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A

PROJECT REPORT
ON
A STUDY OF ACCOUNTING & FINANCIAL ANALYSIS
OF ARVIND LIMITED
A SIP Report Submitted to

Gujarat Technological University


In the partial fulfillment of the requirements for the degree of

Master of Business Administration [MBA]


UNDER THE GUIDENCE OF
Academic Guide:
Prof. RAJESH GANATRA
Faculty (CPIMR)

Corporate Guide:
Mr. VINIT SHAH
Arvind Limited

Submitted by:
RAUNAK CHAURASIA
Enroll. No.-117680592098

SHREE CHIMANBHAI PATEL INSTITUTE OF


MANAGEMENT & RESEARCH
M.B.A PROGRAMME
Affiliated to Gujarat Technological University
Ahmedabad
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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

DECLARATION

I the undersigned hereby declare that the work incorporated in the Summer
Internship report titled Accounting & Financial Analysis of Arvind Limited is
original and has not been submitted to any university as part fulfillment of award
of any degree or diploma.
The material obtained and used from other sources has been duly acknowledged in
the report.

Date:

Raunak Chaurasia. T

Place: Ahmedabad

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

CERTIFICATE

This is to certify that the project titled A Study of Accounting & Financial
Analysis of Arvind Limited is a work done by Mr. /Ms. Raunak Chaurasia. T
of this institute. The student has successfully completed this project under my
guidance.
I am sure that the experience gained during the project work will enable him/her to
take similar challenging projects in future.

Mr. Rajesh Ganatra


(Faculty Guide)
Date:
Place: Ahmedabad
Dr. Ashvin Dave
(Co-ordinator)

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

PREFACE

For a long time, there is a wind of recession blowing all over the
business world and wealth liberalization policy in the Indian Economy.
So, now a days market is becoming more and more competitive scenario,
company demands more and more professional and accomplished
employees.

Students have to get practical training along with the theoretical knowledge of the
business
condition.
There
are
many
advantage
of
making these kinds of reports, the student can become aware of the
particular knowledge about marketing of capital goods. Reading gives
only the theoretical knowledge that visits gives practical knowledge.

Fortunately I got golden opportunity to visit and complete my six week training at
ARVIND MILLS LIMITED Here I got chance to see the functioning of Finance
Department and imbibe a lot learning of the subjects.

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

ACKNOWLDGEMENT
With the successful completion of my Summer Internship Program, I would
like to express my deep gratitude towards all of those who have helped me during
my learning program.
Firstly I would like to thank Mr. SHOBHIT TYAGI (Head- Human Resource,
Arvind limited) for providing me with this opportunity to be a part of this
organization.
I would also like to thank my Academic guide, Mr. RAJESH GANATRA for
guiding me throughout this project. His dedicated and constant efforts and sincere
advices helped me a lot in gaining knowledge and putting forward my full
potential. He gave me ample of time to complete this report.
Though language is a poor substitute for sentiments but still I want to
express my Special thanks to my company guide Mr. VINIT SHAH (Head finance Department) for his wise advises and critical analysis towards my
project. Without his support this project would never have been a success.
With his each and every contribution there has been a value addition in my
learning.
I would also like to show my thanks to Mr. JATIN THAKKAR who helped me a
lot in completing my project. Her timely and sincere suggestions added value to
my project.
Last but not the least I would like to thank all those persons and organizations who
have helped me directly or indirectly in the successful completion of this study.

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

EXECUTIVE SUMMARY

My project is basically on financial analysis and a brief study on


Arvind mills ltd. So firstly, we need to understand what Financial Analysis
is?
Financial analysis is an aspect of the overall business finance function
that involves examining historical data to gain information about the current and
future financial health of a company. The financial function in business
organizations involves evaluating economic trends, setting financial policy and
creating long range plans for business activities. For the smooth functioning it is
important for the company to analyze its financial statements to look towards the
financial performance of the company and take future decisions as well. There is
ratio analysis, common Size Statement, trend analysis which gives detailed
analytical information of the financial position of the company. It also helps to
forecast the future trend.
Ratio analysis is a widely used tool of financial analysis it is defined as
a systematic use of ratio to interpret the financial statement so that the strength and
the weakness of the firm as well as its historical performance and its current
financial condition can be determined. The term ratio refers to the numerical or
quantitative relationship between to variables or items. The ratio analysis helps
managers in making critical decisions. I studied the balance sheet and have given
recommendation as well. With the help of Ratios I have tried to analyze its
performance compared to previous year.

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

TABLE OF CONENT
(A)
(B)
(C)
(D)
(E)
(F)
(G)

(H)

(I)

INDEX
TITLE PAGE
DECLARATION
CERTIFICATE
PREFACE
ACKNOWLEDGMENT
EXECUTIVE SUMMARY
INTRODUCTION TO TEXTILE INDUSTRY

PG. No.
1
2
3
4
5

CONTRIBUTION OF TEXTILES TO ECONOMY

11

EVOLUTION OF TEXTILE INDUSTRY

11

SEGMENTS IN TEXTILE INDUSTRY

12

INDIAN TEXTILE INDUSTRY

13

GUJRAT TEXTILE INDUSTRY

13

TEXTILE INDUSRTY KEY FACTS

14

MAJOR PLAYERS IN TEXTILE INDUSTRY

15

INTRODUCTION TO ARVIND MILLS

17

COMPANY PROFILE

18

FABRIC PRODUCTION

19

ORGANIZATIONAL STRUCTURE

20

SUBSIDIARIES

20

BOARD OF DIRECTORS

21

GROUP OVERVIEW

22

COMPANY'S VISION

23

COMPANY'S MISSION

23

COMPANY'S PHILOSOPHY
DENIM MANUFACTURING PRROCESS
VARIOUS PROCESSES / DEPARTMENTS
QUALITY ASSURANCE
INSPECTION
ISO & EMS

24

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

(J)
(K)
(L)

(M)

(N)
(i)

(ii)

(iii)
(iv)

(O)
(P)
(Q)
(R)
(S)
(T)
(U)
(V)
(W)
(X)

S.W.O.T ANALYSIS
LITERATURE REVIEW
FINANCIAL ANALYSIS THEORY
INTRODUCTION TO FINANCE
TYPES OF FINANCIAL ANALYSIS
FINANCIAL RATIO
LIMITATION OF FINANCIAL ANALYSIS
ACCOUNTING ANALYSIS
COMPARATIVE ANALYSIS OF BALANCE SHEET
COMMON SIZE OF BALANCE SHEET
TREND ANALYSIS OF BALANCE SHEET
COMPARATIVE ANALYSIS OF INCOME STATEMENT
COMMON SIZE OF INCOME STATEMENT
TREND ANALYSIS OF INCOME STATEMENT
FINANCIAL ANALYSIS
ROI RATIOS
RETURN ON CAPITAL EMPLOYED
RETURN ON NET WORTH
EARNINGS PER SHARE
SOLVENCY RATIOS
NET ASSETS VALUE
DEBT EQUITY
DEBT-SERVICE COVERAGE RATIO
DU PONT ANALYSIS
VALUTION RATIOS
PRICE EARNINGS RATIO
MARKET PRICE TO NAV
MARKET CAPITALIZATION
FINANCIAL RATIOS OF ARVIND LIMITED
RATIONALE OF STUDY
RESEARCH METHODOLOGY
FINDINGS
SUGGESTIONS
LIMITATION OF ANALYSIS
CONCLUSION
LEARNING
BIBLOGRAPHY
ANNEXURE

35
37

40
42
47
49
51
58
61
61
63
64
66

67
70

71
73
74

75
76
77
78

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CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT & RESEARCH

INTRODUCTION
OF
TEXTILE INDUSTRY

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INTRODUCTION
The Indian textile industry has a significant presence in the economy as well as in
the international textile economy. Its contribution to the Indian economy is
manifested in terms of its contribution to the industrial production, employment
generation and foreign exchange earnings. It contributes 28% of industrial
production, 13 % of excise collections, and 25 % of employment in the industrial
sector, nearly 28 % to the countrys total
export earning and 6% to the GDP.

Industrial Production

28%

Excise Collections

13%

Employment in the Industrial Sector

25%

Countrys total Export Earning

28%

GDP

6%

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CONTRIBUTIONS OF TEXTILE INDUSTRY IN ECONOMY

In human history, past and present can never ignore the importance of textile
in a civilization decisively affecting its destinies, effectively changing its social
scenario.

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EVOLUTION AND EVALUATION OF TEXTILE INDUSTRY

The RAG TRADE, as it is referred to in the UK and Australia is the manufacture,


trade and distribution of textiles.
There were various stages - from a historical perspective - where the textile
industry evolved from being a domestic small-scale industry, to the status of
supremacy it currently holds.
The cottage stage was the first stage in its history where textiles were produced on
a domestic basis. During this period cloth was made from materials including wool,
flax and cotton. The material depended on the area where the cloth was being
produced, and
the time they were being made.
In the later half of the medieval period in the northern parts of Europe, cotton came
to be regarded as an imported fiber. During the later phases of the 16th century
cotton was grown in the warmer climates of America and Asia.
A number of new innovations led to the industrialization of the textile industry. In
the initial phases, textile mills were located in and around the rivers since they
were powered by water wheels. After the steam engine was invented, the
dependence on the rivers ceased to a great extent. In the later phases of the 20th
century, shuttles that were used in the textile industry were developed and became
faster and thus more efficient.
Today, modern techniques, electronics and innovation have led to a competitive,
low-priced textile industry offering almost any type of cloth or design a
person could desire. With its low cost labor base, China has come to dominate the
global textile industry.

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SEGMENTS IN TEXTILE INDUSTRY

Our textile industry constitutes the following segments

Readymade Garments - denims, made-ups, shirts, etc.


Cotton Textiles including Handlooms (Mill made / Power loom/ Handloom)
Man-made Textiles
Silk Textiles
Woolen Textiles
Handicrafts including Carpets
Coir
Jute

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INDIAN TEXTILE INDUSTRY


The Indian textile is one of the largest segments of the Indian economy accounting
for over one-fifth of the total industry production. The industry has a complex
structure marked by presence of large scale production units as well as smallscale units. The industry is manufacture driven with spinning having large-scale
operation retailing as weakest link.
Indias textile is second largest in the world, next to china, with annual shipments
of USD 20 billion and a work force of 20 million people. It generates 7% of
Indias GDP, 20 % of its industrial output and 38 % of its export earnings. The
competitive position of Indian textile largely reflects its vast domestic fiber base,
low cost and skilled work force, established allied industries, significant yarn and
fabrics capacity and manufacturing flexibility. India also produces a fabulous range
of men-made fibers, polyester cotton and polyester-viscose blended fabrics. India
offers an alluring range of made up item like scarves and stoles in exotic, intricate
patterns and magical finishes.
The Indian industry is pre-dominantly cotton based with
70 percent of the
raw Materials consumed being cotton. It is composed of the three major sectors,
namely the mill, also called the organized sector; the handloom and power loom
sectors both being classified as decentralized sectors and; the garments sector.

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GUJRAT TEXTILE INDUSTRY


Gujarat is one the leading industrial states in India and textile industry in
India in particular had contributed in big way to the industrialization of the
state. In fact, development of the many industries like dyestuff, chemicals
Engineering/foundry and cotton farming is solely dependent on these sectors. The
state is well known for development of hybrid cotton, ginning, power looms,
composites mills, spinning units and independent processing houses.
In Gujarat, textile manufacturers use cotton based fabrics in mill sector, major
reason being the availability of the basic raw materials in the state, i.e. cotton.
Similarly many spinning units producing more conservative yarns were established
in the state. The state happened to be more conservative with cotton textile
products mainly in the organized sector, weaving and synthetic textile in
decentralized sector. Seurat art silk manufacturers are only exception. Similarly,
independent processing units process synthetic blended and cotton fabrics. Clusters
of processing units are located in Seurat, Ahmedabad and Jaipur, though these
production units have good capacity of processing wide range of fabric.
Ready-made Garment manufacturing and hosiery knitwear unit also exists in
SSI categories. In early 1990s Gujarat saw dramatic change in its textile industry
scenario where quite a few textile mills started manufacturing Denim. The Arvind
mills, Ashima Textiles, Soma Textiles, Modern Denim, and Arvee denim
started manufacturing denim. So many mills at a time fetched a new name for
Ahmedabad Denim city of India whereas city of Surat became Silk city of
India.

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TEXTILE INDUSTRY KEY FACTS


The Indian textile industry is second largest industry in terms of providing
vast employment opportunities and employs around 35 million people in
country after agriculture sector and contributes 14%
to
industrial
production of the country.
Textile Industry contributes around 6% of GDP, 13% of excise collections,
25% of employment in industrial sector, and has 28% share in countrys
export.
Industry has direct and strong linkage with rural and agriculture sector,
therefore it is estimated that, one of every six households in country is directly
or indirectly dependent on this industry contributes
12% of world production of textile fibers and yarn
25% share in the world trade of cotton yarn
23% of the worlds spindle capacity
6% of global rotor capacity
61% in world loom age
Including textiles and garments, 30% of India's export comes from this sector.
Large and potential domestic & international market, large pool of skilled
and cheap labor, well-established industry, promising export potential etc.
are few strengths of Indian Textile Industry.
Highly Fragmented, High dependence on cotton sector, Lower
productivity, and Unfavorable Labor Laws are few drawbacks of the
industry which it has to overcome.
After the elimination of quota restrictions and implementation of National
Textile Policy 2000, it is estimated that the industry will grow with rapid
rate and help to strengthen the Indian economy.

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MAJOR PLAYERS IN THE TEXTILE INDUSTRY IN INDIA


ARVIND LIMITED:
Arvind Mills is one of the major and fully vertically integrated composite mills
players in India. It has large production in denim, shirting and knitted garments. It is
now adding value by manufacturing denim apparel. Its sales are around
US$ 300 million.
RAYMONDS:
Raymonds has the large, diversified integrated business model, which is
spread
across
the
value
chain
from
yarn
to
retail.
It is
specialized in Diversified woolen textiles. It already supplies to some US
retailers.
RELIANCE TEXTILES :
Reliance Textiles is one of the major textiles Company that is in business of fully
integrated man-made fiber. It has capacity of more than 6 million tons per year. It
has joint venture partners like, DuPont, Stone & Webster, Since (Italy) etc.

VARDHMAN SPINNING:
Yardman deals in spinning, weaving and processing segment of the industry. It is
planning to double its fabric processing capacity to 50 million meters. It is an
approved supplier to global retailers like Gap, Target and Tommy Hilfiger. Its sales
are little over US$ 120 millions

WELSPUN INDIA : (Manufactures terry towels)

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CENTURY TEXTILES: (Composite mill, cotton & Man-made)


MORARJEE MILLS: (Fully integrated Composite Mill)
INDO RAMA: (Cotton and Man-made)
GTN TEXTILES: (Cotton Yarn and Knit Fabrics)
GINNI FILAMENTS LIMITED: (Yarn and Fabric)
LNJ BHILWARA GROUP: (Diversified and vertically integrated denim
producer with spinning and weaving capacity)
MAFATLAL TEXTILES: (Fully integrated Composite Mill)
MODERN GROUP: (Diversified, producer of denim, syntax and thread)
ASHIMA SYNTAX: (Man-made Fiber)
KG DENIM: (Fabrics)
SANGHI POLYESTER LIMITED: (Manmade Fiber)
NOVA PETROCHEMICALS: (Man-made Fiber)
S.KUMAR SYNFABS LIMITED: (Home furnishing and Suit Fabrics)
BOMBAY DYEING LIMITED: (Composite and fully integrated)
RAJASTHAN PETRO SYNTHETICS: (Diversified)
BSL LIMITED: (Textiles)
GARWARE POLYESTER: (Diversified)
BANSWARA SYNTEX: (Composite)
NATIONAL RAYON CORP: (Man-made fiber)
GSL INDIA LIMITED: (Threads)
INDIAN RAYON: (Man-Made Fiber)
ALOK TEXTILES: (Cotton and Man-made Fiber Textiles)
SHARDA TEXTILES MILLS: (Man-made Fiber)
BIRLA GROUP DORMEUIL BIRLA VXL LIMITED: (Fully integrated
woolen textiles)
GOKULDAS IMAGES: (Diversified)
HANIL ERA TEXTILES: (Yarn, Cotton & Man-made Fiber)
OSWAL KNIT INDIA: (Woolen Wear)
NIRVAT SAM APPARELS: (Apparel)
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INTRODUCTION
OF
ARVIND LIMITED

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COMPANY PROFILE

The aim was to indigenously produce fine and superfine cotton fabric as
well as traditional material for vast potential Indian market. At this juncture,
Arvind Mills was set up with the pioneering effort of three brothers, Kasturbhai,
Narrotambhai and Chimanbhai Lalbhai becoming Worlds largest exporter and
Asias largest producer of denims. During 1980s several mills in Ahmedabad
closed down as a result of competition from cheaper cloth produced by small power
loom enterprises. Militancy spurred by textile labor unions prevented the
shutdown of several lossmaking mills, and in the
mid 1980s Ahmedabad
was a city of industrial
strives. ARVIND MILLS
has risen like a phoenix
from
the
ashes
of
Ahmedabad textile mills.
In just eight years it has
successfully implemented a
turnaround strategy. Established in 1930, Arvind Limited is the flagship company of
$ 498 million. Lalbhai Group has now focused its attention on few selected core
product groups. Arvind today is a one-stop shop for all cotton fabric
requirements, where product range spans the entire gamut of cotton fabric. It is
also a rapidly expanding manufacturer of garments such as jeans and shirts. With
the best technology and business acumen Arvind Mills became the true
multinational producing the finest fabric available in the country that rivaled
imported fabric. Since then, there has been no looking back. Having established
itself as Indias largest denim manufacturer, Arvind Mills is confident that in the
near future it will become the fifth largest denim producer in the world.
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FABRIC PRODUCTION
In the 1980s the growing threat from
small power loom operators forced Ahmadabads
composite
mills to shift their focus to product areas in which
they could compete. In order to better address
newer and wider business opportunities, the
company shifted perspective from domestic to
international markets. At a time when the local
textile industry
was
declining, Arvinds
management devised a turnaround strategy called
Reno vision. It represented an open-minded
approach that would seek out new opportunities.
In 1987 Arvind Mills made a conscious
strategic decision to change its production emphasis
from a portfolio of traditional domestic textiles to
high quality cotton fabrics. This required a level of
technological expertise, which small power loom
operators could not compete with. Arvind
identified denim as a key fabric. International
consultants McKinsey & Co. Helped to frame
companys business
strategy
formulate
its organizational restructuring and establishing international alliances.
Today the company is engaged primarily in the manufacturing of
indigo-dyed denim fabrics, fine and superfine cotton shirting and bottom
weights, and conventional domestic fabrics such as sarees and voiles. In 1995
Arvind Mills held an 80% share of India's domestic market for denim.
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ORGANIZATIONAL STRUCTURE

Arvind defines its operations in terms of Strategic Business


Units (SBUs). Each product line - such as denim, shirting, knits, voiles, etc - is
designated as an SBU. Each unit is headed by a president who is able to
make independent decisions on finance and marketing. The president is assisted
by vice-presidents who look after functional divisions.
The concept of SBUs, which
was implemented in spring 1995, was
adopted on the advice of McKinsey; mainly
to facilitate the companys expansion plans
but also to provide an accurate picture of the
performance of individual product lines.
Each SBU, which is similar
to a product division within a corporation,
operates as a profit center. While long-term planning is carried out by the
corporate group in consultation with the management of each SBU, medium and
short-term planning is in the hands of the unit.
Arvind has been successful in attracting high caliber professionals from
the best multinationals and blue chip companies.

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SUBSIDIARIES
Arvind Mills has 11 subsidiaries, of which seven are in textile and related
businesses. They are:
Arvind Clothing limited.
Arvind Fashion limited.
Arvind Worldwide Inc, USA

Arvind Clothing limited (ACL), situated in Bangalore, and began commercial


production in April 1994. ACL is the exclusive licensee in India of
CluettPeabody & Co of the USA, which owns the Arrow brand name. It has the
capacity for making 1 million shirts per annum, and has received ISO 9002
certification.
Arvind Fashion limited (AFL) is a licensed user of the brand names belonging to
the US Company VF Corporation, which owns the well-known international trade
marks Lee. The company has a letter of intent from the Indian government
(pending the issue of a license) permitting it to manufacture up to 960,000
garments per annum, provided it exports 50% of the garments produced.
AFL has invested Rs.160 million in establishing a jeans manufacturing unit
at Bangalore. The state-of-the-art factory, which has a production capacity, of
500,000 pairs of jeans per annum, is equipped with machines made in the USA,
Japan and Europe.
Spring 1995 saw a launch of a wide range of products-including jeans, jackets,
denim shirts, twill shirts, T-shirts and accessories such as belts and bags -under
the Lee trade mark. These are sold through exclusive showrooms located in major
cities throughout India.
Although its current turnover is small, AFL is in good position to capture a
significant share of the growing domestic market.
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GROUP OVERVIEW
The Lalbhai group, founded by the three Lalbhai brothers in 1908, has
grown to become one of India's most diversified business houses, with a significant
presence in the textiles, ready-to-wear, chemicals, air-conditioners and telecom
industries in India.

Each company in the group, in its own way, pursues a single


mission - to be the benchmark in the industry. To achieve this, they have tiedup with a variety of companies, all world leaders in their respective fields.

LALBHAI GROUP COMPANIES

TEXTILES/ YARNS

Arvind limited.
Arvind Products limited.
Arvind Fashion limited.
Arvind Brands limited.
Arvind Index
Arvind Cot spin
Garment Export Division, Bangalore
Arvind Overseas limited., Mauritius

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CHEMICALS
Anil Starch Products limited.
Atoll limited.

TELECOM
Arvind Telecom

OTHERS

Anup Engineering limited.


Anagram Stock Broking
Lalbhai realty limited.
Amtrex Appliances limited.

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COMPANYS VISION
To achieve global dominance over various businesses built around our
core competencies, through continuous product and technical innovation,
customer orientation and a focus on cost effectiveness".

All along Lalbhai Group has maintained a responsive yet levelheaded attitude
towards the society and its training individuals to create a corporate culture
that fosters excellence. Working in this direction the company has created a
learning environment that nurtures individual talent and intellect. It provides a
platform that challenges the individual capabilities urging them to constantly strive
forward towards greater heights using development as the fundamental tool.
It infuses in individuals a spirit of entrepreneurship which gives courage and
conviction to pursue set goals towards logical achievement and a global mindset
that transcends geographical and cultural boundaries evolving as a world leader. All
this is manifest in an environment fostering innovation and leadership.
Drawing from the Team based structure to encourage individuals to mesh up
into cross-cultural teams in all operational processes. This process provides
opportunities for individuals to match their capabilities with organizational
expectations creating a mechanism for updating the system. A strong sense of
ownership and commitment towards the organization and the business as a whole
is the basic premise of all the company actions.

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COMPANYS MISSION
Arvind limited. has laid down certain aims and objectives to be achieved
while pursuing its corporate activities. These are:

To provide a favorable work environment to the employees to direct their


working towards achievement of corporate goals.
To provide opportunities creating a mechanism for updating the system.

To manage the institution as a trust, as empowered leaders and do all that


needs to be done ethically for the purpose of the institution.

To create a vibrant institution for the future of this nation and the world at
large.

To be a world leader in an environment fostering innovation and leadership.

To reinforce connections, and catalyze the chemistry that allows connections


to be translated into action which is beneficial for both the organization and
the individual.
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COMPANYS PHILOSOPHY
"It is my responsibility as a leader to create an environment where
excellent people would like to come and give their best, to create a vision, to
give freedom for excellence."
- Sanjay Lalbhai (Managing Dir.)

We believe in potential of every human being. Our Human Resource


Development policy reflects this belief.
We recruit the best talent wherever we do business, offer competitive
compensation, provide a dynamic work environment, make people accountable for
results, and chart their growth through systematic career planning. Our structures are
well defined which allows us to be more flexible and respond to the customers
promptly.
We encourage innovation and entrepreneurship and motivate our people to take
on leadership roles through job re-assignments. This helps us create a
learning organization with a workforce that has multi-dimensional experiences and
skills.

Our campus recruitment program and on-going involvement with educational


institution ensures access to highly trained managers, engineers and workers to
support our aggressive global plans. And our training centers - FOUNTAINHEAD
(the hub of all training activities at Arvind), INDRADHANUSH (for operatives),
ORCHID (for behavioral training), and CALCULUS (for computer training) ensures they continue to learn and grow.
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BOARD OF DIRECTORS

Name

Designation

Mr. Sanjay S. LalbhaiS/O


Executive Chairman & Managing Director (Promoter)
Mr. Shrenik bhai Lalbhai
Mr. Jayesh k. Shah

Executive Director & Chief Financial Officer

S/O Mr. Kantilal Shah


Mr. G.M.Yadwadkar

Non-Executive, Independent - Nominee Director


IDBI Bank limited.

S/O Mr. M.A Yadwadkar


Mr. S.R. Rao

Non-Executive, Independent - Nominee Director


EXIM Bank of India

S/O Raghunatha Rao


Non-Executive, Independent - Nominee Director
Mr. K.M. Jayarao
Mr. Sudhir Mehta

ICICI Bank limited.


Non-Executive, Independent - Director

S/O Uttamlal Nathalal Mehta


Mr. Tarun Sheth

Non-Executive, Independent - Director

S/O Natwarlal Gordhandas Sheth


Mr. Munesh Khanna

Non-Executive, Independent - Director

S/O Narindra Khanna

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DENIM MANUFACTURING
PROCESSES

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VARIOUS PROCESSES / DEPARTMENTS OF ARVIND MILLS


Spinning department
The first step in the manufacturing of all kinds of fabric i.e. spinning of bales of
raw cotton into yarns of various kinds suited for producing varieties of fabric.
Trivia about Arvind Mills:
Voile fabric is mainly used for knitting purposes and for making saris too,
but is mostly exported to the middle east
In addition to collaborations with multinational apparel giants, Arvind Mills
runs its own brands of clothing e.g. Excalibur, Flying Machine, Ellites et al
Cotton is procured from a host of countries including far-flung ones like
Egypt, America and Germany
Recently, Arvind Mills has come up with its unique product, Ready To
Stitch (RTS) kits
Cost of fabric accounts for ~65% of the cost of raw material
850 million m2 of denim fabric is manufactured every month at facilities at
Naroda, entirely dedicated for this purpose
Towards this end, 4500 tones of yarn is spun every month, an exercise that
contributes 450 crores towards costing only for denim
There are primarily two kinds of technologies that are in popular usage vies-a-vies
spinning of yarn namely open end technology, also called rooter spinning owing to
its being the key component in the machines involved, and ring spinning
technology. The facility at Naroda works entirely on open end technology and
produces ~60 tones of yarn a day with 5472 rooters being around on campus. At
other manufacturing facilities of AM, ring technology is used, which generally
results in production of 70 tones of yarn a day. Rest of the yarn required for fabric
production.
The cotton spinning can be done using any of the four technologies:
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1.
2.
3.
4.

Ring spinning
Open end spinning
Drip spinning
Air-jet spinning

The open end technology of spinning requires cotton to be processed in mainly 4


broad stages as enumerated below:
Blowing: In this stage physical, in situ and ex situ impurities are gotten rid
of raw cotton
Carding: Cotton, thus purified, is put into cylinders in sliver form
Drawing: Parallelization of fiber takes place
Rooter spinning: The main process of drawing cotton fiber into yarn is
carried out
Weaving department
The weaving department has 203 weaving machines en Toto, of the make ZAX
and 209i, the latter being an older version. The machines are of the company
TSUDAKOMA, a Japanese concern as opposed to the spinning department where
the machines were of German companies. The ZAX machines work at 750 rpm
whereas 209i model machines work at 650 rpm. Together they churn out a lac m2
of cloth a day. In total the department has 159 ZAX machines and 44 209i. There
happen to be 261 laborers working in 4 shifts in the department with 20 staff
members i.e. 5 in each shift, out of whom there is one supervisor for each shift. A
beam card keeps all the records of what is being put on the machine and under
whom it is supervised.
Inputs used for the weaving departments can vary from:
1. OE- open end
2. ER- even ring
3. UR- uneven ring
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Lycra is used to increase the elasticity of the fiber. Filament is used in the fiber
which is exported to countries where the level of sweating is lower as compared to
Indian condition where majorly cotton is used for the same reason.
The weaving department has the distinction of being the largest at Arvind Mills
and exports close to 95% of its manufactured fabric. Discussing the denim fabric,
the core competence of AM, original denim is composed of 100% cotton but with a
view to bring in variations to the material in consonance with the emerging trends
in the market, various natural fibers like linen and synthetic fibers like filament,
lycra, polyester are added to cotton. While weaving such mixed fabric, the core is
made of the addend and original cotton is wound around it. Yarn woven vertically
is called warp while that woven laterally is termed as weft. For weaving purposes a
cotton count ranging from 5 to 20 is generally used.

Dyeing department
Arvind Mills has a grill section that was loaded with 12 beams of yarn, though
latest machinery could support even 16 of them. They are also known as warping
beams and their design depends upon the texture and construction of fabric e.g.
weight, length etc.
Each beam consist of 350-400 ends and 12 such beams are joined together to form
one at last with 4000-4800 ends which is used in the weaving process.
Four types of dyeing processes are used in Arvind mills namely:
1.
2.
3.
4.

Indigo dyeing
SBIT-sulphur bottoming indigo topping
IBST-indigo bottoming sulphur topping
Sulphur dyeing

All the above processes differ in the process of loading on the fabric.
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The dyeing process in a flow chart is explained below. (Ref. fig 1.1)

Pre-wetting PWA
|
W.B.1 (W.B.-Washing box)
|
Dye box (6 shades are used)
|
W.B.2
|
Sulphur
|
W.B.3
|
Pre dryer
|
Saw box (Sizing)
|
Post dryer
|
Compromising (speed is increased)
|

H/S

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Finishing department
The department churns out 300000 meters of finished denim cloth a day. What
happens to the fabric that has come off loom is called surface finishing that entails
softening of fabric, thus making it fit to wear. Further, de sizing is done in order to
reduce tension in the knit yarn, to ensure that it doesnt break out of undue tension.
To accomplish the process, there are three basic mechanisms involved namely
desized finishing, desized mercerized finishing and desized mercerized tint
finishing. In yesteryears, there existed a demand for long lasting colors in denim
apparel, which is no longer present. Consumers are becoming more inclined
towards denim that loses color in a few washes. For such emerging needs and
choices, double dyeing concept has been adopted that renders denim fabric various
effects after subsequent washes.
The process is as follows
1. Singeing is done and the hairiness of the fabric is burned by flames.
2. Desizing removes the sizer put on by the suker muller in the dyeing
department to increase the strength of the fabric (a mixture of desizing agent,
alcozyme and acetic acid is used for the same).
3. Mercerizing is the process of caustic wash and the unit studies is GPL (gram
per liter).
4. Stunter is used to settle the width shrinkage and to adjust the elasticity by
killing the elastic properties of lycra in the fabric which is to the tune of 30
to 40% earlier and can be dropped down to 3 to 8% as per customer
requirement.
Finishing techniques used in Arvind mills are:
1. Glaze finishing
2. Padding
3. Curing
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4. Montfort finishing
5. Foam finishing
In addition there is an intervening singeing and washing process that brings in
more softness in the fabric. The product is washed off water soluble chemical
remnants, steam dried and then causted that lead to swelling of the material. Earlier
foam technology was used for this purpose, which has now been replaced by wet
technology that gives more softness and binding to fabric. This is the followed by
moving the fabric through centering machines that kill extra percentage of inbuilt
Lycra to peg elasticity at the desired level as demanded by the customers.
Temporizing is the next process to be carried out with the help of rubber and leads
to permanent shrinkage of the fabric.
Quality Assurance department
Traditional view:
Traditionally quality assurance was looked as if a post-mortem report where in the
yarn and the fabric was checked for the quality and standards as per required by the
customer. A proper policing was kept on what has been done and what is to be
done
Modern view:
In the modern day quality assurance has a wider scope and it includes activities
like process ownership and cal liberation where in the department ownership is
given to a person and it becomes his/her duty to deal with it in the most efficient
manner.
Quality assurance at Arvind mills has the following labs. :
1. Cotton laboratory
2. Physical testing laboratory
3. Chemical testing laboratory
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4. Calibration laboratory
5. Color quest laboratory
6. Clearance department
COTTON LABORTARY:
Cotton is held for the 70% cost of the fabric cost only and hence becomes a major
factor which if controlled will add maximum contribution to the strength of Arvind
mills.
The coefficient of variance is calculated for the width, diameter and hairiness of
the fiber. The machine used for this purpose is USTER TESTER 5.the fiber is
passed at a speed of 400m/min and the variance is hence calculated. The variance
is calculated against international or the preset Arvind standards
The length, weight and the exact count of the fiber is also calculated and the
CASCADE machine is used for this purpose which ensured the right thing at the
right time as per customer demands.
PHYSICAL TESTING LABORTARY
This testing happens at the yarn manufacturing stage and the yarn is tested for its
1. Length
2. Elongation
3. Elasticity etc
The yarn should be tested in a way so as to know whether the yarn can take all the
loadings or not and if yes to what extent can it take.
This helps in deciding what processes the yarn can face and what effects can be
deduced.

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Single yarn strength and its elongations are measured using the USTER
TENSORPAID 3 machine which is the most trusted name in the field and comes
from Switzerland.
INSTRON 4465 is used to check the tensile strength of the fiber and the tear
strength is also calculated in grams.
For all the above written testings the standard lab conditions are made at a
temperature of 60+/- 2 f and the humidity level is maintained at 65%+/-2%
Factors like stretchabliltyskew and shrinkage are tested after marking is done
followed by three washings of the fabric; the fabric is toned to the environment
after keeping it in the standard environment.
CHEMICAL TESTING LABORTARY:
In the chemical laboratory they check all the fuels, dyes, and all the chemicals that
are used in the production process. They even check the denim if it is washed with
bleach how much it fades the color. They try different process like how the denim
would react in different conditions like in case of perspiration, salt water, normal
water, in extreme temperature.
COLOUR QUEST LABORTARY:
In the color quest they try to find out the different shades and they see to it that
after the washing and drying process does the shade match the requirement of the
customer or not.
CALIBRATION LABORATORY:
Definition:
Calibration is a specialized measurement process where in one compares test and
measuring instruments/equipments of unknown status to well defined standards of
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greater accuracy in order to detect /eliminate error by adjustments & report any
variation in accuracy capability.
CALIBRATION ACTIVITY
Calibration through in house facility

93%

Calibration throughout-side agencies

7%

CALIBRATION FACILITY AT CALIBRATION LABORATORY


PARAMETERS

INSTRUMENT & FUNCTIONS

Temperature

Mercury thermometer, temperature indicator & controllers,


temperature switches, temperature gauges, temperature
transmitters.

Pressure

Pressure gauge, vacuum gauge, pressure transmitter, pressure


switch.

Mass

Electrical

Analytical weighing balance

AC/OC voltage, AC/DC current, single phase power,


frequency, resistance capacitance, conductance, logic pulses,
logic levels.
Digital & analogue amateur, millimeters, panel meters,
frequency meters.
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Dimensional

Measure tape, steel scale, verniar capture, micro meter, dial


gauge.

Gas lab instruments

Lab instruments used for quality conformance tests &


physical testing lab & chemical testing lab.

DTNG Department
In Arvind mill manufactures 8.5 million of denim per month. Out of which 60% is
exported and remaining is manufactured for the domestic market. There are around
34 companies who are the manufactures of the denim product in the market.
The USP of Arvind mill is that it believes in innovation and constantly keeps on
innovating new products. It innovates around 1700 new product material every
year which is equivalent to 5 new product materials every day. Arvind mill
manufactures around 1600 denim fabric out of which 1300 includes different
shades of blue color.
New designs are created on the basis of the following parameters:1) Customer based development: Product is developed on the basis of
customer requirements. Sometimes the customer asks for the exact imitation
of the product (on the basis of texture, strength, durability, etc) at a cheaper
rate. In order to target the exact customers and fulfill demands Arvind mills
has its marketing team worldwide including Europe who keeps on meeting

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the customers from time to time in order to get their feedback and review for
the required product.

2) Design collection: Arvind mills also displays its designed products at


fashion shows held at various public functions to promote it brand awareness
as well as show the distinct variety of product it manufactures. The process
of creating a designing concept and further executing it takes around 18
months. One of the products of Arvind mills Auto meter was proposed for
making in January 2009; the production process started in April 2009 and
was launched in the market in the year 2010.

Trouble shooting: with the new technologies good quality of the same material at
a cheaper rate can be manufactured. Due to huge demand of its denim product in
the market Arvind mills department of weaving spinning and finishing outsources
not less than 1000 tones of yarn per year.

Inspection Department
After the processing of the denim in the finishing department it is sent to the
inspection department where certain parameters are checked n then inspected in the
inspection machine. The parameters that are checked before inspecting in the
machines are
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1. Feel of the denim


2. Look of the denim
3. Weight of the denim
4. Shrinkage
5. Skewing
6. Elasticity of the denim
The operator checks for the damages, spots, knots in the denim .there are
certain signs that are used for the damages like if he finds out any knot he puts a
dot on that place
Dispatching is done according to the customer requirements. For dispatching
the denim bale is packed. There is special packing machine of LEVY & SMITH
.After the role is inspected it is passed on to conveyer belt where a bar code
sticker is placed with certain details like yards of denim, meters, pieces, 4 point
,quality number , style , bale number , particular number is given to each bale.
After that it is passed through 150 degree Celsius so the total air is vacuumed
from the bale. Then it is sent to the sorting department where the bales are
sorted out as per the requirement and style by the sticker that was placed on the
bale.

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ISO & EMS Department


ISO 9001-2001-2008
ISO is a system certificate and not a product certificate .It tells us about how the
procedure and systems are in place or not. It says if your system is on place then
your product will be good automatically.
After you apply for ISO certification first thing that takes place is pre-assessment
auditing standards they find out the discrepancy or non-conformity. After all the
discrepancies are removed there is certification audit. There is 100% audit of all
the departments and report is send to the committee and they give the certificate
according to details in report for auditing. ISO has appointed different companies
to do that. The certificate is given for 3 years and for every 6 months surveillance
audit is done. They check around 30 -40% of the departments and during the
period of 3 years again 100% auditing is done of all the departments. During the
surveillance audit they will take sample size and would do the auditing. After 3
years you can apply for re-certification and whole procedure takes place again.
Then there is another certification that is EMS (environment management system)
.it looks after whether the surrounding atmosphere is safe for the other people or
not. It looks after certain parameters like noise pollution, air, water, land pollution
for that certain standards are followed and are taken care of. there is and ETP
which is EFFLUENT TREATING PLANT which treats water ,chemical and dyes
to bring down to certain PH level which is then sent to drainage that water is not
harmful after the treatment . The sludge that remains after the treatment of water is
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dumped to a certain land that is certified by the government for disposal of such
harmful wastes.
There are other types of certifications are
ISO -14000-2004 is followed which looks after the resources utilization or
depletion of resources.
ISO-18000 OSHOS its occupational standards for health and safety where every
measure for safety of the staff is taken into consideration.

Marketing Department
As Arvind mill is one of the leading company in textile industry they
provide their fabric to domestic as well as international market also. They
have different teams which handle marketing activity in different region.
Arvind mill produce 8 million meter fabric every month. Out of which 60% is
exported and the rest is manufactured for the domestic market. For, promotion of
their products in domestic & international market they organize fashion shows.
They have different designer for U.s, Europe, and domestic market. They introduce
their new collection twice every year (summer spring and autumn winter) known
as American line collection for the American market and Europe line collection for
the European market. Apart from that the also hold exhibition and seminars for the
concerned buyers.
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Human Resource Department


In strategic business unit the retention rate of the employee is low as the plant is 80
years old. When a new employee joins the plants the excitement level of the
employee is quite high but within time it declines. At Arvind mills an attempt is
being undertaken to decrease the number of employees especially those who do not
have the required employment skills. The employee strength is over 2500 across all
the units.

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S.W.O.T ANALYSIS

STRENGHT:

WEAKNESS:

A company from prestigious


Lalbhai group

Situated very far from city

One of the oldest played in


Indian fabric market

Low advertisement budget

Can supply both fabric as well as


garment

Unable to handle small orders

Production capacity of
million tons monthly wise

Provide quality with consistence

Higher cost of production


due to heavy investment

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OPPORTUNITIES:

THREATS:

Able
to
handle
more
franchisee of international brands

Competition from various


domestic players, especial
from Raymond sand LNJ.

Retails are going to be a major


sector in India. Therefore demand
for fabric is also increasing.

Fluctuation in price of yarn.

Having potential to increase their


capacity, so that they can satisfy
more and more customer needs.
By providing consistency in
quality they can attract more
customers.

Regularly
technology

innovation

in

Existing players coming up


with
more
variety and
innovation ESP. Catering small
order.
Change in government policy

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LITERATURE REVIEW

Peeler J. Patsula, on January 23, 2006 in his article successful business


analysis tries to define that, a sound business analysis tells others a lot about good
sense and understanding of the difficulties that a company will face. We have to
make sure that people know exactly how we arrived to the final financial positions.
We have to show the calculation but we have to avoid anything that is too
mathematical. A business performance analysis indicates the further growth and
the expansion. It gives a physiological advantage to the employees and also a
planning advantage.

Chidambaram Rameshkumar, Dr. N. Anbumani on February 2, 2006 in his


article An overview on financial statements and ratio analysis argue that
Ratio Analysis enables the business owner/manager to spot trends in a business
and to compare its performance and condition with the average performance of
similar businesses in the same industry. To do this compare your ratios with the
average of businesses similar to yours and compare your own ratios for several
successive years, watching especially for any unfavorable trends that may be
starting. Ratio analysis may provide the all-important early warning indications
that allow you to solve your business problems before your business is destroyed
by them.

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Susan Ward on May 1, 2008 in his article Financial Ratio Analysis for
Performance Check emphasis that financial analysis using ratios between key
values help investors cope with the massive amount of numbers in company
financial statements. For example, they can compute the percentage of net profit a
company is generating on the funds it has deployed. All other things remaining the
same, a company that earns a higher percentage of profit compared to other
companies is a better investment option.

Jonas Elmerraji on April 2005 in his article Analyze Investments Quickly


With Ratios tries to say that ratios can be an invaluable tool for making an
investment decision. Even so, many new investors would rather leave their
decisions to fate than try to deal with the intimidation of financial ratios. The truth
is that ratios aren't that intimidating, even if you don't have a degree in business or
finance. Using ratios to make informed decisions about an investment makes a lot
of sense, once you know how use them.

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FINANCIAL
ANALYSIS THEORY

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INTRODUCTION

In the financial world, every company must know its financial position. It
is necessary for the company to know its profitability and for that purpose it is
require analyzing company's financial statements. Financial statement shows the
real picture of the company in terms of money. Management of the company is
keenly interested in knowing the real performance of the company. So it is
required to analysis the financial statement for knowing the actual financial
position and forecasting the future trend.
Business activity is associated with finance. The goals and success of business
cant be achieved without finance.
To collect the fund at lower cost and to achieve the goal of business the finance is
necessary. Finance manager help to develop the company by using his skill &
ability.
For the development of company and reduce the problem that are created in
finance, every businessman make a good finance policy. As we know that
competition is increasing day to day. So for getting good position in market and to
stand in the competition it is necessary for the company to analysis its Financial
statements.

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FINANACIAL STATEMENTS
Financial statements as used in corporate business, refers to a set of report and
schedule which an accountant prepare at the end of the period for a business
enterprise. The financial statements are the means with the help of which the
accounting system perform its main function of providing summarized information
about the financial affair of the business. This statement comprises of balance sheet
position statement and profit & loss account or income statement. In India every
company has to present its financial statement in the form and contents as
prescribed under section 211 of the Companies Act, 1956.
ANALYSIS OF FINANCIAL STATEMENTS
Financial analysis determines the significant operation and financial characteristics
of a firm from accounting data. It is a technique typical devoted to evaluate the
past, current and projected information of a business firm. Financial Analysis is an
attempt to determine the significance and meaning of financial statement data so
that forecast can be made of the future prospects for earnings, ability to pay interest
and debit maturities and profitability.
Published financial statements are the only source of information about the
activities and affairs of a business entity available to the public, shareholders,
investors, creditors and the government. This various groups are interested in the
progress, position and prospect of such entity in various ways. But these statements
however correctly and objectively prepared by them do not reveal the significance,
meaning and relationship of the information contained therein. For this purpose
financial statements have to be carefully studied, dispassionately analyzed and
intelligently interpreted.
Financial analysis results in the presentation of information by arranging financial
statement data in a systematic manner that aids business managers, investors. It
also provides valuable insights into a company's performance.

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TYPES OF FINANCIAL ANALYSIS


Financial statements are analyzed by different parties for different purposed. The
analysis is done from different angles. Accordingly, we can classify financial
statement analysis into different categories as follows:
1. On the basis of concerned parties
According to different parties concerned with the operation of the company, the
financial statement analysis can be of two types:
External Analysis
Internal Analysis

(a) External Analysis:


When the analysis is undertaken by outside parties namely existing and prospective
investors, suppliers, lenders, government agencies, customers etc., it is external
financial statement analysis. These external parties do not have any access to the
internal records of the company; nor do they have any scope to know the hidden
accounting policy, if any, of the management. So, they have to depend almost
entirely on the published financial statements and other additional information
supplied by the management.
(b) Internal Analysis:
This analysis is undertaken by the management of the company to monitor its
financial and operating performance. As the analysis is done by the party who has
access to the internal records and policies, it is expected to be more effective and
reliable.

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2. On the basis of time period of the study


Based on the time period covered for the study, the financial statement analysis can
be grouped into:
Horizontal Analysis
Vertical Analysis

(a) Horizontal Analysis:


This analysis refers to the study of past consecutive balance sheets, income
statements or statements of cash flow at a time. The analysis can be made between
two periods or over a series of periods. The relevant accounting numbers of all
years of the study are presented horizontally in a statement over a number of
columns each representing a year. Those figures can also be graphically presented.
The figures of each year are compared with those of the base year i.e., the
beginning year of the study. This analysis is also called Dynamic Analysis as it
covers several years for study. This analysis is very much effective for
understanding the direction and trend of the organisation particularly when it is
undertaken for several years. Comparative statements and trend analysis are two
important tools that can be employed for horizontal analysis.
(b) Vertical Analysis:
When the analysis is restricted to the financial statements of one particular period
only, it is known as vertical analysis of financial statements. In this analysis each
item of a particular financial statement is expressed as percentage of a base figure
selected from the same statement. It is also known as Static Analysis as it
concentrates solely on one years financial statement. Common-size statements and
accounting ratios are two important tools used for vertical analysis. This analysis is
very much useful for understanding the structural relationship of various items in a
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financial statement. Vertical analysis can also be done for studying the relationship
within a set of financial statements at a point of time.
3. On the basis of objective of analysis:
1) Long term analysis:
This analysis is made in order to study the long term financial stability and
liquidity as well as profitability and earning capacity of the business. The objective
of this analysis is to know whether the firm will be able to earn a minimum amount
which will be sufficient to maintain a reasonable rate of return on the investment.
2) Short term analysis:
This analysis is done in order to determine the short term solvency, stability,
liquidity and earning capacity of the business. The requirement if any, and
sufficient borrowing capacity to meet the contingencies in the near future.
Parties Interested in Financial Statement Analysis:
1) Financial Executives:
The first party interested in the financial analysis in the financial department of the
business concern who have a deep insight into the financial of the enterprise and a
view of the past performance which help in decision making.
2) Management:
The management of the concern is also interested in the analysis of the
statementsbecause it helps them in reaching conclusion regarding the overall
operation of the business.The management is interested in every aspect of the
financial analysis as it is their overall responisbility to see that the firm's finances
are used most effectively and firm's financial position is sound.

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3) Creditors:
Creditors also evaluate the financial statements and on the basis of these financial
statements they come to know about the credit worthiness of the business
enterprises and chose to extends, maintain or restrict credit. Creditors will be
interested to give credit for those business enterprises which is having sound
financial position and are capable of repaying their credit. Some of the aspects of
enterprise operation that are useful for the creditors are liquidity of funds,
soundness of the financial structure, profitability of the operations, effectiveness of
working capital management etc. The bankers and trade creditors of a business
enterprise are interested in its cash generation and credit worthiness. They want to
assess whether the enterprise will be able to pay the interest due as per agreed
schedules. They get all this information from the analysis of balance sheet and
income statement of the company.
4) Investor:
Investors, present as well as prospective are interested in the financial profitability
of the business. Every investor expects to earn fair return on his investments.
5) Government:
The financial statements are used to assess the tax liability of the business
enterprise. The government studies economic situations of the country which
enables it to find out whether business is following various rules and regulations or
not
6) Bankers:
The banker is interested to see that the loan amount is secure. The bankers will
analsize the balance sheet to determine financial strength of the concern and profit
& loss account will also be studied to find out the earning position of the business.

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The information provided by the analysis and interpretation of various


financial statements is important and useful to those groups also that are
interested in working of the business due to one or other motive.

Tools of Financial Analysis


The analysis of financial statements consists of relationship and trends, to
determine whether the financial position of the company is satisfactory or not. The
analytical methods listed below are used to ascertain the relationships among the
financial statements items.
Analytical methods used in analyzing financial statements are as follows:
1) Ratio analysis
2) Common size financial statement
3) Trend Analysis

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FINANCIAL RATIO
Ratio analysis means the proportionate comparisons of any two variable of
Trading Account, Profit and loss account, Balance sheet.
Ratio analysis is a widely used tool of financial analysis it is defined as a
systematic use of ratio to interpret the financial statement so that the strength
and the weakness of the firm as well as its historical performance and its
current financial condition can be determined. The term ratio refers to the
numerical or quantitative relationship between to variables or items.

IMPORTANCE OF RATIO ANALYSIS


The use of ratios was started by banks for ascertaining the liquidity and
profitability of companies business for the purpose of advancing loans to them. It
gradually became popular and other creditors began to use them profitably. Now
even the investors calculate ratios from the published accounts of the company in
order to have an idea about the solvency and profitability of the company before
investing their savings. The ratio analysis provides useful data to the management
which would help them in taking important policy decisions. Diverse groups of
people make use of ratios to determine a particular aspect of the financial positions
of the company in which they are interested.
1) PROFITABILITY:
Useful information about the trend of profitability is available from profitability
ratios. The gross profit ratio, net profit ratio and ratio of return on investment gives
a good idea about the profitability of business. On the basis of these ratios,
investors get an idea about the overall efficiency of business, the management gets
an idea about the efficiency of managers and bank as well as other creditors draw
useful conclusion about repaying capacity of the borrowers
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2) LIQUIDITY:
The use of ratios was made initially to ascertain the liquidity of business. The
current ratio, liquid ratio and acid test ratio will tell whether the business will be
able to meet its current liquidities as and when Banks and other lenders will be able
to conclude from these ratios whether the firm will be able to pay regular interest
and loan installments.
3) Efficiency:
The turnover ratios are excellent guides to measure the efficiency of managers.
E.g. the stock turnover will indicate how efficiently the sale is being made. The
debtors turnover will indicate the efficiency of collection department and assets
turnover shows the efficiency with which the assets are used in business. All such
ratios related to sales present a good picture of the business.
4) Inter Firm Comparison:
The absolute ratios of a firm are not of much use unless they are compared with
similar ratios of other firms belonging to the same industry. This is inter firm
comparison which shows the strength and weakness of the firm as compared to
other firms and will indicate corrective measures
5) Useful for Budgetary Control:
Regular budgetary reports are prepared in a business where the system of
budgetary is in use. If various ratios are prepared in this report it will give a fairly
good idea about various aspects of financial position.
6) Useful for Decision making:
Ratio guides the management in making some of the important decisions. Suppose
the liquidity ratio shows an unsatisfactory position the management may decide to
get additional liquid funds. Even for capital expenditure decisions, the ratio of
return on investment will guide the management.
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LIMITATION OF RATIO ANALYSIS

Anyone who draws any conclusion on the basis of accounting ratios about the
financial conditions and earning capacity of the business must take into account the
following limitations of the ratios.
1) Single years ratio has limited utility:
The utility of ratios computed from the financial statements of one year only is
obviously limited. They must be compared with the past results of the company as
also with the result of other business firms in the same industry.
2) Other factors must be considered:
While comparing ratios of different firms, it must be remembered that different
firms follow different accounting plans and policies. For example, some may use a
straight line method while other may use diminishing balance method. Hence care
has to be exercised before any conclusions are drawn from such comparison.
3) Limited utility of historical ratios:
While comparing ratios of past several years, it should be remebered that changes
in price level may render such comparison useless. An asset purchased some
10years before may be shown at its historical value and comparison of these assets
with sales may be of no value as sales are expressed in current market value.
4) Lack of standard ratios:
There is practically no standard ratio against which the actual performance can be
compared. The satisfactory level of various ratios may differ from one industry to
another because circumstances differ from industry to industry and even from firm
to firm.
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5) Inaccurate Base:
The accounting ratios can never be more correct than the information from which
they are computed. If the accounting data is not accurate, the accounting ratios
based on these figures would give misleading results
6) Rigidity harmful:
If in the use of the ratios, the manager remains rigid and sticks to them, it will lead
to dangerous situation. For example, if the manager believes the current ratio
should not fall below 2:1, then many profitable opportunities will have to be
forgone
7) Ratios of two irrelevant figures:
Ratio must be established between related matters. It is of no use if the ratios are
found between two figures which have no relation with each other. E.g. , ratio of
factory expenses to selling expenses is illogical and does not give any useful
conclusion.

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ANALYSIS

Objective of the analysis:

To know about the adequacy of the profits earned by the company.


To know about the adequacy of its financial strength.
To know about the abilities to generate enough cash and cash equivalents.
To know about the future growth outlook of the company.

ACCOUNTING ANALYSIS:

The comparative and common sized of the balance sheet of the company.
The comparative and common sized of the income statement of the
company.
the changes in assets
the changes in liability
the changes in profits

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FINANCIAL ANALYSIS:
I have calculated the profitability ratios which are under following:
1. ROI Ratios
Return on Capital Employed
Return on Net Worth
Earnings Per Share
2. Solvency Ratio
Net Asset Value
Debt Equity
Debt Service Coverage Ratio
3. Du Pont Analysis
4. Valuation Ratios

Price Earnings Ratio


Market Price to NAV
Market Capitalization

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ACCOUNTING ANALYSIS
Comparative and Common Size Financial Statement
Financial statements reveal the financial credibility of a company. A financial
statement, which expresses the different values in form of percentage, is called a
Common size financial statement. A common size financial statement helps in
comparing two companies, which differ in size. Two components of the common
size financial statement are:
Balance sheet
Income statement
When both these components are clubbed together, a comparative and common
size financial statement is obtained.

Features of a common size financial statement:


A common size financial statement consists of various amounts expressed as
percentage. For example, if cash of a particular company is calculated to be
847678395. In the common size financial statement, it will be represented as 15%
of the total assets. If the total assets of a company are found to be 5567069464, it
will appear as 100% in the common size financial statement as it is the base for
calculation. Similarly, if the current liabilities of a company are found to be
295273778, it will appear as 5%. The numbers obtained in the income statement
will appear in form of percentage.

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Advantages of the common size financial statement:

One advantage of having the various amounts expressed in percentage is the


percentage assets of any company can be compared to another company or
to other companies in the industry.

The size of the companies being compared is not important. The companies
being compared may be small or big. Hence, it is termed as common size.
Since size of the company does not matter, it removes any kind of bias,
while comparing companies. Analyzing the operational activities of
comparing companies can also be obtained.

Changes in different values pertaining to company's performance can also be


ascertained during a particular period. For example, if one wishes to know
how the cost of goods sold over a span of time has changed, the common
size financial statement can be helpful.

A common size financial statement is used for predicting future trends and
analyzing prevailing trends in the industry.

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COMPARATIVE BALANCE SHEET OF 5 YEAR


Value in Rs.
Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

209.38
1106.93
1316.31
1772.74
161.57
1934.31
466.15
3716.77

218.98
1172.53
1391.51
1774.94
97.52
1872.46
395.17
3659.14

218.98
919.82
1138.80
1920.90
103.04
2023.94
608.77
3771.51

231.98
1107.31
1339.29
1728.73
141.85
1870.58
453.62
3663.49

254.40
1236.00
1490.40
1763.23
48.89
1812.12
651.33
3953.85

2817.21
772.32
2044.89
71.45
46.05
645.01
204.85
20.86
870.72
752.93
1.45
1742.60
3787.49

2942.99
906.78
2036.21
116.14
104.99
575.34
261.77
14.79
851.90
617.71
1.53
1692.27
3728.48

3056.80
1014.51
2042.29
81.58
100.06
581.47
350.84
20.15
952.46
633.37
6.68
1774.15
3816.44

3002.45
1084.34
1918.11
46.86
300.29
432.00
424.16
33.35
889.51
579.64
9.79
1826.09
3.744.20

3172.22
1170.26
2001.96
142.28
309.40
699.16
563.63
14.20
1276.99
514.19
14.89
2257.75
4259.71

Sources of funds
Equity Share Capital
Reserves & Surplus
Net Worth
Secured Loans
Unsecured Loans
Total Debt
C.L & Provisions
Total Liabilities

Application Of Funds
Gross Block
(-) Depreciation
Net Block
Capital Work Progress
Investments
Inventories
Sundry Debtors
Cash & Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans & Advances

Total Assets

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COMMON SIZE BALANCE SHEET OF 5 YEAR


Common Size %age
Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

5.63
29.78
35.41
47.70
4.35
52.05
12.54
100.00

5.98
32.04
38.02
48.51
2.67
51.18
10.80
100.00

5.81
24.39
30.20
50.93
2.73
53.66
16.14
100.00

6.33
30.23
36.56
47.19
3.87
51.06
12.38
100.00

6.43
31.26
37.69
44.60
1.24
45.84
16.47
100.00

74.38
20.39
53.99
1.89
1.22
17.03
5.41
0.55
22.99
19.88
0.04
46.01
100.00

78.93
24.32
54.61
3.11
2.82
15.43
7.02
0.40
22.85
15.58
0.04
45.39
100.00

80.10
26.58
53.51
2.14
2.62
15.24
9.19
0.53
24.96
16.60
0.18
46.49
100.00

80.19
28.96
51.23
1.25
8.02
11.54
11.34
0.89
23.76
15.48
0.26
48.77
100.00

74.47
27.47
47.00
3.34
7.26
16.41
13.23
0.33
29.98
12.07
0.35
53.00
100.00

Sources of funds
Equity Share Capital
Reserves
Net Worth
Secured Loans
Unsecured Loans
Total Debt
C.L & Provisions
Total Liabilities

Application Of Funds
Gross Block
(-) Depreciation
Net Block
Capital Work Progress
Investments
Inventories
Sundry Debtors
Cash & Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans & Advances

Total Assets

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Interpretation:

For the analysis of Balance sheet we have taken the total of the liabilities
side as base.
The total capital of the company has increased compared to last year because of
increase in reserves & surplus by 6.87 % compared to 2008-09 year.
The secured loan amount has decreased by 2.59 % this means that company has
paid off some its loan amount and so its liability is less.
The fixed assets of the company has increased by 2.09 % which is good for
company.
Total Current assets of the company has increased by 6.22 % as there is an
decrease in the cash balance which is not good for the company because now it
cannot pay off its liability easily.
The current liability of the company has increased by 4.09 % which is not good
because now it has to pay more amounts.

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THE TREND ANALYSIS OF THE BALANCE SHEET


NOTE: Base year taken is 2007.

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00

1.05
1.05
1.05
1.00
0.60
0.97
0.85
0.98

1.05
0.83
0.86
1.08
0.64
1.05
1.30
1.01

1.11
1
1.01
0.97
0.88
0.97
0.97
0.99

1.22
1.11
1.13
0.99
0.30
0.94
1.40
1.06

1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00

1.04
1.17
1.00
1.62
2.28
0.89
1.28
0.70
0.98
0.82
1.05
0.97
0.98

1.08
1.31
1.00
1.14
2.17
0.90
1.71
0.97
1.09
0.84
4.60
1.02
1.00

1.06
1.40
0.94
0.66
6.52
0.67
2.07
1.60
1.02
0.77
6.75
1.05
0.99

1.12
1.51
0.98
1.08
6.72
1.08
2.75
0.68
1.46
0.68
10.26
1.30
1.12

Sources of funds
Equity Share Capital
Reserves
Net Worth
Secured Loans
Unsecured Loans
Total Debt
C.L& Provisions
Total Liabilities

Application Of Funds
Gross Block
(-) Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash & Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans & Advances

Total Assets

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Explanation:
Trend analysis is an extension of horizontal analysis. Their
methodology is very simple. The utility of this tool of analysis lies in the fact that
while two years comparisons may provide indication of growth.
Overall assessment:
The equity share capital is increasing year by year and the higher amount of
the base year value.
The net worth is increasing year by year but the total debt is decreasing year
by year.
The total of the balance sheet is higher than base year means increasing year
by year.
Gross block amount is increasing stage but in the net block is not much in
increasing stage. Because the reason behind that depreciation and the
working progress amount is calculated.
The bad thing is that the cash and bank balance is highly decreasing in 2011
year as compared to the Value of base year.
It is not good for the company, if they want to some fund which is required
that fulfilled the new technology.
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Comparative and Common Size Income statement

An income statement in which each account is expressed as a percentage


of the value of sales. This type of financial statement can be used to allow for easy
analysis between companies or between time periods of a company.

Common size income statement analysis allows an analyst to determine how the
various components of the income statement affect a company's profit.

The values on the common size statement are expressed as percentage of a


statement component such as revenue. While most firms dont report their
statements in common size it is beneficial to compute if you want to analyze two or
more companies of differing size against each other.

It also allows for the analysis of a company over various time periods, revealing
for example what percentage of sales is cost of goods sold and how that value has
changed over time.

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COMPARATIVE INCOME STATEMENT


Value in Rs.
Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

1845.01
15.78
1829.23
143.09
97.95
2070.27

2215.65
2.33
2213.32
97.11
9.49
2319.92

2347.50
2.68
2344.82
-54.05
34.85
2325.62

2318.49
1.74
2316.75
69.5
-18.78
2367.47

2665.81
2.23
2663.58
80.71
93.63
2837.92

Income
Sales Turnover
(-) Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income

COMMON SIZE INCOME STATEMENT


Common Size %age
Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

89.12
0.76
88.36
6.91
4.73
100.00

95.51
0.10
95.41
4.19
0.41
100.00

100.94
0.12
100.83
-2.32
1.50
100.00

97.93
0.07
97.86
2.94
-0.79
100.00

93.94
0.08
93.86
2.84
3.30
100.00

Income
Sales Turnover
(-) Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income

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Interpretation:
The income statement or profit and loss account is considered as a
very useful statement of all financials statement. It depicts the expenses incurred
on production, sales and distribution and sales revenue and the net profit or loss for
a particular period. It shows whether the operations of the firm resulted in profit or
loss at the end of a particular period. In comparative analysis for the income is that
the income of the company is gradually increase in every year.

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TREND ANALYSIS OF INCOME STATEMENT


Note: Base year taken is 2007.

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

1.00
1.00
1.00
1.00
1.00
1.00

1.20
0.15
1.21
0.68
0.10
1.12

1.27
0.17
1.28
-0.38
0.36
1.12

1.25
0.11
1.27
0.49
-0.20
1.14

1.44
0.14
1.45
0.56
0.96
1.37

Income
Sales Turnover
(-) Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income

Interpretation:
Trend analysis is an extension of horizontal analysis. Their methodology is very
simple. The utility of this tool of analysis lies in the fact that while two years comparisons may
provide indication of growth
The amount of sale is very variable. The amount of net sale is also very variable. But it is
good position.
Total income is increasing means the base year value is lower than other years. The
reason behind that, the stock adjustments are increasing good stage.

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Changes in Assets
--------------------------------------------------In Rs. Cr. --------------------------------------------------

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

Assets

2044.89

2036.21

2042.29

1918.11

2001.96

Interpretation:
In comparative analysis for assets, it is showing that in 2010 the
assets have gradually decrease and in 2012 it is stable. No major assets increase
in last three years. It means there are not purchasing the assets in major
quantity.
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Change in Liabilities
--------------------------------------------------In Rs. Cr. --------------------------------------------------

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

Liabilities

3716.77

3659.14

3771.51

3663.49

3953.85

Interpretation:
In comparative analysis for 2011 years is that liabilities of the
company are increasing highly which is not good for the company. The debtors
have not give money regularly.
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Change in Profit
--------------------------------------------------In Rs. Cr. --------------------------------------------------

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

Profit

11.34

-21.55

12.36

20.27

24.20

Interpretation:
In comparative analysis of profit, in 2010-11 profit of the company
has increase substantially but in 2008 it has decrease substantially.

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FINANCIAL ANALYSIS

RETURN ON INVESTMENT (ROI) RATIOS:

Return on Capital Employed

Ratio

Formula

ROCE
(%)

(EBIT /
CE) X
100

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(197.12
5.20
(206.81
5.53
(168.15
4.39
(265.32
8.06
(350.24
8.22
/
/
/
/
/
3787.49)
3737.98)
3826.51)
3290.58)
4259.71)
x 100
x 100
x 100
x 100
x 100

Note: Capital Employed = Equity Capital + Preference Capital + Reserves and Surplus +
Long Term Debt- Fictitious Assets

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Interpretation:
A measure of the return that a company is realizing from its capital
employed. The ratio can also be seen as representing the efficiency with which
capital is being utilized to generate revenue. It is commonly used as a measure for
comparing the performance between businesses and for assessing whether a
business generates enough returns to pay for its cost of capital. Of course the
higher the ratio, the better will be the profitability of the company.

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Return on Net Worth


Ratio

Formula

RONW
(%)

(PAT /
NW) X
100

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(25.27 /
1.92
(27.36 /
1.96 (-47.87 / -4.20 (52.00 /
3.88
(134.8 /
9.06
1316.31)
1391.51)
1138.80)
1339.29)
1490.40)
x 100
x 100
x 100
x 100
x 100

Interpretation:
The amount of net income returned as a percentage of shareholders
equity. Return on net worth measures a corporation's profitability by revealing how
much profit a company. This ratio indicates the productivity of the owned funds
employed in the firm. However, in judging the profitability of a firm, it should not
be overlooked that during inflationary periods, the ratio may show an upward trend
because the numerator of the ratio represents current values whereas denominator
represents historical values. it conclude the resources of the firm are being used,
higher the ratio, better are the results.
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Earnings Per Share


Ratio

EPS (Rs)

Formula

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(PAT / Avg. (25.27
1.20
(27.36
1.24 (-47.87 -2.19 (52.00
2.24
(134.8
5.30
outstanding
/
/
/
/
/
Eq. shares) 20.938)
21.898)
21.898)
23.198)
25.440)
X 100
x 100
x 100
x 100
x 100
x 100

Interpretation:
The portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serve as an indicator of a company's
profitability. This ratio is generally considered to be the single most important
variable in determining a shares price the more the earnings per share ratio, more
would be the profitability of the company that means that the chances of getting
high return on investment is maximum, if you invest in the stock of a company
having a high earnings per share ratio. So here, the people would invest more in
2010-11 than in 2009 or 2008, because the ratio of 2011 is greater than that of
other years.
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SOLVENCY RATIOS:
Net Asset Value
Ratio

NAV
(Rs)

Formula

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(NW / Avg. (1316.31 62.87 (1391.51 63.55 (1138.80 52.00 (1339.29 57.73 (1490.40 58.58
outstanding
/
/
/
/
/
Eq. shares) 20.938)
21.898)
21.898)
23.198)
25.440)
X 100
x 100
x 100
x 100
x 100
x 100

Interpretation:
This ratio measures the net worth or net asset value per equity share. Its
thus seeks to assess as to what extent the value of equity share of a company
contributed at par or at a premium has grown or the value/wealth has been created
for the shareholders. The higher the ratio is, the better the financial position of the
company. If, we assume the no. of equity shares issued is no change in net worth of
the company. The book value per share decreased from 2008-09 and increased in
2011 indicating that the net worth of the company decreased and then increased in
2011.
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Debt Equity
Ratio

Formula

Debt
Equity
(Times)

(Longterm
Debt /
NW) X
100

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(1934.31 1.47 (1872.46 1.35 (2023.94 1.77 (1870.58 1.40 (1812.12 1.22
/
/
/
/
/
1316.31)
1391.51)
1138.80)
1339.29)
1490.40)
x 100
x 100
x 100
x 100
x 100

Interpretation:
This ratio indicates the ability to pay back the long term
borrowings so the lower the ratio, the better it is. As we see that the debt equity
ratio is increasing from 2008-09, this indicates that the company does not have
sufficient funds to pay back its debts. The ratio should be ideally less than 1, but
then as the ratio has slightly decreased from 2010-11, this indicates the companys
position has improved to some extent. But still company is facing crisis in terms of
paying back the long term borrowings.
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Debt-Service Coverage Ratio


Ratio

Formula

DSCR
(Times)

(PAT +
Dep. +
Int. on
Debt /
Int. on
Debt)

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(25.27 +
1.08
(27.36 +
1.09 (-47.87+ 1.04
(52.00 +
1.08 (134.80+ 1.13
143.36 +
136.64 +
122.05+
113.8 +
116.16 +
1934.31)
1872.46)
2023.94)
1870.58)
1812.12)
/
/
/
/
/
1934.31
1872.46
2023.94
1870.58
1812.12

Interpretation:
This ratio shows how many times interest charges are covered by funds
that are available for payment of interest. An interest cover of 2:1 is considered
reasonable by financial institutions. A very high ratio indicates that the firm is
conservative in using debt and a very low ratio indicates excessive use of debt.
This ratio suggests as compare to interest payment how much the company
earning. This ratio is been calculated specially for interest capacity of the business.
We conclude that in 2008, it is decreased but gradually increase in 2011 year. That
is why it is for the good company.
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DU PONT ANALYSIS

Ratio

RONW
(%)

Net Profit Margin


(%)

Net Worth Turnover


(Times)

Formulae

(PAT / NW) x100

(PAT / NS) x 100

Net Sales/ Net Worth

2006-07

(25.27 / 1316.31) x
100

2007-08

(25.27 / 1829.23) x
100

1.92

1.38

1.39

(27.36 / 2213.32) x
100

(2213.32 / 1391.51)

1.96

1.23

1.59

(-47.87 / 1138.80) x
100

(-47.87 / 2344.82) x
100

(2344.82 / 1138.80)

-4.20
2009-10

(52.00 / 1339.29) x
100

-2.04

(52.00 / 2316.75) x
100

=
2010-11

(27.36 / 1391.51) x
100

=
2008-09

(1829.23/ 1316.31)

2.06
(2316.75 / 1339.29)

3.88

2.24

1.73

(134.80 / 1490.40) x
100

(134.8 / 2663.58) x
100

(2663.58 / 1490.40)

=
9.06

x
5.06

1.79

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Interpretation:
This ratio analysis shows increase in RONW through which we can
see improvement in both net profit margin as well as net worth turnover. In other
word the overall ROI has improved due to higher resource efficiency as well as
higher operating margins. In year 2009 thus there is fall in both net profit margin
as well as net worth turnover. When it gradually increases in year 2010 and 2011
thus we can see improvement in both ratios which is good for company.

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VALUTION (OR) CAPITAL MARKET RATIOS


Price Earnings Ratio
Ratio

Formula

P/E
(Times)

Market
Price of
the Eq.
share /
EPS

2006-07
(Rs
Result
crores)
(43.45
36.00
/ 1.20)

2007-08
(Rs
Result
crores)
(37.7 / 30.17
124

2008-09
(Rs
Result
crores)
(13.4 /
-6.13
(-2.19)

2009-10
(Rs
Result
crores)
(33.75 / 15.06
2.24)

2010-11
(Rs
Result
crores)
(69.20
13.06
/ 5.30)

Interpretation:
This ratio measures the number of times the earning of the latest year at
which the share price of a company is quoted. This ratio reflects the market
assessment of the future earnings potential of the company. The high P/E ratio
reflects earning potential and a low P/E ratio low earning potential. In above
calculation, the higher ratio shows that the market price more and more and
prestige would be good. Among five years, the good stage of the company in the
year of 2007. However, in 2011 the ratio is 13.06, which is a show that the market
price is less & prestige would be bad.
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Market Price to NAV


Ratio

Formula

Market
Price
to NAV
(Times)

Market
Price of
the Eq.
share /
NAV

2006-07
(Rs
Result
crores)
(43.45
0.69
/
62.87)

2007-08
(Rs
Result
crores)
(37.70
0.59
/
63.55)

2008-09
(Rs
Result
crores)
(13.40
0.26
/
52.00)

2009-10
(Rs
Result
crores)
(33.75
0.58
/
57.73)

2010-11
(Rs
Result
crores)
(69.20
1.18
/
58.58)

Interpretation:
This ratio is useful to know about market values of an equity share is
generally higher than its NAV. Thus its reflects potential of a share. In the above
calculation shows that it is low in 2009 year and its highly increased in 2011 year.
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Market Capitalization
Ratio

Formula

Market
Capitalization
(Rs)

Market
Price of the
Eq. share /
Avg.
outstanding
Eq. shares

2006-07
2007-08
2008-09
2009-10
2010-11
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
(Rs
Result
crores)
crores)
crores)
crores)
crores)
(43.45 909.76 (37.70 825.55 (13.40 293.43 (33.75 782.93 (69.20 1760.45
/
/
/
/
/
20.94)
21.90)
21.90)
23.20)
25.44)

Interpretation:
This ratio is useful to know about total valuation of a company based
on the market price of its equity. In the above calculation shows that it is low in
2009 year and its highly increased in 2011 year.
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Table of Financial Ratios of ARVIND MILLS LTD. for last Five Years
Particulars

Mar '07

Mar '08

Mar '09

Mar '10

Mar '11

Return On Capital Employed

5.20

5.53

4.39

8.06

8.22

Return On Net Worth

1.92

1.96

-4.20

3.88

9.06

Earnings Per Share

1.20

1.24

-2.19

2.24

5.30

Net Asset Value

62.87

63.55

52.00

57.73

58.58

Debt Equity

1.47

1.35

1.77

1.40

1.22

Debt-Service Coverage Ratio

1.08

1.09

1.04

1.08

1.13

Net Profit Margin

1.38

1.23

-2.04

2.24

5.06

Net Worth Turnover

1.39

1.59

2.06

1.73

1.79

Price Earnings Ratios

36.00

30.17

-6.13

15.06

13.06

Market Price to NAV

0.69

0.59

0.26

0.58

1.18

Market Capitalization

909.76

825.55

293.43

782.93

1760.45

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Rationale of the Study


Problem Statement:

In the Financial World every company must know about its own financial position.
It is necessary for the company to know its profitability. And for that purpose it is
require analyzing companys Financial Statements. Financial statements show the
real picture of the company in terms of money. Management of the company is
keenly interested in knowing the real performance of the company. That is why
financial statement analysis is required for knowing the actual financial position
and forecasting the future

Objective of the study:


The study is done with a basic objective of understanding the financial position of
the company.
To understand the future trends of the company's profitability.
To analyze various financial reports of the company.
To get the real financial information about the company.
To determine the long term liquidity of the funds as well as solvency.
To determine the debit capacity of the firm
To decide about the future prospects of the firms.

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Scope:

This study is done keeping in mind its wide scope in general.

The study of financial statement analysis is very useful for the Management in
taking future decisions.
It is very much useful from the investors point of view.
The financial statement analysis is very much useful for financial institutions.

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RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. In fact research is
an art of scientific investigation. The Advanced Learners Dictionary of current
English lays down the meaning of research as a careful investigation or inquiry
especially through search for new facts in any branch of knowledge.
For the preparation of project report several method were used to collect data and
pertinent information. The data required for the studies were collected is primary
source. Detailed questionnaire were prepared covering as many variables as
possible.

SOURCE OF DATA :
Secondary data:
Balance sheet, business magazines & from executives interviews (media
interview) basically, this research is based on the secondary data, provided by the
company and other financial tools.

TYPE OF RESEARCH:
Descriptive Research:
Descriptive research is carried out with specific objectives and hence its result in
definite conclusion. This research tries to explain the characteristics of the
particular project. In this project we are using the descriptive research.

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Findings
Types of Analysis
COMPARATIVE BALANCE SHEET

COMPARATIVE INCOME
STATEMENT

TREND ANALYSIS

Changes in Assets

Change in Liabilities

Findings
The comparative balance sheet gives
information about company position
such as current asset is more than
current liabilities and share capital
amount is increasing every year which is
very good for company. Cash & bank
balance has decease which bad for
company
The comparative income statement
shows the net profit or net loss of
Arvinds thus we see current scenario
company is in gradually increase in like
sales, gross profit, net profit which is
good for company aspect of view.
In trend analysis company is facing
problem in cash & bank balance which
has decrease compared to base year
which is bad for company. In other
aspect net sales and total income amount
is also increasing trend which excellent
growth of company.
Its shows the information about
company position of assets, through
which it should be twice than current
liabilities. Here the company has Rs
651.33 cr. & assets of Rs 1276.99 cr.
Company has made good effort to
decrease liabilities & increase assets.
The information about company
position of liabilities, through which
decrease in various liabilities which is
good for company.
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Change in Profit

ROI RATIOS

SOLVENCY RATIOS

DU PONT ANALYSIS

VALUATION RATIOS

Its shows the information about


company position of profit, through
which it is increasing gradually thus
good for company.
This give information about ROCE,
RONW, EPS through which it found
that is in better condition and give profit
to company and also increase efficiency
of performance of a Arvind ltd. which is
good.
In this company has got some bad thing
about net asset value which is less
compared to previous year. As we seen
debt equity ratio has decrease thus
shows that still company is facing crisis
in terms of paying back the long term
borrowings and interest coverage ratio
has increase which good thing for
company
Du Pont Analysis enables an analyst to
understand company ROI has improved
due to higher resource efficiency as well
as higher operating margins we can see
improvement in both ratios which is
good for company.
It shows company position of the future
earnings potential which is a show that
the market price is less & prestige
would be bad. Thus in other ratios its is
in better condition through which
company can increase earnings
potential.

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SUGGESTION

In 2010-11 as compared to 2009-10, the sales have comparatively decreased


and Assets have increased ,Company should take efforts in boosting up its
sales and make optimum utilization of Assets which it posses.

It is observed that Companys Net profit margin ratio has increase by 5.06%
in 2010-11 as compared to 2009-10; here company is doing excellence work
so no need to change it.

It has been seen that RONW in 2008-09 was -4.20% 2009-10 was 3.88 %
and finally in 2010-11 was only 9.06 %. Thus RONW is increase gradually.
So the Company should has made effort in optimizing the usage of the funds
invested by Equity share holder.

It is observed that Debt Equity has increased in 2008-09 was 1.77 times &
2010-11 it has decreased to 1.22 times. This indicates company has to do
more work to improve their condition.

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LIMITATIONS OF THE ANALYSIS

The study provides an insight into the financial and other aspects of the company.
Every study will be bound with certain limitations.

During the period of analysis, the companys current financial information


was not available.

Most of the information has been kept confidential and as such not assed as
it was the policy of the company.

The study is limited only to past few years information which might not
show the clear picture about the performance.

Time is an important limitation. The whole study was conducted in a period


of weeks which is not sufficient to carry out proper interpretation and
analysis.

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CONCLUSION:

The project report on the topic Financial statement analysis is a best


method to analyze the financial position of the company and helps in forecasting
the future trend.

It is observed that company has improved its standing by lowering the


debts, but it is not achieved satisfactory profit margin, it has gone low in 2008-09.
Company has to adopt various methods that improve sales i.e. paying incentives to
staff, advertisement in market, etc. if the sale will increase the Service provided
will increase which will indeed decrease the production cost (operating cost) which
will lead to maximization of profit and optimum utilization of resources available
to the company. Another thing, company has to maintain a cash flow to decide
cash required to be kept for speculation, operation and emergency purpose, as
excess cash is loss of interest. It is also seen that Return on investment is very low.
Company should properly analyze different option available for investment and
after considering the cost of investment, selection of a proper investment plan
should be done, so that more returns are possible.

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LEARNING

It was a great learning experience for me during my training period. I have learned
many things about the corporate culture. The internship training gave me many
opportunities to learn many things in a very short period of time. It almost felt like
I was working for a company.

The finance department cannot function effectively without the help &
support of H.R, Marketing or Operational department neither they can work
individually. They constantly need each others support. They work as a
team.
The most important learning that has gained is interpersonal skills. As this
skill can either make or break the career.
To adjust to different working places and conditions and also learned the
importance of being assertive and not aggressive.
Apart from these, Discipline and Punctuality are the other two values that
have to be imbibed in us for a successful career and a person.

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BIBLIOGRAPHY:

I am making my project with help of the various secondary data used.


Identified the various sectors of the company from the sites. Which are
under as follows :

www.arvindmills.com

The financial data from the available from the sites:

www.moneycontrol.com

The interpretation of the accounting and financing data of company which


are available from the books :

AMRISH GUPTA; FINANCIAL ACCUNTING FOR


MANAGEMENT;
PEARSON; 3RD EDITION
PAGE NO: 605-644

The research papers of financial analysis are available from the internet.

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ANNEXURE
I have not used primary data. So the questioner is not prepared.

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