A Summer Training Report

FINANCIAL RATIOS ANALYSIS AT ALOK INDUSTRIES LIMITED VAPI (FROM 16TH MAY 2011 TO 16TH JULY 2011) FOR THE PARTIAL FULFILLMENT TO DEGREE OF POST-GRADUATE DIPLOMA IN MANAGEMENT Batch: 2010-2012

Submitted to:
Amish Soni sir
(MENTOR & FACULTY MEMBER)

Submitted by:
Ashish Navagamiya

N. R. I NSTITUTE

OF

B USINESS M ANAGEMENT

A HMEDABAD

Preface
In this development and changing world, I feel proud for being a student of PGDM full time course offered by N R INSTITUTE OF BUSINESS MANAGEMENT This report states about the all the departments and their workings policies at the ALOK INDUSTRIES LTD, PROCESSING PLANT BALITHA, TALUKA PARDI, VALSAD

Finance and Function of Finance are the part of Economic activities. As this report also include the Financial Ratio Analysis which checks upon the efficiency of the firm. Ratios indicate the trend or progress or downfall of the firm and are aid to measure financial solvency. This project start with industry analysis, introduction of the company and organization, four major departments of the firm they are finance, marketing, production and human resource. Which are included in general training part and specific research includes concept definition, literature review, objective of the research, research methodology, limitation of research, and the ratio analysis of various ratios, and suggestion. I am sure that this project report would give us enough food for covering different departments of the firm and also the various ratios. I have collected all the needed information for the project report at my best level and the information provided are true and authentic.

ASHISH NAVAGAMIYA PGDM,SEM II, NRIBM, GLS

STUDENTS DECLARATION
Study of Various Departments And Financial Ratio Analysis

This Summer Project report entitled, Financial Ratio Analysis of ALOK INDUSTRIES LTD has been submitted to N R INSTITUTE OF BUSINESS MANAGEMENT at Gujarat Law Society, Ahmedabad in partially fulfillment of P.G.D.M. Degree. Hereby I undersign that this Project Report has been completed by me under the guidance of Mr. Amish Soni (Faculty Member, NRIBM, Ahmedabad) Study of this Project Report is entirely result of my own efforts and research and is original in nature. All the information provided is true and authentic and is not provided artificially. This project report is not submitted either in part or whole to any other institute or university of any degree.

PLACE: AHMEDABAD ASHISH NAVAGAMIYA PGDM, SEM II,

NRIBM DATE:

ACKNOWLEDGEMENT
To improve a little we need to make efforts. Not one or two but till the results. And to learn and act we need guidance. No study however big or small can be undertaken by our own self behind every act there are unforgettable memories, efforts, guidance and blessings if those persons without whom this training would not have gone even a small distance. To be successful in any field practical knowledge is most important and PGDM is incomplete without having a practical knowledge in this era of professionalism. First of all I thank our N. R. I N ST I T U TE OF B U SI N E SS M A NA GEM E NT of PGDM for giving me an opportunity to practically learn about the real happenings in this field and even the faculty member who spent valuable time in helping me to reach the best possible extent. I the trainee am grateful to ALOK INDUSTRIES LTD. for giving me an opportunity in completing the summer training session and report. In particular, I would like to greatly thank to:Mr. H.H. Vasvani (HR Executive & Vice President) at ALOK INDUSTRIES LTD Mr. Bhuvanesh Gupta (Finance Manager) who was my guide during the training session and he guided me in the field of marketing, finance and human resource. Mr. Vivek Tripathi & Mr. Manish Sharma of Human Resource Department who helped us for providing us time-to-time guidance in our training Dr Hitesh Ruparel (Director, NRIBM, Ahmedabad) Mr. Amish Soni (Mentor and Faculty Member at NRIBM, Ahmedabad).

They guided and motivated me whenever required. In spite of their busy schedule they spend their precious time with me and also gave all practical knowledge of real world which has to be faced by us and experience sharing moments which will be helpful in future life.

Thanking You. ASHISH NAVAGAMIYA PGDM,SEMII, NRIBM

EXECUTIVE SUMMARY As a partial fulfillment of my MBA curriculum I have undergone six weeks summer training at ALOK INDUSTRIES. I have done my summer training project at VAPI branch. The entire report is an unforgettable journey of support, knowledge, experience, dedication, perfection, and patience. Company details and its progress and its interpretation base for analysis, conclusion, findings, which helped a lot in company analysis. Accounting, ratio analysis, cash flow analysis, leverage. and necessary information for generating base for conclusion. In short all efforts which was made to make this report explains

WORK IS WORSHIP

TABLE OF CONTENT
Chapter No. 1. 2. 3. 4. CONTENT Research Methodology Industry Profile Company Profile Key Departments -Production Department -Human Resource department Department -Marketing Department -Finance Department 5. Research Report On Financial Management -Ratio analysis -Working Capital Management -Financial Leverage -Cash Flow Statement Analysis 6. 7. 8. 9. Findings from the Project Suggestion and conclusion Bibliography Annexure 54 92 96 102 108 110 111 112 30 35 41 48 Page No. 9 13 17

List of table Chapter no. 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 Current ratio Quick ratio Debt equity ratio Interest coverage ratio Stock turnover ratio No. of days inventory Debtors turnover ratio Assets turnover ratio Working capital turn over ratio Gross ratio profit margin Net profit margin Rate of return on investment Return on shareholder equity Earning per share EBIT ratio content Page no. 59 63 66 68 71 73 75 77 79 82 84 86 88 90 91

List of chart Chapter no. 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 Current ratio Quick ratio Debt equity ratio Interest coverage ratio Stock turnover ratio No. of days inventory Debtors turnover ratio Assets turnover ratio Working capital turn over ratio Gross ratio profit margin Net profit margin Rate of return on investment Return on shareholder equity Earning per share EBIT ratio content Page no. 60 63 66 69 72 74 75 78 80 83 85 87 89 90 91

Chapter 1 Research Methodology

OBJECTIVES OF RATIO ANALYSIS: The main objective of ratio analysis is to show the firms relative strengths and weakness. The objectives of ratio analysis are as follows: It determines the financial condition and financial performance of the firm. It involves comparison for a useful interpretation of the financial statements. It helps in finding solutions to unfavorable financial statements. It helps to take suitable corrective measures when the financial conditions and performance are unfavorable to the firm, in comparison to other firms in the same industry. With the help of this analysis, an analyst can determine the The ability of the firm to meet its obligations. The efficiency with which the firm is utilizing its various assets ingenerating sales. The overall operating efficiency and performance of the firm.

NATURE OF RATIO ANALYSIS: Ratio analysis is a technique of analysis and interpreting of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in It self. It is only a means of better understanding of financial strengths and weakness of any institution.

The following are the steps involved in ratio analysis:1. Selection of relevant data from the statements depending upon the objective of the analysis.2. Calculation of appropriate ratios from the above data.3. Comparison of the calculated ratios with the past ratios of the same institute, or with the ratios

NEED FOR THE STUDY: The financial parameters are the ultimate performance indicator of any company. This is because invariability all costs and efficiency activities and solvency position of the company will reflect the financial status of the company. The following are stated to be in the need for the study:

To know the financial performance of Alok industries. To know the operating efficiency of the company. To know liquidity position of the company.

To understand the movements of profits over a period of time. To know the reasons for the variation of profits. In short, this study is conducted so that the financial performance evaluation will serve as an eye opener to the company. RESERCH DESIGN We have selected both the design exploratory and mostly descriptive for research.

DATA COLLECTION: Since the study is restricted only to financial statements of ALOK INDUSTRIES there is no scope for the primary collection of data. The data collection is done through Secondary data which is collected by referring annual reports i.e. balance sheets, profit and loss account etc, of ALOK INDUSTRIES

LIMITATIONS OF THE STUDY: This study is limited to ALOK INDUSTRIES Vapi Since, the company is one among the corporate sector so it was a bit tough for me to approach the company at regular intervals. Since the study is an academic effort, availability time was the constraint.

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LITERATURE REVIEW By Rosemary Peavler Rosemary Carlson Peavler is a retired college professor of Business Finance. She has been granted the status of Professor Emeritus from Morehead State University at which she taught for 27 years. She has been a freelance writer in finance and a small business consultant for 15 years. Financial ratio analysis is one tool of investigating and comparing relationships between different pieces of financial information. You use information from the income statement and balance sheet to calculate financial ratios in order to determine information about your small business firm. There are any number of ratios you could calculate. To solve that problem, there are some standard ratios that most business firms use. The problem with ratios is that they are useless unless they are compared to something. For example, if you calculate your firm's debt ratio for one time period (let's say a year) and it's 50%. What does that really mean? All you can take from that is that, since the debt ratio is Total Liabilities/Total Assets, 50% of your firm's assets are financed by debt. You you have something to compare that 50% to. 2) (Jen Smith 2007). Financial Statements serve a major purpose in any business or organization. The main purpose of Financial Statements, according to HBS Management(Singer,2007), is for a business to determine how well they are doing as a company. Financial Statements also tell the organizations stockholders and investors how profitable the company is. Lenders use financial statements to see if a company can afford to pay their bills on when they are due. Financial Statements provise lots of information for all the people involved in a company. If these differences are not recognized, both the financial analyst and those who use the analysis can severely misunderstand. 3) Caffe Nero(2006). Ratio Analysis. A tool used to conduct a quantitative analysis of information in a companys financial statements. Ratios are calculated from current year numbers and are than compared to previous years, other companies, the industry to judge the performance of the company. Financial performance based on may 2006 interim report. It had another year of solid progress, again achieving revenue and profit growth. 4)William F slater,IIIJuly(2003), this research paper will evaluate Sample Company using review standara financial ratio analysis techniques and assess its potential as a good investment. Iy focuses on for sound financial advice with regards to whether of not buying stock in sample company is a sound investment.

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Trend and Industry Analysis That's where trend (time-series) and industry (cross-sectional) analysis come in. You can compare your firm's ratios to trend data, which is data from other time periods for your firm, to see how your firm is doing over a series of time periods. You can also compare your firm's ratios to industry data. You can gather data from similar firms in the same industry, calculate their financial ratios, and see how your firm is doing compared to the industry at large. Ideally, to get a good picture of the financial picture of your firm, you should do both.

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Chapter 2 Industry Profile: Textile Industry in India

Textile Industry in India is the second largest employment generator after agriculture. It holds significant status in India as it provides one of the most fundamental necessities of the people. Textile industry was one of the earliest industries to come into existence in India and it accounts for more than 30% of the total exports. In fact Indian textile industry is the second largest in the world, second only to China Textile Industry is unique in the terms that it is an independent industry, from the basic requirement of raw materials to the final products, with huge value-addition at every stage of processing. Textile industry in India has vast potential for creation of employment opportunities in the agricultural, industrial, organized and decentralized sectors & rural and urban areas, particularly for women and the disadvantaged. Indian textile industry is constituted of the following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute. Till the year 1985, development of textile sector in India took place in terms of general policies. In 1985, for the first time the importance of textile sector was recognized and a separate policy statement was announced with regard to development of textile sector. In the year 2000, National Textile Policy was announced. Its main objective was: to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market. The policy also aimed at achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion. The textile industry is anticipated to generate 12mn new jobs in various sectors.

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Strengths of Indian textile Industry

India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc. India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates. Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates. India is highly competitive in spinning sector and has presence in almost all processes of the value chain. Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets.

Weaknesses of Indian textile Industry

Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to enhance technology or invest in the high-end engineering of processes. Hence they lose in productivity. Indian labor laws are relatively unfavorable to the trades and there is an urgent need for labor reforms in India. India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.

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Overview of Indian Textile Industries:

Indian Textile Industry on track for success
The US imports of textile and apparel from the world shows a rising trend on an annual basis. The imports in Feb 11 have jumped by 12% to reach US$ 7.42 billon as compared to Feb 2010. On a quarter on quarter basis also, the imports jumped by 17% to US$ 24 billion for quarter ending Dec10 as compared to same quarter previous year. Total textile & apparel imports of EU from the world rose by 27% in Jan 2011 to touch US$ 12 billion as compared to Jan 10. Even last year, the total EU imports of textile and apparel goods increased by 12% to reach US$ 122 billion, for Jan Dec 2010 as compared to same period previous year.

Indian Textile Update

The Indian exports of textiles and apparel category to EU has also shown a positive growth. The exports have grown by 17% for the ten months ending Jan 2011 as compared to same period last year. Indian Textiles and Apparel market, both domestic and exports, continues to grow. In 2010, the total Indian T&A market was estimated to be around Rs 3, 68,000 crores (US$ 78 billion) and is estimated to grow @ 11% CAGR to reach Rs 10, 32,000 crores (US$ 220 billion) by 2020. Start of 2011, has witnessed a further strengthening of yarn prices. Due to demand side pressures, there is a continuous rise in raw material prices. The average prices of cotton yarn rose by 45 % in Mar 11 to reach Rs. 207/Kg while PV yarn and PC yarn has shown 35%increase each for the same period and stands at Rs. 233/kg and Rs. 221/kg respectively.

Recent Government Initiatives: There have been various steps taken by the Government to continually support the Textile and Clothing Sector:

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RAPID EXPANSION SINCE INCORPORATION IN 1986

Alok Industries Ltd. is representative of this development in the Indian textile industry. The company was incorporated as a private limited company in the State of Maharashtra in 1986 and has been a public limited company since 1993. The company started operations in the field of texturing polyester filament yarns. In the 20 years of its brief history Alok Industries Ltd. has undergone an amazing process of diversification and expansion.

The company has expanded its business activities step by step into the fields of weaving, embroidery, knitting, finishing and the manufacture of home textiles and garments. It occupies a leading position in each of these product segments. In order to round off the process chain, Alok Industries Ltd. took the logical step of investing in its own short staple spinning mill in 2007. Its choice of Reiter as systems supplier in this instance was an obvious move in light of the companys own strategic focus.

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Chapter 3 Company Profile:

History of company:Established in 1986 as a private limited company, Alok began with texturizing of yarn and steadily expanded into weaving, knitting, processing, home textiles and readymade garments. And to ensure quality and cost efficiencies Alok have integrated backward into cotton spinning and manufacturing partially oriented yarn through the continuous polymerization route. Alok also controls an extensive embroidery operation through its sister concern, Grabble Alok Impex Ltd. In 1993, Alok became a public limited company. Since then it have continued to increase the scale of its operation and the range of its activities. Today, Alok is amongst the A Group listed companies on Indias leading stock exchanges. That is how they have evolved into a diversified manufacturer of world-class home textiles, garments, apparel fabrics and polyester yarns, selling directly to manufacturers, exporters, importers, retailers and to some of the worlds top brands. Alok has recently entered the domestic retail segment through a wholly owned subsidiary, Alok Retail India Limited, with a chain of stores named H&A that offer garments and home textiles at attractive price points. With the sales turnover of around Rs. 4311.17 cores in 2009-10, Alok is amongst the fastest growing vertically integrated textile companies in India.

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They have also ventured into the realty space through wholly owned subsidiaries with investments in some prestigious projects in Mumbai. Latest achievements of company are S.E.Z. (Social Economic Zone) and this plant held in Surangi. S.E.Z. means no interference of government and police. The joint adventure of company is making Embroidery Company with Austria company name Garble Alok Impex Ltd. The companys Sulzer division is in Dadara. The companys processing plant in Vapi. Companys made-up Division is also in Vapi

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Companys Milestone
Years 1986 1993 1995 Incorporation of the Company Becomes a public limited company with a Rs. 4.5 crore IPO Sets up financial and technical collaboration with Grabal, Albert Grabher GmbH & Co of Austria to make embroidered products through a joint venture company, Grabal Alok Impex Ltd Export Trading House status granted Turnover surpasses Rs. 1,000 crore Texprocil silver trophy awarded for second highest export in manufacturer exporter made ups category ISO 9001:2000 certification obtained 60 per cent stake in Mileta a.s. a Czech Republic-based textile company acquired Controlling stake in U.K based retail store chain, qs (now Store Twenty one) acquired Organic cotton contract farming commenced Gold Trophy for best export performance to Focus LAC countries awarded by Synthetic & Rayon Textile Export Promotion Council Awarded Silver trophy for highest fabric exports and Bronze trophy for highest made ups export Turnover crosses Rs. 2,000 crore Exports crosses Rs. 1,000 crore Joint venture with National Textile Corporation (NTC) to develop, revive New City Mills, Mumbai and Aurangabad Textile Mills, Aurangabad formed Awards from TEXPROCIL for 2007-2008 Gold Trophy for highest exports of bleached/yarn dyed/ printed fabrics Silver Trophy for highest export of made ups Bronze Trophy for highest global exports Special achievement award for exports in fabrics Awarded Outstanding Exporter of the Year Textiles at the International Trade Awards 2007-08; presented by DHL CNBC TV 18 and powered by ICRA Events

2003 2004 2006 2007

2008

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Companys SWOT analysis:SWOT Analysis is done in order to learn about the strength, weaknesses, opportunities & threats of the company. STRENTH:During the year the Alok textiles export grew around 47.84% to RS.1558.99 crores from previous year. The total turnover of Alok Industries ltd RS.4311.17 crores had an increase of 44.82% over the previous years turnover. The profit before tax during the years was Rs.1272.48 crores an increase of 54.69% over the previous year. Alok manufacturing facilities comprises some of the equipments that have met the stringent requirement of global retailers & importers in terms of quality, pricing environment aspects. WEAKNESS:As to state there are no specific weaknesses for Alok Industries, the only problems they are facing is the heavy competition with the international market as well as foreign market. OPPORTUNITIES:The Indian textiles Industry has a much more potential to grow in next organization because major textile payers in U.S.A & Europe are out-location manufacturing company due to the high cost of manufacturing. The Govt. is supporting this industry by technology up gradation scheme, gradual reduction of import duties on Textile Machineries, Rationalization of Indirect taxes. Etc. The industry can avail opportunities that may come in from strategy-tie-up with textile giants from the western word for supply of goods, technical know-how, equity participation, etc. THREATS:Textile industry is facing some challenges also, so Alok Industry cannot remain insolent from this corporation needs to become focused & Flexible. They will have to define key principals required to achieve operational excellence & develop strategies to become customer- focused organization.

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GROUP COMPANY

Alok Apparels Pvt. Ltd. Alok Apparels Pvt. Ltd., set up in 2007, is a wholly owned subsidiary of Alok Industries and manufactures woven and knits fashion garments at Silvassa. Website: www.alokapparels.com

Grabal Alok Impex Ltd.

Grabal Alok Impex Ltd. was incorporated in 1993 to produce world-class embroidery. Grabal Alok was promoted by Alok Industries Ltd., in financial and technical collaboration with Grabal, Albert Grabher GmbH & Co of Austria. The company started manufacturing operations in 1996 after setting up its first plant in Navi Mumbai with an installed capacity of 290 million stitches a year. It has subsequently expanded capacities, setting up another plant at Silvassa, and has emerged as one of the largest makers of embroidered fabric with a capacity of 34 billion stitches a year. Website: www.grabalalok.com

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Mileta A.S.
In April 2007, Alok acquired 60% of the equity of Mileta a.s, a top of the line integrated textile entity situated in the Czech Republic; subsequently, Alok has raised its stake in the company to 79.80%. Mileta is one of the premium textile enterprises in Europe, manufacturing handkerchiefs, shirting fabrics, table linen, bed linen and other premium products. Mileta exports most of its production to Europe, North and South America, Africa, Middle East, Far East and Australia. The Mileta acquisition brings significant synergies to both entities. While Alok has access to Miletas premium-product technology and penetrates deeper into high-end European markets, Mileta now has a strong support base and easy access to India. Miletas brands Mileta, Erba, Cottonova, Lord Nelson and Wall Street have high recall. Alok has launched some of these brands Erba (for handkerchiefs) and Lord Nelson (for premium shirting) in the Indian market. Cottonova bed linen is now also being manufactured in Aloks plants and being exported. Miletas plant in the Czech Republic has been modernized by installing 40 new Picanol air jet looms. Website: www.mileta.cz

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Alok International Inc.

Alok International Inc is the USA based subsidiary of Alok Industries Limited. The objective behind setting up a subsidiary in USA was to provide forward integration to USA retailers by strengthening the distribution channel. The subsidiary will help Alok to enter into strategic partnerships in the USA. This channel will be used to increase business with the existing customers and further widening the customer base. Also it will help Alok to penetrate markets in South America.

RETAIL

Alok H&A Ltd.

Alok H&A Ltd. was incorporated in 2007 for the domestic retail business under the 'H&A' banner. H&A stores are value retail outlets, positioned as complete family stores for apparel, home textiles and accessories, offering quality textile products at affordable prices.

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H&As products include:

Women's Wear Ready-to-stitch Indian outfits, readymade garments, western wear and accessories Menswear Shirts, trousers, T-shirts, denims, inner wear and accessories Childrens Wear Garments from infant to teenagers for boys and girls Embroidered Fabric For garments and home decorations Home Textiles Bed-sheets, comforters and towels H&A Store Locator

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Companys vision
To become the world's best integrated textile solutions enterprise with leadership position across products and markets, exceeding customer & stakeholder expectation.

Companys mission
They will: Offer innovative, customized and value added services to our customers Actively explore potential markets & products Optimize use of all resources Maximize people development initiatives Become a process driven organization Be a knowledge leader and an innovator in our businesses Exceed compliances and global quality standards Be an ethical, transparent and responsible global organization. Some of the Aloks diversified

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ORGANIZATIONAL CHART

CEO Mr. Aich

Project Director Mr.S.C. Goyal

V. P. Made Ups S.P. Bhupna Wider Width GM Mr. Waancho GM Knits o Mr. Kaul Knits VP

President Prod. Mr. A K Pal Normal Width VP

President Comm. Mr. A K Pal Yarn Dying GM Mr. Naidu Printing DGM Terry Towel GM r. Parvani

V.P. Engg

Chief Mgr.Utility Mr. Kasat DGM Maint.

Mgr. ETP

V.P. Account GM Q & A

DGM HR.

Head Product Devp. DGM Q & A Mr. Vaidva GM PPC

Mr. Chuabal DGM Finishing Mr. Shavant GM Prod.& Devp DGM Folding Mr. Jain Mr. Thakkar

AV PPC

Mgr. Purchase Mr. Vinoj Mgr. IT Mr. Hetal Desai Mgr. Stores Mr. Dhavade

Mgr. MIS & Costing Mr. Singh Mgr. Exise

DGM Process

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Chapter 4 Key Departments

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Production Department
Production Department
Production is one of the main stages of an enterprise without which a manufacturer cant survive. It converts the raw material into semi-finished goods and then converts into finished goods. According to Buffa, Production management deals with decision making regarding production of goods & services at the minimum cost according to demand of customers through the management process of planning, directing, and controlling.

Production Planning
Alok produces textile products. Before producing product Company plans a schedule on a yearly base, monthly bases & it goes very deeply by preparing a weekly schedule. For preparing this schedule they consider the following points.

The lead of the product. The preparation time of the product. The demand of the product in market.

According to these points they use to plan the schedule and give the order to produce the product.

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Responsibility of the Production Manager

The responsibility of the production manager in to the Alok Company is as follows. To control the cost of the production. To motivate workers for maximum efforts. To fulfill demand of the customer. To plan production schedule. To avoid defective goods. To maintain enough semis finish goods as well as finish goods. To decide on way of handling and re handling. To maximize utilization of machinery and manpower.

Production Planning and Control

The aim of the department is fulfill the customer requirement on the time better quality and coordinate with the marketing at head office and the production department at Silvassa (Rakholi)

Buyer-Head Office- PPC- Production

This Department is job is to Check the possibility of availability yarn Give the data to customer Meet the given data Instruct the production units as per priority

Greige Department:
In this department all the raw material comes from Silvassa (Alok division 2 nd branch). 95% of raw material receives from Silvassa branch and rest from outside source/party. There are 3 godowns and centralized SAP system to know about the raw material. Then the stitching of cloths is done and then lot no. is given to each set of roll with quality checked. It has the capacity of producing 1.50 lack meters/day but they produce only 1.30 lack meter/day. Then this material is send to Bleaching Department for further process.

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Bleaching Department:
There are three machines in this department. These machines are imported from Germany. 1. Singedesigne: This machine works for shinning & designing the material.This batch is kept in rotation for 8Hrs 2. Pre-treatment: This machine works for whiteness & smoothness of the material. There are three procedures to the material whiteness & smoothness. There are INJECTA, EXTRACTA, and IMPACTA. Injecta: Gives the steam pressure to material in water at 200 C for stretching the cloth from 5 mts to 7 mts. Extracta: In this section the material is washed by hard washer, soft washer & steam washer at 90 C. Impacta: To remove the natural fats & waxes from the material they use this machine. 3. Mercerization: In this process the material is kept in role why dry process or wet process. If the process is going for continuous process then the wet process is been role and to kept it in go down it is kept as dry. For the dyeing process the material is been giving in wet form.

Dyeing Department:
In this process 3% color & one 1% chemical is pumped through CDR machine. Then after dyeing the material the hard wash is done and then the material is been dried and the role is been send to finishing department.

Finishing Department:
Finishing is applied on the textile material by different chemical and mechanical means. The finish to be applied on textile material depends upon the end of the fabric. MACHINERY IN FINISHING DEPARTMENT STENTER(Monforts) BRUSHING MACHINE(Lafer) SUEDING MACHINE(Lafer) SANFORISER(Monforts) 3 1 1 1

Folding Department 32

After finishing the fabric comes to the folding department for the inspection and packing and grading. Folding department works in four sections 1. Inspection and Grading 2. Recording & data entry 3. Grouping & Sampling 4. Packing

Laboratory Department:
Alok Industry is certified by ISI so the product is of good quality so this department for tests test of material is tested by this department or that there is different machine for check the yarn.

Printing Department:
This is the department were printing is done on the material came from engraving department. There are 12 color shades in a machine. This machine name is Arioli Loop Ager from Germany. This machine can color 90 meter of cloth in 1 min.

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Production process Flow Chart of Alok Industries Ltd.

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Human Resource Department

Human Resources Department
Meaning:
Human Resource Management (HRM) is the function within an organization that focuses on recruitment of, management of, and providing direction for the people who work in the organization. Human Resource Management can also be performed by line managers. Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training

Recruitment
For recruitment of worker/staff category employee for all unskilled, semi skilled and highly grade the firm has different approaches like direct recruitment private employment, agencies, advertisement in news papers and personal sources. Different technique is used for recruitment as per situation, need, importance and urgency for recruitment of man power. Minimum education

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qualification for trainee in STD 10 th pass minimum age criteria for category whether staff or worker is 18 years on the date of recruitment is must. Direct Recruitment:-

The company has adopted recruitment policy for workers belongs to un-skilled and semi skilled grade employees. On every alternative day at the factory main gate personal department conducts the recruitment activity at the factory gate for the persons willing to join the company. Through private Employment agencies:-

For the recruitment of skilled and highly skilled grade employees this type or recruitment source are preferred. The data base of candidates with relative qualification experience and training is available with the agencies. As per our criteria we call prospective candidates for an interview and evaluation the abilities intelligence attitude and experience.

Through Newspaper:-

For the specific recruitment in many cases the application are invited through the advertisement in regional/national news papers. All the application will be shown to concern department heads of short listed candidates are called for interview. Through personal Source:-

We invite people for interview whose information/bio-data will come across/ brought to our knowledge through any of their friend/relatives/classmates or senior or juniors working with our organization.

HRD MR . DIGVIJAY SINGH (C HIEF MANAGER P & A)

MR. SANJAY
PANDEY

MR. SAMPATH (ASST. MANAGER ) OF P&A

MR. KALPESH RAVAL (EXECUTIVE. HR)

MR. MURLI (TRAINING & DEVELOPMENT 36 )

Training and development

Every organization needs to have well framed and experienced employee to perform the activities which have to perform. If the existing people can meet the recruitment then training is of no importance. But it is found vice-versa as for existing employee also newer knowledge of various ways of doing and performing the task in more efficient and cost effective manner keeping in touch with competitiveness, modernization and increase the versatility and adoptability of employee. As the jobs have become more complex, the importance and requirement of training has increased to meet organization objectives. Training is process of learning a sequence of organized input to improve the employees job skill, knowledge, and change in attitude towards his work.

Training methods:On the job Counseling/direction & guidance In house training External training Employees at all levels are expected to endeavor for self development and should try to excel in their performance on their present job and should prepare for future job.

Training modules:AWARENESS PROGRAM QUALITY PRODUCTIVITY/SKILLS DEVELOPMENT SAFETY/HEALTH ENVIRONMENT LATEST TRAND IN TECHONOLOGY BEHAVIOURAL AND COMMUNICATION HRM FOR LINE MANAGER TECHNOLOGY ASPECTS COMPUTER AWARNESS PROGRAMME

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External training:Nomination is done for external programme for which there are no internal programmes. The P&A department will maintain a list of training programme being organized in the country along with evaluation report on the quality of these programs. Based on individual training requirement, the P&A department will recommend to the A.Vp/E.D through the concerned department heads, names of staff to be nominated for various training programmes. In respect of external nomination, the participants on return of the programme attend by him to the concerned manager and a copy of it along with a copy reading materials shall be sent to the

P&A department within maximum period of weeks from return of the training programme.

Ethics of employment
Alok Industries Ltd. is professionally managed company; therefore certain ethics of employment is necessary for achieving climate in organization. No interview is to be conducted/Bio-data from be got filled-in without the approval of personal dept. Personal dept arranges and conducts the requirements process only after approval for requirement is sought. The interview panel is to be earned marked well in advance off the interview and the interview briefing is required to be given to all the panel members by the personal dept. No direct hope, commitments, whatsoever regarding employment should be given to anyone. No compromise on quality standard of people should be made. Frank and free opinion should be exchanged during the course of interview by the panel. All appointment are subjected to credential verification and in case of false, part information or concealed information, the employment of the concerned person is liable for termination, without assigning any cause or notice or compensation in lieu thereof. All appointment will be subjected to production of satisfactory proof release by the previous employer, salary terms, and previous employment and experience certificate of all previous employers. All appointments are subjected to credentials given by the selected candidate being verified and reference report being satisfactory. In case any employee gives wrong information or conceal facts in either the Application for employment from or in subsequent declaration

38

to the company, his employment is liable for termination, without any notice or compensation in lieu thereof.

Period of the candidate joining the duty, the personnel dept will complete following formalities. Intimate the date of joining to the dept. head Seating arrangement (Through personnel dep.) Arrange through P&A for residential accommodation, if required or agreed upon Draw up orientation/Training Programme Finalize the job allocation/description with dept. / division head considering recruitment objectives.

Induction:
The personnel dept. will be Responsible for Completing joining formalities, such as joining report, checking of medical Certificates and medical checkup etc. Instruction to concern executive. Acquainting to new entrant with organization structure, Rules & Regulation Background and history of the company, local information and Assistance. The induction programme of new entrant will is for five days. After completing the cycle of indication the new entrant will be sent to the concerned dept. whenever necessary, the P&A dept. will also issue a general circular regarding the new entrant and his assignment, for information of all employees in company.

Types of appointment:
PERMANENT: All appointments will be against the permanent sanctioned vacancies. All appointments would be on probation of six months. Confirmation will not be deemed to have taken place, unless conveyed in writing. In the absence of any written communication, the probationary period would automatically stand extended.

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 TEMPORARY: Wherever such appointments are authorized, they will be for limited period, specified in their terms of appointments, not exceeding 60 days at any stage. Extension of temporary period beyond 60 days shall also be authorized by A.V.P. TRAINEES: The Company may engage, from time to time, services of such fresh graduates/diploma holders (Technical and Non technical). Who on successful completion of their training period would be absorbed in staff at suitable levels? The terms of appointment and benefits/facilities for such appointments would be as finalized by the management from time to time.

Payment of fare to candidates called for interview

Unless otherwise specified, payment of fare to all outstation candidates called for an interview will be made on the following basis:A) All candidates called for Manager & above B) All persons called for Dy. Manager & below fare

Joining expenses:
It is not the normal practice of the company to pay joining expenses incurred for selected candidates for joining or moving his residence on selection. Exception this can only be authorized by the M.D/E.D/A.V.P. in writing.

Letter of intent: All candidates selected for appointment as staff shall be offered letter of intent indicates the position for which they have been selected. Formal letter of appointment shall
be handed over to the candidate, on the term mutually agreed upon, on the day of joining duty.

Pre-joining formalities:
Candidates selected for joining as staff will be issued letter of intent indicating, a part from the position for which selected, the date/ place of reporting, the documents etc. at the time of reporting duties.

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Marketing Department
Marketing Department
Marketing is an important activity in our society. Marketing today requires more proximity towards customer. It also requires: 1) Of end users more understanding. 2) Creating more moment of truth and delight. 3) Retaining customer. 4) Relationship marketing.

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Modern definition of Marketing: Marketing is continues process of discovery and translating consumer wants into appropriate product services. Creating demand for this product and serving the demand with the help of distribution such as wholesaler and retailer. The American marketing association defined marketing as:The performance of business activities that directs the flow of goods and services from producer to customer

Marketing management:-

Marketing management is an ongoing process involving identification of consumer need and wants of converting them into appropriate products and satisfying the demand of consumer who are the most merciless, meanest and toughest marketing disciplinary. It is an important functional area of business. -According to Phillip Kotler: The market concept is customer orientation backed by integrated marketing aimed at generated customer satisfaction to satisfy organizational goals.

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4Ps of Marketing Mix

Product
Alok is more concern about the product they are always try to give qualitative product to their buyers, they have product planning & control department. This is playing vital role in the organization. It creates the link between the production department and marketing department. It exchanges the information between the departments. Manufacturing plans are made, based upon input from marketing and designing .The development of fabric deciding the specification is done by designing while the acceptability to market and the quality is decided by market. They conduct booking session twice in a year in order to decide what should be produced for season. A yearly plan is 1 st made based upon the expectation of marketing. The capacity balancing is then done & the entire production is divided in to the available production capacity at various locations depending upon the capacity loading, the requirement for marketing the converted into manufacturing. Raw material, Dyes& Chemicals, other horizontal inputs and optimum utilization of capacity are the major balancing factors which decide the feasibility of timely delivery. After allocation of plants of various location .Any problem faced at any location need an immediate attention so that other location take up the production need in order to meet the deadline of delivery.

Place
Alok is basically fabric manufacturer so they are not selling their product directly. They are selling their product retailer like Wal-Mart, M&S. They are distributing their product through agent for international buyers. The web has created a platform whereby organizations can now directly communicate with the customers, as a result of which many of the channels are being disinter mediated. This disintermediation does not necessarily mean that they completely

43

eliminate the intermediaries, but rather when it comes to shipping the products it may outsource some of the distribution functions like the storage, transportation from third party firms.

Price
Pricing strategy at Alok: Pricing is one of the linchpins of marketing strategy and success. Every organization has their own technique for pricing & Alok is one of them. The company adjusts product prices to reflect changes in costs and demand and to account for variation in buyers and situations. Many times they are using online auctions. It is a popular and innovative way of pricing. Top Management or Responsible person who has authority, they can be participating in online auction where buyers bid against each other. The highest bidder wins. They are using Geographical pricing to decide the price. It includes Geographical considerations strongly influence prices when costs must cover shipping heavy, bulky, low-unit-cost materials. Buyers are all over the world so there are variations in price in different area of the world. Another strategy is value pricing where they are offering right quality at fair price. Many times they compromise with the price when order in bulk. Price is also depending upon the quality of product. They are always providing high quality product. Basic structure of Price: Total Fabric Price=Basic price of fabric + Overhead + Transportation cost + Profit.

Promotion
The next element of the marketing mix is deciding the appropriate set of ways in which to communicate with customers to foster their awareness of the product, knowledge about its features, interest in purchasing, likelihood of trying the product and/or repeat purchasing it. Effective marketing requires an integrated communications plan combining both personal selling efforts and non-personal ones such as advertising, sales promotion, direct marketing and public relations. Put together, they are referred to as the promotion mix.

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Elements of Promotion Personal Selling Sales Promotion Public Relations (PR. Direct Mail Trade Fairs and Exhibitions Advertising Sponsorship

Alok is promoting their self in such approaches like trade faire & exhibition. It helps to make new contacts and renewing old ones. The main purpose is to increase awareness and to encourage trial & attract the new customer. They also promoting through sponsorship where company pay associated with particular events like Fashion show the attributes of the event are then associated with the organization. Direct mail is the very highly focused way to develop relationship with customer. The mail is sent out to the potential buyers and responses are carefully monitored.

Branch Offices of Marketing Bangalore Chennai Delhi Sri Lanka United States Bangladesh Vapi

Plants

Silvassa Navi Mumbai Thane

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Marketing strategies:The choice of marketing strategies hinges on a number of consideration like the companys. Current market share. Current and Planned Capacity Customer price sensitivity. Marketing Growth. Competitors. The company may find a number of alternatives for fulfilling its purpose but it needs to be select one The company needs monitor the impact of marketing strategies on its sales, market shares, cost, profit and long term investment

Strategies related to Product:

A product means a bundle of benefits, which satisfy the human need. According William Stanton, A product is a complex of tangible attributes including packing, color and service which the buyer expect as offering of satisfaction of wants and need. Quality:For Alok Industries ltd. quality stands at a first place. And it is most important to any production house. Also consumer satisfaction is the best scale for the quality measures and they are favor in Alok Industries Ltd. Packing and Labeling:In Alok product are packed as per the convenience of consumer. So packing is also changed on the basis of customer. The pacing are also change on the basis of the customer feedback. The products for exporting are packed separately using some specific material only.

Brand name: Brand name is the effective tool to identify and to differentiate

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The product from the competitors product. Brand name is an attractive parameter for the customer while they choose one among different product. Alok industries ltd .has brand name ALOK itself.

Sales department:

In sales department firstly consumer inquiry for our product if consumer like the material of company so he give order of some quality and from that we make A sales order and the procedure of sales department is begin.

So consumer check the material and then he give order then companies authorized person decide that the sales should be done or not if authorized person approve so the department see the when another parties order will full fill then give date and try to finish that order.

When the order is full filled by department they inform the party and also say to collect their order when the party comes to collect the order they make legal document and make Challan and the payment in some specific time period.

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Finance Department
Finance is the lifeblood of the industries because we cannot imagine business without finance, as it is the central point of all the business activity. Whether big or small, government finance function is of equal importance. Finance is defined as the provision of money at the time it is wanted. Till 1950 finance function was regarded as the function only of rising finance of the business. There after it has undergone remarkable changes over the time. Since last 30 to 40 years the important function of finance management is of effective efficient utilization of finance. Financial management means rising of adequate funds at the minimum cost and using them effectively in the business. It is concerned with financial problem in business.

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Management Hierarchy

Accounts & Finance Department

FINANCE & ACCOUNTS DEPARTMENT

V.P ACCOUNTS (Mr. Bhuvanesh Gupta)

Senior Manager Accounts (Mr. Deepak Jain) Accounts Officers

Assistants

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Procedure of Accounting Department

Gate Entry

Store department

GRN (Goods Receipt Note)

Accounts

Booking

Checking

Payment

Audit

Booking process Accounts Booking (Assistant) Manager (Check) VP Accounts (Sign)

Payment process Assistant Manager (Check sign) VP Accounts (Sign) Party Distribute

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Importance of Finance Department:1. Finance is required for the scheme of modernization, expansion and development of existing enterprise. 2. The financial plan helps to check out the success of the company. 3. The effective financial plan will provide sufficient funds to business. 4. Finance department is always linked with success of other departments where it is responsible to provide necessary finance.

Responsibility of finance Department

In modern enterprises the financial manager occupies a key position. He is one of the dynamic members of the management and his role day by day becoming more pervasive, progressive, intensive and significant in solving complex problem. The responsibility of financial manager includes:

Raising of funds Minimizing cost of funds raised Allocate funds prudently Control the working of an organization Maintain enough liquidity

Registered Maintained: Cash and bank book Sales register Debit Note Credit Note Purchase register Trial Balance Profit & Loss A/C Balance Sheet

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Accounting Procedure:

Here the entries are made and it is sent to the head office and there the account is maintained. The account procedure starts from the raw material enter to the company. The procedure of account as follows:1. The security officers firstly check the goods or raw material enters at the gate and note down the no. of vehicle. 2. Then the goods and brought to the quality control lab where it is check and approval is OK then the goods are stored in the stored department and the entry is made there. 3. The book entry is done after the material stored 4. After the book entry is sanded to the account department where the bill order slips are compared with other. 5. After the document are checked and signed by the head of the department and manager and manager and the data are entered in the particular account. 6. Then the daily entries are mail to head office. 7. After making the entries the payment activity is made during the period. 8. The required fund for the payment generally comes from the head office. Credit policy of Alok: Credit is facility provided by the company, which enables the creditor to extend the pay off period to some days as per companys policy. Alok generally provided the credit facility of 30 days to all the parties or consumer of product. Dividend:Dividend is that amount of capital or profit, which is shared between the shareholders of the company after meeting all the expenses. The director had authorized the payment of an interim dividend of Rs.60 per share during the year the expenses. The director had authorized the payment of an interim dividend of Rs.60 per share during the year. Export:During the year made the export and the efforts are made to achieve the higher growth. Insurance:-

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Plant and machinery, stock, building etc of the companies have been adequate insured.

Accounting policy of Alok:

Basic of preparation of financial statement:- The accompanying financial statement has been prepared under historical cost convention in accordance with generally accepted accounting principles and provisions of the company Use of estimates: - The preparation of financial statement in conformity with the generally accepted accounting principles required estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of the financial statement and the reported amounts of revenues and expenses during the period. Fixed assets: - Fixed assets are recorded at the cost of acquisition including incidental expenses. They are stated at historical cost. Depreciation:- Depreciation on the fixed assets is provided on written down value method excepted in respect of non-factory Investment;- Investment classified as long term investments a fare started at the cost provision is made to recognize a declined, other than temporary n the value of investment. Foreign Currency Transaction; - Transaction in foreign currency is recorded at the original rate of return exchange in force at the time transaction is affected. Revenue Recognition: - Revenue in respect of insurance, interest, etc is recognized only with it is reasonably certain that the ultimate collection will be made. Audit System: - Audit is the process of checking, verifying and inspecting the financial procedure and position of the company. They are two types of audit are carried out in Alok Internal audit Statutory audit

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Chapter 5 Research Report

on Financial Management
Outline of the study Financial Ratio Analysis Introduction
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An

54

accounting figure conveys meaning when it is related to some other relevant information. For e.g., a Rs. 5 crore NP may look impressive, but firms performance can be said to be good or bad only when NP figure is related to the firms investments. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratio helps to summarize large quantities of financial data and to make qualitative judgment about the firms financial performance. For e.g., consider Current Ratio, it is calculated by dividing current assets by current liabilities: a ratio indicates a relationship a quantified relationship between current assets and current liabilities. This relationship is an index or yard stick, which permits a qualitative judgment to be formed about the firms ability t meet its current obligations. It measures firms liquidity. The greater the ratio, greater is the firms liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship helps to make qualitative judgment. Such is the nature of all financial ratios. Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It gives us better understanding of financial strengths and weaknesses of a firm.

Standards of comparison
The Ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of:

Past Ratios, i.e., ratios calculated from the past financial statements of the same firm.

Competitors Ratios i.e., ratios of some selected firms especially the most progressive and successful competitor, at the same point in time. Industry Ratio i.e., the ratio of industry to which the firm belongs; and Projected Ratio i.e., the ratios developed using the projected, or proforma, financial statements of the same firm.

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Classification or Types of Financial Ratios

Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. As stated earlier the parties interested in financial analysis are short and long term creditors, owners and management. Short-term creditors main interest is in the liquidity position or the short-term solvency and profitability of the firm. Longterm creditors on the other hand, are more interested in the long term solvency and profitability of the firm. Similarly owners concentrate on the firms profitability and financial condition. Management is interested in evaluating every aspect of the firms performance. They have to protect the interest of all parties and see that the firm grows profitably.

In view of the requirements of the various users of the ratios, we may classify them into the following four important categories 1. Liquidity ratios 2. Capital structure/leverage ratios 3. Activity ratios 4. Profitability ratios

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Classification of Financial Ratios

(A)

Liquidity Ratios:
1. Current ratio 2. Liquidity ratio or Quick ratio or acid test ratio

(B)
1. 2. 3.

Leverage Ratios
Total Debt Ratio Debt-Equity Ratio Interest Coverage Ratio

(C)
1. 2. 3. 4.

Activity Ratios
Inventory/Stock turnover Ratio. No. of days Inventory Debtors turnover Ratio Working capital turnover Ratio

(D) Profitability Ratios

1. 2. 3. Gross Profit Margin Net Profit Margin Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE) 4. 5. 6. Asset Turnover Ratio Rate of return on Equity Earnings per Share

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The Ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of: (A) Liquidity Ratios: These ratios analyse the short-term financial position of a firm and indicate the ability of the firm to meet its short-term commitments (current liabilities) out of its short-term resources (current assets). These are also known as solvency ratios. The ratios which indicate the liquidity of a firm are: (1) Current ratio

It is calculated by dividing current assets by current liabilities.

Current ratio = Current assets Current liabilities

Where, Current assets, includes Inventories of raw material, Work in progress, finished goods, stores and spares, sundry Debtors/receivables, short term loans deposits and advances, cash in hand and bank, prepaid expenses, incomes receivables and marketable investments And short term securities. Current Liabilities, includes sundry creditors/bills payable, outstanding expenses, unclaimed dividend, advances received, incomes received in advance, provision for taxation, proposed dividend, instalments of loans payable within 12 months, bank overdraft and cash credit

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Conventionally a current ratio of 2:1 is considered satisfactory

The current ratio is a measure of the firms short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them. Current ratios for last five years of Alok Industries Ltd are as under.

The Current Ratios for the last five years of the company are as under Table 5.1

Total Current assets Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs. Crore) 1403.87 1992.66 3377.53 2685.93 4802.05

Total Current liabilities (Rs. Crore) 668.1 1371.21 2341.16 1976.02 2624.07

Current Ratio 2.10 1.45 1.44 1.35 1.83

Years Current ratio

2005-06 2.1:1

2006-07 1.45:1

2007-08 1.44:1

2008-09 1.35:1

2009-10 1.83:1

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Chart 5.1

2.5

1.5 2.1 1.83 1.45 0.5 1.44 1.35 current ratio

0 2005-05 2006-07 2007-08 2008-09 2009-10

Interpretation of Current Ratio

Conventionally a current ratio of 2:1 is considered satisfactory for a company. This means in a worse condition, even if the value of companys Current Assets becomes half, the firm is able to meet its obligations It can be seen from past records that CR in years 2004-05 & 2006-07 is 2:1 which meets the ideal ratio for a company as company is able to meet its obligations very well. So CR in these years can be interpreted to be sufficiently liquid. But in years 2006-07 & 2007-08 this ratio has decreased to 1.45 & 1.44 respectively but still company manages to meets its obligations as its current assets are more than its current liabilities. In year 2008-09 the decreasing trend continues and CR becomes 1.35, as far as meeting obligations is concerned, it is increasing in 2009-10 its increasing it shows that company having better liquidity if so it increasing continuously it will better for the company. For the time being

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companys CR can be interpreted as moderately liquid increasing it will be good scope for the company Suggestions: Since last three years CR has shown a decreasing trend, but now in 2009-10 CR is increasing it is and good scope for the company. so Company needs to invest more in its current assets. Also company should indentify its slow paying debtors and insist them to be quick in payment Moreover, company needs to exercise control over slow moving and absolute stock of goods, which impairs companys ability to pay bills on time

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(2) Quick Ratio or Acid Test Ratio or also known as Liquidity ratio

Quick ratio, also called acid test ratio, establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets are considered to be relatively liquid and included in quick assets are debtors and bills receivables and marketable securities. Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A quick ratio of 1:1 or more does not necessarily imply sound liquidity position. It should be remembered that all debtors may not be liquid, and cash may be immediately needed to pay operating expenses. It should also be noted that inventories are not absolutely non-liquid. To a measurable extent, inventories are available to meet current obligations. Thus, a company with a high value of quick ratio can suffer from the shortage of funds if it has slow paying, doubtful and long duration outstanding debtors. On the other hand, a company with a low value of quick ratio may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick ratio remains an important index of the firms liquidity. It is calculated by dividing quick current assets by current liabilities (quick current liabilities)

Quick ratio =

Quick assets Current liabilities

Where, Quick assets are current assets (as stated earlier) less prepaid expenses and inventories. Conventionally a quick ratio of 1:1 is considered satisfactory.

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Quick Ratio for last five year of company is as under: Table 5.2 Quick Assets Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs. Crore) 1049.5 1522.04 2692.15 1739.8 3327.64 Total current liabilities (Rs. Crore) 668.1 1371.21 2341.16 1976.02 2624.07 1.57 1.10 1.14 0.88 1.26 Quick Ratio

Years Quick ratio

2005-06 1.57:1

2006-07 1.10:1

2007-08 1.14:1

2008-09 0.88:1

2009-10 1.26

Chart 5.2

1.6
1.4 1.2 1 0.8 0.6 0.4 0.2 1.57 1.11 1.11 1.26

0.88

0
2005-06 2006-07 2007-08 2008-09 2009-10

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Interpretation of liquid ratio:

Generally, a quick ratio 0f 1:1 is considered to represent a satisfactory current financial condition. In years 2004-05 & 2005-06 quick ratio, is almost more than 1.5 times which implies that companys quick assets are 1.5 times more than its liabilities this is because company is able to convert its assets into cash very successfully. This ratio sets a very rosy current liquidity condition as company has enough cash to meet its current obligation. In years 2006-07 & 2007-08 this ratio has reduced to 1.11 times but still company has managed to be in line with standard ratio, although the ratio has decreased but it cant be said insufficiently liquid as company liquid assets are almost equal to its current liabilities. In year 2008-09 the decreasing trend continues and ratio becomes 0.88 times then after in 2009-10 it is increasing to 1.26 times thus its good for the company as liquid assets are increasing. Suggestions Company needs to have more liquid asset in form of cash as cash is considered to the most liquid asset. Also Company needs to exercise control over its investment in inventories as inventories are considered to less liquid as compared to BR and other readily convertible or marketable securities. If company fails to do so then it may not be able to meet its current obligation.

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(B) Gearing ratios or Leverage ratios

These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet its long-term commitment with respect to: repayment of principal on maturity or in predetermined instalments at due dates and Periodic payment of interest during the period of the loan. The process of magnifying the shareholders return through the use of debt is called, financial leverage or financial gearing or trading on equity Theses ratios are calculated to measure the financial risk and the firms ability of using debt to shareholders advantage. Leverage ratio can be calculated from the Balance Sheet items to determine the proportions of debt in total financing. They can also be computed from profit & loss items by determining the extent to which operating profits are sufficient to cover the fixed charges. Leverage ratios are classified as under: Debt-equity Ratio. Interest coverage Ratio.

Debt- Equity Ratio The relationship describing the lenders contribution for each rupee of the owners contribution is called debt- equity ratio. It is directly computed by dividing total debt by net worth.

Debt-Equity Ratio =

Total Debt (TD) Net worth (NW)

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Table 5.3 Total Debt Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs. Crore) 2212.5 3336.76 5767.31 6596.35 7119.39 Net worth (Rs. Crore) 807.53 1024.44 1431.34 1755.06 2524.60 Debt-equity Ratio 2.21 2.70 3.93 3.69 2.82

Years Debt Equity

2005-06 2.21:1

2006-07 2.70:1

2007-08 3.93:1

2008-09 3.69:1

2009-10 2.82

Chart 5.3

4 3.5 3 2.5

2
1.5 1 0.5 0 2005-06 2006-07 2.21 2.7

3.93

3.69 2.82

2007-08

2008-09

2009-10

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Interpretation of Debt Equity Ratio: Generally, A Debt- equity ratio of 2:1 is considered to be conventional. But here like total debt ratio, debt equity ratio also seems to be very unconventional and undesirable. Debt equity ratio has also shown an increasing trend from years 2004-05 to 2007-08. In year 2007-08 ratio is highest i.e. 3.93 times. In year 2008-09 it has reduced to 3.69 times, and in year 2009-10 it is reduce to 2.82 but then too it doesnt sound much impressive as companys debt is much higher than its owners stake.

Suggestion: Its high time for company to think about its indebtedness. Company needs to reduce its debt capital in order to sound financially strong. Otherwise, company may suffer great strains, it may even fail to pay interest charges of creditors, as a result their pressure and control may further tightened. There is a need to strike a proper balance between use of debt and Equity.

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Interest Coverage Ratio: Debt ratio described above are static in nature and fail to indicate the firms ability to meet interest (and other fixed charges) obligations. The Interest Coverage ratio or the times-interestearned is used to test the firms debt-servicing capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes (EBIT) by interest charges. The interest coverage ratio shows number of times the interest charges are covered by the funds that are ordinarily available for their payment. Since taxes are computed after interest, interest is calculated in relation to earnings before tax. Depreciation is a non-cash item. Therefore, funds equal to depreciation are also available to pay interest charges. We can thus calculate this ratio as earnings before interest taxes, depreciation and amortization (EBITDA) divided by interest

Interest coverage Ratio =

(EBITDA) Interest

A ratio of 6 to 7 times is considered satisfactory Table 5.4 EBIDTA Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs Crore) 301.26 410.96 547.75 822.61 1272.48 Interest (Rs Crore) 66.78 89.04 131.83 304.12 534065 Interest coverage Ratio 4.51 4.61 4.15 2.70 2.28

Years Interest. Coverage Ratio

2005-06 4.51

2006-07 4.61

2007-08 4.15

2008-09 2.70

2009-10 2.28

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Chart 5.4

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 2009-10 4.51

4.61

4.15 2.7

Interest coverage ratio

2.28

Interpretation of Interest Coverage Ratio: A ratio of 6 to 7 times is considered satisfactory. Here Interest coverage Ratio has shown an increasing trend from years 2004-05 to 2006-07 and has shown a decreasing trend in last two years. In year 2009-10 ratio is lowest i.e. 2.28 times. In year 2006-07 the ratio is highest i.e. 4.62 times, but is not at all satisfactory when compared 6-7 times. This indicates excessive use of debt or inefficient operations. Suggestions: As seen earlier in case of total Debt ratio and Debt-equity ratio, even interest coverage ratio is not satisfactory this is because of the reason that company uses too much of debt capital, so it needs to review its portfolio regarding use of debt in its capital mix. Moreover the company should make efforts to improve the operational efficiency, or to retire debt to have a comfortable coverage ratio. And this can be done by analysing the variability of the companys cash flows over time

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(C) Activity Ratios

Funds of creditors and owners are invested in various assets generate sales and profit. The better the management of assets the larger is the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called as turn over ratios because they indicate the speed at with which assets are being converted or turned over into sales. Activity ratios, thus involve a relationship between sale and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilization. Activity ratios can be further classified as under: Inventory/Stock turnover Ratio. No. of days Inventory. Debtors turnover Ratio. Asset Turnover Ratio.

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1) Inventory/ Stock turnover Ratio:

This ratio indicates the number of times inventory is replaced during the year. It measures the relationship between cost of goods sold and the inventory level. This ratio calculated by dividing saled by stock (or inventory)

Inventory turnover Ratio: sales inventory

Tbale 5.5 Sales Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs. Crore) 1420.70 1824.68 2170.41 2976.93 4311.17 inventories (Rs. Crore) 333.49 425.33 649.82 907.6 1413.49 ITR 4.26 4.29 3.34 3.28 3.05

Years Inventory Turnover Ratio

2005-06 4.26 times

2006-07 4.29 times

2007-08 3.34 times

2008-09

2009-10

3.28 times 3.05 times

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Chart 5.5

4.5 4

3.5
3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 2009-10 4.26 4.29 3.34 3.28 3.05 Inventory Turnover Ratio

Interpretation of ITR There is no such standard ratio available; therefore comparison shall be made on basis of past trends. But high inventory ratio is indicative of good inventory management. And low inventory implies excessive inventory level than warranted by production and sales activities. In year 2005-06 the ratio is highest i.e. 4.29 times, which means company is turning its inventory of finished goods into sales 4.29 times in a year. In year the ratio has shown a decreasing trend and has finally reached to 3.05 times, which means companys efficiency in turning its inventories is getting reduced. Suggestions Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off.

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2) No. Of Days Inventory:

This ratio is calculated by dividing no. of days in a year with inventory turnover ratio. Generally for the sake of convenience we take 360 days for calculating this ratio

No of days inventory:

360 Days Inventory Turnover

Table 5.6 Days Years 2005-06 2006-07 2007-08 2008-09 2009-10 in a year 360 360 360 360 360 inventory turnover 3.91 3.87 3.10 3.10 2.88 No. of Days, Inventory 92 93 116 116 125

Years No. of Days, Inventory

2005-06 92 Days

2006-07 93 Days

2007-08 116 Days

2008-09 116 Days

2009-10 125 Days

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Chart 5.6

140 120 100 80 60 92 40 93 116 116 125

20
0 2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation of no. of days

Here more inventory days indicates that company is holding its stock for longer period of time and investments in inventories is blocked which would increase costs and reduce profits, on the contrary less inventory holding days is indicative of good inventory management system for a company In year 2005-06 the holding period is least i.e.92 days and then onwards it has shown an increasing trend and was highest in year 2009-10 i.e. 125 days. Suggestion: Company should investigate and find out slow moving or absolute stock and take appropriate steps to write-off them as soon as possible otherwise this will adversely affect working capital and liquidity position of the company Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off

74

3) Debtors Turnover Ratio This ratio is a test of the liquidity of the debtors of a firm. It shows the relationship between credit sales and debtors.

Debtors Turnover Ratio = Credit Sales Debtors

X 360 days

Table 5.7 Years Debtors turnover(days) 2004-05 120 Days 2005-06 91 Days 2006-07 109 Days 2007-08 102 Days 2008-09 108 Days 2009-10 93 Days

Chart 5.7

110 105 100 95 109 102 108 Debtors turnover

90
85 80 2005-06 2006-07 2007-08 2008-09 2009-10 91 93

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Interpretation of Debtors Ratio or Average collection period This ratio is indicative of the efficiency of the trade credit management. A high turnover ratio and shorter collection period indicates prompt payment by the debtor. On the contrary low turnover ratio and longer collection period indicates delayed payments by the debtor. In general a high debtor turnover ratio and short collection period is preferable. Collection period is kept on increasing every year which is not favorable for a company. It implies that companys credit and collection policy is inefficient and liberal. Suggestion: Company should improve its collection policy by improving credit terms and policy.

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4) Total Assets turnover ratio Some analysts like to compute the total assets turnover in addition to or instead of the net assets turnover. This ratio shows the firms ability in generating sales from all financial resources committed to total assets. Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize its sales. The relationship between sales and assets is called assets turnover.

Total Assets Turnover Ratio =

Total Sales

Capital Employed

Table 5.8 Sales Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs. Crore) 1420.7 1824.68 2170.41 2976.93 4311.17 Capital Employed (Rs. Crore) 3020.03 4361.2 7198.65 8351.42 11054.28 Total Assets Turnover Ratio 0.47 times 0.42 times 0.30 times 0.36 times 0.39 times

Years

2005-06 0.47

2006-07 0.42 times

2007-08 0.30 times

2008-09 0.36 times

2009-10 0.39 Times

Assets turnover

times

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Chart 5.8

Asset Turnover Ratio

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.47 0.42 0.36 0.3 0.36 Asset Turnover Ratio

Interpretation of Asset turns over Ratio. Ratio of more than one should be considered to be satisfactory. But here company is not able to maintain that ratio which means there are unutilized or underutilized assets in company. In the year 2005-06 the ratio is highest but doest show any satisfaction. As since company is able to generate only 0.47 Rs of sales for every one rupee capital employed in net assets. Besides this in year 2007-08 this condition has gone worsen as ratio reached its lowest level i.e. 0.3 which shows companys inefficiency in utilizing its assets. Suggestions Companys sales have increased but not in the proportion of increase in net assets or capital employed. Company needs to improve a lot as far as operational performance is concerned, more sales promotion activities should be carried out t increase sales at this given level of assets On the other hand it necessary to check whether assets are properly valued ie. Whether undervalued or overvalued because valuation of assets is very important.

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5 Working Capital Turnover Ratio

A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus compute net working capital turnover by dividing sales by net working capital. This ratio is computed by dividing Sales by Net working Capital.

Working Capital Turnover =

Sales Net working Capital

Net Working Capital =( TotalCurrent Assets) (Total Current Liabilities) Table 5.9 Year Sales Current Assets Current Liabilities Net Working Working Capital Turnover 2008-09 2009-10 2976.93 4311.17 2685.93 4801.88 500.19 544.00 2185.74 4257.88 1.36 times 1.01 times

Capital

Year Working Capital Turnover

2009-2010 1.01 times

2008-09 1.36 times

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Table 5.9
1.6 1.4 1.2 1 0.8 Net Working Capital 0.6 0.4 0.2 0 2008-09 2009-10

Interpretation of Working capital Turnover Ratio From this point of view companys working operational performance is quite sound. Since from year 2008-2009 to 2000-2010 working capital turnover ratios has shown an decreasing trend. In year 2009-2010 this ratio is lowest i.e. 1.01times which implies that for every one rupee of working capital company is able to generate 1.01 rupee of sales.

Suggestions Company must try to maintain this level of working capital but not being so optimistic it should see that net working capital doesnt get reduced which stagnates growth. Because due to inadequate working capital it becomes difficult for the firm to undertake profitable project.

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D) Profitability Ratios Profit is the difference between revenues and expenses over a period of time (usually one year). Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. Therefore the financial manager should continuously evaluate the efficiency of the company in terms of profits. The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get repayment of their principal regularly. Owners want to get a required rate of return on their investments. This is only possible when the company earns enough profits. Profitability Ratios can be classified as under: Gross Profit Margin Net Profit Margin Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE). Rate of return on Equity Earnings per Share. EBIT Rattio

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1) Gross Profit Margin: The Gross Profit Margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A firm should have a reasonable gross profit margin to ensure coverage of its operating expenses and ensure adequate return to the owners of the business i.e. shareholders. To judge whether the ratio is satisfactory or not, it should be compared with the firms past ratios or with the ratio of similar firms in the same industry or with the industry average. This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage.

Gross Profit Margin = EBIT Sales

Table 5.10 Years EBIT (Rs. Crore) 2005-06 2006-07 2007-08 2008-09 2009-10 220.78 278.92 385.79 589.11 886.80 Sales (Rs. Crore) 1420.7 1824.68 2170.41 2976.93 4311.17 GP Margin (%) 15.29 15.19 17.26 19.41 20.57

Years

2005-06

2006-07 15.19%

2007-08 17.26%

2008-09 19.41%

2009-10 20.57%

Gross Profit Margin(%) 15.29%

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Table 5.10
25

20

15 GP Margin

10 15.29 5 15.19 17.26

19.41

20.57

2005-06

2006-07

2007-08

2008-09

2009-10

Interpretation of GP ratio:

GP ratio has shown an increasing trend which shows companys profitability condition is well also companys operating efficiency is also satisfactory. In years 2007-08 and 2008-09 and 2009-10there is more than 2% & 4%increase in GP ratio respectively as compared to that of year 2005-06, which indicates that company is operating at an efficient pace. This is because both sales and operating profit have increased in these years. Suggestions Company should maintain this pace of selling finished goods so that it can fetch desired rate of operating profit. Moreover company should make efforts to reduce its variable costs in order to earn more profit margins in near future.

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2) Net Profit Margin: This ratio is calculated by dividing net profit by sales. It is expressed as a percentage. This ratio is indicative of the firms ability to leave a margin of reasonable compensation to the owners for providing capital, after meeting the cost of production, operating charges and the cost of borrowed funds.

Net Profit Margin = PAT Sales

Table 5.11 PAT Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs Crore) 109.21 135.18 167.73 188.37 237.44 Sales (Rs Crore) 1420.7 1824.68 2170.41 2976.93 4311.17 NP Margin (%) 7.62 8.77 8.68 6.16 5.72

Years

2005-06

2006-07 8.77%

2007-08 8.68%

2008-09 6.16%

2009-10 5.72%

Net Profit Margin (%) 7.62%

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Table 5.11

Net profit margin

10 9 8 7 6 5 4 3 8.77 7.62 8.68 6.16 5.72 Net profit margin

2
1 0

2005-06

2006-07

2007-08

2008-09

2009-10

Interpretation of NP Ratio: Companys NP ratio trend has shown an increasing during the years 2004-05 to 2005-06. But after that it has shown a decreasing trend from year 2007-08 to 2009-10. This reduction in the ratio is also due to making more cost of goods sold, as companys other charges are reduced as compare to previous year but ratio has reduced. This doesnt sounds profitable. Suggestion: So company must purchase the material as and when needed so as to reduce cost of goods sold. And company also needs to exercise control over its unnecessary administrative and office expenses. If company is not able to control its cost of goods sold it will damage its profitability position which reduce investors confidence.

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3) Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE). This ratio measures the relationship between net profit and capital employed. It indicates how efficiently the long-term funds of owners and creditors are being used.

Rate of return on Capital Employed = Total Assets

EBIDTA

Table 5.12 EBIDTA Years 2005-06 2006-07 2007-08 2008-09 2009-10 (Rs Crore) 301.26 410.96 591.38 822.61 1272.48 Total Assets (Rs Crore) 3020.03 4361.20 7088.49 8203.71 11225.87 ROCE (%) 9.97 9.42 8.34 10.02 11.33

Years ROCE(%)

2005-06 9.97%

2006-07 9.42%

2007-08 8.34%

2008-09 10.02%

2009-10 11.33%

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Table 5.12

ROCE
12 10 8 6 9.97 4 2 0 9.42 10.02 8.34 11.33

ROCE

2005-06

2006-07

2007-08

2008-09

2009-10

Interpretation of return on capital Employed:

In year 2009-10 return on capital employed is highest i.e. 11.33% in these five years and in year 2007-08 this return is minimum i.e. about 8.34% but again in year this ratio has increased to almost 11.33% which may be termed as quiet satisfactory.

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4) Return on Shareholders equity

This ratio measures the relationship of profits to owners funds. Shareholders fall into two groups i.e. preference shareholders and equity shareholders.

Return on Shareholders equity = PAT Net Worth

Table 5.13

Years

PAT (Rs Crore)

Net worth (Rs Crore) 807.53 1024.44 1431.34 2063.03 2524.60

ROE (%) 13.52 13.19 11.71 9.13 9.79

2005-06 2006-07 2007-08 2008-09 2009-10

109.21 135.18 167.73 188.35 247.34

Years ROE(%)

2005-06 13.52%

2006-07 13.19%

2007-08 11.71%

2008-09 9.13%

2009-10 9.79

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Table 5.13

ROE
16 14 12 10 8 6 4 2 0 13.52 13.19 ROE 11.71 9.13 9.79

2005-06

2006-07

2007-08

2008-09

2009-10

Interpretation of Return on Equity: ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of the most important relationships in financial analysis. The earning a satisfactory return is most desirable objective of the business. Here company is having highest return on equity i.e. of almost 13.52% in the year 2005 -06 While in concluding years this ratio has shown a decreasing trend and has reached to 9.13% in the year 2008-09. Then after it increase to 9.79% This ratio is of great concern to present as well as prospective shareholders as company is able to generate at least 10% on its net worth.

89

5) Earnings per Share Table 5.14 years EPS 2004-05 7.25 2005-06 6.6 2006-07 9.7 2007-08 11.4 2008-09 9.64 2009-10 4.57

Table 5.14

Earning per share

12 10 8 6 9.7 4 6.6 2 0 2005-06 2006-07 2007-08 2008-09 2009-10 4.57 11.4 9.64

Earning per share

Interpretation of EPS

EPS calculation is made over years indicate whether or not the firms earning power on per-share basis has changed over that period. The EPS of the Company simply shows the profitability of the firm on a per-share basis, it does not reflect how much dividend and how much is the retained earnings in the business. In the year 2007-08 EPS is highest i.e. 11.4 Rs per share, but in year 2009-10 it is less it is 4.57 Rs. Per share.

90

EBIT Ratio Earning Before Interest and Tax ratio: This ratio is calculated by dividing PAT (Profit After Tax) by EBIT.

EBIT Ratio = PAT EBIT

Table 5.15

Year PAT EBIT EBIT Ratio

2009-2010 247.34 886.80 0.27 times

2008-2009 188.35 589.11 0.31 times

Table 5.15

0.32

0.31
0.3 0.29 0.28 0.27 0.26 0.25 2008-09 2009-10 EBIT RATIO

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Working Capital Management

Working Capital Management Meaning:Working
Capital means the difference between current assets and currents liabilities, and therefore, represents that position of current assets which the firm has to finance either from long-term funds or bank borrowings.

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Concepts Of Working Capital:

There are two concepts of Working Capital- gross and net. 1.Gross Working Capital refers to the firm`s investments in currents assets. Current Assets are the assets which can be converted into cash within an accounting year and include cash, short term securities, debtors, bills receivables and stock. 2.Net Working Caapital refers to the difference between current assets and current liabilities. Current Liabilities are those claims of outsiders which are expected to mature forpayment within an accounting year and include creditors, bills payable and outstanding expenses. Determinants of Working Capital: 1. Nature of Business 2. Market and Demand Conditions 3. Technology and Manufacturing Policy 4. Credit Policy 5. Availability of Credit from Suppliers 6. Operating Efficiency 7. Price Level Changes

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Schedule showing changes in Working Capital

Particulars Current Assets a.Investments bDebtors c.Cash and Bank Balance d.Loans and Advances Total Current Assets [A] 2010 2009 Increase Decrease

1576.82 1068.69 1126.46 913.77 1410.67 427.43 910.51 665.32 5015.46 3075.21

499.13 21269 983.24 245.19

Current Liabilities and Provisions a.Current liabilities 729.90 653.33 b.Provisions 57.97 31.81 Total Current Liabilities[B] Net working Capital[A-B] 787.87 685.14

76.57 26.16

4227.59 2390.07 1837.52

Analysis of working Capital:

The firm should maintain a sound working Capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view.

The dangers of excessive working capital are as follows:

1. It results in unnecessary accumulation of inventories. Thus, chances if inventory mishandling, waste, theft and losses increase. 2. It is an indication of defective credit policy and slack collection period. Consequently. higher incidence of bad debts results, which adversely affects profits. 3. Excessive working capital makes management complacent which degenerates into managerial inefficiency.

94

4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate Working Capital is also bad and has the following dangers: 1. It stagnates growth. it becomes difficult for the firm to undertake profitable projects for nonavailability of working capital funds. 2. It becomes difficult to implement operating plans and achieve the firm`s profit target. 3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day commitments. 4. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm`s profitability would deteriorate. 5. Paucity of Working Capital-funds render the firm unable to avail attractive credit oppurtinities etc. 6. The firm looses its reputation when it is not in a position to honour its short-term obligations. As a result, the firm faces tight credit terms.

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Financial Leverage
Meaning Of Financial Leverage
A company can finance its investments by debt and equity. The company may also use preference capital. The rate of interest on debt is fixed irrespective of the companys rate of return on assets. The company has a legal binding to pay interest on debt. The rate of preference dividend is also fixed; but preference dividends are paid when the company earns profits. The ordinary shareholders are entitled to the residual income. That is, earnings after interest and taxes(less preference dividends) belong to them. The rate of the equity dividend is not fixed and depends on the dividend policy of the company. The use of the fixed-charges sources of funds, such as debt and preference capital along with the owners equity in the capital structure, is describes as Financial Leverage or Gearing or Trading on equity.

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Types Of Leverages:
1.Degree Of Operating Leverage: The degree of operating leverage (DOL) is defined as the percentage change in the earnings before interest and taxes relative to a given percentage percentage change in sales.

DOL =

% change in EBIT % change in sales

DOL =

Contribution EBIT

2.Degree Of Financial Leverage: When the economic conditions are good and the firm`s EBIT is increasing, its EPS increases faster with more debt in the capital structure. The degree of Financial Leverage (DFL) is defined as the percentage in EPS due to a given percentage change in EBIT.

DFL =

EBIT EBIT - Interest

DFL = % change in EPS % change in EBIT 97

3. Degree Of Combined Leverage: Operating and financial leverages together cause wide fluctuation in EPS for a given change in sales. If a company employees a high level of operating and financial leverage, even a small change in the level of sales will have dramatic effect onEPS. A company with cyclical sales will have a fluctuating EPS; but the swings in EPS will be more pronounced if the company also uses a high amount of operating and financial leverage. The degree of operating and financial leverages can be combined to see the effect of total leverages on EPS associated with a given change in sales. The degree of combined leverage is given in the equation:

DCL= % change in EBIT * % change in EPS % change in Sales %change in EBIT OR DCL = % change in EPS % change in sales

% change in EBIT For year 2009-2010:

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= 909.87-589.11 589.11 = 0.54 % change in sales For the year 2009-2010: = 4311.17-2976.93 2976.93 = 0.44 DOL for the year 2009-2010: = 0.54 0.44 = 1.22

% change in EBIT For year 2008-2009 = 589.11-385.79 385.79 = 0.52

% change in sales For the year 2008=2009 = 2976.93-2170.41 2170.41 = 0.371

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DOL for the year 2008-2009 = 0.52 0.371 = 1.40

DFL =

EBIT EBIT - Interest

DFL for the year 2009-2010: = EBIT EBIT-Interest = 909.87 374.79 = 2.42 DFL for the year 2008-2009: = EBIT EBIT- Interest = 589.11 284.99 =2.06

DCL = DOL*DFL 100

DCL= DOL*DFL For the year 2009-2010 =1.22*2.42 =2.9524 For the year 2008-2009 = 1.40*2.06 =2.884 Degree Of Leverages: Year 2009-2010 2008-2009

DOL DFL DCL

1.22 2.42 2.9524

1.40 2.06 2.884

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Cash Flow Statement analysis

102

Meaning Of Cash Flow:

Cash Flow is a simple and objectively defined concept. It is simply the difference between rupees received and rupees paid out. Cash Flow should not be confused with profit. Changes in profits do not necessarily mean changes in cash flows.

Components of Cash Flows: A typical investment will have three components of cash flows: 1. Initial Investment 2. Annual Net Cash Flows 3. Terminal Cash Flows

Cash Flow Statement: A statement of changes in financial position on cash basis, commonly known as the cash flow statement, summarises the cause of changes in cash position between dates of the two balance sheets. It indicates the sources and uses of cash. Thus, this statement analyses changes in noncurrent accounts as well as current accounts to determine the flow of cash.

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Sources and Uses of Cash

The following are the sources of Cash: 1.The profitable Operations of the firm, 2.Decrease in Assets (except Cash) 3. Increase in Liabilities (including debentures or bonds), and 4. sale proceeds from an ordinary or preference share issue.

The Uses Of Cash are: 1. The loss from operations, 2. Increase in assets (except cash), 3. Decrease in liabilities (including redemption of debentures or bonds), 4. Redemption of redeemable preference shares, and 5. Cash dividends.

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Cash Flow statement Of ALOK INDUSTRIES

Year Ended Year Ended 31.03.2010 31.03.2009 A] cash flow from operating activites Net profit before Tax Adjustments for Depreciation Excess of cost over fair value of current investments Loss of assets due to fire Dividend income Intrest paid(net) Profit on sale of fixed assets(net) Profit/loss on sale of current investment (net) Operating profit before working capital changes Adjustment for increase in inventories Increase in trade receivable Increase in loans and advances Increase in current liabilities Cash generated from operating Income taxes paid Net cash generated from operating activites B] Cash flow from investing activities Purchase of fixed assets Sale of fixed assets Purchase of investments Sale of investments Margin money deposits matured/(placed) Fixed deposits pledged with bank Dividend received Interest received Share application money(given) Inter corporate deposite(granted)/refunded-net Net cash used in investment activity Cash flow from financing activities Proceeds from issue of equity share capital Share application money received 376.76 362.61 37.91 (1.02) 535.08 (1.60) (0.60) 1307.10 284.99 233.50 0.68 (0.17) 304.12 (1.74) 2.24 823.61

(530.57) (271.04) (328.82) 1.11 231.79 (47.23) 184.56

(256.26) (276.48) (80.71) 0.89 211.05 (37.11) 173.94

(1524.56) 2.33 (567.85) 817.40 (48.32) (444.00) 1.02 13.45 1.25 (1749.28)

(2310.29) 8.62 (219.69) 157.64 62.91 0.17 66.42 199.52 3.35 (2031.35)

736.74 -

137.50 105

Proceeds from borrowing(net) Dividend paid(including tax thereon) Interest paid Net cash generated from financing activities Net increase/decrease in cash and cash equi.(A+B+C) Cash and cash equivalents at the beginning of the periods At the end of the period Net increase in cash and cash equivalents

1924.35 (17.28) (526.06) 2117.75 553.03

817.85 (26.11) (337.71) 591.53 (1265.88)

277.57 830.60 553.03

1543.45 277.57 (1265.88)

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Analysis
Cash flow statement shows changes in cash flows from operating activities, investment activities and financing activities. The above table provides Cash Flow statement of ALOK INDUSTRIES for the year 2010. The following points may be observed from the ALOK INDUSTRIES`s Cash Flow Statement for the year 2010. 1. ALOK IND utilized Rs 1524.56 Crore in acquiring fixed assets.] After adjusting for investment income and sale of assets, the net outflow on account of investment activities was Rs 1749.28 crore. 2. ALOK IND generated Rs 184.56 crore cash flow from its operating activities. 3. ALOK IND net cash flow from its operating, investment and financing activities is a positive figure Rs 553.03 crore.

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Chapter 6 Findings from the Project

Company needs to invest more in its current assets if it fails to do so then in near future companys CL may increase over CA and short term liquidity position might be in threatening condition and it may struggle to meet its current obligations. Company needs to keep more liquid asset in form of cash as cash is considered to the most liquid asset. Company needs to exercise control over its investment in inventories as inventories are considered to less liquid as compared to BR and other readily convertible or marketable securities. If company fails to do so then it may not be able to meet its current obligation. Company needs to improve its debt position by reducing debt in its capital mix, otherwise it may led to creditors pressures and constraints on managements independent functioning and energies. If company fails to reduce its debt, it may get entangled in a Debt Trap. Its high time for company to think about its indebtedness. Company needs to reduce its debt capital in order to sound financially strong. Otherwise, company may suffer great strains, it may even fail to pay interest charges of creditors, as a result their pressure and control may further tightened. Company needs to review its portfolio regarding use of debt in its capital mix. The company should make efforts to improve the operational efficiency, or to retire debt to have a comfortable coverage ratio, by analysing the variability of the companys cash flows over time Failure of reducing investment in sluggish inventories doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off. Company should investigate and find out slow moving or absolute stock and take appropriate steps to write-off them as soon as possible otherwise this will adversely affect working capital and liquidity position of the company Company needs to reduce investment in sluggish inventories that leads to unnecessary tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So the absolute inventories must be written off Company should improve its collection policy by improving credit terms and policy.

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More sales promotion activities should be carried out t increase sales at this given level of assets. On the other hand it necessary to check whether assets are properly valued i.e. whether undervalued or overvalued because valuation of assets is very important. Company should make efforts to reduce its variable costs in order to earn more profit margins in near future. So company must purchase the material as and when needed so as to reduce cost of goods sold. And company also needs to exercise control over its unnecessary administrative and office expenses. If company is not able to control its cost of goods sold it will damage its profitability position which reduce investors confidence.

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Chapter 7 Suggestion and conclusion

SUGGESTIONS The company has to take measures to increase sales and utilize the assets effectively. There is an increase in return on assets. Hence, the company should take measures to maintain with the return on assets. The company must control the administrative expenses so that it does not indicate negative effect on net profit. Optimum utilization of resources will help the company to get more profits. Maintenance of liquid assets will definitely help the company in facing the unexpected situation. In conducting of successful business, shareholders wealth plays a vital role.

CONCLUSIONS Every organization needs the financial manager to manage the financial activities of a company by using different analytical tools, which helps the company in taking managerial and tactical decision. So every manager should make proper analysis of operational performance of the company. The analysis and interpretation of various ratios will help in giving better understanding of the financial conditions and the performance of the organization. It is a perfectly organized company having all the departments well organized to perform the activities that lead to the customers satisfaction. Company is performing satisfactorily as the increasing trend and is expected to grow in the coming years also. Though the company assets are not fully utilized and maintained well, the firm is in a liquidity position as it is earning profit from last 3 years. The company should take some necessary precautions regarding utilizing the assets. Finally I can conclude that the Alok industries is performing efficiently at the outset satisfactorily

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Bibliography
Book Referred:
CFM-McGraw-Hill Professional Series in Finance (7th edition) 2010, Prasanna Chandra. Tata McGraw Hill Education Private Limited, (5th edition) 2010, M Y Khan , P K Jain

Websites access:
Website access from the data source on 20 may 2011 http://www.iloveindia.com/economy-of-india/textile-industry.html Website access from the data source on 26 may2011 http://www.alokind.com. Website access from the data source on 1 june 2011 for Annual Reports of Alok industries ltd., years-2001-02, 2005-06 & 2008-09. http://www.alokindustries.com

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Annexure
Financial highlights 2010
PARTICULARS
Operating Profits
Net Sales 4311.17 2976.93 Operating Profit 1272.48 Depreciation 362.61 PBIT (Operating) 909.87 Interest 535.08 PBT (Operating) 374.80 PAT(Operating) 247.34 Cash Profit (Operating) 711.89 Dividend 22.97 Net Cash Accruals 688.93 496.70 366.86 273.75 190.50 17.28 26.28 28.75 30.20 513.98 393.14 302.50 220.70 188.37 167.73 135.18 109.21 284.99 253.96 198.88 154.00 304.12 131.83 89.04 66.78 589.11 385.79 287.92 220.78 233.50 161.96 123.04 80.48 822.61 547.75 410.96 301.26 2170.41 1824.68 1420.70

2009- 2008- 2007- 200610 09 08 07

200506

Financial Position
Gross Fixed Assets 8215.61 6692.71 Net Fixed Assets 7145.11 5983.36 Current Assets 4801.88 2685.93 Investments 229.69 Foreign Currency Translation Monetary account 0.17 478.58 11.20 7887.79 187.17 1134.01 4795.95 170.37 854.07 3317.81 157.47 650.06 618.96 219.49 39.70 3377.52 1992.66 1403.87 3891.30 2583.80 1874.24 4368.05 2954.20 2121.89

Total Assets
Equity Share Capital

12176.85 9159.58 787.79 196.97

Reserves and Surplus Share Application Money 1908.40 1410.39 137.50

112

Share Warrants

10.20 110.16 1431.34 210.48 1024.44 141.82

Tangible Net Worth-(1) Deffered Tax Liability-(2) Total Long Term Borrowings
Preference Share Capital Secured Loans

2716.19 1755.06 406.98 307.97

807.53 100.10

68.00

6056.69 4984.43 Unsecured Loans FCCB 107.21 Unsecured Loans 272.81 51.09 121.01

3706.66 94.87 103.28 3904.81

2049.13 202.87 6.48 2258.48

1392.13 220.63 61.32 1742.08

6436.71 5120.53

Total Short Term Borrowings

Secured Loans 1186.19 Unsecured Loans 43.40 Working Capital Borrowings 843.78 699.16 567.49 1862.50 5767.31 568.92 1078.28 3336.76 323.08 470.42 2212.50 168.02 745.01 294.36 62.34 608.64 550.00 215.00 85.00

2072.97 1475.83

Total Borrowings-(3) Total Current Liabilities Current Liabilities and provisions-(4) Total Liabilities (1 to 4)
EPS (Regular)

8509.68 6596.35

544.00

500.19

478.66 7887.79 11.40 20.53 76.47

292.93 4795.95 9.70 16.99 60.13

197.68 3317.81 6.68 12.61 51.28

12176.85 9159.58 4.57 9.64 24.04 89.10

CEPS ( Regular) 9.04 Book Value 34.48

113

PROFIT AND LOSS ACCOUNTS

PARTICULARS

SCHEDULE NO
14

YEAR YEAR ENDED ENDED 31.3.2010 31.3.2009

4371.42 71.64 4299.78 11.39 2999.73 34.77 2964.96 11.97

INCOME
Sales (Inclusive of Excise Duty) Less: Excise Duty

Job Work Charges Collected (Tax Deducted at source Rs 0.25 Crore [ Previous year Rs 0.07 crore])

4311.17 Other Income Increase in stocks of Finished Goods and process Stock 15 16 64.02 333.82 4709.01 3383.41 2976.92 20.82 385.67

EXPENDITURE
Purchase of Traded Goods Manufacturing and Other expenses Interest (Net) Depreciation/Amortisation 17 18 398.46 105.26 3038.07 2455.54 535.61 304.12 362.61 233.50 374.74 284.99 (63.56) 34.26 (99.01) (32.98) 28.65 (89.80) Fringe Benefit Tax (1.75) Excess/(short) provision for income tax in respect of earlier years 0.86 (0.74) 247.34 188.37 276.63 523.97

PROFIT BEFORE TAX

Provision for tax- Current Tax MAT credit entitlement Deffered Tax

NET PROFIT FOR THE YEAR

Add: Balance brought forward from the previous year

114 296.20

AMOUNT AVAILABLE FOR

APPROPRIATION APPROPRIATIONS
Add/(Less) : Excess / (short) provision for dividend [Including tax on dividend Rs 0.00 Crore ( Previous year Rs 0.02 crore) of earlier year] (Refer Note 17 of Part B of Schedule 19) Less:Transfer to general Reserve Transfer to Debenture Redemption Reserve -Proposed Dividend on Equity Shares Corporate Dividend Tax Thereon

484.57

0.17

(20.00) (300.10) (190.83) (19.69) (14.77) (3.27) 180.91 (2.51) 276.63

BALANCE CARRIED TO BALANCE SHEET EARNINGS PER SHARE (Refer Note No 12. Of Part B of Schedule 19)
Basic Diluted

4.57 4.57 19

8.85 7.74

Significant Accounting Policies and Notes To Account

115

BALANCE SHEET AS ON 31ST MARCH 2010

Particulars
I SOURCES OF FUNDS
(1)Shareholders Fund (a) Capital (b) Share Application Money (c) Share Warrants (d) Reserves and Surplus (2) Loan Funds (a) Secured loans (b) Unsecured loans (3) Deffered Tax Liability (Net) (Refer Note No 11. Of Part B of Schedule 19) Total

Schedule No.
1

As at 31.3.2010
787.79 1928.40 2716.19 8086.66 423.02 8509.68 406.98

As at 31.3.2009
196.97 137.50 10.20 1410.39 1755.06

3 4

11632.85

II APPLICATION OF FUNDS
(1) Fixed Assets (a) Gross Block (b) Less: Depreciation (c) Net Block (d) Capital Work-in-progress 5 7276.36 1070.50 6205.86 939.25 7145.11 229.69 0.17 4534.44 708.85 3825.59 2158.27 5983.86 478.58 11.20

(2) Investments (3) Foreign Currency Translation Monetary Account (4) Current Assets, Loans and Advances (a) Inventories (b) Sundry Debtors (c) Cash and Bank Balances (d) Loans and Advances Less : Current Liabilities and provisions

8 9 10 11

1474.41 1101.23 1390.29 835.95 4801.88

943.84 884.19 344.95 512.95 2685.93

116

(a) Current Liabilities (b) Provisions

12 13

488.93 55.07

471.40 28.79

Net Current Assets Total

544.00 4257.88 11,632.85

500.19 2185.74 8659.38

117