CHAPTER ONE

MEANING OF FINANCIAL STATEMENTS

Financial Statement generally consists of three basic statements: the income statement, the profits and loss
account and the Balance sheet. The statement of the earnings and sources and uses of funds statements
financial statement taken to gather, give the financial statement, taken to gather, give accounting picture at
the first operation and financial position. The package of finance statement includes such schedules as the
relating to fixed assets, long term investment long term debts. Accrued liabilities. Cost of goods
manufactured, selling expresses and administrative and general expenses. Their schedules mainly
supplement the information contained in the financial statement and are considered essential for the purpose
of analysis. In addition, explanatory from notes are also given as an integral past at financial statements
when the information given in the financial statement and schedules are inadequate. The inventory valuation
and at depreciation, description at contingent liabilities etc.

DEFINITION OF FINANCIAL STATEMENTS

John N. Myres defines that “Financial statement analysis is largely a study of relationships among the
various financial factors in a business, as disclosed by a single set of statements and a study of the trends of
these factors as shown in a series of statements.”

CONCEPTS OF FINANCIAL STATEMENTS

One of the most important functions at the accounting process is to accumulate and report historical
accounting information. The most prominent examples at such reports are the general-purpose financial
statement showing an organizational financial position and results of its operation. These financial
statements are the end results of its operations. These financial statements are the end result of the process at
financial accounting. In the words at Hampton,” A financial statement is an organized collection of data
organized according to logical and insistent accounting procedure”1 Therefore, all the statements and
accounting reports which the accountants prepare the end at t period for a business enterprise may be taken
as financial statements. But the principal financial statements, But the principal financial statements are the
‘balance sheet’ and the profit and loss account.

In the word at Howard and Upton” although any formal financial statements expressed in only values meant
be thought at as financial statements, The term has come to be limited sheet’ and the ‘ profit and loss
statements’ The balance sheet states the assets, liabilities and capital of the business profit and loss
statements shows the results of reparations achieved during a certain period These financial statement may
be of various types, but according to the financial statement may be broadly classified in the following
manner:

1. The audited statement

2. The interim statement

3. The unedited year-end statement

4. The “estimated” statement Accounting which is the process at evolution has three phases: (1) the
recording at transaction in the books at original entry. (2) The classification at these rams’ action in ledges
and (3) the summarization of the records. The construction at the financial statement is a part at the third
phase at accounting techniques. Thus, financial statements summarized periodical reports at financial and
operating data accumulated by an enterprise in its books at accounts financial statements are periodical
statements and the period for which they relate is known as accounting period, usually at one years’
duration.

OBJECTIVES OF FINANCIAL STATEMENTS

The accounting principles board of America mentions the objectives of financial statement as follows:

1. To provide reliable financial information about economic resources and obligations at a business
enterprise

2. To Provide reliable information about in net resources at on enterprise that results from it activates

3. To provide financial information that assists in estimating the earning potentials at a business.

4. To provide others needed information about changes in economic resources of obligation

5. To disclose, to the extent possible, others information related to the financial statements that is relevant to
the needs of the users at these statements.

The above objectives and to suit the needs of the varied users, the accountant entrusted with the task of
compiling and presenting financial statements must follow a set at guidelines to ensure consistency,
completeness and fairness of the statements. This guideline is called a statement. These guidelines are called
“generally accepted accounting principles” in the absence of these’ generally accepted accounting principles.
The statement prepared may be un-understandable and misleading for the various groups of users.

HOW IS A FINANCIAL STATEMENT ANALYSIS DONE?

There are two key methods for analysing financial statements. The first method is the use of horizontal and
vertical analysis. Horizontal analysis is the comparison of financial information over a series of reporting
periods, while vertical analysis is the proportional analysis of a financial statement, where each line item on
a financial statement is listed as a percentage of another item. Typically, this means that every line item on
an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is
stated as a percentage of total assets. Thus, horizontal analysis is the review of the results of multiple time
periods, while vertical analysis is the review of the proportion of accounts to each other within a single
period.

The second method for analysing financial statements is the use of many kinds of ratios. Ratios are used to
calculate the relative size of one number in relation to another. After a ratio is calculated, you can then
compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the
company is performing in accordance with expectations. In a typical financial statement analysis, most ratios
will be within expectations, while a small number will flag potential problems that will attract the attention
of the reviewer. There are several general categories of ratios, each designed to examine a different aspect of
a company's performance. The general groups of ratios are:

1. Liquidity ratios - This is the most fundamentally important set of ratios, because they measure the ability
of a company to remain in business.

 Cash coverage ratio. Shows the amount of cash available to pay interest.
 Current ratio. Measures the amount of liquidity available to pay for current liabilities.
 Quick ratio. The same as the current ratio, but does not include inventory.

Liquidity index. Measures the amount of time required to convert assets into cash.

2. Activity ratios - These ratios are a strong indicator of the quality of management, since they reveal how
well management is utilizing company resources.

 Accounts payable turnover ratio. Measures the speed with which a company pays its suppliers.
 Accounts receivable turnover ratio. Measures a company's ability to collect accounts receivable.
 Fixed asset turnover ratio. Measures a company's ability to generate sales from a certain base of fixed
assets.
 Inventory turnover ratio. Measures the amount of inventory needed to support a given level of sales.
 Sales to working capital ratio. Shows the amount of working capital required to support a given
amount of sales.
 Working capital turnover ratio. Measures a company's ability to generate sales from a certain base of
working capital.

3. Leverage ratios - These ratios reveal the extent to which a company is relying upon debt to fund its
operations, and its ability to pay back the debt.

 Debt to equity ratio. Shows the extent to which management is willing to fund operations with debt,
rather than equity.
 Debt service coverage ratio. Reveals the ability of a company to pay its debt obligations.
 Fixed charge coverage. Shows the ability of a company to pay for its fixed costs.

4. Profitability ratios - These ratios measure how well a company performs in generating a profit.

 Break Even point. Reveals the sales level at which a company breaks even.
 Contribution margin ratio. Shows the profits left after variable costs are subtracted from sales.
 Gross profit ratio. Shows revenues minus the cost of goods sold, as a proportion of sales.
  Margin of safety. Calculates the amount by which sales must drop before a company reaches its
break-even point.
 Net profit ratio. Calculates the amount of profit after taxes and all expenses have been deducted from
net sales.
 Return on equity. Shows company profit as a percentage of equity.
 Return on net assets. Shows company profits as a percentage of fixed assets and working capital.
 Return on operating assets. Shows company profit as percentage of assets utilized.

FINANCIAL ANALYSIS:

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by
establishing relationships between the item of the balance sheet and the profit and loss account. Financial
analysis can be undertaken by management of the firm, or by parts outside the firm.

USERS OF FINANCIAL ANALYSIS:

 management
 Trade creditors
 Investors
 government
 others

1. Management:

Management of the firm would be interested in every aspect of the financial analysis. It is their overall
responsibility to see that the resources of the firm are used most effectively and efficiently and that the
firm’s condition is sound.

2. Trade Creditors

The trade creditors are to be paid in a short-term solvency of the concern. The current ratio and acid test ratio
will enable the creditors to assets the short-term solvency position of the concern.

3. Investors:

The Investors are interested in their money in the firm's shares. They are not concerned about the firm’s
earnings. They restore more confidence in those firms that show steady growth in earnings. $as such, they
concentrate on the analysis of the firm’s present and future profitability. They are also interested in the
firm’s financial structure to the extent it influences the firm's earning ability and risk.

4. Government:

The financial statements are used to assess tax liability of business enterprises. These statements enable the
government to find out whether the business is following various regulations or not.
5. Others:

Trade associations, stock exchange and public at may also analyse the financial statements to judge the
financial position of different concerns.

FINANCIAL ANALYSIS OF ASIAN PAINTS

INTRODUCTION OF ASIAN PAINTS

Asian Paints Limited is a paint company. The Company is engaged in the business of manufacturing, selling
and distribution of paints, coatings, products related to home decor, bath fittings and providing related
services. The Company's business segments are Paints and Home Improvement. The Home Improvement
segment includes its bath fittings business. Its geographical segments are Domestic and International
operations. The Domestic segment includes operations of the Company and its Indian subsidiaries, and joint
ventures. It manufactures a range of paints for decorative and industrial use. Its products include special
effects, plain finishes and distempers for interior walls; textures finish, plain finishes and design for exteriors
for exterior walls; wallpapers; wood finishes; metal finishes; waterproofing solutions; adhesives, and
painting tools and implements. It operates in over 20 countries and has over 30 manufacturing facilities,
servicing consumers in over 65 countries.

HISTORY OF ASIAN PAINTS

The company was started in a garage in Gaiwadi, Girgaum - Mumbai by four friends Champaklal Choksey,
Chimanlal Choksi, Suryakant Dani and Arvind Vakil. All four belong to the Jain Bania Family, founded the
company in February 1945. During World War II and the Quit India Movement of 1942, a temporary ban on
paint imports left only foreign companies and Shalimar Paints in the market. Asian Paints took up the market
and reported annual turnover of ₹23 crore in 1952 but with only 2% PBT margin. By 1967, it became the
leading paints manufacturer in the country.

The four families together held the majority shares of the company. But disputes started over global rights in
the 1990s when the company expanded beyond India. The disputes resulted in Choksey selling their 13.7%
shares and exiting in 1997. Champaklal died in July 1997 and his son Atul took over. After failed
collaboration talks with the British company Imperial Chemical Industries, Choksey's shares were mutually
bought by the remainder three family and Unit Trust of India. As of 2008, the Choksi, Dani and Vakil
families hold a share of 47.81%.

The Indian Paint Industry

The Indian paint industry is over 100 years old. Its beginning can be traced back to the setting up of a factory
by Shalimar Paints in Calcutta (now Kolkata) in 1902. Until World War II, the industry consisted of small
producers and two foreign companies. After the war, the imports stopped, which led to the setting up of
manufacturing facilities by local entrepreneurs. Still, the foreign companies continued to dominate the
market. Initially British paint companies such as Goodlass Walls (now Goodlass Nerolac), ICI, British Paints
(now Berger Paints), Jenson & Nicholson and Blundell & Eomite dominated the market.

There are now twelve players in the organized sector of India's paint and coatings market and over 2,000 in
the unorganized sector. In 2003-04, the organized sector held 70% share of the approximately $1.5 billion
(Rs 6,800 crore) industry, while the balance was made up of the unorganized units.

The major players are Asian Paints, Goodlass Nerolac, Berger, ICI and Shalimar. Recently, world leaders
like Akzo Nobel, PPG, DuPont and BASF have set up bases in India with product ranges such as auto
refinishes, powder coatings and industrial coatings. Kansai Paints of Japan, which entered into collaboration
with Goodlass Nerolac in 1984, is now the holding company for Goodlass Nerolac with 64.52%equity
holding. PPG has a joint venture with Asian Paints to manufacture industrial coatings. Jenson & Nicholson
and Snowcem India are no longer active players because of dwindling sales in recent years.

In the 1990s, helped by a growing economy, the Indian paint industry recorded a healthy growth of 12-13%
annually. This was mainly due to a drastic reduction in exercise from a staggering 40% to 16%. However,
the growth was restricted in 2002-03 to single digits. There was a revival in 2003-04 with a robust growth of
13%.

The Indian paint industry has two main market segments-industrial and decorative paints. While industrial
paints are used for protection against corrosion and rust on steel structures, vehicles, white goods and
appliances, decorative paints are used in protecting valuable assets like buildings.

The Indian decorative business has a share of approximately 77% in total sales. In foreign countries 50-70%
of the business is from the industrial segment.

The trends are likely to shift in India too, but at a slower pace, in favour of industrial paints. The per capita
consumption of paint in India is 700 grams versus 19 kg in the U.S. and 2.7 kg and 5.8 kg in other
developing countries like China and Brazil. Because consumption relates to affordability, the low Indian
figure is not a surprise.

Within the decorative segment, the share of exterior paints is 21%, interior emulsions 11%, distempers 30%,
solvent-based enamel paint 36% and wood finishes two percent.

The exterior category, particularly exterior emulsions, is the fastest growing segment at 20% for the last
three years.

The industrial coatings segment includes high performance coatings with 30% market share, powder
coatings with ten percent, coil coatings with five percent, marine coatings five percent and automotive
coatings 50%.
While Asian Paints was a clear market leader with a turnover of approximately $420 million (Rs 1,943
crores) in 2003-04, Goodlass Nerolac was second with approximately $220 million (Rs 1,010 crores) during
the same period.

Organization System

Most of the organized companies in India's paint and coatings market have a nationwide presence with multi
location manufacturing facilities. The companies in the unorganized sector are mostly regional, spread in
and around their manufacturing facilities and deal in low value products.

Asian Paints has created a nationwide marketing campaign focusing on all small interior markets. Not only
was the company able to establish itself in interior markets, the demand percolated to main towns allowing
the company to enlist support of large customers.

Being restrained by FERA (Foreign Exchange Regulations Act) and MRTP (Monopolies & Restrictive
Trade Practices Act), most players were not allowed to increase production capacities until the Nineties.
With liberalization, these shackles were removed and other companies have expanded, though the gap
between Asian Paints, which could expand continually and others has widened.

Another winning point for Asian Paints was its strategy to focus on smaller packs while others were focusing
on larger packs. Asian Paints has also been introducing new product categories, which helped in expanding
the market.

This made distribution still more complex as precise forecasts for more than 3,000 SKUs became a challenge
for every organization. With the advent of colour dispensing machines supported by all paint companies and
sophisticated IT enabled distribution tools, the situation has eased considerably.

Business Reengineering

With the industry business becoming complex, most companies have restructured and have used information
technology as the key driver for reengineering. They have aligned their organized structures on the basis of
expanding business and its complexities. This was essential in order to tighten controls. Today, companies
have divided their sales organizations into decorative, industrial and high-performance coatings business
units. The national level organization structure is split into zones, regions and branches.

Colour dispensing machines, both computerized and manual, have transformed the business, particularly on
the manufacturing and distribution sides. Earlier, paint companies were required to manufacture all the
shades (30-50 depending on a product line) in all the packs (five to eight packs).
The demand pattern was difficult to predict even with the support of historical data/trends as consumer
preferences were changing fast. The machines altered the production pattern from shades to producing bases
thus providing economies of scale, reduced inventory levels and eliminated redundancy of stocks. It has cut
down the new products introduction cycle considerably. This has helped expand the range of shades for each
product category, offering a choice of shades to consumers in the hundreds. For the retailers also, it
eliminated the sales loss for want of range/desired shade. The machines have brought a total change in the
way business is transacted and revolutionized business processes as well.

There are approximately 11,000 colour-tinting machines installed at the dealers' end including multiple
machines on some counters. Also popular are the gear mixers for 2K finishes in auto refinishes, which are
installed at the dealers' end and at leading garages.

The dependence on information technology has increased remarkably from a corner room EDP operation to
playing a pivotal role in the way business is transacted. While Asian Paints has invested in i2 technology,
Goodlass Nerolac has backed up IBM enabled APO and has upgraded to the latest 3.1 version to improve its
distribution and optimize production scheduling. Both companies are operating on an ERP (SAP R3)
operating system through full connectivity across the factories and branches via V-SATS, thus virtually
working on live data for sales, accounting and purchasing.

Goodlass Nerolac has moved one step further by launching its intranet-employee portal to capture
knowledge sitting in the minds/desktops of individuals to a common platform, which can be accessed by all
employees. It has also invested in advanced business plan performance measurement tools like balanced
score cards to track, review and align performance.

Most companies in the Indian paint industry are functioning on multi-division models with individual
functions controlled by business heads. Some manage their business through sub-committees. As in the case
of Goodlass Nerolac there are two levels of teams managing/guiding business.

While all the policy and major decisions are looked at by the management committee (MC), which reviews
operations on a monthly basis, there is a parallel team-business analyst team (BAT)-which analyses the
businesses and discusses new initiatives, working as the think-tank for the company. Recently CAT
(Creative Analysis Team) has been created to work on new long-term initiatives.

Product Culture

Most companies have an identical range of products for the decorative paint market. In the industrial
segment, the range of products is more customized and guided by the technology support provided by the
collaborators. In the case of decorative products, the technology has been mostly indigenously perfected
over the years and the products can be divided on the basis of interior and exterior application or in
categories like water-based and solvent-based. Moreover, most companies have been advertising their
products in the exterior emulsion’s category, which has expanded the market and triggered a shift from
cement paint.
While solvent-based enamels are still popular in India, outside India there is a clear shift visible from
solvent- to water-based gloss enamels. India will take some time before this change is accepted on account
of three hurdles currently faced including cost (water-based is expensive), low level of gloss in water-based
enamels and the psychological barrier that water-based coatings cannot be superior to solvent-based coatings
for protecting wood or metal surfaces.

Companies not working on operational efficiency business models have been losing. Asian Paints and
Goodlass Nerolac have been aggressively working on cutting costs/operating expenses. Berger has been
managing well with economical yet acceptable formulations and low operating costs.

The industry is not capital intensive and depreciation charges are not significant. Working capital
requirements are moderate. However, most companies in the lower rungs are unaware about the realization
of debtors. Added to this has been the problem related to collection of instalments on colour dispensing
machines, which are mostly purchased on lease.

The highest efficiency required is in physical distribution. The poor forecasts of demand result in poor
distribution. As a result, companies are investing in sophisticated supply chain management tools. Margins
have remained under pressure due to dropping prices, which have been more strategic and forced by the
market leader. Companies have been working on improving internal efficiencies to retain profits. The
pressure from OEMs to reduce prices has also been a cause for low profits for paint companies. Even with
the turnaround of the Indian economy, the pressure has not relented. The customer, or retailer, has also been
dictating his terms as most companies have common counters to meet their objectives. So, they have no
choice but to lure more customers through incentives. Lower productivity of high cost labour in the old units
has been another problem. This in totality has increased operating pressures.

Some of the international players are already present in India's paint and coatings market, but mostly for
industrial coatings. They include Akzo Nobel, BASF, Henkel (pre-treatment chemicals), PPG, ICI
(decorative) and DuPont (auto refinishes). A few others are present through collaborations like Kansai and
Nippon.

For the decorative range of products, it is difficult for international companies to set up shop on a stand-
alone basis because of existing barriers such as the strong network of established players, brand image, range
of products (Indian context) and required distribution logistics. Therefore, the safer route has been and will
be to tag along with existing companies. For industrial products, however, this may not apply and based on
their tie-ups in home countries and their OEM customers, the required range can be made and sold.

There is however room for niche players, with radical and unique ranges of products properly conceived and
marketed in the Indian context and supported with machines.

Current Trends

The Indian paint and coatings industry are riding high on the growth in the Indian automobile industry, new
construction in the housing segment and improving infrastructure throughout the country. Thirty percent of
the paint business is comprised of new construction projects. GDP growth projections of six to 6.5% in the
current year mean a growth of nine to ten percent in Indian paint business. The growth will be 12-13% in the
industrial segment and eight to nine percent for decorative paint. The Indian automobile industry has been
performing remarkably well and will benefit the market leader in the segment, Goodlass Nerolac.

As for the future, the industry has predicted a CAGR of eight to nine percent for the next five years
compared to last year's growth levels of 27.4% for cars and 8.9% for two wheelers. The Indian housing
industry is likely to do well in the current year as well, recording a growth rate of 35% last year. As a result
of the overall health of India's economy, it is safe to predict a nine to ten percent growth rate for the Indian
paint industry in the next five years.

Consumers can look forward to new product launches, some for application in special areas. Companies will
be increasing the value-added services available to customers by offering a variety of finishes through
specialized and trained applicators. There will be more options like ranges of colours/finishes for wood
applications through the tinting machines. Additionally, the trend towards water-based coatings is likely to
set in both for industrial and decorative applications. While India has not yet embraced the DIY concept as
cheap labour is still available, exclusive retail chain stores sponsored and run by Indian paint companies will
become a reality.

The Indian paint industry has progressed well and moving ahead is likely to be influenced by several factors
including new technologies, new innovative products, new associations, consolidation of industry and poor
performers getting out of the market. Ultimately, in the years ahead there will be only four or five key
players operating in the Indian paint market.

Basic Information of Paint Industry

Today manufacturers in India hardly face any threat from the foreign players. Most of them have deals with
global players in terms of latest technology and market accessibility. A large number of Paint outlets or
shops have automated/manual dealer tinting systems. Today India has more than 20,000 outlets in operation,
probably the highest for any country. There are only approximately 7,000 tinting systems in China for a
market two and half times of India’s size. 30% of the paint industry revenue in India is accumulated from
Industrial Paints. The size of the Indian Paint Industry is around 940 million litres and is valued at
approximately $2 billion. The organized sector comprises 54% of the total volume and 65% of the value. In
the last ten years, the Indian Paint Industry has grown at a compounded annual growth rate (CAGR) of 12-
13%.

Today India is booming in the field of infrastructure and industrial development. Rapid industrialization and
improvements in the infrastructure such as transport, energy and communication during the last decade gave
a further fillip to the growth of the paint industry. So, the demand of the paint industry is relatively more.
Aided by Government’s liberal policy of technology import, the automotive and consumer durable segments
expanded phenomenally, with a flurry of foreign collaboration. Increased demand for decorative, protective
and functional coatings was a natural fall out, which brought, in its stride, a host of indigenous development
as well as the injection of new technology. Indian Paint Industry makes great changes in the rapid industrial
development as well as country development. Therefore, the paint industry is of crucial importance to India.

TOP & MAJOR MANUFACTURERS IN PAINT INDUSTRY

1. PPG

2. The Sherwin-Williams Co.

3. AkzoNobel

4. Nippon Paint Holdings Co.

5. RPM International Inc.

6. Axalta Coating Systems

7. BASF Coatings

8. Kansai Paint Co. Ltd.

9. Jotun

SHOWCASE:

BERGER PAINTS INDIA LTD. (BERGEPAINT) –

INTRODUCTION

Berger Paints India Ltd is an Indian paint company based in India. The company is headquartered at Kolkata
and has 14 manufacturing units in India, 2 in Nepal, 1 each in Poland and Russia. It has manufacturing units
at Howrah and Rishra, Arinso, Taloja, Naltoli, Goa, Devla, Hindupur, Jejuri, Jammu, Puducherry and
Udyognagar.

The company has presence in 5 countries – India, Russia, Poland, Nepal and Bangladesh. They have an
employee strength of over 3,500 and a countrywide distribution network of 25,000+ dealers.

COMPANY HISTORY

In 1770, Louis Steigenberger shifted from Frankfurt to London to sell a Prussian blue colour, which was
made using his own formula. He then changed his name to Lewis Berger. By 1870, Berger Paints was selling
19 different pigments such as black lead, sulphur, sealing wax and mustard. After his demise, his sons took
over the business. [Citation needed] In the 1900s, Sherwin-Williams, an American company took control of
the company. On 17 December 1923, Mr. Hadfield set up Hadfield's (India) Ltd., a small paint company in
Calcutta. Towards the end of 1947, British Paints acquired Hadfield's (India) Ltd and thus British Paints
(India) Ltd was incorporated in the State of West Bengal. In 1951, sales offices were opened in Delhi and
Mumbai and a depot was started in Guwahati. In 1969, Berger Jenson Nicholson Limited, UK bought British
Paints (India) Ltd. This marked the beginning of Lewis Berger’s legacy in India. In the year 1973, D.
Madhukar took over as the Managing Director. Sales figures reached over Rs. 160 million by 1978.The 80s
and the 90s saw the launch of many new products such as emulsions and distempers. In 1991, UB group sold
the company to Kuldip Singh Dhingra (Chairman) and Gurbachan Singh Dhingra (Vice Chairman). Subir
Bose took over as Managing Director on 1 July 1994.Bose retired on 30 June 2012, handing over the
company to Abhijit Roy, the current managing director.

CHAPTER TWO

OBJECTIVES OF THE STUDY

 To understand the market share of the Asian paint in the corporate world.

 Critically examined the performance of Asian Paints vis-à-vis closest competitor i.e. Berger paints.

 To analyse the level of consistency of Asian paints.

 To analyse the profitability of the business.

 To analyses the asset management of the firm.

 To analyse the financial statement of Asian paints company from the year 2014-15 to 2018-19

LIMITATIONS OF THE STUDY

Any study cannot be free from limitations. Some limitations for present research work are as under.

1. This research study is based on secondary data collected from annual reports and related websites. The
limitation of the secondary data and its findings depend entirely on the accuracy of such data.
2. The data, which is used for his study is based on annual reports of the companies and secondary data
collected from published reports from time to time. Therefore, the quality of this research depends on
quality and reliability of data published in annual reports.
3. Results of this research are confined and limited to the Asian paints and Berger paints companies
4. The study is limited to five years (2014-15 to 2018-19) only

STATEMENT OF PROBLEM
There are so many industries contributing to economic development of nation and Modern paint operations
touch almost every sphere of economic activity. They have far reaching consequences on economic
development of country. Paint sector is one of the leading industries in manufacturing sector. Although the
paint sector is working effectively it does have to face many problems. One of the major problems faced by
the paint sector is inconsistency in the profit they earn. It is necessary to major the profitability of the
organization which is affected by various factors. Profit is the motive of every organization that needs to be
cared. Thus, it becomes necessary for every company to know its current trend of profit earned. In this
context my research work is aligned towards measuring profitability of ASIAN PAINT INDURTY through
various ratios based on the financial data of last five years.

SCOPE OF THE STUDY: -

The scope of this research study is as under.

FUNCTIONAL SCOPE

Functional scope of this study is to analyse Background/ History, Various paint industry Services, Financial
Performance. Future and Barriers, Contribution and roll of selected paint industry companies in India.

GEOGRAPHICAL SCOPE

The study will be applicable or functional within India, as Asian Paints operations only within Indian Paint
industry have been taken into consideration. Any estimates that will be gathered are for usage within Indian
subcontinent only.

SOURCE OF DATA:

The kind of data collected and the methods used to collect the data has a very important aspect of the
research. There are two basic means of collection of data as follow:

 Primary data

 Secondary data

I have given more emphasis on secondary data because I undertakes research on analysis of financial
statements of Asian paint for which I have needed all Annual reports and records from the companies, which
are in nature of secondary data. I have be very careful in using secondary data and make a minute scrutiny
because it is just possible that the secondary data may be unsuitable or may be inadequate in the context of
the problem, which the I wants to study

SIGNIFICANCE OF THE STUDY: -

The analysis will be helpful in evaluating profitability of Asian paints. It will be determining the
performance of Asian paints and analyze whether the entity is stable, solvent, liquid or profitable enough to
warrant a monetary investment.

The study will be helpful to investors for choosing best possible investment opportunities as far as Asian
paints, Berger paints is concerned. They, will be able to make an informed decision in investing. The project
uses historical information combined with a series of assumptions and adjustment, to the financial
information that will be used to project future performance of Asian paints, Berger paints, etc.

The study will also assess the operational efficiency of the management of the companies’ Asian paints,
Berger paints, etc.

PERIOD OF THE STUDY:

The study is made for a period of last 5 years data from 2014-15 to 2018-19

SAMPLING DESIGN:

There are 125 such companies which are working in India data available of 79 companies. I have selected
Asian Paints Company as the sample for this study and I have taken Berger paints for comparing. The
sample has been selected considering following factors.

 Data for the entire period of the study from 2014-15 to 2018-2019

 Allocation of the country in the region has been made according to CMA criteria.

 Company have been already been listed in the stock market.

 Asian Paint as well Berger Paints have also been performing well in Indian market.

 Asian Paints as well Berger Paint companies selling are more than CMA criteria.

TOOLS AND TECHNIQUES FOR ANALYSIS OF FINANCIAL STATEMENTS:

It is an empirical study, so I have followed scientific approach to design the research methodology for
investigation. For this study I have is using secondary data as a source of information for thus research e.g.
the Annual Reports, websites and other publications. The following tool & techniques have been
classification in the study

(A) Accounting Techniques (B) Statistical Techniques

ACCOUNTING TECHNIQUES:

I have picks up the techniques to suit their requirement and also basis to data available to them. The
accounting techniques which are used for the analysis is as under.

 Ratio Analysis -
 A ratio is a quotient of two numbers and the relation expressed between two figures. Ratio analysis is a
process of comparison of one figure against another, which makes ratio. Ratio analysis is a very
powerful. The ratio analysis concentrates on the inter-relation-ship among the figures appearing in the
financial statement.

STATISTICAL TECHNIQUES:

The statistical techniques which are used for the analysis are as under:

 Arithmetic Mean

It is called as the average of difference of the values of items from some average of the series. According to
Gulerian “The most commonly used average is the arithmetic mean, briefly referred to as the mean” the
mean has been found by adding all the variables and dividing it by the total number of years taken.

 The Standard Deviation:

The standard deviation concept was introduced by „Karl Pearson‟ in 1823. Standard deviation is most
widely used measure of dispersion of a series and is commonly denoted by the symbol ““(pronounced as
„sigma‟). Standard deviation is retired as the square –root of the average of squares of deviations, when such
deviations for the values of individual items in series are obtained from the arithmetic average.

 Co-Efficient of Variation:

Co-efficient of variation is defining as the percentage of the standard deviation to the mean. It should be
noted that higher the variability the greater would be the co-efficient of variation. Therefore, it may be
pointed out that for the stability of results, Co-efficient of variation must be low. Co-efficient of
variation (C.V.) may be calculated with the help of standard deviation and mean.

 FUTURE PLANS OF ASIAN PAINTS

Management commentaries by paint makers indicate that demand, which was hurt by demonetization and a
messy implementation of the goods and services tax (GST), is set to revive.

Now that the after-effects of GST are waning, paint companies are likely to benefit from a normal monsoon
and an increase in rural demand.

That is anticipated to translate into double-digit volume growth in fiscal year 2019 (FY19).

But the most important indicator of rising demand is that paint makers are expanding capacity.

Asian Paints Ltd, the leader in the decorative paints segment, is setting up two large plants. One is a 500,000
kilolitres per annum plant in Visakhapatnam at a capital expenditure (capex) of ₹ 1,785 crore. Another is a
600,000 kilolitres per annum capacity plant at Mysuru at a capex of ₹ 2,300 crore.
Demand has improved for the paint industry during the second half of FY18, Asian Paints’ management told
analysts in a post- March quarter earnings conference call. Further, rural growth was higher than urban
growth for the company during the March quarter.

While the first phase of both these plants will be commissioned in FY19, the second phase will be set up and
commissioned later based on the demand environment, the management said.

The company’s capex during FY18 was ₹ 1,350 crore, out of which ₹ 1,100 crore was towards these two
mega plants. Asian Paints will incur an additional capex of ₹ 1,000 crore in the current fiscal year for
completion of phase I.

Berger Paints India Ltd has pegged FY19 capex at around ₹ 200 crore. Recently, the company announced
the setting up of a plant in the Sandila Industrial area near Lucknow.

Meanwhile, the leader in the industrial paints segment Kansai Nerolac Paints Ltd would incur a capex
of ₹ 450-500 crore in FY19. The company intends to spend ₹ 1,100 crore to increase capacity by nearly
40% in the next two years by adding three greenfield plants in Gujarat, Punjab and Andhra Pradesh.

For this, Kansai Nerolac has already invested ₹ 300 crore in FY18 and the remaining of ₹ 800 crore
investment is likely to be spent evenly in FY19 and FY20. Facilities in Punjab and Andhra Pradesh would
cater to the decorative paints segment, while the Gujarat plant would be for industrial coatings, the
company’s management told analysts.

Kansai Nerolac has guided for double-digit growth in decorative paints in FY19, but expects volume growth
in the automotive coatings vertical to see some moderation.

Also, paint makers are pumping in funds to launch new products and expand dealer networks.

Although volume growth may bounce back in the coming quarters, the risk of further erosion in gross
margins remains. Paint companies resorted to price hikes in the months of March and May due to a spike in
raw material prices. However, it needs to be seen if these are enough to offset input costs pressures.
 LITERATURE REVIEW

Long back (1957), EF Donaldson: referred to the importance of business and financial reporting. He
highlighted that the economy depends on the business organizations for goods and services. United States
believes in corporate world. The financial activities of business enterprises of production and sale is of
utmost importance. In his well-known publication (Corporate Finance, 1957) he has referred to all important
aspects of business finance like organization structure, securities, production, capitalization, working capital,
administration of income, expansion and combinations (mergers), reorganization and readjustments.

Robert Anthony: Professor of Accounting and Financial Control at Harvard University has written many
authoritative books on accounting 182 and financial management. He defines Accounting as a means of
collecting, summarizing, analysing and reporting in monetary terms, information about the business. This
simple definition highlights the importance of accounting and financial information in the business
enterprise. There is a reference to the following accounting principles and scope of the field of accounting
and finance.

E.V.K. Padmini and P.K. Lekha (1992): studied the financial performance of Shire Narayana Power loom
Industrial Co-operative Society, Nadathara in Kerala for the period from 1980-81 to 1987-88. The
performance was evaluated with the help of the selected ratios namely turnover ratios, financial ratios and
liquidity ratios. The relevant parameters used for the evaluation were: cost of goods sold, administrative
expenses, sales, current assets, current liabilities and fixed assets. The study revealed that the cost of goods
ratio was very high around 70to 80 percent of the value of sales, administrative ratio more or less remained
the same, current and liquidity ratios were found to be low from 1983-84onwards. The study concluded that
the financial performance of the society was not up to the level.
Vasanthamani (1982): in her study “The Financial Performance of Lakshmi Machine Works limited”. The
objective of the study was to analyse the financial performance of Lakshmi machine work with a view to
analyse the future of performance potentials. The study covered the period from 1978-1982. The liquidity
position of the company showed that the company was able to meet the creditors out of its own current
assets. The quick ratio also revealed that the quick liabilities were met at of quick assets without any
difficulty.

Parvathi (1990): in her “Financial Performance Analysis Hindustan Photos Films Ooty” for the year 1990-
1996, concluded that the gross profit has shown as increasing trends, long term solvency of the company,
debt equity ratio was not satisfactory’.

Sankar.T. L & et.al (1995): in their study entitled, “Financial Performance of State Level Public
Enterprises” suffers from staggering investment, poor profitability, and unnecessary investment, poor project
planning and inadequate financial control.

Kim & et.al (1996): in Profitability, growth and risk (optimization), an attempt was made to understand the
profitability differentials in terms of simultaneously determinant-relational among profitability, growth and
risk. The variables are endogenous infirm profit maximization.

Gnanavelu.N (1996): in his study entitled “Case Study of Financial Performance of Sakthi Sugars Limited”
has proved the financial performance of the company passion is good. The borrowing by the company was
kept at the minimum level its profitability was expected to increase further. Being the row material in
seasonal the fluctuation in working capital cannot be avoided.

Sardeesh Babu (1999): in her study “A Study on Financial Performance of Fertilizers and Chemicals
Travancore Limited”. The cost on various overheads can be brought down

 by carefully scrutinizing each item and applying cost cutting techniques. The profitability of the company
can be improved by reducing the expenses that do not contribute any productive use. The current assets can
be managed efficiently by examining the material holding and stock holding procedure and pattern. If the
company increase its turnover and reduces its cost, the profit will increase leading to an increase in the
growth rate of sales, profit before tax and profit after tax.
 CHAPTER FOUR

Asian paints

Balance sheet as at 31st March,2019 & Vertical Analysis

As at As at As at As at As at
PARTICULARS 31/03/2015 31/03/2016 31/3/2017 31/3/2018 31/3/2019

1. EQUITY AND
LIABILITIES

(1
) Shareholders’ Funds
Total Shareholders’ Fund 4,230.26 4,963.16 7,09475 7,798.16 8,887.56
58.16 59.33 99.54 67.29 67.57

(2
) Non-Current liabilities
Total Non-Current 285.12 335.15 387.35 390.81 548.62
Liabilities
3.92 4.00 0.05 3.37 4.17

(3
) Current Liabilities
Total Current Liabilities 2,757.82 3,065.84 2,875.93 3,398.96 3,176.19
37.91 36.65 0.40 29.33 28.25
 II ASSETS
(1
) Non-Current Assets
Total Non-Current 3,103.93 3,866.59 4,927.83 6,086.84 7,099.02
Assets
42.67 46.22 0.69 52.52 53.97

(2 Current Assets
)
Total Current Assets 4,169.27 4,497.56 5,430.20 5,500.17 6,053.35
57.32 53.77 0.76 47.46 46.02

From the above table we can see that shareholder’s Funds is increases by 58.16, 59.33, 99.54, in the year
2015,2016 and in 2017 but it starts decreases in 4 year in 2018 ratio was 67.29 and again it increases in last
year in 2019 ratio was 67.57. Total Non-Current Liabilities is increases by 3.92, 4.00 in the year 2015,2016
and in 2017 the ratio was 0.05 it decreases and again it increases in last 2 years in 2017, 2018 ratio was 3.37,
4.17. Total Current Liabilities is decreases in 1st 2 years in 2015, 2016 ratio was 37.91, 36.65 and in 3 rd year
it decreases by 0.40 in 2017 and again it increases in the 2018 by 29.33 and in last year it decreases by
28.25. Total Non-Current Assets it increases in 1 st 2 years in 2015, 2016 ratio was 42.67, 46.22 and it
decreases in 3rd year 2017 ratio was 0.69 and again it increases in last 2 years 2018, 2019 ratio was 52.52,
53.97. Total Current Assets it decreases in 1st 3 years 2015, 2016,2017 ratios were 57.32, 53.77, 0.76 and it
increases 4-year 2018 ratio was 47.46 and again it decreases in last year 2019 ratio was 46.02.

Asian Paints
Trend Analysis of BALANCE SHEETS

ASSETS 2015 2016 2017 2018 2019

Total Current Assets 444.284 591.389 472.538 585.269

Total Non-current Assets 253.852 324.185 1166.517 407.587

EQUITIES & LIABILTIES

Reserves & Surplus 117.727 169.285 186.299 212.649

Total Current Liabilities 330.427 400.844 450.551 504.456

 TREND ANALYSIS OF BALANCE SHEETS OF ASIAN PAINTS
2500

2000

1500

1000

500

0
2014-15 2015-16 2016-17 2017-18 2018-19

TOTAL CURRENT ASSETS TOTAL NON-CURRENT ASSETS

RESERVES & SURPLUS TOTAL CURRENT LIABILITIES

From the above table we can see Total Current Assets, Total Non-current Assets, Reserves & Surplus, Total
Current Liabilities of all this is increase year by year it knows that Asian paints is performance well.

Quick Ratio -
Quick ratio or liquid ratio gives a more in-depth view of the liquidity position of a company. Quick ratio
does not consider inventories and prepaid expenses as part of current assets. This is a logical exclusion as the
company may not be able to convert inventory into cash easily. Inventories need to be sold first for
converting into cash. Selling inventory is a time-consuming process. When and how the inventories will be
sold is dependent on many factors such as economic conditions, consumer preferences, and so on. These
factors are often not controllable by the company. Therefore, inventories are not really that current in real
sense. Prepaid expenses are also excluded because they cannot be converted into cash. Thus, it is a more
conservative measure of liquidity. The basic purpose of computing liquidity ratios is to assess the capability
of repaying the current liabilities on demand.

Quick ratio may be computed as follows:

Quick ratio = (Current assets – Inventories – Prepaid expenses)/Current liabilities

QUICK RATIO OF ASIAN PAINTS

Year
2014-15 2015-2016 2016-2017 2017-2018 2018-2019
Current assets
4,169.27 4,497.56 5,429.88 5,501.09 6,053.35
Inventories
1,802.18 1,610.12 2,194.09 2,178.43 2,585.10
Current liabilities
2,757.82 3,065.84 2,875.73 3,398.96 3,716.19
Quick Ratio

Average - S. D - C.V - Min - Max -

QUICK RATIO OF ASIAN PAINTS

1.2

0.8

0.6

0.4 A
SI
0.2
A
0
2014-15 2015-16 2016-17 2017-18 2018-19 N

PAINTS

During the study period of this industry the highest ratio was 2.40, in the year 2007- 2008 and the lowest
ratio was 0.61, in the years 2011-2012. To get quick liquid assets, debtors also are deducted. It is possible
that collection may not be made immediately as and when required.

In the year 2007-2008 the ratio was increased it was 2.40, and after than the normally decreased in the year
2008-2009, the ratio was 1.42, and after again decreased ratio in the year 2009-2010, the ratio was 0.99, and
again increased ratios in the year 2010- 2011, the ratio was 1.52 and again decreased ratio in the year 2011-
2012 the ratio was 0.61.

A good condition of this industry for quick ratio compare with ideal ratio 1:1. But good condition of this
industry compared with other industries.

It should be below 1:1. Sometime 1:1 is also considered to be an ideal ratio. If liquid (Quick) assets are 2/3
of the liquid liabilities, it is satisfactory.

QUCIK RATIO OF BERGER PAINTS

Year
2014-15 2015-2016 2016-2017 2017-2018 2018-2019
Current assets
1,433.03 1,569.79 1,840.96 2,099.21 2,281.08
Inventories
646.50 688.22 884.17 939.36 1,149.13
Current liabilities
969.50 948.78 1,063.72 1,294.31 1,386.49
Ratio

Average - S. D - C.V - Min - Max -

QUICK RATIO OF BERGER PAINTS

6

0
2014-15 2015-16 2016-15 2017-18 2018-19

Interpretation

 BERGER PAINTS
During the study period of this industry the highest ratio was 2.40, in the year 2007- 2008 and the lowest
ratio was 0.61, in the years 2011-2012. To get quick liquid assets, debtors also are deducted. It is possible
that collection may not be made immediately as and when required.

In the year 2007-2008 the ratio was increased it was 2.40, and after than the normally decreased in the year
2008-2009, the ratio was 1.42, and after again decreased ratio in the year 2009-2010, the ratio was 0.99, and
again increased ratios in the year 2010- 2011, the ratio was 1.52 and again decreased ratio in the year 2011-
2012 the ratio was 0.61.

A good condition of this industry for quick ratio compare with ideal ratio 1:1. But good condition of this
industry compared with other industries.

It should be below 1:1. Sometime 1:1 is also considered to be an ideal ratio. If liquid (Quick) assets are 2/3
of the liquid liabilities, it is satisfactory.

Working Capital Ratio -

The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s ability to
pay off its current liabilities with current assets. The working capital ratio is important to creditors because it
shows the liquidity of the company. Current liabilities are best paid with current assets like cash, cash
equivalents, and marketable securities because these assets can be converted into cash much quicker than
fixed assets. The faster the assets can be converted into cash, the more likely the company will have the cash
in time to pay its debts. The reason this ratio is called the working capital ratio comes from the working
capital calculation. When current assets exceed current liabilities, the firm has enough capital to run its day-
to-day operations. In other words, it has enough capital to work. The working capital ratio transforms the
working capital calculation into a comparison between current assets and current liabilities. In the form of a
formula, this ratio may be express as follows:

Working Capital Ratio = Current Assets

Current Liabilities
Working Capital Ratio of Asian paints

particulars 2014-15 2015-2016 2016-2017 2017-2018 2018-2019

Current assets 4,169.27 4,497.56 5,429.88 5,501.09 6,053.35

Current liabilities 2,757.82 3,065.84 2,875.73 3,398.96 3,716.19

Ratio 1.51 1.46 1.88 1.61 1.62

Average – 1.1616 S.D -0.653 C.V -0.523 Min -1.46 Max -1.88

WORKING CAPITAL RATIO OF ASIAN PAINTS

2

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 1.88, in the year 2016- 2017 and the lowest
ratio was 1.46, in the year 2015-2016. It is so believed that liquidity of company is higher if the ratio is
higher. The ideal ratio is 2:1 it means that if the current assets are twice the current liabilities, the liquid
position of a company is said to be satisfactory.
In the year 2014-2015 the ratio was increased it was 1.51, and after than the decreased in the year 2015-
2016, the ratio was 1.47, and after than again increased in the year 2016-2017 the ratio was ,and decrease in
2017-2018 the ratios was 1.61, and again normally increased ratio in the year 2018-2019 the ratios was 1.61.
A normally good condition of this industry for current ratio compare with ideal ratio 2:1. But good
condition of this industry compared with other industries.
This ratio is measure working capital position and useful to creditors and short-term money-lenders. With
the help of this ratio, one can judge whether or not the company is able to pay back the debt within a short
period.
WORKING CAPITAL RATIO OF BERGER PAINTS
particulars
2014-15 2015-2016 2016-2017 2017-2018 2018-2019
Current assets
1,433.03 1,569.79 1,840.96 2,099.21 2,281.08
Current liabilities
969.50 948.78 1,063.72 1,294.31 1,386.49
Ratio
1.47 1.65 1.73 1.62 1.64

Average – 1.622 S. D - 0.654 C.V - 0.569 Min - 1.47 Max - 1.73

WORKING CAPITAL RATIO OF BERGER PAINTS

1.8

1.75

1.7

1.65

1.6

1.55

1.5

1.45

1.4

1.35

1.3
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 1.73, in the year 2016- 2017 and the lowest
ratio was 1.47, in the year 2014-2015. It is so believed that liquidity of company is higher if the ratio is
higher. The ideal ratio is 2:1 it means that if the current assets are twice the current liabilities, the liquid
position of a company is said to be satisfactory.

In the year 2014-2015 the ratio was increased it was 1.47, and after than the increased in the year 2015-
2016, the ratio was 1.65, and after than again increased in the year 2016-2017 the ratio was1.73 ,and
decrease in 2017-2018 the ratios was 1.62, and again normally increased ratio in the year 2018-2019 the
ratios was 1.64.

A normally good condition of this industry for current ratio compare with ideal ratio 2:1. But good
condition of this industry compared with other industries.
This ratio is measure working capital position and useful to creditors and short-term money-lenders. With
the help of this ratio, one can judge whether or not the company is able to pay back the debt within a short
period.

RETURN ON EQUITY –

(ROE) is a ratio that provides investors with insight into how efficiently a company (or more specifically, its
management team) is handling the money that shareholders have contributed to it. In other words, it
measures the profitability of a corporation in relation to stockholders’ equity. The higher the ROE, the more
efficient a company's management is at generating income and growth from its equity financing. ROE is
often used to compare a company to its competitors and the overall market. The formula is especially
beneficial when comparing firms of the same industry since it tends to give accurate indications of which
companies are operating with greater financial efficiency and for the evaluation of nearly any company with
primarily tangible rather than intangible assets. This is the basic formula for calculating ROE is:

ROE = Net Income

Shareholder Equity

RETURN ON EQUITY OF ASIAN PAINTS

particulars
2014-15 2015-2016 2016-2017 2017-2018 2018-2019
Net Income
1,327.40 1,597.43 6,950.98 1,894.80 2,134.76
Shareholder Equity
4,230.26 4,963.16 1,803.10 7,798.16 8,887.56
Ratio

Average - S. D - C.V - Min - Max -

 RETURN ON EQUITY OF ASIAN PAINTS
5

4.5

3.5

2.5

1.5

0.5

0
Category 1 Category 2 Category 3 Category 4

INTERPRETATION

RETURN ON EQUITY OF BERGER PAINTS

particulars
2014-15 2015-2016 2016-2017 2017-2018 2018-2019
Net Income
266.03 354.87 446.45 431.84 439.03
Shareholder Equity
1292.80 1,510.45 1,922.14 2,143.61 2,372.35
Ratio
 RETURN ON EQUITY OF BERGER PAINTS
5

4.5

3.5

2.5

1.5

0.5

0
Category 4

INTERPRETATION
Inventory turnover ratio -
Inventory turnover is the number of times a company sells and replaces its stock of goods during a period.
Inventory turnover provides insight as to how the company manages costs and how effective their sales
efforts have been. The higher the inventory turnover, the better since a high inventory turnover typically
means a company is selling goods very quickly and that demand for their product exists. Low inventory
turnover, on the other hand, would likely indicate weaker sales and declining demand for a company’s
products. Inventory turnover provides insight as to whether a company is managing its stock properly. The
company may have overestimated demand for their products and purchased too many goods as shown by
low turnover. Conversely, if inventory turnover is very high, they might not be buying enough inventory and
may be missing out on sales opportunities. Inventory turnover also shows whether a company’s sales and
purchasing departments are in sync. Ideally, inventory should match sales. It can be quite costly for
companies to hold onto inventory that isn’t selling, which is why inventory turnover can be an important
indicator of sales effectiveness but also for managing operating costs. Alternatively, for a given amount of
sales, using less inventory to do so will improve inventory turnover. The inventory turnover ratio is defined
as follows:

Inventory Turnover = Sales/Average inventory

where Average inventory = (Opening inventory + Closing inventory)/2

INVENTORY TURNOVER RATIO OF ASIAN PAINTS

particulars 2014-15 2015-16 2016-17 2017-18 2018-19

sales 11,485.67 12,458.65 13,332.18 13,923.33 16,209.44

Opening inventory 728.87 759.06 2,194.09 2,178.43 2,585.10

Closing inventory 612.03 94.23 109.84 107.35 118.48

Ratio 17.13 29.20 11.57 12.18 11.99

 INVENTORYTURNOVER RATIO OF ASIAN PAINTS
35

30

25

20

15

10

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
Here from the above-mentioned table, Asian paints turned their inventory 17.13 times in 2014-15 and the
turnover rate started to rise in 2015-16 ratio was 29.20 time and 2016-17 it declines ratio was 11.57 time.
and in 4 year it increases again ratio was 12.18 time and again it declines in last year ratio was 11.99 time.
This happened because they had more inventories piled up than the sales proceeds which indicate the
company over spent by buying too much inventory. Over the last five years the inventory turnover
ratios were fluctuating from the standard ratio.

INVENTORY TURNOVER RATIO OF BERGER PAINTS

particulars 2014-15 2015-16 2016-17 2017-18 2018-19

sales 3,806.51 4,132.62 4,225.32 4,723.79 5,515.55

Opening inventory 434.41 461.46 480.59 598.01 574.33

Closing inventory 65.49 94.98 13.83 15.98 18.67

Ratio 12.34 14.85 17.09 15.38 18.60

 INVENTORY TURNOVER RATIO OF BERGER PAINTS
20

18

16

14

12

10

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
Here from the above-mentioned table, Berger paints turned their inventory 12.34 times in 2014-15and the
turnover rate started to rise in 2015-16, 2016-17 which were respectively 14.85 and 17.09 times.
Furthermore, the turnover ratio declines to 15.38 time in 2017-18 and 18.6 times in 2018-19 it rises due to
effective sales of the inventory they bought. Over the last five years the inventory turnover
ratios were fluctuating from the standard ratio.

CASH RATIO –
The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm’s ability to pay off its current
liabilities with only cash and cash equivalents. The cash ratio is much more restrictive than the current ratio
or quick ratio because no other current assets can be used to pay off current debt–only cash. This is why
many creditors look at the cash ratio. They want to see if a company maintains adequate cash balances to
pay off all of their current debts as they come due. Creditors also like the fact that inventory and accounts
receivable are left out of the equation because both of these accounts are not guaranteed to be available for
debt servicing. Inventory could take months or years to sell and receivables could take weeks to collect.
Cash is guaranteed to be available for creditors. Cash ratio can be calculated as follows:

= Cash and cash equivalents/Current liabilities

CASH RATIO OF ASIAN PAINTS

Year 2014-15 2015-16 2016-17 2017-18 2018-19

Cash and cash
61.81 155.02 61.34 106.70 98.33
equivalents
Current liabilities 2,758.50 3,065.84 2,875.73 3,398.96 3,716.19

Ratio 0.02 0.05 0.02 0.03 0.02

CASH RATIO OF ASIAN PAINTS

0.06

0.05

0.04

0.03

0.02

0.01

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 0.05, in the 2015-16and the lowest ratio was
0.2, in the year 2014-2015, 2016-17, 2018-19.
In the year 2014-2015 the ratio was increased by 0.02, and after than the its start increased in the year 2015-
2016, the ratio was 0.05 and again it decreased in 3rd year’s ratio was 0.02 and again its increased in the
4nd years in 2017-18 the ratio was 0.03, and again it decreased in last year’s ratio was 0.02

CASH RATIO OF BERGER PAINTS

particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Cash and cash
434.41 62.81 27.16 64.18 27.24
equivalents
Current liabilities 969.50 948.78 1,063.72 1,294.31 1,386.49

Ratio 0.44 0.06 0.02 0.04 0.01

 CASH RATIO OF BERGER PAINTS
0.5

0.45

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 0.44, in the 2014-15and the lowest ratio was
0.01, in the year 2018-2019.
In the year 2014-2015 the ratio was increased by 0.44, and after than the its start decreased in the year 2015-
2016, 2016-17,the ratio was 0.06, 0.02 and again its increased in the 4nd years in 2017-18 the ratio was 0.04,
and again it decreased in last year’s ratio was 0.01.

ACCOUNTS RECEIVABLE TURNOVER RATIO -

Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many times a business
can turn its accounts receivable into cash during a period. In other words, the accounts receivable turnover
ratio measures how many times a business can collect its average accounts receivable during the year. A turn
refers to each time a company collects its average receivables. If a company had $20,000 of average
receivables during the year and collected $40,000 of receivables during the year, the company would have
turned its accounts receivable twice because it collected twice the number of average receivables. This ratio
shows how efficient a company is at collecting its credit sales from customers. Some companies collect their
receivables from customers in 90 days while other take up to 6 months to collect from customers. In some
ways the receivables turnover ratio can be viewed as a liquidity ratio as well. Companies are more liquid the
faster they can convert their receivables into cash

Accounts receivable turnover ratio = Net sales/Average accounts receivable

where,
Average accounts receivable
= (Opening accounts receivable + Closing accounts receivable)/2
ACCOUNTS RECEIVABLE TURNOVER RATIO OF ASIAN PAINTS

particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 11,485.67 12,458.65 13,332.18 13,923.33 16,209.44

Opening receivable 1,802.18 1,610.12 2,194.09 2,178.43 2,585.10

Closing receivable 1,665.05 1,802.18 1,610.12 2,194.09 2,178.43

Ratio 11.48 13.56 15.36 14.56 18.55

20

18

16

14

12

10

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 18.55, in the 2018-19and the lowest ratio was
11.48, in the year 2014-2015.
In the year 2014-2015 the ratio was increased by 11.48, and after than the its start increased in the year
2015-2016, 2016-17, the ratio was 13.56, 15.36 and again its decreased in the 4nd years in 2017-18 the ratio
was 14.56, and again it increased in last year’s ratio was 18.55.

FIXED ASSET TURNOVER RATIO –

The fixed asset turnover ratio is an efficiency ratio that measures a company’s return on their investment in
property, plant, and equipment by comparing net sales with fixed assets. In other words, it calculates how
efficiently a company is a producing sale with its machines and equipment.
Investors and creditors use this formula to understand how well the company is utilizing their equipment to
generate sales. This concept is important to investors because they want to be able to measure an
approximate return on their investment. This is particularly true in the manufacturing industry where
companies have large and expensive equipment purchases. Creditors, on the other hand, want to make sure
that the company can produce enough revenues from a new piece of equipment to pay back the loan they
used to purchase it.

FATR = Sales/Net fixed asset

Fixed Asset Turnover Ratio of Asian paints

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19
Sales 11,485.67 12,458.65 13,332.18 13,923.33 16,209.44
Net fixed asset 1,886.42 2,532.97 2,512.01 2,447.44 4,580.57
Ratio 6.08 4.91 6.19 5.68 3.53

FIXED ASSETS TURNOVER RATIO OF ASIAN PAINTS

7

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 6.19, in the 2016-17and the lowest ratio was
3.53, in the year 2018-2019.
In the year 2014-2015 the ratio was increased by 6.08, and after than the its start decreased in the year 2015-
2016, the ratio was 4.91 and again it increased in 3rd year’s ratio was 6.19 and again its start decreased in the
last 2nd years in 2017-18,2018-19 the ratio was 5.68, 3.53.
FIXED ASSET TURNOVER RATIO OF BERGER PAINTS

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 3,806.51 4,132.62 4,225.32 4,723.79 5,515.55

Net fixed asset 635.07 693.96 877.07 911.04 996.56

Ratio 5.99 5.95 4.63 5.18 5.53

FIXED ASSETS TURNOVER RATIO OF BERGER PAINTS

7

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION
During the study period of this industry the highest ratio was 5.99, in the 2014-15and the lowest ratio was
5.18, in the year 2017-2018.
In the year 2014-2015 the ratio was increased by 5.99, and after than the its start decreased in the year 2015-
2016, 2016-17, 2017-18 the ratio was 5.95, 4.63, 5.18 and again it increased in last year’s ratio was 5.53.

Asset Turnover Ratio –

The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its
assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using
its assets to generate revenue. The higher the asset turnover ratio, the more efficient a company. Conversely,
if a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales.

TATR = Sales/Total assets

ASSET TURNOVER RATIO OF ASIAN PAINTS

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 11,485.67 12,458.65 13,332.18 13,923.33 16,209.44

Total asset 7,273.20 8,364.15 10,214.06 11,587.93 13,152.37

Ratio 1.57 1.48 1.30 1.20 1.23

ASSET TURNOVER RATIO OF ASIAN PAINTS

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 1.57, in the 2014-15and the lowest ratio was
1.20, in the year 2017-2018.

In the year 2014-2015 the ratio was increased by 1.57, and after than the its start decreased in the year 2015-
2016, 2016-17, 2017-18 the ratio was 1.48, 1.30, 1.20 and again it increased in last year’s ratio was 1.23.

ASSET TURNOVER RATIO OF BERGER PAINTS

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 3,806.51 4,132.62 4,225.32 4,723.79 5,515.55

Total asset 2,310.25 2,510.51 3,052.39 3,504.70 3,837.26

Ratio 1.33 1.64 1.38 1.34 1.43

 ASSETS TURNOVER RATIO OF BERGER PAINTS
1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 1.64, in the 2015-16 and the lowest ratio was
2.45, in the year 2017-2018.

In the year 2014-2015 the ratio was increased by 1.33, and after than the again increased in the year 2015-
2016, the ratio was 1.64, and after than again decreased in the last 2 nd years ratio was 1.38 for 2016-17 and in
2017-18 ratio was 1.34 and again it increased in last year’s ratio was 1.43.

CURRENT ASSET TURNOVER RATIO -

Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales a greater
number of times. A high current assets turnover ratio indicates the capability of the organization to achieve
maximum sales with the minimum investment in current assets. Higher the current ratio better will be the
situation.

CATR = Sales/Current assets

CURRENT ASSETS TURNOVER RATIO OF ASIAN PAINTS

Years 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 11,485.67 12,458.65 13,332.18 13,923.33 16,209.44

Current asset 4,169.27 4,497.56 5,429.88 5,501.09 6,053.35

Ratio 2.75 2.77 2.45 2.53 2.67

 CURRENT ASSETS TURNOVER RATIO OF ASIAN PAINTS
2.8

2.7

2.6

2.5

2.4

2.3

2.2
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 2.77, in the 2015-16 and the lowest ratio was
2.45, in the year 2016-2017.

In the year 2014-2015 the ratio was increased by 2.75, and after than the again increased in the year 2015-
2016, the ratio was 2.77, and after than again decreased in the last 2 nd years ratio was 2.45 for 2016-17 and in
2017-18 ratio was 2.53 and again it increased in last year’s ratio was 2.67.

CURRENT ASSETS TURNOVER RATIO OF BERGER PAINTS

Years 2014-15 2015-16 2016-17 2017-18 2018-19

Sales 3,806.51 4,132.62 4,225.32 4,723.79 5,515.55

Current asset 1,433.03 1,569.79 1,840.96 2,099.21 2,281.08

Ratio 2.65 2.63 2.29 2.25 2.41

 CURRENT ASSETS TURNOVER RATIO OF BERGER PAINTS
2.7

2.6

2.5

2.4

2.3

2.2

2.1

2
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 2.65, in the 2014-15 and the lowest ratio was
2.25, in the year 2017-2018.

In the year 2014-2015 the ratio was increased by 2.65, and after than the it decreased in the year 2015-2016,
2016-17 and 2017-18 the ratio was 2.63, 2.29, 2.25 and again it increased in last year’s ratio was 2.41.

PROFIT MARGIN RATIO -

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that
measures the amount of net income earned with each dollar of sales generated by comparing the net income
and net sales of a company. In other words, the profit margin ratio shows what percentage of sales are left
over after all expenses are paid by the business. Creditors and investors use this ratio to measure how
effectively a company can convert sales into net income. Investors want to make sure profits are high
enough to distribute dividends while creditors want to make sure the company has enough profits to pay
back its loans. In other words, outside users want to know that the company is running efficiently. An
extremely low profit margin formula would indicate the expenses are too high and the management needs to
budget and cut expenses.

A higher ratio implies higher capacity of generating profit.

PMR = Net income/Net sales

PROFIT MARGIN RATIO OF ASIAN PAINTS

Years
2014-15 2015-16 2016-17 2017-18 2018-19
Net Income
1,327.40 1,597.43 1,803.10 1,894.80 2,134.76
Sales
11,485.67 12,458.65 13,332.18 13,923.33 16,209.44
Ratio
0.11 0.12 0.13 0.13 0.13

PROFIT MARGIN RATIO OF ASIAN PAINTS

0.14

0.13

0.13

0.12

0.12

0.11

0.11

0.1
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 0.13, in the last 3 rd years and the lowest ratio
was 0.11, in the year 2014-2015.

In the year 2014-2015 the ratio was increased it was 0.11, and after than the increased in the year 2015-
2016, the ratio was 0.12, and after than again increased in the last 3rd years ratio was 0.13.

PROFIT MARGIN RATIO OF BERGER PAINTS

Years
2014-15 2015-16 2016-17 2017-18 2018-19
Net Income
266.03 354.87 446.45 431.84 439.03
Sales
3,806.51 4,132.62 4,225.32 4,723.79 5,515.55
 Ratio
0.06 0.08 0.10 0.09 0.07

PROFIT MARGIN RATIO OF BERGER PAINTS

0.12

0.1

0.08

0.06

0.04

0.02

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION

During the study period of this industry the highest ratio was 0.10, in the year 2016- 2017 and the lowest
ratio was 0.06, in the year 2014-2015.

In the year 2014-2015 the ratio was increased it was 0.06, and after than the increased in the year 2015-
2016, the ratio was 0.08, and after than again increased in the year 2016-2017 the ratio was 0.10 ,and
decrease in 2017-2018 the ratios was 0.09, and again normally decreased ratio in the year 2018-2019 the
ratios was 0.07.
 Chapter five

Financial Statements Analysis is an important tool in assessing company’s performance. It reveals the
strengths and weaknesses of a firm. It helps the clients to decide in which firm the risk is less or in which
one they should invest so that maximum benefit can be earned. It is known that investing in any company
involves a lot of risk. Based on the data available the trend of the company can be predicted in near future.

On studying the Financial Statements Analysis of Asian Paints for a period of five years from 2014 to 2019,
the study reveals that the financial performance is better. Asian Paints has been avail to maintain
profitability.

It is found that there is an increase of sales, gross profit, and net profit. Total assets also increase during the
term. It is also found that Current ratios are satisfactory and Acid test ratios are perfect. Overall Asian Paints
is in a good position.

Further the company performance and efficiency can be improved by above mentioned recommendation.