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A PROJECT REPORT ON “COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE OF FORCE MOTORS LTD. PUNE SUBMITTED TO UNIVERSITY OF PUNE “IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF MASTERS DEGREE COURSE IN BUSINESS ADMINISTRATION” MBA [FINANCE] 2009-2011 UNDER THE GUIDANCE OF Prof. SHAILESH RAJHANS

Financial Performance Analysis of Force Motors

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Page 1: Financial Performance Analysis of Force Motors

A

PROJECT REPORT

ON

“COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE”

OF

FORCE MOTORS LTD. PUNE

SUBMITTED TO

UNIVERSITY OF PUNE

“IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF MASTERS

DEGREE COURSE IN BUSINESS ADMINISTRATION”

MBA [FINANCE]

2009-2011

UNDER THE GUIDANCE OF

Prof. SHAILESH RAJHANS

SUBMITTED BY

MR. GORAKH BABAJI BORKAR

MBA II - (FINANCE)

ENIAC INSTITUTE OF COMPUTER APPLICATION,

WAGHOLI, PUNE.

Page 2: Financial Performance Analysis of Force Motors

COLLEGE CERTIFICATE

Ref: EICA/ Date:

This to certify that Mr.Gorakh Babaji Borkar, student of this institute, has completed his project work in Finance specialization titled as: “Comparative Analysis of Financial Performance” for FORCE MOTORS LTD.As per the guidelines given by the University of pune for conducting Course No.308 of MBA Syllabus 2010-11; under the guidance of Mr.Shailesh Rajhans, Lecturer in Finance in this institute.

Director prof. Shailesh Rajhans Sir

Internal guide

Page 3: Financial Performance Analysis of Force Motors

ACKNOWLEDGEMENT

Above all, I bow my head before Almighty without whose blessing my present

project would not have existed and I would like to thank GOD for giving me patience and

strength to overcome the difficulties, which crossed my way in the accomplishment of

this endeavor.

It is a pleasant duty to acknowledge the valuable help I received from different

quarters in the completion of my project work. At the very outset, I express my

reverential regards and profound gratitude to Mr. A.B.Bhave, for giving me this

opportunity to undergo summer training in the Finance department of FORCE MOTORS

LTD.

I am highly indebted and owe my deep sense of gratitude and reverential regards

to Mr. A.B.Bhave(Finance Gen. Manager), Mr. Pitaliya (Account Manager) and Mr.

khare without whose guidance and encouragement this project could not have been

completed.

I would like to show my sincere thanks to Prof. Shailesh Rajhans(HOD),

Finance, ENIAC INSTITUTE OF COMPUTER APPLICATION,PUNE

UNIVERSITY, for their valuable suggestion and guidance and making it possible for me

to accomplish this project.

Last but not the least; I would like to thank my parents, brother and my

colleagues who instilled confidence and moral support at various stages during the course

of this training.

GORAKH BABAJI BORKAR

Page 4: Financial Performance Analysis of Force Motors

DECLARATION

I, Mr. Gorakh Babaji Borkar, hereby declare that the dissertation work entitled

“Comparative analysis of financial performance” of FORCE MOTORS LTD.

(AKURDI),PUNE.” is carried out by me and submitted as under the requirement of

Master of Business Administration (M.B.A) Degree from ENIAC INSTITUTE OF

COMPUTER APPLICATION, WAGHOLI, PUNE UNIVERSITY for the session

2009-11.

I hereby authenticate that all the information furnished by me are true to my knowledge

and information and facts furnished by me are based on my own findings and as per the

information furnished to me by FORCE MOTORS LTD.

(Borkar Gorakh Babaji)

Page 5: Financial Performance Analysis of Force Motors

PREFACE

For the modern business world both success and failure are due to

financial management. It has become an important and powerful discipline, as it involves

crucial business decisions on which depends the success or failure of any organization.

Financial analysis is the process of identifying the financial strength and

weaknesses of the firm by properly establishing relationship between items of the balance

sheet and the profit and loss account.

As Finance managers today have to play a very vital and a responsible role,

it is very essential to have adequate knowledge about every aspect of the job, so as to

handle each & every situation effectively for applying theoretical knowledge in practical

life. The summer training which forms a part of the course curriculum helps students to

identify their capabilities & they can decide upon their future course of action. This is the

first step towards the development of future managers.

This summer training helps the students to identify their capabilities &

thereby make needed adjustments. Although there is difference in each student level of

proficiency, the real focus is on suggesting ways for students to further sharpen their

strengths, competencies & other related abilities for becoming effective professionals,

managers & leaders.

The primary educational objective behind this project is to make the

students familiar with working environment & to help to make students understand the

ways in which theoretical aspects can be applied into practice.

The individual object of project is to work effectively, efficiently using his

creativity as well as knowledge for self development.

Financial analysis can be undertaken by the management of the firm or by

parties outside the firm viz. owners, creditors, investors and others. The nature of analysis

differs depending on the purpose of the analyst.

Page 6: Financial Performance Analysis of Force Motors

The area covered in this report is Working Capital & financial ratios. It

includes tools and techniques for analysis and interpretation of ratios. I have undertaken

the Working Capital &Ratio Analysis because of the significance of this topic in the

production oriented sector.

On total 12 ratios have been taken by me and a comparative analysis of

FORCE MOTORS LTD., AKURDI performance over the last three years has been done

based on these ratios and changes in Working capital Statements.

Page 7: Financial Performance Analysis of Force Motors

INDEX

Chapter No

Title Page No

1 Executive Summary2 Objectives of the Study3 Company Profile 4 Research Design and Methodology5 Conceptual Background6 Data Presentation, Analysis and Interpretation7 Findings8 Limitations9 Suggestions10 Conclusion11 Bibliography

12 Annexure

Page 8: Financial Performance Analysis of Force Motors

CHAPTER NO: - 1

EXECUTIVE SUMMARY

Page 9: Financial Performance Analysis of Force Motors

CHAPTER-1

1.1EXECUTIVE SUMMARY

The project is about “COMPARATIVE ANALYSIS OF FINANCIAL

PERFORMANCE OF FORCE MOTORS LTD. AKURDI.” project is an opportunity

given to management student where one gets an insight in the practical aspect in the day

to the theoretical knowledge that one acquire in business school. The project was

undertaken to make a study on the various aspect of the “Ratio Analysis and Working

capital Management”. The project highlights the main aims and object of project report.

It also explains the great importance of “Ratio Analysis and Working Capital

Management”. It covers specific introduction of “Ratio Analysis and Working Capital

Management”. The period covered in project is three financial years i.e. 2007-08, 2008-

09 and 2009-10. Research methodology adopted for getting data is empirical in nature

and therefore release in the company’s annual report and financial statements.

Page 10: Financial Performance Analysis of Force Motors

1.2 INTRODUCTION OF THE STUDY

Finance is the starting point of every economic activity. It is

called as “science of money”. Finance is the basic requirement for starting and running

every human activity in an objective manner. Likewise finance is essential in business. It

is treated as life blood of modern business.

Finance denotes money which is essential to initiate and operate business enterprises.

The term “finance” means provision of money at the time it is required.

The basic finance functions are as follow:

1. To determine the total capital requirement.

2. To decide the source from which the required capital is to be collected; and

3. To utilize the funds collected in purposeful manner.

Financial management:

Management is an activity which is concerned with planning and

controlling of different activities, in order to specific objective. It is also defined as an art

of getting things done through and with people in formally organized groups. If we apply

the concept to financial resources of a firm with a specific objective. In the present

changing scenario, financial management deals with decision making on asset mix,

capital mix, and profit allocation, etc. an understanding of the environment in which the

firm is situated, time value of money, taxation and depreciation policy is essential for

finance manager. Main scope of financial management is concerned with the following

activities, viz.

1. Raising of funds

2. Investing of funds

3. Other decision like dividend decisions.

Page 11: Financial Performance Analysis of Force Motors

Comparative Analysis:-

Comparative Analysis is part of financial management.

Through comparative analysis, we will be in position to analyze the statement of

financial position of a business designed to provide time perspective to the consideration

of various element of financial position embodied in such statement. Comparative

analysis reveals the following:

1. Absolute data(money value or rupee amount)

2. Increase or decrease in absolute data in terms of money values.

3. Increase or decrease in absolute data in terms percentages.

4. Comparison in terms of ratios.

5. Percentage of total.

Through Comparative analysis we can evaluate past performance and predict future

performance and both of these are facilitated by comparisons. Comparative analysis

required not only for the managements own evaluation and decision making, but also for

internal control and overall performance of the firm.

Comparative analysis can help in following ways:

Helps to know the exact financial position of the company.

Helps in decision making.

Helps in forecasting.

Page 12: Financial Performance Analysis of Force Motors

CHAPTER NO:- 2

OBJECTIVE OF THE PROJECT

CHAPTER- 2

Page 13: Financial Performance Analysis of Force Motors

2.1 OBJECTIVE OF THE PROJECT

The main objective of carrying out this project is to know & gain practical knowledge

& to know the organization working culture.

1. To study and understand the concept of financial performance.

2. To study the various tools for performance analysis.

3. To examine the financial performance of organization by using tool Ratio

analysis and working capital

4. To draw observation base on the study & suggest suitable measures to overcome

problem and to improve its performance.

Page 14: Financial Performance Analysis of Force Motors

CHAPTER NO:- 3

COMPANY PROFILE

CHAPTER- 3

COMPANY PROFILE

Page 15: Financial Performance Analysis of Force Motors

3.1 COMPANY HIGHLIGHTS

FORCE MOTORS LTD. (AKURDI) PUNE

COMPANY HIGHLIGHTS:-

1. Name of company FORCE MOTORS LTD. AKURDI2. Establishment year 8 Sept 19583. Plant Address Mumbai-Pune Road

Akurdi , pune Maharastra- 411035

Tel: 020-776381 776382 776383 776384 / 8Fax: 020-773017

Website: http://www.forcemotors.com

Group: Firodias Group

7. Type of Industry Automobile Industry

\

3.2 FORCE MOTORS LTD. AKURDI

BOARD OF DIRECTORS

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Abhay Firodia Chairman / Chair PersonBharat V Patel DirectorAnita Ramachandran DirectorL Lakshman DirectorVinay Kothari DirectorS A Gundecha Director

S N Inamdar DirectorPratap Pawar DirectorS Padmanabhan DirectorSudhir Mehta Director

R B Bhandari Director

Atul Chordia Additional Director

MANAGENING DIRECTOR

Mr. Prasan Firodia

FINANCE GENERAL MANAGER

Mr. A.B. Bhave

Registered Office

FORCE MOTORS LTD.Mumbai-Pune Road Akurdi, pune.Maharastra- 411035

Tel: 020-776381 776382 776383 776384 / 8 Fax: 020-773017

Page 17: Financial Performance Analysis of Force Motors

3.3 COMPANY HISTORY

Company History - Force Motors

1958 - The Company was incorporated on 8th September. The Company manufactured and assembled 3 & 4 wheeler light commercial vehicles and diesel engines.

1961 - The Company was converted into Public Limited Company on 12th May. - The object of the company is to Assembly and manufacture of 3 & 4 wheeler light commercial vehicles and diesel engines. 1965 - In December 1963, 48,645 Bonus shares issued (prop 1:2). 1, 85,000 Right shares offered at par (prop. 55:20). 1, 77,710 reserved for allotment to collaborators. 2, 90,000 shares offered to the public in February 1964. 400 shares allotted to collaborators. 1966 - 1, 69,078 shares allotted to the foreign collaborators. 1970 - The Company's collaborators M/s. Honomag Henschal Fahrazeuquarrke GmbH discontinued the production of the diesel engine D301-E2 in Germany and agreed to shift the entire used machinery and equipment required for the manufacture of components of the diesel enginevalued at Rs 1.50 crores to the Company. 1972 - 3,500 shares forfeited. 7, 89,163 Bonus Shares issued (prop. 1:1).

1975 - Allotted 13,800 `A' Equity shares (6,495 in 1975-76 and 7,305 in1976-77) at par to permanent employees of the company. 1977 - 15, 78,326 No. of Equity and 13,800 `A' Equity shares issued as Bonus on prop. 1:1 for the respective classes.

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1978 - The area vacated by body shop and part of the press shop Departments in part No. 1 was utilized for the installation of the new machinery and equipment for the manufacture of the new OM 16 engine in collaboration with Daimler-Benz of W. Germany.

1982 - The transfer line for the cylinder block of the new OM 616 engine was commissioned. - A Research & Development workshop was set up in addition to new Research & Development laboratories. 1983 - The Company entered into a technical collaboration agreement with Daimler Benz AG, West Germany, for the manufacture of light commercial vehicles such as Mercedes vans, station wagons and mini buses at Pithampur. 1984 - 1, 15,748 second `A' Equity shares allotted to permanent employees of the Company. 1987 - The licensed capacity was increased from 30,000 to 50,000 numbers Per annum including 5,000 three-wheelers. 1989 - The production facility for manufacture of various rear axles and and 5-speed Mercedes gear box was fully established. Latest machinery were installed with a view to expand the production facility for manufacture of axles and Mercedes gear boxes. - The Company acquired technology from M/s. Flakt Industrial AB, Sweden for FP coating of the primer paint.

1990 - During the year, rear wheel driven Matador Max R 307 vehicle was introduced along with the rear wheel driven bus platform R-407W. - A new model of a 3-wheeler was developed and test marketed. - A new commercial tool room was established at the Akurdi, equipped with the latest CNC 3 dimension die sinking equipment and capable of manufacturing large panel dies for bodies. - Also, a modern CAD/CAM facility was established to support the tool room activity.

Page 19: Financial Performance Analysis of Force Motors

1991 - New models of Tempo Trax called Challenger and Town & Country, were introduced in market. Direct injection version of OM 616 engine offering substantial improvement in fuel economy was expected to be introduced shortly. - The Company obtained the technical services of Mercedes-Benz A.G., Germany for panel dies making. - The total sales of the light commercial vehicles declined due to recession in the automobile industry.

1992- In order to enhance the export sales, a new division `Tempo International' was created.- The Company proposed to undertake modernization of various important facilities such as engine manufacturing shop, transmission manufacturing shop as also founder paint shop, etc.- A new model of a `Pick-up-truck' version of the temptress was developed. Also, a new TX-17 gearbox and matching hypoid axle were introduced on the tempo trax range of vehicles. - The metador range was further extended with the addition of `RA307' model, a further upgraded puck-up truck with an I-Beam rigid front axle. 1993 - A separate cell was created for `Tractor' development. - The Company issued 33, 00,000 Rights equity shares of Rs 10 each at a premium of Rs 90 per share in proportion 1:2. (only 32, 52,850 shares were allotted 47,725 shares were kept in abeyance. (Of these 175 shares were allotted by the Board.)

1995 - The licensed capacity increased from 50,000 to 60,000 number of automobiles per annum. - 31,100 No. of Equity shares kept in abeyance issued. 1996 - During the year fully indigenously designed, developed and manufactured Tempo `OX-45' Tractor was successfully launched. - The Company made a Rights issue of 32, 96,446 No. of equity shares of Rs 10 each at a premium of Rs 90 per share in proportion 1:3 of which, on 27th January 1997, the Company allotted only 32, 37, 038 shares. Balance 59,408 shares were kept in abeyance. Only 32, 34,451 shares were taken up. - Another 13, 75,722 No. of equity shares were to be issued to Jaya Hind Investments Pvt. Ltd. and Daimler Benz AG, Germany to maintain their holding at 41.69%. - Sales suffered due to shifting and relocation of various production activities at Akurdi, labour unrest at Pithampur and softening of demand for company's vehicles.

Page 20: Financial Performance Analysis of Force Motors

1997 - Production of vehicle at Pithampur was affected due to a protracted industrial relation problem resulting in no production from 2nd June to 19th July. - The Company has launched new products in all four segments in LCV -`Tempo Excel', utility vehicle-`Trax', Minidor-Auto Rickshaw and pick-up, Tractors, the `Tempoox' range of tractors. - The company has entered into an agreement with M/s. Zahnradfabrik parsoan GmbH, Germany for providing technology for the manufacture of Agricultural Tractors. - 46,412 shares kept in abeyance issued. - Bajaj Tempo Ltd. (BTL) the flagship of the Rs.1, 350 crore Firodia group started operations in 1959 in technical and financial collaboration with Daimler Benz, the latter owning 26% of the equity. - Bajaj Tempo Ltd. (BTL) plans to set up a third and possibly a fourth manufacturing facility.

1998 - Bajaj Tempo will introduce a new generation family of light commercial vehicles (LCV) in the next few months and phase out the popular Matador model over a period of time. - Bajaj Tempo Ltd, the third largest automobile manufacturer in the HCV/LCV segment has attributed the on-going sluggishness in the domestic markets to the excise duty. - The company's proposed four wheel military vehicle will be christened as `Gorkha'. - The company is also launching a second range of Tempo Trax utility vehicles including the new 4X4 military and cross country vehicle Trax Gurkha. - The situation improved from third quarter, mainly due to improved sales of 3-Wheeler `Minidor' vehicle.

1999 - Bajaj Tempo Ltd, Pune-based light commercial vehicle (LCV) Manufacturer, which launched its new model, the Excel-4, will launc its variants in June. - The company, under technical collaboration with Mercedes Benz of Germany. - The first time in the industry, Bajaj Tempo has introduced mobile service training van equipped with audio visual aids, special tools, cut section models, to train not only dealers but also the public.

2000 - The Workers will go on strike from May 26th. Work at the factory has been affected following a tool down strike by the union which is affiliated to the Bharatiya Kamgaar Sena.

Page 21: Financial Performance Analysis of Force Motors

2001 - The Company will be launching its Minidor three-wheelers running on CNG during next month. 2003 -Board allots 33% equity shares of Rs.10 each for cash at a premium of Rs.90 per share. -Agrees to procure technology from MAN Nutzfahrzeuge AG, Germany for 4 and 6 cylinder Diesel Engines of higher capacities. -Signs MoU with Punjab Tractors Ltd and Corporation Bank for financing Tractors. 2004 -Automobile manufacturer, Bajaj Tempo Ltd, on January 16, 2004 announced that it would enter the heavy commercial vehicles (HCV) segment in the next 12 months following its technology tie-up with MAN of Germany.-Bajaj Tempo inks pact with Andhra Bank

2005 - The Registrar of Companies (RoCs), Maharashtra, issued the certificate for name change from Bajaj Tempo Ltd to Force Motors on May 12th and the new name came into effect immediately. -Force Motors unveils Minidor CB. 2006 -Force Motors signs MoU with Man to set up unit in MP.

2007 - Force Motors Ltd has informed that Mr. R B Bhandari is appointed as an Additional Director of the Company w.e.f. June 29, 2007. -Force Motors Ltd has informed that Mr. L Lakshman is appointed as an Additional Director of the Company w.e.f. September 29, 2007. 2008 -Force Motors Ltd has appointed Mr. Dinesh Chhabra, as an Additional Director. -Force Motors Ltd has informed that the Board of Directors of the Company at its meeting held on June 25, 2008, inter alia, have appointed Mr. Dinesh Chhabra, as an Additional Director. 2010 - Force Motors Ltd has appointed Mr. Atul Chordia of Pune as an Additional Director of the Company.

Page 22: Financial Performance Analysis of Force Motors

3.4 ORGANIZATION CHARTORGANIZATION CHART OF FORCE MOTORS LTD.

Managing Director

Director ofHR

Director ofMarketing

Director ofSystem

Director ofOperation

Director ofFinance

General Manager (Finance)

HRManager

MarketingManager

SystemManager

OperationManager

FinanceManager

Assist. FinanceManager

Assist. OperationManager

Assist. HRManager

Assist. SystemManager

Assist. MarketingManager

Chairman/Chair Person

Page 23: Financial Performance Analysis of Force Motors

3.5 PRODUCT OF FORCE MOTORS LTD.

1.

Page 24: Financial Performance Analysis of Force Motors
Page 25: Financial Performance Analysis of Force Motors
Page 26: Financial Performance Analysis of Force Motors

CHAPTER NO:-4

RESEARCH METHODOLOGY

Chapter 4

Page 27: Financial Performance Analysis of Force Motors

RESEARCH METHODOLOGY

4.1 CONCEPT OF RESEARCH METHODOLY

4.2 STAGES OF RESEARCH METHODOLOGY

4.3 SCOPE OF THE STUDY

4.1 RESEARCH METHODOLOGY

Page 28: Financial Performance Analysis of Force Motors

Concept of Research :

Research concerns itself with obtaining information through empirical

observation that can be used to systematically develop logically related prepositions so as

to attempt to establish casual relationships among variables.

Research may mean the first small in an Endeavor to better understand the change

occurring and at times forced upon us as individuals or as a society. Research as a

process involves defining & redefining problems, hypothesis formulation, organizing &

evaluating data, deriving deductions, inferences & conclusions, after careful testing.

4.2 STAGES OF RESEARCH METHODOLOGY

Research Methodology is a process of collecting the information & helps to find

out the solutions to the topic selected by the researcher. It is a systematic way of

presenting information.

Once the research problem is formulated and the research design is determined,

the next task is data collection. Data are facts, figures and other relevant materials past &

present serving as basis for study & analysis. Research Methodology includes Four

Stages. They are as follows:-

a) Collection of data.

b) Analysis of data.

c) Interpretation of data.

d) Presentation of data.

Collection of data:

Page 29: Financial Performance Analysis of Force Motors

The data is collected on the basis of pre-determined set up objectives, scope &

purpose for getting direction. The data is collected in various types as stated below.

Types of data collected:

The different types of data collected are Primary data & Secondary data. The

sources or methods of collecting both the types of data are different. The various methods

of such data collections are as below.

Primary Data :

Data that is collected by the researchers first hand is known as Primary Data. It

can be collected through observational studies, market surveys or experiments. The

provider or the source is termed as ‘Respondent’. A respondent may give information

passively i.e. through mere observation of respondent behavior or actively i.e.

through written or spoken response. Basic methods / sources of collecting Primary

data:

Questionnaire Method.

Observation Method,

Interviewing Method,

Experimentation Method, etc.

Secondary Data:

Page 30: Financial Performance Analysis of Force Motors

Data that has been collected earlier for some purpose other than the purpose of the

present study is called as Secondary Data. Secondary sources of data provide a wealth

of information to the researcher. Data can be internal or external. Basic

methods/sources of collecting Secondary Data:

Published Sources:

o Books & magazines.

o Company records.

Unpublished Sources:

o Internet,

o Supplier

o Customer etc.

Analysis of data:

After the data being collected it is very carefully analyzed in order to sort out the

required data & delete the irrelevant data. This gives various parameters on which

evaluation of the research can be done.

Interpretation & presentation of data:

The carefully analyzed and short listed data is then interpreted in the forms of pie

charts and graphs for absolute clarity. This interpretation of data helps in doing the

SWOT analysis of the research topic.

4.3 SCOPE OF THE STUDY

Page 31: Financial Performance Analysis of Force Motors

Finance is the life line of every business organization. The title of

project is “COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE OF

FORCE MOTORS LIMITED, AKURDI. The financial performance of FORCE

MOTORS LTD is being reviewed for the financial year 2005-2006,2006-07, 2007-08,

and 2008-09. After taken in to consideration each and every financial statement of

FORCE MOTORS, COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE

OF FORCE MOTORS LTD. The review states us various sources of income to various

ways of out flow of cash, types of transaction, how they manage and control their fund

and financial performance of company over last 3 years. This analysis will help

management in making comparison between last 3 years. This will also helps

management to focus on what to do to increase profit and to undertake any new project.

Page 32: Financial Performance Analysis of Force Motors

CHAPTER NO:-5

THEROTICAL BACKGROUND

CHAPTER NO 5

THEORITICAL BACKGROUND

Page 33: Financial Performance Analysis of Force Motors

5.1 WORKING CAPITAL Meaning of working capital

Definition of working capital

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Types of working capital

Importance of working capital management

Operating cycle

5.2 RATIO ANALYSIS

Meaning of ratio

Objectives of ratio analysis

Significance of ratio analysis

Classification of ratios

5.1 WORKING CAPITAL

(A) MEANING OF WORKING CAPITAL

Page 35: Financial Performance Analysis of Force Motors

One of the most important areas in the day-to-day management of the firm is the

management of working capital.

Working capital refers to the funds invested in current assets, i.e. investment in

stock, sundry debtors, cash and others current assets. Current assets are essential to use

fixed assets profitability. However, the requirements for current assets are usually greater

than the amount of funds available through current liability .In other words, the current

assets are to be kept at a higher level then the current liabilities.

DEFINITION:

Working capital is defined as, ”the excess of current asset over current

liabilities and provision”

“Working capital is the amount of funds necessary to cover the cost of operating the

enterprise. Working capital in going concern is revolving fund, it consist receipt from

sales which are used to cover the cost of current operation”.

– SHUIBN

“Working capital is in descriptive of that capital which not fixed but the more common

use of the working capital is to consider it as the difference between the book value of

current assets and current liabilities”. – HOGLAND

TYPES OF WORKING CAPITAL

GROSS WORKING CAPITAL

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It refers to the firms investments in current assets i.e. mainly stock & cash.

NET WORKING CAPITAL

It is difference between current assets & current liabilities it the current assets exceeds the

current liabilities it is a positive one.

PERMANENT WORKING CAPITAL

Every firm is require to maintain minimum balance of cash inventory etc. in order to

meet the business requirement even in the slack season this part of the current assets is

called as permanent working capital it will be around policy if this is finance by long

term sources of finance

TEMPORARY WORKING CAPITAL

Net working capital minus fix working capital will be variable working capital it is also

called fluctuating working capital it varies with seasonal requirement & scale of

operation in a business.

POSITIVE WORKING CAPITAL

The positive net working capital represents the excess of current assets over current

liabilities.

NEGATIVE WORKING CAPITAL

This situation occurs when the current liabilities exceeds the current assets. It is an

indication of crisis to the firm.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

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Objectives of the management of working capital can be the Maintenance of

working capital at appropriate level and Availability of ample funds as and when they are

needed. Importance of working capital management can be explain as follow:

There is a positive correlation between the sale of product and current assets.

An increase in the sale of the product requires a corresponding increase in current asset. It

is therefore indispensable to manage assets properly and efficiently.

1. More than half of the capital of the firm is generally invested in current assets.

Therefore, management of working capital attracts the attention of the management.

2. In emergency fixed asset can be acquired on lease but there is no alternative for

current.

3. Working capital needs are more often financed through outside source so it is

necessary to utilize them in best way.

4. In the modern system approach to management, the operations of the firm are viewed

as total is an integrated system. In this sense it is not possible to study one segment of the

firm individually or leave it out completely. Hence overall look on the management of

working capital is necessary.

OPERATING CYCLE CONCEPT

Working capital is the life blood of any business, without which the fixed assets are

inoperative. Working capital circulates in the business, and the current assets changes

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from one form to other. Cash is used for procurement of raw material and stores items

and for payment of operating expenses, and then converted in to working in progress,

then to finished goods. When the finished goods are sold on credit terms receivables

balances will be formed. When the receivable are collected, it is again converted in to

cash. The need for working capital arises because of time gap between production of

goods and their actual realization after sales. This time gap is called technically called as

“OPERATING CYCLE” or “WORKING CAPITAL CYCLE”.

1. Raw material purchased

2. Raw material holding period

3. Raw material introduce into process

4. Working in process period

5. Finished goods completed

6. Finished goods holding period

7. Sale of goods on credit

8. Receivable collection period

9. Cash received from debtors.

OPERATING CYCLE

ROW MATERIAL PURCHASEDROW MATERIAL PURCHASED

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OPERATING CYCLE

RAW MATERIAL PURCHASED

RAW MATERIAL HOLDING PERIOD

RAW MATERIAL INTRODUCE INTO PROCESS

3.2 RATIO ANALYSIS

DEFINITIONS: “A ratio is an expression of the quantitative relationship between two numbers”

ROW MATERIAL HOLDING PERIODROW MATERIAL HOLDING PERIOD

ROW MATERIAL INTRODUCE INTO PROSESSROW MATERIAL INTRODUCE INTO PROSESS

WORKING IN PROCESS PERIODWORKING IN PROCESS PERIOD

CASH RECEIVED FROM DEBTORSCASH RECEIVED FROM DEBTORS

RECEIVABLE COLLECTION PERIODRECEIVABLE COLLECTION PERIOD

SALE OF GOODS ON CREDITSALE OF GOODS ON CREDIT

FINISHED GOODS COMPLETEDFINISHED GOODS COMPLETED

FINISH GOODS HOLDING PERIODFINISH GOODS HOLDING PERIOD

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-Wixon, kell & Beoford

“Accounting ratio is used to describe significant relationship which exit between figures shown on a balance sheet, P&L a/c or in a budgetary control system”.

- J. Batty “Ratio analysis is a study of relationship among the various financial factors in a business”. - John.N.Myer

MEANING OF RATIO:

A financial ratio is the relationship between two accounting figure

expressed as a proportion. Ratio provides clues to the financial position of a concern.

These are the pointers or indicators of financial strength, soundness, position or weakness

of an enterprise. Ratio analysis is one of the methods of analyzing financial statements. It

is an attempt to present the information of the financial statements in simplified,

systematized and summarized form. It measures the profitability, efficiency and financial

soundness of the business. Ratio analysis is therefore, a tool to present the figures of

financial statements in simple, concise and intelligible form.

There are a number of ratios, which can be calculated from the

information given in the financial statements, but the analyst has to select the appropriate

data and calculate only a few appropriate ratios from the same.

SIGNIFICANCE OF THE RATIO ANALYSIS

Ratios as a tool of financial analysis provide symptoms with the help of which an

analyst is in a position to diagnose the financial health of the unit. Financial analysis can

Page 41: Financial Performance Analysis of Force Motors

be compared with biopsy conducted by the doctor on the patient in order to diagnose the

cases of illness so that treatment may be prescribed to the patient to help in recover. As

there are different groups of interested parties so significance to them are different.

Management

Management needs information regarding the profitability, operational efficiency and

financial soundness of the business, so that weakness of the business may be identified

and effective business plans may be formulated. Ratio analysis helps the management in

decision making, financial forecasting and planning. It helps in communicating the

desired information to the relevant parties and facilitates coordination. Ratios provide

actual basis, which can be compared with the standards, thus helps in effective control.

Shareholders

The shareholders, the virtual owners of business corporate units have an interest in the

welfare and progress of business. They want to know about the profitability and future

prospects of the enterprise. The requisite information is available from the analysis of

financial statements.

Workers

Employees of the business are interested in the profit of business. Workers in the

business are paid bonus on the basis of productivity unprofitability, so they have an

interest in the financial analysis of the business.

Creditors

Creditors of the enterprise are interested in the short term and long term financial

soundness of the business. They want to ensure themselves, whether their funds are safe

and secure and the business is capable of making payment of interest regularly and also

refund of funds as per agreements.

Page 42: Financial Performance Analysis of Force Motors

Government

Financial analysis helps government in determining tax liability. The government is also

capable of ascertaining the economic development of the country through the financial

analysis. The government requires the information for formulating effective economic

plans and balanced growth of different sectors and region of the economy.

Potential investor

The potential investors of the business have an interest in the operational efficiency and

profit earning capacity of the business unit. They would like to know how far their

previous investment has been safe and how much the new investment will be safer and

secured.

Economist and researchers

These parties are interested in the financial activities of the business, so that they may

study the financial health of the economic structure of the business, study the rate of

economic growth, compare it with other economies and suggest effective measure to

accelerate the pace of growth.

CLASSIFICATION OF RATIOS

Current ratio

Quick ratio

Debtor’s turnover ratio

Inventory turnover ratio

Fixed asset turnover ratio

Working capital

turnover ratio

Creditor turnover ratio

Debt equity ratio

Interest coverage ratio

Net worth to total assets

ratio

Proprietary ratio

Earning per share

Return on equity

Return on capital

employed

Net profit ratio

Gross profit ratio

CLASSIFICATION OF RATIOS

On the basis of liquidity

On the basis of

Solvency

On the basis of turnover

On the basis of profitability

Page 43: Financial Performance Analysis of Force Motors

A. LIQUIDITY RATIO

Page 44: Financial Performance Analysis of Force Motors

The importance of adequate liquidity in the sense of the ability of a firm to meet

current/short-term obligations when they become due for payment can hardly be

overstressed. Liquidity implies, from the point of view of utilization of the funds of the

firm, that funds are idle or they earn very little. A proper balance between the two

contradictory requirements, that is, liquidity and profitability, is required for the efficient

financial management.

Liquidity ratios are calculated to measure the short term financial soundness of the

business Liquidity is the basis of survival of any unit and the creditors are more

interested in Liquidity of the business. The ratio assesses the capacity of the company to

repay its short-term liability. Banks and other moneylenders for short period are

interested in the current assets of the company i.e. short-term financial position of the

business. The ratio is also an effective source to ascertain whether the working capital

has been effectively utilized. Liquidity in the ratio means ability to repay loans. Short-

term financial position is calculated to adjudge, whether the current assets of the

company are sufficient to meet its short-term liabilities.

(I) CURRENT RATIO

Page 45: Financial Performance Analysis of Force Motors

The Current Ratio of a company shows the ability to pay Short Term creditors from

Current Assets. It represents the margin of safety; higher the ratio higher is the

margin of safety. But higher ratio show the unnecessarily blockage of funds in assets.

Thus ratio of 2:1 is considered satisfactory.

This ratio indicates the short-term financial position of the

company. It judges whether current assets are sufficient to meet the current liabilities.

The company must be able to meet its current obligation out of the current assets. It

should not depend upon its long-term sources to pay its short-term liabilities. The ratio

is calculated on the basis of the following formula:

Current assets

Current ratio = -----------------

Current liabilities

This is expressed as the current assets divided by the current liabilities. Current

assets are those assets, which are convertible into cash within a year. It includes cash

in hand, cash at bank, bills receivables, sundry debtors, and inventory etc. The

current liabilities are payable within a year. It includes creditors, bills payable,

outstanding expenses, short-term loans and bank overdraft etc. The higher the current

ratio the higher is the ability of the business to pay its current obligation but such

higher current Ratio indicates assets are kept and profitability of the company

becomes low.

Page 46: Financial Performance Analysis of Force Motors

(II) QUICK RATIO

Quick Ratio involves only those current assets, which liquidate immediately. Ratio

of 1:1 is ideal but 0.7 to 1 is considered satisfactory. This indicates the extent to

which current liabilities can be paid without relying on the sale of inventory.

Quick ratio is also known as acid test ratio or liquid ratio. Quick ratio is the ready

means of assessing a firm’s liquidity position in the real sense. It shows very short-

term liquidity or capacity of the business to meet its obligation at short notice. Liquid

assets are current assets less stock and prepaid expenses. These assets are called

liquid because they can be converted into cash very shortly. The ratio is calculated by

the following formula:

Liquid assets

Quick ratio =

Current liabilities

It is expressed as the liquid assets divided by the current liabilities. The ideal

liquid ratio is 1:1 i.e. liquid assets should be equal to current liabilities. Quick ratio

assess the ability of the business to meet the current liabilities without having wait for

the manufacturing cycle to be completed and sale to take place for inflow of cash.

Page 47: Financial Performance Analysis of Force Motors

B. TURNOVER RATIO

Turnover ratios are employed to evaluate the efficiency with which the

firm manages and utilizes its assets. They indicate the speed with which assets are

converted into sales.

A measure of the number of times a company's inventory is replaced during

a given time period. Turnover ratio is calculated as cost of goods sold/turnover divided

by average inventory during the time period. A high turnover ratio is a sign that the

company is producing and selling its goods or services very quickly.

This ratio tells how often a business' inventory turns over during the course of

the year. Because inventories are the least liquid form of asset, a high inventory turnover

ratio is generally positive. On the other hand, an unusually high ratio compared to the

average for your industry could mean a business is losing sales because of inadequate

stock on hand.

When to use it:

If your business has significant assets tied up in inventory, tracking your

turnover is critical to successful financial planning. If inventory is turning too slowly, it

could indicate that it may be hampering your cash flow. Because this ratio judges annual

inventory turns, it is usually conducted once a year.

(I) INVENTORY TURNOVER RATIO

Page 48: Financial Performance Analysis of Force Motors

The turnover shows the efficiency of the firm in selling the product.

It indicates the speed with which the stock is rotated into sales or the number of times

the stock is turn into sales during the year. The higher the ratio, the better it is, since

it indicates that stock is selling quickly. In a business where stock turnover ratio is

high, goods can be sold at a long margin of profit and even then the profitability may

be quite high.

This ratio indicates the efficiency of the firm in selling its product, i.e. it indicates the

number of times the inventory has been given the shape of final sales during the year.

It is calculated by dividing the cost of goods by the average inventory.

Net sales

Inventory turnover ratio =

Average inventory

Page 49: Financial Performance Analysis of Force Motors

(II) DEBTORS TURNOVER RATIO

The Debtors Turnover measures the number of times Accounts Receivable was collected during the year.  This is also a measure of how well the company collects sales on credit from its customers, just as Average Collection Period measures this in days.

This ratio is calculated by dividing sales by average debtors.

Credit sales

Debtors turnover ratio = ---------------------------------

Average debtors + bills receivable

Importance of Debtors Turnover:

A high debtor turnover ratio indicates a tight credit policy. Showing the company is successfully executing its credit policies and quickly turning its Accounts Receivables into cash. 

A low or declining debtor turnover ratio indicates a collection problem, part of which may be due to bad debts.

A possible negative aspect to an increasing Accounts Receivable Turnover is the company may be too strict in its credit policies and missing out on potential sales.

Average Debt collection period:

Page 50: Financial Performance Analysis of Force Motors

The Average Collection Period measures the average number of days it takes for the

company to collect revenue from its credit sales.

Importance of Average Collection Period

This ratio reflects how easily the company

can collect on its customers.  It also can be used as a gauge of how loose or tight the

company maintains its credit policies.  A particular thing to watch out for is if the

Average Collection Period is rising over time.  This could be an indicator that the

company's customers are in trouble, which could spell trouble ahead.  This could also

indicate the company has loosened its credit policies with customers, meaning that they

may have been extending credit to companies where they normally would not have.   This

could temporarily boost sales, but could also result in an increase in sales revenue that

cannot be recovered, as shown in the Allowance for Doubtful Accounts.

Average Collection Period = 360

Debtors Turnover Ratio

(III)CREDITORS TURNOVER RATIO

Page 51: Financial Performance Analysis of Force Motors

This indicates the payment to the creditor by the company. The ideal value depends

on the terms and credit period provided by the creditors. But the higher the ratio, the

better it is, since it indicates that the creditors are being paid more quickly which

increases the credit worthiness of the firm.

Net credit Purchases

Creditor turnover ratio =

Average creditor + Bills payable

Average Payment Period Ratio:

The average payment period ratio represents the average number of days taken by the

firm to pay its creditors.

Importance Of Average Payment Period

This ratio reflects how easily the company can pay of its creditors. Lower the ratio, the

better is the liquidity position of the company and higher the ratio, less liquid is the

position of the firm. But higher payment period may also imply greater credit period

enjoyed by the firm & consequently larger the benefit prepaid from credit supplies. Also

a higher ratio may imply lesser discount facilities available or higher prices paid for the

goods purchased on credit.

360

Average Payment Period = Accounts Payable Turnover Ratio

(IV) WORKING CAPITAL TURNOVER RATIO

Page 52: Financial Performance Analysis of Force Motors

Company uses working capital (current assets - current liabilities) to fund operations and

purchase inventory. These operations and inventory are then converted into sales revenue

for the company. The working capital turnover ratio is used to analyze the relationship

between the money used to fund operations and the sales generated from these

operations. In a general sense, the higher the working capital turnover, the better because

it means that the company is generating a lot of sales compared to the money it uses to

fund the sales.

This ratio is helpful where current assets play a major role in generating sales. This ratio

reveals how efficiently working capital has been utilized in making sales.

Net sales

Working capital turnover ratio =

Working capital

A high or increasing Working Capital Turnover is usually a positive sign, showing the company is better able to generate sales from its Working Capital.  Either the company has been able to gain more Net Sales with the same or smaller amount of Working Capital, or it has been able to reduce its Working Capital while being able to maintain its sales.  Efforts to streamline the operations of the company will often show favorably in this ratio.

D. PROFITABILITY RATIO

Page 53: Financial Performance Analysis of Force Motors

Profitability ratios measure the operating efficiency of the company. These ratios are

calculated in relation to sales or investment.

These ratios are designed to provide answers to questions such as

Is the profit earned by the firm is adequate?

What rate of return it represents?

What is the rate of profit for various divisions and segments of the firm?

What are the earnings per share?

What was the amount paid in dividends?

What is the rate of return to equity-holders and so on?

(I) GROSS PROFIT RATIO

The Gross Profit to Net Sales ratio measures how well revenue generated from Net Sales can cover expenses while gaining a profit.

Importance of Gross Profit to Net Sales:

A decreasing Gross Profit to Net Sales ratio is a negative sign, indicating the company is becoming less profitable.  The company may even have an increasing Net Sales, but the cost to the company to generate those extra sales may be degrading profits.  This ratio varies wildly between companies and industries, so the best knowledge from this ratio can be gained by measuring it over several periods.

Gross profit Gross Profit ratio = * 100. Sales

(II) NET PROFIT RATIO

Page 54: Financial Performance Analysis of Force Motors

The Net Profit Margin measures the Net Earnings in relation to the Net Sales.  After all the bills are paid and expenses covered, this ratio measures how much net profit remains out of total sales.  This ratio is important to calculate, but you need to look at Gross Profit Margin and Operating Profit Margin as well as Net Profit Margin provides you with the big picture of how well the company is doing.

It indicates management efficiency in manufacturing, administering and selling. It

reflects the overhead expenses of a firm.

Net profit

Net Profit ratio = -----------------* 100

Net sales

Importance of Net Profit Margin:

As with the other margin ratios, the higher the Net Profit Margin, the better.  Taxes, Interest, and expenses not associated with operations will lower this ratio compared to the other margin ratios.

Page 55: Financial Performance Analysis of Force Motors

CHAPTER NO:-6

DATA PRESENTATION ANALYSIS & INTERPRETATION

Page 56: Financial Performance Analysis of Force Motors

Chapter 7

DATA PRESENTATION

ANALYSIS & INTERPRETATION

7.1 Working Capital Management

STATEMENT OF WORKING CAPITAL OF FORCE MOTORS, PUNE. ON 31ST MARCH 2008, 2009, 2010.

PARTICULARS 2007-08 2008-09 2009-10

Page 57: Financial Performance Analysis of Force Motors

Current Assets: Sundry Debtors 1,199,040,359 1,251,881,270 1,228,929,055

Cash& Bank 179,820,994 171,100,395 163,621,566stock (r/m,wip&f.g) 2,039,226,649 2,406,705,717 1,960,316,668

(A)Total 3,418,088,002 3,829,687,382 3,352,867,289

Current liabilities:Creditors 2,655,304,527 2,906,789,347 2,576,470,253

(B)Total 2,655,304,527 2,906,789,347 2,576,470,253Working capital

(A-B)762,783,475 922,898,035 776,397,036

EXPLANATION WITH COMPARISION:

Working capital means capital required to carry on the business on day to day basis smoothly. Current asset is also called as gross working capital. So current asset less current liabilities we get working capital, which can also be seen in above table. From above table it shows that, in 2007-08, total current asset are Rs. 3,418,088,002 and current liabilities are Rs. 2,655,304,527. So working capital available for business is Rs. 762,783,475. In 2008-09, as business turnover increases working capital also increase by 20.99 % as compared to last year which is Rs. 922,898,035. In 2009-10, as turnover of business decrease working capital also decrease by 18.87% as compared to last year which is Rs. 776,397,036. The better a company manages its working capital, the less the company needs to borrow. Without adequate working capital there can be no progress. A business must expand and assert itself in a competitive world.

Statement showing changes in working capital for the year 2008-2009

Particulars 2008 2009 Increase Decrease

Page 58: Financial Performance Analysis of Force Motors

Current

Assets:-

Stock

Debtors

Cash

2,039,226,649

1,199,040,359

179,820,994

2,406,705,717

1,251,881,270

171,100,395

367,479,068

52,840,911

8,720,599

Total 3,418,088,002 3,829,687,382

Current

Liabilities:-

Creditors

Bank loan

2,655,304,527 2,906,789,347 251,484,820

Total 2,655,304,527 2,906,789,347

Total 671,804,799 8,720,599

Changes in net working capital: - 671804799 - 8,720,599

Increase in working capital: - 663,084,200.

EXPLANATION:

Page 59: Financial Performance Analysis of Force Motors

The statement of change in working capital shows how the working capital has been

change as compare to last year’s working capital.

From above statement it shows that there is net increase in working capital by

Rs. 663, 084,200.

Total current asset was Rs. 3,418,088,002 in 2008 which increase in to Rs. 3,829,687,382

in 2009.

Total current liabilities were Rs. 2,655,304,527 in 2008 which increase to

Rs. 2,906,789,347 in 2009.

Gross increase in working capital was Rs. 671,804,799 and decrease in working capital

was Rs. 8,720,599. Therefore net increase in working capital was Rs. 663, 084,200.

It shows that due to increase in turnover of the company, working capital requirement of

the company also increase over the period of time as compare to last year.

Statement showing changes in working capital for the year 2009-2010

Particulars 2009 2010 Increase Decrease

Page 60: Financial Performance Analysis of Force Motors

Current

Assets:-

Stock

Debtors

Cash

2,406,705,717

1,251,881,270

171,100,395

1,960,316,668

1,228,929,055

163,621,566

446,389,049

22,952,215

7,478,829

Total 3,829,687,382 3,352,867,289

Current

Liabilities:-

Creditors 2,906,789,347 2,576,470,253 330,319,094

Total 2,906,789,347 2,576,470,253

Total 807,139,187

Changes in working capital: 807, 139, 18

Decrease in working capital: - 807,139,18

EXPLANATION: The statement of change in working capital shows how the working

capital has been change as compare to last year’s working capital.

Page 61: Financial Performance Analysis of Force Motors

From above statement it shows that there is net decrease in working capital by Rs.

807,139,18

Total current asset was Rs. 3,829,687,382 in 2009 which decrease to Rs. 3,352,867,289.

in 2010.

Total current liabilities were Rs. 2,906,789,347 in 2008 which decrease Rs.

2,576,470,253 in 2010.

Gross decrease in working capital was Rs. 807,139,187. Therefore net decrease in

working capital was Rs. 807,139,187.

It shows that due to decrease in turnover of the company and recession period the

working capital requirement of the company also decrease over the period of time as

compare to last year.

5.2 RATIO ANALYSIS

(1) CURRENT RATIO

Page 62: Financial Performance Analysis of Force Motors

Current assets

Current ratio = ----------------- Current liabilities

(In Rs.)

YEARS CURRENT ASSETS CURRENT LIABILITIES

RATIOS

2007-08 3,418,088,002 2,655,304,527 1.292008-09 3,829,687,382 2,906,789,347 1.322009-10 3,352,867,289 2,576,470,253 1.30

Interpretation:

As stated before the ideal current ratio is 2:1 .If we see the last 3 year figures we would notice that in the year 2007-08 the current ratio was 1.29:1 as compared to 2008-09 (1.32:1) and 2009-10 (1.30:1). If we compare 2007-08 and 2008-09 with 2009-10, we can see that current ratio has been increased drastically. It represents the margin of safety. Higher the ratio, higher is the margin of safety. But higher ratio show the unnecessarily blockage of funds in assets. This is same in case we are referring. So there is need to manage working capital properly. Thus ratio of 2:1 is considered satisfactory. we would see that the there is a excess working capital which is against the health of the company.

(B) QUICK RATIO

Current assets - Stock

Page 63: Financial Performance Analysis of Force Motors

Quick ratio = ---------------------------- Current liabilities- bank o/d

(In Rs.)

YEARS QUICK ASSETS QUICK LIABILITIES RATIOS2007-08 1,378,861,353 1,209,527,502 1.142008-09 1,422,981,665 1,293,619,695 1.102009-10 1,392,550,621 1,243,348,768 1.12

Interpretation:

This ratio basically aims at to meet its current obligations. The ideal quick ratio is

considered to be 1:1. From the above data table we could see that in the year 2007-08

the quick ratio was1.14:1 as compared to 1.10:1 in 2008-09 and 1.12:1 in 2009-10.

The same scenario is seen here too as in case of current ratio. It depicts that the

company’s liquidity position has deterioted as compared to the financial year 2007-

08. It shows that company has unnecessary liquidity which is not utilized properly.

The company needs to revise its policies so as to reach the desired state of 1:1.

(B) PROFITABLITY RATIOS

(I) NET PROFIT RATIO

Net profit

Net Profit ratio = -----------------* 100

Page 64: Financial Performance Analysis of Force Motors

Net sales (In Rupees)

YEARS NET PROFIT NET SALES RATIOS2007-08 1,191,941,303 9,811,450,013 12.15%2008-09 582,836,940 9,305,432,768 6.26%2009-10 2,754,693,923 7,744,836,790 35.57%

Interpretation:

This ratio indicates the firm’s capacity to face adverse economic conditions

such as price competition, low demand etc. a constant rise in above ratio year after year

is a definite sign of improving condition of the business . From the above chart we could

see that the ratio has decrease from 12.15% in 2007-08 to 6.26% in the year 2008-09 and

increase to 35.57%. Percentage of net profit is quite good. Although the increase

percentage is not too appreciable but still an improvement is seen and the company

should try to bring some major changes to increase.

(II) GROSS PROFIT RATIO

Gross profit

Gross Profit ratio = -----------------* 100

Net sales

Page 65: Financial Performance Analysis of Force Motors

(In Rupees)

YEARS GROSS PROFIT NET SALES RATIOS2007-08 1,735,202,263 9,811,450,013 17.69%2008-09 707,120,996 9,305,432,768 7.60%2009-10 4,036,464,371 7,744,836,790 52.12%

Interpretation:

Higher ratio indicates higher efficiency of production activities & lower ratio

indicates lower efficiency of production activities.

As seen in the above graph it indicates that the gross profit ratio is Fluctuating. it

indicate Fluctuating efficiency of production activities.

From the above chart we could see that the ratio has increased considerably from

17.69 % in 2007-08 to 7.60% in the year 2008-09 and decrease to 52.12%. . Although the

increase % is not too appreciable but still an improvement is seen and the company

should try to bring some major changes to increase this ratio.

(C) TURNOVER RATIOS

(a) WORKING CAPITAL TURNOVER RATIO

Net salesWorking capital turnover ratio = ------------------------------- Working capital

(Amount in Rupees)

Page 66: Financial Performance Analysis of Force Motors

YEARS SALES WORKING CAPITAL

RATIO

2007-08 9,811,450,013 762,783,475 12.86 times2008-09 9,305,432,768 922,898,035 10.08 times2009-10 7,744,836,790 776,397,036 9.98 times

INTERPRETATION:

This is calculated to see how efficiently the working capital is being used to improve the turnover. The higher the working capital turnover, the better the position of company. In the above chart we could see that the scenario was quite decrease in 2007-08 with 12.86:1 as compared to 10.08:1 that of 2008-09 and 2009-10 with 9.98:1. . This shows that the working capital has been used in the most optimized way which is expected to be continued in future too.

(b) DEBTORS TURNOVER RATIO

Credit sales

Debtors turnover ratio = ---------------------------------

Average debtors + bills receivable

(In Rs.)

Page 67: Financial Performance Analysis of Force Motors

YEARS SALES Average Debtors +B/R RATIO2007-08 9,811,450,013 498,043,148 19.70 times2008-09 9,305,432,768 429,019,491 21.69 times2009-10 7,744,836,790 372,527,022 20.79 times

INTERPRETATION:

Generally the higher the value of debtor turnover the more efficient

is the management of the debtors or more liquid is the debtors. In the above scenario

it shows that in the year 2007-08 the ratio was 19.70 which increased to 21.69 in the

year 2008-09 also again declined to the level of 20.79 in the year 2009-10.

(c)AVERAGE COLLECTION PERIOD

365

Average Collection Period = ----------------------------

Debtors Turnover Ratio

YEARS Days in a year Debtor turnover ratio Average collection

period(D.C.P.)2007-08 365 19.70 19 Days2008-09 365 21.69 17 Days2009-10 365 20.79 18 Days

Page 68: Financial Performance Analysis of Force Motors

INTERPRETATION:

From above table and scheduled it shows that company was giving

average credit period of 18 days to their customers. In course for the purpose of facing

high competition in industry credit period. This ratio reflects how easily the company can

collect on its customers.  It also can be used as a gauge of how loose or tight the company

maintains its credit policies.  A particular thing to watch out for is if the Average

Collection Period is rising over time.

(d)CREDITORS TURNOVER RATIO

Net credit purchases

Creditor turnover ratio = ----------------------------

Average creditor + Bills payable

( in Rupees)YEARS PURCHASES Average Creditors

+B/PRATIO

2007-08 26,048,537,410 2,655,304,527 9.81 times2008-09 37,003,428,387 2,906,789,347 12.73 times2009-10 39,162,347,846 2,576,470,253 15.20 times

Page 69: Financial Performance Analysis of Force Motors

INTERPRETATION:- From the above diagram and scheduled we can analyze that creditors turnover in 2007-

08 is 9.81, which Increases to 12.73 in 2008-09

And 15.20 in 2009-10. Higher the ratio, the better it is, since it indicates that the

creditors are being paid more quickly which increases the credit worthiness of the firm.

But in the year 2007-08. Creditor’s turnover ratio was less which increases in subsequent

year, which is matter of discuss.

(e) AVERAGE PAYMENT PERIOD

365 Average Payment Period = --------------------------

Creditors Turnover Ratio

YEARS Days in a year Creditors turnover ratio Average payment

period(A.P.P.)2007-08 365 9.81 37 Days2008-09 365 12.73 29 Days2009-10 365 15.20 24 Days

Page 70: Financial Performance Analysis of Force Motors

INTERPRETATION: From above table and scheduled it shows that company is

making payment to creditors within 30 days (1 Month) which create good

creditworthiness. It plays vital role for the purpose of facing high competition in industry.

Average payment period is increasing over the period of time which is profitable for the

company.

(f) STOCK TURNOVER RATIO

Cost of good sold (sales)

Stock turnover ratio = ------------------------------------

Average stock

(In Rs.)YEARS SALES Average stock RATIO2007-08 9,811,450,013 282,343,885 34.75 times2008-09 9,305,432,768 231,651,301 40.17 times2009-10 7,744,836,790 205,106,907 37.76 times

Page 71: Financial Performance Analysis of Force Motors

INTERPRETATION:

This ratio measures the number of time stock is replace during the year.

From the above diagram and schedule we can analyze that Stock turnover in

2007-08 is 34.75, which increases to 40.77 in 2008-09 and Decreases again to 37.76in

2009-10.

(g) STOCK HOLDING PERIOD

360 Stock holding Period = ----------------------------

Stock Turnover Ratio

YEARS No. of months in year Stock turnover ratio Stock holding period(S.H.P.)

2007-08 12 34.75 11 Days2008-09 12 40.77 9 Days2009-10 12 37.76 10 Days

Page 72: Financial Performance Analysis of Force Motors

INTERPRETATION

Stock holding period shows whether the inventory is moving fast or not.

In 2007-08 Force motors had hold stock more time because of it starting year but in

2008-09 not holding stock for 9 days & also in each year there is a decrease in the stock

holding period. Which show that inventory is moving fast.

(h) FIXED ASSET TURNOVER RATIO

Net sales

Fixed Asset turnover ratio = ---------------------------------

Net Fixed asset

(In Rupees)YEARS SALES Net Fixed Asset RATIO2007-08 9,811,450,013 2,547,203,997 3.85 times2008-09 9,305,432,768 2,856,216,828 3.26 times2009-10 7,744,836,790 2,892,541,740 2.68 times

Page 73: Financial Performance Analysis of Force Motors

INTERPRETATION:

This ratio indicates the amount of sales realized per rupee of investment in fixed assets. In above graph shows that fixed asset turnover ratio is 3.85 times in year 2007-08 it decrease to 3.26 times and 2.68 times in 2008-09 and 2009-10 respectively

6.2 STATEMENT SHOWING ALL THE RATIOS

SR.NO. PARTICULARS 2007-08 2008-09 2009-10A LIQUIDITY RATIO

1 CURRENT RATIO 1.29 1.32 1.302 QUICK RATIO 1.14 1.10 1.12

B PROFITABLITY RATIO

I NET PROFIT RATIO 12.15% 6.26% 35.57%II GROSS PROFIT RATIO 17.69% 7.60% 52.15%

Page 74: Financial Performance Analysis of Force Motors

C TURNOVER RATIOS

A W.C.TURNOVER RATIO 12.86 times 10.08 times 9.98 times

B DEBTORS TURN .RATIO 19.70 times 21.69 times 20.79 times

C AVE. COLLECTION PERIOD 19 days 17 days 18 days

D CREDITORS TURN. RATIO

9.81 times 12.73 times 15.20 times

9 AVE.PAYMENT PERIOD37 days 29 days 24 days

10 STOCK TURN. RATIO. 34.75 times 40.17 times 37.76 times

D STOCK HOLDING PERIOD 11 days 9 days 10 days

11 F.ASSET TURN. RATIO3.85 times 3.26 times

2.68 times

Page 75: Financial Performance Analysis of Force Motors

CHAPTER NO:-7

FINDINGS

CHAPTER NO 7

FINDINGS

After proper analysis, it has been observed that if we compare increase in sales in the year 2007-08 as compare to 2006-07. It means growth in sales is nearly increase by Few times as compare to last year. And the sales are also increased in 2008-09. Here increase in sales is better but growth proportion is not good comparatively.

Page 76: Financial Performance Analysis of Force Motors

Current asset are higher than standard ratio which is 2:1. It represents the margin of safety. Higher the ratio, higher is the margin of safety. But higher ratio show the unnecessarily blockage of funds in assets.

In the year 2006-07 the quick ratio was 1.44:1 as compared to 1.40:1 in 2007-08 and 1.42:1 in 2008-09. It shows that company has unnecessary liquidity which is not utilized properly. The company needs to revise its policies so as to reach the desired state of 1:1.

It has been observed that the Average Collection Period is rising over time.

It is also observed that the average payment period is very lengthy. It shows that company is utilizing its credit period clearly.

Company’s net profit ratio is 1.03 to 3.13% which needs to increase over period of time.

Page 77: Financial Performance Analysis of Force Motors

CHAPTER NO:-8

LIMITATIONS

CHAPTER NO 8

LIMITATON OF THE STUDY

The time allotted to complete the project was restricted to 60 day only. But time

required for completing the project of comparative analysis with respect to ratio

analysis and working capital is large as compared to the analysis of any other

project.

Page 78: Financial Performance Analysis of Force Motors

The director has informed to sit with chartered accountant of the company, but

chartered accountant was not comfortable with researcher in sharing the

information.

To maintain the secrecy of the organization many statements were not available to

the researcher at time of research.

Page 79: Financial Performance Analysis of Force Motors

CHAPTER NO:-9

SUGGESTIONS

CHAPTER NO 9

SUGGESTIONS

Finance is life blood of every business organization. There should well qualified and

expert people in finance department which is to be guided by director or next senior.

There should be regular maintenance and disclosure of every book of accounts.

Page 80: Financial Performance Analysis of Force Motors

The standard current ratio is 2:1. There is need to manage current asset to avoid

unnecessary blockage of fund, which may profitability of company.

Company’s average collection period is very high. It shows that company has loose credit

collection policy to face market competition but it will affect financial condition of

company. Company has to take action for collection of receivable.

Company has to try to minimize the duration of operating cycle. This will help to

minimize the working capital need of company.

Page 81: Financial Performance Analysis of Force Motors

CHAPTER NO:-10

CONCLUSIONS

CHAPTER NO:-10

CONCLUSIONS

Because of increasing volume of Business and increasing turnover the current

asset, current liabilities and working capital also increases. They are increases in

proportion of turnover of company. Increases in current asset means increases in

investment in current asset.

Page 82: Financial Performance Analysis of Force Motors

The company’s current ratio is above the standard ratio which is 2:1. Company

has ability to meet the current liabilities. Ratio is going on increasing which is

good, which represent Margin of safety. Higher the ratio, higher is the Margin of

safety. But higher ratio shows unnecessarily blockage of fund which not healthy

for profitability.

Increase in average collection period and other factor affects operating cycle.

Company’s average collection period is very high. It shows that company has

loose credit collection policy to face market competition but it will affect financial

condition of company. Company has to take action for collection of receivable.

As per the ratio’s of company it seen and concluded that the year 2008-09 was

better than the year 2009-10.

During the year 2009-10 company had reduced expenses which shown the

increment in net profit.

Page 83: Financial Performance Analysis of Force Motors

CHAPTER NO:-11

BIBILOGRAPHY

CHAPTER NO 11

BIBLIOGRAPHY

WEBSITES:

www.google.com www.forcemotors.com www.bseindia.com

Page 84: Financial Performance Analysis of Force Motors

www.nseindia.com http://en.wikipedia.org/wiki/Financial_statement

BOOKS:

Principles of Financial Management - Satish M. Inamdar Fundamentals of Financial Management – Prof. A.P.Rao Introduction to Financial Accounting- Horngren Introduction to Management Accounting- Grey Sundem

Page 85: Financial Performance Analysis of Force Motors

CHAPTER NO:- 12

ANNEXURE

CHAPTER NO 12

ANNEXURE

ANNUAL REPORTBALANCE SHEET OF FORCE MOTORS LIMITED, AKURDI

AS ON 31st MACH 2008,2009,2010PARTICULARS Schedule

no.Amount as at

31-03-2008Amount as at

31-03-2009Amount as at

31-03-2010A. Sources of fund:

1) Shareholders funds:

Page 86: Financial Performance Analysis of Force Motors

a)Share capital 1 131,790,000 131,790,000 131,790,000 b)Reserves & surplus 2 1,734,307,277 897,800,000 2,143,401,245 2)Loan funds:

a)Secured loans 3 1,747,234,634 1874,700,650 940,443,126 b)unsecured loans 4 745,972,516 1,784,421,907 668,412,577 3)Deferred Tax Adjustment

a)Deferred Tax Liabilities 168,651,998 200,655,610 259,261,303 b)Less Deferred Tax Asset 48,436,098 57,139,973 53,138,257

TOTAL 4,479,520,327 4,832,228,194 4,090,169,994

B.Aplication of funds

1)Fixed assets 5 a)Gross block 7,874,638,620 8,560,517,127 9,012,008,935 b)Less: Depreciation 5,327,434,623 5,704,300,299 6,119,467,195 c)Net Block 2,547,203,997 2,856,216,828 2,892,541,740 d)Capital Work in progress 719,806,986 534,403,241 528,041,7142)Investments 6 725,923,654 726,001,564 571,598,6323)Current assets, Loans & Advances

7

a)Inventories 2,039,226,649 2,406,705,717 1,960,316,668 b)Sundry debtors 1,199,040,359 1,251,881,270 1,228,929,055 c)cash &Bank balance 179,820,994 171,100,395 163,621,566 d)Other Current Assets 90,629,905 83,285,474 74,680,357 e)Loans& Advances 942,731,122 1,061,892,743 1,635,913,988Total of CA, Loans &Advances

4,451,449,029 4,974,865,599 5,063,461,634

Less: Current Liabilities & Provisions

8

a) Current Liabilities 3,540,406,037 3,875,719,130 3,435,293,671 b)Provisions 456,843,648 445,513,680 663,784,423Total of CL & Provisions 3,997,249,685 4,321,232,810 4,099,078,094Net Current Assets 454,199,344 653,632,789 964,383,540

Total 4,479,520,327 4,832,228,194 4,090,169,994

Page 87: Financial Performance Analysis of Force Motors

PROFIT & LOSS A/C OF FORCE MOTORS LIMITED, AKURDIFOR THE YEAR ENDED 31st MARCH 2008,2009,2010

PARTICULAR For the year ended 31’st march 2008

For the year ended 31’st march 2009

For the year ended 31’st march 2010

INCOME Sales(gross) 11,438,443,102 10,927,172,097 8,907,105,151 Less: excise duty 1,626,993,089 1,621,739,329 1,162,268,361 Net Sales 9,811,450,013 9,305,432,768 7,744,836,790 Sales Of Shares ,Units Of Mutual Funds 158,554,835 180,750,415 214,100,083

9,970,004,848 9,486,183,183 7,958,936,873 Operating Income 618,170,366 537,087,816 987,825,527

Page 88: Financial Performance Analysis of Force Motors

10,588,175,214 10,023,270,999 8,946,762,400 Other Income 806,271,222 395,809,978 3,410,646,669

11,394,446,436 10,419,080,977 12,357,409,069EXPENDITURE Material Consumed, Purchase Of Shares, Units Of Mutual Funds & Manufacturing

Expenses

7,452,037,567 7,351,173,217 6,257,969,825

Employees Remuneration & Benefits 1,348,908,727 1,430,488,396 1,205,577,841 Other Expenses 244,446,822 194,859,805 85,263,460 Interest &Finance Charges 199,017,853 345,276,398 353,817,085 Depreciation 414,833,204 390,162,165 418,316,307

9,659,244,173 9,711,959,981 8,320,944,698PROFIT BEFORE TAXATION 1,735,202,263 707,120,996 4,036,464,371 Provision For Taxation Current Tax- Income Tax / MAT 532,100,000 112,231,000 1,273,500,000 Wealth Tax 751,100 447,600 933,100 Fringe Benefits Tax 9,037,740 6,250,000 9,575,860 Deferred Tax 7,496,355 8,311,384 6,700,263

549,385,195 127,239,984 1,290,709,223PROFIT AFTER TAXATION 1,185,817,068 579,881,012 2,745,755,148

ADJUSTMENTS IN RESPECT OF EARLIER YEARS:

Taxation , net 6,124,235 2,955,928 8,938,775Profit After Taxation Prior Period

Adjustments1,191,941,303 582,836,940 2,754,693,923

Balance brought forward from previous year

2,938,627,082 2,711,866,099 2,074,995,505

PROFIT AVAILABLE FOR APPROPRIATION

4,130,568,385 3,294,703,039 4,829,689,428

Transferred to General Reserve 212,500,000 122,500,000 366,000,000 Proposed Dividend 98,003,600 74,365,600 116,548,400 Tax On Above Dividend 8,360,212 6,741,934 9,112,900

318,863,812 203,607,534 491,661,300BALANCE CARRIED TO BALANCE SHEET

3,811,704,573 3,091,095,505 4,338,028,128

EARNINGS PER SHARE OF RS 10/-EACH:

Page 89: Financial Performance Analysis of Force Motors

Net Profit (after tax &adjustment in respect of earlier years)

1,191,941,303 582,836,940 2,754,693,923

Number of shares issued & subscribed 13,176,000 13,176,000 13,176,000 Basic & diluted Earnings per share 90.46 44.23 209.07 Notes forming part of the financial statements