This action might not be possible to undo. Are you sure you want to continue?
“FINANCIAL RATIOS ANALYSIS”
AT ALOK INDUSTRIES LIMITED VAPI (FROM 10TH MAY 2010 TO 10TH JULY 2010)
FOR THE PARTIAL FULFILLMENT TO DEGREE OF MASTER OF BUSINESS ADMINISTRATION
Department of Business and Industrial Management, Veer Narmad South Gujarat University Surat
Submitted to: Ms. NAMRATA KHATRI. SHAH,
(MENTOR & FACULTY MEMBER, DBIM,VNSGU)
MBA (FT), SEM II, DBIM, VNSGU
In this development and changing world, I feel proud for being a student of MBA full time course offered by DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT,
VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT.
This report states about the all the departments and their workings policies at the ALOK
INDUSTRIES LTD, PROCESSING PLANT BALITHA, TALUKA PARDI, VALSAD
Finance and Function of Finance are the part of Economic activities. As this report also include the Financial Ratio Analysis which checks upon the efficiency of the firm. Ratios indicate the trend or progress or downfall of the firm and are aid to measure financial solvency. This project start with industry analysis, introduction of the company and organization, four major departments of the firm they are finance, marketing, production and human resource. Which are included in general training part and specific research includes concept definition, literature review, objective of the research, research methodology, limitation of research, and the ratio analysis of various ratios, and suggestion. I am sure that this project report would give us enough food for covering different departments of the firm and also the various ratios. I have collected all the needed information for the project report at my best level and the information provided are true and authentic.
MBA (FT), SEM II, DBIM, VNSGU
Study of Various Departments And Financial Ratio Analysis This Summer Project report entitled, “Financial Ratio Analysis of ALOK INDUSTRIES LTD” has been submitted to DEPARTMENT OF
BUSINESS AND INDUSTRIAL MANAGEMENT at Veer Narmad South Gujarat
University, Surat in partially fulfillment of M.B.A. Degree. Hereby I undersign that this Project Report has been completed by me under the guidance of Ms. Namrata Khatri (Faculty Member, Department of Business and Industrial Management, V.N.S.G.U. Surat.) Study of this Project Report is entirely result of my own efforts and research and is original in nature. All the information provided is true and authentic and is not provided artificially. This project report is not submitted either in part or whole to any other institute or university of any degree.
II, DBIM, VNSGU
MBA (FT), SEM
Department of Business & Industrial Management
This to certify that Mr. Dhaval Ajaykumar Shah, student of MBA (FT) Semester II, DEPARTMENT OF BUSINESS AND INDUSTRIAL MAMAGEMENT, V.N.S.G.U. has submitted
entitled “FINANCIAL ALOK INDUSTRIES
(PROCESSING DIVISION),VAPI have been duly completed in satisfactory manner in partial fulfillment for award of Degree of MBA, Veer Narmad South Gujarat University, Surat under my guidance and supervision. It also certifies that the project is the research of own works and is of sufficient management slander warrant is presented for examination.
Ms Namrata Khatri Renuka Garg (Faculty Finance) (DBIM, VNSGU)
Dr. (Head of Department) (DBIM, VNSGU)
To improve a little we need to make efforts. Not one or two but till the results. And to learn and act we need guidance. No study however big or small can be undertaken by our own self behind every act there are unforgettable memories, efforts, guidance and blessings if those persons without whom this training would not have gone even a small distance. To be successful in any field practical knowledge is most important and MBA is incomplete without having a practical knowledge in this era of professionalism. The theoretical knowledge is only a half way in study network. First of all I thank our DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT of MBA for giving me an opportunity to practically learn about the real happenings in this field and even the faculty member who spent valuable time in helping me to reach the best possible extent.
I the trainee am grateful to ALOK INDUSTRIES LTD. for giving me an opportunity in completing the summer training session and report. In particular, I would like to greatly thank to:Ms. Deepal Desai (HR Executive) at ALOK INDUSTRIES LTD Mr. Bhuvanesh Gupta (Finance Manager) who was my guide during the training session and he guided me in the field of marketing, finance and human resource. Mr. Deepak Jain (Sr. Manager-Accounts) who provided me with the information I needed to calculating ratios Mr. Murlimanohar. (Training & Development Mgr) Ms. Renuka Garg (Head of Department, DBIM, V.N.S.G.U., Surat). Ms. Namrata Khatri (Mentor and Faculty Member at DBIM, V.N.S.G.U., Surat). They guided and motivated me whenever required. In spite of their busy schedule they spend their precious time with me and also gave all practical knowledge of real world which has to be faced by us and experience sharing moments which will be helpful in future life. Thanking You. DHAVAL SHAH,
MBA (FT), SEM II, DBIM, VNSGU
Chapter No. 1 2 3
Content Industry Profile Company Profile Key Departments Production Department Human Resource Department Marketing Department Finance Department
Page No. 9-10 12-22
25-28 30-35 37-42 44-48 50-54
Research Report. Financial Ratio Analysis
Findings and interpretations Conclusion and suggestion Bibliography Annexure
56-81 83-84 85 86-88
Objectives of summer training are as follows:
To gain the practical knowledge in the real business world. To learn more about the professional atmosphere and adopt the professional behavior. To learn how to innovate your ideas and achieve the main objective of the organization. To know about all departments of the firm like finance, marketing, human resource and production. To know what is the production process, plant layout and location layout, maintenance of machines, basic raw material, semi- finished goods and finished goods. In department of marketing what is their distribution channel, their major customer, and major competitors. In department of finance, to know how the administration and maintenance of financial assets takes place and how the working takes place in the organization related to finance. To know financial position of the company and is efficient to carry all its current claims or not by conducting financial ratio analysis.
Chapter one Industry Profile: Textile Industry in India
Textile Industry in India is the second largest employment generator after agriculture. It holds significant status in India as it provides one of the most fundamental necessities of the people. Textile industry was one of the earliest industries to come into existence in India and it accounts for more than 30% of the total exports. In fact Indian textile industry is the second largest in the world, second only to China Textile Industry is unique in the terms that it is an independent industry, from the basic requirement of raw materials to the final products, with huge value-addition at every stage of processing. Textile industry in India has vast potential for creation of employment opportunities in the agricultural, industrial, organized and decentralized sectors & rural and urban areas, particularly for women and the disadvantaged. Indian textile industry is constituted of the
following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute. Till the year 1985, development of textile sector in India took place in terms of general policies. In 1985, for the first time the importance of textile sector was recognized and a separate policy statement was announced with regard to development of textile sector. In the year 2000, National Textile Policy was announced. Its main objective was: to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market. The policy also aimed at achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion. The textile industry is anticipated to generate 12mn new jobs in various sectors.
Strengths of Indian textile Industry
India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc.
India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates. Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates.
India is highly competitive in spinning sector and has presence in almost all processes of the value chain.
Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets.
Weaknesses of Indian textile Industry
Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to enhance technology or invest in the highend engineering of processes. Hence they lose in productivity.
Indian labor laws are relatively unfavorable to the trades and there is an urgent need for labor reforms in India.
India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.
Alok Industries Limited
History of company:Established in 1986 as a private limited company, Alok began with texturizing of yarn and steadily expanded into weaving, knitting, processing, home textiles and readymade garments. And to ensure quality and cost efficiencies Alok have integrated backward into cotton spinning and manufacturing partially oriented yarn through the continuous polymerization route. Alok also controls an extensive embroidery operation through its sister concern, Grabble Alok Impex Ltd. In 1993, Alok became a public limited company. Since then it have continued to increase the scale of its operation and the range of its activities. Today, Alok is amongst the “A Group listed companies” on India’s leading stock exchanges. That is how they have evolved into a diversified manufacturer of world-class home textiles, garments, apparel fabrics and polyester yarns, selling directly to manufacturers, exporters, importers, retailers and to some of the world’s top brands. Alok has recently entered the domestic retail segment through a wholly owned subsidiary, Alok Retail India Limited, with a chain of stores named ‘H&A’ that offer garments and
home textiles at attractive price points. With the sales turnover of around Rs. 2966 crores in F.Y.2008-09, Alok is amongst the fastest growing vertically integrated textile companies in India.
They have also ventured into the realty space through wholly owned subsidiaries with investments in some prestigious projects in Mumbai. Latest achievements of company are S.E.Z. (Social Economic Zone) and this plant held in Surangi. S.E.Z. means no interference of government and police.
The joint adventure of company is making Embroidery Company with Austria company name Garble Alok Impex Ltd. The company’s Sulzer division is in Dadara. The company’s processing plant in Vapi. Company’s made-up Division is also in Vapi
Years 1986 1993 1995 Events Incorporation of the Company Becomes a public limited company with a Rs. 4.5 crore IPO Sets up financial and technical collaboration with Grabal, Albert Grabher GmbH & Co of Austria to make embroidered products through a joint venture company, Grabal Alok Impex Ltd 2003 2004 2006 2007 Export Trading House status granted Turnover surpasses Rs. 1,000 crore Texprocil silver trophy awarded for second highest export in manufacturer exporter – made ups category •
ISO 9001:2000 certification obtained 60 per cent stake in Mileta a.s.– a Czech Republic-based textile company acquired Controlling stake in U.K based retail store chain, ‘qs’ (now Store Twenty one) acquired Organic cotton contract farming commenced Gold Trophy for best export performance to ‘Focus LAC’ countries awarded by Synthetic & Rayon Textile Export Promotion Council Awarded Silver trophy for highest fabric exports and Bronze trophy for highest made ups export
• • • •
• • • • • • • • •
Turnover crosses Rs. 2,000 crore Exports crosses Rs. 1,000 crore Joint venture with National Textile Corporation (NTC) to develop, revive New City Mills, Mumbai and Aurangabad Textile Mills, Aurangabad formed Awards from TEXPROCIL for 2007-2008 Gold Trophy for highest exports of bleached/yarn dyed/ printed fabrics Silver Trophy for highest export of made ups Bronze Trophy for highest global exports Special achievement award for exports in fabrics Awarded Outstanding Exporter of the Year – Textiles at the International Trade Awards 2007-08; presented by DHL CNBC TV 18 and powered by ICRA
Company’s SWOT analysis:SWOT Analysis is done in order to learn about the strength, weaknesses, opportunities & threats of the company.
STRENTH:During the year the Alok textiles export grew around 31% to RS.111 crores from RS.27 crores in previous year. The total turnover of Alok Industries ltd RS.1069 crores had an increase of 34.47% over the previous year’s turnover of RS.795 crores. The profit before tax during the years was Rs.93 crores an increase of 57.63% over the previous year’s figure of RS.59 crores. Alok manufacturing facilities comprises some of the equipments that have met the stringent requirement of global retailers & importers in terms of quality, pricing environment aspects.
WEAKNESS:As to state there are no specific weaknesses for Alok Industries, the only problems they are facing is the heavy competition with the international market as well as foreign market.
OPPORTUNITIES:The Indian textiles Industry has a much more potential to grow in next organization because major textile payers in U.S.A & Europe are out-location manufacturing company due to the high cost of manufacturing. The Govt. is supporting this industry by technology up gradation scheme, gradual reduction of import duties on Textile Machineries, Rationalization of Indirect taxes. Etc. The industry can avail opportunities that may come in from strategy-tie-up with textile giants from the western word for supply of goods, technical know-how, equity participation, etc. By this we can penetrate overseas market.
THREATS:Textile industry is facing some challenges also, so Alok Industry cannot remain insolent from this corporation needs to become focused & Flexible. They will have to define key principals required to achieve operational excellence & develop strategies to become customer- focused organization.
Products of Alok Industry Ltd
1) Cotton and Blended Yarn Wowen
2) Apperal Fabrics
3) Apparel Fabrics Knits
4) Work Wear Fabrics
5) Garments Woven & Knitted Linen
6) Home Textiles- Bed
7) Polyester Texturized- Yarns Going Green
8) Going Organic &
9) Home Textiles-Terry Towels
To become the world's best integrated textile solutions enterprise with leadership position across products and markets, exceeding customer & stakeholder expectation.
They will: • • • • • • • Offer innovative, customized and value added services to our customers Actively explore potential markets & products Optimize use of all resources Maximize people development initiatives Become a process driven organization Be a knowledge leader and an innovator in our businesses Exceed compliances and global quality standards
Be an ethical, transparent and responsible global organization.
Some of the Alok’s diversified International and Domestic Customers
Competitors of Alok:-
➢ Raymond company ltd. ➢ Siyaram company ltd. ➢ Century Textiles ltd. ➢ Vardhaman ltd. ➢ Welspun ltd.
➢ GHCL ltd. ➢ Nahar Textiles ltd. ➢ Creative ltd. ➢ Arvind mills
SPINNING WEAVING • 412, Saily, Silvassa, U T of Dadra & Nagar Haveli • Babla Compound, Kalyan Road, Dist. Bhiwandi, Thane • 17/5/1and521/1,RakholiSaily, Silvassa, U T of Dadra & Nagar Haveli • 209/1 & 209/4, Silvassa, Village Dadra, U T of Dadra & Nagar Haveli KNITTING • 17/5/1 and 521/1, Rakholi / Saily, Silvassa, U T of Dadra & Nagar Haveli PROCESSING • C-16/2, Village Pawane, TTC Industrial Area, MIDC, Navi Mumbai, Dist. Thane • 268, Village Balitha, Taluka Pardi, Dist. Valsad, Gujarat • 254,VillageBalitha,Taluka Pardi, Dist. Valsad, Gujarat GARMENTS • A 130-134, TTC Industrial Area, Khairne, MIDC, Navi Mumbai • 374/2/2, Saily, Silvassa, U T of Dadra & Nagar Haveli MADE UPS • 374/2/2, Saily, Silvassa, U T of Dadra & Nagar Haveli • 268,VillageBalitha,Taluka Pardi, Dist. Valsad, Gujarat POY HEMMING • 521/1, Saily, Silvassa, U T of Dadra & Nagar Haveli • 103/2, Rakholi, Silvassa, U T of Dadra & Nagar Haveli
POY & TEXTURISING YARN
• 521/1, Saily, Silvassa, U T of Dadra & Nagar Haveli
REGISTERED OFFICE: B/43 Mittal tower Nariman Point,Mumbai-400 021.
Peninsula Tower, ‘A’ Wing, Peninsula Corporate Park, G. K. Marg, Lower Parel, Mumbai 400 013
Divisions of Alok
CEO Mr. Aich
Project Director Mr.S.C. Goyal
V. P. Made Ups S.P. Bhupna
President Prod. Mr. A K Pal
President Comm. Mr. A K Pal
V.P. Engg Mr. Gurpal Singh Chief Mgr.Utility Mr. Kasat DGM Maint. Mr. Abbassi Mgr. ETP Mr. Raajeshkara n
V.P. Accounts Mr. Bhuvanesh Gupta
Wider Width GM Mr. Waancho o
Knits VP Mr. Jagpat
Normal Width VP Mr. Gohel
Yarn Dying GM Mr. Naidu
Printing DGM Mr. Parvani
Terry Towel GM Mr. Parvani
GM Knits Mr. Kaul
Head Product Devp. Mr. Vaidva DGM Q & A Mr. Chakraborty GM PPC Mr. Debashish
GM Q & A Mr. Chuabal DGM Finishing Mr. Shavant GM Prod.& Devp Mr. Jain DGM Folding Mr. Thakkar
DGM HR. Mr. Digvijay Mgr. MIS & Costing Mr. Singh Mgr. Exise Mr. Sharma
AV PPC Mr. Sanjeev Sen DGM Process Mr. Somendu Sen
Mgr. Purchase Mr. Vinoj
Mgr. IT Mr. Hetal Desai
Mgr. Stores Mr. Dhavade
Key Departm ents
Product ion Depart ment
Production is one of the main stages of an enterprise without which a manufacturer can’t survive. It converts the raw material into semi-finished goods and then converts into finished goods. According to Buffa, “Production management deals with decision making regarding production of goods & services at the minimum cost according to demand of customers through the management process of planning, directing, and controlling”.
Alok produces textile products. Before producing product Company plans a schedule on a yearly base, monthly bases & it goes very deeply by preparing a weekly schedule. For preparing this schedule they consider the following points. The lead of the product. The preparation time of the product. The demand of the product in market. According to these points they use to plan the schedule and give the order to produce the product.
Responsibility of the Production Manager
The responsibility of the production manager in to the Alok Company is as follows. ➢ To control the cost of the production. ➢ To motivate workers for maximum efforts. ➢ To fulfill demand of the customer. ➢ To plan production schedule. ➢ To avoid defective goods. ➢ To maintain enough semis finish goods as well as finish goods.
➢ To decide on way of handling and re handling. ➢ To maximize utilization of machinery and manpower.
Production Planning and Control
The aim of the department is fulfill the customer requirement on the time better quality and coordinate with the marketing at head office and the production department at Silvassa (Rakholi)
Buyer-Head Office- PPC- Production
This Department is job is to Check the possibility of availability yarn Give the data to customer Meet the given data Instruct the production units as per priority
In this department all the raw material comes from Silvassa (Alok division 2nd branch). 95% of raw material receives from Silvassa branch and rest from outside source/party. There are 3 godowns and centralized SAP system to know about the raw material. Then the stitching of cloths is done and then lot no. is given to each set of roll with quality checked. It has the capacity of producing 1.50 lack meters/day but they produce only 1.30 lack meter/day. Then this material is send to Bleaching Department for further process.
There are three machines in this department. These machines are imported from Germany.
1. Singedesigne: This machine works for shinning & designing the material.This batch is kept
in rotation for 8Hrs
2. Pre-treatment: This machine works for whiteness & smoothness of the material. There are
three procedures to the material whiteness & smoothness. There are INJECTA, EXTRACTA, and IMPACTA. Injecta: Gives the steam pressure to material in water at 200° C for stretching the cloth from 5 mts to 7 mts. Extracta: In this section the material is washed by hard washer, soft washer & steam washer at 90 C. Impacta: To remove the natural fats & waxes from the material they use this machine.
1. Mercerization: In this process the material is kept in role why dry process or wet process. If
the process is going for continuous process then the wet process is been role and to kept it in go down it is kept as dry. For the dyeing process the material is been giving in wet form.
In this process 3% color & one 1% chemical is pumped through CDR machine. Then after dyeing the material the hard wash is done and then the material is been dried and the role is been send to finishing department.
Finishing is applied on the textile material by different chemical and mechanical means. The finish to be applied on textile material depends upon the end of the fabric. MACHINERY IN FINISHING DEPARTMENT STENTER(Monforts) BRUSHING MACHINE(Lafer) SUEDING MACHINE(Lafer) SANFORISER(Monforts) 3 1 1 1
After finishing the fabric comes to the folding department for the inspection and packing and grading. Folding department works in four sections 1. Inspection and Grading 2. Recording & data entry
3. Grouping & Sampling
Alok Industry is certified by ISI so the product is of good quality so this department for tests test of material is tested by this department or that there is different machine for check the yarn.
This is the department were printing is done on the material came from engraving department. There are 12 color shades in a machine. This machine name is Arioli Loop Ager from Germany. This machine can color 90 meter of cloth in 1 min.
Production process Flow Chart of Alok Industries Ltd.
Human Resourc e
Human Resources Department
Human Resource Management (HRM) is the function within an organization that focuses on recruitment of, management of, and providing direction for the people who work in the organization. Human Resource Management can also be performed by line managers. Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training
For recruitment of worker/staff category employee for all unskilled, semi skilled and highly grade the firm has different approaches like direct recruitment private employment, agencies, advertisement in news papers and personal sources. Different technique is used for recruitment as per situation, need, importance and urgency for recruitment of man power. Minimum education qualification for trainee in STD 10th pass minimum age criteria for category whether staff or worker is 18 years on the date of recruitment is must. – Direct Recruitment:-
The company has adopted recruitment policy for workers belongs to un-skilled and semi skilled grade employees. On every alternative day at the factory main gate personal department conducts the recruitment activity at the factory gate for the persons willing to join the company. – Through private Employment agencies:-
For the recruitment of skilled and highly skilled grade employees this type or recruitment source are preferred. The data base of candidates with relative qualification experience and training is available with the agencies. As per our criteria we call prospective candidates for an interview and evaluation the abilities intelligence attitude and experience.
For the specific recruitment in many cases the application are invited through the advertisement in regional/national news papers. All the application will be shown to concern department heads of short listed candidates are called for interview. – Through personal Source:-
We invite people for interview whose information/bio-data will come across/ brought to our knowledge through any of their friend/relatives/classmates or senior or juniors working with our organization.
HRD MR . DIGVIJAY S INGH (CHIEF MANAGER P & A)
MR. SAMPATH (ASST. MANAGER) OF P&A
MR. KALPESH RAVAL (EXECUTIVE. HR)
MR. MURLI (TRAINING & DEVELOPMENT)
Training and development
Every organization needs to have well framed and experienced employee to perform the activities which have to perform. If the existing people can meet the recruitment then training is of no importance. But it is found vice-versa as for existing employee also newer knowledge of various ways of doing and performing the task in more efficient and cost effective manner keeping in touch with competitiveness, modernization and increase the versatility and adoptability of employee. As the jobs have become more complex, the importance and requirement of training has increased to meet organization objectives. Training is process of learning a sequence of organized input to improve the employees job skill, knowledge, and change in attitude towards his work.
Training methods:On the job Counseling/direction & guidance In house training
External training Employees at all levels are expected to endeavor for “self development” and should try to excel in their performance on their present job and should prepare for future job.
Training modules:AWARENESS PROGRAM QUALITY PRODUCTIVITY/SKILLS DEVELOPMENT SAFETY/HEALTH ENVIRONMENT LATEST TRAND IN TECHONOLOGY BEHAVIOURAL AND COMMUNICATION HRM FOR LINE MANAGER TECHNOLOGY ASPECTS COMPUTER AWARNESS PROGRAMME
External training:Nomination is done for external programme for which there are no internal programmes. The P&A department will maintain a list of training programme being organized in the country along with evaluation report on the quality of these programs. Based on individual training requirement, the P&A department will recommend to the A.Vp/E.D through the concerned department heads, names of staff to be nominated for various training programmes. In respect of external nomination, the participants on return of the programme attend by him to the concerned manager and a copy of it along with a copy reading materials shall be sent to the P&A department within maximum period of weeks from return of the training programme.
Ethics of employment
Alok Industries Ltd. is professionally managed company; therefore certain ethics of employment is necessary for achieving climate in organization. –
No interview is to be conducted/Bio-data from be got filled-in without the approval of personal dept. Personal dept arranges and conducts the requirements process only after approval for requirement is sought. The interview panel is to be earned marked well in advance off the interview and the interview briefing is required to be given to all the panel members by the personal dept. No direct hope, commitments, whatsoever regarding employment should be given to anyone.
– – –
No compromise on quality standard of people should be made. Frank and free opinion should be exchanged during the course of interview by the panel. All appointment are subjected to credential verification and in case of false, part information or concealed information, the employment of the concerned person is liable for termination, without assigning any cause or notice or compensation in lieu thereof.
All appointment will be subjected to production of satisfactory proof release by the previous employer, salary terms, and previous employment and experience certificate of all previous employers.
All appointments are subjected to credentials given by the selected candidate being verified and reference report being satisfactory. In case any employee gives wrong information or conceal facts in either the “Application for employment” from or in subsequent declaration to the company, his employment is liable for termination, without any notice or compensation in lieu thereof.
Period of the candidate joining the duty, the personnel dept will complete following formalities. ➢ Intimate the date of joining to the dept. head ➢ Seating arrangement (Through personnel dep.) ➢ Arrange through P&A for residential accommodation, if required or agreed upon
➢ Draw up orientation/Training Programme ➢ Finalize the job allocation/description with dept. / division head considering recruitment objectives.
The personnel dept. will be Responsible for ➢ Completing joining formalities, such as joining report, checking of medical
➢ Certificates and medical checkup etc.
➢ Instruction to concern executive. ➢ Acquainting to new entrant with organization structure, Rules & Regulation ➢ Background and history of the company, local information and Assistance. The induction programme of new entrant will is for five days. After completing the cycle of indication the new entrant will be sent to the concerned dept. whenever necessary, the P&A dept. will also issue a general circular regarding the new entrant and his assignment, for information of all employees in company.
Types of appointment:
PERMANENT: All appointments will be against the permanent sanctioned vacancies. All appointments would be on probation of six months. Confirmation will not be deemed to have taken place, unless conveyed in writing. In the absence of any written communication, the probationary period would automatically stand extended.
TEMPORARY: Wherever such appointments are authorized, they will be for limited period, specified in their terms of appointments, not exceeding 60 days at any stage. Extension of temporary period beyond 60 days shall also be authorized by A.V.P.
TRAINEES: The Company may engage, from time to time, services of such fresh graduates/diploma holders (Technical and Non technical). Who on successful completion of
their training period would be absorbed in staff at suitable levels? The terms of appointment and benefits/facilities for such appointments would be as finalized by the management from time to time.
Payment of fare to candidates called for interview
Unless otherwise specified, payment of fare to all outstation candidates called for an interview will be made on the following basis:A) All candidates called for Manager & above B) All persons called for Dy. Manager & below fare
It is not the normal practice of the company to pay joining expenses incurred for selected candidates for joining or moving his residence on selection. Exception this can only be authorized by the M.D/E.D/A.V.P. in writing.
Letter of intent:
All candidates selected for appointment as staff shall be offered letter of intent indicates the position for which they have been selected. Formal letter of appointment shall be handed over to the
candidate, on the term mutually agreed upon, on the day of joining duty.
Candidates selected for joining as staff will be issued letter of intent indicating, a part from the position for which selected, the date/ place of reporting, the documents etc. at the time of reporting duties.
Marketing is an important activity in our society. Marketing today requires more proximity towards customer. It also requires: 1) Of end users more understanding. 2) Creating more moment of truth and delight. 3) Retaining customer. 4) Relationship marketing.
Modern definition of Marketing: “Marketing is continues process of discovery and translating consumer wants into appropriate product services. Creating demand for this product and serving the demand with the help of distribution such as wholesaler and retailer. “ The American marketing association defined marketing as:The performance of business activities that directs the flow of goods and services from producer to customer
Marketing management is an ongoing process involving identification of consumer need and wants of converting them into appropriate products and satisfying the demand of consumer who are the most merciless, meanest and toughest marketing disciplinary. It is an important functional area of business. -According to Phillip Kotler: “The market concept is customer orientation backed by integrated marketing aimed at generated customer satisfaction to satisfy organizational goals.”
4Ps of Marketing Mix
Alok is more concern about the product they are always try to give qualitative product to their buyers, they have product planning & control department. This is playing vital role in the organization. It creates the link between the production department and marketing department. It exchanges the information between the departments. Manufacturing plans are made, based upon input from marketing and designing .The development of fabric deciding the specification is done by designing while the acceptability to market and the quality is decided by market. They conduct booking session twice in a year in order to decide what should be produced for season. A yearly plan is 1st made based upon the expectation of marketing. The capacity balancing is then done & the entire production is divided in to the available production capacity at various
locations depending upon the capacity loading, the requirement for marketing the converted into manufacturing. Raw material, Dyes& Chemicals, other horizontal inputs and optimum utilization of capacity are the major balancing factors which decide the feasibility of timely delivery. After allocation of plants of various location .Any problem faced at any location need an immediate attention so that other location take up the production need in order to meet the deadline of delivery.
Alok is basically fabric manufacturer so they are not selling their product directly. They are selling their product retailer like Wal-Mart, M&S. They are distributing their product through agent for international buyers. The web has created a platform whereby organizations can now directly communicate with the customers, as a result of which many of the channels are being disinter mediated. This disintermediation does not necessarily mean that they completely eliminate the intermediaries, but rather when it comes to shipping the products it may outsource some of the distribution functions like the storage, transportation from third party firms.
Pricing strategy at Alok: Pricing is one of the linchpins of marketing strategy and success. Every organization has their own technique for pricing & Alok is one of them. The company adjusts product prices to reflect changes in costs and demand and to account for variation in buyers and situations. Many times they are using online auctions. It is a popular and innovative way of pricing. Top Management or Responsible person who has authority, they can be participating in online auction where buyers bid against each other. The highest bidder wins. They are using Geographical pricing to decide the price. It includes Geographical considerations strongly influence prices when costs must cover shipping heavy, bulky, low-unitcost materials. Buyers are all over the world so there are variations in price in different area of the world. Another strategy is value pricing where they are offering right quality at fair price.
Many times they compromise with the price when order in bulk. Price is also depending upon the quality of product. They are always providing high quality product. Basic structure of Price: Total Fabric Price=Basic price of fabric + Overhead + Transportation cost + Profit.
The next element of the marketing mix is deciding the appropriate set of ways in which to communicate with customers to foster their awareness of the product, knowledge about its features, interest in purchasing, likelihood of trying the product and/or repeat purchasing it. Effective marketing requires an integrated communications plan combining both personal selling efforts and non-personal ones such as advertising, sales promotion, direct marketing and public relations. Put together, they are referred to as the promotion mix.
Elements of Promotion Personal Selling Sales Promotion Public Relations (PR. Direct Mail Trade Fairs and Exhibitions Advertising Sponsorship
Alok is promoting their self in such approaches like trade faire & exhibition. It helps to make new contacts and renewing old ones. The main purpose is to increase awareness and to encourage trial & attract the new customer.
They also promoting through sponsorship where company pay associated with particular events like Fashion show the attributes of the event are then associated with the organization. Direct mail is the very highly focused way to develop relationship with customer. The mail is sent out to the potential buyers and responses are carefully monitored.
Branch Offices of Marketing Bangalore Chennai Delhi Sri Lanka United States Bangladesh Vapi Silvassa
Navi Mumbai Thane
Marketing strategies:The choice of marketing strategies hinges on a number of consideration like the company’s. Current market share. Current and Planned Capacity Customer price sensitivity. Marketing Growth. Competitors. The company may find a number of alternatives for fulfilling its purpose but it needs to be select one The company needs monitor the impact of marketing strategies on its sales, market shares, cost, profit and long term investment
Strategies related to Product:
A product means a bundle of benefits, which satisfy the human need. According William Stanton, “A product is a complex of tangible attributes including packing, color and service which the buyer expect as offering of satisfaction of wants and need.”
For Alok Industries ltd. quality stands at a first place. And it is most important to any production house. Also consumer satisfaction is the best scale for the quality measures and they are favor in Alok Industries Ltd. ✔ Packing and Labeling:–
In Alok product are packed as per the convenience of consumer. So packing is also changed on the basis of customer.
g are also change on the basis of the customer feedback.
cts for exporting are packed separately using some specific material only.
✔ Brand name: – – – – Brand name is the effective tool to identify and to differentiate The product from the competitor’s product. Brand name is an attractive parameter for the customer while they choose one among different product. Alok industries ltd .has brand name “ALOK “itself.
✔ Sales department:
In sales department firstly consumer inquiry for our product if consumer like the material of company so he give order of some quality and from that we make A sales order and the procedure of sales department is begin.
So consumer check the material and then he give order then companies authorized person decide that the sales should be done or not if authorized person approve so the department see the when another parties order will full fill then give date and try to finish that order. When the order is full filled by department they inform the party and also say to collect their order when the party comes to collect the order they make legal document and make Challan and the payment in some specific time period.
Finance Depart ment
Finance is the lifeblood of the industries because we cannot imagine business without finance, as it is the central point of all the business activity. Whether big or small, government finance function is of equal importance. Finance is defined as the provision of money at the time it is wanted. Till 1950 finance function was regarded as the function only of rising finance of the business. There after it has undergone remarkable changes over the time. Since last 30 to 40 years the important function of finance management is of effective efficient utilization of finance. Financial management means rising of adequate funds at the minimum cost and using them effectively in the business. It is concerned with financial problem in business.
Management Hierarchy Accounts & Finance Department
FINANCE & ACCOUNTS DEPARTMENT
V.P ACCOUNTS (Mr. Bhuvanesh Gupta)
Senior Manager Accounts (Mr. Deepak Jain)
Accounts Officers 54
Procedure of Accounting Department
GRN (Goods Receipt Note)
Accounts Booking (Assistant) Manager (Check) VP Accounts (Sign)
Assistant Manager (Check sign) VP Accounts (Sign) Party Distribute
Importance of Finance Department:-
1. Finance is required for the scheme of modernization, expansion and development of existing enterprise. 2. The financial plan helps to check out the success of the company. 3. The effective financial plan will provide sufficient funds to business. 4. Finance department is always linked with success of other departments where it is responsible to provide necessary finance.
Responsibility of finance Department
In modern enterprises the financial manager occupies a key position. He is one of the dynamic members of the management and his role day by day becoming more pervasive, progressive, intensive and significant in solving complex problem. The responsibility of financial manager includes:
✔ Raising of funds ✔ Minimizing cost of funds raised ✔ Allocate funds prudently ✔ Control the working of an organization ✔ Maintain enough liquidity
Registered Maintained:✔ Cash and bank book ✔ Sales register ✔ Debit Note ✔ Credit Note ✔ Purchase register ✔ Trial Balance ✔ Profit & Loss A/C ✔ Balance Sheet
Here the entries are made and it is sent to the head office and there the account is maintained. The account procedure starts from the raw material enter to the company. The procedure of account as follows:1. The security officers firstly check the goods or raw material enters at the gate and note down the no. of vehicle. 2. Then the goods and brought to the quality control lab where it is check and approval is OK then the goods are stored in the stored department and the entry is made there. 3. The book entry is done after the material stored 4. After the book entry is sanded to the account department where the bill order slips are compared with other. 5. After the document are checked and signed by the head of the department and manager and manager and the data are entered in the particular account. 6. Then the daily entries are mail to head office. 7. After making the entries the payment activity is made during the period. 8. The required fund for the payment generally comes from the head office. Credit policy of Alok: Credit is facility provided by the company, which enables the creditor to extend the pay off period to some days as per company’s policy. Alok generally provided the credit facility of 30 days to all the parties or consumer of product. Dividend:Dividend is that amount of capital or profit, which is shared between the shareholders of the company after meeting all the expenses. The director had authorized the payment of an interim
dividend of Rs.60 per share during the year the expenses. The director had authorized the payment of an interim dividend of Rs.60 per share during the year. Export:During the year made the export and the efforts are made to achieve the higher growth. Insurance:Plant and machinery, stock, building etc of the companies have been adequate insured.
Accounting policy of Alok:
Basic of preparation of financial statement:- The accompanying financial statement has been prepared under historical cost convention in accordance with generally accepted accounting principles and provisions of the company Use of estimates: - The preparation of financial statement in conformity with the generally accepted accounting principles required estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of the financial statement and the reported amounts of revenues and expenses during the period. Fixed assets: - Fixed assets are recorded at the cost of acquisition including incidental expenses. They are stated at historical cost. Depreciation:- Depreciation on the fixed assets is provided on written down value method excepted in respect of non-factory Investment;- Investment classified as long term investments a fare started at the cost provision is made to recognize a declined, other than temporary n the value of investment.
Foreign Currency Transaction; - Transaction in foreign currency is recorded at the original rate of return exchange in force at the time transaction is affected. Revenue Recognition: - Revenue in respect of insurance, interest, etc is recognized only with it is reasonably certain that the ultimate collection will be made. Audit System: - Audit is the process of checking, verifying and inspecting the financial procedure and position of the company. They are two types of audit are carried out in Alok Internal audit Statutory audit
Researc h Report:
Financial Ratio Analysis
1. To measure the firm’s ability to meet current obligations and its short term liquidity
position by conducting analysis of liquidity ratios (here ratio no 1 & 2).
2. To measure the firm’s long term financial strength, and the proportion of debt and
equity in financing the firm’s assets by analyzing leverage ratios (here ratio 2, 3 & 4).
3. To measure the firm’s efficiency in utilizing and managing its assets by doing analysis
of activity ratios (here ratio 5,6,7 & 8)
4. To measure the firm’s overall efficiency, profitability and effectiveness from
profitability ratio(here ratio 9,10,11,12,13,14&15) 5. To have the knowledge about the financial management of the firm that how a firm manages its funds or capital in order to achieve its objectives. 6. To know how the administrative and maintenance of financial assets takes place.
According to my study I have used exploratory design method as it is based on the primary & secondary data and the information and data were given by the Vice President- Accounts & Finance Mr. Bhuvanesh Gupta and Sr. Manager-Accounts Mr. Deepak Jain to know the firm’s position and can it implies all its current claims in this competitive world by analyzing various ratios. My analysis is totally based on primary & secondary source of data provided by the firm.
Data collection plan
METHODS OF DATA COLLECTION: The data has collected in two ways. ➢ Primary Data:
– Primary data are those, which are collected for the first time, and they are original in character. Primary data gives higher accuracy and facts, which is very helpful for any research and its findings.
– For primary data, I personally met Vice President- Accounts & Finance Mr. Bhuvanesh Gupta
and Sr. Manager-Accounts Mr. Deepak Jain, and other staff members for the collection of required information ➢ Secondary data: – The secondary data are those, which are already collected by someone for some purpose and are available for the present study.
– Secondary data was collected from the Company’s Annual Report and other financial
statements, websites and other such sources.
Limitation of the Report
I tried to work best in preparing the report, still there are some obstacles, which come in the way and stop me to get 100% result. These limitations are sometimes overcome but sometimes they become unavoidable. Some of the limitations, which I faced in preparing the report, are as follow:1. Due to their busy schedule they were not able to spend more time with me. 2. Detailed information of data was not given due to which ratio analysis were not concluded. 3. As audit was held the staffs was busy and company kept their data confidential.
Outline of the study Financial Ratio Analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An accounting figure conveys meaning when it is related to some other relevant information. For e.g., a Rs. 5 crore NP may look impressive, but firm’s performance can be said to be good or bad only when NP figure is related to the firms investments.
The relationship between two accounting figures, expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratio helps to summarize large quantities of financial data and to make qualitative judgment about the firm’s financial performance. For e.g., consider Current Ratio, it is calculated by dividing current assets by current liabilities: a ratio indicates a relationship – a quantified relationship between current assets and current liabilities. This relationship is an index or yard stick, which permits a qualitative judgment to be formed about the firm’s ability t meet its current obligations. It measures firm’s liquidity. The greater the ratio, greater is the firm’s liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship helps to make qualitative judgment. Such is the nature of all financial ratios.
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It gives us better understanding of financial strengths and weaknesses of a firm.
Standards of comparison
The Ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of:
• • • •
Past Ratios, i.e., ratios calculated from the past financial statements of the same firm. Competitor’s Ratios i.e., ratios of some selected firms especially the most progressive and successful competitor, at the same point in time. Industry Ratio i.e., the ratio of industry to which the firm belongs; and Projected Ratio i.e., the ratios developed using the projected, or proforma, financial statements of the same firm.
Classification or Types of Financial Ratios
Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. As stated earlier the parties interested in financial analysis are short and long term creditors, owners and management. Short-term creditors’ main interest is in the liquidity position or the short-term solvency and profitability of the firm. Long-term creditors’ on the other hand, are more interested in the long term solvency and profitability of the firm. Similarly owners concentrate on the firm’s profitability and financial condition. Management is interested in evaluating every aspect of the firm’s performance. They have to protect the interest of all parties and see that the firm grows profitably.
In view of the requirements of the various users of the ratios, we may classify them into the following four important categories 1. Liquidity ratios 2. Capital structure/leverage ratios 3. Activity ratios 4. Profitability ratios
Classification of Financial Ratios
1. Current ratio 2. Liquidity ratio or Quick ratio or acid test ratio
Total Debt Ratio Debt-Equity Ratio Interest Coverage Ratio
1. 2. 3. 4.
Inventory/Stock turnover Ratio. No. of days Inventory Debtor’s turnover Ratio Working capital turnover Ratio
1. 2. 3. 4. 5. 6.
Gross Profit Margin Net Profit Margin Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE) Asset Turnover Ratio Rate of return on Equity Earnings per Share
Findings and Interpretations
(A) Liquidity Ratios:
These ratios analyse the short-term financial position of a firm and indicate the ability of the firm to meet its short-term commitments (current liabilities) out of its short-term resources (current assets). These are also known as ‘solvency ratios’. The ratios which indicate the liquidity of a firm are: 1. 2. Current ratio Liquidity ratio or Quick ratio or acid test ratio
(1) Current ratio It is calculated by dividing current assets by current liabilities.
Current ratio = assets Current
Where, Current assets, includes Current Liabilities, includes
• • • • • • • • • • •
Inventories of raw material, Work in progress, finished goods, stores and spares, sundry Debtors/receivables, short term loans deposits and advances, cash in hand and bank, prepaid expenses, incomes receivables and marketable investments And short term securities.
• • • • • • •
sundry creditors/bills payable, outstanding expenses, unclaimed dividend, advances received, incomes received in advance, provision for taxation, proposed dividend, • instalments of loans payable within 12 months, • bank overdraft and cash credit
Conventionally a current ratio of 2:1 is considered satisfactory The current ratio is a measure of the firm’s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them. Current ratios for last five years of Alok Industries Ltd are as under. The Current Ratios for the last five years of the company are as under Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Current ratio Total Current assets (Rs. Crore) 1359.21 1403.87 1992.66 3377.53 2685.93 2004-05 2.1:1 2005-06 2.1:1 Total Current liabilities (Rs. Crore) 647.3 668.1 1371.21 2341.16 1976.02 2006-07 1.45:1 2007-08 1.44:1 Current Ratio 2.099814615 2.101287232 1.453212856 1.442673717 1.359262558 2008-09 1.35:1
Interpretation of Current Ratio Conventionally a current ratio of 2:1 is considered satisfactory for a company. This means in a worse condition, even if the value of company’s Current Assets becomes half, the firm is able to meet its obligations ➢ It can be seen from past records that CR in years 2004-05 & 2006-07 is 2:1 which meets the ideal ratio for a company as company is able to meet its obligations very well. So CR in these years can be interpreted to be sufficiently liquid. ➢ But in years 2006-07 & 2007-08 this ratio has decreased to 1.45 & 1.44 respectively but still company manages to meets its obligations as its current assets are more than its current liabilities. ➢ In year 2008-09 the decreasing trend continues and CR becomes 1.35, as far as meeting obligations is concerned, it is still able to, so this ratio can’t be said to be an insufficiently liquid but if this decreasing trend continues for next few years then it would be a matter of concern for company’s liquidity position. For the time being company’s CR can be interpreted as moderately liquid but an alarming one. Suggestions: Since last three years CR has shown a decreasing trend, so Company needs to invest more in its current assets if it fails to do so then in near future company’s CL may increase over CA and short term liquidity position might be in threatening condition and it may struggle to meet its current obligations. Also company should indentify its slow paying debtors and insist them to be quick in payment Moreover, company needs to exercise control over slow moving and absolute stock of goods, which impairs company’s ability to pay bills on time
(2) Quick Ratio or Acid Test Ratio or also known as Liquidity ratio
Quick ratio, also called acid test ratio, establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets are considered to be relatively liquid and included in quick assets are debtors and bills receivables and marketable securities. Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A quick ratio of 1:1 or more does not necessarily imply sound liquidity position. It should be remembered that all debtors may not be liquid, and cash may be immediately needed to pay operating expenses. It should also be noted that inventories are not absolutely non-liquid. To a measurable extent, inventories are available to meet current obligations. Thus, a company with a high value of quick ratio can suffer from the shortage of funds if it has slow paying, doubtful and long duration outstanding debtors. On the other hand, a company with a low value of quick ratio may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick ratio remains an important index of the firm’s liquidity. It is calculated by dividing quick current assets by current liabilities (quick current liabilities)
Quick ratio = assets
Quick assets are current assets (as stated earlier) less prepaid expenses and inventories. Conventionally a quick ratio of 1:1 is considered satisfactory.
Quick Ratio for last five year of company is as under: Years Quick Assets Total current liabilities Quick Ratio
2004-05 2005-06 2006-07 2007-08 2008-09 Years Quick ratio
(Rs. Crore) 999.85 1049.5 1522.04 2692.15 1739.8 2004-05 1.54:1 2005-06 1.57:1
(Rs. Crore) 647.3 668.1 1371.21 2341.16 1976.02 2006-07 1.11:1 2007-08 1.11:1
1.544646995 1.570872624 1.109997739 1.149921406 0.880456676 2008-09 0.88:1
Interpretation of liquid ratio: Generally, a quick ratio 0f 1:1 is considered to represent a satisfactory current financial condition. ➢ In years 2004-05 & 2005-06 quick ratio, is almost more than 1.5 times which implies that company’s quick assets are 1.5 times more than its liabilities this is because company is able to convert its assets into cash very successfully. This ratio sets a very rosy current liquidity condition as company has enough cash to meet its current obligation. ➢ In years 2006-07 & 2007-08 this ratio has reduced to 1.11 times but still company has managed to be in line with standard ratio, although the ratio has decreased but it cant be said insufficiently liquid as company liquid assets are almost equal to its current liabilities. ➢ In year 2008-09 the decreasing trend continues and ratio becomes 0.88 times which is does not sounds good as company may find it difficult to meets its obligations as its liquid assets are less than its current liabilities. Suggestions ➢ Company needs to have more liquid asset in form of cash as cash is considered to the most liquid asset.
➢ Also Company needs to exercise control over its investment in inventories as inventories are considered to less liquid as compared to BR and other readily convertible or marketable securities. If company fails to do so then it may not be able to meet its current obligation.
(B) Gearing ratios or Leverage ratios
These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet its long-term commitment with respect to: • and • Periodic payment of interest during the period of the loan. The process of magnifying the shareholders return through the use of debt is called, “financial
leverage” or “financial gearing” or “trading on equity” Theses ratios are calculated to measure the
repayment of principal on maturity or in predetermined instalments at due dates
financial risk and the firm’s ability of using debt to shareholder’s advantage. Leverage ratio can be calculated from the Balance Sheet items to determine the proportions of debt in total financing. They can also be computed from profit & loss items by determining the extent to which operating profits are sufficient to cover the fixed charges. Leverage ratios are classified as under: 1. Total Debt Ratio. 2. Debt-equity Ratio. 3. Interest coverage Ratio. 1. Total Debt Ratio Several debt ratios may be used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest – bearing debt (also called funded debt) in the capital structure. It may, therefore, compute debt ratio by dividing total debt by capital employed or net assets. Total debt will include short and long term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, bank borrowings, public deposits and any other interest – bearing loans. Capital employed will include total debt and net worth.
The firm may be interested in knowing the proportion of the interest bearing debt (also called funded debt) in capital structure. It may therefore compute debt ratio by dividing total debt (TD) by capital employed (CE) or Net Assets (NA).
Debt Ratio = Debt (TD)
Total Debt (TD) will include short and long term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, bank borrowings, public deposits and any other interest-bearing loan.
Capital Employed (CE) will include Total Debt (TD) + Wet Worth (NW)
Debt ratio for last five years of the company is as under: Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Debt ratio 2004-05 0.701:1 Total Debt (Rs Crore) 1403.24 2212.5 3336.76 5767.31 6596.35 2005-06 0.732:1 Capital employed (Rs Crore) 2001.31 3020.03 4361.2 7198.65 8351.42 2006-07 0.765:1 Debt Ratio 0.70116074 0.732608616 0.765101348 0.801165496 0.789847715 2008-09 0.789:1
Interpretation of Total Debt Ratio:
Generally, total debt ratio of 2/3 is considered satisfactory.
➢ Here the company’s total debt ratio has shown an increasing trend from years 2004-05 to
2006-07. Almost more than 70% of company’s net assets (capital employed) are being financed by lenders in these years. ➢ In year 2007-08 company total debt ratio is highest i.e. 0.801 which means lenders have financed 80% or about four-fifths of company net assets (capital employed). It obviously implies that owners have provided remaining one fifth or just 20%, i.e. the stake of owners is quite low in the total capital employed of the company. ➢ In year 2008-09 this ratio is 0.708 which in no sense is satisfactory as is surpasses conventional ratio of 0.66. From creditor’s point of view, the trend is risky and undesirable. Suggestions:
➢ Company needs to improve its debt position by reducing debt in its capital mix,
otherwise it may led to creditors’ pressures and constraints on managements independent functioning and energies. If company fails to reduce its debt, it may get entangled in a Debt Trap.
1) Debt- Equity Ratio The relationship describing the lenders’ contribution for each rupee of the owners’ contribution is called debt- equity ratio. It is directly computed by dividing total debt by net worth.
Debt-Equity Ratio = Debt (TD)
Total Debt (Rs. Crore) 1403.24
Net worth (Rs. Crore) 598.07
Debt-equity Ratio 2.346280536
2005-06 2006-07 2007-08 2008-09 Years Debt Equity
2212.5 3336.76 5767.31 6596.35 2004-05 2.34:1 2005-06 2.73:1
807.53 1024.44 1431.34 1755.06 2006-07 3.25:1
2.739836291 3.257155129 4.029308201 3.758475494 2007-08 4.02:1 2008-09 3.75:1
Interpretation of Debt Equity Ratio: Generally, A Debt- equity ratio of 2:1 is considered to be conventional. But here like total debt ratio, debt equity ratio also seems to be very unconventional and undesirable. Debt equity ratio has also shown an increasing trend from years 2004-05 to 2007-08. In year 2007-08 ratio is highest i.e. 4.02 times. In year 2008-09 it has reduced to 3.75 times, but then too it doesn’t sound much impressive as company’s debt is much higher than its owners’ stake. Suggestion: ➢ It’s high time for company to think about its indebtedness. Company needs to reduce its debt capital in order to sound financially strong. Otherwise, company may suffer great strains, it may even fail to pay interest charges of creditors, as a result their pressure and control may further tightened. ➢ There is a need to strike a proper balance between use of debt and Equity.
1) Interest Coverage Ratio: Debt ratio described above are static in nature and fail to indicate the firms’ ability to meet interest (and other fixed charges) obligations. The Interest Coverage ratio or the times-interestearned is used to test the firms’ debt-servicing capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes (EBIT) by interest charges. The interest coverage ratio shows number of times the interest charges are covered by the funds that are ordinarily
available for their payment. Since taxes are computed after interest, interest is calculated in relation to earnings before tax. Depreciation is a non-cash item. Therefore, funds equal to depreciation are also available to pay interest charges. We can thus calculate this ratio as earnings before interest taxes, depreciation and amortization (EBITDA) divided by interest
Interest coverage Ratio = (EBITDA)
A ratio of 6 to 7 times is considered satisfactory Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Interest. Coverage Ratio EBIDTA (Rs Crore) 244.75 301.26 410.96 547.75 822.61 2004-05 3.84 Interest (Rs Crore) 63.68 66.78 89.04 131.83 304.12 2005-06 4.51 2006-07 4.62 Interest coverage Ratio 3.84343593 4.511230907 4.615453729 4.154972313 2.704886229 2007-08 4.15 2008-09 2.7
Interpretation of Interest Coverage Ratio: A ratio of 6 to 7 times is considered satisfactory. ➢ Here Interest coverage Ratio has shown an increasing trend from years 2004-05 to 200607 and has shown a decreasing trend in last two years.
➢ In year 2008-09 ratio is lowest i.e. 2.7 times. In year 2006-07 the ratio is highest i.e. 4.62 times, but is not at all satisfactory when compared 6-7 times. This indicates excessive use of debt or inefficient operations. Suggestions: ➢ As seen earlier in case of total Debt ratio and Debt-equity ratio, even interest coverage ratio is not satisfactory this is because of the reason that company uses too much of debt capital, so it needs to review its portfolio regarding use of debt in its capital mix. ➢ Moreover the company should make efforts to improve the operational efficiency, or to retire debt to have a comfortable coverage ratio. And this can be done by analysing the variability of the company’s cash flows over time
(C) Activity Ratios
Funds of creditors and owners are invested in various assets generate sales and profit. The better the management of assets the larger is the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called as turn over ratios because they indicate the speed at with which assets are being converted or turned over into sales. Activity ratios, thus involve a relationship between sale and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilization. Activity ratios can be further classified as under: 1) Inventory/Stock turnover Ratio. 2) No. of days Inventory. 3) Debtor’s turnover Ratio. 4) Asset Turnover Ratio.
5) Working capital turnover Ratio.
1) Inventory/ Stock turnover Ratio: This ratio indicates the number of times inventory is replaced during the year. It measures the relationship between cost of goods sold and the inventory level. This ratio calculated by dividing Cost of Goods Sold (COGS) by Average stock (or inventory)
Inventory turnover Ratio: Cost of goods sold (COGS)
Cost of Goods Sold (COGS) implies Sales – Operating Profit or EBITDA. Average Inventory implies total Inventory/2.
Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Inventory Turnover Ratio
cost of goods sold (Rs. Crore) 999.75 1119.44 1423.72 1622.66 2154.32 2004-05 5.5 times
Average inventories (Rs. Crore) 181.635 179.075 232.23 343.79 471.92 2006-07 6.13 times 2007-08 4.71 times
STR 5.504170452 6.251235516 6.130646342 4.719916228 4.565011019 2008-09 4.56 times
2005-06 6.25 times
Interpretation of ITR There is no such standard ratio available; therefore comparison shall be made on basis of past trends. But high inventory ratio is indicative of good inventory management. And low inventory implies excessive inventory level than warranted by production and sales activities. ➢ In year 2005-06 the ratio is highest i.e. 6.25 times, which means company is turning its inventory of finished goods into sales 6.25 times in a year. ➢ In year the ratio has shown a decreasing trend and has finally reached to 4.56 times, which means company’s efficiency in turning its inventories is getting reduced.
Suggestions ➢ Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off.
2) No. Of Days Inventory: This ratio is calculated by dividing no. of days in a year with inventory turnover ratio. Generally for the sake of convenience we take 360 days for calculating this ratio
No of day’s inventory: 360 Days Average inventory
Years 2004-05 2005-06 2006-07 2007-08
Days in a year 360 360 360 360
inventory turnover 5.5 6.25 6.13 4.71
No. of Days, Inventory 65.45454545 57.6 58.72756933 76.43312102
Years No. of Days, Inventory
2004-05 65 Days
2005-06 57 Days
2006-07 58 Days
2007-08 76 Days
2008-09 78 Days
Interpretation of no. of days ➢ Here more inventory days indicates that company is holding its stock for longer period of time and investments in inventories is blocked which would increase costs and reduce profits, on the contrary less inventory holding days is indicative of good inventory management system for a company ➢ In year 2005-06 the holding period is least i.e.57days and then onwards it has shown an increasing trend and was highest in year 2008-09 i.e.78days. Suggestion:
➢ Company should investigate and find out slow moving or absolute stock and take
appropriate steps to write-off them as soon as possible otherwise this will adversely affect working capital and liquidity position of the company ➢ Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off 3) Debtors Turnover Ratio This ratio is a test of the liquidity of the debtors of a firm. It shows the relationship between credit sales and debtors.
Debtors Turnover Ratio = Credit Sales X 360 days
Years Debtors turnover(days )
2004-05 120 Days
2005-06 91 Days
2006-07 109 Days
2007-08 102 Days
2008-09 108 Days
Interpretation of Debtors Ratio or Average collection period ➢ This ratio is indicative of the efficiency of the trade credit management. A high turnover ratio and shorter collection period indicates prompt payment by the debtor. On the contrary low turnover ratio and longer collection period indicates delayed payments by the debtor. In general a high debtor turnover ratio and short collection period is preferable.
➢ Collection period is kept on increasing every year which is not favorable for a company.
It implies that company’s credit and collection policy is inefficient and liberal. Suggestion: Company should improve its collection policy by improving credit terms and policy.
4) Assets turnover ratio Some analysts like to compute the total assets turnover in addition to or instead of the net assets turnover. This ratio shows the firm’s ability in generating sales from all financial resources committed to total assets. Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize its sales. The relationship between sales and assets is called assets turnover. Assets Turnover Ratio = Total Sales Capital
Years 2004-05 2005-06 2006-07 2007-08 2008-09
Sales (Rs. Crore) 1224.5 1420.7 1824.68 2170.41 2976.93
Capital Employed (Rs. Crore) 2001.31 3020.03 4361.2 7198.65 8351.42
Assets Turnover Ratio 0.611849239 0.47042579 0.418389434 0.301502365 0.356457944
Years Assets turnover
2004-05 0.61 Times
2005-06 0.47 times
2006-07 0.41 times
2007-08 0.31 times
2008-09 0.35 times
Interpretation of Asset turns over Ratio. ➢ Ratio of more than one should be considered to be satisfactory. But here company is not able to maintain that ratio which means there are unutilized or underutilized assets in company.
➢ In the year 2004-05 the ratio is highest but doest show any satisfaction. As since
company is able to generate only 0.60Rs of sales for every one rupee capital employed in net assets. Besides this in year 2007-08 this condition has gone worsen as ratio reached its lowest level i.e. 0.3 which shows company’s inefficiency in utilizing its assets. Suggestions ➢ Company’s sales have increased but not in the proportion of increase in net assets or capital employed. ➢ Company needs to improve a lot as far as operational performance is concerned, more sales promotion activities should be carried out t increase sales at this given level of assets On the other hand it necessary to check whether assets are properly valued ie. Whether undervalued or overvalued because valuation of assets is very important.
5) Working Capital turnover ratio: A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus compute net working capital turnover by dividing sales by net working capital.
Working Capital turnover = Sales Net Working
Networking Capital =( Total Current Assets)-(Total Current Liabilities) Net Working Capital (Rs. Crore) 711.91 735.77 621.45 1036.37 709.91 200506 1.93 times Working capital turnover 1.720020789 1.93090232 2.93616542 2.094242404 4.193390711
Years 2004-05 2005-06 2006-07 2007-08 2008-09
Sales (Rs. Crore) 1224.5 1420.7 1824.68 2170.41 2976.93
Years Working capital Turnover
2004-05 1.72 times
2006-07 2.93 times
2007-08 2.09 times
2008-09 4.19 times
Interpretation of Working capital Turnover Ratio ➢ From this point of view company’s working operational performance is quite sound. Since from year 2004-05 to 2008-09 working capital turnover ratios has shown an increasing trend. In year 2008-09 this ratio is highest i.e. 4.19times which implies that for every one rupee of working capital company is able to generate 4.19 rupee of sales. ➢ This is because company’s sales have increased year by year one the one hand while on the other hand net working capital has reduced. Suggestions ➢ Company must maintain this level of working capital but not being so optimistic it should see that net working capital doesn’t get reduced which stagnates growth. Because due to inadequate working capital it becomes difficult for the firm to undertake profitable project.
D) Profitability Ratios
Profit is the difference between revenues and expenses over a period of time (usually one year). Profit is the ultimate ‘output’ of a company, and it will have no future if it fails to make sufficient profits. Therefore the financial manager should continuously evaluate the efficiency of the company in terms of profits. The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get repayment of their principal regularly. Owners want to get a required rate of return on their investments. This is only possible when the company earns enough profits. Profitability Ratios can be classified as under: 1) Gross Profit Margin 2) Net Profit Margin
3) Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE).
4) Rate of return on Equity 5) Earnings per Share.
1) Gross Profit Margin: The Gross Profit Margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A firm should have a reasonable gross profit margin to ensure coverage of its operating expenses and ensure adequate return to the owners of the business i.e. shareholders. To judge whether the ratio is satisfactory or not, it should be compared with the firm’s past ratios or with the ratio of similar firms in the same industry or with the industry average. This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage.
Gross Profit Margin = EBIT
Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Gross Profit Margin(%)
EBIT (Rs. Crore) 187.19 220.78 278.92 385.79 589.11 2004-05 15.28% 2005-06 15.54%
Sales (Rs. Crore) 1224.5 1420.7 1824.68 2170.41 2976.93 2006-07 15.28%
GP Margin (%) 15.28706 15.54023 15.28597 17.77498 19.78918 2007-08 17.77% 2008-09 19.78%
Interpretation of GP ratio: ➢ GP ratio has shown an increasing trend which shows company’s profitability condition is well also company’s operating efficiency is also satisfactory. ➢ In years 2007-08 and 2008-09 there is more than 2% & 4%increase in GP ratio respectively as compared to that of year 2005-06, which indicates that company is operating at an efficient pace. This is because both sales and operating profit have increased in these years. Suggestions ➢ Company should maintain this pace of selling finished goods so that it can fetch desired rate of operating profit. ➢ Moreover company should make efforts to reduce its variable costs in order to earn more profit margins in near future.
2) Net Profit Margin: This ratio is calculated by dividing net profit by sales. It is expressed as a percentage.
This ratio is indicative of the firm’s ability to leave a margin of reasonable compensation to the owners for providing capital, after meeting the cost of production, operating charges and the cost of borrowed funds.
Net Profit Margin = PAT
Years 2004-05 2005-06 2006-07 2007-08 2008-09 Years Net Profit Margin (%) PAT (Rs Crore) 89.25 109.21 135.18 167.73 188.37 2004-05 7.29% 2005-06 7.69% Sales (Rs Crore) 1224.5 1420.7 1824.68 2170.41 2976.93 2006-07 7.40% NP Margin (%) 7.288689 7.687056 7.408422 7.728033 6.32766 2007-08 7.73% 2008-09 6.33%
Interpretation of NP Ratio: ➢ Company’s NP ratio trend has shown an increasing during the years 2004-05 to 2005-06. But after that it has shown a decreasing trend from year 2006-07 to 2008-09. ➢ This reduction in the ratio is also due to making more cost of goods sold, as company’s other charges are reduced as compare to previous year but ratio has reduced. This doesn’t sounds profitable. Suggestion: ➢ So company must purchase the material as and when needed so as to reduce cost of goods sold. And company also needs to exercise control over its unnecessary administrative and office expenses. ➢ If company is not able to control its cost of goods sold it will damage its profitability position which reduce investor’s confidence.
3) Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE). This ratio measures the relationship between net profit and capital employed. It indicates how efficiently the long-term funds of owners and creditors are being used.
Rate of return on Capital Employed = EBIDTA
Years 2004-05 2005-06 2006-07 2007-08 2008-09 EBIDTA (Rs Crore) 244.75 301.26 410.96 547.75 822.61 Total Assets (Rs Crore) 2246.33 3317.81 4795.95 7887.79 9159.58 200708 6.94% ROCE (%) 10.89555 9.080086 8.568897 6.944277 8.98087
Interpretation of return on capital Employed: ➢ In year 2004 -05 return on capital employed is highest i.e. 10.89% in these five years and in year 2007-08 this return is minimum i.e. about 7% but again in year this ratio has increased to almost 9% which may be termed as quiet satisfactory.
4) Return on Shareholders’ equity
This ratio measures the relationship of profits to owner’s funds. Shareholders fall into two groups i.e. preference shareholders and equity shareholders.
Return on Shareholders’ equity = PAT
Years 2004-05 2005-06 2006-07 2007-08 2008-09 PAT (Rs Crore) 89.25 109.21 135.18 167.73 188.37 Net worth (Rs Crore) 598.07 807.53 1024.44 1431.34 1755.06 ROE (%) 14.923 13.52396 13.1955 11.71839 10.73297
Interpretation of Return on Equity:
ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of the most important relationships in financial analysis. The earning a satisfactory return is most desirable objective of the business. ➢ Here company is having highest return on equity i.e. of almost 15% in the year 2004 -05 ➢ While in concluding years this ratio has shown a decreasing trend and has reached to 10.73% in the year 2008-09.
➢ This ratio is of great concern to present as well as prospective shareholders as company is able to generate at least 10% on its net worth.
5) Earnings per Share years EPS 2004-05 7.25 2005-06 6.68 2006-07 9.7 2007-08 11.4 2008-09 9.64
Chart 15 Earning Per Share
12 10 EPS (Rs) 8 6 4 2 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09
11.4 9.7 7.25 6.68 9.64
Interpretation of EPS EPS calculation is made over years indicate whether or not the firm’s earning power on pershare basis has changed over that period. The EPS of the Company simply shows the profitability of the firm on a per-share basis, it does not reflect how much dividend and how much is the retained earnings in the business. In the year 2007-08 EPS is highest i.e. 11.4 Rs per share, but in year 2008-09 it is less than even 10 Rs. Per share.
Chapter Six Conclusion and Suggestion
Company needs to invest more in its current assets if it fails to do so then in near future company’s CL may increase over CA and short term liquidity position might be in threatening condition and it may struggle to meet its current obligations. Company needs to keep more liquid asset in form of cash as cash is considered to the most liquid asset. Company needs to exercise control over its investment in inventories as inventories are considered to less liquid as compared to BR and other readily convertible or marketable securities. If company fails to do so then it may not be able to meet its current obligation. Company needs to improve its debt position by reducing debt in its capital mix, otherwise it may led to creditors’ pressures and constraints on managements independent functioning and energies. If company fails to reduce its debt, it may get entangled in a Debt Trap.
It’s high time for company to think about its indebtedness. Company needs to reduce its debt capital in order to sound financially strong. Otherwise, company may suffer great strains, it may even fail to pay interest charges of creditors, as a result their pressure and control may further tightened. Company needs to review its portfolio regarding use of debt in its capital mix. The company should make efforts to improve the operational efficiency, or to retire debt to have a comfortable coverage ratio, by analysing the variability of the company’s cash flows over time Failure of reducing investment in sluggish inventories doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off. Company should investigate and find out slow moving or absolute stock and take appropriate steps to write-off them as soon as possible otherwise this will adversely affect working capital and liquidity position of the company Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off Company should improve its collection policy by improving credit terms and policy. More sales promotion activities should be carried out t increase sales at this given level of assets. On the other hand it necessary to check whether assets are properly valued i.e. whether undervalued or overvalued because valuation of assets is very important. Company should make efforts to reduce its variable costs in order to earn more profit margins in near future. So company must purchase the material as and when needed so as to reduce cost of goods sold. And company also needs to exercise control over its unnecessary administrative and office expenses. If company is not able to control its cost of goods sold it will damage its profitability position which reduce investor’s confidence.
Financial Management- By I M Pandey, Ninth Edition, Part 5, Chapter 25, Pg. no 518-541.
Annual Reports of Alok industries ltd., years-2001-02, 2005-06 & 2008-09.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.