A Study On Ratio Analysis at HMT Watches LTD Bangalore

RATIO ANALYSIS STATEMENT OF HMT WATCHES
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CHAPTER PARTICULARS PAGE NO

NO.
1. INTRODUCTION 04-30
2. RESEARCH DESIGN OF THE STUDY 31-36
3. COMPANY PROFILE 37-47
4. DATA ANALYSIS AND INTERPRETATION 48-82
5. SUMMARY OF FINDINGS, SUGGESTIONS 83-88
AND CONCLUSION
6. ANNEXURE 89-93
7. BIBLIOGRAPHY 94-95
CONTENTS
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 INTRODUCTION
In an economy finance is defined as the provision of money at the time when it
is required. Every enterprise, whether big, medium of small, needs finance to
carry on its operations and to achieve its targets. In fact, finance is so indispensable today that
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it is rightly said to be the lifeblood of an enterprise. Without adequate finance, no enterprise
can possibly accomplish its objectives.
DEFINITIONS
“That business activity which is concerned with the acquisition and conservation of capital
funds in meeting the financial needs and overall objectives of business enterprise.”
-Wheeler
“Business finance can be broadly defined as the activity concerned with the planning, raising,
controlling and administering the funds used in the business”.
-Guttmann and dough all
“Business finance deals primarily with raising, administering and disbursing funds by privately
owned business units operating in non-financial fields of industry.”
CLASSIFICATION OF FINANCE
The subject of finance has been traditionally classified into two classes:
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FINANCE
PUBLIC FINANCE PRIVATE FINANCE
-PERSONAL FINANCE
-GOVERNMENT INSTITUTION
-BUSINESS FINANCE
-STATE GOVERNMENTS
-FINANCE OF NON-PROFIT ORGANISATIONS
-LOCAL SELF-GOVERNMENTS
-CENTRAL GOVERNMENT
Public finance
Public finance deals with the requirements receipts and disbursements of funds in the government
institutions like states, local self-governments and central government.
Private finance
Private finance is concerned with requirements, receipts and disbursements of funds in case of
individual, a profit seeking business organization and a non-profit organization.
Private finance can be classified into:
 Personal finance;
 Business finance; and
 Finance of non-profit organizations.
Three main APPROACHES to finance:
i The first approach views finance as to providing of funds needed by a
Business on most suitable terms. This approach confines finance to the raising of funds and to
the
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study of financial institutions and instruments from where funds can be procured.
ii The second approach relates finance to cash.
iii The third approach views finance as being concerned with rising of funds and their effective
utilization.
 Business finance can further be sub-classified into three categories :
BUSINESS
FINANCE
COMPANY OR
SOLE-PROPRITORY PARTNERSHIP
CORPORATION
FINANCE FIRMS FINANCE
FINANCE
 OBJECTIVES OF FINANCIAL MANAGEMENT OR BUSINESS FINANCE
Financial management is concerned with procurement and use of funds. Its
main aim is to use business funds in such a way that the firm’s value/earnings
Are maximized. Financial management provides a framework for selecting a
Proper course of action and deciding a viable commercial strategy. The main
Objective of a business is to maximize the owner’s economic welfare.
 Objective can be achieved by:
1. Profit Maximization, and
2. Wealth Maximization
1. Profit Maximization. Profit earning is the main aim of every economic
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Activity. A business being an economic institution must earn profit to
Cover its costs and provide funds for growth. No business can survive without earning profit.
Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection
against
Risks which cannot be ensured. The accumulated profits enable a business to face risks like
fall in prices, competition from other units, adverse government policies etc. thus, profit
maximization is considered as the main objective of business.
2. Wealth Maximization. Wealth maximization is the appropriate objective of an enterprise.
Financial theory asserts that wealth maximization is the single substitute for a stock holder’s
utility. When the firm maximizes the stock holder’s wealth, the individual maximizing stock
holders wealth the firm is operating consistently towards maximizing stock holders utility
 SCOPE OF FINANCE FUNCTION
1. Estimating financial requirements
2. Deciding Capital Structure
3. Selecting a Source of Finance
4. Selecting a Pattern of Investment
5. Proper Cash Management
6. Implementing Financial Controls
7. Proper Use of Surpluses
1) Estimating Financial Requirements:
The first task of a financial manager is to estimate short-term financial Requirements of his
business. For this purpose he will prepare a financial Plan for present as well as for future. The
amount required for purchasing fixed assets as well as needs of funds for working capital will
have to be Ascertained. The estimations should be based on sound financial principles So that
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neither there are inadequate nor excess funds with the concern. The inadequacy of funds will
adversely affect day to day working of the concern whereas excess funds may tempt a
management to indulge in extravagant Spending or speculative activities.
2) Deciding capital Structure:
It refers to the kind and proportion of different securities for raising funds. After deciding
about the quantum of funds required it should be decided Which type of securities should be
raised? It may be wise to finance fixed Assets through long term debts. If gestation period is
longer, then share Capital may be most suitable. Long term funds should be employed to
Finance working capital also, if not wholly then partially. Entirely depending
Upon overdrafts and cash credits for meeting working capital needs may not Be suitable. A
decision about various sources for funds should be linked to The cost of raising funds. If cost of
raising funds is very high then such Sources may not be useful for long.
3) Selecting a Source of Funds: After preparing a capital structure, an appropriate source
of finance is Selected. Various sources from which the finance may be raised, include:
share capital, financial institution, commercial banks, public deposits, etc. if finances are
needed for short periods then banks, public deposits and financial institutions may be
appropriate; on the other hand, if long – term Finances are required then share capital and
debentures may be useful. If the concern does not want to tie down assets as securities
then public deposits May be a suitable source. If management does not want to dilute
ownership Then debentures should be issued in preference to shares. The need, purpose,
object and cost involved may be the factors influencing the selection of a Suitable source of
financing.
4) Selecting a Pattern of Investment:
The selection of an investment pattern is related to the use of funds. The funds will have to be
spent first on fixed assets and then an appropriate Portion will be retained for working capital.
Even a various categories of Assets, a decision about the type of fixed or other assets will be
essential. While selecting a plant and machinery, even different categories of them May be
available. The decision making techniques such as Capital
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Budgeting, Opportunity Cost Analysis etc. May be applied in making decisions about capital
expenditures. While spending on various assets, the
Principle of safety, profitability and liquidity should not be ignored. A
Balance should be struck even in these principles. One may not like to invest
On a project which may be risky even though there may be more profits.
5) Proper Cash Management:
it is also an important task of finance manager. He has to assess various cash
Needs at different times and then make arrangements for arranging cash.
 Cash may be required to:
a) Purchase of raw materials,
b) Make payments to creditors,
c) Meet wage bills, and to meet day-to-day expenses.
d)
 The usual sources of cash may be:
a) Cash sales,
b) Collection of debts,
c) Short term arrangements with banks etc.
6) Implementing financial controls:
An efficient system of financial management necessitates the use of various
Control devices. Financial control devices generally used are:
a) Return on investment,
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b) Budgetary control,
c) Break even analysis,
d) Cost control,
e) Ratio analysis,
f) Cost and internal audit.
7) Proper use of surpluses:
The utilization of profits or surpluses is also an important factor in financial Management. A
judicious use of surpluses is essential for expansion and Diversification plans and also in
protecting the interests of shareholders. The plugging back of profits is the best policy for further
financing but it cashes With the interests of shareholders. A balance should be struck in using
funds for paying dividend and retaining earnings for financing expansion plans, etc. the market
value of shares will also be influenced by declaration of Dividend and expected profitability in
future.
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 A finance manager should consider the influence of various factors such as:
a) Trend of earnings of the enterprise,
b) Expected earnings in future,
c) Market value of shares,
d) Need for funds for financing expansion, etc. a judicious policy for distributing
surpluses will be essential for maintaining proper growth of the unit.
 FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT
1. Determining financial needs
2. Selecting the sources of funds
3. Financial analysis and interpretation
4. Cost volume profit analysis
5. Capital budgeting
6. Working capital management
7. Profit planning and control
8. Dividend policy
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 Determining financial needs: a finance manager is supposed to meet financial needs of the
enterprise. For this purpose, he should determine financial needs of the concern. Funds are
needed to meet promotional expenses, fixed and working capital needs.
 Selecting the sources of funds: numbers of sources are available for raising funds. A
concern may resort to issue of share capital and debentures. Long term funds may be acquired
from the financial institution. Working capital needs may be met by obtaining cash credit or
overdraft facilities from commercial banks.
 Financial analysis and interpretation: the analysis and interpretation of financial
statement is an important task of a finance manager. He is expected to know about the

profitability, liquidity position, and short term and long term financial position of concern.
 Cost volume profit analysis: is an important tool of profit planning. It helps to ascertain
that at what point of production a firm will be able to
Recover its cost and volume? How much should be the output to earn
 Capital budgeting: it is the process of making investment decisions in capital expenditure. It
is an expenditure the benefits of which are to be received over a expected period of time. It is
an expenditure incurred for acquiring or improving the fixed assets.
 Working capital management: no business can run without an adequate amount of
working capital. Working capital refers to that part of firm’s capital which is required for
financing short term or current receipts such as cash receivables and inventories.
 Profit planning and control: the excess of revenue over expenditure determines the
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amount of profit. Profit planning and control directly influence the declaration of dividend,
creation of surpluses, taxation etc.
 Dividend policy: dividend policy is an important area of financial management because
interests of the shareholders and the needs of the company are directly related to it.
 After preparation of the financial statements, one may be interested in knowing the position of an
enterprise from different points of view. This can be done by analyzing the financial statement
with the help of different tools of analysis such as ratio analysis, funds flow analysis, cash flow
analysis, comparative statement analysis, etc. Here I have done financial analysis by ratios. In this
process, a meaningful relationship is established between two or more accounting figures for
comparison.
 Financial ratios are widely used for modeling purposes both by practitioners and researchers. The
firm involves many interested parties, like the owners, management, personnel, customers,
suppliers, competitors, regulatory agencies, and academics, each having their views in applying
financial statement analysis in their evaluations. Practitioners use financial ratios, for instance, to
forecast the future success of companies, while the researchers' main interest has been to develop
models exploiting these ratios. Many distinct areas of research involving financial ratios can be
discerned. Historically one can observe several major themes in the financial analysis literature.
There is overlapping in the observable themes, and they do not necessarily coincide with what
theoretically might be the best founded areas.
 Financial statements are those statements which provide information about profitability and
financial position of a business. It includes two statements, i.e., profit & loss a/c or income
statement and balance sheet or position statement.
 The income statement presents the summary of the income earned and the expenses incurred
during a financial year. Position statement presents the financial position of the business at the
end of the year.
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 Before understanding the meaning of analysis of financial statements, it is necessary to
understand the meaning of ‗analysis’ and ‗financial statements‘.
 Analysis means establishing a meaningful relationship between various items of the two financial
statements with each other in such a way that a conclusion is drawn. By financial statements, we
mean two statements-
(1)Profit & loss a/c
(2)Balance sheet.
These are prepared at the end of a given period of time. They are indicators of profitability and
financial soundness of the business concern. Thus, analysis of financial statements means
establishing meaningful relationship between various items of the two financial statements, i.e.,
income statement and position statement  Parties interested in analysis of financial statements
Analysis of financial statement has become very significant due to widespread interest of various
parties in the financial result of a business unit.
The various persons interested in the analysis of financial statements are:-
 Short- term creditors:
They are interested in knowing whether the amounts owing to them will be paid as and when fall due
for payment or not.
 Long –term creditors:
 They are interested in knowing whether the principal amount and interest thereon will be paid on
time or not.
 Shareholders:
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 They are interested in profitability, return and capital appreciation.
 Management :
The management is interested in the financial position and performance of the enterprise as a whole
and of its various divisions.
 Trade unions :
They are interested in financial statements for negotiating the wages or salaries or bonus agreement
with management.
 Taxation authorities
These authorities are interested in financial statements for determining the tax liability.
 RATIO ANALYSIS:-
Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its
performance and condition with the average performance of similar businesses in the same industry.
To do this compare your ratios with the average of businesses similar to yours and compare your own
ratios for several successive years, watching especially for any unfavorable trends that may be
starting. Ratio analysis may provide the all-important early warning indications that allow you to
solve your business problems before your business is destroyed by them. The Balance Sheet and the
Statement of Income are essential, but they are only the starting point for successful financial
management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress
of your business.
 Importance of financial statement analysis in an organization.
In our money-oriented economy, Finance may be defined as provision of money at the time it is
needed. To everyone responsible for provision of funds, it is problem of securing importance to so

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adjust his resources as to provide for a regular outflow of expenditure in face of an irregular inflow of
income.
1. The profit and loss account (Income Statement).
2. The balance sheet
In companies, these are the two statements that have been prescribed and their contents have been
also been laid down by law in most countries including India. There has been increasing emphasis on
(a) Giving information to the shareholder in such a manner as to enable them to grasp it easily.30
(b) Giving much more information e.g. funds flow statement, again with a view to facilitating easy
understanding and to place a year results in perspective through comparison with post year results.
(c) The directors report being quite comprehensive to cover the factors that have been operating and
are likely to operate in the near future as regards to the various functions of production, marketing,
finance, labour, government policies, environment in general.
Financial statements are being made use of increasingly by parties like Bank, Governments,
Institutions, and Financial Analysis etc. The statement should be sufficiently informative so as to serve
as wide a curia as possible.
The financial statement is prepared by accounts based on the activities that take place in production
and non-production wings in a factory. The accounts convert activities in monetary terms to the help
know the position.
 Uses of Financial Statement Analysis.
The main uses of accounting statements for; -
 Executives: - To formulate policies.
 Bankers: - To establish basis for Granting Loans.
 Institutions \ Auditors: - To extend Credit facility to business.
 Investors: - To assess the prospects of the business and to know whether they can get a good
return on their investment.
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 Accountants: - To study the statement for comparative purposes.
 Government Agencies: - To study from an angle of tax collection duty levee etc
PRECAUTATIONS TO BE TAKEN FOR USE OF RATIOS
The calculation of ratios may not be difficult task but their use is not easy. The
Information on which these are based, the constraints of financial statements,
Objective for using them, the caliber of the analyst, etc. are important factors
Which influence the use of ratios? Following effective factors which must be
Kept in mind while interpreting various ratios:
Accuracy of financial statements: The ratios are calculated from the data available in
financial statements. The reliability of ratios is linked to the accuracy of information in the
statements. These statements should also be properly audited by competent auditors. The
precautions will establish the reliability of data given in the financial statements.
Objective or purpose of analysis: the type of ratios to be calculated will depend upon the
purpose for which these are required. If the purpose is to study current financial position then
ratios relating to current assets and current liabilities will be studied. The purpose of ‘user’ is
also important for the analysis of ratios. Creditors, a banker, an investor, a share holder, all have
different objects for studying ratios.
Selection of ratios: another precaution in ratio analysis is the proper selection of appropriate
ratios. The ratio should match the purpose for which these are required. Calculation of large
number of ratios without determining their need in the present context may confuse the things
instead of solving them. Only those ratios should be selected which can throw proper light on
the matter to be discussed.
Use of standards: the ratios will give an indication of financial position only when discussed
with reference to certain standards. Unless otherwise these ratios are compared with certain
standards one will not be able to reach at conclusions.
Caliber of the analyst: the ratios are only the tools of analysis and their interpretation will
depend upon the caliber and competence of the analyst. He should be familiar with various
financial statements and the significance of changes etc. a wrong interpretation may create havoc
for the concern since wrong conclusions may lead to wrong decisions. The utility of ratios is
linked to the expertise of the analyst.
Ratios provide only a base: the ratios are only guidelines for the analyst, he should not
base his decisions entirely on them. He should study any other relevant information, situation in
the concern, general economic concern, general economic environment, etc. before reaching
final conclusions.
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Functional classification or classification according to tests:
This is the most widely accepted classification of accounting ratios. Under this classification, accounting ratios
are classified on the basis of their nature or functions and in view of the financial management or according to
the tests satisfied, various ratios have been classified as follows:
Liquidity Long-term Solvency

and Leverage Ratio
Activity Ratios Profitability Ratios
Ratios
Current Ratio Debt-Equity Ratio Inventory turnover ratio A) In relation to Sales
Liquidity Ratio or Funded-Debt to Total Debtors turnover ratio Gross Profit Ratio
Acid Test or Quick Capitalisation Ratio Payables Turnover Ratio Operating Ratio
Ratio Proprietry Ratio or Equity Fixed Assets Turnover Operating Profit Ratio
Absolute Liquid or Ratio Ratio Net Profit Ratio
Cash Ratio Solvency Ratio or Ratio of Total Asset Turnover
Total Liabilties to Total Ratio B) In relation to
Assets Working Capital Turnover investments
Fixed Assets to Net Ratio Return on share holders
Worth or Proprietors Capital Employed investment.
Funds Ratio Turnover Return on Equity Capital
Fixed Assets to Long- Earnings per Share
Term Funds or Fixed
Assets Ratio Return on capital
employed
Ratio of Current Assets to
Proprieters Funds
Debt-Service Ratio or
Interest Coverage Ratio
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 LIQUIDITY RATIOS:
These are the ratios which measure the short-term solvency or financial position of a firm. These ratios are
calculated to comment upon the short-term paying capacity of a concern or the firm’s ability to meets current
obligations. The various liquidity ratios are: current ratio, liquid ratio and absolute liquid ratio. Further to see
efficiency with which liquid resources have been employed by a firm, debtor’s turnover and creditor’s turnover
ratios are calculated.
The principal liquidity ratios are:
 Current ratio or working capital ratio

 liquid, Quick ratio, or acid test ratio
 Absolute liquid ratio, cash ratio, or super quick ratio.
 CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and current liabilities. This ratio, also
known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of
a short-term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total
of current liabilities.
 QUICK OR ACID TEST OR LIQUID RATIO:

Quick ratio is that ratio which expresses the relationship between quick or liquid assets and current liabilities.
Quick/liquid ratio may be defined as the relationship between quick/liquid assts and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash within a short period of time. Current assets include
inventories and prepaid expenses which are not easily convertible into cash, thus are excluded in
liquid/quick/acid test ratio which is more rigorous test of liquidity.
 ABSOLUTE LIQUID RATIO OR CASH RATIO:

Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be
doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion
that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as exclude
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even receivables from the current assets and find out the absolute liquid assets. Absolute liquid assets include
cash in hand and at bank and marketable securities or temporary investments
 LONG-TERM SOLVENCY RATIO/LEVERAGE RATIO
Leverage ratios are the ratios, which measure the relative interests of the owners and creditors in an
enterprise. Long solvency ratios convey a firms ability to meet the interest costs and repayments schedules of
its long term obligations.
The principal leverage, capital structure or solvency ratios:
 Long term Debt to shareholders fund (debt equity ratio).

 Funded debt to total capitalisation ratio
 Proprietary or equity ratio
 Solvency ratio or Ratio total liabilities to total assets.
 Fixed assets to net worth or proprietor’s funds ratio.
 Fixed assets to long term funds or fixed assets ratio.
 Ratio of current assets to proprietors funds
 Debt service ratio or interest coverage ratio.
 LONG TERM DEBT TO SHAREHOLDERS FUNDS (DEBT EQUITY RATIO):

Debt equity ratio also known as external- internal equity ratio is calculated to measure the relative claims of
outsiders and the owners i.e. shareholders against the firm’s assets. This ratio indicates the relationship between
the external equities or the outsider’s funds and the internal equities or the shareholders.
 FUNDED DEBT TO TOTAL CAPITALISATION RATIO:

The ratio establishes a link between the long-term funds raised from outsiders and total long-term funds
available in the business.
 PROPRIETORY RATIO OR EQUITY RATIO:
The proprietary ratio which is also known as Equity Ratio or Share holders to Total Equities Ratio or Net worth to
Total Assets Ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm.
The components of this ratio are Shareholders funds or Proprietors Funds and Total Assets. The shareholders
funds are Equity Share Capital, Preference Share Capital, Undistributed profits, Reserves and Surpluses.
 SOLVENCY OR RATIO OF TOTAL LIABILITIES TO TOTAL ASSETS:
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This ratio is a small variant of equity ratio. The ratio indicated the relationship between the total liabilities to
outsiders to total assets of firm.
 FIXED ASSETS TO NET WORTH RATIO OR FIXED ASSETS TO PROPRIETORS
FUNDS:
The ratio establishes the relationship between fixed assets and shareholders funds i.e. share capital plus
reserves, surpluses and retained earnings.
 FIXED ASSETS TO TOTAL LONG TERM FUNDS OR FIXED ASSETS RATIO :
The ratio indicates the extent to which the total fixed assets are financed by long-term funds of the firm.
 RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS:

The ratio indicates the extent to which proprietor’s funds are invested in current assets.
 DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO:

Interest coverage ratio indicates the number of times interest is covered by the profits available to pay the
interest charges. Long-term creditors of a firm are interested in knowing the firms ability to pay interest on their
long-term borrowings.
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 ACTIVITY RATIOS
Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed.
These ratios are also called turnover ratios because they indicate the speed with which assets are being turned
over into sales e.g. debtors turnover ratio.
The principal activity ratios are:
 Inventory turnover ratio.

 Debtors/receivables turnover ratio.
 Creditors/payables turnover ratio.
 Working capital turnover ratio.
 Fixed assets turnover ratio.
 Total assets turnover ratio.
 Capital employed turnover ratio.
 INVENTORY TURNOVER RATIO:
Inventory Turnover Ratio (I.T.R) indicates the number of times the stock has been turned over during the period
and evaluates the efficiency with which a firm is able to manage its inventory.
 DEBTORS OR RECEIVABLE TURNOVER RATIO:
Debtors/Receivables Turnover or Debtors Velocity
Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number
of times average debtors (receivables) are turned over during a year.
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 Average Collection Period Ratio
The average collection period represents the average number of days for which a firm has to wait before its
receivables are converted into cash
 CREDITORS/PAYABLES TURNOVER RATIO:

Creditor’s turnover ratio indicates the velocity of credit payment of firm. In simple words, it indicates the
number of times average creditors (payables) are turned over during a year.
 Average Payment Period
The average payment period represents the average number of days for which a firm has to wait before its
payables are converted into cash.
 WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of the utilisation of net working capital. This ratio indicates
the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency
with which the working capital is being used by a firm.
 FIXED ASSETS TURNOVER RATIO:

Fixed assets turnover ratio is the ratio between fixed assets and turnover. Fixed assets, here, mean net fixed
assets, i.e., fixed assets less depreciation. Turnover means net sales, i.e., total sales less sales returns. A fixed asset
turnover ratio indicates the utilization of assets in generating sales.
 TOTAL ASSETS TURNOVER RATIO:
Total assets turnover ratio is the ratio between the total assets and turnover or sales (i.e., net sales).
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 CAPITAL EMPLOYED TURNOVER RATIO:
Capital employed turnover ratio is the ratio between sales (i.e., net sales) and capital (i.e., long-term funds,
comprising owners’ funds and long-term borrowed funds) employed in the business
 PROFITABILITY RATIO
Profitability ratio measures the results of business operations or overall performance and effectiveness of the
firm. Profitability ratios are the ratios, which measure the profitability of a concern. In other words, they are the
ratios, which reveal the total effect of the business transactions on the profit position of an enterprise, and
indicate how far the enterprise has been successful in its aim.
Profitability ratios may be classified into two categories. They are
Profitability ratio in relation to sales:
 Gross profit ratio

 Net profit ratio
 Operating ratio
 Operating profit ratio
 GROSS PROFIT RATIO:
It measures the relationship of gross profit to net sales and is usually represented as a percentage.
 OPERATING RATIO:
Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the
one hand and sales on the other. In other words, it measures the cost of operations per rupee of sales
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 Interpretation of Operating Ratio:
Operating ratio indicates the percentage of net sales that is consumed by operating cost. Obviously, higher the
operating ratio, the less favorable it is, because it would have a small margin (operating profit) to cover interest,
income-tax, dividend and reserves. However, 75 to 85% may be considered to be a good ratio in case of a
manufacturing undertaking.
 OPERATING PROFIT RATIO:
Operating Profit = Net Sales – Operating Cost
Or
= Net Sales – (Cost of Goods Sold+ Administrative and Office expenses + Selling and Distributive Expenses)
 NET PROFIT RATIO:

Net profit ratio establishes the relationship between net profit (after taxes) and sales, and indicates the
efficiency of the management in manufacturing, selling, administrative and other activities of the firm.
 Profitability ratios in relation to investments:

 Return on shareholders’ investment
 Return on equity capital
 Earnings per share
 Return on capital employed
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 RETURN ON SHAREHOLDERS INVESTMENT ON NET WORTH:

Return on shareholders investment popularly known as ROI or return on share holder/proprietors funds is the
relationship between net profits (after interest and tax) and the proprietor’s funds.
 RETURN ON EQUITY CAPITAL:

In real sense, ordinarily shareholders are the real owners of the company. They assume the highest risk in the
company; preference shareholders have a preference over ordinary shareholders in the payment of dividend as
well as capital. Preference shareholders get a fixed rate of dividend irrespective of the quantum of profits of the
company.
 EARNINGS PER SHARE (E.P.S):

Earnings per share are a small variation of return on equity capital and are calculated by dividing the net profit
after taxes and preference dividend by the total number of equity shares.
 RETURN ON CAPITAL EMPLOYED RATIO:

Return on capital employed establishes the relationship between profits and the capital employed. It is the
primary ratio and most widely used to measure the overall profitability and efficiency of a business.
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RESEARCH DESIGN OF THE STUDY
Research simply means a search for facts, answer to questions and solution to problems. Research is a
systematic and logical study of an issue or problem or phenomenon through scientific method. It is a systematic
and objective analysis and according of controlled observations that may lead to development generalization
principle resulting in prediction and possibly ultimate control of events.
A research design is simply the framework or plan for a study that is used as a guide in collecting and
analyzing the data. A research design is arrangements of condition for the collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy procedure. There various
research design but descriptive and analytical research design is more suitable for the study. Research design is
a logical and systematic planning which helps in directing to carry out a research.
It is overall operational pattern or framework of the project that stipulates what information is to be collected
from which sources and by what procedures.
 TITLE OF THE STUDY:
A Study on ‘RATIO ANALSIS’ With reference to HMT watches ltd.
 INTRODUCTION TO THE PROBLEM:
Changes in the financial performance of the company could be due to several reasons, changes in profitability,
due to operating inefficiency, inefficiency in management of debtors and inventories or underutilisation of
company resources and such kind of many more other reasons. The financial position of the company cannot
be immobile, but it is dynamic owing to the shift in its financial position with regard to various financial
parameters.
 STATEMENT OF THE PROBLEM:

Analysis of the financial performance tries to visualise the reasons for shift in a sound financial position and
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tires to establish a trend of the direction toward which the business is moving. Therefore using general
expression, the statement of the problem could be generalized as an exposure of reasons for variation in the
financial position of the company.
 SCOPE OF THE STUDY:
This project is a financial analysis of the company. Financial performance evaluation and innumerable
analytical studies have proved the utility and usefulness of this analytical technique.
By analyzing financial performance by employing certain selected financial ratios the company in question
with Managers, present and potential investors, outside parties as such as creditors and government sectors
employees and many more and these parties could get an idea of the performance of the company over the
study period .While doing so the project has accentuate upon obtaining an understanding of general
competition in this line of activity also. Therefore scope of the study extends over parties both insider and
outsides of the firms.
 NEED AND PURPOSE OF THE STUDY:
By analyzing systematically the identified financial ratios, which reflect financial performance well and
sufficiently, the company could understand its own position over time. Such a wide understanding will be of
great relevance to the managers of the company investors (present potential) as well as to any other
party/parties interested in the company.
 OBJECTIVE OF THE STUDY:
 Analysis of the financial performance of the company over the study period of 2007, 2008, and 2009.
 To evaluate the important aspects of the business like liquidity, solvency, performance and profitability
 To detect certain financial ratios which are likely to reflect the inconsistency in profit?
 To establish the inter-relationship between the various financial figures
 To conduct firm comparative analysis for the study period of 2007, 2008, & 2009.
 To draw valid conclusions recommendations based on the study.
 To suggest remedial measures to the inefficiency and inconsistency problems faced by the company.
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 HYPOTHESIS OR ASSUMPTIONS: This research is based on the following Assumption:
 Definitions and certain technical terms used for various financial ratios and their
interpretation in the project is assumed to be universal.
 It is assumed that financial performance is the ultimate index of performance of company.
 It is also assumed that ratios selected for this study reveals the financial performance well and
satisfactorily
 REFERENCE PERIOD:
For the purpose of carrying out this study the period of three financial years has been referred 2007,
2008 & 2009.
 METHODOLOGY:
This research is a large desk research and involved the following methods and the practices:
 Scanning through standard textbooks to understand the theories, concepts and certain
principals and norms behind financial performance, and their efficiency and effectively.
 Decision regarding the study period in this case was taken to be for a period of years
(2007,2008 & 2009)
 Collection of industries and companies specific literature i.e., industrial background,

companies profile and annual reports over the study period.
 Identification of financial ratios likely to reveal the financial performance adequately of the company,
in this case it was calculated to be (a) Solvency ratios (b) Activity ratios (c) Profitability ratios (d)
liquidity
 Calculation of these ratios over the study period and their tabulation and graphical representation.
 Finally forwarding certain recommendations and conclusions to the company in question.
By and large the above research design was employed for the study.
 SOURCES OF DATA:
A project of this nature is by and large a desk job a primary data is of little relevance. Most data was
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secondary in nature and was extensively employed.
 Primary data:
Primary data was collected through personnel interviews with the finance staff members and other executives
and staff.
 Secondary Data:
Trading and Profit and loss account and Balance sheet of the company for the year 2007,
2008, & 2009
Company profile.
Product & service profile.
Internet : encyclopaedia, Wikipedia
Standard textbooks : Business research methods
o Management accounting
o Financial management
 FEILD WORK:
As such no fieldwork was involved for this study since this was an in-house desk research job.
 LIMITATION OF THE STUDY:
It being a sincere attempt there has been certain limitations during the study that could not be avoided.
They are:
 The major constraint for the study was the timing of the study the immensity of the financial
statement was another factor of limitation. The study is based on the data given by the officials
and reports of the company the confidentiality of some facts and figures are also limitation.
 Financial Statements analysis is suffers form inherent weakness of accounting practice such as
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their historical nature matching principle etc.
 Ratios give just a fraction of information needed for judging financial soundness of the
concern.
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COMPANY PROFILE
HMT Ltd is a public limited commercial organization involved in the manufacture and sales of
engineering goods as well as project consultancy. The company is engaged in the business of
manufacturing and selling tractors and food processing machines. Their segments include machine
tools, watches, tractors, bearings and exports. The company's products include printing machine,
bearings, and food processing machine, machine tools, watches and tractors. They have five
subsidiaries namely HMT Machine Tools Ltd, HMT Watches Ltd, HMT Chinar Watches Ltd, HMT
(International) Ltd and HMT Bearings Ltd.
HMT Ltd was incorporated in the year 1953 by the Government of India as a Machine Tool
manufacturing company with the name Hindustan Machine Tools Ltd. The company was
incorporated with the objective of producing a limited range of machine tools, required for building
an industrial edifice for the country. Over the years, the company diversified into Watches, Tractors,
Printing Machinery, Metal Forming Presses, Die Casting & Plastic Processing Machinery, and CNC
Systems & Bearings. In 1960s, the company set up new units at Pinjore, Kalamassery and Hyderabad.
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In 1970s, they set up HMT International Ltd as a subsidiary company to channel HMT's products and
technical services abroad. They set up two units for manufacture of watches, one at Srinagar and
another at Tumkur. Also, they took over Machine Tool Corporation at Ajmer as their sixth machine
tool unit. In May 13, 1977, the company was converted into a public limited company and in
September 12, 1978, the name of the company was changed from Hindustan Machine Tools Ltd to
HMT Ltd. In 1980s, the company as a part of vertical integration efforts, launched units to
manufacture Watches at Ranibagh, Watch Cases at Bangalore, Stepper Motors at Tumkur, CNC
Systems at Bangalore and Ball screws for use on CNC machines at Bangalore. They took over Indo-
Nippon Precision Bearings Ltd, a state owned unit as a subsidiary, which was renamed HMT-Bearings
Ltd. Also, they took over Praga Tools Ltd as another subsidiary. In 1990s, the company restructured
themselves into five Business Groups viz., Machine Tools, Watches, Tractors, Industrial Machinery and
Engineering Components as part of Business Reorganization. In the year 1993, they launched two new
brands, namely 'Ramani' for gents and 'Utsav' for ladies. In the year 1997, the tractors group launched
a 45 HP Coastal Special model tractor for application in coastal areas on Commercial basis. Also, they
launched 59 HP model tractors with Power Steering. In the year 1998, the company introduced 350
ranges of Citizen watches in Mumbai along with their latest Eco-Drive models, which absorb power
thorough any source of light. They entered into manufacturing and marketing alliance with Tennmax
Industrial Ltd. of Hong Kong. In August 1, 2000, the company received the approval of the
Government of India for the turnaround plan submitted by the company. Consequently, the company
signed a Memorandum of Understanding with the Government of India on August 11, 2000 detailing
various actions to be taken on a time bound manner both by the Government and the company. As per
the restructuring plan, two separate subsidiary companies, namely HMT Machine Tools Ltd and HMT
Watches Ltd have been incorporated and these subsidiaries will take over the business of Machine
Tools and Watches of the company.
In the year 2004, the company signed agreement with UK-based Tractor for high power tractors.
Also, they signed MoU with State Bank of India (SBI) for tractor finance.
During the year 2004-05, an Emission Testing Lab with an investment of 4 crore was set up to
upgrade each of the engines to conform to emission norms. During the year 2004-05, they increased
the installed capacity of Machine Tools to 1479 Nos with the increase of 90 Nos. In the year 2006, the
company established a high tech Engine Emission Testing Laboratory in R&D Centre at their Tractor
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Division, Pinjore with an investment of Rs. 50 million. During the year 2007-08, Praga Tools Ltd, a
subsidiary
Company was amalgamated with HMT Machine Tools Ltd, another subsidiary company. During the
year 2008-09, the company initiated a number of operational measures such as improvement in their
products, rationalization of product mix, operational methods, and capital investments, new strategies
for marketing and distribution and introduction of productivity improvement schemes. The Tractor
Group of the company has initiated a host of measures towards performance improvement in right
earnest, by appointment of new distributors and dealers in select potential areas/ territories, engine
upgradation for compliance of new emission norms for all models of tractors, setting up of a new
paint plant, entering into MoUs with Banks/ Financing Agencies for priority loan sanction for the
purchase of HMT Tractors, dynamic business strategies, etc.
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Profile of Directors ( Government Directors)
Shri Saurabh Chandra

Additional Secretary and Financial Adviser Ministry of
Commerce and Industry,
Department of Industrial Policy and Promotion
Shri Saurabh Chandra, aged 54 years, an IAS Officer of 1978 Batch of Uttar Pradesh Cadre, has been
appointed as a Part-time Official Director of HMT Limited. He is a graduate in Electrical Engineering
from IIT, Kanpur and holds a Diploma in Management.

Shri Saurab Chandra served in the State of Uttar Pradesh between 1979 to 1993 and worked in the
Department of Finance; as Collector and Magistrate of Banda and Varanasi Districts; Administrator of
Agra Municipal Corporation with concurrent charge of Vice Chairman of Agra Development Authority
and Managing Director of U.P. Small Industries Corporation. During two year stint as Managing
Director of U.P. Small Industries Corporation, he was able to turn around this loss making Company into
a profit making undertaking.
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During the period 1993 - 1998 he was Director in Department of Fertilizers, Ministry of Chemicals and
Fertilizers handling project related work in the Department. He was associated with setting up of Oman
India Project which is perhaps the largest and most successful overseas joint venture Company set up by
CPSE/multi H state cooperatives.
On his return to the State, he served as Commissioner, Varanasi Division and Lucknow Division and
Secretary, Department of Irrigation. He worked as Joint Secretary in the Department of Revenue and
Department of Disinvestment in the Ministry of Finance handling administration related matters of the
Central Board of Excise and Customs and policy related matters respectively. He was associated with
Initial Public Offering of the Power Grid Corporation of India Limited.
Between November 2007 and February 2009, he was posted as Principal Secretary in the Department of
tourism, Science and Technology and Rural Engineering services.
Since February 2009, he is posted as Additional Secretary and Financial Adviser in the Ministry of
Commerce and Industry, Department of Industrial Policy and Promotion. He is also holding additional
charge of Financial Adviser to the Ministry of Micro, Small & Medium Enterprises, Department of Heavy
Industries, Department of Public Enterprises and Ministry of Corporate Affairs.
Shri Saurabh Chandra is also a Director on the Board of BHEL and Member of Governing Councils of
National Institute of Design, Ahmedabad and Central Manufacturing Technology Institute, Bangalore.
Shri Harbhajan Singh
Joint Secretary
Department of Heavy
Industry
Shri Harbhajan Singh, aged 54 years, an IAS Officer of 1983 Batch of Uttar Pradesh Cadre, has been
appointed as a Part-time Official Director of HMT Limited. He is a post graduate in History and also a
Law graduate
Shri Harbhajan Singh served in the State of Uttar Pradesh in various capacities as Assistant/Sub-
Divisional/Joint/District Magistrate; Chief Development Officer, General Manager of U.P. Small
Industries Corporation and U.P. Finance Corporation; and gained experience in the field of Land
Revenue Management and District Administration between 1985 to 1997. He has worked in Education
Department; Industrial Development Department; Geology and Mines Department in the capacity of
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Special Secretary; Secretary and Director and gained experience in the field of Human Resource
Development; Industries; Urban Development; Mines and Minerals during the period 1997 to 2000.
Shri Harbhajan Singh has worked in the Ministry of Consumer Affairs, Food & Public Distribution;
Ministry of Civil Aviation; Ministry of Coal & Mines; Government of India, as Director and Joint
Secretary during 2000 to 2006.
Company History
YEAR EVENTS 1953:- The Company was Incorporated in Bangalore. The Company was
converted into a Public Limited Company on May 13, 1977. The main objects of the Company
is Manufacturing of the Machine Tools, Metal forming presses and press brakes, pressure die,
casting machines and automatic plastic injection moulding machines, Automatic plastic
injection moulding machines, Paper cutting machines, Automatic plastic injection moulding
machines, Paper cutting machines, Tractors 25/35/55 HP, Lamps and Lamp making machines,
Printing Machinery, Printing Machinery, Watches. Some of the trade names of the watches
manufactured are Janata, Sona, Pilot, Tarun, Nutan, Jawhar, Automatic Day and Date, Priya,
Chinar, Nishat, Rakhee, Avinash and Kohinoor.
 The Machine Tool Division at HMT Bangalore was the oldest manufacturing unit of the
Company and the product lines consist of 16 types of metal working machines. The Die
Casting Division was set up for the manufacture of Die Casting and Plastic Injection
Moulding machines in technical collaboration with Reifenhaeuser GmbH & Co. of West
Germany.
1961 - The Watch Factory at Bangalore had two operating divisions the Watch Factory
Division: set up during the year in technical collaboration with Citizen Watch Co., Ltd., Tokyo,
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this division started with manufacture of hand winding watches. A new plant was set up to
manufacture self-winding watches in collaboration with the same Japanese firm and
Horological Machinery: Division was established for the manufacture of sliding headstock
automatics in technical collaboration with M/s. Jos Petermann, Switzerland.
 The Watch Factory at Srinagar was set up for the manufacture of 3 lakh hand winding
watches.
1963 - The HMT, in Pinjore have two operating divisions attached to it, viz., Machine Tool
Division and Tractor Division. The Machine Tool Division was set up during the year. The
Tractor Divisions was set up in technical collaboration with Mototov Foreign Trade
Corporation, Prasha, and Czechoslavakia.
1964 - The Two operating divisions attached to HMT, Kalamassery, were the Machine Tool
Division and the Printing Machine Division set up in collaboration with Societa Nebiolo, Turin,
Italy.
1965 - The HMT at Hyderabad had 3 operating divisions, the Machine Tool Division
primarily for the manufacture of special purpose machine tools. The Press Division was set up
in technical collaboration with M/s. Verson Allsteel Press Co., Chicago, U.S.A. The Lamp
Division was established for the manufacture of lamps and lamp components in collaboration
with United Incandescent Lamp and Electrical Co., Ltd. (Tungsram), Budapest, Hungary.
1975 - The HMT at Ajmer was set up by the Govt. of India as the unit of Machine Tool
Corporation of India, Ltd. with effect from 1st April; the unit was merged with HMT.
1976 - The manufacture of critical components like hair spring and main spring were also
taken up by setting up a new plant by the Watch Factory Division at Bangalore.
 The following collaborations agreements were concluded during the year: With the
Cross Company, Fraser, Michigan, U.S.A. for the manufacture of special purpose
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machines in Hyderabad, With M/s. Creusot - Loire, Paris, for the manufacturing of
rotary web offset printing machines, With M/s. Laeis - Werke AG, Trier, West Germany,
for the manufacture of refractory presses, A MOU with M/s. Tesa SA, Renens,
Switzerland, a subsidiary of Brown & Sharpe Manufacturing Co., Rhode Inland, U.S.A.,
for the manufacture of precision measuring instruments.
 HMT (International), Ltd., with an issued capital of Rs 6 lakhs is a wholly owned
subsidiary of the Company.
 All shares held by the President of India and his nominees. Out of the issued capital,
7,122 No. of Equity shares were issued as fully paid-up without payment in cash and
40,000 fully paid Equity shares were allotted on amalgamation of the erstwhile
Machine Tool Corporation of India, Ltd., Ajmer.
1977 - All shares issued to Govt. of India.
1978 - The Company undertook a scheme to expand the capacity of Watch Factory to 4 lakh
watches in 1979 and 5 lakh watches in 1980.
 The Govt. approved a total investment of Rs 24.50 crores in the watch factory to be
established at Tumkur in Karnataka State for the manufacture of 2 million watch
movements.
 The Company undertook to set up a project for the manufacture of 4 million
fluorescent tubes per annum in collaboration for assembly line with Tungsram of
Hungary at a capital outlay of Rs 3.19 crores.
 The Company undertook to diversify into the field of precision meterological and
measuring instruments at Srinagar. Govt. approval was obtained during 1979-80 and
negotiations were in progress for foreign collaboration.
 The Company undertook to set up a factory in Aurangabad, a backward area in
Maharashtra, for the manufacture of dairy machinery.
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 Industrial license was obtained and a technical collaboration agreement was entered
into with Fortschritt Landmaschinen Export-Import of German Democratic Republic
(FLM).
 In order to increase the capacity of tractor manufacture from 12,000 to 15,000 per
annum, the Company undertook to set up a second line of assembly operations at
Mohali, Punjab.
 The Company submitted a feasibility report to Govt. for the manufacture of electronic
watches. The Company concluded a MOU with Hitachi and Citizen of Japan.
 The Company offered technical collaboration to Industrial & Commercial
Development Corporation of Kenya (ICDC) to set up a plant for the manufacture of
machine tools in Kenya.
 The company entered into an agreement with the Federal Govt. of Nigeria to set up a
plant for the manufacture of machine tools in Nigeria. A new company under the
name Nigeria Machine Tools, Ltd. was incorporated in Lagos.
 With effect from 12th September, the name of the Company was changed from
Hindustan Machine Tools, Ltd. to HMT Ltd.
1980 - The Company entered into a collaboration agreement with Pegard S.A. of Belgium for
adding new models to the existing range of Horizontal boring machines.
1981 - The Company proposed to manufacture silver oxide miniature batteries in
collaboration with Hitachi-Moxcell Ltd., Japan. These would be used in electronic and quartz
watches.
 The Company received an industrial licence for the production of one million stepper
motors required for electronics watches.
 The subsidiary formerly known as Indo Nippon Precision Bearings Ltd., changed its
name to HMT Bearing Ltd. on 1st December.
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1993 - To capture the growing urban market for fashionable watches, two new brands viz.,
`Ramani' for gents and `Utsav' for ladies were launched.
 Equity shares subdivided. 504, 19,400 shares issued to Government of India.
1996 - The Company has decided to convert Lamp Division into a separate wholly owned
subsidiary.
 All shares issued to Govt. of India.
1997 - Production also suffered due to slowdown in the economy coupled with stiff
competition from imported machines.
 The Tractors Group launched a 45 HP Coastal Special model tractor for application in
coastal areas on Commercial basis.
 A 59 HP model tractor with Power Steering was also launched during the year.
Orchard Special model tractor in 25 HP range was developed and was under test
marketing. Modernisation cum Expansion plan for the Tractor division was chalked
out for increasing the production capacity of Tractor division to 30,000 tractors at a
cost of Rs 110 crores in the next two years.
 The entire net worth of this subsidiary was eroded and a reference was made to BIFR as
a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985.
 All shares issued to Govt. of India.
 The public sector HMT has indigenously manufactured four-colour offset printing
press for the first time in the country in its unit at Kalamassery.
 The HMT has introduced three new models the HMT 3022, HMT 3522 and HMT 4511
coastal special have been fitted with fuel efficient engines and heavy duty transmission.
 The machine tools division of HMT has entered a new area of manufacturing with
press tools and dies.
 The Machine tools division has also entered into a joint working arrangement with MS
Giana, Italy, for the manufacture heavy duty CNC lathes for the defence sector. This
range of products will be built for the first time in the country.
 HMT has signed a memorandum of understanding with the Union government under
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which it is expected to increase its turnover to Rs.1, 160 crore and post a net profit of
Rs.10.45 crore for the year ended March 1998.
 HMT introduced ADD and dater watches priced at Rs.750/900 in September. On
August 15 the company launched Swarna series.
1998 - HMT International Ltd, a wholly-owned subsidiary of HMT, has bagged an Rs.13-
crore order for setting up an Entrepreneur Technical Development Centre (ETDC) at Dakar in
Senegal.
 HMT International has already set up successfully training Algeria and the Maldives. A
batch of 17 Senegalese instructors has already undergone training at HMT's
international training centre in Bangalore.
 The company is launching 15 new models in the automatic day/date range.
 HMT would issue 41, 25,000 ordinary shares of Rs.10 each to the government. The
company board has recently approved the allotment of these shares. The company had
already approached the Bangalore Stock Exchange for issuing these shares to the
government. A total of 10, 06, 45,165 equity shares of Rs.10 is listed with the bourse.
 Machine tools giant HMT is in touch with world's number one MT manufacturer
Yamazaki Mazak to enter into a possible alliance to manufacture the latter's machine
cutting tools under a buy-back arrangement.
 HMT Ltd has bagged the FIE award for the best quality, design and aesthetic
appearance of a product at IMTEX '98.
 HMT Ltd today announced a special voluntary retirement scheme (VRS) for its lamp
division employees under which those who opt for it can remain at home with half
their pay till such time that the public sector behemoth receives its due from the
National Renewal Fund.
 HMT International Ltd., a wholly owned subsidiary of HMT Ltd., which has recently
diversified into software exports, has entered into a strategic alliance with A1- PHA
data LLC of Abu Dhabi, a part of $500 million US group. The two companies would
jointly develop software business for HMT's Erp Solutions Vikas.
 A MoU (memorandum of understanding) signed between the Government and HMT
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has delegated power to HMT to sanction schemes for incentives cum rewards.
 The Government is making a fresh bid to privatise HMT Tractors, a profit-making unit
under the fold of public sector major HMT Ltd.
 HMT has two fully-owned subsidiaries now - HMT (International) Ltd, which is a
trading company and HMT (Bearings) Ltd, which manufactures ball and roller
bearings. It also has a partly-owned subsidiary
 Praga Tools Ltd - based in Secunderabad.
 The union minister of state for industry released a new HMT automatic day date watch
Ranjit incorporating euro-style dial, and new ladies watch Preeti.
 The HMT division has a capacity of manufacturing 18,000 tractors.
 The company has introduced 350 ranges of Citizen Watches in Mumbai along with its
latest Eco-Drive models, which absorb power thorough any source of light.
 The company has entered into a manufacturing and marketing alliance with Tennmax
Industrial Ltd. of Hong Kong.
 HMT Ltd has been named as one of the top ten brands in India by a recent survey
conducted by A&M-ORG-MARG. HMT has been ranked as the top seventh brand
among the main brands in the annual survey that covers 60 brands from all over the
country. HMT is also the only public sector company whose brand has features among
the top ten in the survey. The brand has emerged as seventh from the 22nd position
held last year.
 The company also proposes to convert 30% of the loan component into equity.
 Citizen Watches (India) Limited, is a joint venture between the Citizen Watch
Company, Japan which holds a 51 per cent stake and Doshi Time Industries holding 49
per cent stake. It has a total paid up capital of Rs eight crores.
 A MoU (memorandum of understanding) signed between the Government and HMT
has delegated power to HMT to sanction schemes for incentives cum rewards.
1999 - The Industry Ministry has directed the state-owned Hindustan Machine Tools to
explore possibilities of joint venture formation for its watch division.
 The company has tied up with Tennmax of Hong Kong and is currently marketing the
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HMT-Tennmax brand in India.
- After Kenya and Nigeria, HMT had signed a MoU for setting up a watch assembly unit
Zimbabwe.
 The shareholders of Hindustan Machine Tools Ltd (HMT) approved a proposal to
increase the company's authorised share capital to Rs 200 crores from the present Rs
135 crores.
2000 - Icra has assigned an LAAA (SO) rating and an MAAA (SO) rating to the Hindustan
Machine Tools (HMT) bonds of Rs 469 crore 10-year tenure and Rs 40.43 two-year tenure.
- HMT (International) Ltd., a wholly owned subsidiary of HMT Ltd., has been awarded the
EEPC trophy for its achievements in export of technical services during the year 1998-99.
2001- Mr Manohar Joshi, Union Minister for Heavy Industries and Public Enterprises, has
unveiled the HMT 4922 tractor at a launch ceremony organised at Pinjore, Chandigarh. With
the introduction of the new actor,
2002-HMT Ltd has informed that consequent upon relinquishing of the charge of Chairman
& Managing Director, Tractor, upon resignation by Mr R A Sharma on July 04, 2002 Mr M S
Zahed, Director, Organisation & Management has taken additional charge of the post of
Chairman & Managing Director, Tractor of the Company.
2003-HMT Ltd has informed BSE that pursuant to Order dated January 9, 2003 from the
Department of Heavy Industry, Ministry of Heavy Industries & Public Enterprises, Government
of India, New Delhi, Shri M.S. Zahed, Chairman & Managing Director (Acting) and Director
(Organisation & Management) has been appointed as Chairman & Managing Director of the
Company for a period of 5 years from the date he assumes charge of the post or till the date of
his superannuation or until further orders, whichever is earlier. Shri.M.S Zahed assumed
charge of the post of January 09, 2003.-HMT enters into Memorandum of Understanding
with PNB, UCO Bank and State Bank of Mysore and has launched SBM-HMTAgri Farm
Scheme to promote Agriculture mechanisation in south India.-Pinjore Unit of HMT at
Chandigarh is facing a financial crisis and turnover has dropped to 50-60cr .-Shri Naresh
Chaturvedi has been appointed as a part time official Director on the Board of Directors.-Shri
Navin Kumar, Joint Secretary to GOI has been appointed as Part Time Official Director on the
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Board of Directors of the company.
2004-HMT Ltd. has informed that the equity shares of the Company have been delisted from
the Bangalore Stock Exchange Limited, the Regional Exchange for HMT Limited, with effect
from January 3, 2004.-HMT signs agreement with UK-based Trantor for high power tractors-
HMT bags CMTI-PMT Trust Award-HMT enters into a Technology Collaboration Agreement
with M/s Trantor Vehicles Ltd-HMT Ltd. enters into a Technology Collaboration Agreement
with Trantor Vehicles Ltd. U.K.-Signs MoU with State Bank of India (SBI) for tractor finance
2005-HMT inks agreement with ONGC, MRPL-HMT in dialogue with Japanese co for MUV
2006-HMT Ltd has Shri. R Asokan, Director (Finance), Department of Heavy Industry, New
Delhi has been appointed as Part-time Official Director on the Board of the Company vice
Presidential Order dated October 30, 2006, with effect from October 30, 2006-Hmt Ltd. has
informed that HMT (International) Limited, the wholly owned Subsidiary of HMT Limited,
Bangalore, would set up Indo-Zimbabwe Technology Centre (IZTC) in Harare and India
Technology Centre (ITC) in Bulawayo.-HMT Ltd has informed that the Company has
established a high tech Engine Emission Testing Laboratory in R&D Centre at its Tractor
Division, Pinjore at an investment of Rs 50 million.
2007-HMT Ltd has appointed Shri. N Gokulram, Additional Secretary & Financial Adviser,
Ministry of Heavy Industries & Public Enterprises, as Part-time Official Director on the Board
of the Company vice Presidential Order dated January 22, 2007, with effect from January 22,
2007 and until further orders vice Shri. R Asokan, Director (Finance), Department of Heavy
Industry, New Delhi.- Dr. Surajit Mitra has been appointed as Part-time Official Director on
the Board of the Company vice Presidential Order F.No.5(35)/1995-PE.X (Vol.II) dated March
06, 2007, until further orders with effect from March 06, 2007.
2008- HMT Ltd. has informed that Shri B.S. Meena has been appointed as Part-time Official
Director on the Board of HMT Limited vide Presidential Order F. No. 5 (35)/ 1995- PE. X dated
January 25, 2008, until further orders with effect from January 25, 2008.- Hmt ltd has
appointed Shri S. Behuria, Additional Secretary & Financial Adviser to Government of India,
Ministry of Heavy Industries & Public Enterprises, New Delhi, as Part-time Official Director on
the Board of HMT Limited vide Presidental Order F. No. 5(35)/1995-PE.X dated October 14,
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2008, until further orders with effect from October 14, 2008".
2010- HMT Ltd has informed that Shri Harbhajan Singh has been appointed as Part-time
Official Director on the Board of the Company with effect from January 11, 2010
 PRODUCTS
WATCHES
The Mechanical Range
Hand wound Gents & Ladies - Desh Ki Dhadkan
Automatic Day-date- The Watch that lasts & lasts
Series of Quartz Watches
Elegance - Its all about YOU
Roman - ONLY For MEN
Utsav - The Well Dressed Watch
Sangam - Absolutely Modern, Absolutely Indian
- Value for Money, For those who value

Lalit
Money
Pace - For cute faces
Swarna - Good as Gold
Shreyas - Sign of Good Times
Chandan - The fragrance watch
Braille - A gift of time to the blind
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HMT's Milestones
UNITS / DIVISION LOCATION STATE

YEAR
1953 Machine Tools I Bangalore Karnataka
1961 Machine Tools II Bangalore Karnataka
1962 Watch Factory I Bangalore Karnataka
1963 Machine Tools III Pinjore Haryana
1965 Machine Tools IV Kalamassery Kerala
1967 Machine Tools V Hyderabad Andhra Pradesh
1971 Tractor Division Pinjore Haryana
1971 Die Casting Division Bangalore Karnataka
1972 Printing Machinery Division Kalamassery Kerala
1972 Watch Factory II Bangalore Karnataka
1973 Precision Machinery Division Bangalore Karnataka
1975 Machine Tools VI Ajmer Rajasthan
1975 HMT (International) Ltd. Bangalore Karnataka
1975 Watch Factory III Srinagar Jammu & Kashmir
1978 Watch Factory IV Tumkur Karnataka
1981 HMT Bearings Limited Hyderabad Andhra Pradesh
1981 Quartz Analog Watches Bangalore Karnataka
1982 Watch Factory V Ranibagh Uttar Pradesh
1982 Specialised Watch Case Division Bangalore Karnataka
1983 Stepper Motor Division Tumkur Karnataka
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1985 Ball Screw Division Bangalore Karnataka
1986 CNC Systems Division Bangalore Karnataka
1991 Central Re-conditioning Division Bangalore Karnataka
Accolades - over the years
AWARD INSTITUTED BY
YEAR
1960-61 Outstanding Performance President of India
1961-62 Outstanding Performance President of India
1970-71 Excellence Performance in Exports Govt. of Mysore
1971-72 Outstanding Export Performance Govt. of Mysore
1971-72 Outstanding Export Performance EEPC
National Award for Outstanding Export

1975-76 Ministry of Commerce
Performance
1978-79 Best Product at IMTEX - 79 PMT & FIE
1981-82 Best Export Performance EEPC
1981-82 Best Product at IMTEX - 82 FIE Foundation
1982-83 Export Excellence EEPC
Meritorious Performance in the field of

Export
Harvard Business
School Association of
1983 Best Corporate Performance
India & Economic
Times
Foundation for
1983-84 Most Effective Organisation Organisation Research
(FORE)
Organisation Research
1983-84 Best Productivity
(FORE)
National Productivity
Council
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Meritorious Performance in the field of

Export
1985-86 Best Product at IMTEX - 86 CMTI - PMT Trust
Council
1986-87 Excellence in Productivity CEI
Council
Council
Bureau of Indian
1988-89 Company Standards
Standards
1988-89 Best Product at IMTEX - 89 CMTI - PMT Trust
Outstanding Performance in Industrial

1988-89 National Safety Council
Safety
Council
1988-89 Best Company for HRD Practices CEI
National Award for R&D Efforts in

Dept. of Scientific and
1990 Industry - 1990 in the Mechanical
Industrial Research
Industrial Sector
Valuable Contribution & Significant

1989-90 Encouragement to the cause of the H.N.THADANI
Industrial Engineering Profession in India
Council
Tech. Development for Machine Tools, Directorate General of

1990-91
Bangalore Technical Development
Council
1992 National Safety National Safety Council
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Best Performance in Company Sir Jahangir Ghandy

1994
Standardisation Trophy
CMTI - PMT Trust

1995 Best Products at IMTEX - 95
Award
1995 Best Product at IMTEX – 95 FIE Foundation
Engineering Export
1995-96 Regional 'Top Exporters Shield' Promotion Council,
Chennai
Engineering Export
Regional 'Top Exporters Shield -Project
1996-97 Promotion Council,
Exporters'
Chennai
Engineering Export
1997-98 All India Trophy for Highest Exporters Promotion Council,
Kolkata
CMTI - PMT Trust

1998 Best Products at IMTEX – 98
Award
Engineering Export
Regional Trophy for Highest Exporters in Promotion Council,
1998-99
the Group - Services Exporter Southern Region,
Chennai
CMTI - PMT Trust

2001 Best Products at IMTEX – 2001
Award
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 ORGANISATION SRTUCTURE
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1. Current Ratio:
The current Ratio is the ratio of current liabilities it is calculated as: -
Current assets
Current ratio = - - - - - - - - - - - - - - - - - -
Current Liabilities
Generally current ratio of 2:1 is considered ideal for a concern i.e.,

Current Assets should be twice of the Current Liabilities
TABLE 4.1
Year Wise Total Current Assets and Current Liabilities of HMT Watches limited.
(In lakhs)
year Current assets Current liabilities Ratio
2006-2007 9796 18360 0.53
2007-2008 7769 20106 0.39
2008-2009 6448 21318 0.3
2009-2010 5772 22875 0.25
2010-2011 5284 25338 0.21
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30000
25000
20000
Current assets
15000 Current liabilities
Ratio
10000
5000
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
 INTERPRETATION:
Current ratio measures the firm’s short-term solvency. The standard norm for
current ratio is (2:1). It is evident from the diagram that every year current
liabilities are exceeding the current assets I.e. current liabilities are greater than
the current assets which is not satisfactory. Therefore it can be calculated that the
liquidity performance of the company is going down day by day.
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2. LIQUID RATIO:-
.
Formula:
QUICK RATIO (LIQUID RATIO) = Liquid Asset / Current Liabilities
TABLE 4.2
Year Wise Liquid Assets and Current Liabilities of
HMT WATCHES LIMITED
Year Liquid assets Current liabilities Quick ratio

(CA-Inventories)
2009-2010 -245509 1550199 -0.15
2010-2011 -271684 1786002 -0.15
200
150
100
2009-2010
2010-2011
50
2010-...
0 2009-...
Liquid asse...
Current liabili...
-50 Quick r...
 INTERPRETATION:
It is evident from the diagram that every year current liabilities are exceeding the
liquidassets I.e. current liabilities are greater than the current assets which is not
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satisfactory. Therefore it can be calculated that the liquidity performance of the company is
going down day by day.
3. Working Capital:-
Working Capital It is calculated as,
Working capital turnover ratio = Sales / Working capital
TABLE 4.3
 CALCULATION OF WORKING CAPITAL TURN OVER RATIO WITH DIAGRAM
(In lakhs)
Year Sales Working capital Working capital

turnover ratio
2006-2007 3688 -8563 -0.43
2007-2008 1514 -12338 -0.12
2008-2009 1352 -14870 -0.09
2009-2010 1054 -17103 -0.06
2010-2011 882 -20054 -0.04
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5000
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
-5000
Sales
-10000 Working capital
Working capital turnover ratio
-15000
-20000
-25000
 INTERPRETATION
Working capital is the difference between the inflow and outflow of funds. In other words it is
the net cash inflow. The diagram shows that the working capital of last 5 years is always
exceeding the net sales that means the net outflow of cash is more than the net inflow of cash n
the company is working turnover is less n company is going in loss
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4. INVENTORY TURN OVER RATIO
This Ratio is computed by dividing net sales by inventory
Thus,
Inventory turnover ratio= Net sales/ inventory
. It might be argued that the inventory turnover ratio may be
Cost of goods sold
Inventory Turnover ratio = --------------------------------------------
Average Inventory
TABLE 4.4
Calculation of inventory turnover ratio:
(In thousands)
Years Net sales Average Inventory turnover

inventory(total ratio
inventory/2)
2009-2010 105414 161531 0.65
2010-2011 88171 163682 0.54
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 Diagram Calculation of inventory turnover ratio:
180000
160000
140000
120000
100000
2009-2010
80000
2010-2011
60000
40000
20000
0 2010-2011
Net sales 2009-2010

Average inventory(total inventory/2)
Inventory turnover ratio
 INTERPRETATION
The numerator of this ratio is the net sales for the year and the denominator is the Inventory
balance at the end of the year. This ratio is deemed to reflect the efficient the management of
inventories and vice versa. This statement need not be always true. A low level of inventory
may cause a higher inventory turnover ratio. From the graph it is clear that the net sales are
decreasing in 2010-2011 as compared with 2009-2010. So the inventory ratio is decreasing.
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5. DEBTORS TURNOVER RATIO
Debtors turnover ratio = Net credit sales /Average debtors
NOTE; - Here there is no specification about net credit purchase and average debtors so,
assume that (net credit sales = net sales) (Average debtors = debtors)
Table 4.5
Calculation of debtor’s turnover ratio with diagram
(In thousands)
Year Net sales debtors Debtor turnover ratio
2009-2010 105414 15172 6.94
2010-2011 88171 15986 5.5
100%
90%
80%
70%
60% 2010-2011
50% 2009-2010
40%
30%
20%
10%
0%
Net sales debtors Debtor turnover ratio
 INTERPRETATION
During the year 2009-2010 the net sales of the company is 105414 lakhs and the debtors
value is 15172 lakhs, therefore the debtors turn over ratio is 6.94 that is near to 7.
On the other end during the year 2010-2011 the net sales is decreasing from 105414 to
88171 lakhs, and the debtors value is constantly increasing from 15172 to 15986 lakhs thus
the debtors turnover ratio is increasing.
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6. CREDITORS TURN OVER RATIO
Creditors turnover ratio = Net credit purchases/Average of creditors
NOTE; - Here, there is no specification about net credit purchase and average of creditors, so,
let assume that, (net credit purchase = Net Purchase) (Average of creditors = creditors)
Table 4.6
Calculation of creditor’s turnover ratio with diagram
(In thousands)
YEAR NET PURCHASE CREDITORS Creditors turnover

ratio
2009-2010 17337 259289 0.066
2010-2011 24246 215049 0.112
300000
250000
200000
150000 2009-2010
2010-2011
100000
50000
0 2010-2011
NET PURCHASE 2009-2010

CREDITORS
Creditors turnover ratio
 INTERPRETATION The creditor‘s turnover ratio is an important tool as a firm can

reduce its requirement of current assets by relying on suppliers creditors.A low turnover
ratio reflects liberal terms granted by suppliers, while a high turnover ratio shown that
accounts are settled rapidly.
The graph above is showing that the creditors plot during both the years is exceeding the net
purchases. So the creditors turnover ratio is below zero that is considered as nill. This
indicates that creditors accounts are not setteled by the company rapidly and the company is
going in loss.
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7. DEBT-EQUITY RATIO
Debt equity ratio = Debt / Equity
Table 4.7
Calculation of debt-equity ratio with diagram
(In thousands)
Year Debt Equity debt-equity ratio
2009-2010 12877479 134901 95.45
2010-2011 15344099 134901 113.74
16000000
14000000
12000000
10000000
8000000 2009-2010
2010-2011
6000000
4000000
2000000
0 2010-2011
Debt 2009-2010
Equity
debt-equity ratio
 INTERPRETATION
This ratio reflects the relative claims of creditors and share holders against the assets of the
firm, debt equity ratios establishment relationship between borrowed funds and owner capital
to measure the long term financial solvency of the firm. The ratio indicates the relative
proportions of debt and equity in financing the assets of the firm the above graph shows that
debtors in 2010-2011 and 2009-2010 as well is greater than the equity.
8. DEBT – ASSET RATIO
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Debt
Debt Asset Ratio = -------------------------------
Asset
TABLE 4.8
Calculation of Debt – Asset Ratio with Diagram
(In thousands)
YEAR Debt Asset Debt Asset Ratio
2009-2010 12877479 190320 67.66
2010-2011 15344099 157825 97.22
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
YEAR
Debt
Asset
Debt Asset Ratio
 INTERPRETATION
During the year 2009-2010 the debt value is 12877479 thousands while as the assets value
is low that is 190320 thousands. Like wise during the year 2010-2011 the debts have
increased to 15344099 thousands and the assets value has decreased to 157825 thousands. So
the debts assets value is going on increasing year by year as it should go on decreasing day by
day then only the company is in profit.
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9. INTEREST COVERAGE RATIO
It is calculated as
Earnings before Interest &Taxes
(EBIT)
Interest coverage Ratio = ----------------------------
Debt Interest
TABLE 4.9
Calculation of Interest Coverage Ratio with Diagram
(In lakhs)
Year EBIT Debt Interest Debt Equity Ratio
2006-2007 -11405 8161 -1.39
2007-2008 -5816 8864 -0.65
2008-2009 -6410 9982 -0.64
2009-2010 -5322 11061 -0.48
2010-2011 -12576 12798 -0.98
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Interest Coverage Ratio Diagram
4000
3500
3000
2500
2000
Operating incomes
Net sales
Operating margin
1500
1000
500
Operating margin
0
Net sales
0 7
20 08 Operating incomes
6 -
- 20 0 09 0
00 07 -2 01 1
2
20
8
9-
2 01
2 00 0 0-
2
20 1
20
 INTERPRETATION
This ratio measures the debt servicing of capacity of a firm in so far as fixed interest on
long term loan is concerned. Interest coverage ratio determined by dividing the
operating profits or earnings before interest and taxes by fixed interest charges on loans.
The graph shows that the debt interest is more than the earnings before
interest and tax, which indicates debt equity ratio, is nil.
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10. OPERATING MARGIN
Operating margin = operating income/ Net sales
TABLE 4.10
Calculation of operating margin with diagram:
(In lakhs)
Year Operating incomes Net sales Operating margin
2006-2007 3498 3688 0.94
2007-2008 618 1514 0.40
2008-2009 371 1352 0.27
2009-2010 1087 1054 1.031
2010-2011 790 882 0.89
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Operating margin with diagram
4000
3500
3000
2500
2000
Operating incomes
1500 Net sales
1000 Operating margin
500
0 Operating margin
Net sales
7
00 8 Operating incomes
6-
2
2 00 0 09 0
00 7- -2 01 1
2 0 8
9-
2 01
20 2 00 0 0-
2
20 20
1
 INTERPRETATION
Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
company's yearly or quarterly figures to those of its competitors. If a company's margin is
increasing, it is earning more per dollar of sales. The higher the margin, the better For example,
if a company has an operating margin of 12%, this means that it makes $0.12 (before interest
and taxes) for every dollar of sales.
Here the margin is very less and is going on decreasing so the company needs to
increase their operating incomes as well as their net sales.
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SUMMARY OF FINDINGS & SUGGESTIONS

AND CONCLUSION
 SUMMARY OF FINDINGS & SUGGESTIONS

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 FINDINGS
1. Current ratio is below the standard norm or ratio of 2:1, which refers that the
company is going in loss.
2. The company has not been able to maintain its quick ratio above the standard
ratio i.e. 1:1
3. There is not continuous improvement in the Liquidity position of the company

from 2006-07 to 2009-10
4. The debt equity has tremendously increased because the profit of the company
is decreased and also the company has not repaid its long term loans.
5. Proprietary ratio is decreasing when compared to last four years; it will show
the long term insolvency.
6. Operating profit ratio has been decreasing compared to last four years.
7. There is not continuous growth in the companys Net profit ratio when
compared from 2006-07 to 2009-10. The company is totally going in loss.
8. The earning per share of the company is tremendously decreasing for the last
four years.
9. The increase in Debtors Turnover Ratio will show that the company has
increased its credit sales.
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 RECOMMENDATIONS, SUGGESTIONS
After analyzing the overall performance of the present and past years working, a few
short comings have came to notice. The company is not doing well overall, more care should be
taken about same of the aspects of working capital will add to the profitability of the company.
A efficient management of all the aspects of working capital provides a financial defense
against stiff competition in the market and enhances the credit worthiness of the firm, enables
the management to operate efficiently and flexible and allows the firm to take advantage of
special favorable opportunities.
Keeping this view, the following recommendations are put forth after a detailed study
was made:
1. The company can make an attempt to increase the sales by increasing advertisement
and adding more distribution network.
2. Investment of excess cash balance in fixed deposit accounts in bank will yield better
returns and also the liquidity position of the company will not be harmed.
3. However the sales of the company decreased from last 4 years. The company cannot
follow a tight credit policy or restricting credit. Though, the company can make an
attempt to bringing down the average collection period which has greatly exceeded by
the warranted credit period.
4. The company can contribute towards better turnover figures if its marketing and
distribution network is strengthened.
5. Operating profit is increased but the total income is decrease from last 4 years so other
expenses can be reduced overcome this problem.
6. Better to invest in Fixed assets when there is more than sufficient capital
7. The company must take certain precautions to reduce the operating Expenses.
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8. The credit purchase period is more in purchasing the raw materials so reduce the credit
purchase.
9. Return on Investment is very less when compare to previous year so

Take some decisions to increase the returns.
 CONCLUSION
 Ratios make the related information comparable. A single figure by itself has no
meaning, but when expressed in terms of a related figure, it yields significant
interferences. Thus, ratios are relative figures reflecting the relationship between related
variables. Their use as tools of financial analysis involves their comparison as single
ratios, like absolute figures, are not of much use.
 Ratio analysis has a major significance in analyzing the financial performance of a
company over a period of time. Decisions affecting product prices, per unit costs,
volume or efficiency have an impact on the profit margin or turnover ratios of a
company.
 Financial ratios are essentially concerned with the identification of significant
accounting data relationships, which give the decision-maker insights into the financial
performance of a company.
 The analysis of financial statements is a process of evaluating the relationship between
component parts of financial statements to obtain a better understanding of the firm‘s
position and performance.
 The first task of financial analyst is to select the information relevant to the decision
under consideration from the total information contained in the financial statements.
The second step is to arrange the information in a way to highlight significant
relationships. The final step is interpretation and drawing of inferences and
conclusions. In brief, financial analysis is the process of selection, relation and
evaluation.
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 Ratio analysis in view of its several limitations should be considered only as a tool for
analysis rather than as an end in itself. The reliability and significance attached to ratios
will largely hinge upon the quality of data on which they are based. They are as good or
as bad as the data itself. Nevertheless, they are an important tool of financial analysis.
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 BALANCE SHEET
The Balance sheet shows the financial status of a business. The registered companies are to
follow part 1 of schedule VI of company‘s \ act 1956 for recording Assets and Liabilities in
The Balance Sheet.
Format of Balance Sheet as prescribed by companies Act.
Liabilities ASSETS
Share Capital Fixed Assets

Reserves & Surplus Investments
Secured loans Current Assets, Loan
Unsecured Loan Advance
Current Liabilities & provision Misc. Expenditures & Losse
 Liabilities: -
Liabilities defined very broadly represent what the business entity owes to other.
 Share capital: -
There are two type of share capital: -
 Equity Capital
 Preference Capital
 Equity Capital represents the contribution of the owners of the firm.
 Preference capital represents the contribution of preference shareholders and the dividend
rate payable on it is fixed.
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 Reserve & Surplus: -
Reserve & Surplus are profits, which have been retained by the firm reserves, are two types ,
revenue Reserve and Capital Reserve.
 Revenue Reserve represents accumulated retained earnings from the profits of normal
business operations.
 Capital reserve arises out of gains, which are not related to normal business operations.
Surplus is the balance in the profit and loss account, which has not been appropriated
to any particular reserve account. Reserve and surplus along with equity capital
represent Owner s equity.
 Secured Loans: -These denote borrowings of the firm against which specific securities have
been provided. The important components of secured loans are debentures, loans from
financial institutions and loans from commercial banks.
 Unsecured Loans: -These are borrowing of the firm against which no specific security has
been provided.
The major components of unsecured loans are fixed deposits, loans and advances from
Promoters, Inter-Corporate borrowings and unsecured loans from Banks.
 Current Liabilities and Provision: -
Current Liabilities and Provision as per the classification under the companies Act, Consists of
the Following amounts due to the suppliers of goods and services brought on credit, Advance
payments received, accrued expenses. Unclaimed dividends, Provisions for taxed, Dividends,
Gratuity, Pension etc.
 Assets: -
Assets have been acquired at a specific monetary cost by the firm for the conduct of its
operation.
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 Fixed Assets: -
These assets have two characteristics. They are acquired for use over relatively long period for
carrying on the operations of the firm and they are ordinarily not meant for resale. Examples
for fixed assets are land, building, plant, Machinery, patent & Copyrights.
 Investments: -
These are financial securities owned by the firm. Some investments represent long-term
commitments of funds. Usually those are the equity shares of other firms held for income and
control purpose. Other investments are short term in nature and are rightly classified under
current assets for managerial purpose.
 Current Assets, Loans and Advances: -
This category consists of cash and other resources, which get converted into cash during the
operating cycle of the firm current assets, are held for a short period of time as against fixed
assets, which are held for relatively longer periods. The major component of current Assets is:
cash, debtors, inventories, loans and advances and pre-paid expenses.
 Miscellaneous expenditure and losses: -
The consist of two items miscellaneous expenditure and losses miscellaneous expenditure
represent outlays such as preliminary expenses and pre-operative expenses, which outlays
such as preliminary expenses which have not written off loss is shown on the right hand side
(Assets side) of the balance sheet.
BALANCE SHEET AS AT 31ST MARCH 2011

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(IN THOUSANDS)
PARTICULARS As at As at
31.03.2011 31.03.2010
SOURCES OF FUND
SHAREHOLDER’S
FUND
Capital 6,49,01 6,49,01
Reserves & Surplus
LOAN FUNDS
Secured loans
Unsecured loans 1355,80,97 1355,80,97 1132,72,80 1132,72,80
1362,29,98 1139,21,81
FIXED ASSETS
Gross block 189,10,27 190,06,32
Less: depreciation 178,88,81 178,78,66
Net block 10,21,46 11,27,66
Machinery and 7,48
equipment transit &
under
inspection/erection
INVESTMENTS NIL NIL NIL NIL
CURRENT ASSETS,
LOANS &
ADVANCES
Inventories 32,73,65 32,30,63
Sundry debtors 1,59,86 1,51,72
Cash a& bank balances 3,77,10 6,13,43
Loans & advances 19,83 10,39
52,83,83 57,72,32
Less: CURRENT
LIABILITIES &
PROVISIONS
Current liabilities 178,60,02 155,01,99

Provisions 74,78,42 73,72,98
253,38,44 228,74,97
NET CURRENT 200,54,61 171,02,65
ASSETS
MISCELLANEOUS NIL NIL NIL NIL
EXPINDITURE
(to the extent not
written off or adjusted)
PROFIT AND LOSS 1552,63,13 1298,89,32
ACCOUNT
1362,29,98 1139,21,81
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH
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2011.
(IN THOUSANDS)
PARTICULARS Year ended Year ended

31.03.2011 31.03.2010
EARNINGS
Sales (gross) 8,81,71 10,54,14
Less: excise duty 75,80 76,01
Sales 8,05,91 9,78,13
Other income 7,89,44 10,84,26
Accretion/(Depreciation) To Work-in- NIL NIL
progress
Finished stock and scrap (16,92) (2,34,54)
15,78,43 18,27,85
Less: OUTINGS
Materials 2,55,31 4,30,98

Personnel 61,05,26 55,98,75
Depreciation 92,40 1,08,58
Other expenses 11,35,32 14,56,34
Interest 1127,97,92 110,61,01
VRS compensation written off 63,97,85 NIL
267,84,06 186,55,66
Profit/(Loss) before PPA (252,05,63) 168,27,81)
Add: prior period adjustments (PPA) 1,68,18 7,13
PROFIT/(LOSS) BEFORE TAX (253,73,81) (168,34,94)
Provision for fringe benefit tax NIL NIL
PROFIT/(LOSS) AFTER TAX (253,73,81) (1668,34,94)
Balance brought forward from previous (1298,89,32) (1130,54,38)

year
Profit/(loss) after tax carried to balance (1152,63,13) (1298,89,32)
sheet
Basic/ diluted earnings per share of Rs.10 (391) (2,59)
each
Number of equity shares (weighted average 649,01,00 649,01,00
basis)
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 Fundamentals of Management Accounting, S. N. Maheshwari, 3 rd Edition S.
Chand & Sons Publications Delhi
 Financial Management, Prasanna Chandra, Tata Mc Graw Hill, New Delhi.
 Financial Management, I. M. Pandey, Vikas Publishing, House, Delhi, 3 rd
Edition.
 Accounting for Managers, S. P. Jain, Simmi Agarawal, and K. L. Narang
Kalyani Publishers.
 Dr. Jawaharlal Accounting and Finance for Manager 4 th Edition Himalayas
Publishing House.
 Company Brochure and Financial Report of the Company.
 Magazines given by the Company
 Annual Reports of the Company.
 Financial Management by R. P. Rustagi, Galgotia Publishing Company, New
Delhi, 3rd Edition Vikas Publishing House, Pvt. Ltd., New Delhi.
 WEBSITES
 www.wikipedia.com
 www.himpub.com
 www.google.com
HKBK DC

A Study On Ratio Analysis at HMT Watches LTD Bangalore

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A Study On Ratio Analysis at HMT Watches LTD Bangalore

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RATIO ANALYSIS STATEMENT OF HMT WATCHES

CHAPTER PARTICULARS PAGE NO

2. RESEARCH DESIGN OF THE STUDY 31-36

3. COMPANY PROFILE 37-47

4. DATA ANALYSIS AND INTERPRETATION 48-82

5. SUMMARY OF FINDINGS, SUGGESTIONS 83-88

In an economy finance is defined as the provision of money at the time when it

is required. Every enterprise, whether big, medium of small, needs finance to

it is rightly said to be the lifeblood of an enterprise. Without adequate finance, no enterprise

can possibly accomplish its objectives.

controlling and administering the funds used in the business”.

-Guttmann and dough all

owned business units operating in non-financial fields of industry.”

PUBLIC FINANCE PRIVATE FINANCE

institutions like states, local self-governments and central government.

individual, a profit seeking business organization and a non-profit organization.

Private finance can be classified into:

 Business finance; and

 Finance of non-profit organizations.

Three main APPROACHES to finance:

i The first approach views finance as to providing of funds needed by a

ii The second approach relates finance to cash.

 Business finance can further be sub-classified into three categories :

 OBJECTIVES OF FINANCIAL MANAGEMENT OR BUSINESS FINANCE

Financial management is concerned with procurement and use of funds. Its

Are maximized. Financial management provides a framework for selecting a

Objective of a business is to maximize the owner’s economic welfare.

 Objective can be achieved by:

1. Profit Maximization, and

1. Profit Maximization. Profit earning is the main aim of every economic

Activity. A business being an economic institution must earn profit to

Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection

maximization is considered as the main objective of business.

2. Wealth Maximization. Wealth maximization is the appropriate objective of an enterprise.

 SCOPE OF FINANCE FUNCTION

1. Estimating financial requirements

2. Deciding Capital Structure

3. Selecting a Source of Finance

4. Selecting a Pattern of Investment

5. Proper Cash Management

6. Implementing Financial Controls

7. Proper Use of Surpluses

1) Estimating Financial Requirements:

management to indulge in extravagant Spending or speculative activities.

2) Deciding capital Structure:

3) Selecting a Source of Funds: After preparing a capital structure, an appropriate source

4) Selecting a Pattern of Investment:

available. The decision making techniques such as Capital

expenditures. While spending on various assets, the

Principle of safety, profitability and liquidity should not be ignored. A

5) Proper Cash Management:

it is also an important task of finance manager. He has to assess various cash

 Cash may be required to:

a) Purchase of raw materials,

b) Make payments to creditors,

c) Meet wage bills, and to meet day-to-day expenses.

 The usual sources of cash may be:

c) Short term arrangements with banks etc.

6) Implementing financial controls:

An efficient system of financial management necessitates the use of various

Control devices. Financial control devices generally used are:

c) Break even analysis,

f) Cost and internal audit.