Chapter 1


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Chapter 1

  1. 1. INTRODUCTION Finance is one of the basic foundations of all kinds of economic activities. Finance management is an integral part of overall management. It is not a totally independent area. It is concerned with the acquisition, financing and management of assets with some specific goals. Financial management is important because it has an impact on all activities of the firm. The basic objectives of financial management are maintenance of liquid assets and maximization of the profitability of the firm. Maintenance of liquid assets means that the firm has adequate cash in hand to meet its obligations at all times. Finance is the life blood of the business. The activating element in any business which may be industrial or commercial undertaking is finance. The finance function of a management is not only arranging funds for the business organization but also includes planning, forecasting of cash flow, receipts and payments, raising and allocation of funds and financial control. Therefore every profit seeking organization put their efforts for the effective utilization of its sources. Even the term financial management could be referred as money management, it is mainly concerned with the proper management of financial resources and the factors like risk, cost and control considerations are properly balanced in given situation and there is optimum utilization of funds. Financial management as an integral part of overall management is not a totally independent area. It relays heavily on related disciplines and quantitative methods. It helps in profit planning, capital spending, measuring costs controlling inventories, accounts receivables, etc. It essentially helps in optimizing the output from a given input of funds.
  2. 2. SIGNIFICANCE OF FINANCIAL MANAGEMENT Financial management is one of the most important functions of the company. It is the area in which the financial resources of the company are allocated and budgeted. Risk management and financial reporting are carried ions of the company. It is the area in which financial resources of the company are allocated and budgeted, risk management and financial reporting are carried out. The main function of financial management is that how you are financing in your business. Basically a company has three sources of cash flows including cash flow from operating activities, investing activities and financial activities. And financial management deals with all decisions related to financial activities. In any business there are limited financial and material resources and the function of the financial management is to allocate the financial resources rightly and to get maximum out of them. The finance functions mainly deals with the following three decisions viz., investment decision, financing decision and dividend. Financial functions are concerned with the planning, directing and controlling the financial activities of an enterprise. It deals mainly with raising funds in the most economic and suitable manner. In every organization where funds are involved, sound financial management is necessary. It also helps in development of organization as well as national wealth. It also helps in profit planning, capital spending, measuring costs, controlling inventories and account receivables. Financial management also deals with more complex problems like mergers, acquisitions, takeovers and reconstructions etc. The basic objective of financial management is maintenance of liquid assets and maximizations of the profitability of the firm. It can be also viewed that the objective of financial management is to maximize the wealth of the shareholders. Financial management also aims to ensure that the resources of the company are being allocated rightly. In fact the companies have very limited resources therefore, for the allocation of the resources proper management also helps the manager to determine the possible investments for the company.
  3. 3. INTRODUCTION TO THE TOPIC The ratio analysis is one of the important tools of financial statement analysis to study the financial stature of the business fleeces, corporate houses and so on. The ratio illustrates the relationship between the two related variables. Ratios do not add up to any information that is readily available, but they show the relationship between two items in a more meaningful manner which helps us to draw certain conclusions. Comparison with related facts is the basis of ratio analysis. Ratios may be used for comparison in any of the following ways. Comparison of the firm with its own performance in the past. Comparison of one firm with another firm in the industry. Comparison of an achieved performance with pre-determined standards Comparison of one department of a concern with other departments. Ratios serve as effective control tools. And contribute significantly towards effective planning and forecasting. Ratios also facilitate establishment of standard costing system and budgetary control. Ratios cater the information needs of a particular person, depending upon his interest in the business for which ratios are calculated. For example; a creditor may be interested in liquidity ratios, while an investor may want to study profitability ratios. Hence, it is overall responsibility of the management to see that the resources of the firm are used most efficiently and effectively and the firm financial position is good. Ratio analysis does indicate what can be expected in future from the firm they indicate the current financial conditions of the firm.
  4. 4. SIGNIFICANCE OF THE STUDY The study of Ratio analysis reflects the financial position and operation strengths of weakness of the concern. These statements are useful to management investors, creditors, bankers, Government and public at large. It served as a basis to decide the wise dividend declaration by company. The study of Ratio analysis is prepared for the purpose of presenting periodical review or report by the management and deal with the state of investment presenting periodical review of report by the management in business and result achieved during the period under review. They reflect the financial position and operating strengths or weakness of the concern by properly establishing relationships between the items of the ratio analysis estimates and revised estimates. The nature of the analysis depends on the purpose of the analysis, the analysis is able to say how well the firm could utilize the resources of the society in generation goods and services. The accounting ratios are computed on the basis of available accounting information extracted from the financial statements which are not in a position to reveal the status of the enterprise. The accounting ratios are applied to study the relationship between the quantitative information available and to take decision on the financial performance of the firm.
  5. 5. OBJECTIVES OF THE STUDY To understand the techniques of evaluation of financial performance of an organization. To analyze and synthesis the plan and performance of Visakhapatnam port Trust. To study the financial growth of the Visakhapatnam port trust. To indicate the strengths and weaknesses identified from the computed ratios. To have an overview about the financial position of the VPT and make appropriate suggestion.
  6. 6. NEED FOR THE STUDY The project work is done for analyzing the financial position of the Visakhapatnam Port Trust. The analysis of the financial position gives a better picture of the financial position of the organization in order to take better decisions 1. Ratio analysis guides the board and management to pursue objectives that are in the interests of the company and share holders and facilitates effective monitoring thereby promoting optimal use of financial reserves more efficiently. 2. The study is also beneficial to employees and offers motivation by sharing how they are contributing for the company growth. 3. The investors who are interest in the investing the company’s share will also get benefited by going through the study and can easily take a decision whether to invest or not in the company shares. 4. This study is also beneficial to top management of the company by providing relevant information regarding important aspects like liquidity, leverage, activity and profitability. RATIO ANALYSIS IS USEFUL IN THE FOLLOWING WAYS: To meet the short term requirements of the firm. Measurement and evaluation of financial performance. Decisions making for investments and operations. To know about the bank’s liquidity position. To find out the operation efficiency of the firm.
  7. 7. METHODOLOGY The data required for any research or project can be gathered through following sources. Primary Secondary PRIMARY SOURCE: Primary data is collected directly through first hand by interviews, questionnaires, and discussions with the staff in the finance department, seminars and direct academic interaction. SECONDARY SOURCE: Secondary data has been also collected through the following Balance sheet Accounts of company Previous annual reports of the company Text books
  8. 8. LIMITATIONS OF THE STUDY The limitations that come across during the course of the work are given below: The study is based on the annual reports of the board so the scope of the study is limited to the data available in the annual reports of the trust. Time is one of the limiting factor of the study the duration of the project is short to study all the aspects. Some aspects of the financial information were not available because of the confidentiality of the Visakhapatnam Port Trust. The trust officials were busy with their work due to which sufficient not time was available to get more information