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1.1 INTRODUCTION
The project was undertaken mainly to study the financial position and the
working capital management of YCH Group Pvt. Ltd. Established in the
year 1955. YCH logistics is nurtured by quality consciousness, passion for
hard work and the will to succeed. YCH services deals various with
Intribution, Intrabution, and Retrogistics which cater the requirements of
Consumer Goods Industry, Hi-tech Electronics, Chemical and Health Care.
YCH with its diversified services has a strong supply chain management
across India, which helps in tapping the market as a whole and provides at
time services to its customers. It has also introduced a V-hub so that virtual
sourcing of raw materials can be done based on the requirements, to feed the
global manufacturing plants, enabling manufactures and brand owners to
Buy Anywhere, Make Anywhere and Sell Anywhere.
The growth of all the services which the company is dealing is linked to the
economic development of the country. Our country is thriving to progress
further and aims to convert her as a developed nation. To attain this
objective, the development of all the core sectors like infrastructure, power,
construction, automobiles, consumer durables, etc. is essential and this in
turn is expected to augment the growth of the corporate sector of the country
as a whole.
As the economy is growing in a faster manner, the disposable income of the
people are also increasing and most of the population is brought under the
spectrum for spending for housing and white goods. Importantly, the
aspiration to own luxury goods is also seen increasing and this has resulted
in a revolution for consumer durables. The company is confident of
capitalizing all these factors and increasing its market presence across the
country.
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1.2 STATEMENT OF THE PROBLEM
Every business enterprise functions with a view to earn profits. Profits are
vital for a concern in order to sustain and ensure a long life. Working capital
is also required in order to run day to day activities .Here in this project an
attempt is made to evaluate the working capital of YCH group Pvt. ltd. The
project aims to find out the financial efficiency and weakness of the concern
and to draw inference about the present position of the company.
1.3 OBJECTIVES
1) To study the financial position of YCH Group Pvt. Ltd and to evaluate
the progress for a period of 4 years.
2) To know the financial efficiency and weakness of the concern.
3) To find out the liquidity position of the company.
1.4 RESERCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying how research is done scientifically.
The study is done through by colleting primary data and secondary data.
PRIMARY DATA
Primary data are those data which are directly collected or which are the
first hand data. Primary data’s are the reliable and accurate than any other
ones. Primary data can be collected by the interaction with the staffs,
employees and interviewing to the managers. Primary data were collected
by,
Direct interview with the department heads
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SECONDARY DATA
Secondary data are the data, which are early, collected by some ones. It is
obtained from various sources other than primary data. Secondary data consists of
catalogue, manuals, magazines, annual reports and Internets. It is sufficient for an
effective study. Secondary data were collected by.
Annual reports of YCH Group Pvt. Ltd
Periodicals, books, etc. published by the company
Internet website (www.ych.com )
1.5 SCOPE OF THE STUDY
The study basically aims to find out the financial performance of the YCH Group
Pvt ltd. Knowledge of the current financial position are vital for a company’s
future course of action. The study also looks at the feedbacks, which can be used
efficiently to improve the quality of the service and cost reduction activities. It
helps the organization to make decisions regarding the control of the debts and
creditors and also regarding the fund utilization of the firm.
1.6 LIMITATIONS OF THE STUDY
1. The effectiveness of the study depends on the correctness of the
information provided.
2. The study covers only a limited period of 4 years.
1.7 CHAPTERIZATION
This report is mainly divided into six chapters:
Chapter-1 Introduction
Chapter-2 Industry profile
Chapter- 3 Company profile
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Chapter-4 Theoretical frame work
Chapter-5 Data analysis and interpretation
Chapter-6 Findings, Conclusion and Suggestions
Bibliography
Appendix
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2.1 BIRTH OF LOGISTICS:
Logistics can be defined as providing the right type of products and/or services at
the right price, at right place, time and in the right condition. The birth of
Logistics can be traced back to ancient war times of Greek and Roman empires
when military officers titled as 'Logistikas' were assigned the duties of providing
services related to supply and distribution of resources. This was done to enable
the soldiers to move from their base position to a new forward position efficiently,
which could be a crucial factor in determining the outcome of wars. This also
involved inflicting damage to the supply locations of the enemy and safeguarding
one's own supply locations. Thus, this lead to the development of a system which
can be related to the current day system of logistics management.
The term "logistics" originates from the ancient Greek "λόγος" ("logos"—"ratio,
word calculation, reason, speech, oration"). The Oxford English dictionary defines
logistics as: “The branch of military science having to do with procuring,
maintaining and transporting material, personnel and facilities.”The American
Council of Logistics Management defines logistics as “the process of planning,
implementing and controlling the efficient and effective flow, and storage of
goods, services and related information from the point of origin to the point of
consumption for the purpose of conforming to customer requirements.”
Logistics, as a business concept, evolved only in the 1950s. This was mainly due
to the increasing complexity of supplying one's business with materials, and
shipping out products in an increasingly globalized supply chain, calling for
experts in the field who are called Supply Chain Logisticians.
Logistics has evolved itself as an art and science. However, it cannot be termed as
an exact science. Logistics does not follow a defined set of tables nor is it based
on skills inherited from birth. A logistics manager performs his duties and
responsibilities based on his educational experiences, skills, past experiences and
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intuition. These skills are nourished by a constant application of the same by him
for the betterment of his organization.
Chart no: 1-Logistics Historical Development
2.2 RECENT STUDY
A recent study defined logistics as: That part of the supply chain process that
plans, implements and controls the efficient flow and storage of goods, services
and related information from the point of origin to the point of consumption, in
order to met the customers’ requirements. Today's modern, efficient
warehouses/distribution centres are the heart of logistics, and provide control,
efficiency and velocity for goods moving through the system.
A bit broad, but the elements that make up the modern logistics
industry continue to evolve as the breadth of value added services
warehouse logistics providers offer does. This expansion has been accelerated by
three vital trends in the new economy:
The general trend toward outsourcing,
The previously unprecedented growth of e-commerce and
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DORMANT YEARS DEVELOMENT YEARS TAKE-OFF YEARS LOGISTIC ALLIANCE 3RD PARTY
LOGISTIC GLOBALISATION
LOGISTICS
1950s 1960 s 1970s 1980s 1990s 21ST CENTURY
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The importance of the partnership aspect of the manufacturer/marketer-
logistics provider relationship.
A recent study found that 95 percent of the U.S.’s chief executives believe they
should have some form of logistics strategy, and nearly 50 percent of the nation’s
CEOs are currently incorporating supply chain planning into their overall business
strategies.
One thing is certain: no matter how logistics is defined, the function accounts for
8.7 percent of the total U.S. Gross Domestic Product ($910 billion in 2002). It is
growing dramatically in terms not just of services provided and outsourced but in
terms of volume. The industry’s 3PL provider element (that most closely served
by IWLA) alone counts for more than $78 billion and is estimated to be growing
by 15-20 percent per year. Its benefits include:
Reduced need for personnel
Reduced transportation and distribution cost
Improved customer service
Improved cycle time
Free-up capital in manufacturers’ and marketers’ non-core areas.
2.3 LOGISTICAL MANAGEMENT FUNCTIONS
Logistics is the process of movement of goods across the supply chain of the
company. This process is consist of various functions, which have to be properly
managed to bring effectiveness efficiency in the supply chain of organization. The
major logistical function are:
1. ORDER PROCESSING:
The starting point of physical distribution activities is the processing of
customers’ orders. In order to provide quicker customer service, the orders
received from customers should be processed within the least possible time. Order
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processing includes receiving the order ,recording the order, filling the order, and
assembling all such orders for transportation, etc. the company and the customers
benefit when these steps are carried out quickly and accurately. The error
committed at this stage at times can prove to be very costly.
Order processing activity consists of the following:
Order checking in any deviations in agreed or negotiation term
Prices , payment and delivery terms
Checking the availability in of the material stock
Production and material scheduling for storage
Acknowledge the order, indicating deviation
2. WAREHOUSING:
Warehousing refers to the storing and assorting products in order to create time
utility. Generally, larger the number of warehouses firm has the lesser would be
the time taken in serving customers at different locations, but greater would be the
cost of warehousing. Thus, the firm has to strike a balance between the cost of
warehousing and the level of customer service.
Major decision in warehousing is as follow:
➢ Logistics of warehousing facility
➢ Number of warehousing
➢ Size of warehouse
➢ Design of the building
➢ Ownership of the warehouse
3. INVENTORY MANAGEMENT:
Linked to warehousing decisions are the inventory decisions which hold the key to
success of physical distribution especially where the inventory costs may be as
high 30-40 per cent(e.g., steel and automobiles). No wonder, therefore, that the
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new concept of Just-in-Time-Inventory decision is increasingly becoming popular
with a number of companies. A correct estimate of the demand helps to hold
proper inventory level and control the inventory costs. And it also maintain
production at a consistent level.
4. TRANSPORTATION:
Transportation seeks to move goods from points of production and sale to points
of consumption in the quantities required at times needed and at a reasonable cost.
The transportation system adds time and a place utility to the goods handled and
thus, increases their economic value. To achieve these goals, transportation
facilities must be adequate, regular, dependable and equitable in terms of costs
and benefits of the facilities and service provided.
5. INFORMATION:
The physical distribution managers continuously need up-to-date information
about inventory, transportation and warehousing. For example, in respect on
inventory, information about present stock position at each location, future
commitment and replenishment capabilities are constantly required. Similarly,
before choosing a 16 carrier, information about the availability of various modes
of transport, their costs, services and suitability for a particular product is needed.
About warehousing, information with respect to space utilization, work schedules,
unit load performance, etc., is required.
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Fig no: 1- Supply Chain Management
2.4 RELEVANCE OF LOGISTICS INTERNATIONAL MARKETING
Marketing experts have recognized that for developing a position of sustainable
competitive advantage, a major source is superior logistics performance. Thus, it
can be argued that instead of viewing distribution, marketing and manufacturing
as largely separate activities within the business, they need to be unified,
particularly at the strategic level. One might be tempted to describe such an
integrated approach to strategy and planning as ‘Marketing Logistics’. Business
can only compete and survive either by winning a cost advantage or by providing
superior value and benefit to the customer.
In recent years, numbers of companies have become aware that the market place
encompasses the world, not just the India .As a practical matter, marketing
managers finding that they need to do much work in terms of conceptualizing ,
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designing , and implementing logistics initiatives to market effective globally.
Following are the reasons behind the extension of logistics activities at global
level to do business internationally.
The magnitudes of global business are:
• Increase in the magnitude global business
• Business is relying on foreign countries to provide a source of raw materials and
market of finished goods
• Fall of global trade barriers.
• Increase in Global competition.
2.5 PROSPECTS OF GROWTH IN THE INDUSTRY
In years gone by, the traditional warehousing and logistics facility was located by
rail, road tracks, a sea port, and/or air ways, usually in the least desirable parts of
cities or large towns. This stereotype then faded as gigantic, state-of-the-art
facilities began to sprout in more rural areas on the outskirts of transportation and
population hubs. The World started beginning to see such facilities showing up in
even less "traditional" areas. Modern warehouses now are being located in
carefully manicured industrial parks that are sprouting as fast as the corn and
wheat once did in these open spaces-often in out-of-the-way places. Why the
emphasis on such locations for logistics companies?
Much of it is due to the great flux that the logistics industry has been undergoing
in the first three years of the 21st century. Most of these changes are being driven
by a growing trend in the manufacturing and retail sectors to form partnerships
with companies to which they can outsource non-core logistics competencies-3PL
providers.
In turn, 3PL providers are continually looking to provide innovative supply chain
solutions to customers by focusing on value-added capabilities, differentiating
themselves from the competition. They focus on key objectives, such as
implementing information technologies, instituting effective management
processes, integrating services and technologies globally, and delivering
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comprehensive solutions that create value for 3PL users and their supply chains.
This need to partner with customers and become more integrated into their supply
chain processes has created the ancillary need to locate close to these customers.
That isn't to say the need for easy access to transportation hubs and different
modes of transportation won't continue to be important. But the above shift in
business strategy, along with the advances in technology and enhanced
communication, has opened the door for logistics facilities to operate effortlessly
in a myriad of locations.
Profit warnings, share price pressures, mergers, reorganizations, relocations,
disposals, painful layoffs and great geopolitical uncertainties can sweep away
even the most comprehensive logistics strategies – and that’s despite outstanding
management over many years. These are exceptionally difficult times and it has
never been more important to connect logistics and freight planning to executive
board thinking than now. It’s easy to lose sight of the bigger picture in the rush to
cut infrastructure cost and conserve cash. Hopefully organization succeed in
protecting the business, satisfying shareholders and analysts, but what about
capacity and flexibility, morale and momentum?
To be a logistics winner in the coming years, organizations need to use the
downturn to reshape for growth, propelled by an unshakeable conviction that the
mission is still important, that more prosperous times lie ahead, and that in some
way the company infrastructure is helping to build a better kind of world.
Own passion for running the race matters most of all in a downturn, when people
are insecure, see only savage cost savings, and loyalty is tested. The corporation’s
future will be dominated by six factors, or faces of a cube, spelling F U T U R E.
Logistics is inevitable in the future and essentially the management policy also has
a significant role in the future of world. Generally the study is being featured with
all aspects of management in Logistics and Freight areas. (Logistics include
Transportation, Warehousing, Network Design, Cross docking, and Value
Adding).
2.6 SIZE OF THE LOGISTICS MARKET IN INDIA:
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Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size
and is the backbone of Indian Economy. Our industry is growing at a rate of 8-
10% annually and has been a crucial contributor in the growth and development of
the Indian economy. In the near future, Traditional Logistics services like
Transportation and Warehousing would continue to growth at a good rate.
However, the big ticket growth would come from the Value Added
Logistics services in the near future.
At present, Outsourced Logistics accounts for only one-third of the total Logistics
market in India, which is a significantly lower proportion vis-à-vis the developed
markets. Growth in this industry is currently being driven in India by over USD
300 billion worth of infrastructure investments, the phased introduction of VAT,
the development of organized Retail and Agro-processing industries, along with a
strong manufacturing growth. In addition, we expect strong Foreign Direct
Investment inflows in the Indian markets, which would lead to increased market
opportunities for providers of Third-Party Logistics in India.
Therefore, India possesses substantial opportunities for growth in the Supply
Chain &Logistics industry in the coming years, notwithstanding the temporary jolt
due to the economic slowdown.
THIRD PARTY LOGISTICS IN INDIA
Third party logistics (3PL) market in India is at its nascent stage.3PL is
fast gaining popularity in Indian logistics market.
Companies in textile , automotive ,pharmaceutical, manufacturing , retail
and FMCG sectors are increasingly opting to outsource their logistics
requirements to specialized service providers
According to the recent survey of 3 PL service providers Engineering,
Automotive And Retail sectors are the top revenue earners
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3PL MARKET COMPRISES OF TWO SEGMENTS:
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Chart no: 2
Segments of 3pl market
20052008
2012
0.00%
5.00%
10.00%
15.00%
20.00%
5%10%
18%Column2
Graph no: 1
SHARE OF 3PL FIRMS IN LOGISTIC INDUSTRY
2.7 SWOT ANALYSIS OF LOGISTICS
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ASSET BASED NON-ASSET BASED
Own some of the assets used in the SCM which includes trucks, distribution centre and warehouses
Does not own such assets.
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STRENGTH:
Quick way to re-engineer distribution networks
Enhanced distribution and transportation Service
Time Saving in servicing customer
Flexibility in restructuring distribution networks and expansion plans
Economies of scale in distribution
WEAKNESS:
Lesser control over outsourced third party activities.
Lack of proper set of skilled man power
Forged bills and claims by 3PL provider agency.
Difficult to switch 3PL provider agency.
Lesser co-ordination between branch offices and 3PL agency
OPPORTUNITIES:
Better utilization of working capital
Fast expansion of principal’s business without investing in infrastructure
and transportation resources
Cost optimization as a result of fast and efficient processes
Concentration on core competencies
THREATS:
Value Added Tax (VAT) might affect 3PL industry as distribution
channels would be trimmed.
Poor transportation infrastructure of India might lower the profit margin
E-Commerce is emerging as a primary threat to 3PL industry.
Threat of leakage of operational competencies to competitors.
2.8 COMPANIES INVOLVED IN 3PL LOGISTICS
DHL
FEDERAL EXPRESS
VRL LOGISTICS
HI-TECH LOGISTICS(HTL)
3.1 INTRODUCTION TO COMPANY PROFILE
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YCH group is the leading integrated end to end supply chain management and
logistic partner to some of the world’s largest companies in the hi-tech electronics,
chemicals / health care and consumer goods industries.
Business is to provide integrated logistics services such as warehousing and
inventory management, transportation and distribution management, and freight
management.
It provide end to end supply chain management services through a suite of supply
chain solutions to manage the 3 key logistics processes within a supply chain ,
mainly raw materials
Management, consumer goods distribution and service and return management
YCH operations are spanning throughout Asia Pacific, Including Singapore,
Malaysia, Thailand, Indonesia, China, Taiwan, Hong Kong, Australia, India,
Vietnam, and Korea.
3.2 HISTORY OF YCH LOGISTICS PVT.LTD
Founded in 1955, YCH Group is the leading integrated end-to-end supply chain
management and logistics partner to some of the world's largest companies in the
hi-tech/electronics, chemicals/healthcare and consumer goods industries. Our
business is to provide integrated logistics services such as warehousing and
inventory management, transportation and distribution management, and freight
management services. We also provide global end-to-end supply chain
management services through a suite of supply chain solutions to manage the 3
key logistics processes within a supply chain, namely raw materials management,
consumer goods distribution and service and returns management.
MILESTONES
EARLY YEARS 1955-1970s
We were established in 1955 as a small local passenger transportation business
under the name of Yap Chwee Hock Transport and General Contractors ("YCH
Transport"). In 1973, YCH Transport was converted from a sole proprietorship to
a private limited enterprise and was renamed Yap Chwee Hock Transport Pte Ltd,
which is today known as YCH Global Logistics Pte Ltd.
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1977-1990s
In 1977, we undertook a strategic decision to redirect our passenger transportation
business to cargo transportation and in the following year, became one of the
major cargo transport contractors for the then Port of Singapore Authority. In the
early 1980s, we diversified into the business of warehouse leasing and the
provision of freight forwarding services via the acquisitions of Freight
Connections Worldwide Pte Ltd and Regional Forwarding & Warehousing
Management Pte Ltd ("RFWM") in 1982 and 1983 respectively. RFWM was
incorporated in Singapore on 6 October 1980 as a private exempt limited company
and was renamed YCH Logistics Pte Ltd on 17 March 1989. In 1999, YCH
Logistics Pte Ltd was renamed YCH Group Pte Ltd and presently serves as our
holding company.
In the mid-1980s, we grew from a warehousing and cargo transportation provider
to an integrated third party logistics company providing services such as
warehousing, distribution inventory management and freight management. In line
with the growth of our business, we established a number of distribution centres to
manage the warehousing and regional distribution for MNC clients in 1991. We
developed and completed our present headquarters, known as YCH Distri Park, in
1992. The establishment of YCH Malaysia in 1991 marked our first foray
overseas.
In 1993, we set up PDC-YCH Distri Park, a 51% owned joint venture with Penang
Development Corporation, to operate a distribution hub in Penang. This joint
venture in Penang is fully operated and managed by YCH. In 1993, we also
opened the Roche Distribution Centre in Singapore to manage the logistics needs
of Roche. In 1994, we expanded into China and set up operations in Shanghai to
operate a distribution hub by way of a 51% owned joint venture with Shanghai
Wai Gao Qiao Free Trade Zone United Development Co and China Ocean
Shipping Agency Shanghai. This joint venture in Shanghai is fully operated and
managed by YCH.
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1995 Onwards
In 1995, we made an investment to build an automated storage and retrieval
system warehouse in Singapore. In 1997, we commenced operations in Hong
Kong through the establishment of YCH HONG KONG.
With the growing trend of logistics outsourcing and the increasingly complex
requirements of our clients, we further expanded our services to include the
provision of supply chain management services through a suite of supply chain
solutions, namely Intribution™ (raw materials management to support
manufacturing) in 1996, Retrogistics™ (service and returns management) in 1998
and Intrabution™ (consumer goods distribution) in 2000.
In 1996, we were awarded an Innovation Development Award under EDB's
Innovation Development Scheme, for the development of the Intribution™
solution. We were appointed by Compaq Asia to implement our Intribution™
solution to service its Asia-Pacific manufacturing operations in the same year.
Today, we have implemented the Intribution™ solution for our various clients,
such as Natsteel Electronics in Singapore and Mexico, Motorola in Singapore and
China, Gateway in Malaysia, MiTac in Taiwan and Solectron in Mexico.
In 1999, YCH Logistics Pte Ltd was renamed YCH Group Pte Ltd and presently
serves as our holding company.
3.3 PHILOSOPHY
Our Philosophy
YCH is founded on a philosophy that thrives on overcoming challenges. This is
embodied in the corporate philosophy using the Chinese Character – (Sheng)
meaning to RISE. The acronym of the word RISE was adopted as the company’s
corporate values, focusing on the level of service and confidence we provide to
our client.
Reliability Our proven Reliability to perform our best is the company’s
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assurance of professionalism.
Integrity We strive to deliver an uncompromising commitment to Integrity in
all business activities.
Sincerity Our Sincerity is demonstrated through the genuine care and interest
we place on the welfare of our clients and staff.
Enterpris
e
Our dynamism and innovative spirit of Enterprise, in meeting new
challenges, is a true reflection of our Vibrancies, Energy, Strength
and Passion to achieve our corporate goals.
3.4MISSION
Our Mission to Be The No. 1 Supply Chain Solutions Player in Asia Pacific.
3.5VISION
“Our Vision to Build THE Logistics Superhighway in a Borderless World
represents our passion in creating the ultimate superhighway of optimal efficiency
& speed. THE Logistics Superhighway will enable the Physical, Informational,
and Financial flows of the supply chain to flow seamlessly throughout a
borderless world”.
3.6 YCH BRAND STORY
Over the years, the YCH brand has come to represent reliability and integrity. As
the company evolved, so did our brand identity.
In 1955, our logo brings memories to YCH's humble beginnings - from a
transportation company to today's leading supply chain solutions provider.
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The need for YCH to keep up with the increasing pace of globalisation dictated by
technological advances instilled our need to reinvent our corporate identity.
Hence, in 1999, the company updated the logo to give it a more modern look for
the times. The YCH logo embodied a new dynamism. A robust spirit that has
evolved from a corporate philosophy of rising to the challenges in exceeding
customer expectations, in a demanding, ever-changing world. The symmetry of
each letter rendered in twin lines headed in the same direction suggests a
commitment to building strong partnerships.
The current YCH brand identity was introduced in October 2005, on YCH’s 50th
Anniversary. Research from our branding exercise indicated that the brand
audience associated YCH’s brand essence with the characteristic font type and the
colour yellow.
The new YCH logo encapsulates the company’s vision, energy, and dynamism. It
personifies YCH Group’s forward-looking spirit and also signifies strong
partnerships, in a journey on the Logistics Superhighway.
“YCH” is embedded right in the heart of “supply chain” and is the key to
connecting global businesses, empowering through a connected supply chain
The company had gone through three eras of change and had emerged a more
vibrant, dynamic leading-edge company than ever before. The new logo embraced
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the strengths of the previous logo - the twin lines and the familiar yellow
corporate colour. YCH is now better represented in this new visually dynamic
context and ready to move towards new horizons in this borderless world.
3.7 Consumers of YCH Group Pvt. Ltd.
CONSUMER GOODS INDUSTRY
Unilever
Mary Kay
CHEMICALS / HEALTH CARE
BASF (Badische Anilin- und Soda-Fabrik)
Hunts Man
ELECTRONICS
Dell
Motorola
Samsung
LG
3.8 SOLUTIONS AND SERVICES
Our award-winning end-to-end supply chain solutions, namely Intribution,
Intrabution and Retrogistics, address the entire supply chain needs of our clients,
from suppliers to manufacturers (for parts and components), from manufacturers
and brand owners to resellers and consumers (for finished products), and from
consumers to original equipment manufacturers (for spares and returns),
respectively.
These solutions allows us to provide more holistic supply chain management
services to our clients from supply chain consulting, design, solutioning, through
to the delivery of integrated logistics services such as warehousing, freight
forwarding and transportation. All these are integrated through cutting edge
technology applications and the management of the information supply chain or
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electronic transfer of information, either via the EDI, API, web services and so on.
The implementation of our supply chain solutions for our clients involves:
(1) The setting up of physical inventory management facilities such as supplier
and distribution hubs,
(2) The setting up of system interfaces between YCH and our customers'
operations and computer systems and
(3) The customisation of our clients' supply chain networks processes with
regards to the flow of inventory and information
Chart no: 4
End To End Supply Chain Management Solutions
As depicted in the diagram above, the entire supply chain can be broken into
3 key stages, involving interactions between:
Suppliers and manufacturers, where raw materials are aggregated to
support the manufacturing process;
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GLOBAL SUPPLIERS
RETROGISTICS
(SERVICE &RETURNS LOGISTICS)
LO
CONSUMERS
INTRABUTION
(CONSUMER GOODS FULFILMENT)
MANUFACTURERS
INTRIBUTION
MANUFACTURING LOGISTICS
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Manufacturers and end consumers, where finished consumer goods are
distributed directly to the end consumer or indirectly via various
distribution channels such as distributors, wholesalers and retailers; and
End consumers and manufacturers, where defective goods are returned to
the manufacturer or appointed returns centre for service and repair.
In addition to the physical movement of goods, each of these interactions also
involves the exchange of information between parties in the supply chain The
supply chain management also involves the co-ordination and integration of
various functions such as procurement, manufacturing planning, distribution
and marketing.
INTRIBUTION
Manufacturing Logistics Solutions:
Managing the flow of your raw materials information and financial transactions
has never been smoother than with Intribution , a web enabled manufacturing
logistics solutions .Intribution ensure that the manufacturer’s needs are met
throughout the manufacturing process in a cost and time efficient manner.
Vendor Managed Inventory/Suppliers Owned Inventory:
As we know how everything connects, we can help you to nimble in your
business. It is done by orchestrating the movements of your inventories on a
Just - In - Time basis to support built to order (BTO) and configured to order
(CTO) manufacturing .under the SOI model, we enable the transfer of materials
ownership from suppliers to manufacturers only upon manufacturing pull.
Materials Hub Management:
Inventory from anywhere in the world is carefully housed in these hubs until such
time that they are needed to be delivered in a just- in time basis to the production
floor. Our mini-max replenishment capability ensures that inventory can be
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replenished or adjusted based on the needs of manufacturer, minimizing inventory
obsolescence.
Virtual Hub:
It allows virtual sourcing of raw materials based on optimised requirements to
feed to global manufacturing plants, enabling manufacturers and brand owners to
Buy Anywhere, Make Anywhere, Sell Anywhere.
INTRABUTION
Customer Goods Fulfilment
The internet generation has produced a new breed of consumers with sophisticated
demands. Getting finished goods to them as quickly as their tastes evolve becomes
a priority. And this we take very seriously with Intrabution a solution that bridges
the complexities in distributing finished products to retailers and final consumers.
Order Fulfilment
Order management and fulfilment takes on a new approach with Intrabution,
streamlining it to a distinct advantage for brand owners and manufacturers.
Harnessing the power of internet and cutting-edge technologies as well as the
traditional means of phone and fax, Intrabution synchronises the order fulfilment
process for ease of use. With the Intrabution hubs that pick, pack and deliver
according to order specifications, providing real-time delivery and inventory
status visibility, we are very swiftly able to fulfil your commitments to your
customers.
RETROGISTICS
Service and Return Logistics:
Service does not stop at the shop floor. It means following up with your clients’
needs even after the point of sale. To help you and your clients,
Retrogistics efficiently manages the service and returns logistics when your
products require after-sales parts replacement, warranty returns and servicing. In a
nutshell, we become a critical part of your after-sales service, helping you create
brand loyalty among your consumers.
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Spares and Returns Management:
YCH even look into the nuts and bolts of operating a spare and returns policy.
They receive and pick up defective products from the end users. Without skipping
a beat, they ensure parts and components inventory management, auto
replenishment and spare parts delivery to facilitate on site after sales service.
3.9 SERVICES
Freight Management
Warehousing
Transportation
Freight management : There freight management service includes managing
clients' freight requirements and activities, including the booking and scheduling
of freight activities and the preparation and coordination of the necessary
documentation. They have established a network of overseas air and sea freight
agents to provide on time deliveries to Europe, the Americas and Asia.
Y-Track their web-based global track and trace system, is incorporated to our
freight management services to provide their customers with end-to-end visibility
in tracking shipments via the Internet.
The YCH Freight Connector provides user an access to the simplest shipment
booking system with competitive rates from multiple Carriers/Agents.
The Freight Connector is an interactive multi-modal, internet-based supply chain
management tool that allows customers to create shipment bookings over the
internet. This system allows the shipper to make, search, and edit bookings,
irrespective of time, day, and location, all over the Internet.
With the Freight Connector online Shipment Tracking system user can track the
status as well as the history of your shipments from the job level down to the
individual SKU level anywhere in the world. The system allows the user to search
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by their Booking references, the Forwarders reference, House and Master Air
Waybill numbers, Bill of Lading numbers, Container/Trailer numbers, Purchase
Order Numbers or the date ranges.
Transportation: They have developed an extensive and comprehensive network
of transportation fleets, providing container trucking services and local cargo
delivery services such as the collection and transportation of our clients' goods
from a designated pick-up point to a designated drop-off point.
YCH transportation and distribution management services also include the
delivery of our clients' inventory which are managed by us and stored in our
warehouses to designated locations.
Warehousing:
YCH provide warehousing and inventory management services such as the
provision of warehouse space, the stocking and tracking of inventory, and other
ancillary services such as the stuffing and unstuffing of cargo, handling,
packaging and labelling.
Their headquarters at YCH Distri park, Singapore is situated on a 7.8 hectare land
in Tuas.The facilities located within YCH Distri Park include Air-Conditioned
Warehouses, Cold and Clean Room, Temperature-controlled warehouses, Very
Narrow Aisles and Automated Storage and Retrieval Systems warehouses to
maximise use of space and improve operational efficiency.
They also have specialized Chem Parks which manage Dangerous & Hazardous
Cargo, with stringent safety systems, such as spillage containment tanks, Strong
Rooms, and so on. All their hubs and facilities have 24-hr security with CCTVs
and Motion Detectors and also comply with industry specific standards and
classifications such as TAPA, Responsible Care, etc.
3.10 EVENTS
YCH (Tianjin) donates to Quake Victims.
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YCH (India) organizes Blood Donation Camp in association with Lions
Club of India.
YCH (Thailand) launches Voices of Customer Survey
3.11 AWARDS
YCH was awarded with ‘Best IT/Electronic Logistics Service
Provider’ (Singapore).
YCH bagged frost and Sullivan ‘Best Domestic Logistic Service
Provider’ (Singapore).
YCH bags ‘SBA ENTERPRISE’ of the year award.
YCH wins the prestigious ‘CIO 100’ award for the year 2010.
YCH has been honoured with the Singapore Chemical Industry
Council’s (SCIC) Responsible Care achievement award for Employee
Health and Safety Code in 2010.
4.1 INTRODUCTION
Business as we know is concerned with the financial activities. In order to
ascertain the financial status of the business every enterprise prepares certain
statements, known as the financial statements. Financial statements refer to two
statements which are prepared by a business concern at the end of the year.
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These are (i) Income Statement Or Trading And Profit And Loss Account
which is prepared by a business concern in order to know the profit earned and
loss sustained during a specified period; (ii) Position Statement Or Balance
Sheet which is prepared by a business concern on a particular date in order to
know its financial position.
1) Income statement: Trading concerns, whose financial activities are
restricted to purchases and sales of goods prepare trading and Profit
and Loss Account. The trading and Profit and Loss Account in order to
ascertain their net income/net loss. Manufacturing concern require
information regarding the cost of production also, so they prepare one
more additional Account, known as the manufacturing Account. In
case of Joint Stock Companies profit and loss appropriation is also
prepared to show the disposal of profit earned by the company. It
furnishes the information regarding purchases, sales, direct expenses,
gross profit or gross loss and net profit and net loss
2) Position statement: it is a mirror which reflects the true position of the
assets and liabilities of the business on a particular date. Assets include
all current and non-current assets and the liabilities include creditors
equities and proprietors’ equities. It is traditionally known as the
balance sheet.
4.2 FINANCIAL ANALYSIS
Financial analysis is the systematic numerical calculation of the relationship of
one financial fact with the other to measure the profitability, operational
efficiency, solvency and the growth potential of the business. The analysis
serves the interests of shareholders, debenture-holders, potential investors,
creditors, bankers, journalists, legislators, politicians, researchers, stock
exchanges, taxations authorities and economists. The analysis of financial
statements makes it simple, intelligible, and meaningful for all concerned
parties. Financial statements are split into simple statements by the process of
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rearranging, regrouping and calculations of various ratios. The analysis
simplifies, summarizes and systematizes the monotonous figures.
Financial analysis in this way is the purposeful and systematic presentation of
financial statements. Various items of income and position statements are
compared and their inter relationship is established.
According to Kennedy and Memullar “ The analysis and interpretation of
financial statements are an attempt to determine the significance and
meaning of financial statements data, so that a forecast may be made of the
prospects for future earning, ability to pay interest and debt maturities( both
current and long term) and profitability of sound dividend policy.”
To these statements added are the statement of retained earnings and some
other statements (as fund flow statement, cash flow statement, etc.) and
schedules of fixed assets (as investments, current assets etc) to give a full view
of the financial affairs. All these statements are collectively called as a package
of financial statements. Statement of retained earnings (when prepared
separately) or profit and loss appropriation Account shows the utilization of
profits of the company i.e., dividend declared, amount transferred to general
reserve or any other reserve are shown in this Account. Funds flow statement
summarizes the changes in working capital in a specified period and indicates
the various sources and applications of funds. Cash flow statement gives the
various items of inflow and outflow of cash. Various schedules of fixed assets
are prepared by companies to show as to how the figures shown in the balance
sheet have been arrived at.
4.3 NATURE OF FINANCIAL STATEMENTS
Financial statements are prepared for the purpose of presenting a periodical
review or report by the management and deal with the state of investment in
business and result achieved and best result achieved during the period under
review. They reflect a combination of recorded facts, Accounting conventions
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and personal judgments’. From this it is clear that financial statements are
affected by three things i.e., recorded facts, conventions and personal
judgments’. Only those facts which are recorded in the business books will be
reflected in the financial statements. For example, fixed assets are recorded in
the books at cost price and shown in the balance sheet cost price irrespective of
their market or realizable price. Again, financial statements are prepared by
following certain principles which are in use from a long time. Such
convention will not reflect the true position of the business as the actual
position of the business will definitely be better as compared to the position
depicted from the financial statements. Personal judgment of the Accountant
again will reflect the preparation of financial statements. For an example, the
choice of the method of depreciation or which expenditure is to be capitalized
or not will affect the preparation of the financial statements.
Following points truly reflect the nature of financial statements of business
entities:
These are reports or summarized reviews about the performance,
achievements and weaknesses of the business.
These are prepared at the end of the Accounting period so that various
parties may take decisions of their future actions in respect of the
relationship with the business.
The reliability of financial statements depends on the reliability of
Accounting data
The figures in the financial statements are a combination of recorded
facts
These statements are prepared as per Accounting concepts and
conventions
These statements are influenced by the personal judgement of the
Accountant though he is expected to be more objective in his approach.
These judgements may relate to the valuation of inventory, depreciation
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of fixed assets and while making distinction between capital and
revenue.
Significance/ purpose
1) Judging the operational efficiency of the business: It is very
significant that the company must know the operational efficiency of
its management. We analyze the financial, match the amount of
manufacturing, selling, distribution and financial expenses of the
current year with the corresponding expenses of the previous year and
assess the managerial efficiency of the business. We can judge the
operational efficiency of the business by calculating the profitability
ratios.
2) Measuring short term and long term financial position: The
business must know its financial soundness. It should satisfy itself that
its current resources are sufficient to meet its current liabilities. We can
calculate current and liquid ratios for comparing current assets and
current liabilities to ascertain short term financial soundness. Long
term and financial position can be measured by calculating debt equity,
proprietary d fixed asset ratios. The results of the financial analysis
may be studied and corrective steps can be taken, if necessary.
3) Indicating the trend of achievements: Financial statements of the
previous years can be compared and the trend regarding various
expenses, purchases, sales, gross profit and net profit can be
ascertained, cost of goods sold, values of assets and liabilities can be
compared and the future prospects of the business can be indicated.
4) Assessing the growth potential of the business: The trend and
dynamic analysis of the business provides us sufficient information
indicating the growth potential of the business. If the trend predicts
gloomy picture, effective measures can be applied as remedial
(corrective) measures. If the cost of production is rising without
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corresponding increase in sales price, efforts should be made to reduce
cost of production.
5) Measuring the profitability: Financial statements show the gross
profit, net profit and other expenses. The relationship of these items
can be established with sales. Gross profit, net profit expenses and
operating ratios may be calculated and the profitability of the business
ascertained.
6) Intra-firm and inter firm comparison of the firm: Analysis of
financial statements can be made with the previous years’ performance
of the same firm and also with the performance of other firms. Intra-
firm analysis provides an opportunity to self appraisal, whereas inter-
firm analysis presents the operational efficiency of the firm as
compared to other firms. Comparison helps us in detecting our
weaknesses and applying corrective measures.
7) Forecasting, budgeting and deciding future line of action: The
analysis provides sufficient information regarding the profitability,
performance and financial soundness of the business on the basis of
these information’s, we can make effective forecasting budgeting and
planning.
8) Simplified, systematic and intelligible presentation of the facts:
Analysis of financial statements is an effective tool for simplifying,
systematizing and summarizing the monotonous figures. An average
person can draw conclusion from these ratios. The facts can be made
more attractive by graphs and diagrams, which can be easily
understood
4.4 PARTIES INTERESTED IN THE FINANCIAL ANALYSIS
1) Owners: The owners provide funds for the operations of a business
and they want to know whether their funds are being properly utilized
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or not. The financial statements prepared from time to time to satisfy
their curiosity.
2) Creditors: They want to know the financial position of a concern
before giving loans or granting credit. The financial statements help
them in judging such position.
3) Potential Investors: Prospective investors, who want to invest money
in a firm, would like to make an analysis of the financial statements of
that firm to know how safe proposed investment will be.
4) Employees: Employees are interested in the financial position of a
concern they serve, particularly when payment of bonus depends upon
the size of the profits earned.
5) Government: Central and State governments are interested in the
financial statements because they reflect the earnings for a particular
period for purposes of taxation. Moreover, these financial statements
are used for compiling statistics concerning statistics concerning
business which, in turn, help in compiling national Accounts
6) Research scholars: The financial statements, being a mirror of the
financial position of a firm, are of immense value to the research
scholar who wants to make a study into financial operations of a
particular firm.
7) Consumers: Consumers are interested in the establishment of good
Accounting control so that cost of production may be reduced with the
resultant reduction of the prices of goods they buy.
8) Managers: actual results achieved by the employees can be measured
against the budgeted performance they were expected to achieve and
the remedial action can be taken if the performance is not upto the
mark. Accounting information is very helpful to the management for
planning, control, evaluation of performance and decision making.
4.5 LIMITATIONS OF FINANCIAL STATEMENT
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1) Interim and not final reports: financial statements do not depict the
exact position and are essentially interim reports. The exact position
can be only known if the business is closed.
2) Lack of precision and definiteness: financial statements may not be
realistic because these are prepared by following certain basic concepts
and conventions. For example, going concern concept gives us an idea
that the business will continue and assets are to be recorded at cost but
the book value at which the asset is shown may not be actually
realisable. Similarly, by following the principle of conservatism the
financial statements will not reflect the true position of the business.
3) Lack of objective judgement: financial statements are influenced by
the personal judgement of the Accountant. He may select any method
for depreciation, valuation of stock, amortization of fixed assets and
treatment of deferred revenue expenditure. Such judgement if based on
the integrity and competency of the Accountant will definitely affect
the preparation of the financial statements.
4) Record only monetary facts: financial statements record only
monetary facts, i.e., those transactions are recorded in the books of
Accounts which can be measured in monetary terms. Those
transactions which cannot be measured in monetary terms such as,
conflict between production manager and marketing manager may be
very important for a business concern but not recorded in the books of
Accounts.
5) Historical in nature: These statements are drawn after the actual
happening of the events. They attempt to present a view of the past
performance and have nothing to do with the Accounting for the future.
Modern management is forward looking but these statements do not
directly help them in making future estimates and taking decisions for
the future.
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6) Artificial view: These statements do not give a real and correct report
about the worth of the assets and their loss of value as these are shown
on historical cost basis. Thus, these statements provide artificial view
as market or replacement value and effect of the changes in the price
level are completely ignored.
7) Scope of manipulations: these statements are sometimes prepared
according to the needs of the situation or the whims of the
management. A highly efficient concern may conceal its real
profitability by disclosing loss or minimum profit whereas an
inefficient concern may declare dividend by wrongly showing profit in
Profit and Loss Account. Window dressing may also be resorted to in
order to show better financial position of a concern than its real
position.
8) Inadequate information: There are many parties who are interested in
the information given in the financial statements but their objectives
and requirements differ. The financial statements as prepared under the
provisions of the companies act, 1956, fail to meet the needs of all.
These are mainly prepared to safeguard the interests of the
shareholders.
9) Ignores price level changes: The results shown by financial
statements may be misleading, if price level changes have not been
accounted for. The ratio may improve with the increase in price,
whereas the actual efficiency may not improve. Ratios of the two years
will not be meaningful for comparison, if the prices of commodities are
different. Change in price effects, cost of production, sales and values
of assets and as a consequence comparability of ratios also suffers.
10) Financial analysis spots the symptoms but does not arrive at
diagnosis: Financial analysis shows the trend of the affairs of the
business. It may spot symptoms of financial unsoundness and
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operational inefficiency but that cannot be accepted. A final decision in
this regard will require further investigation and thorough diagnosis.
11) Financial analysis is only a tool, not the final remedy: Analysis of
statement is a tool to measure the profitability, efficiency and the
financial soundness of the business. It should be noted that personal
judgement of the analyst is more important in financial analysis. We
should not rely on single ratio. Before reaching any conclusion, we
should calculate several ratios. Accountant should not be biased in the
calculation of ratios. It should not be calculated to prove the personal
contention.
3.6 MEANING OF ANALYSIS OF FINANCIAL
STATEMENTS
“Financial statements analysis is largely a study of relationship among
various financial factors in a business as disclosed by single set of
statements and a study of the trend of these factors as shown in a series of
statements”
MYER
Analysis is the process of critically examining in detail Accounting information
given in the financial statements. For the purpose of analysis, individual items
are studied; their interrelationships with other related figures established, the
data sometimes rearranged to have better understanding of the information with
the help of different techniques or tools for the purpose. Analyzing financial
statements is a process of evaluating relationship between component parts of
financial statements to obtain better understanding of firm’s position and
performance. The analysis of financial statements thus refers to the treatment
of the information contained in the financial statements in a way so as to afford
a full diagnosis of the profitability and financial position of the firm concerned.
For this purpose financial statements are classified methodically, analysed and
compare with the figures of previous years or other similar firms.
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Meaning of Interpretation
Analysis and interpretation are closely related. Interpretation is not
possible without analysis and without interpretation analysis has no value.
Various Account balances that appear in the financial statements do not
represent homogeneous data so it is difficult to interpret and draw conclusion.
This requires an analysis of the data in the financial statements so as to bring
some homogeneity to the figures shown in the financial statements.
Interpretation is thus drawing inference and stating what the figures in
the financial statements really mean. Interpretation is dependent on interpreter
itself. Interpreter must have experience, understanding and intelligence to draw
correct conclusions from the analyzed data.
4.7 OBJECTIVES OF FINANCIAL STATEMENTS
The main objective of analysis of financial statements is to assess:
The present and future earning capacity or profitability of the concern,
The operational efficiency of the concern as whole and of its various
parts of the departments,
The short term and long term solvency of the concern for the benefit of
the debenture holders and trade creditors,
The comparative study in regard to one firm or one department with
another department,
The possibility of developments in the future by making forecasts and
preparing budgets,
The financial stability of a business concern,
The real meaning and significance of financial data, and
The long term liquidity of its funds
4.8 TYPES OF FINANCIAL STATEMENTS
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Different type of financial statements can be made on the basis of
1) Nature of the analyst and the materials used
2) The objective of the analysis
3) The modus operandi of the analysis
These are discussed in detail below:
1) According to the nature of the analyst and the material used by him
External analysis
It is made by those persons who are not connected with the enterprise. They do
not access to the enterprise. They do not have access to the detailed record of
the company and have to depend mostly on published statements. Such type of
analysis is made by the investors, credit agencies, governmental agencies and
research agencies.
Internal analysis
The internal analysis is made by those persons who have access to the books of
Accounts. They are members of the organisation. Analysis of financial
statements or other financial data for managerial purpose in the internal type of
analysis. The internal analyst can give more reliable result than the external
because every type of information is at his disposal.
2) According to the objective of the analysis
Long term analysis
This analysis is made in order to study the long term financial stability,
solvency, liquidity and profitability as well as the earning capacity of a
business concern. The purpose of making such type of analysis is to know
whether in the long-run the concern will be able to earn a minimum amount
which will be sufficient to maintain a reasonable rate of return on the
investment so as to provide the funds required for modernization, growth and
development of the business and to meet its costs of capital. This type of
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analysis helps the long term financial planning which is essential for the
continued success of a business.
Short term analysis
This is made to determine the short term solvency, stability and liquidity as
well as earning capacity of the business. The purpose of this analysis is to
know whether in the short run a business concern will have adequate funds
readily available to meet its short-term requirements and sufficient borrowing
capacity to meet contingencies in the near future. This analysis is made with
reference to items of current assets and current liabilities (working capital
analysis) to have fairly sufficient knowledge about the company’s current
position which may be helpful for short term financial planning and long-term
planning.
3) According to the modus operandi of the analysis
Horizontal (or dynamic) analysis
This analysis is made to review and analyze financial statements of a number
of years and therefore based on financial data taken from several years. This is
very useful for long-term trend analysis and planning. Comparative financial
statement is an example of this type of analysis.
Vertical (or static) analysis
This analysis is made to review and analyse the financial statements of one
particular year only. Ratio analysis of the financial year relating to a particular
Accounting year is an example of this type of analysis.
4.9 TOOLS USED FOR THE ANALYSIS OF FINANCIAL
STATEMENTS
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Chart No: 5
Tools of Financial analysis
1) Comparative financial statements
2) Common size statements
3) Trend analysis
4) Funds flow statement
5) Cash flow statement
6) Cost profit volume analysis
7) Ratio analysis
COMPARATIVE FINANCIAL STATEMENTS
In the words of FLAUKE “Comparative analysis is the study of trend of the
same items and computed from two or more financial statements of the same
business enterprise on different dates.”
The comparative financial statements are statements of the financial position at
different periods of time. The elements of financial position are shown in a
comparative form so as to give an idea of financial position at two or more
periods. Any statement prepared in a comparative form will be covered in
comparative statements.
The two comparative statements are
1) Comparative balance sheet
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Financial Analysis
Techniques
Comparative Financial
Statements
Common-size
Financial Statements
Trend Percentages
Fund Flow Analysis Cash Flow
Analysis
CVP Analysis
Ratio Analysis
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2) Comparative income statement
Comparative balance sheet
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 balance sheets of the
same business enterprise on different dates. The changes in periodic balance sheet
items reflect the conduct of the business. The changes can be observed by
comparison of the balance sheet at the beginning and at the end of a period and
these changes can help in forming an opinion about the progress of an enterprise.
Comparative income statement
The income statement gives the result of the operations of a business. The
comparative income statement gives an idea of the progress of a business over
a period of time. The changes in absolute data in money values and percentages
can be determined to analyze the profitability of the business.
COMMON SIZE STATEMENT
The common size statements, balance sheet and income statement, are shown
as analytical percentages.
The common size statements may be prepared in the following way:
1. The total assets or liabilities are taken as 100
2. The individual assets are expressed as a percentage of total assets,
i.e., 100 and different liabilities are calculated in relation to total
liabilities.
Common size balance sheet
A statement in which balance sheet items are expressed as the ratio
of each asset to total assets and in the ratio of each liability is
expressed as a ratio of each asset to total liabilities is called
common size balance sheet.
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Common size income statement
The items in income statement are shown as percentages of sales to
show the relation of each item to sales. This relationship is helpful in
evaluating operational activities of the enterprise.
TREND ANALYSIS
Trend analysis refers to the comparison of past data over a period of time
with that of a base year. Under this method, percentage relationship that each
statement item bears to the same item in the base year is calculated. Any year i.e.,
earliest year involved in comparison, or the latest year, or any intervening year,
may be taken as the base year. As the purpose of this analysis is to highlight some
important changes, the trend calculated only for some important items that can be
connected with each other. The concerned item in the base year is taken to be
equal to as 100 and then based on this, trend percentage for the corresponding
items in other years are calculated. This method is a horizontal type of analysis of
financial statements. The trend percentages are shown in comparative financial
statements.
Trend analysis is a useful tool for the management since it reduces large
amount of absolute data in to a simple and easily readable form. By looking at the
trend in a particular ratio one can see whether the ratio is increasing or decreasing
or remaining constant. From this a problem is unearthed and good management is
observed.
While calculating trend percentage, care should be taken regarding the following
matters:
The accounting principles and practices followed should be constant
throughout the period for which analysis is made. In the absence of such
consistency, the comparability will be adversely affected.
The base year should be carefully selected. It should be a normal year and
be representative of the items shown in the statement.
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Trend percentage should be calculated only for items having logical
relationship with one another.
RATIO ANALYSIS
Systematized, simplified and summarized presentation of the
information from financial statements in the form of ratios is termed as ratio
analysis. A ratio is a simple arithmetical expression of the relationship of one
number to another. It may be defined as the indicated quotient of two
mathematical expressions. However, ratio analysis is not an end in itself. It is
only a means of better understanding of financial strengths and weaknesses of a
firm. Calculation of mere ratios does not serve any purpose, unless several
appropriate ratios are analysed and interpreted. 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 keeping in mind the objective of analysis.
The following are the four steps involved in the ratio analysis:
1) Selection of relevant data from the financial statements depending upon
the objective of the analysis.
2) Calculation of appropriate ratios from the above data.
3) Comparison of the calculated ratios with the ratios of the same firm in
the past, or the ratios developed from projected financial statements or
the ratios of some other firms or the comparison with the ratios of the
industry to which the firm belongs
4) Interpretation of the ratios
CASH FLOW STATEMENT
It is a statement of changes in the short term financial position of the business
due to inflow and outflow of cash. Such a statement enumerates net effects of
the various business transactions on cash and its equivalents and takes into
account receipts and disbursements of cash. A cash flow statement summarizes
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the causes of changes in cash position of a business enterprise between dates of
two balance sheets. Cash flows exclude movements between items that
constitute cash or cash equivalents because these components are part of the
cash management of an enterprise rather than part of its operating, investing
and financing activities. Cash management includes the investment of excess
cash in cash equivalents.
FUND FLOW STATEMENT
The fund flow statement is a statement which shows the movement of funds
and is a report of the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular
period and the ways in which these funds were employed. In simple words, it is
a statement of sources and application of funds.
The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’.
The term ‘flow of funds’ means transfer of economic values from one asset of
equity to another. Flow of funds is said to have taken place when any
transaction makes changes in the amount of funds available before happening
of the transaction. If the effect of transaction results in the increase of funds, it
is called source of funds and if it results in the decrease of funds, it is known as
application of funds.
5.1 RATIO ANALYSIS
LIQUIDITY RATIO’S
The short term creditors of a company like suppliers of goods of credit and
commercial banks providing short term loans are primarily interested in knowing
the company’s ability to meet its current or short term obligations as and when
these become due. The short term obligations of a firm can be met only when
there are sufficient liquid assets. Therefore a firm must ensure that it does not
suffer from lack of liquidity or capacity to pay its current obligations. If a firm
fails to meet such current obligations due to lack of liquidity position, its goodwill
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in the market is likely to be affected beyond repair. It will result in a loss of
creditor’s confidence in the firm and may cause even closure of the firm. Even a
very high degree of liquidity is not good for a firm because such a situation
represents unnecessarily excessive funds of the firm being tied up in current
assets. Therefore, it is very important to have a proper balance in regard to the
liquidity of the firm.
The short term obligations are met by realizing amounts from current, floating or
circulating assets. The current assets should either be liquid or near liquidity.
These should be convertible into cash for paying obligations of short term nature.
If current assets can pay off current liabilities, then the liquidity position will be
satisfactory. On the other hand, if current liabilities may not be easily met out of
current assets then liquidity position will be bad. The bankers, suppliers of goods
and other short term creditors are interested in the liquidity of the concern. They
will extend credit only if they are sure that current assets are enough to pay out the
obligations.
To measure the liquidity of a firm, the following ratio’s can be calculated:
Current Ratio
Quick Ratio Or Acid Test Ratio Or Liquid Ratio
Absolute Liquid Ratio Or Cash Position Ratio
CURRENT RATIO
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio, also known as working capital ratio, is a measure
of general liquidity and is most widely used to make the analysis of a short
term financial position or liquidity of a firm. It is calculated by dividing the
total of current assets by total of current liabilities.
Current ratio=current assets/current liabilities
Table no: 1 Current ratio
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YEAR CURRENT
ASSETS
CURRENT
LIABILITIES
CURRENT
RATIO
2007 64,130,350 22,305,873 2.87
2008 271,903,801 156,648,560 1.73
2009 312,727,723 324,810,506 0.96
2010 366,844,660 364,169,492 1.007
2007-2008 2008-2009 2009-2010 2010-20110
0.5
1
1.5
2
2.5
3
2.87
1.73
0.96 1
Column2
Graph no: 2 Current Ratio
As a convention the minimum of 2:1 is referred to as a rule of thumb or arbitrary
standard of liquidity for a firm. A ratio equal to or near the rule of thumb is
considered to be satisfactory.
Here, we see that expect for the financial year 2009 and 2010. The Company’s
current assets are double the current liabilities. The years shows an
unsatisfactory current assets position. The ratio of current assets over current
liabilities is found to be decreasing over the period but gradually it increases in
the year 2010. This is due long term liabilities they have to meet. Moreover,
they have started talking long term loans from the year 2008 as their business
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expanded. And they are meeting their short term obligations from the current
assets. The current ratio are 2.87, 1.73, 0.96, 1.00 times the current liabilities in
the financial years 2007, 2008, 2009, 2010 respectively. Hence, it can be
inferred that the general liquidity position the firm over a period of 4 years is
not up to the mark but gradually its current assets are increasing as shown in
the year in the year 2010.
(Note: current liabilities are taken as 1 and current assets are given
comparison to it.)
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