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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

PROJECT REPORT ON SUMMER TRAINING


IN, ENGINEERING PROJECTS (INDIA) LTD.

Title:- Working Capital & Ratio Analysis Submitted By:- Aditya Roy Roll No:-2K8BBA37 Programme BBA Session 2008-2011 Area of Summer Training-FINANCE

ASIA PACIFIC INSTITUTE OF MANAGEMENT Jasola, Sarita Vihar, New Delhi-110044 Phone: (011)26947838, 26951542, Fax: (011)26951541 Website: http://www.asiapacific.edu

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INDEX WORKING CAPITAL & RATIO ANALYSIS


S.No .
1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17)

Contents
Acknowledgement Executive Summary Introduction Objective of Project Research Methodology Profile of Engineering Projects (India) Ltd. Organizational Structure of EPI EPI Areas of Operations Performance of EPI for Last Five Years Profit & Loss Account of EPI Balance Sheet of EPI Cash Flow Statement of EPI Working Capital & Ratio Analysis Limitations Findings Recommendations References

Pages
3 4 5 6 7 8-11 12 13 14-16 17-19 20-21 22-25 26-73 74 75 76-77 78

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ACKNOWLEDGEMENTS

At the very outset, I would like to thanks to the management of Engineering Projects (India) Ltd for providing me this wonderful opportunity to undergo summer training in the Corporate Finance in their esteemed organization. I feel highly privileged to express my sincere gratitude to Sh. M.K. Anand (ED-Finance & HR) and I am immensely indebted to Sh. S.K Sharma AGM (Finance) who in spite of their busy schedule were benevolent enough to provide me their support and guidance at every step of this project. I am also indebted to staff of Engineering Projects (India) Ltd for extending their help, assistance & guidance throughout my training program making the stay in the organization.

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EXECUTIVE SUMMARY

The main objective of the project is to study and make an analysis of the companys Working Capital and Ratio Analysis. Methodology involved taking personal interview to know the companys Working Capital and Ratio Analysis. The project covers in detail the various tools used in the financial analysis to know the actual position in the corporate. The project starts with giving a brief idea of the company Engineering Projects (India) Ltd. And give its past performance. It gives the brief information about the whole automotive and what is the business process inside this. And Financial Report gives the whole information about the where the Trelleborg stands in business world. It provides us what is the annul profit as well as loss of the company. What are the assets and liabilities of the company? According to these Information Company can make strategy for next year. The gross profit of the company is increasing in the year 2009 as compare to the year 2008, which is good for any business.

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INTRODUCTION
Working capital is defined as the difference between assets and liabilities. It measures how many liquid assets are available for a business to use for growth opportunities. A lack of working capital can really hold a business back from reaching their full potential. There are many different ways to obtain capital for the business. Working capital is that part of capital which is required to meet the day-to-day needs of the organization. It is required to meet the day to day expenses like paying salaries, rent, buying raw materials etc. some capital is also required to keep the stock of the partly finished goods or products, some cash is required to meet any emergency work. Thus, we can refer to the working capital as the Life Blood of any organization. Ratio analysis is a powerful tool of financial analysis. In financial analysis, a position and performance of a firm ratio is used as an index or yardstick for evaluating the financial position and performance of a firm. The relationship between two accounting figure, express mathematically is known as a financial ratio. Ratio calculated from the past financial statement of the same firm. It helps compare different firm. Financial analysis is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account and it is also the starting point for making plans, before using any sophisticated forecasting and planning procedures. Ratio indicates a quantitative relationship, which can be in turn, used to make a qualitative judgement. The greater the ratio, the greater the firms liquidity. In this project we show how financial data can be used to analyze a firms past performance and assess its present financial strength.
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OBJECTIVES OF PROJECT

The main objective of this research is to understand the role of Business Process in the organization. And analyze the financial report.

Impact of Financial Reporting in organization To understand the economic of a firm To help forecast its future profitability Profitability is an increase in wealth

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RESEARCH METHODOLOGY
To get the data about this research we have use the different methods. We have used the Quantitative as well as Qualitative data to know the each and every aspects Engineering Projects (India) Ltd. Financial strategy. To collect the data we have use the Primary and Secondary sources.

Sources of Data Collected: Primary Source: The data was collected from various departments. Secondary Source: Secondary data may either be published data. The published data are available.
1. 2. 3. 4.

Journals. Profit & Loss Account. Balance Sheet. Annual Report. Cash Flow Statement.

5.

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PROFILE OF ENGINEERING PROJECT (INDIA) LTD.


ENGINEERING PROJECT (INDIA) LTD. (EPI) envisioning and visualizing the concept of turnkey execution of projects as an effective tool to create the needed infrastructure to hasten the pace of multidisciplinary industrial construction, (EPI) was incorporated in 1970 as A Government of India Enterprise under the administrative control of Department of Heavy Industry. Since then, EPI has admirably performed its assigned roles as the countrys leading Prime Contracting Company and has left its imprint not only in India but in the overseas market as well where its past operation spread over a decade in the wake of oil boom in the Middle East. EPI successfully executed 30 odd projects valued over US$ 782.00 million in Iraq, Kuwait, Saudi Arabia, UAE, Yugoslavia, Maldives, Bhutan and Thailand. EPI has executed over 480 multi-disciplinary projects in India valuing over ` 52472.841 million. Through the execution of these projects, EPI has in its own way contributed immensely in the development of the Nation and there is hardly any state in India where EPIs pronounced presence is not visible. EPI has the rare distinction of having worked for almost all Power Sectors and Steel Plants in India in Public Sector as well as in Private Sector. EPIs contribution in project execution for various sectors is also quite substantial. EPI is proud to be one of the first few companies to have been awarded integrated certification for Quality Management and the Environment Management System ISO 9001:2000, ISO 14001:2004 for all its areas of operation, OHSAS 18001:2007 for Corporate Office and is a "Mini Ratna" Company.

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VISION To be the leading turnkey project execution company, committed to quality and timely completion of projects, continuously enhancing stakeholder value.

OBJECTIVES i) Focus and maintain business in its most profitable segments while expanding into new business segments. ii) Deliver exceptional client service with an unrelenting focus on value creation. iii) Pursue operational excellence with a strong focus on quality and margins. ACHIEVEMENTS

EPI is a Mini Ratna Company.

EPI has the rare distinction of having worked for almost all Power utilities and Steel Plants both in the Public Sector as well as in the Private Sector. EPI is one of the first few companies to have been awarded certificates for its Quality Management System, Environment Management System and Occupational Health and Safety Management System i.e. ISO 9001:2000, ISO 14001:2004 for all its areas of operations and OHSAS 18001:2007 for Corporate Office.

EPI has been Pioneer in Project Exports and opened up avenues for other Indian contracting companies. EPI has executed several complex projects in the middle east and India utilizing the state-of-the-art technology as per international standards.

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Department of Heavy Industries under the Ministry of Heavy Industries, Government of India has rated EPI as an "Excellent Company" for the years 1998-99, 1999-00, 2000-01, 2001-02, 2005-06, 2006-07 and 2007-08 based on the performance under the MOUs signed with the Government of India.

EPIs performance for the year 2008-09 under the MOU signed with the Department of Heavy Industries qualifies for excellent rating.

EPI was felicitated by the Gujarat Water Supply and Sewerage Board for timely completion of Tankara-Gauridad Bulk Water Project, District Rajkot.

EPI was felicitated by Gujarat Water Infrastructure Ltd., Gandhi Nagar for its excellent performance in successful completion of Buchau-Anjar Project for Supply of Water ahead of schedule. AWARDS/CERTIFICATES Awards EPI has received a number of awards for its performance against MOU Targets as also performance on projects, some of which are as under: Prime Ministers Merit Certificate for Excellence in the Achievement of MOU Targets for the year 1998-99. Merit Certificate for Excellence in the Achievement of MOU Targets for the year 1999-2000. Merit Certificate for Excellence in the Achievement of MOU Targets for the year 2000-01.

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Performance of EPI was among the top ten Public Enterprises and the Award was conferred by the Late Shri Krishan Kant, the then Vice President of India on 04.05.2002. Felicitation by the Gujarat Water Supply & Sewerage Board for performance in infrastructure projects in the State of Gujarat during the year 2001-2002 for timely completion of Tankara-Gauridad Bulk Water Pipeline Project (Distt. Rajkot). The Award was conferred by the Honble Chief Minister of Gujarat, on 19.05. 2002. DHI has also conveyed its appreciation to EPI for its exceeding the targets committed by it under the MOU signed with the Government for the year 2000-01. Presidents Merit Certificate for Excellence in the Achievement of MOU Targets for the year 2001-02.
Felicitation by Gujarat Water Infrastructure Ltd. Gandhi nagar

for excellent performance of EPI in successful completion of Buchau-Anjar Pipeline Project for Supply of Water ahead of schedule. The award was conferred by the Honble Chief Minister of Gujarat on 18.05.2003.

Certificates
EPI has been awarded Certificates for its Quality Management

System (ISO 9001:2000), Environment Management System (ISO 14001:2004) and Occupational Health and Safety Management System (OHSAS 18001:2007).

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ENGINEERING PROJECTS (INDIA) LTD. (A GOVERNMENT OF INDIA ENTERPRISE)


ORGANISATIONAL STRUCTURE OF EPI

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SPS BAKSHI
CHAIRMAN CUM MANAGING DIRECTOR S.K JAIN GENERAL MANAGER MANAGEMENT REP.

A.K RATWANI (DIRECTOR PROJECTS)

G.D MOORJANI DIRECTOR (FINANCE)

NAVAL KISHOR CHIEF VIGILIANCE OFFICER

CS SHEKHAWAT EXECUTIVE DIRECTOR HOD (CONTRACTS P&E/P&M &IT DIVISIONS) M.K ANAND EXECUTIVE DIRECTOR HOD (HR DIVISION)

M.K ANAND EXECUTIVE DIRECTOR HOD (FINANCE)

SMT. KUMUDANI SHARMA COMPANY SECRETARY

B.K BHATNAGAR GENERAL MANAGER HOD (LEGAL DIVISION) S.K JAIN GENERAL MANAGER HOD (BUSINESS DEVELOPMENT & QUALITY ASSURANCE DIV.)

OP PRITHIANI EXECUTIVE DIRECTOR INCHARGE WRO MUMBAI

S.K DAS EXECUTIVE DIRECTOR IN-CHARGE NRO NEW DELHI KALYAN MITRA GM IN-CHARGE NERO GUWAHATI

S SUTRADHAR GGM IN-CHARGE SRO CHENNAI

DP KUNDU GGM IN-CHARGE ERO KOLKATA

N.K NAYYAR DY.GENERAL MANAGER (FINANCE) INTERNAL AUDIT

SALIL KUMAR GGM HOD CONSULTANCY &ENGG DIV.

EPI,s AREAS OF OPERATION ARE:Engineering Projects (India) Limited operates as a construction and contracting company in India. Its services include feasibility studies, detailed project reports, design and engineering, quality assurance, civil and structural works, erection, trial run and commissioning, training of supervisors and operators, operation and maintenance, project management, and project management consultancy. Engineering Projects (India) Limited was formerly known
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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

as Indian Consortium for Industrial Projects, Ltd. It was re-named as Engineering Projects (India), Ltd. in December 1970. The company was founded in 1970 and is based in New Delhi, India. .
Townships & Prestigious Buildings, Ports airports

Civil, Structural, Road, Infrastructural Project

Material Handling, Grain Handling Projects

Mining Projects

Metallurgical Projects

ENGINEERING PROJECT (INDIA) LTD.

Real Estate

Oil & Petrochemical Projects

Water Supply & Environmental Project

Industrial Project & Process Plants

Performance of EPI for last five years at a Glance


Particular/Years 2004-05 51203.87 1728.94 52932.81 51907.22 1025.59 2005-06 63737.95 1854.51 65592.46 63917.23 1675.23 2006-07 76360.86 2065.55 78426.41 76213.54 2212.87 2007-08 85105.51 2130.53 87236.04 84866.95 2369.09 2008-09 95870.53 3079.91 98950.44 96091.69 2858.75

A. Operating Statistics
Turnover
Other Income

Total Income (a) Total Expenditure (b) Gross Margin (a-b)

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Interest Depreciation

156.01 94.07 775.51 56.17 719.34 531.34 72.83 Nil 115.17 468 9094400 3542.27 5703.47 409.27 8836.47 2.00 1.51 8.78 8.14 109.41 73.86 68.51 7.91 97.16

203.26 140.74 1331.23 92.08 1239.15 708.45 99.36 Nil 431.34 469 9094400 3542.27 6134.82 204.63 9472.46 2.63 2.09 14.05 13.08 135.90 57.17 53.22 13.63 104.16

363.99 93.79 1755.09 225.42 1529.67 708.45 99.36 Nil 721.86 469 9094400 3542.27 6856.68 0.00 10398.95 2.90 2.30 16.88 14.71 162.82 46.31 40.27 16.82 114.34

263.90 91.57 2013.62 260.43 1753.19 708.45 136.18 0.08 908.48 499 9094400 3542.27 7235.82 0.00 10778.09 2.78 2.37 18.68 16.27 170.55 40.41 35.18 19.28 118.51

214.70 78.16 2565.89 322.34 2243.55 708.45 120.40 Nil 1414.70 472 9094400 3542.27 8650.52 0.00 12192.79 2.98 2.68 21.04 18.40 203.12 31.58 27.61 24.67 134.07

Profit Before Tax (PBT)


Income Tax including Fringe Benefit Tax

Profit After Tax (PAT)


Dividend Dividend Tax Wealth Tax Retained Surplus No. of Employees No. of Equity Shares

B. Financial Position
Share Capital Reserve & Surplus Miscellaneous expense to the extend not written off

Shareholders Fund/ Net Worth C. Financial Ratios


Gross Margin/ Turnover % Profit Before Tax (PBT)/Turnover % Profit Before Tax (PBT)/Net worth % Profit After Tax (PAT)/Net Worth % Turnover Per Employee Dividend Paid/ Profit After Tax % Dividend Paid/Profit Before Tax (PBT) % Earning Per Share (in Rs.) Book Value Per Share of Rs. 38.95 each (in Rs.)

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BALANCE WORK IN HAND


3500 3000

3134.15

VALUE (` in Crores)

2500 2037.91 2000 1500 1000 500 0 2004-05 2005-06 2006-07 2007-08 2008-09 1468.12 1299.43 1755.15

YEARS

This graph shows per year Balance Work-In-Hand

TURNOVER ACHIEVEMENT
1200 958.71 851.05 800 637.38 600 400 512.04 763.61

1000

VALUE (` in crores)

200

0 2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

This graph shows companys turnover per year and increasing turnover of the company says that company is doing well.

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PROFITABILITY (Net Profit Before Tax)


30 25.66 25 20.14 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 7.76 13.31 17.55

VALUE (` in Crores)

Years

Every time Companys profitability increases in comparison to previous years, which is good for any business.

PRODUCTIVITY PER EMPLOYEE


250 203.12

VALUE (` in Lacs)

200 163.51 150 112.29 100 136.19

170.55

50

0 2004-05 2005-06 2006-07 2007-08 2008-09

Years

This graph shows that Productivity per employee Companys Productivity per

employee increases in comparison to previous years, which is good for any business.
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PROFIT & LOSS ACCOUNT


Earning profit is the main objective of all the business enterprises and Profit & Loss Account the extent of success achieved by a business during a particular accounting period. It includes the Income & Expenditure of the business concern over a period of time & then by comparing such Income & Expenditure gives residual figures that represent profit or loss for the particular period. Expenditure refers to uses of resources and income to outcome of these resources. The outputs are the goods and services that the business provides to its customer and charges revenues for these goods and services from the customer. If revenue exceeds the cost the resultant is net profit and if cost exceeds the revenue the resultant is net loss. The word Net Profit means the excess of all revenues (whether operating or non-operating) over expense and Losses (whether operating or non-operating).

SIGNIFICANCE OF PROFIT AND LOSS ACCOUNT

Profit is of prime importance to the management in evaluating the net result of operating activities of the business. For this they can calculate and concentrate on operating profits. Operating profit means the excess of operating revenue over operating expenses and losses. It arises out of the operations of the business. The lenders of money for example Bank and creditors are also interesting in the profit as their interest in evaluating the business capacity in regular payment of interest charged intact profit and losses is regarded as primary statement and commands a careful scrutiny by all interested parties.

Profit and Loss Account of EPI for the Year ended


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31.03.2009
Schedule INCOME Work done for the year Claims received Foreign exchange fluctuation (net) Other income Interest income 2009 9,577,074,452 68,522,417 72,651,710 176,796,017 9,895,044,596 EXPENDITURE Direct expense Claims paid Administrative expenditure Finance cost Depreciation Contract contingencies Foreign exchange fluctuation (net) 9,039,462,794 38,050,851 433,164,097 21,470,285 7,815,578 94,319 1,010,928 9,541,068,852 Profit before tax and prior period items Tax expense Current tax-minimum alternate tax Fringe benefit tax Profit after tax and before prior period items Prior period adjustments (net) Profit after tax and prior period items Balance brought forward from previous year Adjustments for employee benefits as on 1 April 2008 Profit available for appropriation 353,975,744 28,668,746 3,565,524 321,741,474 (97,386,429) 224,355,045 679,372,478 903,727,523 ( Amount in 2008 8,510,200,942 4,865,268 2,522,141 41,869,342 164,147,080 8,723,604,773 8,035,752,017 22,072,656 405,144,655 26,290,003 9,156,963 40,914 8,498,557,208 225,047,565 22,160,855 3,882,510 199,004,200 (23,685,309) 175,318,891 656,457,851 (52,932,329) 778,844,413 )

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Schedule Appropriations Interim dividend Proposed dividend Corporate dividend tax Wealth tax General reserve Balance carried to balance sheet

2009 35,422,688 35,422,688 12,040,170 20,000,000 800,841,977 903,727,523

2008 35,422,688 35,422,688 13,618,251 8,308 15,000,000 679,372,478 778,844,413 19.28 38.95

Basic and diluted earnings per equity share Face value per share (Rs.)

24.67 38.95

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BALANCE SHEET
It is a statement of the financial position of an enterprise as at a given date which shows the assets, liabilities, capital resources and other account balance at their respective book values. It is a statement that discloses the financial status of the enterprise, consisting of the values assigned to its assets, liabilities and owners equity at a specific time. Business is always liable to those who have advanced funds to it; they want to know where there funds have been placed. Both internal and external parties are interested in knowing the financial position which is exhibited through balance sheet. The balance sheet is represented by the following equation.

LIABILITIES + CAPITAL

ASSETS

SOURCE OF FUNDS

APPLICATION OF FUNDS

The company solvency position is strong if assets are financed more from internal sources than external one.

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Balance Sheet of EPI as at 31st March, 2009


Schedule SOURCES OF FUNDS Shareholder's funds Share capital Reserve and surplus 2009 ( Amount in 2008 )

354,226,880 865,051,997 1,219,278,877

354,226,880 723,582,498 1,077,809,378

APPLICATION OF FUNDS Fixed assets Gross block Less: Accumulated depreciation Net block Current assets, loans and advances Work-in-progress Inventories Sundry debtors Cash and bank balances Other current assets Loans and advances Less: Current liabilities and provisions Current liabilities Provisions Net current assets

159,417,345 115,007,253 44,410,092

159,386,817 109,188,187 50,198,630

24,883,553,329 892,576 1,567,250,012 1,534,821,413 56,267,921 9,945,269,060 37,988,054,311 36,467,013,076 346,172,450

19,487,905,572 12,710,127 1,210,654,941 1,595,352,934 14,398,412 5,821,727,806 28,142,749,792 26,843,445,972 271,693,072

36,813,185,526 1,174,868,785 1,219,278,877

27,115,139,044 1,027,610,748 1,077,809,378

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CASH FLOW STATEMENT


This statement is prepared to show the various sources and applications of cash throughout the year. Basically this statement is prepared on cash basis. It consists of two parts Cash inflow and Cash outflow. Cash here meant Cash only traditional approach and under modern approach it means cash and cash equivalents which include: Cash in hand Cash at bank Short term marketable securities

And it through light on various sources which brings in cash such as cash from operations, sale of fixed assets and current assets, nontrading receipts issuance of share capital, raising of loans etc. and payment which are cost due to purchase of fixed asset and current assets, redemption of long term funds i.e. debentures or preference shares and other long term funds etc. In nutshell, it contains a summary of cash receipt and cash payments during the particular period. Some sources and application of cash is shown below: Sources of Cash Application of Cash

Issue of Long term funds Payment of dividend and Taxes Share Capital Debentures Any other Long term debts Sale of Fixed Assets/Investments Purchase of Fixed Assets/Investments Redemption of Long term funds-share Cash generated from operations capital, debentures etc. Cash lost in operation etc. Non trading receipts

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According to Institute of Cost and Works Accountants of India, Cash flow statement is defined as, A statement setting out the flow of cash under distinct heads of sources of funds and their utilization to determine the requirement of cash during the given period and to prepare for its adequate provision. However, in simple words we can explain cash flow statement as statement which provides a detailed explanation for the change in a firms cash during a particular period by indicating the firm sources and uses of cash during that period.

Features of Cash Flow Statement 1. Cash flow statement records the inflow and outflow of cash through out the year i.e. from the beginning of the accounting year till the end. 2. 3. a) b) c) It is prepared on cash basis and not on accrual basis. It is basically concentrate on three activities: Cash from operating activities. Cash from investing activities. Cash from financing activities.

4. It studies the effect of changes of each and every item of balance sheet on the cash position of the company. 5. According to the modern concept the word cash includes Cash in hand, Cash at bank and short term or liquid investment.

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Cash Flow Statement of EPI for the year ended 31 March, 2009
Schedule A. CASH FLOW FROM OPERATING ACTIVITIES Net Profit before tax and prior period items Adjustments for: Prior period adjustments (net) Depreciation Interest income Interest expense Amounts written off Assets written off (profit)/ loss on sale of fixed assets (net) Excess provision written back Operating Profit before working capital changes Adjustments for : Decrease in inventories Increase in trade/other receivable and loan and advances Increase in trade/other payables and provision Cash (used in)/generated from operations Direct taxes paid Net cash (used in)/from operating activities B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets Proceeds from sale of fixed assets Movement in restricted cash Interest received Net cash used in investing activities C. CASH FLOW FROM FINANCING ACTIVITIES Interest paid Dividend paid Taxes on dividend Net cash used in financing activities Net increase in cash and cash equivalent Cash and cash equivalents in the beginning Cash and cash equivalents at the close 2008 2009 353,975,744 (97,386,429) 8,070,862 (125,112,062) 2,715,288 287,297 7,037 (52,493) (2,971,879) 139,533,365 11,817,551 (4,488,553,268) 4,297,091,612 (40,110,740) (15,832,669) (55,943,409) (2,987,845) 758,014 (6,682,447) 83,242,553 74,330,275 (2,715,288) (70,845,376) (12,040,170) (85,600,834) (67,213,968) 1,440,909,666 1,373,695,698 ( Amount in 2008 225,047,565 (23,685,309) 9,259,716 (77,606,211) 1,009,406 730,543 10,727 (431,469) (5,263,347) 129,071,621 4,412,592 (2,970,849,186) 3,305,073,397 467,708,424 (9,443,560) 458,264,864 (10,709,950) 1,330,788 (13,462,631) 93,104,178 70,262,385 (1,009,406) (88,556,720) (15,050,214) (104,616,340) 423,910,909 1,016,998,757 1,440,909,666 )

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Schedule Note: Cash and cash equivalent include: Cash and cheques in hand and remittances in transit Balances with bank - current Accounts Balances with bank - deposit account Cash and cash equivalents Balances in fixed deposit accounts (pledged) Cash and Bank Balances as per Balance Sheet

2008

2009

24,080,490 60,463,920 1,289,151,288 1,373,695,698 161,125,715 1,534,821,413 -

4,491,161 614,151,869 822,266,636 1,440,909,666 154,443,268 1,595,352,934 -

RATIO ANALYSIS
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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Working capital is defined as the difference between assets and liabilities. It measures how many liquid assets are available for a business to use for growth opportunities. A lack of working capital can really hold a business back from reaching their full potential. There are many different ways to obtain capital for the business. Working capital is that part of capital which is required to meet the day-to-day needs of the organization. It is required to meet the day to day expenses like paying salaries, rent, buying raw materials etc. some capital is also required to keep the stock of the partly finished goods or products, some cash is required to meet any emergency work. Thus, we can refer to the working capital as the Life Blood of any organization. Ratio-analysis is a concept or technique which is as old as accounting concept. Financial analysis is a scientific tool. It has assumed important role as a tool for appraising the real worth of an enterprise, its performance during a period of time and its pit falls. Financial analysis is a vital apparatus for the interpretation of financial statements. It also helps to find out any cross-sectional and time series linkages between various ratios. Ratio-analysis means the process of computing, determining and presenting the relationship of related items and groups of items of the financial statements. They provide in a summarized and concise form of fairly good idea about the financial position of a unit. They are important tools for financial analysis. Its a tool which enables the banker or lender to arrive at the following factors: Liquidity position Profitability Solvency Financial Stability Quality of the Management Safety & Security of the loans & advances to be or already been provided

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

MEANING OF WORKING CAPITAL Working capital is that part of capital which is required to meet the day-to-day needs of the organization. It is required to meet the day to day expenses like paying salaries, rent, buying raw materials etc. some capital Is also required to keep the stock of the partly finished goods or products, some cash is required to meet any emergency work. Thus, we can refer to the working capital as the Life Blood of any organization. Working capital management involves the management and control of the gross current assets as against the net working capital (NWC). And the current assets mainly comprise cash, sundry debtors also known as accounts receivables and bills receivables, and inventories. Thus, the working capital management comprises the management of all these components, individually and collectively too. According to smith Working Capital Management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exist between them. The capital requirement of a business can be classified into two categories: 1) 2) Fixed Capital Working Capital

Fixed capitals are required to create production facilities, which includes infrastructure and other fixed assets. Funds are also needed to carry on day-to-day activities of business. Working capital reefers to that part of capital, this is required to carry on the day-to-day activities or business smoothly. The day-to-day operations include purchase of raw material, payment of wages and salaries and meeting other expenses such as electricity, transport and common office expenses etc. in other works, working capital, which is required for financing short-term assets of the business.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

There are two concept of working capital 1) Gross working capital 2) Net working capital Gross working capital It means the sum total of all current assets. Current assets mean those assets, which are converted into cash within one year as a result of business operation. Components of current assets are cash and bank, B/R, debtors, inventories, o/s income, prepaid expenses. Net working capital It is a difference between current assets and current liabilities. Net working capital may be positive or negative. A positive net working capital arises when current assets exceed current liabilities. The net working capital will be negative when current liabilities exceed current assets. The net working capital indicated the liquidity position of the business. Gross working capital vs. Net working capital Theoretically speaking, there are two concepts of working capital, viz. 1) 2) Gross working capital comprising total current assets; and Net working capital (i.e., current assets less current liabilities). The main items that comprise current assets are: (i)Cash (a)In hand (b)In bank; and (c)In transit.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

(ii) Investments: Only short-term investments (like quoted hares of other companies intended for sale) long0term investments (like all unquoted shares, and quoted shares of subsidiary companies), however, are treated as Miscellaneous Assets, instead). (iii) Inventories comprising: (a)Raw materials and consumable stores and spares; (b)Work-in-progress; and (c)Finished goods. (iv)Sundry debtors (also had known as Bills receivable or accounts receivable). (v)Loans and advances (given by the company to others). Items comprising current liabilities are: (i)Sundry creditors (also known as bills payable or account payable) (ii)Trade advances (received by the company for supply of goods and/or for rending services). (iii)Short-term borrowing from commercial banks or other financial institution. (iv)Short-term loans from other sources (v)Provisions made for a) Payment for taxes b) Bad debts to be written off; and c) Fluctuations in exchange rates etc. But in practice, the working management concerns the management of total current assets and the total current liabilities, too, which, in fact, vary, depending upon the level of current assets required. Thus,

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

the term, net working capital, is only an accounting concept, not having much of economic or financial significance. Classification of working capital on the basis of time: (i) Permanent working capital (ii) Temporary working capital Permanent working capital or fixed working capital Permanent working capital means all the minimum amount of investment in all the current assets, which is regarded at all times to carry on minimum level of business activities. Thus there is always a need for minimum level of current assets which is known as permanent working capital or fixed working capital. It remains in the business in one form or the other; also there is a positive co-relation between the amount of the permanent working capital and the size of the business. The minimum amount of working capital is required to carry on minimum level of business operation of all times. In other words it represents that part of capital, which is permanently backed up in current assets to carry out minimum level of business activities. Every form has to maintain a minimum level of raw material; W.I.P., finished goods and cash balance throughout the year. This minimum level of current assets is called permanent working capital. Others further subdivided into two: (a) Regular working capital It is the part of working capital which is needed to keep on the circulation form cash to inventories, receivables and again to cash. (b) Reserve working capital It refers to the extra amount that should be kept as reserve for meeting am contingencies that may arise at any time.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Temporary working capital Temporary working capital cab be referred as fluctuating or variable capital. The amount of temporary working is directly proportional to the changes in the production and the sales. The extra working capital required to support the changing production and sales activities is known as temporary working capital. It is the amount of working capital, which is required to meet the seasonal needs or special needs. The amount of variable working capital changes in accordance with the volume of business operations the variable working capital is sub divided into two parts: (a) Seasonal working capital The working capital required to meet the seasonal requirement of the business is called seasonal working capital. Requirement for the working capital varies with the seasonal changes in many industries. Example: More amount of production is required in an umbrella factory during rainy season or during winter season there is high demand for woolen clothes.

(b) Special working capital Additional working capital may also be required on account of certain abnormal conditions; it is that part of capital, which is required for financing some special, needs. Example: Advertisement in connection with launching of a new product. During strikes, lock out and to face cutthroat competition advertisement for the company execution of special orders of the government will have to be financed by the company and this amount is derived from the working capital.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

NEEDS FOR WORKING CAPITAL Every business needs some amount of working capital to carry on the day-to-day activities. The need for working capital arises due to the time gap between acquisition of raw materials and realization of cash by sale of finished products. The requirement of working capital depends on the length of operating cycle. The more the length of operating cycle will be the need of working capital and vice versa. Working capital is needed for the following purposes: (a)Purchase of raw material, spare parts etc (b)Payment of salary and wages (c)To meet the day-to-day administrative and factory expenses. (d)To maintain the required level of inventory of raw materials, workin-progress and finished goods, spare parts etc. (e)To meet the selling and administration expense such as packing advertisement, etc. (f)To provide credit facilities to customers.

Importance of adequacy of working capital Investment in fixed assets is not sufficient to run the business to carry on the business operations, every business needs working capital. This working capital is described as Life Blood and Nerve Center of every business. No business can run successfully without an adequate working capital. It is said that inadequate working capital is a criminal waste. Both the situations are unwanted to a sound business organization. Therefore it is essential to maintain an optimum level of working capital.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Advantages of maintaining adequate amount of working capital. (a)Solvency of business (b)Optimum level of working capital (c)Enables the business to maintain the goodwill of the firm. (d)If the proper cash balance is maintained the business avail the cash discount by making prompt payment. (e)Adequacy of working capital ensures regular supply of raw materials and other components required for production. (f)Adequacy of working capital enables the business to face emergency situation.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Determinants of working capital: Working capital of a concern depends on number of factors. The requirements of working capital differ from firm to firm and time to time. Following are the various factors, which influence the need and level of working capital: (a) Nature of Business: The quantum of working capital requirement is closely related to the nature of business of the company, which, in turn, is related to the operating cycle for e.g.; in a bakery unit the requirement may be very low, as the operating cycle may be hardly for one or two days. Similarly, in case of an electric supply company or a transport company, or for a company which is still in the sellers market, the working capital requirement may be much less as the operating cycle will be much less as the operating cycle will be much shorter, mainly due to the fact that most of their sales will be in cash basis. And, so the whole time lag between credit sales and collection of bills will be saves. As against this, a company manufacturing heavy machines tools or turbines, will naturally be having a much longer operating cycle as it would be selling mostly ion credit, and, consequently would require a much higher level of working capital. The working capital requirement of a firm basically depends on the nature of business. There are some business which requires more amount of investment in fixed assets and less amount of working capital. Example public utility undertaking like electricity, water, etc. manufacturing industries, trading and financial firms etc. require more amount of working capital because funds are blocked up in inventories and account receivables. (b)Size of business The working capital requirement of a company is directly related to its size of operation; larger will be the need of working capital.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

(c)Seasonal nature of business Seasonal variation in operation is another factor effecting working capital requirement. In certain case, raw material is not available throughout the year therefore during season. It is necessary to buy the material in bulk to ensure uninterrupted production throughout the year. More working capital required during seasonal time. Sometimes the consumption of finished product is seasonal in nature in such a case production is more during season. Seasonal industries, manufacturing fans and fridges, room heaters and geysers room coolers and air-conditioners, woolen cloths and blankets, may require a much higher level of working capital requirement in peak seasons, and much lower requirements during the slacks (off) seasons. That is why; the materials banks stipulate fluctuating working capital limits for such companies for peak and slack seasons. Example: Woolen products during winter etc

CALCULATION OF WORKING CAPITAL


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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Particulars Current Assets Work-in-progress Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances (i)Total Current Assets Current Liabilities Outstanding dues to micro, small and medium enterprises Outstanding dues of creditors other than micro, small & medium enterprises Advance from clients Security deposits, earnest money and retention Money payable Amount billed to client Provisions (ii)Total Current Liabilities (i)-(ii)Net Working Capital (iii) Total Assets (i-ii)/(iii) Net Working Capital Ratio

March 31 , 2008 19,487,905,572 12,710,127 1,210,654,941 1,595,352,934 14,398,412 5,821,727,806 28,142,749,792

st

( Amount in March 31st ,2009 24,883,553,329 892,576 1,567,250,012 1,534,821,413 56,267,921 9,945,269,060 37,988,054,311

5,299,975,937 1,156,318,805 916,924,520 19,470,226,710 271,693,072 27,115,139,044 1,027,610,748 28,182,395,000 0.03646286087

5,831,117 8,705,780,285 1,870,368,714 1,042,981,049 24,842,051,911 346,172,450 36,813,185,526 1,174,868,785 38,032,464,000 0.03089120875

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Net Working Capital Ratio


0.037 0.036 0.035 0.034 0.033 0.032 0.031 0.03 0.029 0.028 0.027 2008 2009 Year

Net Working Capital Ratio(In times)

Interpretation: Net working capital shows the investment of own capital into the business. The above data show that the amount of own capital employed in the business is less.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Ratio Analysis of Engineering Projects (India) Ltd.


(A) Liquidity Ratios (Short Term Solvency) The liquidity refers to the maintenance of cash, bank balance and those assets which are easily convertible into cash in order to meet the current liabilities as and when arise. So, the liquidity ratio studies the firms short term solvency and its ability to pay off the current liabilities. The day to day problems of financial consists of highly important task finding sufficient cash to meet current obligation, the short-term liquidity risk arises primarily from the need to finance the current operations. These ratios as a group are intended to provide information about a firms liquidity at the primary concern is the firms ability to pay its current liabilities. These ratios focus on current assets and current liabilities. The liquidity ratio provides a quick measure of liquidity of the firm by establishing a relationship between its current assets and current liabilities. If a firm does not have sufficient liquidity it may not be in apposition to meet its commitments and thereby may loose its credit worthiness. These are also called balance sheet ratios because the information required is available in balance sheet only. (i) Current Ratio Current Ratio is relationship of current assets to current liabilities. The ratio is computed to assess the short-term financial position of the enterprise. It means Current Ratio is an indicator of the enterprise to meet its short term obligations. Current Assets means the asset that is either in the form of cash or cash equivalents or can be converted into cash or cash equivalents in a short time (say within a years time) and Current Liabilities means liabilities repayable in the short time. The ratio is calculated as follows: Current Ratio = Current Assets/Current Liabilities

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Current Assets A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A company's creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations. Current Liabilities A balance sheet item which equals the sum of all money owed by a company and due within one year. And it also called Payables or current debts.

List of Current Assets 1. 2. 3. 4. 5. Cash & Bank balance. Short term Investment. Debtor. Bills Receivable. Stocks includes finished & semi-finished goods. 6. Marketable 7. Consumable stores & spares 8. Advance payment of tax 9. Prepaid expenses 10. Advances

List of Current Liabilities 1. Short term Borrowings 2. Public Deposits or loans maturing within one year 3. Sundry Creditors 4. Bills Payable 5. Bank Overdraft 6. Provision for Taxation 7. Dividend Payable/Provision for Dividend 8. Outstanding expenses

Significance of Current Ratio

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

The Current Ratio measures short time solvency, i.e., its ability to meet short term obligations. A Current Ratio represents that short term assets which are just sufficient to meet short term obligations. Normally Current Ratio of less than 2 denotes poor liquidity position and Current Ratio of greater than 2 denotes good liquidity position but both these situations creates assets and liability miss-matches as current assets is financed from long term sources and Current Ratio less than 1 denotes that assets are not sufficient to meet short term liabilities. But Current Ratio greater than 1 is generally preferred as compared to less than 1. But the high Current Ratio may not always indicate better liquidity in case major part of Current Assets represents non-readily saleable inventories. Generally a Current Ratio of 2 times or 2:1 is considered to be satisfactory through this is not applicable to all cases. This standard Current Ratio may vary from one industry to another and therefore, a Firms Current Ratio should be compared with specific industry only. If its too high means too many current assets e.g. might have too much stock, could use the money tied up in current assets more effectively and If its too low you run the risk of not being able to meet current liabilities and you could have liquidity problems. Current Ratio= Current Assets/Current Liabilities
( Amount in Current Ratio= Current Assets/Current Liabilities 2008 (i) Current Assets, Loan & Advances: 28,142,749,792 (ii)Current Liabilities & Provisions: (i/ii)Current Ratio(in times): 27,115,139,044 1.03789804456 )

2009 37,988,054,311 36,813,185,526 1.03191434721

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Current Ratio
1.042 1.04 Current Ratio (In times) 1.038 1.036 1.034 1.032 1.03 1.028 1.026 1.024 2008 2009 Year

Interpretation: The current ratio reveals the business's ability to meet its current obligations. Above analysis shows that current ratio is decreasing in current year 2009. It means that the companys liabilities are increasing more, than the increase in assets; this increase is on account of advance received from custom against new contracts

(ii) Liquid Ratio

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

Liquid ratio is a relationship of liquid assets with current liabilities and is computed to assess the short term liquidity of the enterprise in its correct form. It is called Near Money Ratio. Liquid assets are the assets which are either in the form of cash equivalents or can be converted into cash within a very short period. Liquid assets are computed by deducting stock and prepaid expenses from total current assets. Liquid assets put the liabilities give the liquid ratio. This is calculated as follows: Liquid Ratio = Liquid Assets or Quick Assets/Current Liabilities Here, Quick Assets = Current Assets-Stock-Prepaid Expenses Sometimes a variation in the ratio is suggested. Instead of total current liabilities only those current liabilities are taken in the denominators which are really payable with in a period of one year. So the amount of bank overdraft which is by nature a current liability but which is usually availed by the firm on more or less on regular basis and is not payable in real sense is therefore deducted from the amount of total current liabilities. So, Quick Ratio = Quick Assets/Quick Liabilities Here, Quick Liabilities=Current Liabilities-Bank Overdraft
List of Liquid/Quick Assets Sundry Debtor Bills Receivable Marketable securities Temporary Investments Short-Term Loans & Advances Cash at Bank Cash in Hand List of Liquid Liabilities Sundry Creditors (for Goods) Sundry Creditors (for Expenses) Bills Payable Proposed Dividend Provision for Taxation Short- Term Loans

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Significance of Liquid Ratio The objective of computing liquid ratio is to assess the short term solvency of the enterprise. A part of the current assets are not readily realizable or convertible into cash. Therefore, the current ratio does not indicate adequately the ability of the enterprise to discharge the current liabilities as and when they fall due whereas while computing the liquid asset, a part of current assets that are not liquid are eliminated. This is better indicator of liquidity. This ratio is of high importance for banks and financial institutions. The comparison of current ratio to liquid ratio would indicate the degree of inventory held up. A high liquidity ratio compared to current ratio may indicate under stocking while a low liquid ratio indicates overstocking.

( Amount in Liquid Ratio = Liquid Assets or Quick Assets/Current Liabilities 2008 2009 (i) Current Assets, Loans & Advances: 28,142,749,792 37,988,054,311 (ii) Inventories: (i-ii) Liquid/Quick Assets: (iii) Current Liabilities & Provisions: (i-ii)/(iii) Liquid/Quick Ratio(in times): 12,710,127 28,130,039,665 27,115,139,044 1.03742929805 892,576 37,987,161,735 36,813,185,526 1.03189010112

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Liquid Ratio
1.042 1.04 1.038 Liquid Ratio (In times) 1.036 1.034 1.032 1.03 1.028 1.026 1.024 2008 2009 Year

Interpretation: The ideal ratio is 1:1 whereas in this above case business is attaining the ideal ratio during the current year 2009. It means that the company has enough liquid cash to meet its current obligations.

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PROJECT ON:- WORKING CAPITAL & RATIO ANALYSIS

(iii) Cash Ratio or Absolute Liquidity Ratio The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. The cash ratio is the most stringent and conservative of the three short-term liquidity ratios (current, quick and cash). It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn't necessarily a bad thing, so don't focus on this ratio being above 1:1. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. The reason being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. While providing an interesting liquidity perspective, the usefulness of this ratio is limited. Significance of Cash Ratio The cash ratio is generally a more conservative look at a company's ability to cover its liabilities than many other liquidity ratios. This is due to the fact that inventory and accounts receivable are left out of the equation. Since these two accounts are a large part of many companies, this ratio should not be used in determining company value, but simply as one factor in determining liquidity.

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The cash ratio is an indicator of a company's liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash; cash equivalents or invested funds there are in current assets to cover current liabilities. Cash Ratio=Cash + Marketable securities/Current Liabilities

( Amount in Cash Ratio=Cash + Marketable securities/Current Liabilities (i) Cash & Bank Balance: 1,595,352,934 (ii) Marketable Securities: (i)+(ii) (iii) Current Liabilities: (i+ii)/(iii) Cash Ratio(in times): 0 1,595,352,934 27,115,139,044 0.05883624389 1,534,821,413 0 1,534,821,413 36,813,185,526 0.04169216521

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Cash Ratio
0.07 0.06 Cash Ratio (In times) 0.05 0.04 0.03 0.02 0.01 0 2008 2009 Years

Interpretation: The Cash Ratio of 0.04 times for the current year 2009 says that the company is not in the position to very quickly liquidate its assets and cover its short-term liabilities. But there no such liquidity need for the company and so the small value of the ratio has no such important implications. (The ratio is of interest to short-term creditors).

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(B) Market Based Ratio The market based ratio relates the firms stock price to its earning and book value per share. These ratio give management an indication of what investor thinks of the companys past performance and future prospects. (i) Earning Per Share The objective of Financial Management is wealth or value maximization of a corporate entity. The value is maximized when market price of equity shares is maximized. In practice, the performance of a corporation is better judged in terms of its earning per share (EPS). The EPS is one of the important measures of economic performance of a corporate entity. Investors would look upon the EPS as the best base to take their investment decisions. A higher EPS means better capital productivity. It is the earnings of the company attributable to the equity shareholders divided by the number of equity shares. In other words, this ratio measures the earnings available to an equity shareholder on per share basis. It is computed with the help of the following formula: Earning Per Share = NPAT & Preference Dividend Number of Equity Shares

Significance of Earning Per Share EPS is one of the most important ratios which measures the net profit earned per share. EPS is one of the major factors affecting the dividend policy of the firm and the market prices of the company. Growth in EPS is more relevant for pricing of shares from absolute EPS. A steady growth in EPS year after year indicates a good track of profitability. This ratio helps in evaluating the prevailing market price of share in the light of profit-earning capacity. The more the Earning Per Share, better is the performance and prospects of the company.
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( Amount in Earning Per Share = Net Profit After Tax & Preference Dividend No of Equity Shares 2008 2009 (i) Net Profit After Tax: (ii) Preference Dividend: (i)+(ii) (iii) No of Equity Shares (in numbers): (i+ii)/(iii) Earning Per Share: 175319000 0 175319000 9094400 19.28

224,355,000 0 224,355,000 9,094,400 24.67

Earning Per Share


30 25 20 15 10 5 0 2008 2009 Years

Earning Per Share (In

`)

Interpretation: A steady growth in Earning Per Share (EPS) year after year indicates a good track of profitability. Here growth of EPS for `24.67 in the current year 2009 shows that company maintains a better capital productivity.
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(ii) Dividend Per Share (DPS) It is the distributed profit (Net Profit after Interest & Preference Dividend) belonging to the shareholders, dividend by the number of equity shares. In other words, it reveals the amount of dividend paid to the equity shareholders on a per share basis. It cannot be considered as a reliable measure of profitability. Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained. Dividend Per Share (DPS) = Dividends/Number of equity shares ( Amount in )
Dividend Per Share(DPS)=Dividends paid to equity shareholders Numbers of Equity Shares 2008 2009 (i)Dividends paid to equity shareholders: 70,845,000 70,845,000 (ii)No of Equity Share (in numbers): (i)+(ii)Dividend Per Share: 9,094,400 7.79094827586 9,094,400 7.79094827586

Dividend Per Share


10
Dividend Pe Share (In ` )

8 6 4 2 0
2008 2009 Years

Interpretation: DPS indicates that both the years company provides a constant dividend.
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(iii) Dividend Payout Ratio Dividend payout ratio is the dividend per share dividend by the earning per share. Dividend payout indicates the extent of the net profits distributed to the shareholders as dividend. A high payout signifies a liberal distribution policy and a low payout reflects conservative distribution policy. Significance of Dividend Payout Ratio When the D/P ratio is deducted from 100, it will disclose the percentage share of the net profit retained in the business. For instance, if the net profit after taxes and preference dividends are `10,00,000 and dividend paid to the equity shareholders amount to `6,00,000, the D/P ratio is 60%.This reveals that 40% of the profit are retained in the business and only 60% are distributed as dividend. This only show that 60% of the net profits are utilized for dividend and the balance of 40% are ploughed back. The D/P ratio is a popular ratio. A comparison of this ratio with that of similar firms reflects the adequacy of dividend payment to equity shareholders.

Dividend Payout Ratio=Dividend Per Share/Earning Per Share Or Dividend payout ratio (in %) =Dividends/Profit After Tax

(In times)
(i)Dividend Per Share: (ii)Earning Per Share: (i)/(ii)Dividend Payout Ratio(in times):

( Amount in 7.79 24.67 0.31576813944

Dividend Payout Ratio=Dividend Per Share/Earning Per Share

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(In %)

( Amount in 2009 70,845,000 224,355,000 31.577187938

Dividend payout ratio (in %) =Dividends/Profit After Tax 2008 (i)Dividends: 70,845,000 (ii)Profit After Tax: (i)/(ii)x100 Dividend Payout Ratio(in %): 175,319,000 40.409196949

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Dividend Payout Ratio


45 40 Dividend Payout Ratio (In %) 35 30 25 20 15 10 5 0 2008 2009 Year

Interpretation: In this analysis I found that the current years Dividend Payout Ratio tends to decrease as compare to the previous year and here I can say that low Dividend Payout Ratio reflects conservative distribution policy. (iv) Book Value Per Share This ratio indicates the net worth per equity share. The book value is a reflection of the past earnings and the distribution policy of the company. A high book value indicates that a company has huge reserves and is a potential bonus candidate. A low book value signifies a liberal distribution of policy of bonus and dividends, or alternatively, a poor track record of profitability. Book value is considered less relevant for the market price as compared to EPS, as it reflects the past record whereas the market discounts the future prospects.

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Book Value Per Share = Equity Share Capital+Reserve & Surplus Number of Equity Shares
( Amount in Book Value Per Share=Equity Share Capital+Reserve & Surplus Number of Equity Shares 2008 2009 (i)Equity Share Capital: 354,227,000 354,227,000 (ii)Reserve & Surplus: (i)+(ii) (iii)Number of Equity Shares(in number): (i+ii)/(iii)Book Value Per Share: 723,582,000 1,077,809,000 9,094,400 118.513480823 865,052,000 1,219,279,000 9,094,400 134.069207424 )

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Book Value Per Share


140

135 Book Value Per Share (In ` )

130

125

120

115

110 2008 2009 Year

Interpretation: The book value is a reflection of the past earnings and the distribution policy of the company. A high book value indicates that a company has huge reserves and is a potential bonus candidate. And here I found that the current years Book Value Per Share is more as compare to the previous year and it indicates that company has huge reserves and is a potential bonus candidate.

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(v) Cash Earning Per Share The cash earning per share (Cash EPS) is calculated by dividing the Net profit before depreciation with numbers of equity shares. Cash Earning Per Share = Net Profit After Tax+Depreciation No of Equity Shares
( Amount in ) Cash Earning Per Share=NPAT+Depreciation/No of Equity Shares 2008 2009 (i)Net Profit After Tax: 175,319,000 224,355,000 (ii)Depreciation: (i)+(ii) (iii)No of Equity Shares (i+ii)/(iii) Cash Earning Per Share 9,157,000 184,476,000 9,094,400 20.2845707248 7,816,000 232,171,000 9,094,400 25.5290068613

Cash Earning Per Share

Cash Earning Per Share (In ` )

30 25 20 15 10 5 0 2008 2009

Year

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(vi) Earning Yield Ratio Earnings yield is a measurement ratio that is often used by investment managers or stock market investors to evaluate the worth of a particular stock. The earnings yield equals a corporations earnings per share divided by the current share price. In this context, the term earnings per share simply refers to the amount of new profits attributable to each outstanding share of the corporations common stock. This Ratio expresses the relationship between earning per share and market price per share. It is also known as earning price ratio. Earning Yield Ratio = Earning Per Share/ Market Price Per Share

(vii) Dividend Yield Ratio This ratio reflects the percentage yield that an investor receives on this investment at the current market price of the shares. This measures is useful for investors who are interested in yield per share rather than capital appreciation. Dividend yield ratio is the relationship between dividends per share and the market value of the shares. Significance of Dividend Yield Ratio This ratio helps as intending investor knows the effective return he is going to get on the proposed investment. Dividend Yield Ratio = Dividend Per Share/ Market Value Per Share

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(viii) Market Price To Book Value Ratio This ratio measures the relationship between the accounting value of the firms assets and the market price of its stock. The ratio is calculated by dividing the stock price per share by the book value of share. Market Price To Book Value Ratio = Market Price Per Share Book Value per Share Where, Book Value Per Share = Equity Sh Capital + Res & Surplus Number of Equity Shares Generally, the higher the rate of return a firm is earning on its common equity the higher will be the P/BV ratio. In case of growth firms etc. firms with higher growth of sales and earnings will have this ratio higher than 1, for the reason that the potential future growth in earnings is reflected bin the current stock price. Where as the book value of equity share is based on historical costs and it does not considered the potential growth. (ix) Price Earning Ratio: This ratio indicates the market price of equity share to the earning per share. It measures the number of times the earning per share discounts the market price of equity per share. Price Earning Ratio = Market Price Per Equity Share Earning Per Share This ratio indicates how much an investor is prepared to pay per rupee of earning. The ratio helps to ascertain the value of equity share, if the EPS and the probable Price Earning Ratio of the industry to which the company belongs. A ratio reflects high earning potential and a low ratio indicates Low earning potential. The ratio reflects the market confidence on companys equity.

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(C) Dividend Coverage Ratio This ratio measures the ability of the firm to pay preference shares, dividend and equity dividend. Unlike interest which is charged on profit the dividend is treated as appropriation of profit. It indicates him number of time the dividends are covered by net profit and reveals the safety margin available for shareholders. Higher the ratio the better it is. There are two types of dividend cover (i) preference dividend cover and (ii) Equity dividend cover. (i) Preference Dividend Coverage Ratio This Ratio indicates the number of time preference dividend is covered by net profit after interest and tax. Preference Dividend Coverage Ratio = NPAT & Interest Preference Dividend (ii) Equity Dividend Coverage Ratio This Ratio indicates the number of time equity dividends is covered by net profit after interest, tax and preference dividend. Equity Dividend Coverage Ratio = PAT & Pref. Dividend Equity Dividend

Cover for the Equity Dividend=PAT & Pref. Dividend Equity Dividend 2008 2009 (i) Profit After Tax & Preference Dividend 175,319,000 224,355,000 (ii)Equity Dividend (i)/(ii) Cover for the Equity Dividend 70,845,000 2.47468416966 70,845,000 3.16684310819

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Equity Dividend Coverage Ratio


3.5 Equity Dividend Coverage Ratio (In times)

3 2.5

2 1.5

1 0.5

0 2008 2009 Year

Interpretation: It indicates number of time the dividends are covered by net profit and reveals the safety margin available for shareholders. And current years Equity DCR increased by 0.7% which is good for any business.

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(D) Leverage Ratios: Leverage is the relationship between debt financing and equity financing, also known as the debt-to-equity ratio. Leverage is a ratio that measures a company's capital structure. In other words, it measures how a company finances their assets. Leverage = Total Liabilities Shareholders Funds
(Amount in `) Leverage = Total Liabilities Shareholders Funds 2008 28,182,395 1,077,809,000 0.02614785643 2009 38,032,464 1,219,279,000 0.03119258512

(i) Total Liabilities

(ii) Shareholders Funds (i)/(ii) Leverage Ratio (In times )

Leverage Ratio
0.032 0.031 0.03 0.029 0.028 0.027 0.026 0.025 0.024 0.023

Leverage (In times)

2008

2009
Years

Interpretation: Above analysis shows that the Total liabilities and shareholders fund both increases in year 2009 in comparison to year 2008 but the ratio is increasing, this means that the business is utilizing the shareholders fund rather than other sources of funds.
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(E) Profitability Ratios: The profitability ratios are the basic bank financial ratios. Profitability ratios are the financial statement ratios which focus on how well a business is performing in terms of profit. Profitability ratios measure how well a company is performing by analyzing how profit was earned relative to sales, total assets and net worth. D&B uses three key financial business ratios to measure a companys efficiency. Based on Sales (i) Gross Margin Ratio This is known as Gross Margin Ratio and is expressed as the relationship of Gross Profit to Net Sales. This is also called Turnover Ratio or Margin Ratio. This ratio is normally expressed in. Gross Margin Ratio = Gross Margin X 100 Turnover

Significance of Gross Profit Ratio It is useful to test the profitability management efficiency. The higher the ratio the better it is. As it implies that cost of goods sold of the firm is relatively low. But a very high ratio may also be the result of over valuation of closing or under valuation of opening stock. But a low ratio is definitely having more adverse effect on the working of the business and it contributes towards increase in cost of production and indicates the low sales which reflect the low demand of companys product. If gross profit margin is low, lesser amount of profit is available for the declaring dividends and meeting other overheads of the company Low Gross Profit Ratio also indicates over investment in companys fixed assets. Generally, 20% to 30% gross profit margin is considered to be adequate for a business concern to meet its fixed obligations, dividends and all other appropriations.

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Gross Margin Ratio = Gross Margin X 100 Turnover 2008 2009 (i) Gross Margin: 236,909,000 285,875,000 (ii) Turnover: 8,723,604,000 9,587,053,000 (i)/(ii)x100 Gross Margin Ratio(In %) : 2.715723914 2.981886091

Gross Margin Ratio


3.05 3 Gross Margin Ratio (In %) 2.95 2.9 2.85 2.8 2.75 2.7 2.65 2.6 2.55 2008 2009 Year

Interpretation: As the name signifies, the gross profit means the gross earning on the value of turnover, more the gross profit more are the returns. In the above data if it is apparent that the profit of the company is increasing in the year 2009 as compare to the year 2008, which is good for any business.

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(ii) Net Profit Ratio: This also known as Profit Margin Ratio and also expressed as percentage. It measures the relationship between Net Profit to Sales. Net Profit Ratio = Net Profit (After Tax) X 100 Turnover

A high net profit margin ensure adequate return to the owner as well as enables a firm to withstand adverse, economic conditions, when selling prices are declining, cost of production is rising and demand of product is falling. This ratio measures the efficiency of the management in generating additional revenue over and above the total cost of operation. Significance of Net Profit Ratio This ratio indicates the net result of the working of the company during the period and reveals the overall profitability of the concern. It shows how effectively the firm maintains control over the total expenses. Higher the ratio the better it is because available residual income for shareholders is more.
Net Profit Ratio = Net Profit (After Tax) X 100 Turnover 2008 (i) Net Profit After Tax 175,319,000 (ii) Turnover (i)/(ii)X100 Net Profit Ratio (In %) 8,510,551,000 2.06001938

2009 224,355,000 9,587,053,000 2.340187333

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Net Profit Ratio


2.4 2.35 2.3 Net Profit Ratio (In %) 2.25 2.2 2.15 2.1 2.05 2 1.95 1.9 2008 2009 Year

Interpretation: As the name signifies, the net profit means the earning on the value of turnover, more the profit more are the returns. In the above data if it is apparent that the profit of the company is increasing in the year 2009 as compare to the year 2008, which is good for any business.

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Based on Net Worth: (i) Return on Equity Shareholders Fund

This ratio relates to profit available for equity shareholder with book value of equity investment. The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with their total contribution in the firm. Return on Equity Shareholders Fund (in %) = Net Profit After Tax Shareholders Fund

( Amount in ) Return on Equity Shareholders Fund (in %) = Net Profit After Tax Shareholders Fund 2008 2009 (i) Net Profit After Tax 175,319,000 224,355,000 (ii) Shareholders Fund (i)/(ii)X100 Return on Equity Shareholders Fund (in %) 1,077,809,000 16.266240122 1,219,279,000 18.400628568

Return on Equity Shareholders Fund


19 18.5 ROE (In %) 18 17.5 17 16.5 16 15.5 15 2008 2009 Year

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Interpretation: The company is earning good amount of return on its equity. In the present year of 2009 ROE ratio 18.40% which is best in comparison to previous year of 2008 ROE ratio 16.27%. This shows that company has earned fair amount of equity.

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(F) Solvency Ratios (Capital Structures Ratios): A capital structure ratio indicates the long-term solvency position of the company. Basically there are two broad sources of funds-long term creditors and shareholder funds. The long term creditors would judge the soundness of the firm judge the soundness of the firms on the basis of long term long term financial strength measures in terms of firms ability to pay the interest regularly as well as to repay the principle amount in instalments or lump sum on the due dates. (i) Equity Ratio This ratio is also known Net Worth to Total Asset Ratio. This ratio is used to study the capitalization of a concern. This ratio indicates proportion of total assets financed by shareholders fund. High ratio predicts those shareholder funds are tied up in non-liquid, permanent and depreciable assets. Normally, higher ratio indicates sound financial position and low ratio indicates unsound financial position. Equity Ratio = Shareholders Funds X 100 Total Asset

( Amount in ) Equity Ratio = Shareholders Funds X 100 Total Asset 2008 2009 (i) Shareholders Funds: 1,077,809,000 1,219,279,000 (ii) Total Assets: (i)/(ii)X100 Equity Ratio (In %): 28,182,395,000 3.824405271 38,032,464,000 3.205890104

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Equity Ratio
3.9 3.8 3.7 3.6 Equity Ratio (In %) 3.5 3.4 3.3 3.2 3.1 3 2.9 2.8 2008 2009 Year

Interpretation: Here, as compare to last year this years Equity Ratio decreased by 0.62%. A low percentage indicates inadequate or low safety cover for the creditors.

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(G) Activity/Efficiency (Turnover) Ratios (i) Asset Turnover Ratio This ratio indicates how efficiently assets are used in the business to generate turnover. This ratio can be calculated as: Asset Turnover = Sales (turnover)/ Net Assets Here, Net assets = Total assets current liabilities
Asset Turnover = Sales (turnover)/ Net Assets (i) Turnover: (ii) Total Assets: (iii) Current Liabilities: (ii)-(iii) Net Assets: (i)/(ii-iii) Asset Turnover Ratio (In times): 8,510,551,000 9,587,053,000 28,182,395,000 38,032,464,000 27,115,139,044 36,813,185,526 1,067,255,956 1,219,278,474 7.97423612597 7.86289039332

Asset Turnover Ratio


8 7.98 7.96 7.94 7.92 7.9 7.88 7.86 7.84 7.82 7.8 2008 2009 Year

Interpretation: The Asset Turnover ratio in 2009 decreased as compare to the ratio of 2008 which is not a good sing of prospects of the company. This means that the company is not managing its assets appropriately for earning more profit. (ii) Fixed Asset Turnover Ratio
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Asset turnover (In times)

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This ratio indicates how efficiently fixed assets are used in the business to generate turnover. This ratio can be calculated as: Fixed Asset Turnover = Turnover/Net Fixed Assets

( Amount in Fixed Asset Turnover = Turnover/Net Fixed Assets (i) Turnover: (ii) Net Fixed Assets: (i)/(ii) Fixed Asset Turnover Ratio: 8,510,551,000 44,410,092 191.635518341 9,587,053,000 50,198,630 190.982363462

Fixed Asset Turnover Ratio


191.8
Fixed Asset Turnover Ratio (In times)

191.6 191.4 191.2 191 190.8 190.6 2008 2009


Year

Interpretation: The Fixed Asset Turnover ratio in 2009 decreased as compare to the ratio of 2008 which is not a good sing of prospects of the company. This means that the company is not managing its Fixed assets appropriately for earning more profit.

(iii) Current Asset Turnover Ratio


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This ratio indicates how efficiently Current assets are used in the business to generate turnover. This ratio can be calculated as: Current Asset Turnover = Turnover/Net Current Assets

( Amount in ) Current Asset Turnover = Turnover/Net Current Assets 2008 2009 (i) Turnover: 8,510,551,000 9,587,053,000 (ii) Net Current Assets: 1,027,611,000 1,174,869,000 (i)/(ii) Fixed Asset Turnover Ratio: 8.28188001101 8.16010380731

Current Asset Turnover Ratio


8.3 Current Asset Turnover Ratio (In times) 8.28 8.26 8.24 8.22 8.2 8.18 8.16 8.14 8.12 8.1 2008 2009 Year

Interpretation: The Current Asset Turnover ratio in 2009 decreased as compare to the ratio of 2008 which is not a good sing of prospects of the company. This means that the company is not managing its Current assets appropriately for earning more profit (iv) Debtor collection period
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This is another efficiency ratio. This looks at how long it takes for the business to get back money it is owed Debtors collection ratio = debtors x 365 / turnover. The lower the figure the better as get cash more quickly. However sometimes need to offer credit terms to customers so this may increase its need to ensure keep track of any changes in credit terms as these should impact this ratio. Debtors collection ratio = Debtors x 365 / Turnover
( Amount in )

Debtors collection ratio = Debtors x 365 / Turnover


(i) Sundry Debtors: (ii) Turnover (i)/(ii)X100 Debtor Collection Period: 2008 2009 1,567,250,012 1,210,654,941 8,510,551,000 9,587,053,000 67.2161243564 46.0922718831

Debtor Collection Period


80 70 60 DCP (In days) 50 40 30 20 10 0 2008 2009 Year

Interpretation:

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This looks at how long it takes for the business to get back money it is owed the lower the figure indicates the better as get cash more quickly. So, the company is doing better job in order to decrease their DCP.

LIMITATIONS

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Comparing ratio over time is complicated by the fact that economic condition may change also. Comparing ratio between two firms is complicated by the fact that the firm may have different environments or production technologies even though they produce the same product..

Ratios are subjected to the limitations of accounting methods. Different accounting choices may result in significantly different ratio values. Company cannot make any future plan only the basis of ratios.

Most ratios by themselves are not highly meaningful. They should be viewed as indicators, with several of them combined to paint a picture of the firms situation

FINDINGS

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The company has fewer current assets to meet its current liabilities in comparison to the previous year 2008. In this analysis I found that the company has enough liquid cash to meet its current obligation. The company has fewer Cash ratio to meet its current liabilities in comparison to the previous year 2008.
The steady growth of EPS for `24.67 in the current year 2009

shows that company maintains better capital productivity.


DPS indicates that both the years company provides a constant

dividend. In this analysis I found that the company provides lesser Dividend Payout Ratio in compare to the last year which is not a good sign for attracting more shareholders
Increase in Book Value Per Share indicates that a company has

huge reserves and is a potential bonus candidate.


The cash earning per share is increased by ` 5.25 which is a

good sign for any company. In the present year of 2009 DCR ratio is increased by 0.7, which is best in comparison to the previous years. In this analysis I found that the Total liabilities and shareholders fund both increases in year 2009 in comparison to year 2008 but the ratio is increasing, this means that the business is utilizing the shareholders fund rather than other sources of funds
The gross profit & net profit of the company is increasing in the

year 2009 as compare to the year 2008, which is good for any business. In the present year of 2007 ROE ratio is increased by 2.13%, which is best in comparison to the previous years.
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Net working capital shows the investment of own capital into the

business. The above data show that the amount of own capital employed in the business is less. As compare to last year this years Equity Ratio decreased by 0.62%. A low percentage indicates inadequate or low safety cover for the creditors.

SUGGESTIONS & RECOMMENDATIONS


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Company should increase the liquidity ratio by reducing its liabilities.


Quick assets of the company are reducing in comparison to

liabilities since last year. Company should control its quick assets from further reducing. Company is utilizing the funds from other sources as their working capital instead of using own funds, company can improve its working capital by utilizing their own funds.
Gross Profit margin of the company is very low of 2.98%;

company should take strong measures to improve the margin. There is scope for improvement for Return on equity, company take necessary steps to improve the same. From assets turnover ratio it is apparent that company is not able to manage its assets properly in order to generate sales, we strongly recommend that strong action should be taken to utilize the assets properly.
Although company has improved its Debtor Collection Period

but there is ample scope to improve further, a task force should be employed in this direction.

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REFERENCES

Books
Financial & Cost Accounting-Dr. Sanjeev Sharma & Mrs. Kanwal Deep, Second Edition 2009, Sharma Publications, Jalandhar.

Analysis of Financial Statement-Mr. T.S Grewal, Revised Edition 2007 Sultan Chand & Sons (P) Ltd, New Delhi. Company Journals & Annual Report of Engineering Projects (India) Ltd. Edition (2007-2008 & 2008-2009). Advanced accounting- S.P. Jain & K.L. Narang; Revised Addition

2000; Kalyani publishers, New Delhi.

Websites www.investorwords.com
www.investopedia.com

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