Performance Evaluation of Financial Position
                                         Introduction

1.1 Introduction:


  ...
Performance Evaluation of Financial Position
                                    Research Design


Problem statements:
Per...
Performance Evaluation of Financial Position
Sources of secondary Data:
   By Staff
   By Intranet
   By Company records
 ...
Performance Evaluation of Financial Position
Review of literature.


2. Performance evaluation of financial position:
    ...
Performance Evaluation of Financial Position
A statement of Retained Earning:
                  The term retained earning ...
Performance Evaluation of Financial Position
    Accounting conventions :
       Accounting conventions imply certain fun...
Performance Evaluation of Financial Position
    Influence of personal judgment:
   Many items are left to the personal j...
Performance Evaluation of Financial Position
2.4.1 Methodical classification:
       In order to have a meaningful analysi...
Performance Evaluation of Financial Position


The cash flow statement is intended to
    Provide information on a firm's...
Performance Evaluation of Financial Position
    Depreciation (loss of tangible asset value over time)
    Deferred tax
...
Performance Evaluation of Financial Position
Direct method:
         The direct method for creating a cash flow statement ...
Performance Evaluation of Financial Position
       Users of financial statements can get further insight about financial ...
Performance Evaluation of Financial Position


Standards of comparison:
    The ratio analysis involves comparison       f...
Performance Evaluation of Financial Position
Traditional classification
       This classification has been on the basis o...
Performance Evaluation of Financial Position
        The failure of a company to meet its obligations due to lack of suffi...
Performance Evaluation of Financial Position
     Liquid Ratio:
    Liquid ratio shows short-term solvency of a business ...
Performance Evaluation of Financial Position
       Leverage ratios are also computed from the profit and loss items by de...
Performance Evaluation of Financial Position



    Debt to Total Funds Ratio:
   This ratio gives same indication as the...
Performance Evaluation of Financial Position


Objective and Significance:
          This ratio indicates as to what exten...
Performance Evaluation of Financial Position
Objective and Significance:
        This ratio expresses the satisfaction to ...
Performance Evaluation of Financial Position


Objective and Significance:
    The objective of capital turnover ratio is ...
Performance Evaluation of Financial Position
    Stock Turnover Ratio:
   Stock turnover ratio is a ratio between cost of...
Performance Evaluation of Financial Position
4.Profitability ratios:
        A company should earn profits to survive and ...
Performance Evaluation of Financial Position
    Net profit ratio:
   Net profit is obtained when operating expenses, int...
Performance Evaluation of Financial Position
    Dividends per share :
   The net profits after taxes belongs to sharehol...
Performance Evaluation of Financial Position
                    Profile of Dynamatic Technologies Ltd.,


3.1 INTRODUCTIO...
Performance Evaluation of Financial Position
3.2 Nature of the business:
       With a proven track record spanning over a...
Performance Evaluation of Financial Position


3.4 MISSION STATEMENT:
“To    achieve    GLOBAL         LEADERSHIP         ...
Performance Evaluation of Financial Position
3.6 CORPORATE STRUCTURE OF DYNAMATIC TECHNOLOGIES


CEO & Managing Director
 ...
Performance Evaluation of Financial Position



  3.7.1.Organization Structure:




                         CEO and manag...
Performance Evaluation of Financial Position


 3.7.2 Organization chart:




                                     Chairma...
Performance Evaluation of Financial Position
3.8 Product profile
       Dynamatic Technologies Limited produces highly eng...
Performance Evaluation of Financial Position
Automotive components
    Water Pumps
    Oil Pumps
    Intake Manifold
  ...
Performance Evaluation of Financial Position
3.9 Milestones of the Organization


Year      Achievements

1973      Incorp...
Performance Evaluation of Financial Position
2006       First major Airframe structure for SUKHOI 30HKI delivered by Dynam...
Performance Evaluation of Financial Position
   Mutual Funds                   0.98

   FIIs (incl. GDRs)              10....
Performance Evaluation of Financial Position
These are all the competitors in the field of Electro components.
Competitors...
Performance Evaluation of Financial Position
    R and D building etc.
    Good security system
    Ample parking place...
Performance Evaluation of Financial Position
award has been presented to Dynamatic Aerospace for quality workmanship and o...
Performance Evaluation of Financial Position




WORK FLOW MODEL (END TO END)
    Purchase order; DTL that is taking (pur...
Performance Evaluation of Financial Position
    Final inspection: The final inspection is taken by the inspection depart...
Performance Evaluation of Financial Position
OPPURTUNITIES
       The market for tractors in India constitutes 36Percentag...
Performance Evaluation of Financial Position
    equipment manufacturers such as John Deere, Case New Holland, CLAAS, JCB...
Performance Evaluation of Financial Position
    Company is continuing to develop numerous variants of pumps used in the
...
Performance Evaluation of Financial Position
                                             2005      2006 Increase or      ...
Performance Evaluation of Financial Position
                 The ideal current ratio is suppose to be 2:1 i.e. current a...
Performance Evaluation of Financial Position
E


Sales and                              1,068,9            1,282          ...
Performance Evaluation of Financial Position
   In the 2007, as per trend analysis the income and expenditure is equal, th...
Performance Evaluation of Financial Position
Adjustments for:
       Depreciation                         172,120        1...
Performance Evaluation of Financial Position
       Exchange Gain/(Loss)                 (22,955)      (3,168)         -

...
Performance Evaluation of Financial Position
        Borrowings                            (212,380)     (149,393)      (2...
Performance Evaluation of Financial Position




Inferrence :

       This chart shows the cash flow from operating activt...
Performance Evaluation of Financial Position




       Inferrence :

              This chart shows the cash flow used in...
Performance Evaluation of Financial Position




Infereence :

This chart shows net cash and cash equivalents . In 2008 ne...
Performance Evaluation of Financial Position
1.Liquidity ratios:
    Current ratio :


       Current Ratio = Current Ass...
Performance Evaluation of Financial Position


               Liquid Ratio = Liquid Assets
                              C...
Performance Evaluation of Financial Position


    Debt-Equity Ratio
                   Debt Equity Ratio = Debt
        ...
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore
Upcoming SlideShare
Loading in …5
×

Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore

4,268 views

Published on

A study on Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore

Published in: Business, Economy & Finance
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,268
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
0
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Performance evaluation of financial position conducted at dynamatic technologies ltd, bangalore

  1. 1. Performance Evaluation of Financial Position Introduction 1.1 Introduction: Performance evaluation of financial position is very much important to know the wealth and efficiency of the company. Its purpose is to convey the financial aspects of the firm. Evaluation is done through financial statements which includes income statement, balance statement, cash flow statement, fund flow statement. The various techniques are used to evaluate the performance of financial position. Financial statements are indicators of the segments factors: Profitability Financial soundness Performance evaluation of financial position, therefore, refers to such a treatment of the information contained in the Income Statements and the Balance Sheet so as to afford full diagnosis of the profitability and financial soundness of the business. According to the American Institute of Certified Public Accountants , financial statements reflect “A combination of recorded facts , accounting conventions and personal judgments and the judgments and conventions applied affect them materially .“ This implies that data exhibited in the financial statements are affected by recorded facts, accounting conventions and personal judgments. The Balance sheet shows the financial condition of the business at a particular moment of time while the Income Statements discloses the rules of operation of business over a period of time. However for a better understanding of affairs of the business, it is essential to identify the movement of working capital or cash in and out of the business .This information is available in the statement of changes in financial position of the business. The statements may emphasize any of the following aspects relating to change in financial position of the business. A change in the firm’s working capital. Changes in the firm’s cash position. Changes in the firms total financial position. Haranahalli Ramaswamy Institute of Higher Education, Hassan 1
  2. 2. Performance Evaluation of Financial Position Research Design Problem statements: Performance Evaluation of Financial position study conducted at Dynamatic Technologies limited. Objectives: "The main objectives of performance evaluation of financial position are  To provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."  To know the efficiency of financial operations...  To provide report of assets, liabilities and equity which are directly related to an organization's financial position  Evaluation of performance is done through trend analysis, cash flow analysis, fund flow analysis, ration analysis. Scope of the study:  Evaluation of financial position is very much important which shows wealth of the company  Evaluation is needed to know efficiency of financial operation  Evaluation of performance helps in decision economic making Methodology: Data collection can be done through Secondary Data Secondary Data: Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Haranahalli Ramaswamy Institute of Higher Education, Hassan 2
  3. 3. Performance Evaluation of Financial Position Sources of secondary Data: By Staff By Intranet By Company records By Company Journals By Internet Limitations of the study:  Different Accounting Policies- The choices of accounting policies may distort intercompany comparisons. Example - IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost.  Ratios are not definitive measures- Ratios need to be interpreted carefully. They can provide clues to the company’s performance or financial situation. But on their own, they cannot show whether performance is good or bad. Ratios require some quantitative information for an informed analysis to be made.  Outdated information in financial statement- The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company’s current financial position.  Interpretation of the ratio- It is difficult to generalize about whether a particular ratio is ‘good’ or ‘bad’. For example a high current ratio may indicate a strong liquidity position, which is good or excessive cash which is bad.  I got less information from the company to do the project work.  This study is limited to four to five years.  This study is limited to only one company  The data of this study has been primarily taken from published annual reports  Only. Layout of chapters:  Introduction  Profile of the company  Data analysis and interpretation  Findings  suggestions and conclusions Haranahalli Ramaswamy Institute of Higher Education, Hassan 3
  4. 4. Performance Evaluation of Financial Position Review of literature. 2. Performance evaluation of financial position: Performance evaluation of financial position is very much important to know the wealth and efficiency of the company. Its purpose is to convey the financial aspects of the firm. Evaluation is done through financial statements which includes income statement, balance statement, cash flow statement, fund flow statement. 2.1 Financial statements A financial statement is an organized collection of data according to logical and consistent according procedures. Its purpose is to convey an understanding of financial aspects of a business firm. It may show a position at a moment of time as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of income statement. Thus, the term financial statements generally refer to two basic statements; The Income Statement, The Balance Statement, A statement of Retained Earning and A Statement of changes in Financial position in addition to the above two Statements. The meaning and significance of each of these statements is being briefly explained below ; The Income Statement: The Income statement (also termed as Profit and Loss Account)is generally considered to be the most useful of all financial statements. It explains what has happened to a business as a result of operation between two balance sheet dates .for this purpose it matches the revenues and cost incurred in the process of earning revenues and shows the net profit earned or a loss suffered during a particular period . The Balance Statement : It is a statement of financial position of a business at a specified moment of time . it represents all assets owned by the business at a particular moment of time and the claims (or equities )of the owners and outsiders against those assets at that time . it is in a way snapshot of the financial condition of the business at the time. Haranahalli Ramaswamy Institute of Higher Education, Hassan 4
  5. 5. Performance Evaluation of Financial Position A statement of Retained Earning: The term retained earning means the accumulated excess of earning over losses and dividends .the balance shown by the income statement is transferred to the balance sheet through this statement, after making necessary appropriations. It is , thus , a connecting link between the balance sheet and the income statement. It is fundamentally a display of things that have caused the beginning-of-the-period retained earning balance to be changed into the one shown in the end-of-the-period retained earnings in the balance sheet. The statement is also termed as profit and loss appropriation account in case of companies. A statement of changes in financial position: The Balance sheet shows the financial condition of the business at a particular moment of time while the Income Statements discloses the rules of operation of business over a period of time. However for a better understanding of affairs of the business, it is essential to identify the movement of working capital or cash in and out of the business .This information is available in the statement of changes in financial position of the business .the statements may emphasize any of the following aspects relating to change in financial position of the business; Changes in the firm are working capital. Changes in the firm’s cash position. Changes in the firms total financial position. 2.2 Nature of Financial statements: According to the American Institute of Certified Public Accountants , financial statements reflect “A combination of recorded facts , accounting conventions and personal judgments and the judgments and conventions applied affect them materially .“ This implies that data exhibited in the financial statements are affected by recorded facts, accounting conventions and personal judgments.  Recorded facts: The term recorded facts which have been recorded in the accounting books .Facts which have not been recorded in the financial books are not depicted in the financial statements , however material they might be .for example fixed assets are shown at cost irrespective of their market or replacement price since such price is not recorded in the books . Haranahalli Ramaswamy Institute of Higher Education, Hassan 5
  6. 6. Performance Evaluation of Financial Position  Accounting conventions : Accounting conventions imply certain fundamental accounting principles which have been sanctioned by long usage . for example , on account of the convention of ‘conservatism’ , provision is made of expected losses but expected profits are ignored. This means that the real financial position of the business may be much than what has been shown by the financial statements .  Personal judgments: Personal judgments have also an important bearing on financial statements. For example the choice of selecting a method of depreciation on the accountant. Similarly ,the mode of amortization of fictitious assets also depends on the personal judgment of the accountant. 2.3 Limitations of Financial Statements : Financial statements are prepared with the object of presenting a periodical review or report on the progress by the management and deal with the results achieved during the period under review. Status of the investments in the business. However .these objectives are subject to certain limitations as given below:  Financial statements are essentially interim reports: The profit shown by the profit and loss account and the financial position as depicted by the balance sheet is not exact . The exact position can be known only when the business is closed down . Again , the existence of contingent liabilities , deferred revenue expenditure makes them more imprecise .  Accounting concepts and conventions : Financial statements are prepared on the basis of certain accounting concepts and conventions. On account of this reason the financial position as disclosed by these statements may not be realistic Example : Fixed assets in the balance sheet are shown on the basis of ‘Going concern concept ‘. This means that value placed on fixed assets may not be the same which may be realized on the on their sale . Similarly on account of convention of conservatisms the income statements may not disclose true income of the business since probable since losses are considered while probable income are ignored . Haranahalli Ramaswamy Institute of Higher Education, Hassan 6
  7. 7. Performance Evaluation of Financial Position  Influence of personal judgment: Many items are left to the personal judgment of the accountant Example : The method of depreciation , mode of amortization of fixed assets , treatment of referred expenditure –all depends on the personal judgments of the accountant . The soundness of such judgment will necessarily depend upon his competence and integrity .  Disclose only monetary facts : Financial statements do not depict those facts which cannot be expressed in terms of money . Example : Development of a team of loyal and efficient workers , enlightened management , the reputation and prestige of management with the public , are matters which are of considerable importance for the business , but they are nowhere depicted by financial statements. 2.4 Performance evaluation of Financial position The various techniques are used to evaluate the performance of financial position Financial statements are indicators of the segments factors: Profitability Financial soundness Performance evaluation of Financial position, therefore , refers to such a treatment of the information contained in the Income Statements and the Balance Sheet so as to afford full diagnosis of the profitability and financial soundness of the business . Steps involved in the performance evaluation Financial position The evaluation of the financial position requires:  Methodical classification of the data given in the financial statements or vertical analysis.  Trend analysis or Horizontal analysis.  Comparative Balance Sheet  Cash flow and fund flow analysis.  Comparison of various interconnected figures with each other which is popularly termed as “ Ratio Analysis” Haranahalli Ramaswamy Institute of Higher Education, Hassan 7
  8. 8. Performance Evaluation of Financial Position 2.4.1 Methodical classification: In order to have a meaningful analysis it is necessary that figures should be arranged properly. Usually instead of the two –column (T form) statements as ordinarily prepared, the statements are prepared in signal (Vertical) column form “which should throw up significant figures by adding or subtracting “. This also facilities showing the figures of a firms or number of years side by side for comparison purpose. Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in rupees form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements. Common size statements are particularly useful when comparing data from different companies or from current years to past years. 2.4.2 Trend Analysis or Horizontal Analysis: Horizontal analysis is facilitated by showing changes between years in both rupees and percentage. Showing changes in rupees form helps the analyst focus on key factors that have affected profitability or financial position. Showing changes between years in percentage form helps the analyst to gain perspective and to gain a feel for the significance of the changes that are taking place. 2.4.3 Cash flow analysis: In financial accounting, a cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. . Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. The cash flow statement was previously known as the flow of funds statement. The cash flow statement reflects a firm's liquidity. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These noncash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Noncash activities are usually reported in footnotes. Haranahalli Ramaswamy Institute of Higher Education, Hassan 8
  9. 9. Performance Evaluation of Financial Position The cash flow statement is intended to  Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances.  Provide additional information for evaluating changes in assets, liabilities and equity.  Improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods.  Indicate the amount, timing and probability of future cash flows.  The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets. Cash flow activities: The cash flow statement is partitioned into three segments, namely: cash flow resulting from operating activities, cash flow resulting from investing activities, and cash flow resulting from financing activities. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow. Operating activities Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product. Under IAS 7, operating cash flows include:[  Receipts from the sale of goods or services  Receipts for the sale of loans, debt or equity instruments in a trading portfolio  Interest received on loans  Dividends received on equity securities  Payments to suppliers for goods and services  Payments to employees or on behalf of employees  Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)  Items which are added back to [or subtracted from, as appropriate] the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include: Haranahalli Ramaswamy Institute of Higher Education, Hassan 9
  10. 10. Performance Evaluation of Financial Position  Depreciation (loss of tangible asset value over time)  Deferred tax  Amortization (loss of intangible asset value over time)  Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement) Investing activities Investing activities are  Purchase of an asset (assets can be land, building, equipment, marketable securities, etc.)  Loans made to suppliers or customers Financing activities Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement. Under IAS 7,  Proceeds from issuing short-term or long-term debt  Payments of dividends  Payments for repurchase of company shares  Repayment of debt principal, including capital leases  For non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes  Items under the financing activities section include:  Dividends paid  Sale or repurchase of the company's stock  Net borrowings  Payment of dividend tax Preparation method: The direct method of preparing a cash flow statement results in a more easily understood report. The indirect method is almost universally used, because FAS 95 requires a supplementary report similar to the indirect method if a company chooses to use the direct method. Haranahalli Ramaswamy Institute of Higher Education, Hassan 10
  11. 11. Performance Evaluation of Financial Position Direct method: The direct method for creating a cash flow statement reports major classes of gross cash receipts and payments. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or financing activities, they are reported under investing or financing activities. Indirect method: The indirect method uses net-income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts for all cash-based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions. Rules: The following rules are used to make adjustments for changes in current assets and liabilities, operating items not providing or using cash and non operating items.  Decrease in non-cash current assets are added to net income  Increase in non-cash current asset are subtracted from net income  Increase in current liabilities are added to net income  Decrease in current liabilities are subtracted from net income  Expenses with no cash outflows are added back to net income (depreciation and/or amortization expense are the only operating items that have no effect on cash flows in the period)  Revenues with no cash inflows are subtracted from net income  Non operating losses are added back to net income  Non operating gains are subtracted from net income 2.4.4 Ratio Analysis Accounting ratios are relationship expressed in mathematical terms between figures which are connected with each other in some manner. Obviously, no purpose will be served by comparing two sets of figures which are not at all connected with each other. Moreover, absolute figures are also unfit for comparison. Management, creditors, investors, and others to form judgments about the operating performance and financial position of the firms use the information contained in these statements. Haranahalli Ramaswamy Institute of Higher Education, Hassan 11
  12. 12. Performance Evaluation of Financial Position Users of financial statements can get further insight about financial strengths and weakness of the firm if they properly analyze information reported in these statements. Management should be particularly interested in knowing financial strengths of the firm to take suitable corrective actions. Nature of Ratio analysis :  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 a firm.  Ratio helps to summaries large quantities of financial data and to make qualitative judgments about the firm financial performance . Advantages of Ratio analysis :  Simplifies Financial statements : Ratio analysis simplifies the comprehension of financial statements .Ratio tell the whole story changes in the financial condition of the business.  Facilitates inter-firm compression : Ratio highlight the factors associated with successful and unsuccessful firms. They also revel strong firms and weak firms, overvalued and undervalued.  Helps in planning : over a period of time a firm or industry develops certain norms that may indicate future success or failure ,if relationship changes in firm’s data over different time period .the ratio may provide clues on trends and future problems.  Facilitates intra –firms compression : Ratio analysis also makes possible comparison of the performance of the different division of the firms. Haranahalli Ramaswamy Institute of Higher Education, Hassan 12
  13. 13. Performance Evaluation of Financial Position Standards of comparison: The ratio analysis involves comparison for a useful evaluation of the financial statements. A signal ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of  Past ratio: Ratio calculated from the past financial statements of the same firm.  Competitor’s ratio: Ratio of some selected firms especially the most progressive and successful competitor at the same point in time.  Industry ratio: Ratio of the industry to which the firm belongs.  Projected ratio: Ratio developed using the projected, or Performa, financial statements of the same firm. Utility of Ratio Analysis : The ratio analysis is the most powerful tool of the financial analysis. The many diverse groups of people are interested in analyzing the financial information to indicate the operating and financial efficiency, and growth of the firms. These people use ratio to determine those financial in which they are interested. With the help of ratios, can determine:  The ability of the firm to meet its current obligations.  The extent to which the firm has used its long-term solvency by borrowing funds.  The efficiency with which the firms is utilizing its assets in generating sales revenue, and  The overall operating efficiency and performance of the firm. Classification of Ratios Ratios can be classified in to different categories depending upon the basis of classification. Traditional classification Functional classification : Haranahalli Ramaswamy Institute of Higher Education, Hassan 13
  14. 14. Performance Evaluation of Financial Position Traditional classification This classification has been on the basis of the financial statements to which the determinants of ratios belong. On this basis, the ratios could be classified as:  Profit and Loss Account Ratios: That is ratios calculated on the basis of the items of the profit and loss account only Example: Gross profit ratio, stock turnover ratio, etc  Balance Sheet Ratios: Ratios calculated on the basis of the figures of the balance sheet only Example: current ratio, debt-equity ratio, etc.  Composite Ratios or Inter-Statement ratios : Ratio based on figures of profit and loss account as well as the balance sheet Example: fixed assets turnover ratio, overall profitability ratio, etc. Functional classification : The traditional classification has been found to be too crude and unsuitable because analysis of balance sheet and income statement cannot be done in isolation. They have to be studied together in order to determine the profitability and solvency of the business. In order that ratios serve as a tool for financial analysis, they are classified according to their functions as follows:  Liquidity ratio  Leverage ratio  Activity ratio  Profitability ratio 1.Liquidity ratios: It is extremely essential for a firm to able to meet its obligations as they become due. Liquidity ratios measure the firm’s ability to meet current obligations (liabilities). leverage ratios show the proportions of debt and equity in financial the firm’s efficiency in utilizing its assets. In fact, analysis of liquidity needs the preparation of cash budgets and cash and fund flow statements; but liquidity ratios , by establishing a relationship between cash and other current assets to current obligations, provide a quick measures of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity. Haranahalli Ramaswamy Institute of Higher Education, Hassan 14
  15. 15. Performance Evaluation of Financial Position The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of creditors’ confidence, or even in legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios, which indicate the extent of liquidity or lack of it, are  Current Ratio  Quick Ratio or Acid test Ratio  Current Ratio: Current ratio is calculated in order to work out firm’s ability to pay off its short-term liabilities. This ratio is also called working capital ratio. This ratio explains the relationship between current assets and current liabilities of a business. Where current assets are those assets which are either in the form of cash or easily convertible into cash within a year. Similarly, liabilities, which are to be paid within an accounting year, are called current liabilities. Current Ratio = Current Asset Current Liabilities Current Assets include Cash in hand, Cash at Bank, Sundry Debtors, Bills Receivable, Stock of Goods, Short-term Investments, Prepaid Expenses, Accrued Incomes etc. Current Liabilities include Sundry Creditors, Bills Payable, Bank Overdraft, Outstanding Expenses etc. Objective and Significance: Current ratio shows the short-term financial statements of the business. This ratio measures the ability of the business to pay its current liabilities. The ideal current ratio is suppose to be 2:1 i.e. current assets must be twice the current liabilities. In case, this ratio is less than 2:1, the short-term financial statements is not supposed to be very sound and in case, it is more than 2:1, it indicates idleness of working capital. Haranahalli Ramaswamy Institute of Higher Education, Hassan 15
  16. 16. Performance Evaluation of Financial Position  Liquid Ratio: Liquid ratio shows short-term solvency of a business in a true manner. It is also called acid-test ratio and quick ratio. It is calculated in order to know how quickly current liabilities can be paid with the help of quick assets. Quick assets mean those assets, which are quickly convertible into cash. Liquid Ratio = Liquid Assets Current Liabilities Where liquid assets include Cash in hand, Cash at Bank, Sundry Debtors, Bills Receivable, Short-term Investments etc. In other words, all current assets are liquid assets except stock and prepaid expenses. Current liabilities include Sundry Creditors, Bills Payable, Bank Overdraft, Outstanding Expenses etc. Objective and Significance: Liquid ratio is calculated to work out the liquidity of a business. This ratio measures the ability of the business to pay its current liabilities in a real way. The ideal liquid ratio is suppose to be 1:1 i.e. liquid assets must be equal to the current liabilities. In case, this ratio is less than 1:1, it shows a very weak short-term financial statements and in case, it is more than 1:1, it shows a better short-term financial position. 2.Leverage ratio: The short term creditors, like bankers and suppliers of raw material, are more concerned with the firm’s current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial intuitions etc. are more concerned with the firm’s long-term financial strength. In fact, a firm should have a strong short-as well as long-term financial position. To judge the long-term financial statements of the firm, financial leverage, or capital structure ratios are calculated. These ratios indicates mix of funds provided by owners and lenders. As a general rule, there should be an appropriate mix of debt and owners’ equity in financing firm assets. Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt in total financing. Many variations of these ratios exist; but all these ratios indicate the same thing-the extent to which the firm has relied on debt in financing assets. Haranahalli Ramaswamy Institute of Higher Education, Hassan 16
  17. 17. Performance Evaluation of Financial Position Leverage ratios are also computed from the profit and loss items by determining the extent to which operating profits are sufficient to cover the fixed charges Classification of Solvency Ratios:  Debt-Equity Ratio  Debt to Total Funds Ratio  Fixed Assets Ratio  Proprietary Ratio  Interest Coverage Ratio Meaning and Objective :  Debt-Equity Ratio: Debt equity ratio shows the relationship between long-term debts and shareholders funds’. It is also known as ‘External-Internal’ equity ratio. Debt Equity Ratio = Debt Equity Where Debt (long term loans) include Debentures, Mortgage Loan, Bank Loan, Public Deposits, Loan from financial institution etc. Equity (Shareholders’ Funds) = Share Capital (Equity + Preference) + Reserves and Surplus – Fictitious Assets Objective and Significance: This ratio is a measure of owner’s stock in the business. Proprietors are always keen to have more funds from borrowings because: (i) Their stake in the business is reduced and subsequently their risk too (ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Dividend on shares is not so allowed by Income Tax Authorities. The normally acceptable debt-equity ratio is 2:1. Haranahalli Ramaswamy Institute of Higher Education, Hassan 17
  18. 18. Performance Evaluation of Financial Position  Debt to Total Funds Ratio: This ratio gives same indication as the debt-equity ratio as this is a variation of debt- equity ratio. This ratio is also known as solvency ratio. This is a ratio between long-term debt and total long-term funds. Debt to Total Funds Ratio = Debt Total Funds Where Debt (long term loans) include Debentures, Mortgage Loan, Bank Loan, Public Deposits, Loan from financial institution etc. Total Funds = Equity + Debt = Capital Employed Equity (Shareholders’ Funds) = Share Capital (Equity + Preference) + Reserves and Surplus – Fictitious Assets Objective and Significance: - Debt to Total Funds Ratios shows the proportion of long-term funds, which have been raised by way of loans. This ratio measures the long-term financial statements and soundness of long-term financial policies. In India debt to total funds ratio of 2:3 or 0.67 is considered satisfactory. A higher proportion is not considered good and treated an indicator of risky long-term financial statements of the business. It indicates that the business depends too much upon outsiders’ loans. Fixed Assets Ratio: Fixed Assets Ratio establishes the relationship of Fixed Assets to Long-term Funds. Fixed Assets Ratio = Long-term Funds Net Fixed Assets Where Long-term Funds = Share Capital (Equity + Preference) + Reserves and Surplus + Long- term Loans – Fictitious Assets Net Fixed Assets means Fixed Assets at cost less depreciation. It will also include trade investments. Haranahalli Ramaswamy Institute of Higher Education, Hassan 18
  19. 19. Performance Evaluation of Financial Position Objective and Significance: This ratio indicates as to what extent fixed assets are financed out of long-term funds. It is well established that fixed assets should be financed only out of long-term funds. This ratio workout the proportion of investment of funds from the point of view of long-term financial soundness. This ratio should be equal to 1. If the ratio is less than 1, it means the firm has adopted the impudent policy of using short-term funds for acquiring fixed assets. On the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes, i.e. for financing working capital.  Proprietary Ratio: Proprietary Ratio establishes the relationship between proprietors’ funds and total tangible assets. This ratio is also termed as ‘Net Worth to Total Assets’ or ‘Equity-Assets Ratio’. Proprietary Ratio = Proprietors’ Funds Total Assets Where Proprietors’ Funds = Shareholders’ Funds = Share Capital (Equity + Preference) + Reserves and Surplus – Fictitious Assets Total Assets include only Fixed Assets and Current Assets. Any intangible assets without any market value and fictitious assets are not included. Objective and Significance: This ratio indicates the general financial statements of the business concern. This ratio has a particular importance for the creditors who can ascertain the proportion of shareholder’s funds in the total assets of the business. Higher the ratio, greater the satisfaction for creditors of all types.  Interest Coverage Ratio: Interest Coverage Ratio is a ratio between ‘net profit before interest and tax’ and ‘interest on long-term loans’. This ratio is also termed as ‘Debt Service Ratio’. Interest Coverage Ratio = Net Profit before Interest and Tax Interest on Long-term Loans Haranahalli Ramaswamy Institute of Higher Education, Hassan 19
  20. 20. Performance Evaluation of Financial Position Objective and Significance: This ratio expresses the satisfaction to the lenders of the concern whether the business will be able to earn sufficient profits to pay interest on long-term loans. This ratio indicates that how many times the profit covers the interest. It measures the margin of safety for the lenders. The higher the number, more secure the lender is in respect of periodical interest. 3.Activity ratios: Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called Turnover ratios because they indicate the speed with which assets are being converted or turned over in to sales. Activity ratios, thus, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilization. Classification of Turnover/Activity/Performance Ratios: -  Capital Turnover Ratio  Fixed Assets Turnover Ratio  Working Capital Turnover Ratio  Stock Turnover Ratio  Debt Collection Period Meaning, Objective and Method of Calculation: -  Capital Turnover Ratio: Capital turnover ratio establishes a relationship between net sales and capital employed. The ratio indicates the times by which the capital employed is used to generate sales. It is calculated as follows: - Capital Turnover Ratio = Net Sales Capital Employed Where Net Sales = Sales – Sales Return Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus + Long-term Loans – Fictitious Assets. Haranahalli Ramaswamy Institute of Higher Education, Hassan 20
  21. 21. Performance Evaluation of Financial Position Objective and Significance: The objective of capital turnover ratio is to calculate how efficiently the capital invested in the business is being used and how many times the capital is turned into sales. Higher the ratio, better the efficiency of utilisation of capital and it would lead to higher profitability.  Fixed Assets Turnover Ratio: Fixed assets turnover ratio establishes a relationship between net sales and net fixed assets. This ratio indicates how well the fixed assets are being utilised. Fixed Assets Turnover Ratio = Net Sales Net Fixed Assets In case Net Sales are not given in the question cost of goods sold may also be used in place of net sales. Net fixed assets are considered cost less depreciation. Objective and Significance: This ratio expresses the number to times the fixed assets are being turned over in a stated period. It measures the efficiency with which fixed assets are employed. A high ratio means a high rate of efficiency of utilisation of fixed asset and low ratio means improper use of the assets.  Working Capital Turnover Ratio: Working capital turnover ratio establishes a relationship between net sales and working capital. This ratio measures the efficiency of utilisation of working capital. Working Capital Turnover Ratio = Net Sales or Cost of Goods Sold Net Working Capital Where Net Working Capital = Current Assets – Current Liabilities Objective and Significance: This ratio indicates the number of times the utilisation of working capital in the process of doing business. The higher is the ratio, the lower is the investment in working capital and the greater are the profits. However, a very high turnover indicates a sign of over-trading and puts the firm in financial difficulties. A low working capital turnover ratio indicates that the working capital has not been used efficiently. Haranahalli Ramaswamy Institute of Higher Education, Hassan 21
  22. 22. Performance Evaluation of Financial Position  Stock Turnover Ratio: Stock turnover ratio is a ratio between cost of goods sold and average stock. This ratio is also known as stock velocity or inventory turnover ratio. Stock Turnover Ratio = Cost of Goods Sold Average Stock Where Average Stock = [Opening Stock + Closing Stock] 2 Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock Objective and Significance: Stock is a most important component of working capital. This ratio provides guidelines to the management while framing stock policy. It measures how fast the stock is moving through the firm and generating sales. It helps to maintain a proper amount of stock to fulfill the requirements of the concern. A proper inventory turnover makes the business to earn a reasonable margin of profit.  Debt Collection Period: Debt collection period is the period over which the debtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors. Debt Collection Period = 12 Months or 365 Days/Debtors Turnover Ratio Or Debt Collection Period = Average Trade Debtors/Average Net Credit Sales per day Or 365 days or 12 months x Average Debtors/Credit Sales It may be noted that some authors prefer to use 360 days instead of 365 days for the sake of convenience. Objective and Significance: This ratio indicates how quickly and efficiently the debts are collected. The shorter the period the better it is and longer the period more the chances of bad debts. Although no standard period is prescribed anywhere, it depends on the nature of the industry. Haranahalli Ramaswamy Institute of Higher Education, Hassan 22
  23. 23. Performance Evaluation of Financial Position 4.Profitability ratios: A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits irrespective of concerns for customers, employees, suppliers or social consequences. It is unfortunate that the world ‘profit’ is locked upon as a term of abuse since some firms always want to maximize profits at the cost of employees, customers and society. Except such infrequent cases, it is a fact that sufficient profits must be earned to sustain the operations of the business to be able to obtain funds from investors for expansion and growth and to contribute towards the social overheads for the welfare of the society. Profits are 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 its fails to make sufficient profits. Profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get a interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. This is possible only one when the company earns enough profits Profitability ratio includes:  Gross profits ratio: The first profitability ratio in relation to sales is the gross profit ratio. It is calculated by dividing the gross profit by sales. Gross profit ratio = Gross profit Sales Objective and Significance: The gross profit ratio reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods and the sales revenue. The higher gross profit ratio is a sign of good management. Haranahalli Ramaswamy Institute of Higher Education, Hassan 23
  24. 24. Performance Evaluation of Financial Position  Net profit ratio: Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. The net profit is measured by dividing profit after tax by sales Net profit ratio = Profit after tax Sales Objective and Significance: it establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing, administering, and selling the products. This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit. This also indicates the firm’s capacity to with stand adverse economic conditions  Earnings per share: The profitability of the shareholders’ investment can also be measured in many other ways. One such measure is to calculate the earnings per share. The earnings per share is calculated by dividing the profit after taxes by the total number of ordinary shares outstanding . EPS = Profit after tax Number of share outstanding Objective and Significance: EPS calculations made over years indicates whether or not the firms earning power on per share basis has changed over that period. The EPS of the company should be compared with the industry average and the earnings per share of the other firms Haranahalli Ramaswamy Institute of Higher Education, Hassan 24
  25. 25. Performance Evaluation of Financial Position  Dividends per share : The net profits after taxes belongs to shareholders. But the income which they really receive, is the amount of earnings distributed as cash dividends. Therefore, a large number of present and potential investors may be interested in DPS, rather than EPS. DPS is the earnings distributed to ordinary shareholders dividend by the number of ordinary shares outstanding DPS = Earning paid to shareholders (dividends) Number of ordinary shares outstanding Objectives and Significance: The company distributed per share as dividend out of earned per share. The difference per share is retained in the business. Haranahalli Ramaswamy Institute of Higher Education, Hassan 25
  26. 26. Performance Evaluation of Financial Position Profile of Dynamatic Technologies Ltd., 3.1 INTRODUCTION Dynamatic® Technologies Limited (DTL) was incorporated on 8th March 1973, promoted by Mr.J.K. Malhoutra, the present Chairman. DTL was established with technical collaboration from Dowty Hydraulic Units Limited, U.K. They were then known as Dynamatic Hydraulics Limited. In 1984, they indigenized the technology and ended the collaboration with Dowty, becoming one of the key players in the hydraulics field in India and worldwide. Their product range covers over 2800 varieties of Hydraulic Gear Pumps and Hydraulic Systems, which is their forte. They also have diversified applications in the Defense and Aerospace Sectors and in Metallurgy. With that start thirty three years ago, they have now come a long way with ever increasing scale of operations and plans for expansion. Their main manufacturing plant as well as the Head Office is situated at Dynamatic Park, Peenya, Bangalore. They have two plants in Chennai and one plant in Swindon, United Kingdom. In 1998, the company established JKM DAERIM Automotive Limited, a 73Persentage owned subsidiary in partnership with DAERIM Enterprise Co, Limited, Korea. This is now the largest in the company’s portfolio. Leveraging off the company engineering skills, a small aerospace and defense business was established to support research and development by various defense PSUs. In an era where the government is now encouraging private sector participation, your company has a head start in an exciting new industry. In keeping with the company’s philosophy of excellence, Dynamatic has entered into strategic alliance with ATOS, Italy, Walvoil, Italy, for national level distribution of the ATOS range of electro-hydraulic products, the Walvoil range of mobile control valves and Oleo star cartridge. Haranahalli Ramaswamy Institute of Higher Education, Hassan 26
  27. 27. Performance Evaluation of Financial Position 3.2 Nature of the business: With a proven track record spanning over a quarter of a century, DTL are the largest producer of Hydraulic Gear pumps in Asia. In addition to leading the Indian market with a share of 70Persentage, it has also made a mark in the international arena as the fourth largest producer world-wide. DTL are the original equipment manufacturer for all the major tractor and earth moving equipment manufacturers in India like Mahindra and Mahindra, Eicher, Punjab Tractors, TAFE, HMT, BEML, BHEL, Telco, Godrej and Boyce, Bajaj, Larsen and Toubro, McNeill Engineering, Ingersoll Rand, Ashok Leyland, Hindustan Motors, Greaves, etc. In the recent past DTL has made inroads into the Aerospace and Defense sectors, expanding the horizons. The Pilot less Target Aircraft LAKSHYA was a prestigious project for industry aerospace division, where they manufactured its wings and rear fuselage. DTL has also bagged the National Award for Excellence in Indigenization of Defense Equipment awarded by the Ministry of Defense. 3.3 VISION AND MISSION: Be it the ISO 9000 certification for quality systems or the ISO 14000 certification for environmental standards, DTL believes that the role in society is that of a responsible and accountable organization, that is actively contributing to the society. DTL vision has been to  Develop products and technologies in line with national priorities  Achieve global competence  To operate at the international level, to think global and to be the world’s largest producer of hydraulic gear pumps.  Transform our organization into a knowledge based organization  DTL value system too reflects the commitment to quality and innovation in a societal context. DTL believes in  Integrity  Being a quality driven organization  Being a knowledge based organization  Being non parochial meritocracy  Conforming to the highest environmental standards  Raising the standard of living of all employees Haranahalli Ramaswamy Institute of Higher Education, Hassan 27
  28. 28. Performance Evaluation of Financial Position 3.4 MISSION STATEMENT: “To achieve GLOBAL LEADERSHIP through TOTAL CUSTOMER SATISFACTION”  Aimed to develop diversified products  To expand towards more functional areas  Focused on continuous quality management  To achieve rapid growth 3.5 DTL quality policy A Dynamatic technology limited is involved in the design and manufacture of highly engineered components and systems for Hydraulic, Aerospace and Automotive applications.  It is our policy to provide creative and innovative solution to delight our customers at cost-effective prices on a continuous basis.  By delivering superior value to our customers, we will build a successful business model for ourselves, capable of returning high yields to investors and improving the quality of life of all employees.  All processes will be eco friendly and be designed to eliminate wastage, and all employees will strive to constantly expand the boundaries of knowledge through imagination and diligence. This policy is implemented through our quality system, which operates in accordance with ISO 9001, the international quality standard. Dynamatic Technologies Limited is Asia’s largest producer of Hydraulic Gear Pumps and one of the top five worldwide, and now aspires to lead the world in this business in the next few years. The company is now supplying Hydraulic Gear pumps to all the 14 tractor manufactures in INDIA. Over 85Persentage of all agricultural tractors and constructions equipment produced in INDIA are powered by pumps produced by Dynamatic Hydraulics. 45Persentage of all passengers cars made in India are built using critical engine and transmission products manufactured by JKM DAERIM. Haranahalli Ramaswamy Institute of Higher Education, Hassan 28
  29. 29. Performance Evaluation of Financial Position 3.6 CORPORATE STRUCTURE OF DYNAMATIC TECHNOLOGIES CEO & Managing Director Udayant Malhotra Chairman of the Board Vijai kapur Directors: Dr.K. Aprameyan Airchief.Marshal. Krishnaswamy Ms. Shanti Ekambaram Mr.Govind Mirchandani Malavika Jayaram Mr.Raymond Keith Lawton 3.7 Organization Structure of Dynamatic technologies Limited The success of the organization depends upon the functional efficiency of various departments. The departmental functions are co-related and interrelated, so That the coordinated effort of the departments leads to success of the organization. During my tenure of one month of study I have noticed the functioning of the following departments. Haranahalli Ramaswamy Institute of Higher Education, Hassan 29
  30. 30. Performance Evaluation of Financial Position 3.7.1.Organization Structure: CEO and managing Director President and Group CFO SGM and Head Executive Executive Vice President SBU Director and director and COO Aerospace Power metric COO COO Hydraulics and Automotive Dynametal Haranahalli Ramaswamy Institute of Higher Education, Hassan 30
  31. 31. Performance Evaluation of Financial Position 3.7.2 Organization chart: Chairman Managing Director Director Director operator commercial Sr G.M operation Sr. Manager HRD Sr. G.M R and Sr. manager D Sales General manager PPC dept Quality Maintenan control ce dept Marketing Material Production dept Dept dept Haranahalli Ramaswamy Institute of Higher Education, Hassan 31
  32. 32. Performance Evaluation of Financial Position 3.8 Product profile Dynamatic Technologies Limited produces highly engineered products for the following applications:  Automotive Sector  Aerospace Sector  Agricultural Equipment Industry  Construction Equipment Industry DTL is the largest supplier of pumps for the tractor industry and major force in  Earth moving Equipments  Drilling Equipments  Material Handling Equipments  Machine Tools A part from Gear Pump, DTL also produces  Hand Pumps  Manually Operated DC Valves  Hydraulic Motors A brief classification of the product range: Hydraulic gear pumps-for tractors, earthmoving equipments and machine tools.  Hydraulic gear motors, Hydraulic power packs  Directional Control Valves  Servo Test Control Equipments for Helicopters  Hydraulic Biogases Compactors.  Automatic Depth & Control Valves for Tractors.  Aluminium Casting.  Especially Heat treated components.  High Precision Airframe Structures.  Break Actuating Systems for Battle tanks.  Transmission products for Battle tanks.  Load Sensing Hydraulic Valves.  Ground Support Equipment for Military Jets.  Complete Tractor Hydraulic system. Haranahalli Ramaswamy Institute of Higher Education, Hassan 32
  33. 33. Performance Evaluation of Financial Position Automotive components  Water Pumps  Oil Pumps  Intake Manifold  Exhaust Manifold  Rocker Arms  Rocker Covers  Shift Forks  Rear Case Oil Seals. DTL now stand as a medium scale, precision engineering, ISO 9001 and ISO 14000 certified company. Dynamatic Technologies Limited is a medium scale- engineering unit, which produces highly engineered products for applications in the AUTOMOTIVE SECTOR, DEFENCE SECTOR, AGRICULTURE and CONSTRUCTION EQUIPMENT INDUSTRY. Haranahalli Ramaswamy Institute of Higher Education, Hassan 33
  34. 34. Performance Evaluation of Financial Position 3.9 Milestones of the Organization Year Achievements 1973 Incorporation of Dynamatic technologies 1990 Establishment of a small non ferrous foundry Dynametal division at Chennai. 1991 A small R and D facility was set up to develop new iterations that world find application outside the tractor industry. 1995 Dynamatic Aerospace produced Airframe structure and precision Aerospace components for LAKSHAY; India pilotless largest aircraft. 1997 A joint venture between Dynamatic Technology Limited and Dea Rim Enterprise company Limited. 1998 Establishment JKM Dae Rim Automotive Limited 1999 Dynamatic Aerospace successfully produced the first five prototype of wings and rear fuselage for which the division received a reward for creative partnership with HAL 1999 ISO: 9001 Lloyd’s REGISTER QUALITY ASSURANCE 1999 Quality policy was introduced in organization 2000 LRQA Approves DTL’s Quality Management System 2003 HAL successful test flow the prototype intermediate Jet trained IJT-36 developed at R and D of Dynamatic 2003 The division produced the Hydraulic Transmission System for India T-72 Battle Tank 2003 DTL receives National Award for Excellence 2003 Hyundai-DTL : Partner’s in progress 2003 HAL Best Vendor Award for Dynamatic Aerospace 2003 Efficient Collaboration for customer satisfaction 2003 DTL Engineers follow- the-sun to innovate 2003 Dynamatic bags maiden order from John, Deere, Germany 2005 Dynamatic Aerospace launches facilities Haranahalli Ramaswamy Institute of Higher Education, Hassan 34
  35. 35. Performance Evaluation of Financial Position 2006 First major Airframe structure for SUKHOI 30HKI delivered by Dynamatic Aerospace to Hindustan Aeronautics limited(HAL) 2006 JKM Dae Rim Rides the global sourcing wave 2007 Dynamatic Technologies and Cobham Announce partnership 2007 North troop Grumman, Dynamatic Technologies limited to team on potential Defense Electronics Opportunities in India 2007 Dynamatic technologies inaugurates Science Block 2007 Dynamatic acquires Hydraulics Business Division in UK 2008 The Board of directors approved the allotment of 617,143 equity share the shareholders of JKM Daerim Automotive consequent to the merger of JKM Daerim Automotive with the company. Areas Of Operation: The main manufacturing plant as well as the Head Office is situated at Dynamatic Park, Peenya, Bangalore. There are two plants in Chennai and one plant in Swindon, United Kingdom. The company is planning to acquire more companies in next few years. It’s among the top strategies of the management too, as we learnt it by the HR manager. Ownership pattern Dynamatic technologies limited are a widely held public limited Company and the Shares of the company are listed on Bangalore and Bombay Stock Exchanges. SHARE HOLDING PATTERN in Percentage (As on 30 June 2008) Promoters 25.26 Banks and Institutions 0.01 Haranahalli Ramaswamy Institute of Higher Education, Hassan 35
  36. 36. Performance Evaluation of Financial Position Mutual Funds 0.98 FIIs (incl. GDRs) 10.2 Corporate Bodies 31.91 Public 31.64 Compotator’s Information: DTL is a market leader in Hydraulics as learnt in the beginning it holds 70Persentage of the Indian market. In other Industries the company in an infant, but still it is doing well. Not much information about its competitors is given. As they are all well known co’s like, Bosch Limited Eaton Corporation Yuken India Limited Haranahalli Ramaswamy Institute of Higher Education, Hassan 36
  37. 37. Performance Evaluation of Financial Position These are all the competitors in the field of Electro components. Competitors Hydraulic pumps for Industrial pumps tractors DYNAMATIC 85 percentage 60 – 70 Percentage BOSCH EATON 15Percentage ------ RESIROTHA EATON ------- 30 – 40 Percentage YUKEN INDIA LTD In aerospace industry though the competition is not that much because of the sustained conservative approach of the govt. and complementing nature of the industry, which makes the companies dependent on each other rather than making them rivals. Automotive industry is a vast Industry and in world context there are thousands of companies, and Bosch stands as the rival again, but there are some components which the company has control over for which there are no competitors. Infrastructural Facilities: The company is situated in the Industrial area of Peenya, in a vast area under its operation. The age old perception of the factories being very congested is being proved wrong by such companies. The premise has the following infrastructural facilities:  Easy access to the company  A canteen with hygienic atmosphere  A Medical Inspection room  First aid kits in all floors  Dustbins at a regular distance  Beautiful gardens all around Haranahalli Ramaswamy Institute of Higher Education, Hassan 37
  38. 38. Performance Evaluation of Financial Position  R and D building etc.  Good security system  Ample parking place for both employees and visitors. This information is neither displayed nor is it told to us by anyone in the company, it was learn by us.The company follows shift policy and we could see that the employees had soothing rest rooms to relax. One incident I witnessed could be recalled… during our initial days, The HR assistant met with an accident while he was visiting a plant. He was treated with the first aid kit, and moved immediately to the M-1 room. From there, in time he was taken to the Hospital to avert and serious injury. 3.10Achievements and Awards:  DTL receives National Award for Excellence DTL proudly walked away with a National Award for Excellence in Indigenization of Defense Equipment, instituted by the Ministry of Defense (Department of Defense Production and suppliers) at the Awards function held in Delhi, on January 25, 2000. It has successfully indigenized the hydraulic pumps for lubrication and transmission used in the T-72 Tank.  DTL’s Quality Management System approved by LRQA DTL has been constantly striving to improve, expand and innovate itself to attain the highest quality standards. So the approval from Lloyd’s Register Quality Assurance, a leading international accredited certification body for quality assurance, comes as little or no surprise.The company attributes its success to the employees and the quality policy, particular in Hydraulics.  HAL Best Award for Dynamatic Aerospace Dynamatic Aerospace has bagged the HAL Best Vendor Award for the year 2002-03 from the Aircraft Division oil Hindustan Aeronautics Limited, Bangalore. This Haranahalli Ramaswamy Institute of Higher Education, Hassan 38
  39. 39. Performance Evaluation of Financial Position award has been presented to Dynamatic Aerospace for quality workmanship and on-time deliver. Workflow model: DTL uses a generic model for all the components, though some slight changes are made at the floor level by the people responsible. A typical can be depicted like this’ PURCHASE PLANT FOR PRODUCTION Haranahalli Ramaswamy Institute of Higher Education, Hassan 39 PACKING AND GOODS FINISHED PRODUCTION FINAL DESIGN DISTRIBUTION
  40. 40. Performance Evaluation of Financial Position WORK FLOW MODEL (END TO END)  Purchase order; DTL that is taking (purchase) order from, which is one regular customer.  Plan for production: According to the purchase order of quality quantity, the production department is preparing the schedule for production.  Production and assembly: The production department is producing the product and services and the basis of schedule and requirements. Than they will assign in assembly department.  Finished goods: The finally company is preparing the finished products according to purchase order. Haranahalli Ramaswamy Institute of Higher Education, Hassan 40
  41. 41. Performance Evaluation of Financial Position  Final inspection: The final inspection is taken by the inspection department of the company on quality and quantity of products.  Final design: The final design is one of lost stage of finished products and that is involving the packing of the products.  Packing list: The Company is taking care of packing list that is dividing a basis quantity and customer requirement.  Delivery: After packing the products the company is taking initiative to delivery products through various mode of transportation. Future growth and prospects: Today’s economy favours, and is the reason why many businesses are spreading their wings to encompass newer markets. With such rapid expansion in the pipeline for most business, integration processes and infrastructure can be a nightmare. With Dynamatic Technologies Limited, through, the task is made easier. For over a decade, DTL has catered to the varying needs of business across industries with its portfolio of products. DTL is the largest producer of Hydraulic Gear Pumps in Asia. Estimated turnover is around 3000 lakhs. Planned for increasing scale of operations and expansion 3.11 SWOT Analysis: SWOT stands for strength, weakness, opportunity and threats, strengths and weakness are with in the company whereas opportunities and threats are external factors. SWOT analysis is the tool for auditing and organization the environment. It is the first stage of planning and helps organization to focus on key issues. Once key issues have been identified, they feed into organization objectives. It can be used in conjunction with other tools of audit and analysis. STRENGTHS The company’s consistent urge to grow contiguously by providing innovative and creative solutions to the customers over the last 15 years is its strength. The company’s philosophy of proactively pursuing balanced and sustained business policies are its strength. Highly experienced, competitive and creative staff of the company is their main strength. WEAKNESS Any drastic change in monsoon and climatic conditions can fluctuate the production of company as it being manufacturer of tractor based hydraulic pumps. Inconsistency in the supply of raw materials due to poor supplier evaluation. Haranahalli Ramaswamy Institute of Higher Education, Hassan 41
  42. 42. Performance Evaluation of Financial Position OPPURTUNITIES The market for tractors in India constitutes 36Percentage of the world market, and is expected to increase, as farming is still not fully mechanized in India, thus creating an opportunity for the company. The rapidly growing infrastructure sector has opened a gateway to the company.Emerging other product categories, changing economic scenario has thrown great opportunities being a market leader the company has the monopoly is price strategy. THREATS Climatic conditions are one important threat, as tractors being agriculture based product and are empowered by hydraulic pumps. Banking conditions is another threat, as farmers are not able to invest on the farm mechanization. STRENGTHS  The company is Asia’s largest producer of Hydraulic Gear pumps and one of the top five in worldwide.  Company is now supplying hydraulic gear pumps to all 14 tractor manufacturers in India.  Over 85percent of all agricultural tractors and construction equipment produced in India are powered by pumps produced by Dynamatics Hydraulics.  The company has relentless drive to eliminate operational inefficiencies, introduction of more value added products the company’s net profit has grown by 52percent.  The improved overall performance has been leveraged by the company to negotiate substantial reductions in financial costs.  The company imparts training to workmen for working on multiple machines along with combination of reengineering of processes, which has constantly increased the productivity levels.  Company has leveraged the deep relationships and large market share built – up over the years with existing customers, to offer additional products which incorporate state-of-the-art features at attractive price levels.  The extensive training programs includes 5s quality system in the company.  Six-Sigma problem-solving techniques have been employed.  Exports continue to be the growth driver. Company has now been approved as a global strategic source by the world’s leading agricultural and construction Haranahalli Ramaswamy Institute of Higher Education, Hassan 42
  43. 43. Performance Evaluation of Financial Position  equipment manufacturers such as John Deere, Case New Holland, CLAAS, JCB, etc WEAKNESS:  Power intensive, dependant on power and any miscarriage here results in under- utilization of capacity.  Needs updating with the times in terms of plant and machinery.  No funds raised on a short term basis which have been used only for long term investment.  Variation of share prices of the company in stock market. For example: MONTH HIGH LOW (Rs/share) (Rs/share) October 2006 1,285.00 715.00 November 2006 1,016.00 779.00 December 2006 1,248.00 901.00 OPPORTUNITIES:  The automotive components industry is poised to witness significant change over the next decade.  The outsourcing boom in auto component industry offers great opportunities for growth.  Company presently operates predominantly in the highway vehicle segment which is characterized by high volumes and thin margins.  However, growth opportunities available in this segment make it very attractive for any business. Haranahalli Ramaswamy Institute of Higher Education, Hassan 43
  44. 44. Performance Evaluation of Financial Position  Company is continuing to develop numerous variants of pumps used in the industrial sector, with an aim of increasing penetration in this lucrative and growing market.  With an aim to trap into the rapidly growing infrastructure sector, company is putting in serious R&D efforts, to develop a range of cast- iron body pumps. This will open up new revenue streams for your company.  Company as approved at the last annual general meeting, has incorporated a subsidiary during the year, JKM global pvt. Limited, based in Singapore, with the aim of better focusing its efforts on the opportunities in the global market.  Company wishes to grow rapidly in this segment and counter the pricing pressures by adding global customers like ford, Nissin & PSA and build  Higher value-add in its existing supplies by graduating to supplying complete assemblies wherever possible rather than only parts. THREATS:  Enormous pricing pressures from customers can seriously pressurize margins which appear to be the biggest threat to this industry.  With the customs duty levels continuing to drop (and projected to reach WTO levels by 2008-09), the pricing structure may have to be suitably modified to counter expected imports. Cost-push inflation, in terms of spiraling aluminum price increases, is a cause of concern. Analysis and Interpretation 4.1 Comparative Balance sheet: Haranahalli Ramaswamy Institute of Higher Education, Hassan 44
  45. 45. Performance Evaluation of Financial Position 2005 2006 Increase or 2007 Increase or 2008 Increaseor 2009 Increase or (base year) decrease decrease (Rs 000) decrease (Rs 000) decrease SOURCES OF FUNDS Shareholders’ Funds Capital 41,935,600 41,935,600 - 41,935,600 - 48,107 6172 54,147 12,212 Reserves and Surplus 158,374,485 221,031,943 62,657,458 296,040,461 137,665,976 610,994 452,620 1,294,737 1,136,363 Loan Funds Secured Loans 294,240,799 334,133,844 39,893,045 459,694,485 165,453,686 1,222,019 927,779 1,868,284 157,044 Unsecured Loans 64,060,391 64,970,687 910,296 57,307,511 -6,752,880 176,165 112,105 182,066 118,006 Deferred Tax Liability 42,837,355 37,002,348 -5,835,007 55,103,206 12,265,851 148,315 105,478 209,775 166,918 601,448,630 699,074,422 97,625,792 910,081,263 308632633 Total 2,205,60 -380888 3,609,009 3,007,651 APPLICATION OF FUNDS Fixed Assets Gross Block 534,381,096 588,718,023 54336927 699,896,534 165,515,438 2,156,308 1,621,657 2,875,390 2,341,009 Less: Depreciation 263,176,231 296,486,878 33310647 319,859,766 56,683,535 703,394 440,218 873,454 610,278 Net Block 271,204,865 292,231,145 21026280 380,036,768 11,763,535 1,452,914 1,181,710 2,001,936 1,730,732 Capital Work-in-progress 4,969,243 61,491,790 56522547 185,051,776 180,082,533 165,503 160,534 301,642 296,673 Incidental Expenditure during Construction Period - 13,895,158 13895158 34,101,682 34,101,682 - - - - 276,174,108 367,618,093 91443985 599,190,226 3,23,016,118 1,618,417 1342243 2,303,578 2,027,404 Investments 78,606,253 78,644,151 37899 78,544,151 -62,102 85,388 6782 509,857 431,251 Current Assets, Loans and Advances Inventories 118,669,489 155,048,189 36378700 163,336,943 44,667,454 339,799 221,130 403,457 284,788 Sundry Debtors 228,481,808 288,302,155 59820347 339,342,118 110,860,310 631,546 403065 724,314 495,833 Cash and Bank Balances 17,493,847 17,685,119 191272 16,907,751 -586,096 52,891 35398 72,985 55,492 Other Current Assets 12,411,582 12,864,449 452867 17,291,555 4,879,973 26,968 14557 36,161 23,750 Loans and Advances 50,503,036 61,320,960 10817924 86,087,334 35,584,298 206,278 155775 298,182 247,679 427,559,762 535,220,872 107661110 622,965,701 195,405,939 1,257,482 829923 1,535,099 1,107,540 Less: Current Liabilities and Provisions Liabilities 171,971,864 248,281,899 76310035 346,669,311 174,697,447 708,316 536345 697,609 525,638 Provisions 13,113,313 34,126,795 21013482 43,949,504 30,836,191 47,371 34258 41,916 28,803 185,085,177 282,408,694 97323517 390,618,815 208,533,638 755,687 570602 739,525 554,440 Net Current Assets 242,474,585 252,812,178 10337593 232,346,886 -10127699 501,795 259321 795,574 553100 Miscellaneous Expenditure 4,193,684 - -4193684 - - - - - - Total 601,448,630 699,074,422 97625792 910,081,263 308632633 2,205,600 1604152 3,609,009 3007561 Inference :  The above compared balance sheet shows that increased or decreased in source of funds and application of funds.  In 2006, 2007, 2009 has increased in its source of funds which is compared to base year 2005, and it is decreased in 2008.  In 2009, the investment is more compare to 2006, 2008 and in 2007 investment has not made. Haranahalli Ramaswamy Institute of Higher Education, Hassan 45
  46. 46. Performance Evaluation of Financial Position  The ideal current ratio is suppose to be 2:1 i.e. current assets must be twice the current liabilities, in 2009’s balancing figures shows that current assets are twice the current liabilities.  Miscellaneous expenditure is made in the 2005. 4.2 Trend analysis: % 2006 % 2007 % 2008 % 2009 % 2005 (R (R s (Rs s (Rs 000 (Rs 000) 000) 000) 000) ) (base year) S sINCOM Haranahalli Ramaswamy Institute of Higher Education, Hassan 46
  47. 47. Performance Evaluation of Financial Position E Sales and 1,068,9 1,282 3,237 3,314 Services 866,382 100 12 123 ,356 148 ,772 374 ,841 383 Less: Excise duty included 167,9 494,2 378,2 therein 114,474 100 135,642 118 27 147 81 432 60 330 1,114 2,743 2,936 Net Sales 751,908 100 933,270 124 ,428 148 ,491 365 ,581 391 Other 45,33 83,84 76,12 Income 24,900 100 39,078 145 9 182 0 337 2 306 Total 1,159 2,827 3,012 income 776,808 100 972,348 125 ,767 149 ,331 364 ,703 388 EXPENDI TURE: Materials 585,2 1,590 1,661 Consumed 343,213 100 451,592 132 68 171 ,289 463 ,952 484 Employee 137,9 296,0 379,8 Cost 108,296 100 119,704 111 10 127 68 273 00 351 Other Operating 210,8 430,0 531,7 Expenses 174,855 100 199,933 114 77 120 45 246 20 304 Total Expenditu 934,0 2,316 2,573 re 626,365 100 771,231 123 57 149 ,402 370 ,472 411 Profit 201,11 225,7 510, 34 439, or loss 150,443 100 7 134 10 150 929 0 231 292 Inference : Trend analysis shows that income and expenditure is increasing year after year. Wealth and efficiency of the company is well because the income is more than expenditure and company is retaining profit. Haranahalli Ramaswamy Institute of Higher Education, Hassan 47
  48. 48. Performance Evaluation of Financial Position In the 2007, as per trend analysis the income and expenditure is equal, that is 149% and there is profit and loss. As per the trend analysis the profit percentage is more in the 2008. 4.3 Cash flow analysis: Cash flow statement for the year ended 2009 2008 2007 Rs.000 Rs.000 Rs.000 A. Cash Flow from Operating Activities: Profit before Taxation and before Extraordinary/ Exceptional items 114,792 302,234 145,991 Haranahalli Ramaswamy Institute of Higher Education, Hassan 48
  49. 49. Performance Evaluation of Financial Position Adjustments for: Depreciation 172,120 120,703 41,203 Interest Expense 152,319 87,992 38,515 Interest Income (13,708) (6,940) (2,355) (Profit)/Loss on Fixed Assets sold 279 1,173 622 Income from Investment - Dividends - - (14,600) Miscellaneous Expenditure written off - 42 - Debts / Advances Written off 22 837 1,756 Provision for bad and doubtful Debts/ advances 2,999 5,034 3,369 Liability no longer required written back (554) (631) (454) Provision for Gratuity and Leave Encashment 8,828 1,425 3,680 Unrealised foreign exchange (gain) /loss 22,955 (4,872) 176 Warranty provision written back (52) 4,320 454 Operating profit before working capital changes 460,000 511,317 218,426 Adjustments for Changes in Working Capital : - (INCREASE)/DECREASE in Sundry Debtors (95,767) (16,593) (57,668) - (INCREASE)/DECREASE in Other Receivables (76,099) (42,399) (20,730) - (INCREASE)/DECREASE in Inventories (63,658) (41,547) (8288) - INCREASE/(DECREASE) in Trade and Other Payables (87,483) (66,890) (85492) Adjustment t for Unrealised Foreig Haranahalli Ramaswamy Institute of Higher Education, Hassan 49
  50. 50. Performance Evaluation of Financial Position Exchange Gain/(Loss) (22,955) (3,168) - Cash Generated From Operations 114,038 340,720 217,231 - Direct Tax paid (25,206) (74,655) (29,379) - Fringe Benefit Tax paid (7,325) (4,410) (1,936) Net cash from operating activities 78,827 259,053 185,915 B.Cash Flow From Investing Activities: Purchase of fixed assets (477,463) (400,832) (265,137) Proceeds from Sale of fixed assets 3,918 3,482 5,742 Proceeds from Sale of Investments - 15 100 Purchase of investments (408,469) (65,258) - Loans/ICDs given (4,898) (98,494) - Interest Received (Revenue) 8,018 2,588 1,210 Dividend Received - 14,600 5,840 Acquisition of Wind farm (320,813) - - Adjustment for Unrealised Foreign Exchange Gain/(Loss) - 354 - Net cash used in investing activities (1,199,707) (543,545) (252,245) C. Cash Flow from Financing Activities: Proceeds from Long Term Borrowings 870,631 276,212 128,752 Proceeds from Issue of Shares 736,577 - - Proceeds from short Term Borrowings - - (10.000) Repayment of Long Term Haranahalli Ramaswamy Institute of Higher Education, Hassan 50
  51. 51. Performance Evaluation of Financial Position Borrowings (212,380) (149,393) (29,456) Repayment of Inter Corporate Deposits (5,000) (5,000) - Repayment of Loan from Directors - (800) - Repayment of public deposits (592) (177) - Proceeds from Cash Credits/ Working Capital Loans (86,392) 247,230 26,028 Proceeds from Buyer’s Credit 11,477 80,787 - Proceeds from fixed deposits - - 1,929 Interest Paid (145,960) (85,285) (37,357) Dividend (23,980) (51,452) (12,580) Dividend Tax Paid (3,407) (8,743) (1,764) Adjustment for Unrealised Foreign Exchange Gain/(Loss) - 7,686 - Net cash used in Financing Activities 1,140,974 311,065 65,552 Net Increase/(Decrease) in Cash and Cash Equivalents 20,094 26,573 (778) Cash and cash equivalents as at end of last year 52,891 16,908 17,685 Cash and cash equivalents acquired on merger - 9,410 - Cash and cash equivalents as at end of this year 72,985 52,891 16,907 20,094 26,573 (778) Cash flow analysis is done by using chart. 1.Cash flow from operating activities:( C1) Haranahalli Ramaswamy Institute of Higher Education, Hassan 51
  52. 52. Performance Evaluation of Financial Position Inferrence : This chart shows the cash flow from operating activties. In the year 2008 the cash flow from operating activites is more compare to 2007 and 2009. Operating profit before working capital changes is more in the 2008,compare 2009 and 2007 2.Cash flow from investing activities:(C2) Haranahalli Ramaswamy Institute of Higher Education, Hassan 52
  53. 53. Performance Evaluation of Financial Position Inferrence : This chart shows the cash flow used in investing activities. In the year 2009, the investment is more in purchase of assets and purchase of investments . 3.Cash flow financing activies :(C3) Inferrence: This chart shows the cash flow used financing activites.1n 2009, the cash flow used in finacing activities is more compare to 2008 and 2007. 4.Net cash and equivalent (C4) Haranahalli Ramaswamy Institute of Higher Education, Hassan 53
  54. 54. Performance Evaluation of Financial Position Infereence : This chart shows net cash and cash equivalents . In 2008 net cash is more. 4.4 Ratio analysis: Haranahalli Ramaswamy Institute of Higher Education, Hassan 54
  55. 55. Performance Evaluation of Financial Position 1.Liquidity ratios:  Current ratio : Current Ratio = Current Assets Current Liabilities 2009 = 1535099 739525 = 2.0:1 2008 = 1257482 755687 = 1.6:1 2007= 622965 390618 = 1.5:1 2006= 533968 281156 = 1.8:1 Inference: This ratio measures the ability of the business to pay its current liabilities. The ideal current ratio is suppose to be 2:1 i.e. current assets must be twice the current liabilities. In 2008,2007,2006 the ratio is less than 2:1, the short-term financial statements is not supposed to be very sound and in 2009, it is more than 2:1, it indicates idleness of working capital.  Liquid Ratio: Haranahalli Ramaswamy Institute of Higher Education, Hassan 55
  56. 56. Performance Evaluation of Financial Position Liquid Ratio = Liquid Assets Current Liabilities 2009 = 1534099-403457 739525 = 1.6:1 2008 = 1257482-359799 75568 = 1.2:1 2007= 622965-163336 39061 = 1.17:1 2006= 533968-155048 281156 = 1.34:1 Inference: This ratio measures the ability of the business to pay its current liabilities in a real way. The ideal liquid ratio is suppose to be 1:1 i.e. liquid assets must be equal to the current liabilities. In case, this ratio is less than 1:1, it shows a very weak short-term financial statements and in all 4 years, it is more than 1:1, it shows a better short-term financial position. 2.Leverage ratio: Haranahalli Ramaswamy Institute of Higher Education, Hassan 56
  57. 57. Performance Evaluation of Financial Position  Debt-Equity Ratio Debt Equity Ratio = Debt Equity 2009 = 209626 1348884 = 1.55:1 2008 = 1437922 659101 = 2.18:1 2007 = 571705 337975 =1.69:1 2006 = 436105 262966 = 1.6:1 Inference: This ratio is a measure of owner’s stock in the business. Proprietors are always keen to have more funds from borrowings because: (i) Their stake in the business is reduced and subsequently their risk too (ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Dividend on shares is not so allowed by Income Tax Authorities. The normally acceptable debt-equity ratio is 2:1. In 2009,2007,2006, the ratio is less than 1:1, it shows a very weak short-term financial statements and in 2008, it is more than 2:1, it shows a better short-term financial position.  Debt to Total Funds Ratio: Haranahalli Ramaswamy Institute of Higher Education, Hassan 57

×