INDEX Pg. No.1. Executive Summary 052. Objective 063. Introduction To Topic 074. Research Methodology 095. Company Profile 10

Product and Services 13

Financial Highlights 17

Graphical Presentation of Operational and Financial Results 18

6. Information Of Ratio Analysis

Financial Statement Analysis 19

History Of Financial Analysis 23

Conceptual Framework Of Ratio Analysis 24

Users of Accounting Information 25

What Did The Users Of Accounts Need To Know? 26

Which ratios will each of these groups be interested in? 27

Information and Analysis 28

Ratio Analysis 30

Classification of Ratios 34

6. EXPORT PROCESS 537. INVOLVEMENT OF FOREIGN EXCHANGE AND RISK MANAGEMENT 608. OBSERVATIONS, FINDINGS AND SUGGESTIONS 739. BIBLIOGRAPHY 7610. BALANCE SHEET 7711. PROFIT & LOSS ACCOUNT 7812. CASH FLOW STATEMENT 79

Page 1

Executive Summary

Project Title: Financial Statement Analysis and Interpretations.

Company Name: Siyaram Silk Mills Ltd.

Introduction:

Siyaram Silk operates through divisions like fabrics, yarn, garments, furnishings,

and exports. It offers textile brands like Siyaram’s, Mistair, J. Hampstead,

Oxemburg, Miniature and Featherz. The company operates four weaving plants, two

yarn plants, and a readymade garment plant spread across Maharashtra and

Gujarat. It has an installed capacity of 367 looms, 439 stitching machines, and

4,500 tons of yarn dyeing capacity, of which 1,500 tons were installed in FY07.

Siyaram Silk has also ventured into retail, opening a few shops where all its brands

will be under one roof. Siyaram Silk exports to countries in Europe, the Middle East,

Africa, Australia, America, and Latin America.

In FY07, the sale of readymade garments grew by around 32%, whereas the sale of

yarn grew by around 28%. For the same period, the company installed 99 looms,

which increased fabric-weaving capacity by 5 MMPA. In FY07, it formed two

subsidiaries namely Siyaram Polycote Ltd and Oxemberg Clothing Ltd.

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OBJECTIVES

To obtain a true insight into financial position of the company.

To make comparative study of financial statements of different years.

To draw the correct picture of the financial operations of the company in

terms of liquidity, solvency, turnover, profitability etc.

To find out the reasons for unsatisfactory results.

To study the Tata motors cost reduction programme.

Introduction to Topic

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Every financial manager is involved in financial decision making and financial

planning in order to take right decision at right time, he should be equipped with

sufficient past and present information about the firm and its operations and how it

is changing overtime. Much of this information that is used by financial manager to

take various decisions and to plan for the future is derived from the financial

statements.

The project, Financial Statement Analysis and Interpretations of Siyaram

Silk Mills Ltd. focuses to analyze the financial statements and to study different

ratios over the period of 5 years to determine the financial position of Siyaram Silk

Mills Ltd.

Financial analysis involves the use of various financial statements. These

statements do several things. First, the balance sheet summarizes the assets,

liabilities and owners equity of a business at moment in time, usually the end of a

year or a quarter. Next the income statement summarizes the revenues and

expenses of the firm over a period of time while balance sheet represents a

snapshot of the firm s financial position at a moment in time.

Financial management is planning and controlling of financial resources of a firm

with a specific objective. Since, financial management as a separate discipline is of

recent origin, it is still in a developing stage. It is very crucial for an organization to

manage its funds effectively and efficiently.

Financial management has assumed greater importance today as the financial

strategies required to survive in the competitive environment have become very

important. In the financial markets also new instruments and concepts are coming

and one must say that a finance manager of today is operating in a more complex

environment. A study of theories and concepts of financial management has

therefore become a part of paramount importance for academics as well as for

practitioners but there are many concepts and theories about which controversies

exist as no unanimous opinion is reached as yet.

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The project, Financial Statement Analysis and Interpretations of Siyaram

Silk Mills Ltd. further aims at discussing and understanding the concepts of

financial management of Alfa Laval (India) Limited; the functions expect to be

performed by the financial management as well as the objectives of financial

managements.

Research Methodology

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The focus of this chapter is on the methodology used for the collection of data for

research. Data constitutes the subject matter of the analyst. The primary sources of

the collection of sources of the collection of data are observations, Interviews and

the questionnaire technique. The secondary sources are collections of data are from

the printed and annually published materials. A questionnaire form is prepared to

secure responses to certain questions. It is device for securing answers to questions

by using a form.

Primary Data:

Data that is collected for the specific purpose at hand is called as primary Data.

The Primary Data was collected in the following manner:

The history of the Siyaram Silk Mills Ltd.

Other company related information.

Areas of operations.

Secondary Data:

Secondary data highlights the contextual familiarities for primary data collection. It

provides rich insights into the research process.

Secondary data is collected through following sources:

1. Published Sources:

Annual report of Siyaram Silk Mills Ltd. from the year from 2004 to 2008.

Profit and Loss accounts statements.

Balance sheet (assets and liabilities).

COMPANY PROFILE

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SIYARAM SILK MILLS LIMITED is a part of the SIYARAM PODDAR GROUP OF

COMPANIES was incorporated on 29th June 1978. The group, founded in 1954, was

into the textile (yarns, fabrics and garments), paper/paperboards and tyre (rubber

tyres and tubes) businesses. While Govind Rubber Ltd. (GRL) was into the auto and

bicycle tyres and tubes business, Balkrishna Industries Ltd. (BIL) was into the

manufacturing of paperboards, tyres/tubes and synthetics.

Initially, Siyaram Silk Mills Ltd. was engaged in trading activity of suiting and

shirting.  Over the period of time,  the company has expanded, diversified and

integrated its facilities substantially and presently has facilities for manufacturing

and marketing of suiting, shirting, texturising, dyeing yarn and ready-made

garments.

Its popular brands included Oxemberg (shirts, trousers and jeans), J.Hampstead

(wool fabric), MSD & many more.

Siyaram was incorporated in June 1978 as a private limited company and was

converted into a public limited company in 1980.

Siyaram had a strong presence in the lower and medium segment of the domestic

suitings market. The company had three manufacturing plants situated at Thane

and Raigad in Maharashtra and Silvassa in the union territory of Dadra & Nagar

Haveli, producing over 27.5 million meters of fabrics annually & having a 4%

market share in the Rs 50 billion suitings and shirtings market.

VISION

To be a global leader in fashion fabrics and delight the customer by creating

products that offer unmatched superiority.

MISSION

To Achieve Total Customer Satisfaction

To Remain Globally Competitive by

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Focussed Attention in Conversion Cost

Attaining International Productivity Levels

Minimizing Wastage

Leveraging Economies of Scale

To continue to invest in technologies to keep ourselves future ready

To continuously invest in Human Resource Development

Twenty years and counting… that’s how long Siyaram’s Suitings has been at it,

coaxing Indians abroad to return home to their roots. Indeed, Siyaram’s tune and

slogan – ‘Coming Home to Siyaram’s’ – has lasted well over two decades and is still

going steady.

The company has shown uninterrupted growth in sales as well as in profitability.

The company enjoys  excellent reputation in the fiercely competitive textile market

and it has a proven track record of continuous growth, so far untouched by

recession and intense competition.

Stringent quality norms and an eye for detail is what make Siyaram products

unique. Produced in its eco friendly high-tech plants at Tarapur and Silvassa where

a configuration of Shuttleless Dornier Rapier, Sulzer Projectile & Toyoda Air Jet

weaving machines create the fabric, the world-class processing-cum-finishing plant

at Tarapur is one-of-its-kind with its machinery imported from Japan, Italy, U.K.,

Germany and Switzerland. This is the only plant in India which can process various

blends like polyester-viscose, poly-wool, polyester-cotton, all under one roof.

Having a strong team of qualified chemical, electronics and mechanical engineers,

Siyaram’s put emphasis on talented manpower to ensure timely delivery and skill to

produce tailor-made products. Manpower across functions, have been nurtured over

the years and have remained with the company in a mutually satisfying relationship

and today ,Siyaram’s is one of the few remaining branded textile companies that

can boast of low employee turnover ratios.

The vision is to translate the domestic leadership to global levels by ensuring

customer delight by catering to their every need and be a global leader in the

textile and fashion industry. Growth translates to added responsibility and

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Siyaram’s have opened its doors to young professionals today to work in a thriving

environment that encourages freedom as well as experimentation. Siyaram’s new

crop of managers have begun laying the foundation for the company to reach

unprecedented heights.  Being the leaders, this difficult part of this task is building

inroads into largely unchartered territory and we need enthusiastic individuals with

conviction and passion to join us in this task across all functions.

PRODUCTS

FABRIC & BRANDS

Siyaram's is home to some of the country's leading textile brands. It is one of our

most prestigious brands, and has been leading the fashion revolution for over two

decades.

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1. OXEMBERG

Oxemberg, a 12 year old brand from the Siyaram Poddar Group and a trusted name

in textiles launches their formal and casual wear at the 48th National Garment Fair

in Mumbai. It is a readymade line of shirts in cottons, rayons, poly-blends, terrycots

and woolen blends. The product range comprises of formal shirts and trousers,

casual shirts and trousers, jeanswear and accessories viz., handkerchiefs and socks.

Oxemberg, has always taken great pride in being the trend setters in men's fashion.

A part of the Siyaram Poddar Group, Oxemberg is a multi - product men's wear

wardrobe brand that offers contemporary clothing options, which exemplify

excellent quality and genuine value. The range is right for the pocket too.

In view of these latest fashion trends, Oxemberg has enabled the common man to

constantly upgrade his look right where he is. Men's wear will never be the same

again. Its only natural, therefore, that Oxemberg epitomizes this single most

quintessential attribute-Style. This is a brand that personifies the modern man

whose wit, versatility and ingenuity make him ready for anything.

Each aspect of Oxemberg garments go through international standards of quality

inspection. Every detail in the fabric is woven to perfection, an end product that

accentuates the style icon in You.

The last 12 years has seen Oxemberg make a successful foray into the global

markets and has received enthusiastic response in Germany, United Kingdom,

Australia, Switzerland, New Zealand, Middle East, Spain and Sri Lanka.

2. J.HAMPSTEAD

J.Hampstead one of India's most premium brands showcases range of wool and

woolen blends for those who seek high quality fabrics.

J.Hampstead was a very popular suiting brand in Europe, renowned for its premium

100% wool suitings woven from rich natural fibers like merino wool, cashmere and

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woolsilk. In 1995, Siyaram tied up with J.Hampstead for marketing its suitings in

India. The company imported the fabric from Italy. It was priced in the range of Rs

1,500-1,600 per meter. In September 1997, Siyaram decided to begin

manufacturing the brand at its plants with technical assistance from J.Hampstead.

The product was slightly different from the imported version and was priced in the

range of Rs 275-1000 per meter. J.Hampstead also provides interesting blends and

designs.

J.Hampstead had been rated the top Suiting Brand as per the report published in

the Economic Times, Mumbai.

Siyaram earmarked around Rs 50 million for the marketing, sales and promotion of J

Hampstead. The first phase of this promotion was in the form of commercials

featuring Indian tennis superstars Leander Paes and Mahesh Bhupati. These

commercials with the positioning line, ‘The finest fabric in the world,'were aimed at

positioning the brand in the premium segment.

3. MSD – MONDAY to SUNDAY DRESSING

New Ready-to-wear brand: MSD - Monday to Sunday Dressing (For Men Only).

Recognising the increasing role that retail plays in the country and with a clear

focus to tap into this trend, Siyaram's is now getting into the RTW sector with a view

to capture the ever changing fashion trends.

The company is now forward integrating itself from fabric manufacturing to a

designer of readymade garments and accessories for men. The Company plans to

get into the readymade sector with their new brand "Siyaram's MSD" incorporating

the latest design trends.

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The "Siyaram's MSD" (an acronym of Monday to Sunday Dressing) range is a

complete range of garments and accessories catering to the lifestyle, aspirations

and tastes of the neo-Indian. With a guiding philosophy of - One Man, One Brand,

Many Moods, Many Occasions – the Siyaram’s MSD brand has an offering that is

multi-faceted and diverse.

Targeted at the core target segment of 20-35yr olds, the range will comprise of

formals, semi formals, casuals and club wear. Starting with shirtings in the initial

stages, the brand will offer Complete Wardrobe Solutions to the young Indian male.

The two greatest USPs of the Siyaram's MSD Brand would be the extensive 30,000-

odd retail outlets from where its fabrics are already sold (no other brand in the

country has such a wide penetration) and secondly, the Fabric Expertise that

Siyaram's has, which would ensure that the consumer gets the best quality at an

affordable price.

Siyaram’s MSD is targeted at today’s youth and aims to provide its customers the

best product quality at the most affordable prices. Shirts would priced between Rs.

600-Rs. 1200 and trouser between Rs. 500-Rs. 1400. Every product will carry the

new ‘flarrow’ as the symbol of style, passion, dynamism and timelessness.

The Siyaram’s MSD brand has ambitious plans to become the largest ready-to-wear

men’s brand within the next 5-years and an aggressive marketing plan has been

put in place to achieve the same.

4. MISTAIR

Mistair is the fabric for the new age man who his young at his heart. Innovative

finishes, classic feel and a stamp of luxury is the hallmark of Mistair. Having a range

of fashion fabrics of its own, Mistair has two categories of fabrics one is Work wear

and the other luxury wear. Mistair fabric is for Bickers and Rockers for a young

energetic relaxed look.

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Mistair has a refreshingly new range of fashion fabrics in speciality weaves, finishes

and textures, created specially for the new generation.

Financial Highlights of Siyaram Silk Mills Ltd. over 5 Years

YEAR 2008 2007 2006 2005 2004Sales & Other Income 629.79 533.27 456.76 339.68 305.04

PBIDT 39.53 45.37 42.64 29.15 24.25

PAT 8.6 17.34 14.83 7.6 7.4

Share Capital 9.37

9.37

6.25

6.25

6.25

Reserves & Surplus 126.99

123.39

111.93

99.31

93.71

Shareholder Funds 136. 132 118. 105. 99

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36 .76 18 56 .96

Dividends 4.68

4.68

3.12

2.5

2.5

Book value of the Share 145.

53 141

.69 189.

09 16

8.9 159.94

P/E 10.38 7.56 21.6 9.34 8.35

ROE 3.37% 7.14% 6.31% 3.70% 3.62%

Graphical presentation of operational and financial Results

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Financial Statement Analysis

Introduction:

A Financial Statement is a compilation of data, which is logically and consistently

organized according to accounting principles. Its purpose is to convey an

understanding of some financial aspects of a business firm. It shows a position at a

movement in time, as in the case of balance sheet, or reveals a series of activities

over a given period of time, as in the case of an income statement. Financial

statements are the major means through which firms present their financial

situation to stock holders, creditors and general public. The majority of firms which

include extensive financial statements in their annual reports, which receive wide

distribution.

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Nature of financial statement Analysis:

Financial Statement Analysis consist of the application of analytical tools and

techniques to the data in financial statements in order to derive from them

measurements and relationships that are significant and useful for decision making.

The process of financial analysis can be described in various ways, depending on

the objectives to be obtained. Financial analysis can be used as a preliminary

screening tool in the selection of stocks in the secondary market. It can be used as

a forecasting tool for future financial conditions and results. It may be used as a

process of evaluation and diagnosis of managerial, operating or other problem

areas. Above all, financial analysis reduces reliance on intuition, guesses and thus

narrows the areas of uncertainty that is present in all decision making processes.

Financial analysis does not lesson the need for judgment but rather establishes a

sound and systematic basis for its rational application.

Sources of Financial Information:

The financial data needed in financial analysis come from many sources. The

primary source is the data provided by the firm itself in its annual report and

required disclosures.

The annual report comprises the income statement, the balance sheet, and the

statement of cash flows, as well as footnote to these statements. Besides this

information such as the market price of securities publicly traded corporations can

be found in the financial press and the electronic media daily. The financial press

also provides information to stock price indices for industries and for market as a

whole.

The Principal Tools of Analysis:

In the analysis of financial statements, the analyst can have a variety of tools

available from which he can choose the best suited to his specific purpose. The

following are the important tools of analysis.

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The Principles Tools/Techniques of Financial Analysis:

Ratio Analysis

Funds Flow Analysis

Cash Flow Analysis

Trend Analysis

Ratio Analysis:

This is the important tool available to financial analyst for their work. An accounting

ratio shows the relationship in mathematical terms between two interrelated

accounting figures. The figures have to be interrelated, because no useful purpose

will be served if ratios are calculated between two figures, which are not all related

to each other.

Funds Flow analysis:

Funds flow analysis has become an important tool in the analytical kit of financial

analysis, credit granting institutions and financial managers. This is because the

balance sheet of the business reveals its financial status at a particular point of

time. It reveals the changes in working capital position. It tells about the sources

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

It brings out the changes, which have taken place behind the balance sheet.

The information it contains in the selection, reclassification and summarization of

the data contained in profit and loss account and balance sheet, it is no way

replacement of either these statements. To provide a comparative view of

movement of funds by the statement of changes in financial position is prepared for

the period covered by the profit and loss account as well as the corresponding

previous period.

Cash Flow Analysis:

Cash flow analysis is a statement, which measures inflows and outflows of cash on

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account of any type of business activity. The cash flow statement also explains

reasons for such inflows and outflows of cash. Cash flow statement maybe prepared

on the basis of actual or estimated data. A projected cash are the where came part

of the statement.

Sources of cash can be both internal as well as external. A proper planning of cash

resources will enable the management to have cash available when ever resources

will enable the management to have cash available whenever needed and put it to

some profitable or productive use in case there is surplus cash available.

Trend Analysis:

Analysts make a trend analysis of performance over the past five to ten years to get

an overall picture. Trend analysis is made in respect of sales, cost of sales, gross

profit, net profit (before tax), net profit (after tax), net worth, debt, dividend policy,

bonus and Rights issues, return on net worth, earnings per share, etc.

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History of financial Analysis

Analysis of financial statements has had its greatest growth since 1990 s. A major

impetus came from increasing need from increasing need on the part of grantors of

commercial credit such as bankers, financial institutions etc, to understand the

condition of their customer. At the same time businessman need to understand

their own conditions of their own enterprise in order to assure its survival in stress

of competition. Satisfaction of these needs has been assisted by the continuous

development of accounting as a science and passing of income tax law in1993. This

required preparation of balance sheets and income statements, as they are the

basic statements required for the income tax purpose. Thus a reasonably reliable

data from which typical financial ratios could be calculated has become increasingly

available.

Between 1919 and 1929 four men pioneered in development of financial ratios.

These where James bliss who published a book on this subject in 1923. Alexander

wall, head of Robert Morris associates and Raymond W Dunning, published a work

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on this subject in 1928 and Roy Foulke, who made some of the first detailed

compilations and studies between 1925 and 1928.

Conceptual Framework of Ratio Analysis

Financial ratios are always fascinating because they convey the impression of

precision in analyzing the financial position of the company. Financial ratios are only

tools of analysis. However their effectiveness depends upon the know how of using

them for specific purpose. The ratio is relationship between two variables. Any

number of relationships that is ratio can construct provided we first identify the

variables to be studied. Therefore there is nothing like standard set of ratios which

can be used at any time for any purpose. New ratio can be developed specifically

for the purpose or the mechanics of constructing the given ratio can be suitably

adjusted to suit the purpose. Intact a resourceful financial analyst can develop novel

and fascinating ratios which can serve his purpose better than the pedestrian stock.

Having established the point that ratios should be constructed and used keeping in

view the purpose, we shall examine generally the purpose for which the ratio

analysis could be employed. Ratios are used as tools of appraising financial

performance of the company.

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There two distinct viewpoints in such analysis; the managements viewpoint and the

investors viewpoint. The interests of both these groups are not mutually exclusive;

they are complimentary to each other. Both these groups are interested in key

areas that compromise the financial performance of the company.

Users of Accounting Information

The list of categories of readers and users of accounts includes the following people

and groups of people:

Investors

Lenders

Managers of the organization

Employees

Suppliers and other trade creditors

Customers

Governments and their agencies

Public

Financial analysts

Environmental groups

Researchers: both academic and professional

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What do the Users of Accounts Need to Know?

Investors - To help them determine whether they should buy shares in the

business, hold on to the shares they already own or sell the shares they

already own. They also want to assess the ability of the business to pay

dividends.

Lenders - To determine whether their loans and interest will be paid when

due.

Managers - Might need segmental and total information to see how they fit

into the overall picture

Employees - Information about the stability and profitability of their

employers to assess the ability of the business to provide remuneration,

retirement benefits and employment opportunities

Suppliers and other trade creditors - Businesses supplying goods and

materials to other businesses will read their accounts to see that they don't

have problems: after all, any supplier wants to know if his customers are

going to pay their bills!

Customers - The continuance of a business, especially when they have a

long term involvement with, or are dependent on, the business

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Governments and their agencies - The allocation of resources and,

therefore, the activities of business. To regulate the activities of business,

determine taxation policies and as the basis for national income and similar

statistics

Local community - Financial statements may assist the public by providing

information about the trends and recent developments in the prosperity of

the business and the range of its activities as they affect their area

Financial analysts - They need to know, for example, the accounting

concepts employed for inventories, depreciation, bad debts and so on

Environmental groups - Many organizations now publish reports

specifically aimed at informing us about how they are working to keep their

environment clean.

Researchers - Researchers demands cover a very wide range of lines of

enquiry ranging from detailed statistical analysis of the income statement

and balance sheet data extending over many years to the qualitative analysis

of the wording of the statements

Which ratios will each of these groups be interested in?

Investors Return on Capital Employed

Lenders Gearing ratios

Managers Profitability ratios

Employees Return on Capital Employed

Suppliers and other trade creditors Liquidity

Customers Profitability

Governments and their agencies Profitability

Local Community This could be a long list

Financial analysts Possibly all ratios

Researchers Depends on the nature of their study.

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Information and Analysis

Financial analysis is the process of identifying the financial strength and

weaknesses of the firm by properly establishing relationships between the items of

the balance sheet and the profit and loss account.

Analysis and Interpretation of Financial Statements:

Financial statement comprises the following:

Trading and Profit and Loss Account which give the results of a year s

working.

Profit and loss appropriation account, which gives details about the disposal

of the retained income.

Balance sheet which gives the financial position of the undertaking as on the

accounting date.

The meaning of Analysis and Interpretation:

The financial statements are of much interest to a number of groups of persons.

Apart from management, there are other interested parties like shareholders,

debenture holders, potential investors, large and small bankers, trade creditors,

journalists etc. who are increasingly getting interested in the analysis and

interpretation of financial statements.

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According to F Wood business accounting to interpret means, to put the meaning of

a statement into simple terms for the benefit of person . This is essentially done

through the tools of analysis such as comparative statements, common size

statements and ratio analysis.

The tools of analysis only help in establishing relationship between one accounting

figure and another in the financial statements and go no far. It is the expert who

has to grasp the significance of related figures and from an opinion as to whether

the ratio calculated indicates the favorable or adverse state of affairs. Therefore,

while analysis comprises resolving the statement by breaking them in to simpler

statements by a process of understanding the terms of such statement and forming

opinions or inferences about the financial health, profitability, efficiency and such

other aspects of the under taking.

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Ratio Analysis

Introduction:

Ratio analysis is a powerful tool of financial analysis. A ratio analysis is defined as

the indicated quotient of two mathematical expressions and as the relationship

between two or more things . In financial analysis, a ratio is used as an index or

yardstick for figures reported in the financial statements do not provide a

meaningful understanding of the performance and financial position of the firm. An

accounting figure conveys meaning when it is a related to some other relevant

information. The relationship between two accounting figures expressed

mathematically is known as a financial data and to make a qualitative judgment

about the firm s financial performance.

Standard of Comparison:

The ratio analysis involves comparison for a useful interpretation of the financial

statements. A single ratio in itself does not indicate favorable or unfavorable

condition. It should be compared with some standard. Standard of comparison may

consist of:

Ratios calculated from the past financial statements of the same firm.

Ratios developed using the projected or pro forma, financial statements of

the same firm.

Ratios of some selected banks, especially the most progressive and

successful at the same point in time.

Ratios of the industry to which firms belongs.

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To evaluate the performance of a firm, compare its current ratios 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 the direction of change and reflects

whether the firm s financial performance has improved or deteriorated or remained

same over time.

The analyst should not simply determine the change, but more importantly he

should understand why ratios have changed. The change may be affected by

changes in the accounting polices without material change in the firm s

performance.

Sometimes future ratios are used as the standard of comparison. Future ratios can

be developed from the projected or Performa financial statements. The comparison

of past ratios with future shows the firms relative strength and weaknesses in the

past corrective actions should be initiated. Another way of comparison is to

compare ratios of one firm with some selected firm in the same industry at the

same point in time. This kind of comparison is known as the cross sectional analysis.

In most cases it is more useful to compare the firm s ratios of carefully selected

competitor, which have similar operations.

This kind of comparison indicates the relative financial position and performance of

the firm. A firm can easily resort to such a comparison, as it is not difficult to get the

published financial statements of similar firms.

To determine the financial condition and performance of a firm, its ratios may be

compared with average ratios of industry to which the firm belongs. This sort of

analysis, known as the industry analysis helps to ascertain the financial standing

and capability of the firm in the industry to which it belongs. Industry ratios are

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important standards in view of the fact that each industry has its characteristics,

which influence the financial and operating relationships. But there are certain

practical difficulties in using the industry ratios. First it is difficult to get average

ratios for the industries. Second, even if industry ratios are available, they are the

averages of the strong and weak firms.

Sometimes spread may be so wide that the average may belittle utility. Third, the

average may be meaningless and the comparison futile if the firms with in the same

industry widely differ in their accounting polices and practices. If it is possible to

standardize the accounting data for companies in the industry and eliminate

extremely strong and extremely weak firms. The industry ratios will prove to be

very useful in evaluating the relative financial condition and performance of the

firm.

Ratios are generally expressed in various forms. They are:

1. Pure ratios which are arrived at by the simple division of one number by

other e.g. Current assets to current Liabilities ratio are 2:1.

2. Rate, which is the ratio between two numerical facts usually over a period of

time e.g. stock turnover, is three times a year.

3. Percentage, which is special type of rate expressing the relation in hundredth

e.g. gross profit, is 25% on sales.

Ratio analysis when rightly used offers the following advantages:

i. It facilitates the compression of financial statements and evaluation of

several aspects such as financial health, profitability and operational

efficiency of the undertaking.

ii. It provides inter firm comparison to measure the efficiency and help the

management to take remedial measures.

iii. It is also helpful in forecasting corporate sickness and help the management

to take corrective actions.

iv. Investment decisions can at times be based on the conditions revealed by certain ratios.

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We can simply make a list of the ratios we can use here but it's much better to put

them into different categories. If we look at the questions in the previous section,

we can see that we talked about profits, having enough cash, efficiently using

assets - we can put our ratios into categories that are designed exactly to help us to

answer these questions. The categories we want to use, section by section, are:

a) Profitability: has the business made a good profit compared to its turnover?

b) Return Ratios: compared to its assets and capital employed, has the business

made a good profit?

c) Liquidity: does the business have enough money to pay its bills?

d) Asset Usage or Activity: how has the business used its fixed and current

assets?

e) Gearing: does the company have a lot of debt or is it financed mainly by

shares?

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Classification of Ratios

Several ratios calculated from the accounting data can be grouped in to various

classes according to financial activities or functions to be evaluated. The parties,

which generally undertake financial analysis, are short term and long term

creditors, owners and management.

Short term creditors main interest is in the liquidity position or the short term

solvency and profitability of the firm. Similarly owners concentrate on firms

profitability and analysis of the firms financial positions.

Management is interested in evaluating every aspect of the firms performance.

They have to protect the interest of the parties and see that the firm grows

profitably.

One of the ways of classification according to the following basis is more effective

for analyzing and interpreting the financial statements:

Profitability Ratio

Turnover Ratio

Financial Ratio

Leverage Ratio

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YEAR 2008 2007 2006 2005 2004Current Ratio 1.9243 1.5709 1.9201 1.9768 2.6091Acid Test Ratio 1.1621 1.0456 1.1730 1.1080 1.484

Debt-equity Ratio 1.9835 1.4582 1.0993 1.1808 1.1805Debt-assets Ratio 0.6648 0.5932 0.5236 0.5414 0.5414Interest Coverage Ratio 2.1436 4.4375 6.8837 2.7244 4.5399

Inventory turnover 6.8466 7.1888 6.6466 5.3274 4.8136Debtors turnover 4.5303 4.6192 5.3800 4.8473 4.2263Fixed assets turnover 3.0676 3.4479 3.6059 2.9417 2.1135 Gross Profit Margin Ratio 0.0488 0.0736 0.0856 0.0683 0.0713EBITDA Margin 1.0680 1.0166 1.0164 1.0177 1.0309Net Profit Margin 0.0161 0.0372 0.0347 0.0243 0.0252Return on Assets 0.0259 0.0679 0.0652 0.0362 0.03427Earning Power 0.0626 0.1038 0.1188 0.0772 0.0651Return on Equity 0.0630 0.1306 0.1254 0.0719 0.0740

PE Ratio 146.494624 129.341842 142.036465 167.219542 100.9042Market Value to Book Value 9.3616 18.2387 12.1537 8.2075 4.8136

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Profitability Ratios:

Profitability is an indication of the efficiency with which the operations of the

business are carried on. The primary objective of a business undertaking is to earn

profits. Profit earning is considered essential for the survival of the business.

Profit is the engine that drives the business enterprise . A business needs profits not

only for its existence but also for its expansion and diversification. The investors

want an adequate return on their investments, workers want higher wages,

creditors want higher security for interest and loan and so on.

The following ratios are included in this category:

Gross Profit Margin – It measures the efficiency of production as well as pricing. It

basically shows the margin left after meeting the manufacturing costs.

Gross Profit / Net Sales

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Significance:

This ratio indicates the degree to which the selling price of goods per unit may

decline without resulting in losses from operations to the firm. It also helps in

ascertaining whether the average percentage mark up on the goods is maintained.

In this case increase in the percentage of gross profit as compared to previous year,

it is indicator of following factors:

1. Selling price of goods has gone up without corresponding increase in cost of

goods sold.

2. The cost of goods sold has gone down without corresponding decrease in the

selling price of goods.

Interpretations:

A lower gross profit ratio, generally indicates high cost of goods sold due to the

unfavorable purchasing polices, lesser sales, lower selling prices, excessive

competition, over investment in plant and machinery.

Gross profit ratio is decreasing, which means the profitability of the company is

decreasing. Gross profit ratio is decreasing due to more increase in sales as

compared to gross profit for the year 2006-2007. but for the year 200-2006 gross

profit is increasing which shows that profitability of the company is good and

healthy for this year. This ratio is increasing due to more increase in gross profit as

compared to increase in sales.

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Net Profit Margin – It shows the earnings left for shareholders as a percentage of

sales & also reflects the overall efficiency of the firm.

Net Profit / Net Sales

Significance:

This ratio helps in determining the efficiency with which the affairs of the business

are being managed. As increase in the ratio over the previous period indicates

improvement in the operational efficiency of the business provided the gross profit

is constant.

Interpretations:

This ratio indicates the firm s capacity to face adverse economic conditions such as

price competition, low demand etc. obviously, higher the ratio, the better is the

profitability.

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Net profit ratio is increasing for the year 2006-2007. This exhibit that the

profitability of the company is good. The shareholders of the company are happy as

their earnings are getting better day by day.

But for the year 2007-2008 the net profit ratio is decreasing, which indicates that

profitability of the company is decreasing. Net profit ratio is decreasing as increase

in sales is much more than the increase in net profit.

Overall Profitability Ratios:

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Profits are the measures of overall efficiency of a business. Overall profitability or

efficiency of a business can be measured in terms of profits related to investments

made in the business. Higher the profits, the more efficient is the business

considered.

Return on Equity – It measures the profitability of the equity funds invested in the

form.

PAT / Total Shareholder funds

Significance:

This ratio indicates percentage of net profit available for equity share holders to

equity shareholder s fund. It indicates the productivity of the ownership capital

employed in the firm.

Interpretations:

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This ratio is one of the most important ratios used in overall efficiency of the firm.

This ratio is of great importance to the present and prospective shareholders as well

as the management of the company. As this ratio reveals how well the resources of

the firm are being used, higher the ratio, better are the results. The inter-firm

comparison of this ratio determines whether investments in the firm are attractive

or not as the investors would like to invest where the returns are higher. The return

on shareholders fund ratio has seen a relative decrease.

This shows that company needs to work on utilizing its resources better year by

year, which would then indicates that overall efficiency of the company is

increasing. As the returns are higher, the investments in the company are

attractive.

Return on Capital Employed - It measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital

base.

Significance - By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital.

The return on capital employed is an important measure of a company's profitability. Many investment analysts think that factoring debt into a company's total capital provides a more comprehensive evaluation of how well management is using the debt and equity it has at its disposal. Investors would be well served by focusing on ROCE as a key, if not the key, factor to gauge a company's profitability. An ROCE ratio, as a very general rule of thumb, should be at or above a company's average borrowing rate.

Liquid Ratios:

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

when they become due. The short term obligations are met by realizing amounts

from current, floating or circulating assets. The current assets should either be

liquid or near liquidity.

If current assets can pay off current liabilities, then liquidity position will be

satisfactory.

On the other hand, if current liabilities may not be easily met out of current assets

then liquidity position will be bad. The bankers, suppliers of goods and short term

creditors are interested in liquidity position of the concern.

Current Ratio - This ratio indicates the margin of safety available with the

company.

Current Assets / Current Liabilities

Significance:

The current ratio indicates the margin of safety available with the company to meet

short term liability. i.e. higher the current ratio, the larger the amount of rupees

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available per rupee of current liability, the more is the firms ability to meet current

obligations and the greater is the safety of funds of short term creditors. Thus

current ratio, in a way is the measure of margin of safety to the creditors.

Interpretations:

Current ratio 2:1 shows excellent liquidity position of the firm.

Current ratio between 1:1 to 2:1 shows satisfactory position of the company.

Ratio less than 1:1 shows no liquidity at all.

For SSI it should be at least 1.33:1.

Current ratio of any company may be 2:1. But according to USA accounting

standards any company should maintain ratio of 1.33:1. As the current ratio

of Siyaram Silk Mills Ltd. is more than 1.33:1 for the year 2004-2008 this

shows that current ratio is favorable from the company`s as well as

shareholders point of view. Thus company is in position to meet its current

liabilities out of its current assets.

Quick Ratio - Quick ratio, also known as Acid Test Ratio, is a more rigorous test of

liquidity than the current ratio. The term liquidity refers to ability of the firm to pay

its short term obligations as and when they become due.

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Current Assets – Inventories / Current Liabilities

Significance:

Usually, a high acid test ratio is an indication that the firm is liquid and has the

ability to meet its current or liquid liabilities in time and so on the other hand a low

quick ratio represents that the firms liquidity position is not good. Quick ratio may

be defined as the relationship between liquid assets and current or liquid liabilities.

As a thumb rule or as a convention quick ratio 1:1 is considered as satisfactory.

Interpretations:

The standard of liquid ratio is 1:1. The company s liquidity ratio for the last five

years is more than 1, which indicates the liquidity position of the company is good.

Thus liquid assets are more than current liabilities. So company is in position to pay

its obligations.

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CASH RATIO:.

The cash ratio is an indicator of a company's liquidity that further refines both the

current ratio and the quick ratio by measuring the amount of cash, cash equivalents

or invested funds there are in current assets to cover current liabilities. It is the

most stringent measure of liquidity. It only looks at the most liquid short-term

assets of the company, which are those that can be most easily used to pay off

current obligations. It also ignores inventory and receivables, as there are no

assurances that these two accounts can be converted to cash in a timely matter to

meet current liabilities

Cash & Bank balances + Current Investments / Current Liabilities

Significance:

The cash ratio is the most stringent and conservative of the three short-

term liquidity ratios (current, quick and cash). It only looks at the most liquid short-

term assets of the company, which are those that can be most easily used to pay

off current obligations. It also ignores inventory and receivables, as there are no

assurances that these two accounts can be converted to cash in a timely matter to

meet current liabilities

Interpretations:

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Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn't necessarily a bad thing, so don't focus on this ratio being above 1:1.

The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. The ratio is seen to decrease in case of siyaram silk mills ltd. The reason could be that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns.

CAPITALIZATION RATIO - The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth.

Significance:

A company's capitalization (not to be confused with its market capitalization) is the

term used to describe the makeup of a company's permanent or long-term capital,

which consists of both long-term debt and shareholders' equity. A low level of debt

and a healthy proportion of equity in a company's capital structure is an indication

of financial fitness.

Prudent use of leverage (debt) increases the financial resources available to a

company for growth and expansion. It assumes that management can earn more on

borrowed funds than it pays in interest expense and fees on these funds. However

successful this formula may seem, it does require a company to maintain a solid

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record of complying with its various borrowing commitments.

A company considered too highly leveraged (too much debt) may find its freedom of

action restricted by its creditors and/or have its profitability hurt by high interest

costs. Of course, the worst of all scenarios is having trouble meeting operating and

debt liabilities on time and surviving adverse economic conditions. Lastly, a

company in a highly competitive business, if hobbled by high debt, will find its

competitors taking advantage of its problems to grab more market share.

As mentioned previously, the capitalization ratio is one of the more meaningful debt

ratios because it focuses on the relationship of debt liabilities as a component of a

company's total capital base, which is the capital raised by shareholders and

lenders.

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

efficiency with which assets are managed directly affects the volume of sales. The

better the management of assets, the larger is the amount of sales and the profits.

Activity ratio measures the efficiency with which a firm manages the assets. These

ratios are called as turnover ratios because they indicate the speed with which

assets are converted or turned over in to sales.

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Inventory Turnover Ratio - This ratio indicates whether investment in inventory is

efficiently used or not. It therefore explains whether the investment in inventories is

with in proper limits or not.

COGS / Average Inventory

Significance:

Average inventory is calculated by taking stock levels of raw materials work in

process, finished goods at the end of each month, adding them up and dividing by

twelve. The inventory turnover ratio indicates the liquidity of the inventory. A high

inventory turnover ratio indicates the brisk sales. The ratio is therefore, a measure

to discover the possible trouble in the form of over stocking and overvaluation.

It is difficult to establish the standard ratio of inventory because it will differ from

industry to industry.

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Interpretations:

Provision for obsolete stock, slow moving items is deducted from the inventory.

Faster the production, fewer product lines, just in time ordering will reduce overall

inventory.

The ratio is sticky and not showing improvement during the last 5 years. It is nearly

around 5, which indicates, for sale of Rs. 100/- the company has to keep inventory

of Rs. 20/- in stores. There is scope of improvement.

Debtors Turnover Ratio - Debtors constitute an important constituent of current

assets and therefore the quality of debtors to a great extent determines a firm s

liquidity.

Net Sales / Average Sundry Debtors

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Significance:

Sales to account receivables ratio indicates the efficiency of the staff entrusted with

collection of book debts. The higher the ratio, the better it is, since it would indicate

that debts are being collected more promptly. For measuring the efficiency, it is

necessary to set up a standard figure. A ratio lower than a standard will indicate

inefficiency.

The ratio helps in cash budgeting since the flow of cash from customers can be

worked out on the basis of sales.

Interpretations:

Since the ratio of debts is declining in comparison to preceding years and the debt

collection period is increasing. This also shows that company s sales are increasing

to preceding year. But to maintain profitability and sales the company has to

decrease the debt collection period. Thus, to decrease the debt collection period the

company has to adopt certain policy s to attract the customers to pay debts.

Policies like trade credit, cash credit.

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Export Process in Brief

To understand the function of the foreign exchange of the company it is necessary

to first understand the function of export. To be very precise I had made a block

diagram of the export process which will tell us the procedure in very short manner.

Export procedure consists of many things like Pre-Shipment procedure, Post-

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Shipment procedure, Documentation, Foreign Exchange Management, etc However

the export procedure is vey lengthy, but in this project we will study the function

Foreign Exchange Management in detail and Export procedure briefly

The process consists of:

1. Procurement of Order

2. Application for LC

3. Production

4. Shipment of Goods

5. Foreign Client Makes a Payment

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1. PROCUREMENT OF ORDER

This is the first stage where the Siyaram’s get an order from the foreign client. It is

one of the most difficult stages. Talented marketing executives of Siyaram work too

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hard to get through this. Once the order is confirmed the procedure of export starts.

2. APPLICATION FOR LETTER OF CREDIT

A standard, commercial letter of credit is a document issued mostly by a financial

institution, used primarily in trade finance, which usually provides an irrevocable

payment undertaking. The LC can also be the source of payment for a transaction,

meaning that redeeming the letter of credit will pay an exporter. Letters of credit

are used primarily in international trade transactions of significant value, for deals

between a supplier in one country and a customer in another. The parties to a letter

of credit are usually a beneficiary who is to receive the money, the issuing bank of

whom the applicant is a client, and the advising bank of whom the beneficiary is a

client.

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Issuing

Bank

Issuing

Bank

Foreign

Client

Foreign

Client

Siyaram

Siyaram

Advising

Bank

Advising

Bank

1. Demand for LC

Example:

Siyaram’s (Beneficiary) gets order of export from Dubai party named “Dubai

Garments Ltd. (DGL) (Foreign Client or Importer). So Siyaram’s will request DGL to

open an LC in favor of Siyaram’s. DGL will approach to their bank (Issuing Bank), to

open an LC and transfer the same to the bankers of the Siyaram’s (Advising Bank).

Bankers of Siyaram’s will in return pass the LC to Siyaram’s.

3. PRODUCTION PHASE

Once the order is confirmed from the client, Siyaram will start its production as per

the requirement of the client. Usually the export order is huge and requires lot of

capital. So here corporate houses take Working capital loan from bank in the form

of EPC or PCFC. These loans are quite cheaper as compare to normal working

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2. R

eq

uest

for L

C

3. LC Issuance Instructions

4.

Issu

es

LC

capital loan; it is because of great demand of export in a country. Indian

government is always in a favor to boost export. So they provide exporters loans at

a cheaper rate.

Export Packing Credit: The loan is disbursed in INR at an interest rate charged as

per RBI directives, which is erased through lodging export bills as and when they

are realized. However if repayment is overdue, the banks can charge interest rates

at their discretion. Currently the rate is Prime Lending rate (PLR) minus 2.5% for

corporate and PLR minus 4.5% for textile sector. Under this facility the exporter has

the option of booking a forward contract for the export proceeds.

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Packing Credit in Foreign Currency: Commonly known as PCFC, packing credit

in foreign currency is an extension of packing credit, wherein credit, provided for

raw materials/inputs from both domestic and foreign markets, is granted in foreign

currency. Banks have their own line of credit with the foreign banks and interest is

charged at LIBOR (London Interbank Offered Rate) plus an interest spread that is

agreed upon by the bankers and exporter subject to a minimum of 1% till the due

date. Under this facility the exporter does not have the option of booking a forward

contract or profit from any dollar appreciation against the rupee

4. SHIPMENT OF GOODS:

Once the goods are manufactured proper packaging and branding is done, as per

the requirements of the client. After all this procedure the export department of the

company starts the shipment of goods. Shipment of the goods is not easy it requires

lots of documentation.

For carrying out the procedures related to shipment of goods, selection of a freight

forwarding agent is very important.

Freight Forwarder: An international freight forwarder is an agent for the

Siyaram’s in moving the export goods to an overseas destination. Freight

forwarders assist Siyaram’s in preparing price quotations by advising on freight

costs, port charges, consular fees, costs of special documentation, insurance costs,

and their handling fees. Once the order is ready for shipment, freight forwarders

should review all documents to ensure that everything is in order.

Largely, the following procedure may be followed for shipment of goods:

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Submit documents to Freight Forwarder, instructing him to book space on the

steamer/ airline. The Siyaram’s is expected to provide the following documents to

the Clearing & Forwarding Agents, who are entrusted with the task of shipping he

consignments, either by air or by sea.

Invoice

Packing List

Declaration in form SDF (to meet the requirements as per FEMA) in duplicate.

A.R.E. - From 1 and 2 copy

Any other declarations, as required by Customs

On account of the introduction of Electronic Data Interchange (EDI) system for

processing shipping bills electronically at most of the locations - both for air or sea

consignments - the C&F (Clearing & Forwarding) Agents are required to file with

Customs the shipping documents, through a particular format, which will vary

depending on the nature of the shipment. The C&F agents are also charged with the

task of getting Shipping Bill/ Bill of Export passed by Custom Authorities (obtaining

customs authorities’ ‘LET EXPORT’ (LEO) endorsement on the shipping bill).

After completing the shipment formalities, the C & F Agents are expected to

forward to the Siyaram’s the following documents:

Customs endorsed Export Invoice & Packing List

Duplicate of Form SDF

Exchange control copy of the Shipping Bill, processed electronically

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A.R.E. (original & duplicate) duly endorsed by Customs

Bill of Lading or Airway bill, as the case may be

Once the goods have been shipped, Siyaram’s is required to send a “Shipment

Advice” in aligned format to the importer intimating the date of shipment of the

consignment by a named vessel and its expected time of arrival at the destination

port.

5. FOREIGN CLIENT MAKES A PAYMENT

Client makes the payment as per the agreement between the Siyaram’s and the

client. If suppose Siyaram’s has taken a loan for this export order, the repayment of

the loan is done immediately once the client disburse the amount in our bank.

INVOLVEMENT OF FOREIGN EXCHANGE AND

RISK MANAGEMENT

Risk is central to all business. Modern day business operates under various Risks of

varying degrees, which not only has the potential to affect profitability but also the

very survival of the Company. As the Company grows work and decisions making

gets delegated and decentralized. Officers at various levels while performing their

duties are required take decisions which have far reaching implications and involve

a high degree of risk. Volatile business conditions only add to the risk involved.

Taking reasonable and well understood risks is required to earn returns. On one

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hand adequate return on money invested has to be ensured while on the other

hand risk has to be effectively managed. More often than not, higher the risk, higher

the returns. Hence an effective Risk Management Policy is the need of the hour.

In view of the importance of Risk Management, the Listing Agreement requires the

Company to identify the risk, measure and access the risk, monitor and control the

risk and frame Policy to mitigate the risk. In order to have an effective Risk

Management Policy, the Company will have to examine risk at the macro as well as

micro levels of its operations. To enable the Company to reap the benefits of Risk

Management Policy, it should be reviewed on a continuous basis in the light of

changing business environment and improved upon at regular intervals to cover

newer areas of risk affecting the Company.

Accordingly, the Company has made an attempt to identify risk that affect the

business and framed a Policy to mitigate the Risk.

Imports without natural hedging by way of export earnings will cause substantial

hardships in the event of violent foreign exchange fluctuations as the company has

a Imports and Borrowings in Foreign Currency.

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FOREIGN EXCHANGE EXPOSURE:

Exchange exposure is defined as the extent to which transactions of Siyaram’s

denominated in currencies other than the home currency. Exposure arises because

Siyaram’s denominates transactions in a foreign currency or it operates in a foreign

market. The exposure is measured by the value of the transactions in the foreign

currency.

Basically, there are three types of exposure that I studied in Siyaram’s

Transaction OR Conversion Risk

Translation OR Accounting Risk

Operating OR Economic Exposure

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Transaction Exposure

The risk, faced by companies involved in international trade, that currency

exchange rates will change after the companies have already entered into financial

obligations. Such exposure to fluctuating exchange rates can lead to major losses

for firms.

Often, when a company identifies such exposure to changing exchange rates, it

will choose to implement a hedging strategy, using forward rates to lock in an

exchange rate and thus eliminate the exposure to the risk.

Siyaram’s is mostly exposed to transactional risk, and they use hedging mechanism

to minimize their risk.

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Translation Exposure

The risk that a company's equities, assets, liabilities or income will change in value

as a result of exchange rate changes. This occurs when a firm denominates a

portion of its equities, assets, liabilities or income in a foreign currency. 

Accountants use various methods to insulate firms from these types of risks, such

as consolidation techniques for the firm's financial statements and the use of

the most effective cost accounting evaluation procedures. In many cases, this

exposure will be recorded in the financial statements as an exchange rate gain (or

loss).

Economic Exposure

An exposure to fluctuating exchange rates, which affects a company's earnings,

cash flow and foreign investments. The extent to which a company is affected by

economic exposure depends on the specific characteristics of the company and its

industry.

Most large companies attempt to minimize the risk of fluctuating exchange rates by

hedging with positions in the forex market. Companies that do a lot of business in

many countries, such as import/export companies, are at particular risk for

economic exposure.

FOREIGN EXCHANGE RATES:

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Exchange risk is defined as the net potential gains and losses which can arise from

the exchange rate changes due to the foreign exchange exposure of Siyaram’s

Siyaram’s sell the goods in the international market; we had seen in the above

section how it is exposed to risk (Transaction Exposure).

Exchange rates fluctuate on daily basis Siyaram’s can make profit or make loss in

this fluctuation.

Example:

The company has got an export order of $10,00,000 on June 15, 2009 the profit for

the company behind this deal is 10% and the exchange rate on this date is suppose

Rs. 45. So the total deal is of 4.5 Crores.

Party has agreed for the payment of this order on Aug 15, 2009 and if the rate on

that date is Rs.40 than the calculations goes like that:

Particulars Amt

Goods sold ($10,00,000 X 45) 4,50,00,000

Profit 45,00,000

Payment Received ($10,00,000 X 40) 4,00,00,000

Exchange rate loss. 50,00,000

Profit /Loss (5,00,000)

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In the above case exchange loss exceeds the profit on deal, so here Siyaram’s

should try to hedge their risk. This was just an example to explain how the profit

making deal can be converted into the loss making deal due to the fluctuation and

exposure of exchange rates.

EXPOSURE TO USD/INR

Once the deal is finalized Siyaram’s dispatch the goods to the client, in the whole

process the major point of concern is that, when we are going to receive the

payment. This concern is not only of Siyaram’s but it is of each and every corporate

house who deals in exports, and so the hedging mechanism is used to cover the

losses due to fluctuation in the exchange rates.

It is basically how much Siyaram’s is exposed to currency fluctuation. If price of the

dollar has the fluctuation of 5% in a year, than we can say the exposure is 5%,

appreciation or depreciation

Example:

Siyaram’s gets an order and the payment is expected in different months in part. In

the month of June the deal was finalized and then we are about to receive the

payment in the 3 parts.

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Here the treasury department of the Siyaram’s tries to predict the prices of the

currency, so that they can take necessary action. As we can see in the above figure

there is the treasury department of the Siyaram’s has predicted the prices in the

payment period.

HEDGING MECHANISM :

Whenever the export deal is finalized the Siyaram’s cover their risk, use the

hedging mechanism. This mechanism is used through Forward Booking. To

understand how Siyaram’s undergo the forward booking. So it is very necessary to

understand the concept of forward booking.

Forward Booking

Foreign currency forward contracts are used as a foreign currency hedge when a

organization has an obligation to either make or take a foreign currency payment at

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some point in the future. If the date of the foreign currency payment and the last

trading date of the foreign currency forwards contract are matched up, the investor

has in effect "locked in" the exchange rate payment amount.

By locking into a forward contract to sell a currency, the seller sets a future

exchange rate with no upfront cost. For example, a U.S. exporter signs a contract

today to sell hardware to a French importer. The terms of the contract require the

importer to pay Euros in six months' time. The exporter now has a known euro

receivable. Over the next six months, the dollar value of the euro receivable will rise

or fall depending on fluctuations in the exchange rate. To mitigate his uncertainty

about the direction of the exchange rate, the exporter may elect to lock in the rate

at which he will sell the Euros and buy dollars in six months. To accomplish this, he

hedges the euro receivable by locking in a forward. 

This arrangement leaves the exporter fully protected should the currency

depreciate below the contract level. However, he gives up all benefits if the

currency appreciates. In fact, the seller of a forward rate faces unlimited costs

should the currency appreciate. This is a major drawback for many companies that

consider this to be the true cost of a forward contract hedge. For companies that

consider this to be only an opportunity cost, this aspect of a forward is an

acceptable "cost". For this reason, forwards is one of the least forgiving hedging

instruments because they require the buyer to accurately estimate the future value

of the exposure amount. 

Like other future and forward contracts, foreign currency futures contracts have

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standard contract sizes, time periods, settlement procedures and are traded on

regulated exchanges throughout the world. Foreign currency forwards contracts

may have different contract sizes, time periods and settlement procedures than

futures contracts. Foreign currency forwards contracts are considered over-the-

counter (OTC) because there is no centralized trading location and transactions are

conducted directly between parties via telephone and online trading platforms at

thousands of locations worldwide.

Key Points:

Developed and grew in the late '70s when governments relaxed their control

over their currencies

Used mainly by banks and corporations to manage foreign exchange risk

Allows the user to "lock in" or set a future exchange rate.

Parties can deliver the currency or settle the difference in rates with cash.

Example: Currency Forward Contracts

Corporation A has a foreign sub in Italy that will be sending it 10 million Euros in six

months. Corp. A will need to swap the euro for the Euros it will be receiving from the

sub. In other words, Corp. A is long Euros and short dollars. It is short dollars

because it will need to purchase them in the near future. Corp. A can wait six

months and see what happens in the currency markets or enter into a currency

forward contract. To accomplish this, Corp. A can short the forward contract, or

euro, and go long the dollar.

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Corp. A goes to Citigroup and receives a quote of .935 in six months. This allows

Corp. A to buy dollars and sell Euros. Now Corp. A will be able to turn its 10 million

Euros into 10 million * .935 = 935,000 dollars in six months. 

Six months from now if rates are at .91, Corp. A will be ecstatic because it will have

realized a higher exchange rate. If the rate has increased to .95, Corp. A would still

receive the .935 it originally contracts to receive from Citigroup, but in this case,

Corp. A will not have received the benefit of a more favorable exchange rate.

COMING TO SIYARAM’S

Page 65Actual Realization Because of Forwards = 48.0000

Profit = 45.5000 – 48.0000 = 2.5

Interpretation

Siyaram’s dispatch the goods on 6th June, 2009. At the time of delivery

Siyaram’s Treasury Manager Mr. Shruti Sheel Jahanwar feels that they should

think about the exchange risk and try to mitigate it. The price of the dollar on

6th June, 2009 was 47.00 per dollar.

Mr. Jhanwar is a smart manager, he tries to predict the prices of the dollar at

the time of realization or when they are about to receive the payment. Mr.

Jhanwar use to read newspapers, and try to keep track on the economic

indicators that affect the foreign exchange rates. So after doing the whole

exercise he felt that the price of the dollar will further go down. So his

perception on the price of the dollar is Rs. 45.00 per dollar on September 6,

2009.

Now, Mr. Jhanwar approaches their bankers and asks for the forward booking.

The forward booking at the bank was available at the rate of 48.00 per dollar

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for September 6, 2009. Mr. Jhanwar books the contract.

On 6th September, 2009 client makes the payment. At the time of payment

the price of the dollar was 45.50 per dollar. If he would have not booked the

forwards there would have been a substantial loss due to foreign exchange

fluctuation.

OBSERVATIONS AND FINDINGS

Based on the interpretations and calculations of my project, I can conclude that

though the Siyaram Silk Mills Ltd is earning the consistent profit.

The financial performance of the company for the 5 years reflected a good growth

in sales and though all the market segments sustained or bettered their

performance over the previous years. Cost overrun in a few long term projects

impacted the profitability. However, the company s track record has always been

oriented towards profitable growth and with the strong fundamentals; the company

is well placed to grow continuously on major fronts.

The company has strong short term liquidity position as both the liquidity ratios are

favorable and appreciable which concludes that company has got sufficient assets

to pay off short term debts as and when they fall due.

Sales turnover for the year 2008 under review was at RS. 629.79 Cr registering an

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increase of about 18.1% over the previous year. The turnover for the year 2008

stood at Rs. 629.79 Cr. which crossed five hundred crore rupee mark.

The company has strong solvency position as all the solvency ratios are favorable.

Debt-equity ratio is favorable indicating equal share of owners and creditors.

The book value of the companys shares for the year 2008 has gone down to Rs.

145.53 as compared to other years but has also shown some improvement as

compared to the previous year..

The return on shareholders funds and the return on total capital employed declined

to 6% for the year 2008 respectively, indicating that the company needs to take

care while investing its capital. The company has decreasing overall profitability

ratios indicating ineffective use of funds provided be shareholders and creditors.

The margins across all business segments for the 5 years were better. The company

has to absorb the extra costs in a long term projects due to which the profitability

was low impacting the overall performance of the company.

The overall performance of the company is good and there is a continuous flow of

project business. The company is continuing its drive for volume with continued

focus on profitability.

In order to forecast the bankruptcy the above multivariate model can be put to use

as it considers all the key factors relevant for credit analysis. Another scientific

multivariate analysis can be done. The widely used one is the Altaman score, it

helps in the prediction of the corporate bankruptcy. The following analysis of the

Altman Z score was done for Siyaram Silk Mills Ltd. & it was interpreted that it is

very much above 2.99 & so Siyaram Silk Mills Ltd. Is a healthy firm & the free of

bankruptcy need not be feared.

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SUGGESTIONSFor assessing the creditworthiness of the potential customer or client, the Credit Scoring Model (the ad hoc multivariate analysis) can be brought to use. In this the client can be rated between 0-15 & then by looking at its total points the credit worthiness of the client can be judged.

POINTSCharacter

Average Past Payment

On time Up to 30 days late

Up to 60 days late

Capacity Profit Margin 0-5% 6-10% More than

10% Quick Ratio Less than

0.750.75-1.25 More than

1.25% Cash Flow Low Average High

Capital Current Ratio Less than 1 1-1.15 Less than 1.5 Debt-equity Ratio Less than 1 1-2 Less than 2 Interest Earned Less than 2X 2X-3X Less than 3X

Collateral Net Worth Low Average High Per cent Assets Free Low Average High Market value to Net

Worth Low Average High

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Conditions Recession Average ProsperityTotal

Bibliography

Books: Financial Management By Satish M. Inamdar

Introduction to Financial Accounting By Horngren

Introduction to Management Accounting By Grey Sundem

Financial Management By M Y Khan/ P K Jain

Financial Management By I M Pandey

Financial Management By S M Inamdar

Management Accounting By M G Patkar

Internet sites: http://en.wikipedia.org/wiki/Financial_statement

http://en.wikipedia.org/wiki/Financial_ratios

http://cpaclass.com/fsa/ratio-01a.htm

http://beginnersinvest.about.com/od/financialratio/Financial_Ratios.htm

http://www.esesv.com

http://www.investopedia.com

http://www.google.com

http://www.fabric2fashion.com

http://www.siyaram.com

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BALANCE SHEET

YEAR 2008 2007 2006 2005 2004 SOURCES OF FUNDS : Share Capital 9.37 9.37 6.25 6.25 6.25 Reserves Total 126.99 123.39 111.93 99.31 93.71 Total Shareholders Funds 136.36 132.76 118.18 105.56 99.96 Secured Loans 185.92 112.52 83.06 77.25 85.04 Unsecured Loans 84.56 81.08 46.86 47.4 32.97 Total Debt 270.48 193.6 129.92 124.65 118.01 Total Liabilities 406.84 326.36 248.1 230.21 217.97 APPLICATION OF FUNDS : Gross Block 302.78 237.3 203.73 197.04 177.84 Less : Accumulated Depreciation 101.31 85.92 82.69 75.1 79.55 Less:Impairment of Assets 0 0 0 0 0 Net Block 201.47 151.38 121.04 121.94 98.29 Lease Adjustment 0 0 0 0 0 Capital Work in Progress 4.83 26.77 5.07 1.19 5.48 Investments 0.24 0.14 0.14 0.14 0.14 Current Assets, Loans & Advances Inventories 108.9 75.07 73.29 64.15 63.37 Sundry Debtors 132.57 127.75 99.36 67.69 70.01 Cash and Bank 1.12 1.4 1.05 0.79 1.92 Loans and Advances 33.48 21.7 15.72 14.13 13.57 Total Current Assets 276.07 225.92 189.42 146.76 148.87 Less : Current Liabilities and Provisions Current Liabilities 44.65 45.85 42.21 21.02 21.04 Provisions 13.67 15.99 9.03 5.42 2.31 Total Current Liabilities 58.32 61.84 51.24 26.44 23.35

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Net Current Assets 217.75 164.08 138.18 120.32 125.52 Miscellaneous Expenses not written off 0 0 0 0 0 Deferred Tax Assets 1.54 1.13 1.04 1.03 1.18 Deferred Tax Liability 18.99 17.14 17.37 14.41 12.64 Net Deferred Tax -17.45 -16.01 -16.33 -13.38 -11.46 Total Assets 406.84 326.36 248.1 230.21 217.97 Contingent Liabilities 3.63 3.56 3.21 2.64 3.28

PROFIT & LOSS ACCOUNT

YEAR 200803 200703 200603 200503 200403 INCOME : Sales Turnover 589.93 524.84 449.77 339.64 317.7 Excise Duty 0.26 0.3 0.4 5.9 21.81 Net Sales 589.67 524.54 449.37 333.74 295.89 Other Income 7.49 7.75 9.88 4.38 5.54 Stock Adjustments 32.63 0.98 -2.49 1.56 3.61 Total Income 629.79 533.27 456.76 339.68 305.04

EXPENDITURE : Raw Materials 273.43 232.83 206.58 153.4 133.77 Power & Fuel Cost 9.25 7.32 5.51 5.45 6.95 Employee Cost 27.33 21.87 14.19 10.23 8.89 Other Manufacturing Expenses 107.95 88.23 82.17 59.54 54.04 Selling and Administration Expenses 163.05 130.34 99.81 77.94 73.74 Miscellaneous Expenses 9.25 7.31 5.86 3.97 3.4 Total Expenditure 590.26 487.9 414.12 310.53 280.79

Operating Profit 39.53 45.37 42.64 29.15 24.25 Interest 10.72 6.72 4.13 6.35 3.13 Gross Profit 28.81 38.65 38.51 22.8 21.12 Depreciation 16.55 15.55 14.21 11.85 10.04 Profit Before Tax 12.26 23.1 24.3 10.95 11.08 Tax 0.71 3.55 5.25 0.9 0.85 Fringe Benefit tax 0.53 0.35 0.5 0 0 Deferred Tax 1.51 -0.32 2.94 1.93 2.76 Reported Net Profit 9.51 19.52 15.61 8.12 7.47 Extraordinary Items 0.91 2.18 0.78 0.52 0.07 Adjusted Net Profit 8.6 17.34 14.83 7.6 7.4

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Adjst. below Net Profit -0.2 0.55 0.57 0.33 -0.12 P & L Balance brought forward 5.04 0.45 2.84 2.24 2.71 Appropriations 9.48 15.48 18.56 7.85 7.82 P & L Balance carried down 4.87 5.04 0.46 2.84 2.24

Dividend 4.68 4.68 3.12 2.5 2.5 Equity Dividend % 50 50 50 40 40

YEAR 2008 2007 2006 2005 2004

CASH FROM OPERATION PAT 9.51 19.52 15.61 8.12 7.47Depreciation 16.55 15.55 14.21 11.85 10.04Deferred tax 1.51 -0.32 2.94 1.93 2.76TOTAL 27.57 34.75 32.76 21.9 20.27Less Working Capital increase or decrease 217.75 164.08 138.18 120.32 125.52 -190.18 -129.33 -105.42 -98.42 -105.25

CASH FROM INVESTING ACTIVITIES Net Block 201.47 151.38 121.04 121.94 98.29Increase or decrease in Net block 50.09 30.34 -0.9 23.65 98.29Add Depreciation 16.55 15.55 14.21 11.85 10.04Purchase or Sale of Fixed Assets 66.64 45.89 13.31 35.5 108.33Increase in investment 0.1 0 0 0 Increase or decrease in Capital WIP -21.94 21.7 3.88 -4.29 44.8 67.59 17.19 31.21 108.33

FREE CASH FLOW -234.98 -196.92 -122.61 -129.63 -213.58

CASH FROM FINANCING ACTIVITIES Increase in Equity Capital 136.36 132.76 118.18 105.56 99.96Increase in Share Premium 0 0 0 0 0Non Convertible Debenture 0 0 0 0 0Debt 270.48 193.6 129.92 124.65 118.01Dividend Paid 4.68 4.68 3.12 2.5 2.5 411.52 331.04 251.22 232.71 220.47

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DIFFERENCE 176.54 134.12 128.61 103.08 6.89Difference of Cash and Cash Equivalent -0.28 0.35 0.26 -1.13 0.56

Difference in Answer 176.82 133.77 128.35 104.21 6.33

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