COMPANY PROFILE

Lotus Chocolates take great pride in being one of India's select

manufacturers of the finest chocolates, cocoa products and cocoa
derivatives. Our products are supplied to chocolate makers and chocolate
users across the world, from local bakeries to multi - national companies.
Incorporated in 1988 and having commenced operations in 1992, Lotus is
well known as a reliable business partner for the supply of cocoa and
chocolate products.

Starting from the cocoa bean processing to delivering fine chocolates...

Lotus`s fully integrated manufacturing facility is built with the best
technologies and expertise from across the globe.

We are the one stop chocolate hub for you - our valued customer.

Located just 55km from Hyderabad in Telangana (South India), one of India's
fastest growing cities, we have the added advantage of close proximity to
the cocoa growing areas of South India. Equipped with sophisticated
machinery from Germany, UK, Denmark, and Italy, and backed by stringent
quality processes, we ensure that our chocolate is developed with its own
unique flavour - a flavour that leaves a smile of savored happiness...

Our motto is” To constantly reinvent, innovate and implement ideas. Create
finest quality, world-class, value for money products through continuous
research to deliver the best”. We at lotus believe that possibilities are
endless and that we will never know what we can achieve unless we TRY and
hence we are always enhancing and implementing new approaches and
striving for continuous improvement. A public limited company listed with
the Bombay Stock Exchange (BSE), we believe in growing together by
sharing knowledge and unwrapping human potential in an environment of
mutual respect... For our employees and our customers. Lotus wishes to
make a difference!!! The market leaders for best quality products and known
for our reliability and determination to have a positive impact on everything
we do. "We are truly in the business of pure joy".

Our unique food processing unit consisting of a cocoa processing and a

chocolate manufacturing plant, started production in 1992. At that time the
promoters of the company were Mrs. T Sharada (renowned South Indian cine
artiste) and Mr. Vijayaraghavan N (an engineer with a plethora of experience
in the fields of chocolate making and sales).Since then, the company has had
association with MNC's in south-east Asian countries and has developed
various specialty chocolates that have made an identity in the Indian market.
Over the years, various moulded and panned products under the brand
names of "Chuckles", "On & On", "Superr Carr" and "Tango" became popular
with consumers in South and Central India. At the same time, the company's
range of pure cocoa butter chocolates, and derivatives like cocoa butter and
cocoa powder penetrated into the industrial markets as well as bakeries and
the top 5 Star Hotel kitchens in India.

In 2008, the Puzzolana Group under the leadership of two Hyderabad based
entrepreneurs, Mr.Prakash Pai and Mr.Anantha Pai took over the company as
its promoters, thus making Lotus Chocolate Company Limited, an Indian
owned entity. Under the leadership of the new promoters, Lotus has aligned
its vision to making the organization a market leader in the cocoa and
chocolate segment.By offering world class quality at an affordable price to
keep professionals, parents and children happy, Lotus Chocolates is re-
emphasizing its slogan of being "In the business of pure joy".

Lotus Chocolate Company (LCCL) was promoted in 1988 by T Sarada and

Vijayaraghavan Nambiar. At present, it is a subsidiary of Sunshine Allied
Investments,Singapore. Its works is situated at Doulatabad in Andhra
Pradesh.The company came out with its initial public offering in Oct.91,
aggregating Rs 2.2 cr, to part-finance its Rs 8.4-cr project to manufacture
cocoa and chocolate products for the export as well as the domestic
market. It has a range of choco treats like Chuckles, Supercar, Tango
Cashew, Tango Almond, Mystique Coffee and Mystique Orange. The
company launched On & On sugar coated milk choco-treat in south India.
LCCL was troubled by accumulated losses brought about by a delay of one-
and-a-half years in the implementation of the project. LCCL retained
Chocolate Confectionery Consultancy, UK, to provide technical services.The
company has also entered into a marketing agreement with Cocoa
Specialities, Malaysia, for the export of its entire production of cocoa
derivatives and bulk chocolate.During the year 1999, a theme-based
chocotreat - Kiddies and Pineapple Eclairs were launched and in the year
2000 three new products i.e. Maltys, Fun and Magiq were lauched and the
consumer response has been encouraging.The Company is also
concentrating on the export of Chocolates and Cocoa Powder to Nigeria
and United States of America.

COMPANY OVERVIEW

Name of the firm LOTUS CHOCOLATE COMPANY

LIMITED

Company’s Head Hyderabad

Caption In the business of pure joy

Industrial Category Cocoa & Chocolate

Commencement 1992

Category Company Limited by Shares

Address of the Registered office and 8-2-596, 1st Floor, 1B, Sumedha Estates,
contact details Avenue-4,
Puzzolana Tower, Street No.1, Road no. 10,
Banjara Hills,

Hyderabad- 500 034 (TG)

Products Industrial Products

Lotus Cocoa Powder

Lotus Cocoa Butter

Consumer Products
Chuckles

Gobble

Superr carr

High 5

Kajoos

On & On

Maltys

Tango
Profit & Loss Account
A Profit & Loss account also known as an income statement is prepared to
ascertain the net profit or net loss of the business for an accounting period. It
is a list of company’s revenues and expenses for a particular period. By
giving the difference between revenues and expenses we could get net
income.
Statement of Profit and Loss for the year ended 31 March, 2018 and 2017
For the year For the year
ended 31 March ended 31 March
2018 2017
Revenue from operations 56,91,67,167 66,46,24,218

Other income 2,26,436 12,73,563

Total income 56,93,93,603 66,58,97,781

Expenses

Cost of materials consumed 42,88,87,071 49,82,72,404

Changes in inventories and work in progress 2,14,31,476 3,56,85,394

Employee benefits expenses 2,85,67,341 4,31,09,175

Other operating expenses 3,89,33,120 4,05,30,090

Depreciation and amortization expense 80,49,795 80,15,120

Finance costs 66,21,051 1,22,39,464

Other expenses 2,43,11,561 3,26,93,554

Total expenses 55,68,01,415 67,05,45,201

Profit before tax 1,25,92,188 (46,47,420)

Tax expense

Current tax

Deferred tax 32,99,183 -

Total tax expense 32,99,183 -

Profit for the year 92,93,005 (46,47,420)

Other comprehensive income

Items that will not be reclassified to profit or

loss:
Gain/(Losses)on Foreign Exchange 3,71,414 -
Other comprehensive income for the year, net
of tax 3,71,414 -
Total comprehensive income for the year 96,64,419 (46,47,420)
Many companies prepare their financial statements on a monthly, quarterly
and annual basis. The main purpose of Profit & Loss account is to show
directors how the company made or lost money during that period of time.

Balance Sheet
Balance sheet reveals the financial position of a business. So it is a position
statement. It is a statement showing the assets, liabilities and capital of a
business on a particular date. A balance sheet has two sides. The assets are
shown on the credit (right) side and liabilities & capital are showed on debit
(left) side.

Balance sheet is based on the equation ASSETS=LIABILITIES+EQUITY

Balance Sheet as on 31 March 2018 and 2017

Particulars As at 31 March 2018 As at 31 March 2017

Assets
Assets Non-current assets
Property, plant and 34,114,846 55,197,281
equipment 138,537 -
Capital work-in-progress 78,870 36,000
Intangible assets
Financial assets -
Investments 4,617,419 5,055,262
Loans 4,050,000 10,124,138
Trade Receivables
Other noncurrent assets
Deferred tax assets, net 42,999,672 70,412,681

Current assets 87,673,000 104,192,153

Inventories
Financial assets 72,223,731 64,331,101
Trade receivables 12,018,275 7,996,633
Cash and cash equivalents
Other bank balances 3,331,628 4,115,370
Loans 4,407,277 5,192,264
Others
Current tax assets
Other current assets 179,653,911 185,827,521
222,653,583 256,240,202
Total assets
Equity and Liabilities
Equity 202,346,490 202,346,490
Equity share capital (224,547,597) (234,971,971)
Other equity (22,201,107) (32,625,481)
Total equity
Non-current liabilities
Financial Liabilities 166,338,816 181,238,816
Borrowings 1,675,601 1,770,148
Provisions 168,014,417 183,008,964

Current liabilities
Financial Liabilities 3,125,513 51,714,242
Borrowings 56,064,678 34,091,863
Trade payables 5,064,044 3,780,225
Other financial liabilities 9,286,855 14,729,069
Other current liabilities 1,541,319
Provisions
Current tax liabilities 3,299,183
Deferred tax liabilities 76,840,273 105,856,718
244,854,690 288,865,682
Total equity and liabilities 222,653,583 256,240,202
Total liabilities

Assignment-1
Costing
Costing is the technique and process of recording cost. It is an estimate of all
costs involved in a project or a business. That is determining the cost of
products, services or activities of a business. In Lotus chocolate company
limited costing may influence to product, processes, workers, distribution
channels and customers. In business, management wanted to improve their
profitability. Hence they use costing to learn about the cost of operations.
And for the end of financial period the management wanted to know the
position and status of their firm. So cost where allocated to their statements
like balance sheet for getting their report.
Components of cost are:
Prime cost = Direct material + Direct labour + Direct expenses
Works cost = Prime cost + Factory overheads
Cost of production = Works cost + Office & Administrative overheads
Total cost (cost of sales) = Cost of production + Selling & Distribution
overheads
Pricing
Pricing is the process of setting a price by a business for sell its products.
Pricing may done according to the market condition, manufacturing cost and
the quality of the product by the business. It’s a part of marketing plan and is
an important one in the four P’s of marketing mix other than product,
promotion and place.
In Lotus chocolate company limited pricing made according to manufacturing
cost, processing, packaging rates and delivery charges. Qualities of product
and market conditions are also important in pricing. Here Lotus made no
compromise for reducing the quality of the product. They were providing fine
quality of chocolates to the consumers.
Fixed cost
Fixed costs are those normal costs that are necessary to run any business.
These are cost unchanged for a period of time, which doesn’t change
according to the production of goods of business. Fixed cost is a business
expense. E.g.: Building rent, utilities, insurance and salaries.
Fixed cost made effect to the manufacturing firm on depreciation of plant
and machinery, rent, power and consumable stores, insurance and salary.
From the total cost of Lotus chocolate company ltd 30% of employee benefit
expenses, 50% of other operating expenses and 70% of other expenses were
taken to the fixed costs.
Depreciation & amortization expense 804979
5
Employee benefits expenses (30%) 857020
2
Other operating expenses (50%) 194665
60
Other expenses (70%) 170180
93

Total Fixed Cost 531046

50

Variable cost
Variable costs are all the costs associated with making the product. These
costs which vary according to the volume of output that is goods produced
by the business. When company’s production volume increases variable cost
also increases and vice versa.
Electricity charges, power & consumable stores and expenses of machine
(running time) are the cost accompanied with variable here. From the total
costs Lotus ltd taken variable costs as 70% of employee benefit expenses,
50% of other operating expenses and 30% of other expenses. By adding
fixed cost and variable cost we will get factory cost.

Cost of material consumed 4288870

71
Changes in inventories 214314
76
Employee benefits expenses (70%) 1999713
9
Other operating expenses (50%) 194665
60
 Finance cost 66210
51
Other expenses (30%) 72934
68

Total Variable Cost 503696

765

Semi variable cost

It is a mixed cost with fixed cost and variable cost component. That is partly
fixed and partly variable. At the time of production fixed cost bear constant
and variable cost changes according to production level (increase or
decrease).
For the consumption of electricity a fixed amount wanted to pay for a period,
further usage may lead to pay additional amount that means a variable
amount.
Direct cost
The whole amount that used for production at the time of production of
goods. Direct costs are those cost which are directly related to a particular
product or object in an organization.
The consumption of raw materials, packaging materials are the costs directly
used in Lotus. Examples of direct costs are direct materials, consumable
supplies, sales commission and freight. If there will be changes in the
number of products sold direct materials, consumable supplies and freight
are also change. Analyzing direct cost is an important thing because it helps
managers to understand the product is profitable or not.
Indirect cost
Indirect costs are those costs which are not directly related to a particular
product or object. In manufacturing organizations the indirect costs are
known as manufacturing overheads. It is an expense such as for advertising,
computing, maintenance, security and supervision etc...Other examples of
indirect costs are salaries, office expenses, rent, telephone expenses and
utilities.
Cost sheet
Cost sheet is a statement prepared to ascertain the cost of production or
including all the cost of a product. It is used to know the margin of product
and prices for future.And it is a device used to determine the cost as a unit.
Absorption cost
The amount of indirect production cost is added to the direct production cost
for calculating cost of products. All of the manufacturing cost are absorbed
by the units produced,that is all production costs or expenses are absorbed
into one. Hence it is also called full costing.
Absorption costing is helpful for companies when selling multiple products
they can determine profitability of each product.

Marginal cost
For a product or service the cost added by producing one additional unit.
Here only the direct cost is treated as cost of a product. Variable cost of
production are allocated to products.
Marginal costing provides more useful information for managers in decision
making process. According to calculation under this based to the sales
volume, which is made a picture of sales volume on profits.
Cost control
Cost control is the process controlling cost of an organization or a company.
That is aiming to increase profits by identifying and reducing business
expenses. For maintaining control over costs organizations made effect some
steps in action.
Importance of cost control
Companies were mainly looking for profit. So, any company losing money
they need to increase profit. For their success they also need to cut expenses
and become more competitive in the market. For a business effective cost
controls creates much opportunities. Firstly for the beginning manager
wanted to identify the source of costs, that means the ability to control the
budget. At the time of cost management manager should have it in mind
about original cost and assumed cost. After that he wanted to compare
actual cost and forecasted cost. At last commit on the future cost.
For the successful cost control management wanted to made a perfect team
to study the market situations and determine the cost categories used in the
organization. By performing a team they can take immediate actions
according to changes in market. Now a days modern budget control is
through technology. By implementing software manager can easily made
calculations on this and leading the project to success.
Cost control techniques
i) Budgetary control
Budgetary control is the process by which budgets are prepared to the
future period and compared with actual performance. It will help
management to take correct actions.
After creating a budget it shows how well the organization performed for
that particular year. They can start make plan for the next year.
Management can set goals and evaluate progress. The comparison of
budgeted and actual figures will help the management to find out the
difference and take proper decisions at correct time.
ii) Benchmarking
Benchmarking is comparing businesses having best industry and best
performance from other companies. Mainly it measure performance of
products, service and strategies etc. against other business considered
to be best.
Firstly, for what and where improvements wanted to be. Then secondly
analyze how other organizations achieve their high performance level.
And finally use this information to improve performance.
iii) Target cost
 Target cost really a measure of how low costs need to be make a certain
profit. It is not only a method of costing but also a technique to
determine the prices according to market conditions. Target costing can
be calculated by reducing profit margin from selling price.
Target costing = Selling price – Profit margin

Cost reduction
Cost reduction is the process of removing unwanted expenses from a
business without effecting the quality of product. For increasing their profit
companies made decisions to reduce cost. It is mainly known as cost
reduction.
Importance of cost reduction
One of the most important strategy is the process of cost reduction. It is very
important thing to reduce the cost of production for increasing profit of the
firm. Cost reduction is a continuous process of analysis of costs and its
functions.
According to cost reduction it will helpful to our firm in two ways. By reducing
the expense the volume of output remains constant. And the other think is
with the same level of expense we can increase the production. Cost
reduction made most increase in margins. For consumers they will get
products having lowest price or more quantity having same price. Hence it
will make more demand for the products.
Sometimes quality may reduce at the time of cost reduction. So the product
not be accepted by the market and the business may be tend to lost. From
this for customer satisfaction the organizations wanted to maintain actual
quality by reducing other terms.
Cost reduction techniques
i) Value analysis
Value analysis is a planned approach to cost reduction. It reviews the
material composition of a product and its design, then modifications and
 improvements can be made without reducing the value of products to
customers.
Here for manufacturing firm value analysis is a systematic analysis that
identifies and selects best section of processing and design. It only
proceeds after evaluating cost of the product reduced or not, required
quality and customer satisfaction.
ii) Quality control
Quality control is part of quality management focused and fullfilled on
quality requirements. It is a procedure that meets the expected quality
criteria according to customer needs. It is dealing with past and
previous data obtained which allow action to be taken to stop defective
production units.
In Lotus it is a process that ensures customers receive products with
quality, tasty and free from defects. When it done on wrong way the
product put some risk in market. In manufacturing benefits of using
quality control is increase customer loyalty, gain repeat business, gain
new customers from referrals, improve organizations position in the
market etc…
iii) Business process reengineering(BPR)
BPR means recreating business processes with the aim of improving
product output, quality or reducing costs. It is mainly attempting the
function of process redesign.
Reengineering is the rethinking and redesign of process of business for
improvements and performance to made effect on cost, quality, service
and speed to meet customer’s requirement. Here it is taking the
approach of looking back to the defined process of product and made
changes to it. Business process reengineering is about rethinking the
way that already handled.
iv) Inventory management
 An inventory is most valuable asset for a company. Inventory
management is the management of inventory and stock. It is an
element of supply chain management. For a business excessive stocks
can place heavy burden on the cash resources.Insufficient stocks can
result in loss of sales, delays for customers etc…For these reasons
inventory management is important for businesses.
Inventory management held at a manufacturing firm as controlling
inventory, storage of inventory and controlling the amount of product for
sale. By reducing stock to the lowest possible level hence reduce the
working capital. And ensure that sufficient stock is available to avoid
stock outs.
v) Work study
Work study means by reorganization of work for raising the productivity
of an operating unit. There are two parts for work study, method study
and work measurement.
For reducing cost and applying easier and more effective method
systematic recording and critical examination of existing ways of doing
work is to be wanted, it is called method study. And work measurement
involves establish the time of a qualified worker to perform a fixed level
of work.
vi) Kaizen costing
It is a mechanism for reducing and managing cost. Kaizen costing is a
process wherein a product undergoes cost reduction even it is already in
production stage. Kaizen is a Japanese word meaning continuous
improvement. It emphasis on minimizing waste in the process of
production, thus reducing the cost of the first target specified in the
design phase.
Break-even point [BEP]
Break-even point is the point where total cost are exactly equal or same as
total revenue. That is a business sells just enough to cover its cost. The
organization wanted to know how much they need to produce or sell to break
even. Business can calculate how many units they wanted to sell for covering
all of their cost by taking fixed cost, variable cost and the price they charged.
Break-even point = Fixed cost / Contribution
Contribution is the amount that left after variable cost per unit is taken away
from selling price.
Contribution = Selling price – Variable cost
Break-even quantity
Break even quantity refers to the number of units a small business must sell
to cover all costs. It is a formula that is used to determine the break-even
point. An organization has fixed costs, variable cost and selling price they
can calculate break even quantity.
Calculation:
Selling price = 100
Variable cost per unit = 90.4625
Contribution = Selling price – Variable cost
Contribution = 100 – 90.4625
= 9.5375
Break-even point = Fixed cost / Contribution
BEP = 53104650 / 9.5375
= 5567984.272 = 5567984 units
Lotus chocolate company limited wanted to sell 5567984 units
products for neither profit nor loss situation. By selling this much units the
manufacturing firm does not have the fear about the loss on products. Here,
for Lotus chocolate company limited total profit and loss at break-even point
is zero.
Note:
Calculation of Variable cost per unit
Total cost = 556801415
Total Variable cost = 503696765 (i.e., 90.4625% of Total cost)
Selling price = 100
Variable cost per unit = 90.4625 (i.e., 90.4625% of Selling price)
Calculation of total units selling in a year
Total units = Total income / Selling price
= 569393603/100 = 5693936 unit
Cost sheet of Lotus chocolate company limited for producing 5693936 units
Total Cost per
cost(R.s.) unit
(R.s.)
Direct Material
Cost of raw material consumed 408028221
Cost of packaging material consumed 20858850
428887071 428887071 75.32
Direct Labor 28567341 5.02
Direct Expenses 6621051 1.16

PRIME COST 464075463 81.50

Add Works Overheads
Consumption of stores and spares 11809327
Changes in inventories & work in progress 21431476
Power and fuel
16516025
Repairs to building 510827
Repairs to machinery
342155
Repairs to other assets 527803
R & D / Lab expenses 6123
Other manufacturing expenses 9220860 68414391 12.02
Depreciation and amortization expense 8049795
68414391

WORKS COST 532489854 93.52

Add Administration Overhead
Travelling and conveyance 1243079
Professional charges 650565
Rent 750000
Rate and taxes 2821429
Insurance charges 614280
Postage and telephone charges 950149
Payment to auditors 215000
Meeting and conferences 26990
 Other general expenses 21976
7293468 7293468 1.28

COST OF PRODUCTION 539783322 94.80

Add Selling & Distribution Overhead
Freight and carriage outwards 11997239
Sales incentives and allowances 2430660
Business promotion expenses 876884
Other general expenses 1713310
17018093 17018093 3.20

TOTAL COST (COST OF SALES) 556801415 98

Add Profit 9293005 2

SALES 566094420 100

Break even chart/graph
Break even chart/graph is a graph that shows the break-even point. That
means the sales volume level at which total costs equal sales. Losses will
show under the break-even point and profit will be above this point.

Unit Sales Breakeven Analysis

 Units Sales Variable Fixed Operatin
Sold(Rs.) Revenues( Costs(Rs. Costs g Profit
Rs.) ) (Rs.) (Rs.)

0 0 0 53,104,650 -53,104,650
1391996 139,199,607 125,923,444 53,104,650 -39,828,488
2783992 278,399,214 251,846,889 53,104,650 -26,552,325
4175988 417,598,820 377,770,333 53,104,650 -13,276,162
5567984 556,798,427 503,693,777 53,104,650 -0
6959980 695,998,034 629,617,222 53,104,650 13,276,162
8351976 835,197,641 755,540,666 53,104,650 26,552,325
9743972 974,397,248 881,464,110 53,104,650 39,828,488
11135968 1,113,596,855 1,007,387,555 53,104,650 53,104,650
12527964 1,252,796,461 1,133,310,999 53,104,650 66,380,812

Summary of Input

Total fixed costs Rs.53,104,650

Variable cost per unit Rs.90

Sales price per unit Rs.100

Anticipated unit sales 5693936

Break even analysis

Break-even is the point at total cost equals to total revenue. Break even
analysis is used to find number of units needed to cover total costs. The total
costs include fixed costs and variable costs. Break-even point is the point or
units for a business neither profit nor loss condition. At this point the profit
for the business is zero. Here, for Lotus chocolate company limited the break-
even is calculated as total fixed cost is divided by contribution. Contribution
is the amount that left after variable cost per unit is reduced from selling
price. The calculation is shown on the area of break-even point. Break even
analysis is a tool to determine the relationship with cost, volume and profit.
For the calculation of break-even point the chocolate manufacture Lotus’s
selling price is taken as 100 rupees. After that, for the calculation of variable
cost per unit firstly calculate the total variable cost is what percentage of
total cost. At that time we will get the variable cost per unit. Here, the
variable cost per unit is 90.4625. By reducing variable cost per unit from
selling price we get contribution. Then the total fixed cost (53104650) is
divided by contribution (9.5375). Hence we get the break-even point. For
Lotus the break-even point is 5567984 units. Lotus chocolate company
limited wanted to sell 5567984 units products for neither profit nor loss
situation. By selling this much units the manufacturing firm does not have
the fear about the loss on products. Here, for Lotus chocolate company
limited total profit and loss at break-even point is zero.
Cost sheet is a report on all of the costs accompanied with product and its
production. In Lotus chocolate company limited by making cost sheet the
total cost and total cost per unit for each area can be calculated. From cost
sheet we can obtain five divisions of costs. Prime cost, Works or factory cost,
Cost of production, Total cost or Cost of sales and Profit / Loss. By adding
direct material, direct labor and direct expenses prime cost is determined.
Prime cost is 83.35% of total cost. From this 77.03%of total cost is occupied
by direct material, direct labour bear 5.13% and direct expenses have
1.19%.After that Works overhead added with prime cost results in Works
cost. Works overhead is 12.29% of total cost. And Works cost is 95.63% of
total costs. Then by adding Administration overhead to the works costs we
got Cost of production. Which is 1.31% of total costs. Hence Cost of
production is 95.63% of total cost. For getting total cost that is cost of sales,
cost of production wanted to add with selling & distribution overheads. The
Selling & distribution overhead is 3.06% of total costs. At last by adding Profit
to the total sales we get the actual sales. These are the details derived
according to the last year details of Lotus chocolate company limited.
The pricing is based on the cost and market condition here at Lotus. Lotus
making fine quality chocolates. The company is producing 5693936 units of
chocolate at the rate of Rs.98 having the total costs Rs.556801415 and the
total sales of Rs.566094420. Which implies Lotus having the profit of
Rs.9293005. The Company is producing a single unit of chocolate at the rate
of Rs.100 which implies that the profit of Rs.2 is gained from the single unit
of chocolate. Here, the company is earning some percentage of profit above
the cost. Hence increasing cost can be applicable to company. The target of
Lotus chocolate is the younger generation and children. So improve the
chocolate for attracting the younger ones by making their favorite flavor and
interesting shapes. For attaining breakeven faster Lotus wanted to increase
their selling. Lotus is perfect in their quality of products. Hence they can
increase their price according to the quantity and market situations. Other
than increasing price we can increase contribution for decreasing break
even. For increasing contribution reduce the variable cost associated with
each product. These are the methods for decreasing breakeven.

Assignment-2
Advanced method of Costing
Value Chain Analysis
ABC Analysis
Value Chain Analysis (VCA)
Value chain analysis is a tool used to analyze the internal business activities.
It is a way to analyze company’s business activities to see how the company
itself creates a competitive advantage. In 1985 Michael Porter introduced
value chain on his book Competitive advantage. Hence it termed as Michael
Porter’s competitive advantage. It includes a sequence of activities common
to most of the firms. Porter identified four primary activities and 5 support
activities. The main result of these activities is to offer the customer a level
of value that exceeds the cost and result in a profit margin. Porter’s analysis
includes all activities to design, market, deliver and support the product.

Porter’s Value Chain Model

Support Activities

Infrastructure M
Human Resouce Management A
Technology R
Procurement G
Inbound Operatio Outboun Marketin Service I
Logistics ns d g&
Logistics Sales N

Primary Activities

Primary Activities
Value chain primary activities involved in the creation, sale and transfer of
products including after sale service. A competitive advantage can be
created through best of these activities.
Inbound Logistics:
It is related with receiving, storing and distributing inputs. That is receiving
and warehousing of raw materials, and at the required time distribute it to
manufacturing.
All of the firms needs to have raw materials and importing of raw material is
called Inbound Logistics. Here in the case of Lotus their main raw material is
cocoa beans. Lotus relation with their suppliers play an important role
towards adding value to the final product. If Lotus’s relation is good with their
suppliers, they are likely to get the raw material at correct time and at
optimal cost. Location of the distribution facilities is one among the inbound
logistics. Trucks with loaded cocoa beans and handling of it involved here.
According to calculation based on how much cost involved in each area in
Lotus results in 70% of the total cost is from the inbound logistics. That is
Lotus having most cost coming for their direct materials. Which includes
consumption of raw materials cost and consumption of packaging material
costs. The activities of the raw materials suppliers affect the activities of the
firm. Similarly the activities of the distributors also effect the firm. Among the
total cost of Rs.55.68 Cr Lotus involve Rs.38.98 Cr in consumption of raw
materials and packaging materials. That is 70% of total cost involved here.
So they want to reduce their consumption amount by making from where
and which supplier able to give at low price. Among the cheap having best
quality is better to consume. Either the firm had a question about their
quality.
Operations:
The process of transforming inputs into finished products. That means
transformation of the inputs into the final product form. Production,
assembling and packaging are held here.
In operations added value to the raw materials and the final product comes
out. Here involves making it a standardized model and access to real time
sales and inventory system. For the process of making chocolate roasting,
winnowing or extractor(remove the outer shells of cocoa bean),
milling(making cocoa liquor) and pressing(cocoa powder and cocoa butter)
held to get the beginning of chocolates. After the beginning of chocolate
Lotus want to made some process to fine chocolates. So process like refining,
conching, tempering and moulding held here. In refining the mixture that is
dark chocolate or milk chocolate travels through heavy rollers to refine as
dry flakes. After that the immersing and cutting process take place at
conching, which is cut a fragrant slice. The mixture is tempered or passed
through heating, cooling and reheating process. Tempering allows for the
nice shapes and melt smoothly while eat. At last the mixture is poured into
moulds and cooled in a cooling chamber. Finally it will set as something we
can eat. Chocolate packaged for distribution and is ready for serving. Lotus
have their 20% cost in their operations section. That is Rs.11.14 Cr out of
their total cost Rs.55.68. For the huge units of production this much
operations wanted for the firm. Reducing the operations cost may influence
on the lack of workers and availability of best machines.
Outbound Logistics:
It involves the collecting, storing and distributing the product to the
buyers.The warehousing and distribution of finished goods. Here, firstly
processing the order according to the customer needs. Then stored it as
warehousing of finished goods. At last it is delivered to consumers.
In Lotus after the manufacturing process we get the final product that is fine
chocolates. Its distribution is mainly involved in outbound logistics. Order
processing and full delivery trucks come under this. According to the orders
from retailers and consumers they wanted to made it and pass it through
delivery trucks. Here, transportation, distribution and retailing plays the main
role. Lotus having 5% of their total cost at outbound. That is Rs.2.78 Cr from
their total cost. For Lotus the travelling & conveyance and selling &
distribution included in the outbound logistics. Freight & carriage outwards
and sales incentives & allowances are included in the selling and distribution
overhead. The better is the distribution Lotus have the more opportunity to
sell their own products in the market. The value become high when the more
product sell in right manner.
Marketing & Sales:
Marketing and Sales is the identification of the customer needs and the
generation of sales. It involves advertising, promotion and distribution.
Marketing and sales is important to a product for making aware to
consumers about it. Pricing, installation, repair and customer service focus is
mainly involved in marketing and sales. In the case of Lotus chocolates they
want to make an image of their product on the mind of consumers. So
providing advertisements with implementing their quality and flavor will help
to catch them. Lotus has 4% of cost taken for their business promotion from
the total cost of Rs.55.68 Cr. If no one know about Lotus nobody cannot buy
the product. Marketing and sales is about communication, promoting a
business product and it can be purchased easily. Now a days most of the
companies take marketing as an important one. Because marketing is a key
function in today’s world. Marketing involves branding the suppliers and
distributors to make awareness and confidence for the final product. This
happened because the companies believe that marketing starts from the
beginning and up to the end of the product. Hence, the lack of marketing can
influence on the value of the product.
Service:
It involves how to maintain the value of product after it is purchased. That is
the support of customers after the products are sold to them. Here, it
involves installation, repair, maintenance and training.
Lotus chocolate company limited maintained their service for their product
chocolate. After sale service is important in a product manufacturing
company. Here Lotus wanted to give best service to retailers after
distributing products according to their orders. At Lotus the main service
involved is sales return. That is when the stock is out dated the company
return back it. According to the calculation of cost only 1% involved in
service. Among the total cost of Rs.55.68 Cr service occupy Rs.55.68 lakh.
The process of service involved in providing stronger customer experiences
and get support for the product. They are not involved in more services
because here a product is used at once. It is a food item and the company
make sure about their ingredients, that didn’t make any harmful effect.

Support Activities
It makes easy the primary activities of the value chain. Primary activities are
supported by the infrastructure of the firm, human resource management,
technology development and procurement. These support activities are
added to the value chain to add value to the final product.
Procurement: It is related with the raw materials and equipment. That is
the purchasing inputs such as materials, supplies and equipment. Every
business needs resources to run. Lotus chocolate company limited primary
activities inbound logistics and operations were supported by procurement.
The way to bring raw materials and packaging materials, discussed with
vendors and managing the complete process of inbound logistics.
Procurement is the materials that support the organizations functions. It is
similar as inbound logistics. It deals with complete process bringing in to the
firm. And it also managing the complete process of inbound logistics.
Technology Development: These activities are concerned with
technologies to support value creating activities. It tends to improve the
product and the process occurring in many parts of the firm. Technology
development includes integrated supply chain system and real time sales
information. For taking place of the primary activity some equipments are
needed. Technology affects each and every aspect of the product.
Technology involved in delivering a packet of Lotus chocolate. This
supporting activity relates to the organizations technical procedures and
knowledge. Technology is important that a chocolate tastes nice, but
technology gone behind huge amount of chocolate making and still
maintaining the same taste is much important for Lotus.
Human Resource Management: Human resource management
involved in employee’s recruiting, hiring, training, development and
compensation. It involves any process as it relates to workers or peoples in
an organization. Professional development, employee relations, performance
appraisals, recruiting, competitive wages and training programs involved in
HRM. According to Lotus success of the company highly depends on the
commitment and performance of the people working there. The people are
important in achieving the goals of Lotus. Lotus has to implement its HR in a
planned way so they can able to achieve their strategies and objectives of
business.
Firm Infrastructure: The activities like organization structure, control
systems and company culture are under the firm infrastructure. Firm
infrastructure also includes management, finance, legal and planning.
Management decisions are mainly applied in organizations. In terms of Lotus
replaced more efficient machines for reducing workforce of their employees.
Now employees are multiskilled so they are able to work with other areas of
the business. Organizations have an executive committee consist of directors
and managers.

Activity Based Costing (ABC) Analysis

Activity based costing focuses on activities introduce to produce products.
Here costs are first allocated to activities and then to product. Use of each
activity on individual product is taken for costs charged to products. There
are three key area of ABC. Product cost differentiation, activities and their
cost drivers and identification of non value cost improvement opportunities.
According to ABC costs of products are accurate, so the market based pricing
of the individual product is justified. Decisions can be effectively taken to
promote the promotion of products, activities or parts of the business.
Develop new ways of running a process. These are the arguments of ABC.
ABC also has arguments against it. Cost drivers are not easy to identify. The
cost of implementing this mechanism may be higher than its benefits.
Analysis of Advanced method of Costing
Value chain analysis and activity based costing are the main tools for cost
reduction and for knowing organizations activities. The activities starting with
raw materials up to conversion into final goods is the activity concentrated
on value chain. Value chain is used to identify the competitive advantage,
opportunities to secure cost advantages and opportunities to create product
differentiation. Now a days customer had lot of options to know the value of
the products. On the case of Lotus a customer might be looking for best
quality of product and services from the company. The customer expects to
get chocolates from Lotus at the affordable price with best quality. By getting
it on their way customer satisfy with Lotus. In the above case the activities
are right and the value chain concepts done. By this the organizations have
to identify the existing value chain so that they can increase their income.
According to porters value chain Lotus having more costs at inbound logistics
from the activities. That is for the consumption of raw materials costs is
mostly involved. Hence Lotus wanted to get best quality products having
cheap rate. Then they can buy a vehicle for taking raw materials into the
organizations and also for distributions to other channels or customers. By
this way they can charge the transportation charge with the product. This is
not only helpful to the inbound logistics but also to the outbound. And reduce
the number of middlemen while supplying products to the company will also
helpful to reduce the cost.
According to the calculations of Lotus chocolate company limited the first
table shows the details of data taken. The data were taken for two products
to two different customers. Here the order value, order quantity, material
cost per unit, moulding time per batch and batch size of each product were
taken. And also the activities of annual budgeted overhead like moulding,
inspection and production management is also taken. The second table
showing the computation of profit based on absorption costing using
moulding hour. For that firstly compute the overhead absorption rate,
determined by total annual overheads divided by annual molding hour. Then
the next step is under absorption costing methodology, determining the
costs and profits for each contract. For this the total cost were determined by
adding materials and overheads of each customers and then the total costs
were reduced from selling price. By this way Lotus get their profit or loss
situation based on absorption costing. Absorption costing only takes
materials and overheads for total cost, which is not taking activities. By this
the management had difficulty in comparison and control of cost. The
organizations cannot take decisions on number of units to be sold to earn a
desired profit and the minimum price to be fixed at the time of depression.
Hence we can conclude that absorption costing is not helpful in managerial
decisions and for preparation of flexible budget.
For the calculation of computation of activity based costs and profits for each
contract Lotus taking three steps. Computation of cost per unit of cost driver
is the first step. It is calculated by the formula cost pool divided by cost
driver volume. For this the activities like moulding, inspection and production
management were taken and costs per unit of cost driver were calculated
according to the formula. The second step is the computation of cost drivers
consumed by each contract or order. For this the two customers and the
details of their batches, moulding hour and orders were taken. And finally on
the third step computation of costs and profit for each contract or order were
calculated. Here materials, moulding, inspections and management of each
customer were taken to get total cost. Then the total costs were deducted
from selling price to know the profit or loss of Lotus. By this process of
classifying products based on the value of importants. ABC analysis helps
managers to prioritize and monitor high important objects. It also helpful in
demand identification, rate of opportunity and identify the leverage
opportunity. Different decisions can be taken from the result of ABC analysis.
ABC analysis is a critical method for control of inventory.
 Assignment-3
Budget
Budget is a plan for saving and spending for the future. It is a list of all
planned expenses and revenues. A budget has been allocated for special
purpose and the summary of the assumed cost and instructions on how to
meet them. This includes a budget surplus, future payments or the amount
of revenue exceeds the income. Budget includes sales and revenues, costs
and expenses, resource quantities, assets, liabilities and cash flows.
Organizations were used it as a strategic plan of activities. By creating a
detailed budget the organization can easy to follow up what had gone and
what hadn’t according to their expectation. Financial goal achievement,
planning for the unexpected and optimize financial efficiency are the
advantages of budgets.The budget is designed to keep cost and revenue. It
acts as an observation and regulatory mechanism to handle the cash
management of a business. This is done by deciding the economic goals that
the budget is prepared. Other important activities in the budget process are
forecasting, monitoring, controlling and evaluating financial goals etc…
Sales Budget
Sales budget shows the expected price per unit and number of sales. It is the
basic component of master budget and it is a key function of sales
management. Companies cannot improve their performance without a
budget. At the time of developing sales budget organizations wanted to take
care of market condition, production capacity and selling expenses. The
objectives of sales budget is planning, coordination, control and evaluation.
Sales budget reflects the targeted sales revenue.

.
Purchase Budget
It contains the amount of inventory that a company purchases during each
budget period. It allows the business owners to determine how much money
and materials they need to reach their desired goal. The amount mentioned
in the budget is the amount required to ensure that products have enough
resources to meet customer order. Here a product in stocks or inventory
plays a large role. This is the budget used by the managers to purchase
products for upcoming duration. This budget also denotes the amount of
money the purchasing department can spend on inventory purchases for the
year.
Production Budget
Production budget is a financial plan that covers the number of units in one
period of time. On the other hand this is a report that measures the number
of units that a plant will produce from period to period. Before selling an item
to a customer or a business it can be manufactured or produced. Production
budget is a financial plan used by manufactures to determine cost of the
production. A product manufacturing cost is calculated by a company that
owns its own products or produces its own products for a third party. A
product budget predicts the cost of making someone else’s products. It also
shows costs expenses for production of the product, time and expenses for
work.

Expenditure Budget
It is part of a company’s total budget that deals with the cost of managing
the business. Which is also known as cost budget. Expenditure budget helps
to track business purchases and limit the lowest possible amount of
operating expenses. With accurate planning and analysis managers can
coordinate expenses for tax tariffs and cash flows. Without expenditure
budget manager has the possibility of facing risk like overspending and
reducing profit margin.

Expenditure budget refers to the costs of already received and paid goods
and service. It is a financial plan based on expenses incurred by the already
received and closed goods and services.
Profit Budget
It is a fixed financial forecast for the total income of a business. A manager
with a duty to carry out financial performance in the future of a company
gives a reasonable estimate of the projected net profit. This allows the
company to produce profitable goals by producing profits. For the calculation
of budgeted net profit for the period the sum of the cost of sales and the
expenses, and subtract this number from projected sales for the period. Here
for Lotus according to their sales budget, purchase budget, production
budget and expenditure budget they have Rs.2,18,00,000 profit. It is the
updated budgeted profit of Lotus chocolate company limited.
Cash flow Budget
A cash flow budget is a plan or budget of expected cash receipts and
distribution during the period. Cash inflows and outflows include the
collection, revenue collection, loan receipts and payments. In other words, in
the future the cash flow budget is a definite cash position for the company.
The cash budget allows management to predict cash levels and adjust them
when needed.

Master Budget
The master budget adds all kinds of budgets from all departments, which
create a large comprehensive detailed budget that displays the entire
company. It summarizes and integrates all the budgets within an
organization. Master budget has two major sections, operational budget and
financial budget. The budgeted income statement and balance sheet are the
components of financial budgets.
Statement of Profit and Loss for the year ended 31 March, 2019

For the year ended 31 March 2019

Revenue from operations 57,87,26,437

Other income 12,73,563

Total income 58,00,00,000

Expenses

Cost of materials consumed 39,82,72,404

Changes in inventories and work in progress 3,56,85,394

Employee benefits expenses 4,07,63,974

Other operating expenses 3,05,30,090

Depreciation and amortization expense 80,15,120

Finance costs 1,22,39,464

Other expenses 3,26,93,554

Total expenses 55,82,00,000

Profit before tax 2,18,00,000

Tax expense

Current tax

Deferred tax -

Total tax expense -

Profit for the year 2,18,00,000

Other comprehensive income

Items that will not be reclassified to profit or

loss: -
 Gain/(Losses)on Foreign Exchange
Other comprehensive income for the year, net -
of tax 2,18,00,000
Total comprehensive income for the year

Balance Sheet as on 31 March 2019

Particulars As at 31 March 2019

Assets
Assets Non-current assets
Property, plant and equipment 34,114,846
Capital work-in-progress 138,537
Intangible assets 78,870
Financial assets
Investments
Loans 4,617,419
Trade Receivables 4,050,000
Other noncurrent assets
Deferred tax assets, net
42,999,672
Current assets
Inventories 87,673,000
Financial assets
Trade receivables 72,223,731
Cash and cash equivalents 12,018,275
Other bank balances
Loans 3,331,628
Others 4,407,277
Current tax assets
Other current assets
179,653,911
Total assets 222,653,583
Equity and Liabilities
Equity
Equity share capital 202,346,490
Other equity (224,547,597)
Total equity (22,201,107)
Non-current liabilities
Financial Liabilities
Borrowings 166,338,816
Provisions 1,675,601
168,014,417
Current liabilities
Financial Liabilities
Borrowings 3,125,513
Trade payables 56,064,678
Other financial liabilities 5,064,044
Other current liabilities 9,286,855
Provisions
Current tax liabilities
Deferred tax liabilities 3,299,183
76,840,273
Total liabilities 222,653,583
Total equity and liabilities 244,854,690

Conclusion
According to Lotus chocolate company limited the budget preparation is
depend on chocolate production and its operation. There were some steps to
make such a budget. Firstly review some long term plan. Identify and prepare
budget for the main factor. Prepare sales budget, finished goods and
production budget. Prepare budgets for materials used, machine utilization
budget, etc... At last prepare master budget as a summary of all the budgets
and taken it as a plan for following budgeted period by submitting it to board
of directors.
Budget helps in planning and coordination of the organization’s activities. It
is the process of allocating a portion of resources of an organization for its
various activities up to a period of time. According to sales budget Lotus has
2% increases in their sales based on the former one. At the months of
December and January Lotus have more sales. Sales budgets are developed
for the smooth functioning of the sales function. It helps in two terms as a
mechanism of control and an instrument for planning. It involves estimating
selling expenses and future level of revenue. And also the profit contribution
made by the sales department. Hence, sales budget is related with
improving selling efficiency and reducing the selling cost. It is helpful in
keeping expenses under control so that the objectives of net profits are
achieved. It works as a measurement stick for evaluating progress and sales
performance of the organization. Sales budget reveals the products in which
the company needs to strengthen its position. Sales budget bear some
limitations also. For the preparation of sales budget its take too much time.
And it may not be easily accepted by all people in the organization. Next one
is the purchase budget. For Lotus chocolate company limited the ingredients
mentioned are very important for the production of chocolate. So they
cannot avoid any of the particulars. Lotus were interested in to deliver fine
chocolate to customers. Hence they did not have any compromise about
reducing quality of the product. The one thing they can do that from where
they would get better product at cheap price. By this they could get fine
products with affordable price. The purchase budget keeps an important
place in the business. The owner can analyze the regulating material within
the budget. The owner should also consider planning the budget,
determining future needs, determining past demands, determining intervals,
analyzing cash flow analysis and making project revenue. As the business
grows the number of employee will increase. The purchase budget helps the
company to prepare for changes in product growth or new product offering.
Production budget allows the company to track the costs. Budget considers
how many units were needs to be produced. The number of producing units
depends on two factors. The first is based on a inventory. A production
budget describes the cost of producing necessary products to meet the
requirements of the company. The second factor is sales target. The
production budget predicts the expenses required for the sale of their
products.
For a cash flow budget there are some steps included. They are determining
cash inflows, determining cash outflows, overhead expenses, variable
expenses and other expenses. Cash flow budget indicated whether the
industry will earn enough money to meet all the demands of cash. It does not
count gross income or profits. It is clear that an organized success lies in
finding a successful balance between producing profits and effectively
regulating its cash flows. Cash flow is the core of any successful business.
Effective cash flow management depends on accuracy predictions. A budget
is a plan of future financial transactions. The master budget management is
designed and maintained as a tool for management of business activities
based on the master budget. At the end of each period actual budget
compared to master budget and the necessary control measures can be
taken. Master budget has its own advantages. It serves as a motivation tool
because the employees can compare the actual performance with the
budgeted performance. The master budget helps staffs to gain job skills and
contribute to the growth of the business. It helps for planning in advance.
The master budget identifies the problems in advance and fixes it. All the
resources of organizations are controlled for most effective profit. Hence it
will helpful in the achievement of goal. The main disadvantage of master
budget is difficult to update. It is not easy to modify. For making change
requires a lot of steps. So a master budget cannot understand easily for a
normal person.
 Assignment-4

Financial Analysis
It is also known as performance analysis, which plays an important role in
measuring financial strength and weakness of a company according to other
companies in the same industry. And it also analyzes whether the company’s
financial statement is improved or the replacement of other company’s in
terms of delay. The main financial statements of a company include balance
sheet, income statement and cash flow statement. These statements give
the overview of the financial position. But if these statements are
systematically analyzed the real financial position of the firm cannot be
understood.

Liquidity Ratios:
1. Current Ratio
2. Quick Ratio
Leverage Ratios:
3. Debt Ratio
4. Debt to Net-Worth Ratio
5. Times-Interest-Earned Ratio
Operating Ratios:
6. Average-Inventory-Turnover Ratio
7. Receivable turnover Ratio
8. Average-Collection-Period Ratio
9. Payable turnover Ratio
10. Average-Payable-Period Ratio
11. Total-Assets-turnover Ratio
Profitability Ratios:
12. Net-Profit-on-Net-Sales Ratio
13. Net-Profit-to-Assets Ratio
14. Net-Profit-to-Equity Ratio

Current Ratio
Current ratio is the most commonly used measure of short term solvency.
This is also known as working capital ratio. It measures a small company’s
solvency by indicating the ability to deliver current debts (liabilities) from
existing assets. The current ratio is an important measure of liquidity
because short term liabilities due within the next year.
Current ratio = Current assets ÷ Current liabilities
Calculations:
2017
Current ratio = 18,58,27,521 ÷ 10,58,56,718= 1.755
2018
Current ratio = 17,96,53,911 ÷ 7,68,40,273= 2.338

2018 2017

Current Assets 17,96,53,911 18,58,27,521

Current Liabilities 7,68,40,273 10,58,56,718

Current Ratio 2.338 1.755

Quick Ratio
It is also known as the acid test ratio and calculates the company’s ability to
pay off the existing debt liabilities when they come due because of quick
asset. Quick assets are the current assets that can be converted into a short
term period of 90 days or less. By this an organization can quickly convert its
assets into cash in order to pay off its current liability. It also shows the level
of quick assets to current liabilities. It is calculated by dividing quick assets
with current liabilities. The quick asset is the current asset excluding
inventory in an organization.
Quick ratio = Quick assets ÷ Current liabilities
Quick assets = Current assets – Inventory
Calculations:
2017
Quick assets = 17,96,53,911 – 10,41,92,153 = 7,54,61,758
Quick ratio = 7,54,61,758 ÷ 7,68,40,273
= 0.982
2018
Quick assets = 17,96,53,911 – 8,76,73,000
= 9,19,80,911
Quick ratio = 9,19,80,911 ÷ 7,68,40,273
= 1.197

2018 2017

Quick Assets 9,19,80,911 7,54,61,758

Current Liabilities 7,68,40,273 7,68,40,273

Quick Ratio 1.197 0.982

Debt Ratio
The debt ratio is a solvency ratio which measures an organization’s total
liability as a percentage of its total assets. It shows how many assets the
company wanted to sell in order to pay off all its liabilities. It helps investors
and lenders to analyze company’s total debt and the ability of the company
to repay the debt in the future. It is calculated by dividing total liabilities by
total assets.
Debt ratio = Total liabilities (debt) ÷ Total assets
Calculations:
2017
Debt ratio =28,88,65,682 ÷ 25,62,40,202
= 1.127
2018
Debt ratio = 24,48,54,690 ÷ 22,26,53,583= 1.099

Debt to Net-Worth Ratio

It is a simple calculation helps an organization in evaluating the financial health of a company
and comparing the quality of its debt with its total assets. The higher ratio is that the company
considered investing has already financed higher loans and assumes that it is risky investment
when compared to other companies. The lower ratio indicates that the business has low debt,
which means that it can easily be seen to cover its debt without having to sell a property. This
ratio is very helpful when used to determine how much financially healthy a company is.
Debt to Net-Worth Ratio = Total liabilities ÷ Tangible net worth
Total liabilities are the sum of current and long term liabilities. And tangible net worth represents
the owners investment in the business.
Tangible net worth = Total assets – Total liabilities – Intangible assets
Calculations:
2017
Tangible net worth = 25,62,40,202 - 28,88,65,682 - 36,000
= -3,26,61,480
Debt to Net-Worth Ratio = 28,88,65,682 ÷ (-3,26,61,480)
 = -8.844
2018
Tangible net worth = 22,26,53,583 - 24,48,54,690 - 78,870
= -2,22,79,977
Debt to Net-Worth Ratio = 24,48,54,690 ÷ (-2,22,79,977)
= -10.990

Times-Interest-Earned Ratio
Times interest ratio also known as interest coverage ratio, which is a coverage ratio measuring
the proportionate ratio that can be used for future expenses. In some ways, interest rate ratio is
considered as solvency ratio, because it measures an organization’s ability to make interest and
debt service payments. Since these interest payments are made in long term basis, they are often
considered to be fixed expenses. Like most fixed expenses, if the company cannot pay, it will
remain bankrupt and sustain. Thus this ratio can be considered as solvency ratio.

Calculations:
Times interest earned ratio = Earnings before interest and taxes (EBIT) ÷ Total interest expense
= 1,25,92,188 ÷ 32,99,183
= 3.817
Average-Inventory-Turnover Ratio
The inventory turnover ratio is an efficiency ratio that handles the control of the goods
effectively compared to the availability of goods and the sale of average commodities. This
measure shows how many times average- inventory sold during a period. The ratio is very
important because performance is based on two different components. The first one is stock
purchasing and the second one is sales.
Average inventory turnover ratio = Cost of goods sold ÷ Average inventory
Receivable turnover Ratio
Receivable turnover ratio is an activity ratio that measures how much money a business can
receive for a period of time. In other words the turnover ratio with which accounts can be
collected can generate average accounts for a business within a year. The ratio shows how much
efficiency a company can use to collect credit spots from customers. In some ways the turnover
ratio can be considered as a liquidity ratio. Companies are more liquid they can convert their
receivables into cash as much as faster.
Receivable turnover ratio = Credit sales ÷ Accounts receivables
Average-Collection-Period Ratio
The average number of days past the period of credit sales and the average collection period
indicating the date the company receives from the credit sale. The average collection period is
calculated by dividing the number of working days for a fixed period by receivable turnover
ratio. It is indicated in days and is sign of quality of receivables.
Average collection period = Days in accounting period ÷ Receivable turnover ratio
Payable turnover Ratio
The payable turnover ratio is a liquidity ratio that shows the ability to pay the company’s
accounts when compared to net credit purchases to average accounts payable in a given period.
In other words the number of times a company’s average accounts in a year can be paid.
Payable turnover ratio = Purchases ÷ Accounts payable
Average-Payable-Period Ratio
The average payable period ratio is one among the operating ratios. A
company specifies the average number of days for which to pay its accounts.
This is measured in days like the average collection. To calculate this ratio
first calculates the payable turnover ratio.
Average payable turnover ratio = Days in accounting period ÷ Payables turnover ratio
Total-Assets-turnover Ratio
Total assets turnover ratio is also called as net sales to total assets ratio. It is
a general measurement of sales is related to its assets. It also reveals how
the company earns wealth to generate income of the company.
Total assets turnover ratio = Net sales ÷ Net total assets
Net-Profit-on-Net-Sales Ratio
It is also called profit margin on sales ratio or the net profit ratio is the ratio
of profit. Here the amount of net income earned by sales is measured by
comparison of the company’s total revenue and the net sale of a company. In
other words the profit margin ratio shows the percentage of the sales if all
expenses are paid to the business.
Net profit on sales ratio = Net profit ÷ Net sales
Net-Profit-to-Assets Ratio
It says how much is the profit for every assets owned by a company. This
ratio describes how a business is investing all the assets for making profits. It
says how much it is getting to the entrepreneur in the value of each of the
company’s asset.
Net profit to assets ratio = Net profit ÷ Total assets
Net-Profit-to-Equity Ratio
It is also known as return on net worth ratio measures the owners rate of
return on investment. It is a profitability ratio that measures the ability of a
firm to generate profits from its shareholders investments in the company. In
other words return on equity ratio shows how much profit for ordinary
shareholders by an increase in equity ratio. It is one of the most important
indicators of a management’s efficiency or firms profitability.Net profit to
equity ratio is also indicating how efficiently the company can manage the
company to work and raise money.
Net profit to equity ratio = Net profit ÷ Owners equity (or net worth)

Conclusion
The financial ratio analysis includes computation and comparison of the
ratios from information provided by the company’s financial statement.
Liquidity ratio shows the quality of a company’s cash flow and show the
ability to utilize other substances in cash to pay off liabilities. According to
Lotus the current ratio helps and understands the liquidity and how easy it is
to manage the current liabilities of the company. This ratio expresses the
current debt of Lotus on the basis of current assets. The higher current ratio
is always more favorable than a lower current ratio, because the company
can easily make current debt payments. The current ratio of Lotus chocolates
is almost 2:1. For every rupee of the current liability, Lotus has Rs. 2.047 of
current assets. According to the studies along with ratios such as inventory
turnover and receivables turnover the current ratio is better. Another one
among the liquidity ratio is quick ratio. According to Lotus chocolate
company limited quick ratio measures liquidity by showing their ability to
pay off the current liabilities with quick assets. Clearly the ratio of the
company’s liquidity increases. More assets will be easily converted into cash
if needed. This is a good indicator for investors, but the creditors have also
better sign because they want to know that they will be paid back on time.
Another type of ratio is leverage ratios. The debt ratio shows not just the current debt,
it shows the overall debt burden of the company. The low debt ratio usually refers to a permanent
business that has a long term potential. The debt ratio is a basic solvency ratio, as a debtor is
always worried that he wants to repay. When companies borrow more money, according to ratio
they cannot borrow more loans. For Lotus, debt to net worth ratio helps to evaluate the financial
health of the organization and compare its debt with its net worth. Times interest earned ratio is
another one in this. By this Lotus has a ratio of 3 which means they make enough income to pay
for its total tax expense 3 times over. Or Lotus income is 3 times higher than its tax expense for
the year. So Lotus can afford to pay additional interest expenses. Hence Lotus is less risky. The
rate of interest is estimated to be up to one percentage. The proportion indicates how many times
a company can pay interest on the tax ratio before the tax ratio, so the larger proportions are
considered more favorable than the smallest proportion.
Operating ratios includes inventory turnover ratio, receivable turnover ratio, average collection
period ratio, payable turnover ratio, a average payable period ratio and total assets turnover ratio.
The inventory turnover is a measure of how efficiently a company can be controlled, so it is
important to take a high turn. It shows that by storing the collection of good things, the company
does not reduce the cost of buying more goods and marketing resources. It also shows that the
company’s purchasing power can be effectively sold.If the company buys large quantities of
products in the year, the company will have to sell large amounts of goods to improve turnover.
If the company cannot sell these large quantities of goods, it will bear the storage costs or other
costs. Sales have to match inventory purchases; otherwise the goods will not be effective. That is
why the buying and selling must be transfers to each others. The receivable turnover ratio
measures an organizations ability to collect its receivables. It also indicates
the quality of credit sales, receivables etc…According to a company with
higher ratio it may be possible to collect a lower ratio of credit sales than a
company. Since accounts receivables are often posted as coupons for loans
the quality of the purchase is very important.
Profitability ratios evaluates organizations ability to make income against
expenses. By net profit to assets ratio Lotus has useful this ratio to measure
how effectively they can convert sales into net income. The return on sales
ratio is used by internal management to enable future performance goals.
The profit margin on sales ratio measures what percentage of sales is made
up of net income. And it also measures how much profit produces on a fixed
level of profit.Net profit to equity ratio is also included in profitability ratios.
When this ratio gains profit during the accounting period, the owner
compares it to the amount invested in the business in that time. If the
interest rate is very low on the investment of the owners, some parts of this
capital should be somewhere better. An industry needs to generate revenue
than can exceed its capital expenditure. These financial ratios can be used to
make inferences about the company’s financial status, its activities and its
attractiveness.

Assignment-5
Investment Appraisal
An investment appraisal explains how to evaluate the investment plan
objectively to determine whether a private venture is profitable or not. For
businesses it also allows to make comparisons between different deposit
schemes or investment project. There are many useful ways that they can be
used to evaluate projects. Hence all these involve comparing the capital cost
with net cash flow. Capital expenditure is the amount spent on a new
initiative. And net cash flow is the amount of money that receives each year
expected by the business over the life of investment projects and less the
estimated cost.
There are many factors that influence investment from central government
and local authorities. Investment in new school, roads and hospitals will be
influences by national and local needs. Political factors may also influence
the quality and type of investment. The availability of government funds and
the opportunity cost of investment spending. If the revenue from taxes is
falling there may be fewer investment funds. If the opportunity costs of
investment projects are high then they may be cancelled. Furthermore the
state of the economy is also important.
Payback period
The payback period indicates the period taken for a project to retrieve or pay
back the initial expenses of project. The payback period can be determined
by calculating cumulative net cash flow. It is the annual revenue and
operational expenses, the total money transaction to account for the initial
cost of the machine. Payback period is calculated project cost is divided by
annual cash flow.
Payback period = Project cost ÷ Annual cash flow

Year Year Year Year Year Year 5 Total Payback

0 1 2 3 4 net period
cash
flow

Net (9,00, 2,00, 2,00, 3,00, 3,00, 4,00,00 5,00,00 3 years &
cash 000) 000 000 000 000 0 0 3 months
 flow

Cumul (9,00, (7,00 (5,00 (2,00 1,00, 5,00,00

ative 000) ,000) ,000) ,000) 000 0
cash
flow

Net (9,00, 3,00, 3,00, 3,00, 3,00, 3,00,00 6,00,00 3 years

cash 000) 000 000 000 000 0 0
flow

Cumul (9,00, (6,00 (3,00 - 3,00, 6,00,00

ative 000) ,000) ,000) 000 0
cash
flow

Net (9,00, 4,00, 4,00, 3,00, 2,00, 2,00,00 6,00,00 2 years &
cash 000) 000 000 000 000 0 0
flow 4 months

Cumul (9,00, (5,00 (1,00 2,00, 4,00, 6,00,00

ative 000) ,000) ,000) 000 000 0
cash
flow

Average rate of return(ARR)

The average rate of return is also known as accounting rate of return. It is
used to invest in an estimate of expected annual income or profit. In other
words it calculates how much money is being paid or invested as an investor.
The average rate of return measures each year as a percentage of the
capital cost of investment. It is calculated by dividing net profit per annum
by the capital cost.

Average rate of return (%) = (Net return profit per annum ÷ Capital cost) ×
100

Project X Project Y
Capital cost
3,00,00,000 2,00,00,000
 Return year 1 60,00,000 40,00,000

Return year 2 70,00,000 40,00,000

Return year 3 80,00,000 50,00,000

Return year 4 80,00,000 60,00,000

Return year 5 90,00,000 70,00,000

Total net cash 3,80,00,000 2,60,00,000

flows

Project X Project Y

Capital cost 3,00,00,000 2,00,00,000

Total net profit 80,00,000 60,00,000

(NCF – Capital
cost)

Net profit p.a. 16,00,000 12,00,000

(profit 5)

ARR 5% 6%

Discounted cash flow(DCF)

Discounted cash flow is a valuation method used to calculate the
attractiveness of an investment opportunity. DCF analysis assesses using the
free cash flow of the fund and proceeds using the annual rate. Current
assessment is used to assess the possibilities of investment. If the value
obtained through the DCF analysis is higher than the current cost of the
investment, the possibility may be good. We can use discounted tables to
show how much value you need to calculate the current value. Below is a
discount table with a 5 different interest rate.
 Year 5% 10% 15% 20% 25%

0 1.00 1.00 1.00 1.00 1.00

1 0.95 0.91 0.87 0.83 0.80

2 0.91 0.83 0.76 0.69 0.64

3 0.86 0.75 0.66 0.58 0.51

4 0.82 0.68 0.57 0.48 0.41

5 0.78 0.62 0.50 0.40 0.33

6 0.75 0.56 0.43 0.33 0.26

7 0.71 0.51 0.38 0.28 0.21

8 0.68 0.47 0.33 0.23 0.17

9 0.64 0.42 0.28 0.19 0.13

10 0.61 0.39 0.25 0.16 0.10

Net present value(NPV)

The net present value is the current estimate or present value of an asset,
investment or project basis and expected future cash inflows and outflows
adjusted for interest rates and the initial purchase price. It calculates the rate
of return on investment from the investment plan which takes into
consideration the cost of interest and time. The net present value of the
investment project can be used when discounted tables are used. It is
calculated by the formula
Net present value = Present values – Initial cost

Year Project A Project B Project C Discount

table rate
Net Prese Net Prese Net Prese of
Cash nt Cash nt Cash nt discount
Flow Value Flow Value Flow Value at 15%
 0 (6,00,0 (6,00, (6,00, (6,00, (6,00,0 (6,00,0 1.00
00) 000) 000) 000) 00) 00)

1 1,20,0 1,04,4 50,00 43,50 1,30,0 1,13,1 0.87

00 00 0 0 00 00

2 1,20,0 91,20 80,00 60,80 1,20,0 91,200 0.76

00 0 0 0 00

3 1,20,0 79,20 90,00 59,40 1,10,0 72,600 0.66

00 0 0 0 00

4 1,20,0 68,40 1,00,0 57,00 1,00,0 57,000 0.57

00 0 00 0 00

5 1,20,0 60,00 1,00,0 50,00 1,00,0 50,000 0.50

00 0 00 0 00

6 1,20,0 51,60 1,00,0 43,00 1,00,00 43,000 0.43

00 0 00 0 0

7 1,20,0 45,60 1,00,0 38,00 1,00,00 38,000 0.38

00 0 00 0 0

8 1,20,0 39,60 1,10,0 36,30 90,000 29,700 0.33

00 0 00 0

9 1,20,0 33,60 1,20,0 33,60 80,000 22,400 0.28

00 0 00 0

10 1,20,0 30,00 1,30,0 32,50 50,000 12,500 0.25

00 0 00 0

Total Net 6,00,0 9,80,0 9,80,00

Cash 00 00 0
Flow
before
Discount
ing

Present 6,03,3 4,54,1 6,42,6

values 00 00 00
years 1-
 10

Net 3,300 (1,45, 42,600

Present 900)
Value

Conclusion
Investment appraisal is the provision of information to help the management
to make decisions on the investment of capital. It will helpful in replacement
decision, investment of expansion, investment of product improvement or
cost reduction and for strategic investment. It also helps the organization for
starting new venture. Hence investment appraisal is a technique designed to
make profitable estimates of financial managers. There are various non financial
considerations that can affect the investment decisions. Human relationship, some investments
can have a great impact on employees of an organization. The ethical consideration, when
choosing a course of action the money is now choose more moral stance. This may help improve
the image of the company. Corporate strategy, many organization have long term corporate
objectives that influence the long term investment decisions. Risk, The financial position in
which the business finds itself is one factor assessing the risk of an investment project. And the
factors like government legislation and availability of funding also effect the investment
decisions.
According to the calculation above Lotus management uses the payback
period equation to know how quickly they will get the invested money back
with quicker and better. Payback period is a financial or capital budget
method that measures the number of days required for an investment to
generate equivalent cash flows from primary investments. It is the amount of
money to earn for itself or to the breakeven. This time analysis is important
for the criteria for analyzing the risk. The advantages of payback period are,
it useful when technology is switched off. It is important to recover the cost
of an investment before upgrading to a new technology. It is simple.
Companies will accept this if they have money transaction problems. This is
why the project is chosen to return the investment faster than any others.
And the disadvantages are, no amount was taken after the withdrawal of the
money from the decision of the investment. The method of ignoring the
profitability of the project is because the used criteria are faster than the
repayment rate. Average rate of return is an important calculation which
raises the risk of investing the investors and determines the revenue higher.
ARR means the percentage of income that is invested in a fixed period by
dividing the investment income by investment course.
The advantages of ARR method are the profit plan of the investment project
is showed clearly. Not only is it a comparison of the projects to a limited
extent, but the comparison of the total returns compared to other uses of
deposit returns. It is easy to identify the opportunity rate. When considering
the favorable circumstances of this method, it does not take into
consideration the value of time for money. Discounted cash flow method is a
valid assessment method used by investors to estimate the current value of
the investment to the future. The advantages of the NPV are to measure the
value of future income by calculating current values. In addition the
devaluation of the discounted rate will change the risk and state of the
magic of the financial market.Net present value has its disadvantage also.
Discounted cash flows are complex and small companies rarely use it. It is
crucial that the discount rate is used to determine the profit and non profit.
For low interest rates some investment projects will be profitable.
Most of the sales is done at the end of the year. That is on December
because it is the time of Christmas and New Year. So this time is perfect to
gain the market in maximum. At the starting of winter season most of all
went to trips and it also helpful to the distributers for moving their products
in market. On taking into account of chuckles Lotus is producing 5693936
units of chocolate at the rate of Rs.98 having the total costs Rs.556801415
and the total sales of Rs.566094420. Which implies Lotus having the profit of
Rs.9293005. The Company is producing a single unit of chocolate at the rate
of Rs.100 which implies that the profit of Rs.2 is gained from the single unit
of chocolate. Hence Lotus is earning some percentage of profits above the
costs it means increasing cost can be the favourable condition for the
company. As we compare Lotus chocolate with ay of the others the chocolate
may seem as other chocolate existing in the market but it has a different
taste of its own. Here the main difference is the marketing strategy and the
profit margin ensured. We know that if strong competitors are already exist
in the market it is very tough to enter into the market. Instead of all these if
Lotus give value for money product to the customers they can definitely
compete with the competitors and can made a positive attitude of the
customer towards the product.