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# CHAPTER-I INTRODUCTION

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1.1 INTRODUCTION
MEANING OF RATIO:
A relationship be HI-TECH en various accounting figures, which are connected with each other, expressed in mathematical terms, is called accounting ratios. DEFINITION: 1)According to Kennedy and Macmillan, "The relationship of one item to another expressed in simple mathematical form is known as ratio." 2)Robert Anthony defines a ratio as "simply one number expressed in terms of another." Accounting ratios are very useful as they briefly summaries the result of detailed and complicated computations. Absolute figures are useful but they do not convey much meaning. In terms of accounting ratios, comparison of these related figures makes them meaningful. For example, profit shown by two-business concern is Rs. 50,000 and Rs. 1, 00,000. It is difficult to say which business concern is more efficient unless figures of capital investment or sales are also available. Analysis and interpretation of various accounting ratio gives a better understanding of the financial condition and performance of a business concern. A ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountants Handbook by Wixon, Kell and Bedford, A ratio is an expression of the quantitative relationship bet HI-TECH en two number.

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## MEANING OF FINANCIAL RATIO ANALYSIS:

Financial Ratio Analysis:Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting: Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgments, otherwise complex situations. . Ratio analysis is one of the techniques of financial analysis to evaluate the financial

condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures. According to Myers, Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements." Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented.

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## Horizhantal analysis- the a analysis is to long a year to year comparison of a

firm ratios

Vertical analysis- the comparison of balance sheet accounts either using ratios
or not to get use full information and draw use full consultation

Cross-selection analysis- ratio are used and compared between several firms
of the same industry in other to draw conclusion about and entitys profitability and financial performance

Inter firm analysis- can be categorized under cross sectional as the analysis is
done by using some basic ratios of the industry in which the firm under analysis belongs to ( and specifically the average of all the firm of the industry ) as bench mark or basis for our firms overall performance evaluations

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1.3COMPANY PROFILE

INTRODUCTION

HI-TECH Engineering Corporation India Private limited is a well known name in field of Turnkey sugar plant, Boilers with co generation and turnkey switchyards.

With a team of more than 125 skillful qualified and experienced professionals and 350 skilled labor force; HI-TECH ensures to deliver the highest quality and optimum satisfaction of client. HI-TECH designs, manufactures and executes the turnkey sugar plants including cane mills, boilers with cogeneration and turnkey switchyards. Now HI-TECH are also exporting sugar plant equipments to Africa. HI-TECH are committed to provide quality product to client and ISO 9001-2008 certification ensures the quality and integrity in every equipment HI-TECH manufacture at our workshop. With the constant focus on design, QC and R&D, HI-TECH make sure that our clients get the best value and quality products. VISSION Considering the demand of manufacturing sector, wants to fulfill present and future market potential by providing quality Sugar and cogeneration plants on turnkey basis.

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MISSION Our Mission is to provide our customer cost effective quality product with the latest technology, thus satisfying every criteria. VALUES The values that define our culture are:

Innovation across the whole company. Be committed, reliable & credible. Create value products for our customers. Create value for all our stakeholders & customers.

PRODUCT RANGE Turnkey Sugar Plant HI-TECH provide turnkey Sugar Plants with Co-Generation. Presently, HI-TECH are designing and setting up a Sugar Plant with a capacity of 7500 TCD with 35 MW cogeneration along with four more project. Boiler & Cogeneration HI-TECH are executing boilers up to 180 TPH steam generating capacity at 87Kg/Sq.Cm, pressure 520 C Temperatures. HI-TECH can manufacture water tube & fire tube boilers, waste heat recovery boiler and fluidized bed combustion boilers. Turnkey Switch yards for Co-generation HI-TECH are turnkey supplier of Co-generation units and is executing 18 MW & 35 MW Co-generation unit. All electrical equipments and system required for the plant are developed in-house. Cane Mills HI-TECH can design, Manufacture, Supply and Erection & Commission various sizes of milling of High performance along with Pressure Feeders from 22 X 44 Mills to 45X 90 Mills. Coal & Baggage handling System HI-TECH have separate department for baggage, Coal & Ash handling in cogeneration projects.
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Authorized dealers of Sugar Cane harvester QUALITY POLICY HI-TECH at Engineering Corporation India Pvt. Ltd. as an Organization and as individuals, commit ourselves to supply Cost effective Quality Machineries with fairness & Honesty in Sugar Industries on Turn Key basis, Steam Generators and Cogeneration Plants, according to customer needs and provide services to their expectations through our experienced team, skills, and innovative technology. Quality and its implementation is an integral Part of HI-TECH. The Management is committed to ensure that everybody in the organization understands & implements the quality policy & contributes in continual improvement of the Quality Management System.

Quality Objectives

Customer Satisfaction index up to min 80%. Resolution of Customer Problems within 48 business hours. On time Project Execution. Zero accident at works centre. COLLABORATION Our Focused approach on latest technology with best

technical know how and expertise ensures the quality product delivery and optimum satisfaction of clients

BMA, Germany (Order to order basis) DINAMIC OIL, Italy DESMET Distillery Plants HI-TECH are the developers of the world famous Fire CAD Boiler Design

Software. Fire CAD suite of software was developed by its technical director Mr. Narasimha Patrudu.
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Sr. No.

NAME OF CLIENT

YEAR

DETAILS

## 2010 50tph Boiler for Sugar Plant

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## Turkey sugar plant

HI-TECH manufactures Turnkey Sugar Plant with Cogeneration. Now HI-TECH are manufacturing Sugar Plant having capacity of 7500 TCD with 35 MW Cogeneration. Currently HI-TECH are exporting sugar plants to Ethiopia. HI-TECH ADVANTAGE BOILING HOUSE & GENERAL PARAMETERS MANPOHI-TECHR REQUIREMENT ADVANTAGE HI-TECH 152 FOR A 1500 TO 4200 TCD PLANT REASON

AUTOMATION

REFERENCE: 1500 TCD RETURN ON INVESTMENT BREAK EVEN WITHIN 3 YEARS OF OPERATION PLANT IS IN OPERATION AT 3500 TCD USED FLASH VESSELS, 38% ON CANE CRUSHED OSV & OTHER STEAM SAVING DEVICES

STEAM CONSUMPTION

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22 KW PER TON OF CANE POHI-TECHR CONSUMPTION CRUSHED REFERENCE : ACHIEVED 3400 TCD CRUSHING WITH 3 MW TURBINE GENERATOR SET

## 100 % INLINE PLANETORY GEAR BOXES, SCREW PUMPS & VFDS

LIFE OF PLANT

LONG LASTING

ROBUST DESIGN & BEST QUALITY MATERIAL AND WORKMANSHIP HI-TECH entered the industry by

## OUR ACHIEVEMENT IN 1st SUGAR PLANT

modifying existing Sugar Plant by making significant changes to the Milling plant of the existing sugar plant.

HI-TECH have totally changed total mill drive system with unique Inline planetary gear box, Rope Coupling and ACVFD drive; Our planetary drive is highly energy efficient compact as HI-TECH ll as with very low maintenance operation of drive system with very less noise. This system is used first time in India.

Adding over HI-TECH used all inline planetary gearbox (Dynamic Oil Italy Make) for all carriers as HI-TECH ll as for feeder table and getting advantage of HI-TECH saving.

All pumps for magma, molasses and mesquite are screw pumps which are highly energy efficient as compared to Rota pump.

HI-TECH have used OSV (Overflow Surplus Valve) by that HI-TECH saved lot of steam consumption.

HI-TECH have done centralized Grease lubrication system BAL has achieved 3000Tonne crushing on cane in one day and 3MW HI-TECH when the plant equipped with all electrical drives; itself is record to crush more than 3000Tonnes using 3MW HI-TECH.

Entire Plant was completed in record time of 7 months. Boiling house is operating at 38%of steam.
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CANE MILLS

HI-TECH are capable to supply milling Plant from 500TCD to 12000 TCD. HI-TECH have already commissioned mill size 33X66 & 42X84. 36X78 & 45X90 is under execution

COMPARISN PARAMETERS

HI-TECH MILLING PLANT VERY LESS COMPARED TO CONVENTIONAL AS HI-TECHLL AS TANDOM WITH INDIAN PLANETARY

CONVENTIONAL

CIVIL COST

VERY HIGH

HIGH

## HI-TECHIGHT OF MILL DRIVE SYSTEM EFFICIENCY

AROUND 13 TON

30 TO 40 TON

AROUND 25 TON

95%

AROUND 70 %

AROUND 80 % HIGH SPACE REQUIREMENT DUE TO BIG GEAR BOX AND FORCED LUBRICATION SYSTEM 1200 LITRES

SPACE REQUIREMENT

## HUGE SPACE REQUIREMENT

LUBRICATION REQUIRED

400 LITRES

VERY HIGH

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## SPARE PARTS INVENTORY

VERY LESS AS MOVING PARTS ARE VERY LESS AND WITH BETTER METALLURGY COMPARED TO PIN DROP SILENCE 100 % RELIABLE AS EACH PART IS TAKEN CARE COMPLETELY WHILE INSTALLATION LEAST QUICK INSTALLATION IS POSSIBLE USER FRIENDLY

## MANY SPARE PARTS REQUIRED

MANY SPARE PARTS REQUIRED DUE TO POOR METALLURGY OF MOVING PARTS HIGH

NOISE CREATED

VERY HIGH

RELIABILITY

RELIABLE

VERY LESS

## POHI-TECHR CONSUMPTION INSTALLATION TIME MAINTENANCE & OPERATION

VERY HIGH

HIGH

LONGEST

LONG

TEDIOUS PROCESS

TIME CONSUMING

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Inline Planetary GEAR BOX in Our Sugar Mills HI-TECH are Pioneers in India to Launch the Inline Planetary Gear Box instead of conventional Mill Gearing System for Mill Drive which saves the HI-TECH loss in transmission. Also it reduces the overall Cost of foundation for mills. HI-TECH ADVANTAGE MILLING PLANT Sr . N o.

NAME OF CLIENT

YE AR

DETAILS

## 1 Baramati Agro Ltd. 2 Baramati Agro Ltd.

2007 Sugar Plant 1500 TCD (Commissioned) 2008 Sugar Plant 4200 TCD with 18 MW Cogeneration (Commissioned) Sugar plant 2500 TCD with 8 MW Cogeneration (Under Commissioned) Sugar Plant 7500 TCD with 35 MW Cogeneration (Under Execution)

## 3 Samruddhi Sugar Ltd.

2008

4 Sai Krupa S. K. Ltd. Dadra Nagar HI-TECH Sahakari Khand Udhyog Shree Shivsagar Sugar & Agro Products Ltd.

2008

## 2007 Sugar Plant 1250 TCD (Under Commissioned)

2009 Sugar Plant 2500 TCD (Under Execution) Sugar Plant 2500TCD With 12 MW Cogeneration (Under Execution)

7 Jakaraya Sugars Ltd. 8 Shreenath Mastoba S.K. Ltd., Pateshan Maharashtra Shetkari Sugars Ltd.

2009

2003 (Commissioned)

## 2010 Sugar Plant 3500TCD with 20 MW Cogeneration

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EXPORT PROJECT
Sr. No. 1 NAME OF CLIENT Wonji Sugar Ltd (Ethiopia) Shoa Sugar Ltd (Ethiopia) YEAR DETAILS

2009

Rehabilitation

2009

Rehabilitation

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## Research & Development

Our R & D Department is staffed with well qualified and skilful experienced person. They are engaged in various R & D activities like problem identification, problem recognition, and thinking of various alternatives for the solution and carry out design exercise to improve the product. Defect investigation and defect rectification are also part of R & D Department.

The R&D Department is also responsible to develop new equipments to meet specific need of user. The R&D Department uses the world class technology while caring our new technology.

Our R & D Dept. is developing product to solve agriculture problems and also developing product for defense purpose.

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## CURRENT PROJECTS IN HAND

Sr. No. 1

NAME OF CLIENT Baramati Agro Ltd. (1st Phased) Baramati Agro Ltd. (2nd Phased)

YEAR

DETAILS

2007 Sugar Plant 1500 TCD (Commissioned) Sugar Plant 4200 TCD with 18 MW Cogeneration (Commissioned)

2008

## 3 Samruddhi Sugar Ltd.

Sugar plant 2500 TCD with 7 MW 2008 Cogeneration (Under Commissioning) 2008 Sugar plant 7500 TCD with 35 MW Cogeneration (Under Execution) Sugar Plant 1250 TCD (Under Commissioning)

4 Sai Krupa S. K. Ltd. Dadra Nagar HI-TECH Sahakari Khand Udhyog Shree Shivsagar Sugar & Agro Products Ltd.

2007

2009 Sugar Plant 2500 TCD (Under Execution) Sugar Plant 2500TCD With 12 MW Cogeneration (Under Execution)

## 7 Jakaraya Sugars Ltd. 8 Shreenath Mastoba S.K. Ltd., Pateshan

2009

2003 (Commissioned) 20TPH steam generation at 45Kg/Sq.Cm pressure and 4400C temp. For Distillery Unit. Sugar Plant 3500TCD with 20 MW Cogeneration

## 9 Oasis Alcohol Ltd Maharashtra Shetkari Sugars Ltd.

2010

10

2010

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## EXPORT PROJECT Sr. No. 1 2 NAME OF CLIENT YEAR DETAILS

Wonji Sugar Ltd (Ethiopia) 2009 Rehabilitation Shoa Sugar Ltd (Ethiopia) 2009 Rehabilitation

OUR ACHIEVEMENT IN 1st SUGAR PLANT HI-TECH entered the industry by modifying existing Sugar Plant by Making significant changes to the Milling plant of the existing sugar plant. HI-TECH have totally changed total mill drive system with unique Inline planetary gear box, Rope Coupling and ACVFD drive; Our planetary drive is highly energy efficient compact as HI-TECH ll as with very low maintenance operation of drive system with very less noise. This system is used first time in India. Adding over HI-TECH used all inline planetary gearbox (Dynamic Oil Italy Make) for all carriers as HI-TECH ll as for feeder table and getting advantage of HITECH saving. All pumps for magma, molasses and mesquite are screw pumps which are highly energy efficient as compared to Rota pump. HI-TECH have used OSV (Overflow Surplus Valve) by that HI-TECH saved lot of steam consumption. HI-TECH have done centralized Grease lubrication system BAL has achieved 3000Tonne crushing on cane in one day and 3MW HI-TECH when the plant equipped with all electrical drives; itself is record to crush more than 3000Tonnes using 3MW HI-TECH.
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BOARD OF DIRECTOR

N.PATHRUDN
(DIRECTOR)

## SHRIKANT JAYANT INGOWLE DESHMUKH SANJAY AWATE (DIRECTOR)

(DIRECTOR)

RAJENDRA INGOWLE(DIRECTOR)

General Manager (Finance) kishor sir (kis Account Purchase M.G.GODBOLE Marketing Store (R.M & Central Design

## Sr. Manager KISHOR SHINDE Manager SANTOSH PANCHWAGH Officers

Officers

Officers

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## CHAPTER-II LITERATURE REVIEW

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## REVIEW OF LITERATURE 2.1 INTRODUCTION

Ratio Analysis can be defined as the study and interpretation of relationships bet HITECH en various financial variables, by investors or lenders. It is a quantitative investment technique used for comparing a company's financial performance to the market in general. A change in these ratios helps to bring about a change in the way a company works. It helps to identify areas where the management needs to change.

BASED ON USER

## 1] BALANCE SHEET RATIO 2] REVENUE STATEMENT RATIO 3] COMPOSITE RATIO CREDITORS

1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY RATIO 5] COVERAGE RATIO

1] RATIOS FOR SHORT TERM CREDITORS 2] RATIO FOR SHAREHOLDER 3] RATIOS FOR LONG TERM

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## 2.3 BASED ON FINANCIAL STATEMENT:

Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity.. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement.

## 2.4 BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios. 3] Activity ratios: It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios: It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt
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service ratios.

## 2.5 BASED ON USER:

1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital 3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.

I] LIQUIDITY RATIO:

The liquidity ratio measures the firms liquidity and its ability to meet its maturing short term obligations. It is defined as the ability to realize value in money, the most liquid of assets. It refers to the ability to pay in cash, the obligations that are due. The quantitative aspects includes the quantum, structure and Utilizations of liquid assets and in the qualitative aspect, it is the ability to meet all present and potential demands on cash from any source in a manner that minimizes cost and maximizes the value of the firm.
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## . These ratios are discussed below

1) Current ratio:
Meaning: This ratio compares the current assets with the current liabilities. It is also known as working capital ratio or solvency ratio. It is expressed in the form of pure ratio. The current ratio 2:1 shows highly solvent position. Current ratio = Current assets Current liabilities

## 2) Liquid / Quick / Acid test ratio:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1 Generally, a quick ratio of 1:1 is considered good. Liquid ratio = Liquid current assets Liquid liabilities

3) Cash ratio:
Meaning: This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. The cash & bank balance are the most liquid assets. The ideal cash ratio is taken as 1:2. It is calculated as follows

## Cash + Bank + Marketable securities Cash ratio = Total current liabilities

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## II] LEVERAGE RATIOS:

Leverage ratios lay emphasis on long term financial prospects. In order to assess the long term financial soundness it is necessary to find out whether the organization is able to maintain or increase the market value of its shares. The long term financial stability of the firm may be considered as dependent upon its ability to meet all its liabilities, including those not currently payable.

## 1) Debt equity ratio:

This ratio is calculated to measure the comparative proportions of outsiders funds and shareholders funds invested in the company. It indicates how many rupees have come from borrowing from every rupee of shareholders funds. Debt equity ratio = Long term debts Equity

## 2) Shareholders equity ratio:

It is assumed that larger the proportion of the shareholders equity, the stronger is the financial position of the firm. This ratio will supplement the debt equity ratio. In this ratio the relationship is established between shareholders funds and the total assets. Shareholders equity ratio = Shareholders equity Total assets
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## 3) Interest coverage ratio:

This ratio compares the net profit before interest and tax with the interest payments and long-term liabilities. This ratio indicates whether adequate coverage of net profit is available for the payments of interest or not. Interest coverage ratio = Net profit before interest and tax Interest

4 ) Proprietary ratio: It is the ratio between proprietors fund and total assets. It indicates the strength of the funding of the company. A high ratio will definitely indicate high financial strength but a very high ratio will indicate inadequate utilization of external equities. Proprietary ratio = Proprietors funds Total assets

III] TURNOVER RATIOS: Assets management ratio measures how efficiently the firm employs its resources. These ratios are also called activity or turnover ratios which involve comparison between the level of sales and investment in various accounts. They are used to measure speed with which various accounts are converted into sales or cash.

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## 1) Inventory turnover ratio:

It establishes relationship between cost of goods sold during a given period and the average amount of inventory held during that period. It indicates the number of times finished stock is turned over during a given accounting period. High ratio shows rapid turnover & low ratio shows slow moving stock. Inventory turnover ratio = Cost of goods sold OR sales Average inventory

## 2) Debtors turnover ratio:

This ratio indicates the credit policy follow by a business firm. The higher the ratio is the collection period while low ratio indicates higher collection period. An average collection period, which is shorter, needs to be analyzed carefully. Debtors turnover ratio = Credit sales Average debtors

## 3) Creditors turnover ratio:

This ratio indicated the credit period allow by the creditors. A high turnover ratio indicates that payment to creditors is quite prompt but it also implies the full advantage of credit allow by creditors is not taken. A low ratio indicates that payment to creditors is not quite prompt and it needs to be improved. Creditors turnover ratio = Credit purchases Average creditors

## 4) Fixed assets turnover ratio:

This ratio indicates the number of times fixed assets are being turned over during a particular period. It is one of the indications of efficiency of using fixed assets in the business. A high ratio indicates that fixed assets are contributing quite substantially in making sales, while low ratio indicates that fixed assets are not being used efficiently. Fixed assets turnover ratio = Net sales Fixed assets

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## 5) Total asset turnover ratio:

This ratio indicates the number of times total assets are being turned in a year. The higher the ratio indicates overtrading of total assets while a low ratio indicates idle capacity. Total assets turnover ratio = Sales Total assets

## 6) Working capital turnover ratio:

This ratio compares the net sales with net working capital. The indication given by this ratio is the number of times working capital is turned around in a particular period. The higher the ratio the better the utilization of working capital and HI-TECH is the investment in working capital. However, a very high working capital turnover ratio is a sign of overtrading and a firm may face shortage of working capital. Working capital turnover ratio = Net sales

Working capital

## 7) Capital employed turnover ratio:

This ratio shows efficiency of capital employed in the business by computing how many times capital employed is turned over in a given period.

## Capital turnover ratio =

Net Sales

Capital employed

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## IV] PROFITABILITY RATIOS:

With a very few exceptions the entire corporate sector aims at maximizing the amount of profits. Some of the public sector undertakings are also aiming at earning reasonable amount and rate of profits. Even a few services oriented organizations are working on a no-profit, no-loss basis. Profit maximization is therefore one of the primary objectives of business enterprise. Profit should not be confused with profitability because profit is one of the determinants of profitability.

## 1) Gross profit ratio:

This ratio shows the margin left after meeting the manufacturing costs. It measures the efficiency of production as well as pricing. A high gross profit ratio means high margin for covering other expenses, other than the costs of goods sold. Gross profit ratio = Gross profit x 100 Net sales

## 2) Net profit ratio:

This ratio indicates the earnings left for shareholders (equity & preference) as a
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percentage of net sales. It measures the overall efficiency of all the functions of a business firm like production, administration, selling, financing, pricing, tax management etc. Net profit ratio = Net profit before interest & tax x 100 Sales

## 3) Return on total assets

This ratio is also known as profit to assets ratio and it establishes the relationship between net profit and assets. Return on total assets = Net profit after tax x 100 Total assets

## 4) Return on Shareholders fund or return on net worth:

It shows the percentage of net profit available for equity shareholders to equity shareholders funds. This ratio indicates the productivity of the ownership capital employed in the firm. RONW = Net profit after interest and tax x 100 Net worth

## 5) Return on capital employed:

This ratio indicates the percentage of net profits before interest and tax to total capital employed. Capital employed refers to long-term funds supplied by the lenders and owners of the firm. ROCP= Net profit before interest and tax x 100 Capital employed

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## V] MARKET BASED RATIOS:

The market based ratios relates the firms stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the companys past performance and future prospects. If firms profitability, solvency and turnover ratios are good, then the market based ratios will be high and its share price is also expected to be high.

## 1) Earnings per share:

This ratio indicates the amount of net profit available per equity share of a business firm. EPS is one of the criteria of measuring the performance of a company. If EPS increases, the possibility of a higher dividend payable by the company increases. EPS = Net profit after interest, tax and preference dividend Number of equity shares

## 2) Cash earnings per share:

Cash earnings per share are more reliable yardstick for measurement of performance of companies, especially for highly capital intensive industries where provision for depreciation is substantial. CEPS = Net profit after tax + depreciation No. of equity shares

## 3) Dividend payout ratio:

This ratio indicates the percentage of profit distributed as dividends to the shareholders. A higher ratio indicates that the company follows a liberal dividend policy while a HITECH ratio implies a conservative dividend policy. Dividend payout ratio = Dividend per share x 100 Earning per share

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## 2.6 IMPORTANCE OF RATIO ANALYSIS:

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 basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects:

1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm.

2] LONG TERM SOLVENCY: Ratio analysis is equally useful for assessing the long-term financial viability of a firm.

3] OPERATING EFFICIENCY:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets.

4] OVERALL PROFITABILITY:
Unlike the outsides 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.

## 5] INTER FIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures.

6] TREND ANALYSIS:
Finally, ratio analysis enables a firm to take the time dimension into account.

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## 2.7 ADVANTAGES OF RATIO ANALYSIS:

Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: 1. Helpful in analysis of Financial Statements. 2. Helpful in comparative study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal Standards. 7. Effective Control. 8. To workout the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. 9. To workout the solvency: With the help of solvency ratios, solvency of the company can be measured. These ratios show the relationship between the liabilities and assets. 10. To simplify the accounting information: Accounting ratios are very useful as they briefly summaries the result of detailed and complicated computations. 11. To workout the operating efficiency: Ratio analysis helps to work out the operating efficiency of the company with the help of various turnover ratios. 12. To workout short-term financial position: Ratio analysis helps to work out the shortterm financial position of the company with the help of liquidity ratio.

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2.8 PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a businesss performance to aid decision making. 2] Quantitative process may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas: Liquidity the ability of the firm to pay its way. Investment/shareholders information to enable decisions to be made on the extent of the risk and the earning potential of a business investment. Gearing information on the relationship between the exposure of the business to loans as opposed to share capital. Profitability how effective the firm is at generating profits given sales and or its capital assets. Financial the rate at which the company sells its stock and the efficiency with which it uses its assets.

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2.9. ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information, which is already appearing in the financial statement. At the same time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance, either individually or in relation to those of other firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison, inter firm comparison or comparison with standard ratios. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. As the future is closely related to the immediate past, ratio calculated on the basis of historical financial statements may be of good assistance to predict the future.

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## CHAPTER-III RESEARCH METHODOLOGY

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## 3.1 TITLE OF PROJECT: A Study of Financial Ratio Analysis.

Financial ratio analysis is the calculation and comparison of main indicatives ors ratios which are derived from the information given in a company financial statements which must be similar points in time and prefer by audited financial statements and developed in the same manner. It involves methods of calculating and interpreting financial ratios in order to asses. A firms performance and status. This analysis is primarily designed to meet informational need, of investors creditors and management. The objective of ratio analysis is the comparative measurement of financial data to facilitate wise investment, credit and managerial decision.

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## 3.2 OBJECTIVE OF RATIO ANALYSIS:

Ratio is work out to analyze the following aspects of business organization1) Solvency 2) Stability. 3) Profitability. 4) Operational efficiency. 5) Credit standing. 6) Structural analysis. 7) Effective utilization of resources. 8) Leverage or external financing. Long term Short term Immediate

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## 3.3 RESEARCH METHODOLOOGY

Research is an organized and systematic way of finding answers to questions. Organized in the sense, that there is a structure or method in going about doing research. It is planned procedure, not a spontaneous one. It is focused & limited to a specific scope. Systematic because there is a definite set of procedures and steps which you will follow. There are certain things in the research process, which are always done in order to get the most accurate results. Finding answer is the end of all research. Whether it is the answer to a hypothesis or even a simple question, research is successful when we find answers. Sometimes, the answer is no, but it is still an answer.

Questions are central to research. If there is no question, then the answer is off no use. Research is focused on relevant, useful and important questions. Without a question, research has no focus, drive or purpose.

## Area of the Research: Finance

A research design was prepared as under: The analysis is done on the subject Interpretation of the financial statement by using ratio analysis technique. The analysis is done in the firm HI-TECH.. The analysis is done with the help for primary and secondary data. The purpose of the project is to study the various financial ratios.

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## Primary Source of Data:

The primary source of data has been collected from the finance departments through formal discussions with Accountants of HI-TECH and other officials of the company. This data is generated specifically for the purpose of working out the project. This data means the first hand information, which is collected through various sources e.g. Questionnaires.

Schedules and Formal / Informal Information: 1] Information relating to the project was collected during formal & informal discussions with the HOD (Finance). 2] Quires arising in due course of the project brought into the notice of concerned authority & necessary explanation & solutions are adapted.

## 2] Secondary Source of Data:

Secondary data means that the data is already analyzed by someone else. It is also called as indirect data. The secondary source of data includes the information collected from the annual reports of the company for relevant periods. All the financial data of HI-TECH has been taken from the various statements of the company such as Balance Sheet, Profit and Loss account. Thus this report is based on the information provided by the concerned authorities & by referring books named financial management.

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1] Annual Report
Majority of information gathered from data exhibited in the annual reports of the company. These include annual reports of the year 2006-07, 2007-08 & 2009-10.

2] Reference Books:
Theory relating to the subject matter and various concepts taken up from various financial reference books.

3] HI-TECH sites:
The information relating to ratio analysis taken up from HI-TECH sites.

Research Design:
It includes following steps: 1] Calculations of Ratios. 2] Analyzing & Interpreting the Ratios. 3] Research Findings. 4] Recommendations. 5] Conclusion.

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## CHAPTER-IV DATA ANALYSIS AND CONCLUSION

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## 4.1 DATA ANALYSIS AND INTERPRETATION:

4.1.1 Introduction: The present chapter is concerned with analysis and interpretation of collected data. This is essential for scientific study and for ensuring that the researcher has all relevant data for making contemplated comparison and analysis. 4.1.2 Data Analysis: For the purpose of analysis of data, researcher had used various statistical as HITECH as analytical tools like tabulation and percentage. After collection of data, the next and more important step is analysis of data. This is essential for scientific study. Analysis of data in general way involves a number of closely related operations, which are performed with the purpose of summarizing the collected data and organizing these in such a manner.

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7.24

3.09

3.5

.98

## 8 7 6 RATIO 5 4 3 2 1 0 2007-08 2008-09 YEAR 2009-10 2010-11 CURRENT RATIO

INTERPRETATION: A higher current ratio has better liquidity. A standard norm of current ratio is 2:1. Since last 3 years companys current assets are more than its current liabilities. So that the company is assuring to pay its current maturing debt as and when it becomes due. Ratio is satisfactory to the company according to its characteristics. It is good sign that company is keeping sufficient margin of safety.

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2. QUICK/ ACID TEST RATIO: Quick Ratio= Quick Assets /Quick Labilits

2007-08

2008-09

2009-10

2010-11

## QUICK ACID TEST RATIO

3.5 3 2.5

RATIO

2 1.5 1 0.5 0 2007-08 2008-09 YEAR 2009-10 2010-11 QUICK ACID TEST RATIO

INTERPRETATION: It is widely accepted as the best available test of the liquidity position of the firm. Generally speaking, a liquid ratio 1:1 is considered satisfactory as a firm can easily meets all current claims. The ratio of 2006-07 is 3.09 and in 2007-08 and 2008-09 the ratio is near to ideal. The ratio of 2009-10 is .41 is very low because of excess current liability
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3. FIXED ASSET TURNOVER RATIO: Sales Fixed Assets Turnover Ratio = Fixed Assets

## FIXED ASSET TURNOVER RATIO

1.4 1.2 1 RATIO 0.8 0.6 0.4 0.2 0 2007-08 2008-09 YEAR 2009-10 2010-11 FIXED ASSET TURNOVER RATIO

INTERPRETATION: A high ratio indicates efficient utilization of fixed assets in generating sales. And low ratio indicates low sales per rupee of fixed asset.

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## 4 .CURRENT ASSET TURNOVER RATIO:

Current asset turnover ratio= sales Current asset

## CURRENT ASSET TURNOVER RATIO

6 5 4 RATIO 3 2 1 0 2007-08 2008-09 YEAR 2009-10 2010-11 CURRENT ASSET TURNOVER RATIO

INTERPREATATION:The graph shows that Hi-Tec industries Ltd Baramati is increasing current assets turnover ratio year 2006-07&2007-08.In year 2008-09&&2009-10 the CATR is decreasing . It means that they achieve maximum sales by investing minimum current assets .

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## 5. WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio = Net sales Working capital

Particulars

2007-08 645,057,254

2008-09 600,889,091

2009-10 422,137,997

Net Sales Working capital Ratio(in times) 174,743,395 3.69 84,151,449 7.14 68,621,299 6.15

## WORKING CAPITAL TURNOVER RATIO

8 7 6 5 RATIO 4 3 2 1 0 2007-08 2008-09 YEAR 2009-10 WORKING CAPITAL TURNOVER RATIO

INTERPRETATION: This ratio compares the net sales with net working capital of company. The indication given by this ratio is the number of times working capital is turned around in a particular period. The higher this ratio, the better is the utilization of working capital and also indication of low working capital.
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6. INVENTORY TURNOVER RATIO: Net sales Inventory Turnover Ratio = Average Inventory

Particulars

2007-08

2008-09

2009-10

2010-11

Net Sales

## INVENTORY TURNOVER RATIO

40 30 RATIO 20 10 0 2007-08 2008-09 YEAR 2009-10 2010-11 INVENTORY TURNOVER RATIO

INTERPRETATION: It measures how quickly inventory sold. A high inventory turnover ratio is better than a low ratio. A high ratio implies good inventory management. Yet, a very high ratio calls for a careful analysis. Very low level of inventory has serious implications.

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## 7. CREDITORS TURNOVER RATIO:

Creditors turnover ratio = credit purchase Sundry creditors Particulars 2007-08 361,959,352.11 Credit purchase Sundry creditors 2008-09 390,845,451.34 2009-10 326,808,448

2010-11 462,020,245.68

21,749,963

32,178,140

21,364,846

175,035,859

12.14

15.29

2.63

## CREDITORS TURN OVER RATIO

20 15 RATIO 10 5 0 2007-08 2008-09 YEAR 2009-10 2010-11 CREDITORS TURN OVER RATIO

INTERPRETATION: The creditors turnover ratio graph shows that in year 2006-07 Soma Textile and Industries Ltd, Baramati. is very high ratio it means delay in payment to suppliers. But 2009-10 it is very low it means creditors are paid promptly. In year 2007-08 and 2008-09 the ratio is good.
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## (Capital employed=fixed asset + current asset-current liabilities)

Particulars Sales

2007-08 645,057,254

2008-09 600,889,091

2009-10 422,137,997

2010-11 552,839,754

664,596,760 .90

583,872,216 .72

455,866,866 1.21

## CAPITAL TURN OVER RATIO

1.4 1.2 1 RATIO 0.8 0.6 0.4 0.2 0 2007-08 2008-09 YEAR 2009-10 2010-11 CAPITAL TURN OVER RATIO

INTERPRETATION: In case of Soma Textile & Industries Ltd,Baramati.ratio has increased in year 2006-07, 2007-08 & 2009-10.But except in 2008-09. High ratio indicates efficiency of the organization with which the capital is being utilized.

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9. TOTAL ASSET TURNOVER RATIO: Sales Total Assets Turnover Ratio = Total Assets

## TOTAL ASSET TURN OVER RATIO 2007-08 2008-09 2009-10 2010-11

YEAR

INTERPRETATION: The total assets utilization is satisfactory, because high ratio indicates efficient utilization of total assets in generating sales.

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10. DEBTORS TURNOVER RATIO: Total Sales / Credit Sales Debtors Turnover Ratio = Average A/Cs Receivable

## DEBTOR TURNOVER RATIO

50 40 RATIO 30 20 10 0 2007-08 2008-09 2009-10 2010-11 YEAR DEBTOR TURNOVER RATIO

INTERPRETATION: A higher turnover ratio and shorter collection period, a better is the trade credit management and better is the liquidity of debtors, as short collection period and high turnover ratio imply prompt payment on the part of debtors. In short, high turnover is preferable.
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## 11. GROSS PROFIT RATIO:

Gross Profit Ratio = Gross Profit / Sales*100

Particulars
Gross Profit

Sales
Ratio (%)

## GROSS PROFIT RATIO

40 35 30 25 RATIO 20 15 10 5 0 2007-08 2008-09 2009-10 2010-11 YEAR GROSS PROFIT RATIO

INTERPRETATION: The gross profit ratio is decreasing every year. so Soma Textile & Industries Ltd, Baramati .have to maintain it properly. But, the Average Industry ratio is 20% to 40%. So, ratios are satisfactory.

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12. NET PROFIT RATIO: Net Profit Ratio = Net Profit / Sales*100

Ratio (%)

## NET PROFIT RATIO

30 25 20 RATIO 15 10 5 0 2007-08 2008-09 2009-10 2010-11 YEAR NET PROFIT RATIO

INTERPRETATION: This ratio measures overall efficiency of all the functions of a business firm like production, administration, selling, financing, pricing, tax management etc. The higher ratio indicates better it is because it gives an idea of overall efficiency of the firm.

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13.CASH PROFIT RATIO: Cash profit Cash profit ratio = Sales Cash profit ratio = (Net profit+ non cash expenses/depreciation) Particulars 2007-08 2008-09 103,857,607 600,889,091 17.28 2009-10 176,710,700 422,137,997 41.86 2010-11 108,184,838 552,839,754 19.56 *100

Ratio (%)

11.33

## CASH PROFIT RATIO

50 40 RATIO 30 20 10 0 2007-08 2008-09 YEAR 2009-10 2010-11 CASH PROFIT RATIO

INTERPRETATION: The cash profit ratio is increasing first three years i.e. 2006-07, 2007-08 & 2008-09.But then decreasing in year 2009-10.

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14. FIXED ASSET TO CAPITAL EMPLOYED: Fixed asset to capital employed = Fixed asset/capital employed *100

Ratio (%)

120 100 80

RATIO

## 60 40 20 0 2007-08 2008-09 2009-10 2010-11 YEAR FIXED ASSET TO CAPITAL EMPLOYED

INTERPRETATION: The above graph shows that fixed asset turnover ratio is increasing every year. So this ratio is good for Soma Textile & Industries Ltd, Baramati. Capital employed indicates the long term fund supplied by creditors and owners of the firm.

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## 4.2 FINDINGS:ACTIVITY RATIOS:

Ratios are increasing which shows that efficient utilization of long term funds. Inventory Turnover ratio of the company is Decreasing year-by-year. It means Company is not efficiently managing investment in Inventories. Collection period is less than the payment period. This shows the efficiency of the management. Accounts of the creditors are settled rapidly.

PROFITABILITY RATIOS:
The Gross profit ratio decrease year-by-year due to increase in material & manufacturing cost. Operating performance of the company is satisfactory. Net profit of the company decreased increase in indirect expenses as compared to year 2005-06 & 2006-07.

LIQUIDITY RATIOS:
Companys current assets are more than its current liabilities. Company is keeping sufficient margin of safety.

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CONCLUSION: In this project financial statement of last 3 years has been compared & through the ratio analysis technique it is concluded that the company is doing excellent in its field year after year. The study is restricted to only financial statements. The companys business has recorded significant increase in sales & profit.

## In this project ratio analysis indicates, the financial position of the

company. Also with the help of ratio analysis and past data management can taking corrective action regarding growth of business.

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CHAPTER-V SUGGESTIONS

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SUGGETIONS: In future company should expand their Business for increase in Profit. Gross profit of the company is low because of increase in raw material cost. Hence Company should purchase raw material in bulk quantity whenever cost is low. Company should make contract with vendors for a long period at fixed prices.

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LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are described below: 1. Ratios are calculated on the basis of past financial statements. They do not indicate future trends and they Comparison not possible if different firms adopt different accounting policies. 2. Ratio analysis becomes less effective due to price level changes. 3. Ratio may be misleading in the absence of absolute data. 4. Limited use of a single data. 5. Lack of proper standards. 6. False accounting data gives false ratio. 7. Ratios alone are not adequate for proper conclusions. 8. Effect of personal ability and bias of the analyst. 9. Limited Comparability. 10. Qualitative factors are ignored. 11. Effect of window-dressing. 12. Costly Technique.

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## BIBLIOGRAPHY Referred Books:

1. Cost Accounting & Financial management.-(M Y Khan and P K Jain) 4th edition, 200, Tata McGraw Hill Publishing Co. Ltd.New Delhi 2. Financial Management.- (Dr. Nachiket Inchlekar) 1st edition De. 2008, Nirali Publication Pune. 3. Financial Management.- (Prof. Ravi M. Kishore) 6th edition, 2008, Taxman Allied Service (P) Ltd. New Delhi. 4. Financial Management. - (Satish M.Inamdar) Everest Publishing House

HI-TECH sites:
Annual Reports of HI-TECH engineering company ltd baramati. (Year 2006-07, 2007-08, 2008-09 2009-10)

WEBSITE:
1] www,universalteacher4u.com/cbse/xii.. 2] eg,Wikipedia.org/wiki/financial_ratio

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ANNEXURE

## HI-TECH ENGINEERING CO. LIMITED BALANCESHEET AS AT 31St MARCH,2008

Schedule 2008 Rupees SOURCES OF FUNDS Head office a/c Reserves and surplus Total LOAN FUNDS Secured Loans Unsecured Loans 1 402,372,616 402,372,616 2 3 160,578,780 103,430,428 264,009,208 TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross Block Accumulated Depreciation Net Block Capital work-in-progress CURRENT ASSETS,LOANS AND ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans,Advances & other current assets 666,381,824

5 6 7 8

## 116,167,443 34,413,938 21,512,512 30,639,500 207,733,393 Page 63

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LESS: CURRENT LIABILITIES AND PROVISIONS Liabilities Provisions Net Current Assets MISCELLEANEOUS EXPENDITURE (to the extent not return of or adjusted)

9 10

11

81,427,673

171,486,224

4,508,841

4,694,724

## TOTAL NOTES TO ACCOUNTS 19

666,381,824 0

778,218,335

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HI-TECH ENGINEERING CO. LIMITED PRFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2008

Schedule INCOME Sales Interest Received Other income TOTAL EXPENDITURE Manufacturing & Other Expenses Interest Paid Depreciation 14 12 4

12 13

## 572,417,874 20,389,333 57,919,822

TOTAL PRIOR PERIOD ITEMS PROFIT BEFORE TAX Fringe Benefit Tax (Refer note 25 of Notes On Accounts) PROFIT/(LOSS) FOR THE YEAR PROFIT/(LOSS) TRANSFERRED TO HEAD OFFICE

678,089,883

650,727,029

45,195,592 178,947

15,741,299 196,964

45,374,539 45,374,539

15,544,335 15,544,335

NOTES TO ACCOUNTS

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## HI-TECH ENGINEERING CO. LIMITED BALANCSHEET AS AT 2009-10

Schedule SOURCES OF FUNDS Head office a/c Reserves and surplus Total LOAN FUNDS Secured Loans Unsecured Loans 1

2009-10 Rupees

2008-09 Rupees

310,166,589 310,166,589

2 3

## 139,263,604 4,339,760 143,603,364

TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross Block Accumulated Depreciation Net Block Capital work-in-progress CURRENT ASSETS,LOANS AND ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans, Advances & other current assets 4

453,769,953

585,841,558

5 6 7 8

9 10

## 26,633,631 2,539,498 29,173,129

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Net Current Assets MISCELLEANEOUS EXPENDITURE (Refer Note no.08 in Notes to accounts)

11

6,425,699

66,081,802 4,508,841

## TOTAL 19 NOTES TO ACCOUNTS

453,769,863

585,841,559

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