INTRODUCTION

When we talk of Research Methodology, we not only talk of the research methods but also

consider the logic behind the methods we use in the context of our research study and explain

why we are using a particular method or technique and why we are not using so that research

results are capable of being evaluated either by research himself or by others.

As the title of the project suggests the project is about the study of the Comparative Financial

Analysis of the organization. So my objective was to know that how the capital should be

maintained and utilized in the company and accordingly study the effect of each upon the

profit contributed by each in the profits of the company and thereby even study the method that

should be used in this respect.

SAMPLE SIZE

The sample size refers to the no. of employees i.e. head of various section of finance selected

from the company to know about its various section and there functioning constitute a sample.

The sample size used for study includes 12 Employees of the organization those were the

respective heads of their department who were appointed to help the trainees.

For doing Comparative Financial Analysis I select 5 aircraft manufacturing companies and

calculate there ratios by using there financial statements and annual general report and

compare them.

1

METHOD OF SAMPLING ADOPTED

The process employed for the sample was Cluster Sampling.

Sample Size: 5

Method of Sampling: Cluster

Area of work: Comparative Financial Analysis

Method of Data collection: Secondary

Tools: Annual report, Balance sheet, Internal sources.

SOURCES OF DATA COLLECTION

SECONDARY DATA

Secondary data are those which have already been collected by someone else and have already

been passed through the statistical process.

Acc. to Dessel-“Data collected by other persons”

All the data has been collected from internal source that includes:-

a) Staff

b) Magazines

c) Books

d) Websites

e) Reports

f) Files.

g) Journal

h) Manual

2

COMPARATIVE ANALYSIS OF THE BALANCE SHEET(Rs. in crore)

Particulars 31st March,2008

31st March,2007

 Increase/decrease %increase/Decrease

ASSETS:Current Assets:-Inventories 841463.82 722251.99 119211.83 16.51%Debtors 148610.5 128117.86 20492.64 16.00%Cash 1964631.86 1670552.11 294079.75 17.60%Loans & Advances

421341.58 404932.74 16408.84 4.05%

-1 3396047.76 2925854.7 470193.06 16.07% Fixed Assets:-Blocks 132276.7 123125.4 9151.3 7.43%Tools & Equipment

295410.66 255355.79 40054.87 15.69%

Investment 1920.26 1527.76 392.5 25.69%Deffered Tax Assets

32285.99 21779.62 10506.37 48.24%

-2 461893.61 401788.57 60105.04 14.96%(1+2) 3857941.37 3327643.27 530298.1 15.94%LIABILITIES:Loans:- Secured 0 0 0 100%Un-secured 0 233.73 -233.73 -100.00%Deffered 202.52 168.8 33.72 19.98%Deffered tax Liability

137904.62 133473.3 4431.32 3.32%

(A) 138107.14 133875.83 4231.31 3.16%Current Liability & Provision:-Liabilities 3237223.16 2884915.36 352307.8 12.21%Provisions 117671.82 76880.72 40791.1 53.06%

3

(B) 3354894.98 2961796.08 393098.9 13.27% Capital & Reserves:-Capital 12050 12050 0 0.00%Reserves & Surplus

516322.34 391391.74 124930.6 31.92%

(C) 528372.34 403441.74 124930.6 30.97%(A+B+C) 4021374.46 3499113.65 522260.81 14.93%

Interpretations:-

There has been an increase in Current Assets by 16.07% and the main contributories for

the increase in the liquidity position of the company are INVENTORIES (shown an

increase of approx.17%) and CASH (increased approx by18 %).

Fixed asset show an increase of Rs 60000crore (approx) which is a percentage increase

of 14.96%.

Reserves has been increased by 32% because of which it may be concluded that the

company can issue further shares to their existing shareholders as they altogether

remained content during the year.

The overall financial position of the company can be regarded to satisfactory.

4

COMPARATIVE ANALYSIS OF THE PROFIT& LOSS ACCOUNT

ANALYSIS OF THE PROFIT& LOSS ACCOUNTCOMPARATIVE

(Rs. in crore)

Particulars 2008 2007 Increase/decrease % Increase/decrease

         Sales 862533.06 778360.9 84172.16 10.81%Less:-Material consumed

468443.05 598039.81 -129596.76 -21.67%

GROSS PROFIT(1)

394090.01 180321.09 213768.92 118.55%

Add:-        Change in WIP(a)

16820.49 141855.62 -125035.13 -88.14%

Other Incomes(b)

171484.5 114347.28 57137.22 49.97%

Capital income(c)

40397.61 35088.82 5308.79 15.13%

Total(1+a+b+c)

622792.61 471612.81 151179.8 32.06%

         OPERATING EXPENCES:-Amortization 35552.83 26470.17 9082.66 34.31%Salaries & Wages

175927.94 105021.88 70906.06 67.52%

Other Expenses 123164.87 113934.39 9230.48 8.10%

Interest 1322.96 1594.23 -271.27 -17.02%Depreciation 11795 10028.43 1766.57 17.62%Provision 53074.88 44918.71 8156.17 18.16%

5

-2 400838.48 301967.81 98870.67 32.74%Profit Before Tax(Total-2)

221954.13 169645 52309.13 30.83%

Less:-        Tax 53234.95 59484.27 -6249.32 -10.51%Profit After Tax

168719.18 110160.73 58558.45 53.16%

Interpretations:-

It is noticed that in spite of increase in sales by 11% approx. company is incurring gross

profit by 118.55%. The major reason behind this is that the consumption of raw

material is decrease by 21.67 s% in comparison to increase in sales.

Work-in-progress decreases significantly i.e. 88.14%.

Profit Before Tax has been increased considerably from Rs. 169645crore to

Rs.221954.13crore.

The taxes of the company have also decreased significantly by approx. 10%, which

further increases the Net Profit to 53.16%.

The overall profitability can be regarded to be satisfactory.

6

RATIO ANALYSIS OF HINDUSTAN AERONAUTICS LIMITED

1. LIQUIDITY RATIOS:-

The liquidity ratios measure the liquidity position of the firm and its ability to meet its

maturing short-term obligations. Liquidity is defined as the ability to realize value in

money, the most liquid form of assets. Liquidity ratios are calculated to measure the

short-term financial soundness of the business. The ratio assesses their capacity of the

company to repay its short-term liability. Banks and other moneylenders are interested

in the current assets of the company that is short term Solvency of the business.

The important ratios in measuring short term solvency are:-

Current ratio:

The Current Ratio is a measure of the firm’s Short-term solvency. It indicates the

availability of current assets in rupees for every one rupee of current liability. Ratio of

greater than one means that the firm has more current assets than current claims against

them.

Quick Ratio:

Also called as the acid test ratio, it establishes a relationship between quick, or liquid,

assets and current liabilities. An asset is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most liquid asset,

7

other assets that are considered to be relatively liquid and included in quick assets are

Debtors, Bills receivables and Marketable securities (temporary quoted investments).

Absolute liquid ratio:

Since cash is the liquid asset, a financial analyst may examine Cash ratio and its

equivalent to current liabilities. Trade investments or marketable securities are

equivalent of cash; therefore they may be included in the computation of cash

ratio/absolute liquid ratio.

RATIOS CALCULATED BY IDEAL RATIO

Current Ratio (Current assets, Loans & advances) 2:1

(Current liabilities & advances)

Quick Ratio (Current assets - inventories) 1:1

(Current Liabilities–Bank overdraft)

Absolute Liquid Ratio (Absolute liquid assets*) 1:2

(Current liabilities)

* =Cash in hand + at bank + short term

investments

Following is the comparison of H.A.L.’s LIQUIDITY RATIO of Current year (2007) with

that of previous year (2006)

Ratios Current Ratio Quick Ratio Absolute Liquidity ratio

Years 2008 2007 2008 2007 2008 2007

H.A.L. 0.98 0.98 0.74 0.77 0.78 0.52

8

Interpretations: -

For CURRENT RATIOS:

It can be concluded here that for HINDUSTAN AERONAUTICS LIMITED,

the ratio stands out to be 0.98 and while comparing it with the previous year, we

can conclude that there is no change in the current ratio of the organization.

The ratio is not an ideal ratio and the solvency position of the firm can be

regarded to be quite weak.

It can be followed from the ratio that the firm is not comfortable in paying off

its current liabilities. It can be also said that the firm follows a faulty investment

policies as too much money remains blocked.

For QUICK RATIOS:

A quick ratio of 1:1 is considered to be the ideal one.

For H.A.L.’s current year as compared to the previous year we can see that

there is a slight decline in the ratio, which concludes that either company buys

inventory or pay back some lone.

.

For ABSOLUTE LIQUIDITY RATIO:

HINDUSTAN AERONAUTICS LTD. stands to satisfy the ratio which says that

an ideal ratio is 50%(1:2) i.e. absolute liquid assets worth one-half of the value

9

of the current liabilities are sufficient for a satisfactory liquid position of the

company.

H.A.L. can be regarded to be the sound enterprise as there has been a

remarkable increase in the cash ratio position of the company.

2. LEVERAGE RATIOS: -

The long term financial stability of the firm may be considered as dependent upon its

ability to meet all its liabilities, including those not currently payable, The ratios which

are important in measuring the financial leverage of the company are: -

Debt-Equity Ratio:

Several debt ratios may be used to analyze the long-term solvency of a firm. The firm

may be interested in knowing the proportion of the interest-bearing debt (also called

funded debt) in the capital structure.

Shareholders Equity Ratio:

It is calculated to find the worth of the shareholders in comparison to the total assets of

the firm. To see whether the firm is capable of paying to the equity shareholders out of

the assets available.

Long Term Debt to Shareholders Net worth Ratio:

10

The ratio compares long term debts to the net worth of the firm i.e., the capital and free

reserves less intangible assets. This ratio is finer than the debt equity ratio and includes

capital, which is invested in fictitious assets like deferred expenditure and carried

forward losses.

Fixed assets to long Term funds Ratio :

This ratio indicates the proportion of long term funds deployed in fixed assets. Fixed

assets represent the gross fixed assets less depreciation provided on this bill till the date

of calculation.

RATIOS CALCULATED BY

Debt-Equity Ratio (Long term Debt)

(Shareholders fund)

Shareholders Equity

Ratio

(Shareholders equity)

(Total Assets (tangible))

Long term debt to shareholders

net worth

(Long Term Debt)

(Shareholders Net Worth)

Fixed Assets to Long term funds

Ratio

(Fixed Assets)

(Long Term Funds)

11

Calculation of Ratios:-

Ratios

Debt-Equity

ratio

Shareholders

Equity ratio

Long Term Debt to

Shareholders Net

worth ratio

Fixed assets to Long

term funds ratio

2008 2007 2008 2007 2008 2007 2008 2007

H.A.L. 11.11 11.72 0.03 0.04 0.33 11.42 3.00 2.31

Interpretations:-

For Debt-Equity Ratio:

Since we know that the use of Debt capital has direct implications for the profit

accruing to the ordinary shareholders, and the expansion is often financed in

this manner with the objective of increasing the shareholders rate of return.

Regarding Hindustan Aeronautics Limited we can say that the capital gearing

position is satisfactory and the company can benefit from issuing capital, as it is

not able to reap the benefit of trading with shareholders fund.

For Shareholders Equity Ratio:

It is being said that the larger the proportion of the shareholders equity, the

stronger is the financial position of the company.

12

We can conclude from the data calculated above that the financial position of

the company is not strong from the point of view of the shareholders funds as

their ratio to the fixed assets is even less than 50%

For Long Term Debt to Shareholders Net Worth Ratio:

It shows the capacity of the Net Worthiness of the shareholders to cover the

Long term Debts of the company.

Since the long-term debt represents only 30%of the shareholders net worth

leaving balance 70% to other current liabilities, gives an indication of strong

short-term as well as long-term solvency of the company.

As compared to the previous year we can say that there is a sudden decline in

the long-term debt with reference to the shareholders net worth.

For fixed Assets to long Term funds Ratio:

The high ratio indicates the high proportion of long term funds deployed in

fixed assets. It indicates the long-term solvent position of the company.

In the calculation done above we can say that the company is running in a

solvent position and that the funds deployed in the fixed assets are appropriate.

3. ASSET MANAGEMENT RATIOS:-

Asset Management ratios measure how effectively the firm employs its resources. These ratios

are also called “activity or Turnover ratios” which involves comparison between the level of

sales and investment in various accounts- inventories, debtors, fixed assets, etc. asset

13

Management Ratios are used to measure the speed with which various accounts are converted

into sales or cash. The following asset Management ratios are calculated for analysis: -

Inventory Turnover Ratio:

The Inventory Turnover Ratio measures how many times a company’s

inventory has been sold during the year. If the inventory turnover ratio has

decreased from past, it means that either inventory is growing or sales are

dropping in addition to that, if a firm has a turnover that is slower than for its

industry, then there may be obsolete goods on hand, or inventory stocks may be

high. Low inventory has impact on the liquidity of the business.

Inventory Ratio:

The level of inventory in the company may be assessed by the use of the

inventory ratio, which measures how much has been tied up in the inventory.

Fixed Assets Turnover Ratio:

An increase in the fixed asset figure may result from the replacement of an asset

at an increase price or the purchase of an additional asset intended to increase

production capacity.

Total Assets Turnover Ratio: The higher the ratio indicates overtrading of

total assets, while a low indicates idle capacity.

14

RATIOS CALCULATED BY

Inventory Turnover Ratio (Cost of goods sold/Sales)

(Average Inventory*)

*=(Opening stock + closing stock)/2

Inventory Ratio (Inventory) *100

(Current Assets)

Fixed Assets Turnover Ratio (Sales)

(Fixed Assets)

Total Assets Turnover Ratio (Sales)

(Total Assets)

Calculation of Ratios:-

Ratios Inventory

Turnover Ratio

Inventory Ratio Fixed Assets

Turnover Ratio

Total assets

Turnover Ratio

2008 2007 2008 2007 2008 2007 2008 2007

H.A.L. 0.99 0.89 24.69% 22.59% 1.94 1.58 0.23 0.22

Interpretations: -

For Inventory Turnover Ratio:

The Inventory Turnover Ratio measures that, how many times a company’s

inventory has been sold during the year.

Inventory turnover rate in H.A.L. is comparatively high when compared to the

previous year 2007, it show better position of company.

15

There has been a slight variation seen in the Inventory Turnover Ratio i.e. it has

increased from 0.89 to 0.99, which means that the ability of the firm to convert

its assets in sales has increase.

For Inventory Ratio:

It means that how much amount of inventory is being contributed by current

assets.

Here we may say that H.A.L. holds approx. 25% of the current assets as

inventory, which means that it is been strongly backed up by 75% of fixed

assets.

But with this 25% contribution from current assets fixed assets somewhere

block the liquidity of the company.

For Fixed Assets Turnover Ratio:

This ratio is used for calculating the contribution of the fixed assets in terms of

sales made by the company.

In the above calculation we can see that the 75% backup being given by the

fixed assets is having the capacity to be converted into sales amount.

For Total asset Turnover Ratio:

Under this it can be concluded that higher ratio indicates overtrading of total

assets, while a low ratio indicates idle capacity.

The firm can be regarded as using the assets effectively.

16

4. PROFITABILITY RATIOS:

The purpose of study of profitability ratios are to help assessing the adequacy of profits earned

by the company and also to discover whether profitability is increasing or decreasing. The

profitability of the firm is the net result of a large number of policies and decisions. The

profitability ratios show the combined effects of liquidity, asset management and debt

management on operating results. Profitability ratios are measured with reference to sales,

capital employed, total assets employed, shareholders funds etc., the major profitability rates

are as follows:

Gross Profit Margin:

The ratio measures the gross profit on the total net sales made by the company. The

gross profit represents the excess of sales proceeds during the period under Observation

over their cost, before taking into account administration, selling and Distribution and

financing charges. The ratio measures the efficiency of the Company’s operations and

this can also be compared with the previous years Results to ascertain the efficiency.

Net Profit Margin:

The ratio is designed to focus attention on the net profit margin arising from business

operations before interest and tax is deducted. The convention is to express profit after

tax and interest as a percentage of sales. A drawback is that the percentage which 17

results varies depending on the sources employed to finance business activity; interest

is charged above the line while dividends are deducted below the line

Cash Profit Ratio:

The cash profit ratio is a more reliable indicator of performance where there are sharp

fluctuations in the profit before tax and net profit from year to year owing to difference

in depreciation charged

Return On Total Assets:

The profitability of the firm is measured by establishing relation of net profit with the

total assets of the organization. This ratio indicates the efficiency of utilization of assets

in generating.

Ratio Calculated By

Gross Profit Margin (Sales – Cost of goods Sold) *100

(Sales)

Net Profit Margin (Net Profit before Interest and Tax)*100

(Sales)

Cash Profit Ratio (Cash Profit) * 100

(Sales)

Return on Total Asset (Net Profit after Tax)* 100

(Total Assets)

Calculation of Ratios:-

Ratios Gross Profit Net profit Margin Cash Profit Return on total

18

Margin Ratio asset

2008 2007 2008 2007 2008 2007 2008 2007

H.A.L. 0.90 0.89 22.41% 21.09% 1.94% 1.58% 21.38% 16.03%

Interpretations:-

o The gross profit margin has increased but by a very small margin.

o There has been a considerable increase in the net profit margin which means that

the liquidity position of the company is good and that they are in a good position

to give returns to their investors.

o The cash position of the company has also increased although the increase is less

considerable.

o The return on total asset position of the company has increased tremendously and

that they are getting a benefit in investing.

Comparative Study of Various Aeronautic Industries with H.A.L.

After Discussing the Introduction of various Companies, we can now do a comparative study

of these Companies with HINDUSTAN AERONAUTICS LIMITED.

19

1. LIQUIDITY RATIOS:-

Current Ratio

Quick Liquid/ Acid Test Ratio

Absolute Liquid/Super Quick Ratio

CURRENT RATIO:

Companies Valuation (2008)

H.A.L. 0.98

British Airways 0.77

EADS 1.13

Boeing 0.97

Goodrich Corp. 0.09

Lockheed Martin Corp. 2.04

20

20080

0.5

1

1.5

2

2.5

H.A.L.British AirwaysEADSBoeingGoodrich Corp.Lockheed Martin Corp.

Fig.7

Interpretation:

From the data and statistics given above we can conclude that the solvent position of

GOODRICH CORP. is very good.

As compared to other industry players we can say that H.A.L. is Ranked 3 rd, which

means that the financial position is below satisfactory and that other companies are

doing fairly well.

It even concludes this that current assets are not sufficient to fulfill the requirements of

the current liabilities.

21

QUICK RATIO:

Company Valuation (2008)

H.A.L. 0.74

British Airways 0.75

EADS 0.57

Boeing 0.95

Goodrich Corp. 0.09

Lockheed Martin Corp. 0.90

20080

0.10.20.30.40.50.60.70.80.9

1

H.A.L.British AirwaysEADSBoeingGoodrich Corp.Lockheed Martin Corp.

Fig.8

22

Interpretations:

The major advantage holder in the comparison is Boeing. Although it is even not the

ideal ratio but yet it is highly earned ratio in our study above and on this analysis we

can even conclude that the company is able to fulfill its current obligations very

actively.

H.A.L. once again we can see that is earning a less than satisfactory returns. And

competing in the world it stands out to be equivalent to British Airways.

ABSOLUTE LIQUID RATIO:

Company Valuation (2008)

H.A.L. 0.78

British Airways 0.03

EADS 0.27

Boeing 0.66

Goodrich Corp. 0.23

Lockheed Martin Corp. 0.04

23

20080

0.10.20.30.40.50.60.70.8

H.A.L.British AirwaysEADSBoeingGoodrich Corp.Lockheed Martin Corp.

Fig.9

Interpretation:

We can see clearly that H.A.L. is the most beneficiary organization amongst this

analysis, and that it is having a substantial market share. Although it is a monopolistic

concern in the country but when competing globally it is having an adequate share.

2. LEVERAGE RATIO

Debt-Equity Ratio

Shareholders Equity Ratio

Long term Debt to Shareholders Net worth Ratio

Fixed assets to Long Term Funds Ratio

24

Debt-Equity Ratio

Company Valuation (2008)

H.A.L. 0.04

British Airways 2.22

EADS 0.30

Boeing 0.90

Lockheed Martin Corp. 0.32

Goodrich Corp. 1.18

20080

0.5

1

1.5

2

2.5

H.A.L.British AirwaysEADSBoeingLockheed Martin Corp.Goodrich Corp.

Fig.10

25

Interpretation:

H.A.L. amongst all can be regarded to the least or the lowest geared company.

Therefore we can say that the earning of the shareholders from the company is very low

or negligible.

Among the comparative firms British Airways is the Highly Geared Company as it is

fairly able to give returns to its shareholders.

Shareholders Equity Ratio

Company Valuation (2008)

H.A.L. 0.03

British Airways 0.29

EADS 0.30

Boeing 0.90

Lockheed Martin Corp. 0.32

Goodrich Corp. 1.18

26

20080

0.2

0.4

0.6

0.8

1

1.2

H.A.L.British AirwaysEADSBoeingLockheed Martin Corp.Goodrich Corp.

Fig.11

Interpretation:

H.A.L. amongst all can be regarded to the least or the Lowest Geared Company.

Among the comparative firms Goodrich Corp. is the Highly Geared Company as it is

fairly able to give returns to its shareholders followed by Boeing.

27

Long Term Debt to Shareholders Net Worth Ratio

Company Valuation (2008)

H.A.L. 0.33

British Airways 2.27

EADS 3.22

Boeing 3.06

Lockheed Martin Corp. 3.63

Goodrich Corp. 1.25

20080

0.51

1.52

2.53

3.54

H.A.L.

British Airways

EADS

Boeing

Lockheed Martin Corp.

Goodrich Corp.

Fig.12

28

Interpretation:

As the data gives the factual idea about of the assets available to meet long term

liabilities, we can see that H.A.L. does not show the actual picture and therefore they

are not able to satisfy the long term requirement through Shareholders worth.

4. ASSET MANAGEMENT RATIO

Inventory Turnover Ratio

Inventory Ratio

Fixed Assets Turnover Ratio

Total Assets Turnover Ratio

Inventory Turnover Ratio

Company Valuation (2008)

H.A.L. 0.99

British Airways 107.15

EADS 1.91

Boeing -

Lockheed Martin Corp. -

Goodrich Corp. 2.72

29

20080

20

40

60

80

100

120

H.A.L.British AirwaysEADSBoeingLockheed Martin Corp.Goodrich Corp.

Fig.13

Interpretation:

H.A.L. being an order based organization i.e. they receive orders and manufacture

product has inventory in hand which they are not able to sale on the required time,

whereas on the contrary we can see that the stock turnover of British Airways is quite

good as they don’t have to keep stock stored as its being sold very easily in the market.

30

Inventory Ratio

Company Valuation (2008)

H.A.L. 24.59%

British Airways 3.01%

EADS 49.23%

Boeing 3.56%

Lockheed Martin Corp. 0.37%

Goodrich Corp. 50.03%

20080.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

H.A.L.British AirwaysEADSBoeingLockheed Martin Corp.Goodrich Corp.

Fig.14

31

Interpretation:

We may say that H.A.L. holds approx. 25% of the current assets as inventory which

means that it is been strongly backed up by 75% of fixed assets, Which is quite low

when compared with EADS and GOODRICH CORP. but still gives a more than

satisfactory ratio.

Fixed Assets Turnover Ratio

Company Valuation (2008)

H.A.L. 1.94

British Airways 0.82

EADS 0.67

Boeing --

Lockheed Martin Corp. --

Goodrich Corp. 0.75

32

20080

0.20.40.60.8

11.21.41.61.8

2

H.A.L.British AirwaysEADSGoodrich Corp.

Fig. 15

Interpretation :

In the above calculation we can see that the 75% backup being given by the fixed assets

is having the capacity to be converted into sales amount.

Total Assets Turnover Ratio

Company Valuation (2008)

H.A.L. 0.23

British Airways 0.66

EADS 0.52

Boeing --

Lockheed Martin Corp. --

Goodrich Corp. 0.85

33

20080

0.10.20.30.40.50.60.70.80.9

H.A.L.British Airways EADSBoeingLockheed Martin Corp.Goodrich Corp.

Fig.16

Interpretation:

It can be easily interpreted that the most advantageous amongst them is Goodrich Corp.

On comparing H.A.L. with its competitors we can say that the performance of H.A.L. is

for behind than its competitors.

34

On analyzing the financial performance of HAL and its competitors the following points came into light:

The Comparative Vertical study of the Balance Sheet shows that the Current Assets

show an increase by 16.07% and also the liquidity position of the company has

increased because of the INVENTORIES (that shows an increase of approx.16.51%),

DEBTOR(increased by approx 16%) and CASH (which has increased approx by

17.7%).

Fixed asset show an increase of Rs. 60000crore (approx) which has approx. increased

by 14.96%.

Reserves has been increased by 32% because of which it may be concluded that the

company can issue further shares to their existing shareholders as they altogether

remained content during the year.

The Comparative analysis of P & L a/c reveals that the increase in the sales is 53%

approx. and the resultant change is the gross profit of around 200000 i.e.120% approx.

The taxes of the company have also decrease significantly by approx. 10%, which

increases the Net Profit to 53%.

Individually however the firm’s ratio reveals out to be positive but when they are

compared with the world’s leading companies they lack far behind (reasons can be

many).

The comparison however concludes that current assets are not sufficient to fulfill the

requirements of the current liabilities.

Talking about the liquidity position of the company it has a considerable share over the

market.

We can see from our study that H.A.L. is the most beneficiary organization and

although it is a monopolistic concern in the country but when competing globally it is

not having an adequate share.

35

CONCLUSION

Following are the conclusions that are derived from the purchase procedure:

Organization has a high goodwill in the market and that the work culture resembles

with the Corporate Work Environment.

As per the topic of the study is concerned, we can conclude that the company is having

a very good procedure of purchasing.

The pattern of purchasing is very systematic as before purchasing they found the need

of the material required, and therefore the organization from time to time inspect the

inventory of the organization due to which it is up to date and no efficiency comes of

raw material or any other material related to organization.

As for purchasing of the material they first do the planning and follow the MPRs

(material purchase requirement) with related departments, authorize issue of material,

liaise with shop engineer for day to day production problem related to material.

For purchasing they prepare RFQ (request for quotation) and tendering, receiving

quotation/tender opening, commercial, vetting, evaluation of quotes and completion of

comparative statements.

convening and coordinating PC/MPC meeting , arrange for negotiations if any, and

arrange long term business agreement/rate contract if any, issuance of purchase order

after coordination with finance and approval of proposal at division/ complex/

corporate office level.

36

Purchase order progression is done for ensuring the availability of material in time and

ensures prompt payment to supplier after receipt of material follow up of

replacement/rectification against any rejection and warranty claim.

Vendor evaluation and directory is done.

Coordination with regards to contract management, licence agreement, co-production

agreement etc has been done after that they resolve commercial disputes /arbitration.

At last preparation of Purchase budget /Foreign exchange budget is being done.

So, this is the procedure in shot and according to me there is no loop whole or any

weaker section founded by me in the procedure of purchasing.

37

Recommendations\Suggestions

Company should try to decrease its operating cycle, so that appropriate profit of

the company can be shown in the balance sheet to the share holders.

Company should increase the sale as the net profit is 53% inspite the increase in

sale is only 10%.

Company’s current asset are less than the current liabilities it means that short-

term solvency of the company is not good, so the organization should pay attention

towards satisfying and achieving an optimum level of 2:1, so that the company

may not suffer from high/low ratios.

The firm should have an optimum amount of cash so that the cash requirement

can be fulfilled adequately.

HAL should go for more expansion in the form of Shares as this will help building

the confidence of the shareholders and their participation in the management.

The company should invest in current account more.

Ideal fixed asset should be disposed of and converted into cash so that the liquidity

of the firm can be increased and in turn the productivity of fixed asset can be

increased.

Company should tries to use more long term loans for enjoying benefits of

gearing, so that earning of the share holders can be increased.

Company should try to explore new foreign market and should enter in

manufacturing of commercial aircraft for domestic as well as for international

market so that it can utilize its resources well and can increase its profitability.

38

Reference Books:

Pandey I.M. – Management Accounting ( Vikas, 3rd Edition), 2009

Kishore Ravi M - Taxmann’s Financial Management (taxmann , 7th edition)2008

Goel D.k. – Accountancy (arya 6th edition )2005

Kothari C.R.- Research Methodology (New Age International , 2nd edition) 200

M.Y – Financial Management (Tata McGraw – Hill, 3rd Edition), 2003.

Websites:

www.google.com

www.hal-india.com

www.goodrich.com

www.britishairways.com

www.eads.eu

Corporate website of Boeing

www.wikipedia.com

Journals and magazines:

Manual of H.A.L.

Monthly Journal produced by H.A.L.

39

ANNEXURES

I. Financial Statement of Hindustan Aeronautics Limited………….. i

II. Financial statement of British Airways…………………………... ii

III. Financial statement of EADS…………………………………….. iii

IV. Financial Statement Of Boeing………………………………….. iv

V. Financial statement of Goodrich Corporation…………………… v

Annexure (i)

40

41

42

Annexure (ii)

Profit & Loss Account

Date of Accounts 31/03/2008 31/03/2007

Consolidated Yes Yes

Subsidiary No No

No. of Weeks 52 52

Currency (£ '000) (£ '000)

Audit Qualification No No

1  Turnover 8,940,000 8,892,000

Cost of Sales 8,679,000 8,273,000

Gross Profit 261,000 619,000

2  Operating Profit (21,000) 353,000

Non Trading Income 371,000 196,000

Interest Payable 345,000 324,000

Pre-tax Profit 5,000 225,000

Taxation 15,000 19,000

Profit After Tax (10,000) 206,000

Dividends Payable 195,000 191,000

Retained Profit (216,000) 15,000

Value Added 2,602,160 2,816,784

Balance Sheet

43

   Date of Accounts 31/03/2008 31/03/2007

   Consolidated Yes Yes

   Subsidiary No No

   No. of Weeks 52 52

   Currency (£ '000) (£ '000)

 

3  Tangible Fixed Assets 10,861,000 10,241,000

   Intangible Assets 62,000 0

   Total Fixed Assets 10,923,000 10,241,000

 

   Stocks 78,000 84,000

   Trade Debtors 889,000 905,000

   Cash 103,000 112,000

4  Miscellaneous Current Assets 1,522,000 1,482,000

   Total Current Assets 2,592,000 2,583,000

 

5  Creditors: Amounts falling due within

one year3,366,000 3,048,000

 

   Total Assets less Current Liabilities 10,149,000 9,776,000

 

6  Total Long Term Liabilities 7,002,000 6,421,000

44

 

   Total Liabilities 10,368,000 9,469,000

 

7  Share Capital & Reserves 1,055,000 1,032,000

   P & L Account Reserve 1,807,000 2,033,000

   Revaluation Reserve 285,000 290,000

   Shareholders' Funds 3,147,000 3,355,000

   Capital Employed 10,149,000 9,776,000

 

   Net Worth 3,085,000 3,355,000

   Working Capital (774,000) (465,000)

   Contingent Liabilities 254,000 182,000

Cash Flow

   Date of Accounts 31/03/2008 31/03/2007

   Consolidated Yes Yes

   Subsidiary No No

  No. of Weeks 52 52

   Currency (£ '000) (£ '000)

 

   Net Cashflow from Operating Activities 1,186,000 1,241,000

   Net Cashflow from Return on Investment and Servicing of Finance (513,000) (411,000)

45

   Net Cashflow before Financing 316,000 303,000

   Net Cashflow from Financing (319,000) (235,000)

   Increase in Cash (3,000) 68,000

Annexure (iii)

INCOME STATEMENT

Currency inMillions of European Union Euros

Dec 312007

Dec 312008

Revenues 39,434.0 39,123.0

TOTAL REVENUES 39,434.0 39,123.046

Cost of Goods Sold 34,665.0 34,129.0

GROSS PROFIT 4,769.0 4,994.0

Selling General & Admin Expenses, Total 2,274.0 2,178.0

R&D Expenses 2,458.0 2,608.0

Other Operating Expenses 188.0 97.0

OTHER OPERATING EXPENSES, TOTAL 4,920.0 4,883.0

OPERATING INCOME -151.0 111.0

Interest Expense -575.0 -701.0

Interest and Investment Income 491.0 588.0

NET INTEREST EXPENSE -84.0 -113.0

Income (Loss) on Equity Investments 152.0 210.0

Currency Exchange Gains (Loss) -90.0 -279.0

Other Non-Operating Income (Expenses) 130.0 -188.0

EBT, EXCLUDING UNUSUAL ITEMS -43.0 -259.0

Merger & Restructuring Charges -- -624.0

Gain (Loss) on Sale of Investments -- --

Gain (Loss) on Sale of Assets 134.0 162.0

Other Unusual Items, Total -57.0 -49.0

Legal Settlements -- --

EBT, INCLUDING 34.0 -770.0

47

UNUSUAL ITEMS

Income Tax Expense -81.0 -333.0

Minority Interest in Earnings -16.0 -9.0

Earnings from Continuing Operations 99.0 -446.0

NET INCOME 99.0 -446.0

NET INCOME TO COMMON INCLUDING

EXTRA ITEMS99.0 -446.0

NET INCOME TO COMMON EXCLUDING

EXTRA ITEMS99.0 -446.0

48

BALANCE SHEET:-

Assets

Dec 31

2007

Dec 31

2008

Cash and Equivalents    

Short-Term Investments 8,143.0 7,549.0

TOTAL CASH AND SHORT TERM

INVESTMENTS

652.0 1,764.0

Accounts Receivable 8,795.0 9,313.0

Notes Receivable 4,852.0 4,639.0

Other Receivables 37.0 101.0

TOTAL RECEIVABLES 1,437.0 1,446.0

Inventory 6,326.0 6,186.0

Prepaid Expenses 16,892.0 18,906.0

Other Current Assets 384.0 401.0

TOTAL CURRENT ASSETS 2,584.0 3,599.0

Gross Property Plant and Equipment 34,981.0 38,405.0

Accumulated Depreciation 21,272.0 21,462.0

NET PROPERTY PLANT

AND EQUIPMENT

-10,667.0 -10,498.0

Goodwill 10,605.0 10,964.0

Long-Term Investments 9,565.0 9,519.0

Deferred Tax Assets, Long

Term

5,055.0 6,482.0

Deferred Charges, Long

Term

2,624.0 2,705.0

Other Intangibles 873.0 900.0

Other Long-Term

Assets

417.0 413.0

TOTAL ASSETS 8,017.0 6,068.0

LIABILITIES & EQUITY    

Accounts Payable    

Accrued Expenses 7,461.0 7,398.0

Short-Term Borrowings 881.0 843.0

Current Portion of Long- 630.0 785.0

49

Current Portion of

Capital Lease Obligations

1,566.0 939.0

Current Income Taxes

Payable

97.0 69.0

Other Current Liabilities,

Total

218.0 179.0

Unearned Revenue,

Current

5,738.0 7,004.0

TOTAL CURRENT

LIABILITIES

14,658.0 16,920.0

Long-Term Debt 31,152.0 34,068.0

Capital Leases 3,383.0 2,969.0

Minority Interest 178.0 121.0

50

Unearned Revenue, Non-Current

137.0 85.0

Pension & Other Post-Retirement Benefits

7,418.0 9,173.0

Other Non-Current Liabilities

2,465.0 2,188.0

TOTAL LIABILITIES 8,787.0 9,380.0

Common Stock 59,122.0 62,366.0

Additional Paid in Capital 816.0 814.0

Retained Earnings 8,160.0 7,968.0

Treasury Stock -- --

Comprehensive Income and Other

-349.0 -206.0

TOTAL COMMON EQUITY

4,388.0 4,514.0

TOTAL EQUITY 13,015.0 13,090.0

TOTAL LIABILITIES AND EQUITY

13,015.0 13,090.0

72,137.0 75,456.0

CASH FROM INVESTING 3,795.0 -2,938.0

Long-Term Debt Issued 1,988.0 -4,743.0

TOTAL DEBT ISSUED 1,252.0 236.0

Long Term Debt Repaid 1,252.0 236.0

TOTAL DEBT REPAID -468.0 -955.0

Issuance of Common Stock -468.0 -955.0

Repurchase of Common Stock 94.0 46.0

Common Dividends Paid -35.0 --

TOTAL DIVIDEND PAID -520.0 -97.0

Other Financing Activities -520.0 -97.0

CASH FROM FINANCING -2,895.0 -1.0

-51

CASH FLOW STATEMENT:-

NET INCOME

Dec 312007

Dec 312008

Depreciation & Amortization 99.0 -446.0

Amortization of Goodwill and Intangible Assets 1,299.0 1,545.0

DEPRECIATION & AMORTIZATION, TOTAL 203.0 227.0

(Gain) Loss from Sale of Asset 1,502.0 1,772.0

Asset Writedown & Restructuring Costs -336.0 -125.0

Other Operating Activities 189.0 --

(Income) Loss on Equity Investments 2,223.0 2,862.0

Minority Interest -152.0 -210.0

Change in Accounts Receivable 16.0 9.0

Change in Inventories -7.0 -148.0

Change in Accounts Payable -1,942.0 -2,998.0

Change in Unearned Revenues 686.0 44.0

Change in Other Working Capital 1,564.0 4,817.0

CASH FROM OPERATIONS -444.0 -540.0

Capital Expenditure 3,398.0 5,037.0

Sale of Property, Plant, and Equipment -2,855.0 -2,058.0

Cash Acquisitions 291.0 533.0

Divestitures -82.0 --

Investments in Marketable & Equity Securities 86.0 29.0

Foreign Exchange Rate Adjustments -2,572.0 771.0

NET CHANGE IN CASH -57.0 -117.0

2,757.0 -594.0

Annexure (iv)

  Group£million Note 2008 2007

Non-current assets      Property, plant and equipment: 14    Fleet   5,976 6,153Property   977 932Equipment   310 272    7,263 7,357Goodwill 17 40 40Landing rights 17 159 139Software 17 22 33    221 212Investments in subsidiaries 19 – –Investments in associates 19 227 125Available-for-sale financial assets 20 80 107Employee benefit assets 35 85 116Derivative financial instruments 31 80 8

52

Prepayments and accrued income   19 20Total non-current assets   7,975 7,945Non-current assets held for sale 16 – 8Current assets and receivables      Inventories 21 112 76Trade receivables 22 586 654Other current assets 23 308 268Derivative financial instruments 31 278 78Other current interest-bearing deposits 24 1,181 1,642Cash and cash equivalents 24 683 713    1,864 2,355Total current assets and receivables   3,148 3,431Total assets   11,123 11,384Shareholders’ equity      Shareholders’ equity:      Issued share capital 32 288 288Share premium   937 933Investment in own shares   (10) (10)Other reserves 34 1,818 1,000Total shareholders’ equity   3,033 2,211Minority interest 34 200 200Total equity   3,233 2,411Non-current liabilities      Interest-bearing long-term borrowings 27 2,751 2,929Employee benefit obligations 35 330 1,142Provisions for deferred tax 11 1,154 930Other provisions 29 210 153Derivative financial instruments 31 33 6Other long-term liabilities 26 168 188Total non-current liabilities   4,646 5,348Current liabilities      Current portion of long-term borrowings 27 423 417Trade and other payables 25 2,590 2,726Derivative financial instruments 31 57 18Current tax payable   4 54Short-term provisions 29 170 410Total current liabilities   3,244 3,625Total equity and liabilities   11,123 11,384

53

Annexure (v)

Annual Income StatementPeriod Ended 12/31/08 12/31/07Net Sales 6,392.20 5,719.10Cost of Goods Sold 4,483.30 4,143.40

Gross Profit 1,908.90 1,575.70

R & D Expenditure n/a n/aSelling, General & Admin Expenses

1,027.60 935.90

Depreciation & Amort. n/a n/aNon-Operating Income -39.50 -57.00Interest Expense 124.90 126.00

Income Before Taxes 716.90 456.8054

Prov. For Inc. Taxes 220.90 -21.20Minority Interest n/a n/aRealized Investment (Gain/Loss)

n/a n/a

Other Income n/a n/aNet Income Before Extra Items

496.00 478.00

Extra Items & Disc. Ops. -13.40 4.10

Net Income 482.60 482.10

Annual Balance Sheet

55

Total Liabilities 4,954.60 4,924.50Shareholder EquityMinority Interest n/a n/aPreferred Stock n/a n/aCommon Stock 711.90 695.20Capital Surplus 1,453.10 1,313.30Retained Earnings 1,054.80 666.50Treasury Stock 654.80 437.50Other Liabilities 14.40 -260.80Total Shareholders Equity 2,579.40 1,976.70Total Liabilities & Shareholders Equity 7,534.00 6,901.20

56

As of 12/31/08 12/31/07Cash 406.00 201.30Marketable Securities n/a n/aReceivables 1,080.80 897.60Total Inventories 1,775.60 1,520.10Raw Materials 433.70 367.50Work In Progress 1,010.90 835.20Finished Goods 331.00 317.40Notes Receivable n/a n/aOther Current Assets 286.40 463.20

Total Current Assets 3,548.80 3,082.20Property, Plant & Equipment, Net 1,387.40 1,256.00Property, Plant & Equipment, Gross 2,952.90 2,662.90Accumulated Depreciation 1,565.50 1,406.90Interest and Advance to Subsidiaries 160.10 46.80Other Non-Current Assets n/a n/aDeferred Charges 46.90 61.80Intangibles 1,815.30 1,813.30Deposits & Other Assets 575.50 641.10

Total Assets 7,534.00 6,901.20

Notes Payable 21.90 11.80Accounts Payable 586.70 576.70Curr. Long-Term Debt 162.20 1.40Curr. Port. Cap Lease 0.70 n/aAccrued Expense 713.40 611.50Income Taxes 40.30 215.80Other Current Liabilities 217.40 216.90

Total Current Liabilities 1,742.60 1,634.10Mortgages n/a n/aDeferred Charges/Inc. 170.20 55.80Convertible Debt n/a n/aLong-Term Debt 1,554.10 1,712.30Non-Curr. Capital Leases 8.80 9.40Other Long-Term Liab. 1,478.90 1,512.90

As of 12/31/08 12/31/07Cash 406.00 201.30Marketable Securities n/a n/aReceivables 1,080.80 897.60Total Inventories 1,775.60 1,520.10Raw Materials 433.70 367.50Work In Progress 1,010.90 835.20Finished Goods 331.00 317.40Notes Receivable n/a n/aOther Current Assets 286.40 463.20Total Current Assets 3,548.80 3,082.20Property, Plant & Equipment, Net 1,387.40 1,256.00Property, Plant & Equipment, Gross 2,952.90 2,662.90Accumulated Depreciation 1,565.50 1,406.90Interest and Advance to Subsidiaries 160.10 46.80Other Non-Current Assets n/a n/aDeferred Charges 46.90 61.80Intangibles 1,815.30 1,813.30Deposits & Other Assets 575.50 641.10Total Assets 7,534.00 6,901.20Notes Payable 21.90 11.80Accounts Payable 586.70 576.70Curr. Long-Term Debt 162.20 1.40Curr. Port. Cap Lease 0.70 n/aAccrued Expense 713.40 611.50Income Taxes 40.30 215.80Other Current Liabilities 217.40 216.90Total Current Liabilities 1,742.60 1,634.10Mortgages n/a n/aDeferred Charges/Inc. 170.20 55.80Convertible Debt n/a n/aLong-Term Debt 1,554.10 1,712.30Non-Curr. Capital Leases 8.80 9.40Other Long-Term Liab. 1,478.90 1,512.90Total Liabilities 4,954.60 4,924.50Shareholder EquityMinority Interest n/a n/aPreferred Stock n/a n/aCommon Stock 711.90 695.20Capital Surplus 1,453.10 1,313.30Retained Earnings 1,054.80 666.50Treasury Stock 654.80 437.50Other Liabilities 14.40 -260.80Total Shareholders Equity 2,579.40 1,976.70Total Liabilities & Shareholders Equity 7,534.00 6,901.20

Annual Cash Flow Statement

57

12/31/07 12/31/06 12/31/05Net Income (Loss) 496.00 482.10Depreciation/Amortization 250.20 233.80Net Incr (Decr) in Assets/Liab. -294.70 -414.30Cash Flow from Disc. Operations 1.30 21.10Other Adjustments-Net 140.90 -57.20

Net Cash Flow from Operating 593.70 265.50

Incr (Decr) in Prop. Plant & Equip -279.30 -250.60(Acq.)Disp. of Subs. Business 88.80 -2.20Incr (Decr) in Securities Invest. n/a n/aOther Cash Flow from Investing -88.80 2.20Net Cash Flow from Investing -279.30 -250.60

Issue (Purchase) of Equity -118.70 45.90Issue (Repayment) of Debt -1.40 -21.80Incr (Decr) in Borrowing 9.20 -11.60Dividends, Other Distribution -108.20 -103.40Other Cash Inflow (Outflow) 16.60 0.50Net Cash Flow from Financing -202.50 -90.40

Effect of Exchange Rate on Cash 92.80 25.50Cash or Equivalents at Year Start 201.30 251.30Cash or Equivalents at Year End 406.00 201.30

Net Change in Cash or Equiv 204.70 -50.00

58