Company Assignment

7/29/2019 Company Assignment

1/97

FINANCIAL STATEMENT ANALYSIS

FOR BHARAT OIL COMPANY, CHENNAI

By

(D. Anand, Regn. No. 35103011)

A PROJECT REPORT

Submitted to the

S.R.M SCHOOL OF MANAGEMENT

In the FACULTY OF ENGINEERING AND TECHNOLOGY

In partial fulfillment of the requirements

For the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

S.R.M. ENGINEERING COLLEGE

S.R.M. INSTITUTE OF SCIENCE AND TECHNOLOGY

DEEMED UNIVERSITY

JUNE 2005


2/97

ii

BONAFIDE CERTIFICATE

Certified that this project report titled FINANCIAL STATEMENT ANALYSISis the

bonafide work of Mr. D. Anand, who carried out the research under my supervision.

Certified further, that to the best of my knowledge the work reported here in does not form

part of any other project report or dissertation on the basis of which a degree or award was

conferred on an earlier occasion on this or any other certificate.

Signature of the Guide Signature of the HOD

Name of the Guide

ABSTRACT

A financial statement is a collection of data organized according to logical and consistent

accounting procedures. The term financial statement generally refers to the two statements:(i) the position statement or the balance sheet; and (ii) the income statement or the profit

and loss account. Financial statements are prepared as an end result of financial accounting

and are the major sources of financial information of an enterprise.


3/97

iii

Financial statements are also called financial reports. In the words of Anthony, financial

statements, essentially, are interim reports, presented annually and reflect a division of the

life of an enterprise into more or less arbitrary accounting period-more frequently a year.

The Financial statement analysis helps in finding out the following:

? Profitability and financial soundness of the company by comparing financial

statement.

? It highlights nature of changes influencing financial position and performance of the

enterprises with the aid of comparative Balance sheet analysis, common-size Balance

sheet and trend percentage analysis.

? It determines the trend of the current assets, current liabilities, sales and working

capital of the firm tend to change using trend analysis

ACKNOWLEDGEMENT

I express my heartiest thanks and indebt ness to Shri. T.R. Pachamuthu B.Sc., M.I.E.,

Founder and Chairman, VALLIAMMAI SOCIETY, Chancellor, SRM INSTITUTE OF

SCIENCE AND TECHNOLOGY (DEEMED UNIVERSITY) for providing me with

necessary facilities to complete this project.

I express my heartiest thanks to Prof. R. VenkataramaniM.Tech, F.I.E., Principal of

SRM INSTITUTE OF SCIENCE AND TECHNOLOGY (DEEMED UNIVERSITY),

for providing me with necessary facilities to complete this project.

I express my gratitude to DR. (Mrs.) S. Jayashree Suresh B.A., M.B.A. and PhD Dean,

Head of the Department of Management Studies for providing me with all facilities and

guidance to complete the project successfully.


4/97

iv

I am very much thankful to my guide Mr. Chinnathambi, Senior Lecturer for his patient

guidance in making the project a grand success.

I would like to thank the management of Bharat Oil Company for giving me an

opportunity to do the project in their esteemed organization. I would like to thank Mr. P.

Chandrasekarfor his useful suggestions and assistance through out the project.

I wish to extend my sincere thanks to all the staff members of the Management Studies

department for their untiring support.

I would also like to thank my Institution,myFaculty members and myFriends

without whom this project have been a distant reality.


5/97

v

CONTENTS

TITLES Page No

Abstract iii

Acknowledgement iv

Table of Contents v

List of Table vi

List of Charts / Figures vii

Chapters:

1. Introduction

2. Statement of the Problem

3. Objective of the Study

4. Review of Literature

5. Methodology and Limitations of the study

6. Company Profile

7. Analysis and Interpretation

8. Findings

9. Suggestions

10.Conclusion

1

3

4

5

8

18

20

90

92

94

Bibliography viii


6/97

vi

LIST OF TABLES

TABLE NUMBER TABLE NAME PAGE NO.7.1 Current Ratios 207.2 Acid Ratio 237.3 Absolute Liquid Ratio 267.4 Inventory Turnover Ratio 297.5 Debtors Turnover Ratio 327.6 Creditors Turnover Ratio 357.7 Net Working Capital Ratio 387.8 Changes in Working Capital 2001 417.9 Funds from Operation 2001 427.10 Funds Flow Statement 2001 42

7.11 Changes in Working Capital 2002 437.12 Funds from Operation 2002 447.13 Funds Flow Statement 2002 447.14 Changes in Working Capital 2003 457.15 Funds from Operation 2003 467.16 Funds Flow Statement 2003 467.17 Cash Flow Statement 2001 477.18 Cash Flow Statement 2002 497.19 Cash Flow Statement 2003 517.20 Common-size Balance sheet 2001 537.21 Common-size Balance sheet 2002 55

7.22 Common-size Balance sheet 2003 577.23 Common-size income statement 2001 597.24 Common-size income statement 2002 617.25 Common-size income statement 2003 637.26 Comparative Balance sheet 2001 657.27 Comparative Balance sheet 2002 677.28 Comparative Balance sheet 2003 697.29 Comparative income statement 2001 717.30 Comparative income statement 2002 737.31 Comparative income statement 2003 757.32 Trend analysis for current assets 77

7.33 Trend analysis for current liabilities 817.34 Trend analysis for sales 847.35 Trend analysis for working capital 87


7/97

vii

LIST OF CHARTS

CHART NUMBER CHART NAME PAGE NO.FIGURE I Current Ratios 21FIGURE II Acid test Ratios 24FIGURE III Absolute liquid Ratios 27FIGURE IV Inventory Turnover Ratio 30FIGURE V Debtors Turnover Ratio 33FIGURE VI Creditors Turnover Ratio 36FIGURE VII Net Working Capital Ratio 39FIGURE VIII Trend analysis for current assets 80FIGURE IX Trend analysis for current liabilities 83FIGURE X Trend analysis for sales 86FIGURE XI Trend analysis for working capital 89


8/97

viii

CHAPTER 1

INTRODUCTION

Acompany manufactures a product or renders a service, all its transactions are

represented in terms of money. Similarly its performance whether its success or failures, is

again evaluated in terms of money. Thus the common denominator is money or finance.

The activities of an enterprise- planning, control, operation etc, are all measured in financial

terms with the onslaught of competition, growth inflationary pressure, and volatile exchange

rates.

Since financial is viewed as most important factoring every enterprise, the

management requires special mention and attention. The modern approach to finance

function in business highlights the procurement of funds on the most economic and

favorable terms to the concern and to make use of the same in an efficient manner for

successful running of the enterprise. Financial management plays a vital role in procurement,

allocation and control of funds. Hence the need and demand for rigorous financial

management has increased greatly.

The basis for financial planning and analysis is financial information. The financial

information of an enterprise is contained in the financial statement or accounting reports. It

contains summarized information of the firms financial affairs, organized systematically.

They are means to present the firms financial situation to management,

shareholders/ owners, potential investors, lenders, creditors, employees, trade union,

customers, public, government and their agencies, taxation authorities and researchers.

Thus, the analysis of financial statement enables to judge the earning capacity,

managerial efficiency, short and long term solvency, inter firm comparison enables to


9/97

ix

forecast and prepare budget of an organization in investment decision, financing decision

and dividend policy decision.

After duly recognizing the important of financial statement analysis this topic has beenchosen as the focus of the project. The analysis of financial statement is a process ofevaluating the relationships between component parts of financial statement to obtain abetter understanding of the firms position and performance.

CHAPTER 2

STATEMENT OF PROBLEM

Purpose of the study is to diagnose the information contained in financial statement

so as to judge the profitability and financial soundness of the firm. The study aims at

analyzing the overall financial performance of the company over a period of 4 yrs (i.e.) 2000-

2003 by using various tools to bring out the mystery behind the figures in the financial

statement.

If analysis is not done, the management will not be able to assess the financial

strength of firm and to turn it to their advantage. The analysis is essential to spot out the

financial weakness of firm to take suitable corrective actions. Thus financial statement

analysis is necessary for the firms to frame the future plans and also to convert weakness

into strength.

CHAPTER 3

OBJECTIVES

? To analyze, interpret and suggest on the profitability and financial soundness of the

company by comparing financial statement.


10/97

x

? To highlight nature of changes influencing financial position and performance of the

enterprises with the aid of comparative Balance sheet analysis, common-size Balance

sheet and trend percentage analysis.

? To determine the trend of the current assets, current liabilities, sales and working

capital of the firm tend to change using trend analysis.

? To highlight changes in financial position with help of funds flow & cash flow

analysis.

? To analyse the short-term financial position of the firm through the various liquidity

& efficiency ratios like current ratio, liquid ratio, absolute liquid ratio, working capital

ratio, stock turnover ratio etc.

CHAPTER 4

REVIEW OF LITERATURE

4.1FINANCIAL ANALYSIS

4.1.1 MEANING:

The term financial analysis, also known as analysis and interpretation of

financial statements, refers to the process of determining financial strengths and weakness

of the firm by establishing strategic relationship between the items of the balance sheet,

profit and loss account and other operative data. The purpose of financial analysis is to

diagnose the information contained in financial statements so as to judge the profitability

and financial soundness of the firm. Financial statement analysis is an attempt to determine

and meaning of the financial statement data so that forecast may be made of the future

earnings, ability to pay interest and debt maturities (both current and long-term) and

profitability of a sound dividend policy.


11/97

xi

4.1.2 TYPES OF FINANCIAL ANALYSIS:

It can be classified into 2 and they are:

? On basis of material used

? On basis of modus operandi.

ON BASIS OF MATERIAL USED:

? EXTERNAL ANALYSIS.

The analysis is done by outsiders who do not have access to the detailed internal accounting

records of the business firm. These outsiders include investors, creditors, potential creditors,

government agencies and public. For financial analysis, these external parties to the firm

depend almost entirely on the published financial statement. External analysis, thus serves

only a limited purpose. However, the recent changes in the government regulations requiring

business firms to make available more detailed information to the public through audited

published accounts have considerably improved the position of the external analysis.

? INTERNAL ANALYSIS.

ON BASIS OF MATERIAL USED ON BASIS OF MODUS

OPERANDI

EXTERNAL

ANALYSIS

INTERNAL

ANALYSIS HORIZONTAL

ANALYSIS

VERTICAL

ANALYSIS

TYPES OF FINANCIAL

ANALYSIS


12/97

xii

The analysis conducted by persons who have access to the internal accounting records of a

business firm is known as internal analysis. Such an analysis can, therefore, be performed by

executives and employees of the organization as well as government agencies which have

statutory powers vested in them. Financial analysis for managerial purpose is the internal

type of analysis that can be effected depending upon the purpose to be achieved.

ON THE BASIS OF MODUS OPERANDI:

? HORIZONTAL ANALYSIS.

Horizontal analysis refers to the comparison of financial data of a company for several years.

The figure for this type of analysis is presented horizontally over a numbers of columns.

This type of analysis is called Dynamic Analysis. The horizontal analysis makes it possible

to focus attention on items that have changed significantly during the period under review.

Comparison of an item over several periods with a base year may show a trend developing.

Comparative statement and trend percentage are two tools employed in horizontal analysis.

? VERTICAL ANALYSIS.

Vertical analysis refers to the study of relationship of the various items in the financialstatement of one accounting period. In this types of analysis the figure from financialstatement of a year are compared with a base selected from the same years statement. Itis also known as Static Analysis. Common-size financial statement ratios are the two

tools employed in vertical analysis. Since vertical analysis considers data for one timeperiod only, it is not very conductive to a proper analysis of financial statement.However, it may be used with horizontal analysis to make it more effective andmeaningful.

CHAPTER 5

METHODOLOGY OF STUDY

The methodology of study involves the study of the financial statement that is followed byBOC. The project involves the analysis with the help of Ratio analysis, Comparative

statement, Common-size statement, Fund flow analysis (Funds Flow statement), Cash flow

analysis (Cash Flow statement) and Trend analysis for the current assets, current liabilities,

sales and working capital. The various methods are explained in brief in the following

paragraphs.


13/97

xiii

5.1SOURCE OF DATA:

The source of data comes mainly from the following:

1. Companys annual reports.

2. Balance Sheets of the firm for the last three years.

5.2 RATIO ANALYSIS

A ratio is a simple arithmetical expression of the relationship of one number to another. It is

an expression of the quantitative relationship between two numbers. Ratio analysis is a

technique of analysis and interpretation of financial statements. It is the process of

establishing and interpreting various ratios for helping in making certain decisions. It is a

means of better understanding of financial strengths and weaknesses of a firm. There are anumber of ratios which can be calculated from the information given in the financial

statements, but the analyst has to select the appropriate ratios from the same keeping in

mind the objective of analysis. The following four steps are involved in the ratio analysis:

? Selection of relevant data from the financial statements depending upon the

objective of the analysis.

? Calculation of appropriate ratios from the above data.

? Comparison of the calculated ratios of the same firm in the past, or the ratios

developed from the projected financial statements or some other firms or the

comparison with ratios of the industry to which the firm belongs.

? Interpretation of the ratios.

The ratios that have been considered and used for the financial statement analysis in this

project are as follows:

1) Liquidity Ratios

a) Current Ratio

b) Acid Test Ratio


14/97

xiv

c) Absolute Liquid Ratio or Cash Position Ratio

2) Efficiency Ratios

a) Inventory Turnover Ratio

b) Receivables Turnover Ratio

c) Working Capital Turnover Ratio

5.2.1Liquidity Ratios

The term Liquidity refers to the ability of a concern to meet its current obligations as and

when these become due. To measure the liquidity position of a firm, the current ratio, acid

test ratio and the absolute liquid ratio are to be calculated.

5.2.1.1Current Ratio It may be defined as the relationship between current assets andcurrent liabilities. Also known as the working capital ratio this measures the general liquidity

and is most widely used to make the analysis of a short-term financial position or liquidity of

a firm. The current ratio is determined by the formula,

Current Ratio = Current Assets

Current Liabilities

5.2.1.2 Acid Test Ratio It is also known as quick ratio and is a more rigorous test of

liquidity than in the current ratio. It is defined as the relationship between the quick/ liquid

assets and the current or liquid liabilities. The acid test ratio is determined by the formula,

Acid Test Ratio = Liquid Assets

Current Liabilities

5.2.1.3 Absolute Liquid Ratio It is also known as cash ratio and here the receivables,

debtors and inventories are not considered and the cash which is the most liquid asset is onlytaken in consideration. The absolute liquid ratio is determined by the formula,

Absolute Liquid Ratio = Absolute Liquid Assets

Current Liabilities

5.2.2 Efficiency Ratios


15/97

xv

Funds are invested in various assets in business to make sales and earn profits. The

efficiency of with which assets are managed directly affect the volume of sales. Efficiency

ratios measure the efficiency or effectiveness with which a firm manages its resources or

assets. These ratios are called as Efficiency ratios. To measure the efficiency of the firm the

stock/ inventory turnover ratio, debtors/ receivables turnover ratio, creditors/payable

turnover ratio and working capital turnover ratio are analyzed.

5.2.2.1Inventory Turnover RatioIt is also known as stock velocity and indicates whether

inventory has been efficiently used or not. I t indicates the no. of times the stock has been

turned over during the period and evaluates the efficiency with which the firm is able to

manage its inventory. The inventory turnover ratio is calculated by the formula,

Inventory Turnover Ratio = Sales

Inventory5.2.2.2 Receivables Turnover Ratio Debtors turnover ratio indicates the velocity of debt

collection of the firm. It indicates the number of times the debtors are turned over during a

year. The receivables turnover ratio is calculated by the formula,

Debtors Turnover Ratio = Total Sales

Debtors

5.2.2.3 Working Capital Turnover Ratio This ratio indicates the no. of times the

working capital is turned over the course of the year. This ratio measures the efficiency with

which the working capital is being used by the firm. The working capital turnover ratio is

calculated by the formula,

Working Capital Turnover Ratio = Cost of Sales (or, Sales)

Net Working Capital

5.3 COMMON-SIZE STATEMENT

The common-size statements, Balance sheet and income statement are shown in analytical

percentages. The figures are shown as percentages of total assets, total liabilities and total

sales. The total assets are taken as 100 and different assets are expressed as a percentage of

the total. Similarly, various liabilities are taken as particulars of total liabilities. These


16/97

xvi

statements are also known as component percentage or 100-percentage statement because

every individual item is stated as a percentage of 100. The shortcomings in comparative

statement and trend percentages where changes in items could not be compared with the

totals have been covered up. The analyst is able to assess the figure in relation to total values.

The common-size statement may be prepared in the following way.

1. The totals of assets or liabilities are taken as 100.

2. The individual assets are expressed as percentage of total assets.

5.4 COMPARATIVE STATEMENT

The comparative financial statements are statement of the financial position at different

periods of time. The elements of financial position are shown in a comparative form so as to

give an idea of financial position at two or more periods. Any statement prepared in acomparative form will be covered in comparative statement. From practical point of view

generally two financial statement are prepared in comparative form for financial analysis

purposes. Not only the comparison of the figure of two periods but also be relationship

between Balance sheet and income statement enables an in-depth study of financial position

and operative results. The comparative statement may show:

1. Absolute figure

2. Change in absolute figure

3. Absolute data in terms of percentages.

4. Increase or decrease in terms of percentage.

5.5 FUND FLOW STATEMENT

Fund Flow Statement shows the movement of funds and is a report of the financial

operations of the business undertaking. It indicates various means by which funds were

obtained during a particular period and the ways by which these funds were employed.

The flow of funds occurs when a transaction changes on the one hand of a non-current

account and on the other a current account and vice-versa. Fund Flow Statements is a

method by which we study changes in financial position of a business enterprise between

beginning and ending financial statement dates.


17/97

xvii

Fund Flow analysis reveals the changes in working capital position. I t tells about the sources

from which the working capital was obtained and the purpose for which it was used. Funds

flow statement deals with the financial resources required for running business activities.

The Fund Flow Statement is prepared and the sources of funds and the uses/ application of

funds are found and displayed in a tabular format. The format is as follows:

Fund Flow statement for the year

Sources Applications

Particulars Rs. Particulars Rs.

Net Profit

DepreciationDeferred Revenue Expenditure

Increase in Equity Capital

Increase in Term Liabilities

Others

Decrease in Working Capital

***

***

***

***

***

***

***

Net Loss

Redemption of PreferenceShare Capital

Increase in Fixed Assets

Dividend paid

Payment of deferred Revenue

Expenditure

Others

Increase in Working Capital

***

***

***

***

***

***

***

Total **** Total ****

5.6 CASH FLOW ANALYSIS

An analysis of cash flow is useful for short term planning. A firm needs sufficient cash to

pay debts maturing in the near future, to pay interest and other expenses and to pay

dividends to shareholders. The firm can make projections of cash in flows and outflows and

outflows for the near future to determine the availability of cash.

A Cash Flow Statement is a statement describing the changes in financial position on cash

basis. This summarizes the causes of changes in cash position between dates of two Balance

Sheets. It indicates the sources and uses of funds. The cash flows statement is similar to the

fund flow statement except that it focuses attention on cash instead of working capital.


18/97

xviii

The cash flow statement helps out in taking short term financial decisions and also in the

preparation of cash budget for the next period. Cash flow analysis can reveal the causes for

even highly profitable firms experiencing acute cash shortages. A detailed study of the

sources of cash can help to improve or accelerate the inflow from each source and may even

lead to the discovery of new sources. Similarly a minute analysis of the different applications

of cash may help to slow down or reduce the cash outflows of cash.

The cash flow analysis can be classified into three main categories:

? Cash flows from operating activities

? Cash flows from investing activities

? Cash flows from financing activities

The format of cash flow statement is as follows:

Cash Flow statement for the year

Particulars Rs.

Cash Flows from Operating ActivitiesNet profit / Loss before tax and extraordinary itemsAdjustments for:

DepreciationGain / Loss on sale of fixed assets

Foreign ExchangeMiscellaneous expenditure written offInvestment IncomeInterestDividend

Contd..Operating profit before working capital changesAdjustments for:

Trade and other receivablesInventoriesTrade Payables

Cash generated from operationsInterest paidDirect taxes paidCash flow before itemsExtraordinary items

Net Cash from Operating Activities

Cash Flows from Investing ActivitiesPurchase of Fixed Assets

***

******

***************

****

*********

*******************

***


19/97

xix

Sales of Fixed AssetsPurchase of investmentsSale of investmentsInterest receivedDividend received

Net Cash from/ used in Investing Activities

Cash Flows from Financing ActivitiesProceeds from issue of share capitalProceeds from long-term borrowings/banksPayment of long-term borrowingsDividend paidNet Cash from/used in Financing Activities

Net Increase/ Decrease in Cash and Cash EquivalentsCash and Cash Equivalents as at.(Opening Balance)Cash and Cash Equivalents as at.(Closing Balance)

***************

****

****************

************

5.7 TREND ANALYSIS:

This method is used to analyse the trend in the growth of the companys current assets and

current liabilities, sales and working capital. For this the Trend analysis method is used to

make a clear idea. The trend analysis is done based on the following method. The trend

equation is to be analyzed for this purpose.

The trend equation is

Y = a + bX

Step1: Calculation of b

b = N?XY - ?X?Y

N?X - (?X)

Step2: Calculation of a

a = (?Y / N) b (?X / N)


20/97

xx

Step3: Substitute the value of a and b in the trend equation (Y=a + bX) and plot the value

of Y with respect to X in the chart. The line which is seen in the chart is referred to as the

trend line.

Step4: The chart is then interpreted based on the trend of the line for each Y value (current

assets, current liabilities and sales).

LIMITATION OF STUDY

? The study is purely based on secondary data as obtained from the audited annual

reports of company that gives only limited information regarding performance of the

company.

? Analysis is only a means and not an end itself. The researcher has to make

interpretation and show his own conclusion.

? Financial statements are prepared on the basis of certain accounting concepts and

conventions any change in the method or procedure of accounting limits the utility

of financial statement.

? The data taken for analysis covers only a period of 2000-2003, so study is about past

only, it needs not be indicative of future.

? Time is major limiting factor of study. It is not possible to analyze all the aspects in

details within time allowed because of lack of time; the study does not cover the

areas relating to industrial analysis and economic growth of Bharat Oil Company.


21/97

xxi

CHAPTER 6

COMPANY PROFILE

6.1HISTORY

In the early 90's, Bharat oil company (BOC) was formed as a small partnership firm,

marketing the lubrication oil of brand Shell, Castrol, Elf etc. Now it has become a sole

proprietorship. A few years and several successes later, the company surprised everyone

again by spearheading the marketing of lubrication oils in the South. The firm has now

marketed a number of byproducts oil for the same company.

BOC has become one of the key players in the lubrication oil in South India. It has now

consolidated its position as the largest private company in Chennai.

After proving its strength in the lubrication oil industry the organization shifted its focus in

the marketing and sale of lubrication oil and its by products. The company started the

products namely, Castrol and Shell. Within a short period these products have become a

popular product and the company had been able to successfully sustain in the industry.

The companys units are located in Chennai, Thirichangodu, and Naively.

6.2 KEY FEATURES IN OILS

? Capacity of handling 10,00,000 litres of Oil per day.

? State of the art laboratory for process control, product quality control and product

development.

? ISO 9001 certified manufacturing facility that has been extensively upgraded in thelast three years.

? Spray drying capacity of 15 tons per day.

The company also has tie up with banks for arranging loans to the producers. The company

has a strong logistics and distribution network in oil and its byproduct sector. The company


22/97

xxii

has 12 distribution points, strategically located for quick and easy distribution of its products.

In this segment, the Companys distribution network comprises of 10 wholesale distributors

and over 75 dealers for Castrol and around 50 direct selling agents for Shell, Elf, and IBP

oils. The company is the leader in oil sector among the private sector and market leader for

southern region, Chennai.

6.3 PRODUCTS OF BOC

The companys markets and sells the following products:

? Lubrication oil of Castrol.

? 2T oil of Shell.

? 2T and 4T oil of Elf & IBP.

? Lubrication oils and Grease.

6.4 SUPPLIERS FOR BOC:

? Castrol

? IBP

? Elf

? Shell

6.5 CUSTOMERS OF BOC:

? Manufacturing industries

? Hotel industries

? Travel industries

? Service industries

Apart from marketing lubrication oils for the company they also market and sell oil

byproduct like grease to its customer. They are planning to expand their operations in

Kancheepuram, Chengalpet, and also in Kerela and Andhrapradesh.

CHAPTER 7

ANALYSIS AND INTERPRETATION

7.1RATIO ANALYSIS


23/97

xxiii

7.1.1 Current Ratio

Table 7.1

PARTICULARS 2000 2001 2002 2003

Current Assets:Cash in handCash at bankSundry DebtorsStockOther current assets

Total C.A

Current Liabilities:Sundry creditorsBank o/dOther C.L

Total C.L

Current Ratio:

25566.94-1402392.0844667675000

1949635.02

1242427.5716511.4685736

1344675.03

1.45

12085.22423.43

1782233.5512565077000

1997392.2

1401360.58202519.31

56540

1660419.89

1.20

52938.829419.131593854.1213212077000

1865332.07

1478008.90-31462

1509470.9

1.24

75482.89423.431525928.4462565077000

2304484.76

1381732.24-39112

1420844.24

1.62

Ideal Ratio: - 2:1Actual Ratio: - 1.45, 1.20, 1.24, 1.62respectively.


24/97

xxiv

CURRENT RATIOS

0

0.5

1

1.5

2

RATIOS

RATIOS 1.45 1.2 1.24 1.62

Year Year Year Year

FIGURE i

7.1.1.1INTERPRETATION: -

? Current Ratio of the company is not satisfactory because the ratios are

[1.45,1.20,1.24,1.62] much below the accepted standard of 2:1. Low current ratio

indicates that the firm shall not be able to pay its current liabilities in time. The

company needs to improve its short-term financial position.


25/97

xxv

? Bank o/ d has been paid off in 2002 & 2003.

? In 2003 they had enough current assets to pay of their liabilities.

? Cash in hand was constantly increasingly which showed a good sign to pay of

immediate expenses.

? Current liabilities have been decreasing from 2001, which shows a high working

capital.

? Stock flows are uneven during 2001 & 2003.

? Even though current assets are high than current liabilities the current ratio are less

than the ideal one.

7.1.2 Acid Test Ratio

Table 7.2

PARTICULARS 2000 2001 2002 2003

Liquid Assets:Cash in handCash at bankSundry DebtorsOther current assets

25566.94-1402392.0875000

12085.22423.431782233.5577000

52938.829419.131593854.1277000

75482.89423.431525928.4477000


26/97

xxvi

Total L.A

Current Liabilities:Sundry creditors

Bank o/dOther C.L

Total C.L

Acid test Ratio:

1949635.02

1242427.5716511.4685736

1344675.03

1.45

1997392.2

1401360.58202519.3156540

1660419.89

1.20

1733212.07

1478008.90-31462

1509470.9

1.15

1678834.76

1381732.24-39112

1420844.24

1.18

Ideal Ratio: - 1:1Actual Ratio: - 1.45, 1.20, 1.15, 1.18respectively.


27/97

xxvii

ACID TEST RATIO

0

0.5

1

1.5

2

RATIOS

RATIOS 1.45 1.2 1.15 1.18

Year Year Year Year

Figure II


1. Acid test ratio of the company is satisfactory because the ratios are

[1.45,1.20,1.15,1.18] much above the accepted standard of 1:1.


28/97

xxviii

2. High acid test ratio indicates that the firm is liquid and has the ability to meet its

current or liquid liabilities in time. The company needs to improve its short-term

financial position.

3. Bank o/ d has been paid off, which is a good sign for the company.

4. Cash in hand and at bank are quite high which indicates ready payment of any

expenses.

5. Current assets are more than the current liabilities, which indicates a high liquidity

position of the firm to pay off their credits.

7.1.3 Absolute Liquid Ratio

Table 7.3


29/97

xxix

PARTICULARS 2000 2001 2002 2003

Absolute LiquidAssets:Cash in hand

Cash at bankOther current assets

Total L.A

Current Liabilities:Sundry creditorsBank o/dOther C.L

Total C.L

Absolute liquidRatio:

25566.94

-75000

100566.94

1242427.5716511.4685736

1344675.03

0.07

12085.22

423.4377000

89508.65

1401360.58202519.3156540

1660419.89

0.05

52938.82

9419.1377000

139357.95

1478008.90-31462

1509470.9

0.09

75482.89

423.4377000

152906.32

1381732.24-39112

1420844.24

0.11

Ideal Ratio: - 0.5:1Actual Ratio: - 0.07, 0.05, 0.09, 0.11respectively.


30/97

xxx

ABSOLUTE LIQUID RATIO

0

0.02

0.04

0.06

0.08

0.1

0.12

RATIOS

RATIOS 0.07 0.05 0.09 0.11

Year Year Year Year

FIGURE iii

7.1.3.1 INTERPRETATION

? Absolute liquid ratio is not satisfactory as it is much lower than the rule of thump i.e.

0.5.


31/97

xxxi

? However this ratio is not in much use even while evaluating the liquid position of a

firm. The company needs to improve its short-term financial position.

? Here current liabilities are more than current assets, which shows a negative

operation in the business.

? Absolute Liquid ratios are less than 0.5 namely (0.07, 0.05, 0.09, 0.11) which shows

they are in a very bad position to pay off the credits.

? An absolute Liquid ratio does not include stocks but includes only cash and short-

term investments, which are very low than current liabilities.

7.1.4 Inventory Turnover Ratio

Table 7.4

PARTICULARS 2000 2001 2002 2003

Cost of goods sold:


32/97

xxxii

Sales(-) Gross profit

Cost of goods sold

Average Inventory atcost:

Opening Stock(+) Closing Stock

Total Stock(/ 2)

Average Inventory atcost

Inventory TurnoverRatio:

(in times)InventoryConversion Period:(in days)

5336833.43612667.80

4724165.63

272687446676

719363

359681.5

13.1

27.8

6571954.13753990.09

5817964.04

446676125650

572326

286163

20.3

17.9

7394640.28759662.45

6634977.83

125650132120

257770

128885

51.5

7.1

6979264.60

740320

6238944.60

132120625650

757770

378885

16.5

22.1


33/97

xxxiii

INVENTORY TURNOVER RATIO

0

10

20

30

40

50

60

RATIOS

RATIOS 13.1 20.3 51.5 16.5

Year Year Year Year

FIGURE IV

7.1.4.1INTERPRETATION

1. A high inventory turnover indicates efficient management of inventory because more

frequently the stocks are sold out.


34/97

xxxiv

2. Here in 2002 the company was in their efficient form of disposing their stocks on an

average of 7 days which is very good indicator and they should take steps to repeat

the same, efficient management of stocks.

3. In 2002 inventory turnover ratio was a head lower comparing to 2000, which shows

a very poor management of stocks.

4. In 2003 inventory turnover ratio was high which indicates that the firm was good at

their stock management

5. This kind of irregularities increase or decrease indicates the firms inability to manage

the stocks.

7.1.5 Debtors Turnover Ratio

Table 7.5


35/97

xxxv

PARTICULARS 2000 2001 2002 2003

Net Credit sales:

Sales

(-) Returns

Net credit sales

Average Debtors:

Opening Debtors(+) Closing Debtors

Tot. Debtors (/ 2)

Avg. Debtors

Debtors Turnover

Ratio: (in times)

Average collectionPeriod: (in days)

5336833.43

-

5336833.43

1145693.121402392.08

2548085.2

1274042.6

4.2

86

6571954.13

-

6571954.13

1402392.081782233.55

3184625.63

1592312.815

4.13

87

7394640.28

-

7394640.28

1782233.551593854.12

3376087.67

1688043.835

4.4

81

6979264.60

-

6979264.60

1593854.121525928.44

3119782.56

1559891.28

4.5

80


36/97

xxxvi

DEBTORS TURNOVER RATIO

3.9

4

4.1

4.2

4.3

4.44.5

4.6

RATIOS

RATIOS 4.2 4.13 4.4 4.5

Year Year Year Year

FIGURE V

7.1.5.1INTERPRETATION

1. There is a low debtors turnover ratio, which implies inefficient management of

debtors/ sales.


37/97

xxxvii

2. The average collection period is not satisfactory because it is more than the firms

credit term of 60 days. I t took more than 80 days to collect.

3. But in 2002, 2003 it has reduced which shows a good sign comparing to previous

years.

4. The company should see that their collection period should be below 60 days for

efficient performance.

5. Allowing the customer to pay after the credit period puts the firm in a stress

situation as it does not have good liquidity to pay his creditors

7.1.6 Creditors Turnover Ratio

Table 7.6


38/97

xxxviii

PARTICULARS 2000 2001 2002 2003

Net Creditpurchases:

Purchases(-) Returns

Net credit purchases

Average creditors:

Opening Creditors(+) Closing Creditors

Tot. Creditors (/ 2)

Avg. Creditors

Creditors Turnover

Ratio: (in times)

Average paymentperiod: (in days)

4898154.63-

4898154.63

1025683.561242427.57

2268111.13

1134055.565

4.3

85

5490661.04-

5490661.04

1242427.571401360.58

2643788.15

1321894.075

4.2

87

6615246.33-

6615246.33

1401360.581478008.90

2879369.48

1439684.74

4.6

79

6682729.60-

6682729.60

1478008.901381732.24

2859741.14

1429870.57

4.7

78


39/97

xxxix

CREDITORS TURNOVER RATIO

3.8

4

4.2

4.4

4.6

4.8

RATIOS

RATIOS 4.3 4.2 4.6 4.7

Year Year Year Year

FIGURE VI


1. The average number of days taken by the firm to pay its creditors is more than 80days.

2. But 2003 it has reduced to 78 days, which is good sign, and the company should see

to perform efficiently in the coming future.


40/97

xl

3. Lower the ratio higher the liquidity position, therefore in 2000 & 2001 the firm has

good liquidity position.

4. Paying of the credit within the credit period helps the firm to improve its

relationship with the suppliers.

5. So 2002 & 2003 are good signs for the firm as the paid their credit within the credit

period.

7.1.7 Working capital Turnover Ratio

Table 7.7

PARTICULARS 2000 2001 2002 2003

Cost of Sales:

Sales 5336833.43 6571954.13 7394640.28 6979264.60


41/97

xli

Cost of sales

Net Working Capital:

Current Assets (A)Current Liabilities

(B)Net W.C:

[C.A C.L]

Working CapitalTurnover Ratio:

(in times)

5336833.43

1949635.021344675.03

604959.99

8.8

6571954.13

1997392.21660419.89

336972.31

19.5

7394640.28

1865332.071509470.9

355861.17

20.7

6979264.60

2304484.761420844.24

883640.52

7.8


42/97

xlii

WORKING CAPITAL TURNOVER RATIO

0

5

10

15

20

25

RATIOS

RATIOS 8.8 19.5 20.7 7.8

Year 2000 Year 2001 Year 2002 Year 2003

FIGURE VII

7.1.7.1INTERPRETATION:

1. A high ratio indicates efficient utilization of working capital and low ratio indicates

otherwise. It also indicates the number of times the working capital is turned on.

2. The working capital has increased to 20.7% in 2002 and then has reduced to 7.8%,

which is a huge one, and it shows their inefficient utilization of working capital.


43/97

xliii

3. Sales were increasing till 2002 and have decreased in 2003.

4. Working capital ratio was increasing till 2002 and suddenly has fallen to 7.8%, which

has showed their inefficient management.

7.2 FUND FLOW ANALYSIS

Computation of Funds Flow Statement for the year ending 2001

Schedule of Changes in Working Capital

for the year ending

Particulars 2000 2001Increase in

W.C

(Rs)

Decrease in

W.C

(Rs)

Current Assets:Cash in hand 25566.94 12085.22 - 13481.72


44/97

xliv

Cash at bankSundry DebtorsStockOther currentassets

Total C.A (A)

Current Liabilities:

Sundry creditorsBank O/ DOther Current liab.

Total C.L (B)

Working Capital(C.A C.L)

Net Decrease inWorking Capital

-1402392.08

44667675000

1949635.02

1242427.5716511.4685736

1344675.03

604959.99

604959.99

423.431782233.55

12565077000

1997392.2

1401360.58202519.31

56540

1660419.89

336972.31

267987.68

604959.99

423.43379841.47

-2000

382264.9

--

29196

29196

267987.68

679448.58

--

321026-

334507.72

158933.01186007.85

-

344940.86

679448.58

Table 7.8

Table 7.9

Calculation of Funds From Operation

Rs.

83476.32

7022

Closing Balance of P&L a/ cAdd: Non-fund and Non-operating expenses:

? Depreciation

90498.32


45/97

xlv

-

(78747.58)(78747.58)

Total (A)

Less: Non-fund or Non-operating incomes:

Opening Balance of P&L a/ c

Total (B)

Funds From Operations [A-B]11750.74

Table 7.10

Funds Flow Statement

For the year ending 31-3-2001

Sources AmountRs.

Application AmountRs.

10000011750.74267987.68

18333507

76719.42271000

Increase in capitalFunds from operationsNet Decrease In WorkingCapital

381409.42

Tax paidPurchase of Fixed AssetsNon-Trading paymentsRepayment of loan cr.

381409.42

7.2.1INTERPRETATION: -

The statement of working capital reveals a net decrease in working capital ofRs. 267988. The statement of application of funds while confirming the decrease in workingcapital discloses that it is due to purchase of fixed assets which was Rs.33507.

Hence working capital has been used to buy fixed assets, which may lead toworking capital shortage and difficulties in paying current liabilities in the near future.


Table 7.11


for the year ending

Particulars 2001

2002Increase in

W.C

(Rs)

Decrease in

W.C

(Rs)


46/97

xlvi

Current Assets:Cash in handCash at bankSundry DebtorsStock

Other currentassets

Total C.A (A)


Sundry creditorsBank O/ DOther Current liab.

Total C.L (B)


Net Increase inWorking Capital

12085.22423.43

1782233.55125650

77000

1997392.2

1401360.58202519.31

56540

1660419.89

336972.31

18888.86

355861.17

52938.829419.13

1593854.12132120

77000

1865332.07

1478008.90-

31462

1509470.90

355861.17

355861.17

40853.68995.7

-6470

-

56319.3

-202519.31

25078

227597.31

283916.61

--

188379.43-

-

188379.43

76648.32--

76648.32

18888.86

283916.61

Table 7.12


Rs.

92738.96

6591


? Depreciation

99329.96


47/97

xlvii

-

(83476.32)(83476.32)

Total (A)



Total (B)


Table 7.13



Sources AmountRs.

Application AmountRs.

15853.641110425200

81432454.7818888.86

Funds from operationsRaising of loanIncrease in loan cr

52157.64

Tax paidPurchase of Fixed AssetsNet Increase In WorkingCapital

52157.64

7.2.2 INTERPRETATION: -The statement of working capital reveals a net increase in working capital of

Rs. 18888.86. The statement of application of funds while confirming the increase inworking capital also discloses the purchase of fixed assets, which was Rs.32455.

Hence working capital has been used to buy fixed assets, rising of loan etc.that may lead to working capital shortage and difficulties in paying current liabilities in thenear future.


Table 7.14


for the year ending

Particulars 2002 2003Increase in

W.C

(Rs)

Decrease in

W.C

(Rs)


48/97

xlviii

Current Assets:Cash in handCash at bankSundry Debtors

StockOther currentassets

Total C.A (A)


Sundry creditorsOther Current liab.

Total C.L (B)


Net Increase inWorking Capital

52938.829419.13

1593854.12

13212077000

1865332.07

1478008.9031462

1509470.90

355861.17

527779.35

883640.52

75482.89423.43

1525928.44

62565077000

2304484.76

1381732.2439112

1420844.24

883640.52

883640.52

22544.07--

493530-

516074.07

96276.66-

96276.66

612350.73

-8995.7

67925.68

--

76921.38

-7650

7650

527779.35

612350.73

Table 7.15


Rs.

107152.47

4327


? Depreciation

111479.47


49/97

xlix

-

(92738.96)(92738.96)

Total (A)



Total (B)


Table 7.16



Sources Amount

Rs.

Application Amount

Rs.

14047497712.8418740.51

2721527779.35

Sale of Fixed AssetsRaising of long term loanFunds from operations

530500.35

Tax paidNet Increase In WorkingCapital

530500.35

7.2.3 INTERPRETATION: -

The statement of working capital reveals a net increase in working capital ofRs. 527779.356. The statement of application of funds while confirming the increase inworking capital also discloses the sale of fixed assets, which was Rs.14047.

Hence working capital has been gained from sale fixed assets, which wasused for rising of loan, which may lead to working capital surpluses paying current liabilitiesin the near future.

7.3 CASH FLOW ANALYSIS

Computation of Cash Flow Statement for the year ending 2001Table 7.17


50/97

l

Cash Flow Statement

For the year ending 31st March 2001Particulars Amount

Rs.

Amount

Rs.

4728.74

7022-

11750.74

321026158933.01

(381841.47)(29196)80672.28

(183)

(33507)

100000(271000)

80489.28

(33507)

(171000)

(124017.72)9055.48

Cash flow from operating activitiesNet Profit before taxAdjustments for non-cash & operating items:Add: - Non-cash & operating expenses

? DepreciationLess: - Non-cash & operating incomesOperating profit before Working Capital chargesAdjustments for changes in current assets & liabilities:Add: - Increase in liabilities & Decrease in assets

? Stocks

?CreditorsLess: - Decrease in liabilities & increase in assets

? Debtors & other C.A

? Other C.LCash used in operation before taxLess: - Income tax

Net cash used in operating activities

Cash flow from Investing activitiesPurchase of fixed assets

Net cash used in investing activities

Cash flows from Financing activitiesRaising capitalRepayment of loan creditors.

Net cash used in financing activities

Net Increase in cash & cash equivalentsCash & bank balance in the beginning of the period

Cash & bank balance in the end of the period(114962.24)

7.3.1INTERPRETATION: -

1. Cash form operating activities are Rs.80489.28 and cash from investing activitiesis Rs. (33507).


51/97

li

2. Cash from investing activities shows a negative balance due to amount spent onpurchase of fixed assets.

3. Cash from financing activities is Rs. (171000) which due to repayment of loancreditors and increase in capital invested.

4. Overall cash and bank balance at the end showed a negative balance of Rs.(114962.42)

Computation of Cash Flow Statement for the year ending 2002

Table7.18


52/97

lii

Cash Flow Statement


Rs.

Amount

Rs.

9262.64

6591-

15853.64

188379.4376648.32

(25078)(6470)

249333.39(814)

(32454.78)

1110425200

248519.39

(32454.78)

36304

252368.61(190010.66)



? Debtors

?CreditorsLess: - Decrease in liabilities & increase in assets

? Other C.L

? StockCash used in operation before taxLess: - Income tax


Cash flow from Investing activitiesPurchase of fixed assets


Cash flows from Financing activitiesRaising of long-term loanRaising of loan creditors.



Cash & bank balance in the end of the period62357.95



53/97

liii

1. Cash form operating activities are Rs.248519.39 and cash from investing activities isRs. (32454.78).

2. Cash from investing activities shows a negative balance due to amount spent onpurchase of fixed assets.

3. Cash from financing activities is Rs.36304 which due to raising of loan creditors andlong-term loans.

4. Overall cash and bank balance at the end showed a positive balance of Rs. 62357.95

5. Cash has been positively used in operating and financing activities.

Computation of Cash Flow Statement for the year ending 2003

Table 7.19


54/97

liv

Cash Flow Statement


Rs.

Amount

Rs.

14413.51

4327-

18740.51

67925.687650

(96276.66)(493530)

(495490.47)(2721)

14047

480952.8819824

(498211.47)

14047

500776.88

16612.4162357.95



? Debtors

?Other C.LLess: - Decrease in liabilities & increase in assets

? Sundry Creditors.

? StockCash used in operation before taxLess: - Income tax


Cash flow from Investing activitiesSale of fixed assets


Cash flows from Financing activitiesRaising of long-term loanRaising of loan creditors.



Cash & bank balance in the end of the period78970.36



55/97

lv

1. Cash form operating activities are Rs. (498211.47) and cash from investing activitiesis Rs. 14047.

2. Cash from investing activities shows a positive balance due to amount earned fromsale of fixed assets.

3. Cash from financing activities is Rs.500776.88 which due to raising of loan creditorsand long-term loans.

4. Overall cash and bank balance at the end showed a positive balance of Rs. 78970.36

5. Cash has been positively used in investing and financing activities.

7.4 COMMON-SIZE STATEMENTS

Table 7.20

Common - size Balance sheet for the year ending

31st Mar 2000 & 2001

2000 2001

Amount (Rs) PercentageTotal

Amount (Rs) Percentage Total

ASSETS

Current Assets:


56/97

lvi

Cash in handCash at bankSundry DebtorsStockOther current assets

Total CA (A)

Fixed Assets:Fixed Assets(net)(B)

Total Assets (A+B)

LIABILITIES &CAPITAL

Current Liabilities:Sundry creditorsBank o/dOther Current liab.

Total C.L (A)

Loan Creditors (B)

Capital

Current a/ c(C)

Total Liabilties

(A+B+C)

25566.94-

1402392.0844667675000

1949635.02

27020

1976655.02

1242427.5716511.4685736

1344675.03

411000

100000120979.99

1976655.02

1.3-

70.9522.63.8

98.6

1.4

100

62.90.844.34

68.08

20.75

5.056.12

100

12085.22423.43

1782233.5512565077000

1997392.2

47288

2044680.2

1401360.58202519.31

56540

1660419.89

140000

20000044260.31

2044680.2

0.60.0287.26.23.8

97.7

2.3

100

68.59.92.8

81.2

6.9

9.82.2

100

7.4.1INTERPRETATION

1. Comparing both the years efficient management of working capital is seen in 2000.

2. Working capital for 2000 & 2001 are 30.5%, 16.5% respectively, which indicate a

good sign in 2000.


57/97

lvii

3. Current assets constitute nearly 98.7%, 97.7% in 2000 & 2001, which seems to have

adequate cash to meet the obligations.

4. Outsiders funds constitute nearly 68.08%, 81.2% in 2000 & 2001.

5. Loan creditors have been paid off during 2001, which implies fewer dues to others.

6. Fixed assets constitute only a small part in both the years.

7. Bank o/ d has been raised by nearly 126%, which is not a good sign and also

increases outsiders dues.

8. Cash in hand & bank is more, which indicate immediate liquid of funds and also

capital has been raised by Rs.100000.

Table 7.21

Common - size Balance sheet for the year ending

31Mar 2001& 2002

2001

2002



ASSETS


12085.22423.43

1782233.5512565077000

0.60.0287.26.23.8

52938.829419.13

1593854.1213212077000

0.6840.49884.276.984.07


58/97

lviii

Total CA (A)


Total Assets (A+B)

LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsBank o/dOther Current liab.

Total C.L (A)

Loan-ICICI BankLoan Creditors

Total Liabilties (B)

Capital

Current a/ c(C)

Total (A+B+C)

1997392.2

47288

2044680.2

1401360.58202519.31

56540

1660419.89

-140000

140000

20000044260.31

2044680.2

97.7

2.3

100

68.59.92.8

81.2

-6.9

6.9

9.82.2

100

1865332.07

65864

1931196.07

1478008.90-

31462

1509470.90

11104165200

176304

20000045421.17

1931196.07

96.502

3.48

100

76.53-

1.63

78.16

0.5748.55

9.13

10.362.35

100

7.4.2 INTERPRETATION

1. Comparing both the years efficient management of working capital is seen in

2002.

2. Working capital for 2001 & 2002 are 18.3%, 16.5% respectively, which indicate a

good sign in 2002.

3. Current assets constitute nearly 97.7%, 96.5% in 2001 & 2002, which seems to

have adequate cash to meet the obligations.



59/97

lix

5. Long-term loans have been raised during 2002, which implies more dues to

others.


7. Bank o/d has been paid off which is a good sign.

8. Cash in hand & bank is more, which indicate immediate liquid of funds.

Table 7.22Common - size Balance sheet for the year ending

31 Mar 2002 & 2003

2002 2003



ASSETS


52938.829419.13

1593854.1213212077000

0.6840.49884.276.984.07

75482.89423.43

1525928.4462565077000

3.200.01864.7626.553.27


60/97

lx

Total CA (A)


Total Assets (A+B)

LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsOther Current liab.

Total Current

liabilities (A)



CapitalCurrent a/ c

(C)

Total (A+B+C)

1865332.07

65864

1931196.07

1478008.9031462

1509470.90

11104165200

176304

200000

45421.17

1931196.07

96.502

3.48

100

76.531.63

78.16

0.5748.55

9.13

10.36

2.35

100

2304484.76

51817

2356301.76

1381732.2439112

1420844.24

492056.88185024

677080.88

200000

58376.64

2356301.76

97.798

2.19

100

58.641.66

60.30

20.887.85

28.73

8.49

2.48

100


1. Comparing both the years efficient management of working capital is seen in 2003.

2.

Working capital for 2002 & 2003 are 18.35%, 37.5% respectively, which indicate agood sign in 2003.

3. Current assets constitute nearly 96.502%, 97.798% in 2002 & 2003, which seems to

have adequate cash to meet the obligations.


61/97

lxi


5. Loan creditors and long-term loans have been raised off during 2003, which implies

higher dues to others.


7. Sundry creditors have been reduced and stock has been increased which is a good

sign and also decreases outsiders dues.

8. Cash in hand & bank is more, which indicate immediate liquid of funds and also

capital has not affected.

Table 7.23Common-Size Income statement

For the year ending 2000 and 20012000 2001

Rs. % Rs. %

Net SalesLess: Cost of goods

sold

Gross Profit (A)

Operating Expenses:

Office & Admn exp:Rent

5336833.434724165.63

612667.80

48000

10088.52

11.48

0.90

6571954.135817964.04

753990.09

53000

10088.53

11.47

0.81


62/97

lxii

SalariesPostage & TelegramElectricityOther expenses.

Total office exp. (1)

Selling Expense:AdvertisementSales CommissionSales Promotion expOther expenses.

Total Selling exp. (2)

Total Operating Exp.(B) [1+2]

Operating Profit[A-B]

Less: Other expenses

Net Profit before taxLess: income tax

Net profit(after tax)

18805020903329

202316.75

443785.75

40396.70160253170

30542.77

90134.47

533920.22

78747.58

-

78747.583913

74834.58

3.520.040.063.79

8.32

0.760.300.060.57

1.69

10

1.48

-

1.480.07

1.40

2095001609.503894

268202.97

536206.47

36357491571427

47366.30

134307.3

670513.77

83476.32

-

83476.324096

79380.32

3.190.020.064.08

8.16

0.550.750.020.72

2.04

10.20

1.27

-

1.270.06

1.21

7.4.4 INTERPRETATION:

1. Nearly 88.52%, 88.53% is spent on cost of goods sold which results in 11.48%,

11.47% in gross profit for the year 2000, 2001.

2. Operating expenses have increased to 10.2% but operating profit has been reduced

to 1.27% from 1.48%.

3. Net profit after tax has been reduced to 1.21% from 1.40%.

4. Selling expenses has increased to 2.04% from 1.69%.

5. Office expenses has reduced to 8.16% from 8.32%.


63/97

lxiii

6. Comparing both the year 2001 was good and satisfactory.

Table 7.24

Common-Size Income statement For the year ending 2001 and 20022001 2002

Rs. % Rs. %


64/97

lxiv


sold

Gross Profit (A)

Operating Expenses:

Office & Admn exp:RentSalariesPostage & TelegramElectricityOther expenses.


Selling Expense:AdvertisementSales CommissionSales Promotion expOther expenses.







6571954.135817964.04

753990.09

530002095001609.503894

268202.97

536206.47

36357491571427

47366.30

134307.3

670513.77

83476.32

-

83476.324096

79380.32

10088.53

11.47

0.813.190.020.064.08

8.16

0.550.750.020.72

2.04

10.20

1.27

-

1.270.06

1.21

7394640.286634977.83

759662.45

5400027525024104907

202316.75

561304.33

342458040

12475.6056059.50

111419.16

672723.49

92738.96

-

92738.964910

87828.96

10089.7

10.2

0.733.720.030.072.74

7.59

0.460.110.170.76

1.51

9.10

1.25

-

1.250.07

1.19



65/97

lxv

1. Nearly 88.53%, 89.7% is spent on cost of goods sold which results in 11.47%,

10.2% in gross profit for the year 2001, 2002.

2. Operating expenses have decreased to 9.10% and operating profit has been

reduced to 1.27% from 1.25%.

3. Net profit after tax has been reduced to 1.19% from 1.21%.

4. Selling expenses has decreased to 1.51% from 2.04%.

5. Office expenses has reduced to 7.59% from 8.16%.


Table 7.25Common-Size Income statementFor the year ending 2002 and 2003

2002 2003Particulars

Rs. % Rs. %

Net Sales 7394640.28 100.00 6979264.6 100.00Less: Cost of goodssold

6634977.83 89.736238944.6

89.39

Gross Profit (A) 759662.45 10.27 740320 10.61

Operating Expenses:

Office & Admn exp:

Rent 54000 0.73 56000 0.80

Salaries 275250 3.72 286500 4.11

Postage & Telegram 2410 0.03 1359 0.02Electricity 4907 0.07 5806 0.08

Other expenses. 202316.75 2.74 170507.4 2.44

Total office exp. (1) 561304.33 7.59 520172.4 7.45

Selling Expense:


66/97

lxvi

Advertisement 34245 0.46 23160 0.33

Sales Commission 8040 0.11 8870 0.13

Sales Promotion exp 12475.6 0.17 10230 0.15

Other expenses. 56059.5 0.76 70735.13 1.01

Total Selling exp. (2) 111419.16 1.51 112995.13 1.62

Total Operating Exp.(B) [1+2] 672723.49

9.10633167.53

9.07

Operating Profit 92738.96 1.25 107152.47 1.54

[A-B]

Less: Other expenses - - - -

Net Profit before tax 92738.96 1.25 107152.47 1.54

Less: income tax 4910 0.07 2189 0.03

Net profit(after tax) 87828.96 1.19 104963.47 1.50


1. Nearly 89.73%, 89.39% is spent on cost of goods sold which results in 10.27%, 10.61

in gross profit for the year 2002, 2003.

2. Operating expenses have decreased to 9.07% but operating profit has been increased

to 1.54% from 1.25%.

3. Net profit after tax has been increased to 1.50% from 1.19%.

4. Selling expenses has increased to 1.62% from 1.51%.

5.

Office expenses has reduced to 7.45% from 7.59%.



67/97

lxvii

7.5 COMPARATIVE STATEMENTS Table 7.26Comparative Balance SheetYear ending

31 March

2000 2001

Increase/Decrease(Amounts)

Increase/Decrease(Percentages)


68/97

lxviii

ASSETS

Current Assets:Cash on handCash at bank

Sundry DebtorsStockOther current assets

Total CA (A)

Fixed Assets:Furniture & fixturesOther Fixed Assets

Total Fixed Assets

(B)

Total Assets (A+B)

LIABILITIES &CAPITAL

Current Liabilities:Sundry creditorsBank o/dOther Current liab.

Total C.L (A)

Loan Creditors (B)

CapitalCurrent a/ c

(C)

Total Liabilities(A+B+C)

25566.94-

1402392.0844667675000

1949635.02

191027918

27020

1976655.02

1242427.5716511.4685736

1344675.03

411000

100000120979.99

1976655.02

12085.22423.43

1782233.5512565077000

1997392.2

1791629372

47288

2044680.2

1401360.58202519.31

56540

1660419.89

140000

20000044260.31

2044680.2

(13481.72)423.43

379841.47(321026)2000

47757.18

(1186)21454

20268

68025.18

158933.01186007.85(29196)

315744.86

(271000)

100000(76719.68)

68025.18

(52.7)423.43

27.1(71.9)2.7

2.45

(6.2)270.9

75.01

3.44

12.81126.5(34.1)

23.5

(65.94)

100(63.42)

3.44

7.5.1INTERPRETATION

1. Current assets have been increased by 2.45% and liabilities by 23.5% but working

capital is more i.e. current asset is more than current liabilities.


69/97

lxix

2. Fixed assets has been increased by nearly 75% and overall assets have been increased

by 3.44%

3. Capital has been increased by 100% and loan creditors have been decreased by 65%

4. Sundry creditors have been increased by 12% but bank o/ d has been increased by

nearly 126%, which indicates poor management of funds flow.

5. Overall financial position of the company is satisfactory.

Table 7.27

Comparative Balance SheetYear ending

31 March

2001 2002


Increase/Decrease(Percentages)


70/97

lxx

ASSETS



Total CA (A)


Total Fixed Assets

(B)

Total Assets (A+B)

LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsBank o/dOther Current liab.

Total C.L (A)



Capital

Current a/ c(C)

Total (A+B+C)

12085.22423.43

1782233.5512565077000

1997392.2

1791629372

47288

2044680.2

1401360.58202519.31

56540

1660419.89

-140000

140000

20000044260.31

2044680.2

52938.829419.13

1593854.1213212077000

1865332.07

1612449740

65864

1931196.07

1478008.90-

31462

1509470.90

11104165200

176304

20000045421.17

1931196.07

40853.68995.7

(188379.43)6470-

(132060.13)

(1792)20368

18576

(113484.13)

76648.32(202519.31)

(25078)

(150948.99)

1110425200

36304

-1160.86

(113484.13)

338.12124.5

(10.6)5.2-

(6.6)

(10)69.3

39.3

(5.6)

5.5(100)

(44.4)

(9.1)

1110418

26

-2.6

(5.6)


71/97

lxxi


1. Current assets have been decreased by 6.6% and liabilities by 9.1% but working

capital is more i.e. current asset is more than current liabilities.

2. Fixed assets has been increased by nearly 39.3% and overall assets have been

decreased by 5.6%

3. Capital has not changed but loan has been raised by Rs.11104 and loan creditors

have been increased by 18%

4. Sundry creditors have been increased by 5.5% but bank o/d has been paid off and

other current liabilities have been decreased which indicates good management of

funds flow.

5. Overall financial position of the company is satisfactory.

Table 7.28Comparative Balance Sheet

Year ending31 March

2002 2003

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentages)


72/97

lxxii

ASSETS



Total CA (A)


Total Fixed Assets

(B)

Total Assets (A+B)

LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsOther Current liab.

Total Current

liabilities (A)



CapitalCurrent a/ c(C)

Total (A+B+C)

52938.829419.13

1593854.1213212077000

1865332.07

1612449740

65864

1931196.07

1478008.9031462

1509470.90

11104165200

176304

20000045421.17

1931196.07

75482.89423.43

1525928.4462565077000

2304484.76

1451237305

51817

2356301.76

1381732.2439112

1420844.24

492056.88185024

677080.88

200000

58376.64

2356301.76

22544.07(8995.7)

(67925.68)493530-

439152.69

(1612)(12435)

(14047)

425105.69

(96276.66)

7650

(88626.66)

480952.8819824

500776.88

-12955.47

425105.69

42.59(95.50)

(4.26)373.54-

23.54

(9.99)(25)

(21.33)

22.01

(6.51)24.32

(5.87)

4331.3512

284.04

-

28.52

22.01


73/97

lxxiii


1. Current assets have been increased by 23.5% and liabilities has been decreased by

5.8% but working capital is more i.e. current asset is more than current liabilities.

2. Fixed assets has been decreased by nearly 21.33% and overall assets have been

increased by 22.01%

3. Capital has not been changed but loan has been increased by nearly 400% and loan

creditors have been increased by 12%

4. Sundry creditors have been decreased by 6.51% and current liabilities increased by

nearly 24.3%, which indicates poor management of funds flow.

5. Bank o/ d has been totally paid off last year but this year long-term loan have been

raised nearly by 400%, which indicates more dues to the firm.

6. Overall financial position of the company is not satisfactory.

Table 7.29


74/97

lxxiv

Comparative Income Statement

Year ending MarchParticulars

2000 2001


Increase/Decrease

(Percentage)


sold

Gross Profit (A)

Operating Expenses:

Office & Admn exp:

RentSalariesPostage & TelegramElectricityOther expenses.


Selling Expense:AdvertisementSales Commission

Sales Promotion expOther expenses.







5336833.434724165.63

612667.80

4800018805020903329

202316.75

443785.75

40396.7016025

317030542.77

90134.47

533920.22

78747.58

-

78747.583913

74834.58

6571954.135817964.04

753990.09

530002095001609.503894

268202.97

536206.47

3635749157

142747366.30

134307.3

670513.77

83476.32

-

83476.324096

79380.32

1235120.71093798.41

141322.29

500021450(480.5)565

65886.22

92420.72

(4039.7)33132

(1743)16823.53

44172.83

136593.55

4728.74

-

4728.74183

4545.74

23.123.2

23.1

10.4211.46(23)17

32.56

20.8

(10)207

(55)55

49.01

25.6

6.01

-

6.014.7

6.1


75/97

lxxv


1. Sales have been increased by 23.1% and cost of goods by 23.2% so overall gross

profit has been increased by 23.1%.

2. Although operating expenses have increased by 25.6% the increase in gross profit is

sufficient to compensate for the increase in operating expenses and hence there has

been an overall increase in operational profits by 6.01%.

3. There is an increase in net profit after tax amounting to Rs. 4545.75 i.e. 6.1%

4.

It may be concluded that there is a sufficient progress in the company and the overallprofitability of the company is good.


76/97

lxxvi

Table 7.30Comparative Income Statement


2001 2002

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentage)


sold

Gross Profit (A)

Operating Expenses:

Office & Admn exp:RentSalariesPostage & TelegramElectricityOther expenses.


Selling Expense:Advertisement

Sales CommissionSales Promotion expOther expenses.







6571954.135817964.04

753990.09

530002095001609.503894

268202.97

536206.47

36357

49157142747366.30

134307.3

670513.77

83476.32

-

83476.324096

79380.32

7394640.286634977.83

759662.45

5400027525024104907

202316.75

561304.33

34245

804012475.6056059.50

111419.16

672723.49

92738.96

-

92738.964910

87828.96

822686.15817013.79

5672.36

100065750800.501013

(65886.22)

25097.86

(2112)

(41117)11048.68693.2

(22888.14)

2209.72

9262.64

-

9262.64814

8448.64

12.514

0.75

1.831.449.726

(24.6)

4.7

(5.8)

(83.6)774.318.4

(17)

0.33

11.1

-

11.119.8

10.6



77/97

lxxvii

1. Sales have been increased by 12.5% and cost of goods by 14% so overall gross profit

has been increased by 0.75%.

2. Although operating expenses have increased by 0.33% the increase in gross profit is

sufficient to compensate for the increase in operating expenses and hence there has

been an overall increase in operational profits by 11.1%.


4. It may be concluded that there is a sufficient progress in the company and the overall

profitability of the company is good.

Table 7.31


78/97

lxxviii

Comparative Income Statement


2002 2003


Increase/Decrease

(Percentage)


sold

Gross Profit (A)

Operating Expenses:

Office & Admn exp:

RentSalariesPostage & TelegramElectricityOther expenses.


Selling Expense:AdvertisementSales Commission

Sales Promotion expOther expenses.







7394640.286634977.83

759662.45

5400027525024104907

202316.75

561304.33

342458040

12475.6056059.50

111419.16

672723.49

92738.96

-

92738.964910

87828.96

6979264.606238944.60

740320

5600028650013595806

170507.4

520172.4

231608870

1023070735.13

112995.13

633167.53

107152.47

-

107152.472189

104963.47

415375.68396033.23

19342.45

200011250(1051)899

(31809.35)

(41131.93)

(11085)830

(2245.6)14675.63

1575.97

(39555.96)

14413.51

-

14413.51(2721)

17134.51

5.625.97

2.55

3.704.09(43.6)18.32(15.72)

(7.33)

(32.37)10.32

(18)26.18

1.41

(6)

15.54

-

15.54(55.42)

19.51



79/97

lxxix

1. Sales have been increased by 5.62% and cost of goods by 5.97% so overall gross

profit has been increased by 2.55%.

2. Operating expenses have decreased by 6% the increase in gross profit is sufficient to

compensate for the decrease in operating expenses and hence there has been an

overall increase in operational profits by 15.54%.


4. It may be concluded that there is a sufficient progress in the company and the overall

profitability of the company is good.

7.6 TREND ANALYSIS

The trend equation is to be found out for analyzing the trend in which the current assets of

the Company is expected to grow by analyzing the past results. The Trend equation is y =


80/97

lxxx

a+bx. Here the X represents the years for which the analysis is done (2000, 2001, 2002,

2003). The trend y values are calculated after determining the a and b values. A deviation,

x is assigned for each year keeping the third year of the study period as the base year and

subtracting the other years from the base year. For example, if the base year is 2002, the first

year deviation is -2 (i.e.) (2000-2002). The y values represent the value of current assets,

current liabilities, sales and working capital in the respective years.

7.6.1Trend Analysis of Current Assets

Table 7.32

Year

X

Deviation,

x

Current Assets, y

(Rs. in 000s)

x x*y

2000 -2 1949635.02 4 -3899270.04

2001 -1 1997392.2 1 -1997392.2

2002 0 1865332.07 0 0

2003 1 2304484.76 1 2304484.76

Total ?x= -2 ?y=8116844.05 ?x=6 ?x*y= -3592177.48

Calculation of b:b = N? x*y-?x*?y

N? x - (? x)

= 4*(-3592177.48) (-2)*8116844.05

4*6 (-2)

= 1864978.18


81/97

lxxxi

20

b = 93248.9

Calculation of a:

a = (?y / N) b* (?x / N)

a = (8116844.05/4) 93248.9*(-2/4)

a = 2075835.45

When X=2000 (x=-2) Y= 2075835.45 + 93248.9*(-2)

Y= 1889337.65

When X=2001 (x=-1) Y=2075835.45 + 93248.9 *(-1)

Y= 1982586.55When X=2002 (x=0) Y= 2075835.45 + 93248.9*(0)

Y= 2075835.45

When X=2003 (x=1) Y= 2075835.45 + 93248.9*(1)

Y= 2169084.35

Trend Projections for next two years,

When X=2004 (x=2) Y= 2075835.45 + 93248.9*(2)Y= 2262333.25

When X=2005 (x=3) Y= 2075835.45 + 93248.9*(3)

Y= 2355582.15


82/97

lxxxii

It is clear from the analysis that the values of Y are considerably increasing through the years

during the study period. The trend projection of the current assets level also increases for the

next two years as seen. A chart depicting the trend values and the actual values can be seen.

The constant line in the chart depicts the trend values and the other one is the actual values.


83/97

lxxxiii

TREND ANALYSIS CURRENT ASSETS

0

500000

1000000

1500000

2000000

2500000

1999 -

2000

2000 -

2001

2001 -

2002

2002 -

2003

YEAR

CURRENTASSETS

TREND

ACTUAL

figure viii

7.6.2 Trend Analysis for the Current Liabilities


84/97

lxxxiv

Table 7.33

Year

X

Deviation,

x

Current Liabilities, y

(Rs. in 000s)

x x*y

2000 -2 1344675.03 4 -2689350.06

2001 -1 1660419.89 1 -1660419.89

2002 0 1509470.9 0 0

2003 1 1420844.24 1 1420844.24

Total ?x= -2 ?y= 5935410.06 ?x= 6 ?x*y= -2928925.71

Calculation of b:b = N? x*y-?x*?y

N?x - (?x)

= 4*(-2928925.71) (-2)*5935410.06

4*6 (-2)

= 155117.28

20

b = 7755.864

Calculation of a:

a= (?y / N) b* (?x / N)

a= (5935410.06/4) 7755.864*(-2/4)

a=1487730.45


85/97

lxxxv

When X=2000 (x=-2) Y= 1487730.45+7755.864*(-2)

Y= 1472218.72

When X=2001 (x=-1) Y=1487730.45+7755.864*(-1)

Y= 1479974.59

When X=2002 (x=0) Y= 1487730.45+7755.864*(0)

Y= 1487730.45

When X=2003 (x=1) Y=1487730.45+7755.864 *(1)

Y= 1495486.31

Trend Projections for next two years,

When

Documents

Company Assignment