LUX Hoisery

7/27/2019 LUX Hoisery

1/143

- 1 -

CONTENTS

CHAPTER NO. CHAPTER NAME PAGE NO.

List of Figures 2

List of Tables 3-4List of Charts 5-6

1 Introduction 7-38

2 Research Design 39-45

3 Company Profile 46-70

4 Data Analysis & Interpretation 71-130

5 Summary Of Findings 131-134

6 Suggestions & Conclusion 135-138

Bibliography 139-140

Annexure


2/143

- 2 -

LIST OF FIGURES

PICTURE

NO.

TITLE PAGE NO.

3.1 Computerised Hosiery Machine 62

3.2 Dyeing Machine 63

3.3 Knitting Machine 65

3.4 A Hoarding of Lux Cozi 68


3/143

- 3 -

LIST OF TABLES

TABLE NO. TITLE PAGENO.

4.1 Current Assets, Loans And Advances 72

4.2 Current Liabilities And Provisions 72

4.3 Calculation Of Working Capital 73

4.4 Current Assets, Loans And Advances 76

4.5 Current Liabilities And Provisions 76

4.6 Calculation Of Current Ratios 77

4.7 Calculation Of Quick Ratios 79

4.8 Calculation Of Absolute Liquid Ratios 82

4.9 Calculation Of Proprietary Ratios 85

4.10 Calculation Of Total Coverage Ratio 87

4.11 Calculation Of Solvency Ratio 89

4.12 Calculation Of Fixed Assets Ratio 91

4.13 Calculation Of Fixed Asset Turnover Ratios 94

4.14 Calculation Of Total Asset Turnover Ratios 96

4.15 Calculation Of Working Capital Turnover Ratios 98

4.16 Calculation Of Debtors Turnover Ratio 100

4.17 Calculation Of Debt Collection Period 102

4.18 Calculation Of Creditors Turnover Ratio 104

4.19 Calculation Of Credit Payment Period 106

4.20 Calculation Of Inventory Turnover Ratio 108

4.21 Calculation Of Return On Capital Employed (ROCA) 111


4/143

- 4 -

4.22 Calculation Of Return On Shareholders Funds 113

4.23 Calculation Of Net Profit Ratio 115

4.24 Calculation Of Operating Profit Ratio 117

4.25 Calculation Of Fixed Interest Coverage Ratio 119

4.26 Calculation Of Fixed Dividend Coverage Ratio 121

4.27 Calculation Of Price Earning (P/E) Ratio 123

4.28 Calculation Of Operating Expenses Ratio 125

4.29 Calculation Of Return On Asset 127

4.30 Calculation Of Return On Investment 129


5/143


6/143

- 6 -

4.22 Fixed Dividend Coverage Ratio 122

4.23 Price Earning (P/E) Ratio 124

4.24 Operating Expenses Ratio 126

4.25 Return On Asset 128

4.26 Return On Investment 130


7/143

- 7 -

CHAPTER -1

INTRODUCTION


8/143

- 8 -

1.1 GENERAL INTRODUCTION

A financial statement is an organized collection of data according to the logical consistent

accounting procedure. Financial statement contain summarized information of firmsfinancial affairs, organized systematically. They are means of present the firms financial

situation to the owners, creditor and general public. The top management is responsible

for the preparation of financial statements. Finance is the life of a business; it is rightly

termed, as the science of money. Finance is very essential for the smooth running of the

business.

Financial management is that managerial activity which is concerned with planning and

controlling of a firms financial reserve. Financial management, as an academic

discipline, has undergone fundamental changes as with regard to its scope and coverage.

In the early years of its evaluation it was treated synonymously with the raising of funds.

In the current literature pertaining to this growing academic discipline a broad scope has

to be included, in addition to procurement of funds. Efficient use of resources is

universally recognized.

All business organizations prepare their financial statements after completing the

financial year. This report deals with the assessment of the financial performance of a

company, LUX Hosiery Ltd., which is engaged in manufacturing of garments in India.

The analysis is done for the years 2005-2006, 2006-2007 and 2007-2008.


9/143

- 9 -

LUX HOSIERY INDUSTRIES LTD.

Economic liberalization has thrown up significant opportunities and challenges for the

Indian industry. Foremost among them, is the globalization of the Indian market, leading

to the growing sophistication of the Indian consumer. Rise in disposable incomes,

changing attitudes towards consumption and increasing exposure to global lifestyles

through the electronic media have combined to create newer and bigger markets of

consumers who demand products and services of international standards.

Lux Hosiery Industries Ltd was established in the year 1957. Today LUX is a recognized

player in the export industry and as in a process to increase its marketing network

worldwide. If you look for high fashion inner and casual wear, with updated global

designs, with fantastic fabric, photo quality prints, all at a very competitive cost,

delivered within a reasonable period, then the company aspires to take pride in having

priority shelves in almost all the known fashion hubs worldwide in the near future.

1.2 THEORETICAL BACKGROUND OF STUDY

INTRODUCTION:

Financial statements are primarily prepared for decision-making. They play a

dominant role in setting the framework of managerial decisions. The published financial

statements of business may be of considerable interest to present the same to their

respective potential shareholders, managers, moneylenders, banks, financial institutions,

trade organizations and many others.


10/143

- 10 -

MEANING OF FINANCIAL STATEMENT ANALYSIS

Definition:

Financial analysis is the process of Identifying the financial strengths and weakness of

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

profit and loss account.

The purpose of financial analysis is to diagnose the information contained in the

financial statements so as to judge the profitability and financial soundness of the firm. A

financial analyst, analyses the financial statements with various tolls of analysis before

commenting upon the financial position of the enterprises.

Tools of financial statement analysis:

1. Comparative statements

2. Common size statements

3. Trend Analysis

4. Funds flow analysis

5. Cash flow analysis

6. Ratio analysis

1. Comparative Statements:

The comparative balance sheet analysis is the study of trend of the same items,

group of items and computed items in two or more balance sheet of the same business

enterprise on different dates. The changes in periodic balance sheet items at the beginning

and at the end of a period can be observed, which reflect the conduct of a business.


11/143

- 11 -

2. Common size statements:

Common size financial statement facilitates both type of analysis, horizontal as

well as vertical analysis, it not only compares across years but also each individual item

of a group of assets and liabilities as related to the total of the group in respect of every

year. It shows individual current asset as a percentage of total current assets and so on.

The main advantage of common size statements is that a comparison of the performance

and financial condition in respect of different units of the same industry can also be done.

3. Trend Analysis:

The easiest way to evaluate the performance of a firm is to compare its present

ratio with the past ratios. When financial ratios over a period of time are compared, it is

known as time series or trend analysis, it gives an indication of a direction of change and

reflects whether financial performance has improved or has deteriorated or has remained

constant overtime.

4. Funds flow analysis:

Fund flow statement is a method by which we study changes in the financial

position of a business enterprise between the beginning and ending financial statements

dates. It is a statement showing sources and application of trends for a period of time, it is

a complimentary statement to the income statement. Funds flow statement considers both

capital and revenue items.


12/143

- 12 -

5. Cash flow analysis:

It is a statement of changes in the financial position of firm on cash basis and

hence it is called cash flow statement. It summarizes the causes for changes in the cash

position of business enterprises between dates of two balance sheets. Cash flow statement

is a statement which describes the inflow and out flow of cash and cash equivalents.

6. Ratio Analysis:

Ratio analysis is a technique of calculation of number of accounting ratios from

the data found in the financial statements. The comparison of these accounting ratios with

those of the previous years or with those of other concerns engaged in similar line of

activities or with those of standard ratios, and interpretation of its comparison helps to

understand the standing and position of the firm.


13/143

- 13 -

CLASSIFICATION OF RATIOS

1. LIQUIDITY RATIOS

Current ratio

Liquid ratio

Absolute Liquid Ratio

2. TURNOVER RATIOS

Working capital turnover ratio

Inventory turnover ratio

Debtor turnover ratio

Creditor turnover ratio

Fixed asset turnover ratio

Total Asset Turnover Ratio

3. LONG TERM SOLVENCY RATIOS

Debt Equity Ratio

Capital Gearing Ratio

Proprietary ratio

Total coverage ratio

Solvency ratio

Fixed asset ratio


14/143

- 14 -

4. PROFITABILITY RATIO

Return on Capital Employed

Fixed Interest Coverage Ratio

Fixed dividend Coverage Ratio

Net profit ratio

Operating ratio

Price Earning Ratio

Operating Expenses Ratio

Return on investment,

Return on asset

Return on shareholders Funds


15/143

- 15 -

LIQUIDITY RATIOS

The term liquidity refers to firms ability to meet its current liabilities when they become

due; liquidity ratios are used to measure the liquidity position or short-term financial

position of a firm. The bankers and creditors are interested in the liquidity position. The

ratios, which reflect the short-term solvency of a business unit, are current ratio, quick

ratio, working capital ratio turnover ratio, stock turnover ratio, and debtors turnover

ratio.

There are four types of comparison

Trend ratios

Comparison of items within a single years financial statement of a firm.

Inter-firm comparison

Comparison with standard plans.

TREND RATIOS:

This involves a comparison of the ratios of a firm overtime. In other words, present ratios

are compared with past ratios of the same firm. Trend ratios indicate the direction of

change in the performance that is improvement, deterioration or constancy over the years.

INTER FIRM COMPARISON:

This involves comparison of the ratios of a firm with those of others in the same line of

business as for the industry as whole. Inter firm comparison reflects the performance of a

firm in relation to its competitors. A good company is that which has good profitability as

well as a sound financial position; either one or the other being good alone does not make

a company sound. Ratios as tool for establishing true profitability and financial position

of a company can be classified as below.


16/143

- 16 -

LIQUIDITY RATIOS

I) CURRENT RATIO:

Current ratio is defined as the ratio of current assets to current liabilities; it shows the

relationship between total current assets and total current liabilities. It is a measure of

firms short-term solvency. Current ratio is also called working capital ratio.

It is calculated as follows:

Current ratio= Current asset

Current liability

It is a liquidity ratio that measures a company's ability to pay short-term obligations.

Current Assets are those that can be converted into cash within a year. Current Liabilities

and provisions are those liabilities that are payable within a year. A current ratio of 2:1

indicates a highly solvent position. The ratio is mainly used to give an idea of the

company's ability to pay back its short-term liabilities (debt and payables) with its short-

term assets (cash, inventory, receivables). The higher the current ratio, the more capable

the company is of paying its obligations. A ratio under 1 suggests that the

company would be unable to pay off its obligations if they came due at that point. While

this shows the company is not in good financial health, it does not necessarily mean that

it will go bankrupt - as there are many ways to access financing - but it is definitely not a

good sign.


17/143

- 17 -

II) QUICK RATIO:

Liquid ratio is the ratio of liquid assets to liquid liabilities. It establishes the

relationship between quick assets and liquid liabilities. It is also called acid test ratio. It is

computed as follows:

Liquid Assets

Liquid Ratio = liquid liabilities

Liquid or quick assets include cash, bank balance, debtors, bills receivables and short-

term marketable securities. In other words they are current assets minus stocks & prepaid

expresses. Stock cannot be included in quick assets because it is not easily and readily

convertible into cash. Liquid or quick liabilities in other words are current liabilities

minus bank overdraft. Quick ratio is considered to be superior to current ratio in testing

the liquidity position of a firm. It is an improvement of current ratio because in the

calculation of quick ratio, the weakness of current ratio is overcome. When used in

conjunction with current ratio, the liquid ratio gives a better picture of the firms

liquidity. A quick ratio of 1:1 is considered ideal.

III) ABSOLUTE LIQUID RATIO:

Though receivables are generally more liquid than inventories, there may be debts having

doubt regarding their real stability in time. So, to get an idea about the absolute liquidity

of a concern, both receivables and inventories are excluded from current assets and only

absolute liquid assets such as cash in hand, cash at bank and readily realizable securities

are taken into consideration. ALR is calculated as follows:

Absolute Liquid Assets = Absolute Liquid Assets

Current Liabilities


18/143

- 18 -

LONG-TERM SOLVENCY RATIOS

As already observed, the short-term creditors like banks and suppliers of raw materials,

are interested in the short-term solvency of a firm. For the analysis of short-term solvency

or current financial position, liquidity ratios are used. The shareholders, debenture

holders and other long-term creditors like financial institutions are more interested in

long-term financial position or long term solvency of a firm. Leverage or Long-term

solvency ratios are used for such an analysis. These ratios are also used to analyze the

capital structure of a company. That is why these ratios are also called as capital structure

ratios. The term solvency generally refers to the firms ability to pay the interest regularly

and repay the principal amount of debt on due date. There are two aspects of long-term

solvency of a firm.

i) Ability to repay the principal amount of loan or due date.

ii) Regular payment of interest.

Accordingly, there are tow types of leverage ratios. The first type of leverage ratios is

based on the relationship between owned capital and borrowed capital. These ratios are

calculated from the balance sheet items. The second types of leverage ratios are coverage

ratios they are computed from profit and loss account.

1. DEBT-EQUITY RATIO:

It expresses the relationship between debt and equity of the firm. It is calculated to

measure the relative claims of outsides against the firms assets. It is the ratio of the

amount invested by outsiders to amount invested by the shareholders. Alternatively this

ratio indicates the relative proportion of debt and equity in financing the assets of a

company.


19/143

- 19 -

It is computed as follows:

Debt equity ratio = Outsiders funds (Debt)

Shareholders funds (Equity)

A ratio of 1:1 is considered to be a satisfactory ratio although there cannot be any

standard norm for all types of business. A high ratio shows that creditors have invested

more in the business than the shareholders. A low ratio indicates a smaller claim of

creditors.

2. PROPRIETARY RATIO:

This ratio establishes the relationship between shareholders funds and the total assets. It

indicates the proportion of total assets financed by shareholders. It is usually computed as

a percentage.


Proprietary ratio = Share holders funds

Total assets or total resources

Shareholders funds include equity share capital, preference share capital and all reserves

and surplus minus fictitious assets. Total assets include all assets including goodwill.

Some others exclude goodwill also from total assets.

It reflects the general financial strength of the company. It enables creditors to find out

the proportion of shareholders funds in total assets. Higher the ratio of share of

shareholders in total capital of the company, better is the long-term solvency position of

the company.


20/143

- 20 -

3. CAPITAL GEARING RATIO:

This ratio is used to analyze the capital structure of the company. The term capital

gearing refers to the proportion between fixed income bearing funds and equity

shareholders funds. Fixed income bearing funds include debentures, other long-term

loans and preference share capital. Equity shareholders funds include equity capital and

all reserves and surpluses that belong to equity shareholders.

Capital gearing ratio = Fixed income bearing funds

Equity shareholders funds

Capital gearing ratio reveals the companys capital structure. This ratio is important not

only to the company but also to investors. The capital-gearing ratio may affect the

companys dividend policy, building up of reserves etc. This ratio shows the effect of the

fixed interest/dividend funds on the profit available to equity shareholders.

4. TOTAL OR OVERALL COVERAGE RATIO:

This ratio is also known as fixed charges coverage ratio. It measures the ability of a firm

to service all fixed obligations out of its earnings. The fixed obligations include interest

on loans and debentures, preference dividend, lease payment and loan repayment.

It is computed as follows.

Total coverage ratio = EBIT

Total fixed charges

This ratio reflects the overall ability of the firm to service outside liabilities.


21/143

- 21 -

5. SOLVENCY RATIO:

This ratio expresses the relationship between total assets and total liabilities. It is a pure

ratio calculated to measure the solvency of the firm.


Solvency Ratio: Total liabilities

Total assets

Generally there is no standard set. But the lower the ratio of total liabilities to total assets,

more satisfactory and stable is the long-term solvency position of the firm.

6. FIXED ASSET RATIO:

It is the relationship between fixed assets and total capital employed by the firm. It

indicates the amount invested in fixed assets out of the capital employed.

Fixed Asset Ratio = Fixed Asset

Total capital Employed

By convention an ideal ratio is 0.6: 1. If it is more it indicates better financial position

and otherwise a lower financial state than the standard set.


22/143

- 22 -

ACTIVITY RATIOS:

1. WORKING CAPITAL TURNOVER RATIO:

This is a measurement comparing the depletion of working capital to the generation of

sales over a given period. This provides some useful information as to how effectively a

company is using its working capital to generate sales.


A company uses working capital (current assets - current liabilities) to fund operations

and purchase inventory. These operations and inventory are then converted into sales

revenue for the company. The working capital turnover ratio is used to analyze the

relationship between the money used to fund operations and the sales generated from

these operations. In a general sense, the higher the working capital turnover, the

better because it means that the company is generating a lot of sales compared to the

money it uses to fund the sales.

2. INVENTORY TURNOVER RATIO:

Inventory turnover ratio also known as stocks turnover ratio establishes the relationship

between cost of goods sold and average inventory. It helps in determining the liquidity of

a business concern, this ratio indicates how many times during the period the firm has

turned or replaced its inventory. In other words, it shows the rate at which inventories are

converted into sales and then into cash.


23/143

- 23 -

Although the first calculation is more frequently used, COGS (cost of goods sold) may be

substituted because sales are recorded at market value, while inventories are usually

recorded at cost. Also, average inventory may be used instead of the ending inventory

level to minimize seasonal factors.

Inventory turnover ratio is a measure of liquidity of inventory. This ratio indicates the

speed with which the inventory is sold. A high turnover ratio indicates that inventory is

sold fast. On the other hand, a low turnover ratio reflects over investment in inventories,

accumulation of huge sock etc. This ratio is also an index of profitability.

3. DEBTORS TURNOVER RATIO:

A debtor turnover ratio is also called receivable turnover ratio. It relates net credit sales to

sundry debtors. This ratio indicates the rate at which cash is generated by turnover of

debtors. It measures how fast a firm collects its debts.


Debtors turnover ratio = Net Credit Sales

Debtors


24/143

- 24 -

The term debtor for this ratio is the amount of the debtors plus bills receivables at the end

of an accounting period. Sometimes the ratio is computed by taking the average of

opening and closing debtors. It should be remembered that provision for bad and doubtfuldebts should not be deducted from debtors. When the credit sales are not given, the total

sales may beused.

The debtor turnover ratio indicates the quality of debtors by measuring the rapidity as

slowness in collection process. A shorter collection period (higher turnover ratio)

indicates prompt payment of debtor while a longer period (lower turnover ratio) indicates

the in efficiency of credit collection.

4. CREDITORS TURNOVER RATIO:

Creditors turnover ratio is the ratio between net credit purchases and the amount of

sundry creditors. It implies the credit period enjoyed by the firm in paying creditors.

It is computed by using the following formula.

Creditors turnover ratio = Net credit purchases

Sundry creditors (including Bills payable)

The term creditor for this ratio is amount of the creditors plus bills payable at the end of

an accounting period. Sometimes the ratio is computed by taking average of opening and

closing creditors.

The ratio reflects whether terms of credit allowed by suppliers are liberal or stringent. A

high creditors turnover ratio (short period) shows that creditors are being paid promptly;

while a low turnover ratio (longer period) reflects liberal credit terms granted by

suppliers.


25/143

- 25 -

5. FIXED ASSETS TURNOVER RATIO:

This is a measure of the productivity of a firm, it indicates the amount of sales generated

by each rupee spent on fixed assets, and the amount of fixed assets required to generate a

specific level of revenue. Changes in this ratio over time reflect whether or not the firm is

becoming more efficient in the use of its fixed assets.


Fixed assets turnover ratio = Sales

Fixed assets

Generally speaking, the higher the ratio, the better, because a high ratio indicates the

business has less money tied up in fixed assets for each rupee of sales revenue. A

declining ratio may indicate that the business is over-invested in plant, equipment, or

other fixed assets

This ratio measures the efficiency in the utilization of fixed assets. A high ratio reflects

overtrading; on the other hand, a lower ratio indicates idle capacity and excessive

investment in fixed assets.

TOTAL ASSET TURNOVER RATIO:

This is a measure of the productivity of a firm, it indicates the amount of sales generated

by each rupee spent on total assets, and the amount of total assets required to generate a

specific level of revenue. Changes in this ratio over time reflect whether or not the firm is

becoming more efficient in the use of its assets.


Total assets turnover ratio = Sales

Total assets


26/143

- 26 -

PROFITABILITY RATIOS

The ultimate aim of any business enterprise is to earn maximum profit. A firm shouldearn profits to survive and grow over a long period of time. To the management, profit is

the measure of efficiency and control. To the owners, it is a measure worth of their

investment. To the creditors, it is the margin of safety. The management of the Company

is very much interested in the profitability of the Company. Besides the management,

creditors and owners also are interested in the profitability of the Company. Creditors

want to get interest and repayment of principal regularly whereas owners want to get a

reasonable return on their investment.

The profitability of a firm can be easily measured by its profitability ratios; Profitability

ratios measure the ability of a firm to earn an adequate return on sales, total assts and

invested capital. Profitability ratios are calculated either in relation to sales or in relation

to investment.

1. GROSS PROFIT RATIO:

Gross profit ratios measure the relationship of Gross Profit and Sales. The gross profit

ratio indicates the extent to which selling prices of goods per unit may decline without

resulting in losses on operations of a firm. It reflects the efficiency with which a firm

produces its products.

Gross profit ratio = Gross profit X 100

Net sales


27/143

- 27 -

As the gross profit is found by deducting cost of goods sold from net sales, higher the

gross profit ratio, better the results. A low gross profit ratio indicates high cost of goods

sold due to unfavorable purchasing policies, upper sales, lower selling prices excessive

competition etc.

Gross Profit ratio indicates the margin of profit on sale. It is useful to ascertain whether

the average percentage of mark-up on the goods sold is maintained. There is no ideal

Gross profit ratio for evaluation. However, the Gross profit ratio should be sufficient to

cover all operating expenses, fixed interest charges, dividends and appropriation of

reserves.

2. NET PROFIT RATIO:

Net profit ratio is the ratio of net profit to sales. It is known as the profit margin. It is

usually expressed as a percentage.

It is calculated as

Net profit ratio = Net profit after tax X 100

Net sales

Here Net profit is the balance of profit and loss account after adjusting interest and taxes

and all non-operating expenses and non-operating incomes.

A high net profit ratio would indicate higher overall efficiency of the business, better

utilization of limited resources and reasonable returns toowners. A low net profit ratio

would mean low efficiency and inadequate returns to owners.


28/143

- 28 -

3. OPERATING PROFIT RATIO:

This ratio establishes the relationship between operating profit and sales and is calculated

as follows:

Operating Profit Ratio = Operating Profit before Interest and Taxes (OPBIT) * 100

Net Sales

This ratio indicates the portion remaining out of every rupee worth of sales after all

operating costs and expenses have been met. Higher the ratio, better it is for the firm.

Assuming a constant gross profit margin, the operating profit ratio tells us about a

company's ability to control its other operating costs or overheads.

4. RETURN ON INVESTMENT:

Return on investment refers to the relationship between net profit and the proprietors

funds. Return on investment means operating profit or net profit before deducting interest

on long-term funds employees on used in business.

ROI = EBIT

TOTAL CAPTIAL EMPLOYED

Capital Employed = Fixed assets + investments + current Asset - Current liabilities

Alternatively, if net capital employed is calculated from the liability side, it includes:

1. Equity and preference capital

2. Reserves and surplus

3. Debentures and long term loans


29/143

- 29 -

Significance of ROI:

Operating ratio does not show the profitability on investment, while capital turnover

ratio, doesnt show the profitability on sales. However, ROI being product of above-

mentioned two ratios, it reflects the overall profitability. It is used as a basis for various

managerial decisions like expansion and diversification of activities. It is very important

in capital budgeting.

5. RETURN ON ASSETS:

Return on Asset means net profit after tax as compared to total resources or total of all

revisable assets, including intangible assets. This ratio measures the productivity of totalresources or assets of a concern it indicates the profitability of the business.

Return on Assets = Net profit x 100

Total Assets

This number tells you how effective your business has been at putting its assets to work.

The ROA is a test of capital utilization - how much profit (before interest and income tax)

a business earned on the total capital used to make that profit.As such, there cannot be

any norms for this ratio. It depends on the industry in which the firm is operating.


30/143

- 30 -

6. RETURN ON SHAREHOLDERS FUNDS:

This is the ratio of Net profit to shareholders fund or net worth. It measures the

profitability from the shareholders point of view.


RETURN OF SHARE HOLDER FUND = PROFIT AFTER INTEREST AND TAX

SHARE HOLDER FUND

This ratio indicates how effectively the company has utilized the shareholder funds. It is

an index to know whether the owners are getting satisfactory rate of return on their

investment. A higher ratio indicates better utilization of owners funds and higher

productivity; the ideal ratio being 13%.

7. RETURN ON CAPITAL EMPLOYED:

It is a ratio that indicates the efficiency and profitability of a company's capital

investments.

It is calculated as:

Return on Capital Employed = Operating Profit before Interest and Taxes(OPBIT)* 100

Capital Employed

ROCE should always be higher than the rate at which the company borrows; otherwise

any increase in borrowing will reduce shareholders' earnings.


31/143

- 31 -

8. EARNINGS PER SHARE (EPS):

Earnings per share, is the ratio between net profit available for equity shareholders after

tax and preference dividend and number of equity shares.

It is calculated as:

EPS = Net profit after tax

Number of equity shares

The more earnings per share, better is the performance and the future prospects of the

company. A high earnings per share suggests the possibility of more cash dividend and

bonus shares, as there is a rise in the market price of the share.

9. FIXED INTEREST COVERAGE RATIO:

A ratio used to determine how easily a company could pay interest on outstanding debt.

The interest coverage ratio is calculated by dividing a company's earnings before interest

and taxes (EBIT) of one period by the company's interest expenses of the same period:

The lower the ratio, the more the company is burdened by debt expense. When a

company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may

be questionable. An interest coverage ratio below 1 indicates the company is not

generating sufficient revenues to satisfy interest expenses.


32/143

- 32 -

10. FIXED DIVIDEND COVERAGE RATIO:

A ratio used to determine how easily a company could pay dividend to its shareholders.

The dividend coverage ratio is calculated by dividing a company's profit after tax (PAT)

of one period by the company's dividend expenses of the same period:

Fixed Dividend Coverage Ratio = Profit after Tax (PAT)

Fixed Dividend

11. OPERATING EXPENSES RATIO:

The operating expense ratio also known as the OER is the ratio between the total

operating expenses and the effective gross income for an income producing property.

Operating expenses are costs associated with the operation and maintenance of income

producing properties. They include such items as property taxes, property management

fees, insurance, wages, utilities, repairs and maintenance, supplies, advertising, attorney

fees, accounting fees, trash removal, pest control, etc. The operating expense ratio shows

the percentage of a property's income that is being used to pay maintenance and

operational expenses.

Operating Expenses Ratio = Operating Expenses * 100

Net Sales


33/143

- 33 -

12. PRICE EARNING RATIO:

It is the valuation ratio of a company's current share price compared to its per-share

earnings.

Calculated as:

In general, a high P/E suggests that investors are expecting higher earnings growth in the

future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the

whole story by itself. It's usually more useful to compare the P/E ratios of one company

to other companies in the same industry, to the market in general or against the

company's own historical P/E. It would not be useful for investors using the P/E ratio as a

basis for their investment to compare the P/E of a technology company (high P/E) to a

utility company (low P/E) as each industry has much different growth prospects.

1.3. DEFINITION OF CONCEPTS

(a)Financial analysis: - The use of financial data to evaluate the financial portion of

a firm.

(b)Balance sheet: - Statement showing assets and liabilities of the business as on a

particular date and time.

(c)Income statement: - A summary of a firms revenues and expenses over a

specified period ending with net income and loss for the period.

(d)Financial ratio: - An index that relates two accounting members and is obtained

by dividing one number by the others.


34/143

- 34 -

(e)Liquidity: - Ability to meet short term obligation when they become due.

(f) Profit: - Measure of efficiency and control.

(g)Profitability: - The ability to earn an adequate return on sales, total assets and

invested capital.

(h)Shareholder equity: - Total assets - total capital

(i) Current asset: - Assets convertible in to cash during current year

(j) Current liability: - Liabilities payable during the current year

(k)Debt: - Borrowed capital

(l) Equity: -capital assured by firm

(m)Debenture: - Borrowed capital

(n)Returns: - Revenue - all costs

(o)Taxes: - To be paid/payable to government as a penalty for having made money

(p)Retained earnings: - Part of profit after taxes retained in the business

(q)Fixed assets: - Long term assets whos cost could be recovered over time in terms

of depredation

(r) Long term liabilities: - Those liabilities payable in a period more than one year

(s) Industry: - A collection of firms in same line of industry

(t) Provision: - fixed interest on borrowed capitals

(u)Turn over: - Conversion of ratio of assets in to sales

(v)Debtor: - A person who has to give money to company

(w)Creditor: - A person who has to get money from company

(x)Prepaid expenses: - Part of current assets Ex- advance paid

(y)Market price of equity: - price of equity and debentures in Secondary market.


35/143

- 35 -

1.4 STATEMENT OF THE PROBLEM

Finance is the most important part of an organization. The success of these organizations

solely depends on the way the finances are managed. The financial analysis in this study

is undertaken to investigate about the financial position of Lux Hosiery Industries Ltd;

how it has performed for the last 3 years and to further analyze its financial statements so

as to derive meaningful conclusions, interpretation of the represented information and

suggestion and recommendation.

A comparative study of the last 3years has been undertaken using ratios which involves

comparison of ratios of the over the years. These will help indicate the direct change in

the performance, improve, deterioration or the constancy over the years.

THE FINANCIAL PERFORMANCE OF THE COMPANY IS

COMPARED ACROSS THREE YEARS USING THE FOLLOWING

STUDIES:

(a) Analysis of the relationship between current liabilities & current assets.

(b) Analysis of the liquidity and profitability of the current assets and current

liabilities.

(c) Analysis of various components of working capital such as cash, marketable

securities, receivables& inventories.

(d) Analysis of the long- term financial position of the firm over a period of time.

(e) Find out the impact of business fluctuations, technical developments etc on

financial performance.


36/143

- 36 -

LUX Hosiery Industries Ltd. is a public sector undertaking mainly into manufacturing

garments. This study considers an external analysis point of view with the help of past

and latest financial statements. The financial position has been analyzed potentially.

However, firm-industry comparisons are not attempted because of lack of availability of

data of various firms. An intra organizational comparison for a run through of three years

has been taken into consideration.

1.5 NEEDS AND PURPOSE OF THE STUDY

To provide financial information that assists in estimating the earning potentials

of the business.

To provide reliable financial information about the economic resources and

obligations.

To determine the present and future earning capacity and profitability of the

concern.

To find out the financial stability of a business concern.

To study the procedures and techniques included in the financial aspects of a

concern.

To determine the short term and long term solvency of the firm.

This study takes into consideration the following groups involved in a firm.

1. Trade Creditor:

Existing and potential creditors those who lend resources to a firm; they need information

to evaluate the safety and desirability of their credit investment. Creditors are interested

in firms ability to meet their claims over a short period of time.


37/143

- 37 -

2. Management:

Management of the firm would be interested in every aspects of financial analysis. It is

their over all responsibility to see that the resources of the firm are used most effectively

and efficiently and that the financial condition is sound. This work will provide sufficient

information for management. ROI, various costs as a percentage of sales, gross and net

profit of percentage of sales, assets turnover ratios, etc. reflect this.

3. Suppliers of long term deposit:

They are concerned with a firms long-term solvency and survival. This study will

provide information about profitability over time, its ability to generate cash to be able to

pay interest and repay principle, and the relationship between various services of funds in

specific debt &equity.

4. Investors:

Investors, who have invested their money in the firm in the form of shares, are concerned

about firms earnings. This study work will provide information about the firms present

and future profitability.

5. Employees and union:

Suppliers of services to the firm, such as employees and their union, are vitally interested

in the firms survival and possible growth conditions and its ability to pay its bills in this

case, wages and salaries when due.


38/143

- 38 -

6. Current and potential customers:

Current and potential customers of the firm may depend on the firm to supply a needed

product or service. This dependency makes them interested in the firms present and

prospective economic health.

1.6 OBJECTIVE OF THE STUDY

The objective of the study is to analyze the financial position of the firm by using thevarious financial techniques and tools.

To know the various sources of funds that the firm utilizes.

To know the liquidity position of the firm.

To know the amount of debt in the firm and the amount of shareholders funds.

To analyze the profitability position of the firm.

To know the volume of sales activity in the firm.

To compare operations and costs position of the company between profit making

and loss making periods.

Based on information furnished in the financial statement, analyzing and

interpreting the strengths and weakness of the firm through Ratio Analysis.


39/143

- 39 -

CHAPTER-2

RESEARCHDESIGN


40/143

- 40 -

CHAPTER: 2 RESERCH METHODOLOGY OF STUDY

2.1 RESEARCH DESIGN:

Research design simply means a search for facts answers to questions and solutions to

problems. It is a prospective investigation. Research is a systematic and logical study of

an issue on problems through scientific method. Research is a systematic and objective

analysis and recording of controlled observation that may lead to development of

generation, principles, resulting in predictions and possible ultimate control of events.

A Research design is the arrangement of condition for the collection and analysis of data

in a manner that aims to combine relevance to research purpose with economy in

procedure. There are various research designs, but descriptive and analytical research

design in most suitable for this study.

This research is descriptive in nature and involves the following steps

Information is collected from various generals to understand the industrial

background.

To understand the theory behind financial performance analysis, various

textbooks have been referred to.

Information is downloaded from various websites to understand the industrial

background.

The study period has been decided which is 3 years (2009- 2011).

Annual reports and other published data have been collected from the company.


41/143

- 41 -

Identification of financial ratios has been done - literally to reflect the liquidity,

solvency and efficiency and profitability of the firm. In this case the ratios classes

used are:

LIQUIDITY RATIOS

LONG TERM SOLVENCY RATIOS

PROFITABILITY RATIOS

TURNOVER RATIOS

ACTIVITY RATIOS

Calculation of the above ratios over the study period.

Tabulation, graphical representation, analysis and interpretation of the attained

data.

Forwarding certain recommendations and suggestions to the company and also

drawing a conclusion out of the study.


42/143

- 42 -

2.2 DATA SOURCE:

There are mainly two types of data sources. They are as follows

1. Primary data

2.Secondary data

Primary data:The data that is originally collected by an investigator or agency for the

first time through a direct source for a statistical investigation and used in the statistical

analysis is known as primary data.

Secondary data: The data published or unpublished which has already been collected

and processed by some agency or person and taken over from there and used by any other

agency for their statistical work is termed as secondary data.

Most of the data collected is secondary in nature and include:

Annual reports of the company.

Journals - Business world, Business line, India today.

Internet and daily newspaper.

Other books and accounts maintained by company.


43/143

- 43 -

2.3FIELD WORK:

Fieldwork is done for the collection of data. For the purpose of collecting primary data,

fieldwork involved was visiting the premises of Lux Hosiery Industries Ltd. Also,

collection of secondary data involved some fieldwork such as visiting the office premises

of the company to collect the annual reports and company magazines. Secondary data

was also topped from the company web site.

2.4LIMITATIONS OF THE STUDY:

Though sincere attempt has been made during the study, certain limitations cannot be

avoided. They are:

1. The findings of the study are confined to secondary data attained from the company

namely Balance Sheet and Profit and Loss a/c.

2. Financial accountants prepare all statements and any analysis done and conclusion

reached is influenced by personnel judgment.

3. Financial statements disclose only monetary facts and they ignore non-monetary facts.

4. It does not look into the areas such as working capital management, cash management,

inventory management, marketing performance, and stock market performance etc.

5. Elaborate investigation regarding the profitability, income and expenses could not be

done, as this area is very sensitive and confidential.

6. There is a restriction in the time criteria, as it is relevant for only the determined

period.


44/143

- 44 -

6. The analysis is only based on ratios and percentages hence the analysis is not fully

complete. The exact financial position cannot be determined therefore.

2.5DATA COLLECTION INSTRUMENT:

This research is descriptive in nature so no such data collection instruments such as

questionnaires were employed in particular. Most of the data was collected from

published information.

2.6OVERVIEW OF THE REPORT:

CHAPTER 1: Introduction

This chapter talks about the importance of financial management in analyzing the

financial performance and gives a general introduction about the hosiery industry in

India.

CHAPTER 2: Research Methodology:

The Research Methodology of the study states the research design; sources of data,

fieldwork, data processing and analysis plan; overview of the report, expected

contribution of the study, limitation of the study etc.

CHAPTER 3: Company Profile:

This chapter views the industrial background of the study, origin and growth of Lux

Hosiery Industries Ltd. and its business activities, present status of the study

organization, product information and organizational chart etc.


45/143

- 45 -

CHAPTER 4: Data Analysis and Interpretation:

In this chapter the data collected is compiled, processed and analyzed. This data is also

represented here in tabular and graphical forms and then interpreted according to the

ideals set.

CHAPTER 5: Summary of Findings, Suggestions and Conclusions:

This chapter contains the summary of major findings from the study about the financial

condition of the company. Some suggestions that have been made to the company on the

basis of this study are also mentioned here and an overall conclusion that has been

derived is stated as well.

Annexure:

The basic material used for the study including the balance sheets, profit and loss

account, and the various schedules for the respective years are attached here for

reference.

Bibliography:

An account of the published material used for reference during the study is accounted for

in this segment.


46/143

- 46 -

CHAPTER -3

COMPANYPROFILE


47/143

- 47 -

In keeping with its ambition of delivering world-class performance to this increasingly

demanding market, Lux Hosiery Industries Ltd., has focused on achieving global

excellence in cost, quality and productivity. Success did not come easily - behind it lays a

saga of business transformation and dedication. From a small hosiery brand, Lux has

transformed into one of the foremost names in the innerwear market. This has happened

because a team had the focus, courage and confidence to swim against the tide, going

beyond the call of duty.

MISSION:

To become the No.1 Inner and casual wear producer with the highest quality, comfort and

100% customer satisfaction.

At LUX, they have a passion for excellence that is rare in todays work environment.

You feel it when you walk through the doors. You see it in the diligent work of their

employees, many of whom are like family members, all committed to carrying on the

tradition of quality, service and integrity that began with the founder.

CHAIRMANS MESSAGE:

More than anything, a company is known by its growth, and over the past years we have

been able to present your company as a force to reckon with. In this, our twelfth annual

report to shareholders, I am pleased to say that by any measure, 2006-2007 was a year of

major accomplishments for LUX, and the people who keep this company strong and

growing. Not since its inception in 1995 have so many positive developments taken place

in a single year that had such a favourable impact on the firm.


48/143

- 48 -

PUBLIC ISSUE IPO

Public Issue of 2000000 Equity Shares of Rs 10 each for Cash at a Premium of Rs40 per

share, aggregating Rs 10 Crores

Issue Money Payable On

Opens On Closes On Application Allotment

9/15/2009 9/23/2009 15.00 35.00

OBJECT OF THE ISSUE:

The objects of the present IPO issue are:

1. To meet the enhanced working capital requirement of the company,

2. To meet the expenses of the issue, and

3. To list the equity shares of the company on Calcutta and Ahmedabad Stock Exchanges.

PROMOTERS:

The main promoters of the Company are Sri Ashok Kumar Todi, Sri Pradip Kumar Todi,

Smt Shakuntala Devi Todi and Smt Prabha Devi Todi.

Sri Pradip Kumar Todi aged 40, is the Whole Time Director of the Company. He came

into business in 1983 and he was instrumental in developing new patterns, yarn

combinations, knitting technologies, which helped the company to introduce new

products from time to time. His contribution in introducing new styles and in decreasing

production costs helped the Company to enhance its profit margin.


49/143

- 49 -

Sri Ashok Kumar Todi aged 45, Director of the Company has proved himself as a good

salesman and a good marketing person. He innovated various schemes for distributors,

retailers and even for consumers.

Mr. Ashok Kumar Todi has an experience of around 25 years in Hosiery Industry. He is

instrumental in scaling up the turnover of LHIL and BHML over a period of time. Mr.

Todi has devised various schemes for BHML based on the feedback received from the

distributors, retailers, and on the various schemes being launched by the competitors, to

the wholesalers, retailers and consumers such as:

a) Issue of coupons to the ultimate consumers with purchase of any product, which

entitles them to Tata Sumo, Tata Indica, Maruti Omni Van etc., on lucky draw.

b) Issue of coupons to the retailers with purchase of 3 boxes of any products which

entitles them to Maruti Zen, Bajaj Scooter, Videocon Refrigerator, etc on lucky draw.

c) Issue of coupons to wholesalers with purchase of 15 boxes of any products, which

entitles them a guaranteed gift and Santro, Motorcycle, Colour Televisions etc., on lucky

draw.


50/143

- 50 -

DETAILS OF OTHER COMPANIES/FIRMS WITH WHICH

PROMOTERS ARE ASSOCIATED:

a. M/s Biswanath Hosiery Mills Limited.

b. M/s J.M Hosiery Factory

c. M/s. Todi Exports (India).

d. M/s. Jaytee Exports.

e. M/s. S.D International.

f. M/s A.B Industries.

GROWTH PLAN:

During the year, LUX chalked out programs of expansion and prepared for the strategic

future growth plan.

They have been able to tap new market points and develop loyal dealership network and

strengthen the existing setup. The major factors that contributed to these are expansion of

the companys sales and marketing department.

The lifeline of their business is the attraction and retention of customers. They are

constantly adding to those relationships, and accelerated the process during the recently

completed year, again in large measure due to the addition of new technologies at their

R&D levels.


51/143

- 51 -

BUILDING FOR THE FUTURE:

To continue the forward momentum of LUX, it will require not only solid growth from

continuing operations, but the continued development of their R&D that fit their

corporate culture, and bring to their family of companies the strong commitment they

have to excel in all aspects of customer relations and ongoing operations. To achieve of

wider presence in the market at the retail level, they are undergoing policy discussions on

opening their own chain stores for the existing exhaustive range of innerwear and the new

segment i.e. the casual wear line.

The establishments of new branch offices, in new market areas, which are still untapped,

drive their organic growth. They seek to raise the needed capital to fund this growth

through a variety of financial instruments that make sense for the company and its

shareholders. They do not mortgage their future on questionable investments, but rather

those that compliments their growth strategy. They have already received several strong

signals of support from leading financial institutions that believe in their evolving role as

one of the foremost hosiery companies that employ state-of-the-art techniques in

developing new designs.

Having spent virtually his entire working career in this industry, the chairman, Mr. Ashok

Kumar Todi, has never been more certain of the future, and the important role his

company will play in it. For these reasons, he has no hesitation in saying to us that more

than ever an investment in LUX is an investment in the future, and that his brief

operating history, measured against all that is unfolding as the gates of global commerce

open very wide, is but a prelude to the many exciting days that lie ahead for this

company, and all those who believe in it. He hopes that we join them in the journey

ahead, and he welcomes us as he charts new patterns for progress in a rapidly changing

world.


52/143

- 52 -

CORE VALUES:

CUSTOMER PARTNERSHIP

The benchmark for our success is customer satisfaction. Lux delights its customers

through a range of products that not only deliver on comfort but are constantly

upgraded to keep the styling in line with the latest trends.

RESPECT FOR PEOPLE

At Lux, it is universally acknowledged that people are their most valuable assets.

Accordingly, they try to provide the best possible work-environment and treat the Lux

team like family members instead of employees. They reward excellence and initiative,

promote training, participation and equal-opportunity. Teamwork and leadership are part

of their culture at every level. This results in empowering people to work with dedication,

responsibility and accountability

INTEGRITY

Business integrity is a way of life at Lux. The Company is proud to stand by integrity and

transparency in all its dealings and ensures adherence to the highest standards of business

ethics


53/143

- 53 -

WHAT HAS MADE LUX ONE OF THE MOST POPULAR

BRANDS IN INDIA:

It is the strategies used by them:

Specific corporate objectives related to market trends.

Target markets that are vertical specific.

Market share and revenue goals for each product segment of focus.

A 12-24 month product roadmap tied to market trends.

Pricing, packaging and bundling options with revenue tied to each.

Vertical specific go-to-market strategies and tactics.

Strategic alliance partners with financial goals ties to its strategy.

High profile customers and industry influencers to substantiate the value

proposition.

Initiatives to address the top weaknesses.

A commitment to make organizational changes to support the strategy.

Approval across the entire executive management team.

Company wide communication of the strategy at all levels.

Realistic alignment of the strategy to compare resources (people, budget,

expertise).

Measurable goals defined for each time period.


54/143

- 54 -

GLOBAL BUSINESS:

Today LUX is a recognized player in the export industry and as in a process to increase

its marketing network worldwide. If you look for high fashion inner and casual wear,

with updated global designs, with fantastic fabric, photo quality prints, all at a very

competitive cost, delivered within a reasonable period, then the company aspires to take

pride in having priority shelves in almost all the known fashion hubs worldwide in the

near future.

STRENGHTHS:

QUALITY:

LUX is maintaining the highest standards of quality as per industry norms and the best to

its consumers, stringent quality control measures are followed at all stages of

production from purchase of yarn to the finished product. The company has one of the

most modern knitting plants in India; this unit is located at Tirupur. Equipped with state-

of-the-art machinery, this plant has as in-house laboratory and R&D facilities.

Computerized equipment has also been installed for patterns and maintaining the required

parameters.

Our quality has been praised worldwide and we have been able to associate with a well-

known international brand called Gen-X fassions, Italy, and we are marketing the Gen-X

under garments in India.


55/143

- 55 -

GOODWILL:

LUX is in its golden jubilee year and the company enjoys a very strong goodwill in the

trading fraternity, media and above all its customers. The company enjoys the customer

confidence on account of their product specialty i.e comfort, style and price-value. The

broad price range has accommodates diverse customers and their satisfaction is paying

off.

RANGE:

LUX knitted products range is one of the widest in India and it is spending a fortune in its

advertising campaigns.

BRAND LUX:

LUX, which started as a small company that used almost no advertising in the beginning

years developed such a string brand that the company went from one shop to hundreds

and transformed its brand into a household name.

On the other half of the story, it went on for such an aggressive advertising with an

already famous brand name and has successfully presented its product superiority over its

competitors.

PACKAGING:

Package design is as much a sign of the times as it is functional. It may seem to be little

more that a protective container, but as the external manifestation of a brand, its role is

much more pivotal. LUX had always given priority to this aspect.


56/143

- 56 -

INNOVATIONS LEAD TO EXCELLENT RESULTS:

IMPLEMENTING SAP

The SAP Customer Relationship Management (SAP CRM) application provides best-in-

class functionality for marketing, sales, and service. By supporting customer-facing

business processes across multiple interaction channels, SAP CRM enables our

organization to focus on strategies for customer-driven growth and to differentiate them

in the market by providing a superior customer experience.

With SAP CRM, you get the help you need to delight your customers, empower your

teams, and grow your business.

LUX has always given importance to its research and development programmes. This has

followed heavy investments in procuring, testing and sampling equipments and

softwares.

The companys R&D department is always putting its efforts in improving product

quality and developing new designs.

In the course of rapid expansion and development, and to have an insight detail of the

quantity, variety and distribution of our products, the performance of the various dealers

across the country and having an efficient cost mechanism, LUX will very soon

implement SAP for which steps have been already taken and are in the testing stage.


57/143

- 57 -

THIS WILL HELP IN:

Business process management

Multi-point data entry on a centralized single SAP server maintained and

managed at the corporate office, ensuring a safe and tamper proof mechanism.

Keeping track at all levels from procurement of raw materials to sale.

Track of inward delivery of consumables and raw materials.

Keeping up-to-date statistics of warehouse stock.

Prepare report of expenditure and sales at any point of time.

Reduction in order processing time

Processing of dealer orders at different purchase points.

SOUND TECHNIQUE, FIT EQUIPMENT, PERFECT

GAME: OUR MARKETING NETWORK:

PRODUCTS:

LUX is Indias one of the largest hosiery brands, with varieties, right from the rural to

semi rural to urban as well as the elite segment. The company is coming up with new

varieties of winter wear to add to its already exhaustive range.

PACKAGING:

The company strengthened its packaging for better presentation of its products in form of

latest trendy packs as per the demands of the fashion industry. To make our string

presence felt in the retail sector, the company is developing new packaging design

concepts that will place us ahead of our competitors. All these innovations and concepts

are being taken care of by Ogilvy & Mather, Mumbai a global advertising agency.


58/143

- 58 -

PRICING:

Effective pricing is the most important part of the marketing strategy of a company andthe company has successfully devised a pricing mechanism which has yielded excellent

results. Distributors of Lux get the edge in form of superior products, and very aggressive

advertising and above all pricing which is the backbone of our marketing wing. To

maintain trade goodwill, the company has been organizing annual dealer conferences in

various cities in India as well as abroad.

PROMOTION:

Lux has always focused on lavish add campaigns for the range Lux cozi as art of its

marketing strategy. 1n 2010-2011, it has enhanced its presence on the television ad

circuit on prominent channels like Zee Network, Sony and Star India along with

Doordarshan which has the highest viewer ship in India. The company started a campaign

with slogan Apna luck pehen ke chalo and it became an instant hit. The exclusive range

GEN-X has also retained a big chink in the promotional budget of ads and promotion to

around 25 crores annually (consolidated). The company went for celebrity endorsement

for all its ranges to enforce its brand appeal.


59/143

- 59 -

GROWTH:

Thanks to the visionary leadership of the board of directors and senior management team,

they have completed a dynamic strategy plan to guide them forward. The shared vision

amongst staff emphasizes their underlying corporate principles. The result is a

comprehensive blueprint built on their competencies that identify growth areas and a firm

belief in catering to the comfort of their customers. To promote ongoing success, Lux has

created a solid infrastructure to manage its growth. Enhanced protocols and tools are now

in place to monitor customer needs and ensure continuous quality improvement. As it

looks back to its history, Lux is proud of its accomplishments and is excited to plan forthe challenges and opportunities of the future.

COMPETITION:

The hosiery industry in India is preparing to face tough times, with exporters reporting

declining earnings due to competition in the global market. The competition is mainlyfrom new bases in Central Asia, Indonesia, Thailand, Hong Kong and Pakistan. The

exporters are facing a problem as the depreciation in the currencies of these countries has

been much more than that of the Indian rupee. New types of yarn are now being imported

from these countries to compete with the world markets and the domestic market. This

yarn is polyester-based and is attractive in colors.

Kitonak and Daspa are the two synthetic yarns imported from Taiwan besides Peach and

Split yarns are other synthetic yarns which are being imported. These yarns are available

at Rs 120 to Rs 220 per kg in the local market. Acrylic yarn is being eased out by these

polyester yarns.


60/143

- 60 -

Otherwise the hosiery industry is facing slump as not many orders have been received by

the local manufacturers from other states. The readymade garments of China and other

countries are giving a competition to the Indian goods in the domestic market.

The hosieries are a worried lot in view of the easy flow of the Chinese goods. However,

they maintain that this is just a beginning and they can compete with these countries

provided the Central and the state governments support them.

Mr Prem Sagar Jain, founder president of the Readymade Hosiery Manufacturers Welfare

Association says the Centre has reimposed C form which had been removed after six

years of struggle. This has created a new problem for small scale buyers from other

states. The buyers have to pay 10 per cent sales tax if they do not procure C form.

Similarly the state government has imposed a 4 per cent entry tax on the hosiery yarns

which is also a big handicap for the development of the industry.

Mr Jain points out that the Union Government has earmarked Rs 25,000 crore for the

ugradation of the textile industry. But they cannot avail of this benefit because of the

strict rules for procuring NOC from the Pollution Control Board. They have to get the

NOC if the investment is more than Rs 25 lakh whereas the small scale industries limit is

Rs 5 crore.

Mr Vipin Dhand, General Secretary and Mr Sunil Dutt say Maharashtra, Gujarat, Delhi

and Tamil Nadu have reduced the taxes to promote the hosiery industry. Now the

manufacturers of these states buy fabric from Ludhiana and they prepare the finished

products in their own states instead of buying the readymade goods from Ludhiana.

Ludhiana manufactures hosiery cloth worth Rs 180 crore (12,000 tonnes) every month.

Readymade garments worth Rs 1200 crore are exported from Ludhiana to other countries

annually like the USA, the UK and European and West Asia. The hosiery industry is also

faced with the problem of severe power cuts.


61/143

- 61 -

EXISTING COMPETITORS:

There is also tough competition faced by the hosiery industry in India itself. Major

players in the domestic market include:

Rupa & Co. Pvt Ltd.

JG Hosiery Pvt Ltd. as brand Amul

Balram Hosiery Works

TT Hosiery

Bhawani Textiles Ltd. as brand Dollar

VIP Hosiery etc.


62/143

- 62 -

VARIOUS MACHINERY USED BY LUX HOSIERY

INDUSTRIES LTD.

FIGURE 3.1: COMPUTERISED HOSIERY MACHINE


63/143

- 63 -

DYEING MACHINE:

APPLICATION:

The machine used by them is suitable for dyeing all types yarn in package form and for

dyeing zipper tapes, small width fabrics and warp beams.

FIGURE 3.2: DYEING MACHINE


64/143

- 64 -

FEATURES:

It can work on low liquor ratio ranging from 1:3 to 1:5 depending on nature of

yarn and loading factor.

The machine operation does not require overhead hoist or working platform.

The foundation is simple.

Machine can be installed on mezzanine or higher floors also.

Costs less than vertical dyeing machines for small capacities.

ADVANTAGES:

Variable loading possible from 50% upwards of the rated capacity with almost

constant liquor ratio without using any dummies.

Heat exchanger is coil type, directly fitted inside the color addition tank

resulting in most efficient and fast heat transfer.

The tubes are fully flooded but still works on air pad dyeing system, thus saving

energy.

Opening/closing and locking/unlocking of all tube lids are done simultaneously

and automatically by electro-pneumatic devices.

Design ensures complete drain of liquor from the machine every time. Thus,

preventing contamination.


65/143

- 65 -

KNITTING MACHINE:

FIGURE 3.3: KNITTING MACHINE


66/143

- 66 -

TYPES:

There are domestic and industrial models, with either flat or circular beds that produce

rectangular or tubular fabrics. Double bed machines have two flat beds facing each other,

in order to produce purl and plain rib fabrics plus a variety of multi patterns. Ribbing

attachments can be added to single bed machines to achieve a similar result. Late 20th

Century domestic/studio/home models typically use up to 200 latch hook needles to hold

the stitches in a standard or bulky size needle. A carriage or cam box is passed across the

bed of needles causing the needle movements required to produce each next stitch. By

various selection methods, e.g. punch cards, particular needles can be caused to travel by

alternate pathways through the cam box. Thus needles will knit or not, and the unknitted

yarn portions will lie under (slip stitch) or over the needle or be held in the needle hook

(tuck stitch). Needles can be placed in holding position to allow short row shaping.

Most of these machines can knit two color "fair isle" patterns automatically, and have

machine stitch patterning features such as plating and knit weaving. Plating refers toknitting with two strands of yarn that are held in such a way that one is in front of the

other. Plated effects can be particularly striking in a ribbed fabric. Knit weaving refers to

a technique in which a separate piece of yarn, often heavier than the knitted fabric, is

carried along and caught between stitches to produce an effect like weaving. With knit

woven fabric, the purl side (usually the wrong side) is the right side of the fabric. With

the addition of a lace carriage, stitches can be transferred from one needle to the next.

The yarn passes through a tensioning mechanism and down through the knit carriage,

which feeds the yarn to the needles as they knit.

Domestic knitting machines use the weftknitting method which produces a fabric similar

to hand knitting. Knitting proceeds more quickly than in hand knitting, where (usually


67/143

- 67 -

two) straight needles are held in the hand and each stitch is manipulated individually

across the row. Knitting machines work an entire row of loops in a single movement.

ADVANTAGES:

The fabric produced using a knitting machine is of a more even texture than hand-knitted

fabric, which is particularly noticeable on large areas of plain stocking stitch. This is an

advantage, and saves a considerable amount of time. Many people prefer the look of hand

knitting and skilled hand knitters can produce quite even fabric, while machine knitters

need little skill to produce a good fabric as the machine tension does the job for them.Some stitch patterns (e.g., tuck stitches) are much easier to produce with a knitting

machine, while others (e.g. garter stitch) are much easier to produce with hand knitting.

The Standard 200 bed knitter can knit the finest yarns up to a good sport weight while the

heavier yarns knit better on a bulky knitting machine.

OTHER METHODS:

Knitting can be performed on other tools which have no moving parts, for example a

knitting Nancy and larger tools of that family. Stitches are formed by lifting loops over a

peg or nail, one stitch at a time, to produce flat or more often tubular fabric. These non-

machine knitting tools have been called many different names, including knitting looms

or knitting frames, which can lead to confusion with knitting machines.


68/143

- 68 -

AD CAMPAIGN OF LUX COZI:

FIGURE 3.4: A HOARDING OF LUX COZI


69/143

- 69 -

CORPORATE INFORMATION

BOARD OF DIRECTORS

Shri Ashok Kumar Todi Chairman

Shri Pradip Kumar Todi Managing Director

Shri Raghunath L Wadhwa DirectorShri Snehashish Ganguly Director

Shri Nandanandan Mishra Director

Shri Navin Kumar Todi Director

Shri Deoki Nandan Soni Company Secretary

REGISTRATRS AND SHARE TRANSFER AGENTS

Karvy Computershare Private Limited

Karvy House 48, Avenue 4, Street No.1, Banjara Hills,

Hyderabad 500 034

e-mail: [email protected]

AUDITORS

M/s Modi Sunil & Associates

Chartered Accountants

Kolkata 700 012


70/143


71/143

- 71 -

CHAPTER 4

ANALYSIS AND

INTERPRETATION


72/143

- 72 -

TABLE 4.1: SHOWING THE CURRENT ASSETS, LOANS AND

ADVANCES OF THE FIRM

CURRENT

ASSETS

2008-2009 2009-2010 2010-2011

Accrued Interest 24906.00 24558.00 6714.00

Inventories 140609853.00 328571299.65 430825964.74

Sundry Debtors 452465928.53 553511164.62 420779837.77

Cash and Bank

Balances

5533755.88 11327344.75 18907727.87

Loans and

Advances

7282269.00 18827325.34 24727513.56

TOTAL 605916712.41 912261692.36 895247757.94

TABLE 4.2: SHOWING THE CURRENT LIABILITIES AND

PROVISIONS OF THE FIRM

CURRENT

LIABILITIES

2008-2009 2009-2010 2010-2011

Sundry Creditors 344139597.39 508934462.99 360711265.92

Other Current

Liabilities

15190170.13 18635461.21 26208247.87

Advance from

Customers

5710001.00 6383745.00 12222288.88

Unclaimed

dividend

- 9237.00 26157.00

Provisions 7516617.88 9599824.23 12240361.00

TOTAL 372556386.40 543562730.43 411408320.67


73/143

- 73 -

TABLE 4.3: SHOWING THE CALCULATION OF WORKING

CAPITAL OF THE FIRM

PARTICULARS 2008-2009 2009-2010 2010-2011

Current Assets

Current Liabilities

605916712.41 -

372556386.40

912261692.36 -

543562730.43

895247757.94 -

411408320.67

Net Working

Capital

233360326.01 368698961.93 483839437.27

ANALYSIS:

The Working Capital for the year 2008 2009 is Rs. 233360326.01



It can be observed from the table that the working capital has been on a constant risethroughout the three years. The increase in working capital has been steady.


74/143

- 74 -

GRAPH 4.1: SHOWING THE WORKING CAPITAL

FINANCIAL RATIOS OR LIQUIDITY RATIOS:

Liquidity is defined as the ability to realize value in money, the most liquid asset. It refers

to the ability of the firm to pay in cash, the obligations that are due. The corporate

liquidity has two dimensions quantitative and qualitative. They refer to the ability to

meet all present and potential demands on cash from any source in a manner that

minimizes cost and maximizes the value of the firm. Thus, corporate liquidity is a vital

factor in business.

Working Capital

233360326

368698961.9

483839437.3

0

100000000

200000000

300000000

400000000

500000000

600000000

Net Working Capital

Year

Working Capital

2008 - 2009 2009 - 2010 2010 - 2011


75/143

- 75 -

I. SHORT TERM FINANCIAL RATIOS:

A.CURRENT RATIO:

It is a ratio, which express the relationship between total currents Asset to total current

liability.

Calculated as:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

TABLE 4.4: SHOWING THE CURRENT ASSETS, LOANS AND

ADVANCES OF THE FIRM

CURRENT

ASSETS

2008-2009 2009-2010 2010-2011 2007-20

Accrued Interest 24906.00 24558.00 6714.00

Inventories 140609853.00 328571299.65 430825964.74

Sundry Debtors 452465928.53 553511164.62 420779837.77

Cash and Bank

Balances

5533755.88 11327344.75 18907727.87

Loans and

Advances

7282269.00 18827325.34 24727513.56

TOTAL 605916712.41 912261692.36 895247757.94


76/143

- 76 -

TABLE 4.5: SHOWING THE CURRENT LIABILITIES AND

PROVISIONS OF THE FIRM

CURRENT

LIABILITIES

2008-2009 2009-2010 2010-2011

Sundry Creditors 344139597.39 508934462.99 360711265.92

Other Current

Liabilities

15190170.13 18635461.21 26208247.87

Advance from

Customers

5710001.00 6383745.00 12222288.88

Unclaimed

dividend

- 9237.00 26157.00

Provisions 7516617.88 9599824.23 12240361.00

TOTAL 372556386.40 543562730.43 411408320.67

TABLE 4.6: SHOWING THE CALCULATION OF CURRENT

RATIOS:

YEAR PARTICULARS FIGURES CURRENT

RATIO

2008-2009 Current Assets /

Current Liabilities

605916712.41 /

372556386.40

1.66


Current Liabilities

912261692.36 /

543562730.43

1.71


Current Liabilities

895247757.94 /

411408320.67

2.24


77/143

- 77 -

ANALYSIS:

The Current Ratio for the year 2009 2006 is 1.66



It can be observed from the table that the Current Ratio has increased over the three

years time period from 1.66, to 1.71 and then to 2.24.

GRAPH 4.2: SHOWING THE CURRENT RATIO

1.66 1.71

2.24

0

0.5

1

1.5

2

2.5

Ratio

2008-2009 2009-2010 2010-2011

Year

Current Ratio


78/143

- 78 -

INTERPRETATION:

The most desired state of current ratio is 2:1. The company has a current ratio of 1.66:1 in

2008-2009, 1.71:1 in 2009-2010 and 2.24:1 in 2010-2011. This shows that the company

has maintained a favourable condition of their current assets and current liabilities in the

third year whereas there has been a continuous movement towards this ideal in the

previous two years.

B.QUICK RATIO:

Quick Ration = Quick Assets

Quick Liabilities

Quick Ratio gives the abilities of the firm to pay its liabilities without relying on the sale

and recovery of its inventories. The quick ratio is a more stringent measure of liquidity

because inventories, which are least liquid of current assets, are excluded from the ratio.

Quick Assets = Current Assets Goodwill Preliminary Expenses

Quick Liabilities = Current Liabilities Bank Overdraft


79/143

- 79 -

TABLE 4.7: SHOWING THE CALCULATION OF QUICK RATIOS

YEAR QUICK

ASSETS

QUICK

LIABILITIES

QUICK

ASSETS /

QUICK

LIABILITIES

QUICK

RATIO

2008

2009

465306859.4 365039768.52 465306859.4 /

365039768.52

1.27

2009

2010

583690392.7 533962906.20 583690392.7 /

533962906.20

1.09

2010

2011

464421793.2 399167959.67 464421793.2 /

399167959.67

1.16

ANALYSIS:

The Quick Ratio for the year 2008 2009 is 1.27



The Quick Ratio first decreases from 1.27 to 1.09 and then increases to 1.16. This

shows an undulating fluctuation in the current ratio.


80/143

- 80 -

GRAPH 4.3: SHOWING THE QUICK RATIO

Quick Ratio

1.27

1.09

1.16

2008-2009 2009-2010 2010-2011

INTERPRETATION:

The standard Quick ratio that must be obtained by all businesses is 1:1. The company has

maintained a quick ratio of 1.27:1 in 2008-2009, 1.09: 1 in 2009-2010 and 1.16:1 in2010-2011. It is evident that the company has maintained a favourable quick ratio in all

three years.


81/143

- 81 -

C.ABSOLUTE LIQUID RATIO:

Absolute Liquid Assets = Absolute Liquid Assets

Current Liabilities

It is the ratio of absolute liquid assets to current liabilities. Both receivables and

inventories are excluded from the current assets and only absolute liquid assets, such as,

cash in hand, cash at bank and readily realizable securities are taken into consideration.

Absolute Liquid Ratio = Cash in hand + Cash at Bank + Short Term Securities


82/143

- 82 -

TABLE 4.8: SHOWING THE CALCULATION OF ABSOLUTE

LIQUID RATIOS

YEAR ABSOLUTE

LIQUID

ASSETS

CURRENT

LIABILITIES

ABSOLUTE

LIQUID

ASSETS /

QUICK

LIABILITIES

ABSOLUTE

LIQUID

RATIO

2008

2009

553375588 365039768.52 553375588 /

365039768.52

1.52

2009

2010

11327344.75 533962906.20 11327344.75 /

533962906.20

0.21

2010

2011

18907727.87 399167959.67 18907727.87 /

399167959.67

0.47

ANALYSIS:

The Absolute Liquid Ratio for the year 2008 2009 is 1.52



The Absolute Liquid Ratio has been increasing and decreasing alternatively over the

three years time period. It first decreased from 1.52 in 2008-2009 to 0.21 in 2009-2010

and then increased to 0.47 in 2010-2011.


83/143

- 83 -

GRAPH 4.4: SHOWING THE ABSOLUTE LIQUID RATIO

INTERPRETATION:

The firm has a trend of fluctuating absolute liquid ratio. Since this ratio shows the ability

of the firm to pay off its short-term dues using the absolute liquid assets, the level of cash

and short-term securities vary and expose the firms alternative states to pay their dues in

the respective years.

Absolute Liquid Ratio

1.52

0.21

0.47

2008 2009 2009 2010 2010 2011


84/143

- 84 -

II. LONG TERM FINANCIAL RATIOS/ LONG TERM

SOLVENCY RATIOS:

A.PROPRIETARY RATIO:

This ratio establishes the relationship between shareholders funds and total assets. It

indicates proportion of total assets financed by shareholder. It is usually computed in

percentage.

Proprietary Ratio = Shareholders Funds

Total Tangible Assets


85/143

- 85 -

TABLE 4.9: SHOWING THE CALCULATION OF PROPRIETARY

RATIOS

YEAR SHAREHOLDER

FUNDS

TOTAL

TANGIBLE

ASSETS

SHAREHOLDER

FUNDS / TOTAL

T

Documents

LUX Hoisery