A study on Financial Analysis and leverages

ACKNOWLEDGEMENT
I take this opportunity to thank Mr.Gurunath Rao Vaidya, Principal, of ACHARYA INSTITUTE OF GRADUATE STUDIES,for having given this opportunity to conduct this
dissertation. I would like to express my deep sense of gratitude to my guide SOMYASHREE for providing me with sufficient interaction, and information and for guiding me during the course of my dissertation.

I hereby extend my sincere thanks to Mr.BALACHANDRA REDDY.(Manager Accounts)of ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED for their valuable inputs. I would like to thank all the personnel of Armes maini storage system private limited for their cooperation and for providing the
relevant data required.

Last but not the least; I would also like to thank my family and friends for their support and encouragement throughout the
project.

NIVEDITHA.T.C

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

INTRODUCTION:The study of ―FINANCIAL ANALYSIS AND LEVERAGES‖ was conducted in ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED, BANGALORE AND ITS SUBSIDIARIES in order to know the financial status of the Company along with its subsidiaries.

The scope of the study is to know the financial activities of the company and its subsidiaries that are into manufacturing of pallets, beams, columns, staircases, frames and shelf for application in varied industries. The field of financial analysis comprises Leverages, Comparative statements and common size statement analysis.

The study is made to analyze the financial performance with reference to financial statements like profit and loss account and balance sheet with the help of tables, graphs providing suggestions for improving the methods and procedures to be followed by the company.

The main aim is to study the activities of finance department by utilizing the theoretical knowledge relating to practical situation/data made available and to highlight differences in practice in reality.

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

FINANCE – A CONCEPT:The great industrialist of modern times Mr. Henry Ford once said ―Money is an Arm or a Leg; you either use it or lose it‖. This statement though apparently simple, is very meaningful. It brings home the significance of money or finance in modern day world of global business. In modern times finance is the basic foundation upon which all other economic activities are carried on. It is the master key which provides access to all the resources being employed either in manufacturing or merchandising activities. The Sanskrit saying ―Aretha Sativa‖, which means Finance reigns supreme‖, speaks volume for the importance and significance attached to the finance function in a company. It has rightly been said that ―Business needs Money to make more money‖. However, it is also true that money begets more money, only when it is properly managed. Hence, efficient management of every business enterprise is closely linked with efficient management of its finances only. In conclusion we can say that: Finance is regarded as ―The life line of a business enterprise‖. ―Finance is the backbone of every business‖.

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

MEANING OF FINANCE AND BUSINESS FINANCE:

Finance is one of the major elements, which acts as a catalyst for the overall growth of the economy. Finance is the lifeblood of the economic activity. Finance refers to the application of skills for manipulated use and control of money. The term Business finance involves Raising of funds and their effective utilization keeping in view the overall objectives of the firm. Business Finance explains the two terms, ―Business‖ and ―Finance‖. In common parlance the word ―Business‖ refers to merchandising the operation of some sort of a shop or store, large or small. Business Finance refers to that activity which is concerned with the acquisition and application of funds in the process of meeting financial needs and overall objectives of a business enterprise.

DEFINITIONS:According to Bonneville and Dewey, ―Financing consists in raising, providing and managing of all the money or funds of any kind used in connection with the business‖. According to Prather and Wert, ―Business Finance deals primarily with raising, administrating and distributing funds by privately owned business units operating in non-financial fields of industry‖. According to H.G. Gateman and H.E. Doug all, ―Business Finance can be broadly defined as the activity concerned with planning, raising, controlling and administrating of funds in the business‖.

Acharya Institute of Graduate Studies

The financial readjustment is done at the time of liquidity crisis and valuation of the firm at the time of merger. preparation of financial plan at the time of promotion of the company or its product for the first time.  Recurring Finance Function - Recurring finance function encompasses all such financial activities which are regularly carried out for the efficient conduct of the operations of a firm. such as: a) Planning of funds b) Raising of funds c) Allocation of funds d) Allocation of income e) Control of funds  Non – Recurring Finance Function – This refers to the use of financial activities that a functional activity has to prefer very rarely.A study on Financial Analysis and leverages FUNCTIONS OF BUSINESS FINANCE:Finance functions can be classified into two types and they are:  Recurring Finance Function and  Non-Recurring Finance Function. Successful handling of all such problems requires high level of financial skills and understanding of principles and techniques of finance from recurring to non-recurring situation. Acharya Institute of Graduate Studies .

Acharya Institute of Graduate Studies . Financial management also includes – Anticipating Financial Needs.A study on Financial Analysis and leverages Meaning of Financial Management: Financial Management is a specialized function directly associated with the top management. According to Archer and Ambrosia. The significance of this function is not only seen in the ‗Line‘ but also in the capacity of ‗Staff‘ in the overall administration of the company. responsible for obtaining and effectively utilizing the funds necessary for efficient operation‖. Objectives of Financial Management:The twin objectives of financial management are Profit maximization and Wealth maximization. ―Financial Management is the operational activity of a business i. Acquiring Financial Resources and finally Allocating of Funds in Business. The management makes use of various financial techniques. which refers to three A‘s of financial management. ―Financial Management is the application of the planning and control functions to the finance function‖.e. methods and devices for administrating the financial assets of the firm in the most effective manner. Definitions of Financial Management:According to Joseph and Massie.

gross profit or Earnings per share. Points in Favor of Profit Maximization:a) Profit is a barometer through which the performance of a business unit can be measured. c) It ensures to maximize welfare of shareholders. Points against Profit Maximization:a) Profit maximization does not consider the elements of risk. Profit is the only means through which the efficiency of a company is measured. e) It attracts investors to invest their savings in different securities from time to time. economic profit. profit before tax. d) It increases the confidence of management in expansion and diversification program of the company. Earning Profits (OR) Profit Maximization by a company is a social obligation. ―Profit maximization‖ is a term which denotes the maximum profit to be earned by an organization in a given time period. c) It encourages corrupt practices to increase the profits. net profit. b) Profit enables the business to venture into risk taking. d) It does not consider the impact of time value of money. mainly capital funds.A study on Financial Analysis and leverages Profit Maximization: Financial management is concerned with efficient use of resources. employees and creditors. profit after tax. b) Profit is not a clear term. because it may be accounting profit. f) It indicates the efficient use of funds for different purposes. Acharya Institute of Graduate Studies .

customers. If NPV is negative. it reduces the existing wealth to the shareholders. g) Huge profits attract unnecessary government intervention. h) It is a narrow concept and it affects long-term liquidity of the company. Any financial action results in positive NPV.. which creates wealth to the organization. where as W = Wealth of the firm N = Number of shares owned And P = Price per share in the market. etc.. 1) Wealth Maximization: Wealth maximization is also called ―Value Maximization‖. f) Profit maximization attracts cut-throat competition. management. Wealth maximization is symbolically expressed as W = NP. It is the net present value of a financial decision. suppliers. employees. It refers t o the gradual growth of the value of assets of the company over a period of time. The goal of financial management should be such that it should be beneficial to all those who are involved in the company such as owners.A study on Financial Analysis and leverages e) The true and fair picture of the company is not reflected through profit maximization and there are other parameters which are equally important. Acharya Institute of Graduate Studies .

c) The concept of wealth maximization is universally accepted. d) It guides the management in framing consistent strong dividend policy to reach maximum returns to the equity shareholders. Growth 4. The present value of cash inflow and outflow helps management to achieve the overall objective of a company. because.A study on Financial Analysis and leverages Points in Favor of Wealth Maximization:a) It is a clear term and only present value of cash flow is taken into consideration. Points against Wealth Maximization:a) The objective of wealth maximization is a prescriptive one and not descriptive one. Profitability 2. Survival 5. b) It considers the concept of time value of money. b) The objective of wealth maximization faces some difficulties between shareholders and management paving the way for conflict of interest. Diversification 3. Functions of Financial Management:1. it takes care of interest of financial institutions. Market Share Acharya Institute of Graduate Studies . employees and society as well. owners.

Cost Control / Reduction 7. ―Financial statement analysis is largely a study of relationship among the various factors in a business as disclosed by a single set of statement and a study of the trend of these factors as shown in a series of statements‖. Definition of Financial Analysis: According to Myers. Managing Competition. The most important objective of the analysis and interpretation of financial statements are to understand the significance and meaning of such financial statement data‘s to know the exact strength and weaknesses of a business unit. In a way it establishes strategic relationship between the items of the balance sheet. which is very meaningful.A study on Financial Analysis and leverages 6. Acharya Institute of Graduate Studies . profit and loss account and other operative data. MEANING OF FINANCIAL ANALYSIS:The most important step of accounting is the analysis and interpretation of the financial statements which results in the presentation of numerous data which in turn helps different categories of people in forming an opinion about the financial position of a business and as well as about its profitability.

In a way it shows the position at a given point of time as in the case of balance sheet. The purpose is to convey an understanding of financial aspects of a business from time to time. Acharya Institute of Graduate Studies . The following are some of the objectives of analysis of financial statements: 1. as in the case of profit and loss account. 2. To judge the present and future earning capability or profitability of the business.A study on Financial Analysis and leverages FINANCIAL STATEMENTS:A financial statement is an organized collection of data according to logical. systematic and consistent accounting procedures. or sometimes it reveals a series of activities over a given period of time. a company may also prepare a statement of retained earnings and statement of changes in financial position. To identify the reasons for change in the profitability position of the business over a selected period. OBJECTIVES OR USES OF FINANCIAL ANALYSIS:Financial analysis is a helpful tool in assessing the exact financial position and profitability of a business. The term financial statement generally refers to two basic statements. Apart from these two statements. Definition:Financial statement is a schedule or a report which is prepared at the end of financial year by an accountant to reveal the financial positions of the enterprise which shows the result of its recent activities and an analysis of what has been done with earning. such as Profit and Loss account and Balance Sheet.

significant enough to establish a relationship. 6. 1) The primary task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. 9. 4. The functional analysis is the process of selections. Acharya Institute of Graduate Studies . 7. 5. It helps in building a database for making future forecast and preparing budgets. 2) The secondary step is to arrange the said information in a highlight. PROCESS OF FINANCIAL ANALYSIS:The analysis of financial statements is a process of evaluating the relationship between components of financial statements to obtain a better understanding of the businesses position and performance.A study on Financial Analysis and leverages 3. To have a comparative study between different departments or cost centers. It provides decision makers a whole lot of information about the business to be used as a tool in decision making. 3) The final step is interpretation and drawing of inferences and conclusions. It also helps in predicting possible bankruptcy and failure. To assess the short as well as long-term liquidity position of the firm for the benefit of the debenture holders and trade creditors. To identify the relevant important components of the financial position of the business. To judge the operational efficiency as a whole and of its various components or departments. establishing relationship and evaluation. 8.

It also helps in long-term financial planning. They do not have access to the detailed information of the company and have to depend mostly on published statements or records. The internal analyst can give more reliable result than the external analyst because of the access to a whole gamut of information available to him. government agencies and research scholars.A study on Financial Analysis and leverages TYPES OF FINANCIAL ANALYSIS: On the basis of nature of the analysis:a) External analysis – It is made by those persons who are not connected with the business. profitability. liquidity. credit rating agencies. Acharya Institute of Graduate Studies . Analysis of the financial statements and other financial data for managerial purposes and for internal consumption only. Internal analysis – It is made by those persons who have full access to the books of accounts. Such type of analysis is made by investors. They are a part of the business enterprise. solvency. and expansion of business apart from meeting its cost of capital. The purpose is to know whether in the long run the business entity will be able to earn minimum amount which will be sufficient enough to maintain a reasonable rate of return on the investment so as to provide the requisite funds required for modernization. growth.  On the basis of objectives of analysis:a) Long-term analysis – This study is conducted to assess the long-term financial stability. (or) Earning capacity of a business unit.

The purpose of this analysis is to know whether in the short run a business will have adequate funds to meet its short term obligations which are very vital for conducting the day to day operations. A number of techniques are used to study the relationship between different statements. TECHNIQUES OF FINANCIAL ANALYSIS:The analysis and interpretation of financial statement is used to determine the financial position and operational status as well. b) Vertical (or) Static analysis – It is made to review and analyze the financial statement of one particular year only. liquidity and earning capacity of the business. It is useful for long-term trend analysis.A study on Financial Analysis and leverages b) Short-term analysis – This study is conducted to determine short-term solvency. It also helps in short-term financial planning.  On the basis of models operated by analysis:a) Horizontal (or) Dynamic analysis – It is made to review and analyze financial statement of number of years. for example ratio analysis. The following methods of analysis are used: Acharya Institute of Graduate Studies . stability.

The different elements of financial position are shown in a comparative form. with the help of this we can quickly ascertain whether sales have increased or decreased.  Comparative Income Statements: The income statement discloses net profit or net loss or account of operations.A study on Financial Analysis and leverages  Comparative Financial Statements: The comparative financial statements are statements of the financial position at different periods of time.  Comparative Balance Sheet: Balance sheet of two or more different dates can be used for comparing assets and liabilities and finding out increase or decrease in those items. Both the profit and loss account and Balance sheet can be prepared in the form of comparative financial statements. it is the change in the comparative balance sheet which attracts attention. Therefore. Since the figures for two or more periods are shown side by side. Acharya Institute of Graduate Studies . This type of balance sheet is very helpful in studying the trends in a business concern. in a single balance sheet the emphasis is on present position. so as to facilitate easy comparison. A comparative income statement will show the absolute figures for two or more periods. whether cost of sales have increased or decreased etc. The absolute changes from one period to another and if required the changes in items of percentages can be seen. Therefore. only a glance of data incorporated in this statement will be helpful to arrive at useful conclusions.

Common size statements are prepared for one business entity over the years which would highlight the relative changes in each group of expenses. Statements prepared in this way are referred to as ―common size statements‖. Similarly. brevity and readability are achieved. Each item of base year is taken as 100 and on that basis the percentages for each of the items of each of the years are calculated. These percentages can be taken as index number showing the relative changes in the financial data resulting with the passage of time. since by substitution of percentages for large amounts. assets and liabilities. The way of calculating trend percentages involves the calculation of percentage relationship that each item bears to the same item in the base year. given the fact that absolute figures of two firms of the same industry are not comparable. each individual assets and liability classification is shown as a percentage of total assets and liabilities respectively.A study on Financial Analysis and leverages  Common size Financial Statements: Common size financial statements are those in which figures reported are converted into percentage to some common base. Acharya Institute of Graduate Studies . and net sales are taken at 100 percent. When this method is pursued. analytical device for the management. This method is very much useful. the income statement exhibits each expense item or group of expense items as a percentage of net sales. These statements can be equally useful for inter-firm comparisons.  Trend Percentages: Trend percentages are very much helpful in making a comparative study of the financial statements over a period of several years.

The fund flow statement is called by different names. it refers to employment of funds to accelerate rate of return to owners. Cash flow statement is prepared to show the impact of financial policies and procedures adopted by the business on the cash position. In other words. It deals with the inflow and outflow of cash between two balance sheet dates. half yearly. which indicates the various means by which the funds have been obtained during a certain period and the way in which these funds have been put to use during the same period. Acharya Institute of Graduate Studies . which shows the movement of funds between two balance sheet dates.A study on Financial Analysis and leverages  Fund Flow Statement: Funds flow statement is a financial statement. quarterly. In financial management. a statement of changes in a financial position of a firm on cash basis is called ―cash flow statement‖. monthly.  Cash Flow Statement: Cash flow statement shows the movement of cash and their causes during the period under consideration. it is the statement. statement of changes in working capital. It may be favorable. An unfavorable leverage exists if the rate It can be used as a tool of financial planning by the management. such as statement of sources and application of funds. It takes into account all such transactions which have a direct impact upon cash. Leverage Ratios: Leverage refers to an increased means of accomplishing some purpose. It may be prepared annually. fortnightly or even weekly. In short.

Leverage is also known as ―gearing‖. Combined Leverage 1. Christy and Rodent defines ―Leverage as the tendency for profits to change at a faster rate than sales. Operating Leverage & 3. According to James Horne.A study on Financial Analysis and leverages LEVERAGE DEFINITION:Leverage is defined as ―the action of a lever. Acharya Institute of Graduate Studies . It is a relationship between equity share capital and securities and creates fixed and dividend charges‖. TYPES OF LEVERAGES:Leverage types are of 3 types. FINANCIAL LEVERAGE: The use of long-term fixed interest bearing debt and preference share capital along with the equity share capital is called financial leverage or trading on equity. 1. ―Leverage is the employment of an asset or funds for which the firm pays a fixed cost or fixed return‖. Financial Leverage 2. and mechanical advantage gained by it‖.

. OPERATING LEVERAGE: It occurs when with fixed costs the percentage changes in profits due to change in sales volume. When a firm procures debt capital to finance its needs.A study on Financial Analysis and leverages Financial leverage is a tool with which a financial manager can maximize the returns to the equity shareholders. It bears fixed cost and variable cost. relating to fixed costs and breakeven point should be noted about operating leverage. It tells us the extent of the change in Earning before Tax [EBT] due to change in operating income [EBIT]. It shows the extent of the change in Earnings before Interest and Tax [EBIT] as a result of change in sales volume.e. Acharya Institute of Graduate Studies . Two important points i. It is calculated with the help of the following formula:- Operating Income Financial leverage = Taxable Income OR Earnings before interest & tax = Earnings after tax 2. it is said to have financial leverage. It signifies the relationship between the earning power on equity capital and rate of interest on borrowed capital.

On the other hand. a firm with high degree of operating leverage will experience much large effect on EBIT because of small change in sales. It is calculated by the following formulas. all contribution margins become profit of the concern. It will be desirable to operate at sufficiently above the break-even point to avoid the danger of sharp fluctuations in profits because of variation in sales. as it is a high risk situation. if there is small percentage of increase in earnings. a small drop in sales eliminates the entire earnings near the breakeven point.A study on Financial Analysis and leverages The magnitude of the operating leverage is related to the fixed costs of the firm. As far as possible a firm should avoid operating under conditions of a high degree of operating leverage. If the fixed costs of the firm are relatively large. substantial portion of its contribution margin is appropriated to cover these fixed costs. Contribution Operating Leverage = EBIT / Operating Profile Percentage change in Income Degree of operating leverage = Percentage change in Sales Acharya Institute of Graduate Studies . Thus. The significance of operating leverage lies in the face that it tells the finance manager about the impact of change in sales revenue & operating income. Once the break-even point is reached. It may be noted carefully that the degree of operating leverages goes on decreasing with every increase in sales volume above the break-even point.

Such costs increases as the production goes up. Administrative Staff Salary. (iii) Semi variable/ Semi-fixed Operating Cost – is that cost which is partly fixed and partly variable. E. It is calculated by using the following formulas. E. Acharya Institute of Graduate Studies . etc. It is the product of both financial leverage & the operating leverage. materials.A study on Financial Analysis and leverages The total costs of operations of a business may be grouped into 3 categories: (i) Operating Fixed Cost – is the cost which in aggregate tends to be unaffected by variations in volume of output. it decreases when production falls. Repairs and maintenance.g. etc. power consumption.g. It is also called as composite leverage. COMBINED LEVERAGE: This leverage shows the relationship between a change in sales & the corresponding variation in taxable income. Factory Manager‘s salary. The amount of fixed cost tends to remain constant for all volumes of production within the installed capacity of the plant. etc. Factory rent.g. (ii) Operating Variable Cost – is that cost which in aggregate tends to vary directly with variations in volume of output. E. wages. 3.

A study on Financial Analysis and leverages Combined Leverage = Operational Leverage x Financial Leverage. OR Contribution x EBIT Combined Leverage = EBIT / Operating Profit = Contribution EBT EBT Acharya Institute of Graduate Studies .

one of the leading international industrial storage systems.beam. It helps to know the financial position of the AMSSPL group. balance sheet. frame protector etc.upright. horizontal link bars . In this the AMSSPL group should be in a position to analyze its financial and leverage factors to take corrective steps well in advance to overcome competitors by doing financial analysis. etc…and the leverage analysis helps in knowing the risk involved carrying on the operations at AMSSPL. The group is facing stiff competition in the market due to existence of other domestic and foreign players who are competing very fiercely. decking panels. tubular dividers. It efficiently serves a spectrum of industrial storage requirements. It involves in analyzing of various financial statements such as profit and loss account.A study on Financial Analysis and leverages RESEARCH DESIGN Title of the Study:A study on Financial Analysis and Leverage at ABN-AMRO Statement of Problem:Armes maini storage system private Limited Bangalore and its subsidiary companies are into manufacturing of different products with application in varied industries as frame . the AM12 is known for its annotative and versatile design. pallet support bars. Acharya Institute of Graduate Studies . wall space.

 The study also covers to find out the reasons for the fluctuations in the financial analysis.  To judge the present and future earning capacity or profitability of the concern through leverage analysis. Scope of the Study: The study is conducted at ARMES MAINI STORAGE SYSTEM PRIVATE in Bangalore.  To find the growth rate of ARMES MAINI GROUP.  To get the knowledge of the financial evaluation techniques and analysis of annual reports in ARMES MAINI GROUP.  To highlight the steps that is required to improve the financial performance and efficiency of the ARMES MAINI GROUP.  To know the methodology used by ARMES MAINI GROUP in the profit ratio. for the purpose of knowing the financial performance and analysis of its performance through leverage ratios. Acharya Institute of Graduate Studies .  The study also covers the techniques to improve the level of financial performance of ARMES MAINI GROUP.A study on Financial Analysis and leverages Objectives of the Study: To study and analyze the financial performance of ARMES MAINI GROUP.  To come out with the findings and suggestions.

Comparative statements of cost of 2 products.A study on Financial Analysis and leverages Review of Literature:The literature survey is connected or concerned with the problem. In short. findings. Ex: . The researcher should review and examine all available literature. theories. etc. Acharya Institute of Graduate Studies . raising.Means the amount owned by or due from an account or charged to an account for the benefit received by that account. We have referred the literatures in academic journals. Operational definition of concepts:Finance: . Financial Statement: -Those statements which have a financial implication could be broadly termed as financial statement.. Credit: . controlling and administering of funds in the business. it means the benefit received by an account. annual reports and company reports. Debit: .Means the amount owned to an account for the benefit given by that account in the belief that its value will be returned at a later date. formulas. systematic review.Finance can be broadly defined as the activity concerned with planning. first we should make preliminary review prior to problem selection. Costs benefit analysis statements of 2 projects. etc.

The status of the company is truly reflected in these statements and is being used by different segments of the society for their own purposes.Johnson. C Operating Profit (EBIT) Operating Leverage = Acharya Institute of Graduate Studies . Types of Leverages:1) Operating Leverage: Operating leverage shows the relationship between the changes in sales and the changes in the fixed operating income. Operating Leverage has impact mainly on fixed cost and variable cost and also on contribution.W. Leverage: . The following equation is developed by R. Growth Statement: .Financial statement provides a summary of the accounts of business enterprises.Is the employment of asset or funds for which the firms pays a fixed cost or fixed return. Balance Sheet reflecting assets and liabilities and income statement showing the results of operation during a certain period.The Profit & Loss account and the balance sheet of the company reflects the growth and progress made in financial terms with the comparative figures for the previous year.A study on Financial Analysis and leverages According to John N Myer: .

Financial Leverage = Operating Income Taxable Income 3) Combined Leverage: This Leverage exhibits the relationship between a change in sales and in corresponding variation in taxable income. Contribution Taxable Income Combined Leverage = OR Combined Leverage = Operating Leverage x Financial Leverage Acharya Institute of Graduate Studies . The variation in capital composition will have an impact on operating and taxable income of the company.A study on Financial Analysis and leverages 2) Financial Leverage: The process of variation in capital structure is called Financial Leverage or trade on equity.

e. temporary investments. A financial ratio is the relationship between 2 accounting figures expressed mathematically. EBIT: Earnings before interest & tax are the difference between contribution & fixed cost (or) are the excess of contribution over fixed cost is the earning money before deducting the interest and tax. short term loans borrowed.A study on Financial Analysis and leverages Ratio: Is an expression of quantitative relationship between two numbers. one year). etc. assets means for conversion into cash within a short period of time say. sundry creditors. etc. sundry debtors. So. they are called circulating. examples of current assets are cash in hand. floating or fluctuating assets. prepaid expenses.. These assets undergo changes frequently. incomes received in advance. outstanding expenses. cash at bank. EBT: Earning before Tax is the excess of EBIT over tax is the earning money before deducting the tax but after deducting the interest. Example of current liabilities are bills payable. Current Liabilities: Are those liabilities which are required to be repaid within a short period of one year out of current assets. bills receivables. Current Assets: Refers to cash and temporarily held assets (i. bank over draft. outstanding income. closing stock. Acharya Institute of Graduate Studies .

Acharya Institute of Graduate Studies . etc. Secondary Data:It was collected from company‘s annual reports. books.A study on Financial Analysis and leverages Contribution: Is the difference between sales & variable cost. profile of the company. C = Sales – Variable Cost C = Fixed Cost + Profit (or) Loss Sales: Refers to the goods which are sold by business organization. It is the excess of selling price over the variable cost per unit. financial statements for respective years apart from information collected by consulting with the Manager and from schedules given by the Accounting Department. Sampling Method: Sampling is simply the process of learning about the population on the basis of the sample drawn from it we have adopted the method of field study. Sources of Data Collection: The study is based on both primary data and secondary data. personal discussion with executives in the company. Primary Data:It was collected on all products manufactured by the firm.

reports.e.A study on Financial Analysis and leverages Plan of Analysis:All the data has been collected from the annual reports. After these financial In the analysis the standard methods has been used i. so it may even change in future. Acharya Institute of Graduate Studies . 6) Some of the details are not provided by ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED because of their confidentiality nature. Tables and other types of charts has been used. 4) Time constraints posed problem to undertake financial analysis.. Limitations of the Study:1) The major limitation is that it is a representative study only and not an exhaustive one. 3) The study is conducted only at ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED Bangalore. the time duration is only 2 months. Then the theoretical background has been collected. it is confined to a particular period of time only. The plan that has been used is first company profile and other information has been collected. 2) The study is based only on the data extracted from the annual reports of the ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED. information is collected for analysis. 5) Data is very relevant.

aerospace and electric vehicles. Italy is a leading manufacturer of industrial Racks and storage systems. plastics and composite. The group is renowned to the innovators of Riva -world‘s first truly green.A study on Financial Analysis and leverages COMPANY PROFILE The regulations contained in table A.subject to the modifications herein contained. In the first schedule to the companies Act. high precision products. 4. OBJECTIVES FOR WHICH COMPANY ESTABLISHED 1.000 and equity shares of Rs. Restricts the right to transfer its shares as hereinafter provided. 1956. 70.100/. The share capital of the company is Rs. 3. clearing. mass produced electric car. 2.000/dividend into 11. 00. To carry on business of any dealers in and as shipping. cargos superintendents . Acharya Institute of Graduate Studies . customs clearing agents and to provide any accommodation or assistance. Arms Maini. The group has interests in material handling equipment. 70. It offers comprehensive total solutions for a large spectrum of storage requirements. so far as the same may be ape pliable to a private company as defined in the Act. forwarding and transport contractor. shall apply to this company in the same manner as if all such regulations to Table ―A‖ are specifically contained in these Articles . material storage solutions.11. JV between Maini Materials Movement India and Ferret to group.each. The liabilities of the members are limited. packers.

Ltd. backed by R&D support of Arms spa.A study on Financial Analysis and leverages ABOUT COMPANY: Arms Maine Storage Systems Put Ltd. extremely versatile design. Italy and Maine Materials Movement Put. is a joint venture between Arms Spa. INFRASTRUCTURE: The Manufacturing facility is located in Bangalore. is delivering optimum and cost effective design solutions to the customers in India.. It addresses the highest expectations of customers in India seeking end-to-end storage system solutions.000 sq. The installed roll forming machines and & in-house sheet metal processing equipments for accessories manufacturing ensures high quality end product as per international standards. MMM is a multi-product entity that began in 1986. Assorted size configurations 3. spread over 5 acre land with factory floor area of 30. India. ft. Complete. Component standardization to facilities rapid layout and installation 4. With its well-equipped infrastructure and all-India sales and service network.. High modularity for future structure scalability Acharya Institute of Graduate Studies . The installed infrastructure has annual production capacity of 5000 tons and well equipped to meet all your requirements. EXCELLENT COST AND BENEFIT RATIO 1. Italy.. material and production methods 2. It manufactures a wide range of in-plant material handling equipment while offering related services. MMM is a mainstay in the Indian market with more than 80% of India's corporate among its satisfied customers QUALITY: Our local engineering & customisation team.

Lower transportation cost due to bolted frame connections Special Solutions Automatic Storage System Industrial Racking Flow-Rail Racking Special Solutions Self-Supporting Rack Mezzanine Industrial Racking Mobile Racking Light Shelving System Mobile Shelving System Industrial Racking Mobile Racking Storage Solutions Vertical Storage System Hanging/ Laid Garment System Industrial Racking Gravity-Fed Racking Industrial Racking Live Carton Storage Light Shelving System Light Shelving System Boltless Shelving System Cantilever Shelving System DESIGN CAPABILITIES: Our Products are designed conforming to the European Standards. Our offerings for seismic and sub-zero applications are well sought. thus producing designs which are safe and efficient. Lower assembly cost due to boltless beam-upright connections 6. Acharya Institute of Graduate Studies . Our Solutions are tested through FEA for structural rigidity and safety.A study on Financial Analysis and leverages 5.

De-Coiling and Automatic Robot Welding. Deformations and Clearances  EN 1993: Euro code 3 – ―Design of steel structures‖  FEM 10.A study on Financial Analysis and leverages Our Designs comply with:  FEM 10.Steel static storage systems .02 – ―The design of static steel pallet racking‖  EN15629 . ISO 14001-2004 and OHSAS 18001-2007 by TÜV NORD as an Integrated Quality Management System Acharya Institute of Graduate Studies .08 – ―The design of static steel pallet racking for seismic applications‖ MANUFACTURING CAPABILITY: Our Manufacturing facility located at Bangalore. QUALITY MANAGEMENT SYSTEM: Arms Maine Storage Systems Put Ltd is accredited with ISO 9001-2008.2.Specification of Storage equipment  EN15620: Steel static storage systems — Adjustable Pallet Racking: Tolerances.2. India has:  Best In-Class manufacturing technology deployment including state-ofthe-art machines like Multiple Roll Forming lines to form various components.

L & T. Unique features of AM12 (Pallet Racking) Acharya Institute of Graduate Studies . Reliance.A study on Financial Analysis and leverages SYMBOLS OF STRENGTH: We have provided material storage solutions for various industries across the country. Future Logistics. JCB. Tata Motors. Volkswagen. AMW. etc. Cava Logistics. Bosch. Amok Industries. Our esteemed clientele includes ITC. Kewell. BMW. Forbes Marshall.

A study on Financial Analysis and leverages Unique features of MPS (boltless Multi-Purpose Shelving) Acharya Institute of Graduate Studies .

A study on Financial Analysis and leverages Acharya Institute of Graduate Studies .

 Achieve global competence. columns.A study on Financial Analysis and leverages COMPANY BELIEVES IN:       Integrity. beams. Being non parochial meritocracy. Raising the standard of living of the employees. Requires constant upgradation with changing times in terms of plant and machinery.  To operate at the international level. and staircases WEAKNESS Power intensive. dependant on power and any deficiency here results in under-utilization of capacity. No funds have been raised on short term basis and these have been used only for long term investment. Being a quality driven organization. to think global and to be the world‘s largest producer of shelves. VISION  Develop products and technologies in line with national priorities. Being knowledge based organization. Conforming to the highest environmental standards. Acharya Institute of Graduate Studies . Variation of share prices of the company in stock market.

for 2007 . Acharya Institute of Graduate Studies .263 1.358 2.536 respectively.293.276 and decreased to 1.L.358 and 2. 1 TABLE SHOWING FINANCIAL LEVERAGES Earnings before interest & tax (EBIT) F.08 was 1.’s 1.293 2.276 1.A study on Financial Analysis and leverages ANALYSIS AND INTERPRETATION Table No. The above table shows that the F. Thus earnings should be sufficient enough to match the earning of the share holders without going for long term debt borrowings. but for the next 3 years it is on the increasing trend to 1.L. = Earning before interest and tax – interest & preference dividend % of Increase or decrease over the previous year -1 2 84 14 Year 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 F. 2.L.536 % on the basis of year 2005-06 100% 99% 101% 185% 199% ANALYSIS: The owner‘s equity (equity share capital & resources) are used as a basis to raise loans on long term basis to expand the earnings of the stake holders after making the interest payouts.263 in the next year.

A study on Financial Analysis and leverages GRAPH—1 GRAPH SHOWING FINANCIAL LEVERAGE F.5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that the F.’s 1 0. Acharya Institute of Graduate Studies .5 2 1.L is on the increase overall during the 5 years period gradually.5 F.L.L.’s 3 2. This trend shows that the company has been in a position to use the long term debt borrowing and deploy it to gain sufficient income and also pay the interest burden comfortably.

638 3.L.A study on Financial Analysis and leverages Table No. whereas in the last year it has decreased to 2.857. In view of this O.506 and decreased to 2. stores and spares consumed costs only as variable costs. sales – variable cost) by EBIT as a matter of standard this differs from company to company and industry to industry and from time to time.973 2. 2 TABLE SHOWING OPERATING LEVERAGE Contribution O.404 2.638 and 3. power and fuel. 2.L has been computed by taking raw material. = Earnings before interest and taxes Year 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 O.404 in the next year.857 % on the basis of year 2005-06 100% 96% 105% 159% 114% % of the previous year -4 5 59 14 ANALYSIS: The O. An increasing trend over the period would be healthy for a growing company.L.973 respectively.506 2. The above table shows that the OL for 2007-08 was 2.e.L is obtained by dividing the contribution (i. In the next 2 years it has increased to 2. Acharya Institute of Graduate Studies .

Acharya Institute of Graduate Studies .L. 2 GRAPH SHOWING OPERATING LEVERAGE O. This can be attributed to the company earning huge profits compared to other years. 4 3. It is only during 2010-11 that the OL was very high.A study on Financial Analysis and leverages GRAPH No.5 3 2.L.5 2 1.5 1 0. INTERPRETATION: It is inferred that the operating leverage was more or less at the same level in the first 3 years and in the last year.5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 O.

182 and decreased marginally to 3.036 in the next year. but marginally low when compared to 2010-11.410 9.245.182 3. It took a dip in the last year and was at 7. Acharya Institute of Graduate Studies .245 % on the basis of year 2005-06 100% 95% 107% 294% 228% % of the previous year -5 7 194 128 ANALYSIS: The combined leverage indicates the ability of the company to use the long term debt borrowing as well as the contribution towards paying interest and taxes and still being in a position to earn and grow.L.368 7. which is high when compared to 2007-08.410 and 9.036 3.L. 3 TABLE SHOWING COMBINED LEVERAGE C. = Financial leverage X Operating Leverage Year 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 C. 3. The above tables shows the CL for the year 2007-08 stands at 3. But for the next 2 years it gradually increased to 3.368 respectively.A study on Financial Analysis and leverages Table No.

L. Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages GRAPH No.L. The company has the capability to grow further and achieve higher C. This can be attributed to the company being in a position to earn huge profits even after paying interest and taxes and have sufficient funds. 10 9 8 7 6 5 4 3 2 1 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 C.L. INTERPRETATION: It is inferred that the operating leverage is stable for the first 3 years and only during 2010-11 and 2011-12 it has seen a substantial increase. 3 GRAPH SHOWING COMBINED LEVERAGE C.

052 0. There has been a marginal increase in the next 2 years and is at 0.A study on Financial Analysis and leverages Table No. 4 TABLE SHOWING ABSOLUTE LIQUIDITY RATIO Absolute liquid assets ALR = Current liability Particulars / years Absolute Liquid asset Current liability A.083 0. Acharya Institute of Graduate Studies .039 in the last year.021 respectively.039 ANALYSIS: Absolute liquid ratio refers to absolute liquid assets such as cash in hand / bank and marketable securities which are at the disposal of the company to pay off current liabilities.021 2009 – 10 42390612 2010 – 11 58058000 2011 – 12 27409000 816891159 697609000 698769000 0.Ratio 2007 – 08 6737750 248281899 0. The acceptable norm for this ratio is 50% or 0.5:1.052 and 0.L.027 and 0.027 2008 – 09 7337977 347068391 0. The ALR has been stable for the first 2 years at 0.083 and dropped off to 0.

05 A.08 0.01 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that the ALR is way below the acceptable standards and this is due to the company holding huge amount of current liabilities which have grown to very high levels over the period without any corresponding increase in the absolute liquid assets. 4 GRAPH SHOWING ABSOLUTE LIQUIDITY RATIO A.A study on Financial Analysis and leverages GRAPH No.09 0.06 0.Ratio 0.04 0.07 0.Ratio 0.03 0. Acharya Institute of Graduate Studies .L.02 0.L.

A study on Financial Analysis and leverages

Table No. 5 TABLE SHOWING CURRENT RATIO
Current Assets Current Ratio =

Current liability

Particulars / years Current asset Current liability Current Ratio

2007 – 08
476194665

2008 – 09
539066033

2009 – 10

2010 – 11

2011 – 12

1056478451 1246805000 1195468000

248281899

347068391

816891159

697609000

698769000

1.918

1.553

1.293

1.787

1.711

ANALYSIS:
The current ratio refers to the ability of the company to meet its current liabilities through its current assets. As a matter of thumb rule this ratio should be at 2:1, i.e., the current assets should be double the current liabilities and this is considered as satisfactory.

The current ratio is below the standards during the entire period of study. During 2007-08 it is marginally less at 1.918 and has decreased to 1.553 and 1.293 over the next 2 years. It has increased to 1.787 and 1.711 during 2010-011 and 2011-12 respectively.

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

GRAPH No. 5 GRAPH SHOWING CURRENT RATIO

Current Ratio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 Current Ratio

INTERPRETATION:
It is inferred that the e company has to improve upon its current assets compared to current liabilities as it is below the standard. The management of current assets needs to be looked into very seriously. It is somewhat better in the first year only and in the rest of the years the current liabilities have increased more than the current assets.

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

Table No. 6 TABLE SHOWING NET PROFIT RATIO
Net Profit Ratio = Net profit after tax X 100

Net sales

Particulars Net Profit (after taxation) Net Sales N/P Ratio

2007 – 08
87037518

2008 – 09
99880743

2009 – 10
185767326

2010 – 11
312848000

2011 – 12
390812000

933270356

1114428664

2743490827 2936581000 2977227000

9.326

8.962

6.771

10.653

13.126

ANALYSIS:
The net profit ratio establishes a relationship between net profit (after taxes) and sales and reflects the efficiency of the management in all the activities of the firm. This ratio indicates the overall measure of the companies‘ profitability, the higher the better. While computing net profit after tax, other incomes have been excluded even by the company. The net profit ratio was at 9.326 during 2007-08 and decreased to 8.962 and 6.771 in the next 2 years respectively. During 2010-11 it increased to 10.653 and further increased to 13.126 in the last year.

Acharya Institute of Graduate Studies

A study on Financial Analysis and leverages

GRAPH No. 6 GRAPH SHOWING NET PROFIT RATIO

N/P Ratio
14

12

10

8 N/P Ratio 6

4

2

0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12

INTERPRETATION:
It is inferred that the net profit ratio decreased in 2008-09 and 2009-10 when compared to 2007-08 and this can be attributed to disproportionate increase in the net profit when compared to net sales. The percentage of profit on the net sales has been good in the last 2 years. This indicates that the margin earned has improved and is good for the company.

Acharya Institute of Graduate Studies

23. popularly known as ROI is the relationship between net profits after interests and tax and the shareholders funds.A study on Financial Analysis and leverages Table No. 7 TABLE SHOWING RETURNS ON SHARE HOLDERS INVESTMENT IN % Net profit after interest & tax ROI= X 100 Share holder investment (ESC.19.55 28.55.18.75 ANALYSIS: Returns on share holders‘ investment. PSC + R&S) Particulars Net Profit (after interest & taxation) Share holders’ investment ROI Ratio 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 87037518 99880743 185767326 312848000 390812000 262967543 337976061 659101674 1348884000 1460685000 33.09 29.09 during 2007-08 and decreased to 29.18 23. It increased marginally to 26.19 26. The higher the percentage the better for owners of the investment. The ROI ratio was at 33. 28. Acharya Institute of Graduate Studies .75 in the last year. over the next 3 years.

A study on Financial Analysis and leverages GRAPH No. Acharya Institute of Graduate Studies . 7 GRAPH SHOWING RETURNS ON SHARE HOLDERS INVESTMENT IN % ROI Ratio 35 30 25 20 ROI Ratio 15 10 5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: The ROI ratio has been on the declined over the period due to the reason that the share holders investment (capital + reserves) have been on the increase over the period and even though the net profit has increased. The portion of dividend declared being very small and a substantial portion has been transferred to reserves and surplus. There has been no major increase in shareholder capital structure.

77 721.preference dividend Return on equity capital = Equity share capital (Paid up) Particulars Net Profit after tax (-) Preference divided Equity share capital (paid up) Returns on equity capital ratio 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 87037518 99880743 185767326 312848000 390812000 41935600 41935600 48107030 54147000 54147000 207.55 in the 1 st year and ending up at 721.15 577.A study on Financial Analysis and leverages Table No.76 in the last year. they are more interested in the profitability of the company and the performance of the company will be judged on the basis of return on equity capital of the company. 8 TABLE SHOWING RETURNS ON EQUITY CAPITAL Net profit after tax .76 ANALYSIS: Equity shareholders are the real owners of the company and assume highest risk.55 238.17 386. This establishes a relationship between profits of a company and its equity capital. Acharya Institute of Graduate Studies . The company has very good returns on equity capital over the period and is consistently on the increase starting at 207.

Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages GRAPH No. 8 GRAPH SHOWING RETURNS ON EQUITY CAPITAL Returns on equity capital ratio 800 700 600 500 400 300 200 100 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 Returns on equity capital ratio INTERPRETATION: The equity share capital (paid up) is at a constant level in the first 2 years and has increased marginally third year. However the net profit (after tax) has been on the increase continuously and this has been major factor contributing for such better returns. In the year 2010-11 and 2011-12. it has increased just by 15% only.

98 ANALYSIS: The earnings per share is a small variation of returns on equity capital and is calculated by dividing the net profits after taxes and preferences dividend by the total number of equity shares in the firm.A study on Financial Analysis and leverages Table No.76 23.81 during 2009-10.82 during 2008-09 and increased to. of equity shares Returns on equity capital ratio 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 87037518 99880743 188369553 51382000 108174000 4193560 4193560 4203677 5199000 5414703 20.S = No.98 during 2011-12 Acharya Institute of Graduate Studies .44.88 19. It nosedived to 9.82 44.76 during 2007-08 and increased gradually to 23. 9 TABLE SHOWING EARNINGS PER SHARE Net profit after tax .88 during 2010-11 and climbed back to 19. Of equity shares Particulars Net Profit after tax (-) Preference divided No.P.81 9. The EPS was at 20. The higher the EPS it would be better for the equity share holders.preference dividend E.

A study on Financial Analysis and leverages GRAPH No. 9 GRAPH SHOWING EARNINGS PER SHARE Returns on equity capital ratio 45 40 35 30 25 Returns on equity capital ratio 20 15 10 5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRATION It is inferred that the EPS was better during the first 3 years and fell down very heavily during 2010-11 due to substantial decrease in the net profit. the pattern of number of equity share is more or less stable and the fluctuations in the profit is the main culprit for the volatility in the EPS. Acharya Institute of Graduate Studies .

5 19.5 44. Sloughing back of profits enables the company to pay dividend more in future or use it for further expansion.81 2010 – 11 4 9.76 2008 – 09 5 23.A study on Financial Analysis and leverages Table No. Acharya Institute of Graduate Studies . 10 TABLE SHOWING DIVIDEND PAYOUT RATIO Dividend per equity share Dividend Payout Ratio = Earnings per share Particulars Dividend per equity EPS DPO Ratio 2007 – 08 5 20. the DPO ratio was at 24% in the beginning and dropped to 21 and 17 in the next 2 years. It increased to 40% during 2008-09 and marginally decreased to 38% during 0910.98 24 21 17 40 38 ANALYSIS: Dividend payout ratio is calculated to find out the extent to which earnings per share have been retained in the business by way of transfer to reserves and surplus. The dividend payout ratio has been very volatile due to fluctuations in the EPS over the period even though dividend payments are very stable.8 2011 – 12 7.82 2009 – 10 7.

The EPS bring dependent on net profit earned by the company and this is bound to be the cause for fluctuation over the period.A study on Financial Analysis and leverages GRAPH No. 10 GRAPH SHOWING DIVIDEND PAYOUT RATIO DPO Ratio 40 35 30 25 20 15 10 5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 DPO Ratio INTERPRETATION: It is inferred that DPO ratio is varying very much due to fluctuation in EPS only even though the dividend paid per equity share is constant with marginal increase. Acharya Institute of Graduate Studies .

higher the ratio generally better is the position of the firm. The ratio indicates that how much profits are generally retained by the firm for future growth. 2391 & 2598% respectively. The REC ratio was at 527% during 2007-08. It has increased over the next 4 years at a very high rate at 706. 1270. Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages Table No. 11 TABLE SHOWING RATIO OF RESERVES TO EQUITY SHARE CAPITAL Reserves and surplus Ratio of reserves = To Equity share capital X 100 equity share capital Particulars Reserves and surplus Equity share capital REC Ratio 2007 – 08 221031943 2008 – 09 296040461 2009 – 10 610994644 2010 – 11 2011 – 12 1294737000 1406538000 41935600 41935600 48107030 54147000 54147000 527 706 1270 2391 2598 ANALYSIS: This ratio establishes relationship between reserves and equity share capital.

A study on Financial Analysis and leverages GRAPH No. which is very good. 11 GRAPH SHOWING RATIO OF RESERVES TO EQUITY SHARE CAPITAL REC Ratio 3000 2500 2000 REC Ratio 1500 1000 500 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that a substantially portion of the profits have been retained by the company for future use. This indicates the company‘s ability to pay higher dividends in the future and as well as make available the funds for future expansion. Acharya Institute of Graduate Studies .

Equity ratio is also known as external – internal equity ratio and is calculated to measure the relative claims of outsiders and the owners (share holders) against the firm‘s assets.42 in the next 2 years.42 2.19 1. Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages Table No.71 and 3. 12 TABLE SHOWING DEBT EQUITY RATIO Outsider‘s funds (loan funds + current liabilities) DER = Share holder‘s funds (share capital (ESC + PSC) + RES+ SUR) Particulars Outsider’s funds Share holders’ funds Debt equity Ratio 2007 – 08 684388778 2008 – 09 918774513 2009 – 10 2010 – 11 2011 – 12 2254813993 2957734000 2786790000 262967543 337976061 659101674 1348884000 1460685000 2.60 2.19 and 1.90 during 2010-11 and 2011-12 respectively.90 ANALYSIS: Debt. It decreased to 2.71 3. The DE Ratio during 2007-08 was at 2.6 and increased to 2.

A study on Financial Analysis and leverages GRAPH No. Acharya Institute of Graduate Studies .5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that the ratio has gradually increased in first 3 years and dropped down in the last two years.5 2 Debt equity Ratio 1. 12 GRAPH SHOWING DEBT EQUITY RATIO Debt equity Ratio 3.5 3 2. This can be attributed to an increase both in the current liability and as well as in the long term debt funds.5 1 0. However overall the figures of debt are greater that the shareholder funds which is not a positive trend.

Acharya Institute of Graduate Studies . 13 TABLE SHOWING SOLVENCY RATIO Total liabilities to outsiders Solvency Ratio = Total assets X 100 Particulars Total liabilities to outsiders Total assets Solvency Ratio 2007 – 08 684388778 981483116 2008 – 09 918774513 1300700078 2009 – 10 2010 – 11 2011 – 12 2254813993 2957734000 2786790000 2961286864 4348534000 4282770000 70 71 76 68 65 ANALYSIS: This ratio is a small variant of equity ratio and can be simply calculated as (100 – equity ratio).A study on Financial Analysis and leverages Table No. During 2010-11 it fell to 68% and fell further to 65% in the last years. This ratio indicates the relationship between the total liabilities to outsiders to total assets of a firm The solvency ratio of the firm was at 70% during 2007-08 and increased to 71 and 76% during the next two years.

the company can meet all the liabilities and still have assets to pay off the stake holders.A study on Financial Analysis and leverages GRAPH No. 13 GRAPH SHOWING SOLVENCY RAITO Solvency Ratio 76 74 72 70 68 Solvency Ratio 66 64 62 60 58 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that the overall solvency ratio of the firm is very good and even in the case of closure etc. The margin of decline from 2007-08 to 2011-12 it at variant of 5% only which is acceptable. Acharya Institute of Graduate Studies .

82 12.27 ANALYSIS: This ratio refers to the percentage of personnel expenses to the net sales.37% respectively during 2009-10.37 10. 14 TABLE SHOWING PERSONNEL EXPENSES RATIO Personnel Expenses Personnel expenses Ratio = Net sales X 100 Particulars Personnel Expenses Net Sales Personnel expenses ratio 2007 – 08 119704896 933270356 2008 – 09 137910983 1114428664 2009 – 10 296068219 2010 – 11 379800000 2011 – 12 404034000 2743490827 2936581000 2831023000 12. The percentage of such expenses forms a major portion of the costs on the product and to the company.27% respectively.79 12.A study on Financial Analysis and leverages Table No. It dropped down to 10.82% and 12. However a percentage between 12 to 15 seems to be accepted as a standard. For the first 2 years the PE ratio stood at 12.93 14. The standard varies from company to company and industry to industry from time to time especially in an inflation economy. It increased further in the next 2 years to 12.79%.93% and 14. Acharya Institute of Graduate Studies .

Acharya Institute of Graduate Studies . 14 GRAPH SHOWING PERSONNEL EXPENSES RATIO Personnel expenses ratio 16 14 12 10 8 6 4 2 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 Personnel expenses ratio INTERPRETATION: It is inferred that the percentage seems to be stabilized in 1 st two years and dropped is the 3rd year due to huge increase in net sales and stabilized further in the next year and increased only marginally in the last year by a mere 1% The costs are reasonably and being managed very well by the firm within acceptable levels.A study on Financial Analysis and leverages GRAPH No.

10 15.10% during 2010-11 and dropped to 15.66 18. This also forms a substantial elements in the operational expenses which could be related and as well as indirect.68% in the last year.68 ANALYSIS: This expenses ratio refers to other operational expenses incurred by the firm vies-a-vies to net sales. During 2007-08 the % stood at 21.42 18. It increased to 18.92 and 15.66 respectively. Acharya Institute of Graduate Studies . 15 TABLE SHOWING OTHER OPERATING EXPENSES RATIO Other operating expenses Other oeprating expenses Ratio = Net sales 2007 – 08 199933235 X 100 Particulars Net sales other operating expenses Net sales Operating expenses ratio 2008 – 09 210877515 2009 – 10 429815016 2010 – 11 531720000 2011 – 12 443908000 933270356 1114428664 2743490827 2936581000 2831023000 21.A study on Financial Analysis and leverages Table No.92 15.42 and dropped down in the next two year to 18.

Acharya Institute of Graduate Studies . 15 GRAPH SHOWING OTHER OPERATING EXPENSES RATIO Operating expenses ratio 25 20 15 Operating expenses ratio 10 5 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that other operating expenses was relatively high during the first 2 years and more or less stabilized in the last 3 years with net sales increasing and the expenses being kept under control adopting various costing and management techniques.A study on Financial Analysis and leverages GRAPH No.

It increased to 10.90 7.00 10. 16 TABLE SHOWING INVENTORY TURNOVER RATIO Net sales Inventory turnover Ratio = Opening stock + closing stock X 100 2 Particulars Net sales Avg.90 7.07 during the next two years.9 and 7. The ITO ratio was at 6. It reverted back to 7.A study on Financial Analysis and leverages Table No. Acharya Institute of Graduate Studies .82 7.07 ANALYSIS: Inventory turnover ratio is normally calculated as sales / average inventory or cost of goods sold / average inventory.82 during 2007-08 and dropped to 7. It reflects whether inventory has been efficiently used or not with a purpose to determine only minimum funds has been locked in the inventory. This also refers to the number of items the stock has been turned over during the period of evaluation and the efficiency with which firm is able to manage its inventory. Inventory Inventory Turnover ratio 2007 – 08 933270356 136858839 2008 – 09 1114428664 159192566 2009 – 10 2010 – 11 2011 – 12 2743490827 2936581000 2831023000 251567957 371628000 400201000 6.90 during 2009-10.00 in the next year.

16 GRAPH SHOWING INVENTORY TURNOVER RATIO Inventory Turnover ratio 12 10 8 6 Inventory Turnover ratio 4 2 0 2007 – 08 2008 – 09 2009 – 10 2010 – 11 2011 – 12 INTERPRETATION: It is inferred that on an average the inventory turnover ratio has been at 7 times with the exception of 1 year during 2009 -10 where it rose to 10. A drop in the average inventory at increased level of production and sales can hasten the process. Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages GRAPH No. The firm can only improvise upon this very marginally as the ITO ratio has more or less stabilized during the five year period.9 times due to heavy increase in sales.

4. 2. It is observed that the Combined Leverage of ARMES MAINI is showing an overall increase with wild fluctuations in between. The Operating Leverages at ARMES MAINI has started off on a negative note in the first year and has increased gradually over the second and third year only. Overall the FL is very good for the company as a whole. This is due to gradual increase and decrease reflected in both Financial and Operating Leverage. The C. SUGGESTIONS AND CONCLUSIONS FINDINGS: 1.R. 5. even though on an overall it is still high. The Current Ratio over the period of 5 years has taken wide fluctuations in the figures available. It is observed that Financial Leverages at ARMES MAINI has gradually increased over period of first 4 years and then taken a dip in the last year only when compared to the fourth year.A study on Financial Analysis and leverages FINDINGS. which shows the inability to pay off fully in the event of a decision taken by the management. taking of well in the first year and Acharya Institute of Graduate Studies . In the last year there is a decrease of the O. by 75% which is very huge.L. 3. The absolute liquid assets available with the company to discharge its current liabilities is showing a fluctuating trend over the 5 years period.

This shows a trend of fluctuations over the period. 9. 6. The Earnings per Share over the five year period of study has reached the same level where it started off in the 1st year. 7.A study on Financial Analysis and leverages Taking a hit gradually over the next 2 years. The Net Profit Ratio of ARMES MAINI has started well and seen a decline in the next two years and has picked up gradually during the last two years. Return on Equity Capital alone has shown an increasing trend over the period and is very good due to the reason that profitability (after tax) has been increasing over a period and the equity share holder base has remained stable more or less. Acharya Institute of Graduate Studies . The ROI looks better overall inspire of expansion of share holder‘s base in the company. The return on Investment Ratio has seen fluctuation over a period with a decline compare to the first year. It has climbed over the next two years. The fluctuations are wild only in the intervening years only. 8.

14. The increase in the cost being very marginal seems to be justified in an inflated economy. The Debt Equity Ratio has seen wide fluctuations over the five year period of study with gradual increase in the first 3 years and a decline in the last 2 years. The Personnel Expenses Ratio of the company has been on the increase over the period of study. Solvency Ratio of ARMES MAINI is more or less stable over the period of study. The Reserves to Equity Share Capital Ratios has shown an increasing trend in ARMES MAINI over a period of 5 years of the study. 12.A study on Financial Analysis and leverages 10. Acharya Institute of Graduate Studies . The average solvency ratio stands at 30% which is good enough and shows companies‘ ability to pay off all the liabilities. The overall DER seems to be on a negative note with outsiders funds being double the share holder‘s funds which is not a good sign and should have been the other way round. The Dividend Payout Ratio has seen wide fluctuations over a period of 5 years in ARMES MAINI with a declining trend in the second and third year and increase in the 4th and 5th year. The company has appropriated substantial portion of its profits to the reserves for meeting future contingencies. 13. 11.

The Inventory Turnover Ratio is more or less stable over the five year period of study at an average of 7. 16. Acharya Institute of Graduate Studies . The Other Operating Expenses Ratio has seen wide fluctuations over the period and this could be attributed to uncontrolled expenses incurred over the period even though the sales have been on the increase.A study on Financial Analysis and leverages 15.5. There are hardly any changes and wide fluctuations and more or less the company has stabilized its operations over the period.

L. This would arrest the spiraling increase in costs. the F. Care should be taken to reduce the level of risk to ideal conditions upon heavy borrowings. either by increase in sale volume or increasing the margin of profit or reducing the cost trying a maximize the benefit of large scale production 3. It would be better if the company increases the profit margin to cover Variable Costs also. Company can make efforts to reduce the current liabilities to the extent possible so that the ALR shows better figures. This is due to the high level of current liabilities and increasing trend over the period. was very good only during the year 2008-09.A study on Financial Analysis and leverages SUGGESTIONS 1.L is at higher levels. The company is earning profits sufficient enough and as such. Efforts should be made to stabilize the various cost of the company at the level at which it is reflected during 2009-10 with effective budgeting control techniques. The ALR of the company is very low compared to the standards of 50% or 0. 4. L is very good.5: 1. During the remaining years it has reflected only a marginal increase. Acharya Institute of Graduate Studies . The company‘s contribution to get a better O. 2. which could hurt its profits. As stated above the contributions having very good in 2008-09 and the C. Both the financial and operating cost being very high the company has not been in a position to show better results in first 3 years.

A study on Financial Analysis and leverages 5. 7. The management should make efforts to reduce costs in order to maximize profits at enhanced level of operations. 9. Acharya Institute of Graduate Studies . Excess funds in reserve and surplus can be utilized in a phased manner to reduce the debt percentage in the financials of the company. 8. This would improve its current ratio well above the standards. The earnings per share can be improved upon further with cost deduction and reducing the long term debt borrowings with interest gradually. The standard for CR is 2:1 and the companies‘ data shows a marginal decrease from the accepted standards and efforts have to be put in by the management to improve the business cycle and exercise control over both trade debtors and trade creditors. In spite of this there has been a fluctuation in the NPR due to probable increase in the operating expenses over the period and as well as interest payments on heavy long term borrowings. which is possible. The ROI can be improved upon further by reducing external borrowing and the payment of interest associated with it. This would have a better market price for the share in the stock market overall. 6. The company has seen an increase in both net profits (after taxation) as well as net sales. The return to the equity share holders has been very satisfactory with very good returns and as well as better figure under the reserves and surplus.

13. 12. The management has to make concerted efforts to reduce.The management can look into atomization and computerization of as many operations as possible in order to reduce the number of employees and its related expenses. 11.The debt equity ratio is in a very precarious status over the period of study and the only positive element being it is at the lowest in the last year.A study on Financial Analysis and leverages 10. This can further be improved upon with long term debt reduction gradually over a period.The long terms solvency position of the firm is good and the company has sufficient assets to clear outsider‘s liability comfortably and still have funds with it. their long term debts as early as possible to show as improved DER. However a portion of that could be used to reduce the company‘s long term debts over a period gradually. 14. Acharya Institute of Graduate Studies .The fluctuation in the dividends payout ratio can be attributed mainly due to variations is the EPS only even though dividends paid per share is more or less stable over the period of 5 years. In the last two years the indication are substantial portion of the profit has been retained by the company from its earnings under reserve and surplus which is good.Even though it is the management decision to appropriate a substantial portion of profits into reserves it might be used for future expansions or diversifications.

16.A study on Financial Analysis and leverages 15. The variance in expenses should be monitored on monthly basis to have a tighter control of the expenses.Exercise of strict budgetary control over the other operating expenses is the need of the hour due to high volatility.With the increase in sales over the period it is only the average inventory that has increased and contributed for its stability To improve this further the management has to make concerted efforts to reduce the inventory levels within the company for better results and effective inventory utilization Acharya Institute of Graduate Studies .

An effort has only been made to conduct a study of financial analysis and leverages based on the classification of items both in the balance sheet & profit and loss account and other related reports for 5 financial accounting years. This would enhance the profit margin to higher levels. Acharya Institute of Graduate Studies . The management needs to exercise effective monetary control on expenditure adopting techniques like Budgetary Control etc. The long term debt borrowing has to be settled in order to reduce the interest burden on the company‘s profitability. Thus we conclude to say the overall performance of ARMES MAINI has been satisfactory and only some elements seems to be fluctuating very widely which needs proper monitoring and control using different Managerial Accounting Techniques.A study on Financial Analysis and leverages CONCLUSION The overall financial performance of ARMES MAINI seems to be good and showing better performance year after year.

Satya Prasad Business finance By: Shashi K.M. and Anu Putney Internet: www.Pandey Financial management By: P.Kulkarni. B.com www. Neethi Gupta.V. Gupta. Mukund Sharma Financial management theory and practice By: Prasanna Chandra Financial management By: I.A study on Financial Analysis and leverages BIBLIOGRAPHY BOOKS Management accounting By: Appnnaiah Reddy.com Acharya Institute of Graduate Studies .armesmaini.Gupta. R.G.Sharma Cost and financial analysis By: Shashi K.google.K.

Niveditha.d.yogesh kumar.c Reg: 10psc18057 Under the guidance of Mrs.t.A study on Financial Analysis and leverages “FINANCIAL ANALYSIS AND LEVERAGES” WITH SPECIAL REFERENCE TO ARMES MINI STORAGE SYSTEM PRIVATE LIMITED AT BANGALORE PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE AWARD OF THE DEGREE IN BACHELOR OF BUSINESS MANAGEMENT TO BANGALORE UNIVERSITY Submitted by Ms.s DEPARTMENT OF COMMERCE & MANAGEMENT STUDIES Seshadripuram institute of commerce and management Seshadripuram bangalore-20 2012-13 Acharya Institute of Graduate Studies .

BBM in AIGS do hereby declare that this project report entitled ―FINANCIAL ANALYSIS AND LEVERAGES‖ WITH SPECIAL REFERENCE TO THE ARMES MAINI STORAGE SYSTEM PRIVATE LIMITED‖ is my original work and that it has not previously formed the basis for the award of any degree. Diploma. Lecturer of commerce and management I also hereby declare that this project report has not been submitted to any other university or colleges for the award of any other degree or diploma.C.YOGESH KUMAR. This project report is prepared under the supervision and guidance of Mr. fellowship or other similar title.T.S (Internal Guide). Associates ship. student of VI Semester. Place: Date: Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages DECLARATION I Niveditha.D.

A study on Financial Analysis and leverages LIST OF TABLES Table No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Title TABLE SHOWING FINANCIAL LEVERAGES TABLE SHOWING OPERATING LEVERAGE TABLE SHOWING COMBINED LEVERAGE TABLE SHOWING ABSOLUTE LIQUIDITY RATIO TABLE SHOWING CURRENT RATIO TABLE SHOWING NET PROFIT RATIO TABLE SHOWING RETURNS ON SHARE HOLDERS INVESTMENT IN % TABLE SHOWING RETURNS ON EQUITY CAPITAL TABLE SHOWING EARNINGS PER SHARE TABLE SHOWING DIVIDEND PAYOUT RATIO TABLE SHOWING RATIO OF RESERVES TO EQUITY SHARE CAPITAL TABLE SHOWING DEBT EQUITY RATIO TABLE SHOWING SOLVENCY RATIO TABLE SHOWING PERSONNEL EXPENSES RATIO TABLE SHOWING OTHER OPERATING EXPENSES RATIO TABLE SHOWING INVENTORY TURNOVER RATIO Page No. 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 Acharya Institute of Graduate Studies .

49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 Acharya Institute of Graduate Studies .A study on Financial Analysis and leverages LIST OF GRAPHS GRAPH No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Title GRAPH SHOWING FINANCIAL LEVERAGES GRAPH SHOWING OPERATING LEVERAGE GRAPH SHOWING COMBINED LEVERAGE GRAPH SHOWING ABSOLUTE LIQUIDITY RATIO GRAPH SHOWING CURRENT RATIO GRAPH SHOWING NET PROFIT RATIO GRAPH SHOWING RETURNS ON SHARE HOLDERS INVESTMENT IN % GRAPH SHOWING RETURNS ON EQUITY CAPITAL GRAPH SHOWING EARNINGS PER SHARE GRAPH SHOWING DIVIDEND PAYOUT RATIO GRAPH SHOWING RATIO OF RESERVES TO EQUITY SHARE CAPITAL GRAPH SHOWING DEBT EQUITY RATIO GRAPH SHOWING SOLVENCY RATIO GRAPH SHOWING PERSONNEL EXPENSES RATIO GRAPH SHOWING OTHER OPERATING EXPENSES RATIO GRAPH SHOWING INVENTORY TURNOVER RATIO Page No.