Financial statements are an important source of information for evaluating the performance and prospects of the firm.

If these statement are properly analyzed and interpreted, financial statement can provide valuable rights in to firms performance. Analysis of financial statement is of inherent to lenders, investors, security analyst, managers, and others. Financial statements analysis may be done for a variety of purpose, which may range from a simple analysis of the short term liquidity position of the firm to a comprehensive assessment of the strength and weakness of the firm in various areas. All shareholder of a company seek answer to the following question about a firm. What is the financial position of a firm at a given point of time? How has the given financially performed over a given period of time. To answer these questions the companies prepare these statement namely, the balance sheet, the P&L a/c and the statement of cash flow. This study uses ratio analysis as an important tools to study the financial performance of L&T, this company has been chosen as is an organization which has diversified immensely with difference business models. Financial ratio analysis has been attempted to analysis, liquidity, leverages, turnover, profitability and valuation of L&T. Ratio analysis is one of the technique of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst a better understanding of the financial conditions and performance of the firm than what he could have obtained only through a perusal of financial statements. Ration are relationships expressed in mathematical terms between figures which are connected with each other in some manner. Obviously, no purpose will be served by comparing
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two sets of figures which are not at all connected with each other. Moreover, absolute figures are also unfit for comparison. Ratios can be expressed in times [=80/100=.8 times], percentage [=.8*100=80%]. Scope of the study: Ratio analysis simplifies the comprehension of financial statements. Ratios tell the whole story of change in the financial condition of the business and facilitates inter firm comparison. Ratios analysis provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal strong firms and weak firms, over-valued and under-valued firms. Ratio analysis also make possible comparison of the performance of the different division of the firm. The ratio are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. Ratio analysis helps in planning and forecasting. Over a period of time a firm or industry develops certain norms that may indicate future success or failure. Objectives of the study: 1. To test the financial efficiency of L&T through liquidity, solvency ratios L & T during a specified period. 2. To find the earnings of the shareholders of L&T during the specified period. 3. To assess the capital structure of the company by analyzing the audited financial statements during the specified period.

Importance of ratios analysis The concept of excellent company, is complex and is also multi-dimensional. Most studies of Excellencehave focused on one or two dimensions with profitability and growth being the most common. Companies that have performed exceptionally well on such criteria have, however, proved to be robust. It is shown how the objectives of the firm partly conflict with one another and these conflicts have exacerbated when the firm seeks exceptional performance along one specific measure. Performance in the long run depends upon satisfying several shareholder groups. The study of ratios is one among the various paths that would lead a company to measures its performance in the market in comparison to its competitors. Ratio Analysis therefore is intended to comment on the companys position both financial and operational. To enable the company to perform inter-firm comparisons. Research methodology Financial efficiency is analysed by applying liquidity ratios solvency ratios coverage ratios & performance ratios. Earnings of the shareholders has been studied with the help of profitability ratios, overall return ratios. Research is a careful investigation or enquiry searching for new facts in any branch of knowledge; it is a systematized method of collecting knowledge. It consists of defining and redefining problems areas, formulating hypothesis, collecting, organizing and evaluating data and coming to conclusions, whether they fall in line with the formulated hypothesis.

Collection of data The data analyzed here is secondary data. The data was not collected for the first time. It has been taken out from the Annual Reports of the company for the period 2004-2010. The data is also true and perfect in all respect as this data is not just processed data alone but it is audited data too, hence improving the quality of the data and the information derived there from. The financial position of the company in terms of growth in Reserves and Surplus, Retained earnings and distribution of profit as equity dividend has been studied for a period of 5 years ending 31st March 2010. Research instrument 1. Annual report of the Larsen & Toubro company 2004-2007. 2. Data and information derived from other publications and magazines of the company. Tools of analysis: 1.Liquidity ratios These ratio are also termed as working capital or short-term solvency ratios. An enterprise must have adequate working capital to run its day- to day operations. Inadequacy of working capital may bring the entire business operation to a grinding halt because of inability to pay for wages, materials and other regular expenses. The important liquidity ratios are as follows: a) Current Ratio b) Quick Ratio

2. Solvency test These ratios explain how the capital structure of a firm is made up or the dedt-equity mix adopted by the firm. The following ratios fall to this category: A. Capital gearing ratio B. Debt-equity ratio C. Proprietary ratio D. Debt total funds ratio E. Equity to total funds ratio F. fixed assets to long fund ratio 3.Coverage ratios These ratios indicate the extent to which the interests of the persons entitled to get a fixed return (interest or dividend, as the case may be ) or a scheduled repayment as per the agreed terms are safe. The higher the cover the better it is. There ratio are as follows: i. ii. iii. Preference dividend coverage ratio Interest coverage ratio Debt service coverage ratio

4. Profitability ratios Profitability is an indication of the efficiency with which the operations of the business are carried on. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to the lack of control over the expenses.
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Banking, financial institutions and other creditors look at the profitability ratios as an indicator whether or not the firm earns substantially more than it pays interst for the use of borrowed funds and whether the ultimate repayment of their debt appears reasonably certain. Owners are interested to know the profitability as it indicates the return which they can get on their investments. The following are the important profitability ratios: a. Gross profit ratio b. Net profit ratio c. Contribution sales ratio d. Operating profit ratio 5. Performance ratio The turnover ratio are also known as activity or turnover ratios. They indicate the efficiency with which the capital employed is rotated in the business. The overall profitability of the business depends on two factors: (i) the rate of return on capital employed: and (ii) the turnover, i.e. the speed at which the capital employed in the business rotates. Higher the rate of rotation, the greater will be the profitability. The following are important performance ratios: A. raw material turnover ratios B. WIP turnover ratio C. Finished goods/ stock turnover/inventory turnover ratio D. Debtors turnover ratio E. Creditors turnover ratio F. Working capital turnover ratio G. Fixed assets turnover ratio
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H. Capital turnover ratio 6. Overall return ratio The overall return ratio are return earned by the company after paying tax, and before paying tax. Return must be more than the interest rate and capital employed in order to earn profit for the shareholders and the enterprise. The following are the important overall return ratio. 1. ROCE(Pre-tax), (post-tax) 2. RONW 3. ROI 4. ROE(Pre-tax),(Post-tax) 5. Return on equity shareholder 6. EPS 7. Dividend per share 8. Dividend payout ratio 9. Retention ratio 10. Price earning ratio 11. Book value per share

Limitations of study Accounting ratios are subject to certain limitations. a. Comparative study - ratios are useful in judging the efficiency of the business only when they are compared with the past results of the business or with the results of a similar business. b. Limitations of financial statements - ratio are based only on the information which has been recorded in the financial statements. c. Ratios alone are not adequate- ratios are only indicators, they cannot be take as final regarding good or bad financial position of the business. Other things have also to be seen. d. Window dressing - the term window dressing means manipulation of accounts in a way so as to conceal vital facts and present the financial statements in a way to show a better position than what it actually is. On account of such a situation, ratios may not be a definite indicator of good or bad management. e. Problems of price level changes- financial analysis based on accounting ratios will give misleading results if the effects of changes in price level are not taken in to account. f. No fixed standards - no fixed standards can be laid down for ideal ratios. g. Ratio are a composite of many - in the same that, Some cover a time period, other are at an instant of time while others are only averages.

Chapterization This study is chapterisation as follow: I study II Chapter brings about the companys profile, conceptual framework used the in Chapter deals with scope of study, objectives, methodology and limitations of the

study and III Chapter deals with an indepth analyais of financial efficiency of the company analysis of liquidity , solvency & performance ratios and returns to

through

shareholders through profitability and overall return ratios IV Chapter concludes the study by highlighting the major findings and scope for

future research.

COMPANY FROFILE Larsen & Toubro Limited (L &T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in indias private sectors. ECC- the Engineering Constructing and Contracts Division of L & T is india s largest construction organization with over 60 years of experience and expertise in the field. ECC figures among the Worlds Top Contractors and ranks 35th among top global contractors and magazine, USA (August 2008). Many of the countrys prized landmarks- its exquisite buildings, tallest structure, largest airports/industrial projects, longest flyovers, highest viaduets, longest pipelines including many other benchmark projects have been by ECC. ECCs leading edge capabilities cover every discipline of construction; civil mechanical, electrical and instrumentation engineering and services extend to all cores sector industries and infrastructures projects. ECC today is organized in to four operating companies to allow for more in depth technology and business development as well as to the focus attention on domestic and international project execution. Each operating company is further split into different business units (Bus) to take care of the specific needs of various customers. The operating companies (OC) includes: 1. Building & factories operating company (B& FOC) 2. Infrastructure (infra OC) 3. Metallurgical, material handling & water (MMH & WOC) 4. Electrical & Gulf Projects (E& GPOC)

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ECCs range of service includes: 1. Pre- engineering, feasibility studies and detailed project reports. 2. Engineering, design and consultancy services, 3. Complete civil and structural construction services for all tyoes of buildings, industrial and infrastructure projects. 4. Complete mechanical system engineering including fabrication and erection of structural steel works; manufacture, supply, erection, testing and commissioning of plant and equipment; heavy lift erection; high-pressure piping; fire-fighting; HVAC and LP/ utility piping networks. 5. Electrical system design, project electrification, automation and control system including instrumentation for all types of industrial and telecom projects. 6. Design, manufacture, supply and installation of EHV switchyards, transmission lines. HISTORY Larsen & Toubro limited is the biggest legacy of two Danish Engineers, who built a world class organization that is professionally managed and a leader in indias engineering and construction industry. It was the business of cement that brought the young Ms. Henning HolckLarsen and Mrs. Toubro into india . they arrived on Indian shores as representatives of the Danish engineering firm F.L.smith & co in connection with the merger of cement companies that larger grouped into the Associatied cement companies. Together Mr.Holck-Larsen and Mr.Toubro founded the partnership firm of L& T in 1938, which was converted into a limited company on February 7, 1946. Today, this has metamorphosed into one of indias biggest success stories. The company has grown from humble
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origins to a large conglomerate spanning engineering and construction. ECC was conceived as Enigineering Construction Corporation Limited in April 1944 and was incorporated as wholly owned subsidiary of Larsen & Tourbro Limited . L&Ts founders Mr.Hocks- Larsen and Mr.Toubro laid the foundation for ECC. It has today emerged as Indian leading construction organization. The following are the most important milestones of L &T limited: AWARDS: Top Exporters award from Engineering Export Promotion Council, Western Region for its outstanding performance in Export of Civil Engineering services during the years 1977, 1983 and 1988. Certificate of commendation from confederation of Indian industry. New delhi for excellence in Human Resources Development for the years 1986. For the construction of BahaI House of Worship at New Delhi. For Boiler support structures in concrete at Vijayawada Thermal power station

National award for Best HRD Practices form Indian society for training and development most outstanding bridge national awards 2000 from Indian institude of bridge endineers (IIBE) for the following bridges: First prize for second narmada bridge at Gujarat under build, operate, transfer (BOT) category.

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First prize for Yamuna bridge in new delhi under the category of innovation construction engineering.

Third prize for kuna viaduct of Mumbai pane expressway under the category of superstructure in prestressed concrete.

Construction company of the year Award by Accommodation Times, a fortnightly magazine based in Mumbai ACCE Billimoria Award 2002 for high-rise building conferred on south city, Bangalore. The American society of concrete contractors (ASCC) has conferred on ECC, the prestigious ASCC Certificate of Recognition for Achieving Zero Fatalities in Ahmadabad Region during the year 2000. ECCs coal handling project at Para dip, Orissa has won the prestigious Rosa Gold Award for occupational Health and Safety form The Royal Society for the Prevention of Accidents(Rosa), UK ECCs Engineering Design and Research Centre building has won a prestigious international award (special mention) instituted by FIB(Federation Internationals du Baton), the international Federation for Structural Concrete as an outstanding concrete structure. The American society of concrete contractors (ASCC) has conferred, the prestigious ASCC Safety Award on Chennai region of ECC for achieving Zero fatality rate during the calendar year 2002. Overseas construction council of india (OCCI) award for the outstanding performance during 2002-03 in the following categories:

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Maximum turnover from overseas construction contracts Second best in the category of maximum value of contracts secured

Gold Award of the Royal Society for the Prevention of Accidents (Rosa), UK for ECCs excellence in occupational health and safety performance achieved at its sites in TISCO Jamshedpur during a continuous period of 4 years from January 2000 to December 2003.

Business worlds most respected company award 2003 in infrastructure sector conferred to L& T acknowledging the unchallenged position L& T has carved for itself in the infrastructure business. Awarded to L&T on January 16,2003 in Mumbai.

L& T indias super brand. L& T officially acquired the status and aura of a business super brand a Tributes Function held in Mumbai on September 8, 2005.

ABCI Awards Association of Business Communicators of India (ABCI ) awards L &T s corporate communications department 9 ABCI Awards. Out of the nine, ECC- CCD bagged three awards in the following categories at its 45th awards competition in Mumbai on October 28, 2005 Prestige publication - 60 landmark years Wallpaper- build india scholarship Photography Nellore sriperumbudur transmission line

Learning culture award L & T was awarded The Economic Times-india Group of institutes award for

organization that create a learning culture on November 21, 2005. Generntech s Gold Award for Environment Excellence -2005
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L & T has been conferred the prestigious Environment Excellence Gold Award 2004-2005 in the category on Engineering Sector By Genentech Foundation. On October 22, 2005. CII Exim Bank Business Excellence Award 2005 The award for business excellence instituted jointly by the confederation of Indian industry and export import bank of Indian conferred the commendation certificated 2005 for significant Achievement to ECC. IMC Ramakrishna Bajaj National Quality Award 2005 The award instituted by the Indian merchants chamber (IMC), is one of the most prestigious award for quality and business excellence in the country. On march 6, 2006 NDTV Profit Business Leadership Award L & T won the NDTV Profit Business Leadership Award in the infrastructure category, and was cited for playing a crucial role in the development of infrastructure in india post independence on Saturday, july 28, 2006. Construction World and National Instituted of Construction Management and Research (NICMAR) honoured us with two prestigious awards Largest & Most Profitable Construction Company in india Award and The Most Asmired Construction Company Award. National Award for Innovative Training Practices 2006 The Training & Development practices of ECC secured the top spot for the company in the Corporate Sector in the National Competition for Innovative

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Training Practices 2006 organized by Indian society for Training & Development (ISTD) , New Delhi . The Economic Times ACETECH 2007 award was given to Mr.K.V.Rangaswami for his professional ethics, achievements and rare contribution in the field of construction & environmental friendly architecture in Mumbai on November 1, 2007 Project Export Award 2007 L & T has won four Export Awards from The Project Export Promotion Council of India. The awards are in the recognition of export projects promoted and executed by an Indian Company for the year 2006-2007. The categories for which L&T wond the export award include: Maximum foreign business attempted Maximum foreign exchange earned and repatriated to india from overseas consultancy & engineering services. Maximum turnover in overseas construction and engineering projects Maximum value of overseas construction and engineering contracted

Association of business communicators of india (ABCI) awards to ECC publications for the following categories at its 43rd awards competition in Mumbai on January 11, 2007.

LEED Existing Building Award for EDRC Building US Green Building Council (USGBC) awarded the LEED-EB Silver Award 2006m under the LEED certification for the Existing Building (EB) category to ECCs engineering design & research centre (EDRC),Chennai 2007.

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National safety council of India (NSCI) declared five prestigious construction safety awards on ECC division

British safely council Award for Purva panorama Purva panorama housing project of ECC at Bangalore won the prestigious international safety Award from the British safety council. The site achieved 9 million safe manhours since inception.

ACCE Bhagwati Award for Lafarge Long Belt Conveyor Bhagwati Award 2007 for outstanding design of industrial structure by the Association of Consulting Civil Engineers, ACCE(I), Bangalore.

EMPI Indian Express Indian Innovation Award 2007 from pormer president of Indian, Dr. A.P.J. Abdul Kalam at an award function held in New Delhi on December 22, 2007

Indias Best Managed Company -2008 A survey conducted by the countrys leading business magazine Business Today and consultancy firm Ernst & Young has given L & T a cover honor The Best Managed Company in india

ROSPA Silver Award for L & T s Bait Al Baraka Villa No. 1 Project in Muscat from the Royal society for the Prevention of Accidents, Birmingham, UK during 2008

ROSPA Silver Award for L & T Microsoft project in Hyderabad from the Royal Society for the prevention of Accidents, Birmingham, UK during 2008

Ultratech Award for Technology Centre II Building of L & T InfoTech, Chennai on September 13, 2008.

Award for Best Safety Practices in Quarry Operations on August 31, 2008 KPMG infrastructure Award at New Delhi on December 10, 2008.

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Construction world Award 2008 One of indias largest circulated constructed business magazines, construction Worlds honoured ECC, L &T s Construction Dividend, with two prestigious awards for excellence in construction Largest and Most Profitable Construction Company in India First Rank; One of indias Top Ten Most Admired Construction Companies . in Mumbai on October 24,2008.

ABCI Awards ECCs Corporate Communications Department made L& T proud by wining Five

prestigious award at the 48th ABCI (Association of Business Communication of India) Annual Award ceremony held at Hotel President, Mumbai on November 7, 2008. Other division of L & T also picked up 4 awards making it a total of 9. Awards Catagories Multimedia presentation Gold Trophy for ECC Panchangam Calendar CD ROM External Publication Silver Trophy for ECC Concord Well Calendar- Silver Trophy for ECC wall Calendar 2008 Photography- Bronze Trophy for Best Photography Photo Feature - Bronze Trophy for HHL Centenary Special Issue

National safety Council of india (NSCI) Award 2008 Golden Award for Bakreswar Thermal Power Project Prashansa Patra for Jindal Dam Sita and ITC Trident Project, Haridwar

PRSI Golden Jubilee Award

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The Public Relation Society of India (PRSI), New Delhi presented the PRSI Golden Jubilee Award to L & T ;s Henning Holck Larsen (HHL) Centre at ECC HQ, Chennai. On august 25, 2008 ACCE Sarvamangala Award 2008 Forbes Asia s fabulous 50 L&T has made it to the covered Forbes Asias Fabulous 50 for the third time in a row. In Shanghai on December 9, 2008. L & T is one of just Ten Indian companies to features on the Fabulous 50 list. Structural steel design award for Kensington oval stadium, Barbados on July 8, 2008. Outstanding concrete structure award for passenger terminal at Hyderabad Airport on September 27, 2008 FICCI Award for outstanding corporate vision In recognition of the outstanding contribution to the development of Indian industry and society, the Federation of Indian Chambers of Commerce and Industry (FICCI) has honoured L & T with Annual Award 2007-2008 for Outstanding Corporate Vision. L &T bagged the award in the category of the corporate Triple Impact Business Performance : Social & Environmental Action and Globalization. In New Delhi on February 12, 2009-06-04. Infrastructure Company of the Year Award Infrastructure Company of the year special Award Category

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Co-winner along with GMR in the Airport Sector for the Hyderabad International Airport Project. The award were given away on March 25, 2009 in New Delhi.

CONCEPTUAL FRAMEWORK LINKS BETWEEN THE ECONIMY AND INDUSTRY SECTORS The economic performance of a country, to a large extent, determines the favorable or unfavorable climate for its industrial participation. With global movement of funds/investments made easy, the world itself is a market place and industries tend to sprout in countries where economic policies and environment are conducive. Industries cluster in a specific economic locality because: Business will have to respomds to customers demands for solutions that match their specific needs. Businesses will innovate infinite models of their products to suit different specifications and ensure the maximum amount of applications. Market place will become the interfaces for these efficiently assembled commodities, often in real time. An increasingly competitive world where only the strongest, most successful companies will survive makes businesses choose their economic environment. Business opportunities across economies arise from rapid technological changes, privatization of states enterprises and relaxation of trade barriers. In a global economy, the location of business functional areas is relevant since companies compete with companies in their industry.
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Industry analysis is more relevant than economic analysis since the final investment decision is to identify investment opportunities. This helps in the next process, that of focusing on companies with sustainable competitive advantage in their respective industries. The ability to compute the growth rate of an industry helps in the better pricing of specific companies/securities. There is a need to analyse the current status of the industry and forecast the conditions in which a business now operates or will operate in the future. There are two nery strong reasons to do an industry analysis. First, it provides an awareness of the market performance and ability to anticipate the future of the industry. Second, it is an important part of any companys business plan. Capital providers such as financial markets and financial institutions hence require an industry analysis before agreeing to participate in an companys capital.

TOOLS FOR INDUSTRY ANALYSIS Industry analysis examines the performance in terms of certain established accounting parameters, and qualitative grading. In other words, industry analysis involves the analysis of data in terms of: Cross-sectional industry performance, Industry performance over time, Difference in industry risk, Prediction about market behavious,and Competition over the industry life cycle.

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CROSS-SECTIONAL INDUSTRY PERFORMANCE Cross-sectional industry performance is aimed at finding out if the rates of return among different industries varied during a given timer period. Analysts usually compare the performance measure in terms of growth in sales, profits, market capitalization and the dividend of carious industries. Similar performances during specific time periods for different industries would indicate that such type of industry analysis is unnecessary. As an example, assuming the stock market registered a growth of 10% and an analysis of all industries showed a uniform growth of around 5% to 8%, it might seem futile to find our an individual industry that is a best performer. On the other hand, a wide variation in growth across industries, ranging from 80% to -20% to a stock market growth rate of 50%, would require the examination of those industries that contribute heavily towards a stock market up trend. INDUSTRY PERFORMANCE OVER TIME Analysis also perform a detailed exploration of industry performance over time, to identify the stage of product life cycle that the industry is expected to face. Usually a time duration of 3 to 5 years is considered to determine. Whether industries that perform well in one time period would continue to performs well in subsequent time periods. In many economies, the forecast of industrial performance has been the most difficult task. The compositional change in the industry and the product definition variation, due to technological change and innovation, restrict the ability to successfully forecast the future performance of the industry.

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DIFFERENCES IN INDUSTRY RISK Induatry analysis besides focusing on industry rates of return, also has to consider industry risk measures. Industry risk specifically investigates two questions: 1. Does risk differ across industries in a given time period? 2. Are industry risk measures stable over time? Risk is measured in terms of variability in returns/productive value. Business risks inherent in industries measured though the operating profit margin deviations, usually confirm a wide variation in the risk pattern of industries. Risk pattern can also be expected to vary depending on the economic situation/ expectations associated with that time duration. Stability of risk measures overtime hence would examine the nature of risk. Industry risk measured in terms of market performance of share belonging to a particular industry group also identifies the investment market perceptions about industry risk.

PREDICTION ABOUT MARKET BEHAVIOUR Predicting market behavior can be through a qualitative assessment of the strength and weaknesses of the industry on the whole. Assessing Strengths(S) and Weaknesses (W) also leads to the evaluation of Opportunities (O), and Threats (T) . This is termed SWOT analysis. A SWOT analysis places an industry between environmental trends (opportunities and threats ) and internal capabilities. SWOT analysis is equally applied in industrial analysis as well as in evaluating individual organizations. SWOT analysis involves an wxamination of the industries Strengths (internal), Weaknesses(internal ) , Opportunities (external), and
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Threats(external). It helps to evaluate an industrys position to exploit its competitive advantages or defend against its weaknesses. Strengths and weaknesses involve identifying the industrys own (internal) abilities or lack thereof. Opportunities and threats include external situations such as competitive forces, technologies, government regulations, domestic and international economic trends and so on. Strength is a resource or capacity the industry can use effectively to achieve its objectives. The strength of an industry provide a comparative advantage in the marketplace. Perceived strengths can include good customer service, high quality products, strong customer needs, customer loyalty, innovative R& D, or strong financial resources. To retain strength, the industry must continue to be developed, maintained and defended through innovative projects. Weakness is a limitation, fault, or defect in the industry that will keep it from achieving its objectives. Weakness result when competitors have potentially exploitable advantage over the industry. Once weaknesses are identified, the industry can select strategies to mitigate or correct the weaknesses. Opportunity is any favorable situation in the industrys environment. It is usually a trend or change, or an overlooked need that increases demand for a product or service and permits the industry to enhance its position. Opportunities are environmental factors that favor the industry. It can include a growing market for the industrys products, shrinking competition, favorable exchange rate shifts, confidence in the industrys future, or identification of a new market or product segment. Treat is any unfavorable situation in the industrys environment that is potentially damaging to its strategy. The treat may be a barrier, a constraint, or anything external that
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might cause problems to the industry. Threats are environmental factors that an hinder the industry in achieving its goals. By recognizing and understanding opportunities and threats an investor can make suitable forecasts, regarding hoe the industry can exploit opportunities and mitigate threats. INDUSTRY EARNINGS DATA ANALYSIS Earnings data are another useful source of information on a regions industry. Earnings by place of work data are a measure of economic output generated with in a region. Thus, earnings are a useful measure of the total size of the regional economy as well as a source of information on the size of specific industries. Earnings data are also good complement to employment data. INFRASTRUCTURE SECOTR Infrastructure is the foundation of economic, industrial and social development. The growth of infrastructure development on the economy is significant and its role as a stimulator of economic growth is indisputable. With liberalization and technological up gradation, private sector participation in infrastructure services has gained momentum. Today public-private partnership has emerged as a vital tools to build, manage and operate infrastructure services efficiently. The economy reform initiative in India has raised the annual growth rate to 5-6 percent. This has exerted pressure on the exiting infrastructure. It is evident that sustain and accelerate higher economic growth rate in the country. India needs to build, upgrade, and modernize its infrastructure. An expert committee on infrastructure under Dr.Rakesh Mohan has projected a

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total fund requirement of about US$346 billions during 1996-2006. Consequently, apart from augmenting public sector investment into infrastructure, the Government of India has introduced a series of reforms to attract private sector participation and foreign direct investment. INDIAN TEXTILE INDUSTRY The chief characteristics of the Indian textile industry are summarized are below: The Indian textile industry is one of the largest segments of the Indian economy, accounting for over one-fifth of the total industrial production The industry has a complex structure marked by the presence of large scale production units as well as small scale independent units. The industry is manufacture driven, where manufacturing entails large scale operations and retailings is the weakest link. SPINNING INDUSTRY Indian is the third largest producer of cotton in the world and also has a strong production base for synthetic fibers The Indian spinning industry is dominated by cotton yarn, which also accounts for 80 per cent of the total value of yarn exports With an installed capacity of 37 mn. Spindles, India accounts for about 20 percent of the worlds spindle capacity.

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WEAVING AND KNITTING INDUSTRY The fabric production industry can be dividend into 3 sectors, viz, power loom, handloom, and mill sector The decentralized sector accounts for 95 percent of the total cloth production Knitted fabric forms 18 percent of the total fabric production Despites the largest loom age in the world, Indias share in shuttle-less looms is very small (1.35 percent) INDIAN FABRIC PROCESSING INDUSTRY Processing is the weakest link in Indias entire textile chain The processing industry is decentralized and is marked by hand processing units, independent units and the composite mill sector The Indian processing industry uses low end technology with little investment initiative in technology up gradation The Indian fabric processing industry lacks R&D and innovation.

GARMWNT MANUFACTURING SECTOR The apparel industry is the largest foreign exchange earner, accounting for 12 percent of Indias exports Small scale fabricators dominate the garment manufacturing sector Most of the manufacturing units use medium level technology applications.

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STEEL INDUSTRY India is the tenth largest producer of steel in the world, but its per capita consumption is one of the lowest. The industry has been going through difficult times for the last five years due to overcapacity, poor demand growth and declining tariffs Product price tends to remain unprofitable Import that had been strong during 1999-2000 have been adversely affected due to the imposition of anti-dumping duties by the United state The difficult times have prompted the industry to restricted and improve operational efficiencies, large additional capital investments are required. Difficult times have also resulted in changes in the way steel is being marketed across the country. The customer is emerging as the king. The industry tried using the internet as a marketing channel. Globally there is a move to cut production capacity to reduce overcapacity, boost steel prices and improves the performance of the steel industry. CYCLICAL INDUSTRIES Cyclical industries are those industries whose long term performance registers rise and falls as a result of external economic cycles, usually the national business cycle. Cyclical industries generally do not well during periods of strong economic growth and do poorly during recessions. Typical cyclical industries are automobile manufacturing, residential construction, air

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travel. And machine tool manufacturing. An input output analysis identifies these industries performance.

Output Automobile manufacturing Residential construction Machine manufacturing

Input

There are a few counter cyclical industries. These industries do relatively better in recessions than is good times. Construction industry and cement industry exhibits this pattern, because the government may fund public works projects during recession to offset unemployment. SEASONAL INDUSTRIES Seasonally refers to the distribution of business activity throughout the year. If an industry lacks a seasonal pattern, it is reasonable to experts that its sale will be distributed fairly evenly throughout the year. Seasonal industries have a disproportionate amount of ectivity in one part of the year and correspondingly less in the others. Agriculture is a seasonal industry in india. another example is the woolen clothes retailers who do about 60 percent of their years business during the four winter months. Agricultural production, at current prices, increased by a whopping 93.87 per cent from the base year (1993-94) to Rs.4,30,088 crore during the fiscal 2000-01. The countrys

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agricultural production during 1993-94 stood at Rs 2,21,834 crore, according to the data released by the ministry of agriculture. However, agricultural production s percentage share in the gross domestic product (GDP)showed a decline over the same period to 2207 per cent from the 28.4 per cent in 1993-94. The fall in agricultural production had been continuing from the year 1995-96. Strengths: Diversification in the sector Focus on high-value crops Top producer in the world for several commodities Agricultural output is on more food grain oriented There has been a remarkable growth in non-farm activities

Weakness: Low productivity Inadequate infrastructure Inadequate linkage with the industry Lack of market orientation

Opportunities: Substantial reduction in agriculture tariffs Introduction of technology farming Scientific outlook of cultivation process Priority status among industries
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Threats: International competition Dry soil Shift of agricultural labor Income potential low due to innumerable intermediaries The confederation of Indian industry, through its specialized sectoral infrastructure committees on power, telecom, surface transport, housing, urban infrastructure and civil aviation, play a proactive role in policy formulation. Business development, and dissemination of information. CONSUMER DURABLE GOODS INDUSTRY The consumer durable goods industry is inevitably most essential for any economy. The consumer durable goods industry is also referred to as the fast moving consumer goods sector (FMCG). A SWOT analysis of the fast moving consumer goods sector is provided below: Strengths: Well established distribution network extending to rural areas. Strong brands in the FMCG sector Low cost operations

Weaknesses:

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 Low export levels Several similar products Opportunities: Large domestic market Export potential Increasing income level will results in faster revenue growth

Threats: Imports Tax and regulatory structure Slowdown in rural demand

SWOT ANALYSIS OF INDIAN PHARNACEUTICAL SECOTR Strengths: Cost competitiveness Rich bio-diversity Strong marketing and distribution network Access to pool of highly trained scientists, both in indian and abroad

Weaknesses: Low investments in innovative R&D

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Lack of strong linkage between industry and academia Lack of culture of innovation in the industry Inadequate regulatory standards

Opportunities: Significant export potential Licensing deals with MNCs Potential for developing india as a center for international clinical teials.

Threats: Lowering of trariff protection Product patent regine poses serious challenge to domestic industry unless it invests in research and development.

FUNDAMENTAL ANALYSIS Analysis of a company consists of measuring its performance and ascertaining the cause of this performance. When some companies have done well irrespective of economic or industry failure, this implies that there are certain unique characteristics for this particular company that has made it a success. The identifications of these characteristics, whether qualitative, is referred to as company analysis. Quantitative indicators of company analysis are the financial indicators and operational efficiency indicators. Financial indicators are the profitability indicators and financial position indicators analysis through the income and balance sheet statements, respectively of the company.
33

Operational efficiency indicators are capacity utilization and cost versus sales efficiency of the company, which includes the marketing edge of the company. These might not be revealsed through financial statements, but can be inferred through the annual reports published by the company for the benefit of investors, and the general public. An analysis of the published statement provided an analysis of the past. Usually the formats, as published by the companies, might not be directly understandable to investors. To help an investor in this task, many financial magazines, newsletters, and web sites supply consolidated reports of after tax, dividend payment, book value, debt equity components, liquidity position of the company,etc. An examination of these consolidate report would also help the investors in analyzing the performance of a company. Beside these, an analysis of future prospects of the company is also to be carried out. The budgets and cash flow statements give the investors an insight into the future functioning of a company. Future profitability and operational effectively can be worked out from these statements. An earnings per share (EPS) is the net profit divided by the total number of shares. This indicated the amount earned by the company for every shareholder out of its operations. A dividend per share (DPS) is also computed similarly by dividend distributed by the total number of shares. The actual earnings per share paid to investors are arrived at through this ratio. Yield on share (Yield ) is dividend per share divided by market price per share. This is a measures of return on share in terms of capital appreciation. Price earning ratio(P/E) is defined as the closing market price of the share divided by the respond earnings per share for the latest period. Low P/Es are typically associated with low earnings growth and cyclical businesses, and high P/Es are associated with typically associated with low earning growth and non-cyclical business nesses.
34

Besides these quantitative factors, qualitative factors of a company also influence investment decision to a large extent. Qualitative factors are the management reputation, name of the company, operational plan of the company for the future, and so on, as revealed in the Directors /Auditors report, as also information revealed by the management to the media. The notice to the annual general meeting supplies the investor with the transations that are to be finalized by the board of directors hence is a prior indicator of company performance. A careful sciritny of these notices and the follow up through the proceedings at the meeting would give a good idea of the future plans of the company. Similarly, the directors report and auditors report scrutiny would help the investor in dentifying the strong and weak points of the company. The media reports of the company, while providing a concise view of experts as well as insider information, are questionable in terms of reliability. The most important qualitative factors of a company are the management reputation and market position. Though it is difficult to measure the contribution of these factors, it is essential to know the worth of the company in terms of these aspects, since they can have a profound impact on how the company will perform in the future. Th scrutiny of management reputation should consider whether the management is strong, growth oriented. Professional, the nature of its goals and principles, and so on. The past behavior pattern of management actions are a good clue to assess these qualities of the management. Each company would have faced adverse situations at one time or the other. A strong, professional team would have faced the adversity better. The market position of the company should be analysed in terms of the product or service that itgives or provides to the community. The companys goals and values will be revealed through an analysis of the image that these product

35

and services carry to the consumer. Good customer reputation automatically I,mplies that the company is doing well currently in terms of performance also. Ratio analysis: Analyzing the performance of a company, in terms of ratios, using the information derived from the profit & loss A/C and the balance sheet of the company and to perform interfirm and intra-firm comparisons using the calculated ratios. Inter-firm comparison: It is a comparison of 2 or more firms about its relative position and efficiency, with due consideration to its size, nature of operation and all other relevant information. Intra-firm comparison: This is comparison within an organization, about their performance and efficiency during a period or over the years in order to find out their growth. Current ratio This is the ratio of current assets to current liabilities and it is the most common ratio to measures liquidity. It is the firms ability to meet the current liablilties using the current assets. Current assets Those debts & amounts receivables that will be realized within a period of 1 year are referred to as current assest. A ratio of 2:1 is considered to be the best.

36

Current assets include:1. Cash in hand 2. Debtors 3. Stock of goods & raw materials 4. Bills receivable 5. Prepaid expenses 6. Out standing 7. Cash at bank Current liabilities These are amounts that have to be paid back within a period of 1 year. Current liabilities include:1. Bills payable 2. Creditors 3. Out-standing expenses 4. Pre-received incomes 5. Bank over-draft. Quick ratio This is the ratio of quick or liquid assets or acid test ratio to liquid liabilities. This is a clear test of the liquidity of the firm to meet its liabilities ratio of 1.33:1 is considered to be the best. Liquid assets=current assets (stock +prepaid expenses)
37

Liquid liabilities = current liabilities Bank Over draft. Absolute cash ratio Absolute cash ratio =(cash +marketable securities)/current liabilities This is the ratio of cash and marketable securities to quick liabilities. There is no ideal ratio as such. However, a ratio>1 may indicate that the firm has liquid resources, which are low in profitability. Marketable securities include short-term investments, whose due period is less than a year. Capital structure ratios/solvency ratios Debt-equity ratio Debt-equity ratio= debt/equity This is the ratio of the debts of the company to the funds of the shareholders. This points out to the shareholders what portion of the capital is financed by the funds of the shareholders and what portion by the borrowings from financial institutional and other creditors. It indicates the relationship between Debt & Equity; ideal ratio is 2:1 Debt = long term borrowed funds =debentures long term loans from financial institutions Equity = equity capital + preference capital + Reserves & Surplus less: Accumulated losses.

38

Proprietary funds Proprietary funds = Proprietary funds /total assets This is the ratio of the owners funds i.e. shareholders funds utilized in financing the assets of the business. This can also be expressed as the ratio of capital employed to total liabilities. Proprietary funds = Equity capital + preference capital +capital reserves +undistributed profit brought forward +current year profit. Leverage ratio This measures the risks of a firm by measuring the operational, financial and combined leverage ratio. Operating leverage is due to the existence of fixed cost in the income stream and is the ability of the firm to use fixed operating cost to magnify the effect on sales. Financial leverage is due to the interest commitment of the firm payable to creditors, dedenture holders and on other borrowed funds. Operating leverage =contribution /EBIT Financial leverage = EBIT/EBT Combined leverage=operational leverage *financial leverage reserve + free

39

Reserves to equity ratio This is the ratio of the reserves (accumulated) reserves of the company to the equity share capital of the company that is subscribed and paid-up. This ratio is usually represented as a % on equity capital.

Ratio of security This is the ratio of fixed assets to fixed liabilities. This is the ability of the firms fixed assets to meet the fixed liabilities of the firm. A ratio of 2:1 or even 3:1 is considered to be safe, as there would be enough assets to back-up the liabilities. Profitability ratios Gross profit ratio This is a measures of the profitability of the business. It is an important tool to ascertain the trend of increase or decrease in the gross profit earned as a result of the manufacturing activities of the firm. This gross profit must be enough at-least to cover the operating and other fixed costs though a safety margin of 25% -35% is safe and anticipated. Operating ratio This is the ratio that points out to the management the operational efficiency. This is the percentage of operating expenses to the Net sales of the firm. Operating expenses = cost of good sold + selling & distribution expenses +administrative expenses.
40

A ratio of around 60% - 70% is normally expected in case of a manufacturing concern. This ratio if low is beneficial to the company, as profits would rise. This ratio could be further sub-divided into 6 ratio, to throw light on particular item of expenses and its impact on the Net sales and its contribution to the overall operating expenses. Material consumed ratio : (material consumed / net sales)*100 Conversion cost ratio Office & administration Expenses ratio : (office & Administration expenses /Net Sales)*100 Selling &Distribution Expenses ratio : (Selling &Distribution expenses /Net Sales)*100 [Note: the total of the above 4 ratios is the operating ratio] Financial Expense ratio : (financial expenses /Net Sales)*100 Non-operating expenditure ratio : (non-operating expenses /Net Sales)*100 : (labour + manufacturing expenses/net sales)*100

Operating profit ratio This is the ratio of operating profit to Net sales. This does not take into consideration non-operating expenses and incomes. Net profit ratio

41

This is the ratio of Net profit or Net operating profit to Net sales. This is also a measurability of the profitability and hence the performance of the business. A higher ratio indicates higher profit prospects to the company. Inventory ratio This is also known by the term Turnover of Stock or Stock Velocity. This is the raito of cost of good sold to the average or closing inventory. It represents how many times stock has turned or sold over the period. RETURN ON PROPRIETORS FUND This is the ration of Net profit to the investment of the proprietor. This is one of the most useful ratios for making inter-firm comparisons. This ratio is useful to a prospective investor to find our whether the investment would be worth making in terms of risk involved and return expected from such investment. Return on proprietors fund = (Net profit after tax (EAT) & interest / Proprietors fund)*100 RETURN ON EQUITY SHAREHOLDERS FUND This ratio expressed as a percentage, reveals the % of profit to be distributed among the equity shareholders. This is the return that the equity shareholder will receive for their investments. Profit to equity shareholders =Net profit Preference Dividend.

Return on equity shareholders fund = (profit to equity shareholder /

42

equity shareholder)*100. equity shareholders fund undistributed profits+ reserves & surplus. RETURN ON EQUITY CAPITAL This is ratio is almost similar to the return on equity shareholders fund, the only difference being on which the return is calculated. While the return on equity capital is represented as a % of equity capital alone, the latter is a % of the equity shareholder fund. This ratio is also useful as this gives an idea to the investor, of the rate of return on his actual investment. Return on equity capital = ( Profit to equity shareholders/ Equity share capital)*100. DIVIDEND YIELD This refers to the percentage or ratio of dividend percentage or ratio of dividend paid per share to the market price per share. This indicate the effective rate of return on investment, which a potential investor may hope to earn. Dividend yield = Dividend paid per share / market price equity Share. =equity share capital + revenue

43

PREFERENCE DIVIDEND COVER This is the number of times the preference dividend is covered by the amount of profit available after tax [PAT]. This reveals the safety margin that is a available for the preference shareholders, to be sure of receiving their dividend. As a standard, Preference shareholders expect the cover to be atleast 3 times by the profit available for dividend distribution . Preference dividend cover = PAT/Annual preference dividend.

EQUITY DIVIDEND COVER: This is the number of times the dividend is covered by the amount of profit available for equity shareholders. The equity shareholders expect to be higher; as this is a positive sign for the shareholders, the retained earnings and the degree of certainty that dividend will be repeated in future years would be high. As a standard, equity shareholders expect a cover of atleast 2 times by the profit available for distribution of dividend to equity shareholders. Equity dividend cover = (Profit to equity shareholders / Dividend paid On equity capital). Alternatively. Equity divided cover = ( Earning per equity share/ dividend per Equity share).

44

EARNING PER SHARE (EPS) This ratio is one of the most significant ratios of the shareholders as it helps to determine the value of a share and hence its market prices. This is the ratio of the profit available to the equity shareholders to the numbers of equity shares. This represents the value per share holding in a firm. This value together with the estimated price Earning ratio would give a hint to a shareholders about the market price per equity share. EPS = Net profit after tax Preference divided / No. of Equity shares.

PRICE EARNINGS RATIO: This is represented in terms of times This says how many times the present shareholders, are willing to pay, of their annual earnings, in order to get a share in the firm. This also helps the investors in knowing the effects on the markets price of the share, with the helps of the EPS. This ratio os usually in Extrapolation of the future price- earnings ratio and therefore the stock prices in the future. Price Earning ratio = [ Average market price per share] / EPS

45

CAPTIALIZATION RATIO This indicates the rate at which the stock exchange investors capitalize the value of current earnings. Capitalization ratio = [EPS/Average market price per share] Alternatively it is also, [1/price earning ratio] PAY- OUT RATIO: This ratio is the proportion of earnings available which equity shareholders receive as dividend. A high pay out ratio is always considered good and it is a good sign of prospect to the company. If a company is to finance the expansion out of the income earned by it, then such a company is a good one to invest fund in, though its pay out ratio would be less. Pay out ratio =[Dividend paid per share / EPS] *100.

INTERST COVERAGE RATIO: This is also known as time interest earned ratio. This ratio is expressed in terms of terms This points out the ability of the firm to meet its fixed interest charges and other fixed charge liabilities. As a standard and according to the creditors who are concerned the more of this ratio, this ratio needs to be sufficiently large.
46

Interest coverage ratio = [EBIT/Interest] TOTAL COVERAGE RATIO This ratio has wider scope than the interest coverage ratio. This takes into account all fixed charges of the firm like:1. Interest on loan 2. Interest on dedentures 3. Preference dividend 4. Repayment of prinicipal

Total coverage ratio = [EBIT]/Total Interest charges

BOOK VALUE PER SHARE As the term indicates this is the values of a share as per the books maintained by the firm, based on the accounting standards and principles. This is a computed figure that mostly does not tally with the market price, i.e., the price quoted in the stock exchange. Though this value is not the correct or the apt value it serves as a general regarding the performance of the company.

Book value per share = [Shareholders fund Preference share Capital ]/ No.of equity shares. Turnover of debtors ratio This ratio id also known by the term debtors velocity

47

This ratio is represented in terms of number of times of the net credit sales This is the ratio of net credit sales of the firm to total book debts. This ratio indicates the rate at which receivables remain uncollected.

Turnover of debtors ratio

= [Net credit sales/ Average or closing debtors]

CREDITORS RATIO: This is also known by the term creditors velocity. This is represented in terms of number of times in a year. This indicates the velocity of the creditors discharged. This is the ratio of net credit purchases of the firm to the average or closing creditors. Smaller the payable ratio, greater the credit period enjoyed and hence the benefit are large from credit supplies.

Creditors ratio

= [Net credit purchases/ Average or closing Creditors].

48

TABLE 1 LIQUIDITY RATIOS: CURRENT RATIO: ( CURRENT ASSESTS: CURRENT LIABLITIES)

Particular Current assets: inventories Sundry Debtors

2004-2005yrs

2005-2006yrs

2006-2007yrs

2007-2008yrs

181230

231084

221027

300114

331458 Cash & Bank Balance Other current assets 14 37527

39630

481416

550464

82702

58320

109443

395

Loans & Advance Total [1] Current liabilities: Liabilities

129743

173182

191163

227710

679972

883823

951926

1187731

393514

480475

589625

817630

49

Provision Total [2] Current Ratio: Total [1]/Total [2]

68023 461542

79464 559939

101537 691162

118013 935643

679972/

883823/

951926/

1187731

461542 1047 Source: secondary data

559939 1.57

691162 1.37

935643 1.26

INTERPRETATION OF CURRENT RATIO: 1. The expected ideal ratio for current ratio is 2:1 i.e., the current assts must at least be twice the current liabilities. 2. As per the analysis, the ratio has been fluctuating for all the 4 years, especially for the year 2007-2008 it was steadily decreasing to 1.26. 3. But the ratio is not much satisfactory, as the highest during the sample period of 4 years [2005-2008] was only 1.56:1. This, if compared with the expected standard is not satisfactory. 4. This ratio, measuring the liquidity position of the firm points out that the company could have problems in meeting is current liabilities with its current assets. 5. Hence the company has to take steps to improve this ratio, to be on the safe position. 6. The company should therefore see to it that their creditors are paid their dues in time without causing much of a problem.

50

TABLE 2

QUICK RATIO: QUICK ASSET/ QUICK LIABLITIES Particular QUICK ASSETS: 2004-2005 2005-2006 2006-2007 2007-2008

Sundry Debtors

331458

39630

481416

550464

Cash & Bank Balance Other current assets 14 395 0 0 37527 82702 58320 109443

Loans & Advance Total [1] QUICK LIABILITIES Liabilities Provision TOTAL [2]

129743 498742

173182 652739

191163 730899

227710 887617

393514 68023 461542

480475 79464 559939

589625 101537 691162

817630 118013 935643

51

Quick ratio:

498742/ 461542

652739/ 559939 1.16

730899/ 691162 1.05

887617/ 935643 0.95

Total[1]/Total [2]

1.08

Source: secondary data

52

INTERPETATION OF QUICK RATIO: 1. The expected ideal ratio is 1.33 :1 i.e. the quick assets must have ability to meet quick liabilities. 2. The ratio has been fluctuating for all the 4 years increasing for 2 years 2004-2006 and steadily decreasing from the years 2006-2008. 3. The company has attained this ratio as per the standards during the financial years 20042005 to 2006-2007. 4. Even for the years 2007-2008 it has almost maintained the requirement. 5. Compared to the standards expected, the company is in a good and safe positioning as long as liquidity is concerned as per the Quick Ratio. 6. Hence the company is in good position to meet the demands of the creditors in a very short time. 7. The very fact that the current ratio is not satisfactory, while the Quick Ratio is satisfactory points out that current assets is loaded much with sundry Debtors. Hence the company should focus on recovering accounts receivables more.

53

COMPARISON OF CURRENT & QUICK RATIO

particulars current ratio quick ratio

2004-05 1.47 1.08

2005-06 1.57 1.16

2006-07 1.37 1.05

2007-08 1.26 0.95

CHART 3.1

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1 2 3 4 current ratio quick ratio

54

TABLE 3 SOLVENCY TEST:

DEBT-EQUITY RATIO =TOTAL DEBT/ TOTAL EQUITY Particular Total Debt: Secured Loans Unsecured Loans: [loans & short term funds] Total [1] Total Equities: Share capital Reserves & Surplus Total [2] DEBT-EQUITY Ratio: 275042 132435 275042 331523 185906 331523 26 275016 27 331496 132435 185906 104525 27910 79372 106534 2004-2005 2005-2006

Rs. In crore

2006-2007

2007-2008

24540 183235

30853 327546

207775

358399

57 566028

58 938222

566085 207775 566028

938282 358399 938222

55

Total [1]/ Total [2]

0.483

0.561

0.37

0.38

Source: secondary data

56

INTERPRETATION OF DEBT-EQUITY RATIO: 1. The expected ideal ratio is 2:1. 2. The companys position in this respect is very unsatisfactory. 3. The companys has hardly come near the ratio. The maximum is 0.561:1 in the year 2005-2006. 4. This reveals about the capital structure of the company. As per this ratio, the companys share capital and other funds are financed by shareholders funds to a greater extent than by outside borrowers. 5. The book value of equity often understates its market value. This happens because tangible assets are carried at their historical values less depreciation and many highly valuable intangible assets are not recorded in the balance sheet. 6. Some forms of debt (like term loans, secured debentures) are usually protected by changes an specific assets and hene enjoy superior protection. 7. The lower the debt equity ratio the higher the degree of protection enjoyed by creditor. In table 3 we find this ratio lowest in 2006-2007 and hence the creditors of 2006-2007 enjoy maninuran protection. 8. As per the analysis ther has been a steadiy increase in share capital from 2004-2005 to 2006-2008 from 26 crores to 58 crores.

57

Table 4 COVERAGE RATIOS: INTEREST COVERAGE RATIO: EBIT/ INTEREST Particular INCOME Gross sales & service [less excise duty] Net sales & service Other incomes Other operational Income Total [1] EXPENDITURE: Manufacturing, Construction & operating expenses 1051605 1159033 1353758 1913046 9337 1378832 11016 1519863 3770 1803025 2315 2544532 17684 1309182 60313 23076 1465292 43555 33349 1756710 42545 33278 2485470 56747 1326866 1488368 1790059 2518748 2004-2005 2005-2006 Rs. In crore 2006-2007 2007-2008

76451 Staff expenses Sales, admn & other 109612

89003

125919

153544

121695

102795

138559
58

Exp

5358 Int exp & Brokerage Depn, obsolence & impairment Amortization of Intangible assets Less:OH charged to FA Total [2] 1252282 1378832 Total [1]-total [2] EBIT Interest income EBIT/interest [times] Ratio EBIT/Interest [times] Source: secondary data 4.8318 1252282 126550 304330 1470270/ 304330 315 665 8906

7507

9299

12266

10861

16157

19797

737

988

1566

189

330

1142

1388647 1519863 1388647 131216 255778 1312216/ 255778

1608586 1803025 1608586 194439 59060 194439/ 59060

2237636 2544532 2237636 306896 84480 306896/ 84480

5.1302

3.2922

3.6327

59

INTERPRETATION OF INTEREST COVERAGE RATIO: 1. The ability of the firm to pay interest is not affected by tax payment, as interest on debt is a tax deductible expense. A high interest coverage ratio means that the firm can easily meet its interest burden even if EBIT suffer a considerable decline. A low interest coverage ratio may result in financial embarrassment. 2. This ratio is widely used by lenders to assess the firms debt capacity. 3. The expected ideal ratio for profit before interest and taxes should generally be greater than 1 to the total interest amount. 4. As per the analysis, this ratio was increased during the years from 2004-2005 i.e., 4.83 to 2005-2006 i.e, 5.13 and decreased in 2006-2007 i.e 3.29 and slight increase to 3.63 in 2007-2008. 5. Hence the company could have more problems relating to the payment of interest from its current earnings. 6. This is a serious problems and hence the company should be vigilant enough to take steps to improve this ratio in the near future.

60

INTEREST COVERAGE RATIO YEAR VALUE[in time] 4.8318 5.1302 3.2922 3.6327 2004-05 2005-06 2006-07 2007-08

Chart 3.2

VALUE[in time]
2007-08

2006-07 VALUE[in time] 2005-06

2004-05 0 1 2 3 4 5 6

Inference: The interest coverage ratio has decreased from 2004.

61

Table 5 PROFITABILITY RATIOS: OPERATIONG PROFIT RATIO OPERATING PROFIT / NET SALES Rs. In crore Particular Income Gross sales & service [less excise duty] Net sales & service Other operational Income Total [1] 9337 1318519 11016 1476308 3770 17680 2315 2487785 17684 1309182 23076 1465292 33349 17510 33278 2485470 1326866 1488368 17959 2518748 2004-2005 2005-2006 2006-2007 2007-2008

Expenditure Manufacturing, Construction & Operating expenses Staff expenses 76451 89003 12599 153544 1051605 1159033 13558 1913046

62

Sales,admn & Other exp Int exp & Brokerage Depn, obsolence & Impairment Amortization Intangible assets Less: OH charged to FA Total [2] Other income Total [3] Operating profit: Total [1]-total [2]+ total [3] 1252282 59153 59153 125390 13185191388647 43555 43555 131216 147630816086 42545 42545 19449 176802237636 56747 56747 306896 2487785665 315 737 189 988 330 1566 1142 8906 10861 16157 19797 109612 5358 121695 7507 10275 9299 138559 12266

total [3]

1252282+ 59153

1476308+ 43555 131216/

160856+ 42545 194439/

2237636+ 56747 306896/

[Operating profit/net Sales]*100

125390/

1309182*

1465292*

1756710*

2485470*

63

100 Operating profit ratio: Source: secondary data 9.57

100 8.95

100 11.06

100 12.34

Note: in term of %

64

INTERPRETATION OF OPERATING PROFIT RATIO: 1. profitability ratios reflect the final result of business operations 2. Profitability ratios are of two types. Profit margin ratios and rate of return ratios 3. operating profit ratio is an indicator of operating performance of business.it shows the margin left after meeting manufacturing costs. 4. This ratio has been steadily increasing from i.e., 9.57 in 2004-2005 to 12.34 in the years 2007-2008 which is far from satisfactory. This ratio measures the efficiency of production as well as pricing. 5. Higher the ratio the better it is for the business.

65

Table 6 NET PROFIT RATIO Particular Income Gross sales & service [less excise duty] Net sales & service Other income Total [1] Expenditure: Manufacturing, Construction & Operating expenses Staff expenses Int exp & brokerage 109612 Depn , obsolence & Impairment Amortizartion of Intangible assets Less:OH charged to 8906 10861 16157 19797 5358 7507 9299 12266 121695 102795 138559 1051605 76451 1159033 89003 1353758 125919 1913046 153544 17684 1309182 59153 1368335 23076 1465292 43555 1508847 33349 1756710 42545 1799255 33278 2485470 56747 2542217 1326866 1488368 1790059 2518748 NET PROFIT/ NET SALES 2005-2006 2006-2007 Rs in crore 2007-2008

2004-2005

66

FA 665 315 Total [2] Profit before taxation From operations [3]=1-2 1252282 116053 1388647 120200 79 1608586 190669 18 2237636 304581 74 1252282 1368335 737 189 1388647 1508847 988 330 1608586 1799255 1566 1142 2237686 2542217

Exceptional items[4] 353 Profit before taxation [5]=3+4 Provision for Taxation [6] Profit after taxation [7]=5-6 Profit after taxation/ Net sales [8]=7/Net sales Net profit ratio: Source: secondary data 6.53% 86177 86177/ 1319182 30229 116406

120279

190687

304655

37126

60187

98205

83153 83153/ 1465292

130500 130500/ 1756710

206450 206450/ 2485470

5.67%

7.42%

8.31%

67

INTERPRETATION OF NET PROFIT RATIO 1. Net profit ratio shows the earnings left for shareholders (both equity and preference)] 2. Net profit and gross profit ratio, jointly considered enable the analyst to identify the sources of business efficiency. 3. This ratio is the indicator of overall profitability is & represented as a % of net sales, is satisfactory. 4. The maximum net profit ratio during the years are 8.31 for the period 2007-2008 except for the year 2005-2006. 5. But the notable feature is that this ratio is steadily on the increase. 6. This shows the good prospects of the company and its ability to make higher profits as the years pass by.

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COMPARISON OF NET PROFIT & OPERATING PROFIT 2004year 05 200506 200607 200708

net profit operating profit

6.53%

5.67%

7.42%

8.31%

9.57

8.95

11.06

12.34

Chart 3.3

1400.00% 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% 2004-05 2005-06 2006-07 2007-08 net profit operating profit

Inference: The net profit and operating profit have seemingly increased from the past years.

69

INCREASE IN NET PROFITS year Value as a % of sales 6.53% 5.67% 7.42% 8.31% 2004-05 2005-06 2006-07 2007-08

Chart 3.4

0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2004-05 2005-06 2006-07 2007-08 Value as a % of sales

Inference : There is a increase in net profits % from 2004 to 2007.

70

GROWTH OF NET SALES

year Value in Rs.

2004-05 1309182

2005-06 1465292

2006-07 1756710

2007-08 2485470

Chart 3.5

Value in Rs.
2007-08 2006-07 Value in Rs. 2005-06 2004-05 0 500000 1000000 1500000 2000000 2500000

Inference: The sales have increased from the past years 2004 to 2008.

71

Table 7 3.5 PERFORMANCE RATIO: STOCK TURNOVER RATIO : COST OF GOODS SOLD / AVERAGE STOCK OF INVENTORY Particular COST OF GOOD SOLD Manufacturing Construction& Operating exp Excise duty Total [1] Average stock Opening stock Closing stock Total stock Average stock Total [2] Cost of good stock/ Average stock of STOCK 1069289 203678 5.25 1182109 223577 5.29 1387107 260571 5.32 1946324 365353 5.33 181230 226126 407356 203678 226126 221027 447153 223577 221027 300114 521141 260571 300114 430591 730705 365353 1051605 17684 1069289 1159033 23076 1182109 1353758 33349 1387107 1913046 33278 1946324 2004-2005 2005-2006 2006-2007 2007-2008

72

TURNOVER RATIO: Inventory [times]

Source: secondary data

73

INTERPRETATION OF STOCK TURNOVER RATIO: 1. The performance ratio is steadily on the increase at a good pace. 2. This ratio indicates how fast inventory is use/sold. High T/O ratio indicates fast moving material while low ratio may mean dead or excessive stock. 3. This ratio is very good for the company and this points out good prospects of the company. 4. The increase in this ratio over the years also points out the company has taken step in order to improve this ratio and thereby increase turnover & profits. 5. Caution should be exercised while interpreting thus ratio as a high inventory turnover may be caused by a low level of inventory which may result in frequenty stockouts and loss of sales and customer goodwill.

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Table 8 3.6 OVERALL RETURN RATIOS: EQUITY DIVIDEND COVER [PAT PREFERENCE DIVIDEND]/ EQUITY DIVIDEND Particular Total income:[1] Total expenditure[2] Profit from operations [3]=1-2 Exceptional items(4) Profit before taxation: [5]=3+4 Provision for Taxation(6) Profit after tax: 30229 37126 60187 98205 116406 120279 190687 304655 116053 353 120200 79 190669 18 304581 74 2004-2005 1368335 1252282 2005-2006 1508847 1388647 Rs. In crore 2006-2007 1799255 1608586 2007-2008 2542217 2237636

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[7]=5-6 Preference dividend (8) Amount available to Equity share holders (9)=7-8 Divided paid on Equity capital (10) EQUITY DIVIDEND COVER (9)/(10) [times}

86177 0

83153 0

130500 0

206450 0

86177

83153

130500

206450

572

428

349

407

86177

83153

130500

206450

572

428

349

407

150.66

194.3

373.93

507.25

Source: secondary data

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INTERPRETATION OF EQUITY DIVIDEND COVER: 1. This ratio is also known as return on equity (ROE)/Return on Net worth (RONW). 2. The standard cover is the Net profit being at-least twice the dividend. 3. This indicates profitability of Equity Funds/owner Funds invested in the business. 4. The company has maintained this ratio, throughout the period over 150.66 times to 507.25 times. 5. So, as far as the shareholders of the company are concerned they are totally satisfied because their return is good, safe and high. 6. This also points out the increase in profit over the years and the good performance of the company.

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Table 9 EARNINGS PER SHARE : RESIDUAL EARNINGS/

NO OF EQUITY SHARES Particular Profit from operations Exceptional item:[2] Provision for Tax:[3] Profit after tax: [4]=1+2-3 Preference Divided [5] Amount available to Equity shareholders: [6]=4-5 Equity share 86177 26 83153 27 130500 57 206450 58 0 0 0 0 8617/ 83153 130500 206450 30229 37126 60187 98205 353 79 18 74 2004-2005 116053 2005-2006 120200 2006-2007 190669 2007-2008 304581

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capital [7] Face value per share [8] No of equity shares [9]=7/8 Earnings per share:6/9 13 [Rs] 6629 13.5 6159.5 28.5 4578.95 29 7118.97 13 86177 13.5 83152 28.5 130500 29 206450 2 2 2 2

Source: secondary data

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INTERPRETATION OF EARNINGS PER SHARE: 1. This amount has been steadily on the increase except for the year 2006-2007 i.e , 457 8.95. where market price of the share was also low during the above period. 2. This ratio indicates return or income per share whether or not distributed as dividends. 3. This is a very favorable sign to the shareholders of the company as the shareholders are interested in the EPS being high and on the increase. 4. This being one of the factors to determine the value of a share, It is a certaintly that the value of the share will be high and on the increase. 5. This also speaks of the performance of the company, as the EPS is high and increasing, in-spite of having a poor Debt-Equity Ratio.

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Chart 3.6 GROWTH OF EPS

paticulars value in Rs.

2004-05 6629

2005-06 6159.5

2006-07 4578.95

2007-08 7118.97

value in Rs.
8000 7000 6000 5000 4000 3000 2000 1000 0 2004-05 2005-06 2006-07 2007-08 value in Rs.

Inference : The EPS have seemingly increased from 2006 to 2007.

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Table 10 RETURN ON SHAREHOLDERS FUND [PAT-PREFERENCE DIVIDEND/ EQUITY SHAREHOLDERS FUND]*100 Particular Total income:[1] Total expenditure[2] Profit from operations [3]=1-2 Exceptional Item:[4] Profit before Taxation: [5]=3+4 Provision for Tax:[6] PAT[7]=5-6 Preference Dividend [8] Residual earnings
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2004-2005 1368335 1252282

2005-2006 1508847 1388647

2006-2007 1799255 1608586

2007-2008 2542217 2237636

116053 353

120200 79

190669 18

304581 74

116406

120279

190687

304655

30229 86177

37126 83153

60187 130500

98205 206450

[9]=7-8 Equity share capital [10] R &S [11] Shareholders fund [12]=[10 +11] RETURN ON SHARE HOLDERS 9/12*100

89177 26

83153 27

130500 57

206450 58

3290

4937

6865

10773

3316

4964

6922

10831

86177

83153

130500

206450

3316 2598.82

4954 1675.12

6922 1885.29

10831 1906.10

Source: secondary data

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INTERPRETATION OF RETURN ON SHAREHOLDERS FUNDS: 1.The maximum ratio was 2598.82 during the year 2004-2005 which attributed to increase in the shareholders fund. 2. As per the analysis, the ratio deteriorated during the year 2005-2006 3. This being the percentage of profit distributed to the equity shareholders, and being on the increase, shows that the shareholders share of the profit, which is distributed among them, is increasing.

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Chart 3.6 RETURN ON SHAREHOLDERS FUND

PARTICULAR VAUE as a %of shareholders fund

2004-05

2005-06

2006-07

2007-08

2598.82

1675.12

1885.29

1906.1

3000 2500 2000 fund 1500 1000 500 0 2004-05 2005-06 2006-07 2007-08 VAUE as a %of shareholders

Inference The return on shareholders fund have decreased compared to 2004.

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Table 11 RETURN ON EQUITY SHARE CAPITAL [IPAT-PREFERENCE DIVIDEND]/ [EQUITY SHARE CAPITAL]*100 Rs. In crore Particular Total income (1) Total expenditure(2) Profit from operations (3)=[1-2] Exceptional item(4) Profit before taxation (5)=(3+4) Provision for taxation (6) Profit after taxation (7)=(5-6) 83153 130500 0 206450 0 0 86177 30229 83153 37126 130500 60187 206450 98205 353 116053 30229 79 120200 37126 18 190669 60187 74 304581 98205 116053 120200 190669 304581 2004-2005 1368335 1252282 2005-2006 1508847 1388647 2006-2007 1799255 1608586 2007-2008 2542217 2237636

Preference dividend 0

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(8) Amount available to Equity share holders (9)=7-8 Equity share capital (10) Return on equity Capital (9)/(10)*100 331450.00 Source: secondary data 307974.00 228947.37 355948.28 86177 26 83153 27 130500 57 206450 58 86177 26 83153 27 130500 57 206450 58

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INTERPRETATION ON RETUEN ON EQUITY SHARE CAPITAL : 1. This is the return that the shareholders receive on their actual investment. 2. This ratio or return is highly satisfactory as it has earned the shareholders much more than their actual investment. 3. This ratio is also on the increase and thus is a good prospect for the company and its shareholders.

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Chart 3.6 RETURN ON EQUITY SHARE CAPITAL

YEARS Return as a% of capital

2004-05

2005-06

2006-07

2007-08

331450

307974

228947.4

355948.3

400000 350000 300000 250000 200000 150000 100000 50000 0 2004-05 2005-06 2006-07 2007-08 of capital Return as a%

Inference: The return on equity share capital have increased from 2004 to2007.
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ADJUSTED PAT FOR THE PERIOD ENDING MARCH 2006-2010 ( in crores) YEAR 2006 2007 2008 2009 2010 Sources: Audited financial statements ADJUSTED PAT 821.53 1398.23 2020.85 2638.64 3071.18

INTERPRETAION ON ADJUSTED PAT: The adjusted PAT position of the company has shown a steady increase over the period 2006-2010. From a total of 821.53 crores it has gone up to 3071.18 crores which is phenomenal increase. In terms of percentage the growth is 26.74% 821.53\3071.18=26.74%

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ADJUSTED PAT YEAR ADJUSTED PAT 2006 821.53 2007 1398.23 2008 2020.85 2009 2638.64 2010 3071.18

ADJUSTED PAT
3500 3000 2500 2000 1500 1000 500 0 2006 2007 2008 2009 2010 ADJUSTED PAT

INFERENCE: The adjusted pat have increased from 821.53 in 2006 to 3071.18 in 2010.

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RESERVES AND SURPLUS FOR THE PERIOD ENDING MARCH 2006-2010

YEARS 2006 2007 2008 2009 2010 Sources: Audited financial statements

RESERVES AND SURPLUS 45830.32 56830.85 9470.71 12317.96 18142.82

INTERPRETAION ON RESERVES AND SURPLUS The reserves and surplus position of the company has shown a steady increase over the period 2006-2010. From a total of 4583.32 crores it has gone up to 18142.82 crores which is phenomenal increase. In terms of percentage the growth is 25.26% 4583032\18142.82=25.26%

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RESERVES AND SURPLUS

YEAR

2006

2007 56830.85

2008 9470.71

2009 12317.96

2010 18142.82

RESERVES 45830.32 AND SURPLUS

20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 Series1 Series2

INFERENCE: The reserves and surplus have increased from 2006 to 2010.

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EQUITY DIVIDEND FOR THE PERIOD ENDING MARCH 2006-2010

YEARS 2006 2007 2008 2009 2010 Sources: Audited financial statements

EQUITY DIVIDEND 302.25 368.25 495.32 614.97 752.75

INTERPRETAION ON EQUITY DIVIDEND The operation income position of the company has shown a steady increase over the period 2006-2010. From a total of 302.25 crores it has gone up to 752.75 crores which is phenomenal increase. In terms of percentage the growth is 40.15% 302.25\752.75=40.15%

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EQUITY DIVIDEND

YEAR EQUITY DIVIDEND

2006 302.25

2007 368.5

2008 495.32

2009 614.97

2010 752.75

EQUITY DIVIDEND
800 700 600 500 400 300 200 100 0 1 2 3 4 5 EQUITY DIVIDEND

INFERENCE: The equity dividend have increased from 2006 to 2010.

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OPERATING INCOME FOR THE PERIOD ENDING MARCH 2006-2010

YEARS 2006 2007 2008 2009 2010 Sources: Audited financial statements

OPERATING INCOME 14776.95 17645.29 24946.11 33856.54 36870.19

INTERPRETAION ON OPERATING INCOME The operation income position of the company has shown a steady increase over the period 2006-2010. From a total of 14776.95 crores it has gone up to36870.19 crores which is phenomenal increase. In terms of percentage the growth is 40.07% 14776.95 \36870.19 =40.07%

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OPERATING INCOME

YEAR EQUITY DIVIDEND

2006 14776.95

2007 17645.29

2008 24946.11

2009 33856.54

2010 36870.19

EQUITY DIVIDEND
40000 35000 30000 25000 20000 15000 10000 5000 0 1 2 3 4 5 EQUITY DIVIDEND

INFERENCE: The equity dividend have increased from 2006 to 2010.

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RETAINED EARNINGS FOR THE PERIOD ENDING MARCH 2006-2010

YEARS 2006 2007 2008 2009 2010 Sources: Audited financial statements

RETAINED EARNINGS 718.70 1028.24 1679.31 2868.84 3610.63

INTERPRETAION ON RETAINED EARNINGS The retained earnings position of the company has shown a steady increase over the period 2006-2010. From a total of 718.70 crores it has gone up to 3610.63 crores which is phenomenal increase. In terms of percentage the growth is 19.90% 718.70 \3610.63=19.90%

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RETAINED EARNINGS

YEAR EQUITY DIVIDEND

2006 718.70

2007 1028.24

2008 1679.31

2009 2868.84

2010 3610.63

EQUITY DIVIDEND
4000 3500 3000 2500 2000 1500 1000 500 0 1 2 3 4 5 EQUITY DIVIDEND

INFERENCE: The equity dividend have increased from 2006 to 2010.

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FINDINGS: 1. The companys performance over the years is steadily on the increase. 2. Years 2007 2008 was a good year due to rise in the profit and many other ratios. 3. Its current ratio not good and also not satisfactory. 4. This could create future problems of liquidity for the company. 5. As per the analysis, except during the year 2007-2008 this ratio has increased which is a good prospect for the company. 6. The company is good as per its quick ratio that points out to the absolute liquidity. 7. The capital structure of the company is such that, it is increasingly financed by shareholders funds. 8. Due to this, the debt-equity ratio of the company is very low and poor compared to the ideal ratio. 9. The sales of the company are steadily on the increase, showing its good future prospects. 10. The stock turnover ratio, which is on the increase, is also very good and points out the ability of the company to increase its sale and reduce the amount of stock to be held. zThe interest coverage ratio of the company is not good as it is steeply decreasing in the last 2 years. 11. This would cause future problems of liquidity to the company for meeting its interest commitment. 12. The equity dividend cover is very high and increasing too. 13. This point out the ability to satisfy the shareholders, by maintaining the same in the future.
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14. EPS is also going up at a good pace. 15. This points out the value of the share and hence its market prices. 16. A good return on the shareholders fund and even a much higher return on the equity share capital show the way in which the shareholders are concentrated upon. 17. On the whole, the company has satisfied its shareholders to a much greater extent. 18. But the same attitude is not shown to the creditors of the company. SUGGESTIONS: 1. The company should take care to increase the current ratio, thus ensuring liquidity. 2. The debt-equity ratio has also to be made good by using borrowed funds, instead of using the shareholders funds alone. 3. The company has to make sure that is interest commitments are duly discharged. 4. It must concentrate on the creditors as much as it concentrates on the shareholders. 5. Efforts must be taken to improve the effectiveness and thus increasing the profits and returns. CONCLUSION The bottom- line is the operating profit of a company. The growth in operating profit indicates the attractiveness of the share for an investor. The expected growth rate might differ from industry to industry. Comparing the companys bottom-line growth with that of the industry average would help the investor to identify good performance. COMPANY MANAGEMENT

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The quality of the top management is the most important of all resources that a company has. As investor has to make a careful assessment of the competence of the company management, as evidenced by the top managements dynamism and vision. If the companys board includes certain directors who are well known for their efficiency, honesty , and integrity, and are associated with other companies of proves excellence, an investor can consider it as favourable. Among the directors, the Managing Director (MD) Chairman is the most prominent person. It is essential to known whether the top executive is a person of proven competence. Besides the top executive credentials other factors that may be considered to qualitatively evaluate the worth of a company could be stated as follows: History of the company and line of business Product portfolios strength Market share Intrinsic values for assets like patents and trademarks Foreign collaboration, its need and availability for future Future business plans and projects Market tags like index heavy weights and so on. There may be situation were the industry is very attractive but a few companies within it might not be doing all that well; similarly there may be one or two companies that may be doing exceedingly well while the rest of the companies in the industry might be facing difficulties. An investor will have to consider both the financial and non- financial factors so as to form an overall impression about a company.
102

Investors , while deciding on the best company, should focus on factors such as: Market leaders who dominate their product segment Revenue growth that exceeds the industry average, and Effective management Form the above analysis of the performance of the company, it can be concluded that the company has a good market share and is a good one for shareholders to invest. The year 2007 2008 was a good year for rise in the profits and many other ratios. The companys overall performance over the 5-year period from 2004- 2005 to 2007 -2008 is a relatively good and competitive one. The company concentrate much on shareholders than the creditors, who needs to be concentrated upon too. The company hence shall be advised not be indifferent to the creditors and other outsiders and also to keep up its performance, which is growing year by year.

103