Definition of finance and financial Management

• Meaning of finance function :

Finance is like blood of co-operate enterprise. It can be said with
out of finance function it is not possible to imagine the business
operation. Financial Management is not a totally independent area
but it is an integral part of overall management. The scope of
finance is graded in the overall enterprise right from the beginning
up to the end i.e., starting from capital general for business up to
winding up of enterprise.

• Definition of Finance :
“Finance is the art and science of managing money” definition
given by Khan & Jain.

Mr. A.L. Kingshott “Finance is the common denominator for a vast

range of co-operate objectives, and the major part of any co-
operate plan must be expressed in financial terms”

1
• Finance Management :
Financial Management provides a conceptual and analytical
framework for financial decision making the finance function
covers both acquisitions of funds as well as their allocations. Thus,
apart the issues involved in acquiring external funds, the main
concern of financial management is the efficient and wise
allocation of funds to various uses. Defined in a broad sense, it is
viewed as an integral part of overall management.

The financial management framework is an analytical way of

viewing the financial problems of a firm. The main contents of the
approach are: What is the total volume of funds an enterprise
should commit? What specific assets should an enterprise acquire?
How the funds required be financed?

Financial Management in the modern sense and its functions are:

(i) The financing decision (ii) The dividend policy and (iii) the
investment decision.

2
 Objectives of financial Management:
To make wise decision the firm has to think by two criteria’s which
is known as objectives of financial management. And the two
objectives are as follows:

(a) Profit Maximization.

(b) Wealth Maximization.

(a) Profit Maximization :

This objective is decision criterion of the firm regarding the

profitability according to this approach actions increasing
profit should be undertaken and which decrease profit should
be avoided. In other words profit maximization means try to
make maximum profit by using investment, financing and
dividend decisions.

The term profit can be used by two senses as the owner

oriented concept which refers to amt and share of national
income which is paid to owners of the business i.e. Profit by
total share capital of the company is another words it is known
as accounting profit i.e., excess of income over expenses the
rational behind profitability maximization is simple that the
economic efficiency is measured by profit the profit is yard
wick to measure the performance of the firm. The individual
treatment of profit is concern with efficient use of important
resource allocation.

3
(b) Wealth Maximization :

This is also known as value maximization or net-profit worth

maximization this objective is universally accepted because it
removes the technical limitations of profit maximization
objective.

The wealth maximization is superior to profit maximization.

As a decision criterion it involves a comparison of value
benefits to the cost bared by the firm. An action that has a
discounting value i.e., present value which reflects time and
risks, if that exceeds cost it can be said that the value is worth
of implementation, in case of mutually exclusive only 1 has to
be chosen. The alternatives with the greatest net present value
should be selected.

4
• Way of calculation of net present worth :

(1) W = V – C

Where,

W = Net present worth

V = Gross Present worth
C = Investment required to acquire the asset or
purchase the course of action.

And V = E
K
Where,

E = Size of future benefits available to the suppliers

of the input capital.
K = the capitalization rate reflecting the quality and
timing of benefits attached to E

5
Importance of Financial Management :
1) Success of Promotion :

The success can be guessed on the basis of its financial plan. If

the plan is defective, it will fail to provide sufficient funds meet
the requirements of both fixed and working capital. Undue
optimism of the framers of financial plan will lead in
overcapitalization. A larger amount of finance than can be
absorbed in business will result into low profit and low rate of
return on capital invested. In that case, business is bound to fail.

2) Smooth running of the Enterprise :

Finance is required at each stage of an enterprise. Working

Capital is required for meeting day to day expenses. Money is
required for advertisement for payment of salaries of sales force
and also for various selling and distribution expenses. The
management will be constantly worrying if the financial planning
is defective.

6
3) Finance for Expansion :

Finance is required for schemes of modernization expansion and

development of the existing enterprises. How do meet this
requirement is one of the major problem of financial
management. A prudent financial planning will provide the
finance required for this purpose from retained profits of the
enterprise and, if need be, from outside sources at a reasonable
cost.

4) Cash Planning :

Among the factors, on which depends the success of a business

enterprise, liquidity is most important. An optimist business
organizer indulging in rosy dreams of success of his business will
lead his business to failure, if he ignores the importance of
liquidating.

7
Introduction to point sector : (India)

The paints industry in India is estimated at Rs.8800 Cr. and is

divided into decorative and industrial segments. The share of
unorganized sector in the industry has comedown from 50% to 35%
in the last decade due to stiff competition and constant price
reduction by organized sector. Moreover, the gradual reduction in
excise duly from 40% to 16% over the years has led to increase in
the organized sector’s share. The decorative segment constitutes
about 75% in the market whereas the industrial segment generates
the balance 25% of the sales. The industry is growing as about 8-
10% in volume terms and 7-8% in value firms

8
INTRODUCTION TO COMPANY

(1) History of the Company (Nerolac):

Established in the year 1920, Kansai Nerolac Paints Ltd. (KNP) is

headquartered in Mumbai; KNP is subsidiary of Kansai Paint Co.
Ltd. Japan (KPJ). KPJ holds 69.27% shares of KNP. KNP serves it
vast customer base through its four strategically located factories at
Jaipur in U.P., Locate in Mahatrastra, Perungudi in Tamil Nadu and
Bawal in Haryana as well as 65 sales locations. KNP is in the
process of putting up its fifth unit at Hosur in Tamil Nadu.

KNP is known for transformation, innovation and style and has

consistently been producing good results. Being the fore runner in
introducing new products finishes and new technologies to the
market, taking the platform of innovation, KNP product and finished
enjoy good brand image /recall and its brands, like ‘impressions’,
‘Beauty’, ‘Excel’, ‘Suraksha’ are well trusted by the consumers.

9
 (2) Mission and Vision of the Company :

• Development of Environment friendly products :

To reduce the usage of hazardous materials.

To create awareness about Environmental friendly products

among consumers.

• Reduction of Environmental Burden :

 Waste Reduction
 Reduce Water Consumption
 Preparation of Environment accounting.

Health, Safety and Environment Preservation :

 Employee well being

 Environment Preservation

10
(3) Board of Directors of the Company:

 J.J. Irani Chairman

 D.M. Kothari Vice-Chairman
 H.M. Bharvuka Managing Director
 S.M. Datta Director
 P.P. Shah Director
 N.M. Tata Director
 P.D. Chaudhari Whole time Director
 G.T. Govindarajan Company Secretary
 P.D. Pai C.F.O.

11
(4) Products of the Company:
• Decorative paints:-
1. Walls
(a) Interior
- Water based paints
(1) Emulsions
(2) Distemper
- Solvent based paints
(1) Luster
(2) Enamel
(3) Flat oid
(b) Exterior
- Emulsions
- Textured
- Cement
- Nerolac Impressions ever last

2. Woods
(1) 1k pu
(2) Mel’mine
(3) 2k pu
(4) Multisealer
(5) Water clear Lacquer
(6) Wood stains

12
 3. Metals:
i. Nerolac impression Hi-performance Enamel
ii. Nerolac Satin Enamel
iii. Nerolac Synthetic Enamel

• Industrial paints:
 Automotive coatings
 General industrial coatings
 Hi-performance coatings
 Powder coatings

13
(5) Achievements of the Company :

• Best Vendor award from Toyota Kirloskar Motors Ltd. (TKML) for
cost.

• Tata Motors awarded the “Best Vendor Award for Quality” to KNP,
during its all India vendor meet.

• Overall best performance award from Maruti Suzuki.

• ABCI awards in four categories. The categories are – Brochure

Design – Color Styles 07-08 Book, Prestige publications – Shaadi
Style guide, Photo features spring summer collection, Environment
communication annual Environmental Report. Two Bronze and one
Silver in Marketing Communication and Gold for environmental
report.

• Nerolac Beauty Flexi won product of the year award in paint category.

• Gold Certificate of Merit in India Manufacturing Excellence Award

organized by frost and Sullivan.

• Environment Excellence Gold award by Green Tech Foundation for

the Lote plant.

• Qimpro Award for technical innovation. The paper selected was on

“Three coat – one Bake System”

14
• Rated 415 in the last financial year by Karmayog for CSR activities.
One of the 10 companies to be rated so out of 1000 assessed.

• ASAPP Media Information Group – Construction World Magazine

Ranked KNP First.

15
Financial Information of the Company:

• SIGNIFICANT ACCOUNTING POLICY OF THE COMPANY

i) BASIS OF ACCOUNTING
The financial statements are prepared under historical cost convention on
an accrual basis and are in accordance with the requirements of the
Companies Act, 1956, and comply with the Accounting Standards
referred to in sub-section (3C) of Section 211 of the said Act.

(ii) FIXED ASSETS

Fixed assets are stated at their original cost including incidental expenses
related to acquisition and installation, less accumulated depreciation and
impairment losses if any. Cost comprises of the purchase price and any
other attributable cost of bringing the asset to its working condition for its
intended use.

(iii) BORROWING COSTS

Borrowing costs that are directly attributable to the acquisition of
qualifying assets are capitalized for the period until the asset is ready for
its intended use. A qualifying asset is an asset that necessarily takes
substantial period of time to get ready for its intended use. Other
borrowing costs are recognized as an expense in the period in which they
are incurred. No borrowing costs are eligible for capitalization during the
year.

16
(iv) DEPRECIATION
(a) Depreciation is provided on the written down value method at the
rates prescribed in Schedule XIV to the Companies Act, 1956, except that
in respect of Colour Dispensers the rate of depreciation applied is 45 per
cent, which management considers as being representative of the useful
economic life of such assets.
(b) No write off is made in respect of leasehold land as these are long
term leases.

(v) IMPAIRMENT
The carrying amount of assets are reviewed at each Balance Sheet date if
there is any indication of impairment based on internal / external factors.
Impairment loss is provided to the extent the carrying amount of assets
exceeds their recoverable amount. Recoverable amount is the higher of an
asset's net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the continuing
use of an asset and from its disposal at the end of its useful life. Net
selling price is the amount obtainable from the sale of an asset in an arm's
length transaction between knowledgeable, willing parties, less the cost
of disposal.

17
(vi) INVESTMENTS
(a) Long term investments are stated at cost. A provision for diminution
is made to recognize a decline, other than temporary, in the value of long
term investments.
(b) Current investments, consist of investments in mutual funds, are
stated at lower of cost and fair value where net asset value declared by the
respective funds is considered as fair value.
(c) Dividend income is accounted when the right to receive payment is
established and known.

(vii) INVENTORIES
(a) Stores and spare parts are valued at cost less amounts written down.
(b) Stock-in-trade comprising of raw materials (including in-transit),
packing materials, stock-in-process and finished goods are valued at the
lower of cost and net realizable value after making such provisions as
required on account of damaged, unserviceable, inert and obsolete stocks.
(c) Cost has been arrived at on the basis of weighted average method.

(viii) SALES
(a) Sales are recognized in accordance with Accounting Standard 9 viz.
when the seller has transferred to the buyer, the property in the goods, for
a price, or all significant risk and rewards of ownership have been
transferred to the buyer without the seller retaining any effective control
over the goods.
(b) Sales are inclusive of excise duty, export incentive, exchange
fluctuation on export receivables, processing charges, sale of scrap and
income from services and are net of trade discount and product rebate.

18
(ix) EMPLOYEE BENEFITS
(a) Short term employee benefits:
Short term employee benefits are recognized as an expense at the
undiscounted amount in the profit and loss account of the year in which
the related service is rendered.
(b) Post-employment benefits:
1. Provident and Family Pension Fund
2. Superannuation
3. Gratuity
(c) Other long-term employee benefits – compensated absences:
The Company provides for encashment of leave or leave with pay subject
to certain rules. The employees are entitled to accumulate leave subject to
certain limits for future encashment / availment. The Company makes
provision for compensated absences based on an actuarial valuation
carried out at the end of the year. Actuarial gains and losses are
recognized in the profit and loss account.

(x) RESEARCH AND DEVELOPMENT

Capital expenditure on Research and Development is treated in the same
way as expenditure on fixed assets. Revenue expenditure on Research and
Development is charged to the Profit and Loss Account in the year in
which it is incurred.

19
(xi) FOREIGN CURRENCY TRANSACTIONS
(a) Transactions in foreign currencies are recorded at the exchange rate
that approximates the actual rate at the date of the transaction. In respect
of monetary items denominated in foreign currencies, exchange
differences arising out of settlement or on conversion at the closing rate
are recognized in the Profit and Loss Account.
(b) Premiums or discounts arising at the inception of the forward foreign
exchange contracts, other than contracts to hedge a firm commitment or a
highly probable forecast transaction, are amortized and recognized in the
Profit and Loss Account over the period of the contract. Such forward
foreign exchange contracts outstanding as at the Balance Sheet date are
converted at the exchange rates prevailing on that date. Exchange
differences are recognized in the Profit and Loss Account.

(xii) ACCOUNTING FOR DERIVATIVES

The Institute of Chartered Accountants of India had issued an
announcement on 'Accounting for Derivatives' inter alias requiring
provision for losses on all derivative contracts outstanding at the balance
sheet date by marking them to market keeping in view the principle of
prudence, other than for forward contracts to which Accounting Standard
(AS) 11 – 'The Effect of Change in Foreign Exchange Rates' is applicable
in respect of which accounting policy as stated in Note (xi) (b) above is
followed. The Company has entered into forward contracts to hedge a
firm commitment or a highly probable forecast transaction to which AS
11 is not applicable and hence, the Company has applied aforesaid
announcement. As assessed by the Company, there is no loss on the
outstanding forward contracts as at the balance sheet.

20
(xiii) TAXATION
Tax expense comprises current, deferred and fringe benefit tax. Current
tax and fringe benefit tax are measured at the amount expected to be paid
to the tax authorities in accordance with the Income-tax Act, 1961.
Deferred tax reflects the impact of current year timing differences
between taxable income and accounting income for the year and reversal
of timing differences of earlier years. Deferred tax is measured based on
the tax rate and tax laws enacted or substantially enacted at the balance
sheet date. Deferred tax assets are recognized only to the extent that there
is reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realized.

(xiv) PROVISIONS
A provision is recognized when an enterprise has a present obligation as a
result of past event and it is probable that an outflow of resources will be
required to settle the obligation, in respect of which a reliable estimate
can be made. Provisions are not discounted to their present values and are
determined based on management estimate required to settle the
obligation at the balance sheet date. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates.

(xv) LEASES
Leases where the lessor effectively retains substantially all the risks and
benefits of ownership of the leased assets are classified as operating
leases. Operating lease payments / receipts are recognized as an expense /
income in the Profit and Loss Account on a straight-line basis over the
lease term.

21
 BALANCESHEET OF NEROLAC
LTD. FOR THE LAST 3 YEARS
(2007/2008/2009)

Particulars Rs. In Rs. In Rs. In

Lacks Lacks Lacks
(2009) (2008) (2007)
(I) Share holder’s funds:
a. Share capital 2694.60 2694.60 2694.60
b. Reserves and surplus 62750.2 56674.41 48478.45
5 593.69.0 51173.05
(II Loans funds: 65444.8 1
) a. Secured loans 5 3002.18
b. Unsecured loans 1918.11 7997.51
1608.29 7877.26 10999.69
Total (I - II) 7754.33 9795.37 62172.74
Application of funds 9362.62 69164.38
* Fixed assets: 74807.4
(I) a. Gross profit 7 42440.87
b. Less: depreciation 48014.72 23375.64
c. Net block 27152.97 19065.23
d. Less: provision for w.d value of fixed 54198.4 20861.75 83.10
assets 4 141.31
e. Capital work in progress at cost 30336.4 1266.33
f. Advances for capital expenditure 5 2000.67 496.99
23861.9 662.88 1763.32
Investments 9 266355 15482.25
* Deferred tax assets 118.45 23214 650.77
* Current assets loans and advances: 1039.12
* a. Investments 3094.36 1842.17
b. Sundry debtors 468.04 17341.11 19496.04
c. Cash & bank 3562.40 21293.30 2149.27
d. Loans and advances 29442.5 3337.54 5271.46
Less: current liabilities and provisions 5 4814.81 44931.94
* a. Liabilities 1059.57 48786.76 15104.27
b. Provisions 16889.50 4533.40
17063.3 8369.99 19637.67
Net current assets 9 25259.49 25394.27
20957.2 21527.27
9
7616.39
4170.70
49804.7
7

22
 24423.4
9
8384.87
32808.3
6
16999.4
1

Total 74807.4 69164.38 6,21,72.74

7

PROFIT & LOSS ACCOUNT OF

NEROROLAC LTD. FOR THE LAST
3 YEARS (2007/2008/2009)

Particulars Rs. In Rs. In Rs. In

lacks(07) lacks(08) lacks(09)

23
(I) (a).Sales 141643.4 152866.8 156776.73
Less: excise duty 6 1 19324.81
Net sales……… 19405.36 20891.80 137451.92
(b)other income 122238.1 131975.0 2219.50
TOTAL (a & b) 0 1 139671.42
(II) Expenditures:- 2404.77 2484.59
a) Cost of materials 124642.8 134459.6 89958.28
b) Employees remuneration & benefits 7 0 7330.30
c) Operating and other expenses 24419.64
d) Interest -other than fixed loans 77832.90 83704.70 183.80
TOTAL (a, b, c & d) 5956.90 6913.05 121892.02
(III) Profit before depreciation and taxes (a-b) 21304.54 22702.18 17779.40
Depreciation………. 96.15 140.60 3760.50
(IV) Profit before tax 105190.4 113460.5 14018.90
(V) Provision for taxation 9 3
a) Current tax 19452.38 20999.07 4060.45
b) Deferred tax 3355.74 3960.05 20.45
c) Fringe benefit tax 16096.64 17039.02 120.00
4160.00
(VI) Profit after tax 4935.37 5328.35 9858.90
Add: balance brought forward 258.12 388.35 22053.93
Add: balance transferred on amalgamation 137.25 120.00 -
(VII) Balance available for appropriations 5330.74 5060.00 31912.83
Less: Appropriations: 10765.90 11979.02
a) Interim dividend 7565.69 15055.87 3233.52
b) Additional income tax and distributed 1339.18 - 549.54
profit 19670.77 27034.89
c) General reserve 985.89
TOTAL (a , b & c) 3098.79 3233.52 4768.95
439.52 549.54

1076.59 1197.90
4614.90 4980.96

TOTAL 15055.87 22053.93 27143.88

1. Introduction to Ratio Analysis :

The relationship of one item to another expressed in simple
mathematical form is known as ratio. A company keeps fit by

24
 ensuring that among other things it various financial proportions
are kept healthy. In business performance can be measured with
help of ratio. In fact an analysis of financial statements is possible
only when figures are expressed as percentage or ratio. A ratio is a
mathematical relationship between two quantities. It is of major
importance to financial analysis. I engage qualitative measurement
and show precisely how adequate measurement and shows
precisely how adequate is one key item to another. To evaluate the
financial condition and the purposes of a firm the financial analyst
needs certain yardsticks. The yardstick frequently used is a ratio or
an index relating 400 pieces of financial data to each other. Not
only those who manage the company but also it shareholders and
creditors are interested in knowing about financial position and / or
earning capacity of that concern.

2. Classification of Ratios :

The ratio can be classified as follows:

(A) Traditional Classification (B) Functional Classification

25
(A) Traditional Classification:

The ratios are grouped into three categories on the basis of the
financial statement from which figures are taken for computing the
ratio.

(1) Revenue Statement Ratios :

These are the ratios computed on the basis of items taken
from revenue statement i.e., Profit and Loss account.

(2) Balance-sheet Ratio :

When two items or groups of items appearing in the balance-

sheet are compared the ratio so obtained is balance sheet
ratio.

(3) Composite Ratios :

A ratio showing the relationship between one item taken

from balance-sheet and another taken from profit and loss
account is a composite Ratio.

(B) Functional Classification:

Ratios are also grouped in accordance with certain tests on this

basic there are four categories of ratios.

26
 (i) Liquidity Ratio
(ii) Profitability Ratio
(iii) Leverage Ratio or Structural Ratio.
(iv) Activity Ratio or Efficiency Ratio.

(i) Liquidity Ratio :

These ratios indicate the position of liquidity. They are

computed to ascertain whether the company is capable of
meeting its short-term obligation for its short term obligation
for its short term resources. For example, current ratio shows
the capacity of the firm to meet its current liabilities as and
when they mature for e.g.

(i) Current Ratio (ii) Liquid Ratio (iii) Acid – test Ratio.

(ii) Profitability Ratios :

A no. of ratios is designed to indicate the profitability of the

business and are grouped into the category of profitability
Ratios. e.g.

(i) Gross Profit Ratio

(ii) Net Profit Ratio
(iii) Operating Ratio. etc.
(iii) Leverage Ratios or Structural Ratios:

27
 The composition of capital of business and the proportion of
owner’s capital and capital provided by outsiders are reflected by
leverage ratios for e.g.

(i) Proprietary Ratio

(ii) Debt-Equity Ratio
(iii) Gearing Ratio
(iv) Fixed Capital – Fixed Assets Ratio
(v) Coverage Ratio

(iv) Activity Ratios:

The are the ratios showing effectiveness with which the resources
of the business are employed. It signifies the efficiency of the
management.

(i) Stock Turnover

(ii) Debtors Ratio
(iii) Current Assets Turnover
(iv) Fixed – Assets Turnover
(v) Total Assets Turnover.

(iii) Advantages and Limitations of Ratios:

28
(a) Internal standards: Here the comparison is made with the
firms past performance.

Advantages:

It is possible to compare “like with like”

The methods by which figures are arrived at are consistent over a

certain period.

Disadvantages:

The standard achieved in the past may be poor and a comparison

with them may encourage a certain measure of complacency.

The level of activity in the economy as a whole is continually

changing.

The state of technology may be constantly advancing.

The reliability of the ratio is eroded by the effects of inflation.

(b) External Standards: There the firm’s performance is

compared with that of other firms.

29
 Advantages:

It is possible to set up a good standard of comparison.

It is possible to compare results over similar periods to ensure

similar economic and technological conditions.

It avoids the difficulties associated with budgets, namely their

subjective elements.

Disadvantages :

The gaps between standards of similarity are sometime so wide that

it cannot be bridged by management action.

The information about other companies may not be easily

available.

(iv) Calculation of Ratios of the Company:

30
• CURRENT RATIO

This most widely used ratio shows the

proportion of current assets to current liability. It is also known as
working capital ratio.

Current Assets
Current Ratio = ------------------------
Current Liabilities

Ratio 2007 2008 2009

39660.48 41971.95 45637.07
Current -------------- = 1.41:1 -------------=1.39:1 -------------- = 1.98:1
Ratio 14215.61 16157.55 23001.12

CURRENT RATIO

3 2.79
2.59
2.5
1.98
2

RATIOS 1.5 CURRENT RATIO

0.5

0
2007 2008 2009
YEARS

Interpretation:-

31
 The current assets of the company are increasing in the above three
years and the current liabilities of the company are also increasing. As
the current assets and liabilities have increase there is no increase seen
in the current ratio of the company rather the current ratio of the
company have reduced in 2007 the current ratio of the company was
2.79:1 while in 2008 it reduced to 2.59:1 and in 2009 it was the least
1.98:1. This ratio indicates that the firm capacity to meet short-term
obligations is decreasing.

• LIQUID RATIO

32
 To remove the defect of current ratio, liquid
ratio is used. It is a variant of current which is designed to show the
amount of funds available to meet immediate payments. It is obtained by
dividing the liquid assets by liquid liabilities.

Here, Liquid assets = Current assets – Stock (Inventory)

Liquid liabilities = Current liabilities – Bank overdraft

Liquid assets
Liquid ratio = -----------------------
Liquid liabilities

Ratio 2007 2008 2009

21618.31 24630.75 28573.68
Liquid ratio ----------- = 1.52:1 ----------- = 1.52:1 ------------- = 1.24:1
14215.61 16157.55 23001.12

LIQUID RATIO

1.6 1.52 1.52

1.4 1.24
1.2
1
RATIOS 0.8 LIQUID RATIO
0.6
0.4
0.2
0
2007 2008 2009
YEARS

Interpretation:-

33
 The current assets of the company are increasing in
the above three years and the current liabilities of the company are
also increasing but the stock of the company is decreasing. As the
current assets and liabilities have increase there is no increase seen in
the liquid ratio of the company, in 2007 the liquid ratio of the
company was 1.52:1 while in 2008 it remained constant 1.52:1 and in
2009 it was the least 1.24:1. This ratio indicates that the firm capacity
to meet immediate obligations is decreasing.

34
• QUICK RATIO
To remove the defect of current ratio, quick ratio
is used. It is a variant of current which is designed to show the amount
of funds available to meet immediate payments. It is obtained by
dividing the liquid assets by liquid liabilities.

Liquid assets
Quick ratio = -----------------------
Liquid liabilities

Here, Liquid assets = Current assets – Stock (Inventory)

Liquid liabilities = Current liabilities – Bank overdraft

Ratio 2007 2008 2009

21618.31 24630.75 28573.68
Liquid ratio ----------- = 1.52:1 ----------- = 1.52:1 ------------- = 1.24:1
14215.61 16157.55 23001.12

LIQUID RATIO

1.6 1.52 1.52

1.4 1.24
1.2
1
RATIOS 0.8 LIQUID RATIO
0.6
0.4
0.2
0
2007 2008 2009
YEARS

35
Interpretation:-

Quick ratio of the company was same in the year

2007-08 but ratio has decreased in the year 2009. In the year 2007-08 the
ratio was 1.52:1 and in 2009 it was 1.24:1. Company’s quick assets are
increasing respectively but liquid liabilities are also increasing
respectively.

36
 • PROPRIETARY RATIO:
The ratio shows the proportion of
proprietors’ funds to the total assets employed in the business. The
proprietors’ funds or shareholders’ equity consist of share capital and
reserves.

Liquid assets
PROPRITARY RATIO = -----------------------
Liquid liabilities

Ratio 2007 2008 2009

51173.05 x 100 59369.01 x 100 65444.85 x 100

81159.64 93384.75 106556.26

= 63% = 64 % = 61%

PROPRIETARY RATIO

64.5 64
64
63.5 63
63
62.5
RATIOS 62 PROPRIETARY RATIO
61.5
61
61
60.5
60
59.5
2007 2008 2009
YEARS

37
Interpretation:-

The proprietor fund of the company has increased

for the last 3 years, the total assets of the company has also increased
respectively. By the above derived ratios in 2007 the proprietary ratio
it was 63% in 2008 it increased to 64% and in 2009 it decreased to the
least 61% the company should take adequate steps for increasing its
proprietary ratio.

38
• DEBT-EQUITY RATIO

This ratio is only another form of

proprietary ratio and establishes relationship between the outside long-
term liabilities and owners’ funds. It shows the proportion of long-term
external equities and internal equities.

Total debt
Debt-Equity ratio = ------------------
Owner’s fund

Ratio 2007 2008 2009

Debt-Equity ratio 3002.18 1918.11 1608.29
------------ x 100 = ------------ x 100 = -------------- x 100 =
51173.05 59369.01 65444.85
5.87% 3.23% 2.45%

DEBT-EQUITY RATIO

7
5.87
6

4
3.23
RATIOS DEBT-EQUITY RATIO
3 2.45
2

0
2007 2008 2009
YEARS

39
Interpretation:-

The current assets of the company are decreasing

in the above three years while the share holder’s funds of the company
are increasing. By the above derived ratios in 2007 the debt- equity
ratio was 5.87% in 2008 it decreased to 3.23% and in 2009 it
decreased to the least 2.45% the company should take adequate steps
for increasing its debt- equity ratio.

40
• LONGTERM FUNDS TO FIXED ASSETS

Normally, the fixed assets of the

business must be purchased out of fixed capital only, which includes
share capital, reserves and long term liability. This ratio, therefore, shows
the relationship between fixed capital and fixed assets.

Long term funds = Share capital + Reserve& surpluses + Long term

liabilities

Ratio 2007 2008 2009

Long term funds 54175.23 61287.12 67053.14
to fixed assets ------------- = 2.61 ------------ = 2.62 -------------- = 2.46
20745.45 23383.99 27305.94

41
 Long term funds to fixed assets

2.65 2.62
2.61
2.6

2.55
Long term funds to
RATIOS 2.5
2.46 fixed assets
2.45

2.4

2.35
2007 2008 2009
YEARS

Interpretation:-

The fixed assets of the company are increasing from the

year 2007 to 2009. The long term funds of the company are also
increasing respectively. The ratio of the company in 2007 was 2.61 which
were increased to 2.62 and in 2009 it decreased to 2.46.

42
• DEBTORS RATIO

The ratio shows the number of days taken to

collect the dues of credit sales. It shows the efficiency or otherwise of
collection policy of an enterprise.

Debtors + Bills Receivables

Debtors ratio = ---------------------------------------
Credit sales

Ratio 2007 2008 2009

43
Debtors ratio 19469.04 x 365 21293.30 x 365 20957.29 x 365
141643.46 152866.81 156776.73

= 50 days = 51 days = 49 days

DEBT-EQUITY RATIO

7
5.87
6

4
3.23
RATIOS DEBT-EQUITY RATIO
3 2.45
2

0
2007 2008 2009
YEARS

Interpretation:-

In the ratio company’s credit sale is increasing

respectively as well as the debtors of the company are also increased in
2008 & 2009. The debtor’s ratio in the year 2007 is 50 days in 2008 it is
51 days and in 2009 it is 49 days which is a good sign for the company.

44
• DEBTORS TURNOVER RATIO

The debtor’s turnover ratio suggests the number of

times the amount of credit sale is collected during the year, while debtor
ratio indicates the number of days during which the dues for credit sales
are collected.

45
 Credit Sales
Debtors turnover ratio = -----------------------------------
Average Debtors

Ratio 2007 2008 2009

Debtors 141643.46 152866.81 156776.73

turnover ratio 16930.32 20381.17 21125.3

= 8.37 times =7.5 times = 7.42 times

Debtors Turnover Ratio

8.6
8.37
8.4
8.2
8
7.8 DEBTORS TURNOVER
RATIOS
7.6 7.5 RATIO
7.42
7.4
7.2
7
6.8
2007 2008 2009
YEARS

Interpretation:-

The credit sales of the company are increasing from

the year 2007 to 2009 as well as average debtors of the company are also
increasing. The debtor turnover ratio in the year 2007 is 8.37 times which

46
decreased to 7.5 times in the year 2008 and it further decreased to 7.42
times in the 2009.

• CREDITORS RATIO

The ratio shows the number of days within

which we can make a payment to our creditors for credit purchases is
obtained from creditor’s ratio.

47
 Creditors + Bills payable
Creditors Ratio = -----------------------------------
Purchases

Ratio 2007 2008 2009

Creditor’s ratio 14345.62 x 365 16157.55 x 365 23001.12 x 365

87382.44 83193.52 90577.61

= 59 days = 71 days = 93 days

Creditors Ratio

100 93
90
80 71
70
59
60
RATIOS 50 CREDITORS RATIO
40
30
20
10
0
2007 2008 2009
YEARS

Interpretation:-

The creditors of the company are increasing from the

year 2007 to 2009 and the purchases of the company are also increasing
respectively. In the year 2007 the creditor’s ratio was 67days and it

48
increased to 71 days and 93 days in the year 2009 respectively. This is a
good thing for the company.

• CREDITORS TURNOVER RATIO

Creditor turnover ratio is suggests the number of

times the amount of credit purchase is paid during year same as the
debtor’s turnover ratio.

49
 Ratio 2007 2008 2009

77676.69 83193.52 90577.61

14459.04 15186.6 19579.34

= 5.37 times =5.48 times = 4.63 times

CREDITORS TURNOVER RATIO

5.6 5.48
5.37
5.4

5.2

5
CREDITORS
RATIOS
4.8 TURNOVER RATIO
4.63
4.6

4.4

4.2
2007 2008 2009
YEARS

Interpretation:-

The credit purchase of the company is increasing from

the year 2007 to 2009. The avg. creditors of the company are also increasing
respectively. The credit turnover ratio in 2007 was 5.27 times which

50
increased to 5.48 times in the year 2008 and in the year 2009 it decreased to
4.36 times.

• GROSS PROFIT RATIO

It is the basic measure of profitability of

business. It expresses relationship gross profit earned to net sale. It is also
known as “gross margin”.

51
 Gross profit = Sales – Cost of goods sold

Ratio 2007 2008 2009

73140.76 x 100 78516.93 x 100 76945.44 x 100

141643.46 152866.81 156776.63

= 51.64% = 51.36% = 49.07%

GROSS PROFIT RATIO

52 51.64
51.36
51.5
51
50.5
50
RATIOS GROSS PROFIT RATIO
49.5 49.07
49
48.5
48
47.5
2007 2008 2009
YEARS

Interpretation:-
Gross profit of the company was highest in the year
2008. Sale of the company is also increasing respectively. Gross profit ratio

52
of the company in the year 2007 was 51.64% which decreased to 51.36% in
the year 2008 and it decreased further to 49.07% in the year 2009.

• NET PROFIT RATIO

53
 This ratio measures the relation between the net profit and
sales of the firm. The net profit is obtained after charging operating
expenses, interest, depreciation and taxes to the gross profit

Ratio 2006-07 2007-08 2008-09

10765.90 X 100 11979.02 X 100 9858.09 X 100

Net profit ratio 122238.10 131975.01 137451.92

= 8.81% =9.076 % = 7.17%

NET PROFIT RATIO

10
8.81 9.076
9
8 7.17
7
6
RATIOS 5 NET PROFIT RATIO
4
3
2
1
0
2007 2008 2009
YEARS

Interpretation:-

54
 The net profit and net sales of the company is increasing
from the year 2007 to 2009. The net profit ratio of the company in the year
2007 was 8.81% in the year 2008 it increased to 9.076% while in the year
2009 it was the lowest 7.17% which is not a good sigh for the company.

• OPERATING RATIO

55
 It is a ratio that shows relationship
between cost of goods sold plus operating expenses to sales. Operating
expenses include administrative and selling and distribution expenses.
They don’t include finance expenses.

Ratio 2006-07 2007-08 2008-09

77451.06 x 100 88154.08 x 100 90248.75 x 100

122238.10 131975.01 137451.92

= 63.36 % = 66.8 % = 65.66 %

OPERATING RATIO

68
66.8
67

66 65.66

65
RATIOS OPERATING RATIO
64 63.36
63

62

61
2007 2008 2009
YEARS

Interpretation:-

56
In this the cost of goods sold increased in the year 2007-2009 and net
sales of the company was also increased from the year 2007-2009. The
operating ratio of the company in the in the year 2007 was 63.36% in
2008 it increased to 66.8% while in 2009 it decreased to 65.66%. This is
a good sign for the company and company should take measures to
improve it.

• EXPENSE RATIO

57
 For the purpose of ascertaining relationship
between operating expenses and net sales, expense ratios are computed.

Ratio 2006-07 2007-08 2008-09

17478.45 x 100 18789.26 x 100 20565.44 x 100
122238.10 131975.01 137451.92

= 14.3% = 14.24% = 14.96%

EXPENSE RATIO

15.2
14.96
15

14.8

14.6
RATIOS EXPENSE RATIO
14.4 14.3
14.24
14.2

14

13.8
2007 2008 2009
YEARS

Interpretation:-

58
The expense increased by the company is increasing from the year 2007
to 2009 and the net sales of the company are also increasing respectively.
In 2007 the expense ratio of the company is 14.3% in 2008 it was 14.24%
while in the year 2009 it is 14.96%. There is an increase in the expense
ratio seen in the year 2009 company should take adequate measures to
improve Expenses ratio.

• RETURN ON CAPITAL EMPLOYED RATIO

59
 Perhaps the most widely used ratio for measuring the
profitability of any enterprise is return on capital employed. Profit is
considered in relation to capital employed.

Ratio 2006-07 2007-08 2008-09

16000.49 x 100 16898.42 x 100 13834.77 x 100

54175.23 61287.12 67053.14

= 29.53% = 27.57% = 20.63%

RETURN ON CAPITAL EMPLOYED

35
29.53
30 27.57

25
20.63
20
RETURN ON CAPITAL
RATIOS
15 EMPLOYED

10

0
2007 2008 2009
YEARS

Interpretation:-

60
In this the Net Profit before Interest and taxes was increasing in the year
2007 to 2008 but there is decrease seen in the year 2009 while the Capital
Employed of the company is increasing from the year 2007 to 2009,. The
return on Capital employed ratio in 2007 was the highest which was
29.53 in the year 2008 it decreased to 27.53 and in 2009 it was 20.63%.

• RETURN ON SHAREHOLDER’S FUND

61
 Profit is earned in business for the owners and they are
naturally interested in the return they get on their money invested in
company’s business. This is measured by return on shareholders’ fund.

Ratio 2007 2008 2009

10765.90 x 100 11979.02 x 100 9858.90 x 100

51173.05 59369.01 65444.85

= 21.04% = 20.18% =15.06%

RETURN SHAREHOLDERS FUND

25
21.04 20.18
20
15.06
15
RATIOS RETURN
SHAREHOLDERS FUND
10

0
2007 2008 2009
YEARS

Interpretation:-

62
The shareholder’s fund of the company is increasing from the year 2007
to 2009 while profit after tax is increasing in 2007 and 2008 but
decreased in the year 2009. There turn on share holder’s fund was
21.64% in 2007 which decreased to 20.18% in the year 2008 which
further decreased to 15.06% in the year 2009.

• RETURN ON EQUITY SHARE CAPITAL

63
 The ratio is important, as it indicates profitability of a firm from the
viewpoint of real owner who are ordinary shareholders, who bear all the
risks of business. It signifies the success with which the management has
been able to earn enough returns on funds supplied by the proprietors.

Ratio 2006-07 2007-08 2008-09

10765.90 x 100 11979.02 x 100 9858.90 x 100

2694.6 2694.6 2694.6

= 399.54 % = 444.55 % = 365.88 %

RETURN ON EQUITY SHARE CAPITAL

500
444.55
450
399.54
400 365.88
350
300
RETURN ON EQUITY
RATIOS 250
SHARE CAPITAL
200
150
100
50
0
2007 2008 2009
YEARS

Interpretation:-
Here, return on equity share capital ratio of the
company in the year 2007 was 399.54% which increased to 444.55% in the

64
year 2008 and it decreased to 365.88% in the year 2009. Share capitals of the
company remain the same in three year

• EARNING PER SHARE

This ratio measures the profit available to equity shareholders on

per share basis. It is not the actual amount paid to shareholders as dividend

65
but is the maximum that can be paid to them. It is calculated by dividing the
profit available to equity shareholders by the number of equity share.

Ratio 2006-07 2007-08 2008-09

10765.90 11979.02 9858.90

269.46 269.46 269.46

=39.95 Rs. =44.46 Rs. = 36.58 Rs.

EARNING PER SHARE

50
44.46
45 39.95
40 36.58
35
30
RATIOS 25 EARNING PER SHARE
20
15
10
5
0
2007 2008 2009
YEARS

Interpretation:-

The profit after tax is increasing in the year 2007 to

2008 and there is a decrease seen in the year 2009. The no. of shares

66
remains constant or same for all the 3 years. The earning per share
received by the company in the year 2007 was 39.95 Rs. In the year 2008
it was 44.46 Rs. In the year 2009 it was 36.58 Rs. The company was able
to earn the highest earning per share in the year 2008 while there is a
decrease seen in the year 2009 company should take necessary steps to
improve this.

• DIVIDEND PER SHARE:

The earnings per share shows only
theoretically what a shareholder can get per share out of profit. But it is not
the actual amount that they receive. Most of the shareholders and even

67
 potential investors are interested in actual dividend they receive in cash.
Dividend per share is the amount of actual dividend paid to equity
shareholders dividend by the number of equity shares outstanding.

Ratio 2006-07 2007-08 2008-09

5856.15 220.76 3240.07

269.46 269.46 269.46

= 21.73 Rs. = 0.82 Rs. =12.02 Rs.

DIVIDEND PER SHARE

25
21.73

20

15
12.02
RATIOS DIVIDEND PER SHARE
10

0.82
0
2007 2008 2009
YEARS

Interpretation:-

Total dividend paid to shareholder is decreasing

from 2007 to 2009. Numbers of equity shares remain the same in three

68
years. The ratio was 21.73 Rs. in the year 2007 which decreased to 0.82
Rs. in the year 2008 and it was 12.02 Rs. in the year 2009.

• DIVIDEND PAYMENT RATIO

69
It is the proportion of actual dividend received to the earning per share or
the amount which belong to the equity shareholders. It is obtained by
dividing the actual dividend per share by the earning per share.

Ratio 2006-07 2007-08 2008-09

21.73 0.82 12.02

39.95 44.46 36.58

= 0.54 = 0.018 = 0.33

70
 DIVIDEND PAYMENT RATIO

0.6
0.54

0.5

0.4
0.33
DIVIDEND PAYMENT
RATIOS 0.3
RATIO
0.2

0.1
0.018
0
2007 2008 2009
YEARS

Interpretation:-

Dividend per share is decreased up to 0.82 in

the year 2008.Earning per share is increased in the year 2008 but it
decreased in the year 2009. The ratio in the year 2007 was 0.54 which
decreased to 0.018 in the year 2008 and it was 0.33 in the year 2009.

71
• INTEREST COVERAGE RATIO

The ratio indicates as to how many times

the profit covers the payment of interest on debentures and other long-
term loans. Hence, it is also knows as “times-interest earned ratio”. It
measures the debt service capacity of the firm in respect of fixed interest
before interest and taxes by fixed interest changes.

Ratio 2006-07 2007-08 2008-09

16000.49 16898.42 13834.77
96.15 140.60 184.13

= 166.41 times = 120.19 times = 75.14 times

72
 INTEREST COVERAGE RATIO

180 166.41
160
140
120.19
120
100 INTEREST COVERAGE
RATIOS 75.14
80 RATIO
60
40
20
0
2007 2008 2009
YEARS

Interpretation:-

PBIT was highest in the year 2008.The interest is

decreasing from 2007 to 2009. The ratio was 166.41 times in the year
2007 which decreased to 12.19 times in the year 2008 and it was 75.14
times in the year 2009.

73
 COMMONSIZE BALANCESHEET OF
NEROLAC FOR THE YEAR 2007

Particulars Rs. In lacks Percentage

(%)

74
(I) Share holder’s funds:
c. Share capital 2694.60 4.33
d. Reserves and surplus 48478.45 77.95
(II Loans funds: 51173.05 82.30
) c. Secured loans 3002.18 4.83
d. Unsecured loans 7997.51 12.85
10999.69 17.69
Total (I - II) 62172.74 100
Application of funds
* Fixed assets:
(I) g. Gross profit 42440.87 68.26
h. Less: depreciation 23375.64 -37.60
i. Net block 19065.23 30.66
j. Less: provision for w.d value of fixed assets 83.10 -0.13
k. Capital work in progress at cost 1266.33 2.04
l. Advances for capital expenditure 496.99 0.8
1763.32 2.84
Investments 15482.25 24.9
* Deferred tax assets 650.77 1.05
* Current assets loans and advances:
* e. Investments 1842.17 29.02
f. Sundry debtors 19496.04 31.31
g. Cash & bank 2149.27 3.46
h. Loans and advances 5271.46 8.48
Less: current liabilities and provisions 44931.94 72.27
* c. Liabilities 15104.27 -24.29
d. Provisions 4533.40 -7.29
19637.67 -31.58
Net current assets 25394.27 40.68
Total 44931.94 100

COMMONSIZE BALANCESHEET OF
NEROLAC FOR THE YEAR 2008

Particulars Rs. In lacks Percentage

(%)

75
(I) Share holder’s funds:
e. Share capital 2694.60 3.90
f. Reserves and surplus 56674.41 81.94
(II Loans funds: 593.69.01 85.84
) e. Secured loans 1918.11 2.8
f. Unsecured loans 7877.26 11.39
9795.37 14.19
Total (I - II) 69164.38 100
Application of funds
* Fixed assets:
(I) m. Gross profit 48014.72 69.42
n. Less: depreciation 27152.97 -39.26
o. Net block 20861.75 30.16
p. Less: provision for w.d value of fixed assets 141.31 -0.2
q. Capital work in progress at cost 2000.67 2.89
r. Advances for capital expenditure 662.88 0.96
266355 3.85
Investments 23214 33.56
* Deferred tax assets 1039.12 1.5
* Current assets loans and advances:
* i. Investments 17341.11 25.07
j. Sundry debtors 21293.30 30.79
k. Cash & bank 3337.54 4.83
l. Loans and advances 4814.81 6.96
Less: current liabilities and provisions 48786.76 67.65
* e. Liabilities 16889.50 -24.42
f. Provisions 8369.99 -12.10
25259.49 -36.52
Net current assets 21527.27 31.12
Total 69164.38 100

COMMONSIZE BALANCESHEET OF
NEROLAC FOR THE YEAR 2009

Particulars Rs. In lacks Percentage

76
 (%)
(I) Share holder’s funds:
g. Share capital 2694.60 3.60
h. Reserves and surplus 62750.25 83.88
(II Loans funds: 65444.85 87.48
) g. Secured loans 1608.29 2.15
h. Unsecured loans 7754.33 10.37
9362.62 12.52
Total (I - II) 74807.47 100
Application of funds
* Fixed assets:
(I) s. Gross profit 54198.44 72.45
t. Less: depreciation 30336.45 -40.55
u. Net block 23861.99 31.9
v. Less: provision for w.d value of fixed assets 118.45 -0.16
w. Capital work in progress at cost 3094.36 4.14
x. Advances for capital expenditure 468.04 0.63
3562.40 4.76
Investments 29442.55 39.36
* Deferred tax assets 1059.57 1.42
* Current assets loans and advances:
* m. Investments 17063.39 22.81
n. Sundry debtors 20957.29 28.00
o. Cash & bank 7616.39 10.18
p. Loans and advances 4170.70 5.56
Less: current liabilities and provisions 49804.77 66.58
* g. Liabilities 24423.49 -32.65
h. Provisions 8384.87 -11.22
32808.36 -43.85
Net current assets 16999.41 22.72
Total 74807.47 100

INTERPRETATION:-

1. Here, company’s share capital in 2007 in 2008 in 2009

the share capital of the company was same which is

77
 2694.60(lacks) so, company’s share capital; remain constant
without any fluctuation but there change seen in percentage.

2. The percentage in share capital of the company in the

year 2007 was the highest and there is reduction seen in the
percentage for the coming two years.

3. Company’s reserves & surplus are increasing and the

secured loans and unsecured loans are decreasing which is a
good sign for company.

4. The current liabilities and provisions are decreasing

which is also a good sign for the company.

COMMONSIZE PROFIT & LOSS

ACCOUNT OF NEROLAC FOR THE
YEAR 2007

78
Particulars Amount in Percentage
lacks Rs. (%)
(I) (a).Sales 141643.46 100.00
Less: excise duty 19405.36 -13.70
Net sales……… 122238.10 86.30
(b)other income 2404.77 1.70
TOTAL (a & b) 124642.87 87.99
(II) Expenditures:-
a) Cost of materials 77832.90 54.95
b) Employees remuneration & benefits 5956.90 4.21
c) Operating and other expenses 21304.54 15.04
d) Interest -other than fixed loans 96.15 0.07
TOTAL (a, b, c & d) 105190.49 74.26
(III) Profit before depreciation and taxes (a-b) 19452.38 13.73
Depreciation………. 3355.74 2.37
(IV) Profit before tax 16096.64 11.36
(V) Provision for taxation
a) Current tax 4935.37 3.48
b) Deferred tax 258.12 0.18
c) Fringe benefit tax 137.25 0.097
5330.74 3.76
(VI) Profit after tax 10765.90 7.60
Add: balance brought forward 7565.69 5.34
Add: balance transferred on amalgamation 1339.18 0.95
(VII) Balance available for appropriations 19670.77 13.89
Less: Appropriations: - -
a) Interim dividend 3098.79 2.19
b) Additional income tax and distributed profit 439.52 0.31
c) General reserve 1076.59 0.76
TOTAL (a , b & c) 4614.90 3.26
TOTAL 15055.87 10.63

COMMONSIZE PROFIT & LOSS

ACCOUNT OF NEROLAC FOR THE
YEAR 2008
Particulars Amount in Percentage
lacks Rs. (%)

79
(I) (a).Sales 152866.81 100.00
Less: excise duty 20891.80 -13.67
Net sales……… 131975.01 86.33
(b)other income 2484.59 1.63
TOTAL (a & b) 134459.60 87.96
(II) Expenditures:- - -
a) Cost of materials 83704.70 54.76
b) Employees remuneration & benefits 6913.05 4.52
c) Operating and other expenses 22702.18 14.85
d) Interest -other than fixed loans 140.60 0.09
TOTAL (a, b, c & d) 113460.53 74.22
(III) Profit before depreciation and taxes (a-b) 20999.07 13.74
Depreciation………. 3960.05 2.59
(IV) Profit before tax 17039.02 11.15
(V) Provision for taxation - -
a) Current tax 5328.35 3.49
b) Deferred tax 388.35 0.25
c) Fringe benefit tax 120.00 0.078
5060.00 3.3
(VI) Profit after tax 11979.02 7.84
Add: balance brought forward 15055.87 9.85
Add: balance transferred on amalgamation - -
(VII) Balance available for appropriations 27034.89 17.69
Less: Appropriations: - -
a) Interim dividend 3233.52 2.16
b) Additional income tax and distributed profit 549.54 0.36
c) General reserve 1197.90 0.78
TOTAL (a , b & c) 4980.96 3.26
TOTAL 22053.93 14.43

COMMONSIZE PROFIT & LOSS

ACCOUNT OF NEROLAC FOR THE
YEAR 2009
Particulars Amount in Percentage
lacks Rs. (%)

80
 (I) a).Sales 156776.73 100.00
Less: excise duty 19324.81 -12.33
Net sales……… 137451.92 87.67
(b)other income 2219.50 1.42
TOTAL (a & b) 139671.42 89.00
(II) Expenditures:- - -
a) Cost of materials 89958.28 57.38
b) Employees remuneration & benefits 7330.30 4.68
c) Operating and other expenses 24419.64 15.58
d) Interest -other than fixed loans 183.80 0.12
TOTAL (a, b, c & d) 121892.02 77.75
(III) Profit before depreciation and taxes (a-b) 17779.40 11.34
Depreciation………. 3760.50 2.40
(IV) Profit before tax 14018.90 8.94
(V) Provision for taxation - -
a) Current tax 4060.45 2.59
b) Deferred tax 20.45 0.01
c) Fringe benefit tax 120.00 0.08
4160.00 2.65
(VI) Profit after tax 9858.90 6.29
Add: balance brought forward 22053.93 14.07
Add: balance transferred on amalgamation - -
(VII) Balance available for appropriations 31912.83 20.36
Less: Appropriations: - -
a) Interim dividend 3233.52 2.06
b) Additional income tax and distributed profit 549.54 0.35
c) General reserve 985.89 0.63
TOTAL (a , b & c) 4768.95 3.04
TOTAL 27143.88 17.31

INTERPRETATION:-

1. Here, the company is able to increase its sales in the year

2009 which is a good sign for the company.

81
2. The excise duty has been decreased and other income have also
decreased.

3. The material cost is increased in 2009 and operating cost is also

increased which is not good sign for the company. So, company has to
control material cost & operating cost.

4. The company has maintained employee’s remuneration &

benefits which is a good sign for the company.

5. Company’s depreciation policy is also good & proper.

6. Current tax has been decreased due to tax planning, which is

good for the company’s point of view.

7. The earning for equity shareholder is increasing due to decrease in

general reserve & proposed dividend.

COMPARATIVE BALANCESHEET
OF NEROLAC LTD. FOR THE LAST
3 YEARS (2007/2008/2009)
Particulars Percentage Percentage Percentage

82
 (%)2007 (%)2008 (%)2009
(I) Share holder’s funds:
a. Share capital 4.33 3.90 3.60
b. Reserves and surplus 77.95 81.94 83.88
(II) Loans funds:
a. Secured loans 4.83 2.8 2.15
b. Unsecured loans 12.85 11.39 10.37
Total (I & II) 100 100 100
* Application of funds
(I) Fixed assets:
a. Gross profit 68.26 69.42 72.45
b. Less: depreciation -37.60 -39.26 -40.55
c. Net block 30.66 30.16 31.9
d. Less: provision for w.d value of fixed assets -0.13 -0.2 -0.16
e. Capital work in progress at cost 2.04 2.89 4.14
f. Advances for capital expenditure 0.8 0.96 0.63
2.84 3.85 4.76
Investments 24.9 33.56 39.36
* Deferred tax assets 1.05 1.5 1.42
* Current assets loans and advances:
* a. Inventories 29.02 25.07 22.81
b. Sundry debtors 31.31 30.79 28.00
c. Cash & bank 3.46 4.83 10.18
d. Loans and advances 8.48 6.96 5.56
Less: current liabilities and provisions 72.27 67.65 66.58
* a. Liabilities -24.29 -24.42 -32.65
b. Provisions -7.29 -12.10 -11.22
Total (a & b) -31.58 -36.52 -43.85
Net current assets------------------------------------- 40.68 31.12 22.72
Total 100 100 100

INTERPRETATION:-

1. The share capital of the company is increasing which can be

seen in the percentage of 2007, 2008, 2009 and the reserve &
surpluses have also increased.

83
2. The company’s secured loan has been decreased i.e. well for the
company. But there is a small change in company’s unsecured loan.

3. The current liabilities and the provision have decreased in the

year 2009 in comparison of 2008-07.

4. The company has increased gross block in the year 2009 as

compared to the year 2008. Depreciation policy of the company is
high so the depreciation is increased in the year 2009.

5. Investment of the company is increasing, in 2007 it is 24.9%,

2008 it is 33.56% and in 2009 it is 39.36%.

6. The inventories have also decreased.

COMPARATIVE PROFIT & LOSS

ACCOUNT OF NEROLAC LTD. FOR
THE LAST
3 YEARS(2007/2008/2009)
Particulars Percentage Percentage Percentage
(%)2007 (%)2008 (%)2009

84
(I) (a).Sales 100.00 100.00 100.00
Less: excise duty -13.70 -13.67 -12.33
Net sales……… 86.30 86.33 87.67
(b)other income 1.70 1.63 1.42
(II) Expenditures:- 87.99 87.96 89.00
e) Cost of materials 54.95 54.76 57.38
f) Employees remuneration & benefits 4.21 4.52 4.68
g) Operating and other expenses 15.04 14.85 15.58
h) Interest -other than fixed loans 0.07 0.09 0.12
74.26 74.22 77.75
(III) Profit before depreciation and taxes (a-b) 13.73 13.74 11.34
Depreciation………. 2.37 2.59 2.40
(IV) Profit before tax 11.36 11.15 8.94
(V) Provision for taxation
d) Current tax 3.48 3.49 2.59
e) Deferred tax 0.18 0.25 0.01
f) Fringe benefit tax 0.097 0.078 0.08
Profit after tax 7.60 7.84 6.29
(VI) Add: balance brought forward 5.34 9.85 14.07
Add: balance transferred on amalgamation 0.95 - -
Balance available for appropriations 13.89 17.69 20.36
(VII) Less: Appropriations: - - -
a) Interim Dividend 2.19 - -
b) Proposed Dividend - 2.16 2.06
c) Additional income tax and distributed 0.31 0.36 0.35
profit
General reserve 0.76 0.78 0.63
TOTAL 10.63 14.43 17.31

INTERPRETATION:-

1. Here, the sales are considered as a base for calculation of

percentages.

85
 2. Other income is decreasing which is not good sign for the
company.

3. Cost of materials is increasing and operating and other

expenses are also increasing. Interest (payment) is also
increasing.

4. Profit before tax is decreased in 2009 as compared to 2008.

The current tax is also decreased in 2009 and deferred tax is

also decreased in 2009.

5. General reserves & proposed dividend is decreasing. The

earning per share is also decreasing.

1. Introduction to Cash flow statement:

Cash is the most liquid asset of a business. All business transactions

ultimately result into cash inflow or cash outflow. Hence, a statement
that shows cash flow is considered to be an important one. It can be said,

86
 therefore, that cash is both the beginning and the end of the business
operations. The business should have sufficient cash on hand, so that the
liabilities can be paid as and when they fall due. The cash on hand should
not be excessive, otherwise the cash would remain idle, reducing the over
all profitability. Looking to the importance3 of liquidity, the cash
statements assume all the more significance for management. There are
two such statements viz. Cash budget for the3 definite future time period,
which shows that would be the expected cash position during the next
year. The second is the cash flow statement, which is a historical
statement and shows what was the cash inflow and cash outflow during
the last year and what was the actual cash balance on hand at the end of
the last year.

The fund flow statement shows the changes in the net working capital,
while the cash flow statement shows that inflow and outflow of cash
only. The statement shows the amount of cash re3ceived and cash paid
due to each transaction of business. The total cash inflow is added to the
opening balance of cash and the total cash outflow deducted therefrom.
This gives the final cash balance.

CASHFLOW OF NEROLAC PVT.LTD

2006- 2006- 2007- 2007- 2008- 2008-

2007 2007 2008 2008 2009 2009
Rs.(in Rs.(in Rs.(in Rs.(in Rs.(in Rs.(in
Particulars lacs) lacs) lacs) lacs) lacs) lacs)
Cash flow from operating
activities
Net Profit before tax 16096.64 17039.02 14018.9
adjustments for:

87
depreciation 3355.74 3960.05 3760.5
foreign exchange
loss/(gain)unrealized 10.18 4.85 46.1
loss on sale of fixed assets 0.07 3.33
loss on fixed assets written
off 0.77 6.35 15.95
provision for write
down in value of
fixed assets 69.73
provision for write down in value of
fixed assets written for 13.23 11.52 22.86
profit on sale of fixed
assets 83 4.96 1.86
loss on sale/redemption of
investments 0.39 17.86 29.2
provision for diminution in value of
investments no longer 80.7
profit on sale 514.08 1413.92 395.04
interest expenditure 96.15 140.6 183.8
interest income 114 95.81 271.01
dividend income 718.3 1919.63 829 1334.15
1844.23 2013.96
operation profit before working
capital changes 18016.27 18883.25 16032.86
increase in trade and other
receivable 1180.38 1286.73
decrease in trade and other
receivable 1019.57
decrease 695.5 701.06 271.72
increase(decrease)in trade
payables 1021.41 1506.29 2211.28 1625.61 7316.18 8613.47
cash generated from
operation 16509.98 20508.86 24646.23
direct taxes paid(net of
refunds) 5518.72 5518.72 4185.06

net cash flow from operating

activities 10991.26 15008.17 20461.27

88
 CASHFLOW OF NEROLAC PVT.LTD

2006- 2006- 2007- 2007- 2008- 2008-

2007 2007 2008 2008 2009 2009
Rs.(in Rs.(in Rs.(in Rs.(in Rs.(in Rs.(in
Particulars lacs) lacs) lacs) lacs) lacs) lacs)
Cash flow from investing
activities
purchase of fixed assets(including
adjustment of capital work in progress
capital 6306.38 6855.73 7470.19
sales of fixed assets 193.66 12.74 3.15
purchase of investments 42457.7 58113.21 91585.64
proceeds from sale of
investments in subsidiary
company 2168.86
proceeds from sale / redemption of
investments 45229.15 51777.52 83554.07
interests received 121.8 95.81 220.27
dividend received 715.63 829 1334.15
net cash used in investing
activities 2503.84 12253.87 11775.33
Cash flow from financing
activities
proceeds from borrowings 97.35 206.36
repayment of borrowing 744.7 822.35 512.62
increase / decrease in cash
credit from banks 308.7 588.68 79.27
interest paid 308.51 140.6 184.13
dividend paid 6168.15 220.76 3240.07
additional income - tax on
distributed profit 894.69 549.54
net cash used in financial
activities 8114.85 1566.03 4407.09
net increase in cash and cash
equivalents 372.57 1188.27 4278.85
Cash & cash equivalents at beginning
of the year the components
cash on hand 11.39 14.87 4.92
balances with banks on currents,
margins & fixed deposit 1567.23 2134.4 2149.27 3332.62 3337.54
Add: cash & cash equivalents of
polycoat powders ltd. As at 1st April 198.08
Cash and cash equivalents at end of
the year the components
cash on hand 14.87 4.92 4.69
balances with banks on currents,
margins & fixed deposit 2134.4 3332.62 7611.7
2149.27 3337.54 7616.39
net increase as disclosed
above 372.57 1188.27 4278.85

89
INTERPRETATION:-

1. Here in the operating activity we can see that loss on sales of

fixed assets is increasing, loss on fixed assets written off is also
increasing, loss on sale is also increasing & interest expenditure
is also increasing. Thus it is not a good for the company.

2. The net cash flow from operating activities is increasing.

3. After operating activities, in the investing activity the sale of

fixed assets is decreasing. The interest and dividend increased in
the year 2008-09.

4. Purchase of investments is increasing which is good for

company. Net cash flow from the investing activity decreases in
all the three year respectively.

5. In the financing activity the proceeds from borrowings is

nothing in the year 2008-09. Interest is increasing, dividend is
also increasing, and cash on hand is decreasing.

6. The net cash flow from the financing activity has decreased at
high rate.

90
 CONCLUSION

Nerolac covers over 28 countries globally and Nerolac is present in paint

sector for about 20 years. Nerolac is also one of the leading companies in
paint sector of India. Nerolac has earned its place in the hearts of people
and in the market. Nerolac is an innovative company and has done
sufficient changes to overcome the financial obstacle arising in the
company. Neerolac has introduced eco-friendly products which is of
superor quality and does not pollute the environment. Nerolac has
changed the face of paint sector in India and has helped in economic
development of India.

91
 BIBLOGRAPHY

BOOKS:

 Financial Management by Khan and Jain 5th

Edition.

 Advanced Accounts Volume II: by M.C.

S u k l a , T . S . Gr e w a l , S . C . G u p t a & S . C h a n d
& Co.

 Financial Management by P.V. Kulkarni &

B.G. Satya Prasad.

WEBSITES:

 www.Google.com

 www.Nerolac.com

 www.Economictimes.com

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Annexure

93