Description
Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project.
OF DHIRAJ INTERMEDIATES PRIVATE LIMITED
Index
Company profile…………………………………………………………….1 Financial analysis…………………………………………………………...3 2.1 2.2 2.3 The DuPont system…………………………………………………3 The DuPont Model………………………………………………….4 The DuPont analysis of the company……………………….…….6 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6 2.3.7 Tax coverage………………………………………………..6 Interest coverage……………………………………………7 Operating Profit margin……………………………………7 Net Profit margin…………………………………………...8 Total asset turnover………………………………………...9 Equity multiplier……………………………………………9 ROE………………………………………………………..10 1
1.0 2.0
3.0
Supply chain management………………………………………………..11 3.1 3.2 Introduction of supply chain management………………………11 Supply chain management of the company……………………..15 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.2.9 Supplier…………………………………………………….16 Raw material consumed………………………….……….17 Yearly Consumption………………………………………18 Inventory…………………………………………………...22 Producer……………………………………………………23 Production Process……………………………………..…24 Finished Goods…………………………………………….29 Customer……………………………………………………30 Sales…………………………………………………………32
4.0
Annexure…………………………………………………………………...33 4.1 4.2 4.3 4.4 4.5 Table 1……………………………………………………………...33 Table 2……………………………………………………………...33 Table 3……………………………………………………………...34 Table 4……………………………………………………………...34 Table 5……………………………………………………………...35
5.0
Bibliography………………………………………………………………..36
2
Company profile
Dhiraj Intermediates Pvt Ltd is engaged in the production of Inorganic Chemicals at its Unit – I and 3,3,DCB at its Unit – II. Further it is a leading manufacturer of Inorganic Pigment in India. It was establishedin1989 with one Unit with a production capacity of 150 M. tonesper month. It was started it’s Unit – II during the year 2000-01 with a 60 M ton capacity per month of 3,3,DCB. Slowly and gradually company has increase its production capacity year by year and at present it reach to a production of 600 M. tones per month of Inorganic Pigments.
ADDRESS: Unit- I Dhiraj Intermediate Private Limited. Mfg.: Inorganic Pigment & Chemicals Plot no.297/5-10,2nd Phase, G.I.D.C., Vapi-396195. (Gujarat) India.
Unit- II Dhiraj Intermediate Private Limited. Mfg.: 3,3DCB Chemicals Plot no.3104/1, 2 & 8, 4th Phase, G.I.D.C., Vapi-396195. (Gujarat) India.
(Group of Company) 1. Sun Colors and Chemicals 2. Sun Bright Pigments Pvt. Ltd. 3. Blaze Pigments Pvt. Ltd. 4. Brighton Inorganic Pvt. Ltd. 5. Brighton Pigments Pvt. Ltd.
In group sun colors and chemical was established in 1988.it produce pigments. It is very old company. Sun Bright Pigment Pvt Ltd was established in 2000. it also produce pigment. Blaze Pigment Pvt Ltd was established in 2005. Its purpose is to produce raw materials by owns to Increase Company’s independence. Brighton Inorganic Pvt Ltd was established in 1992 & Brighton Pigment Pvt Ltd was established in 2006. The purposes of this company are backward integration. So group together achieves the goal.
3
MISSION: Expand Production capacity up to 1000 tone per month up to end of the Financial Year 200708 Expansion: Unit – III in vapi under construction for 250 M ton per month, will be start in next year Unit – IV in Nagpur under construction for 300 M ton per month, will be start in next year . Advantage of the company: Company is trying to become independent in terms of raw material. So company use backward integration to produce some raw material up to some extent. Company has high reliability. Company uses the services of best specialists from India and from other countries. We have a well-organized logistics structure that makes it possible to use effectively the skills of these specialists. COMPANY PRODUCT:
1) 2) 3) 4) 5)
Middle chrome. Lemon chrome. Scarlet chrome. Zinc chrome. Prime rose chrome.
4
Financial Analysis
Financial analysis of the company is used by management to keep watch on company different working areas like asset utilization, leverage, profit margin etc. Most of the organizations employ ratio analysis technique to do so. Management often finds that such analysis is not sufficient because ratio analysis gives blur picture of company’s performance. Let us understand this dilemma by simple example suppose we want to find company’s performance to increase its shareholder’s equity. If we employ ratio analysis technique than return on equity (net income/equity) will solve over problem. But let me ask one simple question. Is it proved that company has better utilized its asset or has achieved better profit margin. Question is demanding depth in analysis. It is quit obvious that increase in ROE doesn’t prove that company has performed well on each area. We know that financial figure in income statement or balance sheet has linear relationship. Change in one has cascading effect throughout the statement. Now our aim should be to find out that point where the effect has originated. So rather analyzing single ratio, if we use system like The DuPont system, common size analysis. We will have clear picture of company’s performance in its true colors. In this project financial analysis is done by DuPont system to find out ROE.
The DuPont System
The DuPont Model is a technique that can be used to analyze the profitability of a company using traditional performance management tools. To enable this, the DuPont Model integrates element of the income statement with those of balance sheet. The DuPont model of financial analysis was made by F. Donaldson Brown, an electrical engineer who joined the giant chemical company’s treasury department in 1914. a few years later, DuPont bought 23 percent of stock of General Motors Corp. and gave Brown the task of cleaning up the car maker’s tangled finances. This was perhaps the first large-scale reengineering effort in the USA. Much of credit for GM’s ascension afterward belongs to the planning and control systems of Brown, according to Alfred Sloan, GM’s former chairman. Ensuing success launched the DuPont model towards prominence in all major U.S. corporations. It remained the dominant from of financial analysis until the 1970s.
The DuPont Model
Sales 5 Profit Margin
The DuPont
6
Usage of the DuPont system:
? ? ? ? ? ? ? ? ? ? ? ? ? The model can be used any department or by the sales department to examine or demonstrate why a given ROE was earned. Compare a firm with its colleagues. Analyze changes over time. Teach people a basic understanding how they can have an impact on the company result. Show the impact of professionalizing departments function.
Steps to perform the DuPont analysis:
Collect the business numbers (from the finance department). Calculate (use a spreadsheet). Draw conclusions. If the conclusions seem unrealistic, check the number and recalculate.
Strength of the DuPont analysis:
Provides in-depth diagnosis of changes in ROE. Simple to perform and very good tool to teach people a basic understanding how they can have an impact on results. Can be easily liked to compensation schemes. Can be used to convince management that certain steps have to be taken to professionalize various departments. Sometimes it is better to look into your own organization first. Instead of looking for company takeovers in order to compensate lack of profitability by increasing turnover and trying to achieve synergy.
Limitation:
? Based on accounting numbers, which are basically not reliable. ? Garbage in, garbage out.
Assumption:
? Accounting numbers are reliable.
7
The DuPont analysis of Dhiraj Intermediates Pvt Ltd.
The underlying objective of the DuPont analysis of Dhiraj Intermediate Pvt Ltd is to find out performance of the company. Last five year data is collected from the accounting system of the company. It is not feasible to include the income statement and balance sheet of five years. So necessary data has been taken from financial statement with require explanation. As we have shown in the DuPont model, below formulas are used to find out ROE of Dhiraj Intermediate Pvt Ltd. Table 1 in annexure has year-wise necessary data to calculate all required ratios. Table 2 in annexure has listed year-wise calculated ratios for reference. Let us analyze the movement in different ratios.
Profit After Tax Profit Before Tax Profit Before interest & Tax Net Profit Margin = --------------------- X ---------------------------------X----------------------Profit Before Tax Profit Before Interest & Tax Sales
Sales Total Asset Total Asset turnover = ------------------Total Asset
Equity Multiplier = ---------------------Equity
Return on Equity = Net Profit Margin X Total Asset Turnover X Equity Multiplier
Tax coverage
Upward movement in the ratio is expected to indicate positive movement.Ratio has decrease over time which indicates that over the period tax burden has increased. So active tax planning could help to improve return.
8
Interest coverage
Ratio has decreased first that indicate decrease use of external funds. Then increase over time that indicates increasing use of external fund. The company has large financial charges. It should be improve by proper capital structure planning. Break-even analysis of optimum capital structure can be useful tool.
Operating Profit Margin
Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix because profit margin to vary 9
among different companies.Ratio is negative that indicate company in loss. Then increase that indicate increase in profit margin. Then further decrease that indicates increasing operating expenses. Employing costing method it is possible to find out major expenditure. Because batch manufacturing companies like Dhiraj Intermediate Pvt Ltd has necessary to have accurate costing. So each batch production can be priced appropriately and profitable deal can be located easily. Even departments operating can be improved to reduce cost.
Net Profit Margin
Ratio is positive and rises across time, it is a good sign that operating management is going well. Management is producing sales and controlling cost such that the “bottom line” is growing.
10
Total Asset Turnover
When this ratio rises across time, it is good sign that asset management is going well. A rising ratio means that the firm is able to produce more and more sales from its asset. In other words, the firm is becoming more efficient in using its assets. Different industries have different level of total asset turnover that indicate efficient asset management. Therefore, an industry average is often needed to interpret this ratio. Most manufacturing firms have TATs ranging from 1X to 2X. if the ratio is too high, it can mean that the firm is not adequately replacing its assets and this would be a sign for poor management. Total asset turnover has improved that indicate better utilization of asset.
Equity Multiplier
11
This ratio should not be increasing across time because an increase means that more and more debt is being used to finance the firm. Debt requires fixed payments of principle and interest. If this payment is not made, the firm can be forced into bankruptcy. Therefore, high levels of debt (and correspondingly high equity multiplier) represent poor capital structure management. Across a significant cross section of industrial firms, the equity multiplier tends to stay within the range of 2 to 3 times. An EM above 3 is thus likely to be a cause for concern. As we have shown above interest coverage ratio also indicate that same action.
ROE
Return on equity represents the profitability of funds invested by the owners of the firm. All firms should attempt to make ROE as high as possible over long-term. ROE can be high for the wrong reason however. For example, when ROE is high because the equity multiplier is high, this means that high returns are really coming from overuse of debt which can spell trouble for the firm. Most of ROE should be produced by high ROI, PM and TAT and not from EM.
12
Supply Chain Management
Supplier
Supplier
Supplier Supplier Producer Distributor Retailer Customer
Supplier
Supplier
Supplier
13
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-ofconsumption.
One could suggest other key critical supply business processes combining these processes. a. b. c. d. e. f. g. Customer service management Procurement Product development and commercialization Manufacturing flow management/support Physical distribution Outsourcing/partnerships Performance measurement
a) Customer service management process Customer Relationship Management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships:
? ? ?
determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers
b) Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development is achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers. This requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage and handling and quality assurance. Also, includes the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research to new sources or programs.
c) Product development and commercialization Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be
14
developed and successfully launched in ever shorter time-schedules to remain competitive. Managers of the product development and commercialization process must: 1. coordinate with customer relationship management to identify customerarticulated needs; 2. Select materials and suppliers in conjunction with procurement, and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. d) Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations. e) Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers). f) Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.
g) Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both
15
correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes narrower. Firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including 1. 2. 3. 4. 5. Cost Customer Service Productivity measures Asset measurement, and Quality.
16
Supply chain management ofDhiraj Intermediates Pvt Ltd:
Supplier
Supplier
Supplier Supplier Producer Customer
Supplier
Supplier
Supplier
17
Supplier:
South Africa Shri Lanka Kerala
Haidarabad
Supplier
Maharastra
Ankaleshvar Vapi
Daman
Raw material supplied:
1) 2) 3) 4) 5) 6) 7) 8) 9) Litharge. Sodium dichromate. Nitric Acid. Sodium Molibdate Costic soda Flakes Soda Ash Rare earth floried Sodium silicate Aluminium sulphet
18
Raw Material consumed:
Materials Consumed Litharge Sodium dichromate Nitric Acid Sodium molybdate Caustic soda flakes & Lye Soda ash Rare earth floriede Sodium silicate Aluminium sulphet
Tones per Month 400 250 400 7 60 30 3 50 50
Material Consumed:
Materials consumed are in tone. It is raw material used for production per month. From the graph we can know that which material use how much. It produces 600 tone output of pigment. So material consumed is 650 tones.
19
Yearly consumption:
Items
Lead / Litharge / Lead Nitrate Sodium Dichromate Nitric Acid Zinc Oxide Caustic Soda Flakes Sodium Molybdate Other
2002
17277570 9682781 2165660 476536 1093807 3459492 3414050
2003
25976436 8495256 3880862 334961 3302092 6427582 5814916
2004
40988041 15818412 6085890 506085 4456805 12589022 7056822
Items
Lead / Litharge / Lead Nitrate Sodium Dichromate Nitric Acid Caustic Soda Flakes Sodium Molybdate Other
2005
56638964 26518586 7598970 3747645 21238293 9347125
2006
74798041 23727493 7862413 3403676 46235352 22799004
20
Lead / Litharge / Lead Nitrate:
Sodium Dichromate:
21
Nitric Acid:
Caustic Soda Flakes:
22
Sodium Molybdate:
Other:
23
Inventory:
Inventories are the physical stock of items that a manufacturing or service organization keeps in hand for efficient running of its firm. Inventories consist of raw materials, components parts, tools, spares, supplies and finish goods. Inventories cost money in term of storage, equipment, personal, insurance etc. Inventory control helps to strike an optimum balance between these opposing costs and thereby ensure availability of required items at minimum total cost to the company. Re-order level: Dhiraj Intermediates Pvt Ltd has suppliers from all over India and some are out of India. So re-order level for different supply is different. Company maintains the stock of raw material 1000 tones. When stock reduces to 600 tones re-order is given. If the suppliers are in Gujarat then materials receive within 2 days. If the suppliers are from out of Gujarat then materials receive within 4 days. And if the suppliers are from the out of country then it is 3 month process. Here special standard are decided for raw materials. Before unload goods laboratory test are done. If it match with predefine standard then unload the goods. Otherwise return. The mode of transport company uses are truck, train, ship etc. local supplier uses trucks because it is easy available and cheap for them. For import goods the mode of transport is ship.
Year
2003 2004 2005 2006
Opening stock
6129125 8312582 24073737 29151219
Closing Stock
8312582 24073737 29151219 28747743
Average
7220853.5 16193189.5 26612478.0 28949481.0
24
Producer:
Amantek chemical Pvt Ltd
Sun bright pigment Pvt Ltd
Brighton Chemical Pvt Ltd
Dhiraj Intermediate Pvt Ltd Unit 1
Sun colors & Chemical Pvt Ltd
Dhiraj-Unit 2
Blaze Pigment Pvt Ltd
25
Production process:
Solution
Mix
Add chemical
Filter process
Washing
Wet cake
Dry
Pulverize
Pack
26
Company has very efficient production process. Company is working on batch production. In batch production there is standard decided for batch so as per that standard production is done. Batch production is very efficient for company because production is as per predefine standard. Different customer wants different standard of pigment so as per demanded standard production is done. It is seasonal product. So demand for pigment is high in month May to September. Rest of the month demand is low. Production is continuous during rest of the month. It is pull base process. Customer gives order for pigment. They give order with specific standard. So production is done as per standard. In rest of month production is done as per predefine standard and stock for sale. So production is continuous during the year. Company has very efficient production system. The production capacity of company is 600 tones per month.
27
Production: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
157990 220835 239095 22900 27175 20250
2003
229850 509900 308999 8600 36625 16725
2004
455857 908500 408231 10500 42568 30879
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
649225 1630675 546100 154795 1152560 826200
2006
658847 1635735 586655 130226 1264100 898725
28
Lemon Chrome:
Middle Chrome:
29
Scarlet Chrome:
30
Finished goods:
1) 2) 3) 4) 5) Middle chrome. Lemon chrome. Scarlet chrome. Zinc chrome. Prime rose chrome.
Finished Goods Middle chrome Lemon chrome Scarlet chrome Zinc chrome Prime rose chrome
Tone per month 360 115 100 20 5
Customer:
31
Asian Paint
Micro Inks
Goodlas Nero Lack
Customer Burger Paint Sudarshan Chemical DIC Ltd
32
Packing Specification:
Company pack it’s product with standard of 25 kg per bag with liner. Company has different packing specification for export and local customer.
Quality Analysis:
Company is very careful about customer. so company always do quality checking. Quality checking is done before dispatch of goods. In laboratory standard of finished goods is check. If the standard are match then goods are dispatch otherwise reprocess.
33
Sales: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
10478013 14165639 22200324 1302616 685000 1464346
2003
15516315 32308782 30398615 775005 888850 1175377
2004
20820605 50658645 46149730 8070140 9878860 25698205
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
26920600 70673445 56143850 8990147 12678160 35138275
2006
33137628 98020022 87729862 12704550 12641000 37742400
34
Annexure
Table 1
Year 2002 2003 2004 2005 2006 Sales 88475754 122609465 186400868 226561433 298176340 PBIT (3624536) 10181115 21628664 25562281 14297847 PBT (14298149) 1072911 16894408 22333392 11068948 PAT (14298149) 593367 18372399 8924392 7923948 Total Asset 156773936 165343380 182230973 213772800 233451268 Equity 11000000 11000000 26698304 38423880 46531752
PBIT- Profit Before Interest & Tax PBT- Profit Before Tax PAT - Profit After Tax Equity- Owner’s share capital and reserve and surplus
Table 2
Tax coverage
Interest coverage
Operating Profit Margin
Total Asset Turnover
Equity Multiplier
Return On Equity
0.00 0.55 1.08 0.39 0.71
3.94 0.10 0.78 0.87 0.77
(0.04) 0.08 0.12 0.11 0.05
0.56 0.74 1.02 1.05 1.27
14.25 15.03 06.82 05.56 05.01
(1.25) 0.048 0.702 0.216 0.171
35
Table 3
Year
2003 2004 2005 2006
Opening stock
6129125 8312582 24073737 29151219
Closing Stock
8312582 24073737 29151219 28747743
Average
7220853.5 16193189.5 26612478.0 28949481.0
Table 4 Production: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
157990 220835 239095 22900 27175 20250
2003
229850 509900 308999 8600 36625 16725
2004
455857 908500 408231 10500 42568 30879
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
649225 1630675 546100 154795 1152560 826200
2006
658847 1635735 586655 130226 1264100 898725
36
Table 5
Sales: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
10478013 14165639 22200324 1302616 685000 1464346
2003
15516315 32308782 30398615 775005 888850 1175377
2004
20820605 50658645 46149730 8070140 9878860 25698205
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
26920600 70673445 56143850 8990147 12678160 35138275
2006
33137628 98020022 87729862 12704550 12641000 37742400
37
Bibliography
http//www.google.com http//www.wikipidia.com
Management Information System By: Kenneth C. Laudon Jane P. Laudon Operations Management By: Richard B. Chase F Robert Jacobs Nicholas J. Aquilano Nitin K Agarwal
38
doc_340363566.docx
Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project.
OF DHIRAJ INTERMEDIATES PRIVATE LIMITED
Index
Company profile…………………………………………………………….1 Financial analysis…………………………………………………………...3 2.1 2.2 2.3 The DuPont system…………………………………………………3 The DuPont Model………………………………………………….4 The DuPont analysis of the company……………………….…….6 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6 2.3.7 Tax coverage………………………………………………..6 Interest coverage……………………………………………7 Operating Profit margin……………………………………7 Net Profit margin…………………………………………...8 Total asset turnover………………………………………...9 Equity multiplier……………………………………………9 ROE………………………………………………………..10 1
1.0 2.0
3.0
Supply chain management………………………………………………..11 3.1 3.2 Introduction of supply chain management………………………11 Supply chain management of the company……………………..15 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.2.9 Supplier…………………………………………………….16 Raw material consumed………………………….……….17 Yearly Consumption………………………………………18 Inventory…………………………………………………...22 Producer……………………………………………………23 Production Process……………………………………..…24 Finished Goods…………………………………………….29 Customer……………………………………………………30 Sales…………………………………………………………32
4.0
Annexure…………………………………………………………………...33 4.1 4.2 4.3 4.4 4.5 Table 1……………………………………………………………...33 Table 2……………………………………………………………...33 Table 3……………………………………………………………...34 Table 4……………………………………………………………...34 Table 5……………………………………………………………...35
5.0
Bibliography………………………………………………………………..36
2
Company profile
Dhiraj Intermediates Pvt Ltd is engaged in the production of Inorganic Chemicals at its Unit – I and 3,3,DCB at its Unit – II. Further it is a leading manufacturer of Inorganic Pigment in India. It was establishedin1989 with one Unit with a production capacity of 150 M. tonesper month. It was started it’s Unit – II during the year 2000-01 with a 60 M ton capacity per month of 3,3,DCB. Slowly and gradually company has increase its production capacity year by year and at present it reach to a production of 600 M. tones per month of Inorganic Pigments.
ADDRESS: Unit- I Dhiraj Intermediate Private Limited. Mfg.: Inorganic Pigment & Chemicals Plot no.297/5-10,2nd Phase, G.I.D.C., Vapi-396195. (Gujarat) India.
Unit- II Dhiraj Intermediate Private Limited. Mfg.: 3,3DCB Chemicals Plot no.3104/1, 2 & 8, 4th Phase, G.I.D.C., Vapi-396195. (Gujarat) India.
(Group of Company) 1. Sun Colors and Chemicals 2. Sun Bright Pigments Pvt. Ltd. 3. Blaze Pigments Pvt. Ltd. 4. Brighton Inorganic Pvt. Ltd. 5. Brighton Pigments Pvt. Ltd.
In group sun colors and chemical was established in 1988.it produce pigments. It is very old company. Sun Bright Pigment Pvt Ltd was established in 2000. it also produce pigment. Blaze Pigment Pvt Ltd was established in 2005. Its purpose is to produce raw materials by owns to Increase Company’s independence. Brighton Inorganic Pvt Ltd was established in 1992 & Brighton Pigment Pvt Ltd was established in 2006. The purposes of this company are backward integration. So group together achieves the goal.
3
MISSION: Expand Production capacity up to 1000 tone per month up to end of the Financial Year 200708 Expansion: Unit – III in vapi under construction for 250 M ton per month, will be start in next year Unit – IV in Nagpur under construction for 300 M ton per month, will be start in next year . Advantage of the company: Company is trying to become independent in terms of raw material. So company use backward integration to produce some raw material up to some extent. Company has high reliability. Company uses the services of best specialists from India and from other countries. We have a well-organized logistics structure that makes it possible to use effectively the skills of these specialists. COMPANY PRODUCT:
1) 2) 3) 4) 5)
Middle chrome. Lemon chrome. Scarlet chrome. Zinc chrome. Prime rose chrome.
4
Financial Analysis
Financial analysis of the company is used by management to keep watch on company different working areas like asset utilization, leverage, profit margin etc. Most of the organizations employ ratio analysis technique to do so. Management often finds that such analysis is not sufficient because ratio analysis gives blur picture of company’s performance. Let us understand this dilemma by simple example suppose we want to find company’s performance to increase its shareholder’s equity. If we employ ratio analysis technique than return on equity (net income/equity) will solve over problem. But let me ask one simple question. Is it proved that company has better utilized its asset or has achieved better profit margin. Question is demanding depth in analysis. It is quit obvious that increase in ROE doesn’t prove that company has performed well on each area. We know that financial figure in income statement or balance sheet has linear relationship. Change in one has cascading effect throughout the statement. Now our aim should be to find out that point where the effect has originated. So rather analyzing single ratio, if we use system like The DuPont system, common size analysis. We will have clear picture of company’s performance in its true colors. In this project financial analysis is done by DuPont system to find out ROE.
The DuPont System
The DuPont Model is a technique that can be used to analyze the profitability of a company using traditional performance management tools. To enable this, the DuPont Model integrates element of the income statement with those of balance sheet. The DuPont model of financial analysis was made by F. Donaldson Brown, an electrical engineer who joined the giant chemical company’s treasury department in 1914. a few years later, DuPont bought 23 percent of stock of General Motors Corp. and gave Brown the task of cleaning up the car maker’s tangled finances. This was perhaps the first large-scale reengineering effort in the USA. Much of credit for GM’s ascension afterward belongs to the planning and control systems of Brown, according to Alfred Sloan, GM’s former chairman. Ensuing success launched the DuPont model towards prominence in all major U.S. corporations. It remained the dominant from of financial analysis until the 1970s.
The DuPont Model
Sales 5 Profit Margin
The DuPont
6
Usage of the DuPont system:
? ? ? ? ? ? ? ? ? ? ? ? ? The model can be used any department or by the sales department to examine or demonstrate why a given ROE was earned. Compare a firm with its colleagues. Analyze changes over time. Teach people a basic understanding how they can have an impact on the company result. Show the impact of professionalizing departments function.
Steps to perform the DuPont analysis:
Collect the business numbers (from the finance department). Calculate (use a spreadsheet). Draw conclusions. If the conclusions seem unrealistic, check the number and recalculate.
Strength of the DuPont analysis:
Provides in-depth diagnosis of changes in ROE. Simple to perform and very good tool to teach people a basic understanding how they can have an impact on results. Can be easily liked to compensation schemes. Can be used to convince management that certain steps have to be taken to professionalize various departments. Sometimes it is better to look into your own organization first. Instead of looking for company takeovers in order to compensate lack of profitability by increasing turnover and trying to achieve synergy.
Limitation:
? Based on accounting numbers, which are basically not reliable. ? Garbage in, garbage out.
Assumption:
? Accounting numbers are reliable.
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The DuPont analysis of Dhiraj Intermediates Pvt Ltd.
The underlying objective of the DuPont analysis of Dhiraj Intermediate Pvt Ltd is to find out performance of the company. Last five year data is collected from the accounting system of the company. It is not feasible to include the income statement and balance sheet of five years. So necessary data has been taken from financial statement with require explanation. As we have shown in the DuPont model, below formulas are used to find out ROE of Dhiraj Intermediate Pvt Ltd. Table 1 in annexure has year-wise necessary data to calculate all required ratios. Table 2 in annexure has listed year-wise calculated ratios for reference. Let us analyze the movement in different ratios.
Profit After Tax Profit Before Tax Profit Before interest & Tax Net Profit Margin = --------------------- X ---------------------------------X----------------------Profit Before Tax Profit Before Interest & Tax Sales
Sales Total Asset Total Asset turnover = ------------------Total Asset
Equity Multiplier = ---------------------Equity
Return on Equity = Net Profit Margin X Total Asset Turnover X Equity Multiplier
Tax coverage
Upward movement in the ratio is expected to indicate positive movement.Ratio has decrease over time which indicates that over the period tax burden has increased. So active tax planning could help to improve return.
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Interest coverage
Ratio has decreased first that indicate decrease use of external funds. Then increase over time that indicates increasing use of external fund. The company has large financial charges. It should be improve by proper capital structure planning. Break-even analysis of optimum capital structure can be useful tool.
Operating Profit Margin
Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix because profit margin to vary 9
among different companies.Ratio is negative that indicate company in loss. Then increase that indicate increase in profit margin. Then further decrease that indicates increasing operating expenses. Employing costing method it is possible to find out major expenditure. Because batch manufacturing companies like Dhiraj Intermediate Pvt Ltd has necessary to have accurate costing. So each batch production can be priced appropriately and profitable deal can be located easily. Even departments operating can be improved to reduce cost.
Net Profit Margin
Ratio is positive and rises across time, it is a good sign that operating management is going well. Management is producing sales and controlling cost such that the “bottom line” is growing.
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Total Asset Turnover
When this ratio rises across time, it is good sign that asset management is going well. A rising ratio means that the firm is able to produce more and more sales from its asset. In other words, the firm is becoming more efficient in using its assets. Different industries have different level of total asset turnover that indicate efficient asset management. Therefore, an industry average is often needed to interpret this ratio. Most manufacturing firms have TATs ranging from 1X to 2X. if the ratio is too high, it can mean that the firm is not adequately replacing its assets and this would be a sign for poor management. Total asset turnover has improved that indicate better utilization of asset.
Equity Multiplier
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This ratio should not be increasing across time because an increase means that more and more debt is being used to finance the firm. Debt requires fixed payments of principle and interest. If this payment is not made, the firm can be forced into bankruptcy. Therefore, high levels of debt (and correspondingly high equity multiplier) represent poor capital structure management. Across a significant cross section of industrial firms, the equity multiplier tends to stay within the range of 2 to 3 times. An EM above 3 is thus likely to be a cause for concern. As we have shown above interest coverage ratio also indicate that same action.
ROE
Return on equity represents the profitability of funds invested by the owners of the firm. All firms should attempt to make ROE as high as possible over long-term. ROE can be high for the wrong reason however. For example, when ROE is high because the equity multiplier is high, this means that high returns are really coming from overuse of debt which can spell trouble for the firm. Most of ROE should be produced by high ROI, PM and TAT and not from EM.
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Supply Chain Management
Supplier
Supplier
Supplier Supplier Producer Distributor Retailer Customer
Supplier
Supplier
Supplier
13
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-ofconsumption.
One could suggest other key critical supply business processes combining these processes. a. b. c. d. e. f. g. Customer service management Procurement Product development and commercialization Manufacturing flow management/support Physical distribution Outsourcing/partnerships Performance measurement
a) Customer service management process Customer Relationship Management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships:
? ? ?
determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers
b) Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development is achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers. This requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage and handling and quality assurance. Also, includes the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research to new sources or programs.
c) Product development and commercialization Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be
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developed and successfully launched in ever shorter time-schedules to remain competitive. Managers of the product development and commercialization process must: 1. coordinate with customer relationship management to identify customerarticulated needs; 2. Select materials and suppliers in conjunction with procurement, and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. d) Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations. e) Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers). f) Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.
g) Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both
15
correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes narrower. Firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including 1. 2. 3. 4. 5. Cost Customer Service Productivity measures Asset measurement, and Quality.
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Supply chain management ofDhiraj Intermediates Pvt Ltd:
Supplier
Supplier
Supplier Supplier Producer Customer
Supplier
Supplier
Supplier
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Supplier:
South Africa Shri Lanka Kerala
Haidarabad
Supplier
Maharastra
Ankaleshvar Vapi
Daman
Raw material supplied:
1) 2) 3) 4) 5) 6) 7) 8) 9) Litharge. Sodium dichromate. Nitric Acid. Sodium Molibdate Costic soda Flakes Soda Ash Rare earth floried Sodium silicate Aluminium sulphet
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Raw Material consumed:
Materials Consumed Litharge Sodium dichromate Nitric Acid Sodium molybdate Caustic soda flakes & Lye Soda ash Rare earth floriede Sodium silicate Aluminium sulphet
Tones per Month 400 250 400 7 60 30 3 50 50
Material Consumed:
Materials consumed are in tone. It is raw material used for production per month. From the graph we can know that which material use how much. It produces 600 tone output of pigment. So material consumed is 650 tones.
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Yearly consumption:
Items
Lead / Litharge / Lead Nitrate Sodium Dichromate Nitric Acid Zinc Oxide Caustic Soda Flakes Sodium Molybdate Other
2002
17277570 9682781 2165660 476536 1093807 3459492 3414050
2003
25976436 8495256 3880862 334961 3302092 6427582 5814916
2004
40988041 15818412 6085890 506085 4456805 12589022 7056822
Items
Lead / Litharge / Lead Nitrate Sodium Dichromate Nitric Acid Caustic Soda Flakes Sodium Molybdate Other
2005
56638964 26518586 7598970 3747645 21238293 9347125
2006
74798041 23727493 7862413 3403676 46235352 22799004
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Lead / Litharge / Lead Nitrate:
Sodium Dichromate:
21
Nitric Acid:
Caustic Soda Flakes:
22
Sodium Molybdate:
Other:
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Inventory:
Inventories are the physical stock of items that a manufacturing or service organization keeps in hand for efficient running of its firm. Inventories consist of raw materials, components parts, tools, spares, supplies and finish goods. Inventories cost money in term of storage, equipment, personal, insurance etc. Inventory control helps to strike an optimum balance between these opposing costs and thereby ensure availability of required items at minimum total cost to the company. Re-order level: Dhiraj Intermediates Pvt Ltd has suppliers from all over India and some are out of India. So re-order level for different supply is different. Company maintains the stock of raw material 1000 tones. When stock reduces to 600 tones re-order is given. If the suppliers are in Gujarat then materials receive within 2 days. If the suppliers are from out of Gujarat then materials receive within 4 days. And if the suppliers are from the out of country then it is 3 month process. Here special standard are decided for raw materials. Before unload goods laboratory test are done. If it match with predefine standard then unload the goods. Otherwise return. The mode of transport company uses are truck, train, ship etc. local supplier uses trucks because it is easy available and cheap for them. For import goods the mode of transport is ship.
Year
2003 2004 2005 2006
Opening stock
6129125 8312582 24073737 29151219
Closing Stock
8312582 24073737 29151219 28747743
Average
7220853.5 16193189.5 26612478.0 28949481.0
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Producer:
Amantek chemical Pvt Ltd
Sun bright pigment Pvt Ltd
Brighton Chemical Pvt Ltd
Dhiraj Intermediate Pvt Ltd Unit 1
Sun colors & Chemical Pvt Ltd
Dhiraj-Unit 2
Blaze Pigment Pvt Ltd
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Production process:
Solution
Mix
Add chemical
Filter process
Washing
Wet cake
Dry
Pulverize
Pack
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Company has very efficient production process. Company is working on batch production. In batch production there is standard decided for batch so as per that standard production is done. Batch production is very efficient for company because production is as per predefine standard. Different customer wants different standard of pigment so as per demanded standard production is done. It is seasonal product. So demand for pigment is high in month May to September. Rest of the month demand is low. Production is continuous during rest of the month. It is pull base process. Customer gives order for pigment. They give order with specific standard. So production is done as per standard. In rest of month production is done as per predefine standard and stock for sale. So production is continuous during the year. Company has very efficient production system. The production capacity of company is 600 tones per month.
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Production: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
157990 220835 239095 22900 27175 20250
2003
229850 509900 308999 8600 36625 16725
2004
455857 908500 408231 10500 42568 30879
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
649225 1630675 546100 154795 1152560 826200
2006
658847 1635735 586655 130226 1264100 898725
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Lemon Chrome:
Middle Chrome:
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Scarlet Chrome:
30
Finished goods:
1) 2) 3) 4) 5) Middle chrome. Lemon chrome. Scarlet chrome. Zinc chrome. Prime rose chrome.
Finished Goods Middle chrome Lemon chrome Scarlet chrome Zinc chrome Prime rose chrome
Tone per month 360 115 100 20 5
Customer:
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Asian Paint
Micro Inks
Goodlas Nero Lack
Customer Burger Paint Sudarshan Chemical DIC Ltd
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Packing Specification:
Company pack it’s product with standard of 25 kg per bag with liner. Company has different packing specification for export and local customer.
Quality Analysis:
Company is very careful about customer. so company always do quality checking. Quality checking is done before dispatch of goods. In laboratory standard of finished goods is check. If the standard are match then goods are dispatch otherwise reprocess.
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Sales: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
10478013 14165639 22200324 1302616 685000 1464346
2003
15516315 32308782 30398615 775005 888850 1175377
2004
20820605 50658645 46149730 8070140 9878860 25698205
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
26920600 70673445 56143850 8990147 12678160 35138275
2006
33137628 98020022 87729862 12704550 12641000 37742400
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Annexure
Table 1
Year 2002 2003 2004 2005 2006 Sales 88475754 122609465 186400868 226561433 298176340 PBIT (3624536) 10181115 21628664 25562281 14297847 PBT (14298149) 1072911 16894408 22333392 11068948 PAT (14298149) 593367 18372399 8924392 7923948 Total Asset 156773936 165343380 182230973 213772800 233451268 Equity 11000000 11000000 26698304 38423880 46531752
PBIT- Profit Before Interest & Tax PBT- Profit Before Tax PAT - Profit After Tax Equity- Owner’s share capital and reserve and surplus
Table 2
Tax coverage
Interest coverage
Operating Profit Margin
Total Asset Turnover
Equity Multiplier
Return On Equity
0.00 0.55 1.08 0.39 0.71
3.94 0.10 0.78 0.87 0.77
(0.04) 0.08 0.12 0.11 0.05
0.56 0.74 1.02 1.05 1.27
14.25 15.03 06.82 05.56 05.01
(1.25) 0.048 0.702 0.216 0.171
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Table 3
Year
2003 2004 2005 2006
Opening stock
6129125 8312582 24073737 29151219
Closing Stock
8312582 24073737 29151219 28747743
Average
7220853.5 16193189.5 26612478.0 28949481.0
Table 4 Production: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
157990 220835 239095 22900 27175 20250
2003
229850 509900 308999 8600 36625 16725
2004
455857 908500 408231 10500 42568 30879
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
649225 1630675 546100 154795 1152560 826200
2006
658847 1635735 586655 130226 1264100 898725
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Table 5
Sales: Items
Lemon Chrome Middle Chrome Scarlet Chrome Prime Rose Chrome Mixed Chrome Other
2002
10478013 14165639 22200324 1302616 685000 1464346
2003
15516315 32308782 30398615 775005 888850 1175377
2004
20820605 50658645 46149730 8070140 9878860 25698205
Items
Lemon Chrome Middle Chrome Scarlet Chrome Other Bromine 3 3DCB
2005
26920600 70673445 56143850 8990147 12678160 35138275
2006
33137628 98020022 87729862 12704550 12641000 37742400
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Bibliography
http//www.google.com http//www.wikipidia.com
Management Information System By: Kenneth C. Laudon Jane P. Laudon Operations Management By: Richard B. Chase F Robert Jacobs Nicholas J. Aquilano Nitin K Agarwal
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