A PROJECT REPORT ON

FINANCIAL STATEMENT ANALYSIS

OF STAPLE FIBRE DIVISION

UNDERTAKEN AT

GRASIM INDUSTRIES LIMITED

MEDICAPS INSTITUTE OF TECHNOLOGY AND MANAGEMENT , UJJAIN (M.P.)

TOWARDS Partial fulfillment of the requirement for the award of Degree of Master of Business Administration (MBA) Of DEVI AHILYA VISHVAVIDHYALAYA UNIVERSITY INDORE (M.P.)
Faculty Guide: Organi ational Guide: !u"mitted By:

Prof. V r!" # C"o$%&'

Mr. M.P. A(r ) *

ABHISHEK

Gr +,- (SFD), N (! (M.P.) SIROLIYA

CERTIFICATE
#

$his is to certify that Mr. A%",+"&. S,ro*,' is a student of Master of Business Administration (MBA) at% M&!,/ 0+ I#+1,1$1& of 1&/"#o*o(' A#! M # (&-&#1, I#!or&& !he has undergone a 'ro(ect on 2FINANCIAL ANALYSIS3 as a 'art of course curriculum of MBA& $he wor) has "een found satisfactory and o"(ecti*es ha*e "een met&

+&O&D&,Management :Dr. H. I#!$*. r

Pro(ect guide :Mr. M.P. A(r ) *

Gr +,- (SFD), N (! (M.P.)

DECLARATION
.

/, the undersigned, Mr. A%",+"&. S,ro*,' here"y declare that the 'resent, summer 'ro(ect title 2FINANCIAL ANALYSIS3 is "ased on my original wor) and my inde"tedness to other wor)s, 'u"lication, has "een duly ac)nowledged at rele*ant 'laces&

Pro(ect guide:Mr. M.P. A(r ) *

Gr +,- (SFD), N (! (M.P.)

A%",+"&. S,ro*,'
MBA 4r! S&-

Faculty:Prof. V r!" # C"o$%&'

Date: #0th 1uly .223 Place: Grasim /ndustries 4td& , 5agda

BOARD OF DIRECTORS
6

 7hairman Director Director Director Director Director Director Director ;hole time Director 7om'any !ecretary Additional Director

8umar Mangalam Birla

9a(ashree Birla

M4 Bagrodia

B: Bharga*a

M4 A'te

97 Bharga*a

7yril !hroff

!G !u"rahmanyam

!hailendra 8 1ain

Asho) Malu

< P Gu'ta

ACKNOWLEDGEMEN T
Gratitude is the hardest of emotions to e>'ress and often does not find adequate words to con*ey all that what we feel& / owe gratitude to se*eral 'eo'le who hel'ed me in my course of 'ro(ect& /f / were to sit down to ma' out all the contri"utors who ha*e gi*en time and shared their *iews to ma)e this 'ro(ect 'ossi"le, / would end u' ma''ing out the long list& My heartiest than)s are due to for 'ro*iding all facilities during the 'ro(ect& / e>'ress my heart felt than)s to Mr& 8?5DA5 4OD+A (Asst :ice President-F@A) for granting me 'ermission to do my training in finance de'artment& / am also grateful to my 'ro(ect guide Mr& M&P AG9A;A4 (Dy& General Manager- $a>ation @ /nsurance) for his generous guidance and full co-o'eration to me des'ite of his hectic schedule& / would also li)e to than) Mr& Pan)a( 1ain, Mr& Aditya !harda, Mr& P&!& 7houhan and Miss Anita !harma, D&P&8hatri of 9aw Material De'artment and Mr& G&!& $anwar, Mr& !&!& Dalmiya and Mr& A&D& 8aushi) of Material De'artment (stores) for 'ro*iding me rele*ant data and information regarding my 'ro(ect& / here"y ta)e this o''ortunity to than) all my friends and well wishers who hel'ed me directly or indirectly "y their *alua"le hel', 'er'etual su''ort and 'atience to com'lete this Pro(ect 9e'ort of G9A!/M /5D?!$/A! 4$D&

Mr. A%",+"&. S,ro*,'

MBA 4r! S&-&
0

E5ECUTIVE SUMMARY
Boo)s are the treasure of )nowledge and a theoretical "ase is 'i*otal for understanding the realities of 'ractical field& But, at the same time, 'ractical )nowledge is crucial for ha*ing an insight into the im'lementation of theory in cor'orate world& ;ith the 'ri*ilege of an o''ortunity 'ro*ided to me "y Grasim /ndustries, for the fulfillment of my 'ur'ose B"ridging the ga' "etween theory and 'ractical%, / undertoo) summer training at finance de't& of S1 0*& F,%r& D,6,+,o# of Gr ,+- I#!$+1r,&+ L,-,1&!, N ( ! & During this training, / conducted a study of 'ro(ect a"out F,# #/, * A# *'+,+. ?nder the 'ro(ect Financial Analysis, first of all annual re'orts of two years was 'ro*ided to me to analy e it and so that / could get acquainted with the terms relating to the sta'le fi"re "usiness, financial condition de'icted "y "alance sheet and 'rofit and loss account of the co&, figure relating to im'ort and e>'ort etc& ?sing the financial statement, we then conducted a com'are analysis of ratio of fi*e years, and on the "asis of these, inter'reted the financial 'osition of com'any& ;e also determined the com'arati*e statement, ratio analysis and cash flow analysis for the com'any&

CONTENT

SECTION 78 INTRODUCTION OF THE COMPANY Aditya Birla Grou' of com'any D Profile 7om'any +istory :!F- Finance and Account De'artment :alues, :ision and Mission Process flow diagram of :!F ;7M e>cellence modal !;O$ Analysis

P (& No. E #. #3 #E .2 .. .=

SECTION 98 INTRODUCTION TO STUDY Introduction O"(ecti*e 9esearch Methodology 9esearch Design Data 7ollection Method .3 6# 66 6= 60

SECTION 48 FINANCIAL STATEMENT ANALYSIS Introduction 63

F

 $y'es of Financial Analysis SECTION :8 ANALYSIS AND INTERPRETATION 7om'arati*e Balance sheet 7om'arati*e /ncome and A>'enditure !tatement 7ash Flow !tatement 7om'arati*e 7ash Flow !tatement SECTION ;8 ASSESSMENT OF RATIO ANALYSIS SECTION <8 RECOMMENDATION SECTION =8 CONCLUSION SECTION >8 BIBLIOGRAPHY

6E

=6 =C 02 0. 0C == FE 36

SECTION 7

COMPANY PROFILE

ADITYA BIRLA GROUP ? A BRIEF PROFILE

$he Aditya Birla Grou' is /ndiaGs first truly multinational cor'oration& Glo"al in *ision, rooted in *alues, the Grou' is dri*en "y a 'erformance ethic 'egged on *alue creation for its multi'le sta)eholders& A ?!H .= "illion conglomerate, with a mar)et ca'itali ation of ?!H .6 "illion, it is anchored "y an e>traordinary force of #22,222 em'loyees "elonging to o*er .0 different nationalities& O*er 02 'er cent of its re*enues flow from its o'erations across the world& $he Grou'Gs 'roducts and ser*ices offer distincti*e customer solutions& /ts 30 state-of-the-art manufacturing units and sectoral ser*ices s'an /ndia, $hailand, 4aos, /ndonesia, Phili''ines, Agy't, 7anada, Australia, 7hina, ?!A, ?8, Germany, +ungary, Bra il, /taly, France, 4u>em"ourg, !wit erland, Malaysia and 1a'an& A 'remium conglomerate, the Aditya Birla Grou' is a dominant 'layer in all of the sectors in which it o'erates& Among these are *iscose sta'le fi"er, metals, cement, and *iscose filament yarn, "randed a''arel, car"on "lac), chemicals, fertili ers, insulators, financial ser*ices, telecom, BPO and /$ ser*ices&

#2

Glo"ally the grou' is: @@ @@ @@ @@ @@ @@ @@ @@ $he worldIs largest aluminium rolling com'any One of the "iggest 'roducers of 'rimary aluminium in Asia 5o&# in *iscose sta'le fi"er $he third largest 'roducer of insulators $he fourth largest 'roducer of car"on "lac) $he ele*enth largest cement 'roducer $he "est energy efficient fertili er 'lant Among the worldGs to' #0 and among /ndiaGs to' three BPO com'anies

/n /ndia, the Grou' holds a frontrunner 'osition as: @@ @@ @@ @@ @@ /ndiaIs leading co''er 'roducer A 'remier "randed garments 'layer $he second largest 'layer in *iscose filament yarn Among the to' fi*e mo"ile tele'hony 'layers 4eading 'layer in life insurance and asset management

/n /ndia the grou' is the single largest 'roducers of *iscose filament yarn, white cement and rayon grade 'ul', the only 'roducers of linen and leader in ready to wear "randed a''arels&

##

Co-0 #' H,+1or'

#.

COMPANY HISTORY
G9A!/M was incor'orated as the G;A4/O9 9A<O5 !/48

MA5?FA7$?9/5G A5D ;AA:/5G 7O& 4$D on .0th aug&#E=F and was esta"lished "y late shri G&D& B/94A, grandfather of late shri AD/$<A :& B/94A& /n #E3C, the com'any was renamed 2GRASIM INDUSTRIES LIMITED3 to reflect the di*ersified nature of its "usiness& $oday, ,1 ,+ -o#( 1"& 1&# * r(&+1 /o-0 #,&+ ,# 1"& 061. S&/1or ,# I#!, in terms of assets, sales and 'rofits& $he com'anyIs ra'id and consistent growth sustained o*er more than = decades and has gi*en G9A!/M a strong financial "ase and mar)et standing& G9A!/M has always "een in time with /ndiaIs economic growth and has re'eatedly scored success in all its industrial *entures& G9A!/M along with its su"sidiaries is a world leader in 'roduction of V,+/o+& +1 0*& f,%r&, machinery and technical )now how and countryIs leading manufacture of rayon grade 'ul', caustic soda, te>tiles, cement and s'onge iron& And now G9A!/M is 'oised for ma(or di*ersification in 'etro chemicals and telecommunications, "y 'romoting Mangalore refinery and
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'etrochemicals 'ro(ect located in south /ndia ha*ing a ca'acity of refining 6 million tons 'er annum of crude oil& $he co& has dis'layed remar)a"le a"ility in ta''ing o''ortunities to march ahead "oth *ertically and hori ontally& As a result of its dynamics and (udicious a''roach, the co& has now emerged as a highly di*ersified, leading industrial conglomerate in the country& !ince its ince'tion, the co& has "een stri*ing to foster a sim'le cor'orate 'hiloso'hy, that is, to achie*e e>cellence and 'erfection in all s'heres of management "y continuous im'ro*ement&

Grasim Industries limited

Grasim /ndustries 4imited, a flagshi' com'any of the Aditya Birla Grou', ran)s among /ndiaGs largest 'ri*ate sector com'anies, with consolidated net re*enues of 9s&#=# "illion (F<.22F)& !tarting as a te>tiles manufacturer in #E=3, today GrasimGs "usinesses com'rise :iscose !ta'le Fi"re (:!F), 7ement, !'onge /ron, 7hemicals and $e>tiles J in all of which the com'any holds a dominant 'osition&

Viscose staple Fibre

:&!&F 'roduction commences at 5agda (M&P) in #E0= near ?((ain city& /t is situated on a #02 acre site and is the largest in the world& $he com'any has its 6 'lants located in /ndia at 5agda in M&P as !FD, 8harach in Gu(arat as Birla cellulose and +arihar in 8arnata)a as Grasilene di*ision with a com"ined installed ca'acity of ..2,FF0 tonnes 'er annum and two 'lants located a"road at $hailand as $97 and /B9 in /ndonesia&

#=

N (! ,+ o#*' 1"& * r(&+1 0ro!$/&r of +0$# !'&! #! +0&/, *,1' f,%r& ,# )or*!.
Branded as BBirla cellulose%, it is 'ositioned as a distinct and 'remium *iscose sta'le fi"re in glo"al mar)et& A fa*ora"le change in "lend ratio, 'ositioning :&!&F at the 'remium end of the fi"re mar)et as Bfi"re for feel, fashion and comfort% are the other ste's to ta)e this "usiness forward& 5agda is its core unit, 'roducing a wide range of :!F to suit customer requirements in terms of length, denier, colour, and is the largest 'roducer of s'un-dyed and s'ecialty fi"re in the world& $he +arihar unit 'roduces rayon grade 'ul', the "asic raw material for :!F 'roduction, and :!F& $he :!F 'lant at 8harach, set u' in #EEF, em'loys the latest state-of-the-art technology, gi*ing it a com'etiti*e edge in the e>'ort mar)et& Market Share G9A!/M, /ndiaIs 'ioneer in *iscose sta'le fi"re, a man made, e>tremely *ersatile fi"re with characteristics a)in to cotton, easily "lended with other fa"ric, is the largest and low cost manufacturer of :&!&F D meeting o*er E2K of the countryIs requirement and en(oying around .=K mar)et share worldwide&

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Cement
Grasim *entured into cement 'roduction in the mid #E32s, setting u' its first cement 'lant at 1awad in Madhya Pradesh and since then it has grown to "ecome a cement ma(or& ;ith the acquisition of the 4@$ cement "usiness, it increased its ca'acity to 6# million t'a& $he constituent of :i)ram cement were commissioned in the year #E30, #E3F, and #EE#& Grasim is /ndiaIs third largest cement 'roducer& $he "rand :/89AM P9AM/?M 7AMA5$, has esta"lished as a "rand leader of 'remium 'roducts, ca'itali ing on its consistent su'erior quality and a re'utation for strength and 'erfection&

Chemicals
$o achie*e a relia"le and economical su''ly of rayon grade caustic soda D an im'ortant raw material in :!F 'roduction J Grasim set u' a / $+1,/ +o! unit at 5agda in #EF., with an initial ca'acity of 66,222 t'a& $his has since grown to #E2,322 t'a

Sponge iron
/n #EE6, Grasim *entured into this segment with the commissioning of a gas-"ased +0o#(& ,ro# 'lant at !ala* in Ali"ag, Maharashtra& $he 'lant has a current ca'acity of E22,222 tonnes 'er annum, and is the third largest gas"ased s'onge iron 'lant in /ndia& $his #22K im'ort su"stitution 'ro(ect uses the most ad*anced technology and cost effecti*e 'rocess of D*ay Dra*o, a

#C

di*ision of Da*y Mc)ee cor'& of ?&!&A& and +<4!A !&A& de 7&: of Me>ico&

Sodium Sulphate
Grasim is also /ndiaIs largest 'roducer of sodium sul'hite, a "y-'roduct of :&!&F manufacture and em'loyes the 'rocess of crystalli ation, which hel's in reducing the adhering im'urities& $his chemical is widely used in 'a'er and 'ul', detergent glass and te>tile industries& Grasim also e>'orts !odium !ul'hate to "oth de*elo'ed and de*elo'ing countries&

Textiles
$he Grasim 1&A1,*& !,6,+,o# is located #.F )ilometers south west of Delhi at Bhiwani, +aryana& $his com'osite te>tile unit has its own s'inning, wea*ing and 'rocessing units under one roof& /n order to render ser*ices to customer all o*er the country, the co& has o*er #,222 retail outlets through the country& $he leading range of fashion fa"rics, mar)eted under the "rand name G;A4/O9 !?/$/5G, G9A:/A9A !?/$/5G, ADO5/!, !?MO @;A44 !$& continue to en(oy an e>cellent mar)et re'utation& $he successful introduction of worldIs leading suiting "rand !7ABA4, and the launching of su'erfine worsted suiting ha*e hel'ed the co& to consolidate its 'osition in the 'remium segment&

#F

VARIOUS DEPARTMENTS IN V.S.F DIVISION

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
C M r.&1,#( C Pro!$/1,o# C D$ *,1' Co#1ro* C P$r/" +& C A!-,#,+1r 1,o#

E#(,#&&r,#( S&r6,/&+

H$- # r&+o$r/&

A//o$#1+ #! F,# #/&

R&+& r/" #! D&6&*o0-&#1

#3

V,+/o+& S1 0*& F,%r& ? F,# #/& E A//o$#1 D,6,+,o#

Purchase Accounting

7ash @ Ban)

4egal @ A>cise

!ales @ $a>ation, /nsurance

9aw material Purchase

!toc) Purchase

$y'ist

!ales Accounting

General AccountIs A>cise

Domestic

A>'ort

Asta"lishment

7lu"

Guest +ouse

!taff Mess

Diary

+os'ital

!chool

#E

2VALUES3
/ntegrity 7ommitment Passion !eamlessness !'eed : +onesty in e*ery action : Deli*er on the 'romise : Anergi ed action : Boundary less in letter and s'irit : One D ste' ahead always

2VISION3
$o "e a 'remium conglomerate with a clear focus at each "usiness le*el&

2MISSION3
$o 'ursue the creation of *alue for our customer, shareholders, em'loyees and society at large&

.2

.#

BRIEF DESCRIPTION OF THE MANUFACTURING PROCESS

9ayon grade 'ul' is stee'ed in caustic soda solution and e>cess lye is drained in slurry 'resses to o"tain a mat of al)ali cellulose& After shredding, al)ali cellulose is reacted with car"on di sul'hide to yield cellulose >anthate& $he >anthate so formed is dissol*ed in dilute caustic soda to gi*e *iscose, which is filtered, deaerated and ri'ened, "efore e>trusion through s'innerets in to a s'inning "ath containing sul'huric acid and s'ecial additi*es& 7ellulose is regenerated in the form of fine filaments& $he filaments are cut in to the required sta'le length, washed, desul'hurised, "leached, soft finished and dried to o"tain :iscose !ta'le Fi"er, which is then "aled in "ailing 'ress&

..

WCM E5CELLENCE MODEL FOR COMPETITVE ADVANTAGE

;or) en*ironment (ss) ;aste (M?DA) Alimination

1/$ and stoc) reduction

High performa !e "eam#$ /nformation system, technology and cash flow

BENCH MARKED INNOVATIONS RELIABLE LEARNING ADAPTABLE

Aqui'ment effecti*eness

WCM$ CREATING %ALUE 7ustomer dri*en: internal and e>ternal Luality first: !LM and "est 'ractices

4iaison and understanding

.6

WCM Co#/&01
#& $he 'ur'ose of our model is to communicate *isually the )ey ingredients
and there lin)ages in the art of managing of sustaina"le su'erior 'erformance&

.& A>cellence and com'etiti*eness go hand in hand required a mind set and
culture where all em'loyees are encourage and required to maintain a"normally free en*ironment and o'erating condition&

6& Our a''roach is managing through teams and achie*ing transformation

where*er a''ro'riate&

.=

SWOT ANALYSIS
STRENGTHS8 ;orldIs largest 'roducer of :&!&F Motley of colors in Dyed fi"re 4eader in ready to wear "randed a''arel 7ost effecti*e !ound infrastructure :arious manufacturing locations ena"le G9A!/M to reach out ma(or chun) of mar)et& Also concentrate on en*ironmental issues& WEAKNESSES8 7ustomers and mar)et dri*en (orientation) 'rocess is slow Mar)et areaMco*erage, sometimes distur"ed "y small 'roducers OPPORTUNITIES8 Glo"al e>'ansion De*elo'ment of s'ecial quality fi"re A&g& A>cel @ Modal 7ontinuous inno*ations, for e>am'le, ice touch fa"ric in .22. /n /ndia , the grou' is single largest 'roducer of *iscose filament yarn Demand for :&!&F is e*er increasing "ecause of its hygrosco'ic nature which is ideal for tro'ical countries li)e /ndia& De*elo'ing new a''lications in non-wo*en segment THREATS8 4ow cost 7hinese :!F inflow into the glo"al mar)et 7om'etition in domestic as well as glo"al mar)et, com'any is facing com'etition with natural synthetic fi"ers li)e cotton, 'olyester, acrylic etc&

.0

 !carcity of raw material , that is , wood 'ul' ( eucaly'tus and "am"oo trees) $hreat of re-o'ening of small com'etitors o'erations&

A!,1' B,r* Gro$0 Co-0 #,&+F JV+ ,# I#!, / G9A!/M @ /$! A!!O7/A$A!
: :iscose !ta"le Fi"re, 7ement, !'onge /ron, 7hemicals, $e>tiles

Grasim /ndustries 4imited

S$%+,!, r,&+
?ltra$ech 7ement 4imited Da)shin 7ement 4imited ?ltra$ech ceylinco Pri*ate limited !hree Dig*i(ay 7ement com'any 4imited +arish 7ement 4imited !amruddhi !wasti) $rading @ /n*estment 4imited !un God $rading And /n*estments 4imited : 7ement : 7ement : 7ement : 7ement : 7ement : /n*estment : /n*estment

.C

Jo,#1 V&#1$r&+
A: 7ell inc&, /dea 7ellular 4imited A : 5ac)awic /nc& Birla 4ao Pul' @ 'lantation 7o& 4imited Birla 1ingwei Fi"res 7o& 4imited : Pul' : $elecom : Pul' : Plantation @Pul' : Fi"re

A++o/, 1&+
Aditya Birla !cience @ $echnology 7o& 4imited : 9esearch @ De*elo'ment

.F

SECTION 9

INTRODUCTION TO STUDY

.3

INTRODUCTION
$he "usiness scenario the world undergoing change& But it is the nowhere as 'ronounced as it is in /ndia& $he mindset dri*ing mar)ets has metamor'hosed from a su''ly-led 'hiloso'hy to that dri*en "y e*er change demand from customer& $his along with intensified com'etition is forcing com'anies to thin) differently& $he need create *alue for shareholders has "ecome more 'ressing than e*er "efore& /n this conte>t, reducing cost of fund, ma>imi ing grou' synergies and effecti*e "alance sheet management "ecome )ey 'rorules&

/n the glo"ali e scenario of the /ndian economy and es'ecially after the announcement of the new industrial 'olicy in #EE#,the /ndian industry has grown in lea's and "ounds& $his has "een made 'ossi"le "y the go*t& in a significant de*iation from the 'ast, allowing ma(ority stoc) holding to the foreign com'anies in /ndian com'anies& Beside, made in FA9A, M9$P and AN/M PO4/7<& this FllIs ha*e "een 'ermitted to 'ic) u' stoc) at the /ndian "rowses and rela>ations are also

$hus due to conducti*e atmos'here for inflow of chea' foreign ca'ital in the /ndian economy, a no& Of com'anies "oth in 'roduction sector and in ser*ice ha*e multi'lied manifolds&

.E

Due to hea*y in*estments in fi>ed assets, the /ndian com'anies started feeling a ser*ers crunch of the wor)ing ca'ital finance& ;ith an effect, the inter-"an) call money rates rose& $he situation was further com'ounded when go*t& in a "id to maintain inflation le*el to single digit figures started 'um'ing out money from circulation and also due to 9B/Is more strict rules relating to the cash credit limits& $hus, the squee e on wor)ing ca'ital "ecame gra*e and it ma(or e>ercise for the com'anies to 'rocure wor)ing ca'ital loans from "an)s at reasona"le cost&

62

ProG&/1 O%G&/1,6&

6#

PROJECT OBJECTIVE
A consortium of "an) finances wor)ing ca'ital need of Grasim& 7onsortium sanctions its financing limits according to reser*e "an) of /ndia guidelines& 7om'any is required to send is re'ort on wor)ing ca'ital needs annually to the consortium& 7onsortium analy es wor)ing ca'ital needs of the com'any on the "asis of the re'ort, which is said credit monitoring agreement& $he main o"(ecti*e of the 'ro(ect is to assist in 're'aring 7MA re'ort and ma)e assum'tions, other o"(ect are :#& $o 'ractically understand the conce't of wor)ing ca'ital studied in academic sessions& .& $o study and analy e the wor)ing ca'ital requirements of the com'any& 6& $o analy e the soundness of te com'any with the hel' of financial management tools& =& $o study the financing of its wor)ing ca'ital needs& 0& $o study the trends and reasons for de*iation&

6.

M&1"o!o*o('

66

RESEARCH METHODOLOGY
I#1ro!$/1,o#
Before underta)ing a study, it is useful to 'lan how it would "e done& $his in*ol*es designing the research wor) and its methodology& 9esearch methodology is a systematic way for sol*ing any research 'ro"lem& /t may "e understood as a science of studying how research is done scientifically& 9esearch methodology has many dimension and the research methods are an integral 'art of it& $he usefulness of the out'ut will de'end u'on how the research has "een designed and im'lemented at each strong of its 'rocess& $he 'ro(ect is related to the determination of financial analysis for the com'any& $he co& com'rises many di*isions all o*er /ndia& On the "asis of need for indi*idual di*ision, the financial analysis for the entire organi ation is determined&

6=

RESEARCH DESIGN
$he research design is a 'lan of the 'ro'osed research wor)& /t is the way through which the stated research o"(ecti*es can "e achie*ed& /t is a "lue'rint for the collection, measurement and analysis of the data& /t means it in*ol*es the data collection method, the s'ecific research instrument and the sam'ling 'lan that would "e used for the 'ur'ose&

60

DATA COLLECTION METHOD

$here are *arious methods for the collection of data& +owe*er, for the selection of any method, the following factors are considered& 5ature, O"(ecti*e and sco'e of the study A*aila"ility of funds $ime element Accuracy required A*aila"ility of data 7ollection of data can "e of two ty'es: Pr,- r' ! 1 S&/o#! r' ! 1 Primary data are those which are collected for the first time& $his ha''ens to "e original in character& /t is not collected "y anyone else earlier& !econdary data are those that ha*e already "een collected and analy ed "y someone else, and as such the 'ro"lem associated with the original collection of data does not arise here& /t may "e 'u"lished or un'u"lished& For this study / had used secondary data a*aila"le from Annual 9e'ort of the com'any and *arious di*isions and head office&

6C

R&+& r/" O%G&/1,6&

$he main o"(ecti*e of conducting research is to identify the financial strength and wea)ness of the firm& Another o"(ecti*e is to (udge 'rofita"ility and financial soundness of the firm& $o analy e the soundness of the co& with the hel' of financial management tools& $o study the trends and reasons for de*iation&

6F

SECTION 4

FINANCIAL STATEMENT ANALYSIS

A THEORETICAL PERSPECTIVE

63

FINANCIAL STATEMENT ANALYSIS

INTRODUCTION
Financial statements are 're'ared 'rimarily for decision ma)ing& $hey 'lay a dominant role in setting the framewor) of managerial decisions& But the information 'ro*ided in financial statements is not an end in itself as no meaningful conclusion can "e drawn from these statements alone& +owe*er, the information 'ro*ided in financial statements is of immense use in decisions through analysis and inter'retation of financial statements& Financial analysis is Bthe 'rocess of identifying the financial strengths and wea)nesses of the firm "y 'ro'erly esta"lishing the relationshi' "etween the items of the "alance sheet and 'rofit and loss account&% $he 'ur'ose of financial analysis is to diagnose the information contained in financial statements so as to (udge the 'rofita"ility and financial soundness of the firm& $he term OFinancial !tatement AnalysisI includes "oth analysis and inter'retation& $he term OAnalysisI is used to mean the sim'lification of financial data "y methodical classification of the data gi*en in the financial

6E

statements, O/nter'retationI means e>'laining the meaning and significance of the data so sim'lified&

TYPES OF FINANCIAL ANALYSIS

;e can classify *arious ty'es of financial analysis into different categories de'ending u'on $he material used $he method of o'eration followed in analysis or modus operandi of analysis&

TYPES OF FINANCIAL ANALYSIS

O# 1"& % +,+ of - 1&r, * $+&!

O# 1"& % +,+ of -o!$+ o0&r #!,

EA1&r# * # *'+,+

I#1&r# * # *'+,+

Hor,Ho#1 * # *'+,+

V&r1,/ * # *'+,+

A.

EA1&r# * A# *'+,+

=2

$his analysis is done "y outsiders who do not ha*e access to detailed internal accounting records of the "usiness firm& B& I#1&r# * A# *'+,+ $he analysis conducted "y 'ersons who ha*e access to the records of a "usiness firm is )nown as internal analysis& !uch an analysis can 'erformed "y e>ecuti*es and em'loyees of the organi ation as well as go*ernment agencies which ha*e statutory 'owers *ested in them& C. Hor,Ho#1 * A# *'+,+ /t refers to the com'arison of financial data of a com'any for se*eral years& $he figures for this ty'e of analysis are 'resented hori ontally o*er a num"er of columns& $he figures of *arious years are com'ared with "ase year& A "ase year is chosen as "eginning 'oint& D. V&r1,/ * A# *'+,+ /t refers to the study of relationshi' of *arious items in the financial statements of one accounting 'eriod& /n this ty'e of analysis the figures from financial statement of a year are com'ared with a "ase selected from the same yearIs statement&

=#

PROCEDURE OF FINANCIAL STATEMENTS ANALYSIS

Broadly there are three ste's:#& !election .& 7lassification 6& /nter'retation

M&1"o!+ or !&6,/&+ of F,# #/, * A# *'+,+

$he following methods of analysis are generally used:#& .& 6& =& 0& C& F& 7om'arati*e !tatement $rend Analysis 7ommon- !i e !tatements Fund Flow Analysis 7ash Flow Analysis 9atio Analysis 7ost-:olume-Profit Analysis

COMPARATIVE STATEMENT
$he com'arati*e financial statements of the financial 'osition at different 'eriods& $he elements of financial 'osition are shown in a com'arati*e
=.

form so as to gi*e an idea of financial 'osition at two or more 'eriods& Any statement 're'ared in com'arati*e will "e co*ered in com'arati*e statements& $he com'arati*e statement may show: A& B& 7& D& A"solute figure 7hanges in a"solute figure A"solute data in terms of 'ercentages& /ncrease or decrease in terms of 'ercentages& From 'ractical 'oint of *iew, generally, two financial statements are 're'ared in com'arati*e form for financial analysis 'ur'ose i&e& #& Balance !heet .& /ncome statement

=6

COMPARATIVE BALANCE SHEET GRASIM INDRUSTRIS NAGDA

9s& /n crores Pre*ious year <ear .22C-2F 9s& /n crores 7urrent year <ear .22F-23 Amount /ncrease(P) Decrease(-) Percentage /ncrease(P) Decrease()

SOURCES OF FUNDS S" r&"o*!&rI+ f$#!+ !hare 7a'ital 9eser*es and !ur'lus Lo # f$#!+ !ecured 4oans ?nsecured 4oans D&f&rr&! T A L, %,*,1,&+ TOTAL E#&CE C#63&60 C.62&2= ..E# CC2&0C .E0#&0C 03.&00 EFC=&#0 E#&CE 32==&#. 3#60&3# .602&= 30#&=F 6.2#&3F C2C&3F ##,E=E&=0 #E20&FF #E20&FF 0E&= #E2&E# .02&6# .=&6. .#30&6 6#&20 62&0E .&0E .3&E2 3&=3 =&#F ..&63
==

APPLICATION OF FUNDS F,A&! ++&1+ Gross Bloc) 4ess: De'reciation 5et Bloc) 7a'ital wor)-in'rogress F,A&! ++&1 "&*! for !,+0o+ * I#6&+1-&#1+ C$rr&#1 A++&1+, Lo #+ #! A!6 #/&+ /nterest accrued on in*estments /n*entories !undry de"tors 7ash and Ban) Balances 4oans and Ad*ances 4ess: C$rr&#1 L, %,*,1,&+ #! Pro6,+,o#+ 4ia"ilities Pro*isions #.CC&3C #36&. #=02&2C #,C2=&#F 0=2&.# .,#==&63 66F&6# 60F&2# CE=&6. .C&C6 #E=&3F =F&33 CFF2&EF 6632&06 66E2&== ##E.&60 =03.&FE #=&66 =.F=&F F033&= 6,0C=&3E =,2.6&0# 6,2.C&6# F,2=E&3. =&#= =,232&FE 3#F&=6 #3=&6C C66&2F #366&EC .=CF&26 -#2&#E -#E6&E# #.&2F 0&=0 #3&CF #06&3# 06&36 -F#&## -=&0=

2&F 3.=&#= 0FC&=3 ##C&63 3.=&#= .6=.&6E

2&F EF3&== F##&E3 #.F&=F #,#=2&=E .,E0E&23 #0=&6 #60&0 ##&2E 6#C&60 C#C&CE #3&F. .6&02 E&06 63&6E .C&66

=0

N&1 /$rr&#1 A++&1+ TOTAL

3E.&66 EFC=&#0

3#=&F ##,E=E&=0

-FF&C6 .#30&6

-3&F2 ..&63

I#1&r0r&1 1,o#:#& $he com'arati*e "alance sheet of the com'any re*eals that during 9JJ> there has "een an increase in fi>ed assets of <44.J=/ror& i&e&7>.<=K while long-term lia"ilities to outsiders ha*e relati*ely increased "y 9;J.47/ror& i&e& >.:>K. $his fact de'icts that the 'olicy of the com'any is to 'urchase fi>ed assets from the long -term sources of finance there"y not affecting the wor)ing ca'ital& .& $he current assets ha*e increased "y <7<.<L /ror& i&e& 9<.44K& $here has "een an increase in in*entories amounting to 7;:.4 /ror&& $he current lia"ilities has increased "y <L:.49/ror& i&e& :=.>>K& $his shows that there is an im'ro*ement in the liquidity 'osition of the com'any& 6& 9eser*es and !ur'luses ha*e increased from 7LJ;.==/ror& ,.&. 47.J;K and these is created from 'rofit which mean there is increase in 'rofita"ility of the com'any& =& $here is e>cess of current lia"ilities o*er current Assets& $he wor)ing ca'ital is Decreased from >L9.44 1o >7:.= /ror& ,.&. >.=JK. $he decrease in wor)ing ca'ital will mean non-im'ro*ement in current financial 'osition of the "usiness& 0& !hareholderIs fund has increased "y 7LJ;.== /ror& , loan fund i&e& secured and unsecured loan has increased "y 9;J.47 /ror& and deferred ta> lia"ilities increased "y 9:.49 /ror& while com'anies in*estments has decreased "y 7L4.L7 /ror&, fi>ed assets increased "y <44.J= /ror&, current assets "y <7<.<L /ror&& com'anies net current assets has decreased "y ==.<4 ,.&. >.=JK C& 7a'ital wor) in 'rogress of Grasim /ndustries has increased "y 7>44.L< ,.&. %' 7;4.>7K which is "eneficial for the com'any "ut com'any should loo) after that too much money should not "e "loc)ed in ca'ital wor) in 'rogress&

=C

F& From the a"o*e it may "e concluded that o*erall financial 'osition of the com'any is good&

COMPARATIVE INCOME AND E5PENDITURE STATEMENT

R+. I# /ror&+ Pr&6,o$+ '& r+ Y& r 9JJ<8J= INCOME
N&1 S *&+ I#1&r&+1 #! D,6,!&#! I#/o-& O1"&r I#/o-& I#/r& +& F (D&/r& +&) ,# S1o/.+ ><J4.;L 774.9= 7<>.:L 87<.:: >><>.L7 7J97;.J; 7<;.== 979.J= 749.99 7J,=94.77 9>9>.L4 97L<.>L L=.: ;;J.J= 7=J7.=4 7J= 4;4.9= 7<77.:< ;9.; :4.;> 7:>.<< 7>;:.9 <JL.<7 :;9.;< 8994.=< LJ.<= 7L<.J: 8:.>: 4;.4< 7>.=4 :<.4; 9;.>= 8LJ:.9< 9J.L7 9=.:= 9;.L: 8<L.<= 7L.=: 74.J9 8:.44 77.79

R+. I# /ror&+

A-o$#1

P&r/&#1 (&

C$rr&#1 I#/r& +&(M) I#/r& +&(M) '& r+ Y& r D&/r& +&(8) D&/r& +&(8) 9JJ=8J>

E5PENDITURE
R ) M 1&r, *+ /o#+$-&! M #$f /1$r,#( EA0&#+&+ P$r/" +& of f,#,+"&! #! o1"&r 0ro!$/1+ P '-&#1+ 1o #! 0ro6,+,o# for &-0*o'&&+ S&**,#(, D,+1r,%$1,o#, A!-,#,+1r 1,o# #! O1"&r &A0&#+&+ I#1&r&+1 D&0r&/, 1,o# #! A-or1,+ 1,o# 997L.49 7=::.44 497.7< :;L.: 7;J;.<L 777.>: 47=.L7

=F

<<=L.<; L&++@8 S&*f Co#+$-01,o# Prof,1 %&for& T A EEA/&01,o# * I1&-+ S$r0*$+ o# 0r&80 '-&#1 of + *&+ 1 A *o # Wr,1& % /. of 0ro6,+,o# for !,-,#$1,o# Prof,1 %&for& T A Pro6,+,o# for /$rr&#1 T A D&f&rr&! T A Fr,#(& B&#&f,1 T A Prof,1 f1&r T A EA1r Or!,# r' I1&-+ Prof,1 o# 1r #+f&r of T&A1,*& U#,1+ 1 B",) #, Prof,1 o# S *& of S" r&+ of S$%+,!, r' Co-0 #' Prof,1 f1&r T A D&%&#1$r& r&!&-01,o# R&+&r6& No Lo#(&r R&N$,r&! I#6&+1-&#1 A**o) #/& R&+&r6& No Lo#(&r R&N$,r&! B * #/& %Ff fro- 0r&6,o$+ '& r Prof,1 6 ,* %*& for 00ro0r, 1,o# A00ro0r, 1,o#+@ I#1&r,- D,6,!&#! Pro0o+&! D,6,!&#! Cor0or 1& D,6,!&#! T A G&#&r * R&+&r6& B * #/& C rr,&! 1o B * #/& S"&&1 B +,/ #! !,*$1&! & r#,#(+ 0&r +" r& 97>L.9< 8 4=.7 999<.4< 8<L9.4> 7.>4 7;4;.>7

=,>4;.9; =<.4< =,=;>.>L 9,L<:.99

77;;.<

7=.4J

==:.L<

4;.:J

:;.<> 4JJL.L 8L:J.9< 8L.<9 879.:; 9J:=.;= :.=< 7>J.9= 9949.< >9.L9

>.;> =>4.;: 89:=.>> 877.:; ;77.=<

94.74 4;.7L 4;.>J 8<9;.<> 44.49

4>.;< J.J; >=>.4= 9:;9.=L

::.4< 8J.J;

77;.J:

L<;.44 49>J.>;

><.L< >9>.J<

L.LJ 44.=<

9;9.7 8 4;.4< 79JJ L<;.44 9:;9.=L 7<=.; 9=;.J9 :7.:9 7LJJ 7J<:.:7 49>J.>; 994.49

89;9.7 <.J< =JJ LL.J> >9>.J< ;;.>9 7=.7: ;>.44 7J.9< 44.=< 44.44

=3

I#1&r0r&1 1,o#:-

#& $he com'arati*e income statement re*eals that there has "een increase in
net sales 7<77.:< /ror& ,.&. 7>.=4K while cost of goods sold has increased "y 74.7:K.$he increase in sales is more than increase in cost of goods sold shows the 'rofita"ility of the com'any is increasing&

.& $he gross 'rofit has increased "y >7J.4 /ror& ,.&. 49.49K& Although
o'erating e>'enses of the com'any has increased "y 74.J9K& $he increase in gross 'rofit is sufficient to com'ensate for the increase in o'erating e>'enses&

6& $he

com'arati*e income statement re*eals that /nterest and di*idend

income has increased "y :<.4;K and other income "y 9;.>=K&!o, the main source of income for the com'any is interest and di*idend income&

=& 7onsum'tion

of raw material of Grasim /ndustries has increased "y

<JL.<7 /ror& ,.&. 9=.:=K and manufacturing e>'enses increased "y 9;.L:K. Another e>'enditure item /nterest has decreased %' :.44K

=E

and de'reciation increased "y 77.79K. Purchase of finished goods which is more e>'ensi*e for the com'any has decreased "y 994.=<

/ror& ,.&.9<.<=K and selling and distri"ution e>'enses "y 7L<.J: /ror& ,.&. 74.J9K.

0& $here

is an increase in net 'rofit after ta> amounting to R+. ;77.=<

/ror& ,.&. 44.49K. /t may "e concluded that there is a sufficient

'rogress in the com'any and the o*erall 'rofita"ility of the com'any is good&

02

CASH FLOW STATEMENT

7ash 'lays a *ery im'ortant role in the entire economic life of a "usiness& $he o"(ecti*es of the cash flow statement is to 'ro*ide information a"out the cash flows of an enter'rise is useful in 'ro*iding users of financial statements with a "asis to assess the a"ility of the enter'rise to generate cash and cash equi*alents and the needs of the enter'rise to utili e those cash flows& $he statement deals with the 'ro*ision of information a"out the historical changes in cash and cash equi*alents of an enter'rise "y means of a cash flow statement which classified cash flows during the 'eriod from o'erating, in*esting and financing acti*ities& 7ash Flow !tatement is a statement which descri"es the inflows (sources) and outflows (uses) of cash and cash equi*alents in an enter'rise during a s'ecified 'eriod of time& !uch a statement enumerates net effects of the *arious "usiness transactions on cash and its equi*alents and ta)es into account recei'ts and dis"ursements of cash& 7ash flow statement summaries the causes of changes in cash 'osition of a "usiness enter'rise "etween dates of two "alance sheets&

C* ++,f,/ 1,o# of C +" F*o)+

0#

7ash flows are classified into three main categories:

#& 7ash flows from o'erating acti*ities& .& 7ash flows from in*esting acti*ities& 6& 7ash flows from financing acti*ities&

7. C +" f*o)+ fro- o0&r 1,#( /1,6,1,&+

O'erating acti*ities are the 'rinci'al re*enue 'roducing acti*ities of the enter'rise& $he amount of cash flows arising from o'erating acti*ities is a )ey indicator of the e>tent to which the o'erations of the enter'rise ha*e generated sufficient cash flows to maintain the o'erating ca'a"ility& $hey generally result from the transactions and other e*ents that enter into the determination of net 'rofit or loss&

9. C +" f*o)+ fro- ,#6&+1,#( /1,6,1,&+

/n*esting acti*ities are the acquisition and dis'osal of long-term assets and other in*estments not included in cash equi*alents& 7ash flow re'resent the e>tent e>'enditures ha*e "een made for resources intended to generate future income and cash flows&

4. C +" f*o)+ fro- f,# #/,#( /1,6,1,&+

Financing acti*ities are acti*ities that result in changes in the si e and com'osition of the ownerIs ca'ital and "orrowings of the enter'rise& /t is useful in 'redicting claims on future cash flows "y 'ro*ider of funds to the enter'rise&

0.

COMPARATIVE CASH FLOW STATEMENT

R+. I# /ror&+ Pr&6,o$+ '& r Y& r 9JJ<8 J= A. C +" F*o) fro- O0&r 1,#( A/1,6,1,&+ . N&1 0rof,1 %&for& 1 A #! &A/&01,o# * ,1&A!G$+1-&#1 for@8 D&0r&/, 1,o# I#1&r&+1 EA0&#+&+ I#1&r&+1 I#/o-& D,6,!&#! I#/o-& Pro6,+,o# for B ! #! Do$%1f$* D&%1+ E-0*o'&& Co-0&#+ 1,o# &A0&#+&+ $#!&r ESOP Prof,1FLo++ o# + *& of F,A&! A++&1+ Prof,1 o# + *& of Lo#( T&rI#6&+1-&#1 Prof,1 o# + *& of /$rr&#1 I#6&+1-&#1+ %. O0&r 1,#( Prof,1 %&for& )or.,#( / 0,1 * /" #(&+ A!G$+1-&#1+ for@8 Tr !& #! o1"&r r&/&,6 %*&+ I#6&#1or,&+ R+. I# /ror&+ C$rr&#1 '& r Y& r 9JJ=8 J> A-o$#1 I#/r& +&(M) D&/r& +&(8) P&r/&#1 (& I#/r& +&(M) D&/r& +&(8)

97>L.9<

9L<:.99

==:.L<

4;.:J

47=.L7 777.>: 847.>: 8>7.:4 8 8 8:.<9 89.= 8:L.:7 9::L.J7

4;4.9= 7J= 8>7.L< 8>7.:4 J.:> :.L 89J.LL

4;.4< 8:.>: 8;J.79 J

77.79 8:.44 7;=.:7

87<.4= 9.=

4;:.44 87JJ.JJ 89:<.;4 9L.:=

=9.: 47=J.=7

797.>7 =97.=

847:.;< 8=4.:7

84>J.47 897:.L:

8<;.=; 87:7.;4

9J.LJ 7L9.=L 06

A++&1+ "&*! for !,+0o+ * Tr !& P ' %*&+ /. C +" (&#&r 1&! froo0&r 1,o#+ D,r&/1 1 A&+ 0 ,! N&1 / +" fro- O0&r 1,#( A/1,6,1,&+ B. C +" F*o) fro- I#6&+1,#( A/1,6,1,&+ P$r/" +& of f,A&! ++&1+ S *& of f,A&! ++&1+ P$r/" +& of I#6&+1-&#1+ S *& of I#6&+1-&#1+ I#6&+1-&#1+FA!6 #/&+ ,# Jo,#1 6&#1$r&+, +$%+,!, r,&+ E o1"&r+ I#1&r&+1 r&/&,6&! D,6,!&#! r&/&,6&! N&1 / +" fro-F($+&! ,#) ,#6&+1,#( /1,6,1,&+ EA1r Or!,# r' I1&-+ S *&+ 0ro/&&!+ fro- + *& of +" r&+ of S$%+,!, r' 8 S"r&& D,(6,G ' C&-&#1 Co-0 #' L,-,1&!. Pro/&&!+ o# 1r #+f&r of T&A1,*& U#,1+ 1 B",) #, N&1 C +" fro- F ($+&! ,#) ,#6&+1,#( /1,6,1,&+ C. C +" F*o) fro- F,# #/,#( A/1,6,1,&+ Pro/&&!+ fro- %orro),#(+ R&0 '-&#1+ of %orro),#(+ I#1&r&+1 0 ,! D,6,!&#!+ 0 ,! Cor0or 1& !,6,!&#! 1 A N&1 / +" fro-F($+&! ,#) f,# #/,#( /1,6,1,&+ N&1 ,#/r& +&F(!&/r& +&) ,# / +" #! / +" &N$,6 *&#1 C +" #! / +" &N$,6 *&#1 1 %&(,##,#( of 1"& '& r

87.;= 4J<.7= 94<;.<: 8<49.L= 7=49.<=

7J.7L :9;.9: 4J7J.>L 8L7L.>< 9JL7.J4

77.=< 77L.J= <:;.9; 89><.>L 4;>.4<

8=:L.J: 4>.>L 9=.9> :;.49 9J.<>

87<<J.=9 <9.;9 8>4<.9> L;.: L4.>9 49.< >7.:4 89747.94

89>9J.== 7>.99 89=<.L= :=7.94 8<=.7< >7.L< >4.>7 89;JL.<>

877<J.J; 8::.4 ;;L.47 4=;.>4 87<J.L> :L.4< 9.4> 84=>.:;

<L.>; 8=J.>< 8<<.>> 4L4.L; 87=7.;> 7;7.:7 9.L9 7=.=<

9L> >4.7< 89747.94 8979>.;9

9L> >4.7< 9.=7 8J.74

79L4.<7 84:<.J< 87JL.4L 8:7=.=4 8<7.J= 4;L.4< 84L.9 7;;.;>

<=:.97 8:4>.94 87<L.<9 87=.=; 8 :>.<7 77.79 77<.4>

8<7L.: 8L9.7= 8<J.94 4LL.L> 847J.=; ;J.49 84L.9

:=.>> 9<.<4 ;;.J< L;.=; ><.:= 79>.4= 89;.9J

0=

L&++ @ C +" % * #/& of T&A1,*& U#,1+ 1 B",) #, 1r #+f&rr&! C +" #! C +" &N$,6 *&#1 1 1"& &#! of 1"& '& r ( C +" #! / +" &N$,6 *&#1 r&0r&+&#1 C +" #! B #. % * #/&+)

8 77<.4>

J.J4 79=.:= 77.JL L.;4

I#1&r0r&1 1,o#@8 $he cash flow statement gi*en a"o*e re*eals that the Cash from operating activities increases "y 4;>.4< /ror& ,.&. 9J.<>K, net 'rofit increases "y ==:.L< ,.&.4;.:JK, /nterest e>'enses decreases "y :.44K while interest income increase "y 7;=.:7K& Profit on sale of fi>ed assets decreases "y 4;:.44K, $rade 'aya"le increases "y 4>.>LK and Direct ta> "y :;.49K& 5et cash used in Investing activities increases "y 4=>.:; ,.&. 7=.=<K. As 'urchase of fi>ed asset increases "y 77<J.J; /ror& ,.&.<L.>;K so de'reciation also increases "y 4;.4< /ror& ,.&. 77.79K& !ale of fi>ed assets decreases "y ::.4K and Di*idend recei*ed increased "y 9.L9K. 5et cash from Financing activities decreases "y 47J.=;/ror& ,.&. ><.:=K& Proceeds from "orrowing decreases "y <7L.:/ror& ,.&. :=.>>K and re'ayment of "orrowing has also increases "y 9<.<4K& Di*idend 'aid decreases "y L;.=;K.

00

 $here is net decrease in cash and cash equi*alent ;J.49 /ror& ,.&. 79>.4=K. 7ash and cash equi*alent at the "eginning of the year decreases "ut 4L.9 /ror& the year increases "y 77.JL/ror& ,.&. L.;4K&

SECTION ;

ASSESSMENT OF RATIO ANALYSIS

0C

RATIO ANALYSIS
/n Financial analysis 9atio is used as a "enchmar) for e*aluating the financial 'osition and 'erformance of a firm& 9atio hel's to summaries large quantities of financial data and to ma)e qualitati*e (udgment a"out the firmIs financial 'erformance& 9atio analysis is a technique of analysis and inter'retation of financial statements& /t is the 'rocess of esta"lishing and inter'reting *arious ratios for hel'ing in ma)ing certain decisions& 9atio analysis is only a means of "etter understanding of financial strengths and wea)nesses of a firm& $he ratios may "e used as sym'tom li)e "lood 'ressure or "ody tem'erature and their inter'retation de'ends u'on the cali"er and com'etence of the analyst& $he following are the ste's in*ol*ed in the ratio analysis:-

/& !election of rele*ant data from the financial statements de'ending u'on the o"(ecti*e of the analysis& //& 7alculation of a''ro'riate ratios from the a"o*e data& ///& 7om'arison of the calculated ratios with the same firm in the 'ast, or the ratios de*elo'ed from 'ro(ected financial statements and so on& /:& /nter'retation of the ratios&

0F

T'0&+ of R 1,o T'0&+ of R 1,o

4iquidity 9atio

4e*erage 9atio

Acti*ity 9atio

Profita"ility 9atio

L,N$,!,1' R 1,o
4iquidity refers to the a"ility of the concern to meet its current o"ligations as and when these "ecome due& $hese are the ratios which measures the shortterm sol*ency or financial 'osition of a firm& $hese ratios are calculated to comment u'on the short-term 'aying ca'acity of the concern or the firmIs a"ility to meet its current o"ligations&

L&6&r (& R 1,o

$his ratio is also )nown as 4ong-term sol*ency ratio& $he term Osol*encyI refers to the a"ility of the concern to meet its long term o"ligations& 4ongterm sol*ency ratios con*ey a firmIs a"ility to meet the interest costs and re'ayments schedules of its long-term o"ligations& 4e*erage 9atios show the

03

'ro'ortion of de"t and equity in financing of the firm& $hese ratios measure the contri"ution of financing "y owners as com'ared to financing "y outsiders&

A/1,6,1' R 1,o
Acti*ity ratios are calculated to measures the efficiency with which the resources of a firm ha*e "een em'loyed& $hese ratios are also )nown as turnover ratios "ecause they indicate the s'eed with which assets are "eing turned o*er into sales& For e>am'le, in*entory turno*er ratio indicates the rate at which the funds in*ested in the in*entories rate con*erted into sales& $hese ratios ta)e into account the mo*ement of current assets, it is im'ortant to calculate the following efficiency ratios to comment u'on the liquidity with the liquid resources are "eing used "y a firm&

Prof,1 %,*,1' R 1,o

$he 'rimarily o"(ecti*e of a "usiness underta)ing is to earn 'rofits& Profit earning is considered essential for the sur*i*al of the "usiness& $hese ratios measure the results of "usiness o'erations or o*erall 'erformance and effecti*eness of the firm, e&g&, gross 'rofit ratio, o'erating ratio&

0E

A# *'+,+ #! I#1&r0r&1 1,o#

C2

A# *'+,+ #! I#1&r0r&1 1,o#

Profitability atios
7.

Gro++ Prof,1 R 1,o :Gross Profit 9atio Q Gross Profit R#22 !ales <ears .22= .220 .22C .22F .223 Gross Profit #6.#&0 #C=0&E #=E6&0 .02F&. 66#F&0 !ales 0.#6&.# C..E&.C CC.2&0# 3C26&0E #2.#0&# 9atio (inK) .0&60 .C&=. ..&0C .E&#= 6.&=3

C#

35 30 25 Ratio 20 15 10 5 0 2004 2005 2006 Year 2007 2008

Ratio

I#1&r0r&1 1,o#:/t measures the relationshi' of Gross Profit to 5et !ales which hel' in determining the 'rofita"ility of the co& $he G&P& ratio indicates the e>tent to which selling 'rice 'er unit may decline without resulting in losses on o'erations of a firm& $he a"o*e data shows that the gross 'rofit ratio is )ee' on increasing though it has "een decreased in .22C-2F "ecause of decrease in G&P& due to high 'urchase of finished goods and other 'roducts "ut it has again im'ro*ed in .22F-23and reaches to 6.&=3K&
9.

O0&r 1,#( R 1,o :7ost of !ales P Other O'erating A>'enses !ales Other o'erating e>'& 3.0&=C E60&=C !ales 0.#6&.# C..E&.C R#2 2

O'erating 9atio Q

<ear .22= .220

7ost of !ales 63E#&F# =036&6C

9atio (inK) E2&=3 33&C2

C.

.22C .22F .223

0#.F&2# C2EC&6E C3EF&00

##6E&0E #020&CE #F2#&F6

CC.2&0# 3C26&0E #2.#0&20

E=&C0 33&6C 3=&#3

96 94 92 90 88 Ratio 86 84 82 80 78 2004 2005 2006 Year 2007 2008

RATIO

I#1&r0r&1 1,o#@8
O'erating ratio indicates the 'ercentage of net sales that is consumed "y o'erating cost& /n other words, it measures the cost of o'erations 'er ru'ee of sales& +igher the o'erating ratio, the less fa*ora"le it is& +owe*er, F0 to30Kmay "e considered to "e a good ratio& /n Grasim O'erating ratio has "een continuously declining and reaches to 3=&#3K in .223 "ecause cost of sales has "een declining and in relation to this sales has increased& $he o*erall 'osition indicates cost consciousness of the management of the concern&

4.

N&1 Prof,1 R 1,o :R#2

C6

O'erating 9atio Q 7ost of !ales P Other O'erating A>'enses

!ales <ear .22= .220 .22C .22F .223 7ost of !ales 63E#&F# =036&6C 0#.F&2# C2EC&6E C3EF&00 Other o'erating e>'& 3.0&=C E60&=C ##6E&0E #020&CE #F2#&F6 !ales 0.#6&.# C..E&.C CC.2&0# 3C26&0E #2.#0&2 0

2 9atio (inK) E2&=3 33&C2 E=&C0 33&6C 3=&#3

96 94 92 90 88 Ratio 86 84 82 80 78

RATIO

2004

2005

2006 Year

2007

2008

I#1&r0r&1 1,o#@8
/t esta"lishes a relationshi' "etween 5&P& and !ales, and indicates the efficiency of the management in manufacturing, selling, and other acti*ities of the firm& $his ratio is *ery low in .22= "ut show a great im'ro*ement& /t rises from #6&26 in .22C to #F&30K in .22F "ecause !elling and distri"ution e>'enses increases "y .FK and !ales increased "y .EK as com'ared to .#K and C&CK in .22F& $his ratio increased in .223 "ecause of increase in Interest and dividend income "y =2&63K&
C=

:. E r#,#( P&r S" r&

Aarning Per !hare Q 5et Profit after $a>@ Preference Di*idend 5o& of Aquity !hares

<ear .22= .220 .22C .22F .223

250 200 Ratio 150 100 50 0

5et Profit FFE.C22222 330F#22222 3C6.#22222 #0603#22222 ..6.C222222

5o& of Aquity !hares E#C3E=30 E#C3E=30 E#C3E=30 E#C3E=30 E#C3E=30

9atio (in 9s&) 30 EF E= #C3 .=6

Ratio

2004

2005

2006 Year

2007

2008

I#1&r0r&1 1,o#:Aarning 'er share is a small *ariation of return on equity ca'ital& $he earning 'er share is a good measure of 'rofita"ility and it gi*es a *iew of earning 'ower of the firm& From the a"o*e data it is clear that earning 'er share has increased from 9s& =2 in .226 to 9s& #C3 in .223& $his shows that earning 'ower of the com'any has increased year "y year&

C0

;. R&1$r# o# I#6&+1-&#1
9eturn on /n*estment Q 5et 'rofit (after interest and ta>) !hareholderIs Funds Y& r .22= .220 .22C .22F .223 N&1 Prof,1 6CF&03 FFE&.C 330&F# 3C6&.# #060&3# S" r&"o*!&rI+ F$#! C.62&2= =E3.&23 .EFF&6# 6C#2&36 =6.3&60 R 1,o (,# K) 0&E2 #0&C= .E&F0 .6&E# 60&=3

40 35 30 25 Ratio 20 15 10 5 0 2004 2005 2006 Year 2007 2008

Ratio

I#1&r0r&1 1,o#:$his ratio is one of the most im'ortant ratios used for measuring the o*erall efficiency of a firm& $his ratio is of great im'ortance to the 'resent and

CC

'ros'ecti*e shareholder as well as the management of the com'any& $his ratio re*eals how well the resources of the firm are "eing used& $his ratio shows a high rise after .22= and reaches u'to 35.48% in .223& From this an o'inion can "e formed that the in*estments in the firm are attracti*e and in*estors can get a higher return.

!cti"ity atio:#& I#6&#1or' T$r#o6&r R 1,o

/n*entory $urno*er 9atio Q Y& r .22= .220 .22C .22F .223 Co+1 of S *&+ 63E#&F# =036&6C 0#.F&2# C2EC&6E C3EF&00 7ost of !ales A*erage /n*entory A6&r (& ,#6&#1or' #F6&#= .#3&CF .=3&3. .23&66 .=0&30 R 1,o ..&=3 .2&EC .2&C# .E&.F .3&2C

30 25 20 Ratio 15 10 5 0 2004 2005 2006 Year 2007 2008 Ratio

I#1&r0r&1 1,o#:/n*entory $urno*er is also )nown as !toc) *elocity& /t would indicate whether in*entory has "een efficiently used or not& $he 'ur'ose is to see
CF

whether only the required minimum funds ha*e "een loc)ed u' in in*entory& $his ratio indicates the num"er of times the stoc) has "een turned o*er during the 'eriod& /n*entory $urno*er 9atio in Grasim /ndustries is increasing year "y year and reaches from .2&C# in .22F to .E&.F in .223 this indicates the efficient management of in*entory "ecause more frequently the stoc)s are sold, the lesser amount of money is required to finance the in*entory&

.&

A++&1 T$r#o6&r r 1,o

Asset $urno*er ratio Q 5et sales $otal Asset

Y& r+ .22= .220 .22C .22F .223

N&1 F,A&! A++&1 6#3#&2F 6#6E&#3 62C.&C 62#F&6E 6=2=&FF

C$rr&#1 A++&1 #=E0&C# #=EC&2# #306&E6 .2.C&FC .6=.&6E

I#6&+1-&#1 S *&+ #FEC&20 .0=2&C0 .E3.&2. 6=3#&F# =.F=&F =C2C 0.#6 C..E CC.# 3C2=

R 1,o 2&F# 2&F6 2&FE 2&F3 2&3C

0.9 0.8 0.7 0.6 0.5 Rtaio 0.4 0.3 0.2 0.1 0

RATIO

2004

2005

2006 Year

2007

2008

C3

I#1&r0r&1 1,o#:$his ratio indicates the utili ation of total assets in the o'eration of the concern& /t is used to (udge the effecti*eness of the use of total assets @ to study trend of o*er-in*estment in assets& $he a"o*e data shows the increasing trend which indicate high in*estment in asset "ut in relation to this sales are also rising due to which ratio is increasing&

6&

F,A&! A++&1 R 1,o

Fi>ed Asset 9atio: !ales 5et Fi>ed Asset

Y& r+ .22= .220 .22C .22F .223

S *&+ =C2C 0.#6 C..E CC.# 3C2=

N&1 F,A&! A++&1 6#0C&2# 6##C&C# 62=3&3F 622=&C6 66E2&==

R 1,o #&=0 #&CF .&2= .&.2 .&0=

3 2.5 2 Ratio 1.5 1 0.5 0 2004 2005 2006 Year 2007 2008 Ratio

CE

I#1&r0r&1 1,o#:$his ratio gi*es an idea a"out adequate in*estment or o*erMunder in*estment in fi>ed assets& An increase in this ratio is the indicator of efficiency in wor) 'erformance and a decrease in this ratio s'ea)s of unwise and im'ro'er in*estment in fi>ed assets& Fi>ed Asset 9atio in the year .22= is #&=0 which is increasing year "y year and it touches .&0= in .223& /t indicates fi>ed assets are 'ro'erly utili ed&

=&

C 0,1 * T$r#o6&r R 1,o

7a'ital $urno*er 9atio Q !ales 7a'ital Am'loyed R 1,o 2&3# 2&36 2&E2 2&3F 2&33

Y& r+ .22= .220 .22C .22F .223

S *&+ =C2C 0.#6 C..E CC.# 3C2=

C 0,1 * &-0*o'&! 0CF3&33 C623&0C CE6C&#E F0=C&#6 EFC=&#0

0.9 0.88 0.86

Ratio

0.84 0.82 0.8 0.78 0.76

Ratio

2004

2005

2006
Year

2007

2008

I#1&r0r&1 1,o#:F2

7a'ital turno*er ratio is the relationshi' "etween cost of goods sold and the ca'ital em'loyed& $his ratio is calculated to measure the efficiency or effecti*eness with which a firm utili es its resources or ca'ital em'loyed& /n Grasim Industries Limited this ratio has "een continuously increased and reached to 2&33 in .223 which indicate that ca'ital of the firm has "een effecti*ely em'loyed&

0& Wor.,#( C 0,1 * T$r#o6&r R 1,o

;or)ing 7a'ital $urno*er 9atio Q 7ost of !ales ;or)ing 7a'ital Y& r+ .22= .220 .22C .22F .223 Co+1 of S *&+ 6C6E 63C6 =036 0#.F C2EF Wor.,#( C 0,1 * C#.&F= 0=E&C= F=0&C6 F06&6E 3E.&66 R 1,o 0&E= F&26 C&#0 C&3# C&36

7.2 7 6.8 6.6 6.4 Ratio 6.2 6 5.8 5.6 5.4 5.2

Ratio

2004

2005

2006 Year

2007

2008

I#1&r0r&1 1,o#:F#

/t indicates the *elocity of utili ation of net wor)ing ca'ital& $his ratio indicates the num"er of times the wor)ing ca'ital is turned o*er into sales& $his ratio measures the efficiency with which the wor)ing ca'ital is "eing used "y the firm& $his ratio is increasing year "y year and it was C&#0 times in .22C and touches to C&36 times in .223 which indicates efficient utili ation of wor)ing ca'ital of the firm&

#e"erage ratio #& Pro0r,&1 r'FEN$,1' R 1,o

Pro'rietary 9atio Q !hareholderIs Fund $otal Asset Y& r .22= .220 .22C .22F .223 S" r&"o*!&rI+ F$#! .EFF&6# 6C#2&36 =6.3&60 =E3.&23 C.62&2= To1 * ++&1 C==F&CF F#00&.F F33=&3. 33#6&# #222F&06 R 1,o 2&=C 2&02 2&00 2&0E 2&C.

0.7 0.6 0.5 Ratio 0.4 0.3 0.2 0.1 0

Ratio

2004

2005

2006 Year

2007

2008

F.

I#1&r0r&1 1,o#@8
$his ratio re'resents the relationshi' of ownerIs fund to total assets& $his ratio indicates the e>tent to which the assets of the com'any can "e lost without affecting the interest of creditors of the com'any& Pro'rietary ratio of the com'any has shown a rise continuously& /t is 2&0E:# in .22F @ increased to 2&C.:# in 23& $his shows that the share of the shareholders in the total ca'ital of the co& has increased, so, "etter is the long-term 'osition of the co&

.& D&%18 EN$,1' R 1,o

De"t- Aquity 9atio Q Y& r .22= .220 .22C .22F .223 OutsiderIs Fund !hareholderIs Fund S" r&"o*!&rI+ F$#! .EFF&6# 6C#2&36 =6.3&60 =E3.&23 C.62&2= R 1,o 2&F2 2&0F 2&=C 2&=2 2&=F

O$1+,!&rI+ F$#! .2FC&2F .2C0&.6 .223&6= #EFE&CF .E0#&0C

0.7 0.6 0.5 0.4 Ratio 0.3 0.2 0.1 0 2004 2005 2006 Year 2007 2008

Ratio

F6

I#1&r0r&1 1,o#:De"t-equity ratio is calculated to measure the e>tent to which de"t financing has "een used in a "usiness& $he ratio indicates the 'ro'ortionate claims of owners and the outsiders against the firmIs assets& De"t-equity ratio is 2&F:# in .22= which decreases year "y year @ reaches to 2&=F:# in .223&!o, we can say that com'any is using its own fund more than outside fund and also the com'any is not getting the ad*antage of ta> shield, this affect the 'rofita"ility of the com'any&

#&

#i$uidity atio C$rr&#1 R 1,o

7urrent 9atio Q 7urrent Assets 7urrent 4ia"ilities Y& r .226 .22= .220 .22C .22F C$rr&#1 A++&1+ #=E0&C# #=EC&2# #306&E6 .2.C&FC 3C2= C$rr&#1 L, %,*,1,&+ 33.&3F 3=C&6F ##23&62 #.F6&6F .6=.&6E R 1,o #&CE #&03 #&CF #&0E #&C.

1.7 1.65 Ratio 1.6 1.55 1.5 2004 2005 2006 Year 2007 2008 Ratio

F=

I#1&r0r&1 1,o#:7urrent 9atio is used to measure the liquidity 'osition of the concern and reflect the short term sol*ency of the concern& /t indicates that the firm has the a"ility to 'ay its current o"ligations in time as and when they "ecome due& A ratio of .:# i&e&, current assets dou"le the current lia"ilities is considered to "e satisfactory& /n case of Grasim Industries we ha*e seen that the current ratio ne*er touched the mar) of ., "ut it is fluctuating near a"out . and it was #&C.:# in .223, there is a sufficient liquidity&

.& D$,/. R 1,o

Luic) 9atio Q Luic)Mliquid Assets 7urrent lia"ilities Y& r .22= .220 .22C .22F .223 D$,/. A++&1+ E00&CC #26C&00 ##F0&6= #.FC&26 #0#3&.0
1.1 1.08 1.06 1.04 Ratio 1.02 1 0.98 0.96 0.94 2004 2005 2006
Year

C$rr&#1 L, %,*,1,&+ R 1,o 33.&3F #&23 E=C&6F #&2E ##23&62 #&2C #.F6&6F # #=02&2C #&2=

Ratio

2007

2008

F0

I#1&r0r&1 1,o#:Luic) 9atio is a measure of firmIs a"ility to con*ert its current asset quic)ly into cash in order to meet its current o"ligations& Generally a ratio of #:# is considered satisfactory& /t is thought that if quic) assets are equal to current lia"ility then the concern may "e a"le to meet its short term o"ligations& /n Grasim industries it is #&2=:# it can "e surmised that the financial condition of the enter'rise is sound and good&

COMMENTS
9aw material and stores storage 'eriod is slightly less in com'arison to 're*ious years& $he main reason for this is the 'lant shutdown during the current year due to water shortage to maintain higher le*el of finished goods in*entory, so that sales continue during this 'eriod& 7om'any has achie*ed success in constantly reducing the wor) in 'rocess 'eriod as well as in the finished goods in*entory goods this re'resents good management "y the com'any & ?sually off the shel*e in*entory of finished goods "ut in*entory of !ta'le Fi"er increased for utili ation during 'lant shutdown in summers since last few years& 7reditorIs collection 'eriod has remained same during the two years which is good for the com'any "ut de"torIs collection 'eriod has increased which can "e dangerous for the com'any& $his highly need attention& ;hen we see the o*erall o'erating cycle, it has decreased in year under re*iew& $his is dew to efficient management "y the com'any 'eo'le&
FC

SECTION <

R&/o--&#! 1,o#+

FF

RECOMMENDATIONS
:iscose and Grasim ha*e long synonymous& $he o*er"earing 'resence of grasim industries 4td& /n sta'le fi"er mar)et long "een ac)nowledged "y the te>tile industry& !tructural health of wor)ing ca'ital of the com'any is im'ro*ing continuously& Based on my analysis and o"ser*ation, following areas requires attention: 7om'anyIs raw material storage 'eriod can further "e reduced as it "loc) funds and com'any has to incur e>tra carrying cost& !tores and s'ares in*entory holding time is also which can "e controlled through 'ro'er 'lanning and *igilance& /ntroduction of B-to-B, A-commerce for e>change of documents with su''liers, clients and 'artners& B-to-B s'eed u' the wor)flow in the organi ation& A com'lete B-to-B transaction almost eliminates the cost in*ol*ed in 'ro'er wor) and 'rinting as entire 'rocedure is in electronic format& ;ith dew B-to-B com'any can considera"ly in archi*ing& /n case of A>'ortM/m'ort, AD/ (Alectronic Data interchange) can "e effecti*e tool for transfer of data, in*oice and to ma)e 'ayments, till will not only reduce the lead time and in*entory holding 'eriod, e*en cost will fall& /ntroduction of e-commerce will not only ma)e com'any com'etiti*e "ut also reduce in*entory holding 'eriod and e>tra cost&

F3

SECTION =

CONCLUSION

FE

CONCLUSION
#& $he short-term sol*ency 'osition of the com'any is sound& $he current
ratio is #&C.:#and quic) ratio is #&2=:# which shows that firm can readily meet its current o"ligations& $he in*entory turno*er ratio has increased from .2&C# times in .22F to .E&.F times in .223& All these shows that short term financial 'osition of the com'any is sound&

.& $he long term sol*ency 'osition of the com'any is *ery satisfactory& $he
De"t-equity ratio is 2&F2:# which re*eals that outsiders fund are 2&F2 times the shareholderIs funds& Pro'rietary ratio is also 2&C.:# in .223& $his 'ro*es that the com'anyIs long term sol*ency 'osition is sound&

6& $he Gross 'rofit ratio of Grasim increases to .E&#=K and 5et 'rofit ratio
also increases and Aarning 'er share reaches to 9s&#C3 in .223 and 9eturn on in*estment also reaches to 60&#3K& All this shows that Grasim /ndustries is in a 'rofita"le situation&

=& GrasimIs /n*entory turno*er ratio is .E&.FK, Asset turno*er ratio is

2&3C:# and ;or)ing ca'ital turno*er ratio is also increasing& All this shows that the resources of the firm ha*e "een efficiently em'loyed&

0& !tructural health of ;or)ing 7a'ital of the com'any is im'ro*ing

continuously&

32

C& Grasim /ndustries is ma)ing "etter utili ation of resources& F& 7ash flow monitoring is done on daily "asis and minimum cash "alance
is maintained and re*enue earning is ma>imi ed through 'ro'er 'lanning and in*estment of funds&

3& Few transactions occur on creditS as a result, de"tors are few& 7onstant
monitoring and 'ersuasion with the 'arties is needed in case of de"tors to a*oid "ad de"ts& $he incidence of "ad de"ts in lower in :&!&F&

3#

SECTION >

BIBLIOGRAPHY

3.

BIBLIOGRAPHY
BOOKS@
!hashi 8& Gu'ta and 9&8& !harma

!&P& Gu'ta

/&M& Pandey

7&9& 8othari

WEBSITES@ - htt':MMwww&grasim industries limited&com - htt':MMwww&aditya"irla&com

A##$ * R&0or1+ of 1"& GRASIM INDUSTRIES LTD.

36