i

A STUDY ON CAPITAL BUDGETING OF SKM

SIDDHA AND AYURVEDA INDIA PRIVATE
LIMITED, ERODE.

A PROJECT REPORT

Submitted by

VISHNURAM V.
73772161158
in partial fulfillment of the requirement
for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

K.S. RANGASAMY COLLEGE OF TECHNOLOGY

(An Autonomous Institution, affiliated to Anna University Chennai and Approved by AICTE, New Delhi)

TIRUCHENGODE – 637 215

JANUARY 2023
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BONAFIDE CERTIFICATE

Certified that this project report titled “A STUDY ON CAPITAL

BUDGETING OF SKM SIDDHA AND AYURVEDA INDIA PRIVATE
LIMITED” is the bonafide work of VISHNURAM V(73772161158), who
carried out the project under my supervision. Certified further, that to the best of my
knowledge the work reported herein does not form part of any other project report
or dissertation on the basis of which a degree or award was conferred on an earlier
occasion on this or any other candidate.

SIGNATURE SIGNATURE
Mr.V.S.Vijayachandar, BE,MBA,( Ph.D).
Dr.M.Vijayakumar, MBA, M.Phil., Ph.D
SUPERVISOR
HEAD OF THE DEPARTMENT
Associate Professor
Professor
Department of Management Studies
Department of Management Studies
K.S. Rangasamy College of Technology
K.S. Rangasamy College of Technology
Tiruchengode - 637 215
Tiruchengode - 637 215

Submitted for the viva-voce examination held on ………………

Internal Examiner External Examiner

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COMPLETION LETTER FROM COMPANY

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DECLARATION

I jointly declare that the project report on “A STUDY ON CAPITAL

BUDGETING OF SKM SIDDHA AND AYURVEDA INDIA PRIVATE
LIMITED” is the result of original work done by me and best of my knowledge,
similar work has not been submitted to “ANNA UNIVERSITY CHENNAI” for
the requirement of Degree of Master of Business Administration. This project report
is submitted on the partial fulfilment of the requirement of the award of Degree of
Master of Business Administration.

Signature

VISHNURAM V.

Place: Tiruchengode

Date:12.01.2023
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ACKNOWLEDGEMENT

I wish to express my sincere gratitude to my honourable Chairman

Thiru. R.SRINIVASAN for providing immense facilities at my institution.

I would like to express special thanks of gratitude to my Chief Executive

Officer Dr. K. THYAGARAJAH, M.E., Ph.D., who has been the key spring of
motivation to us throughout the completion of my course and project work.

I am very prodly rendering my thanks to my principal

Dr. R. GOPALAKRISHNAN, M.E., Ph.D., for the facilities and the encouragement
given by him to the progress and completion of my project.

I express my sincere gratitude and thanks to my HOD

Dr. M. VIJAYAKUMAR, MBA, M.phil., Ph.D., professor and head for his valuable
ideas, encouragement and supportive guidance throughout the project.

I am highly indepted to provide my heartfull thanks to my supervisor

Mr. V. S. VIJAYACHANDAR, BE, MBA, (Ph.D)., associate professor for his
valuable ideas, encouragement and supportive guidance throughout the project.

I wish to extend my sincere thanks to all faculty members of my Department

for their valuable suggestions, kind co- operation and constant encouragement for
successful completion of this project.

I wish to acknowledge the help received from various Departments and var-
ious individuals during the preparation and editing stages of the manuscript.
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ABSTRACT

Capital budgeting refers to long term planning for proposal capital outlay and their
financing. It includes long term funds and their utilization. It may be defined as firms’
process of acquisition and investment capital. It deal exactly with major investment
proposals, which are essential for long term projects incurred among the available
market opportunities. As investment in long term assets is a complex process the
decisions pertaining must also be tactical so the project while generating the decision
making must be efficient. Types of identifying risks, managing the resources and
computing cash flows plays vital role. Finally these techniques help the manager in
evaluating the efficient allocation of capital. The study of capital budgeting helps to
decide whether or not funds should be invested in long term projects and helps to
analyse the proposals for expansion or creating additional capacities to analyse
various proposals regarding capital investment and to choose the best out of many
alternative proposals. This study clearly implies through Payback Period, Accounting
Rate of Return, Net Present Value.

Key words: Investment Decision, Planning, Identifying Risk, Budgeting.

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TABLE OF CONTENTS

CHAPTER
PARTICULARS PAGE NO
NO
LIST OF TABLES viii
LIST OF CHARTS ix
1 INTRODUCTION 1
1.1 Introduction of the study 1
1.2 Statement of the problem 2
1.3 Objectives of the study 2
1.4 Scope of the study 2
1.5 Need of the study 2
1.6 Limitations of the study 3
1.7 Chapterization of the study 4
2 CONCEPT AND REVIEW 5
2.1 Capital Budgeting 5
2.2 Review of literature 9
2.3 Company profile 14
2.4 Product profile 16
3 RESEARCH METHODOLOGY 18
3.1 Methodology 18
3.2 Research design 18
3.3 Sources of data Collection 18
3.4 Tools for Analysis 19
3.5 Period of the study 19
4 DATA ANAYSIS AND INTERPRETATION 20
4.1 Capital budgeting techniques 20
4.2 Comparative Balance sheet 28
4.3 Trend Analysis 32
5 RESULT AND DISCUSSION 34
5.1 Findings 34
5.2 Suggestions 35
5.3 Conclusion 36
Reference 37
Annexure
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LIST OF TABLES

CHAPTERNO PARTICULARS PAGE NO

4.1.1 Net present value 20

4.1.2 Payback period 21

4.1.3 Accounting rate of return 22

4.1.4 Net cash used in various activities 23

4.1.5 Return on net worth 25

4.1.6 Return on capital employed 26

4.1.7 Return of assets 27

4.2.1 Comparative balance sheet for the FY 2017 - 2018 28

4.2.2 Comparative balance sheet for the FY 2018 - 2019 29

4.2.3 Comparative balance sheet for the FY 2019- 2020 30

4.2.4 Comparative balance sheet for the FY 2020 - 2021 31

4.3 Trend analysis for the year 2017 - 2021 32

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LIST OF FGURES

CHAPTERNO PARTICULARS PAGE NO

4.1.1 Net present value 20

4.1.2 Payback period 21

4.1.3 Accounting rate of return 22

4.1.4 Net cash used in various activities 24

4.1.5 Return on net worth 25

4.1.6 Return on capital employed 26

4.1.7 Return of assets 27

4.2.1 Comparative balance sheet for the FY 2017 - 2018 28

4.2.2 Comparative balance sheet for the FY 2018 - 2019 29

4.2.3 Comparative balance sheet for the FY 2019- 2020 30

4.2.4 Comparative balance sheet for the FY 2020 - 2021 31

4.3 Trend analysis for the year 2017 - 2021 33

 CHAPTER – 1

INTRODUCTION

1.1Introduction of the study

Capital budgeting in corporate finance is a planning process used to determine whether a
company's long-term capital investments, such as new machinery, replacement machinery,
new plants, new products, and research development projects, are worth the money through
the company's capitalization structures, debt, equity or retained earnings). It is the process of
allocating resources for major capital, or investment, expenditures. A fundamental goal,
consistent with the overall approach to corporate finance, is to increase the value of the
company to shareholders.

Capital budgeting is a step-by-step process that businesses use to determine the merits of
an investment project. The decision whether to accept or reject an investment plan as part of a
firm's growth efforts involves determining the rate of investment that such a plan will
generate.

All firms in the market, large or small, must deal with finances. Finance entails the task of
managing capital in such a way that it returns a profit to the business. The concept we will be
discussing today is ‘Capital Budgeting,' and as the name indicates, it is the process of making
decisions about a company's assets in order to maximize profits over a long stretch of time.

Financial decision making is viewed as an integral part of the overall management of a

business concern. The financial manager has to make the financial decision within the
framework of overall corporate objectives and policies. The overall development of a firm
depends on market development, entry in new product line, termination of a product which is
in declining stage, expansion of the plant, change of location, etc. In all these issues, study
financial implications is inescapable. According to the modern approach, financial
management is corlrned with the solution of three major problems relating to the financial
operations of the firm, viz., - investment, financing and dividend decisions.

Of these decisions, the investment decision relates to the selection of assets in which funds
will be invested by a firm. The assets that can be acquired with these finds are broadly
divided into. Long term asset and short term asset- the decision regarding long-term assets
which is known as capital budgeting. Whereas the financial decision with reference to
investment on shot- terrn assets is designated as working capital management. This lesson is
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devoted for capital budgeting its nature, process and cash flows and their computation. After
studying this you will be also knowing the basic principles of estimating cash flows assuming
certainly and also uncertainly as a last part of this lesson.

Efficient allocation of capital is one of the most important functions of the financial
management in modern times. This function involves the firm’s decision to commit its funds
in long-term assets and other profitable activities. The decision to invest funds in the long-
term assets of a firm are quite significant and they will influence the firm's market value,
growth and also affect the risk of a business.

1.2 STATEMENT OF THE PROBLEM

Capital planning is an orderly process used by business to determine the merits of

speculation, choosing weather to acknowledge our daily and ventures extended as an
important aspect of a company's speculation is considered satisfactory for the company.

1.3 OBJECTIVIES OF THE STUDY

 To analyze the company’s investment decisions by applying capital

budgeting techniques.
 To determine the rate of return.
 To evaluate the cash inflows and outflows of the company.

1.4 SCOPE OF THE STUDY

This study highlights a review of the company's capital budgeting and capital
expenditure management. Capital expenditure decisions require careful planning and control.
Such long-term planning and control of capital expenditure is called capital budgeting. The
study also helps to understand how the company estimates the future project cost. This study
helps in understanding the analysis of alternative projects and deciding whether to finance a
particular investment project or not for more than a year. Capital budgeting is based on some
tools like payback period, average rate of return, net present value, profitability index and
internal rate of return.

1.5 NEED OF THE STUDY

 To know the short term and long term liquidity and solvency of a firm.

 To ensure proper functioning of working capital needs

 It is useful to take further expansion decisions To know the ways and means of
financing

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1.6 LIMITATIONS OF THE STUDY

 Monetary terms are alone taken into account not the quantity of products
which has been sold.

 Since the procedure and policies of the company will not allow to disclose
confidential financial information, the project has to be completed with the
available data given to us.

 It's difficult to collect some internal data from the company.

 Despites this, a sincere attempt is made in this study.

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1.7 CHAPTERIZATION OF THE STUDY

CHAPTER 1
Introduction of the project work includes introduction statement of the problems. Objectives
of the study, scope of the study, limitations of the study and Chapterization of the study.

CHAPTER 2

It deals with the concept and reviews used in this project work. It includes concepts of the
study, review of related literature, company profile and product profile.

CHAPTER 3

It deals with research methodology followed in this project work. It includes research design,
data collection details and tinsels used for the study

CHAPTER 4

It deals with of data analysis and interpretation.

CHAPTER 5

It deals with results, findings, suggestions, and conclusions of the study.

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 CHAPTER - 2
CONCEPT AND REVIEW
2.1 CAPITAL BUDGETING

An organization needs to evaluate the capital requirements of a project and the returns
generated from it, before selecting a project. This can be done with the help of capital
budgeting, which is a process of determining the actual profitability of a project. In other
words, capital budgeting is a process that helps in planning the investment projects of an
organization in the long run. The long- term investments of an organization can be purchase
and replacement of fixed assets, new product launching or expansion of existing products,
and research and development.

The capital budgeting process can be effective if an organization determines the total
capital expenditure for a project that is expected to generate returns over a particular period of
time. An organization uses various techniques to determine the total expenditure for a project
and rate of return yielded from it. Some of the popular techniques are net present value,
internal rate of return, payback period, sensitivity analysis, and decision tree analysis.

2.1.1 IMPORTANCE OF CAPITAL BUDGETING

Long term investments involve risks: Capital expenditures are long-term investments that
involve high financial risks. That is why proper planning through capital budgeting is
required.
Huge investments and irreversible ones: Although investments are large, funds are limited,
so proper planning through capital expenditure is a prerequisite. Also, capital investment
decisions are irreversible in nature, i.e. disposal of a permanent asset once acquired will
result in losses.
Long run in the business: Capital budgeting reduces costs and brings about changes in the
company's profitability. This helps to avoid over or under investments. Proper planning and
analysis of projects helps in the long run.

2.1.2 STAGES OF CAPITAL BUDGETING

Idea Generation
The most important step in the capital budgeting process is generating good
investment ideas. These investment ideas can come from many sources, such as senior
management, any department or functional area, employees, or sources outside the
organization.

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Analyzing Individual Proposals
A manager must gather information for each project to forecast cash flows to determine
its expected profitability. This is because the acceptance or rejection of a capital investment is
based on the future expected cash flows of such investment.
Planning Capital Budget
A company should prioritize profitable projects based on the project's cash flows,
available company resources, and a company's overall strategy. Projects that seem promising
individually may be strategically undesirable. Therefore, prioritizing and planning projects is
important due to financial and other resource constraints.
Monitoring and Conducting a Post Audit
It is important for a manager to follow up or monitor all capital budgeting decisions. He
should compare the actual with the projected results and give reasons why the predictions do not
match the actual performance. Therefore, a proper post-audit is necessary to detect systematic errors
in the forecasting process and thus improve the company's operations.
2.1.3 CAPITAL BUDGETING TECHNIQUES
Organizations can use a variety of evaluation methods to determine whether a project
is worth pursuing. Regardless of the valuation method you use, you can come to the same
conclusion about the project's potential value. Each evaluation method may yield different
results. It is the responsibility of a company's managerial decision makers to determine which
capital budgeting strategy works best for their business situation.
Capital budgeting is of two types namely traditional and discounted cash flow. There are
several budgeting methods you can use in each category:

I) TRADITIONAL TECHNIQUES
1. Payback method

2. Accounting rate of return

II) MODERN TECHNIQUE

1. Net present value method

2. Internal rate of return

3. Profitability index

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TRADITIONAL TECHNIQUES

This method contains two approaches. They are

PAYBACK PERIOD
The payback period approach allows you to prepare a budget for a new project. It
calculates how long it will take for your project to generate enough cash flow to cover an
investment. When using this approach, a shorter payback period makes a project more
desirable because you can get your investment back in a shorter period of time.
Companies or individuals with limited capital can use this approach to invest in a project.
This enables them to recover their initial investment cost before starting another project.
ACCOUNTING RATE OF RETURN
The average rate of return is the average annual amount of cash flow generated over the
life of the investment. This approach calculates the profitability of a potential investment
using accounting data from financial records. Some companies prefer the ARR technique
because it examines the project's returns over the entire economic life cycle. It is also known
as Return on Investment (ROI) method
NET PRESENT VALUE
The net present value capital budgeting approach calculates how profitable a
project may be in the future. Any project with a positive net present value is
acceptable when employing this approach, while any project with a negative net
present value is not. The net present value approach is one of the most popular capital
budgeting techniques, since it allows businesses and individuals to identify and select
their most profitable projects or investments.

The net present value approach also helps to choose one or more projects at the
same time. For instance, a company may explore three distinct projects but only have
the funds to invest in one of them. They may use the net present value approach to
determine which project is likely to be the most profitable. Similarly, an investor
examining eight investment portfolio options but only having enough resources to
fund three of them can utilise the net present value approach to select the three most
profitable portfolio options.

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INTERNAL RATE OF RETURN

IRR is a useful tool for analyzing capital budgeting projects and comparing
potential annual rates of return over time. The internal rate of return calculates the
percentage of profit you can expect from a project. When using this method, if the
rate of return is higher than the initial capital investment percentage of the project, the
project becomes more attractive..

PROFITABILITY INDEX

A profitability index, also referred to as the profit investment ratio (PIR) or value
investment ratio (VIR), is a capital budgeting technique that estimates the potential
profitability of an investment or project. This is one of the essential capital budgeting
techniques used by businesses. The profitability index acts as a link between the
initial investment of the project and the payback of the project. This will help
stakeholders and decision makers rank projects based on profitability.

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2.2 REVIEW OF LITERATURE
Matteo Rossi (2014), Captial budgeting in Europe: confronting theory with practice
Capital budgeting is an important area of financial management. It is a process used to
determine whether firm’s long-term investments are worth the funding of cash through the
firm’s capitalisation structure. Different techniques are used: the payback period, the
accounting rate of return, the present value and the internal rate of return and the profitability
index. This research presents an analysis of capital budgeting in three different countries:
Italy, France and Spain. The results revealed that PP, followed by net present value, is the
most used method, but there is a difference between large and small firms. This research has
demonstrated that capital budgeting decision-making is a complex process and that it is
undervalued by SMEs. The limitations of the paper are the result of its very nature: it is a
largely conceptual paper.

Weerakoon Banda (2014), The use of Capital Budgeting Techniques in Large Business:
Evidence from Sri Lanka
This paper examines the use of capital budgeting techniques and investigates a
number of variables and associations relating to capital budgeting practices in large listed
companies in Sri Lanka. Study was carried out by conducting a survey of CEOs and it is the
first to investigate practice of application of capital budgeting in Sri Lankan context. From
the study it is found that Net Present Value (NPV), Accounting Rate of Return (ARR),
Payback period (PBP), Internal Rate of Return (IRR) and Profitability Index (PI) are used to
evaluate investment projects. The results find that large firms rely heavily on NPV, IRR,
Discounted PBP and these are the favored techniques in Sri Lanka. It is, further, revealed
that most firms used only one evaluation technique among these favored techniques.
Moreover it is found that project definition is the most important and critical in capital
budgeting process for service organizations

Matteo Rossi, (2015), The use of capital budgeting techniques: An outlook from Italy
Capital budgeting is one of the most important areas of financial management.
Different techniques are used to evaluate capital budgeting projects: the Payback Period
(PP), the Net Present Value (NPV) and the Internal Rate of Return (IRR). Graham and
Harvey (2002) highlight that financial managers favour methods such as the IRR or non-
discounted Payback Period (PP). The results of this research revealed that PP, followed by

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NPV, is the most used method. The more complex methods are most favoured by the large
enterprises. The principal weakness of the evaluation process is the definition of cost of
capital: approximately 70% of the enterprises considered use non-quantitative techniques to
consider risk. This study provides those evaluating investment projects or conceiving capital
budgeting manuals or policies with knowledge about common pitfalls that, if acted upon,
could improve decision making. This study is exploratory research and the results represent
a basis for further research.

Lingesiya Kengatharan (2016), Capital Budgeting Theory And Practice: A Review

and Agenda for Future Research

The main purpose of this research was to delineate unearth lacunae in the extant
capital budgeting theory and practice during the last two decades and ipso facto become
springboard for future scholarships. Recent studies lent credence on the use of more
sophisticated capital budgeting methods along with many capital budgeting tools for
incorporating risk. Notwithstanding, it drew a distinction between developed and developing
countries. Moreover, factors impinging on choice of capital budgeting practice were
identified, and bereft of behavioural finance and event study methodological approach were
highlighted. More extensive studies are imperative to build robust knowledge of capital
budgeting theory and practice in the chaotic environment.

Satish Verma, (2017), Capital budgeting practices in India Companies

The volatility of the global economy, changing business practices, and academic
developments have created a need to re-examine Indian corporate capital budgeting
practices. Our research is based on a sample of 77 Indian companies listed on the Bombay
Stock Exchange. Result sreveal that corporate practitioners largely follow the capital
budgeting practices proposed by academic theory. Discounted cash flow techniques of net
present value and internal rate of return and risk adjusted sensitivity analysis are most
popular. Weighted average cost of capital as cost of capital is most favoured. Nevertheless,
the theory-practice gap remains in adoption of specialised techniques of real options,
modified internal rate of return (MIRR), and simulation. Non-financial criteria are also
given due consideration in project selection.

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Agbeye, Seyl John (2019), Capital Budgeting Techniques: Estimation of Internal Rate
of Returns
The enormity of costs associated with long-term assets and the length of
exposure to risk of such investments makes it essential to properly evaluate capital
budgeting decisions before embarking on them. The estimation of cash flows of uncertain
future period itself is problematic and to add a complex technique of project evaluation that
will require trial and error could be frustrating. This study is to simplify the estimation of
Internal Rate of Return (IRR) without going through the rigours of trial and error process.
This study is a method article on the estimation of IRR. The study allows the estimation of
IRR even when net present value at two levels are positive or the two are negative instead of
the use of interpolation. Investments analysists were advised to properly evaluate projects so
that investors will source for funds where the interest rate is lower than the projects’ IRR.

Simiso Siziba and John Henry Hall (2020), The Evaluation of the Application of Capital
Budgeting Techniques in Enterprises

This study examines the evolution of the use of capital budgeting techniques.
Previous studies have mostly used cross-sectional investigations to understand firms' capital
budgeting practices. Only a few researchers have conducted longitudinal studies to
generalize the findings of individual cross-sectional studies to broader populations and to
identify emerging trends in the use of capital budgeting techniques (CBTs). This
longitudinal study examines 83 studies of capital budgeting practices in firms in India, South
Africa, the United Kingdom (UK), and the United States of America (US) over the period
1966 to 2016. Findings Six capital budgeting techniques, namely, net present value
(NPV), internal rate of return (IRR), payback period (PBP), accounting rate of return
(ARR), return on investment (ROI) and real option valuation (ROV), The most popular
methods of valuing capital investments. Of these techniques, the ROV is the least used,
and general unfamiliarity with the technique and its complexity are the most commonly
cited reasons for not using it. Another method that is less used than the first four
techniques is ROI. However, the technique is of growing importance and is mainly used
in the UK, followed by the US, South Africa and India. Companies in the USA and UK
have increasingly used IRR as the primary method for evaluating capital projects and have
retained PBP as a supplementary technique to strengthen the information available when
evaluating capital projects. Companies in India and South Africa are increasingly
eschewing the PBP and ARR methods and increasingly using NPV when valuing capital

11
investments. Although this development is consistent with theory, it limits the scope of
information available when evaluating capital projects.

Lakshman Alles and Nelum Kumari (2021), An Investigation of the usage of Captial
Budgeting techniques by Small and Medium Enterprises

This paper examines the extent or usage of capital budgeting techniques in Small and
Medium Enterprises (SMEs) and the effect of non-financial factors on the choice of capital
budgeting techniques adopted by SMEs. A qualitative research method of content analysis as
well as an econometric quantitative analysis have been employed for this study. The study
has been conducted in several divisional councils within the district of Colombo, Sri Lanka.
Stratified random sampling has been used to collect a sample of SMEs from each divisional
council within these divisions. Information has been gathered through questionnaires and
personal interviews. Results of the study reveal that Payback Period (PBP) is the dominant
capital budgeting technique used in SMEs. Results of the Multinomial logistic regression
indicate that the probability of selecting Net Present Value as the capital budgeting
technique is higher in foreign SMEs and in SMEs who operate in the industry for 11 to
15 years. Furthermore, being a SME decision maker with less than 10 years of experience
increases the probability of selecting PBP as the capital budgeting technique. Finally,
qualitative techniques used in this study indicate that cost, time and knowledge are the main
reasons that deter SMEs from using capital budgeting techniques.

Prasad Chundi and Shilpa. S (2022), Capital Budgeting Procedure in Madhucon Sugars
Capital planning is the way closer to deciding on hypothesis selections in lengthy haul
assets. It is the manner towards choosing whether or not to place sources into a specific
mission as all of the venture potentialities may not be pleasurable. In this way, the manager
needs to choose a mission that offers a tempo of going back more than the price financing the
sort of task. That is the motive he desires to esteem an assignment concerning price and
benefit.
Tianle Shou, (2022), A Literature Review on the Net Present Value (NPV) Valuation
Method
Evaluating different projects is an essential part of capital investment for the
firm’s future success. Among several evaluation methods, the net present value (NPV)
methodology enjoys the highest prevalence. NPV method allows investors to objectively
evaluate the efficacy and appeal, as well as compare investment projects that differ in scope,

12
duration, or predicted profit. This article aims to illustrate the basic characteristics of the
NPV method, as well as the benefits and shortcomings while applying it. This work could
give users comprehensive learning about NPV and facilitate investors tojudge whether it is
appropriate to choose the NPV method for specific projects management. Besides, the article
also provided a comparison between several methods, such as the internal rate of return
method, in which case users can better choose the most suitable methods or apply all of them
together.

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2.3 COMPANY PROFILE

SKM Siddha and Ayurveda Institute (India) Ltd. was started as a trust hospital in
1989 under the name SKM Health and Mind Welfare Trust with the blessings of Swami
Vedatri Maharishi, a spiritual scientist from Tamil Nadu. The Trust Hospital started the
service by providing counseling on Siddha medicines to the needy. SKM name is Mr. SKM
Maylanandhan, Head of SKM Group of Companies in Erode, Tamil Nadu.

SKM stands for Padma Shri SKM. Maylanandan. The Chairman of SKM Group of
Companies in Erode District, Tamil Nadu, started his career as a general trader in a small
village in Modakurichi near Erode., an ISO, HACCP, SQF certified factory with NABL
accredited laboratory, exports to 27 countries in Europe and Asia.

Medicines are manufactured in a clean environment by following the highest level of

plant and personal hygiene to ensure product safety and efficacy. All GMP guidelines such as
standard operating procedures, batch production records, process controls and internal
standards are strictly followed to ensure the highest quality. A quality management plan starts
with selection of vendors, development of SOP (Standard Operating Procedures) for testing
of raw material, intermediate product and finished products and calibration of tools and
production equipment. The quality control and quality assurance laboratory works in perfect
coordination with the manufacturing department to maintain international manufacturing
standards at every step of the manufacturing process.

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PRODUCTION
 Automated Production Process for the Entire Product Range
 The manufacturing facility at SKM incorporates a fully automated process flow
without manual operation, thereby ensuring safety and hygiene. Products are
manufactured as per GLP practices to meet GMP compliance as well as product
specifications compliance.

VISION & QUALITY POLICY

Vision
 Committed to prevention and cure of diseases safely through herbal formulations and
there by building a healthy society.

Quality Policy
 We are committed to provide safe, effective and enticing Siddha, Ayurveda, Unani
medicines and herbal products.
 Integrating traditional and contemporary methods.
 Providing high Therapeutic and Prophylactic products.
 Creating awareness and ensuring availability.
 Promoting team work through total involvement of employees.
BRANDS
1) HERBODAYA

2) TUYA

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2.4 PRODUCT PROFILE
 Siddha

 Ayurveda

 Unani

 Win products

 Gold products

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 Herbal Drinks

 Ointments

 Soft Gel

 SKM Tejas

 Syrups

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 CHAPTER- 3
RESEARCH METHODOLOGY

Meaning of Research

The search for knowledge through objective and systematic method of finding a
proper and feasible solution to a problem is popularly known as research. Research according
to Redman and Mory is a "systematized effort to gain new knowledge",

3.1 Methodology

The project evaluates the capital budgeting of the company with help of the most
appropriate tool of capital budgeting techniques like Payback Period, Net Present Value,
Accounting rate of return, Comparative Financial Statements and Trend Analysis Hence, it is
essentially fact finding study.

3.2 Research Design

 A research design is an arrangement of conditions for data collection and analysis that
combines suitability for the research purpose with economy in process.
 In this present study the researcher used analytic research design.
 Analytical research is a specific type of research that involves critical thinking skills
and evaluation of facts and information related to the research being conducted.
 Analytical method is a general process that combines the power of the scientific
method by applying a systematic process to solve any problem.
 Research focuses on understanding the cause-effect relationship between two or more
variables.

3.3 Sources of Data collection

The main source of data used for the study is secondary, annual profit and loss
account and balance sheet. Figures found in annual reports of selected units. Other data
sources and concepts expressed in the accounting literature have been used in this study.
Secondary data consists of annual reports of SKM Siddha and Ayurveda India Pvt Ltd for the
last five years.

Secondary data

Secondary data on the other hand is data that has already been collected by someone
else and has already been passed through a statistical process. Secondary data examines the
entire company records and the balance sheet of the company where the project work was
done. In addition, several reference books, journals and reports were used to develop the
theoretical model for the study. And some information is also taken from websites.

18
3.4 Tools for Analysis

 Payback Period
 Accounting Rate of Return
 Net Present Value
 Comparative Statement
 Trend Analysis

3.5 Period of study

The study covers the period of five Financial Years from 2017 to 2021 in SKM
Siddha and Ayurveda India Private Limited. The accounting year commenced from April to
March.

19
 CHAPTER -4
DATA ANALYSIS AND INTERPRETATION

4.1.1Table Showing Comparison of NET PRESENT VALUE for Five Years from 2017 to 2021.

Year 2017 2018 2019 2020 2021

Initial Investment 1,18,45,572 78,82,994 9,11,494 46,63,117 1600000

Net Cash Flow

4,09,88,721 7,25,17,701 26,09,03,786 1,13,25,255 1,08,29,000
per annum

NPV 29143149 64634707 259992292 6662138 9229000

Figure 4.1.1 Net Present Value

300000000
259992292
250000000

200000000
NPV

150000000

100000000
64634707
50000000 29143149
66621328.8 5 9229000
2.4 2 4.4 2 1.8 3
0
2017 2018 2019 2020 2021
Year

Interpretation:

From the above graph we can see that the NPV has been fluctuating over the past five
financial years. Even though the NPV is positive for all the five years where the company is
able to get the cash inflows out of the fund invested.

20
4.1.2 Table showing comparison of PAY BACK PERIOD for five years from 2017 to 2021

Year 2017 2018 2019 2020 2021

Initial Investment 1,18,45,572 78,82,994 9,11,494 46,63,117 1600000

Annual Cash Flow 45985166 60284279 75595499 207018587 103251000

PBP 0.25 0.13 0.01 0.02 0.01

Figure 4.1.2 Payback Period

0.3
0.25
0.25

0.2 0.13
PAY BACK PERIOD

0.15 0.02

0.01
0.1
0.01
0.05

0
2017 2018 2019 2020 2021
YEAR

Interpretation:

As a conventional rule lower the payback period is good for the business. It stood at 0.01 for
the current financial year as compared to the previous financial years. It reveals that
satisfactory condition of the business.

21
4.1.3 Table showing Comparison of ACCOUNTING RATE OF RETURN for five years
2017to 2021

Year 2017 2018 2019 2020 2021

Net profit 1,30,40,180 4,84,68,500 4,71,00,836 16,35,48,062 7,39,40,000

investment 1,18,45,572 78,82,994 9,114,94 46,63,117 1600000

ARR 1.1 6.14 5.16 35.07 46.21

Figure 4.1.3 Accounting Rate of Return

50
45 46.21
35.07
ACCOUNTING RATE OF RETURN

40
35
30
25
20
15
5.16
10 6.14

5 1.1
0
2017 2018 2019 2020 2021
YEAR

Interpretation:

From the above graph we can see that the ARR has been increased over the past five financial
years. It stood at about 46.21 times for the current financial year as compared to the previous
financial years figure of about 1.1 times. It reveals that satisfactory condition of the business.

22
4.1.4 Table showing comparison of NET CASH USED IN VARIOUS ACTIVITIES for five years
2017 to 2021

OPERATING INVESTING FINANCING

YEAR
ACTIVITIES ACTIVITIES ACTIVITIES

2017 14,06,88,844 7,37,22,131 2,59,77,992

2018 15,67,33,055 6,02,21,561 2,39,93,794

2019 11,96,28,271 5,47,77,560 26,09,03,786

2020 25,73,79,543 17,01,12,087 9,85,92,711

2021 18,85,10,000 80,20,000 46,937,000

Interpretation:

From comparing the net cash flow from operating activities, investing activities, and
financing activities for five years (2017-2021), it reveals that net cash from operating
activities is higher than investing activities and financing activities.

23
 Figure 4.1.1 Net Cash Used in Various Activities

300000000
260903786
257379543
250000000

200000000 188510000
170112087
156733055
150000000 140688844
119628271
98592711
100000000
73722131
60221561 54777560
46937000
50000000
25977992 23993794
8020000
0
2017 2018 2019 2020 2021

OPERATING INVESTING FINANCING

24
4.1.5 Table is showing comparison of RETURN ON NET WORTH for five years
from2017 to2021

Year 2017 2018 2019 2020 2021

Net income 1,30,40,180 4,84,68,500 4,71,00,836 16,35,48,062 7,39,40,000

Shareholder equity 328435198 375485857 420220340 395560515 461811000

Return on Net
3.9 12.9 11.2 41.3 16.01
worth / Equity (%)

Figure 4.1.5 Return on net worth

45
41.3
40
RETURN ON NETWORTH

35
30
25
20
16.01
15 12.9
11.2
10
3.9
5
0
2017 2018 2019 2020 2021
YEAR

Interpretation:

As a conventional rule, a return on net worth ratio of 0.1026 is considered satisfactory. From
the above statement the fact is depicted that the net worth ratio of SKM Siddha &Ayurveda
for all the five years is satisfactory.

25
4.1.6 Table is showing comparison of RETURN ON CAPITAL EMPLOYED for five
yearsfrom2017to 2021

Year 2017 2018 2019 2020 2021

Net operating profit 45985166 60284279 75595499 207018587 103251000

Capital employed 1011428265 1078315067 1114776269 1295880333 1356794000

Return on Capital
4.54 5.59 6.78 15.97 7.60
Employed (%)

Figure 4.1.6 Return on capital employed

18
15.97
RETURN ON CAPITAL EMPLOYEED

16

14
12
10
8 7.6
6.78
5.59
6
4.54
4
2
0
2017 2018 2019 2020 2021
YEAR

Interpretation:

As a conventional rule, the normal capital employed ratio of above 10% is satisfactory. From
the analysis the return on capital employed ratio of SKM Siddha &Ayurveda is less
satisfactory except 2020.

26
 4.1.7 Table is showing comparison of RETURN ON ASSETS for five years from 2017 to 2021

Year 2017 2018 2019 2020 2021

Net
1,30,40,180 4,84,68,500 4,71,00,836 16,35,48,062 7,39,40,000
income

Total
181,09,00,204 1,82,69,57,115 2,03,97,84,516 2,09,59,97,435 2326846000
assets

Return on
Assets (%) 0.72 2.65 2.30 7.80 3.17

Figure 4.1.7 Return on Assets

9
7.8
8
7
6
RETURN ON ASSET

5
4 3.17
3 2.65 2.3
2
1 0.72

0
2017 2018 2019 2020 2021
YEAR

Interpretation:

As a conventional rule, a return on assets of 5% is considered satisfactory. From the above

statement the fact is depicted that the return on assets of the SKM Siddha &Ayurveda is not
satisfactory except the year 2020.

27
4.2.1 COMPARITIVE BALANCESHEET FOR THE FY 2017 - 2018

CHANGES IN
PARTICULARS 2018 2017 ABSOLUTE PERCENTAGE
FIGURES
Non-current
702829210 682,993,069 19836141 2.90
assets
Current assets 1,124,127,905 1,127,907,137 -3779232 -0.33

Total Assets 1,82,69,57,115 181,09,00,204 16056911 0.88

Non-current
111,549,531 88,977,025 22572506 25.36
liabilities
Current
799,471,939 799,471,939 0 0
liabilities
Total liabilities 1,82,69,57,115 181,09,00,204 16056911 0.88

Interpretation:

The comparative balance sheet of the company reveals during the financial year 2017 – 2018
that there has been an increase in the non-current assets of 2.90% and decrease in current
assets of 0.33%.But the total assets has been increased to 0.88%. The overall financial
position of the company for the year 2017 -2018 is satisfactory.

Figure 4.2.1 Comparative balancesheet 2017 - 2018

2E+09
1.8E+09

1.6E+09

1.4E+09

1.2E+09

1E+09 2017
2018
60000000
0
400000000

200000000

Non- current total assets non-current current ttal

current assets liabilities liabilities
28
 4.2.2 COMPARITIVE BALANCESHEET FOR THE FY 2018 - 2019

CHANGES IN
PARTICULARS 2019 2018 ABSOLUTE PERCENTAGE
FIGURES
Non-current
694,555,929 702829210 -8,273,281 -1.17
assets
Current assets 1,345,228,587 1,124,127,905 221,100,682 20

Total Assets 2039784516 1,82,69,57,115 212,827,401 12

Non-current
118,781,025 111,549,531 7,231,494 6.4
liabilities
Current
925,008,247 799,471,939 125536308 16
liabilities
Total liabilities 2,03,97,84,516 1,82,69,57,115 212,827,401 12

Interpretation:

The comparative balance sheet of the company reveals during the financial year 2017 – 2018
that there has been an decrease in the non-current assets of 1.17 % and increase in current
assets of 20 %.But the total assets has been increased to 12 %. The overall financial position
of the company for the year 2018 -2019 is satisfactory.

Figure 4.2.2 Comparative balance sheet 2018- 2019

2.5E+09

2E+09

1.5E+09

2018
1E+09
2019

500000000

0
Non- current total Non- current Total
current assets assets current liabilities liabilities
assets liabilities

29
4.2.3 COMPARITIVE BALANCESHEET FOR THE FY 2019 - 2020

CHANGES IN
PARTICULARS 2020 2019 ABSOLUTE PERCENTAGE
FIGURES
Non-current
747,297,457 694,555,929 52741528 7.59
assets
Current assets 1,195,677,617 1,345,228,587 -149550970 -11.11

Total Assets 2,09,59,97,435 2039784516 56212919 2.75

Non-current
149758581 118,781,025 30977556 26.07
liabilities
Current
800,117,102 925,008,247 -124891145 -13.50
liabilities
Total liabilities 2,09,59,97,435 2,03,97,84,516 56212919 2.75

Interpretation:

The comparative balance sheet of the company reveals during the financial year 2017 – 2018
that there has been an increase in the non-current assets of 7.59 % and decrease in current
assets of 11.11 %.But the total assets has been increased to 2.75 %. The overall financial
position of the company for the year 2019 -2020 is satisfactory.

2.5E+09

2E+09

1.5E+09

1E+09
2019
2020
500000000

Figure 4.2.3 Comparative Balancesheet 2019 - 2020

30
 4.2.4 COMPARITIVE BALANCESHEET FOR THE FY 2020 - 2021

CHANGES IN
PARTICULARS 2021 2020 ABSOLUTE PERCENTAGE
FIGURES
Non-current
740,277,000 747,297,457 -7,020,57 -0.09
assets
Current assets 1,425,699,800 1,195,677,617 230022183 19.2

Total Assets 2326846000 2,09,59,97,435 230848565 11

Non-current
156857000 149758581 7098419 0.47
liabilities
Current
970052000 800,117,102 169934898 21.2
liabilities
Total liabilities 2326846000 2,09,59,97,435 230848565 11

Interpretation :

The comparative balance sheet of the company reveals during the financial year 2017 – 2018
that there has been an decrease in the non-current assets of 0.09 % and increase in current
assets of 19.2 %.But the total assets has been increased to 11 %. The overall financial
position of the company for the year 2020 -2021 is satisfactory.

Figure 4.2.4 Comparative balancesheet 2020 - 2021

2.5E+09

2E+09

1.5E+09

2020
1E+09 2021

500000000

0
non-current current total assets non-current current total liability
assets assets liability liability

31
4.3 TREND ANALYSIS

RETAINED GROSS TAX

INVESTMENT CREDITORS
PARTICULARS EARNINGS PROFIT EXPENSES

11845572 659151240 341135431 2662930915 32,944,985

2017

7882994 703465535 321006087 2631811037 33,654,325

2018

911494 732695245 255334349 2834650224 30,081,818

2019

4663117 882821752 177024326 1869657806

2020 66,300,319
Amount

2021 1600000 936637000 147296000 2243522000 29,311,000

2017 100 100 100 100 100

Trend percentage base year 2017

2018 66.5 107 94 99 102

2019 7.69 111 75 106 91

2020 39.3 134 52 70 201

2021 13.5 142 43 84 89

32
 Figure 4.3 Trend Analysis

250

201
200

142
150 134
Trend Analysis

100 100107
111 10094 10099106 100102
100 84 91 89
75 70
66.5
52
39.3 43
50
7.69 13.5
0
Retained
Investment Creditors Gross Profit Tax Expenses
Earnings
2017 100 100 100 100 100
2018 66.5 107 94 99 102
2019 7.69 111 75 106 91
2020 39.3 134 52 70 201
2021 13.5 142 43 84 89
Year

Interpretation:

From the above Trend analysis, Retained earnings value is increased year on year and
creditors is decreased year on year which indicates positive sign of the company. Investment,
gross profit& tax expenses has been fluctuated .It shows the overall financial position of the
company for the year 2017-2021 is satisfactory.

33
 CHAPTER – 5

FINDINGS, SUGGESTION AND CONCLUSION

5.1 FINDINGS :

 The company’s net present value is positive it shows that an investment would be
profitable.
 The payback period shows that the initial investment can be recovered within a short
period of time.
 The ARR is increasing year on year it reflects the percentage rate of return expected
on an investment is high, compared to the initial investment.
 The return on capital employed indicates that the company is smoothly running the
business by utilizing the capital efficiently.
 The ROA is negative it is a sign that the business is not obtaining the expected
benefits from its assets.
 The comparative balance sheet statement shows that the total asset has been
increased year on year.
 The trend analysis shows the satisfactory level of business.

34
5.2 SUGGESTIONS:

 An in-depth analysis of investments in this program helps gauge the company's Return on
investment, inflows and outflows to determine whether the expected return meets a set
benchmark. It provides an valuable explanation about the investments and returns that helps
the organization to implement innovations that help it increase its performance
 The company may focus in investing activities and effectively use its assets for attaining
maximum profit.
 The company’s annual report was fair and good, so it should focus on keep maintaining its
performance.

35
 5.3 CONCLUSION:

Expenditure planning is one of the main procedures for budget management, which
evaluates the efficiency of the effort. Capital budgeting is a step-by-step process that
businesses use to determine the merits of an investment project. The decision to accept or
reject an investment plan as part of a firm's growth effort involves determining the rate of
investment that such a plan will generate. Therefore, a study was done on the topic Capital
Budgeting of SKM Siddha and Ayurveda. Present value of the company and return on
investment. This study helped to examine the company's investments and management. The
company's return on its investment is good. But still it can improve the ROI. Financial
performance is satisfactory but there is room for further improvement.

36
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