ABSTRACT

This project study gives the analysis of financial performance of ELGI ULTRA

INDUSTRIES LTD, COIMBATORE. The researcher used the following tools like,

comparative balance sheet, ratio analysis, trend analysis, correlation. The main aim

of this study is to study the financial performance analysis of the company,

forecasting is also done to determine the future trend of the sales and profit.

Finally, findings, benefits to the company, valuable suggestion and

recommendations are given to the company for better prospects and improving the

performance in future.

ACKNOWLEDGEMENT

1

First and foremost I dedicate this project to the almighty lord who is solely

responsible for all the outstanding performance in my life.

I express my sincere thanks to our Chairman Lion Dr.K.S.Rangasamy, MJF,

of K. S. R. Educational Institutions, Tiruchengode for providing the facilities to do

the project.

I have pleasure in expressing my gratitude and my thanks to

Dr.P.S.S.Srinivasan B.E., M.Tech., Ph.D., MISTE., ISHMT., FMFPI., and Principal

KSR College of technology for providing me an opportunity to do this project.

I express my sincere thanks to Mr.K.Prabhakar B.Sc., MBA., (Ph.D) Director

of KSR School of management for granting me permission to do the project work.

I express my sincere thanks to Mrs.A.Lakshmi M.A., M.B.A., M.Phil, B.Ed.,

MISTE, (Ph.D) HOD of KSR School of management for granting me permission to

do the project work

It is my privilege to express my deep sense of gratitude to Mr. M.Vijayakumar

M.B.A., M.Phil., (Ph.D) for her support and encouragement given to me during the

entire course of study.

I would like to thank Mr. Balasubramanian Manager-Finance of Elgi Ultra

Industries Ltd for helping me during the project work.

Last but not the least I thank my parents and friends for supporting me and

lending me a helping hand during the study.

CONTENTS

Chapter Description Page No

I INTRODUCTION

2

1.1 Introduction

1.1.1 Finance 01

1.1.2 Finance management 02

1.1.3 Key activities of financial management 03

1.1.4 Financial analysis 04

1.1.5 Method of analysis and interpretation 04

1.2 Objectives of the study 05

1.3 Scope of the study 05

1.4 Need for the study 06

1.5 Limitation of the study 06

1.6 Chapterization of the study 07

II CONCEPTS AND REVIEW

2.1 Concept for the study 08

2.2 Company Profile 10

2.3 Product Profile 11

III RESEARCH METHODOLOGY

3.1 Research Design 14

3.2 Data collection details 14

3.3 Tools of the study 15

IV DATA ANALYSIS AND INTERPRETATION 18

V RESULTS AND DISCUSSION

5.1 Findings of the study 44

5.3 Suggestion of the study 46

5.4 Conclusion 47

APPENDICES

REFERENCES

LIST OF TABLES

S.No Title Page No

3

1. Calculation of current ratio 22

2. Calculation of quick ratio 23

3. Calculation of working capital ratio

Turnover ratio 25

4. Calculation of Fixed assets

Turnover ratio 26

5. Calculation of operating ratio 27

6. Calculation of proprietary ratio 29

7. Calculation of debt-equity ratio 30

8. Comparative balance sheet 33

9. Calculation of co-efficient of correlation 39

10. Calculation of actual trend 41

LIST OF FIGURES

S.No Title Page No

4

1. Chart of current ratio 22

2. Chart of quick ratio 24

3. Chart of working capital

Turnover ratio 25

4. Chart of fixed assets

Turnover ratio 26

5. Chart of operating ratio 28

6. Chart of proprietary ratio 29

7. Chart of debt-equity ratio 31

8. Percentage of fixed assets 37

9. Percentage of current asset

And fixed assets 38

10. Percentage of profitability for the

Future period 40

11. Percentage of trend value 42

12. Percentage of sales for the

Future period 43

5

CHAPTER I

INTRODUCTION

1.1 INTRODUCTION

1.1.1 FINANCE

In the modern money oriented economy, finance is one of the basic

foundations of all kinds of economic activities. It is the master key which provides

access to all the sources being employed in manufacturing, and merchandising

activities. It has rightly been said that business needs money to make more money.

Finance is a specialized function and it draws heavily on other related

functions. Finance has undergone a significant change and is concerned with the

flow of funds and decisions relating to business operations affecting the valuation of

the firm.

Finance function covers decisions relating to investment, financing, and

dividends, the administrative area or set of administrative functions in an

organization, which have to do with management of the flow of cash so that the

organization will have to carry out its objectives as satisfactorily as possible and at

the same time meet its obligation as they become due.

“Finance may be defined as that administrative area or set of

administrative functions in an organization which relate with the arrangement of cash

and credit so that the organization may have the means to carry out its objective as

satisfactorily as possible”.

6

1.1.2 FINANCIAL MANAGEMENT

Financial management is broadly concerned with the acquisition and use of

funds by a business firm. Financial management emerged as a distinct field of study

at the turn of this century. Its evolution may be divided in to three broad phases:

The Traditional phase

The Transitional phase and

The modern phase

7

1.1.3 KEY ACTIVITIES OF FINANCIAL MANAGEMENT

There are three broad activities of financial management:

I.FINANCIAL ANALYSIS PLANNING AND CONTROL

Assessing the financial performance and condition of the firm.

Forecasting and planning the financial future of the firm.

Estimating the financial needs of the firm.

Instituting appropriate system of control to ensure that the actions of

managers are congruent with the goals of the firm.

II.MANAGEMENT OF THE FIRM’S ASSETS STRUCTURE

Determining the capital budgets

Managing the liquid assets

Establishing the credit policy and

Controlling the level of inventories.

III. MANAGEMENT OF THE FIRM’S FINANCIAL STRUCTURE

Establishing the debt-equity ratio or financial leverage

Determining the dividend policy

8

1.1.4 FINANCIAL ANALYSIS

The financial statement provides of summary of the accounting of a

business enterprise. To understand the financial performance and condition of a

firm, its stockholders look at three financial statements the balance sheet, the

profit and loss accounts and the sources and uses of funds statement.

BALANCE SHEET

It is a statement of financial position of a business at a specified moment of

time. It represents all assets owned by the firm at a particular moment of time and

the equities of the owners and outsiders against those assets at that time.

PROFIT AND LOSS ACCOUNTS

It shows what has happened to business as a result of operations

between two balance sheet dates.

1.1.5 METHODS OF ANALYSIS AND INTERPRETATIONS

Comparative balance sheet analysis

Ratio analysis

Trend analysis

Correlation analysis

9

1.2 OBJECTIVES OF THE STUDY

To Study the financial position of ELGI ULTRA INDUSTRIES over the period

of five years

To Study the liquidity, solvency and profitability position of ELGI ULTRA

INDUSTRIES for the period from 02-03 to 05-06.

To Study the Fixed Asset position over the period of Five years.

To study the relationship between current assets and fixed assets

To estimate the profitability and sales for the future period

1.3 SCOPE OF THE STUDY

The scope of the study is to find out financial performance of the Elgi Ultra

Industries for the past four years. A sincere attempt has been made to include all the

aspect relating to the study. For this purpose analysis of financial performance of the

company has done from the last four years published financial statement and all

aspects the researcher should be included in the report.

10

1.4 NEED OF THE STUDY

Financial analysis is a powerful mechanism which helps in ascertaining the

strengths and weakness in the operation and financial position of an enterprise.

According to Myers, Financial analysis is defined as follows:

“Financial statement analysis is largely a study of the relationship among

the various financial factors in a business as disclosed by a single set statement and

a study of the trend of these factors as shows in series of statement”.

“Financial analysis is the process of identifying the financial strengths and

weakness of the firm by properly establishing relationship between the items of the

balance sheet and the profit and loss accounts”.

“Financial analysis can be undertaken by management of firm, or by

parties of outside the firm, viz, own as creditors, investors and others. The nature of

analysis will differ depending on the purpose of analysis”.

1.5 LIMITATION OF THE STUDY

Every research has its own technical and managerial limitations. Time was

one of the main limitations of this study. Because of the lack of time the analysis is

based on the secondary data collected from the balance sheet, profit and loss

accounts and other records of the organizations from years

2002-2006.

11

1.6 CHAPTERIZATION OF THE STUDY

Chapter I: These deals with introduction, need for the

Study, objectives of the study and scope of the

Study.

Chapter II: This chapter deals with concepts of the study

Company profile and product profile.

Chapter III: These deals with Research Design, Data collection

details and tools for the study.

Chapter IV: These deals with Data Analysis and Interpretations

Chapter V: These deals with Findings, Benefits of the study

Recommendations and Suggestions.

12

CHAPTER II

CONCEPTS AND REVIEW

2.1 CONCEPTS OF THE STUDY

Balance sheet

Balance sheet is a statement of financial position of a business at a specified

moment of time. It represents all the assets owned by the company at a particular

moment of time and the claims of owners and outsiders against those assts at the

time. It is in a snapshot of the financial condition of the business at that time. It is one

of then most significance financial statement.

Assets

Assets representing economic resources are the valuable possessions

owned by the firm. These possessions should be capable of being measured in

monitory term. Assts are the future benefits. Assets may be classified into current

asset and fixed asset. Whether an asset is fixed or current however depends on the

nature of business itself

Current Assets

Assets that are in the form of cash or that can be converted into cash within a

short period of time (usually twelve months) are known as current assets. Cash in

hand, cash at bank, debtors and short term investment are examples as floating or

circulating assets.

Fixed Assets

Fixed assets are assets of a relatively permanent nature which are used in the

operation of the business and are not intended for sale. Fixed Assets are carried at

the cost of acquisitions of construction or book value less accumulated depreciation.

13

Liability

Liabilities are debts payable in the future by the firm to its creditors. They

represent economic obligation to pay cash or to provide goods on services in some

future period. Expenditure of liability, Bills payable, interest payable, taxes payable,

debentures, bonds borrowings from banks and financial institution, public deposits.

Liabilities are two types’ current liability and long term liability

Current Liability

These are the liability repayable within a short period, not exceeding one

year. The current asset are converted into cash to pay the current liability, bills

payable, bank overdraft are example for the current liability.

14

2.2 COMPANY PROFILE

Elgi Ultra Industries Ltd., belongs to the ELGI Group based in Coimbatore, India.

The combined annual business of the group is in excess of Rs.4000 Million and

employs close to 2400 people. ELGI group includes,

Elgi Equipments – compressors/ Automotive Service Equipment

Elgitread India Ltd – Tread Rubber

Elgi Ultra Industries Ltd

Elgi Ultra Industries Limited, an ISO 9000:2001 company started its operations in

the year 1983. It currently manufactures products for different industries, which

includes Consumer Durables. Textile Accessories, Drip Irrigation Systems, Plastic

Extruded Components, Horns, Wipers, Industrial Fabrics and Rubber Moulded

Components. The annual business is about Indian Rs.10 million (US $ 9 million) and

employs close to 200 people.

The group was founded by Sri. L.R.G. Naidu and had its beginnings as early as

year 1917. The promoters were involved in the agriculture, transportation and

manufacturing business. The first company in the group was floated in the year 1959

and thereafter the group has made a steady progress.

The promoters decided to use their manufacturing strength in the textile industry

through their association with Elgi Polytex Ltd. The company was formed in the year

1981 riding on the expertise of the promoters in managing manufacturing companies

and aided by the ever-growing market for quality textile, machinery spares and

components. The product profile of the company grew with the industry.

The Company’s name changed to Elgi Ultra Industries Ltd., in the year 1996.

The Company is having two divisions namely Polytex Division and Ultra Division.

15

2.3 PRODUCT PROFILE

POLYTEX DIVISION

The main products are;

Synthetic Spindle Tapes – used to rotate the spindles.

Loom components – parts of weaving looms

High pressure plastic hoses and tubes – pneumatic applications in

automobiles

Industrial Fabrics

Flat belts – To transmit power from motor to machinery

Rubber Molded components – used in the field of automobile, life, textile

and processing industries

LDPE Semi embossed films – used as liner material in rubber industry

Drip Irrigation System

The company manufacturers’ synthetic spindle tapes and flat belts with the

technical and financial collaboration from verseidag Beltech Ag, Switzerland. These

products enjoy market leadership in the domestic market and the wide acceptance in

the international markets including quality European Markets.

16

ULTRA DIVISION

The consumer boom in the early 1990’s encouraged the group to enter into the

manufacture on consumer durables. The ability of the customer to value quality,

performance and the aesthetics of the products offered resulted in the group offering

the First Table Top Wet Grinder. The in-house designing and engineering skills were

very much utilized in the development and launch of the product. The Company’s

involvement in the product started through the opening of the Ultra Division in the

year 1994-95.

Currently, the Company has designed products for both domestic and the

exports markets and has a range for both the small and large families. The range

includes the 2 liters version (Ultra Frind+) and the 1.25ltrs version (Ultra Pride+) both

in the 220 volts as well as 110 volts categories (to meet the specific needs of USA

markets). These products are also exported to USA, Middle and South Eastern

markets.

The company has its Registered and Administrative offices at Coimbatore and

the Manufacturing facility at Arasur, on the outskirts of Coimbatore. The company

currently employs around 200 people.

QUALITY POLICY

To achieve customer satisfaction the commitments and providing reliable

products and services.

This will be achieved through,

Customer focus in all activities

Continuous improvements in systems & work methods

Compliance with statutory requirements

Ensuring fair and ethical practices

17

18

ORGANISATION CHART

HOD-Finance& Accounts

Director

Systems in- Charge

Director- Operations

HOD-Marketing ULTRA Division

HOD P & A

MR

HOD- Manufacturing POLYTEX Division

HOD-Marketing POLYTEX- Agro & Auto Division

HOD-Marketing POLYTEX DivisionTextile& non-Textile Division

Mech. Maint. In Charge

HOD-Maintenance(Electronic & Engineering)

HOD-D & DUltra Division

QC IN-ChargeUltra Division

HOD-R & D and QA POLYTEX Division

HOD-Commercial

Tool Room In Charge

Plastic Division In Charge

Rubber Division In Charge

Plastic Division In charge

CHAPTER III

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

Research methodology is a scientific and systematic search for pertinent

information on a specific topic. Research methodology is a way to systematically

solve the research problem. It is the conceptual structure within which the research

is conducted. It helps the researcher to know the criteria which they can decide that

certain technique and procedures will be applicable to certain problem and other will

not.

3.2 DATA COLLECTION DETAILS

For a research, researcher may depend either on primary data on

secondary data. Primary data is usually collected with the help of questionnaires.

Secondary data is collected from published journals or magazines or reports.

In the present study, most of the information is collected from balance

sheets, profit and loss accounts and other books of accounts of the company.

Besides, some information’s are collected through discussions with finance and

other executives of the finance department.

19

3.3 TOOLS OF THE STUDY

Since the project work is done in the area of finance, most of the applied are

tools of financial and statistical analysis. Statistical tools such as correlation analysis,

trend line graphs or charts are also used for analysis.

The tools of financial analysis such as,

Ratio analysis

Comparative balance sheet

Correlation analysis

Trend analysis

Ratio analysis

Ratio analysis is one of the most powerful tools of financial analysis. According

to accountant’s handbook by wixon, a ratio “is an expression of the quantitative

relation ship between two numbers”. Ratio analysis is the process of establishing

and interpreting various ratios for helping in making certain decisions. The ratio

analysis is helping to analyses and interprets the financial health of an enterprise.

Comparative Financial Statement

The comparative financial statement is used to trace the period changes in the

financial performance of the company. The comparative statement will contain the

financial statement of at least two years. The comparative financial statement may

show,

20

Absolute figures of each item of financial statement

Absolute figures of increase or decrease in each item of financial

statements

Increase or decrease in each item of financial statement in

percentage.

The comparative income statements disclose the period changes in net profit

or net loss in operations. The comparative income statements may show absolute

change from one period to another period to another and if desired the changes inn

percentages. Since the figures for two or more period are shown side by side. The

reader can quickly ascertain whether the sales have increased or decreased,

whether the cost of sales have increased or decreased etc. thus reading

comparative income statements will give meaningful conclusion.

The comparative balance sheet as on two or more dates can be used for

comparing assets and liabilities and to find out increase or decrease if any. Thus

comparative balance sheet gives emphasis on changes of items of balance sheet.

Such a balance sheet is very helpful in understanding trends in a company.

Correlation

“Correlation analysis deals with the association or co-variation between two or

more variables and helps tom determine the degree of relationship with them. The

correlation measures the closures of the relationship between the variables. Thus

the association of any two variables is known as correlation”. Thus correlation

analysis refers to the technique used in measuring the closeness of the relationship

between the variables. When deviations are taken from an assumed mean the

formula is applicable.

∑xy

r = __________

√∑x2*∑y2

21

Projection of profit for the future

The researchers are used the tool trend analysis to project the level of profit

& sales for the future. “The basic objective of the study of trend analysis is to predict

the figure behavior or the data. If a trend can be determined, than the ratio of change

of progress can be ascertained and tentative estimate concerning the future made

accordingly. Such for costs are immense use of framing the basic policies and it’s

planning for the future. However these forecasts are based on the assumptions that

the conditioning determining this growth may reasonably ro persist in future”.

The straight line trend is represented by the equation

Yc = a + bx

Where a & b are constants.

a = computed trend figure of the “Y” variable

b = amount of change in “Y” variable associated with changes of one

unit of this “X” variable.

Where ‘X’ is time deviation & x = 0

Then a = ∑y/b

b = ∑xy/∑x2

22

CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

The preparation of financial statements is the not end aim. The purpose of

preparing these statements is to use them for decision making. The statement

becomes a tool for the future planning and forecasting. The analysis and

interpretation of financial statement is to judge their meaning and significance. An

opinion is formed in respect to the financial condition of the concern. The statements

are rearranged and divided in to suitable forms. The analysis of these statements

involves their division according to similar groups and arranged form. The

interpretation involves the explanation financial facts in a simplified manner.

The analysis and interpretation is essential to bring out the mystery behind the

figures in different periods, different figures in the same period etc. the analysis and

interpretation of financial statements is used to determine the financial position and

results of operation as well.

Ratio Analysis

Ratio analysis is one of the techniques of financial analysis where ratios are

used as a yardstick for evaluating the financial condition and performance of a firm.

Analysis and interpretation of various accounting ratios gives a skilled and

experienced analyst, a better understanding of the financial condition and

performance of the firm than what he could have obtained only through a perusal of

financial statements.

Ratios are relationships expressed in mathematical terms between figures

which are connected with each other in some manner.

23

Classification of Ratios

Ratios can be classified into different categories depending upon the basis of

classification.

The traditional classification has been on the basis of the financial statement

to which the determinants of a ratio belong. On this basis the ratios could be

classified as:

Profit and Loss Account Ratios, i.e., ratios calculated on the basis of the item

of the Profit and Loss account only, gross profit ratio, stock turnover ratio, etc.

Balance Sheet ratios, i.e., ratios calculated on the basis of the figures of

Balance Sheet only, e.g., current ratio, debt-equity ratio, etc.

Composite Ratios or inter-statement ratios, i.e., ratios based on figures of

profit and loss account ass well as the balance sheet, e.g., fixed assets

turnover ratio, overall profitability ratio, etc.

24

The above classification of ratios can be depicted by means of the

following charts.

25

ACCOUNTING RATIOS

Balance Sheet Ratios

Traditional Functional

P&L A/c Ratios

Composite Ratios

Profitability Ratios

Coverage Ratios

Turnover Ratios

Finance Ratios

Stability Ratios

Liquidity Ratios

The ratio analysis of Elgi Ultra Industries Ltd, from the year 2002-2003 to

2005-2006 is given below

Current Ratio

This ratio is an indicator of the firm’s commitment to meet its short-term

liabilities. It is expressed as follows:

Current assets mean assets that will either be used up or converted into cash

within a year’s time or during the normal operating cycle of the business, whichever

is longer. Current liabilities mean liabilities payable within a year or by creation of

current liabilities.

26

Current Asset

Current Liabilities

CALCULATION OF CURRENT RATIO

(2002-03 to 2005-06)

TABLE 3.2.1

Year Current

Asset

Current

Liabilities

Current Ratio

2002-03 41,78,78 49,58,56 .84:1

2003-04 75,00,91 52,54,23 1.43:1

2004-05 95,21,84 36,58,66 2.60:1

2005-06 107,52,39 33,32,89 3.23:1

Source: Secondary data

Significance

The current ratio is an index of the concern’s financial stability since it shows

the extent of the working capital which is the amount by which the current assets

exceed the current liabilities.

CHART OF CURRENT RATIO 3.2.2

00.5

11.5

22.5

33.5

CURRENT RATIO

02-03

03-04

04-05

05-06

YEARS

current ratio

current ratio

27

2. Quick Ratio

This ratio is also termed as ‘acid test ratio’ or ‘liquidity ratio’. This ratio is

ascertained by comparing the liquid assets (i.e., assets which are immediately

convertible into cash without much loss) to current liabilities. Prepaid expenses and

stock are not taken as liquid assets. The ratio may be expressed as:

CALCULATION OF QUICK RATIO

(2002-03 to 2005-06)

TABLE 3.2.3

Source: secondary data

Significance

A comparison of the current ratio with quick ratio shall indicate the inventory

hold-ups.

Year

Liquidity

Asset

Current

Liability

Quick

Ratio

02-03 103,57,42 643,40,67 .16:1

03-04 116,45,68 756,87,93 .15:1

04-05 121,29,52 799,65,53 .15:1

05-06 1113,32,84 904,29,48 .13:1

28

Liquid Assets

Current Liabilities

CHART OF QUICK RATIO 3.2.4

00.020.040.060.080.1

0.120.140.16

Quick Ratio

02-03 03-04 04-05 05-06

Year

Quick Ratio

Quick Ratio

3. Working Capital Turnover Ratio

This is also known as Working Capital Leverage Ratio. This ratio indicates

whether or not working capital has been effectively utilized in making sales. In case a

company can achieve higher volume of sales with relatively small amount of working

capital, it is an indication of the operating efficiency of the company. The ratio is

calculated as follows:

29

CALCULATION OF WORKING CAPITAL TURNOVER RATIO

(2002-03 to 2005-06)

TABLE 3.2.5

Year Net Sales Working Capital

Working

Capital

Turnover Ratio

02-03 75,85,26 89,87,45 0.5

03-04 548,54,20 789,54,56 1.5

04-05 78,65,48 70,12,58 2.5

05-06 652,51,75 789,54,75 3.5

Source Data: Secondary Data

CHART OF WORKING CAPITAL TURNOVER RATIO 3.2.6

00.5

11.5

22.5

33.5

Working capital

Turnover Ratio

02-03

03-04

04-05

05-06

Year

Working capital turnover ratio

Working capitalturnover ratio

30

4. Fixed Assets Turnover Ratio

This ratio indicates the extent to which the investments in fixed assets

contribute towards sales. If compared with a previous period, it indicated whether the

investment in fixed assets has been judicious or not. The ratio is calculated as

follows:

Net sales

Fixed assets (net)

Calculation of Fixed Asset Turnover Ratio

(2002-03 to 2005-06)

TABLE 3.2.7

Year Net Sales Fixed Asset

Fixed Asset

Turnover

Ratio

02-03 588,54,64 610,87,88 0.14

03-04 684,47,67 670,54,87 1.25

04-05 587,58,63 550,48,97 2.89

05-06 787,54,87 879,87,98 0.75

Source: Secondary Data

CHART OF FIXED ASSET TURNOVER RATIO 3.2.8

0

0.5

1

1.5

2

2.5

3

Fixed Assets

Turnoveer Ratio

02-03

03-04

04-05

05-06

Year

Fixed Asset Turnover Ratio

Fixed AssetTurnover Ratio

31

Operating Ratio

This ratio is a complementary of net profit ratio. In case the net profit ratio is

20%, it means that the operating ratio is 80%. It is calculated as follows:

Operating Costs *100

Net Sales

Operating costs include the cost of direct materials, direct labour and other

overheads, viz., factory, office or selling. Financial charges such as interest,

provision for taxation, etc., are generally excluded from operating costs.

Calculation of operating Ratio

(2002-03 to 2005-06)

TABLE 3.2.9

Year Operating Cost Net Sales*100

Operating

Ratio

02-03 77,69,49 89,17,71 87.12

03-04 93,60,92 105,09,41 89.07

04-05 103,77,18 110,96,40 93.52

05-06 105,70,55 123,72,05 85.44

Source: Secondary Data

Significance

This ratio is the test of the operational efficiency with which the business is

being carried. The operating ratio should be low enough to leave a portion of sales to

give a fair return to the investors.

32

CHART OF OPERATING RATIO 3.2.10

8082848688909294

Operating Ratio

02-03

03-04

04-05

05-06

Year

Operating Ratio

Operating Ratio

Proprietary Ratio

It is a variant of debt-equity ratio. It establishes relationship between

the proprietor’s funds and the total tangibles assets. It may be expressed as:

Shareholder’s funds

Total tangible assets

33

Calculation of proprietary ratio

(2002-03 to 2005-06)

TABLE 3.2.11

Year

Shareholder’s

Fund Total Assets

Proprietary

Ratio

02-03 103,57,42 643,40,67 0.16

03-04 116,45,68 756,87,93 0.15

04-05 121,29,52 799,65,53 0.15

05-06 113,32,84 904,29,48 0.13

Source: Secondary Data

Significance

This ratio focuses the attention on the general financial strength of the

business enterprise. The ratio is of particular importance to the creditors who can

find out the proportion of shareholders’ funds in the total assets employed in the

business.

CHART OF PROPRIETARY RATIO 3.2.12

00.020.040.060.080.1

0.120.140.16

Proprietary Ratio

02-03

03-04

04-05

05-06

Year

Proprietary Ratio

Proprietary Ratio

34

Debt-Equity Ratio

The debt-equity ratio is determined to ascertain the soundness of the long-term

financial polices of the company. It is also known as “External-Internal” equity ratio. It

may be calculated as follows:

External Equities

Internal Equities

The term external equities refers to total outside liabilities and the term

internal equities refers to shareholders’ funds or the tangible net worth. In case the

ratio is 1 it is considered to be quite satisfactory.

Calculations of Debt-Equity Ratio

(2002-03 to 2005-06)

TABLE 3.2.13

Year External Equity Internal Equity

Debt-Equity

Ratio

02-03 487,73,21 103,57,42 4.7

03-04 585,36,54 116,45,68 2.03

04-05 628,65,88 121,29,52 5.18

05-06 681,26,47 113,32,84 6.01

Source: Secondary Data

Significance

The ratio indicates the proportion of owners’ stake in the business. Excess

liabilities tend to cause insolvency. The ratio indicates the extent to which the firm

depends upon outsiders for its existence. The ratio provides a margin of safety to the

creditors. It tells the owners the extent to which they can gain the benefits or

maintain control with a limited investment.

35

CHART OF DEBT-EQUITY RATIO 3.2.14

Debt-Equity Ratio

0

1

2

3

4

5

6

7

02-03 03-04 04-05 05-06

Year

Deb

t-E

qu

ity

Rat

io

Debt-Equity Ratio

Comparative Balance Sheet

The comparative balance sheet as on two dates can be used for comparing

assets and liabilities and finding out any increase or decrease in assts and liabilities.

The comparative balance sheet of ELGI ULTRA INDUSTRIES LTD, COIMBATORE

from year 02-03 to 05-06 given into Table

Reserves and Surplus

The analysis of Table shows that the reserves and surplus of Elgi Ultra Industries

Ltd, Coimbatore increases continuously from the year 02-03 to 05-06. The absolute

figures of increase in the reserves shoes that the reserves and surplus has become

an important internal source of finance for Elgi Ultra Industries Ltd, Coimbatore.

36

Secured Loans

The loan for which the company has to offer some securities are called secured

loan. The secured loan of Elgi Ultra Industries Ltd., shown in the table increases

continuously since 02-03. The company can avoid this financial risk by depending

more on own funds.

Current Liabilities and Provision

The comparative balance sheet Table of Elgi Ultra Industries Ltd, show the

variation of current liabilities. The various in the current liabilities should be studied in

relation in current assets. In 02-03 the current liabilities has increased by 110.99%.

The increase in current assets this year us 237.14%. So it can be concluded that the

working capital position this year is good.

Fixed Assets

The comparative balance sheet Table of Elgi Ultra Industries Ltd from the year

02-03 to 05-06 shows that the fixed assets has increased continuously till 05-06.

This is because of the company’s decision to expand its activities.

Current Assets, Loans Advances

The comparative balance sheet table of Elgi Ultra Industries Ltd from the year

02-03 to 05-06 shows that the current assets has increased in all years. But due to

total industrial lack ness the sundry debtors is increasing continuously from the year

02-03. This is the reason for increase in the current assets.

37

COMPARTIVE BALANCE SHEET

(02-03) TO (03-04)

TABLE 3.2.15

particulars

02-03

(Rs.in

thousands)

03-04

(Rs.in

thousands)

Inc/ Dec

Rs.

% of Inc/Dec

LIABILITIES

Shareholders

share capital

Reserve &

Surplus

3,83,179 4,17,043 33,864 8.84

Funds and

Head Office

1,74,954 1,71,138 -3,816 2.18

Inter Division

A/C

2,89,421 3,45,655 56,234 19.43

Loans fund

Secured loans

26,295 34,334 8,039 30.57

Current

liabilities &

provision

liabilities

provision

9,77,795

67,882

10,87,588

1,35,598

1,09,793

67,716

11.23

99.76

TOTAL 19,19,526 21,91,356 2,71,830 14.16

ASSETS

Fixed Assets

Net Block

2,77,609 3,52,800 75,191 27.09

Capital

expenditure in

progress

93,434 2,855 -90,579 96.94

Current Assts,

Loans &

Advances

8,20192

6065,297

1,276

10,33,517

7,14,336

3,883

2,13,325

49,039

2,607

26.01

7.37

204.31

38

Inventories

Sundry

Debtors Cash

and bank

balance

Other C.A

Loans &

Advances

61,718 83,965 22,247 36.05

TOTAL 19,19,526 21,91,356 2,71,830 14.16

Source: Secondary Data

COMPARATIVE BALANCE SHEET

(03-04) TO (04-05)

particulars

03-04

(Rs.in

thousands)

04-05

(Rs. in

thousands)

Inc/Dec

Rs.

% of Inc/Dec

LIABILITIES

Shareholders

share capital

Reserve &

Surplus

4,17,043 4,82,588 65,545 15.72

Funds and Head

Office

1,71,138 1,68,304 -2,834 -1.65

Inter Division

A/C

3,45,655 3,66,081 -9.574 -2.77

Loans fund

Secured loans

34,334 1,21,178 -86,844 252.94

Current liabilities

& provision

liabilities

10,87,588

1,35,598

7,63,713

1,23,444

-3,23,875

-12,154

-29.78

-8.96

39

provision

TOTAL 21,91,356 19,95,308 -1,96,048 -8.95

ASSETS

Fixed Assets Net

Block

3,52,800 3,07,470 -45,330 -12.85

Capital

expenditure in

progress

2,855 74,030 71,175 2,492.99

Current Assts,

Loans &

Advances

Inventories

Sundry Debtors

Cash and bank

balance

10,33,517

7,14,336

3,883

8,40,335

6,45,565

1,770

-1,93,182

-68,771

-2,113

-18.69

-9.627

-54.42

Other C.A Loans

& Advances

83,965 1,26,138 42,173 50.23

TOTAL 21,91,356 19,95,308 -1,96,048 -8.95

Source: Secondary Data

COMPARATIVE BALANCE SHEET

(04-05) TO (05-06)

particulars 04-05

(Rs. in

thousands)

05-06

(Rs. In

thousands)

Inc/Dec Rs. % of Inc/dec

LIABILITIES

Shareholders

share capital

Reserve &

Surplus

4,82,588 5,27,459 44,871 9.29

Funds and Head 1,68,304 1,65,908 -2,396 -1.42

40

Office

Inter Division

A/C

3,66,081 1,15,124 -2,20,957 -6.75

Loans fund

Secured loans

1,21,178 68,598 -52,580 43.39

Current liabilities

& provision

liabilities

provision

7,63,713

1,23,444

6,77,320

1,13,684

-86,393

-9,760

-11.39

-7.91

TOTAL 19,95,308 16,68,093 -3,27,215 -16.399

ASSETS

Fixed Assets Net

Block

3,07,470 3,43,613 36,143 11.75

Capital

expenditure in

progress

74,030 5,181 -68,849 -93.00

Current Assts,

Loans &

Advances

Inventories

Sundry Debtors

Cash and bank

balance

8,40,335

6,45,565

1,770

7,29,901

4,18,544

20,280

-1,10,434

-2,24,021

18,510

-13.14

-35.17

1,045.76

Other C.A Loans

& Advances

1,26,138 1,50,574 24,436 19.37

TOTAL 19,95,308 16,68,093 -3,27,215 -16.399

Source: Secondary Data

41

TO STUDY THE FIXED ASSETS POSITION OVER THE PERIOD OF FIVE YEARS

TABLE 3.2.16

years

Amt of fixed Assets

(Rs. In thousands)

Percentage of Total

assets

02-03 673,960 11.39

03-04 791,760 13.38

04-05 796,334 13.46

05-06 883,887 14.94

Source: Secondary Data

PERCENTAGE OF FIXED ASSET 3.2.17

0100000200000300000400000500000600000700000800000900000

Percentage of Total

Assets

years 03-04

05-06

Amt of Fixed Assets(Rs.in thousands)

Series2

Series1

42

TO STUDY THE RELATIONSHIP BETWEEN CURRENT ASSTS AND FIXED

ASSETS

TABLE 3.2.18

years

Fixed assets

(Rs. In thousands)

Current assets

(rs. In thousands)

02-03 673,960 1,486,765

03-04 791,760 1,751,736

04-05 796,334 1,487,670

05-06 883,887 1,186,725

Source: Secondary Data

PERCENTAGE OF CURRENT ASSET AND FIXED ASSET 3.2.19

0200000400000600000800000

10000001200000140000016000001800000

Currenet Assets(Rs.

in thousands)

years 03-04

05-06

Fixed assets(Rs. in thousands)

Series1

Series2

43

CALCULATION OF CO-EFFICIENT OF CORRELATION

TABLE 3.2.20

YearX

(F.A)

(X-

883887)

dx

Dx2 Y(C.A)(y-

1168725)Dy2 Dxdy

2002

2003

2004

2005

2006

∑n=

5

6,73,960

7,91,760

7,96,334

8,83,887

8,96,745

∑x=

4,042,686

-209927

-92,127

-87,553

0

12,858

∑dx=

3,76,749

4406934533

8487384129

7665527809

0

165328164

∑dx2=

20725174635

1,486,765

1,751,736

1,487,670

1,168,725

904,075

∑y=

678971

318,040

583,011

318,945

0

-264,650

∑dy=

955346

11,011,494,416

3,399,018,261

101,725,913

0

700,396,225

∑y2=

15212634815

-6,675,518,308

-537,110,544

-2,792,459,159

0

-3,402,869,700

Source: Secondary data

= ∑dxdy-(∑dx)( ∑dy)/(√N∑dx2-(∑dx)2√N∑dy2-(∑dy)2)

= -161498144(-271693)(248509)/(√7*2826743565(271693)2√7*1554365648(248509)2)

= 0.128

44

TO ESTIMATE THE PROFITABILITY FOR THE FUTURE PERIOD

TABLE 3.2.21

YEAR

Profit after tax provision

(Rs. In thousands)

2002 375,753

2003 109,617

2004 475,162

2005 520,033

2006 583,130

Source: Secondary data

PERCENTAGE OF PROFITABILITY FOR THE FUTEUR PERIOD 3.2.22

0

100000

200000

300000

400000

500000

600000

Profit after tax

provision (Rs. in

thousands)

1 2 3 4 5 6

year

Series1

Series2

Actual Trend

45

TABLE 3.2.23

year x x2 y xy

Trend

Value

01-02 -2 4 375753 -751506 368705

02-03 -1 1 409617 -409617 420222

03-04 0 0 475162 0 472739

04-05 1 1 520033 520033 525256

05-06 2 4 583130 1166260 576773

total ∑x=0 ∑x2=10 ∑y=2363695 ∑xy=525170

A = ∑y/n=236695\5=474739

B = ∑xy/∑x2=5251710\10=52517

Future period of 2007

YEAR 06-07 = 474739 + 157551 = 6302910

The future value of 2007 is Rs.630290

PROJECTED TREND VALUE – EXPECTED PROFIT FOR THE FORTH COMING

YEARS (02-03 TO 05-06)

TABLE 3.2.24

Year

Profit after tax

(Rs. In thousands)

Trend value

(Rs. In thousands)

02-03 4 754,207.30

03-04 5 809,300.41

04-05 6 864,393.63

05-06 7 919,486.63

06-07 8 630,290

PERCENTAGE OF TREND VALUE 3.2.25

46

05-06

0

200,000

400,000

600,000

800,000

1,000,000

6 864,393,52

5 809,300.41

4 754,207.30

profit after tax

Tre

n v

alu

e(R

s. i

n

tho

usa

nd

s) 05-06

TO ESTIMATE THE SALES FOR THE FUTURE PERIOD

TABLE 3.2.26

Year Sales (Rs. In thousands)

2002 2,219,990

2003 3,295,656

2004 2,640,242

2005 2,877,261

2006 2,558,616

Source: Secondary data

PERCENTAGE OF SALES FOR THE FUTURE PERIOD 3.2.27

47

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

1 2 3 4 5

year

Sal

es(R

s. i

n t

ho

usa

nd

s)

Series2

Series1

CHAPTER V

48

RESULTS AND DISCUSSION

5.1 FINDINGS

1. The current ratio is satisfactory during the study period

2. Liquid ratio is satisfactory through out the study period, under the study with

the maximum of 0.15 in the year 03-04.

3. The profit ratio is satisfactory; it found that company can make good profit in

the future period also.

4. As per comparative balance sheet they are gradually increasing total assets

and liabilities even through decreasing in the year 04-05 compared to

previous year.

5. The company has not adopted stable credit policy towards its debtors. The

company’s efficiency in debt collection is not good.

6. Over the period of five years from 02-03 to 05-06, the fixed assets of the

company showing an increasing trend. In 02-03 the fixed assets was Rs.1,

1486, 765crs it was increase to Rs.1, 586, 725crs in 05-06.

7. An analysis of current assets and fixed assets relationship carried by the

researcher gave a low degree of positive result of +1.148. This onlights there

is a significant relationship between current assets and fixed assets.

8. A projected trend of profitability of the company for the forthcoming years

showing an increasing trend of Rs.74, 42, 073lakhs in 02-03 and in

Rs.91,94,866lakhs in 05-06.

9. The study shows that reserves and surplus position is also remained

satisfactory. This has been confirmed by maintaining the reserve and surplus

49

position at increasing level. In 02-03 it was 19.92, it was increasing to 38.62%

into years 05-06.

10.The debt collection period ratio of the company shows a decreasing trend.

The higher debt collection period ratio was recorded in the year 02-03.

11.The lowest in the year 05-06. This is a good sign to the company.

12.The working capital turnover ratio of Elgi Ultra industries showed an

increasing trend upto 2003 to 2004.

13.A proprietary ratio of company shows a decreasing trend during the study

period ranging from 05-06.

5.3 SUGGESTION AND RECOMMENDATION

50

1. It is observed that the company does not follow any method of financing of

working capital. So, in order to maintain a trade – off between profitability

and liquidity, the company should follow a well planned financing

performance of working capital.

2. As the average debt collection period is 30 days the debt collection

process should be accelerated so as to maximize credit sales and to

minimize cost associated with debt collection and investment in debtors.

3. The profitability ratios based on sales are an important indicator of the

operational efficiency of manufacturing enterprise. However, they suffer

from a serious limitation in that they are not useful from the viewpoint of

the owners of the firm

4. The operating ratio will indicate whether the cost component is high or low

in the figure of sales. In case of the comparison shows that there is

increase in this ratio, the reason for such increase should be found out and

management be advised to check the increase.

5. The proprietary ratio focused the attention on the general financial strength

of business enterprise. The ratio is of particular importance to the creditors

who can find out the proportion of shareholders funds in the total assets

employed in the business.

6. The current ratio and quick ratio was at a satisfactory level for all financial

years. It shows that the company was able to meet its current obligations.

7. A test applied to check the solvency of the company in terms of cash

(absolute liquid ratio) seems to be unsatisfactory to meet the emergencies.

So, it is recommended to take quick and effective measures to rectify the

absolute liquid ratio as early as possible.

5.4 CONCLUSION

51

The project done for evaluating the financial performances of Elgi Ultra

Industries Ltd – Coimbatore gives a clear idea about the company’s financial

position. The study is expected to help understanding the overall financial

performance of the company. Further, it is hoped that the suggestion made into

project shall bring the attention of management

52