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Transcript of Pre and Post Merger Analysis
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LIST OF CONTENT
Chapter Title Pate No.
LIST OF TABLE
LIST OF CHART
CHAPTER I INTRODUCTION
Company Profile
CHAPTER II RESEARCH METHODOLOGY
Introduction
Statement of problem
Scope of study
Rational behind study
Objective of study
Research methodologyLimitation of study
CHAPTER III DATA ANALYSIS & INTERPRETATION
Ratio Analysis
Comparative analysis
Common size analysis
Method of least square analysis
CHAPTER IV FINDINGS OF THE STUDY
CHAPTER V SUGGESTION
CHAPTER VI CONCLUSION
ANNEXURE FINANCIAL STATEMENT FOR FIVEYEARS (1998-99 to 2002-03)
BIBLIOGRAPHY
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LIST OF TABLE
Sl. No Title Pate No.
1 Table showing net profit ratio.
2 Table showing operating ratio3 Table showing operating profit ratio4 Table showing debtors turnover ratio
5 Table showing debtors turnover period
6 Table showing working capital turnover ratio
7 Table showing working capital turnover period
8 Table showing return on investment ratio
9 Table showing return on share holder funds
10 Table showing earnings per share ratio
11Table showing current ratio12 Table showing quick assets and current liabilities
13 Table showing absolute liquid assets and current liabilities
14 Table showing net working capital and net assets
15 Table showing net sales and current assets
16 Table showing Current assets turnover period
17 Table showing net sales and fixed assets
18 Table showing Fixed assets turnover period
19 Table showing net sales and working capital
20 Table showing Working capital turnover period
21 Table showing debt to equity ratio22 Table showing solvency ratio
23 Comparative income statement (1999-2000)
24 Comparative income statement (2001-2002)
25 Common size income statement (1999-2000)
26 Common size income statement (2001-2002)
27 Comparative Balance Sheet (1999-2000)
28 Comparative Balance Sheet (2001-2002)
29 Common size Balance Sheet (1999-2000)
30 Common size Balance Sheet (2001-2002)
31 Method Of Least Square
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LIST OF CHART
Sl. No Title Pate No.
1 Chart showing net profit ratio.
2 Chart showing operating ratio3 Chart showing operating profit ratio4 Chart showing debtors turnover ratio
5 Chart showing debtors turnover period
6 Chart showing working capital turnover ratio
7 Chart showing working capital turnover period
8 Chart showing return on investment ratio
9 Chart showing return on share holder funds
10 Chart showing earnings per share ratio
11Chart showing current ratio12 Chart showing quick assets and current liabilities
13 Chart showing absolute liquid assets and current liabilities
14 Chart showing net working capital and net assets
15 Chart showing net sales and current assets
16 Chart showing Current assets turnover period
17 Chart showing net sales and fixed assets
18 Chart showing Fixed assets turnover period
19 Chart showing net sales and working capital
20 Chart showing Working capital turnover period
21 Chart showing debt to equity ratio22 Chart showing solvency ratio
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COMPANY PROFILE
CG Maersk Information Technologies Private Limited (CGM) has been
established in the year 1996 and set up as a 100% export oriented unit (EOU)under the Software Technology Parks (STP) scheme of the Directorate of
Software Technology Parks of India primarily for development and maintenance
of software. The Company is a joint venture between Maersk Data AS, Denmark
and Crompton Greaves, a Thapar Group Company engaged in the manufacture of
electrical appliances and engineering products.
A Company belonging to Denmark under the name and style of LEC India
Software Centre Private Limited (LEC) was functioning in Bangalore which was
set up as a 100% export oriented unit (EOU) under the Software Technology
Parks (STP) scheme of the Directorate of Software Technology Parks of India
primarily for development and maintenance of software. LEC was purchased by
Maersk Data AS, Denmark in the year 2000. Consequent on this event the Indian
Company, Crompton Greaves wanted to stake a claim on the same ratio of profit
like CGM. It was agreed upon mutually by both the parties.
The Board of Directors of both the Companies felt that there would be greater
synergies in the operational and administrative matters if the operations of both
the Companies are combined. Hence, the Board of Directors of both the
companies decided to Merge LEC and CGM with a development center at
Chennai. In view of the above, the business operations of LEC have been shiftedto the existing facilities of the Company in Chennai.
The scheme of amalgamation for the merger of erstwhile LEC India Software
Centre Private Limited (LEC) with the Company with effect from 1st January
2001.
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CGM provides a quality range of services through high value products for the
transportation industry, maintenance and application support.
Today’s competitive marketplace requires a constant focus on the performance of
the extended Supply Chain.
This includes meeting end-customer requirements by ensuring product/service
availability, on-time delivery, and the necessary inventory and capacity in the
supply chain that is needed to meet these requirements in a proactive manner.
CGM specializes in delivering IT enabled solutions, which will help you optimize
your extended Supply Chain performance.
Our Domain expertise includes
Logistics
• Container Freight Station
• Container Repair and Yard Management
• Liner Agency Management
• NVOCC and Freight forwarding
• Multi modal transportation
• Warehouse Management
• Distribution Management
• Express cargo management
Supply Chain Management
• Demand and Supply Planning
• Inventory Management
• Purchasing and Subcontracting Management
• Sales and Distribution Management
• SCM Portal Development
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• Customer Relationship Management
Customer Relationship Management
Our offerings in the Supply Chain domain include
• Operational and Tactical consulting
• Turnkey Project Implementation
• On-site consulting, support and maintenance
• Offshore development, support and maintenance
Our technology and domain expertise is a winning combination in providingefficient and effective solutions for your Supply Chain and Logistics needs.
CGM Technologies has its Offshore Development Center, in the heart of Chennai,
India. This state-of-the-art software development and support facility is connected
to a cluster of mainframes at Maersk Data, Denmark. An expeditious high-speed
data communication link from Chennai to Copenhagen on SEA ME WE (Sea
Cable) exists, with an up time of above 99%. This link facilitates onlineworldwide accessibility on a 24-hour basis through MAERSK DataNet Hubs in
70 countries.
Our server ensemble consists of a number of NT, Windows 2000, and Solaris
servers, running our Intranet, work flow systems development and production
environment. Our Sales Management, Knowledge Management and Quality
Management are facilitated via Lotus Notes.
Our Vision
"To delight customers by offering high-quality end-to-end solutions at competitive prices, through systems and
employees empowered for excellence"
At CGM we determine our growth by how well we perform in the eyes of our key
stakeholder groups, each of whom, we believe, has a strong say in shaping our
success - the customer, the associate, the owner and the environment. We believe
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in fulfilling our vision, through focused precision thinking and persistent
execution.
Our Mission
"Working with you, our customer, to provide high quality IT services, by utilising current and emerging technologies"
We have made it our mission to work with our clients and associates to help them
leverage IT as a strategic weapon, by arming ourselves with a rich repertoire of
technical skills, domain expertise, globally renowned project methodologies and
software engineering practices.
Our Values
We believe that every interaction is an opportunity to build a long lasting
relationship. This belief is further reinforced by our 'values', which underline our
transactions with our customers. CGM espouses the following core values :
• Integrity
• Respect for Individual
• Commitment
• Ownership
• Excellence
The CGM Quality policy
"To meet or exceed customer expectations through implementation of globally
accepted quality standards"
At CGM quality is the foundation of our business and begins with clear
communication between our customers and internal teams. Quality, Consistency,
Understanding, these are the words that are often used when discussing the many
projects handled by CGM.
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CGM espouses the paradigm model to ensure that our customers are assured of
considerable checks and balances. Process planning and implementation are
monitored through reporting tools and metrics collection systems, which are
automated through Internal QA systems. The QA team makes defect
measurements on a regular basis and reports of causal analysis are used to refine
plans. We are SEI CMM LEVEL 4 certified organization and currently we are
gearing up our processes for CMMI level 5 certification from SEI, Carnegie-
Mellon University.
For offshore development, we have several models wherein we offer substantially
reduced costs for our clientele. When it comes to our experience in this regard,
CGM services most of the maintenance needs in the Mainframe area for Maersk
Data of Denmark. In open systems too, we have different offshore models to
offer. With more than 100 person years of experience in this area, you are assured
of stable and mature processes for smooth hand over of applications for
maintenance at our facilities in India.
Our services include new developments, maintenance and enhancements, web
enabling, migration, reengineering and wrapping of legacy applications.
Such a project requires addressing certain key issues in a systematic manner (so
that progress is made as planned and is predictable):
• Transfer of application knowledge
• Identification of key success factors
• Design of communication framework and escalation process
• Identification of coordination needs
• Ramping up team strength
• Establishment of change management processes
• Initiation of maintenance
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In order to address each of the above issues, our SEI - CMM processes ensure that
there is a smooth transition of the application and expeditious completion of the
projects.
CGM has built up an excellent repertoire of technical skills and experience in
supporting you in diverse facets of the migration process. We have experts on
board who work with you to develop a strategy for migrating from one platform to
another, web enable your applications in a customized manner, or develop new
systems.
We endeavor to make each migration as seamless as possible from our customer's
previous system. We believe in providing our customers with successful
migrations that maintain the data, functionality, and work flow of the previous
system while adding unique features and capabilities
HR Practices
To create, develop and sustain a highly motivated and committed team of world
class professionals is what our HR aims for. CGM constantly endeavors to expose
employees (whom we address as Associates) to a work culture, which drives
excellence, and is highly energized, challenging and enriching.
Every employee in CGM is expected to live the values – integrity, respect for
individual, commitment, ownership & excellence. By adopting a good retention
strategy, by communicating business information, and by empowering its
employees, HR strives to instill a sense of ownership in the associates. This leads
to the associate having a stake in the organizational success and contributing to
business results.
Our HR practices are drawn in line with the organizational strategy and involve
best of industry practices, and we work on a continuous basis to keep CGM a
Learning Organisation.
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Our well drawn out Performance Management System aids in:
• Target / Goal based performance assessment
• Performance based pay practices
• Competency (technical & behavioral) based development
• STAR identification and development plan
• Individual learning and development plans
• Multiple and varied reward practices
Compensation and Benefits include innovative and progressive compensation
strategies for enhancing wealth to the associates, while reinforcing their
commitment to the organization.
The best of our success stories is the encouragement of new ideas and further
successful incubation. Our associates are encouraged to display not only
‘entrepreneurial skills’ and but also ‘boundaryless’ attitude.
To make our working life memorable, we have exciting get-togethers, associate
events and fun time at regular intervals.
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INTRODUCTION
It is essential to evaluate the financial performance of the organization from time
to time in order to find out any fault in the financial policy so that remedial
measures can be undertaken at an appropriate time.
The analysis of financial statements is a process of evaluating relationships
between component parts of financial statements to obtain a better undertaking of
the firm’s position and performance. The first task of the financial analyst is to
select the information relevant to the decision under consideration from the total
information contained in the financial statement. The second step involved in
financial analysis is to arrange the information in a way to highlight significant
relationships. The final step the interpretation and drawing of conclusion.
For this project-study, a service industry like Computer Industry is chosen for
analytical examination. Since the studies is service sector are less if not nil.
Therefore this project is a comprehensive analysis of financial position andoperating result of CGM for the last five years.
1. Find out the earning capacity of the business that can be reviewed by the
proper analysis of Financial Statements.
2. Reveal the financial position of the firm and soundness of Business.
Measure the soundness by business by comparing its assets, liabilities and
capital side by side.
3. Draw a meaningful conclusion regarding sound liquidity position of the
firm.
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4. To form a judgement whether performance of the company at point of time
is good, questionable or poor and also whether the financial condition of
the corporation is improving or deteriorating and whether the cost
profitability or efficiency is showing an upward or downward trend.
5. Measure the operational efficiency of the working of the management and
identify various deficiencies in its working and then improve upon them.
6. Scrutinize financial discipline of the firm with regard to additions and
downfall.
7. To assess how far the over all financial performance in Service Industry
like computer industry has improved.
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DEFINITION OF PROBLEM
The merger of CGM & LEC was contemplated in order to reduce the losses
incurred by two companies by one Company by reducing the operational and
administrative costs. But unfortunately after the merger of these two companies
what had happened was the other way around. One of the main agenda of this
project is to analyze the results of pre & post merger and the reasons thereof. We
have taken five financial years for the purpose of analysis of this project.
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SCOPE OF STUDY
The financial performance analysis and interpretation would be done for CGM on
the basis of the last five years profit and loss account and balance sheet. The study
would be conducted basically in the finance department of the concern.
It mostly depends on the information collected through secondary data. Ratio
analysis for the benefit of us, management, shareholders will be done. A detailed
comparative analysis of balance sheet would be undertaken, common-size
analysis of balance sheet will be provided and finally trend analysis will also be
done.
The method adopted is one of close analysis. There is proper documentation of the
assertions, arguments and findings. There is careful examination of the facts and
data gathered making use of the sampling methods and ratio.
There was a personal interview with Chief Financial Officer & Company
Secretary. She was kind enough to spare their valuable time to throw light on
questions regarding the scope of business in the current and subsequent years.
Now we have wound up economically unviable projects and introduced profitable
proposition for improving upon the overall performance of the company. The
company has improved upon the performance by reducing the manpower and
other overheads. The Company is expected to show some improvement due to
discharge of liabilities taken over at the time of merger.
During the preliminary exploration of the study, the Researcher tapped as many
sources of readily available data as time permitted and examined company records
as to finance computerizations, expansion etc that throw on the problem.
Collected data was compiled, edited and tabulated for the purpose of analysis. For
analysis of data various statistical techniques of classification and financial toolsespecially the various financial ratios were used. Financial ratios for several
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preceding years were computed to determine the improvement or deterioration in
the financial position of the company over a period of time. The data has been
interpreted on the basis of analysis and conclusion.
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RATIONALE BEHIND STUDY
The rationale behind the current study is to analyze and interpret the financialstatement of CGM for the past five financial years to find out various reasons for
the fall in profits of the organizations especially after the merger.
One of the major objectives of the study is to extract information about the real
financial position of the concern at particular, which may be useful to a wide
range of users like management, investors, employees, lenders, suppliers,
customers etc.,
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OBJECTIVES OF THE STUDY
Primary Objective:
To analyze the financial performance of the company before and after
merger.
Secondary Objective:
To find out the real earning capacity.
To find out efficiency of the concern to analyze the company’sliquidity and solvency position.
Period of Study:
The period of study will be from January to March 2005.
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RESEARCH METHODOLOGY
This analytical is based on clearly defined objectives. Of the different tools for
analysis of financial statements, ratio analysis as the principal tool has been
selected to examine the financial performance of the CGM.
Three types of ratios have been selected. They are given below.
1. Financial Ratios
2. Profitability Ratios
3. Turnover / Activity Ratios
In the place the earning capacity of CGM is determined after carefully examining the
profit-graph.
Based on different ratios and their formulae, the findings are arrived at and conclusions
are then drawn regarding operational efficiency, the financial controls employed and the
financial performance of CGM.
The secondary data had been gathered from the available records of the company.
Moreover information was gathered from private interviews with the Chief Financial
Officer & Company Secretary. In fact, all the available facts, figures and data had been
gathered.
Incidentally, it ought to be noted that the Project Work of this nature is subject to
limitations. In the first place the Financial Statements fail to be perfect guides for
determining future, profitability, as they are subject to the vagaries of accounting
processes and fluctuations in the price line. Notwithstanding, a genuine attempt has been
made to evaluate the financial soundness of the company and its credit worthiness.
This project work offers a clear fact-based introduction to CGM, its origin growth,
development and its present sound stature.
The project work throws adequate light on the essential and utility value of CGM.
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Ratio analysis
An analyze of financial statement based on ratios is known as ratio analysis. Ratio
is a mathematical relationship between two or more item taken from the financial
statements. Ratio analysis is a process of computing, determining and presenting
the relationship of items, it also includes comparison and interpretation of ratios
and using them as basis for the future projections. Ratio analysis is helpful to
management and outsiders to design the financial health of business concern. It
helps in measuring the probability solvency and activity of a firm.
Comparative financial statements:
This is a yet another technique used in financial statements analysis. These
statements summarize and present related data for a number of years,
incorporating the changes (absolute and relative) is individual items of financial
statements. These statements normally comparative balance sheet, comparative
profit and loss a/c comparative statements of change in total capital as well as in
working capital. Thus help in making inter-period and inter-firm comparative and
also highlight the trend in performance efficiency and financial position.
Common size Statements:
Common size statement indicates the relationship of various items with some
common items (expressed as percentage of sales). Similarly in the balance sheet
the total assets and liabilities is taken as base and all other figures are expressed as
percentage of this total. The percentage so calculated is compared with
corresponding percentages in other periods or other firm and meaningful
conclusions are drawn. Generally a common size income statements and common
size balance sheet is prepared.
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Trend analysis
Trend analysis is tendency and as much as the review and appraisal of tendency in
accounting variable are nothing but trend analysis is carried out by calculating
trend’s ratio (percentage) and / or by plotting the accounting.
Data sources
Since this is a financial project, it mostly depends on information collected though
secondary data like
• 5 year profit & loss account• Five year balance sheet
• Company Profile collected through companies various sources of
information like company journal’s websites etc/.
The study is mainly based on the information, which has been recorded in the
financial statement and by using various financial ratios. Therefore, this study is
also subjected to all these limitations of financial statements and the tools used for
analysis.
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LIMITATIONS OF THE STUDY
The main limitations of the analysis are as follows
1. The reliability of analysis depends upon the reliability of figurers of
financial statements. The entire working will be of no value if data thus
given is not reliable.
2. The basic nature of Financial Statements is historical. Past can never be a
perfect guide for future profitability and financial soundness.
3. When there is a change in the accounting methods, analysis of financial
statements does not serve any purpose. For example when there is a change
in method of depreciation the figures of current year may have no
comparable base.
4. Financial Statements are normally proposed on the concept of historical
cost. They do not reflect values in items of current cost. Then, the financial
statements of accounting figures would not portray the effect of price level
changes over the period.
5. Due to the time constraint a comparative study of other organizations could
not be made.
6. It has rightly been observed that “The Ratio Analysis is an aid to
management in taking right decisions, but as a mechanical substitute for
thinking and judgement, it is worse than useless. The rates discriminately
calculated and wisely interpreted can be a useful tool of financial analysis.
7. Ratios can never be the substitute for raw figures. At the time of
interpretation, therefore, raw figures should also be referred to.
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8. It does not consider the price level changes and it entirely depends only on
Secondary data provided by the organization.
9. Financial analysis is based upon only on the monetary information and
ignores non monetary facts.
10. The main factor is lack of time of the researcher.
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DATA ANLALYSIS AND INTERPRETATION
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RATIO ANALYSIS
NET PROFIT RATIO
This ratio is called Net Profit to Sales Ratio. It is measure to management
efficiency in operating the business successfully from the owner’s point of view.
It indicates the return on shareholders investment, higher the ratio, better the
operational efficiency of the business concern.
`Formula:
Net Profit after tax
Net Profit Ratio = -------------------------------- x 100
Net sales
TABLE NO.1
TABLE SHOWING NET PROFIT RATIO.
In (000)
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Loss After
Tax9499 26669 25921 22789 46520
Sales 63826 60193 67167 70015 62186
Net Profit
ratio(14.88) (44.30) (38.59) (32.54) (74.80)
Interpretation
The net profit ratio of the company is not convincing. After the merger during
year 2000 the net loss ratio as come down to 32.54 from 38.59, But during the last
financial year it has again increased to 74.80
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CHART 1
CHART SHOWING NET PROFIT RATIO
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OPERATING RATIO
This ratios indicates the relationship between the operating expenses and sales. Total
Operating expenses here include cost of goods sold, administrative expenses and selling
and distribution expenses. Generally finance expenses like interest are not included
under operating expenses.
Formula:
Cost of sales + Operating Expenses
Operating Ratio = ---------------------------------------------------- x 100
Net sales
TABLE No.2TABLE SHOWING OPERATING RATIO
In (000)
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Operating
Expenses72224 83912 94151 97278 108349
Sales 63826 60193 67167 70015 62186
Operating
Ratio113.15 139.40 140.17 138.93 174.23
Interpretation:
The operating ratio of the organisation is fluctuating which started with 113.15
and has climbed to 174.23 during the last five financial years.
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Chart No.2
CHART SHOWING OPERATING RATIO
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OPERATING PROFIT RATIO
It is the ratio of profit made from operating sources to the sales, Usually known as a
percentage, it shows the operational efficiency of the firm and is a measure of
management efficiency in running the routine operations of the firm.
Formula:
Operating profit
Operating Profit Ratio= ----------------------------------------- x 100
Net sales
TABLE No.3
TABLE SHOWING OPERATING PROFIT RATIO
In (000)Year 1998-99 1999-00 2000-01 2001-02 2002-03
Operating
Profit4960 (17856) (18037) (18519) (42090 )
Sales 63826 60193 67167 70015 62186
Operating
Profit Ratio7.77 (29.66) (26.85) (26.45) (67.76)
Interpretation:
The organizations operating profit ratio was positive in the financial year 1998-99 but
has turned into loss ratio during the next 4 financial years in that it was gradually coming
down from 29.66 in 1999-2000 to 26.45 in 2001-02 for again it has increased to 67.76.
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Chart No.3
CHART SHOWING OPERATING PROFIT RATIO
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DEBTORS TURNOVER RATIO:
Debtors Turnover Ratio is also called as Receivables Turnover ratio or Debtors velocity.
A business concern generally adopts different methods of sales, one of them selling on
credit. Goods are sold on credits basis on credit policy adopted by the firm. The ratio is
helpful in determining the operational efficiency of business concern and the
effectiveness of its credit policy.
Formula:
Credit Sales
Debtors Turnover Ratio = ------------------------------
Average Receivables
TABLE No.4
TABLE SHOWING DEBTORS TURNOVER RATIO
In (000)
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Average
receivables8473 8849.5 14450 19731 18888
Sales 63826 60193 67167 70015 62186
Ratio 7.53 6.80 4.64 3.54 3.29
Inference
The debtors turnover ratio was very high in the financial year 1998-99 but has
been brought into control during the financial year 2000-01 at 4.64, but again
it has shown increase during the next financial year. During latest financial
year it stood at 3.29.
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Chart No.4
CHART SHOWING DEBTORS TURNOVER RATIO
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DEBTORS TURNOVER PERIOD
Debtors Turnover Period = 365 Debtors Turnover Ratio
Table No. 5
TABLE SHOWING DEBTORS TURNOVER PERIOD
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Debtors
Turnover Ratio
7.53 6.80 4.64 3.54 3.29
Debtors
turnover
period
48.47 53.67 78.66 103.10 110.94
Inference
The average collection period is slightly above the industrial standards of 75 – 90
days this ratio has been moving around 100 days in the last 2 financial years.
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Chart No. 5
CHART SHOWING DEBTORS TURNOVER PERIOD
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WORKING CAPITAL TURNOVER RATIO
Working capital ratio measures the effective utilization of working capital. it also
measures the smooth running of business or otherwise the ratio establishes between cost
of sakes and working capital.
Formula:
Sales
Working Capital Turnover Ratio = ----------------------------------------------------
Networking Capital
TABLE No. 6
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Sales 63826 60193 67167 70015 62186
Net Working
capital52550 29899 48516 35877 6816
Ratio 1.21 2.01 1.38 1.95 9.12
Inference
The company had a very convincing working capital ratio in the latest financial
year at 9.12. the first four financial year saw a constant ratio around 1.5 an
average.
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Chart No. 6
CHART SHOWING WORKING CAPITAL TURNOVER RATIO
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WORKING CAPITAL TURNOVER PERIOD
Working Capital Turnover Period = 365/ Working Capital Turnover Ratio
Table No. 7
TABLE SHOWING WORKING CAPITAL TURNOVER PERIOD
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Working
CapitalTurnover
Ratio
1.21 2.01 1.38 1.95 9.12
Working
Capital
Turnover
period
301.6 191.59 264.49 187.17 40.02
Inference
The organisation has been able to recover its working capital around 40 days
during the year 2002-03.But it took longer time during the initial years an average
of 250 days.
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RETURN ON INVESTMENT RATIO:
Working capital ratio measures the effective utilization of working capital. it also
measures the smooth running of business or otherwise the ratio establishes between cost
of sakes and working capital.
Formula:
Operating Profit
Return on Investment Ratio = ---------------------------------------------------- x 100
Capital Employed
Table No.8
TABLE SHOWING RETURN ON INVESTMENT RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Operating
Profit4960 (17856) (18037) (18519) (42090)
Capital
Employed131388 127450 195271 184892 183074
Ratio 3.77 (14.01) (9.23) (10.01) (22.99)
Inference
The organizations return on investment ratio has been showing negative because
of grooving operating loss in the last 4 financial years.
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Chart No.8
CHART SHOWING RETURN ON INVESTMENT RATIO
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RETURN ON SHARE HOLDER FUNDS
The ratio determines the profitability from the share holder’s point view the net
profit there is net income after payment of interest and tax and it includes net non
operating income also. The term share holders funds includes equity share capital,
preference share capital and all reserves and profits belonging to share holders.
Formula:
Net Profit after interest and Tax
Return on share holder funds = ----------------------------------------------------
Share holders funds
TABLE No.9
TABLE SHOWING RETURN ON SHARE HOLDER FUNDS
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Net profit
after Interest
and tax
(9499) (26669) (25921) (22789) (46.520)
Share holder
Funds100000 100000 168502 168502 168502
Ratio (9.49) (22.66) (15.38) (13.52) (27.60)
Inference
The return on share holder funds though it has been showing negative trend, it
was reduce it almost 50% between 1999-2000 and 2001-02 especially after the
merger from 22.66 to 13.52 in those three financial years.
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Chart No.9
CHART SHOWING RETURN ON SHARE HOLDER FUNDS
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EARNINGS PER SHARE :
This ratio highlights the over all success of the concern form owner’s point of view and
it is helpful in determining market price of equity shares. It reflects upon the capacity of
the concern to pay dividend to its equity share holders.
Formula:
Net Profit after tax preference dividend
Earnings per share = ---------------------------------------------------
Number of equity shares
TABLE No. 10
TABLE SHOWING EARNINGS PER SHARE RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
No.of Equity
Shares 11000 11000 16000 16000 16000
Net Loss per
share(.86) (2.42) (1.62) (2.07) (3.87)
Inference
The earning per share ratio shows a negative of 3.87 during the latest financial year, but
it has been considerably brought down to 1.62 in the year 2000-01 from 2.42 during
the year 1999-2000.
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Chart No. 10
CHART SHOWING EARNINGS PER SHARE RATIO
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CURRENT RATIO
The current ratio is a general indicator of the business ability to meet its shot term
financial commitments. This ratio assumes that all current assets, if required can be
converted to cash immediately in order to meet all current liabilities immediately. It is
generally recommended that the current ratio should be at least 2:1 that is current assets
should be at least twice the value of current liabilities.
Formula:
Current Assets
Current Ratio = ----------------------------------------------------------
Current Liabilities
TABLE No. 11
TABLE SHOWING CURRENT RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Current
Asset16794 16034 31597 33833 25756
Current
Liability4797 9439 32922 27133 64860
CurrentRatio
3.5 1.69 .95 1.24 .39
Inference
The current ratio of the organisation has never reached the industrial standards of
to it was slightly nearer to that in the year 1999-2000 at 1.69 but has largely
comedown to 0.39.
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Chart No. 11
CHART SHOWING CURRENT RATIO
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QUICK RATIO:
This ratio is also called ‘Quick’ ‘Acid test’ ratio. It is calculated by comparing the
quick assets with current liabilities.
Current assets – stock
Quick Ratio = ---------------------------------------
Current liabilities
TABLE SHOWING QUICK ASSETS AND CURRENT LIABILITIES
(In 000)
Years Quick Assets Current Liabilities
1998 – 1999 15372 47971999 – 2000 15697 9439
2000 – 2001 31482 32922
2001 – 2002 33715 27133
2002 – 2003 24895 64860
Table No. 12
Quick ratio
Particular 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03
Quick Ratio 3.20 1.66 .95 1.24 .38
Interpretation
The Quick ratio of the company of the company is fluctuating. Though in the two
years after the merger it has reached the industry standards of 1. but during the
last financial year it has comedown to 0.38.
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Chart No. 12
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CASH POSITION RATIO:
This ratio is also called ‘Absolute Liquidity Ratio’ or ‘super quick ratio’. This is a
variation of quick ratio. This ratio is calculated when liquidity is highly restricted
in terms of cash and cash equivalents. This ratio measures liquidity in terms of
cash and near cash items and short-term current liabilities. Cash position ratio is
calculated with the help of the following formula.
Cash and Bank Balance + Marketable Securities
Cash position ratio = ----------------------------------------------------------------
Current Liabilities
TABLE SHOWING ABSOLUTE LIQUID ASSETS AND CURRENT
LIABILITIES
(In 000)
Year Absolute liquid assets Current liabilities
1998 – 1999 3361 4797
1999 – 2000 1502 9439
2000 – 2001 5457 32922
2001 – 2002 8772 27133
2002 – 2003 3014 64860
Table – 13
Cash position ratio
Particular 1998-99 1999 – 00 2000 – 01 2001 – 02 2002-03
Cash position
ratio
.7 .15 .16 .32 .05
Interpretation
The cash position ratio of organisation always showed an increasing trend after
the merger and standing around 0.32 is a healthy sign for the organisation though
it has hugely stepped down to 0.05 in the financial year 2002-03.
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Chart No. 13
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NET WORKING CAPITAL RATIO:
Net Working capital Net W.C Ratio = -------------------------------------------------------
Net Assets (Net W.C + Fixed assets)
TABLE SHOWING NET WORKING CAPITAL AND NET ASSETS
(In 000)
Year Net Working capital Net assets
1998 – 1999 52550 83938
1999 – 2000 29899 57349
2000 – 2001 48516 752852001 – 2002 35867 52257
2002 – 2003 (22236) (7664)
Table No. 14
Net Working capital ratio
Particular 1998-1999 1999- 2000 2000 –
2001
2001 –
2002
2002-03
Net W.C
Ratio
.622 .52 .64 .68 2.90
Interpretation
The net working capital ratio has always shown an increasing trend during the last
5 financial years. The ratio at .68 is good in the year 2001-02 but not a convincing
one in the latest financial year.
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Chart No. 14
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CURRENT ASSETS TURNOVER RATIO:
Net Sales
Current assets turnover ratio = ----------------------Current assets
TABLE SHOWING NET SALES AND CURRENT ASSETS
(In 000)
Particulars Net sales Current assets
1998 – 1999 63826 16794
1999-2000 60193 16034
2000-2001 67167 31597
2001 – 2002 70015 33833
2002 – 2003 62186 25756
Table No. 15
Current assets turnover ratio
Particulars 1998-1999 1999-2000 2000-2001 2001-2002 2002-03
C. A. T. R 3.8 3.75 2.12 2.06 2.41
Interpretation
The current assets turnover ratio has shown an increase in the last financial year at
2.41.after a healthy decrease the post merger years of 2000-20002.
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Chart No. 15
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CURRENT ASSETS TURNOVER PERIOD:
365
Current assets turnover period = --------------------------
C. A. T. R
Table - 16
(In 000)
Particulars 1998-99 1999 – 00 2000 – 01 2001 – 02 2002-03
C. A. T. P 96.05 97.33 172.16 177.18 151.45
Interpretation:
The current asset turnover period shown a increasing trend during the first 4
financial years. But it has come down to 151.45 from 177.18 in the last financial
year.
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Chart No. 16
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FIXED ASSETS TURNOVER RATIO:
This ratio determines efficiency of utilization of fixed assets and profitability of a
business concern. Higher the ratio, more the efficiency in utilization of fixed assets. A
lower ratio is the indication of under utilization of fixed assets.
Net sales
Fixed assets turnover ratio = ----------------------
Fixed assets
TABLE SHOWING NET SALES AND FIXED ASSETS
(In 000)
Particulars Net sales Fixed assets
1998-1999 63826 31388
1999-2000 60193 274502000-2001 67167 26769
2001 – 2002 70015 16390
2002 – 2003 62186 14572
Table – 17
Fixed assets turnover ratio
Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03
F. A. T. R 2.03 2.19 2.5 4.27 4.26
Interpretation
From the above table it is clear that the fixed assets turnover ratio has come up to
a vast extent by almost doubling from 2.19 in the financial year 1999-2000 to 4.26
in 2002-03.
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Chart No. 17
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FIXED ASSETS TURNOVER PERIOD:
365
Fixed assets turnover period = ----------------------
F. A. T. P
Table No. 18
FIXED ASSETS TURNOVER PERIOD
(In 000)
Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03
F. A. T. P 179.8 166.66 146 86.08 85.68
Interpretation
From the above table it is inferred that the fixed assets turnover period which has
comedown from 179.8 to 85.68 in the last financial year which shows the
organizations fixed assets cover on sales is good.
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Chart No. 18
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WORKING CAPITAL TURNOVER RATIO:
Working capital ratio measures the effective utilization of working capital. It also
measures the smooth running of business or otherwise. The ratio establishes relationship
between cost of sales and working capital. Working capital turnover ratio is calculated
with the help of the following formula.
Net sales
Working capital turnover ratio = -----------------------------
Net working capital
Higher sales in comparison to working capital indicate overtrading and lower sales in
comparison to working capital indicate under trading. A higher ratio is the indication of
lower investment of working capital and more profit.
TABLE SHOWING NET SALES AND WORKING CAPITAL
(In 000)
Particulars Net sales Net working capital
1998-1999 63826 52550
1999-2000 60193 29899
2000-2001 67167 48516
2001 – 2002 70015 35867
2002 – 2003 62186 (22236)
Table No. 19
Working capital turnover ratio
Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03
W. C. T. R 1.21 2.01 1.38 1.95 2.79
Interpretation
The working capital turnover ratio is at 2.79 in the last financial year by showing
a leaf of almost 40% increase over the previous financial year
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Chart No. 19
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WORKING CAPITAL TURNOVER PERIOD:
365
Working capital turnover period = ---------------------------------------------Working capital turnover ratio
Table No. 20
WORKING CAPITAL TURNOVER PERIOD
(In 000)
Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03
W. C. T. P 301.65 181.59 264.49 187.17 130.82
Interpretation
The working capital turnover period is very convincing at 130 days in the last
financial year though it was very high during the pre merger period.
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Chart No. 20
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Debt to Equity Ratio
This ratio is ascertained to determine long term solvency position of the company. The
purpose of this ratio is to measure the mix of funds in the balance sheet and to make a
comparison between those funds that have been supplied by owners and those borrowed.
Formula:
Total long term debts
Debt to Equity Ratio = ----------------------------------------------------------
Share holders fund
TABLE No. 21
TABLE SHOWING DEBT TO EQUITY RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Total Long
debt- 2029 1693 1301
845
Shareholders
Funds100000 100000 168502 168502 168502
Debt to
Equity Ratio- .02 .01 .007 .005
Interpretation
The debt equity ratio of the organisation is very less standing at 0.005 in the last
financial year.
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Chart No. 21
CHART SHOWING DEBT TO EQUITY RATIO
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Solvency Ratio
In this ratio total debt includes both short-term and long-term borrowings. It shows the
proportion of assets needed by repay the debts.
Formula:
Total debt
Solvency Ratio = ----------------------------------------------------------
Total Tangible Assets
TABLE No. 22
TABLE SHOWING SOLVENCY RATIO
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Total debt - 2029 1693 1301 845
Total
Tangible
Asset
31388 27450 26769 16390 14572
Solvency
Ratio- .07 .06 .07 .05
Interpretation
The solvency ratio of the organisation is very less at 0.05 and always it has been
constant around that ratio.
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Chart No. 22
CHART SHOWING SOLVENCY RATIO:
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FINANCIAL STATEMENT
Comparative income statement (1999-2000)
Table No. 23
Particular 1999(in 000)
2000(in 000)
Change in
amount (in000)
Increase Decrease
Percentage
change(%)
Increase Decrease
Sales
Exports 63826 60193 - 3633 - 5.6
Domestic - 5232 5232 - - -
Other income 4743 1716 - 3027 63.82
68569 67141 -
Expenditure
(Increase)/
decrease in
inventories
(1039) (1085)
Project costs - -
Salaries, wages
and other
employee
benefits
28223 33604 5381 - 19.06 -
Royalty and
Technical know
–how fee (net of
taxes)
5987 8425 2438 - 40.72 -
Rent, rates andtaxes 13563 14717 1154 - 8.50 -
Electricity 1350 1881 531 - 39.33 -
Traveling and
conveyance10667 14867 4200 - 39.37 -
Advertisement
and sales
promotion
926 1323 397 - 42.87 -
Administrative
and other
expenses
4648 4949 301 - 6.47 -
Insurance 840 1064 224 - 26.66 -Repairs and
maintenance2910 3286 376 - 12.92 -
Depreciation 9097 8221 - 876 - 9.62
77172 93422
Loss before
taxation(8603) (26281) 18218 - 211.76 -
Provision for
taxation(896) (388) - 508 - 56.69
Loss after
taxation(9499) (26669) 17170 - 180.75 -
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FINANCIAL STATEMENT
Comparative income statement (2001-2002)
Table No. 24
Particular
2001
(in
000)
2002
(in
000)
Change inamount
(in 000)
Increase Decrease
Percentagechange
(%)
Increase Decrease
Sales
Exports 67167 70015 2848 - 4.24 -
Domestic 4975 5391 416 - 8.36 -
Other income 4194 3353 - 841 - 20.05
76336 78759 -
Expenditure
(Increase)/ decrease
in inventories 222 (3)
Project costs - -
Salaries, wages and
other employee
benefits
34690 35077 387 - 1.11 -
Royalty and
Technical know –
how fee (net of
taxes)
6930 4476 - 2454 - 35.41
Rent, rates and taxes 20478 14488 - 5990 - 29.25
Electricity 2024 2285 261 - 12.89 -Traveling and
conveyance17989 20425 2436 - 13.54 -
Advertisement and
sales promotion560 677 117 - 20.89 -
Administrative and
other expenses5991 11862 5871 - 97.99 -
Sales commission - 671 671 - - -
Insurance 1064 1024 224 - 26.66 -
Repairs and
maintenance3712 3606 376 - 12.92 -
Provision for bad
debts- 1836
Depreciation 7643 7166 - 876 - 9.62
10130310359
0
Loss before taxation 24967 24831 18218 - 211.76 -
Provision for
taxation954 575 - 379 39.72 -
Loss after taxation 25921 22789 - 3132 - 12.08
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FINANCIAL STATEMENT
Common size income statement (1999-2000)
Table No. 25
Particular1999
(in 000)
2000
(in 000)
1999Percentage
of Sales
2000Percentage
of Sales
Sales
Exports 63826 60193 -
Domestic - 5232 -
Other income 4743 1716 7.43 2.62
68569 67141 -
Expenditure
(Increase)/ decrease in
inventories(1039) (1085)
Project costs - -
Salaries, wages and other
employee benefits28223 33604 44.21 51.36
Royalty and Technical know –
how fee (net of taxes)5987 8425 9.38 13.99
Rent, rates and taxes 13563 14717 21.24 22.49
Electricity 1350 1881 2.11 2.87
Traveling and conveyance 10667 14867 16.71 22.72
Advertisement and sales
promotion926 1323 1.4 2.02
Administrative and other expenses
4648 4949 7.28 7.56
Insurance 840 1064 1.31 1.62
Repairs and maintenance 2910 3286 4.55 9.60
Depreciation 9097 8221 14.25 12.56
77172 93422
Loss before taxation (8603) (26281)
Provision for taxation (896) (388)
Loss after taxation (9499) (26669)
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FINANCIAL STATEMENT
Common size income statement (2001-2002)
Table No. 26
Particular2001(in
000)
2002
(in 000)
2001Percentage of
sales
2002Percentage of
sales
Sales - -
Exports 67167 70015 - -
Domestic 4975 5391 - -
Other income 4194 3353 5.81 4.41
76336 78759 -
Expenditure
(Increase)/ decrease in
inventories222 (3)
Project costs - -
Salaries, wages and other
employee benefits34690 35077 48.08 46.18
Royalty and Technical know –
how fee (net of taxes)6930 4476 9.60 6.20
Rent, rates and taxes 20478 14488 28.38 19.07
Electricity 2024 2285 2.80 3.00
Traveling and conveyance 17989 20425 24.93 26.89
Advertisement and sales
promotion560 677 .77 .89
Administrative and other expenses
5991 11862 8.3 15.61
Sales commission - 671 - .88
Insurance 1064 1024 1.47 1.34
Repairs and maintenance 3712 3606 5.14 4.77
Provision for bad debts - 1836 - 2.41
Depreciation 7643 7166 10.59 9.43
10130
3103590
Loss before taxation 24967 24831
Provision for taxation 954 575Loss after taxation 25921 22789
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FINANCIAL STATEMENT
Comparative Balance Sheet (1999-2000)
Table No. 27
Particular1999 (in
lakhs)
2000
(in
lakhs)
Changein
amount
(in lakhs)
IncreaseDecrease
Percentage
change
(%)
Increase Decrease
Sources of funds
Shareholder’s
funds
Share capital 100000 100000 - - - -
Secured loan - 2029 2029 - - -
Total 100000 102029 2029 - 2.02 -
Application of
funds
Fixed assets
Gross Block 53035 56183 3148 - 5.93 -
Less:
Depreciation21647 28733 7086 - 32.73 -
Net Block 31388 27450 - 3938 - 12.54
Capital work-in-
progress and
capital advances
123 157 34 - 27.64 -
Investments 6078 7993 1915 - 31.5 -Current assets,
loans and
advances
- - - - - -
Current assets - - - - - -
Inventory 1422 337 - 1085 - 76.30
Sundry debtors 8473 9226 753 - 8.88 -
Cash and bank
balances29135 10795 - 18340 - 62.94
Interest accrued 404 331 - 73 - 18.06
Loans and
advances 17913 18649 736 - 4.10 -
57347 39338 - - - -
Less: Current
liabilities and
provisions
4797 9439 - 4642 - 96.76
Net current
assets52550 29899 - 22651 - 43.10
Profit and loss
account9861 36530 26669 - 270.44 -
Total 100000 102029 2029 - 2.02 -
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FINANCIAL STATEMENT
Comparative Balance Sheet (2001-2002)
Table No. 28
Particular2001 (in
000)
2002
(in 000)
Change inamount
(in 000)
Increase
Decrease
Percentagechange
(%)
Increase Decrease
Sources of funds - - - - - -
Shareholder’s
funds- - - - - -
Share capital 16197 16197 - - - -
Reserves &
surplus6705 6705 - - - -
Secured loan 1693 1301 - 392 - 23.15
Total 170195 169803
- 392 - 0.23
Application of
funds- - - - - -
Fixed assets - - - - - -
Gross Block 82563 64343 - 17920 - 21.70
Less: Depreciation 55794 47953 - 7841 - 14.05
Net Block 26769 16390 - 10379 - 38.77
Capital work-in-
progress and
capital advances
- - - - - -
Investments 10778 10778 - - - -
Current assets,
loans and advances- - - - - -
Current assets - - - - - -
Inventory 115 118 3 - 2.60 -
Sundry debtors 20601 18861 - 1740 - 8.44
Cash and bank
balances35769 32117 - 3652 - 10.23
Interest accrued 51 741 690 - 1352.9 -
Loans and
advances 24902 11163 - 13739 - 55.1781435 63000 - - - -
Less: Current
liabilities and
provisions
32922 27133 - 5789 - 17.58
Net current assets 48516 35867 - 12649 - 26.07
Miscellaneous
expenditure153 - - 153 - -
Profit and loss
account83979
10676
822789 - 27.13 -
Total 170195 169803 - 392 - 0.23
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FINANCIAL STATEMENT
Common size Balance Sheet (1999-2000)
Table No. 29
Particular1999
(in lakhs)
2000
(in lakhs)
Percentageon total
1999
Percentageon total
2000
Sources of
funds
Shareholder’s
funds
Share capital 100000 100000 100 98.01
Secured loan - 2029 - 1.99
Total 100000 102029 - -
Application of
funds
Fixed assets
Gross Block 53035 56183 53.03 55.06
Less:
Depreciation21647 28733 21.64 28.16
Net Block 31388 27450 31.38 26.90
Capital work-
in-progress and
capital
advances
123 157 0.12 0.15
Investments 6078 7993 6.07 7.83Current assets,
loans and
advances
- - - -
Current assets - - - -
Inventory 1422 337 1.42 0.33
Sundry debtors 8473 9226 8.47 9.04
Cash and bank
balances29135 10795 29.13 10.58
Interest accrued 404 331 0.40 0.32
Loans and
advances 17913 18649 17.91 18.27
57347 39338 57.34 38.55
Less: Current
liabilities and
provisions
4797 9439 4.79 09.25
Net current
assets52550 29899 52.55 29.30
Profit and loss
account9861 36530 9.86 35.80
Total 100000 102029 -
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FINANCIAL STATEMENT
Common size Balance Sheet (2001-2002)
Table No. 30
Particular2001
(in 000)
2002
(in 000)
Percentageon total
2001
Percentageon total
2002
Sources of funds - - - -
Shareholder’s
funds- - - -
Share capital 161797 161797 95.06 95.28
Reserves &
surplus6705 6705 3.9 3.94
Secured loan 1693 1301 0.99 0.76
Total 170195 169803 - 392
Application of
funds- - - -
Fixed assets - - - -
Gross Block 82563 64343 48.51 37.89
Less: Depreciation 55794 47953 32.78 28.24
Net Block 26769 16390 15.72 9.65
Capital work-in-
progress and
capital advances
- - - -
Investments 10778 10778 6.33 6.34
Current assets,loans and
advances
- - - -
Current assets - - - -
Inventory 115 118 0.06 0.06
Sundry debtors 20601 18861 12.10 11.10
Cash and bank
balances35769 32117 21.01 18.91
Interest accrued 51 741 0.02 0.43
Loans and
advances24902 11163 14.63 6.57
81435 63000 47.84 37.10
Less: Current
liabilities and
provisions
32922 27133 19.34 15.97
Net current assets 48516 35867 28.50 21.12
Miscellaneous
expenditure153 - 0.08 -
Profit and loss
account83979 106768 49.33 62.87
Total 170195 169803 -
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METHOD OF LEAST SQUARE
Table No. 31
Year Sales (Y) X X2 XY
1999 63.82 -1.5 2.25 -95.73
2000 60.19 -0.5 0.25 -30.092001 72.14 0.5 0.25 36.07
2002 75.40 1.5 2.25 113.1
Total 271.55 0 5 23.35
Y = A + B X
A = ∑Y/N
B = ∑XY/∑X2
A = 271.55 / 4
= 67.88
B = 23.35 / 5= 4.67
Y = 67.88 + 4.67 X
Projected sales for the year 2006 is as follows
Y = 67.88 + 4.67 (5.5)
= 67.88 + 25.685
= 93.565
There fore the projected sales for the year 2006 is Rs. 93.565 (in 000)
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FINDINGS
PRE MERGER ANALYSIS (1998-2001)
1. The sales of the organisation has decreased by 5.6% during the abovesaid period
2. The other income of the organisaiton has largely comedown to 63.82%
3. The expense regarding salary and wages has increased by 19%
4. The royalties and technical know how expenditure of the organisation
also has increased by 41%
5. The travelling and conveyance expenditure has increased by 39%
6. The organisaiton has showed an increase of 42% in the advertising
expenditure
7. The administration expenditure of the organisation has shown a minor
increase of 6%
8. The repairs and maintenance expenditure of the organisation showed an
increase of 13%.
9. The operating expenditure of depreciation has decreased by 9%
10. The organisation loss after tax has shown an increase of 180.75%
11. The employee cost of organisation is almost 45% of the turnover of the
organisation during 1998-99 and has increased to 51% during 1999-
2000.
12. The travelling expenditure of the organisation also has shown a huge
part in the turnover occupying around 16% in 1998-99 and 22% in
1999-2000.
13. The advertisement expenditure is standing very low at around 2% in the
above said financial period.
14. The fixed assets of the organisation has decreased by 12%
15. The investment of the organisation has been increased to 31%
16. The debtors of the organisation has shown a mild increase of 8%
17. The organisation current liabilities has comedown to a large extent of
96%
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18. The accumulated loss of the organisation has increased by 271%
19. The net assets of the organisaiton forms about 53% in 1998-99 and 55%
in 1999-2000
20. 7% of the balance sheet total is formed by investment
21. The net current assets of the organisation was at 52% in 1998-99 but
has comedown to 29% in 1999-2000.
22. The accumulated loss has taken a large part of the balance sheet at 35%
POST MERGER ANALYSIS (2001-2003)
1. After the merger the company has shown an increase of 4% increase in
export sales and 8% increase in domestic sales.
2. The salary and wages expenditure has shown only a marginal increase of
1.11 in the post merger period.
3. The organisaiton expenditure towards royalty has comedown by 35%
4. The expenditure regarding advertisement and sales promotion has
increased 21%
5. The repair and maintenance expenditure of the organisation also has
increased by 12%
6. The deprecation has decreased to 9%
7. Though the loss before tax has increased, the organisation has been able to
keep down loss after tax by 12% after merger.
8. The salary expenditure of the organisation forms around 50% of the
turnover during the post merger period.
9. The expenditure towards travelling and conveyance is at 30% of the
turnover
10. The administration expenditure has almost doubled from 8% in 2000-01 to
15% in 2001-02
11.The net block of the assets has comedown to 9% from 15% in the last 2
financial years.
12. The investment is constant around 6.5%
13. The net current asset of the organisation has decreased to 21% from 29%
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14.The accumulated loss of the organisation stood at 49% immediately after
merger, although it has been gone up to 62% during the last financial year.
15.The net block of fixed assets has come down to 38% in last 2 financial
years after the merger.
16. The debtors of the organisation has decreased by 8%
17.The companies current assets in the form of cash, loans advances has
shown an increase of 65%
18. The net current assets of the organisation has decreased to 26%
19. The accumulated loss of the organisation has increased by 27%
GENERAL FINDINGS
1. The net profit ratio of the company is not convincing. After the merger
during the year 2001 the net loss ratio as come down to 32.54 from 38.59,
but during the last financial year it has again increased to 74.80
2. The operating ratio of the organisation is fluctuating which started with
113.15 and has climbed to 174.23 during the last five financial years.
3. The organizations operating profit ratio was positive in the financial year 1998-99
but has turned into loss ratio during the next 4 financial years in that it was
gradually coming down from 29.66 in 1999-2000 to 26.45 in 2001-02 for again it
has increased to 67.76.
4. The debtors turnover ratio was very high in the financial year 1998-99 but
has been brought into control during the financial year 2000-01 at 4.64, but
again it has shown increase during the next financial year. During the
financial year 2002-2003 it stood at 3.29.
5. The average collection period is slightly above the industrial standards of 75 – 90
days, this ratio has been moving around 100 days in the last 2 financial years.
6. The company had a very convincing working capital ratio in the latest financial
year at 9.12. the first four financial year saw a constant ratio around 1.5 an
average.
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7. The organisation has been able to recover its working capital around 40
days during the year 2002-03, but it took longer time during the initial
years an average of 250 days.
8. The organisations return on investment ratio has been showing negative
because of grooving operating loss in the last 4 financial years.
9. The return on share holder funds though it has been showing negative trend, it
was reduced almost to 50% between 1999-2000 and 2001-02 especially after the
merger from 22.66 to 13.52 in those three financial years.
10. The earning per share ratio shows a negative of 3.87 during the latest financial
year, but it has been considerably brought down to 1.62 in the year 2000-01 from
2.42 during the year 1999-2000.
11. The current ratio of the organisation has never reached the industrial standards of
to it was slightly nearer to that in the year 1999-2000 at 1.69 but has largely
comedown to 0.39.
12. The Quick ratio of the company is fluctuating, though in the two years after
the merger it has reached the industry standards of 1, but during the last
financial year it has comedown to 0.38.
13.The cash position ratio of organisation always showed an increasing trend
after the merger and standing around 0.32 is a healthy sign for the
organisation though it has hugely stepped down to 0.05 in the financial
year 2002-03.
14. The net working capital ratio has always shown an increasing trend during
the last 5 financial years. The ratio at .68 is good in the year 2001-02 but
not a convincing one in the latest financial year.
15. The current assets turnover ratio has shown an increase in the last financial year
at 2.41.after a healthy decrease the post merger years of 2000-20002.
16. The current asset turnover period shown a increasing trend during the first 4
financial years. But it has come down to 151.45 from 177.18 in the last financial
year.
17. From the above table it is clear that the fixed assets turnover ratio has come
up to a large extent by almost doubling from 2.19 in the financial year
1999-2000 to 4.26 in 2002-03.
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18.From the above table it is inferred that the fixed assets turnover period
which has comedown from 179.8 to 85.68 in the last financial year which
shows the organizations fixed assets cover on sales is good.
19.The working capital turnover ratio is at 2.79 in the last financial year by
showing a leaf of almost 40% increase over the previous financial year
20. The working capital turnover period is very convincing at 130 days in the last
financial year though it was very high during the pre merger period.
21.The debt equity ratio of the organisation is very less standing at 0.005 in
the last financial year.
22. The solvency ratio of the organisation is very less at 0.05 and always it has been
constant around that ratio.
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SUGGESTION
On the analysis of the affairs of the company CGM Information Technologies
Private Limited during the period 1998-99 to 2002-03, it is found that the infra
structure was very much disproportionate to the quantum of business handled, it is
therefore felt that necessary action should be initiated for doing the needful.
The Company was only dependent on the projects of the main parent company
and it was therefore felt expedient to go in for projects from outside sources. The
new departments were set-up in order to get business from outside sources and
therefore the recruitment of personnel on large scale was launched. This has
naturally resulted in the heavy expenditure towards salaries and advertisement.
The outcome has back fired and the expectation were belied. It is therefore
suggested that departments where there was no business as expected may been
closed.
In addition to the above, there were certain unviable departments which require
immediate closure, so as to see that the company survives without much burden
on it. The salaries paid to the existing personnel were found disproportionate to
the business handled by the company and therefore the existing salary structure
for the existing personnel should be rationalized so as to reduce the burden on
overheads and at the same time without demoralizsing the personnel on job.
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CONCLUSION
The project in question was primarily taken up to exactly examine and find out the
pitfalls so as to initiate remedial measures to bail out the company from the
present state of affairs.
The analysis of the state of affairs of the company during the period under review
was undertaken and made very meticulously to the best of our ability and
suggestion made for the needful.
With the implementation of the above suggestion after taking into account the problems in right perspective, the Company is sure to make a turn around and
carry on the business in a very prudent and efficient manner.
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BIBLIOGRAPHY
1. Financial Management - I.M. Pandey
2. Financial Management - Khan & Jain
3. Statistic for management – S.P. Guptha