Evaluation of financial performance appraisal Industry profile Global valve market The valve market, by and large, is shared by various manufacturers based on technology, manufacturing capacities, and brand name quality and price competitiveness. US, Germany, Italy & Japan are the leading countries manufacturing valves with 50% of total world production. Tyco is the world's largest producer of valves and controls with 80 brands. The company has pioneered new designs and technologies in this field. The demand for valves is witnessing growth in almost all areas. All core sectors of industry, namely power, oil and gas, water and infrastructure projects, metal and mining, chemicals, drugs and pharmaceuticals, and food and beverages, require various types of valves for expansion of capacities, de-bottlenecking or routine maintenance and repair of plants. The valve industry will continue to grow at 7-8 per cent per annum. Exports may grow at 10-12 per cent per annum due to India becoming competitive compared to manufacturers in Japan, Europe and USA. The global market for industrial valves is forecast to increase 4.4 percent annually through 2011 to $77.6 billion. Gains will be driven by generally healthy global economic conditions, encouraging investment in key valve markets such as the US, China and Germany. Growth will JSS DVH-IMSR, Dharwad Page 1
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Evaluation of financial performance appraisal
Industry profile
Global valve market
The valve market, by and large, is shared by various manufacturers based on technology,
manufacturing capacities, and brand name quality and price competitiveness. US, Germany,
Italy & Japan are the leading countries manufacturing valves with 50% of total world
production.
Tyco is the world's largest producer of valves and controls with 80 brands. The company has
pioneered new designs and technologies in this field.
The demand for valves is witnessing growth in almost all areas. All core sectors of industry,
namely power, oil and gas, water and infrastructure projects, metal and mining, chemicals,
drugs and pharmaceuticals, and food and beverages, require various types of valves for
expansion of capacities, de-bottlenecking or routine maintenance and repair of plants.
The valve industry will continue to grow at 7-8 per cent per annum. Exports may grow at
10-12 per cent per annum due to India becoming competitive compared to manufacturers in
Japan, Europe and USA. The global market for industrial valves is forecast to increase 4.4
percent annually through 2011 to $77.6 billion. Gains will be driven by generally healthy
global economic conditions, encouraging investment in key valve markets such as the US,
China and Germany. Growth will instead be much more profound in the rapidly developing
nations of the world such as China, India and Malaysia. Gains in valve demand will be
stimulated by positive economic and fixed investment growth in these areas, while an
expanding market for expensive automated valves and actuators will also aid the overall
valve markets in the US, Japan and Western Europe.
Indian valve industry
Good news is now knocking the doors of the Indian Valve Industry. After a brief slow down
in the activities for past few years, the Indian valve industry has now entered the growth
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phase of the business life cycle. Indian valve industry is now on the threshold of a major
transformation.
Its globalization in the true sense for the Indian valve industry with MNCs rushing to India
to tap the growing valve market in India and to take advantage of the low cost labor, at the
same time make India their export hub for global market. As far as the Indian valve
manufacturers go, they are gearing themselves up to explore the overseas markets and at the
same time working hard to reach the top position in the domestic market. MNCs today are
approaching India as a major outsourcing destination for valve manufacturing the reason
being a large pool of technically qualified personnel, low manufacturing costs and a large
English speaking population.
India is already a manufacturing hub for many internationally renowned valve and pumps
manufacturers such as Crane, Audco, Flowserve, Durco, AK, KSB, Spirex Sarco and
Xomox.
The domestic valves industry has reached the required level of sophistication to enable it to
address export demand and India is competitively placed to cater to the international
demands. The market is large enough to offer opportunities to all manufacturers irrespective
of the size of their operations.
The Indian companies are looking at Middle East as a lucrative market as a number of
multibillion petrochemicals complexes are coming up in the region. The growth of valve
industry depends totally on the growth of other industries like infrastructure, refinery,
chemical industry, petroleum etc. All these sectors including power, oil & gas ,
pharmaceutical & petrochemicals is expected to grow at a rapid pace and Steel are further
going to boost the growth of valve industry
Indian valve market
The world's best brands are also produced locally in the country through fully owned
subsidiaries or joint ventures. India today produces world-class products and the country is
emerging as a large exporter of valves. Like other countries India too has small
manufacturers and almost all manufacturers have their own niche markets. The market is
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Evaluation of financial performance appraisal
large enough to offer opportunities to all manufacturers irrespective of the size of their
operations. The quality of Indian valves is, by and large, acceptable to domestic users
depending on the service and application. However, large organizations in key sectors have
strict buying criteria where the best brands are purchased after a complete techno-
commercial scrutiny of offers depending on the criticality of the application. In fact, India is
fast becoming a large exporter of valves now that free imports do not really pose a problem
for market growth.
The organized sector of the India valve industry is estimated to be Rs 900 crore, while the
unorganized sector contributes additionally over to Rs 500 crore. Close to 50% of the market
is shared by two companies (L&T and BHEL), while the rest have individual market shares
of 4% or less.
There are over 100 companies mostly in the unorganized or the small scale sector and the
industry as is evident is highly fragmented. The growth rate of this industry is estimated at
10 to 15%.
Hubli market
Hubli is one of the fastest developing industrial hubs in Karnataka after Bangalore, with
more than 1000 allied small and medium industries already established basically located in
Gokul Road & Tarihal regions of Hubli. There are machine tools industries, electrical, steel
furnitures, food products, rubber and leather industries and tanning industries. With the
establishment of K.E.C, Bhoruka textile Mill, Universal Group of Industries, Microfinish
Group, N.G.E.F, K.M.F, BDK Group of Industries and Murudeshwar Ceramics. It has
gathered momentum in industrial development.
To promote the overall economic development of varied industries, institutions and business
houses "Karnataka Chamber of Commerce & Industry" was formed, it's one of the premier
association, which has been gaining momentum in achieving potential growth and prosperity
in Hubli region .And one more key aspect of industrialization for Hubli-Dharwad was
foundation of Agricultural Produce Market Committee, which aimed at providing hassle free
market conditions for farmers, to establish regulated & stimulated production of various
agricultural related commodities & goods.
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Background of the company
Microfinish group of companies
Microfinish was set up in the year 1971. The Microfinish is manufacturing industrial pumps
and valves. Microfinish is known for its quality product and as got certificate of ISO 9001.
valves for chlorine service & Knife edged gate valves. In the 1980’s Microfinish started the
manufacture & sales of chemical process & slurry pumps.
Microfinish is group of seven companies. The companies are as follows:
1. Microfinish Valves Pvt. Ltd.
2. Microfinish Pumps Pvt. Ltd.
3. Flowserve-Microfinish Valves Pvt. Ltd.
4. Flowserve-Microfinish Pumps Pvt. Ltd.
5. Manjira Engineers Pvt. Ltd.
6. Prab Engineers Pvt. Ltd.
7. Specialty Engineers.
Flowserve Pvt. Ltd. USA
Flowserve Pvt. Ltd is a U.S.A company which was set up in early 1920. Flowserve Pvt. Ltd.
Produces engineered and process pumps, precision mechanical seals, automated and manual
quarter-turn valves, control valves and valve actuators, and provide a range of related flow
management services, primarily for the process industries. Flowserve Pvt. Ltd is having its
business more than 30 countries o name few are Canada, Belgium, Australia, India,
Argentina, Mexico, Germany, etc. Flowserve Pvt. Ltd. of USA.
In 1997 Flowserve Pvt. Ltd. of USA came to India by entering into a joint venture with a
Microfinish of Hubli. As Microfinish is known for its quality products worldwide, the
Flowserve Corporation made of a Technical collaboration with the Microfinish Valves.
Flowserve Pvt. Ltd. came to India and gave technical and management training to the
employees of the Microfinish in the year 1996. Flowserve Pvt. Ltd. inspected the spare parts
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Evaluation of financial performance appraisal
which that came out to be more than there expectation. Later Microfinish started of its
separate 100% exporting unit and came to be known as Flowserve Microfinish Pvt. Ltd.,
Hubli.
Flowserve Microfinish Valves Pvt. Ltd.
Flowserve Microfinish is one of the 100% EOU (Export Oriented Unit) in the city of Hubli.
From this year they have to pay the tax. The Flowserve Microfinish group of companies
consist of two units namely Flowserve Microfinish Valves Pvt. Ltd. (FMVPL) and
Flowserve Microfinish Pumps Pvt. Ltd. (FMPPL).
FLOWSERVE MICROFINISH VALVES Pvt. LIMITED is one of the pioneer firms in the
manufacture of Ball and Plug valves. It was established in November 1997 to cater to the needs
of Ball and Plug valves. The organization’s manufacturing facilities are housed in an
independent and well laid-out building with ample scope for future expansion, located at
Industrial Estate-Hubli, which is one of biggest and developing industrial center in the state of
Karnataka. The city is well connected by Road & Rail and situated between Pune & Bangalore
of National Highway No-4. The units have 15000sqfts and 10000sqfts of built up area to house
the facilities respectively and both divisions have an open space of 10000sqfts and 15000sqfts
respectively for further expansion. Around 70+ workers are working in a single shift.150+ cores
yearly turnover is done by these companies.
Flowserve Microfinish Valves Pvt. Ltd and Flowserve Microfinish pumps Pvt. Ltd., have a
documented quality system to meet the requirements to ensure that its orders are processed,
products and manufactured to meet the requirements of the customers. Flowserve
Microfinish Valves Pvt. Ltd. in addition meets requirements of PED 97/23/EC.
The Company is catering the major needs of industries in the field of petrochemicals,
refineries, fertilizers, fine-chemicals, pharmaceuticals, food & beverages and other general
chemical industries.
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Now the Flowserve Microfinish Pvt. Ltd. exports to more than 15 countries to name a few:
USA
South Africa
Australia
U.K
Taiwan
Hong Kong
Germany
Belgium
Korea
Brazil
Mexico
Singapore
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Company ProfileTable: 2.1
Name of the organization Flowserve Microfinish Valves Pvt. Ltd.
Type of organization Private limited company
Registered office CTS no 568/1, industrial area,Hubli -30.
Promoters Flowserve Corporation, USA &Microfinish valves ltd, Hubli
Year of establishment 1997
Product Manufacturing & exporting of industrial valve
Accounting year 1st April to 31st march
No of directors 5
Factory area 3.5 Acres, Built Up area:15000 Sq
Production Capacity 5562 Valves &125564 Valves Components
Production Marketing Marketed By Flowserve Corporation USA
Quality Certification ISO 9001:2000, Got CE marking certification
OSHAS 18000 [British Standard]
List of directors Mr. Tilak K. Vikamshi (Managing Director)Mr. Deepak K. Vikamshi (Director)Mr. William D. Brown (Director)Mr. S. Gopinath (Director) Mr. Mc Geehin Thomas (Director)
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VISION
Vision is to manufacture quality valve products for the process industry worldwide. We
embrace the concept of total quality and people involvement to enhance “TOTAL
QUALITY SATISFACTION” and commit to maintain this standard of excellent through
continual improve and use of quality management systems.
MISSION
Mission is to manufacture quality valve products for the process industry worldwide. We
embrace the concept of total quality and people involvement to enhance “TOTAL
CUSTOMER SATISFACTION” and commit to maintain this standard of excellent
through continual improve and use of quality management systems.
QUALITY SYSTEM & POLICY
The organization has received the ISO 9001 certificate as per 2000 edition for being the
highest sold standards and gaining a brand quality with the family products. The
It is evident from the graph which shows that the debtor turnover ratio has substantially
increased compared to previous year (2007-2008) which indicates efficient credit
JSS DVH-IMSR, Dharwad Page 48
ACP= 360Debtors turnover
Evaluation of financial performance appraisal
management of the firm where more number of debtors is converted into cash which
improve the current assets of the firm.
Collection period: The average number of days for which debtors remains
outstanding is called the average collection period (ACP) and can be computed as
follows:
Table: 4.10 Rs in lakhs
Years Drs. Turnover Avg. collection period (Days)2004-05 3.01848176 1192005-06 3.49783457 1032006-07 3.3835965 1062007-08 2.95139827 1222008-09 3.7310307 96
Graph: 4.10
2004-05 2005-06 2006-07 2007-08 2008-090
20
40
60
80
100
120
140
119
103 106
122
96
Avg. collection period (Days)
Avg. collection period (Days)
Years
Ratio
Interpretation:
JSS DVH-IMSR, Dharwad Page 49
Net assets turnover=Net salesNet assets
Evaluation of financial performance appraisal
From the graph it shows that average collection period of the firm has been decreased
compared to previous year (2007-2008) and also to the base year (2004-2005) which implies
that time taken for converting receivables into cash has been reduced which shows efficient
credit management of the firm.
3. Assets Turnover Ratios
Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to
maximize sales. The relationship between sales and assets is called assets turnover. Several
assets turnover ratios can be calculated:
Net assets turnover: The net assets turnover should be interpreted cautiously. The
net assets in the denominator of the ratio include fixed assets net of depreciation.
Thus old assets with lower book (depreciation) values may create a misleading
impression of high turnover without any improvements in sales. Since net assets
equal capital employed, hence this ratio is called as capital employed turnover.
Net assets= Net fixed assets + Net current assets.
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Evaluation of financial performance appraisal
Table: 4.11 Rs in lakhs
Years Net sales Net assets Net assets turnover
2004-05 2007.23 1188.67 1.69
2005-06 1623.38 1266.67 1.28
2006-07 2127.91 1489.81 1.43
2007-08 2685.92 1647.44 1.63
2008-09 3057.02 2127.05 1.44
Graph: 4.11
2004-05 2005-06 2006-07 2007-08 2008-090
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.81.69
1.281.43
1.63
1.44
Net assets turnover
Net assets turnover
Years
Ratio
Interpretation:
From the above graph it is evident that net assets turnover ratio has been decreased
compared to previous year (2007-2008) and also in base year (2004-2005) which indicates
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Total assets turnover= Net salesTotal assets
Evaluation of financial performance appraisal
net assets are not properly being utilized to improve the sales of the firm. It shows
management is not efficient to maximize its sales.
Total assets turnover: This ratio shows the firm’s ability in generating sales from
all financial resources committed to total assets.
Total assets= Net fixed assets + Current assets.
Table: 4.12 Rs in lakhs
Years Net sales Total assets Total assets turnover2004-05 2007.23 1447.96 1.392005-06 1623.38 1569.65 1.032006-07 2127.91 1828.5 1.162007-08 2685.92 2014.69 1.332008-09 3057.02 2525.57 1.21
Graph: 4.12
2004-05 2005-06 2006-07 2007-08 2008-090
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.39
1.031.16
1.331.21
Total assets turnover
Total assets turnover
Years
Ratio
Interpretation:
JSS DVH-IMSR, Dharwad Page 52
Fixed assets turnover=Net sales
Net fixed assets
Evaluation of financial performance appraisal
It is evident from the graph shows that total assets turnover ratio has been decreased as
compared to previous year (2007-2008) and also to the base year (2004-2005) which
indicates that management is not so effectively utilized total assets of the firm.
Fixed and current assets turnover: The firm may wish to know its efficiency of
utilizing fixed assets and current assets separately.
Table: 4.13 Rs in lakhs
Years Net sales Net fixed assets Fixed assets turnover2004-05 2007.23 212.66 9.442005-06 1623.38 197.03 8.242006-07 2127.91 170.55 12.482007-08 2685.92 152.3 17.642008-09 3057.02 150.58 20.30
Graph: 4.13
2004-05 2005-06 2006-07 2007-08 2008-090
5
10
15
20
25
9.448.24
12.48
17.64
20.30
Fixed assets turnover
Fixed assets turnover
Years
Ratio
Interpretation:
JSS DVH-IMSR, Dharwad Page 53
Current assets turnover=Net sales
Current assets
Evaluation of financial performance appraisal
It is evident from the graph which shows that fixed assets turnover ratio has been increased
YoY which shows that management of the firm has efficiently utilized the fixed assets of the
firm which has resulted in the increase in the net sales of the firm.
Table: 4.14 Rs in lakhs
Years Net sales Current assets Current assets turnover2004-05 2007.23 1457.6 1.382005-06 1623.38 1465.31 1.112006-07 2127.91 1552.9 1.372007-08 2685.92 2209.66 1.222008-09 3057.02 2333.34 1.31
Graph: 4.14
2004-05 2005-06 2006-07 2007-08 2008-090
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.38
1.11
1.37
1.221.31
Current assets turnover
Current assets turnover
Years
Ratio
Interpretation:
It is evident from the graph which shows that the current asset turnover ratio has been
increased as compared to previous year (2007-2008) which indicates that management is
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Net current assets turnover= Net current assetsNet sales
Evaluation of financial performance appraisal
efficiently utilized the current assets of the firm which has resulted in the increase in the net
sales of the firm.
Net current assets turnover: A firm may also like to relate net current assets to
sales. It is calculated as follows:
Table: 4.15 Rs in lakhs
Years Net sales Net current assets Net current assets turnover2004-05 2007.23 975.41 2.062005-06 1623.38 1069.11 1.522006-07 2127.91 1318.89 1.612007-08 2685.92 1458.68 1.842008-09 3057.02 1945.35 1.57
Graph: 4.15
2004-05 2005-06 2006-07 2007-08 2008-090
0.5
1
1.5
2
2.5
2.06
1.521.61
1.84
1.57
Net current assets turnover
Net current assets turnover
Years
Ratio
Interpretation:
It is evident from the graph which shows that net current assets turnover ratio has been
decreased as compared to previous year (2007-08) and also with the base year (2004-05)
which shows that net current assets of the firm not efficiently utilized by the firm.
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d. PROFITABILITY RATIOS
A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits, irrespective of concerns for customers,
employees, suppliers or social consequences. Except such infrequent cases, it is a fact that
sufficient profits must be earned to sustain the operations of the business to be able to obtain
the funds from investors for expansion and growth and to contribute towards the social
overheads for the welfare of society. Profit is the difference between revenues and expenses
over period of time. Profit is the ultimate output of a company and it will have no future if it
fails to make sufficient profits.
The profitability ratios are calculated to measure the operating efficiency of the company.
Besides the management of the company, creditors and owners are also interested in the
profitability of the company. Creditors want to get interest and repayment of principal
regularly. Owners want to get a required rate of return on their investment. This is possible
only when company earns enough profits.
Generally, two major types of profitability ratios are calculated:
a. Profitability in relation to sales
b. Profitability in relation to investment
a. Profitability in relation to sales
Gross profit margin: The gross profit margin reflects the efficiency with which
management produces each unit of product. This ratio indicates the average spread between
the cost of goods sold and the sales revenue. When we subtract the gross profit margin from
100 per cent, we obtain the ratio of cost of goods sold to sales. Both these ratios show profits
relative to sales after the deduction of production costs and indicate the relation between
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Gross profit margin= Gross profitNet sales × 100
Evaluation of financial performance appraisal
production costs and selling price. A high gross profit margin relative to industry average
implies that the firm is able to produce at relatively lower cost. It is calculated as follows:
Operating expense ratio: This ratio explains the changes in the profit margin (EBIT to sales) ratio. A higher operating expenses ratio is unfavorable since it will leave a small amount of operating income to meet interest, dividends, etc.
It is evident from the graph which shows that DPS of the firm has been remain constant from (2005-06) to (2008-09) which indicates that no change in the DPS ratio, shows that decision of dividend earning remains constant for equity shareholders.
Dividend-Payout ratio
It shows inter relationship between DPS to EPS. It indicates the company’s overall
performance and contribution made to shareholders.