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 cooperate plan must be expressed in financial terms”

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• 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.

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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)
(b)

Profit Maximization. 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.

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(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.

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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

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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. overcapitalization. Undue optimism of the framers of financial plan will lead in 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. is defective. The management will be constantly worrying if the financial planning

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3) Finance for Expansion :

Finance is required for schemes of modernization expansion and development of the existing enterprises. management. How do meet this requirement is one of the major problem of financial 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.

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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 810% in volume terms and 7-8% in value firms

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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.

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(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

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(3) Board of Directors of the Company:
 J.J. Irani Chairman Vice-Chairman Managing Director Director Director Director Whole time Director Company Secretary C.F.O.

 D.M. Kothari  H.M. Bharvuka  S.M. Datta  P.P. Shah  N.M. Tata  P.D. Chaudhari  G.T. Govindarajan
 P.D. Pai

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(4) Products of the Company:
• Decorative paints:1. (a) (1) (2) (1) (2) (3) (b) 2. (1) (2) (3) (4) (5) (6) Walls Interior Water based paints Emulsions Distemper Solvent based paints Luster Enamel Flat oid Exterior Emulsions Textured Cement Nerolac Impressions ever last Woods 1k pu Mel’mine 2k pu Multisealer Water clear Lacquer Wood stains

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3. i. ii. iii.

Metals: Nerolac impression Hi-performance Enamel Nerolac Satin Enamel Nerolac Synthetic Enamel

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

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(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”

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• 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.

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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.

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(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.

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(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.

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(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.

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(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.

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(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.

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

Particulars (I) Share holder’s funds: a. Share capital b. Reserves and surplus Loans funds: a. Secured loans b. Unsecured loans Total (I - II) * (I) Application of funds Fixed assets: a. Gross profit b. Less: depreciation c. Net block d. Less: provision for w.d value of fixed assets e. Capital work in progress at cost f. Advances for capital expenditure Investments Deferred tax assets Current assets loans and advances: a. Investments b. Sundry debtors c. Cash & bank d. Loans and advances Less: current liabilities and provisions a. Liabilities b. Provisions Net current assets

Rs. In Lacks (2009) 2694.60 62750.2 5 65444.8 5 1608.29 7754.33 9362.62 74807.4 7 54198.4 4 30336.4 5 23861.9 9 118.45 3094.36 468.04 3562.40 29442.5 5 1059.57 17063.3 9 20957.2 9 7616.39 4170.70 49804.7 7

Rs. In Lacks (2008) 2694.60 56674.41 593.69.0 1 1918.11 7877.26 9795.37 69164.38 48014.72 27152.97 20861.75 141.31 2000.67 662.88 266355 23214 1039.12 17341.11 21293.30 3337.54 4814.81 48786.76 16889.50 8369.99 25259.49 21527.27

Rs. In Lacks (2007) 2694.60 48478.45 51173.05 3002.18 7997.51 10999.69 62172.74 42440.87 23375.64 19065.23 83.10 1266.33 496.99 1763.32 15482.25 650.77 1842.17 19496.04 2149.27 5271.46 44931.94 15104.27 4533.40 19637.67 25394.27

(II )

* * *

*

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24423.4 9 8384.87 32808.3 6 16999.4 1

Total

74807.4 7

69164.38

6,21,72.74

PROFIT & LOSS ACCOUNT OF NEROROLAC LTD. FOR THE LAST 3 YEARS (2007/2008/2009)
Particulars Rs. In lacks(07) Rs. In lacks(08) Rs. In lacks(09)

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(I)

(a).Sales Less: excise duty Net sales……… (b)other income TOTAL (a & b) Expenditures:a) Cost of materials b) Employees remuneration & benefits c) Operating and other expenses d) Interest -other than fixed loans TOTAL (a, b, c & d) Profit before depreciation and taxes (a-b) Depreciation………. Profit before tax Provision for taxation a) Current tax b) Deferred tax c) Fringe benefit tax

(II)

141643.4 6 19405.36 122238.1 0 2404.77 124642.8 7 77832.90 5956.90 21304.54 96.15 105190.4 9 19452.38 3355.74 16096.64 4935.37 258.12 137.25 5330.74 10765.90 7565.69 1339.18 19670.77 3098.79 439.52 1076.59 4614.90

152866.8 1 20891.80 131975.0 1 2484.59 134459.6 0 83704.70 6913.05 22702.18 140.60 113460.5 3 20999.07 3960.05 17039.02 5328.35 388.35 120.00 5060.00 11979.02 15055.87 27034.89 3233.52 549.54 1197.90 4980.96 22053.93

156776.73 19324.81 137451.92 2219.50 139671.42 89958.28 7330.30 24419.64 183.80 121892.02 17779.40 3760.50 14018.90 4060.45 20.45 120.00 4160.00 9858.90 22053.93 31912.83 3233.52 549.54 985.89 4768.95

(III) (IV) (V)

(VI)

Profit after tax Add: balance brought forward Add: balance transferred on amalgamation (VII) Balance available for appropriations Less: Appropriations: a) Interim dividend b) Additional income tax and distributed profit c) General reserve TOTAL (a , b & c)

TOTAL

15055.87

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

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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

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(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 balancesheet 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.

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(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) (ii)
(iii)

Gross Profit Ratio Net Profit Ratio Operating Ratio. etc.

(iii)

Leverage Ratios or Structural Ratios:

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

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

(iii) Advantages and Limitations of Ratios:

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(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.

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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:

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• 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 Current Ratio 2007 2008 41971.95 39660.48 -------------- = 1.41:1 -------------=1.39:1 16157.55 14215.61 2009 45637.07 -------------- = 1.98:1 23001.12

CURRENT RATIO 3 2.5 2 RATIOS 1.5 1 0.5 0 2007 2008 2009 YEARS 1.98 CURRENT RATIO 2.79

2.59

Interpretation:-

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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

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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 Liquid ratio 2007 2008 2009 21618.31 24630.75 28573.68 ----------- = 1.52:1 ----------- = 1.52:1 ------------- = 1.24:1 14215.61 16157.55 23001.12

LIQUID RATIO 1.6 1.4 1.2 1 RATIOS 0.8 0.6 0.4 0.2 0 2007 2008 2009 YEARS LIQUID RATIO 1.52 1.52 1.24

Interpretation:-

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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.

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• 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 Liquid ratio 2007 2008 2009 21618.31 24630.75 28573.68 ----------- = 1.52:1 ----------- = 1.52:1 ------------- = 1.24:1 14215.61 16157.55 23001.12

LIQUID RATIO 1.6 1.4 1.2 1 RATIOS 0.8 0.6 0.4 0.2 0 2007 2008 2009 YEARS LIQUID RATIO 1.52 1.52 1.24

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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.

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• 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
51173.05 x 100 81159.64 = 63%

2008
59369.01 x 100 93384.75 = 64 %

2009
65444.85 x 100 106556.26 = 61%

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

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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.

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• DEBT-EQUITY RATIO
This ratio is only another form of proprietary ratio and establishes relationship between the outside longterm 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 Debt-Equity ratio 2007 2008 2009 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 6 5 RATIOS 4 3 2 1 0 2007 2008 2009 YEARS 3.23 2.45 DEBT-EQUITY RATIO 5.87

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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.

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• 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 Long term funds to fixed assets 2007 54175.23 ------------- = 2.61 20745.45 2008 61287.12 ------------ = 2.62 23383.99 2009 67053.14 -------------- = 2.46 27305.94

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Long term funds to fixed assets 2.65 2.6 2.55 RATIOS 2.5 2.45 2.4 2.35 2007 2008 2009 YEARS 2.46 Long term funds to fixed assets 2.62

2.61

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.

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• 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

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Debtors ratio

19469.04 x 365 141643.46 = 50 days

21293.30 x 365 152866.81 = 51 days

20957.29 x 365 156776.73 = 49 days

DEBT-EQUITY RATIO 7 6 5 RATIOS 4 3 2 1 0 2007 2008 2009 YEARS 3.23 2.45 DEBT-EQUITY RATIO 5.87

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.

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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.

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Credit Sales Debtors turnover ratio = ----------------------------------Average Debtors Ratio
Debtors turnover ratio 2007 141643.46 16930.32 = 8.37 times 2008 152866.81 20381.17 =7.5 times 2009 156776.73 21125.3 = 7.42 times

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

8.37

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

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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.

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

Ratio
Creditor’s ratio

2007
14345.62 x 365 87382.44 = 59 days

2008
16157.55 x 365 83193.52 = 71 days

2009
23001.12 x 365 90577.61 = 93 days

Creditors Ratio 100 90 80 70 60 RATIOS 50 40 30 20 10 0 93 71 59 CREDITORS RATIO

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 77676.69 14459.04 = 5.37 times

2008 83193.52 15186.6 =5.48 times

2009 90577.61 19579.34 = 4.63 times

CREDITORS TURNOVER RATIO 5.6 5.4 5.2 RATIOS 5 4.8 4.6 4.4 4.2 2007 2008 2009 YEARS 4.63 CREDITORS TURNOVER RATIO 5.37 5.48

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 76945.44 x 100 156776.63 = 49.07%

73140.76 x 100 78516.93 x 100 141643.46 152866.81 = 51.64% = 51.36%

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

51.36

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 Net profit ratio

2006-07

2007-08

2008-09

10765.90 X 100 11979.02 X 100 9858.09 X 100 122238.10 131975.01 137451.92 = 8.81% =9.076 % = 7.17%

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

8.81

9.076 7.17

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 77451.06 x 100 122238.10 = 63.36 %

2007-08

2008-09

88154.08 x 100 90248.75 x 100 131975.01 137451.92 = 66.8 % = 65.66 %

OPERATING RATIO 68 67 66 RATIOS 65 64 63 62 61 2007 2008 2009 YEARS OPERATING RATIO 63.36 66.8 65.66

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 17478.45 x 100 122238.10 = 14.3%

2007-08 18789.26 x 100 131975.01 = 14.24%

2008-09 20565.44 x 100 137451.92 = 14.96%

EXPENSE RATIO 15.2 15 14.8 RATIOS 14.6 14.4 14.2 14 13.8 2007 2008 2009 YEARS 14.3 EXPENSE RATIO 14.24 14.96

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 16000.49 x 100 54175.23 = 29.53%

2007-08 16898.42 x 100 61287.12 = 27.57%

2008-09 13834.77 x 100 67053.14 = 20.63%

RETURN ON CAPITAL EMPLOYED 35 30 25 RATIOS 20 15 10 5 0 2007 2008 2009 YEARS 29.53 27.57 20.63 RETURN ON CAPITAL EMPLOYED

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 10765.90 x 100 51173.05 = 21.04%

2008 11979.02 x 100 59369.01 = 20.18%

2009 9858.90 x 100 65444.85 =15.06%

RETURN SHAREHOLDERS FUND 25 21.04 20 15 RATIOS 10 5 0 2007 2008 2009 YEARS 15.06 RETURN SHAREHOLDERS FUND 20.18

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 10765.90 x 100 2694.6 = 399.54 %

2007-08

2008-09

11979.02 x 100 9858.90 x 100 2694.6 2694.6 = 444.55 % = 365.88 %

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

444.55

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 10765.90 269.46 =39.95 Rs.

2007-08 11979.02 269.46 =44.46 Rs.

2008-09 9858.90 269.46 = 36.58 Rs.

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

44.46 36.58

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 improve this. the year 2008 while there is a decrease seen in the year 2009 company should take necessary steps to

• 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 5856.15 269.46 = 21.73 Rs.
DIVIDEND PER SHARE

2007-08 220.76 269.46 = 0.82 Rs.

2008-09 3240.07 269.46 =12.02 Rs.

25 21.73 20

15 RATIOS 10 12.02 DIVIDEND PER SHARE

5 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 21.73 39.95 = 0.54

2007-08 0.82 44.46 = 0.018

2008-09 12.02 36.58 = 0.33

70

DIVIDEND PAYMENT RATIO 0.6 0.5 0.4 RATIOS 0.3 0.2 0.1 0 2007 2008 2009 YEARS 0.33 DIVIDEND PAYMENT RATIO 0.54

0.018

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 longterm 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 16000.49 96.15 = 166.41 times

2007-08 16898.42 140.60 = 120.19 times

2008-09 13834.77 184.13 = 75.14 times

72

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

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) (II )

Share holder’s funds: c. Share capital d. Reserves and surplus Loans funds: c. Secured loans d. Unsecured loans Total (I - II) Application of funds Fixed assets: g. Gross profit h. Less: depreciation i. Net block j. Less: provision for w.d value of fixed assets k. Capital work in progress at cost l. Advances for capital expenditure Investments Deferred tax assets Current assets loans and advances: e. Investments f. Sundry debtors g. Cash & bank h. Loans and advances Less: current liabilities and provisions c. Liabilities d. Provisions Net current assets

2694.60 48478.45 51173.05 3002.18 7997.51 10999.69 62172.74 42440.87 23375.64 19065.23 83.10 1266.33 496.99 1763.32 15482.25 650.77 1842.17 19496.04 2149.27 5271.46 44931.94 15104.27 4533.40 19637.67 25394.27

4.33 77.95 82.30 4.83 12.85 17.69 100 68.26 -37.60 30.66 -0.13 2.04 0.8 2.84 24.9 1.05 29.02 31.31 3.46 8.48 72.27 -24.29 -7.29 -31.58 40.68 100

* (I)

* * *

*

Total 44931.94

COMMONSIZE BALANCESHEET OF NEROLAC FOR THE YEAR 2008
Particulars Rs. In lacks Percentage (%) 75

(I) (II )

Share holder’s funds: e. Share capital f. Reserves and surplus Loans funds: e. Secured loans f. Unsecured loans Total (I - II) Application of funds Fixed assets: m. Gross profit n. Less: depreciation o. Net block p. Less: provision for w.d value of fixed assets q. Capital work in progress at cost r. Advances for capital expenditure Investments Deferred tax assets Current assets loans and advances: i. Investments j. Sundry debtors k. Cash & bank l. Loans and advances Less: current liabilities and provisions e. Liabilities f. Provisions Net current assets

2694.60 56674.41 593.69.01 1918.11 7877.26 9795.37 69164.38 48014.72 27152.97 20861.75 141.31 2000.67 662.88 266355 23214 1039.12

3.90 81.94 85.84 2.8 11.39 14.19 100 69.42 -39.26 30.16 -0.2 2.89 0.96 3.85 33.56 1.5 25.07 30.79 4.83 6.96 67.65 -24.42 -12.10 -36.52 31.12 100

* (I)

* * *

*

17341.11 21293.30 3337.54 4814.81 48786.76 16889.50 8369.99 25259.49 21527.27 Total 69164.38

COMMONSIZE BALANCESHEET OF NEROLAC FOR THE YEAR 2009
Particulars Rs. In lacks Percentage

76

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

* * *

*

17063.39 20957.29 7616.39 4170.70 49804.77 24423.49 8384.87 32808.36 16999.41 Total 74807.47

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 (I) (a).Sales Less: excise duty Net sales……… (b)other income TOTAL (a & b) Expenditures:a) Cost of materials b) Employees remuneration & benefits c) Operating and other expenses d) Interest -other than fixed loans TOTAL (a, b, c & d) Profit before depreciation and taxes (a-b) Depreciation………. Profit before tax Provision for taxation a) Current tax b) Deferred tax c) Fringe benefit tax

Amount in lacks Rs. 141643.46 19405.36 122238.10 2404.77 124642.87 77832.90 5956.90 21304.54 96.15 105190.49 19452.38 3355.74 16096.64

Percentage (%) 100.00 -13.70 86.30 1.70 87.99 54.95 4.21 15.04 0.07 74.26 13.73 2.37 11.36 3.48 0.18 0.097 3.76 7.60 5.34 0.95 13.89 2.19 0.31 0.76 3.26 10.63

(II)

(III) (IV) (V)

4935.37 258.12 137.25 5330.74 (VI) Profit after tax 10765.90 Add: balance brought forward 7565.69 Add: balance transferred on amalgamation 1339.18 (VII) Balance available for appropriations 19670.77 Less: Appropriations: a) Interim dividend 3098.79 b) Additional income tax and distributed profit 439.52 c) General reserve 1076.59 TOTAL (a , b & c) 4614.90 TOTAL 15055.87

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

79

(I)

(a).Sales Less: excise duty Net sales……… (b)other income TOTAL (a & b) Expenditures:a) Cost of materials b) Employees remuneration & benefits c) Operating and other expenses d) Interest -other than fixed loans TOTAL (a, b, c & d) Profit before depreciation and taxes (a-b) Depreciation………. Profit before tax Provision for taxation a) Current tax b) Deferred tax c) Fringe benefit tax

(II)

(III) (IV) (V)

(VI)

Profit after tax Add: balance brought forward Add: balance transferred on amalgamation (VII) Balance available for appropriations Less: Appropriations: a) Interim dividend b) Additional income tax and distributed profit c) General reserve TOTAL (a , b & c)

152866.81 20891.80 131975.01 2484.59 134459.60 83704.70 6913.05 22702.18 140.60 113460.53 20999.07 3960.05 17039.02 5328.35 388.35 120.00 5060.00 11979.02 15055.87 27034.89 3233.52 549.54 1197.90 4980.96

100.00 -13.67 86.33 1.63 87.96 54.76 4.52 14.85 0.09 74.22 13.74 2.59 11.15 3.49 0.25 0.078 3.3 7.84 9.85 17.69 2.16 0.36 0.78 3.26 14.43

TOTAL 22053.93

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

80

(I)

a).Sales Less: excise duty Net sales……… (b)other income TOTAL (a & b) Expenditures:a) Cost of materials b) Employees remuneration & benefits c) Operating and other expenses d) Interest -other than fixed loans TOTAL (a, b, c & d) Profit before depreciation and taxes (a-b) Depreciation………. Profit before tax Provision for taxation a) Current tax b) Deferred tax c) Fringe benefit tax

(II)

(III) (IV) (V)

(VI)

Profit after tax Add: balance brought forward Add: balance transferred on amalgamation (VII) Balance available for appropriations Less: Appropriations: a) Interim dividend b) Additional income tax and distributed profit c) General reserve TOTAL (a , b & c)

156776.73 19324.81 137451.92 2219.50 139671.42 89958.28 7330.30 24419.64 183.80 121892.02 17779.40 3760.50 14018.90 4060.45 20.45 120.00 4160.00 9858.90 22053.93 31912.83 3233.52 549.54 985.89 4768.95

100.00 -12.33 87.67 1.42 89.00 57.38 4.68 15.58 0.12 77.75 11.34 2.40 8.94 2.59 0.01 0.08 2.65 6.29 14.07 20.36 2.06 0.35 0.63 3.04 17.31

TOTAL 27143.88

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

6.

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 (I) Share holder’s funds: a. Share capital b. Reserves and surplus (II) Loans funds: a. Secured loans b. Unsecured loans * (I) Total (I & II) Application of funds Fixed assets: a. Gross profit b. Less: depreciation c. Net block d. Less: provision for w.d value of fixed assets e. Capital work in progress at cost f. Advances for capital expenditure Investments Deferred tax assets Current assets loans and advances: a. Inventories b. Sundry debtors c. Cash & bank d. Loans and advances Less: current liabilities and provisions a. Liabilities b. Provisions Total (a & b) Net current assets------------------------------------Total 4.33 77.95 4.83 12.85 100 68.26 -37.60 30.66 -0.13 2.04 0.8 2.84 24.9 1.05 29.02 31.31 3.46 8.48 72.27 -24.29 -7.29 -31.58 40.68 100

(%)2008 3.90 81.94 2.8 11.39 100 69.42 -39.26 30.16 -0.2 2.89 0.96 3.85 33.56 1.5 25.07 30.79 4.83 6.96 67.65 -24.42 -12.10 -36.52 31.12 100

(%)2009 3.60 83.88 2.15 10.37 100 72.45 -40.55 31.9 -0.16 4.14 0.63 4.76 39.36 1.42 22.81 28.00 10.18 5.56 66.58 -32.65 -11.22 -43.85 22.72 100

* * *

*

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)

(II)

(a).Sales Less: excise duty Net sales……… (b)other income Expenditures:e) Cost of materials f) Employees remuneration & benefits g) Operating and other expenses h) Interest -other than fixed loans

(III)

Profit before depreciation and taxes (a-b) Depreciation………. (IV) Profit before tax (V) Provision for taxation d) Current tax e) Deferred tax f) Fringe benefit tax Profit after tax (VI) Add: balance brought forward Add: balance transferred on amalgamation Balance available for appropriations (VII) Less: Appropriations: a) Interim Dividend b) Proposed Dividend c) Additional income tax and distributed profit General reserve TOTAL

100.00 -13.70 86.30 1.70 87.99 54.95 4.21 15.04 0.07 74.26 13.73 2.37 11.36 3.48 0.18 0.097 7.60 5.34 0.95 13.89 2.19 0.31 0.76 10.63

100.00 -13.67 86.33 1.63 87.96 54.76 4.52 14.85 0.09 74.22 13.74 2.59 11.15 3.49 0.25 0.078 7.84 9.85 17.69 2.16 0.36 0.78 14.43

100.00 -12.33 87.67 1.42 89.00 57.38 4.68 15.58 0.12 77.75 11.34 2.40 8.94 2.59 0.01 0.08 6.29 14.07 20.36 2.06 0.35 0.63 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
20062007 Rs.(in lacs) 20062007 Rs.(in lacs) 20072008 Rs.(in lacs) 20072008 Rs.(in lacs) 20082009 Rs.(in lacs) 20082009 Rs.(in lacs)

Particulars Cash flow from operating activities Net Profit before tax adjustments for:

16096.64

17039.02

14018.9

87

depreciation foreign exchange loss/(gain)unrealized loss on sale of fixed assets loss on fixed assets written off provision for write down in value of fixed assets provision for write down in value of fixed assets written for profit on sale of fixed assets loss on sale/redemption of investments provision for diminution in value of investments no longer profit on sale interest expenditure interest income dividend income operation profit before working capital changes increase in trade and other receivable decrease in trade and other receivable decrease increase(decrease)in trade payables cash generated from operation direct taxes paid(net of refunds) net cash flow from operating activities

3355.74 10.18 0.07 0.77

3960.05 4.85

3760.5 46.1 3.33 15.95

6.35 69.73

13.23 83 0.39 80.7 514.08 96.15 114 718.3

11.52 4.96 17.86

22.86 1.86 29.2

1919.63

1413.92 140.6 95.81 829 1844.23

395.04 183.8 271.01 1334.15 2013.96 16032.86

18016.27 1180.38 1286.73

18883.25

695.5 1021.41 1506.29 16509.98 5518.72

701.06 2211.28 20508.86 5518.72 1625.61

1019.57 271.72 7316.18 24646.23 4185.06 8613.47

10991.26

15008.17

20461.27

88

CASHFLOW OF NEROLAC PVT.LTD
20062007 Rs.(in lacs) 20062007 Rs.(in lacs) 20072008 Rs.(in lacs) 20072008 Rs.(in lacs) 20082009 Rs.(in lacs) 20082009 Rs.(in lacs)

Particulars Cash flow from investing activities purchase of fixed assets(including adjustment of capital work in progress capital sales of fixed assets purchase of investments proceeds from sale of investments in subsidiary company proceeds from sale / redemption of investments interests received dividend received net cash used in investing activities Cash flow from financing activities proceeds from borrowings repayment of borrowing increase / decrease in cash credit from banks interest paid dividend paid additional income - tax on distributed profit net cash used in financial activities net increase in cash and cash equivalents Cash & cash equivalents at beginning of the year the components cash on hand balances with banks on currents, margins & fixed deposit Add: cash & cash equivalents of polycoat powders ltd. As at 1st April Cash and cash equivalents at end of the year the components cash on hand balances with banks on currents, margins & fixed deposit net increase as disclosed above

6306.38 193.66 42457.7

6855.73 12.74 58113.21

7470.19 3.15 91585.64 2168.86

45229.15 121.8 715.63 2503.84

51777.52 95.81 829 12253.87

83554.07 220.27 1334.15 11775.33

97.35 744.7 308.7 308.51 6168.15 894.69 8114.85 372.57

206.36 822.35 588.68 140.6 220.76 512.62 79.27 184.13 3240.07 549.54 1566.03 1188.27 4407.09 4278.85

11.39 1567.23 198.08

14.87 2134.4 2149.27

4.92 3332.62 3337.54

14.87 2134.4 2149.27 372.57

4.92 3332.62 3337.54 1188.27

4.69 7611.7 7616.39 4278.85

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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.

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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.

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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

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