Académique Documents
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1
“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.
3
➢ 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
4
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
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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
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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
15
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
16
TABLE NO: 1
CURRENT RATIO
INTERPRETATION:
CURRENT RATIO
17
18
LIQUID RATIO
It is calculated as follows
Liquid assets
Liquid Ratio=------------------------
Current Liabilities
TABLE NO: 2
LIQUID RATIO
INTERPRETATION
CHART NO: 2
LIQUID RATIO
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
21
business. But the level of should neither be too high not too low.
It is harmful to hold more inventories for the following reason.
TABLE NO:4.4
INTERPRETATION
22
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
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
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
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
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:
TABLE No: 8
INTERPRETATION
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
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
TABLE No: 10
GROSS PROFIT RATIO
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
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
31
CHART No: 11
NET PROFIT RATIO
It is calculated as follows:
Operating Profit
Operating Profit Ratio = --------------------- X 100
Net Sales
TABLE No: 12
OPERATING PROFIT RATIO
INTERPRETATION
32
CHART No: 4.12
OPERATING PROFIT RATIO
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
34
TABLE: 14
=2191.542216.17
r=0.98
INTERPRETATION
35
TABLE: 15
=-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
=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
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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
40
TABLE: 19
TABLE SHOWING TREND ANALYSIS OF LOANS
AND ADVANCES
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
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.
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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.
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• 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
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www.resurgent.in
www.g.b. engineering enterprises (p) ltd
www. area profile thuvakkudy.com
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