1. INTRODUCTION 1.

1 INTRODUCTION TO THE TOPIC Asset management may be defined as a comprehensive and structured approach to the long term management of assets as tools for the efficient and effective delivery of community benefits. The emphasis is on the assets being a means to an end, not an end in them." The World Road Association (PIARC) has adopted an asset management, definition of

"A systematic process of effectively maintaining,

upgrading and operating assets, combining engineering principles with sound business practice and economic rationale, and providing the tools to facilitate a more organized and flexible approach to making decisions necessary to achieve the return's expectations." The main streams in asset management are: • Identification of need for the asset, in the light of community requirements. • Provision of the asset, including its ongoing maintenance and rehabilitation to suit continuing needs operation of the asset. • Disposal of the asset when the need no longer exists or it is no longer appropriate for the asset to be retained. This is been analyzed and the essential of periodic study of assets necessity is been discussed in this study.

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1.2 INDUSTRY PROFILE The automotive industry designs, develops, manufactures, markets, and sells the world's motor vehicles. In 2008, more than 70 million motor vehicles, including cars and commercial vehicles were produced worldwide. In 2007, a total of 71.9 million new automobiles were sold worldwide: 22.9 million in Europe, 21.4 million in Asia-Pacific, 19.4 million in USA and Canada, 4.4 million in Latin America, 2.4 million in the Middle East and 1.4 million in Africa. The markets in North America and Japan were stagnant, while those in South America and other parts of Asia grew strongly. Of the major markets, Russia, Brazil, India and China saw the most rapid growth. About 250 million vehicles are in use in the United States. Around the world, there were about 806 million cars and light trucks on the road in 2007; they burn over 260 billion gallons of gasoline and diesel fuel yearly. The numbers are increasing rapidly, especially in China and India. In the opinion of some, urban transport systems based around the car have proved unsustainable, consuming excessive energy, affecting the health of populations, and delivering a declining level of service despite increasing investments. Many of these negative impacts fall disproportionately on those social groups who are also least likely to own and drive cars. The sustainable transport movement focuses on solutions to these problems.

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In 2008, with rapidly rising oil prices, industries such as the automotive industry are experiencing a combination of pricing pressures from raw material costs and changes in consumer buying habits. The industry is also facing increasing external competition from the public transport sector, as consumers re-evaluate their private vehicle usage. Roughly half of the US's fifty-one light vehicle plants are projected to permanently close in the coming years, with the loss of another 200,000 jobs in the sector, on top of the 560,000 jobs lost this decade. Combined with robust growth in China, in 2009, this resulted in China becoming the largest automobile producer and market in the world. IN INDIA An embryonic automotive industry started in India in the 1940s. However, for the next 50 years, the growth of the industry was hobbled by the Socialist policies and the bureaucratic hurdles. Following economic liberalization in India from 1991, and the gradual easing of restrictions on industry, India has seen a dynamic 17% annual growth in automobile production and 30% annual growth in exports of automotive components and automobiles. India produces around 2 Million automobiles currently. The Largest companies in India are TATA and Mahindra & Mahindra. Total turnover of the Indian automobile industry is expected to grow from USD 34 Billion in 2006 to USD 122 Billion in 2016. Tata Motors has just launched Tata Nano, the cheapest car in the world at USD 2200. Recently India has overtaken China in global auto exports of compact car this year. Suzuki Motor Corp, Hyundai Motor Co, and Nissan Motor Co are making India a manufacturing hub of minicabs.
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North America. and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. including the Big Three and Toyota offered substantial discounts across their lineups. With few fuel-efficient models to offer to consumers. the situation had turned critical as the credit crunch placed pressure on the prices of raw materials. The crises affected European and Asian automobile manufacturers. The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy. By 2008. General Motors. Major manufacturers. The Big Three faced criticism for their lineups. Car companies from Asia. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement. but it was primarily felt in the American automobile manufacturing industry. which were seen to be irresponsible in light of rising fuel prices. Ford. sales began to slide. The popularity and relatively high profit margins of these vehicles had encouraged the American "Big Three" automakers. and Chrysler to make them their primary focus.AUTOMOTIVE INDUSTRY CRISIS The Automotive Industry crisis of 2008–2009 was a part of a global financial downturn. Europe. North 4 .

However. For the first few months of 2009." foreign cars manufactured or assembled in the United States.component industry is relatively small by global standards with some individual global auto component companies having sales far in excess of that of the Indian auto component industry as a whole. Tata Motors conducted a widespread marketing campaign heralding the debut of the Tata Nano. many of the vehicles perceived to be foreign were actually "transplants. Major global automobile manufacturers/Tier-1 suppliers are already sourcing auto components from India for their global requirements. triggered largely by the economic liberalization and with global automobile players setting up manufacturing facilities in India." the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis GAINING PROSPECTS OF INDUSTRY Indian auto. The size of the industry has. at lower cost than true imports. 5 . increased in the last decade with the rapid growth in Indian automobile production. however. CRISIS IN INDIA Citing falling production numbers. the State Bank of India reduced interest rates on automotive loans in February 2009.American consumers turned to higher-quality and more fuel-efficient product of Japanese and European automakers. The other driver for expansion of the Indian auto-component industry has been the increasing volume of exports. Billed as "the people's car.

. railway blocks and clutch facings and emerged itself as a global player in this competitive auto-mobile industry for past several years. financial and accounting systems in place in the country.  Legal. and Lean Production system etc. disc pads.  Japanese concepts and best practices such as Total Quality management (TQM). Rane Brake Lining Ltd supply asbestos and asbestos free brake linings to most of the passenger and commercial vehicles manufactures. by some of the companies including Rane Brake Lining Ltd.The competitive edge Indian auto-component manufacturers enjoy which could enable them become global players are: Cost effective manufacturing technology and a penetrative High levels of quality and productivity achieved by embracing  strategy. 6 . Total productivity management (TPM).

which is being prepared for a period of 5 years. 2.1 TITLE OF THE PROJECT: “A STUDY ON ASSET PRODUCTIVITY TO FIND RETURN ON INVESTMENT UNDERTAKEN AT ASHOKLEYLAND LIMITED. utilization factor and Pareto study for improving selected machineries studied to achieve the targeted asset productivity. Fixed Assets are not only costly resources to manufacturing concerns but also prone to obsolete unless they have monitored effectively. ENOORE. Rane Brake Lining Limited has considered ‘improving the asset productivity’ as one of the key success factors to achieve their goals as specified in Strategic Business Plan (SBP).2 NEED FOR THE STUDY: It is known fact that success of every organization depends upon its effective utilization of its available resources and deriving the optimum output.2. Assets true value can be 7 . In this regard. It’s necessary to have a periodic maintenance & verification and have a track over it. various processes such as physical verification. CHENNAI”.

which would be useful to know return on investments. To evaluate critical and costly assets performance and utilization   of various assets. Chennai. 8 . 2. To analyze the assets productivity capacity for past years To suggest measures to utilize the available assets in an effective   manner.assessed by this study.3 OBJECTIVES OF THE STUDY: Primary objective:  To measure the overall return on investment of assets in Rane Brake Lining Limited. Secondary objectives: To physically verify availability of the assets as per asset register.

In the process of generating the details and completing the said exercise. Each Plant has assigned the task of analyzing the assets on cost wise (Pareto analysis) and utilization factor to be assigned to the same. 9 . Assessing real worth of assets would enable to judge the repaying capacity of Rane Brake Lining Limited. evaluation of usefulness of existing assets and utilization is the first and foremost process to derive a way forward and plan of action to achieve the desired results.4 SCOPE OF THE STUDY: Company’s one of the Strategic Business Objective is to improve its assets productivity. The study of physical assets verification would help management to trace assets productivity. In this regard. It enables to evaluate the financial strength over its investment made on assets. It helps management to track over existing assets and to evaluate its performance and contribution to organization profit. Physical verification of assets would be useful in considering about assets based finance acquiring for extending its business in future years.2. It would suggest elimination of unwanted machineries and scrap out idle assets. Physical verification of assets enables the management to know exact value of assets available for productivity purpose.

2 FIXED ASSET MEANING: 10 . It cannot be done so easily. Thus this review of literature is revolved on the topic of knowing what are assets. REVIEW OF THE LITERATURE 4.1 INTRODUCTION We obviously know that each and every sector of business is commenced with a hard strive.4. With the utilization of limited resources it has to optimize both companies’ growth as well as its revenue maximization. depreciation and assets productivity. it needs continuous development plans and good control over its resources. 4. It in brief reveals how fixed assets play a dominant role in increase the productivity and the impact of having assets verification in a manufacturing concern. A man knowing his full potentiality and a manager knowing his companies resources full potentiality are said to be successful ones and nothing can oppose them. The importance of having such sound track over existing assets and its performance is been analyzed in this review of literature. There by we can know the urge of manufacturing sectors importance towards knowing their assets productivity and its contribution towards revenue. Even if it is started in an easiest manner it’s too difficult to strive in this competitive world.

copyrights. On a balance sheet. Examples are cash. prepaid and deferred assets (expenditures for future costs such as insurance. preferred stock.1 FIXED ASSET DEFINITION IN REAL TERMS OF BUSINESS FIXED ASSET An asset not readily convertible to cash that is used in the normal course of business. and retained earnings. An accounting perspective. the accounts of a business need to recognize the benefits of the fixed asset as it is "consumed" 11 . The benefits that a business obtains from a fixed asset extend over several years. By accepting that the life of a fixed asset is limited.Any item of economic value owned by an individual or corporation. accounts receivable. 4. For example. office equipment. common stock. assets are divided into the following categories: current assets (cash and other liquid items). whereas a company-owned motor car used by a salesman probably has a shorter useful life. goodwill). and fixtures. plant & equipment). and other property. buildings. securities. and interest) and intangible assets (trademarks.2. rent. a car. assets are equal to the sum of liabilities. real estate. patents. inventory. Examples of fixed assets include machinery. especially that which could be converted to cash. A firm whose total assets are made up primarily of fixed assets is in a less liquid financial position. long-term assets (real estate. a company may use the same piece of production machinery for many years. thus entailing greater risk of a big tumble in profits if its revenues fall.

trucks. This can include all kinds of obligations. equipment and inventory. payroll a company owes to its employees. or taxes owed to the government.over several years. fundamental analysis. Assets include physical property. This consumption of a fixed asset is referred to as depreciation. like money borrowed from a bank to launch a new product. or balance sheet items.2.2 ASSET VALUATION MEANING It is the process of determining the current worth of a portfolio or companies. 12 . So are investments a company makes. such as plants. This typically means they can either be sold or used by the company to make products or provide services that can be sold. And cash itself is an asset. money owed to suppliers for materials. environmental cleanup costs. financial statement analysis. investment. 4. Liabilities are amounts of money that a company owes to others. The tools used for asset valuation include quantitative methods and statistics. Asset in view of financial statements Assets are things that a company owns that have value. such as trademarks and patents. It also includes things that can’t be touched but nevertheless exist and have value. Liabilities also include obligations to provide goods or services to customers in the future. rent for use of a building. and valuation economics. ratio analysis.

Noncurrent assets are things a company does not expect to convert to cash within one year or that would take longer than one year to sell. now calls fixed assets "property. Brief View about Fixed Assets Fixed assets refer to physical or tangible things of value a company owns such as facilities." the sum of its liabilities and shareholders' equity Assets are generally listed based on how quickly they will be converted into cash.Shareholders’ equity is sometimes called capital or net worth. equipment. or "balance. however. The following formula summarizes what a balance sheet shows: ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY A company's assets have to equal. and equipment" for the most 13 . The term "fixed assets" reflects the traditional notion that these kinds of assets are fixed and do not require much consideration after they are purchased. Current assets are things a company expects to convert to cash within one year. Contemporary accounting literature. such as trucks. A good example is inventory. or the owners. Most companies expect to sell their inventory for cash within one year. It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities. Fixed assets are those assets used to operate the business but that are not available for sale. Noncurrent assets include fixed assets. This leftover money belongs to the shareholders. and land. plant. of the company. office furniture and other property.

accountants often prepare financial statements and schedules that plot out this information. The measure of efficiency involves the calculation of these ratios: • Fixed asset acquisition to total assets • Repairs and maintenance to fixed assets • Repairs and maintenance to sales • Sales to fixed assets • Net income to fixed assets To present the state of or the changes in various plant and equipment assets. Fixed asset analysis involves calculating the earnings potential. use. and equipment as well as the acquisitions and divestitures of 14 . and hence for profits. Companies rely on their assets. A decrease in operational efficiency and productivity results from the improper or inadequate maintenance of malfunctioning and inefficient assets as well as from the failure to replace obsolete and irreparable assets. In addition. and useful life of fixed assets. is essential for high productivity and efficiency. Modern equipment in good repair. plant. Asset analysis examines the age and condition of each major asset category. as well as the costs of replacing old assets to determine the output levels.part. and temporary discontinuances. fixed asset analysis determines if fixed assets are sufficiently maintained to ensure current and future earning power as well as the relative profitability contributed by fixed assets and fixed asset acquisitions. downtime. to generate profits. These statements include the dispositions of company property. including fixed assets. for example.

Companies benefit from fixed asset analysis by taking control of their fixed assets and maintaining their condition in order to ensure proper operation. Such reports enable efficient comparison and help managers identify underused assets. Accountants also compute the different ratios listed above and compare them with the industry averages to see how their companies use their fixed assets in relation to their competitors. In addition. In preparation of these reports. accountants make note of assets that are no longer being used as well as those that are not productive. Controlling fixed assets allows companies to avoid losses associated with misused and misplaced assets as well as with deterioration. sell. In addition. plant. Companies using specialized equipment—such as those manufacturing specialized or trendy items—especially need to keep track of their fixed asset to avoid obsolescence. managers can decide whether to reallocate. and equipment. Technology companies in particular benefit from examining this information. accountants generally determine the age and condition of the major fixed assets and the replacement cost of them.fixed assets.3 VALUATION OF FIXED ASSETS 15 . Fixed asset analysis also may involve having accountants determine the hours or mileage of usage for various assets and produce reports that indicate hours of usage per month for buildings and equipment and the mileage of usage per month for vehicles. 4. fixed asset analysis enables companies to maximize the use of property. or otherwise use or dispose of fixed assets with low usage. Armed with this information.

Financial statements disclose certain information relating to fixed assets. Current assets include inventory. while fixed assets include such items as buildings and equipment. buildings. For example. Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. The balance sheet of a firm records the monetary value of the assets owned by the firm. It is a claim on the property your income of a borrower. copyrights.” In other words fixed assets are held by an enterprise for the purpose of producing goods or rendering services. In many enterprises these assets are grouped into various categories. machines. including current assets and fixed assets.1 INTRODUCTION: In Business and Accounting. The two major asset classes are tangible assets and intangible assets: Tangible assets contain various subclasses. vehicles. Assets are everything of value that is owned by a person or company. trademarks. buildings. 4.4. as opposed to being held for resale in the normal course of business. plant and machinery.2 DEFINITION: According to Accounting Standard-10 “Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. such as land. It is money and other valuables belonging to an individual or business. patents or licenses can be fixed assets of a business. furniture and fittings. Examples of intangible assets are goodwill.3. 16 .3.

which is the key role of conducting verification of assets and which leads to know the return on investments made on assets. 17 . Greater productivity and asset effectiveness ultimately drives a sustainable competitive advantage by increasing revenue and profit. 4.4 ASSET PRODUCTIVITY The objective of making physical verification of assets is to know the asset productivity. increasing productivity without additional investment. At present. In contrast to a capital project approach which rewards efficient capital spending through completed projects and increased capital investment.patents and computer programs. industry leaders are looking at the economic earnings model in a new perspective that is asset productivity. the asset productivity model seeks to utilize existing assets to their maximum capacity. reducing capital investment. including such items as accounts receivable. and financial assets. and achieving operational excellence. Thus valuation of all physical assets comprises of verification of all physical assets and having a separate register of its existence and real worth of it and providing right amount as depreciation to it and evaluating its efficiency and contribution towards making revenue to the organization. bonds and stocks. This view focuses squarely on the fixed asset base and directs a lens towards creating shareholder value by improving the productivity of that fixed base while avoiding significant new capital investment.

Enables Profitable Growth: Asset productivity drives profitability by optimizing productivity. adapt. The result is higher economic earnings and growth in shareholder value 2. minimizes costs. Supports Capital Allocation Strategies: Companies make better capital allocation decisions when they employ metrics to identify opportunities for: 18 .5 ASSET PRODUCTIVITY/ PERFORMANCE OFFERING TO ORGANIZATION: 1. 4. and win. capacity growth. Research shows that the best performers know how to measure and sustain asset productivity by depending on resources other than new capital as the enabler of operational excellence. This shift in mindset can have a significantly positive impact on shareholder value and economic value creation.The new asset productivity perspective of the economic earnings model enables top line growth. and adaptability to market conditions. Creates Shareholder Value: The asset productivity methodology emphasizes improvements with minimal capital and enables precise evaluation of return on investment through an analytically-derived metric. Increased asset productivity enables operational excellence that drives a sustainable competitive advantage in both growing and mature market sectors 3. and positions the capital infrastructure to compete.

planning. and reduce capital. This value extraction enables companies to achieve the highest sustainable throughput rate at the lowest possible cost.5. optimal productivity and high quality assurance 4. including output volume. How asset productivity can be measured? An asset productivity program collects and analyzes key data across several functions. The overall OAE metric is a very powerful analytical microscope into an organization’s operational health and its ability to adapt to various business. Results 19 . 2) Re-Deploying under-performing assets. Drives Cost Leadership: Asset productivity improvements yield significant increases in capacity. throughput. market. and maintenance. which can then be leveraged to increase revenue. and 3) eliminating surplus or poorly performing assets 4. decrease unit cost. and acceptance.1) Utilizing the most effective assets. The OAE formula combines utilization. engineering. quality assurance. These indicators are then used to diagnose root-cause issues of underperforming assets. or competitive conditions — in addition to its value creation role in capital preservation and optimization.1 OPERATING ASSET EFFECTIVENESS Operating Asset Effectiveness (OAE) is the comprehensive metric that determines asset utilization improvement. It also monitors the impact of an asset productivity program which extracts the most value from the existing asset base. Asset productivity stands at the intersection of peak efficiency. operations.

and process capability 2. The methodology will also address the existing cultural attitudes. but also a strong culture and change 20 . and behaviors that are the foundation of a successful. values.The study delivers breakthrough improvement could be brought through program management to propel a successful asset productivity program. Industry-specific expertise and functional skills 3. company-wide adoption of the new approach. Asset productivity methodology also offers: 1. A cross-industry asset productivity methodology can be tailored to a company’s specific operating environment and business conditions. Clear evaluation methods and analytic process improvement models to determine asset performance benchmarks 4. A systematic enhancement of operations. A train and do approach that fosters successful process adoption across client organizations It enables company to infuse asset productivity into their unique corporate cultures. equipment performance. This transformation not only requires asset effectiveness expertise. Root-cause analysis to drive operational and strategic adjustments for peak productivity and capacity 5. This approach would effectively institutionalize fundamentals and enforces their execution through tracking key performance metrics and management procedures.

Similar analyses may also be done not just 21 . These ratios typically look at sales generated per unit of resource. takeover attempts were more likely to occur during or immediately after the period of asset productivity decline. However. companies that embark on aggressive growth strategies often find their efficiency severely compromised. solid end-user training. Companies that failed to turn around their asset productivity declines suffered subsequent declines in sales and income growth. This research examined companies whose asset productivity declined severely during periods of aggressive growth. fixed assets. Although the firms in this study did not publicly acknowledge the presence of decline. 4. asset pruning and debt reduction did not accompany asset productivity turnarounds. inventory. and performance measurement.5. and occasionally other tangible assets. Contrary to conventional turnaround wisdom.2 ASSET PRODUCTIVITY TURNAROUND: THE GROWTH/EFFICIENCY CHALLENGE Growth and productivity have been linked together as the path to increasing profitability.6 ASSET PRODUCTIVITY RATIOS FOR INVESTMENT ANALYSIS Asset productivity ratios describe how effectively business assets are deployed. 4.management methodology. Resources can include accounts receivable. A successful turnaround companies has decreased their long-term debt ratios as they continued to expand.

Comparing a railroad to a software company probably doesn't make sense.6. and airplane seat miles. intangible assets are included. number of employees. 4. 4.1 DEPRECIATION Depreciation is a key concept accountant’s use when analyzing fixed assets and the examination of depreciation helps to clarify the useful life of assets.for financial assets but also for operational assets like square footage. 22 .7 ASSETS ARE CLOSELY RELATED TO DEPRECIATION 4. industry norms form the benchmark. resulting from deterioration and obsolescence. Again. all else being equal. In addition. For the first time. depreciation involves accountants spreading the total cost of fixed assets out over their useful life.1 FIXED ASSET TURNOVER Formulae Fixed asset turnover = sales / fixed asset Obviously.7. Depreciation refers to the decreasing potential of fixed assets to generate revenues over their useful life. the company that produces the most sales or revenue of fixed assets wins and has stability in the market. 4.6.2 TOTAL ASSET TURNOVER Formulae Total asset turnover = sales / total asset We shall get a bigger picture of asset productivity as measured by the generation of sales to the total assets.

Definition "Depreciation may be defined as the permanent decrease in the value of an asset due to use and/or the lapse of the time." -Terminology of Institute of Cost and Management Accountants, England "Depreciation is the permanent and continuous diminution in the quality, quantity or value of an asset." -Pickles "Depreciation may be defined as measure of the exhaustion of effective life of an asset from any cause during a given period." -Spicer and Pegler "Depreciation is' the gradual and permanent decrease in the value of an asset from any cause."-Carter Again, the comparison of the depreciation rate to the industry average will underscore the findings of the repairs and maintenance ratios. To determine the adequacy of the depreciation charge, the following can be done: • Calculating the trend in depreciation expenses to fixed assets. • Determining the trend in depreciation expenses to sales. • Comparing the book depreciation to tax depreciation. If the trends are declining, depreciation charges may be inadequate. If sales are decreasing as asset expenditures are increasing, the company may be over expanding and lifting its bottom line through large write-offs rather than operating margins. Unwarranted changes in the lives or salvage values of fixed assets will increase depreciation expenses, and thus overstate earnings. WHAT IS DEPRECIATION?

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Depreciation is the permanent and continuing diminution in the quality, quantity or value of an asset. Depreciation Accounting deals with the allocation of costs of fixed assets over their useful lives. More simply, that part of cost of this asset which is being periodically (monthly) allocated as expense into the Income Statement to match the revenue the asset is generating. For example, when we buy fixed asset like factory machinery, this is merely an advance payment of which we expect that this fixed asset is able to enhance or earn certain earnings for the business. Over a period of time, the fixed asset we buy will become valueless or unable to generate the necessary earnings. To reflect this continuing diminution in the value of the factory machinery, we need to apply depreciation accounting. The reasons for depreciation are: Wear and tear [physical using up like corrosion, rot, rust and decay] Obsolescence [change of fashion or new substitutes or inventions] Fall in market price [foreign exchange, competition,] Effluxion of time [passage of time, fixed assets become less valuable] Physical factors [natural disasters like flood, earthquakes, excessive heat or cold] Inadequacy or superfluous [business operation increased hence fixed assets inadequate] 4.7.2 NEED TO PROVIDE FOR DEPRECIATON To ascertain the net earnings/profit for an accounting period, depreciation needs to be computed. Depreciation normally constitutes a major
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part of the expenses of the business. As the business buys fixed assets, it expects the fixed assets over the useful lives are able to generate the necessary revenues for its business. Whilst revenues being earned and if there is no allocation of depreciation cost to match these revenue, income will then be overstated. Depreciation therefore follows very closely to the matching concept; The fixed assets in the Balance Sheet will be overstated if depreciation is not provided for. Only that part of the costs of fixed assets that have not expired should be reflected in the Balance sheet otherwise the financial statement will not reflect a true and fair view. If depreciation is not provided for and assuming if the whole profits were withdrawn during the life of the asset, additional capital would have to be raised when it is time to replace the fixed assets. By charging depreciation against profits, the ultimate residual profit available for distribution is lowered and that funds are retained in the business for future replacement. SALIENT POINTS TO BE CONSIDERED 1. The varying depreciation rates can mean a higher or lower depreciation charge to the Income Statement. Therefore, it is very important to estimate correctly the useful lives of the fixed assets. 2. It is interesting to note that in accounting fraud, management can accelerate the depreciation charges or understate them.

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is long lived asset. the depreciation charge/rate does not necessarily equal to the tax accounting treatment of depreciation. Whereas the former asset expires within one year of its acquisition. Sometimes. Objects of making provision for depreciation For attaining following objects. on the purpose of its acquisition and secondary. is carried forward for future expiration. the latter asset lasts longer. is charged against current revenues and the rest. on its nature. Accordingly. this fraction. Life span of an asset to a business rests primarily. But the position is otherwise with a long-lived asset which wears out or depreciates over a long period. called expired cost or depreciation. depreciation accounting is a must for every business: (1) Recovery of cost incurred on fixed assets over their useful life so as to keep owner's capital intact. 26 . the outlay of a fixed asset is spread over several years and annually only a fraction thereof expires. 4. Hence almost entire expenditure on a short lived asset becomes an expense and is matched against current year's revenue. Depreciation is in reality based on a matching concept meaning that the charge out depreciation amount is to match with the revenue that are generated from deploying these fixed assets. An item acquired for immediate consumption or sale is a short-lived asset and that meant for prolonged use. In accounting. Simply. though both produce revenues.3. termed unexpired cost. they differ quite drastically as a result of certain tax concession given by the Inland Revenue.

An asset declines on account of continued use e. from coal 27 .g.(2) Provision is for replacement cost on the retirement of original assets (3) To include the depreciation in the cost of production to find out the correct cost of production. (4) To find out correct profit for the year (5) To find out the correct financial position through balance sheet.7. It is obvious that such loss is unavoidable. building. e. but it can not be done so permanently.g. when it will no longer be suitable.1) Wear and Tear. (1.3 CAUSES OF DEPRECIATION Depreciation may be of two types:Internal-depreciation External-depreciation (1) Internal-Depreciation which occurs for certain inherent normal causes is known as internal depreciation. plant. depreciation on plant and machinery will be doubled. quarry etc. An asset may be kept in proper working conditions through repairs for the time being. At one time the asset will become unfit for repairs. mines. With the raising of coal etc. machinery etc. If a factory works double-shift instead of single shift. 4. such decline depends upon quantum of use of an asset. The causes of internal depreciation are: (1.2) Depletion-Some assets decline in value proportionate to the quantum of production.

lease hold property. In order to survive in the competitive market the manufacturer must install new machine replacing the old one. flood etc. copy rights etc. earth quake. even though they are not used e. may become obsolete. Need for Provision of Depreciation The need for provision for depreciation arises for the following reasons: 28 . the total deposit reduces gradually and after some time it will be fully exhausted. (2.g.3) Accidents Assets may be destroyed by abnormal reasons such as fire. Then its value will be nil.1) Obsolescence Some assets. In such a case the destroyed asset may be written-off as loss and a new one purchased.mine. (2. For example old machine becomes obsolete with the invention of more economical and sophisticated machine. though in proper working order. patent rights.2) Passage of time Some assets diminish in value on account of sheer passage of time. (2) External-Depreciation caused by some external reasons is called external depreciation. whose productive capacity is generally higher and cost of production is lesser. The causes of external depreciation are: (2.

This depreciation must be considered as a part of the cost of production of goods. So unless it is considered like all other expenses and losses. In other words. the value of asset will be shown in the books at a figure higher than its true value and hence the true financial position of the business will not be disclosed through Balance Sheet. If depreciation is not taken into account. Otherwise. (2) Ascertainment of true cost of production-Goods is produced with the help of plant and machinery which incurs depreciation in the process of production. So. (3) True Valuation of Assets-Value of assets gradually decreases on account of depreciation.(1) Ascertainment of true profit or loss-Depreciation is a loss. necessary sum may not be available for buying the new assets. (4) Replacement of Assets-After some time an asset will be completely exhausted on account of use. true profit/loss cannot be ascertained. In such a case the required money is to be collected by introducing fresh capital or by obtaining loan by selling some other assets. the sale price will also be fixed at a low level resulting in loss to the business. Sale price is normally fixed on the basis of cost of production. 29 . if the cost of production is shown less by ignoring depreciation. the cost of production would be shown less than the true cost. This is contrary & sound commercial policy. If the whole amount of profit is withdrawn from business each year without considering the loss on account of depreciation. A new asset then purchased requiring large sum of money. depreciation must be considered in order to find out true profit/loss of a business.

The economy is slowly beginning to improve. 4.” . gradually diminishes on account of depreciation. Thus in "Case of joint stock companies charging of depreciation is compulsory. If loss on account of depreciation is not considered in determining profit/ loss at the year end. the working capital will gradually reduce. 205 of the Companies Act. profit will be shown more. If the excess profit is withdrawn. 1956 dividend cannot be declared without charging depreciation on fixed assets.8 DIMENSIONS TOWARDS THE TOPIC OF STUDY: Asset management or study of asset productivity in the new economy “Profitability is no longer just about growing sales.Mike Laszkiewicz Not since the 1970s has the industry faced an economic challenge as we did during the past two years—and for many who joined the work force in the 1980s. but many companies still face the challenge of improving growth and achieving greater 30 . (6) Legal Restriction-According to Sec. The sudden shift from a boom economy to a recession has caused a dramatic change in the direction business leaders are driving their individual manufacturing facilities. the business will become weak and its profit earning capacity will also fall.(5) Keeping Capital' Intact-Capital invested in buying an asset. this is the first significant economic setback they have experienced. manufacturers and maintenance departments have learned some valuable lessons about operational efficiency. During this time.

Example #1 Many of the companies that flourished in the booming economy of the 1980s and 1990s no longer exist. many companies are still facing the challenge of improving growth and achieving greater profitability with fewer human and capital assets. The survivors are the ones who have adapted to the new economic reality of the twenty-first century: profitability is no longer just about growing sales.profitability with fewer human and capital assets. The past several years have not gone by. the past several years have provided many companies act as good example for factors on achieving better operational efficiencies. which began to feel the first effects of the economic downturn about thirty months ago. This is good news for the manufacturing industry. Fortunately. and seeking to outsource noncore competencies whenever possible—being lean is the new goal. it looks like the end of the current economic downturn may be within sight. it's also about organizational efficiency. reducing and consolidating management layers. however. However. without many vital lessons on achieving better operational efficiencies. 31 . Businesses are driving out inefficiencies. Those who learn and adapt will survive—Lean Manufacturing Become proactive through asset optimization—Integrated Condition Monitoring Operational efficiency starts in the storeroom—Outsourcing Departments can no longer work autonomously—Enterprise Wide Integration From all indicators.

and operations (MRO) physical assets typically represent a company's single largest capital investment. For some. and condition-based 32 . for example. however. Example #2 Asset management is primarily about capital assets—the productive assets in which an organization has invested. it is no surprise that maintenance activities have never more directly tied to manufacturing and business performance. The line is blurring. while at the same time reducing repair parts and outsourcing repair and/or remanufacturing capabilities whenever possible. and asset management is expanding to human assets within organizations as well. It is the job of maintenance and operations professionals to continually look for methods to get more out of production and understand how equipment on the factory floor is performing. Untouchable areas within an organization are now undergoing scrutiny at the micro level for any reductions in fixed and variable costs—activity-by-activity and line-by-line—starting at the plant floor. In the area of maintenance.Many are undertaking full-scale process reviews aimed at finding ways to cut costs and improve processes. repair. For some. there has been an increased emphasis on maximizing uptime by maintaining asset availability. millions of dollars in savings remain on the table. reliability centered maintenance. this represents a major change in philosophy. Because maintenance. Leading edge maintenance departments are expanding programs like asset management.

4. This strategy represents a significant shift in philosophy and resource allocation. For example.monitoring tools (such as vibration. an investment and commitment needs to be made to not simply fix a problem but to also ferret out the root cause—going beyond knowing that the bearings in the motor need to be replaced to determining why it is happening. slashing maintenance expenses can easily happen. which can save time and money on maintenance. Organizations that employ asset management strategies have reported 20% reductions in plant downtime and 30% reductions in maintenance budgets. maintenance has evolved beyond preventative activities into a system of predictive maintenance measures—asset optimization. When we incorporate these predictive techniques on a plant wide basis. That is. then breakdowns would inevitably begin to permeate the line. In recent years. advanced monitoring technology is capable of predicting when the oil is breaking down. or is the motor working beyond capacity? If it is the latter cause. Is it simply a lack (or excess) of lubrication. and thermographs) to monitor equipment health to reduce unexpected downtime. Fully optimized assets means knowing and achieving the full potential of your plant floor and performing maintenance only when warranted. oil and lubricant analysis. It may be breaking down later than initially thought. instead of routinely changing oil on a piece of equipment at the same time every month.9 ASSET MANAGEMENT RESOURCES 33 .

Whether the goal is personal property tax reduction for businesses. and inefficiency.  Reduce risks and report with confidence about the real assets values and its productivity.most companies are paying too much at present.  Increase profitability and shareholder value – through improved asset inventory strategic decision support 34 .1 ASSET MANAGEMENT CORE RESULTS • Fixed asset tracking.For businesses from foundries to pharmaceuticals. regulatory non-compliance. That’s probably why most businesses don’t have an accurate accounting of their fixed assets – costing billions of rupees each year in tax overpayment. tracking a complex fixed asset inventory isn’t simple without asset management resources.2 BOTTOM-LINE RESULTS SERVICES  Reduce personal property taxes for businesses . the fixed asset management services will get you there efficiently. cost-effectively and with absolute confidence. 4.9.9. featuring wall-to-wall fixed asset inventory and reconciliation (FAIR) • Calculate the personal property tax for businesses • Expert cost segregation and fixed asset consulting services to maximize exempt allowances and incorporate proper depreciation schedules 4. Asset Management or verification of assets can bring it all under control over it. or improving the accuracy and visibility of data in your information systems.

asset management explicitly recognizes that the utility's equipment exists to serve its customers and that all decisions regarding its use and care are made on the basis of business needs and profitability in performing the utility's mission. Asset management can be applied to helps the utilities to be addressed aging of various assets and distribution infrastructure. and refurbishment and replacement policies. Protecting business investments by ensuring data accuracy in corporate databases 4. strategic planning and prioritization. For instance : Most electric utilities in North America have significant portions of their electrical infrastructure that are “aged” – composed mostly of equipment that has been in service so long that wear and tear have had an obvious effect.9. but not so deteriorated that immediate replacement is obviously needed. condition assessment and tracking. reliability and business risk challenges in an organized and orderly fashion. life-extension technologies. maintenance management. it is very important to get to know how asset management really works. When the company is interested in knowing how asset management works to benefit their companies. This includes the services that asset management employs to handle assets. the available software designed to manage assets.3 IMPACT OF ASSETS BEEN MANAGED OR VERIFIED Asset management includes of comprehensive inspection programs. Asset management focuses on all aspects of managing 35 . even the qualifications of certified asset management advisors. the costs of utilizing asset management services. Applied correctly.

aging assets well. such as accounts receivables and inventory.2 Asset Based Finance 36 . 4. Short term financing (up to one year) Offered in forms like factoring or accounts receivable/inventory revolving loans. Managing the daily operations of assets enabling companies to maximize productivity is also an important feature of asset management. ordering these and even receiving and testing these are salient features of asset management. its costs and effects in an efficient manner.10. Knowing how much it costs to operate the company and comparing it to the profits and the existing assets make for balanced returns and even more commonly returns to the part of the companies. such as plant and machinery. including carefully considering which to procure. ABF allows an SME to utilize its own assets to meet its short.10 RELEVANCE OF STUDY IN PRESENT SCENARIO 4.1 Asset Based Finance (ABF) ABF is a financing method that is driven by the assets of companies. and the utility’s bottom line. to the various means through which utilities can manage aging. from a far-reaching look at aging and its impacts on the T&D system. Assets include current assets. medium and long term funding needs.10. customer reliability. It is very important to know that the asset lifecycle has four broad stages that asset management firms take into consideration. Planning and procurement. and fixed assets. 4.

Asset based loans also can include equipment loans and real estate mortgages.11 THE PROS AND CONS OF ASSET-BASED FINANCING 4. Commercial finance is the term most commonly affiliated with the industry group of asset based lenders that provides all types of asset based loans to business and commercial borrowers. property. asset-based financing involves fewer and more flexible covenants than cash flow loans. the only covenant focuses on the borrower's liquidity level. and small businesses have fueled much of its growth. Asset based financing relies on the value of the underlying collateral to minimize the loan's credit risk. Businesses can obtain asset based lending by using the liquid. Asset based lenders are sometimes referred to as secured lenders. and equipment) as collateral. In most cases. 4. The asset-based financial services industry has burgeoned in recent years. Although a stigma is still associated with using your assets to get cash. 4. A company's access to asset-based financing often increases as its working capital needs increase because that's when assets are growing.Asset based lending or asset based financing refers to loans secured by a wide variety of assets.11.11.2 CONS 37 . In many cases. Availability. current assets of the company (such as accounts receivable and/or inventory) or the fixed assets of a business (such as plant.1 Pros Covenants. this type of financing is becoming more popular.

In recent years. Medium term financing (one year to three years): Based on a company's existing plant and equipment that is free from encumbrances."Keep the benefits for the possession and usage of the leased assets without having credit debts in company balance account" • Secured Loan . leasing."Have a more profitable business" then "Increase the fixed assets the company" 38 . Strong performance and high liquidity enable companies to negotiate more flexible reporting rules.Reporting. Cost. Long term financing (three to seven years): A term loan based on the real estate of the company.12 ASSET BASED FINANCING 4. sale and lease back. borrowers must provide monthly or quarterly reports to show that they are meeting loan covenants. asset-based arrangements cost more than cash flow loans. but fees on collateralized loans have increased in some cases.12. Can be in the form of hire purchase. In general. 4. In most cases."Increase company’s productive capacity acquiring fixed assets and / or recover liquidity with a lower need of having additional guarantees. etc. interest rate spreads between asset-based and cash flow-based loans have remained steady." • Operating Lease .1 Types of Asset Based Financing • Financial Lease . but pricing depends on the borrower's creditworthiness. Accounts receivable/inventory financing: A revolving loan against the entire accounts receivable and inventory of a company.

companies can tap their assets to generate cash flow through asset-based loans or through factoring."Cover company’s necessities in the acquisition and maintenance of inventories.3 BENEFITS FROM ASSET-BASED LENDING: Companies can experience rapid growth Leverage capacity of companies can be increased Companies with a short operating history could be developed 4.4 --ADVANTAGES AND DISADVANTAGES OF ABF The main advantage of asset-based financing is that small companies can usually get more cash more quickly than they could from a traditional bank 39 . imbalances of treasury and obtain the resources to acquire raw material for the production" 4.12.12.12. In general. covering your requirements of cash flow. cash-strapped companies to meet their short-term cash needs."Fortify your productive cycle and obtain the necessary resources for the growth of your business. 4."Credit to foment the development of your industry and to rest on its cycle of production" • Raw Material & Working Capital Loan. mainly for the integration of working capital" • Inventory Secured Facilities.• Mortgage Secured Loan."Credit Contract to face any need of financing in the long term for the company" • Industrial Mortgage Secured Loan .2 DEFINITION Asset-based financing is a way for rapidly growing.

In fact. You need to weigh your situation carefully and determine whether this type of financing is necessary to expand your company or keep it afloat. 5. collections and invoicing. Also.loan. research is an art of scientific investigation. RESEARCH METHODOLOGY Research is common parlance refers to search for knowledge. Using assets to generate cash flow increases your cost of funds and cuts into profits. TYPES OF RESEARCH BEEN USED 40 . This dissertation work is based on analytical research design. Research design is the arrangement of conditions for collecting and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. 5.1 RESEARCH DESIGN Research design could be defined as the blue print specifying every stage of action in the course of research. asset-based lenders and factors offer an array of services including accounts receivable processing. The drawback of asset-based loans and factoring is the expense. The advance learner’s dictionary of current English lays down the meaning research as a “careful investigation or inquiry especially through search of new facts in any branch of knowledge.

After the research problem and design have been defined. so it’s just a descriptive research. the causes behind the situation could not be gathered. The research design adopted just provides insights into and comprehended the study area and helps to understand how assets is been considered in whole organization. the task of data collection begins. 5. Types of data collection • Primary data collection • Secondary data collection PRIMARY DATA 41 . It is not only refers numerical figures but also includes descriptive facts. The relevant data are collected from the finance manager and from the employees in other related departments. STUDY AREA The area covered under this study is mainly focused on Finance department of the plant. The research design adapted is said to be exploratory because no problem or issue is not clearly defined. The study describes the data and characteristics of fixed assets which are physically verified for its existence and utilization.The type of research designs undertaken is Exploratory Research and Descriptive Research. Although the research design was aimed at higher accuracy.2 DATA COLLECTION METHODS Data refers to information or facts.

records and books of RBL 42 . the information is obtained.The primary data are those which are collected fresh and for the first time and thus happen to be original in character. Here in this study. Few questions used at time of data collection are:  How far is assets are maintained by user Dept. Such data are collected and used for some other objective of understanding the past status of any problem. Secondary data have been mainly obtained from company website.?  Is assets periodically serviced and repaired?  What type of assets been acquired and put into production process?  Why some assets in plant does not have machine no and asset description in it? And so on …. In this study Secondary Data collection method has helped the to a great extent in arriving at the results. annual reports. data’s been collected by face to face interactions and questions. Moreover from the personnel discussion with the officer and the staff members of accounts department. SECONDARY DATA Secondary Data are those data which have been collected by someone else and which have been passed through the statistical process. The questions used for data collection from concerned respondents of respective departments were unstructured ones and was asked to be kept confidential.

Limitations of the tools of analysis.3 TOOLS USED FOR THE STUDY:  RATIO ANALYSIS  TREND ANALYSIS  PARETO CHART PERIOD OF THE STUDY: The period of the study undergone for the project was five months. Financial statements analysis cannot be a substitute for judgment because analysis is a tool. which cannot be the index of future and cannot be basis for future estimation. 5. which can be utilized usefully by an expert but may lead to erroneous conclusions by unskilled analyst.The secondary data were also collected from audited financial statements periodicals and other records like SAP register maintained by RBL. 7. 5. 5. 3. Different users may interpret results of the analysis differently. Time is the main constraint for study. 6. The nature of financial statements is based on past data. 43 . 4. Confidentiality of revealing some assets details. forecasting budgeting and planning of new assets purchase would be possible. Change of records maintenance from Oracle to SAP made difficulty in obtaining full assets register values and details.4 LIMITATION OF THE STUDY: 1. 2.

1. Return on Investment = Operating Profit / Capital Employed*100 TABLE 6.16 31.1 RETURN ON INVESTMENT A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.38 6.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Operating profit ( Rs’ in 000) Capital Employed ( Rs’ in 000) Ratio (In %) 223697 190518 212461 190518 223697 542367 593448 684272 641908 911356 41.09 30.1 RETURN ON INVESTMENT 44 . DATA ANALYSIS AND INTERPRETATIONS 6.56 25.24 32.

FIGURE 6.1 RETURN ON INVESTMENT INFERENCE The ratio was highest in the period 2004 – 2005 and it shows a decreasing trend. The efficiency of making investments is decreasing due rapid change in market conditions 45 .2.

2 NET PROFIT RATIO Net Profit ratio is used to measure the overall profitability and hence it is very useful to proprietors.73 9.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Net profit(after tax) ( Rs’ in 000) Sales ( Rs’ in 000) Ratio ( in %) 190826 137702 168861 89408 28936 1396056 1577811 1796733 1810234 1913481 13. The ratio is very useful as if the net profit is not sufficient.1. the firm shall not be able to achieve a satisfactory return on its investment.40 4.2 NET PROFIT RATIO 46 .67 8. Net Profit Ratio = (Net profit / Net sales) × 100 TABLE 6.94 1.51 6.

89 .FIGURE 6.1.87 0.85 0.2. 6. The efficiency of making profits is declining may be due to stiff competition.3 OPERATING RATIO A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. The formula is TABLE 6.2 NET PROFIT RATIO INFERENCE: The net profit ratio was highest in the period 2004 – 2005 and it shows a decreasing trend.89 0.3 OPERATING RATIO Year 2004-05 2005-06 2006-07 2007-08 Operating Cost ( Rs’ in 000) Sales ( Rs’ in 000) Ratio ( in times) 1208336 1345290 1595855 1609812 47 1396056 1577811 1796733 1810234 0.

[Expense Ratio= (Total expense / Net sales) × 100] TABLE 6.4 EXPENSES RATIO 48 .2008-09 1718949 1913481 0. 6.3 OPERATING RATIO INFERENCE The operating ratio is been kept in stable and the management is following effective measures to have operating cost under control for last three financial years. Since operating ratio is high in last three years the profit during these years will be less.4 EXPENSES RATIO The ratio can be calculated for individual items of expense or a group of items.2.1.90 FIGURE 6.

7 90.4 94. The cost of raw materials and other cost of production might be increased.Year 2004-05 2005-06 2006-07 2007-08 2008-09 Total Expenses ( Rs’ in 000) Sales ( Rs’ in 000) 1294490 1426668 1706618 1730750 1888227 1396056 1577811 1796733 1810234 1913481 Ratio (in %) 92.4 EXPENSES RATIO INFERENCE The expenses ratio shows unstableness’ and in 2008-09 it is very high.9 95.6 98.6 FIGURE 6.2. 49 .

82 2.66 2. Formulae = (Sales / Capital Employed) TABLE 6.5 CAPITAL TURNOVER RATIO Sales ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Capital employed ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 542367 593448 684272 641908 911356 2. The higher the ratio is. the more efficiently a company is using its capital.57 2.6. 50 .10 FIGURE 6. and is a measure of how well a company uses its stockholders' equity to generate revenue.63 2.5 CAPITAL TURNOVER RATIO Capital turnover is used to calculate the rate of return on common equity.1.5 CAPITAL TURNOVER RATIO INFERENCE The capital turnover ratio is more stable and it reveals that the management is making utilization of capital which is been employed in business.2.

52 2. Formulae = Sales / Fixed Assets TABLE 6.55 2.6 FIXED ASSETS TURNOVER RATIO Fixed assets turnover ratio is also known as sales to fixed assets ratio.6 FIXED ASSETS TURNOVER RATIO INFERENCE The Fixed assets turnover ratio is declining and it reveals that in recent years the efficiency of utilization fixed assets is declining.6 FIXED ASSETS TURNOVER RATIO Year 2004-05 2005-06 2006-07 2007-08 2008-09 Sales ( Rs’ in 000) Fixed Assets ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 554908 598588 703987 854171 955219 2.1. 51 .12 2.2.64 2. This ratio measures the efficiency and profit earning capacity of the concern.00 FIGURE 6.6.

6.7 WORKING CAPITAL TURNOVER RATIO Working capital turnover ratio indicates the velocity of the utilization of net working capital.2.48 4. Following formula is used [Working Capital Turnover Ratio = Cost of Sales / Net Working Capital] TABLE 6.12 FIGURE 6.1.7 WORKING CAPITAL TURNOVER RATIO Working Capital ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Sales ( Rs’ in 000) Ratio ( in times) 1396056 1577811 1796733 1810234 1913481 250148 350999 400983 381610 373900 5.7 WORKING CAPITAL TURNOVER RATIO 52 .50 4.58 4.74 5.

8 FIXED ASSET TO NET WORTH RATIO FIGURE 6.57 2005-06 598588 1054776 0. Fixed Asset to net worth Ratio = Fixed Assets/Proprietor’s Funds (i.60 2007-08 854171 656933 1.INFERENCE The Working capital turnover is fluctuating and it reveals that in recent years the efficiency of utilization working capital has is increasing.8 FIXED ASSET TO NET WORTH RATIO 53 . Net Worth) TABLE 6.e.8 FIXED ASSET TO NET WORTH RATIO The ratio indicates the extent to which proprietor’s (shareholder’s) funds are Fixed Assets Net worth Ratio Year ( Rs’ in 000) ( Rs’ in 000) ( in times) 2004-05 554908 974663 0. This will indicate the long-term financial soundness of business.2.43 sunk into fixed assets. 6.57 2006-07 703987 1166050 0.1..30 2008-09 955219 667349 1.

61 0.70 0.70 .62 0.9 FIXED ASSETS TO LONG TERM FUNDS Fixed Assets ( Rs’ in 000) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Capital Employed ( Rs’ in 000) Ratio ( in times) 554908 598588 703987 854171 955219 54 793338 966728 1162892 1296703 1370429 0.66 0.9 FIXED ASSETS TO LONG TERM FUNDS This ratio helps to find the relationship between fixed assets utilized with the amount of capital employed Formulae = Fixed Assets / Capital Employed TABLE 6. 6.INFERENCE: The fixed assets relationship with net worth is steadily increased in current year when compared to previous years and it reveals that in recent years the company is gaining good financial soundness.1.

9 FIXED ASSETS TO LONG TERM FUNDS INFERENCE The fixed assets relationship with long term fund shows there was a decrease as well as increase in current year when compared to previous years.2.10 FIXED ASSETS TO CURRENT LIABILITY This ratio helps the relationship of fixed assets towards current liability.FIGURE 6. The solvency position at times of liquidity can be identified Formulae = Fixed Assets / Current Liability TABLE 6. which indicate a positive relationship.10 FIXED ASSETS TO CURRENT LIABILITY 55 . 6.1.

10 FIGURE 6.2.17 2006-07 703987 337067 2.87 2008-09 955219 233088 4.10 FIXED ASSETS TO CURRENT LIABILITY INFERENCE 56 .09 2007-08 854171 297237 2.33 2005-06 598588 275947 2.Current Fixed Assets Liability Ratio Year ( Rs’ in 000) ( Rs’ in 000) ( in times) 2004-05 554908 238587 2.

11 100 FIGURE 6.11 BUILDING UTILIZATION INFERENCE 57 .1. It can meet liability with its internal funds. In 2008-09 ratio sounds good.61 19.10 45.) 7986124 17263643 7260560 5339099 37849426 Percent of utilization( in % ) 21. 6.11 BUILDING UTILIZATION Asset Building Building Building Building Years 1990-1995 1996-2000 2000-2005 2005-2010 Asset value (In ‘rs.2.11 ASSETS UTILIZATION OF PLANT FOR PAST 20 YEARS TABLE 6.18 14.The fixed assets relationship with current liability shows there is a good improvement in the company’s solvency position.

63 Asset Furniture & Fittings Furniture & Fittings Furniture & Fittings Furniture & Fittings Year 1990-1995 1996-2000 2000-2005 2005-2010 Asset value ( in ‘rs) 2260842 1376237 736538 466327 4839944 FIGURE 6. In the year 1996-2000 more buildings were been acquired or build and the more utilization of building done in the 1996-2000.71 28.The buildings are the place where production is been taken.2.1.12 FURNITURE & FITTINGS UTILIZATION DURING LAST 20 YEARS TABLE 6.22 9.43 15. 6.12 FURNITURE & FITTINGS UTILIZATION INFERENCE 58 .12 FURNITURE & FITTINGS UTILIZATION Percent of utilization( in % ) 46.

13 OFFICE EQUIPMENTS UTILIZATION Asset Percent value of Asset Year ( in ‘rs) utilization( in % ) Office equipments 1990-1995 1224380 17.65 Office equipments 1996-2000 2456251 35.77 6936494 FIGURE 6.The furniture and fixture are the common things present in the plant which facilitate the production.13 OFFICE EQUIPMENTS UTILIZATION DURING LAST 20 YEARS TABLE 6.1.13 OFFICE EQUIPMENTS UTILIZATION 59 .41 Office equipments 2000-2005 2092428 30. 6. In the year 1990-1995 more furniture’s were been acquired and the more utilization was been done.2.17 Office equipments 2005-2010 1163435 16.

01 20.43 0.INFERENCE The equipments are the common things present in the plant which facilitate the production operations.35 1.14 PLANT & MACHINERY UTILIZATION 60 .14 PLANT & MACHINERY UTILIZATION ASSET Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery Plant & machinery YEARS 1966-1970 1971-1975 1976-1980 1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 VALUE ( IN ‘ RS ) 2530556 2039639 8761873 10583791 25605285 89331140 223760350 105718120 118768013 587098767 ASSET UTILIZED (IN %) 0.14 PLANT & MACHINERY UTILIZATION DURING LAST 45 YEARS TABLE 6.80 4.49 1.1. 6.2.23 FIGURE 6. In the year 1996-2000 more equipments were been acquired and the more utilization was been done.11 18.22 38.36 15.

6.INFERENCE: The plant and machinery are the common things present in the plant which facilitate the production operations. In the year 1996-2000 more Plant & machinery were been acquired and the more utilization was been done.70 1849991 2.2.13 81702350 FIGURE 6.15 CORPORATE ASSETS UTILIZATION Assets Building Furniture & fitting Office equipment Plant Machinery Vehicles Value Percent of utilization ( in rs) (in %) 12006417 14.26 639785 0.78 66283099 81.15 CORPORATE ASSETS UTILIZATION 61 .1.13 923058 1.15 DEPOT AND CORPORATE DEPARTMENT ASSETS UTILIZATION TABLE 6.

1.808 8.891 19568 19922 20.007 5627 6288 5. Barking Disc Pad Clutch Facing RBB Brake pad Asset value Production Asset Production (rs in‘000) ( rs in ‘000) ( in % ) ( in % ) 52541 43212 54.231 55.981 5.783 5.INFERENCE The plant and machinery is the major things present in the corporate that facilitate the research and development. Plant & machinery was acquired more and the more utilization was been done. 6.16 ASSET PERFORMANCE IN RELATION TO PRODUCTION OF YEAR 2009 TABLE 6.197 25.767 10447 4022 10.133 96884 77315 100 100 62 .16 ASSET PERFORMANCE IN RELATION TO PRODUCTION Plant production modules.202 8701 3871 8.

16 ASSET PERFORMANCE IN RELATION TO PRODUCTION INFERENCE It reveals that barking module and disc pad modules produces more with assets available for making production and contributes more output to the concern. repairs & maintenance) TABLE 6.2. 6.e.17 COMPARISON OF FIXED ASSETS WITH OPERATING COST (i.1.FIGURE 6.17 Assets Vs Operating Expense Year 2008-09 2007-08 2006-07 2005-06 2004-05 Fixed Assets ( Gross Block) 911356 641908 684272 593448 542367 Operating Cost ( Repairs& Maintenance) 49703 54287 47585 41623 38603 63 .

2.18 GROWTH OF ASSETS AND TREND ANALYSIS OF ASSETS VALUE INCREASE WITH 2002-2003 AS BASE YEARS.17 Assets Vs Operating Expenses INFERENCE The above details depicts clearly that additions in gross block of assets naturally decreases the operating cost of production such as main expenses of assets that is repairs and maintenance. TABLE 6. 6.1.18 TREND ANALYSIS OF ASSETS 64 .FIGURE 6.

26 FIGURE 6.36 Trend Increase Of Assets 100 101.Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Net Fixed Assets ( Rs. in millions) 548.2.43 117.2 128.18 TREND ANALYSIS OF ASSETS 65 .24 109.62 554.7 99.14 557.91 911.1 166.62 598.99 641.94 544.38 101.59 703.

19 ASSETS VALUE ACQUIRED AND SOLD 66 .1.19 ASSETS VALUE ACQUIRED AND SOLD Year 2008-09 2007-08 2006-07 2005-06 2004-05 Acquisition ( Rs in ‘000) 210084 294307 197983 120040 91213 Sales ( Rs in ‘000) 6222 11882 20640 95 6378 FIGURE 6.2.INFERENCE: The trend analysis shows there is steady growth in value of assets over the period of 2002-03 to 2009-10 and value of assets has attained to position of 166.26 millions 6.19 COMPARISON OF ASSETS VALUE ACQUIRED AND SOLD TABLE 6.

2 08 678 OE O HS 40 P& M 1.5 76 6 06 2.20 Categor y Total WDV one rupee Less than 10K Balance Record Categori zed item Still pending % 100 % 42% Tota l Cou nt 7.5 77 3. TABLE 6.865 QAD Q/ M 17 R& D 31 VEH Wor ks 211 552 257 244 637 6 119 1 63 332 236 - 231 229 8 787 356 5 10 4 105 11% 72 4 21 182 6 1 32 234 1.1 64 8 37 3.1.9 70 Bldg Co mp 25 Ele Equ p 152 El e Ins tl 940 FF La nd 3 Matl Hand 389 MF D 2.2 07 3 1 151 112 - 1 - 17 47% 361 20 68 426 15 2 126 12 31 927 169 12 20 2 89 8% 361 - - 7 13 2 - 9 1 122 - - - 2 - 39% - 20 68 419 2 - 126 3 30 805 169 12 20 - 89 67 .2 96 89 1.INFERENCE An asset acquisition implicates there is increase in demand for the products produced and above table indicates every year addition of assets is more than value of assets sold.

997 421.840 40.504 107.583 2 2.21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION ASSETs AS ON 30.509 FIGURE 6.489 222.2009 .549 211.1.in ‘000 Total WDV one rupee Less than 10K Balance Record Categorized item Still pending 100% 17% 1% 83% 22% 61% 643.6.PLANT 1 TABLE 6.074 311.742 219.331 179. Res * WDV * *Rs.038 99.2.171 530.21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION 68 .880 390.877 139.394 5.21 STATUS ON FIXED ASSET PHYSICAL VERIFICATION Category % Gross Block * Depn.392 3.09.443 107.

372 6.197 10 INFERENCE: The written down value of assets indicates the true value of assets. 6.172 1 198 89.in 000’ Rs.536 215 10.544 Category Other Plant Traceable Identified To be scrapped 6.Gross block Rs.22 BREAKUP FOR CATEGORIESED ITEMS TABLE 6.in 000’ 10.22 BREAKUP FOR CATEGORIESED ITEMS 69 .063 115 23. The above data shows 61% of assets after process of physical verification are still in pending to be categorized.reserve WDV Rs.in 000’ Clubbing of Asset 33.260 125 Depn.537 414 99.1.

21 BREAKUP FOR CATEGORIESED ITEMS INFERENCE The categorized assets after physical verification implies how far the assets is been clubbed and merged with other plants and assets to be scrapes as it no more utilized in production process.FIGURE 6.24 and it shows a decreasing trend and current year it declined to 25.2. FINDINGS • The Return on Investment ratio was highest in the period 2004 – 2005 of 41. 70 . 7.38.

• The operating ratio is been kept in stable and the management is following effective measures to have operating cost under control.• The net profit ratio was highest in the period 2004 – 2005 was 13. • The fixed assets relationship with net worth is steadily increased in current year to 1.6%.43 when compared to year 2004-05 which had just 0.12. • The fixed assets relationship with current liability shows relationship and in 2008-09 ratio sounds good with 4.10 times. • The fixed assets relationship with long term fund shows there was a decrease as well as increase in current year when compared to previous years. The capital turnover ratio was 2. 71 . a good • In the year 1996-2000 more buildings were been acquired or build and the more utilization of building done in the 1996-2000. • The Working capital turnover is fluctuating and it reveals that in recent years the value increased to 5. • The capital turnover ratio is more stable and it shows a slight decrease.10 in year 2008-09. • The Fixed assets turnover ratio is declining and it decreased to 2 in 2008-09 from value of 2.57. • The expenses ratio shows unstableness’ and in 2008-09 it is very high of 98.97 and it shows a steady decreasing trend.12 times in previous financial year.

• In the year 1996-2000 more Plant & machinery were been acquired and the more utilization was been done. • In barking module and disc pad modules produces more with assets available for making production and contributes more output when compared to other modules.• In the year 1990-1995 more furniture’s were been acquired and the more utilization was been done. • Every financial year addition of assets is more than value of assets sold.26 millions. • In the year 1996-2000 more equipments were been acquired and the more utilization was been done. 72 . • There is steady growth in increase value of assets over the period of 2002-03 to 2009-10 and value of assets has attained to position of 166. • The additions in gross block of assets naturally decrease the operating cost of production such as main expenses of assets that is repairs and maintenance gradually. • More assets are in pending list to be categorized in appropriate category and to ascertain their true nature.

New capital assets must be purchased according to increasing demand of products. 73 . From the financial position of the Rane Brake Lining Ltd is observed that return on investment is not satisfactory throughout all the years. for that the management should concentrate on increasing its operating profit. A good asset tracking of system should be adopted and must be used over a long period of time. Thus by indentifying high return yielding assets and having a complete record over them would facilitate a good maintenance over such classified assets. Periodic verification of high value assets should be done in regular intervals which would reduce heavy burden in regular routine of organization work.8. there was a too much fluctuation in the percentage of return on fixed assets so the company should try to decrease the fluctuations. Capital purchase of assets must be done periodically and it should be purchased in a manner that it caters the increasing demands. The unutilized assets can be removed from asset registers after making a complete verification which would facilitate tax advantage and must be cleared as soon as possible when it is known that those assets would not contribute to production. SUGGESTIONS The Rane Brake Lining Ltd can invest more in assets which give more return in terms of production and as well which has high demand in market. It is found that original equipment producing machineries yields high returns.

Periodic maintenance and tracking of all assets through good asset management procedure. The production of company is related with the plants and machinery which is been utilized. The capital assets performance and its utilization emphasis how necessary it is to spend over its maintenance to avoid frequent repairs. CONCLUSION After analyzing the financial position Rane Brake Lining Ltd and evaluating its Assets productivity by Trend Analysis and Ratio Analysis. The study of asset productivity emphasis that RBL has good return on its investment over assets.9. the following conclusions are drawn from the project preparation. 74 . the RBL could have better and efficient control over its assets in forthcoming years. RBL employs high value assets in areas where high demand occurs. The physical existence of assets ensures the company makes utilization of all available assets. The physical verification of assets as per asset registers in the company emphasis to know whether all the registered assets have physical existence. From the above study it can be said that the Rane Brake Lining Ltd Financial position on assets is quite satisfactory and in terms of tracking over assets existence additional measures need to be taken.

75 .

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