FINANCIAL PERFORMANCE ANALYSIS OF HMA STARWARE (P) LTD By M.GANESH (Reg.

No: 35104099)

A PROJECT REPORT Submitted In partial fulfillment of the requirements for the award of the degree of MASTER OF BUISINESS ADMINISTRATION

Under the Guidance of Mr. Y. Lokeswara Choudary M.B.A.,(Ph.D)

S.R.M SCHOOL OF MANAGEMENT STUDIES S.R.M. INSTITUTE OF SCIENCE AND TECHNOLOGY DEEMED UNIVERSITY KATTANKULATHUR -603 203 May 2006

BONAFIDE CERTIFICATE

Certified that this project report titled FINANCIAL PERFORMANCE ANALYSIS OF HMA STARWARE (P) LTD the bonafide work of Mr. M. GANESH who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the Guide

Signature of the HOD

External Examiner

ACKNOWLEDGEMENT

Initially I would like to express my thanks to Mr. ANAND BABU Accounts Manager of HMA STARWARE (P) Ltd for granting and providing me an opportunity to do my Project work.

I express my deep sense of gratitude to Mr. G. KISHORE, of HMA STARWARE (P) Ltd for his valuable guidance, suggestions and constant

encouragement at every stage of my project work.

I would like to thank our beloved Head of the Department Dr.Jayshree Suresh and faculty members for giving me opportunity to study in this esteemed college.

I wish to express my deep sense of gratitude to my internal guide Mr. Y. Lokeswara choudary M.B.A., (Ph.D) Senior Lecturer, who has been source of

inspiration to me. He has given me valuable guidance and support to complete my Project.

Last but not least I thank each and every one who helped me to complete my project work successfully.

(M.GANESH)

ABSTRACT

The study on Financial Performance of HMA Starware Limited by the researcher has been conducted in the Finance and Accounts department of HMA Starware Limited .The research is done by taking the past five years annual report (2000-01 to 2004-05) to find out the effectiveness of the Liquidity, Profitability, Capital Structure and Leverage Position of the company through ratio analysis. The main objective of the study is to find out the present and future financial position of the company. The study has been undertaken with certain objectives to solve the financial problems and the prevention of problem arise in future period which is useful for effective management of the financial position of the company in various aspects like Liquidity, Profitability, Capital Structure and Leverage Position. The collected data are compiled, edited and tabulated for the purpose of effective analysis of financial statement.

For analysis purpose the researcher has applied various tools and techniques such as Comparative Statement Analysis Comparative Income Statement Comparative Balance Sheet

Common Size Statement Analysis Common Size Income Statement Common Size Balance Sheet

Trend projection analysis Multiple discriminant analysis Y-score analysis Z-score analysis

Ratio Analysis Pie diagrams Bar diagrams After analysing the data the researcher has prepared the findings and recommendation to the company. If the recommendations are implemented by the company it will help in improving the financial position of the HMA Starware Limited.

Contents Chapter No Title Page No.

Introduction

Profile of the company

20

Analysis and Interpretation of Data

28

Summary of Findings, Suggestions, and Conclusions

89

Bibliography

93

LIST OF TABLES

S.NO

TITLE

PAGE NO

3.1 3.2

Table showing Current Ratio Table showing Liquid or Quick Ratio

29 31

3.3

Table showing Working Capital Turnover Ratio

33

3.4 3.5

Table showing Debtors Turnover Ratio

36

Table showing Inventory Turnover Ratio

38

3.6

Table showing Creditors Turnover Ratio

40

3.7

Table showing Net profit Ratio

42

3.8

Table showing Debt equity Ratio

44

3.9

Table showing Proprietory Ratio

46

3.10

Table showing Fixed Assets Turnover Ratio

48

3.11 3.12 3.13 3.14 3.15

Table showing Total assets Turnover Ratio Table showing Net Income to Total assets Ratio Table showing Capital Gearing Ratio Table showing Trend Projection Analysis-Sales Table showing Trend Projection for eight years

50 52 54 57 59

3.16

Table showing Trend Projection Analysis-Profit

61

3.17

Table showing Trend Projection for eight years

63

3.18

Table showing Cashflow/Total Tangible assets

65

3.19

Table showing Current assets/current liabilities

66

3.20

Table showing Net Sales/Total Tangible Assets

66

3.21 3.22 3.23 3.24 3.25

Table showing Networking Capital/Total Assets Table showing Retained earnings/Total assets Table showing EBIT/Total assets Table showing Market value of Total equity Book/Book value of debt Table showing Sales/Total Assets

72 73 73 74

74 3.26 Table showing Comparative Income Statement for the year ended 31st March 2004 and 2005 Table showing Comparative Balance Sheet fpr the year ended 31st March 2004 and 2005 Table showing Commonsize Income Statement for the year ended 31st March 2004 and 2005 Table showing Commonsize Balance Sheet for the year ended 31st March 2004 and 2005 83

3.27

84

3.28

86

3.29

87

LIST OF GRAPHS

S.NO 3.1 3.2 3.3 3.4 3.5 3.6 3.7

TITLE Graph Showing Current Ratio Graph Showing Liquid or Quick Ratio Graph Showing Working Capital Turnover Ratio Graph Showing Debtors Turnover Ratio Graph Showing Inventory Turnover Ratio Graph Showing Creditors Turnover Ratio Graph Showing Net Profit Ratio

PAGE NO 30 32 34 37 39 41 43

3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 3.23

Graph Showing Debt equity Ratio Graph Showing Proprietory Ratio Graph Showing Fixed Assets Turnover Ratio Graph Showing Total Assets Turnover Ratio Graph Showing Net Income to Total Assets Ratio Graph Showing Capital Gearing Ratio Graph Showing Trend Projection for sale of eight years Graph Showing Trend Projection for profit for eight years Graph Showing Cashflow/Total Tangible Assets Graph Showing Current assets/current liabilities Graph Showing Netsales/Total Tangible Assets Graph Showing NetworkingCapital/Total Assets Graph Showing Retained Earnings/Total Assets Graph Showing EBIT/Total Assets Graph Showing Market Value of Total equity Book/Book value of debt Graph Showing Sales/Total Assets

45 47 49 51 53 55 60 64 69 70 71 77 78 79 80 81

CHAPTER- I INTRODUCTION According to the American Institute of Certified Public Accountants, Financial statements reflect a combination of recorded facts, accounting conventions, and personal judgements and the judgements and conventions applied affect them materially. This statement makes clear that the accounting information as depicted by the financial statements are influenced by three factors viz., recorded facts, accounting conventions and personal judgements. OBJECTIVES OF FINANCIAL and OPERATING PERFORMANCE The following are the main objectives of financial & operating performance: 1. 2. To estimate the earning capacity of the concern. To judge the financial (both liquidity and solvency) position and financial performance of the concern. 3. 4. To determine the debt capacity of the concern. To decide about the future prospects of the concern.

TECHNIQUES OF FINANCIAL PERFORMANCE

FINANCIAL PERFORMANCE

Comparative Financial Statements

Common size Financial Statements

Trend Projection

Funds Flow Analysis

Ratio Analysis

Multiple Discriminate Analysis

Correlation

1.

COMPARATIVE FINANCIAL STATEMENTS Comparative financial statements are the statements which have been designed in

a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements figures of two or more years are placed side by side to facilitate comparison. a. COMPARATIVE BALANCE SHEET Both the income statement and balance sheet can be prepared in the form of Comparative Financial Statements. Comparative Balance sheet as on two or more different assets can be used for comparing assets and liabilities and finding out any increase or decrease items. Such a balance sheet is very useful in studying the trends in an enterprise. b. COMPARATIVE INCOME STATEMENTS

The income statements disclose net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods. The absolute changes from one period to another and its desired changes in terms of percentage. Since the figures for two or more periods are shown side by side, the reader can quickly ascertain whether sales have been increased or decreased, whether data included in comparative income statement will be helpful in deriving meaningful conclusion. 2. COMMON SIZE FINANCIAL STATEMENTS Common Size Financial statements are those in which figures are converted into percentage to solve common base. In the income statements the sales figure is assumed to be 100 and all figures are expressed as a percentage of sale. Similarly in the balance sheet the total assets and liabilities are taken as 100 and all figures are expressed as a percentage of this total. 3. TREND PROJECTION METHOD The trend projection method involves (a) determining the trend of consumption by analysis of past consumption statistics and (b) projects future consumption by extrapolating the trend. Various trend relationships

The trend of consumption may be represented by one of the following relationships: Linear Relationship: Yx = a + bx

Exponential Relationship:

Yx = a ebx

In the above equation Yx represent demand for year x, x is the time variable and a, b and axs are constants. 4. FUNDS FLOW STATEMENT ANALYSIS Funds flow statement analysis has become an important tool in the analytical kit of financial performance analysis, credit granting institutions and financial managers. This is being the balance sheet of the business reveals its financial status at a particular point of time. It does not sharply focus those major transactions which have been behind the balance sheet. Funds flow analysis reveals the changes in working capital position. It tells about the sources from which the working capital was obtained and the purpose for which it was used. It brings out in open the changes which have been taken place behind the balance sheet. Working capital being the life blood of business such an analysis is more useful.

5.

RATIO ANALYSIS Ratio analysis is a powerful tool of financial performance analysis. A ratio is

defined as the indicated quotient of two mathematical expressions and as the relation between two or more things. In financial performance analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. The relationship between two accounting figures, expressed mathematically, is known as financial ratio (or simply as ratio). Ratios help to summarise a large quantities of financial data and to make qualitative judgment about the firms financial performance. TYPES OF RATIOS

9 9 9 9 I.

Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios

LIQUIDITY RATIOS

Liquidity ratios measure the ability of the firm to meet its current obligations. They indicate whether the firm has sufficient liquid resources to meet its short term liabilities. a. CURRENT RATIO The Current Ratio is the relationship between current assets and current liabilities. Current Assets Current ratio = Current Liabilities A current ratio of 2 : 1 is considered as ideal. If the ratio is less than two, it may be difficult for a firm to pay current liabilities. If the ratio is more than two it is an indicator of idle funds. b. QUICK RATIO (OR) LIQUID RATIO

Quick ratio is the relationship between quick assets and quick liabilities. Quick assets include cash and bank balances, bill receivable, debtors, short term investments. Quick liabilities include creditors, bills payable, outstanding expenses. Liquid Assets Quick / Liquid / Acid test ratio = Liquid Liabilities The quick ratio of 1:1 is considered satisfactory. The quick ratio is supplement of current ratio. c. NET WORKING CAPITAL RATIO

The difference between current assets and current liabilities excluding short term borrowing is called Net Working Capital (NWC) or Net Current Assets (NCA). Net working capital is some times used as a measure of a firms liquidity. Net Working Capital NWC ratio =

Net Assets II. a. LEVERAGE RATIOS Total Debt Ratio

Several debt ratios may be used to analyse the long term solvency of a firm. Total debt will include short term, long term borrowings from financial institutions, bonds, deferred payment arrangements buying capital equipments and any other interest bearing loan. Capital employed will include total debt and net worth. Total Debts Total Debt ratio = Total Debt + Net Worth b. Debt Equity Ratio

The debt equity ratio establishes the relationship between share holders funds and outsiders funds. Outsiders funds include all long term and short term debts while shareholders funds consist of preference share capital, equity share capital and reserves and surplus. Debt Debt - Equity Ratio = Equity c. COVERAGE RATIO

The interest coverage ratio or the times interest earned is one of the most conventional coverage ratio used to test the firms debt servicing capacity. The interest coverage ratio is calculated by dividing Earning Before Interest and Tax (EBIT) by interest changes. EBIT Coverage Ratio = Interest III. a. ACTIVITY RATIO INVENTORY TURNOVER RATIO

This ratio indicates the efficiency of the firm in selling its product. It is calculated by dividing the costs of goods by the average inventory. Cost of goods sold (or) Cost of Sales Inventory / Stock Turnover Ratio = Average Stock

b.

DEBTORS TURNOVER RATIO (ACCOUNTS RECEIVABLE RATIO)

This ratio indicates the speed with which debtors / accounts receivable are collected. It shows the number of days taken to collect the money from debtors. Credit Sales Debtors Turnover Ratio = Sundry Debtors

c.

AVERAGE COLLECTION PERIOD

The average number of days for which books debts remain outstanding is called the average collection period (ACP) and can be computed as follows: Sundry Debtors + Bills Receivable Average Collection Period = Credit Sales *If the period is stated in terms of months, instead of 365 days take as 12 months. d. WORKING CAPITAL TURNOVER A firm may also relate net assets to sales. It may thus compute net working capital turnover by dividing sales by net working capital. Sales Working Capital Ratio = Net Working Capital X 365 days*

IV. a.

PROFITABILITY RATIOS GROSS PROFIT MARGIN

The first profitability ratio in relation to sales is the gross profit margin. It is calculated by dividing the gross profit by sales. Gross Profit Gross Profit Ratio = Net Sales b. NET PROFIT MARGIN X 100

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. The net profit margin ratio is measures by dividing profit after tax by sales. Net Profit Net Profit Ratio = Net Sales c. RETURN ON INVESTMENT (ROI) X 100

Return on investment indicates how well the management has used the funds supplied by creditors and owners. The higher the ratio much the efficient of the firm in using the funds entrusted to it. Return on investment refers to percentage of return of fund used by the firm. It can be calculated by dividing the operating profit by capital employed. Profit before Interest Return on Investment = Capital Employed X 100

d.

RETURN ON EQUITY The return on equity is profit after the tax divided by the net worth. Profit after tax Return on Equity = Net Worth

The shareholders equity or net worth will include paid up capital share premium and reserves less accumulated losses. Net worth can also be found by subtracting total liabilities from total assets. e. EARNING PER SHARE

The profitability of the common shareholders investment can also be measured in many other ways. One such measure is to calculate the earning per share. Earning Availabile to equity shareholders (EASH) Earning Per Share (E.P.S) = No. of Equity shares f. DIVIDEND PAYOUT RATIO The dividend pay out ratio is dividend per share divided by the EPS. Dividend per share Pay out Ratio = EPS 6. 1. MULTIPLE DISCRIMINANT ANALYSIS (MDA) Y-SCORE MODEL To check the efficiency of Working Capital Management Prof. Yadav and Shrivastava developed a capital Y score model using the technique of multiple discriminate analysis (MDA). He found out following (Equation Model) by using four ratios. Y = 14.5166v2 + 0.0015v25 + 0.8715v31 + 0.7914v35; Where Y = Overall Discriminate Score v2 = Cash Flow / Total Tangible Assets v25 = Current Assets / Current Liabilities v31 = Net Sale / Total Tangible Assets v35 = Defensive Assets / Total Operating Expenditure The Y score is calculate by the use of above four ratios. If Y score is more than 107068 it can be said that management of working Capital is effective, other wise it is ineffective. 2. Z SCORE MODEL

MDA can be used to classify companies on the basis of their characteristics as measured by financial ratios, into two groups: those which are likely to fail (and go bankrupt) and those not likely to fail. In the literature, the likelihood of bankruptcy is associated with financial ratios. For instance, it is assumed that the profitability of bankruptcy is higher for a firm with a low current ratio, high debt ratio and low rate of return. The empirical studies of Beaver (in USA) and Gupta (in India) identified ratios which have discriminating power. What is, however, required from practical point of view is the understanding of seriousness posed by low performing ratios. The use of MDA helps to consolidate the effects of all ratios. MDA helps to consolidate the effects of all ratios. MDA constructs a boundary line discriminant function using historical data of the bankrupt and non-bankrupt firms. Edward Altman was the first person to apply discriminant analysis in finance for studying bankruptcy. His study helped in identifying five ratios that were efficient in predicting bankruptcy. The model was developed from simple of 66 firms half of which went bankrupt. He derived the following discriminant function. Z = 0.012X1 + 0.01X2 + 0.033X3 + 0.006X4 + 0.999 X5; Where Z = Discriminant function of a firm X1 = Net Working Capital / Total Assets (%) X2 = Retained Earning / Total Assets (%) X3 = EBIT / Total Assets (%) X4 = Market value of total equity / Book value of debt (%) X5 = Sales / Total Assets (Times) Altman, established a guideline Z-Score which can be used to classify firms as either financially sound a score above 2.675 or headed towards bankruptcy a score below 2.675. the lower the score, the greater the likelihood of bankruptcy and vice versa. 7. CORRELATION ANALYSIS Correlation analysis is the statistical technique that is used to describe not only the degree to which are variable is related another but also the directions the influence. The coefficient of correlation measures the mutual relationship between two variables. A simple correlation is the correlation between two variables only and it is usually denoted by r.

The simple correlation indicated whether the change in one variable influences the change in the other variable. Note that the change may likely to occur in both directions namely.,

(1) The increase in one variable is accompanied by the proportionate increase in

the other variable.

(2) The increase in one variable causes the proportionate decrease in the other
variable. In the first case the variable are said to be positively correlated, while in the second case, the variable are said to be negatively correlated.

RESEARCH METHODOLOGY

The study is based on primary as well as secondary data. The primary data were collected by direct contact with the finance department staff of HMA Starware Limited. The secondary data has been collected from the annual report and manual of the HMA Starware Limited for analysing the financial performance of HMA Starware Limited. The collected data has been compiled, edited and tabulated for the purpose of analysis. For analysis purpose the finance analytical tools such as Ratio Analysis, Comparative Statement Analysis, Common Size Statement Analysis, etc. The data has been interpreted on the basis of analysis, finding and recommendations can be implemented on the basis of the study. PERIOD OF THE STUDY The study covers five years performance of HMA Starware Limited. The years taken for the study is from 2000-01 to 2004-05. SOURCES OF DATA COLLECTION PRIMARY DATA First hand information is obtained through interaction with various department head in their respective areas. SECONDARY DATA

The secondary data for analysis are taken from the company. 1. Annual Reports 2. Financial Statements 3. Company Profile 4. Company records relating to financial performance TOOLS AND TECHNIQUES OF THE STUDY The financial and operating performance of the HMA Starware Limited can be made with the following techniques: Comparative Statement Analysis Comparative Income Statement Comparative Balance Sheet

Common Size Statement Analysis Common Size Income Statement Common Size Balance Sheet

Trend projection analysis Multiple discriminant analysis Ratio Analysis Pie diagrams Bar diagrams Y-score analysis Z-score analysis

SCOPE OF THE STUDY

In this study the HMA Starware Limited is being selected to conduct a study on the comprehensive financial performance, such as ratio analysis in terms of liquidity ratio, profitability ratio, leverage ratio and capital structure ratio.

The study of the HMA Starware Limited has been undertaken with certain objectives by highlighting the unique features, functions and working as well as statutory regulations governing of the company.

OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVES

The main aim of the study is to ascertain the Financial and Operating Performance of HMA Starware Limited for the past five years financial statements for a period from 200001 to 2004-05. An attempt has been made to examine the liquidity position, profitability position, capital structure position, activity position and the computation of various ratios of the company.

SECONDARY OBJECTIVES 1. To assess the financial position of the company for five years (2000-01 to 2004-05) 2. 3. 4. 5. 6. To find out the liquidity position of the company. To find the leverage position of the company. To find the solvency position of the company. To assess the activity position of the company. To find the trend position of the company for five years (2000-01 to 200405). 7. 8. To estimate the future requirements of working capital To identify the problem faced by the company in the area of working capital and to take measures for overcoming the problems of working capital. 9. To find out the resources have been possessed by the company and used by the company for past five years 2000 2005. 10. To find the overall view of the financial performance of the company.

LIMITATIONS OF THE STUDY

(1)

The limitations of the study are as follows: The study has covered only to analyse the financial performance analysis of the HMA Starware Limited, Chennai.

(2)

The period of the study is restricted to five years from 2000-01 to 2004-05.

(3)

Some of the data was not given by the company due to maintenance of financial secrecy. So the study cannot be covered to all the areas of working capital.

(4)

The financial data cannot be estimated accurately for the future period. Chapter II PROFILE OF THE COMPANY HMA STARWARE LIMITED

HMA was Launched in the year 1988. HMA STARware (P) ltd (HMAS), headquartered in Chennai, is a full-service provider of complete banking software solutions for the retail banking sector. HMAS commitiment to every client bank extends far beyond providing business partnerships with banks continues. They provide the right tools needed to successfully compete in the World of Commerce, where transactions to the tune of millions are carried out by the second. HMA products have proven their reliability, stability and functionality in more than 50 banks in India and South East Asia. HMAS, the leaders in Switching, Middleware, Reconciliation and Card management solutions in the retail-banking arena, offers applications designed to support both centralized and distributed environments of a retail bank. HMA group of companies, a group with 16 plus years of domain knowledge in giving state-of-the-art retail banking products. With a proven track record in providing efficient and productive bank software, this Company is fast expanding its operations in domestic and overseas arena. HMAS has made giant strides in electronic banking applications, carving a niche for itself in the hi-tech arena of e-com software solutions. HMAS Star suite of products

includes generic financial transaction switches, cash management, Centralised ;ATM switches, On-line debit gateway software, Any branch banking software, ATM connectivity modules, Card management systems, Management Information Systems and tele-banking systems which is a complete portfolio for complete solutions.

HMASTARware(HMAS) has forayed into global services offering a cost effective onsite offshore module to the retail banking sector worldwide. These are specifically tailored to meet clients specific requirements and offer them the best value for money. Activities during the software development life cycle (SDLC), which involve extensive interaction with the user, are usually provided on-site at the customers location. Once the function or design specifications are clear the activities are moved offshore. For example, the initial systems study and high-level design are executed onsite. The low-level design, development and testing takes place at offshore. The clients environment is simulated at HMAS facilitating efficient development at offshore sites.

HMAS hi-tech communications infrastructure for offshore-onsite linkage enables good project control, quick reviews and efficient change management. In spite of this flexible model, all activities are well defined through our quality processes before the start of the project for efficient trtacking to ensure quality deverables. HMAS has a proven track record of delivering such services to several customers worldwide using this model. Consultancy Services

HMAS provides consultancy services including technical consultancy, manpower outsourcing and so on through its panel of experts. As per the client needs, HMAS does a careful check on skills and experience of the candidates pprior to an engagement to ensure that the consultants are productive as soon as they join the project.

HMAS Strong Partner Relationship HMAS is proud to join hands with some of the most prominent organizations globally. HMAS kown for developing and also outsourcing the best technology, compliant to the customer specifications. HMAS is not just the

Technology driven, but also will remain to respond vibrantly to the customer needs and quality standards.

Technology Partners HMAS is the distributor and implementation partner of Oasis Open System Solution for online transaction processing in the SAARC region. Oasis Technology (owned by E-Funds Corp, USA) is a software company founded in 1989 that develops, markets, implements and supports e-commerce, ATM, on-line switching products, card management and clearing and settlement solutions telecommunications firms.

HMA STARware and oasis complement each other with their expertise in the Messaging Middleware. HMAS has got full understanding of the product and support the total functionality of the product. HMAS and OASIS, have committed to open systems and state-of-the-art technology. Based on their mutual expertise, HMA group has managed to

capture 17 customers in a short span of 3.5 years in the niche domain of retail banking in the Indian Market.

HMAS Strong Partner Relationship HMAS is proud to join hands with some of the most prominent organizations globally. HMAS partners see many opportunities for growth and accomplishments for HMAS as known for developing and also outsourcing the best technology, compliant to the customer specifications. HMAS is not just the Technology driven, but also will remain to respond vibrantly to the customer needs and quality standards.

HMAS has established successful partnership with M/s. Yemensoft, a well reputed, firm licated in Sana- Yemen. YemenSoft has chosen HMAS as the TechnoBusiness solution partner for utilizing HMAS expertise in implementing solutions for the Banks in Retail Banking domain. Credentials Quality means Customer Delight achieved constantly by providing reliable, optimized, cost effective customized software solutions, that go beyond the customers spoken needs. Perhaps it is this commitment complemented with superior in-depth

understanding that has enabled HMAS to help our customers capitalize on the un precedented opportunites afforded by todays technololgy.

HMAS have been successfully working with some of the Major Banks/Financial Institutions:

IDBI Bank Ltd Jammu & Kashmir Bank Ltd Bank of Punjab Ltd Bank of Rajasthan Ltd Syndicate Bank South Indian Bank Development Credit Bank Limited Bharat Overseas Bank Limited Yes Bank Dutch Bangala Bank Bank of Bahrain and Kuwait

Co-operative Banks The Totgars Co-operative Sales Society Ltd The Sirsi-Urban Souharda Sahakari Bank Ltd Bhatkal Urban Co-operative Bank Ltd Krishna Bhima Samruddhi Local Area Bank Ltd AP Mahesh Co-op Bank Ltd The West Bengal State Co-operative Bank

HMAS has played key-role in enabling Credit Card Acquiring project for Bank of Rajasthan. An extension to this project is to enable the ATM Sharing for Acquiring all the transactions with State Bank of India

Quality Assurance Principles

Principle 1 Customer-focused Organization Organizations depend on their customers and, therefore, should understand current and future customer needs, meet customer requirements and strive to exceed customer expectations.

Principle 2- Leadership Leaders establish unity of purpose and direction of the organization. They should create and maintain the internal environment in which people can become fully involved in achieving the Organizations objectives.

Principle 3 Involvement of people People at all levels are the essence of an organization, and their full involvement enables their abilities to be used for the organizations benefit.

Principle 4- Process approach A desired result is achieved more efficiently when related resources and activites are managed as a process.

Principle 5 System approach to management

Identifying, understanding and managing a system of inter-related processes for a given objective improves the organizations effectiveness and efficiency.

Principle 6 Continual Improvement Continual improvement should be a permanent objective of the organization.

Principle 7 Factual approach to decision making Effective decisions are based on the analysis of data and information.

Principle 8 Mutually beneficial supplier relationships An organization and its suppliers are interdependent and a mutually beneficial relationship enhances the ability of both to create value.

CHAPTER-III ANALYSIS AND INTERPRETATION OF DATA

The study of financial performance analysis of the HMA Starware Limited is being undertaken to probe the financial soundness of the unit under study. In this study, the techniques used are the comparative balance sheet analysis, common size statement analysis and ratio analysis. These analysis are appraised and evaluated as under:

TABLE 3.1 CURRENT RATIO OF THE HMA STARWARE LIMITED CURRENT CURRENT CURRENT ASSETS LIABILITIES RATIO 105744388 23820562 4.44 : 1 194613192 64954881 3.00 : 1 215883491 68191474 3.17 : 1 180356730 84520559 2.13 : 1 212081892 55024760 3.85 : 1 Source: Secondary data/Annual Report2000-2005 Usually the current ratio 2 : 1 or more is considered as satisfactory.

YEARS 2000-01 2001-02 2002-03 2003-04 2004-05

INTERPRETATION The above table 3.1 represents the current ratio of the HMA Starware Limited for a period of six years from 2000-01 to 2004-05. The current liquidity position of the company is satisfactory to meet the current obligations. The company has to improve the financial performance for meeting the working capital requirements. GRAPH 3.1

CURRENT RATIO OF THE HMA STARWARE LIMITED

250000000

200000000

AMOUNT

150000000

100000000

50000000

0 2000-01 2001-02 2002-03 YEARS 2003-04 2004-05

CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

Base: - Table 3.1

(3.2)

QUICK RATIO This ratio is called as the Acid-Test Ratio. This ratio is a more stringent measure

of the liquidity than the current ratio, as inventory is excluded in the calculation of this ratio and as a result, inventory hold-ups can be round out. It is calculated as follows: Liquid Assets Quick / Liquid / Acid test ratio = Liquid Liabilities

TABLE 3.2 LIQUID (OR) QUICK RATIO OF THE HMA STARWARE LIMITED YEARS CURRENT LESS LIQUID LIQUID LIQUID ASSETS INVENTORY ASSETS LIABILITIES RATIO 2000-01 105744388 50620860 55123528 23820562 2.31 2001-02 194613192 104643025 89970167 64954881 1.39 2002-03 215883491 119431095 96452396 68191474 1.41 2003-04 180356730 51412935 128943795 84520559 1.53 2004-05 212081892 104687886 107394006 55024760 1.95 Source: Secondary data/Annual Report2000-2005 Usually the satisfactory level of liquid ratio indicates these assets can be liquidated to meet the current obligations. The satisfactory level is 1 : 1

INTERPRETATION From the above table 3.2 it is inferred that the quick ratio is satisfactory for all the years. In some of the year the funds are locked in the inventories due to that the company is unable to meet the liquidity position. So the company has to take precautionary steps to control the cost of inventory.

GRAPH 3.2

LIQUID (OR) QUICK RATIO OF THE HMA STARWARE LTD

1.95 2004-05
55024760 107394006

1.53 2003-04
84520559 128943795

1.41

YEARS

2002-03

68191474 96452396

1.39 2001-02
64954881 89970167

2.31 2000-01
23820562 55123528

20000000

40000000

60000000 80000000 100000000 120000000 140000000

AMOUNT

LIQUID ASSETS

LIQUID LIABILITIES

LIQUID RATIO

Base: - Table 3.2

(3.3)WORKING CAPITAL TURNOVER RATIO A firm may also relate net assets to sales. It may thus compute net working capital turnover by dividing sales by net working capital. Sales Working Capital Turnover Ratio = Net Working Capital

TABLE 3.3

WORKING CAPITAL TURNOVER RATIO OF THE HMA STARWARE LIMITED NET WORKING CAPITAL 81923826 129658310 147692017 95836171 157057132 WORKING CAPITAL TURNOVER RATIO 4.40 2.47 3.57 5.17 2.74

YEARS 2000-01 2001-02 2002-03 2003-04 2004-05

SALES 360133629 320050621 526877262 495408689 430166621

Source: Secondary data/Annual Report2000-2005 INTERPRETATION The above table 3.3 represents the working capital turnover ratio of the HMA Starware Limited. There is a significant relationship between the sales and working capital. As per the ratios which are computed almost all the years have been satisfactory of the working capital turnover ratio, except 2004-05. So the company should take the necessary steps for maintaining adequate working capital. GRAPH 3.3

WORKING CAPITAL TURNOVER RATIO OF THE HMA STARWARE LIMITED

600000000

6.00

526877262

5.17
495408689

500000000

5.00

4.40 400000000
3 6 0 13 3 6 2 9

4 3 0 16 6 6 2 1

4.00 3.57
320050621

AMOUNT

300000000 2.74 2.47 200000000

14 7 6 9 2 0 17 12 9 6 5 8 3 10

3.00

2.00
15 7 0 5 7 13 2

100000000
8 19 2 3 8 2 6

9 5 8 3 6 17 1

1.00

0 2000-01 2001-02 2002-03 2003-04 2004-05

0.00

YEARS SALES NET WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO

Base:-Table 3.3

II. (3.4)

TURNOVER RATIO DEBTORS TURNOVER RATIO This ratio indicates the speed with which the company is able to collect payments

from its customers. It is calculated as follows: Credit Sales Debtor Turnover Ratio = Sundry Debtors

A related ratio is the average collection period. This ratio is the Average Collection Period. This ratio indicates the extent to which the debts have been collected in time. 360 Average Collection Period = Debtors Turnover Ratio

TABLE 3.4 DEBTORS TURNOVER RATIO OF THE HMA STARWARE LIMITED DEBTORS AVERAGE TURNOVER COLLECTION RATIO PERIOD (DAYS) 229603810 1791606 128.16 3 360133629 24145416 14.92 24 320050621 49294161 6.49 55 526877262 37341196 14.11 26 495408689 72472664 6.84 53 430166621 56759724 7.58 48 Source: Secondary data/Annual Report2000-2005 SALES SUNDRY DEBTORS

YEARS 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

INTERPRETATION The above table 3.4 represents the debtors turnover ratio of HMA STARWARE Limited for six years. In that sales has fluctuated year after year. The debtors turnover ratio has been fluctuating year by year. Hence the company has to control the credit sales as well as reduce the average collection period.

GRAPH 3.4

DEBTORS TURNOVER RATIO OF THE HMA STARWARE LIMITED

7.58 2004-05
56759724 430166621

6.84 2003-04
72472664 495408689

YEARS

14.11 2002-03
37341196 526877262

6.49 2001-02
49294161 320050621

14.92 2000-01
24145416 360133629

100000000

200000000

300000000

400000000

500000000

600000000

AMOUNT SALES SUNDRY DEBTORS DEBTORS TURNOVER RATIO

Base:- Table 3.4

(3.5)INVENTORY TURNOVER RATIO This ratio indicates the efficiency of the firm in selling its product. It is calculated by dividing the costs of goods by the average inventory. Cost of goods sold (or) Cost of Sales Inventory / Stock Turnover Ratio = Average Stock

TABLE 3.5

INVENTORY TURNOVER RATIO OF THE HMA STARWARE LIMITED INVENTORY INVENTORY YEARS SALES INVENTORY TURNOVER HOLDING PERIOD RATIO 2000-01 360133629 50620860 7.11 51 2001-02 320050621 104643025 3.06 119 2002-03 526877262 119431095 4.41 83 2003-04 495408689 51412935 9.64 38 2004-05 430166621 104687886 4.11 89 Source: Secondary data/Annual Report2000-2005 INTERPRETATION The above table 3.5 represents the inventory turnover ratio of the HMA STARWARE Limited for the past six years from 1999-00 to 2004-05. In that almost all the year had been satisfactory, but except the year 2003-04. So the company has to take necessary steps to improve the inventory position of the company as well as the inventory holding period has to be controlled in the future years.

GRAPH 3.5

INVENTORY TURNOVER RATIO OF THE HMA STARWARE LIMITED

526877262

495408689

600000000

500000000
360133629

400000000

AMOUNT

300000000

320050621

104643025

119431095

430166621 51412935 104687886 9.64

200000000
50620860

100000000
7.11 3.06 4.41 4.11

0 2000-01 2001-02 2002-03 2003-04 2004-05

YEARS

SALES

INVENTORY

INVENTORY TURNOVER RATIO

Base:- Table 3.5

(3.6)CREDITORS TURNOVER RATIO The ratio shows, on an average number of times creditors are turned over during a year. A higher ratio indicates quick settlement of dues and a lower ratio reflects liberal credit terms granted by suppliers.

Purchases Creditors Turnover ratio = Sundry Creditors 365 Average Payable Period = Creditors Turnover Ratio

TABLE 3.6 CREDITORS TURNOVER RATIO OF THE HMA STARWARE LIMITED CREDIT SUNDRY YEARS PURCHASE CREDITORS 2000-01 2001-02 2002-03 2003-04 2004-05 CREDITORS AVERAGE PAYABLE TURNOVER RATIO PERIOD 263423902 22386852 11.77 31 213347673 64155726 3.33 110 418382731 66386857 6.30 58 380465765 83440559 4.56 80 328069517 52946760 6.20 59 source: Secondary data/Annual Report2000-2005

INTERPRETATION The above table 3.6 represents the creditors turnover ratio and the average payable period of the HMA STARWARE Limited. In that the creditors turnover ratio has been increased year by year. Hence the company do not have constant liquidity position. Therefore the company liquidity position was good during 2001 02. Rest of the years the creditors turnover ratio has been fluctuating.

GRAPH 3.6
CREDITORS TURNOVER RATIO OF THE HMA STARWARE LIMITED

6.20

2004-05
4.56

52946760 328069517

2003-04
6.30

83440559 380465765

YEARS

2002-03
3.33

66386857 418382731

2001-02
11.77

64155726 213347673

2000-01
0

22386852 263423902

50000000 100000000 150000000 200000000 250000000 300000000 350000000 400000000 450000000

AMOUNT

CREDIT PURCHASE

SUNDRY CREDITORS

CREDITORS TURNOVER RATIO

Base:- Table 3.6

(3.7)NET PROFIT RATIO Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. The net profit margin ratio is measures by dividing profit after tax by sales. Net Profit Net Profit Ratio = Net Sales TABLE 3.7 NET PROFIT RATIO OF THE HMA STARWARE LIMITED YEARS NET NET PROFIT SALES PROFIT RATIO 2000-01 13311384 360133629 3.70 2001-02 2677699 320050621 0.84 2002-03 7148508 526877262 1.36 2003-04 4485254 495408689 0.91 2004-05 5546699 430166621 1.29 Source: Secondary data/Annual Report2000-2005 X 100

INTERPRETATION

The above table represents the net profit ratio of the HMA Starware Limited. This ratio indicates the overall efficiency of operations of the company. In that the net profit ratio has been fluctuating year after year. The current year net profit ratio is very poor. Hence the company has to control the operating cost in the future period.

GRAPH 3.7

NET PROFIT RATIO OF THE HMA STARWARE LIMITED

526877262

495408689

600000000

500000000
360133629

400000000

AMOUNT

300000000

200000000

229603810

4485254

9749661

2677699

4.25

3.70

7148508

0.84

1.36

0.91

5546699

100000000

13311384

320050621

430166621

0 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

YEARS

NET PROFIT

SALES

NET PROFIT RATIO

Base: - Table 3.7

1.29

(3.8)DEBT EQUITY RATIO The debt equity ratio establishes the relationship between share holders funds and outsiders funds. Outsiders funds include all long term and short term debts while shareholders funds consist of preference sum capital, equity share capital reserves and surplus. Debt Debt Equity Ratio = Equity TABLE 3.8 DEBT EQUITY RATIO OF THE HMA STARWARE LIMITED YEARS DEBT EQUITY RATIO 2000-01 72850440 41361500 1.76 2001-02 125295625 40731500 3.08 2002-03 113759181 65181092 1.75 2003-04 46670672 80166345 0.58 2004-05 105853752 80829707 1.31 Source: Secondary data/Annual Report2000-2005 DEBT EQUITY The debt equity ratio of 1:1 is satisfactory INTERPRETATION The above table 3.8 represents the debt equity ratio of the HMA STARWARE Limited. The debt equity ratio of the company is satisfactory all the years except 2003 04. Therefore, the company has to improve the financial viability in the future period.

GRAPH 3.8
DEBT EQUITY RATIO OF THE HMA STARWARE LIMITED

140000000

120000000

100000000

AMOUNT

80000000

60000000

40000000

20000000

0 2000-01 2001-02 2002-03 2003-04 2004-05

YEARS DEBT EQUITY DEBT EQUITY RATIO

Base: - Table 3.8

(3.9)PROPRIETORY RATIO The proprietory turnover ratio is the relationship between the proprietors funds and total tangible assets.

Shareholders Funds Proprietory Turnover ratio = Total Tangible Assets TABLE 3.9 PROPRIETORY RATIO OF THE HMA STARWARE LIMITED YEARS SHAREHOLDERS TOTAL PROPRIETORY FUNDS TANGIBLE ASSETS RATIO 2000-01 41361500 114211940 0.36 2001-02 40731500 166027125 0.25 2002-03 65181092 178940273 0.36 2003-04 80166345 126837018 0.63 2004-05 80829707 189390383 0.43 Source: Secondary data/Annual Report2000-2005

INTERPRETATION The above table 3.9 represents the proprietory ratio of the HMA Starware Limited. Proprietory ratio indicates the proportion of the shareholders funds in the total assets. As per the table the proprietory ratio had satisfactory position with lesser risk, except the year 2001 02. Therefore the company has to increase the shareholders the funds rather than debt.

GRAPH 3.9

PROPRIETORY RATIO OF THE HMA STARWARE LIMITED

200000000
0.63

0.70
189390383

180000000
166027125

178940273

0.60

160000000
0.50
126837018

140000000
0.43
114211940

120000000

AMOUNT

0.40

100000000

0.36

0.36
0.30

80000000
0.25
65181092

80166345

80829707

60000000
41361500

0.20
40731500

40000000

0.10

20000000

0 2000-01 2001-02 2002-03 2003-04 2004-05

0.00

YEARS SHAREHOLDERS FUNDS PROPRIETORY RATIO TOTAL TANGIBLE ASSETS

Base: - Table 3.9

(3.10)FIXED ASSET TURNOVER RATIO The fixed asset turnover ratio indicates the relationship between the sales and fixed assets.

Sales Fixed Assets Turnover ratio = Fixed Assets

TABLE 3.10 FIXED ASSETS TURNOVER RATIO OF THE HMA STARWARE LIMITED YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 SALES 360133629 320050621 526877262 495408689 430166621 FIXED FIXED ASSETS ASSETS TURNOVER RATIO 22036499 16.34 28794897 11.11 30654756 17.19 27315347 18.14 26143851 16.45 Source: Secondary data/Annual Report2000-2005

INTERPRETATION The above table 3.10 indicates the fixed asset turnover ratio of the HMA Starware Limited. This ratio indicates the sales generated by every rupee invested in fixed assets. As per the fixed asset turnover ratio it is found that the company had greater efficiency in utilization of fixed assets except the year 2001 02.

GRAPH 3.10

FIXED ASSETS TURNOVER RATIO OF THE HMA STARWARE LIMITED

600000000

526877262

495408689

500000000
360133629

400000000

AMOUNT

300000000

200000000

22036499

320050621

28794897

30654756

27315347

430166621 18.14 26143851

100000000

16.34

11.11

17.19

0 2000-01 2001-02 2002-03 2003-04 2004-05

YEARS

SALES

FIXED ASSETS

FIXED ASSETS TURNOVER RATIO

Base: - Table 3.10

16.45

(3.11)TOTAL ASSETS TURNOVER RATIO The total asset turnover ratio indicates the relationship between the sales and fixed assets.

Sales Total Assets Turnover ratio = Total Assets

TABLE 3.11 TOTAL ASSETS TURNOVER RATIO OF THE HMA STARWARE LIMITED TOTAL ASSETS YEARS SALES TOTAL ASSETS TURNOVER RATIO 2000-01 360133629 114211940 3.15 2001-02 320050621 166027125 1.93 2002-03 526877262 178940273 2.94 2003-04 495408689 126837018 3.91 2004-05 430166621 189390383 2.27 Source: Secondary data/Annual Report2000-2005

INTERPRETATION

The above table 3.11 represents the total assets turnover ratio of the HMA Starware Limited. The total asset turnover ratio has been fluctuating year by year. The ratio had satisfactory position except 2001 02. But overall efficiency has been improving year by year.

GRAPH 3.11
TOTAL ASSETS TURNOVER RATIO OF THE HMA STARWARE LIMITED

600000000

500000000

400000000

AMOUNT

300000000

200000000

100000000

0 2000-01 2001-02 2002-03 2003-04 2004-05

YEARS

SALES

TOTAL ASSETS

TOTAL ASSETS TURNOVER RATIO

Base: - Table 3.11

(3.12)NET INCOME RATIO The total asset turnover ratio indicates the relationship between the sales and fixed assets.

Net income Net Income Ratio = Total Assets TABLE 3.12 NET INCOME TO TOTAL ASSETS RATIO OF THE HMA STARWARE LIMITED NET YEARS INCOME 2000-01 13311384 2001-02 2677699 2002-03 7148508 2003-04 4485254 2004-05 5546699 TOTAL ASSETS 114211940 166027125 178940273 126837018 189390383 NET INCOME TO TOTAL ASSETS TURNOVER RATIO 0.12 0.02 0.04 0.04 0.03

Source: Secondary data/Annual Report2000-2005 INTERPRETATION The above table 3.12 represents the net income to total assets ratio of the HMA Starware Limited. As per the ratio the company financial position has been fluctuating year by year. So the over all efficiency of net income to total asset is satisfactory except for the year 2001 02. So the company has to take necessary steps to improve the financial viability.

GRAPH 3.12
NET INCOME TO TOTAL ASSETS RATIO OF THE HMA STARWARE LIMITED

0.03 2004-05
5546699 18 9 3 9 0 3 8 3

0.04 2003-04
4485254 12 6 8 3 7 0 18

YEARS

0.04 2002-03
7 14 8 5 0 8 17 8 9 4 0 2 7 3

0.02 2001-02
2677699 16 6 0 2 7 12 5

0.12 2000-01
13 3 113 8 4 114 2 119 4 0

20000000 40000000 60000000 80000000 1 00000000 1 20000000 1 40000000 1 60000000 1 80000000 200000000

AMOUNT NET INCOME TOTAL ASSETS NET INCOME TO TOTAL ASSETS TURNOVER RATIO

Base;- Table 3.12

CAPITAL GEARING RATIO TABLE 3.13 CAPITAL GEARING RATIO OF THE HMA STARWARE LIMITED

YEARS

FIXED INTEREST EQUITY SHAREHOLDERS CAPITAL SECURITIES FUNDS GEARING RATIO 2000-01 54435803 41361500 1.32 2001-02 88053747 40731500 2.16 2002-03 96702305 65181092 1.48 2003-04 36746367 80166345 0.46 2004-05 95929447 80829707 1.19 Source: Secondary data/Annual Report2000-2005

INTERPRETATION The above table 3.13 represents the capital gearing ratio of the HMA Starware Limited. The capital gearing ratio of the company is satisfactory when the ratio is 1:1 and above. As per the above table the capital gearing ratio for the year 2003 04 is not satisfactory.

GRAPH 3.13

CAPITAL GEARING RATIO OF HMA STARWARE LIMITED

100000000

90000000

80000000

70000000

60000000

AMOUNT

50000000

40000000

30000000

20000000

10000000

0 2000-01 2001-02 2002-03 2003-04 2004-05

YEARS

FIXED INTEREST SECURITIES

EQUITY SHAREHOLDERS FUNDS

CAPITAL GEARING RATIO

Base: - Table 3.13

TREND PROJECTION METHOD The trend projection method involves (a) determining the trend of consumption by analysis of past consumption statistics and (b) projects future consumption by extrapolating the trend. Various trend relationships The trend of consumption may be represented by one of the following relationships: Linear Relationship: Exponential Relationship: Yx = a + bx Yx = a ebx

In the above equation Yx represent demand for year x, x is the time variable and a, b and axs are constants. TABLE -3.14 TREND PROJECTION ANALYSIS SALES YEARS X 2000 2001 2002 2003 2004 2005 SALES Y 229603810 360133629 320050621 526877262 495408689 430166621 2362240632 x = X-A A=2000 -2 -1 0 1 2 3 x2 4 1 0 1 4 9 19 xY -459207620 -360133629 0 526877262 990817378 1290499863 1988853254

Y1 a b a b

= a + bx = Y/N = xy / x2 = 2362240632 / 6 = 1988853254 / 19 = 393706772 = 104676487.05

Sales in 2006 = 393706772 + 104676487.05 (7) = 393706772 + 732735409.35 = 1126442181.35 Sales in 2007 = 393706772 + 104676487.05 (8) = 393706772 + 837411896.4 = 1231118668.4 Sales in 2008 = 393706772 + 104676487.05 (9) = 393706772 + 942088383.45 = 1335795155.45 Sales in 2009 = 393706772 + 104676487.05 (10) = 393706772 + 1046764870.5 = 1440471642.5 Sales in 2010 = 393706772 + 104676487.05 (11) = 393706772 + 1151441357.55 = 1545148129.55 Sales in 2011 = 393706772 + 104676487.05 (12) = 393706772 + 1256117844.6 = 1649824616.6 Sales in 2012 = 393706772 + 104676487.05 (13) = 393706772 + 1360794331.65 = 1754501103.65 Sales in 2013 = 393706772 + 104676487.05 (14) = 393706772 + 1465470818.7

= 1859177590.7 INTERPRETATION Trend line equation is a tool to make prediction and estimation which are examined in terms of sales based on the study of six years from 2000 to 2005. This trend line estimate that the sales are progressing well positively which are illustrated for the next 8 years. Table 3.15 TREND PROJECTION FOR EIGHT YEARS Year 2006 2007 2008 2009 2010 2011 2012 2013 Sales(Rs.) 1126442181.35 1231118668.4 1335795155.45 1440471642.5 1545148129.55 1649824616.6 1754501103.65 1859177590.7

GRAPH 3.14
1859177591 2013

2000000000 1335795155

1600000000

1400000000

1200000000

SALES

1000000000

800000000

600000000

400000000

200000000

0 2006 2007 2008 2009 2010 2011 2012

1126442181

1231118668

1800000000

SALES

Base: - Table 3.15

1440471643

YEARS

1545148130

1649824617

1754501104

TREND PROJECTION OF SALES FOR EIGHT YEARS (2006 - 2013)

TABLE 3.16 TREND PROJECTION ANALYSIS PROFIT

YEARS PROFIT x = X - A X Y A= 2000 2000 2001 2002 2003 2004 2005 9749661 13311384 2677699 7148508 4485254 5546699 42919205 -2 -1 0 1 2 3 3

x2 4 1 0 1 4 9 19

xY -19499322 -13311384 0 7148508 8970508 16640097 -51593

Y1 a b a b Profit in 2006

= a + bx = Y/N = xy / x2 = 42919205 / 6 = -51593 / 19 = 7153200.83 = -2715.42

= 7153200.83 + (-2715.42)(7) = 7153200.83 - 19007.94 = 7134192.89

Profit in 2007

= 7153200.83 + (-2715.42)(8) = 7153200.83 - 21723.36 = 7131477.47

Profit in 2008

= 7153200.83 + (-2715.42)(9) = 7153200.83 - 24438.78 = 7128762.05

Profit in 2009

= 7153200.83 + (-2715.42)(10) = 7153200.83 27154.2 = 7126046.63

Profit in 2010

= 7153200.83 + (-2715.42)(11) = 7153200.83 29869.62 = 7123331.21

Profit in 2011

= 7153200.83 + (-2715.42)(12) = 7153200.83 32585.04 = 7120615.79

Profit in 2012

= 7153200.83 + (-2715.42)(13) = 7153200.83 35300.46 = 7117900.37

Profit in 2013

= 7153200.83 + (-2715.42)(14) = 7153200.83 38015.88 = 7115184.95

INTERPRETATION Trend line equation is a tool to make prediction and estimation which are examined in terms of profit based on the study of six years from 2000 to 2005. This trend line estimate that the sales are progressing negatively which are illustrated for the next 8 years. TABLE 3.17 TREND PROJECTION FOR EIGHT YEARS Year 2006 2007 2008 2009 2010 2011 2012 2013 Profit (Rs.) 7134192.89 7131477.47 7128762.05 7126046.63 7123331.21 7120615.79 7117900.37 7115184.95

GRAPH 3.15
TREND PROJECTION OF PROFIT FOR EIGHT YEARS (2006 - 2013)
7131477.47 7134192.89

7128762.05

7135000

7123331.21

7130000

7126046.63

7125000

7120615.79

PROFIT

7117900.37

7120000

7115000

7110000

7105000 2006 2007 2008 2009 2010 2011 2012 2013

YEARS 2006 2007 2008 2009 2010 2011 2012 2013

7115184.95

MULTIPLE DISCRIMINATES ANALYSIS (MDA)

Y-SCORE MODEL Y = 14.5166V2 + 0.0015V25 + 0.8715V31 + 0.7914V35 Where Y = Overall Discriminate Score V2 = Cash flow/ Total Tangible Assets V25 = Current Asset / Current Liabilities V31= Net Sales / Total Tangible Assets V35= Defensive Assets / Total Operating Expenses TABLE 3.18 V2 Cash flow/ Total Tangible Assets YEARS CASH FLOW TOTAL TANGIBLE ASSETS 114211940 166027125 178940273 126837018 189390383 V2 0.04 0.05 0.05 0.19 0.07

2000-01 4203515 2001-02 7587174 2002-03 9830670 2003-04 23531925 2004-05 13297411

TABLE 3.19 V25 Current Asset / Current Liabilities YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 CURRENT ASSETS 105744388 194613192 215883491 180356730 212081892 CURRENT LIABILITIES 23820562 64954881 68191474 84520559 55024760 V25 4.44 3.00 3.17 2.13 3.85

TABLE 3.20 V31 Net Sales / Total Tangible Assets YEARS NET SALES 2000-01 360133629 2001-02 320050621 2002-03 526877262 2003-04 495408689 2004-05 430166621 TOTAL TANGIBLE ASSETS 114211940 166027125 178940273 126837018 189390383 V25 3.15 1.93 2.94 3.91 2.27

Y = 14.5166V2 + 0.0015V25 + 0.8715V31 + 0.7914V35 2000 01= 14.5166 X 0.04 + 0.0015 X 4.44 + 0.8715 X 3.15+ 0.7914 X 0 = 0.580664 + 0.00666 + 2.745225 + 0 = 3.332549 2001 02 = 14.5166 X 0.05 + 0.0015 X 3.00 + 0.8715 X 1.93+ 0.7914 X 0 = 0.72583 + 0.0045 + 1.681995 + 0 = 2.412325 2002 03 = 14.5166 X 0.05 + 0.0015 X 3.17 + 0.8715 X 2.94+ 0.7914 X 0 = 0.72583 + 0.004755 + 2.56221 + 0 = 3.292795 2003 04 = 14.5166 X 0.19 + 0.0015 X 2.13 + 0.8715 X 3.91+ 0.7914 X 0 = 2.758154 + 0.003195 + 3.407565 + 0 = 6.168914 2004 05 = 14.5166 X 0.07 + 0.0015 X 3.85 + 0.8715 X 2.27+ 0.7914 X 0 = 1.016162 + 0.005775 + 1.978305 + 0 = 3.000242 Average = 20.875822 / 6 = 3.4794

INTERPRETATION

Multiple Discriminant Analysis of Y score model on working capital performance. The Y Score are shown in the above tables. The Y Score performances during the period of study were 2.2668997, 3.332549, 2.412325, 3.292795, 6.168914 and 3.000242 with an average of 3.4794. The Y Score performance is fluctuating year by year in terms of working capital but the average performance is reasonable one.

GRAPH 3.16
V2= Cash Flow / Total Tangible Assets

0.04 0.07

0.05

0.05

0.19

2000-01

2001-02

2002-03

2003-04

2004-05

Base: - Table 3.18

GRAPH 3.17

V25 = Current Asset / Current Liabilities

3.85

3.80

2.13

4.44

3.17

3.00

1998-99

1999-00

2000-01

2001-02

2002-03

Base: -Table 3.19

GRAPH 3.18
V31= Net Sales / Total Tangible Assets

2.27

3.15

3.91

1.93

2.94

2000-01

2001-02

2002-03

2003-04

2004-05

Base: - Table 3.20

TABLE 3.21 X1 = Net Working Capital / Total Assets (%) YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 NET WORKING CAPITAL 81923826 129658310 147692017 95836171 157057132 TOTAL ASSETS 114211940 166027125 178940273 126837018 189390383 X1 0.72 0.78 0.83 0.76 0.83

TABLE 3.22 X2 = Retained Earning / Total Assets (%) YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 RETAINED EARNING 6941000 5145050 5313142 9798395 12525707 TOTAL ASSETS 114211940 166027125 178940273 126837018 189390383 X2 0.06 0.03 0.03 0.08 0.07

TABLE 3.23 X3 = EBIT / Total Assets YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 EBIT 13311384 2677699 7148508 4485254 5546699 TOTAL ASSETS 114211940 166027125 178940273 126837018 189390383 X3 0.12 0.02 0.04 0.04 0.03

TABLE 3.24 X4 = Market Value of Total Equity Book / Book Value of Debt Year Market Value of Total Equity Book 2000-01 2001-02 2002-03 2003-04 2004-05 41361500 40731500 65181092 80166345 80829707 Book Value of Debt

X4

72850440 0.567759 125295625 0.325083 113759181 0.572974 46670672 1.717703 105853752 0.763598

TABLE -3.25 X5 = Sales / Total Assets (Time) YEAR 2000-01 2001-02 2002-03 2003-04 2004-05 SALES 360133629 320050621 526877262 495408689 430166621 TOTAL ASSETS 114211940 166027125 178940273 126837018 189390383 X5 3.15 1.93 2.94 3.91 2.27

2000 01= 0.012 (0.72) + 0.01(0.06) + 0.033 (0.12) + 0.006(0.57)+ 0.999 (3.15) = 0.00864 + 0.0006 + 0.00396 + 0.00342 + 3.14685 = 3.16347 2001 02 = 0.012 (0.78) + 0.01(0.03) + 0.033 (0.02) + 0.006(0.33)+ 0.999 (1.93) = 0.00936 + 0.0003 + 0.00066 + 1.92807 = 1.93839 2002 03 = 0.012 (0.83) + 0.01(0.03) + 0.033 (0.04) + 0.006(0.57)+ 0.999 (2.94) = 0.00996 + .0003 + 0.00132 + 0.00342 + 2.93706 = 2.95206 2003 04 = 0.012 (0.76) + 0.01(0.08) + 0.033 (0.04) + 0.006(1.72)+ 0.999 (3.91) = 0.00912 + .0008 + 0.00132 + 0.01032 + 3.90609 = 3.92765 2004 05 = 0.012 (0.83) + 0.01(0.07) + 0.033 (0.03) + 0.006(0.76)+ 0.999 (2.27) = 0.00996 + .0007 + 0.00099 + 0.00456 + 2.26773 = 2.28394 Average = 14.26551 / 5 = 2.853102

INTERPRETATION Multiple Discriminant Analysis of Z score model on working capital performance. The Z Score are shown in the above tables. The Z Score performances during the period of study were 3.16347, 1.93839, 2.95206, 3.92765 and 2.28394 with an average of 3.011495. The Z Score performance is fluctuating year by year in terms of working capital but the average performance is reasonable one.

GRAPH 3.19
X1 = Net Working Capital / Total Assets (%)

0.83

0.72

0.76

0.78

0.83 2000-01 2001-02 2002-03 2003-04 2004-05

Base: - Table 3.21

GRAPH -3. 20
X2 = Retained Earning / Total Assets (%)

0.07 0.06

0.03 0.08 0.03

2000-01

2001-02

2002-03

2003-04

2004-05

Base: - Table 3.22

GRAPH 3.21
X3 = EBIT / Total Assets (%)

0.03 0.04

0.12

0.04 0.02

2000-01

2001-02

2002-03

2003-04

2004-05

Base: - Table 3.23

GRAPH 3.22
X4 = Market Value of Total Equity Book / Book Value of Debt

0.57 0.76

0.33

0.57

1.72

2000-01

2001-02

2002-03

2003-04

2004-05

Base: - Table 3.24

GRAPH 3.23
X5 = Sales / Total Assets (Time)

2.27 3.15

3.91

1.93

2.94 2000-01 2001-02 2002-03 2003-04 2004-05

Base: - Table 3.25

COMPARATIVE STATEMENT ANALYSIS OF THE HMA STARWARE LIMITED

COMPARATIVE FINANCIAL STATEMENTS Comparative financial statements are the statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements figures of two or more years are placed side by side to facilitate comparison. a. COMPARATIVE BALANCE SHEET Both the income statement and balance sheet can be prepared in the form of Comparative Financial Statements. Comparative Balance sheet as on two or more different assets can be used for comparing assets and liabilities and finding out any increase or decrease items. Thus only while in a single balance sheet. Such a balance sheet is very useful in studying the trends in an enterprise. b. COMPARATIVE INCOME STATEMENTS The income statements disclose net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods. The absolute changes from one period to another and its desired changes in terms of percentage. Since the figures for two or more periods are shown side by side, the reader can quickly ascertain whether sales have been increased or decreased, whether data included in comparative income statement will be helpful in deriving meaningful conclusion. TABLE 3.26 COMPARATIVE INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2004 & 2005 OF THE HMA STARWARE LIMITED

PARTICULARS Sales and other Income Less: Cost of materials sold

2004

2005

CHANGES % OF INCREASE CHANGES (OR) DECREASE -66374273 -13.45

493461517 427087244

380465765 328069517

-52396248 -18342132 2873786

-13.77 -28.69 12.25

Handling & Stevedoring charges 63942273 45600141 Selling, Administration, Others 23468356 26342142

Finance charges Depreciation Total Expenses

16601252 18759837 3827914 3891476

2158585 63562 -65642447

13.00 1.66 -13.44

488305560 422663113

Profit before Taxes Less: Provision for Taxes Profit after Taxes

7103128

7503509

400381

5.64

2617874 4485254

2181736 5321773

-436138 836519

-16.66 18.65

INTERPRETATION From the above comparative income statement it is inferred that there is a increase of profit after tax to the tune of 18.65% between 2004 and 2005. However the volume of sales has decreased by 13.45%. The total expenses has decreased to 13.44%. Therefore the company has to cut down the operating cost effectively.

TABLE 3.27 COMPARATIVE BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2004 & 2005 OF THE HMA STARWARE LIMITED

PARTICULARS

2004

2005

CHANGES INCREASE (OR) DECREASE

% OF CHANGES

Liabilities 1. Shareholders Funds Share Capital Share application Reserves & Surplus 2. Loan Funds Secured Loan Unsecured Loan 3. Current Liabilities Provisions 4. Deferred Tax Total Liabilities 36746367 9924305 83440559 975000 0 95929447 9924305 52946760 2078000 2706924 59183080 0 -30493799 1103000 2706924 33162567 161.06 0.00 -36.55 113.13 0.00 254.93 50804000 19563950 9798395 50804000 17500000 12525707 0 -2063950 2727312 0.00 -10.55 27.83

211252576 244415143

Assets 1. Fixed Assets Capital WIP Investment 2. Current Assets Inventories Sundry Debtors Cash & Bank Balances Loans & Advances 23531925 32939206 13297411 37336871 10234514 4397665 43.49 13.35 51412935 104687886 72472664 56759724 53274951 -15712940 103.62 -21.68 1243500 27315347 26143851 1775900 1843500 -1171496 1775900 600000 -4.29 0.00 48.25

4.Miscellaneous Expenditure Total Assets INTERPRETATION 2442000 2570000 128000 33162567 5.24 254.93

211252576 244415143

It is inferred from the above comparative balance sheet it is inferred that under the liability side 161.06% has been increased between 2004 & 2005. The current liabilities have been decreased by 36.55%. Therefore the over liabilities has been increased by 254.93% In the asset side the fixed has been decreased by 4.29%. Investment has been increased by 48.25% between 2004 and 2005. The over all assets and liabilities has been increased by 254.93%. Therefore the company financial position has been improved.

TABLE 3.28 COMMON SIZE INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2004 & 2005 PARTICULARS 2004 Sales and other Income Less: Cost of materials sold Handling & Stevedoring charges Selling, Administration, Others Finance charges Depreciation Total Expenses 380465765 77.10 328069517 76.82 63942273 12.96 45600141 10.68 23468356 16601252 3827914 4.76 3.36 0.78 26342142 18759837 3891476 6.17 4.39 0.91 2004 % 2005 2005 %

493461517 100.00 427087244 100.00

488305560 98.96 422663113 98.96

Profit before Taxes Less: Provision for Taxes Profit after Taxes

7103128

1.44

7503509

1.76

2617874 4485254

0.53 0.91

2181736 5321773

0.51 1.25

INTERPRETATION The above table 3.28 shows the common size income statement for the year ended 2004 & 2005 of the HMA Starware Limited. Total expenditure has been decreased between the two years. The profit before tax has been increased from 1.44% to 1.76% in the portion of sales. The profitability has to increase. So the company has to take necessary steps to control the cost. TABLE 3.29

COMMON SIZE BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2004 & 2005 OF THE HMA STARWARE LIMITED PARTICULARS 2004 2004 % Liabilities 1. Shareholders Funds Share Capital Share application Reserves & Surplus 2. Loan Funds Secured Loan Unsecured Loan 3. Current Liabilities Provisions 4. Deferred Tax Total Liabilities 36746367 9924305 83440559 975000 0 17.39 4.70 39.50 0.46 0.00 95929447 9924305 52946760 2078000 2706924 39.25 4.06 21.66 0.85 1.11 50804000 19563950 9798395 24.05 9.26 4.64 50804000 17500000 12525707 20.79 7.16 5.12 2005 2005 %

211252576 100.00

244415143 100.00

Assets 1. Fixed Assets Capital WIP Investment 2. Current Assets Inventories Sundry Debtors Cash & Bank Balances Loans & Advances 4.Miscellaneous Expenditure Total Assets 2442000 1.16 2570000 1.05 23531925 32939206 11.14 15.59 13297411 37336871 5.44 15.28 51412935 72472664 24.34 34.31 104687886 56759724 42.83 23.22 27315347 0 1243500 12.93 0.00 0.59 26143851 1775900 1843500 10.70 0.73 0.75

211252576 100.00

244415143 100.00

INTERPRETATION The above table 3.29 states the common size balance sheet of the HMA Starware Limited for the year ended 2004 and 2005. The total assets and liabilities had been increased from 211252576 to 244415143. All the assets and liabilities had been fluctuating. So the company has to improve the financial viability in the future years. CHAPTER - IV Summary of Findings, Suggestions and Conclusions

As per the analysis of the data through various tools the researcher has prepared the following findings and recommendations to the company. 1. As per the comparative income statement the sales have been fluctuating year by year. The cost of production also has been increased year by year. The profit after tax has also decreased year by year. Therefore the company has to cut-down the operating cost effectively through the way the company can increase the volume of profit. 2. As per the comparative balance sheet the companys financial position has become poor year by year. Therefore the company has to appropriate steps to improve the financial position in the future years. 3. According to the financial statement of the company has incurred loss for the past two years. Hence the researcher cannot estimate the future profitability position of the company and also to increase the volume of sales in the future years. 4. The companys financial statement for the past five years shows that the liquidity position of the company was satisfactory. So the company has to improve the liquidity position.

5.

As per the analysis, quick ratio was satisfactory .During the period most of the funds are locked in the inventories. Due to that the company cannot maintain adequate liquidity position. Hence the company has to take necessary measures to control the funds locked in the inventory.

6.

The companys average collection period has been decreased from 2004-05 than the previous years. It found that the product is being demandable in the market at present. So the company should take initiative to promote the sales of the product.

7.

The companys inventory turnover ratio was satisfactory. So the company has to take necessary steps for controlling the inventory holding period.

8.

The companys asset and liabilities has been increased and decreased year by year as per the comparative balance sheet. So the company has to improve the capital structure, profitability, working capital, liquidity position in the future years.

9.

The trend projection for analysis for sales in positively increasing year but the actual sales may have fluctuation, whereas the trend projection for profit is decreasing year by year. So the company should take preventive measures to increase profit.

10.

From the Y-score and Z-score analysis we find that the working capital requirement is sufficient, the company should take necessary measures for maintaining the same.

SUGGESTIONS

1) The working Capital requirement is sufficient, The Company should take necessary measures for maintaining the adequate working Capital for future Financial years. 2) The Company has to improve the liquidity position, Profitability position and the leverage postionh for the future financial years. 3) The company has to take adequate steps to control the cost, increase the volume of Sales, Profit in the future years. 4) The Company has to take necessary measures to control the funds locked in the inventory.

CONCLUSION The study has undertaken by the researcher under the title of Financial Performance analysis of the HMA Starware Limited with the help of ratio analysis. In that the liquidity ratio, turnover ratio, leverage ratio and profitability ratios, comparative statement analysis and common size statement analysis, are used for analysis of financial performance of the HMA Starware Limited. It is concluded that the overall financial performance was satisfactory as per analysis. The company has to take appropriate steps to control the cost, increase the volume of sales, profit in the future years. Then the company has to avoid which the funds are locked in the inventory in the future years. The company has to improve the liquidity position, profitability position and the leverage position of the HMA Starware Limited.

CHAPTER-V BIBLIOGRAPHY

I M Pandey

Financial Management

Vikas Publishing House Pvt. Ltd, New Delhi, 8th Edition, 2002 Tata Mc Graw Hill Publication, New Delhi, 7th Edition, 2002 Sultan Chand Publications Pvt. Ltd., New Delhi Chaitanya Publishing House, Allahabad, 10th Edition 2003 PHI Publications, New Delhi

Prasanna Chandra Financial Management

S. N. Maheswari

Financial Management

S. C. Kuchal

Financial Management

Van Horne James

Financial Management