ECE Industries Limited analyzes its financial statements for 2012 and 2011 across three categories: ratio analysis, common size analysis, and trend analysis. Ratio analysis shows the return on net worth improved to 3.44% in 2012 from -2.53% in 2011 due to improved tax management, leverage management, cost management, and asset management. Common size analysis indicates current assets increased 16% while current liabilities increased 71%, decreasing net current assets by 5%. Trend analysis shows the company eliminated debt in 2011 and has since increased fixed assets and cash while also increasing current assets and liabilities.

1. ECE Industries Limited
Financial Statement Analysis Report
- Utkarsh Jain
- Roll No: 1212066

2. ECE Industries Limited – Financial Statement Analysis Report
Introduction:
ECE Industries is engaged in the manufacture of transformers and Elevators. In this
report the financial of the company are analyzed along three categories:
(i) Ratio Analysis,
(ii) Common size analysis
(iii) Trend analysis.
Part – I: Ratio Analysis
2012 2011
Return on Net worth (ROE*)
3.44% -2.53%
Compared to last year the RoNW has improved by 5.93% and the reason for the above increase is
basically inherited in the improvements in the improvements in all the 3 components .Since the
company have maintained Zero Debt Strategy so the impact of financial leverage is not much .
1) Impact of Tax Management.
2) Impact of Leverage Management.
3) Improvement in management of cost
4) Improvement in management of assets
Impact of Tax Management :
2012 2011
Impact of Tax Planning
1.72% -3.62%
Since last year the company incurred a loss after taxes due a rise in the expense for extra
ordinary items and therefore its ratio is negative for 2011 but in 2012 the company has been
able to book profits this year by reduction in those expenses and in fact have got some of
those extraordinary items expenses back and therefore its profit have improved.
Impact of Leverage Management:
2012 2011
Impact of Leverage Management
-2.30% -1.98%

3. Since the company has been maintaining Zero debt position so this ratio also does not have any
major impact on the profitability of the firm .
Improvement in management of cost:
2012 2011
Profit Margins
3.47% 3.09%
So we the overall margins for the company has increased slightly by 0.38% i.e.12.29% increase over
that of last year, so the company has been able to face the competitive pressure successfully by
reducing the expenditures including the raw material and employee and correspondingly increasing
the sales .The following are more specific contributions to increase in the profit margins .
Reduction in Raw material consumption:
2012 2011
Raw Material Consumed to COGS
70.54% 73.24%
The company has been successfully able to reduce its raw material cost to the Cost of good sold
there by increasing the profitability by indigenously manufacturing 99.41% of raw material
compared to 84.92% of raw material .So going forward the company should look to continue
doing and thereby improving margins .
Reduction in Employee Cost to COGM:
2012 2011
Employee Cost to COGS
6.08% 6.26%
Even though with a inflation figure of around 8% the company has been able to reduce its employee
cost to cost of goods sold by 0.18 % in absolute terms .This efficiency is achieved through investment
in advanced machinery which have decreased the labour cost .
Reduction in Interest Cost to COGM:
2012 2011
Interest Cost to COGS
1.68% 1.72%
Since the company maintains zero long term debts these interest cost are more or less part of the
short term loans and the company has been able to slightly increase it and since the rates are more

4. or less same in 2012 and 2011 the company’s management has been able to better manage its short
term debts .
Improvement in management of assets:
2012 2011
Total Asset Turnover Ratio
1.42% 1.18%
The company has been able to improve its asset turnover ratio by almost 20% compared to that of
last year .This increase in asset turnover ratio has been caused by the company’s ability to better
manage its current asset turnover ratio .
Improvement in Current Asset Turnover Ratio:
2012 2011
Current Asset Turnover Ratio
1.64% 1.43%
The company has been substantially able to increase its current asset turnover ratio by almost 14.6%
over that of last year. This increase has largely been attributed by increase in the Debtors turnover
ratio and decrease in the average collection period.
Improvement in Debtors Turnover Ratio:
2012 2011
Debtors Turnover Ratio
2.49% 2.13%
The company has been able to push additional sales to the market by allowing more credit sales and
hence there has been an increase in the debtor’s turnover ratio
Improvement in Average Collection Period:
2012 2011
Collection period (Days )
146.48 171.39
The company is able to bring the average collection within 5 month of the sales from 6 months and
thereby decreasing the overall risk and improving the overall business.

5. Decline in the current Ratio:
2012 2011
Current Ratio
1.60 % 2.46 %
The company has been doing more business on a credit basis with the suppliers there by
substantially increasing the current liabilities of the company and hence decrease in the current ratio
of the company .Although since the company is debt free and has a good debt service coverage ratio
the company should look to improve this ratio going forward.
Interfirm comparison : ( VGuard Industries Vs ECE Industries )
VGuard industries limited is a manufacturer of Electrical Wires, Water Heaters, Fans & Pumps .In
terms of the sales this company is five times the size of the ECE industries limited .
In comparison to ECE industries V-Guard has done exceptionally well with almost 12 times RONW to
that of ECE. The RONW for VGuard in 2012 is 32.84% whereas for ECE industries it is 2.65% .This is
basically due to higher return on Assets for V-guard with ROA for 25.80 % versus the ROA of around
just 4.95% for ECE in 2012.
V-Guard has been able to maintain a much higher profit margins than that of ECE which significantly
contributes to higher ROA for V-Guard .The profit margins for V-Guard is 8.65% whereas for ECE it is
just 3.47% in 2012.
The company has much lower raw material cost (31.01%) to COGM as compared to ECE (70.54%).
VGuard also maintains a very healthy current asset turnover ratio of 5.09% versus that of just 1.64%
which tells about how effective the V-Guard management has been in getting high yields from the
current assets.
For V-guard the average collection period is also very low with the company being able to recover
credit sales within 2 month of sales as compared to 5 months for ECE in 2012.
The current ratio of V-guard (1.39) is slightly lower than that of ECE (1.60) in 2012.
Part – II: Common size analysis
In common size analysis, we attempt to analyze the components of the Balance Sheet, P & L
and Cash Flow statement as a proportion of the aggregate quantity in these statements.

6. Common Size Analysis of Balance Sheet
As at As at Growth
31.03.2012 31.03.2011
Sources of Funds
Shareholders’ Funds
Share Capital 5.43 5.68 -4.39
Reserves and Surplus 92.33 92.61 -0.31
97.75 98.29 -0.54
Deferred Tax Liability (Net) 0.05 0.01 750.06
Loan Funds
Secured Loans 0.00 0.00
Unsecured Loans 0.00 0.00
Other Liabilities 2.19 1.71 28.39
2.19 1.71 28.39
Total Liabilities 1.00 1.00
APPLICATION OF FUND
Fixed Assets
Gross Block 31.42 23.74 32.32
Less : Depreciation 12.32 10.56 16.60
Net Block 19.10 13.18 44.92
Capital Work in Progress 0.00 2.01 -100.00
19.10 15.19 25.75
Investments 1.26 1.19 6.26
Current Assets, Loans and Advances
Interest accrued 0.00 0.00 0.00
Inventories 25.56 22.07 15.81
Sundry debtors 52.50 56.23 -6.63
Cash and Bank Balances 16.17 8.02 101.72
Other receivables 2.97 3.13 -4.94
Loans and Advances 41.24 29.23 41.08
Advance Payment of Taxes (Net of provision for tax)
138.45 118.68 16.66
Less: Current Liabilities and Provisions
Current Liabilities 55.58 32.32 71.97
Provisions 3.24 2.74 18.04
58.82 35.06 67.75
Net Current Assets 79.63 83.62 -4.77
Total Assets 100.00 100.00

7. Analysis:
The most noticeable changes in the proportion of the components when compared to the
previous year are:
1. The share capital of the stockholders has gone down as the company brought back 8, 75,000
equity shares from open market.
2. There has been major rise on the fixed assets as the company has invested in land and
machinery.
3. The Current assets have increased by 16% over that of last year but the corresponding
increase in current liabilities is huge which is 71% leading to a decline in the net current
asset of almost 5% .
4. The company has been able to decrease the amount of the sundry debtors and its cash and
bank balance have almost doubled over the previous years

8. Common Size Analysis of Profit & Loss Statement
Description Year Year Growth
2011-2012 2010-2011
INCOME
Sales and operating income (Net of discounts) 100.34 110.32 -9.05
Less: Excise 8.53 9.03 -5.54
Sales and operating income (Net of discounts
and excise) 91.82 101.30 -9.36
Stock Adjustments 2.79 -8.05 -134.65
Other Income 5.39 6.76 -20.19
Total 100.00 100.00 0.00
EXPENDITURE
Materials Consumed 69.26 72.22 -4.11
Power and Fuel Cost 0.93 1.11 -16.62
Employees' remuneration and benefits 5.97 6.17 -3.33
Manufacturing, administrative, selling and
distribution expenses 13.25 11.42 16.02
Miscellanous Expenses 6.13 5.28 16.08
95.53 96.21 -0.71
Profit Before Interest, Depreciation and Tax 4.47 3.79 17.88
Less: Interest 1.65 1.70 -2.46
Less: Depreciation 1.00 0.71 42.14
Profit Before Tax and Extraordinary item 1.82 1.39 30.33
Less: Extraordinary item -0.98 3.25 -130.13
Profit BeforeTax 2.80 -1.85 -250.83
Less: Provision for Current Tax 0.43 0.25 72.48
Less: Provision for Deferred Tax 0.03 0.00 0.00
Less: Fringe Benefit Tax 0.00 0.00 0.00
Less: Short/(Excess) tax provisions for earlier
years 0.00 0.00 0.00
Profit After Tax Before Prior Period Items 2.33 -2.11 -210.60
Less: Prior period items 0.00 0.00 0.00
Profit After Tax and Prior Period Items 2.33 -2.11 -210.60
Analysis:
1. The company has been able to reduce the dependence on sales by 10% out of the
total income.
2. The company has also been able to achieve better operational efficiencies as by
slightly saving savings in the power and fuel cost reflecting the pursuance of
company strategy for the conservation of energy.
3. All the other expenditures as a percentage of sales have rise due to inflation .The
company has been able to record profit only due to the major income from stock
adjustments .

9. Common Size Analysis of Cash Flow Statement
Description
2011-
2012
2010-
2011
Net Cash generated from Operating Activities (A) 100.00 100.00
Net Cash used in Investing Activities (B) 38.45 137.43
Net Cash used in Financing Activities (C) 27.77 73.81
Add: Net increase/decrease in Cash [(A) + (B) +
(C)] 33.78 36.38
Analysis:
1. Both the cash used in investing activities along with the cash used in finance activities have
gone down drastically compared to last year when it made huge investment leading to a
considerable rise in the cash this year.
Trend Analysis
In trend analysis, we analyze the 10 year trend of the various components of the
balance sheet and P & L statement.

10. Trend Analysis of Balance Sheet
Description Mar 12 Mar 11 Mar 10 Mar 09 Mar 08 Mar07 Mar 06 Mar 05 Mar 04 Mar 03
Share Capital 172 192 96 96 96 96 96 96 96 100
Reserves Total 197 210 149 138 135 110 102 100 100 100
Total Shareholders’
Funds 196 209 146 135 132 109 101 100 100 100
Secured Loans 0 0 220 203 332 265 148 99 94 100
Unsecured Loans 0 0 0 0 0 0 0 0 21 100
Total Debt 0 0 217 200 328 262 146 97 94 100
Total Liabilities 173 183 156 144 159 130 108 100 99 100
Gross Block 147 118 92 93 125 109 108 105 99 100
Less : Accumulated
Depreciation 96 87 86 89 112 108 110 105 101 100
Net Block 223 164 101 100 144 111 105 106 97 100
Investments 39 39 65 86 180 87 64 64 101 100
Inventories 109 100 191 148 133 78 113 81 102 100
Sundry Debtors 174 197 149 178 183 189 79 66 69 100
Cash and Bank 283 149 44 115 152 138 73 60 126 100
Loans and Advances 335 253 106 63 69 126 123 124 111 100
Total Current Assets 189 171 147 143 145 138 97 81 91 100
Current Liabilities 231 142 95 111 114 147 83 50 80 100
Net Current Assets 174 194 177 164 166 140 110 100 101 100
Analysis:
1) The company till 2010 was depending on loans for expansion making the company extremely risky
after which it changed in 2011 completely into 0 debt company by issuing fresh equity shares
(43,88,155) .Going forward as well it can still issue more shares as it has a large authorized capital of
1500 Lakh’s whereas currently only 877.80 of such capital is being used.
2) The company has also been able to reduce its operating inventories suggesting operational
efficiencies and implementation of Just In time Inventory.
3) The company has also been able to increase its fixed assets over the years by investing in land and
plant and machinery.
4) The company's cash situation has also been increasing consistently.
5) Although the current assets have been increasing over the years but so has been the current
liabilities so it has increase the credit from suppliers.

11. Trend Analysis of Cash Flow Statement
Description
12-
Mar
11-Mar 10-Mar 9-Mar 8-Mar 7-Mar 6-Mar 5-Mar 4-Mar 3-Mar
Sales Turnover 236 229 181 268 242 276 117 98 93 100
Excise Duty 189 176 124 279 315 354 149 115 102 100
Net Sales 242 235 187 267 233 267 113 96 92 100
Other Income 44 48 60 32 90 27 13 38 39 100
Total Income 206 181 164 227 209 208 96 78 82 100
EXPENDITURE :
Raw Materials 393 361 310 450 359 427 184 136 125 100
Power & Fuel Cost 151 160 131 131 113 118 108 117 112 100
Employee Cost 126 115 98 96 109 74 62 58 74 100
Other Manufacturing
Expenses
91 70 71 73 84 76 41 48 61 100
Selling and Administration
Expenses
129 98 111 120 82 48 51 57 63 100
Miscellaneous Expenses 92 84 32 83 84 95 29 35 50 100
Total Expenditure 226 201 173 241 202 223 103 86 88 100
Operating Profit 70 52 105 137 261 110 48 26 38 100
Interest 138 125 130 352 256 198 87 53 62 100
Gross Profit 54 36 99 88 262 90 39 20 33 100
Depreciation 217 134 120 115 136 118 109 106 99 100
Profit Before Tax 39 26 97 85 275 88 32 11 26 100
Tax 82 42 163 200 812 -23 0 12 18 100
Reported Net Profit 35 26 102 75 228 94 25 16 19 100
Analysis:
Although the company has been able to more than double the sales over the last 10 years period but
correspondingly expenditures have also increased with almost the same or more rate over the years.
But the company’s profits are very variable with significantly lower profits over the last 2 years
suggesting high business risk .out of the 10 years period only once the company has been able to
post better in 2008.These lower profits are generally due to significant increase in the raw material
cost which has increased by almost 4 times.

12. Solvency:
Altman’s Index:
Z = 1.2 x1 + 1.4 x2 + 3.3 x3 + 0.6 x4 + 1.0 x5
Where:
x1 = Working Capital/Total Assets
x2 = Retained Earnings/Total Assets
x3 = EBIT/Total Assets
x4 = Market Value of Equity/Book Value of Total Liabilties
x5 = Sales/Total Assets
Altman’s Index is : 3.05
So the company is in Safe Zone as per the financial results .

13. Appendix :
Fig 1 : Ratio analysis Chart of ECE Industries Limited
Ratio Analysis Chart
2012-2011 2011-2010 2012-2011 2011-2010 2012-2011 2011-2010
0.05% 0.01% 3.44% -2.53% 1.72% -3.62%
-2.30% -1.98% 2.65% 1.68% 0.02 0.02
4.95% 3.65%
1.42 1.18 3.47% 3.09%
6.85 9.09 1.64 1.43 70.54% 73.24%
1.60 2.46 4.66 4.67 6.08% 6.26%
78.39 78.24
3.79 2.41 13.49% 11.58%
2.49 2.13
2.71 2.24 1.68% 1.72%
146.48 171.39
9.62 7.73
DSCR - 2
Interest to COGM
Leverage / Financial risk
Employee cost to COGM
Mfg, adm, SGA to COGM
Inventory holding Period (Days)
Collection Period (Days)
Fixed Asset TO
Current ratio
Payment Period (Months)
DSCR - 1
Current Asset TO
Inventorry TO
Debtors TO
Raw Material to COGM
Profit Margin
Impact of leverage
Impact of Tax PlanningDeferred tax to total funds
Asset Turnover Ratio (ATO)
Return on Assets
Retrun on Networth (ROE)
Retrun on Networth (ROE*)

14. Fig 2: Du-Point for V-Guard Industries Limited

15. References:
1) Company Annual Statements published on the website: http://www.eceindustriesltd.com/.
2) Company’s 10 years Data : www.capitaline.com
3) Ratio of V-Guard Industries for Comparison with Competitors by Saurabh Jain (1212059) .
4) Accounting Text and Cases by Robert N. Anthony.
5) Financial Statement and Analysis by M S Narasimhan .