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INTRODUCTION
These are prepared at the end of a given period of time. They are
the indicators of profitability and financial soundness of the business concern.
The term financial analysis is also known as analysis and interpretation of
financial statements. It refers to the establishing meaningful relationship
between various items of the two financial statements i.e. Income statement and
Position statement. It determines financial strength and weakness of the firm.
Analysis of financial statements is an attempt to assess the efficiency and
performance of an enterprise. Thus, the analysis and interpretation of financial
statements is very essential to measure the efficiency, profitability , financial
soundness and future prospects of the business units. Financial analysis serves
the following purposes.
Measuring the Profitability
RESEARCH METHODOLOGY
Primary data
Secondary data
PRIMARY DATA
3. From the people who are directly involved with the transaction of
the firm.
Secondary data
Study has been taken from secondary sources i.e. published annual
reports of the company editing, classifying and tabulation of the financial data.
For this purpose performance data of BHEL for the years 2007-2008 to 2009-
2010 has been used.
Scope of study
The scope and period of the study is being restricted to the following.
2. The information is obtained from the primary and secondary data was
limited to the BHEL.
3. The profit and loss, the balance sheet was on the last six years.
2. As most of the data is from the secondary sources, hence the accuracy is
limited.
CHAPTER – 2
The vital role played by the BHEL today in the country is the mark of
it continuous efforts to improve the service in the nation by consultancy,
manufacturing and offering services in power sector.
This success story of BHEL however goes back to 1956 when its first
plant was set up in BHOPAL. Three more major plants followed in
HARIDWAR, HYDERABAD and THIRUCHIRAPALLI flowed this. These
plants have been the core of BHEL’S efforts to grow and diversify and become
one of the most integrated power and industrial equipment manufacturers in the
world. The company now has 14 manufacturing units,8 service centres and 4
power sector regional centres, besides project sites spread all over India and
abroad.
VISION:
MISSION:
VALUES:
5. Team playing.
6. Zeal to excel.
GROWTH:
PROFITABILITY:
TECHNOLOGY:
IMAGE:
STRENGTH’S
WEAKNESS
4. No financial package
THREATS
4. Poor infrastructure.
PRODUCTS OF BHEL
BHEL manufactures a wide range of power plant equipments and also caters
to the industry sector.
1. Gas turbines
2. Steam turbines
3. Compressors
4. Turbo generators.
5. Pumps
6. Pulverizes
7. Switchgears
8. Oil rigs
10.Telecommunication.
CHAPTER - 3
INTRODUCTION TO FINANCE:
PRODUCTION
MARKETING
FINANCE
FUNCTION:
2. To access the performance of the BHEL on the basis of earnings and also
to evaluate the solvency position of the company.
5. Informed decision.
SCOPE OF THE STUDY:
2. The information obtained from the primary and secondary data was
limited to the BHEL
4. The profit and loss, the balance sheet was on the last 3 years.
METHODOLOGY:
1. PRIMARY DATA
2. SECONDARY DATA
3. From the people who are directly involved with the transaction of the
firm.
Study has been taken from secondary sources i.e. published annual
report of the company. Editing. Classifying and tabulation of the
financial data for this purpose performance data of BHEL or the
yeary2007-2008 to 2009-2010 have been used.
CHAPTER - 4
(A)DEFINITIONS:
The financial statements are mirrors which reflect the financial position and
operating strength’s or weaknesses of the concern. These statements are useful
to management, investors, creditors, bankers, workers, government and public
at large. George O May points of the following measure used of financial
statements:
1. Potential investors
3. Debenture holders
5. Employee customers who wish to make along standing contact with the
company.
7. Members.
(G)ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS:
1. A balance sheet
2. An income statement
The term owners equity refers in the claims of the owners of the
business against the assets of the firm. It consist of two elements.
1. Paid up share capital i.e. the initial amount of funds invested by the
shareholders.
The basic financial statement i.e. the balance sheet and profit and loss
account and income statement of a business reveals the net effect of various
transactions on the operational position of the company. But there are many
transactions that do not operate through profit and loss account. Those for a
better understanding another statement of changes in financial position has to be
prepared to show the changes in assets and liabilities from the end of another
point of time. The statement of changes in financial position may take any of
the two forms. They are:
Funds statements
Absolute figures
Trend percentages:
RATIO ANALYSIS:
Liquidity ratio
Profitability ratio
Activity ratio.
1. Current ratio
3. Cash ratio
2. ACID TEST/QUICK RATIO: the acid test ratio is the ratio between quick
current assets and current liabilities and calculated by dividing the quick assets
by current liabilities. Quick assets mean those which can be converted into cash
immediately by exclusion of inventory and prepaid expenses from current
assets.
2. Proprietary Ratio
2.Propreitary ratio: It expresses the relationship between the net worth and
total assets. A high proprietary ratio is indicative of strong financial position of
business.
Capital Gearing Ratio = funds bearing fixed interest and fixed dividend/equity
. share holder’s funds
5.Interest Coverage Ratio: This ratio is called as “debt service ratio”. This
ratio indicates whether a business is earning sufficient profits to pay the interest
charges. It is calculated as
Generally greater the ratio, the better is the servicing ability of company.
PROFITABILITY RATIO: Profitability ratios measure the profitability
of a company. Generally they are calculated either in relation to sales or
in relation to investments. The various profitability ratios are discussed
under the following heads.
1.Gross Profit Ratio: Gross profit is one of the most commonly used ratios. It
reveals the result of trading operations of the business. In other words, it
indicates to us the profitability of the business. It is calculated as
Generally the higher the ratio, the better will be the performance of the
company.
5.EXPENSES RATIO: Expenses ratios are the ratios that supplement the
information given by the operating ratio. Each of the expense rations highlights
the relationship given by the particular expense and net sales. For example,
factory expenses ratio is of factory expenses to net sales any expenditure can be
shown as a ratio to sales. All such ratios fall under the broad head of expenses
ratios.
ROA=PAT/TOTAL SALES
Generally from investors point of view, the higher the ratio, the happier the
investor.
Generally higher the book value of the share, the more strong the business is
assumed to be.
ACTIVITY RATIO: Activity ratios measures the efficiency or
effectiveness with which a firm managers its resources or assets. They
calculate the speed with which various assets, in which funds are blocked
up, get converted into sales. The significant activity or turnover ratios are
2.DEBTORS TURN OVER RATIO: Debtors Turn Over Ratio expresses the
relationship between debtors and net credit sales. It is calculated as
Generally the ratio between 10-12 an ideal value for the company.
3.CREDITORS TURN OVER RATIO: Creditors turn over ratio expresses the
relationship between creditors and net credit purchases. It is calculated as
5.Fixed Assets Turn Over Ratio: It is Defined as ratio of Net Sales to the
Fixed Assets.
Generally higher the ratio, the greater is the ability of the firm to utilize the
investments in the business.
CHAPTER – 5
DATA ANALYSIS AND INTERPRETATION
TABLE – 1
Interpretation –
The ideal ratio for the concern is 2:1 i.e. current assets doubled
for the current liabilities considered to be satisfactory. The current ratio of
BHEL is less than ! .Thus it has to maintain its efficient current assets.
CHART – 1
800000
700000
600000
500000
200000
100000
0
TABLE – 2
Interpretation -
The ideal quick ratio is 1:1 which is considered satisfactory for the
concern. The company is maintaining the ratio above the standard norm , thus
the management of BHEL is label to meet its current obligations.
CHART – 2
600000
500000
400000
100000
0
Table -3
Interpretation -
350000
300000
250000
200000
Net working capital
150000
Capital employed
100000
50000
0
table - 4
The debt equity ratio has been increasing over the years and it
has been maintained at a level of .62 for the financial year 2009-10
Chart – 4
3500
3000
2500
2000
Total debt
1500
Equity
1000
500
0
Table - 5
Interpretation -
Generally financially well managed company will have its fixed assets financed
by long term funds. There fore , the fixed assets ratio should never be more than
!.A ratio of .67 is considered ideal. The results for BHEL is much less at 0.11
Chart – 5
350000
300000
250000
200000
Fixed Assets
150000
Capital employed
100000
50000
0
Table - 6
Interpretation -
100%
90%
80%
70%
60%
50%
Interest
40%
PBIT
30%
20%
10%
0%
Table – 7
Gross profit
year Gross profit Net sales Ratios
2004-05 13500 153205 0.088
2005-06 13420 137838 0.097
2006-07 15821 174490 0.07
2007-08 33122 174668 0.189
2008-09 60867 267217 0.227
2009-10 63290 289241 0.218
2010-11 68916 310235 0.2224
2011-12 68478 414816 0.165
2012-13 86483 500342 0.172
2013-14 130330 665323 0.196
Interpretation -
Generally the higher gross profit ratio , the better for the
performance of the concern .In BHEL , the company has started to increase
from the year on year which is a very good sign for the company.
Chart – 7
700000
600000
500000
400000
Gross profit
300000
Net sales
200000
100000
0
Table – 8
Operating ratio
year Operating cost Net sales Ratios
2004-05 131006 153205 0.85
2005-06 116708 137838 0.84
2006-07 149823 174490 0.85
2007-08 136630 174668 0.78
2008-09 201962 267217 0.75
2009-10 221227 289491 0.76
2010-11 234677 310235 0.76
2011-12 338382 414816 0.81
2012-13 404647 500342 0.8
2013-14 524531 665323 0.79
Interpretation -
Generally the lower the Operating Cost , the better for the concern. The ratio
should be below1 which is satisfactory for the concern.
Chart – 8
700000
600000
500000
400000
Operating cost
300000
Net sales
200000
100000
0
Table – 9
Interpretation -
The higher the ROCE ratio , the better for the concern. The company
has been keeping up the good performance is increasing at the rapid phase
which in turn is a good sign for the company.
Chart – 9
350000
300000
250000
200000
PBIT
150000
Capital employed
100000
50000
0
Table - 10
Interpretation -
The BHEL`s debtor turnover ratio was below 2 .Its has bee increasing since
2008-09 from 1.44 to 1.53 in 2009-10, the increasing trend Implies the efficient
management of Debtor and credit sales.
Chart - 10
700000
600000
500000
400000
Net credit sales
300000
Average debtors
200000
100000
0
Table - 11
Interpretation -
Interpretation : The BHEL`s creditors Turn Over Ratio is at 0.68 , it has been on
the increasing trend since past two financial years. The management should try
to reduce this by adopting proper payment policies.
Chart – 11
120000
100000
80000
20000
0
Table - 12
Interpretation -
At high fixed assets turnover ratio indicates better utilization of the firms fixed
assets. A ratio around 5 is considered ideal for the concern .In BHEL it is more
than 22.This is a very good sigh for the company.
Chart -12
700000
600000
500000
400000
Net sales
300000
Fixed assets
200000
100000
0
Table -13
Interpretation -
The Total Assets turnover ratio of the BHEL is below 1 . This shows greater
ability of the firm to utilize the investment in the business
Chart – 13
3500
3000
2500
2000
Total debt
1500
Equity
1000
500
0
Comparative income statement 2009-2010 and 2010-11
DESCRIPTION
2009-10 2010-11 increase/decrease increase/decrease
DESCRIPTION
2008-09 2009-10 Increase/Decrease Increase/Decrease%
1. The net working capital was Rs 91021 lac’s in 2000-2001. This decreased
to Rs 82663 lac’s in the year 2001-2002. In the year 2006-2007 the net
working capital is Rs 67193 lac’s.
2. The current ratio of BHEL was 2.41 in the year 2000-2001. There was
decrease in the ratio up to the year 2007-2008. The ratio is decreasing
year by year. But the BHEL is maintaining current ratio more than the
standard norms of 2.
3. The organization is able to maintain both current ratio and quick ratio
above the standard norms. i.e. the ideal current ratio for the concern is 2:1
and the quick ratio is 1:1 but the cash ratio is fluctuating.
7. The debtors turnover ratio has decreased from the year 2001-2002 to
2002-2003. It was 2.10 in the year 2003-2004. There was decrease in
debtors turnover ratio till the financial year.
CONCLUSIONS:
1. The current ratio of BHEL is decreasing year by year . In the year 2004-
2005 it was 2.41 and during the year 2010-2011 it has gone down to 1.2
later in the next financial year 2011-2012 it has gone up to 1.46, so the
company should concentrate effectively on the management of Current
Assets and Current Liabilities.
2. The Net Working Capital of BHEL is good for almost in range for each
and every year. It is always in the ideal ratio for every organization.
4. The debtors constitute nearly 50% of the Total Current Assets. For the
Company it is difficult to manage the accounts receivables. The company
should collect debts as quickly as possible.
6. The debtors turn over ratio in 2005-2006 is 1.97. the ratio has increased
than previous years except for 2003-2004, which had 2.10. the decreasing
ratio shows the inefficient management. They should concentrate more on
the collection of the debts.
http://www.bhel.com/financial_information/index.php
http://www.studyfinance.com/lessons/workcap
www.bizsearchpapers.com
http://www.antiessays.com/free-essays/9076.html
http://www.bhelhyderabad.com/bhel_hyderabad_unit.htm
http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited