A

Summer Training Project Report On

FINANCIAL ANALYSIS OF BHARAT ELECTRONICS LIMITED (KOTDWARA)

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (U.P.TECHNICAL UNIVERSITY, LUCKNOW)
2007-09

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ACKNOWLEDGEMENT My sincere thanks to the people at the Bharat Electronics Limited (BEL), who supported me in the completion of this project. I am grateful to the _______________________ for providing me this academic tenure at this reputed center of learning. I convey my Gratitude to without whose guidance this project could not have been presented in this way. They have been constant source of inspiration and encouragement.

M.B.A.

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CONTENTS Certificate Acknowledgement Certificate from Department CHAPTERS 1. OBJECTIVE OF THE STUDY 2. RESEARCH METHODOLOGY 3. STANDARDS OF COMPARISON 4. ABOUT THE COMPANY (BEL) 1.1 1.2 1.3 1.4 1.5 INTRODUCTION TO BHARAT ELECTONICS LIMITED. HISTORY/ MILESTONE CORPORATE MISSION & OBJECTIVES QUALITY RESEARCH & DEVELOPMENT (R & D)

1.5.1 AREAS OF R & D ACTIVITY 1.5.2 RESOURCES AND INVESTMENT 1.5.3 AWARDS 1.6 1.7 MANUFATURING UNITS PRODUCTS 1.7.1.1 MILITARY COMMUNICATIONS 1.7.1.2 LAND BASED RADAR 1.7.1.3 NAVAL SYSTEM 1.7.1.4 OPTO ELECTRONICS 1.7.1.5 TANK ELECTRONICS 1.7.1.6 ELECTONIC WARFARE 1.7.1.7 SIMULATOR 1.7.2 NON DEFENCE 1.7.2.1 TELECOMMUNICATION 1.7.2.2 SOUNG VISION BROADCASTING

1.7.1 DEFENCE

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1.7.2.3 SOLAR PHOTOVOLTAIC SYSTEM 1.7.2.4 ELECTRONIC COMPONENTS 1.7.2.5 NICHE PRODUCT 1.8 1.9 1.10 1.11 1.12 JOINT VENTURE / SUBSIDARY COUSTOMER PROFILE OBJECTIVE OF ANALYSIS FINANCIAL STATEMENT TYPES OF ANALYSIS FINANCIAL STATEMENT RATIO ANALYSIS

5. INTRODUCTION TO ANALYSIS FINANCIAL STATEMENT

1.12.1 INTODUCTION 1.12.2 CLASSIFICATION 6. DATA ANALYSIS & INTERPRETATION 7. CONCLUSION & RECOMMENDATIONS BIBLIOGRAPHY ANNEXURES

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CHAPTER 1

OBJECTIVE OF THE STUDY

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OBJECTIVE OF THE STUDY

The objective of the study during 4 weeks Training was to analyse the financial statements so as to evaluate the financial position of the Company. These financial statements indicate the following factors. 1.) Profitability of the Company 2.) Financial Soundness of the Company 3.) Shareholding Pattern 4.) Past One Year Performance of the Share of BEL The project also aims at providing details regarding:o Income & Expenditure of the Company, which is given in the form of P&L Account. o Assets & Liabilities of the Company in form of Balance Sheet. o Shareholding Pattern and Distribution of shareholding with the share performance of the share of past Financial Year (1 April 2007 – 31 March 2008).

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CHAPTER 2

RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY

Information Regarding the organization’s Profitability, Financial Position and Shareholding Pattern with past Year Performance of the Share of BEL. Secondary Sources I. Annual Report (From 2004 to 2008) II. Internet o Based on the Information obtained from the above sources concepts have developed on which analysis could be made. o Other sources including consulting with the employees

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CHAPTER 3

STANDARDS OF COMPARISON

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STANDARDS OF COMPARISON Ratio analysis involves comparison for useful interpretation of financial statements. A single ratio in itself does not indicate favorable or unfavorable conditions. It should be compared with some standards. Standards of comparison may consist of:

1.)

PAST RATIOS: - Ratios calculated from past financial statements of some firm.

2.)

COMPETITORS RATIOS: - Ratio of some selected firm, especially the most progressive & successful competitors at some point in time.

3.)

PROJECTED RATIOS: - Ratios developed using the projector or proforma financial Statements.

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CHAPTER 4 ABOUT THE COMPANY (BEL)
4.1 4.2 4.3 4.4 4.5 INTRODUCTION TO BHARAT ELECTONICS LIMITED HISTORY/ MILESTONE CORPORATE MISSION & OBJECTIVES QUALITY RESEARCH & DEVELOPMENT (R & D)

4.5.1 AREAS OF R & D ACTIVITY 4.5.2 RESOURCES AND INVESTMENT 4.5.3 AWARDS 4.6 4.7 MANUFATURING UNITS PRODUCTS MILITARY COMMUNICATIONS LAND BASED RADAR NAVAL SYSTEM OPTO ELECTRONICS TANK ELECTRONICS ELECTONIC WARFARE TELECOMMUNICATION SOUNG VISION BROADCASTING SOLAR PHOTOVOLTAIC SYSTEM ELECTRONIC COMPONENTS

4.7.1 DEFENCE 4.7.1.1 4.7.1.2 4.7.1.3 4.7.1.4 4.7.1.5 4.7.1.6 4.7.2.1 4.7.2.2 4.7.2.3 4.7.2.4 4.8 4.9

4.7.2.5NICHE PRODUCT JOINT VENTURE / SUBSIDARY COUSTOMER PROFILE

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Introduction To Bharat Electronics Limited The main objective of establishing public sector unit was shedding social obligation of the government towards the people in some critical area in which private sector units cannot be trusted. BEL falls under the later category. Bharat Electronics Limited (BEL) is a professional electronics company of India with a noteworthy history of pioneering achievements. BEL was established in 1954, to meet defense need of government of India. Since then, BEL has grown to multi-product, multi-unit, technology driven company. Today BEL’s infrastructure is spread over ISO-9001/9002 certified modern manufacturing units countrywide. Product mix of the company includes a broad spectrum ranging from tiny semiconductor to large radar systems. Their manufacturing units have special focus towards the product range like Defense Communication, Radar, Optical and Opto-Electronics, Telecommunication, Sound and Vision Broadcasting, Electronic Component etc. In the past fifty years this unit has augmented into an organization having nine units. Employing about 25,000 employees. In addition to manufacturing a number of products, BEL offers a variety of services like Telecom Consultancy, Contact Manufacturing, calibration of test and measuring instruments etc. R&D has been major strength of BEL with a strong base of more than 800 engineers. Its own teams design of BEL’s product. It has it’s own a number of national & international awards for productivity, quality, safety, standardization etc. The culture & philosophy at BEL can be described in its motto “Quality, Technology and Innovation”

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HISTORY SINCE 1954 With over four decades of manufacturing experience Bharat Electronics Limited has pioneered the professional electronics movement in India. With continuous up gradation of technology, commitment to quality and constant innovation, BEL has grown into a multi product, multi unit, and multi technology company. BEL has set up impressive infrastructure and manufacturing facilities in their nine ISO certified production units around the country. BEL has also established two joint ventures - with General Electric Medical Systems, USA for X-ray tubes and Multitone, UK for paging systems and has a subsidiary company BEL Optronic Devices Limited for the manufacture of Image Intensifier tubes.

BEL has nurtured itself to be known as one of the best public sector units in the nation. A peep into Bharat Electronics’ Archives section, gives an idea of the progress at BEL.

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2003 BEL celebrates its Golden Jubilee Year 2002 BEL acquires Category -I Mini Ratna status 2002 Foundation Stone laid for BEL's new corporate Office Building in Bangalore 2001 BEL bags NAtional R & D Award in electronics Industry sector 2000 Bangalore Unit of BEL implements Rain Water Harvesting on an industrial basis 1999 Bharat Electronics Quality Institute 1998 - Hyderabad unit gets ISO 9002 1998 Kotdwara unit gets ISO 9001 1996 Joint venture with Multitone and GEMS 1994 ISO-9001 Accreditation 1993 ISO-9002 Accreditation 1992 - Central Research Laboratory, Ghaziabad 1991 SATCOM 1990 EMI/EMC Test Facilities & Computer Software 1989 Telecom - Switching & Transmission System and Mass Mfg. Facility 1988 Central Research Laboratory, Bangalore 1987 Naval Equipment Division 1986 Kotdwara, Taloja & Hyderabad Units. Klystrons & Travelling Wave Tubes.

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To be the market leader in Defence Electronics and in other chosen fields and products

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To become a customer-driven company supplying quality products at competitive prices at the expected time and providing excellent customer support

• •

To achieve growth in the operations commensurate with the growth of professional electronics industry in the country To generate internal resources for financing the investments required for modernisation, expansion and growth for ensuring a fair return to the investor.

• •

In order to meet the Nation's strategic needs, to strive for self reliance by indigenisation of materials and components To retain the technological leadership of the company in Defence and other chosen fields of electronics through in-house Research and Development as well as through collaboration/co-operation with Defence/National Research Laboratories, International Companies, Universities and Academic institutions

To progressively increase overseas sales of its products and services. To create an organizational culture which encourages members of the organization to realise their full potential through continuous learning on the job and through other HRD initiatives. Quality

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Quality Policy:

“Meeting & exceeding our customer expectation through supply of quality products & services”.

Quality Objectives:

To identify the needs of our customers. To meet identified needs without errors online everything. To institute organization, system & procedure for strengthening the concept of quality. To achieve quality by the involvement/commitment of every individual including our supplier. To build quality in every process, we carry out. To insure that quality comes through prevention rather then inspection. To design & develop services to meet the requirement of quality, reliability, safety & cost. To measure quality by cost of non- conformance to the requirements & optimize quality related cost. To allocate available resources for training, workspace improvements & infrastructure up gradation. To ensure that every individual in the company understands maintenance & implements quality policy.

Bharat Electronics Ltd., (BEL), a premier Professional Electronics Company of India, has established and nurtured a strong in-house R&D base over the years 16

to emerge and remain as a market leader in the chosen areas of business in professional electronics. Each of the nine manufacturing units of BEL is having its own in-house R&D Division to develop new products in its field of operations. Besides, there are two Central Research Laboratories (CRL) located at Bangalore and Ghaziabad, to address futuristic technologies of interest to BEL.

Main areas of R&D activities at BEL include development of Military Radars, Naval Systems, Military Communication Products, Electronic Warfare Systems, Telecommunication products, Sound and Vision Broadcasting Equipment and Systems, Opto Electronic Products, and Electronic Components. CRL performs the dual role of carrying out blue sky research for the development of future technologies and supporting the D&E Divisions of BEL's nine units with state-ofthe-art core technology solutions in areas like Embedded Computers and applications, Radar Signal Processing, VLSI designs, RF & Microwave Communication Technologies, Software modules etc.

BEL's R&D Units have state-of-the-art R&D infrastructure, facilities, and manpower with relevant technical expertise for product development. There are 17

about 1000 engineers working in BEL on various D&E projects. BEL spends around 5 % of company turnover for the year on R&D every year. HRD Divisions of BEL take adequate initiatives for the all round development and expertise up gradation of R&D human resources. State of the art infrastructures, test equipment, computers & workstations, Software packages etc. are augmented every year for the R&D divisions. BEL R&D Units are recognized by the Department of Scientific & Industrial Research under the Ministry of Science & Technology, Govt. of India. R&D Units of BEL have close interactions with other National Design Agencies like DRDO, CSIR, C-DOT and a number of Technical Institutes. BEL jointly works with them to tap suitable indigenous designs for commercialization. Technological collaborations with some of the Multinational companies and subsequent absorption of these technologies also have enhanced the technological base at BEL. On an average, about 67% of BEL's turnover is from indigenous design, and 33 % of it is through foreign technology transfers.

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List of world class companies with whom BEL has technological collaborations for different state-of-the-art products are as given below: Company Oerlikon Contraves, Switzerland Norcontrol, Norway Northrop Grumman, USA ELTA, Israel INROS, Russia Matra Defence Equipments Systems, France Sextant, France ELBIT, Israel Ericsson, Sweden Elopotro, South Africa Signaal, The Netherlands Thompson Tube Electronic, France Products Naval FC Systems Radar Scan Convertor Airport Radars BFSR (Battle Field Surveillance Radar) Sonobouys & Electric Drive system for Tanks LCD display unit Stand alone communication unit Radio Relay System Laser Range Finder Fire Control Radar TWT

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R&D Divisions of BEL have been receiving number of National R&D awards. A list showing the various R&D awards received by BEL since 1990 is as given below. List of R&D Awards received by BEL since 1990 Sl.No. 1. Details of the Award FICCI Award for Research in Science & Technology 2. (for the corporate initiative of R&D) DSIR National R&D Award (for successful commercialization of Public Funded R&D) 3. (for D&E project handled at BEL-GAD) DSIR National R&D Award (for in house R&D efforts under Electronics & Electrical Industries Sector) (for D&E projects hand1998led at BEL4. Bangalore, Machilipatnam & Ghaziabad) DSIR National R&D Award (for in house R&D efforts under Electronics Industries Sector) (for D&E Projects handled at BEL-Bangalore & 5. Ghaziabad) DSIR National R&D Award (for successful commercialisation of Public 1998 1995 1993 1992 BEL received the Award During the year 1990

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Funded R&D) (for D&E projects handled at BEL-Bangalore & 6. Panchkula) Defence Technology Absorption Award '98 (Sponsored by DRDO) 7. (for D&E projects handled at BEL-Hyderabad) Award for Excellence in R&D for the year 1998 (sponsored by Ministry of Information Technology, GoI) (for BEL-Ghaziabad's developments of various 8. IFF Systems) Award for Excellence in Professional Electronics for the year 1998 (sponsored by Ministry of Information Technology, GoI) (for BEL-KOT's excellent performance in Production, R&D & its commitment to Quality & 9. Service) Award for Contribution in areas of Defence R & D to Col. (Retd.) H. S. Shankar, Director ( R & D) for the year 2001-2002 (sponsored by Society for Defence Technologists - SODET) 2001-2002 2000-2001 2000-2001 1999-2000

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THE UNITS OF BHARAT ELECTRONICS

BEL has production units established at different parts of the country. The year of establishment and location are as follows: Manufacturing Unit Year t 1985 1986 1974 1986 Of Focus Area

Establishmen PANCHKULA KOTDWARA 1. GHAZIABAD TALOJA Tactical communication equipment. Telecommunication. Radars, Antennae, SATCOM (Defense), Microwave Components. Shelter for electronic equipment, Train Actuated Warning System, Electronic PUNE 1979 equipment assembly. Radars, Antennae, SATCOM (Defense), X-Ray Tubes, Batteries & ElectroHYDERABAD MACHILIPATNAM BANGALORE 1986 1983 1954 optics. Electronic Warfare equipments. Optical Products, Medical Electronics. Military Communication, Electronic Components, Naval System, Export manufacturing, telecommunication CHENNAI 1985 & Radar, broadcasting

system. Tank electronics, Optical Fire Control System.

PRODUCTS

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DEFENCE

Military Communications Land based Radars Naval Systems Opto-Electronic Tanks Electronics Electronic Warfare Simulators

Non-DEFENCE

Telecommunications Sound & Vision Broadcasting Solar Photovoltaic Systems Electronic Components Niche Products

DEFENCE

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Military Communications has been a forte of BEL even since its inception in 1954. BEL has been involved in providing state-of-the-art communication equipment to the Indian Army, be it hand held mobile radios and terminals, ground based systems, airborne and even ship borne equipments and systems.

The products and systems offered by BEL cover HF, VHF, UHF and V/UHF frequency bands and are based on the latest DSP/Digital communication technologies. Encryption and Frequency Hopping implemented in various transreceivers has been possible because of the dedicated research and development team working on these radios. BEL also engineers and supplies turnkey defence communication solutions tailored to the specific needs of the customer.

BEL is a pioneer in India in the field of designing and manufacturing Radars for both defence and civilian applications. RADAR (Radio Detection and Ranging) is a system which transmits a signal at a particular frequency and receives the returned/echoed signal from the target. The target could be a friend or a foe. The raw echoed signal is processed digitally by signal processors and relevant information on the location and type of the target is extracted for further processing.

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Defence Radars (Land based, Airborne or Ship borne) are used for guarding the defence forces against enemy targets. BEL has the distinction of manufacturing all the above types of Radars. The need to communicate between ships, ship and aircraft and ship and shore stations is ever increasing as sensor and weapon systems become more and more sophisticated. The commanders of individual ships or group of ships need to communicate with each other so that the Naval force can function effectively as an integrated entity. BEL has a dedicated Strategic Business Unit to cater to these needs of Naval Defence forces. It is involved in the design and manufacturing of a wide variety of control, command and communications systems as well as Radars, SONARS, Decoys and Sonobuoys.

SONARS (Sound Navigation and Ranging) products from BEL cover the range of under water applications for surface ships, submarines and Naval aviation. BEL also offers Naval systems in user defined configurations for different types and classes of ships, submarines and other platforms and applications.

Opto - Electronics is the art of Imaging. It is the know-how focused on fine-tuning combination of optical techniques. It offers unmatched capabilities when it comes to seeing at ever increasing distances or identifying and guiding with pin-point precision, be it day or night. BEL manufactures high performance surveillance equipment that can look through dark nights and aid the defence forces in round the clock operations. Passive, accurate and high performance optronic systems manufactured by BEL provide the military with the speed of viewing and an operational effectiveness, in many cases, the extra edge required to prevent or minimize confrontations. Experience in manufacturing state-of-the-art night vision goggles, binoculars, Weapon sights has led BEL to delve into civilian applications as well. Some of the 26

medical equipments manufactured by BEL are Ophthalmic Zoom microscope, ENT Surgical microscope and DRISHTI , an opthalmic laser system for eye-care applications.

The requirement of defence electronics and communications is not limited to the transceivers in various frequencies. Modern armaments like Battle Tanks are fitted with a lot of modern state-of-the art electronics equipment which facilitate communication among the crew within the tank as well as with the outside army installations. The computer systems fitted in the tanks facilitate the gunner to aim at the targets much more accurately than before thereby increasing the kill rate and the efficiency of the tank as a main fighter equipment with the armed forces. One of the strategic business units of BEL has been engaged in providing the latest and most modern electronics aids within the tank for the Indian Defence forces. Some of the equipment like Tank fire control system, Tank stabilizers and Communication equipment are manufactured by BEL.

In modern warfare, electronically guided weapon systems have a kill probability close to unity while command, control and communication systems ensure effective co-ordination of the available resources. This makes undefended vital installations easy targets for destruction. Improper operation of the electronic circuits would make the weapon system as well as the command, control and communication infrastructure totally ineffective. It is, hence, seen that if counter-electronic systems are used to reduce the effectiveness of the electronic circuits, the end result of the battle could be different. The technique and technology that result in the manufacturing of systems, capable of electronically degrading an electronic system is called “ELECTRONIC WARFARE”. Effective use of Electronic Warfare is only possible if sufficient knowledge of the electronic equipment used by the enemy is available. BEL has the know-

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how for designing and developing Electronic Warfare Systems in the areas of Signal Intelligence, Electronic Counter Measure and Electronic Support Measure.

Training is a very important aspect of learning and that is where BEL has stepped in with its learning aids called SIMULATORS. Simulators are products which aid learning by providing a real life experience under various simulated external conditions that a person may experience. The purpose is to equip the learner with the basics of the real life equipment, its features, functionality and various dos and don’ts that need to be observed while handling the equipment. BEL has developed simulators to train people who operate the modern battle tanks, drive heavy vehicles and the commanders of the ship.

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NON DEFENCE

The need to communicate by voice, exchange of data or both of them is the most important aspect of a social human being. Different technologies have evolved over the years which have provided different media to the customer to choose from - telephone lines (PSTN), ISDN, Wireless, Satellite etc. Wide experience of BEL is providing communication solutions to the Defence forces enabled BEL venture into manufacturing some civilian telecommunication products like multiplexers/Demultiplexers, Digital Cross Connects, Exchanges/Switches and TDMA/PMP Radio system.

Radio and Television has become a part of every man’s life. It is a major source of information, knowledge and entertainment. BEL has kept pace with the growth of Radio and Television broadcasting in India. It has been the forerunner in providing the transmitters and other associated equipment to enable National Radio and TV Broadcasters to reach the nook and corner of India ever since 1973. BEL has also developed expertise in providing total turnkey system solutions covering Radio and TV broadcasting systems in FM/SW/MW and VHF/UHF frequency bands respectively

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Bharat Electronics Limited has set up a full fledged plant to manufacture a wide range of Round and Pseudosquare Mono Crystalline Silicon photovoltaic cells and modules. BEL offers customized solar photovoltaic systems for different applications to meet the requirements of the customer. The solar powered devices provide a safe and clean energy source for wide ranging applications in industrial, domestic and agricultural fields. Solar energy is the most economical, non-conventional energy source gaining interest throughout the world. The Photovoltaic systems designed by BEL to tap the solar energy, can be installed for any applications, quickly and easily.

Components are the building blocks of any product. BEL has the distinction of manufacturing not only the products but also the components for these products thereby bringing in a lot of indigenization and cost reduction. Manufacturing of components has also helped BEL serve the customers by providing them with component level repair and sales maintenance facility thereby providing not only customer satisfaction but also customer. BEL has set up state-of-art manufacturing facilities to manufacture a wide range of components. Volume production of the above components has also enabled BEL to sell these components in the local as well as international market. BEL has set up impressive network of distribution in India for marketing and also has offices in New York and Singapore for assisting International Marketing Division of BEL.

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Decades of experience in the design and manufacturing a plethora of products in diverse fields for both defence and non-defence sectors has aided BEL in designing and manufacturing some products catering to very specific market segments. These products are very hot selling products in their respective markets and hence have given BEL tremendous boost to continue its efforts in serving the community with products of such nature.

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GEBEL is a joint venture between Bharat Electronics and General Electric Medical Systems. The facility based at Whitefield, Bangalore, India, manufactures X-ray tubes, for RAD & F and CT systems, as well as components such as High Voltage Tanks and Detector modules for CT system. The products are exported worldwide and meet the safety and regulatory standards specified by FDA, CE, MHW, AERB and the facility have been accredited with ISO 9001 certification. GEBEL also markets the conventional X-ray tubes made at Pune Unit of BEL. The turnover of GEBEL during 2002-2003 was over Rs. 350 Crores including an export of over Rs. 310 Crores. The company was recognized for its outstanding export performance during 200001; 2001-02 by the Export Council. Besides, the facility has been recognized by GE as a Global Star site meeting the Environment, Health & Safety standards. Apart from manufacturing, a dedicated engineering team is working on the development of new tube technologies to meet global needs.

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BEL and Multitone, UK, offers state- of- the- art Mobile Communication Products for the workplace. Multitone invented paging in 1956 when it developed the world's first system to serve the "life or death" environment of St.Thomas Hospital, London. With the strength of Bharat Electronics in the Radio Communications field and the technology of Multitone in the field of Radio Paging, the joint venture company is in a position to offer tailor made solutions to the Mobile Communication needs at workplaces in various market segments.

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The joint venture offers one of the most comprehensive on-site product ranges from small, easy to use pagers to practical, durable private Mobile Radios and the latest technology, digital cordless communication systems. Brief details of the products are:
• • •

Access 700 one-way speech paging system which supports 100 pagers. Access 1000/3000 Radio Paging system which supports 1500/5000 users. Computer Radio Integration units. Digital Cordless Communication Systems.

BEL Optronic Devices Ltd is a subsidiary company of BEL for conducting research, development and manufacture of Image Intensifier Tubes and associated high voltage Power Supply Units for use in military, security and commercial systems.

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The 1440 I series, GEN II 18 mm image intensifiers are designed and produced to international quality standards. Inspection and tests, conducted throughout the manufacturing process, verify and ensure that the final product meets MIL-I-49052 D and customer specification with enhanced parameters. New series of Image Intensifier Tubes from BEL Optronic Devices

Also, High Voltage Power Supply Units like PS-12 for 18 mm I.I. Tube and PS-42 for 25 mm I.I. Tube is also manufactured. Applications:
• • •

Night vision goggles and binoculars Night vision weapon sights Low light level input applications

Company also undertakes manufacturing of Gen Plus, Glass Input I.I. Tubes and Custom built High Voltage Power Supply Units.

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CUSTOMER PROFILE Bharat Electronics Limited is a major supplier of products and turnkey systems to the Indian Defense Services. Over the years, BEL has diversified into manufacturing many civilian products as well. Large turnkey telecommunication solutions are also being offered to civilian market. A brief list of the Customers in the defense and civilian market segments and the products and services offered to them is given below: Products and Services Defense Communication Radars & Sonars Customers Indian Defense military forces Indian Defense Aviation, Telecommunication

Services, Services,

ParaCivil

Meteorological

Department, Space Department. Department of Telecommunication, Para-military forces, Power sector, Oil Industry, Railways. and All India Radio, Doordarshan, (National Radio & TV Broadcasters). Election Commission of India. Individuals, Private and Government

Broadcasting

Equipments

Studio Systems Electronic Voting Machine Solar Products & Systems Turnkey Systems,

organizations. E-Governance Police, State governments, Public sector undertakings. All India Radio and Doordarshan the National Radio & TV Broadcasters, Instrumentation Industry, Switching Industry, Entertainment Industry, Telephone Industry.

Networks Components

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Exports play a key role in BEL's strategic perspective. The ranges of products and services exported have been increasing over the years. A number of international companies are using the facilities at BEL for contract manufacturing. The broad list of products and services being exported is given below: Products and Services Defence Communication Countries Algeria, Botswana, Brazil, France, Germany, Civilian Communication Malaysia, Mauritius, Russia, Sweden, Switzerland, UK. Brazil, Iran, Italy, Kenya, Malaysia, Nepal, Semiconductor Devices Singapore, Sweden, Switzerland, UK, Vietnam. Austria, Australia, China, Finland, France, South Electron Tubes, Hong Korea, Kong, Malaysia, Spain, Netherlands, Philippines, Germany, Singapore, Taiwan, Turkey, UAE, UK, USA. Magnetron, Algeria, Armenia, Bangladesh, Brazil, Italy, Nepal, UK, USA, Zambia. Australia, Egypt, France, Germany, Israel, Malaysia, Netherlands, Zealand, Saudi Arabia, UAE, UK, USA. New Singapore,

Transmitting Tubes, TV Picture Tubes Egypt, France, Greece, Hong Kong, and parts. Opto Electronic Products and parts

Sound & Vision Broadcast Equipments Radar and Sub-systems Contract Manufacturing Batteries, Energy Saver and other products

Vietnam, Brazil, Middle East. Switzerland, Ukraine. USA, Australia, Japan, Brazil, Canada. Australia, Bahrain, Kuwait, Mauritius, Malawi, Nepal, Oman, Philippines, Saudi Arabia, UAE, USA

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Turnkey Systems

Nepal, Kenya

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CHPTER 5 INTRODUCTION TO ANALYSIS FINANCIAL STATEMENT
5.1 5.2 5.3 OBJECTIVE OF ANALYSIS FINANCIAL STATEMENT TYPES OF ANALYSIS FINANCIAL STATEMENT RATIO ANALYSIS 5.3.1 INTODUCTION 5.3.2 CLASSIFICATION

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ANALYSIS OF FINANCIAL STATEMENTS

INTRODUCTION Analysis of Financial Statements (AFS) refers to the progress of critical examination of the financial information contained in the financial statements in order to understand & make decisions regarding the operations of the company. The AFS is basically a study of the relationship among various financial facts & figures as given in a set of financial statements. The basic financial statements i.e., the Balance Sheet & the Income Statement contained a whole lot of financial data. The complex figures as given in these financial statements are dissected into simple & valuable elements, & significant relationships are established between the elements of the same dissection, establishing relationships & interpretation thereof to understand the working & financial position of a firm is called AFS. Thus, AFS is the process of establishing & identifying the financial weakness & strengths of the company.

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OBJECTIVES OF FINANCIAL ANALYSIS The following are the objectives of financial analysis: -

1.)

Judging The Earning Capacity Or Profitability::

On the basis of financial statements, the earning capacity of the business concerned may be computed. In addition to this the future earning capacity of the concerned may be forecasted. All the external users of accounts, especially the investors are interested in this.

2.)

Judging The Short & Long- Term Solvency Of The Concern::

On the basis of financial statements, the solvency of the concern may be judged. Debenture holders & lenders judge the ability of the company to pay the Principal & Interest, as most of the companies raise a portion of their capital requirements by issuing debentures & raising long-term loans. Trade creditors are mainly interested in assessing the short-term solvency of the business as they want to know that the business is in a position to pay debts as & when they fall due.

3.) Making Forecasts & Preparing Budgets:: Past financial Analysis helps a great deal in assessing developments in the future, specially the next year. For example, given a certain investment, it may be possible to forecast the next year’s profit on the basis of earning capacity shown in the past. Analysis thus helps in preparing budgets.

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TYPES OF COMPARISION Comparison is the second step in RA. The ratio can be compared in three different ways:

A.) Cross Section Analysis: - In this, the Ratios of a firm are compared with
the ratios of some other selected firm in the same industry at the same point of time. The Cross Section Analysis helps the Analyst to find out as to how a particular firm has performed in relation to its competitors. The firm’s performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies.

B.) Time

Series Analysis (TSA): - In this, the performance of the firm is

evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend progress of the firm, about the direction of progress of the firm. The information generated by the T.S.A can be of immense help to the firm to make planning for future operations. The T.S.A can also help the firm to assess whether the firm is approaching long-term goals or not.

C.) Combined Analysis: - In this cross section and time series analysis are
combined to study the behavior and pattern of ratios so that meaningful and comprehensive evaluation of the performance of the firm can be made. The basis of our comparison shall be limited to time series analysis since the basic objective of our analysis is to compare the present performance of BEL with its performance over last two years.

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INTRODUCTION TO RATIO ANALYSIS (RA) The RA has emerged as a principal technique of the AFS. A ratio is the relationship expressed in mathematical term between two individual and group of figures connected with each other in some logical manner.

The RA is based on the premise that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely give some significant information. The relationship between 2 or more accounting figures/groups is called a Financial Ratio. A Financial Ratio helps to summarize a large mass of financial data into a concise form & to make meaningful interpretations & conclusions about the performance & position of the firm.

STEP IN RATIO ANALYSIS The RA requires two steps as follows: (i) (ii) Calculations of the Ratios. Comparing the ratios with some predetermined standards. The standard ratio may be the last ratio of the same firm or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standards.

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CLASSIFICATION OF RATIOS Broadly speaking, the operations and financial positions of the firms can be described by studying its profitability, its long term and short-term liquidity position and its operational activities. Therefore the ratios can be studied by classifying into the following groups: The Liquidity Ratios The Activity Ratios The Leverage Ratios The Profitability Ratios

The Liquidity Ratios

The term ‘Liquidity’ refers to the maintenance of cash, bank balance and those assets which are easily convertible into cash in order to meet the liabilities as and when arising. The terms ‘Liquidity ratios’ study the firm’s short-term solvency and its ability to pay off the liabilities. The day-to-day problems of financial management consist of the highly important task of finding sufficient cash to meet current obligations. The short-term liquidity risk arises primarily from the need to finance current operations.

The liquidity ratios provide a quick measure of liquidity of the firm by establishing the relationship between its current assets and current liquidities. If the firm does not have sufficient liquidity, it may not be in a position to meet its commitments and thereby may lose its credit worthiness. The liquidity ratios are also called Balance Sheet Ratio because the information required for the calculation of liquidity ratios is available in the balance sheet only. Some of common liquidity ratios are:

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A.) CURRENT

RATIO: - It is the most common & popular measure of

studying the liquidity of a firm. It is an indicator of the firm’s ability to meet its short-term obligations. It matches the total current assets of the firm against its current liabilities. It s calculated as follows: CURRENT RATIO = Current Assets / Current Liabilities The Current Assets include those assets, which are in the form of cash or convertible into cash within a period of one year. The term current assets also include Prepaid Expenses & Short-term investments, if any. The current liabilities all types of liabilities, which will mature for payment within the period of one year. SIGNIFICANCE: The Current Ratio shows the extent to which the current assets are quickly convertible in to cash exceeds the liabilities that will be shortly payable. The current ratio, so calculated is compared with a standard ratio. Generally, a current ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor investment policies of the management & poor inventory control while a low ratio indicates lack of liquidity & shortage of working capital.

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QUICK RATIO: - It is also called ‘Acid test or Liquid Ratio’. Quick Ratio is worked out to test the short-term liquidity of the firm in its current form. This ratio establishes the relationship between liquid Current Assets & the Current liabilities. A currents asset is considered to be liquid if it is convertible into cash without loss of time & value. On the basis of this definition of liquid assets, the inventory is singled out of total Current Assets as the inventory is considered to be potentially liquid. The reason for keeping inventories out is that it may become obsolete, unsaleable or out of fashion & always require time for releasing into cash. Moreover, the inventories have tendencies to fluctuate in value. Another item, which is generally kept out, is the Prepaid Expenses because by nature these Prepaid Expenses are not realizable in cash. It is calculated as:

QUICK RATIO = Liquid Assets / Current Liabilities SIGNIFICANCE: Quick ratio is an indicator of short-term solvency of the firm. In fact, it is a better indicator of liquidity as it involves computation of Liquid Assets, which means the illiquid portion of the current assets is eliminated. Quick ratio is considered as a further refinement of current ratio. Generally a quick ratio of 1:1 is considered to be satisfactory because this means that the Quick Assets of the firm are just equal to the current liabilities & there does not seem to be a possibility of default in payment by the firm.

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THE ACTIVITY RATIOS

The activity ratios are also called the ‘Turnover Ratios or Performance Ratios’. An activity ratio is a measure of movement & thus indicates as to how frequently an account has moved/turned over during a period. It shows as to how efficiently & effectively the assets of the firm are being utilized. These Ratios are usually calculated with reference to sales/cost of goods sold & are expressed in terms of rate or times. Activity ratios for each type of assets are calculated separately. Following are the important Activities Ratios.

A.)

Capital Turnover Ratio (CTR): - Capital Turnover indicates the speed or rate with which Capital Employed is rotated in the process of doing business. Efficient Rotation of capital would lead to higher profitability. The Resultant Ratio would show the number of times the capital has been rotated in the process of doing business. The Ratio is calculated as follows: Capital Turnover Ratio = Net sales / Capital Employed

CTR establishes the relationship between sales & capital employed. The objective of working out this ratio is to determine how efficiently the Capital Employed is being used. Higher the ratio, greater is the sales made per rupee of Capital Employed in the firm & hence higher is the profit. A low CTR refers to low sales generated in relation to Capital Employed or excessive Capital being used in the firm.

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B.)

Fixed Assets Turnover Ratio: - This Ratio shows how to well the fixed assets are being utilized. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious or not. The Ratio is calculated as follows: Fixed Assets Turnover Ratio = Net sales / Fixed Assets

In computing Fixed Assets Turnover Ratio, the fixed assets are generally taken at written down value at the end of the year. Fixed Assets Turnover Ratio indicates how efficiently the fixed assets are used. If there is an increase in the ratio, it will indicate that there is improvement in the utilization of fixed assets. If there is a fall in the ratio, it is a case for the management to investigate the fall; if fixed assets remain idle for any reason, the Turnover Ratio will decrease. C.) Net Working Capital Turnover Ratio: - This Ratio indicates the number of times a unit invested in working capital produces sale. In other words, this ratio indicates the efficiency in the utilization of short-term funds in making the sales. Net working capital means excess of current assets over current liabilities careful handling of short-term funds will mean a reduction in the amount of capital employed thereby improving turnover. The Ratio is calculated as follows: The Ratio is calculated as follows: NWC Turnover Ratio = Net sales / Net Working Capital

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SIGNIFICANCE: This ratio indicates whether or not Working Capital has been effectively utilized in making sales. It shows the number of times a unit invested in a working capital produces sale. D.) Stock Turnover Ratio or Inventory Turnover Ratio:- This ratio establishes the relationship between the cost of goods sold during a given period & the average amount of inventory carried during that period. It indicates whether stock has been efficiently utilized or not, the purpose being to check whether only the required minimum has been locked up in stocks. The Ratio is calculated as follows: -

Stock Turnover Ratio = Cost of goods sold / Average Stock or Inventory

Cost Of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock.

OR

Cost Of Goods Sold = Net Sales – Gross Profit. Average Stock = (Opening Stock + Closing Stock)/2.

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SIGNIFICANCE: Stock turnover Ratio indicates whether stock has been efficiently used or not. The purpose of this ratio is to check whether only the required minimum amount has been invested in stock. Higher the ratio, better it is, since it indicates that more sales are being produced by a rupee of investment in stocks. A low Stock turnover may reflect a dull business, over investment in stocks, accumulation of stock at the end of the period in anticipation of higher prices or unsaleable goods etc. E.) Debtors Turnover Ratio or Accounts Receivable Turnover Ratio: - In case the firm sells the goods on credit, the realization of sales revenue is delayed & the receivables (Debtors &/or Bills) are credited. The cash is realized from these receivables at a later stage. The speed with which these receivable are collected affects the liquidity position of the firm. The receivable turnover ratio revels the velocity of receivable collection by matching the annual credit sales to the average receivables as follows:

Receivable Turnover Ratio = Annual net Credit Sale / Average Receivables In case details regarding opening & closing Receivables & credit sales are not given, the ratio may be worked out as follows:

Debtors Turnover Ratio = Total Sales / Account Receivables

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SIGNIFICANCE: Debtor’s turnover ratio indicates the efficiency with which the amounts due from debtors are collected. The higher the ratio, the better it is, since it would indicate that debts are being collected more quickly. Prompt collection of book debts will release funds, which may then be put to some other use. F.) Average Collection Period or Debtor’s Day: - This ratio shows the number of days, for which sales remain uncollected. The Ratio is calculated as follows: -

Average Collection Period = Days in a year / Debtors Turnover

SIGNIFICANCE: Debt collection period do the customer enjoy a measure of the average credit period? It indicates the average time leg between sales & collection thereof. A shorter collection period indicates prompt payment by debtors, which reduces the chances of bed debts. A longer collection period indicates the risk of collection of debts & increase in the cost of collection, also loss of interest on the money due from the debtors. G.) Creditors Turnover Ratio or Accounts Payable Ratio : - This ratio indicates the velocity with which payment for credit purchases are made to creditors. The term ‘Accounts Payable’ includes Creditors & Bills Payable. The Ratio is calculated as follows: -

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Creditors Turnover Ratio = Total Credit Purchase / Average Accounts Payable In case the details regarding the credit Purchases, opening & closing accounts payable are not given, the ratio may be worked out as follows: Creditors Turnover Ratio = Total Purchase / Accounts Payable

SIGNIFICANCE: Creditor’s turnover ratio indicates whether the firm is actually enjoying the credit promised by suppliers. If the firm enjoy lower credit period, it means creditors are being promptly & the firm is not taking the full advantage of credit facilities. H.) Average Payment Period or Age of Purchases or Credit Enjoyed (APP): - The Purpose of computing average payment period is to indicate the speeds with which the payments for credit purchases are made to creditors. The Ratio is calculated as follows: Average Payment Period = Days in a Year/Creditors Turnover

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SIGNIFICANCE: The Average payment period can be meaningfully evaluated by comparing it with the credit period allowed by the suppliers. To the extent possible, a firm should try to maintain the APP, which I approximately equal to the credit terms of the supplier. This will help improving the goodwill & credit worthiness of the firm in the market. The suppliers are primarily concerned with APP since it provides with an idea of the payment pattern of the firm. On the other hand, if a firm is unable to maintain the APP as required by the supplier, it indicates that the facilities given by the creditors are not being fully utilized or that the firm is unnecessarily damaging its credit in the market.

THE LEVERAGE RATIOS

The leverage ratios are also called as ‘Solvency Ratios’. The term ‘Solvency’ implies ability of a concern to meet its long-term indebtedness. Some important solvency ratios are:

A.)

Debt Equity Ratio (DE Ratio): - The DE Ratio is worked out to ascertain soundness of the long-term financial policies of the firm. The DE Ratio is based on the assumption that the extent to which a firm should employ the debt should be viewed in terms of the size of the cushion provided by the shareholders funds.

The Ratio is calculated as follows: -

DE Ratio = Debt (Long Term Loans)/Equity (Shareholders

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Funds) Debt means long term loans i.e. debentures, loan from long-term financial institution. Equity means shareholders i.e. preference share capital, equity share capital, reserves; Accumulated profits less losses & fictitious assets like preliminary expenses.

SIGNIFICANCE: Since the debt involves firm’s commitment to pay interest over the long run & eventually to repay the principal amount, the financial analyst, the debt lender, the preference shareholders, the equity shareholders & the management pay close attention to the degree of indebtedness & capacity of the firm to serve the debts. The more the debt a firm uses, the higher is the probability that the firm may be unable to fulfill its commitments towards its debt lender. The DE Ratio throws light on the margin of safety available to the debt lenders of the firm. If a firm with a high DE Ratio fails then a chunk of the financial loss may have to be borne by the debt holder of the firm. The greater the DE Ratio, higher would be the risk of lenders. Also the term of credit will become unfavorable to the firm. On the other hand a low DE Ratio implies a low risk to lenders & creditors of the firm. A question that now arises is that what should be the ideal DE Ratio. The answer to the above question is that a balance between the proportions of debt equity should be maintained so as to take care of the interest of lenders, shareholders & the firm as a whole. In India, this ratio is taken as acceptable as 2:1. If the DE Ratio is more then that, it shows a rather risky financial position from long-term point of view. However, 1:1 is considered as the ideal DE Ratio.

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B.)

Interest Coverage Ratio: When a business borrows money, the lender is interested in finding out whether the business would earn sufficient profits to pay periodically the interest charges. A ratio, which expresses this, is called Interest Coverage Ratio or Debt Service Ratio or Fixed Charges Cover.

The Ratio is calculated as follows: -

Interest Coverage Ratio = Net Profit Before Interest & Tax Interest on Fixed (Long Term) Loans or Debentures

SIGNIFICANCE: This ratio indicates how many times the profit covers fixed interest. It measures margin of safety for the lenders. If profit just equals interest, it is a bad position for the company as nothing will be left for shareholders & lenders. Higher the ratio, more secure will be the lender in respect of his periodical interest income. Total Debt Ratio: The total Debt Ratio compares the total Debts (Long Term as well as Short Term) with the total assets. The Ratio is calculated as follows: Total Debt Ratio = Total Debts / Total Assets OR

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Total Debt Ratio = (Long Term Debts + Current Liabilities) (Total Debts + Net Worth)

SIGNIFICANCE: The total debt ratio depicts the proportion of total assets financed by the total liabilities. The remaining assets are financed by the shareholders funds. Higher the total debt ratio, the more risky is the solution because all liabilities are to be repaid sooner or later. Moreover, higher liabilities imply greater financial risk also. D). Fixed Assets Ratio: It must be known that fixed assets should be financed only out of long-term funds. The ratio will be 1, if long-term funds are equal to fixed assets. If the ratio is less then 1, it means that the firm has adopted the imprudent policy of using short-term funds for acquiring fixed assets; on the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes i.e. for financing working capital. It is not good from the firm’s point of view because it is usually more difficult to raise long-term funds.

The Ratio is calculated as follows: -

Fixed Assets Ratio = Net Fixed Assets Shareholders fund + Long Term Loans

SIGNIFICANCE: This ratio is important to ascertain the proper investments of funds from the point o view of long-term financial soundness. It indicates as to what extent fixed assets are financed out of long term funds. This ratio should normally be more then 1. If it 57

is less then 1, it means that the firm has followed the wrong policy of using shortterm funds for long term needs.

D.)

Proprietary Ratio: This ratio establishes the relationship between the proprietor’s & shareholders funds & the total assets. It is expressed as:

Proprietary Ratio = Proprietors funds or Shareholders / Total Assets

SIGNIFICANCE:

The ratio is of particular importance to the creditors who can find out the proportion of shareholders funds in the total assets employed in the business. A high proprietary ratio will indicate a relatively little danger to creditors etc., in the event of forced reorganization or winding up of the company. A low proprietary ratio indicates greater risk to the creditors since in the event of loss a part of their money may be lost besides loss to the proprietors of the business. A ratio below 50% may be alarming for the creditors since they may have to loose heavily in the event of company’s liquidation on the account of heavy losses.

The Profitability Ratios

The Profitability Ratios measures the profitability or the operational efficiency of the firm. There are two groups of persons who may be specifically interested in the analysis of the profitability of the firm. These are: The management, which is interested in the overall profitability & operational efficiency of the firm.

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The equity shareholders who are interested in the ultimate returns available to them. Both of these parties and any other party such as creditors can measure the profitability of the firm in terms of the profitability ratios, broadly, the profitability ratios are calculated by relating the returns with the: -

Sales of the firm Assets of the firm Owner’s contribution

A.)

Profitability Ratios Based On Sales Of The Firm: -Profit is a factor of sales & is earned indirectly as a part of the sales revenue. So, whenever a firm makes sale, it earns profit (in general). But How Much? How the Total Sales Revenue is going to be used for meeting the cost o goods sold, deprecation, indirect expenses, tax liability & return to shareholders etc. All this & other aspects can be analyzed with the help of profitability ratios.

The profitability ratios based on sales can be further divided into:

PROFIT MARGIN RATIOS

The profit margin refers to the profit contributed by per rupee of sales revenue & therefore, the profit margin ratios measure the relationship between the profit & the sales. Different profit margin ratios have been suggested as follows:

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1)

Gross Profit Ratios (GP Ratio): The GP ratio is calculated by comparing GP of the firm with the net sales as follows:

Gross Profit Ratio = (Gross Profit / Net Sales)*100 For e.g., if the GP Ratio of a firm comes out to be 30% this means that on every 1rupee sale, the firm is earning a gross profit of 30 paise. SIGNIFICANCE:

GP Ratio is a reliable guide to the adequacy of selling prices & efficiency of trading activities. This ratio should be adequate to cover the Administrative & Marketing expenses & to provide for fixed charges, dividends & building up of reserves. Higher the GP Ratio, the better it is. When GP Ratio is studied as a time series, it may give the increasing or decreasing trend & hence an idea of the level of operating efficiency of the firm. For a single year, the GP Ratio may not indicate much about the efficiency level of the firm. 2) Net Profit Ratio (NP Ratio):- The NP Ratio establishes the relationship between the net profit (after tax) of the firm & the net sales & may be calculated as follows:

Net Profit Ratio = {Profit (after tax) / Net Sales}*100 The NP Ratio measures the efficiency of the management in generating additional revenue over & above the total cost of operations, the NP Ratio shows the overall efficiency in Manufacturing, Administrative, Selling & distributing the product.

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SIGNIFICANCE:

The NP Ratio is worked out to determine the overall efficiency of the business. Higher the NP Ratio, the better the business. An increase in the ratio over the previous period shows improvement in the operational efficiency. 3) Operating Profit Ratio (OP Ratio): The operating profit refers to the pure operating profit of the firm i.e. the profit generated by the operation of the firm & hence is calculated before considering any financial charge (such as interest payment), non operating income / loss & tax liabilities etc. The Ratio is calculated as follows: OP Ratio = (Operating Profit / Net Sales)*100 SIGNIFICANCE: The OP Ratio shows the percentage of pure profit earned on every 1rupee of sales made. The OP Ratio will be less then the GP Ratio as the indirect expenses such as general & administrative expenses; selling expenses & depreciation charge etc. are deducted from the GP to arrive at the operating profits. The OP Ratio measures the efficiency with which the firm not only manufactures the goods but also sells the goods. Higher the ratio better is the profitability of the business.

4.)

Operating Ratio:- This ratio measures the extent of cost incurred for making the sale. The Ratio is calculated as follows: -

Operating Ratio = (Cost Of Goods Sold + Operating Expenses / Net Sales)*100

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Operating Ratio plus net profit ratio is 100 i.e. the two ratios are interrelated. For e.g. if the NP Ratio is 15%, it means that the Operating ratio is 85%. A rise in operating ratio indicates decline in efficiency. Lower the ratio, the better it is. SIGNIFICANCE:

Operating ratio is the test of operational efficiency of the business. It shows the percentage of sales that is absorbed by the cost of sales & operating expenses, lower the operating ratio, the better it is, because it would leave higher margin to meet interest, dividend etc. thus, operating ratio helps us to determine whether the cost content has increased or decreased in the figure of sales & also helps us to determine which element of the cost has gone up or down.

EXPENSE RATIOS

Expense ratios are calculated to ascertain the relationship that exists between operating expense &volume of sales. The ratios are calculated by dividing the sales into each individual operating expense. It indicates the portion of sales, which is consumed by the various operating expenses.

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Some of the important expense ratios are calculated as follows:

1.)

Ratio of Material Used To Sale: -

Direct Material Cost To Sales = (Direct Material Cost / Net Sales)*100

2.)

Ratio Of Labour To Sales: -

Direct Labour Cost To Sales = (Direct Labour Cost / Net Sales)*100

3.) Ratio Of Factory Expenses To Sale: -

Factory Expenses To Sales = (Factory Expenses / Net Sales)*100

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4.) Ratio Of Office & Administration Expenses To Sales: -

Office & Administration Expenses To Sales = (O & Expenses / Net Sales)*100

5.) Ratio Of Selling & Distribution Expenses To Sales: -

S & D Expenses To Sales = (S & D Expenses / Net Sales)*100

SIGNIFICANCE:

The expense ratios are the measure of cost control. If the expense ratios of a business continue to increase over a period of successive years, then it is a cause for the management to have deeper look into that matter, lower the ratio the better it is for the firm.

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PROFITABILITY RATIOS BASED ON INVESTMENTS / ASSETS.

The profitability of the firm can be analyzed with reference to assets employed to earn a return. It can also be analyzed with reference to profit earned per rupee of investment made in the firm. There are two important profitability ratios based on assets / investment of the firm.

1.) Return

on Assets: - The ROA measures the profitability of the firm in

terms of assets employed in the firm. The ROA is calculated by establishing the relationship between the profits & the assets employed to earn the profits.

The Ratio is calculated as follows: -

ROA = (Net Profit after Tax / Total Assets)*100 The ROA shows as to how much is the profit earned by the firm per rupee of assets used.

SIGNIFICANCE:

The ROA measures the overall efficiency of the management in generating profits, given a given level of assets at its disposal. The ROA essentially relates the profit to the size of the firm (which is measured in terms of the assets). If a firm increases its size but is unable to increase its profits proportionately, then the ROA

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will decrease. In such a case increasing the size of assets i.e. the size of the firm will not by itself advance the financial welfare of the owners.

2.) Return On Capital Or Return On Investment (ROI): - The sources used
by the business consist of both proprietors (shareholders) funds and loans. The overall performance can be judged by working out a ratio between profit earned and capital employed. The resultant ratio usually expressed as a percentage is called ROI. The purpose is to ascertain how much income the use of Rs.100 of capital generates. The Ratio is calculated as follows: ROI = (Profit Before interest Tax and dividend / Capital Employed)*100

SIGNIFICANCE:

ROI judges the overall performance of the concern. It measures how efficiently the sources entrusted to the business are being used. In other words what is the earning power of the net assets of the business? The ROI is a fair measure of the profitability of any concern with the result that even the results of dissimilar industries may be compared.

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PROFITABILITY ANALYSIS FROM THE POINT OF VIEW OF OWNERS.

Ultimately the profit of the firm belongs to the owners who have invested their funds in the form of equity share capital or preference share capital or retained earning. Therefore, the profits of the firm should be analyzed from the point of view of the owners. As a matter of fact, the net profit after tax belongs to the shareholders. The profitability of the firm can be analyzed from the point of view of owner’s funds in different prospective as follows:

1.)

Return on equity (ROE): The ROE examines profitability from the perspective of the equity investors by relating profit available for the equity shareholders with the book value of equity investment. The Ratio is calculated as follows: -

ROE ={(Net Profit – Preference dividend) / Equity Shareholder’s Fund}*100 SIGNIFICANCE:

The ROE relates the profit available to equity shareholders. This ratio is used to compare the performance of the company’s equity capital with that of other companies, which are alike in equity. The investor will favor the company with higher ROE.

2.)

Earning Per Share (EPS): - The profitability of the firm can also be measured in terms of number of equity shares. This is known as EPS and is calculated as follows: 67

EPS = (Net Profit – Preference dividend) / No. Of Equity Share

The EPS calculation in a time series analysis indicates whether the firms EPS is increasing or decreasing. SIGNIFICANCE: The more the earning per share better are the performance and the prospects profit of the company.

3.)

Dividend Per Share (DPS): Some times the equity shareholders may not be interested in the EPS but in the return which they are actually receiving from the firm in the form of dividends. The amount of profit distributed to shareholders per share is known as DPS and is calculated as follows:

DPS = (Total Profit Distributed) / No. Of Equity Share

4.)

Dividend Pay Out Ratio (DP Ratio): The DP Ratio is the ratio between the DPS and EPS of the firm i.e. it refers to the proportion to the EPS which has been distributed by the company as dividends.

DP Ratio = (DPS / EPS)*100

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CHAPTER -6 DATA ANALYSIS & INTERPRETATION

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CURRENT RATIO

YEARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2003-04 36689.7 28194.5 1.301

2004-05 38219.2 27129.5 1.408

2005-06 46405.2 31227.3 1.49

2006-07 52577.9 32478.3 1.62

2007-08 64757.6 37442.1 1.408

70000 60000 50000 40000 30000 20000 10000 0 2003-042004-052005-062006-072007-08

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

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QUICK RATIO (Rs. IN MILLIONS)

YEARS QUICK ASSETS CURRENT LIABILITIES QUICK RATIO

2003-04 26535.7 24360.4 1.09

2004-05 27569.7 20116.3 1.37

2005-06 22534.2 18026.9 1.33

2006-07 40114.4 31227.3 1.28

2007-08 51241.9 37442.1 1.36

60000 50000 40000 30000 20000 10000 0 2003-04 2004-05 2005-06 2006-07 2007-08

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 CURRENT LIABILITIES QUICK RATIO QUICK ASSETS

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NET WORKING CAPITAL TURNOVER RATIO

(Rs. IN MILLIONS) YEARS NET SALES NET WORKING CAPITAL N.W.C.T. RATIO 8495.2 3.294 1109.7 2.896 15177.7 2.33 20096.6 1.96 26328.9 1.56 2003-04 27985.2 2004-05 32120.9 2005-06 35362.8 2006-07 39526.9 2007-08 41025.4

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2003-04 2004-05 2005-06 2006-07 2007-08

3.5 3 2.5 2 1.5 1 0.5 0 NET SALES NET WORKING CAPITAL N.W.C.T. RATIO

DEBTOR TURNOVER RATIO

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YEAR NET CREDIT SALE AVERAGE RECEIVABLES RATIO

2003-04 27985.2 6673.7 4.193

2004-05 32120.9 6991.1 4.594

2005-06 35362.8 10176.8 3.474

2006-07 39526.9 16934.1 2.334

2007-08 41025.4 20588.9 1.992

45000 40000 35000 30000 25000 20000 15000 10000 5000 0
20 03 20 -0 4 04 20 -0 5 05 20 -0 6 06 20 -0 7 07 -0 8

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 NET CREDIT SALE AVERAGE RECEIVAB LES RATIO

DEBT EQUTIY RATIO

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(Rs. IN MILLIONS) YEAR DEBT EQUITY RATIO 2003-04 329.4 12358.1 0.03 2004-05 153 15800.7 0.01 2005-06 88.1 20270.8 0.004 2006-07 17.1 25713.5 0.0007 2007-08 13.8 32129.5 0.0004

35000 30000 25000 20000 15000 10000 5000 0 20 20 20 20 20 03- 04- 05- 06- 0704 05 06 07 08

0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 DEBT EQUITY RATIO

GROSS PROFIT RATIO (Rs. IN MILLIONS)

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YEAR GROSS PROFIT NET SALES G. P. RATIO

2003-04 4690.2 27985.2 16.75

2004-05 6950.2 32120.9 21.63

2005-06 8552.6 35362.8 24.18

2006-07 10524.7 39526.9 26.62

2007-08 11713.0 41025.4 28.55

45000 40000 35000 30000 25000 20000 15000 10000 5000 0
20 03 20 -0 4 04 20 -0 05 5 20 -0 06 6 20 -0 7 07 -0 8

30 25 20 15 10 5 0 GROSS PROFIT NET SALES G. P. RATIO

NET PROFIT RATIO

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YEAR NET PROFIT NET SALES N.P. RATIO

2003-04 3161 27985.2 11.29

2004-05 4463.2 32120.9 13.89

2005-06 5830.1 35362.8 16.48

2006-07 7181.6 39526.9 18.16

2007-08 8267.4 41025.4 20.15

45000 40000 35000 30000 25000 20000 15000 10000 5000 0
20 03 20 -0 4 0 20 4-0 05 5 20 -0 06 6 20 -0 7 07 -0 8

25 20 15 10 5 0

NET PROFIT NET SALES N.P. RATIO

RETURN ON ASSETS (Rs. IN MILLIONS) YEARS 2000-01 2001-02 2002-03 2003-04 2004-05

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NET PROFIT TOTAL ASSETS RATIO 23077.7 6.72 28080.7 7.11 31750.4 8.2 40096.6 7.8 42045.9 10.6 1552.1 1996.8 2606.1 3161 4463.2

RETU RN ON ASSE TS
45000 40000 35000 30000 MILLIONS 25000 20000 15000 10000 5000 0 2000-01 2001-02 2002-03 YEARS NET PROFIT TOTAL ASSETS RATIO 2003-04 2004-05 12 10 8 6 4 2 0 RATIO

RETURN ON CAPITAL & INVESTMENT (Rs. IN MILLIONS) YEARS 2003-04 2004-05 77 2005-06 2006-07 2007-08

PROFIT BEFORE INTEREST, TAX AND DIVIDEND CAPITAL EMPLOYED RATIO 11375 41.23 14283.2 48.65 18881.5 46.71 23956.3 47.49 30463.7 41.4 4690.2 6950.2 8820.9 10524.7 12641.8

35000 30000 25000 20000 15000 10000 5000 0
20 03 20 -0 4 04 20 -0 5 05 20 -0 6 06 20 -0 7 07 -0 8

50 48 46 44 42 40 38 36

PROFIT BEFORE INTEREST, TAX AND DIVIDEND CAPITAL EMPLOYE D

RATIO

RETURN ON EQUITY (Rs. IN MILLIONS) YEARS NET PROFIT 2003-04 3161 2004-05 4463.2 2005-06 5830.1 2006-07 7181.6 2007-08 8267.4

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EQUITY SHAREHOLDERS`S FUND RATIO 12358.1 25.27 15800.7 28.24 20270.8 28.76 25713.5 27.92 32129.5 25.73

35000 30000 25000 20000 15000 10000 5000 0
20 03 20 -0 4 04 20 -0 5 05 20 -0 06 6 20 -0 7 07 -0 8

30 29 28 27 26 25 24 23 NET PROFIT

EQUITY SHAREHOL DERS`S FUND RATIO

EARNING PER SHARE

(Rs. IN MILLIONS) YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

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NET PROFIT NO. OF EQUITY SHARES EPS

3161

4463.2

5830.1

7181.6

8267.4

80 39.51

80 55.79

80 72.88

80 89.77

80 103.34

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 20 20 20 20 20 03- 04- 05- 06- 0704 05 06 07 08

120 100 80 60 40 20 0 NO. OF EQUITY SHARES EPS NET PROFIT

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CHAPTER 7

CONCLUSIONS & RECOMMENDATINS

CONCLUSION
After studying & analyzing the Financial Statement of BEL, the following results can be concluded:-

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Intra firm comparison On analyzing the Financial Statements of the company for last 5 years the following thing can be concluded about the company’s Financial Position:o The increase in the cost of goods sold has minor effect by the growth of the profit but not to a great extent. o Inventory turnover ratio depicts a fluctuating trend indicating an accumulation of inventory from time to time causing lass to the company by a way of deterioration of stock, interest loss & blockage stock etc. o The ratios used for analysis liquidity position are quick & current ratio which revels that company has a strong liquidity position. o Although the sales are increasing, a decrease in G.P. Ratio is indicative of the firm’s inability to purchase raw material at favorable terms & its turnover time/insufficient utilization of plant & machinery. o Increase in the ROCE indicates that funds are being that funds are being utilized in such a way that they incur immediate return & hence increase in profitability of the firm.

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RECOMMENDATIONS

After analyzing the Financial Statement of the company, following suggestions are recommended to improve the Financial Position:o Sales of the company are increasing which indicates an increase in the demand of the company’s product. Thus company can increase the selling price of its product marginally o The company should take adequate steps to reduce the cost of goods sold. o An increase in the provision of doubtful debts indicates in appropriate collection measure, which should be take care off.

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BIBLIOGRAPHY

o MAHESHWARI, S. N., MANAGEMENT ACCOUNTING “PRINCIPLES & PROCTICE” SHREE MAHAVIR BOOK DEPORT (PUBLISHERS), NEW DELHI o ANNUAL REPORT OF BHARAT ELECTRONICS LTD. (BEL) o WWW.BEL-INDIA.COM o WWW.NSEINDIA.COM

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