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A

PROJECT REPORT
ON

BASIC FINANCIAL MANAGMENT

OF

SKF INDIA LTD

SUBMITTED TO
IIPM

BY
AUROBINDA MOHANTY
KASIM SHAIKH
PRADEEP RAIPURIA
PRASHANT NAIR
SANDEEP SHINGATE
SUSHANT PAWAR

MASTER IN BUSINESS ADMINISTRATION


PG/FW/2008-2010

INTERNATIONAL INSTITUTE OF PLANNING & MANAGEMENT


PUNE
ACKNOWLEDGEMENT

The project report is an outcome of the colossal support and encouragement provided by
a number of people at SKF India Ltd.

We don’t think that our project would have been complete without support and guidance
from our Project Guide Mr. Divekar, who helped us a lot and kept us motivated
throughout the period. Lastly we will thank to our esteemed Dean of the Business
Institute Mr. Satyabrata Dattagupta who has always assisted everyone towards success
and development, and treating as one family.

Date: 23 Feb 2010

Place: Pune
DECLARATION

We hereby declare that the project report titled “Basic Financial Management of SKF
India Ltd” is the result of our own efforts. We also declare that this is our original work
and it is not developed from any other report, nor we have submitted for the award of any
other Diploma or Degree elsewhere.

Date: 23 Feb 2010

Place: Pune
TABLE OF CONTENTS

S. No Particulars
1 Executive Summary
2 Objective of the Study
3 Theoretical Overview
4 The Organisation
5 Methodology
6 Findings
7 Conclusions
8 Limitations
9 Bibliography
EXECUTIVE SUMMARY

This Project aims to find out all the major findings and analysis of Stock price evaluation,
Balance sheet and Income statement using Ratio Analysis Techniques for SKF India Ltd

Do that any person interested can get the whole idea of the topic with reference of the
company. All attempts have been made to make the report precise, simple and flexible.
This report has covered a part of ratio analysis.

We have used time series analysis and Industry analysis of the ratios in requirement to
protect the stake of all users
OBJECTIVE OF THE STUDY

 The project is undertaken to find out the ratio analysis of SKF India Ltd.

 The aim of the project was to evaluate stock price of the company.

 The project has been done in such a way that shall be useful to trade creditors,
suppliers, investors and management.
THEORETICAL OVERVIEW

Meaning of Analysis: Analysis is the process of critically examining the accounting


information given in the financial statements. For the purpose of analysis, individual item
are studied, their interrelationship with other related figure is established, the data is
sometimes rearranged to have better understanding of the better information with the help
of different technique or tools for the purpose. The analysis serves the interest of several
stakeholders like shareholders, debentures, investors, bankers, legislators, and
economists.

The analysis simplifies, summarizes and systematizes the monotonous figure.

Financial analysis in this way is the purposeful and systematic presentation of financial
statements.

According to Myers: Financial statements analysis is largely a study of relationship


among the various financial factors in a business as disclosed by a single set of
statements and a study of the trend of these factors as shown in a series of statement.

Meaning of Interpretation: - The word interpretation comes after the work of analysis.
But analysis and interpretation are closely related. Interpretation is not possible without
analysis and without interpretation analysis has no value. Various account balance appear
in the financial statement The account balance do not represent homogeneous data so it is
difficult to interpret them and draw some conclusion. This requires an analysis of the data
in the financial statement. Interpretation is thus drawing inference and stating what the
figures in statement really mean. Interpretation is dependent on interpreter himself.
Interpreter must have experience, understanding, and intelligence to draw correct
conclusion from analyzed data. In the words of Kennedy and Memullar, “The analysis
and interpretation of financial statements are an attempt to determine the significance and
meaning if the financial statements data so that a forecast may be made of the prospect
for future earnings, ability to pay interest and debt maturities (both current and long term)
and probability of a sound dividend policy.

Objectives of financial Analysis:-

The main objectives of analysis of financial statement are as follows:-

1 To assess the operational efficiency of the concern as a whole and of its various
parts or department.

2 To assess the short term and long term solvency of the concern for the benefits of
the debenture older and trade creditor.

3 To assess the comparative study in regard to one firm with another firm or one
department with another department.

4 To assess the possibility of developments in the future by making forecast and


preparing budgets.

5 To assess the financial stability of a business concern.

6 To assess the real meaning and significance of financial data.

Importance of Financial Analysis:-

Financial statement is prepared at a certain point of time according to established


convention. These statements are prepared to suit the requirement of the proprietor. It is
therefore, necessary to analyze financial statement to measure the efficiency,
profitability, financial soundness and future prospect of the business concern.

Following are importance:-

1 In judging the operational efficiency of the business:-


It is very significant that the company must know the operational efficiency of its
management. We analyze the financial statements, match the amount of manufacturing,
selling, distribution and financial expenses of the current year with the expenses of the
previous year and asses the managerial efficiency of the business.

2. In measuring short and long term Financial Position:-

The business must know its financial soundness. It should check and satisfy itself that its
current resources are enough to meet its current liabilities. We can calculate current and
liquid ratios or compare current assets and current liabilities to ascertain short term
financial soundness. Long term financial position can be measured by calculating debt-
equity, proprietary and fixed assets ratio. The result of the financial analysis may be
studied and corrective steps can be taken, if necessary.

3. Indicating the trend of achievement:-

Financial statements of the previous years can be compared and the trend regarding
various expenses, purchases, sales, gross profit and net profit can be ascertained, cost of
goods sold, value of assets and liabilities can be compared and the future prospects of the
business can be indicated.

4. In assessing growth potential of the business:-

The trend and dynamic analysis of the business provides us sufficient information
indicating the growth potential of the business of the trend predicts gloomy picture,
effective measures can be applied as a corrective measure of cost of production is rising
without corresponding increase in sales price efforts should be made to reduce cost of
production.

5. In measuring the Profitability:-


Financial statements show the gross profit, net profit and other expenses. The
relationship of these items can be established with sales, gross profit, net profit, expense
and operating ratios may be calculated and the profitability of the business is ascertained.
In case of improving profitability ratios, the causes responsible for this performance
should be reinforced.

6. Intra-firm and inter-firm comparison of the performance:-

Analysis of financial statements can be made with the previous year’s performance of the
same firm and also with the performance of the same firm and also with the performance
of others. Intra firm analysis provides an opportunity of self appraisal, where as inter firm
analysis presents the operational efficiency of the firm as compared to other

firm. Comparison helps us in detecting our weakness and applying


corrective measures.

7. Forecasting, Budgeting and deciding future line of action:-

Analysis of financial statements predicts the growth potential of the business.


Comparison of actual performance shows our shortcoming. The analysis provides
sufficient information regarding the profitability, performance and financial soundness of
the business. On the basis of these information, we can make effective forecasting,
budgeting and planning.

8. Simplified, systematic and intelligible presentation of facts:-

Analysis of financial statements is an effective tool for simplifying, systemizing and


summarizing the monotonous figures. An average person can draw conclusion from these
ratios. The facts can be made more attractive by graphs and diagrams which can be easily
understood.

9. Judging the solvency concern:-

Creditors are always interested in knowing the solvency of the business to repay their
loans. We will have to look into the following facts to ascertain liquidity.
A Whether current assets are sufficient to meet current liabilities.

B Proportion of liquid assets and current liabilities.

C Future prospects of the business.

D Whether debentures and other loans are secured or not.

E Managerial efficiency of the company.

It is clear that there are various other objectives of financial analysis and it is used by the
various parties for different purpose.

LIMITATION OF FINANCIAL ANALYSIS:-


In spite of all significance of analysis of financial statement as discussed above, it has
following limitation.

1 Suffering from the limitation of financial statement: Financial statement suffers from
the variety of weakness. Balance sheet is prepared on historical record of the value of
assets. It is just possible that assets shown in the balance sheet might not have the same
value. Financial statements are prepared according to certain conventions at a point of
time, whereas the investor is concerned with the present and future of the company.
Certain assets and liabilities are not disclosed by balance sheet. Personal judgment plays
an important role in determing the figure of the balance sheet. In other words, we can say
that balance sheet cant be said to have a complete accuracy.

2 Absence of Standard University Accepted Terminology: Financial accounting is not an


exact science. It does not have standard, universally accepted terminology. Different
meanings are given to a particular term. There are different methods of charging
depreciation. Interest may be charged on different rates. In this way there is sufficient
possibility of manipulation and the financial statement have to suffer. As a result
financial analysis also proves to be detective.
3. Ignoring Price-Level Change: The result shown by financial statement may be
misleading, if price level changes have not been accounted for. The ratio may improve
with the increase in price, whereas the actual efficiency may not improve.

4. Ignoring quantitative Aspect: Financial analysis does not measure the qualitative
aspect of the business. It does not show the skill, technical knowhow and the efficiency
of its employees and managers. It has the quantities measurement of the performance. It
means that analysis of financial statement only one sided of the business. It completely
ignores human source. Thus, results served by analysis of financial statement can never
be upto the mark.

5. Misleading results in the absence of absolute data: Results shown by financial analysis
may be misleading in the absence of absolute data. We cannot have idea of the size of
business. Increase in sales from Rs. 40000 to Rs. 80000 shows that the sale has doubled.
In case of other firm increase of sales from Rs100000 to Rs200000. In both the cases
above the profitability ratios of the two firms will be same but the magnitude will be
different.

6. Financial analysis is only a tool, but not the final remedy: Analysis of financial
statement is a tool to measure the profitability, efficiency, and financial soundness of the
business. It should be noted that personal judgment of the analyst are more important in
financial analysis. We should not rely on the single ratio. Before reaching any conclusion,
we should calculate several ratio. Accountant should not be biased in the calculation of
ratios. It should not be calculated to prove the personal contention.

7. Financial analysis spots the symptom but does not arrive at a diagnosis: Financial
analysis shows the trend of the affair of the business. It may spot symptoms of financial
soundness and operational inefficiency but that could not be accepted. A financial
decision in this regard will require further investigation and thorough diagnosis.
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS:-

It is very simple to do the analysis of financial statement there are three simple steps to be
followed:-

a.Selection

b.Classification

c.Interpretation

1. The analyst should acquaint himself with the principles and postulates of
accounting. He should know the plans and policies of the management so that
he may be able to find out whether these plans are properly executed or not.

2. The extent of analysis should be determined so that the sphere of work may be
decided. If the aim is to find out the earning capacity of the enterprise then the
analysis of income statement will be undertaken. On the other hand, if
financial position is to be studied then the balance sheet analysis will be
necessary.

3. The financial data given in the statement should be reorganized and


rearranged. It will involve the grouping of similar data under the same heads,
breaking down of individual components of statement according to the nature.

4. A relationship is established among financial statements with the help of tools


and techniques of analysis such as ratios, trends, common size, fund flow etc.

5. The information is interpreted in a simple and understandable way. The


significance and utility of financial data is explained for helping decision
taking.
6. The conclusion drawn from interpretation is presented to the management in
the form of reports.

SKF INDIA

SKF India is a part of the SKF Group, the leading global supplier of rolling bearing and
seals. Along with a varied range of products it also offers extensive solutions and services
in is area.

SKF also has an increasingly important position in the market for linear motion products,
high precision bearings, spindles and spindle services for the machine tool industry,
electrical actuators, actuation systems and is an established producer of rolling bearing
steel.

SKF India delivers high end technical knowledge starting with self aligning ball bearing,
spherical roller bearing, the hub bearing units that are widely used in cars & truck wheel
ends in addition to the new and latest revolutionary CARB bearings that find specialized
application in steel plants & paper mills. In fact the company domestically manufactures
around 60 sizes of deep groove ball bearings, 70 sizes of taper roller bearings, textile
machinery component in addition to catering the needs of automobile, electrical &
industrial OEM and aftermarket customers.

SKF India's associate company, SKF Technologies (India) Pvt. Ltd. a wholly owned
subsidiary of AB SKF, Sweden, offers customers complete sealing solutions based on
our leading edge technology.
Industry overview and competitors

The world bearing market is defined as the global sales of rolling bearings, comprising
ball and roller bearing assemblies of various designs. SKF estimates the 2008 market
value at around SEK 280 billion, including spherical plain bearings and bearing units but
excluding stand-alone bearing housings.

The industrial bearing markets account for 40% of world demand and include light and
heavy industrial machines and equipment, energy, aerospace, off-highway vehicles and
railways. The automotive bearing markets account for 30% of world demand. Sales
through distributors (industrial distribution and the independent automotive aftermarket)
together make up 30% of world bearing demand.

Asia currently accounts for about 40% of the world market, compared to less than 30%
ten years ago. China has been growing rapidly in recent years, and now accounts for
more than 15% of the world total. Japan's share of the world bearing market has been
declining, and domestic Japanese bearing demand now accounts for less than 15% of the
world total. Other Asian markets with sizeable bearing production are India, Thailand and
the Republic of Korea.

Europe accounts for more than 30% of the world total, while the Americas represent a
little more than 25% of which USA, Canada and Mexico together account for around
85%.

In South America, Brazil is the major market and makes up more than 60% of the
regional market.
SKF is the world leader for bearings. In Western Europe, SKF is closely followed by the
German 'Schaeffler Group' with the INA and FAG brands among others. SKF is second
largest bearing supplier in North America behind market-leading US-based Timken.

SKF is the leading supplier in Asia, except for in Japan where the domestic companies
NSK Ltd, NTN Corp. and JTEKT Corp. are the leading suppliers.

The Chinese bearing market, which is the largest and fastest growing of the "emerging
markets", is very fragmented with many local manufacturers. SKF is the leading bearing
company, with both imported and local manufactured products. In recent years, all major
international bearing companies have also set up production in China. China is expected
to continue to show the fastest growth among the global bearing market.

The radial deep groove ball bearing is the most common ball bearing, accounting for
around one third of the total world bearing demand. Other major ball bearing types are
angular contact ball bearings, self-aligning ball bearings, thrust ball bearings and
automotive wheel hub bearing units.

In 2008, as in the preceding year, sales of roller bearings grew significantly, driven by
investments within the energy - notably wind power generators - infrastructure, mining
and basic metals sectors. Roller bearings now account for more than half of world rolling
bearing sales.

Competition
Market Cap.Sales Net Profit Total Assets
(Rs. cr.) Turnover
SKF India 364.00 1,919.46 1,630.42 127.66 645.30
FAG Bearings 573.00 952.17 760.07 95.72 405.01
Timken 114.70 731.04 410.54 53.00 297.00
NRB Bearings 64.25 311.36 294.79 4.26 304.33
Corporate Governance

SKF applies the principles of sound corporate governance as an instrument for increased
competitiveness and to promote capital market confidence in SKF. Among other things,
this means that the company maintains an efficient organizational structure with clear
areas of responsibility, that the financial reporting is transparent and that the company in
all respects maintains good corporate citizenship.

The corporate governance principles applied by SKF are based on Swedish law, in
particular the Swedish Companies Act, and the regulatory system of NASDAQ OMX
Stockholm AB ("Stockholm Stock Exchange").

Swedish Code of Corporate Governance

In December 2004 the Swedish Code of Corporate Governance was introduced (the
"Code"). It is considered good stock exchange practice for Swedish companies whose
shares are traded on a regulated market to apply the Code. SKF applies the Code.

The Swedish Corporate Governance Board (the board's role is to keep the Code up to
date and to provide norms and standards for what is regarded as good corporate
governance practice within Swedish listed companies) has published a brochure as a
service to investors wishing to understand Swedish corporate governance. See links to the
homepage of the Swedish Corporate Governance Board and the brochure below.
METHODOLOGY

Research design is arrangement of condition of collection and analysis of data in a


manner that companies relevance of data to be collected. The sample to be selected in a
manner in which the data so collected is to be organized. It constitutes the main body of
the research design. The present study conducted through a survey method using a well-
formed and framed questionnaire. Research design is the plan and structure of
investigation so conceived as to obtain answers to research questions.

Types of Data:-

Primary Data:
The primary data are those which are collected afresh and for the first time, and thus
happens to be original in character.

Primary data for this project was collected through questionnaire. And company’s
Financial Statements.

Secondary Data:
The secondary data are those which have already been collected by someone else and
which have already been passed through the statistical process.
Secondary data for this project were collected from the internet and library.

Sources of Data:
The primary and secondary source was used in the research. Data has been collected from
internet, company’s report and financial statements. Some direct queries were made to
managers.

Sample Plan: Sample plan can be define as the selection of some part of an aggregate or
totality on the basis of which a judgment or inference about the aggregate or totality is
made. In other words it is the process of obtaining information about an entire population
by examining only a part. I can say that in one sense of all the past years i have taken
only 5 years so it can be my sample plan.

Universe:

From a statistical point of view, the term ‘universe’ refers to the total of the items or units
in any field of inquiry or to the total of items about which information is desired.

Sample Size:

Sample size means how many people should be surveyed. Large sample size gives more
reliable results than small one. Sampling is the method and selecting sample for studying
the position of universe in total.

Methods of Data Collection

The type of data collection begins after a research problem has been defined and research
design chalked out. While deciding about the method of data collection to be used for the
study, the researcher should keep in mind two types of data that are Primary Data and
Secondary Data.

Methods of collecting primary data particularly in survey and descriptive researches are:

1. Observation Method.

2. Interview Methods.

3. Through Questionnaires.
4. Through schedules.

Methods of collecting secondary data particularly in survey and descriptive researches


are:-

1. Technical and trade journals.

2. Books, magazine, news papers.

FINDINGS
CONCLUSIONS

- Sales increase by 2.56 %, while cost increase by 8.20%, so operating profit goes down by
24%

- SKF signed a committed business agreement for five and a half years with Suzlon to
service their requirements of main Shaft and Slewing Bearings for their wind turbins. This
contract is in excess of 300M Euro’s over the contract period and one of the largest in SKF
business.

- A dividend of Rs 4.5 (45%) per equity share for the year ended December 31, 2008 as
compared to Rs.6.00 per equity share for the preceding year.

- Operating profit (PBDIT) as percent to sales is lower at 12.8 percent as compared to 16.9
percent in the previous year. The net profit after tax for the year is Rs 1277 million which is
lower by 20.6 percent as compared to the previous year.

- The company has neither granted nor taken any loans, secured or unsecured, to or from
companies, firms or other parties covered in the register maintained under section 301 of
the Companies Act, 1956.

- Assets individually costing less than Rs 5000 are depreciated at he rate of 100% per
annum.

- Inventories are valued at the lower of cost and net realisable value. Cost is determined at
Standard Cost adjusted on a FIFO basis for variances. Excise Duty is included in the value
of Finished Products.
- During the year, the Company added Rs. 367.1 million to its gross block of assets for its
normal capital requirements. The fixed assets turnover ratio of 6.8 as on December 31,
2008 reflects utilisation of assets.
- The inventory at the end of the year 2008 amounting to Rs. 2245 million consist of
finished goods 57.6%, raw material 27.5%, stores & spares 9.8 % and work in process &
manufactured components 5.1 %. The inventory of finished goods as on December 31,
2008 represents 29 days of sales for the year

LIMITATIONS

•Due to busy schedules enough direct communication with the management and
higher level administration were not made.

•No communication was made with higher administration only the manager were
contacted and topic was discussed with them.
BIBLIOGRPAHY

Financial Management: Mr. I. M. Pandey

Cost accounting and Financial Management Mr. P.V Rathnam

Book on Finance Management by Mr. Khan and Mr. Jain

Research Methodology by Mr. C. R. Kothari

Site visited: www.skf.com

www.yahoofinance.com

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