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A STUDY ON FINANCIAL ANALYSIS IN ROOTS INDUSTRIES LIMITED

Submitted in partial fulfillment of the requirements for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION

In

(Financial Services)
Submitted by Mr.S.SENTHILKUMAR
Enroll. No.07AMBFS0049 Register. No.07NFS0049

Under the guidance of


Ms.R.BRINDHA, MBA, M.Phil, (PhD), PGDCA.

SCHOOL OF DISTANCE EDUCATION BHARATHIAR UNIVERSITY COIMBATORE-641046 MAY 2009

CERTIFICATE
CERTIFICATE
This is to certify that the project work entitled A STUDY ON
FINANCIAL ANALYSIS IN ROOTS INDUSTRIES LIMITED submitted to

the Bharathiar University in partial fulfillment of the requirements for the award of the Degree of Master of Business Administration in Human Resource Management is a record of original research work done by Mr.S.SENTHILKUMAR

(Register. No.07NFS0049) under my

supervision and guidance and that this project work has not formed the basis for the award of any Degree / Diploma / Associate ship / Fellowship or similar title to any candidate of any University.

(Seal) Signature of the Guide


Ms.R.BRINDHA, MBA, M.Phil, (PhD), PGDCA.

Forwarded by DIRECTOR School of Distance Education Bharathiar University Coimbatore-46 Submitted for the University Examination held on __________________

Internal Examiner

External Examiner

DECLA RATION

DECLARATION

I S.SENTHILKUMAR hereby declare that this project work entitled as


A STUDY ON FINANCIAL ANALYSIS IN ROOTS INDUSTRIES LIMITED under the supervision and guidance of Ms.R.BRINDHA,MBA,M.Phil,(PhD),PGDCA that this project work has not formed the basis for the award of my Degree / Diploma / Fellowship / Associate ship or similar title to any candidate of any University.

Signature of the Candidate Name: Mr.S.SENTHILKUMAR


Enrollment. No: 07AMBFS0049

Course: MBA (FIANANCIAL SERVICES)

Date:

COMPANY ERTIFICATE

Date: 30th May 2009

TO WHOM SO EVER IT MAY CONCERN


This is to certify that Mr.S.SENTHILKUMAR a M.B.A Student of School of Distance Education, Bharathiar University, Coimbatore has undergone a project work entitled A STUDY ON FINANCIAL ANALYSIS IN ROOTS INDUSTRIES LTD in our organization as a part of her curriculum. The period of his project work was from December 2008 to May 2009 He has shown keen interest in learning the various aspects connected with her academic requirements.

For ROOTS Industries Ltd.

Authorised Signatory

INDUSTRIES LTD, R.K.G.INDUSTRIAL ESTATE, GANAPATHY, COIMBATORE 641 006. INDIA. E-M@IL : INFO@ROOTS.CO.IN

ACKNOWLEDGEMENT
ACKNOWLEDGEMENT

I humbly prostrate myself before ALMIGHTY for his grace and abundant blessings that enabled me to complete this work successfully. I take immense pleasure in thanking Dr.N.BALASUBRAMANIAM, Director, School of Distance Education, BharathiarUniversity, Coimbatore for giving me an opportunity to undergo my project work. I thank Mrs.ANURADHA course Co-ordinator, BharathiarUniversity, Coimbatore for giving me the proper guidance. I thank my guide Ms.R.BRINDHA, MBA, M.Phil, (PhD), PGDCA for his valuable guidance and utmost involvement in every aspect of this thesis that inspired me to complete this task quickly and successfully. I take this opportunity to record my deepest appreciation to my loving and affectionate family members and parents for their spontaneous encouragement and long lasting moral support in all my endeavors. I wish to thank all my friends for their support and encouragement throughout my study.

S.Senthilkumar

SYNOPSIS
SYNOPSIS
A month of research work was aimed at getting real office exposure. During work in ROOTS Industries Ltd, the overall performance of the company was thoroughly observed and studied. Based on the information, instruction and details given by the company, this report is prepared. During the research work each and every activities of all departments are studied and information are gathered from the respective departments. By this training it is clear that the company is performing well in the competitive scenario. Co-operation from all the related people is the key element in the success of this work.

CONTENTS
CONTENTS
Chapter No Title Page No

1. INTRODUCTION 1.1. FINANCIAL ANALYSIS 2. INTRODUCTION TO THE INDUSTRY 2.1 INTRODUCTION OF INDUSTRY 2.2 COMPANY PROFILE 3. INTRODUCTION TO THE STUDY 3.1 OBJECTIVES OF THE STUDY 3.2 RESEARCH METHODOLOGY 4. ANALYSIS AND INTERPRETATION 5. FINDINGS AND SUGGESTIONS 5.1. FINDINGS 5.2. SUGGESTIONS 5.3 CONCLUSION APPENDIX REFERENCES 67 68 69 70 72 22 24 29 14 18 1

LIST OF TABLES

LIST OF TABLES
Table Title No 4.1 4.2 4.3 4.4A 4.4b 4.5 4.6a 4.6b 4.7 4.8 a 4.8 b 4.9 a 4.9 b GROUP COMPANIES OF ROOTS TRENDS IN COMPONENT INDUSTRY GROUP COMPANIES OF ROOTS RILS PRODUCTS RETURN ON CAPITAL EMPLOYED (ROCE) TOTAL ASSETS TURNOVER FIXED ASSETS TURNOVER CURRENT ASSETS TURNOVER INVENTORY TURNOVER AVERAGE RAW-MATERIAL STORAGE AVERAGE WORK-IN-PROGRESS INVENTORY FINISHED GOODS STORAGE CAPACITY UTILISATION No Page

4.10 3.11

OUT BOUND LOGISTICS COST AVERAGE COLLECTION PERIOD

LIST OF CHARTS

LIST OF CHARTS
Figure No. 1.1 1.2 1.3 1.4 1.5 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 GROUP COMPANIES OF ROOTS STRUCTURE OF RMCL OPERATIONS FLOW IN RMCL AN EXAMPLE OF FINANCIAL HIERARCHY OF FINANCIAL DECISIONS RETURN ON CAPITAL EMPLOYED (ROCE) TOTAL ASSETS TURNOVER FIXED ASSETS TURNOVER CURRENT ASSETS TURNOVER INVENTORY TURNOVER AVERAGE RAW-MATERIAL STORAGE AVERAGE WORK-IN-PROGRESS INVENTORY FINISHED GOODS STORAGE CAPACITY UTILISATION OUT BOUND LOGISTICS COST AVERAGE COLLECTION PERIOD Title

Page No

INTRODUCT ION

INTRODUCTION
1.1 INDUSTRY PROFILE
The Indian auto ancillary industry has come a long way since it had its small beginnings in the 1940s. If the evolution of the industry is traced in India, it can be classified into three distinct phases namely: Period prior to the entry of Maruti Udhyog Ltd, Period after the entry of Maruti Udhyog Ltd and Period post Liberalization. The period prior to the entry of Maruti Udhyog Ltd was characterized by small number of auto majors like Hindustan Motors, Premier Automobiles, Telco, Bajaj, Mahindra and Mahindra, low technology and assured business for most of the auto-component manufacturers.

The entry of Maruti in the 1980s marked the beginning of the second phase of the industry. The auto ancillary industry in the country really showed a spurt in growth during this period. This period witnessed the emergence of a new generation of auto ancillary manufacturers who were required to meet the stringent quality standards of Marutis Korean collaborator Suzuki of Japan. The good performance of Maruti resulted in an upswing for the domestic auto ancillary industry. It was during this period that auto components from India began to be exported.

The entry of foreign automobile manufacturers ranging from Mercedes Benz, Ford, and General Motors to Daewoo following the government liberalizing the foreign investment limits saw the beginning of the third phase of the evolution of the industry. The auto ancillary industry witnessed huge capacity expansions and modernization initiatives in the post liberalization period. Technological collaborations and equity partnerships with world leaders in auto components became a common affair. However, the global automobile majors soon realized the folly of their estimations in India. The market did not seem to be as big as it appeared to be. Hence, sales targets went awry. The tough competitive scenario saw a lot of consolidation in the industry and it still continues unabated. The Indian auto component sector is expected to grow at a healthy clip of above 20% in the coming years on the back of a strong demand from both domestic and international markets. This has already been evident from the industrys performance over last two years when it crossed 20% growth rates. Domestically the number of vehicles manufactured in India has risen from dramatically to 8.5 million units in 2007-08 from 2.4 million units in 1997-98. The market for automotive components can be divided in to three categories base on the identity of the buyer the original equipment manufacturer, replacement and exports. The principal drivers of demand for the automotive components industry from the OEM segment have been from passenger cars and commercial vehicles.

Where exports as an attractive option come to the fore in the huge outsourcing opportunity available for efficient Indian players. In the last to years, the Indian component industry has established itself among international original equipment

Manufacturers. Indias strengths derive largely from the easy availability of technically skilled manpower, low wages, superior quality and process orientation in comparison to other low-cost options such as China and Thailand. The automotive components manufacturers association along with Mckinsey has pegged domestic demand for components at $10-15 billion in 2015 from 1.4billion in 2003-2008 This would take the overall Industry size to $40-45 billion by 2015 in India.

Component production range


Table 1.1 Component products range COMPONENTS Body and Chasis Others Engine parts Equipments Electrical parts Suspension and braking parts Drive transmission and steering parts PERCENTANGE 9 12 7 31 10 12 19

Component Production Range


9% 19% 12% 10% 12% 7% 31%

Body and Chasis Engine parts Electrical parts Drive transmission and steering parts

Others Equipments Suspension and braking parts

Figure 1.1 Component Production Range

Table 1.2 Trends in Auto Component Industry in India Trends in Auto Component Industry YEAR OUTPUT EXPORTS INVESTMENT EXPORT SHARE TO 13% OUTPUT 14% 15% 16% 2004-05 4470 578 2300 2005-06 5430 760 2645 2006-07 6730 1020 3100 ($ Million) 2007-08 8700 1400 3950

1.2 COMPANY PROFILE


Roots single-minded pursuit of enhancing the quality of life has led to many diversifications. At Roots, the underlying belief is that the thirst for success is the yatra that drives the company to excel. ROOTS, today is a multifaceted conglomerate with interests in automobile accessories, cleaning equipment, castings, precision tools, high tech engineering services, healthcare and education.

They are committed to provide world-class products and services with due concern for the environment and safety of the society. This is achieved through total employee involvement, technology up gradation, cost reduction and continual improvement in Quality of the products and services

Quality management systems Compliance to QMS requirements

Its commitment to quality systems and society is visible through accruing of regional, national and international quality certification such as ISO, VDA6.1, QS, ISO/TS 16949 and ISO 14001 The group companies under Roots are: Table 1.3 Group Companies of ROOTS American Auto Service. Roots Auto Products Pvt Ltd. Roots Brake Systems Pvt Ltd. Roots Cast Pvt Ltd. Roots Digital Engineering Services Pvt Ltd. Roots Industries Ltd. Roots Industries (Malaysia) Sdn Bhd. Roots MultiClean Ltd. Roots Polycraft. Roots Precision Products. Every company of the Roots conglomerate has won international accreditations and certifications that reflect its high quality standards.

ROOTS VISION
IN PERFECT TUNE WITH NATURE

Roots group is in tune with latest world acclaimed human resource practices. Training and refresher courses form an integral part of every employees work portfolio. Roots is an active participant in Total Employee Involvement (TEI)

practice. The feel good factor created among its employees due to the HR practices followed leads to Low employee turnover. Relationship that travel beyond just the workplace environment. Roots products have successfully made their presence heard loud and clear in the global market. Roots horns are exported to over 15 countries worldwide. A major share of the exports goes to USA, Japan, Middle East and South America. Roots is the only Indian company that meets the demanding standards of the Japanese markets. Roots cleaning equipment and die cast parts, etc. are exported to USA, Europe, Australia, Japan, Far East, South America and several other advanced countries.

PRODUCTS
Roots Industries specializes in the manufacture of a wide range and line-up of automobile horns. Roots is a leading supplier to all the major vehicle manufacturers like Ford, Daimler Chrysler, Mitsubishi Lancer, Mahindra & Mahindra, Toyota, Tata Motors, Fiat Uno and Siena, TELCO, TVS Motor Company, Kinetic Honda, etc. Roots Industries Limited places a premium on original technology and innovation. Its technical collaboration with Robert Bosch S.S of Spain in 1995 has helped it to further strengthen its R & D activities and technical competence. This collaboration along with Roots' indigenous talent has kicked

off a spree of growth unmatched in the history of automobile OE manufacturers. Table 1.4 RILs products Windtone Vibrosonic Cleartone Bosch Range Roots 90 Megasonic Smartone Spider FSA2 R 70 Sensors

Original Equipment Manufacturers

The horns manufactured by ROOTS INDUSTRIES LIMITED are employed as Original Equipment by a number of vehicle manufacturers they are :

ASHOK LEYLAND TATRA UDYOG FIAT INDIA FORD MOTORS HINDUSTAN MOTORS

MAHINDRA & MAHINDRA MITSUBISHI LANCER BHARATH EARTH MOVERS TATA ENGINEERING DAIMLERCHRYSLER TOYOTA KIRLOSKAR VOLVO INDIA

CATERPILLAR INDIA TVS MOTOR COMPANY LIMITED SKODA AUTO INDIA PIAGGIO

Company Structure:

Figure 1.2 Structure of RMCL.

CHAIRMAN, ROOTS

MANAGING DIRECTOR, RMCL

HEAD, HRD

EXPORT & IMPORT

MARKETING

FINANCE

QUALITY CONTROL

PRODUCTION, PLANNING AND CONTROL

STORES

CHAIRMAN, ROOTS

MANAGING DIRECTOR, RMCL

HEAD, HRD

EXPORT & IMPORT

MARKETING

FINANCE

QUALITY CONTROL

PRODUCTION, PLANNING AND CONTROL

STORES

Figure 1.3 Operations Flow in RMCL.

START

TT T Monthly Forecast Plan


NOT OK

Information to Marketing

Capacity Study OK Weekly Production Plan

OK

Material Requirement Plan

OK Any Change NOT OK Production A

Production Plan Deviation Report

NOT OK
QA ACCEPTANCE

RECEIPT OF CUSTOMER ORDER

REWORK

OK STORES MARKETING

PACKING, INVOICING

DESPATCH

STOP

1.3 FINANCIAL PERFORMANCE ANALYSIS


Introduction Financial Analysis is the process of identifying the financial strength and weakness of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. Users of financial statements can get further insight about financial strengths and weakness of the firm if they properly analyse information reported in these statements. Management should be particularly interested in knowing financial strength of the firm to make to make their best use and to be able to spot out financial weaknesses of the firm to take suitable corrective actions. Thus, financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future. Users of Financial Analysis Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz. owners, creditors, investors and others. The nature of analysis will differ depending on the purpose of the analyst. Trade creditors are interested in firms ability to meet their claims over a very short period of time. Their analysis will therefore, confine to the evaluation of the firms liquidity position. Suppliers of long term debt, on the other hand, are concerned with the firms long-term solvency and survival. They analyse the firms profitability overtime, its

ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds. Long-term creditors do analyse the historical financial statements, but they place more emphasis on the firms projected, or proforma, financial statements to make analysis about its future solvency and profitability. Investors, who have invested their money in the firms share, are more concerned about the firms earnings. They restore more confidence in those firms that show steady growth in earnings. They restore more confidence in those firms that show steady growth in earnings. As such, they concentrate on the analysis of the firms present and future profitability. They are also interested in the firms financial structure to the extent it influences the firms earning ability and risk. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and that the firms financial condition is sound. Nature of Ratio Analysis: Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions an as the relationship between two or more things. In financial analysis, a ratio s used as a benchmark for evaluating the financial position and performance of a firm, the absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of the firm. IMPORTANCE AND LIMITATIONS OF RATIO ANALYSIS

IMPORTANCE As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative to basis and enables the drawing of inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: (i) liquidity position(ii) long term solvency (iii) operating efficiency (iv) overall profitability (v) inter-firm comparison and (vi)trend analysis. Liquidity Position: With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it Is able to meet its short term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short term loans. Long term solvency: Ratio analysis is equally useful for assessing the long term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the to the long term creditors, security analysis and the present and potential owners of the business. The long term solvency is measured by the leverage/capital structure and profitability ratios which focus on earning power and operating efficiency. Ratio analysis reveals that strengths and weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable

proportion of various sources of finance or it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly, the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk invoved. Operating efficiency: Yet another dimension of the usefulness of the ratio analysis, relevant from viewpoint of management, is that it throws light on the degree of efficiency in the management and utilization of assets. The various activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets total as well as its components. Overall profitability: Unlike the outside parties which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meet its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together. Inter firm comparison: Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping stone to remedial measures. This is made possible due to inter firm comparison and with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of the firm with the

industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of industry to which to belongs. An inter firm comparison to demonstrate firms position vis a vis its competitors. If the results are at variance either with the industry average or with those of the competitors, the firm can seek to identify the probable reasons and, in that light, take remedial measures. Trend analysis: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significant of a trend analysis of ratios lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be declining one. Limitations Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from various limitations. The operational implication of this is that while using ratios, the conclusions should not be taken on their face value. Some of the limitations which characteristics ratio analysis are 1) difficulty in comparison 2) impact of inflation, and 3) conceptual diversity. Difficulty in comparison: One serious limitation of ratio analysis arises out of the difficulty associated with comparability. One technique that is employed is inter-firm

comparison. But such comparisons vitiated by different procedures adopted by various firms. The differences may relate to: Differences in the basis of inventory valuation; Different Depreciation methods; Estimated working life of assets, particularly of Plant and equipment; Amortisation of intangible assets like goodwill, patents and so on; Amortisation of differed revenue expenditure such as preliminary expenditure and discount on the issue of shares; Capitalisation of lease; Treatment of extraordinary items of income and expenditure and so on. Impact of inflation The second major limitation of ratio analysis is associated with price level changes

1.4 OBJECTIVES

Primary Objectives: To analyse the financial performance of Roots Industries limited using its financial statements.

Secondary Objectives: To calculate Activity based ratios.

To identify the extent of utilization of resources using financial statements.

To interpret results for 5 years.

1.5 LIMITATIONS
Only Financial Statements of the company has been used for the purpose of the study. Financial Performance of the company is analysed by using 5 years financial data only.

2.1 RESEARCH METHODOLOGY:


Research Design Case study Data Collected Primary Data Figures from Five years Annual reports of the Company. Secondary Data Internet Company documents

3.1 ANALYSIS AND INTERPRETATION:


LIQUID RATIO: CURENT RATIO

CURRENT RATIO= CURRENT ASSETS / CURRENT LIABILITIES

FINANCIAL YEAR

CURRENTASSETS

CURRENT

CURRENT

2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

1279 1178 1376 1583 2287

LIABLITIES 414 449 644 857 1058

RATIO 3.09 2.62 2.13 1.85 2.16 2.37 0.49

CURRENT RATIO
4 3 2 1 0 2003-04 2004-05 2005-06 CURRENT RATIO 2006-07 2007-08 3.09 2.62

2.13

1.85

2.16

QUICK RATIO

QUICK RATIO= (CURRENT ASSETS-INVENTORIES) / CURRENT LIABILITIES CURRENT FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD QUICK ASSETS 919 729 1061 1086 1479 LIABLITIES 414 449 644 857 1058 RATIO 2.21 2.01 1.65 1.27 1.4 1.75 0.46 CURRENT

CURRENT RATIO
2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 QUICK RATIO 2006-07 2007-08 2.21 2.01 1.65 1.27 1.4

Leverage

DEBT- EQUITY RATIO

DE = TOTAL DEBT/ NET WORTH

Table 3. FIGURES IN LAKHS FINANCIAL YEAR NET WORTH 2003-04 926 2004-05 944 2005-06 907 2006-07 1116 2007-08 1179 MEAN SD TOTAL DEBT 861 674 634 989 1725 DEBTEQUITYRATIO 0.92 0.71 0.69 0.88 1.46 0.93 0.31

DEBT- EQUITY RATIO


2 1.5 1 0.5 0 2003-04 2004-05 2005-06 2006-07 2007-08 0.92 0.71 0.69 0.88 1.46

DEBTEQUITYRATIO

Figure 3.1 Inference: From the five years figures till the financial year 2003-04, the company has effectively INTEREST COVERAGE RATIO

INTEREST COVERAGE = EBIT / INTEREST

Table 3.4 FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD EBIT 322 301 388 494 470 INTEREST 97 83 39 38 106 INT COVERAGE 3.3 3.6 10.2 13 4.4 6.9 4.42

INTERST COVERAGE

14 12 10 8 6 4 2 0

13 10.2

3.3

3.6

4.4

2003-04

2004-05

2005-06

2006-07

2007-08

INT COVERAGE
Figure 3.1

Inference:

ACTIVITY RATOS
DEBTORS TURNOVER

DEBTORS TURNOVER = CREDIT SALES/ DEBTORS

Table 3. FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 CREDIT SALES 2730 2685 3468 DEBTORS 637 635 786 DRS TURNOVER 4.28 4.22 4.41

2006-07 2007-08 MEAN SD

4413 6337

765 1099

5.77 5.77 4.89 0.91

DEBTORS TURNOVER

7 6 5 4 3 2 1 0

5.77 4.28 4.22 4.41

5.77

2003-04

2004-05

2005-06

2006-07

2007-08

DEBTORS TURNOVER
Figure 3.1

Inference: FIXED ASSETS TURNOVER

FAT = NET SALES / FIXED ASSETS Fixed assets turnover is used to measure the ability of the firm to use Fixed Assets to generate revenues.

Table 3.3 FIXED ASSETS TURNOVER FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD SALES 2730 2685 3468 4413 6337 FIXED ASSETS 804 796 880 1276 1632 FAT 3.39 3.37 3.94 3.45 3.88 3.61 0.28

FIXED ASSETS TURNOVER

4 3.8 3.6 3.4 3.2 3 2003-04 2004-05 3.39 3.37

3.94

3.88 3.45

2005-06 FAT

2006-07

2007-08

Figure 3.3 FIXED ASSETS TURNOVER Inference: From the ratios it can be inferred that the company FAT ratio shows mixed trend this can be attributed to the variations in demand in the year 2005-06

the firm has shown highest utilisation of fixed assets. It has improved from the year 2005-06 to 2007-08 it can be understood that financial performance is lean.

CURRENT ASSETS TURNOVER

CAT = NET SALES / CURRENT ASSETS It is the measure to know how frequently current assets are turned or rotated frequently. Increase in the ratio would imply the amount blocked in current assets has been reduced.

Table 3.4 CURRENT ASSETS TURNOVER FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD SALES 2730 2685 3468 4413 6337 CURRENTASSETS 1279 1178 1376 1583 2287 CAT 2.13 2.27 2.52 2.78 2.77 2.5 0.29

CURRENT ASSETS TURNOVER

3 2.5 2 1.5 1 0.5 0

2.13

2.27

2.52

2.78

2.77

2003-04

2004-05

2005-06 CAT

2006-07

2007-08

Figure 3.4 CURRENT ASSETS TURNOVER Inference: From the Current assets turnover ratio chart it can be inferred that the ratio is increasing constantly so the amount blocked in current assets is low, hence the performance of the financial is lean.

INVENORY TURNOVER

I T = COGS / AVERAGE INVENTORY It indicates th e efficiency of the firm in producing and selling its product. The ratio indicates how fast inventory is sold.

able 3.5 INVENORY TURNOVER

INVENTO R OPENING I N V FINANCIAL COGS N T O R Y N T O R Y N N T O O V R E Y R 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD 2374 2495 3095 4015 5965 312 360 275 315 498 360 275 315 498 808 336 318 295 407 653 7.06 7.84 10.49 9.86 9.13 8.8 1.42 E CLOSING I N V E AVERAGE Y I N T V U E R

INVENTORY TURNOVER

15 10 5 0 2003-04 2004-05 7.06 7.84

10.49

9.86

9.13

2005-06
IT

2006-07

2007-08

Figure 3.5 INVENTORY TURNOVER Inference: Low ratio would indicate how fast inventory is sold. A high ratio is good from the view point of liquidity. From the last three years trend its evident that the company is trying to sell its products better than previous year, so companys Financial is lean.

AVERAGE RAW-MATERIAL STORAGE

ARMS = AVG RAW-MATERIAL INVENTORY / MONTHLY COMSUMPTION OF RAW-MATERIALS This ratio indicates the number of months the firm keeps raw material as stock.

Table 3.6 AVERAGE RAW-MATERIAL STORAGE

FIGURES IN LAKHS

FINANCIAL 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

OP RAW 236 252 231 244 383

CL RAW 252 231 244 237.5 313.5

MONTHLY CONSUMPTION AVERAGE OF RAW MATERIALS

ARMS (RATIO) 3.26 3.23 2.61 2.66 2.32 2.81 0.41

244 241.5 237.5 313.5 487

74.9 74.6 90.75 118.9 209.67

AVERAGE RAW-MATERIAL STORAGE 3.5 3 2.5 2 1.5 1 0.5 0 3.26 3.23 2.61 2.66 2.32

2003-04

2004-05

2005-06 ARMS

2006-07

2007-08

Figure 3.6AVERAGE RAW-MATERIAL STORAGE Inference: Low ratio implies that raw-material storage is lower and Financial performance. The trend from the figures is declining for the five year period so financial performance is good.

AVERAGE WORK-IN-PROGRESS INVENTORY

AWIPS = AVG WIP INVENTORY / COST OF PRODUCTION This indicates unfinished manufactured items being stocked by the firm. High value indicates quick sub-assemblies in to finished goods.

Table 3.7 AVERAGE WORK-IN-PROGRESS INVENTORY FIGURES IN LAKHS OP WIP I N V E N T O R Y * 35 19 28 40 35 19 28 40 79 CL WIP AWIPS (MONTHS) I N V E COST OF N AVERAGE PRODUCTION T O R Y 35 27 23.5 34 59.5 2377 2541 3081 4000 5913 1.47 1.06 1.06 0.85 1.006 1.03 0.27

FINANCIAL

2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

AVERAGE WORK-IN-PROGRESS INVENTORY 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1.47 1.06 1.06 0.85 1.006

2003-04

2004-05

2005-06 AWIPS

2006-07

2007-08

Figure 3.7 AVERAGE WORK-IN-PROGRESS INVENTORY Inference: From the chart it can be understood that work-in-progress inventory is declining and value is low, so financial performance is good.

FINISHED GOODS STORAGE

FGS = CLOSING STOCK / COGS This ratio is useful to measure the time of finished goods kept as stock. Low value of FGS would be suitable for OEM suppliers and higher value is suitable for products to replacement markets. Table 3.8 FINISHED GOODS STORAGE FIGURES IN LAKHS

FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

COGS 2374 2495 3095 4015 5965

CL.STOCK OF FINISH ED GOOD S 63 17 32 47 99

FGS (MONTHS) 2.65 0.68 1.033 1.17 1.66 1.44 0.76

FINISHED GOODS STORAGE

3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%

2.65% 1.66% 0.68% 1.03% 1.17%

2003-04 2004-05 2005-06 2006-07 2007-08 FGS

Figure 3.8 FINISHED GOODS STORAGE Inference: The firm supplies both to OEM and replacement markets depending on the supply to both the markets the ratio may differ year on year. Increase in ratio can be attributed to the supply to replacement market.

CAPACITY UTILISATION CAPACITY UTILISATION =QUANTITY PRODUCED / INSTALLED CAPACITY

It is obvious from the name that higher utilization of the capacity would result in better performance of financial. Table 3.9 CAPACITY UTILISATION FIGURES IN LAKHS

FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

QUANTITY PROD UCED 15.97 16 18 27 44

INSTALLED CAPAC ITY 30 30 30 36 75

CAPACITY UTILISATION(%) 53 53 60 75 58.67 59.93 9.01

CAPACITY UTILISATION 80% 70% 60% 50% 40% 30% 20% 10% 0% 75% 53% 53% 60% 58.67%

2003-04

2004-05

2005-06

2006-07

2007-08

CAPACITY UTILISATION

Figure 3.9 CAPACITY UTILISATION

Capacity utilization ratio when inferred together with average work-in-progress inventory and finished goods storage performance can be studied.

AVERAGE COLLECTION PERIOD

ACP = AVG RECEIVABLES / CREDIT SALES PER DAY It indicates the number of days funds have been blocked in receivables. Low value would indicate that firm is more conscious of its cost and would prefer a lower cost of its total financial.

Table 3.11 AVERAGE COLLECTION PERIOD

FIGURES IN LAKHS

FINANCIAL

2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

OPENING RE CIE VA BL ES 522 638 635 786 764

CLOSING RE CREDITSALES CIE AVERAGE PER DAY VA BL ES 638 580 7.48 635 636.5 7.36 786 710.5 9.5 764 775 12.09 1099 931.5 17.36

ACP (DAYS)

75 87 75 64 54 72 12.82

AVERAGE COLLECTION PERIOD (Days) 100 80 60 40 20 0 2003-04 2004-05 2005-06 ACP 2006-07 2007-08 75 87 75 64 54

Figure 3.11 AVERAGE COLLECTION PERIOD

Inference:
Two months is a prevailing collection period in the market, the firm has managed to reduce its average collection period and its lower than 60 days in the last year, so the Financial performance is considered to be good.

PROFITABILITY
GROSS MARGIN RATIO

GROSS MARGIN = EBIT / SALES

ROCE is a measure of the effective utilisation of the firms capital towards generation of returns. A higher ROCE implies that capital has been effectively used to generate returns. Table 3.1 FIGURES IN LAKHS

FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD

SALES 2730 2685 3468 4413 6337

EBIT 322 301 388 494 470

GROSSMARGIN 7.9 % 6.9% 7.6% 8.9% 4.5% 7% 0.02

GROSS MARGIN 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2003-04 2004-05 2005-06 2006-07 2007-08 7.90% 8.90%

6.90%

7.60%

4.50%

GROSS MARGIN

Figure 3.1 Inference: NETMARGIN

NET MARGIN = PAT / SALES Table 3.1 FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN PAT 89 53 147 237 100 SALES 2730 2685 3468 4413 6337 NET MARGIN 3.45 % 1.97% 4.2% 5.3% 1.57% 3%

SD

0.02

GROSS MARGIN
10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2003-04 2004-05 2005-06 NET MARGIN 2006-07 2007-08 3.45% 1.97% 7.90% 4.20% 1.57%

Figure 3.1 Inference:

EARNINGS PER SHARE

EPS = PAT / SALES

Table 3.1 FIGURES IN LAKHS FINANCIAL YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD PAT 89 53 147 237 100 SALES 2730 2685 3468 4413 6337 EPS Rs.5.56 Rs.3.3 Rs.9.18 Rs.14.81 Rs.6.25 7.82 4.42

Figure 3.1

EARNINGS PER SHARE

20 15 10 5 0 2003-04 2004-05 2005-06 EPS


Inference:

14.81 9.18 5.56 6.25 3.3

2006-07

2007-08

RETURN ON CAPITAL EMPLOYED (ROCE)

ROCE = (EBIT TAX) / CAPITAL EMPLOYED CAPITAL EMPLOYED = NET FIXED ASSETS + CURRENT ASSETS CURRENT LIABILITIES & PROVISIONS ROCE is a measure of the effective utilisation of the firms capital towards generation of returns. A higher ROCE implies that capital has been effectively used to generate returns.

Table 3.1 RETURN ON CAPITAL EMPLOYED (ROCE) FIGURES IN LAKHS CAPITAL E M P FINANCIAL YEAR EBIT TAX L O Y E D 2003-04 2004-05 2005-06 2006-07 2007-08 MEAN SD 322 301 388 494 470 28 35 79 117 80 1667 1525 1610 2001 2859 17.6% 17.4% 19.1% 18.8% 13.6% 17.33 0.02 ROCE

RETURN ON CAPITAL EMPLOYED

25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2003-04 2004-05 2005-06 2006-07 2007-08 ROCE
Figure 3.1 RETURN ON CAPITAL EMPLOYED

17.60%

17.40%

19.10%

18.80% 13.60%

Inference: From the five years figures till the financial year 2006-07, the company has effectively used its capital. In the financial year 2007-08 it has declined more than 5% from the previous year. Till 2007 Company has managed capital efficiently, since its a manufacturing company performance depends on production, so from ROCE it can be understood that Financial performance is good.

NET SALES
YEAR 200304 200405 200506 200607 200708 COMPOUNDED ANNUAL

GROWTH NET SALES 2730 2685 3468 4413 6337 24%

7000 6000 5000 4000 3000 2000 1000 0 2003-04 2004-05 2005-06 YEAR 2006-07 2007-08

RS IN LAKHS

NET SALES

EBIT YEAR EBIT 200304 117 200405 88 200506 225 200607 354 200708 180 COMPOUNDED ANNUAL GROWTH 11.37%

400 300 200 100 0 2003-04 2004-05 2005-06 YEAR 2006-07 2007-08 EBIT RS IN LAKHS

PAT 200304 89 200405 53 200506 147 200607 237 200708 100 COMPOUNDED ANNUAL GROWTH 3%

YEAR PAT

250 200 150 100 50 0 2003-04 2004-05 2005-06 YEAR 2006-07 2007-08 PAT RS IN LAKHS

TOTAL ASSETS YEAR TOTAL ASSETS 200304 2081 200405 1974 200506 2255 200607 2828 200708 3917 COMPOUNDED ANNUAL GROWTH 17.13%

5000 4000 3000 2000 1000 0 2003-04 2004-05 2005-06 YEAR 2006-07 2007-08 TOTAL ASSETS RS IN LAKHS

NET WORTH

YEAR NET WORTH

200304 926

200405 944

200506 907

200607 1116

200708 1179

COMPOUNDED ANNUAL GROWTH 6.22%

1400 1200 1000 800 600 400 200 0 2003-04 2004-05 2005-06 YEAR 2006-07 2007-08 NET WORTH RS IN LAKHS

4.1 FINDINGS

Current ratio of the company has came down from 3.09 in the year 2003-04 to 2.16 in the year 2007-08.

Quick ratio has declined from 2.4 in the year 2003-04 to 1.4 at the end of financial year 2007-08.

Total debt ratio shows mixed trend and it has increased from the year 2005-06 till 2007-08 for the five year period.

Debt-Equity ratio has been showing increase in trend till 2005-06 and was declining in the next two financial years.

Interest coverage ratio shows mixed trend in the five year period, in the year 2006-07 it was high at 13 and it was low in the year 2003-04 at 3.3

Inventory turnover ratio has shown increase in trend till 2005-06 and it was declining next two years.

Debtors turnover ratio shows increase in trend from the year 2003-04 to 2007-08 and its same in the last two financial years.

ROCE has shown increasing trend from the 2003-04 to 2006-07, during the year 2007-08 it has declined compared to the previous year.

Gross profit margin has been increasing till the year 2006-07 and has declined in the year 2007-08 compared to previous year.

Both Net Sales and Fixed Assets have been moved in same trend with small variations thus keeping the ratio close to 3.5 (FAT).

From the Average Raw materials Storage Chart it can be inferred that the ratio is declining, which is good for the company.

From the Average Work in progress Inventory Chart the ratios trend is inferred to be declining which is a positive trend for the company, since its low it can be understood that company is in a position to turn semifinished materials to finished goods quickly.

On an average Companys capacity utilization for the five year period is less than 60%.

The firm has been able manage the average collection period of receivables between 2-3 months for the five-year period.

5.1 RECOMMENDATIONS:

Decline in the ROCE of about 5% from the year 2006-07 to 2007-08 may be attributed to rise in steel and aluminium prices, so Valueengineering can be done to reduce input costs.

Fixed Assets Turnover of the Auto component Industry is in the range of 5 times, so the company should try to achieve that benchmark by using Fixed Assets effectively to generate revenues.

Average Raw material storage is more than 75 days throughout the five year period. By keeping raw material more than two months company has to block cash in materials, so it should try to reduce it to 1-2 months.

From the Finished Goods Storage Chart it can be found that the ratio shows increasing trend, which should be reduced by moving out Finished goods as early as possible.

Roots industries limited should try to use more than 80 % of the Installed capacity, which is the prevailing average of the Auto component Industry in India.

Only in the year 2007-08 the company could be able to collect all receivables within a Two months period, which is considered to be good in the Industry, so the company should be able to collect receivables due to credit sales within 60 days in Future also.

6.1 CONCLUSION
Roots Industries ltd. is a fast growing Auto components Manufacturing company, which is playing a major role among its group of companies. It always strives to improve its quality standards and serve its customers better. Financial Management plays a major role in achieving this.

In this study some Capacity and Assets utilization ratio are used to analyse the performance of Financial using five years Financial Data of the company.

From the study it can be concluded that company is moving towards lean Financial, which should still improve its Inventory Management, Logistics, and Working capital areas to achieve more than Industry Average performance.

7.1 BIBILIOGRAPHY

WEB SITES: http://roots-india.com

http://lcm.csa.iisc.ernet.in

BOOKS: Financial Management, Third edition, M Y Khan and P K Jain The Hindu Survey of Indian Industry Financial Management,2008, I.M Pandey