Final Original

Semester: IV
Master of Business Administration
Project Title: A Study On Financial Performance Of HOCL, Kochi
CHAPTER 1 INTRODUCTION
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Toc H Institute of Science & Technology Arakkunnam 682 313
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INTRODUCTION
In developing countries like India, the public sector concerns have assumed great importance as a potential instrument of growth in the country. They are considered to be powerful engines for overall development of a country and a catalyst agent for bringing about the desired change and attaining the cherished goal of a socialistic as well as a welfare society. They provide large employment opportunities and undoubtedly occupy a pivotal position in the planned economic development of a country. Hindustan Organic Chemicals Limited, Kochi is such a public sector in Kerala, which caters to the needs of the society. The researcher, in this humble endeavor, proposes to conduct a multifaceted analysis of the financial statements of this company for five years from 2005 2010 with a view for getting valuable insight into the performance of the company. Finance is essential for the smooth running of the business. No business, whether big, medium, or small can be started without an adequate amount of finance. Finance is defined as the provision of money at the time when it is required. Finance is so indispensible today that it is rightly said to be the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives. Financial management is a managerial activity, which is associated with planning and controlling of companys financial resources. The financial resources are always scarce and limited, which needs proper planning control to achieve the best results out of the complex situation of risk and uncertainty prevailing in the business world. Financial Management is today recognized as the most important branch of business administration. It is that part of management which is concerned mainly raising funds in the most economic and suitable manner; using these funds as profitability as possible; planning future operations and control current performance and future developments through financial accounting, cost accounting, budgeting statistics and other means. It guides investments where opportunity is the greatest producing relatively
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uniform yardsticks for judging most of firms operations and projects and is continually concerned with achieving an adequate rate of return on investments, as this is necessary for survival and attracting new capital. Financial management implies the designing and implementation of a certain plan. The study intends to analyze the overall performance of Hindustan Organic Chemicals Limited, Kochi. Companys liquidity, profitability, and solvency are the areas, which are to be carefully scrutinized and properly analyzed and are brought under study and it is expected to arrive at satisfactory explanations and valuable suggestions.
BACKGROUND OF THE STUDY

Hindustan Organic Chemicals Limited, Kochi is committed to utilization of energy in the most efficient, cost effective, and environmentally responsible manner to ensure conservation of energy and sustainable development. This study is to analyze the financial performance of the company and to understand the various factors that influence the performance of the company.
SCOPE OF THE STUDY

The analysis is mainly carried out to find out the financial performance of HOCL. The financial analysis helps to find out the strengths and weakness of the HOCL. The study is mainly conducted to review the performance of the company for a period of 5 years from FY 2005-2006 to FY 2009-2010 as revealed from the financial data of HOCLs annual reports, manuals, and accounting records. This indirectly helps the investors, governments, employees, creditors and other stakeholders in financial forecasting and planning and also for decision making.
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Nature of study
The nature of the study is to analyze the financial performance of HOCL, Kochi. The study has been done for a period of five years from 2005 06 to 2009 10. The study is designed to cover the analysis of financial position, profitability and performance of the company on the basis of financial statements. The study of financial performance is based on tools like Ratio Analysis, Trend Analysis, Common Size analysis, Du Pont analysis, Comparative Statement analysis etc. Using this study the firm can get the necessary information to analyze and formulate strategies to improve the financial position of the company.
OBJECTIVES OF STUDY
Primary Objective
To analyze the financial position of Hindustan Organic Chemicals Ltd. Kochi, with the help of different financial tools, especially an inter firm comparison and DU PONT analysis.
Secondary Objectives
To analyze the liquidity position of the HOCL. To study the overall earning capacity or profitability position of the HOCL. To study the overall performance or activity level of HOCL. To analyze the current assets and current liabilities of the HOCL. To suggest steps to strengthen the financial position of HOCL for its betterment. To assess the operational efficiency and managerial effectiveness. To assess the short term as well as long term solvency position of the firm. Toc H Institute of Science & Technology Arakkunnam 682 313
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CHAPTER 2 THE INDUSTRY/COMPANY
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INDUSTRY PROFILE
The chemical industry comprises the companies that produce industrial chemicals. It is central to modern world economy, converting raw materials (oil, natural gas, air, water, metals, and minerals) into more than 70,000 different products. The chemical industry has a direct bearing on the industrial development of the country. It is regarded as a key industry in the industrial structure. Chemical industries yield a number of products such as industrial or heavy chemicals, soil fertilizers, explosives, dye stuffs, color, plastics, drugs, medicines, fine laboratory chemicals, soaps, essential oils, perfumes, tanning material, cosmetics, synthetic rubber and other chemical substances used in manufacturing processes. Major industrial customers include rubber and plastic products, textiles, apparel, petroleum refining, pulp and paper, and primary metals. Phenol falls into the category of compounds which is aromatic and organic. Being an organic compound, it contains hydrogen, oxygen, and carbon which are its main constituents. Phenol is a part of the Indian petrochemical industry and at present the growth in this sector is sluggish since phenol is an intermediate chemical as a result of which, the demand is dependent totally on the user-end industry. Sales of the chemical business can be divided into a few broad categories, including basic chemicals, life sciences, specialty chemicals and consumer products. Basic chemicals or "commodity chemicals" are a broad chemical category including polymers, bulk petrochemicals and intermediates, other derivatives and basic industrials, inorganic chemicals, and fertilizers. Typical growth rates for basic chemicals are about 0.5 to 0.7 times GDP. Life sciences (include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins, and crop protection chemicals. While much smaller in volume than other chemical sectors, their products tend to have very high prices over ten dollars per poundgrowth rates of 1.5 to 6 times GDP. Toc H Institute of Science & Technology Arakkunnam 682 313
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Specialty chemicals are a category of relatively high valued, rapidly growing chemicals with diverse end product markets. Typical growth rates are one to three times GDP with prices over a dollar per pound. Specialty Chemicals are sometimes referred to as "fine chemicals". Consumer products include direct product sale of chemicals such as soaps, detergents, and cosmetics. Typical growth rates are 0.8 to 1.0 times GDP.
The largest corporate producers worldwide, with plants in numerous countries, are BASF, Dow, Degussa, Eastman Chemical Company, Shell, Bayer, INEOS, ExxonMobil, DuPont, SABIC, Braskem and Mitsubishi, along with thousands of smaller firms. The chemical industry has shown rapid growth for more than fifty years. The fastest growing areas have been in the manufacture of synthetic organic polymers used as plastics, fibers and elastomers. Historically and presently the chemical industry has been concentrated in three areas of the world, Western Europe, North America and Japan (the Triad). The European Community remains the largest producer area followed by the USA and Japan. The chemical industry involves the use of chemical processes such as chemical reactions and refining methods to produce a wide variety of solid, liquid, and gaseous materials. Most of these products are used in manufacture of other items, although a smaller number are used directly by consumers. Solvents, pesticides, lye, washing soda, and portland cement are a few examples of product used by consumers. The industry includes manufacturers of inorganic- and organic-industrial chemicals, ceramic products, petrochemicals, agrochemicals, polymers and rubber (elastomers), oleo chemicals (oils, fats, and waxes), explosives, fragrances and flavors. Although the pharmaceutical industry is often considered a chemical industry, it has many different characteristics that puts it in a separate category.
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Other closely related industries include petroleum, glass, paint, ink, sealant, adhesive, and food processing manufacturers. Chemical processes such as chemical reactions are used in chemical plants to form new substances in various types of reaction vessels. In many cases the pressures with the use of catalysts. The products of these reactions are separated using a variety of techniques including distillation especially fractional distillation, precipitation, crystallization, adsorption, filtration, sublimation, and drying. The processes and product are usually tested during and after manufacture by dedicated instruments and on-site quality control laboratories to insure safe operation and to assure that the product will meet required specifications. The products are packaged and delivered by many methods,
including pipelines, tank-cars, and tank-trucks (for both solids and liquids), cylinders, drums, bottles, and boxes. Chemical companies often have a research and development laboratory for developing and testing products and processes. India was a net importer of chemicals in early 1990s, but has now become a net exporter due to reduction in Imports because of implementation of many large scale petrochemical plants like Reliance etc. and also because of tremendous growth of exports in sectors like bulk drugs and pharma, pesticides, dyes and intermediates.
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COMPANY PROFILE
Hindustan Organic Chemicals Limited incorporated on December 12 1960 under Companies Act 1956 under the Ministry of Chemicals & Fertilizers with the registered office at Rasayani, Raigad District in Maharashtra. HOCL was established with the objective of attaining self-reliance in basic organic chemical needs. In fact this was the first endeavor to indigenous manufacture of basic chemicals and reduces countrys dependence on import of vital organic chemicals. It was expected that indigenous manufacture of these chemicals intermediaries will give impetus to downstream industries resulting in setting up of chemical units and achieving self sufficiency for the country in this area. This objective of setting HOC has been achieved and at present more than 500 units based on HOCs products have been set up all over the country which have not only succeeded in meeting the goal of self sufficiency but also entered the international markets earning precious foreign exchange by exporting chemicals, dyes and drugs. HOCL is today a multi- technology company, with three fast growing units. The main organic complex at Rasayani, in Maharashtra. The phenol complex at Kochi. The polytetrafluoroethylene complex at Hindustan Fluro Carbon Ltd at Hyderabad. In the 1980s HOCL diversified its activities. Kochi has been identified as a growth centre due to the availability of raw materials, manpower and other infrastructural facilities. As a result, the phenol complex at Kochi came into reality. Hindustan Organic Chemicals Ltd Kochi is located in the Kochi industrial belt at Ambalamugal close to BPCL (KRL). HOCL Kochi was established in 1987 for the production of phenol and acetone. In the year 1997, this unit started the production of hydrogen peroxide. HOCL Kochi unit has been accredited with ISO Toc H Institute of Science & Technology Arakkunnam 682 313
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9001-2000 certificate for its products phenol, acetone and hydrogen peroxide. The unit has been accredited with ISO 14001 certification in 1996. HOCL is a recipient of various Awards since its inception including System Certification of Quality Management and Environment Management. The technology for Phenol and Acetone is based on UOP, USA which provide the state -ofart technology in a single package. The Hydrogen Peroxide is manufactured in HOCL applying KRUPP-Uhde (Germany) technology.
VISION
To play a dominant role in the domestic market and to be competitive.
MISSION
1. To maintain growth in turnover and to optimize return on asset. 2. To maintain health of plant and equipments to realize all its objectives. 3. To ensure upgradation of technology and innovations of value added products through R & D efforts. 4. To maintain international quality standards and optimum level of efficiency. 5. To practice customer friendly culture. 6. To continue development of human resource efforts. 7. To adhere to safety, health and environmental policy standards. 8. Implementation of growth strategy.
STRENGTHS
1. Rigid quality control 2. Competitive pricing Toc H Institute of Science & Technology Arakkunnam 682 313
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3. Good customer relations 4. Committed workforce 5. Team work 6. Signatory to responsible care In HOCL Kochi the majority of collections from customers are received at head office at Mumbai and they will transfer the required funds to the SBI bank in Ambalamedu. The permissible bank overdraft limit of the company is one crore. Most of the sales are done on credit basis. The credit policy of the company is operated depending upon the market situation prevailing from time to time within the framework approved by the board. The credit period allowed are phenol-45 days, acetone-30 days, hydrogen peroxide-60 days. A 15% interest is charged per month for daily payment and a 15% discount is provided for advance payment. Promissory notes are usually used to avoid bad debts.
ACHIEVEMENTS
1. The cumene plant was commissioned in 1987. 2. Phenol and acetone production commenced in 1988. 3. A captive power plant was added in 1992. 4. Hydrogen peroxide plant was commissioned in 1997. 5. The concentration unit of hydrogen peroxide plant was commissioned in 1998. 6. The unit marching ahead with further growth plans.
SERVICES
Infrastructure Available
Trained and highly qualified /experienced manpower Well equipped Laboratories & Workshops Toc H Institute of Science & Technology Arakkunnam 682 313
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Audio Visual Aids. Projector LCD, Slide & OHP. Well equipped A/C Halls.
Analytical Service
During the last three decades, HOC has played a pioneering role in the Indian Chemical Industry. HOC, Kochi Unit established QC Laboratories with latest state-ofart facilities and sophisticated Analytical Instruments since 1987. Now the laboratories are updated in tune with latest analytical research and development employing latest software for laboratory management systems. Quality Control (QC) Department of HOC Kochi Unit has got fully fledged dedicated QC Laboratories separately for Phenol/Acetone and Hydrogen Peroxide, equipped with latest sophisticated Analytical Instruments. The company has trained/highly qualified Officers/Chemists to carryout different QC functions. In line with its commitment to Quality, HOC Kochi Unit implemented ISO 9001 and ISO 14001 systems. This is to ensure customer satisfaction and to improve upon existing good customer relationship. QUALITY MEASURES Certificate of Analysis (COA) and Sealed sample of the product is provided with all product despatches in Tankers. For drum despatches, COA is provided on request. Specifications of our products viz. Phenol, Acetone and Hydrogen Peroxide (H2O2) and test methods are available on request from QC Department of HOC, Kochi Unit. Analytical training support in our QC Lab is provided free of charges to our customers on request. Customer complaints/suggestions for improvement if any regarding Quality of our products may be addressed to Chief Manager (Quality Control), HOC, Kochi.
QUALITY POLICY
It is the policy of HOCL, Kochi unit marketing and selling phenol, acetone and hydrogen peroxide to operate the Quality Management system that will fully meet the requirements of ISO 9001-2000. Toc H Institute of Science & Technology Arakkunnam 682 313
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Our objective is to enhance Customer Satisfaction by providing consistent quality product and to achieve continual improvement through business reviews and customer focus.
HRD POLICY
To attract and retain competent personnel by providing a productive environment, opportunity for growth and compensation comparable to industry practice. To build and nature work culture that focus on work entries and commitment to productivity, cost consciousness and commercial orientation, team work and dedication and to take pride in the company. To provide welfare facilities and amenities that will ensure highest standards of quality of life both at workplace and outside. To enclose high performance through Performance Management System and recognition of contribution. To provide opportunities for competence development of a continuous basis by various HRD intervention such as job rotation, in-house and external training programs.
ENVIRONMENTAL POLICY
Hindustan Organic Chemicals Ltd. is a public sector undertaking manufacturing Phenol, Acetone and Hydrogen Peroxide in its Kochi Unit. This unit follows the philosophy of maintaining harmonious relationship with the environment by adopting suitable technology in different areas of operation. We, at HOCL Ambalamugal, Kochi, commit ourselves to: Operate all plants based on good process control system with continuous improvements through review of the objectives and targets and also to conserve natural resources and energy. Comply with relevant statutory and legal requirements. Minimize wastes and prevent pollution. Promote safety at workplace for all employees and promote housekeeping. Toc H Institute of Science & Technology Arakkunnam 682 313
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Be an environmentally responsible neighbour to the community. This policy is documented and communicated to all employees and made available to the public.
HEALTH & SAFETY POLICY

HOCL Kochi is committed so far as reasonably practical to provide, A safe healthy and accident free working environment by adhering to safety rules and regulations. All possible preventive steps precautions and protective measures against any anticipated hazards. A responsible workforce including contract labours committed to safety through training and retraining. All safety measures in the operating and maintenance proceeding and in all process technology changes.
MAJOR CUSTOMERS OF HOCL

PHENOL Shubham Chemicals & Solvents, Delhi, P. H. Trading Kolkata, Mumbai, Alpha Labouratories Ltd, Mumbai. ACETONE Pioneer Chemical Industries, Mumbai, Divis Labouratories, Hyderabad Paras Dyes & Chemicals, Delhi. Surface Coating Industries, Chennai, Dr. Reddys Labouratories Ltd, Hyderabad. HYDROGEN PEROXIDE Hindustan Newsprints Ltd, Kottayam, Kerala, Newsprint & Paper Ltd, Tamil Nadu,Gem Enterprises, Madras, Lakshmi Trading Co Ltd, Kerala.
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MAJOR COMPETITORS OF HOCL

Benzo Petro International Ltd. Clarisis Organics Ltd. MK Aromatics Ltd. SI Group - India Ltd. Sriman Organic Chemical Industries Ltd. Vinati Organics Ltd.
PRODUCT PROFILE
HOCL Cochin unit situated at Ambalamugal 15km away from Cochin commissioned in the year 1987 to manufacture Phenol, Acetone, Hydrogen peroxide. The installed capacity of the Phenol, Acetone, Hydrogen peroxide are in the following: 1. Phenol 2. Acetone 3. Hydrogen peroxide - 40,000TPA - 24640TPA - 5225TPA The company certified for both the quality management and the environment management system i.e. ISO 9001 and 14001. HOCL Cochin unit start up of its plant unit maintained excellent performance in productivity, safety, quality and environment protection. Presently the plan is running of full capacity. HOCL provides the basic organic
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chemicals essential for vital industries: pesticides, drugs and medicines, dyes plastics, rubber chemicals, paints, explosive etc. PHENOL Phenol is versatile industrial organic chemical. The largest end use of phenol is in Phenol - Formaldehyde resins in wood additives as well as moulding and laminating resins, paints, varnishes and enamels. Phenol which is also referred to as Carbolic acid or Monohydroxy Benzene is used to produce a wide variety of chemical intermediaries, including Phenolic resins, Bisphenol-A Capro lactum, Alkyl phenols, Adipic acid, plasticizers, etc. Phenol is also used in the manufacture of preservatives, disinfectants, lubricating oils, herbicides, insecticides, pharmaceuticals. ACETONE Acetone is an important commercial solvent and raw material with wide usage in the chemical explosives and lacquer industry. It is commonly used as a solvent for Cellulose Acetate, Nitrocellulose, Celluloid, Cellulose Ether, chlorinated Rubber, various resins, fats and oils and an absorbent for Acetylene Gas. It is being increasingly used in the synthesis of a number of chemicals such as Diacetone Alcohol, Methyl Methacrylate and certain resins, pharmaceuticals and perfumes. HYDROGEN PEROXIDE Hydrogen Peroxide 50% w/w is an ecofriendly chemical product from HOC Kochi Unit with wide application in Paper and Textile Industries for Bleaching purpose as a substitute for hazardous Chlorine. It is also used in Electronic and metallurgical industries, Effluent Treatment Plants, Sewage Treatment and for removal of Toxic Pollutants from Industrial Gas Streams.
PHENOL PLANT BLOCK DIAGRAM
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Proceess of manufacture of phenol involves three stages: 1. Production of propylene. 2. Production of cumene. 3. Production of phenol and acetone. The cracked LPG received from BPCL (KRL) through pipeline is subjected to distillation in the fractioning columns to recover propylene (75% and termed as lean propylene). Lean propylene (75%) + Benzene hydrolysis. Toc H Institute of Science & Technology Arakkunnam 682 313 Cumene Phenol and acetone are produced through two principle reactions, viz oxidation and
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Cumene + Oxygen Cumene hydroperoxide
Cumene hydroperoxide Phenol + Acetone
Waste products obtained in the process are Heavy end products of cumene waste products obtained at the bottom of cume column. It may be used as a fuel to furnaces since it has a very high calorific value. Drag benzene the unreacted benzene in the alkylation process is recycled, which is removed called as drag benzene. Cumox waste oil the bottom position of the acetone column, which consists of impurities, is sent to tar cracking section for removal of tarry waste. This waste is called cumox waste oil.
HYDROGEN PEROXIDE PLANT PROCESS BLOCK DIAGRAM
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This plant is based on UHDEs Ethyl Anthraquione process .2-Ethyl anthraquinone (2-EAQ) the effective reactive component is dissolved in mixture of solvent called working solution. It is reduced by hydrogenation using palladium catalyst in the first step and further oxidized to generate Hydrogen peroxide and spring back 2-EAQ. A small portion of working solution prior to hydrogenation is subjected to chemical treatment to remove or control the accumulation of side reacted products.
RAW MATERIALS
Benzene Toc H Institute of Science & Technology Arakkunnam 682 313
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Liquified Petroleum Gas(LPG)
PRODUCTS MAJOR APPLICATIONS

PHENOL Production of Phenol Formaldehyde Resin Production of Bisphenol-A In pharmaceuticals for the production of salicylic acid. In plywood industry and paint industry for the manufacture of adhesives and compounds. ACETONE Production of Methacrylate. Used as a solvent Used in pharmaceuticals Production of Bisphenol Used as a thinner and in cosmetic industry. HYDROGEN PEROXIDE Bleaching Environmental Applications
HIGHLIGHTS
HOC, Kochi Unit is very cautious of manufacturing high quality of its products viz phenol, acetone and hydrogen peroxide (50%). This is achieved through stringent QC techniques right from raw materials through processing to furnished products.
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Technical/Analytical support is provided to their valuable customers wherever needed to have better understanding and customer satisfaction. Analytical method development and updating of standards and specification are carried out for continual improvement and to adopt latest technological developments. Prime importance is given for calibration/standardization of all inspection. Measuring test equipments (IMTE) in QC laboratories to ensure accuracy, precision and repeatability.
Major Customers of HOCL PHENOL

Shubham Chemicals & Solvents, Delhi. P.H. Tradings, Kolkata & Mumbai. Alpha Laboratories Ltd. Mumbai.
ACETONE
Pioneer Chemical Industries, Mumbai. Divis Laboratories, Hyderabad. Para Dyes & Chemicals, Delhi. Surface Coating Industries, Chennai. Dr.Reddys Laboratories Ltd. Hyderabad.
HYDROGEN PEROXIDE
Hindustan News Prints Ltd. Kottayam, Kerala. Tamilnadu News Prints & Paper Ltd. Tamil Nadu. Gem Enterprise, Chennai. Lakshmi Trading co Ltd. Kerala.
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ORGANIZATION CHART OF HOCL, KOCHI UNIT
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Final FINANCE DEPARTEMENT OF HOCL, KOCHI UNIT DM (F) Sales Accountin g& Page No: 23 Sales Tax A/cs, DM (F) DM (F) Costing, MIS, AM (F) Budgetin g, Establish Fund H Institute of Science & Toc ment Mgt., File Technology & Concurre Arakkunnam 682Provident 313 nce, Fund & Attending Cash Committe Charge AM (F) Materials, Accounti ng, Insurance & Misc. Payments AM PA to (F) DGM (F) & Coordination
DY. GENERAL MANAGER FIN.
etc.
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Projects/ Works, Central Excise & Service Tax
AAO MT SSV
AAO
AAO
SSA AA Gr.1
SSA OAS SOA (C)
SSA
GW Gr.1
DM (F) - Deputy Manager (Finance) AM (F) - Assistant Manager (Finance) MT - Management Trainee AAO - Assistant Accounts Officer SSA - Senior Accounts Assistant AA - Accounts Assistant SSV - Senior Stock Verifier SOA (C) - Senior Office Assistant (Clerk) OAS - Office Assistant (Steno) GW - General Workman
WORKS OF DIFFERENT SECTIONS OF FINANCE DEPARTEMENT

Final Accounts, Costing etc. Toc H Institute of Science & Technology Arakkunnam 682 313
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Consolidation of accounts of different sections and prepares Profit & Loss A/c and Balance Sheet. Coordinate with Internal auditors, Statutory auditors, Stock auditors, and Government auditors. Preparation of monthly MIS reports, Quarterly reports and statutory reports. Opening of tender, scrutiny and concurrence of all proposals relating to Raw materials, Sales Accounting Accounting of sales of Finished products such as Phenol, Acetone, Hydrogen Peroxide etc. Accounting of receipts from customers, issue of credit notes and debit notes etc. Preparation of various reports like customer wise Offake report, Customer balance, Customer ledger, BG/LC etc. and send to various marketing offices. Sales Tax Preparation of monthly and yearly sales tax returns based on input tax and output tax, submission of audited accounts to sales tax, collection and submission of various statutory forms and correspondence with sales tax office. Establishment Payment of salary to employees based on all earnings and deductions applicable to them. Payment and accounting of loans, advances, reimbursements, etc. to the employees. Computation of income tax on salary income after considering all the earnings, deductions, etc.
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Submission of TDS returns to the income tax office.
Provident Fund Accounting of PF contributions, loan payments, deduction of HOC employees. Maintenance of CPF Trust Accounts (CPF Trust is for company employees only). Collection, Accounting and remittance of PF contribution of contract employees with EPF Commissioner, submission of monthly and yearly returns to the EPF commissioner. Store Accounting Payment and accounting of Raw materials, Stores & Spares etc. Insurance and Misc. payments Insurance and miscellaneous payments such as Telephone, Taxi hire charge, Canteen, Guest house expenses. Projects/Works Payment and accounting of Work bills. Deduction of Income tax, ESI works contract tax etc. are filling of returns with the concerned offices. Central Excise Remittance of accounting of Excise duty after considering the CENVAT credit applicable. Submission of returns, Correspondence with the Central excise offices, coordinate with Central Excise Auditors etc.
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CHAPTER 3 REVIEW OF LITERATURE
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FINANCIAL PERFORMANCE ANALYSIS

Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may: Continue or discontinue its main operation or part of its business. Make or purchase certain materials in the manufacture of its product. Acquire or rent/lease certain machineries and equipment in the production of its goods. Issue stocks or negotiate for a bank loan to increase its working capital. Make decisions regarding investing or lending capital. Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.
Financial analysts often assess the firm's:

Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term.
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Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations. Both solvency and liquidity are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. Stability - the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both income statement and the balance sheet, as well as other financial and non-financial indicators. The analysis of financial statement represents the three major steps. 1. The first step involves the reorganization and rearrangement of the entire financial data as contained in the financial statements. This calls for the breaking down of individual components of financial statements and regrouping them into few principal elements according to their resemblances and affinities. Thus balance sheet and profit and loss accounts are completely recited and presented in the condensed form. 2. The next step is to establishment of significant relationship between the individual components of balance sheet and profit and loss accounts. This is done through the application of tools of financial analysis the Ration analysis, Trend analysis. Fund flow statement etc. 3. Finally, significance of results obtained by means of financial tools is evaluated. The term financial analysis refers to the process of determining financial strengths and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. A financial analyst analysis the financial statements with various tools Toc H Institute of Science & Technology Arakkunnam 682 313 This requires establishment of standards against which actual are evaluated
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of analysis before commenting upon the financial health or weakness of an enterprise. The analysis and interpretation of financial statements is to bring out the mystery behind the figures in financial statements.
TYPES OF FINANCIAL ANALYSIS The main objective of financial analysis is to determine the financial health of business enterprise. The analysis may be of following types. 1. External Analysis; This analysis is performed by outside parties such as trade creditors, investors, suppliers of long term debt. Etc. 2. Internal Analysis; This analysis is performed by the corporate finance and accounting department and is more detailed than external analysis. 3. Horizontal Analysis; This analysis compares die financial statements ie. Profit and loss accounts and balance sheet of previous year along with the current year. 4. Vertical Analysis; This analysis convert each element of the information into a percentage of the total amount of statement so as to establish relationship with other components of the same statement. 5. Trend Analysis; This analysis compare ratios of different components of the financial statements related to different period to those of a base year. 6. Ratio Analysis; This analysis establishes the numerical or quantitative relationship between two items/ variables of financial statement so that the strengths and weakness of a firm as well as its historical performance and current financial position can be determined. 7. Fund flow statement; This statement provides a comprehensive idea about the movement of finance in a business unit during a particular period of time.
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NATURE OF FINANCIAL STATEMENTS The nature of financial statements can be understood from the following points: 1. Recorded Facts:-The term recorded facts refers to the data drawn from accounting records. Only those facts which have been recorded in the books are shown in the financial statements. 2. Accounting principles:-In the preparation of financial statements, certain accounting principles, concepts and conventions are followed. For example, the principle of cost price or market price whichever is less is followed for valuation of stock. 3. Personal Judgement:-Personal judgement will have an impact on the financial statements. For example, the method of stock valuation, method of depreciation etc depend on the personal judgement of the accountant. OBJECTIVES OF FINANCIAL STATEMENTS The main objectives of financial statements may be summarized as follows: prise. To judge the financial position (both liquidity and solvency) of the enter-
To estimate the earning capacity of the enterprise.
To determine the debt capacity of the concern
To decide about the future prospects of the business.
To provide reliable financial information.
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To provide other needed information about changes in economic resources
and obligation.
To provide reliable information about changes in net resources.
To provide financial information that assess in estimating the earnings of a
business.
To disclose other information according to the needs of the users.
Thus ,the ultimate objective of financial statements is to get better insight
about the financial strengths and weaknesses of the firm.
LIMITATIONS OF FINANCIAL STATEMENTS Financial statements do not present a final picture of the business. They suffer from the following limitations: Financial statements are only interim reports. They are not final because the exact fi-
nancial position is known only when the business is sold or liquidated.
Some items in the financial statement s are based on personal judgements of the ac-
countant. This will affect the validity of financial statements.
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Balance sheet does not reveal the true picture of the business. In the balance sheet,
assets are shown at original costs. Replacement cost or realizable value is ignored
Financial statements ignore the changes in price level
Financial statements do not give all the information regarding the financial position
of the firm. They provide only a summarized view of the financial position and operation of the firm.
Only financial health of the company has been studied.
The figures drawn from one year statement have limited use and value. So it will be
dangerous to depend upon them only.
An analyst should also be cautions from window dressing in the accounts.
The researcher study on the analysis of the financial statement as the profit and loss account, balance sheet account and annual report of the company and supported by various financial management and management accounting text books. According to John N Myer die financial statement provide a summary of the account of die business enterprise, the balance sheet reflecting the assets and liabilities and the income statement showing the result of operations during certain period. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statement; the second step involved in the financial analysis is to arrange the information in a way to highlights significant relationships. The final step is interpretation Toc H Institute of Science & Technology Arakkunnam 682 313
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and drawing of interferences and conclusions. Thus financial statements include profit and loss account, balance sheet, and statement of retained earnings, fund flow statement and certain schedules.
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CHAPTER 4 METHODOLOGY
RESEARCH METHODOLOGY
The research methodology is away to solve systematically the research problems. The research methodology refers to the behavior and instruments that is used in performing the research operations such as making observations, recording data, the technique of processing data and the like. A. RESEARCH DESIGN A research design is an arrangement of condition for collection and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure. The research design adopted for the study is analytical in nature. Toc H Institute of Science & Technology Arakkunnam 682 313
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B. ANALYTICAL RESEARCH In analytical research the researcher has to use the facts and information already available and analyze these to make the critical evaluations of the material. C. PERIOD OF STUDY For the study the audited financial statements of the company, i.e. Balance sheet and Profit and loss account for consecutive 5 years are used. These reports are from the financial year 2006 to 2010. The research study was conducted for a period of 2 months. D. DATA COLLECTION There are mainly two types of data i.e. primary and secondary. Primary data are those which are collected for the first time and are original in nature. Secondary data are those that have already been collected data analyzed by someone else.
Primary Data
1. Un-structural interviews 2. Discussion with officials 3. Observation
Secondary Data
1. Annual reports. 2. Reports maintained by departments. 3. Books, Journal, Periodicals, etc. 4. Company website. E. DATA ANALYSIS
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There are various tools for data analysis. The data collected from various sources are analyzed with the help of ratio analysis, comparative balance sheet, comparative income statement, common size balance sheet, common size income statement and trend analysis.
METHODS OR DEVICES OF FINANCIAL ANALYSIS

The analysis and interpretation of financial statements is used to determine the financial position and results of operations as well. A number of methods or devices are used to study the relationship between different statements. An effort is made to use those devices which clearly analyze the position of enterprise. The following methods of analysis are generally used in this study: A. Comparative statements B. Trend analysis C. Common size statements D. Du Pont analysis E. Ratio analysis
A. RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of better understanding of financial strengths and weaknesses of a firm. There are number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. The following are the four steps involved in the ratio analysis: 1. Selection of relevant from the financial statements depending upon the objective of the analysis. 2. Calculation of appropriate ratios from the above data.
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3. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of the other firms or comparison with the ratios of the industry to which the firm belongs. 4. Interpretation of the ratios
CLASSIFICATION OF RATIOS
1. Liquidity ratios 2. Profitability ratio 3. Activity ratios 4. Leverage ratios Liquidity ratios measure the firms ability to meet the current obligations. Profitability ratios measure the overall performance and effectiveness of the firm. . Activity ratios reflect the firms efficiency in utilizing its assets. Leverage ratios show the proportions of debt and equity in financing the firms assets
1. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. Liquidity ratios measure the ability of the firm to meet its current obligations. In fact, analysis of liquidity needs the preparation of cash budgets and cash and fund flow statements but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. The most common ratios which indicate the extend of liquidity or lacks of it are: a) Current ratio b) Quick ratio Toc H Institute of Science & Technology Arakkunnam 682 313
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a) CURRENT RATIO
The current ratio indicates the ability of the firm to meet the short term obligations. The current ratio is calculated by dividing current assets by current liabilities. Current ratio = Current assets Current liabilities Current assets include cash and those assets which can be converted into cash within a year such as marketable securities, debtors, prepaid expenses and inventories. Current liabilities include all obligations maturing within a year such as creditors, bills payable, accrued expenses, short term bank loan, income tax liability, and long term debt maturing in current year.
b) QUICK RATIO
Quick ratio measures the companys ability to meet its short term liabilities with its most liquid assets. This ratio establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets which are considered to be relatively liquid and included in quick assets are book debts (debtors and bills receivable) and marketable securities (temporary quoted investments). Inventories are considered to be less liquid. Quick ratio is found out by dividing quick assets by current liabilities. Quick ratio = Current assets Inventories Current liabilities
2. PROFITABILITY RATIOS
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Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company; it will have no future if it fails to make sufficient profit. Therefore, the financial manager should continuously evaluate the efficiency of its company in terms of profit. The profitability ratios are calculated to measure the efficiency of the company. The different profitability ratios are: a) Gross profit ratio b) Net profit ratio c) Operating profit ratio d) Cash profit ratio
a) GROSS PROFIT RATIO

The gross profit ratio reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the gross profit and net sales. It is obtained by dividing gross profit and net sales. The two basic components of the gross profit are sales and cost of goods sold since gross profit is simply the excess of net sales over cost of goods sold. Gross profit is the difference of sales and cost of goods sold. Gross profit ratio = Gross profit * 100 Net sales
b) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after taxes) and sales, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This ratio is the overall measure of firms profitability and is calculated as: Net profit ratio = Net profit after tax * 100 Toc H Institute of Science & Technology Arakkunnam 682 313
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Net sales
c) OPERATING PROFIT RATIO

Operating Profit Ratio shows the relationship between Operating Profit and Net Sales. Operating Profit Ratio can be calculated in the following manner: Net sales Operating profit = Net sales (Cost of goods sold + Administrative and office expenses + Selling and Distributive expenses) d) CASH PROFIT RATIO This ratio establishes the relationship between cash profit and net sales. Cash profit ratio = Cash profit * 100 Net sales Operating profit ratio = Operating profit * 100
2. ACTIVITY RATIOS
Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratios because they indicate the speed with which the assets are being converted or turned over into sales. Activity ratios, thus, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. The different activity ratios are: a) Capital turnover ratio b) Fixed assets turnover ratio c) Working capital turnover ratio d) Inventory turnover ratio
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e) Debtors turnover ratio f) Total assets turnover ratio
a) CAPITAL TURNOVER RATIO

Capital turnover ratio is the relationship between the cost of goods sold (or sales when information about cost of goods sold is not available from the financial statements) and the capital employed. This ratio is calculated to measure the efficiency or the effectiveness with which a firm is utilizing its resources or the capital employed. As capital is invested in a business to make sales and earn profits, this ratio is an indicator of the overall profitability of a business.
Capital turnover ratio = Cost of goods sold or sales Capital employed
b) FIXED ASSETS TURNOVER RATIO

Fixed Assets turnover is the relationship between the sales or the cost of goods sold and fixed/capital assets employed in the business. The fixed assets turnover ratio measures how fixed assets are used to generate sales, by comparing sales to net fixed assets. Fixed assets turnover ratio = Sales Fixed assets
c) WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of net working capital. It is calculated by dividing net sales by working capital. A company uses Toc H Institute of Science & Technology Arakkunnam 682 313
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working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations.
Working capital turnover ratio
Net sales Working capital
d) INVENTORY TURNOVER RATIO

The inventory turnover ratio compares sales to inventories, reflecting a companys ability to convert inventory into cash. This ratio indicates the efficiency of the firm in selling is product. It is calculated by dividing the cost of goods sold by the average inventory. Inventory turnover ratio = Cost of sales Average inventory
e) DEBTORS TURNOVER RATIO

Debtors turnover ratio indicates the number of times debtors turnover each other. Generally, the higher the value of debtors turnover, the more efficient is the management of credit. Debtors turnover ratio is found out by dividing credit sales by average debtors. Debtors turnover ratio = Net sales s Average debtors
f) TOTAL ASSETS TURNOVER RATIO
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The total asset turnover ratio measures the ability of a company to use its assets to generate sales. The total asset turnover ratio considers all assets including fixed assets, like plant and equipment, as well as inventory and accounts receivable. It shows the ability in generating sales from all financial resources committed to total assets. Total assets include net fixed assets and current asset. Thus:
Total assets turnover ratio = Net sales Total assets
3. LEVERAGE RATIOS
The short term creditors, like bankers and suppliers of raw material, are more concerned with the firms current debt-paying ability. On the other hand, long term creditors, like debenture holders, financial institutions etc are more concerned with the firms long term financial strength. To judge the long term financial position of the firm, financial leverage or the capital structure ratios are calculated. Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt in total financing. Leverage ratios are also computed from the profit and loss items by determining the extent to which the operating profits are sufficient to cover the fixed charges.
The different leverage ratios are: a) Debt equity ratio b) Return on investment c) Return on total assets
a) DEBT EQUITY RATIO
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Debt equity ratio or External Internal equity ratio is calculated to measure the relative claims of outsiders and the owners (shareholders) against the firms assets. This ratio describes the lenders contribution for each rupee of the owners contribution. Debt equity ratio can be computed by dividing long term debt by shareholders funds. Debt equity ratio = Long term debt Shareholders funds
b) RETURN ON INVESTMENT
This ratio is obtained by dividing the earning before income and tax (EBIT) by the total of the net fixed asset and the net current asset. Return on investment = EBIT Net assets
c) RETURN ON TOTAL ASSET

This ratio is obtained by dividing the earnings before interest and tax (EBIT) by the total assets. Return on total asset = EBIT Total assets
B.
TREND ANALYSIS
Trend simply means general tendency. Analysis of these tendencies are called
trend analysis. In the context of financial analysis, trend analysis means analyzing general tendencies. In each item of the financial statements on the basis of the data of the base year. Under this technique, information for a number of years are is taken up and one year is taken Toc H Institute of Science & Technology Arakkunnam 682 313
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as base year. Each item of the base year is taken as 100 and on that basis the percentages for each other years are calculated. OBJECTIVES To find the trend or direction of movement over a period of time. To make a comprehensive and comparative study of financial statements. To have a better understanding of financial and profitability position. STEPS IN THE CALCULATION OF TREND RATIOS: Select a base year. Generally it is the 1st year Take the figures of the base year as 100 Calculate the trend percentages in relation to base year.
Trend percentage of each item in the other statement is calculated with reference to the same item in the base statement.
C.
COMMON SIZE STATEMENTS

Common-size financial statements are those
statements in which items are converted into percentages taking some common base. These statements are also called 100 percent statements or component percentage because each statement is reduced to the total 100 and each individual item is expressed as a percentage of this total. A statement in which each asset is shown as a percentage of total asset and each liability and capital as a percentage of total liability and capital is Toc H Institute of Science & Technology Arakkunnam 682 313
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called a Common Size Balance Sheet. In other words, it shows the relation of each component to the whole. A common size balance sheet shows relationship between each asset to total asset and each liability and capital to total liability and capital. In an income statement sales figures are assumed to be equal to 100 and all other figures of cost or expenses are expressed as percentage of sales. These are helpful to get a better understanding of balance sheet and income statements. The comparative financial statements and the trend analysis have a common limitation in that they are not helpful in understanding the changes that have taken place from year to year in relation to total assets, total liabilities, total capital or total net sales. The limitation of common base for comparison is eliminated by common-size analysis.
D.
COMPARITIVE FINANCIAL STATEMEN

Comparative Statements are financials drawn up in such a way as to provide time perspective to the various elements of financial position contained therein. These statements give the data for a certain number of years, showing: Absolute money values of each item separately for each of the periods stated Increase and decrease in absolute data in terms of money values Increase and decrease in terms of percentages Percentage of totals. Such comparative statements are necessary for the study of trends and
direction of movement in the financial position and operating results. This calls for a consistency in the practice of preparing these statements, otherwise comparability may be
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lost. Comparative statements enable horizontal analysis of figures found either in the Balance Sheet or in the Income Statement.
E. DU PONT ANALYSIS
The Du Pont company of US pioneered a system of financial analysis which has received wide spread recognition and acceptance. A useful system of analysis, which considers important interrelationship based on information found in financial statements, it has been adopted by many firms in some form or the other. On the top of the Du Pont chart is the return on assets (ROA), defined as the product of the net profit margin (NPM) and the total asset turnover ratio (TATR).
RETURN ON TOTAL ASSETS
NET PROFIT MARGIN
TOTAL ASSET TURNOVER
NET PROFIT
NET SALES
NET SALES
AVG.TOTA L ASSETS
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Such a decomposition helps in understanding how the return on the total assets is influenced by the net profit margin and the total assets turnover ratio. The left side of the Du Pont chart shows the details underlying the net profit margin ratio. An examination of this side may indicate areas where cost reductions may be effected to improve the net profit margin. The right side of the Du Pont chart throws light on the determinants of the total assets turnover ratio.
LIMITATION OF STUDY
There are some limitations for the study, viz. The scope of study is limited to the last five years only 2005-06 to 2009-2010. The study is concentrated to a single unit of HOCL working in Er-
nakulam district of Kerala. Accuracy in calculation as well as reliability is enrooted on the infor-
mation based in the Balance Sheet Time constrain is a major limiting factor in this study. Lack of experience of the Researcher.
In any organization, finance is a sensitive part of the internal management of the industry. Hence the authorities are reluctant to give more detailed information regarding the same. The only data made available were the annual reports of the company.
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The external factors which affect the performance of the company are not taken into account.
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CHAPTER 5 DATA ANALYSIS AND PRESENTATION
A.RATIO ANALYSIS
a. LIQUIDITY RATIO CURRENT RATIO FOR FIVE YEARS (in lakhs)
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CURRENT RATIO
= CURRENT ASSETS CURRENT LIABILITIES
TABLE SHOWING CALCULATION OF CURRENT RATIO
YEAR
CURRENT ASSETS
CURRENT LIABILITIES
CURRENT RATIO
2005-2006
11220.80
5428.06
2.07
2006-2007
12871.68
5919.94
2.17
2007-2008
12994.27
5306.24
2.45
2008-2009
12350.62
4178.35
2.96
2009-2010
12402.82
5078.11
2.44
GRAPH SHOWING CURRENT RATIO FOR FIVE YEARS
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INTERPRETATION The graph shows the current ratio of the company for five years from 2005-06 to 2009-2010. The current ratio of 2:1 is considered as ideal for a concern i.e. the firms assets should be twice of its current liabilities. The company shows an increasing trend for past four years. But during the last year it is slightly decreased. Company should consider this seriously in the next year. Companys assets are twice of its current liabilities; hence it can meet its debt easily at the time of crisis.
QUICK RATIO FOR FIVE YEARS (in lakhs)

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QUICK RATIO
QUICK ASSETS QUICK LIABILITIES
TABLE SHOWING CALCULATION OF QUICK RATIO
YEAR
Quick Assets
Quick Liabilities
Quick Ratio
2005-2006
4972.29
5428.06
0.92
2006-2007
7908.67
5919.95
1.34
2007-2008
8770.74
5306.24
1.65
2008-2009
6889.89
4178.35
1.65
2009-2010
6537.93
5078.11
1.29
GRAPH SHOWING QUICK RATIO FOR FIVE YEARS Toc H Institute of Science & Technology Arakkunnam 682 313
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INTERPRETATION It shows firms ability to meet current liabilities with its most liquid assets. 1:1 ratio is considered ideal ratio for a concern. During the first four years of study the graph is showing a continuously increasing trend. But during the last year it showed a slight decline. But still company is able to maintain it in a higher rate than the year 2005-06.
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b. PROFITABILITY RATIOS GROSS PROFIT RATIO FOR FIVE YEARS (in lakhs)
GROSS PROFIT SALES TABLE SHOWING CALCULATION OF GROSS PROFIT RATIO GROSS PROFIT RATIO =
YEAR
Gross Profit
Net Sales
Gross Profit Ratio
2005-2006
4762.96
24898.21
0.19
2006-2007
10981.39
41200.48
0.27
2007-2008
11840.14
46529.86
0.25
2008-2009
6758.26
42796.43
0.16
2009-2010
6523.33
38032.64
0.17
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GRAPH SHOWING GROSS PROFIT RATIO FOR FIVE YEARS
INTERPRETATION The ratios are calculated to enlighten the end results of the business activities which are sole criterion of the overall efficiency of a business concern. During the year 2006-07 the firm enjoyed a higher gross profit ratio. The gross profit was in a declined stage in the year 2008-09, this is because the direct expenses are increasing. During the last year 2009-10 company earned higher gross profit than 2008-09.
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NET PROFIT RATIO FOR FIVE YEARS (in lakhs)

NET PROFIT RATIO = NET PROFIT
NET SALES TABLE SHOWING CALCULATION OF NET PROFIT RATIO
YEAR
Net Profit
Net Sales
Net Profit Ratio
2005-2006
463.66
24898.21
0.02
2006-2007
7352.97
41200.48
0.18
2007-2008
7541.82
46529.86
0.16
2008-2009
1825.66
42796.43
0.04
2009-2010
1333.97
38032.64
0.04
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GRAPH SHOWING NET PROFIT RATIO FOR FIVE YEARS
INTERPRETATION It indicates the results of the overall operations of the firm. It establishes the relationship between net profit after tax and sales. It shows the efficiency of the management in manufacturing, selling and distribution and also the administration and other activities of the firm. The net profit was its boom stage during the period 2006-07 and 2007-08. But during the period 2008-09 and 2009-10 it shows a slight decline. As the companys net profit has a higher fluctuating trend the firm should take at most care in dealing the net profit.
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OPERATING PROFIT RATIO FOR FIVE YEARS (in lakhs)

OPERATING PROFIT RATIO = OPERATING PROFIT
NET SALES TABLE SHOWING CALCULATION OF OPERATING PROFIT RATIO
YEAR
Operating Profit
Net Sales
Operating Profit Ratio
2005-2006
2455.93
24898.21
0.10
2006-2007
9144.88
41200.48
0.22
2007-2008
9239.00
46529.86
0.20
2008-2009
3687.14
42796.44
0.09
2009-2010
3159.60
38032.64
0.08
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GRAPH SHOWING NET PROFIT RATIO FOR FIVE YEARS
INTERPRETATION This ratio establishes the relationship between operating profit and sales. This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met. Higher the ratio, the better it is. During the year 2006-07, the company enjoyed a higher operating profit. But during the last year 2009-10 the company faces a decline in the operating profit. The company should aim to attain a higher operating profit as a higher operating profit ratio is beneficial for the company.
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CASH PROFIT RATIO FOR FIVE YEARS

CASH PROFIT RATIO = CASH PROFIT NET SALES TABLE SHOWING CALCULATION OF CASH PROFIT RATIO
YEAR
Cash Profit
Net Sales
Cash Profit Ratio
2005-2006
1515.43
24898.21
0.06
2006-2007
8341.68
41200.48
0.20
2007-2008
8456.22
46529.86
0.18
2008-2009
2745.50
42796.43
0.06
2009-2010
2192.51
38032.64
0.06
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GRAPH SHOWING CASH PROFIT RATIO FOR FIVE YEARS
INTERPRETATION The ratio establishes the relationship between cash profit and net sales. Higher the ratio shows that the company has higher profit in cash form to spend for its expenditure. During the financial year 2006-07 and 2007-08 the company enjoys higher cash profit. But during the last year the cash profit has been at a low rate. Hence the company should aim to increase the cash profit ratio in the next year.
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C. TURNOVER / ACTIVITY RATIOS CAPITAL TURNOVER RATIO FOR FIVE YEARS (in lakhs)
CAPITAL TURNOVER RATIO = NET SALES CAPITAL EMPLOYED TABLE SHOWING CALCULATION OF CAPITAL TURNOVER RATIO
YEAR
Net Sales
Capital Employed
Capital Turnover Ratio
2005-2006
24898.21
15663.99
1.59
2006-2007
41200.48
16261.10
2.53
2007-2008
46529.86
16210.22
2.87
2008-2009
42796.43
16140.47
2.65
2009-2010
38032.64
14519.99
2.62
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GRAPH SHOWING CAPITAL TURNOVER RATIO FOR FIVE YEARS
INTERPRETATION This ratio shows the efficiency of capital employed in the business by computing how many times capital employed is turned over in a stated period. The capital turnover ratio is at its highest peak in 2007-08. During the last two years company strives to maintains a stable capital turnover ratio.
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FIXED ASSET TURNOVER RATIO FOR FIVE YEARS (in lakhs)

FIXED ASSETS TURNOVER RATIO = NET SALES FIXED ASSETS TABLE SHOWING CALCULATION OF FIXED ASSET TURNOVER RATIO
YEAR
Net Sales
Fixed Assets
Fixed Assets Turnover Ratio
2005-2006
24898.21
9870.46
2.52
2006-2007
41200.48
9280.56
4.44
2007-2008
46529.86
8489.73
5.48
2008-2009
42796.43
7853.28
5.45
2009-2010
38032.64
7185.16
5.29
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GRAPH SHOWING FIXED ASSET TURNOVER RATIO FOR FIVE YEARS
INTERPRETATION This ratio shows how well the fixed assets are being used to generate sales in the business. The higher the ratio, the better is the performance. In the year 2005-06, this ratio was satisfactory, but during the later years this ratio showed comparatively higher rates. This shows a positive trend for the company.
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WORKING CAPITAL TURNOVER RATIO FOR FIVE YEARS (in lakhs)

WORKING CAPITAL TURNOVER RATIO = NET SALES WORKING CAPITAL TABLE SHOWING CALCULATION OF WORKING CAPITAL TURNOVER RATIO
YEAR
Net Sales
Working Capital
Working Capital Turnover Ratio
2005-2006
24898.21
5792.74
4.30
2006-2007
41200.48
6951.74
5.93
2007-2008
46529.86
7688.03
6.05
2008-2009
42796.43
8172.27
5.24
2009-2010
38032.64
7324.72
5.19
GRAPH SHOWING WORKING CAPITAL TURNOVER RATIO FOR FIVE YEARS Toc H Institute of Science & Technology Arakkunnam 682 313
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INTERPRETATION This ratio shows the number of times working capital is turned over in a stated period. The higher the ratio, the lower is the investment in working capital and the greater are the profits. The graph shows a comparatively higher trend for the financial years 2006 to 2008. Even if the ratio tend to fall down the company was able to maintain it in the year 2009-10. The company should aim to attain a higher ratio to earn a higher profit.
TOTAL ASSET TURNOVER RATIO FOR FIVE YEARS

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(in lakhs)
TOTAL ASSETS TURNOVER RATIO = NET SALES TOTAL ASSETS TABLE SHOWING CALCULATION OF TOTAL ASSET TURNOVER RATIO
YEAR
Net Sales
Total Assets
Total Assets Turnover Ratio
2005-2006
24898.22
21091.26
1.18
2006-2007
41200.48
22152.24
1.86
2007-2008
46529.86
21484.00
2.17
2008-2009
42796.43
20203.90
2.12
2009-2010
38032.64
19587.98
1.94
GRAPH SHOWING TOTAL ASSET TURNOVER RATIO FOR FIVE YEARS Toc H Institute of Science & Technology Arakkunnam 682 313
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INTERPRETATION This ratio is calculated by dividing the net sales by the value of total assets. A high ratio is an indicator of over trading of total assets while a low ratio reveals ideal capacity. The traditional standard for the ratio is two times. This ratio was higher in the financial year 2007-08, even though it showed a small decline in 2009-10 the company may aim to bring it to higher rates than the financial year 2005-06 and 2006-07.
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INVENTORY TURNOVER RATIO FOR FIVE YEARS (in lakhs)

INVENTORY TURNOVER RATIO = COST OF SALES AVERAGE INVENTORY TABLE SHOWING CALCULATION OF INVENTORY TURNOVER RATIO
YEAR
Cost Of Sales
Average Inventory
Inventory Turnover Ratio
2005-2006
25071.31
5901.2
4.25
2006-2007
35009.14
5605.77
6.25
2007-2008
39828.29
4593.28
8.67
2008-2009
41826.29
4842.13
8.64
2009-2010
37359.33
5662.82
6.60
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GRAPH SHOWING INVENTORY TURNOVER RATIO FOR FIVE YEARS
INTERPRETATION This ratio establishes the relationship between cost of goods sold during a given period and the average amount of inventory held during that period. It denotes the speed at which the inventory will be converted into sales. Higher the ratio, the better it is because it shows that finished stock is rapidly turned over. This graph shows, during 2007-08 the firm has higher inventory turnover ratio. In 2009-10, it falls than that of the previous year but is still higher than the initial stages. Toc H Institute of Science & Technology Arakkunnam 682 313
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DEBTORS TURNOVER RATIO FOR FIVE YEARS (in lakhs)

DEBTORS TURNOVER RATIO = NET SALES AVERAGE DEBTORS TABLE SHOWING CALCULATION OF DEBTORS TURNOVER RATIO
YEAR
Net Sales
Average Debtors
Debtors Turnover Ratio
2005-2006
24898.21
3814.45
6.53
2006-2007
41200.48
3885.68
10.60
2007-2008
46529.86
5354.64
8.69
2008-2009
42796.43
4684.42
9.14
2009-2010
38032.64
4003.76
9.50
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GRAPH SHOWING DEBTORS TURNOVER RATIO FOR FIVE YEARS
INTERPRETATION It indicates the number of times on the average the receivables are turned over in each year. The higher the value of the ratio, the more is the efficient management of the debtors. It measures the account receivables (trade debtors & bills receivables) in terms of number of days of credit sales during a particular period. The firm has a higher ratio in the year 2006-07. But during the year 2007-08 it declined, but graphs indicates that the firm is able to manage its debtors efficiently for the past three years as there is an increase in the ratio. Toc H Institute of Science & Technology Arakkunnam 682 313
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d. LEVERAGE RATIOS DEBT EQUITY RATIO FOR FIVE YEARS (in lakhs)
DEBT EQUITY RATIO = DEBT EQUITY TABLE SHOWING CALCULATION OF DEBT EQITY RATIO
YEAR
Debt
Equity
Debt Equity Ratio
2005-2006
669.05
46384.80
0.01
2006-2007
48.92
53759.68
0.002
2007-2008
211.55
61254.61
0.007
2008-2009
1165.71
63255.20
0.02
2009-2010
1554.44
68071.63
0.02
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Semester: IV
GRAPH SHOWING DEBT EQUITY RATIO FOR FIVE YEARS
INTERPRETATION The ratio is calculated to measure the relative prepositions of outsiders funds and shareholders funds invested in the company. It is also known as external-internal equity ratio. During the financial year 2006-07 the companys ratio was its least, so the company was in a safe position. But during the later years it is increasing. Therefore the company should be very careful next year to make this ratio in decreasing trend.
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Semester: IV
RETURN ON INVESTMENT RATIO FOR FIVE YEARS (in lakhs)

RETURN ON INVESTMENT = EBIT NET ASSETS TABLE SHOWING CALCULATION OF RETURN ON INVESTMENT RATIO
YEAR
EBIT
Net Assets
Return On Investment
2005-2006
475.23
15663.99
0.03
2006-2007
7365.59
16261.10
0.45
2007-2008
7550.26
16210.22
0.47
2008-2009
1835.83
16140.47
0.11
2009-2010
1333.97
14519.98
0.09
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Semester: IV
GRAPH SHOWING RETURN ON INVESTMENT RATIO FOR FIVE YEARS
INTERPRETATION The ratio is obtained by dividing the earnings before interest and tax (EBIT) by the total of the net fixed asset and net current asset. During the year 2006-07 and 2007-08 there is high growth in this ratio. This ratio reflects the overall efficiency with which capital is employed. But during the last year there is a slight fall. The company should try to increase this ratio as it is a very important tool for taking capital budgeting decisions. Toc H Institute of Science & Technology Arakkunnam 682 313
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Semester: IV
RETURN ON TOTAL ASSETS RATIO FOR FIVE YEARS (in lakhs)

RETURN ON TOTAL ASSETS EBIT TOTAL ASSETS TABLE SHOWING CALCULATION OF RETURN ON TOTAL ASSETS RATIO
YEAR
EBIT
Total Assets
Return On Total Assets
2005-2006
475.23
21091.26
0.02
2006-2007
7365.59
22152.24
0.33
2007-2008
7550.26
21484.00
0.35
2008-2009
1835.83
20203.90
0.09
Page No: 80
Semester: IV
2009-2010
1333.97
19587.98
0.07
GRAPH SHOWING RETURN ON TOTAL ASSETS RATIO FOR FIVE YEARS
INTERPRETATION
Page No: 81
Semester: IV
The ratio is obtained by dividing the earnings before interest and tax (EBIT) by total assets. During the year 2006-07 and 2007-08 the ratio stood at peak position. But it declined in the former years. The company should aim to earn a high ratio to stand in a safe position.
B.TREND ANALYSIS (IN LAKHS)

Historical Data Fixed Assets Inventory Sundry Debtors Current Liabilities Sales Cost of Goods Sold Trend Percentages Fixed Assets Inventory Sundry Debtors Current Liabilities 100 100 100 100 94.31 79.43 166.56 109.06 86.33 67.59 200.77 97.76 80.72 87.39 120.58 76.98 72.89 93.86 154.08 93.55
2005-2006 9871.24 6248.51 2915.47 5428.06 24998.86 24814.78
2006-2007 9309.36 4963.02 4855.9 5919.95 40430.62 34639.67
2007-2008 8522.19 4223.53 5853.39 5306.24 45328.15 39373.74
2008-2009 7968.2 5460.73 3515.46 4178.35 44945.58 41405.5
2009-2010 7195.27 5864.9 4492.07 5078.11 37106.93 36981.07
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Semester: IV
Sales Cost of Goods Sold
100 100
161.73 139.59
181.32 158.67
179.79 166.86
148.43 149.03
GRAPH SHOWING TREND ANALYSIS FOR FIVE YEARS
INTERPRETATION Fixed Assets are reducing from 94.31% to 72.89%, shows no new asset purchase during the years. Inventory holding reduced in 2007-08. Sales show a peak in the same year. Debtors Toc H Institute of Science & Technology Arakkunnam 682 313
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Semester: IV
increased in 2007-08, reduce in 2008-09, and again show an increase in 2009-10. But sale figures are not increasing in the same proportion. Sale has increased by 20% in 2007-08 and reduces by 31% in 2009-10. Cost of goods sold increases by 8% in 2008-09 and decreases by 17% in 2009-10.
C.COMMON SIZE ANALYSIS
COMMON SIZE ANALYSIS OF BALANCE SHEET (IN LAKHS)
Page No: 84
Semester: IV
P A R T I C U 2 0A0 R -S0%6 2 0 0 6 - 0%7 2 0 0 7 - 0%8 2 0 0 8 - 0%9 2 0 0 9 - 1%0 L 5 A SSETS T O T A L A S 5 2E4T8 S21 0 0 5 9 7 2 91 0 0 6 6 7 7 21 0 0 6 8 5 9 91 0 0 7 1 3 6 21 0 0 S F I X E D A S S E 7 1S.128 . 8 9 3 0 9 .145 . 5 8 5 2 2 .122 . 7 7 9 6 8 121 . 6 7 1 9 5 .130 . 0 8 98T 1 9 6 . 2 I N V E N T O R 2I E 8 .151 . 9 14 9 6 3 8 . 3 14 2 2 3 .65 . 3 35 4 6 0 .77 . 9 65 8 6 4 .89 . 2 2 6 4S S U N . D E B T O 1R5 S.55 . 5 64 8 5 5 .89 . 1 35 8 5 3 .84 . 7 73 5 1 5 .55 . 1 24 4 9 2 .61 . 2 9 29 C A S H & B A 6N. 9K40 . 1 39 4 8 . 0 19 . 5 99 8 1 . 1 17 . 4 7 3 2 9 . 80 . 4 8 9 6 . 6 60 . 1 4 6 A C R . I N C O2 7 2 E4 01 . 5 22 6 9 . 9 05 . 4 52 6 6 . 7 04 . 4 02 7 1 . 0 09 . 4 02 5 2 . 7 08 . 3 5 M . L O A N S & A 7D1 V ..35 . 2 71 8 3 4 .37 . 0 71 6 6 9 .24 . 5 02 7 7 3 .45 . 0 41 6 9 6 .24 . 3 8 1 7 H .O A /C 3 1 3 9 5 9 .8 1 7 5 4 6 2 .8 6 5 2 5 6 7 .7 8 8 2 8 7 0 .3 8 1 7 6 7 2 .5 4 0 3 8 4 4 0 5 4 L IA B IL IT Y T O T A L L I A B 2 L4 I8T2 I E S 5 9 7 2 9 6 6 7 7 2 6 8 5 9 9 7 1 3 6 2 5I S H A R E C A P I3T4 A 6L. 3 7 3 3 4 2 5 . 6 0 3 3 4 2 5 . 0 1 3 3 4 2 4 . 8 7 3 3 4 2 4 . 6 8 3 2 R & S 4 3 0 4 8 2 .0 1 0 4 1 8 4 .4 1 7 9 1 8 6 .7 3 9 9 1 8 7 .3 4 1 3 8 8 6 .0 2 3 5 5 3 5 3 6 L O A N S 6 6 9 . 0 15 . 2 7 4 8 . 9 20 . 0 82 1 1 . 5 05 . 3 21 1 6 5 .17 . 7 01 5 5 4 .24 . 1 8 C U R . L I A B I5L4 I2T 8I .110S . 3 45 9 2 0 9 . 9 15 3 0 6 .72 . 9 54 1 7 8 .64 . 0 95 0 7 8 .71 . 1 2 E
INTERPRETATION Company is traditional financed as it is mostly depending on its internal funds such as share capital and reserves and surplus. Even though sales shows increasing trend debtors are being reduced year by year which is a good sign of debt collection. Company is not making any Toc H Institute of Science & Technology Arakkunnam 682 313
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Semester: IV
additional investment on fixed assets. In order to meet the consequences of recession company had taken loans during 2008-09. Company maintained a common percentage of working capital (say 5%) for the past 5 years.
COMMON SIZE ANALYSIS OF PROFIT AND LOSS STATEMENT (IN LAKHS)
Page No: 86
Semester: IV
P A R T I C U 0L 0 A5 R% S6 2 0 0 6 - % 7 2 0 0 7 - % 8 2 0 0 8 - % 9 2 0 0 9 - % 0 2 -0 0 0 0 1 T O T A L S 2A 5 L5 E 17 0 0 4 2 0 4 16 0 0 4 5 9 0 14 0 0 4 5 8 7 13 0 0 3 7 9 9 10 0 0 6S R M A T R 1 S4 .6 75 27 . 3 29 2 6 85 33 . 9 25 5 9 25 96 . 4 28 9 3 46 73 . 9 27 2 9 56 50 . 4 2 S T . A N D 8 S7 P . 83 7. 4 27 6 9 . 3 . 8 31 1 0 2 2. 4. 4 01 1 4 1 2. 3. 4 9 9 6 5 2 . 5 4 4 1 U T I L I T I E 3S 5 61. 7 . 0 547 7 11. 5 . 7630 6 51. 1 . 271 4 4 71. 6 . 2 642 2 71. 8 . 3 9 4 9 3 3 6 R E P A I R 3S 3 2 . 5 . 3 02 2 5 . 60 6. 5 43 9 1 . 90 4. 8 52 5 1 . 40 2. 5 54 3 5 . 5 4 . 4 0 1 71 S A L . & W 1A8 G5 2E7. S9. 2 51 8 8 4 4. 5. 4 82 1 8 9 4. 3. 7 72 8 4 6 6. 3. 2 03 0 1 8 7. 4. 9 5 A D M N . E X8 P4 E .N9 .S3 E17S5 6 . 71 6. 8 08 0 5 . 91 9. 7 66 6 9 . 71 5. 4 66 2 7 . 71 2. 6 5 5 3 S E L N . E X 2P 5E 6N. 51S 3.E0 S 6 9 . 40 7. 8 84 5 4 . 50 5. 9 94 2 0 . 70 9. 9 23 7 8 . 21 6. 0 0 03 P R O V I S I O . N 4 0 . 0 23 2 1 . 10 1. 7 62 1 . 5 8 . 0 5 6 . 8 7 0 . 0 11 3 9 . 90 6. 3 7 4 9 0 O P . P R O 2F 4I T 5 9. 9. 6 19 1 4 42. 9 . 7 95 2 3 92 0 . 133 6 8 7 8. 1. 0 43 1 5 9 8. 6. 3 2 5 1 I N T E R E S 4 0 . 5 . 6 88 0 3 . 2 . 9 17 8 2 . 71 8. 7 19 4 1 . 62 4. 0 59 6 7 . 02 9. 5 5 9T 3 1 D E P R E C I 1A 0 T4 I0O4. 2.N0 79 7 6 . 02 9. 3 29 0 5 . 91 6. 9 79 0 9 . 61 7. 9 88 5 8 . 52 4. 2 6 N E T P R O4 F I1 T. 11 2. 9 27 3 7 41. 9 . 5744 9 41. 9 . 323 0 0 0 4. 6. 3 61 4 7 4 3. 4. 8 8 9 7 6
INTERPRETATION
Page No: 87
Semester: IV
Total sale have a more than marginal increase (nearly 65%) in 2006-07 as compared to 200506. Then it shows only marginal increase or decrease up to 2008-09. But the sales have a little dip in 2009-10. 1) Total sale have a more than marginal increase (nearly 65%) in 200607 as compared to 2005-06. Then it shows only marginal increase or decrease up to 2008-09. But the sales have a little dip in 2009-10. Raw material cost shows an increase in 2006-07 as production and sale increases, but its percentage to sales a 3% decrease which is a very healthy sign. Percentage to sale is comparatively high in 2008-09 and 2009-10, which require more attention. Stores & Spares and utilities show almost the same trend as raw materials. Salaries and wages show a highly variable behavior on percentage. Administration and selling expenses are almost common on percentage. Depreciation is getting lower and lower on value, which shows not too much addition to fixed assets during the years. Operating profit and Net profit ratios are high in 2006-07 and 2007-08, but it reduced largely in the next two years and the net profit continuous to show a downfall trend. It may be due to the recession that hits the industry during 2008-09.
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Semester: IV
D.DU PONT ANALYSIS
TREE DIAGRAM FOR FIVE YEARS (in lakhs)
(2005-06)
Return on Total Assets PAT/Total Assets 2.33%
Net Profit Margin 1.98%
Total Asset Turnover 1.18 Total assets 21091.26
PAT 492.12
net sales 24898.21
net sales 24898.21
Page No: 89
Semester: IV
(2006-07) Return on Total Assets PAT/Total Assets 33.19%
PAT 7352.97
net sales 41200.48
net sales 41200.48
(2007-08) Return on Total Assets PAT/Total Toc H Institute of Science & Technology Arakkunnam 682 313
Page No: 90
Semester: IV
Assets 35.10%
PAT 7541.82
net sales 46529.86
net sales 46529.86
PAT 1825.66
net sales 42796.43
net sales 42796.43
Page No: 91
Semester: IV
PAT 1333.97
net sales 38032.64
net sales 38032.64
DU PONT TABLE FOR FIVE YEARS
YEAR
Return on assets
Net profit margin
Total asset turnover
Page No: 92
Semester: IV
(2005-2006) (2006-2007) (2007-2008) (2008-2009) (2009-2010)
2.33% 33.19% 35.10% 9.04% 6.81%
1.98% 17.85% 16.21% 4.27% 3.51%
1.18 1.86 2.17 2.12 1.94
INTERPRETATION The ROA shows an increasing trend up to 2007-08, then it shows a declining trend. This was largely due to decline in Profit Margins. The company has however tamed the buck by increasing the asset turnover to arrive at a better overall ROA. The profitability margin is also declined 2008-09 and onwards. This can be further explained as a consequence of the increase in the cost of goods sold which is in turn due to the increase in raw material costs. Salaries and wages also increased. Therefore the major causes for poor profitability are raising material and labor costs. Total asset turnover has remained fairly constant and in some cases even improved over the three years. This shows the effective management of the assets of the company.
E.COMPARITIVE STATEMENT ANALYSIS
Common size Analysis of Balance Sheet of HOCL
Page No: 93
Semester: IV
PARTICULARS ASSETS TOTAL ASSETS FIXED ASSETS INVENTORIES SUNDRY DEBTORS CASH & BANK ACCURED INCOME LOANS & ADVANCES HEAD OFFICE ACCOUNT LIABILITY TOTAL LIABILITIES SHARE CAPITAL RESERVE & SURPLUS LOANS CURRENT LIABILITIES
20072008 66772.4 8522.19 4223.53 5853.39 981.17 266.74 1669.44 45255.94 66772.4 3342 57912.61 211.55 5306.24
20082009 68599.26
20092010 71362.18
12.76 6.33 8.77 1.47 0.40 2.50 67.78
7968.2 5460.73 3515.46 329.8 271.09 2773.54 48280.44 68599.26
11.62 7.96 5.12 0.48 0.40 4.04 70.38
7195.27 5864.9 4492.07 96.66 252.778 1696.42 51764.08 71362.18
10.08 8.22 6.29 0.14 0.35 2.38 72.54
5.01 86.73 0.32 7.95
3342 59913.2 1165.71 4178.35
4.87 87.34 1.70 6.09
3342 61387.63 1554.44 5078.11
4.68 86.02 2.18 7.12
Common size Analysis of Balance Sheet of FACT
PARTICULARS ASSETS
2007-2008
2008-2009
2009-2010
Page No: 94
Semester: IV
TOTAL ASSETS
140645.80
100
184997.86
100
239821.84
100
FIXED ASSETS INVESTEMENTS INVENTORIES SUNDRY DEBTORS CASH & BANK OTHER CUR. ASSETS LOANS & ADVANCES P & L ACCOUNT LIABILITY TOTAL LIABILITIES SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS UNSECURED LOANS CURRENT LIABILITIES MISC. EXPENDITURE
43327.60 54.50 31844.48 7585.22 6746.39 501.98 11068.34 39517.29
30.81 0.13 22.64 5.39 4.80 0.36 7.87 28.10
39292.82 28130.50 41260.03 27137.12 2304.82 1071.17 10579.55 35221.85
21.24 15.21 22.30 14.67 1.25 0.58 5.72 19.04
37991.69 28130.15 57584.37 50978.94 2818.28 1138.18 15574.87 45605.36
15.84 11.73 24.01 21.26 1.18 0.47 6.49 19.02
140666.38 64707.20 91.16 36404.26 10442.39 29011.08 10.29
100 46.00 0.06 25.88 7.42 20.62 0.01
184997.86 64707.20 87.03 68109.98 12873.45 39220.20 0.00
100 34.98 0.05 36.82 6.96 21.20 0.00
239821.84 64707.20 83.11 85492.57 22393.15 67145.81 0.00
100 26.98 0.03 35.65 9.34 28.00 0.00
Common size Analysis of P & L of HOCL

20072008 45904.38 20082009 45873.26 20092010 37989.83
PARTICULARS TOTAL SALES
% 100
% 100
% 100
Page No: 95
Semester: IV
RAW MATERIALS STORES AND SPARES UTILITIES REPAIRS SALARIES & WAGES ADMN. EXPENSES SELLING EXPENSES PROVISION OPERATING PROFIT INTEREST DEPRECIATION NET PROFIT
25928.59 1102.38 6065.1 391.94 2189.29 805.99 454.55 21.58 9239 782.78 905.96 7494.93
56.48 2.40 13.21 0.85 4.77 1.76 0.99 0.05 20.13 1.71 1.97 16.33
29347.01 1141.32 7447.57 251.42 2846.27 669.75 420.79 6.87 3687.14 941.64 909.67 2000.59
63.97 2.49 16.24 0.55 6.20 1.46 0.92 0.01 8.04 2.05 1.98 4.36
22955.27 965 6227.79 435.54 3018.41 627.72 378.26 139.96 3159.6 967.09 858.54 1474.42
60.42 2.54 16.39 71.40 7.95 1.65 1.00 0.37 8.32 2.55 2.26 3.88
Common size Analysis of P & L of FACT
Page No: 96
Semester: IV
P A R T I C U L A R2 S 0 7 - 2% 0 02 80 0 8 - 2% 0 02 90 0 9 - 2% 0 1 0 0 5 4 03 T O T A L S A L E S & 1O 0 T5 H7 0E1 00R. 02 I11N 3 C8 O1 6M. 02 E80 6 2 61 00 . 07 3 M A T E R I A L S C O 4N8 S0 U 46M5. 0. E421 3D 5 1 67 17 . 021 032 5 6 26 10 . 9 50 1 6 C O S T O F T R A D E D 3 P3 R 0O 3. 0D. 10 U58 C 2T 3 S4. 1 .S05 O82 1L 9D 5 12 0. 3. 61 4 3 7 R E P A I R S & M A I N3 2T 4A 8 N.3 2. E04 72 8C 2 E4 1. 5 . 38 23 5 0 7 1. 8. 71 0 N R E M U N E R A T I O N 1 1& 7 4B 19 E1. 8N151 E23 F4 I9 T86 S. 53 812 0 4 0 29 . 8 09 . O T H E R E X P E N 1 S6 E0 S6 16 5. 5. 23 07 1 6 19 7. 2. 355 80 2 3 25 4. 5. 37 6 M A T E R I A L S A N D D I R2 9 C6 H30 A. 2 R83G8 E1 .S30 9O1 N 7C 1 O. 80N2. 1T 3 R A C T . 0 . 82 I N T E R E S T & F I N A 6N 2 C2 0I N5. 6.G86 96C 3 H9 5A 2. 6R. 90G91 E1 5S 9 75 . 26 82 D E P R E C I A T I O N & 3I M5 4 P 5 A3. 1.I 39R 54E 6 M2 3E 2. N. 14T 62 L4 2O 7 S1. 1S. 17 8 2
INTERPRETATION Repairs and maintenance cost is low for HOCL compared to FACT. Toc H Institute of Science & Technology Arakkunnam 682 313
Page No: 97
Semester: IV
Amount spent for salaries and wages as a percentage to sales very low in 2007-08 as compared to that of FACT. But the same is almost equal in 2008-09 and it again shows a low trend in 2009-10 against FACT. Raw materials consumed as a percentage on sales is high in 2007-08. But it reduced considerably in 2008-09 and in 2009-10 materials cost on sales is almost equal with FACT. Other indirect expenses are also very low as compared to that of FACT. Although interest and financial charges have not too much variance in 2008-09, its very low in other years, compared to FACT. Investment of HOCL on fixed asset is lower than that of FACT. FACT were keeping nearly 3 times the inventory of HOCL. HOCL's performance on debt collection is far better than FACT. HOCL is basically depends on traditional internal financing, whereas FACT keeping a balance on its internal as well as external financing.
Page No: 98
Semester: IV
CHAPTER 6 SUMMARY AND CONCLUSION
Page No: 99
Semester: IV
FINDINGS
Current Ratio is at the range of 2:1 in all years which is good to the company. Liquid ratio is 1:1, which is also a good sign. Company is maintaining a healthy average gross profit ratio of 20% for the last 5years. Even though the company is maintaining an average GP on the entire 5 years Net Profit ratio is highly fluctuating. In 2008-09 it has a notable from 16% to 4%, which continuous in 2009-10 also. Net profit ratio shows a highly fluctuating trend. The higher ratios are due to the high net profit apart from the sales of the company. The cash profit ratio is shows a low rate in 2009-10 and higher rate in 2006-07. This is due to the fluctuating trend of the profit, even if the sales vary slightly. Fixed Asset turnover ratio is high which shows efficient utilization of fixed asset. Inventory turnover shows on an average the inventory is selling 6-8 times in a year which is also good. Debt equity ratio is no way near the ideal 1:1. It shows that the company is depends on the traditional form of equity financing, which is a healthy sign to the creditors that they are highly secured. Return on investment is very high in 2006-07 and 2007-08, then reduces considerably in next two years, calls for more attention. Company's performance is highly volatile as it is at its high standards in 2006-07 and 2007-08, then a quick dip in its performance from all sides. During the year 2006-07, the working capital ratio is high. This s due to the increase in working capital in that year. Toc H Institute of Science & Technology Arakkunnam 682 313
Page No: 100
Semester: IV
Even though the company's debt collection is good it is keeping a huge amount of provision. Cash and Bank balance is getting reduced. Company is keeping almost an average inventory in its warehouse. Return on total assets was also found to be high in the year 2006-07 and 2007-08. This is because the earnings before interest and tax were high in these years irrespective of the total assets. The company is able to attain higher capital turnover when it employed less capital and increased sales. The low ratio was in the year 2005-06. They managed to bring up in the later years. Company has not purchased any assets during the 5 years, which badly affects the operating efficiency of the company as the Gross profit is reduced considerably during the years.
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Semester: IV
CONCLUSION
The analytical study of duration of two months was conducted in HOCL to analyze the financial performance. On account of detailed analysis of various financial statements and ratios it is clear that the company had a stable position with relatively increase in performance trend line. From the analysis of different tools it is clear that overall earning capacity or profitability position of HOCL is good.
It is also clear that the operational efficiency and managerial effectiveness is also
good. But the company had a major setback in its performance in the year 2006, as it faced a delicate fall in sales due to prevalence of competitor production in the market. The company did well in managing the available resources and improved efficiency in production. In 2006-2007 HOCL, Kochi recorded to highest profit, which was due to efficiency of management. The study on the financial performance showed a very high profitable future for HOCL, Kochi.
Page No: 102
Semester: IV
RECOMMENDATIONS
The company is highly depending on its internal sources for its financial needs. It can raise more funds from outside for its future expansion activities, which may be more economical for them. Indirect expenses were increased in 2008-09 and 2009-10, a control on expenses needed. Need more attention on Net profit as it is reduced 4 times when compared to 2007-08 Need to maintain little more quick assets to meet the contingencies. As the competitors in the chemical industry increases, the company must find way for increasing sales through proper advertisement and promotion. More profit is earned by the company in the years 2006-07 and 2007-08. The company should try to maintain this level in its further performance. The leverage position of the company is quite satisfactory, so the firm should try to continue the same performance level. When comparing with FACT the company could go along with the same method of spending as its expenses to sales %age is low.
Page No: 103
Semester: IV
FACT's form of Financing is ideal compared to HOCL's. HOCL's could raise more finance through external sources as its financial structure is as so that it could gain the confidence of creditors. Raw material cost is showing a fluctuating tendency which could directly affect the pricing policy of Company. More attention is needed.
BIBLIOGRAPHY
Page No: 104
Semester: IV
I M Pandey, Financial Management, Vikas Publishing House, ninth edition , 2007 Annual Report of BPCL. Financial Management Principles and practices, Gallagher and Andrew, Edition 2005 Understanding Financial Management , H, Kent Baker, Gary E Powell Finance, Angelico A. Groppelli, Ehsadn Nikbakt, Edition 2000 Links

www.hocl.gov.in
Page No: 105
Semester: IV
www.hoclkochi.com www.scribd.com www.authorstream.com www.hoovers.com
APPENDIX
PROFIT & LOSS ACCOUNT FOR THE YEAR 2005-06 TO 2009-10
Particulars INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Less: Pre-operative Expenses Capitalised Total Expenditure Operating Profit Interest 10-Mar 520.71 43.73 476.98 18.71 -2.13 493.56 301.97 89.76 80.15 22.08 9.53 23.4 0 526.89 -33.33 23.23 09-Mar 620.9 74.66 546.24 57.54 22.11 625.89 383.95 95.16 66.88 23.63 10.25 22 0 601.87 24.02 22.1 08-Mar 666.6 92.11 574.49 20.64 -15.95 579.18 340.63 72.57 53.59 21.53 10.17 21.7 0 520.19 58.99 18.77 07- Mar 591.36 86.3 505.06 36.22 -7.45 533.83 299.21 67.35 58.62 13.86 9.89 18.38 0 467.31 66.52 21.73 06-Mar 451.12 64.54 386.58 14.68 1.32 402.58 245.55 58.83 52.67 17.94 10.35 18.24 0 403.58 -1 27.62
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Semester: IV
Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit Adjst. below Net Profit P & L Balance brought forward Statutory Appropriations Appropriations P & L Balance carried down Dividend Preference Dividend Equity Dividend % Earnings Per Share-Unit Curr Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr Particulars
-56.56 26.52 -83.08 0 0 0 -83.08 1.24 -84.32 0 -265.91 0 -10.5 -338.49 0 0 0 0 0 -30.69 10-Mar
1.92 26.8 -24.88 0 0.39 0 -25.27 0.67 -25.94 0 -240.64 0 0 -265.91 0 0 0 0 0 -18.05 09-Mar
40.22 26.23 13.99 0 0.38 0 13.61 -1.56 15.17 0 -254.25 0 0 -240.64 0 0 0 2.02 2.02 -13.92 08-Mar
44.79 27.11 17.68 0 0.64 0 17.04 -0.88 17.92 0 -271.29 0 0 -254.25 0 0 0 2.53 2.53 -15.88 07-Mar
-28.62 27.86 -56.48 0 0.13 0 -56.61 -4.2 -52.41 0 -214.68 0 0 -271.29 0 0 0 0 0 -18.34 06-Mar
Balance sheet for the year 2005-2006 to 2009-2010 Particulars SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Less:Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Investments 10-Mar 09-Mar 08Mar 07-Mar 67.27 -174.09 -106.82 126.51 89.69 216.2 109.38 675.52 437.11 0 238.41 0 31.47 0.5 06-Mar 67.27 -190.65 -123.38 231.28 205.58 436.86 313.48 667.69 410.04 0 257.65 0 32.9 0.5
337.27 337.27 337.27 -273.71 -188.67 -160.9 63.56 148.6 176.37 70.28 60.65 18.48 183.34 170.79 163.42 253.62 231.44 181.9 317.18 380.04 358.27 705.79 513.78 0 192.01 0 30.69 11.06 702.78 676.7 487.34 462.75 0 0
215.44 213.95 0 0 31.33 47.69 11.06 0.5
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Semester: IV
Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities
76.26 47.24 28.95 79.02 231.47 96.54 51.51 148.05 83.42 0 0 0 0 317.18 108.27
66.95 58.74 38.87 65.9 46.41 62.87 87.25 41.66 239.48 229.17 76.94 100.56 42.16 36.59 119.1 137.15 120.38 92.02 1.83 4.11 0 0 0 0 0 0 380.04 358.27 91.42 71.85
62.66 54.26 91.07 40.13 248.12 375.87 37.76 413.63 -165.51 4.51 0 0 0 109.38 52.1
76.31 35.22 5.88 35.75 153.16 100.58 30.21 130.79 22.37 0.06 0 0 0 313.48 61.03
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Semester: IV

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

BACKGROUND OF THE STUDY

SCOPE OF THE STUDY

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

CHAPTER 2 THE INDUSTRY/COMPANY

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

HEALTH & SAFETY POLICY

MAJOR CUSTOMERS OF HOCL

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

MAJOR COMPETITORS OF HOCL

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

PHENOL PLANT BLOCK DIAGRAM

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Cumene + Oxygen Cumene hydroperoxide

Cumene hydroperoxide Phenol + Acetone

HYDROGEN PEROXIDE PLANT PROCESS BLOCK DIAGRAM

Toc H Institute of Science & Technology Arakkunnam 682 313

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Master of Business Administration

Project Title: A Study On Financial Performance Of HOCL, Kochi

Liquified Petroleum Gas(LPG)

PRODUCTS MAJOR APPLICATIONS