Finance Evaluvation

8/3/2019 Finance Evaluvation

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TABLE OF CONTENTS

Chapter No. Particulars Page No.

Chapter 1 Introduction 1

Chapter 2 Industry Profile 5

Chapter 3 Company profile 8

Chapter 4 Review of Literature 23

Chapter 5 Research Objectives 30

Chapter 6 Research Methodology 33

Chapter 7 Analysis and Interpretation 39

Chapter 8 Summary and findings 100

8.1 Findings 101

8.2 Recommendations 105

8.3 Conclusions 106

Chapter 9 Annexure 107

Chapter 10 Bibliography 108



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LIST OF TABLES

S. No. Particulars Page No.

1 RETURN ON TOTAL ASSETS RATIO 40

2 PROFITABILITY RATIO 42

3 PROFITABILITY EARNINGS RATIO 44

4 RETURN ON INVESTMENT RATIO 46

5 OPERATING RATIO 48

6 OPERATING PROFIT RATIO 50

7 ADMINISTRATION EXPENSES RATIO 52

8 SELLING AND DISTRIBUTION EXPENSES RATIO 54

9 INVENTORY TURNOVER RATIO 56

10 INVENTORY TURNOVER PERIOD 58

11 DEBTORS TURNOVER RATIO 60

12 DEBTS COLLECTION PERIOD 62

13 CREDITORS TURNOVER RATIO 64

14 DEBTS PAYMENT PERIOD RATIO 66

15 WORKING CAPTIAL TURNOVER RATIO 68

16 CAPTIAL TURNOVER RATIO 70

17 FIXED ASSETS TURNOVER RATIO 72

18 TURNOVER PER RUPEE OF GROSS BLOCK RATIO 74

19 TURNOVER PER EMPLOYEE RATIO 76 20 CURRENT RATIO 78

21 LIQUID RATIO 80

22 COMMON SIZE BALANCE SHEET ANALYSIS 82

23 COMPARATIVE BALANCE SHEET ANALYSIS 84

24 TREND ANALYSIS 92

25 REGRESSION ANALYSIS 94



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LIST OF CHARTS

S. No. Particulars Page No.

1 RETURN ON TOTAL ASSETS RATIO 41

2 PROFITABILITY RATIO 43

3 PROFITABILITY EARNINGS RATIO 45

4 RETURN ON INVESTMENT RATIO 47

5 OPERATING RATIO 49

6 OPERATING PROFIT RATIO 51

7 ADMINISTRATION EXPENSES RATIO 53

8 SELLING AND DISTRIBUTION EXPENSES RATIO 55

9 INVENTORY TURNOVER RATIO 57

10 INVENTORY TURNOVER PERIOD 59

11 DEBTORS TURNOVER RATIO 61

12 DEBTS COLLECTION PERIOD 63

13 CREDITORS TURNOVER RATIO 35

14 DEBTS PAYMENT PERIOD RATIO 37

15 WORKING CAPTIAL TURNOVER RATIO 69

16 CAPTIAL TURNOVER RATIO 71

17 FIXED ASSETS TURNOVER RATIO 73

18 TURNOVER PER RUPEE OF GROSS BLOCK RATIO 75

19 TURNOVER PER EMPLOYEE RATIO 77

20 CURRENT RATIO 79

21 LIQUID RATIO 81



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CHAPTER: 1

INTRODUCTION



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INTRODUCTION OF THE STUDY:

³Finance may be defined as that administrative area or set of administrative

functions in an organization which relate with the arrangement of cash and credit so

that the organization may have the means to carry out its objective as satisfactorily

as possible´.

The main activities to the successful administration of finance in any

organization comprise financial planning, raising the needed funds, financial

analysis and control. Analysis of financial statement in a business deserves much

attention in carrying out finance function. It helps to regains prospective analysis of

operative period for the purpose of evaluating the wisdom and efficiency of

financial planning. Analysis of what has happened should be of great value in

improving the standards, techniques and procedures of financial control involved in

carrying out finance function.

FINANCIAL MANAGEMENT

Financial management is broadly concerned with the procurement and

effective utilization of funds by a business firm. Financial management emerged as

a distinct field of study at the turn of this century. Its evolution may be divided into

three broad phases.

The Traditional Phase and Modern Phase Finance theory, in general resist

on the premise that the goal of the firm to its equity shareholders. This means that

the goal of the firm should be to maximize of market value of its equity shares the

goals of maximization of shared as wealth, expressing the shareholders point of view, several alternatives have been suggested, maximization of earning per share,

maximization of returns on equity etc., maximization of profit is not as inclusive

goal as maximization of shareholders wealth. It suffers from several limitations like

profit is obscure term¶s not a proper guide to decision making. It should be

expressed either on a per share basis or in relation to investment etc.



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FINANCIAL ANALYSIS

The financial statement provides a summary of the account of a business

enterprise. To understand the financial performance and condition of a firm, its

stakeholders look at the three financial statements, Viz, the balance sheet, the profit and

loss account and the sources and uses of a funds statement.

BALANCE SHEET

It shows the financial position of the firm at the accounting period.

PROFIT AND LOSS ACCOUNT

It shows how the firm performed financially over the accounting period.

SOURCES AND USES OF FUNDS STATEMENT

It shows what have been the sources and uses of funds during the accounting

period.



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SYNOPSIS

The researcher as part of curriculum has conducted a study to find out to financial

performance of the company. The data utilized for the study is secondary in nature. The

required data is collected from the budgeted formats, Flash results and Five- year

annual diary of the company. The data has been collected for a period of five years

from 2002-03 to 2006 ±07.

The ratios concerned in the study are profitability ratios and turnover ratios. The

profitability ratios includes Returns on total assets, Profitability ratio, Profitability

earnings, Administrative expenses ratio, Selling and Distribution expenses ratio, Return

on investment, operating profit ratio, Value added as a percentage on turnover, Value

Added Per employee.

The turnover ratios include inventory turnover ratio, inventory turnover Period,

Debtor turnover ratio, Debt collection period, creditors turnover ratio, Debt payment

period, working capital turnover ratio, Fixed assets turnover ratio, Capital turnover

ratio, Turnover per rupee of gross block, Turnover per employee. The Solvency ratio

includes current ratio.



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INTRODUCTION OF THE INDUSTRY

Engineering and capital goods industry in India faced a bullish trend in the year

2000. It was expected that the industry would look up after being battered by the years

of recession. In Financial year 1999, engineering and capital goods sector went up by

nearly 11.5%.

This reaffirmed the performance in the sector. However, the euphoria didn¶t last

long and FY2000 witnessed a sharp fall in the growth in the sector. In FY2000 the

index went up by just 5.4% (As per CMIE reported figures).

Engineering sector is inextricably linked to the performance of power sector.

Investments in power generation, distribution and transmission have almost dried up,

which is eventually reflected in the performance of engineering companies.

Engineering goods demand is derived from the demand in consumer

products. Falling import barriers on consumer goods has resulted in a sharp decline in

the demand of capital goods. Apart from this the government has curtailed capital

expenditure so as to control the fiscal deficit

Nearly 70% of the revenues of most of the listed and unlisted engineering

companies come from the power sector. The demand may take the form of other

direct demand or a derived demand. In FY2000, the capacity addition in the production

capacity of power sector was 3433 MW.

According to the industry estimates we need almost 7.8% growth in the

installed capacity to cater to the needs of the economy growing at almost 6% p.a. Thistranslates into a capacity addition of 6768 MW with a base of installed capacity as on

March 31, 1999 and growth rate considered at 7%. We can easily make out that the

addition to the capacity is nearly 50% of the increase in projected demand.



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Showdown in capacity additions is reflected in the overall power shortage,

which stood at nearly 7% in the month of November 2000. The most recent exit from

India is that of UK power Major Power Gen. However, we see this stage as a transition

phase of the power industry. Major reforms have been initiated at all levels in India.

Uniform regulatory framework, Electricity Bill 2000, is in place and would soon be

placed in the parliament for discussion. We expect that there is a realization of the

power crises and the bill would not face much difficulty in arriving at the consensus.

The bill propounds more prominent role of the private sector in the developing

power infrastructure and removes most of the redundant bureaucratic hurdles. This also

allows a level playing field to the private power producer vis-à-vis the public sector and

also provides a room for better returns on capital employed.

We feel that the bill would be passed in the next session of the Parliament. This

would result in a large-scale activity in the power sector. In a short term we feel that the

scenario may go from bad to worse but in medium to long term we foresee a major

activity in the sector. Some of the major beneficiaries would be companies like BHEL,

ABB, Siemens, Larsen & Turbo and also the companies in the business of generation,

distribution and transmission of power like TEC, BSES, Ahmedabad Electricity and

CESC.



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CHAPTER: 3

COMPANY PROFILE



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COMPANY PROFILE

Bharat Heavy Electrical Ltd., (BHEL) is the largest engineering and manufacturing

enterprise of its kind in India and is one of the leading international companies in the

field of power equipment manufacture. The first plant of BHEL was set up at Bhopal in

1956, which signaled the dawn of the Heavy Electrical Industry in India. In the early

sixties, three more major plants were set up at Haridwar, Hyderabad and

Tiruchirappalli, which form the core of the diversified range, systems and service the

BHEL offers today.

BHEL range of services extends from project feasibility studies to after-sales-

service successfully meeting diverse needs through turnkey capability. The company

has 14 manufacturing units, 4 power sector regional centers, 8 service centers and 18

regional offices besides project sites spread all over India and abroad. The company has

formed a Strategic Business Unit for Ceramics at Bangalore. BHEL is today the largest

engineering and manufacturing enterprise of its kind in India, with a well recognized

track record of performance, making profits continuously since 1971 ± 72 and paying

dividends since 1976-77. BHEL manufactures over 180 products under 30 major

product groups and caters to core sectors of the Indian economy viz., Power Generation

and Transmission Industry, Transportation, Telecommunication, Renewable Energy,

etc.

The quality & reliability of its products is due to the emphasis on design,

engineering and manufacturing to international standards by acquiring and adapting

some of the best technologies from leading companies in the world, together with

technologies developed in its own R & D centers. BHEL has acquired certifications to

both ISO 9000 & ISO 14000 standards for its operations and has also adopted the

concepts of Total Quality Management. BHEL has adopted Occupational health and

safety standards as per OHSAS 18001. Two of its divisions have acquired certification

to OHSAS 18001 standard and the other units are in the process of acquiring the same.



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BHEL¶s operations are organized around three business sectors,

namely power industry including Transmission, Transportation, Telecommunication &

Renewable Energy and International Operations. This enables BHEL to have a strong

customer orientation, to be sensitive to his needs and respond quickly to the changes in

the market.

OBJECTIVES OF BHEL :

1. GROWTH

To ensure a steady growth by enhancing the competitive edge of BHEL in existing

business, new areas and international operations so as to fulfill national expectations

from BHEL.

2. PROFITABILITY

To provide a reasonable and adequate returns on Capital Employed, primarily

through improvement in operational efficiency capacity utilization and productivity and

generate adequate internal resources to finance the company¶s growth.

3. CUSTOMER FOCUS

To build a high degree of customer confidence by providing increased value for his

money through in international standards of product quality, performance and superior

customer service.



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4. ORIENTATIONS

To enable each employee to achieve his potential, improve his capabilities, perceive

his role and responsibilities and participate and contribute positively to the growth and

success of the company. To invest in human resources continuously and be alive their

needs.

5. TECHNOLOGY

To achieve technological excellence in operations by development of indigenous

technologies and efficient absorption and adaptation of imported technologies to suit

business needs and priorities and provide a competitive advantage to the company.

6. IMAGE

To fulfill the expectations which stake holders like Government as owner,

employees, customers and the country at large have from BHEL.

BHEL has supplied :

y Equipment for over 90,000 MW of power generation ± for utilities, captive and

industrial uses.

y Over 25,000 Motors with Drive Control Systems to Power Projects,

Petrochemicals, Refineries, Steel, Aluminium, Fertilizer, Cement Plants etc.

y Over one million Valves to Power Plants and other industries.



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VISION:

BHEL¶s vision is to make a world ± class engineering enterprise committed to

enhancing share holder value.

MISSION:

BHEL mission is to be an Indian multinational engineering enterprise providing

total business solutions through quality products, system and service in the fields of

energy, transport, infrastructure and other potential areas.

STRENGTH :

The greatest strength of BHEL is its highly skilled and committed people.

Every employee is given an equal opportunity to develop himself and improve his

position. Continuous training and retraining, career planning, a positive work culture

and participative style of management have engendered development of a committed

and motivated work force leading to enhanced productivity and higher levels of quality.

VALUES:

y Zeal to excel and zest for change.

y Integrity and fairness in all matters.

y Respect for dignity and potential of individuals.

y Strict adherence to commitments.

y Ensure speed of response.

y Foster learning, creativity and team work.

y Loyalty and pride in the company.



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OTHER UNITS OF BHEL:

1) Steam less Steel Tube Plant - Trichy

2) High Pressure Boiler Plant ± Trichy

3) Heavy Electrical Plant ± Bhopal

4) Industrial Valves Plant ± Govindaval

5) Heavy Electrical Equipment Plant ± Haridwar

6) Central Foundary Forge Plant ± Haridwar

7) Heavy Equipment Plant ± Haridwar

8) Electronic Division ± Bangalore

9) Industrial Insulted Plant ± Jagdishpur

10) Component Fabrication Plant ± Rudhrapur

11) Silicon Solar Cell Plant ± Gurgon

12) Heavy Equipment Repair Plant ± Varanasi

COMPETITORS:

y ABB

y SIEMENS

y GEC

y VOLTAS



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MAJOR IMPORTS FROM ABROAD:

a) AB Sand irk, Sweden.

b) Hyundai, South Korea.

c) Reiner Brach, Germany.

d) Ferromex, Belgium.

e) Metal one, Japan.

f ) Ducon technologies, USA.

MAJOR SUPPLIERS IN INDIA:

a) Steel Authority of India

b) The Indian Iron Steel Co. Ltd

c) Tube Investment of India

d) Dynalog (India) Ltd

e) Controls & Switch Gear Co.

f ) Delton Cables

g) Tata Iron & Steel Co. Ltd

h) Super Forgings & Steels Ltd

i) Bhushan Steel & Strips

j) Jindal Steel & Steels

k ) Uttam Galva Steels Ltd



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MAJOR CUSTOMERS:

a) State Electricity Board

b) Tata Iron & Steel Co. Ltd

c) Jindal Steel & Steels

d) Hindustan Zinc

e) Bhushan Steel & Strips

f ) Saint Gobin

g) National Thermal Power Corporation

h) Walchand

Board of Directors of BHEL:

1. Ashok K. Puri, Chairman & Managing Director

2. A.K. Mathur, Director (IS&P)

3. K. Ravikumar, Director (Power)

4. C.P. Singh, Director (Finance)

5. N.K. Sinha, Company Secretary



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BOILER AUXILIARIES PLANT, RANIPET :

The boiler Auxiliaries Plant, a unit of BHEL located at Ranipet about 120

KMs from the city of Chennai is one of the manufacturing divisions of BHELs. The

plant has recorded a turn over of around Rs.30807 lakhs during the financial year 2001-

02. The product profile of the unit caters to both power and industrial sectors.

TECHNICAL COLLABORATION

BHEL, Ranipet had technical collaboration for boiler auxiliaries form leading

international players like erstwhile M/s. CE ± APCo, USA, M/s. KKK, Germany and

M/s. Flakt industry, Sweden. Recently the company has extended its business portfolio

to non-conventional energy by supplying Wind Electric Generators with the back up of

M/s. Nordex A/S, Denmark. Another ongoing partnership of the company is with M/s.

Hamon Rothemuhle, Germany in the field of Bag Filters.

UNIT¶S INSTALLED CAPACITY

In the power sector, BHEL, Ranipet was actively associated with the

enhancement of the installed capacity in the country, since the beginning of the plant in

1982. The unit has established itself as a reliable single source for air pollution control

equipments, fans air preheaters and other accessories like gates, dampers, louvers for

power plants. BHEL, Ranipet has supplied ESP¶s for eighteen 500MW units, 148 units

in the range of 200 MW to 250 MW, 65 units of 100 MW to 130 MW and 64 units of

12 MW to 80 MW.



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In addition, BAP has supplied ESP¶s for 71 industrial boilers and around 100

ESP¶s for other industrial applications. The air preheaters and fans supplied for various

500 MW, 250 MW 200/210 MW and low rated units located at various sites in the

country are also performing to the utmost satisfaction of the customers. Boiler

auxiliaries have also been exported, for e.g. to Alarish in Egypt. The unit is actively

participating in few global renders and will be a strong contender for boiler auxiliaries

required for IPPs coming Up in India. In desalination business BHEL, Ranipet has

presence in India with eleven plants of capacities ranging from 20 cubic meters per day

to1 MGD at Ramanathapuram district in Tamilnadu. The company is keen to expand

its business in this area of business.

Equipment for over 90,000 MW of power generation ± for utilities, captive and

industrial uses.

Over 25,000 Motors with Drive Control Systems to Power Projects, Petrochemicals,

Refineries, Steel, Aluminum, Fertilizer, Cement Plants etc.

Over one million Valves to Power Plants and other industries.

The unit a shop floor area of around 93000 Sq.m. and has the state of the art

manufacturing facilities along with necessary inspection and testing facilities. The

manufacturing facilities include sophisticated CNC turning and machining centers,

vertical borers, metal forming machines like press brakes, rolling machining centers,

vertical borers, metal forming machines like press brakes, rolling machines, sectional

rolling machines, presses etc. the plant has modern welding facilities, heat treatment

facilities and has the capability to meet stringent quality in fabrication and machining.

The inspection and testing like ultrasonic scanning, radiography and a modern

metrology.



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ORGANISATION CHART OF BHEL, BAP, RANIPET



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INTRODUCTION TO FINANCE & ACCOUNTS DEPARTMENT:

The finance & Accounts Dept. of BAP, Ranipet is headed by SDGM.

This department is responsible for making the balance sheet and profit & loss

account of the plant. In order to make the flow of work in an easy and efficient

manner the department is classified into different sections which are given below:

INDIGENOUS SUPPLIERS BILL PASSING SYSTEM

Integrated with PO master of Purchase Dept. for PO details and stores

receipt voucher (SRV) table and Day book (DB) Table of Stores Dept. (DTS) Direct

to site Table of material planning department for quality details.

FOREIGN SUPPLIERS BILL PASSING SYSTEM

Integrated with PO master of purchase dept. for PO details SRV table for

quality details, Bank payment advice slip (BPAS) for actual payment and exchange

Rate particulars, Regional Operating Division (ROD) debits for freight, customs

duty, Demurrage, port handling charges, forwarding agents commission and other

relevant charges.

MSA BILL PASSING SYSTEM

Integrated with PO Master, form issue position (IP) Material Accounting

statement (MAS) of MSA Dept. for PO, work order, Rate details and off cut and

scrap recovery.

FREIGHT BILL PASSING SYSTEM

Outward (shipping) bill system is integrated with loading advice slip

(LAS) & Goods consignment Note (GC) of shipping Dept. Site table of Commercial Dept. and Rate Master for Distance, Customer, Weight, Estimation,

Rate and other relevant details.



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SRV PRICING SYSTEM

Integrated with PO Master & SRV Table for pricing without any manual

input. Posting to General Ledger (GL) and other subsidiary ledgers will be done

instantly along with pricing.

PRICED STORES LEDGER SYSTEM

Instant pricing and instant PSL & GL instantly on Dynamic Weighted

Average Rate basis as and when issue voucher are raised, provided sufficient stock I

available in PSL Adjustment (EAL) are automatically fed into system as and when

Adjustment SRVs (ASRVs) are raised by sections to adjust the cost already booked

against the work orders and also to rectify the PSL rate master.

GENERAL LEDGER SYSTEM (GL)

GL system is a real time on-line system. Sectional ledgers, subsidiary

Ledgers, GL, section Trial balance (TB) and TB can be taken readily as and when

required. Inter unit statements, Balance Sheet, Link sheets & detailed schedules can

be taken from GL without any manual input. Fixed Assets ledger & Depreciation

calculation system is integrated with GL and all posting to GL will be done

automatically.

CASH AND BANK SYSTEM

Preparation of cash receipts are done through online system which is

integrated with GL system. Daily statements like cash receipts, payments, unpaid,

TA, cash balance with denomination, etc., are taken from GL system without any

manual intervention. Cheque printing, suppliers, cheque forwarding memo with

details, Dispatch Advice Slip, Bank Book, Bank JV generation and necessary

postings to GL are done thro on-line system without any manual input by cheque

section. The following two finance systems are developed and maintained by

information center



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PAY ROLL SYSTEM

It is integrated with P & A system. Payment of monthly salary and other

allowances, all monthly recoveries from salary, attendance maintenance,

employees¶ personal details and other personal payments are taken care.

COSTING SYSTEMS

Turnover, WIP, FG & Limitation working is based on input from PSL &

GL system of finance Dept., Time Docket of production Dept., Design weight of

GMs of Engineering system, production Details of production system and dispatch

details of commercial Dept.,

SALES ACCOUNTING

Sales Accounting is one of the most important areas in Finance &

Accounting function. It is the sales function which creates valid claims on

customers and gives authority for collection of money from debtors and thus

completing the total business cycle and generation of surplus funds for growth.

PAYMENT TERMS

Payment terms are agreed upon with customers by the contracting

agency may vary from customer and nature of the contracts. The general payment

terms are an advance (generally 10%) is taken as advance money along with the

issuance of LOI. Normally a sum of 80-85% is taken as payment against supplies

upon submission of invoices. Generally an amount of 2-10% is retained by the

customer as retention money which is realized after the performance guarantee test

is done and the warranty period is over (Deferred Debt.)

EXCISE DUTY

Excise Duty is the duty on manufacture and the duty liability is fastened

immediately after goods are manufactured; whether these are sold or not it is

immaterial. Such duty is paid at the time and place of removal.

SALES TAX

Sales Tax is an indirect tax charged on sale of goods for consideration.

It can be segregated as inter ± state sale and intra ± state sale.



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CHAPTER: 4

REVIEW OF LITERATURE



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THEORETICAL EXPLANATION OF FINANCIAL ANALYSIS

TOOLS:

In business usage the term financial statement analysis and interpretation are applied to

almost any kind of detailed inquiry into financial data. It is a technical tool in the hands

of financial executives to measures the financial progress. It is an attempt to determine

the significance and meaning of the financial statement data so that a forecast can be

made on the prospects of future earning ability to pay interest and debt maturity both

current as well as long term and to study the probability of a sound dividend policy. The

techniques are used to ascertain or measure the performance of the company as a whole.

Review of literature consists of theoretical study of the f ollowing sub

topics

y Ratio Analysis

y Comparative Balance Sheet Analysis

y Common size Balance Sheet Analysis

y Trend Analysis

y Regression Analysis

RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is the

process of establishing and interpreting various ratios. A financial ratio is therelationship between two accounting figures expressed mathematically. Ratios provide

clues to the financial position of a concern. These are the pointers and indicators of

financial strength, soundness, position or weakness of an enterprise. One can draw

conclusions about the exact financial positions of a concern with the help of ratios.



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Ratio analysis is a process of comparison of one figure against another, which make

a ratio, and the appraisal of the ratios to make proper analysis about the strengths

and weaknesses of the company¶s operations. Ratio analysis is extremely helpful in

providing valuable insight into a company¶s financial picture

MEANING OF RATIOS

³Ratios are relationship express in mathematical terms between figures

which are connected with each other in some manner. Obviously, no purpose will

be served by comparing two sets of figures which are not at all connected with each

other´. Moreover, absolute figures are also unfit for comparison. Ratios can be

expressed in two ways;

TIMES

When one value is divided by another, the unit to express the Quotient is

termed as ³Times´. For example, if out of 100 product is Employees 95% is

Finishing goods or product ratio can be expressed as

Follows:

95/100 = 0.95 times.

PERCENTAGE

If the quotient obtained is multiplied by 100, the unit of expression is

termed

As ³PERCENTAGE´. For instance, in the above example, the product ratio as a

Percentage of the total number of employees is as follows:

0.95* 100 = 95%



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CLASSIFICATION OF RATIOS.

Ratios are classified in several ways. Different approaches are used for

classifying ratios. There is no uniformity in classification by experts. They have

adopted different stand points for classifying ratios into various groups. Some of the

classifications are discussed below:

a) Classif ication of ratio by statements.

Under this method, ratios are classified on the basis of statements from

which the information is obtained for calculating the ratios. The only statements which

provide information are balance sheet and profit and loss account.

b) Classif ication by users.

Under this classification the ratios are grouped on the basis of the parties who

are interested in making use of the ratios.

Ratios f or management Ratios f or creditors

Operating ratio Current ratio

Return on Investment Solvency ratio

Stock turnover Creditors turnover

Debtors turnover Fixed assets

Debt equity

Creditor¶s turnover

c) Classif ication of ratios by purpose/f unction.

Generally ratios are used for the purpose of assessing

Profitability, activity or operating efficiency and financial position of a

Concern. Based on the purpose the ratios are classified as Profitability



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Classif ications of ratios Analysied

1. Short term solvency ratio

2. Profitability ratio

3. Turnover Ratio

SShhoorrtt--TTeerrmm SSoollvveennccyy R R aattiioo::

The short-term solvency ratios, which measure the liquidity of the firm and its

ability to meet its maturing short-term obligations. Liquidity is defined as the ability

to realize value in money, the most liquid of assets. It refers to the ability to pay in

cash, the obligations that are due.

PPrroof f iittaabbiilliittyy R R aattiioo::

The purpose of study and analysis of profitability ratios are to help

assessing the adequacy of profits earned by the company and also to discover whether

profitability is increasing or declining.

EPS is one of the most important ratios, which measures the net profit

earned per share. EPS is one of the major factors affecting the dividend policy of thefirm and the market prices of the company.

A steady growth in EPS year after year indicates a good track of profitability.

TTuurrnnoovveerr R R aattiiooss::

Activity ratios measure how effectively the firm employs its resources. These

ratios are also called turnover ratios which involve comparison between the level of

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

activity ratios are used to measure the speed with which various accounts are

converted into sales or cash.



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CCOOMMPPAAR R AATTIIVVEE BBAALLAANNCCEE SSHHEEEETT AANNAALLYYSSIISS

The comparative balance sheet analysis is the study of the trend of the

same items, group of items and computed items in two or more balancesheets of the same business enterprise on different dates. The changes in

periodic balance sheet items reflect the conduct of a business. The changescan be observed by comparison of the balance sheet at the beginning and atthe end of a period and these changes can help in forming an opinion about

the progress of an enterprise.

Balance sheets as on two or more different dates are used for comparing the

assets, liabilities and the net worth of the company. Comparative balance sheet

analysis is useful for studying the trends of an undertaking.

Advantages

y Comparative statements help the analyst to evaluate the performance of the

company.

y Comparative statements can also be used to compare the performance of the

firm with

y The average performance of the industry between different years.

y It helps in identification of the weaknesses of the firm and remedial measures

can be done meritly

y Taken accordingly.

COMMON SIZE BALANCE SHEET ANALYSIS :

A statement in which balance sheet items are expressed as the ratio of each asset to

total assets and the ratio of each liability is expressed as a ratio of total liabilities is

called common size balance sheet. The figures are shown as percentages of total assets,

total assets and total liabilities. The total assets are taken as 100 and different assets are



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expressed as a percentage of the total. Similarly, various liabilities are taken as a

percentage of total liabilities.

These statements are useful in analysis of the performance of the company by

analyzing each individual element to the total figure of the statement. These statements

will also assist in analyzing the performance over years and also with the figures of the

competitive firm in the industry for making analysis of relative efficiency.

TREND ANALYSIS

The financial statements may be analyzed by computing trends of series of information.

This method determines the direction upwards or downwards and involves the

computation of the percentage relationship that each statement bears to the same year in base year. The information for a number of years is taken up and one year, generally the

first year, is taken as a base year. The figures of the base year are taken as 100 and trend

ratios for other years are calculated on the basis of base year. This helps the analyst to

see the trend of figures, whether upward or downward.

In financial analysis the direction of changes over a period of years is of

crucial importance. Time series or trend analysis of ratios indicates the direction of

change. This kind of analysis is particularly applicable to the items of profit and loss

account. This procedure may be called as ³trend-percentage method.´

REGRESSION ANALYSIS

A fundamental and versatile research technique that seeks to explain an

outcome (dependent) variable in terms of multiple predictor (independent) variables.

This analysis reveals the nature and strength of the relationship between each predictor

variable and the outcome, independent of the influence from all other predictors. The

term typically refers to Ordinary Least Squares (OLS) regression, which models a linear

relationship among variables.



- 33 -

CHAPTER : 5

Research Objectives



- 35 -

SCOPE OF THE STUDY :

The purpose of the study was to know the financial performance of the unit. For this

the ratio analysis tool was most suitable. This would reveal the solvency position of

the unit. The trend of sales and profitability for the past 5 years was calculated to

know if any deviations occurred and to know the reasons for it. However the study

had its own limitations like ratio analysis is a post-mortem analysis and the data

utilized were secondary in nature etc.

FINANCIAL ANALYSIS :

The financial statement provides a summary of the account of a business

enterprise. To understand the financial performance and condition of a firm, its

stakeholders look at the three financial statements, Viz, the balance sheet, the profit

and loss account and the sources and uses of a funds statement



- 36 -

CHAPTER : 6

Research Methodology



- 37 -

5.1 IMPORTANCE OF THE STUDY

Boiler industry has a vital role to share in the contribution of economic development.

India is a major importing country in terms of boilers. In order to understand the role of

electrical and boiler industrial performance of India, a comprehensive study of the

financial management with respect to the financial performance analysis of BHEL has

been undertaken.

Hence, the present study focuses on the financial performance of BHEL for a period of

five years from 2002-03 to 2006-07.The project study mainly focuses on the critical

assessment of the financial performance of BHEL and deals with financial statement

analysis, financial planning and financial control.

5.2 SCOPE OF THE STUDY

The scope of the present study is limited to the following aspects.

y Ratio Analysis

y Trend Analysis

y Common Size Balance Sheet analysis

y Comparative Balance sheet

y Regression Analysis

y The study finds out the operational efficiency of the organization and suggests the

proper utilization and allocation of cash resources to improve the efficiency of the

organization.

y The financial position of the organization will be further revealed through the

adoption of various techniques available for analysis.

y These techniques reveal the measures that can adopt to improve the existing trend.



- 38 -

5.3 RESEARCH METHODOLOGY

This part highlights the period of the study, sources of data and techniques used in the

analysis. It focuses on the critical assessment of the financial position of BHEL These

are illustrated and explained as under:

RESEARCH DESIGN

y Research design is purely and simply the framework or plan for a study

that guides the collection and analysis of the data. The function of

researcher is to ensure that the required data collected are accurate and

economical also

y Analytical research technique was adopted in the project. Generally,

analytical techniques are designed to analyze something and it collects

data for a definite and certain purpose.

y The project study mainly focuses on the critical assessment of the

financial position of BHEL, and deals with financial statement analysis,

financial planning and financial control.

5.4 PLAN OF ANALYSIS

Data collected from all the available sources will be tabulated, analyzed, interpreted and

supported with relevant chart, ratios, tables, graphs, etc., where ever necessary and

suggestions arising there of will also be listed in the project. An attempt has been made

to study the working capital management as part and parcel of treasury operations at

BHEL.



- 39 -

5.4.1 PRIMARY DATA

With a purpose to strengthen and validate the study, personal contacts were

made with the executives and officials of the finance division of BHEL in the

form of personal discussion, data collection, analysis of reports and MIS formats

etc.,

5.4.2 SECONDARY DATA

The secondary data are collected from Company reports, institute magazines,

department manuals, brochures mainly form the balance sheet, income and

expenditure and periodicals etc.,

5.4.3 METHOD OF COLLECTION

The data for the analysis are collected and gathered from the printed company

reports of BHEL, official files, records, ledgers and other available related

materials

PERIOD OF STUDY

The study period covers the financial performance of BHEL during the five year

period commencing 2002-03 to 2006-07



- 40 -

5.5 DATA ANALYSIS

TECHNIQUES USED UNDER THE STUDY

Ratio analysis

Comparative balance sheet analysis

Common size balance sheet analysis

Trend analysis

Regression analysis

5.6 LIMITATIONS OF THE STUDY

The project study is mainly based on information gathered from

secondary data, mainly the printed Balance Sheet and Profit and Loss

Account.

Time period being a major constraint, it is insufficient to cover the

various aspects of finance within the prescribed period.

The whole study is based on the observations in the past over a five

year time horizon which can be related to the laws that operated in the

past as there is no evidence that the laws will continue to operate in

future also.

Being a company under the direct control of BHEL Delhi and also

under the indirect administration of the government, it is not possible

to fix the prices for some of the major products produced. It is not in

a position to enjoy the control of ownership.

The company face the challenges of the international boilers markets ,

on the profitability of the boiler industry as a whole in India.

Therefore, five year period is subject to major fluctuations in terms of

profitability.



- 41 -

PROFITABILITY RATIOS

Profit making is the main objective of business. Aim of every business concern

is to earn maximum profit in absolute terms and also in relative terms. Profit is to

maximum in terms and also in relative terms. Profit is to maximum in terms of risk

undertaken and capital employed. Ability to make maximum profit from optimum

utilization of resources by a business concern is termed as ³profitability´. Profit is an

absolute measure of earning capacity. Profitability depends on sales, costs and

utilization of resources. The following are various ratios used to analyze profitability.

Expenses ratios

These ratios are also known as supporting ratios to operating ratio. They

indicate the efficiency with which business as a whole functions. It is better for the

concern to know how it is able to save or waste over expenditure in respect of different

items of expenses.

i) Administration expenses ratio:

Administration expenses ratio / net sales * 100

ii) Selling and distribution expenses ratio:

Selling and distribution expenses ratio / Net sales * 100

TURN OVER RATIOS

This ratio is called stock velocity ratio. It is calculated to ascertain the

efficiency of inventory management in terms of capital investment. It shows the

relationship between the cost of goods sold and the amount of average inventory. Stock

turnover ratio is obtained by dividing the cost of sales by average stock.



- 42 -

CHAPTER : 7

Analysis & Interpretation



- 43 -

ANALYSIS AND INTERPRETATION

PROFITABILITY RATIOS

7.1 Return on Total Asset

Return on total asset ratio is calculated to measure the productivity of total

assets. In the term of fictitious assets refer to the preliminary expenses, debit balance

of profit and loss account and other similar losses shown on balance sheet asset side.

Formula : Return on total asset = (Net prof it bef ore tax/Total asset excluding

f ictitious Assets)*100

Table 5.1

Interpretation:

The ratio is showing a mixed trend. The decrease in ratio at 2003-04 is due to

the wage revision and then it shows a raising implies the increasing profit. Again

there is a downfall because of the increasing price of the material and components.

And then 2006-07 is due to the wage revision and then it shows a raising implies the

increasing profit.

Year Prof it bef ore TaxNet Fixed

Asset

Return on total

Asset ratio

2002-03 2041 3139 65.02

2003-04 1587 3021 52.53

2004-05 2140 2763 77.45

2005-06 5788 2618 221.08

2006-07 12654 2597 487.25



- 44 -

Return on Total Asset ratio

Figure no.1

0

50

100

150

200

250

300

350

400

450

500

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 45 -

5.2 Prof itability Ratio:

Gross turnover less Excise Duty, the Net turnover is the value of Production. Profit

before tax to Gross turnover less Excise Duty is calculated to know the profitability for

the given value of production.

FORMULA : Prof itability ratio = (Prof it bef ore tax/Net turnover)*100

Table 5.2

Year Prof it bef ore tax Net turnover Prof itability Ratio

2002-03 2041 28232 7.22

2003-04 1587 33340 4.76

2004-05 2140 51216 4.17

2005-06 5788 72907 7.94

2006-07 12654 100947 12.54

Interpretation:

Profitability ratio is increased from 2002-03. In 2003-2004 the ratio

shows a decreased trend this is because of the wage revision. In 2003-04, the ratio

has come down because of the increase in steel prices. In 2003-04 steel price have

gone up by 30% compared to 2002-03 and in 2004-05, steel and components prices

have gone up. From June 2005-06 onwards prices are stabilizing and the profitability

is increased from 2006-07.



- 46 -

P ROFITABILITY R ATIO

Figure no.2

0

2

4

6

8

10

12

14

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 47 -

5.3 Prof itability Earnings

Profit before tax to personnel payments is calculated to know

whether sufficient profitability is earned by paying salary to its employees. This is

used for inter unit comparison.

Formula : Prof itability Earnings= (Prof it bef ore tax/Personnel Payments)*100

Table 5.3

Year Prof it bef ore tax Personnel payment Prof itability Earnings

2002-03 2041 6312 32.33

2003-04 1587 6956 22.81

2004-05 2140 7280 29.39

2005-06 5788 7997 72.38

2006-07 12654 9973 126.88

Interpretation:

Profitability with respect to personnel payment are in the mixed

trend. In 2003-04 and 2004-05 profitability earnings is very low because of high

personnel Payment due to wage revision,It ben stabilized from 2005-06 and 2006-

07 .



- 48 -

P ROFITABILITY E ARNINGS

Figure no.3

0

20

40

60

80

100

120

140

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 49 -

5.4 Return on Investment

This ratio is called return on ³Capital employed ³. It measures the

sufficiency or otherwise of profit in relation to capital employed.

Return on Investment = operating profit / Capital employed * 100

The term operating profit means profit before interest and tax

FORMULA:

Return on investment = (Operating prof it/Capital employed) *100

TABLE: 5.4

Year Operating prof it

Rs in Lak hs

Capital employed

Rs in Lak hs

Ratio

2002 ± 03 5464 4919 111.0

2003 ± 04 5087 5910 86.0

2004 ± 05 5740 9191 62.5

2005 - 06 9558 8401 113.77

2006-07 18279 6319 289.27

INFERENCE

In 2002-03 it has been increased to 111.0. But in 2003-04, 2004-05, it has beendecrease to 86.0 and 62.4 respectively. But presently the ratio 113.77 in 2006 is

satisfactory. And stabilized from 2006-07 and 2007-08.



- 50 -

Return on investment

Figure no.4

0

50

100

150

200

250

300

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 51 -

5.5 Operating ratio

This ratio indicates the relationship between total operating expenses and

sales

Operating ratio = Cost of sales + Operating expenses / Net sales * 100

Operating ratio measures the amount of expenditure incurred in

production sales and distribution of output. I t indicates operational efficiency of the

concern. Lower the ratio more is the efficiency.

FORMULA:

Operating ratio = (Cost of sales + operating expenses/ Net sales)*100

TABLE No. 5.5

Year

Cost of sales+

operating expenses

Rs in lak hsNet sales

Rs in lak hs

Ratio

2002-03 48959 28232 173.4

2003-04 60006 33340 179.9

2004-05 94552 51216 184.6

2005-06 130468 72907 178.9

2006-07 170961 100947 169.35

INFERENCE

The ratio is increasing and decreasing. In the year 2002 ± 03,2003-04 the

ratio is lower indicates more efficiency during that year and in 2004 ± 05

and 2006-07 the ratio is higher indicates less efficiency going on to lower

indicates.



- 52 -

OPE RATING RATI O

Figure no. 5

160

165

170

175

180

185

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 53 -

5.6 Operating prof it ratio

It is the ratio of profit made from operating sources to the sales usually

shown as a percentage. It shows the operational efficiency of the firm and is measure of

the managements efficiency in running the routine operations of the firm

FORMULA:

Operating prof it ratio = (operating prof it/sales)*100

Table 5.6

Year Operating prof it

Rs in lak hs

Sales

Rs in lak hs

Ratio

2002-03 5464 26191 20.86

2003-04 5087 31753 16.02

2004-05 5740 49076 11.69

2005-06 9558 67119 14.24

2006-07 18279 88293 20.70

INFERENCE

The Operating profit is decreasing in the mixed trend; the reason for this is due

to increase in the input cost and it been stabilized and fornt oriented from the year2006-07.



- 54 -

O PERATING P ROFIT R ATIO

Figure no.6

0

5

10

15

20

25

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 55 -

5.7Administration Expenses Ratio:

This ratio is calculated in support to operating ratio. They

indicate the Efficiency with business as whole function. It is better for the concern to

know how it is able to save or waste over expenditure n respect of administration

expenses.

FORMULA:

Administration expense ratio = (Administration expenses/Net sales)*100

Table 5.7

Year Administration

expenses Rs inlak hs

Net sales

Rs in lak hs

Ratio

2002-03 3295 28232 11.67

2003-04 3360 33340 10.08

2004-05 3450 51216 6.74

2005-06 3610 72907 4.95

2006-07 5375 100947 5.32

INFERENCE

The administration expense is moving. It was fluctuating, from 2004-05

onwards it was in decreasing trend. It 2005-06 , 2006-07 it was 4.95, 5.32 due to

increase in turn over. Higher turn over will have lower ratio.



- 57 -

5.8 Selling and Distribution Expenses Ratio:

This ratio is also calculated in support to operating ratio.

They indicate efficiency with which business as a whole function. This will

increase in proportion to sales.

FORMULA:

Selling & Distribution Expenses = Selling & distribution expenses *100

Net sales

Table. 5.8

Year Selling&

distribution

expenses

Rs in lak hs

Net sales

Rs in lak hs

Ratio

2002-03 128 28232 0.45

2003-04 140 33340 0.42

2004-05 150 51216 0.29

2005-06 160 72907 0.22

2006-07 250 100947 0.25

INFERENCE

The selling & distribution expenses are in the line with the turnover. If the

turnover goes up, the ratio will be lower. Due to increase in the volume of business and

turnover the ratio is in the decreasing trend.



- 58 -

S ELLING AND DISTRIBUTION E XPENSES R ATIO

Figure no.8

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

percentage

1 2 3 4 5

years

C



- 59 -

5.9 Inventory Turnover Ratio:

This ratio is called stock velocity ratio. It is calculated to ascertain the efficiency

of inventory management in terms of capital investment. It shows the relationship

between the cost of goods sold and the amount of average inventory. Stock turnover

ratio is obtained by dividing the cost of sales by average stock.

FORMULA:

Inventory turnover ratio = (Cost of goods sold / average inventory)

Table 5.09

Year Cost of goods sold

Rs in lak hs

Average inventory

Rs in lak hs

TIMES

2002 ± 03 26191 4975.5 5.26

2003 ± 04 31753 7051.5 4.50

2004 ± 05 49076 12870.5 3.81

2005 - 06 67119 18825.5 3.56

2006-07 88293 24698 3.57

INFERENCE

The ratios are fluctuating; high ratios indicate the efficient Inventorymanagement

And efficiency of business operations.



- 60 -

I NVENTORY T URNOVER R ATIO

Figure no.9

0

1

2

3

4

5

6

percentage

1 2 3 4 5

years



- 61 -

TURNOVER RATIOS

5.10 Inventory Turnover period:

Inventory turnover ratio can be related to time. The ratios can

be expressed in term of days or months. The general objective is to increase the stock

velocity as much as possible or in effect, decrease the days or months for which items

remain in stock.

FORMULA :

Inventory turnover period= (Average stock /Cost of goods sold) *

Months in a year

Table 5.10

YearAverage

InventoryCost of goods sold

Inventory Turnover Perio

Ratio

2002-03 4975.5 26191 2.28

2003-04 7051.5 31753 2.66

2004-05 12870.5 49076 3.15

2005-06 18825.5 67119 3.35

2006-07 24698.5 88293 3.36

Interpretation:

The ratio shows a mixed trend. The ratio is raising in the last four

years i.e., 2.27, 2.66, 3.14,3.35,3.37. This shows the inventory period of moving is

increasing.



- 64 -

DEBTORS T URNOVER R ATIO

Figure no.11

0

5

10

15

20

25

30

35

40

45

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 65 -

5.12 Debt Collection Period

The average collection period measure the liquidity of the

debtors, since a collection period implies the prompt payment of the debtors. It also

measures the credit worth ness of the company. The average collection should be

compared against the firm¶s credit terms and policies to judge its credit and collection

efficiency.

FORMULA:

Debt collection period = (Average accounts receivable/ credit\ sales)*

Months in a year

Table 5.12

Year Avg a/c receivable Credit SalesDebt collection

period

2002-03 2872 28232 1.22

2003-04 3026 33340 1.09

2004-05 2870 51216 0.67

2005-06 3508 72907 0.58

2006-07 2114 100947 0.25

Interpretation:

Higher turnover ratio and the shorter collection period conveys quick

payment on the part of the debtors. Collection period has been reduced from 1.22

months to 0.67,0.58,0.25 month shows the efficiency of the management.



- 66 -

DEBT C OLLECTION P ERIOD

Figure no.12

0

0.2

0.4

0.6

0.8

1

1.2

1.4

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 67 -

5.13 Creditors turnover ratio:

This ratio is also known as accounts payable. A business concern usually purchases raw

materials, services and goods on credit. The quantum of payables of a business concern depends

upon its Purchase policy, the quantity of purchase and suppliers credit policy. Creditor¶s turnover

ratio indicates the number of times the payable rotate in a year.

FORMULA:

Creditors turnover ratio = Net credit purchase / Average accounts payable

TABLE No. 5.13

Year Purchases

Rs in Lak hs

Average accounts

payable

Rs in Lak hs

Ratio

2002 - 03 15713 5573 2.82

2003 ± 04 21391 6337 3.38

2004 ± 05 38707 7992 4.84

2005 ± 06 56130 9858 5.69

2006-07 69424 14704 4.72

INFERENCE

The purchase as increased due to volume of business, the ratios are

satisfactory in the company point of view.



- 68 -

Creditors Turnover Ratio

Figure no.13

0

1

2

3

4

5

6

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 69 -

5.14 Debt Payment Period:

The Debt Payment Ratio indicates the interval of payment

period. If the firm does not pay off its creditors within time, it will adversely

affect the goodwill of the business.

FORMULA: Debt Payment ratio = (Average accounts payable / Credit

purchase) * Months in a year.

Table No. 5.14

Year Avg a/c Payable Credit Purchase Debt Payment Ratio

2002-03 5573 15713 4.26

2003-04 6337 21391 3.55

2004-05 7992 38707 2.48

2005-06 9858 56130 2.11

2006-07 14704 69424 2.54

Interpretation:



- 70 -

The credit period shows the reducing trend from 2002-03 to

2003-04. In the global market, this is generally good for this company. This will

raise the image of the company as it can able to meet its financial obligation.

DEBT P AYMENT P ERIOD

Figure no.14

0

0.5

1

1.52

2.5

3

3.5

4

4.5

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 71 -

5.15 Work ing capital turnover ratio:

This ratio is the measure of the efficiency of the

employment of the working capital. It indicates the overtrading and under trading and

is harmful for the smooth conduct of the business. The ratio finds out the relation

between the cost of sales and working capital.

FORMULA: Work ing capital turnover ratio = Net Turnover /Net work ing

capital

Table 5.15

Year Net Turnover Net Work ing CapitalWork ing capital turnover

ratio

2002-03 28232 1599 17.66

2003-04 33340 3894 8.56

2004-05 51216 6396 8.00

2005-06 72907 -1228 -59.37

2006-07 100947 -9297 -10.85

Interpretation:

High ratio indicates lower investment of working capital and more

profit. This was due to lower current asset. But this will not be in the case of future



- 72 -

W ORKING CAPITAL TURNOVER RATIO

Figure no.15

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 73 -

5.16 Capital Turnover Ratio:

Managerial efficiency is also calculated by

establishing the relationship between cost of sales or sales with the amount of

capital invested in the business. Lower ratio shows the lower profit and higher ratios

show the higher profit.

FORMULA: Capital Turnover Ratio = (Cost of goods sold/capital

employed)

Table 5.16

Year Cost of goods sold Capital Employed Capital turnover Ratio

2002-03 26191 4919 5.32

2003-04 31753 5910 5.37

2004-05 49076 9191 5.34

2005-06 67119 8401 7.99

2006-07 88293 6319 13.97

Interpretation:

The capital turnover ratio from 2002-03 to 2006-07 except

in 2004-05, shows a gradual increase, which depicts that the assets as a whole are

efficiently utilized.



- 74 -

C APITAL T URNOVER R ATIO

Figure no.16

0

2

4

6

8

10

12

14

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS

c



- 75 -

5.17 Fixed assets turn over ratio:

This ratio determines efficiency of utilization of fixed assets and

profitability of a business concern. Higher the ratio, more is the efficiency in utilization of

fixed assets. A lower ratio is under utilization of fixed assets.

FORMULA:

Fixed Assets turnover ratio = (Cost of sales / Net f ixed assets)

Table 5.17

Year SalesRs in Lak hs Fixed assetsRs in lak hs Ratio

2002 ± 03 26191 3139 8.34

2003 ± 04 31753 3021 10.51

2004 ± 05 49076 2763 17.76

2005 ± 06 67119 2618 25.64

2006-07 88293 2597 33.99

INFERENCE

The ratio shows that the fixed assets are efficiently utilized. The ratios are

showing up gradually i.e., from 2002 ± 03 to 2006 ± 07 is 8.34, 10.51, 17.76 ,25.68 and

33.99 respectively.



- 76 -

FIXED ASSETS TURNOVER RATIO

Figure no.17

0

5

10

15

20

25

30

35

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 77 -

5.18 Turnover per Rupee of Gross Block :

This ratio is calculated on the basis of historical coat basis. This

will reveal the efficiency of the utilization the fixed assets and profitability of

a business concern.

FORMULA :

Turnover per rupee of Gross Block = (Net turnover/Gross Block )

Table 5.18

Year Net Turnover Gross Block Turnover per rupee

of gross block

2002-03 28232 10751 2.62

2003-04 33340 10993 3.03

2004-05 51216 11153 4.59

2005-06 72907 11520 6.33

2006-07 100947 11962 8.44

Interpretation:

Generally the ratios are in the increasing trend, i.e.,

2.63, 3.03, 4.59, 6.33,8.44 from 2002-03 to 2006-07 respectively, which

highlights that the assets utilized very efficiently.



- 78 -

T URNOVER P ER R UPEE OF G ROSS BLOCK Figure no.18

0

1

2

3

4

5

6

7

8

9

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 79 -

5.19 Turnover Per employee

This ratio indicates how much each employee is

contributing to the turnover. This will be helpful for the comparison basis.

FORMULA :

Turnover per employee = (Net Turnover /No. of Employee)

Table 5.19

Year Net Turnover No. of employees

Turnover per

employee

2002-03 28232 2187 12.91

2003-04 33340 2120 15.73

2004-05 51216 2094 24.46

2005-06 72907 2080 35.05

2006-07 100949 2175 46.41

Interpretation:

Generally the ratios have the increasing turnover, i.e., 12.91, 15.73,

24.46,35.05 and 46.41from 2002-03 to 2006-07. This shows that each employee is

contributing the best of him.



- 80 -

T URNOVER P ER EMPLOYEE

Figure no.20

0

5

10

15

20

25

30

35

40

45

50

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 81 -

SOLVENCY RATIOS

5.20 Current Ratio:

The ratio of current assets to Current Liabilities is called µCurrent

ratio¶ In order to measure the short term liquidity or solvency of a concern, comparison of

current assets and current liabilities is inevitable.

Current ratio=Current assets/Current liabilities

FORMULA:

Current ratio = (current assets/ current liabilities)

Table 5.20

Year

Current assets

Rs in lak hs

Current liabilities

Rs in lak hs Ratio

2002-03 8892 7293 1.22

2003-04 13740 9846 1.40

2004-05 20913 14517 1.44

2005-06 25515 26743 0.95

2006-07 51662 60959 0.85

INFERENCE

The ratios are lesser than the standard norm (2:1) which indicates the down

trend.



- 83 -

5.22 Liquid ratio:

This ratio is also called µquick or Acid test ratio¶. It is calculated by comparing

the quick assets with current liabilities

FORMULA:

Liquid ratio = (Current assets (CA) ± Closing stock (CS) / Current Liability)

Table 5.22

Year CA ± CS

Rs in Lak hs

Current Liability

Rs in Lak hs

Ratio

2002 ± 03 3637 7293 0.50

2003 ± 04 4892 9846 0.49

2004 ± 05 4020 14517 0.28

2005 - 06 4757 26743 0.17

2006-07 23023 60959 0.38

INFERENCE

The liquid ratio is declining year by year. The prescribed norm is 1:1.



- 84 -

LIQUID RATIO

Figure no.5.21

0

0.05

0.1

0.15

0.2

0.250.3

0.35

0.4

0.45

0.5

PERCENTAGE

2002-03 2003-04 2004-05 2005-06 2006-07

YEARS



- 87 -

Interpretation

In common size balance sheet analysis in BHEL, it is found that the total assets

and liabilities are taken as 100% total and other components of assets and liabilities are

also expressed in terms compared to total asset and total liability. The total capital %

shows a decreasing trend for the last two years.

There is also a fluctuation in reserves & surplus in the last few years due to introduction

of accounting sections. The percentage of unsecured loan funds is decreasing which

states the availing of no fresh loan secured from the year 02 to 07 for the purpose of expansion of the business.

The total net worth has fluctuation, which is because of fluctuation in the

reserves & surplus. The company adopted regrouping of certain Boilers and ancillarytransaction in line with industry¶s practice of representing the same. This has vitiated

the trend in current liabilities from the old years.

Fixed assets have increased in figures during all the years of study. It is due to a part of current liability arrives net profit have contributed to the increase in fixed assets.

The current asset part has considerably decreased since 2005-2006 and it is due to

decrease in loans and advances. There is a decrease in inventory; it is because the

company is doing mass production.



- 88 -

Comparative Balance Sheet (2002-2003 & 2003-2004) : (Rs. in thousands)

Particulars Schedule 2002-2003 2003-2004 Absolute

Change

Change

%

Sources of Funds

1.Share Holders Funds

a. CapitalFunds from Head office

Inter Division Accounts

Funds to and from CO

b. Reserves & Surplus

11A

1B

1D

2

165085

-

43782

977825

165085

-

83992

1014926

-

-

40210

37101

0.00

-

47.87

3.66

2.Loan Funds

a. Secured Loans

b. Unsecured Loans

3

4

1186692

-

33875

1264003

-

26591

7311

-

7284

6.12

-

27.39

Total (1+2) 1220567 1290594 70027 5.43

Application of Funds

1.Fixed Assets

a. Gross Block

b. Less: Dep & Amortization

5 1075139

-761288

1099327

-797146

24188

5858

2.20

0.76

c. Net Block

d. Capital WIP 6

313851

9991

302181

5709

11670

4782

3.86

83.76

323842 307890 16452 87.62

2.InvestmentsInter Division Accounts

(Dr.Bal).Funds from Co under CCC

1C 728884-

692431-

36453-

5.26-

3.Current Asserts ,Loans &

Advancesa. Inventories

b. Sundry Debtorsc. Cash & Bank Balances

d. Other Current Assetse. Loans & Advances

8

88

89

525535

2871507559

-68967

884835

30259018658

-67323

359300

1544011099

-1644

40.61

5.1059.49

-0.24

4.Less: Current Liabilities

a. Liabilities

b. Provisions

10

11

889211

671819

57465

1273406

825016

159557

384195

153197

102092

30.17

18.57

63.98

5.Net Current Assets (3-4)6.Miscellaneous Expenditure

(to the extent not written off)

Deferred Revenue 12

729284

159927

7914

984573

288833

1400

255289

128906

6474

25.93

44.63

450

Total 1220567 1290594 70027 5.433



- 89 -

Interpretation

Current Financial Position and Liquidity Position:

The current assets have decreased by Rs.384195 (30.17%) and sundry debtors

have increased by Rs.15440 (5.10%). On the other hand, there has been a increase in

inventories amounting to Rs.359300 and increased by (40.61%).

Long Term Financial Position

There is an increase in fixed assets of about Rs.16452 (87.62%). There is no

long-term secured loans and increased in unsecured loan as to Rs7284(27.39%),Thisdepicts that fixed assets are not only financed from long term sources but part of

working capital has also been financed from long term sources. This fact depicts thatthe policy of the company is to purchase fixed assets from the long-term sources of

finance thereby not affecting the working capital. There is an increase in loaned funds

than the share capital, so this increases the interest liability for the company.

Prof itability of the Concern

There is a increase in the reserves and surplus of the company of about

Rs.37101 (3.66%). This fact depicts that there is a increase in the profitability of the

concern.



- 90 -

Comparative Balance Sheet (2003-2004 & 2004-2005) : (Rs. in thousands)


Change

Change %

Sources of Funds


a. Capital

Funds from Head officeInter Division Accounts



1

1A1B

1D

2

165085-

83992

1014926

165085-

-

1156187

0.00-

83992

141261

0.00-

-100

12.22

2.Loan Funds

a. Secured Loans

b. Unsecured Loans

3

4

1264003

-

26591

1321272

-

17817

57269

-

8774

4.33

-

49.25

Total 1290594 1339089 48495 3.62


1.Fixed Assets

a. Gross Block b. Less: Dep & Amortization

5 1099327

-797146

1115348

-839030

16021

71884

1.44

8.57

c. Net Block d. Capital WIP 6

3021815709

2763183196

258632513

9.3678.63

2.InvestmentsInter Division Accounts

(Dr.Bal).

Funds from Co under CCC


Advances

a. Inventories b. Sundry Debtors

c. Cash & Bank Balances

d. Other Current Assets

e. Loans & Advances

1C

88

8

8

9

692431

-

884835302590

18658

-

67323

297372

122592

1689257287026

13093

-

101936

395059

122592

80442215564

5565

-

34613

132.85

100

47.6215.88

42.50

-

33.96

4.Less: Current Liabilitiesa. Liabilities

b. Provisions 1011

1273406

825016159557

2091312

1288650163055

817906

4636343498

39.11

35.982.15

5.Net Current Assets

6.Miscellaneous Expenditure(to the extent not written off)

Deferred Revenue 12

984573

288833

1440

1451705

639607

-

467132

350774

1440

32.18

54.84

-100

Total 1290594 1339089 48495 3.62



- 91 -

Interpretation


The current assets have increased by Rs.817906 (39.11%) and sundry debtors

have decreased by Rs.15564 (15.88%). On the other hand, there has been a increase in

inventories amounting to Rs.804422 (47.62%).


There is an increase in fixed assets of about Rs28376 (87.99%). There is no

long-term secured loans and increased in unsecured loans as to Rs.8774 thousand(49.25). This depicts that fixed assets are not only financed from long term sources but

part of working capital has also been financed from long term sources. This fact depictsthat the policy of the company is to purchase fixed assets from the long-term sources of

finance thereby not affecting the working capital. There is an increase in loaned fundsthan the share capital, so this increases the interest liability for the company.


There is a increase in the reserves and surplus of the company of about

Rs.141261 (12.22%). This fact depicts that there is a increase in the profitability of the

concern.



- 92 -

Comparative Balance Sheet (2004-2005 & 2005-2006) : Rs in thousands


Change

Change %

Sources of Funds

1.Share Holders Fundsa. Capital

Funds from Head officeInter Division Accounts

Funds to and from CO b. Reserves & Surplus

1

1A1B

1D2

165085-

-1156187

165085-

1399571613889

--

139957457702

100-

139.59100

2.Loan Funds

a. Secured Loans b. Unsecured Loans

34

1321272

-17817

1918931

-27291

597659

-9474

145.23

-34.71

Total 1339089 1946222 607133 145.34


1.Fixed Assetsa. Gross Block


5 1115348-839030

1152010-890250

3666251220

103.29106.10

c. Net Block

d. Capital WIP 6

276318

3196

261760

12691

14558

9495

94.73

397.10

2.InvestmentsInter Division Accounts (

Dr.Bal).



Advances


c. Cash & Bank Balances

d. Other Current Assets

e. Loans & Advances

1C

88

8

8

9

297372

122592

1689257287026

13093

-

101936

1794638

-

2075770350783

17582

-

107340

1497266

122592

38651363757

4489

-

5404

603.50

100

122.89122.21

134.29

-

105.30


a. Liabilities

b. Provisions

10

11

2091312

1288650

163055

2551475

2473959

200383

460163

1185309

37328

122.00

191.98

122.90


6.Miscellaneous Expenditure


Deferred Revenue 12

1451705

639607

-

1222637

-516740

-

184.22

19.21

-

Total 1339089 1946222 607133 145.34



- 93 -

Interpretation



- 94 -


The current assets have increased by Rs460163 (122%) and sundry debtors haveincreased by Rs.63757(122.21%). On the other hand, there has been a increase in

inventories amounting to Rs386513 (122.89%).


There is an increase in fixed assets of about Rs24053. There is no long-term

secured loans and increased in unsecured loans as to Rs.9474 thousand (34.71%). This

depicts that fixed assets are not only financed from long term sources but part of

working capital has also been financed from long term sources. This fact depicts that

the policy of the company is to purchase fixed assets from the long-term sources of

finance thereby not affecting the working capital. There is an increase in loaned funds

than the share capital, so this increases the interest liability for the company.


There is a increase in the reserves and surplus of the company of aboutRs.597659 (145.23%). This fact depicts that there is a increase in the profitability of the

concern.


Change

Change %



- 95 -

Comparative Balance Sheet (2005-2006 & 2006-2007) :

Sources of Funds


a. Capital

Funds from Head office

Inter Division Accounts



1

1A

1B

1D

2

165085

-

139957

1613889

165085

-

247700

2592979

-

-

107743

979090

100

0.00

43.50

37.76

2.Loan Funds

a. Secured Loans

b. Unsecured Loans

3

4

1918931

-

27291

3005764

-

16696

1086833

-

10595

36.16

0.00

63.46

Total 1946222 3022460 1076238 35.61


1.Fixed Assets

a. Gross Block


5 1152010

-890250

1196209

-936482

44199

46232

3.69

4.94

c. Net Block

d. Capital WIP 6

261760

12691

259727

38248

2033

25557

0.78

66.82

2.Investments

Inter Division Accounts (Dr.Bal).



Advances


c. Cash & Bank Balancesd. Other Current Assets

e. Loans & Advances

1C

88

88

9

1794638

-

2075770350783

17582-

107340

3654255

-

28638672111388

1071-

189824

1859617

-

7880971760605

16511-

82484

50.89

0.00

27.5283.39

154.64-

43.45


a. Liabilities

b. Provisions

10

11

2551475

2473959

200383

5166150

5836989

258931

2614675

3363030

58548

50.61

57.62

22.61


6.Miscellaneous Expenditure


Deferred Revenue 12

2674342

-122867

-

6095920

-929770

-

3421578

-806903

-

56.13

86.79

0.00

Total 1946222 3022460 1076238 35.61



- 97 -

5.6 TREND ANALYSIS : (Rs in lak hs)

1. Sales 100 121.24 187.38 256.27 337.11 Increased

2. PBIT 100 77.16 103.73 281.91 602.25 Increased

3. Profit Before

Tax

100 77.76 04.85 283.59 620 Increased

4. Operating

profit

100 93.10 105.05 174.93 334.54 Increased

5. Current Assets 100 154.52 235.19 286.94 580.98 Increased

6. Current

Liabilities

100 135.01 199.05 366.69 835.86 Increased

7. Fixed Assets 100 96.24 88.02 83.40 82.73 Decreased

8. Total

Turn over

100 117086 165.17 248.50 326.00 Increased

9. Capital

employed

100 120.15 186.85 170.79 128.46 Decreased

10. No. of

Employees in

thousands

100 96.94 95.75 95.10 99.45 Increased

11. Physical

turnover

100 136.14 312.33 427.16 561.91 Increased

12. Purchase 100 136.14 312.33 427.16 561.91 Increased

13. Personnel payments

100 110.20 115.34 126.70 158.00 Increased



- 98 -

Interpretation of Trend analysis:

a) The sales have continuously increased in all the years¶ up to 2007. The

percentage in 2007 is 337.11 as compared to 100 in 2002-2003.The increase insales is quite satisfactory which is due to the completion of Boiler Auxiliary

Plant (BAP) expansion and higher value added products

b) The net worth has been showing considerable increase over the five year period.

c) The Capital employed has Increased substantially in the year 2006-2007 is

compared to last four year. This is due to decrease in value of production and

higher demand for the product and also due to higher capacity addition due

completion of BAP expansion project.

d) The Purchases has been increased in all the years up to 2007.due to the increases

of production and demand and to higher capacity addiction of completion of

BAP formal projects.

e) The Personnel payments & no.of .Employee¶s are increased substantially all thr

years up to 2007 due to the increased trend for the forthcoming year on

Production and higher demand for the products BAP expansion projects.



- 99 -

5.7 Regression analysis

5.7.1 Sales to prof it:

X = Independent Variables (Sales)

Y = Dependent Variables (Profit)

A, b = Constants.

Regression Equation Y on X is,

Yc = a + bx

To Find out the values of a, b

Y = Na + bX

XY = aX + bX

By substituting this equation,

2422= 5(a) + 26243(b) ---------------------------*(26243)

17153175 = 26243(a) + 164030435(b) --------*(5)

63560546 = 131215 (a) + 688695049(b)

85765875= 131215 (a) + 820152175(b)-------------------------------------------------

22205329= 131457126(b)

b = 0.16892

By substituting ³b´ value in equation (1),

2422 = 5(a) +26243(b)

2422 = 5(a) +26243 * 0.16892

YEAR SALES(X) PROFIT (Y) XY X^2

2002-2003 2619 204 534276 6859161

2003-2004 3175 159 504825 10080625

2004-2005 4908 214 1050312 24088464

2005-2006 6712 579 3886248 45050944

2006-2007 8829 1266 11177514 77951241

TOTAL 26243 2422 17153175 164030435



- 100 -

2422 = 5 a + 4432.97

2010.96 = 5 a

a = - 402.19

The future sales estimation for the year 2007 is 9000 for the year 2008 is 10000

By substituting the values of ³a, b´ in the regression line Y on X is,

For 2008:

Y = -402.19 + 0.16892(9000)

Y = 1118.09 Millions

For 2009:

Y = -402.19+ 0.16892(10000)Y = 1287.01 Millions

Interpretation

Here the variable `y¶ is taken as Profit and `x¶ is taken as Sales.

The estimated sale for 2009 is based on the actual for nine

months up to December 2008 and realistic estimates for the balancethree months of the year 2008-09. The estimated sales for 2009-10are based on the budget estimates by the organization with a growth

rate factor for 2008-09.

The projection of Rs1118.09 millions. And Rs.1287.01 millions.

for the next two years indicates increase in profit due to estimation

that the price of Raw Material and Finished goods may vary at ahigher rate that result in such a huge increase in profit.

Thus the regression analysis estimates a higher quantum of profitability for the organization in the coming two years 2007-2008

and 2008-2009



- 101 -

5.7.2 Debtors to Sales

X = Independent Variables (Sales)

Y = Dependent Variables (Debtors)

A, b = Constants

Regression equation Y on X is,

Yc = a + bX

To Find out the values of a, b.

Y = n a + b X

XY = a X + bX2


3340= 5 a + 26243 b --------------------------*(26243)

24125034 = 26243 a + 4840292 ----------*(5)

87651620 = 131215 a + 688695049 b

120625170= 131215 a + 24201460 b

--------------------------------------------------32973550 = -17314510 b

b = 1.9043

YEAR SALES (X) DEBTORS(Y) XY X^2

2002-2003 2619 287 751653 82369

2003-2004 3175 303 962025 91809

2004-2005 4908 287 1408596 82369

2005-2006 6712 351 2355912 123201

2006-07 8829 2112 18646848 4460544

TOTAL 26243 3340 24125034 4840292



- 102 -


3340 = 5 a + 26243 b3340 = 5 a +26243(1.9043)

a = -9327

The future sales estimation for the year 2007 is 9000 Millions and for the year 2008 is

10000 Millions

For 2007:

Y = - 9327+ 1.9043*(9000)

Y = 2646 Millions

For 2008:

Y = -9327 + 1.9043 *(10000)

Y = 2837 Millions

I I N N T T E E R R P P R R E E T T A AT T I I OO N N

Here the variable `x¶ is taken as Sales and variable `y¶ as Debtors.

The estimated sale for 2009 is based on the actual for ninemonths up to December 2008 and realistic estimates for the balance

three months of the year 2008-09. The estimated sales for 2009-10

are based on the budget estimates by the organization with a growthrate factor for 2008-09.

The projection of Rs.2646 millions and Rs.2837 millions. indicates increase in

debtors due to increase in sales. Most of the sales made by the company are taken as

credit sales. So increase in sales will result in increase in the amount of debtors.

Thus the regression analysis estimates a higher quantum of

sundry debtors for the organization for the coming two years 2007-08and 2008-09



- 103 -

5.7.3 Sales to OPERATING EXPENSES:

YEAR SALES (x) OPERATING

EXPENSES

XY X^2

2002-2003 2619 2277 5963463 6859161

2003-2004 3175 2825 8964375 10080625

2004-2005 4908 4548 22321584 24088464

2005-2006 6712 6335 42520520 45050944

2006-07 8829 8267 72989343 77951241

TOTAL 26243 24252 152759285 164030435

X = Independent Variables (Sales)Y = Dependent Variables (W.C)

A, b = Constants.

Regression equation Y on x is,

Yc = a + bX

To Find out the values of a, b

Y = n a + bX

XY = ax + bX2


24252 = 5 a + 26243 b -----------------------------*(26243)

152759285 = 26243 a + 164030435 b----------*(5)

636445236 = 131215 a + 688695049 b

763796425 a =131215 a + 820152175 b

---------------------------------------------------

127351189 = 131457126 b

b = 0.97



- 104 -


24252 = 5 a + 26243 b24252 = 5 a + 26243 (0.97)

a = -240.74

The future sales estimation for the year 2008 is 9000 millions and for the year 2009 is 10000 millions.

For 2008:

Y = -240.74 + 0.97 *(9000)

Y = 8489.26 Millions

For 2009:

Y = -240.74 + 0.97*(10000)Y = 9460 Millions

I I N N T T E E R R P P R R E E T T A AT T I I OO N N ::

Here the variable `x¶ is taken as Sales and variable `y¶ as operating expenses.

The estimated sale for 2009 is based on the actual for nine months up to

December 2008 and realistic estimates for the balance three months of the year 2008-

09. The estimated sales for 2009-10 are based on the budget estimates by the

organization with a growth rate factor for 2008-09.

In this analysis, working capital required for the next 2 years is projected. Here

the operating expenses are projected based on estimated future sales that in turn are

derived by experience. The projected operating expenses of Rs. 8489.26 millions. And

Rs.9460 millions for the next two years are required because of expected increase in

sales.

Most of the production and other operational requirements like chemicals and

catalysts, utilities and repairs and maintenance are made by the company out of

operating expenses. So increase in sales will result in increase in the amount of capital

demands also.

Thus the regression analysis estimates a higher quantum of

operating expenses for the organization for the coming two years

2007-08 and 2008-09.



- 105 -

CHAPTER: 8

Findings, Recommendations and Conclusion



- 106 -

FINDINGS, RECOMMENDATIONS AND CONCLUSIONS

FINDINGS:

In 2002-03 it has been increased to 111.0. But 2003-04, 2004-05, 2005-06 and 2006-07 there has been decreased to 86.0, 62.4,

113.77 and 289.27 respectively. The profit is low up to 2005. In

2006 & 07 it has increased gradually.

The ratio is increasing and decreasing. In the year 2002-03 the

ratio is lower indicates more efficiency during that year and in

2004-05 , 2005-06 and 2006-07 ratio is higher, indicates lessefficiency.

Administration expense is moving has turnover every year increases the expenses as a percentage on turnover decreases.The management must take steps to check the expenses. In 2005

- 06 the ratio is low due to increase in turnover and increases in2006-07 as 5.32

In 2002 - 03 the ratio has increased to 0.45. In 2003-04 the ratiohas decreased to 0.42. In 2004 - 05 and 2006 the ratio has come

down due to higher turnover and increases in 2006-07 as 0.25

. The ratios are fluctuating; high ratios indicate the efficient

inventory management and efficiency of business operations.

The ratios show an increase in trend of 9.93, 11.02, 17.85 ,19.13 and 41.17 from 2002- 03 to 2006-07 respectively except

in 2002 - 03. This gradual increase show that better is the

liquidity of the data¶s.

The ratios show that the fixed assets are efficiently utilized. Theratios are showing up gradually i.e., from 2002 ± 03 to 2006 ±

07 is 7.21, 8.34, 10.51, 17.76 , 25.68 and 33.99 respectivelyexcept in 2002 ± 03.

The capital turnover ratio from 2002 ± 03 to 2006 ± 07, it isgradually increasing and decreasing. Higher ratio indicates



- 107 -

higher efficiency and lower ratio indicates in effective usage of

capital.

An ideal ratio is 2: 1. The ratios from 2002 ± 03 to 2006 ± 07are 1.22, 1.40, 1.44, 0.95 and 0.85 which are lesser than the

standard norm.

The acid test ratio is declining year by year 2005-06 is 0.17 and presently it is 0.38 which is not satisfactory. The ideal liquid

ratio are the generally accepted ³norm´ for liquid ratio is 1

Profitability indicates the efficiency and effectiveness withwhich the operations are being carried on. It has been found out

that the profitability is on the increase over the five year periodof study except the year 2002-03

Total Turnover being made by the firm are sound and showing

an increasing trend.

The PBIT achieved by the company shows an increasing trend because of increase in production and Sales

Operating Profit has also been increased by significant

reduction in Operating Expenses by the Company by judicious

management of Sales operations and also through good treasuryoperations

The average collection period of the company is showing anincreasing trend. This is because of rise in credit giving policy

made by the company.

The average payment period is also started showing an

increasing trend indicating delayed payment being made to thecreditors. This indicates more time taken by the Company torepay the Suppliers.

There is a significant and steep increase in the turnover position

of the company.



- 108 -

The Current asset of the company is good and this is because of rise in Funds from co Under CCC being made by the Company.

The Inventory Turnover of the company is satisfactory. There is

no holding up of inventory thereby saving interest oninvestment amount. This is because of effective production

techniques implemented by the company.

The current financial position of the Company compared over

the last five years is appreciably increased, for which credit

could be taken.

The Fixed Assets of the company contributes Good of the Total

Assets of the Company indicating good asset position of thecompany. The company has also got sufficient Reserves and

Surplus year after year, to meet the future financial

contingencies of the company.

Though the liquidity position of the Company is moderate, it

showed an increasing trend for the last two years. This is because of increase in Other Current Assets of the firm.

It is found that there is an increase in Reserves and SurplusFunds. The total resource of the company for the last Five years

is showing an increasing trend, which will contribute to a major extent for the company¶s production purposes in future.

The Funds from Head Office Stable position of the company issatisfactory. The Funds in all the year and this is because of

consistency in maintaining the required level of inventories and

also significant increase in level of operations due to thecompletion and capitalization of the expansions cummodernization project.

The Physical Turnover Ratio of the company is sound indicatingeffective utilization of Assets for production purposes.



- 109 -

The Personell Payments requirement of the company to carry

out the production purpose is good and is not suffering fromany inadequacy.

The Trend Analysis reveals that the Total Sources position of

the company is good and enough to meet the futurerequirements of the company to carry out its activities.

The Common Size Balance Sheet shows a healthy trend inCurrent Assets and Current Liabilities of the firm indicating

changes in policies of repayment made by the company.

It is projected from Trend Analysis that the sales trend of the

company for the last 5 years is more than satisfactory. This

analysis is showing an increasing trend in all aspects such asEarnings before Interest and Tax, Profit Before Tax, Current

Assets, Capital employed and Total Turnover and accretion to

the Expansion.

It is projected from Regression Analysis that there will be anincrease in profits for the forthcoming year. There may be some

marginal effect due to changes in Government Policies and widefluctuations in the international prices of Boilers Auxiliaries

which are matched by the increase in product prices. Due to

sample constraint, this analogy may not however be sustainable.

It has been found out that overall solvency position of thecompany is Healthy and it shows an increasing trend. Thisindicates the enhancement of credit worthiness of the company.



- 110 -

RECOMMANDATIONS :

1. The unit may forecast selling and distribution expenses

approximately and then enters into the contract with the customers,

so that company need not incurred the distribution expenses from its

sources.

2. The company shall concentrate on networking capital.

3. The Company should be taken to increase the price quoted for the

customers, so that Sales Index will be improved.

4. The Steps should be taken to improve the more holding

Transportation strength for fast supply of the firm.

5. Steps should be taken to find out substitute materials in order to the

imported materials.



- 111 -

CONCLUSION:

Bharat Heavy Electrical Limited has been performing well in the capital

and engineering goods industry Boiler Auxiliaries plant being one of theunit of BHEL, has been showing an increasing trend in its profitability position for the past 19 years which depicts a good sign.

The turnover ratios indicate that the average collection period has

been reduced from two months to one month and working capital ratio is asatisfactory one. The solvency ratio indicates that the larger part of the

funds is tied up in inventory. So the company must take steps to improve

its liquidity position.

The company has a high operational efficiency and most of the ratios seemto be satisfactory from the point of view of both the investors and lenders.

The other important factor which is worth mentioning here is that the

company has been progressing steadily on its capacity utilization in linewith its growing financial performance.



- 112 -

ANNEXURE

The extra information related to BHEL that have been collected are,

1, According to BSE ± Market Capital was Rs. 55700.03.

2, Ownership ± Central Govt.- Commercial Enterprises.

3. Auditor ± D.R.Mehta & Associates.

4, Registrar ± Karvy Computer share Pvt. Ltd.

5, Earnings Per Share (EPS) ± Rs. 77.13.

6, Shares outstanding ± Rs. 24,47,60,000.

7, Average daily volume(30 days) ± Rs. 31.57.

8, Share holding as per Sep 2006

Promoter owned ± 67.72%

Public owned ± 1.17%

FIIs owned ± 21.91%

Others owned ± 9.20%



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BIBLIOGRAPHY :

1. Cost and Management - T.S.Reddy, Y.HariPrasadReddy;

Accounting Reprint 2003 Published by

Margham publications,

Chennai-600 017.

2. Financial and Management - T.S.Reddy Y.Hariprasad Reddy;

Accounting Second edition Published by

Margham publications,

Chennai-600 017.

3. Financial Management - Khan& Jain; Thirteenth Edition-1996

Published by Chaitaya Publications,

Chennai-600 023.

4. Prasanna Chandra, ³Fundamentals of Financial Management´, 3rd

ed:

Tata McGraw- Hill Publishing Company ± New Delhi.

Websites ref erred:

1. www.bhel.com

2. [email protected]

3. www.icai.org

4. www.ifmr.com5. www.mma.org

6. www.icwai.org



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ABSTRACT OF THE BALANCE SHEET AS ON 2001-02 to 2005-06

Particulars

2002-02

Actual

(In lak hs)

2003-04

Actual

(In lak hs)

2004-05

Actual

(In

lak hs)

2005-06

Actual

(In lak hs)

2006-07

Actual

(In

lak hs)Total Turnover 32961 38848 54441 81909 107454

Gross Turnover 33528 40499 60684 83773 113360

Net Turnover 28232 33340 51216 72907 100947

Value added 10675 11014 11916 16807 27664

PBIT 2040 1574 2116 5751 12286

PBT 2041 1587 2140 5788 12654

Consumption 15154 19316 35222 50818 66201

Gross Block 10751 10993 11153 11520 11962 Net fixed Assets 3139 3021 2763 2618 2567

Closing stock 5255 8848 16893 20758 28639

Sundry debtors 2872 3026 2870 3508 21114

Sundry creditors 5573 6337 7992 9858 14704

Current Assets 8892 13740 20913 25515 51662

Current Liabilities 7293 9846 14517 26743 60959

Capital employed 4919 5910 9191 8401 6319

Operating Expenses 22768 28253 45476 63349 82668

Operating Profit 5464 5087 5740 9558 18279

Admn. Expenses 3295 3360 3450 3610 5375

Selling Expenses 128 140 150 160 250

Personnel Payments 6312 6956 7280 7997 9973

No. of Employees(In

thousands)

2187 2120 2094 2080 2175

Physical Turnover 43543 53877 72934 105904 127746

Purchases 15713 21391 38707 56130 69424Cost of Sales 26191 31753 49076 67119 88293



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Finance Evaluvation

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Transcript of Finance Evaluvation