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FINANCIAL PERFORMANCE EVALUATION OF INDIAN RARE EARTHS LIMITED, CHAVARA

By NITHEESH.V.S Reg. No. 97709631022

INTRODUCTION
The performance of an organization is evaluated through the analysis of the financial statements. Financial statements are prepared primarily for decision making. They play a dominant role in setting the frame work of managerial decisions. Analysis of financial statements helps in determining financial strength and weakness of the firm by establishing strategic relationship between the items of the Balance Sheet and Profit and Loss account.

INDUSTRY PROFILE
Minerals and Mining Industry Mining industry is one of the largest industries in the world. Mining industry is concerned with the direct tapping and utilization of natural resources which is mostly perishable. Traditionally, the focus of mining industry has been the extraction of metals from minerals using several methods of extraction and beneficiation.

COMPANY PROFILE
Indian Rare Earths Limited (IREL) is a Central Public Sector Undertaking under the administrative control of the Department of Atomic Energy, Government of India. The Company is engaged in the mining of beach sands through its three Plants namely Chavara, Manavalakurichi and Orissa Sands Complex (OSCOM) located in the coastal areas of Kerala, Tamil Nadu and Orissa respectively for the separation and marketing of about 440 thousand tones of Ilmenite per annum and associated heavy minerals like rutile, zircon, monazite, sillimanite and garnet.

REVIEW OF LITERATURE
Sreevastava (1997) explains that financial analysis are undertaken to interpret the position of an enterprise. Financial analysis includes the study of relationships within a set of financial statements at a point in time. Analysis of financial statement is a process of evaluating the relationship between component part of a financial statement to obtain a better understanding of a firms position and performance Chandra (2009) describes that analysis of financial statement is of interest to lenders, investors, security analysts, managers, corporate boards, regulators and others. It is helpful in assessing the corporate excellence, judging credit worthiness, forecasting bond ratings, predicting bankruptcy and assessing market risk.

OBJECTIVES OF THE STUDY


To study the financial performance of the company for last5 years. To compare the financial position of the company for last five years. To analyze and interpret the liquidity and profitability position of the organization. To analyze the causes of changes in the cash position of the organization. To give suggestions based on the findings.

TOOLS FOR ANALYSIS


The various tools used for the analysis are;
Ratio Analysis Comparative Analysis Cash Flow Analysis

DATA ANALYSIS AND INTERPRETATION


1.RATIO ANALYSIS A ratio is the relationship between two financial data. In financial analysis, a ratio is used as the basis for evaluating the financial position and performance of a firm. Ratio analysis is an important and widely used tool of financial statement.
The various ratios used for analysis are; A. LIQUIDITY RATIOS B. PROFITABILTY RATIOS

A. LIQUIDITY RATIOS
Liquidity is the ability of the firm to meets its current liabilities as they fall due. Since liquidity is basic to continuous operations of the firm it is necessary to determine the degree of liquidity of the firm. Following are the important ratios for this purpose. The various Liquidity Ratios are;

a. Current Ratio b. Quick Ratio c. Absolute Liquidity Ratio

a. Current Ratio
Year

2006 34462.00

2007 34439.50

2008 39227.25

2009 43198.57 14539.78 2.97:1

2010 43020.88 15737.81 2.73:1

Current Assets Current Liabilties Current Ratio

21233.35 1.62:1

24355.28 1.41:1

14028.53 2.80:1

b.Quick Ratio
Year 2006 26847.23 2007 29610.37 2008 2009 2010

Quick Assets Current Liabilities Quick Ratio

33727.17

37177.76

36448.99

21233.35

24355.28

14028.53 14539.78

15737.81

1.26:1

1.22:1

2.40:1

2.55:1

2.32:1

c. Absolute Liquidity Ratio


Year 2006 2007 2008 2009 2010

Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio

18645.01

20201.24

23381.71

27281.30

26829.57

21233.35

24355.28

14028.53

14539.78

15737.81

0.88:1

0.83:1

1.67:1

1.87:1

1.70:1

B.PROFITABILTY RATIOS
Profitability is an indication of the efficiency with which the operations of the business are carried on. Profitability Ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. The various Profitability Ratios are; Gross Profit Ratio Net Profit Ratio Return on Total Assets

Gross Profit Ratio


Year Gross Profit Net Sales Gross Profit Ratio 2006 2007 10005.23 7684.13 36012.00 30602.96 25.10% 27.78% 77.29% 24.63% 14.18% 29597.25 33655.99 33709.76 2008 22875.78 2009 8288.04 2010 4781.53

Net Profit Ratio


Year 2006 2007 2008 2009 2010

Net Profit (after interest, tax but before dividend) Net Sales

4240.85

6422.72

15557.49

5676.80

2307.44

30602.96

36012.00

29597.25

33655.99

33709.76

Net Profit Ratio

13.86%

17.83%

52.56%

16.86%

6.85%

Return on Total Assets


Year 2006 2007 2008 2009 2010

Net Profit (before interest, tax & dividend) Total Assets Return on total assets

7704.36

10023.00

8276.09

8545.09

4822.49

50741.14

56425.86

61434.5

63369.57

63245.54

15.18%

17.76%

13.47%

13.48%

7.63%

COMPARATIVE ANALYSIS
Comparative statement analysis is a method of tracing the periodic changes in the financial performance of the company. It will contain items at least for two periods. An investigation of the comparative financial statements helps to highlight the significant facts and point out the items which need further analysis. The comparative financial statements are statements of the financial position of different periods of time. Normally it is the Balance sheet and Profit and Loss account which alone are prepared in a comparative form.

COMPARATIVE BALANCE SHEET FOR THE YEAR 31st Mar2009&31st Mar 2010
Particulars

31/03/2009 8,636.50 38,629.23 3,320.42 50,586.15

31/03/2010 8,636.50 38,922.48 2,213.61 49,772.59

Increase/Decrease Nil 293.25 (1,106.81) (813.56)

% of change

1. Sour of Fund Capital Reserves and Surplus Unsecured Loan TOTAL 2. Application of Fund 1.Fixed Assets 2.Investments 3.Deferred Tax Assets 4. Current Assets, Loans and Advances Current Assets Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances

0.76% -33% -1.61%

20,169.58 1.42 1,603.98

20,223.24 1.42 2,094.03

53.66 490.05

0.27%

30.55%

6,020.81 833.48 27,281.30 1,485.22 7,577.66 43,198.57

6,571.89 785.76 26,829.57 1,171.05 7,662.61 43,020.88

551.08 (47.72) (451.73) (314.17) 84.95 (177.69)

9.15% -5.73% -1.66% -21.15% 1.12% -0.41%

Less: Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets 5,631.43 8,908.35 28,658.79 6,429.86 9,307.95 27,283.07 798.43 399.60 (1,375.72) 14.18% 4.49% -4.80%

5. Miscellaneous Expenditure

152.38

170.83

18.45

12.11%

TOTAL

50,586.15

49,772.59

(813.56)

1.61%

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MAR 09 & 31ST MAR 10
31/03/2009
INCOME

31/03/2010

Increase/Decrease

%of Change

Gross Sales Less : Excise duty Net Sales Compensation for Processing Thorium Increase/(Decrease) in Stock Other Income
TOTAL

33,669.82 13.83 33,655.99 1,443.83 50.47 3,873.74 39,024.03 3,790.89 14,864.69

33,715.60 5.84 33,709.76 979.06 1,135.38 2,581.58 38,405.78 3,978.44 16,432.21

45.78 (7.99) 53.77 (464.77) 1,084.91

0.14% -57.77% 0.16% -32.19% 2149.61%

(1,292.16) (618.25) 187.55

-33.36% 1.58%

EXPENDITURE Materials Consumed Employee's Remuneration and Benefits Manufacturing and Other Expenses Interest Depreciation

4.95% 1,567.52 10.55% 9,850.06 233.36 1,973.30 30,712.30 TOTAL 11,213.01 40.95 2,003.07 33,667.68 1,362.95 (192.41) 29.77 2,955.38 9.62% 13.84% -82.45% 1.51%

PROFIT BEFORE EXTRA ORDINARY ITEMS, PRIOR PERIOD ADJUSTMENTS AND TAXATION Extraordinary Items and Prior Period Adjustments Profit Before Tax

8,311.73 4,738.10 (3,573.63) 43%

(23.68) 8,288.05 2,611.25 43.44 4,781.54 67.12 (3,506.51) 283.44% -42.31%

Provision for Tax

2,474.10 5,676.80 2,307.44 35,919.00

(137.15) (3,369.36) 2,655.95

-5.25% -59.35 7.98%

Profit after Tax Balance brought forward PROFIT AVAILABLE FOR APPROPRIATION Appropriations : Proposed Dividend Tax on Dividend Transfer to General Reserve BALANCE CARRIED TO BALANCE SHEET

33,263.05 38,939.85

38,226.44

(713.41)

-1.83%

1,727.30 293.55 1,000.00

1,727.30 286.88 200.00 (6.67) -2.27% (800.00) -80

35,919.00 38,939.85

36,012.26 38,226.44

93.26 (713.41)

-0.26%

-1.83%

CASH FLOW ANALYSIS


Cash flow analysis is a method of analyzing the financing, investing, and operating activities of a company. The primary goal of cash flow analysis is to identify, in a timely manner, cash flow problems as well as cash flow opportunities. The primary document used in cash flow analysis is the cash flow statement. The primary objective of the statement of cash flows is to provide information about an entitys cash receipts and cash payments during a period.

CASH FLOW ANALYSIS FOR THE YEAR MARCH 2010


Particulars Amount (in lakhs)

Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net increase in cash and cash equivalents Add : Cash and bank balance at the beginning of 2009-10 Cash and bank balance at the end of 2009-10
Particulars Amount

3646.96 -930.08 -3168.61 -451.73 27281.30 26829.57

Cash from operating activities Dividend paid Interest paid Repayment of loan Repayment of secured loan Cash surplus

5997.93 -2020.86 -233.36 -1106.81 -9.31 2627.59

FINDINGS
From the analysis it is found that the firm has a better liquidity position. It is also found that the firm has a precautionary tendency on the liquidity position. It means the firm is having a high liquidity position. The firm is having poor utilization of the funds because of its over liquidity position. The sales of the organization are increasing in nature. The profitability of the organization is decreasing in the year 2009 and 2010. There was an increase in the expenses of the organization which leads to decrease in the profitability. It is also found that the overall performance of the organization comes down in the year 2010. It is also found that the firm has surplus cash from its operations and is sufficient for meeting the expenses of the firm. The repayment of secured and unsecured loans has resulted in decrease in the interest payment of the organization.

It is also found that net cash from operating activities are decreasing for last two years. From the cash flow analysis it is found that the firm is consecutively paying dividend to its share holders. Cash flow analysis shows that the firm is getting dividend income from mutual funds for all the years. The comparative statements show that the firm is always increasing the Reserves and Surplus. The firm maintains sufficient cash or cash equivalents in every year

SUGGESTIONS
The firm can reduce its over liquidity position, which will enable a better utilization of the funds. If there is high liquidity position, the cash may be idle in the organization. The firm can take necessary steps to reduce the manufacturing expenses of the organization. They can reduce the manufacturing expenses by fuller utilization of the plant capacity. The firm can invest the surplus cash in any of the profitable investments like securities, fixed assets, lands etc which will improve the profitability of the firm. The firm can fully repay the unsecured loans which will reduce the huge interest expenses. This will improve the profitability of the organization.

CONCLUSION
Finance is the life blood of every business. Without effective financial management a company cannot with stand in this competitive world. Finance is one of the most primary requisites of a business and the modern management obviously depends largely on the efficient management of the finance. Financial statements are prepared primarily for decision making. Indian Rare Earths is having increasing demand for its product. The increases in the sale show it. Indian Rare Earths limited has a sound financial position. But current position is poorer than the last four years. Increases in

production overheads are the main reason for it. So the firm has to take necessary steps to reduce the overheads. If the overheads are properly controlled then the firm can make a better position. So the organization has to immediately take necessary steps to improve the financial performance.