FINANCIAL ANALYSIS OF

FEDERAL MOGUL

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

(2015-2017)

SUBMITTED BY :

HARSHARAN SINGH

MBA 1 – D

ROLL NO. – 15421153

SCHOOL OF MANAGEMENT STUDIES

PUNJABI UNIVERSITY PATIALA

1

CONTENTS.No. Topic Page No.

1. Executive summery 2

2. Chapter-1 Introduction

- Profile

- History

- Milestone

- Board of Directors

- Financial profile of company

- Objective of Study

- Management discussion and analysis

- SWOT analysis

- Organization Structure

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15

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3. Chapter-2 Financial Statements

- Definition

- Characteristics and Nature

- Objectives

- Types

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3. Chaper-3 Financial Analysis

- Research Methodology

- Meaning

- Objectives

- Tools

- Balance Sheet

- Profit and Loss Account

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4. Chapter-4 Analysis of financial statements using

tools of financials analysis

- Comparative Analysis

- Common Size Analysis

- Ratio Analysis

- Cash flow Statement

- Limitations of study

- conclusion

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- Source 47

EXECUTIVE SUMMARY

The project assigned to me was to study the financial health of Federal Mogul Goetze India. I

decided to choose one of India’s largest companies in a sector that has rapidly grown over the

last few years and a company where leaders like Mr. K.N. Subramaniam. Through this report, I

have analyzed the financial environment in which Federal mogul is operating.

Through a thorough financial analysis, my aim to understand the financial factors influences the

company and its decision making and also knows the financial position of the company. Along

with my assignment work I was made aware about other financial operations of the company

like how they maintain their employees record their salary and other incentives. How the

evaluation of salary is done by them. They use to record all the data of employees in excel and

raw material in access. The company is into cost accounting and general accounting.

They carry general accounting for salary purpose, bills payment, raw material, etc. they make

all the payments through drafts and cheques no cash transactions are carried in this company

and cost accounting to find the cost of the products like rings, piston, etc.

I started my analysis from the annual report and then I started from comparative and common

size statements for analysis.

Later, I try and evaluate the various ratios to appreciate their impact on company’s performance

over the last few years. The financial statements of last few years are identified, studied and

interpreted in light of company’s performance. Along with this I prepared cash flow statement.

Critical decisions of distributing dividends, Issue of bonus Debentures and other current news

are analyzed and their impact on the bottom line of the company is assessed. Finally, I study

ratio analysis, comparative and common size statements and cash flow analysis of the company

to analyzing the financial position of the company.

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CHAPTER-1

INTRODUCTION

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PROFILE

Federal-Mogul Goetze (India) Limited was established in 1954 as a joint venture with Goetze-

Werke of Germany. 

Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, a $6.3 billion global

company and one of the leading manufacturers of automotive components in the world.

Federal-Mogul Goetze (India) Limited is the largest manufacturer of pistons and piston rings in

India.

Federal-Mogul Goetze (India) Limited

Manufacturer of world-class pistons, piston rings, sintered parts and cylinder liners

covering a wide range of applications including two/three-wheelers, cars, SUVs,

tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and

high output locomotive diesel engines.

Widest range of piston rings and pistons varying from 30mm to 300mm diameter.

The most modern production facilities at Bengaluru, Patiala and Bhiwadi are certified

TS 16949, ISO14001 and OHSAS 18001.

Market leaders both in OEM and aftermarket. Exports to many countries.

Goetze and Goetze Brico provide leading-edge technologies and competitive solutions

for original equipment manufacturers and the automotive aftermarket.

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1.Production Capacity: Piston rings

Pistons

54.96 Million

13.57 Million

2. Turnover: Apr 06 - Dec 06 INR 4500 Million

3. Net Profit (after tax): Apr 06 - Dec 06 INR (63.14) Million

4. Product range:

Pistons, Piston Rings,

Cylinder Liners, Light Alloy

Castings

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History

The company was founded in Detroit in 1899 by J. Howard

Muzzy and Edward F. Lyon as the Muzzy Lyon Company. Muzzy and Lyon went into business

together producing mill supplies and rubber goods.] In addition, the partners formed a

subsidiary called Mogul Metal Company where they launched various bearing innovations. To

fit consumer needs, the pair began producing bearings made from their own Babbitt

metal called "Mogul", an alloy of tin, antimony and copper. The product was trademarked under

“Mogul” and “Duro”.In addition to Babbitt metal, Muzzy and Lyon were also known for

inventing the process of custom die-casting bearings to suit proper size and shape.

The Muzzy Lyon Company bearings business proved

successful in the early 1900s and became the pair's main concern, with Buick as one of their

earliest customers. The Muzzy Lyon Company later merged with an engine bearings and

bushings manufacturing company, Federal Bearings and Bushings Corporation. Federal

Bearings & Bushings Co. was founded in 1915 by a group of Detroit businessmen. The

company initially consisted of Mogul Metal, and Federal and Bower Roller Bearing Co. but

later merged in 1924 to form Federal-Mogul-Bower Bearings, Inc. The combined company

manufactured bronze bearings, a product the Muzzy Lyon Company did not supply. To solidify

their success, the entire Muzzy Lyon Company merged with Federal Bearings and Bushing in

1924 to become Federal-Mogul Corporation.

The group established a research division with the help of Battelle

Memorial Institute in 1929. During the depression, Federal-Mogul Corp. invested in the Equi-

Poise propeller division. The companies continued advancements in the propeller industry were

recognized in 1941, when Federal-Mogul was named the world’s largest manufacturer of

motorboat propellers.

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In 1932, the company developed a new alloy called C-100, the first new bearing material since

the discovery of Babbitt metal. The Federal-Mogul Corp. research team revamped the C-100 in

1934 to create a C-50 alloy.

In 1955, the company acquired National Motor Bearing Company, resulting in a

company name change to Federal-Mogul Bower. In addition to acquiring another company,

Federal-Mogul Bower was listed as #350 on the Fortune 500, with total sales of $100 million

the following year. To further Federal-Mogul Bower expansion, the company opened business

operations in Switzerland. Shortly after, the company opened established their first overseas

service center in Antwerp, Belgium in 1962. Continuing the expansion of products, Federal-

Mogul Bower’s Arrowhead division began to manufacture components for NASA’s Saturn

launch vehicle in 1963. In April 1965, the company was renamed Federal-Mogul Corporation

following a merger with Sterling Aluminum Products.

In 1966, Federal-Mogul Corporation relocated from downtown Detroit, establishing its

corporate headquarters in Southfield, Michigan.

In 1981, Federal-Mogul Arrowhead parts were implemented in the NASA space shuttle

launch. That same year, the company won a claim in the Supreme Court to patent a process

for curing rubber based on the mathematical equation written by Swedish chemist Svante

Arrhenius in 1889. The US Patent Office had initially rejected Federal-Mogul's claim on the

basis that neither a formula, as a law of nature, nor a computer program based on such a

formula, could be patented.

In 1998, the company acquired Cooper Industries and brands including Anco wiper

blades, Champion ignition, MOOG chassis, Wagner and Abex friction, and Wagner and Blazer

lighting. That same year, Federal-Mogul also acquired Turner & Newall, a building materials

company based in Manchester, UK. Turner & Newall was one of the world's largest

manufacturers of asbestos-related products, including those made with blue crocidolite asbestos

mined in South Africa. Turner & Newall was responsible for the Armley asbestos

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disaster in Leeds, UK. After the acquisition, Federal-Mogul set aside approximately $2.1 billion

to cover asbestos-related claims but that amount provide insufficient. The large number of

products liability claims that came with this acquisition were largely responsible for Federal-

Mogul's federal Chapter 11 bankruptcy filing in 2002.

During the company’s restructuring, Federal-Mogul Corporation acquired multiple

companies including Robert G. Evans Co., Hanauer Machine Works, Inc., Metaltec, Inc.,

Mather Co. and Fel-Pro, Inc. The company emerged from Chapter 11 reorganization in January

2008 and in April 2008; the company listed Class A common stock on NASDAQ under the

trading symbol FDML.

In June 2010, Federal-Mogul expanded further into Asia by opening a headquarters and

technical center in Shanghai, China. The Asia Pacific headquarters and technical center facility

contains power train dynamometers and vehicle braking test cells among other processes. The

location allows for increased technical support to power train and vehicle customers as well as

technology development.

Federal-Mogul acquired Daros Group in June 2010, a privately owned supplier of

pistons for large bore engines used in industrial energy generation and commercial shipping.

The acquisition of the group included operations in China, Sweden and Germany. The purchase

of Daros added two-stroke and four-stroke piston ring products to Federal-Mogul’s portfolio of

industrial piston rings.

In December 2010 Barcelona (Spain) warehouse was shut down and moved to Madrid.

In March 2012, Federal-Mogul’s board of directors announced its decision to modify the

company’s corporate structure to create separate Powertrain and Vehicle Components segments,

each with its own CEO. Rainer Jueckstock, former senior vice president of the company's

Powertrain Energy business, was named CEO for the Powertrain segment effective April 1,

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2012. In February 2014, Daniel A. Ninivaggi was appointed CEO of the Federal-Mogul Vehicle

Components segment (VCS).

In July 2012, Federal-Mogul announced a definitive agreement to purchase the BERU

spark-plug business from BorgWarner Inc.

In September 2014, the company formally announced the long pending modification

to the company's corporate structure would be a split into two separate companies, Federal-

Mogul Powertrain, and Federal-Mogul Motor parts. The Powertrain division will focus on the

manufacturing and selling of OEM auto parts while the Motor parts division focuses on selling

aftermarket parts. Each individual company has their own CEO and corporate level staff that

will continue to report to the board of directors of Federal-Mogul Holding Corporation. The

company expects the split to be completed in the first half of 2015 pending regulatory approval.

In 2014, Honeywell completed the $155 million sale of its friction materials business to Federal

Mogul Corp.

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MILESTONES

 1954   Incorporated as a JV with Goetze Werke  

 1957  Ring & liner production Patiala

 1958  Piston production as escorts (Automotive

Division)  (Collaboration:Mahle)

Patiala

 1960 Cast iron / Forged piston production started   Patiala

 1968 Pins / ring carrier production started Patiala

 1977 Piston / ring production started Bengaluru

 1982 Steel rings / Large bore locomotive piston Bengaluru

 1985 Light alloy products Patiala

 1989 Auto thermic pistons production Bengaluru

 1990 Moly coated / IKA / chrome oil rings Patiala

 1992 Large bore rings / pistons for battle tanks Bengaluru

 1994 Composite pistons / new ring foundry Bengaluru

 1996 Escorts (Automotive Division) hived off into joint venture with M/S Mahle,

Germany

 1997 Goetze TP (India) Ltd. -  Manufacturer of steel rings

 2001 Merger of Federal-Mogul sintered products Ltd. with Goetze (India) Ltd.

 2003 Merger of Escorts pistons activities with Goetze (India) Ltd.

 2004 Introduction of chrome-ceramic rings

 2004 Technical collaboration for pistons with Federal-Mogul Corporation

 2006 Majority stakeholding acquisition by Federal-Mogul Corporation

 2006Name changed "Goetze (India) Limited" to "Federal-Mogul Goetze (India)

Limited"

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BOARD OF DIRECTORS

Designation   NameChairman & Director Mr. K.N. SubramaniamManaging Director Mr. Andreas KolfWhole Time Director-Legal and Company Secretary Dr. Khalid I. KhanDirector Mr. Bernhard MotelDirector Mr. Mukul GuptaDirector Ms. Janice Ruskey MaidenDirector Mr. Mahendra Goyal

FINANCIAL PROFILE OF THE COMPANY (in lacs.)

2015(15-

month)

2013 2012 2011

Total Income 1,70,452.08 126832.80 131370.48 126312.25

Depriciation 8937.31 6613.55 6193.52 5365.89

Profit before Tax 4745.73 3035.85 (1383.93) 4864.01

Taxation 1610.19 977.29 251.82 1117.84

Profit after Tax 3135.54 2058.56 (1635.74) 3746.17

Retained profit/(loss) 3135.54 2058.56 (1635.74) 3746.17

FEDERAL-MOGUL GOETZE (INDIA) LTD SHARE HOLDING

CATEGORY NUMBER OF SHARES

PERCENTAGE

Other companies 265129 0.48

Foreign promoters 41715454 74.98

General public 5921421 10.65

NBFC and Mutual Funds 7554202 13.58

Foreign institution 147149 0.26

Others 4827 0.01

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COMPETITORS

Bosch Motherson sumi Amara Raja Batt Exide Ind WABCO India Sundaram-Clayto Castex Tech Amtex Auto JMT Auto Horizone Intra

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OBJECTIVE OF STUDY

To study the profitability of Federal Mogul Goetze Patiala- my objective of doing

financial analysis was to know the profitability of the company with the help of analysis.

To ascertain the financial position and operating strengths and weaknesses of the

concern by properly establishing relationship between the items of the balance sheet and

remove statements.

To study the liquidity position-by doing analysis the liquidity of company can also be

ascertained.

By knowing this analyst is able to say how well the firm could utilize the resource of the

society in generating goods and services.

To study operating efficiency of company-as my major is finance i wanted to learn

practical knowledge of analysis on basis of a company.

The study has been conducted for gaining practical knowledge about Ratio analysis and

statements preparation.

MARKETING NETWORK

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Federal-Mogul Motor parts sells and distributes products under more than 20 brands in the global vehicle aftermarket, including:-

ANCO wiper blades; Bentley-Harris protection solutions; Champion spark plugs, wipers and filters, BERU glow plugs; AE, Fel-Pro, Goetze, Nural, Glyco and Payen engine products; MOOG steering and suspension parts; Ferodo and Wagner brake products.

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MANAGEMENT DISCUSSION AND ANALYSIS

(a) Industry structures and developments :

Indian auto component makers faced the heat of

a global auto slowdown during first half of 2014. Due to the slipping growth in commercial

vehicle and passenger car segments, the supplies of component makers fell too. Two wheeler

and three wheeler market segments, however, witnessed strong growth.The auto industry seems

to be in recovery mode since July 2014. Indian auto components industry treads a difficult path

through an uncertain near term future. Operational excellence, scenario planning and risk

management are poised to become the key arsenal for success. The auto component industry,

globally has witnessed economic restructuring whose macro and microeconomic implications

on nations and regions has been profound. The slowdown of sales in several markets in the auto

component industry was a short-term challenge, but loss of market share to increasing

competition in the domestic markets was another key challenge for automakers over the long

term. A host of domestic factors in the form of decrease in fuel prices, and low interest rates as

compared to previous year led to increase in the demand for cars. Though, in the short term, the

global economic uncertainties and domestic monetary tightening measures had built up a near

term negative sentiment on the Indian auto component industry. However, the long term

prospects of the industry are definitely perceived as a huge opportunity area.

(b) Opportunities and Threats :

Federal-Mogul continues to support theCompany with its

technical expertise. With widely recognized brands, superior technology, strong distribution

network and a committed team of employees, the Company is well positioned to take advantage

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of the opportunities and withstand the market challenges. The Company strives to create

sustainable profitable growth by using superior technology and maintaining product quality and

offering wide range of products at competitive prices which will give us a competitive edge in

the market. A progressive leadership has given direction to the establishment. We believe our

proactive steps and consistent implementation of our plans will allow us to prepare the company

for growth as consumers regain confidence in the industry and vehicle demand increases. The

Company competes with many independent manufacturers and distributors of component parts.

Management continues to develop and execute initiatives to meet the challenges of the industry

and to achieve its strategy for sustainable global profitable growth.There are limited sets of

customers in our business, that is, the automobile manufacturers. Competition is intense, as we

compete with suppliers both in the organized and unorganized segments. Technical edge,

Specialization, innovation and networking will determine the success of the Company in this

competitive environment. Looking ahead, revenue is expected to improve, if Company is able to

pursue its strategies. The Company is employing the best practices to proactively map the

impact of its activities on its performance and profitability from economic environment and

social perspectives.

(c) Segment wise or product wise performance :

We operate mainly in two segments i.e. OEM's

and the Aftermarket (Motorparts). The Company has a balanced approach to the OEM's and

Motorparts, which helps us in capitalizing on our strengths in both segments and to respond to

market fluctuations and customer strategies.

(d) Outlook :

It has always been wafer thin margin ratesand it could not get any thicker until the

first half, with increased competition, weak sales and heavy discounts doled out by

manufacturers to attract buyers. The second half of the financial year 2015-16 may hold the key

to success for many auto component manufacturers in India, with new launches coming up. It

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would be a mixed year for the auto component industry ahead. The auto component companies

need to achieve significant productivity improvements in order to position themselves in the

industry. The Company will endeavor to revitalize in near future as consumers regain

confidence and vehicle demand increases. To remain competitive in the challenging and

demanding environment, the benchmark has to be high in anticipation of the stated and unstated

need of the customers and markets.

(e) Risks and concern :

The Company operates in an environment which is affected by various

risks some of which are controllable while some are outside the control of the Company.

However, the Company has been taking appropriate measures to mitigate these risks on a

continuous basis. Some of the risks that are potentially significant in nature and need careful

monitoring are listed hereunder:

I. Raw material prices: Our profitability and cost effectiveness may be affected due to

change in the prices of raw materials and other inputs.

II. Foreign Currency Risks: Exchange rate fluctuations may have an adverse impact on

the Company.

III. Technical Intensive Industry: The automobile industry is a technical intensive industry

and thus faced with a constant demand for new designs, knowledge of nascent

technology to meet market requirements.

IV. Cyclical nature of the Industry: The Company's growth is linked to those of the

automobile Industry, which is cyclical in nature. The demand for automobiles has a

significant impact on the demand and prices of the products manufactured by the

Company. A fall in the demand and / or prices would adversely impact the financial

performance of the Company.

V. Increasing competition : Increasing competition across both OEM's and after market

segment, may put some pressure on market share.

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VI. Excess/ short capacity: Estimation of optimal manufacturing capacities for our

products is critical to our operations. Should we for any reason, not invest in capacity

expansion in near future could result in stagnation in our sales. Conversely, in the event

we over-estimate the future demand or due to general lowering of the customer demand

due to recession, we may have excessive capacity, resulting in under utilization of assets

and/or sale of surplus products at lower margin, which could have material adverse

effect on the financial results of the company.

SWOT ANALYSIS

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STRENGTHS

-barriers of market entry

-reduced labor costs

-high profitability and revenue

-high growth rate

-monetary assistance provided

-existing distribution and sales networks 

WEAKNESSES

-tax structure

-high loan rates are possible

-brand portfolio

-small business units

-investments in research and development

-future profitability 

OPPORTUNITIES

-new acquisitions

-growing economy

-global markets

-growth rates and profitability 

THREATS

-increasing rates of interest

-increasing costs

-rising cost of raw materials

-price changes

-growing competition and lower profitability 

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ORGANIZATION STRUCTURE

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CHAIRMAN

EXCECUTIVE DIRECTOR

VICE PRESIDENT

CHIEF (Plant Services)

CHIEF (Manufacturing)

CHIEF (Finance)

CHIEF (Stores)

CHIEF (Personnel)

MANAGERS

STAFF

SUB STAFF AND WORKERS

CHAPTER-2

FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

A financial statement (or financial report) is a formal record of the financial activities of a

business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form easy to

understand. They typically include basic financial statements, accompanied by a management

discussion and analysis:

1. A balance sheet , also referred to as a statement of financial position, reports on a

company's assets, liabilities, and ownership equity at a given point in time.

2. An income statement, also known as a statement of comprehensive income, statement of

revenue & expense, P&L or profit and loss report, reports on a

company's income, expenses, and profits over a period of time. A profit and loss

statement provides information on the operation of the enterprise. These include sales

and the various expenses incurred during the stated period.

3. A statement of cash flows reports on a company's cash flow activities, particularly its

operating, investing and financing activities.

DEFINITION:

“Financial statements are prepared for the purpose of presenting a periodical review or report on

progress made by the management and deal with the status of investment in business and the

results achieved during the period under the review.”

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CHARACTERISTICS AND NATURE OF FINANCIAL STATEMENT

The characteristics of financial statement are:

1. They relate to past period and thus are historical documents.

2. They are expressed in monetary terms.

3. They show financial position through Balance Sheet and profitability through Profit and

Loss Account.

Nature of financial statements:

It is very well known that the financial statements basically refer to balance sheets and Income

statements. Of course these two basic statements are supported by a number of schedules,

supplementary statements, explanatory notes, etc. Therefore all these are financial statements.

They show with supporting figures, earn or loss incurred during an accounting period and also

the assets, liabilities and capital at the end of the last day of the accounting period. These

statements reflect a combination of recorded facts, accounting convention and personal

judgments. It is therefore obvious that the figure included in the financial statements is

influenced by these factors. They are as follows-

 

1. RECORDED FACTS : Financial statements contain the fact relating to the business

transaction already recorded in the book of accounts. The unrecorded facts, whatever

important they might have not included in financial statements. The examples are human

resources, which are not shown in these statements because they are not recorded in the

books.

2. ACCOUNTING CONVENTION : Accounting convention implies certain accounting

principle which has been satisfied by the long user. In other words they refer usages and

customary practices in social and economic life of human being which have been

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generally accepted in building up the accounting principles. For examples, on account of

convention of conservation provision is made for expected losses but expected profits

are ignored. It means that the real business position of the firm is better than what is

shown in the financial statements.

3. ACCOUNTING ASSUMPTION OR CONCEPTS : GAAPs or Generally Accepted

Accounting Principles are in the form of guidelines and rules which are to be used as

standard for recording business transaction in the book of accounts and their fair

presentation in the financial statements. Because their statements have to prepare in

conformity with GAAPs, these GAAPs include principles, concepts and assumption.

Consequently the figures recorded in the financial statements are influenced by GAAP.

For examples Inventory valuation states those year-end inventories are to be valued at

lower of cost or market price. That means the value of year-end inventory which appears

in the financial statements is influenced by these principles.

4. PERSONAL JUDGMENT : It is true that Generally Accepted Accounting Principles

and concepts are followed in preparing financial statements but their application in most

of the cases depends on personal judgment of the accountant. For examples, the choice

of selecting methods of depreciation lies on the accountant. Similarly the method of

valuing inventory also depends on the personal judgment of the accountant.

OBJECTIVES OF FINANCIAL STATEMENTS:

1. Assessment of Past Performance:

Past performance is a good indicator of future performance. Investors or creditors are

interested in the trend of past sales, cost of goods sold, operating expenses, net income, cash

flows and return on investment. These trends offer a means for judging management's past

performance and are possible indicators of future performance.25

2. Assessment of current position :

Financial statement analysis shows the current position of the firm in terms of the types of

assets owned by a business firm and the different liabilities due against the enterprise.

3. Prediction of profitability and growth prospects:

Financial statement analysis helps in assessing and predicting the earning prospects and

growth rates in earning which are used by investors while comparing investment alternatives

and other users in judging earning potential of business enterprise.

4. Prediction of bankruptcy and failure:

Financial statement analysis is an important tool in assessing and predicting bankruptcy and

probability of business failure.

5. Assessment of the operational efficiency:

Financial statement analysis helps to assess the operational efficiency of the management of

a company. The actual performance of the firm which is revealed in the financial statements

can be compared with some standards set earlier and the deviation of any between standards

and actual performance can be used as the indicator of efficiency of the management.

FINANCIAL STATEMENTS INCLUDE;

1. Balance Sheet : The accounting balance sheet is one of the major financial statements used

by accountants and business owners. (The other major financial statements are the income

statement, statement of cash flows, and statement of stockholders' equity) The balance sheet is

also referred to as the statement of financial position.

The balance sheet presents a company's financial position at the end of a specified date. Some

describe the balance sheet as a "snapshot" of the company's financial position at a point (a

moment or an instant) in time. For example, the amounts reported on a balance sheet dated

26

December 31, 2014 reflect that instant when all the transactions through December 31 have

been recorded.

2. Profit and Loss Account : A financial statement that summarizes the revenues, costs and

expenses incurred during a specific period of time - usually a fiscal quarter or year. These

records provide information that shows the ability of a company to generate profit by increasing

revenue and reducing costs. The P&L statement is also known as a "statement of profit and

loss", an "income statement" or an "income and expense statement".

3. Schedules and Notes to Accounts : Additional information provided in a company's

financial statements. Footnotes to the financial statements report the details and additional

information that are left out of the main reporting documents, such as the balance sheet and

income statement. This is done mainly for the sake of clarity because these notes can be quite

long, and if they were included, they would cloud the data reported in the financial statements.

27

CHAPTER-3

FINANCIAL ANALYSIS

RESEARCH METHODOLOGY

For preparing my project the information has been collected from the following sources:-

Primary data:

28

The Primary data has been collected from Personal Interaction with Finance manager Mr. Vikas Gupta and other staff members.

Secondary data:

The major source of data for this project was collected through- Balance sheet of company- Profit and loss account - Annual report for other financial information

Sampling design

- Sampling unit              :  Financial Statements.- Sampling Size             :  Last two years financial statements.

FINANCIAL STATEMENT ANALYSIS

Financial statement analysis  (or financial analysis) is the

process of reviewing and analyzing a company's financial statements to make better economic

decisions. These statements include the income statement, balance sheet, statement of cash

flows, and a statement of retained earnings. Financial statement analysis is a method or process

involving specific techniques for evaluating risks, performance, financial health, and future

prospects of an organization.

It is used by a variety of stakeholders, such as credit and equity investors,

the government, the public, and decision-makers within the organization. These stakeholders

have different interests and apply a variety of different techniques to meet their needs. For

example, equity investors are interested in the long-term earnings power of the organization and

perhaps the sustainability and growth of dividend payments. Creditors want to ensure the

interest and principal is paid on the organizations debt securities (e.g., bonds) when due.

OBJECTIVES OF FINANCIAL STATEMENT ANALYSIS

1. Assessment of Past Performance : Past performance is a good indicator of future

performance. Investors or creditors are interested in the trend of past sales, cost of goods sold,

29

operating expenses, net income, cash flows and return on investment. These trends offer a

means for judging management's past performance and are possible indicators of future

performance.

2. Assessment of current position : Financial statement analysis shows the current position of

the firm in terms of the types of assets owned by a business firm and the different liabilities due

against the enterprise.

3. Prediction of profitability and growth prospects : Financial statement analysis helps in

assessing and predicting the earning prospects and growth rates in earning which are used by

investors while comparing investment alternatives and other users in judging earning potential

of business enterprise.

4. Prediction of bankruptcy and failure : Financial statement analysis is an important tool in

assessing and predicting bankruptcy and probability of business failure.

5. Assessment of the operational efficiency : Financial statement analysis helps to assess the

operational efficiency of the management of a company. The actual performance of the firm

which is revealed in the financial statements can be compared with some standards set earlier

and the deviation of any between standards and actual performance can be used as the indicator

of efficiency of the management.

TOOLS OF FINANCIAL ANALYSIS

Financial statement when analyzed in isolation is not of much meaning and use. They are thus

analyzed by comparing with the financial statement of previous years or with the financial

statement of enterprise of similar nature and size operating in similar business environment or

with the industry standards. The tools used for carrying out the analysis are:

1. Comparative statements: comparative statements mean a comparative study of component

of financial statement (balance sheet and profit & loss account) of two or more years or with

that of other enterprises.

2. Common size statement: common size statement is the statements in which individual items

of financial statement of two or more years are placed and then converted into percentage taking

a common base.

3. Ratio analysis: a ratio is an arithmetical expression of relationship between two related and

interdependent items. Accounting ratio thus, is an arithmetic relationship between two

30

accounting variable.

4. Cash flow statement: cash flow statement is a statement showing flow of cash and cash

equivalents during an accounting period classified under appropriate heads. It is prepared

following the accounting standard-3(revised) issued by ICAI.

Balance Sheet as at 31 March . 2015

Schedules As at As at31 March , 2015 31 December, 2013

Rs (in Lacs) Rs (in Lacs)

Equity and Liabilities

31

Shareholders’ Funds

5,563.21Share capital 5,563.21

Reserves and surplus 39,514.26 36,378.72

45,077.47 41,941.93

Non-current liabilities

722.22Long-term borrowings 1,555.56

Deferred tax liabilities (net) 433.98 1,523.79

Other long term liabilities 396.94 278.38

Long-term provisions 6,038.65 6,165.62

7,591.79 9,523.35

CURRENT LIABILITIES

21,253.32Short-term borrowings 18,688.57

Trade payables 22,334.88 17,553.22

Other current liabilities 2,169.79 2,521.53

Short-term provisions 197.00 143.83

45,954.99 38,907.15

TOTAL 98,624.25 90,372.43

AssetsNon-current assetsFixed assets

46,767.25Tangible assets 47,391.67

Capital work-in-progress 5,642.20 3,319.35

Non-current investments 510.00 510.00

Long-term loans and advances 3,170.01 4,145.95

56,089.46 55,366.97

Current assets

Current investments - -

Inventories 19,790.14 14,845.27

Trade receivables 17,293.25 14,664.50

Cash and bank balances 977.21 592.80

Short-term loans and advances 3,976.76 4,502.54

Other current assets 497.43 400.35

42,534.79 35,005.46

TOTAL 98,624.25 90,372.43

Statement of Profit and Loss for the period (1 January 2014 to 31 March 2015)

32

Schedules For the period For the period

33

1st January , 2014 to 31st Macrh , 2015

1st January , 2013 to 31st December 2013

Rs (in Lacs)

Rs (in Lacs)

REVENUE

Revenue from operations(gross) 1,66,709.55 1,24,575.91

Less: Excise duty (13,056.65) (10,878.74)

Revenue from operations(net) 1,53,652.90 1,13,697.17

Increase in inventories 3,326.78 2,055.04

Other income 3,742.53 2,256.90

Total Revenue 1,60,722.21 1,18,009.11

EXPENSES

Cost of raw material and components consumed 55,112.52 39,483.52

Purchase of traded goods 5,379.44 3,776.98

Employee benefit expense 31,949.53 23,615.72

Depreciation and amortization expenses 8,937.31 6,613.55

Finance cost 3,696.85 2,678.17

Other expenses 50,900.83 38,805.32

Total Expenses 1,55,976.48 1,14,973.26

Profit/ (loss) before exceptional items and tax 4,745.73 (3,035.85)

Exceptional items - -

Profit/ (loss) before tax 4,745.73 3,035.85

Tax expense

Current tax 2,500.00 884.50

Tax earlier year 200.00 -

Deferred tax (1,089.81) 92.79

Total tax expenses 1,610.19 977.29

Profit/ (loss) for the year 3,135.54 2,058.56

Earnings per equity share (Rs.) 5.64 3.70

34

CHAPTER-4

ANALYSIS OF FINANCIAL

STATEMENTS USING

TOOLS OF FINANCIALS

ANALYSIS

COMPARATIVE BALANCE SHEET

Comparative Balance Sheet analysis is the study of the trend of the same items, group of items

and computed items in two or more balance sheets of the same company on different dates.

COMPARATIVE BALANCE SHEET AS ON 31 st MARCH 2015 AND 31 st

DECEMBER 201335

PARTICULARS

CURRENT

YEAR (a)

PREVIOUS

YEAR (b)

ABSOLUTE

CHANGE

(a-b=c)

%

CHANGE

(c/b*100)A. Fixed Assets 56,089.46 55,366.97 722.49 1.30

B. Working capital

(C.A. - C.L.)

(3420.20) (3901.69) 481.49 12.34

C. Capital Employed

(A+B)

52669.26 51465.28 1203.98 2.33

D. Less: Long Term Debts 7,591.79 9,523.35 (1931.56) 20.28

E. Shareholder’s Fund 45,077.47 41,941.93 3135.54 7.47

Represented By:

Equity Share Capital

Reserve and surplus

5563.21

39,514.26

5563.21

36,378.72

0000

3135.54

100

8.61

F. Shareholder’s fund 45,077.47 41,941.93 3135.54 7.47

NOTE:Working Capital 2015 (Rs.) 2013(Rs.)

A. Current Assets 42,534.79 35,005.46

B. Current Liabilities 45,954.99 38,907.15

C. Working capital 3,420.20 3,901.69

COMPARATIVE PROFIT AND LOSS ACCOUNT

as on 31 st March 2015

PARTICULARS 31 MAR 2015

31 DEC 2013

ABSOLUTE CHANGE

%AGE CHANGE

36

A. Revenue from net TaxB. Other incomes

1,53,652.903,742.53

1,13,697.172,256.90

39955.73 1485.63

35.14 65.82

C. Increase in inventories 3,326.78 2055.04 1271.74 61.88

D. Total revenue (A+B+C)E. Expenses

- cost of material consumed

- purchase of stock in trade- employee benefit

expenses- finance cost- depreciation and

amortization expense- other expenses

160772.21

55,112.52

5,379.44 31,949.53

3,696.858,937.31

50,900.83

118009.11

39483.52

3776.98 23615.72

2678.176613.55

38805.32

42763.1

15629

1602.46 8333.81

1018.682323.76

12095.51

36.23

39.58

42.42 35.28

38.0335.13

31.16

F. Total expenses 1,55,976.48 1,14,973.26 41003.22 35.66G. Profit before exceptional items and tax (D-F) Exceptional items

4,745.73-

3,035.85-

1709.88

-

56.32

-

H. Profit before taxLess: tax expenses

4,745.731,610.19

3,035.85977.29

1709.88632.9

56.3264.76

I. Profit after Tax 3,135.54 2,058.56 1076.98 52.31

Objectives of Comparative P&L Account To analyze the statement of two or more Years

To analyze the increase or decrease in the income and expenditure in term of Rupees

and also the percentage.

To review the business operations of the last year and its likely effect on the current

year’s operations.

37

Common size Balance Sheet as on 31 st March 2015

PARTICULARS

31st

March

2015

31st

December

2013

%age

change of

2015

%age

change of

2013Equity and liability

- Shareholder’s fund 5,563.21 5,563.21 5.64 6.15

38

- Reserve and surplus

Net current liabilities

- Long term borrowings

- Deferred tax liability

- Other long term liabilities

- Long term provision

Current liabilities

- Short term borrowing

- Trade payable

- Other current liabilities

- Short term provision

Total

39,514.26

722.22

433.98

396.94

6,038.65

21,253.32

22,334.88

2,169.79

197.00

98,624.25

36,378.72

1,555.56

1,523.79

278.38

6,165.62

18,688.57

17,553.22

2,521.53

143.83

90,372.43

40.06

0.73

0.44

0.40

6.12

21.54

22.64

2.20

0.19

100

40.25

1.72

1.68

0.3

6.82

20.67

19.42

2.79

0.16

100

Non Currents Assets

- Tangible assets

- Intangible assets

- Capital work in progress

- Noncurrent investment

- Long term loans and

advances

Current assets

- Current investment

- Inventory

- Trade receivables

- Short term

- Other currents assets

Total

46,767.25

-

5,642.20

510.00

3,170.01

19,790.14

17,293.25

977.21

3,976.76

497.43

98,624.25

47,391.47

-

3,319.35

510.00

4,145.95

14,845.27

14,664.50

592.80

4,502.54

400.35

90,372.43

47.41

-

5.72

0.51

3.21

20.06

17.53

0.99

4.03

0.49

100

52.44

-

3.6

0.92

7.48

16.42

16.22

0.65

4.98

0.44

100

Objectives of Common Size Balance Sheet

To analyze the change in individual item of balance Sheet.

To see the Trend of different items of assets and liabilities.

39

PARTICULARS Amt Rs.

2015

Amt Rs.

2013

% age

change

of 2015

% age

change

of 2013I. Revenue for operations

Less: excise duty

II. Revenue from operation

(net)

III. Increase in inventories

1,66,709.55

(13,056.65)

1,53,652.90

3,326.78

1,24,575.91

(10,878.74)

1,13,697.17

2,055.04

100

7.83

92.16

1.99

100

8.73

91.26

1.64

40

Other incomes 3,742.53 2,256.90 2.24 1.811

Total revenue

IV. Expenses

- Cost of RM

- Purchase of traded goods

- Employees benefit expenses

- Depreciation and

amortization

- Finance cost

- Other expenses

Total expenses

1,60,722.21

55,112.52

5,379.44

31,949.53

8,937.31

3,696.85

50,900.83

1,55,976.48

1,18,009.11

39,483.52

3,776.98

23,615.72

6,613.56

2,678.17

38,805.32

1,14,973.26

93.07

33.05

3.23

19.16

5.36

2.21

30.53

93.56

93.07

31.69

3.03

18.95

5.30

2.14

31.14

92.29

V. Profit(loss) before

Exceptional items

4,745.73

-

3,035.85

-

2.84

-

2.43

-

VI. Profit or loss before tax 4,745.73 3,035.85 2.84 2.43

Tax expenses:

- Current tax

- Minimum alternate

- Deferred tax

- Total tax

2,500.00

200.00

(1,089.81)

1,610.19

884.50

-

92.79

977.29

1.49

0.11

0.65

0.96

0.71

-

0.07

0.78

Profit after tax 3,135.54 2,058.56 1.88 1.65

COMMON SIZE PROFIT AND LOSS ACCOUNTS as on 31 March 2015

Objectives of Common Size P&L accounts

To analyze the change in individual item of income statement.

To study the trend on different items of income and expenses

.

RATIO ANALYSES

(A) CURRENT RATIO

The current ratio is a financial ratio that measures whether or not a firm has enough resources to

pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities.

(2015) (15months) C.R. = current assets / current liabilities

41

= 42,534.79 / 45,954.99 = 0.92

(2013) C.R. = assets / current liabilities =35,005.46 / 38,907.15 = 0.89

INTERPRETATION

Current ratio express as a quotient current ratio which express the relationship between current

assets and current liabilities according to the books it shows the best ratio is 2:1 but in a

companies the best ration in automobiles the ratio is 1:0.75 but in this company. Current ratio is

0.92 also better.

(B) PERCENTAGE OF RETURN ON INVESTMENT

Return on investment (ROI) is the benefit to the investor resulting from an investment of some

resource. A high ROI means the investment gains compare favorably to investment cost. As a

performance measure, ROI is used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments. In purely economic terms, it is one way of

considering profits in relation to capital invested.

(2015) % of ROI =Profit before interest and tax /Capital employed*100 = 4,745.73/52669.26 * 100 =9.01%

(2013) % of ROI = Profit before interest and tax / Capital employed * 100 = 3035.85/51465.28 * 100 =5.01%

INTERPRETATIONThis ratio shows the relationship of profit with the capital employed. The net result of the

operations of Business is either profit or loss. The fund used by the Business to earn this profit

or loss are proprietors funds and loans.

42

( C ) PERCENTAGE OF PROFIT BEFORE TAX TO SALESThe net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining

profit after all costs of production, administration, and financing have been deducted from sales,

and income taxes recognized. 

(2015) % of PBTS = profit before tax / sales * 100

Sales =revenue from operation (gross) + other income

=1,66,709.55+3,742.53 =170452.08

= 4,745.73/ 170452.08* 100 = 2.78 %

(2013)% of PBTS = profit before tax / saleas * 100

Sales =revenue from operation (gross) + other income

=124575.91+2256.90=126832.81

3035.85 / 126832.81 * 100 = 2.40 %

INTERPRETATIONThis ratio establish the relationship of gross profit on sales to net sales of a firm which is

calculated in percentage .Any fluctuation in gross profit is the result of change either in sales or

cost of goods sold or both.

(D) PERCENTAGE OF PROFIT AFTER TAX TO SALES

A financial performance ratio, calculated by dividing net income after taxes by net sales. A

company's after-tax profit margin is important because it tells investors the percentage of money 43

a company actually earns per rupee of sales. This ratio is interpreted in the same way as profit

margin - the after-tax profit margin is simply more stringent because it takes taxes into account.

(2015)

% of PATS = profit after tax / sales * 100= 3,135.54 / 170452.08* 100= 1.839 %

(2013) % of PATS = profit after tax / sales * 100

=2058.56 / 126832.81 * 100= 1.623 %

INTERPRETATION

This ratio establishes the relationship between net profit and sales it shows the percentage of

net profit earned on sales. Net profit computed by deducting all the direct and indirect costs.

The net profit is an indicator of overall efficiency of the business. Higher the net profit ratio is

better the business.

The ratio helps in determining the operational efficiency of the business.

EARNING PER SHARE

The portion of a company's profit allocated to each outstanding share of common stock.

Earnings per share serve as an indicator of a company's profitability.

(2015)

EPS = net profit after tax / no. of shares= 313554000 / 55632130

= Rs. 5.64

(2013)EPS = net profit after tax / no. of shares

=20585600 / 5563210= Rs.3.70

44

INTERPRETATION

It is a earning of a company attributable to the equity share holders. This ratio measures the

earnings available to the equity share holders on per share basis.

This ratio helps in evaluating the prevailing market price of share on the light of a profit of

earning capacity. The more earning per share better is the performance and prospects of the

company

CASH FLOW STATEMENT

The official name for the cash flow statement is the statement of cash flows. The statement of

cash flows is one of the main financial statements. (The other financial statements are the

balance sheet, income statement, and statement of stockholders' equity.)

The cash flow statement reports the cash generated and used during the time interval specified

in its heading. The period of time that the statement covers is chosen by the company. For

example, the heading may state "For the Three Months Ended December 31, 2014" or "The

Fiscal Year Ended September 30, 2014".

Cash flow statement for the period ended 31 March, 2015

PARTICULARS 31 March 2015(Rs) in lacs

31 Dec 2013 (Rs.)in lacs

45

A. Cash flow from operating activities Profit/(loss) before tax Adjustments for:

Depreciation and amortization Loss on sale/discard of fixed assets Provision for doubtful debts Provision for doubtful debts written back Advances written off Interest income Dividend income Interest expenses Excess provision written back Unrealized forex (gain)/loss (net)

4,745.73

8,937.31115.40

1,031.27(303.40)

160.30(138.62)(347.00)3,473.12(883.11)385.42

3,035.85

6,613.55196.379.39

(6.68)155.26 (94.81)(357.00)2,678.17(269.07)283.63

Operating profit before working capital changesMovements in working capital:

Decrease/(increase)in trade/other receivables Decrease/(increase)in inventories Decrease/(increase)in trade/other payables

17,166.42

(1,409.62)(4,944.87)4,227.33

12,244.66

(2,064.95)1,499.18)1,596.60

Cash generated from operationsDirect taxes paid (net of refunds)

15,039.26(4,309.81)

10,277.13(682.90)

Net cash from operating activities 10,729.45 9,594.23B. Cash flow from investing activities Purchase of fixed asset/intangible assets Proceeds from sale of fixed assets Movement in restricted cash Proceeds from sale of investment Interest received Dividends received Movement in fixed deposit

(10,444.85)252.6715.31876.44108.05357.000.25

(8,269.33)47.03

(240.06)-

70.10357.00

-Net cash used in investing activities (8,835.13) (8,050.26)

C. Cash flow from financing activities Long term borrowing taken/(repaid) Movement in borrowing(short term) Interest paid

(611.11)2,564.75

(3,447.99)

1,600.00(332.73)

(2,658.73)Net cash used from/(used in) financing activities (1,494.35) (1,391.46)Net increase in cash and cash equivalents (A+B+C)

Cash and cash equivalents at the beginning of the year

399.97

180.25

167.51

12.74

Cash and cash equivalents at the end of the year 580.22 180.25Components of cash and cash equivalentsCash and cheques on hand With banks-on current accountBalance held as margin (original maturity upto 3months)

0.01580.21

-

9.33155.8315.09

580.22 180.25

46

LIMITATION OF STUDY

- The only limitation of study was limited interaction with the concerned heads due to

their busy schedule.

- In this company the summer training is given by the department head and they use to be

very busy in their routine work.

- But my mentor was always ready to help me regarding my queries and to provide me

with any financial information.

CONCLUSION

The past months of my internship have been very instructive for me. Federal Mogul has offered

me opportunities to learn and develop myself in many areas. I gained a lot of experience,

47

especially in the financial analysis field. A lot of the tasks and activities that I have worked on

during my internship are familiar with what I’m studying at the moment. I worked in many

areas where I did different work. This gave me the chance to find out which areas I want work

in after my education. By financial analysis, I had to do lots of research where I had to find the

best way of analysis. I learned many things about finance department working from my mentor.

I learned how the financial activities occur. Before my internship started my ideas did not match

the experiences have gained during my internship. Usually we learn how to describe the work in

projects, where in work you learn how to implement them in reality. This internship was

definitely an introduction to the actual work field for me. I have learned to work in a business

organization and apply my knowledge into practice. I learned a lot from the different interns

that I have been working with during my internship. My mentor during my internship was Mr.

Vikas Gupta who helped me to learn a lot during my internship. He has also lots of knowledge

in the working area that is Finance. I have tried to learn as much as possible from him. He had

always time to answer all my questions concerning my internship. I appreciate all the advice he

gave me during my internship. Interning at federal mogul was definitely a learning experience.

SOURCE

http://www.federalmogulgoetzeindia.net/web/patiala.htm

http://www.federalmogul.com/en-US/Pages/Home.aspx

48

http://www.accountingtools.com/definition-financial-statemen

http://www.accountingcoach.com/terms/F/financial-statements

http://www.accountingtools.com/financial-statement-analysis

http://www.investopedia.com/terms/f/financial-statement-analysis.asp

http://www.moneycontrol.com/competition/federalmogulgoetze/

comparison/FMG

Analysis of financial statements by T.S. Grewal

Annual report of federal mogul

49