Financial performance 1.

1 INTRODUCTION
Financial Analysis is the process of identifying the financial strengths and weaknesses of the firm by property-establishing relationship between the items of the Balance Sheet and the Profit and Loss account. There are various methods or techniques are used in analyzing financial schedule of change in working capital flow, cost volume Profit Analysis and Ratio Analysis. MEANING OF FINANCIAL ANALYSIS:The meaning of Financial Analysis is also known as analysis refers to the process of determining according to Meta fund tutored is a process of evaluating the relationship between components parts of a financial statements to obtain a better understanding of a firm's position and performance. In the word of Myers" Financial statements analysis is largely a study of relationship among the various financial factors in a series of statements". The purpose of financial statements so as to judge the profitability and financial soundness of the firm. DEVICES OF FINANCIAL ANALYSIS: There are several methods for determining the financial analysis of the company. They are as follows:1. Comparative Statement 2. Trend Analysis 3. Common size Statement 4. Funds Flow Statement

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5. Cash Flow Statement 6. Ratio Analysis 7. Cost-Volume Profit analysis Financial Analysis can be undertaken by management of the firm or by parties out side the firm Owners, Creditors, Investors and Others. The structure of Assets, Liabilities and Owner's equity and so on and the Profit & Loss account shows the results of operation during a certain period of times in terms of the revenue obtained during a certain period of times in terms of the revenue obtained and the cost incurred during the year. Thus, the financial position and operational statement provides a summarized view of the financial position and operation of the firm. The Financial Analysis statements are thus an important aid to Financial Analysis. The first task of the Financial Analyst is to select the information relevant to the decisions under consideration from the total information contained in the financial statements. In the brief Financial Analysis are the process of selection, relation and Evaluation.

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CEMENT INDUSTRY IN INDIA: India, being the second largest cement producer in the world after china with a total capacity of 151.2 million tones, has got a huge cement industry. With the government of India giving boost to various infrastructure projects, housing facilities and road networks, the cement industry in India is currently growing at an enviable pace. More growth in the Indian cement industry is expected in the coming years. It is also predicted that the cement production in India would rise to 236.16 MT in FY 12. The cement industry in India is dominated by around 20 companies, which account for almost 70% of the total cement production in India. In the present year, the Indian cement companies have produced 11 MT cement during April-September 2009. It took the total cement production in financial year 2009 to 231 MT. Products of the Industry: • • • • • • • Ordinary Portland Cement Portland pozzolana Cement Portland blast furnace slag Cement Oil well Cement Rapid hardening Portland Cement Sulphate resisting Portland Cement White Cement

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Cement production and growth: Domestic demand plays a major role in the fast growth of cement industry in India. In fact the domestic demand of cement has surpassed the economic growth rate of India. The cement consumption is expected to rise more than 22% by 2009-10 from 200708. In cement consumption the state of Maharashtra leads a table with 12.18% consumption, followed by Uttar Pradesh. In terms of cement production Andhra Pradesh leads the list with 14.72% of production while Rajasthan remains at second position.

PIG IRON INDUSTRY IN INDIA: Pig iron is mainly categorized into two major types: a) b) Basic grade iron used for steel making Foundry grade iron for making iron castings which find applications in

industrial and other sectors. In the developed countries pig iron is also used as a scrap substitute in the change – mix of Electric Arc Furnaces (EAFs). The world production of foundry grade pig iron in 1996 was about 29.3 million tons which increased marginally to 29.6 million tones in 1997 and then came down to 26.5 million tones in1998. The level of global production of foundry grade pig iron in 1999 has been estimated about 27.5 million tones. Pig iron production:

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The total production of pig iron was 5.796 million tons in 2009-10 as compared to 1.59 million tons in 1991-92. Earlier pig iron was produced primarily by the integrated steel plant SAIL and RINL. Of late, the share of standalone pig iron units has increased significantly. India continually posts phenomenal growth records in steel production. In 1992, India produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore, the steel production capacity of the country has increased rapidly since 1991. In 2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron. Both primary and secondary producers contributed their share to the phenomenal development, while these increases have pushed up the demand for finished steel at a very stable rate. In 1992 the total consumption of finished steel was 14.84 million tones. In 2008 the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. Today, India is in seventh position among all the crude steel producing countries.

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PIG IRON PRODUCERS IN INDIA

YEAR 2006-07 2007-08 2008-09 2009-10

PRIMARY SECONDARY 17.23% 17.62% 9.49% 17.62% 82.77% 82.38% 90.51% 87.38%

COKE OVEN INDUSTRY: India produces about 6% of world’s coke. With expected rise of installation capacity in coming 5 years total coal throughput capacity of Indian coke ovens will become about 36 Mt/yr. major portion of coke comes from coke ovens installation in steel industry. To improve overall performance and quality of operation suitable technologies should be adopted / absorbed time to time in coke area. To assess the requirement of adaption/absorption of particular technology is necessary to have in

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depth study on the effect of various factors affecting the performance of coking industries. Poor quality and high ash content of Indian coking coal, inconsistent linkage of coal to coke making units, increased number of components in the blend and poor coal stock particularly in monsoon season, have put the coke industry under the tremendous pressure. The ash level in coal charge has increased to 17 to 18% in 60’s to 22 to 24% at present. This has increased ash level in coke to around 28 to 30 %. SPUN PIPES / DUCTILE PIPES INDUSTRY: DI pipes are generally preferred for water supply, savage and transmission applications. Superiority of DI pipes lies in its ability to provide trouble free service against increasing profit load and much longer life compared to other types of pipes. Water supply in our country is mainly met through monsoons and needs significant investment in water infrastructure for conservation and re use of water resources. Therefore, the government is focusing on creation of urban and rural infrastructure including water resources and savage management. In these efforts, monitory support is being provided to the government by international development finance institutions such as the World Bank and the Asian development bank. This has generated a greater demand for DI pipes that are increasingly being used for water and savage transportation.

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1.3 COMPANY PROFILE
Lanco industries Ltd., is the one of the eleven mini-blast furnace Pig Iron manufacturing units in our country, and it was the 5 th plant under TATA-KORF Technology. The company was incorporated on November 1st 1991 under Companies Act-1956, in the name of LANCO FERRO Ltd., The company started construction work in August 1993. The entire construction work was completed a record time of 12 months. This was achieved by team work of Lanco collectives and the best efforts of the contractors. With these achievements the company started commercial production from September 1994. The name LANCO FERRO Ltd., was changed to LANCO Industries Ltd., on July 6th, 1994. LOCATION: Lanco Industries Ltd., is located in between Tirupati and SriKalahasti with an access of about 30 Kms from Tirupati and 10 Kms from SriKalahasti. Location of Lanco industries ltd in one of the most under developed areas of chittoor district in Andhra Pradesh proved to be a big boon for the local people in terms of employment opportunities, direct and indirect, leading to considerable economic growth of the region.  The plant is ideally located close to the vast iron ore deposits and in proximity

to the Chennai port for import of high grade metallurgical coke.  It is well connected by the road and rail to the required destinations

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 It has its own fleet of material handling equipments and also has its own

railway siding facilities. As Lanco Industry emphasizes more on technology, it requires skilled people, as the availability of skilled people is very high in this region.

MISSION OF LANCO INDUSTRIES:

We aim to be world class, committed to customer satisfaction and to encourage the spirit of leadership amongst our dedicated team by creating a healthy environment for continuous growth, profit and prosperity.
VISION OF LANCO INDUSTRIES:

We are in the business of manufacturing pipes for conveying safe drinking water and other fluids for domestic and overseas markets. We will maintain our dominant position in the domestic pipe market and enhance our presence in the overseas market by setting up multi-location units as per business potential.

For sustained growth we intended to venture into related business in the area of 1. 2. 3. 4. Sustainable horizontal and vertical integration projects. Turn key projects. Engineering and consultancy. Build own operate transfer projects and diversified into new areas of business

including infrastructure related projects. We will achieve the above through: • • Continuous technology up-gradation and adaption of new technology. Effective team based working.

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• • • Continuous training and human resource development. Developing ancillary units. Cost competitive

Step by Step Company’s Growth: 1991: 1994: 1995: 1997: 2002: 2002: 2003: 2003: 2004: 2005: 2005: Incorporation of Lanco Industries Setting up of Mini Blast Furnace with 90,000 TPA Capacity Setting up a 250 TPD Mini Cement plant Setting up of LKCL (Lanco Kalahasthi casting Ltd.) for manufacture of 40,000 TPA Casting and 35,700 TPA DI pipes Strategic alliance with Electro Steel Casting Ltd Infusion of Rs.2200 lakhs to the equity and financial restructuring Merger of LKCL with LIL for synergy Capacity of Pig iron was increased from 90,000 TPA to 1,50,000 TPA Capacity of DI pipes was increased to 90,000 TPA Commissioning of 1,50,000 TPA Coke oven plant. Setting up of Captive Power plant of 12 MW by using the waste heat recovered from the Coke oven plant.

MANUFACTURING UNITS: The following are the major manufacturing units under the name Lanco Industries Ltd. 1. 2. 3. 4. Pig iron Cement Spin pipe Coke oven and

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5. 12 MW Power plant.

1. Pig Iron Division: “Blossoming of a fiery bud!” exclaimed Dr.Shankar dayal Sharma, the president of India while inaugurating the pig iron plant of Lanco industries Ltd. In sep 1994. And the bud has in deed blossomed! Commissioned a record time of 11 months Lanco industries Ltd, 90,000 tones per annum pig iron plant surpassed its rated capacity just after two years of commissioning. Later it transformed the slag – a waste by- product, into productive slag cement with setting up of cement plan. The pig iron plant capacity was upgraded to 1,50,000 tones per annum in the year 2003. 2. Cement Division: Established in the year of 1996.The slag from pig-iron plant is used for producing 90,000 TPA cement reflecting an approach that transforms the by-product into productive inputs, in value added finish product. • • High quality port land slag cement in various grades of universal application, Quality consistent composition, competitive pricing.

3. Spun Pipe Division Or Ductile Iron Pipes: Established in the year of 1997 and strategically located in close proximity to the mini blast furnace of the pig iron, it has a clear economic mileage over other casting sites. The molten metal from the blast furnace is directly used as basic raw materials to produce graded castings, cast iron pipes and ductile iron pipes with a capacity of 90,000 TPA. 4. Coke Oven Plant: Previously Lanco use to import coke from Japan and China to meet the requirements of the mini blast furnace. But then due to the steep rise in the coke prices in the international markets it was very difficult to maintain the cost of hot metal produced.

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Thus it was decided to install a coke manufacturing facility to meet the in house coke requirements. The company was attracted by the low cost of the non recovery type of coke ovens with easy compliance with the pollution control norms without any major investments. Now the company operates a coke oven plants with a set of 68 0vens based on Das guptha Technology. The plant was commissioned in May 2005 and is producing to the rated capacity of 1 25,000 tons per year. 5. Power Plant (Proposed 12 MW Power Plant): It has proposed to set up a power plant of 12MW. Power plant be set up in the existing land of coke oven plant. Waste heat of fuel gas from coke oven will be utilized in waste heat recovery boiler to produce steam. Steam produced in the above process will be utilized to one TG set for generating power. Power generate from the power plant will be utilized in – house consumption and balance power will be fed into APSEB grid. 6. Lanco Construction Ltd: This group company was established in the year 1993 and has executed most demanding and difficult projects in the field of civil construction engineering on schedule essaying repute as world class Construction Company in a very short time span. The company is mainly executing prestigious work in the fields of irrigation, pipeline projects highways, housing and industrial construction project a successfully compared several housing complexes roads, irrigation canals, bridges and industrial complexes. 7. Kalahasti Castings Limited: Established in 1997 and strategically located in alone proximity to the mini blast furnace of the pig iron plants it has a clear economics mileage over other castings sites. The molten metal from the blast cone is directly loosed as basic raw material to produce graded castings. Cast iron span pipes and iron span pipes and iron spun gradually expanded further to meet the scaring demand of the products. The UPS to the pipe plant will be met through 10MW capture power plant

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Technology and Capacities: With the state of the art technology supplied by KORF of technological services-Brazil, the plant has a Mini Blast Furnace (MBF) of 215 mw working volume producing quality foundry and SG grade pig iron supplying to major foundries. The mini blast furnace has been set up, conforming to the latest technology in an eco friendly ambience, with the power equipment house taken care of by a captive power plant of capacity 2.5 mw. BF gas fired captive power plant has been installed to utilize BF gas generated from the furnace. This will reduce the power cost and also save the environment due to emission of gas to atmosphere. Safety to Employees: All the employees who are on the regular rolls of the company are issued 2 (two) pairs of uniform and one pair of shoes. All the employees are expected to come to their duties in uniform. The employees working in the plant operations are provided with helmets and safety shoes. Depending on the nature of work, it is obligatory on the part of employee to draw the required safety appliances like gloves, goggles, respirators, earplugs etc. from the store to the safety department and use them. Failure to do so shall attract appropriate action. Other Amenities to Employees: Lanco Industries management has provided other facilities like identity card, canteen, medical center etc.  Identity card All the employees are issued with an identity card, which has a photograph, name and employee number duty signed both by the employee and the competent authority. Every employee has to display the identity card while on duty. Their admission into the premises can be denied by the security, if they are found not wearing identity card.

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In case of loss of the identity card they should immediately inform the P & HR department who shall issue another card and deduct Rs.50 for the replacement.  Canteen: The canteen provides breakfast, lunch and dinner to all the employees at confessional rates. The timings are staggered to accommodate shift as well as generally shift employees; proper discipline has to be maintained at the canteen, especially during the rush hours. Tea is supplied free of cost at the work spot during the shift to all the employees.

Medical centre Qualified and experienced company medical officers at medical center. He

organizes medical fitness examinations at the time of selection and periodical medical check ups to all the employees. He attends to medical emergency at the medical center and also follows up with the case is required at the city hospitals. He periodically organizes immunization programs to employees and their families. He conducts first aid safety classes to the employees. He appraises the management on hygiene and environmental deficiencies in and around the factory. The medical center is well equipped to attend the emergencies and an ambulance van is provided. KEY PERSONS IN LANCO INDUSTRIES: NAME Shri. Mayank Kejriwal Shri. G.Maruthi Rao Shri. Gouri Shankar Rathi Shri. L.Madhusudhan Rao Shri. G.Bhaskar Shri. L.Sridhar Shri.P.M.Suresh Shri. Vinod Kumar Agrawal, IAS DESIGNATION Managing Director Director Director Director Director Director Nominee of IDBI Nominee of APIDC

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2.1NEED FOR THE STUDY

The following are the needs for my study: 1. The ability of the firm to meets its current obligations. 2. The extent to which the firm has used its long-term solvency by borrowing funds. 3. The efficiency with the firm is utilizing its assets in generating sales revenue. 4. The overall operating efficiency and performance of the firm. 5. The firm’s performance capacity comparison with its competitors

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2.2 SCOPE OF THE STUDY The study has great significance and provides benefits to various parties who directly or indirectly interact with the company. 1. It is beneficial to the top management of the company by providing crystal

clear picture regarding to the important financial aspects of the Lanco Industries Ltd. 2. The study is beneficial to Employees and offer motivation by shoeing how

actively they are contributing for the company’s growth. 3. The investors who are interested in investing in the company’s share’s will

also get benefit by going through the study and can easily take a decision whether to invest in the companies shares.

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2.3 OBJECTIVES OF THE STUDY

This study is mainly focused to examine the overall financial viability of Lanco Industries Ltd as stated below:

 

To study the financial position of Lanco Industries Ltd. To study the periodic changes in the financial performance of Lanco Industries

Ltd by preparing Comparative, Common Size and Trend Analysis.     To find out the financial strengths and weaknesses of the company. To study the overall operating efficiency and performance of the company. The study is conducted to evaluate the returns to the company. To ascertain the efficiency with which the firm is utilizing its assets in

generating sales revenue.

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2.4 RESEARCH METHODOLOGY

This project “Financial Performance Analysis “is based on the information collected from the annual reports and balance sheets of the company. “According to Kennedy and Muller” The analysis and interpretation of financial statements reveal each and every aspect regarding the well being financial soundness, operational efficiency and credit worthiness of the company.
PRIMARY DATA:

Interviewing primary and secondary data have been the sources of data. The study derives its date mainly from primary sources of information from finance employee of the company and the major source of secondary data was annual report of Lanco Industries Ltd for years 2004-05,2005-06,2006- 2007 ,2007 –2008 and 2008-2009 from of the balance sheet and profit and loss account of the company. SECONDRY DATA: These are sources containing data which have been collected and compiled for another purpose. The secondary sources consists of readily available compendia and

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already compiled statistical statements and reports whose data may be used by researches for their studies, e.g., census reports, annual reports and financial statements of companies, statistical statements, reports of government departments, annual reports on currency and finance published by the reserve bank of India.

2.5 LIMITATIONS OF THE STUDY  The information used is primarily from historical reports available to the public and the same doesn’t indicate the current situation of the firm.  Detailed analysis could not be carried for the project work because of limited time span.  Since financial matters are sensitive in nature the same could not be acquired easily.

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THEORETICAL BACKGROUND
Management should be particularly interested in knowing financial strengths of the firm to make their best use and to be able to spot out financial weaknesses of the firm to take suitable corrective actions. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses. Thus, financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future. Financial Performance analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.

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Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. TOOLS AND TECHNIQUES OF FINANCIAL PERFORMANCE ANALYSIS: The following are some tools to analyses the financial Performance of the company: 1. 2. 3. 4. 5. Ratio Analysis Comparative Statement Analysis Common Size Statement Analysis Trend Analysis Changes in Net Working Capital Analysis

1. RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.” In financial analysis, a ratio is used as a bench mark for evaluating the financial position and performance of a firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summaries large quantities of financial and to make qualitative judgment about the firm’s financial performance. Types of Ratios

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Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. In view of the requirements of the various users of ratios, we may classify them into the following four important categories.
I.

Leverage ratios Liquidity Ratios Profitability ratios Activity Ratios

II. III. IV.

I. Leverage Ratios A strong short-as well as long-term financial position. To judge the long-term

financial position of the firm, financial leverage or capital structure ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. As a general rule, there should be an appropriate mix of debt and owners` equity in financing the firm’s assets. The process of magnifying the shareholders` return through the use of debt is called “financial leverage” or “financial gearing” or “trading on equity”. The following are some of the liquidity ratios.

1. Debt-Equity Ratio 2. Proprietary Ratio 3. Debt-Equity Ratio (Long-Term) II.Liquidity Ratios It is extremely for a firm to be able to meet its obligations as they become due. Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities). The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of creditors` confidence, or even

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in legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios, which indicate the extent of liquidity or lack of it, are: 1. 2. 3. Ratio. III.Profitability Ratios: A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits, irrespective of concerns for customers, employees, suppliers or social consequences. Profit is the difference between revenues and expenses over a period of time (usually one year). Profit is the ultimate ‘output’ of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate the efficiency of the company in term of profits. The profitability ratios are calculated to measure the operating efficiency of the company. Current Ratio Quick Ratio Other ratios include Cash Ratio, Interval Measure and Net Working Capital

Generally, two major types of profitability ratios are calculated: Profitability in relation to sales
1. Gross profit ratio

2. Operating ratio 3. Expense ratio

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4. Operating profit ratio 5. Net Profit Ratio

Profitability in relation to investment. •

Return on equity capital Earnings per share (EPS) ratio Return on shareholders' investment or net worth

IV.Activity Ratios: Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratios. They are: 1. Fixed Assets Turn Over Ratio 2. Current Assets Turn Over Ratio
3. Net Working Capital Turn over Ratio

4. Debtors Turn Over Ratio
5. Inventory Turn over Ratio

I.LEVERAGE RATIOS:

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3.1.1 DEBT- EQUITY RATIO: The Debt-Equity measures the long term financial solvency of a business concern. The ratio is also popularly known as external internal equity ratio. This ratio relates the owner’s stake in the business vis-à-vis that of outsides. Alternatively it reflects the relative claims of creditors and share holders against the asset of the unit. This ratio can also be viewed as indicating the relative proportion of debt amends equity in financing the assets of the business unit. Debtequity (DE) ratio is directly computed by dividing total debt by net worth:

Table 1 YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Debt 204.75 243.14 301.17 301.03 381.06 Equity 77.81 79.69 90.85 111.56 125.26 RATIO 2.63 3.05 3.31 2.70 3.04

INTERPRETATION: DEBT-EQUITY ratio is fluctuated in each year; it increases from 2.63 to 3.31 in the periods between 2004-07, decreased in the year 2007-08 and again increased in the period 2008-09. The ratio indicates that the company had low owners contribution. 3.1.2 PROPRIETARY RATIO

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This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business.

Table 2 Year 20042005 20052006 20062007 20072008 20082009 Share Holder's Fund 77.81 79.69 90.85 111.56 125.26 Total Assets Ratio
280.9 329.01 403.87 438.36 537.56

0.28 0.24 0.22 0.25 0.23

INTERPRETATION: Proprietary Ratio is fluctuated in each year, Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency

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position of the company. A low proprietary ratio will include greater risk to the creditors.

3.1.3 TOTAL DEBT RATIO Total Debt Ratio is used to analyze the long term solvency of the company. Total debt ratio is calculated by dividing the total debt by capital employed.

Table 3 Year 20042005 20052006 20062007 20072008 20082009 Total Debt 204.75 243.14 301.17 301.13 381.06 Capital Employed Ratio
280.9 329.01 403.87 438.36 537.56

0.73 0.74 0.75 0.69 0.71

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INTERPRETATION: The debt ratio average for the study period is 0.7456; it means that the lenders have financed 74.56% of total debt. It obviously implies the owners have provided remaining finance. 3.1.4 INTEREST-COVERAGE RATIO The interest coverage ratio or the times-interest-earned is used to test the firm’s debtservicing capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes (EBIT) by interest charges

Table 4 Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 EBIT 53.78 30.19 53.55 82.45 85.18 Interest 10.5 13.11 20.31 27.27 40.54 Ratio 5.12 2.30 2.64 3.024 2.10

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INTERPRETATION: Interest coverage ratio indicates the number of times the interest charges are covered by funds available for their payment. In the study period the company’s interest coverage ratio is fluctuating stage. In 2004-2005 it shows a high ratio (5.12), a high ratio is desirable to the company. II.LIQUIDITY RATIOS: 3.2.1 CURRENT RATIO: The current ratio is a measure of the firm’s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them.

Table 5
YEAR 20042005 20052006 20062007 20072008 20082009 CURRENT ASSETS 161.36 183.22 261.97 266.16 359.74 CURRENT LIABILITIES 96.25 95.56 107.26 100.3 108.83 RATI O 1.68 1.92 2.44 2.65 3.31

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INTERPRETATION: The firm’s current ratio refers that the company’s short-term solvency. The standard current ratio is 2:1; the current ratio is not equal to standard ratio in the entire study period. In 2004-05 and 2005-06 the ratio is too low then the standard ratio 2:1. But in 2006-07, 2007-08 and 2008-09 the ratio is higher than the standard ratio. 3.2.2 QUICK RATIO Quick ratio, also called acid-test ratio, establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonable soon without a loss of value. Cash is the most liquid asset and other assets that are considered to be relatively liquid. Inventories are considered to be less liquid. The quick ratio is found out by dividing quick assets by current liabilities.

Table 6
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 QUICK ASSETS 90.61 CURRENT LIABILITIES 96.25 95.56 107.26 100.3 108.83 RATIO 0.94 0.96 1.45 1.45 1.98

91.28 155.6 145.23 215.38

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INTERPRETATION: The higher the Quick ratio indicates the ability of a firm is liquid and has the ability to meet its current liabilities in time. The company’s quick ratio is almost equal to standard ratio 1:1 in the years, 2006-07, 2007-08 and 2008-09. But in 2005-06 and 2004-05 it is not equal to ideal ratio.

3.2.3 CASH RATIO: Cash ratio establishes relation between cash and current assets. It indicates the proportion of cash in current assets. It is calculated by dividing cash by current assets.

Table 7
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 CASH 2.47 3.51 26.5 4.2 34.64 CURRENT LIABILITIES 96.25 95.56 107.26 100.3 108.83 CASH RATIO 0.03 0.04 0.25 0.04 0.32

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INTERPRETATION: High cash ratio indicates the idle cash reserves in the company, but low cash ratio is also not favorable to the company. By studying the above data the company has insufficient cash reserves with it. In the study period the company’s average cash ratio is 0.136 only.

3.2.4 NET WORKING CAPITAL RATIO: The difference between the Current Assets and Current Liabilities excluding shortterm Bank borrowings are called Net Working Capital (NWC) or Net Current Assets (NCA). NWC is used as a measure of a firm's liquidity. The measure of liquidity is a relationship, rather than the difference between current Assets and Current Liabilities. NWC, however, measures the firm's potential reservoir of funds. It can be related to Net assets (NA) or Capital Employed (CE).

NWC = Current Assets - Current Liabilities NA = Net Fixed Assets (NFA) + NWC (or) NCA Table 8
YEAR 20042005 2005NET WORKING CAPITAL 74.61 87.65 NET ASSETS 280.9 329.01 NWC RATIO 0.27 0.27

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2006 20062007 20072008 20082009

154.71 165.86 250.91

403.87 438.36 537.56

0.38 0.38 0.47

Interpretation: The net working capital ratio of the company was started with 0.27 in the first year and 2004- 05. It was increased to 0.38 by 2006-07 and slightly increased to 0.47 by 2008- 09. The average NWC Ratio of the company is 0.354 for the above study period. III.PROFITABILITY RATIOS: Profitability Ratios related to Sales 3.3.1 NET PROFIT MARGIN RATIO: Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. The ratio establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing, administrating and selling the products. This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit. If the net margin is inadequate, the firm will fail to achieve satisfactory return on owner’s equity. The net profit margin ratio is measured by dividing profit after tax by sales:

Table 9
YEAR NET PROFIT SALES RATIO

33 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 20.94 4.15 15.81 25.92 18.35 286.62 302.96 369.4 463.66 644.72 7.31 1.37 4.28 5.60 2.854

INTERPRETATION: The net profit ratio was 7.28 in the year 2004-05 and it highly decreased to 1.36 in the year 2005-06 and it slowly increased in the years 2006-07 and 2007-08, again it decreased to 2.83 in the period 2008-09. 3.3.2 GROSS PROFIT MARGIN RATIO: The ratio establishes a relationship between gross profits in to sales. The first profitability ratio in relation to sales is the gross profit margin (or simply gross margin ratio). It is calculated by dividing the gross profit by sales

Table 10
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 GROSS PROFIT 87.18 52.75 84.69 141.41 SALES 286.62 302.96 369.4 463.66 RATIO 30.42 17.41 22.93 30.50

34 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
2008-2009 150.32 644.72 23.31

INTERPRETATION: The higher gross profit ratio is indicated better performance and lower gross profit ratio is shown unfavorable. By seeing the graph it is clear that the company’s performance is high in the year 2004-05. But in the year 2005-06 the gross profit ratio is down to 17.41 and again it was increased year by year.

3.3.3 OPERATING PROFIT Operating profit is the profit which is earned by the company’s core activities. This ratio expresses the relationship between operating profit and sales. It is worked out by dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiency which may not be reflected in the net profit ratio.

Table 11
YEAR 2004-2005 2005-2006 OPERATING PROFIT 53.24 29.27 SALES 286.62 302.96 RATIO 18.58 9.66

35 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
2006-2007 2007-2008 2008-2009 51.23 77.76 88.66 369.4 463.66 644.72 13.87 16.77 13.75

INTERPRETATION: The higher Operating profit ratio is indicated better performance and lower Operating profit ratio is shown unfavorable. By seeing the graph it is clear that the company’s performance is high in the year 2004-05. But in the year 2005-06 the Operating profit ratio is down to 17.41 and again it was increased year by year.

Profitability Ratios related to Investments:
3.3.4 RETURN ON CAPITAL EMPLOYED Return on capital employed establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in the business and it can be used to show the overall profitability and efficiency of the business. Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business

Table 12

36 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
YEAR 20042005 20052006 20062007 20072008 20082009 PROFIT AFTER TAX 20.94 4.15 15.81 25.92 18.35 CAPITAL EMPLOYED 280.9 329.01 403.87 438.36 537.56 RATI O 7.45 1.26 3.91 5.91 3.41

INTERPRETATION:

Higher the return on capital employed, the more efficient the firm is in using its funds. The company’s return on capital employed is low; in 2004-2005 the ratio was 10.23% but in next year’s the company could not maintain the good returns on capital employed.
3.3.5 RETURN ON NET WORTH (OR) EQUITY: This is turn, measures the profitability of the equity funds invested in the company and shows the shareholders, how efficiently their investments have been utilized. Common or ordinary shareholders are entitled the residual profits. A return on shareholder’s equity is calculated to see the profitability of owner’s investment.

Table 13

37 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 PROFIT AFTER TAX 20.94 4.15 15.81 25.92 18.35 NET WORTH 77.81 79.69 90.85 111.56 125.26 RATIO 26.91 5.20 17.40 23.23 14.65

INTERPRETATION: This ratio is indicating that the return on equity is fluctuating year by year. The ratio is 26.91% in 2004-05; it decreased to 5.21% in 2005-06 and increased year by year. It was 23.23% in 2007-08 and again decreased to 14.64% in 2008-09.

3.3.6 RETURN ON INVESTMENT Calculate return on investment by dividing earnings before interest depreciation and tax (EBIDT) by Net assets or Total assets.

Table 14

38 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 EBIDT 53.78 30.19 53.55 82.45 85.18 NET ASSETS 280.9 329.01 403.87 438.36 537.56 RATIO 19.15 9.18 13.26 18.81 15.85

INTERPRETATION: Higher return on Investment implies efficient use of assets, the company’s return on investment is in fluctuating stage. In 2004-2005 it shows a high return 19.03%

.

III. ACTIVITY RATIOS 3.4.1 CURRENT ASSETS TURN OVER RATIO The firm may wish to know its efficiency of utilizing fixed assets and current assets separately.

39 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

Table 15
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 SALES 286.62 302.96 369.4 463.66 644.72 CURRENT ASSETS 161.36 183.22 261.97 266.16 359.74 RATIO 1.78 1.65 1.41 1.74 1.79

INTERPRETATION This ratio indicates effective utilization of current assets. For one Rupee of sale the company needs average Rs.0.50 investment in current assets.

3.4.2 FIXED ASSETS TURNOVER RATIO The firm may wish to know its efficiency of utilizing fixed assets and current assets separately.

40 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Table 16
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 SALES 286.62 302.96 369.4 463.66 644.72 FIXED ASSETS 146.04 185.26 241.58 263.88 282.4 RATIO 1.96261298 1.63532333 1.52910009 1.75708655 2.28300283

INTERPRETATION: This ratio indicates effective utilization of fixed assets. For one Rupee of sale the company needs average Rs.0.50 investment in fixed assets. 3.4.3 TOTAL ASSETS TURNOVER RATIO Assets are used to generate sales. A firm should manage it’s assets to maximize sales. The relationship between sales and assets is called assets turnover ratio. This ratio ensures the total assets of the company, efficiently used or not and this ratio shows the firm’s ability in generating sales from all financial resources committed to total asset.

41 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

Table 17
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 SALES 286.62 302.96 369.4 463.66 644.72 TOTAL ASSETS 280.9 329.01 403.87 438.36 537.56 RATIO 1.02 0.92 0.91 1.06 1.2

INTERPRETATION: The high turnover ratio tells the efficiency of the management and utilization of assets. The low turnover ratios are indicative of under utilization of available resources and presence of idle capacity. The total assets turnover ratio is gradually increasing from 2005-06 to 2008-09. It shows the firm maximum utilization of its assets.

3. 4.4 NET WORKING CAPITAL TURNOVER RATIO A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus computer net working capital turnover by dividing sales by net working capital is

42 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

Table 18
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 SALES 286.62 302.96 369.4 463.66 644.72 NET WORKING CAPITAL 74.61 87.65 154.71 165.86 250.91 RATIO 3.84 3.46 2.39 2.8 2.57

INTERPRETATION The average working capital ratio is 3.324. Thus it is indicated that for one Rupee of sales, the company needs 0.33324 of net current assets. The remaining is met from the long term funds and bank borrowings. In the study period the working capital turnover ratio was continuously fluctuated. 3.4.5 DEBTORS TURN OVER RATIO Debtor’s turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.

43 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Table 19 YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Net Credit Sales 286.62 302.96 369.37 463.66 644.72 Average Debtors 71.98 67.07 76.68 88.14 119.66 RATIO 3.98 4.52 4.82 5.26 5.39

INTERPRETATION The higher the value of debtors’ turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. Debtors turnover ratio shows a higher value, in 2004-2005 it is 3.98 and it continuously increases, in 2008-2009 it recorded as 5.39. 3.4.6 INVENTORY TURN OVER RATIO: Stock turnover ratio / Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory.

Table 20

44 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
YEAR 20042005 20052006 20062007 20072008 20082009 Cost of Goods Sold Average Stock RATIO 199.67 247.45 278.62 354.05 504.4 70.75 91.94 106.37 120.93 144.36 2.82 2.69 2.62 2.93 3.49

INFERENCE: Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. The ratio is increasing every year, in 2004-2005 it is 2.82 and in 2008-2009 it is recorded as 3.49. 3.4.7 EARNINGS PER SHARE (EPS) The profitability of the shareholders` investment can also be measured in many other ways. One such measure is to calculate the earnings per share. The earnings per share (EPS) is calculated by dividing the profit after taxes by the total number of ordinary shares outstanding.

45 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

PAT 20.94 4.15 15.81 25.92 18.35

NO. OF EQUITY SHARE 39.764 39.764 39.764 39.764 39.764

RATIO 5.27 1.04 3.98 6.52 4.62

INTERPRETATION: EPS simply shows the profitability of the company on a per-share basis. It is a widely used ratio in comparing the financial performance of the other companies in the industry.

3.2. COMPARATIVE STATEMENT:

46 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Comparative statements are financial statements that cover a different time frame, but are formatted in a manner that makes comparing line items from one period to those of a different period an easy process. This quality means that the comparative statement is a financial statement that lends itself well to the process of comparative analysis. Many companies make use of standardized formats in accounting functions that make the generation of a comparative statement quick and easy. Importance and Uses The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the statement, it is a simple process to compare the gross sales of a given product or all products of the company with the gross sales generated in a previous month, quarter, or year.  Comparing generated revenue from one period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.  Along with being an excellent way to broaden the understanding of the success of the sales effort, a comparative statement can also help address changes in production costs Features of Comparative Statements: 1) A comparative statement adds meaning to the financial data. 2) It is used to effectively measure the conduct of the business activities. 3) Comparative statement analysis is used for intra firm analysis and inters firm analysis. 4) A comparative statement analysis indicates change in amount as well as change in percentage. 5) A positive change in amount and percentage indicates an increase and a negative change in amount and percentage indicates a decrease.

47 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
3.2.1COMPARATIVE BALANCE SHEET For the years 2005-2006 (Rs. In Crores) Table 22

Mar '05 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances Less: Current libilities Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 39.76 39.76 38.05 77.81 108.86 95.89 204.75 4.24 286.8 200.21 54.17 146.04 60.15 5.9 70.75 71.98 2.47 16.16 161.36 80.91 5.86 96.25 74.61 0.1 280.9

Increase/ Mar '06 Decrease
39.76 39.76 39.93 79.69 92.45 150.69 243.14 6.18 329.01 250.36 65.1 185.26 56.04 0 91.94 67.07 3.51 20.7 183.22 92.02 3.54 95.56 87.65 0.06 329.01

% Chang e 0 0 4.94 2.42 -15.07 57.15 18.75 45.75

0 0 1.88 1.88 -16.41 54.8 38.39 1.94

50.15 10.93 39.22 -4.11 -5.9 21.19 -4.91 1.04 4.54 21.86 11.11 -2.32 -0.69 13.04 -0.04 48.11

25.05 20.18 26.86 -6.83

29.95 -6.82 42.11 28.09 13.55 13.73 -0.72 17.48 17.13

48 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

COMPARATIVE INCOME STATEMENT For the year 2005-2006 (Rs. In Crores)

Mar '05 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Equity Dividend Corporate Dividend Tax 315.87 29.25 286.62 0.54 -8.98 278.18 186.89 186.89 9.67 0.59 12.31 2.39 224.4 53.24 53.78 10.5 43.28 8.53 0.04 34.71 34.71 13.8 20.94 37.5 3.98 0.52

Mar '06 335.9 32.94 302.96 0.92 7.41 311.29 233.68 16.53 12.76 0.56 14.77 2.8 281.1 29.27 30.19 13.11 17.08 10.94 0.04 6.1 6.1 1.94 4.15 47.42 1.99 0.28

Increase/ Decrease -20.03 3.69 16.34 0.38 16.39 33.11 46.79

% Chang e -6.34 12.62 5.7 70.37 -182.52 11.9 25.04 0 0 -5.08 19.98 17.15 25.27 -45.02 0 24.86 -60.54 28.25 0 -82.43 0 -85.94 -80.18 26.45 -50 -46.15

-0.03 2.46 0.41 56.7 -23.97 2.61 -26.2 2.41 0 -28.61 -11.86 -16.79 9.92 -1.99 -0.24

49 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

INTERPRETATIONS:

For the year of (2005 & 2006)

 COMPARATIVE BALANCE SHEET:  There are no changes in share capital.
 The reserve and surpluses has increased 4.94% in 2005.  The debt funds have increased 18.75% on 2005 in 2006.  Net Fixed assets has increased 26.86%  The cash and bank balances were increased 42.11% in 2006.  The current assets have increased 13.55% in 2005.  The working capital has increased 17.48%

INCOME STATEMENT:
 The net sales were increased 5.7% in 2006.  The PBDT has decreased 60.54%.  The operating profit has decreased  PAT has decreased in 2006.

50 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

3.2.2 COMPARATIVE BALANCE SHEET For the years 2006-2007 (Rs. In Crores) Table 23

Mar '06 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances Less: Current libilities Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 39.76 39.76 39.93 79.69 92.45 150.69 243.14 6.18 329.01 250.36 65.1 185.26 56.04 0 91.94 67.07 3.51 20.7 183.22 92.02 3.54 95.56 87.65 0.06 329.01

Increase/ Mar '07 Decrease
39.76 39.76 51.09 90.85 163.83 137.34 301.17 11.85 403.87 318.24 76.66 241.58 7.54 0 106.37 76.68 26.5 52.42 261.97 101.88 5.38 107.26 154.71 0.04 403.87

% Chang e 0 0 27.95 14 77.21 -8.86 23.87 91.75

0 0 11.16 11.16 71.38 -13.35 58.03 5.67

67.88 11.56 56.32 -48.5 0 14.43 9.61 22.99 31.72 78.75 9.86 1.84 11.7 67.06 -0.02 74.86

27.11 17.76 30.4 -86.55

15.7 14.33 654.99 153.24 42.98 10.72 12.24 76.51 22.75

51 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

COMPARATIVE INCOME STATEMENT For the year 2006-2007 (Rs. In Crores)
Increase/ Mar '07 Decrease
410.45 41.08 369.37 2.32 4.71 376.4 268.03 17.03 14.83 4.99 14.32 3.65 322.85 51.23 53.55 20.31 33.24 11.57 0.03 21.64 21.64 5.84 15.81 54.82 3.98 0.68

Mar '06 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Equity Dividend Corporate Dividend Tax 335.9 32.94 302.96 0.92 7.41 311.29 233.68 16.53 12.76 0.56 14.77 2.8 281.1 29.27 30.19 13.11 17.08 10.94 0.04 6.1 6.1 1.94 4.15 47.42 1.99 0.28

% Chang e 22.19 24.71 21.92 152.17 -36.44 20.92 14.7 3.02 16.22 791.07 -3.05 30.36 14.85 75.03 77.38 54.92 94.61 5.76 -25 254.75 254.75 201.03 280.96 15.61 100 142.86

74.55 8.14 66.41 1.4 -2.7 65.11 34.35 0.5 2.07 4.43 -0.45 0.85 41.75 21.96 23.36 7.2 16.16 0.63 -0.01 15.54 15.54 3.9 11.66 7.4 1.99 0.4

52 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

INTERPRETATIONS: For the year of (2006 & 2007) BALANCE SHEET:
 The reserves and surpluses had increased in 2007 by 27.95%.  The debt funds have increased around 23.87% on total debt funds on the debt

funds of 2006.
 The fixed assets have increased 30.4% on the fixed assets of 2006.  The debtors have increased 4.3% in the year 2007 when compared to the

debtors of the 2006.
 The cash and bank balances have increase 654.99% of the cash and bank

balance of the 2006.
 The current assets have increased 42.98% on the current assets of the 2006.  The current liabilities have increased 12.24% on the current liabilities of the

previous year.
 The net working capital was increased 76.51% in the year 2006.

INCOME STATEMENT:
 The net sales were decreased 21.92% in 2007.  The PBDIT has decreased 77.38%  The operating profit has increased 75.03%.  EBIT has increased 94.61% on PBIT of 2007.  PAT has decreased 280.96% in 2007.

53 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

3.2.3 COMPARATIVE BALANCE SHEET For the years 2007-2008 (Rs. In Crores) Table 24

Mar '07 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances Less: Current libilities Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses 39.76 39.76 51.09 90.85 163.83 137.34 301.17 11.85 403.87 318.24 76.66 241.58 7.54 0 106.37 76.68 26.5 52.42 261.97 101.88 5.38 107.26 154.71 0.04

Increase/ Mar '08 Decrease
39.76 39.76 71.8 111.56 178.32 122.71 301.03 25.77 438.36 355.16 91.28 263.88 8.62 0 120.93 88.14 4.2 52.89 266.16 93.19 7.11 100.3 165.86 0

% Chang e 0 0 40.54 22.8 8.84 -10.65 -0.05 117.47

0 0 20.71 20.71 14.49 -14.63 -0.14 13.92

36.92 14.62 22.3 1.08 0 14.56 11.46 -22.3 0.47 4.19 -8.69 1.73 -6.96 11.15 -0.04

11.6 19.07 9.23 14.32

13.69 14.95 -84.15 0.9 1.6 -8.53 -6.49 7.21

54 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Total Assets 403.87 438.36

34.49

8.54

COMPARATIVE INCOME STATEMENT For the year 2007-2008 (Rs. In Crores)

Mar '07 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition 410.45 41.08 369.37 2.32 4.71 376.4 268.03 17.03 14.83 4.99 14.32 3.65 322.85 51.23 53.55 20.31 33.24 11.57 0.03 21.64 21.64 5.84 15.81 54.82

Increase/ Mar '08 Decrease
494.72 31.06 463.66 4.69 0.14 468.49 332.69 10.44 18.63 6.27 14.19 3.82 386.04 77.76 82.45 27.27 55.18 15.13 0.04 40.01 39.46 14.1 25.92 53.35

% Chang e 20.53 -24.39 25.53 102.16 -97.03 24.47 24.12 -38.7 25.62 25.65 -0.91 4.66 19.57 51.79 53.97 34.27 66 30.77 33.33 84.89 82.35 141.44 63.95 -2.68

84.27 -10.02 94.29 2.37 -4.57 92.09 64.66 -6.59 3.8 1.28 -0.13 0.17 63.19 26.53 28.9 6.96 21.94 3.56 0.01 18.37 17.82 8.26 10.11 -1.47

55 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Equity Dividend Corporate Dividend Tax 3.98 0.68 3.98 0.68

0 0

0 0

INTERPRETATIONS: for the year of (2007 & 2008) BALANCE SHEET:  There are no changes in share capital.
 The Reserves and surplus has increased 40.54% compare to previous year.  The fixed assets have increased 9.23% compare to 07 – 08.  The Sunday debtors increased 14.65% in the year 07 – 08.  The cash & bank balance has decreased 84.15% & on the year 2007 – 2008.  Current liabilities have decreased to 6.49% on the year 2007 – 2008.

INCOME STATEMENT:
 The net sales were increased 25.43% compared to 2007 – 2008.

 PBIDT has increased by 53.57% in 2008.
 Profit before tax has increased to 82.35% compared to previous year.  PAT has increased to 63.95% compared to 07 – 08.

56 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

3.2.4 COMPARATIVE BALANCE SHEET For the years 2008-2009 (Rs. In Crores) Table 25

Mar '08 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances Less: Current libilities Current Liabilities Provisions 39.76 39.76 71.8 111.56 178.32 122.71 301.03 25.77 438.36 355.16 91.28 263.88 8.62 0 120.93 88.14 4.2 52.89 266.16 93.19 7.11

Increase/ Mar '09 Decrease
39.76 39.76 85.5 125.26 226.46 154.6 381.06 31.24 537.56 389.75 107.35 282.4 4.25 0 144.36 119.66 34.64 61.08 359.74 101.08 7.75

% Chang e 0 0 19.08 12.28 27 25.99 26.59 21.23

0 0 13.7 13.7 48.14 31.89 80.03 5.47

34.59 16.07 18.52 -4.37 0 23.43 31.52 30.44 8.19 93.58 7.89 0.64

9.74 17.61 7.02 -50.7

19.37 35.76 724.76 15.48 35.16 8.47

57 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 100.3 165.86 0 438.36 108.83 250.91 0 537.56

8.53 85.05 0 99.2

8.5 51.28 22.63

COMPARATIVE INCOME STATEMENT For the year 2008-2009 (Rs. In Crores)
Increase/ Decrease 185.75 4.69 181.06 -2.59 -2.61 175.86 65.07 -0.09 2.8 -0.71 3.13 0.71 167.55 10.9 2.73 13.27 -10.54 1.29 -0.04 -11.79 -11.24 -4.22 -7.57 % Chang e 37.55 15.1 39.05 -55.22 1864.29 37.54 19.56 -0.86 15.03 -11.32 22.06 18.59 43.4 14.02 3.31 48.66 -19.1 8.53 -100 -29.47 -28.48 -29.93 -29.21

Mar '08 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax PBT (Post Extra-ord Items) Tax Reported Net Profit 494.72 31.06 463.66 4.69 0.14 468.49 332.69 10.44 18.63 6.27 14.19 3.82 386.04 77.76 82.45 27.27 55.18 15.13 0.04 40.01 39.46 14.1 25.92

Mar '09 680.47 35.75 644.72 2.1 -2.47 644.35 397.76 10.35 21.43 5.56 17.32 4.53 553.59 88.66 85.18 40.54 44.64 16.42 0 28.22 28.22 9.88 18.35

58 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax 53.35 0 3.98 0.68 59.18 0 3.98 0.68

5.83 0 0 0

10.93 0 0

INTERPRETATIONS: for the year of (2008 & 2009) BALANCE SHEET:  There are no changes in share capital.
 The Reserves and surplus has increased 19.08% compare to previous year.  The fixed assets have increased 7.02% compare to 08 – 09.  The Sunday debtors increased 35.76% in the year 08 – 09.  The cash & bank balance has increased by 724.76% on the year 2008 – 2009.  Current liabilities have increased to 8.5% on the year 2008 – 2009.

INCOME STATEMENT:
 The net sales were increased 35.09% compared to 2008 – 2009.  Profit before tax has decreased to 29.47% compared to previous year.  PAT has decreased to 29.21% compared to 08 – 09.

59 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

3.3. COMMON SIZE FINANCIAL STATEMENTS Common size ratios are used to compare financial statements of different-size companies or of the same company over different periods. By expressing the items in proportion to some size-related measure, standardized financial statements can be created, revealing trends and providing insight into how the different companies compare. The common size ratio for each line on the financial statement is calculated as follows:

Features of Common Size Statement 1. A common size statement analysis indicates the relation of each component to the whole. 2. In case of a Common Size Income statement analysis Net Sales is taken as 100% and in case of Common Size Balance Sheet analysis total funds available/total capital employed is considered as 100%. 3. It is used for vertical financial analysis and comparison of two business enterprises or two years financial data. Limitations As with financial statements in general, the interpretation of common size statements is subject to many of the limitations in the accounting data used to construct them. For example:

60 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
1. Different accounting policies may be used by different firms or within the same firm at different points in time. Adjustments should be made for such differences. 2. Different firms may use different accounting calendars, so the accounting periods may not be directly comparable.

3.3.1 COMMON SIZE BALANCE SHEET For the years 2005 & 2006 (Rs. In Crores) Table 26

Mar '05 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances 39.76 39.76 38.05 77.81 108.86 95.89 204.75 4.24 286.8 200.21 54.17 146.04 60.15 5.9 70.75 71.98 2.47 16.16 161.36

%CHANGE 13.86 13.86 13.27 27.13 37.96 33.43 71.39 1.48 100 69.81 18.89 50.92 20.97 2.06 24.67 25.1 0.86 5.63 56.26

Mar '06 39.76 39.76 39.93 79.69 92.45 150.69 243.14 6.18 329.01 250.36 65.1 185.26 56.04 0 91.94 67.07 3.51 20.7 183.22

%CHANGE 12.08 12.08 12.14 24.22 28.1 45.8 73.9 1.88 100 76.09 19.79 56.31 17.03 0 27.94 20.39 1.07 6.29 55.69

61 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Less: Current libilities Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

80.91 5.86 96.25 74.61 0.1 280.9

28.21 2.04 33.56 26.01 0.03 97.94

92.02 3.54 95.56 87.65 0.06 329.01

27.97 1.08 29.04 26.64 0.02 100

3.3.2 COMMON SIZE BALANCE SHEET For the years 2005 & 2006 (Rs. In Crores) Table 27

Mar '05 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation 315.87 29.25 286.62 0.54 -8.98 278.18 186.89 186.89 9.67 0.59 12.31 2.39 0 224.4 53.24 53.78 10.5 43.28 8.53

%CHANGE 110.21 10.21 100 0.19 -3.13 97.06 0 65.2 65.2 3.37 0.21 4.29 0.83 0 78.29 18.58 18.76 3.66 15.1 2.98

Mar '06 335.9 32.94 302.96 0.92 7.41 311.29 233.68 16.53 12.76 0.56 14.77 2.8 0 281.1 29.27 30.19 13.11 17.08 10.94

%CHANGE 110.87 10.87 100 0.3 2.45 102.75 0 77.13 5.46 4.21 0.18 4.88 0.92 0 92.78 9.66 9.97 4.33 5.64 3.61

62 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Equity Dividend 0.04 34.71 0 34.71 13.8 20.94 37.5 3.98 0.01 12.11 0 12.11 4.81 7.31 13.08 1.39 0.04 6.1 0 6.1 1.94 4.15 47.42 1.99 0.01 2.01 0 2.01 0.64 1.37 15.65 0.66

INTERPRETATION FOR COMMON SIZE STATEMENT:

BALANCE SHEET:
 Common size financial statement is given above reveals of the total assets is

taken 100% in the years 2005 – 2006.
 The common size balance sheet that shows the Reserve and surplus in 2005

13.27% and 2006 is 12.24% increase the surplus reserve and surplus.
 Net Worth has 27.13% and 24.22% decrease in the previous year compared.  Net block has 2005 is 50.92% and 56.31% increased in 2006.  Sundry debtors increased to 25.1% and 20.39% decrease in 2006.  Cash & bank balance has 0.87% is taken 2005 and 2006 has 1.07% that is

slowly decreased bank balance.
 The net current assets have 26.01% in the year 2005 and 26.64% decreased in

the 2006.

INCOME STATEMENT:
 Common size income statement is given above reveals of the Revenue from

sales is taken 100% in the years 2005 – 2006.
 PBDIT has 18.86% is taken year 2006 and 9.97% compared to previous year

is increased.

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Financial performance
 EBIT has 12.11% in the year 2005 and 10.1% increase to EBIT in the year

2006.
 Profit after tax 7.31% in the year 2005 and increase the general reserve 1.37% in the year 2006.

3.3.3 COMMON SIZE BALANCE SHEET For the years 2007, 2008 & 2009 (Rs. In Crores) Table 28

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Financial performance

Mar '07 Sources Of Funds Total Share Capital Equity Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Deffered Tax liability Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Add: Current Assets Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total CA, Loans & Advances Less: Current libilities Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 39.76 39.76 51.09 90.85 163.83 137.34 301.17 11.85 403.87 318.24 76.66 241.58 7.54 0 106.37 76.68 26.5 52.42 261.97 101.88 5.38 107.26 154.71 0.04 403.87

%CHANGE 9.84 9.84 12.65 22.49 40.57 34.01 74.57 2.93 100 78.8 18.98 59.82 1.87 0 26.34 18.99 6.56 12.98 64.86 25.23 1.33 26.56 38.31 0.01 100

Mar '08 39.76 39.76 71.8 111.56 178.32 122.71 301.03 25.77 438.36 355.16 91.28 263.88 8.62 0 120.93 88.14 4.2 52.89 266.16 93.19 7.11 100.3 165.86 0 438.36

%CHANGE 9.07 9.07 16.38 25.45 40.68 27.99 68.67 5.88 100 81.02 20.82 60.2 1.97 0 27.59 20.11 0.96 12.07 60.72 21.26 1.62 22.88 37.84 0 100

Mar '09 39.76 39.76 85.5 125.26 226.46 154.6 381.06 31.24 537.56 389.75 107.35 282.4 4.25 0 144.36 119.66 34.64 61.08 359.74 101.08 7.75 108.83 250.91 0 537.56

%CHANGE

7.4 7.4 15.91 23.3 42.13 28.76 70.89 5.81 100 72.5 19.97 52.53 0.79 0 26.85 22.26 6.44 11.36 66.92 18.8 1.44 20.25 46.68 0 100

3.3.4 COMMON SIZE BALANCE SHEET For the years 2007, 2008 & 2009 (Rs. In Crores) Table 29

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Financial performance

Mar '07 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit 410.45 41.08 369.37 2.32 4.71 376.4 268.03 17.03 14.83 4.99 14.32 3.65 0 322.85 51.23 53.55 20.31 33.24 11.57 0.03 21.64 0 21.64 5.84 15.81

%CHANGE 111.12 11.12 100 0.63 1.28 101.9 0 72.56 4.61 4.01 1.35 3.88 0.99 0 87.41 13.87 14.5 5.5 9 3.13 0.01 5.86 0 5.86 1.58 4.28

Mar '08 494.72 31.06 463.66 4.69 0.14 468.49 332.69 10.44 18.63 6.27 14.19 3.82 0 386.04 77.76 82.45 27.27 55.18 15.13 0.04 40.01 -0.55 39.46 14.1 25.92

%CHANGE 106.7 6.7 100 1.01 0.03 101.04 0 71.75 2.25 4.02 1.35 3.06 0.82 0 83.26 16.77 17.78 5.88 11.9 3.26 0.01 8.63 -0.12 8.51 3.04 5.59

Mar '09 680.47 35.75 644.72 -3.48 -2.47 638.77 494.4 10.35 21.43 5.56 17.32 4.53 0 553.59 88.66 85.18 40.54 44.64 16.42 0 28.22 0 28.22 9.88 18.35

%CHANGE

105.55 5.55 100 -0.54 -0.38 99.08 0 76.68 1.61 3.32 0.86 2.69 0.7 0 85.87 13.75 13.21 6.29 6.92 2.55 0 4.38 0 4.38 1.53 2.85

INTERPRETATION FOR COMMON SIZE INCOMESTATEMENT BALANCE SHEET:

66 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
 Common size financial statement is given above reveals of the total assets is

taken 100% in the years 2007, 2008 &2009.
 Common size balance sheet shows that the reserve and surplus increasing

from 12.25% to 16.85% in 2007-08 and again decreased to 15.61% in 2009.
 Fixed assets have increased from 59.82% to 60.2% in 2007-2008 and

decreased to 58.82% in 2009.
 The current assets are continuously increased as compared to previous year  Net current assets have increased continuously year by year.

INCOME STATEMENT:
 The common size income statement is given above reveals of the Revenue

from Sales is taken 100 in the years 2007, 2008 &2009.
 The PBIDT increased from 14.5% to 17.71% in the years between 2007-2008.  In the year 2007 – 2008; it could not help to improve profit.  PAT has decreased compare to the previous years.

 Other income has increased
 In every year the company is slowly improves its performance.

 It is found the satisfactory position of the company.

3.4. TREND STATEMENT: Trend analysis calculates the percentage change for one account over a period of time of two years or more.

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Percentage change To calculate the percentage change between two periods: • Calculate the amount of the increase/ (decrease) for the period by subtracting the earlier year from the later year. • If the difference is negative, the change is a decrease and if the difference is positive, it is an increase. • Divide the change by the earlier year's balance. The result is the percentage change.

Trend percentages To calculate the change over a longer period of time the following is the formula for calculating trend for the data:

;
Ye = a + b(X)

3.4.1 Trend analysis for Net Sales
Table 30

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Financial performance
YEARS (X) 200405 200506 200607 200708 200809 NET SALES (Y) 286.62 302.9 369.37 463.66 644.72 2067.27 X=X -A -2 -1 0 1 2 0

X2 4 1 0 1 4
2

XY -573.24 -302.9 0 463.66 1289.44 =

10

= 413.54;
Ye = a + b(X) 2009-10 = 413.454 + 80.696(3) = 676.633 2010-11 = 413.454 +80.696(4) = 764.329

= 80.696

The estimated net sales for 2009-10 is 676.633 and the estimated net sales for 201011 is 764.329 that mean in future net sales has been increasing.

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Financial performance

3.4.2 Trend analysis for Total Income
Table 31
YEARS (X) 200405 200506 200607 200708 200809
TOTAL INCOME (Y) 278.18 311.29 376.4 468.49 638.77

X=X -A -2 -1 0 1 2 0

X2 4 1 0 1 4
2

XY -556.36 -311.29 0 468.49 1277.54 =

2073.13

10

= 414.626; Ye = a + b(X)
2009-10 = 414.626 + 87.838(3) = 678.14 2010-11 = 413.626 +87.838(4) = 765.978

= 87.838

The estimated Total income for 2009-10 is 678.14 and the estimated Total income for 2010-11 is 765.978 that mean in future Total income has been increasing.

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Financial performance

3.4.3 Trend analysis for Total Expenses
Table 32
YEARS (X) 200405 200506 200607 200708 200809
TOTAL EXPENSES (Y) 224.4 281.1 322.85 386.04 553.59

X=X -A -2 -1 0 1 2 0

X2 4 1 0 1 4
2

XY -448.8 -281.1 0 386.04 1107.18 =

1767.98

10

= 353.596; Ye = a + b(X)
2009-10 = 353.596 + 152.664(3) = 582.67 2010-11 = 353.596 +152.664(4) = 659.03

= 76.3596

71 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
The estimated Total Expenses for 2009-10 is 582.67 and the estimated Total Expenses for 2010-11 is 659.03 that mean in future Total Expenses has been increasing.

3.4.4Trend analysis for Profit before Depreciation, Interest and Tax
Table 33
YEARS (X) 200405 200506 200607 200708 200809 PBDIT (Y) 53.78 30.19 53.55 82.45 85.18 305.15 X=X -A -2 -1 0 1 2 0 X2 4 1 0 1 4
2

XY -107.56 -30.19 0 82.45 170.36 =

10

= 61.03;

= 11.506

72 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance Ye = a + b(X)
2009-10 = 61.03 + 23.012(3) = 95.548 2010-11 =61.03 +23.012(4) = 107.054 The estimated PBDIT for 2009-10 is 95.548 and the estimated PBDIT for 2010-11 is 107.54 that mean in future PBDIT has been increasing.

3.4.5 Trend analysis for Net profit
Table 34
YEARS (X) 200405 200506 200607 200708 200809 NET PROFIT (Y) 20.94 4.15 15.81 25.92 18.35 85.17 X=X -A -2 -1 0 1 2 0 X2 4 1 0 1 4
2

XY -41.88 -4.15 0 25.92 36.7 =

10

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Financial performance

= 17.034; Ye = a + b(X)
2009-10 = 17.034 + 3.318(3) = 22.011 2010-11 =17.034 +3.318(4) = 23.67

= 1.659

The estimated Net profit for 2009-10 is 22.011 and the estimated Net profit for 201011 is 23.67 that mean in future Net profit has been increasing.

3.4.6 Trend analysis for Fixed Assets
Table 35
YEARS (X) 200405 200506 200607 FIXED ASSETS (Y) 146.04 185.26 241.58 X=X -A -2 -1 0 X2 4 1 0 XY -292.08 -185.26 0

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Financial performance
200708 200809 263.88 282.4 1119.16 1 2 0 1 4
2

263.88 564.8 =

10

= 223.832; Ye = a + b(X)
2009-10 = 223.832 + 70.268(3) = 329.234 2010-11 =223.832 +70.268(4) = 364.368

= 35.134

The estimated fixed assets for 2009-10 is 329.234 and the estimated Fixed assets for 2010-11 is 364.368 that mean in future Fixed assets has been increasing.

3.4.7 Trend analysis for Total Assets
Table 36
YEARS Total Assets (Y) X=X X2 XY

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Financial performance
(X) 200405 200506 200607 200708 200809 -A 282.56 322.83 392.02 412.59 506.32 1916.32 -2 -1 0 1 2 0 4 1 0 1 4
2

-565.12 -322.83 0 412.59 1012.64 =

10

= 383.264; Ye = a + b(X)
2009-10 = 383.264+ 107.456 (3) = 544.44 2010-11 =383.264+107.456 (4) = 598.168

= 53.728

The estimated Total assets for 2009-10 are 544.44and the estimated Total assets for 2010-11 is 598.168 that mean in future Total assets has been increasing.

76 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance

3.4.8 Trend analysis for Debt-Equity Ratio
Table 37
YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 DEBT- EQUITYRATIO 2.63 3.05 3.31 2.7 3.04 14.73 X=X -A -2 -1 0 1 2 0 X2 4 1 0 1 4
2

XY -5.26 -3.05 0 2.7 6.08 =

10

= 2.946; Ye = a + b(X)
2009-10 = 2.946+ 0.047 (3) = 2.087 2010-11 =2.946+0.047 (4) = 3.134

= 0.047

The estimated Debt-Equity Ratio for 2009-10 is 2.087 and the estimated Debt-Equity Ratio for 2010-11 is 3.134 that mean in future Debt-Equity Ratio has been increasing.

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Financial performance

3.4.9 Trend analysis for Proprietary Ratio
Table 38 Year 20042005 20052006 20062007 20072008 20082009 Proprietary Ratio 0.28 0.24 0.22 0.25 0.23 ⅀= 1.22
X=X -A -2 -1 0 1 2 ⅀=0 X2 4 1 0 1 4 ⅀ 2 = 10 XY -0.56 -0.24 0 0.25 0.46 ⅀=0.09

= 0.244; Ye = a + b(X)
2009-10 = 0.244 + -0.009 (3) = 0.217 2010-11 = 0.244 +-0.009 (4) = 0.208

= -0.009;

The estimated Proprietary Ratio for 2009-10 is 0.217 and the estimated Proprietary Ratio for 2010-11 is 0.208 that mean in future Proprietary Ratio has been decreasing.

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Financial performance

3.4.10 Trend analysis for Total Debt Ratio
Table 39 Year 20042005 20052006 20062007 20072008 20082009 Total Debt Ratio 0.73 0.74 0.75 0.69 0.71 ⅀= 3.62
X=X -A -2 -1 0 1 2 ⅀=0 X2 4 1 0 1 4 ⅀ 2 = 10 XY -1.46 -0.74 0 0.69 1.42 ⅀=0.09

= 0.724; Ye = a + b(X)
2009-10 = 0.724 + -0.009 (3) = 0.697 2010-11 = 0.724 +-0.009 (4) = 0.688

= -0.009;

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Financial performance
The estimated Total Debt Ratio for 2009-10 is 0.697 and the estimated Total Debt Ratio for 2010-11 is 0.688 that mean in future Total Debt has been decreasing.

3.4.11 Trend analysis for Current Ratio
Table 40

YEAR 20042005 20052006 20062007 20072008 20082009

CURRENT RATIO 1.68 1.92 2.44 2.65 3.31 ⅀= 12

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -3.36 -1.92 0 2.65 6.62 ⅀= 3.99

= 2.4;

= 0.399;

80 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance Ye = a + b(X)
2009-10 = 2.4 + 0.399 (3) = 3.597 2010-11 = 2.4 + 0.399 (4) = 3.996 The estimated Current Ratio for 2009-10 is 3.597 and the estimated Current Ratio for 2010-11 is 3.996 that mean in future Current Ratio has been increasing.

3.4.12 Trend analysis for Quick Ratio
Table 41

YEAR 20042005 20052006 20062007 20072008 20082009

QUICK RATIO 0.94 0.96 1.45 1.45 1.98 ⅀= 6.78

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -1.88 -0.96 0 1.45 3.96 ⅀= 2.57

81 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance = 1.356; Ye = a + b(X)
2009-10 = 1.356 + 0.257 (3) = 2.217 2010-11 = 1.356 + 0.257 (4) = 2.384 The estimated Quick Ratio for 2009-10 is 2.217 and the estimated Quick Ratio for 2010-11 is 2.384 that mean in future Quick Ratio has been increasing.

= 0.257;

3.4.13 Trend analysis for Cash Ratio
Table 42

YEAR 20042005 20052006 20062007 20072008 20082009

CASH RATIO 0.02 0.02 0.1 0.02 0.1 ⅀= 0.26

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -0.04 -0.02 0 0.02 0.2 ⅀= 0.16

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Financial performance

= 0.052; Ye = a + b(X)
2009-10 = 0.052+ 0.016 (3) = 0.1 2010-11 = 0.052+ 0.016 (4) = 0.116

= 0.016;

The estimated Cash Ratio for 2009-10 is 0.1 and the estimated Cash Ratio for 201011 is 0.116 that mean in future Cash Ratio has been increasing.

3.4.14 Trend analysis for Net Profit Ratio
Table 43

YEAR 20042005 20052006 20062007

NET PROFIT RATIO 7.31 1.37 4.28

X=X -A -2 -1 0

X2 4 1 0

XY -14.62 -1.37 0

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Financial performance
20072008 20082009 5.6 2.854 ⅀= 21.414

1 2 ⅀=0

1 4 ⅀ 2 = 10

5.6 5.708 ⅀= -4.682

= 4.2828; Ye = a + b(X)
2009-10 = 4.2828+ -0.4682 (3) = 2.8782 2010-11 = 4.2828+ -0.4682 (4) = 2.41

= -0.4682;

The estimated Net Profit Ratio for 2009-10 is 2.8782 and the estimated Net Profit Ratio for 2010-11 is 2.41 that mean in future Net Profit Ratio has been decreasing.

3.4.15 Trend analysis for Gross Profit Ratio Table 44
YEAR 20042005 20052006 20062007 GROSS PROFIT RATIO 30.42 17.41 22.93

X=X -A -2 -1 0

X2 4 1 0

XY -60.84 -17.41 0

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Financial performance
20072008 20082009 30.5 23.31 ⅀= 124.57

1 2 ⅀=0

1 4 ⅀ 2 = 10

30.5 46.62 ⅀= -1.13

= 24.914; Ye = a + b(X)
2009-10 = 24.914+ -0.113 (3) = 24.576 2010-11 = 24.914+ -0.113 (4) = 24.462

= -1.13;

The estimated Gross Profit Ratio for 2009-10 is 24.576 and the estimated Gross Profit Ratio for 2010-11 is 24.462 that mean in future Gross Profit Ratio has been decreasing.

3.4.16 Trend analysis for Operating Profit Ratio Table 45
YEAR OPERATING PROFIT RATIO

X=X -A

X2

XY

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Financial performance
20042005 20052006 20062007 20072008 20082009 18.58 9.66 13.87 16.77 13.75 ⅀= 72.63

-2 -1 0 1 2 ⅀=0

4 1 0 1 4 ⅀ 2 = 10

-37.16 -9.66 0 16.77 27.5 ⅀= -2.55

= 72.63; Ye = a + b(X)
2009-10 = 72.63+ -2.55 (3) = 13.761 2010-11 = 72.63+ -2.55 (4) = 13.506

= -2.55;

The estimated Operating Profit Ratio for 2009-10 is 13.761 and the estimated Operating Profit Ratio for 2010-11 is 13.506 that mean in future Operating Profit Ratio has been decreasing.

3.4.17 Trend analysis for Return on Capital Employed Ratio

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Financial performance
Table 46
YEAR 20042005 20052006 20062007 20072008 20082009 RETURN ON CAPITAL EMPLOYED 7.45 1.26 3.91 5.91 3.41 ⅀= 21.94

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -14.9 -1.26 0 5.91 6.82 ⅀= -3.43

= 4.388; Ye = a + b(X)
2009-10 = 4.388 + -0.343 (3) = 3.359 2010-11 = 4.388 + -0.343 (4) = 3.016

= -0.343;

The estimated Return on Capital Employed for 2009-10 is 3.359 and the estimated Return on Capital Employed for 2010-11 is 3.016 that mean in future Return on Capital Employed has been decreasing.

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Financial performance

3.4.18 Trend analysis for Return on Net Worth Ratio
Tabl 47
YEAR 20042005 20052006 20062007 20072008 20082009 RETURN ON NET WORTH 26.91 5.2 17.4 23.23 14.65 ⅀= 87.39

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -53.82 -5.2 0 23.23 29.3 ⅀= -6.49

= 17.478; Ye = a + b(X)
2009-10 = 17.478 + -0.649 (3) = 15.549 2010-11 = 17.478+ -0.649 (4) = 14.889

= -0.649;

88 RAO’S INSTITUTE OF MANGEMENT STUDIES

Financial performance
The estimated Return on Net Worth for 2009-10 is 15.549 and the estimated Return on Net Worth for 2010-11 is 14.889 that mean in future Return on Net Worth has been decreasing.

3.4.19 Trend analysis for Return on Investment Ratio
Table48
YEAR 20042005 20052006 20062007 20072008 20082009 RETURN ON INVESTMENT 19.15 9.18 13.26 18.81 15.85 ⅀= 76.25

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -38.3 -9.18 0 18.81 31.7 ⅀= 3.03

= 15.25; Ye = a + b(X)

= 0.303;

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Financial performance
2009-10 = 15.25 + 0.303(3) = 16.159 2010-11 = 15.25+ 0.303 (4) = 16.462 The estimated Return on Investment for 2009-10 is 16.159 and the estimated Return on Investment for 2010-11 is 16.462 that mean in future Return on Investment has been increasing.

3.4.20 Trend analysis for Current Assets Turnover Ratio:
Table 49

YEAR 20042005 20052006 20062007 20072008 20082009

CURRENT ASSETS TURN OVER RATIO 1.78 1.65 1.41 1.74 1.79 ⅀= 8.37

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -3.56 -1.65 0 1.74 3.58 ⅀= 0.11

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Financial performance = 1.674; Ye = a + b(X)
2009-10 = 1.674 + 0.011(3) = 1.707 2010-11 = 1.674+ 0.011 (4) = 1.718 The estimated Current Assets Turn over Ratio for 2009-10 is 1.707 and the estimated Current Assets Turn over Ratio for 2010-11 is 1.718 that mean in future Current Assets Turn over Ratio has been increasing.

= 0.011;

3.4.21 Trend analysis for Fixed Assets Turnover Ratio:
Table 50

YEAR 20042005 20052006 20062007 20072008 20082009

FIXED ASSETS TURN OVER RATIO 1.96 1.64 1.53 1.76 2.28

X=X -A -2 -1 0 1 2

X2 4 1 0 1 4

XY -3.92 -1.64 0 1.76 4.56

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⅀ 2 = 10 ⅀= 0.76

⅀= 9.17

⅀=0

= 1.834; Ye = a + b(X)
2009-10 = 1.834 + 0.076 (3) = 2.062 2010-11 = 1.834 + 0.076 (4) = 2.138

= 0.076;

The estimated Fixed Assets Turnover Ratio for 2009-10 is 2.062 and the estimated Fixed Assets Turnover Ratio for 2010-11 is 2.138 that mean in future Fixed Assets Turnover Ratio has been increasing.

3.4.22 Trend analysis for Total Assets Turnover Ratio:
Table 51

YEAR 20042005 20052006 2006-

TOTAL ASSETS TURN OVER RATIO 1.02 0.92 0.91

X=X -A -2 -1 0

X2 4 1 0

XY -2.04 -0.92 0

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2007 20072008 20082009

1.06 1.2 ⅀= 5.11

1 2 ⅀=0

1 4 ⅀ 2 = 10

1.06 2.4 ⅀=0. 5

= 1.022; Ye = a + b(X)
2009-10 = 1.022 + 0.05 (3) = 1.172 2010-11 = 1.022 + 0.05 (4) = 1.222

= 0.05;

The estimated Total Assets Turnover Ratio for 2009-10 is 1.172 and the estimated Total Assets Turnover Ratio for 2010-11 is 1.222 that means in future Total Assets Turnover Ratio has been increasing.

3.4.23 Trend analysis for Total Assets Turnover Ratio:
Table 52
YEAR NET WORKING CAPITAL TURN OVER RATIO

X=X -A

X2

XY

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Financial performance
20042005 20052006 20062007 20072008 20082009 3.84 3.46 2.39 2.8 2.57 ⅀= 15.06

-2 -1 0 1 2 ⅀=0

4 1 0 1 4 ⅀ 2 = 10

-7.68 -3.46 0 2.8 5.14 ⅀= -3.2

= 3.012; Ye = a + b(X)
2009-10 = 3.012 + -0.32 (3) = 2.052 2010-11 = 3.012 + -0.32 (4) = 1.732

= -0.32;

The estimated Net Working Capital Turnover Ratio for 2009-10 is 2.052 and the estimated Net Working Capital Turnover Ratio for 2010-11 is 1.732 that means in future Net Working Capital Turnover Ratio has been decreasing.

3.4.24 Trend analysis for Debtors Turnover Ratio:
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Financial performance
Table53
YEAR DEBTORS TURN OVER RATIO X=X -A -2 -1 0 1 2 ⅀=0 X2 4 1 0 1 4 ⅀ 2 = 10 XY -7.96 -4.52 0 5.26 10.78 ⅀= 3.56

20042005 20052006 20062007 20072008 20082009

3.98 4.52 4.82 5.26 5.39 ⅀= 23.97

= 4.794; Ye = a + b(X)
2009-10 = 4.794 + 0.356 (3) = 5.865 2010-11 = 4.794 + 0.356 (4) = 6.221

= 0.356;

The estimated Debtors Turnover Ratio for 2009-10 is 5.865 and the estimated Debtors Turnover Ratio for 2010-11 is 6.221 that means in future Debtors Turnover Ratio has been increasing.

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Financial performance 3.4.25 Trend analysis for Inventory Turnover Ratio:
Table54
YEAR INVENTORY TURN OVER RATIO X=X -A -2 -1 0 1 2 ⅀=0 X2 4 1 0 1 4 ⅀ 2 = 10 XY -5.64 -2.69 0 2.93 6.98 ⅀= 1.58

20042005 20052006 20062007 20072008 20082009

2.82 2.69 2.62 2.93 3.49 ⅀= 14.55

= 2.91; Ye = a + b(X)
2009-10 = 2.91 + 0.158 (3) = 3.384 2010-11 = 2.91 + 0.158 (4) = 3.542

= 0.158;

The estimated Inventory Turnover Ratio for 2009-10 is 3.384 and the estimated Inventory Turnover Ratio for 2010-11 is 3.542 that mean in future Inventory Turnover Ratio has been increasing.

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Financial performance

3.4.26 Trend analysis for Earnings per Share:
Table55
YEAR 20042005 20052006 20062007 20072008 20082009 EARNINGS PER SHARE 5.27 1.04 3.98 6.52 4.62 ⅀= 21.43

X=X -A -2 -1 0 1 2 ⅀=0

X2 4 1 0 1 4 ⅀ 2 = 10

XY -10.54 -1.04 0 6.52 9.24 ⅀= 4.18

= 4.286; Ye = a + b(X)
2009-10 = 4.286 + 0.418 (3) = 5.54 2010-11 = 4.286 + 0.418 (4) = 5.958

= 0.418;

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Financial performance
The estimated Fixed Assets Turnover Ratio for 2009-10 is 5.54 and the estimated Fixed Assets Turnover Ratio for 2010-11 is 5.958 that mean in future Fixed Assets Turnover Ratio has been increasing.

4.1 FINDINGS
 Debt-Equity ratio is fluctuated in each year; it increases from 2.63 to 3.31 in

the periods in between 2004-07, decreased in the year 2007-08 and again increased in the period 2008-09.  Proprietary Ratio is fluctuated in each year, in 2004-05 it recorded as 0.28, the average ratio is recorded as 0.25  The debt ratio average for the study period is 0.7456; it means that the lenders have financed 74.56% of total debt

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Financial performance
 In the study period the company’s interest coverage ratio is fluctuating. In 2004-2005 it shows a high ratio (5.12), a high ratio is desirable to the company.
 The firm’s current ratio is lower than standard form in 2004-05 and 2005-06.

But in 2006-07, 2007-08 and 2008-09 it was recorded higher than standard form.  The company’s quick ratio is almost equal to standard ratio 1:1 in the years, 2006-07, 2007-08 and 2008-09. But in 2005-06 and 2004-05 it is not equal to ideal ratio.
 In the study period the working capital turnover ratio was continuously

fluctuated. The average working capital ratio is 3.324.
 Gross profit of the company is fluctuating throughout the study period, in the

year 2005-06 the gross profit ratio is down to 17.41.  The net profit ratio was 7.28 in the year 2004-05 and it highly decreased to 1.36 in the year 2005-06 and it slowly increased in the years 2006-07 and 2007-08, again it decreased to 2.83 in the period 2008-09.
 The company’s return on capital employed is low; in 2004-2005 the ratio was

10.23% but in next year’s the company could not maintain the good returns on capital employed.
 The Inventory Turnover ratio is increasing every year, in 2004-2005 it is 2.82

and in 2008-2009 it is recorded as 3.49.
 Debtors’ turnover ratio shows a higher value, in 2004-2005 it is 3.98 and it

continuously increases, in 2008-2009 it recorded as 5.39.

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 The estimated Total assets for 2009-10 is 705.632 and estimated Total assets

for 2010-11 are 813.088 that mean in future Total assets has been increasing.  The estimated fixed assets for 2009-10 is 434.636 and the estimated fixed assets for 2010-11 is 504.904 that mean in future Fixed assets has been increasing.  The estimated Net profit for 2009-10 is 26.988 and the estimated Net profit for 2010-11 is 30.306 that mean in future Net profit has been increasing.  The estimated PBDIT for 2009-10 is 130.066 and the estimated PBDIT for 2010-11 is 153.078 that mean in future PBDIT has been increasing.  The estimated Total Expenses for 2009-10 is 811.588 and the estimated Total Expenses for 2010-11 is 964.252 that mean in future Total Expenses has been increasing.  The estimated Total income for 2009-10 is 941.654 and the estimated Total income for 2010-11 is 1117.33 that mean in future Total income has been increasing.  The estimated net sales for 2009-10 is 939.63 and the estimated net sales for 2010-11 is 1115.02 that mean in future net sales has been increasing.  The estimated Debt-Equity Ratio for 2009-10 is 2.087 and the estimated DebtEquity Ratio for 2010-11 is 3.134 that mean in future Debt-Equity Ratio has been increasing.  The estimated Current Ratio for 2009-10 is 3.597 and the estimated Current Ratio for 2010-11 is 3.996 that mean in future Current Ratio has been increasing.

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Financial performance
 The estimated Quick Ratio for 2009-10 is 2.217 and the estimated Quick Ratio for 2010-11 is 2.384 that mean in future Quick Ratio has been increasing.  The estimated Net Profit Ratio for 2009-10 is 2.8782 and the estimated Net Profit Ratio for 2010-11 is 2.41 that mean in future Net Profit Ratio has been decreasing.  The estimated Return on Investment for 2009-10 is 16.159 and the estimated Return on Investment for 2010-11 is 16.462 that mean in future Return on Investment has been increasing.
 The estimated Total Assets Turnover Ratio for 2009-10 is 1.172 and the

estimated Total Assets Turnover Ratio for 2010-11 is 1.222 that means in future Total Assets Turnover Ratio has been increasing.
 The estimated Net Working Capital Turnover Ratio for 2009-10 is 2.052 and

the estimated Net Working Capital Turnover Ratio for 2010-11 is 1.732 that means in future Net Working Capital Turnover Ratio has been decreasing.
 The estimated Fixed Assets Turnover Ratio for 2009-10 is 5.54 and the

estimated Fixed Assets Turnover Ratio for 2010-11 is 5.958 that mean in future Fixed Assets Turnover Ratio has been increasing.

4.2 SUGGETIONS
 As it found those debt-equity ratios are fluctuating the company is suggested to maintain a low debt by procuring the funds through equity shares in order to maintain a better debt-equity ratio.

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 As it found the current ratio is not equal to the standard ratio 2:1; it was recommended to utilize the idle current assets of the company in order to increase the other income. And standardize the firm’s current ratio.  The company is suggested to improve the net profit by increasing the volume of sales as it is found that sales percentage is fluctuating over the years.  The company has to go for integrated marketing, so that it can increasing its sales, with this the profit will be increased.
 The Working Capital turnover ratio shows a Fluctuating balances. The

company must try to assess working capital needs perfectly.  Generally an ideal company will try to maintain an average working capital policy rather too conservative or too aggressive. But the company highly followed conservative approach. It can be suggested that the company should develop an optimum working capital policy, in keeping in view of the availability of the funds for day-to-day operations to get more returns.  Company maintains Current Assets equal to Fixed Assets, it is better to invest the ideal funds in other sources to get other income.
 In 2005-2006 the company’s performance is decreased due to various reasons,

it is better to forecast the future trends, and make changes in the company’s policies to get good returns.

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Financial performance 4.3 CONCLUTION The Financial analysis is the process of identifying the financial strengths and week ness of the firm and ratio analysis is carried out to measure the enterprises liquidity, profitability, solvency, stability and other indicators to assess its operating efficiency, financial position and performance. After financial analysis I conclude that the LANCO INDUSTRY LIMITED performance is satisfactory.

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REFERENCES
 M. PANDEY (2005), “financial management”, ninth edition vikas

publishing house Pvt ltd.  S. N. MAHESWARI (2006), “financial and management accounting”, fifth edition, sultan chand and sons, New Delhi.  C. R. KOTHARI, “research methodology and techniques”. Second edition, new Agency international pvt ltd.  BAKER. R .P & HOW WELL. A.C, “the preparation of reports”, New York Ronald press.  S.P. GUPTHA (1995), “statistical methods, “sultan chand and, co New Delhi.  AHUJA H.L, “economic environment of business, macroeconomic analysis“, chand &company ltd, New Delhi, 2005.

WEB SITES Www. Lanco Industries ltd .com

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LANCO INDUSTRIES LIMITED BALANCE SHEET
2005
(Rs IN Crore’s)

2006
(Rs IN Crore’s)

2007
(Rs IN Crore’s)

2008
(Rs IN Crore’s)

2009
(Rs IN Crore’s)

Sources of Funds
Total share Capital Equity share capital Application money Preference Share capital Reserves Revaluation Network Secure loans Un secure loans Total Debit 39.76 39.76 0 0 39.76 39.76 0 0 39.76 39.76 0 0 39.76 39.76 0 0 39.76 39.76 0 0

38.05 0 77.81 108.86 95.89 204.75

39.93 0 79.69 92.45 150.69 243.14

51.09 0 90.85 163.83 137.34 301.17

71.08 0 111.56 178.32 122.71 301.03

85.5 0 125.26 226.46 154.6 381.06

Total liabilities

280.9

329.0 1

403.87 438.36 537.56

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Financial performance

Applicatio n of funds
Gross block
Less:accum depreciation Net block Capital work in progress Investments Inventories Sunry Debtors Cash and bank balance Total current assests Loans&Advanc esss Fixed Diposits

200.21 54.17 146.06 60.15 5.9 70.75 71.98 2.32 145.05 21.41 0.16 166.62 0 90.28 5.97 96.25 70.37 0.1

250.36 65.1 185.26 56.04 0 91.94 67.07 3.44 162.45 40 0.06 202.51 0 117.39 3.65 121.04 81.47 0.06

318.24 76.66 241.58 7.54 0 106.37 76.68 5 188.05 77.78 21.5 287.33 0 139.1 5.38 144.48 142.85 0.04

355.16 91.28 263.88 8.62 0 120.93 88.14 4.2 213.27 57.8 0 271.07 0 123.87 7.11 130.98 140.09 0

389.75 107.35 282.4 4.25 0 144.36 119.66 34.64 298.66 64.65 0 363.31 0 135.9 7.75 143.65 219.66 0

Loans& advans Deffered credit Current Liabilities Provisions Total CL&provisions Net current assets Miscellenious Expencess

Total Assets

280.9

329.0 1

403.8 7

438.36 537.56

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