Project Report

Raghavendra Yadav

FINALCIAL PERFORMANCE ANALYSIS 1

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CONTENTS


CHAPTERS PARTICULARS PAGE-NO

Preliminary index

Abstract List of tablesList of charts

Chapter –I

IntroductionIntroduction to studyObjectives of studyNeed of studyResearch methodologyScope of the studylimitations

1-345678

Chapter –II profileCompany profile 9-23

Chapter –III

Analysis and interpretation of studyIntroduction of analysisComparative income statementComparative balance sheetCommon size income statementCommon size balance sheetWorking capital changesRatio analysisBalance sheet

24-3839-4243-46

4748-5152-5556-66

67

Chapter- IV Findings suggestions conclusion

686970

Chapter- V Bibliography

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ABSTRACT

Financial analysis is the process of identifying the financial

strengths and weakness of the firm by properly establishing the relations

ship between the items of the balance sheet and profit loss account.

Financial analysis can be undertaken by management of the firm, or by

parties outside the firm, viz. owners, creditors, investors and others. The

nature of analysis will differ depending on the purpose of analyst.

Management, creditors, investors and others to form

judgment about the operating performance and financial position of the

firm use the information contained in this statements can get further

insight about the financial strengths and weakness of the firm to make

their best use and to be able to spot out financial weakness of the firm to

take suitable corrective actions.

Thus financial analysis is the starting point for making

plans, before using any sophisticated forecasting and planning

procedures. Understanding the past is a prerequisite for anticipating

future.


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LIST OF THE TABLES

TABLE-NO PARTICULARS PAGE-NO1. COMPARITIVE INCOME STATEMENT 2003-2004 392. COMPARITIVE INCOME STATEMENT 2004-2005 403. COMPARITIVE INCOME STATEMENT 2005-2006 414. COMPARITIVE INCOME STATEMENT 2006-2007 425. COMPARITIVE BALANCE SHEET 2003-2004 436. COMPARITIVE BALANCE SHEET 2004-2005 447. COMPARITIVE BALANCE SHEET 2005-2006 458. COMPARITIVE BALANCE SHEET 2006-2007 469. COMMON SIZE INCOME STATEMENT 2003-2007 4710. COMMON SIZE BALANCE SHEET 2003-2004 4811. COMMON SIZE BALANCE SHEET 2004-2005 4912. COMMON SIZE BALANCE SHEET 2005-2006 5013. COMMON SIZE BALANCE SHEET 2006-2007 5114. CHANGES IN WORKING CAPITAL 2003-2004 5215. CHANGES IN WORKING CAPITAL 2004-2005 5316. CHANGES IN WORKING CAPITAL 2005-2006 5417. CHANGES IN WORKING CAPITAL 2006-2007 5518. CURRENT RATIO 5619. QUICK RATIO 5720. NET WORKING CAPITAL RATIO 5821. DEBT RATIO 5922. DEBT EQUITY RATIO 6023. CAPITAL EMPLOYED TO NET WORTH 6124. INVENTORY TURNOVER RATIO 6225. DEBTORS TURNOVER RATIO 6326. COLLECTION PERIOD 6427. GROSS PROFIT RATIO 6528. NET PROFIT RATIO 6629. BALANCE SHEET OF 2003-2007 67

LIST OF CHARTS


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TABLE-NO PARTICULARS PAGE-NO

1. LEQUIDITY RATIOS

1.1.CURRENT RATIO1.2.QUICK RATIO1.3.NET WORKING CAPITAL RATIO

565758

2. LEVERAGE RATIOS

2.1.DEBT RATIO2.2.DEBT EQUITY RATIO2.3.CAPITAL EMPLOYED TO NET WORTH

596061

3. ACTIVITY RATIOS

3.1.INVENTORY TURNOVER RATIO3.2.DEBTORS TURNOVER RATIO3.3.COLLECTION PERIOD

626364

4. PROFITABILITY RATIOS

4.1.GROSS PROFIT RATIO4.2.NET PROFIT RATIO

6566

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I


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INTRODUCTION

In our present day economy, finance is defined as the provision of

money at the time when it is required. Every enterprise, whether big, medium of

small, needs finance to carry its operations and to achieve its targets. In fact,

finance is so indispensable today that it is rightly said to be the lifeblood of an


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enterprise. Without adequate finance, no enterprise can possibly accomplish its

objectives.

Financial management is applicable to every type of organization,

irrespective of its size kind of nature. It is as useful to a small concern as to a big

unit. A trading concern gets the same utility from its application as a

manufacturing unit may expect. This subject is important and useful for all types of

ownership organizations. Where there is a use of finance. Financial management is

helpful. Every management aims to utilize its funds in a best possible and

profitable way. So this subject is acquiring a universal applicability.

It is indispensable in any organization as helps in:

(I) Financial planning and successful promotion of an enterprise;

(II) Acquisition of funds as and when required at the minimum possible

cost;

(III) Proper use and allocation of funds;

(IV) Taking sound financial decisions ;

(V) Improving the profitability through financial controls;

(VI) Increasing the wealth of the investors and the nation; and

(vii) Promoting and mobilizing individual and corporate savings.

OBJECTIVES OF FINANCIAL MANAGEMENT

Financial management is concerned with procurement and use of

funds. Its main aim is to use business funds in such a way that the firm’s

value/earnings are maximized. There are various alternatives available for using

business funds. Each alternative course has to be evaluated in detail.


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The pros and cons of various decisions have to look into before

making a final selection. The decisions will have take into consideration the

commercial strategy of the business. Financial management provides a framework

for selecting a proper course of action and deciding a viable commercial strategy.

The main objective of a business is to maximize the owner’s economic welfare.

This objective can be achieved by:

1. Profit Maximization

2. Wealth maximization

1. Profit maximization:

Profit earning is the main aim of every economic activity. A business

being an economic institution must earn profit to cover its costs and provide funds

for growth. No business can service without earning profit. Profits are a measure of

efficiency of a business enterprise. Profits also serve as a protection against risks

which cannot be ensured. The accumulated profits enable a business to face risks

like fall in prices, competition from other units, adverse government policies etc.

Thus, profit maximization is considered as the main objective of business:

(i) When profit – earning is the aim of business then profit maximization should

be the obvious objective.

(ii) Profitability is a barometer for measuring efficiency and economic prosperity

of a business enterprise, thus, profit maximization is justified on the grounds

of rationality.

(iii) Economic and business conditions do not remain same at all the times. There

may be adverse business conditions like recession, depression, severe

competition etc. A business will be able to service under unfavorable situation

only if it has some past earnings to rely upon. Therefore a business should try

to earn more and more when situation is favorable.


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(iv) Profits are the main sources of finance for the growth of a business. So, a

business should aim at maximization of profits for enabling its growth and

development.

(v) Profitability is essential for fulfilling social goals also. A firm by pursuing the

objective of profit maximization also maximizes socio- economic welfare.

2. Wealth maximization

Wealth maximization is the appropriate objective of an enterprise

financial theory asserts that wealth maximization is the single substitute for

stockholder’s utility. When the firm maximizes the stockholder’s wealth, the

individual stockholder can use this wealth to maximize his individual utility. It

means that by maximizing stockholder’s wealth firm is operating consistently

towards maximizing stockholder’s utility.

OBJECTIVES OF STUDY

1. To understand, to analyze and to suggest methods of improving profitability

management.

2. To identify the key factors affecting the profitability.

3. To have an insight into the management of profit in an organization.

4. To examine the financial performance of the company for the period from 2003

to 2007.


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5. To assess the working capital employed by the company.

6. To highlight the short comings in the area of finance with the aid of

comparative analysis and common size analysis funds flow analysis and to give

recommendations with a view to increase efficiency of the company.

7. To identifying the financial strength and weakness of the company.

8. Analyze the future earnings of the company , based on these give

the various suggestions.

NEED FOR THE STUDY

Financial statement analysis is used to identify the trends and

relationships between financial statement items. Both internal management and

external users (such as analysts, creditors, and investors) of the financial statements

need to evaluate a company's profitability, liquidity, and solvency. The most

common methods used for financial statement analysis are comparative statements,

common-size statements, funds flow analysis and ratio analysis. These methods

include calculations and comparisons of the results to historical company data,


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competitors, or industry averages to determine the relative strength and

performance of the company being analyzed.

Financial statement analysis is to diagnose the information contained

in financial statements so as to judge profitability and financial soundness of the

firm. Just like a doctor examines his patient by recording hi body temperature,

blood pressure, etc. before making conclusion regarding the illness and before

giving his treatment, a financial analyst analysis before commenting up on the

financial health or weakness of an enterprise.

RESEARCH METHODOLOGY

The research design refers to preplanning of what a researcher does in

his study. The design adopted in the study comes under exploratory and

evaluatory research. Since the data collected from the financial statements of the

company is analyzed under various financial and tactical tools.

Data collection;


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The study is based on the two types data is obtained from the chittoor

co-operative sugars ltd., chittoor.

They are:

Primary data

Secondary data

Primary Data;

Primary Data is obtained through the discussion with officials of the chittoor

co-operative sugars ltd., chittoor.

Secondary Data;

Secondary data is based on the past data i.e. [five years Annual Reports

2003-2007]

SCOPE OF THE STUDY

In our present day economics, finance is defined as the provision of money at

the time when it is required. Every enterprise whether big medium or small

needs finance to carry on its operations and to achieve its target. In fact finance

is so indispensable today that it is rightly said that it is the life blood of industry

without adequate finance no enterprise can possible accomplish it objectives


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Finance is therefore viewed as the most important area in every enterprise.

Therefore the management requires giving special attention on this .The

conventional approach to finance function in business high light the

procurement of funds on the mot economic and favorable terms to concern. But

it ignores the efficiency and prepares of the same for the successful running of

the enterprise. In every organization funds are needed for various ventures and

projects.

The basis for financial planning and analysis is financial information, financial

need to Predict compare and evaluate the forms earning ability. It is also

required to aid in economic decision making., Investment and financial

statements or accounting reports

It contains summarized information of the firm’s financial affairs,. Organized

systematically. They are the means to present the firm’s situation to owners,

creditors and general public, preparation of the statements is the responsibility

of top management. They should be prepared very carefully and contain as

much information a possible because they are very useful to judge the financial

efficiency of the company.

LIMITATIONS

Financial statements are prepared on the basis of certain accounting concepts

and conventions.

Any change in the methods or procedures of accounting systems limits the

utility of financial statements.

Ratios of the past are not true indicators of future.


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Financial analysis is based on monetary information and non monetary

information ignored.

Liquidity ratio can mislead since current assets and current liabilities can

change quickly. Their utility become more doubtful for firms with seasonal

business.

IIFINALCIAL PERFORMANCE ANALYSIS 15

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COMPANY PROFILE

The irrigation in Chittoor district mostly depends on open wells, recharge of water in the wells depends on ground water level and rainfall. However, rainfall depends on monsoon, which is uncertain. The soils in the district are almost suitable for sugarcane. In the good olden days, total quantity of sugarcane produced in the district was converted as jaggery by Ganugas (bullock crushers) and power crushers. The jaggery making was very difficult to the small farmers due to lack of crushers and unfavorable prices. The big farmers also faced brought to the Chittoor & Pakala, which are the market places with railway transportation. There was a lot of exploitation of farmers by the jaggery mundi owners by advancing the money with high interest rates, commission and also not with proper weighing. The price fluctuation created by the traders was also a reason for poor realization, but there was no other choice to the farmers

EVOLUTION OF THE FACTORY

Under the above circumstances, the farmers and leaders of the district

felt the need for the establishing a factory in co-op sector to enable the sugarcane

farmers to get good returns. The Chittoor co-operative sugars ltd., Chittoor is the

first agro-based major industry in Rayalaseema area. It was first registered on

22.08.1955 under the APCS act. Its area of operation comprises of 192 villages in


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21 mandals. Factory is located along Cudalore-Kurnool national high way no.18, 3

kms towards Kurnool from Chittoor town. It owns 85.96 acres of land. It was

first commissioned on 18.01.1963 with a licensed and installed capacity of 1000

tones cane crushing per day.

During 1974 its cane crushing capacity has been expanded to 1600

tones per day. Since 1989, modernization is being done in phases. Presently

factory is working at an average cane crushing of 1800-2000 tones per day.

CAPITAL STRUCTURE

Original project cost was Rs.128.50 lakhs. It has been funded from following

sources:

Rs. Lakhs

I. Share capital from

a. Cane grower members 8.50

b. State Government 25.00

II. Loans

a. IFCI New Delhi 75.00

b. LICI Bombay 20.00

Total 128.50 III .Capital outlay

Land 2.38

Buildings 5.90

Plant and Machinery 109.34

Other assets 5.77

Pre-operative expenses 4.00

Vehicles 0.96


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Total 128.35

IV. Present Value of the Assets as on 31.03.2000

V. Land 497.19

a. Buildings 423.85

b. Plant & Machinery 1155.70

c. Other assets 34.73

d. Transport vehicles 19.94

e. Total 2131.41

Membership Share Capital No amount (in. lakhs)

a. Members 13448.00 185.57

State Government 1 1208.44

13449.00 1394.01

b. NRD & NRFD of members 213.69

c. Accumulated Loss of on 31.03.03 1782.39

(As per perform accounts)

3390.09

WORKING CAPITAL ARRANGEMENTS

Under Sugar cane control order (1966) of Government of India, cane

price is payable with in 14 days from the date of purchase where as sugar produced

is released for sale monthly over a period of 16 to 18 months. More than 70% of


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cost of production is covered by sugar to comply with statutory provision in regard

to payment of sugar cane price with in 14 days. Hither to financing banks i.e.,

(District coop Central Bank) have been allowing loan @ 90% of levy sugar value

and 8 on open market sugar value. First time for this 99-2000 season, NABARD

have laid down, in their new credit policy guide lines, to compute and allow pledge

loan on sugar stocks restricting to statutory minimum cane price notified by

Government of India.

With this new guide line, though huge sugar stocks with abundant

loan drawing power are available, factory cannot draw loan to pay state advised

cane price to growers. The SMP notified by Government would not cover even

cultivation costs. The difference between state advisory price and statutory

minimum cane price is about Rs.250 per MT. To receive the difference amount of

cane price cane suppliers have to wait till the entire sugar stocks are sold which

would take about 16 to 18 months. This particular condition introduced first time

this season is to be with drawn oilier wised cane growers would go in for

cultivation of alternate crops as the SMP would not cover even cultivation costs.

This issue is taken up by State Government with NABARD and Ministry of

finance, government of India.

MODERNISATION

During 1993-94 factory has planned to increase its cane crushing

capacity from 1600 TCD to 2500 TCD in phases. As a part of the program, under

1st phase, factory has spent Rs.341.80 lakh and carried out 1 phase modernization.

During 1997 purchase of a new 3 MW Power Turbine has been finalized. It is

commissioned during this 99-2000 cane crushing season. The New Power turbine

and attending Electrical and Civil works put together is Rs.160 lakh. At a cost of


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about Rs.90 lakh, installation of TRF system to Mills, modification of a boilers to

increase the capacity and modification of return biogases carrier are

executed/being executed to achieve a daily cane crushing of 2200 tones cane.

WAGE STRUCTURE

The wages of the workers are covered by “sugar wage board”

recommendations at “All India Level”.The minimum monthly wage of an unskilled

worker at stalling of the time scale is Rs.3, 901. Sugar year (season) is reopened

from 1st Oct to 30th Sep next year. Generally cane crushing operations are

commenced during 3 week of November and continued up to end of April of next

year. From May-Oct is off season.

CANE DEVELOPMENT AND INCENTIVES TO CANE GROWERS

There is a separate agriculture wing in factory headed by a chief

Agriculture officer. Total area of operation is divided into 36 circles. For each

circle, there is one field men 36 field men’s work is supervised by 8 agricultural

officers. Following are developmental activities being implemented.

Arrange soil testing at factory’s soil laboratory.

A supply of improved varieties of seed in consultations with regional

agricultural research stations.

Arrange survey and extend loans and subsides for drilling of surface and in well

bores.

Arrange educational tours, to selected cane suppliers, within and outside the

state.


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INCENTIVES PAID TO GROWERS

50% of actual cane transport charges up to 40kms distances are subsidized.

Cane transport charges beyond 40kms are subsidized 100%.

Over and above state advised cane price, an incentive price of Rs.25 per MT is

paid to improved varieties supplied to factory.

Fertilizers are supplied on loan, free of interest.

Pesticides & Feticides are supplied at subsidized rates.

At ½ kg per tone of sugarcane supplied for cane crushing, sugar is supplied

subject to a minimum of 120 kegs & maximum of 100 kegs at subsidized rates.

WELFARE SCHEMES TO CANE GROWTH

A marriage hall is constructed in factory’s premises with Rs.56.51lakhs

contributions from cane supply members. Rs.4,200 per day is charged as rent

from cane supply members and employees. Rs.7,350 per day is charged from

non members.

5002 cane supply members are covered under Janata personal accident policy

for a period of 12 years commencing from Jan 98. Family of any deceased

member covered under this policy gets Rs.1,00,000 as compensation. 50% of

premium i.e., Rs.3.51 lakhs is subsidized by factory.

5002 cane supply members are covered under “Janarogya Bhima Policy”.

Reimbursement charges up to a maximum of Rs.5,000 per year is expended

under this scheme. 50% of premium i.e., Rs.2.05lakhs is subsidized by factory.


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MANAGEMENT

At present the elected board has assumed charge on 06.04.2000. The present Board of Directors as detailed below:

President 1

Board of Directors 14

Employees Director 1

Total 16

CHIEF EXECUTIVE & FUNCTIONING OF VARIOUS

DEPARTMENTS

a. Chief executive of the society is Managing Director having a seat on the Board.

b. There are five major departments

1. Administrative

2. Engineering

3. Manufacturing

4. Agriculture

5. Accounts & Finance

c. All aspects of Accounting, sugar cane weightiest and laboratory analysis reports

are computerized during 1989-90. For better cane regulation. Wireless System

was also introduced during 1989. At all 8 division Head Quarters and at

Administrative Office Wireless Stations and sets are installed.

d. All policy mater are decided by Board/Person-in-charge.


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e. Cane price

Before commencement of sugar cane crushing season, Government of

India notifies statutory minimum cane price payable by each sugar factory.

This is to be paid within 14 days from the date of purchases. Over and above

the statutory minimum cane price state Government announces a State advisory

price payable by each Sugar factory. This SAP is being paid by us. We have

crushed cane for the season 1999-2000 is 2,82,202.592 Mts with an average

recovery 9.038

f. Sugar :

Out of total sugar production of each season, 30% shall be delivered to

Government nominees for public distribution system at notified levy price. For

every season Government of India notifies levy sugar price application to each

Sugar Factory. Every month Government of India releases the Quantity of levy

sugar and open market sugar to be sold during each month. Open market sugar

is sold on tender system and is delivered against payment of cost plus duties.

g. Molasses

Molasses is a by product in the course of manufacture of Sugar.

From 1993 June molasses prices are decontrolled. Molasses is sold by inviting

tenders on All India basis by publishing Tender notice.

h. Engineering & Manufacturing Departments

During off season engineering and manufacturing departments attend

to overhauling and preventive maintenance and keep ready the plant for Cane

Crushing. During season factory works round the clock in three shifts.


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i. Cane Department

Cane department is provided with sufficient executive staff. They

collect cane supply offers, from cane growers. Offers are being accepted

restricting the quantities to individual member’s 5 years supply average. Crop

loans are sanctioned by Banks under tie up arrangement with factory. One

month before commencement of cane crushing, prepares maturity survey is

conducted by drawing cane samples from agreement Cane fields. They are

analyzed in Factory’s laboratory. Based on the analysis, cane harvest & supply

permits are issued to cane supply members limiting to Factory’s daily cane

crushing capacity. Factory provides about 60 to 80 hired Lorries to needy

growers. 50% of transport charges up to 40KM distance are subsidized by

factory. Transport charges beyond 40KM are subsidized 100%.

j. Liaison Farm

Factory is having a sugar cane liaison farm in an extend 4.80 Hec.

Factory brings improved varieties from sugar cane research stations multiplies

in its farm and supplies seed to growers.

(I) Total Strength of the establishment is

1. Permanent (Non Seasonal) 68

2. Seasonal Permanent 94

3. Consolidate Wagers (Seasonal) 167

4. Daily Wager(NMR) 244


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Total 573

(II) Wage Structure

The Wages of workers are covered by “Sugar Wage Board”

Recommendations at “All India Level. The minimum monthly wage of an

unskilled worked at starting of time scale is Rs.3901/-

INVESTMENT ON FIXED ASSETS

The capital expenditure proposals are ascertained by the government of A.P.

prior A.P.Prior to this Accounts officer of the accounts department has to

prepare budget of the concern (through departmental heads.)

Board of directors (BODs)/ director of sugar are authorized to decide

Investment on fixed assets.

There is no limit fixed on the size of the investment on fixed assets. The

concern is having machinery’s worth 1 crore also. Some times in purchase of

large assets the procedure is resolutions are kept before MID or Director of

sugar if they feel to have the resolutions passed then it is kept and makes it

accepted in Board meeting.

No officers of the undertaking exceeded the authorized limits of the fixed

assets.

Based on the need & necessity of the firm the investment on the fixed asserts is

made. The MD or Director of sugar must approve it.


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No special techniques have been adopted for evaluating investment proposals

on the fixed assets. According to the decisions of the board various investment

proposals are made on the fixed assets.

Based on Tender system & state level purchase co decisions fixed assets are

purchased.

Tenders are scrutinized based on the viewing company’s past Performance,

quotation made, and standard of the asset.

The method of depreciation is Straight-line method and based on IT Act.

Depreciation rates for the different assets are fixed at different Rates like on

machinery’s 10%

On loose tools @ 6% & some assets doesn’t carry depreciation.

No depreciation reserve fund has been maintained.

CASH MANAGEMENT

No Separate Organization For cash management is maintained in the society.

Major things in the concern are the sugarcane. The sugarcane is a seasonal crop

and of course this is treated as main important thing for the firm. Tenders are

invited in purchasing the cane. Based on the availability of the sugar cane

working capital requirements are made.

Tender are procedure adopted for this purpose.

Liquidity question doesn’t arise because the society deals almost all each &

every transaction through bank, DD’s and Cheques.

No policy has been followed regarding optimal cash balance in the society.

Working capital requirements are mainly from the sugarcane growers.

Through unsecured short-term loans & over drafts short-term loans are raised.

Cash credit limits doesn’t arise.

The head of the department regulates cash balances.


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Adequacy of cash balance doesn’t rise.

There is no case were surplus/in adequacy of cash balances in the society.

INVENTORY MANAGEMENT

There is no question of setting up of the organization for maintenance

of materials & stores. Usually store keeper looks after the maintenance of the

materials & stores of the concern. Yes, there is a separate department for

purchases. Usually at the very beginning of the season sugarcane is purchased in

bulk. If needed further purchase is made by inviting tenders & quotations.

Usually purchase committee goes for the lower tender for purchase of sugarcane.

The members of the purchasing committee are:

Chairman, Managing Director, Accounts Officer & other 2 members

selected by Director of Sugar.

The role of purchasing committee is it usually meets 4 times in a year i.e., for every 3 months or according to the need and urgency of the firm. The role of PC usually has a vital essence in the finalizing of pending indents. The PC examines the various quotations made by growers and selects those tenders, which are beneficial to the concern.

The methods of purchase department are:

No delegation is made to lower level employees incase of purchase.

There is no particulars policy made regarding the value of stock limits whatever

it may be like

Raw materials, work in progress, supplies and construction materials, stores and spares, packing materials, process materials and other materials if any. As agreements are made keeping in view our needs. So there is no limits raise.


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The Raw material used in the production is:

Sugarcane.

Sulphar.

lime & other chemicals.

The Raw material requirements are estimated by:

Chief chemist & stores manager.

Raw materials are purchased in bulk.

By means of factories contract Lorries or by private Lorries raw materials are transported.

A raw material for the society is sugarcane usually chief engineer

estimates the raw materials agreement is making incase of purchase of raw

materials.

The basis for estimating raw material requirements is:

Sugarcane is a seasonal crop so this will be usually estimated by

CAGO (chief agriculture officer).How much production of sugarcane is there in

the state. The chief chemist& chief engineer prepare a statement in requirement of

raw materials of the concern and purchase it through direct method or making

tenders.

Once in year the purchase was made i.e. before starting of the season

raw materials are purchased. Therefore the raw materials for the whole year are

purchased once.


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The spare pails requirements are estimated by:

Chief engineer. Based on the requests of the departmental heads spare

pails requirements are fulfilled. Storekeeper stores and spares control inventories.

Classification & codification technique has been adopted.

By classification & codifications the inventory of the concern are made good and gives maximum output to the concern.

Yes, there is overstocking of stores and spares in the society. The

cause for overstocking is:

Huge purchases with out consumption.

Though over stocking is there it is kept as dead stock in the stores but it can be used in the production and it is not treated as waste stock.

For e.g.: if lime is 500/- per bag before 3 months it will be purchased

and stored. After 3months if its price went up to 800/- per bag then the stored one

is dead stock it can be used in the production of sugar it is not treated as waste.

The materials are purchased on both cash & credit.

If small payment to be made it will be paid immediately.

If larger amounts they can be paid according to the financial position of the

concern.

BILLS RECEIVABLES MANAGEMENT

Bills receivables arise only when the product is sold on credit basis

i.e., when credit sales take place bills came to the show. But the society sells the


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sugar on cash & DD. Sale of sugar is mad by receiving cash/DD. So bills

receivable doesn’t arise. Society directly sells the sugar to government sometimes.

PROFITABILITY MANAGEMENT

Various products of the society are:

Sugar, molasses, press mud contains sulphur used as fertilizers.

The nature of the market is competitive.

The size of the market is National wide.

The close competitors are:

S.V.Sugar factory in Renigunta

Vani sugars in Punganur

Vellore Sugar Factory & Mayura Sugars in B.N.Kandriga.

The pricing practice followed by the enterprise is:

Competitive pricing in case of sugar.

Prices based on government award in case of cane.

The enterprise products are priced correctly.

The government for the fixation of prices of the products has fixed no

guideline.

Profit motive is the primary objective in the fixation of the prices.

Yes the enterprise adopting the system for profit planning & control.

Profit target is determined by:

Minimizing the cost of production to achieve more profits.

The department involved in the profit planning is:

Accounts department.


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For achieving the profits the management has been reviewing on cost of

production. To get good recovery in sugar frequent enlightenment program has

been done with members by agricultural experts and receive instructions to the

head of the institution.

III


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ANALYSIS AND

INTERPRETATION


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INTRODUCTION TO FINANCIAL STATEMENTS

A financial statement is a collection of data organized according to logical and

consistent accounting procedures. Its purpose is to convey an understanding of

some financial aspects of a business firm. It may show a position at a movement

in time, as in the case of balance sheet, or may reveal a series of activities over

a given period of time, as in the case of an income statement.

Financial statements are the outcome of summarizing process of

accounting. In the words of John N. Myer “the financial statements provide

summary of accounts 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 period.” financial statements are prepared as an

end result of accounting and are the major sources of financial information of an

enterprise. Smith and Asburne define financial statements as, “the end product of

financial accounting in a set of final statements prepared by the accountant of a

business enterprise that purport to reveal the financial position of the enterprise, the

result of its current activities, and an analysis what has been done with earnings.”

Financial statements are also called financial reports. In the words of

Anthony “financial statements, essentially are interim reports, presented annually

and reflect a division of the life of an enterprise into more or less arbitrary

accounting period more frequently a year.”

Nature of financial statements:


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The financial statements are prepared on the basis of recorded

facts. The recorded facts are those which can be expressed in monetary terms.

The statements are prepared for a particular period, generally one year. The

transactions are recorded in a chronological order, as and when the events happen.

The accounting records and financial statements prepared from these records are

based on historical costs. The financial statements, by nature, are summaries of the

items recorded in the business and these statements are prepared periodically,

generally for the accounting period.

The American Institute of Certified Public Accountants states the

nature of financial statements as “Financial Statements are prepared for the

purpose of presenting a periodical review of report on progress by the

management and deal with the status of investment in the business and the

results achieved during the period under review. They reflect a combination of

recorded facts, accounting principles and personal judgments.” The American

Accounting Association expresses in its statement. “Every corporate statement

should be based on accounting principles which are sufficiently uniform,

objective and well understood to justify opinions as to the condition and

progress of business enterprise. Its basic assumption was that the purpose of

periodic financial statements of a corporation is to furnish information that is

necessary for the formation of dependable judgments.”

Objectives of financial statements:


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Financial statements are the sources of information on the basis of which

conclusions are drawn about the profitability and financial position of a

concern. They are the major means employed by firms to present their financial

situation of owners, creditors and the general public. The primary objective of

financial statements is to assist in decision making. The Accounting Principles

Board of America (APB) states the following objectives of financial statements:

(i) To provide reliable financial information about economic resources and

obligations of business firm.

(ii) To provide other needed information about changes in such economic

resources and obligations.

(iii) To provide reliable information about changes in net resources (resources less

obligations) arising out of business activities.

(iv) To provide financial information that assists in estimating the earning

potentials of business.

(v) To disclose, to the extent possible, other information related to the financial

statements that is relevant to the needs of the users of these statements.

FINANCIAL STATEMENT ANALYSIS


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Financial analysis is the process of determining financial strengths

and weakness of the firm by establishing strategic relationship between the items

of the items of the balance sheet, profit and loss account and other operative data.

In the words of Myers, “financial statements analysis is largely a study of

relationship among various financial factors in a business as disclosed by a single

set of statements, and a study of the trend of these factors as shown in series of

statements

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. The analysis and interpretation of financial statements is

essential to bring out the mystery behind the figures in financial statements.

Financial statements analysis is an attempt to determine the significance and

meaning of the financial statement data so that forecast may be made of the future

earnings, ability to pay interest and debt maturities (both current and long term)

and profitability of a sound dividend policy.

The term financial statement analysis includes both ‘analyses, and

‘interpretation’. A distinction should be made between the two terms. While the

term ‘analysis’ is used to mean the simplification of financial data by methodical

classification of the data given in financial statements, ‘interpretation’ means

‘explaining the meaning and significance of the data so simplified’. However, both

‘analysis and interpretation’ are interlinked and complementary to each other.

Analysis is useless without interpretation and interpretation without analysis is

difficult or even impossible.


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Methods of Financial Analysis:

The analysis and interpretation of financial statements is used to

determine the financial position and results of operations as well. A number of

methods or devices are used to study the relation ship between different statements.

An effort is made to use those devices which clearly analyze the position of the

enterprise. The following are the methods of analysis are generally used:

1. Comparative statements;

2. Common-size statements;

3. Funds flow analysis;

4. Ratio analysis;

1. Comparative Statements:

The Comparative financial statements are statements of financial

position at different periods; of time. The elements of financial position are shown

in comparative form so as to give an idea of financial position at two or more

periods. Any statement prepared in comparative form will be converted into

comparative statements. From practical point of view, generally, two financial

statements (balance sheet and income statement) are prepared in comparative form

for financial analysis purpose. 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.

i) Comparative Income Statement:


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The income statement gives the results of the operations of business.

The comparative income statement gives an idea of the progress of a business over

a period of time. The changes in absolute data in money values and percentage can

be determined to analyse the profitability of the business.

ii) 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 a 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.

2. Common-size Statements:

The common-size statements, balance sheet and income statement are

shown analytical percentages. The figures are shown as percentages of total assets,

total liabilities and total sales. The total assets are taken as 100 and different assets

are expressed as percentage of the total. Similarly, various liabilities are taken as

part of total liabilities, these statements also known as component percentage

because every individual item is stated as percentage of the total 100.


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The short comings in comparative statements and trend percentages

where changes in items could not be compared with the totals have been covered

up. The analyst is able to asses the figures in relation to total values.

i) Common-size Income Statement:

The items in income statement can be shown as percentages of sales

to show the relation of each item to sales. A significant relationship can be

established between items of income statement and volume of sales. The increase

in sales will certainly increase selling expenses and not administrative and

financial expenses. In case the volume of sales increases to considerable extent,

administrative and financial expenses may go up. In case total sales are declining,

the selling expenses should be reduced at once. So, a relationship is established

between sales and other items in income statement and this relationship is helpful

in evaluating operational activities of the enterprise.

ii) Common-size Balance Sheet:

A statement in which balance sheet items are expressed as the ratio of

each asset to total assets and the ratio of each liability is expressed as a ratio of

total liabilities is called common size balance sheet. The common size balance

sheet can be used to compare companies of different size. The comparison of

figures in different periods is not useful because total figures may be affected by a

number of factors. It is not possible to establish standard norms for various assets.


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3. Funds flow analysis:

Funds flow statement shows the movement of funds and is a

report of the financial operations of the business undertaking. It indicates various

means by which funds were obtained during a particular period and the ways in

which these funds were employed. The flow of funds occur when a transaction

changes on the one hand and non-current account and on the other a current

account & vice- versa.

Flow of funds:

Various sources from which funds were raised and the uses to which these funds were put. Funds flow statement is formulated on the basis of working capital basis and on Cash basis

Steps in pre preparation of funds flow statement:

1. Increase or decrease of working capital

2. Funds from operations

3. Funds flow statement


Current Liabilities

Non-Current

Assets

Non-Current Liabilities

Current

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Importance of Funds flow statement :

1. It helps in the analysis of financial operations

2. It throws light on many perplexing questions of general interest

3. It helps in formation of a realistic dividend policy.

4. It acts as future guide

5. It helps in the proper allocation of resources

6. It helps in appraising the use of working capital

7. It helps in knowing the overall credit-worthiness of a firm

Funds flow statement:

1. It should be remembered that a funds flow statement is a substitute to the

income statement or a balance sheet. It provides only some additional

information as regards changes in working capital.

2. It cannot reveal continuous changes.

3. It is not an original statement but simply arrangement of data given in the

Financial statement.

4. Ratio analysis: Ratio analysis is a powerful tool of financial analysis. It is used

as benchmark for calculating the financial position and performance of a firm. The

absolute accounting figure reported in the financial statements does not provide

the meaningful performance of financial position in the firm, ratio helps to

summarize the large quantity of data to make qualitative judgment about the firm’s

performance.


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Types of ratios:

Ratios are calculated from the accounting data are grouped into

various classes according to financial activity. In view of the requirement of

various users of ratios it is classified into four important categories:

1. Liquidity Ratio

2. Leverage Ratio

3. Activity Ratio

4. Profitability Ratio

1. LIQUIDITY RATIO:

It means the ability of the firm to meet its current obligations. The

ratio establishers the relationship between cash and other current assets to current

obligations. The most common ratios are:

i. Current ratio

ii. Quick ratio

iii. Net Working Capital ratio

i. Current ratio:

The current ratio indicates the availability of current assets in rupee for everyone of current liability. If ratio is greater than it means that the firm has more current assets than current liabilities against them.

Current Assets Current Ratio = ----------------------

Current LiabilitiesStandard Ratio is 2:1


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ii. Quick ratio:

The ratio establishes a relationship between liquid assets and liquid liabilities. Inventories are considered to be less liquid a sit normally required same time for realizing in cash and their values have tendency to fluctuate. Hence quick ratio is found out by dividing the total of quick assets by total current liabilities.

Quick Assets

Quick Ratio = --------------------- Current Liabilities

iii. Networking capital ratio:

The difference between current assets and current liabilities excluding short-term bank borrowing is called net working capital or net current assets is sometimes used as a measure of a firm’s liquidity. It is considered that, between two firms, the one having the larger NWC has the greater ability to meet its current obligations. This is not necessarily so; the measure of liquidity is a relationship, rather than the difference between current assets and current liabilities. NWC, however, measures the firm’s potential reservoir of funds. It can be related to net assets (or capital employed).

Net Working Capital

NWC Ratio =

Net Assets


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2. LEVERAGE RATIO:

Leverage ratio may be calculated from the balance sheet items to

determine the proportion of debt in total financing. It is also calculated form

income statement items to determine the extent to which operating profits are

sufficient to cover fixed charges. Leverage ratios are calculated to measure the

financial risk and the firm’s ability of using debt.

I. Debt ratio

ii. Debt-Equity ratio

III. Capital employed to net worth

i. Debt ratio:

Debt ratio used to analyses the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest-bearing debt in the capital structure. It may, therefore, compute debt ratio by dividing total debt by capital employed or net assets. Total debt will include short and long-term borrowing from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, bank borrowings, public deposits and any other interest-bearing loan. Capital employed will include total debt and net worth.

Total Debt Debt Ratio = Capital Employed


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ii. Debt equity ratio:

Relationship between borrowed funds and owners equity a high

ratio shows a large share of financing by creditors relative to owners a low ratio

inputs in smaller claim of creditors. If the debtors equity ratio is high owners are

putting up relatively less money of there own it is danger signal for creditors.

iii. Capital employed to net worth ratio:

There is yet another alternative way of expressing the basic relationship between debt and equity one may want to know: How much funds are being contributed together by lenders and owners for each rupee of the owner’s contribution? This can be found out by calculating the ration of capital employed or net assets to net worth.

Capital Employed

CE-to-NW Ratio =

Net Worth 3. ACITIVITY RATIO:

Activity ratios are employed to evaluate the efficiency with which the firm managers and utilizes its assets. These are also known as turnover rations. These ratio’s starts the relationship between sales and assets. Some of the important ratios are:

i. Inventory turnover ratioii. Debtors turnover ratio

III. Collection period


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I. Inventory turn over ratio:

The inventory turnover reflects the efficiency of inventory management indicates the efficiency of the firm in producing and selling its product. A high inventory turnover is indicative of good inventory management. It is calculated by dividing the cost of goods sold by the average inventory. The higher the inventory turnover larger the amount of profit

Cost of Goods Sold

Inventory Turn Over = Average inventory

ii. Debtors turnover ratio:

Debtor’s turnover ratio explains the number of times the debt are converted into cash within a short period of time. This ratio establishes the relation between credit sales and debtors.

Sales

Debtor’s Turnover Ratio = Total debtors

iii. Collection Period:

The average number of days for which debtors remain outstanding is

called the average collection period (ACP). The average collection period

measures the quality debtors since it indicated the speed of their collection.

debtors Collection Period = x 360 days

Sales


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4. PROFITABILITY RATIO:

The profitability ratios are used to calculate the efficiency of operating of the company. Profits are ultimate goal of every company and it should be continuously evaluated in terms of profits. Generally two major profits are calculated, they are

i. Gross profit ratio

ii. Net profit ratio

i.Gross profit ratio:

The first profitability ratio in relation to sales reflects the efficiency

with which management produces each unit of product. It is calculated by dividing

the Gross Profit with Sales.

Gross profitGross Profit ratio = x 100

Sales

ii. Net profit ratio:

Net profit ratio explains the net profit of the company after paying

taxes of particular period. It establishes relation between net profit and sales.

Net Profit Net profit ratio= Sales


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COMPARITIVE INCOME STATEMENT


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Comparative income statement of chittoor co-operative sugars ltd., 2003-2004

Particulars 31-3-2003 31-4-2004 changePercentag

e

Sales 201486573 130517437 -70969136 -35.22%

Less: Cost of goods sold 239132131 155574480 -83557651 -34.94%

Gross profit/loss -37645558 -25057043 12588515 -33.44%

Less: Operating expenses 12609835 10532587 -2077248 -16.47%

Operating profit/loss -50255393 -35589630 14665763 -29.18%

Add: Other income

Miscellaneous income 9500299 1639130 -7861169 -82.75%

Interest received 118481 129866 11385 9.61%

Profit/loss before interest -40636613 -33820634 6815979 -16.77%

Less: Interest paid 26777116 28813070 2035954 7.60%

Profit/loss after interest -67413729 -62633704 4780025 -7.09%

Less: Loss up to last year 231799275 299213004 67413729 29.08%

Net loss cumulative -299213004-361846708 -62633704 20.93%

Source: Annual Reports of CCSL.

Interpretation:

From the above table it was analyzed that sales and cost of goods sold were decreased so gross loss also decreased, and there was high decrease in miscellaneous income (i.e. 82.75%) loss increased due to lack of operational efficiency.



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e

Sales 130517437 96920394 -33597043 -25.74%


Gross profit/loss -25057043 -5323482 19733561 -78.75%

Less: Operating expenses 10532587 11133862 601275 5.71%

Operating profit/loss -35589630 -16457344 19132286 -53.76%

Add: Other income

Miscellaneous income 1639130 4383327 2744197 167.42%


Profit/loss before interest -33820634 -11930440 21890194 -64.72%

Less: Interest paid 28813070 23326176 -5486894 -19.04%





Interpretation:

From the above table it was analyzed that the percentage decrease in cost of goods sold is more than the decrease in sales so gross loss also decreased due to reduce in the cost of raw materials. Even though increase in operating expenses operating loss decreased due to effective control of raw material cost.



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e

Sales 96920394 124629657 27709263 28.59%


Gross profit/loss -5323482 51751887 57075369 -1072.14%

Less: Operating expenses 11133862 35468649 24334787 218.57%

Operating profit/loss -16457344 16283238 32740582 -198.94%

Add: Other income

Miscellaneous income 4383327 4664988 281661 6.43%


Profit/loss before interest -11930440 21121207 33051647 -277.04%






Interpretation:

From the above table it was analyzed that sales percentage increased and at the same time cost of goods sold decreased so the firm earned gross profit due to high control in purchase of raw materials. Due to increase in operating expenses loss increased (2.06%) the firm has no control over the operating activities.



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e

Sales 124629657 368853567 244223910 195.96%

Less: Cost of goods sold 72877770 406536335 333658565 457.83%

Gross profit/loss 51751887 -37682768 -89434655 -172.81%

Less: Operating expenses 35468649 17197408 -18271241 -51.51%

Operating profit/loss 16283238 -54880176 -71163414 -437.03%

Add: Other income

Miscellaneous income 4664988 26265 -4638723 -99.44%


Profit/loss before interest 21121207 -53797634 -74918841 -354.71%


Profit/loss after interest -8198971 -93638075 -85439104 1042.07%




Interpretation:

From the above table it was analyzed that cost of goods sold increased by (457.83%) but sales increased only (195.96) i.e. less than increase in cost of goods sold so the firm incurred loss. Even though operating expenses decrease it got operating loss due to high cost of production.


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COMPARITIVE BALANCE SHEET

Comparative balance sheet for the years2003-04Particulars 31-3-2003 31-3-2004 Change Percentage

Share capital 140,958,700 140,960,300 1,600 0.00%


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Reserves 219,357,188 228,727,884 9370696 4.27%

U.D.P 64,227 64,227 0 0.00%

Reserves to be invested 24,703 24,703 0 0.00%

Audit fund 9,696 9,696 0 0.00%

Profit/loss -299,213,003 -361,846,708 -62633705 20.93%

A. Net worth 61,201,511 7,940,102 -53261409 -87.03%

Borrowings 235,616,210 223,822,462 -11793748 -5.01%

Deposits 28,836,536 28,812,457 -24079 -0.08%

B.Borrowings 264,452,746 252,634,919 -11817827 -4.47%

C. Capital employed (A+B) 325,654,257 260,575,021 -65079236 -19.98%

F.D.S with banks 250,000 2,250,000 2000000 800.00%

Shares in other co-operative institutions 228,550 228,550 0 0.00%

Loans to other co-operative factories 3,000,000 1,000,000 -2000000 -66.67%

Fixed assets 222,136,732 222,136,732 0 0.00%

Deficits 47,944 47,944 0 0.00%

D. Fixed assets 225,663,226 225,663,226 0 0.00%

Cash on hand 1,283,980 22,575 -1261405 -98.24%

Cash at bank 4,095,240 15,881,189 11785949 287.80%

Deposits with various agencies 1,254,826 1,261,226 6400 0.51%

Loans and advances to members 6,461,883 6,386,630 -75253 -1.16%

Debtors 54,412,361 54,894,708 482347 0.89%

Interest receivable 1,826,488 1,826,489 1 0.00%

Closing stock 219,662,805 96,849,740-

122813065 -55.91%

E. Current assets 288,997,583 177,122,557-

111875026 -38.71%

Creditors 182,912,074 115,020,074 -67892000 -37.12%

Outstanding interest 6,094,478 27,190,688 21096210 346.15%

F. Current liabilities 189,006,552 142,210,762 -46795790 -24.76%

G. Net current assets (E-F) 99,991,031 34,911,795 -65079236 -65.09%

H. Net assets (D+G) 325,654,257 260,575,021 -65079236 -19.98%

Source: Annual Reports of CCSL.Interpretation:

From the above table it was analyzed that fixed deposits were increased by 800%

current assets and current liabilities were sufficiently decreased due to current liabilities were

paid out of current assets.

Comparative balance sheet for the years2004-05

Particulars 31-3-2004 31-3-2005 Change Percentage

Share capital 140,960,300 140,961,400 1,100 0.00%

Reserves 228,727,884 248,088,004 19360120 8.46%

U.D.P 64,227 64,227 0 0.00%


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Audit fund 9,696 9,696 0 0.00%

Profit/loss-

361,846,708 -397103323 -35256615 9.74%

A. Net worth 7,940,102 -7,955,293 -15895395 -200.19%

Borrowings 223,822,462 266,073,588 42251126 18.88%

Deposits 28,812,457 29,154,179 341722 1.19%

B.Borrowings 252,634,919 295,227,767 42592848 16.86%

C. Capital employed (A+B) 260,575,021 287,272,474 26697453 10.25%

F.D.S with banks 2,250,000 2,750,000 500000 22.22%

Shares in other co- operative institutions 228,550 228,550 0 0.00%

Loans to other co- operative factories 1,000,000 1,000,000 0 0.00%

Fixed assets 222,136,732 222,577,781 441049 0.20%

Deficits 47,944 47,944 0 0.00%

D. Fixed assets 225,663,226 226,604,275 941049 0.42%

Cash on hand 22,575 1,878,931 1856356 8223.06%

Cash at bank 15,881,189 18,140,037 2258848 14.22%


Loans and advances to members 6,386,630 9,085,236 2698606 42.25%

Debtors 54,894,708 67,056,512 12161804 22.15%


Closing stock 96,849,740 110,043,158 13193418 13.62%

E. Current assets 177,122,557 209,301,589 32179032 18.17%

Creditors 115,020,074 108,107,592 -6912482 -6.01%


F. Current liabilities 142,210,762 148,633,390 6422628 4.52%

G. Net current assets (E-F) 34,911,795 60,668,199 25756404 73.78%

H. Net assets (D+G) 260,575,021 287,272,474 26697453 10.25%

Source: Annual Reports of CCSL.Interpretation: From the above table it was analyzed that the cash on hand increased by 8223.06% current assets, current liabilities increased, net assets increased by 10.25% and no change in fixed assets.

Comparative balance sheet for the years2005-06Particulars 31-3-2005 31-3-2006 Change Percentage

Share capital 140,961,400 141,140,700 179,300 0.13%

Reserves 248,088,004 264,309,028 16221024 6.54%

U.D.P 64,227 64,227 0 0.00%



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Audit fund 9,696 9,696 0 0.00%

Profit/loss -397103323 -405303195 -8199872 2.06%

A. Net worth -7,955,293 245,159 8200452 -103.08%

Borrowings 266,073,588 404,340,806 138267218 51.97%

Deposits 29,154,179 31,024,046 1869867 6.41%

B.Borrowings 295,227,767 435,364,852 140137085 47.47%

C. Capital employed (A+B) 287,272,474 435,610,011 148337537 51.64%

F.D.S with banks 2,750,000 250,000 -2500000 -90.91% Shares in other co-operative institutions 228,550 228,550 0 0.00%

Loans to other co-operative factories 1,000,000 1,000,000 0 0.00%

Fixed assets 222,577,781 225,127,858 2550077 1.15%

Deficits 47,944 47,944 0 0.00%

D. Fixed assets 226,604,275 226,654,352 50077 0.02%

Cash on hand 1,878,931 141,219 -1737712 -92.48%

Cash at bank 18,140,037 7,249,943 -10890094 -60.03%

Deposits with various agencies 1,271,226 1,267,226 -4000 -0.31%


Debtors 67,056,512 73,209,660 6153148 9.18%


Closing stock 110,043,158 304,641,448 194598290 176.84%

E. Current assets 209,301,589 398,960,972 189659383 90.62%

Creditors 108,107,592 140,980,325 32872733 30.41%


F. Current liabilities 148,633,390 190,005,313 41371923 27.83%

G. Net current assets (E-F) 60,668,199 208,955,659 148287460 244.42%

H. Net assets (D+G) 287,272,474 435,610,011 148337537 51.64%


From the above table it was analyzed that the net worth

decreased by 103.08%, no change in fixed assets percentage and both current

assets and current liabilities were increased.

Comparative balance sheet for the years2006-07

Particulars 31-3-2006 31-3-2007Chang

ePercentag

e Share capital 141,140,700 142,553,600 1,412,900 1.00%

Reserves 264,309,028 268,006,835 3697807 1.40%

U.D.P 64,227 64,227 0 0.00%



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Audit fund 9,696 9,696 0 0.00%

Profit/loss -405303195 -498,941,043 -93637848 23.10%

A. Net worth 245,159 -88,281,982 -88527141 -36110.09%

Borrowings 404,340,806 405,702,422 1361616 0.34%

Deposits 31,024,046 35,201,887 4177841 13.47%

B.Borrowings 435,364,852 440,904,309 5539457 1.27%

C. Capital employed (A+B) 435,610,011 352,622,327 -82987684 -19.05%

F.D.S with banks 250,000 250,000 0 0.00%

Shares in other co-operative institutions 228,550 228,550 0 0.00%

Loans to other co-operative factories 1,000,000 1,000,000 0 0.00%

Fixed assets 225,127,858 235,857,585 10729727 4.77%

Deficits 47,944 47,944 0 0.00%

D. Fixed assets 226,654,352237,384,079 10729727 4.73%

Cash on hand 141,219 95,083 -46136 -32.67%

Cash at bank 7,249,943 17,849,583 10599640 146.20%



Debtors 73,209,660 75,541,003 2331343 3.18%


Closing stock 304,641,448 281,582,197 -23059251 -7.57%

E. Current assets 398,960,972391,339,454 -7621518 -1.91%

Creditors 140,980,325 229,172,905 88192580 62.56%

Outstanding interest 49,024,988 46,928,301 -2096687 -4.28%

F. Current liabilities 190,005,313276,101,206 86095893 45.31%

G. Net current assets(E-F) 208,955,659115,238,248 -93717411 -44.85%

H. Net assets (D+G) 435,610,011352,622,327 -82987684 -19.05%


From the above table it was analyzed that capital employed decreased by 19.05% , current assets decreased and current liabilities increased due to funds raised to short term borrowings and fixed assets increased by 4.73% due additional assets purchased.


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COMMON SIZE INCOME STATEMENT

common size income statement of chittoor co-operative sugars ltd., 2003-2007

Particulars 31-3-03 31-3-04 31-3-05 31-3-06 31-3-07

Sales 100% 100% 100% 100% 100%

Less: Cost of goods sold 119% 119% 105% 58% 110%

Gross profit/loss -19% -19% -5% 42% -10%

Less: Operating expenses 6% 8% 11% 28% 5%

Operating profit/loss -25% -27% -17% 13% -15%

Add: Other income 0% 0% 0% 0% 0%


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Miscellaneous income 5% 1% 5% 4% 0%

Interest received 0% 0% 0% 0% 0%

Profit/loss before interest -20% -26% -12% 17% -15%

Less: Interest paid 13% 22% 24% 24% 11%

Profit/loss after interest -33% -48% -36% -7% -25%

Less: Loss up to last year 115% 229% 373% 319% 110%

Net loss cumulative -149% -277% -410% -325% -135%


Interpretation:

From the above common size income statement it was analyzed that cost of goods sold is more than the sales except the year 2006 due to high cost of production due to in efficiency in controlling cost of production so, it got gross loss in all the years except the year 2006. Operating loss had been decreasing from the years 2003-05, in the year 2006 it got operating profit (13%) and again it got operating loss in the year 2007 due to inefficiency in controlling expenses. Net loss had been incasing over the years due to the firm proved that over all inefficiency in earning profits


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COMMON SIZE BALANCE SHEET

Common size balance sheet of chittoor co-operative sugars ltd.,2003-04

Particulars 2003 2004 Particulars 2003 2004

Share capital 27% 35% F.D.S with banks 0% 1%

Reserves to be invested 0% 0%

Shares in other co-operative institutions 0% 0%

U.D.P 0% 0%Loans to other co-operative factories 1% 0%

Reserves 0% 0% Fixed assets 43% 55%

Audit fund 43% 57% Deficits 0% 0%

Profit/loss -58% -90% Total fixed assets 44% 56%

Net worth 12% 2% Cash on hand 0% 0%


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Cash at bank 1% 4%

Borrowings 46% 56%Deposits with various agencies 0% 0%

Deposits 6% 7%Loans and advances to members 1% 4%

Fixed liabilities 63% 65% Debtors 0% 0%

Outstanding interest 1% 7% Interest receivable 1% 2%

Creditors 36% 29% Closing stock 11% 14%

current liabilities 37% 35% Current Assets 56% 44%

Total 100% 100% Total 100% 100%


Interpretation:

From the above table it was analyzed that fixed assets increased from 44% to 56% and fixed liabilities also increased from 63% to65% due to additional fixed assets were acquired through borrowings. Current assets and current liabilities are considerably decreased it may due to current liabilities are paid out of current assets.



Share capital 35% 32% F.D.S with banks 1% 1%Reserves to be invested 0% 0%






Net worth 2% -2% Cash on hand 0% 0%


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Cash at bank 4% 4%







Total 100% 100% Total 100% 100%


Interpretation:

From the above table it was analyzed that fixed assets were decreased due to fixed assets were sold and hold in current assets so, current assets increased . Fixed liabilities were increased due to additional funds borrowed. Current liabilities were decreased due to payment made to short term creditors.









Net worth -2% 0% Cash on hand 0% 0%

Cash at bank 4% 1%


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Total 100% 100% Total 100% 100%


Interpretation:

From the above table it was analyzed that fixed assets were decreased from 52% to 36% due to most of the fixed assets were converted into cash so current assets were increased from 48% to 64%. Fixed liabilities were increased from 66% to 70% due to additional funds were borrowed. Current liabilities were decreased due to payment made to short term creditors.









Net worth 0% -14% Cash on hand 0% 0%

Cash at bank 1% 3%



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Total 100% 100% Total 100% 100%


Interpretation:

From the above table it was analyzed that fixed assets were fixed assets were increased from 36% to 38% and current assets were decreased from 64% to 62% due to additional assets were purchased from current assets. Fixed liabilities were decreased from 70% to 56% current liabilities were increased due to repaid long term borrowings through current liabilities.

WORKING


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CAPITAL CHANGES

Statement of changes in working capital of chittor co-operative sugars ltd. 2003-2004

Particulars 2003 2004 IncreaseDecreas

eCurrent assetsCash on hand 1283980 22575 1261405


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Cash at bank 4095239 15881189 11785950Deposits with various agencies 1254826 1261226 6400loans and advances to members 6461883 6386630 75253Debtors 54412361 54894708 482347Interest receivable 1826489 1826489 0 0Closing stock 219662803 96849740 122813063Total current assets (A) 288997581 177122557Current liabilitiesCreditors 182912074 115020074 67892000Outstanding interest 6094478 27190688 21096210Total current liabilities (B) 189006552 142210762Working capital (A-B) 99991029 34911795Increase in working capital 65079234 145245931 145245931

Funds flow statement 2003-2004Sources Amount Applications Amount

Decrease in working capital 65079234Funds lost in operation 53263007loans to sugar factories 2000000Fixed deposits made 2000000Issue of shares 1600Borrowings 11793748 Deposits collected 24079 67080834 67080834


Interpretation:

From the above table it was analyzed that most of the funds were lost in operations and decrease in working capital, loans are the major sources of funds.



eCurrent assets

Cash on hand 22575 1878931 1856356

Cash at bank 15881189 18140037 2258848

Deposits with various agencies 1261226 1271226 10000


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loans and advances to members 6386630 9085236 2698606

Debtors 54894708 67056512 12161804

Interest receivable 1826489 1826489 0 0

Closing stock 96849740110043158 13193418

Total current assets (A) 177122557209301589

Current liabilities

Creditors 115020074108107592 6912482

Outstanding interest 27190688 40525798 13335110

Total current liabilities (B) 142210762148633390

Working capital (A-B) 34911795 60668199

Increase in working capital 25756404

39091514 39091514


Share capital 1100Increase in working capital 25756404Deposits collected 341722Funds lost in operation 15896495Borrowings 42251126Fixed deposits made 500000 Purchase of fixed assets 441049 42593948 42593948


Interpretation:

From the above table it was analyzed that funds were mostly loosed in operations, additional funds required to meet the working capital needs of the firm. Major sources of funds were deposits, long term borrowings.



eCurrent assetsCash on hand 1878931 141219 1737712Cash at bank 18140037 7249943 10890094Deposits with various agencies 1271226 1267226 4000loans and advances to members 9085236 10624987 1539751Debtors 67056512 73209660 6153148


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Interest receivable 1826489 1826489 0 0Closing stock 110043158304641448 194598290Total current assets (A) 209301589398960972Current liabilitiesCreditors 108107592140980325 32872733Outstanding interest 40525798 49024988 8499190Total current liabilities (B) 148633390190005313Working capital (A-B) 60668199208955659Increase in working capital 148287460 202291189 202291189


Fixed deposits with banks 2500000

Increase in working capital 148287460

Issue of shares 179300Fixed assets purchased 2550077Deposits collected 1869867 Borrowings 138267218 Funds from operation 8021152 150837537 150837537


Interpretation:

From the above table it was analyzed that most of the funds were used for increase in working capital, to purchase fixed assets. Deposits, borrowings, funds from operation are major sources of funds



eCurrent assets Cash on hand 141219 95083 46136Cash at bank 7249943 17849583 10599640Deposits with various agencies 1267226 1270226 3000loans and advances to members 10624987 13174873 2549886Debtors 73209660 75541003 2331343Interest receivable 1826489 1826489 0 0


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Closing stock 304641448 281582197 23059251Total current assets (A) 398960972 391339454Current liabilitiesCreditors 140980325 229172905 88192580Outstanding interest 49024988 46928301 2096687Total current liabilities (B) 190005313 276101206Working capital (A-B) 208955659 115238248Decrease in working capital 93717411 111297967 111297967


Decrease in working capital 93717411Funds lost in operation 89940041Issue of shares 1412900Fixed assets purchased 10729727Deposits collected 4177841 Borrowings 1361616 100669768 100669768


Interpretation:

From the above table it was analyzed that most of the funds were lost

in operations and remaining funds are used to purchase fixed assets. Deposits,

borrowings, decrease in working capital were major sources of funds.


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RATIO ANALYSIS

LIQUIDITY RATIOS

Table1: Current ratio

Years Current assets Current liabilities Ratio

2003 288,997,580 189,006,552 1.53

2004 177,122,556 142,210,762 1.25

2005 206,490,630 148,633,390 1.39

2006 398,960,970 190,005,314 2.10

2007 391,339,953 276,101,207 1.42


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Source: Annual Reports of CCSL

Interpretation:

From the above graph it was analyzed that current ratio was decreased

from 1.53 to 1.25, increased to 1.39 and increased to 2.10 and again decreased to

1.42 .The current ratio is less than the rule of thumb 2:1 except the year 2006.

Table2: Quick ratio

Years Quick assets Current liabilities Ratio

2003 69,334,778 189,006,552 0.37

2004 80,262,817 142,210,762 0.56

2005 99,258,431 148,633,390 0.67

2006 94,319,524 190,005,313 0.50

2007 109,757,257 276,101,206 0.40



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Interpretation:

From the above graph it was analyzed that quick ratio was increased

from 0.37 to 0.67 and decreased to 0.40 it was due to improper maintenance of

quick assets. The quick ratio was below the rule thumb of 1:1 i.e. quick assets were

less than current liabilities.

Table3: Net working capital


Years Net working capital Net assets Ratio

2003 99,991,031 325,654,257 0.31

2004 34,911,795 260,575,021 0.13

2005 60,668,199 287,272,474 0.21

2006 208,955,659 435,610,011 0.48

2007 115,238,248 352,622,327 0.33

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Interpretation:

From the above graph it was analyzed that net working capital ratio

had decreased from 0.31 to 0.13 in 2004, increased to 0.21 in 2005, increased to

0.48 and again decreased to 0.33. it was due to the changes in working capital

requirements.

LEVERAGE RATIOS

Table1: Debt ratio


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Years Total debt Capital employed Ratio

2003 264452746 325654257 0.81

2004 452550346 260575021 1.74

2005 514161592 287272474 1.79

2006 668649834 435610011 1.53

2007 673709257 352622327 1.91

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Interpretation:

From the above graph it was analyzed that the debt ratio mostly

increased. It is due to increase in additional funds required year by year.

Table2: Debt equity ratio

Years Total debt Net Worth Ratio

2003 264452746 61201511 4.32

2004 452550346 7940102 57.00

2005 514161592 -7955293 -64.63

2006 668649834 245159 2727.41

2007 673709257 -88281982 -7.63


Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that the lenders contribution is

more than the owners contribution, in the years 2005 and 2006 there is no owner’s

contribution. So, the debt equity ratio became negative.

Table3: Capital employed to net worth

Years Capital employed Net Worth Ratio2003 325654257 61201511 5.32

2004 260575021 7940102 32.82

2005 287272474 -7955293 -36.11

2006 435610011 245159 1776.85

2007 352622327 -88281982 -3.99


Interpretation:

From the above graph it was analyzed that capital employed to net

worth was 5.32%, increased to 32.83% in 2004, became negative in 2005,2007 and


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in the year 2006 increased to 1776.85% due to changes in the value of net worth of

the firm.

ACTIVITY RATIOS

Table1: Inventory turnover

Years Cost of goods sold Average inventory Ratio

2003 239132131 234147889 1.02

2004 155574480 137597980 1.13

2005 102243876 83065442 1.23

2006 72877770 182464926 0.40

2007 406536335 264313376 1.54


Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that the inventory turnover ratio

was very low in all the years, due to excess inventory levels in all the years.

Table2: Debtors turnover

Years Sales Debtors Ratio

2003 201486573 51412361 3.92

2004 130517437 54894708 2.38

2005 96920394 67056512 1.45

2006 124629659 73209660 1.70

2007 368853567 75541003 4.88


Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that in 2005 and 2006 debtors

turnover ratio is very low due to most of the goods were sold on credit.

Table3: Collection period

Years Debtors Sales Ratio

2003 51412361 201486573 91.86

2004 54894708 130517437 151.41

2005 67056512 96920394 249.07

2006 73209660 124629659 211.47

2007 75541003 368853567 73.73Source: Annual Reports of CCSL

Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that collection period increased up to 2005 and then decreased, due to most of the goods were sold on credit debts are outstanding.

PROFITABILITY RATIOS

Table1: Gross profit ratio

Years Gross profit/loss Sales Ratio

2003 -37645558 201486573 -18.68%

2004 -25057043 130517437 -19.20%

2005 -5323482 96920394 -5.49%

2006 51751887 124629659 41.52%

2007 -37682768 368853567 -10.22%Source: Annual Reports of CCSL

Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that gross profit ratio was

negative for most of the years except the year 2006 it is due to inefficiency in

producing goods.

Table2: Net profit ratio

Years Net profit/loss Sales Ratio

2003 -67413729 201486573 -33.46%

2004 -62633704 130517437 -47.99%

2005 -35256615 96920394 -36.38%

2006 -8199872 124629659 -6.58%

2007 -93637848 368853567 -25.39%Source: Annual Reports of CCSL

Interpretation:


Raghavendra Yadav

From the above graph it was analyzed that in all the years the net profit ratio is negative due to over all inefficiency in the firm.

Balance sheet


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Balance sheet of chittoor co-operative sugars ltd chittoor.for the years 2003-2007LIABILITIES 31-3-2003 31-3-2004 31-3-2005 31-3-2006 31-3-2007 ASSETSShare capital 140,958,700 140,960,300 140,961,400 141,140,700 142,553,600 F.D.S with banks

Reserves 219,357,188 228,727,884 248,088,004 264,309,028 268,006,835

Shares in other co-operative institutions

U.D.P 64,227 64,227 64,227 64,227 64,227

Loans to other co-operative factories

Reserves to be invested 24,703 24,703 24,703 24,703 24,703 Fixed assetsAuditfund 9,696 9,696 9,696 9,696 9,696 DefictsBorrowings 235,616,210 223,822,462 266,073,588 404,340,806 405,702,422 Cash on handDeposits 28,836,536 28,812,457 29,154,179 31,024,046 35,201,887 Cash at bank

Creditors 182,912,074 115,020,074 108,107,592 140,980,325 229,172,905Deposits with various agencies

Outstanding interest 6,094,478 27,190,688 40,525,798 49,024,989 46,928,301

Loans and advances to members

Debtors

Interest receivable

Closing stock Loss Total 813,873,812 764,632,491 833,009,187 1,030,918,520 1,127,664,576 Total

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findings

FINDINGS

Cost of goods sold was more than the sales except the year 2006. So, the chittoor co-operative sugars ltd. got gross loss in most of the years.


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Operating loss decreased up to the year 2006 and then increased in the year 2007.

The chittoor co-operative sugars ltd. did not earned net profit in all the years.

It had been maintaining high inventory levels for all the years. In most of the years debtor’s collection period was very high. Most of the funds rose through debts with high interest rates. Most of the funds were lost in operations.


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Suggestions

SUGGESSIONS

CCSL should adopt cost control measures by drawing inspiration from prospering sugar factories.

CCSL should reduce operating and administrative expenses, it will increase over all efficiency of the firm.

A high level of debt introduces inflexibility in the firms operations due to increaseasing interference and pressures


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from creditors. A high debt company is able to borrow funds on very restrictive terms and conditions. So, it should raise owners funds.

CCSL can adopt forward integration strategy by opening retail outlets where its own sugar can be sold. It increases revenues one hand and cash position on the other.


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Conclusion


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CONCLUSION

The present study of “FINANCIAL PERFORMANCE ANALYSIS IN CHITTOOR CO-OPERATIVE SUGARS LTD,.” Was conducted with the help of annual report. Various financial tools are used in the study from the ratio analysis it has been found out that the average collection period of the company is high and capital gearing is low. To extent possible the study has achieved its stated objectives. It is on the part of the company to accept the suggestions.

CCSL Profitability position was deteriorated year by year, liquidity position also moderate, long term solvency of the firm is also moderate due to high debts, the firm’s efficiency in utilizing assets is also very low.

Finally the study helped me to acquire practical knowledge that was only over by books and papers alone. I take up this opportunity to thank one and all for making this study a complete one.


Raghavendra Yadav

BEBLIOGRAPHY


Raghavendra Yadav

BIBILOGRAPHY

BOOKS

Financial Management I. M. Pandey Ninth Edition Vikash Publishing house

Pvt ltd.

Financial Management Theory and Practice Prasanna Chandra Sixth

Edition Tata Mc Graw Hill Publishing company.

Management Accounting Principles and Practice R. K. Sharma Sahashi K.

Guptha Eigth edition kalyani publishiers.

Dr .S.N. Maheswari-financial management G.G.S. Indraprasatha university ,

new delhi.

WEBSITES

www.cliffsnotes.com

www.financial-education.com


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THANK YOU


Project Report

Documents

comparitive balance

comparitive income statement

working capital ratio58

financial weakness

financial strengths

financial position

nature of analysis

study objectives of