A REPORT ON FINANCIAL STATEMENT ANALYSIS

BY ANKIT JAIN 12BSP0163

S.E. INVESTMENTS LIMITED (SEIL)

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A REPORT ON FINANCIAL STATEMENT ANALYSIS

BY ANKIT JAIN 12BSP0163

S.E. INVESTMENTS LIMITED (SEIL)

A report submitted in partial fulfillment of PGPM Program of IBS BANGALORE

Date of Submission:
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ACKNOWLEDGEMENT

I hereby take this opportunity to thank all those who have helped me some way or the other in the successful completion of this project. The guidance and support of many people has been immense throughout the project. I would like to extend sincere gratitude to Mr. K. Balakrishnan, Director, IBS Bangalore, for providing me an opportunity to take up my summer internship project.

I would like to show my greatest appreciation to my company guide Mr. R.K.Jain, Chief Credit Manager, S.E. Investments Limited (SEIL)., for giving me an opportunity to work in his esteemed organization. I would like to express a deep sense of gratitude and indebtedness to my Faculty Guide Prof. R. Harish, Faculty IBS Bangalore for her invaluable support, motivation and guidance in the successful completion of the project.

I would also like to extend my gratitude to my parents, my well wishers who have helped me in some ways or the other in the completion of this project.

Ankit Jain 12BSP0163 IBS Business School

CONTENTS

S. No. Particular Objective of the Study 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Current Scenario of NBFC Sector Companys Mission Companys methodology for loan application Papers required for loan application Theoretical background Advantages of ratios Limitations of ratio analysis Research methodology Learnings from the project About my job Financial statements of Prakash constrowell limited Ratio analysis Conclusion Referencing

Page No.
5 7 9 10 11 12 20 21 22 23 25 28 30 42 44

OBJECTIVE OF THE STUDY

To find out the relationship between the different items of the balance-sheet and profit and loss account. To know the ability of the organization to meet the current obligations. To know the ability of the organization to meet the long term obligations. To know the changes in the financial position of the organization over a period. To get a thorough idea about the functioning of the organization. To get idea about the performance of the company. To get an exposure of the actual working environment. To thoroughly understand the cash flow management and various aspects. Evaluate the Financial Statements. Measure Profitability, Efficiency & Liquidity position

Non-banking financial companies (NBFCs) are fast emerging as an important segment of Indian financial system. They provide financial support to some important segments of the economy which plays a key role in stimulating the engine of economic growth.

CURRENT SCENARIO OF NBFC SECTOR

Indias NBFC sector, which accounts for about 13% of the total assets of the banking sector, is passing through a critical phase. By all objective measures, this sector has made rapid strides in recent years and led the way forward in delivering innovation and outstanding value to stakeholders. Moreover, it plays a critical part in filling the many gaps left by the banking sector. The performance of the NBFCs has been particularly impressive in areas that are national priorities, like infrastructure finance, SME finance, micro finance and financial inclusion. An unfortunate outcome of tight regulation of the NBFC sector has been that more effort and energy is being expended on curbing the growth of NBFCs by adding to their regulatory burden that on furthering their potential to be a transformative force for financial inclusion. For instance, the recent move to deny priority sector status to the loans given by banks to NBFCs has had the effect of pushing up cost of funds for the sector. Unfortunately, the ultimate impact falls on borrowers who belong largely to the underprivileged and financially excluded sections of society. Recent years have witnessed significant increase in financial intermediation by the NBFCs. But as far as the current status of the NBFCs is concerned, these are trapped in a cycle of high costs of funds leading to high rate of interest for borrowers. In order to meet with the fund requirements, NBFCs borrow from the markets directly at much higher rates than the banks. Consequently, the rates at which they lend are also higher. As a result, higher interest outgo caps margins of the borrowers from the NBFCs and also deters their growth. NBFCs mostly lend to sectors like infrastructure equipment, farm equipment and commercial vehicles since these areas do not get loans from the banks. Conversion of some of these NBFCs into full-fledged banking structure would enable these infrastructure companies to raise loans at a cheaper rate. Low cost of fund raising will enable these infra companies to maintain the competitive spirit of the industry.

The global economy has managed to hold its own so far. However, the dark clouds continue to threaten, such as the mounting risk of the Euro zone debt crisis getting out of hand, the continuing slump in the US realty market accompanied by distressingly high unemployment levels, elevated commodity prices, early indications of overheating in the emerging markets, and various geopolitical perils, that threaten to derail the global economic recovery all over again. Thanks largely to the cumulative economic reforms from 1991 onwards, the Indian economy is on a firmer footing and has been able to weather the impact till now.

At the same time, warning signs have emerged which need immediate attention. With the perceptible slowdown in the reform impetus over the last few years, the economy is now beginning to show telltale signs of wear and tear. Food inflation has spread outwards and the consequent monetary tightening by RBI has led to a sharp increase in interest rates and heightened anxieties about an impending slowdown. Given the nature of the inflationary pressures we face, we believe the government can no longer delay hard decisions about accelerating the pace of fiscal consolidation. Otherwise, India faces the real danger of getting caught in an inflationary spiral.

COMPANYS MISSION
To uphold the motto Arthah Samajasya Nyasah that is Wealth is the Trust Property of the Society. The Philosophy of the Company is deeply rooted in the Indian Tradition of Business with a social conscience. The Company operates with utmost transparency and efficiency thereby ensuring maximum returns to shareholders with minimum risks. To achieve excellence in service, quality, reliability, safety and customer care. The three words of ancient Sanskrit phrase reproduces the motto and philosophy behind the Groups ideology. To earn the trust and confidence of all customers and stakeholders, exceeding their expectations and make the Company a respectful household name. We aspire to provide financial and non-financial products to the working poor, to nurture their dreams and to enable them to contribute in the countrys financial system. To provide comprehensive range of financial services and to strive for exceptional financial performance and growth based on commitment for a sustainable world through combining long term economic values, environmental stepwardship and social responsibility. To be valued by our customers for bringing competitive solutions, reliability, comfort and convenience to their lives and businesses. To create value and make a difference to be a brand.

COMPANYS METHODOLOGY FOR LOAN APPLICATION

Focus on large clientate of small / medium business, family run enterprises & traders. Transactions are based on qualitative and quantities assessment of the entity. Focus on credit history, local knowledge of operating segments & understanding of the performance of the entity. Pricing reflective of risk assessment of the client. Competitive fast & efficient decision making. Quick processing. Robust reminder & collection process.

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Papers required for loan application

Copy of the memorandum and articles of association with certificate of incorporation and certificate of commencement of business. Balance sheet for past 3 years and statement showing month wise sale from 1st April along with all schedules, Auditor's report, report U/S 44 AB of IT Act. Personal profile of directors. Xerox of property papers being offered as collateral security with chain documents numbered serially at the top of the papers. Address/ID proof of the directors. ITR (Income Tax Return) of the company for past 3 years as well as of directors. Copy of bank accounts for past 6 months of all the bank accounts where the account is being maintained/ loan being repaid.

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THEORITICAL BACKGROUND
MEANING OF RATIO: A ratio is a simple arithmetical expression of the relationship of one number to another. According to Accountants Handbook by Wixon Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. In short it can be defined as the indicated quotient of two mathematical expressions. The ratios can be expressed in:1) Percentages 2) Fraction and 3) Proportion of numbers. MEANING OF RATIO ANALYSIS: Ratio Analysis is a technique of analysis and interpretation of financial statements. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performances and current financial condition can be determined. There are a number of ratios which can be calculated from the information given in the financial statements, but the analysts has to select the appropriate date and calculate only a few appropriate ratios from the same keeping in mind the objectives of analysis. The following four steps involved in the ratio analysis: 1. Selection of relevant data from financial statements depending upon financial analysis. 2. Calculation of appropriate ratios. 3. Comparison of the calculated ratios of the same firm in the past or the ratios developed from projected financial statements to the ratios of some other firms or the comparison with ratios of the industry to which firm belonged. 4. Interpretation of ratios.

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INTERPRETATION OF RATIOS: -

The interpretation of ratios is an important factor. Though calculation of ratios is also important but it is only a clerical task whereas interpretation needs skill, Intelligence and foresightedness. The impacts of factors such as price level changes, change in accounting policies, window dressing etc should be kept in mind when attempting to interpret ratios. The interpretation of ratios can be made in following ways: 1. Intra firm comparison: - Here the ratios of one organization may be compared with the ratios of the same organization for the various years either the previous years or the future years. 2. Inter firm comparison: - The ratios of one organization may be compared with the ratios of the other organization in the same industry and such comparison will be meaningful as the various organizations, in the same industry may be facing similar kinds of financial problems. 3. The ratios of an organization may be compared with some standards, which may be supposed to be The Thumb-Rule for the evaluation of the performance.

CLASIFICATION OF RATIOS
The ratios may be classified under various ways, which may use various criterions to do the same. However for the convenience purpose, the ratios are classified under following groups: 1. Liquidity group 2. Turnover group 3. Profitability group 4. Solvency group and 5. Miscellaneous group
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 LIQUIDITY GROUP:
The ratios computed under this group Indicate the short-term position of the organization and also indicate the efficiency with which the working capital is being used. Commercial banks and short-term creditors may be basically interested in the ratios falling under this group. Two most important ratios may be calculated under this group. 1) Current Assets: It is calculate as, Current Assets Current Liabilities

Current ratio indicates the backing available to current liabilities in the form of current assets. In other words, higher current ratio indicates that there are sufficient assets available with the organization, which can be converted in the form of cash. A current ratio of 2:1 is supposed to be standard and ideal.

2) Liquid Ratio or Acid Test Ratio: It is calculated as, Liquid Assets Liquid Liabilities Here liquid assets include all Current assets except inventory and prepaid expenses and liquid liabilities except overdraft or cash credit or outstanding expenses. Liquid ratio indicates the backing available to liquid liabilities in the form of liquid assets. The term liquid assets indicate the assets, which can be converted in the form of cash without any reduction in the value. Almost immediately whereas the term Liquid liabilities which are required to be paid almost immediately. In other words, a higher liquid ratio indicates that there are sufficient assets available with the Organization, which can be converted in the form of cash almost immediately to pay off those liabilities, which are to be paid off almost immediately. As such higher the liquid ratio better will be the situation. A liquid ratio of 1:1 is supposed to be standard and ideal.

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 TURNOVER GROUP: Ratios computed under this group indicate the efficiency of the organization to use the various kinds of assets by converting them in the form of sales. Under this group the following classification of ratios are made. 1) Fixed Assets Turnover Ratio: It is calculated as,

Net Sales Fixed Assets

A high fixed assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in fixed assets. It indicates that the fixed assets are turned over in the form of sales more number of times. 2) Current Assets Turnover Ratio: It is calculated as, Net Sales Current Assets A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the maximum investment in current assets. It indicates that the current assets are turned over in the form of sales more number of times. 3) Working Capital Turnover Ratio: It is calculated as, Net Sales Working Capital A high working capital turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in the working capital. It indicates that working capital is turned over in the form of sales more number of times. 4) Inventory or Stock Turnover Ratio: It is calculated as, Cost of Goods Sold Avg. Inventory

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A high inventory turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in inventory. As such as a general rule, high inventory turnover ratio is desirable. 5) Debtors Turnover Ratio: It is calculated as, Net Credit Sales Closing Sundry Debtors This ratio indicates the speed at which the sundry debtors are converted in the form of cash. However the intention is not correctly achieved by making the calculation in this way. As such this ratio is normally supported by the calculation period, which is calculated as below. a) Calculation of Daily Sales: It is calculated as, Net Credit Sales No of Working Days b) Calculation of Collection Period: It is calculated as, Closing Sundry Debtors Daily Sales The average collection period as computed above should be compared with the normal credit period extended to the customers. If the average collection period is more than the normal credit period allowed to the customers, it may indicate over investment in debtors which may be the result of over extension of credit period, liberalization of credit term, ineffective collection procedure and so on. 6) Capital Turnover Ratio: It is calculated as,

Sales Capital Employed

This ratio indicates the efficiency of the organization with which the capital employed is being utilized. A high capital turnover ratio indicates the capability of the organization to achieve maximum sales with minimum amount of capital employed. As such higher the capital turnover better will be the situation.

SOLVENCY GROUP
Ratios computed under this group indicate the long-term financial prospects of the company. The shareholders debenture holders and other lenders of long-term finance/ term loan may be basically under this group. Following ratios may be computed under this group. 1) Debt-equity Ratio: 16

It is calculated as, External Liabilities Shareholders Fund Debt-equity ratio indicates the state of shareholders or owners in the organization vis--vis that of the creditors. It indicates the cushion available to the creditors on liquidation of the organization. A high debt-equity ratio may indicate that financial status of the creditors is more than that of the owners. A very high debt-equity ratio may make the proportion of investment in the organization a risky one. On the other hand a very low debt equity rate may mean that the borrowing capacity of the organization is being underutilized. 2) Proprietary Ratio: It is calculated as, Owners Fund*100 Total Assets This ratio indicates the extent to which the owner s funds are sunk in different kinds of assets. If the owner s fund exceeds fixed assets, it indicates that a part owners fund invested in the current assets also and if owners fund are less than fixed assets it indicates that the creditors finance a part of fixed assets either by long term or short term. 3) Capital Employed Ratio: It is calculated as, Fixed Assets *100 Capital Employed This ratio indicates the extent to which the long-term funds are sunk in fixed assets. 4) Interest Coverage Ratio: It is calculated as, PBIT Interest Charges This ratio indicates protection available to the lenders of long-term capital in the form of funds available to pay the interest charges i.e. profits. Normally a high ratio will desirable but too high a ratio may indicate underutilization of the borrowing capacity of the organization whereas too low a ratio may indicate excessive long-term borrowings or inefficient operation.

PROFITABILITY GROUP
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1) Gross Profit Ratio: It is calculated as, Gross Profit *100 Net Sales The gross profit ratio indicates the relation between production cost and sales and efficiency with which the goods are produced or purchased. A high gross profit ratio may indicate that the organization is able to produce or purchase at a relatively lower cost. 2) Net Profit Ratio: It is calculated as,

Net Profit after Taxes *100 Net Sales

The net profit ratio indicates that portion of sales available to the owners after the consideration of all types of expenses and costs either operating or non-operating or normal or abnormal. A high net profit ratio indicates higher profitability of the business. 3) Operating Ratio: It is calculated as, Mfg COGS + operating expenses*100 Net Sales This ratio indicates the percentage of net sales, which is absorbed by the operating cost. A high operating ratio indicates that only a small margin of sales is available to meet the expenses in the form of interest, dividend and operating expenses. As such low operating ratio will always be desirable.

OVERALL PROFITABILITY GROUP

1) Return on Assets: It is calculated as, Net Profit *100 Assets Return on assets measures the profitability of the investment in a firm. As such higher return on assets will always be preferred. However Return on Assets (ROA) does not indicate the profitability of various sources of funds, which finance total assets. 2) Return on Capital Employed: It is calculated as, Net Profit after taxes + Int. on Long Term Loans*100 Capital Employed
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Return on capital employed measure4s the profitability of the capital employed in the business. A high return on capital employed indicates a better and profitable use of long-term funds of owners and creditors. As such a high return on capital employed is preferred. 3) Return on Shareholders Funds: It is calculated as, Net Profit after Taxes*100 Total Shareholders Funds This ratio indicates the profitability of a firm in relation to the fund supplied by the shareholders

MISCELLANEOUS GROUP
1) Capital Gearing Ratio: It is calculated as, Fixed income-bearing securities Equity Capital A high capital-gearing ratio indicates that in the capital structure, fixed income bearing securities are more in comparison to the equity capital in that case the Company is said to be highly geared. On the other hand, if fixed income-bearing securities are less as compared to equity capital the company is said to be lowly geared. 2) Earning Per Share: It is calculated as, Net Profit after tax and dividend Number of equity shares o/s It is widely used ratio to measure the profit available to the equity shareholders on a per share basis. As such increasing Earning Per Share may indicate the increasing trend of current profits per equity share. 3) Dividend Payout Ratio: It is calculated as, Dividend Per Share *100 Earning Per Share It measures the relationship between the earnings belonging to the equity shareholders and the amount finally paid to them by way of dividend. It indicates the policy of management to pay cash dividend.

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ADVANTAGES OF RATIOS
1. Ratios simplify the comprehension of financial statements. They tell the whole story as a heap of financial data is condensed in them. They indicate the change in the financial condition of the business. 2. They act as an index of the efficiency of enterprise. As such they serve as an instrument of management control. It is an instrument for diagnosis of the financial health of an enterprise. The efficiency of the various individual units similarly situated can be judged through inter-firm comparisons. 3. The ratio analysis can be if invaluable aid to management in the discharge of its basic functions of forecasting, planning, co-ordination, communication and control. A study of the trend of strategic ratio may help the management in this respect. Past ratios indicate trends in cost, sales, profit and other relevant facts. 4. The ratio analysis provides data for inter-firm comparison or intra-firm comparison. Comparison cannot be made with absolute figures. Net profit of one firm cannot be compared with the net profit of the other firm. But the percentages of net profits can be compared to evaluate the performance. Similarly performance and efficiency of different departments in the same firm can be compared with the help of ratios. 5. Investment decisions can at times be based on the conditions revealed by certain ratios. 6. They make it possible to estimate the other figure when one figure is known.

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LIMITITIONS OF RATIO ANALYSIS

Though ratio analysis technique has got number of advantages, it attracts equal number of disadvantages too. Some of important advantages are as follows: 1. The ratios of the other organization May not be readily available. 2. Different accounting policies may be followed by the constituent organization in the industry. 3. The constituent organization in the same industry may vary from each other in terms of age, location, extent of automation, quality of management and so on 4. The technique of ratio analysis may prove to be inadequate in some situation if there is difference of opinions regarding the interpretation of certain items while computing certain ratios. 5. As the ratios are computed on the basis of financial statements, the basic limitation, which is applicable to the financial statements, is equally applicable in case of the technique of ratio analysis also.

Thus the ratio analysis points out the financial condition of business whether it is very strong, good, questionable or poor and enables the management to take necessary steps.

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RESEARCH METHODOLOGY
1) DATA COLLECTION Primary Data: Primary data related to the project was collected from the discussion and interaction with the senior employees and executives in the organization from Accounts and Finance department. Secondary Data: Secondary data was collected from the documents, which were in printed forms like annual reports, reference books based on Financial Management and through websites.

METHODOLOGY FOR ANALYSIS

The methodology opted for carrying out project was by way of collection of data from the company s annual reports for the past 3 to 5 years, for the calculation of ratios. The theory related to ratios was gathered from various financial management books, which served the purpose of calculation and analysis of ratios. Further based on the above statements ratios related to liquidity, turnover, solvency, profitability and over profitability groups and miscellaneous groups have been calculated and interpreted in an intra firm comparison method. Similarly the ratios have been presented in graphical format to have clear understanding of it during three financial years and changes in it.

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LEARNINGS FROM THE PROJECT

Understand the approach to financial statement analysis. Basic financial statement analysis involves examining relationships between items on the statements (ratio and percentage analysis) and identifying trends in these relationships (comparative analysis). Analysis is used to predict the future, but ratio analysis is limited because the data are from the past. Also, ratio analysis identifies present strengths and weaknesses of a company but it may not reveal why they are as they are. Although single ratios are helpful, they are not conclusive; they must be compared with industry averages, past years, planned amounts, and the like for maximum usefulness. How to identify major analytic ratios and describe their calculation. Ratios are classified as liquidity ratios, activity ratios, profitability ratios, and coverage ratios: (1) Liquidity ratio analysis measures the short-run ability of the enterprise to pay its currently maturing obligations. (2)Activity ratio analysis measures how effectively the enterprise is using its assets. (3)Profitability ratio analysis measures the degree of success or failure of an enterprise to generate revenues adequate to cover its costs of operation and provide a return to the owners. (4)Coverage ratio analysis measures the degree of protection afforded long-term creditors and investors. The limitations of ratio analysis. One important limitation of ratios is that they are based on historical cost, which can lead to distortions in measuring performance. Also, where estimated items (such as depreciation and amortization) are significant, income ratios lose some of their credibility. In addition, difficult problems of comparability develop when changes in principles and procedures occur. Finally, it must be recognized that a substantial amount of important information is not included in a company's financial statements.

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Techniques of comparative analysis. Companies present comparative data, which generally includes two years of balance sheet information and three years of income statement information. In addition, many companies include in their annual reports 5- to 10-year summaries of pertinent data that permit the reader to examine and analyze trends. Techniques of percentage analysis. Percentage analysis consists of reducing a series of related amounts to a series of percentages of a given base. Two approaches are often used. The first, called horizontal analysis, indicates the proportionate change in financial statement items over a period of time; such analysis is most helpful in evaluating trends. Vertical analysis (common-size analysis) is proportional expression of each item on the financial statements in a given period to a base amount. It analyzes the composition of each of the financial statements from different years (a) to detect trends not evident from the comparison of absolute amounts and (b) to make intercompany comparisons of different sized enterprises.

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ABOUT MY JOB
S. E. Investments Limited (SEIL) is a microfinance company which provides a finance to various companies as well as individuals for a shorter duration of period i.e., 3 -5 years by analyzing the financial statements, such as Balance Sheet, Profit & Loss A/c, trend analysis, schedule of changes in working capital gap and various ratios like Current ratio, Quick ratio, Net Working Capital ratio, Debt ratio, Debt to equity ratio, Working capital turnover, Net Profit ratio, Return on Capital Employed ratio etc., During my internship, company provides me a various information of the borrower companies and then Ive to select the information which is requir ed for taking the decision after that Ive to analyze the present information with the past ones and has to highlight the important points which shows the financial strength and weaknesses of the borrower companies and then Ive to submit a report on these companies and gives the conclusion based on the analysis In planning and analysis, we'll likely use companys bookkeeping information to produce various financial statements, including a cash flow statement, statement of activities and a statement of financial position. 1. Income Statements: These statements include much money we've earned (our revenue) and subtracts how much we've spent (our expenses), resulting in the total of our unrestricted net assets. The statement of activities includes how much money we've earned (our revenue) and subtracts how much we've spent (our expenses), resulting in how much we've made money (our profits) or lost money (our deficits). Basically, the statement includes total sales minus total expenses. It presents the nature of our overall profit and loss over a period of time. Therefore, the Income Statement gives us a sense for how well the nonprofit is operating. 2. Balance Sheet: Whereas the statement of activities depicts the overall status of our profits (or deficits) by looking at income and expenses over a period of time, the balance sheet depicts the overall status of our finances at a fixed point in time. It totals our all assets and subtracts all our liabilities to compute your overall net worth (or net loss). This statement is referenced particularly when applying for funding.

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During my internship, Ive analyzed the following Companies financial data: Prakash Constrowell Limited, ASIS, Vidhata Metal Pvt. Ltd., B.B. Foods Pvt. Ltd., G.S. Syal & company, Perfect Boring Pvt. Ltd., Spring City Centre (TRV) Pvt. Ltd., Indian Technomac Company Limited (ITCOL), Shree Vinayaka Mission Medical & Education Society, Infant Jesus Educational Trust, SAV Wires Pvt. Ltd., Swiss Ribbons Pvt. Ltd., M/S Suraj Foundry,

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FINANCIAL STATEMENT ANALYSIS OF PRAKASH CONSTROWELL LIMITED

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FINANCIAL STATEMENTS OF PRAKASH CONSTROWELL LIMITED

PROFIT AND LOSS A/C Mar ' Particulars 12 Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 158.85 141.03 1.88 5.42 148.33 10.52 2.09 12.61 2.18 0.43 10 3.03 6.98 -0.6 -0.17 6.21 28.32 28.32 Mar ' 11 126.89 107.73 0.63 3.62 111.98 14.91 1.24 16.15 1.57 2.47 12.11 3.25 8.86 -0.27 0.56 9.16 27.32 27.32 (Rs. In crores) Mar ' Mar ' 09 08 62.21 57.75 0.23 0.51 58.5 3.71 1.39 5.1 0.41 2.72 1.97 0.36 1.62 -0.47 1.14 9.27 9.27 27.46 22.34 0.33 0.65 23.32 4.13 0.39 4.52 0.27 2.6 1.65 0.25 1.4 -0.17 1.23 6.33 6.33 Mar ' 07 36.56 31.32 0.35 0.49 32.16 4.4 0.16 4.56 0.35 2.54 1.68 0.67 1 -0.27 0.74 3.3 3.3

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BALANCE SHEET

Mar ' Mar ' Particulars 12 11 Sources of funds Owner's fund: Equity share capital 12.57 8.22 Share application money Preference share capital Reserves & surplus 83.98 22.31 Loan funds: Secured loans 15.11 10.34 Unsecured loans 0.05 Total 111.65 40.92 Uses of funds Fixed assets Gross block 4.17 3.26 Less : revaluation reserve Less : accumulated depreciation 1.8 1.54 Net block 2.37 1.72 Capital work-in-progress Investments 4.42 0.08 Net current assets Current assets, loans & advances 140 70.24 Less : current liabilities & provisions 35.15 31.11 Total net current assets 104.85 39.12 Miscellaneous expenses not written Total 111.65 40.92

(Rs. In crores) Mar ' Mar ' Mar ' 09 08 07

0.41 12.51 5.28 0.15 18.36

0.41 9.58 2.28 0.16 12.42

0.41 6.54 1.84 0.15 8.94

4.54 1.01 3.52 0.62 42.7 28.48 14.22 18.36

5.17 0.72 4.44 0.62 15.02 7.66 7.36 12.42

5.09 0.55 4.54 0.51 12.57 8.67 3.9 8.94

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RATIO ANALYSIS LIQUIDITY GROUP

1) Current Ratio: Formula 2011-12 Current Assets/Current 3.98 Liabilities 2010-11 2.26 2008-09 1.5 2007-08 1.96 2006-07 1.45

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 Series1

Significance: This ratio is calculated for knowing short term solvency of the organization. This ratio indicates the solvency of the business i.e. ability to meet the liabilities of the business as and when they fall due. The Current Assets are the sources from which the current liabilities are to be met. Certain authorities have suggested that in order to ensure solvency of concern current assets should be twice the current liabilities and therefore this ratio is known as 2:1 ratio. However it depends upon the nature of industry. The standard Current Ratio applicable to the Indian industries is 1.33:1. Here the Current Ratio of Prakash Constrowell Ltd indicates that it has got sufficient assets to pay off short term liabilities as and when they fall due. The company has maintained its short term solvency throughout the years and it is improving its short term solvency status which is appreciable.
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2) Acid Test Ratio: Formula Liquid Assets/Liquid Liabilities 2011-12 3.15 2010-11 1.46 2008-09 1.35 2007-08 1.76 2006-07 1.25

3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 Series1

Significance: This ratio serves as a realistic guide to the short term solvency of the company. It is a measure of the extent to which liquid resources are immediately available to meet current obligation. In so far as it eliminates inventories as part of current ratio, this is a more rigorous test of liquidity than the Current Asset Ratio and when used in conjunction with it, gives a better picture of the firms ability to meet its short term debts out of its short term assets. An Acid Test Ratio of 1:1 is considered to be ideal and standard. Here the Acid Ratios of Prakash Constrowell Ltd throughout the years considered indicates that it has adequate assets which can be converted in the form of cash almost immediately to pay off those liabilities which are to be paid off immediately. It must be remembered that the company is improving its Acid Test Ratio year by year at a fluctuating rate which is appreciable as such higher the liquid ratio better the situation
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TURNOVER GROUP
1) Working Capital Turnover Ratio: Formula Net Sales /Working Capital 2011-12 1.52 2010-11 3.24 2008-09 4.38 2007-08 3.73 2006-07 9.37

10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 Series1

Significance: This ratio signifies achievement of maximum sales with less investment in working capital. As such higher the ratio better will be the situation. The financial year 2006-07 saw excellent ratio as the company was able to achieve maximum sales with less investment in working capital which shows better working capital management policy. It must be remembered that working capital ratio has been falling throughout the years due to rise in Current Assets but the financial year 2006-07 has maintained the ratio.

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2) Current Assets Turnover Ratio:

Formula Net Sales / Current Assets

2011-12 1.14

2010-11 1.81

2008-09 1.46

2007-08 1.83

2006-07 2.91

3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 Series1

Significance: This ratio indicates capability of the organization in efficient use of current assets. This ratio indicates whether current assets are fully utilized. It indicates the sales generated per rupee of investment in current assets. The financial year 2006-07 had good Current Asset turnover ratio because in this year, Company has good Net Sales compared to the Current. It must remember that investments in current assets are increasing year by year.

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3) Capital Turnover Ratio: Formula Net Sales / Capital Employed 2011-12 1.42 2010-11 3.1 2008-09 3.38 2007-08 2.21 2006-07 4.09

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 Series1

Significance: This ratio indicates whether capital employed is turned over in the form of sales more number of times. As such higher the capital turnover better will be situation. The financial year 2006-07, 2008-09, and 2010-11 had acceptable ratio because it had better sales as compared to Capital Employed. Due to increase in Net Current Assets, the capital turnover ratio for 2011-12 came down as compared previous years.

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4) Inventory Turnover Ratio: Formula Net Sales / Average Inventory 2011-12 5.44 2010-11 5.19 2008-09 14.57 2007-08 18 2006-07 20.78

25 20 15 Series1 10 5 0 1 2 3 4 5

Significance: It is an indication of the velocity with which merchandize moves through the business. This is a test of inventory to discover possible trouble in the form of overstocking or overvaluation. A low inventory turnover may reflect dull business, overinvestment in inventory or accumulation of absolute and unsaleable goods. A high inventory turnover indicates relatively lower amount of working capital locked in inventories. The financial year 2006-07 had excellent inventory turnover ratio locking up smaller part of funds in inventory. The company had low inventory turnover ratio for the year 2010-11 thus indicating over investment in inventory but it has minor improved in the financial year 2011-12 indicating less investment in inventory as compared to last year.
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SOLVENCY GROUP
1) Debt- Equity Ratio: Formula 2011-12 External Liabilities / 0.15 Shareholders Fund
0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 1 2 3 4 5 Series1

2010-11 0.34

2008-09 0.42

2007-08 0.24

2006-07 0.28

Significance: It is a measure of financial strength of a concern. Lower the ratio greater the security available to the creditors. A satisfactory current ratio and ample working capital may not always be a guarantee against insolvency if the total liabilities are inordinately large. The purpose of this ratio is to derive an idea of the amount of capital supplied by the owners and of assets cushion available to creditors on liquidation. Generally 1:2 ratio is acceptable, but the ratio of at least 1:1 is desirable as banks even do accept this. The greater the interest of the owners as compared with that of the creditors, the more satisfactory is the financial structure of the business because in such a situation the management is less handicapped by interest charges and debt repayment requirements. A company having a stable profit can afford to operate on a relatively high debt-equity ratio. Too much reliance on external equities may indicate undercapitalization, whereas too much reliance on internal equities may lead to over-capitalization.
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2) Proprietary Ratio: Formula Owners Fund *100/ Total Assets 2011-12 86.48% 2010-11 74.61% 2008-09 70.37% 2007-08 80.44% 2006-07 77.74%

100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 Series1

Significance: This ratio is normally a test of strength of credit-worthiness of the concern. To the extent the percentage of liability increase or the percentage of capital dwindles, the credit strength of the concern deteriorates. A high proprietary ratio is however a frequently indicative of over-capitalization and an exercise investment in fixed assets. A low proprietary ratio on the other hand is a symptom of undercapitalization and an excessive use of creditors funds to finance the business. The financial year 2011-12 had good proprietary ratio as it indicates assets are financed to the extent of 86% by the owners funds and the balance is financed by the outsiders. The year 2008-09 had fall in proprietary ratio but in the year 2010-11 the company has improved due to rise in reserve and surplus due to appreciable profits in the last financial year.

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3) Fixed Assets Ratio: Formula Fixed Assets *100/Capital Employed 2011-12 2.12% 2010-11 4.2% 2008-09 19.17% 2007-08 35.75% 2006-07 50.78%

60 50 40 30 20 10 0 1 2 3 4 5 Series1

Significance: Normally a proprietor should provide all the funds required to purchase fixed assets. If the capital employed ratio exceeds 100%, it indicates that the company has used short-term funds for acquiring fixed assets, which policy is not desirable. When the amount of proprietor funds exceeds the value of fixed assets i.e. when the percentage is less that 100, a part of the net working capital is supplied by the shareholders, provided that there are no other non-current assets. Though it is not possible to lay down a rigid standard as regards the percentage of capital which should be invested in fixed assets in each industry there always is a maxim which should not be exceeded so that the harmony among the fixed assets, debtors and stock is not disturbed. The ratio should generally be 65%. It should be remembered that all of the financial years studied had Fixed Assets ratio below 65% which also suggest that the company had equally funded for working capital for current assets through long term funds which has been accepted principle of financial management.
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PROFITABILITY RATIO
1) Gross Profit Ratio: Formula Gross Profit*100/ Sales
12 10 8 6 4 2 0 1 2 3 4 5 Series1

2011-12 6.35%

2010-11 9.8%

2008-09 1.6%

2007-08 5.58%

2006-07 5.08%

Significance: A high gross profit ratio as compared with that of the other firm in the same industry implied that the firm in question produces its products at lower cost. It is a sign of good management. A low gross profit ratio may indicate unfavorable purchasing and make-up policies, the inability of management to develop sales volume, theft, damage, bad maintenance, market reduction in selling prices not accompanied by proportionate decrease in the cost of goods etc. The companys Gross Profit in the financial year 2010-11 is extremely good but in the year 2011-12 it goes down due to increase in the manufacturing expenses.

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2) Net Profit Ratio: Formula 2011-12 Net Profit* 100/ Sales 3.85% 2010-11 8.2% 2008-09 4.62% 2007-08 10.89% 2006-07 6.9%

12 10 8 6 4 2 0 1 2 3 4 5 Series1

Significance: This ratio differs from the ratio of operating profits to net sales in as much as it is calculated after adding non-operating incomes, like interest, dividends on investments etc to operating profits and deducting non-operating expenses such as loss on sale of old assets, provisions for legal damage etc. from such profits. The ratio is widely used as a measure of over-all profitability and is very useful to the proprietors. Reading along with the operating ratio it gives an idea of the efficiency as well as profitability of the business to a limited extent. The companys Net Profit in the financial year 2007-08 is extremely good but in the year 2008-09, it goes down due to increase in the manufacturing expenses.

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OVER PROFITABILITY GROUP

1) Return on Capital Employed: Formula PAT + Int. *100/ Capital Employed
25 20 15 10 5 0 1 2 3 4 5 Series1

2011-12 6.25%

2010-11 21.65%

2008-09 8.82%

2007-08 11.27%

2006-07 11.19%

Significance: Return on capital employed measures the profitability of the capital employed in the business. A high business return on capital employed indicates better and profitable use of long term funds of owners and creditors. As such a high return capital employed will always be preferred. The company has shown the declining trend in the return on capital employed due to rise in Reserve & Surplus.

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CONCLUSION
The Current Ratio of Prakash Constrowell Ltd indicates that it has got sufficient assets to pay off short term liabilities as and when they fall due. The company has maintained its short term solvency throughout the years and it is improving its short term solvency status which is appreciable. The company is improving its Acid Test Ratio year by year at a fluctuating rate which is appreciable as such higher the liquid ratio better the situation. The working capital ratio has been falling throughout the years due to rise in Current Assets but the financial year 2006-07 has maintained the ratio. The financial year 2006-07 had good Current Asset turnover ratio because in this year, Company has good Net Sales compared to the Current. It must remember that investments in current assets are increasing year by year. The financial year 2006-07, 2008-09, and 2010-11 had acceptable ratio because it had better sales as compared to Capital Employed. Due to increase in Net Current Assets, the capital turnover ratio for 2011-12 came down as compared previous years. The financial year 2006-07 had excellent inventory turnover ratio locking up smaller part of funds in inventory. The company had low inventory turnover ratio for the year 2010-11 thus indicating over investment in inventory but it has minor improved in the financial year 2011-12 indicating less investment in inventory as compared to last year. A company having a stable profit can afford to operate on a relatively high debt-equity ratio. Too much reliance on external equities may indicate undercapitalization, whereas too much reliance on internal equities may lead to over-capitalization.

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 The financial year 2011-12 had good proprietary ratio as it indicates assets are financed to the extent of 86% by the owners funds and the balance is financed by the outsiders. The year 2008-09 had fall in proprietary ratio but in the year 2010-11 the company has improved due to rise in reserve and surplus due to appreciable profits in the last financial year. All of the financial years studied had Fixed Assets ratio below 65% which also suggest that the company had equally funded for working capital for current assets through long term funds which has been accepted principle of financial management. The companys Gross Profit in the financial year 2010-11 is extremely good but in the year 2011-12 it goes down due to increase in the manufacturing expenses. The company has shown the declining trend in the return on capital employed due to rise in Reserve & Surplus. The companys Net Profit in the financial year 2007 -08 is extremely good but in the year 2008-09, it goes down due to increase in the manufacturing expenses.

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REFERENCING
Following books were referred for carrying out the project: Financial Management: M Y Khan/ P K Jain Financial Management: I M Pandey Financial Management: Praveen Sharma

Annual Reports of Respective Companies of 3 to 5 years. C.A. Journals of 2010 year Websites: http://www.slideshare.net/hemanthcrpatna/a-project-report-on-financial-statementanalysis http://en.wikipedia.org/wiki/Financial_statement_analysis http://www.scribd.com/doc/19029040/Project-Financial-Statement-Analysis

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