12,32,2331,35,70,49,22159,48,55,16078.04
Deferred tax
liability1,17,89,04,2661,12,40,92,8795,21,81,7594.86
TOTAL ( C )3,48,61,79,1114,74,94,34,1851,30,29,98,41937.80
TOTAL LIABILITIES
(A+B+C)12,30,31,14,09220,02,17,78,5566,20,12,98,06644.87
INTERPRETATION:
In Current assets, the companys inventories, sundry debtors,
other current assets, loans and advances have increased but cash
and bank balance have decreased to 18.02%. The company should
maintain adequate cash resources. Overall there was an increase of
42.35% in current assets. Fixed assets was increased by 74.25% and
investments decreased to 0.49%. Totally fixed assets were increase
upto 46.85%.
In liabilities there was slight increase in capital of 0.00015%.
The company should improve its capital. Reserves and surplus have
increased by 64.37%.
Long-term debts, secured loans and unsecured loans have
increased by 55.59% and 10.39%. The company should try to decrease
its secured loan.
Current liabilities were increase by 40.68% and provisions also
increased by 78.04%. The company should try to decrease its
provisionsCOMPARATIVE BALANCE SHEET
AS ON 31ST MARCH 2008 & 2009
PARTICULARS20082009AMOUNT INCREASE OF DECREASE% CHANGE
Assets
A) Current Assets, Loans & advances
inventories3,76,88,27,7774,42,17,01,81065,28,74,03317.32
Sundry debtors 2,45,94,52,5812,73,07,35,20527,12,82,62411.03
Cash & Bank
Balances27,24,22,34140,54,21,33313,29,98,99248.82
Other current assets11,81,99,41221,46,91,7859,64,92,37381.63
Loans &
Advance2,06,22,47,2614,29,01,79,1912,22,79,31,930108.03
TOTAL (A)8,68,11,49,37212,06,27,29,3243,38,15,79,95238.95
B) Fixed Assets Gross
Block16,76,31,75,67018,95,44,39,3912,19,12,63,72113.07
(-) Deprecation
7,21,93,42,5888,11,20,25,87389,26,83,28512.36
Net block9,54,38,33,08210,84,24,13,5181,29,85,80,43613.60
(+) Capital work in
progress1,50,80,68,1956,34,59,31,6504,83,78,63,455320.79
11,05,19,01,27717,18,83,45,1686,13,64,43,89155.52
(+) Investments28,87,27,90747,82,66,73718,95,38,83065.64
TOTAL (B)11,34,06,29,18417,66,66,11,9056,32,59,82,72155.78
TOTAL ASSETS
(A+B)20,02,17,78,55629,72,93,41,2299,70,75,62,67348.48
PARTICULARS20082009AMOUNT INCREASE OF DECREASE% CHANGE
Liabilities
A) Sources of funds Capital45,74,16,36545,74,16,395300.00065
Reserves &
Surplus6,08,69,28,2769,36,17,93,4893,27,48,65,21353.80
TOTAL (A)6,54,43,44,6419,81,92,09,8843,27,48,65,24350.04
B) Loans & Funds
Secured loans6,43,19,70,1659,71,06,02,0403,27,86,31,87550.97
Unsecured loans2,29,60,29,5652,43,75,36,47214,15,06,9076.16
TOTAL (B)8,72,79,99,73012,14,81,38,5123,42,01,38,7820.39
C) Current Liabilities and Provisions
Current
Liabilities2,26,82,92,0853,03,03,23,59276,20,31,50733.5
Provisions1,35,70,49,2213,30,39,27,0561,94,68,77,835143.46
Deferred tax
liability1,12,40,92,8791,42,77,42,18530,36,49,30627.01
TOTAL ( C )4,74,94,34,1857,76,19,92,8333,01,25,58,64863.42
TOTAL LIABILITIES
(A+B+C)20,02,17,78,55629,72,93,41,2299,70,75,62,67348.48
INTERPRETATION:
In current assets the companys inventories, sundry debtors, cash
& bank balances and loans and advances have increased and other
current assets were also increased upto 81.63%. Overall there was
an increase of 38.95% in current assets.
Fixed assets were increased by 13.07% and investments increase
up to 65.64%. Totally fixed assets were increased upto 55.78%.
In liabilities there was a slight increase in capital of
0.00065%. The company should concentrate on this aspect. Reserves
and surplus have increased by 53.80%.
Long term debts, secured loans and unsecured loans have
increased by 50.97% and 6.16%. The company should try to reduce its
secured loans.
Current liabilities were increased up to 33.05% and provisions
up to 143.06%. The company should more concentrate on this
factor.
Over all the companys financial position is satisfactory.
CURRENT RATIO:
Financial YearCurrent Assets
(Rs. in Lakhs)Current Liabilities
(Rs. in Lakhs)Current Ratio
2003-0453951.4821480.892.51
2004-0563063.5223072.272.73
2005-0660981.3323745.242.57
2006-0786811.4936253.412.39
2007-08120627.2963342.501.90
Graphical Representation:
INTERPRETATION:
Here for the current ratio in the year 2003-04 was 2.56. In the
year 2007-2008 the companys liquidity position is 1.90.It means not
satisfactory. So it has to improve the liquidity position to meet
current obligations.
QUICK RATIO:
Financial YearQuick Assets
(Rs. in Lakhs)Current Liabilities
(Rs. in Lakhs)Quick Ratio
2003-0433644.8621480.891.56
2004-0540039.4423072.271.74
2005-0635462.823745.241.49
2006-07
49123.2136253.411.35
2007-0840542.1363342.500.06
GRAPH -2
INTERPRETATION:
As a conventional rule, quick ratio should be 1:1 the above data
of reveals that quick ratio in year in year 2003-04 was 1.56:1
which is above the conventional rule, it says that a large amount
of funds was locked in quick assets where the company is not
generating any revenue or return on those assets. In the year
2005-06 is 1.49, in the current year it is 0.06. So the company
should improve in this area.
CASH RATIO
YEARSCash and Bank Balance
Rs.in lakhsCURRENT LABILITIES CASH
RATIO
2003-20042439.7821480.890.11
2004-20051978.3623072.270.08
2005-20062483.1323745.240.10
2006-072724.2236253.410.07
2007-0840542.1363342.500.06
GRAPH 3
INTERPRETATION:
The cash ratio to Britannia as a conventional rule the ratio
should be 0.15:1. In the year 2003-04 the ratio was 0.11:1. Later
decreased to 0.07:1 which the firm has decreased its cash position
in the year 2007. In the year 2007-08, the ratio is 0.06.
DEBT-EQUITY RATIO: -
YEARSLONG TERM DEBTS
Rs.in lakhsSHAREHOLDERS FUND
Rs.in lakhsDEBT EQUITY
RATIO
2003-200444663.7334848.271.28
2004-200550455.2337714.591.33
2005-200662135.4541605.001.49
2006-0787250.0065443.441.33
2007-0812148.1398192.091.23
Graph No.4
INTERPRETATION:
As a convention rule of the firm debt equity ratio should 1:1
i.e., for every one equity the firm can raise loan or debenture
here for the KCIL in the year 2003-2004, the debt equity ratio was
1.28:1 which is somewhat higher when compare to conventional rule
later increaseto 1.34 in 2004 when compare to 2003 and further
decreased to 1.28 and finally in the year 2008 it was 1.23.
FIXED ASSETS TURNOVER RATIO:
YEARSNet Sales Rs.in lakhsAverage Fixed Assets Rs. In
lakhsRATIOS
2003-04129553.6257974.232.23
2004-05142195.7757070.732.49
2005-06161317.7474321.972.17
2006-07220896.60110519.011.99
2007-0829879.2217188.341.73
Graph No.5
INTERPRETATION
A high fixed assets turnover ratio indicates an efficient
utilization of fixed assets and greater operating efficient and
profitability. The fixed asset turnover ratio in the year 2003 is
1.87 times later the ratio has been increased to 2.23 times in the
year 2003, 2004 it increased to 2.49 in 2004, finally it is
decreased in the year 2005 and 2006 it ratio is 2.17 times and 1.99
times. This shows that the firm has been consistently shows the
performance and utilization of fixed assets towards sales
effectively. In the year 2007-08 the ratio is 1.73.
FINDINGS
There should be effective coordination between the different
department like production, sales, purchase, finance, marketing
etc., This will enhance the efficiency of the organization.
The fixed assets for all five financial years 2003-2008 has been
increased year to year.
Share capital is stable for all the five years.
There should be proper communication between various department
and responsibility centers.
Education about the importance of budgeting should be
communicated to all concerned authorities, involved directly or
indirectly to work according, for the growth of the company. There
should be well-organized manpower planning, especially with regard
to production
SUGGESTIONS: It is suggested to GOLDEN & GODR FREY PHILLIPS
to enhance the dividend percentage year-by-year because they are
following constant dividend policy.
It is suggested to VST to issue bonus shares to the share
holders, if possible.
Compare to other companies ITC ltd has producing different types
of product
CONCLUSION: The dividend paid to share holders is 350 by the VST
industries
The dividend declared by ITC is Rs/-250.
The dividend paid by VST industries is more than ITC in the year
2008.
GTC & GPC industries distributed same dividend percentage
(250)in the year 2008.
BIBLIOGRAPHY
IM Panday
: Financial Management
M.Y. Khan & P.K. Jain : Financial Management
Prasanna Chandra
: Fundamentals of Financial Management
WEBSITES
www.Google.com
www.vijaielectricals.com
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