Bel Final Prjct

8/4/2019 Bel Final Prjct

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ACKNOWLEDGEMENT

The study of noble heart in the acknowledgement gratitude, I feel

indebted to my guide Mr. Rawat for being a very careful source of

inspiration throughout who are always available to help me inspire of

his busy schedule. His able guidance and encouragement during the

sense movement to of my project state completion.

I am extremely grateful to Mr. Rawat for his invaluable help to

review my work and for getting our project completed in time.

My thanks is due to all faculty members specially Electronics

Engineering Department who indirectly help me completing the

project report in time.


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INTRODUCTION


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INTRODUCTION

After preparation of the financial statements, one may be interested in knowing the position

of an enterprise from different points of view. This can be done by analyzing the financial

statement with the help of different tools of analysis such as ratio analysis, funds flow analysis,

cash flow analysis, comparative statement analysis, etc. Here I have done financial analysis by

ratios. In this process, a meaningful relationship is established between two or more accounting

figures for comparison.

Financial ratios are widely used for modeling purposes both by practitioners and researchers.

The firm involves many interested parties, like the owners, management, personnel, customers,

suppliers, competitors, regulatory agencies, and academics, each having their views in applying

financial statement analysis in their evaluations. Practitioners use financial ratios, for instance, to

forecast the future success of companies, while the researchers' main interest has been to develop

models exploiting these ratios. Many distinct areas of research involving financial ratios can be

discerned. Historically one can observe several major themes in the financial analysis literature.

There is overlapping in the observable themes, and they do not necessarily coincide with what

theoretically might be the best founded areas.

Financial statements are those statements which provide information about profitability andfinancial position of a business. It includes two statements, i.e., profit & loss a/c or income

statement and balance sheet or position statement.

The income statement presents the summary of the income earned and the expenses incurred

during a financial year. Position statement presents the financial position of the business at the

end of the year.

Before understanding the meaning of analysis of financial statements, it is necessary to

understand the meaning of analysis and financial statements.8


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Analysis means establishing a meaningful relationship between various items of the two

financial statements with each other in such a way that a conclusion is drawn. By financial

statements, we mean two statements- (1) profit & loss a/c (2) balance sheet. These are prepared at

the end of a given period of time. They are indicators of profitability and financial soundness of

the business concern.

Thus, analysis of financial statements means establishing meaningful relationship between

various items of the two financial statements, i.e., income statement and position statement

Parties interested in analysis of financial statements

Analysis of financial statement has become very significant due to widespread interest of various

parties in the financial result of a business unit. The various persons interested in the analysis of

financial statements are:-

Short- term creditors

They are interested in knowing whether the amounts owing to them will be paid as and when fall

due for payment or not.

Longterm creditors

They are interested in knowing whether the principal amount and interest thereon will be paid on

time or not.

Shareholders

They are interested in profitability, return and capital appreciation.

Management

The management is interested in the financial position and performance of the enterprise as a

whole and of its various divisions.

Trade unions

They are interested in financial statements for negotiating the wages or salaries or bonusagreement with management. 9


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Taxation authorities

These authorities are interested in financial statements for determining the tax liability.

Researchers

They are interested in the financial statements in undertaking research in business affairs and

practices.

Employees

They are interested as it enables them to justify their demands for bonus and increase in

remuneration.

You have seen that different parties are interested in the results reported in the financial

statements. These results are reported by analyzing financial statements through the use of

ratio analysis.


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CHAPTER 1

OBJECTIVE OF THE STUDY


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OBJECTIVE OF THE STUDY

The objective of the study during 4 weeks Training was to analysesthe financial statements so as to evaluate the financial position of

the Company. These financial statements indicate the following

factors.

1.) Profitability of the Company

2.)Financial Soundness of the Company

3.) Shareholding Pattern

4.)Past One Year Performance of the Share of BEL.

The project also aims at providing details regarding:-

Income & Expenditure of the Company, which is given inthe form of P&L Account. Assets & Liabilities of the Company in form of Balance

Sheet.

Shareholding Pattern and Distribution of shareholdingwith the shareperformance of the share of past Financial

Year (1 April 2009 31March 2010).


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CHAPTER 2

ABOUT THE COMPANY

(BEL)


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INTRODUCTION TO BHARAT ELECTONICS LIMITED

The main objective of establishing public sector unit was shedding

social obligation of the government towards the people in some

critical area in which private sector units cannot be trusted. BEL fallsunder the later category. Bharat Electronics Limited (BEL) is a

professional electronics company of India with a noteworthy history

of pioneering achievements.BEL was established in 1954, to meet

defense need of government of India. Since then, BEL has grown to

multi-product, multi-unit, technology driven company.

Today BELs infrastructure is spread over ISO-9001/9002 certified

modern manufacturing units countrywide. Product mix of the

company includes a broad spectrum ranging from tiny semiconduc-

-tor to large radar systems. Their manufacturing units have special

focus towards the product range like Defense Communication,Rada-

-r, Optical and Opto-Electronics, Telecommunication, Sound and

Vision Broadcasting, Electronic Component etc.

In the past fifty years this unit has augmented into an organization

having nine units. Employing about 25,000 employees. In addition to

manufacturing a number of products, BEL offers a variety of services

like Telecom Consultancy, Contact Manufacturing, calibration of testand measuring instruments etc. R&D has been major strength of BEL


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with a strong base of more than 800engineers. Its own teams design

of BELs product. It has its own a number of national & international

awards for productivity, quality, safety, standardization etc.

The culture & philosophy at BEL can be described in its motto

Quality, Technology and Innovation


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HISTORY

SINCE 1954

With over four decades of manufacturing experience Bharat

Electronics Limited has pioneered the professional electronics

movement in India. With continuous up gradation of technology,

commitment to quality and constant innovation, BEL has grown into

a multi product, multi unit, and multi technology company.

BEL has set up impressive infrastructure and manufacturing facilities

in their nine ISO certified production units around the country.

BEL has also established two joint ventures - with General Electric

Medical Systems, USA for X-ray tubes and Multiton , UK for paging

systems and has a subsidiary company BEL Optronic Devices Limited

for the manufacture of Image Intensifier tubes.


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MISSION

To be the market leader in Defence Electronics and in other chosen

fields and products

To become a customer-driven company supplying qualityproducts at competitive prices at the expected time and

providing excellent customer support

To achieve growth in the operations commensurate with thegrowth of professional electronics industry in the country

To generate internal resources for financing the investmentsrequired for modernisation, expansion and growth for ensuring

a fair return to the investor.

In order to meet the Nation's strategic needs, to strive for selfreliance by indigenisation of materials and components

To retain the technological leadership of the company inDefence and other chosen fields of electronics through in-

house Research and Developmentas well as throughcollaboration/co-operation with Defence /NationalResearch

Laboratories, International Companies, Universities and

Academic institutions

To progressively increase overseas sales of its products andservices. To create an organizational culture which encourages

members of the organization to realise their full potential

through continuous learning on the job and through other HRD

initiatives.

QUALITY

Quality Policy:

Meeting & exceeding our customer expectation through supply ofquality products& services.


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Quality Objectives:

To identify the needs of our customers. To meet identified needs without errors online everything. To institute organization, system & procedure for

strengthening the conceptof quality.

To achieve quality by the involvement/commitment of everyindividualincluding our supplier.

To build quality in every process, we carry out. To insure that quality comes through prevention rather then

inspection.

To design & develop services to meet the requirement ofquality, reliability,safety & cost. To measure quality by cost of non- conformance to the

requirements &optimize quality related cost.

To allocate available resources for training, workspaceimprovements &infrastructure up gradation.

To ensure that every individual in the company understandsmaintenance &implements quality policy.


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BEL HISTORY

Bharat Electronics Limited (BEL) was set up at Bangalore, India, by

the Government of India under the Ministry of Defense in 1954 tomeet the specialized electronic needs of the Indian defense services.

Over the years, it has grown into a multi-product, multi-technology,

multi-unit company serving the needs of customers in diverse fields in

India and abroad . BEL is among an elite group of public sector

undertakings which have been conferred the Navratna status by the

Government of India.

The growth and diversification of BEL over the years mirrors the

advances in the electronics technology, with which BEL has keptpace. Starting with the manufacture of a few communication

equipment in 1956, BEL went on to produce Receiving Valves in

1961, Germanium Semiconductors in 1962 and Radio Transmitters

for AIR in 1964.

In 1966, BEL set up a Radar manufacturing facility for the Army and

in-house R&D, which has been nurtured over the years. Manufacture

of Transmitting Tubes, Silicon Devices and Integrated Circuits startedin 1967. The PCB manufacturing facility was established in 1968.

In 1970, manufacture of Black & White TV Picture Tube, X-ray Tube

and Microwave Tubes started. The following year, facilities for

manufacture of Integrated Circuits and Hybrid Micro Circuits were

set up. 1972 saw BEL manufacturing TV Transmitters for

Doordarshan. The following year, manufacture of Frigate Radars for

the Navy began.

Under the government's policy of decentralization and due to strategic

reasons, BEL ventured to set up new Units at various places. The

second Unit of BEL was set up at Ghaziabad in 1974 to manufacture

Radars and Tropo communication equipment for the Indian Air Force.

The third Unit was established at Pune in 1979 to manufacture Image

Converter and Image Intensifier Tubes.


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In 1980, BEL's first overseas office was set up at New York for

procurement of components and materials.

In 1981, a manufacturing facility for Magnesium Manganese Dioxide

batteries was set up at the Pune Unit. The Space Electronic Divisionwas set up at Bangalore to support the satellite programme in 1982.

The same year saw BEL achieve a turnover of Rs.100 crores.

In 1983, an ailing Andhra Scientific Company (ASCO) was taken

over by BEL as the fourth manufacturing Unit at Machilipatnam. In

1985, the fifth Unit was set up in Chennai for supply of Tank

Electronics, with proximity to HVF, Avadi. The sixth Unit was set up

at Panchkula the same year to manufacture Military Communicationequipment. 1985 also saw BEL manufacturing on a large scale Low

Power TV Transmitters and TVROs for the expansion of

Doordarshan's coverage.

1986 witnessed the setting up of the seventh Unit at Kotdwara to

manufacture Switching Equipment, the eighth Unit to manufacture

TV Glass Shell at Taloja (Navi Mumbai) and the ninth Unit at

Hyderabad to manufacture Electronic Warfare Equipment.

In 1987, a separate Naval Equipment Division was set up at

Bangalore to give greater focus to Naval projects. The first Central

Research Laboratory was established at Bangalore in 1988 to focus on

futuristic R&D.

1989 saw the manufacture of Telecom Switching and Transmission

Systems as also the setting up of the Mass Manufacturing Facility in

Bangalore and the manufacture of the first batch of 75,000 ElectronicVoting Machines.

The agreement for setting up BEL's first Joint Venture Company, BE

DELFT, with M/s Delft of Holland was signed in 1990. Recently this

became a subsidiary of BEL with the exit of the foreign partner and

has been renamed BEL Optronic Devices Limited.

The second Central Research Laboratory was established at

Ghaziabad in 1992. The first disinvestment (20%) and listing of the


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Company's shares in Bangalore and Mumbai Stock Exchanges took

place the same year.

BEL Units obtained ISO 9000 certification in 1993-94. The second

disinvestment (4.14%) took place in 1994. In 1996, BEL achievedRs.1,000 crores turnover. .

The year 2000 saw the Bangalore Unit, which had grown very large,

being reorganized into Strategic Business Units (SBUs). There are

seven SBUs in Bangalore Unit. The same year, BEL shares were

listed in the National Stock Exchange.

In 2002, BEL became the first defense PSU to get operational MiniRatna Category I status. In June 2007, BEL was conferred the

prestigious Navratna status based on its consistent performance.

During 2008-09, BEL recorded a turnover of Rs.4624 crores

Bharat Electronics Limited set up in 1954 as single unit. Single

Product Company established at Bangalore, under the Ministry of

Defense, Bharat Electronics Limited (BEL). Today is a multi-unit,

multi-product, multi-technology company having its manufacturing &

marketing network in length & breadth of the country. The growth &

diversification BEL over the years millers the advance in electronics

technology, with which BEL kept place.

There are 9 branches of BEL in all over India.

1.Bangalore2.Chennai3.Mumbai4.Hyderabad5.Pune6.Ghaziabad7.Machilipatnam8.Panchkula9.Kotdwara


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ABOUT KOTDWARA

Kotdwara as the name implies Gateway to the Himalayas, has been

the traditional route to a host of pilgrimage towns like Badrinath,Kedarnath, Karnprayag, Rudraprayag etc. folk tales say Shakuntala,


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mother of King Bharat (after whom our country is named), was born

here.

With the advent of Railways in 1914, Kotdwara has developed into a

market town with a population of about 75,000.

Kotdwara is situated about 250 km north east of New Delhi and is

well connected by Road and Rail to other parts of northern India.

BEL is situated at the distance of 3 km from the Kotdwara Railway

Station.


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VISION, MISSION, VALUES AND OBJECTIVES

VISION

To be a world-class enterprise in professional electronics.MISSION

To be a customer focussed globally competitive company indefence electronics and in other chosen areas of professional

electronics, through quality, technology and innovation.

VALUES

Putting customers first.Working with transparency, honesty & integrity.Trusting and respecting individuals.Fostering team work.Striving to achieve high employee satisfaction.Encouraging flexibility & innovation.Endeavoring to fulfill social responsibilities.Proud of being a part of the organization.

OBJECTIVES

To be a customer focussed company providing state-of-the-artproducts & solutions at competitive prices, meeting the demands

of quality, delivery & service.

To generate internal resources for profitable growth.To attain technological leadership in defence electronics through

in-house R&D, partnership with defense/research laboratories &

academic institutions.

To give thrust to exports.To create a facilitating environment for people to realise their

full potential through continuous learning & team work.


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To give value for money to customers & create wealth forshareholders.

To constantly benchmark company's performance with best-in-class internationally.

QUALITY POLICY

We are committed to consistently deliver enhanced value to our

customers, through continual improvement of our products andprocesses.

QUALITY OBJECTIVES

Effective and efficient design and development process,considering the present and future needs of customers.

Enhanced customer satisfaction by on-time delivery of defectfree products and effective life cycle support.

Continual up gradation and utilization of infrastructure andhuman resources.

Mutually beneficial alliances with suppliers.Continual improvement of processes through innovation,

technology and knowledge management.

EVOLUTION OF QUALITY MANAGEMENT SYSTEM IN

BHARAT ELECTRONICS

Right from its inception in 1954, Bharat Electronics has understood

the varying levels of quality and reliability requirements of its

customers and has been striving to enhance their satisfaction level.

The company has developed and improved Quality Systems and

Procedures over the years.


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Starting with an inspection oriented Quality system during the initial

years, the company shifted its focus towards MIL-Q-9858 Quality

Management System during the early Seventies.

During the Eighties, a number of initiatives were taken to improve theQuality Management System. They included release of documented

QA manual; promotion of participative culture in the organization;

launching of QC Circles & Suggestion Scheme, etc.

INTRODUCTION OF TQM

Bharat Electronics adopted the Total Quality Management (TQM)

philosophy in the year 1990 under the acronym 'TORQUE' whichstands for Total Organisational Quality Enhancement. TORQUE is

based on the premise that the quality of products and services is not

only the responsibility of the production/shop floor personnel, but

other support services also who have a role to play in meeting and

exceeding our customers? expectations through supply of quality

products and services.

Some of the critical business performance indicators like transactional

cycle time, manufacturing yield, inventory turnover ratio, customer

complaints, QCC presentations, quality cost, etc are monitored on a

monthly basis through SAP and corrective actions are initiated for

continual improvement.

Starting from 1993, all Units / SBUs / Divisions of the company have

been certified for ISO 9001 Quality Management System and ISO

14001 Environment Management System. Seven Units / SBUs(Ghaziabad, Panchkula, Kotdwara, Hyderabad, Military

Communication, Electronics Warfare & Avionics and Export

Manufacturing) are also certified for AS 9100 Aerospace Standards.

The Central Software Development group of the company has CMMi

Level 5 certification.

THRUST AREAS OF TORQUE


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Continual improvement of products and processes throughdeployment of Six Sigma methodology.

Key processes stabilization and capability improvementthrough Statistical Process Control (SPC) techniques.

Reduction of cycle time in all transaction areas.Improvement in quality of design through DFSS projects.Employee motivation and empowerment through self

certification, QCC and Suggestion Schemes.

Introduction of lean manufacturing concepts to achieve on-time delivery.

Customer satisfaction surveys to measure and improvesatisfaction level of customers.

BUSINESS EXCELLENCE

The company has adopted CII-EXIM Bank Business Excellence

Model to improve its overall strategic and operational excellence.

Adoption of this Model since 2002 has helped the company in

understanding the expectations of various stakeholders and in

enhancing their satisfaction level.

The company has achieved the level of 'Commendation for Strong

Commitment to Excel' and is striving to reach higher levels of

excellence under the Model.

BHARAT ELECTRONICS QUALITY INSTITUTE

A Quality Institute has been created in 1999 by the company to impart

education / training to the company's officers, customers and supplierson various facets of quality management. Regular training programs

are conducted for all employees of the company. Courses on topics

such as Six Sigma, design for Six Sigma, reliability & maintainability,

lean manufacturing, SPC, Project Management, etc are conducted

regularly at the Quality Institute.

STANDARDISATION


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Standardisation & Quality are two inseparable parts of the TQM

process and they play a complementary role. A Corporate Standards

Department established four decades back has evolved more than

4000 standards on drafting, materials, systems & procedures,manufacturing processes, quality & workmanship, etc. These

standards have provided effective support in design, manufacturing,

vendor development and process standardisation.

QUALITY ASSURANCE FACILITIES

The company has established state-of-the-art test facilities like

environment test chambers, high altitude test facilities, bump &vibration test facilities, calibration facilities for electronic test

instruments, EMI / EMC test facilities, etc. The calibration facility is

certified as per ISO 17025 standard by NABL. Facilities for Highly

Accelerated Life Testing (HALT), Highly Accelerated Stress

Screening (HASS) and Multiple Environment Over Stress Testing

(MEOST), combined environmental testing (Thermal & Vibration)

are established for enhancing product reliability.

Reliability & statistical software tools are used by the company to

demonstrate, predict and measure quality and reliability

characteristics and parameters of products during design,

development, manufacturing and life cycle stage.


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RESEARCH & DEVELOPMENT

Research and Development is a key focus activity at BEL. Research

& Development started in 1963 at BEL and has been contributing

steadily to the growth of BEL's business and self-reliance in the field

of defence electronics and other chosen areas of professional

electronics.

BEL's R&D Policy is to enhance the company's pre-eminence in

defence electronics and other chosen fields and products through

Research & Development. Major R&D objectives of BEL is

development of new products built with cutting-edge technology

modules to meet customer requirements ensuring that the developed

products are state-of-the-art, competitive and of the highest quality .


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RESOURCES AND INVESTMENTS

All the 9 manufacturing Units of BEL have their own Development &

Engineering (D&E) divisions. The role of these D&E divisions is to

develop new products and obtain customer acceptance, generate new

business, provide product lifecycle support and upgrades, develop

processes and components as necessary.

Specialised core technology modules required by the D&E Engineers

for product development are developed at several core Central D&E

groups at Bangalore. BEL also has two Central Research Laboratories

(CRLs) located at Bangalore and Ghaziabad, whose primary role is to

work on critical areas of technology, develop enabling technologymodules for use by D&E divisions and provide training to D&E

engineers on emerging technologies.

Presently there are about 1450 engineers and 300 support staff in the

R&D Divisions of BEL, concentrating on various projects. D&E

divisions of BEL pursue various categories of projects: in-house

development projects, joint development or ToT projects with DRDO

/ other national design agencies and ToT or joint developmentprojects with foreign vendors. Usually, 45 to 60% of the turnover is

from BEL designed products, 10 to 25% of turnover is from products

designed by DRDO and other National Design Agencies and the

remaining from foreign collaborations.

The annual R&D expenditure is around 4 to 5% of BEL's sales

turnover. BEL regularly recruits young engineers based on the

identification of required competencies for the R&D divisions. There

are schemes for on-the-job training after placement and facilities for

continuous learning for these engineers. There are recognition and

reward schemes for excellence among R&D engineers.

BEL R&D units are recognised by the Department of Scientific &

Industrial Research (DSIR) under the Ministry of Science and

Technology, Government of India. BEL's Software Technology

Centre at Bangalore has the recognition of Capability Maturity Model

(CMM) Level 5 Rating from Software Engineering Institute (SEI) .


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AREAS OF R&D ACTIVITY

R&D engineers are engaged in the development of new products,

cutting edge technology modules, subsystem, processes &

components in the following major areas:-

RadarsSonars & Naval SystemsCommunicationsCommand Control SystemsElectronic Warfare Systems & AvionicsTank and Opto-electronics

Broadcast, Satcom & TelecomOther products & systemsComponents

Core Central Groups under Central D&E support the product

development groups with state-of-the-art technology modules in areas

like Power Amplifier, Power Supply, RF & Synthesiser, Crypto, DSP

& Datacom, Software and Radar Signal Processing.

The Central Research Laboratories of BEL work in the areas ofMaterials & Micro-electronics, Information Systems, Embedded

Systems & Networking, Sensor Signal Processing, RF & Microwave,

Advance Computing and VLSI.


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Complete lists of SMART and various accessories associated with it

are listed below-:

S. NO. Designation BEL Ref No.

1. Spurt Message Alphanumeric

Radio

1100 006 886 64

2. Battery pack (12 V 1.6Alt) 1100 005 989 21

3. Battery Box 1100 006 036 74

4. Interconnecting cable Assay 1100 006 036 74

5. Handset 1100 006 36 74

ISO 14001 : 2004

INTRODUCTION

Organizations of all kinds are increasingly concerned with achieving

ad demonstrating sound environmental performance by controllingthe impacts of their activities, product and services on the

environment, consisted with their environmental policy and

objectives. They do so in the context of increasingly stringent

legislation, the development of economic policies and other measures

that foster environmental protection and increased concern expressed

by interested parties about environmental matters and sustainable

development.


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Many organizations have undertaken environmental reviews or

audits to assess their environmental performance. On their own,

however, these reviews and audits may not be sufficient to

provide and organization with the assurance that its performance notonly meets, but will continue to meet, its legal and policy

requirements. To be effective, they need to be conducted within a

structured management system that is integrated within the

organization. International Standards covering environmental

management are intended to provide organizations with the elements

of an effective environmental management system (EMS) that can be

integrated with other management requirements and helporganizations achieve environmental and economic goals.

These standards, like other International Standards, are not intended

to be used to create non-tariff trade barriers or to increase or change

an organization obligations.

This International Standards specifies requirements for an

environmental management system to enable the organization to

develop and implement a policy and objectives which take into

account legal requirements and information about significant

environmental aspects. It is intended to apply to all types and sizes of

organization and to accommodate diverse geographical, cultural and

social conditions. The success of the system depends on commitment

from all levels and functions of the organization, and especially from

top management. A system of this kind enables an organization to

develop an environmental policy, establish objectives and processes

to achieve the policy commitments, take action as needed to improve

its performance and demonstrate the conformity of the system to be

requirements of this International Standard. The overall aim of this

International Standard is to support environmental protection and

prevention of pollution in balance with socio-economic needs. It


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should be noted that many of the requirements can be addressed

concurrently or revisited at any time.

The second edition of this International Standard is focused on

clarification of the first edition and has taken due consideration of the

provisions of ISO 9001 to enhance the compatibility of the two

standards for the benefit of the use community.

INTERNATIONAL STANDARD ISO

9001: 2000 (E)

QUALITY MANAGEMENT SYSTEMS- REQUIREMENTS

SCOPE

GENERAL

This international standard specifies requirement for a Quality

management system where an organization.

a). needs to demonstrate its ability to consistently provide product that

meets customer and applicable regulatory requirements. And


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b). aims to enhance customer satisfaction through the effective

application of the system, including processes to continual

improvement of the system and the assurance of conformity to

customer and applicable regulatory requirements.

NOTE-:In this International standard, the term Product applies

only to the product intended for, or required by, a customer.

APPLICATION

All requirements of this international standard are generic and are

intended to be applicable to all organizations regardless of type, size

and product provided.

Where any requirement(s) of this international standard cannot be

applied due to the nature of an organization and its product, this can

be considered for exclusion.

Where exclusion are made, claims of conformity to this international

standard are not acceptable unless these exclusion are limited to

requirements within clause 7, and such exclusion do not affect the

organizations ability of responsibility, to provide product that meets

customer and applicable regulatory requirements.

NORMATIVE REFERENCE

The following normative document contains provisions thought

reference in this text, constitute provision of this internationalstandard. For dated references, subsequent amendments to, or

revisions of, any of these publications do not apply. However, parties

to agreements based on this international standard are encouraged to

investigate the possibility of applying the most recent edition of the

normative document indicated below. For undated references the

latest edition of the normative document referred to applies.

Members of ISO and IEC maintain registers of currently valid


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international standards. ISO 9000: 2000, quality management systems

Fundamentals and vocabulary.

TERMS AND DEFINITONS

For the purpose of this international standard the terms definitions

given in ISO 9000 apply. The following terms, used in edition of ISO

9001 to describe the supply chain, have been changed to reflect the

vocabulary currently used: Supplier OrganizationCustomer.

QUALITY MANAGEMENT SYSTEM

GENERAL REQUIREMENTS

The organization shall establish, document, implement and maintain a

quality management system and continually improve its effectiveness

in accordance with the requirements of this International Standard.

The organization shall

a). Identify the processes needed for the quality management system

and their application thought out the organization.

b). Determine the sequence and interaction of these processes

c). Determine criteria and methods needed to ensure that both the

operation and control of these processes are effective.


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d). Ensure the availability of resources and information necessary to

support the operation and monitoring of these processes.

e). Monitor, measure and analyze these processes.

f). Implement actions necessary to achieve planned results and

continual improvement of these processes.

These processes shall be managed by the organization in accordance

with the requirements of this International Standard. Where an

organization chooses to outsource any process that affects product

conformity with requirements, the organization shall ensure control

over such processes. Control of such outsourced processes shall be

identified with in the quality management system.

NoteProcesses need for the quality management system referred to

above should include processes for manager activities, provision of

resources, product realization and measurement.


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DOCUMENTATION REQUIREMENTS

GENERAL

The quality management system documentation shall include-

a). Documented statements of a quality policy and quality objectives.

b). a quality manual.

c). Documented procedures required by this International standards.

d). Documents needed by the organization to ensure the effective

planning, operation and control of its processes.

e). Records required by this International standard.

NoteWhere the term Documented Procedure appears within this

International standard this means that the procedure is established,

documented, implemented and maintained.

QUALITY MANUAL

The organization shall establish and maintain a manual that includes

a). The scope of the quality management system, including details of

and justification for any exclusions.

b). The documented procedures established for the quality

management system, or reference to them.

c). A description of the interaction between the processes of the

quality management system.


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CONTROL OF DOCUMENTS

Documents required by the quality management system shall be

controlled. Records are a special type of document and shall be

controlled according to the requirements given in the (iv).

A documented procedure shall be established to define the controls

needed

a). To approve documents for adequacy prior to issue.

b). to review and update as necessary and re-approve documents.

c). to ensure that changes and the current revision status of documents

are identified.

d). to ensure that relevant version of applicable documents are

available at points of use.

e). to ensure that documents remain legible and readily identifiable.

f). to ensure that documents of external origin are identified and theirdistribution controlled.

g). to prevent that unintended us of obsolete documents, and apply

suitable identification to them if they are retained for any purpose.

CONTROL OF RECORDS

Records shall be established and maintained to provide evidence of

conformity to requirements and of the effective operation of the

quality management system. Records shall remain legible, readily

identifiable and retrievable. A documented procedure shall be

established to define the controls needs for the identification, storage,

protection, retrieval, retention time and disposition of records.


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MANAGEMENT RESPONSIBILITY

MANAGEMENT COMMITMENT

Top management shall provide evidence of its commitment to thedevelopment and implementation of the quality management system

and continually improving its effectiveness by

a). Communicating to the organization the importance of meeting

customer as well ad statutory and regulatory requirements.

b). Establishing the quality policy.

c). Ensuring that quality objectives are established.

CUSTOMER FOCUS

Top management shall ensure that customer requirements are

determined and are met with the aim of enhancing customer

satisfaction.

QUALITY POLICY


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Top management shall ensure that the quality policy

a). Is appropriate to the purpose of the organization.

b). Includes a commitment to comply with requirements andcontinually improve the effectiveness of the quality management

system.

c). Provides a framework for establishing and reviewing quality

objectives.

d). Is communicated and understood within the organization.

e). Is reviewed for continuing suitability.

I. PlanningQUALITY OBJECTIVES

Top management shall ensure that quality objectives, including those

needs to meet requirements, are established at relevant function and

levels with in the organization. The quality objectives shall be

measurable and consistent with the quality policy.

QUALITY MANAGEMENT SYSTEM PLANNING

Top management shall ensure that

a). The planning of the quality management system is carried out in

order to meet the requirements, as well as the quality objectives.


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b). The integrity of the quality management system is maintained

when changes toe the quality management system are planned and

implemented.

Responsibility, authority and CommunicationResponsibility and Authority

Top management shall ensure that responsibilities and authorities are

defined and communicated within the organization.

MANAGEMENT REPRESENTATIVE

Top management shall appoint a member of management who,

irrespective of other responsibilities, shall have responsibility and

authority that includes

a). Ensuring that processes needed for the quality management system

are established, implemented and maintained.

INTERNAL COMMUNICATION

Top management shall ensure that appropriate communication

processes are established within the organization and thatcommunication takes place regarding the effectiveness of the quality

management system.

Management ReviewGeneral

Top management shall review the organizations quality management

system, at planned intervals, to ensure its continuing suitability,


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adequacy, and effectiveness. This review shall include assessing

opportunities for improvement the need for change to the quality

management system, including the quality policy and quality

objectives.

Records from management review shall be maintained.

REVIEW INPUT

The input to management review shall include information on

a). Results of audits.

b). Customer feedback.

c). Process performance and product conformity.

d). Status of preventive and corrective actions.

e). Follow-up actions from previous management reviews.

f). Changes that could affect the quality management system.

g). Recommendations for improvement.

REVIEW OUTPUT

The output from the management review shall include any decisions

actions related to-

a). Improvement of the effectiveness of the quality management

system and its processes.

b). Improvement of product related to customer requirements.


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c). Resources needs.

RESOURCE MANAGEMENT

PROVISION OF RESOURCES

The organization shall determine and provide the resources needed

a). To implement and maintain the quality management system and

continually improve its effectiveness.

b). to enhance customer satisfaction by meeting customer

requirements.

Human ResourcesGeneral

Personal performing work affecting product quality shall be

competent on the basis of appropriate education, training, skills and

experience.

COMPETENCE, AWARENESS AND TRAINING

The organization shall

a). Determine the necessary competence for personnel performing

work affecting product quality.

b). Provide training or take other actions to satisfy these needs.

c). Evaluate the effectiveness of the action taken.

d). Ensure that its personnel are aware of the relevance and

importance of their activities and hew they contribute to the

achievement of the quality objectives.


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e). Maintain appropriate records of education, training, skills and

experience.

INFRASTRUCTUREThe organization shall determine, provide and maintain the

infrastructure needed to achieve conformity to product requirements.

Infrastructure includes, as applicable

a). Building, workspace and associated utilities.

b). Process equipment (both hardware and software).

c). Supporting services (such as transport or communication).

WORK ENVIRONMENT

The organization shall determine and manage the work environment

needed to achieve conformity to product requirements.

PRODUCT REALIZATION

PLANNING OF PRODUCT REALIZATION

The organization shall plan and develop the processes needed for

product realization. Planning of product realization shall be consistent

with the requirements of the other processes of the quality

management system.

In planning product realization, the organization shall determine the

following, as appropriate:-

a). Quality objectives and requirements for the product.

b). the need to establish process, documents, and provide resources

specific to the product.


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c). required verification, validation, monitoring, inspection and test

activities specific to the product and the criteria for product

acceptance.

d). records needed to provide evidence that the realization and

resulting product meet requirements.

CUSTOMER RELATED PROCESSES

DETERMINATION OF REQUIREMENTS RELATED TO

THE PRODUCT

The organization shall determine

a). Requirements specified by the customer, including the

requirements for delivery and post-delivery activities.

b). Requirements not stated by the customer but necessary for

specified or intended use, where known.

c). Statutory and regulatory requirements related to the product.

d). Any additional requirements determine by the organization.

II. REVIEW OF REQUIREMENTS RELATED TO THE

PRODUCT

The organization shall review the requirements related to the product.

This review shall be conducted prior to the organizations

commitment to supply a product to the customer (e.g. submission of

tenders, acceptance of contracts or order, acceptance of changes to

contracts or orders) and shall ensure that

a). Product requirements are defined.

b). contract or order requirements differing from those previously

expressed are resolved.


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c). the organization has the ability to meet the defined requirements.

Records of the results of the review and actions arising from the

review shall be maintained.

Where the customer provides no documented statement of

requirement, the customer requirements shall be confirmed by the

organization before acceptance.

Where product requirements are changed, the organization shall

ensure that relevant documents are amended and that relevant

personnel are made aware of the changed requirements.

NoteIn some situations, such as Internet sales, a formal review is

impractical for each order. Instead the review can cover relevant

product information such as catalogues or advertising material.

CUSTOMER COMMUNICATION

The organization shall determine and implement effective

arrangements for communicating with customers in relation to

a). Production information.

b). Enquiries, contracts or order handling, including amendments.

c). Customer feedback, including customer complaints

DESIGN AND DEVELOPMENT

DESIGN AND DEVELOPMENT PLANNING

The organization shall plan and control the design and development

of product. During the design and development planning, the

organization shall determine


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a). The design and development stages.

b). the review, verification and validation that are appropriate to each

design and development stage.

c). the responsibilities and authorities for design and development.

The organization shall manage the interfaces between different groups

involved in design and development to ensure effective

communication and clear assignment of responsibility.

Planning output shall be updated, as appropriate, as the design and

development progresses.

DESIGN AND DEVELOPMENT INPUTS

Inputs relating to product requirements shall be determined and

records maintained. These inputs include

a). Functional and performance requirements.

b). Applicable statutory and regulatory requirements.

c). Where applicable, information derived from previous similar

designs.

d). other requirements essential for design and development.

These inputs shall be reviewed for adequacy. Requirements shall becomplete, unambiguous and not in conflict with each other.

DESIGN AND DEVELOPMENT OUTPUTS

The outputs of design and development shall be provided in a form

that enables verification against the design and development input and

shall he approved prior to release.

Design and development outputs shall


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a). Meet the input requirements for design and development.

b). Provide appropriate information for purchasing, production and

for service provision.

c). Contain or reference product acceptance criteria.

d). Specify the characteristics of the product that are essential for its

safe and proper use.

DESIGN AND DEVELOPMENT VERIFICATION

Verification shall be performed in accordance with planned

arrangements to ensure that the design and development outputs have

met the design and development input requirements. Records of the

results of the verification and any necessary actions shall be

maintained.

DESIGN AND DEVELOPMENT VALIDATION

Design and development validation shall be performed in accordance

with planned arrangements to ensure that the resulting product is

capable of meeting the requirements for the specified application or

intended use, where known. Wherever practicable, validation shall be

completed prior to the delivery or implementation of the product.

Records of the results of validation and any necessary actions shall be

maintained.

CONTROL OF DESIGN AND DEVELOPMENT CHANGES


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Design and development changes shall be identified and records

maintained. The changes shall be reviewed verified and validated as

appropriate and approved before implementation. The review of

design and development changes shall include evaluation of the effectof the changes on constituent parts and products already delivered.

Records of the results of the review of changes and any necessary

actions shall be maintained.

PURCHASING

PURCHASING PROCESS

The organization shall ensure that purchased product contorts to

specified purchase requirements. The type and extent of control

applied to the supplier and the purchased product shall be dependent

upon the effect of the purchased product on subsequent product

realization or the final product.

The organization shall evaluate and select suppliers based on theirability to supply product in accordance with the organizations

requirements. Criteria for selection evaluation and reevaluation shall

be established. Records of the results of evaluation and any necessary

actions arising from the evaluation shall be maintained.

PURCHASING INFORMATION


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Purchasing information shall describe the product to be purchased,

including where appropriate

a). Requirements for approval of product, procedures, processes and

equipment.

b). Requirements for qualification of personnel.

c). Quality management system requirements.

The organization shall ensure the adequacy of specified purchase

requirements prior to communication to the supplier.

VERIFICATION OF PURCHASED PRODUCT

The organization shall establish and implement the inspection or other

activities necessary for ensuring that purchased product meets

specified purchase requirements.

PRODUCTION AND SERVICE PROVISION

i. Control of production and service provisionThe organization shall plan and carry out production and service

provision under controlled conditions. Controlled conditions shall

include, as applicable

a). The availability of information that describes the characteristics of

the product.

b). the availability of work instructions, as necessary.

c). the use of suitable equipment.

d). the availability and use of monitoring and measuring devices.


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e). the implementation of monitoring and measurement.

f). the implementation of release, delivery and post-delivery activities.

VALIDATION OF PROCESSES FOR PRODUCTION ANDSERVICE PROVISION

The organization shall validate any processes for production and

service provision where the resulting output cannot be verified by

subsequent monitoring or measurement. This includes any processes

where deficiencies become apparent only after the product is in use or

the service has been delivered.

Validation shall establish arrangements for these processes including,

as applicable

a). Defined criteria for review and approval fo the processes.

b). Approval of equipment and qualification of personnel.

c). Use of specific methods and procedures.

d). Requirements for records.

e). Revalidation.

IDENTIFICATION AND TRACEABILITY

Where appropriate; the organization shall identify the product by

suitable means throughout product realization.

The organization shall identify the product status with respect to

monitoring and measurement requirements.

Where traceability is a requirement; the organization shall control and

record the unique identification or the product.


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NoteIn some industry sectors; configuration management is a

means by which identification and traceability are maintained.

CUSTOMER PROPERTYThe organization shall exercise care with customer property while it is

under the organizations control or being used by the organization.

The organization shall identify, verify, protect and safeguard

customer property provided for use or incorporation into product. If

any customer property is lost, damaged or otherwise found to be

unsuitable for use, this shall be reported to the customer and records

maintained.

PRESERVATION OF PRODUCT

The organization shall preserve the conformity of product during

internal processing and delivery to the intended destination. This

preservation shall include identification; handling; packaging; storage

and protection. Preservation shall also apply to the constituent parts of

a product.

CONTROL OF MONITORING AND MEASURING DEVICES

The organization shall determine the monitoring and measurement to

be undertaken and the monitoring and measuring devices needed to

provide evidence of conformity of product to determined

requirements.

The organization shall establish processes to ensure that monitoring

and measurement can be carried out and are carried out in a manner

that is consistent with the monitoring and measurement requirements.

Where necessary to ensure valid results, measuring equipment shall


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a). Be calibrated or verified at specified intervals, or prior to use

against measurement standards traceable to international or national

measurement standards; where no such standards exist, the basis used

for calibration or verification shall be recorded.

b). be adjusted or re-adjusted as necessary.

c). be identified to enable the calibration status to be determined.

d). be safeguard from adjustments that would invalidate the

measurement result.

e). be protected from damage and deterioration during handling,maintenance and storage.

In addition, the organization shall assess and record the validity of the

previous measuring results when the equipment is found not to

conform to the requirements. The organization shall take appropriate

action on the equipments and any product affected. Records of the

results of calibration and verification shall be maintained.

When used in the monitoring and measurement of specified

requirements, the ability of computer software to satisfy the intended

application shall be confirmed. This shall be undertaken prior to

initial use and reconfirmed a


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DETAIL OF WORK DONE


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INTRODUCTION TO ANALYSIS FINANCIALSTATEMENT

OBJECTIVE OF ANALYSIS FINANCIAL STATEMENT

5.2

TYPES OF ANALYSIS FINANCIAL STATEMENT

5.3

RATIO ANALYSIS

5.3.1

INTODUCTION

5.3.2

CLASSIFICATION

ANALYSIS OF FINANCIAL STATEMENTS

INTRODUCTION

Analysis of Financial Statements (AFS) refers to the progress of

critical examination of the financial information contained in the

financial statements in order to understand & make decisions

regarding the operations of the company. The AFS is basically a study

of the relationship among various financial facts & figures as given in

a set of financial statements. The basic financial statements i.e., the

Balance Sheet& the Income Statement contained a whole lot of

financial data. The complex figures as given in these financial


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statements are dissected into simple & valuable elements,

&significant relationships are established between the elements of

the same dissection, establishing relationships & interpretation

thereof to understand the working & financial position of a firm is

called AFS. Thus, AFS is the process of establishing & identifying the

financial weakness & strengths of the company.

OBJECTIVES OF FINANCIAL ANALYSIS

The following are the objectives of financial analysis: -

1.)Judging The Earning Capacity Or Profitability:-On the basis of financial statements, the earning capacity of the

business concerned may be computed. In addition to this the future

earning capacity of the concerned may be forecasted. All the

external users of accounts, especially the investors are interested in

this.

2.) Judging The Short & Long- Term Solvency Of The Concern::On the basis of financial statements, the solvency of the concern may

be judged. Debenture holders & lenders judge the ability of the

company to pay the Principal& Interest, as most of the companies

raise a portion of their capital requirements by issuing debentures &

raising long-term loans. Trade creditors are mainly interested in

assessing the short-term solvency of the business as they want to


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know that the business is in a position to pay debts as & when they

fall due.

3.)Making Forecasts & Preparing Budgets::Past financial Analysis helps a great deal in assessing developments

in the future, specially the next year. For example, given a certain

investment, it may be possible to forecast the next years profit on

the basis of earning capacity shown in the past. Analysis thus helps in

preparing budgets

TYPES OF COMPARISION

Comparison is the second step in RA. The ratio can be compared in

three different ways:

A.) Cross Section Analysis : - In this, the Ratios of a firm are

compared with the ratios of some other selected firm in the same

industry at the same point of time. The Cross Section Analysis helps

the Analyst to find out as to how a particular firm has performed in

relation to its competitors. The firms performance may be compared

with the performance of the leader in the industry in order to

uncover the major operational inefficiencies.

B.)Time Series Analysis (TSA): -In this, the performance of the firm

is evaluated over a period of time. By comparing the present

performance of a firm with the performance of the same firm over

the last few years, an assessment can be made about the trend

progress of the firm, about the direction of progress of the firm. The

information generated by the T.S.Acan be of immense help to the

firm to make planning for future operations. The T.S.A can also help


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the firm to assess whether the firm is approaching long-term goals or

not.

C.) Combined Analysis : - In this cross section and time series

analysis are combined to study the behavior and pattern of ratios sothat meaningful and comprehensive evaluation of the performance

of the firm can be made.

The basis of our comparison shall be limited to time series analysis

since the basic objective of our analysis is to compare the present

performance of BEL with its performance over last two years

INTRODUCTION TO RATIO ANALYSIS (RA)

The RA has emerged as a principal technique of the AFS. A ratio is the

relationship expressed in mathematical term between two individual

and group of figures connected with each other in some logical

manner. The RA is based on the premise that a single accounting

figure by itself may not communicate any meaningful information

but when expressed as a relative to some other figure, it maydefinitely give some significant information. The relationship

between 2 or more accounting figures/groups is called a Financial

Ratio. A Financial Ratio helps to summarize a large mass of financial

data into a concise form & to make meaningful interpretations &

conclusions about the performance & position of the firm.


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STEP IN RATIO ANALYSIS

The RA requires two steps as follows:(i) Calculations of the Ratios.(ii) Comparing the ratios with some predetermined standards.

The standard ratio may be the last ratio of the same firm or

a projected ratio or the ratio of the most successful firm in

the industry. In interpreting the ratio of a particular firm, the

analyst cannot reach any fruitful conclusion unless the

calculated ratio is compared with some predetermined

standards

CLASSIFICATION OF RATIOS

Broadly speaking, the operations and financial positions of the firms

can be described by studying its profitability, its long term and short-

term liquidity position and its operational activities. Therefore the

ratios can be studied by classifying into the following groups:

The Liquidity Ratios. The Activity Ratios. The Leverage Ratios. The Profitability Ratios


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The Liquidity Ratios

The term Liquidity refers to the maintenance of cash, bank balanceand those assets which are easily convertible into cash in order to

meet the liabilities as and when arising. The terms Liquidity ratios

study the firms short-term solvency and its ability to pay off the

liabilities. The day-to-day problems of financial management consist

of the highly important task of finding sufficient cash to meet current

obligations. The short-term liquidity risk arises primarily from the

need to finance current operations. The liquidity ratios provide a

quick measure of liquidity of the firm by establishing the relationshipbetween its current assets and current liquidities. If the firm does not

have sufficient liquidity, it may not be in a position to meet its

commitments and thereby may lose its credit worthiness. The

liquidity ratios are also called Balance Sheet Ratio because the

information required for the calculation of liquidity ratios is available

in the balance sheet only. Some of common liquidity ratios are:

A.) CURRENT RATIO : - It is the most common & popular measureof studying the liquidity of a firm. It is an indicator of the firms

ability to meet its short-term obligations. It matches the total

current assets of the firm against its current liabilities. It scalculated as follows: -

CURRENT RATIO = Current Assets / Current Liabilities

The Current Assets include those assets, which are in the form of

cash or convertible into cash within a period of one year. The term


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current assets also include Prepaid Expenses & Short-term

investments, if any. The current liabilities all types of liabilities, which

will mature for payment within the period of one year.

SIGNIFICANCE:

The Current Ratio shows the extent to which the current assets are

quickly convertible in to cash exceeds the liabilities that will be

shortly payable. The current ratio, so calculated is compared with a

standard ratio. Generally, a current ratio of 2:1 is considered to be

satisfactory. A higher ratio indicates poor investment policies of the

management & poor inventory control while a low ratioindicates lack

of liquidity & shortage of working capital

QUICK RATIO : -It is also called Acid test or LiquidRatio. QuickRatio is worked out to test the short-term liquidity of the firm in its

current form .This ratio establishes the relationship between liquid

Current Assets & the Current liabilities. A currents asset is considered

to be liquid if it is convertible into cash without loss of time & value.

On the basis of this definition of liquid assets, the inventory is singled

out of total Current Assets as the inventory is considered to be

potentially liquid. The reason for keeping inventories out is that it

may become obsolete, unsaleable or out of fashion & always require

time for releasing into cash.

Moreover, the inventories have tendencies to fluctuate in value.

Another item ,which is generally kept out, is the Prepaid Expenses

because by nature these Prepaid Expenses are not realizable in cash.

It is calculated as:

QUICK RATIO = Liquid Assets / Current Liabilities


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SIGNIFICANCE:

Quick ratio is an indicator of short-term solvency of the firm. In fact,

it is a better indicator of liquidity as it involves computation of Liquid

Assets, which means the illiquid portion of the current assets is

eliminated. Quick ratio is considered as a further refinement of

current ratio. Generally a quick ratio of 1:1 is considered to be

satisfactory because this means that the Quick Assets of the firm are

just equal to the current liabilities & there does not seem to be a

possibility of default in payment by the firm.

THE ACTIVITY RATIOS

The activity ratios are also called the Turnover Ratios or

Performance Ratios. An activity ratio is a measure of movement &thus indicates as to how frequently an account has moved/turned

over during a period. It shows as to how efficiently &effectively the

assets of the firm are being utilized. These Ratios are usually

calculated with reference to sales/cost of goods sold & are expressed

in terms of rate or times. Activity ratios for each type of assets are

calculated separately .Following are the important Activities Ratios.

A.) Capital Turnover Ratio (CTR): - Capital Turnover indicates the

speed or rate with which Capital Employed is rotated in the process

of doing business. Efficient Rotation of capital would lead to higher

profitability. The Resultant Ratio would show the number of times

the capital has been rotated in the process of doing business. The

Ratio is calculated as follows: -

Capital Turnover Ratio = Net sales / Capital Employed


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CTR establishes the relationship between sales & capital employed.

The objective of working out this ratio is to determine how efficiently

the Capital Employed is being used. Higher the ratio, greater is the

sales made per rupee of Capital Employed in the firm & hence higher

is the profit. A low CTR refers to low sales generated in relation to

Capital Employed or excessive Capital being used in the firm.

B.) Fixed Assets Turnover Ratio: - This Ratio shows how to well thefixed assets are being utilized. If compared with a previous

period, it indicates whether the investment in fixed assets has

been judicious or not.

The Ratio is calculated as follows: -

Fixed Assets Turnover Ratio = Net sales / Fixed Assets

In computing Fixed Assets Turnover Ratio, the fixed assets are

generally taken at written down value at the end of the year.

Fixed Assets Turnover Ratio indicates how efficiently the fixed assets

are used. If there is an increase in the ratio, it will indicate that there

is improvement in the utilization of fixed assets. If there is a fall in

the ratio, it is a case for the management to investigate the fall; if

fixed assets remain idle for any reason, the Turnover Ratio will

decrease.

C.)Net Working Capital Turnover Ratio: - This Ratio indicates thenumber of times a unit invested in working capital produces sale.

In other words, this ratio indicates the efficiency in the utilization

of short-term funds in making the sales. Net working capital

means excess of current assets over current liabilities careful

handling of short-term funds will mean are reduction in the

amount of capital employed thereby improving turnover.-


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NWC Turnover Ratio = Net sales / Net Working Capital

SIGNIFICANCE:-

This ratio indicates whether or not Working Capital has been

effectively utilized in making sales. It shows the number of times aunit invested in a working capital produces sale.

D.) Stock Turnover Ratio or Inventory Turnover Ratio:-This ratioestablishes the relationship between the cost of goods sold

during a given period & the average amount of inventory carried

during that period. It indicates whether stock has been efficiently

utilized or not, the purpose being to check whether only the

required minimum has been locked up in stocks


Stock Turnover Ratio = Cost of goods sold / Average Stock or

Inventory

Cost Of Goods Sold = Opening Stock + Purchases +Direct Expenses

Closing Stock.


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OR

Cost Of Goods Sold = Net Sales Gross Profit.

Average Stock = (Opening Stock + Closing Stock)/2

SIGNIFICANCE:

Stock turnover Ratio indicates whether stock has been efficiently

used or not. The purpose of this ratio is to check whether only the

required minimum amount has been invested in stock. Higher the

ratio, better it is, since it indicates that more sales are being

produced by a rupee of investment in stocks. A low Stock turnover

may reflect a dull business, over investment in stocks, accumulation

of stock at the end of the period in anticipation of higher prices orunsaleable goods etc.

E.) Debtors Turnover Ratio or Accounts Receivable Turnover Ratio:-

Incase the firm sells the goods on credit, the realization of sales

revenue is delayed & the receivables (Debtors &/or Bills) are

credited. The cash is realized from these receivables at a later stage.

The speed with which these receivable are collected affects the


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liquidity position of the firm. The receivable turnover ratio revels the

velocity of receivable collection by matching the annual credit sales

to the average receivables as follows:

Receivable Turnover Ratio = Annual net Credit Sale /

AverageReceivables

In case details regarding opening & closing Receivables & credit sales

are not given, the ratio may be worked out as follows:

Debtors Turnover Ratio = Total Sales / Account Receivables

SIGNIFICANCE:

Debtors turnover ratio indicates the efficiency with which the

amounts due from debtors are collected. The higher the ratio, the

better it is, since it would indicate that debts are being collectedmore quickly. Prompt collection of book debts will release funds,

which may then be put to some other use.

F.) Average Collection Period or Debtors Day:- This ratio shows the

number of days, for which sales remain uncollected. The Ratio is

calculated as follows: -


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Average Collection Period = Days in a year / Debtors Turnover

SIGNIFICANCE:

Debt collection period do the customer enjoy a measure of the

average credit period? It indicates the average time leg between

sales & collection thereof. A shorter collection period indicatesprompt payment by debtors, which reduces the chances of bed

debts. A longer collection period indicates the risk of collection of

debts & increase in the cost of collection, also loss of interest on the

money due from the debtors.

G.) Creditors Turnover Ratio or Accounts Payable Ratio:- This ratio

indicates the velocity with which payment for credit purchases are

made to creditors. The term Accounts Payable includes Creditors &

Bills Payable.


Creditors Turnover Ratio = Total Credit Purchase / AverageAccounts

Payable


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In case the details regarding the credit Purchases, opening & closing

accounts payable are not given, the ratio may be worked out as

follows:

Creditors Turnover Ratio = Total Purchase / Accounts Payable

SIGNIFICANCE:

Creditors turnover ratio indicates whether the firm is actuallyenjoying the credit promised by suppliers. If the firm enjoy lower

credit period, it means creditors are being promptly & the firm is not

taking the full advantage of credit facilities.

H.) Average Payment Period or Age of Purchases or Credit Enjoyed

(APP):- The Purpose of computing average payment period is to

indicate the speeds with which the payments for credit purchasesare made to creditors. The Ratio is calculated as follows: -

Average Payment Period = Days in a Year/Creditors Turnover


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SIGNIFICANCE:

The Average payment period can be meaningfully evaluated bycomparing it with the credit period allowed by the suppliers. To the

extent possible, a firm should try to maintain the APP, which I

approximately equal to the credit terms of the supplier. This will help

improving the goodwill & credit worthiness of the firm in the market.

The suppliers are primarily concerned with APP since it provides with

an idea of the payment pattern of the firm. On the other hand, if a

firm is unable to maintain the APP as required by the supplier, it

indicates that the facilities given by the creditors are not being fullyutilized or that the firm is unnecessarily damaging its credit in the

market.

THE LEVERAGE RATIOS

The leverage ratios are also called as Solvency Ratios. The term

Solvency implies ability of a concern to meet its long-termindebtedness. Some important solvency ratios are:

A.) Debt Equity Ratio (DE Ratio): -The DE Ratio is worked out to

ascertain soundness of the long-term financial policies of the firm.

The DE Ratio is based on the assumption that the extent to which a

firm should employ the debt should be viewed in terms of the size of

the cushion provided by the shareholders funds. The Ratio is

calculated as follows: -

DE Ratio = Debt (Long Term Loans)/Equity (Shareholders Funds)

Debt means long term loans i.e. debentures, loan from long-term

financial institution. Equity means shareholders i.e. preference share

capital, equity share capital, reserves; Accumulated profits less losses& fictitious assets like preliminary expenses.


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SIGNIFICANCE:

Since the debt involves firms commitment to pay interest over the

long run &eventually to repay the principal amount, the financial

analyst, the debt lender, the preference shareholders, the equityshareholders & the management pay close attention to the degree of

indebtedness & capacity of the firm to serve the debts. The more the

debt a firm uses, the higher is the probability that the firm may be

unable to fulfill its commitments towards its debt lender. The DE

Ratio throws light on the margin of safety available to the debt

lenders of the firm. If a firm with a high DE Ratio fails then a chunk of

the financial loss may have to be borne by the debt holder of the

firm. The greater the DE Ratio, higher would be the risk of lenders.

Also the term of credit will become unfavorable to the firm. On the

other hand a low DE Ratio implies a low risk to lenders & creditors of

the firm.

A question that now arises is that what should be the ideal DE Ratio.

The answer to the above question is that a balance between the

proportions of debt equity should be maintained so as to take care of

the interest of lenders, shareholders &the firm as a whole. In India,

this ratio is taken as acceptable as 2:1. If the DE Ratio is more then

that, it shows a rather risky financial position from long-term point of

view. However, 1:1 is considered as the ideal DE Ratio


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B.) Interest Coverage Ratio :When a business borrows money, the

lender is interested in finding out whether the business would earn

sufficient profits to pay periodically the interest charges. A ratio,

which expresses this, is called Interest Coverage Ratio or Debt

Service Ratio or Fixed Charges Cover.


Interest Coverage Ratio = Net Profit Before Interest &

TaxInterest on Fixed (Long Term)Loans or Debentures

SIGNIFICANCE:

This ratio indicates how many times the profit covers fixed interest.

It measures margin of safety for the lenders. If profit just equals

interest, it is a bad position for the company as nothing will be left

for shareholders & lenders. Higher the ratio, more secure will be the

lender in respect of his periodical interest income.

Total Debt Ratio:The total Debt Ratio compares the total Debts

(Long Term as well as Short Term) with the total assets.


Total Debt Ratio = Total Debts / Total Assets OR

Total Debt Ratio = (Long Term Debts + Current Liabilities)(Total

Debts + Net Worth)


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SIGNIFICANCE:

The total debt ratio depicts the proportion of total assets financed by

the total liabilities. The remaining assets are financed by the

shareholders funds. Higher the total debt ratio, the more risky is thesolution because all liabilities are to be repaid sooner or later.

Moreover, higher liabilities imply greater financial risk also.

D). Fixed Assets Ratio: It must be known that fixed assets should be

financed only out of long-term funds. The ratio will be 1, if long-term

funds are equal to fixed assets. If the ratio is less then 1, it means

that the firm has adopted the imprudent policy of using short-term

funds for acquiring fixed assets; on the other hand, a very high ratiowould indicate that long-term funds are being used for short-term

purposes i.e. for financing working capital. It is not good from the

firms point of view because it is usually more difficult to raise long-

term funds.


Fixed Assets Ratio = Net Fixed Assets Shareholders fund + Long

Term Loans

SIGNIFICANCE:

This ratio is important to ascertain the proper investments of funds

from the point oview of long-term financial soundness. It indicates as

to what extent fixed assets are financed out of long term funds. This

ratio should normally be more then 1. If it is less then 1, it means

that the firm has followed the wrong policy of using short-term funds

for long term needs.

E.) Proprietary Ratio: This ratio establishes the relationshipbetween the proprietors & shareholders funds & the total assets.

It is expressed as:


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Proprietary Ratio = Proprietors funds or Shareholders / TotalAssets

SIGNIFICANCE:

The ratio is of particular importance to the creditors who can find

out the proportion of shareholders funds in the total assets

employed in the business. A high proprietary ratio will indicate a

relatively little danger to creditors etc., in the event of forced

reorganization or winding up of the company. A low proprietary ratio

indicates greater risk to the creditors since in the event of loss a partof their money may be lost besides loss to the proprietors of the

business. A ratio below50% may be alarming for the creditors since

they may have to loose heavily in the event of companys liquidation

on the account of heavy losses.

The Profitability Ratios

The Profitability Ratios measures the profitability or the operational

efficiency of the firm. There are two groups of persons who may be

specifically interested in the analysis of the profitability of the firm.

These are:

The management, which is interested in the overall profitability&operational efficiency of the firm

The equity shareholders who are interested in the ultimatereturns available to them.

Both of these parties and any other party such as creditors can

measure the profitability of the firm in terms of the profitability


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ratios, broadly, the profitability ratios are calculated by relating the

returns with the: -

Sales of the firm Assets of the firm Owners contribution

A.) Profitability Ratios Based On Sales Of The Firm: -Profit is afactor of sales & is earned indirectly as a part of the sales

revenue. So, whenever a firm makes sale, it earns profit (ingeneral). But How Much? How the Total Sales Revenue is going

to be used for meeting the cost o goods sold, deprecation,

indirect expenses, tax liability & return to shareholders etc. All

this & other aspects can be analyzed with the help of

profitability ratios

The profitability ratios based on sales can be further divided

into:

PROFIT MARGIN RATIOS

The profit margin refers to the profit contributed by per rupee of

sales revenue& therefore, the profit margin ratios measure therelationship between the profit& the sales.

Different profit margin ratios have been suggested as follows:


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1)Gross Profit Ratios (GP Ratio): The GP ratio is calculated bycomparing GP of the firm with the net sales as follows:

Gross Profit Ratio = (Gross Profit / Net Sales)*100

For e.g., if the GP Ratio of a firm comes out to be 30% this means

that on every 1-rupee sale, the firm is earning a gross profit of 30paise.

SIGNIFICANCE:

GP Ratio is a reliable guide to the adequacy of selling prices &

efficiency of trading activities. This ratio should be adequate to cover

the Administrative & Marketing expenses & to provide for fixed

charges, dividends & building up of reserves. Higher the GP Ratio, the

better it is. When GP Ratio is studied as a time series, it may give the

increasing or decreasing trend & hence an idea of the level of

operating efficiency of the firm. For a single year, the GP Ratio may

not indicate much about the efficiency level of the firm.

2)Net Profit Ratio (NP Ratio) :- The NP Ratio establishes therelationship between the net profit (after tax) of the firm & the

net sales & may be calculated as follows:

Net Profit Ratio = {Profit (after tax) / Net Sales}*100


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The NP Ratio measures the efficiency of the management in

generating additional revenue over & above the total cost of

operations, the NP Ratio shows the overall efficiency in

Manufacturing, Administrative, Selling & distributing the product.

SIGNIFICANCE:

The NP Ratio is worked out to determine the overall efficiency of the

business. Higher the NP Ratio, the better the business. An increase in

the ratio over the previous period shows improvement in the

operational efficiency.

3) Operating Profit Ratio (OP Ratio):The operating profit refers to the pure operating profit of the firmi.e. the profit generated by the operation of the firm & hence is

calculated before considering any financial charge(such as interest

payment), non operating income / loss & tax liabilities etc.


OP Ratio = (Operating Profit / Net Sales)*100

SIGNIFICANCE:

The OP Ratio shows the percentage of pure profit earned on every

1rupee of sales made. The OP Ratio will be less then the GP Ratio as

the indirect expenses such as general & administrative expenses;


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selling expenses & depreciation charge etc. are deducted from the

GP to arrive at the operating profits. The OP Ratio measures the

efficiency with which the firm not only manufactures the goods but

also sells the goods. Higher the ratio better is the profitability of thebusiness.

4.) Operating Ratio: - This ratio measures the extent of cost incurred

for making the sale.


Operating Ratio = (Cost Of Goods Sold + OperatingExpenses / Net

Sales)*100

Operating Ratio plus net profit ratio is 100 i.e. the two ratios are

interrelated. For e.g. if the NP Ratio is 15%, it means that the

Operating ratio is 85%. A rise inoperating ratio indicates decline in

efficiency. Lower the ratio, the better it is.

SIGNIFICANCE:

Operating ratio is the test of operational efficiency of the business. It

shows thepercentage of sales that is absorbed by the cost of sales &

operating exp

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