Pre and Post Merger Analysis

8/3/2019 Pre and Post Merger Analysis

http://slidepdf.com/reader/full/pre-and-post-merger-analysis 1/84

LIST OF CONTENT

Chapter Title Pate No.

LIST OF TABLE

LIST OF CHART

CHAPTER I INTRODUCTION

Company Profile

CHAPTER II RESEARCH METHODOLOGY

Introduction

Statement of problem

Scope of study

Rational behind study

Objective of study

Research methodologyLimitation of study

CHAPTER III DATA ANALYSIS & INTERPRETATION

Ratio Analysis

Comparative analysis

Common size analysis

Method of least square analysis

CHAPTER IV FINDINGS OF THE STUDY

CHAPTER V SUGGESTION

CHAPTER VI CONCLUSION

ANNEXURE FINANCIAL STATEMENT FOR FIVEYEARS (1998-99 to 2002-03)

BIBLIOGRAPHY



LIST OF TABLE

Sl. No Title Pate No.

1 Table showing net profit ratio.

2 Table showing operating ratio3 Table showing operating profit ratio4 Table showing debtors turnover ratio

5 Table showing debtors turnover period

6 Table showing working capital turnover ratio

7 Table showing working capital turnover period

8 Table showing return on investment ratio

9 Table showing return on share holder funds

10 Table showing earnings per share ratio

11Table showing current ratio12 Table showing quick assets and current liabilities

13 Table showing absolute liquid assets and current liabilities

14 Table showing net working capital and net assets

15 Table showing net sales and current assets

16 Table showing Current assets turnover period

17 Table showing net sales and fixed assets

18 Table showing Fixed assets turnover period

19 Table showing net sales and working capital

20 Table showing Working capital turnover period

21 Table showing debt to equity ratio22 Table showing solvency ratio

23 Comparative income statement (1999-2000)

24 Comparative income statement (2001-2002)

25 Common size income statement (1999-2000)

26 Common size income statement (2001-2002)

27 Comparative Balance Sheet (1999-2000)

28 Comparative Balance Sheet (2001-2002)

29 Common size Balance Sheet (1999-2000)

30 Common size Balance Sheet (2001-2002)

31 Method Of Least Square



LIST OF CHART

Sl. No Title Pate No.

1 Chart showing net profit ratio.

2 Chart showing operating ratio3 Chart showing operating profit ratio4 Chart showing debtors turnover ratio

5 Chart showing debtors turnover period

6 Chart showing working capital turnover ratio

7 Chart showing working capital turnover period

8 Chart showing return on investment ratio

9 Chart showing return on share holder funds

10 Chart showing earnings per share ratio

11Chart showing current ratio12 Chart showing quick assets and current liabilities

13 Chart showing absolute liquid assets and current liabilities

14 Chart showing net working capital and net assets

15 Chart showing net sales and current assets

16 Chart showing Current assets turnover period

17 Chart showing net sales and fixed assets

18 Chart showing Fixed assets turnover period

19 Chart showing net sales and working capital

20 Chart showing Working capital turnover period

21 Chart showing debt to equity ratio22 Chart showing solvency ratio



COMPANY PROFILE

CG Maersk Information Technologies Private Limited (CGM) has been

established in the year 1996 and set up as a 100% export oriented unit (EOU)under the Software Technology Parks (STP) scheme of the Directorate of

Software Technology Parks of India primarily for development and maintenance

of software. The Company is a joint venture between Maersk Data AS, Denmark

and Crompton Greaves, a Thapar Group Company engaged in the manufacture of

electrical appliances and engineering products.

A Company belonging to Denmark under the name and style of LEC India

Software Centre Private Limited (LEC) was functioning in Bangalore which was

set up as a 100% export oriented unit (EOU) under the Software Technology

Parks (STP) scheme of the Directorate of Software Technology Parks of India

primarily for development and maintenance of software. LEC was purchased by

Maersk Data AS, Denmark in the year 2000. Consequent on this event the Indian

Company, Crompton Greaves wanted to stake a claim on the same ratio of profit

like CGM. It was agreed upon mutually by both the parties.

The Board of Directors of both the Companies felt that there would be greater

synergies in the operational and administrative matters if the operations of both

the Companies are combined. Hence, the Board of Directors of both the

companies decided to Merge LEC and CGM with a development center at

Chennai. In view of the above, the business operations of LEC have been shiftedto the existing facilities of the Company in Chennai.

The scheme of amalgamation for the merger of erstwhile LEC India Software

Centre Private Limited (LEC) with the Company with effect from 1st January

2001.



CGM provides a quality range of services through high value products for the

transportation industry, maintenance and application support.

Today’s competitive marketplace requires a constant focus on the performance of

the extended Supply Chain.

This includes meeting end-customer requirements by ensuring product/service

availability, on-time delivery, and the necessary inventory and capacity in the

supply chain that is needed to meet these requirements in a proactive manner.

CGM specializes in delivering IT enabled solutions, which will help you optimize

your extended Supply Chain performance.

Our Domain expertise includes

Logistics

• Container Freight Station

• Container Repair and Yard Management

• Liner Agency Management

• NVOCC and Freight forwarding

• Multi modal transportation

• Warehouse Management

• Distribution Management

• Express cargo management

Supply Chain Management

• Demand and Supply Planning

• Inventory Management

• Purchasing and Subcontracting Management

• Sales and Distribution Management

• SCM Portal Development



• Customer Relationship Management

Customer Relationship Management

Our offerings in the Supply Chain domain include

• Operational and Tactical consulting

• Turnkey Project Implementation

• On-site consulting, support and maintenance

• Offshore development, support and maintenance

Our technology and domain expertise is a winning combination in providingefficient and effective solutions for your Supply Chain and Logistics needs.

CGM Technologies has its Offshore Development Center, in the heart of Chennai,

India. This state-of-the-art software development and support facility is connected

to a cluster of mainframes at Maersk Data, Denmark. An expeditious high-speed

data communication link from Chennai to Copenhagen on SEA ME WE (Sea

Cable) exists, with an up time of above 99%. This link facilitates onlineworldwide accessibility on a 24-hour basis through MAERSK DataNet Hubs in

70 countries.

Our server ensemble consists of a number of NT, Windows 2000, and Solaris

servers, running our Intranet, work flow systems development and production

environment. Our Sales Management, Knowledge Management and Quality

Management are facilitated via Lotus Notes.

Our Vision

"To delight customers by offering high-quality end-to-end solutions at competitive prices, through systems and

employees empowered for excellence"

At CGM we determine our growth by how well we perform in the eyes of our key

stakeholder groups, each of whom, we believe, has a strong say in shaping our

success - the customer, the associate, the owner and the environment. We believe



in fulfilling our vision, through focused precision thinking and persistent

execution.

Our Mission

"Working with you, our customer, to provide high quality IT services, by utilising current and emerging technologies"

We have made it our mission to work with our clients and associates to help them

leverage IT as a strategic weapon, by arming ourselves with a rich repertoire of

technical skills, domain expertise, globally renowned project methodologies and

software engineering practices.

Our Values

We believe that every interaction is an opportunity to build a long lasting

relationship. This belief is further reinforced by our 'values', which underline our

transactions with our customers. CGM espouses the following core values :

• Integrity

• Respect for Individual

• Commitment

• Ownership

• Excellence

The CGM Quality policy

"To meet or exceed customer expectations through implementation of globally

accepted quality standards"

At CGM quality is the foundation of our business and begins with clear

communication between our customers and internal teams. Quality, Consistency,

Understanding, these are the words that are often used when discussing the many

projects handled by CGM.



CGM espouses the paradigm model to ensure that our customers are assured of

considerable checks and balances. Process planning and implementation are

monitored through reporting tools and metrics collection systems, which are

automated through Internal QA systems. The QA team makes defect

measurements on a regular basis and reports of causal analysis are used to refine

plans. We are SEI CMM LEVEL 4 certified organization and currently we are

gearing up our processes for CMMI level 5 certification from SEI, Carnegie-

Mellon University.

For offshore development, we have several models wherein we offer substantially

reduced costs for our clientele. When it comes to our experience in this regard,

CGM services most of the maintenance needs in the Mainframe area for Maersk

Data of Denmark. In open systems too, we have different offshore models to

offer. With more than 100 person years of experience in this area, you are assured

of stable and mature processes for smooth hand over of applications for

maintenance at our facilities in India.

Our services include new developments, maintenance and enhancements, web

enabling, migration, reengineering and wrapping of legacy applications.

Such a project requires addressing certain key issues in a systematic manner (so

that progress is made as planned and is predictable):

• Transfer of application knowledge

• Identification of key success factors

• Design of communication framework and escalation process

• Identification of coordination needs

• Ramping up team strength

• Establishment of change management processes

• Initiation of maintenance



In order to address each of the above issues, our SEI - CMM processes ensure that

there is a smooth transition of the application and expeditious completion of the

projects.

CGM has built up an excellent repertoire of technical skills and experience in

supporting you in diverse facets of the migration process. We have experts on

board who work with you to develop a strategy for migrating from one platform to

another, web enable your applications in a customized manner, or develop new

systems.

We endeavor to make each migration as seamless as possible from our customer's

previous system. We believe in providing our customers with successful

migrations that maintain the data, functionality, and work flow of the previous

system while adding unique features and capabilities

HR Practices

To create, develop and sustain a highly motivated and committed team of world

class professionals is what our HR aims for. CGM constantly endeavors to expose

employees (whom we address as Associates) to a work culture, which drives

excellence, and is highly energized, challenging and enriching.

Every employee in CGM is expected to live the values – integrity, respect for

individual, commitment, ownership & excellence. By adopting a good retention

strategy, by communicating business information, and by empowering its

employees, HR strives to instill a sense of ownership in the associates. This leads

to the associate having a stake in the organizational success and contributing to

business results.

Our HR practices are drawn in line with the organizational strategy and involve

best of industry practices, and we work on a continuous basis to keep CGM a

Learning Organisation.



Our well drawn out Performance Management System aids in:

• Target / Goal based performance assessment

• Performance based pay practices

• Competency (technical & behavioral) based development

• STAR identification and development plan

• Individual learning and development plans

• Multiple and varied reward practices

Compensation and Benefits include innovative and progressive compensation

strategies for enhancing wealth to the associates, while reinforcing their

commitment to the organization.

The best of our success stories is the encouragement of new ideas and further

successful incubation. Our associates are encouraged to display not only

‘entrepreneurial skills’ and but also ‘boundaryless’ attitude.

To make our working life memorable, we have exciting get-togethers, associate

events and fun time at regular intervals.



INTRODUCTION

It is essential to evaluate the financial performance of the organization from time

to time in order to find out any fault in the financial policy so that remedial

measures can be undertaken at an appropriate time.

The analysis of financial statements is a process of evaluating relationships

between component parts of financial statements to obtain a better undertaking of

the firm’s position and performance. The first task of the financial analyst is to

select the information relevant to the decision under consideration from the total

information contained in the financial statement. The second step involved in

financial analysis is to arrange the information in a way to highlight significant

relationships. The final step the interpretation and drawing of conclusion.

For this project-study, a service industry like Computer Industry is chosen for

analytical examination. Since the studies is service sector are less if not nil.

Therefore this project is a comprehensive analysis of financial position andoperating result of CGM for the last five years.

1. Find out the earning capacity of the business that can be reviewed by the

proper analysis of Financial Statements.

2. Reveal the financial position of the firm and soundness of Business.

Measure the soundness by business by comparing its assets, liabilities and

capital side by side.

3. Draw a meaningful conclusion regarding sound liquidity position of the

firm.



4. To form a judgement whether performance of the company at point of time

is good, questionable or poor and also whether the financial condition of

the corporation is improving or deteriorating and whether the cost

profitability or efficiency is showing an upward or downward trend.

5. Measure the operational efficiency of the working of the management and

identify various deficiencies in its working and then improve upon them.

6. Scrutinize financial discipline of the firm with regard to additions and

downfall.

7. To assess how far the over all financial performance in Service Industry

like computer industry has improved.



DEFINITION OF PROBLEM

The merger of CGM & LEC was contemplated in order to reduce the losses

incurred by two companies by one Company by reducing the operational and

administrative costs. But unfortunately after the merger of these two companies

what had happened was the other way around. One of the main agenda of this

project is to analyze the results of pre & post merger and the reasons thereof. We

have taken five financial years for the purpose of analysis of this project.



SCOPE OF STUDY

The financial performance analysis and interpretation would be done for CGM on

the basis of the last five years profit and loss account and balance sheet. The study

would be conducted basically in the finance department of the concern.

It mostly depends on the information collected through secondary data. Ratio

analysis for the benefit of us, management, shareholders will be done. A detailed

comparative analysis of balance sheet would be undertaken, common-size

analysis of balance sheet will be provided and finally trend analysis will also be

done.

The method adopted is one of close analysis. There is proper documentation of the

assertions, arguments and findings. There is careful examination of the facts and

data gathered making use of the sampling methods and ratio.

There was a personal interview with Chief Financial Officer & Company

Secretary. She was kind enough to spare their valuable time to throw light on

questions regarding the scope of business in the current and subsequent years.

Now we have wound up economically unviable projects and introduced profitable

proposition for improving upon the overall performance of the company. The

company has improved upon the performance by reducing the manpower and

other overheads. The Company is expected to show some improvement due to

discharge of liabilities taken over at the time of merger.

During the preliminary exploration of the study, the Researcher tapped as many

sources of readily available data as time permitted and examined company records

as to finance computerizations, expansion etc that throw on the problem.

Collected data was compiled, edited and tabulated for the purpose of analysis. For

analysis of data various statistical techniques of classification and financial toolsespecially the various financial ratios were used. Financial ratios for several



preceding years were computed to determine the improvement or deterioration in

the financial position of the company over a period of time. The data has been

interpreted on the basis of analysis and conclusion.



RATIONALE BEHIND STUDY

The rationale behind the current study is to analyze and interpret the financialstatement of CGM for the past five financial years to find out various reasons for

the fall in profits of the organizations especially after the merger.

One of the major objectives of the study is to extract information about the real

financial position of the concern at particular, which may be useful to a wide

range of users like management, investors, employees, lenders, suppliers,

customers etc.,



OBJECTIVES OF THE STUDY

Primary Objective:

To analyze the financial performance of the company before and after

merger.

Secondary Objective:

To find out the real earning capacity.

To find out efficiency of the concern to analyze the company’sliquidity and solvency position.

Period of Study:

The period of study will be from January to March 2005.



RESEARCH METHODOLOGY

This analytical is based on clearly defined objectives. Of the different tools for

analysis of financial statements, ratio analysis as the principal tool has been

selected to examine the financial performance of the CGM.

Three types of ratios have been selected. They are given below.

1. Financial Ratios

2. Profitability Ratios

3. Turnover / Activity Ratios

In the place the earning capacity of CGM is determined after carefully examining the

profit-graph.

Based on different ratios and their formulae, the findings are arrived at and conclusions

are then drawn regarding operational efficiency, the financial controls employed and the

financial performance of CGM.

The secondary data had been gathered from the available records of the company.

Moreover information was gathered from private interviews with the Chief Financial

Officer & Company Secretary. In fact, all the available facts, figures and data had been

gathered.

Incidentally, it ought to be noted that the Project Work of this nature is subject to

limitations. In the first place the Financial Statements fail to be perfect guides for

determining future, profitability, as they are subject to the vagaries of accounting

processes and fluctuations in the price line. Notwithstanding, a genuine attempt has been

made to evaluate the financial soundness of the company and its credit worthiness.

This project work offers a clear fact-based introduction to CGM, its origin growth,

development and its present sound stature.

The project work throws adequate light on the essential and utility value of CGM.



Ratio analysis

An analyze of financial statement based on ratios is known as ratio analysis. Ratio

is a mathematical relationship between two or more item taken from the financial

statements. Ratio analysis is a process of computing, determining and presenting

the relationship of items, it also includes comparison and interpretation of ratios

and using them as basis for the future projections. Ratio analysis is helpful to

management and outsiders to design the financial health of business concern. It

helps in measuring the probability solvency and activity of a firm.

Comparative financial statements:

This is a yet another technique used in financial statements analysis. These

statements summarize and present related data for a number of years,

incorporating the changes (absolute and relative) is individual items of financial

statements. These statements normally comparative balance sheet, comparative

profit and loss a/c comparative statements of change in total capital as well as in

working capital. Thus help in making inter-period and inter-firm comparative and

also highlight the trend in performance efficiency and financial position.

Common size Statements:

Common size statement indicates the relationship of various items with some

common items (expressed as percentage of sales). Similarly in the balance sheet

the total assets and liabilities is taken as base and all other figures are expressed as

percentage of this total. The percentage so calculated is compared with

corresponding percentages in other periods or other firm and meaningful

conclusions are drawn. Generally a common size income statements and common

size balance sheet is prepared.



Trend analysis

Trend analysis is tendency and as much as the review and appraisal of tendency in

accounting variable are nothing but trend analysis is carried out by calculating

trend’s ratio (percentage) and / or by plotting the accounting.

Data sources

Since this is a financial project, it mostly depends on information collected though

secondary data like

• 5 year profit & loss account• Five year balance sheet

• Company Profile collected through companies various sources of

information like company journal’s websites etc/.

The study is mainly based on the information, which has been recorded in the

financial statement and by using various financial ratios. Therefore, this study is

also subjected to all these limitations of financial statements and the tools used for

analysis.



LIMITATIONS OF THE STUDY

The main limitations of the analysis are as follows

1. The reliability of analysis depends upon the reliability of figurers of

financial statements. The entire working will be of no value if data thus

given is not reliable.

2. The basic nature of Financial Statements is historical. Past can never be a

perfect guide for future profitability and financial soundness.

3. When there is a change in the accounting methods, analysis of financial

statements does not serve any purpose. For example when there is a change

in method of depreciation the figures of current year may have no

comparable base.

4. Financial Statements are normally proposed on the concept of historical

cost. They do not reflect values in items of current cost. Then, the financial

statements of accounting figures would not portray the effect of price level

changes over the period.

5. Due to the time constraint a comparative study of other organizations could

not be made.

6. It has rightly been observed that “The Ratio Analysis is an aid to

management in taking right decisions, but as a mechanical substitute for

thinking and judgement, it is worse than useless. The rates discriminately

calculated and wisely interpreted can be a useful tool of financial analysis.

7. Ratios can never be the substitute for raw figures. At the time of

interpretation, therefore, raw figures should also be referred to.



8. It does not consider the price level changes and it entirely depends only on

Secondary data provided by the organization.

9. Financial analysis is based upon only on the monetary information and

ignores non monetary facts.

10. The main factor is lack of time of the researcher.



DATA ANLALYSIS AND INTERPRETATION



RATIO ANALYSIS

NET PROFIT RATIO

This ratio is called Net Profit to Sales Ratio. It is measure to management

efficiency in operating the business successfully from the owner’s point of view.

It indicates the return on shareholders investment, higher the ratio, better the

operational efficiency of the business concern.

`Formula:

Net Profit after tax

Net Profit Ratio = -------------------------------- x 100

Net sales

TABLE NO.1

TABLE SHOWING NET PROFIT RATIO.

In (000)

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Loss After

Tax9499 26669 25921 22789 46520

Sales 63826 60193 67167 70015 62186

Net Profit

ratio(14.88) (44.30) (38.59) (32.54) (74.80)

Interpretation

The net profit ratio of the company is not convincing. After the merger during

year 2000 the net loss ratio as come down to 32.54 from 38.59, But during the last

financial year it has again increased to 74.80



CHART 1

CHART SHOWING NET PROFIT RATIO



OPERATING RATIO

This ratios indicates the relationship between the operating expenses and sales. Total

Operating expenses here include cost of goods sold, administrative expenses and selling

and distribution expenses. Generally finance expenses like interest are not included

under operating expenses.

Formula:

Cost of sales + Operating Expenses

Operating Ratio = ---------------------------------------------------- x 100

Net sales

TABLE No.2TABLE SHOWING OPERATING RATIO

In (000)

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Operating

Expenses72224 83912 94151 97278 108349

Sales 63826 60193 67167 70015 62186

Operating

Ratio113.15 139.40 140.17 138.93 174.23

Interpretation:

The operating ratio of the organisation is fluctuating which started with 113.15

and has climbed to 174.23 during the last five financial years.



Chart No.2

CHART SHOWING OPERATING RATIO



OPERATING PROFIT RATIO

It is the ratio of profit made from operating sources to the sales, Usually known as a

percentage, it shows the operational efficiency of the firm and is a measure of

management efficiency in running the routine operations of the firm.

Formula:

Operating profit

Operating Profit Ratio= ----------------------------------------- x 100

Net sales

TABLE No.3

TABLE SHOWING OPERATING PROFIT RATIO

In (000)Year 1998-99 1999-00 2000-01 2001-02 2002-03

Operating

Profit4960 (17856) (18037) (18519) (42090 )

Sales 63826 60193 67167 70015 62186

Operating

Profit Ratio7.77 (29.66) (26.85) (26.45) (67.76)

Interpretation:

The organizations operating profit ratio was positive in the financial year 1998-99 but

has turned into loss ratio during the next 4 financial years in that it was gradually coming

down from 29.66 in 1999-2000 to 26.45 in 2001-02 for again it has increased to 67.76.



Chart No.3

CHART SHOWING OPERATING PROFIT RATIO



DEBTORS TURNOVER RATIO:

Debtors Turnover Ratio is also called as Receivables Turnover ratio or Debtors velocity.

A business concern generally adopts different methods of sales, one of them selling on

credit. Goods are sold on credits basis on credit policy adopted by the firm. The ratio is

helpful in determining the operational efficiency of business concern and the

effectiveness of its credit policy.

Formula:

Credit Sales

Debtors Turnover Ratio = ------------------------------

Average Receivables

TABLE No.4

TABLE SHOWING DEBTORS TURNOVER RATIO

In (000)

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Average

receivables8473 8849.5 14450 19731 18888

Sales 63826 60193 67167 70015 62186

Ratio 7.53 6.80 4.64 3.54 3.29

Inference

The debtors turnover ratio was very high in the financial year 1998-99 but has

been brought into control during the financial year 2000-01 at 4.64, but again

it has shown increase during the next financial year. During latest financial

year it stood at 3.29.



Chart No.4

CHART SHOWING DEBTORS TURNOVER RATIO



DEBTORS TURNOVER PERIOD

Debtors Turnover Period = 365 Debtors Turnover Ratio

Table No. 5

TABLE SHOWING DEBTORS TURNOVER PERIOD

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Debtors

Turnover Ratio

7.53 6.80 4.64 3.54 3.29

Debtors

turnover

period

48.47 53.67 78.66 103.10 110.94

Inference

The average collection period is slightly above the industrial standards of 75 – 90

days this ratio has been moving around 100 days in the last 2 financial years.



Chart No. 5

CHART SHOWING DEBTORS TURNOVER PERIOD



WORKING CAPITAL TURNOVER RATIO

Working capital ratio measures the effective utilization of working capital. it also

measures the smooth running of business or otherwise the ratio establishes between cost

of sakes and working capital.

Formula:

Sales

Working Capital Turnover Ratio = ----------------------------------------------------

Networking Capital

TABLE No. 6

TABLE SHOWING WORKING CAPITAL TURNOVER RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Sales 63826 60193 67167 70015 62186

Net Working

capital52550 29899 48516 35877 6816

Ratio 1.21 2.01 1.38 1.95 9.12

Inference

The company had a very convincing working capital ratio in the latest financial

year at 9.12. the first four financial year saw a constant ratio around 1.5 an

average.



Chart No. 6

CHART SHOWING WORKING CAPITAL TURNOVER RATIO



WORKING CAPITAL TURNOVER PERIOD

Working Capital Turnover Period = 365/ Working Capital Turnover Ratio

Table No. 7

TABLE SHOWING WORKING CAPITAL TURNOVER PERIOD

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Working

CapitalTurnover

Ratio

1.21 2.01 1.38 1.95 9.12

Working

Capital

Turnover

period

301.6 191.59 264.49 187.17 40.02

Inference

The organisation has been able to recover its working capital around 40 days

during the year 2002-03.But it took longer time during the initial years an average

of 250 days.



RETURN ON INVESTMENT RATIO:

Working capital ratio measures the effective utilization of working capital. it also

measures the smooth running of business or otherwise the ratio establishes between cost

of sakes and working capital.

Formula:

Operating Profit

Return on Investment Ratio = ---------------------------------------------------- x 100

Capital Employed

Table No.8

TABLE SHOWING RETURN ON INVESTMENT RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Operating

Profit4960 (17856) (18037) (18519) (42090)

Capital

Employed131388 127450 195271 184892 183074

Ratio 3.77 (14.01) (9.23) (10.01) (22.99)

Inference

The organizations return on investment ratio has been showing negative because

of grooving operating loss in the last 4 financial years.



Chart No.8

CHART SHOWING RETURN ON INVESTMENT RATIO



RETURN ON SHARE HOLDER FUNDS

The ratio determines the profitability from the share holder’s point view the net

profit there is net income after payment of interest and tax and it includes net non

operating income also. The term share holders funds includes equity share capital,

preference share capital and all reserves and profits belonging to share holders.

Formula:

Net Profit after interest and Tax

Return on share holder funds = ----------------------------------------------------

Share holders funds

TABLE No.9

TABLE SHOWING RETURN ON SHARE HOLDER FUNDS

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Net profit

after Interest

and tax

(9499) (26669) (25921) (22789) (46.520)

Share holder

Funds100000 100000 168502 168502 168502

Ratio (9.49) (22.66) (15.38) (13.52) (27.60)

Inference

The return on share holder funds though it has been showing negative trend, it

was reduce it almost 50% between 1999-2000 and 2001-02 especially after the

merger from 22.66 to 13.52 in those three financial years.



Chart No.9

CHART SHOWING RETURN ON SHARE HOLDER FUNDS



EARNINGS PER SHARE :

This ratio highlights the over all success of the concern form owner’s point of view and

it is helpful in determining market price of equity shares. It reflects upon the capacity of

the concern to pay dividend to its equity share holders.

Formula:

Net Profit after tax preference dividend

Earnings per share = ---------------------------------------------------

Number of equity shares

TABLE No. 10

TABLE SHOWING EARNINGS PER SHARE RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

No.of Equity

Shares 11000 11000 16000 16000 16000

Net Loss per

share(.86) (2.42) (1.62) (2.07) (3.87)

Inference

The earning per share ratio shows a negative of 3.87 during the latest financial year, but

it has been considerably brought down to 1.62 in the year 2000-01 from 2.42 during

the year 1999-2000.



Chart No. 10

CHART SHOWING EARNINGS PER SHARE RATIO



CURRENT RATIO

The current ratio is a general indicator of the business ability to meet its shot term

financial commitments. This ratio assumes that all current assets, if required can be

converted to cash immediately in order to meet all current liabilities immediately. It is

generally recommended that the current ratio should be at least 2:1 that is current assets

should be at least twice the value of current liabilities.

Formula:

Current Assets

Current Ratio = ----------------------------------------------------------

Current Liabilities

TABLE No. 11

TABLE SHOWING CURRENT RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Current

Asset16794 16034 31597 33833 25756

Current

Liability4797 9439 32922 27133 64860

CurrentRatio

3.5 1.69 .95 1.24 .39

Inference

The current ratio of the organisation has never reached the industrial standards of

to it was slightly nearer to that in the year 1999-2000 at 1.69 but has largely

comedown to 0.39.



Chart No. 11

CHART SHOWING CURRENT RATIO



QUICK RATIO:

This ratio is also called ‘Quick’ ‘Acid test’ ratio. It is calculated by comparing the

quick assets with current liabilities.

Current assets – stock

Quick Ratio = ---------------------------------------

Current liabilities

TABLE SHOWING QUICK ASSETS AND CURRENT LIABILITIES

(In 000)

Years Quick Assets Current Liabilities

1998 – 1999 15372 47971999 – 2000 15697 9439

2000 – 2001 31482 32922

2001 – 2002 33715 27133

2002 – 2003 24895 64860

Table No. 12

Quick ratio

Particular 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03

Quick Ratio 3.20 1.66 .95 1.24 .38

Interpretation

The Quick ratio of the company of the company is fluctuating. Though in the two

years after the merger it has reached the industry standards of 1. but during the

last financial year it has comedown to 0.38.



Chart No. 12



CASH POSITION RATIO:

This ratio is also called ‘Absolute Liquidity Ratio’ or ‘super quick ratio’. This is a

variation of quick ratio. This ratio is calculated when liquidity is highly restricted

in terms of cash and cash equivalents. This ratio measures liquidity in terms of

cash and near cash items and short-term current liabilities. Cash position ratio is

calculated with the help of the following formula.

Cash and Bank Balance + Marketable Securities

Cash position ratio = ----------------------------------------------------------------

Current Liabilities

TABLE SHOWING ABSOLUTE LIQUID ASSETS AND CURRENT

LIABILITIES

(In 000)

Year Absolute liquid assets Current liabilities

1998 – 1999 3361 4797

1999 – 2000 1502 9439

2000 – 2001 5457 32922

2001 – 2002 8772 27133

2002 – 2003 3014 64860

Table – 13

Cash position ratio

Particular 1998-99 1999 – 00 2000 – 01 2001 – 02 2002-03

Cash position

ratio

.7 .15 .16 .32 .05

Interpretation

The cash position ratio of organisation always showed an increasing trend after

the merger and standing around 0.32 is a healthy sign for the organisation though

it has hugely stepped down to 0.05 in the financial year 2002-03.



Chart No. 13



NET WORKING CAPITAL RATIO:

Net Working capital Net W.C Ratio = -------------------------------------------------------

Net Assets (Net W.C + Fixed assets)

TABLE SHOWING NET WORKING CAPITAL AND NET ASSETS

(In 000)

Year Net Working capital Net assets

1998 – 1999 52550 83938

1999 – 2000 29899 57349

2000 – 2001 48516 752852001 – 2002 35867 52257

2002 – 2003 (22236) (7664)

Table No. 14

Net Working capital ratio

Particular 1998-1999 1999- 2000 2000 –

2001

2001 –

2002

2002-03

Net W.C

Ratio

.622 .52 .64 .68 2.90

Interpretation

The net working capital ratio has always shown an increasing trend during the last

5 financial years. The ratio at .68 is good in the year 2001-02 but not a convincing

one in the latest financial year.



Chart No. 14



CURRENT ASSETS TURNOVER RATIO:

Net Sales

Current assets turnover ratio = ----------------------Current assets

TABLE SHOWING NET SALES AND CURRENT ASSETS

(In 000)

Particulars Net sales Current assets

1998 – 1999 63826 16794

1999-2000 60193 16034

2000-2001 67167 31597

2001 – 2002 70015 33833

2002 – 2003 62186 25756

Table No. 15

Current assets turnover ratio

Particulars 1998-1999 1999-2000 2000-2001 2001-2002 2002-03

C. A. T. R 3.8 3.75 2.12 2.06 2.41

Interpretation

The current assets turnover ratio has shown an increase in the last financial year at

2.41.after a healthy decrease the post merger years of 2000-20002.



Chart No. 15



CURRENT ASSETS TURNOVER PERIOD:

365

Current assets turnover period = --------------------------

C. A. T. R

Table - 16

(In 000)

Particulars 1998-99 1999 – 00 2000 – 01 2001 – 02 2002-03

C. A. T. P 96.05 97.33 172.16 177.18 151.45

Interpretation:

The current asset turnover period shown a increasing trend during the first 4

financial years. But it has come down to 151.45 from 177.18 in the last financial

year.



Chart No. 16



FIXED ASSETS TURNOVER RATIO:

This ratio determines efficiency of utilization of fixed assets and profitability of a

business concern. Higher the ratio, more the efficiency in utilization of fixed assets. A

lower ratio is the indication of under utilization of fixed assets.

Net sales

Fixed assets turnover ratio = ----------------------

Fixed assets

TABLE SHOWING NET SALES AND FIXED ASSETS

(In 000)

Particulars Net sales Fixed assets

1998-1999 63826 31388

1999-2000 60193 274502000-2001 67167 26769

2001 – 2002 70015 16390

2002 – 2003 62186 14572

Table – 17

Fixed assets turnover ratio

Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03

F. A. T. R 2.03 2.19 2.5 4.27 4.26

Interpretation

From the above table it is clear that the fixed assets turnover ratio has come up to

a vast extent by almost doubling from 2.19 in the financial year 1999-2000 to 4.26

in 2002-03.



Chart No. 17



FIXED ASSETS TURNOVER PERIOD:

365

Fixed assets turnover period = ----------------------

F. A. T. P

Table No. 18

FIXED ASSETS TURNOVER PERIOD

(In 000)

Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03

F. A. T. P 179.8 166.66 146 86.08 85.68

Interpretation

From the above table it is inferred that the fixed assets turnover period which has

comedown from 179.8 to 85.68 in the last financial year which shows the

organizations fixed assets cover on sales is good.



Chart No. 18



WORKING CAPITAL TURNOVER RATIO:

Working capital ratio measures the effective utilization of working capital. It also

measures the smooth running of business or otherwise. The ratio establishes relationship

between cost of sales and working capital. Working capital turnover ratio is calculated

with the help of the following formula.

Net sales

Working capital turnover ratio = -----------------------------

Net working capital

Higher sales in comparison to working capital indicate overtrading and lower sales in

comparison to working capital indicate under trading. A higher ratio is the indication of

lower investment of working capital and more profit.

TABLE SHOWING NET SALES AND WORKING CAPITAL

(In 000)

Particulars Net sales Net working capital

1998-1999 63826 52550

1999-2000 60193 29899

2000-2001 67167 48516

2001 – 2002 70015 35867

2002 – 2003 62186 (22236)

Table No. 19

Working capital turnover ratio

Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03

W. C. T. R 1.21 2.01 1.38 1.95 2.79

Interpretation

The working capital turnover ratio is at 2.79 in the last financial year by showing

a leaf of almost 40% increase over the previous financial year



Chart No. 19



WORKING CAPITAL TURNOVER PERIOD:

365

Working capital turnover period = ---------------------------------------------Working capital turnover ratio

Table No. 20

WORKING CAPITAL TURNOVER PERIOD

(In 000)

Particulars 1998-1999 1999 – 2000 2000 – 2001 2001 – 2002 2002-03

W. C. T. P 301.65 181.59 264.49 187.17 130.82

Interpretation

The working capital turnover period is very convincing at 130 days in the last

financial year though it was very high during the pre merger period.



Chart No. 20



Debt to Equity Ratio

This ratio is ascertained to determine long term solvency position of the company. The

purpose of this ratio is to measure the mix of funds in the balance sheet and to make a

comparison between those funds that have been supplied by owners and those borrowed.

Formula:

Total long term debts

Debt to Equity Ratio = ----------------------------------------------------------

Share holders fund

TABLE No. 21

TABLE SHOWING DEBT TO EQUITY RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Total Long

debt- 2029 1693 1301

845

Shareholders

Funds100000 100000 168502 168502 168502

Debt to

Equity Ratio- .02 .01 .007 .005

Interpretation

The debt equity ratio of the organisation is very less standing at 0.005 in the last

financial year.



Chart No. 21

CHART SHOWING DEBT TO EQUITY RATIO



Solvency Ratio

In this ratio total debt includes both short-term and long-term borrowings. It shows the

proportion of assets needed by repay the debts.

Formula:

Total debt

Solvency Ratio = ----------------------------------------------------------

Total Tangible Assets

TABLE No. 22

TABLE SHOWING SOLVENCY RATIO

Year 1998-99 1999-00 2000-01 2001-02 2002-03

Total debt - 2029 1693 1301 845

Total

Tangible

Asset

31388 27450 26769 16390 14572

Solvency

Ratio- .07 .06 .07 .05

Interpretation

The solvency ratio of the organisation is very less at 0.05 and always it has been

constant around that ratio.



Chart No. 22

CHART SHOWING SOLVENCY RATIO:



FINANCIAL STATEMENT

Comparative income statement (1999-2000)

Table No. 23

Particular 1999(in 000)

2000(in 000)

Change in

amount (in000)

Increase Decrease

Percentage

change(%)

Increase Decrease

Sales

Exports 63826 60193 - 3633 - 5.6

Domestic - 5232 5232 - - -

Other income 4743 1716 - 3027 63.82

68569 67141 -

Expenditure

(Increase)/

decrease in

inventories

(1039) (1085)

Project costs - -

Salaries, wages

and other

employee

benefits

28223 33604 5381 - 19.06 -

Royalty and

Technical know

–how fee (net of

taxes)

5987 8425 2438 - 40.72 -

Rent, rates andtaxes 13563 14717 1154 - 8.50 -

Electricity 1350 1881 531 - 39.33 -

Traveling and

conveyance10667 14867 4200 - 39.37 -

Advertisement

and sales

promotion

926 1323 397 - 42.87 -

Administrative

and other

expenses

4648 4949 301 - 6.47 -

Insurance 840 1064 224 - 26.66 -Repairs and

maintenance2910 3286 376 - 12.92 -

Depreciation 9097 8221 - 876 - 9.62

77172 93422

Loss before

taxation(8603) (26281) 18218 - 211.76 -

Provision for

taxation(896) (388) - 508 - 56.69

Loss after

taxation(9499) (26669) 17170 - 180.75 -



FINANCIAL STATEMENT

Comparative income statement (2001-2002)

Table No. 24

Particular

2001

(in

000)

2002

(in

000)

Change inamount

(in 000)

Increase Decrease

Percentagechange

(%)

Increase Decrease

Sales

Exports 67167 70015 2848 - 4.24 -

Domestic 4975 5391 416 - 8.36 -

Other income 4194 3353 - 841 - 20.05

76336 78759 -

Expenditure

(Increase)/ decrease

in inventories 222 (3)

Project costs - -

Salaries, wages and

other employee

benefits

34690 35077 387 - 1.11 -

Royalty and

Technical know –

how fee (net of

taxes)

6930 4476 - 2454 - 35.41

Rent, rates and taxes 20478 14488 - 5990 - 29.25

Electricity 2024 2285 261 - 12.89 -Traveling and

conveyance17989 20425 2436 - 13.54 -

Advertisement and

sales promotion560 677 117 - 20.89 -

Administrative and

other expenses5991 11862 5871 - 97.99 -

Sales commission - 671 671 - - -

Insurance 1064 1024 224 - 26.66 -

Repairs and

maintenance3712 3606 376 - 12.92 -

Provision for bad

debts- 1836

Depreciation 7643 7166 - 876 - 9.62

10130310359

0

Loss before taxation 24967 24831 18218 - 211.76 -

Provision for

taxation954 575 - 379 39.72 -

Loss after taxation 25921 22789 - 3132 - 12.08



FINANCIAL STATEMENT

Common size income statement (1999-2000)

Table No. 25

Particular1999

(in 000)

2000

(in 000)

1999Percentage

of Sales

2000Percentage

of Sales

Sales

Exports 63826 60193 -

Domestic - 5232 -

Other income 4743 1716 7.43 2.62

68569 67141 -

Expenditure

(Increase)/ decrease in

inventories(1039) (1085)

Project costs - -

Salaries, wages and other

employee benefits28223 33604 44.21 51.36

Royalty and Technical know –

how fee (net of taxes)5987 8425 9.38 13.99

Rent, rates and taxes 13563 14717 21.24 22.49

Electricity 1350 1881 2.11 2.87

Traveling and conveyance 10667 14867 16.71 22.72

Advertisement and sales

promotion926 1323 1.4 2.02

Administrative and other expenses

4648 4949 7.28 7.56

Insurance 840 1064 1.31 1.62

Repairs and maintenance 2910 3286 4.55 9.60

Depreciation 9097 8221 14.25 12.56

77172 93422

Loss before taxation (8603) (26281)

Provision for taxation (896) (388)

Loss after taxation (9499) (26669)



FINANCIAL STATEMENT

Common size income statement (2001-2002)

Table No. 26

Particular2001(in

000)

2002

(in 000)

2001Percentage of

sales

2002Percentage of

sales

Sales - -

Exports 67167 70015 - -

Domestic 4975 5391 - -

Other income 4194 3353 5.81 4.41

76336 78759 -

Expenditure

(Increase)/ decrease in

inventories222 (3)

Project costs - -

Salaries, wages and other

employee benefits34690 35077 48.08 46.18

Royalty and Technical know –

how fee (net of taxes)6930 4476 9.60 6.20

Rent, rates and taxes 20478 14488 28.38 19.07

Electricity 2024 2285 2.80 3.00

Traveling and conveyance 17989 20425 24.93 26.89

Advertisement and sales

promotion560 677 .77 .89

Administrative and other expenses

5991 11862 8.3 15.61

Sales commission - 671 - .88

Insurance 1064 1024 1.47 1.34

Repairs and maintenance 3712 3606 5.14 4.77

Provision for bad debts - 1836 - 2.41

Depreciation 7643 7166 10.59 9.43

10130

3103590

Loss before taxation 24967 24831

Provision for taxation 954 575Loss after taxation 25921 22789



FINANCIAL STATEMENT

Comparative Balance Sheet (1999-2000)

Table No. 27

Particular1999 (in

lakhs)

2000

(in

lakhs)

Changein

amount

(in lakhs)

IncreaseDecrease

Percentage

change

(%)

Increase Decrease

Sources of funds

Shareholder’s

funds

Share capital 100000 100000 - - - -

Secured loan - 2029 2029 - - -

Total 100000 102029 2029 - 2.02 -

Application of

funds

Fixed assets

Gross Block 53035 56183 3148 - 5.93 -

Less:

Depreciation21647 28733 7086 - 32.73 -

Net Block 31388 27450 - 3938 - 12.54

Capital work-in-

progress and

capital advances

123 157 34 - 27.64 -

Investments 6078 7993 1915 - 31.5 -Current assets,

loans and

advances

- - - - - -

Current assets - - - - - -

Inventory 1422 337 - 1085 - 76.30

Sundry debtors 8473 9226 753 - 8.88 -

Cash and bank

balances29135 10795 - 18340 - 62.94

Interest accrued 404 331 - 73 - 18.06

Loans and

advances 17913 18649 736 - 4.10 -

57347 39338 - - - -

Less: Current

liabilities and

provisions

4797 9439 - 4642 - 96.76

Net current

assets52550 29899 - 22651 - 43.10

Profit and loss

account9861 36530 26669 - 270.44 -

Total 100000 102029 2029 - 2.02 -



FINANCIAL STATEMENT

Comparative Balance Sheet (2001-2002)

Table No. 28

Particular2001 (in

000)

2002

(in 000)

Change inamount

(in 000)

Increase

Decrease

Percentagechange

(%)

Increase Decrease

Sources of funds - - - - - -

Shareholder’s

funds- - - - - -

Share capital 16197 16197 - - - -

Reserves &

surplus6705 6705 - - - -

Secured loan 1693 1301 - 392 - 23.15

Total 170195 169803

- 392 - 0.23

Application of

funds- - - - - -

Fixed assets - - - - - -

Gross Block 82563 64343 - 17920 - 21.70

Less: Depreciation 55794 47953 - 7841 - 14.05

Net Block 26769 16390 - 10379 - 38.77

Capital work-in-

progress and

capital advances

- - - - - -

Investments 10778 10778 - - - -

Current assets,

loans and advances- - - - - -

Current assets - - - - - -

Inventory 115 118 3 - 2.60 -

Sundry debtors 20601 18861 - 1740 - 8.44

Cash and bank

balances35769 32117 - 3652 - 10.23

Interest accrued 51 741 690 - 1352.9 -

Loans and

advances 24902 11163 - 13739 - 55.1781435 63000 - - - -

Less: Current

liabilities and

provisions

32922 27133 - 5789 - 17.58

Net current assets 48516 35867 - 12649 - 26.07

Miscellaneous

expenditure153 - - 153 - -

Profit and loss

account83979

10676

822789 - 27.13 -

Total 170195 169803 - 392 - 0.23



FINANCIAL STATEMENT

Common size Balance Sheet (1999-2000)

Table No. 29

Particular1999

(in lakhs)

2000

(in lakhs)

Percentageon total

1999

Percentageon total

2000

Sources of

funds

Shareholder’s

funds

Share capital 100000 100000 100 98.01

Secured loan - 2029 - 1.99

Total 100000 102029 - -

Application of

funds

Fixed assets

Gross Block 53035 56183 53.03 55.06

Less:

Depreciation21647 28733 21.64 28.16

Net Block 31388 27450 31.38 26.90

Capital work-

in-progress and

capital

advances

123 157 0.12 0.15

Investments 6078 7993 6.07 7.83Current assets,

loans and

advances

- - - -

Current assets - - - -

Inventory 1422 337 1.42 0.33

Sundry debtors 8473 9226 8.47 9.04

Cash and bank

balances29135 10795 29.13 10.58

Interest accrued 404 331 0.40 0.32

Loans and

advances 17913 18649 17.91 18.27

57347 39338 57.34 38.55

Less: Current

liabilities and

provisions

4797 9439 4.79 09.25

Net current

assets52550 29899 52.55 29.30

Profit and loss

account9861 36530 9.86 35.80

Total 100000 102029 -



FINANCIAL STATEMENT

Common size Balance Sheet (2001-2002)

Table No. 30

Particular2001

(in 000)

2002

(in 000)

Percentageon total

2001

Percentageon total

2002

Sources of funds - - - -

Shareholder’s

funds- - - -

Share capital 161797 161797 95.06 95.28

Reserves &

surplus6705 6705 3.9 3.94

Secured loan 1693 1301 0.99 0.76

Total 170195 169803 - 392

Application of

funds- - - -

Fixed assets - - - -

Gross Block 82563 64343 48.51 37.89

Less: Depreciation 55794 47953 32.78 28.24

Net Block 26769 16390 15.72 9.65

Capital work-in-

progress and

capital advances

- - - -

Investments 10778 10778 6.33 6.34

Current assets,loans and

advances

- - - -

Current assets - - - -

Inventory 115 118 0.06 0.06

Sundry debtors 20601 18861 12.10 11.10

Cash and bank

balances35769 32117 21.01 18.91

Interest accrued 51 741 0.02 0.43

Loans and

advances24902 11163 14.63 6.57

81435 63000 47.84 37.10

Less: Current

liabilities and

provisions

32922 27133 19.34 15.97

Net current assets 48516 35867 28.50 21.12

Miscellaneous

expenditure153 - 0.08 -

Profit and loss

account83979 106768 49.33 62.87

Total 170195 169803 -



METHOD OF LEAST SQUARE

Table No. 31

Year Sales (Y) X X2 XY

1999 63.82 -1.5 2.25 -95.73

2000 60.19 -0.5 0.25 -30.092001 72.14 0.5 0.25 36.07

2002 75.40 1.5 2.25 113.1

Total 271.55 0 5 23.35

Y = A + B X

A = ∑Y/N

B = ∑XY/∑X2

A = 271.55 / 4

= 67.88

B = 23.35 / 5= 4.67

Y = 67.88 + 4.67 X

Projected sales for the year 2006 is as follows

Y = 67.88 + 4.67 (5.5)

= 67.88 + 25.685

= 93.565

There fore the projected sales for the year 2006 is Rs. 93.565 (in 000)



FINDINGS

PRE MERGER ANALYSIS (1998-2001)

1. The sales of the organisation has decreased by 5.6% during the abovesaid period

2. The other income of the organisaiton has largely comedown to 63.82%

3. The expense regarding salary and wages has increased by 19%

4. The royalties and technical know how expenditure of the organisation

also has increased by 41%

5. The travelling and conveyance expenditure has increased by 39%

6. The organisaiton has showed an increase of 42% in the advertising

expenditure

7. The administration expenditure of the organisation has shown a minor

increase of 6%

8. The repairs and maintenance expenditure of the organisation showed an

increase of 13%.

9. The operating expenditure of depreciation has decreased by 9%

10. The organisation loss after tax has shown an increase of 180.75%

11. The employee cost of organisation is almost 45% of the turnover of the

organisation during 1998-99 and has increased to 51% during 1999-

2000.

12. The travelling expenditure of the organisation also has shown a huge

part in the turnover occupying around 16% in 1998-99 and 22% in

1999-2000.

13. The advertisement expenditure is standing very low at around 2% in the

above said financial period.

14. The fixed assets of the organisation has decreased by 12%

15. The investment of the organisation has been increased to 31%

16. The debtors of the organisation has shown a mild increase of 8%

17. The organisation current liabilities has comedown to a large extent of

96%



18. The accumulated loss of the organisation has increased by 271%

19. The net assets of the organisaiton forms about 53% in 1998-99 and 55%

in 1999-2000

20. 7% of the balance sheet total is formed by investment

21. The net current assets of the organisation was at 52% in 1998-99 but

has comedown to 29% in 1999-2000.

22. The accumulated loss has taken a large part of the balance sheet at 35%

POST MERGER ANALYSIS (2001-2003)

1. After the merger the company has shown an increase of 4% increase in

export sales and 8% increase in domestic sales.

2. The salary and wages expenditure has shown only a marginal increase of

1.11 in the post merger period.

3. The organisaiton expenditure towards royalty has comedown by 35%

4. The expenditure regarding advertisement and sales promotion has

increased 21%

5. The repair and maintenance expenditure of the organisation also has

increased by 12%

6. The deprecation has decreased to 9%

7. Though the loss before tax has increased, the organisation has been able to

keep down loss after tax by 12% after merger.

8. The salary expenditure of the organisation forms around 50% of the

turnover during the post merger period.

9. The expenditure towards travelling and conveyance is at 30% of the

turnover

10. The administration expenditure has almost doubled from 8% in 2000-01 to

15% in 2001-02

11.The net block of the assets has comedown to 9% from 15% in the last 2

financial years.

12. The investment is constant around 6.5%

13. The net current asset of the organisation has decreased to 21% from 29%



14.The accumulated loss of the organisation stood at 49% immediately after

merger, although it has been gone up to 62% during the last financial year.

15.The net block of fixed assets has come down to 38% in last 2 financial

years after the merger.

16. The debtors of the organisation has decreased by 8%

17.The companies current assets in the form of cash, loans advances has

shown an increase of 65%

18. The net current assets of the organisation has decreased to 26%

19. The accumulated loss of the organisation has increased by 27%

GENERAL FINDINGS

1. The net profit ratio of the company is not convincing. After the merger

during the year 2001 the net loss ratio as come down to 32.54 from 38.59,

but during the last financial year it has again increased to 74.80

2. The operating ratio of the organisation is fluctuating which started with

113.15 and has climbed to 174.23 during the last five financial years.

3. The organizations operating profit ratio was positive in the financial year 1998-99

but has turned into loss ratio during the next 4 financial years in that it was

gradually coming down from 29.66 in 1999-2000 to 26.45 in 2001-02 for again it

has increased to 67.76.

4. The debtors turnover ratio was very high in the financial year 1998-99 but

has been brought into control during the financial year 2000-01 at 4.64, but

again it has shown increase during the next financial year. During the

financial year 2002-2003 it stood at 3.29.

5. The average collection period is slightly above the industrial standards of 75 – 90

days, this ratio has been moving around 100 days in the last 2 financial years.

6. The company had a very convincing working capital ratio in the latest financial

year at 9.12. the first four financial year saw a constant ratio around 1.5 an

average.



7. The organisation has been able to recover its working capital around 40

days during the year 2002-03, but it took longer time during the initial

years an average of 250 days.

8. The organisations return on investment ratio has been showing negative

because of grooving operating loss in the last 4 financial years.

9. The return on share holder funds though it has been showing negative trend, it

was reduced almost to 50% between 1999-2000 and 2001-02 especially after the

merger from 22.66 to 13.52 in those three financial years.

10. The earning per share ratio shows a negative of 3.87 during the latest financial

year, but it has been considerably brought down to 1.62 in the year 2000-01 from

2.42 during the year 1999-2000.

11. The current ratio of the organisation has never reached the industrial standards of

to it was slightly nearer to that in the year 1999-2000 at 1.69 but has largely

comedown to 0.39.

12. The Quick ratio of the company is fluctuating, though in the two years after

the merger it has reached the industry standards of 1, but during the last

financial year it has comedown to 0.38.

13.The cash position ratio of organisation always showed an increasing trend

after the merger and standing around 0.32 is a healthy sign for the

organisation though it has hugely stepped down to 0.05 in the financial

year 2002-03.

14. The net working capital ratio has always shown an increasing trend during

the last 5 financial years. The ratio at .68 is good in the year 2001-02 but

not a convincing one in the latest financial year.

15. The current assets turnover ratio has shown an increase in the last financial year

at 2.41.after a healthy decrease the post merger years of 2000-20002.

16. The current asset turnover period shown a increasing trend during the first 4

financial years. But it has come down to 151.45 from 177.18 in the last financial

year.

17. From the above table it is clear that the fixed assets turnover ratio has come

up to a large extent by almost doubling from 2.19 in the financial year

1999-2000 to 4.26 in 2002-03.



18.From the above table it is inferred that the fixed assets turnover period

which has comedown from 179.8 to 85.68 in the last financial year which

shows the organizations fixed assets cover on sales is good.

19.The working capital turnover ratio is at 2.79 in the last financial year by

showing a leaf of almost 40% increase over the previous financial year

20. The working capital turnover period is very convincing at 130 days in the last

financial year though it was very high during the pre merger period.

21.The debt equity ratio of the organisation is very less standing at 0.005 in

the last financial year.

22. The solvency ratio of the organisation is very less at 0.05 and always it has been

constant around that ratio.



SUGGESTION

On the analysis of the affairs of the company CGM Information Technologies

Private Limited during the period 1998-99 to 2002-03, it is found that the infra

structure was very much disproportionate to the quantum of business handled, it is

therefore felt that necessary action should be initiated for doing the needful.

The Company was only dependent on the projects of the main parent company

and it was therefore felt expedient to go in for projects from outside sources. The

new departments were set-up in order to get business from outside sources and

therefore the recruitment of personnel on large scale was launched. This has

naturally resulted in the heavy expenditure towards salaries and advertisement.

The outcome has back fired and the expectation were belied. It is therefore

suggested that departments where there was no business as expected may been

closed.

In addition to the above, there were certain unviable departments which require

immediate closure, so as to see that the company survives without much burden

on it. The salaries paid to the existing personnel were found disproportionate to

the business handled by the company and therefore the existing salary structure

for the existing personnel should be rationalized so as to reduce the burden on

overheads and at the same time without demoralizsing the personnel on job.



CONCLUSION

The project in question was primarily taken up to exactly examine and find out the

pitfalls so as to initiate remedial measures to bail out the company from the

present state of affairs.

The analysis of the state of affairs of the company during the period under review

was undertaken and made very meticulously to the best of our ability and

suggestion made for the needful.

With the implementation of the above suggestion after taking into account the problems in right perspective, the Company is sure to make a turn around and

carry on the business in a very prudent and efficient manner.



BIBLIOGRAPHY

1. Financial Management - I.M. Pandey

2. Financial Management - Khan & Jain

3. Statistic for management – S.P. Guptha

Pre and Post Merger Analysis

Documents

Transcript of Pre and Post Merger Analysis