report on financial statement analysis

7/28/2019 Report on Financial Statement Analysis

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A REPORT

ON

FINANCIAL STATEMENT ANALYSIS

BY

ANKIT JAIN

12BSP0163

S.E. INVESTMENTS LIMITED (SEIL)


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A REPORT

ON

FINANCIAL STATEMENT ANALYSIS

BY

ANKIT JAIN

12BSP0163

S.E. INVESTMENTS LIMITED (SEIL)

A report submitted in partial fulfillment of PGPM Program of

IBS BANGALORE

Date of Submission:


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ACKNOWLEDGEMENT

I hereby take this opportunity to thank all those who have helped me some wayor the other in the successful completion of this project. The guidance and support

of many people has been immense throughout the project. I would like to extend

sincere gratitude to Mr. K. Balakrishnan, Director, IBS Bangalore, for providing

me an opportunity to take up my summer internship project.

I would like to show my greatest appreciation to my company guide Mr.

R.K.Jain, Chief Credit Manager, S.E. Investments Limited (SEIL)., for giving me

an opportunity to work in his esteemed organization. I would like to express a deep

sense of gratitude and indebtedness to my Faculty Guide Prof. R. Harish, Faculty

IBS Bangalore for her invaluable support, motivation and guidance in the

successful completion of the project.

I would also like to extend my gratitude to my parents, my well wishers who

have helped me in some ways or the other in the completion of this project.

Ankit Jain

12BSP0163

IBS Business School


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CONTENTS

S. No. Particular Page No.1. Objective of the Study 52. Current Scenario of NBFC Sector 73. Companys Mission 94. Companys methodology for loan application 105. Papers required for loan application 116. Theoretical background 127. Advantages of ratios 208. Limitations of ratio analysis 219. Research methodology 2210. Learnings from the project 2311. About my job 2512. Financial statements of

Prakash constrowell limited

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13. Ratio analysis 3014. Conclusion 4215. Referencing 44


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OBJECTIVE OF THE STUDY

To find out the relationship between the different items of the balance-sheetand profit and loss account.

To know the ability of the organization to meet the current obligations. To know the ability of the organization to meet the long term obligations. To know the changes in the financial position of the organization over a

period.

To get a thorough idea about the functioning of the organization. To get idea about the performance of the company. To get an exposure of the actual working environment. To thoroughly understand the cash flow management and various aspects. Evaluate the Financial Statements. Measure Profitability, Efficiency & Liquidity position


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Non-banking financial companies (NBFCs) are

fast emerging as an important segment

of Indian financial system.

They provide financial support

to some important segments of the economy

which plays a key role in stimulating the engine of

economic growth.


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CURRENT SCENARIO OF NBFC SECTOR

Indias NBFC sector, which accounts for about 13% of the total assets of thebanking sector, is passing through a critical phase. By all objective measures, this

sector has made rapid strides in recent years and led the way forward in delivering

innovation and outstanding value to stakeholders. Moreover, it plays a critical part

in filling the many gaps left by the banking sector. The performance of the NBFCs

has been particularly impressive in areas that are national priorities, like

infrastructure finance, SME finance, micro finance and financial inclusion.

An unfortunate outcome of tight regulation of the NBFC sector has been that more

effort and energy is being expended on curbing the growth of NBFCs by adding totheir regulatory burden that on furthering their potential to be a transformative

force for financial inclusion. For instance, the recent move to deny priority sector

status to the loans given by banks to NBFCs has had the effect of pushing up cost

of funds for the sector. Unfortunately, the ultimate impact falls on borrowers who

belong largely to the underprivileged and financially excluded sections of society.

Recent years have witnessed significant increase in financial intermediation by the

NBFCs. But as far as the current status of the NBFCs is concerned, these are

trapped in a cycle of high costs of funds leading to high rate of interest for

borrowers. In order to meet with the fund requirements, NBFCs borrow from the

markets directly at much higher rates than the banks. Consequently, the rates at

which they lend are also higher. As a result, higher interest outgo caps margins of

the borrowers from the NBFCs and also deters their growth.

NBFCs mostly lend to sectors like infrastructure equipment, farm equipment and

commercial vehicles since these areas do not get loans from the banks. Conversion

of some of these NBFCs into full-fledged banking structure would enable theseinfrastructure companies to raise loans at a cheaper rate. Low cost of fund raising

will enable these infra companies to maintain the competitive spirit of the industry.


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The global economy has managed to hold its own so far. However, the dark clouds

continue to threaten, such as the mounting risk of the Euro zone debt crisis getting

out of hand, the continuing slump in the US realty market accompanied by

distressingly high unemployment levels, elevated commodity prices, early

indications of overheating in the emerging markets, and various geopolitical perils,that threaten to derail the global economic recovery all over again. Thanks largely

to the cumulative economic reforms from 1991 onwards, the Indian economy is on

a firmer footing and has been able to weather the impact till now.

At the same time, warning signs have emerged which need immediate attention.

With the perceptible slowdown in the reform impetus over the last few years, the

economy is now beginning to show telltale signs of wear and tear. Food inflationhas spread outwards and the consequent monetary tightening by RBI has led to a

sharp increase in interest rates and heightened anxieties about an impending

slowdown. Given the nature of the inflationary pressures we face, we believe the

government can no longer delay hard decisions about accelerating the pace of

fiscal consolidation. Otherwise, India faces the real danger of getting caught in an

inflationary spiral.


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COMPANYS MISSION

To uphold the motto Arthah Samajasya Nyasah that is Wealth is the TrustProperty of the Society.

The Philosophy of the Company is deeply rooted in the Indian Tradition ofBusinesswith a social conscience.

The Company operates with utmost transparency and efficiency therebyensuring maximum returns to shareholders with minimum risks.

To achieve excellence in service, quality, reliability, safety and customercare.

The three words of ancient Sanskrit phrase reproduces the motto andphilosophy behind the Groups ideology.

To earn the trust and confidence of all customers and stakeholders,exceeding their expectations and make the Company a respectful household

name.

We aspire to provide financial and non-financial products to the workingpoor, to nurture their dreams and to enable them to contribute in thecountrys financial system.

To provide comprehensive range of financial services and to strive forexceptional financial performance and growth based on commitment for a

sustainable world through combining long term economic values,

environmental stepwardship and social responsibility.

To be valued by our customers for bringing competitive solutions,reliability, comfort and convenience to their lives and businesses.

To create value and make a difference to be a brand.


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COMPANYS METHODOLOGY FOR LOAN APPLICATION

Focus on large clientate of small / medium business, family runenterprises & traders.

Transactions are based on qualitative and quantities assessment of theentity.

Focus on credit history, local knowledge of operating segments &understanding of the performance of the entity.

Pricing reflective of risk assessment of the client. Competitive fast & efficient decision making. Quick processing.

Robust reminder & collection process.


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Papers required for loan application

Copy of the memorandum and articles of association with certificate ofincorporation and certificate of commencement of business. Balance sheet for past 3 years and statement showing month wise sale from

1st April along with all schedules, Auditor's report, report U/S 44 AB of ITAct.

Personal profile of directors. Xerox of property papers being offered as collateral security with chain

documents numbered serially at the top of the papers.

Address/ID proof of the directors. ITR (Income Tax Return) of the company for past 3 years as well as of

directors.

Copy of bank accounts for past 6 months of all the bank accounts where theaccount is being maintained/ loan being repaid.


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THEORITICAL BACKGROUND

MEANING OF RATIO: -

A ratio is a simple arithmetical expression of the relationship of one number to

another. According to Accountants Handbook by Wixon Kell and Bedford, a ratio

is an expression of the quantitative relationship between two numbers. In short itcan be defined as the indicated quotient of two mathematical expressions. The

ratios can be expressed in:-1) Percentages

2) Fraction and

3) Proportion of numbers.

MEANING OF RATIO ANALYSIS: -

Ratio Analysis is a technique of analysis and interpretation of financial statements.It is defined as the systematic use of ratios to interpret the financial statements so

that the strengths and weaknesses of a firm as well as its historical performancesand current financial condition can be determined. There are a number of ratios

which can be calculated from the information given in the financial statements, but

the analysts has to select the appropriate date and calculate only a few appropriate

ratios from the same keeping in mind the objectives of analysis.

The following four steps involved in the ratio analysis: -

1. Selection of relevant data from financial statements depending upon financialanalysis.

2. Calculation of appropriate ratios.

3. Comparison of the calculated ratios of the same firm in the past or the ratios

developed from projected financial statements to the ratios of some other firmsor the comparison with ratios of the industry to which firm belonged.

4. Interpretation of ratios.


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INTERPRETATION OF RATIOS: -

The interpretation of ratios is an important factor. Though calculation of ratios is

also important but it is only a clerical task whereas interpretation needs skill,Intelligence and foresightedness. The impacts of factors such as price level

changes, change in accounting policies, window dressing etc should be kept inmind when attempting to interpret ratios. The interpretation of ratios can be made

in following ways: -

1. Intra firm comparison: - Here the ratios of one organization may be compared

with the ratios of the same organization for the variousyears either the previous years or the future years.

2. Inter firm comparison: - Theratios of one organization may be compared withthe ratios of the other organization in the same industry

and such comparison will be meaningful as the various organizations, in the

same industry may be facing similar kinds of financial problems.

3. The ratios of an organization may be compared with some standards, which

may be supposed to be The Thumb-Rule for the evaluation of the performance.

CLASIFICATION OF RATIOS

The ratios may be classified under various ways, which may use various criterions

to do the same. However for the convenience purpose, the ratios are classifiedunder following groups:

1. Liquidity group2. Turnover group3. Profitability group4. Solvency group and5. Miscellaneous group


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LIQUIDITY GROUP:The ratios computed under this group Indicate the short-term position of theorganization and also indicate the efficiency with which the working capital is

being used. Commercial banks and short-term creditors may be basically interestedin the ratios falling under this group. Two most important ratios may be calculated

under this group.

1) Current Assets: -

It is calculate as, Current Assets

Current Liabilities

Current ratio indicates the backing available to current liabilities in the form ofcurrent assets. In other words, higher current ratio indicates that there are sufficient

assets available with the organization, which can be converted in the form of cash.A current ratio of 2:1 is supposed to be standard and ideal.

2) Liquid Ratio or Acid Test Ratio: -

It is calculated as, Liquid Assets

Liquid Liabilities

Here liquid assets include all Current assets except inventory and prepaid expensesand liquid liabilities except overdraft or cash credit or outstanding expenses.

Liquid ratio indicates the backing available to liquid liabilities in the form of liquidassets. The term liquid assets indicate the assets, which can be converted in the

form of cash without any reduction in the value. Almost immediately whereas theterm

Liquid liabilities which are required to be paid almost immediately. In other words,a higher liquid ratio indicates that there are sufficient assets available with the

Organization, which can be converted in the form of cash almost immediately to

pay off those liabilities, which are to be paid off almost immediately. As suchhigher the liquid ratio better will be the situation.

A liquid ratio of 1:1 is supposed to be standard and ideal.


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TURNOVER GROUP:Ratios computed under this group indicate the efficiency of the organization touse the various kinds of assets by converting them in the form of sales. Under this

group the following classification of ratios are made.

1) Fixed Assets Turnover Ratio: -

It is calculated as, Net Sales

Fixed Assets

A high fixed assets turnover ratio indicates the capability of the organization to

achieve maximum sales with the minimum investment in fixed assets. It indicates

that the fixed assets are turned over in the form of sales more number of times.

2) Current Assets Turnover Ratio: -


Current Assets

A high current assets turnover ratio indicates the capability of the organization

to achieve maximum sales with the maximum investment in current assets. Itindicates that the current assets are turned over in the form of sales more number of

times.

3) Working Capital Turnover Ratio: -


Working Capital

A high working capital turnover ratio indicates the capability of the organization to

achieve maximum sales with the minimum investment in the working capital. Itindicates that working capital is turned over in the form of sales more number

of times.

4) Inventory or Stock Turnover Ratio: -

It is calculated as, Cost of Goods Sold

Avg. Inventory


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A high inventory turnover ratio indicates that maximum sales turnover is achieved

with the minimum investment in inventory. As such as a general rule, highinventory turnover ratio is desirable.

5) Debtors Turnover Ratio: -

It is calculated as, Net Credit Sales

Closing Sundry Debtors

This ratio indicates the speed at which the sundry debtors are converted in the form

of cash. However the intention is not correctly achieved by making the calculationin this way. As such this ratio is normally supported by the calculation period,

which is calculated as below.

a) Calculation of Daily Sales: -

It is calculated as, Net Credit Sales

No of Working Days

b) Calculation of Collection Period: -It is calculated as, Closing Sundry Debtors

Daily SalesThe average collection period as computed above should be compared with the

normal credit period extended to the customers. If the average collection period ismore than the normal credit period allowed to the customers, it may indicate over

investment in debtors which may be the result of over extension of credit period,

liberalization of credit term, ineffective collection procedure and so on.

6) Capital Turnover Ratio: -

It is calculated as, Sales

Capital Employed

This ratio indicates the efficiency of the organization with which the capital

employed is being utilized. A high capital turnover ratio indicates the capability of

the organization to achieve maximum sales with minimum amount of capital

employed. As such higher the capital turnover better will be the situation.

SOLVENCY GROUPRatios computed under this group indicate the long-term financial prospects of the

company. The shareholders debenture holders and other lenders of long-term

finance/ term loan may be basically under this group. Following ratios may becomputed under this group.

1) Debt-equity Ratio: -


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It is calculated as, External Liabilities

Shareholders Fund

Debt-equity ratio indicates the state of shareholders or owners in the organization

vis--vis that of the creditors. It indicates the cushion available to the creditors onliquidation of the organization. A high debt-equity ratio may indicate that financial

status of the creditors is more than that of the owners. A very high debt-equity ratiomay make the proportion of investment in the organization a risky one. On the

other hand a very low debt equity rate may mean that the borrowing capacity of theorganization is being underutilized.

2) Proprietary Ratio: -

It is calculated as, Owners Fund*100

Total Assets

This ratio indicates the extent to which the owner s funds are sunk in differentkinds of assets. If the owner s fund exceeds fixed assets, it indicates that a part

owners fund invested in the current assets also and if owners fund are less than

fixed assets it indicates that the creditors finance a part of fixed assets either bylong term or short term.

3) Capital Employed Ratio: -

It is calculated as, Fixed Assets *100

Capital Employed

This ratio indicates the extent to which the long-term funds are sunk in fixed

assets.

4) Interest Coverage Ratio: -

It is calculated as, PBIT

Interest Charges

This ratio indicates protection available to the lenders of long-term capital in the

form of funds available to pay the interest charges i.e. profits. Normally a highratio will desirable but too high a ratio may indicate underutilization of the

borrowing capacity of the organization whereas too low a ratio may indicate

excessive long-term borrowings or inefficient operation.

PROFITABILITY GROUP


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1) Gross Profit Ratio: -

It is calculated as, Gross Profit *100

Net Sales

The gross profit ratio indicates the relation between production cost and sales and

efficiency with which the goods are produced or purchased. A high gross profitratio may indicate that the organization is able to produce or purchase at a

relatively lower cost.

2) Net Profit Ratio: -

It is calculated as, Net Profit after Taxes *100

Net Sales

The net profit ratio indicates that portion of sales available to the owners after the

consideration of all types of expenses and costs either operating or non-operating

or normal or abnormal. A high net profit ratio indicates higher profitability of thebusiness.

3) Operating Ratio: -

It is calculated as, Mfg COGS + operating expenses*100

Net Sales

This ratio indicates the percentage of net sales, which is absorbed by the operatingcost. A high operating ratio indicates that only a small margin of sales is available

to meet the expenses in the form of interest, dividend and operating expenses. As

such low operating ratio will always be desirable.

OVERALL PROFITABILITY GROUP1) Return on Assets: -

It is calculated as, Net Profit *100

Assets

Return on assets measures the profitability of the investment in a firm. As such

higher return on assets will always be preferred. However Return on Assets (ROA)

does not indicate the profitability of various sources of funds, which finance totalassets.

2) Return on Capital Employed: -

It is calculated as, Net Profit after taxes + Int. on Long Term Loans*100

Capital Employed


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Return on capital employed measure4s the profitability of the capital employed in

the business. A high return on capital employed indicates a better and profitableuse of long-term funds of owners and creditors. As such a high return on capital

employed is preferred.

3) Return on Shareholders Funds: -

It is calculated as, Net Profit after Taxes*100

Total Shareholders Funds

This ratio indicates the profitability of a firm in relation to the fund supplied by the

shareholders

MISCELLANEOUS GROUP1) Capital Gearing Ratio: -

It is calculated as, Fixed income-bearing securities

Equity Capital

A high capital-gearing ratio indicates that in the capital structure, fixed income

bearing securities are more in comparison to the equity capital in that case theCompany is said to be highly geared. On the other hand, if fixed income-bearing

securities are less as compared to equity capital the company is said to be lowlygeared.

2) Earning Per Share: -It is calculated as, Net Profit after tax and dividend

Number of equity shares o/s

It is widely used ratio to measure the profit available to the equity shareholders ona per share basis. As such increasing Earning Per Share may indicate the increasing

trend of current profits per equity share.

3) Dividend Payout Ratio: -

It is calculated as, Dividend Per Share *100

Earning Per Share

It measures the relationship between the earnings belonging to the equityshareholders and the amount finally paid to them by way of dividend. It indicates

the policy of management to pay cash dividend.


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ADVANTAGES OF RATIOS

1. Ratios simplify the comprehension of financial statements. They tell thewhole story as a heap of financial data is condensed in them. They indicatethe change in the financial condition of the business.

2. They act as an index of the efficiency of enterprise. As such they serve as aninstrument of management control. It is an instrument for diagnosis of thefinancial health of an enterprise. The efficiency of the various individual

units similarly situated can be judged through inter-firm comparisons.

3. The ratio analysis can be if invaluable aid to management in the discharge ofits basic functions of forecasting, planning, co-ordination, communication

and control. A study of the trend of strategic ratio may help the management

in this respect. Past ratios indicate trends in cost, sales, profit and other

relevant facts.

4. The ratio analysis provides data for inter-firm comparison or intra-firmcomparison. Comparison cannot be made with absolute figures. Net profit of

one firm cannot be compared with the net profit of the other firm. But the

percentages of net profits can be compared to evaluate the performance.

Similarly performance and efficiency of different departments in the samefirm can be compared with the help of ratios.

5. Investment decisions can at times be based on the conditions revealed bycertain ratios.

6. They make it possible to estimate the other figure when one figure is known.


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LIMITITIONS OF RATIO ANALYSIS

Though ratio analysis technique has got number of advantages, it attracts equal

number of disadvantages too. Some of important advantages are as follows:

1. The ratios of the other organization May not be readily available.2. Different accounting policies may be followed by the constituent

organization in the industry.

3. The constituent organization in the same industry may vary from each otherin terms of age, location, extent of automation, quality of management andso on

4. The technique of ratio analysis may prove to be inadequate in some situationif there is difference of opinions regarding the interpretation of certain itemswhile computing certain ratios.

5.

As the ratios are computed on the basis of financial statements, the basiclimitation, which is applicable to the financial statements, is equallyapplicable in case of the technique of ratio analysis also.

Thus the ratio analysis points out the financial condition of business whether it isvery strong, good, questionable or poor and enables the management to take

necessary steps.


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RESEARCH METHODOLOGY

1) DATA COLLECTION

Primary Data: -

Primary data related to the project was collected from the discussion andinteraction with the senior employees and executives in the organization from

Accounts and Finance department.

Secondary Data: -

Secondary data was collected from the documents, which were in printed formslike annual reports, reference books based on Financial Management and through

websites.

METHODOLOGY FOR ANALYSIS

The methodology opted for carrying out project was by way of collection of data

from the company s annual reports for the past 3 to 5 years, for the calculation ofratios. The theory related to ratios was gathered from various financial

management books, which served the purpose of calculation and analysis of ratios.

Further based on the above statements ratios related to liquidity, turnover,

solvency, profitability and over profitability groups and miscellaneous groups havebeen calculated and interpreted in an intra firm comparison method. Similarly the

ratios have been presented in graphical format to have clear understanding of itduring three financial years and changes in it.


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LEARNINGS FROM THE PROJECT

Understand the approach to financial statement analysis. Basic financialstatement analysis involves examining relationships between items on the

statements (ratio and percentage analysis) and identifying trends in theserelationships (comparative analysis). Analysis is used to predict the future, but

ratio analysis is limited because the data are from the past. Also, ratio analysis

identifies present strengths and weaknesses of a company but it may not revealwhy they are as they are. Although single ratios are helpful, they are not

conclusive; they must be compared with industry averages, past years, planned

amounts, and the like for maximum usefulness.

How to identify major analytic ratios and describe their calculation. Ratios areclassified as liquidity ratios, activity ratios, profitability ratios, and coverage ratios:

(1) Liquidity ratio analysis measures the short-run ability of the enterprise to

pay its currently maturing obligations.

(2)Activity ratio analysis measures how effectively the enterprise is using its

assets.

(3)Profitability ratio analysis measures the degree of success or failure of anenterprise to generate revenues adequate to cover its costs of operation and providea return to the owners.

(4)Coverage ratio analysis measures the degree of protection afforded long-termcreditors and investors.

The limitations of ratio analysis. One important limitation of ratios is that they

are based on historical cost, which can lead to distortions in measuring

performance. Also, where estimated items (such as depreciation and amortization)

are significant, income ratios lose some of their credibility. In addition, difficultproblems of comparability develop when changes in principles and proceduresoccur. Finally, it must be recognized that a substantial amount of important

information is not included in a company's financial statements.


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Techniques of comparative analysis. Companies present comparative data, which

generally includes two years of balance sheet information and three years ofincome statement information. In addition, many companies include in their annual

reports 5- to 10-year summaries of pertinent data that permit the reader to examine

and analyze trends.

Techniques of percentage analysis. Percentage analysis consists of reducing aseries of related amounts to a series of percentages of a given base. Two

approaches are often used. The first, called horizontal analysis, indicates theproportionate change in financial statement items over a period of time; such

analysis is most helpful in evaluating trends. Vertical analysis (common-size

analysis) is proportional expression of each item on the financial statements in agiven period to a base amount. It analyzes the composition of each of the financial

statements from different years (a) to detect trends not evident from the

comparison of absolute amounts and (b) to make intercompany comparisons ofdifferent sized enterprises.


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ABOUT MY JOB

S. E. Investments Limited (SEIL) is a microfinance company which provides a

finance to various companies as well as individuals for a shorter duration of periodi.e., 3 -5 years by analyzing the financial statements, such as Balance Sheet, Profit

& Loss A/c, trend analysis, schedule of changes in working capital gap andvarious ratios like Current ratio, Quick ratio, Net Working Capital ratio, Debt ratio,

Debt to equity ratio, Working capital turnover, Net Profit ratio, Return on CapitalEmployed ratio etc.,

During my internship, company provides me a various information of the borrowercompanies and then Ive to select the information which is required for taking the

decision after that Ive to analyze the present information with the past ones andhas to highlight the important points which shows the financial strength and

weaknesses of the borrower companies and then Ive to submit a report on thesecompanies and gives the conclusion based on the analysis

In planning and analysis, we'll likely use companys bookkeeping information toproduce various financial statements, including a cash flow statement, statement of

activities and a statement of financial position.

1. Income Statements: These statements include much money we've earned (our

revenue) and subtracts how much we've spent (our expenses), resulting in the totalof our unrestricted net assets. The statement of activities includes how muchmoney we've earned (our revenue) and subtracts how much we've spent (our

expenses), resulting in how much we've made money (our profits) or lost money(our deficits). Basically, the statement includes total sales minus total expenses. It

presents the nature of our overall profit and loss over a period of time. Therefore,the Income Statement gives us a sense for how well the nonprofit is operating.

2. Balance Sheet: Whereas the statement of activities depicts the overall status of

our profits (or deficits) by looking at income and expenses over a period of time,the balance sheet depicts the overall status of our finances at a fixed point in time.It totals our all assets and subtracts all our liabilities to compute your overall net

worth (or net loss). This statement is referenced particularly when applying forfunding.


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During my internship, Ive analyzed the following Companies financial data:

Prakash Constrowell Limited, ASIS, Vidhata Metal Pvt. Ltd., B.B. Foods Pvt. Ltd., G.S. Syal & company, Perfect Boring Pvt. Ltd., Spring City Centre (TRV) Pvt. Ltd., Indian Technomac Company Limited (ITCOL), Shree Vinayaka Mission Medical & Education Society, Infant Jesus Educational Trust, SAV Wires Pvt. Ltd., Swiss Ribbons Pvt. Ltd., M/S Suraj Foundry,


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FINANCIAL STATEMENT

ANALYSIS

OF

PRAKASH CONSTROWELL LIMITED


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FINANCIAL STATEMENTS OF

PRAKASH CONSTROWELL LIMITED

PROFIT AND LOSS A/C (Rs. In crores)

Particulars

Mar '

12

Mar '

11

Mar '

09

Mar '

08

Mar '

07

Income

Operating income 158.85 126.89 62.21 27.46 36.56

Expenses

Material consumed - - - - -

Manufacturing expenses 141.03 107.73 57.75 22.34 31.32

Personnel expenses 1.88 0.63 0.23 0.33 0.35

Selling expenses - - - - -

Administrative expenses 5.42 3.62 0.51 0.65 0.49

Expenses capitalized - - - - -

Cost of sales 148.33 111.98 58.5 23.32 32.16

Operating profit 10.52 14.91 3.71 4.13 4.4

Other recurring income 2.09 1.24 1.39 0.39 0.16

Adjusted PBDIT 12.61 16.15 5.1 4.52 4.56

Financial expenses 2.18 1.57 0.41 0.27 0.35Depreciation 0.43 2.47 2.72 2.6 2.54

Other write offs - - - - -

Adjusted PBT 10 12.11 1.97 1.65 1.68

Tax charges 3.03 3.25 0.36 0.25 0.67

Adjusted PAT 6.98 8.86 1.62 1.4 1

Nonrecurring items -0.6 -0.27 - - -

Other non cash adjustments -0.17 0.56 -0.47 -0.17 -0.27

Reported net profit 6.21 9.16 1.14 1.23 0.74

Earnings before appropriation 28.32 27.32 9.27 6.33 3.3Equity dividend - - - - -

Preference dividend - - - - -

Dividend tax - - - - -

Retained earnings 28.32 27.32 9.27 6.33 3.3


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BALANCE SHEET

(Rs. In crores)

Particulars

Mar '

12

Mar '

11

Mar '

09

Mar '

08

Mar '

07

Sources of funds

Owner's fund:

Equity share capital 12.57 8.22 0.41 0.41 0.41

Share application

money - - - - -

Preference share capital - - - - -

Reserves & surplus 83.98 22.31 12.51 9.58 6.54

Loan funds:

Secured loans 15.11 10.34 5.28 2.28 1.84

Unsecured loans - 0.05 0.15 0.16 0.15

Total 111.65 40.92 18.36 12.42 8.94

Uses of funds

Fixed assets

Gross block 4.17 3.26 4.54 5.17 5.09

Less : revaluation reserve - - - - -

Less : accumulated depreciation 1.8 1.54 1.01 0.72 0.55

Net block 2.37 1.72 3.52 4.44 4.54

Capital work-in-progress - - - - -

Investments 4.42 0.08 0.62 0.62 0.51

Net current assets

Current assets, loans & advances 140 70.24 42.7 15.02 12.57

Less : current liabilities & provisions 35.15 31.11 28.48 7.66 8.67

Total net current assets 104.85 39.12 14.22 7.36 3.9

Miscellaneous expenses not written - - - - -Total 111.65 40.92 18.36 12.42 8.94


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RATIO ANALYSIS

LIQUIDITY GROUP

1) Current Ratio:Formula 2011-12 2010-11 2008-09 2007-08 2006-07

CurrentAssets/Current

Liabilities

3.98 2.26 1.5 1.96 1.45

Significance: -

This ratio is calculated for knowing short term solvency of the organization. Thisratio indicates the solvency of the business i.e. ability to meet the liabilities of the

business as and when they fall due. The Current Assets are the sources from which

the current liabilities are to be met. Certain authorities have suggested that in order

to ensure solvency of concern current assets should be twice the current liabilitiesand therefore this ratio is known as 2:1 ratio. However it depends upon the natureof industry. The standard Current Ratio applicable to the Indian industries is

1.33:1. Here the Current Ratio of Prakash Constrowell Ltd indicates that it has gotsufficient assets to pay off short term liabilities as and when they fall due. The

company has maintained its short term solvency throughout the years and it is

improving its short term solvency status which is appreciable.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1 2 3 4 5

Series1


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31

2) Acid Test Ratio:Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Liquid

Assets/LiquidLiabilities

3.15 1.46 1.35 1.76 1.25

Significance: -

This ratio serves as a realistic guide to the short term solvency of the company. It is

a measure of the extent to which liquid resources are immediately available to meet

current obligation. In so far as it eliminates inventories as part of current ratio, this

is a more rigorous test of liquidity than the Current Asset Ratio and when used inconjunction with it, gives a better picture of the firms ability to meet its short term

debts out of its short term assets. An Acid Test Ratio of 1:1 is considered to beideal and standard.

Here the Acid Ratios of Prakash Constrowell Ltd throughout the years consideredindicates that it has adequate assets which can be converted in the form of cash

almost immediately to pay off those liabilities which are to be paid offimmediately.

It must be remembered that the company is improving its Acid Test Ratio year byyear at a fluctuating rate which is appreciable as such higher the liquid ratio better

the situation

0

0.5

1

1.5

2

2.5

3

3.5

1 2 3 4 5

Series1


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32

TURNOVER GROUP

1) Working Capital Turnover Ratio:Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Net Sales

/Working

Capital

1.52 3.24 4.38 3.73 9.37

Significance: -

This ratio signifies achievement of maximum sales with less investment in working

capital. As such higher the ratio better will be the situation. The financial year2006-07 saw excellent ratio as the company was able to achieve maximum sales

with less investment in working capital which shows better working capital

management policy. It must be remembered that working capital ratio has beenfalling throughout the years due to rise in Current Assets but the financial year2006-07 has maintained the ratio.

0

1

2

3

4

5

6

7

8

9

10

1 2 3 4 5

Series1


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33

2) Current Assets Turnover Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Net Sales /CurrentAssets

1.14 1.81 1.46 1.83 2.91

Significance: -

This ratio indicates capability of the organization in efficient use of current assets.

This ratio indicates whether current assets are fully utilized. It indicates the salesgenerated per rupee of investment in current assets. The financial year 2006-07 had

good Current Asset turnover ratio because in this year, Company has good Net

Sales compared to the Current. It must remember that investments in current assets

are increasing year by year.

0

0.5

1

1.5

2

2.5

3

3.5

1 2 3 4 5

Series1


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34

3) Capital Turnover Ratio:Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Net Sales /

CapitalEmployed 1.42 3.1 3.38 2.21 4.09

Significance: -

This ratio indicates whether capital employed is turned over in the form of sales

more number of times. As such higher the capital turnover better will be situation.

The financial year 2006-07, 2008-09, and 2010-11 had acceptable ratio because ithad better sales as compared to Capital Employed. Due to increase in Net Current

Assets, the capital turnover ratio for 2011-12 came down as compared previousyears.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1 2 3 4 5

Series1


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35

4) Inventory Turnover Ratio:Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Net Sales /

AverageInventory 5.44 5.19 14.57 18 20.78

Significance: -

It is an indication of the velocity with which merchandize moves through thebusiness. This is a test of inventory to discover possible trouble in the form of

overstocking or overvaluation.

A low inventory turnover may reflect dull business, overinvestment in inventory oraccumulation of absolute and unsaleable goods. A high inventory turnover

indicates relatively lower amount of working capital locked in inventories.

The financial year 2006-07 had excellent inventory turnover ratio locking up

smaller part of funds in inventory. The company had low inventory turnover ratio

for the year 2010-11 thus indicating over investment in inventory but it has minorimproved in the financial year 2011-12 indicating less investment in inventory as

compared to last year.

0

5

10

15

20

25

1 2 3 4 5

Series1


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36

SOLVENCY GROUP

1) Debt- Equity Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07ExternalLiabilities /

Shareholders

Fund

0.15 0.34 0.42 0.24 0.28

Significance: -

It is a measure of financial strength of a concern. Lower the ratio greater thesecurity available to the creditors. A satisfactory current ratio and ample working

capital may not always be a guarantee against insolvency if the total liabilities are

inordinately large.

The purpose of this ratio is to derive an idea of the amount of capital supplied bythe owners and of assets cushion available to creditors on liquidation. Generally

1:2 ratio is acceptable, but the ratio of at least 1:1 is desirable as banks even do

accept this. The greater the interest of the owners as compared with that of thecreditors, the more satisfactory is the financial structure of the business because in

such a situation the management is less handicapped by interest charges and debtrepayment requirements. A company having a stable profit can afford to operate on

a relatively high debt-equity ratio. Too much reliance on external equities mayindicate undercapitalization, whereas too much reliance on internal equities may

lead to over-capitalization.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

1 2 3 4 5

Series1


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37

2) Proprietary Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Owners Fund

*100/ TotalAssets 86.48% 74.61% 70.37% 80.44% 77.74%

Significance: -

This ratio is normally a test of strength of credit-worthiness of the concern. To the

extent the percentage of liability increase or the percentage of capital dwindles, thecredit strength of the concern deteriorates. A high proprietary ratio is however a

frequently indicative of over-capitalization and an exercise investment in fixed

assets. A low proprietary ratio on the other hand is a symptom ofundercapitalization and an excessive use of creditors funds to finance the

business.

The financial year 2011-12 had good proprietary ratio as it indicates assets arefinanced to the extent of 86% by the owners funds and the balance is financed by

the outsiders. The year 2008-09 had fall in proprietary ratio but in the year 2010-11

the company has improved due to rise in reserve and surplus due to appreciableprofits in the last financial year.

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5

Series1


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38

3) Fixed Assets Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Fixed Assets

*100/CapitalEmployed 2.12% 4.2% 19.17% 35.75% 50.78%

Significance: -

Normally a proprietor should provide all the funds required to purchase fixed

assets. If the capital employed ratio exceeds 100%, it indicates that the companyhas used short-term funds for acquiring fixed assets, which policy is not desirable.

When the amount of proprietor funds exceeds the value of fixed assets i.e. whenthe percentage is less that 100, a part of the net working capital is supplied by the

shareholders, provided that there are no other non-current assets. Though it is not

possible to lay down a rigid standard as regards the percentage of capital which

should be invested in fixed assets in each industry there always is a maxim which

should not be exceeded so that the harmony among the fixed assets, debtors andstock is not disturbed. The ratio should generally be 65%.

It should be remembered that all of the financial years studied had Fixed Assets

ratio below 65% which also suggest that the company had equally funded for

working capital for current assets through long term funds which has beenaccepted principle of financial management.

0

10

20

30

40

50

60

1 2 3 4 5

Series1


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39

PROFITABILITY RATIO

1) Gross Profit Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07GrossProfit*100/

Sales

6.35% 9.8% 1.6% 5.58% 5.08%

Significance: -

A high gross profit ratio as compared with that of the other firm in the same

industry implied that the firm in question produces its products at lower cost. It is asign of good management.

A low gross profit ratio may indicate unfavorable purchasing and make-up

policies, the inability of management to develop sales volume, theft, damage, bad

maintenance, market reduction in selling prices not accompanied by proportionatedecrease in the cost of goods etc.

The companys Gross Profit in the financial year 2010-11 is extremely good but inthe year 2011-12 it goes down due to increase in the manufacturing expenses.

0

2

4

6

8

10

12

1 2 3 4 5

Series1


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40

2) Net Profit Ratio:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07

Net Profit*

100/ Sales 3.85% 8.2% 4.62% 10.89% 6.9%

Significance: -

This ratio differs from the ratio of operating profits to net sales in as much as it is

calculated after adding non-operating incomes, like interest, dividends on

investments etc to operating profits and deducting non-operating expenses such asloss on sale of old assets, provisions for legal damage etc. from such profits.

The ratio is widely used as a measure of over-all profitability and is very useful to

the proprietors. Reading along with the operating ratio it gives an idea of the

efficiency as well as profitability of the business to a limited extent.

The companys Net Profit in the financial year 2007-08 is extremely good but inthe year 2008-09, it goes down due to increase in the manufacturing expenses.

0

2

4

6

8

10

12

1 2 3 4 5

Series1


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41

OVER PROFITABILITY GROUP

1) Return on Capital Employed:

Formula 2011-12 2010-11 2008-09 2007-08 2006-07

PAT + Int.*100/ Capital

Employed

6.25% 21.65% 8.82% 11.27% 11.19%

Significance:

Return on capital employed measures the profitability of the capital employed in

the business. A high business return on capital employed indicates better and

profitable use of long term funds of owners and creditors. As such a high return

capital employed will always be preferred.

The company has shown the declining trend in the return on capital employed dueto rise in Reserve & Surplus.

0

5

10

15

20

25

1 2 3 4 5

Series1


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42

CONCLUSION

The Current Ratio of Prakash Constrowell Ltd indicates that it has gotsufficient assets to pay off short term liabilities as and when they fall due.The company has maintained its short term solvency throughout the years

and it is improving its short term solvency status which is appreciable.

The company is improving its Acid Test Ratio year by year at a fluctuatingrate which is appreciable as such higher the liquid ratio better the situation.

The working capital ratio has been falling throughout the years due to rise inCurrent Assets but the financial year 2006-07 has maintained the ratio.

The financial year 2006-07 had good Current Asset turnover ratio because inthis year, Company has good Net Sales compared to the Current. It must

remember that investments in current assets are increasing year by year.

The financial year 2006-07, 2008-09, and 2010-11 had acceptable ratiobecause it had better sales as compared to Capital Employed. Due toincrease in Net Current Assets, the capital turnover ratio for 2011-12 came

down as compared previous years.

The financial year 2006-07 had excellent inventory turnover ratio locking upsmaller part of funds in inventory. The company had low inventory turnover

ratio for the year 2010-11 thus indicating over investment in inventory but ithas minor improved in the financial year 2011-12 indicating less investment

in inventory as compared to last year.

A company having a stable profit can afford to operate on a relatively highdebt-equity ratio. Too much reliance on external equities may indicate

undercapitalization, whereas too much reliance on internal equities may leadto over-capitalization.


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43

The financial year 2011-12 had good proprietary ratio as it indicates assetsare financed to the extent of 86% by the owners funds and the balance isfinanced by the outsiders. The year 2008-09 had fall in proprietary ratio but

in the year 2010-11 the company has improved due to rise in reserve and

surplus due to appreciable profits in the last financial year.

All of the financial years studied had Fixed Assets ratio below 65% whichalso suggest that the company had equally funded for working capital for

current assets through long term funds which has been accepted principle offinancial management.

The companys Gross Profit in the financial year 2010-11 is extremely goodbut in the year 2011-12 it goes down due to increase in the manufacturing

expenses.

The company has shown the declining trend in the return on capitalemployed due to rise in Reserve & Surplus.

The companys Net Profit in the financial year 2007-08 is extremely goodbut in the year 2008-09, it goes down due to increase in the manufacturing

expenses.


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REFERENCING

Following books were referred for carrying out the project: -

Financial Management: M Y Khan/ P K Jain Financial Management: I M Pandey Financial Management: Praveen Sharma

Annual Reports of Respective Companies of 3 to 5 years.

C.A. Journals of 2010 year

Websites:

http://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysis

http://en.wikipedia.org/wiki/Financial_statement_analysis

http://www.scribd.com/doc/19029040/Project-Financial-Statement-Analysis
http://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysishttp://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysishttp://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysishttp://en.wikipedia.org/wiki/Financial_statement_analysishttp://en.wikipedia.org/wiki/Financial_statement_analysishttp://www.scribd.com/doc/19029040/Project-Financial-Statement-Analysishttp://www.scribd.com/doc/19029040/Project-Financial-Statement-Analysishttp://www.scribd.com/doc/19029040/Project-Financial-Statement-Analysishttp://en.wikipedia.org/wiki/Financial_statement_analysishttp://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysishttp://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statement-analysis

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