A

Summer Training Project Report

On
FINANCIAL ANALYSIS OF BHARAT ELECTRONICS LIMITED
(KOTDWARA)

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

(U.P.TECHNICAL UNIVERSITY, LUCKNOW)

2007-09

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 ACKNOWLEDGEMENT

My sincere thanks to the people at the Bharat Electronics Limited (BEL), who
supported me in the completion of this project.

I am grateful to the _______________________ for providing me this academic

tenure at this reputed center of learning. I convey my Gratitude to
without whose guidance this project could not have been presented in this way.
They have been constant source of inspiration and encouragement.

M.B.A.

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 CONTENTS

Certificate
Acknowledgement
Certificate from Department
CHAPTERS
1. OBJECTIVE OF THE STUDY
2. RESEARCH METHODOLOGY
3. STANDARDS OF COMPARISON
4. ABOUT THE COMPANY (BEL)
1.1 INTRODUCTION TO BHARAT ELECTONICS LIMITED.
1.2 HISTORY/ MILESTONE
1.3 CORPORATE MISSION & OBJECTIVES
1.4 QUALITY
1.5 RESEARCH & DEVELOPMENT (R & D)
1.5.1 AREAS OF R & D ACTIVITY
1.5.2 RESOURCES AND INVESTMENT
1.5.3 AWARDS
1.6 MANUFATURING UNITS
1.7 PRODUCTS
1.7.1 DEFENCE
1.7.1.1 MILITARY COMMUNICATIONS
1.7.1.2 LAND BASED RADAR
1.7.1.3 NAVAL SYSTEM
1.7.1.4 OPTO ELECTRONICS
1.7.1.5 TANK ELECTRONICS
1.7.1.6 ELECTONIC WARFARE
1.7.1.7 SIMULATOR
1.7.2 NON DEFENCE
1.7.2.1 TELECOMMUNICATION
1.7.2.2 SOUNG VISION BROADCASTING

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 1.7.2.3 SOLAR PHOTOVOLTAIC SYSTEM
1.7.2.4 ELECTRONIC COMPONENTS
1.7.2.5 NICHE PRODUCT
1.8 JOINT VENTURE / SUBSIDARY
1.9 COUSTOMER PROFILE
5. INTRODUCTION TO ANALYSIS FINANCIAL STATEMENT
1.10 OBJECTIVE OF ANALYSIS FINANCIAL STATEMENT
1.11 TYPES OF ANALYSIS FINANCIAL STATEMENT
1.12 RATIO ANALYSIS
1.12.1 INTODUCTION
1.12.2 CLASSIFICATION
6. DATA ANALYSIS & INTERPRETATION
7. CONCLUSION & RECOMMENDATIONS
BIBLIOGRAPHY
ANNEXURES

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 CHAPTER 1

OBJECTIVE OF THE STUDY

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 OBJECTIVE OF THE STUDY

The objective of the study during 4 weeks Training was to analyse the financial
statements so as to evaluate the financial position of the Company. These
financial statements indicate the following factors.

1.) Profitability of the Company

2.) Financial Soundness of the Company
3.) Shareholding Pattern
4.) Past One Year Performance of the Share of BEL

The project also aims at providing details regarding:-

o Income & Expenditure of the Company, which is given in the form of
P&L Account.
o Assets & Liabilities of the Company in form of Balance Sheet.
o Shareholding Pattern and Distribution of shareholding with the share
performance of the share of past Financial Year (1 April 2007 – 31
March 2008).

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 CHAPTER 2

RESEARCH METHODOLOGY

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 RESEARCH METHODOLOGY

Information Regarding the organization’s Profitability, Financial Position and

Shareholding Pattern with past Year Performance of the Share of BEL.

Secondary Sources
I. Annual Report (From 2004 to 2008)
II. Internet

o Based on the Information obtained from the above sources concepts

have developed on which analysis could be made.
o Other sources including consulting with the employees

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 CHAPTER 3

STANDARDS OF COMPARISON

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 STANDARDS OF COMPARISON

Ratio analysis involves comparison for useful interpretation of financial statements.

A single ratio in itself does not indicate favorable or unfavorable conditions. It
should be compared with some standards. Standards of comparison may consist
of:

1.) PAST RATIOS: - Ratios calculated from past financial statements of

some firm.

2.) COMPETITORS RATIOS: - Ratio of some selected firm, especially the

most progressive & successful competitors at some point in time.

3.) PROJECTED RATIOS: - Ratios developed using the projector or pro-

forma financial Statements.

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 CHAPTER 4
ABOUT THE COMPANY (BEL)

4.1 INTRODUCTION TO BHARAT ELECTONICS LIMITED

4.2 HISTORY/ MILESTONE
4.3 CORPORATE MISSION & OBJECTIVES
4.4 QUALITY
4.5 RESEARCH & DEVELOPMENT (R & D)
4.5.1 AREAS OF R & D ACTIVITY
4.5.2 RESOURCES AND INVESTMENT
4.5.3 AWARDS
4.6 MANUFATURING UNITS
4.7 PRODUCTS
4.7.1 DEFENCE
4.7.1.1 MILITARY COMMUNICATIONS
4.7.1.2 LAND BASED RADAR
4.7.1.3 NAVAL SYSTEM
4.7.1.4 OPTO ELECTRONICS
4.7.1.5 TANK ELECTRONICS
4.7.1.6 ELECTONIC WARFARE
4.7.2.1 TELECOMMUNICATION
4.7.2.2 SOUNG VISION BROADCASTING
4.7.2.3 SOLAR PHOTOVOLTAIC SYSTEM
4.7.2.4 ELECTRONIC COMPONENTS
4.7.2.5NICHE PRODUCT
4.8 JOINT VENTURE / SUBSIDARY
4.9 COUSTOMER PROFILE

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Introduction To Bharat Electronics Limited

The main objective of establishing public sector unit was shedding social
obligation of the government towards the people in some critical area in
which private sector units cannot be trusted. BEL falls under the later
category. Bharat Electronics Limited (BEL) is a professional electronics
company of India with a noteworthy history of pioneering achievements.
BEL was established in 1954, to meet defense need of government of India.
Since then, BEL has grown to multi-product, multi-unit, technology driven
company.

Today BEL’s infrastructure is spread over ISO-9001/9002 certified modern

manufacturing units countrywide. Product mix of the company includes a broad
spectrum ranging from tiny semiconductor to large radar systems. Their
manufacturing units have special focus towards the product range like Defense
Communication, Radar, Optical and Opto-Electronics, Telecommunication,
Sound and Vision Broadcasting, Electronic Component etc.

In the past fifty years this unit has augmented into an organization having nine
units. Employing about 25,000 employees. In addition to manufacturing a
number of products, BEL offers a variety of services like Telecom Consultancy,
Contact Manufacturing, calibration of test and measuring instruments etc. R&D
has been major strength of BEL with a strong base of more than 800
engineers. Its own teams design of BEL’s product. It has it’s own a number of
national & international awards for productivity, quality, safety, standardization
etc.
The culture & philosophy at BEL can be described in its motto
“Quality, Technology and Innovation”

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 HISTORY

SINCE 1954

With over four decades of manufacturing experience Bharat Electronics Limited

has pioneered the professional electronics movement in India. With continuous up
gradation of technology, commitment to quality and constant innovation, BEL has
grown into a multi product, multi unit, and multi technology company.

BEL has set up impressive infrastructure and manufacturing facilities in their nine
ISO certified production units around the country.

BEL has also established two joint ventures - with General Electric Medical
Systems, USA for X-ray tubes and Multitone, UK for paging systems and has a
subsidiary company BEL Optronic Devices Limited for the manufacture of Image
Intensifier tubes.

BEL has nurtured itself to be known as one of the best public sector units in the
nation. A peep into Bharat Electronics’ Archives section, gives an idea of the
progress at BEL.

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 2003
BEL celebrates its Golden Jubilee Year

2002
BEL acquires Category -I Mini Ratna status

2002
Foundation Stone laid for BEL's new corporate Office Building in Bangalore

2001
BEL bags NAtional R & D Award in electronics Industry sector

2000
Bangalore Unit of BEL implements Rain Water Harvesting on an industrial basis

1999
Bharat Electronics Quality Institute

1998 - Hyderabad unit gets ISO 9002

1998
Kotdwara unit gets ISO 9001

1996
Joint venture with Multitone and GEMS

1994
ISO-9001 Accreditation

1993
ISO-9002 Accreditation

1992 - Central Research Laboratory, Ghaziabad

1991
SATCOM

1990
EMI/EMC Test Facilities & Computer Software

1989
Telecom - Switching & Transmission System and Mass Mfg. Facility

1988
Central Research Laboratory, Bangalore

1987
Naval Equipment Division

1986
Kotdwara, Taloja & Hyderabad Units. Klystrons & Travelling Wave Tubes.

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To be the market leader in Defence Electronics and in other chosen fields and
products

• To become a customer-driven company supplying quality products at

competitive prices at the expected time and providing excellent customer
support
• To achieve growth in the operations commensurate with the growth of
professional electronics industry in the country
• To generate internal resources for financing the investments required for
modernisation, expansion and growth for ensuring a fair return to the
investor.
• In order to meet the Nation's strategic needs, to strive for self reliance by
indigenisation of materials and components
• To retain the technological leadership of the company in Defence and other
chosen fields of electronics through in-house Research and Development
as well as through collaboration/co-operation with Defence/National
Research Laboratories, International Companies, Universities and
Academic institutions
• To progressively increase overseas sales of its products and services. To
create an organizational culture which encourages members of the
organization to realise their full potential through continuous learning on the
job and through other HRD initiatives.

Quality

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 Quality Policy:

“Meeting & exceeding our customer expectation through supply of quality products
& services”.

Quality Objectives:

To identify the needs of our customers.

To meet identified needs without errors online everything.
To institute organization, system & procedure for strengthening the concept
of quality.
To achieve quality by the involvement/commitment of every individual
including our supplier.
To build quality in every process, we carry out.
To insure that quality comes through prevention rather then inspection.
To design & develop services to meet the requirement of quality, reliability,
safety & cost.
To measure quality by cost of non- conformance to the requirements &
optimize quality related cost.
To allocate available resources for training, workspace improvements &
infrastructure up gradation.
To ensure that every individual in the company understands maintenance &
implements quality policy.

Bharat Electronics Ltd., (BEL), a premier Professional Electronics Company of

India, has established and nurtured a strong in-house R&D base over the years

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 to emerge and remain as a market leader in the chosen areas of business in
professional electronics. Each of the nine manufacturing units of BEL is having
its own in-house R&D Division to develop new products in its field of
operations. Besides, there are two Central Research Laboratories (CRL)
located at Bangalore and Ghaziabad, to address futuristic technologies of
interest to BEL.

Main areas of R&D activities at BEL include development of Military Radars, Naval
Systems, Military Communication Products, Electronic Warfare Systems,
Telecommunication products, Sound and Vision Broadcasting Equipment and
Systems, Opto Electronic Products, and Electronic Components. CRL performs
the dual role of carrying out blue sky research for the development of future
technologies and supporting the D&E Divisions of BEL's nine units with state-of-
the-art core technology solutions in areas like Embedded Computers and
applications, Radar Signal Processing, VLSI designs, RF & Microwave
Communication Technologies, Software modules etc.

BEL's R&D Units have state-of-the-art R&D infrastructure, facilities, and

manpower with relevant technical expertise for product development. There are

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about 1000 engineers working in BEL on various D&E projects. BEL spends
around 5 % of company turnover for the year on R&D every year. HRD
Divisions of BEL take adequate initiatives for the all round development and
expertise up gradation of R&D human resources. State of the art
infrastructures, test equipment, computers & workstations, Software packages
etc. are augmented every year for the R&D divisions. BEL R&D Units are
recognized by the Department of Scientific & Industrial Research under the
Ministry of Science & Technology, Govt. of India.

R&D Units of BEL have close interactions with other National Design Agencies
like DRDO, CSIR, C-DOT and a number of Technical Institutes. BEL jointly
works with them to tap suitable indigenous designs for commercialization.
Technological collaborations with some of the Multinational companies and
subsequent absorption of these technologies also have enhanced the
technological base at BEL. On an average, about 67% of BEL's turnover is
from indigenous design, and 33 % of it is through foreign technology transfers.

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List of world class companies with whom BEL has technological collaborations for
different state-of-the-art products are as given below:

Company Products
Oerlikon Contraves, Switzerland Naval FC Systems
Norcontrol, Norway Radar Scan Convertor
Northrop Grumman, USA Airport Radars
ELTA, Israel BFSR (Battle Field Surveillance Radar)
INROS, Russia Sonobouys
Matra Defence Equipments & Electric Drive system for Tanks
Systems, France
Sextant, France LCD display unit
ELBIT, Israel Stand alone communication unit
Ericsson, Sweden Radio Relay System
Elopotro, South Africa Laser Range Finder
Signaal, The Netherlands Fire Control Radar
Thompson Tube Electronic, France TWT

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R&D Divisions of BEL have been receiving number of National R&D awards. A list
showing the various R&D awards received by BEL since 1990 is as given below.

List of R&D Awards received by BEL since 1990

Sl.No. Details of the Award BEL received the

Award During the
year
1. FICCI Award for Research in Science & 1990
Technology
(for the corporate initiative of R&D)
2. DSIR National R&D Award 1992
(for successful commercialization of Public
Funded R&D)
(for D&E project handled at BEL-GAD)
3. DSIR National R&D Award 1993
(for in house R&D efforts under Electronics &
Electrical Industries Sector)
(for D&E projects hand1998led at BEL-
Bangalore, Machilipatnam & Ghaziabad)
4. DSIR National R&D Award 1995
(for in house R&D efforts under Electronics
Industries Sector)
(for D&E Projects handled at BEL-Bangalore &
Ghaziabad)
5. DSIR National R&D Award 1998
(for successful commercialisation of Public

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 Funded R&D)
(for D&E projects handled at BEL-Bangalore &
Panchkula)
6. Defence Technology Absorption Award '98 1999-2000
(Sponsored by DRDO)
(for D&E projects handled at BEL-Hyderabad)
7. Award for Excellence in R&D for the year 1998 2000-2001
(sponsored by Ministry of Information
Technology, GoI)
(for BEL-Ghaziabad's developments of various
IFF Systems)
8. Award for Excellence in Professional 2000-2001
Electronics for the year 1998
(sponsored by Ministry of Information
Technology, GoI)
(for BEL-KOT's excellent performance in
Production, R&D & its commitment to Quality &
Service)
9. Award for Contribution in areas of Defence R & 2001-2002
D to Col. (Retd.) H. S. Shankar, Director ( R & D)
for the year 2001-2002
(sponsored by Society for Defence
Technologists - SODET)

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22
 THE UNITS OF BHARAT ELECTRONICS

BEL has production units established at different parts of the country. The year of
establishment and location are as follows: -

Manufacturing Unit Year Of Focus Area

Establishmen
t
PANCHKULA 1985 Tactical communication equipment.
KOTDWARA 1986 Telecommunication.
1. GHAZIABAD 1974 Radars, Antennae, SATCOM (Defense),
Microwave Components.
TALOJA 1986 Shelter for electronic equipment, Train
Actuated Warning System, Electronic
equipment assembly.
PUNE 1979 Radars, Antennae, SATCOM (Defense),
X-Ray Tubes, Batteries & Electro-
optics.
HYDERABAD 1986 Electronic Warfare equipments.
MACHILIPATNAM 1983 Optical Products, Medical Electronics.
BANGALORE 1954 Military Communication, Electronic
Components, Naval System, Export
manufacturing, Radar,
telecommunication & broadcasting
system.
CHENNAI 1985 Tank electronics, Optical Fire Control
System.

PRODUCTS

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DEFENCE

Military Communications
Land based Radars
Naval Systems
Opto-Electronic
Tanks Electronics
Electronic Warfare
Simulators

Non-DEFENCE

Telecommunications
Sound & Vision Broadcasting
Solar Photovoltaic Systems
Electronic Components
Niche Products

DEFENCE

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Military Communications has been a forte of BEL even since its inception in 1954.
BEL has been involved in providing state-of-the-art communication equipment to
the Indian Army, be it hand held mobile radios and terminals, ground based
systems, airborne and even ship borne equipments and systems.

The products and systems offered by BEL cover HF, VHF, UHF and V/UHF
frequency bands and are based on the latest DSP/Digital communication
technologies. Encryption and Frequency Hopping implemented in various
transreceivers has been possible because of the dedicated research and
development team working on these radios. BEL also engineers and supplies
turnkey defence communication solutions tailored to the specific needs of the
customer.

BEL is a pioneer in India in the field of designing and manufacturing Radars for
both defence and civilian applications.

RADAR (Radio Detection and Ranging) is a system which transmits a signal at a

particular frequency and receives the returned/echoed signal from the target. The
target could be a friend or a foe. The raw echoed signal is processed digitally by
signal processors and relevant information on the location and type of the target is
extracted for further processing.

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Defence Radars (Land based, Airborne or Ship borne) are used for guarding the
defence forces against enemy targets.

BEL has the distinction of manufacturing all the above types of Radars.

The need to communicate between ships, ship and aircraft and ship and shore
stations is ever increasing as sensor and weapon systems become more and
more sophisticated. The commanders of individual ships or group of ships need to
communicate with each other so that the Naval force can function effectively as an
integrated entity. BEL has a dedicated Strategic Business Unit to cater to these
needs of Naval Defence forces. It is involved in the design and manufacturing of a
wide variety of control, command and communications systems as well as Radars,
SONARS, Decoys and Sonobuoys.

SONARS (Sound Navigation and Ranging) products from BEL cover the range
of under water applications for surface ships, submarines and Naval aviation. BEL
also offers Naval systems in user defined configurations for different types and
classes of ships, submarines and other platforms and applications.

Opto - Electronics is the art of Imaging. It is the know-how focused on fine-tuning

combination of optical techniques. It offers unmatched capabilities when it comes
to seeing at ever increasing distances or identifying and guiding with pin-point
precision, be it day or night.

BEL manufactures high performance surveillance equipment that can look through
dark nights and aid the defence forces in round the clock operations. Passive,
accurate and high performance optronic systems manufactured by BEL provide
the military with the speed of viewing and an operational effectiveness, in many
cases, the extra edge required to prevent or minimize confrontations.

Experience in manufacturing state-of-the-art night vision goggles, binoculars,

Weapon sights has led BEL to delve into civilian applications as well. Some of the

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medical equipments manufactured by BEL are Ophthalmic Zoom microscope,
ENT Surgical microscope and DRISHTI , an opthalmic laser system for eye-care
applications.

The requirement of defence electronics and communications is not limited to the

transceivers in various frequencies. Modern armaments like Battle Tanks are fitted
with a lot of modern state-of-the art electronics equipment which facilitate
communication among the crew within the tank as well as with the outside army
installations. The computer systems fitted in the tanks facilitate the gunner to aim
at the targets much more accurately than before thereby increasing the kill rate
and the efficiency of the tank as a main fighter equipment with the armed forces.

One of the strategic business units of BEL has been engaged in providing the
latest and most modern electronics aids within the tank for the Indian Defence
forces. Some of the equipment like Tank fire control system, Tank stabilizers and
Communication equipment are manufactured by BEL.

In modern warfare, electronically guided weapon systems have a kill probability

close to unity while command, control and communication systems ensure
effective co-ordination of the available resources. This makes undefended vital
installations easy targets for destruction. Improper operation of the electronic
circuits would make the weapon system as well as the command, control and
communication infrastructure totally ineffective. It is, hence, seen that if
counter-electronic systems are used to reduce the effectiveness of the
electronic circuits, the end result of the battle could be different.
The technique and technology that result in the manufacturing of systems,
capable of electronically degrading an electronic system is called
“ELECTRONIC WARFARE”.
Effective use of Electronic Warfare is only possible if sufficient knowledge of
the electronic equipment used by the enemy is available. BEL has the know-

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 how for designing and developing Electronic Warfare Systems in the areas of
Signal Intelligence, Electronic Counter Measure and Electronic Support
Measure.

Training is a very important aspect of learning and that is where BEL has stepped
in with its learning aids called SIMULATORS.

Simulators are products which aid learning by providing a real life experience
under various simulated external conditions that a person may experience. The
purpose is to equip the learner with the basics of the real life equipment, its
features, functionality and various dos and don’ts that need to be observed while
handling the equipment.

BEL has developed simulators to train people who operate the modern battle
tanks, drive heavy vehicles and the commanders of the ship.

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 NON DEFENCE

The need to communicate by voice, exchange of data or both of them is the most
important aspect of a social human being. Different technologies have evolved
over the years which have provided different media to the customer to choose
from - telephone lines (PSTN), ISDN, Wireless, Satellite etc.

Wide experience of BEL is providing communication solutions to the Defence

forces enabled BEL venture into manufacturing some civilian telecommunication
products like multiplexers/Demultiplexers, Digital Cross Connects,
Exchanges/Switches and TDMA/PMP Radio system.

Radio and Television has become a part of every man’s life. It is a major source
of information, knowledge and entertainment. BEL has kept pace with the growth
of Radio and Television broadcasting in India. It has been the forerunner in
providing the transmitters and other associated equipment to enable National
Radio and TV Broadcasters to reach the nook and corner of India ever since 1973.

BEL has also developed expertise in providing total turnkey system solutions
covering Radio and TV broadcasting systems in FM/SW/MW and VHF/UHF
frequency bands respectively

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Bharat Electronics Limited has set up a full fledged plant to manufacture a wide
range of Round and Pseudosquare Mono Crystalline Silicon photovoltaic cells and
modules. BEL offers customized solar photovoltaic systems for different
applications to meet the requirements of the customer. The solar powered devices
provide a safe and clean energy source for wide ranging applications in industrial,
domestic and agricultural fields.

Solar energy is the most economical, non-conventional energy source gaining

interest throughout the world. The Photovoltaic systems designed by BEL to tap
the solar energy, can be installed for any applications, quickly and easily.

Components are the building blocks of any product. BEL has the distinction of
manufacturing not only the products but also the components for these products
thereby bringing in a lot of indigenization and cost reduction.

Manufacturing of components has also helped BEL serve the customers by

providing them with component level repair and sales maintenance facility thereby
providing not only customer satisfaction but also customer.

BEL has set up state-of-art manufacturing facilities to manufacture a wide range of

components.

Volume production of the above components has also enabled BEL to sell these
components in the local as well as international market. BEL has set up
impressive network of distribution in India for marketing and also has offices in
New York and Singapore for assisting International Marketing Division of BEL.

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Decades of experience in the design and manufacturing a plethora of products in
diverse fields for both defence and non-defence sectors has aided BEL in
designing and manufacturing some products catering to very specific market
segments.

These products are very hot selling products in their respective markets and hence
have given BEL tremendous boost to continue its efforts in serving the community
with products of such nature.

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GEBEL is a joint venture between Bharat Electronics and General Electric Medical
Systems. The facility based at Whitefield, Bangalore, India, manufactures X-ray
tubes, for RAD & F and CT systems, as well as components such as High Voltage
Tanks and Detector modules for CT system. The products are exported worldwide
and meet the safety and regulatory standards specified by FDA, CE, MHW, AERB
and the facility have been accredited with ISO 9001 certification. GEBEL also
markets the conventional X-ray tubes made at Pune Unit of BEL.

The turnover of GEBEL during 2002-2003 was over Rs. 350 Crores including an
export of over Rs. 310 Crores.

The company was recognized for its outstanding export performance during 2000-
01; 2001-02 by the Export Council. Besides, the facility has been recognized by
GE as a Global Star site meeting the Environment, Health & Safety standards.

Apart from manufacturing, a dedicated engineering team is working on the

development of new tube technologies to meet global needs.

32
BEL and Multitone, UK, offers state- of- the- art Mobile Communication Products for the
workplace. Multitone invented paging in 1956 when it developed the world's first system
to serve the "life or death" environment of St.Thomas Hospital, London. With the strength
of Bharat Electronics in the Radio Communications field and the technology of Multitone
in the field of Radio Paging, the joint venture company is in a position to offer tailor made
solutions to the Mobile Communication needs at workplaces in various market segments.

33
 The joint venture offers one of the most comprehensive on-site product ranges -
from small, easy to use pagers to practical, durable private Mobile Radios and the
latest technology, digital cordless communication systems. Brief details of the
products are:

• Access 700 one-way speech paging system which supports 100 pagers.

• Access 1000/3000 Radio Paging system which supports 1500/5000 users.

• Computer Radio Integration units.

Digital Cordless Communication Systems.

BEL Optronic Devices Ltd is a subsidiary company of BEL for conducting research,
development and manufacture of Image Intensifier Tubes and associated high voltage
Power Supply Units for use in military, security and commercial systems.

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The 1440 I series, GEN II 18 mm image
intensifiers are designed and produced to
international quality standards. Inspection and
tests, conducted throughout the manufacturing
process, verify and ensure that the final
product meets MIL-I-49052 D and customer
specification with enhanced parameters.

New series of Image Intensifier Tubes from

BEL Optronic Devices

Also, High Voltage Power Supply Units like PS-12 for 18 mm I.I. Tube and PS-42
for 25 mm I.I. Tube is also manufactured.

Applications:

• Night vision goggles and binoculars

• Night vision weapon sights

• Low light level input applications

Company also undertakes manufacturing of Gen Plus, Glass Input I.I. Tubes and Custom
built High Voltage Power Supply Units.

35
CUSTOMER PROFILE
Bharat Electronics Limited is a major supplier of products and turnkey
systems to the Indian Defense Services. Over the years, BEL has diversified
into manufacturing many civilian products as well. Large turnkey
telecommunication solutions are also being offered to civilian market. A
brief list of the Customers in the defense and civilian market segments and
the products and services offered to them is given below:

Products and Services Customers

Defense Communication Indian Defense Services, Para-
military forces
Radars & Sonars Indian Defense Services, Civil
Aviation, Meteorological
Department, Space Department.
Telecommunication Department of Telecommunication,
Para-military forces, Power sector,
Oil Industry, Railways.
Broadcasting Equipments and All India Radio, Doordarshan,
Studio Systems (National Radio & TV Broadcasters).
Electronic Voting Machine Election Commission of India.
Solar Products & Systems Individuals, Private and Government
organizations.
Turnkey Systems, E-Governance Police, State governments, Public
Networks sector undertakings.
Components All India Radio and Doordarshan the
National Radio & TV Broadcasters,
Instrumentation Industry, Switching
Industry, Entertainment Industry,
Telephone Industry.

36
Exports play a key role in BEL's strategic perspective. The ranges of products and
services exported have been increasing over the years. A number of international
companies are using the facilities at BEL for contract manufacturing.
The broad list of products and services being exported is given below:

Products and Services Countries

Defence Communication Algeria, Botswana, Brazil, France,
Germany, Malaysia, Mauritius,
Russia, Sweden, Switzerland, UK.
Civilian Communication Brazil, Iran, Italy, Kenya, Malaysia,
Nepal, Singapore, Sweden,
Switzerland, UK, Vietnam.
Semiconductor Devices Austria, Australia, China, Finland,
France, Hong Kong, Malaysia,
Netherlands, Philippines, Germany,
South Korea, Singapore, Spain,
Taiwan, Turkey, UAE, UK, USA.
Electron Tubes, Magnetron, Algeria, Armenia, Bangladesh, Brazil,
Transmitting Tubes, TV Picture Tubes Egypt, France, Greece, Hong Kong,
and parts. Italy, Nepal, UK, USA, Zambia.
Opto Electronic Products and parts Australia, Egypt, France, Germany,
Israel, Malaysia, Netherlands, New
Zealand, Saudi Arabia, Singapore,
UAE, UK, USA.

Sound & Vision Broadcast Equipments Vietnam, Brazil, Middle East.

Radar and Sub-systems Switzerland, Ukraine.
Contract Manufacturing USA, Australia, Japan, Brazil, Canada.
Batteries, Energy Saver and other Australia, Bahrain, Kuwait, Mauritius,
products Malawi, Nepal, Oman, Philippines,
Saudi Arabia, UAE, USA

37
Turnkey Systems Nepal, Kenya

38
 CHPTER 5
INTRODUCTION TO ANALYSIS FINANCIAL STATEMENT
5.1 OBJECTIVE OF ANALYSIS FINANCIAL STATEMENT
5.2 TYPES OF ANALYSIS FINANCIAL STATEMENT
5.3 RATIO ANALYSIS
5.3.1 INTODUCTION
5.3.2 CLASSIFICATION

39
 ANALYSIS OF FINANCIAL STATEMENTS

INTRODUCTION

Analysis of Financial Statements (AFS) refers to the progress of critical

examination of the financial information contained in the financial statements in
order to understand & make decisions regarding the operations of the
company. The AFS is basically a study of the relationship among various
financial facts & figures as given in a set of financial statements. The basic
financial statements i.e., the Balance Sheet & the Income Statement
contained a whole lot of financial data. The complex figures as given in these
financial statements are dissected into simple & valuable elements, &
significant relationships are established between the elements of the same
dissection, establishing relationships & interpretation thereof to understand the
working & financial position of a firm is called AFS. Thus, AFS is the process of
establishing & identifying the financial weakness & strengths of the company.

40
 OBJECTIVES OF FINANCIAL ANALYSIS

The following are the objectives of financial analysis: -

1.) Judging The Earning Capacity Or Profitability::

On the basis of financial statements, the earning capacity of the business

concerned may be computed. In addition to this the future earning capacity of the
concerned may be forecasted. All the external users of accounts, especially the
investors are interested in this.

2.) Judging The Short & Long- Term Solvency Of The Concern::

On the basis of financial statements, the solvency of the concern may be judged.
Debenture holders & lenders judge the ability of the company to pay the Principal
& Interest, as most of the companies raise a portion of their capital requirements
by issuing debentures & raising long-term loans. Trade creditors are mainly
interested in assessing the short-term solvency of the business as they want to
know that the business is in a position to pay debts as & when they fall due.

3.) Making Forecasts & Preparing Budgets::

Past financial Analysis helps a great deal in assessing developments in the future,
specially the next year. For example, given a certain investment, it may be
possible to forecast the next year’s profit on the basis of earning capacity shown in
the past. Analysis thus helps in preparing budgets.

41
 TYPES OF COMPARISION

Comparison is the second step in RA. The ratio can be compared in three different
ways:

A.) Cross Section Analysis: - In this, the Ratios of a firm are compared with
the ratios of some other selected firm in the same industry at the same
point of time. The Cross Section Analysis helps the Analyst to find out as
to how a particular firm has performed in relation to its competitors. The
firm’s performance may be compared with the performance of the leader
in the industry in order to uncover the major operational inefficiencies.

B.) Time Series Analysis (TSA): - In this, the performance of the firm is
evaluated over a period of time. By comparing the present performance of
a firm with the performance of the same firm over the last few years, an
assessment can be made about the trend progress of the firm, about the
direction of progress of the firm. The information generated by the T.S.A
can be of immense help to the firm to make planning for future operations.
The T.S.A can also help the firm to assess whether the firm is
approaching long-term goals or not.

C.) Combined Analysis: - In this cross section and time series analysis are
combined to study the behavior and pattern of ratios so that meaningful
and comprehensive evaluation of the performance of the firm can be
made.

The basis of our comparison shall be limited to time series analysis since
the basic objective of our analysis is to compare the present performance
of BEL with its performance over last two years.

42
 INTRODUCTION TO RATIO ANALYSIS (RA)

The RA has emerged as a principal technique of the AFS. A ratio is the

relationship expressed in mathematical term between two individual and group of
figures connected with each other in some logical manner.

The RA is based on the premise that a single accounting figure by itself may not
communicate any meaningful information but when expressed as a relative to
some other figure, it may definitely give some significant information. The
relationship between 2 or more accounting figures/groups is called a Financial
Ratio. A Financial Ratio helps to summarize a large mass of financial data into a
concise form & to make meaningful interpretations & conclusions about the
performance & position of the firm.

STEP IN RATIO ANALYSIS

The RA requires two steps as follows:

(i) Calculations of the Ratios.

(ii) Comparing the ratios with some predetermined standards. The

standard ratio may be the last ratio of the same firm or a projected
ratio or the ratio of the most successful firm in the industry. In
interpreting the ratio of a particular firm, the analyst cannot reach any
fruitful conclusion unless the calculated ratio is compared with some
predetermined standards.

43
 CLASSIFICATION OF RATIOS

Broadly speaking, the operations and financial positions of the firms can be
described by studying its profitability, its long term and short-term liquidity position
and its operational activities. Therefore the ratios can be studied by classifying into
the following groups:

The Liquidity Ratios

The Activity Ratios
The Leverage Ratios
The Profitability Ratios

The Liquidity Ratios

The term ‘Liquidity’ refers to the maintenance of cash, bank balance and those
assets which are easily convertible into cash in order to meet the liabilities as and
when arising. The terms ‘Liquidity ratios’ study the firm’s short-term solvency and
its ability to pay off the liabilities. The day-to-day problems of financial
management consist of the highly important task of finding sufficient cash to meet
current obligations. The short-term liquidity risk arises primarily from the need to
finance current operations.

The liquidity ratios provide a quick measure of liquidity of the firm by establishing
the relationship between its current assets and current liquidities. If the firm does
not have sufficient liquidity, it may not be in a position to meet its commitments
and thereby may lose its credit worthiness. The liquidity ratios are also called
Balance Sheet Ratio because the information required for the calculation of
liquidity ratios is available in the balance sheet only. Some of common liquidity
ratios are:

44
 A.) CURRENT RATIO: - It is the most common & popular measure of
studying the liquidity of a firm. It is an indicator of the firm’s ability to meet
its short-term obligations. It matches the total current assets of the firm
against its current liabilities. It s calculated as follows: -

CURRENT RATIO = Current Assets / Current Liabilities

The Current Assets include those assets, which are in the form of cash or
convertible into cash within a period of one year. The term current assets also
include Prepaid Expenses & Short-term investments, if any. The current liabilities
all types of liabilities, which will mature for payment within the period of one year.

SIGNIFICANCE:

The Current Ratio shows the extent to which the current assets are quickly
convertible in to cash exceeds the liabilities that will be shortly payable. The
current ratio, so calculated is compared with a standard ratio. Generally, a current
ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor
investment policies of the management & poor inventory control while a low ratio
indicates lack of liquidity & shortage of working capital.

45
 QUICK RATIO: - It is also called ‘Acid test or Liquid Ratio’. Quick Ratio is
worked out to test the short-term liquidity of the firm in its current form.
This ratio establishes the relationship between liquid Current Assets & the
Current liabilities. A currents asset is considered to be liquid if it is
convertible into cash without loss of time & value. On the basis of this
definition of liquid assets, the inventory is singled out of total Current
Assets as the inventory is considered to be potentially liquid. The reason
for keeping inventories out is that it may become obsolete, unsaleable or
out of fashion & always require time for releasing into cash.

Moreover, the inventories have tendencies to fluctuate in value. Another item,

which is generally kept out, is the Prepaid Expenses because by nature these
Prepaid Expenses are not realizable in cash. It is calculated as:

QUICK RATIO = Liquid Assets / Current Liabilities

SIGNIFICANCE:

Quick ratio is an indicator of short-term solvency of the firm. In fact, it is a better

indicator of liquidity as it involves computation of Liquid Assets, which means the
illiquid portion of the current assets is eliminated. Quick ratio is considered as a
further refinement of current ratio. Generally a quick ratio of 1:1 is considered to be
satisfactory because this means that the Quick Assets of the firm are just equal to
the current liabilities & there does not seem to be a possibility of default in
payment by the firm.

46
47
THE ACTIVITY RATIOS

The activity ratios are also called the ‘Turnover Ratios or Performance Ratios’. An
activity ratio is a measure of movement & thus indicates as to how frequently an
account has moved/turned over during a period. It shows as to how efficiently &
effectively the assets of the firm are being utilized. These Ratios are usually
calculated with reference to sales/cost of goods sold & are expressed in terms of
rate or times. Activity ratios for each type of assets are calculated separately.
Following are the important Activities Ratios.

A.) Capital Turnover Ratio (CTR): - Capital Turnover indicates the speed or
rate with which Capital Employed is rotated in the process of doing
business. Efficient Rotation of capital would lead to higher profitability.
The Resultant Ratio would show the number of times the capital has
been rotated in the process of doing business.

The Ratio is calculated as follows: -

Capital Turnover Ratio = Net sales / Capital Employed

CTR establishes the relationship between sales & capital employed. The objective
of working out this ratio is to determine how efficiently the Capital Employed is
being used. Higher the ratio, greater is the sales made per rupee of Capital
Employed in the firm & hence higher is the profit. A low CTR refers to low sales
generated in relation to Capital Employed or excessive Capital being used in the
firm.

48
 B.) Fixed Assets Turnover Ratio: - This Ratio shows how to well the fixed
assets are being utilized. If compared with a previous period, it indicates
whether the investment in fixed assets has been judicious or not.
The Ratio is calculated as follows: -

Fixed Assets Turnover Ratio = Net sales / Fixed Assets

In computing Fixed Assets Turnover Ratio, the fixed assets are generally taken at
written down value at the end of the year.
Fixed Assets Turnover Ratio indicates how efficiently the fixed assets are used. If
there is an increase in the ratio, it will indicate that there is improvement in the
utilization of fixed assets. If there is a fall in the ratio, it is a case for the
management to investigate the fall; if fixed assets remain idle for any reason, the
Turnover Ratio will decrease.

C.) Net Working Capital Turnover Ratio: - This Ratio indicates the number
of times a unit invested in working capital produces sale. In other words,
this ratio indicates the efficiency in the utilization of short-term funds in
making the sales. Net working capital means excess of current assets
over current liabilities careful handling of short-term funds will mean a
reduction in the amount of capital employed thereby improving turnover.
The Ratio is calculated as follows: -

The Ratio is calculated as follows: -

NWC Turnover Ratio = Net sales / Net Working Capital

49
SIGNIFICANCE:

This ratio indicates whether or not Working Capital has been effectively utilized in
making sales. It shows the number of times a unit invested in a working capital
produces sale.

D.) Stock Turnover Ratio or Inventory Turnover Ratio:- This ratio

establishes the relationship between the cost of goods sold during a
given period & the average amount of inventory carried during that
period. It indicates whether stock has been efficiently utilized or not, the
purpose being to check whether only the required minimum has been
locked up in stocks.

The Ratio is calculated as follows: -

Stock Turnover Ratio = Cost of goods sold / Average Stock or

Inventory

Cost Of Goods Sold = Opening Stock + Purchases +

Direct Expenses – Closing Stock.

OR

Cost Of Goods Sold = Net Sales – Gross Profit.

Average Stock = (Opening Stock + Closing Stock)/2.

50
SIGNIFICANCE:

Stock turnover Ratio indicates whether stock has been efficiently used or not. The
purpose of this ratio is to check whether only the required minimum amount has
been invested in stock. Higher the ratio, better it is, since it indicates that more
sales are being produced by a rupee of investment in stocks. A low Stock turnover
may reflect a dull business, over investment in stocks, accumulation of stock at the
end of the period in anticipation of higher prices or unsaleable goods etc.

E.) Debtors Turnover Ratio or Accounts Receivable Turnover Ratio: - In

case the firm sells the goods on credit, the realization of sales revenue is
delayed & the receivables (Debtors &/or Bills) are credited. The cash is
realized from these receivables at a later stage. The speed with which
these receivable are collected affects the liquidity position of the firm.
The receivable turnover ratio revels the velocity of receivable collection
by matching the annual credit sales to the average receivables as
follows:

Receivable Turnover Ratio = Annual net Credit Sale / Average

Receivables

In case details regarding opening & closing Receivables & credit sales are not
given, the ratio may be worked out as follows:

Debtors Turnover Ratio = Total Sales / Account Receivables

51
SIGNIFICANCE:

Debtor’s turnover ratio indicates the efficiency with which the amounts due from
debtors are collected. The higher the ratio, the better it is, since it would indicate
that debts are being collected more quickly. Prompt collection of book debts will
release funds, which may then be put to some other use.

F.) Average Collection Period or Debtor’s Day: - This ratio shows the
number of days, for which sales remain uncollected.

The Ratio is calculated as follows: -

Average Collection Period = Days in a year / Debtors Turnover

SIGNIFICANCE:

Debt collection period do the customer enjoy a measure of the average credit
period? It indicates the average time leg between sales & collection thereof. A
shorter collection period indicates prompt payment by debtors, which reduces the
chances of bed debts. A longer collection period indicates the risk of collection of
debts & increase in the cost of collection, also loss of interest on the money due
from the debtors.

G.) Creditors Turnover Ratio or Accounts Payable Ratio : - This ratio

indicates the velocity with which payment for credit purchases are made
to creditors. The term ‘Accounts Payable’ includes Creditors & Bills
Payable.

The Ratio is calculated as follows: -

52
Creditors Turnover Ratio = Total Credit Purchase / Average
Accounts Payable

In case the details regarding the credit Purchases, opening & closing accounts
payable are not given, the ratio may be worked out as follows:

Creditors Turnover Ratio = Total Purchase / Accounts Payable

SIGNIFICANCE:

Creditor’s turnover ratio indicates whether the firm is actually enjoying the credit
promised by suppliers. If the firm enjoy lower credit period, it means creditors are
being promptly & the firm is not taking the full advantage of credit facilities.

H.) Average Payment Period or Age of Purchases or Credit Enjoyed

(APP): - The Purpose of computing average payment period is to
indicate the speeds with which the payments for credit purchases are
made to creditors.
The Ratio is calculated as follows: -

Average Payment Period = Days in a Year/Creditors Turnover

53
SIGNIFICANCE:

The Average payment period can be meaningfully evaluated by comparing it with

the credit period allowed by the suppliers. To the extent possible, a firm should try
to maintain the APP, which I approximately equal to the credit terms of the
supplier. This will help improving the goodwill & credit worthiness of the firm in the
market. The suppliers are primarily concerned with APP since it provides with an
idea of the payment pattern of the firm. On the other hand, if a firm is unable to
maintain the APP as required by the supplier, it indicates that the facilities given by
the creditors are not being fully utilized or that the firm is unnecessarily damaging
its credit in the market.

THE LEVERAGE RATIOS

The leverage ratios are also called as ‘Solvency Ratios’. The term ‘Solvency’
implies ability of a concern to meet its long-term indebtedness. Some important
solvency ratios are:

A.) Debt Equity Ratio (DE Ratio): - The DE Ratio is worked out to
ascertain soundness of the long-term financial policies of the firm. The
DE Ratio is based on the assumption that the extent to which a firm
should employ the debt should be viewed in terms of the size of the
cushion provided by the shareholders funds.

The Ratio is calculated as follows: -

DE Ratio = Debt (Long Term Loans)/Equity (Shareholders

54
 Funds)

Debt means long term loans i.e. debentures, loan from long-term financial
institution. Equity means shareholders i.e. preference share capital, equity share
capital, reserves; Accumulated profits less losses & fictitious assets like
preliminary expenses.

SIGNIFICANCE:

Since the debt involves firm’s commitment to pay interest over the long run &
eventually to repay the principal amount, the financial analyst, the debt lender, the
preference shareholders, the equity shareholders & the management pay close
attention to the degree of indebtedness & capacity of the firm to serve the debts.
The more the debt a firm uses, the higher is the probability that the firm may be
unable to fulfill its commitments towards its debt lender. The DE Ratio throws light
on the margin of safety available to the debt lenders of the firm. If a firm with a
high DE Ratio fails then a chunk of the financial loss may have to be borne by the
debt holder of the firm. The greater the DE Ratio, higher would be the risk of
lenders. Also the term of credit will become unfavorable to the firm. On the other
hand a low DE Ratio implies a low risk to lenders & creditors of the firm.

A question that now arises is that what should be the ideal DE Ratio. The answer
to the above question is that a balance between the proportions of debt equity
should be maintained so as to take care of the interest of lenders, shareholders &
the firm as a whole. In India, this ratio is taken as acceptable as 2:1. If the DE
Ratio is more then that, it shows a rather risky financial position from long-term
point of view. However, 1:1 is considered as the ideal DE Ratio.

55
 B.) Interest Coverage Ratio: When a business borrows money, the lender
is interested in finding out whether the business would earn sufficient
profits to pay periodically the interest charges. A ratio, which expresses
this, is called Interest Coverage Ratio or Debt Service Ratio or Fixed
Charges Cover.

The Ratio is calculated as follows: -

Interest Coverage Ratio = Net Profit Before Interest & Tax

Interest on Fixed (Long Term)
Loans or Debentures

SIGNIFICANCE:

This ratio indicates how many times the profit covers fixed interest. It measures
margin of safety for the lenders. If profit just equals interest, it is a bad position for
the company as nothing will be left for shareholders & lenders. Higher the ratio,
more secure will be the lender in respect of his periodical interest income.

Total Debt Ratio: The total Debt Ratio compares the total Debts (Long Term
as well as Short Term) with the total assets.

The Ratio is calculated as follows: -

Total Debt Ratio = Total Debts / Total Assets OR

56
Total Debt Ratio = (Long Term Debts + Current Liabilities)
(Total Debts + Net Worth)

SIGNIFICANCE:

The total debt ratio depicts the proportion of total assets financed by the total
liabilities. The remaining assets are financed by the shareholders funds. Higher
the total debt ratio, the more risky is the solution because all liabilities are to be
repaid sooner or later. Moreover, higher liabilities imply greater financial risk also.

D). Fixed Assets Ratio: It must be known that fixed assets should be financed
only out of long-term funds. The ratio will be 1, if long-term funds are equal to fixed
assets. If the ratio is less then 1, it means that the firm has adopted the imprudent
policy of using short-term funds for acquiring fixed assets; on the other hand, a
very high ratio would indicate that long-term funds are being used for short-term
purposes i.e. for financing working capital. It is not good from the firm’s point of
view because it is usually more difficult to raise long-term funds.

The Ratio is calculated as follows: -

Fixed Assets Ratio = Net Fixed Assets

Shareholders fund + Long Term Loans

SIGNIFICANCE:

This ratio is important to ascertain the proper investments of funds from the point o
view of long-term financial soundness. It indicates as to what extent fixed assets
are financed out of long term funds. This ratio should normally be more then 1. If it

57
is less then 1, it means that the firm has followed the wrong policy of using short-
term funds for long term needs.

D.) Proprietary Ratio: This ratio establishes the relationship between the
proprietor’s & shareholders funds & the total assets. It is expressed as:

Proprietary Ratio = Proprietors funds or Shareholders / Total

Assets

SIGNIFICANCE:

The ratio is of particular importance to the creditors who can find out the proportion
of shareholders funds in the total assets employed in the business. A high
proprietary ratio will indicate a relatively little danger to creditors etc., in the event
of forced reorganization or winding up of the company. A low proprietary ratio
indicates greater risk to the creditors since in the event of loss a part of their
money may be lost besides loss to the proprietors of the business. A ratio below
50% may be alarming for the creditors since they may have to loose heavily in the
event of company’s liquidation on the account of heavy losses.

The Profitability Ratios

The Profitability Ratios measures the profitability or the operational efficiency of

the firm. There are two groups of persons who may be specifically interested in the
analysis of the profitability of the firm. These are:

The management, which is interested in the overall profitability &

operational efficiency of the firm.

58
 The equity shareholders who are interested in the ultimate returns available
to them.

Both of these parties and any other party such as creditors can measure the
profitability of the firm in terms of the profitability ratios, broadly, the profitability
ratios are calculated by relating the returns with the: -

Sales of the firm

Assets of the firm

Owner’s contribution

A.) Profitability Ratios Based On Sales Of The Firm: -Profit is a factor of

sales & is earned indirectly as a part of the sales revenue. So, whenever
a firm makes sale, it earns profit (in general). But How Much? How the
Total Sales Revenue is going to be used for meeting the cost o goods
sold, deprecation, indirect expenses, tax liability & return to
shareholders etc. All this & other aspects can be analyzed with the help
of profitability ratios.

The profitability ratios based on sales can be further divided into:

PROFIT MARGIN RATIOS

The profit margin refers to the profit contributed by per rupee of sales revenue
& therefore, the profit margin ratios measure the relationship between the profit
& the sales.

Different profit margin ratios have been suggested as follows:

59
 1) Gross Profit Ratios (GP Ratio): The GP ratio is calculated by
comparing GP of the firm with the net sales as follows:

Gross Profit Ratio = (Gross Profit / Net Sales)*100

For e.g., if the GP Ratio of a firm comes out to be 30% this means that on every 1-
rupee sale, the firm is earning a gross profit of 30 paise.

SIGNIFICANCE:

GP Ratio is a reliable guide to the adequacy of selling prices & efficiency of trading
activities. This ratio should be adequate to cover the Administrative & Marketing
expenses & to provide for fixed charges, dividends & building up of reserves.
Higher the GP Ratio, the better it is. When GP Ratio is studied as a time series, it
may give the increasing or decreasing trend & hence an idea of the level of
operating efficiency of the firm. For a single year, the GP Ratio may not indicate
much about the efficiency level of the firm.

2) Net Profit Ratio (NP Ratio):- The NP Ratio establishes the relationship
between the net profit (after tax) of the firm & the net sales & may be
calculated as follows:

Net Profit Ratio = {Profit (after tax) / Net Sales}*100

The NP Ratio measures the efficiency of the management in generating additional

revenue over & above the total cost of operations, the NP Ratio shows the overall
efficiency in Manufacturing, Administrative, Selling & distributing the product.

60
SIGNIFICANCE:

The NP Ratio is worked out to determine the overall efficiency of the business.
Higher the NP Ratio, the better the business. An increase in the ratio over the
previous period shows improvement in the operational efficiency.

3) Operating Profit Ratio (OP Ratio): The operating profit refers to the
pure operating profit of the firm i.e. the profit generated by the operation
of the firm & hence is calculated before considering any financial charge
(such as interest payment), non operating income / loss & tax liabilities
etc.
The Ratio is calculated as follows: -

OP Ratio = (Operating Profit / Net Sales)*100

SIGNIFICANCE:
The OP Ratio shows the percentage of pure profit earned on every 1rupee of
sales made. The OP Ratio will be less then the GP Ratio as the indirect expenses
such as general & administrative expenses; selling expenses & depreciation
charge etc. are deducted from the GP to arrive at the operating profits. The OP
Ratio measures the efficiency with which the firm not only manufactures the goods
but also sells the goods. Higher the ratio better is the profitability of the business.

4.) Operating Ratio:- This ratio measures the extent of cost incurred for
making the sale.
The Ratio is calculated as follows: -

Operating Ratio = (Cost Of Goods Sold + Operating

Expenses / Net Sales)*100

61
Operating Ratio plus net profit ratio is 100 i.e. the two ratios are interrelated. For
e.g. if the NP Ratio is 15%, it means that the Operating ratio is 85%. A rise in
operating ratio indicates decline in efficiency. Lower the ratio, the better it is.

SIGNIFICANCE:

Operating ratio is the test of operational efficiency of the business. It shows the
percentage of sales that is absorbed by the cost of sales & operating expenses,
lower the operating ratio, the better it is, because it would leave higher margin to
meet interest, dividend etc. thus, operating ratio helps us to determine whether the
cost content has increased or decreased in the figure of sales & also helps us to
determine which element of the cost has gone up or down.

EXPENSE RATIOS

Expense ratios are calculated to ascertain the relationship that exists between
operating expense &volume of sales. The ratios are calculated by dividing the
sales into each individual operating expense. It indicates the portion of sales,
which is consumed by the various operating expenses.

62
Some of the important expense ratios are calculated as follows:

1.) Ratio of Material Used To Sale: -

Direct Material Cost To Sales = (Direct Material

Cost / Net Sales)*100

2.) Ratio Of Labour To Sales: -

Direct Labour Cost To Sales = (Direct Labour Cost

/ Net Sales)*100

3.) Ratio Of Factory Expenses To Sale: -

Factory Expenses To Sales = (Factory Expenses

/ Net Sales)*100

63
 4.) Ratio Of Office & Administration Expenses To Sales: -

Office & Administration Expenses To Sales = (O & Expenses

/ Net Sales)*100

5.) Ratio Of Selling & Distribution Expenses To Sales: -

S & D Expenses To Sales = (S & D Expenses / Net Sales)*100

SIGNIFICANCE:

The expense ratios are the measure of cost control. If the expense ratios of a
business continue to increase over a period of successive years, then it is a cause
for the management to have deeper look into that matter, lower the ratio the better
it is for the firm.

64
 PROFITABILITY RATIOS BASED ON INVESTMENTS / ASSETS.

The profitability of the firm can be analyzed with reference to assets employed
to earn a return. It can also be analyzed with reference to profit earned per
rupee of investment made in the firm. There are two important profitability
ratios based on assets / investment of the firm.

1.) Return on Assets: - The ROA measures the profitability of the firm in
terms of assets employed in the firm. The ROA is calculated by
establishing the relationship between the profits & the assets employed to
earn the profits.

The Ratio is calculated as follows: -

ROA = (Net Profit after Tax / Total Assets)*100

The ROA shows as to how much is the profit earned by the firm per rupee of
assets used.

SIGNIFICANCE:

The ROA measures the overall efficiency of the management in generating profits,
given a given level of assets at its disposal. The ROA essentially relates the profit
to the size of the firm (which is measured in terms of the assets). If a firm
increases its size but is unable to increase its profits proportionately, then the ROA

65
will decrease. In such a case increasing the size of assets i.e. the size of the firm
will not by itself advance the financial welfare of the owners.

2.) Return On Capital Or Return On Investment (ROI): - The sources used

by the business consist of both proprietors (shareholders) funds and loans.
The overall performance can be judged by working out a ratio between
profit earned and capital employed. The resultant ratio usually expressed
as a percentage is called ROI. The purpose is to ascertain how much
income the use of Rs.100 of capital generates.

The Ratio is calculated as follows: -

ROI = (Profit Before interest Tax and dividend /

Capital Employed)*100

SIGNIFICANCE:

ROI judges the overall performance of the concern. It measures how efficiently the
sources entrusted to the business are being used. In other words what is the
earning power of the net assets of the business? The ROI is a fair measure of the
profitability of any concern with the result that even the results of dissimilar
industries may be compared.

66
 PROFITABILITY ANALYSIS FROM THE POINT OF VIEW OF OWNERS.

Ultimately the profit of the firm belongs to the owners who have invested their
funds in the form of equity share capital or preference share capital or retained
earning. Therefore, the profits of the firm should be analyzed from the point of view
of the owners. As a matter of fact, the net profit after tax belongs to the
shareholders. The profitability of the firm can be analyzed from the point of view of
owner’s funds in different prospective as follows:

1.) Return on equity (ROE): The ROE examines profitability from the
perspective of the equity investors by relating profit available for the equity
shareholders with the book value of equity investment.

The Ratio is calculated as follows: -

ROE ={(Net Profit – Preference dividend) / Equity

Shareholder’s Fund}*100

SIGNIFICANCE:

The ROE relates the profit available to equity shareholders. This ratio is used to
compare the performance of the company’s equity capital with that of other
companies, which are alike in equity. The investor will favor the company with
higher ROE.

2.) Earning Per Share (EPS): - The profitability of the firm can also be
measured in terms of number of equity shares. This is known as EPS and
is calculated as follows:

67
 EPS = (Net Profit – Preference dividend) / No. Of
Equity Share

The EPS calculation in a time series analysis indicates whether the firms EPS is
increasing or decreasing.

SIGNIFICANCE:

The more the earning per share better are the performance and the prospects
profit of the company.

3.) Dividend Per Share (DPS): Some times the equity shareholders may not
be interested in the EPS but in the return which they are actually receiving
from the firm in the form of dividends. The amount of profit distributed to
shareholders per share is known as DPS and is calculated as follows:

DPS = (Total Profit Distributed) / No. Of

Equity Share

4.) Dividend Pay Out Ratio (DP Ratio): The DP Ratio is the ratio between
the DPS and EPS of the firm i.e. it refers to the proportion to the EPS
which has been distributed by the company as dividends.

DP Ratio = (DPS / EPS)*100

68
 CHAPTER -6

DATA ANALYSIS & INTERPRETATION

69
 CURRENT RATIO

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

CURRENT
ASSETS 36689.7 38219.2 46405.2 52577.9 64757.6
CURRENT
LIABILITIES 28194.5 27129.5 31227.3 32478.3 37442.1
CURRENT
RATIO 1.301 1.408 1.49 1.62 1.408

70000 1.8
1.6
60000
1.4
50000 CURRENT ASSETS
1.2
40000 1 CURRENT
0.8 LIABILITIES
30000
CURRENT RATIO
0.6
20000
0.4
10000
0.2
0 0
2003-042004-052005-062006-072007-08

70
 QUICK RATIO

(Rs. IN MILLIONS)

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

QUICK ASSETS 26535.7 27569.7 22534.2 40114.4 51241.9
CURRENT
LIABILITIES 24360.4 20116.3 18026.9 31227.3 37442.1

QUICK RATIO 1.09 1.37 1.33 1.28 1.36

60000 1.6

1.4
50000
1.2
QUICK ASSETS
40000
1
CURRENT
30000 0.8
LIABILITIES
0.6 QUICK RATIO
20000
0.4
10000
0.2

0 0
2003-04 2004-05 2005-06 2006-07 2007-08

71
 NET WORKING CAPITAL TURNOVER RATIO

(Rs. IN MILLIONS)

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

NET SALES 27985.2 32120.9 35362.8 39526.9 41025.4
NET WORKING
CAPITAL 8495.2 1109.7 15177.7 20096.6 26328.9
N.W.C.T. RATIO 3.294 2.896 2.33 1.96 1.56

45000 3.5
40000
3
35000
2.5 NET SALES
30000
25000 2
NET WORKING
20000 CAPITAL
1.5
N.W.C.T. RATIO
15000
1
10000
0.5
5000
0 0
2003-04 2004-05 2005-06 2006-07 2007-08

DEBTOR TURNOVER RATIO

72
YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
NET CREDIT SALE 27985.2 32120.9 35362.8 39526.9 41025.4
AVERAGE
RECEIVABLES 6673.7 6991.1 10176.8 16934.1 20588.9
RATIO 4.193 4.594 3.474 2.334 1.992

45000 5
40000 4.5
NET
35000 4 CREDIT
30000 3.5 SALE
3 AVERAGE
25000
2.5 RECEIVAB
20000 LES
2
15000 RATIO
1.5
10000 1
5000 0.5
0 0
20 -0 4
20 -0 5
20 -0 6
20 -0 7

8
-0
03
04
05

07
06
20

DEBT EQUTIY RATIO

73
 (Rs. IN MILLIONS)

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08

DEBT 329.4 153 88.1 17.1 13.8
EQUITY 12358.1 15800.7 20270.8 25713.5 32129.5
RATIO 0.03 0.01 0.004 0.0007 0.0004

35000 0.035

30000 0.03

25000 0.025
DEBT
20000 0.02
EQUITY
15000 0.015
RATIO
10000 0.01

5000 0.005

0 0
20 20 20 20 20
03- 04- 05- 06- 07-
04 05 06 07 08

GROSS PROFIT RATIO

(Rs. IN MILLIONS)

74
YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
GROSS
PROFIT 4690.2 6950.2 8552.6 10524.7 11713.0
NET
SALES 27985.2 32120.9 35362.8 39526.9 41025.4
G. P.
RATIO 16.75 21.63 24.18 26.62 28.55

45000 30
40000
25
35000
GROSS
30000 20 PROFIT
25000 NET SALES
15
20000
15000 10 G. P.
RATIO
10000
5
5000
0 0
05 5

20 -0 7

8
20 -0 4

06 6
20 -0

-0
20 -0
03
04

07
20

NET PROFIT RATIO

75
YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
NET
PROFIT 3161 4463.2 5830.1 7181.6 8267.4
NET
SALES 27985.2 32120.9 35362.8 39526.9 41025.4
N.P. RATIO 11.29 13.89 16.48 18.16 20.15

45000 25
40000
35000 20
NET
30000 PROFIT
15
25000 NET SALES
20000
10
15000 N.P. RATIO
10000 5
5000
0 0
20 -0 4

05 5
06 6
20 -0 7

8
20 4-0
20 -0

-0
03

07
0
20

RETURN ON ASSETS
(Rs. IN MILLIONS)

YEARS 2000-01 2001-02 2002-03 2003-04 2004-05

76
 NET
PROFIT 1552.1 1996.8 2606.1 3161 4463.2
TOTAL
ASSETS 23077.7 28080.7 31750.4 40096.6 42045.9
RATIO 6.72 7.11 8.2 7.8 10.6

RETU RN ON ASSE TS

45000 12
40000
10
35000
30000 8
MILLIONS

25000

RATIO
6
20000
15000 4
10000
2
5000
0 0
2000-01 2001-02 2002-03 2003-04 2004-05
YEARS

NET PROFIT TOTAL ASSETS RATIO

RETURN ON CAPITAL & INVESTMENT

(Rs. IN MILLIONS)

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

77
 PROFIT BEFORE
INTEREST, TAX
AND DIVIDEND 4690.2 6950.2 8820.9 10524.7 12641.8
CAPITAL
EMPLOYED 11375 14283.2 18881.5 23956.3 30463.7
RATIO 41.23 48.65 46.71 47.49 41.4

35000 50 PROFIT
BEFORE
30000 48
INTEREST,
25000 46 TAX AND
DIVIDEND
20000 44 CAPITAL
15000 42 EMPLOYE
D
10000 40

5000 38
RATIO
0 36
20 -0 4
20 -0 5
20 -0 6
20 -0 7

8
-0
03
04
05
06
07
20

RETURN ON EQUITY

(Rs. IN MILLIONS)

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

NET PROFIT 3161 4463.2 5830.1 7181.6 8267.4

78
EQUITY
SHAREHOLDERS`S
FUND 12358.1 15800.7 20270.8 25713.5 32129.5
RATIO 25.27 28.24 28.76 27.92 25.73

35000 30

30000 29 NET
PROFIT
25000 28

20000 27
EQUITY
15000 26 SHAREHOL
DERS`S
10000 25 FUND
5000 24 RATIO

0 23
20 -0 4
20 -0 5

06 6
20 -0 7

8
-0
20 -0
04

07
03

05
20

EARNING PER SHARE

(Rs. IN MILLIONS)

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08

79
NET PROFIT 3161 4463.2 5830.1 7181.6 8267.4
NO. OF
EQUITY
SHARES 80 80 80 80 80
EPS 39.51 55.79 72.88 89.77 103.34

9000 120
8000 NET
100
7000 PROFIT
6000 80
5000 NO. OF
60 EQUITY
4000 SHARES
3000 40 EPS
2000
20
1000
0 0
20 20 20 20 20
03- 04- 05- 06- 07-
04 05 06 07 08

80
 CHAPTER 7

CONCLUSIONS & RECOMMENDATINS

CONCLUSION

After studying & analyzing the Financial Statement of BEL, the following results
can be concluded:-

81
Intra firm comparison
On analyzing the Financial Statements of the company for last 5 years the
following thing can be concluded about the company’s Financial Position:-

o The increase in the cost of goods sold has minor effect by the growth of the
profit but not to a great extent.
o Inventory turnover ratio depicts a fluctuating trend indicating an
accumulation of inventory from time to time causing lass to the company by
a way of deterioration of stock, interest loss & blockage stock etc.
o The ratios used for analysis liquidity position are quick & current ratio which
revels that company has a strong liquidity position.
o Although the sales are increasing, a decrease in G.P. Ratio is indicative of
the firm’s inability to purchase raw material at favorable terms & its turnover
time/insufficient utilization of plant & machinery.
o Increase in the ROCE indicates that funds are being that funds are being
utilized in such a way that they incur immediate return & hence increase in
profitability of the firm.

82
 RECOMMENDATIONS

After analyzing the Financial Statement of the company, following suggestions are
recommended to improve the Financial Position:-

o Sales of the company are increasing which indicates an increase in the

demand of the company’s product. Thus company can increase the selling
price of its product marginally
o The company should take adequate steps to reduce the cost of goods sold.
o An increase in the provision of doubtful debts indicates in appropriate
collection measure, which should be take care off.

83
 BIBLIOGRAPHY

o MAHESHWARI, S. N., MANAGEMENT ACCOUNTING “PRINCIPLES &

PROCTICE” SHREE MAHAVIR BOOK DEPORT (PUBLISHERS), NEW
DELHI
o ANNUAL REPORT OF BHARAT ELECTRONICS LTD. (BEL)
o WWW.BEL-INDIA.COM
o WWW.NSEINDIA.COM

84