Chapter -1

Introduction to BHEL
BHEL is the Largest Engineering and Manufacturing Enterprise in India in the Energy related/Infrastructure Sector Today. BHEL was established more than 50 years ago when its first plant was set up in Bhopal ushering in the indigenous Heavy Electrical Equipment Industry in India, a dream which has been more than realized with a well recognized track record of Performance. It is the most Important symbol of Heavy Electrical Equipment Industry in India and ranks amongst the first few in the world. It has been earning Profits continuously since 1971-72 and achieved a Sales turnover of Rs. 145255 million with a profit before tax of Rs. 25644 million in 2005-2006. BHEL caters to core Sectors of the Indian Economy viz, Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, Defence, etc. The wide network of BHELs 14 manufacturing divisions, four Power Sector regional centers, eight service centers and 18 regional office and a large number of Project Sites spread all over India and abroad enables the company to promptly serve its customers and provide them with suitable products, system and services-efficiently and at competitive prices. BHEL has already attained ISO 9000 and all the major units/divisions of BHEL have been upgraded to latest ISO 90012000 version quality standard certification for Quality Management, BHEL has secured ISO 14001 certification for Environmental Management System and OHSAS- 18001 certification for occupational health and Safety Management Systems for its major units/divisions. The Companys inherent potential coupled with its strong Performance over the years has resulted in it being chosen as one of the Navratna PSUs, which enjoy the support from the Government in their endeavors to become Global Players. With its prudent Financial Management BHEL occupies an all-Important

niche as evident by its ranking by CII amongst top eight PSUs based on Financial Performance.

Chapter -2

Vision Mission & Values of BHEL at a Glance

Vision A World Class Engineering Enterprise committed to enhancing Stakeholders value. Mission To be an Indian Multinational Engineering Enterprise providing total Business Solutions through Quality Products, Systems and Services in the field of Energy, Industry, Transportation, Infrastructure and other potential area. Values Zeal to Excel and Zest for change. Integrity and fairness in all matters. Respect for dignity and potential of Individuals. Strict adherence commitment. Ensure speed of response. Foster learning, creativity and teamwork. Loyalty and pride in the Company.

Chapter -3

Awards

Chapter - 4

BHEL at a Glance
2004-05 103364 42540 43302 15816 9534 1958 266 7310 144915 60269 5370 0.09 246.24 38.95 8.00 2005-06 145255 56828 42601 25644 16792 3549 498 12745 175060 73014 5582 0.08 298.31 68.60 14.50 3270 577 378 (Rs. In million) CHANGE (%) 40.53 33.58 -1.62 62.14 76.13 81.26 87.22 74.35 20.80 21.15 3.95 -14.20 21.15 76.12 81.26 (US $ in million) 37.90 59.11 72.84

Turnover Value Added Employee (Nos.) Profit Before Tax Profit After Tax Dividend Dividend Tax Retained Earnings Total Assets Net Worth Total Borrowings Debt : Equity Per Share (in Rupees): - Net worth - Earnings - Dividend

Turnover 2371 Profit Before Tax 363 Profit After Tax 219 Conversion Rates (Rate as on 31st March): 1 US $ = Rs. 43.59 for 2004-05 1 US $ = Rs. 44.42 for 2005-06

Chapter - 5

BHEL, Varanasi (HERP) (a)

History Varanasi is endowed with five Universities, Lord Budhas first preaching center and many religion/ cultural centers, situated near the Holy Ganga, with Lord Kashi Vishwanath Temple at the heart of it. HERP is located at Shivpur, 11 Kms from main Railway station and 15 Kms from Varanasi Airport. HERP is also situated at the center of the largest Power Belt of Northern region. This Power Belt supplies 10650 MW of Power to the Country. In the line with BHELs of providing constant service at their doorsteps, the idea of establishing repair shop in the vicinity of Power station was mooted objective. According, two repair plant at Bombay & Varanasi came into existence, the foundation equipment repair sprawling in 29.8 acre area at Varanasi was laid on 20th September 1984 by Chief Minister of U.P. Shri Narayan Dutt Tiwari within a short span of 21 month much before the schedule. Production activities started in the Plant from 1st April 1986 having achieved Breakeven point in the second year of Production. Then HERP progressed year often year and added to yet another at yet another feature in HERPs cap. Starting a manufacture of O & M spares for the boiler and boiler auxiliaries, repair activities got a real break in 1990 when rebabitting of TG set bearing was taken up in the Plant. Since than rebabitting of different type of bearing including an unconventional synchronous condenser has been carried out to the entire satisfaction of the Customers.

In order to maintain Growth profile, HERP expansion Project with Rs. 400 Lakhs investment was taken up in 1992 and in hearing completion. Some new facilities like CNC Lathe, Heat Treatment Furnace, Balancing Machine etc. have been added to enable take up repair works as well other spares for boilers and turbines. In view of present market Environment diversification activities like establishing of Manufacture of Mini-Micro-Hydro Turbine components, as well as motor bearing initiated. Through small in size, HERP has been in adequate attention to all the facts of Plant Operation like Computerization, Inventory Control, Quality Assurance. In order to channel lies the creative Energy of Employees suggestion scheme and Quality Circle and Productivity Improvement Project are in operation. HERP takes pride in being one of Best among BHEL unit in term of value added per Employee, because co-operation and communicate style of functioning, it has a track reward of continuing harmonious industrial relations. Being a public sector, HERP is aware of social responsibility as a Corporate citizen as quality of like for the residents of the near by area. HERP has achieved certification of ISO 9001, ISO 14001 & OHSAS 18001 and targeted TQM score during 03-04. Unit level TQ council is committed towards improvement on regular basis in line with the Organizational goals. The other Apex level committee like HMC, PQC & PEC is also having meetings as per schedule for review as per agenda keeping in view, the interests of our Stakeholders.

(b) Organization Structure

Heavy Equipment Repair Plant, Varanasi has highly skilled & Dedicated Technicians, Engineers & Specialist, With manpower strength of 127 nos

(Executive: 36 other 91). The Organization structure chart is as follows : General Manager (HERP)

DGM (Finance)

Sr. Manager (HR)

AGM (Comml./Maint./Qc.)

Sr. DGM (Prodution) Manager (Production)

AGM (MM/P&D)

Sr. Executive (HR)

DGM (Comml.)

DGM (Maint./Qc.)

Sr. Manager (MM)

Sr. Manager (P&D)

A/C Manager

Sr. A/C Officer

A/C Officer

(c) Performance (Statistics) 1- Inventory in No. of Days:

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Inventory in No. of Days. 64 42 66 63 69 62

70 60 50 40 30 20 10 0 2000-01 2001-02 2001-02 2000-01 2002-03 2003-04 2005-06 2004-05

2002-03

2003-04

2004-05

2005-06

2- Profit Before tax (PBT) Capital Employed :

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 % of PBT per Capital Employed 40.00 47.00 19.49 39.57 57.46 122.00

40 122 47

19.49 57.46 39.57

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

10

3- Monthly wise Turn Over (Rs. In Lacs):

Months April May June July August September October November December January February March 2005-2006 Actual 258 302 350 360 376 405 474 582 600 593 626 413 2006-2007 Budget 650 600 550 650 750 800 900 950 950 1100 1100 1000 2006-07 Actual 652 608 633 650 776

1200 1000 800 600 400 200 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2006-07 Actual

2005-06 Actual

2006-07 Budget

11

4- Trend of Material Consumption as % of GTO less Excise:

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Material consumption % 46.63 49.00 45.76 46.08 49.06 51.00

51 50 49 48 47 46 45 44 43 200001 200102 200203 200304 200405 200506

Material Consumption

Material Consumption

12

5- Value Added per Employee (Rs. In Lacs):

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Value Added /Employee (Rs. In Lacs) 8.00 8.50 5.76 8.73 11.35 17.93

18 16 14 12 10 8 6 4 2 0

17.93

11.35 8 8.5 5.76 Value Added/Employee 8.73

200001

200102

200203

200304

200405

200506

Value Added/Employee

13

6- Value Added & PBT:

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Value Added (in Lacs) PBT Value Added Total 530.00 1127.00 557.00 1173.00 176.06 798.00 387.00 1126.00 619.00 1407.00 1396.00 2223.00

2500 2000 1500 1000 500 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Value Added Total PBT

PBT

Value Added Total

14

7- Growth HERP :
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Turnover (in Lacs) 2680.00 2864.00 1780.00 2426.00 3105.00 5339.00

6000 5000 4000 3000 2000 1000 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Turnover

Turnover

15

8- Productivity:
Year 2003-2004 2004-2005 2005-2006 Machine Utilization (in %) 86.46 91.95 92.75

93 92 91 90 89 88 87 86 85 84 83 Machine Utilization 2003-04 2003-04 2004-05 2005-06 2005-06 2004-05

16

9- Economic Value Added (EVA):

Economic value added Year 2002-2003 2003-2004 2004-2005 2005-2006 (in Lacs) -42.00 +79.00 +224.00 +796.00

900 800 700 600 500 400 300 200 100 0 Economic Value added -100 2002-03 2003-04 2004-05 2005-06

17

(d) Products/Services
Bowl Mill XRP/XRS 623, 706HP, 783, 803, 803HP, 1003 spares. Turbine fasteners. Repair/Rebabbiting of TG bearings. Rotor machining. Spares for Boiler Auxiliaries like Coal Burners, Fuel Piping, ESP, Air Preheater & R.C. Feeder etc. Hydro Turbine component machining like Guide Vanes, Guide Bearings. Tools & Tackles of Steam Turbines. Limiter Assembly, Oil Filter Assembly & Speed Changer Assembly of Governing System.

18

(e) Problems of the Organization

The major Problems are as follows: Lack of Man-Power in accordance with Production target. Not Optimum of the Software Programming. Lack of Industrial Security. Not Fruitfulness of the third sift duty in the Production in accordance with the Payout. Applicability of Punch Card for the Works Employees, which is not better than Automated Machine. Lack of Interior in the Organization.

19

Chapter- 6

Comparative Statements (i) Comparative Balance Sheet

HERP, Varanasi As at 31st March, 2005 & 2006 2005 Particulars (Rs.) SOURCES OF FUNDS SHAREHOLDERS FUND - Share Capital - Reserves & Surplus - Funds from Head Office Inter Division Accounts (Cr. Bal) Funds to and from Corporate Office under Centralized Cash Credit A/C (Credit Balance) LOANS FUNDS Secured Loans Unsecured Loans Deferred Tax Liabilities Total Liabilities Application of Funds : Fixed Assets: Net Block Capital work in progress Investments : Inter Division Accounts (Dr. Bal) Funds to and from Corporate office under Centralized Cash Credit A/C (Dr. Bal.) Deferred tax Assets Current Assets, Loans & 20 0 0 0 0 0 351849 2441 0 0 462133 2441 0 0 +110284 0 0 (Rs.) 2006 (Rs. In Thousands) Increase/ Increase/ Decrease (Rs.) Decrease (percentage)

+31.34 0 0

0 0 354290

0 0 464574

0 0 110284

0 0 +31.12

41544 352 0 242687 24623

38447 3661 0 314644 9137

-3097 +3309 0 +71957 -15486

-7.45 +940.05 Cont. 0 +29.65 -62.9

Advances : Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Total Less : Current Liabilities & Provisions Liabilities Provisions Total Net current Assets Deferred tax Assets Miscellaneous Exp. (To the extent not written off or adjusted) : Deferred Revenue Exp. Total Interpretation: (i) The Centers Net Current Assets (working capital) have increased by Rs. 53601 i.e. +118.9% shows to the Sound current Financial position and Liquid Assets like Cash in Hand & Bank, Debtors show an increase i.e. +11968.5% & + 66.63%. This further, confirms that to the its Sound Liquidity position of this Center. Therefore from the both position we can say that the centers Financial position & Liquidity both is Sound. 0 354290 0 464574 0 +110284 0 31.13 66169 19684 85853 45084 0 125105 32029 157134 98685 0 +58936 +12345 +71281 53601 0 +89.06 +62.72 +83.02 +118.90 0 71729 51084 73 8051 130937 148415 85123 8810 13471 255819 +76686 +34039 +8737 +5420 +124834 +106.91 +66.63 +11968.5 +67.32 +95.33

21

(ii)

The comparative Balance Sheet of the Center reveals that during 2006 there has been increase in Capital work in progress Rs. 3309 i.e. +940.05% & decrease in Net Block Rs. 3097 i.e. 7.45%. Overall this indicates that centers Long-Term Financial Positions is Sound.

(iii)

Reserve & Surpluses have increased from Rs. 351849 to Rs. 462133 i.e. +31.34% which shows that the Centers profitability is so Good.

(iv)

The overall Financial Position of this Service Centers is satisfactory.

22

(ii) Comparative Profit & Loss A/C

HERP, Varanasi For year ending 31st March, 2005 & 2006 2005 Particulars (Rs.) EARNINGS Turnover Other operational Income Other Income Exchange variation (Net Cr.) Interest Income others Accretion/ (Decreation) to WIP & finished goods Transfer out to other divisions Allocation of Exp. To other division (cash Balance only) Total OUTGOINGS Consumptions of raw materials & 295045 1527 840 0 39 18102 15661 0 331214 112792 (Rs.) 389461 2015 557 0 31 10807 144413 0 547284 215437 0 4033 0 19937 61 51657 72061 82 28411 2006 (Rs. In Thousands) Increase/ Increase/ Decrease (Rs.) +94416 +488 -283 0 -8 -7295 +128752 0 +216070 +102645 0 +518 0 -10052 -355 +5266 +30384 -223 +1361 Decrease (percentage) +32.00 +32.00 -33.7 0 -20.51 -40.3 +822.11 0 +65.23 +91.00 0 +14.74 0 -33.51 -85.34 +11.35 Cont. +73.00 -73.11 +5.03

components Less-Transfer out to other divisions 0 Consumption of stores & spares 3515 Less-Transfer out to other divisions 0 Transfer in materials 29989 Transfer in other services 416 Employees Remuneration & 46391 Benefits Excise duty Erection and Engineering exppayment to subcontractors Other expenses of manufacture, Administration, selling and distribution Exchange variation (Net Dr.) Interest and other borrowing costs Depreciation, amortizations and 0 (5000) 3820 41677 305 27050

0 (7500) 4204

0 (+2500) +384

0 (+50) +10.05

23

impairment loss Provisions Less-Jobs done for internal use Total Profit/Loss before prior period and extra-ordinary items Income /Expenditure from extra ordinary items Income exp. From prior period items Profit / Loss before tax

3332 0 264287 66927 355 0 66572

11603 0 399986 147298 0 0 147298

+8271 0 +135699 +80371 -355 0 +80726

+248.22 0 +51.34 +120.08 -100 0 +121.26 Cont

24

Profit / Loss before tax Less: provision for taxation For the year For earlier years Deferred tax Profit/ Loss after tax Add: / Less A- Balance of profit (loss) brought forward from last years account B- Distribution of income tax dividend provision of last years to units Less: Appropriation- Foreign Project Reserve - Bond Redemption Reserve - General Reserve - Dividend - Proposed interim Add: Corporate Dividend Tax thereon Profit / Loss carried to Balance Sheet Interpretation:

66572

147298

+80726

+121.26

0 0 0 66572

0 0 0 147298

0 0 0 +80726

0 0 0 +121.26

305476

351849

46373

15.18

20199

37014

16815

83.24

351849

462133

+110284

+31.34

There in an increase in Profit amounting Rs. 110284 i.e. + 31.34%. It may be concluded that there is a sufficient progress in the Center & overall profitability is good. 25

Chapter - 7

Trend Analysis HERP, Varanasi Trend Percentages

(Base Year 2000-2003 =100) 1Year (Rs. In Thousands) Sales (Turnover) Amount (Rs.) 2002-2003 2003-2004 2004-2005 2005-2006 2Year 2002-2003 2003-2004 2004-2005 2005-2006 3Year Amount (Rs.) 2002-2003 2003-2004 2004-2005 2005-2006 4Year 31964 41952 71729 148415 Amount (Rs.) 153194 195866 254346 336557 176250 226326 295045 389461 Net Sales Trend Percentage 100.00 128.00 166.02 220.00 (Rs. In Thousands) Stock Trend Percentage 100.00 131.25 224.40 464.32 (Rs. In Thousands) Profit before tax Trend Percentage 100.00 128.41 167.40 221.00 (Rs. In Thousands)

26

Amount (Rs.) 2002-2003 2003-2004 2004-2005 2005-2006 5Year Amount (Rs.) 2002-2003 2003-2004 2004-2005 2005-2006 Interpretation: (i) 276689 305476 351849 462133 16706 38741 66572 147298

Trend Percentage 100.00 232.00 398.50 881.71 (Rs. In Thousands) Profit Trend Percentage 100.00 110.43 127.17 167.02

The sales (Turnover) have continuously increased in all the years upto 20052006. The percentage in 2006 is 221 as compared to 100 in 2002-03. The increase in sales in quite satisfactory.

(ii)

The Net sales have continuously increased in all the years upto 2005-06. The percentage in 05-06 is 220 as compared to 100 in 2002-03. The increase in Also quite satisfactory.

(iii)

The figures of stock have also increase from 2002-03 to 2005-06. The increase in stock is more in 2004-05 & 2005-06 as compared to earlier years.

(iv)

In the profit before tax there has blaster change i.e just double in 2003-04 & just less than 4 times in 2004-05 & unbelievable less than 9 times in 200506. compared to 100 in 2002-03. Thus P.V.T. shows shoundness of the organization.

27

(v)

Profit has substantially increased in 4 years period. It has less than doubled. The comparative increase in profit is must higher in 2005-06 as compared to other years. The expansion of the center is good & it has doubled and less doubled its sales and profit in just 4 years times. The profit have increased more than sales which shows that there is a proper control over cost of good sold. The overall performance of concern is good.

28

Chapter - 8

Common - Size Statements (i) Common-size Balance Sheet

HERP, Varanasi As on 31st March, 2006 (Rs. In Thousands) As it % 31/03/05 (Rs.) (Amt.) (Rs.)

Particulars

As at 31/03/06 (Amt.)

SOURCES OF FUNDS SHAREHOLDERS FUND - Share Capital 0 - Reserves & Surplus 462133 - Funds from Head Office 2441 Inter Division Accounts (Cr. Bal) 0 464574 Funds to and from Corporate Office under Centralized Cash credit A/C (Credit Balance) LOANS FUNDS Secured Loans Unsecured Loans Deferred Tax Liabilities Total Liabilities 0 351849 2441 0

100

354290

100

0 0

0 0 0 464574

0 0 100

0 0 354290 100

Cont..

29

As at 31/03/06 (Amt.) Application of Funds : Fixed Assets: Net Block Capital work in progress Investments : Inter Division Accounts (Dr. Bal) Funds to and from Corporate Office under Centralized Cash Credit A/C (Dr. Bal.) Deferred tax Assets Current Assets, Loans & Advances : Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Total Less : Current Liabilities & Provisions Liabilities Provisions Total Net current Assets Deferred tax Assets Miscellaneous Exp. (To the extent not written off or adjusted) : Deferred Revenue Exp Total Interpretation: (i) Net block decreasing (-) 125105 32029 157138 0 98685 0 148415 85123 8810 13471 255819

% (Rs.)

As it 31/03/05 (Amt.)

% (Rs.)

38447 8.28 3661 0.79 0 314644 67.73 9137 1.97

41544 11.73 352 0.09 0 242687 68.50 24623 7.00

71729 51084 73 8051 130937

66169 19684 85853 21.24 0 0 45084 12.73 Cont. 0 0

464574

100

354290

100

30

(ii)

Capital work in progress increasing (+) due to Increment in Erection /Fabrication and other i.e. construction of W.I.P. in civil, stores etc.

(iii) (iv)

Investments increase (+) due to heavy reliance in investments. Net current assets is going to double due to just doubling of current Assets & liabilities doubling of current liabilities.

31

(ii) Common - Size Profit & Loss A/C

HERP, Varanasi For year ending 31st March, 2006 Particulars For the year ended 31st March 2006 EARNINGS Turnover Other operational Income Other Income Exchange variation (Net Cr.) Interest Income others Accretion/ (Decreation) to WIP & finished goods Transfer out to other divisions Allocation of Exp. To other division (cash Balance only) Total OUTGOINGS Consumptions of raw materials & components Less-Transfer out to other divisions Consumption of stores & spares Less-Transfer out to other divisions Transfer in materials Transfer in other services Employees Remuneration & Benefits Excise duty Erection and Engineering exppayment to subcontractors Other expenses of manufacture, Administration, selling and distribution Exchange variation (Net Dr.) 0 32 0 0 0 38946 2015 557 0 31 10807 144413 0 547284 215437 0 4033 0 19937 61 51657 72061 82 28411 100 0.52 0.14 0 0 2.77 37.08 0 140.52 55.17 0 1.04 0 5.12 0.02 13.27 18.5 0.02 0.07 % (Rs.) (Rs. In Thousands) For the % year ended 31st March 2005 295045 1527 840 0 39 18102 15661 0 331214 112792 0 3515 0 29989 416 46391 41677 305 27050 100 0.52 0.28 0 0.01 6.14 5.30 (Rs.)

12.26 38.23 0 1.20 0 10.16 Cont. 0.14 16.72 14.13 0.10 9.17

Interest and other borrowing costs Depreciation, amortizations and impairment loss Provisions Less-Jobs done for internal use Total Profit/Loss before prior period and extra-ordinary items Income /Expenditure from extra ordinary items Income exp. From prior period items Profit / Loss before tax Less: provision for taxation For the year For earlier years Deferred tax Profit/ Loss after tax Add: / Less A- Balance of profit (loss) brought forward from last years account B- Distribution of income tax dividend provision of last years to units Less: Appropriation- Foreign Project Reserve - Bond Redemption Reserve - General Reserve - Dividend - Proposed interim Add: Corporate Dividend Tax thereon

(7500) 4204 11603 399986 147298 0 0 147298 0

1.93 1.08 3.00 102.7 37.82 0 0 37.82 0

(5000) 3820 3332 2644287 66927 335 0 66572 0

1.7 1.3 1.13 89.58 22.68 0.11 0 22.56 0 Cont.

0 147298 351849 37014

0 90.34 9.50

0 66572 305476 22199

0 103.53 6.85

462133 Interpretation: (i)

118.66

351849

119.25

Turnover has increase from Rs. 295045 to 389461 which shows to the positiveness of organization.

33

(ii)

Profit is increase from Rs. 351849 to 462133 which shows to the better performance of the center. Thus the overall performance is good

Chapter - 9

Fund Flow Analysis

HERP, Varanasi (i) Statement of Schedule of changes in working capital: (Rs. In Thousands) 2005 Particulars Previous year (Rs.) Current assets : Inventories Sundry Debtors Cash & Bank balance Loans & Advances Total Current Assets Current liabilities Liabilities Provisions Total current liabilities Working capital Net increase in working capital 71729 51084 73 8051 130937 66169 19684 85853 45084 53601 98685 2006 Current Year (Rs.) 148415 85123 8810 13471 255819 125105 32029 157134 98685 98685 124882 (Rs.) 76686 34039 8737 5420 58936 12345 53601 124882 Effect on working capital Increase Decrease (Rs.)

(ii) Statement of Sources and Application of Funds: HERP, Varanasi For the year ended 31st March, 2006 (Rs. In Thousand)

34

Sources Sale of Assets Funds from Operation

Rs. Application 3097 Purchase of Fixed Assets (CWP) 110284 Purchase of Investments Net increase in Working Capital 113381

Rs. 3309 56471 53601 113381 Rs. 462133

Working Notes: (i) Funds from operations Closing balance of Reserve & surplus (surplus as per profit & loss a/c) Less: Opening balance of Reserve & surplus (surplus as per profit & loss a/c) 110284 (ii) Sales of Assets : Opening Net Block Less: Closing Net Block 41544 38447 3097 (iii) Purchase of fixed Assets: (Capital work in Progress) Closing balance of W.I.P. Less: Opening balance of W.I.P. 3661 352 3309 (iv) Purchase of Investments: Closing balance of Investment (314644+9137) Less: Opening balance of Investment (242687 + 24623) 267310 Rs. 323781 351849

35

56471 Interpretation: From the above statements it has been clear that there is in increase in working capital by Rs. 53601 and Total Source is properly applied in purchase of fixed assets (CWP) and investments & balance in Current Assets. So all the aspects are showing goodness of the center.

36

Chapter - 10

Cash Flow Analysis

HERP, Varanasi Cash Flow Statement For the year ended on 31st March, 2006 (Rs. In Thousands) 2005-2006 A. Cash Flows from Operating Activities: Net profit before tax Adjustment for : Depreciation Deferred Revenue Expenditure Operating Profit before working Capital changes Adjustment for : Trade & other Receivables Inventories Trade payable & other Liabilities Cash generated from Operations Direct taxes & Dividend paid Net cash Inflow from operating Cash flows from Investing Activities Purchase of Fixed Assets (Increase/Decrease) in Capital work in progress Net cash used in Investing Activities Cash Flows from financing activities Interdivision fund transfer Net Increase /Decrease in Cash & Cash equivalent Cash & Bank Balances Opening Balances Closing Balances Interpretation : (i) (ii) (iii) HERP Generated Rs. 69836 Cash Flow from its Operating Activities. HERP utilized Rs. 4630 in Acquiring Fixed Assets. HERP Inter division Fund Transfer is Rs. 56471 under the Financing Activities. 147298 4418 0 151716 (39459) (76686) 71281 106852 (37014) 69838 (1321) (3309) (4630) (56471) 8737 2004-2005 66572 3960 355 70895 24970 (29777) 15775 81863 (20199) 61664 (3905) (21) (3926) (57842) (104) Cont... 73 8810 177 73

B.

C. D.

37

(iv)

HERPs Net Cash Flow from its Operating, Investment & Financing Activities is a positive figure of Rs. 8737. The previous year had a Negative figure of Rs. 104.

Chapter - 11

Ratio Analysis
HERP, Varanasi (i) Liquidity Ratio (Rs. In Thousand) 2005 (a) Current Ratio i.e.
Current Assets Current Liabilitie s

2006
255819 = 157134

130937 = 85853

= 1.53 : 1 =
59208 85853

= 1.63 : 1 =
255819 148415 157134

(b) Quick Raito i.e.

Current Assets - Inventerie s Current Liabilitie s

= 0.69 : 1 or .69 times 38

= 0.68 : 1 or .68 times

(c) Cash Ratio i.e.

Cash + Maketable Securities Current Liabilitie s

73 85853

8810 157134

= 0.00085
130937 71729 = 224278 / 360

= .056 or 6% Approx =
255819 148415 323832 / 360

or .09 Approx

(d) Interval measure i.e.

Current Assets - Inventory Average daily Operting Expenses

= 95 days =
45084 186980

= 119 days =
98685 140793

(e) Net Working Capital Ratio i.e.

Net Working capital Net Assets

= 1.52

= 0.7

Summery of Liquidity Ratios : Ratio Current Ratio Quick Ratio Cash Ratio Interval measure (days) Net Working Capital Ratio Interpretation : 2005 1.53 0.69 0.00085 95 1.52 2006 1.63 0.66 0.06 119 0.70

Thus all above ratios of liquidity are showing soundness of the liquidity of the Center except minor negative change in the quick ratio. So we can say that Centers ability to meet its obligation is so sound. (ii) Profitability Ratio (Rs. In Thousand) 2005 (a) Net Profit margin i.e.
Profit After Tax Sales 45453 = 254346

2006 =
92417 336557

= 18% =
224278 254346

= 27.46% =
323832 336557

(b) Operating Expenses Raito i.e.

Operating Expenses Sales

= 88.2%

= 96.21%

39

(c) Return on Investment i.e. ROTA, RONA.

EBIT ROTA = TA

71572 172833

154798 297927

= 41.41%

= 52%

Where- ROTA= Return on Total Assets RONA =

EBIT NA

71572 86980

154798 140793

Where RONA=Return on Net Assets Working Notes: Profit before Tax Less: Tax Profit After Tax Rs.

= 82.3%

= 112%

Rs. 147298 54881 92417

66572 21119 45453 Summery of Profitability Ratios :

Ratio Net Profit margin Operating Expenses Ratio Return on Investment (ROI) (a) ROTA

2005 18% 88.2% 41.41% 82.3%

2006 27.46% 96.21% 52% 112%

(b) RONA Interpretation : (i)

The Increment in Net margin in profit from 18% to 27.46% which shows to the Management efficiency in Manufacturing, Administrating & Selling the Products.

(ii)

The Operating Ratio for HERP indicates that 96.21% in 2006 & 88.2% in 2005, which show 96.21% in 2006 & 88.2% of sales have been consumed together by the Cost of Good Sales & other Operating Expenses. This implies that 3.79% in 2006 & 11.8% in 2005 of sales is left to cover Interest, Taxes & Earning to Owners.

40

(iii)

The return on Investment under the ROTA increase 10.5% in 2006 & RONA is also increased 29.79% in 2006. Thus, from all above we can say that the overall performance in effectiveness of the Center is good.

Chapter -12

DU Pont Analysis
(Evaluation of Firms earning power) HERP, Varanai (i) For 2006: Formula
RONA = EBIT Sales GP EBIT = NA NA Sales GP

(Rs. In Thousand)

Where

RONA = Return on Net Assets, EBIT = Earning before Interest & Taxes. Sales = Net Sales NA GP = Net Assets, = Gross Profit

154798 389461 12725 154798 RONA = = 140793 140793 389461 12725

= 1.099 Or 109.9% Working Notes: aSales : Turnover Less : Excise Duty Net Sales bNet Assets : FA + NCA cGross Profit : 41 140793 389461 52904 336557 Rs.

Net Sales Less : Cost of Goods Sold

336557 323832 12725

d-

EBIT : EBIT + Interest 154798

Similarly (ii) For 2005 : RONA = 82.29% (iii) For 2004 : RONA = 43.76% (iv) For 2003 : RONA = 22.7% Table : Analysis of Earning Power (HERP) A. Sales /NA B. GP/ Sales C. EBIT/GP D. EBIT/NA (AxBxC) Interpretation : It may be seen from above table that HERPS RONA has shown Improvement our years in spite of a constant gross margin and Increasing Assets Turnover. RONA has Increased On account of a Higher Operating leverage, as measured by EBIT /GP Ratio, employed by the Companys Unit. Thus, from all above we can say that Earning power of the Units going in the sound way that Indicates satisfaction in the better way. Turnover Gross Mar. Operating Leverage RONA 2003 1.78 0.85 1.50 0.227 2004 2.00 0.12 1.83 0.438 2005 2.92 0.12 2.38 0.823 2006 2.92 0.12 2.38 1.099

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Chapter - 13 LIMITATIONS OF FINANCIAL ANALYSIS: Financial analysis is a powerful mechanisms of determining financial strength and weaknesses of a firm But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitations of financial statements. The financial analysts has also to be careful about the impact of price level changes, window-dressing of financial statements, changes in accounting policies of a firm, accounting concepts and conventions, and personal judgment, etc. some of the important limitations of financial analysis are, however, summed up as below: (i) (ii) It is only a study of interim reports. Financial analysis is based upon only monetary information and nonmonetary factors are ignored. (iii) As the financial statements are prepared on the basis of going concern, it does not give exact position. Thus accounting concepts and conventions cause a serious limitation to financial analysis. (iv) (v) (vi) Analysis is only a means and not an in itself. Lack of an Underlying Theory. Conglomerate Firms Many firms, particularly the large ones, have operations spanning a wide range of industries. Given the diversity of their product lines, it is difficult to find suitable benchmarks for evaluating their financial performance and conditions. Hence, it appears that meaningful

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benchmarks may be available only for firms which have well-defined industry classification. (vii) Interpretation of Result Through industry average and other yardsticks are commonly used in financial ratios, it is somewhat difficult to judge whether a certain ratio is good or bad. A high current ratio, for example may indicate a strong liquidity position (something good) or excessive inventories (something bad). Likewise, a high turnover of fixed assets may mean efficient utilization of plant and machinery or continued flogging of more or less fully depreciated, worn out, and inefficient plant and machinery. Another problem in interpretation arises when a firm has some favourable ratio and some unfavorable ratios- and this is rather common. In such a situation, it may be somewhat difficult to from an overall judgement about its financial strength or weakness. Multiple discriminant analysis, a statistical tool, may be employed to sort out the net effect of several ratios pointing in different directions. (viii) Correlation among RatiosNotwithstanding the previous observation,

financial rations of a firm often show a high degree of correlation. Why? This is because several ratios have more common element (sales, for example, is used in various turnover ratios) and several items tend to move in harmony because of some common underlying factor. In view of ratio correlations, it is redundant and often confusing to employ a large number of ratio in financial statements analysis. Hence it is necessary to choose a small group of ratios from a large set of ratio. Such a selection requires a good understanding of the meaning and limitations of various ratios and an insight into the economics of the business.

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(ix)

Do not give Exact position The financial statements are expressed in monetary values, so they appear to give final and accurate position. The value of fixed assets in the balance sheet neither represents the value for which fixed assets can be sold nor the amount which will be required to replace these assets. The balance sheet is prepared on the presumption of a going concern. The concern is expected to continue in the future. So fixed assets are shown at cost less accumulated depreciation. There are certain assets in the balance sheet such as preliminary expenses, goodwill, discount on issue of shares which will realize nothing at the time of liquidation though they are shown in the balance sheet.

(x)

Limited Use of a Single Ratio- A single ratio, usually, does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion.

(xi)

Lack of Adequate Standards- There are no well accepted standards or rules of thumb for all ratios which can be accepted as norms. It renders interpretation of the ratios difficult.

(xii)

Inherent Limitations of Accounting- Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessary true indicators of the future.

(xiii)

Personal Bias- Ratio are only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways.

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Chapter - 14

Findings
The results of Financial Analysis clears very well from the given below table: S.No. 1. 2. 3. 4. 5. 6. 7. Methods of Financial Analysis Comparative statements Trend Analysis Common size statements Fund Flow Analysis Cash Flow Analysis Ratio Analysis DU Pont Analysis Positive (+) / Negative (-) Positive (+) Positive (+) Positive (+) Positive (+) Positive (+) Positive (+) Positive (+) Rating Sound Sound Sound Sound Sound Sound Sound

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Chapter - 15

Conclusions & Recommendations

After Optimum diagnosing of the Financial Statements & Cash flow we can say that the Profitability and Financial soundness of this service center is too good & overall Performance is satisfactory.

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