financing working capital of modren insulators ltd2
TRANSCRIPT
A
Project Study Report On
Training Undertaken at
“FINANCING WORKING CAPITAL OF MODREN INSULATORS LTD.”
Submitted in partial fulfillment for the Award of degree of
Master of Business Administration
Submitted By: - Submitted To:-
( 2009-2011 )
Deepshikha Collage Of Technical Education, Jaipur
2
DECLARATION
Xxxxx D/O xxxx declares that the project report titled “Working Capital” is based on
my project study. This project report is my original work and this has not been used for any
purpose anywhere.
xxx
3
MBA III Sem (II Year)
Preface
1. The Indian insulator industry has evolved into the production and manufacturing of
blocks, MODERN INSULATOR Ltd. was established in 1985 by group to help serve
increasing national and international insulator for India. Since then they have enjoyed
exponential growth and export to many markets worldwide.
2. While doing financial analysis of the company i collected the last two years financial
statements of the company, understood the various financial statements, understood
the various tools and techniques available for analysis, made notes of various financial
data required for doing analysis, analyzed the data collected and made interpretations.
I collected data from Internet and magazines. I got guidance from faculty as well as
corporate guide.
4
Executive Summary-
The project report on ‘Financial analysis’ is submitted to the Company, modern insulator ltd.
aburoad and the Institute, DEEPSHIKHA COLLAGE OF TECHNICAL EDUCATION , JAIPUR.
Financial statements are prepared by the company for the purpose of presenting a periodical
review or report on the progress by the management. It also deals with the status of
investments in the business, and the results achieved during the period under review, thus
conveying an understanding of financial aspects of a business firm. The financial statements
based on accounting policies, vary from enterprise to enterprise, and must be clear and
understandable. The disclosure of these policies should be an integral part of the statements; it
is helpful to users if they are all disclosed at one place. Analysis of these financial statements
is an essential step towards gaining an in depth understanding of a business.
5
Acknowledgement
I express my sincere thanks to my project guide, DR. D, Lecturer, Deptt_MBA., for guiding me
right form the inception till the successful completion of the project. I sincerely acknowledge
her for extending their valuable guidance, support for literature, critical reviews of project and
the report and above all the moral support she had provided to me with all stages of this
project.
I would also like to thank Mr. J. Virahyas, the supporting staff of MODREN INSULATOR Ltd.
for their help and cooperation throughout our project.
xxxxx
MBA 3rd Semester
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Contents
1. Introduction to the Industry
2. Introduction to the Organization
3. Research Methodology
3.1 Title of the Study
3.2 Duration of the Project
3.3 Objective of Study
3.4 Type of Research
3.5 Data Collection
3.6 Scope of Study
3.7 Limitation of Study
4. Facts and Findings
5. Analysis and Interpretation
6. SWOT
7. Conclusion
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8. Recommendation and Suggestions
9. Appendix
10. Bibliography
.INTRODUCTION TO THE INDUSTRY
Although pottery and ceramic industry is of prehistoric origin in india the HT Insulator industry
has a recent org. The first unit
was set up in the fifties at Bangalore. Some units were set up in the sixties but the main
expansion of the industry took place inthe seventies. The HT Insulators are used in electrical
transmission lines, substations and electrical equipment. Different types of insulators are used
for each application .There has been up gradation of transmission voltage and plans are afoot
to install 765 KV AC transmission lines. The industry would need to develop and produce HT
Insulators of higherratings for transmission lines, substations and equipment. There are 14
units manufacturing electro porcelain high tension insulators. Two of these units are in small
scale sector. These have installed capacity of 85,050 tone per annum. One small scale and
one organized sector unit have stopped production of insulators. The capacity of these two
units are 5000 tone per annum. demand and average production of the HT Insulators during
the last nine years have been around 31,000 tone per annum. More than 60% of the installed
capacity is lying idle with the industry due to lack of domestic demand. With the
implementation of the approved projects, the unutilized capacity would increase from 60,000
tone to 1,00,000 tone approximately. the domestic demand is not likely to increase
ropoprtionatelyat least for the next five years, the only possible way for improving the efficiency
of the industry is to enter the world export market
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TECHNOLOGY OVERVIEW
All the units in the organised sector have been set up with foreign technology through foreign
collaborations. The collaborations were entered into initially to set up the projects and number
of 1units subsequently had entered into supplementary collaborations to upgrade and enhance
the product range. Each unit in the industry has been acting as a sealed compartment and
centre of an exclusive secret technology. There has been very little exchange of technological
information amongst the units of the industry. The industry has done well to adapt the foreign
technology. Over the past decade, it has produced major equipment and testing equipment on
their, own. Porcelain Insulator Industry in India has substantially matured and even is in a
position to pass on technology to any third country who may want to set up such a plant in
association with them.
CONTEMPORARY TECHNOLOGIES
Electro porcelain and toughened glass are the two types of insulators that are being used for
high tension transmission lines and equipment throughout the world. The world market
comprises of the power projects being set up mainly in the under developed
and developing countries using electro porcelain and toughened glass insulators. In India also
toughened glass insulators are being used in transmission lines. A comparative statement of
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some characteristics of porcelain and toughened glass insulators is given in Table-1. However,
it may be noted that this comparison is not exhaustive, as complete data on properties and
performance of glass insulators is not available due to its limited use so far.
Toughened glass insulator technology acquisition and adaptation has not received sufficient
attention so far in the country. The only unit which has been given the license for manufacture
of toughened glass insulators has set up an assembly line. Production of glass shell which
indeed is the real technology is yet to start. Generally glass tends to deteriorate in outdoor
applications as it is not crystalline. It is amorphous and also India met stable
state. Also surface damage in glass insulators leads to shattering, while porcelain insulators
can withstand reasonable degree of surface damage. Performance of glass is yet to be proved
in EHV system trial in tropical countries. Long rod porcelain insulators have been developed
and are being used along with Disc Insulator strings.
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MODERN GROUP:-
Modern group is one of the leasing textile
& engineering multi product industrial group
in India. Modern group of industries emerged
on the corporate scene in 1976-77 & is
managed by very dynamics and professional entrepreneur Mr. H. S. Ranka & their team
with vision of high quality of product. Modern
group is having its five manufacturing units in
the states of Gujarat & Rajasthan with
manpower base of about 7000 employees &
sales turnover exceeding 300 million US$.
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The group has achieved significant achievement
in exports & further export share in the coming
years.
Modern Insulator Ltd is one of the premier
Unit in the field of manufacturing high voltage
& extra high voltage alumina porcelain insulator
in India. It has been setup by the Modern group
in 1985 with technical collaboration from
siemens AG Germany for transmission lines,
substations, railway& hallow porcelain insulator
for control equipments.
Modern Insulator Ltd has excelled in the
performance of various Range of solidcore
insulator up to 765 kv and they are associated
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with the most of the Prestigious powergrid and
electricity board Sub-station of the country.
Modern Insulator Limited
Plant location : ABU ROAD, RAJ. (INDIA)
Start up : Set up in 1985 (under
Technical collaboration with Siemens
Germany.)
Present capacity : Presently operating at
20,000 MT Per Annum
Sales turnover 2007-08
Modern Group : 1200 crores
Modern Insulator ltd : 243 crores
Exports : 100 crores
Domestic : 143 crores
Sales turnover (projected)
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Modern Insulator ltd : 299 crores
Exports : 105 crores
Domestic : 194 crores
India’s Largest Insulator Exporter : winner of top exporter Awards for last 3 year.
Exports : 6 continents
30 countries
Modern insulator limited is one of the eight units of the modern group.
Modern group is a leading textile and engineering multi- product industrial group in India.
Modern group is continuously developing since 1976-77 under the guidance and leadership
of a very dynamic and professional entrepreneur Mr. H.S. Ranka and his team. He was
having the vision to serve/ deliver the quality product to their customer. In addition, they have
never compromised with quality. Modern group is having its eight manufacturing units in the
state of rajasthan and Gujrat. These units are-
(1) Modern Woollen
(2) Modern Syntex ( I ) Ltd
(3) Modern Suiting
(4) Modern Threads ( I ) Ltd
(5) Modern Insulator Ltd
(6) Modern Denim Ltd
(7) Modern Terry Towels Ltd
(8) Modern Petrohilos
(9) Modern Insulator Ltd. is supplying their Insulators to all the
leading companies in the transmission & distributions sectors in
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India as well as across the world like ABB, AREVA, VATECH,
SIEMENS, MAXWELL etc.
MODERN INSULATOR LIMITED
Modern insulator limited is one of the eight units of the modern group.
Modern insulator limited has been setup by the modern group in 1985 having the
collaboration with siemens AG, Germany for the technology for manufacturing of solid core
insulator.
Modern insulator limited is a ISO certified company having the certificate ISO 9002 and ISO
14001 for it’s quality process and for helping in keeping the environment clean.
Modern insulator limited manufactures wide range of alumina porcelain insulators for various
utilities in India and world over.
Modern insulator limited is proud recipient of:
14th international award for technology and quality- Geneva 1993 Switzerland.
State award for export excellence.
Govt. of Rajasthan (India) 1995-96
Certificate of merit award – CAPEXIL Ministry of
commerce, Govt. of India 1996-97, 1997-98, 1998-
99
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Modern insulator limited can be well defined in the following point
★ Plant
Vision★
Quality Policy★
Technology Absorption and innovation ★
PLANT
Modern insulators limited (production units) is situated in Abu road, Rajasthan. However, its
registered office is in Jaipur.
In the plant itself modern insulators limited has its own R&D laboratory. This is now going to
be a Research center for ceramics.
Modern Insulators Ltd. was mainly started for manufacturing of alumina porcelain insulators
required for high voltage and extra high voltage equipment.
Product range:-
Modern insulator limited is indulging in producing five basic types of insulators.
(1) Solid Core Post Insulators
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(2) Hollow Porcelain Insulators
(3) Railway Insulators
(4) Line Post Insulators
(5) Long Rod Insulators
Plant Capacity:-
The plant is presently operating at 14820 M.T. (Metric tones) and likely to expand to 16500
M.T. within next two years.
QUALITY POLICY
We, at modern insulators limited, Abu road engaged in design and manufacturing of extra high
voltage alumina porcelain insulators for power transmission and distribution system. MIL is
committed to achieve sustained business growth through excellence in quality performance on
a continual basis.
Quality Objectives:
1. To look after the needs and expectations of customer to the extent possible
2. Gradual reduction in number of customer complaints and average period taken for
settlement
3. Gradual improvement in recovery at different stages
4. Developing quality consciousness among suppliers
5. Achieve business growth and create new market base
MODERN RANGE OF PRODUCT
ORGANIZATION NAME : MODERN INSULATORS LIMITED
PLANT LOCATION : POST BOX NO.- 23, ABO ROAD-307026
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RAJASTHAN (INDIA).
START UP : SET UP IN 1985 UNDER TECHNICAL
COLLABORATION WITH SIEMENS,
GERMANY.
NATURE OF PRODUCT : EXTRA HIGH VOLTAGE ALUMINA
PORCELAIN INSULATORS FOR POWER
TRANSMISSION AND DISTRIBUTION.
PRESENT CAPACITY : PRESENTLY OPEARATING AT 13000 MT.
AND LIKELY TO EXPAND TO 15000 MT.
SHORTLY.
SALES TURNOVER : Rs12983 lacs FOR YEAR 2006-07
Rs16593 lacs 2007-08 PROJECTED
EXPORT TURNOVER : Rs 8603 lacs FOR THE YEAR 06-07.
Rs 9539 lacs 07-08 PROJECTED.
CHAIRMAN : MR. H. S. RANKA
DIRECTOR : MR. SACHIN RANKA
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EXECUTIVE DITECTOR : MR. R. K. LADIA
SR. VP (FINANCE) : MR. S. D. GUPTA
SR. VP (MARKETING) : MR. SANJEEV SACHDEV
VP (MONITORING) : MR. P.K. JAIN
VP (P&A) : MR. S. TEWARI
VP (IR) : MR. M. R. SHARMA
VP (P&S) : MR. VIRENDRA SURANA
VP (Q.A.) : MR. MINAKSHI SUNDRAM
MODERN RANGE OF PRODUCT
2. OPERATION CYCLE
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RAW MATERIALS
BALL MILLING
FRESH &
RETURN CLAY
SLIP MIXING
SCREENING ELECTRO MAGNETIC SEPERATION
DRYING SHAPING ELECTRICA
L DRYING
KNEADING &
VACUMM
PUGMILL
FILTER PRESSING
PRODUCT RANGE AND MARKET
HOLLOW PORCELAINS
Hollow Insulators 33kV to 550kV for SF-6 circuit Breakers, Instrument transformers and surge
arrestors housings.
Max. dia 650 mm, height 2600 mm in single piece and
joined up-to 5000 mm.
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GLAZING FIRING SORTING CUTTING &
GRINDING
ULTRA SONIC & HIGH
VOLTAGE ELECTRICAL
TESTING
CUSTOMERS INSPECTION
ROUTINE & MECH.,
ELEC. TESTING
NATURAL
CURING
STEAM
CURING
ASSEMBLY
PACKING DESPATCH
MODERN RANGE OF PRODUCT
SOLID CORE POST INSULATORS
Solidcore Post Insulators 33kV to 765kV.For BUS BAR SUPPORT, DISCONNECTORS
LONG ROD INSULATORSThe intermediate metallic connections in case of Long
Rod Insulators are drastically reduced resulting in improved voltage distribution.
Long Rod Insulators 33kV to 765kV for Transmission lines.
We are the only manufacturer in India producing Long Rod Insulators. These insulators
are used in transmission line as an alternative to DISC Insulators.RAILWAY
INSULATORSRailway Insulators upto 33 KV.
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For Electrification of railway tracks.
3.RESEARCH METHODOLOGY
3.1 Title of the Study
WORKING CAPITAL
3.2 Duration of the Study-
Study on Financial analysis of MODREN IN.SULATOR Ltd has been completed in 45
days.(25th June to 5th Aug 2010)
3.3 Objective-
1. To study the life cycle of substitute of Long Rod Insulator.
2. To study about L.R.I. substitute Polymer Insulator requirement.
3. To analyze the most preferred demand of substitute of Long
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Rod Insulator by the customers.
4. To analyze the behavior of switching among substitute of
Long Rod Insulator by customers.
5. To know the awareness level of customers about Polymer
Insulator Market conditions.
3.4 TYPE OF RESEARCH- DESCRIPTIVE RESEARCH
A Research design is purely and simply the framework of plan for a study that guides the
collection and analysis of data. The study is intended to find the investors preference towards
various investment avenues. The study design is descriptive in nature.
Descriptive study is a fact-finding investigation with adequate interpretation. It is the simplest
type of research and is more specific. Mainly designed to gather descriptive information and
provides information for formulating more sophisticated studies.
3.5 SAMPLE SIZE AND METHOD OF SELECTION SAMPLE
A) Research Design:-
The type of research design used is the descriptive research. Descriptive research studies
are those studies which are concerned with describing the characteristics of a particular
individual, or of a group, studies concerned with specific prediction, with narration of facts
and characteristics concerning individual group or situation.
In this present content of the project study which is mainly clubbing together of two scenarios
of corporate. This research first deal with the study of substitute of Long Rod Insulator as
Polymer Insulator and second customer behavior regarding such substitute in the market.
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Thus an attempt is made to study of comparison both that insulators and to find out different
factors, affecting customer behavior.
B) Sample Design:-
The type of sampling done was systematic sampling. Where all 100 customers were
questioned evenly. The sample size was 100 existing customers of MODERN
INSULATOR.LTD. who have purchased Long Rod Insulator of MIL. The area used for the
samples was few of domestic & export customers.
C) Databases & Data Collection:-
There were two types of data used in this research project. Both Secondary & Primary data
were used.
The Secondary Database was collected from annual report of MODERN INSULATOR LTD.,
product catalog of MIL, Past Facts and Figures of the company, INMR quarter review
guidelines.
Primary Data was collected from primary source i.e. through questionnaire together with mail
,phones the customers.
The data collection method used in this project was Survey. Research Instrument used was
Questionnaire. The types of Questions used were Dichotomous Questions and close ended.
The respondents are made aware of the study.
D) Data Analysis & Interpretation:-
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Data Analysis was done through simple Mathematical Calculations. Data Interpretation was
based on results of analysis and findings.
TECHNOLOGY ABSORPTION AND INNOVATION
A. TECHNOLOGY ABSORPTION
1. Research and development
a) Specific area in which R&D carried out by the company:
- Development of waste heat recovery system in kiln for improving energy efficiency.
- Improvement in body composition for consistency in recovery.
- Use of high quality raw material for improvement in body.
- Reduction in cycle time at various stages of process.
- Development of extra high strength products for overseas market.
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- Improvement in product appearance by introduction of new composition for glaze and
better quality raw materials.
b) Benefits derived as a result of the above R&D:
- Improvement in efficiency.
- Improvement in quality.
- Wider customer base.
- Waste material utilization.
c) Future plan of action
- Development of Epoxy glass polymer composite insulator.
- Waste water recycling
- New body composition for high strength and with reduced dryers/firing cycle.
- Development of 420 KN transmission Line Long Rod Insulators.
- Automation in material handling.
Extra large products upto 1000 mm dia.
d) Expenditure on R&D:
- Capital : NIL
- Recurring : Rs. 49.11 lacs
- Total : Rs. 49.11 lacs
- Total R&D expenditure,
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As % of total turnover. : 0.23 %
2. Technology Absorption, Adoption and Innovation:
a) Effort, in brief, made towards technology absorption, adoption and
innovation:
- modification of process and product design to cater market requirements
and to improve operational efficiency.
b) Benefits derived as a result of above efforts:
- Improvement in efficiency and productivity.
- development of new products. B. Foreign Exchange earning Rs 12146 Lacs (FOB)
Foreign Exchange Outgoing Rs 1168 Lacs.
6. SCOPE OF THE STUDY
This study shows the Financial Position.
This study tries to focus on Working Capital Management.
This study also tries to focus on Flow of Cash.
This project study also focus on importance of Ratio Analysis and Break Even Analysis
in organization.
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FINANCIAL POSITION
Financial statements are prepared by the company for the purpose of presenting a periodical
review or report on the progress by the management. It also deals with the status of
investments in the business, and the results achieved during the period under review, thus
conveying an understanding of financial aspects of a business firm. According to Accounting
Standards, the term “financial statements” covers balance sheets, income statements or
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profit and loss accounts, notes and other statements and explanatory material which
are identified as being part of the financial statements”.
The financial statements based on accounting policies, vary from enterprise to enterprise, and
must be clear and understandable. The disclosure of these policies should be an integral part
of the statements; it is helpful to users if they are all disclosed at one place.
Analysis of these financial statements is an essential step towards gaining an in depth
understanding of a business. It helps doing financial SWOT analysis of business. “Financial
statement analysis is largely a study of relationship among the 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 a series of statements.” Financial statement analysis provides a full diagnosis of the
profitability and financial position of the firm concerned. It pinpoints the strong points and
weaknesses of a business unit, and provides scope for understanding the liquidity, solvency,
profitability and operational efficiency of the business concerned. A number of parties and
bodies, besides owners and shareholders, including creditors, potential suppliers, debenture
holders, credit financial institutions like banks, trade unions, important customers, economists,
investment analysts, taxation authorities and the government have an interest in the financial
results of a company.
Financial statement analysis consists of the application of analytical tools and techniques to
financial data in order to derive meaningful measurements and relationships that are useful for
decision-making.
It can be used as a preliminary screening tool in the selection of stocks in the secondary
market. It can be used as a forecasting tool of future financial performance. It may be used as
a process of evaluation and diagnosis of managerial, operating, or other problem areas.
Financial analysis reduces reliance on guesses and thus helps reducing uncertainty. Financial
29
analysis does not lessen the need for judgment rather establishes a sound and systematic
basis for its rational application.
Methodology:
Collection of the last two years financial statements of the company.
Understanding the various financial statements.
Understanding the various tools and techniques available for analysis.
Making notes of various financial data required for doing analysis.
Analyzing the data collected and making interpretations.
Collecting data from Internet and magazines.
Guidance from faculty as well as corporate guide.
Schedule:
The project will be completed in the following five stages:
Stage 1: Understanding the Marble Industry.
The first stage involves a detailed study of the Indian marble industry. This stage includes
understanding the various trends prevailing in the marble industry, various technologies used,
method of production of marble and other technicalities related to the marble industry.
Stage 2: Collection of the company’s last two years financial statements.
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The second stage involves collecting the company’s last two years f inancial
statements, which is present in the form of annual reports printed by the
company. The financial statements are also available on company’s website.
Stage 3 : Understanding the Financial statements .
The third stage involves a study of various financial statements available in the company’s
reports. The various financial statements available are balance sheets, income statements or
profit and loss account. A complete knowledge about these statements is gathered in this
stage. .
Stage 4: Understanding the various tools and techniques used in analysis of financial
statements.
The fourth stage involves the study of the analysis tools. It is a process of determining and
interpreting numerical relationships based on financial statements. Tools used for analyzing
the financial statements are-
Comparative balance sheet
Comparative profit and loss account
Cash flow analysis
Ratio analysis
Trend analysis
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Stage 5: Interpretation.
The fifth stage involves calculating various ratios and interpreting these ratios. This stage
involves comparison of the ratios of two years, thus revealing the company’s trends. It also
involves interpretations regarding cash flow statement. It also facilitates understanding of
company’s profitability and operating efficiency.
Understanding the Financial Statement:
“Show me the money!” Well, that’s what financial statements do. They show you the money.
They show you where a company’s money came from, where it went, and where it is now.
Financial statements (or financial reports) are formal records of business financial activities.
These statements provide an overview of a business profitability and financial condition in both
short and long term.
There are four basic financial statements:
1. Balance Sheet - also referred to as statement of financial condition, reports on a
company’s assets, liabilities and net equity as of a given point in time.
2. Income Statement - also referred to as Profit or loss statement, reports on a
company’s results of operations over a period of time.
3. Cash Flow Statement - reports on a company’s cash flow activities, particularly
its operating, investing and financing activities.
4. Statement of Retained Earnings - explains the changes in a company’s
retained earnings over the reporting period.
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Because these statements are often complex, an extensive set of Notes to the Financial
Statements and management discussion and analysis is usually included. The notes will
typically describe each item on the Balance sheet, Income Statement and Cash Flow
Statement in further details. Notes to Financial Statements are considered an integral part of
the Financial Statements.
Now let’s have a look at the various financial statements in detail:
Balance Sheets
A balance sheet is often described as a “snapshot” of the company’s financial
condition on a given date. It does not show the flows into and out of the accounts during the
period. A balance sheet provides detailed information about a company’s assets, liabilities and
shareholders’ equity.
Assets are things that a company owns and can either be sold or used by the company to
make products or provide services. Assets include physical property, such as plants, trucks,
equipment and inventory; things that can’t be touched, such as trademarks and patents. And
cash itself is an asset. So are investments a company makes.
Liabilities are amounts of money that a company owes to others. This can include all
kinds of obligations, like money borrowed from a bank, rent for use of a building, money owed
to suppliers for materials, payroll a company owes to its employees, environmental cleanup
costs, or taxes owed to the government. Liabilities also include obligations to provide goods or
services to customers in the future.
33
Shareholders’ equity is part of the company’s liabilities: they are funds “owing” to
shareholders (after payment of all other liabilities). In other words, it is the money that
would be left if a company sold all of its assets and paid off all of its liabilities. This leftover
money belongs to the shareholders, or the owners, of the company.
The following formula summarizes what a balance sheet shows:
ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY
A company’s assets have to equal, or “balance,” the sum of its liabilities and shareholders’
equity.
An income statement (also called as Profit & Loss statement) is a report that shows how
much revenue a company earned over a specific time period (usually for a year or some
portion of a year). The literal “bottom line” of the statement usually shows the
company’s net earnings or losses .To understand how income statements are set up, think
of them as a set of stairs. You start at the top with the total amount of sales made during the
accounting period. This top line is often referred to as gross revenues or sales.
Then you go down, one step at a time. At each step, you make a deduction for certain costs or
other operating expenses associated with earning the revenue.
At the bottom of the stairs, after deducting all of the expenses, you learn how much the
company actually earned or lost during the accounting period. This bottom line is called as net
revenue.
Income statements help investors and creditors determine the past performance of the
enterprise; predict future performance; and assess the risk of achieving future cash flows.
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Cash flow statements report a company’s inflows and outflows of cash.
While an income statement can tell you whether a company made a profit, a cash flow
statement can tell you whether the company generated cash. Generally, cash flow statements
are divided into three main parts. They are:
Operating Activities
The first part of a cash flow statement analyzes a company’s cash flow from net income or losses.
For most companies, this section of the cash flow statement reconciles the net income (as shown on the
income statement) to the actual cash the company received from or used in its operating activities. To do
this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and
adjusts for any cash that was used or provided by other operating assets and liabilities.
Investing Activities
The second part of a cash flow statement shows the cash flow from all investing activities, which
generally include purchases or sales of long-term assets, such as property, plant and equipment, as well
as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect
this activity as a cash outflow from investing activities because it used cash. If the company decided to
sell off some investments from an investment portfolio, the proceeds from the sales would show up as a
cash inflow from investing activities because it provided cash.
Financing Activities
The third part of a cash flow statement shows the cash flow from all financing activities.
Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from
banks. Likewise, paying back a bank loan would show up as a use of cash flow.
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Understanding the Various tools and techniques used in analysis of Financial Statements
A financial statement analysis consists of the application of analytical tools and
techniques to the data in financial statements in order to derive from them
measurements and relationships that are significant and useful for decision making.
The process of financial statement analysis can be described in various ways, depending on
the objectives to be obtained. Financial analysis can be used as a preliminary screening tool in
the selection of stocks in the secondary market. It can be used as a forecasting tool of future
financial conditions and results.
It may be used as a process of evaluation and diagnosis of managerial, operating, or other
problem areas. Above all, financial analysis reduces reliance on intuition, guesses and thus
narrows the areas of uncertainty that is present in all decision-making processes. Financial
analysis does not lessen the need for judgment but rather establishes a sound and systematic
basis for its rational judgment.
MEMORANDUM STATEMENT
(Rs. in lacs)
S.
NO.
Particulars
YEAR
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
36
(1)
(2)
(3)
(4)
(5)
(6)
Production
(M.T.)
Sales (gross)
Exports(FOB
value)
(Included in
Gross sales)
P B I D
Cash profit/loss
Net Profit
4581
5464
1861
1057
453
11
5711
7476
3434
1184
623
179
6743
8626
4344
1667
1307
775
8336
10704
4460
1795
1501
1120
9356
12983
5747
2080
1514
1079
10834
14764
8528
2170
1424
1126
13051
21169
12146
2909
2612
2265
BALANCE SHEET
(For the year ended 31st march)
37
PARTICULARS
As at
2004-05
As at
2005-
06
As at
2006-
07
As at
2007-
08
As at
2008-
09
As at
2009-10
SOURCE OF
FUNDS
SHAREHOLDER’S
FUND
Share capital
Reserves and
surplus
LOAN FUNDS
Secured loans
Unsecured loans
Deferred tax
liability
TOTAL
APPLICATION OF
FUNDS
FIXED ASSETS
Gross block
2174.35
137.06
23311.41
2995.43
951.92
3947.34
230.81
6489.56
7292.16
3664.15
3628.01
2174.35
609.13
2783.48
2017.41
1083.59
3101.00
392.28
6276.76
7810.83
4151.53
3659.30
16.22
2174.35
1329.29
3503.64
1622.02
1000.00
2622.02
605.24
6730.90
8312.85
4569.09
3743.76
2174.35
2063.81
4238.16
1521.01
900.00
2421.01
657.98
7317.15
9237.01
5006.57
4230.44
5.11
2174.35
2859.54
5033.69
1317.39
700.00
2017.39
708.07
7759.35
9928.02
5276.26
4651
.7
105
2174.35
4317.26
6491.6
1
1429.94
500.00
1929.94
797.01
9218.56
10705.75
5618.55
5087.20
38
Less: depreciation
Net block
Capital work in
progress
INVESTMENTS
CURRENT
ASSETS, LOAN &
ADVANCE
Inventories
Sundry Debtors
Cash and bank
balance
Loans and
advance
LESS: CURRENT
LIABI.&
PROVISION
Current liabilities
Provision
133.57
3761.58
0.01
1517.46
1548.16
54.81
486.09
3606.50
990.59
9.25
999.84
2606.66
86.03
35.28
3675.52
0.01
1462.34
1651.45
65.37
575.69
3754.85
1149.96
3.66
1153.62
2601.23
-
-
6276.76
69.89
3813.65
0.01
1563.20
2303.49
88.83
555.15
4570.67
1503.70
89.73
1593.43
2917.24
-
-
4235.55
0.01
1788.47
2883.93
100.91
573.87
5347.18
2153.64
111.95
2265.59
3081.59
-
-
7317.15
.6
4757.43
0.01
2164.70
2295.92
88.80
691.25
5240.
67
1918.37
320.39
2238.76
3001.91
-
-
158.34
5245.54
0.01
2225.11
2793.91
1438.40
748.86
7206.28
2541.28
691.99
3233.27
3973.01
-
-
39
Net current
assets
Miscellaneous
Exp.
Profit &loss A/C
6489.56 6730.90 7756.35 9218.56
COMPARATIVE BALANCE SHEET
(For the year ended 31st march)
Particulars
Rs. in lacs
Increase /
(Decrease)
Change
in %
YEAR
2009
YEAR
2010
40
SOURCE OF FUNDS
SHAREHOLDER’S FUND
Share capital
Reserves and surplus
LOAN FUNDS
Secured loans
Unsecured loans
Deferred tax liability
TOTAL
APPLICATION OF FUNDS
FIXED ASSETS
Gross block
Less: depreciation
Net block
Capital work in progress
2174.35
2859.54
5033.89
1317.39
700.00
2017.39
708.07
7759.35
9928.02
5276.267
4651.76
105.67
4757.43
2174.35
4317.26
6491.61
1429.94
500.00
1929.94
797.01
9218.56
10705.75
5618.55
5087.20
158.34
5245.54
-
1457.72
1457.72
112.55
(200.00)
(87.45)
88.94
1459.21
777.73
342.29
435.44
52.67
488.11
-
50.97
28.98
8.54
28.57
4.33
12.56
18.80
7.83
6.48
9.36
49.99
41
INVESTMENTS
CURRENT ASSETS, LOAN &
ADVANCE
Inventories
Sundry Debtors
Cash and bank balance
Loans and advance
LESS: CURRENT LIABI.&
PROVISION
Current liabilities
Provision
Net current assets
Miscellaneous Exp.
Profit &loss A/C
0.01
2164.70
2295.92
88.80
691.25
5240.67
1918.37
320.39
2238.76
3001.91
-
-
7759.35
.0.01
2225.11
2793.91
1438.40
748.46
7206.28
2541.28
691.99
3233.27
3973.01
-
-
9218.56
-
60.41
497.99
1349.6
57.61
1965.61
622.91
371.6
994.51
971.1
-
-
1459.21
10.25
-
2.79
21.69
1519.81
8.33
37.50
32.47
115.9
44.42
32.34
-
-
18.80
42
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH)
(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in
stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other
Exp.
Depreciation
Less: charged form
revaluation reserve
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
(26.41)
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
(54.61)
7482.23
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
9022.73
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
10971.05
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
13166.33
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
17651.68
43
Profit Before Tax
Less: Provision for
tax
Current tax
Deferred tax
Profit After tax
Add: Taxation in
respect of earlier year
Add: balance brought
forward
Less: Debenture
redemption reserve
Balance carried
forward to balance
sheet
(Surplus available
for appropriation)
Earning Per Share
(25000000 Equity
Shares of Rs. 10/-
each)
6535.76
179.47
9.25
230.81
(60.59)
0.15
25.16
-
(35.28)
775.56
44.57
569.52
(0.65)
(35.28)
533.59
239.64
293.95
2.62
1120.18
149.29
212.96
757.93
1.37
293.88
1050.44
3.49
1079.38
275.63
52.74
571.01
2.28
1050.44
-
1799.17
3.45
1125.70
271.96
50.09
803.65
7.92
1799.17
139.64
2834.54
3.70
2264.85
710.31
88.94
1465.60
7.88
2834.54
-
4292.26
6.74
44
COMPARATIVE INCOME STATEMENT
(For the year ended 31st march)
PARTICULAR
Rs. in lacs Increase /
(Decrease)
Change
in %YEAR
2009
YEAR
2010
45
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other Exp.
Depreciation
Profit Before Tax
Less: Provision for tax
Current tax
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
13166.33
1125.70
271.96
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
17651.68
2264.85
710.31
6405.36
443.97
5961.39
(13.24)
(323.65)
5624.5
1281.91
129.75
3024.88
48.81
4485.35
1139.15
438.35
43.38
60.65
42.48
(10.57)
(239.65)
39.33
38.20
15.35
34.90
16.33
34.06
101.19
161.18
46
Deferred tax
Profit After tax
Add: Taxation in respect of earlier
year
Add: balance brought forward
Balance carried forward to
balance sheet
(Surplus available for
appropriation)
Earning Per Share
(25000000 Equity Shares of Rs.
10/- each)
50.09
803.65
7.92
1799.17
2834.54
3.70
88.94
1465.60
7.88
2834.54
4292.
26
6.74
38.85
661.95
(0.04)
1035.37
1457.72
3.04
77.56
82.38
(0.50)
57.54
51.42
45.10
47
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH)
(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
INCOME
Turnover
Less: Excise
Duty
Net Turnover
Other Income
Increase
(decrease) in
stock
EXPENDITURE
Material Cost
Employees
Cost
Operation &
Other Exp.
Profit Before
Tax
Less:
Provision for
tax
Current tax
Deferred tax
Profit After
tax
Add: Taxation
in respect of
earlier year
Add: balance
brought
forward
Less:
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
48
Depreciation
Less: charged
form
revaluation
reserve
Debenture
redemption
reserve
Balance
carried
forward to
balance sheet
(Surplus
available for
appropriation)
Earning Per
Share
(25000000
Equity Shares
of Rs. 10/-
each)
(26.41)
6535.76
179.47
9.25
230.81
(60.59)
0.15
25.16
-
(35.28)
(54.61)
7482.23
775.56
44.57
569.52
(0.65)
(35.28)
533.59
239.64
293.95
2.62
9022.73
1120.18
149.29
212.96
757.93
1.37
293.88
1050.44
3.49
10971.05
1079.38
275.63
52.74
571.01
2.28
1050.44
-
1799.17
3.45
13166.33
1125.70
271.96
50.09
803.65
7.92
1799.17
139.64
2834.54
3.70
17651.68
2264.85
710.31
88.94
1465.60
7.88
2834.54
-
4292.26
6.74
Sales Trend Analysis (MT)
49
Modern Insulator Ltd. is supplying their Insulators to all the leading companies in the
transmission & distributions sectors in India as well as across the world like ABB,
AREVA, VATECH, SIEMENS, MAXWELL etc.
Sales performance over the years
Sales value (Rs. Lakhs)
50
Ratio
Analysis:
Ratios are well- known and most widely used tools of financial analysis and
focus attention on the inter- relationships between various items of financial
information. In order to calculate a ratio, a relevant relationship between two
numbers of financial statements is established and the result of the same is
interpreted in order to derive meaningful conclusions. For example, there is a direct
relationship between the figures of gross profit and sales. Hence a change in the ratio
of gross profit to sales in a particular year would indicate the change in relevant
business conditions. Ratios are guides that are useful in evaluating a company’s
financial position and operations, and to point out areas needing further
investigation. They should be used in the context of a general understanding of the
company and its environment.
51
Different people use ratios for various purposes. Two groups of people who are
interested in them are creditors and shareholders; creditors are further divided into
short-term creditors and long- term creditors. Short-term creditors hold obligations that
will soon mature and they are concerned with the firm’s ability to pay its bills promptly.
Long-term creditors hold bonds or mortgages against the firm and are interested in
current payments of interest and eventual repayment of principal. These persons
examine liquidity and profitability. In addition to liquidity and profitability, the owners of
the firm (shareholders) are concerned about the policies of the firm that affect the
market price of the firm’s stock. With poor policies, the common stock would trade at
lower prices in the market.
Ratio analysis thus involves the method of calculating and interpreting financial
ratios in order to assess the strengths and weaknesses underlying the
performance of an enterprise.
An important aspect of ratio analysis is that it is similar to performing art endowed with
lot of creativity and imagination. The choice of a set of ratios though conditioned by the
objective and purpose of analysis yet the interpretation depends on the ingenuity of
the financial analyst. Though we have certain set of given ratios yet there is enough
fertile ground for designing unique ratios to suit the needs of financial analysis keeping
in view the ever changing complexities and dimensions of business. In order to
interpret the ratio, they have to be compared over a period of time (Time- Series
Analysis) and also with some other player in the same industry (Cross- Sectional
Analysis).
Time- Series analysis involves comparison of financial statement over a period
of time, normally three or five years period. Year- to- Year changes are observed
over a period of time to interpret the ratios. This analysis requires similar data
quality over a period of time in order to derive meaningful conclusions.
52
So care must be exercised regarding change in accounting policy, or any structural
change arising out of change in government policy, technological development and
competition, over the period of analysis. Time-series analysis thus evaluates the
performance of the same business enterprise over a period of time and helps in
identifying problem areas requiring corrective measures.
Cross- sectional analysis are conducted to assess whether the financial ratios are
within the limits, they are compared with the industry averages or with a good
player in the normal business conditions. This type of analysis helps in
identifying the problems that exists. This will enable us to enquire into the reasons
underlying the problems and which, in turn; will help to initiate corrective actions.
However, care has to be exercised regarding the selection of the constituents of the
cross-section. There must be a common variable of similarity. This similarity may be of
end product (all providing similar product), capital market attribute (all having similar
equity price), production process or raw material consumption).
Types of Ratios
Financial Ratios can be grouped into six types:
1. Liquidity Ratios
2. Activity Ratios
3. Profitability Ratios
4. Earnings Ratios
5. Dividend Ratios
6. Leverage Ratios
Once we go ahead with detailed discussion on different ratios, which fall under each
group, it will be realized that liquidity, leverage and activity ratios measure risks
53
whereas profitability and return ratios measure return. Further, some of these ratios
focus short-run while others focus long run. The leverage ratios have long-term
perspective while other category ratios are primarily focused to the short-run.
LIQUIDITY RATIO
CURRENT RATIO
MODERN INSULATORS LIMITED liquidity ratio denotes that there has occurred
considerable deterioration in the liquidity position of the company.
Current ratio indicates relationship between current assets and current liabilities.
Current assets are included inventories, cash and bank, sundry debtors, loans and
advances and current liabilities are included sundry creditors, bill payable and
provisions. Current ratio is found current assets are divided by current liability.
CURRENT RATIO= CURRENT ASSETS/CURRENT LIABILITIES
There is six years data are available in this project report but to make convenience I
am comparing only recent two years data with each other.
In the year, 2010 current ratio was 2.34:1. It implies that every 2.34 rupees of current
assets were available against on one rupee of current liabilities. In the year 2010 the
current ratio is 2.23:1 it implies that for every 1 rupee of current liabilities, Rs. 2.23
current assets are available to meet short-term obligation. The standard ratio of
current ratio is 2:1. So far, it clearly reveals that company keep sufficient amount of
money in liquidity for contingency at present.
QUICK RATIO
The quick ratio indicates relationship between liquid assets and current liabilities.
Inventories are considered to be less liquid. It required sum time for realizing into cash,
54
their value also has a tendency to fluctuate. The quick ratio is found by dividing quick
assets by current liabilities.
QUICK RATIO =CURRENT ASSETS- INVENTORIES/CURRENT LIABILITIES
The quick ratio indicates that there has occurred a considerable deterioration in the
liquidity position of the company. In the year, 2009 Acid test ratio was 1.37 that
increase to 1.54 in the year 2010. Standard ratio of Acid test is 1:1. Actual Acid test
ratios are more then standard ratio in the year 2009 and 2010.
56.08% of sundry debtors, 28.87% of cash and bank, 15.03% of loans and advances
The Company’s ability to meet short-term obligation is very strong.
Critical analysis: - data of last years show that company does perform well but it over
emphasis on quick ratio because of large difference is exist between standard ratio
and actual ratio it may be adverse for company. Therefore, company should control its
ratio deviation.
SUPPER QUICK RATIO
Supper quick ratio indicates relationship between quick assets and quick liabilities.
Inventories are to be less in current assets for getting quick assets. Supper quick ratio
is calculated as followed
SUPPER QUICK RATIO=QUICK ASSETS/ QUICK LIABILITIES
There is six years data are available in this discovery report but to make convenience I
am comparing only two years data with each other. in the year 2009 and 2010 supper
quick ratio are 1.60 and 1.96 respectively. The standard ratio of supper quick ratio is
55
0.5:1 and company ratios are greater than standard ratio and it focus that company
has good potential to get short term obligation.
Critical analysis: - due to the analysis of last two years supper, quick ratio I must say
that company is giving more importance of liquidity because there is very huge
difference between standard and actual ratio and it may against of company’s viability.
Therefore, company should control this type of particular situation.
CASH RATIO
Since cash is the liquid assets, it is necessary to find the ratio of cash to current
liabilities. It calculates as followed:
CASH RATIO = CASH/CURRENT LIABILITIES
Cash is the most liquid ingredient of liquid assets. Therefore, company should analyze
cash ratio. In the year, 2009 and 2010 cash ratio are 0.04 and 0.56 respectively. Due
to the last two years record cash ratio indicate that company has sufficient cash and
company is more concerned about it.
MODERN INSULATORS LIMITED liquidity is deteriorating. The MODERN
INSULATORS LIMITED must not over emphasis on supper quick assets; otherwise, it
may bad effect on company performance.
PARTICULAR
YEAR
2006 2006 2007 2008 2009 2010
CURRENT RATIO 3.61 3.25 2.83 2.36 2.34 2.23
QUICK RATIO 2.09 1.99 1.85 1.57 1.37 1.54
SUPPER QUICK RATIO 2.16 2.01 1.97 1.65 1.60 1.96
56
CASH RATIO .06 .06 .06 .05 .04 .56
MODERN RANGE OF PRODUCT
ASSETS TURNOVER RATIOS
Assets are used to generate sales. Therefore, firm should manage its assets efficiently
to maximize sales.
CURRENT ASSETS AND FIXED ASSETS TURNOVER
Current assets turnover and fixed assets turnover indicate that how many sales are
generated on both current assets and fixed assets. These ratios are
Calculated as followed
CURRENT ASSETS TURNOVER = SALES / CURRENT ASSETS
FIXED ASSETS TURNOVER = SALES / NET FIXED ASSETS
In the year 2009 and 2010 current assets turnover are 2.68 and 2.77 respectively of
modern insulators limited. It implies that for every one rupee of current assets, sales
are generated of Rs. 2.68 in the year 2009 and Rs. 2.77 in the year 2010. It clearly
shows that firm is generating sales very well.
In the year 2009 and 2010 fixed assets turnover are 2.95 and 3.81 respectively. It also
implies that for every one rupee of fixed assets, sales are generated Rs. 2.95 in the
year 2009 and Rs. 3.81 in the year 2010. It also show the prosperity of viability of firm
that firm is performing well.
Inventory (Stock) Turnover Ratio-
57
The inventory or stock turnover ratio is calculated to consider the adequacy of the
quantum of capital and its justification for investing in inventory.
Inventory (Stock) Turnover Ratio = Cost of Goods Sold or Sales
————————————
Average Inventory at Cost
COGS (Rs. in
Cr.)
Stock (Rs. in Cr.) Stock Turnover Ratio
2010 125.78 5.95 21.13
2009 117.89 8.0 14.74
Interpretation- This ratio reveals number of times finished stock is turned over during a
given accounting period in relation to sales. A high ratio is better and reflects efficient
business activities.
Stock Velocity- The inventory turnover ratio indicates the stock velocity with which
stock moves through the business. The velocity can be calculated by using the
following formula:
Stock Velocity = No. of Days/ Month in a year
————————————
Stock Turnover Ratio
year Stock Turnover Ratio Stock Velocity
2010 21.13 17.13
58
2009 14.74 24.76
Fixed Assets Turnover Ratio-
This ratio expresses relationship between fixed assets and net sales or cost of goods
sold. Since the investment in fixed assets is made for the ultimate purpose of efficient
sales, the ratio is used to measure the fulfillment of that objective.
Fixed Assets Turnover Ratio = Sales or Cost of Goods Sold/ Fixed assets (less
depreciation)
Interpretation- efficiency and profit earning capacity of the firm is remarkable. Intensive
utilization of fixed assets is sound.
Current Assets Turnover Ratio-
This ratio expresses relationship between current assets and net sales or cost of
goods sold. It is calculated by using the following formula
Current Assets Turnover Ratio = Sales or Cost of Goods Sold/ Current Assets
Interpretation- Both the years shows overinvestment in current assets.
Working Capital Turnover Ratio-
This ratio establishes relationship between net working capital and net sales or cost of
goods sold. It is calculated by dividing the net sales or cost of goods sold by net
working capital. Expressed as a formula:
Working Capital Turnover Ratio = Sales or Cost of Goods Sold/ Net Working
Capital
59
Interpretation- Both the years show satisfactory working capital turnover ratio, and
reflect efficient management of working capital.
Profitability Ratios-
Profitability refers to the ability to earn profit. The profitability of a firm can be
measured by its profitability ratios. These ratios indicate overall managerial efficiency.
Profitability depends on quantum of sales, cost of production and use of financial
resources etc.
There are two types of profitability ratios, first, profitability ratios based on sales:
second, profitability ratios based on capital and assets.
Profitability Ratios Based on Sales-
From profit point of view, it is significant that adequate profit should be earned on each
unit of sales. Following profitability ratios are calculated in relation to sales. These are
also called ‘General Profitability Ratios’.
Gross Profit Ratio-
This ratio expresses relationship of gross profit on sales to net sales in terms of
percentage. It is also called as ‘margin ratio’. Expressed as a formula:
Gross Profit Ratio = Gross Profit × 100
———————
Net Sales
year Net Sales (Rs.
in Cr.)
Gross Profit (Rs.
in Cr.)
Gross Profit Ratio
60
2010 190.9 65.12 34.11%
2009 171.7 53.18 31.33%
Interpretation- Gross profit ratio of both the years show effective and efficient trading.
Basic profit earning potentiality of the firm is sound. Great margin is reflected
Operating Profit Ratio-
This ratio is called ‘operating profit margin’. It establishes relationship between
operating profit and net sales.
Operating Profit Ratio = Operating Profit × 100/ net sales
year Net Sales (Rs.
In Cr.)
Operating Profit
(Rs. in Cr.)
Operating Profit Ratio
2010 190.9 49.35 25.85%
2009 171.7 39.01 22.72%
Interpretation- Operational efficiency of the firm is sound. Firm has been able not only
to increase its sales but also been able to cut down its operating expenses.
Operating Ratio-
This ratio expresses relation ship between operating costs and net sales. This ratio
indicates the operational efficiency of the business and profit earning capacity of the
firm. Expressed as a formula:
61
Operating Ratio = Operating Costs × 100
—————————
Net Sales
Or
= 100 — Operating Profit Ratio
Year Operating Profit Ratio Operating Ratio
2010 25.85% 74.15%
2009 22.72% 77.28%
Interpretation- In year 2008, 74.15% of net sales is absorbed by cost of goods sold
and operating expenses, and in year 2007, 77.28% of net sales is absorbed by cost of
goods sold and operating expenses. An operating ratio ranging between 75% to 85%
is generally considered as standard for manufacturing firms. Both of these year’s
Operating Ratios help to recover non operating expenses such as interest, dividend
etc.
Net Profit Ratio-
year Net Sales (Rs.
in Cr.)
Net Profit (Rs. in
Cr.)
Net Profit Ratio
2010 190.9 38.98 20.42%
2009 171.7 22.37 13.03%
This ratio measures the relationship between net profit and sales of a firm. Net profit
is the excess of revenue of the firm over expenses during a particular accounting
period. The net profit ratio is determined by dividing the net profit by sales and
expressed as percentage. 62
Net Profit Ratio = Net Profit (after tax) × 100
———————————
Net Sales
Interpretation- Net Profit Ratios of both the years show adequate return to owners.
They also reveal the recovery of cost and expenses from the revenue of the period.
Such a high ratio enables the firm to withstand in cut throat competition.
Profitability Ratios Based on Capital-
The state of efficiency can not be judged by the volume of profit alone. This requires
the calculation of ratios with reference to capital and assets to measure the real
profitability. The important categories of such ratios are discussed below:
Return on Capital Employed-
To measure the overall profitability of the firm it is essential to compare profit with
capital employed. Wit this objective, return on capital is calculated. It is also called as
‘Return on Investment (ROI)’. This ratio expresses the relationship between profit
and capital employed and is calculated by dividing net profit by capital employed.
Return on Capital Employed = Net Profit (PBIT) × 100/C.E
Note- Net profit before interest and tax and net capital employed is taken for the
calculation.
year Capital Employed (Rs. In
Cr.)
Net Profit (Rs. in
Cr.)
Return on Capital Employed
2010 177.08 60.49 34.16%
2009 113.73 34.58 30.41%
63
Interpretation- Capital employed is being used very efficiently in the business. Earning
power of the net assets of the business is sound.
Return on Net Worth-
This ratio expresses the relationship between net profit (after interest and tax) and net
worth or shareholders wealth. This is also known as ‘Return on Proprietors Fund’. It
is used to ascertain the rate of return on resources provided by the shareholders.
Interpretation- These ratios revealed 28.70% and 23.11% earnings in the years 2008
and 2007 respectively, for the capital that the shareholders have invested in the
company. Company’s use of its resources contributed by its shareholders is favorable.
Return on Total Assets-
Profitability also can be measured by establishing relationship between net profit and
total assets. This ratio is computed by the net profit after tax by total funds invested or
total assets. This ratio measures the profitability of investments which reflects
managerial efficiency.
Return on Total Assets = Net Profit (after tax) × 100
———————————
Total Assets
Interpretation- Both the years show high ratios and those are indicators of sound profit
earning capacity of the firm.
Leverage or Capital Structure Ratio-
64
These ratios are calculated to judge the long term solvency or financial position of the
firm. These ratios are also known as ‘long term solvency ratios’. These ratios may
be defined as ‘financial ratios’ which highlight on the long term solvency of a firm as
reflected in its ability to assure the long term creditors. These ratios are also known as
‘debt management ratios’. These ratios are discussed below:
Debt Equity Ratio-
This ratio indicates the relative proportion of debt and equity in financing the assets of
a firm. Debt equity ratio reveals the relationship between internal and external sources
of funds of a firm. Therefore also known as ‘external internal equity ratio’,
expressed as a formula:
Debt Equity Ratio = External Equities/ Internal Equities
Or
= Total Debt/ Shareholders fund or Net Worth
year Net Worth (Rs. in
Cr.)
Total Debt (Rs. in
Cr.)
Debt Equity Ratio
2010 135.78 46.52 0.34
2009 96.77 17.87 0.18
Interpretation- Such a low ratio provides sufficient safety margin to creditors due to
high stake of owners in the capital of the company. The servicing of debt is less
burdensome for the company and consequently its ability to raise additional funds is
not adversely affected. The shareholders are deprived of the benefits of trading on
equity.
Proprietory Ratio-
65
This ratio is also called ‘net worth to total assets ratio’. It establishes relationship
between proprietors or shareholders fund to total assets of the business i.e. to what
extent shareholders funds are invested in financing total assets of the business. This
ratio highlights general financial strength of the firm.
Proprietory Ratio = Proprietors or Shareholders Fund/ Total Assets
Interpretation- A ratio of above 0.50 is generally considered safe for the creditors.
These ratios reveal more secured position of the creditors. A higher ratio is the
indication of the sound financial position of the firm as it is less dependent on outside
working capital
Year Proprietors Funds
(Rs. in Cr.)
Total Assets (Rs.
in Cr.)
Proprietory Ratio
2010 135.78 182.30 0.74
2009 96.77 114.59 0.84
Solvency or Debt to Total Assets Ratio-
This ratio measures the long term solvency of the business. It reveals the relationship
between total assets and total debt or external liabilities. This ratio measures what part
of assets is being financed from loans. It is calculated as follows:
Debt to Total Assets Ratio = Total Liabilities/ Total Assets
Year Total Assets (Rs. Total Debt (Rs. in Solvency Ratio
66
in Cr.) Cr.)
2010 182.30 46.52 0.26
2009 114.59 17.87 0.16
Interpretation- In year 2008, 21%; and in year 2007, 13% of the total assets provided
by creditors (long term as well as short term) of the firm. Total assets are more than
external liabilities, the firm is solvent. The amount of creditors being used to generate
profits for owners of the firm is sufficient.
Fixed Assets Ratio-
This ratio is also known as ‘fixed assets to capital employed or long term funds
ratio’. As per sound financial policy, acquisition of fixed assets should be financed
from long term funds only.
Fixed Assets Ratio = Fixed Assets/ Long Term Funds
or
= Fixed Assets/ Capital Employed
year Capital Employed
(Rs. In Cr.)
Fixed Assets
(Rs. In Cr.)
Fixed Assets Ratio
2010 177.08 45.52 0.25
2009 113.73 60.08 0.52
Interpretation- Ratios of less than 1 in both the years reveal that long
term funds have been used to finance current assets. A part of long term
capital is always available for working capital.
67
EPS-
Whatever profit remains after meeting all expenses belong to equity shareholders.
These are profit earned on equity share capital. The earning per share is calculated by
dividing the profit available to equity shareholders by the number of shares issued.
EPS = Profit Available to Equity Shareholders/ Number of Shares Issued
Year Profit Available to Equity
Shareholders (Rs.In Cr.)
Number of
Shares
EPS
2010 38.99 63155700 6.17
2009 22.37 63155700 3.54
Interpretation- Performance and prospects of the company are good. High earning per
share helps the company in raising additional capital without any difficulty.
68
WORKING CAPITAL MANAGEMENT
Every firm should require an amount of money to use within a year to
settle short-term liabilities and carry on to firm to that type of money is
called working capital. Every firm has to estimate how much working
capital is required to settle short-turn liabilities and to carry on the firm
within a year. Optimal estimation of working capital is known working
capital management. Formula to find out working capital is as followed
WORKING CAPITAL = CURRENT ASSETS – CURRENT
LIABILITIES
As a trainee, I analyze last six years data, which show that MODERN
INSULATORS LIMITED has ability to estimate optimal working capital
and to arrange it through sources.
MODERN INSULATORS LIMITED’S last six years record of working
capital show that company is performing better than before and
some place remain to improve it.
WORKING CAPITAL-
CASH MANAGEMENT
Cash is the important the business running on a continuous basis It is also the ultimate
output expected to be realised by selling the service or product manufactured by the
firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will
disrupt the firm’s operations while excessive cash will simply remain idle, without
contributing anything towards the firm’s profitability. Thus a major function of the
Financial Manager is to maintain a sound cash position.
69
Cash is the money which a firm can disburse immediately without any restriction The
term cash includes currency and cheques held by the firm and balances in its bank
accounts. Sometimes near cash items, such as marketable securities or bank time
deposits are also included in cash. The basic characteristics of near cash assets are
that they can readily be converted into cash. Cash management is concerned with
managing of:
i) Cash flows in and out of the firm
ii) Cash flows within the firm
iii) Cash balances held by the firm at a point of time by financing deficit or inverting
surplus cash.
Sales generate cash which has to be disbursed out. The surplus cash has to be
invested while deficit cash has to be borrowed. Cash management seeks to accomplish
this cycle at a minimum cost. At the same time it also seeks to achieve liquidity and
control. Therefore the aim of Cash Management is to maintain adequate control over
cash position to keep firm sufficiently liquid and to use excess cash in some profitable
way.
The Cash Management is also important because it is difficult to predict cash flows
accurately. Particularly the inflows and that there is no perfect coincidence between the
inflows and outflows of the cash. During some periods cash outflows will exceed cash
inflows because payment for taxes, dividends or seasonal inventory build up etc. On the
other hand cash inflows will be more than cash payment because there may be large
cash sales and more debtors’ realization at any point of time. Cash Management is also
important because cash constitutes the smallest portion of the current assets, yet
management’s considerable time is devoted in managing it. An obvious aim of the firm
now-a-days is to manage its cash affairs in such a way as to keep cash balance at a
minimum level and to invest the surplus cash funds in profitable opportunities. In order
to resolve the uncertainty about cash flow prediction and lack of synchronization
70
between cash receipts and payments, the firm should develop appropriate strategies
regarding the following four facets of cash management.
1. Cash Planning: - Cash inflows and cash outflows should be planned to project cash
surplus or deficit for each period of the planning period. Cash budget should
prepared for this purpose.
2. Managing the cash flows: - The flow of cash should be properly managed. The
cash inflows should be accelerated while, as far as possible decelerating the cash
outflows.
3. Optimum cash level: - The firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be
matched to determine the optimum level of cash balances.
4. Investing surplus cash: - The surplus cash balance should be properly invested to
earn profits. The firm should decide about the division of such cash balance between
bank deposits, marketable securities and inter corporate lending.
The ideal Cash Management system will depend on the firm’s products, organisation
structure, competition, culture and options available. The task is complex and decision
taken can effect important areas of the firm.
Functions of Cash Management:
Cash Management functions are intimately, interrelated and intertwined Linkage among
different Cash Management functions have led to the adoption of the following methods
for efficient Cash Management:
Use of techniques of cash mobilization to reduce operating requirement of cash
Major efforts to increase the precision and reliability of cash forecasting.
Maximum effort to define and quantify the liquidity reserve needs of the firm.
71
Development of explicit alternative sources of liquidity
Aggressive search for relatively more productive uses for surplus money assets.
The above approaches involve the following actions which a finance manager has to
perform.
1. To forecast cash inflows and outflows
2. To plan cash requirements
3. To determine the safety level for cash.
4. To monitor safety level for cash
5. To locate the needed funds
6. To regulate cash inflows
7. To regulate cash outflows
8. To determine criteria for investment of excess cash
9. To avail banking facilities and maintain good relations with bankers
Motives for holding cash:
There are four primary motives for maintaining cash balances:
1. Transaction motive
2 .Precautionary motive
3. Speculative motive
4. Compensating motive
72
1. Transaction motive: - The transaction motive refers to the holding of cash to
meet anticipated obligations whose timing is not perfectly synchronised with cash
receipts. If the receipts of cash and its disbursements could exactly coincide in
the normal course of operations, a firm would not need cash for transaction
purposes. Although a major part of transaction balances are held in cash, a part
may also be in such marketable securities whose maturity conforms to the timing
of the anticipated payments.
2. Precautionary motive: - Precautionary motive of holding cash implies the need
to hold cash to meet unpredictable obligations and the cash balance held in
reserve for such random and unforeseen fluctuations in cash flows are called as
precautionary balances. Thus, precautionary cash balance serves to provide a
cushion to meet unexpected contingencies. The unexpected cash needs at short
notice may be the result of various reasons as : unexpected slowdown in
collection of accounts receivable, cancellations of some purchase orders, sharp
increase in cost of raw materials etc. The more unpredictable the cash flows, the
larger the need for such balances. Another factor which has a bearing on the
level of precautionary balances is the availability of short term credit.
Precautionary cash balances are usually held in the form of marketable securities
so that they earn a return.
3. Speculative motive: - It refers to the desire of a firm to take advantage of
opportunities which present themselves at unexpected movements and which
are typically outside the normal course of business. The speculative motive
represents a positive and aggressive approach. Firms aim to exploit profitable
opportunities and keep cash in reserve to do so. The speculative motive helps to
take advantage of :In opportunity to purchase raw materials at a reduced price on
payment of immediate cash; A chance to speculate on interest rate movements
by buying securities when interest rates are expected to decline; delay purchases
of raw materials on the anticipation of decline in prices; etc.
73
4. Compensation motive: - Yet another motive to hold cash balances is to
compensate banks for providing certain services and loans. Banks provide a
variety of services to business firms , such as clearances of cheques, supply of
credit information, transfer of funds, etc. While for some of the services banks
charge a commission of fee for others they seek indirect compensation. Usually
clients are required to maintain a minimum balance of cash at the bank. Since
this balance can not be utilised by the firms for transaction purposes, the bank
themselves can use the amount for services rendered. To be compensated for
their services indirectly in this form, they require the clients to always keep a
bank balance sufficient to earn a return equal to the cost of services. Such
balances are compensating balances. Compensating balances are also required
by some loan agreements between a bank and its customer.
CASH MANAGEMENT: OBJECTIVES
The Basic objective of cash management is two fold:
(a) To meet the cash disbursement needs (payment schedule);
(b) To minimize funds committed to cash balances. These are conflicting and mutually
contradictory and the task of cash management is to reconcile them.
Meeting the payments schedule: - A basic objective of the cash management is to
meet the payment schedule, i.e. to have sufficient cash to meet the cash disbursement
needs of the firm. The importance of sufficient cash to meet the payment schedule can
hardly be over emphasized. The advantages of adequate cash are : (i) it prevents
insolvency or bankruptcy arising out of the inability of the firm to meet its obligations; (ii)
the relationship with the bank is not strained; (iii) it helps in fostering good relations with
trade creditors and suppliers of raw materials, as prompt payment may also help their
cash management; (v) it leads to a strong credit rating which enables the firm to
purchase goods on favorable terms and to maintain its line of credit with banks and
74
other sources of credit; (vi) to take advantage of favorable business opportunities that
may be available periodically; and (vi) finally the firm can meet unanticipated cash
expenditure with a minimum of strain during emergencies, such as strikes , fires or a
new marketing campaign by competitors.
Minimizing funds committed to cash balances: - The second objective of cash
management is to minimize cash balances. In minimizing cash balances two conflicting
aspects have to be reconciled. A high level of cash balance will, ensure prompt
payment together with all the advantages, but it also implies that large funds will remain
idle ultimately results less to the expected. A low level of cash balances, on the other
hand, may mean failure to meet the payment schedule that aim of cash management
should be to have an optimal amount of cash balances
CASH MANAGEMENT TECHNIQUES & PROCESSES
The following are the basic cash management techniques and process which are
helpful in better cash management:
Speedy cash collection: In managing cash efficiently the cash in flow process can be
accelerated through systematic planning and refined techniques. These are two broad
approaches to do this which are narrated as under:
Prompt payment by customer: One way to ensure prompt payment by customer is
prompt billing with clearly defined credit policy. Another and more important technique
to encourage prompt payment the by customer is the practice of offering trade
discount/cash discount.
Early conversion of payment into cash: Once the customer has makes the payment
by writing its cheques in favor of the firm, the collection can be expedited by prompt
encashment of the cheque. It will be recalled that there is a lack between the time and
cheque is prepared and mailed by the customer and the time funds are included in the
cash reservoir of the firm.
75
Concentration Banking: In this system of decentralised collection of accounts
receivable, large firms which have a large no. of branches at different places, select
some of these which are strategically located as collection centers for receiving
payment for customers. Instead of all the payments being collected at the head office of
the firm, the cheques for a certain geographical areas are collected at a specified local
collection centers. Under this arrangement the customers are required to send their
payments at local collection center covering the area in which they live and these are
deposited in the local account of concerned collection, after meeting local expenses, if
any. Funds beyond a predetermined minimum are transferred daily to a central or
disbursing or concentration bank or account. A concentration banking is one with which
the firm has a major account usually a disbursement account. Hence this arrangement
is referred to as concentration banking.
Lock-Box System: The concentration banking arrangement is instrumental in reducing
the time involve in mailing and collection. But with this system of collection of accounts
receivable, processing for purposes of internal accounting is involved i.e. sometime in
elapses before a cheque is deposited by the local collection center in its account. The
lock-box system takes care of these kind of problem, apart from effecting economy in
mailing and clearance times. Under this arrangement, firms hire a post office box at
important collection centers. The customers are required to remit payments to lock-box.
The local banks of the firm, at respective places, are authorized to open the box and
pick up the remittance received from the customers. Usually the authorised bank picks
up the cheques several times a day and deposits them in the firm’s account. After
crediting the account of the firm the banks send a deposit 4epo slip along with the list of
payments and other enclosures, if any, to the firm by way of proof and record of the
collection.
Slowing disbursements: A basic strategy of cash management is to delay payments
as long as possible without impairing the credit rating/standing of the firm. In fact, slow
disbursement represents a source of funds requiring no interest payments. There are
76
several techniques to delay payment of accounts payable namely (1) avoidance of early
payments; (2) centralized disbursements; (3) floats; (4) accruals.
Avoidance of early payments: One way to delay payments is to avoid early payments.
According to the terms of credit, a firm is required to make a payment within a stipulated
period. It entitles a firm to cash discounts. If however payments are delayed beyond the
due date, the credit standing may be adversely affected so that the firms would find it
difficult to secure trade credit later. But if the firm pays its accounts payable before the
due date it has no special advantage. Thus a firm would be well advised not to make
payments early i.e. before the due date.
Centralized disbursements: Another method to slow down disbursements is to have
centralized disbursements. All the payments should be made by the head office from a
centralized disbursement account. Such an arrangement would enable a firm to delay
payments and conserve cash for several reasons. Firstly it involves increase in the
transit time. The remittances from the head office to the customers in distant places
would involve more mailing time than a decentralized payment by a local branch. The
second reason for reduction in operating cash requirement is that since the firm has a
centralized bank account, a relatively smaller total cash balance will be needed. In the
case of a decentralized arrangement, a minimum cash balance will have to be
maintained at each branch which will add to a large operating cash balance. Finally,
schedules can be tightly controlled and disbursements made exactly on the right day.
Float: A very important technique of slow disbursements is float. The term float refers
to amount of money tied up in the cheque that have been written, but have yet to be
collected and encashed. Alternatively, float represents the difference between the bank
balance and book balance of cash of a firm. The difference between the balance as
shown in the firm’s record and the actual bank balance is due to transit and processing
delays. There is time lag between the issue of a cheque by the firm and its presentation
to its bank by the customer’s bank for payment. The implication is that although a
cheque has been issued cash would be required later when the cheque resented for
encashment. Therefore, a firm can send remittance although it does not have cash in its
77
bank at the time of issuance of cheque. Meanwhile, funds can be arranged to make
payments when the cheque is presented for collection after a few days. Float used in
this sense is called cheque kitting.
Accruals: Finally, a potential tool for stretching accounts payable is accruals which are
defined as current liabilities that represent a service or goods received by a firm but not
yet paid for. For instance, payroll, i.e. remuneration to employees, who render services
in advance and receive payment later. In a way they extend credit to the firm for a
period at the end of which they are paid, say, a week or month. The longer the period
after which payment is made, the greater the amount of free financing and the smaller
the amount of cash balances required. Thus, less frequent payrolls, i.e. monthly as
compared to weekly, are important sources of accruals. They can be manipulated to
slow down disbursements.
DETERMINING THEOPTIMAL LEVEL OF CASH BALANCE:
Cash balance is maintained for the transaction purposes and additional amount may be
maintained as a buffer or safety stock.
The Finance manager should determine the appropriate amount of cash balance. Such
a decision is influenced by trade-off between risk and return. If the firm maintains a
small cash balance , its liquidity position becomes week and suffers from a paucity of
cash to make payments. But a higher profitability can be attained by investing released
funds in some profitable opportunities. When the firm runs out of cash it may have to
sell its marketable securities, if available, or borrow. This involves transaction cost.
On the other hand if the firm maintains a higher level of cash balance, it will have a
sound liquidity position but forego the opportunities to earn interests. The potential
interest lost on holding large cash balance involves opportunities cost to the firm.
78
Thus the firm should maintain an optimum cash balance, neither a large nor a small
cash balance.
To find out the optimum cash balance the transaction cost and risk of too small balance
should be matched with opportunity costs of too large a balance should be matched
with opportunity cost of too large a balance. Figure shows this trade-off graphically. If
the firm maintains larger cash balances its transaction cost would decline, but the
opportunity cost would increase. At point X the sum of two costs is minimum. This is the
point of optimum cash balance. Receipts and disbursement of cash are hardly in perfect
synchronization.
Despite the absence of synchronization it is not difficult to determine the optimum level
of cash balance.
If cash flows are predictable it is simply a problem of minimizing the total costs - the
transaction cost and the opportunity cost.
The determination of optimum working cash balance under certainty can thus be viewed
as an inventory problem in which we balance the cost of too little cash ( transaction
cost) against the cost of too much cash( opportunity cash)
Cash flows, in practice, are not completely predictable. At times they may be completely
random. Under such a situation, a different model based on the technique of control
theory is needed to solve the problem of appropriate level of working cash balance.
With unpredictable variability of cash flows, we need information on
transaction costs, opportunity costs and degree of variability of net
cash flows to determine the appropriate cash balance. Given such
data the minimum and maximum of cash balances should be set.
Greater the degree of variability, higher the minimum cash balance.
Whenever the cash balance reaches a maximum level, the
differences between maximum and minimum levels should be
79
invested in marketable securities. When balance is falls to zero,
marketable securities should be sold and proceed should be
transferred to the working cash balances.
3.7 Limitations:
Certain assets and liabilities are not discussed in the balance sheet such as
management people, their quality and high degree of skill, the most tangible
asset.
Balance sheet pertains to a point of time relating to past, and thus may not be
very helpful for the investors concerned about the present and future analysis.
Provision for depreciation, stock valuation and amounts to be set aside for
bad debts are based on personal judgments and, therefore, are not free from
bias.
Financial Statements do not record and reveal any fact, which cannot be
expressed in terms of money. General health conditions of the chairman,
working conditions, sales policy, quality of the product, etc., cannot be
included in financial statements.
Financial Statements are based on accounting policies, which vary from
enterprise to enterprise both within a single country and among countries.
Thus the users of financial statements cannot make reliable judgments unless
the accounting policies are not disclosed.
Balance sheet does not disclose information relating to change in
management, loss of markets, and cessation of agreements, which have a
vital bearing on the earning of the company.
Difficulty in getting information relating to industrial standards
Difficulty in forecasting future trends.
Care has to be taken while recording data from financial statements.
80
4. Facts and Findings
MEMORANDUM STATEMENT
(Rs. in lacs)
S.
NO.
Particulars
YEAR
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
(1)
(2)
(3)
(4)
(5)
(6)
Production
(M.T.)
Sales (gross)
Exports(FOB
value)
(Included in
Gross sales)
P B I D
Cash profit/loss
Net Profit
4581
5464
1861
1057
453
11
5711
7476
3434
1184
623
179
6743
8626
4344
1667
1307
775
8336
10704
4460
1795
1501
1120
9356
12983
5747
2080
1514
1079
10834
14764
8528
2170
1424
1126
13051
21169
12146
2909
2612
2265
81
BALANCE SHEET
(For the year ended 31st march)
PARTICULARS
As at
2004-05
As at
2005-
06
As at
2006-
07
As at
2007-
08
As at
2008-
09
As at
2009-10
82
COMPARATIVE BALANCE SHEET
(For the year ended 31st march)
Particulars
Rs. in lacs
Increase /
(Decrease)
Change
in %
YEAR
2009
YEAR
2010
SOURCE OF FUNDS
SHAREHOLDER’S FUND
Share capital
Reserves and surplus
LOAN FUNDS
Secured loans
Unsecured loans
Deferred tax liability
TOTAL
APPLICATION OF FUNDS
FIXED ASSETS
2174.35
2859.54
5033.89
1317.39
700.00
2017.39
708.07
7759.35
2174.35
4317.26
6491.61
1429.94
500.00
1929.94
797.01
9218.56
-
1457.72
1457.72
112.55
(200.00)
(87.45)
88.94
1459.21
-
50.97
28.98
8.54
28.57
4.33
12.56
18.80
83
Gross block
Less: depreciation
Net block
Capital work in progress
INVESTMENTS
CURRENT ASSETS, LOAN &
ADVANCE
Inventories
Sundry Debtors
Cash and bank balance
Loans and advance
LESS: CURRENT LIABI.&
PROVISION
Current liabilities
Provision
Net current assets
9928.02
5276.267
4651.76
105.67
4757.43
0.01
2164.70
2295.92
88.80
691.25
5240.67
1918.37
320.39
2238.76
3001.91
10705.75
5618.55
5087.20
158.34
5245.54
.0.01
2225.11
2793.91
1438.40
748.46
7206.28
2541.28
691.99
3233.27
3973.01
777.73
342.29
435.44
52.67
488.11
-
60.41
497.99
1349.6
57.61
1965.61
622.91
371.6
994.51
971.1
7.83
6.48
9.36
49.99
10.25
-
2.79
21.69
1519.81
8.33
37.50
32.47
115.9
44.42
84
Miscellaneous Exp.
Profit &loss A/C
-
-
7759.35
-
-
9218.56
-
-
1459.21
32.34
-
-
18.80
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH)
(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
85
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in
stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other
Exp.
Depreciation
Less: charged form
revaluation reserve
Profit Before Tax
Less: Provision for
tax
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
(26.41)
6535.76
179.47
9.25
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
(54.61)
7482.23
775.56
44.57
569.52
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
9022.73
1120.18
149.29
212.96
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
10971.05
1079.38
275.63
52.74
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
13166.33
1125.70
271.96
50.09
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
17651.68
2264.85
710.31
88.94
86
Current tax
Deferred tax
Profit After tax
Add: Taxation in
respect of earlier year
Add: balance brought
forward
Less: Debenture
redemption reserve
Balance carried
forward to balance
sheet
(Surplus available
for appropriation)
Earning Per Share
(25000000 Equity
Shares of Rs. 10/-
each)
230.81
(60.59)
0.15
25.16
-
(35.28)
(0.65)
(35.28)
533.59
239.64
293.95
2.62
757.93
1.37
293.88
1050.44
3.49
571.01
2.28
1050.44
-
1799.17
3.45
803.65
7.92
1799.17
139.64
2834.54
3.70
1465.60
7.88
2834.54
-
4292.26
6.74
COMPARATIVE INCOME STATEMENT
87
(For the year ended 31st march)
PARTICULAR
Rs. in lacs Increase /
(Decrease)
Change
in %YEAR
2009
YEAR
2010
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other Exp.
Depreciation
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
13166.33
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
17651.68
6405.36
443.97
5961.39
(13.24)
(323.65)
5624.5
1281.91
129.75
3024.88
48.81
4485.35
43.38
60.65
42.48
(10.57)
(239.65)
39.33
38.20
15.35
34.90
16.33
34.06
88
Profit Before Tax
Less: Provision for tax
Current tax
Deferred tax
Profit After tax
Add: Taxation in respect of earlier
year
Add: balance brought forward
Balance carried forward to
balance sheet
(Surplus available for
appropriation)
Earning Per Share
(25000000 Equity Shares of Rs.
10/- each)
1125.70
271.96
50.09
803.65
7.92
1799.17
2834.54
3.70
2264.85
710.31
88.94
1465.60
7.88
2834.54
4292.
26
6.74
1139.15
438.35
38.85
661.95
(0.04)
1035.37
1457.72
3.04
101.19
161.18
77.56
82.38
(0.50)
57.54
51.42
45.10
89
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH)
(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in
stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other
Exp.
Depreciation
Less: charged form
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
90
revaluation reserve
Profit Before Tax
Less: Provision for
tax
Current tax
Deferred tax
Profit After tax
Add: Taxation in
respect of earlier year
Add: balance brought
forward
Less: Debenture
redemption reserve
Balance carried
forward to balance
sheet
(Surplus available
for appropriation)
Earning Per Share
(25000000 Equity
Shares of Rs. 10/-
(26.41)
6535.76
179.47
9.25
230.81
(60.59)
0.15
25.16
-
(35.28)
(54.61)
7482.23
775.56
44.57
569.52
(0.65)
(35.28)
533.59
239.64
293.95
2.62
9022.73
1120.18
149.29
212.96
757.93
1.37
293.88
1050.44
3.49
10971.05
1079.38
275.63
52.74
571.01
2.28
1050.44
-
1799.17
3.45
13166.33
1125.70
271.96
50.09
803.65
7.92
1799.17
139.64
2834.54
3.70
17651.68
2264.85
710.31
88.94
1465.60
7.88
2834.54
-
4292.26
6.74
91
each)
Sales Trend Analysis (MT)
92
STATEMENT OF CHANGE IN WORKING CAPITAL
(Rs. in lacs)
PARTICULARS
YEAR Increase/
(Decrease)
Change
in %2009 2010
(A) CURRENT ASSETS
Inventories
Sundry Debtors
Cash And Bank balance
Loans and advances
TOTAL
(B) CURRENT LIABILITIES
Sundry creditors and other liab.
Interest accrued but not due
Unclaimed Dividend
Sundry Deposit
All Provision
2164.70
2295.92
88.80
691.25
5240.67
1875.87
-
-
42.50
2225.11
2793.91
1438.14
748.86
7206.28
2490.41
-
-
50.86
60.41
497.99
1349.6
57.61
1965.61
614.54
-
-
8.36
2.79
21.69
1519.65
8.33
37.50
32.76
-
-
19.63
93
TOTAL
WORKING CAPITAL (A-B)
320.39
2238.76
3001.91
691.99
3233.27
3973.01
371.6
994.51
97.11
115.98
44.42
3.23
6. SWOT analysis
The SWOT analysis is an extremely useful tool for understanding and decision-
making for all sorts of situations in business and organizations. SWOT is an
acronym for Strengths, Weaknesses, Opportunities, and Threats.
A SWOT analysis is a process to identify where you are strong and vulnerable –
where you should defend and attack. The result of the process is a ‘plan of action’,
or ‘action plan’.
The analysis can be performed on a product, on a service, a company or even on
an individual.
Aim of a SWOT analysis
Reveal competitive advantages
Analyze prospects for sales, profitability and product development
Prepare company for problems
Allow for the development of contingency plans
94
Strength
There is no debt associated with the firm.
Properly maintained records of the firm.
Company has achieved certificate of Highest Tax Payer.
Company is enjoying good leadership.
Weakness-
Business is based on single product.
There is no internal training provided by the firm as per the requirement.
Opportunities-
Increasing demand of marbles in society.
Nuclear families are increasing faster, which are using the product in high quantity.
Hotels, hospitals and other centers are using marbles.
Company can export marbles, as there is high demand in other countries.
95
Threats-
Increasing trend of uses of ceramic tiles instead of marbles.
Importing of foreign marbles.
Manufacturing of marbles needs huge level of water.
7. Conclusion-
Financial analysis reveals the financial position of the company, and is of help to
various financial institutions in making lending and investment decisions. Ratios
calculated for a period of years help in establishing trends, thereby, helping in
preparation of plans for future. Weaknesses in financial structure on account of
incorrect policies in the past or present are revealed through financial analysis.
Firm’s financial condition is sound. There is no debt associated with the firm due to
cash transaction. Net profit of the firm is continuously increasing. Employee turnover is
1% per annum.
MODRNE INSULATOR Ltd. is a company where best practices of financial
management are applied every day. It is very well rated by financial institutions. This
gives the company possibility of cooperation with financial basis on every field and
even the most sophisticated products are dedicated to the company. The company
also has good relations with governmental institutions and wisely uses scheme and
facilities provided by state. In effect costs of debts are very low and cost of borrowing
capital for new projects is at lowest possible level.
96
97
8. Recommendations & Suggestions
Certain assets and liabilities should be discussed in the balance sheet such as
management people, their quality and high degree of skill, the most tangible
asset.
MODREN INSULATOR Ltd. has a big network of suppliers. These suppliers
vary in size and business MODREN INSULATOR Ltd. can take benefit of its
creditworthiness with financial institutions and can introduce many of its small
vendors to channel financing. Many private and PSU banks offer this facility. If
MODREN INSULATOR Ltd. introduces its selected suppliers to the bank, the
supplier’s creditworthiness will be identified by the bank. The supplier will be
able to get finance from the bank in his own name under ‘drawee bills financing’
due to his business with MODREN INSULATOR Ltd. This will solve his liquidity
problem and it will be possible for MODREN INSULATOR Ltd. to get better
credit period.
The company has recently implemented ERP system in the organization. This
has given further advantage to the company to complete all activities on line.
Company has huge cash amount in its account. Company can use this amount
for further expansions.
98
9. Appendix-
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in
stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other
Exp.
Depreciation
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
99
Less: charged form
revaluation reserve
Profit Before Tax
Less: Provision for
tax
Current tax
Deferred tax
Profit After tax
Add: Taxation in
respect of earlier year
Add: balance brought
forward
Less: Debenture
redemption reserve
Balance carried
forward to balance
sheet
(Surplus available
for appropriation)
Earning Per Share
(25000000 Equity
Shares of Rs. 10/-
(26.41)
6535.76
179.47
9.25
230.81
(60.59)
0.15
25.16
-
(35.28)
(54.61)
7482.23
775.56
44.57
569.52
(0.65)
(35.28)
533.59
239.64
293.95
2.62
9022.73
1120.18
149.29
212.96
757.93
1.37
293.88
1050.44
3.49
10971.05
1079.38
275.63
52.74
571.01
2.28
1050.44
-
1799.17
3.45
13166.33
1125.70
271.96
50.09
803.65
7.92
1799.17
139.64
2834.54
3.70
17651.68
2264.85
710.31
88.94
1465.60
7.88
2834.54
-
4292.26
6.74
100
each)
COMPARATIVE INCOME STATEMENT
(For the year ended 31st march)
PARTICULAR
Rs. in lacs Increase /
(Decrease)
Change
in %YEAR
2009
YEAR
2010
101
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other Exp.
Depreciation
Profit Before Tax
Less: Provision for tax
Current tax
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
13166.33
1125.70
271.96
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
17651.68
2264.85
710.31
6405.36
443.97
5961.39
(13.24)
(323.65)
5624.5
1281.91
129.75
3024.88
48.81
4485.35
1139.15
438.35
43.38
60.65
42.48
(10.57)
(239.65)
39.33
38.20
15.35
34.90
16.33
34.06
101.19
161.18
102
Deferred tax
Profit After tax
Add: Taxation in respect of earlier
year
Add: balance brought forward
Balance carried forward to
balance sheet
(Surplus available for
appropriation)
Earning Per Share
(25000000 Equity Shares of Rs.
10/- each)
50.09
803.65
7.92
1799.17
2834.54
3.70
88.94
1465.60
7.88
2834.54
4292.
26
6.74
38.85
661.95
(0.04)
1035.37
1457.72
3.04
77.56
82.38
(0.50)
57.54
51.42
45.10
103
PROFIT AND LOSS ACCOUNT
(FOR THE YEAR ENDED 31ST MARCH)
(Rs. in lacs)
As at
2004-05
As at
2005-06
As at
2006-07
As at
2007-08
As at
2008-09
As at
2009-10
INCOME
Turnover
Less: Excise Duty
Net Turnover
Other Income
Increase (decrease) in
stock
EXPENDITURE
Material Cost
Employees Cost
Operation & Other
Exp.
Depreciation
Less: charged form
7475.52
(396.74
)
7078.78
14.46
(378.01
)
6715.23
1798.12
630.57
3663.64
469.84
8775.10
471.68
8303.42
66.32
(111.95
)
8257.79
1848.90
641.52
4459.96
586.53
(54.61)
10704.17
670.23
10033.94
26.50
82.47
10142.91
2559.18
688.02
5394.16
417.77
(36.40)
12982.80
890.99
12091.81
56.97
(98.35)
12050.43
3190.23
744.30
6602.07
448.65
(14.20)
14763.65
731.93
14031.72
125.26
135.05
14292.03
3355.62
844.80
8667.15
298.76
-
21169.01
1175.90
19993.11
112.02
(188.60)
19916.53
4637.53
974.55
11692.03
347.57
-
104
revaluation reserve
Profit Before Tax
Less: Provision for
tax
Current tax
Deferred tax
Profit After tax
Add: Taxation in
respect of earlier year
1. Add: balance
brought
forward
Less: Debenture
redemption reserve
Balance carried
forward to balance
sheet
(Surplus available
for appropriation)
Earning Per Share
(26.41)
6535.76
179.47
9.25
230.81
(60.59)
0.15
25.16
-
(35.28)
7482.23
775.56
44.57
569.52
(0.65)
(35.28)
533.59
239.64
293.95
2.62
9022.73
1120.18
149.29
212.96
757.93
1.37
293.88
1050.44
3.49
10971.05
1079.38
275.63
52.74
571.01
2.28
1050.44
-
1799.17
3.45
13166.33
1125.70
271.96
50.09
803.65
7.92
1799.17
139.64
2834.54
3.70
17651.68
2264.85
710.31
88.94
1465.60
7.88
2834.54
-
4292.26
6.74
105
(25000000 Equity
Shares of Rs. 10/-
each)
10 . Bibliography
BOOKS:
Khan M. Y. and Jain P. K., “ MANAGEMENT ACCOUNTING”, published
by Tata McGraw Hill, pg 5.3-5.49, 6.1-6.75, 4th edition.
Horngren Charles T., Sundem Gary L., Stratton William o., Bugstahler
David, Schatzberg Jeff, “INTRODUCTION TO MANAGEMENT
ACCOUNTING”, PHI Publications, pg 680-756, 14th edition.
Drury Colin, “MANAGEMENT & COST ACCOUNTING”, published by
Thomson Learning, 6th edition.
Pr. Agarwal N. P., Dr. Kiradoo Giriraj, “MANAGEMENT ACCOUNTING”,
Ramesh Book Depot, 1st edition.
A D Bain, The Financial System (Oxford: Blackwell, 2e, 1992) ch. 1
P G A Howells and K Bain, The Economics of Money, (Harlow: Financial
Times Prentice Hall, 3e, 2005) ch. 1 and 2
WEBSITES:
http://wwwmodreninsulator.com
106
http://en.wikipedia.org/wiki/financial analysis
www.ibef.org/industry/financial analysis.aspx
http://josh18.in.com/sectionarchive.php?id=32
www.isid.ac.in/~planning/Slides-ISI-LitReview.pdf
www.indian marble industry /v2/showPage.asp?page=aboutUs.asp
http://www.isnare.com/?aid=308470&ca=Financ
Jitendra
Virahyas107