Ratio Analys
Transcript of Ratio Analys
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SUMMER TRANING REPORT
Ratio Analysis
At
Capusegul Health care Pvt. Ltd.
Submitted in partial fulfillment of requirements for
the award of the degree of Masters in Business Management
Session : 2012-2014
Under Supervision of: Submitted
by:
Mrs. Shalu Juneja Mohit Talwar
HOD & Assistant Professor MBA (3rd
sem
H.I.M.T., Rohtak Roll no-3218823
HINDU INSTITUTE OF MANAGEMENT &TECHNOLOGY
MAHARSHI DAYANAND UNIVERSITY, ROHTAK
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DECLARATION
I, Mohit Talwar, Roll No. 06 of MBA Semester 3RD of Hindu Institute of
Management & Technology, Rohtak, hereby declare that the project entitled
Analysis of Working Capital Management is an original work and the same has
not been submitted to any other institute for award of any other degree. The interim
report was presented to the supervisor on and the pre-submission
presentation was made Of. The feasible suggestions have been duly
incorporated in consultation with the supervisor.
Signature of the
Candidate
Counter signed
Mrs.Shalu Juneja
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HOD & Asst. Professor, HIMT
ACKNOWLEDGEMENT
Gratitude is not a thing of expression; it is more a matter of feeling.
There is always a sense of gratitude which one express for others for their help and
supervision in achieving the goals. We too express my deep gratitude to each and
everyone who has been helpful to us in completing the project report successfully.
We would like to thank almighty God for blessing showered on us during the
completion of Dissertation Report.
We give our regards and sincere thanks to Mrs. Shalu Juneja(HOD in MBA
Deptt.)and (Project guide) who has devoted her precious time in guiding us &
helping us complete it within time.
We feel self-short of words to thanks our parents and friends who had directly or
indirectly instrumental in the completion of the project. We are indebted to all
respondents for their time passion during the long conversations.
Mohit Talwar
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TABLE OF CONTENT
Preface i
Acknowledgement ii
Chapter-A
Introduction-CHL 1-17
Mission & objectives
Different Section of finance Department
Accounting of Assets
Audit in the organization
Chapter-B
Review of literature 18-25
Ratio Analysis
Common size P/L A/C
Common size Balance sheet
Comparative Balance sheet
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Comparative Balance sheet
Trend Analysis
Chapter-C
Research Method o logy 26-30
Chapter-D
Data Analysis & Interpretation 31-48
Chapter-E
Conclusion 49-54
Limitation of financial Analysis
Suggestion
BIBLIOGRAPHY
Chapter-A
Introduction-CHL
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EXECUTIVE SUMMARY
The avenues and scope of finance has changed drastically from the last ten years.
There has been major shift from accounts to finance, which is visualized in most of
the organizations. An Accountant to finance manager, from recording to
management of whole system of accounting procedure determines the worth of
management of finance in the organizations. A Finance manager occupies a key
position in the management of cash inflows and cash outflows for achieving
optimum level in the organization.
It is his prime responsibility to enhance the organization position in the most
efficient and effective manner. What are the requirements, what is the real worth of
the requirements would help the organization to increase the value of organizationin the competitive market.
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INDUSTRY PROFILE
Pharmaceutical industry in India has been a pioneer industry. Indias
industrialization in other fields has mainly been achieved on the back of the
resources generated by the industry. However, from the early seventies to the
introduction of liberalization in 1992, the industry tended to be neglected as
measures taken by the government with the apparent objective of protecting the
large labour force and the consumers have continuously eroded its profitability.
The recent liberalization measures have presented the industry with a golden
opportunity to region its last glory. The process has begun but a lot of work remains
to be done with the active help and encouragement from the government.
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BACKROUND OF THE COMPANY
Capsugel has emerged as a global leader creating innovative dosage forms for the
pharmaceutical and dietary supplements industries. Companies look to our
leadership to help them formulate new products, enhance existing product lines,
bring new products to market faster, and ensure their clinical trials are conducted
without bias.
Initially part of the Parke-Davis Company, Capsugel is now a division of Pfizer
Inc., a Fortune 100 global pharmaceutical company, and has numerous global
locationsto support customers on every major continent.
Capsugel Healthcare limited (a division of Pfizer is pharmaceutical company that
manufactures empty hard gelatine capsules. In India its plant is located at
Dharuhera, Haryana. Capsugels customers span the globe. Consequently, its
manufacturing and business centres also cover the world. With multiple production
http://www.capsugel.com/locations/index.phphttp://www.capsugel.com/locations/index.phphttp://www.capsugel.com/locations/index.phphttp://www.capsugel.com/locations/index.phphttp://www.capsugel.com/locations/index.php -
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and business facilities worldwide, capsugel offers unmatched certainty of supplies.
Drawing on years of experience & successful outcomes, Capsugel is adept at
offering their customers custom solutions that precisely address their specific
needs. Capsugel with 10 global manufacturing facilities, produces two-piece
gelatine capsules, and vegetarian capsules for the neutraceutical, pharmaceutical,
OTC (Over the counter markets).
Capsugel manufacturing operations rely on sophisticated, often automated
monitoring systems to achieve high levels of liquid gelatine consistency when
producing empty gelatine capsules.
The formation of the empty capsule shape itself utilize a precision machine set of
molds, to which the liquid gelatine adheres forming both the cap & body sections
of the gelatine Capsules. High-speed machinery, custom design by Capsugel
specifically for empty gelatine capsules, GMP guidelines that are followed in
Capsugel Healthcare assure that the gelatine shell layers are removed cleanly from
the molds and then joined, printed & packed under stringent manufacturingcontrols.
Market Segment Served
Capsugel customers include leading pharmaceutical company and dietary
supplements manufacturers & marketers.
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About Pfizer
CHL Philosophy could be summarizes into five points:
A WINNING PHILOSOPHY
Quality
Determination
Diversification
Dynamism
Profitability
SOCIAL ACCOUNTABILITY
CHL is sincerely committed to workers and communities
CHL has a well defined Social Accountability Code of Conduct
All CHL facilities are fully compliant with Social Accountability Standards
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CHL is approved by several world class buyers for Social Compliance
Use of only eco-friendly chemicals & materials
Effluent treatment plant in each facility to protect the environment
CHLS Social Accountability initiatives include Legal Compliance, Safety
measures, Continuous Workers Training Canteens, Interest Free Loans.
OBJECTIVES OF CHL LIMITED.
TO SERVE THE NATIONAL INTEREST
CHL Limited. Is having the very first objectives of serving the national interest in pharmaceutical
sector and other related sectors in accordance and consistent with the government policies.
TO ENSURE AND MAINTAIN FUNCTIONING
CHL Industrys second objective is to ensure and maintain continuous and smooth satisfaction
supplies of capsules by way of different kinds and marketing activities and to provide and
appropriate assistance to the customers
TO EARN REASONABLE RATE OF INTERESTTo work towards the achievement of self sufficiency in the field of pharma industry
by setting up adequate capacity and building up expertise in manufacturing of it
and make a reasonable rate of interest on investments.
TO CREATE STRONG BASE
CHL has main objective for creating a strong research and development base in
pharmaceutical field and stimulate the development of new product formulation
with a view to minimize their imports and to have next generation products.
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TO MAKE MAXIMUM UTILISATIONEvery step is made with keeping in mind this objective to make maximum
utilization of the existing facilities in order to improve efficiency and increaseproductivity and to optimize utilization of its
Finishing capacity and contributing in making minimum exchange outgo.
TO ENHANCE DISTRIBUTION NETWORK
To make enhancement of distribution network for providing service to customers
throughout the country through expansion of seller- network as per marketing plan.
FINANCIAL MISSION OF FINANCE DEPARTMENT
To provide high quality financial staff support for decision making &
control to all levels of management corporate divisional, unit & location toenable the achievement of overall corporate objectives goals.
To play a lead role in scanning the domestic & international financial
environment, the formulation and implementation of all financial policies &
plans different time spans consistent with & conductive to the business
plans for expansions, diversification, productivity etc.
To interact pro-actively with the government agencies on pricing &
investment & with financial institution, depositors & creditors, withsensitivity & promptness, for mobilization and provision of funds for
uninterrupted operations and project execution optimal costs.
To maintain review & update all accounting records, system and procedures
for discharging the responsibilities and enabling compliance with statutory
obligations.
To inculcate financial awareness, cost benefit attitudes and system
orientation in the entire organization.
To develop the human resources, systems & techniques of finance for
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continuing innovation & contribution towards CHL Industries excellent.
FINANCIAL OBJECTIVES OF FINANCE DEPARTMENT
To ensure adequate return on capital employed and maintained a reasonable
annual dividend on its equity capital.
To ensure maximum economy in expenditure
To generate sufficient internal resources for financing partly/ wholly
expenditure on new capital projects.
To develop long term corporate plans to provide adequate growth of the
activities of the corporation.
To continue to make an effort in bringing reduction in the cost of
production of products by means of products by means of systematic cost
control measures.
To endeavor to complete all plan projects with in stipulated time and within
stipulated cost estimates.
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DEPARTMENTS OF COMPANY
There are 16 departments in CHL Industry. These are following
Accounts Department
Documents Department
EDP Department
Production Department
Maintenance Department
Marketing Department
P & A Department
Purchase Department
Sampling Department
Research & Development Department
All the departments of CHL are inter related and coordinated among themselves for
achieving the mission by way of filling the objectives of CHL Industries.
As every department has its own importance and its way of functioning to fulfill the
need and requirements of its existing.
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OBJECTIVES OF PERSONNEL DEPARTMENT
The primary objectives of personnel department are to:
1. Design and develop an organizational structure with well-definedrelationships with the business plans & corporate strategies.
2. Promote and develop cooperative attitude, amongst employees for
harmonious relation at all levels and create sense of belongings.
3. Evolve progressive & pragmatic personnel policies, procedures and
practices and ensure its uniform interpretation & judicious implementation.
4. Develop the capability & proficiency of employees & their advancement
through appropriate training & continuous knowledge updating to face
corporate challenges & new technologies.
5. Promote & inculcate the culture of employees participation in management
to achieve higher productivity and harmonious relations with smooth
workings.
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6. Inculcate productivity consciousness among the employees.
FUCTIONING OF PERSONNEL DEPARTMENT
A Planning manpower requirements
Estimating vacancies
Recruitment to seek and attract potential qualified applicants (candidates) to
fill vacates.
B Organizing the manpower resources
Organizational planning to determine the organizational structure &
manpower needed to effectively meet the company objectives.
Selection
Classification of employees
C Staffing
Induction B- familiar of few employees with organization
Transfer & promotions
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Manpower planning
Training
D Motivation
Job analysis
Recreation
Communication
Employees discipline
Performance evaluation
Employee counseling
Safety
Medical
Precautions & security
VARIOUS SECTION OF FINANCE DEPARTMENT AT CHL
INDUSTRIES CHL
1 GELATINE SECTION
The Gelatine movement and storage section in the CHL is responsible for handling
of receipt, storage and dispatch transactions for Gelatine & product made with help
of it. Gelatine accounting section handles the following function: -
Accounting of the Gelatine receipts.
Accounting of the customs duty of Gelatine.
Accounting of finished product receipts.
Accounting of dispatch of products.
Material balance.
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Production statistics.
2)CUSTOM SECTION :
Customs section became the part of finance department in 1996; earlier it was the
part of production department. 3 types of custom duties are also available: -
1. Basic custom duty
2. Additional custom duty or countervailing customs duty.
3. Special Additional duty.
3)MAIN SECTION
Main section of CHL Industries is responsible to prepare the financial statements of
the unit.
Preparation of financial statements
Financial statements (Profit & Loss A/c and Balance sheet) are prepared quarterly
as suitable and smooth can be carried on.
Annual Accounts are prepared with the proper way by following
guidelines of all laws strictly in preparation of annual accounts.
Before to close of each year, a time schedule are drawn by Head officein consultation with the units for preparation, finalization and audit
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of annual accounts by all units.
4) PURCHASE SECTION
Various function of purchase section are given below :-
1. Security and concurrence of purchase proposals
2. Deposits and advance payment of suppliers.
3. Passing of bills for supplier received.
4. Pricing of Goods Receipt Notes.
5. Accounting of cash purchase made by material department.
6. Arrangement for insurance of transit risk.
7. Maintenance of books of accounts.
6) STORE SECTION :
This section is the most responsible for the CHLs success because Finance
management is mostly applicable in this section.
7) CASH SECTION
Cash section of the init is responsible for:-
1) Receipts of cash,cheque & bank draft.
2) Payment by cash, cheque and bank draft
3) Handling of bank deposits/withdrawal, custody of cash and transfer of
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funds.
4) Security arrangement for cash handling.
5) Safe custody of valuables and documents.
6) Petty cash imprest.
7) Maintenance of subsidiary cash credit account and special current account.
8) Maintenance of cash book and bank book.
AUDITS IN THE ORGANISATION
There are 5 different types of audit in the organization as:-1. Statutory Audit
2. Internal Audit
3. Technical Audit
4. Compliance of foreign buyess Audit
5. Tax Audit
STATUARY AUDITThe statutory auditors/ branch (charted Accountants) are appointed by the company
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Law Board in consultation with the Audit General of India of the companies Act,
1956 for conducting the audit in accordance with the prestigious of the companies
ACT.
All important points raised by the auditors during the course of audit will be
brought to the notice of head of finance Department by the concerned officers and
stored out before completion of audit. Whenever, the comments are raised by the
statutory auditors involving a policy decision either on presentation of accounts or
to accounting of a transaction, the same should be advised to HO for immediate
examination and decision at corporate level. The audit is made an yearly basis.
INTERNAL AUDIT
Internal audit examines independently the final accounts and attached schedules to
the balance sheet and profit & loss A/C concurrently with finalization of Annual
Accounts.
Any point of finance Department considers acceptable for modification of the
accounts may be accepted and changes made in accounts. However, comments but
Internal Audit should be offered before the finalization of the accounts at the unit
level. This type of audit is made by periodical basis.
TECHNICAL AUDIT
Technical audit cell works directly under the technical service department. In
discharge of its functions duties, any information required but technical audit, if
available with the finance department is provided to the cell. Apart from that if any
expert advice sought by the Technical Audit from time to time on financial matters
is also provided but the finance department. This audit is made time to time basis.
COMPLIANCE OF FOREIGN BUYERS AUDIT
This is an important audit for CHL Industries which is an order base company.
Foreign buyers audit about proper salary, proper training, cleaning atmosphere
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about workings by the employees and workers.
They check the applicability of Industrial Laws, factory act is respect of child
labour, safety, health and welfare conditions. They audit in every unit of the
company and after fulfilling this audit they place orders to CHL Industries.
TAX AUDIT
This audit is mandatory according to income tax act 1961. Tax audit report is
required to be submitted & filled along with the return of Income by 31st December
data for tax. Audit gets complied simultaneously along with the closing of
accounts.
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Chapter-B
Review of literature
WHAT MEANING DOES FINANCIAL ANALYSIS HOLDS :
Financial statements provide a summarized view of the financial position and operation of
a firm of company. Therefore, much can be learnt about a firm from a careful examination
of its financial statement as invaluable documents/Performance reports. The critical
analysis of financial statements is thus, an important aid to financial analysis. The focus of
financial analysis is on key figure in the statements of financial nature and the significant
relationships that exist between them. The analysis of financial statements to obtain a
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better understanding of the companys position and performance. In brief, financial
analysis is the process of-
SELECTION
RELATION
EVALUATION
The methodology, I have adopted for my study is the various tools, which basically
analyse critically financial position of to the organization:
I. COMMON-SIZE P/L A/C
II. COMMON-SIZE BALANCE SHEET
III. COMPARTIVE P/L A/C
IV. COMPARTIVE BALANCE SHEET
V. TREND ANALYSIS
VI. RATIO ANALYSIS
The above parameters are used for critical analysis of financial position. With the
evaluation of each component, the financial position from different angles is tried
to be presented in well and systematic manner. By critical analysis with the help of
different tools, it becomes clear how the financial manager handles the finance
matters in profitable manner in the critical challenging atmosphere, the
recommendation are made which would suggest the organization in formulation of
a healthy and strong position financially with proper management system.
I sincerely hope, through the evaluation of various percentage, ratios and comparative
analysis, the organization would be able to conquer its in efficiencies and makes the
desiredchanges.
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FINANCIAL ANALYSIS OF CHL INDUSTRIES
FINANCIAL STATEMENTS :
Financial statement is a collection of data organized according to logical and
consistent accounting procedure to convey an under-standing of some financial
aspects of a business firm. It may show position at a moment in time, as in the case of
balance sheet or may reveal a series of activities over a given period of time, as
in the case of an income statement. Thus, the term financial statements generally
refers to the two statements: -
(1) The position statement or Balance sheet.
(2) The income statement or the profit and loss Account.
OBJECTIVES OF FINANCIAL STATEMENTS:
According to accounting Principal Board of America (APB) states
The following objectives of financial statements: -
1. To provide reliable financial information about economic resources and obligation
of a businessfirm.
2. To provide other needed information about charges in such economic resources and
obligation.
3. To provide reliable information about change in net resources (recourses less
obligations) missing out of business activities.
4. To provide financial information that assets in estimating the learning potential of
the business.
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LIMITATIONS OF FINANCIAL STATEMENTS:
Though financial statements are relevant and useful for a concern, still they do not present a
final picture a final picture of a concern. The utility of these statements is dependent upon a
number of factors. The analysis and interpretation of these statements must be done
carefully otherwise misleading conclusion may be drawn.
Financial statements suffer from the following limitations: -
1. Financial statements do not given a final picture of the concern. The data given in
these statements is only approximate. The actual value can only be determined when
the business is sold or liquidated.
2. Financial statements have been prepared for different accounting periods, generally
one year, during the life of a concern. The costs and incomes are apportioned to
different periods with a view to determine profits etc. The allocation of expenses and
income depends upon the personal judgment of the accountant. The existence of
contingent assets and liabilities also make the statements imprecise. So financial
statement are at the most interim reports rather than the final picture of the firm.
3. The financial statements are expressed in monetary value, so they appear to give final
and accurate position. The value of fixed assets in the balance sheet neither represent
the value for which fixed assets can be sold nor the amount which will be required to
replace these assets. The balance sheet is prepared on the presumption of a going
concern. The concern is expected to continue in future. So fixed assets are shown at
cost less accumulated deprecation. Moreover, there are certain assets in the balance
sheet which will realize nothing at the time of liquidation but they are shown in the
balance sheets.
4. The financial statements are prepared on the basis of historical costs Or original
costs. The value of assets decreases with the passage of time current price changes
are not taken into account. The statement are not prepared with the keeping in view
the economic conditions. The balance sheet loses the significance of being an index
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of Current economics realities. Similarly, the profitability shown by the income
statements may be represent the earning capacity of the concern.
5. There are certain factors which have a bearing on the financial position and
operating result of the business but they do not become a part of these
statements because they cannot be measured in monetary terms. The basic
limitation of the traditional financial statements comprising the balance sheet,
profit & loss A/c is that they do not give all the information regarding the
financial operation of the firm. Nevertheless, they provide some extremely
useful information to the extent the balance sheet mirrors the financial position
on a particular data in lines of the structure of assets, liabilities etc. and the
profit & loss A/c shows the result of operation during a certain period in
terms revenue obtained and cost incurred during the year. Thus, the financial
position and operation of the firm. Therefore, to know a firm form a careful
analysts point of view a careful examination of its financial statements is,
thus, an important aid to financial analysis.
FINANCIAL ANALYSIS
Financial analysis is the analysis and interpretation of Financial statements, It
is the process of determining Financial strength and weakness of the firm by
establishing relationship between the items of balance sheet, profit & loss
a/c and other operative data. Thus financial statement is basically a study
Financial statements in such a way so that Financial strength and weaknesses
of the Organization can be find out. Financial analysis can be undertaken by
management of the firm, or by parties outside the firm,
Objectives of financial analysis :
The focus of financial analysis is on key figure on the financial
statements and the relationship that exist between them.
The analysis of financial statements is a process of evaluating
relationship between component parts of financial statements to
obtain a better understanding of the firm position andperformance.
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Under this study, financial statements of the organization
Are being analysed so as to find out the financial soundness
of the organization.
The objective of the financial analysis is to diagnose the information
contained in the financial statements so as to judge the profitability and
financial soundness of the organization.
RATIO ANALYSIS BASES ASP / L & B / S
Balance Sheet Income Statement & IncomeRatio Statement/ Balance sheet
Ratios
Financial Leverage(debt) Coverage ratios relate the financial
Ratios shows the extent to charges of a firm to its abilitywhich the firm is financed to service or cover them
by debt
Liquidity ratio measure a Activity ratios measure how
ability to meet short term effectively the firm using
obligations its assets
Profitability ratio relate profit to
sales & investment
A Coverage ratio also shed light on significance of the firms use of financial
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leverage (debt)
b Receivables and inventory based activity ratio also shed light on the liquidity of these
current assets.
Ratios can be classified in to different categories depending upon the basis of
classification
The traditional classification has been on the basis of the financial statement to
which the determination of ratios belongs.
CALCULATIONS OF RATIOS
Ratios are relationship expressed in mathematical terms between figures, which are
connected with each other in some manner.
CLASSIFICATION OF RATIOS
These are:-
Profit & Loss account ratios
Balance Sheet ratios
Composite ratios or Inter statement ratios
RATIOS
Liquidity Leverage Profitability Activity
Ratios Ratios Ratios Ratios
____Current ____Debt-Equity _____Gross Profit _____Debtors
Ratio Ratio Margin Ratio Velocity
Ratio
____Liquid ____ Debt Ratio ____ Net Profit
_____CreditorsRatio Ratio Velocity
Ratio
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____Current _____Overhead Ratio _____
Inventory
Assets Ratio Velocity
Ratio
____Working _____Debtors
Capital Turnover
Ratio Ratio
_____
Creditors
Turnover
Ratio
_____
InventoryTurnover
Ratio
Fixed
Assets
Ratio
Chapter-C
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RESEARCH
METHODOLOGY
Research Methodology
Research in a layman language means a search for knowledge. One can also define
research as a scientific and systematic search for potential information on a
specific topic. In fact Research is an art of scientific investigation. The dictionary
meaning of Research is a careful investigation or inquiry especially through search
for new facts in any branch of knowledge.
Redman and Mory define Research as a systematized effort to gain new
knowledge. Some people consider research as a movement from known to
unknown.
Research is as academic activity and as such the term must be used in a technical
sense. Research is an original contribution to the existing stock of knowledge
making for its advancement. It is the pursuit of truth with the help of study,
observation, and experiment.
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The systematic approach concerning generalization and formulation of theory. The
purpose of Research is to discover answers to questions through the application of
systematic procedure. The main aim of Research is to find out the truth which has
been not discovered.
According to Clifford Woody Research comprises defining and redefining
problems, formulating hypothesis or suggested solutions, collecting, organizing and
evaluating data, making deductions and reaching conclusions.
Research design:-
The Research problem having been formulated in clear cut terms, the Researcher
will be required to prepare a Research design i.e. he will have to state the
conceptual structure with in which Research would conducted. The preparation of
such a design facilitates Research to be as efficient as possible yielding maximal
information. Research design may group in four categories:-
Exploration
Description
Diagnosis
Experimentation
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NATURE OF RESEARCH:-
The research methodology adopted during the project is Descriptive in nature. A
characteristic of research studies in business management is their reliance on
secondary data source in particulars and primary data in general.
Descriptive Design:-
Descriptive Research studies are those studies which are concerned with describing
the characteristics of a particular individual, or a group. Studies concerned with
specific prediction, with narration of facts and characteristics concerning
individual, group, or situation are all examples of descriptive Research studies. In a
descriptive study the first step is to specify the relevant. The design must be rigid
and not flexible and must focus attention of the following:
Formulating the objective of study.
Designing the methods of data collection.
Selecting the sample Collecting the data.
Processing and analyzing the data.
Report the findings.
DATA:
The data collected for the above problem is generally secondary in nature. The
analysis has been done on the basis of past financial management of the company.
The primary data has been collected after interviewing the officials of the company
at various stages. The judgment sampling has been used, as the sample size is
limited in case of different problems. The following methods are adopted for
collecting informations:
Observation.
Special Record Searching.
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Collection of data:
The task of data collection begins after a Research problem has been defined and
Research design/plan chalked out. The collection of data is done to support tour
findings and interpret the result whether the result you havefound is according to
yourhypothesis or not. The data can be collected by various methods. These are
broadly classified into two ways, as follows:
Primary data.
Secondary data.
Primary data:-
Primary data are those which are collected a fresh and for the first time and thus
happen to be original in character. We collect primary data during the course of
doing experiments in an experimental Primary research. It is the first hand Primary
data and nobody else has collected this before. There are various ways of collectingprimary data, they are as follows:
Secondary data:-
Secondary data means data that are already available i.e., that refer to the data
which have already been collected and analyzed by someone else. When the
research utilizes secondary data, then he has to look into various sources form
where he can obtain them. In this case certainly he is not confirmed with the
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problem that is usually associated with collection of original data.
Annual report
Books
M.I.S
Other material and report published by company
This report is based on the secondary data collected. Data has been collected by the
various documents available in the finance department. The theory has been
collected from the detail available on the net and old project reports available in
company.
RESEARCH OBJECTIVES :-
The following are the general problems of the research:
To study of Financial management of the Company.
The system of holding cash and expenses.
Cost effectiveness in various operations of the company.
The coordination of Inventory management objectives with organizational
objective.
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Chapter-D
Data Anaysis
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CALCULATION OF LIQUIDITY RATIO
The importance of adequate liquidity in the sense of the abierty of a firm to meet
current/ short term obligations when they become due for payment can be hardly be
overstressed.
The liquidity ratios are:-
1) Current Ratio = Current Assets .
Current Liabilities
Current Assets = Inventories + Sundry Debtors + Cash & Bank Balances
+Bank Balances + Loan & Advances + Other Current Asset
Current Liabilities = Current Liabilities + Provision (Excluding Gratuity) +Secured Loans + Unsecured Loans (Short Terms)
Years Ratios
2006
2007
2008
2558 = 1.603:1
1596
2962
1506 = 1.79:1
4226 = 1.79:1
2588
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INTERPRETATION OF CURRENT RATIO OF CHL
INDUSTRIES: -
The current Ratio of CHL of the years 2006,2007 & 2008 are 1.603:1 , 1.971:1 &
1.79:1 respectively. From the above, it can be seen that ratio is showing fluctuating
trend. Ideal 2:1 is considered
as good. If ratio of three years are analyzed they are ok but they to reach their ideal
point. From the above analysis it appears that year 2008 is having more satisfactory
about Current Assets & Liabilities
2) Quick Ratio = Quick AssetsCurrent Liabilities
Year Ratios
2006 1572
1596
2007
2008
INTERPRETATION OF QUICK RATIO OF CHL
INDUSTRIES:-
The Quick Ratio or Acid Test Ratio of CHL for the last three years 2006, 2007 &
2008 are 0.985:1, 1.315:1 and 1.216:1 respectively from above it can be seen that
ratio is showing trend. It has come to 1:1 ratio. Which are less or more 1:1 should
more towards ideal ones.
From the above analysis, it can be seen that the any company has maintain a good
level of current assets which can be liquidated quickly (excluding inventories)
=
=
29621506 = 1.97:1
4226
2588 = 1.79:1
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Working Capital Turnover Ratio = Sales .
Working Cap.
Working Capital = Current Assets Current Liabilities
Year Ratios
2006 8748
962
2007 90141456
2008 9542 2038
INTERPRETATION OF WORKING CAPITAL RATIO OF CHL
INDUSTRIES:-
The working capital turnover ratio are 9.1:1, 6.2:1 & 4.7:1 respectively in the years
2006 ,2007 & 2008. These ratios can be concluded that the ratios are showing
downward trend.(times per years)
4) Current Assets Turnover Ratio = Sales .
Current Assets
Year Ratios
2006 8748
1596
2007 9014
1506
2008 9542
2588
=
=
=
= 3.42 :1
=
= 3.04 : 1
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INTERPRETATION OF CURRENT ASSETS TURNOVER
RATIO OF CHL INDUSTRIES:-
The current capital ratios for the last 3 years are 2006, 2007 & 2008 are 3042:1,
3.04:1 & 2.06:1 1 times for yearly respectively. These ratios are shown downward
trend where the sales are generated with respect to current
PROFITABILITY RATIOS:-
5) Gross Profit Ratio = Gross Profit x 100 .Sales
Gross Profit = Sales Cost of goods sold
Year Ratios
2006 1373 x100
8748
2007 1913 x100
9014
2008 2183 x1009542
= 15.7%
=
=
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INTERPRETATION OF GROSS PROFIT RATIO OF CHL
INDUSTRIES:-
The gross profit ratios of CHL Limited. 15.7%, 21.22% & 22.88% in years 2006,
2007 & 2008 respectively. As gross profit having upward trend. It is beneficial for
CHL Limited.
6) Net Profit Ratio = Net Profit after interest and tax x 100 .
Sales
Year Ratios
2006 244.6 x100
8748
2007 1612 x100
9014
2008 1888 x100
9542
INTERPRETATION OF NET PROFIT RATIO OF CHL
INDUSTRIES:-
As like the gross profit ratios, the trend to net profit ratios are upward tend &
maintaining same level. It is the position, which is going towards growth of the
company. The net profit ratios are 2.8%, 17.88% and 19.79% in years 2006, 2007,
&2008 respectively.
=
=
=
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7) Overhead Ratio = Overhead (Expenses) .
Sales
Year Ratios
2006 1456 x100
8748
2007 1202 x100
9014
2008 1166 x100
9542
The Overhead Expenses are having downwards trend to it is good for CHL
Limited.
ACTIVITY RATIOS:-
8) Inventory Turnover Ratio = Cost of Goods Sold .Average Inventory
Cost of goods sold = Sales Gross Profit
Average Inventory = Average Inventor+ClosingInventory . (Finished
Goods) 2
Year Ratios
2006 7375
399.3
2007 7101
455.8
2008 7359
408.4
9) Inventory velocity Ratio = Average Inventroy .
Cost of Goods Sold
=
=
=
=
= 18 (times per year)
= 15.6
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Year Ratios
2006 399.3 x 365
399.3
2007 455.8 x 365
455.8
2008 408.4 x 365
408.4
INTERPRETATION OF INVENTORY TURNOVER &
VELOCITY RATIO OF CHL INDUSTRIES:-
The days in velocity period about inventory about inventory are quick proper as 20
days , 23 days and 20 days respectively in the years 2006, 2007 & 2008 respect
truly & turnover ratio about inventories are is years 2006 , 2007, & 2008 are 18.5,
15.6, & 18 respectively.
10) Debtors Turnover Ratio = Sales (Credit) .
Accounts Receivables
Year Ratios
2006 8748
970.4
2007 9014
940.4
2008 9542
1072.5
Debtors velocity Ratio = Average Accounts Receivable x 365
Net Credit Sales
Year Ratios
= 20 days
= 20 days
= 23 days
= 9.02 times
= 8.9 times
= 9.58 times
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2006 970.4 x 365
8748
2007 940.4 x 3659014
2008 1072.5 x 365
9542
11) Creditors Turnover Ratio = Net Purchase .
Accounts Payable
Year Ratios
2006 4583
1010
2007 3972
641
2008 4327
739
12) Creditors velocity Ratio = Average Accounts Payable x 365
Net Purchase (Credit)
Year Ratios
2006 1010 x 365
4583
2007 641 x 365
3972
2008 739 x 365
4372
INTERPRTATION OF DEBTORS & CREDITORS RATIOS:
As if Creditors velocity (periods) are observed it is concluded that velocity as they
= 40.5 days
= 41 days
= 38 days
= 4.54 times
= 5.86 times
= 6.2 times
= 80 days
= 62 days
= 59 days
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are less in days. The turn over ratio of both debtors and creditors are fluctuating as
debtors are about 9 times of sales (net) & creditors are about 5 or 6 times of net
purchase.
13) Fixed Assets Turnover Ratio = Sales .
Fixed Assets
Net Fixed Assets = Fixed Assets - Depreciation
Year Current Ratios
2006 874766343
194081337
2007 901365204
91423583
2008 954198398
358198284
INTERPRETATION OF FIXED ASSETS TURNOVER RATIO
The Fixed Assets Turnover ratio for the last three years 2006,2007 & 2008 are 4.51
,4.71 & 2.66 (times per year) respectively. The assets turnovers ratio indicates the
no. of times the assets have been rotated in process of doing business form the
above ratio, it is concluded that in the year 2006,2007 & 2008 the sales are
generated 4.51 , 4.71 &2.66 (times per year) for the fixed assets invested in it.
LEVERAGE RATIOS:-
14) Debt Ratio = Total Debt .
Total Debt + Net Worth
Net Worth = Shareholders fund Preliminary Expenses
Year Ratios
2007 1362
1362+3810
2008 3023
3023+5450
= 4.51:1 time
= 2.66:1 times
= 4.71:1 times
= .36
= .26
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Debt ratio used to analyse the long term solvency of the firm.
15) Debt Equity Ratio = Total Debt .
Net Worth
Year Ratios
2007 1362
3810
2008 3023
5450
INTERPRETATION OF DEBT EQUITY RATIO OF CHL:-
Contribution for each rupees of the owners contribution is called debt equity ratio
as year 2008, Debt equity ratio is .55:1 which is more as comparison with year
2007 in which the debt equity ratio is .36 :1.
COMMON SIZE STATEMENTS
Its one of the useful ways of analyzing financial statements is to convert then
into common size statements by expressing absolute rupee amounts into
percentages. When this method is pursued the income statement exhibits each
expense item or group of expense items as a percentage of net sales are layer
as 100 per cent. Similarly, each individual assets and liability classification is
shown as a percentage of total assets and liabilities respectively. Statement
Prepared in this way are referred to as
COMMON SIZE STATEMENTS.
# COMMON SIZE P/L A/C
= .55
= .36
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# COMMON SIZE BALANCE SHEET.
Common size comparative statement for one firm over the years would highlight the
relative change in each group of expenses, assets and liabilities. These
statements can be equally useful for inter-firm comparisons.
COMMON SIZE P/L & B/S
As it is an analysis of 3 years as years as 2006,2007 & 2008 first sales is
considered then it has an increasing trend and in common size P/L, they are
supposed to be 100% in each year.
In increasing trend, the other expenses are increasing and it is (9.28%) in
2006, (13.45%) in 2007 & (13.49%) in 2008. The increasing % is made
more between years 2006-2007
The expenses are going towards downwards in % so it is good indication for
the company efficiency. The expenditure amortised are approximately
same.
The profit before depreciation is in upwards trend & % increased in this
profit is made between 2006-2007. The main reason is that there is
increasing in other incomes with less expenses.
As it is company so due to more income and fixed assets maintained, the
expenses become more in ascending years, so the ultimate net profit offer
interest and taxes are in increasing trend & more % (different b/w 2006-
2007) increase is made in year 2007 as increase in 2008 is made
comparatively less due certain reasons.
It is an order based company. So, sales target are not achieved.
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Reserve and surplus is increased in 2007 over 2006 as % increased is
(17.204) which shows efficiency of the company.
The loan taken (secured) is much & increased made in 2008 over 2007 so
the company should make decrease & should manage its own capital &
reserves.
The company has made the current creditors decrease so it is good for
company and other liabilities are the same.
Provisions for wealth tax, proposed dividend and dividend tax are made but
soon the company is maintaining them in 2008.
Net fixed assets are in downwards trend and (4.29%) decrease in 2008 over
2007 and (.77%) decrease is made 2007 over 2006.
Capital work in progress is fluctuating in percentage but investment has
very proper trend as increasing year by year (11.476) and 2007 over 2006.
Inventories in current assets have a downward trend in year 2008 (3.979)
and 2007 over 2006.
Sundry debtors are increasing trend but in 2008 the based on total assets are
less year 2007
Cash & Bank Balances has increased in 2008 over 2007 as it is good
indication to maintain cash & bank as comparison in year 2007 over 2006.
Loans & advances has increased in year 2007 over 2006 (2.759) but it is
less increasing in year 2008 over year 2007.
These miscellaneous expenses are decreasing and the main reasons for their
decreasing are: -
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Less in preliminary expenses.
Less in deferred revenue expenditures in trend in years 2006,2007 &
2008
COMPARATIVE FINANCIAL STATEMENTS
In comparative financial statement technique, the financial data for 2 or more years
are placed and presented in adjacent columns and there by the financial data is
provided a time perspective in order to facilitate periodic comparison.
The comparative financial statement is based on the premises that a covering a
period of a number of years is more meaningful and significant than for a single
year only. As two comparative financial charts are as follows:
COMPARATIVE P/L A/C
COMPARATIVE BALANCE SHEET
INTERPRETATION OF COMPARATIVE P & L BALANCE
SHEET
Sales of year 2008 is more as comparison to year 2007. In year 2008 is
Rs. 9541 (in lakhs) with compare to sales amount of Rs. 9014(in lakhs)
Manufacturing expenses are increased in the year 2008 with compare to
year 2007 but the gross profit is also higher and the comparative amount
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is proper as showing the growth of the company.
Other incomes which add the net profit of the company is higher in the
year 2008 as compare to year 2007.
Advertising & publicity expenses are important and increased these
expenses in year 2008 (Rs.1.61 in lakhs) with compare to (Rs. .64) in
the year 2007. It is beneficial for growth of the company.
Interest paid a secured long terms loans more in the year 2008 but
interest on other become decrease in year 2008 as compare to year 2007
Preliminary expenses and deferred reserve expenses become same in the
years 2007 & 2008.
Net profit is also increasing trend in the year 2006 in compare to year
2007 as (Rs. 2303 in 2008 & Rs. 1923 in year 2000).
Reserve & surplus in the year 2008 is maintained very good in amount
with compare to year 2007.
Loan (secured) is taken more Rs. 3023 (in lakhs) in year 2008 with
comparison to year 2007 Rs. 1362 (in lakhs).
Current liabilities are much more in 2008 as compare to 2007 as result
of provision of wealth tax, proposed dividend & dividend tax.
Net fixed assets are more in the year 2008 due to purchase of fixed
assets in comparison of year 2007.
In current assets, inventories, sundry debtors, loans & advances are
increased in year 2008 with compare to year 2007. But Cash & Bank
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balances become reduction way in year 2008 with compare to year
2007.
Miscellaneous expenditure is less in the year 2008 Rs. 1.17 (in lakhs) with
comparison to Rs. 1.61 (in lakhs)
TREND ANALYSIS
In financial analysis the direction of changes over a period of years is of crucial
importance. Times series analysis or trend analysis indicates direction of change.
When a comparison of financial statements covering more than three years is
undertaken, the year-to-year method of comparison may become too cumbersome.
The best way to understand such long-term trend comparison is by means of index
numbers. The competition of series of index number requires the choice of a base
year that will for all item have an index amount of 100.
An important use of this method is when we want to see how the variables of the
particular statements are changing over a longer period of time. For eg. The index
number trend series for CHL Limited. over last four years is given in the next pages
makes over all picture of change at a glance then the actual balance sheet. In
summary, an important value of trend analysis is that it can convey to analyst a
better understanding of managements philosophies, policies and motivations or
other wise that have brought about a changes revealed over the years. The more
diverse the economic environments covering the periods comparison are the bettera picture can be obtain by the analyst in which the company has came out and taken
advantage of its opportunities.
SWOT ANALYSIS OF THE ORGANISATION
As everything has two sides of coin, one has strengths and other side has weakness
too. CHL Industries has the following strength and weaknesses.
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STRENGTHS:
1. CHL Industries Limited is a big concern with annual turnover of
Rs. 90,00,00,000 which is achieved only in few years.
2. CHL is one of the biggest companies manufacturing and
exporting the quality capsules.
3. It has captured the big share of international market with proper
goodwill and quality of good products.
4. CHL Industries provides welfare activities to its employees.
5. CHL is a major supplier for various types of capsules like,
Softgel Capsules, Li CAPS, VCAPS, NPCAPS, DBCAPS,
SGCAPS, in international market.
6. CHL has a huge capacity of manufacturing different capsules.
7. CHL makes the full capacity utilization more than 100% as the
annual through put of CHL is more than installed capacity.
8. It has a separate HRD section for maintaining its manpower
recourses.
9. It provides various loan facilities to its employees for different
purposes.It has proper Industrial Relation section for maintaining
Industrial relation.
10. Canteen and Bus facilities are available for employees at
different purposes.
11. It provides insurance benefits for its employees.
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12. Intensive measures have been undertaken for pollution control
and environment protection.
13. Decision-making is smooth in process in CHL Industries
Limited.
WEAKNESS
1. CHL avoids the community develop which is must for growing companies.
2. CHL should have more employees to get its work in more systematic &
peaceful way.
3. About 8% to 12% sale is made in domestic basis. The % should be
increased i.e focus should be give to domestic market.
4. Proper planning centres should be maintained so that wastage as scrap can
be less in quantities.
5. The proper stock of colour & chemical should be maintained
6. The budgets (proper & periodical) are not prepared in reference of
development of workers & employees.
7. CHL has a weakness of not possessing the workers & employees for a long
time in the concern.
OPPORTUNITY
Larger market potential (Domestic and International)
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Improve market goodwill
Improve mind and heard share of individuals
Consolidation over existing sales (export) and profits
THREAT
Comparative less growth
Loss of market share
Stiff competitors from transactional
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Chapter-E
Conclusion
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LIMITATIONS OF FINANCIAL ANALYSIS
Financial analysis is a powerful mechanism of determining financial strengths and
weakness of a firm. But the analysis is a based on the information available in the
financial statements. Thus financial analysis suffers from the serious inherent
limitations of financial statements some of the limitations of financial analysis are:-
1. It is only a study of interim reports.
2. Financial analysis is purely based upon the financial statements so any sort
of manipulation, window dressing in financial statements cannot be detected
through financial analysis.
3. Financial analysis is based upon only monetary information and non-
monetary factors are ignored.
4. Any change in the policy or procedure of the organization may lead to
misleading results to the analyst till the time he is not familiar with the
internal reasons of various policy changes.
5. Analysis is only means and not an end in itself. The analyst has to makeinterpretation and draw his own conclusions. Different people may interpret
the same analysis in different ways.
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SUGGESTIONS
Looking at the computation and analysis for the project the calculation of interest
and inferences from the graphs lead to conclusions that there should be
rationalization to the financial management, the position of an organization holds at
present.
The following suggestions are made to the CHL Industries Limited.
CHLshould try to cut operating cost as much as possible.
CHL Industries Limited should have better inventory management
techniques for going the proper level as Economic order Quantity (EOQ),
Re-order, safety point, safety stock, calculation of lead time so as to
minimize the inventory cost of the organization.
Better classification of inventory must be done so that insurance items can
be segregated from the less important items and according lead time
materials should be procured. ABC analysis techniques of stock should be
implied in CHL Industries Limited.
Various cost control techniques must be taken up so as to minimize the cost
of production.
Time motion study should be applied in the processing at CHL
CHL and all units must make its financial statements in millions either than
absolute figures as per international standards.
Proper fixed assets turnover ratio should be maintained by taking corrective
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actions.
Employees must be motivated to be more productive in the concern and
higher effort to improve productivity and profitability of organization.
CHL should maintain the goodwill in domestic too.
To make proper planning with the help of various budgets and proper
standards.
Proper provision for bad debts should be maintained by the company.
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FINDINGS & CONCLUSIONS
The overall analysis over the topic Critical analysis of financial position of
CHL Industry Limited is making clear much about the financial management. The
findings or conclusion based on studied are as under.
As Balance sheet is mirror of any company. The capital of this company is fixed
on the years. There is payment of attention of financial manager towards the more
maintenance of reserves and surplus (as increasing in years 2006 ,2007 & 2008) but
secured loans are taken much due to certain reasons as for purchasing the fixed
assets but the effective utilization is not made as not much increased in fixed assets
& investments are increased much and its percentage is an excellent.
Inventory is maintained fluctuating trend, as the company is not adopting the
economic order quality, safety point and certain inventory control technique, as
ABC analysis of stock is not used.
Provision of bad debts, wealth tax, dividend are not maintained as for making the
future certainty at some cash & bank balances are increasing in amount yet there is
sometimes not enough cash to pay immediate small payments.
The appropriate options/measures should be later to be met with the loans and
advances amount.
The company is unable to pay its expenses and payments in year in which they aredue. They are making carry forward in its burden for next years.
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The cost of the products can be reduced but effective cost control techniques are
not adopted by this company.
The company has higher cost having a reason that the scrap is not able to sell, as it
is having that must cost.
As the CHL is a growing concern but it has needed to improve more in its future
and financial management of CHL Industries requires systematic, efficient,
promote & corrective actions with proper management.
The company has higher cost having a reason that the scrap is not able to sell, as it
is having that must cost.
As the CHL is a growing concern but it has needed to improve more in its future
and financial management of CHL Industries requires systematic, efficient,
promote & corrective actions with proper management.
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Bibliography
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Bibliography
BOOKS
Pandy, I.M., Financial Management, Vikas Publishing House, New Delhi
Khan M.Y, and Jain P.K., Financial Management, Tata McGraw Hill, New
Delhi
Keown, Arthur J., Martin, John D., Petty, J. William and Scott, David F,
Financial Management, Pearson Education
Chandra, Prasanna, Financial Management, TMH, New Delhi
Van Horne, James C., Financial Management and Policy, Prentice Hall of
India
Brigham & Houston, Fundamentals of Financial Management, ThomsonLearning, Bombay.
Kishore, R., Financial Management, Taxmans Publishing House, New
Delhi
Suggested Readings:
Zikmund, Millian G., Business Research Methods , Thomson Learning ,
Bombay
Cooper, Donald R- and Pamels Schindler, Business Research Methods ,
Tata McGraw Hills, New Delhi
Geode, Millian J. & Paul K. Hatl, Methods in Research, McGraw Hills,
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New Delhi
Sekran, Uma, Business Research Method, Miley Education, Singapore
Kothari, C.R., Research Methodology
WEBSITES www.writercorporation.com
www.smallbusiness.chron.com
www.Exec-appointments.com
www.3imperical.ac.uk
www.en.wikipedia.org
www.tutor2u.net
www.thebasicproject.org.uk
www.ocas.org.uk
ANNUAL REPORTS
Annual report of CHL --- 2009-2010
Annual report of CHL --- 2010-2011
Annual report of CHL --- 2011-2012
http://www.writercorporation.com/http://www.smallbusiness.chron.com/http://www.exec-appointments.com/http://www.3imperical.ac.uk/http://www.en.wikipedia.org/http://www.tutor2u.net/http://www.thebasicproject.org.uk/http://www.ocas.org.uk/http://www.writercorporation.com/http://www.smallbusiness.chron.com/http://www.exec-appointments.com/http://www.3imperical.ac.uk/http://www.en.wikipedia.org/http://www.tutor2u.net/http://www.thebasicproject.org.uk/http://www.ocas.org.uk/ -
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