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8/3/2019 Finance Evaluvation
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TABLE OF CONTENTS
Chapter No. Particulars Page No.
Chapter 1 Introduction 1
Chapter 2 Industry Profile 5
Chapter 3 Company profile 8
Chapter 4 Review of Literature 23
Chapter 5 Research Objectives 30
Chapter 6 Research Methodology 33
Chapter 7 Analysis and Interpretation 39
Chapter 8 Summary and findings 100
8.1 Findings 101
8.2 Recommendations 105
8.3 Conclusions 106
Chapter 9 Annexure 107
Chapter 10 Bibliography 108
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LIST OF TABLES
S. No. Particulars Page No.
1 RETURN ON TOTAL ASSETS RATIO 40
2 PROFITABILITY RATIO 42
3 PROFITABILITY EARNINGS RATIO 44
4 RETURN ON INVESTMENT RATIO 46
5 OPERATING RATIO 48
6 OPERATING PROFIT RATIO 50
7 ADMINISTRATION EXPENSES RATIO 52
8 SELLING AND DISTRIBUTION EXPENSES RATIO 54
9 INVENTORY TURNOVER RATIO 56
10 INVENTORY TURNOVER PERIOD 58
11 DEBTORS TURNOVER RATIO 60
12 DEBTS COLLECTION PERIOD 62
13 CREDITORS TURNOVER RATIO 64
14 DEBTS PAYMENT PERIOD RATIO 66
15 WORKING CAPTIAL TURNOVER RATIO 68
16 CAPTIAL TURNOVER RATIO 70
17 FIXED ASSETS TURNOVER RATIO 72
18 TURNOVER PER RUPEE OF GROSS BLOCK RATIO 74
19 TURNOVER PER EMPLOYEE RATIO 76 20 CURRENT RATIO 78
21 LIQUID RATIO 80
22 COMMON SIZE BALANCE SHEET ANALYSIS 82
23 COMPARATIVE BALANCE SHEET ANALYSIS 84
24 TREND ANALYSIS 92
25 REGRESSION ANALYSIS 94
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LIST OF CHARTS
S. No. Particulars Page No.
1 RETURN ON TOTAL ASSETS RATIO 41
2 PROFITABILITY RATIO 43
3 PROFITABILITY EARNINGS RATIO 45
4 RETURN ON INVESTMENT RATIO 47
5 OPERATING RATIO 49
6 OPERATING PROFIT RATIO 51
7 ADMINISTRATION EXPENSES RATIO 53
8 SELLING AND DISTRIBUTION EXPENSES RATIO 55
9 INVENTORY TURNOVER RATIO 57
10 INVENTORY TURNOVER PERIOD 59
11 DEBTORS TURNOVER RATIO 61
12 DEBTS COLLECTION PERIOD 63
13 CREDITORS TURNOVER RATIO 35
14 DEBTS PAYMENT PERIOD RATIO 37
15 WORKING CAPTIAL TURNOVER RATIO 69
16 CAPTIAL TURNOVER RATIO 71
17 FIXED ASSETS TURNOVER RATIO 73
18 TURNOVER PER RUPEE OF GROSS BLOCK RATIO 75
19 TURNOVER PER EMPLOYEE RATIO 77
20 CURRENT RATIO 79
21 LIQUID RATIO 81
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CHAPTER: 1
INTRODUCTION
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INTRODUCTION OF THE STUDY:
³Finance may be defined as that administrative area or set of administrative
functions in an organization which relate with the arrangement of cash and credit so
that the organization may have the means to carry out its objective as satisfactorily
as possible´.
The main activities to the successful administration of finance in any
organization comprise financial planning, raising the needed funds, financial
analysis and control. Analysis of financial statement in a business deserves much
attention in carrying out finance function. It helps to regains prospective analysis of
operative period for the purpose of evaluating the wisdom and efficiency of
financial planning. Analysis of what has happened should be of great value in
improving the standards, techniques and procedures of financial control involved in
carrying out finance function.
FINANCIAL MANAGEMENT
Financial management is broadly concerned with the procurement and
effective utilization of funds by a business firm. Financial management emerged as
a distinct field of study at the turn of this century. Its evolution may be divided into
three broad phases.
The Traditional Phase and Modern Phase Finance theory, in general resist
on the premise that the goal of the firm to its equity shareholders. This means that
the goal of the firm should be to maximize of market value of its equity shares the
goals of maximization of shared as wealth, expressing the shareholders point of view, several alternatives have been suggested, maximization of earning per share,
maximization of returns on equity etc., maximization of profit is not as inclusive
goal as maximization of shareholders wealth. It suffers from several limitations like
profit is obscure term¶s not a proper guide to decision making. It should be
expressed either on a per share basis or in relation to investment etc.
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FINANCIAL ANALYSIS
The financial statement provides a summary of the account of a business
enterprise. To understand the financial performance and condition of a firm, its
stakeholders look at the three financial statements, Viz, the balance sheet, the profit and
loss account and the sources and uses of a funds statement.
BALANCE SHEET
It shows the financial position of the firm at the accounting period.
PROFIT AND LOSS ACCOUNT
It shows how the firm performed financially over the accounting period.
SOURCES AND USES OF FUNDS STATEMENT
It shows what have been the sources and uses of funds during the accounting
period.
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SYNOPSIS
The researcher as part of curriculum has conducted a study to find out to financial
performance of the company. The data utilized for the study is secondary in nature. The
required data is collected from the budgeted formats, Flash results and Five- year
annual diary of the company. The data has been collected for a period of five years
from 2002-03 to 2006 ±07.
The ratios concerned in the study are profitability ratios and turnover ratios. The
profitability ratios includes Returns on total assets, Profitability ratio, Profitability
earnings, Administrative expenses ratio, Selling and Distribution expenses ratio, Return
on investment, operating profit ratio, Value added as a percentage on turnover, Value
Added Per employee.
The turnover ratios include inventory turnover ratio, inventory turnover Period,
Debtor turnover ratio, Debt collection period, creditors turnover ratio, Debt payment
period, working capital turnover ratio, Fixed assets turnover ratio, Capital turnover
ratio, Turnover per rupee of gross block, Turnover per employee. The Solvency ratio
includes current ratio.
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INTRODUCTION OF THE INDUSTRY
Engineering and capital goods industry in India faced a bullish trend in the year
2000. It was expected that the industry would look up after being battered by the years
of recession. In Financial year 1999, engineering and capital goods sector went up by
nearly 11.5%.
This reaffirmed the performance in the sector. However, the euphoria didn¶t last
long and FY2000 witnessed a sharp fall in the growth in the sector. In FY2000 the
index went up by just 5.4% (As per CMIE reported figures).
Engineering sector is inextricably linked to the performance of power sector.
Investments in power generation, distribution and transmission have almost dried up,
which is eventually reflected in the performance of engineering companies.
Engineering goods demand is derived from the demand in consumer
products. Falling import barriers on consumer goods has resulted in a sharp decline in
the demand of capital goods. Apart from this the government has curtailed capital
expenditure so as to control the fiscal deficit
Nearly 70% of the revenues of most of the listed and unlisted engineering
companies come from the power sector. The demand may take the form of other
direct demand or a derived demand. In FY2000, the capacity addition in the production
capacity of power sector was 3433 MW.
According to the industry estimates we need almost 7.8% growth in the
installed capacity to cater to the needs of the economy growing at almost 6% p.a. Thistranslates into a capacity addition of 6768 MW with a base of installed capacity as on
March 31, 1999 and growth rate considered at 7%. We can easily make out that the
addition to the capacity is nearly 50% of the increase in projected demand.
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Showdown in capacity additions is reflected in the overall power shortage,
which stood at nearly 7% in the month of November 2000. The most recent exit from
India is that of UK power Major Power Gen. However, we see this stage as a transition
phase of the power industry. Major reforms have been initiated at all levels in India.
Uniform regulatory framework, Electricity Bill 2000, is in place and would soon be
placed in the parliament for discussion. We expect that there is a realization of the
power crises and the bill would not face much difficulty in arriving at the consensus.
The bill propounds more prominent role of the private sector in the developing
power infrastructure and removes most of the redundant bureaucratic hurdles. This also
allows a level playing field to the private power producer vis-à-vis the public sector and
also provides a room for better returns on capital employed.
We feel that the bill would be passed in the next session of the Parliament. This
would result in a large-scale activity in the power sector. In a short term we feel that the
scenario may go from bad to worse but in medium to long term we foresee a major
activity in the sector. Some of the major beneficiaries would be companies like BHEL,
ABB, Siemens, Larsen & Turbo and also the companies in the business of generation,
distribution and transmission of power like TEC, BSES, Ahmedabad Electricity and
CESC.
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CHAPTER: 3
COMPANY PROFILE
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COMPANY PROFILE
Bharat Heavy Electrical Ltd., (BHEL) is the largest engineering and manufacturing
enterprise of its kind in India and is one of the leading international companies in the
field of power equipment manufacture. The first plant of BHEL was set up at Bhopal in
1956, which signaled the dawn of the Heavy Electrical Industry in India. In the early
sixties, three more major plants were set up at Haridwar, Hyderabad and
Tiruchirappalli, which form the core of the diversified range, systems and service the
BHEL offers today.
BHEL range of services extends from project feasibility studies to after-sales-
service successfully meeting diverse needs through turnkey capability. The company
has 14 manufacturing units, 4 power sector regional centers, 8 service centers and 18
regional offices besides project sites spread all over India and abroad. The company has
formed a Strategic Business Unit for Ceramics at Bangalore. BHEL is today the largest
engineering and manufacturing enterprise of its kind in India, with a well recognized
track record of performance, making profits continuously since 1971 ± 72 and paying
dividends since 1976-77. BHEL manufactures over 180 products under 30 major
product groups and caters to core sectors of the Indian economy viz., Power Generation
and Transmission Industry, Transportation, Telecommunication, Renewable Energy,
etc.
The quality & reliability of its products is due to the emphasis on design,
engineering and manufacturing to international standards by acquiring and adapting
some of the best technologies from leading companies in the world, together with
technologies developed in its own R & D centers. BHEL has acquired certifications to
both ISO 9000 & ISO 14000 standards for its operations and has also adopted the
concepts of Total Quality Management. BHEL has adopted Occupational health and
safety standards as per OHSAS 18001. Two of its divisions have acquired certification
to OHSAS 18001 standard and the other units are in the process of acquiring the same.
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BHEL¶s operations are organized around three business sectors,
namely power industry including Transmission, Transportation, Telecommunication &
Renewable Energy and International Operations. This enables BHEL to have a strong
customer orientation, to be sensitive to his needs and respond quickly to the changes in
the market.
OBJECTIVES OF BHEL :
1. GROWTH
To ensure a steady growth by enhancing the competitive edge of BHEL in existing
business, new areas and international operations so as to fulfill national expectations
from BHEL.
2. PROFITABILITY
To provide a reasonable and adequate returns on Capital Employed, primarily
through improvement in operational efficiency capacity utilization and productivity and
generate adequate internal resources to finance the company¶s growth.
3. CUSTOMER FOCUS
To build a high degree of customer confidence by providing increased value for his
money through in international standards of product quality, performance and superior
customer service.
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4. ORIENTATIONS
To enable each employee to achieve his potential, improve his capabilities, perceive
his role and responsibilities and participate and contribute positively to the growth and
success of the company. To invest in human resources continuously and be alive their
needs.
5. TECHNOLOGY
To achieve technological excellence in operations by development of indigenous
technologies and efficient absorption and adaptation of imported technologies to suit
business needs and priorities and provide a competitive advantage to the company.
6. IMAGE
To fulfill the expectations which stake holders like Government as owner,
employees, customers and the country at large have from BHEL.
BHEL has supplied :
y Equipment for over 90,000 MW of power generation ± for utilities, captive and
industrial uses.
y Over 25,000 Motors with Drive Control Systems to Power Projects,
Petrochemicals, Refineries, Steel, Aluminium, Fertilizer, Cement Plants etc.
y Over one million Valves to Power Plants and other industries.
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VISION:
BHEL¶s vision is to make a world ± class engineering enterprise committed to
enhancing share holder value.
MISSION:
BHEL mission is to be an Indian multinational engineering enterprise providing
total business solutions through quality products, system and service in the fields of
energy, transport, infrastructure and other potential areas.
STRENGTH :
The greatest strength of BHEL is its highly skilled and committed people.
Every employee is given an equal opportunity to develop himself and improve his
position. Continuous training and retraining, career planning, a positive work culture
and participative style of management have engendered development of a committed
and motivated work force leading to enhanced productivity and higher levels of quality.
VALUES:
y Zeal to excel and zest for change.
y Integrity and fairness in all matters.
y Respect for dignity and potential of individuals.
y Strict adherence to commitments.
y Ensure speed of response.
y Foster learning, creativity and team work.
y Loyalty and pride in the company.
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OTHER UNITS OF BHEL:
1) Steam less Steel Tube Plant - Trichy
2) High Pressure Boiler Plant ± Trichy
3) Heavy Electrical Plant ± Bhopal
4) Industrial Valves Plant ± Govindaval
5) Heavy Electrical Equipment Plant ± Haridwar
6) Central Foundary Forge Plant ± Haridwar
7) Heavy Equipment Plant ± Haridwar
8) Electronic Division ± Bangalore
9) Industrial Insulted Plant ± Jagdishpur
10) Component Fabrication Plant ± Rudhrapur
11) Silicon Solar Cell Plant ± Gurgon
12) Heavy Equipment Repair Plant ± Varanasi
COMPETITORS:
y ABB
y SIEMENS
y GEC
y VOLTAS
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MAJOR IMPORTS FROM ABROAD:
a) AB Sand irk, Sweden.
b) Hyundai, South Korea.
c) Reiner Brach, Germany.
d) Ferromex, Belgium.
e) Metal one, Japan.
f ) Ducon technologies, USA.
MAJOR SUPPLIERS IN INDIA:
a) Steel Authority of India
b) The Indian Iron Steel Co. Ltd
c) Tube Investment of India
d) Dynalog (India) Ltd
e) Controls & Switch Gear Co.
f ) Delton Cables
g) Tata Iron & Steel Co. Ltd
h) Super Forgings & Steels Ltd
i) Bhushan Steel & Strips
j) Jindal Steel & Steels
k ) Uttam Galva Steels Ltd
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MAJOR CUSTOMERS:
a) State Electricity Board
b) Tata Iron & Steel Co. Ltd
c) Jindal Steel & Steels
d) Hindustan Zinc
e) Bhushan Steel & Strips
f ) Saint Gobin
g) National Thermal Power Corporation
h) Walchand
Board of Directors of BHEL:
1. Ashok K. Puri, Chairman & Managing Director
2. A.K. Mathur, Director (IS&P)
3. K. Ravikumar, Director (Power)
4. C.P. Singh, Director (Finance)
5. N.K. Sinha, Company Secretary
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BOILER AUXILIARIES PLANT, RANIPET :
The boiler Auxiliaries Plant, a unit of BHEL located at Ranipet about 120
KMs from the city of Chennai is one of the manufacturing divisions of BHELs. The
plant has recorded a turn over of around Rs.30807 lakhs during the financial year 2001-
02. The product profile of the unit caters to both power and industrial sectors.
TECHNICAL COLLABORATION
BHEL, Ranipet had technical collaboration for boiler auxiliaries form leading
international players like erstwhile M/s. CE ± APCo, USA, M/s. KKK, Germany and
M/s. Flakt industry, Sweden. Recently the company has extended its business portfolio
to non-conventional energy by supplying Wind Electric Generators with the back up of
M/s. Nordex A/S, Denmark. Another ongoing partnership of the company is with M/s.
Hamon Rothemuhle, Germany in the field of Bag Filters.
UNIT¶S INSTALLED CAPACITY
In the power sector, BHEL, Ranipet was actively associated with the
enhancement of the installed capacity in the country, since the beginning of the plant in
1982. The unit has established itself as a reliable single source for air pollution control
equipments, fans air preheaters and other accessories like gates, dampers, louvers for
power plants. BHEL, Ranipet has supplied ESP¶s for eighteen 500MW units, 148 units
in the range of 200 MW to 250 MW, 65 units of 100 MW to 130 MW and 64 units of
12 MW to 80 MW.
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In addition, BAP has supplied ESP¶s for 71 industrial boilers and around 100
ESP¶s for other industrial applications. The air preheaters and fans supplied for various
500 MW, 250 MW 200/210 MW and low rated units located at various sites in the
country are also performing to the utmost satisfaction of the customers. Boiler
auxiliaries have also been exported, for e.g. to Alarish in Egypt. The unit is actively
participating in few global renders and will be a strong contender for boiler auxiliaries
required for IPPs coming Up in India. In desalination business BHEL, Ranipet has
presence in India with eleven plants of capacities ranging from 20 cubic meters per day
to1 MGD at Ramanathapuram district in Tamilnadu. The company is keen to expand
its business in this area of business.
Equipment for over 90,000 MW of power generation ± for utilities, captive and
industrial uses.
Over 25,000 Motors with Drive Control Systems to Power Projects, Petrochemicals,
Refineries, Steel, Aluminum, Fertilizer, Cement Plants etc.
Over one million Valves to Power Plants and other industries.
The unit a shop floor area of around 93000 Sq.m. and has the state of the art
manufacturing facilities along with necessary inspection and testing facilities. The
manufacturing facilities include sophisticated CNC turning and machining centers,
vertical borers, metal forming machines like press brakes, rolling machining centers,
vertical borers, metal forming machines like press brakes, rolling machines, sectional
rolling machines, presses etc. the plant has modern welding facilities, heat treatment
facilities and has the capability to meet stringent quality in fabrication and machining.
The inspection and testing like ultrasonic scanning, radiography and a modern
metrology.
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ORGANISATION CHART OF BHEL, BAP, RANIPET
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INTRODUCTION TO FINANCE & ACCOUNTS DEPARTMENT:
The finance & Accounts Dept. of BAP, Ranipet is headed by SDGM.
This department is responsible for making the balance sheet and profit & loss
account of the plant. In order to make the flow of work in an easy and efficient
manner the department is classified into different sections which are given below:
INDIGENOUS SUPPLIERS BILL PASSING SYSTEM
Integrated with PO master of Purchase Dept. for PO details and stores
receipt voucher (SRV) table and Day book (DB) Table of Stores Dept. (DTS) Direct
to site Table of material planning department for quality details.
FOREIGN SUPPLIERS BILL PASSING SYSTEM
Integrated with PO master of purchase dept. for PO details SRV table for
quality details, Bank payment advice slip (BPAS) for actual payment and exchange
Rate particulars, Regional Operating Division (ROD) debits for freight, customs
duty, Demurrage, port handling charges, forwarding agents commission and other
relevant charges.
MSA BILL PASSING SYSTEM
Integrated with PO Master, form issue position (IP) Material Accounting
statement (MAS) of MSA Dept. for PO, work order, Rate details and off cut and
scrap recovery.
FREIGHT BILL PASSING SYSTEM
Outward (shipping) bill system is integrated with loading advice slip
(LAS) & Goods consignment Note (GC) of shipping Dept. Site table of Commercial Dept. and Rate Master for Distance, Customer, Weight, Estimation,
Rate and other relevant details.
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SRV PRICING SYSTEM
Integrated with PO Master & SRV Table for pricing without any manual
input. Posting to General Ledger (GL) and other subsidiary ledgers will be done
instantly along with pricing.
PRICED STORES LEDGER SYSTEM
Instant pricing and instant PSL & GL instantly on Dynamic Weighted
Average Rate basis as and when issue voucher are raised, provided sufficient stock I
available in PSL Adjustment (EAL) are automatically fed into system as and when
Adjustment SRVs (ASRVs) are raised by sections to adjust the cost already booked
against the work orders and also to rectify the PSL rate master.
GENERAL LEDGER SYSTEM (GL)
GL system is a real time on-line system. Sectional ledgers, subsidiary
Ledgers, GL, section Trial balance (TB) and TB can be taken readily as and when
required. Inter unit statements, Balance Sheet, Link sheets & detailed schedules can
be taken from GL without any manual input. Fixed Assets ledger & Depreciation
calculation system is integrated with GL and all posting to GL will be done
automatically.
CASH AND BANK SYSTEM
Preparation of cash receipts are done through online system which is
integrated with GL system. Daily statements like cash receipts, payments, unpaid,
TA, cash balance with denomination, etc., are taken from GL system without any
manual intervention. Cheque printing, suppliers, cheque forwarding memo with
details, Dispatch Advice Slip, Bank Book, Bank JV generation and necessary
postings to GL are done thro on-line system without any manual input by cheque
section. The following two finance systems are developed and maintained by
information center
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PAY ROLL SYSTEM
It is integrated with P & A system. Payment of monthly salary and other
allowances, all monthly recoveries from salary, attendance maintenance,
employees¶ personal details and other personal payments are taken care.
COSTING SYSTEMS
Turnover, WIP, FG & Limitation working is based on input from PSL &
GL system of finance Dept., Time Docket of production Dept., Design weight of
GMs of Engineering system, production Details of production system and dispatch
details of commercial Dept.,
SALES ACCOUNTING
Sales Accounting is one of the most important areas in Finance &
Accounting function. It is the sales function which creates valid claims on
customers and gives authority for collection of money from debtors and thus
completing the total business cycle and generation of surplus funds for growth.
PAYMENT TERMS
Payment terms are agreed upon with customers by the contracting
agency may vary from customer and nature of the contracts. The general payment
terms are an advance (generally 10%) is taken as advance money along with the
issuance of LOI. Normally a sum of 80-85% is taken as payment against supplies
upon submission of invoices. Generally an amount of 2-10% is retained by the
customer as retention money which is realized after the performance guarantee test
is done and the warranty period is over (Deferred Debt.)
EXCISE DUTY
Excise Duty is the duty on manufacture and the duty liability is fastened
immediately after goods are manufactured; whether these are sold or not it is
immaterial. Such duty is paid at the time and place of removal.
SALES TAX
Sales Tax is an indirect tax charged on sale of goods for consideration.
It can be segregated as inter ± state sale and intra ± state sale.
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CHAPTER: 4
REVIEW OF LITERATURE
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THEORETICAL EXPLANATION OF FINANCIAL ANALYSIS
TOOLS:
In business usage the term financial statement analysis and interpretation are applied to
almost any kind of detailed inquiry into financial data. It is a technical tool in the hands
of financial executives to measures the financial progress. It is an attempt to determine
the significance and meaning of the financial statement data so that a forecast can be
made on the prospects of future earning ability to pay interest and debt maturity both
current as well as long term and to study the probability of a sound dividend policy. The
techniques are used to ascertain or measure the performance of the company as a whole.
Review of literature consists of theoretical study of the f ollowing sub
topics
y Ratio Analysis
y Comparative Balance Sheet Analysis
y Common size Balance Sheet Analysis
y Trend Analysis
y Regression Analysis
RATIO ANALYSIS
The ratio analysis is one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios. A financial ratio is therelationship between two accounting figures expressed mathematically. Ratios provide
clues to the financial position of a concern. These are the pointers and indicators of
financial strength, soundness, position or weakness of an enterprise. One can draw
conclusions about the exact financial positions of a concern with the help of ratios.
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Ratio analysis is a process of comparison of one figure against another, which make
a ratio, and the appraisal of the ratios to make proper analysis about the strengths
and weaknesses of the company¶s operations. Ratio analysis is extremely helpful in
providing valuable insight into a company¶s financial picture
MEANING OF RATIOS
³Ratios are relationship express in mathematical terms between figures
which are connected with each other in some manner. Obviously, no purpose will
be served by comparing two sets of figures which are not at all connected with each
other´. Moreover, absolute figures are also unfit for comparison. Ratios can be
expressed in two ways;
TIMES
When one value is divided by another, the unit to express the Quotient is
termed as ³Times´. For example, if out of 100 product is Employees 95% is
Finishing goods or product ratio can be expressed as
Follows:
95/100 = 0.95 times.
PERCENTAGE
If the quotient obtained is multiplied by 100, the unit of expression is
termed
As ³PERCENTAGE´. For instance, in the above example, the product ratio as a
Percentage of the total number of employees is as follows:
0.95* 100 = 95%
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CLASSIFICATION OF RATIOS.
Ratios are classified in several ways. Different approaches are used for
classifying ratios. There is no uniformity in classification by experts. They have
adopted different stand points for classifying ratios into various groups. Some of the
classifications are discussed below:
a) Classif ication of ratio by statements.
Under this method, ratios are classified on the basis of statements from
which the information is obtained for calculating the ratios. The only statements which
provide information are balance sheet and profit and loss account.
b) Classif ication by users.
Under this classification the ratios are grouped on the basis of the parties who
are interested in making use of the ratios.
Ratios f or management Ratios f or creditors
Operating ratio Current ratio
Return on Investment Solvency ratio
Stock turnover Creditors turnover
Debtors turnover Fixed assets
Debt equity
Creditor¶s turnover
c) Classif ication of ratios by purpose/f unction.
Generally ratios are used for the purpose of assessing
Profitability, activity or operating efficiency and financial position of a
Concern. Based on the purpose the ratios are classified as Profitability
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Classif ications of ratios Analysied
1. Short term solvency ratio
2. Profitability ratio
3. Turnover Ratio
SShhoorrtt--TTeerrmm SSoollvveennccyy R R aattiioo::
The short-term solvency ratios, which measure the liquidity of the firm and its
ability to meet its maturing short-term obligations. Liquidity is defined as the ability
to realize value in money, the most liquid of assets. It refers to the ability to pay in
cash, the obligations that are due.
PPrroof f iittaabbiilliittyy R R aattiioo::
The purpose of study and analysis of profitability ratios are to help
assessing the adequacy of profits earned by the company and also to discover whether
profitability is increasing or declining.
EPS is one of the most important ratios, which measures the net profit
earned per share. EPS is one of the major factors affecting the dividend policy of thefirm and the market prices of the company.
A steady growth in EPS year after year indicates a good track of profitability.
TTuurrnnoovveerr R R aattiiooss::
Activity ratios measure how effectively the firm employs its resources. These
ratios are also called turnover ratios which involve comparison between the level of
sales and investment in various accounts - inventories, debtors, fixed assets, etc.,
activity ratios are used to measure the speed with which various accounts are
converted into sales or cash.
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CCOOMMPPAAR R AATTIIVVEE BBAALLAANNCCEE SSHHEEEETT AANNAALLYYSSIISS
The comparative balance sheet analysis is the study of the trend of the
same items, group of items and computed items in two or more balancesheets of the same business enterprise on different dates. The changes in
periodic balance sheet items reflect the conduct of a business. The changescan be observed by comparison of the balance sheet at the beginning and atthe end of a period and these changes can help in forming an opinion about
the progress of an enterprise.
Balance sheets as on two or more different dates are used for comparing the
assets, liabilities and the net worth of the company. Comparative balance sheet
analysis is useful for studying the trends of an undertaking.
Advantages
y Comparative statements help the analyst to evaluate the performance of the
company.
y Comparative statements can also be used to compare the performance of the
firm with
y The average performance of the industry between different years.
y It helps in identification of the weaknesses of the firm and remedial measures
can be done meritly
y Taken accordingly.
COMMON SIZE BALANCE SHEET ANALYSIS :
A statement in which balance sheet items are expressed as the ratio of each asset to
total assets and the ratio of each liability is expressed as a ratio of total liabilities is
called common size balance sheet. The figures are shown as percentages of total assets,
total assets and total liabilities. The total assets are taken as 100 and different assets are
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expressed as a percentage of the total. Similarly, various liabilities are taken as a
percentage of total liabilities.
These statements are useful in analysis of the performance of the company by
analyzing each individual element to the total figure of the statement. These statements
will also assist in analyzing the performance over years and also with the figures of the
competitive firm in the industry for making analysis of relative efficiency.
TREND ANALYSIS
The financial statements may be analyzed by computing trends of series of information.
This method determines the direction upwards or downwards and involves the
computation of the percentage relationship that each statement bears to the same year in base year. The information for a number of years is taken up and one year, generally the
first year, is taken as a base year. The figures of the base year are taken as 100 and trend
ratios for other years are calculated on the basis of base year. This helps the analyst to
see the trend of figures, whether upward or downward.
In financial analysis the direction of changes over a period of years is of
crucial importance. Time series or trend analysis of ratios indicates the direction of
change. This kind of analysis is particularly applicable to the items of profit and loss
account. This procedure may be called as ³trend-percentage method.´
REGRESSION ANALYSIS
A fundamental and versatile research technique that seeks to explain an
outcome (dependent) variable in terms of multiple predictor (independent) variables.
This analysis reveals the nature and strength of the relationship between each predictor
variable and the outcome, independent of the influence from all other predictors. The
term typically refers to Ordinary Least Squares (OLS) regression, which models a linear
relationship among variables.
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CHAPTER : 5
Research Objectives
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SCOPE OF THE STUDY :
The purpose of the study was to know the financial performance of the unit. For this
the ratio analysis tool was most suitable. This would reveal the solvency position of
the unit. The trend of sales and profitability for the past 5 years was calculated to
know if any deviations occurred and to know the reasons for it. However the study
had its own limitations like ratio analysis is a post-mortem analysis and the data
utilized were secondary in nature etc.
FINANCIAL ANALYSIS :
The financial statement provides a summary of the account of a business
enterprise. To understand the financial performance and condition of a firm, its
stakeholders look at the three financial statements, Viz, the balance sheet, the profit
and loss account and the sources and uses of a funds statement
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CHAPTER : 6
Research Methodology
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5.1 IMPORTANCE OF THE STUDY
Boiler industry has a vital role to share in the contribution of economic development.
India is a major importing country in terms of boilers. In order to understand the role of
electrical and boiler industrial performance of India, a comprehensive study of the
financial management with respect to the financial performance analysis of BHEL has
been undertaken.
Hence, the present study focuses on the financial performance of BHEL for a period of
five years from 2002-03 to 2006-07.The project study mainly focuses on the critical
assessment of the financial performance of BHEL and deals with financial statement
analysis, financial planning and financial control.
5.2 SCOPE OF THE STUDY
The scope of the present study is limited to the following aspects.
y Ratio Analysis
y Trend Analysis
y Common Size Balance Sheet analysis
y Comparative Balance sheet
y Regression Analysis
y The study finds out the operational efficiency of the organization and suggests the
proper utilization and allocation of cash resources to improve the efficiency of the
organization.
y The financial position of the organization will be further revealed through the
adoption of various techniques available for analysis.
y These techniques reveal the measures that can adopt to improve the existing trend.
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5.3 RESEARCH METHODOLOGY
This part highlights the period of the study, sources of data and techniques used in the
analysis. It focuses on the critical assessment of the financial position of BHEL These
are illustrated and explained as under:
RESEARCH DESIGN
y Research design is purely and simply the framework or plan for a study
that guides the collection and analysis of the data. The function of
researcher is to ensure that the required data collected are accurate and
economical also
y Analytical research technique was adopted in the project. Generally,
analytical techniques are designed to analyze something and it collects
data for a definite and certain purpose.
y The project study mainly focuses on the critical assessment of the
financial position of BHEL, and deals with financial statement analysis,
financial planning and financial control.
5.4 PLAN OF ANALYSIS
Data collected from all the available sources will be tabulated, analyzed, interpreted and
supported with relevant chart, ratios, tables, graphs, etc., where ever necessary and
suggestions arising there of will also be listed in the project. An attempt has been made
to study the working capital management as part and parcel of treasury operations at
BHEL.
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5.4.1 PRIMARY DATA
With a purpose to strengthen and validate the study, personal contacts were
made with the executives and officials of the finance division of BHEL in the
form of personal discussion, data collection, analysis of reports and MIS formats
etc.,
5.4.2 SECONDARY DATA
The secondary data are collected from Company reports, institute magazines,
department manuals, brochures mainly form the balance sheet, income and
expenditure and periodicals etc.,
5.4.3 METHOD OF COLLECTION
The data for the analysis are collected and gathered from the printed company
reports of BHEL, official files, records, ledgers and other available related
materials
PERIOD OF STUDY
The study period covers the financial performance of BHEL during the five year
period commencing 2002-03 to 2006-07
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5.5 DATA ANALYSIS
TECHNIQUES USED UNDER THE STUDY
Ratio analysis
Comparative balance sheet analysis
Common size balance sheet analysis
Trend analysis
Regression analysis
5.6 LIMITATIONS OF THE STUDY
The project study is mainly based on information gathered from
secondary data, mainly the printed Balance Sheet and Profit and Loss
Account.
Time period being a major constraint, it is insufficient to cover the
various aspects of finance within the prescribed period.
The whole study is based on the observations in the past over a five
year time horizon which can be related to the laws that operated in the
past as there is no evidence that the laws will continue to operate in
future also.
Being a company under the direct control of BHEL Delhi and also
under the indirect administration of the government, it is not possible
to fix the prices for some of the major products produced. It is not in
a position to enjoy the control of ownership.
The company face the challenges of the international boilers markets ,
on the profitability of the boiler industry as a whole in India.
Therefore, five year period is subject to major fluctuations in terms of
profitability.
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PROFITABILITY RATIOS
Profit making is the main objective of business. Aim of every business concern
is to earn maximum profit in absolute terms and also in relative terms. Profit is to
maximum in terms and also in relative terms. Profit is to maximum in terms of risk
undertaken and capital employed. Ability to make maximum profit from optimum
utilization of resources by a business concern is termed as ³profitability´. Profit is an
absolute measure of earning capacity. Profitability depends on sales, costs and
utilization of resources. The following are various ratios used to analyze profitability.
Expenses ratios
These ratios are also known as supporting ratios to operating ratio. They
indicate the efficiency with which business as a whole functions. It is better for the
concern to know how it is able to save or waste over expenditure in respect of different
items of expenses.
i) Administration expenses ratio:
Administration expenses ratio / net sales * 100
ii) Selling and distribution expenses ratio:
Selling and distribution expenses ratio / Net sales * 100
TURN OVER RATIOS
This ratio is called stock velocity ratio. It is calculated to ascertain the
efficiency of inventory management in terms of capital investment. It shows the
relationship between the cost of goods sold and the amount of average inventory. Stock
turnover ratio is obtained by dividing the cost of sales by average stock.
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CHAPTER : 7
Analysis & Interpretation
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ANALYSIS AND INTERPRETATION
PROFITABILITY RATIOS
7.1 Return on Total Asset
Return on total asset ratio is calculated to measure the productivity of total
assets. In the term of fictitious assets refer to the preliminary expenses, debit balance
of profit and loss account and other similar losses shown on balance sheet asset side.
Formula : Return on total asset = (Net prof it bef ore tax/Total asset excluding
f ictitious Assets)*100
Table 5.1
Interpretation:
The ratio is showing a mixed trend. The decrease in ratio at 2003-04 is due to
the wage revision and then it shows a raising implies the increasing profit. Again
there is a downfall because of the increasing price of the material and components.
And then 2006-07 is due to the wage revision and then it shows a raising implies the
increasing profit.
Year Prof it bef ore TaxNet Fixed
Asset
Return on total
Asset ratio
2002-03 2041 3139 65.02
2003-04 1587 3021 52.53
2004-05 2140 2763 77.45
2005-06 5788 2618 221.08
2006-07 12654 2597 487.25
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Return on Total Asset ratio
Figure no.1
0
50
100
150
200
250
300
350
400
450
500
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.2 Prof itability Ratio:
Gross turnover less Excise Duty, the Net turnover is the value of Production. Profit
before tax to Gross turnover less Excise Duty is calculated to know the profitability for
the given value of production.
FORMULA : Prof itability ratio = (Prof it bef ore tax/Net turnover)*100
Table 5.2
Year Prof it bef ore tax Net turnover Prof itability Ratio
2002-03 2041 28232 7.22
2003-04 1587 33340 4.76
2004-05 2140 51216 4.17
2005-06 5788 72907 7.94
2006-07 12654 100947 12.54
Interpretation:
Profitability ratio is increased from 2002-03. In 2003-2004 the ratio
shows a decreased trend this is because of the wage revision. In 2003-04, the ratio
has come down because of the increase in steel prices. In 2003-04 steel price have
gone up by 30% compared to 2002-03 and in 2004-05, steel and components prices
have gone up. From June 2005-06 onwards prices are stabilizing and the profitability
is increased from 2006-07.
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P ROFITABILITY R ATIO
Figure no.2
0
2
4
6
8
10
12
14
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.3 Prof itability Earnings
Profit before tax to personnel payments is calculated to know
whether sufficient profitability is earned by paying salary to its employees. This is
used for inter unit comparison.
Formula : Prof itability Earnings= (Prof it bef ore tax/Personnel Payments)*100
Table 5.3
Year Prof it bef ore tax Personnel payment Prof itability Earnings
2002-03 2041 6312 32.33
2003-04 1587 6956 22.81
2004-05 2140 7280 29.39
2005-06 5788 7997 72.38
2006-07 12654 9973 126.88
Interpretation:
Profitability with respect to personnel payment are in the mixed
trend. In 2003-04 and 2004-05 profitability earnings is very low because of high
personnel Payment due to wage revision,It ben stabilized from 2005-06 and 2006-
07 .
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P ROFITABILITY E ARNINGS
Figure no.3
0
20
40
60
80
100
120
140
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.4 Return on Investment
This ratio is called return on ³Capital employed ³. It measures the
sufficiency or otherwise of profit in relation to capital employed.
Return on Investment = operating profit / Capital employed * 100
The term operating profit means profit before interest and tax
FORMULA:
Return on investment = (Operating prof it/Capital employed) *100
TABLE: 5.4
Year Operating prof it
Rs in Lak hs
Capital employed
Rs in Lak hs
Ratio
2002 ± 03 5464 4919 111.0
2003 ± 04 5087 5910 86.0
2004 ± 05 5740 9191 62.5
2005 - 06 9558 8401 113.77
2006-07 18279 6319 289.27
INFERENCE
In 2002-03 it has been increased to 111.0. But in 2003-04, 2004-05, it has beendecrease to 86.0 and 62.4 respectively. But presently the ratio 113.77 in 2006 is
satisfactory. And stabilized from 2006-07 and 2007-08.
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Return on investment
Figure no.4
0
50
100
150
200
250
300
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.5 Operating ratio
This ratio indicates the relationship between total operating expenses and
sales
Operating ratio = Cost of sales + Operating expenses / Net sales * 100
Operating ratio measures the amount of expenditure incurred in
production sales and distribution of output. I t indicates operational efficiency of the
concern. Lower the ratio more is the efficiency.
FORMULA:
Operating ratio = (Cost of sales + operating expenses/ Net sales)*100
TABLE No. 5.5
Year
Cost of sales+
operating expenses
Rs in lak hsNet sales
Rs in lak hs
Ratio
2002-03 48959 28232 173.4
2003-04 60006 33340 179.9
2004-05 94552 51216 184.6
2005-06 130468 72907 178.9
2006-07 170961 100947 169.35
INFERENCE
The ratio is increasing and decreasing. In the year 2002 ± 03,2003-04 the
ratio is lower indicates more efficiency during that year and in 2004 ± 05
and 2006-07 the ratio is higher indicates less efficiency going on to lower
indicates.
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OPE RATING RATI O
Figure no. 5
160
165
170
175
180
185
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.6 Operating prof it ratio
It is the ratio of profit made from operating sources to the sales usually
shown as a percentage. It shows the operational efficiency of the firm and is measure of
the managements efficiency in running the routine operations of the firm
FORMULA:
Operating prof it ratio = (operating prof it/sales)*100
Table 5.6
Year Operating prof it
Rs in lak hs
Sales
Rs in lak hs
Ratio
2002-03 5464 26191 20.86
2003-04 5087 31753 16.02
2004-05 5740 49076 11.69
2005-06 9558 67119 14.24
2006-07 18279 88293 20.70
INFERENCE
The Operating profit is decreasing in the mixed trend; the reason for this is due
to increase in the input cost and it been stabilized and fornt oriented from the year2006-07.
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O PERATING P ROFIT R ATIO
Figure no.6
0
5
10
15
20
25
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.7Administration Expenses Ratio:
This ratio is calculated in support to operating ratio. They
indicate the Efficiency with business as whole function. It is better for the concern to
know how it is able to save or waste over expenditure n respect of administration
expenses.
FORMULA:
Administration expense ratio = (Administration expenses/Net sales)*100
Table 5.7
Year Administration
expenses Rs inlak hs
Net sales
Rs in lak hs
Ratio
2002-03 3295 28232 11.67
2003-04 3360 33340 10.08
2004-05 3450 51216 6.74
2005-06 3610 72907 4.95
2006-07 5375 100947 5.32
INFERENCE
The administration expense is moving. It was fluctuating, from 2004-05
onwards it was in decreasing trend. It 2005-06 , 2006-07 it was 4.95, 5.32 due to
increase in turn over. Higher turn over will have lower ratio.
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5.8 Selling and Distribution Expenses Ratio:
This ratio is also calculated in support to operating ratio.
They indicate efficiency with which business as a whole function. This will
increase in proportion to sales.
FORMULA:
Selling & Distribution Expenses = Selling & distribution expenses *100
Net sales
Table. 5.8
Year Selling&
distribution
expenses
Rs in lak hs
Net sales
Rs in lak hs
Ratio
2002-03 128 28232 0.45
2003-04 140 33340 0.42
2004-05 150 51216 0.29
2005-06 160 72907 0.22
2006-07 250 100947 0.25
INFERENCE
The selling & distribution expenses are in the line with the turnover. If the
turnover goes up, the ratio will be lower. Due to increase in the volume of business and
turnover the ratio is in the decreasing trend.
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S ELLING AND DISTRIBUTION E XPENSES R ATIO
Figure no.8
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
percentage
1 2 3 4 5
years
C
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5.9 Inventory Turnover Ratio:
This ratio is called stock velocity ratio. It is calculated to ascertain the efficiency
of inventory management in terms of capital investment. It shows the relationship
between the cost of goods sold and the amount of average inventory. Stock turnover
ratio is obtained by dividing the cost of sales by average stock.
FORMULA:
Inventory turnover ratio = (Cost of goods sold / average inventory)
Table 5.09
Year Cost of goods sold
Rs in lak hs
Average inventory
Rs in lak hs
TIMES
2002 ± 03 26191 4975.5 5.26
2003 ± 04 31753 7051.5 4.50
2004 ± 05 49076 12870.5 3.81
2005 - 06 67119 18825.5 3.56
2006-07 88293 24698 3.57
INFERENCE
The ratios are fluctuating; high ratios indicate the efficient Inventorymanagement
And efficiency of business operations.
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I NVENTORY T URNOVER R ATIO
Figure no.9
0
1
2
3
4
5
6
percentage
1 2 3 4 5
years
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TURNOVER RATIOS
5.10 Inventory Turnover period:
Inventory turnover ratio can be related to time. The ratios can
be expressed in term of days or months. The general objective is to increase the stock
velocity as much as possible or in effect, decrease the days or months for which items
remain in stock.
FORMULA :
Inventory turnover period= (Average stock /Cost of goods sold) *
Months in a year
Table 5.10
YearAverage
InventoryCost of goods sold
Inventory Turnover Perio
Ratio
2002-03 4975.5 26191 2.28
2003-04 7051.5 31753 2.66
2004-05 12870.5 49076 3.15
2005-06 18825.5 67119 3.35
2006-07 24698.5 88293 3.36
Interpretation:
The ratio shows a mixed trend. The ratio is raising in the last four
years i.e., 2.27, 2.66, 3.14,3.35,3.37. This shows the inventory period of moving is
increasing.
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DEBTORS T URNOVER R ATIO
Figure no.11
0
5
10
15
20
25
30
35
40
45
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.12 Debt Collection Period
The average collection period measure the liquidity of the
debtors, since a collection period implies the prompt payment of the debtors. It also
measures the credit worth ness of the company. The average collection should be
compared against the firm¶s credit terms and policies to judge its credit and collection
efficiency.
FORMULA:
Debt collection period = (Average accounts receivable/ credit\ sales)*
Months in a year
Table 5.12
Year Avg a/c receivable Credit SalesDebt collection
period
2002-03 2872 28232 1.22
2003-04 3026 33340 1.09
2004-05 2870 51216 0.67
2005-06 3508 72907 0.58
2006-07 2114 100947 0.25
Interpretation:
Higher turnover ratio and the shorter collection period conveys quick
payment on the part of the debtors. Collection period has been reduced from 1.22
months to 0.67,0.58,0.25 month shows the efficiency of the management.
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DEBT C OLLECTION P ERIOD
Figure no.12
0
0.2
0.4
0.6
0.8
1
1.2
1.4
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.13 Creditors turnover ratio:
This ratio is also known as accounts payable. A business concern usually purchases raw
materials, services and goods on credit. The quantum of payables of a business concern depends
upon its Purchase policy, the quantity of purchase and suppliers credit policy. Creditor¶s turnover
ratio indicates the number of times the payable rotate in a year.
FORMULA:
Creditors turnover ratio = Net credit purchase / Average accounts payable
TABLE No. 5.13
Year Purchases
Rs in Lak hs
Average accounts
payable
Rs in Lak hs
Ratio
2002 - 03 15713 5573 2.82
2003 ± 04 21391 6337 3.38
2004 ± 05 38707 7992 4.84
2005 ± 06 56130 9858 5.69
2006-07 69424 14704 4.72
INFERENCE
The purchase as increased due to volume of business, the ratios are
satisfactory in the company point of view.
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Creditors Turnover Ratio
Figure no.13
0
1
2
3
4
5
6
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.14 Debt Payment Period:
The Debt Payment Ratio indicates the interval of payment
period. If the firm does not pay off its creditors within time, it will adversely
affect the goodwill of the business.
FORMULA: Debt Payment ratio = (Average accounts payable / Credit
purchase) * Months in a year.
Table No. 5.14
Year Avg a/c Payable Credit Purchase Debt Payment Ratio
2002-03 5573 15713 4.26
2003-04 6337 21391 3.55
2004-05 7992 38707 2.48
2005-06 9858 56130 2.11
2006-07 14704 69424 2.54
Interpretation:
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The credit period shows the reducing trend from 2002-03 to
2003-04. In the global market, this is generally good for this company. This will
raise the image of the company as it can able to meet its financial obligation.
DEBT P AYMENT P ERIOD
Figure no.14
0
0.5
1
1.52
2.5
3
3.5
4
4.5
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.15 Work ing capital turnover ratio:
This ratio is the measure of the efficiency of the
employment of the working capital. It indicates the overtrading and under trading and
is harmful for the smooth conduct of the business. The ratio finds out the relation
between the cost of sales and working capital.
FORMULA: Work ing capital turnover ratio = Net Turnover /Net work ing
capital
Table 5.15
Year Net Turnover Net Work ing CapitalWork ing capital turnover
ratio
2002-03 28232 1599 17.66
2003-04 33340 3894 8.56
2004-05 51216 6396 8.00
2005-06 72907 -1228 -59.37
2006-07 100947 -9297 -10.85
Interpretation:
High ratio indicates lower investment of working capital and more
profit. This was due to lower current asset. But this will not be in the case of future
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W ORKING CAPITAL TURNOVER RATIO
Figure no.15
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.16 Capital Turnover Ratio:
Managerial efficiency is also calculated by
establishing the relationship between cost of sales or sales with the amount of
capital invested in the business. Lower ratio shows the lower profit and higher ratios
show the higher profit.
FORMULA: Capital Turnover Ratio = (Cost of goods sold/capital
employed)
Table 5.16
Year Cost of goods sold Capital Employed Capital turnover Ratio
2002-03 26191 4919 5.32
2003-04 31753 5910 5.37
2004-05 49076 9191 5.34
2005-06 67119 8401 7.99
2006-07 88293 6319 13.97
Interpretation:
The capital turnover ratio from 2002-03 to 2006-07 except
in 2004-05, shows a gradual increase, which depicts that the assets as a whole are
efficiently utilized.
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C APITAL T URNOVER R ATIO
Figure no.16
0
2
4
6
8
10
12
14
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
c
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5.17 Fixed assets turn over ratio:
This ratio determines efficiency of utilization of fixed assets and
profitability of a business concern. Higher the ratio, more is the efficiency in utilization of
fixed assets. A lower ratio is under utilization of fixed assets.
FORMULA:
Fixed Assets turnover ratio = (Cost of sales / Net f ixed assets)
Table 5.17
Year SalesRs in Lak hs Fixed assetsRs in lak hs Ratio
2002 ± 03 26191 3139 8.34
2003 ± 04 31753 3021 10.51
2004 ± 05 49076 2763 17.76
2005 ± 06 67119 2618 25.64
2006-07 88293 2597 33.99
INFERENCE
The ratio shows that the fixed assets are efficiently utilized. The ratios are
showing up gradually i.e., from 2002 ± 03 to 2006 ± 07 is 8.34, 10.51, 17.76 ,25.68 and
33.99 respectively.
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FIXED ASSETS TURNOVER RATIO
Figure no.17
0
5
10
15
20
25
30
35
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.18 Turnover per Rupee of Gross Block :
This ratio is calculated on the basis of historical coat basis. This
will reveal the efficiency of the utilization the fixed assets and profitability of
a business concern.
FORMULA :
Turnover per rupee of Gross Block = (Net turnover/Gross Block )
Table 5.18
Year Net Turnover Gross Block Turnover per rupee
of gross block
2002-03 28232 10751 2.62
2003-04 33340 10993 3.03
2004-05 51216 11153 4.59
2005-06 72907 11520 6.33
2006-07 100947 11962 8.44
Interpretation:
Generally the ratios are in the increasing trend, i.e.,
2.63, 3.03, 4.59, 6.33,8.44 from 2002-03 to 2006-07 respectively, which
highlights that the assets utilized very efficiently.
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T URNOVER P ER R UPEE OF G ROSS BLOCK Figure no.18
0
1
2
3
4
5
6
7
8
9
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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5.19 Turnover Per employee
This ratio indicates how much each employee is
contributing to the turnover. This will be helpful for the comparison basis.
FORMULA :
Turnover per employee = (Net Turnover /No. of Employee)
Table 5.19
Year Net Turnover No. of employees
Turnover per
employee
2002-03 28232 2187 12.91
2003-04 33340 2120 15.73
2004-05 51216 2094 24.46
2005-06 72907 2080 35.05
2006-07 100949 2175 46.41
Interpretation:
Generally the ratios have the increasing turnover, i.e., 12.91, 15.73,
24.46,35.05 and 46.41from 2002-03 to 2006-07. This shows that each employee is
contributing the best of him.
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T URNOVER P ER EMPLOYEE
Figure no.20
0
5
10
15
20
25
30
35
40
45
50
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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SOLVENCY RATIOS
5.20 Current Ratio:
The ratio of current assets to Current Liabilities is called µCurrent
ratio¶ In order to measure the short term liquidity or solvency of a concern, comparison of
current assets and current liabilities is inevitable.
Current ratio=Current assets/Current liabilities
FORMULA:
Current ratio = (current assets/ current liabilities)
Table 5.20
Year
Current assets
Rs in lak hs
Current liabilities
Rs in lak hs Ratio
2002-03 8892 7293 1.22
2003-04 13740 9846 1.40
2004-05 20913 14517 1.44
2005-06 25515 26743 0.95
2006-07 51662 60959 0.85
INFERENCE
The ratios are lesser than the standard norm (2:1) which indicates the down
trend.
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5.22 Liquid ratio:
This ratio is also called µquick or Acid test ratio¶. It is calculated by comparing
the quick assets with current liabilities
FORMULA:
Liquid ratio = (Current assets (CA) ± Closing stock (CS) / Current Liability)
Table 5.22
Year CA ± CS
Rs in Lak hs
Current Liability
Rs in Lak hs
Ratio
2002 ± 03 3637 7293 0.50
2003 ± 04 4892 9846 0.49
2004 ± 05 4020 14517 0.28
2005 - 06 4757 26743 0.17
2006-07 23023 60959 0.38
INFERENCE
The liquid ratio is declining year by year. The prescribed norm is 1:1.
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LIQUID RATIO
Figure no.5.21
0
0.05
0.1
0.15
0.2
0.250.3
0.35
0.4
0.45
0.5
PERCENTAGE
2002-03 2003-04 2004-05 2005-06 2006-07
YEARS
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Interpretation
In common size balance sheet analysis in BHEL, it is found that the total assets
and liabilities are taken as 100% total and other components of assets and liabilities are
also expressed in terms compared to total asset and total liability. The total capital %
shows a decreasing trend for the last two years.
There is also a fluctuation in reserves & surplus in the last few years due to introduction
of accounting sections. The percentage of unsecured loan funds is decreasing which
states the availing of no fresh loan secured from the year 02 to 07 for the purpose of expansion of the business.
The total net worth has fluctuation, which is because of fluctuation in the
reserves & surplus. The company adopted regrouping of certain Boilers and ancillarytransaction in line with industry¶s practice of representing the same. This has vitiated
the trend in current liabilities from the old years.
Fixed assets have increased in figures during all the years of study. It is due to a part of current liability arrives net profit have contributed to the increase in fixed assets.
The current asset part has considerably decreased since 2005-2006 and it is due to
decrease in loans and advances. There is a decrease in inventory; it is because the
company is doing mass production.
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Comparative Balance Sheet (2002-2003 & 2003-2004) : (Rs. in thousands)
Particulars Schedule 2002-2003 2003-2004 Absolute
Change
Change
%
Sources of Funds
1.Share Holders Funds
a. CapitalFunds from Head office
Inter Division Accounts
Funds to and from CO
b. Reserves & Surplus
11A
1B
1D
2
165085
-
43782
977825
165085
-
83992
1014926
-
-
40210
37101
0.00
-
47.87
3.66
2.Loan Funds
a. Secured Loans
b. Unsecured Loans
3
4
1186692
-
33875
1264003
-
26591
7311
-
7284
6.12
-
27.39
Total (1+2) 1220567 1290594 70027 5.43
Application of Funds
1.Fixed Assets
a. Gross Block
b. Less: Dep & Amortization
5 1075139
-761288
1099327
-797146
24188
5858
2.20
0.76
c. Net Block
d. Capital WIP 6
313851
9991
302181
5709
11670
4782
3.86
83.76
323842 307890 16452 87.62
2.InvestmentsInter Division Accounts
(Dr.Bal).Funds from Co under CCC
1C 728884-
692431-
36453-
5.26-
3.Current Asserts ,Loans &
Advancesa. Inventories
b. Sundry Debtorsc. Cash & Bank Balances
d. Other Current Assetse. Loans & Advances
8
88
89
525535
2871507559
-68967
884835
30259018658
-67323
359300
1544011099
-1644
40.61
5.1059.49
-0.24
4.Less: Current Liabilities
a. Liabilities
b. Provisions
10
11
889211
671819
57465
1273406
825016
159557
384195
153197
102092
30.17
18.57
63.98
5.Net Current Assets (3-4)6.Miscellaneous Expenditure
(to the extent not written off)
Deferred Revenue 12
729284
159927
7914
984573
288833
1400
255289
128906
6474
25.93
44.63
450
Total 1220567 1290594 70027 5.433
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Interpretation
Current Financial Position and Liquidity Position:
The current assets have decreased by Rs.384195 (30.17%) and sundry debtors
have increased by Rs.15440 (5.10%). On the other hand, there has been a increase in
inventories amounting to Rs.359300 and increased by (40.61%).
Long Term Financial Position
There is an increase in fixed assets of about Rs.16452 (87.62%). There is no
long-term secured loans and increased in unsecured loan as to Rs7284(27.39%),Thisdepicts that fixed assets are not only financed from long term sources but part of
working capital has also been financed from long term sources. This fact depicts thatthe policy of the company is to purchase fixed assets from the long-term sources of
finance thereby not affecting the working capital. There is an increase in loaned funds
than the share capital, so this increases the interest liability for the company.
Prof itability of the Concern
There is a increase in the reserves and surplus of the company of about
Rs.37101 (3.66%). This fact depicts that there is a increase in the profitability of the
concern.
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Comparative Balance Sheet (2003-2004 & 2004-2005) : (Rs. in thousands)
Particulars Schedule 2003-2004 2004-2005 Absolute
Change
Change %
Sources of Funds
1.Share Holders Funds
a. Capital
Funds from Head officeInter Division Accounts
Funds to and from CO
b. Reserves & Surplus
1
1A1B
1D
2
165085-
83992
1014926
165085-
-
1156187
0.00-
83992
141261
0.00-
-100
12.22
2.Loan Funds
a. Secured Loans
b. Unsecured Loans
3
4
1264003
-
26591
1321272
-
17817
57269
-
8774
4.33
-
49.25
Total 1290594 1339089 48495 3.62
Application of Funds
1.Fixed Assets
a. Gross Block b. Less: Dep & Amortization
5 1099327
-797146
1115348
-839030
16021
71884
1.44
8.57
c. Net Block d. Capital WIP 6
3021815709
2763183196
258632513
9.3678.63
2.InvestmentsInter Division Accounts
(Dr.Bal).
Funds from Co under CCC
3.Current Asserts ,Loans &
Advances
a. Inventories b. Sundry Debtors
c. Cash & Bank Balances
d. Other Current Assets
e. Loans & Advances
1C
88
8
8
9
692431
-
884835302590
18658
-
67323
297372
122592
1689257287026
13093
-
101936
395059
122592
80442215564
5565
-
34613
132.85
100
47.6215.88
42.50
-
33.96
4.Less: Current Liabilitiesa. Liabilities
b. Provisions 1011
1273406
825016159557
2091312
1288650163055
817906
4636343498
39.11
35.982.15
5.Net Current Assets
6.Miscellaneous Expenditure(to the extent not written off)
Deferred Revenue 12
984573
288833
1440
1451705
639607
-
467132
350774
1440
32.18
54.84
-100
Total 1290594 1339089 48495 3.62
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Interpretation
Current Financial Position and Liquidity Position:
The current assets have increased by Rs.817906 (39.11%) and sundry debtors
have decreased by Rs.15564 (15.88%). On the other hand, there has been a increase in
inventories amounting to Rs.804422 (47.62%).
Long Term Financial Position
There is an increase in fixed assets of about Rs28376 (87.99%). There is no
long-term secured loans and increased in unsecured loans as to Rs.8774 thousand(49.25). This depicts that fixed assets are not only financed from long term sources but
part of working capital has also been financed from long term sources. This fact depictsthat the policy of the company is to purchase fixed assets from the long-term sources of
finance thereby not affecting the working capital. There is an increase in loaned fundsthan the share capital, so this increases the interest liability for the company.
Prof itability of the Concern
There is a increase in the reserves and surplus of the company of about
Rs.141261 (12.22%). This fact depicts that there is a increase in the profitability of the
concern.
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Comparative Balance Sheet (2004-2005 & 2005-2006) : Rs in thousands
Particulars Schedule 2004-2005 2005-2006 Absolute
Change
Change %
Sources of Funds
1.Share Holders Fundsa. Capital
Funds from Head officeInter Division Accounts
Funds to and from CO b. Reserves & Surplus
1
1A1B
1D2
165085-
-1156187
165085-
1399571613889
--
139957457702
100-
139.59100
2.Loan Funds
a. Secured Loans b. Unsecured Loans
34
1321272
-17817
1918931
-27291
597659
-9474
145.23
-34.71
Total 1339089 1946222 607133 145.34
Application of Funds
1.Fixed Assetsa. Gross Block
b. Less: Dep & Amortization
5 1115348-839030
1152010-890250
3666251220
103.29106.10
c. Net Block
d. Capital WIP 6
276318
3196
261760
12691
14558
9495
94.73
397.10
2.InvestmentsInter Division Accounts (
Dr.Bal).
Funds from Co under CCC
3.Current Asserts ,Loans &
Advances
a. Inventories b. Sundry Debtors
c. Cash & Bank Balances
d. Other Current Assets
e. Loans & Advances
1C
88
8
8
9
297372
122592
1689257287026
13093
-
101936
1794638
-
2075770350783
17582
-
107340
1497266
122592
38651363757
4489
-
5404
603.50
100
122.89122.21
134.29
-
105.30
4.Less: Current Liabilities
a. Liabilities
b. Provisions
10
11
2091312
1288650
163055
2551475
2473959
200383
460163
1185309
37328
122.00
191.98
122.90
5.Net Current Assets
6.Miscellaneous Expenditure
(to the extent not written off)
Deferred Revenue 12
1451705
639607
-
1222637
-516740
-
184.22
19.21
-
Total 1339089 1946222 607133 145.34
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Interpretation
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Current Financial Position and Liquidity Position:
The current assets have increased by Rs460163 (122%) and sundry debtors haveincreased by Rs.63757(122.21%). On the other hand, there has been a increase in
inventories amounting to Rs386513 (122.89%).
Long Term Financial Position
There is an increase in fixed assets of about Rs24053. There is no long-term
secured loans and increased in unsecured loans as to Rs.9474 thousand (34.71%). This
depicts that fixed assets are not only financed from long term sources but part of
working capital has also been financed from long term sources. This fact depicts that
the policy of the company is to purchase fixed assets from the long-term sources of
finance thereby not affecting the working capital. There is an increase in loaned funds
than the share capital, so this increases the interest liability for the company.
Prof itability of the Concern
There is a increase in the reserves and surplus of the company of aboutRs.597659 (145.23%). This fact depicts that there is a increase in the profitability of the
concern.
Particulars Schedule 2005-2006 2006-2007 Absolute
Change
Change %
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Comparative Balance Sheet (2005-2006 & 2006-2007) :
Sources of Funds
1.Share Holders Funds
a. Capital
Funds from Head office
Inter Division Accounts
Funds to and from CO
b. Reserves & Surplus
1
1A
1B
1D
2
165085
-
139957
1613889
165085
-
247700
2592979
-
-
107743
979090
100
0.00
43.50
37.76
2.Loan Funds
a. Secured Loans
b. Unsecured Loans
3
4
1918931
-
27291
3005764
-
16696
1086833
-
10595
36.16
0.00
63.46
Total 1946222 3022460 1076238 35.61
Application of Funds
1.Fixed Assets
a. Gross Block
b. Less: Dep & Amortization
5 1152010
-890250
1196209
-936482
44199
46232
3.69
4.94
c. Net Block
d. Capital WIP 6
261760
12691
259727
38248
2033
25557
0.78
66.82
2.Investments
Inter Division Accounts (Dr.Bal).
Funds from Co under CCC
3.Current Asserts ,Loans &
Advances
a. Inventories b. Sundry Debtors
c. Cash & Bank Balancesd. Other Current Assets
e. Loans & Advances
1C
88
88
9
1794638
-
2075770350783
17582-
107340
3654255
-
28638672111388
1071-
189824
1859617
-
7880971760605
16511-
82484
50.89
0.00
27.5283.39
154.64-
43.45
4.Less: Current Liabilities
a. Liabilities
b. Provisions
10
11
2551475
2473959
200383
5166150
5836989
258931
2614675
3363030
58548
50.61
57.62
22.61
5.Net Current Assets
6.Miscellaneous Expenditure
(to the extent not written off)
Deferred Revenue 12
2674342
-122867
-
6095920
-929770
-
3421578
-806903
-
56.13
86.79
0.00
Total 1946222 3022460 1076238 35.61
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5.6 TREND ANALYSIS : (Rs in lak hs)
1. Sales 100 121.24 187.38 256.27 337.11 Increased
2. PBIT 100 77.16 103.73 281.91 602.25 Increased
3. Profit Before
Tax
100 77.76 04.85 283.59 620 Increased
4. Operating
profit
100 93.10 105.05 174.93 334.54 Increased
5. Current Assets 100 154.52 235.19 286.94 580.98 Increased
6. Current
Liabilities
100 135.01 199.05 366.69 835.86 Increased
7. Fixed Assets 100 96.24 88.02 83.40 82.73 Decreased
8. Total
Turn over
100 117086 165.17 248.50 326.00 Increased
9. Capital
employed
100 120.15 186.85 170.79 128.46 Decreased
10. No. of
Employees in
thousands
100 96.94 95.75 95.10 99.45 Increased
11. Physical
turnover
100 136.14 312.33 427.16 561.91 Increased
12. Purchase 100 136.14 312.33 427.16 561.91 Increased
13. Personnel payments
100 110.20 115.34 126.70 158.00 Increased
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Interpretation of Trend analysis:
a) The sales have continuously increased in all the years¶ up to 2007. The
percentage in 2007 is 337.11 as compared to 100 in 2002-2003.The increase insales is quite satisfactory which is due to the completion of Boiler Auxiliary
Plant (BAP) expansion and higher value added products
b) The net worth has been showing considerable increase over the five year period.
c) The Capital employed has Increased substantially in the year 2006-2007 is
compared to last four year. This is due to decrease in value of production and
higher demand for the product and also due to higher capacity addition due
completion of BAP expansion project.
d) The Purchases has been increased in all the years up to 2007.due to the increases
of production and demand and to higher capacity addiction of completion of
BAP formal projects.
e) The Personnel payments & no.of .Employee¶s are increased substantially all thr
years up to 2007 due to the increased trend for the forthcoming year on
Production and higher demand for the products BAP expansion projects.
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5.7 Regression analysis
5.7.1 Sales to prof it:
X = Independent Variables (Sales)
Y = Dependent Variables (Profit)
A, b = Constants.
Regression Equation Y on X is,
Yc = a + bx
To Find out the values of a, b
Y = Na + bX
XY = aX + bX
By substituting this equation,
2422= 5(a) + 26243(b) ---------------------------*(26243)
17153175 = 26243(a) + 164030435(b) --------*(5)
63560546 = 131215 (a) + 688695049(b)
85765875= 131215 (a) + 820152175(b)-------------------------------------------------
22205329= 131457126(b)
b = 0.16892
By substituting ³b´ value in equation (1),
2422 = 5(a) +26243(b)
2422 = 5(a) +26243 * 0.16892
YEAR SALES(X) PROFIT (Y) XY X^2
2002-2003 2619 204 534276 6859161
2003-2004 3175 159 504825 10080625
2004-2005 4908 214 1050312 24088464
2005-2006 6712 579 3886248 45050944
2006-2007 8829 1266 11177514 77951241
TOTAL 26243 2422 17153175 164030435
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2422 = 5 a + 4432.97
2010.96 = 5 a
a = - 402.19
The future sales estimation for the year 2007 is 9000 for the year 2008 is 10000
By substituting the values of ³a, b´ in the regression line Y on X is,
For 2008:
Y = -402.19 + 0.16892(9000)
Y = 1118.09 Millions
For 2009:
Y = -402.19+ 0.16892(10000)Y = 1287.01 Millions
Interpretation
Here the variable `y¶ is taken as Profit and `x¶ is taken as Sales.
The estimated sale for 2009 is based on the actual for nine
months up to December 2008 and realistic estimates for the balancethree months of the year 2008-09. The estimated sales for 2009-10are based on the budget estimates by the organization with a growth
rate factor for 2008-09.
The projection of Rs1118.09 millions. And Rs.1287.01 millions.
for the next two years indicates increase in profit due to estimation
that the price of Raw Material and Finished goods may vary at ahigher rate that result in such a huge increase in profit.
Thus the regression analysis estimates a higher quantum of profitability for the organization in the coming two years 2007-2008
and 2008-2009
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5.7.2 Debtors to Sales
X = Independent Variables (Sales)
Y = Dependent Variables (Debtors)
A, b = Constants
Regression equation Y on X is,
Yc = a + bX
To Find out the values of a, b.
Y = n a + b X
XY = a X + bX2
By substituting this equation,
3340= 5 a + 26243 b --------------------------*(26243)
24125034 = 26243 a + 4840292 ----------*(5)
87651620 = 131215 a + 688695049 b
120625170= 131215 a + 24201460 b
--------------------------------------------------32973550 = -17314510 b
b = 1.9043
YEAR SALES (X) DEBTORS(Y) XY X^2
2002-2003 2619 287 751653 82369
2003-2004 3175 303 962025 91809
2004-2005 4908 287 1408596 82369
2005-2006 6712 351 2355912 123201
2006-07 8829 2112 18646848 4460544
TOTAL 26243 3340 24125034 4840292
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By substituting ³b´ value in equation (1),
3340 = 5 a + 26243 b3340 = 5 a +26243(1.9043)
a = -9327
The future sales estimation for the year 2007 is 9000 Millions and for the year 2008 is
10000 Millions
For 2007:
Y = - 9327+ 1.9043*(9000)
Y = 2646 Millions
For 2008:
Y = -9327 + 1.9043 *(10000)
Y = 2837 Millions
I I N N T T E E R R P P R R E E T T A AT T I I OO N N
Here the variable `x¶ is taken as Sales and variable `y¶ as Debtors.
The estimated sale for 2009 is based on the actual for ninemonths up to December 2008 and realistic estimates for the balance
three months of the year 2008-09. The estimated sales for 2009-10
are based on the budget estimates by the organization with a growthrate factor for 2008-09.
The projection of Rs.2646 millions and Rs.2837 millions. indicates increase in
debtors due to increase in sales. Most of the sales made by the company are taken as
credit sales. So increase in sales will result in increase in the amount of debtors.
Thus the regression analysis estimates a higher quantum of
sundry debtors for the organization for the coming two years 2007-08and 2008-09
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5.7.3 Sales to OPERATING EXPENSES:
YEAR SALES (x) OPERATING
EXPENSES
XY X^2
2002-2003 2619 2277 5963463 6859161
2003-2004 3175 2825 8964375 10080625
2004-2005 4908 4548 22321584 24088464
2005-2006 6712 6335 42520520 45050944
2006-07 8829 8267 72989343 77951241
TOTAL 26243 24252 152759285 164030435
X = Independent Variables (Sales)Y = Dependent Variables (W.C)
A, b = Constants.
Regression equation Y on x is,
Yc = a + bX
To Find out the values of a, b
Y = n a + bX
XY = ax + bX2
By substituting this equation,
24252 = 5 a + 26243 b -----------------------------*(26243)
152759285 = 26243 a + 164030435 b----------*(5)
636445236 = 131215 a + 688695049 b
763796425 a =131215 a + 820152175 b
---------------------------------------------------
127351189 = 131457126 b
b = 0.97
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By substituting ³b´ value in equation (1),
24252 = 5 a + 26243 b24252 = 5 a + 26243 (0.97)
a = -240.74
The future sales estimation for the year 2008 is 9000 millions and for the year 2009 is 10000 millions.
For 2008:
Y = -240.74 + 0.97 *(9000)
Y = 8489.26 Millions
For 2009:
Y = -240.74 + 0.97*(10000)Y = 9460 Millions
I I N N T T E E R R P P R R E E T T A AT T I I OO N N ::
Here the variable `x¶ is taken as Sales and variable `y¶ as operating expenses.
The estimated sale for 2009 is based on the actual for nine months up to
December 2008 and realistic estimates for the balance three months of the year 2008-
09. The estimated sales for 2009-10 are based on the budget estimates by the
organization with a growth rate factor for 2008-09.
In this analysis, working capital required for the next 2 years is projected. Here
the operating expenses are projected based on estimated future sales that in turn are
derived by experience. The projected operating expenses of Rs. 8489.26 millions. And
Rs.9460 millions for the next two years are required because of expected increase in
sales.
Most of the production and other operational requirements like chemicals and
catalysts, utilities and repairs and maintenance are made by the company out of
operating expenses. So increase in sales will result in increase in the amount of capital
demands also.
Thus the regression analysis estimates a higher quantum of
operating expenses for the organization for the coming two years
2007-08 and 2008-09.
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CHAPTER: 8
Findings, Recommendations and Conclusion
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FINDINGS, RECOMMENDATIONS AND CONCLUSIONS
FINDINGS:
In 2002-03 it has been increased to 111.0. But 2003-04, 2004-05, 2005-06 and 2006-07 there has been decreased to 86.0, 62.4,
113.77 and 289.27 respectively. The profit is low up to 2005. In
2006 & 07 it has increased gradually.
The ratio is increasing and decreasing. In the year 2002-03 the
ratio is lower indicates more efficiency during that year and in
2004-05 , 2005-06 and 2006-07 ratio is higher, indicates lessefficiency.
Administration expense is moving has turnover every year increases the expenses as a percentage on turnover decreases.The management must take steps to check the expenses. In 2005
- 06 the ratio is low due to increase in turnover and increases in2006-07 as 5.32
In 2002 - 03 the ratio has increased to 0.45. In 2003-04 the ratiohas decreased to 0.42. In 2004 - 05 and 2006 the ratio has come
down due to higher turnover and increases in 2006-07 as 0.25
. The ratios are fluctuating; high ratios indicate the efficient
inventory management and efficiency of business operations.
The ratios show an increase in trend of 9.93, 11.02, 17.85 ,19.13 and 41.17 from 2002- 03 to 2006-07 respectively except
in 2002 - 03. This gradual increase show that better is the
liquidity of the data¶s.
The ratios show that the fixed assets are efficiently utilized. Theratios are showing up gradually i.e., from 2002 ± 03 to 2006 ±
07 is 7.21, 8.34, 10.51, 17.76 , 25.68 and 33.99 respectivelyexcept in 2002 ± 03.
The capital turnover ratio from 2002 ± 03 to 2006 ± 07, it isgradually increasing and decreasing. Higher ratio indicates
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higher efficiency and lower ratio indicates in effective usage of
capital.
An ideal ratio is 2: 1. The ratios from 2002 ± 03 to 2006 ± 07are 1.22, 1.40, 1.44, 0.95 and 0.85 which are lesser than the
standard norm.
The acid test ratio is declining year by year 2005-06 is 0.17 and presently it is 0.38 which is not satisfactory. The ideal liquid
ratio are the generally accepted ³norm´ for liquid ratio is 1
Profitability indicates the efficiency and effectiveness withwhich the operations are being carried on. It has been found out
that the profitability is on the increase over the five year periodof study except the year 2002-03
Total Turnover being made by the firm are sound and showing
an increasing trend.
The PBIT achieved by the company shows an increasing trend because of increase in production and Sales
Operating Profit has also been increased by significant
reduction in Operating Expenses by the Company by judicious
management of Sales operations and also through good treasuryoperations
The average collection period of the company is showing anincreasing trend. This is because of rise in credit giving policy
made by the company.
The average payment period is also started showing an
increasing trend indicating delayed payment being made to thecreditors. This indicates more time taken by the Company torepay the Suppliers.
There is a significant and steep increase in the turnover position
of the company.
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The Current asset of the company is good and this is because of rise in Funds from co Under CCC being made by the Company.
The Inventory Turnover of the company is satisfactory. There is
no holding up of inventory thereby saving interest oninvestment amount. This is because of effective production
techniques implemented by the company.
The current financial position of the Company compared over
the last five years is appreciably increased, for which credit
could be taken.
The Fixed Assets of the company contributes Good of the Total
Assets of the Company indicating good asset position of thecompany. The company has also got sufficient Reserves and
Surplus year after year, to meet the future financial
contingencies of the company.
Though the liquidity position of the Company is moderate, it
showed an increasing trend for the last two years. This is because of increase in Other Current Assets of the firm.
It is found that there is an increase in Reserves and SurplusFunds. The total resource of the company for the last Five years
is showing an increasing trend, which will contribute to a major extent for the company¶s production purposes in future.
The Funds from Head Office Stable position of the company issatisfactory. The Funds in all the year and this is because of
consistency in maintaining the required level of inventories and
also significant increase in level of operations due to thecompletion and capitalization of the expansions cummodernization project.
The Physical Turnover Ratio of the company is sound indicatingeffective utilization of Assets for production purposes.
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The Personell Payments requirement of the company to carry
out the production purpose is good and is not suffering fromany inadequacy.
The Trend Analysis reveals that the Total Sources position of
the company is good and enough to meet the futurerequirements of the company to carry out its activities.
The Common Size Balance Sheet shows a healthy trend inCurrent Assets and Current Liabilities of the firm indicating
changes in policies of repayment made by the company.
It is projected from Trend Analysis that the sales trend of the
company for the last 5 years is more than satisfactory. This
analysis is showing an increasing trend in all aspects such asEarnings before Interest and Tax, Profit Before Tax, Current
Assets, Capital employed and Total Turnover and accretion to
the Expansion.
It is projected from Regression Analysis that there will be anincrease in profits for the forthcoming year. There may be some
marginal effect due to changes in Government Policies and widefluctuations in the international prices of Boilers Auxiliaries
which are matched by the increase in product prices. Due to
sample constraint, this analogy may not however be sustainable.
It has been found out that overall solvency position of thecompany is Healthy and it shows an increasing trend. Thisindicates the enhancement of credit worthiness of the company.
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RECOMMANDATIONS :
1. The unit may forecast selling and distribution expenses
approximately and then enters into the contract with the customers,
so that company need not incurred the distribution expenses from its
sources.
2. The company shall concentrate on networking capital.
3. The Company should be taken to increase the price quoted for the
customers, so that Sales Index will be improved.
4. The Steps should be taken to improve the more holding
Transportation strength for fast supply of the firm.
5. Steps should be taken to find out substitute materials in order to the
imported materials.
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CONCLUSION:
Bharat Heavy Electrical Limited has been performing well in the capital
and engineering goods industry Boiler Auxiliaries plant being one of theunit of BHEL, has been showing an increasing trend in its profitability position for the past 19 years which depicts a good sign.
The turnover ratios indicate that the average collection period has
been reduced from two months to one month and working capital ratio is asatisfactory one. The solvency ratio indicates that the larger part of the
funds is tied up in inventory. So the company must take steps to improve
its liquidity position.
The company has a high operational efficiency and most of the ratios seemto be satisfactory from the point of view of both the investors and lenders.
The other important factor which is worth mentioning here is that the
company has been progressing steadily on its capacity utilization in linewith its growing financial performance.
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ANNEXURE
The extra information related to BHEL that have been collected are,
1, According to BSE ± Market Capital was Rs. 55700.03.
2, Ownership ± Central Govt.- Commercial Enterprises.
3. Auditor ± D.R.Mehta & Associates.
4, Registrar ± Karvy Computer share Pvt. Ltd.
5, Earnings Per Share (EPS) ± Rs. 77.13.
6, Shares outstanding ± Rs. 24,47,60,000.
7, Average daily volume(30 days) ± Rs. 31.57.
8, Share holding as per Sep 2006
Promoter owned ± 67.72%
Public owned ± 1.17%
FIIs owned ± 21.91%
Others owned ± 9.20%
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BIBLIOGRAPHY :
1. Cost and Management - T.S.Reddy, Y.HariPrasadReddy;
Accounting Reprint 2003 Published by
Margham publications,
Chennai-600 017.
2. Financial and Management - T.S.Reddy Y.Hariprasad Reddy;
Accounting Second edition Published by
Margham publications,
Chennai-600 017.
3. Financial Management - Khan& Jain; Thirteenth Edition-1996
Published by Chaitaya Publications,
Chennai-600 023.
4. Prasanna Chandra, ³Fundamentals of Financial Management´, 3rd
ed:
Tata McGraw- Hill Publishing Company ± New Delhi.
Websites ref erred:
1. www.bhel.com
3. www.icai.org
4. www.ifmr.com5. www.mma.org
6. www.icwai.org
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ABSTRACT OF THE BALANCE SHEET AS ON 2001-02 to 2005-06
Particulars
2002-02
Actual
(In lak hs)
2003-04
Actual
(In lak hs)
2004-05
Actual
(In
lak hs)
2005-06
Actual
(In lak hs)
2006-07
Actual
(In
lak hs)Total Turnover 32961 38848 54441 81909 107454
Gross Turnover 33528 40499 60684 83773 113360
Net Turnover 28232 33340 51216 72907 100947
Value added 10675 11014 11916 16807 27664
PBIT 2040 1574 2116 5751 12286
PBT 2041 1587 2140 5788 12654
Consumption 15154 19316 35222 50818 66201
Gross Block 10751 10993 11153 11520 11962 Net fixed Assets 3139 3021 2763 2618 2567
Closing stock 5255 8848 16893 20758 28639
Sundry debtors 2872 3026 2870 3508 21114
Sundry creditors 5573 6337 7992 9858 14704
Current Assets 8892 13740 20913 25515 51662
Current Liabilities 7293 9846 14517 26743 60959
Capital employed 4919 5910 9191 8401 6319
Operating Expenses 22768 28253 45476 63349 82668
Operating Profit 5464 5087 5740 9558 18279
Admn. Expenses 3295 3360 3450 3610 5375
Selling Expenses 128 140 150 160 250
Personnel Payments 6312 6956 7280 7997 9973
No. of Employees(In
thousands)
2187 2120 2094 2080 2175
Physical Turnover 43543 53877 72934 105904 127746
Purchases 15713 21391 38707 56130 69424Cost of Sales 26191 31753 49076 67119 88293
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