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A STUDY ON THE FINANCIAL PERFORMANCE ANALYSIS OF THE INDIA CEMENTS LTD, ARIYALUR
Submitted By
DURGA.P
Reg. No: 811311631020
A PROJECT REPORT
Submitted to the
FACULTY OF MANAGEMENT STUDIES
In partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
J.J. COLLEGE OF ENGINEERING AND TECHNOLOGY
TIRUCHIRAPPALI-620009
ANNA UNIVERSITY CHENNAI
CHENNAI 600 025
July, 2013
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BONAFIDE CERTIFICATE
Certified that this project report titled “A STUDY ON THE FINANCIAL PERFORMANCE ANALYSIS OF THE
INDIA CEMENTS LTD, ARIYALUR” is the bonafide work of Ms. P. DURGA (Reg.No. 811311631020) who
carried out the research under my supervision. Certified further, that to the best of my knowledge the
work reported herein does not form part of any other project report or dissertation on the basis of
which a degree or award was conferred on an earlier occasion on this or any other candidate.
INTERNAL EXAMINER DIRECTOR – DoMS
EXTERNAL EXAMINER
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ACKNOWLEDGEMENT
First of all, I thank the almighty who has been with us throughout the endeavour and helped me
in completing this project successfully.
I am deeply indebted to our college Advisor Dr. V. SHANMUGANATHAN B.E., M.Sc. (Engg),
Ph.D., and our Principal Dr. S. SATHIYAMOORTHY M.E., Ph.D., of J.J. College of Engineering and
Technology, Trichy for giving me an opportunity to undergo M.B.A course during 2011-2013.
I am grateful to express my sincere thanks and deep sense of gratitude to our MBA Department
Advisor Dr. K. ABDULLAH BASHA M.A., M.Phil., Ph.D., and our Director Dr. Sw. RAJAMANOHARANE
M.Tech., MBA., PGDCA., PGDMM., SLET., Ph.D., and our faculty members for the guidance to do my
project work.
Words in my lexicon fall short to express my feelings towards the internal guide of my project
Dr. KAVITHA SHANMUGAM MBA., M.Phil., SLET., Ph.D., Professor Department of Management
Studies, for her timely help in completing this project report.
I am grateful to Mr.R.GURU NADAN (AGM) HR, Mr.K.VENKATESAN (AGM) A/C &
Mr.P.TAMILARASAN OF THE INDIA CEMENTS LIMITED for providing necessary information that helped
me in the prompt completion of the project.
Last but not the least, with limitless humility; I thank my parents and friends, who bestowed me
with enough courage to accomplish this treatise.
DURGA.P
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ABSTRACT
The present study of the research entitled “A Study on The Financial Performance
Analysis” was conducted in The India Cements Limited. The details regarding the history and
accounting policies of the company were collected through discussion with the company
officials. The study was based on secondary data from records, reports and profile of the
organization. Introduction about the project title “The Financial Performance Analysis” and
Profile of the company are discussed. The need, objectives, scope and limitations of the study are
studied.
The main objectives of the study is to make an analysis on the financial performance of
the company for 5 financial years, to calculate profitability turnover & financial ratios to assess
the financial position of the firm, to study the efficiency and liquidity position using ratios, to
study the trend of financial performance of the company, to assess individual financial segments
and put forth the strengths and weaknesses of the financial elements of balance sheet through
trend analysis.
The data for 5 financial years i.e., from 2007 – 2008 to 2011 – 2012, were collected and
used in the present study.
The tools used in this study are ratio analysis, trend percentages of income statement and
Balance sheet, common size balance sheet, comparative balance sheet and ratio analysis. Charts
and tables are used for better understanding. Through ratio analysis the company could
understand the Profitability, Liquidity, Leverage, Turnover positions of the company. Through
trend percentage of income statement and balance sheet, the company can visualize their growth.
The comparative balance sheet reveals the comparison between various year periods. This study
will be useful for owners, creditors, suppliers, customers, department managers and others to get
insight about financial soundness.
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CHAPTER –I
1.1 INTRODUCTION
FINANCE
Before we begin, first let’s understand the origin of word “FINANCE.”If we trace the
origin of finance, there is evidence to prove that it is as old as human life on earth. The word
finance was origin from French word. In the 18th century, it was adapted by English speaking
communities to mean “the management of money.” Since then, it has found a permanent place in
the English dictionary. Finance is now organized as a branch of Economics. Finance is an art of
managing various available resources like money, assets, investments, securities, etc.
At present, we cannot imagine a world without Finance. In other words, Finance is the
soul of our economic activities. Hence, Finance has now become an organic function and
inseparable part of our day-to-day lives.
1. DEFINITION
According to John N. Myer (1985), “the financial statements provide a summary of the
accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as
on a certain date and the income statement showing the results of operations during a certain
period”.
According to Anthony (1976), “ financial statements, essentially, are interim reports,
presented annually and reflect a division of the life of an enterprise into more or less arbitrary
accounting period more frequently in a year”.
Financial statements are broadly grouped into two groups.
1. Income Statements (Trading, Profit and loss Account)
2. Balance Sheets
2. MEANING OF FINANCIAL MANAGEMEN
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Financial Management means planning, organizing, directing and controlling the
financial activities such as procurement and utilization of funds of the enterprise. It means
applying general management principles to financial resources of the enterprise.
3. SCOPE/ELEMENTS
Investment decisions includes investment in fixed assets (called as capital budgeting).
Investments in current assets are also a part of investment decisions called as working
capital decisions.
Financial decisions - They relate to the raising of finance from various resources which
will depend upon decision on type of source, period of financing, cost of financing and
the returns thereby.
Dividend decision - The finance manager has to take decision with regards to the net
profit distribution. Net profits are generally divided into two:
Dividend for shareholders- Dividend and the rate of it has to be decided.
Retained profits- Amount of retained profits has to be finalized which will depend
upon expansion and diversification plans of the enterprise.
4. FUNCTIONS OF FINANCIAL MANAGEMENT:
Estimation of capital requirements
Determination of capital composition
Choice of sources of funds
Investment of funds
Disposal of surplus
Management of cash
Financial controls
5. FINANCIAL PERFORMANCE ANALYSIS
Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of balance
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sheet and profit and loss account. It also helps in short term and long term forecasting and
growth can be identified with the help of financial performance analysis.
The dictionary meaning of ‘analysis’ is to resolve or separate a thing into its element or
components parts for tracing their relation to the things as a whole and to each other.
The analysis of financial statement is a process of evaluating the relationship between the
component parts of the financial statement to obtain a better understanding of the firm’s position
and performance. This analysis can be undertaken by management of the firm or by parties
outside the firm, namely, owners, creditors, investors and others.
6. TYPES OF FINANCIAL STATEMENTS
Financial statements include
A Balance Sheet
An Income Statement
A Statement of Changes
A Statement of Changes in financial position: It is fund flow and cash flow
statement.
The financial statement is prepared with a view to depict financial position of the concern.
A proper analysis and interpretation of this statement enables a person to judge the profitability
and financial strength of the business.
7. IMPORTANCE OF FINANCIAL STATEMENTS
(a) For management: Till recently, the feeling was that financial statements are meant only
for owners of the concern and to satisfy legal requirements. Now it is realized that financial
statements are of utmost help to the management of a concern. Management will be able to take
effective decisions only when correct and reliable information is at its disposal. If information is
not available, management can neither plan nor fulfill the functions of operation and control.
(b) For the Financiers: Besides managements, financial statements are also of great
importance to the financiers and lenders. Lenders need information regarding customer’s
financial position, solvency, credit standing, profitability, etc. Financial statements help the
bankers and lenders to decide whether to extend loans to the customers.
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(c) For the Creditors: A Trade creditor is another class for whom financial statements are
important. Trade credit implies extending facilities of deferred payment for credit purchases by
buyer. All these facts are revealed by financial statements with the help of solvency ratios, cash
and fund flow analysis, etc.
(d) For Investors: Present and prospective investors are interested in studying financial
statements to assess earning capacity, growth potential and efficiency of management. Financial
statements provide such information readily to shareholders and debenture holders.
8. LIMITATIONS OF FINANCIAL STATEMENTS
Financial statements are normally prepared on the basis of accounting principles,
conventions and past experiences. Therefore, they opt not communicate much
about the profitability, solvency, stability, liquidity, etc., of the undertakers to the
users of the statements.
Financial statement emphasizes on disclose only monetary facts, i.e., quantitative
information, but qualitative information is ignored.
Financial statements disclose only the historical information. It does not consider
changes in money value, fluctuations of price level, etc. Thus, correct forecasting
for future is not possible.
Influences of personal judgments leads to opportunities for manipulation while
preparing financial statements.
Information disclosed by financial statements is based on accounting concepts and
conventions. It is unrealistic because of the difference in terms and conditions,
and changes in economic situations.
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1.2 COMPANY PROFILE
This section discusses the profile of “The India Cements Ltd” with regard to its History,
mission, vision, milestones, manufacturing units, subsidiary companies, products, manufacturing
process etc., in detail.
HISTORY
Shri.T.S.Narayanswami and Shri.N.SankaralingaIyer first incorporated the company
“The India Cements Ltd” in 1946 and the first plant was setup at Sankar Nagar in Tamil Nadu
in 1949. The Company is the largest producer of cement in South India. The Company’s plants
are well spread with three in Tamil Nadu and four in Andhra Pradesh, which cater to all major
markets in South India and Maharashtra. The Company is the market leader with a market share
of 28% in the South. It aims to achieve a 35% market share in the near future. The company has
access to huge limestone resources and plans to expand capacity by de-bottlenecking and
optimization of existing plants as well as by acquisitions. The company has a strong distribution
network with over 10,000 stockiest of whom 25% are dedicated. The company has well-
established brands Sankar Super power, Coromandel super power and Raasi super power
with Marketing Regional offices located in all Southern states and Maharashtra. Besides, Stock
depots in each town of major districts/industrial towns.
MISSION
Aiming High
We should be one of the largest cement companies in the country. Our growth in size will
be through continuous review of potentials of the existing manufacturing resources, strategic
acquisitions and expansions.
Core competency
Cement will be the mainstay. However, they shall venture in to related fields, which
afford purposeful synergy.
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Quality quest
Product quality, consistency and customer service will be pursued as an act of faith
throughout the organization.
Modern mindset:
In an environment, which is intensively competitive, they shall be futuristic in outlook
and effective in management.
Pursuit of excellence:
The growing size of the business permits them to have an R&D setup of their own. We
shall continuously challenge methods, systems, and operating parameters. They shall constantly
review our manufacturing systems to upgrade quality and value of their products.
Human Resources
They consider people as their valuable assets. Their HRD systems will be totally
proactive and tuned to provide excellent working environment and transparent organizational
culture for creativity, innovation and participation.
Value Addition
ICL will continuously strive to enhance its value to its customers, shareholders and
employees.
Community Welfare
As the organization grows, as a good corporate citizen, they shall be sensitive to the
welfare and development needs of the society around them.
VISION
In this journey, clarity of vision, a readiness to cultivate a global mindset, effectiveness,
harnessing of human resources to enhance job and knowledge skills of employees, a strong
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accent on R&D and innovation and a move away from selling to innovate marketing in
recognition of the fact that the customer is truly king, are some of the strategies that will help
corporate to survive and succeed.
However, it must be remembered that it is not enough to adopt a set of values and just
leave them in place. In order to move with the changing times, values and ideas must be
ceaselessly re-examined so as to ensure that they are in tune with the organization’s goals.
The India cements Ltd is committed to contribute its might in making the 21 st century an
“Indian Century”.
MILESTONE
1946 incorporation of the India Cements Ltd.
1949 Commissioning of first cement plant at Sankarnagar-installed capacity 1 lakhtons
per annum.
1963 Commissioning of second cement plant atSankaridrug- installed capacity of 2 lakhs
tons per annum.
1969 Awarded Merit certification for outstanding export performance (1968-1969).
1971 Capacity expansion at SankariDurg at 6 lakhs tonnes per annum.
1990 Acquisition of Coromandel cement plant at Cuddapah District of Ansdhra Pradesh–
with installed capacity rises to 2.6 million tons per annum. The India cements Ltd
becomes the largest producer of cement in South India.
1990 Conversion of Sankarnagar plant to dry process with the increased capacity of 1
million tons per annum.
1991India cements ventures into shipping. Sets up a shipping division.
1994 ISO 9002 certification for Sankarnagar plant.
1994 Floats successfully US$ 50 million GDR issue.
1995 Announces issue of 1:1 Bonus shares.
1996India cements’ green field cement plant at Dalavoi commences commercial
production. Installed capacity 0.9 million tons per annum.
1997 India cements acquire M/s. Aruna sugars finance Ltd. and renamed as India
cements capital and finance Ltd.
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1997India cements acquire Cement plant of Visaka cement industry Ltd., at Tandur,
Ranga Reddy district of Andhra Pradesh. Installed capacity 0.9 million tonnes.
1998India cements acquire Cement Corporation of India’s Yerraguntla cement plant at
Andhra Pradesh. Installed capacity 0.4 million tones.
1998 India cements acquiresRaasi cement ltd., at Nalgonda district of Andra Pradesh.
Installed capacity 1.8 million tones.
1999India cements acquires cement plant of Shri Vishnu cement ltd., at Nalgonda district
of Andhra Pradesh. Installed capacity 1.0 million tones.
2001 India cements divests its stake in Shri Vishnu cement Ltd to M/s. Italia Cementi,
which is joint venture company of Zuari Industries and made sizeable profit to cut down
debt position.
2004 The unique waste heat recovery system for generation of power from waste gas at
Vishnupuram cement plant was commissioned during November 2004, for a capacity of
7.7 MW of power. This plant was set up through Japanese tie up and started earning
carbon credits besides reducing power cost for the company.
2004 The company through its special purpose vehicle M/s Coromandel electric Co Ltd
has commissioned a (gas based) captive power plant at Ramanathapuram for a capacity
of 17.4 MW and the same has started supplying power from the month of Nov 2004.
2005 The company has successfully completed an equity in the international market
during Oct 2005 by issuing 25,613,796 global depositary shares(GDSs) at USD 4.3226
per GDS, (each GDS representing 2 underlying equity shares of Rs.10 each) and raised
an amount of Rs.497 crores including a premium of Rs.446 crores.
2006The company has Issued unsecured zero coupon convertible bonds due
2011(FCCBs) for US$75 Million to investors outside India at an initial conversion of
Rs.305.57 per share.
2007 The Hon’ble high court of judicature at Madras vide its order dated 25 th July 2007
sanctioned the scheme of amalgamation of Visaka cement Industry limited with The
India Cements ltd.
2008 the company has revived its shipping business with the purchase of two ships (Dry
bulk carriers) with a total capacity of 79843 DWT.
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2008 the company has successfully bid for the Chennai franchise of the DLF-IPL 20/20
cricket tournament-“Chennai super kings”.
2008 The company has completed and commenced commercial production 1 million tone
grinding plant Chennai.
2009 the company has completed and commenced commercial production of the 1
million ton grinding plant at Parli (Maharashtra).
2009 The company’s subsidiary, namely, Trishul concrete products Ltd has commenced
its commercial operations and completed production of 1 lakh cum ready mix concrete
plant at Hyderabad in Andhra Pradesh state.
2009 The number II line of 1.2 MT at Malkapur was commenced operations from March
2009.
2009 The upgraded capacity of Kiln I to 3000 TPD (1700 TPD) at Vishnupuram started
functioning from April 2009.
2010 A new cement plant was started at Banswara, in Rajasthan.
2011 ISO 9001 certification for Dalavoi Plant.
2011 A Power plant was started at Sanakar Nagari.
2012 the company has purchase its third bulk carrier ships (Dry bulk carriers) with
capacity of 52489 DWT and the total capacity of the fleet at 132332 DWT.
2012 A Power plant was in-process at Vishnupuram plant.
MANUFACTURING UNITS
The company has eight factories and two Grinding units. They are situated in the following
areas:
1. Sankar Nagar – Tamil Nadu.
2. SankariDurg – Tamil Nadu.
3. Dalavoi – Tamil Nadu.
4. Chilamkur – Andhra Pradesh.
5. Yerraguntla – Andhra Pradesh.
6. Vishnupuram – Andhra Pradesh.
7. Malkapur – Andhra Pradesh.
8. Banswara -Rajasthan.
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9. Chennai Grinding unit – Tamil Nadu.
10. Parli Grinding Unit – Maharashtra.
SUBSIDIERY COMPANIES
Industrial chemicals and Monomers Limited,
ICL Securities Limited,
ICL Financial Services Limited,
ICL International Limited,
Trishul Concrete Limited,
PT. Coromandel Minerals Resources,
Indo Zinc Limited.
Coromendal InfoTech india ltd.
Mandya Sugars Ltd.
PRODUCTS
It produces 3 types of cement Products, they are:
(a) 53 Grade Cement
(b) 43 grade cement
(c) Portland Pozzolana Cement
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CALCA
CEMENT MANUFACTURING PROCESS
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SCHEMATIC DIAGRAM OF MANUFACTURE OF CEMENT
CALCAREOUS MATERIAL (LIME STONE FROM MINES)
ARGILLACEOUS MATERIAL (CLAY, BAUXITE)
RIGHT PROPORTIO
N MIX
DESPATCH
GRINDING WITH GYPSUM
CLINKER
KILN 1400° C TO 1500° C
CHEMICAL AND PHYSICAL TEST
CEMENT
CHAPTER-II
2.1 REVIEW OF LITERATURE
According to John.N.Meyer (2000) in his study on “Financial Performance”“The
financial statement provides summary of accounts of a business enterprise, the balance sheet
reflecting assets, liabilities and capital as on a certain date and the income statement showing the
result of operation during a certain period”.
According to T.Rajasekar, S.Aravanan (2002) have conducted a study on “Financial
management analysis” which is largely a study of various financial factors in a business as
disclosed by a single set of statement & a study of the trend of these factors as shown in the
Financial statement. Financial statement analysis is an information processing system designed
to provide data for decision making models, such as, the portfolio selection model, bank lending
decision models & corporate financial management models.
According to Santomero & Babbel (2005) in his study on “Financial management
analysis” provides an extensive analysis of financial risk management as performed by insurers
and reports on the current state of this process in the insurance industry. They conclude that
significant improvements in financial risk management are necessary and that even the most
advanced insurers are not doing an effective enough job managing those risks.
According to Dan R.Dalton (2007) in his study on “Financial Performance” meta-
analyses suggest no relationship of a meaningful level. Subgroup moderating analyses based on
firm size, the nature of the performance indicators, and operation of board composition provide
no evidence of moderating influences for these variables as well. The evidence derived from the
meta-analysis and moderating analysis for board leadership structure and financial performance
has the same character.
K. Srinivas (2010) in his study on “Financial performance” has the main objectives of
critically examining and high lighting the financial performance of the company to study the
liquidity and profitability of the company.
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CHAPTER-III
3. RESEARCH METHODOLOGY
In this study the various steps that are adopted by the researcher in studying the research
problem along with the logic behind them are discussed.
3.1 RESEARCH DESIGN
The proposed study is descriptive in nature. Research design is needed because it
facilitates the smooth sailing of the various research operations, thereby making research as
efficient as possible.
3.2 SOURCE OF INFORMATION
Basically, there are two sources of information. The researcher has collected secondary
data for this study.
DATA COLLECTION METHODS
DATA COLLECTION
The data collection is classified into two types.
Primary data
Secondary data
PRIMARY DATA
There is no primary data available for this analysis.
SECONDARY DATA
The secondary data are data are collected from information which is used by others. It is
not direct information.. The secondary data are collected from the following:
Company’s annual report
Company’s website
Manual
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PERIOD OF STUDY
The study covers a time period of 5 years from the financial year 2007-2008 to 2011-
2012
3.3 OBJECTIVES OF THE STUDY
PRIMARY OBJECTIVE
To study the financial performance analysis of “THE INDIA CEMENTS LIMITED”.
SECONDARY OBJECTIVES
To analyze the financial changes over a period of five years.
To analyze the financial statements of the company by using financial tools.
To evaluate the financial position of the company in terms of solvency, profitability,
activity and earnings ratios.
To suggest effective measures in the existing system of the company
3.4 SCOPE OF THE STUDY
This study can be utilized to find out the current financial position.
This study concentrates on all the ratios which are related to the assessment of financial
aspect.
An attempt can be made during this study to understand the efficiency of the company.
3.5 TOOLS FOR FINANCIAL PERFORMANCE ANALYSIS
The data are analyzed using the following tools:
Comparative statements
Common size statements
Ratio analysis
Trend Analysis
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I. COMPARATIVE STATEMENTS
Comparative statements provide information to assess the direction of change in the
business. In these statements, figures for two or more periods are placed side by side to facilitate
comparison. Balance sheet and income statement are alone prepared in a comparative form.
(a) Comparative balance sheet
(b) Comparative income statement
(a)Comparative balance sheet
The comparative balance sheet is helpful in analyzing and evaluating the financial
position of the firm over a period of years. The comparative balance sheet analyze is the study of
the trend of the same items, group of items, and computed items in two or more balance sheet of
the same business enterprise on different dates.
The changes in periodic balance sheet items reflect the conduct of a business. The
changes can be observed by comparison of the balance sheet at the beginning and at the end of
the period and these changes can help in forming an opinion about the progress of an enterprise
(b)Comparative income statement
An income statement shows the operating results (net profit or loss) of a designed period
of time. A comparative income statement shows the operating results for a number of accounting
periods so as to facilitate comparison.
It gives an idea of the progress of a business over a period of time. It gives an idea about
the improvement in sales, profit and other expenses over the previous years.
II. COMMON SIZE STATEMENTS
Financial statements when read in absolute figure are not easily understandable. They are
even misleading. Each items of asset is converted in to percentage to total asset and each item of
capital and liabilities is expressed to total liability and capital fund. Thus the whole balance sheet
is converted in to percentage form i.e., every individual item stated as a percentage of total
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100.such converted balance sheet is known as common size balance sheet. The percentage so
calculated can be easily compared with the corresponding percentages in some other period.
III. RATIO ANALYSIS
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are categorized as
Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability
Ratios, and Market Value Ratios.
In Ratio Analysis, the data, which are provided by financial statements, are readily
available. The computation of ratios facilitates the comparison of firms which differ in size and
financial performance with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or deteriorated over time.
Because Ratio Analysis is based upon Accounting information, its effectiveness is limited
by the distortions which arise in financial statements due to such things as Historical Cost
Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in
financial analysis, to obtain a quick indication of a firm's performance and to identify areas
which need to be investigated further.
1. Liquidity (Short-Term Solvency) Ratios
Liquidity (Short-term Solvency) Ratios attempt to measure the ability of a firm to meet
its short-term financial obligations. In other words, these ratios seek to determine the ability of a
firm to avoid financial distress in the short-run. The two most important Short-term Solvency
Ratios are the Current Ratio and the Quick Ratio
(a)Current Ratio
The ratio of current assets to current liabilities is called current ratio. Current ratio indicates the
ability of a concern to meet its current obligations as and when they are due for payment. The
current ratio of 2:1 is considered as ideal.
Current ratio = Total Current Assets / Total Current Liabilities
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(b) Quick Ratio
This ratio is also called “quick” or Acid test Ratio. The liquid ratio is very useful in
measuring the liquidity position of a firm. This ratio is calculated by dividing Current Assets less
Inventories by Current Liabilities. The ideal quick ratio is 1:1.
Quick Ratio = Total Quick assets / Total Quick Liabilities
2. Solvency ratios (Long-Term)
Solvency ratios assess the long – term financial condition of the firm. Bankers and
Creditors are most interested in liquidity. But shareholders, debenture holders, and financial
institutions are concerned with the long term finanacial prospects.
(a) Debt-Equity Ratio
The Debt-Equity Ratio is calculated by dividing Total Debt by Total Owners' Equity.
Debt includes all long- term and short-term debts. Equity consists of preference share capital,
equity share capital and reserve and surplus.
Debt- Equity Ratio = Debt / Equity
(b) Proprietary Ratio
The Proprietary ratio is the relationship between proprietors’ funds and total tangible
assets. A high proprietary ratio indicates less danger and risk to creditors in the event of winding
up.
Proprietary ratio = Proprietors’ fund / Total tangible assets
3. Profitability Ratio
Profitability ratios measure the profitability of a firm’s business operations. These ratios
may be related to sales (or) investments.
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(a)Gross Profit Ratio
Gross Profit Ratio expresses the relationship between gross profit and net sales. It
indicates the efficiency of production or trading operations.
Gross Profit Ratio = Gross Profit / Sales X 100
(b)Net Profit Ratio
Net Profit Ratio measures the relationship between net profit and sales. It indicates the
efficiency of the overall operations of the firm. It shows what percentage of sales is left to the
owners after meeting all costs.
Net Profit Ratio = Net Profit / Sales X 100
(c)Operating Profit Ratio
Operating Profit Ratio matches operating profit and sales. This ratio shows the
percentage of sales absorbed by the operating profit. Operating expenses includes selling and
distribution expenses and administration expenses.
Operating Profit Ratio = Operating profit / Sales X 100
(d) Return on Investment
Return on investment establishes the relationship between profits and the capital
employed. It is the most widely used to measure the overall profitability and efficiency of the
business.
Return on investment = Net profit (after interest & tax) / capital employed X 100
4. Activity (or) Turnover ratio
Activity ratios measure the efficiency of asset management. The efficiency in (asset
utilization) the use of assets would be reflected by the speed with which they are converted into
sales. Activity ratios indicate the relationship between sales and various assets of the firm.
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(a)Stock (or) Inventory Turnover ratio
The Inventory Turnover measure the firm's management of its Inventory. This ratio is also
called velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms
of capital investment. This ratio is helpful in evaluating and review of inventory policy.
Stock turnover ratio = Cost of goods sold / Average stock
(b)Debtors (or) Receivables turnover ratio
The Debtors Turnover ratio gives the number of times accounts receivable are turned
over during the period in relation to net credit sales. It gives the velocity of collection of cash
from debtors. Net credit sales are taken for calculating the debtors turnover ratio as debtors arise
only from credit sales.
Debtors turnover ratio = Credit sales / Debtors
(c) Creditors turnover ratio
The Creditors turnover ratio shows, on an average, the number of times creditors are
turned over during a year. A higher ratio indicates quick settlement of dues and a lower ratio
reflects liberal credit terms granted by suppliers.
Creditors turnover ratio = Credit purchases / Creditors
(d)Fixed Assets Turnover
The Fixed Assets Turnover Ratio measures how productively the firm is managing its
Fixed Assets to generate Sales. When comparing Fixed Assets Turnover Ratios of different firms
it is important to keep in mind that the values for Net Fixed Assets reported on the firms' Balance
Sheets are book values which can be very different from market values.
Fixed assets turnover ratio = Sales / Net Fixed assets
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(e)Working capital turnover ratio
Working capital turnover ratio shows the measurement of companies’ development of
working capital to the generation of sales over a given period. A higher ratio indicates efficient
utilization of working capital.
Working capital turnover ratio = Sales / Working capital
III TREND ANALYSIS
Trend analysis is carried out by calculating trend ratio. Trend analysis is significant for
forecasting and budgeting. Trend analysis discloses the change in financial and the operating
data between specific periods. Trend Analysis is one of the tools for the analysis of the
company’s monetary statements for the investment purposes by investors in order to determine
the financial position of the business. Trend analysis is very helpful in making a comparative
study of the financial statements of several years. Under this technique, information for a number
of years is taken up and one year (usually the first year) is taken as the base year. Each item of
the base year is taken as 100 and on the basis the percentages for other years are calculated.
3.6 LIMITATIONS OF THE STUDY
No primary data is used for the study.
Figures for the analysis are taken from the annual reports.
This study ignore the changes in price level.
Financial statements are records of past events only. Past can never be a 100%
representative of the future.
24
CHAPTER-IV
4.1 RATIO ANALYSIS
I. LIQUIDITY RATIO
Liquidity ratios measure the ability of the firm to meet its current obligations. This
indicates whether the firm has sufficient liquid resources to meet its short term liabilities.
4.1.1 CURRENT RATIO
The ratio of current assets to current liabilities is called current ratio. Current ratio
indicates the ability of a concern to meet its current obligations as and when they are due for
payment.
CURRENT RATIO = Total Current Assets / Total Current Liabilities
The following table 4.1.1 shows the current ratios for the year 2008 to 2012:
TABLE 4.1.1
CURRENT RATIO
YEAR CURRENT ASSET
(Rs. In lakhs)
CURRENT LIABILITIES
(Rs. In lakhs)
CURRENT
RATIO
2007-2008 214941.24 98353.24 2.2
2008-2009 214352.83 115331.62 1.9
2009-2010 287644.83 127410.35 2.3
2010-2011 290385.92 111838.04 2.6
2011-2012 124416.60 93480.61 1.3
Source: Secondary Data
25
CHART 4.1.1
CURRENT RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.5
1
1.5
2
2.5
3
2.2
1.9
2.3
2.6
1.3
INTERPRETATION
The current ratio of 2:1 is considered as ideal. From the above analysis, we know that the
company has current assets of Rs.1.3 for every one rupee of current liability. There is a small
margin of safety against fall in price. It indicates that the firm has insufficient liquidity to meets
it’s short term obligation.
26
4.1.2 LIQUID RATIO (OR) QUICK RATIO
This ratio is also called “quick” or Acid test Ratio. The liquid ratio is very useful in measuring
the liquidity position of a firm. It means the firm to pay off current obligations, immediately and
as more rigorous test of liquidity than the current ratio.
LIQUIDITY RATIO = Liquid assets / Liquid liabilities
The following table 4.1.2 shows the Liquid ratios for the year 2008 to 2012:
TABLE 4.1.2
LIQUID RATIO
YEAR QUICK ASSET
( Rs. in lakhs)
QUICK LIABILITIES
( Rs. in lakhs)
QUICK
RATIO
2007-2008 181920.19 98353.24 1.8
2008-2009 177303.29 115331.62 1.5
2009-2010 242868.30 127410.35 1.9
2010-2011 240655.02 111833.04 2.2
2011-2012 71064.31 93480.61 1.0
Source: Secondary Data
CHART 4.1.2
27
LIQUID RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.5
1
1.5
2
2.5
1.8
1.5
1.9
2.2
1
INTERPRETATION
The ideal liquid ratio is 1:1. From the above analysis, we know that the company’s liquid
ratio decreased from 1.8 to 1.0 in the year 2008 to 2012. However, it indicates that the firm has
satisfies the ideal ratio and so the firm has a strong liquidity position. Hence there is
effectiveness on the part of the firm towards investment in liquid assets.
II SOLVENCY RATIOS (LONG-TERM)
28
Solvency ratios assess the long – term financial condition of the firm. Bankers and
Creditors are most interested in liquidity. But shareholders,debenture holders, and financial
institutions are concerned with the long term finanacial prospects.
4.1.3 DEBT-EQUITY RATIO
The Debt-Equity Ratio is calculated by dividing Total Debt by Total Owners' Equity.
Debt includes all long- term and short-term debts. Equity consists of preference share capital,
equity share capital and reserve and surplus.
DEBT- EQUITY RATIO = Debt / Equity
The following table 4.1.3 shows the debt equity ratios for the year 2008 to 2012:
TABLE 4.1.3
DEBT-EQUITY RATIO
YEAR DEBT
( Rs. in lakhs)
EQUITY
( Rs. in lakhs)
DEBT-EQUITY
RATIO
2007-2008 181150.58 332110.82 0.55
2008-2009 198802.96 363138.98 0.55
2009-2010 213273.04 413582.40 0.52
2010-2011 245606.74 408976.05 0.60
2011-2012 114640.59 406761.49 0.28
Source: Secondary Data
CHART 4.1.3
DEBT-EQUITY RATIO
29
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.1
0.2
0.3
0.4
0.5
0.6 0.55 0.550.52
0.600000000000001
0.28
INTERPRETATION
A standard ratio of 1:1 is considered desirable i.e., debts are to be equal to owners funds.
From the above analysis, we know that the company’s debt equity ratio is decreased from 0.55
times to 0.28 times which is not in satisfactory level. The low Debt-equity ratio indicates that
debt capital which is a less costly source of funds is not used by the business to a desirable
extent.
4.1.4 PROPRIETARY RATIO
30
The Proprietary ratio is the relationship between proprietors’ funds and total tangible
assets. This shows how much of total tangible assets are financed by shareholders’ funds. A high
proprietary ratio indicates less danger and less risk to creditors in the event of winding up.
PROPRIETARY RATIO = Proprietors’ fund / Total tangible assets
The following table 4.1.4 shows the proprietary ratios for the year 2008 to 2012:
TABLE 4.1.4
PROPRIETARY RATIO
YEAR PROPRIETORS’ FUND
( Rs. in lakhs)
TOTAL TANGIBLE
ASSETS ( Rs. in lakhs)
PROPRIETARY
RATIO
2007-2008 332110.82 309859.75 1.1
2008-2009 363138.98 347786.90 1.0
2009-2010 413582.40 360337.88 1.2
2010-2011 408976.05 355625.37 1.2
2011-2012 406761.49 387785.72 1.1
Source: Secondary Data
CHART 4.1.4
PROPRIETARY RATIO
31
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120.9
0.95
1
1.05
1.1
1.15
1.2
1.1
1
1.2 1.2
1.1
INTERPRETATION
From the above analysis, we know that the company’s proprietary ratio is equal in the
first year 2008 to last year 2012 as 1.1, with lot of fluctuations with the in-between years and
also it is equal to the standard ratio 1:1. It is in a satisfactory level. It indicates less danger and
risk to proprietors.
III PROFITABILITY RATIO
32
Profitability ratios measure the profitability of a firm’s business operations .these ratios
may be related to sales (or) investments.
4.1.5 GROSS PROFIT RATIO
This ratio is also known as Gross margins or Trading Margin ratio Gross Profits indicates
the efficiency of production or trading operation. A gross profit ratio the different between sales
and direct costs. Gross profit ratio explains the relationship between gross profit and net sales.
GROSS PROFIT RATIO = (Gross profit / Sales) X 100.
The following table 4.1.5 shows the gross profit ratios for the year 2008 to 2012:
TABLE 4.1.5
GROSS PROFIT RATIO
YEAR GROSS PROFIT
( Rs. in lakhs)
SALES
( Rs. in lakhs)
GROSS PROFIT RATIO (%)
2007-2008 248372.12 355446.91 70
2008-2009 242687.79 383912.30 63
2009-2010 246090.68 410070.28 60
2010-2011 221113.70 388807.36 57
2011-2012 349497.95 472252.57 74
Source: Secondary Data
CHART 4.1.5
GROSS PROFIT RATIO
33
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
10
20
30
40
50
60
70
80
70
6360
57
74
INTERPRETATION
From the above analysis we found that the gross profit ratio is higher every year. In 2008
the gross profit ratio is 70% and increased to 74% in the year 2012which indicates a sign of good
management as it implies that the cost of production is relatively low. It indicates the efficiency
of production (or) trading operations.
4.1.6 NET PROFIT RATIO
34
Net profit refers to the profit after taxes which are available to shareholders. The net
profit ratio brings out the relationship between the net profit and sales. That is, net profit
generated for every hundred rupees of sales revenue is expressed by the ratio.
NET PROFIT RATIO = (Net profit / Net Sale) X 100.
The following table 4.1.6 shows the net profit ratios for the year 2008 to 2012:
TABLE 4.1.6
NET PROFIT RATIO
YEAR NET PROFIT
( Rs. in lakhs)
SALES
( Rs. in lakhs)
NET PROFIT
RATIO (%)
2007-2008 63754 355446.91 18
2008-2009 43217 383912.30 11
2009-2010 35434 410070.28 9
2010-2011 6810.36 388807.36 2
2011-2012 29297 472252.57 6
Source: Secondary Data
CHART 4.1.6
35
NET PROFIT RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
2
4
6
8
10
12
14
16
1818
11
9
2
6
INTERPRETATION
From the above analysis we find that the net profit ratio is decreasing continuously from
18% to 6% from the year 2008 to 2012, which indicates that there is less profitability in the
company and hence, it has to increase its profitability ratio in future.
4.1.7 OPERATING PROFIT RATIO
36
Operating Profit Ratio matches operating profit and sales. This ratio shows the
percentage of sales absorbed by the operating profit. Operating expenses includes selling and
distribution expenses and administration expenses.
OPERATING PROFIT RATIO = (Operating profit / Sales) X 100
The following table 4.1.7 shows the Operating profit ratios for the year 2008 to 2012:
TABLE 4.1.7
OPERATING PROFIT RATIO
YEAR OPERATING PROFIT
(Rs. In Lakhs)
SALES
(Rs. In Lakhs)
OPERATING
PROFIT RATIO (%)
2007-2008 113056 355446.91 32
2008-2009 104320 383912.30 27
2009-2010 86351 410070.28 21
2010-2011 47330 9388807.36 12
2011-2012 92264 472252.57 20
Source: Secondary Data
CHART 4.1.7
37
OPERATING PROFIT RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
5
10
15
20
25
30
35 32
27
21
12
20
INTERPRETATION
From the above analysis, we find that the operating profit ratio decreased from 32% to
20% from 2008 to 2001. But in the year 2012 there is a higher operating profit ratio compared to
previous year. This indicates that the operating expenses are increased in the current year
compared to previous year which indicates that there is improvement in the profitability of the
company.
4.1.8. RETURN ON INVESTMENT
38
Return on investment establishes the relationship between profits and the capital
employed. It is most widely used to measure the overall profitability and efficiency of the
business.
RETURN ON INVESTMENT = Net profit (after tax) / capital employed X 100
The following table 4.1.8 shows the Return on investment for the year 2008 to 2012:
TABLE 4.1.8
RETURN ON INVESTMENT
YEAR NET PROFIT
(Rs. In Lakhs)
CAPITAL EMPLOYED
(Rs. In Lakhs)
RETURN ON
INVESTMENT (%)
2007-2008 63754 403483.22 15.80
2008-2009 43217 428771.06 10.08
2009-2010 35434 522705.81 6.78
2010-2011 6810.36 528236.6 1.29
2011-2012 29297 444227.68 6.60
Source: Secondary Data
CHART 4.1.8
39
RETURN ON INVESTMENT
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
2
4
6
8
10
12
14
16 15
10
7
2
7
INTERPRETATION
From the above analysis it could be known that the return on investment ratio has
decreased from 15.80 times to 6.60 times from the year 2008 to 2012. The return on investment
could still generate sufficient return for the stakeholders of the company. Thus, there is no better
profitability and there is inefficiency on the part of management in utilizing the long term
resources of the company.
IV ACTIVITY (OR) TURNOVER RATIO
40
Activity ratios measure the efficiency of asset management. The efficiency in (asset
utilization) the use of assets would be reflected by the speed with which they are converted into
sales. Activity ratios indicate the relationship between sales and various assets of the firm.
4.1.9 STOCK (OR) INVENTORY TURNOVER RATIO
The Inventory Turnover measure the firm's management of its Inventory. This ratio is also
called velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms
of capital investment. This ratio is helpful in evaluating and review of inventory policy.
STOCK TURNOVER RATIO = Cost of goods sold / Average stock
The following table 4.1.9 shows the inventory turnover ratio for the year 2008 to 2012:
TABLE 4.1.9
INVENTORY TURNOVER RATIO
YEAR COST OF GOODS SOLD
(Rs. In Lakhs)
AVERAGE STOCK
(Rs. In Lakhs)
STOCK
TURNOVER RATIO
2007-2008 291692 8572 34
2008-2009 340695 10759 32
2009-2010 374636 12191 31
2010-2011 260985.79 4792.44 54
2011-2012 122754.62 4300.88 29
Source: Secondary Data
CHART 4.1.9
41
INVENTORY TURNOVER RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
10
20
30
40
50
60
3432 31
54
29
INTERPRETATION
From the above chart we note that the inventory turnover ratio decreased from 34 times
in the year 2008 to 29 times in the year 2012 which indicates that there is slow movement of
stock in the company. Hence there is no efficiency in the movement of stock in the company.
42
4.1.10 DEBTORS (OR) RECEIVABLES TURNOVER RATIO
The Debtors Turnover ratio gives the number of times accounts receivable are turned
over during the period in relation to net credit sales. It gives the velocity of collection of cash
from debtors. Net credit sales are taken for calculating the debtors turnover ratio as debtors arise
only from credit sales.
DEBTORS TURNOVER RATIO = Credit sales / Debtors
The following table 4.1.10 shows the debtors turnover ratio for the year 2008 to 2012:
TABLE 4.1.10
DEBTORS TURNOVER RATIO
YEAR CREDIT SALES
(Rs. In Lakhs)
AVERAGE DEBTORS
(Rs. In Lakhs)
DEBTORS
TURNOVER RATIO
2007-2008 355446.91 28564.16 12
2008-2009 383912.30 33252.52 12
2009-2010 410070.28 41961.85 10
2010-2011 388807.36 25390.19 15
2011-2012 472252.57 23211.16 20
Source: Secondary Data
43
CHART 4.1.10
DEBTORS TURNOVER RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
2
4
6
8
10
12
14
16
18
20
12 12
10
15
20
INTERPRETATION
From the above analysis we know that the company has higher debtors’ ratio in the year
2012 as 20 times from 12 times in the year 2008. This indicates that there is efficiency in asset
management and the debtors are more liquid in the company.
44
4.1.11 CREDITORS TURNOVER RATIO
The Creditors turnover ratio shows, on an average, the number of times creditors are
turned over during a year. A higher ratio indicates quick settlement of dues and a lower ratio
reflects liberal credit terms granted by suppliers.
CREDITORS TURNOVER RATIO = Credit purchases / Creditors
The following table 4.1.11 shows the creditors turnover for the year 2008 to 2012:
TABLE 4.1.11
CREDITORS TURNOVER RATIO
YEAR CREDIT PURCHASE
(Rs. In Lakhs)
CREDITORS
(Rs. In Lakhs)
CREDITORS
TURNOVER RATIO
2007-2008 20732.38 62394.46 0.33
2008-2009 24247.78 74454.42 0.33
2009-2010 33129.32 72956.88 0.45
2010-2011 35707.59 76779.03 0.47
2011-2012 37647.21 37159.38 1.01
Source: Secondary Data
45
CHART 4.1.11
CREDITORS TURNOVER RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.2
0.4
0.6
0.8
1
1.2
0.330000000000004
0.330000000000004
0.45 0.47
1.01
INTERPRETATION
From the above analysis we know that the company has increased gradually from 0.33
times in the year 2008 to 1.01 times in the year 2012 with regard to creditors’ turnover ratio. This
indicates that there is quick settlement of dues in the company.
46
4.1.12 FIXED ASSETS TURNOVER
The Fixed Assets Turnover Ratio measures how productively the firm is managing its
Fixed Assets to generate Sales. When comparing Fixed Assets Turnover Ratios of different firms
it is important to keep in mind that the values for Net Fixed Assets reported on the firms' Balance
Sheets are book values which can be very different from market values.
FIXED ASSETS TURNOVER RATIO = Sales / Net Fixed assets
The following table 4.1.12 shows the fixed assets turnover ratio for the year 2008 to 2012:
TABLE 4.1.12
FIXED ASSETS TURNOVER
YEAR SALES
(Rs. In Lakhs)
NET FIXED ASSET
(Rs. In Lakhs)
FIXED ASSETS
TURNOVER RATIO
2007-2008 355446.91 403937 0.8
2008-2009 383912.30 471229 0.8
2009-2010 410070.28 462151 0.9
2010-2011 388807.36 487431 0.8
2011-2012 472252.57 427802 1.1
Source: Secondary Data
47
CHART 4.1.12
FIXED ASSETS TURNOVER
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.2
0.4
0.6
0.8
1
1.2
0.8 0.8
0.9
0.8
1.1
INTERPRETATION
From the above analysis we know that the company has higher fixed assets turnover ratio
of 1.1times in the year 2012. Thus, a higher ratio in fixed assets turnover ratio is an indicator of
greater efficiency in the utilization of fixed assets.
48
4.1.13 WORKING CAPITAL TURNOVER RATIO
Working capital turnover ratio shows the measurement of companies’ development of
working capital to the generation of sales over a given period. A higher ratio indicates efficient
utilization of working capital.
WORKING CAPITAL TURNOVER RATIO = Sales / Working capital
The following table 4.1.12 shows the working capital turnover ratio for the year 2008 to 2012:
TABLE 4.1.13
WORKING CAPITAL TURNOVER RATIO
YEAR SALES
(Rs. In Lakhs)
WORKING CAPITAL
(Rs. In Lakhs)
WORKING CAPITAL
TURNOVER RATIO
2007-2008 355446.91 116588.00 3.0
2008-2009 383912.30 99021.21 3.9
2009-2010 410070.28 160234.48 2.6
2010-2011 388807.36 178547.88 2.2
2011-2012 472252.57 30935.99 15.3
Source: Secondary Data
49
CHART 4.1.13
WORKING CAPITAL TURNOVER RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
2
4
6
8
10
12
14
16
33.9
2.6 2.2
15.3
INTERPRETATION
From the above analysis we know that the company has its higher ratio of 15.3 times in
the year 2012 compared to previous years from 2008 as 3 times to 2011 as 2.2. It indicates that
there is efficient utilization of working capital in the company.
50
4.2 COMPARATIVE BALANCE
4.2.1 COMPARATIVE BALANCE SHEET FOR THE YEAR 2007-2008
The following table given below exhibits the comparative Balance Sheet for the year
2007 – 2008.
Rs in Lakhs
PARTICULARS 2007 2008 INCREASE
/DECREASE
AMOUNT
INCREASE
/DECREASE
%
SOURCES OF FUND:
1.Shareholders’fund
(a)Capital 26037.14 28186.74 2149.6 8.26
(b)Reserve and Surplus 194816.20 303924.08 109107.88 56
2.Loan Funds:
(a)Secured Loans 116598.73 97101.68 -19497.05 -16.72
(b)Unsecured Loans 89276.74 84048.90 -5227.84 -5.86
3.Deferred Tax Liability 6029.03 22571.46 16542.43 274.38
Total 432757.84 535832.86 103075.02 23.82
APPLICATION OF FUNDS:
1.Fixed Assets:
(a)Gross Block 385604.41 470869.49 85265.08 22.11
(b)Less: Depreciation 106021.27 124423.54 18402.27 17.36
(c)Net Block 279583.14 346445.95 66862.81 23.92
(d)Capital Work- in- Progress 14275.12 57491.22 43216.10 302.74
2.Investments 5507.49 12928.24 7420.75 134.74
3.Current Assets, Loans and
Advances:
(a)Inventories 22807.39 33021.05 10213.66 44.78
51
(b)Real Estate-Projects in
Progress
2042.47 2042.47 0 0
(c)Sundry Debtors 26021.09 31107.23 5086.14 19.55
(d)Cash and Bank balances 23018.32 42564.04 19545.72 84.91
(e)Loans and Advances 97862.13 106206.45 8344.32 8.53
171751.40 214941.24 43189.84 25.15
Less: Current Liabilities and
Provisions
43399.14 98353.24 54954.10 126.62
4.Deffered Tax Asset 1727.57 0.00 -1727.57 -100
Deffered Revenue Expenses 3312.26 2379.45 -932.81 -28.16
Total 432757.84 535832.86 103075.02 23.82
INTERPRETATION
From the above analysis the share capital increased by Rs.2149.60 lakhs over the
previous year. An amount of Rs.109107.88 lakhs has been transferred to reserves & surplus. We
also find that the secured loans amount to an extent of Rs.19497.05 lakhs is repaid. The
unsecured loan has decreased by an amount of Rs.5227.84 lakhs. In application of funds,
considerably the capital work-in-process increased by Rs.43216.10 lakhs. Investments &
inventories increased by 134.74% & 44.78 %. Comparatively deferred revenue expenditure
decreased to 28.16.
52
4.2.2 COMPARATIVE BALANCE SHEET FOR THE YEAR 2008-2009
The following table given below exhibits the comparative Balance Sheet for the year
2008 – 2009.
Rs in Lakhs
PARTICULARS 2008 2009
INCREASE /
DECREASE
AMOUNT
INCREASE /
DECREASE
%
SOURCES OF FUND:
1.Shareholders’fund
(a)Capital 28186.74 28243.05 56.31 0.20
(b)Reserve and Surplus 303924.08 334895.93 30971.85 10.19
2.Loan Funds:
(a)Secured Loans 97101.68 103624.99 6523.31 6.72
(b)Unsecured Loans 84048.90 95177.97 11129.07 13.24
3.Deferred Tax Liability 22571.46 27406.24 4834.78 21.42
Total 535832.86 589348.18 53515.32 9.99
APPLICATION OF FUNDS:
1.Fixed Assets:
(a)Gross Block 470869.49 531357.77 60488.28 12.85
(b)Less: Depreciation 124423.54 150532.59 26109.05 20.98
(c)Net Block 346445.95 380825.18 34379.23 9.92
(d)Capital Work- in- Progress 57491.22 90404.11 32912.89 57.25
2.Investments 12928.24 15897.33 2969.09 22.97
3.Current Assets, Loans and
Advances:
(a)Inventories 33021.05 37049.84 4028.79 12.20
53
(b)Real Estate-Projects in
Progress
2042.47 2042.47 0 0
(c)Sundry Debtors 31107.23 35397.81 4290.58 13.79
(d)Cash and Bank balances 42564.04 8519.74 -34044.30 -79.98
(e)Loans and Advances 106206.45 131342.97 25136.52 23.67
214941.24 214352.83 -588.41 -0.27
Less: Current Liabilities and
Provisions
98353.24 115331.62 16978.38 17.26
4.Deffered Tax Asset 0.00 1845.23 1845.23 100
Deffered Revenue Expenses 2379.45 1355.12 -1024.33 -43.05
Total 535832.86 589348.18 53515.32 9.99
INTERPRETATION
From the above analysis the share capital increased by Rs.56.31 lakhs over the previous
year. An amount of Rs.30971.85 lakhs has been transferred to reserves & surplus. We also find
that the secured loans amount to an extent of Rs.6523.31 lakhs is repaid. The unsecured loan has
increased by an amount of Rs.11129.07 lakhs. In application of funds, considerably the capital
work-in-process increased Rs.32912.89 lakhs. Investments & inventories are increased by
22.97% & 12.20 %. Comparatively net current assets, deferred revenue expenditure are
decreased to 0.27% & 43.05%.
54
4.2.3 COMPARATIVE BALANCE SHEET FOR THE YEAR 2009-2010:
The following table given below exhibits the comparative Balance Sheet for the year
2009 – 2010.
Rs in Lakhs
PARTICULARS 2009 2010
INCREASE
/DECREASE
AMOUNT
INCREASE
/DECREASE
%
SOURCES OF FUND:
1.Shareholders’fund
(a)Capital 28243.05 30717.45 2474.40 8.76
(b)Reserve and Surplus 334895.93 382864.95 47969.02 14.32
2.Loan Funds:
(a)Secured Loans 103624.99 86664.36 -16960.63 -16.37
(b)Unsecured Loans 95177.97 126608.68 31430.71 33.02
3.Deferred Tax
Liability
27406.24 28990.54 1584.3 5.78
Total 589348.18 655845.98 66497.80 11.28
APPLICATION OF
FUNDS:
1.Fixed Assets:
(a)Gross Block 531357.77 571020.37 39662.6 7.46
(b)Less: Depreciation 150532.59 179158.70 28626.11 19.02
(c)Net Block 380825.18 391861.67 11036.49 2.90
(d)Capital Work- in-
Progress
90404.11 70288.97 -20115.24 -22.25
2.Investments 15897.33 31397.33 15500 97.50
3.Current Assets,
Loans and Advances:
(a)Inventories 37049.84 44776.53 7726.69 20.85
55
(b)Real Estate-Projects
in Progress
2042.47 2042.47 0 0
(c)Sundry Debtors 35397.81 25340.26 -10057.55 -28.41
(d)Cash and Bank
balances
8519.74 5381.34 -1138.40 -17.46
(e)Loans and Advances 131342.97 186918.61 55575.64 42.31
214352.83 264459.21 50106.38 23.38
Less: Current Liabilities
and Provisions
115331.62 104224.73 -11106.89 -9.63
4.Deffered Tax Asset 1845.23 2063.53 218.30 11.83
Deffered Revenue
Expenses
1355.12 0.00 -1355.12 -100
Total 589348.18 655845.98 66497.80 11.28
INTERPRETATION
From the above analysis the share capital increased by Rs.2474.40 lakhs over the
previous year. An amount of Rs.47969.02 lakhs has been transferred to reserve & surplus. We
also find that the secured loans amount to an extent of Rs.16960.63 lakhs is repaid. The
unsecured loan has increased by an amount of Rs.31430.71 lakhs. In application of funds,
considerably the capital work-in-process decreased Rs.20115.24 lakhs. Investments &
inventories are increased by 97.50% & 20.85 %. Comparatively net current assets increased to
23.38 % & deferred revenue expenditure decreased 100%.
56
4.2.4 COMPARATIVE BALANCE SHEET FOR THE YEAR 2010-2011:
The following table given below exhibits the comparative Balance Sheet for the year
2010 – 2011.
Rs in Lakhs
PARTICULARS 2010 2011
INCREASE
/DECREASE
AMOUNT
INCREASE
/DECREASE
%
SOURCES OF FUND:
1.Shareholders’fund
(a)Capital 30717.45 30717.65 0.2 6.5
(b)Reserve and Surplus 382864.95 378258.40 -4606.55 -1.20
2.Loan Funds:
(a)Secured Loans 86664.36 117786.13 31121.77 35.91
(b)Unsecured Loans 126608.68 127820.61 1211.93 0.96
3.Deferred Tax Liability 28990.54 29241.67 251.13 0.87
Total 655845.98 683824.46 27978.48 4.27
APPLICATION OF
FUNDS:
1.Fixed Assets:
(a)Gross Block 571020.37 592598.51 21578.14 3.78
(b)Less: Depreciation 179158.70 209150.62 29991.92 16.74
(c)Net Block 391861.67 383447.89 -8413.78 -2.15
(d)Capital Work- in-
Progress
70288.97 103983.05 33694.18 47.94
2.Investments 31397.33 16030.97 -15366.36 -48.94
3.Current Assets, Loans and
Advances:
(a)Inventories 44776.53 49730.90 4954.37 11.06
(b)Real Estate-Projects in
Progress
2042.47 2042.47 0 0
57
(c)Sundry Debtors 25340.26 25440.12 99.86 0.39
(d)Cash and Bank balances 5381.34 3309.06 -2072.28 -38.51
(e)Loans and Advances 186918.61 209863.37 22944.76 12.28
264459.21 290385.92 25926.71 9.80
Less: Current Liabilities and
Provisions
104224.73 111838.04 7613.31 7.30
4.Deffered Tax Asset 2063.53 1814.67 -248.86 -12.06
Deffered Revenue Expenses 0.00 0.00 0.00 0.00
Total 655845.98 683824.46 27978.48 4.27
INTERPRETATION
From the above analysis the share capital increased by Rs.0.2 lakhs over the previous
year. An amount of Rs.4606.55 lakhs has not been transferred to reserves & surplus. We also
find that the secured loans amount to an extent of Rs.31121.77 lakhs is repaid. The unsecured
loan has increased by an amount of Rs.1211.93 lakhs. In application of funds, considerably the
capital work-in-process increased by Rs.33694.18 lakhs. Investments have decreased by 48.94%,
inventories increased by 11.06% & comparatively net current assets increased to 9.80%
4.2.5 COMPARATIVE BALANCE SHEET FOR THE YEAR 2011-2012:
58
The following table given below exhibits the comparative Balance Sheet for the year
2011 – 2012.
Rs in Lakhs
PARTICULARS 2011 2012 INCREASE/
DECREASE
AMOUNT
INCREASE/
DECREASE
%
EQUITY &
LIABILITIES:
1.Shareholders’fund
(a)Share Capital 30717.65 30717.81 0.16 5.21
(b)Reserve and Surplus 378258.40 376043.68 -2214.72 -0.58
2.Non-Current Liabilities:
(a)Long-term borrowings 125483.65 149653.50 24169.85 19.26
(b)Deferred tax liabilities 27427.00 32451.48 5024.48 18.32
(c)Other long term liabilities 19502.43 16027.21 -3475.22 -17.82
(d)Long term provisions 5079.18 6088.56 1009.38 19.87
3.Current liabilities:
(a)Short-term borrowings 58183.77 77205.43 19021.66 32.69
(b)Trade payables 54253.05 63304.53 9051.48 16.68
(c)Other current liabilities 87371.22 66373.27 -20997.95 -24.03
(d) Short-term provisions 7571.48 7155.51 -415.97 -5.49
Total 793847.83 825020.98 31173.15 3.93
ASSETS:
1.Non-current assets:
(a)Fixed assets
i. Tangible assets 355625.37 387785.72 32160.35 9.04
ii. Intangible assets 27822.52 25506.40 -2316.12 -8.32
iii. Capital work-in-
progress
28839.72 14510.31 -14329.41 -49.69
59
412287.61 427802.43
(b)Non-current investments 14947.63 85040.35 70092.72 468.92
(c)Long-term loans and
advances
253681.01 191626.67 -62054.34 -24.46
(d)Other non-current assets 2042.47 0.00 -2042.47 -100
(e)Foreign currency
monetary item translation
difference account
0.00 887.94 887.94 100
2.Current assets
(a)Current investments 1083.34 155.52 -927.82 -85.64
(b)Inventories 49730.90 52580.87 2849.97 5.73
(c)Trade receivables 25440.12 20982.20 -4457.92 -17.52
(d)Cash and cash
equivalents
3309.06 288.24 -3020.82 -91.29
(e)Short-term loans and
advances
31325.69 45656.76 14331.07 45.75
Total 793847.83 825020.98 31173.15 3.93
INTERPRETATION:
From the above analysis the share capital increased by Rs.0.16 lakhs over the previous
year. An amount of Rs.2214.72 lakhs has not been transferred to reserves & surplus. We also
find that the non-current liabilities & current liabilities amount to an extent of Rs.26728.49 lakhs
& 6659.22 lakhs is repaid. In assets, considerably the capital work-in-process decreased
Rs.14329.41 lakhs. Investments are decreased by 85.64% & inventories increased by 5.73 %.
4.3 COMMON SIZE BALANCE SHEETS
4.3.1COMMON SIZE BALANCE SHEETS AS ON 2008-2012
60
The following table given below exhibits the Common size Balance Sheet for the year
2008 – 2011.
Amount in %
PARTICULARS 2008 2009 2010 2011
SOURCES OF FUND:
1.Shareholders’fund
(a)Capital 5.26 4.79 4.68 4.49
(b)Reserve and Surplus 56.72 56.82 58.38 55.32
2.Loan Funds:
(a)Secured Loans 18.12 17.58 13.21 17.22
(b)Unsecured Loans 15.69 16.15 19.30 18.69
3.Deferred Tax Liability 4.21 4.65 4.42 4.28
TOTAL 100.00 100.00 100.00 100.00
Application of funds:
1.Fixed Assets:
(a)Gross Block 87.88 90.16 87.07 86.66
(b)Less: Depreciation 23.22 25.54 27.32 30.59
(c)Net Block 64.66 64.62 59.75 56.07
(d)Capital Work- in-
Progress
10.73 15.34 10.72 15.21
75.38 79.95 70.47 71.28
2.Investments 2.41 2.70 4.79 2.34
3.Current Assets, Loans
And Advances:
(a)Inventories 6.16 6.29 6.83 6.55
(b)Real Estate-Projects in
Progress
0.38 0.35 0.31 0.30
(c)Sundry Debtors 5.81 6.00 3.86 3.72
(d)Cash and Bank balances 7.94 1.11 0.82 0.48
(e)Loans and Advances 19.82 22.29 28.50 30.69
61
40.11 36.37 40.32 42.46
Less: Current Liabilities
and Provisions
18.36 19.57 15.98 16.35
21.76 16.80 24.43 26.11
4.Deffered Tax Asset 0 0.31 0.31 0.27
Deffered Revenue
Expenses
0.44 0.23 0.00 0.00
TOTAL 100.00 100.00 100.00 100.00
4.3.2 COMMON SIZE BALANCE SHEET AS AT 31ST MARCH 2012:
The following table given below exhibits the Common size Balance Sheet for the year 2012.
62
Amount in %
PARTICULARS 2012
EQUITY & LIABILITIES:
1.Shareholders’fund
(a)Share Capital 3.72
(b)Reserve and Surplus 45.58
2.Non-Current Liabilities:
(a)Long-term borrowings 18.14
(b)Deferred tax liabilities 3.93
(c)Other long term liabilities 1.94
(d)Long term provisions 0.74
3.Current liabilities:
(a)Short-term borrowings 9.36
(b)Trade payables 7.67
(c)Other current liabilities 8.05
(d) Short-term provisions 0.87
TOTAL 100.00
ASSETS:
1.Non-current assets:
(a)Fixed assets
Tangible assets 47.00
Intangible assets 3.09
Capital work-in-progress 1.76
51.85
(b)Non-current investments 10.31
(c)Long-term loans and advances 23.23
(d)Other non-current assets 0.00
(e)Foreign currency monetary item translation
difference account
0.11
2.current assets
(a)Current investments 0.02
63
(b)Inventories 6.37
(c)Trade receivables 2.54
(d)Cash and cash equivalents 0.03
(e)Short-term loans and advances 5.53
TOTAL 100.00
INTERPRETATION
From the common size balance sheet analysis the company has raise the share capital in
the every year, compared with the previous year. And the better operation condition in the
transfer of reserve & surplus also is increased.
The repayment of secured & unsecured loans marginally increased to maximize the
growth of the company. In the application area the asset value has increased because of expanded
business activities.
The working capital position has recorded growth levels in both current liabilities &
current assets.
Finally the analysis indicates profit margin & the overall performance of the firm is
healthy.
4.4 TREND ANALYSIS
Trend analysis is carried out by calculating trend ratio. Trend analysis is significant for
forecasting and budgeting. Trend analysis is very helpful in making a comparative study of the
financial statements of several years.
64
4.4.1 TREND LINE ON SALES
Trend line on sales from 2008 - 2012 is shown in the below table:
TABLE 4.4.1
TREND LINE ON SALES
Year (x) Sales (y) (Rs. In Lakhs) Dx x 2 Xy
2008 355446.91 -2 4 -710893.82
2009 383912.30 -1 1 -383912.30
2010 410070.28 0 0 0
2011 388807.36 1 1 388807.36
2012 472252.57 2 4 944505.14
Total 2010489.42 10 238506.38
Source: Secondary Data
TREND LINE EQUATION: Y x = a + b x
a = ∑y / N
= 2010489.42 / 5
= 402097.884
b= ∑ xy / ∑ x 2
= 238506.38 / 10
= 23850.638
Sales in 2013 = 402097.884+23850.638 (3)
= 402097.884 + 71551.914
= 473649.80
Sales in 2014 = 402097.884+23850.638 (4)
= 402097.884 + 95402.552
= 497500.44
65
Sales in 2015 = 402097.884+23850.638 (5)
= 402097.884+ 119253.19
= 521351.07
TREND PERCENTAGE OF SALES
TREND PERCENTAGE = (Current year / Base year) X 100
The following table shows the trend percentage of sales:
TABLE 4.4.1
(Base year 2008=100) TREND PERCENTAGE ON SALES
YEAR SALES (Rs. In Lakhs) TREND PERCENTAGE
2008 355446.91 100
2009 383912.30 108
2010 410070.28 115
2011 388807.36 109
2012 472252.57 133
2013 473649.80 100
2014 497500.44 105
2015 521351.07 105
CHART 4.4.1
66
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
0
20
40
60
80
100
120
140
100108 115 109
133
100 105 105
TREND % OF SALES
TREND % OF SALES
INTERPRETATION
It is the tool used to predict the sales figure for the future years based on the past trend.
From above the analysis we can see that the trend analysis shows an increasing trend for the sale
volume till 2015 (up to which the study is carried out). It indicates around 5 % increase in the
sales projection, which is considered to be healthy in the current market scenario.
4.4.2 TREND LINE ON STOCK
67
TABLE 4.4.2
TREND LINE ON STOCK
YEAR (x) STOCK (y) (Rs. In Lakhs) Dx x 2 Xy
2008 33021.05 -2 4 -66042.1
2009 37049.85 -1 1 -37049.85
2010 44776.53 0 0 0
2011 49730.90 1 1 49730.90
2012 52580.87 2 4 105161.74
Total 217159.2 10 51800.69
Source: Secondary Data
TREND LINE EQUATION: Y x = a + b x
a = ∑y / N
= 217159.2 / 5
= 43431.84
b= ∑ xy / ∑ x 2
= 51800.69 / 10
= 5180.07
Stock in 2013 = 43431.84 + 5180.07 (3)
= 43431.84 + 15540.21
= 58972.05
Stock in 2014 = 43431.84 + 5180.07 (4)
= 43431.84 + 20720.28
= 64152.12
68
Stock in 2015 = 43431.84 + 5180.07 (5)
= 43431.84 + 35900.35
= 69332.19
TREND PERCENTAGE OF STOCK
TREND PERCENTAGE = (Current year / Base year) X 100
The following table shows the trend percentage of stock:
TABLE 4.4.2
(Base year 2008=100) TREND PERCENTAGE ON STOCK
YEAR STOCK (Rs. In Lakhs) TREND PERCENTAGE
2008 33021.05 100
2009 37049.85 112
2010 44776.53 136
2011 49730.90 151
2012 52580.87 159
2013 58972.05 112
2014 64152.12 109
2015 69332.19 108
69
CHART 4.4.2
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
0
20
40
60
80
100
120100
9276
42
8264
83 80
TREND % OF STOCK
TREND % OF STOCK
INTERPRETATION
From above the analysis we can see that the trend analysis shows an increasing trend for
the stock volume till 2015 (up to which the study is carried out). It indicates around 8 % increase
in the stock value projection, which is considered to be healthy in the current market scenario.
70
4.4.3 TREND LINE ON PROFIT
TABLE 4.4.3
TREND LINE ON PROFIT
YEAR (x) PROFIT (y)
(Rs. In Lakhs)
Dx x 2 Xy
2008 1130.56 -2 4 -2261.12
2009 1043.20 -1 1 -1043.20
2010 863.51 0 0 0
2011 473.30 1 1 473.30
2012 922.64 2 4 1845.28
Total 4433.21 10 -985.74
Source: Secondary Data
TREND LINE EQUATION: Y x = a + b x
a = ∑y / N
= 4433.21 / 5
= 886.64
b= ∑ xy / ∑ x 2
= -985.74 / 10
= -98.57
Profit in 2013 = 886.64 - 98.57 (3)
= 886.64 – 295.72
= 590.92
Profit in 2014 = 886.64 - 98.57 (4)
= 886.64 – 394.28
= 492.36
71
Profit in 2015 = 886.64 - 98.57 (5)
= 886.64 – 492.85
= 393.79
TREND PERCENTAGE OF PROFIT
TREND PERCENTAGE = (Current year / Base year) X 100
The following table shows the trend percentage of profit:
TABLE 4.4.3
(Base year 2008=100) TREND PERCENTAGE ON PROFIT
YEAR PROFIT (Rs. In Lakhs) TREND PERCENTAGE
2008 1130.56 100
2009 1043.20 92
2010 863.51 76
2011 473.30 42
2012 922.64 82
2013 590.92 64
2014 492.36 83
2015 393.79 80
72
CHART 4.4.3
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
020406080
100120
100 9276
42
8264
83 80
TREND % PROFIT
TREND % PROFIT
INTERPRETATION
From above the analysis we can see that the trend analysis shows a decreasing trend for
the profit volume till 2015 (up to which the study is carried out). It indicates around 20%
decrease in the PROFIT projection, which is not considered to be healthy in the current market
scenario and hence it has to take steps to increase its profit percentage.
73
CHAPTER – V
FINDINGS, SUGGESTIONS AND CONCLUSION
5.1 FINDINGS
The quick ratio of the company is satisfactory in the year 2012 because it satisfies the
ideal ratio of 1:1 which shows the sound liquidity position and the ability to meet its
current liabilities.
Net profit ratio shows decreasing ratio year after year from 2009 to 2011 as11% to 2%.
But it starts increasing in the year 2012 as 6% and so it is a favorable trend during the
study period.
Fixed asset turnover ratio increased during the year 2012 as 1.1. So it is sufficient to meet
the long term liabilities.
The current assets and unsecured loans have decreased showing administrative efficiency
of the company, but care has to be taken to maintain optimum cash balance.
The sales trend shows a favorable trend in the year 2015 with an increase of 5% from the
base year 2008. Thus it is increasing during the study period which is healthy.
The stock trend shows a favorable trend in the year 2015 with an increase of 8% from the
base year 2008. Thus it is increasing during the study period which is also healthy.
Profit has decreased by 20% in the forecasting year 2015. Hence it has to increase its
sales level by reducing the price level through cheap production costs.
Working capital shows a favorable trend in 2012. This is due to change in current asset
and current liabilities. It indicates efficient utilization of working capital. It also shows
increase in the sales level.
Comparative balance sheet analysis shows the sales and other income figure has been
increased and the loan amounts are repaid every year. It indicates there is a better growth
in the sales levels and operations of the company.
74
5.2 SUGGESTIONS
The liquid position of the concern is satisfactory. So the firm can maintain the same and
can improve little to meet its current obligation as and when they become due.
The company can increase their current assets over the current liability to meet its current
obligations.
The company should make efficient utilization of current assets which will enable the
firm to increase the sales level.
Net profit ratio shows good position. The positive net profit indicates that company will
grow successfully.
From the analysis of fixed asset turnover, it was found that it’s inconsistent over the past
years. So The India Cements Ltd must utilize its fixed assets more efficiently to improve
and increase its sales.
The overall picture looks moderate in its profit. However, there is an increasing trend in
overheads and expenses which need to be controlled through various cost reduction
measures. So that present profitability of the company will be maintained and there will
not be any deterioration of financial position in future years.
75
5.3 CONCLUSION
Finance is the life blood of every business. Without effective financial management, a
company cannot survive in this competitive world. A sound financial management should be
able to monitor and manage the financial position of the company. This is the study of
“FINANCIAL PERFORMANCE ANALYSIS” entitled in, The India Cement Limited. This is
fully based on the past five year’s report. The study also provided knowledge about the ratio
analysis, comparative study, & common size balance sheet, which capture the predicative
variability of company financial statement. By using a combination of financial ratio is
satisfactory. Finally it can be concluded that financial performance of the company is in a good
position which is very healthy.
76