FINANCIAL STATEMENT ANALYSIS

AT

M/S. HATSUN AGRO PRODUCTS LIMITED

Project work

SUBMITTED to the

UNIVERSITY OF MADRAS

In partial fulfillment of the

Requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

By

Rajesh Naganathan

(Reg. No. MA80393)

SCHOOL OF MANAGEMENT

D.G. VAISHNAV COLLEGE

Chennai – 600106.

APRIL - 2009

BONAFIDE CERTIFICATE

This is to certify that the project report titled “Financial Statement Analysis”

is a bonafide record of work carried out by Mr. Rajesh Naganathan at M/s. Hatsun Agro

Products Limited, as a summer project from May (dd/mm/yyyy) to June (dd/mm/yyyy),

in partial fulfillment of the requirements for the award of the degree of MASTER OF

BUSINESS ADMINISTRATION by UNIVERSITY OF MADRAS during the academic

year 2008 – 2009 .

Prof. V.Ganeshan, Faculty Name

DEAN

College seal

DECLARATION

I , Rajesh Naganathan hereby declare that the project work titled “Financial Statement

Analysis” by me for the award of degree of Master of Business Administration has not

formed the basis for the award of any other Degree, Diploma, Associate ship, Fellowship

or other similar titles and this dissertation has been done by me under the guidance of

(Company Guide/s)

(Signature of the student)

Rajesh Naganathan

Place: Chennai

Date: 30th May 2009

FOURTH PAGE : (On Company Letterhead)

This is to certify that (Student Name), student of Master of Business Administration,

School of Management, D.G.Vaishnav College, Arumbakkam, Chennai, has successfully

completed his/her six weeks project work in our company, during the period from May

(dd/mm/yyyy) to June (dd/mm/yyyy) as part of his/her post graduate studies.

During the period of project work, he/she has done project titled

”-------------------------------“. He is found to be committed to the assignments/studies

assigned and has shown desire to learn and complete the tasks systematically.

We wish him/her a bright future and all success in future endeavors.

For (company name)

Company Guide

Designation

Department

ACKNOWLEDGEMENTS

Chapter No. Contents Page Nos.

1 INTRODUCTION

1.1 INDUSTRY PROFILE

1.2 COMPANY PROFILE

1.3 PRODUCT PROFILE / ORGANISATION STRUCTURE

1.4 ABOUT THE TOPIC

1.5 SURVEY OF LITERATURE

1.6 NEED FOR THE STUDY

1.7 SCOPE OF STUDY

2. RESEARCH OBJECTIVES

2.1 PRIMARY OBJECTIVES

2.2 SECONDARY OBJECTIVES

3 RESEARCH METHODOLOGY

3.1 TYPE OF RESEARCH

3.2 RESEARCH APPROACH

3.3 SOURCES OF DATA

3.4 SAMPLING PLAN

3.4(1) POPULATION AND SAMPLING UNIT

3.4(2) SAMPLE SIZE

3.4(3) SAMPLING PROCEDURE

3.5 MODE OF DATA COLLECTION

3.6 DATA COLLECTION INSTRUMENT

3.7 DESIGN & PRETESTING OF

QUESTIONNAIRE

3.8 TOOLS AND TECHNIQUES USED

FOR ANALYSIS

4 LIMITATIONS OF THE STUDY

5 DATA ANALYSIS AND INTERPRETATION

6 FINDINGS

7 RECOMMENDATIONS

8 CONCLUSION

9 BIBLIOGRAPHY

ANEXURES

I. QUESTIONNAIRE

II. MARKET FIGURES

III.OTHERS, IF ANY

List of Tables / Illustrations / Graphs

Table No. Title Page No.

CHAPTER 1INTRODUCTION

1.1 COMPANY PROFILE

Hatsun Agro products Ltd is India's largest private dairy. From a modest icecream manufacturer to one of the leading names in India's dairy sector in just a span of three decades, Hatsun now stands majestically as a hallmark of successful entrepreneurship. Be it in the dedication to quality, in employing the world's latest technology, innovative marketing strategies, or bringing prosperity to hundreds of thousands of farmers in the south.It started as a creamy dream in 1970: Arun Icecreams, the rich, delicious brand that has captured the hearts of millions of icecream lovers. With over 70 delightful varieties it has enjoyed continuous patronage from customers all over south India. Arun Icecreams is manufactured at the most modern plant of its kind in Chennai. From the ingredients, to the packaging and distribution, stringent quality control is maintained at every stage which has made Arun Icecreams the first icecream brand in India to win the 9001 certification for quality and world-class manufacturing facilities. Arun Icecreams reaches the consumers through the largest network of exclusive parlors in India. These and the many Arun mini-parlors in the rural areas provide employment to thousands of people. Hatsun came up with Arokya - the standardized, homogenised and bacteria clarified milk. Arokya milk is still unsurpassed in purity, thickness and quality and has made it one of the most preferred milk brands consumed by several hundred thousand households every day and then came Hatsun Komatha. This product is Hatsun's proud contribution of a superior quality, lower fat milk which Hatsun calls 'Cow's milk'. Komatha is the perfect symbolization of the values and attributes of the provider of fresh milk - the cow. Hatsun handles a total 1.8 million litre a day. Hatsun's quest for quality starts at procurement, two times a day, 365 days of the year at over a thousand collection centers, from more than a hundred thousand farmers. Hatsun sources its milk with an ever watchful eye, always keen on quality. It is an enthusiastic and bustling activity when milk takes its first step in its journey to the consumers' homes.

Company   /   Infrastructure

The Company has an excellent milk collection system with chilling centers in more than 50 locations and a fleet of more than 1348 vehicles on contract for procurement.

Its milk shed area is spread over 10 districts in Tamilnadu and 3 in Karnataka and covers over 70,000 milk producers and 2000 medium and bulk milk vendors.The Company is also involved in dairy extension services to farmers for the development of livestock quality and yields.Besides this the company also has tie up with banks for arranging agricultural loans to milk producers.More than 110 veterinary doctors under direct employment rendering full-scale animal care to the milk producers.

Hatsun's state of the art processing and packaging plants are located in Salem, Kancheepuram, Madurai, Palacodu in TamilNadu and Honnali, Belgaum in Karnataka. After procurement, milk vans then take the procured milk to these plants where the milk has to undergo a quality test again to enter the plant. Then the weight is checked. After that, using superior technologies milk is subjected to pasteurisation, homogenisation, and bacteria clarification.

Hatsun is a pioneer in India of the world-acclaimed homogenisation processes where the fat globules are broken and evenly distributed in the milk making it rich and wholesome. An unyielding commitment to quality has formed the backbone of Hatsun's business ethics right from its start. At every stage, intensive procedures to preserve quality are undertaken to ensure the purity of the milk. The entire Hatsun staff work in harmony as one family in enforcing the tough standards that Hatsun set for itself as basic guidelines.Each milk packet packaged-using German technology-reaches the consumer with this assurance: The Hatsun Quality Everyday Hatsun's fleet of puff-insulated trucks travel 3.9 times the distance around the world, i.e. 1, 82,730 km taking milk for consumption by homes across the states of Tamilnadu, Karnataka, Goa and Kerala. Hatsun takes pride in having its large cold-chain network in India ensuring that each and every one of its consumers gets fresh milk day after day.

Hatsun's dairies are ISO 9001:2000 and HACCP (Hazard Analysis Critical Control Point) certified. The Salem plant has received ISO 14001 and been certified eco-friendly. The quality assurance of Hatsun ensures that stringent quality standards and norms of American Dairy Products Institute (ADPI) are fully met. The success of Arun Icecreams has been taken as a case study by the Indian Institute of Management, Ahmedabad, India's leading business school.

Company   /   Network

The company has achieved excellence in establishing an extremely efficient supply chain management, better logistics and widespread distribution network spearheaded by exclusive franchisee outlets. All the brands of the company enjoy very strong brand equity and despite being in a price sensitive market, its brands command a premium.ARUN Icecream is sold through exclusive franchisee outlets and is occupying the top slot in Tamilnadu and figures within the top three in the south India. With the commissioning of plant in Belgaum, the company has entered into the Goa, Pune and southern districts of Maharashtra markets. The company has also entered into International markets during the financial year (2004-05). The company has implemented an arrangement, whereby Arun icecream is now available in Seychelles. Arun Icecream is also being exported to Brunei.

Company   /   Quality & Certificationo Food Safety Standard of ISO 22000:2005o Quality Management System Standard of ISO 9001:2000o Environmental Management System Standard of ISO 14001:2004o Export Inspection Council of India (Ministry of Commerce & Industry Govt. Of

India) Certificate of Approval of Quality for Export of Milk Product.o The Milk and Milk Product Order -1992 Registration (Ministry of Agriculture,

Govt. Of India)

Quality & Food Safety Policy

We, Hatsun Agro Product Ltd., Processors of Branded Milk and Milk Products are committed to satisfy our esteemed customers by:

Adopting Quality and Food Safety Management System Adhering Statutory & Legal Requirements Ensuring best Quality Products and value for Customer's money Maintaining Timely Delivery Developing Good working atmosphere and culture Taking every effort to up-grade the milk producers by providing

required services and facilities

Also aiming at continual improvement in all spheres of our activities through periodical review of our above policy and resetting the quality and Food Safety objectives.

Company/ Sales and distribution network

The company has strong logistics and distribution network Around 1,000

exclusive ice cream parlors spreading over entire Tamil Nadu and Parts of Andhra

Pradesh and Karnataka cater to the needs of the consumers.

The company has 12 cold room distribution points, strategically located for quick

and easy distribution of its products.

In the milk segment, the company’s distribution network comprises of 150

wholesale distributors and over 8,500 dealers for milk.

More than 500 milk van handling distribution and covering a distance of 250 to

300 kms each.

Leader in liquid milk among the private sector dairies and market leader for

southern ice cream market.

Export of milk powder and butter oil to more than 30 countries namely Dubai,

Saudi, Arabia, Iran, Ceylon, Singapore, Yemen, Thailand, Malaysia, Algeria,

Canada, Japan, etc and targeting 20%of the total revenues form export by 2009.

The company has started manufacturing value added milk powder, butter oil,

butter and ghee and started exporting powder and butter oil to Gulf, Canada,

South Asian nations and African countries. The exports potentials look very

promising with the cut back and abolition of subsidies for dairy products in

America and European countries.

In addition, ARUN ice creams are available in Brunei and Seychelles and steps

are being taken to market ARUN ice creams in Singapore.

The company derives its strength form its strong rural linkage with farmers by

sheer organization of geographically penetrated milk collection network.

The company enjoys excellent relation with bankers multiple banking and the

track record of loan is standard.

1.2 Our Products 1. MILK / AROKYA

Arokya is India’s first bacteria clarified milk. Arokya uses German

technology to remove the dead pathogenic bacteria completely from milk.

This helps to retain the natural taste & flavor of milk. Using American

technology, the butterfat globules are broken into smaller particles

making Arokya wholesome to the last drop.

HIGHLIGHT:

Top selling private milk brand in Tamil Nadu,

Karnataka and Kerala.

Only brand after state-owned AAWIN (Tamil

Nadu), NANDHINI (Karnataka) and MILMA

(Kerala) to have a state-wide reach and even better

than co-operatives in reach.

No private dairy sells this volume in India.

Hatsun Komatha Toned Milk

Another fresh milk in the stable of Hatsun, Hatsun Komatha Toned Milk was launched in the year 2000. A lighter milk than Arokya, Hatsun Komatha Toned Milk comes with all the good processing technologies deployed by Hatsun, i.e.,

homogenization, pasteurisation and bacteria clarification. This ensures that the high quality and hygiene standards set by Hatsun for its products are met.Distribution Stockists / Agents. We reach our customers through our wide network of 30 Distribution Stockists and over 1500 Agents in Tamil Nadu / Bangalore.Pack sizes: 5000ml, 500ml, 250ml, 200ml & 1

Hatsun Santosa FULL CREAM Milk

A relatively new product in Hatsun's basket of offerings, Hatsun Santosa Full Cream Milk, is full cream milk that caters to niche commercial markets.

Hatsun Santosa Full Cream Milk is well suited for Hotels and Catering needs as it is ideal for preparation of curd, lassi, milk shakes, sweets, payasam, tea and coffee.

Pack sizes: 2000ml, 1000ml, 500ml & 150ml

Special packs for the food service industry

We have introduced a new Food Service Pack of 5 liter. at an attractive price, keeping in mind the needs of hotels and institutions. The following benefits will accrue through its use:

Convenience in handling during transportation Convenience in cold storage Reduction in spillages / losses from packs / cans Assurance of quality delivery that is packed in the dairy plant Tamper Proof Correct quantity delivery

A choice of global standards

Hatsun produces the following variants of milk powder in accordance with

ADPI (Extra Grade) standards. They are:

Skimmed Milk Powder-Low heat, Medium heat and High heat

Full Cream Milk Powder (Whole Milk Powder)-Normal and Instant

2. MILK Products / Hatsun Cooking Butter

Hatsun's all-natural high-quality Cooking Butter has something that makes it stand out from the crowd - it has dollops of 'zeal' in it. Hatsun Pasteurised Cooking Butter is made from the choicest of creams, churned from pure farm fresh milk. It is then processed in a high-tech dairy plant where hygiene and quality are given utmost importance. This ensures that sweets, savouries and cakes have a great taste and aroma. Pack sizes: 200g and 500g

MILK Products   /   Hatsun Cow ghee

At Hatsun, we decided that Hatsun would be different from other branded ghees that jostle for your attention. So, what makes Hatsun Ghee different? The nutty taste of Hatsun Ghee - a special grade ghee, is perfect for Indian cuisine in general and sweet making in particular. Being made only from cow milk, all the freshness and uniqueness associated with cow milk can be found in Hatsun Ghee. It has the distinct property of carrying and enhancing the flavour of practically any dish that one briefly fries in Hatsun Ghee.Hatsun Ghee comes with the 'Agmark' seal of quality.

MILK Products   /   Hatsun Butter Milk

Rich & tasty buttermilk made from farm-fresh milk Available in easy-to-carry 200 ml pouch

MILK Products   /   Hatsun Curd

Hatsun Curd is a semi-solid fermented milk product, with excellent consistency. It has a very low bacteria count making it extremely healthy in nature and delightfully tasty in character.

MILK Products   /   Hatsun Paneer

Made from farm-fresh milk. A higher milk solid make it tastier and helps in retaining texture & shape. Ideal to cook mouth-watering dishes.

3.  Beverages /   Aaros Milk / Badam Milk

Made from pure creamy milk from a high quality dairy Tasty, thick and full of strength Badam Milk also available

Beverages / Aaros Tea / Masala Tea

Made from select and high quality tea gardens

Strong, has Fine Taste and Good Colour Masala tea also available

Beverages / Aaros Coffee

Made from exquisite quality coffee beans Very fine filter coffee taste

Beverages / Aaros Ragi

Made from high quality roasted ragi grains Tasty and very Refreshin

4. Arun Icecreams

The company has been in the Ice creams business for more than 35 years and it’s the

premium product of the company. The company was the first to introduce the “Sit & eat

concept” in ice cream industry. It has been successful in giving verities in ice creams

satisfying the tastes and preference of various analogous groups. The brand “Arun” is a

house hold name in south India and the brand value itself worth several crores.

Arun Ice cream is the No.1 ice cream brand in South India. There are over 70

unforgettable varieties, each distinct in taste with regular additions to the range. Arun has

over 1000 exclusive parlours. Among these, many of them are India’s first & trendsetters

in their category. Like amazing ‘Colour Magic’ an ice cream that changes colours.

HIGHLIGHTS OF HATSUN

Well known company with strong brands “ARUN” and

“AROKYA”

Largest Private Dairy in the Country.

Market leader in Ice cream and Standardized milk in south India.

Excellent linkage with farmers in South India.

Sound and growing export business.

State of the art facilities with grass root developments.

Expansion of the existing dairy ingredient capacity in Krishnagiri

District in Tamil Nadu.

IIM (A) case study on Arun Brand in 1999.

Strong distribution network with city, town and rural reach.

Listed company

Company’s white Gold scheme for enhancement of milk

production and village prosperity is fast gaining popularity.

Powder plant in Dharmapuri district to go on stream by

February’09

1.3. Product Profile

1. Arun Icecreams

Arun surprised the ice cream industry itself by overtaking the industry growth rate of 12% by growing at a rate of 30%. And commanding an astounding market share of 34% in the entire Southern market. The network reaches out to all the urban regions and even small towns with populations of 30,000. Thereby, giving lakhs and lakhs of families a delightful and affordable ‘ice cream outing’. During the year 2007-2008, the ice cream division achieved a turn over of

around Rs.438 millions and it expected to achieve a target of around Rs.500/- millions

during the current financial year.

The company also earns export revenue by exporting ice cream to

MALDIVES. It has been dispatching ice cream by air to ANDAMAN Island. Arun is a

familiar in BRUNEI and SEYCHELLES.

HIGHLIGHTS

Four – decade old, No. 1 selling brand in Tamil

Nadu.

Within Top-3 leading brands in other southern

states.

Estimated market share of close to 35% in

south India.

In ‘Hatsun’ Dairy milk pouch are packed are in three different brand names such as

1) Arokya 2) Komatha 3) Santhosa

1) Arokya Milk pouch

S.No Quantity (ml) Fat S.N.F Price

1 5000ml 4.5% 8.5% 80Rs2 1000ml 4.5% 8.5% 19Rs3 500ml 4.5% 8.5% 9.50Rs4 200ml 4.5% 8.5% 4Rs

2) Komatha Milk pouch

S.NoQuantity (ml) Fat S.N.F Price

1 1000ml 3.0% 8.5% 15Rs2 500ml 3.0% 8.5% 7.5Rs3 250ml 3.0% 8.5% 4Rs

3) Santhosa Milk pouch

S.No Quantity (ml) Fat S.N.F Price

1 2000ml 6.0% 9.0% 40Rs2 1000ml 6.0% 9.0% 20Rs3 500ml 6.0% 9.0% 10Rs4 200ml 6.0% 9.0% 4Rs

1.4 ABOUT THE TOPIC

“FINANCIAL STATEMENTS” refer to formal and original statements prepared by a

business concern to disclose its financial information. In the words of Hampton J.J “The

statements disclosing status of investments is known as balance sheet and the statement

showing the result is known as profit and loss account”. Thus, the term financial

statements prepared by accountants at the end of a specific period.

They are:

1. Profit and loss account

2. Balance sheet or statement of financial position.

Now-a-days another statement is also prepared known as “surplus statement” or “retained earnings statement”. Numbers of schedules are also prepared to supplement the data and information contained in the balance sheet and profit and loss account

Schedules of assets, debtors, creditors, investment etc are some examples of some of the schedules which are attached to the financial statements. These statements put together, are called “package of financial statements”.

Financial statements are based on the following facts:

1. Based on recorded facts

2. Accounting conventions

3. Postulates

4. Personal judgments

Importance of financial statements:

Financial statements are prepared in order to show the financial position of the

organization/company. These statements are prepared periodically in order to inform

about the future prospects of the business concern. The financial statement is useful to

the following :

1. Management

2. Financiers

3. Creditors

4. Investors

Types of Analysis

Financial statement analysis is of different types. The process of analysis is classified

on the basis of information used and “modus operandi” of analysis. The classification

is as under:

1. On the basis of information used:

(a) External analysis

(b) Internal analysis

2. On the basis of “modus operandi”of analysis:

(a) Horizontal analysis

(b) Vertical analysis

1.5 Need / Objectives of the study

To study the financial position at M/s. HATSUN AGRO

PRODUCT LIMITED.

To measure the managerial efficiency of the company

To measure the short- term and long- term solvency of the

company.

To suggest ways and means to improve the present position of

the company

To analyze the financial statements by using various techniques

1.6 Scope of study

o The study will help the company to identify their liquidity,

profitability, creditworthiness of customers and repayment

capacity.

o It will help the company to forecast about future expansion

and diversification.

o The company can study the various opportunities and

threats it faces from other competitors.

o It will also help to analyze the efficiency utilization of

working capital.

CHAPTER 2

RESEARCH OBJECTIVES

Primary objectives:

The primary objective is to analyze the financial statements of M/s.Hatsun Agro Product

Ltd, Chennai.

Secondary objectives:

To analyze the working capital, profitability, liquidity,

creditworthiness of customers and repayment capacity by making

use of various ratios.

To analyze the various financial factors disclosed by a single set of

statements and a study of the trend of these factors as shown in the

series of statements.

CHAPTER 3

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

Research methodology is a way to systematically solve the research problem. It may be

understood as a science how research is done scientifically. It has many dimensions and

research methods constitute a part of the research methodology.

The research design for this study is descriptive. In this design, the researcher can

discover causes and can report what is happening.

3.2 AREA OF OPERATION

Under this head of Financial Statement Analysis, the area to be covered by the study is

confined to M/s. HATSUN AGRO PRODUCTS LTD as whole.

3.3 PERIOD OF STUDY

The period of study is confined to five years i.e. 2003-04 to 2007-08.

3.4 SOURCES OF DATA

The data that is used for the research purposes is secondary data. The main sources of

data are the company’s budgeted annual report and actual reports.

3.5 TOOLS AND TECHNIQUES USED

The tools and techniques used for the study are:

1.Ratio analysis

2.Trend analysis

RATIO ANALYSIS

A ratio is simply the relationship between two or more things. Ratios help to summarize

large quantities of financial data and to make qualitative judgment about the firm’s

financial performance. For example, a measurement of income may be compared to a

measurement of size. Data for the financial ratios are taken from the balance sheet, the

cash flow statement and the income statement.

Uses of ratio analysis

Financial ratios can be put to many uses.

1. To be used by an operator or a business manager in managerial analysis.

2. To be used by a lending agency in credit analysis.

3. Measuring efficiency

4. Facilitating investment decisions

5. Inter firm comparisons

CLASSIFICATION OF RATIOS The ratios can be classified as:

Liquidity ratio Gross profit ratio Return on investment Current ratio Operating ratio Stock turnover Proprietary ratio Operating profit ratio Debtors turnover Debt equity ratio Expenses ratio Creditors turn over Fixed assets ratio Net profit ratio Fixed assets turnover Capital gearing ratio Return on shareholders funds

TREND ANALYSIS

Classification by statements

Balance sheet ratios Profit and loss a/c ratios B/s and P&L a/c ratios

Through trend analysis one can predict the future with the help of the past data. The

trend analysis can be done using the following techniques:

Simple average method

Moving average method

- 3 years moving average

- 4 years moving average

- 5 years moving average

CHAPTER 4

LIMITATIONS OF THE STUDY

The time period have been taken for the study is only 5 financial years (2003-

04to 2007-08) which cannot be taken as mean for conclusion. It should done

by keeping in mind the overall picture and the prevailing economic and

political situation.

Ignores price level changes.

Financial statements are essentially interim reports.

Accounting concepts and conventions.

Influence of personal judgment

Disclose only monetary facts.

CHAPTER 5DATA ANALYSIS INTERPRETATION

TREND ANAYLSIS STATEMENT SHOWING SALES TREND (Rs in 000s)Year 2004 2005 2006 2007 2008Sales 3,661,115 4,538,276 5,448,186 5,852,828 8,631,936

CALCULATION OF TREND VALUES

YEAR SALES(Y) X X^2 XY TREND

VALUES

2004 3661115 -2 4 -7322230 3375229.4

2005 4538276 -1 1 -4538276 4500848.8

2006 5448186 0 0 - 5626468.2

2007 5852828 1 1 5852828 6752087.6

2008 8631936 2 4 17263872 7877707

N=5 Y=28132341 X=0 X^2=10 XY=11256194

FORMULA FOR TREND VALUE IS Y c =a+bx

a = Y/N = 28132341/5 =5626468.2

b = X Y/X^2 = 11256194/10 =1125619.4

SALES TREND

FORCASTED TREND VALUE

YEAR SALES (Rs. In 000’s)

2009 9003326.4

2010 10128945.8

2011 11254565.2

2012 12380184.6

2013 13505804

STATEMENT SHOWING WORKING CAPITAL TREND

YEAR 2004 2005 2006 2007 2008WORKING CAPITAL

17414 -30804 -3541 -89633 116013

Year WORKING

CAPITAL(Y)

X X^2 XY Trend

Values

2004 17414 -2 4 -34828 -25784

2005 -30804 -1 1 30804 -11947.1

2006 -3541 0 0 - 1889.8

2007 -89633 1 1 -89633 15726.7

2008 116013 2 4 232026 29563.9

N=5 Y=9449 Y=0 X^2=10 XY=138369

FORMULA FOR TREND VALUE IS Y c =a+bx

a = Y/N = 9449/5 =1889.8

b = X Y/X^2 =138369/10 =13836.9

WORKING CAPITAL TREND

FORECASTED TREND VALUE

Year Working capital trend value (Rs.000’s)

2009 43400.8

2010 447845.8

2011 461682.7

2012 475519..6

2013 489356.5

RATIO ANALYSIS:

ANALYSIS OF CURRENT RATIO: Current ratio = Current Assets Current liabilities

Year Current Assets Current Liabilities Ratio03-04 317620 300206 1.0604-05 252949 283753 0.8905-06 317994 321535 0.9906-07 380592 470225 0.8107-08 892978 776965 1.15

ANALYSIS OF CURRENT RATIO:

0

0.2

0.4

0.6

0.8

1

1.2

RATIOS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF CURRENT RATIO

Interpretation:

From the table it shows that the current ratio of the company has been

decreased during 04-05 from 1.06 to 0.89 and it has increased as well as decreased each

financial year. Finally it has been increased to 1.15. Higher ratio indicates high liquidity

position. Ideal ratio is 2:1.

GROSS PROFIT RATIO

GROSS PROFIT RATIO=GROSS PROFIT

NET SALES

GROSS PROFIT=NET SALES – COST OF GOODS SOLD

COST OF GOODS SOLD=RAW MATERIALS CONSUMED+

MANAFACTURING EXPENSES+ DIRECT WAGES+OPENING

FINISHEDGOODS-CLOSING FINISHED GOODS

ANALYSIS OF GROSS PROFIT RATIO:

YEAR NET SALES GROSS PROFIT RATIO03-04 3619097 801672 22.15%04-05 4491875 836202 18.62%05-06 5403442 1034171 19.14%06-07 5852828 1167148 19.94%07-08 8631936 1660334 19.23%

ANALYSIS OF GROSS PROFIT RATIO

16.00%

17.00%

18.00%

19.00%

20.00%

21.00%

22.00%

23.00%

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF GROSS PROFIT RATIO

INTERPRETATION:

We can see that the gross profit ratio of the company is fluctuating year by year

i.e. alternate years there is an increase in the gross profit ratio. If there is an increase

in the percentage of gross profit as compared to the previous years then one of the

factors can be taken into account:

1. The selling price of the goods has gone up without corresponding increase in the

cost of goods sold.

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

selling price of the goods.

3. Omission of purchases or sales figures might have inflated.

If there is a decrease the following factors can be taken into account:

1. Decrease in the selling price of the goods without corresponding decrease in he

cost of goods sold and vie-versa

2. Omission of sales

3. Stock at the end may be undervalued or the opening stock may have been

overvalued.

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

decline without resulting in any losses from operations to the firm.

NET PROFIT RATIO

NET PROFIT RATIO=NET PROFIT AFTER TAX NET SALES

YEAR NET PROFIT AFTER TAX NET SALES RATIO03-04 53853 3619097 1.4804-05 7351 4491875 0.1605-06 42453 5403442 0.7806-07 81460 5852828 1.3907-08 173256 8631936 2

Analysis of Net Profit Ratio

00.20.40.60.81

1.21.41.61.82

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF NET PROFIT RATIO

INTERPRETATION: The above table shows relationship between net profit after tax and net sales of the

company for five years. We can see that the ratio keeps on fluctuating from year to year.

In the first year it is 1.48%, but it has decreased to 0.16% in the second year thereby

showing that operational efficiency is not up to the mark. Gradually, it starts to increase

thereby showing better operational efficiency of the company.

WORKING CAPITAL TURNOVER RATIO:

Analysis of Working capital turnover ratio This ratio is a measure of the efficiency of the employment of the working capital. It indicates over trading and under trading and is harmful for the smooth conduct of business. This ratio finds out the relation between cost of sales and working capital. It helps in determining the liquidity of a firm in as much as it gives the rate at which inventories are converted to sales and then to cash.

Working capital turnover ratio = net sales / net working capital

(Rs in 000’s)

YearNet sales Net working capital Ratio

03-04 3619097 17414 207.83

04-05 4491875 -30804 -145.82

05-06 5403442-3541 -

1525.96

06-07 5852828 -89633 -65.3

07-08 8631936 116013 74.4

ANALYSIS OF WORKING CAPITAL RATIO

ANALYSIS OF WORKING CAPITAL RATIO

-2000

-1500

-1000

-500

0

500

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

RA

TIO

Interpretation: This ratio indicates whether or not working capital has been effectively utilised in making sales. In case a company can achieve higher volume of sale with relatively small amount of working capital, it is an indication of the operating efficiency of the company. The ratio shows a constant trend over the period. So it indicates that the company has suffered lack of working capital for meeting its day to day activities.

INVENTORY TURNOVER RATIO:

INVENTORY TURNOVER RATIO = COST OF SALES AVERAGE STOCK

YEAR COST OF SALES AVG INVENTORY RATIO03-04 3619097 36168 100.0604-05 4491875 65139 68.9505-06 5403442 96556 55.9606-07 5852828 137160 42.6707-08 8631936 295512 29.21

Analysis of Inventory turnover Ratio

0

20

40

60

80

100

120

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF INVENTORY TURNOVER

INTERPRETATION:As already stated, the inventory turnover ratio indicates the liquidity of the inventory .A high inventory ratio indicates brisk sales. But the ratio of the company gradually decreases. A low inventory ratio results in blocking of funds in inventory which ultimately would result in heavy losses for the company as the stock may become obsolete or deteriorate in quality.

CURRENT ASSETS TO WORKING CAPITAL RATIO:

The ratio shows the relationship between current assets and working capital purpose of this ratio is to calculate the percentage of working capital influenced in current assets. It is calculated as current assets / working capital.

YEAR CURRENT ASSETSWORKING CAPITAL RATIO

03-04 317620 17414 18.24

04-05 252949 -30804 -8.21

05-06 317994 -3541 -89.8

06-07 380592 -89633 -4.25

07-08 892978 116013 7.7

ANALYSIS OF CURRENT ASSETS TO WORKING CAPITAL RATIO

-100

-80

-60

-40

-20

0

20

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

CURRENT ASSETS TO WORKING CAPITAL RATIO

INTERPRETATION: The above table shows that the current assets working capital ratio. The ratio is gradually fluctuating year by year because the company has got lower value of current assets in working capital. So it indicates that the company’s current assets position in working capital is not at a satisfactory level.

DEBTORS TURNOVER RATIO:

Average accounts receivable

Accounts receivable period = Annual sales / 365

YEAR ACCOUNTS RECIVABLE ANNUAL SALES/365 RATIO

03-04 23623000 9915334 2

04-05 40134000 12306507 3

05-06 64030000 14803951 4

06-07 52549000 16035145 3

07-08 149654000 23649140 6

Analysis of Debtors Turnover Ratio

0

1

2

3

4

5

6

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF DEBTORS TURNOVER RATIO

INTERPRETATION:

The above table shows the accounts receivable period maintained by the

company during the year 2003-2004 was 2 days. In the year 2005 to 2006 it’s increased

from 2 days to 3 days. Then 2006-2007 it’s slowly decreased to 3 days. In the year 2007-

2008 it’s increased to 6 days. The accounts receivable period should be less for efficient

collection of account receivable, but it’s very high shows inefficiency in collection

LONG TERM SOLVENCY RATIOS:

1. DEBT EQUITY RATIO= TOTAL LONG-TERM DEBT

SHAREHOLDERS FUNDS

YEAR LONG TERM DEBT SHAREHOLDERS FUNDS RATIO(SECURED LOANS) (SHARE CAPITAL +RESERVES+P&L A/C)

03-04 423671 222752 1.904-05 692510 230103 305-06 702485 305628 2.306-07 523582 360731 1.4507-08 837156 481576 1.74

Analysis of Debt Equity Ratio

0

0.5

1

1.5

2

2.5

3

RATIO

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

YEARS

ANALYSIS OF DEBT EQUITY RATIO

2. FIXED ASSET RATIO

FIXED ASSSTS RATIO = FIXED ASSETS

TOTAL LONG- TERM FUNDS

YEAR FIXED ASSETS TOTAL-LONG TERM FUNDS RATIO(SHAREHOLDERS FUNDS +SECURED LOANS)

03-04 968356 646423 1.504-05 1259319 922613 1.3605-06 1337467 1008113 1.3306-07 1436041 883953 1.6207-08 1754211 1318732 1.33

Analysis of Fixed Assets Ratio

FIXED ASSETS RATIO

00.20.40.60.81

1.21.41.61.8

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

YEARS

RA

TIO

INTERPRETATION:

Long-term solvency position of the company is good. Debt-equity ratio of

the company is not satisfactory as in all the five years it crosses the ideal ratio which is

1.The fixed assets ratio more than 1 implies that fixed assets are purchased with short-

term funds which is not a prudent policy.

CHAPTER 6FINDINGS

Current ratio of the company is satisfactory only by the year 2008 (1.15). So the

company has to concentrate on short term funds.

Working capital turnover ratio indicates that the company has suffered for lack

of working capital for is day-to-day liabilities that too in the year 2006. Later

it gradually reduced. Later in 2008, the position reached to 74.40

Inventory turnover ratio of the company indicates that efficient operation of

the company and effective utilization of raw materials. There is a decrease in

the inventory ratio from 46.07 in 2006-07 to 29.21 in 2007-08. The company

needs to review the stock positions periodically.

In average the company has got lower value of current assets in working

capital. But while observing the last 2 years performance i.e., 2007 to 2008 it

increase from -4.25 to 7.7.

The company has earned normal profit during this study period.

Debtors turnover ratio is not satisfactory as it has the collection period has

increased from 3 days in 2005-2006 to 6 days in 2007-2008. This shows an in

efficiency on the part of the company with respect to debts.

CHAPTER 7

RECOMMENDATIONS

The Company must maintain its current ratio to the standard 2:1. The

Company must procure current assets in order to maintain a healthy

current ratio.

Matching principles shall be adopted for financing of funds (i.e.,) long

term funds can be employed for financing fixed assets and short term

funds can be employed for financing current assets.

As the company is financed more on non-traditional line (high debt or

equity) it is appreciable to be conservative in its financing.

The fixed asset ratio should also be maintained to 0.67 which is

considered to be an ideal ratio.

CHAPTER 8CONCLUSION

After an in- depth study of “FINANCIAL STATEMENT ANALYSIS” at M/s HATSUN AGRO PRODUCTS LTD, CHENNAI, following conclusions are drawn.

In the last five years there has been a steady increase in gross profit value and percentage.The annual turnover of the company has also been on an increasing trend, this is mainly due to the Company’s effective cost control measures and excellent supply chain management. On the other hand, the Company has to focus on managing effective working capital as in three successive financial years the Company had negative working capital which could hamper the progress of the Company.

The debt equity ratio and the fixed asset ratio also needs to improve.

Overall, the Company’s financial position is satisfactory and progressive even though some aspects need more focus.

The Company which has completed a decade recently in dairy industry has the opportunity to grow in the near future.