sample project chapter II

8/11/2019 sample project chapter II

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INTRODUCTION

The most prevalent method of analyzing a balance sheet is through ratio analysis. Theratio analysis can be for a single year or it may extend to more than one year. The ratios can

also be compared with similar ratios of others concerns to make a comparative study.

First, all ratios will be worked out for each year and each set of comparable items.

The ratios worked out will be put in the context of a trend over several years.

They will be compared with similar companies/ standard ratios.

i) For the year concerned, and

ii) ver a period of time.

!ny number of ratios can be prepared by comparing any two figures available in the

balance sheet or profits and loss account or both. "ut to serve its purpose, the figures

compared should be meaningful, having a link between them, and should satisfy the needs of

the person who analysis the financial statements.

#atios are also classified differently on different bases. The mostly used one is the financial

classification under which the ratios are broadly divided into the following five classes$

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NEED OF THE STUDY

Financial statements provides sample information for knowing the

financial position of the madhucon sugar and power industries %T& .The informationprovided in financial statements server the purpose of different groups .such as inventory

creditors ,s general public.

OBJECTIVES OF THE STUDY

To know about the 'ndian sugar 'ndustry scenario.

To know about the (adhucon ugars %imited

To know the %i*uidity position of (adhucon ugars %imited,

Through %i*uidity #atios.

To study the meaning of #atio !nalysis and its %i*uidity

#atios.

SCOPE OF THE STUDY

The study includes analysis of financial performance through ratios of (adhucon

sugar and power industries ltd #a+eswarapuram.ven through the no.of companies are there

in madhucon group madhucon sugar and power industries ltd has been taken for study as it is

more converted.

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RESEARCH METHODOLOGY

(ethodology is a systematic procedure of collecting information in order to analysis

and verity a phenomenon. The collection is done through two principle sources viz..') -rimary data

'') econdary data

I) Primary data:'t is the information collected directly with out any reference. 'n this study

it was mainly interviews, with concerned officers and staff, either individually or collectively

some of the information had been verified or supplemented conducting personal with

observations.

The data includes$

'nterviews with (adhucon employees

rganization hart has been drawn through observation

II) S!"#dary data:The econdary data was collecting from already published source such

as -amphlets, !nnual reports, returns and internal records.

The data includes$

ollection of re*uired data from the annual reports of (adhucon ugars %imited. 'n

house magazines, -ublications, and ebsites.

#eference from text books and 0ournals, relating financial management

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LIMITATIONS OF THE STUDY

The analysis is made on the basis of secondary data

Time is the main constraint in completing the study with in the stipulated period allowed.

't is not possible to analysis that in detail all documents.

The !vailability of data is only pertaining to four years is one of the constraints.

!s there is more dependency in secondary data realistic conclusion may not be possible to

be made.

ven through there are 1o of indicators for analyzing the financial performance, the study

includes only about #!T'2.

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INDUSTRY PROFILE

SUGAR INDUSTRY SCENARIO

'1&'! is the Fourth (a+or sugar producing country in the world. The first three being

in #ussia, "razil and uba in that order sugar industry occupies an important place among

organized industries in 'ndia. 't ranks third largest industry in terms of its contribution to the

net value added by manufacturing and employees, nearly 3.45 %acks workers, besides

creating extensive indirect employment for 45 (illion cultivators of sugar cane the various

agencies of distributive trade and through subsidiary industries such as confectionery. 't is

also an important source excise duty for the central govt.

There are now 647 sugar factories in 'ndia, with a total installed capacity of 85

million tons, against this 677 factories were in operation of which 847 were in the private

sectors, 97 in the public sector and 447 in the co:operative sector.

'n 'ndia before independence co:operative sugar were established and the First co:

operative sugar factory being the co:operative sugar factory at T';--!;! '1 !1& sugar factories

under co:operative sector and ? in private sector.

#egarding sugar can price the govt. of 'ndia fixes the minimum sugar cane price

linked to recovery of adhoc payment due to high cost of cane cultivation linked to a recovery

of >.5= the concerned state govt. recommended to pay another adhoc payment due to high

cost of cane cultivation linked to a recovery of >.5=. The factories are liable to pay a extra

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amount of 4/: per each point of recovery percentage per each ton of sugar cane, if the

recovery of sugar reaches above >.5=.

SUGAR ABROADorld sugar production will +ump ?= in the season that began in ctober mainly

because of increased output in "razil and 'ndia, the @..&.! said, orld production will be

855.4 million tonnes, up 87.5 million tonnes, from a year earlier and up 9 million tonnes from

the may forecast. onsumption is forecast at 869 million tonnes, up 3.4 million from a year

earlier. "razil will produce 37.A million tonnes and 'ndia 45.8 million tonnes, the @&!

said, with each country2s output up 6 million tonnes from the previous year.

BRA$IL:

xports of "razil to the !rab countries broke a new record in ctober. They generated

@B ?37.9 million, an increase of 5?= when compared to the same month last year. The

product the most influenced the performance in the month was sugar. ales of the commodity

to the !rbas generated @B345.5 million, presenting growth of almost 8?7= when compared

to last year. The "razillian sugar is taking over more and more space that was supplied by

@ sugar.

THAILAND:

The cabinet recently announced a pre:harvest sugarcane price for the 4779:7? milling

year at >77 bath per tonne. The return for sugar production and distribution was set at

364.>9baht per tonne of sugarcane crushed. The cane and sugar "oard said, the price is

almost same as it was last season.

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GUATEMALA:

!ll sugar for he domestic market is sold through a distribution company owned by the sugar

industryC !sazgua, and association that represents sugar millers, handles all marketing of

sugar for export. The monopoly power exercised by these organizations enables the industry

to maintain domestic sugar prices well above world market levels. Duatemala exports 8 to 8.3

million tonnes of sugar per year.

ABSTRACT:

ugarcane, labor and capital are the well known common on inputs for the production

of sugar. utput of sugar behaves in response to some increase in one particular input or all

inputs. !ssuming that the amount of factors of production Eoutput) will depend exclusively on

change in technology by decomposition of unidentified iron complexes applying electrolytic

clarification using optimized lime dose from cane +uice during sugar manufacturing. The iron

content was deposited at cathode after decomposition of iron complexes. !s a result

percentage of sucrose as well as purity Eoutput) show increasing pattern, which can be

treated as increasing returns to the scale of a sugar industry

INTRODUCTION:

'ndia2s highest production had been 47.86 million tonnes in the year 4774:73 when

the area under cultivation was about 6.6 million hectares and a sugar recovery of 87.39= on

cane. The Dovernment said it would liberalize sugar exports encouraged by prospects of a

good domestic crop and from global prices. Food minister said as a first step the Dovernment

will allow a state trading firm to export up to 377,777 tonnes of sugar to meet demand from

-akistan and other importing countries in the region.

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!t the moment, the government permits exports by mills which had imported raw

sugar duty free in the last two years with an obligation to sell it overseas with in a stipulated

time:period. "ut the industry has been urging the government to permit all mills to sell

overseas to take advantage of strong global prices, a booming export market and high

domestic production.

'ndia2s sugar production during crop year ending in eptember is expected to be

around 8>.5 million tonnes, up from 83 million tonnes last year. !n industry official has

forecast production would rise to 44 million tonnes in 4779:7?. The country annually

consumes about 8> million tonnes of sugar. The industry confident of boosting white.

MAR%ET REVIE&

MARKET REVIEW FOR THE MONTH OF NOVEMBER ,2006

&eclining trend continued in various whole sale sugar markets of the country during

(arch,477?.prices eased by #s.67/:to #s.97/: a *uintal on increased supply and lack of

demand.


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PRICES OF SUGAR AND GUR FOR THE MONTH OF MRC'(*

Mar+t, -*,t .t/ *0t/ ((#d -t/

S12ar O!t N"3 N"3 N"3 N"3

&elhi 8>77 8>45 8>77 8>77 8>77

8A57 8A57 8A35 8>>7 8>35

(umbai 8?66 8?55 8?4A 8?88 8?77

8??5 8?>4 8?>4 8?94 8?58

;olkata 8A87 8>>7 8A77 8>>7 8>?7

8A37 8A37 8A57 8A47 8>A7

hennai 89?7 89A5 89>7 8995 8935

89A7 8?85 89>5 89?7 8965

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&ORLD SUGAR OUTLOO%

&ORLD SUGAR BALANCE

!ccording to F.. %icht2s first estimate of world sugar balance in 477A:87, world sugar

production in 477A:87 is expected at 897.78 million metric tons raw value, Emrtv) or >.35

million mrtv higher than in 477>:7A. orld sugar consumption in 477A:87 is expected to rise

by 4.>> million mrtv to 86>.49 million mrtvs. 'mports in 477>:7Aare estimated at about 6>.7A

million mrtv, 3.>> million mrtv lower than in thew last year while exports are estimated at

58.39 million mrtv, 4.34 million mrtv lower than in the last season. The current season is

expected to close with a stock of ?4.96 million mrtv or >.65 million mrtv higher than the

closing stock last year. The stocks amount to 6>.AA= of the estimated consumption, while

last year it was 66.86=.

U4S SUGAR BALANCE

!ccording to the last estimate of @&!, ugar production in the @.. in 477A:87 is

expected at >.54 million short tons raw value, or 8.84 million strv higher than ?.67 million

strv produced in 477>:7A. 'ncluding opening stock of 8.?9 million strv and imports of 4.48

million strv, the total supply is expected at 84.6A million strv, as against 84.8? million strv in

477>:7A. Total use Eincluding export) in 477A:87 is estimated at 87.94 million strv as against

87.68 million strv in 477>:7A.

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SUGAR 5 HEALTH

S&EET REMINDER:

The current festive season always induces a certain degree of anxiety in me. ' must

confess that this anxiety is caused on account of my sweet tooth. (uch as ' would like to

think of myself as someone who has in general a very GresponsibleH attitude towards the

consumption of sweets, this is the one time of the year when ' do tend to over indulge.

!nyway what lingers now is the post feasting guilt my only consolation, if it can be called

that is the fact most of us are guilty of the same misdemeanor to which ' have +ust confessed.

&HY SHOULD ONE FEE GUILTY AND ALSO &ORRY ABOUT CONSUMING

SUGAR 6

!ctually it is the excessive consumption of sugar that is not desirable. mall amounts

of sugar can be consumed without too much fuss. The


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#egular weighing can guide you towards making minor but daily ad+ustments in your diet so

the situation does not never get really out of your control.

CO7PRODUCTS

REEP : EASING THE &AY FOR FINANCING OF RENE&ABLES

The #enewable nergy and nergy fficiency -artnership E#-), has launched the

G#enewable nergy xchange E!sia) -rivate %td.2 'n ingapore with the Jsupport of the

development finance arm of the Derman government, &D. #- is an active, global

public:-rivate partner ship that structures policy and regulatory initiatives for clean energy,

and facilitates financing for energy pro+ects.

't has often been observed that while pro+ect developers and investors find it difficult

to identify sources of finance, bankers find it difficult to identify bankable pro+ects. !ll this

will now be passe, with the introduction of #-2s new xchange programme.

The #enewable energy xchange would act as a central point of contact through

which a professionally prepared and monitored pro+ect portfolio would be provided to an

active group of investors.

DRAMATIC CHANGE OF FORTUNES

&espite being a large segment of the country2s burgeoning food processing industry,

the sugar sector is still sub+ect to controls and restrictions.

The '1&'!1 sugar industry is witnessing a dramatic turn of fortunes. #ising

production for four successive years since 8AAA:4777 burgeoning stocks with mills, falling

prices and s*ueezed margins have become a thing of the past in a short span of one year.

ritically, 'ndia has transformed itself from being an exporter of sugar to an importer of the

sweetener.

hat led to this sudden change of fortune form a high of 4A? million tonnes in 4776:

4775 and 4>4 million tonnes in 4775:37:73, sugarcane output faced a sharp decline to 439

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million tonnes in 4773:76. (oisture I stress conditions in some of the important cane

growing regions including (aharastra, Tamilnadu, ;arnataka, Du+arat and @tter -radesh

resulted in lower crops. -est infestation Ewoolly aphid) too affected yields in some states. The

belief that 'ndia2s sugarcane had successfully broken the cyclical nature of production since

8AAA:4777 was shaken.

!s a result of lower cane output, production that registered a record 478.34 lakh

tonnes the following season. 'n addition, as it always happens, lower output encouraged

larger diversion of cane for alternative sweeteners such as GgurH which en+oyed strong prices.

The decline of 97 lakh tonnes or 37 percent in sugar production resulted in a sharp

draw down of stocks during 4773:76. ! period characterized by A percent growth in overall

agricultural production, rustling in higher rural incomes and expansion of demand.

AREA AND PRODUCTION OF SUGARCANE

Ara:

Ma8"r ,tat, (97. (.7 (7; (;7*

@ttar -radesh 47.6 8>.5 47.3 44.5

Tamil nadu 5.> 9.> 5.3 9.5

;arnataka 6.4 3.> 4.A 3.7

!ndhra pradesh 3.4 3.3 3.7 3.7

Du+arat 4.> 3.7 4.7. 4.>

thers ?.? >.4 9.5 ?.7

T"ta< ==4* =-49 =4 ==4

Ara i#


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@ttar -radesh 88>.7 889.3 883.7 88>.8

Tamil nadu 65.8 3?.7 4?.7 66.5

;arnataka 34.9 37.7 8A.? 34.3

!ndhra -radesh 8>.8 85.6 86.9 8A.8

Du+arat 84.5 86.8 87.> 83.>

thers 3?.A 39.7 35.3 3?.5

T"ta< (;.4( (*49 (-94( (904-

NE& DIMENSIONS OF SUGAR GRO&TH

ugar is the second largest agro based industry in 'ndia located in rural areas. !bout

57 million farmers, their dependants and a large number of agricultural laborers are involved

in sugarcane cultivation, harvesting and ancillary activities, constituting ?.5 percent of the

rural population. "esides the industry provides employment to about 4 million skilled and

semi skilled workers, and others employed in ancillary activities mostly from rural areas. The

industry not only generates power from by product bagasse for its own re*uirement but

surplus power for supply to the grid. 't also produces ethanol, an eco:friendly and renewable

energy for blending with petrol. ith 653 operating sugar mills in different parts of the

country, the industry has been a focal point for socio:economic development of rural areas.

I#dia i, am"#2 t/ >? !"1#tri, i# t/ ?"rid

i# t" !"2#rati"# "> @"?r a#d @r"d1!ti"# "> >1< t/a#"7s which was subse*uently increased to 4,577tcd.

PROFILE OF INDIAN SUGAR INDUSTRY (*:

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N1mr "> >a!t"ri, : =0-

ane price per tonne $ #s. 8>,777 crores

1o. of cane farmers $ 57 million

ugar production $ 44 million tonns Eraw value)

Kalue of sugar output $ #s.4?777 crores per annum

!nnual tax contribution

to exche*uer $ #s. 4,?77 crores

mployment including

ancillary activities $ 4 million people

Fuel thnol of 5 percent

blend Evalue) $ #s. 977 crores per annum

urrent export of

ogenerated powerEvalue) $ #s. ?57 cores per annum

GRO&TH OF SUGAR INDUSTRY:

YEAR NO4OF UNITS AVERAGE CAPCITY

8A>7 4AA 8957 tonnes

8AA7 3?? 4737 G

4777 643 3777 G

4775 653 3477 G

4787 6?3 3657 G

PIONEERING EFFORT IMPROVES SUGAR UALITY

ven as the sugar industry is going through a crisis, there is some good news on the

*uality front. The ;issan Keer atara ooperative ugar Factory, "huin+, in (aharastra2s

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atara district initiated an experiment two months ago to improve sugar *uality, using a

technology developed by (r.K.(. ;ulkarni, founder:director of K.( "iotech.

Sa3i#2 i# Ba2a,,

The results show that apart from better sugar, there was a saving in bagasse and improvement

in steam consumption, crushing and production of bold grain sugar.

1o additions or changes in machinery are needed for these experiments, which are

based on the concept of using proper chemicals in the right doses at the right stage.

ssentially , the experiments worked on balancing chemistry and this improved the overall

efficiency of the factory.

PROBLEMS OF SUGAR INDUSTRIES

-roblems of mounting losses.

Fixation of high sugarcane prices by the state govt.

The *uestion of minimum economic size.

ld machinery.

%ow sugar recovery.

Failure to follow a consistent policy.

ompletion from cheaper import.

SUGAR LICENSING POLICY:

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The sugar development fund was setup in 8A>4. @nder the sugar less act and is funded

by transfer of proceeds of sugar was imposed at the rate of #s. 86 per *uintal on sugar

produced by all sugar factories. The fund is utilized for advancing loans on short terms for

the revalidation and modernization of sugar industry and for development of sugar cane in the

sugar factory area. The sugar development fund makes grants for undertaking research

pro+ects for developments of sugar industry.

The fund is also defray expenditure for the purpose of building have and maintenance

of buffer stocks of sugar with a view to stabilizing its price. The total allocation created to the

fund till 8AA9 amount to #s 8,997/:crores. The fund has so far sanctioned loans amounting to

#s.A97/: crores for sugarcane development and from modernization / rehabilitation of sugar

factories.

Dovernment sugar industry to study the development and growth of sugar industry in

'ndia vis:L:vis other sugar producing countries and suggest modifications amendments or

repeal of any existing laws and controls in order to increase production and efficiency, the

govt. of 'ndia had constituted a high I powered committee under the chairmanship of G

".".(aha+anH. The G(aha+an committeeH submitted its report in !pril 8AA>.

MAJOR RECOMMENDATIONS OF THE COMMITTEE ARE:

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8. omplete controls of sugar in order to provide level paying field to the domestic

industry vis:L:vis imported sugar

4. &iscontinuation of supply of sugar through the public distribution system E-&) for

plugging the leakages on account of -& sugar finding way to open market.

3. etting of a sugarcane pricing board to determine every eptember the advance price

E(-) for the ensuring crushing season.

6. (inimum distance of 85 km. "etween an existing sugar mill and a new sugar mill for

which license is to be issued in order to ensure viability of both the mills.

5. ontinue of import of sugar under open general license ED%) in order to product the

consumers against any unusual rise in prices.

The sugar industry is essential an !gro 'ndustry and therefore it should be centrally

located within the vast area of cane cultivation2s otherwise it will increase the cost of

transport. 't should be established at a place where !gronomic conditions favored to the

development of sugarcane plantation and where climatic conditions rainfall, land fertility and

irrigation facilities as such as to ensure burnt supply of sugar cane with high yield. !s per the

norms of the govt. the industry should have basic infrastructure facilities.

S12ar I#d1,try i# I#dia

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A"1t S12ar I#d1,try i# I#dia

ugar consumption rate is highest in 'ndia as shown in the statistics received from @&!

Foreign !gricultural ervice.


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N Tamilnadu ugar 'ndustry

N @ttaranchal ugar 'ndustry

N @ttar -radesh ugar 'ndustry

N est "engal ugar 'ndustry

B2i##i#2 "> S12ar I#d1,try i# I#dia

ugar is made from sugarcane, which was arguably discovered thousands of years ago in

1ew Duinea. From there, the route was traced to 'ndia and outheast !sia. 't was 'ndia which

began producing sugar following the process of pressing sugarcane to extract +uice and boil it

to get crystals.

't was in 8A57:58 the government of 'ndia made serious industrial development plans and set

the targets for production and consumption of sugar. 't pro+ected the license and installment

capacity for the sugar industry in its Five Oear -lans.

Types of ugar 'ndustry in 'ndia

The sugar industry can be divided into two sectors including organized and unorganized

sector. ugar factories belong to the organized sector and those who produce traditional

sweeteners fall into unorganized sector. Dur and khandsari are the traditional forms of

sweeteners.

(anufacturing -rocess followed in ugar 'ndustry in 'ndia

everal steps are usually followed to produce sugar. These steps can be mentioned as below$

N xtracting +uice by pressing sugarcane

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N "oiling the +uice to obtain crystals

N reating raw sugar by spinning crystals in extractors

N Taking raw sugar to a refinery for the process of filtering and washing to discard remaining

non:sugar elements and hue

N rystallizing and drying sugar

N -ackaging the ready sugar

Ma!/i#ry S1@@"r S12ar I#d1,try i# I#dia

ome of the suppliers that offer cutting:edge machines to the companies involved in sugar

industry of 'ndia are$

N akthi ugars %td

N ri u+ay ngineering -roducts

N ri Ki+ayalakshmi 'ndustries

N (urthy 'ndustries

N -arveen -erforaters !llied 'ndustries

N !eromen ngg co.

N ;amla Foundry orkshop

COMPANY PROFILE

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MADHUCON SUGAR AND PO&ER INDUSTRY LIMITED:

&uring the year 4778:74 (adhucon ugars %imited was incorporated to purchase and

take over the sick sugar mill namely THE PALAIR CO7OPERATIVE SUGARS

LIMITEDstablished in 8A>4. !t the time of taking over, the company is suffering with

losses. !fter taken over by (adhucon ugars %imited the company has earned net profit in

the first year of operations itself.

%ater the company2s name was changed as MADHUCON SUGAR AND PO&ER

INDUSTRIES LIMITED4These company is one of the company in group companies of

(adhucon -ro+ects %imited which is having diversified activities of construction of

infrastructure pro+ects like #oads, "ridges, anals, "uildings, Flyovers, Dranites, ugar and

allied products.

MADHUCON GROUP is working on pro+ects in various core sectors of nation

importance like highways. 'rrigation, producing the construction materials, power houses, all

of which, no need to say are so essential now for the all round infrastructure development of

the nation.

MADHUCON GROUP CONSISTS FOLLO&ING COMPANIES

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8. (!&


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ri 1.eethaiah hairman 77744>3A

ri 1.;rishnaiah xecutive &irector 77744??>

ri T.Kenugopal #ao &irector 777?79>>

ri ;. rinivasa #ao &irector 7774455>

LIST OF SHARE HOLDERS 5 THEIR SHARE HOLDINGS:

NAME N"4"> E1ity

,/ar, "> R,4*7

a!/

Va 47689>7 ?

1!(! T

T.K1@D-!% #! 58764 587647 4

;!((! #'1'K! ?9593 ?95937 3

(.T

TT!% 4?888>A 4?888>A7 877

T/ @r>"rma#! i#di!at"r, "> Mad/1!"# S12ar a#d P"?r I#d1,tri, " 83A8.76 8543.?5 3456.A> 3659.?51et profit 7.99 36.67 ??.6A 467.?? 347.57

#eserves and surplus 7.99 3?.44 888.98 369.37 397.48

Dross "lock AA9.A4 8756.5A 8343.47 8979.?8 8?7>.3>

1et "lock A6?.5A >A5.64 8757.74 88?>.66 843>.83

hare capital 4?8.84 4?8.84 4?8.84 4?8.84 48?.84

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'n view of the good demand for the sugar and its allied products like #ectified pirit,

1!, thanol etc., the management has decided to undertake modernization /expansion of

the existing e*uipment to enhance the crushing season 477A:87 and further expansion from

4777 T& to 3577 T& for the season 477>:7A.The company also proposes to setup a new

pro+ect for the production of !lcohol/thanol from (olasses and cereal gains with installed

capacity of 95 ;%-&.

The proposed distillery will mainly manufacture #, 1! and 'mpure pirit using the

available molasses from ugar cane crushing during the seasonal operations. @se of own /

procured (oasses as re*uired and use of cereal grains will be made during the off:season

operations. Thus the design of distillery ensures optimum utilization of the manufacturing

facilities.

The company also proposes to setup another new pro+ect for the production of power

by setting of o : gen plant with the installed capacity of 47 ( using the "egasse available

from the sugar plant.

THE ESIMATED COSTS OF THE PROJECTS ARE AS FOLLO&S:

'-T'1 @D!# &'T%# :D1 TT!%

ite development 6>.77 45.77 P ?3.77

ivil works "uildings >7?.77 9?5.77 ?37.77 4484.38

-lant and machinery 4>86.77 39A3.77 ?939.77 86863.77

(iscellaneous Fixed

assets

435.77 377.77 837.77 995.77

-reliminary, pre:

operative

!nd startup expenses

677.77 8>>.77 456.77 >64.77

-rovision for contingency 84>.77 834.77 3>A.77 96A.99

(argin for working

capital

887A.77 458.77 57.77 8687.77

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'nterest during

construction

P P P P

Gra#d t"ta< 00=*4 0(9=4 ;*;4 *;;;04

(eans of finance @D!# &'T%# :D1 TT!%

Term loan 3346.77 385A.77 5586.77 88AA?.77

Quasi e*uity from &F 8994.37 85?A.77 4?5?.77 5AA>.77

*uity share capital form

(%

556.87 549.77 A8A.77 8AAA.77

GRAND TOTALS 00=*4 0(9=4 ;*;4 *;;;04

The company has appointed renowned consultants (/s. (itcon onstancy services

%imited, -une for expansion and installation of sugar and &istillery and (/s. !vant:Drade

ngineers and consultants -vt. %td., hennai for o:gen. plant.

The above pro+ect cost has been estimated by them, keeping in view of the prevailing

market rates. The above pro+ects are expected to be commissioned by ct.4787.

The company has already finalized the &-#s and is in the process of finalization of

detailed drawings for the e*uipment and placement of orders. The company has already

placed orders for "oiler and steam Turbines for o:gen. plant.

To part finance the above pro+ects the company is proposing to apply for term loans from the

banks and the financial institutions.

The loans are proposed to repay with in > years with a moratorium period for 4.5

years from the date of 8stdisbursement of the loan.

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The company is in existence for the last 6 years and earned reasonable profits from

the date of its inception of taking over from The -alair o:operative ugars %td.

PRODUCTION SCENARIO

-roduct $ ugar

"i:-roducts $ "eggese

$ (olasses

$ Filter cake

"aggese is used as fire wood to run "oilers

(olasses is used in the manufacturing of &istillers like

alcohol and spirits, thanol etc,.

Filter cake is used as manure for the agriculture.

SUGAR PRODUCTION DETAILS OF:

PERTICULARS (079 (97. (.7 (7; (;7*

!1 #@59.59 8?A,A59.A6 8A5,35>.94

@D!#

-#&@&

EQT%)

8,38,463 97,337 8,66,645 8,59,?3? 898,?63

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@D!# %&

EQT%)

6,368 8,86,938 >>,?6A 8,>3,8?8 8A4,?>6

T; F

@D!# EQT%)

8,49,A74 ?4,978 838,647.36 8,78,656 838,>49

MADHUCON SUGARS AND PO&R PROJECTS INDUSTRIES LTD:

OBJECTIVES OF THE COMPANY

(anufacturing of white crystal sugar

To promote the agriculturists in that particular area

To utilize the harvest of sugar cane in that area

'mproving the cultivation methods through giving better support to the formers

'ssuing loans to members for productive and other similes purposes

To encourage self help, thrift and co:operations among members

To undertake such other activities as are incidental and conductive to the

development of sugar cane, sugar and allied 'ndustries.

&ELFARE MEASURES TO THE EMPLOYES:

The following welfare measures are be provided by (adhucon ugars for the employees.

-roviding *uarters Eas per their category)

hoes for the purpose of safety measures

ne pair of uniform for every year for every employee

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'f any employees met with the accident the management immediately give the first aid

and take the patient to khammam Dovt.


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water or cold water both are used as maceration water which is used at the 6 th mill for

extraction of more +uice.

Kaccum pans

ondensation plant

ater cooling system

ooling, curing and drying

ugar dryers

Dardens

(olasses weighment

tream power plantE"oilers)

himney

(iscellaneous items

ugar muter

ugar elevators

&iesel generation

Final molasses

torage tank

Furnace of oil storage tank

"aggage elevator

CONTENTS OR) RA& MATERIALS OF SUGAR

ugar cane and

hemical

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yrup treatment plant

A CONCEPTUAL FRAME WORK

Financial statements are prepared primarily for decision making. They play a dominant

role in setting the frame work of managerial decisions. Financial analysis is the process

of the firm by properly establishing relationship between the items of the balance sheet

and profit and loss account.

There is various method or techni*ues used in analyzing financial statements such as

omparative statement.

ommon size statement.

Trend analysis. #atio analysis.

CONCEPT OF FINANCIAL ANALYSIS:

The term financial analysis also know as analysis and interpretation of financial

statements refers to the process of the bettering financial string the weaknesses of the

firm by establishing strategic relationship between the items of the balance sheet and

profit and loss account and other operative data.

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The term Gfinancial statement analysisH includes both Janalysis and Jinterpretation2. 't

distinction should therefore, is used to mean the simplification of data by methodical

classification the meaning and significance of the data so simplified.


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ON THE BASIS OF MATERIAL USED:

According to material used fnancial analysis can be o

two tyes!"

1# $%ternal analysis#

2# &nternal analysis#

ETERNAL ANALYSIS:-

'(is analysis is done by out sides w(o do not (a)e access to t(e

detailed internal accounting records o t(e business frm# '(ese

outsiders include in)estors* otential in)estors* creditors*

otential creditors* go)ernment agencies* credit agencies and

t(e general ublic

INTERNAL ANALYSIS:7

The analysis conducted by persons who have access to the internal accounting

records of a business firm is known as internal analysis can, therefore, be

performed by executives and employees of the organization as well as government

agencies which have statutory powers invested in them.

35

$+'$,-A. A-A./&&-'$,-A. A-A./&


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ON THE BASIS OF MODUS OPERANDI:7

!ccording to the method of operation can also be of two types.

HORIZONRAL ANALYSIS:-


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The financial data given in the statements should be recognized and rearranged.

! relationship is established among financial statements with the help of tools and

techni*ues of analysis such as ratios, trends, common size, funds flow etc.

The information is interpreted in a simple and understandable way. The significanceand utility of financial data is explained for helping decision:making.

The conclusions drawn from interpretation are presented to the management in the

form of reports.

!ETHODS "OR# DE$ICES OF FINANCIAL ANALYSIS:

The analysis and interpretation of financial statements is used to determine the financial

position and results of operation as well. ! number of methods Eor) &evices are used to study

the relationship between different statements.

The following methods of analysis are generally used$

%& CO!PARATI$E STATE!ENTS: The comparative financial statements are

statements of the financial position at different periods of time. The elements of financial

position are shown in a comparative form so as to give an idea of financial position at twoEor) more periods.

'& TREND ANALYSIS: The financial statements may be analyzed by computing

trends of series of information. This method determines the direction upwards Eor) down

wards and involves the computation of percentage relationship that each statement item

bears to the same item in base year. The information for a number of years is taken up and

one year, generally the first year, is taken as a base year.

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(& CO!!ON ) SIZE STATE!ENTS: The common : size statements, balance

sheet and income statement are shown in analytical percentages. The figures are shown as

percentages of total assets, total liabilities and total sales. The total assets are taken as 877

and different assets are expressed as a percentage of the total. imilarly, various liabilities

are taken as a part of total liabilities.

*& FNDS FLO+ ANALYSIS: Funds flow means transfer of economic values

from one asset of e*uity to another. Flow of funds is said to have taken place when any

transaction makes changes in the amount of funds available before happening of the

transaction. 't is called a Gsource of fundsH and if it results in the decrease of funds it is

known as an Gapplication of fundsH.

,& RATIO ANALYSIS: ! ratio is a simple arithmetical expression of the relationship

of one number to another number may be defined as the indicated *uotient of two

mathematical expressions.

& CASH FLO+ ANALYSIS:- ash flow statement is a statement which describes

the inflows Esources) and outflows Euses) of cash and cash e*uivalents in an enterprise

during a specified period of time. uch a statement enumerates net effects of the various

business transactions on cash and its e*uivalents and takes into account receipts and

disbursements of cash. ! cash flow statement summarizes the causes of changes in cash

position of a business enterprise between dates of two balance sheets.

.& $OL!E-COST-PROFIT ANALYSIS: Kolume I cost Iprofit analysis shows

the relationship among the various ingredients of the profit planning, namely, unit sale

price, variable cost, sales volume, sales mix and fixed cost.

O/0ec1i2es of nancial s1a1e3en1s:

The financial statements are the source of information on the basis of which conclusions are

drawn the course of information on the basis of which conclusions are drawn about the

profitability and position of a concern. They are ma+or means employed by firms to present to

their financial position of owners, creditors and the general public. The primary ob+ective of

principles board of !merica states the fallowing ob+ectives of the financial statements.

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To provide financial position about economic resources and obligation of business

firm. To provide reliable information about change such economic resources and

obligation.

To provide financial information that assists in estimating the earning potentials of

business. To disclose to the extent possible other information related to the financial statement

that is relevant to the users of these statements. To provide reliable information about changes in net resources arising out of business

activities.

I!PORTENCE OF FINANCIAL ANALYSIS:

The financial statements are mirrors, which reflect the financial position operating

strength of weakness of the concern. These statements are useful to management investors,

creditors, bankers, workers, government and public at large. Deorge o. may points out the

following ma+or uses of financial statements.

*4 !s a report of steward ship.(4 !s a basis of fiscal policy.-4 To determine the legally of dividends.=4 !s guide to advice dividends.04 !s a basis for the granting of credit.94 !s a information for prospect on investment in enterprise..4 !s a guide to the value of investment already.

4 !s a aid to government supervision.;4 !s a basis for price or rate regulation.*4 !s a basis for taxation.

LI!ITATIONS OF FINANCIAL STATE!ENT ANALYSIS:

Financial analysis is a powerful mechanism of determining financial strengths and

weakness of a firm. "ut the analysis is based on the information available in the financial

statements. Thus the financial analysis suffers from serious inherent at limitations of the

financial statements.

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LI!ITATIONS:

't is only a study of interim reports.

Financial analysis is based upon only monetary information and non:monetary

factors are ignored.

&ifferent people may interpret the same analysis in different ways.

't does not consider the hanges in prices level.

hanges in accounting procedure by firm may often make financial analysis

misleading.

!ETHODS OR DE$ISES OF FINANCIAL ANALYSIS$ &etermine the financial

position and result of operations as well. ! number of methods or devises are used to study

the relationship between different statements. !n effort is made to use those devises which

clearly analyze the position of the enterprise. The following methods of analysis are generallyused.

omparative statements.

ommon size statements.

#atio analysis.

Trend analysis.

Funds flow analysis.

ash flow analysis.

ost Ivolume analysis.

The main aim of the pro+ect is to analyses the financial position, through comparative

sheet. The comparative financial statements are statements of financial position at

different periods. The elements of financial position at 4 or more periods. !ny

statement prepared in comparative from will be covered in comparative statements.

Denerally, 4 financial statements Ebalance sheet and income statement) are prepared in

comparative form for financial analysis purpose.

THE COMPARATIVE STATEMENT MAY SHO&:

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!bsolute figures.

hanges in absolute figures i.e.,

!bsolute data in terms of percentages.

'ncrease or decrease in terms of percentages.

The analysis is draw useful conclusion when figures are given in a comparative

position. The figures of sales for a *uarter, half year or one year may tell only the

present position of sales efforts. hen sales figures of previous years are given along

with figures of current years. Then the analyst will be able to study the trends of sales

over different years. imilarly, comparative figures will be able to study the trends of

sales over different periods. imilarly, comparative figures will indicate the trend and

direction of financial of financial position and operating results.

The financial data will be comparative only when same accounting principle used in

preparing these statements. 'n case of any deviation in the use of accounting, principles

are used in preparing these statements and the analyst should be care full in using these

statements.

The 4comparative statements are$

8) "alance sheet or position statement.4) -rofit loss account or income statement.

D@'&%'1 F# '1T#-#T!T'1 F (-!#!T'K "!%!1


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3. The increase in working capital will mean improvement in the current

financial position of the business.6. !n increase in current assets accompanied by the increase in current

liabilities of the same amount will not show any improvement in the

short term financial position.5. ! student should study the increase or decrease in current assets and

current liabilities and this will enable him to analyses the current

financial position.

9. The second aspect, which should be studied in current financial

position are the li*uidity position of the concern. 'f li*uid assets like

cashinhand, cashatbank, bills receivables, debtors etcR

?. The increase in investors can be an account of accumulation of stock

for all customers. &ecrease in demand or inade*uate sales promotion

efforts.

>. !n increase in inventory may increase working capital of the

businessbut it will not be good for the business.

() LONG7TERM FINANCIAL POSITION:

The long term financial position of the concern can be analyses by studying the

changes in fixed assets, long term liabilities and capital.8. The proper finance fixed assets by the either issue of long:term

securities such as debentures, bonds, loan financial institution or issue

of fresh share capital.4. !n increase in fixed assets should be compared to the increase in

long:term securities then part of fixed assets has been financed from

the working capital on the other hand, if the increase in long term

securities in more than the increase in fixed assets have not only been

financed from long term sources but part of working capital has been

financed from long term sources. ! wise policy will be to finance fixed

assets by rising term funds.3. The nature of assets, which have

increase or decrease, should also be studied to from an option about the

future production possibilities.6. The increase in plant and machinery will increase production

capacity of the concern.

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5. n the liabilities side of the balance sheet, the increase in loaned

funds will mean an increase any liability for passing interest. !n

option about the long term financial position should be formed after

taking into consideration above mentioned aspects.

-) PROFITABILITY OF THE CONCERN:

8. The next aspect to be studied in a comparative balance sheet

*uestion is profitability of the concern. The study of increase or

decrease in retained earnings, various resources and surplus etcR

will enable the interpreter to see the whether the profitability has

improved or not .4. !n increase in in the balances of the profit and loss account and

other resources created from profit will mean an increase in

profitability to the concern.3. The decrease in such accounts may issue of dividend, issue of

bonus shares or deterioration in profitability of the concern.

!fter studying various assets and liabilities, an opinion should be

formed about the financial position of the concern. ne cannot say

it short:term financial position is good then long:term financial

position will also be good or vice:versa. ! concluding word about

the overall financial position must be given at the end. The

methods we are using in this study are ratio analysis, which is

suitable to our study. 'f you go too briefly about this method.

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RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. 't is the

process of establishing and interpreting various ratios. 't is with the help of ratios that the

financial statements can be analyzed more clearly and decisions made from such analysis.

MEANING OF RATIO:7

! #atio is a simple (athematical expression. 't is a number expressed in terms of

another numbers indicated *uotient of two mathematical expressions. G! #atio is an

expression of the *uantitative relationship between two numbersH.

NATURE OF THE RATIO ANALYSIS:

#atio analysis is a techni*ue of analysis and interpretation of financial statements. 't

is the process of establishing and interpreting various ratios for helping in making certain

decisions.


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like blood pressure, the pulse rate or the temperature of an individual. 't is with help of

ratios that financial statements can be analyzed more clearly and decision made from such

analysis.

ADVANTAGES OF RATIO ANALYSIS:7

#ation analysis has the following advantages.

#atio !nalysis helps in decision making

#atio !nalysis simplifies the understanding of financial statements

#atio !nalysis bring out interrelationship among financial figures

#atio !nalysis contributes significantly towards effective planning forecasting

#atio !nalysis facilitates interfirm, intrafirm comparison.

#atio serve as effective control tools.

LIMITATIONS OF RATIO ANALYSIS:7

#atio !nalysis has the following %imitations$

#atio may not prove to be the ideal tool for interfirm

comparisons. The two firms may adopt different accounting

policies and hence the results might not be compoundable

! study of ratio in isolation, without studying the actual figures may head to

wrong conclusions

#atios can be only as correct as the data on which they are based. 'f the original

data is not reliable, then ratios will be mislead

'n the absence of well accepted standards interpretation of #atios becomes

sub+ective

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#atios fails to reflect the impact of price levels changes and hence can be

misleading

#atios are only tools of *uantitative analysis they fail to considered *uantitative

aspects

TYPES OF RATIOS

"asically ratios can be divided into four broad groups and they are li*uidity ratio,

leverage ratios, profitability ratios, and activity ratios valuations ratios of capital market

ratios. xcept valuation ratios, which is purely based on external market values the four

important ratios are detailed below.

*) LIUIDITY RATIOS

%i*uidity ratios measure the ability of the firm to meet its current obligations. 'n fact,

analysis of li*uidity needs the preparation of cash budget and cash and fund flow statements

but li*uidity ratios by establishing a relationship between cash and other current assets to

current obligations provide *uick measure of li*uidity. ! firm should ensure that it dies not

suffer from lack of li*uidity and also that it is not too much highly li*uid. The failure of a

company to meet is obligations due to lack of sufficient li*uidity will result in bad credit

image loss of creditors confidence or even in lawsuits resulting in the closure of the company.

! very high degree of li*uidity is also bad. 'dle assets earn nothing. The firmMs funds will be

unnecessarily tied up in current assets. There it is necessary to strike a proper balance

between li*uidity and lack of li*uidity.

The ratio which indicate the li*uidity of a firm are$

8. urrent ratio

4. !cid test/Quick ratio.

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() LEVERAGE RATIOS

The short term creditors like bankers and suppliers of raw materials, are more concerned with

the firmMs current debt paying ability on the other hand, long:term creditors, like debenture holders,

financial institutions etc. are more concerned with the firmMs long:term financial strength. 'n fact, a

firm should have a strong short:term as well as long:term financial position. To +udge the long:term

financial position of the firm. Financial leverages of capital structure ratios are calculated.

These ratios indicate mix of funds provided by owners and lenders. !s a general rule, there

should be an appropriate mix of debt and owners e*uity in financing the firmMs assets. The manner in

which assets are financed has a number of implications. &ebt is more risky from the firmMs point of

view and the firm has legal obligations to pay interest to debt holders, irrespective of the profits made

or loss incurred by the firm. mployment of debt is advantageous for shareholders in two ways.

a) They can retain control of the firm with a limited stake and

b). Their earnings will be magnified when the firm earns a rate of return on the total capital

employed is higher than the interest rate on the borrowed funds the process of magnifying the

shareholders.

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-) PROFITABILITY RATIOS

The financial managers should continuously evaluate the efficiency of its company in

terms of points. The profitability ratios are calculated to measure the operating efficiency of

the company. "esides management the company creditors and owners are also interested in

the profitability of the firm. reditors want to get interest and payment of principal regularly.

wners want to get a reasonable return to their investment. This is possible only when the

company earns enough profits profitability ratios can be determined on the basis of either

sales or investment.

These ratios are based on the premise that a firm should earn sufficient profit on each rupee of

sales. 'f ade*uate profits are not earned on sale, there will be difficulty in meeting the operating

expenses and no returns will be available to the owners. -rofitability ratios related to investment.

-rofitability ratios can also be computed by relating the profits of a firm to its investment.

These ratios are popularly termed as return on investment E#'). There are three different concepts of

investment.

!ssets capital employed and shareholders e*uity based on each of them are three broad categories

of #'Ms . There are

#eturn on assets

#eturn on capital employed

#eturn on shareholders/e*uity holders

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=) ACTIVITY RATIOS

!ctivity ratios are concerned with measuring the efficiency in assets management. ome

times, these ratios are also called efficiency ratios are assets utilization ratios. The efficiency with

which the assets are converted into sales. The greater the rate of turnover or conversion. The more

efficient the utilization of management other things being e*ual for this reason such ratios are also

designated as turn over ratios. Turnover is the primary mode for measuring the extent of efficient

employment of assets by relating the assets to sales. !n activity ratio may, therefore be defined as a

test of the relationship between sales and the various assets of a firm. &epending upon the various

types of assets.

There are various types of activity ratios$

'nventory Estock) turnover ratio

#eceivable Edebtors) turnover ratios and collection period

!ssets turnover ratio.

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CLASSIFICATION OF RATIOS

VARIOUS ACCOUNTING RATIOS CAN BE CLASSIFIED AS FOLLOWS: -

Traditional classification

Eor)

tatement ratio.

Financial classification

Eor)

lassification according

to tests

ignificance ratio

Eor)

#atios according to

importance.

S S S

8) "alance sheet #atio

r

-osition statement ratios

8) %i*uidity #atios.

4) %everage #atios.

8) -rimarily #atio

4) econdary #atio

4) -rofit !ccount ratios

r

#evenue/'ncome tatement

ratio.

3) !ctivity #atios.

6) -rofitability #atios.

3) omposite/(ixed #atios

r

'nter statement #atios.

ADVANTAGES OF RATIO ANALYSIS :7

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1) #atio !nalysis simplifies the understanding of financial statements.

2) #atios bring out the inter relationship among various financial figures and bring to

light their financial significance ratio analysis is a device to analysis and interpret the

financial health of enterprise.

3) #atio facilitates inter firm and intra firm comparison. They bring out the strengths,

weaknesses and efficiency of firms and their departments.

4) #atios contribute significantly towards effective planning and forecasting. ! study of

a trend in the past works as a helpful guide for the future.

5) #atios cater to the particular information need of a particular person, depending on his

interest in the business for which ratios are to be calculated. ! creditor may be

interested in li*uidity ratios, while an investor may want to study profitability.

sample project chapter II

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