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An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

CHAPTER 1
INTRODUCTION
Finance is one of the basic foundations of all kinds of economic
activities. It is the master key which provides access to all the sources
for being employed in manufacturing and merchandising activities. It
has rightly being said that business needs money to make more
money. However it is also true that money generate more money, only
when it is properly managed. Hence, efficient management of every
business enterprise is closely linked with the efficient management of
its finance. Financing of a firm means providing money for
investment in the form of fixed assets and also in the form of working
capital for day to day operations.
Business finance mainly involves, rising of funds and thus effective
utilisation keeping in view the overall objective of the firm. This
requires great caution and wisdom on part of management. The
management makes use of various financial techniques, devices etc
for administering the financial affairs of the firm in most efficient
way.

Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

CHAPTER 2

STATEMENT OF THE PROBLEM


An analysis of financial statements of The Co-operative Spinning
Mills is selected to analyse the financial and operational performance
of the company which is facing some difficulty in managing the
funds, assets and experience in recent years. The study is to be
conducted to evaluate the performance and market standing of the
company in order to give better scope to investors, shareholders,
creditors and the management themselves about the rating of the
company and its performance in the market.

Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

OBJECTIVES
To ascertain the liquidity of the company.

To measure the profitability of the organization.

To examine the factors effecting financial and operational


performance.

To analyse the present financial positions as well as the future.

To measure the efficiency of management in administering /


monitoring the assets of the company.

Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

CHAPTER 3
THEORETICAL PERSPECTIVE

Financial Statements
The information generally expected from an accounting system is
presented through financial statements. Financial statements are the
result of accounting process, which starts with identification of
accounting information and recording thereof in the books of primary
entry. A financial statement is a collection of data organized according
to the logical and consistent accounting procedure. Financial
statements are prepared for the purpose of presenting a periodical
review or report on the progress by the management and deal with
(a)
(b)

The status of investment in business and,


The result achieved during the period under review.

The term financial statement generally refers to the two statements,


1. Income statement or The Trading and P&L account.
2. Position Statement or the Balance Sheet.

The statement which discloses status of investments


is known as Balance Sheet and the statement which reflects the result
Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

of operation is known as Profit & Loss account. The statements are


used to convey to the owners and other interested outsiders, the
profitability and financial position of a firm.

Uses of Financial Statements


1) Management
Management refers to the process of
getting things done through others. This requires that the
subordinates are doing work properly.

2) Creditors
The creditors supply goods and services
on credit to the firm. They are interested in knowing firms
short term financial positions, i.e., whether firm will be able
to pay off their debts on demand.

3) Bankers
The banker is interested to see that the
loan amount is secure and the customer is also able to pay the
interest regularly. The bankers analyse the balance sheet to
determine the financial strength and profit earning positions
of the concern.

4) Employees
Employees are interested in the
financial position of a concern in which they work,

Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

particularly when the payment of bonus depends upon the


size of profit earned.

5) Investors
6) Government
7) Research Scholars
8) Consumers
9) Trade Association
10) Stock Exchange

Financial Analysis
Financial Statement analysis is the most important part of
Financial Analysis. It is based on statements, which are the end
product of accounting system. It is based on statement analysis. It is
largely a post-mortem of the transactional activities of a business
Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

firm, as recorded in the account books so as to judge the operational


ability, profitability and financial soundness.

The important methods of financial analysis are:


1) Comparative Financial Statements:The comparative financial statements are
statements of the financial position of different periods of time.
The elements of financial position are shown in a comparative
form so as to give an idea of financial position at two or more
periods.
2) Trend Analysis:The financial statements may be analysed by
computing trends of series of information. This method
determines the direction upward or downward and involves the
computation of the percentage relationship at each statement
item bears to the same item in the base year.

3) Common Size Statement:In common size statements, balance sheets


and income statements are shown in analytical percentages. The
figures are shown as percentage of total assets, total liabilities
and total sales.
4) Fund Flow Analysis:Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

Fund flow Analysis studies the changes in


the corporate financial management methods and to improve the
quality of the diagnosis of the economic health of an enterprise
so that the quality of economic management improves year after
year.
5) Cash Flow Analysis:Cash flow analysis is based on the cash flow
statement, which describes the inflow and outflows of cash and
cash equivalents in an enterprise during a specific period of
time.
6) Ratio Analysis:Ratio Analysis is technique of analysis and
interpretation of financial statements. It is the process of
establishing and interpreting various ratios for helping in
making certain decisions.

CHAPTER 4
INDUSTRY PROFILE
Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

The size of the textile industry in Kerala is rather than


compared to the rest of the country. It comprises of around 30 textiles
as against a total of 1767 textile mills in the country. The textile
industry of Kerala comprises handloom, power loom and the mill
sector.
Handloom is the major traditional industry in the state.
Among the mills there are 40 power loom co-operative and 170
private units in the states concentrated in Kannur, Eranakulam,
Thrissur and Trivandrum districts. Capacity of 500 looms providing
employment to 3000 personnel.

Above 30 mills, 18 come under the government sector,


comprising 5 in the central public sector, 7 in the state public sector, 5
in the co-operative sector and 1 in the joint sector.

Most of the mills in central and state public sector are units taken
over from the private sector at different times, when they turned sick.

Central Conditions Of The Textile Mill


The public sector units in the textile sector were mainly
engaged in the activities of yarn manufacturing. The 9 units including
the four companies around 7979 personnel and accounts for 10% of
total employment in enterprises under industries department.

Major Problems of Textile


1) Cotton exports & Price.
2) Delay in cotton yarn exports.
Sree Narayana College Of Technology and Research Centre

An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

3) Lack of modernisation.
4) Non-availability of credit.
5) Increase in cost of production.
6) Low productivity.
7) Power problems.

Company Profile
Aleppey Co-operative Spinning Mills registered
on 21-7-1981 by number D/7934/81 was commissioned on 3110-1999 with capacity of 6000 spindles. The commissioning had
done after a long lapse of 18 years because of financial crisis.
The government acquired 7.9 hectare i.e., 19.5 c of land in
Pathiyoor Village, Kareelakulangara, Kayamkulam in Aleppey
District with an estimated value of 26.9 lakhs. The project report
was prepared by the All India Federation of Co-operative
Spinning Mills ltd Bombay with an ultimate capacity of 25000
spindles. The total cost of the project was Rs 1136 lakhs
(due to financial stringency the project has to be curtained to
of its proposed stage of its full fledged capacity). The second
stage towards commissioning of this mill for another 6048
spindles is in progress even though sluggishly. The third phase
towards coming of the balance 12000 and old spindles will be
launched only after the second phase is commissioned.
The initial membership if the society was 34 members
and was registered as a Public Ltd Company in the co-operative
sector.
At first mill was registered as a co-operative society under
Kerala Co-operative Societies Act 1969.
The board of Directors shall compete to delegate the power
and duties of the Chairman, General Managers or any other
officer of the mill for the efficient management of the business
of the mill.
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An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

Methodology
Research Methodology
Research methodology means the scientific method of
conducting a research. It is the research which can be selected
for conducting a study according to nature and scope of the
subject. The result of the research is capable of being evaluated
either by the researcher himself or by others. Both primary and
secondary data are used for the project work.

Collection of Data
Primary Data: for this project work primary data are collected
through discussion with staff and conducting personal interview
with the higher level official especially with the financial
manager.
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An analysis of the financial statements of The Co-operative Spinning Mills Aleppey

Secondary Data: the secondary data used are mainly published


audited financial statements of the past 5 years ( ), periodical
journals and some daily reports of the company.

Analysis and Interpretation:


This study is extended to analyse the financial statement of the
company. For analysing the solvency, liquidity and profitability
of the company. For this the researcher used two important
methods i.e., Ratio Analysis and Comparative Statement. For the
meaningful and successful completion of the projectwork tables
and graphs are used.

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