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SUMMER TRAINING PROJECT REPORT

ON

FINANCIAL STATEMENT ANALYSIS


OF

LAKSHMI PRECISION SCREWS LTD.


SUBMITTED IN PARTIAL FULFILLMENT FOR
THE MASTER’S DEGREE IN
BUSINESS ADMINISTRATION

SUBMITTED BY:-
MONIKA GUPTA
ROLL NO. 231
MBA 3RD SEM.

VAISH INSTITUTE OF MANAGEMENT $


TECHNOLOGY
MAHARSHI DAYANAND UNIVERSITY
ROHTAK
AUGUST 2009
DECLARATION

I Monika gupta, Roll no. 231 student of M.B.A. (2 years) III rd


semester vaish Institute of Management $ technology here by Declare
that the summer training report titled “Financial Statement Analysis” of “
Lakshmi Precision Screws Ltd. ” is a record of critical & independent
work carried out by me under supervision & guidance of Mr. SHRI
NIWAS BANSAL. This has not been previously submitted for the award
of any other diploma, degree or other similar title.

ACKNOWLEDGEMENT
It is my proud privilege to put on record my gratitude to all those who
have been the source of guidance, cooperation & help during my
summer training at LAKSHMI PRECISION SCREWS LTD.

An undertaking of study like this is never the outcome of the efforts of


a single person. My project is not an exception to this. It was not
possible to accomplish it without the help of others. I would hereby take
the opportunity to express my indebtedness to people who have helped
me to accomplish this task.

I wish to express my deep sense of gratitude to my guide Mr. SHRI


NIWAS BANSAL for the keen interest, inspiring guidance, continuous
encouragement, valuable suggestions & constructive criticism
throughout the pursuance of his report.

Further words of thanks are expressed to all other staff members


without hose help it would not have been possible to collect information
& data. I am beholding to my parents for their blessing &
encouragement.
PREFACE
Practical training constitutes an integral part of management studies.
Training gives an opportunity to the students to expose themselves to
the industrial environment, which is quit different from the classroom
teachings. One cannot rely on theoretical knowledge. It has to be
coupled with practical to be fruitful. Training also enables the
management students to see themselves the working condition under
which they have to work in the future. It thus enables the students to
undergone those experiences, which will help them later when they join
any organization.

After liberalization the Indian economic sense is changed. Industrial


activity in India has become a thing to watch & I really wanted to be a
part of it &it is essential for me being a finance student.

I underwent eight weeks of training at LAKSHMI PRECISION


SCREWS LTD. I consider myself lucky to get my summer training in
such a big Company. It really helped me to get a practical insight into
actual business environment & provide me an opportunity to make my
financial management concepts more clear.

MONIKA GUPTA

Table of Contents
Declaration

Preface

Acknowledgement

Chapters

1. Project Formulation
2. Research Methodology
3. Analysis & Findings
4. Conclusion & Recommendations

Annexure
CHAPTER -1
Project Formulation
• Significance of Problem
• Review of Existing Literature
• Conceptualization & Operationalization
• Objectives of the Study
• Limitation of the Study
• Organization of Study
Significance of the Study

The significance of this study lies in the thing that it reveals some of
the hidden information from the accounts of the LPS Ltd. and also it
contains the Recommendations which if taken into considerations by the
management could prove useful for the company.

Apart from the organization point of view this study is also significant
for me as it gives me a chance to under and the corporate environment
& increases my analytical abilities to draw references.

Review of the Existing Literature

To go before the analysis of LPS Ltd. It was necessary to go through


the existing literature of finance as well as other analytical studies which
could prove useful for me.

So lot of books, and reports already prepared were consulted for this
purpose and adequate help is taken from them to do this study.

Conceptualization and Operationalization

Financial statement analysis is the study of a company’s financial


statement from various viewpoints. The analysis of financial statements
reveals the nature of relationship between income and expenditure, and
the sources and application of funds. The investor determines the
financial position and the progress of the company through analysis.
Following type of analysis can be done for this purpose:-

• Comparative financial statements


• Trend analysis
• Common-size statements
• Fund flow statements
• Cash flow statements
• Ratio analysis

But for the purpose of my study I have taken the meaning of financial
analysis by the following :-

• Comparative financial statements


• Common-size statements
• Cash flow statements
• Ratio analysis

Objectives
• The main objective of the study was to analyze the financial
statements prepared by LPS Ltd and also to understand and
analyze the cash flow statement.
• Another objective was to identify the deficiencies or the weak
points of the company, if found during the analysis phase.
• And then finally to draw conclusion and make recommendations
for the company so that corrective actions should be taken to
improve the position of the company.
• Limitations
• Access to some information was denied by the company
officials that affected the findings to some extent.
• The sample size was limited over just four years, which may not
be fully representative of the universe. A large sample size could
not be taken due to time & cost constraints.
• Some accounts are manipulated so that the financial statements
may disclose a more favorable position than the actual position.
• Company provides only secondary data so certain type of bias
is in study.
• Lack of experience in this field may have incorporated some
shortfalls.
• The greatest limitation of the study was the time constraint,
limited to 8 weeks which hinders the progress of study.
• Audited accounts for the year ending 2005-2006 were not
available. There may be some changes in financial statements
after the accounts are audited.

Organization of the Study

In order to attain the objectives, study has been organized in four


chapters :

Chapter 1 is related to the introduction of study. It tells about the


significance, review of literature, objectives, conceptualization,
limitations & focus of the study.

The next chapter i.e. Chapter 2 includes research methodology –


universe of the study, survey population, research design,sample size &
the detailed profile of LPS ltd.

Analysis & findings are included in Chapter 3 which comprises ratio


analysis, comparative statements, common size statements & cash flow
statement analysis.

The last chapter includes (summary) conclusion & recommendations


on the basis of study conduced. It is the end part of the study.
Chapter – 2
• Research Methodology
• Organizational Profile

Research Methodology
The procedure adopted for conducting the research requires a lot of
attention as it has direct bearing on accuracy, reliability and adequacy of
results obtained. It is due to this reason that the research methodology,
which I used at the time of conducting the research, needs to be
elaborated upon. Research methodology is a way to systematically
study & solve the research problems. If a researcher wants to claim his
study as a goods study, he must clearly state the methodology adopted
in conducting the research so that it may be judged by the reader
whether the methodology of work done is sound or not.

Research problem here was to analyze the financial data of LPS Ltd.
to come out with some underlying facts behind the financial statements
of the company.

Research Design : The research design implemented in this research


is descriptive in nature, as it seeks to discover facts, ideas, insight & to
bring out new relationship among the data items already existing.
Research design is Hexble enough to provide opportunity for
considering different aspects of problems under study. It helps in
bringing into focus some inherent study can be conducted by the mgt.

Sample Universe:

Of the study is LPS Ltd

Sample Population: is the financial statement of LPS Ltd.

Sample: taken for the purpose of my study is the financial statements of


last 4 years.

Information Collection:

For the purpose of analysis I have gone for the secondary


information. As this is the base of the study so the data which is reliable
has been taken. And also annual reports of the company & information
through internet is taken.

The data collected in the aforesaid manner have been tabulated in


condensed form to draw the meaningful results, then different
techniques are use to analyze the data.

COMPANY PROFILE
2009
BRIEF INTRODUCTION OF COMPANY

LPS Limited was promoted by Late Sh. Bimal Prasad Jain. LPS was
incorporated as a Pvt. Limited Company on 27th Dec., 1968. It was
converted into a Public Limited Company in August 1971. At present it
is operating as LPS Limited.

LPS Plant-II is another step forward in progress of the company.


The company has started with only one machine 3/8’’ Bolt Maker. Now it
has wide range of machine producing a wide range of products. Today
the company is the leading manufacturer of High Tensile Fasteners in
India. The Quality of the product is well accepted in the market so
demand is growing very fast and to meet the demands and expand its
production range the company is adding more production facilities.

Besides LPS the other leading companies are Sundram Fasteners of


TVC group, Un-Brako and Guest Keen Williams. Recently Pandatogon
Screws and Fasteners Limited have also been introduced.

The installed capacity at present is about 18,996 M.Tons and annual


turnover of the company is 207crores approximately. The number of
employee are more than 2000 which only 20 at the time of installation.

Company has covered 23500 sq. yards. The screws, nuts and bolts
range from 3mm to 24mm in diameter. The products are marked under
name and style of LPS.

BOARD OF DIRECTORS
L.K. Jain Chairman & Managing Director

D.K. Jain Vice Chairman & Managing Director


V.K. Jain Whole Time Director
R.K. Jain Director
Sushila Devi Jain Director
J.R. Desai Director
B.S. Aggarwal Director
K.N. Rattan Director
R. Krishnakumar Director (ICICI Nominee)
Ajay K. Chakraborty Director

MANAGEMENT TEAM
S.K. Jain
Gagan Jain

Gautam Jain

Amit Jain

Niklesh Jain

B. B. Chhabra

R. K. Aggarwal
S. P. Arya

Sanjay Narula

R. P. Khanna

R.K. Rawat
Pardeep Dhawan

Sanjeev Sharma
DGM (FINANCE) & COMPANY SECRETARY
S.N. Grover
AUDITORS
V.R. Bansal $ Associates
Chartered Accountants
Noida.
OUTLINE

1. Name of the Company : Lakshmi Precision Screws Ltd.

2. Founded on : March 10, 1972

3. Head Office & Factory : 46/1, Mile Stone

Rohtak - 124 001

Haryana (India)

4. Chairman & Managing Director : Lalit Kumar Jain

5. Total Assets : 1860 Mill. INR (March’ 2008)

7. Annual Sales : 2071 Mill. INR (March’ 2008)

8. Employees

Production Office QC R&D Others Total


372 90 48 60 54 624
55% 14% 8% 10% 9% 100%

9. Factory

(Unit : m x m)

SECTION PLANTS TOTAL


PLANT I PLANT II
w.e.f. 1972-73 1993-94
LAND 19,000 44,000 63,000
BUILDING 16,000 23,000 39,000

COMPANY ORGANISATION
Board of Directors

Chairman & Managing Director

Quality Management

Corporate Strategy

Marketing R&D Planning Production QA General

D S D L C P P P PP F H E
E A E A E R L L LU I R D
V L V B N O A A AR N D P
E E E O T D N N NC A
L S L R R U N T TH N
O O A A C I A C
P P T L T N I II S E
M M O I E
G
E E R O
N N Y N
T T
CHRONOLOGICAL HISTORY
OF LPS
1959. Established Nav Bharat Industries as small
parts
manufacturer.
1972 Established Lakshmi Precision Screws Pvt
Ltd as

Socket Head Screws


1973 Technical tie-up with the German firm M/s
Richard Bergner.
1977 Acknowledged quality source of fastener.
1978 Technical tie-up with M/s Richard Bergner expires.
1983 Secured self certification status from FORD.
1984 Declared Public Limited Company.
1986 Secured self certification status from M/s
Lakshmi Machine Works.
1988 Established as manufacturer-exporter.
1991 Received Regional Export Award from
Engineering Export Promotion Council, (EEPC)
India.
1992 Received Regional Export Award from
EEPC for the second Consecutive year.
1993 Received Regional Export Award from
EEPC for the third consecutive year.
History (Contd.)

1993 Established Plant - II.


1994 Received Employment Generation Award
from Director of Industries, Haryana State.
1995 Accredited in Mechanical & Chemical
Testing by A2LA, USA to meet Fastener Quality
Act of US.
1995 Accredited in Mechanical
Measurement, Mechanical & Chemical
Testing by National Accreditation Board for
Calibration & Testing
Laboratories (NABL). Government of India.
1996 Certified to ISO-9002.

1998. Installed Bolt Maker (AF 2525) to add


production capacity
to 12200 MT.
 Self Certification status from TELCO.
 Technical Tie-up with Sunil Machinery
Corporation, Korea.
 Joint Venture with Bossard AG-Switzerland.
1999. Licenced Manufacturers of TORX Screw
from Camcar Co. –USA.

2000. QS 9000 Certification.

2001 ISO/TS-16949 Certification.


 ISO-14001 Certification.

2002 Implemented ERP–SAP R/3.


- Golden Peacock Award.
2003 Approved Volvo Global Suppliers.

MAIN PRODUCTS
Division Products
Precision Cold Forming parts for Automobile
Engine Parts ( Con Rod, Cylinder Studs,

Counter Weights, Cylinder Head, Rocker Arm,


Engine Mounting, Main Bearing etc.)
Bolts & Nuts Chasis Parts (Wheel Bolts, Wheel Hub Bolts &
Nuts, Axle Bolts/Pin, Flanged Bolts, Collar Bolt,
for Shock Absorber Mounting Pins etc.)

Automobiles
Washer Assemblies Bolts
The other critical & safety parts bolts
Construction parts (Friction Grip)
Bolts & Nuts for Agriculture Industry
FASTENERS Bolts & Nuts for Industrial Machinery
Cold formed parts for Automobile (Piston Pins, Switch Body, Ball
Joints, Gear Blanks, Rocket Shaft, Ball Pins, Plunger etc.)
Pins for Hydraulics & Pumps
Bolt for Refrigeration Compressor
Friction Grip Bolts & Nuts for Construction Industry
Socket Head Cap Screw
Low Head Socket Bolt
Shoulder Bolt
Button Head
CSK
Standard Set Screws

Fasteners Hex Wrench Keys


Hex Head Bolt
Dovel Pin
Nuts
Friction Grip Bolts
Track Shoe Bolts
Stainless Steel Hex Head
Stainless Steel Socket Head Cap Screws

VISION 2010
“Make LPS a ‘Most Sought After’ Brand”.
Achieve Rs.500 Crores in Sales
Become a Deming Organization
Improve EBIDTA to 25%
Expand Manufacturing to 2 more locations
CORE VALUES :
Customer Obsession
Continuous Improvement
Respect for people

MISSION OF LPS

• To be a growth-oriented professional company


promoting high standards of business ethics and
producing best quality products thereby achieving
international standards of excellence.
• To establish a strong R & D facility to fulfill the
demands of the automotive industry as
comprehensively as possible.
• To make each member of the company feel proud and
empowered by fostering a culture of participation and
innovation.
• To strive for reduction in defects and achieve 6 sigma
and beyond so as to make quality a way of life in LPS.
• To reduce cycle time in all processes as a step towards
over-all improvement.
• To provide prompt and excellent service to customers
anywhere in the world.
• To maximize shareholder’s wealth.
QUALITY SYSTEMS
Lakshmi Precision Screws Ltd is committed
to produce Quality High Tensile Precision
Fasteners. The most important criterion of
Quality is the satisfaction of customer, both
National & International.
Each lot that moves out of our production
facilities undergoes mechanical, Chemical
and metallurgical inspection at over 20
inspection nodes, beginning from raw
material receipt to packaging.
A2LA, USA and NABL, India have accredited
LPS test facilities. We are certified ISO-9002,
QS-9000, ISO-14001 & TS-16949 company.
The ‘Advanced Product Quality (APQP),
Production Part Approval Process (PPAP)
and Failure Mode Effect Analysis (FMEA)
have already been implemented. Strict on-
line visual SPC techniques to monitor product
quality on a real time basis have also been
incorporated.
'LPS' is equipped with state of the art
Laboratory and Standard Room. Some of the
major equipments we have are:
• Optical Emission Spectroscope : For
ascertaining chemical composition of Raw
Material. Metallographic examination
involving Microstructure, Inclusion rating.
• Image Analyser : Grain size, Decarb,
Microstructure, Inclusion, Thread life etc
along with statistical analysis.
Decarburisation, Gram size, Thread laps etc.
along with statistical analysis.
• Fisheroscope (X-ray analysis) : For
ascertaining coating thickness by x-ray
method and material analysis by spectrum
needless to mention the other equipment, we
have i.e. Metallurgical Microscope, Magna
Hardness Tester, Major flux testing, Universal
Tensile Testing M/c, Hydrogen De-
embrittlement Testing, Torque testing etc.
Eddy current testing, Rockwell cum
superficial hardness Tester, Stereo
Microscope & salt spray testing.
• Mahr's Perthometre Concept : For
measurement of any type of contour
(Including threads and surface toughness).
• 'NIKON' measuring microscope : For all
complex geometry measurement to a high
precision with image transfer provision.
To ensure the best quality, we source raw
materials, like wires and wire rods, from the
best steel plants in South East Asia. With the
latest advances in machinery automation,
LPS has in-house capability to carry out all
the operations for fasteners manufacturing.
Cold forging with multi-station boltmakers of
National, USA, Sakamura, Japan and Asahi
Sunac. LPS is equipped with sixth generation
machines where rolling can be done after
heat treatment to ensure perfect lap free
threading. Machining is done with CNC
machines to form intricate shapes for specific
applications. Continuous heat treatment
improves product quality and the finish of the
product is detemined by applications
specifications. All under the eagle eyes of an
experienced quality assurance team.
ENGINEERING
Our dedicated team of engineers identify the
most suitable material to enhance the quality
of fastening and ensure greater protection
against corrosion or loosening of fasteners
under stringent applications.
A case in point : LPS simultaneous
engineering capability has proved a boon to
New Holland. After studying product design
issues, our engineers customizes a fastening
solution to meet their application need. LPS
has, indeed achieved benchmark status in
time-to market for new specials.

RESEARCH & DEVELOPMENT


To clearly understand our process
capabilities and the customers requirements,
our team gives a new product at the rate of
one per day.
An integrated engineering team and high
technology engineering inputs have been
instrumental in producing world-class
fasteners. The fasteners you can rely on.
Because LPS fasteners has always set itself
the highest standards. Standards it keeps to
every inch of the way. To name a few our
team has successfully developed critical
components for customers like John Deere,
Ford, Daewoo, Carraro, Volvo, Honda
Motorcycle & Scooter, Honda Siel,
Matsushita, New Holland Tractors and most of
the other automotive multinational joint
ventures in India.
In the domestic market we have achieved a
long standing business relationship with all
the major players like Telco, Bajaj Auto,
Maruti-Suzuki, Escorts Yamaha, Hero-Honda ,
ISRO, BHEL, LML, Micro-Bosch, TVS Suzuki
etc.
We are also equipped with latest in-house
designing capabilities like :
Tie-up with a company from Germany and
developed a special software "SIMULATION",
in order to improve tool life.

JOINT VENTURES
LPS-Bossard Pvt. Ltd. is a joint venture
company of LPS and Bossard. AG of
Switzerland. This venture gives state of the
art fastening solution/ technology to
customer in India. The latest inventory
management technique through logistic
support is also provided by this company.
Recoil Business Division of 'LPS'
This division of LPS is sole master distributor
of fastening solutions from Alcoa Fastening
Systems, USA. Alcoa This company ensures
global consistency of quality design
standards in manufacturing wire thread,
Inserts, STI Taps, Thread Repair Kits etc.
Textron Inc. U.S.A.
'LPS' has entered into a licensing agreement
with Textron Inc, USA for manufacturing and
marketing 'Torx®' brand of proprietary
products. Textron is 10 billion USD multi-
specialty company, with 1.8 billion USD as
revenue from fastening division.
Torx® drive systems improve assembly line
productivity thereby reducing cost
MAJOR CLIENTS
Heavy Commercial Vehicles

Light Commercial Vehicles

Tractors

Cars
Two Wheelers

Earthmoving Equipment

Textile Machinery

Machine Tools

Hydraulic Equipment

Heavy Electrical Equipment

Refrigeration / Air Cond.

Others

Chapter – 3
Analysis And Findings
Meaning of financial statements
Analysis of financial Data of LPS Ltd.
Comparative Statements
Common size Statement
Cash Flow Statement
Ratio Analysis

FINANCIAL ANALYSIS
Finance is defined as the provision of money at the time when it is required.

The role of finance in business enterprises needs no emphasis. Every

Enterprises whether big or small needs to carry on and expand its operations.

Finance holds the key to all the business activities and a company services,

Infect, its survival is depend on how efficiently it is able to acquire and

Utilize there funds.

MEANING OF FINANCIAL STATEMENT

Financial statement refers to such statements, which contain financial

Information about enterprises. These statements are a collection of data

Presented on the basis of logical and consistent accounting principles. They

report the profitability and financial position of the business at end of

accounting period. The term financial statement includes at least two

statements, which the accountant prepares at the end of an accounting period.


The two statements are:-
• The statement of financial position or balance sheet
• Income statement and profit & loss account

CHARACTERSTICS OF FINANCIAL STATEMENT

• Reliability
• Comparability
• Easily understandable
• Relevant to purpose
• Consistency
• Promptness
• Compliance with legal requirements

PURPOSE OF ANALYSIS OF FINANCIAL STATEMENT

• To know the earning capacity or profitability.


• To know the solvency position.
• To make comparative study with other firms.
• To know the trend of business.
• To provide useful information to the management.
• To know the efficiency of management.
• To know the financial strength of organization.
• To know the capability of payment of interest & dividend.

LIMITATIONS OF FINANCIAL ANALYSIS

• Limitations of financial statements.


• Affected by window- dressing.
• Do not reflect changes in price level.
• Different accounting policies.
• Effect of personal ability & bias of the analyst
• Difficulty in forecasting.
• Lack of qualitative analysis.
• Limited use of single year’s analysis of financial statements.

SIGNIFICANCE OF ANALYSIS OF FINANCIAL STATEMENTS

Various parties are interested in the financial statements of the business due

to various reasons. By analyzing the financial statements each party can


ascertain whether his interest is safe or not.

The significance of the financial statement analysis for different parties is as


follows:-

• Significance for management

Management is always interested to know the solvency, profitability

& the capital structure of the enterprises. They want to make short that

the business must be insolvent position to pay the debts as and when

they fall due.

• Significance for investors

With the help of financial analysis investors and shareholders of the

business. With the help of financial analysis they make comparisons

between the dividend paid by the company and the market value of

shares.

• Significance for creditor

With the help of financial analysis to know whether the company will

have sufficient current assets & cash to pay their debts or not.

Whether the company will be able to pay the interest consistently.

• Significance for government

On the basis of analysis of financial statements government can judge,

which industry is processing on the desired lines and which industry

needs the financial help.

• Significance for employees

Analysis of financial statements helps the employees in determining

the true profits of the business enterprises. On the basis they can
ascertain as to how much bonus & increase in their wages is possible

from the profit of the company.

• Significance for financial institutions

All the financial institutions which provide finance to the industries

want to know the profit earning capacity of the business & its long

term solvency. They want to access not only the present position of

the business enterprise but also its likely position in the future.

Analysis of financial statements helps them in ascertaining this.

• Significance for researcher

Analysis of financial statement of a company is of much importance

to a researcher who is conducting research in respect of the

profitability, efficiency, financial soundness & future growth potential

of that company.

ANALYSIS OF FINANCIAL
STATEMENT
Financial statements present a mass of complex data in absolute terms and

reveal about the liquidity, profitability and solvency of the business.

Financial analysis is the process of identifying the financial strength and

weakness of the business by establishing the relationship between the profit

and loss account & balance sheet. Actually the figure given in financial
statements do not speak anything themselves. The process of giving tongue

to these mute heaps of figures is known as financial analysis. The term

“financial statement analysis” includes both analysis and interpretation of

financial statements. The term analysis means to select the data given in the

financial statements in order to present in a simplified manner. On the other

hand interpretation explaining the meaning and drawing of data so

simplified. However both analysis and interpretation are inter linked and

complementary to each other because analysis is useless without

interpretation while interpretation is impossible without analysis. Thus, the

term analysis is used to cover both analysis and


interpretation.

COMPARATIVE FINANCIAL
STATEMENTS
When financial statements figure for two or more years are placed side-by-

side to facilitate comparisons, these are called comparative financial

statements. Such statements not only show the absolute figures of various

years but also provide for columns to indicate the increase or decrease in

these figures from one year to another. In addition, these statements may

also show the change from one year to another in percentage form. Such

comparative statements are of great value in forming the opinion the

progress of enterprise.
IMPORTANCE OF COMPARATIVE STATEMENT
• To make the data simpler and more understandable.
• To indicate the strong points and weak points of the firm.
• To indicate the trend.
• To compare the firm’s performance with the average performance of the
industry.
• To help the management in forecasting the profitability and financial

Soundness of the business.

LIMITATIONS OF COMPARATIVE STATEMENT


• These statements do not present the change in various items in relation to
various assets, total liabilities or net sales.

• These statements are not useful in comparing the financial statements

Of to or more business because there is no common base for

Comparison.

Various types of financial statements are prepared in comparative form

For the purpose of analysis. Out of these the most important financial

Statements are:

1. COMPERATIVE BALANCE SHEET

2. COMPARATIVE PROFIT & LOSS ACCOUNT

COMPARATIVE BALANCE SHEET


The comparative balance sheet as on two or more dates can be prepared to

Show the increase or decrease in various assets, liabilities & capital. Such a
Comparative balance sheet is useful in studying the trends in business

Enterprises.

Particulars as on 31st march as on 31st march Increase/ % Increase/


2009(Rs) 2008(Rs) Decrease over Decrease over 2008
2008(Rs)

SOURCES OF
FUNDS:
A. Shareholders'
fund
Share Capital 109416670 109416670 0 0
Reserves & Surplus 702763197 640930298 61832899 8.79

TOTAL (A) 812179867 750346968 61832899 7.61

B. Loan funds
Secured Loans 1013165757 646382561 366783193 36.2
Unsecured Loans 80788070 40807011 39981059 49.4

TOTAL (B) 1093953827 687189572 406764255 37.2

C. Deferred Tax 24861745 19756519 5105226 20.53


Liabilities (Net)

TOTAL (A+B+C) 1930995439 1457293059 473702380 24.50

APPLICATIONS OF
FUNDS
A. Fixed Assets
Gross Block 1232340039 1076319572 156020467 12.6
less: Depreciation 718647794 634387452 84260342 11.7
Net Block 513692245 441932120 71760125 13.9
Add: Capital Work in 26090174 826717 25263457 96.8
Progress

TOTAL (A) 539782419 442758837 97023582 17.9

B. Investments 42236580 41361580 875000 2.07

C. Current Assets Loans &Advances


Inventories 1160949153 992640743 168308410 14.5
Sundry Debtors 577401593 399605167 177796426 30.8
Cash & Bank 104460761 49663819 54796247 52.5
Balances
Other Current Assets 3707885 413807 3294078 88.9
Loans & Advances 162008036 117716337 44291699 27.3
2008527428 1560039873 448487555 22.3
Less: Current liabilities & Provisions
Current Liabilities 606448827 519511707 86937120 14.3
Provisions 56046844 72062166 (16015322) (28.6)
662495671 591573873 70921798 10.7

TOTAL ( C ) 1346031757 968466000 377565757 28.1

D.MisceIIaneous 2944683 4706642 (1761959) (59.8)


Expenditure

TOTAL (A+B+C+D) 1930995439 1457293059 473702380 24.5

Comments Comparative B & S

o Current assets have increased by 22.3% whereas current


liabilities by 10.7%. Which reflects the policy of the co. is to
purchase current assets from short term sources of finance.
o Reserve & surplus has increased by 8.79% due to increase
in current year profits by 31.58% which shows increase in
profitability. This year investment are increase by 2.07%
o Overall liquidity position is not much satisfactory as al liquid
assets are increasing while cash is increasing by 52.5%
over the previous year.
o An increase in inventory by 14.5% may increase working
capital but it will not be good for the business as become
more money is in inventory.
COMPARATIVE PROFIT & LOSS
ACCOUNT
Profit & loss A/c shows the net and loss of a particular year whereas

comparative profit & loss a/c for a number of a number of years provides the

following information:-

• Rate of increase or decrease in sales.

• Rate of increase or decrease in cost of good sold.

• Rate of increase or decrease in operating profit.

• Rate of increase or decrease in gross profit.

• Rate of increase or decrease in net profit.

PARTICULARS As on 31st March As on 31st March Net Increase / Decrease % Increase /


2009(Rs) 2008(Rs) over 2008(Rs) Decrease over
2008

A. INCOME
Sales 2070161481 1934209608 135951873 6.57
Job Work Receipts 896690 1433953 (537263) (59.9)
Other Income 35722340 17239550 18482790 51.7
Deferred Tax Liability 0 5716029 5716029
Written Back
2106780511 1958599140 148181371 7.03
B. EXPENDITURE
Materials & Finished 782790261 703008396 79781865 10.19
Goods
Manufacturing 453189913 508370762 55180849 (12.18)
Personnel 305977039 252345754 53631285 17.53
Office &Administration 128662294 114713258 13949036 10.84
Selling & Distribution 94127990 84136507 9991483 10.61
Interest & Financial 117325714 83924902 33400812 28.47
Charges
Managerial 15837200 11836800 4000400 25.26
Remuneration

Depreciation 85334527 80415367 4919160 5.76


Total 1983244938 1838751746 144493192 7.28
Profits Before Tax 123535573 119847394 3688179 2.98
Provision For Tax
Expenses:
Wealth tax 185400 95000 90400 48.76
Income Tax 46155830 50570581 (4414751) (9.56)
Profit for the After 77194343 69181813 8012530 10.37
Tax

Appropriations:
Transfer To General 2000000 5200000 (3200000) (160)
Reserve
Proposed Dividend 13130000 19695001 (6565001) (50)
Corporate Dividend 2231444 3347165 (1115721) (49.9)
Tax
Total 17361444 28242166 (10880722) (62.6)
Net Profits for the 59832899 40939647 18893252 31.58
Year

Comments Comparative P& L A/c

o Sale has been increased by 6.57%


o Manufacturing expenses has decreased by 12.18 % large
than proportion of sales.
o Selling expenses has been increased by 10.61%
o Net Profit Margins are improving by 10.37%

CASH FLOW STATEMENT


A Cash Flow Statement is a statement showing inflows & outflows cash during
a particular period. A Cash Flow Statement summarizes the causes of changes
in cash position between dates of two Balance Sheets. It indicates the sources
and uses of cash. This Statement analyses changes in non current accounts to
determine the flow of cash.

Description Year ending Year ending

31.03.09 31.03.08
A . Cash flow from operating activities
Net Profit after tax 93549390 89435514
Adjustment for
Tax 56644900 55117554

Net Profit before tax and extraordinary items 150194290 144553068


Adjustment for
Depreciation 91952829 85732920
Deferred payment interest and Technical know 2062459 3491904
how fee written off
Rent and Interest received (Gross) (4612333) (3513996)
Income Tax Refund 0 (98112)
Dividend Income 0 (4704038)
Interest and Financial charges 119839237 85631625
Miscellaneous expenses written off 6327 6329
Provision for Bad and Doubtful Debts 104380 8977582
Profit/Loss on sale of assets 527328 668581
Operating Profit before working capital changes 360074517 320745863
Adjustments for :
Trade payables 39304065 21375904
Trade and other receivables (218760517) (88757108)
Inventories (171438055) (161938534)
Cash generated from operations 9180010 91426125
Interest and financial charges (119029452) (85635650)
Direct Taxes (16395308) 3508737
Net Cash from operating activities (126244750) 9299212

B. Cash flow from investing activities

Purchase of Fixed Assets (193813546) (169888941)


Proceeds from sale of fixed assets 1008777 434127
Purchase of investment (1777928) (1265877)
Rent and interest received (Net of TDS) 3287910 2888285
Dividend income 0 4704038
Income Tax Refund 0 98112
Deferred payment interest and technical know (300500) (856596)
how fee provided during the year
Net cash used in investing activities (191595287) (163886852)

C. Cash flow from financing activities


Proceeds from issue of Share Capital (Inc. Share 0 93078000
Premium)
Right issue expenses 0 (175057)
Proceeds from short term borrowings 278728558 20665775
Repayment of short term borrowing (21220029) (1369281)
Proceeds from long term borrowings 229867728 136046633
Repayment of long term borrowings (80248391) (127196626)
Proceeds from Directors and others 0 188634
Repayment to Directors and others (22548114) (22317970)
Dividend paid .(100.32) .(80.63)
Total 384579752 98920108

D. Net increase in cash and cash equivalents (A+B+C) 66739715 (55667532)

Cash & Cash equivalents (Opening Balance) 49302020 (104969552)


Cash & Cash equivalents (Closing Balance) 116041735 49302020

o Cash flow from operating activities have been increased


due to depreciation net profit and trade payables
o Cash flow from investing activities has been decreasing do
to purchase of fixed assets and investment.
o Cash flow from financing activities is improving because the
company issues right share and raises long term loan.
RATIO ANALYSIS
Ratio analysis is a widely used tool of financial analysis. It is defined as the

systematic use of ratio to interpret the financial statement so that the strength

& the weakness of a firm as well as historical performance & current

financial condition can be determined. The term ratio refers to the numerical

Or quantitative relationship between two variables.

USES OF RATIO ANALYSIS

o Helpful in analysis of financial statement.

o Simplification of accounting data.

o Helpful in comparative study.

o Helpful in locating the weak spots of the business.

o Helpful in forecasting.

o Estimate about the trends of the business.

o Fixation of ideal standards.


o Effective control.

o Study of financial soundness.

CLASSIFICATION OF RATIOS

• Liquidity Ratios

 Current ratio
 Quick ratio

• Leverage or Capital Structure Ratio

 Debt- Equity ratio

 Debt to total fund ratio

 Proprietary ratio

 Fixed asset to proprietor fund ratio

 Interest Coverage Ratio


• Profitability ratio

 Gross profit ratio

 Net profit ratio

• Activity ratio

 Stock turnover ratio

 Debtor turnover ratio

 Fixed asset turnover ratio

 Working capital turnover ratio

 Creditor turnover ratio

LIQUIDITY RATIOS
The liquidity ratios are the ability of the firm to meet

its current obligation and reflect short – term financial strength of a firm.

The liquidity ratios are:


• Current ratio

• Quick ratio

Current Ratio
This ratio explains the relationship between the current assets and current

Liabilities. The higher ratio, the better it is, because the firm will be able to

Pay its current liabilities more easily. But much higher ratio, even it is

Beneficial to creditors, is not necessarily good for company. It may indicate

the poor management policy.


PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

CURRENT ASSETS 1163300174 1343485583 1560039873 2008527428


CURRENT LIABILITIES 409821776 512620198 591573873 662495671
CURRENT RATIO 2.84 2.62 2.64 3.03

Quick ratio
Quick ratio indicates whether the company is in position to pay its current

liabilities with in a month or immediately. The quick ratio is a more rigorous

and penetrating test of the liquidity position of the firm.

LIQUIDITY RATIO = LIQUID ASSETS/

CURRENT LIABILITIES
LIQUID ASSETS = CURRENT ASSETS –
INVENTORIES

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

QUICK ASSETS 475393260 507493996 544247963 649245757


CURRNT LIABILITIES 409821776 512620198 591573873 662495671
QUICK RATIO 1.16 .99 .94 .98

LEVERAGE OR CAPITAL
STRUCTURE RATIO
This ratio indicates the ability of a company to pay the interest regularly as
well as repay the principal when due.

The leverage or capital structure ratios are:

• Debt equity ratio

• Debt to total fund ratio

• Proprietary ratio

• Fixed assets to Proprietor’s fund ratio

Debt equity ratio


These ratios express the relationship between the long - term tax and

shareholders funds. It indicates the proportion of funds, which are acquired


by long – term borrowing in comparison to shareholder funds.

DEBT – EQUITY RATIO = LONG TERM LOANS

SHARE HOLDER’S FUNDS

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

DEBT 707315611 619335155 687189572 1093953827


EQUITY 377502093 611304379 750346968 812179867
DEBT EQUITY RATIO 1.87 1.01 .91 1.35

Debt to total fund ratio


This ratio indicates the ability of a firm to pay its long – term debts. In this
ratio, debt is expressed in relation to total funds.

DEBT TO TOTAL FUND RATIO = LONG TERM LOANS

SHARE HOLDERS FUNDS

+ LONG TERM LOANS

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

DEBT 707315611 619335155 687189572 1093953827


TOTAL FUND 1084817704 1230639534 1437536540 1906133694
DEBT TO TOTAL FUND RATIO 0.65 0.5 0.47 0.57

Equity

3. Proprietary Ratio =

Total Assets

2006 2007 2008 2009


Equity 377502093 611304379 750346968 812179867
Total Assets 1515089009 1761390329 2044160290 2590546427
Proprietary Ratio 0.25 0.347 0.37 0.31

Net Profits before Interest & Income tax

4. Interest Coverage Ratio =

Fixed Interest Charges

2006 2007 2008 2009


EBIT 133982653 161913827 203772296 240861287
F.I. Charges 67419751 71809019 83924902 117325714
ICR 1.99 2.25 2.43 2.13

Fixed Assets

5. Fixed Assets to Proprietors’ =

Proprietary funds

2006 2007 2008 2009


Fixed Assets 313427255 376543167 442758837 539782419
Prop. Funds 377502093 611304379 750346968 812179867
Fixed Asset to Prop. Funds 0.83 0.62 0.59 0.66

Activity Ratios
Net Sales

1. Inventory Turnover Ratios =

Inventory

2006 2007 2008 2009


Net Sales 1380687644 1667513770 1934209608 2070161481
Inventory 686863367 832858713 992640743 1160949153
ITR (times) 2.01 2.00 1.95 1.78
Turnover

2. Debtors Turnover Ratio =

Debtors

2006 2007 2008 2009


Turnover 1380687644 1667513770 1934209608 2070161481
Debtors 336848256 369048925 399605167 577401593
DTR (Times) 4.19 4.52 4.84 3.58

No. of working Days

3. Average Collection Period =

Debtors Turnover Ratio

2006 2007 2008 2009


No. of working Days 365 365 365 365
Debtors Turnover Ratio 4.19 4.52 4.84 3.58
ACP (Days) 87 81.5 75 102

Purchases

4. Creditors Turnover Ratio =

Creditors

2006 2007 2008 2009


Purchases 448995669 621300911 657502521 672408511
Creditors 55188419 42940352 58021254 44768335
CTR (Times) 8.14 9.81 11.3 15.01

No. of working Days

5. Average Payment Period =

Creditors Turnover Ratio


2006 2007 2008 2009
No. of working days 365 365 365 365
Creditors Turnover Ratio 8.14 9.81 11.3 15.01
Average Payment Period 44.84 37.21 32.30 24.32

Turnover

6. Fixed Asset Turnover Ratio =

Fixed Assets

2006 2007 2008 2009


Turnover 1380687644 1667513770 1934209608 2070161481
Fixed Assets 313427255 376543167 442758837 539782419
Fixed AssetsTurnover Ratio 4.41 4.43 4.37 3.84

Net Sales

7. Working Capital Turnover Ratio =

Working Capital

2006 2007 2008 2009


Net Sales 1380687644 1667513770 1934209608 2070161481
Working Capital 753478398 830865384 968466000 1346031757
Working Capital Turnover 1.83 2.01 1.99 1.54
Ratio

Turnover

8. Capital Turnover Ratio =

Capital Employed

2006 2007 2008 2009


Turnover 1380687644 1667513770 1934209608 2070161481
Capital Employed 1112692489 1256112082 1457293059 1930995439
Capital Employed Invest 1.24 1.33 1.33 1.12
Profitability Ratios
Net Profits

1. Net Profit Ratio = × 100

Net Sales

2006 2007 2008 2009


Net Profit 40309975 52317541 69181813 77194343
Net Sales 1380687644 1667513770 1934209608 2070161481
Net Profit Ratios 2.92 3.14 3.58 3.73

Interpretation
1. Current Ratio : Generally a current ratio of 2 : 1 is
considered satisfactory. In earlier years ratio was much
higher i.e. 3.64 : 1 but now there is improvement in current
ratio as it is decreasing over the years & shows good policy.
2. Quick Ratio : 1 : 1 satisfactory.

1. Debt Equity Ratio : Ideal ratio is 2:1 in earlier years it


shows a risky financial position as ratio is more than 2 : 1. it
shows a decreasing trend now situation is satisfactory as it
is less than 2 : 1 thus co. has enough funds to pay its long
term loans
2. Debt to Total funds Ratio: Long term loans are .67 : 1
satisfactory.

It means debt capital should not be more than 67% of total


capital. It indicates that long term financial position of the
co. is sound, as the long term loans of co. according to
acceptable standard should not be more than 67% of total
fund of the co.

3. Proprietary Ratio: Ratio is not satisfactory for the co. it


needs to be improved as it is not good from shareholders of
view.
4. Interest coverage Ratio : Indicates how many times the
interest charges are covered by the profits available to pay
interest charges. It is satisfactory ratio is continuously
improving.
5. Fixed Assets to Proprietor’s Ratio : (for industrial
undertakings 60-65% satisfactory ) Indicates the extent to
which shareholder’s funds are sunk into the fixed assets.
Here the ratio is less than 100% implies that owner’s funds
are more than total fixed assets & a part of WC is provided
by shareholders. In 2009, it is satisfactory.

Activity Ratio :

1. Inventory Turnover Ratio: Measures the velocity of


conversion of stock in to sales. ITR is decreasing over the
years (due to increase in inventory is more than increase in
sale) But in 2009 ITR has increased as increase in sales is
nearly twice the inc. in inventory.
2. Debtors Turnover Ratio : Ratio is continuously improving.
It shows debtor are managed by company in efficient
manner this is why debt collection period has been reduced
from 99 days to 81 days.
3. Creditors Turnover Ratio : It is satisfactory & average
payment period has been decreased from 159 to141 days.
It is improving over the years.
4. Fixed Assets Turnover : This ratio reveals how efficiently
the fixed assets are being utilized. Increase in ratio over the
years indicate the better utilization of fixed assets.
5. Working Capital Turnover Ratio: Reveals how efficiently
working capital turnover ratio has been utilized in making
sales. Increase in ratio over the years indicate the better
utilization of working capital.

Profitability Ratios :

2. Net Profit Ratio : Measures the rate of net profit earned on


sales. An increase in the ratio over the previous years
shows improvement. But margins needs to be improved
further.
3. Operating Profit Ratio : Operating Ratio is improving &
operating margins are goods.
4. Return on Capital Employed : Company is utilizing its
capital in better way because profit as percentage of capital
employ is increasing over the years.
5. Return on Equity Capital : Return of shareholder’s fund
have no clear cut trend, all in all it is ok.
Chapter – 4
• Conclusion
• Suggestions

Conclusion
• Liquidity position of the company is good as its current ratio and
quick ratio for the year 2009 are 3.03:1 and .98:1 respectively
which meets the standard.
• Solvency position of the company is also satisfactory.
• Debtors are converted very quickly. Average collection period of
the company is very good as it is decreasing over the years.
• Fixed assets are utilized efficiently as fixed asset turnover ratio is
increasing.
• Overall cash flow position of the company is not satisfactory as
both opening and closing cash balances are in negative. And
reasons for the same have been explained in the preceding
chapter.
• Net sales and profits of the company have increased by 6.37%
and 31.58% respectively mainly due to increase in job work
receipts.
• Overall financial position of the company is good. There is need to
improve the working capital management only.
• As company is diluting its share capital by issuing right shares so
if company is not being able to increase the earning in that case
EPS will be decreased.

Suggestions
• Since the competition is increasing the company must come up
with new cost saving techniques to reduce the cost and further
increase the profit margin.
• The old machinery which need constant repair should be replaced
with the new one as it would decrease the cost further.
• In future company should not dilute the share capital further.
• Company should increase its operating margins so that debt can
be paid easily.