Company Assignment
Transcript of Company Assignment
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FINANCIAL STATEMENT ANALYSIS
FOR BHARAT OIL COMPANY, CHENNAI
By
(D. Anand, Regn. No. 35103011)
A PROJECT REPORT
Submitted to the
S.R.M SCHOOL OF MANAGEMENT
In the FACULTY OF ENGINEERING AND TECHNOLOGY
In partial fulfillment of the requirements
For the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION
S.R.M. ENGINEERING COLLEGE
S.R.M. INSTITUTE OF SCIENCE AND TECHNOLOGY
DEEMED UNIVERSITY
JUNE 2005
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BONAFIDE CERTIFICATE
Certified that this project report titled FINANCIAL STATEMENT ANALYSISis the
bonafide work of Mr. D. Anand, who carried out the research under my supervision.
Certified further, that to the best of my knowledge the work reported here in does not form
part of any other project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other certificate.
Signature of the Guide Signature of the HOD
Name of the Guide
ABSTRACT
A financial statement is a collection of data organized according to logical and consistent
accounting procedures. The term financial statement generally refers to the two statements:(i) the position statement or the balance sheet; and (ii) the income statement or the profit
and loss account. Financial statements are prepared as an end result of financial accounting
and are the major sources of financial information of an enterprise.
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Financial statements are also called financial reports. In the words of Anthony, financial
statements, essentially, are interim reports, presented annually and reflect a division of the
life of an enterprise into more or less arbitrary accounting period-more frequently a year.
The Financial statement analysis helps in finding out the following:
? Profitability and financial soundness of the company by comparing financial
statement.
? It highlights nature of changes influencing financial position and performance of the
enterprises with the aid of comparative Balance sheet analysis, common-size Balance
sheet and trend percentage analysis.
? It determines the trend of the current assets, current liabilities, sales and working
capital of the firm tend to change using trend analysis
ACKNOWLEDGEMENT
I express my heartiest thanks and indebt ness to Shri. T.R. Pachamuthu B.Sc., M.I.E.,
Founder and Chairman, VALLIAMMAI SOCIETY, Chancellor, SRM INSTITUTE OF
SCIENCE AND TECHNOLOGY (DEEMED UNIVERSITY) for providing me with
necessary facilities to complete this project.
I express my heartiest thanks to Prof. R. VenkataramaniM.Tech, F.I.E., Principal of
SRM INSTITUTE OF SCIENCE AND TECHNOLOGY (DEEMED UNIVERSITY),
for providing me with necessary facilities to complete this project.
I express my gratitude to DR. (Mrs.) S. Jayashree Suresh B.A., M.B.A. and PhD Dean,
Head of the Department of Management Studies for providing me with all facilities and
guidance to complete the project successfully.
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I am very much thankful to my guide Mr. Chinnathambi, Senior Lecturer for his patient
guidance in making the project a grand success.
I would like to thank the management of Bharat Oil Company for giving me an
opportunity to do the project in their esteemed organization. I would like to thank Mr. P.
Chandrasekarfor his useful suggestions and assistance through out the project.
I wish to extend my sincere thanks to all the staff members of the Management Studies
department for their untiring support.
I would also like to thank my Institution,myFaculty members and myFriends
without whom this project have been a distant reality.
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CONTENTS
TITLES Page No
Abstract iii
Acknowledgement iv
Table of Contents v
List of Table vi
List of Charts / Figures vii
Chapters:
1. Introduction
2. Statement of the Problem
3. Objective of the Study
4. Review of Literature
5. Methodology and Limitations of the study
6. Company Profile
7. Analysis and Interpretation
8. Findings
9. Suggestions
10.Conclusion
1
3
4
5
8
18
20
90
92
94
Bibliography viii
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LIST OF TABLES
TABLE NUMBER TABLE NAME PAGE NO.7.1 Current Ratios 207.2 Acid Ratio 237.3 Absolute Liquid Ratio 267.4 Inventory Turnover Ratio 297.5 Debtors Turnover Ratio 327.6 Creditors Turnover Ratio 357.7 Net Working Capital Ratio 387.8 Changes in Working Capital 2001 417.9 Funds from Operation 2001 427.10 Funds Flow Statement 2001 42
7.11 Changes in Working Capital 2002 437.12 Funds from Operation 2002 447.13 Funds Flow Statement 2002 447.14 Changes in Working Capital 2003 457.15 Funds from Operation 2003 467.16 Funds Flow Statement 2003 467.17 Cash Flow Statement 2001 477.18 Cash Flow Statement 2002 497.19 Cash Flow Statement 2003 517.20 Common-size Balance sheet 2001 537.21 Common-size Balance sheet 2002 55
7.22 Common-size Balance sheet 2003 577.23 Common-size income statement 2001 597.24 Common-size income statement 2002 617.25 Common-size income statement 2003 637.26 Comparative Balance sheet 2001 657.27 Comparative Balance sheet 2002 677.28 Comparative Balance sheet 2003 697.29 Comparative income statement 2001 717.30 Comparative income statement 2002 737.31 Comparative income statement 2003 757.32 Trend analysis for current assets 77
7.33 Trend analysis for current liabilities 817.34 Trend analysis for sales 847.35 Trend analysis for working capital 87
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LIST OF CHARTS
CHART NUMBER CHART NAME PAGE NO.FIGURE I Current Ratios 21FIGURE II Acid test Ratios 24FIGURE III Absolute liquid Ratios 27FIGURE IV Inventory Turnover Ratio 30FIGURE V Debtors Turnover Ratio 33FIGURE VI Creditors Turnover Ratio 36FIGURE VII Net Working Capital Ratio 39FIGURE VIII Trend analysis for current assets 80FIGURE IX Trend analysis for current liabilities 83FIGURE X Trend analysis for sales 86FIGURE XI Trend analysis for working capital 89
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CHAPTER 1
INTRODUCTION
Acompany manufactures a product or renders a service, all its transactions are
represented in terms of money. Similarly its performance whether its success or failures, is
again evaluated in terms of money. Thus the common denominator is money or finance.
The activities of an enterprise- planning, control, operation etc, are all measured in financial
terms with the onslaught of competition, growth inflationary pressure, and volatile exchange
rates.
Since financial is viewed as most important factoring every enterprise, the
management requires special mention and attention. The modern approach to finance
function in business highlights the procurement of funds on the most economic and
favorable terms to the concern and to make use of the same in an efficient manner for
successful running of the enterprise. Financial management plays a vital role in procurement,
allocation and control of funds. Hence the need and demand for rigorous financial
management has increased greatly.
The basis for financial planning and analysis is financial information. The financial
information of an enterprise is contained in the financial statement or accounting reports. It
contains summarized information of the firms financial affairs, organized systematically.
They are means to present the firms financial situation to management,
shareholders/ owners, potential investors, lenders, creditors, employees, trade union,
customers, public, government and their agencies, taxation authorities and researchers.
Thus, the analysis of financial statement enables to judge the earning capacity,
managerial efficiency, short and long term solvency, inter firm comparison enables to
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forecast and prepare budget of an organization in investment decision, financing decision
and dividend policy decision.
After duly recognizing the important of financial statement analysis this topic has beenchosen as the focus of the project. The analysis of financial statement is a process ofevaluating the relationships between component parts of financial statement to obtain abetter understanding of the firms position and performance.
CHAPTER 2
STATEMENT OF PROBLEM
Purpose of the study is to diagnose the information contained in financial statement
so as to judge the profitability and financial soundness of the firm. The study aims at
analyzing the overall financial performance of the company over a period of 4 yrs (i.e.) 2000-
2003 by using various tools to bring out the mystery behind the figures in the financial
statement.
If analysis is not done, the management will not be able to assess the financial
strength of firm and to turn it to their advantage. The analysis is essential to spot out the
financial weakness of firm to take suitable corrective actions. Thus financial statement
analysis is necessary for the firms to frame the future plans and also to convert weakness
into strength.
CHAPTER 3
OBJECTIVES
? To analyze, interpret and suggest on the profitability and financial soundness of the
company by comparing financial statement.
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? To highlight nature of changes influencing financial position and performance of the
enterprises with the aid of comparative Balance sheet analysis, common-size Balance
sheet and trend percentage analysis.
? To determine the trend of the current assets, current liabilities, sales and working
capital of the firm tend to change using trend analysis.
? To highlight changes in financial position with help of funds flow & cash flow
analysis.
? To analyse the short-term financial position of the firm through the various liquidity
& efficiency ratios like current ratio, liquid ratio, absolute liquid ratio, working capital
ratio, stock turnover ratio etc.
CHAPTER 4
REVIEW OF LITERATURE
4.1FINANCIAL ANALYSIS
4.1.1 MEANING:
The term financial analysis, also known as analysis and interpretation of
financial statements, refers to the process of determining financial strengths and weakness
of the firm by establishing strategic relationship between the items of the balance sheet,
profit and loss account and other operative data. The purpose of financial analysis is to
diagnose the information contained in financial statements so as to judge the profitability
and financial soundness of the firm. Financial statement analysis is an attempt to determine
and meaning of the financial statement data so that forecast may be made of the future
earnings, ability to pay interest and debt maturities (both current and long-term) and
profitability of a sound dividend policy.
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4.1.2 TYPES OF FINANCIAL ANALYSIS:
It can be classified into 2 and they are:
? On basis of material used
? On basis of modus operandi.
ON BASIS OF MATERIAL USED:
? EXTERNAL ANALYSIS.
The analysis is done by outsiders who do not have access to the detailed internal accounting
records of the business firm. These outsiders include investors, creditors, potential creditors,
government agencies and public. For financial analysis, these external parties to the firm
depend almost entirely on the published financial statement. External analysis, thus serves
only a limited purpose. However, the recent changes in the government regulations requiring
business firms to make available more detailed information to the public through audited
published accounts have considerably improved the position of the external analysis.
? INTERNAL ANALYSIS.
ON BASIS OF MATERIAL USED ON BASIS OF MODUS
OPERANDI
EXTERNAL
ANALYSIS
INTERNAL
ANALYSIS HORIZONTAL
ANALYSIS
VERTICAL
ANALYSIS
TYPES OF FINANCIAL
ANALYSIS
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The analysis conducted by persons who have access to the internal accounting records of a
business firm is known as internal analysis. Such an analysis can, therefore, be performed by
executives and employees of the organization as well as government agencies which have
statutory powers vested in them. Financial analysis for managerial purpose is the internal
type of analysis that can be effected depending upon the purpose to be achieved.
ON THE BASIS OF MODUS OPERANDI:
? HORIZONTAL ANALYSIS.
Horizontal analysis refers to the comparison of financial data of a company for several years.
The figure for this type of analysis is presented horizontally over a numbers of columns.
This type of analysis is called Dynamic Analysis. The horizontal analysis makes it possible
to focus attention on items that have changed significantly during the period under review.
Comparison of an item over several periods with a base year may show a trend developing.
Comparative statement and trend percentage are two tools employed in horizontal analysis.
? VERTICAL ANALYSIS.
Vertical analysis refers to the study of relationship of the various items in the financialstatement of one accounting period. In this types of analysis the figure from financialstatement of a year are compared with a base selected from the same years statement. Itis also known as Static Analysis. Common-size financial statement ratios are the two
tools employed in vertical analysis. Since vertical analysis considers data for one timeperiod only, it is not very conductive to a proper analysis of financial statement.However, it may be used with horizontal analysis to make it more effective andmeaningful.
CHAPTER 5
METHODOLOGY OF STUDY
The methodology of study involves the study of the financial statement that is followed byBOC. The project involves the analysis with the help of Ratio analysis, Comparative
statement, Common-size statement, Fund flow analysis (Funds Flow statement), Cash flow
analysis (Cash Flow statement) and Trend analysis for the current assets, current liabilities,
sales and working capital. The various methods are explained in brief in the following
paragraphs.
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5.1SOURCE OF DATA:
The source of data comes mainly from the following:
1. Companys annual reports.
2. Balance Sheets of the firm for the last three years.
5.2 RATIO ANALYSIS
A ratio is a simple arithmetical expression of the relationship of one number to another. It is
an expression of the quantitative relationship between two numbers. 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 certain decisions. It is a
means of better understanding of financial strengths and weaknesses of a firm. There are anumber of ratios which can be calculated from the information given in the financial
statements, but the analyst has to select the appropriate ratios from the same keeping in
mind the objective of analysis. The following four steps are involved in the ratio analysis:
? Selection of relevant data from the financial statements depending upon the
objective of the analysis.
? Calculation of appropriate ratios from the above data.
? Comparison of the calculated ratios of the same firm in the past, or the ratios
developed from the projected financial statements or some other firms or the
comparison with ratios of the industry to which the firm belongs.
? Interpretation of the ratios.
The ratios that have been considered and used for the financial statement analysis in this
project are as follows:
1) Liquidity Ratios
a) Current Ratio
b) Acid Test Ratio
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c) Absolute Liquid Ratio or Cash Position Ratio
2) Efficiency Ratios
a) Inventory Turnover Ratio
b) Receivables Turnover Ratio
c) Working Capital Turnover Ratio
5.2.1Liquidity Ratios
The term Liquidity refers to the ability of a concern to meet its current obligations as and
when these become due. To measure the liquidity position of a firm, the current ratio, acid
test ratio and the absolute liquid ratio are to be calculated.
5.2.1.1Current Ratio It may be defined as the relationship between current assets andcurrent liabilities. Also known as the working capital ratio this measures the general liquidity
and is most widely used to make the analysis of a short-term financial position or liquidity of
a firm. The current ratio is determined by the formula,
Current Ratio = Current Assets
Current Liabilities
5.2.1.2 Acid Test Ratio It is also known as quick ratio and is a more rigorous test of
liquidity than in the current ratio. It is defined as the relationship between the quick/ liquid
assets and the current or liquid liabilities. The acid test ratio is determined by the formula,
Acid Test Ratio = Liquid Assets
Current Liabilities
5.2.1.3 Absolute Liquid Ratio It is also known as cash ratio and here the receivables,
debtors and inventories are not considered and the cash which is the most liquid asset is onlytaken in consideration. The absolute liquid ratio is determined by the formula,
Absolute Liquid Ratio = Absolute Liquid Assets
Current Liabilities
5.2.2 Efficiency Ratios
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Funds are invested in various assets in business to make sales and earn profits. The
efficiency of with which assets are managed directly affect the volume of sales. Efficiency
ratios measure the efficiency or effectiveness with which a firm manages its resources or
assets. These ratios are called as Efficiency ratios. To measure the efficiency of the firm the
stock/ inventory turnover ratio, debtors/ receivables turnover ratio, creditors/payable
turnover ratio and working capital turnover ratio are analyzed.
5.2.2.1Inventory Turnover RatioIt is also known as stock velocity and indicates whether
inventory has been efficiently used or not. I t indicates the no. of times the stock has been
turned over during the period and evaluates the efficiency with which the firm is able to
manage its inventory. The inventory turnover ratio is calculated by the formula,
Inventory Turnover Ratio = Sales
Inventory5.2.2.2 Receivables Turnover Ratio Debtors turnover ratio indicates the velocity of debt
collection of the firm. It indicates the number of times the debtors are turned over during a
year. The receivables turnover ratio is calculated by the formula,
Debtors Turnover Ratio = Total Sales
Debtors
5.2.2.3 Working Capital Turnover Ratio This ratio indicates the no. of times the
working capital is turned over the course of the year. This ratio measures the efficiency with
which the working capital is being used by the firm. The working capital turnover ratio is
calculated by the formula,
Working Capital Turnover Ratio = Cost of Sales (or, Sales)
Net Working Capital
5.3 COMMON-SIZE STATEMENT
The common-size statements, Balance sheet and income statement are shown in analytical
percentages. The figures are shown as percentages of total assets, total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage of
the total. Similarly, various liabilities are taken as particulars of total liabilities. These
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statements are also known as component percentage or 100-percentage statement because
every individual item is stated as a percentage of 100. The shortcomings in comparative
statement and trend percentages where changes in items could not be compared with the
totals have been covered up. The analyst is able to assess the figure in relation to total values.
The common-size statement may be prepared in the following way.
1. The totals of assets or liabilities are taken as 100.
2. The individual assets are expressed as percentage of total assets.
5.4 COMPARATIVE STATEMENT
The comparative financial statements are statement of the financial position at different
periods of time. The elements of financial position are shown in a comparative form so as to
give an idea of financial position at two or more periods. Any statement prepared in acomparative form will be covered in comparative statement. From practical point of view
generally two financial statement are prepared in comparative form for financial analysis
purposes. Not only the comparison of the figure of two periods but also be relationship
between Balance sheet and income statement enables an in-depth study of financial position
and operative results. The comparative statement may show:
1. Absolute figure
2. Change in absolute figure
3. Absolute data in terms of percentages.
4. Increase or decrease in terms of percentage.
5.5 FUND FLOW STATEMENT
Fund Flow Statement shows the movement of funds and is a report of the financial
operations of the business undertaking. It indicates various means by which funds were
obtained during a particular period and the ways by which these funds were employed.
The flow of funds occurs when a transaction changes on the one hand of a non-current
account and on the other a current account and vice-versa. Fund Flow Statements is a
method by which we study changes in financial position of a business enterprise between
beginning and ending financial statement dates.
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Fund Flow analysis reveals the changes in working capital position. I t tells about the sources
from which the working capital was obtained and the purpose for which it was used. Funds
flow statement deals with the financial resources required for running business activities.
The Fund Flow Statement is prepared and the sources of funds and the uses/ application of
funds are found and displayed in a tabular format. The format is as follows:
Fund Flow statement for the year
Sources Applications
Particulars Rs. Particulars Rs.
Net Profit
DepreciationDeferred Revenue Expenditure
Increase in Equity Capital
Increase in Term Liabilities
Others
Decrease in Working Capital
***
***
***
***
***
***
***
Net Loss
Redemption of PreferenceShare Capital
Increase in Fixed Assets
Dividend paid
Payment of deferred Revenue
Expenditure
Others
Increase in Working Capital
***
***
***
***
***
***
***
Total **** Total ****
5.6 CASH FLOW ANALYSIS
An analysis of cash flow is useful for short term planning. A firm needs sufficient cash to
pay debts maturing in the near future, to pay interest and other expenses and to pay
dividends to shareholders. The firm can make projections of cash in flows and outflows and
outflows for the near future to determine the availability of cash.
A Cash Flow Statement is a statement describing the changes in financial position on cash
basis. This summarizes the causes of changes in cash position between dates of two Balance
Sheets. It indicates the sources and uses of funds. The cash flows statement is similar to the
fund flow statement except that it focuses attention on cash instead of working capital.
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The cash flow statement helps out in taking short term financial decisions and also in the
preparation of cash budget for the next period. Cash flow analysis can reveal the causes for
even highly profitable firms experiencing acute cash shortages. A detailed study of the
sources of cash can help to improve or accelerate the inflow from each source and may even
lead to the discovery of new sources. Similarly a minute analysis of the different applications
of cash may help to slow down or reduce the cash outflows of cash.
The cash flow analysis can be classified into three main categories:
? Cash flows from operating activities
? Cash flows from investing activities
? Cash flows from financing activities
The format of cash flow statement is as follows:
Cash Flow statement for the year
Particulars Rs.
Cash Flows from Operating ActivitiesNet profit / Loss before tax and extraordinary itemsAdjustments for:
DepreciationGain / Loss on sale of fixed assets
Foreign ExchangeMiscellaneous expenditure written offInvestment IncomeInterestDividend
Contd..Operating profit before working capital changesAdjustments for:
Trade and other receivablesInventoriesTrade Payables
Cash generated from operationsInterest paidDirect taxes paidCash flow before itemsExtraordinary items
Net Cash from Operating Activities
Cash Flows from Investing ActivitiesPurchase of Fixed Assets
***
******
***************
****
*********
*******************
***
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Sales of Fixed AssetsPurchase of investmentsSale of investmentsInterest receivedDividend received
Net Cash from/ used in Investing Activities
Cash Flows from Financing ActivitiesProceeds from issue of share capitalProceeds from long-term borrowings/banksPayment of long-term borrowingsDividend paidNet Cash from/used in Financing Activities
Net Increase/ Decrease in Cash and Cash EquivalentsCash and Cash Equivalents as at.(Opening Balance)Cash and Cash Equivalents as at.(Closing Balance)
***************
****
****************
************
5.7 TREND ANALYSIS:
This method is used to analyse the trend in the growth of the companys current assets and
current liabilities, sales and working capital. For this the Trend analysis method is used to
make a clear idea. The trend analysis is done based on the following method. The trend
equation is to be analyzed for this purpose.
The trend equation is
Y = a + bX
Step1: Calculation of b
b = N?XY - ?X?Y
N?X - (?X)
Step2: Calculation of a
a = (?Y / N) b (?X / N)
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Step3: Substitute the value of a and b in the trend equation (Y=a + bX) and plot the value
of Y with respect to X in the chart. The line which is seen in the chart is referred to as the
trend line.
Step4: The chart is then interpreted based on the trend of the line for each Y value (current
assets, current liabilities and sales).
LIMITATION OF STUDY
? The study is purely based on secondary data as obtained from the audited annual
reports of company that gives only limited information regarding performance of the
company.
? Analysis is only a means and not an end itself. The researcher has to make
interpretation and show his own conclusion.
? Financial statements are prepared on the basis of certain accounting concepts and
conventions any change in the method or procedure of accounting limits the utility
of financial statement.
? The data taken for analysis covers only a period of 2000-2003, so study is about past
only, it needs not be indicative of future.
? Time is major limiting factor of study. It is not possible to analyze all the aspects in
details within time allowed because of lack of time; the study does not cover the
areas relating to industrial analysis and economic growth of Bharat Oil Company.
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CHAPTER 6
COMPANY PROFILE
6.1HISTORY
In the early 90's, Bharat oil company (BOC) was formed as a small partnership firm,
marketing the lubrication oil of brand Shell, Castrol, Elf etc. Now it has become a sole
proprietorship. A few years and several successes later, the company surprised everyone
again by spearheading the marketing of lubrication oils in the South. The firm has now
marketed a number of byproducts oil for the same company.
BOC has become one of the key players in the lubrication oil in South India. It has now
consolidated its position as the largest private company in Chennai.
After proving its strength in the lubrication oil industry the organization shifted its focus in
the marketing and sale of lubrication oil and its by products. The company started the
products namely, Castrol and Shell. Within a short period these products have become a
popular product and the company had been able to successfully sustain in the industry.
The companys units are located in Chennai, Thirichangodu, and Naively.
6.2 KEY FEATURES IN OILS
? Capacity of handling 10,00,000 litres of Oil per day.
? State of the art laboratory for process control, product quality control and product
development.
? ISO 9001 certified manufacturing facility that has been extensively upgraded in thelast three years.
? Spray drying capacity of 15 tons per day.
The company also has tie up with banks for arranging loans to the producers. The company
has a strong logistics and distribution network in oil and its byproduct sector. The company
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has 12 distribution points, strategically located for quick and easy distribution of its products.
In this segment, the Companys distribution network comprises of 10 wholesale distributors
and over 75 dealers for Castrol and around 50 direct selling agents for Shell, Elf, and IBP
oils. The company is the leader in oil sector among the private sector and market leader for
southern region, Chennai.
6.3 PRODUCTS OF BOC
The companys markets and sells the following products:
? Lubrication oil of Castrol.
? 2T oil of Shell.
? 2T and 4T oil of Elf & IBP.
? Lubrication oils and Grease.
6.4 SUPPLIERS FOR BOC:
? Castrol
? IBP
? Elf
? Shell
6.5 CUSTOMERS OF BOC:
? Manufacturing industries
? Hotel industries
? Travel industries
? Service industries
Apart from marketing lubrication oils for the company they also market and sell oil
byproduct like grease to its customer. They are planning to expand their operations in
Kancheepuram, Chengalpet, and also in Kerela and Andhrapradesh.
CHAPTER 7
ANALYSIS AND INTERPRETATION
7.1RATIO ANALYSIS
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7.1.1 Current Ratio
Table 7.1
PARTICULARS 2000 2001 2002 2003
Current Assets:Cash in handCash at bankSundry DebtorsStockOther current assets
Total C.A
Current Liabilities:Sundry creditorsBank o/dOther C.L
Total C.L
Current Ratio:
25566.94-1402392.0844667675000
1949635.02
1242427.5716511.4685736
1344675.03
1.45
12085.22423.43
1782233.5512565077000
1997392.2
1401360.58202519.31
56540
1660419.89
1.20
52938.829419.131593854.1213212077000
1865332.07
1478008.90-31462
1509470.9
1.24
75482.89423.431525928.4462565077000
2304484.76
1381732.24-39112
1420844.24
1.62
Ideal Ratio: - 2:1Actual Ratio: - 1.45, 1.20, 1.24, 1.62respectively.
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CURRENT RATIOS
0
0.5
1
1.5
2
RATIOS
RATIOS 1.45 1.2 1.24 1.62
Year Year Year Year
FIGURE i
7.1.1.1INTERPRETATION: -
? Current Ratio of the company is not satisfactory because the ratios are
[1.45,1.20,1.24,1.62] much below the accepted standard of 2:1. Low current ratio
indicates that the firm shall not be able to pay its current liabilities in time. The
company needs to improve its short-term financial position.
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? Bank o/ d has been paid off in 2002 & 2003.
? In 2003 they had enough current assets to pay of their liabilities.
? Cash in hand was constantly increasingly which showed a good sign to pay of
immediate expenses.
? Current liabilities have been decreasing from 2001, which shows a high working
capital.
? Stock flows are uneven during 2001 & 2003.
? Even though current assets are high than current liabilities the current ratio are less
than the ideal one.
7.1.2 Acid Test Ratio
Table 7.2
PARTICULARS 2000 2001 2002 2003
Liquid Assets:Cash in handCash at bankSundry DebtorsOther current assets
25566.94-1402392.0875000
12085.22423.431782233.5577000
52938.829419.131593854.1277000
75482.89423.431525928.4477000
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Total L.A
Current Liabilities:Sundry creditors
Bank o/dOther C.L
Total C.L
Acid test Ratio:
1949635.02
1242427.5716511.4685736
1344675.03
1.45
1997392.2
1401360.58202519.3156540
1660419.89
1.20
1733212.07
1478008.90-31462
1509470.9
1.15
1678834.76
1381732.24-39112
1420844.24
1.18
Ideal Ratio: - 1:1Actual Ratio: - 1.45, 1.20, 1.15, 1.18respectively.
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ACID TEST RATIO
0
0.5
1
1.5
2
RATIOS
RATIOS 1.45 1.2 1.15 1.18
Year Year Year Year
Figure II
7.1.2.1INTERPRETATION: -
1. Acid test ratio of the company is satisfactory because the ratios are
[1.45,1.20,1.15,1.18] much above the accepted standard of 1:1.
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2. High acid test ratio indicates that the firm is liquid and has the ability to meet its
current or liquid liabilities in time. The company needs to improve its short-term
financial position.
3. Bank o/ d has been paid off, which is a good sign for the company.
4. Cash in hand and at bank are quite high which indicates ready payment of any
expenses.
5. Current assets are more than the current liabilities, which indicates a high liquidity
position of the firm to pay off their credits.
7.1.3 Absolute Liquid Ratio
Table 7.3
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PARTICULARS 2000 2001 2002 2003
Absolute LiquidAssets:Cash in hand
Cash at bankOther current assets
Total L.A
Current Liabilities:Sundry creditorsBank o/dOther C.L
Total C.L
Absolute liquidRatio:
25566.94
-75000
100566.94
1242427.5716511.4685736
1344675.03
0.07
12085.22
423.4377000
89508.65
1401360.58202519.3156540
1660419.89
0.05
52938.82
9419.1377000
139357.95
1478008.90-31462
1509470.9
0.09
75482.89
423.4377000
152906.32
1381732.24-39112
1420844.24
0.11
Ideal Ratio: - 0.5:1Actual Ratio: - 0.07, 0.05, 0.09, 0.11respectively.
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ABSOLUTE LIQUID RATIO
0
0.02
0.04
0.06
0.08
0.1
0.12
RATIOS
RATIOS 0.07 0.05 0.09 0.11
Year Year Year Year
FIGURE iii
7.1.3.1 INTERPRETATION
? Absolute liquid ratio is not satisfactory as it is much lower than the rule of thump i.e.
0.5.
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? However this ratio is not in much use even while evaluating the liquid position of a
firm. The company needs to improve its short-term financial position.
? Here current liabilities are more than current assets, which shows a negative
operation in the business.
? Absolute Liquid ratios are less than 0.5 namely (0.07, 0.05, 0.09, 0.11) which shows
they are in a very bad position to pay off the credits.
? An absolute Liquid ratio does not include stocks but includes only cash and short-
term investments, which are very low than current liabilities.
7.1.4 Inventory Turnover Ratio
Table 7.4
PARTICULARS 2000 2001 2002 2003
Cost of goods sold:
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Sales(-) Gross profit
Cost of goods sold
Average Inventory atcost:
Opening Stock(+) Closing Stock
Total Stock(/ 2)
Average Inventory atcost
Inventory TurnoverRatio:
(in times)InventoryConversion Period:(in days)
5336833.43612667.80
4724165.63
272687446676
719363
359681.5
13.1
27.8
6571954.13753990.09
5817964.04
446676125650
572326
286163
20.3
17.9
7394640.28759662.45
6634977.83
125650132120
257770
128885
51.5
7.1
6979264.60
740320
6238944.60
132120625650
757770
378885
16.5
22.1
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INVENTORY TURNOVER RATIO
0
10
20
30
40
50
60
RATIOS
RATIOS 13.1 20.3 51.5 16.5
Year Year Year Year
FIGURE IV
7.1.4.1INTERPRETATION
1. A high inventory turnover indicates efficient management of inventory because more
frequently the stocks are sold out.
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2. Here in 2002 the company was in their efficient form of disposing their stocks on an
average of 7 days which is very good indicator and they should take steps to repeat
the same, efficient management of stocks.
3. In 2002 inventory turnover ratio was a head lower comparing to 2000, which shows
a very poor management of stocks.
4. In 2003 inventory turnover ratio was high which indicates that the firm was good at
their stock management
5. This kind of irregularities increase or decrease indicates the firms inability to manage
the stocks.
7.1.5 Debtors Turnover Ratio
Table 7.5
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PARTICULARS 2000 2001 2002 2003
Net Credit sales:
Sales
(-) Returns
Net credit sales
Average Debtors:
Opening Debtors(+) Closing Debtors
Tot. Debtors (/ 2)
Avg. Debtors
Debtors Turnover
Ratio: (in times)
Average collectionPeriod: (in days)
5336833.43
-
5336833.43
1145693.121402392.08
2548085.2
1274042.6
4.2
86
6571954.13
-
6571954.13
1402392.081782233.55
3184625.63
1592312.815
4.13
87
7394640.28
-
7394640.28
1782233.551593854.12
3376087.67
1688043.835
4.4
81
6979264.60
-
6979264.60
1593854.121525928.44
3119782.56
1559891.28
4.5
80
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DEBTORS TURNOVER RATIO
3.9
4
4.1
4.2
4.3
4.44.5
4.6
RATIOS
RATIOS 4.2 4.13 4.4 4.5
Year Year Year Year
FIGURE V
7.1.5.1INTERPRETATION
1. There is a low debtors turnover ratio, which implies inefficient management of
debtors/ sales.
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2. The average collection period is not satisfactory because it is more than the firms
credit term of 60 days. I t took more than 80 days to collect.
3. But in 2002, 2003 it has reduced which shows a good sign comparing to previous
years.
4. The company should see that their collection period should be below 60 days for
efficient performance.
5. Allowing the customer to pay after the credit period puts the firm in a stress
situation as it does not have good liquidity to pay his creditors
7.1.6 Creditors Turnover Ratio
Table 7.6
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PARTICULARS 2000 2001 2002 2003
Net Creditpurchases:
Purchases(-) Returns
Net credit purchases
Average creditors:
Opening Creditors(+) Closing Creditors
Tot. Creditors (/ 2)
Avg. Creditors
Creditors Turnover
Ratio: (in times)
Average paymentperiod: (in days)
4898154.63-
4898154.63
1025683.561242427.57
2268111.13
1134055.565
4.3
85
5490661.04-
5490661.04
1242427.571401360.58
2643788.15
1321894.075
4.2
87
6615246.33-
6615246.33
1401360.581478008.90
2879369.48
1439684.74
4.6
79
6682729.60-
6682729.60
1478008.901381732.24
2859741.14
1429870.57
4.7
78
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CREDITORS TURNOVER RATIO
3.8
4
4.2
4.4
4.6
4.8
RATIOS
RATIOS 4.3 4.2 4.6 4.7
Year Year Year Year
FIGURE VI
7.1.6.1INTERPRETATION: -
1. The average number of days taken by the firm to pay its creditors is more than 80days.
2. But 2003 it has reduced to 78 days, which is good sign, and the company should see
to perform efficiently in the coming future.
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3. Lower the ratio higher the liquidity position, therefore in 2000 & 2001 the firm has
good liquidity position.
4. Paying of the credit within the credit period helps the firm to improve its
relationship with the suppliers.
5. So 2002 & 2003 are good signs for the firm as the paid their credit within the credit
period.
7.1.7 Working capital Turnover Ratio
Table 7.7
PARTICULARS 2000 2001 2002 2003
Cost of Sales:
Sales 5336833.43 6571954.13 7394640.28 6979264.60
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Cost of sales
Net Working Capital:
Current Assets (A)Current Liabilities
(B)Net W.C:
[C.A C.L]
Working CapitalTurnover Ratio:
(in times)
5336833.43
1949635.021344675.03
604959.99
8.8
6571954.13
1997392.21660419.89
336972.31
19.5
7394640.28
1865332.071509470.9
355861.17
20.7
6979264.60
2304484.761420844.24
883640.52
7.8
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WORKING CAPITAL TURNOVER RATIO
0
5
10
15
20
25
RATIOS
RATIOS 8.8 19.5 20.7 7.8
Year 2000 Year 2001 Year 2002 Year 2003
FIGURE VII
7.1.7.1INTERPRETATION:
1. A high ratio indicates efficient utilization of working capital and low ratio indicates
otherwise. It also indicates the number of times the working capital is turned on.
2. The working capital has increased to 20.7% in 2002 and then has reduced to 7.8%,
which is a huge one, and it shows their inefficient utilization of working capital.
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3. Sales were increasing till 2002 and have decreased in 2003.
4. Working capital ratio was increasing till 2002 and suddenly has fallen to 7.8%, which
has showed their inefficient management.
7.2 FUND FLOW ANALYSIS
Computation of Funds Flow Statement for the year ending 2001
Schedule of Changes in Working Capital
for the year ending
Particulars 2000 2001Increase in
W.C
(Rs)
Decrease in
W.C
(Rs)
Current Assets:Cash in hand 25566.94 12085.22 - 13481.72
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Cash at bankSundry DebtorsStockOther currentassets
Total C.A (A)
Current Liabilities:
Sundry creditorsBank O/ DOther Current liab.
Total C.L (B)
Working Capital(C.A C.L)
Net Decrease inWorking Capital
-1402392.08
44667675000
1949635.02
1242427.5716511.4685736
1344675.03
604959.99
604959.99
423.431782233.55
12565077000
1997392.2
1401360.58202519.31
56540
1660419.89
336972.31
267987.68
604959.99
423.43379841.47
-2000
382264.9
--
29196
29196
267987.68
679448.58
--
321026-
334507.72
158933.01186007.85
-
344940.86
679448.58
Table 7.8
Table 7.9
Calculation of Funds From Operation
Rs.
83476.32
7022
Closing Balance of P&L a/ cAdd: Non-fund and Non-operating expenses:
? Depreciation
90498.32
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-
(78747.58)(78747.58)
Total (A)
Less: Non-fund or Non-operating incomes:
Opening Balance of P&L a/ c
Total (B)
Funds From Operations [A-B]11750.74
Table 7.10
Funds Flow Statement
For the year ending 31-3-2001
Sources AmountRs.
Application AmountRs.
10000011750.74267987.68
18333507
76719.42271000
Increase in capitalFunds from operationsNet Decrease In WorkingCapital
381409.42
Tax paidPurchase of Fixed AssetsNon-Trading paymentsRepayment of loan cr.
381409.42
7.2.1INTERPRETATION: -
The statement of working capital reveals a net decrease in working capital ofRs. 267988. The statement of application of funds while confirming the decrease in workingcapital discloses that it is due to purchase of fixed assets which was Rs.33507.
Hence working capital has been used to buy fixed assets, which may lead toworking capital shortage and difficulties in paying current liabilities in the near future.
Computation of Funds Flow Statement for the year ending 2002
Table 7.11
Schedule of Changes in Working Capital
for the year ending
Particulars 2001
2002Increase in
W.C
(Rs)
Decrease in
W.C
(Rs)
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Current Assets:Cash in handCash at bankSundry DebtorsStock
Other currentassets
Total C.A (A)
Current Liabilities:
Sundry creditorsBank O/ DOther Current liab.
Total C.L (B)
Working Capital(C.A C.L)
Net Increase inWorking Capital
12085.22423.43
1782233.55125650
77000
1997392.2
1401360.58202519.31
56540
1660419.89
336972.31
18888.86
355861.17
52938.829419.13
1593854.12132120
77000
1865332.07
1478008.90-
31462
1509470.90
355861.17
355861.17
40853.68995.7
-6470
-
56319.3
-202519.31
25078
227597.31
283916.61
--
188379.43-
-
188379.43
76648.32--
76648.32
18888.86
283916.61
Table 7.12
Calculation of Funds From Operation
Rs.
92738.96
6591
Closing Balance of P&L a/ cAdd: Non-fund and Non-operating expenses:
? Depreciation
99329.96
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-
(83476.32)(83476.32)
Total (A)
Less: Non-fund or Non-operating incomes:
Opening Balance of P&L a/ c
Total (B)
Funds From Operations [A-B]15853.64
Table 7.13
Funds Flow Statement
For the year ending 31-3-2002
Sources AmountRs.
Application AmountRs.
15853.641110425200
81432454.7818888.86
Funds from operationsRaising of loanIncrease in loan cr
52157.64
Tax paidPurchase of Fixed AssetsNet Increase In WorkingCapital
52157.64
7.2.2 INTERPRETATION: -The statement of working capital reveals a net increase in working capital of
Rs. 18888.86. The statement of application of funds while confirming the increase inworking capital also discloses the purchase of fixed assets, which was Rs.32455.
Hence working capital has been used to buy fixed assets, rising of loan etc.that may lead to working capital shortage and difficulties in paying current liabilities in thenear future.
Computation of Funds Flow Statement for the year ending 2003
Table 7.14
Schedule of Changes in Working Capital
for the year ending
Particulars 2002 2003Increase in
W.C
(Rs)
Decrease in
W.C
(Rs)
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Current Assets:Cash in handCash at bankSundry Debtors
StockOther currentassets
Total C.A (A)
Current Liabilities:
Sundry creditorsOther Current liab.
Total C.L (B)
Working Capital(C.A C.L)
Net Increase inWorking Capital
52938.829419.13
1593854.12
13212077000
1865332.07
1478008.9031462
1509470.90
355861.17
527779.35
883640.52
75482.89423.43
1525928.44
62565077000
2304484.76
1381732.2439112
1420844.24
883640.52
883640.52
22544.07--
493530-
516074.07
96276.66-
96276.66
612350.73
-8995.7
67925.68
--
76921.38
-7650
7650
527779.35
612350.73
Table 7.15
Calculation of Funds From Operation
Rs.
107152.47
4327
Closing Balance of P&L a/ cAdd: Non-fund and Non-operating expenses:
? Depreciation
111479.47
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-
(92738.96)(92738.96)
Total (A)
Less: Non-fund or Non-operating incomes:
Opening Balance of P&L a/ c
Total (B)
Funds From Operations [A-B]18740.51
Table 7.16
Funds Flow Statement
For the year ending 31-3-2003
Sources Amount
Rs.
Application Amount
Rs.
14047497712.8418740.51
2721527779.35
Sale of Fixed AssetsRaising of long term loanFunds from operations
530500.35
Tax paidNet Increase In WorkingCapital
530500.35
7.2.3 INTERPRETATION: -
The statement of working capital reveals a net increase in working capital ofRs. 527779.356. The statement of application of funds while confirming the increase inworking capital also discloses the sale of fixed assets, which was Rs.14047.
Hence working capital has been gained from sale fixed assets, which wasused for rising of loan, which may lead to working capital surpluses paying current liabilitiesin the near future.
7.3 CASH FLOW ANALYSIS
Computation of Cash Flow Statement for the year ending 2001Table 7.17
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Cash Flow Statement
For the year ending 31st March 2001Particulars Amount
Rs.
Amount
Rs.
4728.74
7022-
11750.74
321026158933.01
(381841.47)(29196)80672.28
(183)
(33507)
100000(271000)
80489.28
(33507)
(171000)
(124017.72)9055.48
Cash flow from operating activitiesNet Profit before taxAdjustments for non-cash & operating items:Add: - Non-cash & operating expenses
? DepreciationLess: - Non-cash & operating incomesOperating profit before Working Capital chargesAdjustments for changes in current assets & liabilities:Add: - Increase in liabilities & Decrease in assets
? Stocks
?CreditorsLess: - Decrease in liabilities & increase in assets
? Debtors & other C.A
? Other C.LCash used in operation before taxLess: - Income tax
Net cash used in operating activities
Cash flow from Investing activitiesPurchase of fixed assets
Net cash used in investing activities
Cash flows from Financing activitiesRaising capitalRepayment of loan creditors.
Net cash used in financing activities
Net Increase in cash & cash equivalentsCash & bank balance in the beginning of the period
Cash & bank balance in the end of the period(114962.24)
7.3.1INTERPRETATION: -
1. Cash form operating activities are Rs.80489.28 and cash from investing activitiesis Rs. (33507).
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2. Cash from investing activities shows a negative balance due to amount spent onpurchase of fixed assets.
3. Cash from financing activities is Rs. (171000) which due to repayment of loancreditors and increase in capital invested.
4. Overall cash and bank balance at the end showed a negative balance of Rs.(114962.42)
Computation of Cash Flow Statement for the year ending 2002
Table7.18
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Cash Flow Statement
For the year ending 31st March 2002Particulars Amount
Rs.
Amount
Rs.
9262.64
6591-
15853.64
188379.4376648.32
(25078)(6470)
249333.39(814)
(32454.78)
1110425200
248519.39
(32454.78)
36304
252368.61(190010.66)
Cash flow from operating activitiesNet Profit before taxAdjustments for non-cash & operating items:Add: - Non-cash & operating expenses
? DepreciationLess: - Non-cash & operating incomesOperating profit before Working Capital chargesAdjustments for changes in current assets & liabilities:Add: - Increase in liabilities & Decrease in assets
? Debtors
?CreditorsLess: - Decrease in liabilities & increase in assets
? Other C.L
? StockCash used in operation before taxLess: - Income tax
Net cash used in operating activities
Cash flow from Investing activitiesPurchase of fixed assets
Net cash used in investing activities
Cash flows from Financing activitiesRaising of long-term loanRaising of loan creditors.
Net cash used in financing activities
Net Increase in cash & cash equivalentsCash & bank balance in the beginning of the period
Cash & bank balance in the end of the period62357.95
7.3.2 INTERPRETATION: -
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1. Cash form operating activities are Rs.248519.39 and cash from investing activities isRs. (32454.78).
2. Cash from investing activities shows a negative balance due to amount spent onpurchase of fixed assets.
3. Cash from financing activities is Rs.36304 which due to raising of loan creditors andlong-term loans.
4. Overall cash and bank balance at the end showed a positive balance of Rs. 62357.95
5. Cash has been positively used in operating and financing activities.
Computation of Cash Flow Statement for the year ending 2003
Table 7.19
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Cash Flow Statement
For the year ending 31st March 2003Particulars Amount
Rs.
Amount
Rs.
14413.51
4327-
18740.51
67925.687650
(96276.66)(493530)
(495490.47)(2721)
14047
480952.8819824
(498211.47)
14047
500776.88
16612.4162357.95
Cash flow from operating activitiesNet Profit before taxAdjustments for non-cash & operating items:Add: - Non-cash & operating expenses
? DepreciationLess: - Non-cash & operating incomesOperating profit before Working Capital chargesAdjustments for changes in current assets & liabilities:Add: - Increase in liabilities & Decrease in assets
? Debtors
?Other C.LLess: - Decrease in liabilities & increase in assets
? Sundry Creditors.
? StockCash used in operation before taxLess: - Income tax
Net cash used in operating activities
Cash flow from Investing activitiesSale of fixed assets
Net cash used in investing activities
Cash flows from Financing activitiesRaising of long-term loanRaising of loan creditors.
Net cash used in financing activities
Net Increase in cash & cash equivalentsCash & bank balance in the beginning of the period
Cash & bank balance in the end of the period78970.36
7.3.3 INTERPRETATION: -
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1. Cash form operating activities are Rs. (498211.47) and cash from investing activitiesis Rs. 14047.
2. Cash from investing activities shows a positive balance due to amount earned fromsale of fixed assets.
3. Cash from financing activities is Rs.500776.88 which due to raising of loan creditorsand long-term loans.
4. Overall cash and bank balance at the end showed a positive balance of Rs. 78970.36
5. Cash has been positively used in investing and financing activities.
7.4 COMMON-SIZE STATEMENTS
Table 7.20
Common - size Balance sheet for the year ending
31st Mar 2000 & 2001
2000 2001
Amount (Rs) PercentageTotal
Amount (Rs) Percentage Total
ASSETS
Current Assets:
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Cash in handCash at bankSundry DebtorsStockOther current assets
Total CA (A)
Fixed Assets:Fixed Assets(net)(B)
Total Assets (A+B)
LIABILITIES &CAPITAL
Current Liabilities:Sundry creditorsBank o/dOther Current liab.
Total C.L (A)
Loan Creditors (B)
Capital
Current a/ c(C)
Total Liabilties
(A+B+C)
25566.94-
1402392.0844667675000
1949635.02
27020
1976655.02
1242427.5716511.4685736
1344675.03
411000
100000120979.99
1976655.02
1.3-
70.9522.63.8
98.6
1.4
100
62.90.844.34
68.08
20.75
5.056.12
100
12085.22423.43
1782233.5512565077000
1997392.2
47288
2044680.2
1401360.58202519.31
56540
1660419.89
140000
20000044260.31
2044680.2
0.60.0287.26.23.8
97.7
2.3
100
68.59.92.8
81.2
6.9
9.82.2
100
7.4.1INTERPRETATION
1. Comparing both the years efficient management of working capital is seen in 2000.
2. Working capital for 2000 & 2001 are 30.5%, 16.5% respectively, which indicate a
good sign in 2000.
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3. Current assets constitute nearly 98.7%, 97.7% in 2000 & 2001, which seems to have
adequate cash to meet the obligations.
4. Outsiders funds constitute nearly 68.08%, 81.2% in 2000 & 2001.
5. Loan creditors have been paid off during 2001, which implies fewer dues to others.
6. Fixed assets constitute only a small part in both the years.
7. Bank o/ d has been raised by nearly 126%, which is not a good sign and also
increases outsiders dues.
8. Cash in hand & bank is more, which indicate immediate liquid of funds and also
capital has been raised by Rs.100000.
Table 7.21
Common - size Balance sheet for the year ending
31Mar 2001& 2002
2001
2002
Amount (Rs) PercentageTotal
Amount (Rs) Percentage Total
ASSETS
Current Assets:Cash in handCash at bankSundry DebtorsStockOther current assets
12085.22423.43
1782233.5512565077000
0.60.0287.26.23.8
52938.829419.13
1593854.1213212077000
0.6840.49884.276.984.07
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Total CA (A)
Fixed Assets:Fixed Assets(net)(B)
Total Assets (A+B)
LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsBank o/dOther Current liab.
Total C.L (A)
Loan-ICICI BankLoan Creditors
Total Liabilties (B)
Capital
Current a/ c(C)
Total (A+B+C)
1997392.2
47288
2044680.2
1401360.58202519.31
56540
1660419.89
-140000
140000
20000044260.31
2044680.2
97.7
2.3
100
68.59.92.8
81.2
-6.9
6.9
9.82.2
100
1865332.07
65864
1931196.07
1478008.90-
31462
1509470.90
11104165200
176304
20000045421.17
1931196.07
96.502
3.48
100
76.53-
1.63
78.16
0.5748.55
9.13
10.362.35
100
7.4.2 INTERPRETATION
1. Comparing both the years efficient management of working capital is seen in
2002.
2. Working capital for 2001 & 2002 are 18.3%, 16.5% respectively, which indicate a
good sign in 2002.
3. Current assets constitute nearly 97.7%, 96.5% in 2001 & 2002, which seems to
have adequate cash to meet the obligations.
4. Outsiders funds constitute nearly 81.2%, 78.2% in 2001 & 2002.
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5. Long-term loans have been raised during 2002, which implies more dues to
others.
6. Fixed assets constitute only a small part in both the years.
7. Bank o/d has been paid off which is a good sign.
8. Cash in hand & bank is more, which indicate immediate liquid of funds.
Table 7.22Common - size Balance sheet for the year ending
31 Mar 2002 & 2003
2002 2003
Amount (Rs) PercentageTotal
Amount (Rs) Percentage Total
ASSETS
Current Assets:Cash in handCash at bankSundry DebtorsStockOther current assets
52938.829419.13
1593854.1213212077000
0.6840.49884.276.984.07
75482.89423.43
1525928.4462565077000
3.200.01864.7626.553.27
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Total CA (A)
Fixed Assets:Fixed Assets(net)(B)
Total Assets (A+B)
LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsOther Current liab.
Total Current
liabilities (A)
Loan-ICICI BankLoan Creditors
Total Liabilties (B)
CapitalCurrent a/ c
(C)
Total (A+B+C)
1865332.07
65864
1931196.07
1478008.9031462
1509470.90
11104165200
176304
200000
45421.17
1931196.07
96.502
3.48
100
76.531.63
78.16
0.5748.55
9.13
10.36
2.35
100
2304484.76
51817
2356301.76
1381732.2439112
1420844.24
492056.88185024
677080.88
200000
58376.64
2356301.76
97.798
2.19
100
58.641.66
60.30
20.887.85
28.73
8.49
2.48
100
7.4.3 INTERPRETATION
1. Comparing both the years efficient management of working capital is seen in 2003.
2.
Working capital for 2002 & 2003 are 18.35%, 37.5% respectively, which indicate agood sign in 2003.
3. Current assets constitute nearly 96.502%, 97.798% in 2002 & 2003, which seems to
have adequate cash to meet the obligations.
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4. Outsiders funds constitute nearly 78.16%, 60.30% in 2002 & 2003.
5. Loan creditors and long-term loans have been raised off during 2003, which implies
higher dues to others.
6. Fixed assets constitute only a small part in both the years.
7. Sundry creditors have been reduced and stock has been increased which is a good
sign and also decreases outsiders dues.
8. Cash in hand & bank is more, which indicate immediate liquid of funds and also
capital has not affected.
Table 7.23Common-Size Income statement
For the year ending 2000 and 20012000 2001
Rs. % Rs. %
Net SalesLess: Cost of goods
sold
Gross Profit (A)
Operating Expenses:
Office & Admn exp:Rent
5336833.434724165.63
612667.80
48000
10088.52
11.48
0.90
6571954.135817964.04
753990.09
53000
10088.53
11.47
0.81
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SalariesPostage & TelegramElectricityOther expenses.
Total office exp. (1)
Selling Expense:AdvertisementSales CommissionSales Promotion expOther expenses.
Total Selling exp. (2)
Total Operating Exp.(B) [1+2]
Operating Profit[A-B]
Less: Other expenses
Net Profit before taxLess: income tax
Net profit(after tax)
18805020903329
202316.75
443785.75
40396.70160253170
30542.77
90134.47
533920.22
78747.58
-
78747.583913
74834.58
3.520.040.063.79
8.32
0.760.300.060.57
1.69
10
1.48
-
1.480.07
1.40
2095001609.503894
268202.97
536206.47
36357491571427
47366.30
134307.3
670513.77
83476.32
-
83476.324096
79380.32
3.190.020.064.08
8.16
0.550.750.020.72
2.04
10.20
1.27
-
1.270.06
1.21
7.4.4 INTERPRETATION:
1. Nearly 88.52%, 88.53% is spent on cost of goods sold which results in 11.48%,
11.47% in gross profit for the year 2000, 2001.
2. Operating expenses have increased to 10.2% but operating profit has been reduced
to 1.27% from 1.48%.
3. Net profit after tax has been reduced to 1.21% from 1.40%.
4. Selling expenses has increased to 2.04% from 1.69%.
5. Office expenses has reduced to 8.16% from 8.32%.
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6. Comparing both the year 2001 was good and satisfactory.
Table 7.24
Common-Size Income statement For the year ending 2001 and 20022001 2002
Rs. % Rs. %
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Net SalesLess: Cost of goods
sold
Gross Profit (A)
Operating Expenses:
Office & Admn exp:RentSalariesPostage & TelegramElectricityOther expenses.
Total office exp. (1)
Selling Expense:AdvertisementSales CommissionSales Promotion expOther expenses.
Total Selling exp. (2)
Total Operating Exp.(B) [1+2]
Operating Profit[A-B]
Less: Other expenses
Net Profit before taxLess: income tax
Net profit(after tax)
6571954.135817964.04
753990.09
530002095001609.503894
268202.97
536206.47
36357491571427
47366.30
134307.3
670513.77
83476.32
-
83476.324096
79380.32
10088.53
11.47
0.813.190.020.064.08
8.16
0.550.750.020.72
2.04
10.20
1.27
-
1.270.06
1.21
7394640.286634977.83
759662.45
5400027525024104907
202316.75
561304.33
342458040
12475.6056059.50
111419.16
672723.49
92738.96
-
92738.964910
87828.96
10089.7
10.2
0.733.720.030.072.74
7.59
0.460.110.170.76
1.51
9.10
1.25
-
1.250.07
1.19
7.4.5 INTERPRETATION
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1. Nearly 88.53%, 89.7% is spent on cost of goods sold which results in 11.47%,
10.2% in gross profit for the year 2001, 2002.
2. Operating expenses have decreased to 9.10% and operating profit has been
reduced to 1.27% from 1.25%.
3. Net profit after tax has been reduced to 1.19% from 1.21%.
4. Selling expenses has decreased to 1.51% from 2.04%.
5. Office expenses has reduced to 7.59% from 8.16%.
6. Comparing both the year 2001 was good and satisfactory.
Table 7.25Common-Size Income statementFor the year ending 2002 and 2003
2002 2003Particulars
Rs. % Rs. %
Net Sales 7394640.28 100.00 6979264.6 100.00Less: Cost of goodssold
6634977.83 89.736238944.6
89.39
Gross Profit (A) 759662.45 10.27 740320 10.61
Operating Expenses:
Office & Admn exp:
Rent 54000 0.73 56000 0.80
Salaries 275250 3.72 286500 4.11
Postage & Telegram 2410 0.03 1359 0.02Electricity 4907 0.07 5806 0.08
Other expenses. 202316.75 2.74 170507.4 2.44
Total office exp. (1) 561304.33 7.59 520172.4 7.45
Selling Expense:
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Advertisement 34245 0.46 23160 0.33
Sales Commission 8040 0.11 8870 0.13
Sales Promotion exp 12475.6 0.17 10230 0.15
Other expenses. 56059.5 0.76 70735.13 1.01
Total Selling exp. (2) 111419.16 1.51 112995.13 1.62
Total Operating Exp.(B) [1+2] 672723.49
9.10633167.53
9.07
Operating Profit 92738.96 1.25 107152.47 1.54
[A-B]
Less: Other expenses - - - -
Net Profit before tax 92738.96 1.25 107152.47 1.54
Less: income tax 4910 0.07 2189 0.03
Net profit(after tax) 87828.96 1.19 104963.47 1.50
7.4.6 INTERPRETATION
1. Nearly 89.73%, 89.39% is spent on cost of goods sold which results in 10.27%, 10.61
in gross profit for the year 2002, 2003.
2. Operating expenses have decreased to 9.07% but operating profit has been increased
to 1.54% from 1.25%.
3. Net profit after tax has been increased to 1.50% from 1.19%.
4. Selling expenses has increased to 1.62% from 1.51%.
5.
Office expenses has reduced to 7.45% from 7.59%.
6. Comparing both the year 2003 was good and satisfactory.
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7.5 COMPARATIVE STATEMENTS Table 7.26Comparative Balance SheetYear ending
31 March
2000 2001
Increase/Decrease(Amounts)
Increase/Decrease(Percentages)
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ASSETS
Current Assets:Cash on handCash at bank
Sundry DebtorsStockOther current assets
Total CA (A)
Fixed Assets:Furniture & fixturesOther Fixed Assets
Total Fixed Assets
(B)
Total Assets (A+B)
LIABILITIES &CAPITAL
Current Liabilities:Sundry creditorsBank o/dOther Current liab.
Total C.L (A)
Loan Creditors (B)
CapitalCurrent a/ c
(C)
Total Liabilities(A+B+C)
25566.94-
1402392.0844667675000
1949635.02
191027918
27020
1976655.02
1242427.5716511.4685736
1344675.03
411000
100000120979.99
1976655.02
12085.22423.43
1782233.5512565077000
1997392.2
1791629372
47288
2044680.2
1401360.58202519.31
56540
1660419.89
140000
20000044260.31
2044680.2
(13481.72)423.43
379841.47(321026)2000
47757.18
(1186)21454
20268
68025.18
158933.01186007.85(29196)
315744.86
(271000)
100000(76719.68)
68025.18
(52.7)423.43
27.1(71.9)2.7
2.45
(6.2)270.9
75.01
3.44
12.81126.5(34.1)
23.5
(65.94)
100(63.42)
3.44
7.5.1INTERPRETATION
1. Current assets have been increased by 2.45% and liabilities by 23.5% but working
capital is more i.e. current asset is more than current liabilities.
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2. Fixed assets has been increased by nearly 75% and overall assets have been increased
by 3.44%
3. Capital has been increased by 100% and loan creditors have been decreased by 65%
4. Sundry creditors have been increased by 12% but bank o/ d has been increased by
nearly 126%, which indicates poor management of funds flow.
5. Overall financial position of the company is satisfactory.
Table 7.27
Comparative Balance SheetYear ending
31 March
2001 2002
Increase/Decrease(Amounts)
Increase/Decrease(Percentages)
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ASSETS
Current Assets:Cash on handCash at bank
Sundry DebtorsStockOther current assets
Total CA (A)
Fixed Assets:Furniture & fixturesOther Fixed Assets
Total Fixed Assets
(B)
Total Assets (A+B)
LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsBank o/dOther Current liab.
Total C.L (A)
Loan-ICICI BankLoan Creditors
Total Liabilties (B)
Capital
Current a/ c(C)
Total (A+B+C)
12085.22423.43
1782233.5512565077000
1997392.2
1791629372
47288
2044680.2
1401360.58202519.31
56540
1660419.89
-140000
140000
20000044260.31
2044680.2
52938.829419.13
1593854.1213212077000
1865332.07
1612449740
65864
1931196.07
1478008.90-
31462
1509470.90
11104165200
176304
20000045421.17
1931196.07
40853.68995.7
(188379.43)6470-
(132060.13)
(1792)20368
18576
(113484.13)
76648.32(202519.31)
(25078)
(150948.99)
1110425200
36304
-1160.86
(113484.13)
338.12124.5
(10.6)5.2-
(6.6)
(10)69.3
39.3
(5.6)
5.5(100)
(44.4)
(9.1)
1110418
26
-2.6
(5.6)
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7.5.2 INTERPRETATION
1. Current assets have been decreased by 6.6% and liabilities by 9.1% but working
capital is more i.e. current asset is more than current liabilities.
2. Fixed assets has been increased by nearly 39.3% and overall assets have been
decreased by 5.6%
3. Capital has not changed but loan has been raised by Rs.11104 and loan creditors
have been increased by 18%
4. Sundry creditors have been increased by 5.5% but bank o/d has been paid off and
other current liabilities have been decreased which indicates good management of
funds flow.
5. Overall financial position of the company is satisfactory.
Table 7.28Comparative Balance Sheet
Year ending31 March
2002 2003
Increase/Decrease
(Amounts)
Increase/Decrease
(Percentages)
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ASSETS
Current Assets:Cash on handCash at bank
Sundry DebtorsStockOther current assets
Total CA (A)
Fixed Assets:Furniture & fixturesOther Fixed Assets
Total Fixed Assets
(B)
Total Assets (A+B)
LIABILITIES &CAPITALCurrent Liabilities:Sundry creditorsOther Current liab.
Total Current
liabilities (A)
Loan-ICICI BankLoan Creditors
Total Liabilties (B)
CapitalCurrent a/ c(C)
Total (A+B+C)
52938.829419.13
1593854.1213212077000
1865332.07
1612449740
65864
1931196.07
1478008.9031462
1509470.90
11104165200
176304
20000045421.17
1931196.07
75482.89423.43
1525928.4462565077000
2304484.76
1451237305
51817
2356301.76
1381732.2439112
1420844.24
492056.88185024
677080.88
200000
58376.64
2356301.76
22544.07(8995.7)
(67925.68)493530-
439152.69
(1612)(12435)
(14047)
425105.69
(96276.66)
7650
(88626.66)
480952.8819824
500776.88
-12955.47
425105.69
42.59(95.50)
(4.26)373.54-
23.54
(9.99)(25)
(21.33)
22.01
(6.51)24.32
(5.87)
4331.3512
284.04
-
28.52
22.01
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7.5.3 INTERPRETATION
1. Current assets have been increased by 23.5% and liabilities has been decreased by
5.8% but working capital is more i.e. current asset is more than current liabilities.
2. Fixed assets has been decreased by nearly 21.33% and overall assets have been
increased by 22.01%
3. Capital has not been changed but loan has been increased by nearly 400% and loan
creditors have been increased by 12%
4. Sundry creditors have been decreased by 6.51% and current liabilities increased by
nearly 24.3%, which indicates poor management of funds flow.
5. Bank o/ d has been totally paid off last year but this year long-term loan have been
raised nearly by 400%, which indicates more dues to the firm.
6. Overall financial position of the company is not satisfactory.
Table 7.29
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Comparative Income Statement
Year ending MarchParticulars
2000 2001
Increase/Decrease(Amounts)
Increase/Decrease
(Percentage)
Net SalesLess: Cost of goods
sold
Gross Profit (A)
Operating Expenses:
Office & Admn exp:
RentSalariesPostage & TelegramElectricityOther expenses.
Total office exp. (1)
Selling Expense:AdvertisementSales Commission
Sales Promotion expOther expenses.
Total Selling exp. (2)
Total Operating Exp.(B) [1+2]
Operating Profit[A-B]
Less: Other expenses
Net Profit before taxLess: income tax
Net profit(after tax)
5336833.434724165.63
612667.80
4800018805020903329
202316.75
443785.75
40396.7016025
317030542.77
90134.47
533920.22
78747.58
-
78747.583913
74834.58
6571954.135817964.04
753990.09
530002095001609.503894
268202.97
536206.47
3635749157
142747366.30
134307.3
670513.77
83476.32
-
83476.324096
79380.32
1235120.71093798.41
141322.29
500021450(480.5)565
65886.22
92420.72
(4039.7)33132
(1743)16823.53
44172.83
136593.55
4728.74
-
4728.74183
4545.74
23.123.2
23.1
10.4211.46(23)17
32.56
20.8
(10)207
(55)55
49.01
25.6
6.01
-
6.014.7
6.1
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7.5.4 INTERPRETATION
1. Sales have been increased by 23.1% and cost of goods by 23.2% so overall gross
profit has been increased by 23.1%.
2. Although operating expenses have increased by 25.6% the increase in gross profit is
sufficient to compensate for the increase in operating expenses and hence there has
been an overall increase in operational profits by 6.01%.
3. There is an increase in net profit after tax amounting to Rs. 4545.75 i.e. 6.1%
4.
It may be concluded that there is a sufficient progress in the company and the overallprofitability of the company is good.
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Table 7.30Comparative Income Statement
Year ending MarchParticulars
2001 2002
Increase/Decrease
(Amounts)
Increase/Decrease
(Percentage)
Net SalesLess: Cost of goods
sold
Gross Profit (A)
Operating Expenses:
Office & Admn exp:RentSalariesPostage & TelegramElectricityOther expenses.
Total office exp. (1)
Selling Expense:Advertisement
Sales CommissionSales Promotion expOther expenses.
Total Selling exp. (2)
Total Operating Exp.(B) [1+2]
Operating Profit[A-B]
Less: Other expenses
Net Profit before taxLess: income tax
Net profit(after tax)
6571954.135817964.04
753990.09
530002095001609.503894
268202.97
536206.47
36357
49157142747366.30
134307.3
670513.77
83476.32
-
83476.324096
79380.32
7394640.286634977.83
759662.45
5400027525024104907
202316.75
561304.33
34245
804012475.6056059.50
111419.16
672723.49
92738.96
-
92738.964910
87828.96
822686.15817013.79
5672.36
100065750800.501013
(65886.22)
25097.86
(2112)
(41117)11048.68693.2
(22888.14)
2209.72
9262.64
-
9262.64814
8448.64
12.514
0.75
1.831.449.726
(24.6)
4.7
(5.8)
(83.6)774.318.4
(17)
0.33
11.1
-
11.119.8
10.6
7.5.5 INTERPRETATION: -
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1. Sales have been increased by 12.5% and cost of goods by 14% so overall gross profit
has been increased by 0.75%.
2. Although operating expenses have increased by 0.33% the increase in gross profit is
sufficient to compensate for the increase in operating expenses and hence there has
been an overall increase in operational profits by 11.1%.
3. There is an increase in net profit after tax amounting to Rs. 8448.64 i.e. 10.6%
4. It may be concluded that there is a sufficient progress in the company and the overall
profitability of the company is good.
Table 7.31
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Comparative Income Statement
Year ending MarchParticulars
2002 2003
Increase/Decrease(Amounts)
Increase/Decrease
(Percentage)
Net SalesLess: Cost of goods
sold
Gross Profit (A)
Operating Expenses:
Office & Admn exp:
RentSalariesPostage & TelegramElectricityOther expenses.
Total office exp. (1)
Selling Expense:AdvertisementSales Commission
Sales Promotion expOther expenses.
Total Selling exp. (2)
Total Operating Exp.(B) [1+2]
Operating Profit[A-B]
Less: Other expenses
Net Profit before taxLess: income tax
Net profit(after tax)
7394640.286634977.83
759662.45
5400027525024104907
202316.75
561304.33
342458040
12475.6056059.50
111419.16
672723.49
92738.96
-
92738.964910
87828.96
6979264.606238944.60
740320
5600028650013595806
170507.4
520172.4
231608870
1023070735.13
112995.13
633167.53
107152.47
-
107152.472189
104963.47
415375.68396033.23
19342.45
200011250(1051)899
(31809.35)
(41131.93)
(11085)830
(2245.6)14675.63
1575.97
(39555.96)
14413.51
-
14413.51(2721)
17134.51
5.625.97
2.55
3.704.09(43.6)18.32(15.72)
(7.33)
(32.37)10.32
(18)26.18
1.41
(6)
15.54
-
15.54(55.42)
19.51
7.5.6 INTERPRETATION
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1. Sales have been increased by 5.62% and cost of goods by 5.97% so overall gross
profit has been increased by 2.55%.
2. Operating expenses have decreased by 6% the increase in gross profit is sufficient to
compensate for the decrease in operating expenses and hence there has been an
overall increase in operational profits by 15.54%.
3. There is an increase in net profit after tax amounting to Rs. 17134.51 i.e. 19.51%
4. It may be concluded that there is a sufficient progress in the company and the overall
profitability of the company is good.
7.6 TREND ANALYSIS
The trend equation is to be found out for analyzing the trend in which the current assets of
the Company is expected to grow by analyzing the past results. The Trend equation is y =
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a+bx. Here the X represents the years for which the analysis is done (2000, 2001, 2002,
2003). The trend y values are calculated after determining the a and b values. A deviation,
x is assigned for each year keeping the third year of the study period as the base year and
subtracting the other years from the base year. For example, if the base year is 2002, the first
year deviation is -2 (i.e.) (2000-2002). The y values represent the value of current assets,
current liabilities, sales and working capital in the respective years.
7.6.1Trend Analysis of Current Assets
Table 7.32
Year
X
Deviation,
x
Current Assets, y
(Rs. in 000s)
x x*y
2000 -2 1949635.02 4 -3899270.04
2001 -1 1997392.2 1 -1997392.2
2002 0 1865332.07 0 0
2003 1 2304484.76 1 2304484.76
Total ?x= -2 ?y=8116844.05 ?x=6 ?x*y= -3592177.48
Calculation of b:b = N? x*y-?x*?y
N? x - (? x)
= 4*(-3592177.48) (-2)*8116844.05
4*6 (-2)
= 1864978.18
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20
b = 93248.9
Calculation of a:
a = (?y / N) b* (?x / N)
a = (8116844.05/4) 93248.9*(-2/4)
a = 2075835.45
When X=2000 (x=-2) Y= 2075835.45 + 93248.9*(-2)
Y= 1889337.65
When X=2001 (x=-1) Y=2075835.45 + 93248.9 *(-1)
Y= 1982586.55When X=2002 (x=0) Y= 2075835.45 + 93248.9*(0)
Y= 2075835.45
When X=2003 (x=1) Y= 2075835.45 + 93248.9*(1)
Y= 2169084.35
Trend Projections for next two years,
When X=2004 (x=2) Y= 2075835.45 + 93248.9*(2)Y= 2262333.25
When X=2005 (x=3) Y= 2075835.45 + 93248.9*(3)
Y= 2355582.15
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It is clear from the analysis that the values of Y are considerably increasing through the years
during the study period. The trend projection of the current assets level also increases for the
next two years as seen. A chart depicting the trend values and the actual values can be seen.
The constant line in the chart depicts the trend values and the other one is the actual values.
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TREND ANALYSIS CURRENT ASSETS
0
500000
1000000
1500000
2000000
2500000
1999 -
2000
2000 -
2001
2001 -
2002
2002 -
2003
YEAR
CURRENTASSETS
TREND
ACTUAL
figure viii
7.6.2 Trend Analysis for the Current Liabilities
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Table 7.33
Year
X
Deviation,
x
Current Liabilities, y
(Rs. in 000s)
x x*y
2000 -2 1344675.03 4 -2689350.06
2001 -1 1660419.89 1 -1660419.89
2002 0 1509470.9 0 0
2003 1 1420844.24 1 1420844.24
Total ?x= -2 ?y= 5935410.06 ?x= 6 ?x*y= -2928925.71
Calculation of b:b = N? x*y-?x*?y
N?x - (?x)
= 4*(-2928925.71) (-2)*5935410.06
4*6 (-2)
= 155117.28
20
b = 7755.864
Calculation of a:
a= (?y / N) b* (?x / N)
a= (5935410.06/4) 7755.864*(-2/4)
a=1487730.45
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When X=2000 (x=-2) Y= 1487730.45+7755.864*(-2)
Y= 1472218.72
When X=2001 (x=-1) Y=1487730.45+7755.864*(-1)
Y= 1479974.59
When X=2002 (x=0) Y= 1487730.45+7755.864*(0)
Y= 1487730.45
When X=2003 (x=1) Y=1487730.45+7755.864 *(1)
Y= 1495486.31
Trend Projections for next two years,
When