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1 INTRODUCTION TO THE TOPIC Asset management may be defined as a comprehensive and structured approach to the long term management of assets as tools for the efficient and effective delivery of community benefits. The emphasis is on the assets being a means to an end, not an end in them." The World Road Association (PIARC) has adopted an asset management, definition of
"A systematic process of effectively maintaining,
upgrading and operating assets, combining engineering principles with sound business practice and economic rationale, and providing the tools to facilitate a more organized and flexible approach to making decisions necessary to achieve the return's expectations." The main streams in asset management are: • Identification of need for the asset, in the light of community requirements. • Provision of the asset, including its ongoing maintenance and rehabilitation to suit continuing needs operation of the asset. • Disposal of the asset when the need no longer exists or it is no longer appropriate for the asset to be retained. This is been analyzed and the essential of periodic study of assets necessity is been discussed in this study.
1.2 INDUSTRY PROFILE The automotive industry designs, develops, manufactures, markets, and sells the world's motor vehicles. In 2008, more than 70 million motor vehicles, including cars and commercial vehicles were produced worldwide. In 2007, a total of 71.9 million new automobiles were sold worldwide: 22.9 million in Europe, 21.4 million in Asia-Pacific, 19.4 million in USA and Canada, 4.4 million in Latin America, 2.4 million in the Middle East and 1.4 million in Africa. The markets in North America and Japan were stagnant, while those in South America and other parts of Asia grew strongly. Of the major markets, Russia, Brazil, India and China saw the most rapid growth. About 250 million vehicles are in use in the United States. Around the world, there were about 806 million cars and light trucks on the road in 2007; they burn over 260 billion gallons of gasoline and diesel fuel yearly. The numbers are increasing rapidly, especially in China and India. In the opinion of some, urban transport systems based around the car have proved unsustainable, consuming excessive energy, affecting the health of populations, and delivering a declining level of service despite increasing investments. Many of these negative impacts fall disproportionately on those social groups who are also least likely to own and drive cars. The sustainable transport movement focuses on solutions to these problems.
In 2008, with rapidly rising oil prices, industries such as the automotive industry are experiencing a combination of pricing pressures from raw material costs and changes in consumer buying habits. The industry is also facing increasing external competition from the public transport sector, as consumers re-evaluate their private vehicle usage. Roughly half of the US's fifty-one light vehicle plants are projected to permanently close in the coming years, with the loss of another 200,000 jobs in the sector, on top of the 560,000 jobs lost this decade. Combined with robust growth in China, in 2009, this resulted in China becoming the largest automobile producer and market in the world. IN INDIA An embryonic automotive industry started in India in the 1940s. However, for the next 50 years, the growth of the industry was hobbled by the Socialist policies and the bureaucratic hurdles. Following economic liberalization in India from 1991, and the gradual easing of restrictions on industry, India has seen a dynamic 17% annual growth in automobile production and 30% annual growth in exports of automotive components and automobiles. India produces around 2 Million automobiles currently. The Largest companies in India are TATA and Mahindra & Mahindra. Total turnover of the Indian automobile industry is expected to grow from USD 34 Billion in 2006 to USD 122 Billion in 2016. Tata Motors has just launched Tata Nano, the cheapest car in the world at USD 2200. Recently India has overtaken China in global auto exports of compact car this year. Suzuki Motor Corp, Hyundai Motor Co, and Nissan Motor Co are making India a manufacturing hub of minicabs.
The popularity and relatively high profit margins of these vehicles had encouraged the American "Big Three" automakers. sales began to slide. The Big Three faced criticism for their lineups. but it was primarily felt in the American automobile manufacturing industry. By 2008. Europe. which were seen to be irresponsible in light of rising fuel prices. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement. Major manufacturers.AUTOMOTIVE INDUSTRY CRISIS The Automotive Industry crisis of 2008–2009 was a part of a global financial downturn. Car companies from Asia. and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. the situation had turned critical as the credit crunch placed pressure on the prices of raw materials. including the Big Three and Toyota offered substantial discounts across their lineups. and Chrysler to make them their primary focus. North 4 . General Motors. With few fuel-efficient models to offer to consumers. North America. The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy. The crises affected European and Asian automobile manufacturers. Ford.
5 . triggered largely by the economic liberalization and with global automobile players setting up manufacturing facilities in India. Tata Motors conducted a widespread marketing campaign heralding the debut of the Tata Nano. however. The other driver for expansion of the Indian auto-component industry has been the increasing volume of exports. However. Billed as "the people's car." foreign cars manufactured or assembled in the United States. at lower cost than true imports. many of the vehicles perceived to be foreign were actually "transplants. The size of the industry has.American consumers turned to higher-quality and more fuel-efficient product of Japanese and European automakers. the State Bank of India reduced interest rates on automotive loans in February 2009. Major global automobile manufacturers/Tier-1 suppliers are already sourcing auto components from India for their global requirements. For the first few months of 2009. CRISIS IN INDIA Citing falling production numbers." the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis GAINING PROSPECTS OF INDUSTRY Indian auto.component industry is relatively small by global standards with some individual global auto component companies having sales far in excess of that of the Indian auto component industry as a whole. increased in the last decade with the rapid growth in Indian automobile production.
Rane Brake Lining Ltd supply asbestos and asbestos free brake linings to most of the passenger and commercial vehicles manufactures. Total productivity management (TPM). by some of the companies including Rane Brake Lining Ltd. disc pads. Japanese concepts and best practices such as Total Quality management (TQM)..The competitive edge Indian auto-component manufacturers enjoy which could enable them become global players are: Cost effective manufacturing technology and a penetrative High levels of quality and productivity achieved by embracing strategy. financial and accounting systems in place in the country. railway blocks and clutch facings and emerged itself as a global player in this competitive auto-mobile industry for past several years. 6 . Legal. and Lean Production system etc.
Rane Brake Lining Limited has considered ‘improving the asset productivity’ as one of the key success factors to achieve their goals as specified in Strategic Business Plan (SBP). 2.1 TITLE OF THE PROJECT: “A STUDY ON ASSET PRODUCTIVITY TO FIND RETURN ON INVESTMENT UNDERTAKEN AT ASHOKLEYLAND LIMITED.2 NEED FOR THE STUDY: It is known fact that success of every organization depends upon its effective utilization of its available resources and deriving the optimum output. CHENNAI”. utilization factor and Pareto study for improving selected machineries studied to achieve the targeted asset productivity. Fixed Assets are not only costly resources to manufacturing concerns but also prone to obsolete unless they have monitored effectively. ENOORE. Assets true value can be 7 .2. which is being prepared for a period of 5 years. It’s necessary to have a periodic maintenance & verification and have a track over it. various processes such as physical verification. In this regard.
which would be useful to know return on investments. 8 .assessed by this study. Chennai. To analyze the assets productivity capacity for past years To suggest measures to utilize the available assets in an effective manner. To evaluate critical and costly assets performance and utilization of various assets. Secondary objectives: To physically verify availability of the assets as per asset register. 2.3 OBJECTIVES OF THE STUDY: Primary objective: To measure the overall return on investment of assets in Rane Brake Lining Limited.
evaluation of usefulness of existing assets and utilization is the first and foremost process to derive a way forward and plan of action to achieve the desired results.4 SCOPE OF THE STUDY: Company’s one of the Strategic Business Objective is to improve its assets productivity. It enables to evaluate the financial strength over its investment made on assets. Physical verification of assets would be useful in considering about assets based finance acquiring for extending its business in future years.2. It would suggest elimination of unwanted machineries and scrap out idle assets. Assessing real worth of assets would enable to judge the repaying capacity of Rane Brake Lining Limited. 9 . In the process of generating the details and completing the said exercise. Physical verification of assets enables the management to know exact value of assets available for productivity purpose. In this regard. It helps management to track over existing assets and to evaluate its performance and contribution to organization profit. The study of physical assets verification would help management to trace assets productivity. Each Plant has assigned the task of analyzing the assets on cost wise (Pareto analysis) and utilization factor to be assigned to the same.
It cannot be done so easily. Even if it is started in an easiest manner it’s too difficult to strive in this competitive world. REVIEW OF THE LITERATURE 4. There by we can know the urge of manufacturing sectors importance towards knowing their assets productivity and its contribution towards revenue. depreciation and assets productivity.2 FIXED ASSET MEANING: 10 . With the utilization of limited resources it has to optimize both companies’ growth as well as its revenue maximization. It in brief reveals how fixed assets play a dominant role in increase the productivity and the impact of having assets verification in a manufacturing concern. it needs continuous development plans and good control over its resources.4. Thus this review of literature is revolved on the topic of knowing what are assets. A man knowing his full potentiality and a manager knowing his companies resources full potentiality are said to be successful ones and nothing can oppose them. 4.1 INTRODUCTION We obviously know that each and every sector of business is commenced with a hard strive. The importance of having such sound track over existing assets and its performance is been analyzed in this review of literature.
An accounting perspective. a car. accounts receivable. assets are divided into the following categories: current assets (cash and other liquid items).1 FIXED ASSET DEFINITION IN REAL TERMS OF BUSINESS FIXED ASSET An asset not readily convertible to cash that is used in the normal course of business. buildings. real estate.2. A firm whose total assets are made up primarily of fixed assets is in a less liquid financial position. Examples are cash. plant & equipment). By accepting that the life of a fixed asset is limited. assets are equal to the sum of liabilities. thus entailing greater risk of a big tumble in profits if its revenues fall. and fixtures. Examples of fixed assets include machinery. prepaid and deferred assets (expenditures for future costs such as insurance. office equipment.Any item of economic value owned by an individual or corporation. common stock. For example. 4. The benefits that a business obtains from a fixed asset extend over several years. preferred stock. whereas a company-owned motor car used by a salesman probably has a shorter useful life. goodwill). inventory. copyrights. On a balance sheet. a company may use the same piece of production machinery for many years. and other property. patents. long-term assets (real estate. rent. and interest) and intangible assets (trademarks. especially that which could be converted to cash. securities. the accounts of a business need to recognize the benefits of the fixed asset as it is "consumed" 11 . and retained earnings.
This typically means they can either be sold or used by the company to make products or provide services that can be sold. Liabilities are amounts of money that a company owes to others. or taxes owed to the government. Liabilities also include obligations to provide goods or services to customers in the future. This can include all kinds of obligations. investment. 4. And cash itself is an asset. or balance sheet items. trucks. like money borrowed from a bank to launch a new product. such as trademarks and patents. It also includes things that can’t be touched but nevertheless exist and have value.2 ASSET VALUATION MEANING It is the process of determining the current worth of a portfolio or companies. and valuation economics. So are investments a company makes. financial statement analysis. fundamental analysis.over several years. Asset in view of financial statements Assets are things that a company owns that have value. Assets include physical property. The tools used for asset valuation include quantitative methods and statistics. ratio analysis. This consumption of a fixed asset is referred to as depreciation. 12 . environmental cleanup costs.2. rent for use of a building. such as plants. payroll a company owes to its employees. equipment and inventory. money owed to suppliers for materials.
This leftover money belongs to the shareholders. It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities. and equipment" for the most 13 . now calls fixed assets "property. of the company. Fixed assets are those assets used to operate the business but that are not available for sale. equipment. Noncurrent assets are things a company does not expect to convert to cash within one year or that would take longer than one year to sell. A good example is inventory. Most companies expect to sell their inventory for cash within one year. The following formula summarizes what a balance sheet shows: ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY A company's assets have to equal. or the owners. Noncurrent assets include fixed assets.Shareholders’ equity is sometimes called capital or net worth. Contemporary accounting literature. and land. office furniture and other property. such as trucks. The term "fixed assets" reflects the traditional notion that these kinds of assets are fixed and do not require much consideration after they are purchased. however. Current assets are things a company expects to convert to cash within one year. Brief View about Fixed Assets Fixed assets refer to physical or tangible things of value a company owns such as facilities." the sum of its liabilities and shareholders' equity Assets are generally listed based on how quickly they will be converted into cash. or "balance. plant.
The measure of efficiency involves the calculation of these ratios: • Fixed asset acquisition to total assets • Repairs and maintenance to fixed assets • Repairs and maintenance to sales • Sales to fixed assets • Net income to fixed assets To present the state of or the changes in various plant and equipment assets.part. plant. use. is essential for high productivity and efficiency. In addition. Companies rely on their assets. and hence for profits. and temporary discontinuances. as well as the costs of replacing old assets to determine the output levels. Asset analysis examines the age and condition of each major asset category. These statements include the dispositions of company property. A decrease in operational efficiency and productivity results from the improper or inadequate maintenance of malfunctioning and inefficient assets as well as from the failure to replace obsolete and irreparable assets. accountants often prepare financial statements and schedules that plot out this information. and useful life of fixed assets. downtime. Modern equipment in good repair. fixed asset analysis determines if fixed assets are sufficiently maintained to ensure current and future earning power as well as the relative profitability contributed by fixed assets and fixed asset acquisitions. to generate profits. and equipment as well as the acquisitions and divestitures of 14 . Fixed asset analysis involves calculating the earnings potential. for example. including fixed assets.
sell. Armed with this information. In preparation of these reports. Technology companies in particular benefit from examining this information. plant. In addition. Companies using specialized equipment—such as those manufacturing specialized or trendy items—especially need to keep track of their fixed asset to avoid obsolescence.fixed assets. or otherwise use or dispose of fixed assets with low usage. 4. Such reports enable efficient comparison and help managers identify underused assets.3 VALUATION OF FIXED ASSETS 15 . and equipment. Controlling fixed assets allows companies to avoid losses associated with misused and misplaced assets as well as with deterioration. fixed asset analysis enables companies to maximize the use of property. accountants generally determine the age and condition of the major fixed assets and the replacement cost of them. Companies benefit from fixed asset analysis by taking control of their fixed assets and maintaining their condition in order to ensure proper operation. Accountants also compute the different ratios listed above and compare them with the industry averages to see how their companies use their fixed assets in relation to their competitors. managers can decide whether to reallocate. accountants make note of assets that are no longer being used as well as those that are not productive. In addition. Fixed asset analysis also may involve having accountants determine the hours or mileage of usage for various assets and produce reports that indicate hours of usage per month for buildings and equipment and the mileage of usage per month for vehicles.
buildings. It is money and other valuables belonging to an individual or business. For example. 4.4. buildings. Examples of intangible assets are goodwill. The balance sheet of a firm records the monetary value of the assets owned by the firm.2 DEFINITION: According to Accounting Standard-10 “Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. furniture and fittings. In many enterprises these assets are grouped into various categories. It is a claim on the property your income of a borrower.” In other words fixed assets are held by an enterprise for the purpose of producing goods or rendering services.3. patents or licenses can be fixed assets of a business. while fixed assets include such items as buildings and equipment.3. plant and machinery. trademarks. Current assets include inventory. copyrights. Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Assets are everything of value that is owned by a person or company. The two major asset classes are tangible assets and intangible assets: Tangible assets contain various subclasses. 16 . as opposed to being held for resale in the normal course of business. machines. vehicles. such as land. including current assets and fixed assets.1 INTRODUCTION: In Business and Accounting. Financial statements disclose certain information relating to fixed assets.
bonds and stocks. Thus valuation of all physical assets comprises of verification of all physical assets and having a separate register of its existence and real worth of it and providing right amount as depreciation to it and evaluating its efficiency and contribution towards making revenue to the organization. and financial assets. reducing capital investment. At present. 17 . This view focuses squarely on the fixed asset base and directs a lens towards creating shareholder value by improving the productivity of that fixed base while avoiding significant new capital investment. increasing productivity without additional investment.patents and computer programs. including such items as accounts receivable. which is the key role of conducting verification of assets and which leads to know the return on investments made on assets. 4. industry leaders are looking at the economic earnings model in a new perspective that is asset productivity. Greater productivity and asset effectiveness ultimately drives a sustainable competitive advantage by increasing revenue and profit.4 ASSET PRODUCTIVITY The objective of making physical verification of assets is to know the asset productivity. the asset productivity model seeks to utilize existing assets to their maximum capacity. In contrast to a capital project approach which rewards efficient capital spending through completed projects and increased capital investment. and achieving operational excellence.
and positions the capital infrastructure to compete. capacity growth. 4. The result is higher economic earnings and growth in shareholder value 2. Research shows that the best performers know how to measure and sustain asset productivity by depending on resources other than new capital as the enabler of operational excellence.The new asset productivity perspective of the economic earnings model enables top line growth. and adaptability to market conditions. adapt. Enables Profitable Growth: Asset productivity drives profitability by optimizing productivity. minimizes costs. This shift in mindset can have a significantly positive impact on shareholder value and economic value creation. and win. Creates Shareholder Value: The asset productivity methodology emphasizes improvements with minimal capital and enables precise evaluation of return on investment through an analytically-derived metric. Increased asset productivity enables operational excellence that drives a sustainable competitive advantage in both growing and mature market sectors 3.5 ASSET PRODUCTIVITY/ PERFORMANCE OFFERING TO ORGANIZATION: 1. Supports Capital Allocation Strategies: Companies make better capital allocation decisions when they employ metrics to identify opportunities for: 18 .
which can then be leveraged to increase revenue.5. Results 19 . It also monitors the impact of an asset productivity program which extracts the most value from the existing asset base. Drives Cost Leadership: Asset productivity improvements yield significant increases in capacity. or competitive conditions — in addition to its value creation role in capital preservation and optimization. and acceptance. throughput. Asset productivity stands at the intersection of peak efficiency. engineering. This value extraction enables companies to achieve the highest sustainable throughput rate at the lowest possible cost. planning. and reduce capital. The OAE formula combines utilization. 2) Re-Deploying under-performing assets. and 3) eliminating surplus or poorly performing assets 4. quality assurance. These indicators are then used to diagnose root-cause issues of underperforming assets. operations.1) Utilizing the most effective assets.1 OPERATING ASSET EFFECTIVENESS Operating Asset Effectiveness (OAE) is the comprehensive metric that determines asset utilization improvement. market. How asset productivity can be measured? An asset productivity program collects and analyzes key data across several functions. and maintenance. optimal productivity and high quality assurance 4. The overall OAE metric is a very powerful analytical microscope into an organization’s operational health and its ability to adapt to various business. decrease unit cost. including output volume.
A systematic enhancement of operations. A cross-industry asset productivity methodology can be tailored to a company’s specific operating environment and business conditions. The methodology will also address the existing cultural attitudes. Root-cause analysis to drive operational and strategic adjustments for peak productivity and capacity 5. but also a strong culture and change 20 . and behaviors that are the foundation of a successful. Industry-specific expertise and functional skills 3. and process capability 2. A train and do approach that fosters successful process adoption across client organizations It enables company to infuse asset productivity into their unique corporate cultures. This transformation not only requires asset effectiveness expertise. equipment performance. This approach would effectively institutionalize fundamentals and enforces their execution through tracking key performance metrics and management procedures. Asset productivity methodology also offers: 1. company-wide adoption of the new approach. values.The study delivers breakthrough improvement could be brought through program management to propel a successful asset productivity program. Clear evaluation methods and analytic process improvement models to determine asset performance benchmarks 4.
companies that embark on aggressive growth strategies often find their efficiency severely compromised. Companies that failed to turn around their asset productivity declines suffered subsequent declines in sales and income growth. However.2 ASSET PRODUCTIVITY TURNAROUND: THE GROWTH/EFFICIENCY CHALLENGE Growth and productivity have been linked together as the path to increasing profitability. fixed assets. takeover attempts were more likely to occur during or immediately after the period of asset productivity decline. and occasionally other tangible assets. Similar analyses may also be done not just 21 . This research examined companies whose asset productivity declined severely during periods of aggressive growth. A successful turnaround companies has decreased their long-term debt ratios as they continued to expand. solid end-user training.5. Resources can include accounts receivable. These ratios typically look at sales generated per unit of resource. Although the firms in this study did not publicly acknowledge the presence of decline. Contrary to conventional turnaround wisdom. and performance measurement. 4.6 ASSET PRODUCTIVITY RATIOS FOR INVESTMENT ANALYSIS Asset productivity ratios describe how effectively business assets are deployed. 4. asset pruning and debt reduction did not accompany asset productivity turnarounds.management methodology. inventory.
Depreciation refers to the decreasing potential of fixed assets to generate revenues over their useful life. depreciation involves accountants spreading the total cost of fixed assets out over their useful life. 4. In addition.1 DEPRECIATION Depreciation is a key concept accountant’s use when analyzing fixed assets and the examination of depreciation helps to clarify the useful life of assets. Comparing a railroad to a software company probably doesn't make sense.6.7. number of employees. industry norms form the benchmark. all else being equal. 4. and airplane seat miles. Again.2 TOTAL ASSET TURNOVER Formulae Total asset turnover = sales / total asset We shall get a bigger picture of asset productivity as measured by the generation of sales to the total assets. the company that produces the most sales or revenue of fixed assets wins and has stability in the market. 4. 22 .1 FIXED ASSET TURNOVER Formulae Fixed asset turnover = sales / fixed asset Obviously.7 ASSETS ARE CLOSELY RELATED TO DEPRECIATION 4. resulting from deterioration and obsolescence.for financial assets but also for operational assets like square footage. For the first time. intangible assets are included.6.
Definition "Depreciation may be defined as the permanent decrease in the value of an asset due to use and/or the lapse of the time." -Terminology of Institute of Cost and Management Accountants, England "Depreciation is the permanent and continuous diminution in the quality, quantity or value of an asset." -Pickles "Depreciation may be defined as measure of the exhaustion of effective life of an asset from any cause during a given period." -Spicer and Pegler "Depreciation is' the gradual and permanent decrease in the value of an asset from any cause."-Carter Again, the comparison of the depreciation rate to the industry average will underscore the findings of the repairs and maintenance ratios. To determine the adequacy of the depreciation charge, the following can be done: • Calculating the trend in depreciation expenses to fixed assets. • Determining the trend in depreciation expenses to sales. • Comparing the book depreciation to tax depreciation. If the trends are declining, depreciation charges may be inadequate. If sales are decreasing as asset expenditures are increasing, the company may be over expanding and lifting its bottom line through large write-offs rather than operating margins. Unwarranted changes in the lives or salvage values of fixed assets will increase depreciation expenses, and thus overstate earnings. WHAT IS DEPRECIATION?
Depreciation is the permanent and continuing diminution in the quality, quantity or value of an asset. Depreciation Accounting deals with the allocation of costs of fixed assets over their useful lives. More simply, that part of cost of this asset which is being periodically (monthly) allocated as expense into the Income Statement to match the revenue the asset is generating. For example, when we buy fixed asset like factory machinery, this is merely an advance payment of which we expect that this fixed asset is able to enhance or earn certain earnings for the business. Over a period of time, the fixed asset we buy will become valueless or unable to generate the necessary earnings. To reflect this continuing diminution in the value of the factory machinery, we need to apply depreciation accounting. The reasons for depreciation are: Wear and tear [physical using up like corrosion, rot, rust and decay] Obsolescence [change of fashion or new substitutes or inventions] Fall in market price [foreign exchange, competition,] Effluxion of time [passage of time, fixed assets become less valuable] Physical factors [natural disasters like flood, earthquakes, excessive heat or cold] Inadequacy or superfluous [business operation increased hence fixed assets inadequate] 4.7.2 NEED TO PROVIDE FOR DEPRECIATON To ascertain the net earnings/profit for an accounting period, depreciation needs to be computed. Depreciation normally constitutes a major
part of the expenses of the business. As the business buys fixed assets, it expects the fixed assets over the useful lives are able to generate the necessary revenues for its business. Whilst revenues being earned and if there is no allocation of depreciation cost to match these revenue, income will then be overstated. Depreciation therefore follows very closely to the matching concept; The fixed assets in the Balance Sheet will be overstated if depreciation is not provided for. Only that part of the costs of fixed assets that have not expired should be reflected in the Balance sheet otherwise the financial statement will not reflect a true and fair view. If depreciation is not provided for and assuming if the whole profits were withdrawn during the life of the asset, additional capital would have to be raised when it is time to replace the fixed assets. By charging depreciation against profits, the ultimate residual profit available for distribution is lowered and that funds are retained in the business for future replacement. SALIENT POINTS TO BE CONSIDERED 1. The varying depreciation rates can mean a higher or lower depreciation charge to the Income Statement. Therefore, it is very important to estimate correctly the useful lives of the fixed assets. 2. It is interesting to note that in accounting fraud, management can accelerate the depreciation charges or understate them.
Sometimes. Whereas the former asset expires within one year of its acquisition. 26 . But the position is otherwise with a long-lived asset which wears out or depreciates over a long period. depreciation accounting is a must for every business: (1) Recovery of cost incurred on fixed assets over their useful life so as to keep owner's capital intact. In accounting. Depreciation is in reality based on a matching concept meaning that the charge out depreciation amount is to match with the revenue that are generated from deploying these fixed assets. Simply. though both produce revenues. on its nature.3. the depreciation charge/rate does not necessarily equal to the tax accounting treatment of depreciation. 4. the outlay of a fixed asset is spread over several years and annually only a fraction thereof expires. is charged against current revenues and the rest. is carried forward for future expiration. Hence almost entire expenditure on a short lived asset becomes an expense and is matched against current year's revenue. this fraction. is long lived asset. termed unexpired cost. An item acquired for immediate consumption or sale is a short-lived asset and that meant for prolonged use. they differ quite drastically as a result of certain tax concession given by the Inland Revenue. called expired cost or depreciation. Life span of an asset to a business rests primarily. the latter asset lasts longer. on the purpose of its acquisition and secondary. Accordingly. Objects of making provision for depreciation For attaining following objects.
With the raising of coal etc. At one time the asset will become unfit for repairs. when it will no longer be suitable. building. The causes of internal depreciation are: (1.2) Depletion-Some assets decline in value proportionate to the quantum of production. such decline depends upon quantum of use of an asset.(2) Provision is for replacement cost on the retirement of original assets (3) To include the depreciation in the cost of production to find out the correct cost of production. (4) To find out correct profit for the year (5) To find out the correct financial position through balance sheet. mines.g. machinery etc. plant. depreciation on plant and machinery will be doubled. (1. It is obvious that such loss is unavoidable. e.1) Wear and Tear. from coal 27 .An asset declines on account of continued use e. 4. but it can not be done so permanently.g. An asset may be kept in proper working conditions through repairs for the time being. quarry etc.7. If a factory works double-shift instead of single shift.3 CAUSES OF DEPRECIATION Depreciation may be of two types:Internal-depreciation External-depreciation (1) Internal-Depreciation which occurs for certain inherent normal causes is known as internal depreciation.
(2) External-Depreciation caused by some external reasons is called external depreciation. copy rights etc.g. earth quake. the total deposit reduces gradually and after some time it will be fully exhausted.3) Accidents Assets may be destroyed by abnormal reasons such as fire. The causes of external depreciation are: (2. For example old machine becomes obsolete with the invention of more economical and sophisticated machine. (2. Then its value will be nil. flood etc.1) Obsolescence Some assets. Need for Provision of Depreciation The need for provision for depreciation arises for the following reasons: 28 . In order to survive in the competitive market the manufacturer must install new machine replacing the old one. even though they are not used e. (2.mine. In such a case the destroyed asset may be written-off as loss and a new one purchased. may become obsolete. lease hold property. whose productive capacity is generally higher and cost of production is lesser.2) Passage of time Some assets diminish in value on account of sheer passage of time. patent rights. though in proper working order.
In such a case the required money is to be collected by introducing fresh capital or by obtaining loan by selling some other assets. (3) True Valuation of Assets-Value of assets gradually decreases on account of depreciation. depreciation must be considered in order to find out true profit/loss of a business. If depreciation is not taken into account. (4) Replacement of Assets-After some time an asset will be completely exhausted on account of use. necessary sum may not be available for buying the new assets. true profit/loss cannot be ascertained. So unless it is considered like all other expenses and losses. In other words. the cost of production would be shown less than the true cost. the value of asset will be shown in the books at a figure higher than its true value and hence the true financial position of the business will not be disclosed through Balance Sheet. (2) Ascertainment of true cost of production-Goods is produced with the help of plant and machinery which incurs depreciation in the process of production. So. This is contrary & sound commercial policy. if the cost of production is shown less by ignoring depreciation. 29 .(1) Ascertainment of true profit or loss-Depreciation is a loss. This depreciation must be considered as a part of the cost of production of goods. Otherwise. Sale price is normally fixed on the basis of cost of production. If the whole amount of profit is withdrawn from business each year without considering the loss on account of depreciation. the sale price will also be fixed at a low level resulting in loss to the business. A new asset then purchased requiring large sum of money.
1956 dividend cannot be declared without charging depreciation on fixed assets. but many companies still face the challenge of improving growth and achieving greater 30 . profit will be shown more.8 DIMENSIONS TOWARDS THE TOPIC OF STUDY: Asset management or study of asset productivity in the new economy “Profitability is no longer just about growing sales. During this time.(5) Keeping Capital' Intact-Capital invested in buying an asset. If the excess profit is withdrawn. manufacturers and maintenance departments have learned some valuable lessons about operational efficiency. the business will become weak and its profit earning capacity will also fall. this is the first significant economic setback they have experienced. gradually diminishes on account of depreciation.” . (6) Legal Restriction-According to Sec. 4. Thus in "Case of joint stock companies charging of depreciation is compulsory. If loss on account of depreciation is not considered in determining profit/ loss at the year end. The economy is slowly beginning to improve. the working capital will gradually reduce. The sudden shift from a boom economy to a recession has caused a dramatic change in the direction business leaders are driving their individual manufacturing facilities.Mike Laszkiewicz Not since the 1970s has the industry faced an economic challenge as we did during the past two years—and for many who joined the work force in the 1980s. 205 of the Companies Act.
31 . many companies are still facing the challenge of improving growth and achieving greater profitability with fewer human and capital assets. which began to feel the first effects of the economic downturn about thirty months ago. The past several years have not gone by.profitability with fewer human and capital assets. it looks like the end of the current economic downturn may be within sight. Businesses are driving out inefficiencies. it's also about organizational efficiency. However. Those who learn and adapt will survive—Lean Manufacturing Become proactive through asset optimization—Integrated Condition Monitoring Operational efficiency starts in the storeroom—Outsourcing Departments can no longer work autonomously—Enterprise Wide Integration From all indicators. however. the past several years have provided many companies act as good example for factors on achieving better operational efficiencies. and seeking to outsource noncore competencies whenever possible—being lean is the new goal. reducing and consolidating management layers. This is good news for the manufacturing industry. Fortunately. The survivors are the ones who have adapted to the new economic reality of the twenty-first century: profitability is no longer just about growing sales. Example #1 Many of the companies that flourished in the booming economy of the 1980s and 1990s no longer exist. without many vital lessons on achieving better operational efficiencies.
reliability centered maintenance. Leading edge maintenance departments are expanding programs like asset management. for example. In the area of maintenance. and operations (MRO) physical assets typically represent a company's single largest capital investment. and asset management is expanding to human assets within organizations as well. Untouchable areas within an organization are now undergoing scrutiny at the micro level for any reductions in fixed and variable costs—activity-by-activity and line-by-line—starting at the plant floor. The line is blurring. It is the job of maintenance and operations professionals to continually look for methods to get more out of production and understand how equipment on the factory floor is performing. there has been an increased emphasis on maximizing uptime by maintaining asset availability. however. while at the same time reducing repair parts and outsourcing repair and/or remanufacturing capabilities whenever possible.Many are undertaking full-scale process reviews aimed at finding ways to cut costs and improve processes. For some. millions of dollars in savings remain on the table. Because maintenance. this represents a major change in philosophy. For some. and condition-based 32 . repair. Example #2 Asset management is primarily about capital assets—the productive assets in which an organization has invested. it is no surprise that maintenance activities have never more directly tied to manufacturing and business performance.
advanced monitoring technology is capable of predicting when the oil is breaking down. or is the motor working beyond capacity? If it is the latter cause. Organizations that employ asset management strategies have reported 20% reductions in plant downtime and 30% reductions in maintenance budgets. For example.monitoring tools (such as vibration. oil and lubricant analysis. Is it simply a lack (or excess) of lubrication. 4. which can save time and money on maintenance. an investment and commitment needs to be made to not simply fix a problem but to also ferret out the root cause—going beyond knowing that the bearings in the motor need to be replaced to determining why it is happening. then breakdowns would inevitably begin to permeate the line. Fully optimized assets means knowing and achieving the full potential of your plant floor and performing maintenance only when warranted. In recent years. and thermographs) to monitor equipment health to reduce unexpected downtime. When we incorporate these predictive techniques on a plant wide basis. slashing maintenance expenses can easily happen. It may be breaking down later than initially thought. This strategy represents a significant shift in philosophy and resource allocation. instead of routinely changing oil on a piece of equipment at the same time every month.9 ASSET MANAGEMENT RESOURCES 33 . That is. maintenance has evolved beyond preventative activities into a system of predictive maintenance measures—asset optimization.
That’s probably why most businesses don’t have an accurate accounting of their fixed assets – costing billions of rupees each year in tax overpayment.2 BOTTOM-LINE RESULTS SERVICES Reduce personal property taxes for businesses .9.9. Asset Management or verification of assets can bring it all under control over it. cost-effectively and with absolute confidence. Whether the goal is personal property tax reduction for businesses.1 ASSET MANAGEMENT CORE RESULTS • Fixed asset tracking. Reduce risks and report with confidence about the real assets values and its productivity. featuring wall-to-wall fixed asset inventory and reconciliation (FAIR) • Calculate the personal property tax for businesses • Expert cost segregation and fixed asset consulting services to maximize exempt allowances and incorporate proper depreciation schedules 4. the fixed asset management services will get you there efficiently. Increase profitability and shareholder value – through improved asset inventory strategic decision support 34 . 4.most companies are paying too much at present. and inefficiency. or improving the accuracy and visibility of data in your information systems.For businesses from foundries to pharmaceuticals. regulatory non-compliance. tracking a complex fixed asset inventory isn’t simple without asset management resources.
and refurbishment and replacement policies. Asset management focuses on all aspects of managing 35 . When the company is interested in knowing how asset management works to benefit their companies. Asset management can be applied to helps the utilities to be addressed aging of various assets and distribution infrastructure. condition assessment and tracking.3 IMPACT OF ASSETS BEEN MANAGED OR VERIFIED Asset management includes of comprehensive inspection programs. Protecting business investments by ensuring data accuracy in corporate databases 4. but not so deteriorated that immediate replacement is obviously needed. it is very important to get to know how asset management really works. asset management explicitly recognizes that the utility's equipment exists to serve its customers and that all decisions regarding its use and care are made on the basis of business needs and profitability in performing the utility's mission. the available software designed to manage assets. life-extension technologies. For instance : Most electric utilities in North America have significant portions of their electrical infrastructure that are “aged” – composed mostly of equipment that has been in service so long that wear and tear have had an obvious effect. reliability and business risk challenges in an organized and orderly fashion.9. maintenance management. even the qualifications of certified asset management advisors. strategic planning and prioritization. the costs of utilizing asset management services. Applied correctly. This includes the services that asset management employs to handle assets.
including carefully considering which to procure. customer reliability.1 Asset Based Finance (ABF) ABF is a financing method that is driven by the assets of companies.aging assets well.10. from a far-reaching look at aging and its impacts on the T&D system. Short term financing (up to one year) Offered in forms like factoring or accounts receivable/inventory revolving loans. Knowing how much it costs to operate the company and comparing it to the profits and the existing assets make for balanced returns and even more commonly returns to the part of the companies. medium and long term funding needs. to the various means through which utilities can manage aging.10. It is very important to know that the asset lifecycle has four broad stages that asset management firms take into consideration. 4. such as plant and machinery.2 Asset Based Finance 36 . and fixed assets. 4. Planning and procurement. its costs and effects in an efficient manner. Managing the daily operations of assets enabling companies to maximize productivity is also an important feature of asset management. ABF allows an SME to utilize its own assets to meet its short.10 RELEVANCE OF STUDY IN PRESENT SCENARIO 4. ordering these and even receiving and testing these are salient features of asset management. and the utility’s bottom line. Assets include current assets. such as accounts receivables and inventory.
In many cases.Asset based lending or asset based financing refers to loans secured by a wide variety of assets. Although a stigma is still associated with using your assets to get cash.11. A company's access to asset-based financing often increases as its working capital needs increase because that's when assets are growing. 4. this type of financing is becoming more popular. Commercial finance is the term most commonly affiliated with the industry group of asset based lenders that provides all types of asset based loans to business and commercial borrowers. Asset based financing relies on the value of the underlying collateral to minimize the loan's credit risk. the only covenant focuses on the borrower's liquidity level.2 CONS 37 . In most cases. and small businesses have fueled much of its growth. and equipment) as collateral.11 THE PROS AND CONS OF ASSET-BASED FINANCING 4. The asset-based financial services industry has burgeoned in recent years. 4. Asset based lenders are sometimes referred to as secured lenders. current assets of the company (such as accounts receivable and/or inventory) or the fixed assets of a business (such as plant. Businesses can obtain asset based lending by using the liquid.1 Pros Covenants. Asset based loans also can include equipment loans and real estate mortgages. asset-based financing involves fewer and more flexible covenants than cash flow loans.11. property. Availability.
4. sale and lease back. Strong performance and high liquidity enable companies to negotiate more flexible reporting rules. borrowers must provide monthly or quarterly reports to show that they are meeting loan covenants. etc. In general." • Operating Lease . Accounts receivable/inventory financing: A revolving loan against the entire accounts receivable and inventory of a company. In most cases. but pricing depends on the borrower's creditworthiness. Cost. Medium term financing (one year to three years): Based on a company's existing plant and equipment that is free from encumbrances.1 Types of Asset Based Financing • Financial Lease ."Have a more profitable business" then "Increase the fixed assets the company" 38 . asset-based arrangements cost more than cash flow loans.Reporting. but fees on collateralized loans have increased in some cases. interest rate spreads between asset-based and cash flow-based loans have remained steady."Keep the benefits for the possession and usage of the leased assets without having credit debts in company balance account" • Secured Loan . Can be in the form of hire purchase. Long term financing (three to seven years): A term loan based on the real estate of the company."Increase company’s productive capacity acquiring fixed assets and / or recover liquidity with a lower need of having additional guarantees.12 ASSET BASED FINANCING 4. leasing. In recent years.12.
4 --ADVANTAGES AND DISADVANTAGES OF ABF The main advantage of asset-based financing is that small companies can usually get more cash more quickly than they could from a traditional bank 39 . imbalances of treasury and obtain the resources to acquire raw material for the production" 4. mainly for the integration of working capital" • Inventory Secured Facilities.3 BENEFITS FROM ASSET-BASED LENDING: Companies can experience rapid growth Leverage capacity of companies can be increased Companies with a short operating history could be developed 4."Credit Contract to face any need of financing in the long term for the company" • Industrial Mortgage Secured Loan .12. companies can tap their assets to generate cash flow through asset-based loans or through factoring.2 DEFINITION Asset-based financing is a way for rapidly growing."Cover company’s necessities in the acquisition and maintenance of inventories. cash-strapped companies to meet their short-term cash needs. 4.• Mortgage Secured Loan."Fortify your productive cycle and obtain the necessary resources for the growth of your business. covering your requirements of cash flow.12.12. In general."Credit to foment the development of your industry and to rest on its cycle of production" • Raw Material & Working Capital Loan.
The advance learner’s dictionary of current English lays down the meaning research as a “careful investigation or inquiry especially through search of new facts in any branch of knowledge. Research design is the arrangement of conditions for collecting and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. You need to weigh your situation carefully and determine whether this type of financing is necessary to expand your company or keep it afloat. This dissertation work is based on analytical research design. 5. Also. The drawback of asset-based loans and factoring is the expense. asset-based lenders and factors offer an array of services including accounts receivable processing.loan. research is an art of scientific investigation. RESEARCH METHODOLOGY Research is common parlance refers to search for knowledge. collections and invoicing. TYPES OF RESEARCH BEEN USED 40 . In fact. 5. Using assets to generate cash flow increases your cost of funds and cuts into profits.1 RESEARCH DESIGN Research design could be defined as the blue print specifying every stage of action in the course of research.
The research design adopted just provides insights into and comprehended the study area and helps to understand how assets is been considered in whole organization. so it’s just a descriptive research. the causes behind the situation could not be gathered. the task of data collection begins. Although the research design was aimed at higher accuracy. 5.2 DATA COLLECTION METHODS Data refers to information or facts. Types of data collection • Primary data collection • Secondary data collection PRIMARY DATA 41 . The relevant data are collected from the finance manager and from the employees in other related departments. It is not only refers numerical figures but also includes descriptive facts. The research design adapted is said to be exploratory because no problem or issue is not clearly defined.The type of research designs undertaken is Exploratory Research and Descriptive Research. After the research problem and design have been defined. STUDY AREA The area covered under this study is mainly focused on Finance department of the plant. The study describes the data and characteristics of fixed assets which are physically verified for its existence and utilization.
Secondary data have been mainly obtained from company website. The questions used for data collection from concerned respondents of respective departments were unstructured ones and was asked to be kept confidential.? Is assets periodically serviced and repaired? What type of assets been acquired and put into production process? Why some assets in plant does not have machine no and asset description in it? And so on …. In this study Secondary Data collection method has helped the to a great extent in arriving at the results. Few questions used at time of data collection are: How far is assets are maintained by user Dept. data’s been collected by face to face interactions and questions. annual reports. Moreover from the personnel discussion with the officer and the staff members of accounts department. Here in this study. records and books of RBL 42 .The primary data are those which are collected fresh and for the first time and thus happen to be original in character. the information is obtained. Such data are collected and used for some other objective of understanding the past status of any problem. SECONDARY DATA Secondary Data are those data which have been collected by someone else and which have been passed through the statistical process.
forecasting budgeting and planning of new assets purchase would be possible.4 LIMITATION OF THE STUDY: 1. 4. Time is the main constraint for study. The nature of financial statements is based on past data. which cannot be the index of future and cannot be basis for future estimation.3 TOOLS USED FOR THE STUDY: RATIO ANALYSIS TREND ANALYSIS PARETO CHART PERIOD OF THE STUDY: The period of the study undergone for the project was five months. Limitations of the tools of analysis.The secondary data were also collected from audited financial statements periodicals and other records like SAP register maintained by RBL. 3. 5. 5. 43 . 5. Change of records maintenance from Oracle to SAP made difficulty in obtaining full assets register values and details. which can be utilized usefully by an expert but may lead to erroneous conclusions by unskilled analyst. Different users may interpret results of the analysis differently. 7. Financial statements analysis cannot be a substitute for judgment because analysis is a tool. 2. 6. Confidentiality of revealing some assets details.
16 31.1 RETURN ON INVESTMENT 44 .1.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Operating profit ( Rs’ in 000) Capital Employed ( Rs’ in 000) Ratio (In %) 223697 190518 212461 190518 223697 542367 593448 684272 641908 911356 41.56 25.38 6.09 30.24 32.1 RETURN ON INVESTMENT A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. DATA ANALYSIS AND INTERPRETATIONS 6. Return on Investment = Operating Profit / Capital Employed*100 TABLE 6.
1 RETURN ON INVESTMENT INFERENCE The ratio was highest in the period 2004 – 2005 and it shows a decreasing trend. The efficiency of making investments is decreasing due rapid change in market conditions 45 .2.FIGURE 6.
2 NET PROFIT RATIO 46 . Net Profit Ratio = (Net profit / Net sales) × 100 TABLE 6.51 6. the firm shall not be able to achieve a satisfactory return on its investment. The ratio is very useful as if the net profit is not sufficient.2 NET PROFIT RATIO Net Profit ratio is used to measure the overall profitability and hence it is very useful to proprietors.94 1.1.73 9.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Net profit(after tax) ( Rs’ in 000) Sales ( Rs’ in 000) Ratio ( in %) 190826 137702 168861 89408 28936 1396056 1577811 1796733 1810234 1913481 13.40 4.67 8.
3 OPERATING RATIO A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. 6.3 OPERATING RATIO Year 2004-05 2005-06 2006-07 2007-08 Operating Cost ( Rs’ in 000) Sales ( Rs’ in 000) Ratio ( in times) 1208336 1345290 1595855 1609812 47 1396056 1577811 1796733 1810234 0.89 .FIGURE 6.85 0.1. The efficiency of making profits is declining may be due to stiff competition.2.2 NET PROFIT RATIO INFERENCE: The net profit ratio was highest in the period 2004 – 2005 and it shows a decreasing trend.89 0.87 0. The formula is TABLE 6.
90 FIGURE 6.3 OPERATING RATIO INFERENCE The operating ratio is been kept in stable and the management is following effective measures to have operating cost under control for last three financial years.2008-09 1718949 1913481 0.4 EXPENSES RATIO The ratio can be calculated for individual items of expense or a group of items.2.1. [Expense Ratio= (Total expense / Net sales) × 100] TABLE 6.4 EXPENSES RATIO 48 . 6. Since operating ratio is high in last three years the profit during these years will be less.
49 .7 90.2.9 95. The cost of raw materials and other cost of production might be increased.6 FIGURE 6.4 94.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Total Expenses ( Rs’ in 000) Sales ( Rs’ in 000) 1294490 1426668 1706618 1730750 1888227 1396056 1577811 1796733 1810234 1913481 Ratio (in %) 92.6 98.4 EXPENSES RATIO INFERENCE The expenses ratio shows unstableness’ and in 2008-09 it is very high.
2.6.82 2. Formulae = (Sales / Capital Employed) TABLE 6. the more efficiently a company is using its capital.5 CAPITAL TURNOVER RATIO Sales ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Capital employed ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 542367 593448 684272 641908 911356 2.10 FIGURE 6.5 CAPITAL TURNOVER RATIO INFERENCE The capital turnover ratio is more stable and it reveals that the management is making utilization of capital which is been employed in business. The higher the ratio is. 50 .57 2.1.66 2. and is a measure of how well a company uses its stockholders' equity to generate revenue.63 2.5 CAPITAL TURNOVER RATIO Capital turnover is used to calculate the rate of return on common equity.
6.64 2.55 2. Formulae = Sales / Fixed Assets TABLE 6.12 2.1.52 2.2.6 FIXED ASSETS TURNOVER RATIO Fixed assets turnover ratio is also known as sales to fixed assets ratio.6 FIXED ASSETS TURNOVER RATIO INFERENCE The Fixed assets turnover ratio is declining and it reveals that in recent years the efficiency of utilization fixed assets is declining. 51 . This ratio measures the efficiency and profit earning capacity of the concern.6 FIXED ASSETS TURNOVER RATIO Year 2004-05 2005-06 2006-07 2007-08 2008-09 Sales ( Rs’ in 000) Fixed Assets ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 554908 598588 703987 854171 955219 2.00 FIGURE 6.
74 5.1.7 WORKING CAPITAL TURNOVER RATIO Working Capital ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Sales ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 250148 350999 400983 381610 373900 5.2.50 4. Following formula is used [Working Capital Turnover Ratio = Cost of Sales / Net Working Capital] TABLE 6.7 WORKING CAPITAL TURNOVER RATIO Working capital turnover ratio indicates the velocity of the utilization of net working capital.7 WORKING CAPITAL TURNOVER RATIO 52 .12 FIGURE 6.6.48 4.58 4.
INFERENCE The Working capital turnover is fluctuating and it reveals that in recent years the efficiency of utilization working capital has is increasing.e.60 2007-08 854171 656933 1. This will indicate the long-term financial soundness of business.43 sunk into fixed assets.30 2008-09 955219 667349 1..1. Net Worth) TABLE 6.8 FIXED ASSET TO NET WORTH RATIO FIGURE 6.8 FIXED ASSET TO NET WORTH RATIO 53 . Fixed Asset to net worth Ratio = Fixed Assets/Proprietor’s Funds (i.8 FIXED ASSET TO NET WORTH RATIO The ratio indicates the extent to which proprietor’s (shareholder’s) funds are Fixed Assets Net worth Ratio Year ( Rs’ in 000) ( Rs’ in 000) ( in times) 2004-05 554908 974663 0.2.57 2006-07 703987 1166050 0. 6.57 2005-06 598588 1054776 0.
70 .INFERENCE: The fixed assets relationship with net worth is steadily increased in current year when compared to previous years and it reveals that in recent years the company is gaining good financial soundness.66 0. 6.1.9 FIXED ASSETS TO LONG TERM FUNDS This ratio helps to find the relationship between fixed assets utilized with the amount of capital employed Formulae = Fixed Assets / Capital Employed TABLE 6.61 0.62 0.9 FIXED ASSETS TO LONG TERM FUNDS Fixed Assets ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Capital Employed ( Rs’ in 000) Ratio ( in times) 554908 598588 703987 854171 955219 54 793338 966728 1162892 1296703 1370429 0.70 0.
FIGURE 6.10 FIXED ASSETS TO CURRENT LIABILITY 55 .2. The solvency position at times of liquidity can be identified Formulae = Fixed Assets / Current Liability TABLE 6.1. 6.9 FIXED ASSETS TO LONG TERM FUNDS INFERENCE The fixed assets relationship with long term fund shows there was a decrease as well as increase in current year when compared to previous years. which indicate a positive relationship.10 FIXED ASSETS TO CURRENT LIABILITY This ratio helps the relationship of fixed assets towards current liability.
Current Fixed Assets Liability Ratio Year ( Rs’ in 000) ( Rs’ in 000) ( in times) 2004-05 554908 238587 2.09 2007-08 854171 297237 2.10 FIGURE 6.10 FIXED ASSETS TO CURRENT LIABILITY INFERENCE 56 .17 2006-07 703987 337067 2.2.33 2005-06 598588 275947 2.87 2008-09 955219 233088 4.
18 14. It can meet liability with its internal funds. 6.2.11 ASSETS UTILIZATION OF PLANT FOR PAST 20 YEARS TABLE 6. In 2008-09 ratio sounds good.) 7986124 17263643 7260560 5339099 37849426 Percent of utilization( in % ) 21.11 BUILDING UTILIZATION INFERENCE 57 .10 45.1.11 BUILDING UTILIZATION Asset Building Building Building Building Years 1990-1995 1996-2000 2000-2005 2005-2010 Asset value (In ‘rs.11 100 FIGURE 6.61 19.The fixed assets relationship with current liability shows there is a good improvement in the company’s solvency position.
12 FURNITURE & FITTINGS UTILIZATION Percent of utilization( in % ) 46.22 9.The buildings are the place where production is been taken.2.12 FURNITURE & FITTINGS UTILIZATION DURING LAST 20 YEARS TABLE 6. In the year 1996-2000 more buildings were been acquired or build and the more utilization of building done in the 1996-2000.1.63 Asset Furniture & Fittings Furniture & Fittings Furniture & Fittings Furniture & Fittings Year 1990-1995 1996-2000 2000-2005 2005-2010 Asset value ( in ‘rs) 2260842 1376237 736538 466327 4839944 FIGURE 6.71 28.12 FURNITURE & FITTINGS UTILIZATION INFERENCE 58 . 6.43 15.
In the year 1990-1995 more furniture’s were been acquired and the more utilization was been done.13 OFFICE EQUIPMENTS UTILIZATION DURING LAST 20 YEARS TABLE 6.65 Office equipments 1996-2000 2456251 35.17 Office equipments 2005-2010 1163435 16.2.13 OFFICE EQUIPMENTS UTILIZATION 59 . 6.77 6936494 FIGURE 6.41 Office equipments 2000-2005 2092428 30.The furniture and fixture are the common things present in the plant which facilitate the production.13 OFFICE EQUIPMENTS UTILIZATION Asset Percent value of Asset Year ( in ‘rs) utilization( in % ) Office equipments 1990-1995 1224380 17.1.
2.14 PLANT & MACHINERY UTILIZATION DURING LAST 45 YEARS TABLE 6.INFERENCE The equipments are the common things present in the plant which facilitate the production operations.1.01 20.35 1.22 38.80 4.14 PLANT & MACHINERY UTILIZATION ASSET Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery YEARS 1966-1970 1971-1975 1976-1980 1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 VALUE ( IN ‘ RS ) 2530556 2039639 8761873 10583791 25605285 89331140 223760350 105718120 118768013 587098767 ASSET UTILIZED (IN %) 0.11 18.14 PLANT & MACHINERY UTILIZATION 60 .49 1.43 0. 6. In the year 1996-2000 more equipments were been acquired and the more utilization was been done.23 FIGURE 6.36 15.
26 639785 0.15 DEPOT AND CORPORATE DEPARTMENT ASSETS UTILIZATION TABLE 6.13 81702350 FIGURE 6. In the year 1996-2000 more Plant & machinery were been acquired and the more utilization was been done. 6.15 CORPORATE ASSETS UTILIZATION 61 .78 66283099 81.15 CORPORATE ASSETS UTILIZATION Assets Building Furniture & fitting Office equipment Plant Machinery Vehicles Value Percent of utilization ( in rs) (in %) 12006417 14.70 1849991 2.1.13 923058 1.INFERENCE: The plant and machinery are the common things present in the plant which facilitate the production operations.2.
133 96884 77315 100 100 62 .1.767 10447 4022 10.INFERENCE The plant and machinery is the major things present in the corporate that facilitate the research and development.891 19568 19922 20. 6.808 8.981 5.16 ASSET PERFORMANCE IN RELATION TO PRODUCTION OF YEAR 2009 TABLE 6. Plant & machinery was acquired more and the more utilization was been done.197 25. Barking Disc Pad Clutch Facing RBB Brake pad Asset value Production Asset Production (rs in‘000) ( rs in ‘000) ( in % ) ( in % ) 52541 43212 54.783 5.202 8701 3871 8.231 55.007 5627 6288 5.16 ASSET PERFORMANCE IN RELATION TO PRODUCTION Plant production modules.
2.e.FIGURE 6. repairs & maintenance) TABLE 6.1.16 ASSET PERFORMANCE IN RELATION TO PRODUCTION INFERENCE It reveals that barking module and disc pad modules produces more with assets available for making production and contributes more output to the concern.17 Assets Vs Operating Expense Year 2008-09 2007-08 2006-07 2005-06 2004-05 Fixed Assets ( Gross Block) 911356 641908 684272 593448 542367 Operating Cost ( Repairs& Maintenance) 49703 54287 47585 41623 38603 63 .17 COMPARISON OF FIXED ASSETS WITH OPERATING COST (i. 6.
6.18 GROWTH OF ASSETS AND TREND ANALYSIS OF ASSETS VALUE INCREASE WITH 2002-2003 AS BASE YEARS.2. TABLE 6.FIGURE 6.17 Assets Vs Operating Expenses INFERENCE The above details depicts clearly that additions in gross block of assets naturally decreases the operating cost of production such as main expenses of assets that is repairs and maintenance.18 TREND ANALYSIS OF ASSETS 64 .1.
1 166.24 109.2. in millions) 548.43 117.99 641.14 557.26 FIGURE 6.36 Trend Increase Of Assets 100 101.59 703.91 911.18 TREND ANALYSIS OF ASSETS 65 .94 544.62 598.7 99.38 101.62 554.Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Net Fixed Assets ( Rs.2 128.
1.INFERENCE: The trend analysis shows there is steady growth in value of assets over the period of 2002-03 to 2009-10 and value of assets has attained to position of 166.2.19 COMPARISON OF ASSETS VALUE ACQUIRED AND SOLD TABLE 6.26 millions 6.19 ASSETS VALUE ACQUIRED AND SOLD Year 2008-09 2007-08 2006-07 2005-06 2004-05 Acquisition ( Rs in ‘000) 210084 294307 197983 120040 91213 Sales ( Rs in ‘000) 6222 11882 20640 95 6378 FIGURE 6.19 ASSETS VALUE ACQUIRED AND SOLD 66 .
1.2 96 89 1.5 76 6 06 2.9 70 Bldg Co mp 25 Ele Equ p 152 El e Ins tl 940 FF La nd 3 Matl Hand 389 MF D 2.20 Categor y Total WDV one rupee Less than 10K Balance Record Categori zed item Still pending % 100 % 42% Tota l Cou nt 7.2 07 3 1 151 112 - 1 - 17 47% 361 20 68 426 15 2 126 12 31 927 169 12 20 2 89 8% 361 - - 7 13 2 - 9 1 122 - - - 2 - 39% - 20 68 419 2 - 126 3 30 805 169 12 20 - 89 67 .865 QAD Q/ M 17 R& D 31 VEH Wor ks 211 552 257 244 637 6 119 1 63 332 236 - 231 229 8 787 356 5 10 4 105 11% 72 4 21 182 6 1 32 234 1.INFERENCE An asset acquisition implicates there is increase in demand for the products produced and above table indicates every year addition of assets is more than value of assets sold.5 77 3.2 08 678 OE O HS 40 P& M 1.1 64 8 37 3. TABLE 6.
549 211.21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION Category % Gross Block * Depn.997 421.392 3.443 107.504 107.880 390.742 219.509 FIGURE 6.877 139.840 40.2009 .21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION 68 .2.1.21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION ASSETs AS ON 30.038 99.394 5.6.09.in ‘000 Total WDV one rupee Less than 10K Balance Record Categorized item Still pending 100% 17% 1% 83% 22% 61% 643. Res * WDV * *Rs.074 311.489 222.PLANT 1 TABLE 6.331 179.171 530.583 2 2.
544 Category Other Plant Traceable Identified To be scrapped 6.197 10 INFERENCE: The written down value of assets indicates the true value of assets.in 000’ 10.22 BREAKUP FOR CATEGORIESED ITEMS 69 . 6.22 BREAKUP FOR CATEGORIESED ITEMS TABLE 6.in 000’ Clubbing of Asset 33.reserve WDV Rs.372 6.Gross block Rs.1.260 125 Depn.536 215 10.537 414 99. The above data shows 61% of assets after process of physical verification are still in pending to be categorized.in 000’ Rs.172 1 198 89.063 115 23.
7.21 BREAKUP FOR CATEGORIESED ITEMS INFERENCE The categorized assets after physical verification implies how far the assets is been clubbed and merged with other plants and assets to be scrapes as it no more utilized in production process. 70 .24 and it shows a decreasing trend and current year it declined to 25. FINDINGS • The Return on Investment ratio was highest in the period 2004 – 2005 of 41.2.38.FIGURE 6.
• The fixed assets relationship with current liability shows relationship and in 2008-09 ratio sounds good with 4. • The fixed assets relationship with net worth is steadily increased in current year to 1.12. • The Working capital turnover is fluctuating and it reveals that in recent years the value increased to 5. • The Fixed assets turnover ratio is declining and it decreased to 2 in 2008-09 from value of 2.12 times in previous financial year. • The expenses ratio shows unstableness’ and in 2008-09 it is very high of 98.• The net profit ratio was highest in the period 2004 – 2005 was 13. • The capital turnover ratio is more stable and it shows a slight decrease.43 when compared to year 2004-05 which had just 0.10 in year 2008-09.6%. • The fixed assets relationship with long term fund shows there was a decrease as well as increase in current year when compared to previous years.10 times.97 and it shows a steady decreasing trend. The capital turnover ratio was 2. 71 . • The operating ratio is been kept in stable and the management is following effective measures to have operating cost under control.57. a good • In the year 1996-2000 more buildings were been acquired or build and the more utilization of building done in the 1996-2000.
• There is steady growth in increase value of assets over the period of 2002-03 to 2009-10 and value of assets has attained to position of 166. • In barking module and disc pad modules produces more with assets available for making production and contributes more output when compared to other modules. • In the year 1996-2000 more equipments were been acquired and the more utilization was been done.• In the year 1990-1995 more furniture’s were been acquired and the more utilization was been done. • Every financial year addition of assets is more than value of assets sold.26 millions. • More assets are in pending list to be categorized in appropriate category and to ascertain their true nature. 72 . • The additions in gross block of assets naturally decrease the operating cost of production such as main expenses of assets that is repairs and maintenance gradually. • In the year 1996-2000 more Plant & machinery were been acquired and the more utilization was been done.
It is found that original equipment producing machineries yields high returns.8. 73 . Capital purchase of assets must be done periodically and it should be purchased in a manner that it caters the increasing demands. there was a too much fluctuation in the percentage of return on fixed assets so the company should try to decrease the fluctuations. From the financial position of the Rane Brake Lining Ltd is observed that return on investment is not satisfactory throughout all the years. New capital assets must be purchased according to increasing demand of products. The unutilized assets can be removed from asset registers after making a complete verification which would facilitate tax advantage and must be cleared as soon as possible when it is known that those assets would not contribute to production. Thus by indentifying high return yielding assets and having a complete record over them would facilitate a good maintenance over such classified assets. Periodic verification of high value assets should be done in regular intervals which would reduce heavy burden in regular routine of organization work. A good asset tracking of system should be adopted and must be used over a long period of time. for that the management should concentrate on increasing its operating profit. SUGGESTIONS The Rane Brake Lining Ltd can invest more in assets which give more return in terms of production and as well which has high demand in market.
The study of asset productivity emphasis that RBL has good return on its investment over assets. The physical verification of assets as per asset registers in the company emphasis to know whether all the registered assets have physical existence. Periodic maintenance and tracking of all assets through good asset management procedure. the RBL could have better and efficient control over its assets in forthcoming years. CONCLUSION After analyzing the financial position Rane Brake Lining Ltd and evaluating its Assets productivity by Trend Analysis and Ratio Analysis.9. The capital assets performance and its utilization emphasis how necessary it is to spend over its maintenance to avoid frequent repairs. From the above study it can be said that the Rane Brake Lining Ltd Financial position on assets is quite satisfactory and in terms of tracking over assets existence additional measures need to be taken. The physical existence of assets ensures the company makes utilization of all available assets. The production of company is related with the plants and machinery which is been utilized. RBL employs high value assets in areas where high demand occurs. 74 . the following conclusions are drawn from the project preparation.
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