SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DIPLOMA IN MANAGEMENT

A STUDY AND ANLYSIS .

SUBMITTED BY: NEHA AHUJA BBAL2S2 ROLL NO: SBS/SMU05BBA-1225

INDUSTRY GUIDE Mr. SANJEEV AGGARWAL

SKYLINE BUSINESS SCHOOL, HAUZ KHAZ ENCLAVE NEW DELHI

TABLE OF CONTENTS

Chapter No.

Subject

Page No
1

Ch. 1.0 Ch. 2.0

Executive summary..5 Research methodology..6

2.1 2.2 2.3 2.4 2.5 2.6 2.7

Ch. 3.0 Ch. 4.0

primary objectives.7 methods of data collection..8 scope of the study..9 significance of the industry .10 research design and nature of data..11 tools applied12 limitations and delimitations..13
Critical review of literature 14 Company profile ..17

Industry profile19

Ch. 5.0 Ch. 6.0 6.1 6.2 Ch. 7.0 Ch. 8.0

Introduction..21 Findings and Analysis.25 Ratio analysis..26 Comparative statement analysis43 Recommendations56 Bibliography 59 Annexure

ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. Sanjeev Aggarwal, finance executive, Stem Infra Services Pvt ltd, for his able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible. I would also like to thank the entire team of stem infra services, for the constant support and help in successful completion of the project.

Also I am thankful to Mrs. Sheelu Puri, Director, Skyline Business School for giving me an opportunity to do a summer project.

PREFACE
3

This Project Report has been prepared in partial fulfillment of the B.B.A. (Financial) program in the academic year 2011-2012. For preparing the Project Report, I have done summer training in stem infra services pvt ltd during the suggested duration for the period of 40 days. The blend of learning and knowledge acquired during my practical studies at the company is presented in this Project Report. The rationale behind working on a summer project with the company project and preparing the Project Report is to analyze the balance sheet basics and learning how to prepare the financial statements of a company. The information presented in this Project Report is obtained from sources like Company Personnel, Company Websites, Other Websites, Company Reports, and Other Literature.

Executive Summary

Investments are made in the stocks on the basis of the returns provided by the company. Thus, it is necessary to evaluate the securities from time to time to get the best returns from the securities. For this purpose, analysis of financial statements can be used to find out the returns on securities and the competitive position of the company in the market in which it operates. In this report we are going to deal Analysis of Financial Statements of Stem infra services Pvt. Ltd. A financial statement is an organized collection of data according to logical and consistent accounting procedures. Thus, financial analysis is the process of selection relating and evaluation of the accounting data/information. The purpose of the study is to convey a better understanding and knowledge of financial aspects of stem infra services. The report depicts the changes in the financial performance and position of the company over last 3 years.
In order to explore the strengths and weaknesses of the financial position of the company, tools such as comparative analysis statement, common size income statement, ratio analysis are used.

To make the report extensive and authenticate, every aspect of financial statements have been analyzed to portray the accurate financial position of the company. Hence, the study will support the management in decision making and forecasting the financial health of the company

RESEARCH DESIGN

PRIMARY OBJECTIVE
The purpose of the study is to analyze the financial statements of stem infra Services Pvt. Ltd. In order to make the study more advantageous, trends in key financial data, trends in key financial data, comparison of financial data and analysis of key financial ratios over 3 years can be evaluated. This research also has the objective to develop better understanding and knowledge of owners and managers about the performance strengths and weaknesses of the company and provide an excellent overview of the financial position and changes in financial position of Stem Infra Services Pvt ltd.

Methods of Data Collection

The data is collected from Journals and internet referrals, Balance sheet, profit and loss account, study material of the company This study is based on the annual report of stem infra services. Hence, the information related to profitability, short term and long term solvency and turnover were very much required for attaining the objectives of the present study.

SCOPE OF THE STUDY

The study will provide management with a more detailed understanding of the figures. Hence results in good decision making. Financial statement analysis involves careful selection of data from financial statements for the primary purpose of forecasting the financial health of the firm. From the study of the company, we can identify the financial strengths and weaknesses of the firm from the available accounting data and financial statements. Thus, it gives scope of improvement in performance of the company. This report will portray the capacity of the business unit to meet its long term and short term obligations.

SIGNIFICANCE OF THE INDUSTRY

One of the fastest growing sectors of the economy of our time is the hospitality industry. The hospitality industry alone is a multi-billion dollar and growing enterprise. It is exciting, never boring and offers unlimited opportunities. The hospitality industry is diverse enough for people to work in different areas of interest and still be employed within the hospitality industry. It makes sense to prepare for a job in which person has an opportunity for growth The present hospitality industry is extraordinarily healthy and viable and as a result offers excellent opportunities for African Americans in each of the segments; restaurant management, lodging management, recreational management, travel and tourism, meeting and convention planning and institutional management. Scott announces good news: the opportunities are there. The globalization of the hospitality industry creates the availability of jobs in virtually every city in the world.

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RESEARCH DESIGN

Analytical research is adopted for the study. In this research, the researcher has to use facts or information already available and analyze these to make critical evaluation of the material. The nature and characteristics of the financial statements of STEM INFRA SERVICES has been analyzed in this study.

NATURE OF DATA
The data required for the study has been collected from secondary data means the data that are already available i.e. they refer to the data which have already been collected ad analyzed by someone else.

11

TOOLS APPLIED
The analysis is done by properly establishing the relationship between the items of balance sheet and profit and loss account. The first task of a financial analyst is to determine the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange information in a way to highlight significant relationship. The final step is interpretation and drawing of inferences and conclusion. Thus, financial step is interpretation and drawing of inferences and conclusion. Thus financial analysis is the process of selection relating and evaluation of accounting data and information.

To have a meaningful analysis and interpretation of various data collected, the following tools were made for this study. Ratio analysis Common size income statement Comparative statement

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LIMITATIONS AND DELIMITATIONS

LIMITATIONS All the limitations of ratio analysis, common size statement, comparative statement and interpretation are applicable to this study. Time can be the most obvious limitation of this research as the period of study is 3years from 2007 to 2010. DELIMITATIONS Personal aspects of the researchers will not be tackled, and this could establish plenty of information that can be exploited within research. As this research will use only secondary data, the outputs may not be the opinions of the company officials.

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CRITICAL

REVIEW

OF
14

LITERATURE
Environmental and Financial Performance Literature Abstract We review the growing literature relating corporate environmental performance to financial performance. We seek to identify achievements and limitations of this literature and to highlight areas for further research. Our primary interest is to assess the adequacy of the literature in informing corporate managers how, when, and where to make pro-environment investments that will pay off with financial returns for long-term shareholders. To do so, we create a conceptual framework that maps the influence of regulators, public health scientists, environmental advocates, consumers, employees, and other interested parties upon corporate financial returns. Our discussion has relevance to all parties interested in influencing corporate actions that affect the environment. An Investigation of the Perceived Financial Performance of Commercial Printing Firms for Conducting B2C Activities Using Web Technology Abstract This paper is primarily based on Rogers diffusion of innovations theory and Augers empirical study. An empirical research study was conducted to investigate the perceived financial performance of commercial printing firms for conducting business to- customer (B2C) activities using Web technology.
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Financial performance was measured using four financial indicators: sales, profits, costs, and return-on investment (ROI). The diffusion of innovations theory states that an innovation brings changes to a company. Web technology is an innovation that affects companys performance. This paper investigates the effect of Web technology on commercial printing firms financial performance.

Corporate Social Responsibility: Strategic Implications We describe a variety of perspectives on corporate social responsibility (CSR), which we use to develop a framework for consideration of the strategic implications of CSR. Based on this framework, we propose an agenda for additional theoretical and empirical research on CSR. We then review the papers in this special issue and relate them to the proposed agenda. Financial Statement Analysis: A Data Envelopment Analysis Approach Abstract: Ratio analysis is a commonly used analytical tool for verifying the performance of a firm. While ratios are easy to compute, which in part explains their wide appeal, their interpretation is problematic when two or more ratios provide conflicting signals. Indeed, ratio analysis is often criticized on the grounds of subjectivity that is the analysts must pick and choose ratios in order to asses the overall performance of a firm. In this paper, we demonstrate that Data Envelopment Analysis (DEA) can augment the traditional ratio analysis. DEA can provide a consistent and reliable measure of the managerial or operational efficiency of the firm. We test the null hypothesis that there is no relationship between DEA and traditional accounting
16

ratios as a measure of performance of a firm. Our results reject the null hypothesis indicating that DEA can provide information to analysts that is additional to that provided by the traditional ratio analysis. We illustrate the application of DEA to the oil and gas industry to demonstrate how financial analysts can employ DEA as a complement to ratio analysis.

COMPANY PROFILE
With a vision of value addition in the hospitality Industry STEM a company with an unshakeable credo and an un- wavering commitment to service, took a giant leap to serve Corporate, Multinationals and experts in and around the major cities of India.

The Apartment reflects the citys spirit in a harmonious blend of tradition and contemporary sophistication. The Apartment are located close to the city center near business, commercial and shopping districts Exquisite interiors and impeccable services combine to make this the Capitals most graceful and elegant apartments. The apartments offering corporate clients, relocated families and leisure travelers a spacious alternate to hotel room. Spacious floor plans range from two bed room to four bedroom apartments.

VISION We at Stem welcome all our guests and assure them international service standards with the help of our skilled and caring work force, who adhere to the
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service industry norms round the clock. Moreover not to forget the committed & dynamic management team who have been serving clients in Europe and India in the hospitality industry over a decade. STEM is there to LEAD: Liveliness Engagement Anticipation Delivery We invest life into our services. We see Eye to Eye, its our endeavor to understand and serve. We can a Step Ahead. We can do it better with a wow factos

FACILITIES AND SERVICES Gymnasium Wifi facilities Conference room Steam/ sauna House keeping SPECIAL FEATURES Medical Tourism Also provide accommodation rental for Medical Tourist, which they visit India for their medical and relaxation needs. Most common treatments are heart surgery, knee transplant, cosmetic surgery and dental care. Elaborate Marriage Arrangement Marriages are made in heaven, so Stem takes utmost care to make this occasion a Heavenly abode for all. From planning to the successful execution of the Function they stand for every step to make a Gala of an event. With all the specialty services at disposal people can sit back and enjoy the occasion

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INDUSTRY PROFILE
Hospitality industry is a major employer. The industry includes service sector work like tourism and food service. It suffers from more economic fluctuations compared to its peer industries. The hospitality industry is major service sector in the world economy. The industry encompasses an extensive variety of service industries that include food service, tourism and hotels. Hospitality industry suffers from fluctuations within an economy every year. Types Hospitality industry can be empirically divided into two parts: entertainment areas like clubs and bars, and accommodation. Accommodation takes the form of public houses, resorts, inn, campgrounds, hotels, hostels, serviced apartments, and motels. The clubs and bars category include restaurants, fast foods, and nightclubs.

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The hospitality industry also includes tourism support commercial activities like airline cabin staff and travel agents. Travel technology like applied information technology (IT) and its workers in hospitality, travel and tourism are included in the hospitality industry. A hotel is an establishment that renders lodging in lieu of payment. This lodging is usually given in exchange for a specified predetermined amount of money. Modern hotel rooms come equipped with climate control and attached bathrooms. Higher end hotels offer guests internet connectivity within rooms and also throughout the premises.

A combination of meals and accommodation comes as a package in most hospitality establishments. Hotels are usually managed by professionally qualified managers. Junior workers usually maintain the hotel Functions like cooking is usually done by professionally trained chefs. Nightclubs are entertainment venues where dancing is accompanied by light snacks and drinking. Apart from service personnel like waiters and cooks, nightclubs employ disc jockeys (DJs) and stand up comedians as part its varied attractions. Fast-food restaurants now form a major part of the hospitality industry. These restaurants employ an optimal number of personnel for providing customer service. Food may also be sold from kiosks.

Low entry level

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Hospitality industry is characterized by a large number of employees. Both white collar employees and blue collar workers may find gainful employment. Entry level jobs usually require no formal education. Professionals in the hospitality sector are usually qualified with trade certificates and college degrees. Many hospitality schools offer specialized courses of study in one particular aspect of the industry.

The hospitality industry is a fast-growing field. While overall job growth in the United States has been estimated at 14 percent between now and 2010, growth in the hospitality industry is expected to rise by 36 percent! And while many of those jobs may be entry-level positions, the hospitality industry is known for promoting from within and for moving talented employees quickly up the career ladder

INTRODUCTION

CONTENTS:

21

1.1 Introduction of the study 1.2 Objective of the study

INTRODUCTION
Financial statements: A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity. There are different types of financial statements. Financial statements, are required to be audited by authentic, efficient audit firms to avoid manipulation of numbers. Statements are usually audited by the accounting firms after a thorough study of the company records. The accounting and the audit firms make sure that the company is obeying and operating as per norms laid down by the Generally Accepted Accounting Principles or GAAP. Basically, there are four different types of financial statements. The different

22

types of financial statements indicate the different activities occurring in a particular business house.

Balance Sheet Income statement Statement of retained earnings Statement of cash flow or Cash flow statement

Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework

23

of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.

OBJECTIVES OF THE STUDY

The basic objective of studying the ratios of the company is to know the financial position of the company. To know the borrowings of the company as well as the liquidity position of the company

To study the current assets and current liabilities as to know whether the shareholders could invest in Stem infra services. Or not.

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 To study the profits of the business and net sales of the company so as to know the stock revenue for sales of th business To know the solvency of the business and the capacity to give interest to long term loan lenders and dividend to the shareholders. To study the balance of the cash and credit in the organization

FINDINGS

25

AND ANALYSIS

RATIO ANALYSIS
Ratio analysis is a important tool of financial analysis useful to measure the performanceofanorganization. Ratio analysis is a procedure of comparing one figure against another, which make ratio, and the assessment of the ratios to make proper analysis about the effectiveness and impuissance of the procedures of an enterprise. A ratio is defined as, "a fraction whose numerator is the 'antecedent' and denominator the 'consequent'". It is simply an expression of one number in terms of another. The relationship between two accounting variables, expressing mathematically is known as an accounting ratio.

26

Ratios

are

expressed

in

different

ways:

Liquidity ratios Solvency ratios Activity ratios Profitability ratios

A. Liquidity ratios
Liquidity ratios measure a businesss ability to cover its obligations, without having to borrow or invest more money in the business. The idea is that there should be sufficient cash and assets that can be readily converted into cash to cover liabilities as they come due. One of the most common liquidity ratios is:
1. Current Ratio = Current Assets / Current Liabilities Current ratio may be defined as the relationship between current assets and current liabilities. It is a measure of general liquidity and is most widely used to make the

27

analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. TABLE-1 CURRENT RATIO

year 2007-08 2008-09 2009-2010

Current asset 33,41,788 82,87,998 1,28,09,425

Current liability 58,66,979 58,66,979 54,04,664

Ratio 0.56:1 1.41:1 2.23:1

INTERPRETATION AND ANALYSIS

2.5 2 1.5 1 0.5 0 2007-08 2008-09 2009-10 Series1 Series2

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Current ratio of the company was 0.56:1 in the year 2007-08 which indicates a poor liquidity position in the initial year. It indicates that the firm was not able to pay of its current obligations on time.

We see from the above schedule and diagram that the liquidity position has improved over a period of two years from 1.41:1 in the year 2008-2009 to 2.23:1 in the year 2009-10 indicating a much better liquidity position

We also see on the other hand that the debtors of the company which were nil in the year 07-08 increased to 2, 85,011 in 08-09 and again decreased in the year 09-10 to 213719 which is also a good sign for the company showing a stable liquidity position.
Stem infra services overall shows a healthy trend of improved liquidity

2. QUICK RATIO:

Acid-test Ratio = Current Assets minus Inventories / Current Liabilities Liquid ratio is also termed as "Liquidity Ratio, Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due.
TABLE -2 QUICK RATIO

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Year 2007-08 2008-09 2009-10

Quick asset

Current liability

ratio

33,41,788 82,87,998
1,28,09,425

82,87,998 58,66,979 54,04,664

0.56:1 1.41:1 2.23:1

INTERPRETATION AND ANALYSIS

The quick ratio of the company has improved

from 0.56:1 in the year

07-08 to 1.41:1 in the year 08-09 and to 2.23:1 in 2009-10 which is a good improvement and indicates that the firm is liquid and has the ability to meet its current or liquid liabilities in time. We can also see from the above table that the current and the quick ratio of the company is the same for all three years because the quick assets are calculated as quick assets= current assests-stockp/pexpenses and since the stem infra is a service company it does not hold any stock for sales, thus the stock and sales of the company is nil.

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 Since liquid ratio in excess of 1 is regarded as satisfactory, it shows that the firm is controlling its short term financial position.

B.Financial leverage ratio or solvency ratio

Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt. 1. DEBT EQUITY RATIO [Debt Equity Ratio = External Equities / Internal Equities] Or [Outsiders funds / Shareholders funds]

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As a long term financial ratio it may be calculated as follows: [Total Long Term Debts / Total Long Term Funds] Or [Total Long Term Debts / Shareholders Funds] Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company.

TABLE-3 DEBT EQUITY RATIO Year 2007-08 2008-09 2009-2010

3 2.5 2 1.5 1 0.5 0 -0.5 200708 200809 200910 Series1 Series2

debt 5,76,345 44,33,888 90,32,684

equity (1833726) 1987495 3682712

ratio 0.31:1 2.23:1 2.45:1

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INTERPRETATION AND ANALYSIS

The companys debt equity ratio was negative in the year 2007-08 which indicates that the firm their has been no contribution to the capital by the proprietors and the capital has been raised though debt in the year 2007-08. We can see in the above table and diagram and also from the balance sheet that the debt of the company has increased from 44, 33,888 in the year 2008-09 to 90,32,684 in the year 2009-10 in respect to equity which is not a good sign for the company as the its dependence on the outside borrowings have in increased.

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 Thus we find that the company is depending on outside borrowings within an increased proportion which is not good for the financial health of the firm as it does not give the share holders the benefit of leverage.

2. PROPRIETRY OR EQUITY RATIO Proprietary or Equity Ratio = Shareholders funds / Total Assets

This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business.
TABLE-4 PROPRIETRY OR EQUITY RATIO

Year

Sh.fund

Total assets

Ratio 34

2007-08 2008-09 2009-10

18, 33,726 19, 87,495 36,82,712

10, 11,911 31, 46,574 51, 80,076

-1.81 0.63 0.71

1 0.5 0 2007-08 -0.5 -1 -1.5 -2 2008-09 2009-10 Series1 Series2

INTERPRETATION AND ANALYSIS This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure, but here we find that the ratio of the company is too low than the required norms (0.5) in the year 2007-08, which is negative. This indicates an inadequate or low safety cover for its creditors. It may lead to unwillingness of creditors to extend any

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money to the enterprise. The ratio also tells us that companys lenders have contributed more funds than owners. It further indicates greater risk to the creditors. In the year 2008-09 the ratio has improved to 0.63 and in the year 2009-10 it has further improved to 0.71 which indicates an adequate safety for the creditors, which in turn is good for the company

C.Turnover Ratios
Turnover ratios are also referred to as Activity Ratios or Asset Management Ratios . They show the relationship between levels of different assets. They tell us how efficiently assets are deployed by the firm. Key Turnover ratios are

Inventory Turnover Ratio

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Receivables Turnover ratio Working capital turnover ratio Capital turnover ratio

The turnover ratios of the firm cannot be computed because stem infra services is a service company and does not hold any stock for sales. Turnover ratios are always calculated on the basis of sales or stock, thus we cannot calculate any turnover ratio for the company.

D.PROFITIBILITY RATIOS
Profitability ratios are used to assess a business' ability to generate earnings as compared to expenses over a specified time period. There are many types of profitability ratios and we would be analyzing the following Earnings per share Return on investment Price earning ratio

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1.EARNINGS PER SHARE Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of equity shares (common shares) Earnings per share ratio (EPS Ratio) are a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares.

TABLE-5 Earning per share

Year 2007-08 2008-09 2009-10

PAT- Prf dividend (18,40,068) (7,66,779) 16,95,217

No. of equity shares 41200 500000 500000

ratio 3.39Per share

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Analysis and Interpretation We see from the above data that profit after tax is negative for the year i.e. the company has incurred losses in the year 2007-08 and 2008-09, so the earnings per share cannot be computed.

The ratio helps in evaluating the prevailing market price of the shares in the profit earned by the company, and here we find that company has earned a profit of 16, 95,217 in the year 2009-10 and the earning per share is 3.39 per share.

2.Return on investment A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

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TABLE-6 Return on investment

Year 2007-08 2008-09 2009-10

PBT (1761834) (63,3,742) 19,36,126

Capital employed (1513280) 61,65,484 1,25,84,837

ratio 15.38

Analysis and Interpretation The company has incurred losses in the year 2007-08 And in the year 2008-09, and we also find that in the year 2007-08 company had a negative working capital due to which the capital employed is also negative. Thus, due to losses incurred by the company in these two years there is no return on investment.

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 We also find from the above data that the company earned a profit of Rs. 19, 36,126 in 2009-10 and has earned a return of 15.38% on its investment. Since ratio for all years cannot be computed, thus it is difficult to comment on the overall performance of the firm.

Price earning ratio

Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Following formula is used to calculate price earnings ratio: Price Earnings Ratio = Market price per equity share / Earnings per share

TABLE-6
PRICE EARNING RATIO Year 2007-08 2008-09 2009-10 Market price 10 10 10 EPS 3.39 ratio 2.9

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ANALYSIS AND INTERPRETATION Price earning ratio for the firm cannot be computed for the year 2007-08 and the year 2008-09 because the company had incurred losses in both these years and thus, EPS for the company could not be computed. P/E Ratio can only be computed for the year 2009-10. Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price

COMPARATIVE INCOME STATEMENT

42

AND BALANCE SHEET

Comparative income statement

Particulars 2008-09 Net sales Less: cost of goods sold Gross profit Less: operating expenses Office, selling 1,14,98,748 and distribution expenses Net operating 11,498,748 25,56,834 8941914 349.72 43 25,56,834 8941914 349.72 2007-08 INC/DEC % -

profit Add: income Less: non

other 1,08,65,006 -

7,95,000 -

10070006 -

1266.66 -

operating 33,51,834 19011920 567.20

expenses Profit before 2,23,63,754 interest and 2,23,63,754 1,33,037 21,00,717 tax Interest paid PBT Less: Tax PAT

33,51,834 78,234 32,73,600

19011920 54803 (1172883)

567.20 70.05 (35.82)

ANALYSIS AND INTERPRETATION From the above data we find that the net operating profit of the company has increased in the year 2008-09 by 349.72% as compared to the year 2007-08.

We also find that profit before interest and tax has been increased from the year 2007-08 in the year 2008-09 by 567.20%

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 There is an overall decline in the profits of the company as compared to the previous year as we find that in the year 2007-08 the company earned a profit of 32,73,600 which has now decline to 21,00,717 in the year 200809.thus the percentage decrease in the profit is (35.82)%

Comparative income statement

Particulars 2008-09 Net sales Less: cost of goods sold Gross profit Less: operating expenses Office, selling 11,498,748 and distribution expenses Net operating 1,46,53,747 profit Add: other 1,08,65,006 1,46,53,747 16589873 31,54,999 5724867 27.43 52.69 45 1,46,53,747 31,54,999 27.43 2009-10 INC/DEC % -

income Less: non operating

expenses Profit before 2,23,63,754 interest and 2,23,63,754 1,33,037 21,00,717 tax Interest paid PBT Less: Tax PAT

3,12,43,620

88,79,866

52.69

3,12,43,620 1,15,568 3,11,28,052

88,79,866 (17,469) 88,62,397

39.70 13.13 421.87

ANALYSIS AND INTERPRETATION

From the above data we find that the net operating profit of the company has increased in the year 2008-09 by 27.43% as compared to the year 2007-08.

We also find that profit before interest and tax has been increased from the year 2008-09 to 52.69% in the year 2009-10.

There is an overall increase in the profits of the company as compared to the previous year , as we find that in the year 2008-09 the company earned a profit of 21,00,717 which has now increased to 3,11,28,052n the year 2009-10, thus the percentage increase in the profit is 421.87.
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Comparative Balance Sheet

47

Particulars Sources of funds Share capital (A) Loan funds (B) Secured loans Unsecured loans Total funds(A+B) Application of funds Fixed assets Gross block Less: depreciation Net block Investments Current assets and loans and advances Current assets Cash in hand Cash at bank debtors Loans and advances Total current assets and provisions Net current assets Total

2008-09 5000000 594658 3839230 1483888 3610598 464024 31465747 245000

2007-08 412000 576345 988345 1026780 14869 1011911 245000

INC/DEC 4588000 594658 3262885 495543 2583818 449155 2134663 -

% 1113.5 566.13 50.13 251.64 3020.74 210.95 -

181019 242650 285011 7579318 8287998

25023 79358 3237407 3341788 5866979 (2525191) (1268280)

155996 163292 285011 4341911 4946210 (597891) 5544100 7678763

623.41 205.76 134.11 148.01 (10.91) (219.55) (605.44)

Less: Current liabilities 5269088 3018909 6410483

ANALYSIS AND INTERPRETATION The comparative balance sheet reveals that the shareholders funds have increased by 1113.5% due top increase in the share capital of the company.

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 The loan funds have also increased up to an extent of 50.13%. Unsecured loans increased considerably by 566.13%. This means that the company tapped share capital, secured loans, and unsecured loans in order to raise funds. Assets side of the comparative balance sheet shows application of funds. Funds that have been used to acquire fixed assets as the gross block of fixed assets show an increase of 251.64%.
Investments have not been increased at all.

Current assets and loans and advances have increased by 148.08% signifying that considerable funds have been put in current assets.

Current liabilities have gone down by (10.91) %, which means that company has less current liabilities to pay off in one year.

Comparative Balance Sheet

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Particulars Sources of funds Share capital (A) Loan funds(B) Secured loans Unsecured loans Total funds Application of funds Fixed assets Gross block Less: depreciation Net block

2009-10 5000000 348568 8684116 14032684 6269395 1089319 5180076

2008-09 5000000 594658 3839230 1483888 3610598 464024 31464757 245000

INC/DEC (246090) 4844886 12548796 2658797 625295 2033502 -

% (41.38) 126.19 845.67 73.63 134.75 64.62 -

Investments 245000 Current assets and loans and advances Current assets Cash in hand Cash at bank debtors Loans and advances Total current assets Less: liabilities provisions Net current assets Total and 7404761 12829837

244811 252605 213719 12098290 12809425

181019 242650 285011 7579318 8287998 5269088

63792 9955 (71292 ) 4518972 4521427 135576

35.24 4.10 25..01 59.62 35.29 2.57

Current 5404664

3018909 6410483

4385852 6419354

145.27 50.03

ANALYSIS AND INTERPRETATION

The comparative balance sheet reveals that the shareholders funds have not increased during the period of two years

50

 The loan funds have increased up to an extent of 845.67%. Unsecured loans increased considerably by 126.19% and secured loans have decreased by (41.38) %. Assets side of the comparative balance sheet shows application of funds. Funds that have been used to acquire fixed assets as the gross block of fixed assets show an increase of 73.63%
Investments have not been increased at all.

Current

assets

and

loans

and

advances

have

increased

by

35.29%signifying that considerable funds have been put in current assets.

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COMMONSIZE BALANCE SHEET

Common size balance sheet

particulars 2008-09 2007-08 2008% 2007%

Assets

52

Fixed assets Investments Current assets Total

1464757 245000

1011911 245000 3341788 4598699

1.74 0.28 97.98 100

22 5.32 72.68 100

83287998
84997755

Liabilities Sh capital Reserve surplus Secured loan Unsecured loan Current liabilities provisions total 14702976 6855324 100 100 and 594658 3839230 5269088 576345 5866979 4.04 26.11 35.83 8.4 85.60 and 5000000 412000 34 6

ANALYSIS AND INTERPRETATION

There are some changes that have occurred in the sources of funds in two years. Capital as a percentage of total liabilities was 6% which has now gone up to 36% in the year 2008.
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 Within liabilities, share of unsecured loans have increased from 8.4% to 26.11%
Current liabilities and provisions have declined significantly over a period of two years.

As we see the Application of funds we find that fixed assets have declined over a period of two years. The investments of the company have declined from 5.32% to 0.28%.

If we see the current assets, they have increased from 72.68 to 97.28%

Common size balance sheet

particulars 2009-10 2008-09 2009% 2008%

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Assets
Fixed assets Investments Current assets Total Liabilities Sh capital Reserve surplus Secured loan Unsecured loan Current liabilities provisions total 19437348 14702976 100 100 and 348568 8684116 5404664 594658 3839230 5269088 1.79 44.67 27.80 4.04 26.11 35.83 5000000 and 5000000 25.72 34 5180076 245000 12809425 18234501 1464757 245000 83287998 84997755 28.40 1.34 70.24 100 1.72 0.28 97.98 100

ANALYSIS AND INTERPRETATION

55

 There are some changes that have occurred in the sources of funds in two years. Capital as a percentage of total liabilities was which has now gone up from 1.72 to 28.40 in the year 2009. Within liabilities, share of unsecured loans have increased from to 26.11 to 44.67

Current liabilities and provisions have declined significantly over a period of two years.

As we see the Application of funds we find that fixed assets have increased over a period of two years.

The investments of the company have decreased from 0.28 to 1.34. % If we see the current assets, they have declined from to 97.98 to 70.24%

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RECOMMENDATION

57

1. The companies profit over a period of years has been increasing when compared to previous years. The company must target a fixed growth every year and must take steps to keep increasing its profit levels. 2. The liquidity position of the company is quite satisfactory. Liquid and current ratio of the company are above their optimum level, this can further be improved for the purpose of proper utilization of liquid assets of the company. Management can seek to invest a portion of excess liquid assets in long term assets where returns are higher and risk levels are acceptable.
3. Debt equity ratio is not satisfactory for the past 3years .Improvement can

be done by reducing long term debt by disposing of unproductive assets and using proceeds to liquidate debt, or accelerating payments on long term loans. Other ways may be increasing local equity by generating higher levels of local savings. 4. Since, stem infra services is a newly formed company, we find that the company had suffered losses in its initial years but the profitability has improved over a period of years. 5. Price earning ratio of the company cannot be determined for all the years as the company incurred losses during its initial years.This could be clearly seen in their balance sheet, as they are discarding their fixed assets year by year. 6. Since, this is a service company; therefore, they dont need to maintain a large inventory of fixed assets.

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7. There is a decrease in both secured loans and unsecured loans which indicates that the company is repaying its loans on time. This will enable the company to raise more loans in future

8. Current liabilities and provisions are increasing but not to a large extent which cannot be considered a negative point for the company, as it will not affect their credibility to a large extent. But yes, the company must try to maintain it because it cause problems in raising loans or making credit purchases in future

9.

According to the statements provided by the company we find that the policy of paying out dividend to its share

the company has

holders, but we see the that the dividend has not been declared by the company at all in the years 2007, 2008 because the company has not earned any profits.

59

Bibliography
Annual reports of Stem infra Pvt. Ltd IM Pandey, financial management 8th edition, vikas publishing house pvt ltd, 6th reprint 2006-new Delhi
Management Accounting, Fourth Edition by Anthony A. Atkinson, Robert S. Kaplan, S. Mark S. Young, Hardcover, Publisher: Prentice Hall

Financial accounting T.S Reddy and Y.Hariprasad Reddy,financial management R.P Rustagi, Financial Management

http://www.accountingformanagement.com/financial_statement_analysis_accounti ng_ratios.html http://www.accountingcoach.com/online-accounting-course/03Xpg01.html http://www.nos.org/srsec320newE/320EL27.pdf http://stem.net.in/special_feature.html

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ANNEXURES

Balance sheet of 3 years i.e. 2007-08, 2008-09 & 2009-10 Schedules to balance sheet for the years 2007-08, 2008-09 & 2009-10 Profit & Loss A/C of 3 financial years 2007-08, 2008-09 & 2009-

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