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INTRODUCTION

Finance is the life blood of an enterprise. Every enterprise,


whether big, medium or small, needs finance to carry on its
operations and to achieve its targets. In our present day
economy, finance is the provisions of money at the time when it
is required and without adequate finance, no enterprise can
possible accomplish its objective.
The major task of financial management is to get the best
out of available funds. The term business finance indicates and
activity or a process. This is concerned with acquisition of funds
and distribution of profit by a business firm. Thus business
finance usually deals with the controls.
The financial requirements of a company can be broadly
classified into long term, medium term, and short term finance.
Long finance is needed for buying machinery and equipment or
for the provision of land, factory buildings and other fixed assets.
Medium finance is needed for small tools, implements and major
repairs. Short finance is required for a few months for the
purchase of raw materials for processing and meeting expenses
like wages, salaries etc. or in other words to meet its working
capital requirements.
If the finance function is properly blended with production,
marketing, personnel, accounting and other business functions,
the wastage of funds can be avoided. The finance function is not
just a service function. Though it is generally viewed as one. Most
of the important decisions of the business enterprise are
determined on the basis of availability of funds.
“Corporation finance deals with the finance problems of
corporate enterprises. These problems include the financial
aspects of the promotion of new enterprises and their
administration during early development, the accounting
problems connected with the distinction between capital and
income, the administrative questions created by growth
expansion, and finally, the financial adjustments required for the
bolstering up or rehabilitation of a corporation which has come
into financial difficulties.”
FINANCIAL STATEMENT

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“A financial statement is an organized collection of data
according to logical and consistent accounting procedures. Its
purpose is to convey an understanding of some financial aspects
of a business firm. It may show a position at a movement in time,
as in the case of a balance sheet, or may reveal a series of
activities over a given period of time, as in the case of an income
statement.”
Thus the financial statement generally refers to two statements:
1. The position statement or the balance sheet; and
2. The income statement or the Profit/Loss account.
These statements are used to convey to management and
other interested outsiders the profitability and financial position
of a firm. Financial statements are the outcome of summarizing
process of accounting.
OBJECTIVES OF FINANCIAL STATEMENTS
The objective of preparing financial statements (Profit/Loss
account and Balance Sheet) is to known the profit and loss for the
particular period and to find out the financial position of the
business on a particular date. The generally accepted accounting
principles and procedures are followed in the preparation of these
statements.
Financial statements are prepared primarily for decision
making. They play a dominant role in setting the frame work of
managerial decision. However, the information provided in the
financial statements is of immense using making decision
through analysis and interpretation of financial statement. It is
the process of identifying the financial strengths and weakness of
the firm by properly establishing relationship between the items
of balance sheet and profit/loss account.
The primary objective of financial statement is to assist in
decision making. The accounting principles board of America
(APB) states the following as the objectives of financial
statements:
✔ To provide reliable financial information about economic
resources and obligation of a business firm.
✔ To provide other needed information about changes such
economic (resources less obligations) arising out of
business activities.
✔ To provide financial information that assists in estimating
the earnings potential of business.

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✔ To disclose, to the extent possible, other information related
to the financial statements that is relevant to the needs of
the users of these statements.
The preparation of financial statement is not the end aim. The
statement becomes a tool for future planning and forecasting.
The various information given in this statement is much helpful to
the management to various types managerial decision. The major
policies of the company are design only on the basis of the
information available from the financial statement.
NEED FOR THE STUDY
A firm’s success and its survival in the market depend upon
the effective financial management. It guides and regulates all
the management activities of a firm. Management of finance is an
important task in any organization. It requires both short term
and long term planning. Financial analysis is the process of
identifying the financial strength and weakness of the firm. It is
the only one way to measure the firm’s liquidity, solvency and
profitability.
Financial management is a crucial factor in every enterprise
improper financial management leads to an under-utilization of
the available resources and making the financial skill limited.
Hence here the present study aims to create awareness among
the management of the finance limited regarding the importance
of financial management.
STATEMENT OF THE PROBLEM
The present study titled “Financial statement analysis of
----------------------------- is an analysis and interpretation of financial
statement. Analysis and interpretation of financial statement
refers to a treatment of the information contained in the income
statement and balance sheet, so as to afford full diagnosis of the
short term solvency, long term solvency, general and overall
profitability of the business for eight years. Moreover the study
throws light on various aspect of the company efficiency in
utilizing the financial resources.
OBJECTIVES OF THE STUDY
The specific objectives of the present study are given below
➢ To analyze the short term solvency and long term
solvency of the company.
➢ To examine the profitability position of the company.
➢ To examine the operating cycle duration.
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➢ To ascertain the relationship between various variables
such as sales and gross profit, sales and net profit etc.
➢ To forecast the profit and sales of Larsen & Toubro
limited for the future periods.
➢ To suggest suitable steps for the better improvement of
the financial performance of the company.
METHODOLOGY OF THE STUDY
RESEARCH DESIGN
As the study is aimed at estimating the financial
performance precisely the research design adopted here is based
on the analytical method.
ANALYTICAL RESEARCH DESIGN
Analytical research design is the design where the
researcher has used the facts or information already available
and analyzed these to make a critical evaluation.
PERIOD OF THE STUDY
The period of the study started from the financial year 2004
to 2010. For this purpose the sample data is taken from six years
audited report.
SOURCES OF DATA
The analysis of the financial performance necessities
accurate and reliable data. Therefore the sources for collecting
the data include both primary and secondary data.
PRIMARY DATA
The information collected is mainly based on the personal
discussion with the financial executives.
SECONDARY DATA
Secondary data is mainly collected from annual reports,
official records and the web page of the company.
TOOLS USED
The data collected from various sources were analyzed by
the ratio analysis, correlation analysis and trend analysis.
ACCOUNTING TOOL
RATIO ANALYSIS
To ratio analysis is on accounting tool used to analysis the
liquidity position and relationship between two numeric terms,
there are various ratios have been used. A ratio is a
mathematical relationship between two items expressed in
quantitative terms.
STATISTICAL TOOL
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CORRELATION ANALYSIS
A large number of problems in involve two or more
variables. If two quantities vary in such a way that a change in
one caused a change in the other, then the quantities are
correlatred.The statistical tool with which the relationship
between two or more than two variables are studies is called
correlation analysis and is denoted by a symbol’s’.
In the present day study using Karl Pearson’s coefficient of
correlation has used in correlation analysis.
Sales in net profit
a) Debtors and creditors
b) Average collection period and average payment period
TREND ANALYSIS
Trend analysis is the dependence of a variable on one or more
variables, considering a linear equation. It has been used to
forecasting the future sales and net profit.
CHARTS & DIAGRAMS
Charts, schedules and diagrams are used to have a quick
and clear view of the study.
REVIEW OF LITERATURE

Several research scholars and academicians have


conducted studies and identified the areas of training and factors
promoting training effectiveness. Familiarity with the literature in
any area of study helps to discover what is already known, what
others have attempted to find out, what methods of approach
have been promising and disappointing and what problems to
solve.
Bass and Vaughan (1969) in their studies observed that
employees must be trained to enrich them in the areas of
changing technical skills and knowledge from time to time.
Rummer (1986) states that “Training alone is almost never
an appropriate cure”. He suggested that trainers must use a
rigorous approach of a system engineer to analyze the
organizational behavior that changes or improves human
performance.
Gupta (1987) figured out the significance of training
attitudes on training effectiveness. He opined that trainees who
react positively to the needs assessment procedure are more
likely to be satisfied with the learning programming context.
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Gees (1988) say that high level effective and continuous
institutional training and ensuring corporate change are
considered the pre requisites for corporate success.
Kazmi and kizhakkail (1989) found that the training
programming effectiveness can be judged on the basis of
employee satisfaction.
Mr.B.Vijayakumar has extensively analysed “the working
capital management” of Periyanaiken palayam during the 2002
-2003. The researcher has analysed the structure, sources and
utilization of working capital.
The research has applied the usual tools like ratio analysis,
trend analysis and correlation analysis as the tool for study.
Based on the analysis & findings during the entire period of the
study. The working capital position was found to be satisfactory,
except the cash position of the concern.
HYPOTHESIS OF THE STUDY
For better financial performance analysis of
------------------------------------------ limited the following hypothesis
are framed.
➢ There is no relationship between sales and net profit.
➢ There exists no relationship between debtors and creditors
volume.
➢ There exist relationship between average collection period
and average payment period.
➢ There is no relationship between sales and gross profit.
➢ There exists relationship between long term debt and
share holder’s funds.
LIMITATION OF THE STUDY
1. The present study has mainly forced attention on
financial statement analysis of
------------------------------------------------------ If sufficient time and
other resources were available, the study could have been
more elaborate .in that case interviews and other discussion
could have been made in a much elaborate manner.
2. The reliability and accuracy of calculation depends
very much on the information found in the annual
reports.
3. The study is based on secondary data and hence
some of the information is confidential to the management
and its non availability also limited the scope of the study.
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4. The study is limited for the period of 6 years 2004-
2009.
5. Final reports of the year 2009 are not yet published
so, that year analysis is Not done.
CHAPTER SCHEME
The first chapter titled as “INTRODUCTION AND DESIGN OF
THE STUDY” Confines about the introduction to of the study, scope,
objectives and limitation of the study. The research methodology is
also included in this chapter, which describes the design for the study
and tools used to perform the analysis.
The second chapter titled as “PROFILE OF THE
COMPANY” is about the establishment of the company and its
operations.
The third chapter titled as “ANALYSIS AND
INTERPRETATION” gives a picture of all the analysis of ratios
calculations this chapter also includes the interpretation of all the
analysis done.
The forth chapter titled as “SUMMARY OF FINDING AND
SUGGESTIONS “gives the clear picture findings done on the
analysis part. This chapter contains few suggestions which can be
suggested to the company, for the betterment of the company

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AREA PROFILE & COMPANY PROFILE
AREA PROFILE
This town is located on the main road of Tiruchirappali –
Thanjavur highways at a distance of 25 km from Tiruchirappali
and 30 km from Thanjavur.
TRANSPORTATION LINKAGES
The town is well connected by the Nagapattinam to Mysoure of
National Highways 65. This town is also connected with
Tiruchirappali and Thanjavur.
CLIMATE
The climate is not during the summer and moderate during
thewinter. The town experiences occasional summer rain fall.
RAIN FALL
The town gets its rain fall mostly during the north eastern
monsoon during the month of October to December. The
average rain fall for the town is around 850mm.
MINERALS AND SOILS
The soils of the town are generally classified asred soil. It is
mostly suitble fordry crop namely chillies, cotton and groundnuts
which are the main crop of the region.
WATER SOURCES
The source of Drinking water is Kollidam combined Water
Supply Scheme and is supplied by TWAD Board. Drinking water
is distributed through two Over
Head Tanks with a total capacity of 21.00 Lakhs litres. The water
charges collected by TWAD Board is at the rate of Rs.4.50 per
1000 litres. There are 1850 House Service Connection in the
town, out of the sanctioned 3000 nos. further 1150 additional
connections have been approved. At present 90 Lpcd of drinking
water is supplied to the Public as per norms.
CONSITUTION OF MUNICIPALITY
Thuvakkudy Selection Grade Town Panchayat is upgraded
as 3rd Grade Municipality in G.O. M.s.No.277 Municipal
Administration and Water Supply Departnment dated :
05.07.2004. in this 3rd Grade Municipality has an extent of
14.371 sq.km. it includes various revenue villages including
Thuvakkudy.
POPULATION

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The population of the town as per 2001 census is 35,428.
Total No. of Wards is 21, in which 7 wards are reserved for
women and 2 wards for SC/ST. present population of the town is
36,310.
COMPANIES AND INDUSTRIES
Since Sidco Industrial Eastate with more than 100
companies in functioning with in the Municipal limit and Bharat
Heavy Electricl Limited in located in the Municipal area, as large
member of Public and Private employees and merchants working
in these companies residing in this town. This Municipality
remains to be an imporant residential and Industrial Town.
EDUCATIONAL INSTITUTION
The Central Government Engineering College of National
Institute of Technology, State Government Polytechnic,
Government Arts College and State Institute of Hotel
Management are located in the Municipal area.
COMPANY PROFILE
GB Engineering Enterprises Private Ltd., Trichy worksGB
Engineering Enterprises Private Limited has made a defined
Financial Growth over the years. Being a Silver Jubilee company,
with feathers' to its cap by achieving high standards of Safety
and zero Labour unrest, GB has always strived to achieve
Customer confidence in all its endeavours and scaling projects,
which is proved by its receiving of continuous-repeat orders from
most of its clients. The Partial Customer List demonstrates the
Quality concious work-style of the Organization.
GB Engineering Enterprises Private Limited, established in
1980 by a group of young and dedicated technocrats, is a well
known manufacturer of Boilers, Boiler Components, Pressure
Vessels, Heat Exchangers, Nuclear Steam Generator
Components, Heat Recovery Steam Generators & Structurals for
Power plants, Chemical, Petro-Chemical, Paper & Pulp and
Process Industries. GB has served prestigious customers in Indian
market as well as local market.
GB has grown into a medium sized Engineering unit, with
about 60 Engineers and 400 workers (both skilled and semi-
skilled) with in-house facilities for the prefabrication & fabrication
of Pressure part components, thus earning a niche for itself in the
Indian Boiler field.

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Our Plant is located very close to the High Pressure Boiler plant
of BHEL in Trichy on the Trichy-Tanjore highway, Tamilnadu, in a
vast expanse of 40,500 square meters of open area and 10,000
square meters of covered area, with all required machinery &
skilled technical manpower, to produce 4000 Tonnes per annum
of Boiler pressure part components, pressure vessels, Piping and
Heat Exchangers.
Customer delight is the goal of all our activities and also the
motivating force behind every GB Worker, Supervisor, Engineer
and they work in unison to achieve this goal.
GB Engineering Enterprises Private Limited was founded in
1980 and has been specializing in Boilers, Pressure Vessels, Heat
Exchangers, Deaerators etc., for Power and Process Industries.
GB is an ISO-9001 certified company and has approval by
American Society of Mechanical Engineers (ASME) for use of ?S?
and ?U? stamps.
On the Engineering/Project Management and Construction
Management front, GB has developed and consolidated an
enduring relationship with leading Engineering and Construction
companies. These companies are specialised in their own
activities and have a good track record developed over nearly
two decades.
GB Engineering Enterprises Pvt. Ltd., Enmas Engineering Pvt.
Ltd. And Engenius Erectors Pvt. Ltd. Have come together as a
single entity, to provide total services comprising Base
Engineering, Detailed Engineering, Manufacture, Procurement,
Quality Control and Assurance, Construction, Commissioning and
O & M services or any combination of these activities.
GB has license to manufacture Deaerators from Saline Water
Specialists (SWS), Italy and is in the process of acquiring license
for manufacturing Desalination Plants, also from SWS, Italy. The
license for manufacture of Heat Recovery Steam Generators
(HRSG) for combined cycle power plants is under finalization with
Macchi, Italy.
The products supplied by GB in the past is an indication of GB?
s strong presence in the field of Design, Manufacture and Supply
of astmospheric fluidized bed Boilers, Circulating fluidized bed
Boilers, Chemical Recovery Boilers, Blast Furnace Gas Fired
Boilers, Bio-Mass/Bagasse Fired Boilers, Pulverized Coal Fired
Boilers and Heat Recovery Steam Generators.

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MOTTO
GB works on its quality policy, which aims – “To achieve the
customers agreed requirements in cost, quality and delivery of
products and services meeting statutory and regulatory
requirements with continual improvements and with the
involvement of all the employees.
PRODUCT PROFILE
The products supplied by GB in the past, is an indication of
GB’s strong presence in the field of design, manufacture and
supply of atmospheric fluidized bed boilers, circulating fluidized
bed boilers, chemical recovery boilers, blast furnace gas fired
boilers, biomass / bagasse fired boilers, pulverized coal fired
boilers and heat recovery steam genrators.
The mazimum weight handled as single piece is 140 M.T.
the materials handled are steels, carbon steels, low Alloy steeels
and stainless steels. The material preparation is flame curring,
pleasure cutting hydraulic shearing machine, band saw and
friction wheel curring etc.
The welding works are handled as follows:- the shidded
metal Arc welding, Gas Tungsten Arc welding Gas Metal Arc
welding, submerged Arc welding, stud welding etc.,
The forming are 3 roll plate bendding, hydraulic press
forming and sizing, tube and pipe bending, hot dqueezing and
sizing, tube swazing, tube sleezing furnacc panel bending and
pipe lelical coiling etc.,
The machines available are centre lathes, Radial drilling, jig
boring and horizontal boring. The heat treatement is done
though stress relieveing and analyzing furnace, electrically
operated furnaces and LPG fired furnaces.
The surface preparation is done by show blasting and sand
blasting. The NDT works are available with Isotape radiography,
Ultrasonic testing, magnetic particle testing, liquid penertrate
testing, hydrostatic testing and spectrgraphic testing gacilities.
The major products are as follows:
Atmospheric Fluidized Bed Boilers
• Circulating Fluidized Bed Boilers
• Blast Furnace Gas Fired Boilers
• Pulverized Coal Fired Boilers
• Oil Fired Boilers
• Bio-mass Fired Boilers

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• Bagasse Fired Boilers
• Chemical Recovery Boilers
• Waste Heat Recovery Boilers
• Heat Recovery Steam Generators
• Deaerators
• Fired Heaters
• Heat Exchangers
• Gas Pre-Heaters
• Boiler Structurals
INSPECTION AGENCIES
The companies Inspection agencies are as follows:-
Indian Boiler Regulation Authorities
Lloyd’s Register Of Industrial Services
Bureau Veritas Industrial Services (India) Pvt.Ltd.
National Thermal Power Corporaion
Kvaerner Power Gas
Jacobs H&G Consultants Pvt. Ltd
Bharat Heavy Electrical Ltd.
S.G.S India Ltd
TUV
Germanischer Lloyd
UHDE Consultant
M.N.Dastur And Company
Projects & Development India Ltd
Chief Controller Of Explosives
MAJOR CLIENTS OF THE COMPANY
The following are the major clients of the company
according to the nature of the work.
EPC CONTRACTORS
Alstom Power Boilers (India) Pvt. Ltd. New Delhi
Ansaldo Energia Italy
Bharat Heavy Electricals Ltd. Tiruchirapalli
Enmas Process Technologies Ltd. Chennai
Enmas Andritz Ltd Chennai
ISGEC John Thomson New Delhi
Mitsui Babcock Energy(I) Pvt. Ltd Kolkata & Chennai
Skoda Export Ltd Chennai
POWER PLANTS
Assam State Electricity Board Guwahati
Neyveli Lignite Corporation Ltd Neyveli

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Obra Thermal Power Station Obra
Renusagar Power Station Renukoot
Talcher Thermal power Station Orissa
PROCESS INDUSTRIES
Ballarpur Industries Ballarpur
Binani Zinc Ltd Cochin
Grasim Industeis Ltd Kumarapatanam
Gujarat State Fertilizers and Chemicals Ltd Gujarat
Hindustan Copper Ltd Ghatsila & Khetri
Hindustan Zinc Ltd Udaiput,
Chanderiya
Hindustan petroleum Corpn. Ltd Visakhapatnam
J.K. Corporation Ltd Jayakaypur
Mysore Paper MillsLtd Bhadravathi
National FertilizerLtd Naya Nangal &
Panipet
Rain CalciningLtd Hyderabad
Southern Petrochemical Ind. Corpn. Ltd Tuticorin
Steel Authority of India Ltd Bhilai
Sterlite Industries (India) Ltd Tuticorin
Tamil Nadu Newsprint & Papaers Ltd Pugalur
Tata Chemicals Ltd Mithapur
OTHERS
ASEE Chennai & Singapore
Krupp Industries Ltd Pune

DATA ANALYSIS AND INTERPRETATION


ANALYSIS
Analysis refers to the methodical classification of data
gives in the financial statements.
INTERPRETATION

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The term ‘Interpretation’ means explaining the
meaning and significance of the data so arranged. It is the
study of relationship between various factors.
ANALYSIS AND INTERPRETATION
Analysis and Interpretation are closely related.
Interpretation is not possible without analysis and without
interpretation analysis has no value. Hence the term analysis
is widely used to refer both analysis and interpretation.
Reader’s satisfaction is an important element of function
which decides the profitability of any concern. In this chapter
an attempt is made to analyze.
RATIO ANALYSIS
Ratio analysis is a powerful tool for financial analysis. A ratio is
defined as “relationship between two or more variables”. In
financial analysis a ratio is used as a benchmark for evaluating
the financial position and performance of the firm. The absolute
accounting figures reported in the financial statement do not
provide a meaningful understanding of the performance and
financial position f the firm. The relationship between two
accounting figures expressed mathematically it is known as a
financial ratio. The ratio reveals the company’s ability to meet its
current obligations .it measures the company’s liquidity position
and vice-versa .the ratio indicates the quantitative relationship,
which can be in turn ,used make a qualitative judgment.

Definition
According to Kennedy, ratio may be defined as “the
indicated quotient of two mathematical expressions and as the
relationship between the two or more things” According to
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wixon, kell and Bedford, a ratio is defined as “an expression of
the quantitative relationship between two numbers”.
Liquidity analysis
The short-term creditors of a company like suppliers of
goods of credit and commercial banks providing short-term loans
are primarily interested in knowing the company’s ability to meet
its current or short-term obligation as and when these become
due. At the short-term obligation of a firm can be met only when
there are sufficient liquid assets.Therefore,a firm must insure that
it docs suffer from lack liquidity or the capacity to pay its current
obligations.
If a firm fails lo meet such current obligation due to lack of
good liquidity position, its goodwill in the market is likely lo be
affected beyond repair. it will result in a loss of creditors
confidence in the firm and may cause even closure of the firm,
liven as very high degree of liquidity is not good for a firm being
tied-up in current assets.Therefore,it is very important lo have a
proper balance in regard to the liquidity of the firm. Two types of
ratios can be calculated for measuring short-term financial
position or short-term solvency of a firm.
(A)Liquidity Ratios
(B)Current Assets movement or Activity Ratios

(A)LIQUIDITY RATIOS

This refers to the ability of a concern to meet its current


obligation as and when these become due. The short-term
obligation are met by realzing amounts from current, floating or

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circulating assests.The current asset should either be liquid or
near liquidity. These should be convertible into cash for paying
obligations of short-tirm nature. The sufficiency or insufficiency of
current asset should be assessed by comparing them with short-
term (current) liabilities. If current assets can pay of current
liabilities, then liquidity position will be satisfactory. On the other
hand, if current liabilities may not be easily met out of current
assets then liquidity position will be bad. The bankers, suppliers
of goods and other short-term creditors are interested in the
liquidity of the concern. They will be extending credit only if they
are sure that current asset are enough to pay out the obligation.
To measures the liquidity of affirm, the following ratios can be
calculated:
i)Current Ratio
ii)Quick Ratio or Liquid ratio
iii)Absolute Liquid Ratio
CURRENT RATIO
It is a very popular financial ratio. The higher the current
ratio, the greater than short term solvency of a firm.
It is calculated as follows:
Current Assets
Current Ratio= ---------------------------
Current liabilities

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TABLE NO: 1

CURRENT RATIO

YEAR CURRENT CURRENT RATI


ASSET LIABILITIE O
S
2003- 5502.29 3954.43 1.39
04
2004- 7106.41 4804.75 1.47
05
2005- 7624.89 5896.25 1.29
06
2006- 9626.73 8157.13 1.18
07
2007- 12649.7 11648.42 1.08
08
2008- 16657.42 14775.88 1.12
09

INTERPRETATION:

The average current ratio during the study period is 1.255


which is below the standard norms of 2:1, so the company has to
improve its current ratio by increasing its current asset. The
maximum current ratio in the year 2004-05 is 1.47 and the
minimum ratio in the year of 2008-09 is 1.08 therefore there is a
fluctuating trend in current ratio.
CHART NO: 1

CURRENT RATIO

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18
LIQUID RATIO

This ratio is called as the quick ratio.These ratio is amore


strength of the liquidty then the current ratio,as inventory is
excluded in the calculation of this ratio and as a results inventory
holding ups can be found out.

It is calculated as follows

Liquid assets
Liquid Ratio=------------------------
Current Liabilities

TABLE NO: 2

LIQUID RATIO

YEAR LIQUID CURRENT RATI


ASSET LIABILITI O
S ES
2003- 3689.9 3954.43 0.93
04 9
2004- 4795.5 4840.75 0.99
05 7
2005- 5414.6 5896.25 0.91
06 2
2006- 6625.5 8157.13 0.81
07 9
2007- 8343.7 11648.42 0.71
08 9
2008- 10852. 14775.88 0.73
09 37

INTERPRETATION

Usually a high acid test ratio is an indication that the firm is


liquid and has the ability to meet its current liability in it time and
viceversa,it is inffered from the table,the liquidity position of the
L&T is stable during the period of study.It has sufficient amount
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of the liquid asset to pay of its current liabilities.The miknimum
ratio is 0.71 in the year2006-07 and the maximum ratio is 0.99 in
the year 2004-05.The average ratio is 0.84.The liquid ratio hand
with the standard norms of 1:1.

CHART NO: 2

LIQUID RATIO

ABSOLUTE LIQUID RATIO

Although receiveables(debtors and billsreceiveables) are


generally more liquid than inventories,there may be doubts
regarding their realization into cash immediately in time.

It is calculated as follows:
Absolute Liquid Assets
Absolute Liquid ratio=------------------------------------
Current Liabilities

TABLE NO: 3
ABSOLUTE LIQUID RATIO
20
YEAR ABSOLUTE CURRENT RATI
LIQUID LIABILITI O
ASSETS ES
2003- 1297.57 3954.43 0.32
04
2004- 5559.84 4840.75 1.15
05
2005- 2494.83 5896.25 0.42
06
2006- 3352.36 8157.13 0.41
07
2007- 4628.28 11648.42 0.39
08
2008- 7565.89 14775.88 0.51
09

INTERPRETATION
It is derived from the table,that the absolute liquid
ratio of the company shows a fluctuating trend. The ratio is
higher during the period 2004-05 in 1.15. the ratio is less during
the year 2003-04 in 0.32. the liquid ratio is not accordance with
the thumb rule of 0.5:1. Hence the company should increase its
cash position.

CHART NO:4.3

ABSOLUTE LIQUID RATIO

INVENTORY TURNOVER RATIO

Every firm has to maintain a certain level of inventory of


finished goods so as to be able to meet the requirement of the

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business. But the level of should neither be too high not too low.
It is harmful to hold more inventories for the following reason.

Its unnecessarily blocks capital which can otherwise be


profitable used somewhere else. Over stocking will required more
go-down space, so more rent will be paid. Slow disposal of stocks
will mean slow recovery of case also which will advisory affect
liquidity. her are changes of deterioration in liquidity if the stocks
are held for more periods.Hence,it is advisable to dispose of
inventory may mean loss of business opportunities.Thus,it is very
essential to keep sufficient stocks in business.
Net sales
Inventory Turnover Ratio=---------------------
Inventory

TABLE NO:4.4

INVENTORY TURNOVER RATIO

YEAR NET INVENTORY RATI


SALES O
2003- 9561.33 1812.30 5.27
04
2004- 13091.82 2310.84 5.66
05
2005- 14652.92 2210.27 6.62
06
2006- 17578.84 3001.14 5.85
07
2007- 24854.70 4305.91 5.77
08
2008- 33646.57 8505.05 5.79
09

INTERPRETATION
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The ratio shows a floating trend generally high inventory
turnover indicates efficient management. The inventory turnover
ratio a company is maximum during the period 2005-06 with 6.62
due to increase in sales and decrease in inventory. The ratio is
minimum during the period 2003-04 wihh 5.27. The average ratio
is 5.82. From the table inferred that the company shows a good
inventory turnover position.
CHART NO:4.4

INVENTORY TURNOVER RATIO

INVENTORY CONVERSION PERIOD

It may be of interest to see average time taken for clearing


the stocks. This can be possible by calculating inventory
conversion period. This period is calculated by dividing the
number of days by inventory turns over.

365
Inventory conversion
period=--------------------------------------
Inventory Turnover Ratio

TABLE NO. 5
INVENTORY CONVERTION PERIOD

INVENTOR INVENTORY
YEAR NO OF Y CONVERSION
DAYS TURNOVER PERIOD(IN
RATIO DAYS)
23
2003- 365 5.27 69
04
2004- 365 5.66 64
05
2005- 365 6.62 55
06
2006- 365 5.85 62
07
2007- 365 5.77 63
08
2008- 365 5.79 63
09

INTERPRETATION:
it is inferred that the inventory conversion period of the
company from 2004-09. In the year 2005-06 the ratio is
minimum(i,e) 55 days and maximum in the year 2003-04 (i,e) 69
days.The average period is 63 days. The ratio shows a fluctuating
trend during the study period.

CHART NO: 5
INVENTORY CONVERTION PERIOD

DEBTORS TURN OVER RATIO


A concern may sell goods on cash as well as on credit is one
of the important elements of sales promotion. The volume of
sales can be increased by following a liberal credit policy. But the
effect of a liberal credit policy may results in typing up
substantial funds of a firm in the form of trade debtors. The trade
debtors are expected to be converted into cash within a short
period and are included in current assets. Hence, the liquidity
position of a concern to pay its short-term obligation in time
depends upon the quality of its trade debtors. Two kinds of ratios
can be computed to evaluate the quality of debtors. This debtor’s
turnover ratio indicates the number of times on an average, that
the dues of old loans are collected back in a specific period.
Generally the higher the times of debtor’s turnover the more
efficient the management is in terms of dues collection. Debtors’
turnover ratio can be calculated by
Net Sales
Debtors Turnover Ratio= ----------------
24
Debtors
TABLE NO: 6
DEBTOR TURNOVER RATIO
YEAR NET DEBTOR RATI
SALES S O
2003- 9561.33 3314.58 2.88
04
2004- 13091.82 3963.60 3.30
05
2005- 14652.92 4814.16 3.40
06
2006- 17578.84 5504.64 3.19
07
2007- 24854.70 7365.01 3.37
08
2008- 33646.57 10055.5 3.34
09 2

INTERPRETATION
The debtor’s turnover ratio of the company is in a
fluctuating trend. The ratio is high during the period 2007-08 with
3.37 due to increasing in the credit sales. The ratio is low during
the period 2003-04 with 2.88 the decreasing trend is unfavorable
to the company the average ratio is 3.18

CHART NO: 6
DEBTORS TURNOVER RATIO

AVERAGE COLLECTION PERIOD


The average collection period represent the average
number of days for which a firm has to wait before its receivables
are converted into cash. It measures the quality of
debtors.Generally; the shorter the average collection period
better is the quality of the debtors as a short collection period
which implies quick payment by debtors. The average collection
period of the unit under study is depicted in the following table

No of days
25
Average collection period = ------------------------------------
Debtor’s turnover ratio

TABLE NO: 7
AVERAGE COLLECTION PERIOD

DEBTORS AVG
YEAR NO OF TURNOVE COLLECTION
DAYS R RATIO PERIOD(IN
DAYS)
2003- 365 2.88 127
04
2004- 365 3.30 111
05
2005- 365 3.40 120
06
2006- 365 3.19 114
07
2007- 365 3.37 108
08
2008- 365 3.34 109
09

INTERPRETATION

The relationship between the average trade debtors


and sales reveals the average collection period. a higher
collection period implies as in efficient collection performanance
which in turn adversely effects the liquidity or short term paying
capacity if a firm out of its current liabilities .moreover longer the
average collection periods .larger are the chances of bad debts.
The period is high during 2005-06 with 120 days due to decrease
in turn over and the lower during 2007-08 with 108 days the
average collection period is 115 days.

CHART NO: 7
AVERAGE COLLECTION PERIOD
26
CREDITORS TURNOVER RATIO
The ratio indicates the velocity with the which the creditors
are turnrd over in relation to purchases ; it denotes the speed
with which the payments for credit purchases are made to the
creditors.
This ratio can be computed as follows:

Net credit annual


purchases
Cerditors turnover ratio = --------------------------------------------
Average trade creditors

TABLE No: 8

CREDITORS TURNOVER RATIO

YEAR CREDIT AVG TRADE RATI


PURCHAS CREDITORS O
ES
2003- 3137.78 2042.83 1.53
04
2004- 4538.23 2935.79 1.54
05
2005- 4085.29 3046.28 1.34
06
2006- 4798.14 3971.75 1.20
07
2007- 7471.18 5398.90 1.38
08
2008- 8297.69 6813.57 1.21
09

INTERPRETATION

Generally smaller the payable ratio, greater the credit


period enjoyed and consequently larger the benefit from the

27
credit supplier. The ratio shows a fluctuating trend and it is
ranging from 1.20 to 1.54. On an average of 1.36 times.

CHART NO: 8
CREDITORS TURNOVER RATIO

AVERAGE PAYMENT PERIOD


The average payment period related to creditors
turnover ratio. It indicates about the prompthness or otherwise in
making payment of credit purchases.

It is calculated as follows:

360
Average payment period= -------------------------------------
Creditor s turnover ratio

TABLE No: 9
AVERAGE PAYMENT PERIOD

CREDITOR AVG
YEAR NO OF S PAYMENTPERI
DAYS TURNOVE OD (IN DAYS)
R RATIO
2003- 365 1.53 238
04
2004- 365 1.54 237
05
2005- 365 1.34 272
28
06
2006- 365 1.20 304
07
2007- 365 1.38 264
08
2008- 365 1.21 304
09

INTERPRETATION
The average payment period ratio represents the average
number of days taken by the firm to pay to its creditors.
Generally, lower the ratio better is the liquidity position of the
company but a higher payment period also implies greater credit
period enjoyed by the firm and consequently larger the benefit
reaped from the credit supplier. The period is high during the
year 2006-07 with 304 due to decrease in creditors. Turnover and
it is less during the year 2004-05 with 237 days due to increase
in creditors turn over.
TABLE No: 9
AVERAGE PAYMENT PERIOD

GROSS PROFIT RATIO

The gross profit ratio measures the relationship of gross


profit to net sales and is used represented as a percentage. Thus
it is calculated by dividing the gross profit by sales to get the said
ratio. this can be also be calculated by deducting gross profit
from 100,we obtain the ratio of the cost of goods sold to sales to
gel gross profit ratio.
29
Gross profit
Gross profit ratio = ---------------------X 100
Net sales

TABLE No: 10
GROSS PROFIT RATIO

YEAR GROSS NET RATI


PROFIT SALES O
2003- 532.75 9561.33 5.0
04
2004- 1035.24 13091.82 7.0
05
2005- 1063.34 14652.92 7.2
06
2006- 1449.83 17578.84 8.2
07
2007- 2250.89 24854.70 9.0
08
2008- 3585.64 33646.57 10.6
09

INTERPRETATION
The gross profit ratio expresses the relationship between
gross profit to sales and is usually represented in terms of
percentage. Gross profit shows a fluctuating trend for the whole
study period. The ratio ranges from 5.0 to 10.6 and an average
the study indicates 7.86. it is inferred that the last year gross
profit is satisfactory comapre to the previous year.

30
TABLE No: 10
GROSS PROFIT RATIO

NET PROFIT RATIO


This ratio establishes a relationship between net profit (after
taxes) and sales, and indicates the efficiency of the management
in manufacturing, selling, administrative and other activities of
the company. This ratio is the overall measure of the company’s
profitability.

It is calculated as follows:
Net Profit (After Tax)
Net Profit Ratio= ---------------------------- X100
Net Sales
TABLE No: 11
NET PROFIT RATIO
YEAR NET NET RATI
PROFIT SALES O
2003- 583.35 9561.33 6.10
04
2004- 1035.24 13091.82 7.90
05
2005- 1012.14 14652.92 6.90
06
2006- 1403.02 17578.84 7.98
07
2007- 2173.42 24854.70 8.74
08
2008- 3585.66 33646.57 10.65
09

INTERPRETATION

Net profit ratio establishes a relationship between net profit


and sales. From the table it is observed that the margin ranges
between 6.10 to 10.65. The company has earned a lower
percentage of net profits during the year 2003-04. The average
net profit is 8.04. It is inferred that the last year net profit is not
satisfactory compare to the previous year.

31
CHART No: 11
NET PROFIT RATIO

OPERATING PROFIT RATIO


This ratio indicates the result of return on investment.
It represents the earnings before interest and tax dividing by
sales.

It is calculated as follows:
Operating Profit
Operating Profit Ratio = --------------------- X 100
Net Sales
TABLE No: 12
OPERATING PROFIT RATIO

YEAR OPERATING NET RATI


PROFIT SALES O
2003- 236.08 9561.33 2.0
04
2004- 302.29 13091.82 2.3
05
2005- 371.26 14652.92 3
06
2006- 601.87 17578.84 3.4
07
2007- 982.05 24854.70 4
08
2008- 1231.21 33646.57 3.6
09

INTERPRETATION

The operating profit ratio is representing the relationship


between operating profit and sales. It is derived from the table
the operating profit shows a decreasing trend from the period of
2003-04 increasing during the year 2007-08 with 4 and
decreasing during the year 2003- 04. The average ratio is 3.05.

32
CHART No: 4.12
OPERATING PROFIT RATIO

WORKING CAPITAL TURNOVER RATIO


Working capital of a concern is directly related to
sales. This ratio indicates the number of times the working capital
is turned over in the courses of the year. A higher sale to
working capital ratio implies the efficient utilization of funds. The
relationship to working capital explains how much the current
asset level is maintained to affect the given sales level.
It is calculated as follows:
Cost of Sales
WORKING CAPITAL TURNOVER RATIO = -------------------------------
Net Working Capital
TABLE No: 13
WORKING CAPITAL TURNOVER RATIO
YEAR COST NET RATI
OF WORKING O
SALES CAPITAL
2003- 953361. 1547.86 6.17
04
2004- 13091.8 2301.66 5.6
05 2
2005- 14652.9 1728.64 8.4
06 2
2006- 17578.8 1469.6 11.9
07 4
2007- 24854. 1001.28 24.8
08 70
2008- 33646.5 15179.54 2.21
09 7

INTERPRETATION
The working capital turnover ratio shows a fluctuating trend.
The ratio is low during the period 2008-09 which was 2.21. The
ratio is high during the period 2007-08 which was 24.8 to
increase in cost of sales. The average ratio is 9.84. This indicates
that the company has efficient control over the working capital in
recent past years.
CHART No: 13
33
WORKING CAPITAL TURNOVER RATIO

CORRELATION ANALYSIS
“correlation analysis deals with the association
between two or more variables”. If two or more quantities vary in
sympathy so that movements in one tend to be accompanied by
corresponding movements in the other(s) then they are said to
be correlated. Correlation analysis helps us in determining the
degree of relationship between two or more variables-it does not
tell us anything about cause and effect relationship. The effect of
correlation is to reduce the range of uncertainity. The prediction
based on correlation analysis is to be more valuable and near to
reality.whether correlation is positive (direct) or negative
(inverse) would depend upon the direction of change of the
variables

Correlation analysis is an important satistical tool,which


helps in determining the relationship between two or more
variables.The measure of correlation is called the co-efficient of
correlation. It is denoted by ‘r’.
TYPES OF CORRELATION
1. POSITIVE AND NEGATIVE CORRELATION
Positive value of ‘r’ indicates positive correlation
between two variable, changes in both variables takes places in
the same direction r= (+) 1.
Positive value of ‘r’ indicates negative correlation
between two variable, changes in both variables takes places in
the opposite direction r= (-) 1.
2. LINEAR OR NON LINEAR CORRELATION
If the change in one variable tends to be a constant ratio it is
said to be linear otherwise the correlation said to be then on
linear.

34
TABLE: 14

CORRELATION BETWEEN DEBTORS AND CREDITORS

Year X X=X- X2 Y Y=Y- Y2 XY


mean mean
2003- 33.14 - 635.5 20.42 - 396.8 502.1
04 25.21 4 19.92 0 8
2004- 39.63 - 350.8 29.35 - 120.3 205.4
05 18.73 1 10.97 4 6
2005- 48.14 - 104.4 30.46 -9.88 97.61 100.9
06 10.22 4 7
2006- 55.04 -3.32 11.02 39.71 -0.63 0.396 2.09
07 2
2007- 73.65 15.29 233.7 53.71 13.64 186.0
208.5
08 8 5
2008- 100.5 42.26 1785. 68.13 27.79 772.2 1172.
09 5 90 8 29
3121. 1573. 2191.
49 43 54

Formula to find ‘r’ value:


r=xyx2xy2

=2191.542216.17

r=0.98

INTERPRETATION

From the above table it is inferred that r = (0.98) which


indicates that there is a positive correlation. So there is
relationship between debtors and creditors.

35
TABLE: 15

CORRELATION BETWEEN AVERAGE COLLECTION


PERIOD AND AVERAGE PAYMENT PERIOD

Year X X=X- X2 Y Y=Y- Y2 XY


mean mean
2003- 127 12 144 238 -31 961 -372
04
2004- 11 -4 16 237 -32 1024 128
05
2005- 120 5 25 272 3 9 15
06
2006- 114 -1 1 304 35 1225 -35
07
2007- 108 -7 49 264 -5 25 5
08
2008- 109 -6 36 302 33 1089 -198
09
271 4333 -457

Formula to find ‘r’ value:


r=xyx2xy2

=-4571083.62

r=-0.42

INTERPRETATION:
From the above table it is inferred that r = (-0.42) which
indicates that there is a negative correlation. So there is
relationship between average collection period and average
payment period.

36
TABLE: 16

CORRELATION BETWEEN SALES AND NET PROFIT

Year X X=X- X2 Y Y=Y- Y2 XY


mean mea
n
2003- 95.61 - 8716.0 53.27 28.7 823.6 -
04 93.36 8 9 2679.
4
2004- 130.9 - 3370.9 10.35 - 200.2 821.5
05 1 58.06 6 14.15 2 4
2005- 146.5 - 1802.0 10.63 - 192.3 588.7
06 2 42.45 0 13.87 7 8
2006- 175.7 - 173.97 14.49 10.01 100.2 132.0
07 8 13.19 0 3
2007- 248.5 59.57 3548.5 22.50 -2 4 119.1
08 4 8 4
2008- 336.4 147.4 21753. 35.85 11.35 128.8 1674.
09 6 9 30 2 01
39364 1449 391.0
.89 .3 1

Formula to find ‘r’ value:


r=xyx2xy2

=391.017553.24
r= 0.05

INTERPRETATION
From the above table it is inferred that r = (0.05) which
indicates that there is a positive correlation. So there is
relationship between sales &net profit.
TREND ANALYSIS
A series of financial statements may be analysed by
determining and statement may be determining and studying the
trends of the data shows in the statements. This method of
37
analysis is one of direction-upward. The information for a number
of years is taken up and one year generally the year is taken as a
base year. The base period should be carefully selected. It should
be a normal period the price level changes in subsequent year
may reduce the utility of trend ratios. One way to describe the
trend component is to fit a line visually to a set of points on
graph.

38
TABLE: 17
TABLE SHOWING TREND ANALYSIS OF
CURRENT ASSESTS
YEAR CUREENT PERCENTAG
ASSETS E
2003- 5502.29 100
04
2004- 7106.41 129
05
2005- 7624.89 139
06
2006- 9626.73 175
07
2007- 12649.71 230
08
2008- 16657.42 305
09
INTERPRETATION
The above table shows that the current assets are likely to
be increasing in future. as the company maintain for the whole
period of study expect during 2004-2009.this reveals that the
company can maintain sufficient amount of networking capital in
the upcoming year.
TABLE: 18
TABLE SHOWING TREND ANALYSIS OF
CURRENT LIABILITIES
YEAR CUREENT PERCENTAG
LIABILITIES E
2003- 3954.43 100
04
2004- 4804.75 122
05
2005- 5896.25 149
06
2006- 8157.13 206
07
2007- 11648042 295
08
39
2008- 14775.88 374
09
INTERPRETATION

The above table shows that there is increasing trend during


the whole period of study. The reveals the company s networking
capital during the whole period of study is satisfactory.

40
TABLE: 19
TABLE SHOWING TREND ANALYSIS OF LOANS
AND ADVANCES

YEAR LOANSANDADVANC PERCENTAG


ES E

2003- 1297.43 100


04
2004- 4731.82 365
05
2005- 1911.63 147
06
2006- 2257.93 174
07
2007- 3663.82 282
08
2008- 6790.60 523
09

INTERPRETATION
The above table shows that the trend percentage of loans
and advances is likely to increase in future. This gives positive
signs for the company s improvement.
TABLE: 20
TABLE SHOWING TREND ANALYSIS OF SECURED
LOANS

YEAR SECURED PERCENTAG


LOANS E
2003- 1045.25 100
04
2004- 793.72 76
05
2005- 465.79 45
06
2006- 245.40 23
07
2007- 308.53 30
08
41
2008- 1102.38 105
09
INTERPRETATION
The trend percentage of secured loans showing an
increasing trend. This shows the company s loan debt
management and debt capital is in sufficient manner. This gives
positive signs for the company s improvements.

FINDINGS

LIQUID ANALYSIS:
The current ratio is not up to the standard norms.
Liquid ratio is stable and is up to the standard norms hence
the company is having sufficient amount of liquid asset to pay off
its current liabilities.
Absolute liquid ratio of company it is not up to standard
norms and it is not satisfactory.
CURRENT ASSETS MOVEMENT ANALYSIS
The inventory conversion period from 2004-2005 shows a
quicker process which is 2 months approximately, indicating a
better inventory handling.
Receivables turnover ratio and average collection period is
satisfactory, as the ratio shows a decreasing trend except in the
year 2005-2006 and the average collection period increase in the
year 2004-2005. It shows the efficiency of management in
collection of debts.
Creditor’s turnover ratio is smaller hence it is satisfactory as
the company having a good purchase policy.
Average payment periods are in accordance with the
company’s policy of 7 months and is inferred that it is maintained
satisfactory.
Working capital turnover ratio indicates a fluctuating trend
but it has efficient control over the working capital turnover ratio
in the year 2007-2008.
PROFITABILITY ANALYSIS
Gross profit ratio and net profit ratio shows a fluctuating
trend in the last year(2008-2009) the ratio has increased.

42
Operating cost ratio indicates a fluctuating trend. But during
the last year operating profit has increased when compared to
the immediate previous year.
CORRELATION ANALYSIS
From the above table it is inferred that r = (0.98) which
indicates that there is positive correlation. So there is relationship
between debtors and creditors.
From the above table it is inferred that r = (-0.42) which
indicates that there is a negative correlation. So there is
relationship between average collection period and average
payment period.
From the above table it is inferred that r = (0.05) which
indicates that there is a positive correlation. So there is
relationship between sales &net profit.
TREND ANALYSIS
The above table shows that the current assets are likely to
be increasing in future. as the company maintain for the whole
period of study expect during 2004-2009.this reveals that the
company can maintain sufficient amount of networking capital in
the upcoming year.
The above table shows that there is increasing trend
during the whole period of study. The reveals the company s
networking capital during the whole period of study is
satisfactory.
The above table shows that the trend percentage of
loans and advances is likely to increase in future. This gives
positive signs for the company s improvement.
The trend percentage of secured loans showing an
increasing trend. This shows the company s loan debt
management and debt capital is in sufficient manner. This gives
positive signs for the company s improvements.

SUGGESTIONS
Based on the findings ,the following suggestion are offered for
the improvement of the financial performance of the company.
• The liquid ratio is in a sound position. But the current ratio
and absolute liquid ratio is not upto the standard norms.
Hence, the company has to take necessary steps to improve
the ratio to the standard norms.

43
• The company recently maintains the better stock turn over
ratio, it is suggested to maintain the same.
• The company could reframe the debt collection policy and
maintain better relation towards the debtors.
• The claims of outsiders are less to those of owners and
hence the company has to utilize it funds optimally to get
more returns to its owners .
• The company has to take necessary steps to reduce the
costs and it should increase level of profitability.

CONCLUTION
The Larsen & Toubro are financially sound and the
performance is improving over 6 years 2004-2009 though there
were some fluctuations. The company has performed satisfactory
level in liquidity position, even it has to increase its cash position
to improve its absolute liquidity. The use of long term debt could
be increased. The company by framing better debt collection
policy it could speed up the collections from debtors. Hence, the
funds could be utilized to the extent possible, resulting maximum
profitability. Apart from this company is having a good back
ground and sound reputation with which no doubt it will have an
excellent progress in future.

BIBLIOGRAPHY
BOOKS
1. R.L.Gupta&Radhaswamy, Advanced Accounting, sultan
chant and Sons, 8th revised edition, New Delhi.
2. S.P.Jain & R.L.Narang Cost Accounting, Kalyani
Publications, 15th revised edition, 1999, New Delhi.
3. I.M Pandey. Financial Management, vikas publication
house pvt.ltd, 8th edition, New Delhi.
4. R.K.Sharma & Shashi k.Gupta, Management Accounting,
Kalyani publishers, 7th revised edition, New Delhi.
WEBSITE
44
www.resurgent.in
www.g.b. engineering enterprises (p) ltd
www. area profile thuvakkudy.com

45

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