A

SUMMER PROJECT REPORT

ON

“FINANCIAL STATEMENT ANALYSIS”

OF

LAKSHMI PRECISION SCREWS LTD.

Submitted in partial fulfillment for the award of

MASTER OF BUSINESS ADMINISTRATION (MBA)

Submitted by

LALIT KUMAR VERMA

Enroll no: 10312303909

DELHI INSTITUTE OF ADVANCED STUDIES

Guru Gobind Singh Indraprastha University, Delhi

JUNE-JULY 2011

DECLARATION

Research scholar LALIT KUMAR VERMA, Roll no. 10312303909 student of M.B.A. (2 years)

III rd semester DELHI INSTITUTE OF ADVANCED STUDIES, ROHINI, hereby Declare that

the summer training report titled “Financial Statement Analysis” of “ Lakshmi Precision

Screws Ltd. ” is a record of critical & independent work carried out by me under supervision &

guidance of Mr. SHRI NIWAS BANSAL. This has not been previously submitted for the

award of any other diploma, degree or other similar title.

ACKNOWLEDGEMENT

It is scholar’s proud privilege to put on record my gratitude to all those who have been the source

of guidance, cooperation & help during my summer training at LAKSHMI PRECISION

SCREWS LTD.

An undertaking of study like this is never the outcome of the efforts of a single person. My

project is not an exception to this. It was not possible to accomplish it without the help of others.

I would hereby take the opportunity to express my indebtedness to people who have helped me

to accomplish this task.

I wish to express my deep sense of gratitude to my guide Mr. SHRI GOPAL BHUTANI for the

keen interest, inspiring guidance, continuous encouragement, valuable suggestions &

constructive criticism throughout the pursuance of his report.

Further words of thanks are expressed to all other staff members without hose help it would not

have been possible to collect information & data. I am beholding to my parents for their blessing

& encouragement.

PREFACE

Practical training constitutes an integral part of management studies. Training gives an

opportunity to the students to expose themselves to the industrial environment, which is quite

different from the classroom teachings. One cannot rely on theoretical knowledge. It has to be

coupled with practical to be fruitful. Training also enables the management students to see

themselves the working condition under which they have to work in the future. It thus enables

the students to undergone those experiences, which will help them later when they join any

organization.

After liberalization the Indian economic sense is changed. Industrial activity in India has become

a thing to watch & I really wanted to be a part of it &it is essential for me being a finance

student.

I underwent eight weeks of training at LAKSHMI PRECISION SCREWS LTD. I consider

myself lucky to get my summer training in such a big Company. It really helped me to get a

practical insight into actual business environment & provide me an opportunity to make my

financial management concepts more clear.

EXECUTIVE SUMMARY

To reach the zenith alone, attempt is proved to be failure most of the times. Although today’s

business practices have evolved out of the past but there are complex practices, which

are followed. The business market place environment has become very dynamic and very fast

changing. Lakshmi Precision Screws Limited is marching ahead from national to global level.

Lakshmi Precision Screws Limited, India's premier information enabling and integration

company, has received the ISO 9001:2000 certification specifies requirements for a quality

management system where an organization needs to demonstrate its ability to consistently

provide product and services that meets customer and applicable regulatory requirements. ISO

9001:2000 also aims to enhance customer satisfaction through the effective application of the

system, including processes for continual improvement of the system and the assurance of

conformity to customer and applicable regulatory requirement.

The menu of Lakshmi Precision Screws Limited global services broadly covers the steel industry

and lighting industry. The products are marketed under the brand name of “LPS” all over the

country. The division is the country’s largest manufacturer of FTLs. And lighting division is the

second largest producer of the lighting products in India. All factories are ISO 9002. Exporting

to more than 40 countries. It is very difficult to make enlightened decision on the usual annual

financial statement of an organization. For evaluating the financial position and performance of

the organization, ratio analysis is attempted to comprehend and interpret the information to form

conclusion. When ratio analysis is being attempted for internal use, it yields very important

information on such aspects as over or under trading, over or under investment in stock and fixed

assets, over or under capitalization to credit policy.

Ratio analysis is a powerful tool of financial analysis. A ratio 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 a bench mark for evaluating the financial position and

performance of a firm. The absolute accounting figure reported in the financial statements

doesn’t provide a meaningful understanding of the performance and financial position of a firm.

For the purpose of Financial analysis of LPS and various ratios have been calculated. For

profitability of LPS gross profit, net profit, return on capital employed, return on total asset

have been calculated. In order to find out management efficiency various turnover ratio like

fixed asset turnover ratio, material handling turnover ratio, inventory turnover ratio, working

capital turnover ratio have been calculated. For studying short term liquidity position of LPS

ratios like current ratio, quick ratios are calculated.

TABLE OF CONTENT

Serial No. CHAPTER NAME Page No.

1 INTRODUCTION

COMPANY PROFILE

OBJAECTIVE OF THE STUDY

RESEARCH METHODOLOGY

2 FINANCIAL & DATA ANALYSIS

ANALYSIS OF FINANCIAL DATA OF LPS LTD.

COMPARATIVE STATEMENTS

CASH FLOW STATEMENT

RATIO ANALYSIS

3 FINDINGS & LIMITATIONS

FINDINGS

LIMITAIONS

SUGGESTIONS

CONCLUSIONS

BIBLIOGRAPHY

ANNEXURES

CHAPTER -1

Introduction of the company

Objectives of the Study

Research Methodology

COMPANY PROFILE

LPS Limited was promoted by Late Sh. Bimal Prasad Jain. LPS was incorporated as a Pvt.

Limited Company on 27th Dec., 1968. It was converted into a Public Limited Company in August

1971. At present it is operating as LPS Limited.

LPS Plant-II is another step forward in progress of the company.

The company has started with only one machine 3/8’’ Bolt Maker. Now it has wide range of

machine producing a wide range of products. Today the company is the leading manufacturer of

High Tensile Fasteners in India. The Quality of the product is well accepted in the market so

demand is growing very fast and to meet the demands and expand its production range the

company is adding more production facilities.

Besides LPS the other leading companies are Sundram Fasteners of TVC group, Un-Brako and

Guest Keen Williams. Recently Pandatogon Screws and Fasteners Limited have also been

introduced.

The installed capacity at present is about 18,996 M.Tons and annual turnover of the company is

207crores approximately. The number of employee are more than 2000 which only 20 at the time

of installation.

Company has covered 23500 sq. yards. The screws, nuts and bolts range from 3mm to 24mm in

diameter. The products are marked under name and style of LPS.

CHRONOLOGICAL HISTORY   OF LPS

1959 Established Nav Bharat Industries as small parts manufacturer.

1972 Established Lakshmi Precision Screws Pvt Ltd as Socket Head Screws

1973 Technical tie-up with the German firm M/s Richard Bergner.

1977 Acknowledged quality source of fastener.

1978 Technical tie-up with M/s Richard Bergner expires.

1983 Secured self certification status from FORD.

1984 Declared Public Limited Company.

1986 Secured self certification status from M/s Lakshmi Machine Works.

1988 Established as manufacturer-exporter.

1991 Received Regional Export Award from Engineering Export Promotion Council,

(EEPC) India.

1992 Received Regional Export Award from EEPC for the second Consecutive year.

1993 Received Regional Export Award from EEPC for the third consecutive year.

History (Contd.)

1993 Established Plant - II.

1994 Received Employment Generation Award from Director of Industries, Haryana

State.

1995 Accredited in Mechanical & Chemical Testing by A2LA, USA to meet Fastener

Quality Act of US.

1995 Accredited in Mechanical Measurement, Mechanical & Chemical

Testing by National Accreditation Board for Calibration & Testing

Laboratories (NABL). Government of India.

1996 Certified to ISO-9002.

1998 Installed Bolt Maker(AF 2525) to add production capacity

to 12200 MT.

- Self Certification status from TELCO.

- Technical Tie-up with Sunil Machinery Corporation, Korea.

- Joint Venture with Bossard AG-Switzerland.

1999 Licenced Manufacturers of TORX Screw from Camcar Co. –USA.

2000 QS 9000 Certification.

2001 ISO/TS-16949 Certification.

- ISO-14001 Certification.

2002 Implemented ERP–SAP R/3.

- Golden Peacock Award.

2003 Approved Volvo Global Suppliers.

MAIN PRODUCTS

Division Products

Precision Cold Forming parts for Automobile

Engine Parts ( Con Rod, Cylinder Studs,

Counter Weights, Cylinder Head, Rocker Arm, Engine

Mounting, Main Bearing etc.)

Bolts & Nuts

for

Automobiles

Chasis Parts (Wheel Bolts, Wheel Hub Bolts & Nuts,

Axle Bolts/Pin, Flanged Bolts, Collar Bolt, Shock

Absorber Mounting Pins etc.)

Washer Assemblies Bolts

The other critical & safety parts bolts

Construction parts (Friction Grip)

Bolts & Nuts for Agriculture Industry

FASTENERS Bolts & Nuts for Industrial Machinery

Cold formed parts for Automobile (Piston Pins, Switch Body, Ball Joints,

Gear Blanks, Rocket Shaft, Ball Pins, Plunger etc.)

Pins for Hydraulics & Pumps

Bolt for Refrigeration Compressor

Friction Grip Bolts & Nuts for Construction Industry

Socket Head Cap Screw

Low Head Socket Bolt

Shoulder Bolt

Button Head

CSK

Standard Set Screws

Fasteners Hex Wrench Keys

Hex Head Bolt

Dovel Pin

Nuts

Friction Grip Bolts

Track Shoe Bolts

Stainless Steel Hex Head

Stainless Steel Socket Head Cap Screws

VISION

“Make LPS a ‘Most Sought After’ Brand”.

Achieve Rs.500 Crores in Sales

Become a Deming Organization

Improve EBIDTA to 25%

Expand Manufacturing to 2 more locations

CORE VALUES :

Customer Obsession

Continuous Improvement

Respect for people

MISSION OF LPS

To be a growth-oriented professional company promoting high standards of business ethics

and producing best quality products thereby achieving international standards of excellence.

To establish a strong R & D facility to fulfill the demands of the automotive industry as

comprehensively as possible.

To make each member of the company feel proud and empowered by fostering a culture of

participation and innovation.

To strive for reduction in defects and achieve 6 sigma and beyond so as to make quality a

way of life in LPS.

To reduce cycle time in all processes as a step towards over-all improvement.

To provide prompt and excellent service to customers anywhere in the world.

To maximize shareholder’s wealth.

QUALITY SYSTEMS

Lakshmi Precision Screws Ltd is committed to produce Quality High Tensile Precision

Fasteners. The most important criterion of Quality is the satisfaction of customer, both

National & International.

Each lot that moves out of our production facilities undergoes mechanical, Chemical and

metallurgical inspection at over 20 inspection nodes, beginning from raw material receipt to

packaging.

A2LA, USA and NABL, India have accredited LPS test facilities. We are certified ISO-9002,

QS-9000, ISO-14001 & TS-16949 company. The ‘Advanced Product Quality (APQP),

Production Part Approval Process (PPAP) and Failure Mode Effect Analysis (FMEA) have

already been implemented. Strict on- line visual SPC techniques to monitor product quality on

a real time basis have also been incorporated.

'LPS' is equipped with state of the art Laboratory and Standard Room. Some of the major

equipments we have are:

• Optical Emission Spectroscope : For ascertaining chemical composition of Raw Material.

Metallographic examination involving Microstructure, Inclusion rating.

• Image Analyser : Grain size, Decarb, Microstructure, Inclusion, Thread life etc along with

statistical analysis. Decarburisation, Gram size, Thread laps etc. along with statistical analysis.

• Fisheroscope (X-ray analysis) : For ascertaining coating thickness by x-ray method and

material analysis by spectrum needless to mention the other equipment, we have i.e.

Metallurgical Microscope, Magna Hardness Tester, Major flux testing, Universal Tensile

Testing M/c, Hydrogen De-embrittlement Testing, Torque testing etc. Eddy current testing,

Rockwell cum superficial hardness Tester, Stereo Microscope & salt spray testing.

• Mahr's Perthometre Concept : For measurement of any type of contour (Including threads

and surface toughness).

• 'NIKON' measuring microscope : For all complex geometry measurement to a high precision

with image transfer provision.

To ensure the best quality, we source raw materials, like wires and wire rods, from the best

steel plants in South East Asia. With the latest advances in machinery automation, LPS has in-

house capability to carry out all the operations for fasteners manufacturing. Cold forging with

multi-station boltmakers of National, USA, Sakamura, Japan and Asahi Sunac. LPS is

equipped with sixth generation machines where rolling can be done after heat treatment to

ensure perfect lap free threading. Machining is done with CNC machines to form intricate

shapes for specific applications. Continuous heat treatment improves product quality and the

finish of the product is detemined by applications specifications. All under the eagle eyes of an

experienced quality assurance team.

Our dedicated team of engineers identifies the most suitable material to enhance the quality of

fastening and ensure greater protection against corrosion or loosening of fasteners under

stringent applications.

A case in point : LPS simultaneous engineering capability has proved a boon to New Holland.

After studying product design issues, our engineers customizes a fastening solution to meet

their application need. LPS has, indeed achieved benchmark status in time-to market for new

specials.

RESEARCH & DEVELOPMENT

To clearly understand our process capabilities and the customer’s requirements, our team

gives a new product at the rate of one per day.

An integrated engineering team and high technology engineering inputs have been

instrumental in producing world-class fasteners. The fasteners you can rely on. Because LPS

fasteners has always set itself the highest standards. Standards it keeps to every inch of the

way. To name a few our team has successfully developed critical components for customers

like John Deere, Ford, Daewoo, Carraro, Volvo, Honda Motorcycle & Scooter, Honda Siel,

Matsushita, New Holland Tractors and most of the other automotive multinational joint

ventures in India.

In the domestic market we have achieved a long standing business relationship with all the

major players like Telco, Bajaj Auto, Maruti-Suzuki, Escorts Yamaha, Hero-Honda , ISRO,

BHEL, LML, Micro-Bosch, TVS Suzuki etc.

We are also equipped with latest in-house designing capabilities like :

Tie-up with a company from Germany and developed a special software "SIMULATION", in

order to improve tool life.

JOINT VENTURES

LPS-Bossard Pvt. Ltd. is a joint venture company of LPS and Bossard. AG of Switzerland.

This venture gives state of the art fastening solution/ technology to customer in India. The

latest inventory management technique through logistic support is also provided by this

company.

Recoil Business Division of 'LPS'

This division of LPS is sole master distributor of fastening solutions from Alcoa Fastening

Systems, USA. Alcoa. This company ensures global consistency of quality design standards in

manufacturing wire thread, Inserts, STI Taps, Thread Repair Kits etc.

Textron Inc. U.S.A.

'LPS' has entered into a licensing agreement with Textron Inc, USA for manufacturing and

marketing 'Torx®' brand of proprietary products. Textron is 10 billion USD multi-specialty

company, with 1.8 billion USD as revenue from fastening division.

Torx® drive systems improve assembly line productivity thereby reducing cost

MAJOR CLIENTS

Heavy Commercial

Vehicles

  Light Commercial Vehicles

 

  Tractors

 

  Cars

 

  Two Wheelers

 

  Earthmoving Equipment

   

  Textile Machinery

     

  Machine Tools

 

     

  Hydraulic Equipment

 

  Heavy Electrical Equipment

 

  Refrigeration / Air Cond.

 

  Others

 

OBJECTIVES

The main objective of the study was to analyze the financial statements prepared by LPS Ltd

and also to understand and analyze the cash flow statement.

Another objective was to identify the deficiencies or the weak points of the company, if found

during the analysis phase.

And then finally to draw conclusion and make recommendations for the company so that

corrective actions should be taken to improve the position of the company.

RESEARCH METHODOLOGY

The procedure adopted for conducting the research requires a lot of attention as it has

direct bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason

that the research methodology, which used at the time of conducting the research, needs to be

elaborated upon. Research methodology is a way to systematically study & solve the research

problems. If a researcher wants to claim his study as a goods study, he must clearly state the

methodology adopted in conducting the research so that it may be judged by the reader whether

the methodology of work done is sound or not.

Research problem here was to analyze the financial data of LPS Ltd. to come out with some

underlying facts behind the financial statements of the company.

Research Design:

The research design implemented in this research is descriptive in nature, as it seeks to

discover facts, ideas, insight & to bring out new relationship among the data items already

existing. Research design is Hexble enough to provide opportunity for considering different

aspects of problems under study. It helps in bringing into focus some inherent study can be

conducted by the mgt.

Sample: taken for the purpose of my study are the financial statements of last 4 years.

Information Collection:

For the purpose of analysis I have gone for the secondary information. As this is the base

of the study so the data which is reliable has been taken. And also annual reports of the company

& information through internet are taken.

The data collected in the aforesaid manner have been tabulated in condensed form to draw the

meaningful results, then different techniques are use to analyze the data.

Chapter – 2

Analysis And Findings

Meaning of financial statements

Analysis of financial Data of LPS Ltd.

Comparative Statements

Common size Statement

Cash Flow Statement

Ratio Analysis

FINANCIAL ANALYSIS

Finance is defined as the provision of money at the time when it is required.

The role of finance in business enterprises needs no emphasis. Every

Enterprises whether big or small needs to carry on and expand its operations.

Finance holds the key to all the business activities and a company services,

Infect, its survival is depend on how efficiently it is able to acquire and

Utilize there funds.

MEANING OF FINANCIAL STATEMENT

Financial statement refers to such statements, which contain financial

Information about enterprises. These statements are a collection of data

Presented on the basis of logical and consistent accounting principles. They

report the profitability and financial position of the business at end of

accounting period. The term financial statement includes at least two

statements, which the accountant prepares at the end of an accounting period. The two statements

are:-

The statement of financial position or balance sheet

Income statement and profit & loss account

Various types of financial statements are prepared in comparative form

For the purpose of analysis. Out of these the most important financial

Statements are:

1. COMPERATIVE BALANCE SHEET

2. COMPARATIVE PROFIT & LOSS ACCOU

COMPARATIVE BALANCE SHEET

The comparative balance sheet as on two or more dates can be prepared to show the

increase or decrease in various assets, liabilities & capital. Such a comparative balance sheet is

useful in studying the trends in business enterprises.

Particularsas on 31st march 2009(Rs)

as on 31st

march 2008(Rs)

Increase/ Decrease over 2008(Rs)

% Increase/ Decrease over 2008

   SOURCES OF FUNDS:  A. Shareholders' fundShare Capital 109416670 109416670 0 0Reserves & Surplus 702763197 640930298 61832899 8.79 TOTAL (A) 812179867 750346968 61832899 7.61 B. Loan fundsSecured Loans 1013165757 646382561 366783193 36.2Unsecured Loans 80788070 40807011 39981059 49.4 TOTAL (B) 1093953827 687189572 406764255 37.2 

C.Deferred Tax Liabilities (Net) 24861745 19756519 5105226 20.53 TOTAL (A+B+C) 1930995439 1457293059 473702380 24.50 APPLICATIONS OF FUNDSA. Fixed AssetsGross Block 1232340039 1076319572 156020467 12.6less: Depreciation 718647794 634387452 84260342 11.7Net Block 513692245 441932120 71760125 13.9Add: Capital Work in Progress 26090174 826717 25263457 96.8 TOTAL (A) 539782419 442758837 97023582 17.9 B. Investments 42236580 41361580 875000 2.07 

C. Current Assets Loans &AdvancesInventories 1160949153 992640743 168308410 14.5

Sundry Debtors 577401593 399605167 177796426 30.8Cash & Bank Balances 104460761 49663819 54796247 52.5Other Current Assets 3707885 413807 3294078 88.9Loans & Advances 162007036 117716337 44291699 27.3  2007527428 1560039873 448487555 22.3

Less: Current liabilities & ProvisionsCurrent Liabilities 606448827 519511707 86937120 14.3Provisions 56046844 72062166 (16015322) (28.6)  662495671 591573873 70921798 10.7 TOTAL ( C ) 1346031757 968466000 377565757 28.1 D.MisceIIaneous Expenditure 2944683 4706642 (1761959) (59.8) TOTAL (A+B+C+D) 1930995439 1457293059 473702380 24.5     

Comments: -

Comparative B & S

Current assets have increased by 22.3% whereas current liabilities by 10.7%. Which

reflects the policy of the co. is to purchase current assets from short term sources of

finance.

Reserve & surplus has increased by 8.79% due to increase in current year profits by

31.58% which shows increase in profitability. This year investment is increase by

2.07%.

Overall liquidity position is not much satisfactory as al liquid assets are increasing

while cash is increasing by 52.5% over the previous year.

An increase in inventory by 14.5% may increase working capital but it will not be

good for the business as become more money is in inventory.

COMPARATIVE PROFIT & LOSS ACCOUNT

Profit & loss A/c shows the net and loss of a particular year whereas comparative profit &

loss a/c for a number of a number of years provides the Following information:-

Rate of increase or decrease in sales.

Rate of increase or decrease in cost of goods sold.

Rate of increase or decrease in operating profit.

Rate of increase or decrease in gross profit.

Rate of increase or decrease in net profit.

PARTICULARSAs on 31st

March 2009(Rs)

As on 31st March

2008(Rs)

Net Increase / Decrease

over 2008(Rs)

% Increase

/ Decrease

over 2008

A. INCOMESales 2070161481 1934209608 135951873 6.57Job Work Receipts 896690 1433953 (537263) (59.9)Other Income 35722340 17239550 18482790 51.7

Deferred Tax Liability WrittenBack 0 5716029 5716029

2106780511 1958599140 148181371 7.03B. EXPENDITUREMaterials & Finished Goods 782790261 703008396 79781865 10.19Manufacturing 453189913 508370762 55180849 (12.18)Personnel 305977039 252345754 53631285 17.53Office &Administration 128662294 114713258 13949036 10.84Selling & Distribution 94127990 84136507 9991483 10.61Interest & Financial Charges 117325714 83924902 33400812 28.47Managerial Remuneration 15837200 11836800 4000400 25.26

Depreciation 85334527 80415367 4919160 5.76Total 1983244938 1838751746 144493192 7.28Profits Before Tax 123535573 119847394 3688179 2.98Provision For Tax Expenses:Wealth tax 185400 95000 90400 48.76Income Tax 46155830 50570581 (4414751) (9.56)Profit for the After Tax 77194343 69181813 8012530 10.37

Appropriations:Transfer To General Reserve 2000000 5200000 (3200000) (160)Proposed Dividend 13130000 19695001 (6565001) (50)Corporate Dividend Tax 2231444 3347165 (1115721) (49.9)Total 17361444 28242166 (10880722) (62.6)Net Profits for the Year 59832899 40939647 18893252 31.58

Comments:-

Comparative P& L A/c

Sale has been increased by 6.57%

Manufacturing expenses has decreased by 12.18 % large than proportion of sales.

Selling expenses has been increased by 10.61%

Net Profit Margins are improving by 10.37%

CASH FLOW STATEMENT

A Cash Flow Statement is a statement showing inflows & outflows cash during a

particular period. A Cash Flow Statement summarizes the causes of changes in cash position

between dates of two Balance Sheets. It indicates the sources and uses of cash. This Statement

analyses changes in non current accounts to determine the flow of cash.

Description Year ending Year ending

31.03.09A . Cash flow from operating activitiesNet Profit after tax 93549390Adjustment for Tax 56644900

Net Profit before tax and extraordinary items 150194290Adjustment for Depreciation 91952829Deferred payment interest and Technical know 2062459how fee written offRent and Interest received (Gross) (4612333)Income Tax Refund 0Dividend Income 0Interest and Financial charges 119839237Miscellaneous expenses written off 6327Provision for Bad and Doubtful Debts 104380Profit/Loss on sale of assets 527328Operating Profit before working capital changes 360074517Adjustments for :Trade payables 39304065Trade and other receivables (218760517)Inventories (171438055)Cash generated from operations 9180010

Interest and financial charges (119029452)Direct Taxes (16395308)Net Cash from operating activities (126244750)

B. Cash flow from investing activities

Purchase of Fixed Assets (193813546)Proceeds from sale of fixed assets 1008777

Purchase of investment (1777928)Rent and interest received (Net of TDS) 3287910Dividend income 0Income Tax Refund 0Deferred payment interest and technical know (300500)how fee provided during the yearNet cash used in investing activities (191595287)

C. Cash flow from financing activitiesProceeds from issue of Share Capital (Inc. Share Premium) 0Right issue expenses 0Proceeds from short term borrowings 278728558Repayment of short term borrowing (21220029)Proceeds from long term borrowings 229867728Repayment of long term borrowings (80248391)Proceeds from Directors and others 0Repayment to Directors and others (22548114)Dividend paid .(100.32)Total 384579752

D. Net increase in cash and cash equivalents (A+B+C) 66739715

Cash & Cash equivalents (Opening Balance) 49302020Cash & Cash equivalents (Closing Balance) 116041735

Comments:-

Cash flow from operating activities have been increased due to depreciation net profit

and trade payables

Cash flow from investing activities has been decreasing do to purchase of fixed assets

and investment.

Cash flow from financing activities is improving because the company issues right

share and raises long term loan.

RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statement so that the strength & the weakness of a firm as well as

historical performance & current financial condition can be determined. The term ratio refers to

the numerical or quantitative relationship between two variables.

Current Ratio

This ratio explains the relationship between the current assets and current liabilities. The higher

ratio, the better it is, because the firm will be able to pay its current liabilities more easily. But

much higher ratio, even it is Beneficial to creditors, is not necessarily good for company. It may

indicate the poor management policy.

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

CURRENT ASSETS 1163300174 1343485583 1560039873 2007527428

CURRENT LIABILITIES 409821776 512620198 591573873 662495671

CURRENT RATIO 2.84 2.62 2.64 3.03

Interpretation

Current Ratio : Generally a current ratio of 2 : 1 is considered satisfactory. In earlier

years ratio was much higher i.e. 3.64 : 1 but now there is improvement in current ratio

as it is decreasing over the years & shows good policy.

Quick ratio

Quick ratio indicates whether the company is in position to pay its current liabilities within a

month or immediately. The quick ratio is a more rigorous and penetrating test of the liquidity

position of the firm.

LIQUIDITY RATIO = LIQUID ASSETS/CURRENT LIABILITIES

LIQUID ASSETS = CURRENT ASSETS – INVENTORIES

PARTICULARS 2006-2006 2006-2007 2007-2008 2008-2009QUICK ASSETS 475393260 507493996 544247963 649245757

CURRNT LIABILITIES 409821776 512620198 591573873 662495671

QUICK RATIO 1.16 .99 .94 .98

         

Interpretation

Quick Ratio : 1 : 1 satisfactory.

LEVERAGE OR CAPITAL STRUCTURE RATIO

This ratio indicates the ability of a company to pay the interest regularly as well as repay the

principal when due.

The leverage or capital structure ratios are:

Debt equity ratio

Debt to total fund ratio

Proprietary ratio

Fixed assets to Proprietor’s fund ratio

Debt equity ratio

These ratios express the relationship between the long - term tax and shareholders’ funds. It

indicates the proportion of funds, which are acquired by long – term borrowing in comparison to

shareholder funds.

DEBT – EQUITY RATIO = LONG TERM LOANS

SHARE HOLDER’S FUNDS

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

       

DEBT 707315611 619335155 687189572 1093953827

EQUITY 377502093 611304379 750346968 812179867

DEBT EQUITY RATIO 1.87 1.01 .91 1.35

         

Interpretation  

 

 

 

Debt Equity Ratio : Ideal ratio is 2:1 in earlier years it shows a risky financial

position as ratio is more than 2 : 1. it shows a decreasing trend now situation is

satisfactory as it is less than 2 : 1 thus co. has enough funds to pay its long term loans

Debt to total fund ratio

This ratio indicates the ability of a firm to pay its long – term debts. In this ratio,

debt is expressed in relation to total funds.

DEBT TO TOTAL FUND RATIO = LONG TERM LOANS

SHARE HOLDERS FUNDS

+ LONG TERM LOANS

PARTICULARS 2005-2006 2006-2007 2007-2008 2008-2009

DEBT 707315611 619335155 687189572 1093953827

TOTAL FUND 1084817704 1230639534 1437536540 1906133694

DEBT TO TOTAL FUND RATIO 0.65 0.5 0.47 0.57

         

Interpretation

Debt to Total funds Ratio: Long term loans are .67 : 1 satisfactory.

It means debt capital should not be more than 67% of total capital. It indicates that long

term financial position of the co. is sound, as the long term loans of co. according to

acceptable standard should not be more than 67% of total fund of the co.

Proprietary Ratio:

Equity

Proprietary Ratio =

Total Assets

2006 2007 2008 2009

Equity 377502093 611304379 750346968 812179867

Total Assets 1515089009 1761390329 2044160290 2590546427

Proprietary Ratio 0.25 0.347 0.37 0.31

Interpretation

Ratio is not satisfactory for the co. it needs to be improved as it is

not good from shareholders of view.

Interest coverage Ratio :

Net Profits before Interest & Income tax

Interest Coverage Ratio =

Fixed Interest Charges

2006 2007 2008 2009

EBIT 133982653 161913827 203772296 240861287

F.I. Charges 67419751 71809019 83924902 117325714

ICR 1.99 2.25 2.43 2.13

Interpretation

Indicates how many times the interest charges are covered by the profits available to

pay interest charges. It is satisfactory ratio is continuously improving.

Fixed Assets to Proprietor’s Ratio :

Fixed Assets

Fixed Assets to Proprietors’ =

Proprietary funds

2006 2007 2008 2009

Fixed Assets 313427255 376543167 442758837 539782419

Prop. Funds 377502093 611304379 750346968 812179867

Fixed Asset to Prop. Funds 0.83 0.62 0.59 0.66

Interpretation

(for industrial undertakings 60-65% satisfactory ) Indicates the extent to which

shareholder’s funds are sunk into the fixed assets. Here the ratio is less than 100%

implies that owner’s funds are more than total fixed assets & a part of WC is provided

by shareholders. In 2008, it is satisfactory.

Activity Ratios

Inventory Turnover Ratio:

Net Sales

Inventory Turnover Ratios =

Inventory

2006 2007 2008 2009

Net Sales 1380687644 1667513770 1934209608 2070161481

Inventory 686863367 832858713 992640743 1160949153

ITR (times) 2.01 2.00 1.95 1.78

Interpretation

Measures the velocity of conversion of stock in to sales. ITR is decreasing over the

years (due to increase in inventory is more than increase in sale) But in 2008 ITR has

increased as increase in sales is nearly twice the inc. in inventory.

Turnover

2. Debtors Turnover Ratio =

Debtors

2006 2007 2008 2009

Turnover 1380687644 1667513770 1934209608 2070161481

Debtors 336848256 369048925 399605167 577401593

DTR (Times) 4.19 4.52 4.84 3.58

Interpretation

Debtors Turnover Ratio : Ratio is continuously improving. It shows debtor are

managed by company in efficient manner this is why debt collection period has been

reduced from 99 days to 81 days.

No. of working Days

3. Average Collection Period =

Debtors Turnover Ratio

2006 2007 2008 2009

No. of working Days 365 365 365 365

Debtors Turnover Ratio 4.19 4.52 4.84 3.58

ACP (Days) 87 81.5 75 102

Purchases

4. Creditors Turnover Ratio =

Creditors

2006 2007 2008 2009

Purchases 448995669 621300911 657502521 672408511

Creditors 55188419 42940352 58021254 44768335

CTR (Times) 8.14 9.81 11.3 15.01

Interpretation

Creditors Turnover Ratio : It is satisfactory & average payment period has been

decreased from 159 to141 days. It is improving over the years.

Turnover

5. Fixed Asset Turnover Ratio =

Fixed Assets

2006 2007 2008 2009

Turnover 1380687644 1667513770 1934209608 2070161481

Fixed Assets 313427255 376543167 442758837 539782419

Fixed Assets Turnover Ratio 4.41 4.43 4.37 3.84

Interpretation

Fixed Assets Turnover : This ratio reveals how efficiently the fixed assets are

being utilized. Increase in ratio over the years indicate the better utilization of fixed

assets.

Net Sales

6. Working Capital Turnover Ratio =

Working Capital

2006 2007 2008 2009

Net Sales 1380687644 1667513770 1934209608 2070161481

Working Capital 753478398 830865384 968466000 1346031757

Working Capital Turnover

Ratio

1.83 2.01 1.99 1.54

Interpretation

Working Capital Turnover Ratio: Reveals how efficiently working capital

turnover ratio has been utilized in making sales. Increase in ratio over the years indicate

the better utilization of working capital.

Profitability Ratios

Net Profits

7. Net Profit Ratio = × 100

Net Sales

2006 2007 2008 2009

Net Profit 40309975 52317541 69181813 77194343

Net Sales 1380687644 1667513770 1934209608 2070161481

Net Profit Ratios 2.92 3.14 3.58 3.73

Interpretation

Net Profit Ratio : Measures the rate of net profit earned on sales. An increase in the

ratio over the previous years shows improvement. But margins needs to be improved

further.

Chapter – 3

Conclusion

Suggestions

Limitations

CONCLUSION

Liquidity position of the company is good as its current ratio and quick ratio for the year

2008 are 3.03:1 and .98:1 respectively which meets the standard.

Solvency position of the company is also satisfactory.

Debtors are converted very quickly. Average collection period of the company is very

good as it is decreasing over the years.

Fixed assets are utilized efficiently as fixed asset turnover ratio is increasing.

Overall cash flow position of the company is not satisfactory as both opening and closing

cash balances are in negative. And reasons for the same have been explained in the

preceding chapter.

Net sales and profits of the company have increased by 6.37% and 31.58% respectively

mainly due to increase in job work receipts.

Overall financial position of the company is good. There is need to improve the working

capital management only.

As company is diluting its share capital by issuing right shares so if company is not being

able to increase the earning in that case EPS will be decreased.

SUGGESTIONS

Since the competition is increasing the company must come up with new cost saving

techniques to reduce the cost and further increase the profit margin.

The old machinery which need constant repair should be replaced with the new one as it

would decrease the cost further.

In future company should not dilute the share capital further.

Company should increase its operating margins so that debt can be paid easily.

LIMITATIONS

Access to some information was denied by the company officials that affected the findings

to some extent.

The sample size was limited over just four years, which may not be fully representative of

the universe. A large sample size could not be taken due to time & cost constraints.

Some accounts are manipulated so that the financial statements may disclose a more

favorable position than the actual position.

Company provides only secondary data so certain type of bias is in study.

Lack of experience in this field may have incorporated some shortfalls.

The greatest limitation of the study was the time constraint, limited to 8 weeks which hinders

the progress of study.

Audited accounts for the year ending 2005-2006 were not available. There may be some

changes in financial statements after the accounts are audited.

BIBLIOGRAPHY

WEBSITES:

www.lps.com

www.wikipedia.org/wiki/Ratio_analysis

www.investopedia.com/stocks.about.com/od/evaluatingstocks/a/Fundanatools1.htm

www.finpipe.com

www.nseindia.com

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