Jitendra Virahya s

JVIRAHYAS@GMAIL.COM

A Project Study Report On

Training Undertaken at

FINANCING WORKING CAPITAL OF MODREN INSULATORS LTD.

Submitted in partial fulfillment for the Award of degree of Master of Business Administration

Submitted By: -

Submitted To:-

( 2009-2011 )

Deepshikha Collage Of Technical Education, Jaipur

2

DECLARATION

Xxxxx D/O xxxx declares that the project report titled Working Capital is based on my project study. This project report is my original work and this has not been used for any purpose anywhere.

xxx

MBA III Sem (II Year)

Preface

1. The Indian insulator industry has evolved into the production and manufacturing of blocks, MODERN INSULATOR Ltd. was established in 1985 by group to help serve increasing national and international insulator for India. Since then they have enjoyed exponential growth and export to many markets worldwide. 2. While doing financial analysis of the company i collected the last two years financial statements of the company, understood the various financial statements, understood the various tools and techniques available for analysis, made notes of various financial data required for doing analysis, analyzed the data collected and made interpretations. I collected data from Internet and magazines. I got guidance from faculty as well as corporate guide.

Executive SummaryThe project report on Financial analysis is submitted to the Company, modern insulator ltd. aburoad and the Institute, DEEPSHIKHA COLLAGE OF TECHNICAL EDUCATION , JAIPUR. Financial statements are prepared by the company for the purpose of presenting a periodical review or report on the progress by the management. It also deals with the status of investments in the business, and the results achieved during the period under review, thus conveying an understanding of financial aspects of a business firm. The financial statements based on accounting policies, vary from enterprise to enterprise, and must be clear and understandable. The disclosure of these policies should be an integral part of the statements; it is helpful to users if they are all disclosed at one place. Analysis of these financial statements is an essential step towards gaining an in depth understanding of a business.

Acknowledgement

I express my sincere thanks to my project guide, DR. D, Lecturer, Deptt_MBA., for guiding me right form the inception till the successful completion of the project. I sincerely acknowledge her for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support she had provided to me with all stages of this project. I would also like to thank Mr. J. Virahyas, the supporting staff of MODREN INSULATOR Ltd. for their help and cooperation throughout our project.

xxxxx MBA 3rd Semester 6

Contents
1. Introduction to the Industry 2. Introduction to the Organization 3. Research Methodology 3.1 Title of the Study 3.2 Duration of the Project 3.3 Objective of Study 3.4 Type of Research 3.5 Data Collection 3.6 Scope of Study 3.7 Limitation of Study 4. Facts and Findings 5. Analysis and Interpretation 6. SWOT 7

7. Conclusion 8. Recommendation and Suggestions 9. Appendix 10. Bibliography

.INTRODUCTION TO THE INDUSTRY

Although pottery and ceramic industry is of prehistoric origin in india the HT Insulator industry has a recent org. The first unit was set up in the fifties at Bangalore. Some units were set up in the sixties but the main expansion of the industry took place inthe seventies. The HT Insulators are used in electrical transmission lines, substations and electrical equipment. Different types of insulators are used for each application .There has been up gradation of transmission voltage and plans are afoot to install 765 KV AC transmission lines. The industry would need to develop and produce HT Insulators of higherratings for transmission lines, substations and equipment. There are 14 units manufacturing electro porcelain high tension insulators. Two of these units are in small scale sector. These have installed capacity of 85,050 tone per annum. One small scale and one organized sector unit have stopped production of insulators. The capacity of these two units are 5000 tone per annum. demand and average production of the HT Insulators during the last nine years have been around 31,000 tone per annum. More than 60% of the installed capacity is lying idle with the industry due to lack of domestic demand. With the implementation of the approved projects, the unutilized capacity would increase from 60,000 tone to 1,00,000 tone approximately. the domestic demand is not likely to increase ropoprtionatelyat least for the next five years, the only possible way for improving the efficiency of the industry is to enter the world export market 8

TECHNOLOGY OVERVIEW
All the units in the organised sector have been set up with foreign technology through foreign collaborations. The collaborations were entered into initially to set up the projects and number of 1units subsequently had entered into supplementary collaborations to upgrade and enhance the product range. Each unit in the industry has been acting as a sealed compartment and centre of an exclusive secret technology. There has been very little exchange of technological information amongst the units of the industry. The industry has done well to adapt the foreign technology. Over the past decade, it has produced major equipment and testing equipment on their, own. Porcelain Insulator Industry in India has substantially matured and even is in a position to pass on technology to any third country who may want to set up such a plant in association with them.

CONTEMPORARY TECHNOLOGIES
Electro porcelain and toughened glass are the two types of insulators that are being used for high tension transmission lines and equipment throughout the world. The world market comprises of the power projects being set up mainly in the under developed and developing countries using electro porcelain and toughened glass insulators. In India also toughened glass insulators are being used in transmission lines. A comparative statement of 9

some characteristics of porcelain and toughened glass insulators is given in Table-1. However, it may be noted that this comparison is not exhaustive, as complete data on properties and performance of glass insulators is not available due to its limited use so far. Toughened glass insulator technology acquisition and adaptation has not received sufficient attention so far in the country. The only unit which has been given the license for manufacture of toughened glass insulators has set up an assembly line. Production of glass shell which indeed is the real technology is yet to start. Generally glass tends to deteriorate in outdoor applications as it is not crystalline. It is amorphous and also India met stable

state. Also surface damage in glass insulators leads to shattering, while porcelain insulators can withstand reasonable degree of surface damage. Performance of glass is yet to be proved in EHV system trial in tropical countries. Long rod porcelain insulators have been developed and are being used along with Disc Insulator strings.

10

MODERN GROUP:Modern group is one of the leasing textile & engineering multi product industrial group in India. Modern group of industries emerged on the corporate scene in 1976-77 & is managed by very dynamics and professional entrepreneur Mr. H. S. Ranka & their team with vision of high quality of product. Modern group is having its five manufacturing units in the states of Gujarat & Rajasthan with manpower base of about 7000 employees & sales turnover exceeding 300 million US$. 11

The group has achieved significant achievement in exports & further export share in the coming years.

Modern Insulator Ltd is one of the premier Unit in the field of manufacturing high voltage & extra high voltage alumina porcelain insulator in India. It has been setup by the Modern group in 1985 with technical collaboration from siemens AG Germany for transmission lines, substations, railway& hallow porcelain insulator for control equipments.

Modern Insulator Ltd has excelled in the performance of various Range of solidcore insulator up to 765 kv and they are associated 12

with the most of the Prestigious powergrid and electricity board Sub-station of the country.

Modern Insulator Limited

Plant location Start up

ABU ROAD, RAJ. (INDIA) : Set up in 1985 (under Technical collaboration with Siemens Germany.)

Present capacity

Presently operating at 20,000 MT Per Annum

Sales turnover 2007-08 Modern Group Modern Insulator ltd Exports Domestic Sales turnover (projected) 13 : : : : 1200 crores 243 crores 100 143 crores crores

Modern Insulator ltd Exports Domestic

299 crores : 105 crores

194 crores winner of top exporter Awards for last 3 year. 6 continents 30 countries

Indias Largest Insulator Exporter : Exports :

Modern insulator limited is one of the eight units of the modern group. Modern group is a leading textile and engineering multi- product industrial group in India. Modern group is continuously developing since 1976-77 under the guidance and leadership of a very dynamic and professional entrepreneur Mr. H.S. Ranka and his team. He was having the vision to serve/ deliver the quality product to their customer. In addition, they have never compromised with quality. Modern group is having its eight manufacturing units in the state of rajasthan and Gujrat. These units are(1) (2) (3) (4) (5) (6) (7) (8) Modern Woollen Modern Syntex ( I ) Ltd Modern Suiting Modern Threads ( I ) Ltd Modern Insulator Ltd Modern Denim Ltd Modern Terry Towels Ltd Modern Petrohilos

14

(9)

Modern Insulator Ltd. is supplying their Insulators to all the

leading companies in the transmission & distributions sectors in India as well as across the world like ABB, AREVA, VATECH, SIEMENS, MAXWELL etc.

MODERN INSULATOR LIMITED Modern insulator limited is one of the eight units of the modern group. Modern insulator limited has been setup by the modern group in 1985 having the collaboration with siemens AG, Germany for the technology for manufacturing of solid core insulator. Modern insulator limited is a ISO certified company having the certificate ISO 9002 and ISO 14001 for its quality process and for helping in keeping the environment clean. Modern insulator limited manufactures wide range of alumina porcelain insulators for various utilities in India and world over.

Modern insulator limited is proud recipient of: 14th international award for technology and quality- Geneva 1993 Switzerland. State award for export excellence. Govt. of Rajasthan (India) 1995-96 Certificate of merit award CAPEXIL Ministry of commerce, Govt. of India 1996-97, 1997-98, 199899 15

Modern insulator limited can be well defined in the following point Plant Vision Quality Policy Technology Absorption and innovation

PLANT

Modern insulators limited (production units) is situated in Abu road, Rajasthan. However, its registered office is in Jaipur. In the plant itself modern insulators limited has its own R&D laboratory. This is now going to be a Research center for ceramics.

Modern Insulators Ltd. was mainly started for manufacturing of alumina porcelain insulators required for high voltage and extra high voltage equipment.

Product range:Modern insulator limited is indulging in producing five basic types of insulators. (1) Solid Core Post Insulators 16

(2) (3) (4) (5)

Hollow Porcelain Insulators Railway Insulators Line Post Insulators Long Rod Insulators

Plant Capacity:The plant is presently operating at 14820 M.T. (Metric tones) and likely to expand to 16500 M.T. within next two years. QUALITY POLICY We, at modern insulators limited, Abu road engaged in design and manufacturing of extra high voltage alumina porcelain insulators for power transmission and distribution system. MIL is committed to achieve sustained business growth through excellence in quality performance on a continual basis. Quality Objectives: 1. To look after the needs and expectations of customer to the extent possible 2. Gradual reduction in number of customer complaints and average period taken for settlement 3. Gradual improvement in recovery at different stages 4. Developing quality consciousness among suppliers 5. Achieve business growth and create new market base MODERN RANGE OF PRODUCT ORGANIZATION NAME PLANT LOCATION 17 : : MODERN INSULATORS LIMITED POST BOX NO.- 23, ABO ROAD-307026

RAJASTHAN (INDIA). START UP : SET UP IN 1985 UNDER TECHNICAL COLLABORATION WITH SIEMENS, GERMANY. NATURE OF PRODUCT : EXTRA HIGH VOLTAGE ALUMINA PORCELAIN INSULATORS FOR POWER TRANSMISSION AND DISTRIBUTION. PRESENT CAPACITY : PRESENTLY OPEARATING AT 13000 MT. AND LIKELY TO EXPAND TO 15000 MT. SHORTLY. SALES TURNOVER : Rs12983 lacs FOR YEAR 2006-07 Rs16593 lacs 2007-08 PROJECTED EXPORT TURNOVER : Rs 8603 lacs FOR THE YEAR 06-07. Rs 9539 lacs 07-08 PROJECTED.

CHAIRMAN DIRECTOR 18

: :

MR. H. S. RANKA MR. SACHIN RANKA

EXECUTIVE DITECTOR : SR. VP (FINANCE) SR. VP (MARKETING) VP (MONITORING) : : :

MR. R. K. LADIA MR. S. D. GUPTA MR. SANJEEV SACHDEV

MR. P.K. JAIN

VP (P&A)

MR. S. TEWARI

VP (IR)

MR. M. R. SHARMA

VP (P&S)

MR. VIRENDRA SURANA

VP (Q.A.)

MR. MINAKSHI SUNDRAM

MODERN RANGE OF PRODUCT 2. OPERATION CYCLE

RAW MATERIALS

BALL MILLING

FRES H SL IP MI X I NG

&

SCREENING

RE TURN CL AY

ELECTRO MAGNETIC SEPERATION

DRYING

SHAPING

EL E CTRI CA L DRY I NG

K NE A DI NG VA CUMM P UG MI L L

&

FILTER PRESSING

19

GL A ZI NG

FIRING

SORTING

CUTTI NG & G RI NDI NG

UL TRA S O NI C & HI G H VO L TAG E EL E CTRI CAL TES TI NG

RO UTI NE

&

ME CH. ,

NA TURA L CURI NG

S TE A M CURI NG

ASSEMBLY

EL E C. TE S TI NG

CUSTOMERS INSPECTION

PACKING

DESPATCH

PRODUCT RANGE AND MARKET

HOLLOW PORCELAINS Hollow Insulators 33kV to 550kV for SF-6 circuit Breakers, Instrument transformers and surge arrestors housings. Max. dia 650 mm, height 2600 mm in single piece joined up-to 5000 mm. and

20

MODERN RANGE OF PRODUCT SOLID CORE POST INSULATORS Solidcore Post Insulators 33kV to 765kV. For BUS BAR SUPPORT, DISCONNECTORS

LONG ROD INSULATORS

The intermediate metallic connections in case of Long Rod Insulators are drastically reduced resulting in improved voltage distribution. Long Rod Insulators 33kV to 765kV for Transmission lines. 21

 We are the only manufacturer in India producing Long Rod Insulators. These insulators are used in transmission line as an alternative to DISC Insulators.

RAILWAY INSULATORS
Railway Insulators upto 33 KV. For Electrification of railway tracks.

22

3.RESEARCH METHODOLOGY
3.1 Title of the Study
WORKING CAPITAL 3.2 Duration of the StudyStudy on Financial analysis of MODREN IN.SULATOR Ltd has been completed in 45 days.(25th June to 5th Aug 2010) 3.3 Objective1. To study the life cycle of substitute of Long Rod Insulator. 2. To study about L.R.I. substitute Polymer Insulator requirement. 3. To analyze the most preferred demand of substitute of Long Rod Insulator by the customers. 4. To analyze the behavior of switching among substitute of Long Rod Insulator by customers. 5. To know the awareness level of customers about Polymer Insulator Market conditions.

3.4 TYPE OF RESEARCH- DESCRIPTIVE RESEARCH

23

A Research design is purely and simply the framework of plan for a study that guides the collection and analysis of data. The study is intended to find the investors preference towards various investment avenues. The study design is descriptive in nature. Descriptive study is a fact-finding investigation with adequate interpretation. It is the simplest type of research and is more specific. Mainly designed to gather descriptive information and provides information for formulating more sophisticated studies.

3.5 SAMPLE SIZE AND METHOD OF SELECTION SAMPLE

A) Research Design:The type of research design used is the descriptive research. Descriptive research studies are those studies which are concerned with describing the characteristics of a particular individual, or of a group, studies concerned with specific prediction, with narration of facts and characteristics concerning individual group or situation. In this present content of the project study which is mainly clubbing together of two scenarios of corporate. This research first deal with the study of substitute of Long Rod Insulator as Polymer Insulator and second customer behavior regarding such substitute in the market. Thus an attempt is made to study of comparison both that insulators and to find out different factors, affecting customer behavior. B) Sample Design:The type of sampling done was systematic sampling. Where all 100 customers were questioned evenly. The sample size was 100 existing customers of MODERN INSULATOR.LTD. who have purchased Long Rod Insulator of MIL. The area used for the samples was few of domestic & export customers.

24

C) Databases & Data Collection:There were two types of data used in this research project. Both Secondary & Primary data were used. The Secondary Database was collected from annual report of MODERN INSULATOR LTD., product catalog of MIL, Past Facts and Figures of the company, INMR quarter review guidelines. Primary Data was collected from primary source i.e. through questionnaire together with mail ,phones the customers. The data collection method used in this project was Survey. Research Instrument used was Questionnaire. The types of Questions used were Dichotomous Questions and close ended. The respondents are made aware of the study. D) Data Analysis & Interpretation:Data Analysis was done through simple Mathematical Calculations. Data Interpretation was based on results of analysis and findings.

25

TECHNOLOGY ABSORPTION AND INNOVATION A. TECHNOLOGY ABSORPTION 1. Research and development a) Specific area in which R&D carried out by the company: - Development of waste heat recovery system in kiln for improving energy - Improvement in body composition for consistency in recovery. - Use of high quality raw material for improvement in body. - Reduction in cycle time at various stages of process. - Development of extra high strength products for overseas market. - Improvement in product appearance by introduction of new composition for glaze and better quality raw materials. b) Benefits derived as a result of the above R&D: - Improvement in efficiency. - Improvement in quality. - Wider customer base. - Waste material utilization. 26 efficiency.

c) Future plan of action - Development of Epoxy glass polymer composite insulator. - Waste water recycling - New body composition for high strength and with reduced dryers/firing cycle. - Development of 420 KN transmission Line Long Rod Insulators. - Automation in material handling. Extra large products upto 1000 mm dia. d) Expenditure on R&D: - Capital - Recurring - Total - Total R&D expenditure, As % of total turnover. : 0.23 % : : : NIL Rs. 49.11 lacs Rs. 49.11 lacs

2. Technology Absorption, Adoption and Innovation: a) Effort, in brief, made towards technology absorption, adoption and innovation: - modification of process and product design to cater market requirements and to improve operational efficiency. 27

b) Benefits derived as a result of above efforts: - Improvement in efficiency and productivity. - development of new products. B. Foreign Exchange earning Rs 12146 Lacs (FOB) Foreign Exchange Outgoing Rs 1168 Lacs.

6. SCOPE OF THE STUDY This study shows the Financial Position. This study tries to focus on Working Capital Management. This study also tries to focus on Flow of Cash. This project study also focus on importance of Ratio Analysis and Break Even Analysis in organization.

28

FINANCIAL POSITION Financial statements are prepared by the company for the purpose of presenting a periodical review or report on the progress by the management. It also deals with the status of investments in the business, and the results achieved during the period under review, thus conveying an understanding of financial aspects of a business firm. According to Accounting Standards, the term financial statements covers balance sheets, income statements or profit and loss accounts, notes and other statements and explanatory material which are identified as being part of the financial statements.

The financial statements based on accounting policies, vary from enterprise to enterprise, and must be clear and understandable. The disclosure of these policies should be an integral part of the statements; it is helpful to users if they are all disclosed at one place.

29

Analysis of these financial statements is an essential step towards gaining an in depth understanding of a business. It helps doing financial SWOT analysis of business. Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and a study of the trend of these factors as shown in a series of statements. Financial statement analysis provides a full diagnosis of the profitability and financial position of the firm concerned. It pinpoints the strong points and weaknesses of a business unit, and provides scope for understanding the liquidity, solvency, profitability and operational efficiency of the business concerned. A number of parties and bodies, besides owners and shareholders, including creditors, potential suppliers, debenture holders, credit financial institutions like banks, trade unions, important customers, economists, investment analysts, taxation authorities and the government have an interest in the financial results of a company. Financial statement analysis consists of the application of analytical tools and techniques to financial data in order to derive meaningful measurements and relationships that are useful for decision-making. It can be used as a preliminary screening tool in the selection of stocks in the secondary market. It can be used as a forecasting tool of future financial performance. It may be used as a process of evaluation and diagnosis of managerial, operating, or other problem areas. Financial analysis reduces reliance on guesses and thus helps reducing uncertainty. Financial analysis does not lessen the need for judgment rather establishes a sound and systematic basis for its rational application. Methodology: 30 Collection of the last two years financial statements of the company. Understanding the various financial statements. Understanding the various tools and techniques available for analysis. Making notes of various financial data required for doing analysis. Analyzing the data collected and making interpretations.

 Schedule:

Collecting data from Internet and magazines. Guidance from faculty as well as corporate guide.

The project will be completed in the following five stages:

Stage 1: Understanding the Marble Industry. The first stage involves a detailed study of the Indian marble industry. This stage includes understanding the various trends prevailing in the marble industry, various technologies used, method of production of marble and other technicalities related to the marble industry.

Stage 2: Collection of the companys last two years financial statements. The second stage involves collecting the companys last two years financial statements, which is present in the form of annual reports printed by the company. The financial statements are also available on companys website.

Stage 3: Understanding the Financial statements. The third stage involves a study of various financial statements available in the companys reports. The various financial statements available are balance sheets, income statements or profit and loss account. A complete knowledge about these statements is gathered in this stage. .

31

Stage 4: Understanding the various tools and techniques used in analysis of financial statements. The fourth stage involves the study of the analysis tools. It is a process of determining and interpreting numerical relationships based on financial statements. Tools used for analyzing the financial statements areComparative balance sheet Comparative profit and loss account Cash flow analysis Ratio analysis Trend analysis

Stage 5: Interpretation. The fifth stage involves calculating various ratios and interpreting these ratios. This stage involves comparison of the ratios of two years, thus revealing the companys trends. It also involves interpretations regarding cash flow statement. It also facilitates understanding of companys profitability and operating efficiency.

Understanding the Financial Statement:

32

Show me the money! Well, thats what financial statements do. They show you the money. They show you where a companys money came from, where it went, and where it is now. Financial statements (or financial reports) are formal records of business financial activities. These statements provide an overview of a business profitability and financial condition in both short and long term. There are four basic financial statements:

1. Balance Sheet - also referred to as statement of financial condition, reports on a companys assets, liabilities and net equity as of a given point in time. 2. Income Statement - also referred to as Profit or loss statement, reports on a companys results of operations over a period of time. 3. Cash Flow Statement - reports on a companys cash flow activities, particularly its operating, investing and financing activities. 4. Statement of Retained Earnings - explains the changes in a companys retained earnings over the reporting period.

Because these statements are often complex, an extensive set of Notes to the Financial Statements and management discussion and analysis is usually included. The notes will typically describe each item on the Balance sheet, Income Statement and Cash Flow Statement in further details. Notes to Financial Statements are considered an integral part of the Financial Statements.

Now lets have a look at the various financial statements in detail: 33

Balance Sheets A balance sheet is often described as a snapshot of the companys financial condition on a given date. It does not show the flows into and out of the accounts during the period. A balance sheet provides detailed information about a companys assets, liabilities and shareholders equity.

Assets are things that a company owns and can either be sold or used by the company to make products or provide services. Assets include physical property, such as plants, trucks, equipment and inventory; things that cant be touched, such as trademarks and patents. And cash itself is an asset. So are investments a company makes.

Liabilities are amounts of money that a company owes to others. This can include all kinds of obligations, like money borrowed from a bank, rent for use of a building, money owed to suppliers for materials, payroll a company owes to its employees, environmental cleanup costs, or taxes owed to the government. Liabilities also include obligations to provide goods or services to customers in the future.

Shareholders equity is part of the companys liabilities: they are funds owing to shareholders (after payment of all other liabilities). In other words, it is the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners, of the company. The following formula summarizes what a balance sheet shows:

34

ASSETS = LIABILITIES + SHAREHOLDERS EQUITY A companys assets have to equal, or balance, the sum of its liabilities and shareholders equity. An income statement (also called as Profit & Loss statement) is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). The literal bottom line of the statement usually shows the companys net earnings or losses .To understand how income statements are set up, think of them as a set of stairs. You start at the top with the total amount of sales made during the accounting period. This top line is often referred to as gross revenues or sales. Then you go down, one step at a time. At each step, you make a deduction for certain costs or other operating expenses associated with earning the revenue. At the bottom of the stairs, after deducting all of the expenses, you learn how much the company actually earned or lost during the accounting period. This bottom line is called as net revenue. Income statements help investors and creditors determine the past performance of the enterprise; predict future performance; and assess the risk of achieving future cash flows.

Cash flow statements report a companys inflows and outflows of cash.

While an income statement can tell you whether a company made a profit, a cash flow

35

statement can tell you whether the company generated cash. Generally, cash flow statements are divided into three main parts. They are: Operating Activities The first part of a cash flow statement analyzes a companys cash flow from net income or losses. For most companies, this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual cash the company received from or used in its operating activities. To do this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities. Investing Activities The second part of a cash flow statement shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided cash. Financing Activities The third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.

36

Understanding the Various tools and techniques used in analysis of Financial Statements A financial statement analysis consists of the application of analytical tools and techniques to the data in financial statements in order to derive from them measurements and relationships that are significant and useful for decision making. The process of financial statement analysis can be described in various ways, depending on the objectives to be obtained. Financial analysis can be used as a preliminary screening tool in the selection of stocks in the secondary market. It can be used as a forecasting tool of future financial conditions and results. It may be used as a process of evaluation and diagnosis of managerial, operating, or other problem areas. Above all, financial analysis reduces reliance on intuition, guesses and thus narrows the areas of uncertainty that is present in all decision-making processes. Financial analysis does not lessen the need for judgment but rather establishes a sound and systematic basis for its rational judgment. MEMORANDUM STATEMENT (Rs. in lacs) YEAR S. NO. Particulars 200304 200405 200506 200607 200708 200809 200910

37

(1) (2)

Production (M.T.)

4581 5464

5711 7476 3434

6743 8626 4344

8336 10704 4460

9356 12983 5747

10834 14764

13051 21169 12146

Sales (gross) (3) Exports(FOB value) (Included Gross sales) PBID (4) (5) Cash profit/loss Net Profit in 1861 8528

2909 1057 453 1184 623 1667 1307 1795 1501 2080 1514 2170 2612 1424

2265 (6) BALANCE SHEET (For the year ended 31st march) 11 179 775 1120 1079 1126

38

As at PARTICULARS SOURCE FUNDS SHAREHOLDERS FUND Share capital Reserves surplus 2174.35 137.06 OF 2004-05

As at 200506

As at 200607

As at 200708

As at 200809

As at 2009-10

2174.35 2174.35 2174.35 2174.35 2174.35 609.13 1329.29 2063.81 2859.54 4317.26 6491.6 1

and 23311.41 2783.48 3503.64 4238.16 5033.69

2995.43 LOAN FUNDS Secured loans Unsecured loans 951.92 3947.34 230.81 6489.56 Deferred liability TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block 7292.16 3664.15 3628.01 tax

2017.41 1622.02 1521.01 1317.39 1429.94 1083.59 1000.00 900.00 700.00 500.00 3101.00 2622.02 2421.01 2017.39 1929.94 392.28 605.24 657.98 708.07 797.01 6276.76 6730.90 7317.15 7759.35 9218.56

7810.83

9237.01 9928.02 10705.75

4151.53 8312.85 5006.57 5276.26 5618.55 3659.30 4569.09 4230.44 .7 16.22 3743.76 5.11 105 4651 5087.20

39

Less: depreciation Net block Capital progress work

133.57 3761.58

3675.52 69.89 0.01

4235.55 .6

158.34

3813.65 0.01 0.01

4757.43 5245.54 0.01 0.01

in 0.01

1462.34 INVESTMENTS 1517.46 CURRENT ASSETS, LOAN & 1548.16 ADVANCE Inventories Sundry Debtors Cash balance Loans advance and 990.59 9.25 LESS: CURRENT 999.84 LIABI.& PROVISION Current liabilities Provision 2606.66 86.03 35.28 1149.96 3.66 and bank 54.81 486.09 3606.50 65.37 575.69

1788.47

1651.45 1563.20 2883.93 2164.70 2225.11 2303.49 100.91 88.83 573.87 2295.92 2793.91 88.80 1438.40 748.86

3754.85 555.15 4570.67

5347.18 691.25

5240. 7206.28 67

2153.64 1503.70 111.95 1918.37 2265.59 320.39 2541.28 691.99 3233.27 2238.76 3973.01 3001.91 -

1153.62 89.73

2601.23 1593.43 3081.59 2917.24 7317.15

6276.76 -

40

6489.56 Net assets Miscellaneous Exp. Profit &loss A/C current

6730.90

7756.35 9218.56

41

COMPARATIVE BALANCE SHEET (For the year ended 31st march) Rs. in lacs Particulars YEAR 2009 YEAR 2010 Increase / (Decrease) Change in %

42

SOURCE OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus 2174.35 2859.54 5033.89 LOAN FUNDS Secured loans Unsecured loans 1317.39 700.00 2017.39 Deferred tax liability TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress 9928.02 5276.267 4651.76 105.67 4757.43 43 10705.75 5618.55 5087.20 158.34 5245.54 777.73 342.29 435.44 52.67 488.11 7.83 6.48 9.36 49.99 708.07 7759.35 1429.94 500.00 1929.94 797.01 9218.56 112.55 (200.00) (87.45) 88.94 1459.21 8.54 28.57 4.33 12.56 18.80 2174.35 4317.26 6491.61 1457.72 1457.72 50.97 28.98

INVESTMENTS CURRENT ASSETS, LOAN & ADVANCE Inventories

0.01

.0.01

10.25 -

2164.70 Sundry Debtors 2295.92 Cash and bank balance 88.80 Loans and advance 691.25 5240.67 LESS: CURRENT LIABI.& PROVISION Current liabilities Provision 1918.37 320.39 2238.76 Net current assets Miscellaneous Exp. Profit &loss A/C 3001.91 7759.35

2225.11 2793.91 1438.40 748.46 7206.28

60.41 497.99 1349.6 57.61 1965.61 2.79 21.69 1519.81 8.33 37.50

2541.28 691.99 3233.27 3973.01 9218.56

622.91 371.6 994.51 971.1 1459.21 32.47 115.9 44.42 32.34 18.80

44

PROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH) (Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07 INCOME Turnover Less: Excise Duty Net Turnover 7078.78 Other Income 14.46 Increase (decrease) in stock (378.01 ) 8257.79 EXPENDITURE Material Cost Employees Cost Operation Exp. Depreciation & Other 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) Less: charged form (26.41) revaluation reserve 45 9022.73 7482.23 (36.40) 417.77 5394.16 6715.23 2559.18 1848.90 688.02 (111.95 ) 82.47 66.32 26.50 7475.52 (396.74 ) 8303.42 8775.10 471.68

10704.17 12982.80 14763.65 21169.01 670.23 890.99 731.93 1175.90

10033.94 12091.81 14031.72 19993.11 56.97 (98.35) 125.26 135.05 112.02 (188.60)

10142.91 12050.43 14292.03 19916.53

3190.23 744.30 6602.07 448.65 (14.20)

3355.62 844.80 8667.15 298.76 -

4637.53 974.55 11692.03 347.57 -

10971.05 13166.33 17651.68

6535.76 Profit Before Tax Less: Provision for tax 9.25 Current tax 230.81 Deferred tax (60.59) Profit After tax 0.15 Add: Taxation in 25.16 respect of earlier year 179.47

775.56

1120.18

1079.38

1125.70

2264.85

44.57 569.52 (0.65) (35.28) 533.59 239.64 293.95

149.29 212.96 757.93 1.37 293.88

275.63 52.74 571.01 2.28 1050.44 -

271.96 50.09 803.65 7.92 1799.17 139.64 2834.54

710.31 88.94 1465.60 7.88 2834.54 4292.26

Add: balance brought forward (35.28) Less: Debenture redemption reserve Balance sheet (Surplus available carried

1050.44

1799.17

2.62

3.49

3.45 3.70

6.74

forward to balance

for appropriation) Earning Per Share (25000000 each) Equity

Shares of Rs. 10/-

46

COMPARATIVE INCOME STATEMENT (For the year ended 31st march) Rs. in lacs YEAR YEAR PARTICULAR 2009 2010 Increase / Change (Decrease) in %

47

INCOME Turnover Less: Excise Duty Net Turnover Other Income Increase (decrease) in stock 14763.65 731.93 14031.72 125.26 135.05 14292.03 EXPENDITURE Material Cost Employees Cost Operation & Other Exp. Depreciation 3355.62 844.80 8667.15 298.76 4637.53 974.55 1281.91 129.75 38.20 15.35 34.90 16.33 21169.01 6405.36 1175.90 443.97 43.38 60.65 42.48 (10.57) (239.65) 39.33

19993.11 5961.39 112.02 (188.60) (13.24) (323.65)

19916.53 5624.5

11692.03 3024.88 347.57 48.81

13166.33

17651.68 4485.35

34.06

Profit Before Tax Less: Provision for tax Current tax

1125.70

2264.85

1139.15

101.19

271.96

710.31

438.35

161.18

48

Deferred tax Profit After tax

50.09 803.65

88.94 1465.60 7.88 2834.54

38.85 661.95 (0.04) 1035.37

77.56 82.38 (0.50) 57.54

Add: Taxation in respect of earlier 7.92 year 1799.17 Add: balance brought forward

2834.54 Balance carried forward to 26 balance sheet (Surplus appropriation) Earning Per Share (25000000 Equity Shares of Rs. 10/- each) available for 3.70

4292. 1457.72

51.42

3.04 6.74

45.10

49

PROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH) (Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07

50

INCOME Turnover Less: Duty Net Turnover Other Income Increase (decrease) stock in Profit tax Add: Taxation EXPENDITURE Material Cost Employees Cost Operation Other Exp. Depreciation Less: charged form revaluation reserve Balance carried forward to 44.57 212.96 52.74 50.09 88.94 balance sheet 51 179.47 149.29 275.63 271.96 710.31 & Less: Debenture redemption reserve 6535.76 775.56 (26.41) 7482.23 1120.18 1079.38 1125.70 2264.85 in respect of earlier year Add: balance 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) 9022.73 10971.05 13166.33 17651.68 (36.40) (14.20) 417.77 448.65 298.76 347.57 5394.16 6602.07 8667.15 11692.03 After 6715.23 2559.18 1848.90 688.02 744.30 844.80 974.55 3190.23 3355.62 4637.53 Excise Less: Provision for tax Current tax Deferred tax 7078.78 66.32 14.46 (111.95 (378.01 ) 8257.79 ) 10142.91 12050.43 14292.03 19916.53 82.47 (98.35) 135.05 (188.60) 26.50 56.97 125.26 112.02 Profit Tax (396.74 ) 8303.42 10033.94 12091.81 14031.72 19993.11 471.68 670.23 890.99 731.93 1175.90 Before 7475.52 8775.10 10704.17 12982.80 14763.65 21169.01

brought forward

(Surplus available ) Earning Share (25000000 Per for appropriation

9.25 230.81 (60.59) 0.15 25.16

569.52 (0.65) (35.28) 533.59 239.64 293.95

757.93 1.37 293.88

571.01 2.28 1050.44 -

803.65 7.92 1799.17 139.64 2834.54

1465.60 7.88 2834.54 4292.26

1050.44

1799.17

Equity Shares of Rs. 10/each) (35.28)

3.49 2.62

3.45 3.70

6.74

Sales Trend Analysis (MT)

52

Modern Insulator Ltd. is supplying their Insulators to all the leading companies in the transmission & distributions sectors in India as well as across the world like ABB, AREVA, VATECH, SIEMENS, MAXWELL etc. Sales performance over the years Sales value (Rs. Lakhs)

Ratio Analysis: Ratios are well- known and most widely used tools of financial analysis and focus attention on the inter- relationships between various items of financial information. In order to calculate a ratio, a relevant relationship between two numbers of financial statements is established and the result of the same is interpreted in order to derive meaningful conclusions. For example, there is a direct 53

relationship between the figures of gross profit and sales. Hence a change in the ratio of gross profit to sales in a particular year would indicate the change in relevant business conditions. Ratios are guides that are useful in evaluating a companys financial position and operations, and to point out areas needing further investigation. They should be used in the context of a general understanding of the company and its environment.

Different people use ratios for various purposes. Two groups of people who are interested in them are creditors and shareholders; creditors are further divided into short-term creditors and long- term creditors. Short-term creditors hold obligations that will soon mature and they are concerned with the firms ability to pay its bills promptly. Long-term creditors hold bonds or mortgages against the firm and are interested in current payments of interest and eventual repayment of principal. These persons examine liquidity and profitability. In addition to liquidity and profitability, the owners of the firm (shareholders) are concerned about the policies of the firm that affect the market price of the firms stock. With poor policies, the common stock would trade at lower prices in the market. Ratio analysis thus involves the method of calculating and interpreting financial ratios in order to assess the strengths and weaknesses underlying the performance of an enterprise. An important aspect of ratio analysis is that it is similar to performing art endowed with lot of creativity and imagination. The choice of a set of ratios though conditioned by the objective and purpose of analysis yet the interpretation depends on the ingenuity of the financial analyst. Though we have certain set of given ratios yet there is enough fertile ground for designing unique ratios to suit the needs of financial analysis keeping in view the ever changing complexities and dimensions of business. In order to interpret the ratio, they have to be compared over a period of time (Time54

Series Analysis) and also with some other player in the same industry (CrossSectional Analysis).

Time- Series analysis involves comparison of financial statement over a period of time, normally three or five years period. Year- to- Year changes are observed over a period of time to interpret the ratios. This analysis requires similar data quality over a period of time in order to derive meaningful conclusions.

So care must be exercised regarding change in accounting policy, or any structural change arising out of change in government policy, technological development and competition, over the period of analysis. Time-series analysis thus evaluates the performance of the same business enterprise over a period of time and helps in identifying problem areas requiring corrective measures. Cross- sectional analysis are conducted to assess whether the financial ratios are within the limits, they are compared with the industry averages or with a good player in the normal business conditions. This type of analysis helps in identifying the problems that exists. This will enable us to enquire into the reasons underlying the problems and which, in turn; will help to initiate corrective actions. However, care has to be exercised regarding the selection of the constituents of the cross-section. There must be a common variable of similarity. This similarity may be of end product (all providing similar product), capital market attribute (all having similar equity price), production process or raw material consumption). Types of Ratios Financial Ratios can be grouped into six types: 1. Liquidity Ratios 55

2. Activity Ratios 3. Profitability Ratios 4. Earnings Ratios 5. Dividend Ratios 6. Leverage Ratios

Once we go ahead with detailed discussion on different ratios, which fall under each group, it will be realized that liquidity, leverage and activity ratios measure risks whereas profitability and return ratios measure return. Further, some of these ratios focus short-run while others focus long run. The leverage ratios have long-term perspective while other category ratios are primarily focused to the short-run. LIQUIDITY RATIO CURRENT RATIO MODERN INSULATORS LIMITED liquidity ratio denotes that there has occurred considerable deterioration in the liquidity position of the company. Current ratio indicates relationship between current assets and current liabilities. Current assets are included inventories, cash and bank, sundry debtors, loans and advances and current liabilities are included sundry creditors, bill payable and provisions. Current ratio is found current assets are divided by current liability. CURRENT RATIO= CURRENT ASSETS/CURRENT LIABILITIES There is six years data are available in this project report but to make convenience I am comparing only recent two years data with each other. In the year, 2010 current ratio was 2.34:1. It implies that every 2.34 rupees of current assets were available against on one rupee of current liabilities. In the year 2010 the 56

current ratio is 2.23:1 it implies that for every 1 rupee of current liabilities, Rs. 2.23 current assets are available to meet short-term obligation. The standard ratio of current ratio is 2:1. So far, it clearly reveals that company keep sufficient amount of money in liquidity for contingency at present. QUICK RATIO The quick ratio indicates relationship between liquid assets and current liabilities. Inventories are considered to be less liquid. It required sum time for realizing into cash, their value also has a tendency to fluctuate. The quick ratio is found by dividing quick assets by current liabilities. QUICK RATIO =CURRENT ASSETS- INVENTORIES/CURRENT LIABILITIES The quick ratio indicates that there has occurred a considerable deterioration in the liquidity position of the company. In the year, 2009 Acid test ratio was 1.37 that increase to 1.54 in the year 2010. Standard ratio of Acid test is 1:1. Actual Acid test ratios are more then standard ratio in the year 2009 and 2010. 56.08% of sundry debtors, 28.87% of cash and bank, 15.03% of loans and advances The Companys ability to meet short-term obligation is very strong. Critical analysis: - data of last years show that company does perform well but it over emphasis on quick ratio because of large difference is exist between standard ratio and actual ratio it may be adverse for company. Therefore, company should control its ratio deviation. SUPPER QUICK RATIO Supper quick ratio indicates relationship between quick assets and quick liabilities. Inventories are to be less in current assets for getting quick assets. Supper quick ratio is calculated as followed 57

SUPPER QUICK RATIO=QUICK ASSETS/ QUICK LIABILITIES

There is six years data are available in this discovery report but to make convenience I am comparing only two years data with each other. in the year 2009 and 2010 supper quick ratio are 1.60 and 1.96 respectively. The standard ratio of supper quick ratio is 0.5:1 and company ratios are greater than standard ratio and it focus that company has good potential to get short term obligation. Critical analysis: - due to the analysis of last two years supper, quick ratio I must say that company is giving more importance of liquidity because there is very huge difference between standard and actual ratio and it may against of companys viability. Therefore, company should control this type of particular situation. CASH RATIO Since cash is the liquid assets, it is necessary to find the ratio of cash to current liabilities. It calculates as followed: CASH RATIO = CASH/CURRENT LIABILITIES Cash is the most liquid ingredient of liquid assets. Therefore, company should analyze cash ratio. In the year, 2009 and 2010 cash ratio are 0.04 and 0.56 respectively. Due to the last two years record cash ratio indicate that company has sufficient cash and company is more concerned about it. MODERN INSULATORS LIMITED liquidity is deteriorating. The MODERN INSULATORS LIMITED must not over emphasis on supper quick assets; otherwise, it may bad effect on company performance.

58

YEAR PARTICULAR CURRENT RATIO 2006 3.61 2006 3.25 2007 2.83 2008 2.36 2009 2.34 2010 2.23

QUICK RATIO

2.09

1.99

1.85

1.57

1.37

1.54

SUPPER QUICK RATIO

2.16

2.01

1.97

1.65

1.60

1.96

CASH RATIO

.06

.06

.06

.05

.04

.56

MODERN RANGE OF PRODUCT ASSETS TURNOVER RATIOS Assets are used to generate sales. Therefore, firm should manage its assets efficiently to maximize sales. CURRENT ASSETS AND FIXED ASSETS TURNOVER Current assets turnover and fixed assets turnover indicate that how many sales are generated on both current assets and fixed assets. These ratios are Calculated as followed CURRENT ASSETS TURNOVER = SALES / CURRENT ASSETS FIXED ASSETS TURNOVER = SALES / NET FIXED ASSETS In the year 2009 and 2010 current assets turnover are 2.68 and 2.77 respectively of modern insulators limited. It implies that for every one rupee of current assets, sales 59

are generated of Rs. 2.68 in the year 2009 and Rs. 2.77 in the year 2010. It clearly shows that firm is generating sales very well. In the year 2009 and 2010 fixed assets turnover are 2.95 and 3.81 respectively. It also implies that for every one rupee of fixed assets, sales are generated Rs. 2.95 in the year 2009 and Rs. 3.81 in the year 2010. It also show the prosperity of viability of firm that firm is performing well. COGS (Rs. in Stock (Rs. in Cr.) 2010 2009 Cr.) 125.78 117.89 5.95 8.0 Stock Turnover Ratio 21.13 14.74

Inventory (Stock) Turnover RatioThe inventory or stock turnover ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in inventory. Inventory (Stock) Turnover Ratio = Cost of Goods Sold or Sales Average Inventory at Cost

Interpretation- This ratio reveals number of times finished stock is turned over during a given accounting period in relation to sales. A high ratio is better and reflects efficient business activities. Stock Velocity- The inventory turnover ratio indicates the stock velocity with which stock moves through the business. The velocity can be calculated by using the following formula: Stock Velocity = No. of Days/ Month in a year 60

Stock Turnover Ratio

year 2010 2009 Stock Turnover Ratio 21.13 14.74 Stock Velocity 17.13 24.76

Fixed Assets Turnover RatioThis ratio expresses relationship between fixed assets and net sales or cost of goods sold. Since the investment in fixed assets is made for the ultimate purpose of efficient sales, the ratio is used to measure the fulfillment of that objective. Fixed Assets Turnover Ratio = Sales or Cost of Goods Sold/ Fixed assets (less depreciation) Interpretation- efficiency and profit earning capacity of the firm is remarkable. Intensive utilization of fixed assets is sound. Current Assets Turnover RatioThis ratio expresses relationship between current assets and net sales or cost of goods sold. It is calculated by using the following formula Current Assets Turnover Ratio = Sales or Cost of Goods Sold/ Current Assets Interpretation- Both the years shows overinvestment in current assets. Working Capital Turnover Ratio-

61

This ratio establishes relationship between net working capital and net sales or cost of goods sold. It is calculated by dividing the net sales or cost of goods sold by net working capital. Expressed as a formula: Working Capital Turnover Ratio = Sales or Cost of Goods Sold/ Net Working Capital Interpretation- Both the years show satisfactory working capital turnover ratio, and reflect efficient management of working capital. Profitability RatiosProfitability refers to the ability to earn profit. The profitability of a firm can be measured by its profitability ratios. These ratios indicate overall managerial efficiency. Profitability depends on quantum of sales, cost of production and use of financial resources etc. There are two types of profitability ratios, first, profitability ratios based on sales: second, profitability ratios based on capital and assets. Profitability Ratios Based on SalesFrom profit point of view, it is significant that adequate profit should be earned on each unit of sales. Following profitability ratios are calculated in relation to sales. These are also called General Profitability Ratios. Gross Profit RatioThis ratio expresses relationship of gross profit on sales to net sales in terms of percentage. It is also called as margin ratio. Expressed as a formula:

Gross Profit Ratio = Gross Profit 100 62

 Net Sales

Interpretation- Gross profit ratio of both the years show effective and efficient trading. Basic profit earning potentiality of the firm is sound. Great margin is reflected year 2010 2009 Net Sales (Rs. Operating In Cr.) 190.9 171.7 (Rs. in Cr.) 49.35 39.01 Profit Operating Profit Ratio 25.85% 22.72%

Operating Profit RatioThis ratio is called operating profit margin. It establishes relationship between operating profit and net sales. Operating Profit Ratio = Operating Profit 100/ net sales

Interpretation- Operational efficiency of the firm is sound. Firm has been able not only year Net Sales (Rs. Gross Profit (Rs. Gross Profit Ratio in Cr.) in Cr.) 2010 190.9 65.12 34.11% 2009 171.7 53.18 31.33% to increase its sales but also been able to cut down its operating expenses. Operating Ratio-

63

This ratio expresses relation ship between operating costs and net sales. This ratio indicates the operational efficiency of the business and profit earning capacity of the firm. Expressed as a formula: Operating Ratio = Operating Costs 100 Net Sales Or = 100 Operating Profit Ratio Year year 2010 2009 2010 2009 Operating Ratio Net Operating Profit Ratio (Rs. in Net Profit Ratio Sales (Rs. Net Profit 25.85% 74.15% in Cr.) Cr.) 22.72% 77.28% 190.9 38.98 20.42% 171.7 22.37 13.03%

Interpretation- In year 2008, 74.15% of net sales is absorbed by cost of goods sold and operating expenses, and in year 2007, 77.28% of net sales is absorbed by cost of goods sold and operating expenses. An operating ratio ranging between 75% to 85% is generally considered as standard for manufacturing firms. Both of these years Operating Ratios help to recover non operating expenses such as interest, dividend etc. Net Profit RatioThis ratio measures the relationship between net profit and sales of a firm. Net profit is the excess of revenue of the firm over expenses during a particular accounting period. The net profit ratio is determined by dividing the net profit by sales and expressed as percentage.

64

Net Profit Ratio = Net Profit (after tax) 100 Net Sales Interpretation- Net Profit Ratios of both the years show adequate return to owners. They also reveal the recovery of cost and expenses from the revenue of the period. Such a high ratio enables the firm to withstand in cut throat competition. Profitability Ratios Based on CapitalThe state of efficiency can not be judged by the volume of profit alone. This requires the calculation of ratios with reference to capital and assets to measure the real profitability. The important categories of such ratios are discussed below: Return on Capital EmployedTo measure the overall profitability of the firm it is essential to compare profit with capital employed. Wit this objective, return on capital is calculated. It is also called as Return on Investment (ROI). This ratio expresses the relationship between profit and capital employed and is calculated by dividing net profit by capital employed.

Return on Capital Employed = Net Profit (PBIT) 100/C.E Note- Net profit before interest and tax and net capital employed is taken for the calculation.

65

Interpretation- Capital employed is being used very efficiently in the business. Earning power of the net assets of the business is sound. Return on Net Worthyear 2010 2009 Capital Employed (Rs. In Net Profit (Rs. in Return on Capital Employed Cr.) 177.08 113.73 Cr.) 60.49 34.58 34.16% 30.41%

This ratio expresses the relationship between net profit (after interest and tax) and net worth or shareholders wealth. This is also known as Return on Proprietors Fund. It is used to ascertain the rate of return on resources provided by the shareholders. Interpretation- These ratios revealed 28.70% and 23.11% earnings in the years 2008 and 2007 respectively, for the capital that the shareholders have invested in the company. Companys use of its resources contributed by its shareholders is favorable. Return on Total AssetsProfitability also can be measured by establishing relationship between net profit and total assets. This ratio is computed by the net profit after tax by total funds invested or total assets. This ratio measures the profitability of investments which reflects managerial efficiency. Return on Total Assets = Net Profit (after tax) 100 Total Assets Interpretation- Both the years show high ratios and those are indicators of sound profit earning capacity of the firm. 66

year 201 0 200 9

Net Worth (Rs. in Cr.) 135.78 96.77

Total Debt (Rs. in Debt Equity Ratio Cr.) 46.52 17.87 0.34 0.18

Leverage or Capital Structure RatioThese ratios are calculated to judge the long term solvency or financial position of the firm. These ratios are also known as long term solvency ratios. These ratios may be defined as financial ratios which highlight on the long term solvency of a firm as reflected in its ability to assure the long term creditors. These ratios are also known as debt management ratios. These ratios are discussed below: Debt Equity RatioThis ratio indicates the relative proportion of debt and equity in financing the assets of a firm. Debt equity ratio reveals the relationship between internal and external sources of funds of a firm. Therefore also known as external internal equity ratio, expressed as a formula: Debt Equity Ratio = External Equities/ Internal Equities Or = Total Debt/ Shareholders fund or Net Worth

Interpretation- Such a low ratio provides sufficient safety margin to creditors due to high stake of owners in the capital of the company. The servicing of debt is less burdensome for the company and consequently its ability to raise additional funds is not adversely affected. The shareholders are deprived of the benefits of trading on equity. 67

Proprietory RatioThis ratio is also called net worth to total assets ratio. It establishes relationship between proprietors or shareholders fund to total assets of the business i.e. to what extent shareholders funds are invested in financing total assets of the business. This ratio highlights general financial strength of the firm. Proprietory Ratio = Proprietors or Shareholders Fund/ Total Assets

Interpretation- A ratio of above 0.50 is generally considered safe for the creditors. These ratios reveal more secured position of the creditors. A higher ratio is the indication of the sound financial position of the firm as it is less dependent on outside working capital Year 201 0 200 9 Proprietors Funds (Rs. in Cr.) 135.78 96.77 Total Assets (Rs. Proprietory Ratio in Cr.) 182.30 114.59 0.74 0.84

Solvency or Debt to Total Assets RatioThis ratio measures the long term solvency of the business. It reveals the relationship between total assets and total debt or external liabilities. This ratio measures what part of assets is being financed from loans. It is calculated as follows:

Debt to Total Assets Ratio = Total Liabilities/ Total Assets

68

Year 201 0 200 9

Total Assets (Rs. in Cr.) 182.30 114.59

Total Debt (Rs. in Solvency Ratio Cr.) 46.52 17.87 0.26 0.16

Interpretation- In year 2008, 21%; and in year 2007, 13% of the total assets provided by creditors (long term as well as short term) of the firm. Total assets are more than external liabilities, the firm is solvent. The amount of creditors being used to generate profits for owners of the firm is sufficient. Fixed Assets RatioThis ratio is also known as fixed assets to capital employed or long term funds ratio. As per sound financial policy, acquisition of fixed assets should be financed from long term funds only. Fixed Assets Ratio = Fixed Assets/ Long Term Funds or Assets Fixed Assets Ratio 0.25 0.52

year 2010 2009

Capital

Employed Fixed

(Rs. In Cr.) 177.08 113.73

(Rs. In Cr.) 45.52 60.08

= Fixed Assets/ Capital Employed

Interpretation- Ratios of less than 1 in both the years reveal that long term funds have been used to finance current assets. A part of long term capital is always available for working capital. 69

EPSWhatever profit remains after meeting all expenses belong to equity shareholders. These are profit earned on equity share capital. The earning per share is calculated by dividing the profit available to equity shareholders by the number of shares issued. EPS = Profit Available to Equity Shareholders/ Number of Shares Issued Year 2010 2009 Profit Available to Equity Number Shares 63155700 63155700 of EPS 6.17 3.54

Shareholders (Rs.In Cr.) 38.99 22.37

Interpretation- Performance and prospects of the company are good. High earning per share helps the company in raising additional capital without any difficulty.

70

WORKING CAPITAL MANAGEMENT Every firm should require an amount of money to use within a year to settle short-term liabilities and carry on to firm to that type of money is called working capital. Every firm has to estimate how much working capital is required to settle short-turn liabilities and to carry on the firm within a year. Optimal estimation of working capital is known working capital management. Formula to find out working capital is as followed WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES As a trainee, I analyze last six years data, which show that MODERN INSULATORS LIMITED has ability to estimate optimal working capital and to arrange it through sources. MODERN INSULATORS LIMITEDS last six years record of working capital show that company is performing better than before and some place remain to improve it. WORKING CAPITALCASH MANAGEMENT Cash is the important the business running on a continuous basis It is also the ultimate output expected to be realised by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms operations while excessive cash will simply remain idle, without contributing anything towards the firms profitability. Thus a major function of the Financial Manager is to maintain a sound cash position.

71

Cash is the money which a firm can disburse immediately without any restriction The term cash includes currency and cheques held by the firm and balances in its bank accounts. Sometimes near cash items, such as marketable securities or bank time deposits are also included in cash. The basic characteristics of near cash assets are that they can readily be converted into cash. Cash management is concerned with managing of: i) ii) iii) Cash flows in and out of the firm Cash flows within the firm Cash balances held by the firm at a point of time by financing deficit or inverting surplus cash. Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit cash has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time it also seeks to achieve liquidity and control. Therefore the aim of Cash Management is to maintain adequate control over cash position to keep firm sufficiently liquid and to use excess cash in some profitable way. The Cash Management is also important because it is difficult to predict cash flows accurately. Particularly the inflows and that there is no perfect coincidence between the inflows and outflows of the cash. During some periods cash outflows will exceed cash inflows because payment for taxes, dividends or seasonal inventory build up etc. On the other hand cash inflows will be more than cash payment because there may be large cash sales and more debtors realization at any point of time. Cash Management is also important because cash constitutes the smallest portion of the current assets, yet managements considerable time is devoted in managing it. An obvious aim of the firm now-a-days is to manage its cash affairs in such a way as to keep cash balance at a minimum level and to invest the surplus cash funds in profitable opportunities. In order to resolve the uncertainty about cash flow prediction and lack of synchronization 72

between cash receipts and payments, the firm should develop appropriate strategies regarding the following four facets of cash management.

1. Cash Planning: - Cash inflows and cash outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should prepared for this purpose. 2. Managing the cash flows: - The flow of cash should be properly managed. The cash inflows should be accelerated while, as far as possible decelerating the cash outflows. 3. Optimum cash level: - The firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances. 4. Investing surplus cash: - The surplus cash balance should be properly invested to earn profits. The firm should decide about the division of such cash balance between bank deposits, marketable securities and inter corporate lending. The ideal Cash Management system will depend on the firms products, organisation structure, competition, culture and options available. The task is complex and decision taken can effect important areas of the firm. Functions of Cash Management: Cash Management functions are intimately, interrelated and intertwined Linkage among different Cash Management functions have led to the adoption of the following methods for efficient Cash Management: Use of techniques of cash mobilization to reduce operating requirement of cash Major efforts to increase the precision and reliability of cash forecasting. 73

 Maximum effort to define and quantify the liquidity reserve needs of the firm. Development of explicit alternative sources of liquidity Aggressive search for relatively more productive uses for surplus money assets. The above approaches involve the following actions which a finance manager has to perform. 1. To forecast cash inflows and outflows 2. To plan cash requirements 3. To determine the safety level for cash. 4. To monitor safety level for cash 5. To locate the needed funds 6. To regulate cash inflows 7. To regulate cash outflows 8. To determine criteria for investment of excess cash 9. To avail banking facilities and maintain good relations with bankers Motives for holding cash: There are four primary motives for maintaining cash balances: 1. Transaction motive 2 .Precautionary motive 3. Speculative motive 4. Compensating motive 74

1.

Transaction motive: - The transaction motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronised with cash receipts. If the receipts of cash and its disbursements could exactly coincide in the normal course of operations, a firm would not need cash for transaction purposes. Although a major part of transaction balances are held in cash, a part may also be in such marketable securities whose maturity conforms to the timing of the anticipated payments.

2.

Precautionary motive: - Precautionary motive of holding cash implies the need to hold cash to meet unpredictable obligations and the cash balance held in reserve for such random and unforeseen fluctuations in cash flows are called as precautionary balances. Thus, precautionary cash balance serves to provide a cushion to meet unexpected contingencies. The unexpected cash needs at short notice may be the result of various reasons as : unexpected slowdown in collection of accounts receivable, cancellations of some purchase orders, sharp increase in cost of raw materials etc. The more unpredictable the cash flows, the larger the need for such balances. Another factor which has a bearing on the level of precautionary balances is the availability of short term credit. Precautionary cash balances are usually held in the form of marketable securities so that they earn a return.

3.

Speculative motive: - It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected movements and which are typically outside the normal course of business. The speculative motive represents a positive and aggressive approach. Firms aim to exploit profitable opportunities and keep cash in reserve to do so. The speculative motive helps to take advantage of :In opportunity to purchase raw materials at a reduced price on payment of immediate cash; A chance to speculate on interest rate movements by buying securities when interest rates are expected to decline; delay purchases of raw materials on the anticipation of decline in prices; etc.

75

4.

Compensation motive: - Yet another motive to hold cash balances is to compensate banks for providing certain services and loans. Banks provide a variety of services to business firms , such as clearances of cheques, supply of credit information, transfer of funds, etc. While for some of the services banks charge a commission of fee for others they seek indirect compensation. Usually clients are required to maintain a minimum balance of cash at the bank. Since this balance can not be utilised by the firms for transaction purposes, the bank themselves can use the amount for services rendered. To be compensated for their services indirectly in this form, they require the clients to always keep a bank balance sufficient to earn a return equal to the cost of services. Such balances are compensating balances. Compensating balances are also required by some loan agreements between a bank and its customer.

CASH MANAGEMENT: OBJECTIVES The Basic objective of cash management is two fold: (a) To meet the cash disbursement needs (payment schedule); (b) To minimize funds committed to cash balances. These are conflicting and mutually contradictory and the task of cash management is to reconcile them. Meeting the payments schedule: - A basic objective of the cash management is to meet the payment schedule, i.e. to have sufficient cash to meet the cash disbursement needs of the firm. The importance of sufficient cash to meet the payment schedule can hardly be over emphasized. The advantages of adequate cash are : (i) it prevents insolvency or bankruptcy arising out of the inability of the firm to meet its obligations; (ii) the relationship with the bank is not strained; (iii) it helps in fostering good relations with trade creditors and suppliers of raw materials, as prompt payment may also help their cash management; (v) it leads to a strong credit rating which enables the firm to purchase goods on favorable terms and to maintain its line of credit with banks and 76

other sources of credit; (vi) to take advantage of favorable business opportunities that may be available periodically; and (vi) finally the firm can meet unanticipated cash expenditure with a minimum of strain during emergencies, such as strikes , fires or a new marketing campaign by competitors. Minimizing funds committed to cash balances: - The second objective of cash management is to minimize cash balances. In minimizing cash balances two conflicting aspects have to be reconciled. A high level of cash balance will, ensure prompt payment together with all the advantages, but it also implies that large funds will remain idle ultimately results less to the expected. A low level of cash balances, on the other hand, may mean failure to meet the payment schedule that aim of cash management should be to have an optimal amount of cash balances CASH MANAGEMENT TECHNIQUES & PROCESSES The following are the basic cash management techniques and process which are helpful in better cash management: Speedy cash collection: In managing cash efficiently the cash in flow process can be accelerated through systematic planning and refined techniques. These are two broad approaches to do this which are narrated as under: Prompt payment by customer: One way to ensure prompt payment by customer is prompt billing with clearly defined credit policy. Another and more important technique to encourage prompt payment the by customer is the practice of offering trade discount/cash discount. Early conversion of payment into cash: Once the customer has makes the payment by writing its cheques in favor of the firm, the collection can be expedited by prompt encashment of the cheque. It will be recalled that there is a lack between the time and cheque is prepared and mailed by the customer and the time funds are included in the cash reservoir of the firm. 77

Concentration Banking: In this system of decentralised collection of accounts receivable, large firms which have a large no. of branches at different places, select some of these which are strategically located as collection centers for receiving payment for customers. Instead of all the payments being collected at the head office of the firm, the cheques for a certain geographical areas are collected at a specified local collection centers. Under this arrangement the customers are required to send their payments at local collection center covering the area in which they live and these are deposited in the local account of concerned collection, after meeting local expenses, if any. Funds beyond a predetermined minimum are transferred daily to a central or disbursing or concentration bank or account. A concentration banking is one with which the firm has a major account usually a disbursement account. Hence this arrangement is referred to as concentration banking. Lock-Box System: The concentration banking arrangement is instrumental in reducing the time involve in mailing and collection. But with this system of collection of accounts receivable, processing for purposes of internal accounting is involved i.e. sometime in elapses before a cheque is deposited by the local collection center in its account. The lock-box system takes care of these kind of problem, apart from effecting economy in mailing and clearance times. Under this arrangement, firms hire a post office box at important collection centers. The customers are required to remit payments to lock-box. The local banks of the firm, at respective places, are authorized to open the box and pick up the remittance received from the customers. Usually the authorised bank picks up the cheques several times a day and deposits them in the firms account. After crediting the account of the firm the banks send a deposit 4epo slip along with the list of payments and other enclosures, if any, to the firm by way of proof and record of the collection. Slowing disbursements: A basic strategy of cash management is to delay payments as long as possible without impairing the credit rating/standing of the firm. In fact, slow disbursement represents a source of funds requiring no interest payments. There are 78

several techniques to delay payment of accounts payable namely (1) avoidance of early payments; (2) centralized disbursements; (3) floats; (4) accruals. Avoidance of early payments: One way to delay payments is to avoid early payments. According to the terms of credit, a firm is required to make a payment within a stipulated period. It entitles a firm to cash discounts. If however payments are delayed beyond the due date, the credit standing may be adversely affected so that the firms would find it difficult to secure trade credit later. But if the firm pays its accounts payable before the due date it has no special advantage. Thus a firm would be well advised not to make payments early i.e. before the due date. Centralized disbursements: Another method to slow down disbursements is to have centralized disbursements. All the payments should be made by the head office from a centralized disbursement account. Such an arrangement would enable a firm to delay payments and conserve cash for several reasons. Firstly it involves increase in the transit time. The remittances from the head office to the customers in distant places would involve more mailing time than a decentralized payment by a local branch. The second reason for reduction in operating cash requirement is that since the firm has a centralized bank account, a relatively smaller total cash balance will be needed. In the case of a decentralized arrangement, a minimum cash balance will have to be maintained at each branch which will add to a large operating cash balance. Finally, schedules can be tightly controlled and disbursements made exactly on the right day. Float: A very important technique of slow disbursements is float. The term float refers to amount of money tied up in the cheque that have been written, but have yet to be collected and encashed. Alternatively, float represents the difference between the bank balance and book balance of cash of a firm. The difference between the balance as shown in the firms record and the actual bank balance is due to transit and processing delays. There is time lag between the issue of a cheque by the firm and its presentation to its bank by the customers bank for payment. The implication is that although a cheque has been issued cash would be required later when the cheque resented for encashment. Therefore, a firm can send remittance although it does not have cash in its 79

bank at the time of issuance of cheque. Meanwhile, funds can be arranged to make payments when the cheque is presented for collection after a few days. Float used in this sense is called cheque kitting. Accruals: Finally, a potential tool for stretching accounts payable is accruals which are defined as current liabilities that represent a service or goods received by a firm but not yet paid for. For instance, payroll, i.e. remuneration to employees, who render services in advance and receive payment later. In a way they extend credit to the firm for a period at the end of which they are paid, say, a week or month. The longer the period after which payment is made, the greater the amount of free financing and the smaller the amount of cash balances required. Thus, less frequent payrolls, i.e. monthly as compared to weekly, are important sources of accruals. They can be manipulated to slow down disbursements.

DETERMINING THEOPTIMAL LEVEL OF CASH BALANCE:

Cash balance is maintained for the transaction purposes and additional amount may be maintained as a buffer or safety stock. The Finance manager should determine the appropriate amount of cash balance. Such a decision is influenced by trade-off between risk and return. If the firm maintains a small cash balance , its liquidity position becomes week and suffers from a paucity of cash to make payments. But a higher profitability can be attained by investing released funds in some profitable opportunities. When the firm runs out of cash it may have to sell its marketable securities, if available, or borrow. This involves transaction cost. On the other hand if the firm maintains a higher level of cash balance, it will have a sound liquidity position but forego the opportunities to earn interests. The potential interest lost on holding large cash balance involves opportunities cost to the firm.

80

Thus the firm should maintain an optimum cash balance, neither a large nor a small cash balance. To find out the optimum cash balance the transaction cost and risk of too small balance should be matched with opportunity costs of too large a balance should be matched with opportunity cost of too large a balance. Figure shows this trade-off graphically. If the firm maintains larger cash balances its transaction cost would decline, but the opportunity cost would increase. At point X the sum of two costs is minimum. This is the point of optimum cash balance. Receipts and disbursement of cash are hardly in perfect synchronization. Despite the absence of synchronization it is not difficult to determine the optimum level of cash balance. If cash flows are predictable it is simply a problem of minimizing the total costs - the transaction cost and the opportunity cost. The determination of optimum working cash balance under certainty can thus be viewed as an inventory problem in which we balance the cost of too little cash ( transaction cost) against the cost of too much cash( opportunity cash) Cash flows, in practice, are not completely predictable. At times they may be completely random. Under such a situation, a different model based on the technique of control theory is needed to solve the problem of appropriate level of working cash balance. With unpredictable variability of cash flows, we need information on transaction costs, opportunity costs and degree of variability of net cash flows to determine the appropriate cash balance. Given such data the minimum and maximum of cash balances should be set. Greater the degree of variability, higher the minimum cash balance. Whenever the cash balance reaches a maximum level, the differences between maximum and minimum levels should be 81

invested in marketable securities. When balance is falls to zero, marketable securities should be sold and proceed should be transferred to the working cash balances.

3.7 Limitations:
Certain assets and liabilities are not discussed in the balance sheet such as management people, their quality and high degree of skill, the most tangible asset. Balance sheet pertains to a point of time relating to past, and thus may not be very helpful for the investors concerned about the present and future analysis. Provision for depreciation, stock valuation and amounts to be set aside for bad debts are based on personal judgments and, therefore, are not free from bias. Financial Statements do not record and reveal any fact, which cannot be expressed in terms of money. General health conditions of the chairman, working conditions, sales policy, quality of the product, etc., cannot be included in financial statements. Financial Statements are based on accounting policies, which vary from enterprise to enterprise both within a single country and among countries. Thus the users of financial statements cannot make reliable judgments unless the accounting policies are not disclosed. Balance sheet does not disclose information relating to change in management, loss of markets, and cessation of agreements, which have a vital bearing on the earning of the company. Difficulty in getting information relating to industrial standards

Difficulty in forecasting future trends. 82 Care has to be taken while recording data from financial statements.

4. Facts and Findings

MEMORANDUM STATEMENT (Rs. in lacs) YEAR S. NO. (1) (2) Sales (gross) (3) Exports(FOB value) (Included Gross sales) PBID (4) (5) Cash profit/loss Net Profit 2909 1057 453 1184 623 1667 1307 1795 1501 2080 1514 2170 2612 1424 in 1861 3434 4344 4460 5747 8528 Production (M.T.) 5464 7476 8626 10704 12983 14764 12146 Particulars 200304 4581 200405 5711 200506 6743 200607 8336 200708 9356 200809 10834 200910 13051 21169

2265 (6) 11 179 775 1120 1079 1126

83

BALANCE SHEET (For the year ended 31st march) As at PARTICULARS 2004-05 As at 200506 As at 200607 As at 200708 As at 200809 As at 2009-10

84

COMPARATIVE BALANCE SHEET (For the year ended 31st march) Rs. in lacs Particulars YEAR 2009 YEAR 2010 Increase / (Decrease) Change in %

85

SOURCE OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus 2174.35 2859.54 5033.89 LOAN FUNDS Secured loans Unsecured loans 1317.39 700.00 2017.39 Deferred tax liability TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress 9928.02 5276.267 4651.76 105.67 4757.43 86 10705.75 5618.55 5087.20 158.34 5245.54 777.73 342.29 435.44 52.67 488.11 7.83 6.48 9.36 49.99 708.07 7759.35 1429.94 500.00 1929.94 797.01 9218.56 112.55 (200.00) (87.45) 88.94 1459.21 8.54 28.57 4.33 12.56 18.80 2174.35 4317.26 6491.61 1457.72 1457.72 50.97 28.98

INVESTMENTS CURRENT ASSETS, LOAN & ADVANCE Inventories

0.01

.0.01

10.25 -

2164.70 Sundry Debtors 2295.92 Cash and bank balance 88.80 Loans and advance 691.25 5240.67 LESS: CURRENT LIABI.& PROVISION Current liabilities Provision 1918.37 320.39 2238.76 Net current assets Miscellaneous Exp. Profit &loss A/C 3001.91 7759.35

2225.11 2793.91 1438.40 748.46 7206.28

60.41 497.99 1349.6 57.61 1965.61 2.79 21.69 1519.81 8.33 37.50

2541.28 691.99 3233.27 3973.01 9218.56

622.91 371.6 994.51 971.1 1459.21 32.47 115.9 44.42 32.34 18.80

87

PROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH) (Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07 INCOME Turnover Less: Excise Duty Net Turnover 7078.78 Other Income 14.46 Increase (decrease) in stock (378.01 ) 8257.79 EXPENDITURE Material Cost Employees Cost Operation Exp. Depreciation Less: charged form 88 & Other 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) (36.40) 417.77 5394.16 6715.23 2559.18 1848.90 688.02 (111.95 ) 82.47 66.32 26.50 7475.52 (396.74 ) 8303.42 8775.10 471.68

10704.17 12982.80 14763.65 21169.01 670.23 890.99 731.93 1175.90

10033.94 12091.81 14031.72 19993.11 56.97 (98.35) 125.26 135.05 112.02 (188.60)

10142.91 12050.43 14292.03 19916.53

3190.23 744.30 6602.07 448.65 (14.20)

3355.62 844.80 8667.15 298.76 -

4637.53 974.55 11692.03 347.57 -

revaluation reserve

(26.41) 6535.76

7482.23 775.56

9022.73 1120.18

10971.05 13166.33 17651.68 1079.38 1125.70 2264.85

Profit Before Tax Less: Provision for tax

179.47 44.57 9.25 569.52 (0.65) (35.28) 533.59 239.64 293.95 1050.44 149.29 212.96 757.93 1.37 293.88 275.63 52.74 571.01 2.28 1050.44 1799.17 271.96 50.09 803.65 7.92 1799.17 139.64 2834.54 710.31 88.94 1465.60 7.88 2834.54 4292.26

Current tax 230.81 Deferred tax (60.59) Profit After tax 0.15 Add: Taxation in 25.16 respect of earlier year

Add: balance brought forward (35.28) Less: Debenture redemption reserve Balance sheet (Surplus available carried

2.62

3.49

3.45 3.70

6.74

forward to balance

for appropriation) Earning Per Share (25000000 each) 89 Equity

Shares of Rs. 10/-

COMPARATIVE INCOME STATEMENT (For the year ended 31st march) Rs. in lacs YEAR YEAR PARTICULAR 2009 2010 Increase / Change (Decrease) in %

90

INCOME Turnover Less: Excise Duty Net Turnover Other Income Increase (decrease) in stock 14763.65 731.93 14031.72 125.26 135.05 14292.03 EXPENDITURE Material Cost Employees Cost Operation & Other Exp. Depreciation 3355.62 844.80 8667.15 298.76 4637.53 974.55 1281.91 129.75 38.20 15.35 34.90 16.33 21169.01 6405.36 1175.90 443.97 43.38 60.65 42.48 (10.57) (239.65) 39.33

19993.11 5961.39 112.02 (188.60) (13.24) (323.65)

19916.53 5624.5

11692.03 3024.88 347.57 48.81

13166.33

17651.68 4485.35

34.06

Profit Before Tax Less: Provision for tax Current tax

1125.70

2264.85

1139.15

101.19

271.96

710.31

438.35

161.18

91

Deferred tax Profit After tax

50.09 803.65

88.94 1465.60 7.88 2834.54

38.85 661.95 (0.04) 1035.37

77.56 82.38 (0.50) 57.54

Add: Taxation in respect of earlier 7.92 year 1799.17 Add: balance brought forward

2834.54 Balance carried forward to 26 balance sheet (Surplus appropriation) Earning Per Share (25000000 Equity Shares of Rs. 10/- each) available for 3.70

4292. 1457.72

51.42

3.04 6.74

45.10

92

PROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH) (Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07

93

INCOME Turnover Less: Excise Duty Net Turnover 7078.78 Other Income 14.46 Increase (decrease) in stock (378.01 ) 8257.79 EXPENDITURE Material Cost Employees Cost Operation Exp. Depreciation & Other 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) Less: charged form (26.41) revaluation reserve 6535.76 775.56 Profit Before Tax Less: Provision for tax Current tax 94 9.25 569.52 230.81 757.93 571.01 803.65 1465.60 179.47 149.29 44.57 212.96 52.74 50.09 88.94 275.63 271.96 710.31 9022.73 7482.23 1120.18 1079.38 1125.70 2264.85 10971.05 13166.33 17651.68 (36.40) (14.20) 417.77 448.65 298.76 347.57 5394.16 6602.07 8667.15 11692.03 6715.23 2559.18 1848.90 688.02 744.30 844.80 974.55 3190.23 3355.62 4637.53 (111.95 ) 10142.91 12050.43 14292.03 19916.53 82.47 (98.35) 135.05 (188.60) 66.32 26.50 56.97 125.26 112.02 7475.52 (396.74 ) 8303.42 10033.94 12091.81 14031.72 19993.11 8775.10 471.68 10704.17 12982.80 14763.65 21169.01 670.23 890.99 731.93 1175.90

Deferred tax Profit After tax Add: Taxation

(60.59) 0.15 in 25.16 -

(0.65) (35.28) 533.59 239.64 293.95

1.37 293.88

2.28 1050.44 -

7.92 1799.17 139.64 2834.54

7.88 2834.54 4292.26

respect of earlier year 1050.44 1799.17 Add: balance brought forward Less: Debenture 2.62 Balance sheet (Surplus available carried forward to balance (35.28)

3.49

3.45 3.70

6.74

redemption reserve

for appropriation) Earning Per Share (25000000 each) Equity

Shares of Rs. 10/-

95

Sales Trend Analysis (MT)

STATEMENT OF CHANGE IN WORKING CAPITAL (Rs. in lacs) YEAR 96 Increase/

2009 PARTICULARS (A) CURRENT ASSETS Inventories Sundry Debtors Cash And Bank balance Loans and advances TOTAL (B) CURRENT LIABILITIES Sundry creditors and other liab. Interest accrued but not due Unclaimed Dividend Sundry Deposit All Provision TOTAL WORKING CAPITAL (A-B) 42.50 320.39 2238.76 3001.91 1875.87 2164.70 2295.92 88.80 691.25 5240.67

2010 (Decrease)

Change in %

2225.11 2793.91 1438.14 748.86 7206.28

60.41 497.99 1349.6 57.61 1965.61

2.79 21.69 1519.65 8.33 37.50

2490.41 50.86 691.99 3233.27 3973.01

614.54 8.36 371.6 994.51 97.11

32.76 19.63 115.98 44.42 3.23

6. SWOT analysis
The SWOT analysis is an extremely useful tool for understanding and decisionmaking for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. 97

A SWOT analysis is a process to identify where you are strong and vulnerable where you should defend and attack. The result of the process is a plan of action, or action plan. The analysis can be performed on a product, on a service, a company or even on an individual. Aim of a SWOT analysis

Reveal competitive advantages Analyze prospects for sales, profitability and product development Prepare company for problems Allow for the development of contingency plans

Strength There is no debt associated with the firm. Properly maintained records of the firm. 98

Company has achieved certificate of Highest Tax Payer. Company is enjoying good leadership.

WeaknessBusiness is based on single product. There is no internal training provided by the firm as per the requirement. OpportunitiesIncreasing demand of marbles in society. Nuclear families are increasing faster, which are using the product in high quantity. Hotels, hospitals and other centers are using marbles. Company can export marbles, as there is high demand in other countries. ThreatsIncreasing trend of uses of ceramic tiles instead of marbles. Importing of foreign marbles. Manufacturing of marbles needs huge level of water.

7. Conclusion99

Financial analysis reveals the financial position of the company, and is of help to various financial institutions in making lending and investment decisions. Ratios calculated for a period of years help in establishing trends, thereby, helping in preparation of plans for future. Weaknesses in financial structure on account of incorrect policies in the past or present are revealed through financial analysis. Firms financial condition is sound. There is no debt associated with the firm due to cash transaction. Net profit of the firm is continuously increasing. Employee turnover is 1% per annum. MODRNE INSULATOR Ltd. is a company where best practices of financial management are applied every day. It is very well rated by financial institutions. This gives the company possibility of cooperation with financial basis on every field and even the most sophisticated products are dedicated to the company. The company also has good relations with governmental institutions and wisely uses scheme and facilities provided by state. In effect costs of debts are very low and cost of borrowing capital for new projects is at lowest possible level.

100

8. Recommendations & Suggestions

Certain assets and liabilities should be discussed in the balance sheet such as management people, their quality and high degree of skill, the most tangible asset. MODREN INSULATOR Ltd. has a big network of suppliers. These suppliers vary in size and business MODREN INSULATOR Ltd. can take benefit of its creditworthiness with financial institutions and can introduce many of its small vendors to channel financing. Many private and PSU banks offer this facility. If MODREN INSULATOR Ltd. introduces its selected suppliers to the bank, the suppliers creditworthiness will be identified by the bank. The supplier will be able to get finance from the bank in his own name under drawee bills financing due to his business with MODREN INSULATOR Ltd. This will solve his liquidity problem and it will be possible for MODREN INSULATOR Ltd. to get better credit period. The company has recently implemented ERP system in the organization. This has given further advantage to the company to complete all activities on line. Company has huge cash amount in its account. Company can use this amount for further expansions.

101

9. AppendixPROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH(Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07

102

INCOME Turnover Less: Excise Duty Net Turnover 7078.78 Other Income 14.46 Increase (decrease) in stock (378.01 ) 8257.79 EXPENDITURE Material Cost Employees Cost Operation Exp. Depreciation & Other 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) Less: charged form (26.41) revaluation reserve 6535.76 775.56 Profit Before Tax Less: Provision for tax Current tax 103 9.25 569.52 230.81 757.93 571.01 803.65 1465.60 179.47 149.29 44.57 212.96 52.74 50.09 88.94 275.63 271.96 710.31 9022.73 7482.23 1120.18 1079.38 1125.70 2264.85 10971.05 13166.33 17651.68 (36.40) (14.20) 417.77 448.65 298.76 347.57 5394.16 6602.07 8667.15 11692.03 6715.23 2559.18 1848.90 688.02 744.30 844.80 974.55 3190.23 3355.62 4637.53 (111.95 ) 10142.91 12050.43 14292.03 19916.53 82.47 (98.35) 135.05 (188.60) 66.32 26.50 56.97 125.26 112.02 7475.52 (396.74 ) 8303.42 10033.94 12091.81 14031.72 19993.11 8775.10 471.68 10704.17 12982.80 14763.65 21169.01 670.23 890.99 731.93 1175.90

Deferred tax Profit After tax Add: Taxation

(60.59) 0.15 in 25.16 -

(0.65) (35.28) 533.59 239.64 293.95

1.37 293.88

2.28 1050.44 -

7.92 1799.17 139.64 2834.54

7.88 2834.54 4292.26

respect of earlier year 1050.44 1799.17 Add: balance brought forward Less: Debenture 2.62 Balance sheet (Surplus available carried forward to balance (35.28)

3.49

3.45 3.70

6.74

redemption reserve

for appropriation) Earning Per Share (25000000 each) Equity

Shares of Rs. 10/-

104

COMPARATIVE INCOME STATEMENT (For the year ended 31st march) Rs. in lacs YEAR YEAR PARTICULAR 2009 2010 Increase / Change (Decrease) in %

INCOME Turnover Less: Excise Duty Net Turnover Other Income Increase (decrease) in stock 14763.65 731.93 14031.72 125.26 135.05 14292.03 EXPENDITURE Material Cost Employees Cost Operation & Other Exp. Depreciation 3355.62 844.80 8667.15 298.76 4637.53 974.55 1281.91 129.75 38.20 15.35 34.90 16.33 21169.01 6405.36 1175.90 443.97 43.38 60.65 42.48 (10.57) (239.65) 39.33

19993.11 5961.39 112.02 (188.60) (13.24) (323.65)

19916.53 5624.5

11692.03 3024.88 347.57 48.81

13166.33 105

17651.68 4485.35

34.06

Profit Before Tax Less: Provision for tax Current tax Deferred tax Profit After tax

1125.70

2264.85

1139.15

101.19

271.96 50.09 803.65

710.31 88.94 1465.60 7.88 2834.54

438.35 38.85 661.95 (0.04) 1035.37

161.18 77.56 82.38 (0.50) 57.54

Add: Taxation in respect of earlier 7.92 year 1799.17 Add: balance brought forward

2834.54 Balance carried forward to 26 balance sheet (Surplus appropriation) Earning Per Share (25000000 Equity Shares of Rs. 10/- each) available for 3.70

4292. 1457.72

51.42

3.04 6.74

45.10

106

PROFIT AND LOSS ACCOUNT (FOR THE YEAR ENDED 31ST MARCH) (Rs. in lacs) As at As at As at As at 2007-08 As at 2008-09 As at 2009-10

2004-05 2005-06 2006-07 INCOME Turnover Less: Excise Duty Net Turnover 7078.78 Other Income 14.46 Increase (decrease) in stock (378.01 ) 8257.79 EXPENDITURE Material Cost Employees Cost Operation Exp. Depreciation Less: charged form & Other 1798.12 641.52 630.57 4459.96 3663.64 586.53 469.84 (54.61) (36.40) 417.77 5394.16 6715.23 2559.18 1848.90 688.02 (111.95 ) 82.47 66.32 26.50 7475.52 (396.74 ) 8303.42 8775.10 471.68

10704.17 12982.80 14763.65 21169.01 670.23 890.99 731.93 1175.90

10033.94 12091.81 14031.72 19993.11 56.97 (98.35) 125.26 135.05 112.02 (188.60)

10142.91 12050.43 14292.03 19916.53

3190.23 744.30 6602.07 448.65 (14.20)

3355.62 844.80 8667.15 298.76 -

4637.53 974.55 11692.03 347.57 -

107

revaluation reserve

(26.41) 6535.76

7482.23 775.56

9022.73 1120.18

10971.05 13166.33 17651.68 1079.38 1125.70 2264.85

Profit Before Tax Less: Provision for tax

179.47 44.57 9.25 569.52 (0.65) (35.28) 533.59 239.64 293.95 1050.44 149.29 212.96 757.93 1.37 293.88 275.63 52.74 571.01 2.28 1050.44 1799.17 271.96 50.09 803.65 7.92 1799.17 139.64 2834.54 710.31 88.94 1465.60 7.88 2834.54 4292.26

Current tax 230.81 Deferred tax (60.59) Profit After tax 0.15 Add: Taxation in 25.16 respect of earlier year 1. Add: brought forward Less: Debenture (35.28) 2.62 3.49 3.45 3.70 6.74

balance -

redemption reserve Balance sheet (Surplus available carried

forward to balance

for appropriation) Earning Per Share (25000000 108 Equity

Shares of Rs. 10/each)

109

10. Bibliography
BOOKS: Khan M. Y. and Jain P. K., MANAGEMENT ACCOUNTING, published by Tata McGraw Hill, pg 5.3-5.49, 6.1-6.75, 4th edition. Horngren Charles T., Sundem Gary L., Stratton William o., Bugstahler David, Schatzberg Jeff, INTRODUCTION TO MANAGEMENT ACCOUNTING, PHI Publications, pg 680-756, 14th edition. Drury Colin, MANAGEMENT Thomson Learning, 6th edition. Pr. Agarwal N. P., Dr. Kiradoo Giriraj, MANAGEMENT ACCOUNTING, Ramesh Book Depot, 1st edition. A D Bain, The Financial System (Oxford: Blackwell, 2e, 1992) ch. 1 P G A Howells and K Bain, The Economics of Money, (Harlow: Financial Times Prentice Hall, 3e, 2005) ch. 1 and 2 WEBSITES: http://wwwmodreninsulator.com http://en.wikipedia.org/wiki/financial analysis www.ibef.org/industry/financial analysis.aspx http://josh18.in.com/sectionarchive.php?id=32 www.isid.ac.in/~planning/Slides-ISI-LitReview.pdf www.indian marble industry /v2/showPage.asp?page=aboutUs.asp http://www.isnare.com/?aid=308470&ca=Financ & COST ACCOUNTING, published by

110

Jitendra Virahy as
JVIRAHYAS@GMAIL.COM

111