1

A

Summer Training Report

“FINANCIAL RATIOS ANALYSIS”

AT

ALOK INDUSTRIES LIMITED VAPI

(FROM 16TH

MAY 2011 TO 16TH

JULY 2011)

FOR THE PARTIAL FULFILLMENT TO DEGREE OF

POST-GRADUATE DIPLOMA IN MANAGEMENT

Batch: 2010-2012

Submitted to:

Amish Soni sir

(MENTOR & FACULTY MEMBER)

Submitted by:

Ashish Navagamiya

N. R. INSTITUTE OF BUSINESS MANAGEMENT

AHMEDABAD

2

Preface

In this development and changing world, I feel proud for being a student of PGDM full

time course offered by N R INSTITUTE OF BUSINESS MANAGEMENT

This report states about the all the departments and their workings policies at the ALOK

INDUSTRIES LTD, PROCESSING PLANT BALITHA, TALUKA PARDI, VALSAD

Finance and Function of Finance are the part of Economic activities. As this report also

include the Financial Ratio Analysis which checks upon the efficiency of the firm. Ratios

indicate the trend or progress or downfall of the firm and are aid to measure financial

solvency.

This project start with industry analysis, introduction of the company and organization,

four major departments of the firm they are finance, marketing, production and human

resource. Which are included in general training part and specific research includes concept

definition, literature review, objective of the research, research methodology, limitation of

research, and the ratio analysis of various ratios, and suggestion.

I am sure that this project report would give us enough food for covering different

departments of the firm and also the various ratios.

I have collected all the needed information for the project report at my best level and the

information provided are true and authentic.

ASHISH NAVAGAMIYA

PGDM,SEM II,

NRIBM, GLS

3

STUDENT’S DECLARATION

Study of Various Departments

And

Financial Ratio Analysis

This Summer Project report entitled, “Financial Ratio Analysis of ALOK INDUSTRIES

LTD” has been submitted to N R INSTITUTE OF BUSINESS MANAGEMENT at Gujarat

Law Society, Ahmedabad in partially fulfillment of P.G.D.M. Degree.

Hereby I undersign that this Project Report has been completed by me under the guidance

of Mr. Amish Soni (Faculty Member, NRIBM, Ahmedabad)

Study of this Project Report is entirely result of my own efforts and research and is original

in nature. All the information provided is true and authentic and is not provided artificially.

This project report is not submitted either in part or whole to any other institute or

university of any degree.

PLACE: AHMEDABAD

ASHISH NAVAGAMIYA

PGDM, SEM II,

NRIBM

DATE:

4

ACKNOWLEDGEMENT

To improve a little we need to make efforts. Not one or two but till the results. And to learn

and act we need guidance. No study however big or small can be undertaken by our own self

behind every act there are unforgettable memories, efforts, guidance and blessings if those

persons without whom this training would not have gone even a small distance.

To be successful in any field practical knowledge is most important and PGDM is

incomplete without having a practical knowledge in this era of professionalism.

First of all I thank our N. R. INSTITUTE OF BUSINESS MANAGEMENT of PGDM for

giving me an opportunity to practically learn about the real happenings in this field and

even the faculty member who spent valuable time in helping me to reach the best possible

extent.

I the trainee am grateful to ALOK INDUSTRIES LTD. for giving me an opportunity in

completing the summer training session and report.

In particular, I would like to greatly thank to:-

Mr. H.H. Vasvani (HR Executive & Vice President) at ALOK INDUSTRIES LTD

Mr. Bhuvanesh Gupta (Finance Manager) who was my guide during the training session

and he guided me in the field of marketing, finance and human resource.

Mr. Vivek Tripathi & Mr. Manish Sharma of Human Resource Department who helped us

for providing us time-to-time guidance in our training

Dr Hitesh Ruparel (Director, NRIBM, Ahmedabad)

Mr. Amish Soni (Mentor and Faculty Member at NRIBM, Ahmedabad).

They guided and motivated me whenever required. In spite of their busy schedule they

spend their precious time with me and also gave all practical knowledge of real world which

has to be faced by us and experience sharing moments which will be helpful in future life.

Thanking You.

ASHISH NAVAGAMIYA

PGDM,SEMII,

NRIBM

5

EXECUTIVE SUMMARY

As a partial fulfillment of my MBA curriculum I have undergone six

weeks summer training at “ALOK INDUSTRIES.” I have done my summer

training project at VAPI branch.

The entire report is an unforgettable journey of support, knowledge,

experience, dedication, perfection, and patience.

Company details and its progress and its interpretation base for analysis,

conclusion, findings, which helped a lot in company analysis. Accounting, ratio

analysis, cash flow analysis, leverage. and necessary information for generating

base for conclusion.

In short all efforts which was made to make this report explains

“WORK IS WORSHIP”

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TABLE OF CONTENT

Chapter No. CONTENT Page No.

1. Research Methodology 9

2. Industry Profile 13

3. Company Profile 17

4. Key Departments

-Production Department 30

-Human Resource department Department 35

-Marketing Department 41

-Finance Department 48

5. Research Report On Financial Management

-Ratio analysis 54

-Working Capital Management 92

-Financial Leverage 96

-Cash Flow Statement Analysis 102

6. Findings from the Project 108

7. Suggestion and conclusion 110

8. Bibliography 111

9. Annexure 112

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List of table

Chapter no. content Page no.

5.1 Current ratio 59

5.2 Quick ratio 63

5.3 Debt equity ratio 66

5.4 Interest coverage ratio 68

5.5 Stock turnover ratio 71

5.6 No. of days inventory 73

5.7 Debtors turnover ratio 75

5.8 Assets turnover ratio 77

5.9 Working capital turn over ratio 79

5.10 Gross ratio profit margin 82

5.11 Net profit margin 84

5.12 Rate of return on investment 86

5.13 Return on shareholder equity 88

5.14 Earning per share 90

5.15 EBIT ratio 91

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List of chart

Chapter no. content Page no.

5.1 Current ratio 60

5.2 Quick ratio 63

5.3 Debt equity ratio 66

5.4 Interest coverage ratio 69

5.5 Stock turnover ratio 72

5.6 No. of days inventory 74

5.7 Debtors turnover ratio 75

5.8 Assets turnover ratio 78

5.9 Working capital turn over ratio 80

5.10 Gross ratio profit margin 83

5.11 Net profit margin 85

5.12 Rate of return on investment 87

5.13 Return on shareholder equity 89

5.14 Earning per share 90

5.15 EBIT ratio 91

9

Chapter 1

Research Methodology

OBJECTIVES OF RATIO ANALYSIS:

The main objective of ratio analysis is to show the firms relative strengths and weakness. The objectives of ratio

analysis are as follows:

It determines the financial condition and financial performance of the firm.

It involves comparison for a useful interpretation of the financial statements.

It helps in finding solutions to unfavorable financial statements.

It helps to take suitable corrective measures when the financial conditions and performance are

unfavorable to the firm, in comparison to other firms in the same industry.

With the help of this analysis, an analyst can determine the

The ability of the firm to meet its obligations.

The efficiency with which the firm is utilizing its various assets ingenerating sales.

The overall operating efficiency and performance of the firm.

NATURE OF RATIO ANALYSIS:

Ratio analysis is a technique of analysis and interpreting of financial statements. It is the process of establishing and

interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an

end in It self. It is only a means of better understanding of financial strengths and weakness of any institution.

The following are the steps involved in ratio

analysis:1. Selection of relevant data from the statements depending upon the objective of the

analysis.2. Calculation of appropriate ratios from the above data.3. Comparison of the calculated ratios with the past

ratios of the same institute, or with the ratios

NEED FOR THE STUDY:

The financial parameters are the ultimate performance indicator of any company. This is because invariability all

costs and efficiency activities and solvency position of the company will reflect the financial status of the company.

The following are stated to be in the need for the study:

To know the financial performance of Alok industries.

To know the operating efficiency of the company.

To know liquidity position of the company.

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To understand the movements of profits over a period of time. To know the reasons for the variation of profits. In

short, this study is conducted so that the financial performance evaluation will serve as an eye opener to the

company.

RESERCH DESIGN

We have selected both the design exploratory and mostly descriptive for research.

DATA COLLECTION:

Since the study is restricted only to financial statements of “ALOK INDUSTRIES there is no scope for the primary

collection of data. The data collection is done through Secondary data which is collected by referring annual reports

i.e. balance sheets, profit and loss account etc, of “ALOK INDUSTRIES

LIMITATIONS OF THE STUDY:

This study is limited to “ALOK INDUSTRIES Vapi

Since, the company is one among the corporate sector so it was a bit tough for me to approach the company at

regular intervals.

Since the study is an academic effort, availability time was the constraint.

11

LITERATURE REVIEW

By Rosemary Peavler

Rosemary Carlson Peavler is a retired college professor of Business Finance. She has been

granted the status of Professor Emeritus from Morehead State University at which she taught for

27 years. She has been a freelance writer in finance and a small business consultant for 15 years.

Financial ratio analysis is one tool of investigating and comparing relationships between different

pieces of financial information. You use information from the income statement and balance sheet

to calculate financial ratios in order to determine information about your small business firm.

There are any number of ratios you could calculate. To solve that problem, there are some

standard ratios that most business firms use.

The problem with ratios is that they are useless unless they are compared to something. For

example, if you calculate your firm's debt ratio for one time period (let's say a year) and it's 50%.

What does that really mean? All you can take from that is that, since the debt ratio is Total

Liabilities/Total Assets, 50% of your firm's assets are financed by debt. You you have something

to compare that 50% to.

2) (Jen Smith 2007). Financial Statements serve a major purpose in any business or organization.

The main purpose of Financial Statements, according to HBS Management(Singer,2007), is for a

business to determine how well they are doing as a company. Financial Statements also tell the

organizations stockholders and investors how profitable the company is. Lenders use financial

statements to see if a company can afford to pay their bills on when they are due. Financial

Statements provise lots of information for all the people involved in a company. If these

differences are not recognized, both the financial analyst and those who use the analysis can

severely misunderstand.

3) Caffe Nero(2006). Ratio Analysis. A tool used to conduct a quantitative analysis of

information in a companys financial statements. Ratios are calculated from current year numbers

and are than compared to previous years, other companies, the industry to judge the performance

of the company. Financial performance based on may 2006 interim report. It had another year of

solid progress, again achieving revenue and profit growth.

4)William F slater,IIIJuly(2003), this research paper will evaluate Sample Company using

review standara financial ratio analysis techniques and assess its potential as a good investment.

Iy focuses on for sound financial advice with regards to whether of not buying stock in sample

company is a sound investment.

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Trend and Industry Analysis

That's where trend (time-series) and industry (cross-sectional) analysis come in. You can compare

your firm's ratios to trend data, which is data from other time periods for your firm, to see how

your firm is doing over a series of time periods.

You can also compare your firm's ratios to industry data. You can gather data from similar firms

in the same industry, calculate their financial ratios, and see how your firm is doing compared to

the industry at large. Ideally, to get a good picture of the financial picture of your firm, you should

do both.

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Chapter 2

Industry Profile:

Textile Industry in India

Textile Industry in India is the second largest employment generator after agriculture. It

holds significant status in India as it provides one of the most fundamental necessities of the

people. Textile industry was one of the earliest industries to come into existence in India and it

accounts for more than 30% of the total exports. In fact Indian textile industry is the second

largest in the world, second only to China

Textile Industry is unique in the terms that it is an independent industry, from the basic

requirement of raw materials to the final products, with huge value-addition at every stage of

processing. Textile industry in India has vast potential for creation of employment opportunities

in the agricultural, industrial, organized and decentralized sectors & rural and urban areas,

particularly for women and the disadvantaged. Indian textile industry is constituted of the

following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made

Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute.

Till the year 1985, development of textile sector in India took place in terms of general

policies. In 1985, for the first time the importance of textile sector was recognized and a separate

policy statement was announced with regard to development of textile sector. In the year 2000,

National Textile Policy was announced. Its main objective was: to provide cloth of acceptable

quality at reasonable prices for the vast majority of the population of the country, to increasingly

contribute to the provision of sustainable employment and the economic growth of the nation; and

to compete with confidence for an increasing share of the global market. The policy also aimed at

achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share

of garments will be US $ 25 billion. The textile industry is anticipated to generate 12mn new jobs

in various sectors.

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Strengths of Indian textile Industry

India has rich resources of raw materials of textile industry. It is one of the largest

producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose

etc.

India is rich in highly trained manpower. The country has a huge advantage due to lower

wage rates. Because of low labor rates the manufacturing cost in textile automatically comes

down to very reasonable rates.

India is highly competitive in spinning sector and has presence in almost all processes of

the value chain.

Indian garment industry is very diverse in size, manufacturing facility, type of apparel

produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of

ready-made garments for both, domestic or export markets.

Weaknesses of Indian textile Industry

Indian textile industry is highly fragmented in industry structure, and is led by small scale

companies. The reservation of production for very small companies that was imposed with the

intention to help out small scale companies across the country, led substantial fragmentation that

distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to

enhance technology or invest in the high-end engineering of processes. Hence they lose in

productivity.

Indian labor laws are relatively unfavorable to the trades and there is an urgent need for

labor reforms in India.

India seriously lacks in trade pact memberships, which leads to restricted access to the

other major markets.

15

Overview of Indian Textile Industries:

Indian Textile Industry on track for success

The US imports of textile and apparel from the world shows a rising trend on an annual

basis. The imports in Feb ‟11 have jumped by 12% to reach US$ 7.42 billon as compared to Feb

2010. On a quarter on quarter basis also, the imports jumped by 17% to US$ 24 billion for quarter

ending Dec‟10 as compared to same quarter previous year. Total textile & apparel imports of EU

from the world rose by 27% in Jan 2011 to touch US$ 12 billion as compared to Jan ‟10. Even

last year, the total EU imports of textile and apparel goods increased by 12% to reach US$ 122

billion, for Jan – Dec 2010 as compared to same period previous year.

Indian Textile Update

The Indian exports of textiles and apparel category to EU has also shown a positive

growth. The exports have grown by 17% for the ten months ending Jan 2011 as compared to same

period last year. Indian Textiles and Apparel market, both domestic and exports, continues to

grow. In 2010, the total „Indian T&A market‟ was estimated to be around Rs 3, 68,000 crores

(US$ 78 billion) and is estimated to grow @ 11% CAGR to reach Rs 10, 32,000 crores (US$ 220

billion) by 2020. Start of 2011, has witnessed a further strengthening of yarn prices. Due to

demand side pressures, there is a continuous rise in raw material prices. The average prices of

cotton yarn rose by 45 % in Mar ‟11 to reach Rs. 207/Kg while PV yarn and PC yarn has shown

35%increase each for the same period and stands at Rs. 233/kg and Rs. 221/kg respectively.

Recent Government Initiatives:

There have been various steps taken by the Government to continually support the Textile and

Clothing Sector:

16

RAPID EXPANSION SINCE INCORPORATION IN 1986

Alok Industries Ltd. is representative of this development in the Indian textile industry.

The company was incorporated as a private limited company in the State of Maharashtra in 1986

and has been a public limited company since 1993. The company started operations in the field of

texturing polyester filament yarns. In the 20 years of its brief history Alok Industries Ltd. has

undergone an amazing process of diversification and expansion.

The company has expanded its business activities step by step into the fields of weaving,

embroidery, knitting, finishing and the manufacture of home textiles and garments. It occupies a

leading position in each of these product segments. In order to round off the process chain, Alok

Industries Ltd. took the logical step of investing in its own short staple spinning mill in 2007. Its

choice of Reiter as systems supplier in this instance was an obvious move in light of the

company‟s own strategic focus.

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Chapter 3

Company Profile:

History of company:-

Established in 1986 as a private limited company, Alok began with texturizing of yarn and

steadily expanded into weaving, knitting,

processing, home textiles and readymade

garments. And to ensure quality and cost

efficiencies Alok have integrated backward

into cotton spinning and manufacturing

partially oriented yarn through the

continuous polymerization route. Alok also

controls an extensive embroidery operation

through its sister concern, Grabble Alok

Impex Ltd.

In 1993, Alok became a public

limited company. Since then it have continued to increase the scale of its operation and the range

of its activities. Today, Alok is amongst the “A Group listed companies” on India‟s leading stock

exchanges.

That is how they have evolved into a diversified manufacturer of world-class home

textiles, garments, apparel fabrics and polyester yarns, selling directly to manufacturers,

exporters, importers, retailers and to some of the world‟s top brands.

Alok has recently entered the domestic retail segment through a wholly owned

subsidiary, Alok Retail India Limited, with a chain of stores named „H&A‟ that offer garments

and home textiles at attractive price points. With the sales turnover of around Rs. 4311.17 cores

in 2009-10, Alok is amongst the fastest growing vertically integrated textile companies in India.

18

They have also ventured into the realty space through wholly owned subsidiaries with investments

in some prestigious projects in Mumbai.

Latest achievements of company are S.E.Z. (Social Economic Zone) and this plant held in

Surangi. S.E.Z. means no interference of government and police.

The joint adventure of company is making Embroidery Company with Austria company name

Garble Alok Impex Ltd. The company‟s Sulzer division is in Dadara. The company‟s processing

plant in Vapi. Company‟s made-up Division is also in Vapi

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Company’s Milestone

Years Events

1986 Incorporation of the Company

1993 Becomes a public limited company with a Rs. 4.5 crore IPO

1995 Sets up financial and technical collaboration with Grabal, Albert Grabher GmbH & Co

of Austria to make embroidered products through a joint venture company, Grabal Alok

Impex Ltd

2003 Export Trading House status granted

2004 Turnover surpasses Rs. 1,000 crore

2006 Texprocil silver trophy awarded for second highest export in manufacturer exporter –

made ups category

2007 ISO 9001:2000 certification obtained

60 per cent stake in Mileta a.s.– a Czech Republic-based textile company acquired

Controlling stake in U.K based retail store chain, „qs‟ (now Store Twenty one) acquired

Organic cotton contract farming commenced

Gold Trophy for best export performance to „Focus LAC‟ countries awarded by

Synthetic & Rayon Textile Export Promotion Council

Awarded Silver trophy for highest fabric exports and Bronze trophy for highest made

ups export

2008 Turnover crosses Rs. 2,000 crore

Exports crosses Rs. 1,000 crore

Joint venture with National Textile Corporation (NTC) to develop, revive New City

Mills, Mumbai and Aurangabad Textile Mills, Aurangabad formed

Awards from TEXPROCIL for 2007-2008

Gold Trophy for highest exports of bleached/yarn dyed/ printed fabrics

Silver Trophy for highest export of made ups

Bronze Trophy for highest global exports

Special achievement award for exports in fabrics

Awarded Outstanding Exporter of the Year – Textiles at the International Trade

Awards 2007-08; presented by DHL CNBC TV 18 and powered by ICRA

20

Company’s SWOT analysis:-

SWOT Analysis is done in order to learn about the strength, weaknesses, opportunities & threats

of the company.

STRENTH:-

During the year the Alok textiles export grew around 47.84% to RS.1558.99 crores from

previous year. The total turnover of Alok Industries ltd RS.4311.17 crores had an increase of

44.82% over the previous year‟s turnover. The profit before tax during the years was Rs.1272.48

crores an increase of 54.69% over the previous year. Alok manufacturing facilities comprises

some of the equipments that have met the stringent requirement of global retailers & importers

in terms of quality, pricing environment aspects.

WEAKNESS:-

As to state there are no specific weaknesses for Alok Industries, the only problems they are

facing is the heavy competition with the international market as well as foreign market.

OPPORTUNITIES:-

The Indian textiles Industry has a much more potential to grow in next organization because

major textile payers in U.S.A & Europe are out-location manufacturing company due to the high

cost of manufacturing.

The Govt. is supporting this industry by technology up gradation scheme, gradual reduction of

import duties on Textile Machineries, Rationalization of Indirect taxes. Etc.

The industry can avail opportunities that may come in from strategy-tie-up with textile giants

from the western word for supply of goods, technical know-how, equity participation, etc.

THREATS:-

Textile industry is facing some challenges also, so Alok Industry cannot remain insolent from

this corporation needs to become focused & Flexible.

They will have to define key principals required to achieve operational excellence & develop

strategies to become customer- focused organization.

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GROUP COMPANY

Alok Apparels Pvt. Ltd.

Alok Apparels Pvt. Ltd., set up in 2007, is a wholly owned subsidiary of Alok Industries and

manufactures woven and knits fashion garments at Silvassa.

Website: www.alokapparels.com

Grabal Alok Impex Ltd. Grabal Alok Impex Ltd. was incorporated in 1993 to produce world-class embroidery.

Grabal Alok was promoted by Alok Industries Ltd., in financial and technical collaboration with

Grabal, Albert Grabher GmbH & Co of Austria.

The company started manufacturing operations in 1996 after setting up its first plant in

Navi Mumbai with an installed capacity of 290 million stitches a year. It has subsequently

expanded capacities, setting up another plant at Silvassa, and has emerged as one of the largest

makers of embroidered fabric with a capacity of 34 billion stitches a year.

Website: www.grabalalok.com

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Mileta A.S.

In April 2007, Alok acquired 60% of the equity of Mileta a.s, a „top of the line‟ integrated textile

entity situated in the Czech Republic; subsequently, Alok has raised its stake in the company to 79.80%.

Mileta is one of the premium textile enterprises in Europe, manufacturing handkerchiefs, shirting fabrics,

table linen, bed linen and other premium products. Mileta exports most of its production to Europe, North and

South America, Africa, Middle East, Far East and Australia.

The Mileta acquisition brings significant synergies to both entities. While Alok has access

to Mileta‟s premium-product technology and penetrates deeper into high-end European markets,

Mileta now has a strong support base and easy access to India.

Mileta‟s brands – Mileta, Erba, Cottonova, Lord Nelson and Wall Street – have high

recall. Alok has launched some of these brands – Erba (for handkerchiefs) and Lord Nelson (for

premium shirting) – in the Indian market. Cottonova bed linen is now also being manufactured in

Alok‟s plants and being exported.

Mileta‟s plant in the Czech Republic has been modernized by installing 40 new Picanol air

jet looms.

Website: www.mileta.cz

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Alok International Inc.

Alok International Inc is the USA based subsidiary of Alok Industries Limited. The

objective behind setting up a subsidiary in USA was to provide forward integration to USA

retailers by strengthening the distribution channel. The subsidiary will help Alok to enter into

strategic partnerships in the USA. This channel will be used to increase business with the existing

customers and further widening the customer base. Also it will help Alok to penetrate markets in

South America.

RETAIL

Alok H&A Ltd.

Alok H&A Ltd. was incorporated in 2007 for the domestic retail business under the 'H&A'

banner.

H&A stores are value retail outlets, positioned as complete family stores for apparel, home

textiles and accessories, offering quality textile products at affordable prices.

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H&A’s products include:

Women's Wear

Ready-to-stitch Indian outfits, readymade garments, western wear and accessories

Menswear

Shirts, trousers, T-shirts, denims, inner wear and accessories

Children’s Wear

Garments from infant to teenagers for boys and girls

Embroidered Fabric

For garments and home decorations

Home Textiles

Bed-sheets, comforters and towels

H&A Store Locator

25

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Company’s vision

To become the world's best integrated textile solutions enterprise with leadership position across

products and markets, exceeding customer & stakeholder expectation.

Company’s mission

They will:

Offer innovative, customized and value added services to our customers

Actively explore potential markets & products

Optimize use of all resources

Maximize people development initiatives

Become a process driven organization

Be a knowledge leader and an innovator in our businesses

Exceed compliances and global quality standards

Be an ethical, transparent and responsible global organization.

Some of the Alok‟s diversified

27

28

ORGANIZATIONAL CHART

CEO

Mr. Aich

Project Director

Mr.S.C. Goyal

V. P. Made Ups

S.P. Bhupna

President Prod.

Mr. A K Pal

President Comm.

Mr. A K Pal

V.P. Engg

Chief Mgr.Utility

Mr. Kasat DGM Maint.

Mgr. MIS & Costing

Mr. Singh

Mgr. ETP

DGM HR.

Mgr. Exise

V.P. Account

Mgr. Purchase

Mr. Vinoj

Mgr. IT

Mr. Hetal Desai

Mgr. Stores

Mr. Dhavade

Wider

Width

GM

Mr. Waancho

o

Knits

VP

Normal Width

VP

Yarn

Dying

GM

Mr. Naidu

Printing

DGM

Terry Towel

GM

r.

Parvani

AV PPC

DGM Process

GM Knits

Mr. Kaul

GM Q & A

Mr. Chuabal

GM Prod.& Devp

Mr. Jain

DGM Finishing

Mr. Shavant

DGM Folding

Mr. Thakkar

Head Product

Devp.

Mr.

Vaidva

DGM Q & A

GM PPC

CEO

Mr. Aich

29

Chapter 4

Key

Departments

30

PPrroodduuccttiioonn

DDeeppaarrttmmeenntt

Production Department

Production is one of the main stages of an enterprise without which a manufacturer can‟t survive.

It converts the raw material into semi-finished goods and then converts into finished goods.

According to Buffa, “Production management deals with decision making regarding production of

goods & services at the minimum cost according to demand of customers through the

management process of planning, directing, and controlling”.

Production Planning

Alok produces textile products. Before producing product Company plans a schedule on a yearly

base, monthly bases & it goes very deeply by preparing a weekly schedule.

For preparing this schedule they consider the following points.

The lead of the product.

The preparation time of the product.

The demand of the product in market.

According to these points they use to plan the schedule and give the order to produce the product.

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Responsibility of the Production Manager

The responsibility of the production manager in to the Alok Company is as follows.

To control the cost of the production.

To motivate workers for maximum efforts.

To fulfill demand of the customer.

To plan production schedule.

To avoid defective goods.

To maintain enough semis finish goods as well as finish goods.

To decide on way of handling and re handling.

To maximize utilization of machinery and manpower.

Production Planning and Control

The aim of the department is fulfill the customer requirement on the time better quality and

coordinate with the marketing at head office and the production department at Silvassa (Rakholi)

Buyer-Head Office- PPC- Production

This Department is job is to

Check the possibility of availability yarn

Give the data to customer

Meet the given data

Instruct the production units as per priority

Greige Department:

In this department all the raw material comes from Silvassa (Alok division 2nd

branch). 95% of

raw material receives from Silvassa branch and rest from outside source/party. There are 3

godowns and centralized SAP system to know about the raw material. Then the stitching of cloths

is done and then lot no. is given to each set of roll with quality checked. It has the capacity of

producing 1.50 lack meters/day but they produce only 1.30 lack meter/day. Then this material is

send to Bleaching Department for further process.

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Bleaching Department:

There are three machines in this department. These machines are imported from Germany.

1. Singedesigne: This machine works for shinning & designing the material.This batch is kept

in rotation for 8Hrs

2. Pre-treatment: This machine works for whiteness & smoothness of the material. There are

three procedures to the material whiteness & smoothness. There are INJECTA,

EXTRACTA, and IMPACTA.

Injecta: Gives the steam pressure to material in water at 200 C for stretching the cloth

from 5 mts to 7 mts.

Extracta: In this section the material is washed by hard washer, soft washer & steam

washer at 90 C.

Impacta: To remove the natural fats & waxes from the material they use this machine.

3. Mercerization: In this process the material is kept in role why dry process or wet process. If

the process is going for continuous process then the wet process is been role and to kept it in

go down it is kept as dry. For the dyeing process the material is been giving in wet form.

Dyeing Department:

In this process 3% color & one 1% chemical is pumped through CDR machine. Then after

dyeing the material the hard wash is done and then the material is been dried and the role is

been send to finishing department.

Finishing Department:

Finishing is applied on the textile material by different chemical and mechanical means. The

finish to be applied on textile material depends upon the end of the fabric.

MACHINERY IN FINISHING DEPARTMENT

STENTER(Monforts) 3

BRUSHING MACHINE(Lafer) 1

SUEDING MACHINE(Lafer) 1

SANFORISER(Monforts) 1

Folding Department

33

After finishing the fabric comes to the folding department for the inspection and packing and

grading. Folding department works in four sections

1. Inspection and Grading

2. Recording & data entry

3. Grouping & Sampling

4. Packing

Laboratory Department:

Alok Industry is certified by ISI so the product is of good quality so this department for tests test

of material is tested by this department or that there is different machine for check the yarn.

Printing Department:

This is the department were printing is done on the material came from engraving department.

There are 12 color shades in a machine. This machine name is Arioli Loop Ager from Germany.

This machine can color 90 meter of cloth in 1 min.

34

Production process Flow Chart of Alok Industries Ltd.

35

HHuummaann

RReessoouurrccee

DDeeppaarrttmmeenntt

Human Resources Department

Meaning:

Human Resource Management (HRM) is the function within an organization that focuses on

recruitment of, management of, and providing direction for the people who work in the

organization. Human Resource Management can also be performed by line managers.

Human Resource Management is the organizational function that deals with issues related to

people such as compensation, hiring, performance management, organization development,

safety, wellness, benefits, employee motivation, communication, administration, and training

Recruitment

For recruitment of worker/staff category employee for all unskilled, semi skilled and highly grade

the firm has different approaches like direct recruitment private employment, agencies,

advertisement in news papers and personal sources. Different technique is used for recruitment as

per situation, need, importance and urgency for recruitment of man power. Minimum education

36

qualification for trainee in STD 10th

pass minimum age criteria for category whether staff or

worker is 18 years on the date of recruitment is must.

- Direct Recruitment:-

The company has adopted recruitment policy for workers belongs to un-skilled and semi skilled

grade employees. On every alternative day at the factory main gate personal department conducts

the recruitment activity at the factory gate for the persons willing to join the company.

- Through private Employment agencies:-

For the recruitment of skilled and highly skilled grade employees this type or recruitment source

are preferred. The data base of candidates with relative qualification experience and training is

available with the agencies. As per our criteria we call prospective candidates for an interview and

evaluation the abilities intelligence attitude and experience.

- Through Newspaper:-

For the specific recruitment in many cases the application are invited through the advertisement in

regional/national news papers. All the application will be shown to concern department heads of

short listed candidates are called for interview.

- Through personal Source:-

We invite people for interview whose information/bio-data will come across/ brought to our

knowledge through any of their friend/relatives/classmates or senior or juniors working with our

organization.

MR. SANJAY

PANDEY MR. MURLI

(TRAINING &

DEVELOPMENT

)

MR. KALPESH

RAVAL (EXECUTIVE.

HR)

MR. SAMPATH (ASST.

MANAGER) OF P&A

HRD MR. DIGVIJAY SINGH

(CHIEF MANAGER P & A)

37

Training and development

Every organization needs to have well framed and experienced employee to perform the activities

which have to perform. If the existing people can meet the recruitment then training is of no

importance. But it is found vice-versa as for existing employee also newer knowledge of various

ways of doing and performing the task in more efficient and cost effective manner keeping in

touch with competitiveness, modernization and increase the versatility and adoptability of

employee.

As the jobs have become more complex, the importance and requirement of training has increased

to meet organization objectives. Training is process of learning a sequence of organized input to

improve the employees job skill, knowledge, and change in attitude towards his work.

Training methods:-

On the job

Counseling/direction & guidance

In house training

External training

Employees at all levels are expected to endeavor for “self development” and should try to excel

in their performance on their present job and should prepare for future job.

Training modules:-

AWARENESS PROGRAM

QUALITY

PRODUCTIVITY/SKILLS DEVELOPMENT

SAFETY/HEALTH ENVIRONMENT

LATEST TRAND IN TECHONOLOGY

BEHAVIOURAL AND COMMUNICATION

HRM FOR LINE MANAGER

TECHNOLOGY ASPECTS

COMPUTER AWARNESS PROGRAMME

38

External training:-

Nomination is done for external programme for which there are no internal programmes. The

P&A department will maintain a list of training programme being organized in the country along

with evaluation report on the quality of these programs. Based on individual training requirement,

the P&A department will recommend to the A.Vp/E.D through the concerned department heads,

names of staff to be nominated for various training programmes.

In respect of external nomination, the participants on return of the programme attend by him to

the concerned manager and a copy of it along with a copy reading materials shall be sent to the

P&A department within maximum period of weeks from return of the training programme.

Ethics of employment

Alok Industries Ltd. is professionally managed company; therefore certain ethics of employment

is necessary for achieving climate in organization.

- No interview is to be conducted/Bio-data from be got filled-in without the approval of

personal dept.

- Personal dept arranges and conducts the requirements process only after approval for

requirement is sought. The interview panel is to be earned marked well in advance off the

interview and the interview briefing is required to be given to all the panel members by the

personal dept. No direct hope, commitments, whatsoever regarding employment should be

given to anyone.

- No compromise on quality standard of people should be made.

- Frank and free opinion should be exchanged during the course of interview by the panel.

- All appointment are subjected to credential verification and in case of false, part information

or concealed information, the employment of the concerned person is liable for termination,

without assigning any cause or notice or compensation in lieu thereof.

- All appointment will be subjected to production of satisfactory proof release by the previous

employer, salary terms, and previous employment and experience certificate of all previous

employers.

- All appointments are subjected to credentials given by the selected candidate being verified

and reference report being satisfactory. In case any employee gives wrong information or

conceal facts in either the “Application for employment” from or in subsequent declaration

39

to the company, his employment is liable for termination, without any notice or

compensation in lieu thereof.

Period of the candidate joining the duty, the personnel dept will complete following formalities.

Intimate the date of joining to the dept. head

Seating arrangement (Through personnel dep.)

Arrange through P&A for residential accommodation, if required or agreed upon

Draw up orientation/Training Programme

Finalize the job allocation/description with dept. / division head considering recruitment

objectives.

Induction:

The personnel dept. will be Responsible for

Completing joining formalities, such as joining report, checking of medical

Certificates and medical checkup etc.

Instruction to concern executive.

Acquainting to new entrant with organization structure, Rules & Regulation

Background and history of the company, local information and Assistance.

The induction programme of new entrant will is for five days.

After completing the cycle of indication the new entrant will be sent to the concerned dept.

whenever necessary, the P&A dept. will also issue a general circular regarding the new entrant

and his assignment, for information of all employees in company.

Types of appointment:

PERMANENT: All appointments will be against the permanent sanctioned vacancies. All

appointments would be on probation of six months. Confirmation will not be deemed to have

taken place, unless conveyed in writing. In the absence of any written communication, the

probationary period would automatically stand extended.

40

TEMPORARY: Wherever such appointments are authorized, they will be for limited period,

specified in their terms of appointments, not exceeding 60 days at any stage. Extension of

temporary period beyond 60 days shall also be authorized by A.V.P.

TRAINEES: The Company may engage, from time to time, services of such fresh

graduates/diploma holders (Technical and Non technical). Who on successful completion of

their training period would be absorbed in staff at suitable levels? The terms of appointment

and benefits/facilities for such appointments would be as finalized by the management from

time to time.

Payment of fare to candidates called for interview

Unless otherwise specified, payment of fare to all outstation candidates called for an interview

will be made on the following basis:-

A) All candidates called for Manager & above

B) All persons called for Dy. Manager & below fare

Joining expenses:

It is not the normal practice of the company to pay joining expenses incurred for selected

candidates for joining or moving his residence on selection. Exception this can only be authorized

by the M.D/E.D/A.V.P. in writing.

Letter of intent:

All candidates selected for appointment as staff shall be offered letter of intent

indicates the position for which they have been selected. Formal letter of appointment shall

be handed over to the candidate, on the term mutually agreed upon, on the day of joining duty.

Pre-joining formalities:

Candidates selected for joining as staff will be issued letter of intent indicating, a part

from the position for which selected, the date/ place of reporting, the documents etc. at

the time of reporting duties.

41

MMaarrkkeettiinngg

DDeeppaarrttmmeenntt

Marketing Department

Marketing is an important activity in our society. Marketing today requires more proximity

towards customer. It also requires:

1) Of end users more understanding.

2) Creating more moment of truth and delight.

3) Retaining customer.

4) Relationship marketing.

42

Modern definition of Marketing: -

“Marketing is continues process of discovery and translating consumer wants into appropriate

product services. Creating demand for this product and serving the demand with the help of

distribution such as wholesaler and retailer. “

The American marketing association defined marketing as:-

The performance of business activities that directs the flow of goods and services from

producer to customer

Marketing management:-

Marketing management is an ongoing process involving identification of consumer need and

wants of converting them into appropriate products and satisfying the demand of consumer who

are the most merciless, meanest and toughest marketing disciplinary. It is an important functional

area of business.

-According to Phillip Kotler:

“The market concept is customer orientation backed by integrated marketing aimed at

generated customer satisfaction to satisfy organizational goals.”

43

4Ps of Marketing Mix

Product

Alok is more concern about the product they are always try to give qualitative product to their

buyers, they have product planning & control department.

This is playing vital role in the organization. It creates the link between the production department

and marketing department. It exchanges the information between the departments.

Manufacturing plans are made, based upon input from marketing and designing .The development

of fabric deciding the specification is done by designing while the acceptability to market and the

quality is decided by market.

They conduct booking session twice in a year in order to decide what should be produced for

season.

A yearly plan is 1st made based upon the expectation of marketing. The capacity balancing is then

done & the entire production is divided in to the available production capacity at various locations

depending upon the capacity loading, the requirement for marketing the converted into

manufacturing.

Raw material, Dyes& Chemicals, other horizontal inputs and optimum utilization of capacity are

the major balancing factors which decide the feasibility of timely delivery.

After allocation of plants of various location .Any problem faced at any location need an

immediate attention so that other location take up the production need in order to meet the

deadline of delivery.

Place

Alok is basically fabric manufacturer so they are not selling their product directly. They are

selling their product retailer like Wal-Mart, M&S. They are distributing their product through

agent for international buyers. The web has created a platform whereby organizations can now

directly communicate with the customers, as a result of which many of the channels are being

disinter mediated. This disintermediation does not necessarily mean that they completely

44

eliminate the intermediaries, but rather when it comes to shipping the products it may outsource

some of the distribution functions like the storage, transportation from third party firms.

Price

Pricing strategy at Alok: Pricing is one of the linchpins of marketing strategy and success. Every

organization has their own technique for pricing & Alok is one of them. The company adjusts

product prices to reflect changes in costs and demand and to account for variation in buyers and

situations. Many times they are using online auctions. It is a popular and innovative way of

pricing. Top Management or Responsible person who has authority, they can be participating in

online auction where buyers bid against each other. The highest bidder wins.

They are using Geographical pricing to decide the price. It includes Geographical considerations

strongly influence prices when costs must cover shipping heavy, bulky, low-unit-cost materials.

Buyers are all over the world so there are variations in price in different area of the world.

Another strategy is value pricing where they are offering right quality at fair price.

Many times they compromise with the price when order in bulk. Price is also depending upon the

quality of product. They are always providing high quality product.

Basic structure of Price: Total Fabric Price=Basic price of fabric + Overhead + Transportation

cost + Profit.

Promotion

The next element of the marketing mix is deciding the appropriate set of ways in which to

communicate with customers to foster their awareness of the product, knowledge about its

features, interest in purchasing, likelihood of trying the product and/or repeat purchasing it.

Effective marketing requires an integrated communications plan combining both personal selling

efforts and non-personal ones such as advertising, sales promotion, direct marketing and public

relations. Put together, they are referred to as the promotion mix.

45

Elements of Promotion

Personal Selling

Sales Promotion

Public Relations (PR.

Direct Mail

Trade Fairs and Exhibitions

Advertising

Sponsorship

Alok is promoting their self in such approaches like trade faire & exhibition. It helps to make

new contacts and renewing old ones. The main purpose is to increase awareness and to encourage

trial & attract the new customer.

They also promoting through sponsorship where company pay associated with particular events

like Fashion show the attributes of the event are then associated with the organization.

Direct mail is the very highly focused way to develop relationship with customer. The mail is sent

out to the potential buyers and responses are carefully monitored.

Branch Offices of Marketing Plants

Bangalore

Chennai

Delhi

Sri Lanka

United States

Bangladesh

Vapi

Silvassa

Navi Mumbai

Thane

46

Marketing strategies:-

The choice of marketing strategies hinges on a number of consideration like the company‟s.

Current market share.

Current and Planned Capacity

Customer price sensitivity.

Marketing Growth.

Competitors.

The company may find a number of alternatives for fulfilling its purpose but it needs to be select

one The company needs monitor the impact of marketing strategies on its sales, market shares,

cost, profit and long term investment

Strategies related to Product:

A product means a bundle of benefits, which satisfy the human need. According William Stanton,

“A product is a complex of tangible attributes including packing, color and service which the

buyer expect as offering of satisfaction of wants and need.”

Quality:-

For Alok Industries ltd. quality stands at a first place. And it is most important to any production

house. Also consumer satisfaction is the best scale for the quality measures and they are favor in

Alok Industries Ltd.

Packing and Labeling:-

- In Alok product are packed as per the convenience of consumer. So packing is also changed

on the basis of customer.

- The pacing are also change on the basis of the customer feedback.

- The products for exporting are packed separately using some specific material only.

Brand name:

- Brand name is the effective tool to identify and to differentiate

47

- The product from the competitor‟s product.

- Brand name is an attractive parameter for the customer while they choose one among

different product.

- Alok industries ltd .has brand name “ALOK “itself.

Sales department:

In sales department firstly consumer inquiry for our product if consumer like the material of

company so he give order of some quality and from that we make A sales order and the procedure

of sales department is begin.

So consumer check the material and then he give order then companies authorized person decide

that the sales should be done or not if authorized person approve so the department see the when

another parties order will full fill then give date and try to finish that order.

When the order is full filled by department they inform the party and also say to collect their order

when the party comes to collect the order they make legal document and make Challan and the

payment in some specific time period.

48

FFiinnaannccee

DDeeppaarrttmmeenntt

Finance is the lifeblood of the industries because we cannot imagine business without finance, as

it is the central point of all the business activity. Whether big or small, government finance

function is of equal importance. Finance is defined as the provision of money at the time it is

wanted.

Till 1950 finance function was regarded as the function only of rising finance of the

business. There after it has undergone remarkable changes over the time. Since last 30 to 40 years

the important function of finance management is of effective efficient utilization of finance.

Financial management means rising of adequate funds at the minimum cost and using

them effectively in the business. It is concerned with financial problem in business.

49

Management Hierarchy

Accounts & Finance Department

V.P ACCOUNTS

(Mr. Bhuvanesh Gupta)

Senior Manager Accounts

(Mr. Deepak Jain)

Accounts Officers

Assistants

FINANCE & ACCOUNTS DEPARTMENT

50

Procedure of Accounting Department

Gate Entry

Store department GRN (Goods Receipt Note)

Accounts

Booking Checking Payment Audit

Booking process

Payment process

Accounts

Booking

(Assistant)

Manager (Check)

VP Accounts

(Sign)

Assistant Manager (Check sign)

VP Accounts

(Sign)

Party

Distribute

51

Importance of Finance Department:-

1. Finance is required for the scheme of modernization, expansion and development of

existing enterprise.

2. The financial plan helps to check out the success of the company.

3. The effective financial plan will provide sufficient funds to business.

4. Finance department is always linked with success of other departments where it is

responsible to provide necessary finance.

Responsibility of finance Department

In modern enterprises the financial manager occupies a key position. He is one of the dynamic

members of the management and his role day by day becoming more pervasive, progressive,

intensive and significant in solving complex problem. The responsibility of financial manager

includes:

Raising of funds

Minimizing cost of funds raised

Allocate funds prudently

Control the working of an organization

Maintain enough liquidity

Registered Maintained:-

Cash and bank book

Sales register

Debit Note

Credit Note

Purchase register

Trial Balance

Profit & Loss A/C

Balance Sheet

52

Accounting Procedure:

Here the entries are made and it is sent to the head office and there the account is maintained.

The account procedure starts from the raw material enter to the company. The procedure of

account as follows:-

1. The security officers firstly check the goods or raw material enters at the gate and note down

the no. of vehicle.

2. Then the goods and brought to the quality control lab where it is check and approval is OK

then the goods are stored in the stored department and the entry is made there.

3. The book entry is done after the material stored

4. After the book entry is sanded to the account department where the bill order slips are

compared with other.

5. After the document are checked and signed by the head of the department and manager and

manager and the data are entered in the particular account.

6. Then the daily entries are mail to head office.

7. After making the entries the payment activity is made during the period.

8. The required fund for the payment generally comes from the head office.

Credit policy of Alok:

Credit is facility provided by the company, which enables the creditor to extend the pay off period

to some days as per company‟s policy. Alok generally provided the credit facility of 30 days to all

the parties or consumer of product.

Dividend:-

Dividend is that amount of capital or profit, which is shared between the shareholders of the

company after meeting all the expenses. The director had authorized the payment of an interim

dividend of Rs.60 per share during the year the expenses. The director had authorized the

payment of an interim dividend of Rs.60 per share during the year.

Export:-

During the year made the export and the efforts are made to achieve the higher growth.

Insurance:-

53

Plant and machinery, stock, building etc of the companies have been adequate insured.

Accounting policy of Alok:

Basic of preparation of financial statement:- The accompanying financial statement has

been prepared under historical cost convention in accordance with generally accepted

accounting principles and provisions of the company

Use of estimates: - The preparation of financial statement in conformity with the generally

accepted accounting principles required estimates and assumptions to be made that affect

the reported amounts of assets and liabilities on the date of the financial statement and the

reported amounts of revenues and expenses during the period.

Fixed assets: - Fixed assets are recorded at the cost of acquisition including incidental

expenses. They are stated at historical cost.

Depreciation:- Depreciation on the fixed assets is provided on written down value method

excepted in respect of non-factory

Investment;- Investment classified as long term investments a fare started at the cost

provision is made to recognize a declined, other than temporary n the value of investment.

Foreign Currency Transaction; - Transaction in foreign currency is recorded at the original

rate of return exchange in force at the time transaction is affected.

Revenue Recognition: - Revenue in respect of insurance, interest, etc is recognized only

with it is reasonably certain that the ultimate collection will be made.

Audit System: - Audit is the process of checking, verifying and inspecting the financial

procedure and position of the company. They are two types of audit are carried out in Alok

Internal audit

Statutory audit

54

CChhaapptteerr 55

RReesseeaarrcchh

RReeppoorrtt

on

Financial Management

Outline of the study

Financial Ratio Analysis

Introduction

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated

quotient of two mathematical expressions” and as “the relationship between two or more things”.

In financial analysis, a ratio is used as a benchmark for evaluating the financial position and

performance of the firm. The absolute accounting figures reported in the financial statements do

not provide a meaningful understanding of the performance and financial position of a firm. An

55

accounting figure conveys meaning when it is related to some other relevant information. For e.g.,

a Rs. 5 crore NP may look impressive, but firm‟s performance can be said to be good or bad only

when NP figure is related to the firms investments.

The relationship between two accounting figures, expressed mathematically, is known as a

financial ratio (or simply as a ratio). Ratio helps to summarize large quantities of financial data

and to make qualitative judgment about the firm‟s financial performance. For e.g., consider

Current Ratio, it is calculated by dividing current assets by current liabilities: a ratio indicates a

relationship – a quantified relationship between current assets and current liabilities. This

relationship is an index or yard stick, which permits a qualitative judgment to be formed about the

firm‟s ability t meet its current obligations. It measures firm‟s liquidity. The greater the ratio,

greater is the firm‟s liquidity and vice versa. The point to note is that a ratio reflecting a

quantitative relationship helps to make qualitative judgment. Such is the nature of all financial

ratios.

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making decisions. It gives us

better understanding of financial strengths and weaknesses of a firm.

Standards of comparison

The Ratio analysis involves comparison for a useful interpretation of the financial statements. A

single ratio in itself does not indicate favorable or unfavorable condition. It should be compared

with some standard. Standards of comparison may consist of:

Past Ratios, i.e., ratios calculated from the past financial statements of the same firm.

Competitor’s Ratios i.e., ratios of some selected firms especially the most progressive and

successful competitor, at the same point in time.

Industry Ratio i.e., the ratio of industry to which the firm belongs; and

Projected Ratio i.e., the ratios developed using the projected, or proforma, financial statements

of the same firm.

56

Classification or Types of Financial Ratios

Several ratios, calculated from the accounting data, can be grouped into various classes according

to financial activity or function to be evaluated. As stated earlier the parties interested in financial

analysis are short and long term creditors, owners and management. Short-term creditors‟ main

interest is in the liquidity position or the short-term solvency and profitability of the firm. Long-

term creditors‟ on the other hand, are more interested in the long term solvency and profitability

of the firm. Similarly owners concentrate on the firm‟s profitability and financial condition.

Management is interested in evaluating every aspect of the firm‟s performance. They have to

protect the interest of all parties and see that the firm grows profitably.

In view of the requirements of the various users of the ratios, we may classify them into the

following four important categories

1. Liquidity ratios

2. Capital structure/leverage ratios

3. Activity ratios

4. Profitability ratios

57

(A) Liquidity Ratios:

1. Current ratio

2. Liquidity ratio or Quick ratio or acid test ratio

(B) Leverage Ratios

1. Total Debt Ratio

2. Debt-Equity Ratio

3. Interest Coverage Ratio

(C) Activity Ratios

1. Inventory/Stock turnover Ratio.

2. No. of days Inventory

3. Debtor’s turnover Ratio

4. Working capital turnover Ratio

(D) Profitability Ratios

1. Gross Profit Margin

2. Net Profit Margin

3. Rate of return on Investments (ROI) OR Rate of return on Capital Employed

(ROCE)

4. Asset Turnover Ratio

5. Rate of return on Equity

6. Earnings per Share

Classification of Financial Ratios

58

The Ratio analysis involves comparison for a useful interpretation of the financial statements. A

single ratio in itself does not indicate favorable or unfavorable condition. It should be compared

with some standard. Standards of comparison may consist of:

(A) Liquidity Ratios:

These ratios analyse the short-term financial position of a firm and indicate the ability of the

firm to meet its short-term commitments (current liabilities) out of its short-term resources

(current assets).

These are also known as „solvency ratios‟. The ratios which indicate the liquidity of a firm

are:

(1) Current ratio

It is calculated by dividing current assets by current liabilities.

Where,

Current assets, includes Current Liabilities, includes

Inventories of raw material,

Work in progress,

finished goods,

stores and spares,

sundry Debtors/receivables,

short term loans deposits and advances,

cash in hand and bank,

prepaid expenses,

incomes receivables and

marketable investments

And short term securities.

sundry creditors/bills payable,

outstanding expenses,

unclaimed dividend,

advances received,

incomes received in advance,

provision for taxation,

proposed dividend,

instalments of loans payable within 12

months,

bank overdraft and cash credit

Current ratio = Current assets

Current liabilities

59

Conventionally a current ratio of 2:1 is considered satisfactory

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. A ratio of greater than one

means that the firm has more current assets than current claims against them. Current ratios

for last five years of Alok Industries Ltd are as under.

The Current Ratios for the last five years of the company are as under

Table 5.1

Years

Total Current assets

(Rs. Crore)

Total Current liabilities

(Rs. Crore)

Current

Ratio

2005-06 1403.87 668.1 2.10

2006-07 1992.66 1371.21 1.45

2007-08 3377.53 2341.16 1.44

2008-09 2685.93 1976.02 1.35

2009-10 4802.05 2624.07 1.83

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Current ratio 2.1:1 1.45:1 1.44:1 1.35:1 1.83:1

60

Chart 5.1

Interpretation of Current Ratio

Conventionally a current ratio of 2:1 is considered satisfactory for a company. This means in a

worse condition, even if the value of company‟s Current Assets becomes half, the firm is able to

meet its obligations

It can be seen from past records that CR in years 2004-05 & 2006-07 is 2:1 which meets the ideal

ratio for a company as company is able to meet its obligations very well. So CR in these years can

be interpreted to be sufficiently liquid.

But in years 2006-07 & 2007-08 this ratio has decreased to 1.45 & 1.44 respectively but still

company manages to meets its obligations as its current assets are more than its current liabilities.

In year 2008-09 the decreasing trend continues and CR becomes 1.35, as far as meeting

obligations is concerned, it is increasing in 2009-10 its increasing it shows that company having

better liquidity if so it increasing continuously it will better for the company. For the time being

0

0.5

1

1.5

2

2.5

2005-05 2006-07 2007-08 2008-09 2009-10

2.1

1.45 1.44 1.35

1.83

current ratio

61

company‟s CR can be interpreted as moderately liquid increasing it will be good scope for the

company

Suggestions:

Since last three years CR has shown a decreasing trend, but now in 2009-10 CR is increasing it is

and good scope for the company. so Company needs to invest more in its current assets.

Also company should indentify its slow paying debtors and insist them to be quick in payment

Moreover, company needs to exercise control over slow moving and absolute stock of goods,

which impairs company‟s ability to pay bills on time

62

(2) Quick Ratio or Acid Test Ratio or also known as Liquidity ratio

Quick ratio, also called acid test ratio, 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. Other assets are considered

to be relatively liquid and included in quick assets are debtors and bills receivables and

marketable securities. Inventories are considered to be less liquid. Inventories normally require

some time for realizing into cash; their value also has a tendency to fluctuate.

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial

condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it

should be used cautiously. A quick ratio of 1:1 or more does not necessarily imply sound liquidity

position. It should be remembered that all debtors may not be liquid, and cash may be

immediately needed to pay operating expenses. It should also be noted that inventories are not

absolutely non-liquid. To a measurable extent, inventories are available to meet current

obligations. Thus, a company with a high value of quick ratio can suffer from the shortage of

funds if it has slow paying, doubtful and long duration outstanding debtors. On the other hand, a

company with a low value of quick ratio may really be prospering and paying its current

obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick

ratio remains an important index of the firm‟s liquidity.

It is calculated by dividing quick current assets by current liabilities (quick current

liabilities)

Where,

Quick assets are current assets (as stated earlier) less prepaid expenses and inventories.

Conventionally a quick ratio of 1:1 is considered satisfactory.

Quick ratio = Quick assets

Current liabilities

63

Quick Ratio for last five year of company is as under:

Table 5.2

Years

Quick Assets

(Rs. Crore)

Total current liabilities

(Rs. Crore)

Quick Ratio

2005-06 1049.5 668.1 1.57

2006-07 1522.04 1371.21 1.10

2007-08 2692.15 2341.16 1.14

2008-09 1739.8 1976.02 0.88

2009-10 3327.64 2624.07 1.26

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Quick ratio 1.57:1 1.10:1 1.14:1 0.88:1 1.26

Chart 5.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2005-06 2006-07 2007-08 2008-09 2009-10

1.57

1.11 1.11

0.88

1.26

64

Interpretation of liquid ratio:

Generally, a quick ratio 0f 1:1 is considered to represent a satisfactory current financial condition.

In years 2004-05 & 2005-06 quick ratio, is almost more than 1.5 times which implies that

company‟s quick assets are 1.5 times more than its liabilities this is because company is able to

convert its assets into cash very successfully. This ratio sets a very rosy current liquidity condition

as company has enough cash to meet its current obligation.

In years 2006-07 & 2007-08 this ratio has reduced to 1.11 times but still company has managed to

be in line with standard ratio, although the ratio has decreased but it cant be said insufficiently

liquid as company liquid assets are almost equal to its current liabilities.

In year 2008-09 the decreasing trend continues and ratio becomes 0.88 times then after in 2009-10

it is increasing to 1.26 times thus its good for the company as liquid assets are increasing.

Suggestions

Company needs to have more liquid asset in form of cash as cash is considered to the most liquid

asset.

Also Company needs to exercise control over its investment in inventories as inventories are

considered to less liquid as compared to BR and other readily convertible or marketable securities.

If company fails to do so then it may not be able to meet its current obligation.

65

(B) Gearing ratios or Leverage ratios

These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet

its long-term commitment with respect to:

repayment of principal on maturity or in predetermined instalments at due dates and

Periodic payment of interest during the period of the loan.

The process of magnifying the shareholders return through the use of debt is called, “financial

leverage” or “financial gearing” or “trading on equity” Theses ratios are calculated to measure

the financial risk and the firm‟s ability of using debt to shareholder‟s advantage. Leverage ratio

can be calculated from the Balance Sheet items to determine the proportions of debt in total

financing. They can also be computed from profit & loss items by determining the extent to which

operating profits are sufficient to cover the fixed charges.

Leverage ratios are classified as under:

Debt-equity Ratio.

Interest coverage Ratio.

Debt- Equity Ratio

The relationship describing the lenders‟ contribution for each rupee of the owners‟ contribution is

called debt- equity ratio. It is directly computed by dividing total debt by net worth.

Debt-Equity Ratio = Total Debt (TD)

Net worth (NW)

66

Table 5.3

Years

Total Debt

(Rs. Crore)

Net worth

(Rs. Crore) Debt-equity Ratio

2005-06 2212.5 807.53 2.21

2006-07 3336.76 1024.44 2.70

2007-08 5767.31 1431.34 3.93

2008-09 6596.35 1755.06 3.69

2009-10 7119.39 2524.60 2.82

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Debt Equity 2.21:1 2.70:1 3.93:1 3.69:1 2.82

Chart 5.3

0

0.5

1

1.5

2

2.5

3

3.5

4

2005-06 2006-07 2007-08 2008-09 2009-10

2.212.7

3.93 3.69

2.82

67

Interpretation of Debt Equity Ratio:

Generally, A Debt- equity ratio of 2:1 is considered to be conventional.

But here like total debt ratio, debt equity ratio also seems to be very unconventional and

undesirable.

Debt equity ratio has also shown an increasing trend from years 2004-05 to 2007-08. In year

2007-08 ratio is highest i.e. 3.93 times. In year 2008-09 it has reduced to 3.69 times, and in year

2009-10 it is reduce to 2.82 but then too it doesn‟t sound much impressive as company‟s debt is

much higher than its owners‟ stake.

Suggestion:

It‟s high time for company to think about its indebtedness. Company needs to reduce its debt

capital in order to sound financially strong. Otherwise, company may suffer great strains, it may

even fail to pay interest charges of creditors, as a result their pressure and control may further

tightened.

There is a need to strike a proper balance between use of debt and Equity.

68

Interest Coverage Ratio:

Debt ratio described above are static in nature and fail to indicate the firms‟ ability to meet

interest (and other fixed charges) obligations. The Interest Coverage ratio or the times-interest-

earned is used to test the firms‟ debt-servicing capacity. The interest coverage ratio is computed

by dividing earnings before interest and taxes (EBIT) by interest charges. The interest coverage

ratio shows number of times the interest charges are covered by the funds that are ordinarily

available for their payment. Since taxes are computed after interest, interest is calculated in

relation to earnings before tax. Depreciation is a non-cash item. Therefore, funds equal to

depreciation are also available to pay interest charges.

We can thus calculate this ratio as earnings before interest taxes, depreciation and

amortization (EBITDA) divided by interest

A ratio of 6 to 7 times is considered satisfactory

Table 5.4

Years

EBIDTA

(Rs Crore)

Interest

(Rs Crore)

Interest coverage

Ratio

2005-06 301.26 66.78 4.51

2006-07 410.96 89.04 4.61

2007-08 547.75 131.83 4.15

2008-09 822.61 304.12 2.70

2009-10 1272.48 534065 2.28

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Interest. Coverage Ratio 4.51 4.61 4.15 2.70 2.28

Interest coverage Ratio = (EBITDA)

Interest

69

Chart 5.4

Interpretation of Interest Coverage Ratio:

A ratio of 6 to 7 times is considered satisfactory.

Here Interest coverage Ratio has shown an increasing trend from years 2004-05 to 2006-07 and

has shown a decreasing trend in last two years.

In year 2009-10 ratio is lowest i.e. 2.28 times. In year 2006-07 the ratio is highest i.e. 4.62 times,

but is not at all satisfactory when compared 6-7 times. This indicates excessive use of debt or

inefficient operations.

Suggestions:

As seen earlier in case of total Debt ratio and Debt-equity ratio, even interest coverage ratio is not

satisfactory this is because of the reason that company uses too much of debt capital, so it needs to

review its portfolio regarding use of debt in its capital mix.

Moreover the company should make efforts to improve the operational efficiency, or to retire debt

to have a comfortable coverage ratio. And this can be done by analysing the variability of the

company‟s cash flows over time

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2005-06 2006-07 2007-08 2008-09 2009-10

4.51 4.614.15

2.72.28

Interest coverage ratio

70

(C) Activity Ratios

Funds of creditors and owners are invested in various assets generate sales and profit. The

better the management of assets the larger is the amount of sales. Activity ratios are employed to

evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also

called as turn over ratios because they indicate the speed at with which assets are being converted

or turned over into sales. Activity ratios, thus involve a relationship between sale and assets. A

proper balance between sales and assets generally reflects that assets are managed well. Several

activity ratios can be calculated to judge the effectiveness of asset utilization.

Activity ratios can be further classified as under:

Inventory/Stock turnover Ratio.

No. of days Inventory.

Debtor‟s turnover Ratio.

Asset Turnover Ratio.

71

1) Inventory/ Stock turnover Ratio:

This ratio indicates the number of times inventory is replaced during the year. It measures

the relationship between cost of goods sold and the inventory level. This ratio calculated by

dividing saled by stock (or inventory)

Tbale 5.5

Years

Sales

(Rs. Crore)

inventories

(Rs. Crore) ITR

2005-06 1420.70 333.49 4.26

2006-07 1824.68 425.33 4.29

2007-08 2170.41 649.82 3.34

2008-09 2976.93 907.6 3.28

2009-10 4311.17 1413.49 3.05

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Inventory Turnover Ratio 4.26 times 4.29 times 3.34 times 3.28 times 3.05 times

Inventory turnover Ratio: sales

inventory

72

Chart 5.5

Interpretation of ITR

There is no such standard ratio available; therefore comparison shall be made on basis of past

trends. But high inventory ratio is indicative of good inventory management. And low inventory

implies excessive inventory level than warranted by production and sales activities.

In year 2005-06 the ratio is highest i.e. 4.29 times, which means company is turning its inventory

of finished goods into sales 4.29 times in a year.

In year the ratio has shown a decreasing trend and has finally reached to 3.05 times, which means

company‟s efficiency in turning its inventories is getting reduced.

Suggestions

Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of

funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute

inventories must be written off.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2005-06 2006-07 2007-08 2008-09 2009-10

4.26 4.29

3.34 3.28 3.05

Inventory Turnover Ratio

73

2) No. Of Days Inventory:

This ratio is calculated by dividing no. of days in a year with inventory turnover ratio. Generally

for the sake of convenience we take 360 days for calculating this ratio

Table 5.6

Years

Days

in a year

inventory

turnover No. of Days, Inventory

2005-06 360 3.91 92

2006-07 360 3.87 93

2007-08 360 3.10 116

2008-09 360 3.10 116

2009-10 360 2.88 125

Years 2005-06 2006-07 2007-08 2008-09 2009-10

No. of Days,

Inventory

92

Days

93

Days

116

Days

116

Days

125

Days

No of day’s inventory: 360 Days

Inventory Turnover

74

Chart 5.6

Interpretation of no. of days

Here more inventory days indicates that company is holding its stock for longer period of time

and investments in inventories is blocked which would increase costs and reduce profits, on the

contrary less inventory holding days is indicative of good inventory management system for a

company

In year 2005-06 the holding period is least i.e.92 days and then onwards it has shown an

increasing trend and was highest in year 2009-10 i.e. 125 days.

Suggestion:

Company should investigate and find out slow moving or absolute stock and take appropriate

steps to write-off them as soon as possible otherwise this will adversely affect working capital and

liquidity position of the company

Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of

funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute

inventories must be written off

0

20

40

60

80

100

120

140

2005-06 2006-07 2007-08 2008-09 2009-10

92 93

116 116125

75

3) Debtors Turnover Ratio

This ratio is a test of the liquidity of the debtors of a firm. It shows the relationship between credit

sales and debtors.

Table 5.7

Years 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Debtors

turnover(days)

120

Days

91

Days

109

Days

102

Days

108

Days

93

Days

Chart 5.7

Debtors Turnover Ratio = Credit Sales X 360 days

Debtors

80

85

90

95

100

105

110

2005-06 2006-07 2007-08 2008-09 2009-10

91

109

102

108

93

Debtors turnover

76

Interpretation of Debtors Ratio or Average collection period

This ratio is indicative of the efficiency of the trade credit management. A high turnover ratio and

shorter collection period indicates prompt payment by the debtor. On the contrary low turnover

ratio and longer collection period indicates delayed payments by the debtor. In general a high

debtor turnover ratio and short collection period is preferable.

Collection period is kept on increasing every year which is not favorable for a company. It implies

that company‟s credit and collection policy is inefficient and liberal.

Suggestion:

Company should improve its collection policy by improving credit terms and policy.

77

4) Total Assets turnover ratio

Some analysts like to compute the total assets turnover in addition to or instead of the net assets

turnover. This ratio shows the firm‟s ability in generating sales from all financial resources

committed to total assets.

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to

maximize its sales. The relationship between sales and assets is called assets turnover.

Table 5.8

Years

Sales

(Rs. Crore)

Capital Employed

(Rs. Crore) Total Assets Turnover Ratio

2005-06 1420.7 3020.03 0.47 times

2006-07 1824.68 4361.2 0.42 times

2007-08 2170.41 7198.65 0.30 times

2008-09 2976.93 8351.42 0.36 times

2009-10 4311.17 11054.28 0.39 times

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Assets turnover

0.47

times

0.42

times

0.30

times

0.36

times

0.39

Times

Total Assets Turnover Ratio = Total Sales

Capital Employed

78

Chart 5.8

Interpretation of Asset turns over Ratio.

Ratio of more than one should be considered to be satisfactory. But here company is not able to

maintain that ratio which means there are unutilized or underutilized assets in company.

In the year 2005-06 the ratio is highest but doest show any satisfaction. As since company is able

to generate only 0.47 Rs of sales for every one rupee capital employed in net assets. Besides this

in year 2007-08 this condition has gone worsen as ratio reached its lowest level i.e. 0.3 which

shows company‟s inefficiency in utilizing its assets.

Suggestions

Company‟s sales have increased but not in the proportion of increase in net assets or capital

employed.

Company needs to improve a lot as far as operational performance is concerned, more sales

promotion activities should be carried out t increase sales at this given level of assets On the other

hand it necessary to check whether assets are properly valued ie. Whether undervalued or

overvalued because valuation of assets is very important.

0.470.42

0.30.36 0.36

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2005-06 2006-07 2007-08 2008-09 2009-10

Asset Turnover Ratio

Asset Turnover Ratio

79

5 Working Capital Turnover Ratio

A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus

compute net working capital turnover by dividing sales by net working capital.

This ratio is computed by dividing Sales by Net working Capital.

Net Working Capital =( TotalCurrent Assets) –(Total Current Liabilities)

Table 5.9

Year Sales Current Assets Current

Liabilities

Net Working

Capital

Working

Capital

Turnover

2008-09 2976.93 2685.93 500.19 2185.74 1.36 times

2009-10 4311.17 4801.88 544.00 4257.88 1.01 times

Year 2009-2010 2008-09

Working Capital Turnover 1.01 times 1.36 times

Working Capital Turnover = Sales

Net working Capital

80

Table 5.9

Interpretation of Working capital Turnover Ratio

From this point of view company‟s working operational performance is quite sound.

Since from year 2008-2009 to 2000-2010 working capital turnover ratios has shown an decreasing

trend. In year 2009-2010 this ratio is lowest i.e. 1.01times which implies that for every one rupee

of working capital company is able to generate 1.01 rupee of sales.

Suggestions

Company must try to maintain this level of working capital but not being so optimistic it

should see that net working capital doesn‟t get reduced which stagnates growth. Because

due to inadequate working capital it becomes difficult for the firm to undertake profitable

project.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2008-09 2009-10

Net Working Capital

81

D) Profitability Ratios

Profit is the difference between revenues and expenses over a period of time (usually one year).

Profit is the ultimate „output‟ of a company, and it will have no future if it fails to make sufficient

profits. Therefore the financial manager should continuously evaluate the efficiency of the

company in terms of profits. The profitability ratios are calculated to measure the operating

efficiency of the company. Besides management of the company, creditors and owners are also

interested in the profitability of the firm. Creditors want to get repayment of their principal

regularly. Owners want to get a required rate of return on their investments. This is only possible

when the company earns enough profits.

Profitability Ratios can be classified as under:

Gross Profit Margin

Net Profit Margin

Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE).

Rate of return on Equity

Earnings per Share.

EBIT Rattio

82

1) Gross Profit Margin:

The Gross Profit Margin reflects the efficiency with which management produces each unit of

product. This ratio indicates the average spread between the cost of goods sold and the sales

revenue. A firm should have a reasonable gross profit margin to ensure coverage of its operating

expenses and ensure adequate return to the owners of the business i.e. shareholders.

To judge whether the ratio is satisfactory or not, it should be compared with the firm‟s past ratios

or with the ratio of similar firms in the same industry or with the industry average.

This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage.

Table 5.10

Years EBIT

(Rs. Crore)

Sales

(Rs. Crore)

GP Margin

(%)

2005-06 220.78 1420.7 15.29

2006-07 278.92 1824.68 15.19

2007-08 385.79 2170.41 17.26

2008-09 589.11 2976.93 19.41

2009-10 886.80 4311.17 20.57

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Gross Profit Margin(%) 15.29% 15.19% 17.26% 19.41% 20.57%

Gross Profit Margin = EBIT

Sales

83

Table 5.10

Interpretation of GP ratio:

GP ratio has shown an increasing trend which shows company‟s profitability condition is well

also company‟s operating efficiency is also satisfactory.

In years 2007-08 and 2008-09 and 2009-10there is more than 2% & 4%increase in GP ratio

respectively as compared to that of year 2005-06, which indicates that company is operating at an

efficient pace. This is because both sales and operating profit have increased in these years.

Suggestions

Company should maintain this pace of selling finished goods so that it can fetch desired rate of

operating profit.

Moreover company should make efforts to reduce its variable costs in order to earn more profit

margins in near future.

15.29 15.1917.26

19.41 20.57

0

5

10

15

20

25

2005-06 2006-07 2007-08 2008-09 2009-10

GP Margin

84

2) Net Profit Margin:

This ratio is calculated by dividing net profit by sales. It is expressed as a percentage.

This ratio is indicative of the firm‟s ability to leave a margin of reasonable compensation to the

owners for providing capital, after meeting the cost of production, operating charges and the cost

of borrowed funds.

Table 5.11

Years

PAT

(Rs Crore)

Sales

(Rs Crore)

NP Margin

(%)

2005-06 109.21 1420.7 7.62

2006-07 135.18 1824.68 8.77

2007-08 167.73 2170.41 8.68

2008-09 188.37 2976.93 6.16

2009-10 237.44 4311.17 5.72

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit Margin (%) 7.62% 8.77% 8.68% 6.16% 5.72%

Net Profit Margin = PAT

Sales

85

Table 5.11

Interpretation of NP Ratio:

Company‟s NP ratio trend has shown an increasing during the years 2004-05 to 2005-06. But

after that it has shown a decreasing trend from year 2007-08 to 2009-10.

This reduction in the ratio is also due to making more cost of goods sold, as company‟s other

charges are reduced as compare to previous year but ratio has reduced. This doesn‟t sounds

profitable.

Suggestion:

So company must purchase the material as and when needed so as to reduce cost of goods sold.

And company also needs to exercise control over its unnecessary administrative and office

expenses.

If company is not able to control its cost of goods sold it will damage its profitability position

which reduce investor‟s confidence.

7.628.77 8.68

6.16 5.72

0

1

2

3

4

5

6

7

8

9

10

2005-06 2006-07 2007-08 2008-09 2009-10

Net profit margin

Net profit margin

86

3) Rate of return on Investments (ROI)

OR Rate of return on Capital Employed (ROCE).

This ratio measures the relationship between net profit and capital employed. It indicates how

efficiently the long-term funds of owners and creditors are being used.

Table 5.12

Years

EBIDTA

(Rs Crore)

Total Assets

(Rs Crore)

ROCE

(%)

2005-06 301.26 3020.03 9.97

2006-07 410.96 4361.20 9.42

2007-08 591.38 7088.49 8.34

2008-09 822.61 8203.71 10.02

2009-10 1272.48 11225.87 11.33

Years 2005-06 2006-07 2007-08 2008-09 2009-10

ROCE(%) 9.97% 9.42% 8.34% 10.02% 11.33%

Rate of return on Capital Employed = EBIDTA

Total Assets

87

Table 5.12

Interpretation of return on capital Employed:

In year 2009-10 return on capital employed is highest i.e. 11.33% in these five years and in year

2007-08 this return is minimum i.e. about 8.34% but again in year this ratio has increased to

almost 11.33% which may be termed as quiet satisfactory.

9.97 9.428.34

10.0211.33

0

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10

ROCE

ROCE

88

4) Return on Shareholders’ equity

This ratio measures the relationship of profits to owner‟s funds. Shareholders fall into two groups

i.e. preference shareholders and equity shareholders.

Table 5.13

Years 2005-06 2006-07 2007-08 2008-09 2009-10

ROE(%) 13.52% 13.19% 11.71% 9.13% 9.79

Years PAT

(Rs Crore)

Net worth

(Rs Crore)

ROE

(%)

2005-06 109.21 807.53 13.52

2006-07 135.18 1024.44 13.19

2007-08 167.73 1431.34 11.71

2008-09 188.35 2063.03 9.13

2009-10 247.34 2524.60 9.79

Return on Shareholders’ equity = PAT

Net Worth

89

Table 5.13

Interpretation of Return on Equity:

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of the

most important relationships in financial analysis. The earning a satisfactory return is most

desirable objective of the business.

Here company is having highest return on equity i.e. of almost 13.52% in the year 2005 -06

While in concluding years this ratio has shown a decreasing trend and has reached to 9.13% in the

year 2008-09. Then after it increase to 9.79%

This ratio is of great concern to present as well as prospective shareholders as company is able to

generate at least 10% on its net worth.

13.52 13.1911.71

9.13 9.79

0

2

4

6

8

10

12

14

16

2005-06 2006-07 2007-08 2008-09 2009-10

ROE

ROE

90

5) Earnings per Share

Table 5.14

years 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

EPS 7.25 6.6 9.7 11.4 9.64 4.57

Table 5.14

Interpretation of EPS

EPS calculation is made over years indicate whether or not the firm‟s earning power on per-share

basis has changed over that period. The EPS of the Company simply shows the profitability of the

firm on a per-share basis, it does not reflect how much dividend and how much is the retained

earnings in the business.

In the year 2007-08 EPS is highest i.e. 11.4 Rs per share, but in year 2009-10 it is less it is 4.57

Rs. Per share.

6.6

9.711.4

9.64

4.57

0

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10

Earning per share

Earning per share

91

EBIT Ratio

Earning Before Interest and Tax ratio: This ratio is calculated by dividing PAT (Profit After

Tax) by EBIT.

Table 5.15

Year 2009-2010 2008-2009 PAT 247.34 188.35 EBIT 886.80 589.11

EBIT Ratio 0.27 times 0.31 times

Table 5.15

0.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

2008-09 2009-10

EBIT RATIO

EBIT Ratio = PAT

EBIT

92

Working

Capital

Management

Working Capital Management

Meaning:Working Capital means the difference between current assets and currents

liabilities, and therefore, represents that position of current assets which the firm has to finance

either from long-term funds or bank borrowings.

93

Concepts Of Working Capital:

There are two concepts of Working Capital- gross and net.

1.Gross Working Capital refers to the firm`s investments in currents assets. Current Assets are the

assets which can be converted into cash within an accounting year and include cash, short term

securities, debtors, bills receivables and stock.

2.Net Working Caapital refers to the difference between current assets and current liabilities.

Current Liabilities are those claims of outsiders which are expected to mature forpayment within

an accounting year and include creditors, bills payable and outstanding expenses.

Determinants of Working Capital:

1. Nature of Business

2. Market and Demand Conditions

3. Technology and Manufacturing Policy

4. Credit Policy

5. Availability of Credit from Suppliers

6. Operating Efficiency

7. Price Level Changes

94

Schedule showing changes in Working Capital

Particulars 2010 2009 Increase Decrease Current Assets a.Investments 1576.82 1068.69 499.13 bDebtors 1126.46 913.77 21269 c.Cash and Bank Balance 1410.67 427.43 983.24 d.Loans and Advances 910.51 665.32 245.19 Total Current Assets [A] 5015.46 3075.21 Current Liabilities and Provisions a.Current liabilities 729.90 653.33 76.57 b.Provisions 57.97 31.81 26.16 Total Current Liabilities[B] 787.87 685.14 Net working Capital[A-B] 4227.59 2390.07 1837.52

Analysis of working Capital:

The firm should maintain a sound working Capital position. It should have adequate working

capital to run its business operations. Both excessive as well as inadequate working capital

positions are dangerous from the firms point of view.

The dangers of excessive working capital are as follows:

1. It results in unnecessary accumulation of inventories. Thus, chances if inventory mishandling, waste,

theft and losses increase.

2. It is an indication of defective credit policy and slack collection period. Consequently. higher incidence

of bad debts results, which adversely affects profits.

3. Excessive working capital makes management complacent which degenerates into managerial

inefficiency.

95

4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make

dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative

profits.

Inadequate Working Capital is also bad and has the following dangers:

1. It stagnates growth. it becomes difficult for the firm to undertake profitable projects for non-

availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firm`s profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm`s

profitability would deteriorate.

5. Paucity of Working Capital-funds render the firm unable to avail attractive credit oppurtinities etc.

6. The firm looses its reputation when it is not in a position to honour its short-term obligations. As a

result, the firm faces tight credit terms.

96

Financial

Leverage

Meaning Of Financial Leverage

A company can finance its investments by debt and equity. The company may also use preference

capital. The rate of interest on debt is fixed irrespective of the companys rate of return on assets.

The company has a legal binding to pay interest on debt. The rate of preference dividend is also

fixed; but preference dividends are paid when the company earns profits. The ordinary

shareholders are entitled to the residual income. That is, earnings after interest and taxes(less

preference dividends) belong to them. The rate of the equity dividend is not fixed and depends on

the dividend policy of the company.

The use of the fixed-charges sources of funds, such as debt and preference capital along with the

owners equity in the capital structure, is describes as Financial Leverage or Gearing or Trading on

equity.

97

Types Of Leverages:

1.Degree Of Operating Leverage:

The degree of operating leverage (DOL) is defined as the percentage change in the earnings

before interest and taxes relative to a given percentage percentage change in sales.

2.Degree Of Financial Leverage:

When the economic conditions are good and the firm`s EBIT is increasing, its EPS

increases faster with more debt in the capital structure.

The degree of Financial Leverage (DFL) is defined as the percentage in EPS due to a

given percentage change in EBIT.

DOL = % change in EBIT

% change in sales

DOL = Contribution

EBIT

DFL = EBIT

EBIT - Interest

DFL = % change in EPS

% change in EBIT

98

3. Degree Of Combined Leverage:

Operating and financial leverages together cause wide fluctuation in EPS for a given

change in sales. If a company employees a high level of operating and financial

leverage, even a small change in the level of sales will have dramatic effect onEPS.

A company with cyclical sales will have a fluctuating EPS; but the swings in EPS

will be more pronounced if the company also uses a high amount of operating and

financial leverage.

The degree of operating and financial leverages can be combined to see the effect of

total leverages on EPS associated with a given change in sales. The degree of

combined leverage is given in the equation:

% change in EBIT For year 2009-2010:

DCL= % change in EBIT * % change in EPS

% change in Sales %change in EBIT

OR

DCL = % change in EPS

% change in sales

99

= 909.87-589.11

589.11

= 0.54

% change in sales For the year 2009-2010:

= 4311.17-2976.93

2976.93

= 0.44

DOL for the year 2009-2010:

= 0.54

0.44

= 1.22

% change in EBIT For year 2008-2009

= 589.11-385.79

385.79

= 0.52

% change in sales For the year 2008=2009

= 2976.93-2170.41

2170.41

= 0.371

100

DOL for the year 2008-2009

= 0.52

0.371

= 1.40

DFL for the year 2009-2010:

= EBIT

EBIT-Interest

= 909.87

374.79

= 2.42

DFL for the year 2008-2009:

= EBIT

EBIT- Interest

= 589.11

284.99

=2.06

DFL = EBIT

EBIT - Interest

DCL = DOL*DFL

101

DCL= DOL*DFL

For the year 2009-2010

=1.22*2.42

=2.9524

For the year 2008-2009

= 1.40*2.06

=2.884

Degree Of Leverages:

Year 2009-2010 2008-2009

DOL 1.22 1.40

DFL 2.42 2.06

DCL 2.9524 2.884

102

Cash Flow

Statement

analysis

103

Meaning Of Cash Flow:

Cash Flow is a simple and objectively defined concept. It is simply the difference between rupees

received and rupees paid out.

Cash Flow should not be confused with profit. Changes in profits do not necessarily mean

changes in cash flows.

Components of Cash Flows:

A typical investment will have three components of cash flows:

1. Initial Investment

2. Annual Net Cash Flows

3. Terminal Cash Flows

Cash Flow Statement:

A statement of changes in financial position on cash basis, commonly known as the cash flow

statement, summarises the cause of changes in cash position between dates of the two balance

sheets. It indicates the sources and uses of cash. Thus, this statement analyses changes in non-

current accounts as well as current accounts to determine the flow of cash.

104

Sources and Uses of Cash

The following are the sources of Cash:

1.The profitable Operations of the firm,

2.Decrease in Assets (except Cash)

3. Increase in Liabilities (including debentures or bonds), and

4. sale proceeds from an ordinary or preference share issue.

The Uses Of Cash are:

1. The loss from operations,

2. Increase in assets (except cash),

3. Decrease in liabilities (including redemption of debentures or bonds),

4. Redemption of redeemable preference shares, and

5. Cash dividends.

105

Cash Flow statement Of ALOK INDUSTRIES

Year Ended

31.03.2010

Year Ended

31.03.2009

A] cash flow from operating activites

Net profit before Tax 376.76 284.99

Adjustments for

Depreciation 362.61 233.50

Excess of cost over fair value of current investments - 0.68

Loss of assets due to fire 37.91 -

Dividend income (1.02) (0.17)

Intrest paid(net) 535.08 304.12

Profit on sale of fixed assets(net) (1.60) (1.74)

Profit/loss on sale of current investment (net) (0.60) 2.24

Operating profit before working capital changes 1307.10 823.61

Adjustment for

increase in inventories (530.57) (256.26)

Increase in trade receivable (271.04) (276.48)

Increase in loans and advances (328.82) (80.71)

Increase in current liabilities 1.11 0.89

Cash generated from operating 231.79 211.05

Income taxes paid (47.23) (37.11)

Net cash generated from operating activites 184.56 173.94

B] Cash flow from investing activities

Purchase of fixed assets (1524.56) (2310.29)

Sale of fixed assets 2.33 8.62

Purchase of investments (567.85) (219.69)

Sale of investments 817.40 157.64

Margin money deposits matured/(placed) (48.32) 62.91

Fixed deposits pledged with bank (444.00) -

Dividend received 1.02 0.17

Interest received 13.45 66.42

Share application money(given) - 199.52

Inter corporate deposite(granted)/refunded-net 1.25 3.35

Net cash used in investment activity (1749.28) (2031.35)

Cash flow from financing activities

Proceeds from issue of equity share capital 736.74 -

Share application money received - 137.50

106

Proceeds from borrowing(net) 1924.35 817.85

Dividend paid(including tax thereon) (17.28) (26.11)

Interest paid (526.06) (337.71)

Net cash generated from financing activities 2117.75 591.53

Net increase/decrease in cash and cash equi.(A+B+C) 553.03 (1265.88)

Cash and cash equivalents

at the beginning of the periods 277.57 1543.45

At the end of the period 830.60 277.57

Net increase in cash and cash equivalents 553.03 (1265.88)

107

Analysis

Cash flow statement shows changes in cash flows from operating activities, investment activities

and financing activities. The above table provides Cash Flow statement of ALOK INDUSTRIES

for the year 2010.

The following points may be observed from the ALOK INDUSTRIES`s Cash Flow Statement for

the year 2010.

1. ALOK IND utilized Rs 1524.56 Crore in acquiring fixed assets.]

After adjusting for investment income and sale of assets, the net outflow on account of

investment activities was Rs 1749.28 crore.

2. ALOK IND generated Rs 184.56 crore cash flow from its operating activities.

3. ALOK IND net cash flow from its operating, investment and financing activities is a

positive figure Rs 553.03 crore.

108

Chapter 6

Findings from the Project

Company needs to invest more in its current assets if it fails to do so then in near future

company‟s CL may increase over CA and short term liquidity position might be in threatening

condition and it may struggle to meet its current obligations.

Company needs to keep more liquid asset in form of cash as cash is considered to the most liquid

asset.

Company needs to exercise control over its investment in inventories as inventories are

considered to less liquid as compared to BR and other readily convertible or marketable securities.

If company fails to do so then it may not be able to meet its current obligation.

Company needs to improve its debt position by reducing debt in its capital mix, otherwise it may

led to creditors‟ pressures and constraints on managements independent functioning and energies.

If company fails to reduce its debt, it may get entangled in a Debt Trap.

It‟s high time for company to think about its indebtedness. Company needs to reduce its debt

capital in order to sound financially strong. Otherwise, company may suffer great strains, it may

even fail to pay interest charges of creditors, as a result their pressure and control may further

tightened. Company needs to review its portfolio regarding use of debt in its capital mix.

The company should make efforts to improve the operational efficiency, or to retire debt to have a

comfortable coverage ratio, by analysing the variability of the company‟s cash flows over time

Failure of reducing investment in sluggish inventories doing so may lead to increased costs and

reduced profits. So the absolute inventories must be written off.

Company should investigate and find out slow moving or absolute stock and take appropriate

steps to write-off them as soon as possible otherwise this will adversely affect working capital and

liquidity position of the company

Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of

funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute

inventories must be written off

Company should improve its collection policy by improving credit terms and policy.

109

More sales promotion activities should be carried out t increase sales at this given level of assets.

On the other hand it necessary to check whether assets are properly valued i.e. whether

undervalued or overvalued because valuation of assets is very important.

Company should make efforts to reduce its variable costs in order to earn more profit

margins in near future.

So company must purchase the material as and when needed so as to reduce cost of goods sold.

And company also needs to exercise control over its unnecessary administrative and office

expenses.

If company is not able to control its cost of goods sold it will damage its profitability position

which reduce investor‟s confidence.

110

Chapter 7

Suggestion and conclusion

SUGGESTIONS

The company has to take measures to increase sales and utilize the assets effectively.

There is an increase in return on assets. Hence, the company should take measures to maintain with the

return on assets.

The company must control the administrative expenses so that it does not indicate negative effect

on net profit.

Optimum utilization of resources will help the company to get more profits.

Maintenance of liquid assets will definitely help the company in facing the unexpected situation.

In conducting of successful business, shareholder‟s wealth plays a vital role.

CONCLUSIONS

Every organization needs the financial manager to manage the financial activities of a company by using different

analytical tools, which helps the company in taking managerial and tactical decision. So every manager should

make proper analysis of operational performance of the company. The analysis and interpretation of various ratios

will help in giving better understanding of the financial conditions and the performance of the organization. It is a

perfectly organized company having all the departments well organized to perform the activities that lead to the

customer‟s satisfaction. Company is performing satisfactorily as the increasing trend and is expected to grow in the

coming years also. Though the company assets are not fully utilized and maintained well, the firm is in a liquidity

position as it is earning profit from last 3 years. The company should take some necessary precautions regarding

utilizing the assets. Finally I can conclude that the “Alok industries” is performing efficiently at the outset

satisfactorily

111

Bibliography

Book Referred:

CFM-McGraw-Hill Professional Series in Finance (7th edition) 2010,

Prasanna Chandra.

Tata McGraw Hill Education Private Limited, (5th edition) 2010, M Y

Khan , P K Jain

Websites access:

- Website access from the data source on 20 may 2011

http://www.iloveindia.com/economy-of-india/textile-industry.html

- Website access from the data source on 26 may2011

http://www.alokind.com.

- Website access from the data source on 1 june 2011 for Annual Reports

of Alok industries ltd., years-2001-02, 2005-06 & 2008-09.

http://www.alokindustries.com

112

Annexure

Financial highlights 2010

PARTICULARS 2009-10

2008-09

2007-08

2006-07

2005-06

Operating Profits Net Sales

4311.17

2976.93

2170.41

1824.68

1420.70 Operating Profit

1272.48

822.61

547.75

410.96

301.26 Depreciation

362.61

233.50

161.96

123.04

80.48 PBIT (Operating)

909.87

589.11

385.79

287.92

220.78 Interest

535.08

304.12

131.83

89.04

66.78 PBT (Operating)

374.80

284.99

253.96

198.88

154.00 PAT(Operating)

247.34

188.37

167.73

135.18

109.21 Cash Profit (Operating)

711.89

513.98

393.14

302.50

220.70 Dividend

22.97

17.28

26.28

28.75

30.20 Net Cash Accruals

688.93

496.70

366.86

273.75

190.50

Financial Position

Gross Fixed Assets 8215.61

6692.71

4368.05

2954.20

2121.89

Net Fixed Assets 7145.11

5983.36

3891.30

2583.80

1874.24

Current Assets 4801.88

2685.93

3377.52

1992.66

1403.87

Investments 229.69

478.58

618.96

219.49

39.70

Foreign Currency Translation Monetary account

0.17

11.20

- - -

Total Assets 12176.85

9159.58

7887.79

4795.95

3317.81

Equity Share Capital 787.79

196.97

187.17

170.37

157.47

Reserves and Surplus 1908.40

1410.39

1134.01

854.07

650.06

Share Application Money - 137.50

- - -

113

Share Warrants - 10.20

110.16

- -

Tangible Net Worth-(1) 2716.19

1755.06

1431.34

1024.44

807.53

Deffered Tax Liability-(2) 406.98

307.97

210.48

141.82

100.10

Total Long Term Borrowings

Preference Share Capital - - - - 68.00

Secured Loans 6056.69

4984.43

3706.66

2049.13

1392.13

Unsecured Loans –FCCB 107.21

121.01

94.87

202.87

220.63

Unsecured Loans 272.81

51.09

103.28

6.48

61.32

6436.71

5120.53

3904.81

2258.48

1742.08

Total Short Term Borrowings

Secured Loans 1186.19

608.64

550.00

215.00

85.00

Unsecured Loans 43.40

168.02

745.01

294.36

62.34

Working Capital Borrowings 843.78

699.16

567.49

568.92

323.08

2072.97

1475.83

1862.50

1078.28

470.42

Total Borrowings-(3) 8509.68

6596.35

5767.31

3336.76

2212.50

Total Current Liabilities Current Liabilities and

provisions-(4)

544.00

500.19

478.66

292.93

197.68

Total Liabilities (1 to 4) 12176.85

9159.58

7887.79

4795.95

3317.81

EPS (Regular) 4.57

9.64

11.40

9.70

6.68

CEPS ( Regular) 9.04

24.04

20.53

16.99

12.61

Book Value 34.48

89.10

76.47

60.13

51.28

114

PROFIT AND LOSS ACCOUNTS

PARTICULARS SCHEDULE NO

YEAR ENDED

31.3.2010

YEAR ENDED

31.3.2009 INCOME

Sales (Inclusive of Excise Duty) 14 4371.42 2999.73

Less: Excise Duty 71.64 34.77 4299.78

2964.96 Job Work Charges Collected (Tax

Deducted at source Rs 0.25 Crore [ Previous year Rs 0.07 crore])

11.39 11.97

4311.17 2976.92

Other Income 15 64.02 20.82 Increase in stocks of Finished Goods

and process Stock 16 333.82

385.67

4709.01 3383.41

EXPENDITURE Purchase of Traded Goods 398.46

105.26 Manufacturing and Other expenses 17 3038.07

2455.54 Interest (Net) 18 535.61

304.12 Depreciation/Amortisation 362.61

233.50

PROFIT BEFORE TAX 374.74 284.99

Provision for tax- Current Tax (63.56) (32.98)

MAT credit entitlement 34.26 28.65

Deffered Tax (99.01) (89.80)

Fringe Benefit Tax (1.75)

Excess/(short) provision for income tax in respect of earlier years

0.86 (0.74)

NET PROFIT FOR THE YEAR 247.34 188.37

Add: Balance brought forward from the previous year

276.63 296.20

AMOUNT AVAILABLE FOR 523.97

115

APPROPRIATION 484.57

APPROPRIATIONS

Add/(Less) : Excess / (short) provision for dividend

[Including tax on dividend Rs 0.00 Crore

( Previous year Rs 0.02 crore) of earlier year]

0.17

(Refer Note 17 of Part B of Schedule 19)

Less:Transfer to general Reserve (20.00)

Transfer to Debenture Redemption Reserve

(300.10) (190.83)

-Proposed Dividend on Equity Shares

(19.69) (14.77)

Corporate Dividend Tax Thereon (3.27) (2.51)

BALANCE CARRIED TO BALANCE SHEET

180.91 276.63

EARNINGS PER SHARE (Refer Note No 12. Of Part B

of Schedule 19)

Basic 4.57 8.85 Diluted 4.57 7.74

Significant Accounting Policies and Notes To Account

19

116

BALANCE SHEET AS ON 31ST MARCH 2010

Particulars Schedule No.

As at 31.3.2010

As at 31.3.2009

I SOURCES OF FUNDS (1)Shareholders Fund

(a) Capital 1 787.79 196.97

(b) Share Application Money - 137.50

(c) Share Warrants - 10.20 (d) Reserves and Surplus 2 1928.40 1410.39

2716.19 1755.06 (2) Loan Funds

(a) Secured loans 3 8086.66 (b) Unsecured loans 4 423.02

8509.68 (3) Deffered Tax Liability (Net) 406.98

(Refer Note No 11. Of Part B of Schedule 19)

Total 11632.85

II APPLICATION OF FUNDS

(1) Fixed Assets

(a) Gross Block 5 7276.36 4534.44 (b) Less: Depreciation 1070.50 708.85 (c) Net Block 6205.86 3825.59

(d) Capital Work-in-progress 6 939.25 2158.27

7145.11 5983.86 (2) Investments 7 229.69 478.58 (3) Foreign Currency Translation

Monetary Account 0.17 11.20

(4) Current Assets, Loans and Advances

(a) Inventories 8 1474.41 943.84 (b) Sundry Debtors 9 1101.23 884.19 (c) Cash and Bank Balances 10 1390.29 344.95 (d) Loans and Advances 11 835.95 512.95

4801.88 2685.93

Less : Current Liabilities and provisions

(a) Current Liabilities 12 488.93 471.40

(b) Provisions 13 55.07 28.79

117

544.00 500.19

Net Current Assets 4257.88 2185.74 Total 11,632.85 8659.38