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Financial analysis of crompton greaves


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Financial analysis of crompton greaves

  1. 1. ANALYSIS OF FINANCIAL STATEMENT EXECUTIVE SUMMARY INDUSTRY PROFILE The healthy growth in the industrial sector achieved during 2005-2006 has continued during the current year as well with overall industrial growth (measured in terms of the index of Industrial Production) growing at a rate of 8.5 percent during the April- September 2004-05 compared with 6.2 percent achieved during the same last year. The existing installed capacity in the industry is of the order of 4500 MW thermal, 1345 MW of Hydro and about 25 MW of gas based power generation equipment per annum and manufacturing units depending upon the needs and their capacity are augmenting the capacity. COMPANY PROFILE THE CROMPTON GREAVES GROUP Col. R.E.B. Crompton founded R.E.B. Crompton & Company in 1878. The company was merged with F.A. Parkinson in 1927 to form Crompton Parkinson Ltd. Greaves Cotton and Company, established by James Greaves in 1859, was appointed as their concessionaire in India. In 1937, Crompton Parkinson established Crompton Parkinson Works Ltd. in Bombay as a wholly owned Indian subsidiary. In collaboration with Greaves Cotton, it also established a sales organization, Greaves Cotton & Crompton Parkinson Ltd. In 1947, just before Indias independence, Lala Karam Chand Thapar, an eminent Indian industrialist, bought Greaves Cotton when the company was put up for sale. With this acquisition, Karam Chand Thapar gained control of several associated companies such as Crompton Parkison Works, Greaves Cotton and Crompton Parkinson Company. The name Crompton Greaves Limited was adopted on August 2, 1966, following a court-directed amalgamation of Greaves Cotton and Crompton Parkinson Ltd. Over the years, the company has evolved into one of Indias largest private sector enterprises. After the acquisition of the Belgium-based Pauwels Trafo/Pauwels Group in May 2005, Crompton Greaves was ranked amongst the worlds top ten electrical transformer manufacturers. The company subsequently acquired a host of companies outside India. These include Ganz (Hungary), Microsol (Ireland), Sonomatra (France), MSE Power Systems (USA) and ZIV (Spain). Crompton Greaves is a part of the US$4 billion Avantha Group, and is headquartered in a self- owned landmark building CG House at Worli, Mumbai. In 2009, reflecting its global presence and diverse businesses, Crompton Greaves adopted a new brand identity and is known as CG.1
  2. 2. ANALYSIS OF FINANCIAL STATEMENT Crompton Greaves made series of acquisitions overseas which includes [4]- ZIV Group for Euro 150 Mn, QEI Inc, provider of SCADA and automation systems for $30.0 Mn and Emotron Group, a power electronics and engineering company, for $82.3 Mn (57.8 Mn Euros). In September 2012, HSBC Global Investment Funds raised its stake in Crompton Greaves from 1.29% to 2.68% through bulk deal on BSE for R92.73 Cr. In March 2009, Crompton Greaves acquired 41% stake in Avantha Power & Infrastructure Limited for R227Cr. Mr Gautam Thapar is the Chairman of the Board and Mr Laurent Demortier is the Managing Director and CEO of the company. OBJECTIVES OF THE STUDY To study on the financial performance of the company for the past 5 years. To bring out the results of financial statements through ratio analysis. To study about the Crompton Greaves Company Limited, Mandideep in general. To study the financial position of the company. SCOPE OF THE STUDY The scope of the study is the covered area for the purpose of study. The study is limited to Plant M7 (unit of CG ltd). METHODOLOGY Methodology is the systematic method or an activity, which is used to collect the information required to complete this project work. The data is collected by 2 methods: 1. Primary data 2. Secondary data. Primary data is collected through collecting information from company officers, from external guide.2
  3. 3. ANALYSIS OF FINANCIAL STATEMENT Secondary data, which is secondary in nature i.e. already, collected information this secondary data is collected through Company‟s Annual Report and discussion with them. Interpretation of:  Balance sheet  Profit and loss account  Annual reports INTRODUCTION OF THE STUDY The accounting process begins with the recording of transactions in the books of primary entry. The accounting information resulting from the transactions so recorded gets posted in to various accounting heads in the ledger. In the ledger each account is balanced at the end of an accounting period and a summary of all balances in the various accounting heads from the ledger is prepared which is known as trial balance from such trial balances and after effecting certain adjustments considered necessary (which is dependent on the particular accounting system followed by the organizations) the financial statements relating to the accounting period are prepared. NEED FOR THE STUDY There are some questions, which arise from the study of financial statements. These could be “Is Company‟s profitability adequate? Why is a profit low in spite of increased sales? Why is there liquidity problem though profitability is good? Why no reasons for changes in assets, liabilities and equity between two dates? Why no dividends are paid though there are good profits? From where have come cash flows and how they are applied? These and many other questions need answers, which can be possible when the financial statements are suitably analyzed Thus financial statement analysis deals with meaningful interpretation of financial data available in financial statements to serve specific purpose of organizations of such data for their decision making .this involves identifying the purpose and selecting suitable means of analysis. Financial statement analysis is essentially purposive. ABOUT THE ORGANIZATION3
  4. 4. ANALYSIS OF FINANCIAL STATEMENT Crompton Greaves group of companies are a century old company which comprises of over 20 companies with a total turnover of over Rs.1200crores and personnel strength of over 25000 workers, engineers and managers. In the history of India industry, a significant event was the rise of Crompton Greaves group of company. The Crompton Greaves stands for excellence in engineering, quality and reliability. The business areas of the group companies reflects its diversity, process control equipment and machine tools, rotating electrical machines, internal combustion, engines, computers etc. The company started with manufacture of AC Motors 1984. Today CG manufactures diversified product range consisting of AC Motors, AC Generators, Transformers, DC Motors and Electric equipments. The Unit-II in Mandideep, Crompton Greaves Company limited is a subsidiary of Crompton Greaves (PLANT M-7). It manufactures AC Motors and AC Generators. INDUSTRY PROFILE The healthy growth in the industrial sector achieved during 2003-04 has continued during the current year as well with overall industrial growth (measured in terms of the index of Industrial Production ) growing at a rate of 7.9 percent during the April- September 2004-05 compared with 8.5 percent achieved during the same last year. The worldwide electric power industry provides vital services essential to modern life. It provides the nation with the most prevalent energy form known in history electricity. It advances the nation‟s economic growth and productivity; promotes business development and expansion; and provide solid employment opportunities to workers globally in general and India in particular. It is a robust industry that contributes to the progress and prosperity of our nation. Today the electric power industry operates in a hybrid model of competition and regulation. The worldwide electrical and4
  5. 5. ANALYSIS OF FINANCIAL STATEMENT electronics industry is growing at a fast pace which consist of manufacturers, suppliers, dealers, electricians, electronic equipment manufacturers. Power industry restructuring, around the world, has a strong impact on Asian power industry as well. Indian power industry restructuring with a limited level of competition, since 1991, has already been introduced at generation level by allowing participation of independent power producers (IPPs). The new Electricity Act 2003 provides the provision of competition in several sectors. It is felt that the prevailing condition in the country is good only for wholesale competition and not for the retail competition at this moment. As per the recent survey, the global electric & electronic market is worth $1, 03.8 billion, which is forecasted to grow to $ 1,216.8 billion at the end of the year 2008. If we talk of electric & electronic production statistics, the industry accounted for $ 1,025.8 billion in 2006, which is forecasted to reach $1,051.5 billion in future. Size of the Electric/ Electronic Industry Top three electric and electronic goods manufacturing countries in the world are; United States of America, Japan and Korea respectively, The United States of America being the largest producer of electronic products worldwide contributes the total share of around 21% furthermore; USA is at the forefront to have the largest market share with around 29% in the global market. The world‟s electrical market size was $ 1038.8 billion in 2006, since last year an increase of 10.6% is forecasted to grow even more. The industrial electrical goods industry size was $ 651.3 billion, contributing around 62.7% of the total. With regard to electronics parts and components sector, the total market share was around $ 282.7 billion i.e.; 27.2% while home electronics was 104.7 billion. This figure is supposed to increase in this decade. Major Production and Export Centers As electronic manufacturing industry is growing with a fast pace, Western Europe is developing gradually to contribute this industry. Western Europe comprising of 16 countries is contributing5
  6. 6. ANALYSIS OF FINANCIAL STATEMENT around 22% of the global market. Simultaneously, Eastern Europe is forecasted to grow about $ 24 billion in 2013 from $ 9 billion in 2006. If we talk of Asia Pacific region, China, Japan, North & South Korea, Singapore and India are the top manufacturer of electrical and electronic products. Among these Asian countries, China is becoming the manufacturing region of electronic products on the globe. In United States of America, cities like New York, Atlanta, Colorado, Detroit, Florida, and New England, San Diego, San Francisco, and Texas can be named as industrial hubs of electronics industry. At present, Asia is growing with more speed in comparison to America and Europe. In 2002, Asia occupied 41% of total electronics market share, which grew up to 56% in 2007. Those days are not far away when Asia will become the market leader globally. Future Outlook of Electric & Electronic Industry Totally, the electrical and electronic industry is experiencing phenomenon and remarkable changes worldwide. The worldwide electronics industry is distinguished by fast technological advances and has grown rapidly than most other industries over the past 30 years. Products are heading towards new destinations where cost is less than other place with higher costs involved. These places offer the most long term potential for market growth. Companies indulged in manufacturing electrical products are investing a lot on research and development for the best products to meet the demand of the market. They are manufacturing the products with the best quality at reduced cost due to many competitors.6
  7. 7. ANALYSIS OF FINANCIAL STATEMENT COMPANY PROFILE THE CROPMTON GREAVES GROUP A significant event in history of Indian industry was the rise of the Crompton Greaves Group of companies to a multibillion conglomerate. The Chairmen Mr. Gautam Thaper Crompton Greaves strongly believed that a company‟s progress was determined by the integration of man and his intellect with technological growth and environment. The first Cropmton Greaves product “1200 KV Capacitive Voltage Transformer” was an innovation far ahead of its time a product designed wholly with the customer in mind. It ultimately became an instrument of wealth for an entire society. The group is committed to innovation, quality and continuing technological advancement. This is evident in there and customs designed products, which have already gained a worldwide reputation for meeting critical industrial needs. The company‟s growth within the country and their entry into global market is based on their highly skilled Human resource and their vast distribution network. We have some of the best engineering and technical brains in the country, who have made their mission immensely productive and successful. CG at a glance A country‟s progress has been closely linked to effective harnessing and use of electrical energy for the benefit of its people. Cropmton Greaves Electric Company‟s endeavor has been to contribute cost effective solutions in all application of electricity. They are actively involved in7
  8. 8. ANALYSIS OF FINANCIAL STATEMENT supplying electrical industrial electronic equipment, systems to industry, agriculture and utilities. In all these ventures, their focus has been to provide state of the art technology that can living standards and thereby make the environment a better place to live in. In the words of Mr. Gautam Thapar: “My faith is in the human intellect. It gives us our means to create wealth by directing our talents towards procedure work. And therefore, freedom for individual ability is the only way a society can prosper. After all, you cannot distribute wealth unless you first create it. And you cannot create it unless you know how” His words breathe the spirit with the Crompton Greaves industrial journey began. And this spirit has continued through the passage of time. CG Ltd. An ISO 9001 certified company was established in 1966 with its registered office at worli in Mumbai. As a part of diversification activity, CG PLANT-M7. started another unit at Mandideep in 1969, to manufacture Electric motors ranging from fractional horsepower to motor up 20HP. Under the leadership of Shri Gautam Thapar CG PLANT-M7 Was started in Mandideep Crompton Greaves Electric Company is the pioneer in India in the manufacture of quality equipments like AC and DC electric motors, generators, welding equipments, controls equipments transformers etc. The company started with manufacture of AC Motors in 1984. Today CG M7 manufacturers diversified product range consisting of AC Motors, AC Generators, Transformers, DC Motors and Electronic Equipments. The M7 in Mandideep, Crompton Greaves Electric Company Limited is a subsidiary of Crompton Greaves Electric Company Limited. It manufactures AC Motors and AC Generators.8
  9. 9. ANALYSIS OF FINANCIAL STATEMENT EMPLOYEES PROFILE KEC Ltd. has a strong employee base. It has maintained fully trained and experienced workers. It values its employees and the employees are considered the real Asset of the company. The employees are very hard working and dedicated towards the growth of the company. The employee base can be depicted based on the number of employees in each section. SECTION NO. OF EMPLOYEES Canteen 09 Central Planning Dept. 05 Production Dept. 32 Engineering Dept. 13 Finance Dept. 14 Forwarding Dept. 03 General Stores 12 MED 03 Marketing Dept. 07 Packing Dept. 32 MMD and MSD 17 Personnel Dept. 04 Quality Assurance Dept. 73 Reception 01 ---------- 2299
  10. 10. ANALYSIS OF FINANCIAL STATEMENT MILESTONES IN THE HISTORY OF KEC 1966 ---- CG established at Mumbai. 1948 -- A new era opens for Indian CG PLANT-M7 produces the country‟s very first AC Motors 1954 ---- Impatient for progress, the company gets into product diversification producing its first transformers. 1956 ---- First transformer manufactured. 1958 --- A critical power situation inspires production of the country‟s first transformers. 1963 ---- The patient of breakdown continues. DC motors and DC generators roll off the assembly line. 1965 ---- Market demand increases. India‟s first motorized gear unit joins the CG PLANT-M7 product range. 1966 ---- Intensive research and development sets the pace for production of the first induction heating equipment. 1982 ---- New collaborations. Better products. Thyristor, Converters, made in collaboration with Thorn EMI, U.K. 1987 ---- Introduction of CNC systems and factory automation.10
  11. 11. ANALYSIS OF FINANCIAL STATEMENT 1989 ---- More collaboration. More products. With Fuji of Japan for investors and with Toshiba of Japan for UPS 1991 ----Toyo Denki collaboration for motors and generators up to 10MW/ MVA. Production of technologically advanced large DC motors and large AC machines in collaboration with AEG Daimler Benz of Germany up to 20MW 1992 ---- The company starts production of Hi- Tech CRT based CNC systems. 1993 ---- Cropmton Greaves Electric becomes the first company in India to receive ISO 9001 certification for its entire product range and for all its manufacturing units. 1995 ---- Took over Voltas Transformer and started manufacturing plant at Tumkur for Manufacturing units 1996 ---- Celebrated Golden jubilee and started manufacture of wind turbine. 2001 ---- Company restructure. 2002 ---- First test lab was started at Tumkur. 2003 ---- Received NVLAP certificate test lab. 2004 ---- Customer Excellence Certificate. COLLABORATION CG provides the latest technology products to customers. Towards this, it has entered into collaboration with foreign companies apart from indigenous research and development efforts. Some of the major collaboration is:11
  12. 12. ANALYSIS OF FINANCIAL STATEMENT AC induction motors ---- AEG, Germany AC generators ---- AEG, Germany Cast resin transformer ----- OCREV, Italy Inverters ----- Fuji Electric, Japan Vector control inverters ---- University of Wuppertal, Germany Uninterruptible power systems ---- Toshiba Corporation, Japan CNC Controls ---- ADOLPH numerical controls. Ltd, UK Transformers ---- Peebles Electric Ltd. Wind turbine generators ---- Wind energy group, UK. CG PRODUCTS AND SEVICES Power Systems Industrial Systems Consumer Products Transformers and Motors: High/Low Voltage Fans AC&DC12
  13. 13. ANALYSIS OF FINANCIAL STATEMENT Reactors Switchgear Generators/Alternators Appliances Products- MV/HV/EHV/UHV nstrument raction Lighting Motors/Alternators/Control Transformers- Electrics MV/HV/EHV/UHV Power Quality FHP/Commercial Motors Pumps Solutions T&D Railway Signaling and Home Automation Coach Applications Systems/Engineering Solutions Protection Control & Drives and Automation Integrated Security Systems Automation Services for Power Stampings and Wiring Accessories Laminations Systems Transformer & Services for Industrial LV Switches & Panel Products Systems Switchgear Components ORGANISATION SET UP OF CGL BOARD OF DIRECTORS The Board of Directors is vested with the responsibility of guiding and reviewing the Company`s overall Management philosophy and direction; and, influencing the CG Group`s Global footprint and business perspective across all its companies worldwide. Gautam Thapar - Chairman13
  14. 14. ANALYSIS OF FINANCIAL STATEMENT Sudhir M Trehan - Vice Chairman Laurent Demortier - CEO and Managing Director Scott Bayman Independent Director on the Board Dr. Omkar Goswami Independent Director on the Board B Hariharan Non-Executive Director Sanjay Labroo Independent Director on the Board Dr Colette Lewiner Independent Director on the Board Suresh Prabhu Independent Director on the Board Meher Pudumjee Independent Director on the Board Satya Pal Talwar Independent Director on the Board Dr. Valentin von Massow Independent Director on the Board BANKERS Bank of Maharashtra Canara Bank Corporation Bank Credit Agricole CIB ICICI Bank Ltd IDBI Bank Royal Bank of Scotland Standard Chartered Bank State Bank of India Union Bank of India Yes Bank Ltd REGISTERED OFFICE C G House 6th Floor, Dr Annie Besant Road Worli, Mumbai, Maharashtra-400030 Phone : 91-22-24237777 Fax : 91-22-2423778814
  15. 15. ANALYSIS OF FINANCIAL STATEMENT FACTORY CG Energy Management Ltd CG PPI Adhesive Products Ltd CG-ZIV Power Automation Products Ltd CG PLANT-M7 The CG PLANT-M7, Mandideep was founded on 2nd march 1969 and is situated on Mandideep- 580030. It covers 110 acres, which presents a gigantic picture. Crompton Greaves Plant Motor Division is also known, as M7. It is mainly concerned with production whereas CG PLANT-M7 looks carries out all other activities. The main branch is at Mumbai. The board of Directors at Mumbai formulates all the policies and plans. CG has been brought into existence to overcome financial problems which are the results of accumulated losses of 30 crores because of heavy competition. Performance of CG PLANT-M7 has been disappointing as concerned to the financial year 1997-1998. This unit is the only one unit that seems to be contributing to the profits in terms of turnover, which is the highest among all over units of CG group. The production activity is carried out throughout the year in this unit. QUALITY POLICY The quality price of CG shall be to design, manufacture and market at competitive prices, products of such quality, which results in customer satisfaction, quality reputation and market leadership. VISSION "To Create Lasting Value" We strive to create lasting value for all our stakeholders through extraordinary efforts. With integrity, imagination and respect for individuals.15
  16. 16. ANALYSIS OF FINANCIAL STATEMENT Lasting to us means timeless - value that will endure, regardless of changes in our businesses, people, markets or geographies. By constantly setting and redefining the gold standard in every business we operate in, we will create enduring value for our employees, customers, partners, shareholders and society. For our employees - value in the form of professional growth, through an enabling work environment, knowledge sharing, implementation of best practices and growth in their personal life. For our customers - value through quality products and services, understanding of their needs and proactively providing solutions, and contributing to their business growth. For our partners - value through building mutually beneficial long term relationships, knowledge sharing and support, and helping them optimise their business potential. For our shareholders - value through a high return on investment, a profitable and sustainable growth platform, and developing the spirit of enterprise. For society - value by focusing on the development needs of the communities we engage with, adopting responsible business practices, and making a sustained effort to preserve the environment. VALUES Integrity. Imagination. Individual Integrity - in both personal and professional relationships Following ethical business practices Honouring our commitments to all stakeholders Being open and sincere in all our dealings Being accountable and taking ownership Providing genuine value through our products and services Imagination - that drives our actions Constantly searching for "the new" in all spheres (be it products, processes, markets, geographies) Encouraging and implementing original ideas and "out-of-the-box" thinking Being agile and responsive to change16
  17. 17. ANALYSIS OF FINANCIAL STATEMENT Leveraging knowledge and technology to drive innovation Individual - a commitment to valuing people Respect for individuals and recognising their contribution Being fair, offering equal opportunity Encouraging openness and freedom of expression Ensuring prompt response to issues and concerns Empowering and stimulating employees to realise their potentia MISSION "To achieve a Group turnover of US$ 10 bn and a market capitalisation of US$ 25 bn by 2013 through a focus on profitability." "To become one of the most admired Indian transnational business houses by 2015." By 2015, our Group will be recognised and admired in the world community. We will set benchmarks and be the gold standard in every business we operate in. We will be a Group that combines the best of the old and the new: respect for people and relationships, integrity, our pioneering spirit and performance orientation. In our businesses, we will: aggressively seek opportunities for profitable growth and creation of long term investment value be a leader in the domestic market establish a significant global footprint use technology as an asset and to our advantage We will be admired for our people orientation: strong relationships with our employees and business partners, and a preferred employer status for our work culture, respect for people and learning opportunities. We will be respected for being a good corporate citizen by adhering to best governance practices, and fulfilling our responsibility to society by engaging positively with our communities. GUIDING PRINCIPLES Innovate continuously to excel in design and manufacturing. Development products required by market.17
  18. 18. ANALYSIS OF FINANCIAL STATEMENT Manufacture products of highest quality Focus on customer in all actions. Respond promptly to customer needs. Deliver supplies on time every time. Treat each other with trust and respect to build a team. Develop people by training and delegation. Adopt process-oriented thinking, continuous improvement, and management by facts priority. Reduce costs constantly to remain competitive. Earn enough profits to fund growth and diversification. Offer goods and services at competitive prices. Look upon dealers, suppliers and business associates as partners. Maintain safe, clean and healthy environment. Conduct business in a socially responsible manner. HOD’S OF CROPMTON GREAVES LIMITED, M7 PLANT CEO - G. THAPAR PERSONNEL - SOFIYA ANJUM PRODUCTION - A.B.JOSHI - D.S.WODEYAR FINANCE - K.SHRIDHAR MARKETING - V.RAMPRASAD ENGINEERING - D.A.DESAI MMD - ASHOK KADAKOLI MED & MSD - S.V.PUROHIT CEN.PLANNING - A.B.JOSHI18
  19. 19. ANALYSIS OF FINANCIAL STATEMENT ORGANISATION STRUCTURE OF CG PLANT M7 MANDIDEEP Chief Executive Deputy General Manageronnel Production Finance Engineerin Quality Marketing M.M.D Stores Centralartment Department Department g Assurance (Deputy (Assistant (junior Planningior (Senior (Senior Department Department Manager) Manager) Manager) (Assistantager) Manager) Manager) (Senior (Senior Manager) Manager) Manager) 19
  20. 20. ANALYSIS OF FINANCIAL STATEMENT MANPOWER IN CG PLANT M7 AS on 01-05-2007 Human Resource Total Members Table: Daily rated employees (DRE‟s) From grade 432 1 1 to 8 Monthly rated employees (MRE‟s) From 45 Besides grade 1 to 7 these Officers, Engineers and above From grade 85 8 to 16 perman Total 562 ent employees, around 81 trainees are recruited and contract Labour are hired only for some specific purposes and in never employed in production or feeder shops. Officer‟s cadre is divided into 2 categories. 1. Junior officers from the grade from 5 to 7 Junior officer 1: Grade 5 Junior officer 2: Grade 6 Junior officer 3: Grade 7 2. Senior officers from the grade from 8 to 9 Officer: Grade 8 Senior Officer: Grade 9 The manager cadre is classified as follows from grade 10 to 16 Assistant Manager - Grade 10 Deputy Manager - Grade 11 Manager - Grade 12 Deputy Senior Manager - Grade 13 Senior manager - Grade 14 Deputy General Manager - Grade 15 General Manager - Grade 1620
  21. 21. ANALYSIS OF FINANCIAL STATEMENT PRODUCT PROFILE AC Generator AC motor ` DC Motor Traction Equipment We design and manufacture our products according to the standards of :21
  22. 22. ANALYSIS OF FINANCIAL STATEMENT ISO (International Organization for Standardization) IEC (International Electro technical Commission) BIS (Bureau of Indian Standards) BSI (British Standards Institution) JEM(Japan Electrical Manufactures Association) PERSONNEL DEPARTMENT CG Company recognizes its employees as its most important asset for its continued growth. Human resources management in CGL shall striver to ensure continuous organizational growth by nurturing the strengths of its employees and providing the environment and opportunity for every individual to rise to his/her highest potential, identity and achieve his/her personal goal within the framework of organizational, social and natural objectives. To achieve this following sections are formed to perform the various functions including, Positive Motivation, Preparation and maintenance of quality plans with aid of systems, procedures and work instructions published collectively in quality manuals. Scope: Personnel Department is applicable to personal welfare safety and security. Responsibility of Personnel Department: Implementation and maintenance of various functions is the responsibilities of the Head of Department (HOD) with appropriate duties assigned to section in charges (SIC) and staff. Functions: The Main functions of Personnel Department are: HOD-PERSONAL AND INDUSTRIAL RELATIONS: To ensure that harmonious relations exists between workers and management To ensure safe working conditions and to provide safety equipments. To Co-ordinate security and vigilance activities Manpower planning accountability.22
  24. 24. ANALYSIS OF FINANCIAL STATEMENT MARKETING DEPARTMENT Success of any product totally depends on HO it is marked and positioned din the market. Marketing department is on of the important functional divisions of KEC UNIT-II, which is basically, identifies and meets the needs of customers profitably. The people in the marketing department are responsible for the growth of a business concern because they come in direct contact with the customers who now are considered as King of the market as it is a buyers market and no more a sellers market. As marketing departments basic principle is to take care of the customers to achieve way they have divided their department in to there sections such as :  Marketing  Customer Service  Communication Marketing is further having its subgroups i.e. technical group, which does the job of tendering or equally handling Execution, is planning group. The network of marketing department has all over India at 28 branches known as sales office/branches. The function of this division in CG PLANT-M7 starts to determine the needs of the customers their documents concurrently then accurately to communicate then to various departments. Marketing:- When a branch office in any part of its network receives an order in case of special product (i.e. as per customer requirements) it sends an order acceptance copy i.e. duly verified by the sales engineering of that branch to the tendering group where this OA copy is examined and sent to planning department and further forwarded engineering department for design and development of special product who prepares its engineering24
  25. 25. ANALYSIS OF FINANCIAL STATEMENT specification and sends it to the purchase department if any new or additional components are regard to the production department. The marketing department based on the demand contacts the materials management department issues materials on the amount and the type of material, which required. Based on the amount required the department based on the demand contacts the materials management department issued materials on the amount required the production scheduling, routing and the like has to be carried out. CG PLANT-M7 is planning turnover is 100 crores for last year achieved to the 84 crore. This planning for turnover is 110 crores. AC-Generator Marketing:- In case of AC-Generator the final customer is directly purchase through Manufacture of Branch office or Dealer. The O.E.M. (Original Equipment Manufacturers) who in turn places the purchase order to the branch office, the order acceptance form along with desired specifications is studied. Carefully in the marketing department and if found possible for production is immediately informed to the O.E.M the information is also forwarded to the production units AC Motor Marketing:- The customer decided the rating of a motor required and approaches to the dealer, the dealer in turn acceptance and passes it on to the branch office which prepares an order acceptance and passes to customers and another to the unit of the production otherwise customer is directly contact through the marketing department. The order acceptance is then separated into the one for standard products and other for special products. The special products requirements have to be discussed with the engineering department and then accepted.25
  26. 26. ANALYSIS OF FINANCIAL STATEMENT CREDIT POLICY: Generally CG PLANT-M7 does not follow the policy. But sometimes the credit is issued to a particular customer depending on the volume of the purchase, the type of a customer CG PLANT- M7 has a credit policy extending to a maximum of 30 days. Objectives: The objectives of marketing department are to achieve customer satisfaction with quality products, price, and delivery in time, and presale service after sale service, maintain brand image and earn profit for further diversification. COMPETITIORS 1. Organized sector BHEL ASEA KIRLOSKAR Ltd. Bharat Bijli ltd. Asian Brawn Boweri Ltd (ABB Ltd.) General Electrical Company Ltd. Jyoti Ltd. Unorganized Sector: Mainly cottage industries. Direct Customers. OEM‟s (Original Equipment Manufacturer‟s) OEA‟s (Original Equipment Assembler‟s) Government organization (Railway, Airports) Indian Defense Indian Railways Other Industries26
  28. 28. ANALYSIS OF FINANCIAL STATEMENT  To plan and procure materials confirming to specifications through adequate selection of sub contractor.  To feed the materials to the production division at required schedules at an economic cost. Functions:-  Work out material requirement based on sales requisite plan (SRP), Sales constancy plan (SCP) and Critical credit requirement (CCR)  To exercise purchase order as per procedure.  To plan for non-production item based on purchase requisitions to materials management division.  To finalize terms of purchase. Job Description and Responsibility  To maintain and direct the organization, which is adequate to perform material management functions.  To define the duties and responsibilities of MMD and to ensure that they carried out effectively.  To plan for realistic purchase budget.  To manage obsolete surplus and scrap material. SIC’S:  To plan the material requirement  To order material and on approved suppliers and supply in the quantity necessary to satisfy marketing requirement.  To monitor the material recipient as per delivery schedule indicated in purchase order and co- coordinating with supplier.  To monitor the material release for production in accordance with SRP/SCP/CCP. FIC’S  To plan the materials requirement.  To order material and on approved supplied and supply in the quantity necessary to satisfy marketing requirement.28
  29. 29. ANALYSIS OF FINANCIAL STATEMENT  To monitor the material release for production in accordance with SRP/SCP/CCP  To follow with supplier for supplier for supplying, required material at required time of manufacturing.  To keep the manufacturing division and other functional divisions other than the manufacturing informed of related activities to facilitate overall coordination related activities include information regarding material availability supplier training programs reasoning for user training for supplier products etc.  To determine the need of stock replacement through use of daily material receipt perpetual inventory.  To monitor and reconcile materials issued to suppliers. ORGANIZATION CHART OF MMD29
  30. 30. ANALYSIS OF FINANCIAL STATEMENT SIC ACM SHOP3 S3 OFFICE CEO HOD ASSISTANT MMD SIC SHOP V FIC ACG EXECUTIVE SHOPS FINANCE DEPARTMENT Finance department is the blood of any business organization to survive. Any organization handicapped by finance will never complete an ultimately results in failure and a burden to economy. Finance department is concerned with planning and controlling of company financial resources. The company policy is formulated and credit worthiness of the customer is evaluated audits such as cash audit, internal audit, cost audit is done per month. In the finance department of CG M7, there are 26 staff members contributing towards the effective functioning of the department. ORGANISATIONAL HIERARCHY OF FINANCE DEPARTMENT30
  31. 31. ANALYSIS OF FINANCIAL STATEMENT CORPORATE FINANCE CHIEF EXECUTIVE GRADE 8 AND ABOVE M.R.E‟s up to GRADE 7 CG is characterized by the fact that all the collaboration are sent to corporate office at Mumbai and the expenditure of the particular day are sent to the unit as per the requirement of the units. FUNCTIONS:- FINANCING FUNCTIONS It includes cash payments, receipts, bank receipts and payments. CREDIT MANAGEMENT: Due to the competition, now a day‟s credit is a means to achieve the target without credit sale any organizational can fulfill their targets. COSTING Costing relates to calculation of production cost per unit and it tries to minimize the cost of production and helps in the function of pricing with marketing department. AUDITS:- Audit is a way to confirm about the accountancy of the functions and records of all over activities. It has employed cost Audit and Internal Audit etc.31
  32. 32. ANALYSIS OF FINANCIAL STATEMENT RECORDING AND MAINTAINING OF ACCOUNTS:- These are the present and future reference of the company‟s financial position. These are useful for Shareholders, Creditors, Suppliers, and Bankers etc. BANKERS OF CG CG PLANT-M7 has the following Bankers: Bank of Maharashtra Canara Bank Corporation Bank ICICI Bank Ltd IDBI Bank State Bank of India Union Bank of India Yes Bank Ltd Financial Institutions: Following are the financial Institutions of CG PLANT-M7: 1. Industrial Credit & Investment Corporation of India (ICICI) 2. Industrial Development Bank of India (IDBI) 3. Axis Bank CG production per month is worth 10 crores. But now it attempting to rise to Rs 11 to 11.5 crores, the raw materials is steel and copper. These are procured from steel Authority of India Ltd., and Hindustan Copper Ltd. 1% of the total turnover is used for welfare expenses and 6% of total turnover is used for salary or expenditure. On an average the CG is paying Rs.150 lakhs as excise duty/month, 6% of total turnover is given as salary and 1% of the total turnover is spent on welfare activities. The method of depreciation followed is straight-line method. The company has adopted FIFO method for costing. Listing on Stock exchanges: NSE, (CROMPGREAV ) BSE(500093)32
  33. 33. ANALYSIS OF FINANCIAL STATEMENT ENGINEERING DEPARTMENT Quality Policy of Engineering: The quality policy of CGL shall be continuously improving the quality management system in design, manufacture, market and service at competitive prices. Product of such quality, resulting in customer satisfaction, quality, reputation and market leadership, The role of engineering department is to design and develop products and components taking into consideration the cost, product ability, usability, and maintenance of the product. Scope: Applicable to quality objectives identified for improvement in design and development of products manufactured CGL. Responsibility: The head of the engineering department is responsible for receiving the objectives. Procedure: Objectives shall be derived from the organizational quality policy and need to meet customer and product requirement. Quality objectives by engineering department will lead to Simplification in design Standardization of components Reduction in reworking of design Reduction cost of production.33
  34. 34. ANALYSIS OF FINANCIAL STATEMENT For achieving or reworking quality objectives appropriate statistical quality control technique shall be used. Functions: Preparation revision and release of engineering and electrical specifications. Preparation, revision and control of drawings and release of material risk. Validation of design of products. Effective implementation of the design changes. PRODUCTION DEPARTMENT In many manufacturing unit production department forms the most important department of all the whole running of the unit depends upon this department the proper and timely functioning of this department helps in products reaching the customers end at right time. Slight difference in timing and quality upsets the cycle. Thus the production department we can say is the heart of the firm. CGL philosophy has always been to excel in what one knows best in the process of development. CGL has laid great emphasis on adopting technology to suit the environment in which it has to operate CGL production process are continuously of upgraded from time to time by the latest technology. Objectives: To follow up the production schedule as per the plan. To maintain the close and coordinated relationship with other department. To upgrade technical efficiency of production. CGL there is six shops in this department all of which have got different functions to perform. The product moves from first to sixth shop and then to the dispatch. H.O.D Production heads the production department with a total shop of 600. The whole shop is divided into among six shops. The department is divided into 2 groups. 1. Feeder shop (Shop I and Shop II) 2. Assembly Shop (Shop III and Shop V)34
  35. 35. ANALYSIS OF FINANCIAL STATEMENT 3. Shop IV is used as Research and Development Center is also called as “Invotech Center” and Shop VI is painting section. Brief description of shops: SHOP I: The matching functions are carried out in this shop which has 5 lines engaged in production namely welding section, sub assembly, labor section, tools and jigs crib and tool room. There are totally 80 machines and 100 workers in shop I. The raw materials arrived in this shop where the metal drilling, milling and shaft fixing is done and sent to the next process. The winding are also done in the shop I. Here the process of Bodies – KH 100 to LD 225 frames. Covers – KH 63 to LD 225 frame. Shaft – KH 63 to LD 180 frame. Gear cases – MGH 100 to MGH 225 frame. Gears/pinions for Geared motors are done and also undertake manufacturing JIGS and FIXTURES and DIE-CASTING dies. ROTOR SUB ASSEMBLY: Rotor is the static part in the ACM‟s and dynamic that is moving in the ACG‟s. The rotor goes through the following process. 1) Sinking: The roots are treated in the solution for convenience of inserting the shaft so that they expand and make it easy for insertion of the shaft. 2) Turning: The correct turning and made according to the specification. 3) Fan Shop Drilling:35
  36. 36. ANALYSIS OF FINANCIAL STATEMENT This is the process where in the fan is to be fixed and for this purpose drilling is done and then locks are fixed for safety. 4) Balancing: This step involves balancing the rotor properly. WINDING: Winding is the most important functional part of the machine. It has to be done manually and precisely. This is the only process, which is totally manual. The motor is wound with correct rating wires. SHOP II Shop II is die cast shop. Here in this shop only die-casting is done. That is the shapes of body and nameplates final shape. The shop II has two machines, one for nameplate pressing and another for body. It houses the router section, here stampings are received and die casting of the metal stamping is carried in a furnace heated at 675 degrees Celsius 755 degree Celsius ROTOR SECTION: Here processing of rotor sub assembling for KH 63 to 180 frames, SD 71 flange machine is undertaken. DIE-CASTING SECTION: Here die-casting for motor for 63 to 225 frame motors and die-casting of bodies, flanges, covers, and terminal boxes from KH 63 to 10 frames. SHOP-III This shop can be called as assembly shop because the products here will get upto 90% only, final finishing will be at this stage. The assembling of motors of the frame size motors are assembled in this shop in three different assembly lines namely: The non-standard line for custom mode and is operated manually.36
  37. 37. ANALYSIS OF FINANCIAL STATEMENT The standard line for this standard motor is also called verticals assembly line where the motors are assembled mechanically by various stations in the machines acquired for the specific purposes. The export line is where the motors have to be exported assembled with due care and is done manually. After assembling the motors they are sent to the painting section, which is housed in the same shop. SHOP IV: It works as research and development center for the company. It keeps its eye on the changes that are taking place in the electrical world and tries to adopt those changes in their manufacturing process. So it acts as research and development in the company. SHOP V: Here assembling of medium and large motors generators and MGU‟s under separate bays like ACM bay, ACG bay and MGUU bay. Product Rating A.C Motors Frame 200 to 225 15 KW to 75 K W A.C Generator Frame and DS-DL-CMA 2.5KVA to 90KVA 180 & 250 Motorized gear units 90 to 225 0.75 KW to 22 KW Painting and testing is also done here. SHOP VI: In this section, components used in the motors are pre treated and painted. CGL has to its credit the pioneering of the latest technology called “Unibake” system. Earlier this system was applied to all the products but recently it has been restricted only for export orders. The domestic products are painted in conventional manner.37
  38. 38. ANALYSIS OF FINANCIAL STATEMENT ORGANISATION CHART OF FEEDER SHOPS CEO HOD Production SIC – FEEDER SHOPS FIC, T FIC, Shaft FIC DIE FIC ROOM Body CASTING SHOP6 AND T CRIB CG PLANT-M7 has its corporate and marketing office at Mumbai. National Offices are divided into 4 zones. 1. North Zone : Delhi, Ludhiana, and Jaipur 2. East Zone : Kolkatta, Jamshedpur, Guwahati, Bhubaneshwar and Ranchi. 3. West Zone : Mumbai, Nagpur, Pune, Ahmedabad, Surat and Indore. 4. South Zone : Chennai, Coimbatore, Cochin, Hyderabad, Bangalore, Belgaum, Pondichery38
  39. 39. ANALYSIS OF FINANCIAL STATEMENT QUALITY ASSURANCE Quality is the fitness to end-use, it is all persuasive. In this modern and competitive world each and every company is trying hard to introduce to quality and every defect free product CGL has a full fledge quality assurance department headed by highly qualified professionals committed to developing products that keep phase with the changing desires and needs of the consumers. Quality plays important role in CGL because its products are used for industrial customer applications. Hence it must satisfy and come up to the customer expectations. Objective: The role of QA division is to assist all functional division in achieving and maintaining level of specified quality requirement economically. This unit being ISO-9001, certified unit, has to follow the stringent quality specification. This department facilitates the total quality management (TQM) in all the departments, by adopting process controls at all stages. The quality assurance department follows a definite set of systems and procedures, which are incorporated in the manuals. The manuals are drafted to the lines of the standards as specified by the ISO-9000 series of clause for quality documentation. Functions: The functional responsibilities of different sections of QA divisions are as follows: Releasing of accepted products for further process. Evaluating quality rating of suppliers. Generation of NC reports for analysis/ review and initiating corrective action and preventive action. Quality information and reporting. Maintaining documents and records as per procedures. FEEDER SHOPS QA: Feeder shops QA is responsible for:39
  40. 40. ANALYSIS OF FINANCIAL STATEMENT Inspection/ Testing of parts, sub assembly as per appropriate quality plan/ documents procedures/ inspection plans other documents. Ensuring proper identification and inspection status. Updating, revising inspection plans procedure as and when found necessary. Generation of Non-conformance reports for analysis, revive and collective action, preventive action. Ensuring that calibrated instruments are used for measurements and coordinating with calibration section for periodic calibration. FINAL INSPECTION AND TESTING Conduction routing/ type/ engineering tests on products to specified requirements as per documented procedures: Maintaining test records and providing test certificates. Ensuring tested products and conforming to specified requirements and complete in all respects. Providing inspection/ tests stating for confirming products. Providing engineering test results for design modification where necessary. Assisting in customer inspection QUALITY LABORATORY: Periodic calibration of instruments as per documented process. Arranging for repair/ rectification/ disposal of measuring instruments. Planning for new instruments/ organizing calibration function from external agencies. Maintaining documents/ records as per procedures. QUALITY SYSTEMS: Maintaining quality systems as per ISO 9001-2000 Assisting HOD QA for conduction quality related training programs.40
  41. 41. ANALYSIS OF FINANCIAL STATEMENT Analysis and reporting of customer complaints internal non-conformance reports. Conducting systems audits, monitoring corrective actions, preventive actions. Implementing of corrective actions and preventive actions. ORGANIZATION CHART OF QUALITY ASSURANCE CEO HOD Q.A FIC-QS SIC-Final SIC Final SIC-QA IMI 7 Inspection Shop 3 Inspection & Feeder Shop ` Testing Shop5 7 QA (Shop 1&2) QA Lab FIC –Final FIC-Final FIC inspection & Inspection Customer Testing & & Testing Inspection Customer Shop 3 Inspection Shop5 FIC-QA Lab FIC Winding FIC-Winding Inspection Inspection FIC-QA IMI FIC Shop 1 FIC-Shop 6 & 2 QA QA PROCESS FLOW CHART Customer -Requirements41
  42. 42. ANALYSIS OF FINANCIAL STATEMENT cuuu Marketing -EnquryHandling -Order execution -Customer Feedback Engineering -Release of specification MMD Planning & Procurement of material Stores -Receipt & Issueof materials Personnel & Computer - Supporting QA Services -Supporting Central Planning Services -Scheduling MED MSD Production -Supporting -Supporting -Feeder Shop 1,2,&6 services Services -Product shop 3&5 Packing & Forwarding After Sales & services42
  43. 43. ANALYSIS OF FINANCIAL STATEMENT COMPUTER DIVISION We are into technology revolution where process and manual jobs have been atomized or computerized. So getting along with revolution CGL has also steeped into the field of computers and has computerized its various departments of the unit. Objective: The computer division is responsible for software developments, maintenance of computer hardware accessories, using appropriate methods. Scope: This is applicable to all the functions performed by the computer divisions of CG PLANT- M7, Mandideep. The head of computer division has overall responsibility and delegate works to other staff as appropriate. FUNCTIONS: Maintenance of computer hardware accessories: User department raises requisition for hardware breakdown. The call is attended enclosed after acknowledge for the user. Preventive maintenance of computers and accessories: Preventive maintenance is carried out for computer hardware every half yearly and every quarterly and updated in the history card. This activity is acknowledged with the preventive maintenance sticker and stuck on the computer accessories. Software Revalidation: Software revalidation is done annually as per the procedure defined in software revalidation and records are maintained. Back – Ups: Regular backup is ensured department wise as per the procedure defined. Document Control: Records files are updated and maintained in the document control register.43
  44. 44. ANALYSIS OF FINANCIAL STATEMENT GENERAL FUNCTIONS: Computer department works as a supporting device for all department and all the functional activities like payroll preparation and accounts receivables management is done with the help of computer department. In production field, it will help in planning, investment management etc. The company also has CMAN and ERP procedure to strengthen their production activities. ORGANIZATION OF COMPUTER DEPARTMENT CEO HOD CD SIC-Software SIC-Software Devlopment/modification/H Development/Revalidation eardware/Backup Maintenance IC- FIC- ardware/Electrical SoftwareMaintenance Development/Maintenanc e CENTRAL PLANNING Objective: To describe the quality management system process & procedures followed in production department. 44
  45. 45. ANALYSIS OF FINANCIAL STATEMENT Scope: Applicable to Central Planning Department. To demonstrate product manufactured meets requirements by following applicable process. For effective application, implementation, continued improvement in the different areas of work. Approach: Activities in the department are carried out with required resources. Resources include Building, Personnel, Manufacturing equipments, Test equipment etc. the available resources are managed to make quality products. The department, Organization, Process & Other activities followed for QMS requirements is given. Functions: Release of material against SR/SCP to all departments. Plan on basis of material availability. Sub-contract is given. Re-planning of material against the non-conformance. Maintain of product identification and tractability. Corrective action. Maintain quality records. ORGANISATION CHART OF CENTRAL PLANNING45
  46. 46. ANALYSIS OF FINANCIAL STATEMENT CEO HOD CP SIC-Planning SIC-component manufacturing/sub contract FIC FIC- FIC-Die- FUC-Sub FIC- Assembly casting& Rotor contract Records planning sub- assembly MANUFACTURING ENGINEERING DEPARTMENT (MED) Functions:46
  47. 47. ANALYSIS OF FINANCIAL STATEMENT Preparation general assembly drawings of jigs, fixtures, dies, tooling, storage devices & gauges. Recession of drawing with design changes. Coordinating with production for finalizing the manufacturing process. Preparation of process sheets. Job Responsibilities: HOD Overall administration of MED. Development around organization to achieve the required objectives of the department. Coordinate with other department to carry out the department activities. Monitor the activities of the department through proper documentation. Planning & procurement of Capital equipment. Establish quality objective for the department function. Design of jigs/ fixtures/ tooling. Determining and defining of process for manufacturing activities process sheets. Assisting process determination at supplier for component machining activities & release of process sheets wherever required. Organizing for procurement of capital required for manufacturing activities. ORGANISATIONAL CHART OF MED47
  48. 48. ANALYSIS OF FINANCIAL STATEMENT CEO HOD MED SIC MED FIC Jigs/Fixtures/Dies & Tooling & Preparation & Release of Process Sheets GENERAL STORES To describe the process and procedure followed in stores department. A guide for effective, ORGANIZATION CHART OF STORES48
  49. 49. ANALYSIS OF FINANCIAL STATEMENT CEO HOD Stores SIC Stores Objective: The role of stores is to maintain accountability of the materials received, stored and issued as per the specified requirements. Scope: Applicable to stores activities. Responsibility: The head of stores division is responsible for overall function of the stores with duties delegated to SIC/FIC as applicable. Functions: Receive material as per delivery Chilean/ Invoice/ Credit Reports. Ensure identification, inspection status, and supplier identification on the components vendor code/ material code in the delivery challan/ invoice. DUTIES AND RESPONSIBILITIES OF HOD: Overall administration of stores. Establishment of inventory norms & controls. Establishing & maintaining quality systems in stores division. DUTIES & RESPONSIBILITIES OF SIC STORES: Overall administration of stores. Ensuring that all components / products received in stores are inspected and tested as per the applicable specification/procedures. Ensure receipt, storage & issue of materials. DUTIES AND RESPONSIBILITIES OF FIC STORES Receive and stores materials as per delivery Challan/ Invoice/ Audit reports. Ensure identification & inspection status for the components/ products. Preparation of receipt memos. Storing of outstanding in specified areas like mobile racks/ pallets etc., Issue of materials to shops/ suppliers as per indents.49
  50. 50. ANALYSIS OF FINANCIAL STATEMENT INTRODUCTION Financial Ratios are used in the evaluation of the financial condition and profitability of a company. The ratios are calculated from the financial information provided in the balance sheet and income statements. While analyzing the financial statements you should keep in mind the principles/practices that accountants use in preparing statements to examine at the financial condition and preference of a company. RATIO ANALYSIS Ratio Analysis is one of the techniques of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. Analysis and50
  51. 51. ANALYSIS OF FINANCIAL STATEMENT interpretation of various accounting ratios gives a skilled and experienced analyst a better understanding of the financial condition and performance of the firm. MEANING AND DEFINITION:- A ratio is a simple arithmetic expression of the relationship of one number to another. Ratio is relationships expressed in mathematical terms between figures which are connected with each other in some manner. DEFINITION:- Ratio analysis is defined as, “The systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of the firm as well as its historical performance and current financial condition can be determined. This relationship can be expressed as: 1) Percentages:- For example, Assuming that net profits of Rs 25,000 and Sales of Rs 1,00,000. Then the net profits are 25% of sales. 2) Fraction:- net profit is ¼ of sales. 3) Proportion:- the relationship between net profits and sales is 1:4. To take managerial decision the ratio of such items reveals the soundness of financial position. Such information will be useful for creditors, shareholders management and all other people who deal with company. IMPORTANCE OR SIGNIFICANCE OF RATIO ANALYSIS: The ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interprets the financial health of enterprise. Just like a doctor examines his patient by recording his body temperature, blood pressure etc. before making his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statements with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. Following are the uses of ratio analysis: Liquidity position Long term solvency Operating efficiency51
  52. 52. ANALYSIS OF FINANCIAL STATEMENT Overall profitability Inter firm comparison Trend analysis. Liquidity Position With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. It would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have the ability to meet its short term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short term loans. Long term solvency: Ratio analysis is equally useful for assessing the long term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the long term creditors, security analysts and the present and potential owners of a business. The long term solvency is measured by the leverage/capital structure and profitability ratios which focus on earning power and operating efficiency. Ratio analysis reveals the strengths and weakness of a firm in this respect. Operating efficiency Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in the management and utilization of its assets. The various activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets total as well as its components. Overall profitability: Unlike the outside parties which are interested in one aspect of the financial position of a firm, the management is constantly concerned about the overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meet its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization52
  53. 53. ANALYSIS OF FINANCIAL STATEMENT of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together. Inter- firm comparison Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping stone to remedial measures. This is made possible due to inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. One of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter-firm comparison would demonstrate the firm‟s position vis-à-vis its competitors. Trend Analysis Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one. LIMITATION OF RATIO ANALYSIS:- Ratio analysis is a widely used tool of financial analysis. Though ratios are simple to calculate and easy to understand, they suffer from some serious limitations:  Limited use of Single Ratio:- A single ratio usually does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion.  Lack of Adequate Standards:- There are no well accepted standards or rules of thumb for all ratios which can be accepted as norms. It renders interpretation of the ratio difficult.  Change Of Accounting Procedure:-53
  54. 54. ANALYSIS OF FINANCIAL STATEMENT Change in accounting procedure by a firm often makes ratio analysis misleading e.g. a change in the valuation of methods of inventories, from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavorable gross profit ratio.  Window Dressing:- Financial statements can easily can be window dressed to present a better picture of its financial and profitability position to outsiders. Hence one has to be very careful in making a decision from ratios calculated from such financial statements. But it may be very difficult for an outsider to know about the window dressing made by a firm.  Personal Bias:- Ratio is only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways. Incomparable:- Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedure etc.. It makes comparison of ratios difficult and misleading. Moreover, comparisons are made difficult due to differences in definitions of various financial terms used in the ratio analysis.  Absolute Figures Distortive:- Ratios devoid of absolute figures may prove distortive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.  Price Level Changes:- While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of ratios invalid.  Ratios No Substitutes:- Ratio analysis is merely a tool of financial statements. Hence, ratios become useless if separated from the statements from which they are computed. CLASSIFICATION OF RATIOS: 1) LIQUIDITY RATIO54
  55. 55. ANALYSIS OF FINANCIAL STATEMENT Current Ratio Quick Acid Ratio 2) CAPITAL STRUCTURE RATIO Debt-equity Ratio Proprietary Ratio. Interest Coverage Ratio 3) ACTIVITY RATIO: Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio Capital Turnover Ratio Working Capital Turnover Ratio Fixed Assets Turnover 4) PROFITABILITY RATIO: Gross Profit Ratio Net Profit Ratio Operating Profit Ratio Operating Expenses Ratio Or Operating Ratio Return on Investment Ratio Liquidity Ratios: These ratios are also termed as „working capital‟ or „short term solvency ratio‟. The importance of adequate liquidity in the sense of the ability of a firm to meet current/short term obligations when they become due for payment can hardly be overstressed. In fact, liquidity is a prerequisite for the very survival of a firm. The short term creditors of the firm are interested in the55
  56. 56. ANALYSIS OF FINANCIAL STATEMENT short term solvency or liquidity of a firm. But liquidity implies, from the viewpoint of utilization of the funds of the firm that funds are idle or they earn very little Leverage/capital structure ratios: The second category of financial ratios is leverage or capital structure ratios. These ratios explain how the capital structure of a firm is made up or the debt-equity mix adopted by the firm. The long term solvency ratio of a firm can be examined by using leverage or capital structure ratios. The leverage or capital structure ratios may be defined as financial ratios which throw light on the long term solvency of a firm as reflected in its ability to assure the long term creditors with regard to: (1) Periodic payment of interest during the period of the loan and (2) Repayment of principal on maturity or in pre determined instalments at due dates. Activity Ratios: Activity ratios are concerned with measuring the efficiency in asset management. These ratios are also called efficiency ratios or assets utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidity with which assets are converted into sales. The greater is the rate of turnover or conversion, the more efficient is the utilization/management, other things being equal. For this reason, such ratios are also designated as turnover ratios. Profitability Ratios: Profitability is indication of the efficiency with which the operations of the business are carried on. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to the lack of control over the expenses. Bankers, financial institutions and other creditors look at the profitability ratios as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds and whether ultimate repayment of their debt appears reasonably certain. The Management of the firm is naturally eager to measure its operating efficiency of a firm and its ability to ensure adequate return to its shareholders depends ultimately on the profits earned by it. The profitability of a firm can be measured by its profitability ratios. In other words, the profitability ratios are designed to provide answers to questions such as: (1) Is the profit earned by the firm adequate? (2) What rate of return does it represent? (3)56
  57. 57. ANALYSIS OF FINANCIAL STATEMENT What is the rate of profit for various divisions and segments of the firm? (4) What is the rate of return to equity holder? 1) CURRENT RATIO: This ratio is an indicator of firm‟s commitment to meet its short- term liabilities. Higher ratio, better the coverage. 2:1 ratio is treated as standard ratio. This ratio is also called as solvency / working capital ratio. The current ratio is the ratio of the current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Formula: Current Ratio= Current assets Current liabilities Table-1 (Amount in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 Current Assets 14,11,798 17,37,753 24,09,647 31,59,775 Current 12,86,103 15,76,507 18,05,200 22,14,785 Liabilities Current Ratio 1.09 1.10 1.33 1.43 SOURCE: ANNUAL REPORTS OF COMPANY57
  58. 58. ANALYSIS OF FINANCIAL STATEMENT Current Ratios 1.6 1.4 1.2 1 0.8 Times 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 Interpretation: - The current ratio of last four years is less than ideal ratio 2:1, i.e. fluctuating. This indicates that firm‟s commitment to meet its short liabilities was not so good. In 2007-08 and 2006- 07 the current ratios are good compare to 2004-05, 2005-06. 2) QUICK / ACID TEST / LIQUID RATIO: Liquid ratio is indication of availability of quick assets to honor its immediate claims. Higher the ratio betters the coverage. And the standard ratio is 1:1.An asset is liquid if is can be converted into cash immediately without loss of value. Hence cash is most liquid assets after assets which are considered to be relatively liquid are; Debtor‟s balance, marketable securities etc. inventories considered to be less liquid therefore they require some time form relishing into cash and their value also has tendency to fluctuate. Formula: Quick ratio = Current Assets- Inventories / Current Liabilities Table-2 (Amount in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 Quick Assets 12,84,269 15,19,792 21,79,920 27,03,911 Current 12,86,103 15,76,507 18,05,200 22,14,785 Liabilities Quick Ratio .99 .96 1.20 1.22 SOURCE: ANNUAL REPORTS OF COMPANY58
  59. 59. ANALYSIS OF FINANCIAL STATEMENT Quick Ratio 1.5 1 0.5 Times 0 2004-05 2005-06 2006-07 2007-08 Interpretation: The ideal ratio is 1:1. The quick ratio is also fluctuating. In 2007-08 the ratio is satisfactory because it is higher than 1. And it is also good in 2006-07 and 2007-08.Because it is more than 1.But it has decreased in 2005-06 and 2004-05 i.e. 0.96 and 0.99 respectively. Overall the quick ratio is satisfactory, means liquidity position of the company is good. CASH RATIO: An asset which converts suddenly without doubtful is called as cash ratios. Here cash balance included trade investment or marketable securities that are equivalent to cash. Formula: Cash Ratio=Cash +Marketable Securities /Current Liabilities. Table- 3: ( Amount in lakhs) Year 2004-05 2005-06 2006-07 2007-08 Cash+ 2,17,773 1,39,434 4,13,668 5,24,749 marketable securities Current 12,86,103 17,37,753 18,05,200 22,14,785 Liabilities Cash Ratio .17 .08 .22 .23 SOURCE: ANNUAL REPORTS OF COMPANY59
  60. 60. ANALYSIS OF FINANCIAL STATEMENT Cash Ratio 0.25 0.2 0.15 0.1 Percent 0.05 0 2004-05 2005-06 2006-07 2007-08 Interpretation: In Cash ratio there is no standard ratios for maintained the cash balance because now a day‟s nothing to be worried about the lack of cash if the company has reserve borrowing power for its day to days activities. Holding of Cash in the year 2007-08 was 23% of current liabilities in the 2005-06 it came down to 8%, in the 2006-07 it again increased to 23%. INTERVAL MEASURES RATIO: The ratio which assesses a firm‟s ability to meet its regular cash expenses is the interval measures. An interval measure relates to liquid asset and average daily operating cash flows. Formula: Interval Measure ratio = current assets-inventories/average daily operating expenses /360 Table-4 (Amount in lakhs) Year 2004-05 2005-06 2006-07 2007-08 Current asset – 12,84,269 15,19,792 21,79,920 27,03,911 inventories Average daily 585 644 762 919 operating exp Interval 2,195 2,360 2,860 2,942 Measures SOURCE: ANNUAL REPORTS OF COMPANY60
  61. 61. ANALYSIS OF FINANCIAL STATEMENT Interval Measures 3,500 3,000 2,500 2,000 1,500 Days 1,000 500 0 2004-05 2005-06 2006-07 2007-08 Interpretation: Interval measure is said to be good if No of days are sufficient liquid asset to finance its operations. This chart Indicates that CGL have sufficient Liquid assets to finance its operations for 2942 days even though it does not receive any cash for 2942 days. LEVERAGE RATIO LEVERAGE RATIO is also called as capital structure ratio. It relates to the study of various types of capital structure of firm. The long- term solvency of a company can be examined by using leverages or capital structure ratios. These ratios are for long-term creditors to judge the long-term financial strength of the company. THE DIFFERENT LEVERAGE RATIOS ARE: 1. Debt Equity Ratio 2. Proprietary Ratio 3. Interest Coverage Ratio61
  62. 62. ANALYSIS OF FINANCIAL STATEMENT 1) DEBT RATIO Debt ratios are use to analyze the long term solvency of firm. It is the proportion of the interest bearing debt in the capital structure. Debt ratio is calculated by total debt by total debt by capital employed or net asset of the firm. Formula: Total debt /Total debt +Net worth Table-5 (Amount in lakhs) Year 2004-05 2005-06 2006-07 2007-08 Long term debt 2,03,121 1,93,574 3,16,343 4,41,152 Shareholders 13,11,350 13,01,803 11,08,229 12,52,506 Funds Debt-equity .15 .14 .28 .35 ratio SOURCE: ANNUAL REPORTS OF COMPANY62