Description
Ratio
Analysis of Financial Statements
A SUMMER INTERNSHIP REPORT ON ANALYSIS OF FINANCIAL STATEMENTS (SUNPACK INDUSTRIES)
Submitted to
L.J. Institute of Management Institute (NOON SHIFT)
In requirement of partial fulfillment of Master’s of Business Administration(MBA) 2 year full time Program of Gujarat Technological University
Submitted on: 16th JULY 2011 Submitted by: BHARGAV KAIRAV (107960592018) GORI NASEERMAHMAD (107960592070)
Batch No.: 2010-12
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Certificate
It is hereby certified that the work incorporated in the thesis submitted entitled “Analysis of Financial Statements” submitted by Kairav Bhargav comprises the result of independent and original investigation carried out me. The material which obtained from other sources has been duly acknowledged in the thesis.
Date: 16/07/2011 Place:Ahemdabad
Signature of the student
It is certified that the work mentioned above is carried out under my guidance.
Date: 16/07/2011
Signature of the faculty guide
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Certificate
It is hereby certified that the work incorporated in the thesis submitted entitled “Analysis of Financial Statements” submitted by Naseermohmmad Gori comprises the result of independent and original investigation carried out me. The material which obtained from other sources has been duly acknowledged in the thesis.
Date: 16/07/2011 Place:Ahemdabad
Signature of the student
It is certified that the work mentioned above is carried out under my guidance.
Date: 16/07/2011
Signature of the faculty guide
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DECLARATION
We, Naseermohmad gori & Bhargav Kairav student of semester 2 of L.J Institute of Management studies hereby declare that the project work presented in this report is my own work and has been carried out under the supervisor of Mr Siddharth Bist.(Director) My report is submitted as a part of study curriculum and as a partial fulfillment of the degree of M.B.A. I am also submitting this report on the training undertaken at Sunpack Industries. I guarantee that this project report has not been submitted for the awards to any other university for degree, diploma in any such prizes.
Date:16/07/2011 Place:Himmatnagar
(Bhargav Kiarav) (Gori Naseermohmmad)
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ACKNOWLEDGEMENT
First and foremost, we would like to thank to the Director, P.K.Mehta of L.J.I.M.S for giving me an opportunity to work on such a broad and interesting topic and help us gaining the maximum out of this whole process. We have got all sort of support from his side whenever required.
We here by, take an opportunity to express my deep sense of gratitude to my revered guide Mr Mayank Patel & Ms Sweta Patel for his invaluable guidance and active support during my study. Their motivational skill & parental support throughout the period enabled us to explore the area of Financial statement. We are also indebted to all the employees of sun pack industries for giving us valuable information during our project.
And finally, We express our sincere thanks to Prof. Sidharth Bist(The director) who helped us throughout the project and gave us valuable suggestions and encouragement.
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PREFACE
In India, business and industrial management activities is a based for the development of the country. There are many courses for Business and industrial activates like MBA, BBA, etc. Unless and until the principles and theories of management are not applied in the practical field the managers would not be Successful in managing. In reality, Theoretical and practical Aspects are different in business keeping in view the fact of Increasing complexity in business environment idea of practical training has been introduced. In the course of MBA. One needs to be very practical in today‘s fast moving and expanding Market. The aim of this training is to get an outlook of what we study inside the class. Also management disciplines are very dynamic so only classroom study would not help to grasp the entire Knowledge and therefore the students of MBA. Have practical training as a vital aspect “Applied knowledge is power”.
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CONTENT OF TABLE Sr.No . 1. 2. 3. 4. 5. 6. 7. 8. 9. Content
OBJECTIVES OF THE STUDY AND RESEARCH METHODOLOGY THE ORGAINIZATIONAL INTRODUCTION INTRODUCTION TO CORRUGATE BOXES FINANCIAL MANAGEMENT FINANCIAL STATEMENT RATIO ANALYSIS PRACTICE RECOMMENDATION CONCLUSION BIBLIOGRAPHY
Page Number 8 9 15 20 29 38 55
56
57
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CHAPTER I : OBJECTIVES OF THE STUDY AND REASEARCH METHODOLOGY
1.1 Objectives Of The Study • • • • • •
To study the concepts of financial statements. To study the concept of Ratio Analysis To analyze how company maintains its Financial Statements. To study the firms Position in the market. To study problems in raising the company’s Earnings. To find out different alternative way to solve problems.
1.2 Research Methodology
• Analysis was done to understand and to evaluate different objectives, e.g. how company works, how it maintains its Financial Statements etc. • Interaction with company employees was done to get the idea of different processes followed by the company and different problems arisen. • The Officers and employees of the firm and Internet were the sources of Data for this Report
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CHAPTER II : THE ORGANIZATION INTRODUCION
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BACKGROUND OF THE COMPANY & FORM OF ORGANISATION
Chairman Established in : : Mr. M.K.PATEL 1999
2.1 BACKGROUND OF THE COMPANY
Mr. M. K. PATEL Mr. G. K. UPADHYAY Mr. D. M. PATEL Mr. V. D. PATEL Mr. C. G. UPADHYAY Mr. I. K. PATEL Mr. R. K. PATEL Chairman Partner Partner Director Director Director Director
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2.2 HISTORY
It was established as a partnership firm under the name SUNPACK INDUSTRIES in 1999 at Naroda, Ahmedabad. After five years (2004) it shifts its business to Himmatnagar.
2.3 THE PEOPLE
Sunpack Industries has been promoted and is managed by well qualified technocrats, having an experience of more than three decades in the field of designing and manufacturing transformers. All the directors and have a complete understanding of this line of business. Apart from well experienced directors, there is a team of skilled, dedicated and enthusiastic personnel who are dynamic enough to respond to the various challenges of business.
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2.4 PRESENT PROFILE
Name of the Unit Location : : Sunpack Industries Sunpack Industries, Shree Ganesh Minerals Compound, National Highway No. 8, Opp. Sahakari Jin, Kanknol, Himatnagar, Gujarat. Form of organization Product Bankers Total Land Area : : : : Partnership Firm Corrugated Box HDFC Bank. 20,000 sq.mt.
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2.5 MILESTONES SINCE INCEPTION
Right from its inception, Sunpack Industries has undergone tremendous changes in its journey towards success. Its climb has been a rather uphill one, tempered at every step of the way. This determination journey has been achieved and is listed below: 2002: Sunpack Industries crosses 50 lakhs in sales.
2004: Sunpack Industries shifts its business to Himmatnagar.
2006: Sunpack Industries crosses 75 lakhs in sales.
2008: Sunpack Industries crosses 0.99 Cr in sales.
2009: Sunpack Industries crosses 1.25 Cr in sales.
2010: Sunpack Industries crosses earnings of Rs. 15 Lakhs.
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2.6. ORGANIZATION STRUCTRE
CHAIRM AN
MANAGING DIRECTOR DEPARTMENT MANAGER
(FINANCE MANAGER, MARKETING MANAGER, PRODUCTION MANAGER)
SENIER OFFICER
OFFICER
WORKM AN
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CHAPTER III : INTRODUCION TO CORRUGATED BOXES 3.1 THE PRODUCT
The expertise of competent personnel and the benefit of a sound infrastructure directly translate into Quality products. Each of the transformers undergoes various examinations at different stages of production and is tested for all routine tests conforming and Regular Checks ensure that each SUNPACK INDUSTRIES transformer builds enormous goodwill for the company. The Firm basically deals in Corrugated Boxes. It produces various kinds of sizes, designs, shapes for Corrugated Boxes according to the orders received from interested parties. The Production takes place after receiving the orders. Order may contain the information like the number of boxes to be produced, size of the boxes, shape of the boxes, color and look of the boxes.
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3.2 PRODUCTION DEPARTMENT
3.2.1 INTRODUCTION
Production department is baste red child of economics production occupies much significance in the organization of a unit. This is most important department of the organization. In this department, the production of the product is done and it analyses that the production is done according to order, its quality and quantity, production planning production main tasks of machines done in this department.
Corrugated boxes nowadays plays vital role in every sector, it may be packing of the various items or storage of the things. Corrugated boxes are everywhere, carrying products from all over the world and just down the street. Your favorite pizza probably comes delivered in a brightly colored corrugated box. Your little brother or sister might use a big corrugated washer, dryer or dishwasher box for a playhouse. You might flatten and collect corrugated boxes for recycling. Where do all those boxes come from? Boxes are about the only product not often shipped in boxes. They’re usually shipped in bundles. They are made in special factories called “box plants.” Corrugated boxes are designed to be very strong. They are made of corrugated paperboard, which is different from the stiff paper known as “cardboard.” Look at the edge of corrugated paperboard, and you will see a row of air columns. The air acts as a cushion, while the paper columns make the material strong. Each box is made to hold something just right, protect it from banging around, and keep it from spilling. Boxes are made with important information printed on them about what’s inside, or how to lift or move them. Carefully designed inserts hold items in place so they won’t spill or become damaged.
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Manufacturing of a corrugated box requires Duplex Paper, Craft Paper, Pesting Gum, Corrugation Gum, Stiching Wire as a raw material. In the production department workers work on various categories of the production process of the Corrugated Box.
3.2.2 MANUFACTURING PROCESS OF PRODUCT:
SUNPACK manufactures Corrugated Boxes, which is done through following the process as below: Making of Corrugated Board on Corrugating Line
Converting machines “convert” fl at corrugated boards into boxes. The most common kinds of converting machines are flexo-folder gluers and die cutters
Flexo-folder gluers print, crease, slot, trim, fold and glue the box so that it can be shipped fl at and then be easily formed by the customer and packed
Die-cut machines cut the corrugated board into a pattern the customer will fold and glue into the box shape Rotary die cutter uses cutting edges called dies, and creasing rules, on a big roller to cut and score the corrugated board as it moves beneath it
Flat die cutter presses knives and creasing rules against a stationary board, the same way you press a cookie cutter into cookie dough
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Creating bundles of a fix number of boxes Storage and Dispatch
3.3 PRODUCT & PROCESS DETAIL
CORRUGATIG LINE works as shown below:
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3.4 QUALITY POLICY
? We provide products and services that meet stated standards on time, every time. ? We accept zero defects as a quality, and design & operate our quality system accordingly. ? We organize our work practices to do a job right the first time, every time. ? We are committed to continuous improvement in all business processes and track such improvement through measurable indicators.
3.5 OBJECTIVE OF THE POLICY
Creating and sustaining a competent, committed, motivated, empowered and contributing employee population to support the vision of Sunpack Industries. ? Competent: Employees who possess the requisites knowledge & skills needed to discharge responsibilities effectively. ? Committed: Employees who identify with the cause of the organization & its goals. ? Motivated: Employees who are stimulated to perform to the best of their abilities, consistently and continuously.
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? Empowered: Employees who have sufficient support and sanction to exercise their talents. ? Contributing: Employees who add measurable value to the attainment of organizational vision.
CHAPTER IV : FINANACIAL MANAGEMENT 4.1 FINANACE – A CONCEPT
Financial management is a managerial activity concerned with planning and controlling a firm’s resources. Finance is the lifeblood of any organization. Any business activity treats finance management as a very important management function. There is a common thread running through all department of any firm – production, marketing, research and development, etc. The R & D Manager requires finance to carry on research activities to come out with new product or new designs to meet the ever-changing needs of customers. He may be assigned the task of discovering a new process which will help in cost reduction leading to an increase in the firm’s revenue. Likewise, the Material Manager should keep a proper stock of all inventories. Any shortfall in inventory availability in stores leads to production rundowns sending a spiraling effect on the whole company system. Sales promotion activities like advertisement, free gifts etc. requires heavy cash outlays affecting the company’s financial resources. Thus, we find that finance binds together all the different function of an organization. Corporate decide their strategies, be it production, marketing, R & D or any based on their financial constraints. The Finance manager has to estimate the financial requirements of the company. He should determine the sources from which capital can be raised and determine how effectively and judiciously these funds are put into use so that repayments can be done in time. Financial planning is deciding in advance the course of action for future.
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4.2 FINANCE FUNCTIONS 4.2.1 Investment Decision
Investment or capital budgeting decision involves the allocation of capital to long term funds. A capital budgeting decision may be defined as “the firm’s decision to invest its current funds in long term assets in anticipating of an expected flow of benefits over a number of years.” Long term assets are those which affect a firm’s operation beyond one-year period. Such decisions generally include expansion, acquisition, modernization and replacement of long term assets. Investment in these assets requires huge cash outlays and most of the long term assets financing decisions are irreversible in nature. The uncertain future puts long term investment decisions in a precarious state. Expected benefits of investments are difficult to measure with certainty. Such decision should therefore be returns with a cutoff rate against the prospective return of new investments should be compared. Cut off rate is also known as hurdle rate, required rate and minimum rate of return. In most organizations an “Investment Committee” is constituted to study the various investment proposals in line with the technical, marketing and financial dimensions. The proposal is deliberated on its worthiness and the decision taken. Deciding on such plans becomes one of the core activities of Finance Manager.
4.2.2 Financing Decision
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Being the second most important function to be performed by the Finance Manager, he must plan and mobilize the required firms from alternative sources as and when they are required and at a reasonable cost. He must be aware of the various sources of funds available in the market, the time required to procure these funds, the rates applicable and the securities to be mortgaged to avail these funds. He should determine the correct proportion of debt and equity. The mix of debt and capital is known as the firm capital structure. The finance manager should strive hard to obtain the best financing mix or the optimum capital structure. A proper balance between debt and equity to ensure a trade off between risk and return is necessary. The use of debt increases the return to equity holders but the risk is also very high in this proposition. One of the objectives of the finance manager is to maximize the shareholders return with minimum risk, there by, the market value per share is maximized and ultimately the shareholders benefit. In practices, the firm considers many other factors such as control, flexibility, loan covenants, legal aspects, etc. in deciding the capital structure.
4.2.3 Dividend Policy Decision
Dividends are the pay outs to the shareholders. Two alternatives are available in dealing with dividend decision: they can be distributed to shareholder or they can be retained in the business itself. Payment of dividend is required to keep the share holders happy and increase their share value. Pay out or retention depends on the growth prospects of the firm. High pay out well taken by share holder and this reflected in their share value going up in the market. A growing firm requires large capital investments and it may have to borrow which comes with a huge interest payment on a regular basis. The firm may be therefore prefer to retain the earnings and investments in further investments and the in the newer opportunities available. Thus the finance manager has to strike a balance between maximization of share holders wealth and organizations growth.
4.2.4 Liquidity Decision
Liquidity Decisions are concerned with the current assets management. Managing current assets is an integral part of financial management. Current assets should be managed efficiently in order to safeguard the firm profitability and liquidity. It also required a trade off
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between profitability and risk. There is always a conflict in the manager mind as to these two aspects. A firm manager holding too much cash giving importance to the liquidity element loses on the profitability aspects. Likewise, by not investing sufficient funds in current assets, the firm may become illiquid and not have the ability to meet its current obligations inviting the risk of bankruptcy. The finance manager should ensure sound techniques of managing current assets to ensure that neither insufficient nor unnecessary fund is invested in current assets. He should be capable of assessing the right requirements and2 make sure that funds are available at the time they are required most.
4.3 FINANCIAL GOAL 4.3.1 Profit Maximization
Profit maximization means increasing to rupee income of the firms. Pricing of goods is a very important function and is determined by the type of economy by which the firm is functioning. This may be done by the market competitive forces if the economy is a market economy and by government in a government controlled economy. Firms in a market economy can functions the best only if they produce goods and services desired by the customers and prices are as competitive as possible for the customer to have a wide choice of products available at very competitive prices. It is generally held that under condition of free competition, businessmen pursuing their own self-interest also serve the interest of society. When individual firms pursue the interest of maximization the profits, society’s resources are efficiently used.
4.3.2 Wealth Maximization
It is also known as value maximization and net present worth maximization. Shareholders wealth maximization is an appropriate an operationally feasible criterion to choose amount alternative financial actions. SWM is the maximization of the net present value or wealth of a course of action to shareholders. A financial action that creates wealth for shareholders is desirable. The benefits are measured in terms of cash flows. In investments and financing decision the flow of cash is important and not the accounting profits.
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4.4 STEPS IN FINANCIAL PLANNING 4.4.1 Estimate capital requirements
This is the first step in financial planning. The following factors may be used to determine the capital: 1 Requirement of fixed assets. 2 Investment intangible assets like patents, copyrights, etc. 3 Amount required for current assets like stocks, cash, bank balance, etc. 4 Cost of setup and likely expenses to be incurred on the new issue of shares and debentures.
4.4.2 Determine the type of sources to be acquired and their proportion
The finance manager has to decide on the form in which the money is to be sourced, that is, debt, equity, preference shares, loan from banks and the proportion in which these are to be procured.
4.4.3 Projection of financial statements
Financial statements are the company’s profit and loss account and the balance sheet. These two statements can be prepared for a certain period of future time and they help the manager to determine amount of fund requirements.
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4.4.4 Determination of funds needed
Once the projection are drawn in terms of sales of products, the cost of production, marketing activities, etc., the finance manager can draw up a plan as to the fund requirements based on the time factor. He can know weather the firms are to be procured on a short term basis or on a long term basis.
4.4.5 Forecast the availability of funds
A company will have steady flow of funds. If the manager is able to forecast these amounts properly, then the money to be borrowed can be reduced, thus saving on the interest payments.
4.4.6. Establish and maintain control system
Control system is ineffective without adequate planning and the adequacy of planning can be gauged only through proper control measures. Both these activities are essential for effective utilization of funds.
4.4.7. Develop procedures
Procedures should be developed for basic plans how they should be achieved.
4.5 LONG TERM STRATEGIC PLAN
Long term plans generally range over a period of 2-5 years. These plans reflect the impact of long term investments financing decision of the company. Generally, these plans focus on acquiring capital assets, R&D expenditure, new market penetration strategies,
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process engineering techniques, new and innovative product development strategies, etc. The long term plans are supported by the annual plans.
4.6 SHORT TERM OPERATING PLANS
These plans cover a period of 1-2 years. They deal with the implication of short term decisions. These plans are generally called budgeting and include planning and controlling activities in the short run. The short term plans consist of aspects such as sales, production, level of inventories to be maintained, number of men to be used, cash flows etc.
4.7 FACTORS AFFECTING FINANCIAL PLAN 4.7.1 Nature of industry
The nature of the industry in which the company is performing is major factor which affects financial plans. A labour intensive industry requires less capital then a capital intensive industry.
4.7.2 Status of the company in the industry
The status of the company is a factor which has to be considered while drawing a financial plan. If the company is a well recognized and a reputed one, it will have no problems in raising finance at short term notices. But, on the other hand, if the company is a new entrant into the field, it will need time to establish itself and therefore raising money is slightly difficult, especially when the company wants to go public.
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4.7.3 Alternative sources of finance
The finance manager will assess the alternative source of funds and get the cheapest source of funds. He should also verify the condition attached to the funds he procures, that are the contractual restriction placed by the lenders.
4.7.4 Attitude of management towards control
If the management wants to have control over the firm, it may not go in for the equity form of finance for control vests with equity shareholders and it gets diluted with every new issue of equity shares.
4.7.5 Extent of working capital requirements
The finance manager formulates his plan considering the short and long term financial needs of the firms. Short term firms required to financial working capital needs are to be procured through short term sources only.
4.7.6 Capital structure
Capital of a firm has two components – debt and equity. The proportion of these should be so decided that the company gets the advantage of leverage. Running the company with loans and debentures will certainly help equity shareholders to get more income but the company is also functioning under a great risk.
4.7.7 Flexibility
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This is one important factor that should be kept in mind while planning. The financial plan should be flexible enough to adjust to the needs of the changing conditions. There should be flexibility to raise the amount from any source and similarly the repayments may be done any time the company has excess funds.
4.7.8 Government policy
With regard to financial controls, statutory provision and controls should be considered. The SEBI guidelines should be strictly adhered to wherever applicable and necessary permissions from concerned authorities should be taken if necessary.
4.8 ESTIMATION OF FINANCIAL REQUIREMENTS OF A FIRM 4.8.1 Cost Approach
Under this approach, the capitalization of a company is based on the cost of acquisition of fixed assets, setting up a company and the amount of working capital requirement.
4.8.2 Earnings Approach
Under the earning approach, the capital of the company is determined on the basis of its earnings. This approach advocates that the value of the company is equal to the value of its earning.
4.8.3 Overcapitalization
Overcapitalization arises when the present capital of the company is not effectively or properly used. There is excess capital available in the company then the actual requirements.
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4.8.4 Undercapitalization
Undercapitalization is the reverse to over capitalization. It is a situation where the actual capitalization is much less then the proper capitalization.
CHAPTER V : FINANACIAL STATEMENTS 5.1 YEAR 2010-11
TRADING ACCOUNT FOR THE YEAR ENDING ON 31ST MARCH, 2011 DEBIT To Opening Stock To Purchase To Expense(Direct) Electric Bill Machinery Maintenance Packing Material Screen Printing Job Staff Salary Transport in Word To Gross Profit Rs. 22,88,051.00 Sale 86,68,599,97 Closing Stock 2,97,205.00 17,820.00 1400 36,470.00 3,89,510.00 2,30,156.00 15,48,093.71 31,48,063.00 CREDIT Rs. 1,03,29,242.68
Total
1,34,77,305.68
Total
1,34,77,305.68
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PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2011 DEBIT To Expenses (Indirect) Interest & Finance Charges Bank Charge Depreciation Diesel/Fuel Factory Rent Freight Benefit Tax Interest Capital Interest Depositor Miscellaneous Expenses Postal Expenses Telephone Expenses Tempo Diesel Truck Insurance Travelling Expenses Transport Outward Truck Maintenance To Nett Profit Rs. 2,23,313.14 1,209.00 2,68,471.00 52,237.00 90,000.00 620.00 2,03,673.91 5,23,894.00 41,595.40 50.00 830.00 48000.00 18,220.00 14,350.00 30,200.00 7,030.00 1,19,391.58 CREDIT By Gross Profit By Income (Indirect) Income of Truck Int. On. I.T. Refund Interest Income Rs. 15,48,093.71
60,970.00 29,296.32 4,725
Total
16,43,085.03
Total
16,43,085.03
BALANCE SHEET AS ON 31ST MARCH, 2011 LIABILITIES CAPITAL A/C
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Rs. ASSETS 18,60,420.45 Fixed Assets
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P & L A/c Current Liabilities: Duties & Taxes Sundry Creditors
1,19,391.58 9,566.29
COMPUTER FURNITURES PLANT &
5748.80 24,271.20 8,14,526.64 4,313.00 6,38,350.00
MACHINARIES 25,28,106.00 SCOOTER TRUCK GJ9Z-635
Loans (Liability) Unsecured Loans CHOLAMANDALA M DBS FINANCE LTD HDFC LOAN A/C INDIABULLS FINANCE LTD
38,81,504.00 Current Assets 3,78,147.00 Bank Accounts 1,20,552.20 4,70,679.00 Cash-in-hand Loans & Advances (Assets) Stock-in-hand Sundry Debtors
6,53,765.63 32,643.58 55,280.00 31,48,063.00 39,91,404.67
Total
93,68,366.52
Total
93,68,366.52
5.2 YEAR 2009-10
TRADING ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2010 DEBIT OPENING STOCK Amount Rs. CREDIT CLOSING STOCK 14,74,750.0 DUPLEX PAPER 0 CRAFT PAPER PESTING GUM
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Amount Rs. 5,77,720.00 16,40,880.00
Analysis of Financial Statements
CORRUGATION GUM STICHING WIRE CORRUGATED BOX WASTE PACKING CHARGE PACKING CHARGE P.O.NODTDIE-EXPC POSITIVE EXPC JOB-WOK PRINTING JOB-WOK PRINTING JOB-WORK PRINTING PUNCHING DIE Gross Profit 7,70,090.00
6,834.00 12,108.00
7,298.00
Total
22,44,840.0 0
Total
22,44,840.00
PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2010 Amount Rs.
EXPENDITURE
INCOME
Amount Rs.
GROSS PROFIT ----->>>> Net Profit.............. *C.G.UPADHYAY 20% 1,54,018.00 *D.M.PATEL 30% 2,31,027.00 *G.K.UPADHYAY 10% 77,009.00 *PARAS R PATEL 20%
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7,70,090.00
7,70,090.00
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1,54,018.00 *CHETAN I PATEL 20% 1,54,018.00
Total
7,70,090.00
Total
7,70,090.00
BALANCE SHEET AS ON 31ST MARCH, 2010 LIABILITIES CAPITAL ACCOUNT C.G.UPADHYAY 20% D.M.PATEL 30% G.K.UPADHYAY 10% PARAS R PATEL 20% CHETAN I PATEL 20% LOANS & ADVANCES ANANDIBEN D PATEL ISHWARBHAI K PATEL NALINIBEN UPADHYAY UMESH G UPADHYAY BHAVESH D PATEL RAMANBHAI K PATEL ANILBHAI K PATEL HUF MITESHKUMAR H JOSHI SUNDRY CREDITORS K.K.AGENCY ROYAL PRINTING
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Amount Rs. 2,75,551.72 5,13,036.80 1,79,423.09 3,36,395.54 3,36,394.53 1,50,000.00 5,40,000.00 3,10,000.00 3,40,000.00 5,40,000.00 7,00,000.00 7,00,000.00 1,50,000.00 12,49,863.0
ASSETS LOANS & ADVANCES ADVANCE INCAM TAX FIXED ASSETS COMPUTER FURNITURES MOTOR LORRY GJ1X7913 PLANT & MACH. SCOOTER CURRENT ASSETS TDS RECEIVABLE 04-05 TDS RECEIVABLE 06-07 TDS RECEIVABLE 07-08 TDSRECEIVABLE 08-09 CURRENT ASSETS CASH ON HAND BANK OF INDIA ABAD BANK OF INDIA HMT
Amount Rs. 15,115.00 14,372.00 26,968.00 12,960.00 9,58,266.64 5,074.00 1,56,605.14 97,976.00 10,902.68 55,280.00 12,919.54 16,672.04 1,45,431.03 22,88,051.00
0 75,425.00 CLOSING STOCK
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KAPIL ENTERPRISE AALAY INDUSTRIES AALAY INTERFACE R B INFOTECH UNPAID ELECTRIC BILL CURRENT ASSETS HDFC BANK A/C INDIABULLS FINANCIAL SERVES LTD Total
9,57,572.00 37,013.00 10,106.00 5,500.00 17,220.00
SUNDRY DEBTORS AJITA CHEM PVT LTD ORACALE GRANITO SMART CERAMICS SANTRO TILES LTD. CHEMINOVA INDIA 2,98,725.06 M B INDUSTRIS LTD 7,81,194.00 NATRAJ INDUSTRIS
4,17,323.00 10,99,873.00 5,07,241.00 14,82,046.67 2,17,118.00 8,63,225.00 1,00,000.00
85,03,419.7 4
Total
85,03,419.74
5.3 YEAR 2008-2009
TRADING ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2009 DEBIT Amount Rs. CREDIT Amount Rs.
CLOSING STOCK
OPENING STOCK A/C
13,68,270.0 DUPLEX PAPER 0 CRAFT PAPER PESTING GUM CORRUGATION GUM STICHING WIRE CORRUGATED BOX WASTE PACKING CHARGE PACKING CHARGE P.O.NODTGross Loss
1,43,410.00
12,24,860.00
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Analysis of Financial Statements
Total
13,68,270.0 0
Total
13,68,270.00
PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2009 EXPENDITURE Amount Rs. INCOME Amount Rs.
GROSS LOSS-------->>>>
12,24,860.00 Net Loss............... 12,24,860.00
*C.G.UPADHYAY 20% *D.M.PATEL 30% *G.K.UPADHYAY 10% *PARAS R PATEL 20% *CHETAN I PATEL 20%
2,44,972.00 3,67,458.00 1,22,486.00 2,44,972.00 2,44,972.00
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Analysis of Financial Statements
Total
12,24,860.00
Total
12,24,860.00
BALANCE SHEET AS ON 31ST MARCH, 2009 LIABILITIES CAPITAL ACCOUNT C.G.UPADHYAY 20% D.M.PATEL 30% G.K.UPADHYAY 10% PARAS R PATEL 20% CHETAN I PATEL 20% LOANS & ADVANCES ANANDIBEN D PATEL ISHWARBHAI K PATEL NALINIBEN G UPADHYAY UMESH G UPADHYAY BHAVESH KUMAR PATEL RAMANBHAI K PATEL ANILBHAI K PATEL HUF K. K. UPADHYAY MITESHKUMAR H JOSHI SUNDRY CREDITORS K.K.AGENCY K.K.PAPER UNPAID VAT (SALES
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Amount Rs.
ASSETS
Amount Rs.
3,62,353.90 5,43,980.84 LOANS & ADVANCES 1,81,326.95 ADVANCE INCAM TAX 3,62,653.89 FIXED ASSETS 3,62,653.89 COMPUTER FURNITURES 1,50,000.00 MOTOR LORRYGJ1X7913 5,40,000.00 PLANT & MACHINERIES 3,10,000.00 SCOOTER CURRENT ASSETS TDS RECEIVABLE04-05 TDS RECEVIVABLE06-07 TDS RECEVIVABLE07-08 CURRENT ASSET CASH ON HAND BANK OF INDIA ABAD 17,47,183.00 BANK OF INDIA HMT 7,85,548.00 CLOSING STOCK 2,752.00 SUNDRY DEBITORS
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40,000.00 26,305.00 22,164.00 16,200.00 11,27,372.64 5,970.00
5,40,000.00 5,40,000.00 7,00,000.00 7,00,000.00 1,00,000.00 1,50,000.00
1,56,605.14 97,976.00 10,902.68 23,708.54 16,672.04 90,902.03 14,74,750.00
Analysis of Financial Statements
TAX) UNPAID ELECTRIC BILL CURRENT ASSETS HDFC BANK A/C SUNDRY DEBITORS SAMAY TILES LTD.
6,423.00 AJITA CHEM PVT LTD ORACALE GRANITO 4,46,274.37 SMART CERAMICS SANTRO TILES LTD. 33,054.68 CHEMINOVA INDIA LTD NATRAJ INDUSTRIS
7,50,749.00 27,055.00 6,07,241.00 13,99,403.67 25,70,227.78 1,00,000.00
Total
85,64,204.52
Total
85,64,204.52
CHAPTER VI : RATIO ANALYSIS PRACTICES
Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return between companies
• • •
between industries between different time periods for one company between a single company and its industry average A financial ratio (or accounting ratio) is a relative magnitude of two selected
numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
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Ratio Analysis is a powerful tool of financial analysis. A Ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.” In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The relationship between two accounting figures, expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of financial data and to make qualitative judgment about the firm’s financial performance.
6.1 LIQUIDITY RATIO
Liquidity ratios measure the firm’s ability to meet current obligations. In fact, analysis of liquidity needs the preparation of cash budget and cash and fund flow statements but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide quick measure of liquidity. Lack of sufficient liquidity will result in a poor credit worthiness or loss of creditor’s confidence. A very high degree of liquidity is also bad because idle assets earn nothing. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity.
6.1.1 Current Ratio
Current ratio is calculated by dividing current assets by current liabilities. Current assets include cash and those assets that can be converted into cash within a year. All obligations maturing within a year are included in current liabilities. The current ratio is a measure of the firm’s short term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. Current Ratio= current Assets/Current Liabilities YEAR 2008-09 Current Asset 6846863.83 Current liabilities 6271906 Result(times) 1.09
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2009-10 2010-11
6390745.04 7881156.88
5782699 4850882
1.11 1.62
Current Ratio 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 Current Ratio
INTERPRETATION: Current ratio of the company is more in 2009-10 which is indicates that company can use its fund effectively.
6.1.2 Quick Ratio:
Quick ratio also called acid – test ratio, establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. The quick ratio is found out by dividing quick assets by current liabilities.
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Quick ratio= Current Assets - Stock / Current liability Year 2008-09 2009-10 2010-11 Quick Assets 5372113.83 4102694.00 4733093.88 Quick Liabilities 6271906 5782699.00 4850882 Quick Ratio(times) 0.86 0.71 0.98
Quick Ratio(times) 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 Quick Ratio(times)
INTERPRETATION:
Quick ratio of the company is more in 2009-10 which is indicates that company has made less investment in stock than in previous two years.
6.1.3 CASH RATIO:
Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash therefore they may be included in the computation of cash ratio.
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Cash ratio = Cash + Marketable Securities / current liability Year 2008-09 2009-10 2010-11 Cash 23,708.54 12,919.54 32,643.58 Marketable Securities Current liability 6271906.00 5782699.00 4850882.00 Cash ratio result (%) 0.378 0.378 0.378
C ash ratio result (%) 0.4 0.35 cash ratio 0.3 0.25 0.2 0.15 0.1 0.05 0 1 2 year 3 C ash ratio result (%)
INTERPRETATION:
The company carries same portion of cash into current liabilities for all the three years.
6.2 TURNOVER RATIO
Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called activity ratio because they indicate the speed with which assets are being converted or turned over into sales. Turnover ratios thus involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well
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6.2.1 Cost of Goods Sold
Year 2008-09 2009-10 2010-11
Opening Stock 1368270 1474750 2288051
Purchase 8034203 10558533.28 8668599.97
Closing Stock 1474750 2288051 3148063
COGS 7927723 9745232.28 6836026.97
INTERPRETATION:
From the above results we can conclude that the cost of goods sold is highest iv year 2008-09 while it is lowest in year 2007-08. But yes firm ‘s cost of goods sold is reduced in year 200910 than in year 2008-09 which shows firm’s good performance.
6.2.2 Inventory Turnover Ratio
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory. Inventory turnover ratio = Cost of goods sold / Average stock Year Cost of goods sold Average stock *** Inventory Turnover ratio (times)
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2008-09 2009-10 2010-11
7927723 9745232.28 6836026.97
1421510 1881400.5 2718057
5.58 5.18 2.52
***Average stock Year 2008-09 2009-10 2010-11 Opening stock 1368270 1474750 2288051 Closing stock 1474750 2288051 3148063 **Average stock 1421510 1881400.5 2718057
Inventory T urnover ratio (tim es) 6 5 4 3 2 1 0 2 008-09
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inventory ratio
In nto T ve ry urnove ra r tio (tim es)
2009 -10
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2 010-11
year
Analysis of Financial Statements
INTERPRETATION: Inventory turnover ratio of 2009-10 is less which indicates that movement of the stock is comparatively slow.
6.2.3 Stock Holding Period
Days = 360 / Inventory turnover ratio Months = 12 / Inventory turnover ratio Year 2008-09 2009-10 2010-11 Inv. turnover ratio 5.58 5.18 2.52 Days 65 70 143 Months 2.15 2.32 4.76
Stock Holding Period(In Months)
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09
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Stock Holding Period(In Months)
Months
2009-10 year
2010-11
Analysis of Financial Statements
INTERPRETATION: Stock holding period of the company is more in 2009-10 which indicate that the company keeps stock for larger period.
6.2.4 Debtor Turnover Ratio
A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of Companies. When the firm extends credits to its customers, debtors are created in the firm’s account. Debtors are convertible into cash over a short period and therefore are included in current assets. The liquidity position of the firm depends on the quality of debtors to a great extent. Debtor turnover ratio = Credit sales / Average debtor Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.51 1,03,29,242.68 ***Average debtor 4835467.62 2961651.54 2230015.67 Debtor turnover ratio (times) 2.07 4.23 4.63
*** Average debtor Year 2008-09 2009-10 2010-11 Opening debtor 4216258.84 5454676.4 4686826.67 Closing debtor 5454676.4 4686826.67 39,91,404.67 AVG. Debtor 4835467.62 2961651.54 2230015.67
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Debtor turnover ratio (times) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 year 2010-11
Debtor turnover ratio (times
Debtor turnover ratio (times)
INTERPRETATION:
Debtor turnover ratio is more in 2009-10 which indicates that company collects the money quickly which may adversely affect the sales of the company.
\
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6.2.5 Creditor Turnover Ratio
Creditor turnover ratio = Credit purchase / Average creditor Year 2008-09 2009-10 2010-11 Purchase 8034203.00 10558533.28 8668599.97 Avg. Creditors*** 2879865.84 2450632.34 2431792.50 Creditors Ratio (Times) 2.79 4.31 3.56
***Avg. Creditors Year 2008-09 2009-10 2010-11 Opening Creditors 3193946.00 2565785.68 2335479.00 Closing Creditors 2565785.68 2335479.00 25,28,106.00 Avg. Creditors 2879865.84 2450632.34 2431792.50
Creditors Ratio (Times) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 year 2010-11
creditor ratio
Creditors Ratio (Times)
INTERPRETATION:
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Analysis of Financial Statements
Creditor Turnover Ratio is less in 2009-10 than 2008-09 which indicates that the firm receives more credit period in 2009-10 than 2008-09.
6.2.6 Fixed Assets Turnover Ratio
Fixed assets are used to generate sales. Therefore a firm should manage its assets efficiently to maximize sales. The relationship between sales and net fixed assets is called fixed assets turnover ratio Fixed assets turnover ratio = Sale / Net fixed assets Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.51 10329242.68 ** Net fixed assets 810313.32 1107826.14 1252424.64 Fixed assets turnover ratio (times) 12.33 11.31 8.25
** Average net fixed assets Year 2008-09 2009-10 2010-11 Opening fixed assets 422615.00 1198011.64 1017640.64 Closing fixed assets 1198011.64 1017640.64 1487208.64 Average net fixed assets 810313.32 1107826.14 1252424.64
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Fixed assets turnover ratio (times) 14 12 10 8 6 4 2 0 2008-09 2009-10 year 2010-11
Fixed assets turnover ratio (times)
Fixed assets turnover rat
INTERPRETATION: Fixed assets turnover ratio is less in 2009-10 which indicates that company could not use its fixed assets efficiently.
6.2.7 Total Assets Turnover Ratio
Total assets turnover in addition to or instead of the net assets turnover. This ratio shows the firm’s ability in generating sales from all financial resources committed to total assets. It shows the relationship between sales and average total assets. Total assets turnover ratio = Sales / Average total assets Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.5 1 10329242.6 8 *** Average total assets 7592351.26 8533812.13 8935893.13 Total assets turnover ratio (times) 1.32 1.47 1.16
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***Average total assets Year 2008-09 2009-10 2010-11 Opening total assets 6620498.00 8564204.52 8503419.74 Closing total assets 8564204.52 8503419.74 9368366.52
Total assets turnover ratio (times) 1.6 assets turnover ratio (times) 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 year 2010-11
Average total assets 7592351.26 8533812.13 8935893.13
Total assets turnove (times)
INTERPRETATION: Total assets turnover ratio is less in 2009-10 which indicates that company could not use its total assets more profitably and efficiently than earlier years.
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6.3 PROFITABLE RATIO
A company should earn profits to survive and grow over a long period of time. A profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company and it will have no future if it fails to make sufficient profit. Therefore financial manager should continuously evaluate the efficiency of the company in term of profits. The Profitable ratios are calculated to measure the operating efficiency of the company.
6.3.1 Gross Profit Ratio
The gross profit margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high gross profit margin ratio is a sign of good management. A low gross profit margin may reflect higher cost of goods sold due to the firm’s inability to purchase raw materials at favorable terms or inefficient utilization of plant and machinery. Gross profit ratio = Gross profit / Sale * 100 Year 2008-09 2009-10 2010-11 *** Gross profit 770090.00 1548093.71 Sale 9991617.79 12525130.51 10329242.68 Gross profit ratio % 6.15 14.99
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Gross profit 1800000 1600000 1400000 Gross profit 1200000 1000000 800000 600000 400000 200000 0 2008-09 2009-10 year 2010-11
Gross
INTERPRETATION: Gross profit ratio of the company is less in 2007 -08 which indicates that cost of goods sold is higher or selling price may be less. 2009-10 indicates that the firm is in good position.
6.3.2 NET PROFIT RATIO:
Net profit ratio establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing, administering, and selling the product. This ratio is the overall measure of the firm’s ability to turn each rupee sales into profit. This ratio indicates the firm’s capacity to withstand adverse economic conditions.
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Net profit ratio = Net profit / Sale * 100 Year 2008-09 2009-10 2010-11 Net Profit 770090.00 119391.58 Sale 9991617.79 12525130.51 10329242.68 Net Profit ratio (%) 6.15 1.16
Net Profit ratio (%) 7 6 5 4 3 2 1 0 2008-09 2009-10 2010-11
Net Profit rat
INTERPRETATION: Company with a low net profit ratio indicates a disadvantageous position to survive in the face of falling selling prices, rising costs or declining demand for the product. It would be really difficult for a low net profit ratio in 2009 – 10 withstand these adversities.
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CHAPTER VII : RECOMMENDATIONS
•
From the analysis the firm should look at its stock holdings. Firm has closing stock of Rs. 31,48,063.00 in year 2009-10 which is unnecessary investment into the stocks.
•
Firm has trend of increase in the stock. In year 2008-09 it has closing stock of Rs.22,88,051.00 and in year 2007-08 it has closing stock of Rs. 14,74,750.00. So the firm needs to invest money into stock carefully.
•
The firm should also try to reduce its expenses and costs so as to earn good amount of money. There is always two ways to earn Profit, Reduce the costs and Increase the sales.
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CHAPTER VIII : CONCLUSION
•
Conclusion for this analysis of financial statements of Sunpack Industries is that the firm has good operating capacity.
•
Firm has increasing trend of its earnigs.
•
Firm is in a sound Position, hoping firm would do better in the future.
•
So summing up, we can say that the firm has a more positives than its weaknesses and because of that the firm is able to eliminate its weaknesses easily. So the firm is having a Very Good Position at Present.
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CHAPTER IX : BIBLIOGRAPHY
Human Resource of Sunpack Industries Book : “FINANCIAL MANAGENENT” by I. M. Pandey,13th add, Vikas prakashan Websites: 1 .www.iibf.org.in 2. www.investopedia.com
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doc_100410998.doc
Ratio
Analysis of Financial Statements
A SUMMER INTERNSHIP REPORT ON ANALYSIS OF FINANCIAL STATEMENTS (SUNPACK INDUSTRIES)
Submitted to
L.J. Institute of Management Institute (NOON SHIFT)
In requirement of partial fulfillment of Master’s of Business Administration(MBA) 2 year full time Program of Gujarat Technological University
Submitted on: 16th JULY 2011 Submitted by: BHARGAV KAIRAV (107960592018) GORI NASEERMAHMAD (107960592070)
Batch No.: 2010-12
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Certificate
It is hereby certified that the work incorporated in the thesis submitted entitled “Analysis of Financial Statements” submitted by Kairav Bhargav comprises the result of independent and original investigation carried out me. The material which obtained from other sources has been duly acknowledged in the thesis.
Date: 16/07/2011 Place:Ahemdabad
Signature of the student
It is certified that the work mentioned above is carried out under my guidance.
Date: 16/07/2011
Signature of the faculty guide
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Certificate
It is hereby certified that the work incorporated in the thesis submitted entitled “Analysis of Financial Statements” submitted by Naseermohmmad Gori comprises the result of independent and original investigation carried out me. The material which obtained from other sources has been duly acknowledged in the thesis.
Date: 16/07/2011 Place:Ahemdabad
Signature of the student
It is certified that the work mentioned above is carried out under my guidance.
Date: 16/07/2011
Signature of the faculty guide
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DECLARATION
We, Naseermohmad gori & Bhargav Kairav student of semester 2 of L.J Institute of Management studies hereby declare that the project work presented in this report is my own work and has been carried out under the supervisor of Mr Siddharth Bist.(Director) My report is submitted as a part of study curriculum and as a partial fulfillment of the degree of M.B.A. I am also submitting this report on the training undertaken at Sunpack Industries. I guarantee that this project report has not been submitted for the awards to any other university for degree, diploma in any such prizes.
Date:16/07/2011 Place:Himmatnagar
(Bhargav Kiarav) (Gori Naseermohmmad)
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ACKNOWLEDGEMENT
First and foremost, we would like to thank to the Director, P.K.Mehta of L.J.I.M.S for giving me an opportunity to work on such a broad and interesting topic and help us gaining the maximum out of this whole process. We have got all sort of support from his side whenever required.
We here by, take an opportunity to express my deep sense of gratitude to my revered guide Mr Mayank Patel & Ms Sweta Patel for his invaluable guidance and active support during my study. Their motivational skill & parental support throughout the period enabled us to explore the area of Financial statement. We are also indebted to all the employees of sun pack industries for giving us valuable information during our project.
And finally, We express our sincere thanks to Prof. Sidharth Bist(The director) who helped us throughout the project and gave us valuable suggestions and encouragement.
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PREFACE
In India, business and industrial management activities is a based for the development of the country. There are many courses for Business and industrial activates like MBA, BBA, etc. Unless and until the principles and theories of management are not applied in the practical field the managers would not be Successful in managing. In reality, Theoretical and practical Aspects are different in business keeping in view the fact of Increasing complexity in business environment idea of practical training has been introduced. In the course of MBA. One needs to be very practical in today‘s fast moving and expanding Market. The aim of this training is to get an outlook of what we study inside the class. Also management disciplines are very dynamic so only classroom study would not help to grasp the entire Knowledge and therefore the students of MBA. Have practical training as a vital aspect “Applied knowledge is power”.
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CONTENT OF TABLE Sr.No . 1. 2. 3. 4. 5. 6. 7. 8. 9. Content
OBJECTIVES OF THE STUDY AND RESEARCH METHODOLOGY THE ORGAINIZATIONAL INTRODUCTION INTRODUCTION TO CORRUGATE BOXES FINANCIAL MANAGEMENT FINANCIAL STATEMENT RATIO ANALYSIS PRACTICE RECOMMENDATION CONCLUSION BIBLIOGRAPHY
Page Number 8 9 15 20 29 38 55
56
57
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CHAPTER I : OBJECTIVES OF THE STUDY AND REASEARCH METHODOLOGY
1.1 Objectives Of The Study • • • • • •
To study the concepts of financial statements. To study the concept of Ratio Analysis To analyze how company maintains its Financial Statements. To study the firms Position in the market. To study problems in raising the company’s Earnings. To find out different alternative way to solve problems.
1.2 Research Methodology
• Analysis was done to understand and to evaluate different objectives, e.g. how company works, how it maintains its Financial Statements etc. • Interaction with company employees was done to get the idea of different processes followed by the company and different problems arisen. • The Officers and employees of the firm and Internet were the sources of Data for this Report
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CHAPTER II : THE ORGANIZATION INTRODUCION
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BACKGROUND OF THE COMPANY & FORM OF ORGANISATION
Chairman Established in : : Mr. M.K.PATEL 1999
2.1 BACKGROUND OF THE COMPANY
Mr. M. K. PATEL Mr. G. K. UPADHYAY Mr. D. M. PATEL Mr. V. D. PATEL Mr. C. G. UPADHYAY Mr. I. K. PATEL Mr. R. K. PATEL Chairman Partner Partner Director Director Director Director
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2.2 HISTORY
It was established as a partnership firm under the name SUNPACK INDUSTRIES in 1999 at Naroda, Ahmedabad. After five years (2004) it shifts its business to Himmatnagar.
2.3 THE PEOPLE
Sunpack Industries has been promoted and is managed by well qualified technocrats, having an experience of more than three decades in the field of designing and manufacturing transformers. All the directors and have a complete understanding of this line of business. Apart from well experienced directors, there is a team of skilled, dedicated and enthusiastic personnel who are dynamic enough to respond to the various challenges of business.
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2.4 PRESENT PROFILE
Name of the Unit Location : : Sunpack Industries Sunpack Industries, Shree Ganesh Minerals Compound, National Highway No. 8, Opp. Sahakari Jin, Kanknol, Himatnagar, Gujarat. Form of organization Product Bankers Total Land Area : : : : Partnership Firm Corrugated Box HDFC Bank. 20,000 sq.mt.
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2.5 MILESTONES SINCE INCEPTION
Right from its inception, Sunpack Industries has undergone tremendous changes in its journey towards success. Its climb has been a rather uphill one, tempered at every step of the way. This determination journey has been achieved and is listed below: 2002: Sunpack Industries crosses 50 lakhs in sales.
2004: Sunpack Industries shifts its business to Himmatnagar.
2006: Sunpack Industries crosses 75 lakhs in sales.
2008: Sunpack Industries crosses 0.99 Cr in sales.
2009: Sunpack Industries crosses 1.25 Cr in sales.
2010: Sunpack Industries crosses earnings of Rs. 15 Lakhs.
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2.6. ORGANIZATION STRUCTRE
CHAIRM AN
MANAGING DIRECTOR DEPARTMENT MANAGER
(FINANCE MANAGER, MARKETING MANAGER, PRODUCTION MANAGER)
SENIER OFFICER
OFFICER
WORKM AN
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CHAPTER III : INTRODUCION TO CORRUGATED BOXES 3.1 THE PRODUCT
The expertise of competent personnel and the benefit of a sound infrastructure directly translate into Quality products. Each of the transformers undergoes various examinations at different stages of production and is tested for all routine tests conforming and Regular Checks ensure that each SUNPACK INDUSTRIES transformer builds enormous goodwill for the company. The Firm basically deals in Corrugated Boxes. It produces various kinds of sizes, designs, shapes for Corrugated Boxes according to the orders received from interested parties. The Production takes place after receiving the orders. Order may contain the information like the number of boxes to be produced, size of the boxes, shape of the boxes, color and look of the boxes.
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3.2 PRODUCTION DEPARTMENT
3.2.1 INTRODUCTION
Production department is baste red child of economics production occupies much significance in the organization of a unit. This is most important department of the organization. In this department, the production of the product is done and it analyses that the production is done according to order, its quality and quantity, production planning production main tasks of machines done in this department.
Corrugated boxes nowadays plays vital role in every sector, it may be packing of the various items or storage of the things. Corrugated boxes are everywhere, carrying products from all over the world and just down the street. Your favorite pizza probably comes delivered in a brightly colored corrugated box. Your little brother or sister might use a big corrugated washer, dryer or dishwasher box for a playhouse. You might flatten and collect corrugated boxes for recycling. Where do all those boxes come from? Boxes are about the only product not often shipped in boxes. They’re usually shipped in bundles. They are made in special factories called “box plants.” Corrugated boxes are designed to be very strong. They are made of corrugated paperboard, which is different from the stiff paper known as “cardboard.” Look at the edge of corrugated paperboard, and you will see a row of air columns. The air acts as a cushion, while the paper columns make the material strong. Each box is made to hold something just right, protect it from banging around, and keep it from spilling. Boxes are made with important information printed on them about what’s inside, or how to lift or move them. Carefully designed inserts hold items in place so they won’t spill or become damaged.
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Manufacturing of a corrugated box requires Duplex Paper, Craft Paper, Pesting Gum, Corrugation Gum, Stiching Wire as a raw material. In the production department workers work on various categories of the production process of the Corrugated Box.
3.2.2 MANUFACTURING PROCESS OF PRODUCT:
SUNPACK manufactures Corrugated Boxes, which is done through following the process as below: Making of Corrugated Board on Corrugating Line
Converting machines “convert” fl at corrugated boards into boxes. The most common kinds of converting machines are flexo-folder gluers and die cutters
Flexo-folder gluers print, crease, slot, trim, fold and glue the box so that it can be shipped fl at and then be easily formed by the customer and packed
Die-cut machines cut the corrugated board into a pattern the customer will fold and glue into the box shape Rotary die cutter uses cutting edges called dies, and creasing rules, on a big roller to cut and score the corrugated board as it moves beneath it
Flat die cutter presses knives and creasing rules against a stationary board, the same way you press a cookie cutter into cookie dough
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Creating bundles of a fix number of boxes Storage and Dispatch
3.3 PRODUCT & PROCESS DETAIL
CORRUGATIG LINE works as shown below:
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Analysis of Financial Statements
3.4 QUALITY POLICY
? We provide products and services that meet stated standards on time, every time. ? We accept zero defects as a quality, and design & operate our quality system accordingly. ? We organize our work practices to do a job right the first time, every time. ? We are committed to continuous improvement in all business processes and track such improvement through measurable indicators.
3.5 OBJECTIVE OF THE POLICY
Creating and sustaining a competent, committed, motivated, empowered and contributing employee population to support the vision of Sunpack Industries. ? Competent: Employees who possess the requisites knowledge & skills needed to discharge responsibilities effectively. ? Committed: Employees who identify with the cause of the organization & its goals. ? Motivated: Employees who are stimulated to perform to the best of their abilities, consistently and continuously.
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Analysis of Financial Statements
? Empowered: Employees who have sufficient support and sanction to exercise their talents. ? Contributing: Employees who add measurable value to the attainment of organizational vision.
CHAPTER IV : FINANACIAL MANAGEMENT 4.1 FINANACE – A CONCEPT
Financial management is a managerial activity concerned with planning and controlling a firm’s resources. Finance is the lifeblood of any organization. Any business activity treats finance management as a very important management function. There is a common thread running through all department of any firm – production, marketing, research and development, etc. The R & D Manager requires finance to carry on research activities to come out with new product or new designs to meet the ever-changing needs of customers. He may be assigned the task of discovering a new process which will help in cost reduction leading to an increase in the firm’s revenue. Likewise, the Material Manager should keep a proper stock of all inventories. Any shortfall in inventory availability in stores leads to production rundowns sending a spiraling effect on the whole company system. Sales promotion activities like advertisement, free gifts etc. requires heavy cash outlays affecting the company’s financial resources. Thus, we find that finance binds together all the different function of an organization. Corporate decide their strategies, be it production, marketing, R & D or any based on their financial constraints. The Finance manager has to estimate the financial requirements of the company. He should determine the sources from which capital can be raised and determine how effectively and judiciously these funds are put into use so that repayments can be done in time. Financial planning is deciding in advance the course of action for future.
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Analysis of Financial Statements
4.2 FINANCE FUNCTIONS 4.2.1 Investment Decision
Investment or capital budgeting decision involves the allocation of capital to long term funds. A capital budgeting decision may be defined as “the firm’s decision to invest its current funds in long term assets in anticipating of an expected flow of benefits over a number of years.” Long term assets are those which affect a firm’s operation beyond one-year period. Such decisions generally include expansion, acquisition, modernization and replacement of long term assets. Investment in these assets requires huge cash outlays and most of the long term assets financing decisions are irreversible in nature. The uncertain future puts long term investment decisions in a precarious state. Expected benefits of investments are difficult to measure with certainty. Such decision should therefore be returns with a cutoff rate against the prospective return of new investments should be compared. Cut off rate is also known as hurdle rate, required rate and minimum rate of return. In most organizations an “Investment Committee” is constituted to study the various investment proposals in line with the technical, marketing and financial dimensions. The proposal is deliberated on its worthiness and the decision taken. Deciding on such plans becomes one of the core activities of Finance Manager.
4.2.2 Financing Decision
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Analysis of Financial Statements
Being the second most important function to be performed by the Finance Manager, he must plan and mobilize the required firms from alternative sources as and when they are required and at a reasonable cost. He must be aware of the various sources of funds available in the market, the time required to procure these funds, the rates applicable and the securities to be mortgaged to avail these funds. He should determine the correct proportion of debt and equity. The mix of debt and capital is known as the firm capital structure. The finance manager should strive hard to obtain the best financing mix or the optimum capital structure. A proper balance between debt and equity to ensure a trade off between risk and return is necessary. The use of debt increases the return to equity holders but the risk is also very high in this proposition. One of the objectives of the finance manager is to maximize the shareholders return with minimum risk, there by, the market value per share is maximized and ultimately the shareholders benefit. In practices, the firm considers many other factors such as control, flexibility, loan covenants, legal aspects, etc. in deciding the capital structure.
4.2.3 Dividend Policy Decision
Dividends are the pay outs to the shareholders. Two alternatives are available in dealing with dividend decision: they can be distributed to shareholder or they can be retained in the business itself. Payment of dividend is required to keep the share holders happy and increase their share value. Pay out or retention depends on the growth prospects of the firm. High pay out well taken by share holder and this reflected in their share value going up in the market. A growing firm requires large capital investments and it may have to borrow which comes with a huge interest payment on a regular basis. The firm may be therefore prefer to retain the earnings and investments in further investments and the in the newer opportunities available. Thus the finance manager has to strike a balance between maximization of share holders wealth and organizations growth.
4.2.4 Liquidity Decision
Liquidity Decisions are concerned with the current assets management. Managing current assets is an integral part of financial management. Current assets should be managed efficiently in order to safeguard the firm profitability and liquidity. It also required a trade off
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Analysis of Financial Statements
between profitability and risk. There is always a conflict in the manager mind as to these two aspects. A firm manager holding too much cash giving importance to the liquidity element loses on the profitability aspects. Likewise, by not investing sufficient funds in current assets, the firm may become illiquid and not have the ability to meet its current obligations inviting the risk of bankruptcy. The finance manager should ensure sound techniques of managing current assets to ensure that neither insufficient nor unnecessary fund is invested in current assets. He should be capable of assessing the right requirements and2 make sure that funds are available at the time they are required most.
4.3 FINANCIAL GOAL 4.3.1 Profit Maximization
Profit maximization means increasing to rupee income of the firms. Pricing of goods is a very important function and is determined by the type of economy by which the firm is functioning. This may be done by the market competitive forces if the economy is a market economy and by government in a government controlled economy. Firms in a market economy can functions the best only if they produce goods and services desired by the customers and prices are as competitive as possible for the customer to have a wide choice of products available at very competitive prices. It is generally held that under condition of free competition, businessmen pursuing their own self-interest also serve the interest of society. When individual firms pursue the interest of maximization the profits, society’s resources are efficiently used.
4.3.2 Wealth Maximization
It is also known as value maximization and net present worth maximization. Shareholders wealth maximization is an appropriate an operationally feasible criterion to choose amount alternative financial actions. SWM is the maximization of the net present value or wealth of a course of action to shareholders. A financial action that creates wealth for shareholders is desirable. The benefits are measured in terms of cash flows. In investments and financing decision the flow of cash is important and not the accounting profits.
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Analysis of Financial Statements
4.4 STEPS IN FINANCIAL PLANNING 4.4.1 Estimate capital requirements
This is the first step in financial planning. The following factors may be used to determine the capital: 1 Requirement of fixed assets. 2 Investment intangible assets like patents, copyrights, etc. 3 Amount required for current assets like stocks, cash, bank balance, etc. 4 Cost of setup and likely expenses to be incurred on the new issue of shares and debentures.
4.4.2 Determine the type of sources to be acquired and their proportion
The finance manager has to decide on the form in which the money is to be sourced, that is, debt, equity, preference shares, loan from banks and the proportion in which these are to be procured.
4.4.3 Projection of financial statements
Financial statements are the company’s profit and loss account and the balance sheet. These two statements can be prepared for a certain period of future time and they help the manager to determine amount of fund requirements.
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4.4.4 Determination of funds needed
Once the projection are drawn in terms of sales of products, the cost of production, marketing activities, etc., the finance manager can draw up a plan as to the fund requirements based on the time factor. He can know weather the firms are to be procured on a short term basis or on a long term basis.
4.4.5 Forecast the availability of funds
A company will have steady flow of funds. If the manager is able to forecast these amounts properly, then the money to be borrowed can be reduced, thus saving on the interest payments.
4.4.6. Establish and maintain control system
Control system is ineffective without adequate planning and the adequacy of planning can be gauged only through proper control measures. Both these activities are essential for effective utilization of funds.
4.4.7. Develop procedures
Procedures should be developed for basic plans how they should be achieved.
4.5 LONG TERM STRATEGIC PLAN
Long term plans generally range over a period of 2-5 years. These plans reflect the impact of long term investments financing decision of the company. Generally, these plans focus on acquiring capital assets, R&D expenditure, new market penetration strategies,
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Analysis of Financial Statements
process engineering techniques, new and innovative product development strategies, etc. The long term plans are supported by the annual plans.
4.6 SHORT TERM OPERATING PLANS
These plans cover a period of 1-2 years. They deal with the implication of short term decisions. These plans are generally called budgeting and include planning and controlling activities in the short run. The short term plans consist of aspects such as sales, production, level of inventories to be maintained, number of men to be used, cash flows etc.
4.7 FACTORS AFFECTING FINANCIAL PLAN 4.7.1 Nature of industry
The nature of the industry in which the company is performing is major factor which affects financial plans. A labour intensive industry requires less capital then a capital intensive industry.
4.7.2 Status of the company in the industry
The status of the company is a factor which has to be considered while drawing a financial plan. If the company is a well recognized and a reputed one, it will have no problems in raising finance at short term notices. But, on the other hand, if the company is a new entrant into the field, it will need time to establish itself and therefore raising money is slightly difficult, especially when the company wants to go public.
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Analysis of Financial Statements
4.7.3 Alternative sources of finance
The finance manager will assess the alternative source of funds and get the cheapest source of funds. He should also verify the condition attached to the funds he procures, that are the contractual restriction placed by the lenders.
4.7.4 Attitude of management towards control
If the management wants to have control over the firm, it may not go in for the equity form of finance for control vests with equity shareholders and it gets diluted with every new issue of equity shares.
4.7.5 Extent of working capital requirements
The finance manager formulates his plan considering the short and long term financial needs of the firms. Short term firms required to financial working capital needs are to be procured through short term sources only.
4.7.6 Capital structure
Capital of a firm has two components – debt and equity. The proportion of these should be so decided that the company gets the advantage of leverage. Running the company with loans and debentures will certainly help equity shareholders to get more income but the company is also functioning under a great risk.
4.7.7 Flexibility
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Analysis of Financial Statements
This is one important factor that should be kept in mind while planning. The financial plan should be flexible enough to adjust to the needs of the changing conditions. There should be flexibility to raise the amount from any source and similarly the repayments may be done any time the company has excess funds.
4.7.8 Government policy
With regard to financial controls, statutory provision and controls should be considered. The SEBI guidelines should be strictly adhered to wherever applicable and necessary permissions from concerned authorities should be taken if necessary.
4.8 ESTIMATION OF FINANCIAL REQUIREMENTS OF A FIRM 4.8.1 Cost Approach
Under this approach, the capitalization of a company is based on the cost of acquisition of fixed assets, setting up a company and the amount of working capital requirement.
4.8.2 Earnings Approach
Under the earning approach, the capital of the company is determined on the basis of its earnings. This approach advocates that the value of the company is equal to the value of its earning.
4.8.3 Overcapitalization
Overcapitalization arises when the present capital of the company is not effectively or properly used. There is excess capital available in the company then the actual requirements.
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4.8.4 Undercapitalization
Undercapitalization is the reverse to over capitalization. It is a situation where the actual capitalization is much less then the proper capitalization.
CHAPTER V : FINANACIAL STATEMENTS 5.1 YEAR 2010-11
TRADING ACCOUNT FOR THE YEAR ENDING ON 31ST MARCH, 2011 DEBIT To Opening Stock To Purchase To Expense(Direct) Electric Bill Machinery Maintenance Packing Material Screen Printing Job Staff Salary Transport in Word To Gross Profit Rs. 22,88,051.00 Sale 86,68,599,97 Closing Stock 2,97,205.00 17,820.00 1400 36,470.00 3,89,510.00 2,30,156.00 15,48,093.71 31,48,063.00 CREDIT Rs. 1,03,29,242.68
Total
1,34,77,305.68
Total
1,34,77,305.68
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PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2011 DEBIT To Expenses (Indirect) Interest & Finance Charges Bank Charge Depreciation Diesel/Fuel Factory Rent Freight Benefit Tax Interest Capital Interest Depositor Miscellaneous Expenses Postal Expenses Telephone Expenses Tempo Diesel Truck Insurance Travelling Expenses Transport Outward Truck Maintenance To Nett Profit Rs. 2,23,313.14 1,209.00 2,68,471.00 52,237.00 90,000.00 620.00 2,03,673.91 5,23,894.00 41,595.40 50.00 830.00 48000.00 18,220.00 14,350.00 30,200.00 7,030.00 1,19,391.58 CREDIT By Gross Profit By Income (Indirect) Income of Truck Int. On. I.T. Refund Interest Income Rs. 15,48,093.71
60,970.00 29,296.32 4,725
Total
16,43,085.03
Total
16,43,085.03
BALANCE SHEET AS ON 31ST MARCH, 2011 LIABILITIES CAPITAL A/C
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Rs. ASSETS 18,60,420.45 Fixed Assets
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Analysis of Financial Statements
P & L A/c Current Liabilities: Duties & Taxes Sundry Creditors
1,19,391.58 9,566.29
COMPUTER FURNITURES PLANT &
5748.80 24,271.20 8,14,526.64 4,313.00 6,38,350.00
MACHINARIES 25,28,106.00 SCOOTER TRUCK GJ9Z-635
Loans (Liability) Unsecured Loans CHOLAMANDALA M DBS FINANCE LTD HDFC LOAN A/C INDIABULLS FINANCE LTD
38,81,504.00 Current Assets 3,78,147.00 Bank Accounts 1,20,552.20 4,70,679.00 Cash-in-hand Loans & Advances (Assets) Stock-in-hand Sundry Debtors
6,53,765.63 32,643.58 55,280.00 31,48,063.00 39,91,404.67
Total
93,68,366.52
Total
93,68,366.52
5.2 YEAR 2009-10
TRADING ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2010 DEBIT OPENING STOCK Amount Rs. CREDIT CLOSING STOCK 14,74,750.0 DUPLEX PAPER 0 CRAFT PAPER PESTING GUM
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Amount Rs. 5,77,720.00 16,40,880.00
Analysis of Financial Statements
CORRUGATION GUM STICHING WIRE CORRUGATED BOX WASTE PACKING CHARGE PACKING CHARGE P.O.NODTDIE-EXPC POSITIVE EXPC JOB-WOK PRINTING JOB-WOK PRINTING JOB-WORK PRINTING PUNCHING DIE Gross Profit 7,70,090.00
6,834.00 12,108.00
7,298.00
Total
22,44,840.0 0
Total
22,44,840.00
PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2010 Amount Rs.
EXPENDITURE
INCOME
Amount Rs.
GROSS PROFIT ----->>>> Net Profit.............. *C.G.UPADHYAY 20% 1,54,018.00 *D.M.PATEL 30% 2,31,027.00 *G.K.UPADHYAY 10% 77,009.00 *PARAS R PATEL 20%
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7,70,090.00
7,70,090.00
Analysis of Financial Statements
1,54,018.00 *CHETAN I PATEL 20% 1,54,018.00
Total
7,70,090.00
Total
7,70,090.00
BALANCE SHEET AS ON 31ST MARCH, 2010 LIABILITIES CAPITAL ACCOUNT C.G.UPADHYAY 20% D.M.PATEL 30% G.K.UPADHYAY 10% PARAS R PATEL 20% CHETAN I PATEL 20% LOANS & ADVANCES ANANDIBEN D PATEL ISHWARBHAI K PATEL NALINIBEN UPADHYAY UMESH G UPADHYAY BHAVESH D PATEL RAMANBHAI K PATEL ANILBHAI K PATEL HUF MITESHKUMAR H JOSHI SUNDRY CREDITORS K.K.AGENCY ROYAL PRINTING
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Amount Rs. 2,75,551.72 5,13,036.80 1,79,423.09 3,36,395.54 3,36,394.53 1,50,000.00 5,40,000.00 3,10,000.00 3,40,000.00 5,40,000.00 7,00,000.00 7,00,000.00 1,50,000.00 12,49,863.0
ASSETS LOANS & ADVANCES ADVANCE INCAM TAX FIXED ASSETS COMPUTER FURNITURES MOTOR LORRY GJ1X7913 PLANT & MACH. SCOOTER CURRENT ASSETS TDS RECEIVABLE 04-05 TDS RECEIVABLE 06-07 TDS RECEIVABLE 07-08 TDSRECEIVABLE 08-09 CURRENT ASSETS CASH ON HAND BANK OF INDIA ABAD BANK OF INDIA HMT
Amount Rs. 15,115.00 14,372.00 26,968.00 12,960.00 9,58,266.64 5,074.00 1,56,605.14 97,976.00 10,902.68 55,280.00 12,919.54 16,672.04 1,45,431.03 22,88,051.00
0 75,425.00 CLOSING STOCK
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Analysis of Financial Statements
KAPIL ENTERPRISE AALAY INDUSTRIES AALAY INTERFACE R B INFOTECH UNPAID ELECTRIC BILL CURRENT ASSETS HDFC BANK A/C INDIABULLS FINANCIAL SERVES LTD Total
9,57,572.00 37,013.00 10,106.00 5,500.00 17,220.00
SUNDRY DEBTORS AJITA CHEM PVT LTD ORACALE GRANITO SMART CERAMICS SANTRO TILES LTD. CHEMINOVA INDIA 2,98,725.06 M B INDUSTRIS LTD 7,81,194.00 NATRAJ INDUSTRIS
4,17,323.00 10,99,873.00 5,07,241.00 14,82,046.67 2,17,118.00 8,63,225.00 1,00,000.00
85,03,419.7 4
Total
85,03,419.74
5.3 YEAR 2008-2009
TRADING ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2009 DEBIT Amount Rs. CREDIT Amount Rs.
CLOSING STOCK
OPENING STOCK A/C
13,68,270.0 DUPLEX PAPER 0 CRAFT PAPER PESTING GUM CORRUGATION GUM STICHING WIRE CORRUGATED BOX WASTE PACKING CHARGE PACKING CHARGE P.O.NODTGross Loss
1,43,410.00
12,24,860.00
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Total
13,68,270.0 0
Total
13,68,270.00
PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDING ON 31ST MARCH, 2009 EXPENDITURE Amount Rs. INCOME Amount Rs.
GROSS LOSS-------->>>>
12,24,860.00 Net Loss............... 12,24,860.00
*C.G.UPADHYAY 20% *D.M.PATEL 30% *G.K.UPADHYAY 10% *PARAS R PATEL 20% *CHETAN I PATEL 20%
2,44,972.00 3,67,458.00 1,22,486.00 2,44,972.00 2,44,972.00
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Analysis of Financial Statements
Total
12,24,860.00
Total
12,24,860.00
BALANCE SHEET AS ON 31ST MARCH, 2009 LIABILITIES CAPITAL ACCOUNT C.G.UPADHYAY 20% D.M.PATEL 30% G.K.UPADHYAY 10% PARAS R PATEL 20% CHETAN I PATEL 20% LOANS & ADVANCES ANANDIBEN D PATEL ISHWARBHAI K PATEL NALINIBEN G UPADHYAY UMESH G UPADHYAY BHAVESH KUMAR PATEL RAMANBHAI K PATEL ANILBHAI K PATEL HUF K. K. UPADHYAY MITESHKUMAR H JOSHI SUNDRY CREDITORS K.K.AGENCY K.K.PAPER UNPAID VAT (SALES
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Amount Rs.
ASSETS
Amount Rs.
3,62,353.90 5,43,980.84 LOANS & ADVANCES 1,81,326.95 ADVANCE INCAM TAX 3,62,653.89 FIXED ASSETS 3,62,653.89 COMPUTER FURNITURES 1,50,000.00 MOTOR LORRYGJ1X7913 5,40,000.00 PLANT & MACHINERIES 3,10,000.00 SCOOTER CURRENT ASSETS TDS RECEIVABLE04-05 TDS RECEVIVABLE06-07 TDS RECEVIVABLE07-08 CURRENT ASSET CASH ON HAND BANK OF INDIA ABAD 17,47,183.00 BANK OF INDIA HMT 7,85,548.00 CLOSING STOCK 2,752.00 SUNDRY DEBITORS
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40,000.00 26,305.00 22,164.00 16,200.00 11,27,372.64 5,970.00
5,40,000.00 5,40,000.00 7,00,000.00 7,00,000.00 1,00,000.00 1,50,000.00
1,56,605.14 97,976.00 10,902.68 23,708.54 16,672.04 90,902.03 14,74,750.00
Analysis of Financial Statements
TAX) UNPAID ELECTRIC BILL CURRENT ASSETS HDFC BANK A/C SUNDRY DEBITORS SAMAY TILES LTD.
6,423.00 AJITA CHEM PVT LTD ORACALE GRANITO 4,46,274.37 SMART CERAMICS SANTRO TILES LTD. 33,054.68 CHEMINOVA INDIA LTD NATRAJ INDUSTRIS
7,50,749.00 27,055.00 6,07,241.00 13,99,403.67 25,70,227.78 1,00,000.00
Total
85,64,204.52
Total
85,64,204.52
CHAPTER VI : RATIO ANALYSIS PRACTICES
Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return between companies
• • •
between industries between different time periods for one company between a single company and its industry average A financial ratio (or accounting ratio) is a relative magnitude of two selected
numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
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Ratio Analysis is a powerful tool of financial analysis. A Ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.” In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The relationship between two accounting figures, expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of financial data and to make qualitative judgment about the firm’s financial performance.
6.1 LIQUIDITY RATIO
Liquidity ratios measure the firm’s ability to meet current obligations. In fact, analysis of liquidity needs the preparation of cash budget and cash and fund flow statements but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide quick measure of liquidity. Lack of sufficient liquidity will result in a poor credit worthiness or loss of creditor’s confidence. A very high degree of liquidity is also bad because idle assets earn nothing. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity.
6.1.1 Current Ratio
Current ratio is calculated by dividing current assets by current liabilities. Current assets include cash and those assets that can be converted into cash within a year. All obligations maturing within a year are included in current liabilities. The current ratio is a measure of the firm’s short term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. Current Ratio= current Assets/Current Liabilities YEAR 2008-09 Current Asset 6846863.83 Current liabilities 6271906 Result(times) 1.09
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Analysis of Financial Statements
2009-10 2010-11
6390745.04 7881156.88
5782699 4850882
1.11 1.62
Current Ratio 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 Current Ratio
INTERPRETATION: Current ratio of the company is more in 2009-10 which is indicates that company can use its fund effectively.
6.1.2 Quick Ratio:
Quick ratio also called acid – test ratio, establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. The quick ratio is found out by dividing quick assets by current liabilities.
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Analysis of Financial Statements
Quick ratio= Current Assets - Stock / Current liability Year 2008-09 2009-10 2010-11 Quick Assets 5372113.83 4102694.00 4733093.88 Quick Liabilities 6271906 5782699.00 4850882 Quick Ratio(times) 0.86 0.71 0.98
Quick Ratio(times) 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 Quick Ratio(times)
INTERPRETATION:
Quick ratio of the company is more in 2009-10 which is indicates that company has made less investment in stock than in previous two years.
6.1.3 CASH RATIO:
Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash therefore they may be included in the computation of cash ratio.
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Analysis of Financial Statements
Cash ratio = Cash + Marketable Securities / current liability Year 2008-09 2009-10 2010-11 Cash 23,708.54 12,919.54 32,643.58 Marketable Securities Current liability 6271906.00 5782699.00 4850882.00 Cash ratio result (%) 0.378 0.378 0.378
C ash ratio result (%) 0.4 0.35 cash ratio 0.3 0.25 0.2 0.15 0.1 0.05 0 1 2 year 3 C ash ratio result (%)
INTERPRETATION:
The company carries same portion of cash into current liabilities for all the three years.
6.2 TURNOVER RATIO
Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called activity ratio because they indicate the speed with which assets are being converted or turned over into sales. Turnover ratios thus involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well
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Analysis of Financial Statements
6.2.1 Cost of Goods Sold
Year 2008-09 2009-10 2010-11
Opening Stock 1368270 1474750 2288051
Purchase 8034203 10558533.28 8668599.97
Closing Stock 1474750 2288051 3148063
COGS 7927723 9745232.28 6836026.97
INTERPRETATION:
From the above results we can conclude that the cost of goods sold is highest iv year 2008-09 while it is lowest in year 2007-08. But yes firm ‘s cost of goods sold is reduced in year 200910 than in year 2008-09 which shows firm’s good performance.
6.2.2 Inventory Turnover Ratio
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory. Inventory turnover ratio = Cost of goods sold / Average stock Year Cost of goods sold Average stock *** Inventory Turnover ratio (times)
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2008-09 2009-10 2010-11
7927723 9745232.28 6836026.97
1421510 1881400.5 2718057
5.58 5.18 2.52
***Average stock Year 2008-09 2009-10 2010-11 Opening stock 1368270 1474750 2288051 Closing stock 1474750 2288051 3148063 **Average stock 1421510 1881400.5 2718057
Inventory T urnover ratio (tim es) 6 5 4 3 2 1 0 2 008-09
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inventory ratio
In nto T ve ry urnove ra r tio (tim es)
2009 -10
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2 010-11
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Analysis of Financial Statements
INTERPRETATION: Inventory turnover ratio of 2009-10 is less which indicates that movement of the stock is comparatively slow.
6.2.3 Stock Holding Period
Days = 360 / Inventory turnover ratio Months = 12 / Inventory turnover ratio Year 2008-09 2009-10 2010-11 Inv. turnover ratio 5.58 5.18 2.52 Days 65 70 143 Months 2.15 2.32 4.76
Stock Holding Period(In Months)
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09
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Stock Holding Period(In Months)
Months
2009-10 year
2010-11
Analysis of Financial Statements
INTERPRETATION: Stock holding period of the company is more in 2009-10 which indicate that the company keeps stock for larger period.
6.2.4 Debtor Turnover Ratio
A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of Companies. When the firm extends credits to its customers, debtors are created in the firm’s account. Debtors are convertible into cash over a short period and therefore are included in current assets. The liquidity position of the firm depends on the quality of debtors to a great extent. Debtor turnover ratio = Credit sales / Average debtor Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.51 1,03,29,242.68 ***Average debtor 4835467.62 2961651.54 2230015.67 Debtor turnover ratio (times) 2.07 4.23 4.63
*** Average debtor Year 2008-09 2009-10 2010-11 Opening debtor 4216258.84 5454676.4 4686826.67 Closing debtor 5454676.4 4686826.67 39,91,404.67 AVG. Debtor 4835467.62 2961651.54 2230015.67
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Analysis of Financial Statements
Debtor turnover ratio (times) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 year 2010-11
Debtor turnover ratio (times
Debtor turnover ratio (times)
INTERPRETATION:
Debtor turnover ratio is more in 2009-10 which indicates that company collects the money quickly which may adversely affect the sales of the company.
\
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Analysis of Financial Statements
6.2.5 Creditor Turnover Ratio
Creditor turnover ratio = Credit purchase / Average creditor Year 2008-09 2009-10 2010-11 Purchase 8034203.00 10558533.28 8668599.97 Avg. Creditors*** 2879865.84 2450632.34 2431792.50 Creditors Ratio (Times) 2.79 4.31 3.56
***Avg. Creditors Year 2008-09 2009-10 2010-11 Opening Creditors 3193946.00 2565785.68 2335479.00 Closing Creditors 2565785.68 2335479.00 25,28,106.00 Avg. Creditors 2879865.84 2450632.34 2431792.50
Creditors Ratio (Times) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 year 2010-11
creditor ratio
Creditors Ratio (Times)
INTERPRETATION:
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Analysis of Financial Statements
Creditor Turnover Ratio is less in 2009-10 than 2008-09 which indicates that the firm receives more credit period in 2009-10 than 2008-09.
6.2.6 Fixed Assets Turnover Ratio
Fixed assets are used to generate sales. Therefore a firm should manage its assets efficiently to maximize sales. The relationship between sales and net fixed assets is called fixed assets turnover ratio Fixed assets turnover ratio = Sale / Net fixed assets Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.51 10329242.68 ** Net fixed assets 810313.32 1107826.14 1252424.64 Fixed assets turnover ratio (times) 12.33 11.31 8.25
** Average net fixed assets Year 2008-09 2009-10 2010-11 Opening fixed assets 422615.00 1198011.64 1017640.64 Closing fixed assets 1198011.64 1017640.64 1487208.64 Average net fixed assets 810313.32 1107826.14 1252424.64
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Analysis of Financial Statements
Fixed assets turnover ratio (times) 14 12 10 8 6 4 2 0 2008-09 2009-10 year 2010-11
Fixed assets turnover ratio (times)
Fixed assets turnover rat
INTERPRETATION: Fixed assets turnover ratio is less in 2009-10 which indicates that company could not use its fixed assets efficiently.
6.2.7 Total Assets Turnover Ratio
Total assets turnover in addition to or instead of the net assets turnover. This ratio shows the firm’s ability in generating sales from all financial resources committed to total assets. It shows the relationship between sales and average total assets. Total assets turnover ratio = Sales / Average total assets Year 2008-09 2009-10 2010-11 Sales 9991617.79 12525130.5 1 10329242.6 8 *** Average total assets 7592351.26 8533812.13 8935893.13 Total assets turnover ratio (times) 1.32 1.47 1.16
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Analysis of Financial Statements
***Average total assets Year 2008-09 2009-10 2010-11 Opening total assets 6620498.00 8564204.52 8503419.74 Closing total assets 8564204.52 8503419.74 9368366.52
Total assets turnover ratio (times) 1.6 assets turnover ratio (times) 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 year 2010-11
Average total assets 7592351.26 8533812.13 8935893.13
Total assets turnove (times)
INTERPRETATION: Total assets turnover ratio is less in 2009-10 which indicates that company could not use its total assets more profitably and efficiently than earlier years.
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Analysis of Financial Statements
6.3 PROFITABLE RATIO
A company should earn profits to survive and grow over a long period of time. A profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company and it will have no future if it fails to make sufficient profit. Therefore financial manager should continuously evaluate the efficiency of the company in term of profits. The Profitable ratios are calculated to measure the operating efficiency of the company.
6.3.1 Gross Profit Ratio
The gross profit margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high gross profit margin ratio is a sign of good management. A low gross profit margin may reflect higher cost of goods sold due to the firm’s inability to purchase raw materials at favorable terms or inefficient utilization of plant and machinery. Gross profit ratio = Gross profit / Sale * 100 Year 2008-09 2009-10 2010-11 *** Gross profit 770090.00 1548093.71 Sale 9991617.79 12525130.51 10329242.68 Gross profit ratio % 6.15 14.99
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Analysis of Financial Statements
Gross profit 1800000 1600000 1400000 Gross profit 1200000 1000000 800000 600000 400000 200000 0 2008-09 2009-10 year 2010-11
Gross
INTERPRETATION: Gross profit ratio of the company is less in 2007 -08 which indicates that cost of goods sold is higher or selling price may be less. 2009-10 indicates that the firm is in good position.
6.3.2 NET PROFIT RATIO:
Net profit ratio establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing, administering, and selling the product. This ratio is the overall measure of the firm’s ability to turn each rupee sales into profit. This ratio indicates the firm’s capacity to withstand adverse economic conditions.
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Analysis of Financial Statements
Net profit ratio = Net profit / Sale * 100 Year 2008-09 2009-10 2010-11 Net Profit 770090.00 119391.58 Sale 9991617.79 12525130.51 10329242.68 Net Profit ratio (%) 6.15 1.16
Net Profit ratio (%) 7 6 5 4 3 2 1 0 2008-09 2009-10 2010-11
Net Profit rat
INTERPRETATION: Company with a low net profit ratio indicates a disadvantageous position to survive in the face of falling selling prices, rising costs or declining demand for the product. It would be really difficult for a low net profit ratio in 2009 – 10 withstand these adversities.
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Analysis of Financial Statements
CHAPTER VII : RECOMMENDATIONS
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From the analysis the firm should look at its stock holdings. Firm has closing stock of Rs. 31,48,063.00 in year 2009-10 which is unnecessary investment into the stocks.
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Firm has trend of increase in the stock. In year 2008-09 it has closing stock of Rs.22,88,051.00 and in year 2007-08 it has closing stock of Rs. 14,74,750.00. So the firm needs to invest money into stock carefully.
•
The firm should also try to reduce its expenses and costs so as to earn good amount of money. There is always two ways to earn Profit, Reduce the costs and Increase the sales.
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Analysis of Financial Statements
CHAPTER VIII : CONCLUSION
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Conclusion for this analysis of financial statements of Sunpack Industries is that the firm has good operating capacity.
•
Firm has increasing trend of its earnigs.
•
Firm is in a sound Position, hoping firm would do better in the future.
•
So summing up, we can say that the firm has a more positives than its weaknesses and because of that the firm is able to eliminate its weaknesses easily. So the firm is having a Very Good Position at Present.
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Analysis of Financial Statements
CHAPTER IX : BIBLIOGRAPHY
Human Resource of Sunpack Industries Book : “FINANCIAL MANAGENENT” by I. M. Pandey,13th add, Vikas prakashan Websites: 1 .www.iibf.org.in 2. www.investopedia.com
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doc_100410998.doc