Attention Investors
Attention Investors
Attention Investors
YOUR NAME
5/05/2018
CERTIFICATE
This project is the record of authentic work carried out during the academic
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DECLARATION
I YOUR NAME hereby declare that this project is the record of authentic
work carried out by me during the academic year 2006 – 2008 and has not been submitted
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ACKNOWLEDGEMENT
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Chapter – 1
INTRODUCTION
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Introduction
FINANCE
In our present-day economy, finance is defined as the provision of
many at the time when. As the provision of money at the time when it is
required every enterprise. Where big medium and small needs finance to carry
on its operations and to achieve its target. Infects financial is so indispensable
today that it is rightly said that it is the life blood of an enterprise. Without
adequate finances, no enterprise can possibly accomplish its objectives.
FINANCIAL MANAGEMENT
Form the various definitions of the terms business finance given
above. It’ can be concluded that term business finance mainly involves, rising
of fund and their effectives utilization keeping in view the overall objectives
of the firm. This requires great caution and wisdom on the part of
management. The management makes use of values financial techniques
devices, etc. for administrating the financial affairs of the firm in the most
effectives, efficient way. financial management means the entire gamut of
management efforts devoted to the management finance. Both its sources and
use of the enterprise.
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According to Solomon “financial management is concerned with the
efficient use of an important economic resource, namely, capital fund”.
In the present context I have chosen on topic from “working capital
management” as my project work in I- MBA programmed.
INTRODUCTION
Working capital is the life blood and nerve centre of any business.
Every business needs for two purposes for its establishment and to carry its
day to day operations. Long – term funds are required to create production
facilities through purchase of fixed assets such as plant, machineries, land etc.,
investment in these assets represents that part of firm’s capital, funds are also
needed for short term purpose for the purchase of raw material payment of
wages and other day to expenses etc., known as working capital in simple
words working capital refers to that part of current asset i.e., cash, marketable
securities, debtors and inventors.
The objective of working capital management is to manage
the firm’s current assets and current liabilities in such as way that as
satisfactory level of working capital is maintained. This is so because if the
firm cannot maintain a satisfactory level of working capital it is likely to
become insolvent and may become bankrupt.
Working Capital Definitions
The term working capital is used to denote the total current
assets. The following are some definitions of working capital.
1. “Working capital means current assets”
- Mead, Baker, Mallet
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2. “The sum of current assets is the working capital of business”
- J.S Mill
- J.S Mill
Concept of working Capital
There are two concepts of working capital they re
1. Gross Working Capital
2. Net Working Capital
There term cross capital also referred as working capital that means the
total current assets
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2. It indicates he margin of protection available to the short tem credits
like i.e., the excess of current assets over current liabilities.
It is the indicator of the financial soundness of an enterprise
Advantages of adequate working capital
The success of business besides other things depends upon the manner
in which its working capital is managed. The main advantages of maintaining
working capital are as follows:
1. Solvency of the business:
Sufficient working capital helps in maintaining solvency of the
business by providing uninterrupted flow of production.
2. Goodwill:
Sufficient working capital enables as business concern to make
payments and helps in creating and maintaining goodwill.
3. Easy Loans:
A concern having adequate working capital high solvency and good
credit standing can obtain loans from banks and others on easy and favorable
terms.
4. Cash discounts:
Adequate working capitals also enable a concern to avail cash discounts
on the purchases and hence it reduces the costs.
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6. Regular Payments:
Adequate working capital enables regular payment of salaries, wages and
other day – to – day commitments, which production and profits of a
company.
8. High morale:
Adequacy of working capital crates environment of security,
confidence and high moral and creates overall efficiency in business
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Corporate finance is closely related to managerial finance, which
is slightly broader in scope, describing the financial techniques available to
all forms of business enterprise, corporate or not.
1. Nature of work
2. Working conditions
3. Employment
5. Job outlook
6. Earnings
7. Related occupations
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NEED OF THE STUDY
1. The study has great significance and provides benefits to various parties
whom directly or indirectly interact with the company.
OBJECTIVES
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The major objectives of the resent study are to know about
financial strengths and weakness of VALUE MINDS through FINANCIAL
RATIO ANALYSIS.
OBJECTIVES
3. To analyze the VALUE MINDS structure of the company with the help
of Leverage ratio.
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The firm’s trade creditors are interested in the firm’s ability to
meet their claims over a short period of time. So they required the evaluation
of the firm’s liquidity position.
The suppliers of the long term debts and other hand of concern
with the long term solutions and survival. They analyses the firm profitability
over time.
METHODOLOGY
Primary Data:
Collection of data through Primary source includes the
information or data given by the executives of the organization directly (i.e.)
the co-operation and assistance given by the organization and also my
personal experience.
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3. Method- to assess the performance of the company method of
observation of the work in finance department in followed.
LIMITATIONS
2. The below mentioned are the constraints under which the study is
carried out.
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Chapter – 2
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INDUSTRY PROFILE
India's services sector has always served the country’s economy well,
accounting for about 57 per cent of the gross domestic product (GDP). In this
regard, the financial services sector has been an important contributor.
MARKET SIZE
The size of banking assets in India reached US$ 1.8 trillion in FY14 and is
expected to touch US$ 28.5 trillion by FY25.
The Association of Mutual Funds in India (AMFI) data show that assets of the
mutual fund industry have hit an all-time high of about Rs 12 trillion (US$
189.83 billion). Equity funds had inflows of Rs 5,217 crore (US$ 825.49
million), taking total inflows on a year-to-date basis to Rs 61,089 crore (US$
9.66 billion). Income funds and liquid funds account for the largest proportion
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of AUM, with Income funds accounting for Rs 5.22 trillion (US$ 82.59
billion) and equity funds accounting for Rs 3.06 trillion (US$ 48.41 billion).
India’s life insurance sector is the biggest in the world with about 36 crore
policies, which are expected to increase at a compounded annual growth rate
(CAGR) of 12-15 per cent over the next five years. The insurance industry is
planning to hike penetration levels to five per cent by 2020 and could top the
US$ 1 trillion mark in the next seven years. The total market size of India's
insurance sector is projected to touch US$ 350-400 billion by 2020.
India is the fifteenth largest insurance market in the world in terms of premium
volume and has the potential to grow exponentially in the coming years. Life
insurance penetration in India is just 3.1 per cent of GDP, which has almost
doubled since 2000. A fast-growing economy, rising income levels and
improving life expectancy rates are some of the many favorable factors that
are likely to boost growth in the sector in the coming years.
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Investment corpus in India’s pension sector is expected to cross US$ 1 trillion
by 2025, following the passage of the Pension Fund Regulatory and
Development Authority (PFRDA) Act 2013.
INVESTMENTS/DEVELOPMENTS
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JP Morgan Asset Management (UK) Ltd, JP Morgan Investment
Management Inc and JP Morgan Chase Bank NA, have acquired a 4.11
per cent stake in Mahindra & Mahindra Financial Services Ltd for Rs
113.75 crore (US$ 17.98 million).
GOVERNMENT INITIATIVES
Several measures have been outlined in the Union Budget 2014-15 that aim
at reviving and accelerating investment which, inter alia, include fiscal
consolidation with emphasis on expenditure reforms and continuation of fiscal
reforms with rationalization of tax structure; fillip to industry and
infrastructure, fiscal incentives and concrete measures for transport, power,
and other urban and rural infrastructure; measures for promotion of foreign
direct investment (FDI) in selected sectors, including defense manufacturing
and insurance; and, steps to augment low cost long-term foreign borrowings
by Indian companies. Fiscal reforms have been bolstered further by the recent
deregulation of diesel prices. The launch of ‘Make in India’ global initiative
is intended to invite both domestic and foreign investors to invest in India.
The aim of the programmed is to project India as an investment destination
and develop, promote and market India as a leading manufacturing destination
and as a hub for design and information. The programmed further aims to
radically improve the Ease of Doing Business, open FDI regime, improve the
quality of infrastructure and make India a globally competitive manufacturing
destination.
ROAD AHEAD
India is today one of the most vibrant global economies, on the back of robust
banking and insurance sectors. The country is projected to become the fifth
largest banking sector globally by 2020, as per a joint report by KPMG-CII.
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The report also expects bank credit to grow at a compound annual growth rate
(CAGR) of 17 per cent in the medium term leading to better credit penetration.
Life Insurance Council, the industry body of life insurers in the country also
projects a CAGR of 12–15 per cent over the next few years for the financial
services segment.
Major global financial hubs include New York, London, Hong Kong,
Singapore, Shanghai, Tokyo, and Zurich. Demand for sophisticated financial
services is expected to grow in Asia, particularly in China and Indonesia.
COMPETITIVE LANDSCAPE
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Demand is driven by business activity, returns on investments, and
consumer income. The profitability of individual companies depends on
marketing, efficient operations, and investment expertise. Large
companies often have advantages in access to cheaper VALUE MINDS,
participation in large-scale transactions, and name recognition. Small
companies can compete effectively through customer service, knowledge of
the local market, and specialization. The sector in the US is fragmented: the
largest 50 companies account for about 45 percent of sales.
The finance and insurance sector has undergone significant change in the past
decade, and more changes are likely.
This industry profile helps to gain an insight into the evolution of the industry
and competitive dynamics prevalent in the market. It discusses the significant
developments in the industry and analyzes the key trends and issues. The
profile provides inputs in strategic business planning of industry
professionals.
The objective and scope of various sections of our industry profile has been
discussed below.
Industry Snapshot
This section gives a holistic overview of the industry. It starts with defining
the market and goes on to give historical and current market size figures. It
also clearly illustrates the major segments of the market which would be
discussed later on in the report.
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Industry Analysis
Country Analysis
This section presents the key facts & figures of the country. It also discusses
the political environment and the macroeconomic indicators. It analyzes
government stability and economic growth of the country.
Competitor Assessment
This section compares the major competitors in the industry. The Competitors
At-a-Glance is aimed at giving an overview of the competitive landscape in
the industry.
Company Profiles
The major companies are profiled in this section. For each company, business
description is given followed by financial highlights and recent developments.
Chapter – 3
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OVERVIEW OF
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COMPANY PROFILE
S&P VALUE MINDS, INC. PROVIDES MULTI-ASSET CLASS AND REAL TIME
ESTIMATES, NEWS AND EVENTS, FIXED INCOME, ALPHA AND RISK MODELS,
VALUE MINDS, INC. AND CHANGED ITS NAME TO S&P VALUE MINDS,
INC. IN SEPTEMBER 2011. THE COMPANY WAS FOUNDED IN 1998 AND IS
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HEADQUARTERED IN NEW YORK, NEW YORK. S&P VALUE MINDS, INC.
OPERATES AS A SUBSIDIARY OF MCGRAW HILL FINANCIAL, INC.
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commercial banks, investment advisors and wealth managers, corporations
and universities worldwide. Our broad suite of capabilities is designed to help
track performance, generate alpha, identify new trading & investment ideas,
and perform risk analysis.
The company traces its history back to 1860, with the publication by Henry
Varnum Poor of History of Railroads and Canals in the United States. This
book compiled comprehensive information about the financial and
operational state of U.S. railroad companies. In 1868, Henry Varnum Poor
established H.V. and H.W. Poor Co. with his son, Henry William Poor, and
published two annually updated hardback guidebooks, Poor's Manual of the
Railroads of the United States and Poor's Directory of Railway Officials.
In 1906, Luther Lee Blake founded the Standard Statistics Bureau, with the
view to providing financial information on non-railroad companies. Instead
of an annually published book, Standard Statistics would use 5" x 7" cards,
allowing for more frequent updates.
In 1941, Poor's Publishing and Standard Statistics merged to become
Standard & Poor's Corp. In 1966, the company was acquired by The
McGraw-Hill Companies, extending McGraw-Hill into the field of financial
information services.
As a credit-rating agency (CRA), the company issues credit ratings for the
debt of public and private companies, and other public borrowers such as
governments and governmental entities. It is one of several CRAs that have
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been designated a nationally recognized statistical rating organization by the
U.S. Securities and Exchange Commission.
S&P issues both short-term and long-term credit ratings.
AAA: An obligor rated 'AAA' has extremely strong capacity to meet its
financial commitments. 'AAA' is the highest issuer credit rating
assigned by Standard & Poor's.
AA: An obligor rated 'AA' has very strong capacity to meet its financial
commitments. It differs from the highest-rated obligors only to a small
degree. Includes:
o AA+: equivalent to Moody's Aa1 (high quality, with very low
credit risk, but susceptibility to long-term risks appears
somewhat greater)
o AA: equivalent to Aa2
o AA-: equivalent to Aa3
A: An obligor rated 'A' has strong capacity to meet its financial
commitments but is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligors in
higher-rated categories.
o A+: equivalent to A1
o A: equivalent to A2
BBB: An obligor rated 'BBB' has adequate capacity to meet its financial
commitments. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitments.
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BB: An obligor rated 'BB' is less vulnerable in the near term than other
lower-rated obligors. However, it faces major ongoing uncertainties
and exposure to adverse business, financial, or economic conditions,
which could lead to the obligor's inadequate capacity to meet its
financial commitments.
B: An obligor rated 'B' is more vulnerable than the obligors rated 'BB',
but the obligor currently has the capacity to meet its financial
commitments. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitments.
CCC: An obligor rated 'CCC' is currently vulnerable, and is dependent
upon favorable business, financial, and economic conditions to meet its
financial commitments.
CC: An obligor rated 'CC' is currently highly vulnerable.
C: highly vulnerable, perhaps in bankruptcy or in arrears but still
continuing to pay out on obligations
R: An obligor rated 'R' is under regulatory supervision owing to its
financial condition. During the pendency of the regulatory supervision,
the regulators may have the power to favor one class of obligations over
others or pay some obligations and not others.
SD: has selectively defaulted on some obligations
D: has defaulted on obligations and S&P believes that it will generally
default on most or all obligations
NR: not rated
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B: has significant speculative characteristics. The obligor currently has
the capacity to meet its financial obligation but faces major ongoing
uncertainties that could impact its financial commitment on the
obligation
C: currently vulnerable to nonpayment and is dependent upon favorable
business, financial and economic conditions for the obligor to meet its
financial commitment on the obligation
D: is in payment default. Obligation not made on due date and grace
period may not have expired. The rating is also used upon the filing of
a bankruptcy petition.
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Chapter – 4
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ANALYSIS
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THEORY OF WORKING CAPITAL
In the aboard sense, the term working capital refers to the gross
Working capital and represents the amount of funds invested in current assets.
Thus the gross working capital is the capital invested in total current assets.
Current assets are the assets, which can be converted into cash within an
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accounting year and include cash, short-term securities, bill receivables and
stock.
Net working capital refers to the difference between current
assets and current liabilities. Current liabilities are those claims of outsiders
which are expected to mature for payment within an accounting year and
include creditors, bills payable and outstanding expenses.
The two concepts of working capital “gross” and “net” are not
exclusive; rather they have equal significance from management view point.
The gross working capital concept focuses attention on two
aspects of current assets management, (a) optimum investment in current
assets and (b) suggests the extent to which capital needs may be financed by
permanent sources of funds.
In summary, it may be emphasized that, both gross and net
concepts of working capital are equally important for the efficient
management of working capital.
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Permanent working capital is the minimum amount of current
assets. Which is needed to conduct a business even during the dullest season
of the year. This amount various from year to year, depending upon the growth
of a company and the stage of the business cycle in which it operates.
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BUSINESS FLUCTUATIONS
Business variations affect the working capital requirements,
specially the temporary working capital requirements, specially the temporary
working capital requirements of the firm. Therefore, financial arrangements
for seasonal working capital requirements can be made in advance.
PRODUCTION POLICY
The firm whose production capacities can be utilized for
manufacturing varied products, can have the advantage of diversified
activities and solve their working capital problems.
FIRM’S CREDIT POLICY
The credit policy of the firm affects working capital by
influencing the level of books debits. The firm should follow a rationalized
credit policy based on the credit standing of the customers and other relevant
factors.
AVAILABILITY OF CREDIT
A firm which can get credit easily on favorable conditions will
operate with less working capital than a firm without such a facility.
GROWTH AND EXPANSION ACTIVITIES
The working capital needs of a firm increases as it grows in terms
of sales or fixed assets. Proper plan may be done by companies to finance their
increasing needs for working capital.
PRICE LEVEL CHANGES:
The increasing shifts in price level make functions of financial
manager difficult. He should anticipate the effect of price level changes on
working capital requirements of the firm.
OPERATING EFFICIENCY
The firm will be effectively contributing to its working capital, if
it is efficient in controlling operating costs.
NEED FOR WORKING CAPITAL
The need for working capital to run the day-to-day business
activates cannot be overemphasized. We will hardly find a business firm,
which does not require any amount of working capital. Indeed, firms differ in
their requirements of the working capital. Earning a steady amount of profit
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requires successful sales activity. The firm has to invest enough funds in
current assets for generating sales.
Current assets are needed because sales do not convert into cash
instantaneously. There is always an operating cycle involved in the conversion
of sales into cash.
Operating cycle:
Operating cycle is the time duration required to convert sales,
after the conversion of resources in to inventories, into cash. The operating
cycle of a manufacturing company involves three phases.
Acquisition of resources such as raw material, labour, power and fuel etc.
Manufacture of the product, which includes conversion of raw material into
work in progress into finished goods.
Sales of the product either for cash or on credit. Credit sales create account
receivable for collection.
The length of the operating cycle is the sum of (1) inventory
Conversion period (ICP) and (2) debtors conversion period (DCP).
OC = ICP + DCP
Inventory conversion period (ICP) is the sum of (a) raw material
conversion (RMCP) and (b) work-in-progress conversion period (WIPCP),
and (c) finished good conversion period (FGCP)
ICP = RMCP + WIPCP + FGCP
The debtor’s conversion period is the time required to collect the outstanding
amount from the customers. The total of inventory conversion period and
debtor’s conversion period is referred to as gross operating cycle (GOC).
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Cash
Raw
Materials
Debtors
Work in
Progress
Finished
Goods
2. Management of receivables
3. Management of payables
4. Management of inventory
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MANGEMENT OF CASH
CASH PLANNING
Cash inflows and outflows should be planned to project cash
surplus or defect for each period of the planning period. Cash budger should
be prepared for this purpose.
MANAGING THE CASH FLOWS
The flow of cash should be properly managed. The inflows of
cash should be accelerated as far as possible, while the flows of cash should
be decelerated.
OPTIMUM CASH LEVEL:
The firm should decide above the appropriate level of cash
balances. The cost of excess cash and the disadvantages of cash deficiency
should be matched to determine optimum level of cash balances.
INVESTING SURPLUS CASH
The surplus cash balances should be properly invested to earn
profits. The firm should decide above the division of such cash balances
between bank deposits, marketable securities and inter corporate lending.
MANAGEMENT OF RECEIVABLES
Receivables constitute a substantial portion of current assets of
several firms. Receivables constitute above are third of current assets in India.
As sustain amounts are tied up in trade debtor, it needs careful analysis and
proper management.
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Firm’s investment receivables depend on the volume of credit
sales and the collection period. The investment in receivables may be
expressed in terms and of costs instead of sales value.
The investment in receivables depends on the firm’s credit policy.
Credit policy refers to the combination of three decision variables:
Credit standard
Credit terms
Collection efforts
CREDIT STANDARDS:
Credit standards are criteria to decide the types of customers to
whom goods could be sold on credit. If affirm has move slow-paying
customers, its investment in accounts receivable will increase. The firm will
also be exposed to higher risk of default.
CREDIT TERMS:
Credit terms specify duration of credit and terms of payment by
customers. Investment in accounts receivable and vice versa
MANAGEMENT OF PAYABLES:
Payable management is the process of making decisions relating
to investment made by the trade creditors in the firm. Payables represent
amounts owed by the firm as result of credit purchases in the ordinary course
of business. Payables are also known as “Accounts Payables”, and “Trade
Payables”. The period of credit and the extent of payables depend upon the
firm’s liquidity position as well as the credit policy followed by the suppliers,
creditors.
Credit Policies
Terms Policies
Terms of Trade
MANAGEMENT OF INVENTORY:
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The term inventory refers to the stock pile of the product a firm
is offering for sale and the components that make up the product. In other
words, inventory is composed of assets that will be sold in future in the normal
course of business operations. The assets which firms store as inventory in
anticipation of need are
Raw materials
Finished goods.
Safety stocks.
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First, the amount of working capital, viewed in either sense, is
obtained from the data contained in the balance sheet, which merely indicates
the financial position of company as on specific date and is therefore, ‘static’
in nature.
Secondly, the balance sheet of a company is prepared and
presented in the annual report in accordance with the Schedule V!
Requirements of the Indian Companies Act. As a result the amount of net
working capital obtained by subtracting current liabilities from current assets
presented in the balance sheet fails to reflect the true amount of net working
capital.
affecters profits.
grow. This may to make dividends policy liberal and difficult to cope
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Inadequate working capital also results in dangers:
It stagnates growth. It becomes difficult for the firm to undertake
profit target.
day-to-day commitments.
Fixed assets are not efficiently utilized for the lack of working capital
The firm loses its reputation when it is not in position to honor its short-
term obligations.
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the firm. It should not hold idle current assets any more than it should have
idle fixed assets
Increase Decrease
a) Current Assets:
Inventories
Bills receivable
Debtors
Temporary Investment
Prepaid Expenses
Loans and advances
Other Current assets
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Particulars 2011 - 12 2012 - 13
SOURCES OF FUNDS:
1) SHAREHOLDERS' FUNDS
(a) VALUE MINDS 18,719,280 18,719,280
(b) Reserves and Surplus 37,754372 78,340,733
56,473,652 97,060,013
2) DEFFERED TAX LIABILITY 2,794,350 2,478,428
TOTAL 59,268,002 99,538,441
APPLICATION OF FUNDS:
1) FIXED ASSETS
(a) Gross Block 29,767,979 31,057,596
(b) Less: Depreciation 14,710,986 16,894,562
(c) Net Block 15,056,993 14,163,034
2) CURRENT ASSETS, LOANS AND ADVANCES
(a) Sundry Debtors 37,856,420 80,712,804
(b) Cash and Bank Balances 51,690,326 34,043,520
(c) Other Current Assets 857,753 152,228
(d) Loans and Advances 923,709 733,516
91,328,208 115,642,068
LESS: CURRENT LIABILITIES AND PROVISIONS
(a) Liabilities 38,591,265 21,596,916
(b) Provisions 8,525,934 8,669,745
47,117,199 30,266,661
NET CURRENT ASSETS 44,211,009 85,375,407
TOTAL 59,268,002 99,538,441
INTERPRETATION:
45
(Amount in Rs.)
INTERPRETATION:
46
(Amount in Rs.)
INTERPRETATION:
RATIO ANALYSIS
FINANCIAL ANALYSIS
47
Financial analysis is the process of identifying the financial
strengths and weaknesses of the firm and establishing relationship between
the items of the balance sheet and profit & loss account.
Trade creditors, to identify the firm’s ability to meet their claims i.e.
liquidity position of the company.
RATIO ANALYSIS
Percentages
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Fractions
Proportion of numbers
To compare the calculated ratios with the ratios of the same firm
relating to the pas6t or with the industry ratios. It facilitates in assessing
success or failure of the firm.
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comparison with related facts. This is the basis of ratio analysis. The basis of
ratio analysis is of four types.
Projected ratios, ratios of the future developed from the projected or pro
forma financial statements
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Selection of relevant data from the financial statements depending upon
the objective of the analysis.
Comparison of the calculated ratios with the ratios of the same firm in
the past, or the ratios developed from projected financial statements or
the ratios of some other firms or the comparison with ratios of the
industry to which the firm belongs.
Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison
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The calculation of ratios may not be a difficult task but their use
is not easy. Following guidelines or factors may be kept in mind while
interpreting various ratios are
Selection of ratios
Use of standards
Evaluation of efficiency
Effective tool
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LIMITATIONS OF RATIO ANALYSIS
Differences in definitions
Limited use
Personal bias
CLASSIFICATIONS OF RATIOS
1. Traditional Classification
2. Functional Classification
3. Significance ratios
1. Traditional Classification
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Balance sheet (or) position statement ratio: They deal with the
relationship between two balance sheet items, e.g. the ratio of current
assets to current liabilities etc., both the items must, however, pertain
to the same balance sheet.
Profit & loss account (or) revenue statement ratios: These ratios deal
with the relationship between two profit & loss account items, e.g. the
ratio of gross profit to sales etc.,
Composite (or) inter statement ratios: These ratios exhibit the relation
between a profit & loss account or income statement item and a balance
sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.
2. Functional Classification
3. Significance ratios
Some ratios are important than others and the firm may classify
them as primary and secondary ratios. The primary ratio is one, which is of
the prime importance to a concern. The other ratios that support the primary
ratio are called secondary ratios.
1. Liquidity ratio
2. Leverage ratio
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3. Activity ratio
4. Profitability ratio
Chapter – 5
DATA ANALYSIS
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LIQUIDITY RATIO
1. CURRENT RATIO
(Amount in Rs.)
Current Ratio
Interpretation
In the year 2006, the cash and bank balance are reduced because
that is used for payment of dividends. In the year 2007, the loans and advances
include majorly the advances to employees and deposits to government. The
loans and advances reduced because the employees set off their claims. The
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other current assets include the interest attained from the deposits. The
deposits reduced due to the declaration of dividends. So, the other current
assets decreased.
GRAPHICAL REPRESENTATION
CURRENT RATIO
8.00 7.41
7.00
6.00
4.48
5.00 3.82
Ratio 4.00
2.19 1.94
3.00 Ratio
2.00
1.00
0.00
2003 2004 2005 2006 2007
Years
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2. QUICK RATIO
(Amount in Rs.)
Quick Ratio
Interpretation
Quick assets are those assets which can be converted into cash
within a short period of time, say to six months. So, here the sundry debtors
which are with the long period does not include in the quick assets.
GRAPHICAL REPRESENTATION
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QUICK RATIO
8.00 7.41
7.00
6.00
5.00 4.35 3.81
Ratio 4.00
3.00 Ratios
1.90
1.65
2.00
1.00
0.00
2003 2004 2005 2006 2007
Years
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3. ABOSULTE LIQUIDITY RATIO
(Amount in Rs.)
Interpretation
The current assets which are ready in the form of cash are
considered as absolute liquid assets. Here, the cash and bank balance and the
interest on fixed assts are absolute liquid assets.
In the year 2006, the cash and bank balance are decreased due to
decrease in the deposits and the current liabilities are also reduced because of
the payment of dividend. That causes a slight increase in the current year’s
ratio.
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GRAPHICAL REPRESENTATION
61
LEVERAGE RATIOS
4. PROPRIETORY RATIO
(Amount in Rs.)
Proprietary Ratio
Interpretation
Total assets, includes fixed and current assets. The fixed assets
are reduced because of the depreciation and there are no major increments in
the fixed assets. The current assets are increased compared with the year
62
2006. Total assets are also increased than precious year, which resulted an
increase in the ratio than older.
GRAPHICAL REPRESENTATION
PROPRIETORY RATIO
0.90 0.86
0.79 0.75
0.80
0.70 0.60
0.53
0.60
0.50
Ratios
0.40
Ratios
0.30
0.20
0.10
0.00
2003 2004 2005 2006 2007
Years
63
ACTIVITY RATIOS
(Amount in Rs.)
Working VALUE
Year Income from Services MINDS Ratio
Interpretation
The income from services is raised and the current assets are
also raised together resulted in the decrease of the ratio of 2007 compared
with 2006.
64
GRAPHICAL REPRESENTATION
65
6. FIXED ASSETS TURNOVER RATIO
(Amount in Rs.)
Interpretation
Fixed assets are used in the business for producing the goods to
be sold. This ratio shows the firm’s ability in generating sales from all
financial resources committed to total assets. The ratio indicates the account
of one-rupee investment in fixed assets.
66
GRAPHICAL REPRSENTATION
1.00
0.00
2003 2004 2005 2006 2007
Years
67
7. VALUE MINDS TURNOVER RATIO
(Amount in Rs.)
VALUE MINDS
Year Income from Services Employed Ratio
Interpretation
68
GRAPHICAL REPRESENTATION
1.04 1.04
1.03
1.02 1.01
1.01
1.00
1.00
0.98
Ratios 0.99 0.98
0.98 Ratios
0.97
0.96
0.95
0.94
2003 2004 2005 2006 2007
Years
69
8. CURRENT ASSETS TO FIXED ASSETS RATIO
(Amount in Rs.)
Interpretation
70
GRAPHICAL REPRESENTATION
9.00 8.17
8.00
7.00 6.07
6.00
5.00 4.20
Ratios 3.74
4.00 2.93
Ratios
3.00
2.00
1.00
0.00
2003 2004 2005 2006 2007
Years
71
PROFITABILITY RATIOS
(Amount in Rs.)
Net Profit Ratio
Interpretation
The net profit ratio is the overall measure of the firm’s ability to
turn each rupee of income from services in net profit. If the net margin is
inadequate the firm will fail to achieve return on shareholder’s funds. High
net profit ratio will help the firm service in the fall of income from services,
rise in cost of production or declining demand.
72
GRAPHICAL REPRESENTATION
0.50 0.42
0.40 0.33
0.30
Ratios 0.30 0.23
Ratios
0.20
0.10
0.00
2003 2004 2005 2006 2007
Years
73
10. OPERATING PROFIT
(Amount in Rs.)
Operating Profit
Interpretation
74
GRAPHICAL REPRESENTATION
75
11. RETURN ON TOTAL ASSETS RATIO
(Amount in Rs.)
Return on Total Assets Ratio
Interpretation
This is the ratio between net profit and total assets. The ratio
indicates the return on total assets in the form of profits.
76
GRAPHICAL REPRESENTATION
0.35
0.31
0.30 0.27
0.25
0.18 0.19
0.20 0.17
Ratios
0.15 Ratios
0.10
0.05
0.00
2003 2004 2005 2006 2007
Years
77
12. RESERVES & SURPLUS TO VALUE MINDS RATIO
(Amount in Rs.)
Reserves & Surplus to VALUE MINDS Ratio
Interpretation
The reserves & surplus is decreased in the year 2006, due to the
payment of dividends and in the year 2007 the profit is increased. But the
VALUE MINDS is remaining constant from the year 2004. So, the increase
in the reserves & surplus caused a greater increase in the current year’s ratio
compared with the older.
78
GRAPHICAL REPRESENTATION
35.00 31.54
30.00
25.00
20.00
Ratios
15.00
Ratios
10.00
2.75 4.19
1.85 2.02
5.00
-
2003 2004 2005 2006 2007
Years
79
OVERALL PROFITABILITY RATIOS
(Amount in Rs.)
Earnings Per Share
Interpretation
Earnings per share ratio are used to find out the return that the
shareholders earn from their shares. After charging depreciation and after
payment of tax, the remaining amount will be distributed by all the
shareholders.
Net profit after tax is increased due to the huge increase in the
income from services. That is the amount which is available to the
shareholders to take. There are 1,871,928 shares of Rs.10/- each. The share
VALUE MINDS is constant from the year 2004. Due to the huge increase in
net profit the earnings per share is greatly increased in 2007.
80
GRAPHICAL REPRESENTATION
120.00
101.56
100.00
80.00
Ratios 60.00
Ratios
40.00 21.68
8.61 9.75
9.04
20.00
0.00
2003 2004 2005 2006 2007
Years
81
14. PRICE EARNINGS (P/E) RATIO
(Amount in Rs.)
Price Earning (P/E) Ratio
Interpretation
The market price per share is increased due to the increase in the
reserves & surplus. The earnings per share are also increased greatly
compared with the last year because of increase in the net profit. So, the ratio
is decreased compared with the previous year.
82
GRAPHICAL REPRESENTATION
P/E RATIO
4.50 4.15
4.00
3.30
3.50 3.09
3.00 2.39
2.50
Ratios
2.00
Ratios
1.50
1.00
0.32
0.50
0.00
2003 2004 2005 2006 2007
Years
83
15. RETURN ON INVESTMENT
(Amount in Rs.)
Return on Investment
Interpretation
This is the ratio between net profits and shareholders’ funds. The
ratio is generally calculated as percentage multiplying with 100.
The net profit is increased due to the increase in the income from
services ant the shareholders funds are increased because of reserve & surplus.
So, the ratio is increased in the current year.
84
GRAPHICAL REPRESENTATION
0.45 0.42
0.40
0.31 0.32
0.35 0.30
0.30 0.24
0.25
Ratios
0.20
RatioS
0.15
0.10
0.05
0.00
2003 2004 2005 2006 2007
Years
85
Chapter – 7
86
FINDINGS OF THE STUDY
1. The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48,
1.98, and 3.82 during 2003 of which indicates a continuous increase in
both current assets and current liabilities.
2. The quick ratio is also in a fluctuating trend throughout the period 2003
– 07 resulting as 7.41, 1.65, 4.35, 1.9, and 3.81. The company’s present
liquidity position is satisfactory.
3. The absolute liquid ratio has been decreased from 3.92 to 1.18, from
2003 – 07.
5. The working VALUE MINDS increased from 0.72 to 1.13 in the year
2003 – 07.
6. The fixed assets turnover ratio is in increasing trend from the year 2003
– 07 (1.26, 1.82, 4.24, 3.69, and 6.82). It indicates that the company is
efficiently utilizing the fixed assets.
8. The current assets to fixed assets ratio is increasing gradually from 2003
– 07 as 2.93, 3.74, 4.20, 6.07 and 8.17. It shows that the current assets
are increased than fixed assets.
87
9. The net profit ratio is in fluctuation manner. It increased in the current
year compared with the previous year from 0.33 to 0.42.
10.The net profit is increased greatly in the current year. So, the return on
total assets ratio is increased from 0.17 to 0.31.
12.The earnings per share was very high in the year 2003 i.e., 101.56. That
is decreased in the following years because number of equity shares are
increased and the net profit is decreased. In the current year the net
profit is increased due to the increase in operating and maintenance fee.
So, the earnings per share is increased.
14.Price Earnings ratio is reduced when compared with the last year. It is
reduced from 3.09 to 2.39, because the earnings per share is increased.
88
SUMMARY
2) The company profits are huge in the current year; it is better to declare
the dividend to shareholders.
3) The company is utilising the fixed assets, which majorly help to the
growth of the organisation. The company should maintain that
perfectly.
4) The company fixed deposits are raised from the inception, it gives the
other income i.e., Interest on fixed deposits.
CONCLUSION
89
BIBLIOGRAPHY
REFFERED BOOKS
INTERNET SITE
www.ercap.org
www.wikipedia.com
www.nwda.gov.in
90
APPENDIX
Profit and Loss Account for the period ended on 31st March 2007
(Amount in Rs.)
91