CHAPTER 1

INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION

Financial analysis is an aspect of the overall business finance function that

involves examining historical data to gain information about the current and future

financial health of a company. Financial analysis can be applied in a wide variety of

situations to give business managers the information they need to make critical

decisions.

The finance function in business organizations involves evaluating economic

trends, setting financial policy, and creating long-range plans for business activities. It

also involves applying a system of internal controls for the handling of cash, the

recognition of sales, the disbursement of expenses, the valuation of inventory, and the

approval of capital expenditures. In addition, the finance function reports on these

internal control systems through the preparation of financial statements, such as income

statements, balance sheets, and cash flow statements.

Finally, finance involves analyzing the data contained in financial statements in

order to provide valuable information for management decisions. In this way, financial

analysis is only one part of the overall function of finance, but a very important one.

Financial analysis is the methodical classification of data given in the financial

statements. It enables to make a complete diagnosis of profitability and the financial

solutions of any business or enterprise. It is a lubricant that facilitates the company

during tough times. Any enterprise would require funds for various purposes during its

lifetime.

Finance holds the key to all human activity. It guide for regulating investment

decisions and expenditure and endeavors to squeeze the most out of every available

rupee. As finance has a greater importance in running a business, an analysis on it is

vital to give a clear picture about a particular business undertaking. Financial

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management is that managerial activity which is concerned with the planning and

controlling of the firm’s financial resources.

1.2 STATEMENT OF THE PROBLEM

In an organization the finance department plays a vital role to take decisions for

the expansion or diversion of business. The directors of the firm are interested to know

their company level and the extent of their financial performance. The profitability is

an attempt to examine the profitability of the concern and the financial position of the

company. Efficient management of finance makes a firm to run in success. Hence the

researcher under took the project entitled “A study on financial performance of Sri

Vishnu Shankar Mills Limited at Rajapalayam”.

1.3 NEED FOR THE STUDY

The ultimate performance indicator of any company is the financial parameters

because invertible all cost efficiencies, activities and solvency position of the company

will be reflected in the financial mirror.

The need of the study is to indicate the Sri Vishnu Shankar Mills Limited.

Financial analysis is an important task of financial agent, which aims at analysis of

financial condition and performance. Various methods or techniques used in analyzing

financial statement include comparative statement, trend analysis, common size

statements and ratio analysis. By doing a systematic analysis the following are stated to

be for the need for the study.

To know the financial strength of the company.

To understand financial performance of the company’s over a period of 6 years.

To know the position of the company in relation of its competitors.

To know the present standing of the textile industry.

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1.4 OBJECTIVES OF THE STUDY

A) PRIMARY OBJECTIVE

The primary objective is to analyze the Financial Performance of Sri Vishnu

Shankar Mills Limited at Rajapalayam.

B) SECONDARY OBJECTIVES

To assess the liquidity position of Sri Vishnu Shankar Mills Limited.

To evaluate the profitability of the firm.

To predict the future trend of the company by using trend analysis.

To offer suggestions to improve the company’s financial performance.

1.5 SCOPE OF THE STUDY

A financial statement is an organized collection of data according to logical and

consistent accounting procedures. Its purpose is to convey financial aspects of a

business firm.

The study may result in organisational growth because of its general

applicability.

The study could help the concern to understand its position overtime and

also its competitors.

The manager could understand their contribution to the performance of

the company.

The present and potential investors, outside parties such as the creditors,

debtors, government and many more to get an idea for predicting its

future revenue and plan accordingly.

1.6 LIMITATIONS OF THE STUDY

The Financial Analysis is based upon only monetary information, and

non-monetary factors are ignored.

Secondary data is the only sources of the data taken.

Scope for selection of data is limited.

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There is no access to the internal records for the outsiders and therefore

the study mainly depends upon published financial statements only.

Analysis and interpretation are purely based on the figures represented in

the reports.

1.7 REVIEW OF LITERATURE

R. Swami Nathan1in his project report entitled “A Study on Financial

Performance of Lakshmi Mills Company Limited, Coimbatore” for the period of six

years from 1990 -1991 to 1995 – 1996. The main objective of the study was to examine

the liquidity and profitability position of the company is to trace out the trends in stock,

sales, profit, reserves and surplus, and investment. To determine the requirements of

working capital, the main tools and techniques used were ratio analysis, correlation

analysis and linear trend projection. It is found that liquidity position and debtor’s

collection of the company was satisfactory and the working capital requirement of the

company was increasing which showed that the firm is expanding its activities.

Philip. L, Robert A. Wood2 (1984)in his project report entitled“Corporate

Social Responsibility and Financial Performance” the relationship between corporate

social responsibility and financial performance is re-examined using a new

methodology improved technique, and industry specific control groups. Average age of

corporate assets is found to be highly correlated with social responsibility ranking.

After controlling for these factors, there still is some correlation between corporate

social responsibility and financial performance.

Hema priya3 (1998) in his project report entitled“A study on financial Analysis

of M/s Veejay Lakshmi Engineering Company” for period of nine years from 1999-89

to 1996-97 with the objective of examining the solvency and profitability position to

measure the efficiency and performance and to analyze the source and uses of funds of

the company. The study found that the solvency position was better in the year 1992

and during the last year, the company had enjoyed payment period for creditor.

Anisha Sam K.A4 in his project report entitled “A study on financial

performance of steel industry Kerala ltd from 1997-1998 to 2001-2002”. The

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objectives of the study were to analyze the liquidity position of the company to suggest

ways and means to improve the present state of working capital. The major tool used

for the analysis is the ratio analysis and the major findings and conclusion from the

above analysis say that the working capital management was very poor and below

average and another suggested that the inventory management have to be corrected.

P.K.Aboobacker5 in his study entitled, “Performance evaluation of textile

mill”. A case study of south India co-operative spinning mill, pettai” has analyzed the

production performance, sales performance and financial performance of the textile

mills. He has used ratio techniques for analyzing the financial performance. The sales

performance has been evaluation with the help of total sales over the period of the

study. The production performance has been evaluation with the help of spindle

capacity utilization and productivity.

Alex Arul (1995)6 in his project report entitled, “A Study on Financial

Performance of ELGE Electric Industries, Coimbatore”, for period of five years from

1999-2000 to 2003-2004, had an objective of examining the solvency and profitability

position to measure the efficiency and performance and to analyze the source and uses

of funds of the company. The study reveals that the financial performance in general is

satisfactory.

Marilyn B. Misch (2009)7 in his project report entitled, “A Financial Statement

Analysis project for introductory financial accounting”, for the period of six years from

2005-2009, analyzed trends in corporate performance, evaluated corporate

financialdecision, discussed non-financial statement issues that would be important to

potential investors, compared two companies within an industry, and made investment

recommendations.

Bansal (1984)8 in his research article titled, “Financial Measures of

Performance in Public Enterprises”, has tried to identify the financial measures of

performance of public sector Enterprises by constructing 91 different types of ratios.

He has employed the factor analysis to consider different sets of variables to evaluate

the profitability of public sector Enterprise.

George Paul (1987)9 in his study on “Financial Performance of Diversified

Companies in India”, conducted comparative study of diversified companies, revealed

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that diversifier’s generally outperform non-diversifiers on indicators of growth,

profitability, safety and market evaluation. However, inter – industry differences in the

benefits of diversification indicate that diversification is selectively useful.

1.8 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

The collected data were presented in tables and these tables were analyzed

systematically. Ratio analysis, the vital financial tool was used to study the financial

performance of Sri Vishnu Shankar Mills Limited, Rajapalayam. So this part explains

not only the research methods adopted but also considers the logic behind the method

used in the context of the research study.

1.8.1 RESEARCH DESIGN

The researcher has used facts and information already available through

financial statements of earlier years and analyzes these to make critical evaluation of

the available materials. Hence, the type of research conducted was analytical in nature.

1.8.2 SOURCES OF DATA

The data collection for this study is Secondary data. Secondary data are those,

which are already available. The source of data is balance sheet and profit and loss

account of the company, journals and magazines published by the company.

1.8.3 TOOLS FOR ANALYSIS

The various analytical tools used in the study are

Ratio analysis

Trend analysis

Common size statement.

1.8.4 PERIOD OF THE STUDY

This study covers a period of 5 years from 2006-2007 to 2010-2011.

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1.9 CHAPTERATION

Chapter 1

It includes Introduction and Design of the Study, Statement of the problem,

Need for the Study, Objectives of the study, Scope of the Study, Limitations of the

study, Review of literature, Research Methodology and Chapter Scheme.

Chapter 2

It consists of the Company Profile and the Industry Profile.

Chapter 3

It deals with theoretical view of financial analysis.

Chapter 4

It consists of the data analysis and interpretation.

Chapter 5

It includes the summary of findings, suggestions and conclusion.

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FOOT NOTES

1. R. Swami Nathan “A Study on Financial Performance of Lakshmi Mills Company

Limited, Coimbatore”, Review of Economics and Statistics, vol.55, pp. 430-444.

2. Philip. L. Robert A. Wood (1984), “Corporate Social Responsibility and Financial

Performance”, Indian Journal of Commerce, Vol.234, No.6pp. 42-56.

3. Hema priya (1998) “A study on financial Analysis of M/s Veejay Lakshmi

Engineering Company”, Global Perspectives on Accounting Education, Vol.6, No.2pp.

42-56.

4. Anisha Sam K.A “A study on financial performance of steel industry Kerala ltd

from 1997-1998 to 2001-2002”, Review of Economics and Statistics, Vol.234, No.6pp.

42-56.

5. P. K. Aboobacker, “Performance Evaluation of Textile Mill”, “Indian Journal of

Finance”Vol.234, No.6 pp-10.

6. Alex Arul (1995) “A Study on Financial Performance of ELGE Electric Industries,

Coimbatore” an unpublished project report submitted to Anna University, Coimbatore.

7. Marilyn B. Misch (2009) “A Financial Statement Analysis Project for Introductory

Financial Accounting”, Global Perspectives on Accounting Education, Volume 6, pp.

83 - 96.

8. Bansal, S.C (Dec.1984), “Financial Measures of Performance in Public

Enterprises”, Indian journal of Commerce, Vol.141, No. 4, pp.107 -130.

9. George Paul (April – June, 1985), “Financial Performance of Diversified

Companies in India”, Vikalpa, Vol. 10, No.2, pp. 179 – 188.

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CHAPTER 2

COMPANYPROFILE AND INDUSTRY PROFILE

2.1 COMPANY PROFILE

Sri Vishnu Shankar Mills Limited was incorporated on 23rd march 1981. The

name of the company Sri Vishnu Shankar Textile Limited was altered into Sri Vishnu

Shankar Mills Limited on May 14th 1981. By raising its equity share capital of Rs.30,

00,000 from State Bank of India. It starts the commercial production in 1983 with

6,000 spindles by purchasing mostly second hand machines from Rajapalayam mills

limited. Gradually it increases its spindles by availing financial assistance from Bank

and financial instruction and also by plugging back of its profits. The mill limited is

having a paid-up capital and equity share capital of Rs.1, 50, 00,000 of private

placement in 1998. Its reserve and surplus as on 31st, March 2001 has exceeded Rs.1,

278.

Sri Vishnu Shankar Mills Limited is having a good market for its yarn in

lchalkaranji, Bhilwandi in Maharastra, Madurai, Karur, Salem, Erode, Coimbatore and

Triupur in the market for its consistent quality. The demand for its yarn is increasing

day-to-day. Sri Vishnu Shankar Mills Limited pressure its raw material i.e. cotton from

Gujarat , Maharashtra, Madhya Pradesh, Karnataka and Andhra Pradesh, where

sufficient and good quality cotton is a available.                                              

Company Name                       : Sri Vishnu Shankar Mill

Group                                       :  Ram Co Group

Parent of organization               :  Rajapalayam

Founder                                   : P.A.C. Ramasamy Raja

Chairman                                  : P.A.Ramasubaramaniya Raja

Started Time                             : 23.04.1981

Type of \Mill                             : Spinning

Spindles Usage             :  34176

Turn Over                                 :  67 cores per year

Ram co Group of Industries      :  Ram co System

                                                   Ram co Cements

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Sri Vishnu Shankar mills limited is having a good market for its yarn in

Ichalkaranji, bhilwandi in Maharashtra, Madurai, Karur Salem, erode, Coimbatore and

Tirupur in the market for its consistent quality. The demand for its yarn is increasing

day -to- day. Sri Vishnu Shankar mills Limited purchases its raw material i.e. cotton

from Gujarat ,Maharashtra, Madhya Pradesh, Karnataka and Andhra Pradesh, Where

Sufficient and good quality cotton is available.

Sri Vishnu Shankar Mill is engaged in Spinning of cotton yarn. It has its

registered Office at Sri Vishnu Shankar Mill Premises, P.A.C.Ramasamy Raja Salai,

and Rajapalayam.

 

2.1.1 Wind Mill

The wind Mill Division with an installed capacity of 10.15 MW is working

satisfactorily. There were interruptions in the grid availability due to insufficient

infrastruction facility at the evacuation print and also. Lower winding velocity during

the peak Season, which resulted in lower generation of power. The Division has

generated 189 lakhs KWK in the previous year the income during the year from the

windmill division was Rs.7.24 Crores as against Rs.8.69 crores of Previous Year.

Today this mills 10.15 MW Power Generated by this Mill Through the above wind

Mills.

2.1.2 Current Status

The financial results for the year ended 31st March, 2009 after charging all

expenses, but before deducting interest and depreciation has resulted in operating profit

of Rs.13, 96, 32,620. And after deducting interest and depreciation and taking into

accounts the deferred tax assets, surplus, fringe benefit tax the net loss for the year is

Rs.7, 07, 84,322/-There are 800 workers were working in the company. It includes

70staffs, 600permanent and 200 temporary employees.Thecompany has made direct

and merchant and merchant export of cotton yarn for the value of RS.11.23 crores. The

possibilities of exporting yarn to other Asian countries, Western Countries including

EEC countries are being explored.  The foreign exchanges outgo (including Capital

Goods) 44.21 Crores.

The company has implemented the expansion of open end spinning unit at

Andra Pradesh with 1440 Nos. automatic high speed savio OE Rotors to produce high

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quality yarn at a project cost of Rs.31.84 crores. The windmill division with an

installed capacity of 10.15 M.W Wind Turbine generators to save the power cost

substantially. The windmill capacity will take care of nearly 80% of the total power

requirements of the Rajapalayam Unit (SVSML,).

The windmills as on 31-03-2009 are 2.45Lakhs KWH (PY 2.80Lakhs KWH) and its

monetary value of Rs. 8.98Lakhs (PY Rs. 10.27 Lakhs) has been included in Loans

&Advances. It also runs many educational Institutions to impart quality education at

affordable rate to the students in and around Rajapalayam. An educational trust has

been established in the name of the founder Shri.P.A.CRamasamy Raja, which offers

many social services to uplift the living standards of people in Rajapalayam.

2.2 INDUSTRY PROFILE

 2.2.1Textile industry 

The textile industry (known colloquially in the United

Kingdom and Australia as the rag trade) is a term used for industries primarily

concerned with the design or manufacture of clothing as well as the distribution and

use of textiles.

2.2.2 Cottage stage

Prior to the manufacturing processes being mechanized, textiles were produced

in the home, and excess sold for extra money. Most cloth was made from

either wool, cotton, or flax, depending on the era and location. For example, during the

late medieval period, cotton became known as an imported fiber in northern Europe,

without any knowledge of what it came from other than that it was a plant; noting its

similarities to wool, people in the region could only imagine that cotton must be

produced by plant-borne sheep. John Mandeville, writing in 1350, stated as fact the

now-preposterous belief: "There grew there [India] a wonderful tree which bore tiny

lambs on the ends of its branches. These branches were so pliable that they bent down

to allow the lambs to feed when they are hungry." This aspect is retained in the name

for cotton in many European languages, such as German Baumwolle, which translates

as "tree wool". By the end of the 16th century, cotton was cultivated throughout the

warmer regions in Asia and the Americas. In Roman times, wool, linen and leather

clothed the European population: the cotton of India was a curiosity that only

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naturalists had heard of, and silk, imported along the Silk Road from China, was an

extravagant luxury. The use of flaxfibre in the manufacturing of cloth in Northern

Europe dates back to Neolithic times.

Cloth was produced in the home, and the excess woven cloth was sold to

merchants called clothiers who visited the village with their trains of pack-horses.

Some of the cloth was made into clothes for people living in the same area and a large

amount of cloth was exported.

The process of making cloth depends slightly on the fiber being used, but there

are three main steps: preparation of fibers for spinning, spinning,

and weaving or knitting. The preparation of the fibers differs the most depending on the

fiber used. Flax requires retting and dressing, while wool requires carding and washing.

The spinning and weaving processes are very similar between fibers though.

Spinning evolved from twisting the fibers by hand, to use of a drop spindle, to

a spinning wheel. Spindles or parts of them have been found in very, very old

archaeological sites; they may represent one of the earliest pieces of technology

available to humankind. Invented in India between 500 and 1000 AD it

reached Europe via the Middle East in the European Middle Ages.

Weaving, done on a loom has been around for as long as spinning. There are

some indications that weaving was already known in the Palaeolithic. An indistinct

textile impression has been found at Pavlov, Moravia. Neolithic textiles are well known

from finds in pile dwellings in Switzerland. One extant fragment from

the Neolithic was found in Fayum at a site which dates to about 5000 BCE. There are

many different types of looms, from a simple loom that dates back to the Vikings, to

the standard floor loom.

2.2.3 History of textiles during the industrial revolution

The key British industry at the beginning of the 18th century was the production

of textiles made with wool from the large sheep-farming areas in the Midlands and

across the country(created as a result of land-clearance

and enclosure). Handlooms and spinning wheels were the tools of the trade of

the weavers in their cottages, and this was a labor-intensive activity

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providing employment throughout Britain, with major centers being the West

Country; Norwich and environs; and the West Riding of Yorkshire. The export trade in

woolen goods accounted for more than a quarter of British exports during most of the

18th century, doubling between 1701 and 1770 .Exports of the cotton industry –

centered in Lancashire – had grown tenfold during this time, but still accounted for

only a tenth of the value of the woolen trade.

The textile industry grew out of the industrial revolution in the 18th Century

as mass production of clothing became a mainstream industry. Starting with the flying

shuttle in 1733 inventions was made to speed up the textile manufacturing process. In

1738 Lewis Paul and John Wyatt patented the Roller Spinning machine and the flyer-

and-bobbin system. Lewis Paul invented a carding machine in 1748, and by 1764

the spinning jenny had also been invented. In 1771, Richard Arkwright used

waterwheels to power looms for the production of cotton cloth, his invention becoming

known as the water frame. In 1784, Edmund Cartwright invented the power loom. With

the spinning and weaving process now mechanized, cotton mills cropped up all over

the North West of England, most notably in Manchester and its surrounding towns of

Ashton-Under-Lyne, Stalybridge and Dukinfield.

Textile mills originally got their power from water wheels, and thus had to be

situated along a river. With the invention of the steam engine, in the 1760s to 19th

century, mills no longer needed to be along rivers.

2.2.4 Post industrial revolution

Many of the cotton mills, like the one in LowellMA, in the US originally started

with the intention of hiring local farm girls for a few years. The mill job was designed

to give them a bit more money before they went back to the farm life. With the inflow

of cheap labor from Ireland during the potato famine, the setup changed, as the girls

became easily replaceable. Cotton mills were full of the loud clanking of the looms, as

well as lint and cotton fiber. When the mills were first built, a worker would work

anywhere from one to four looms. As the design for the loom improved so that it

stopped itself whenever a thread broke, and automatically refilled the shuttle, the

number of machines a worker could work increased to up to 50.

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Originally, power looms were shuttle-operated but in the early part of the 20th

century the faster and more efficient shuttle less loom came into use. Today, advances

in technology have produced a variety of looms designed to maximize production for

specific types of material. The most common of these are air-jet looms and water-jet

looms. Industrial looms can weave at speeds of six rows per second and faster.

By the later 20th Century, the industry in the developed world had developed a

bad reputation, often involving immigrants in illegal "sweat shops" full of people

working on textile manufacturing and sewing machines being paid less than minimum

wages. This trend has resulted due to attempts to protect existing industries which are

being challenged by developing in South East Asia, the Indian subcontinent and more

recently, Central America. Whilst globalization has seen the manufacturing outsourced

to overseas labor markets, there has been a trend for the areas historically associated

with the trade to shift focus to the more white collar associated industries of fashion

design, fashion modeling and retail. Areas historically involved heavily in the "rag

trade" include London and Milan in Europe, SoHo district in New York City,

the Flinders Lane and Richmond.

The industrial revolution changed the nature of work and society. Opinion

varies as to the exact date when it took place but place the First Industrial Revolution

between 1750 and 1850, and the second phase or Second Industrial Revolution between

1860 and 1900. The three key drivers in these changes were textile manufacturing, iron

founding and steam power. The geographical focus of Textile manufacture during the

Industrial Revolution in Britain was Greater Manchester and the small towns of

the Pennines and southern Lancashire. In the United States it was New England.

Prior to the 17th century, the manufacture of goods was performed on a limited

scale by individual workers. This was usually on their own premises (such as weavers'

cottages) – and goods were transported around the country by horse, or by river. Rivers

navigations have been constructed, and some contour following canals, and, in the

early 18th century, artisans were inventing ways to become more

productive. Silk, Wool, Fustian, were being eclipsed by Cotton which was becoming

the most important textile. This set the foundations for the changes. Historians agree

that the Industrial Revolution was one of the most important events in history.

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2.2.5 Elements of the industrial revolution

The commencement of the Industrial Revolution is closely linked to a small

number of innovations, made in the second half of the 18th century:

Textiles – Cotton spinning using Richard Arkwright's water frame, James

Hargreaves's Spinning Jenny, and Samuel Crompton's Spinning Mule (a

combination of the Spinning Jenny and the Water Frame). This was

patented in 1769 and so came out of patent in 1783. The end of the patent

was rapidly followed by the erection of many cotton mills. Similar

technology was subsequently applied to spinning worsted yarn for various

textiles and flax for linen.

Steam power – The improved steam engine invented by James Watt and

patented in 1775 was initially mainly used for pumping out mines, but from

the 1780s was applied to power machines. This enabled rapid development

of efficient semi-automated factories on a previously unimaginable scale in

places where waterpower was not available.

Iron founding – In the Iron industry, coke was finally applied to all stages

of iron smelting, replacing charcoal. This had been achieved much earlier

for lead and copper as well as for producing pig iron in a blast furnace, but

the second stage in the production of iron depended on the use of potting

and stamping (for which a patent expired in 1786) or puddling (patented

by Henry Cort in 1783 and 1784).

These represent three 'leading sectors', in which there were key innovations,

which allowed the economic take off by which the Industrial Revolution is usually

defined. This is not to belittle many other inventions, particularly in the textile industry.

Without some earlier ones, such as the spinning jenny and flying shuttle in the textile

industry and the smelting of pig iron with coke, these achievements might have been

impossible. Later inventions such as the power loom and Richard Trevithick's high

pressure steam engine were also important in the growing industrialization of Britain.

The application of steam engines to powering cotton mills and ironworks enabled these

15

to be built in places that were most convenient because other resources were available,

rather than where there was water to power a watermill.

In the textile sector, such mills became the model for the organization of human

labor in factories, epitomized by Cotton polis, the name given to the vast collection

of mills, factories and administration offices based in Manchester. The assembly line

system greatly improved efficiency, both in this and other industries. With a series of

men trained to do a single task on a product, then having it moved along to the next

worker, the number of finished goods also rose significantly.

Also important was the 1756 rediscovery of concrete (based on hydraulic lime

mortar) by the British engineer John Smeaton, which had been lost for 13 centuries

Cotton is the world's most important natural fibre. In the year 2007, the global yield

was 25 million tons from 35 million hectares cultivated in more than 50 countries.

There are five stages

Cultivating and Harvesting

Preparatory Processes

Spinning

Weaving

Finishing

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CHAPTER 3

FINANCIAL ANALYSIS-A THEORETICAL VIEW

3.1 INTRODUCTION

Financial statement analysis is a judgmental process. One of the primary

objectives is identification of major changes in trends, and relationships and the

investigation of the reasons underlying those changes. The judgment process can be

improved by experience and the use of analytical tools. Probably the most widely used

financial analysis technique is ratio analysis, the analysis of relationships between two

or more line items on the financial statement. Financial ratios are usually expressed in

percentage or times.

Financial statement analysis involves analyzing the firm’s financial statements

to extract information that can facilitate decision-making. For example, an analysis of

the financial statement can reveal whether the firm will be able to meet its long-term

debt commitment, whether the firm is financially distressed, whether the company is

using its physical assets efficiently, whether the firm has an optimal financing mix,

whether the firm is generating adequate return for its shareholders, whether the firm

can sustain its competitive advantage etc. While the information used is historical, the

intent is clearly to arrive at recommendations and forecasts for the future rather than

provide a “picture of the past”.

The financial statements are not useful unless they are properly analyzed and

interpreted. The process of analysis of financial statements involves the arrangements

and rearrangements, grouping and regrouping of the financial and operational data

appearing on the financial statements the calculations of ratios and trends there from.

The process of interpretation follows that of analysis and involves the attempts to arrive

at logical conclusions regarding the performance and financial position of the business

organization.

The focus of financial analysis is on key figures in the financial statement and

the significant relationship that exist between them. The analysis of financial

17

statements is a process of evaluation relationship between component parts of financial

statement to obtain a better understanding of the firm’s position and performance. The

financial analyses often assess the firm’s Profitability, Solvency, Liquidity and

Stability.

3.2 FINANCIAL PERFORMANCE ANALYSIS

Profitability

Profitability ratios measure management's ability to control expenses and to

earn a return on the resources committed to the business.It refers to the company’s

ability to earn income and sustain growth in both short-term and long-term.

Solvency

Solvency refers to the company’s ability to pay its obligation to creditors and

other third parties in the long-term; it is based on the company's balance sheet, which

indicates the financial condition of a business as of a given point in time.

Liquidity

Liquidity refers to the company’s ability to maintain positive cash flow, while

satisfying immediate obligations; it is also based on the company's balance sheet,

which indicates the financial condition of a business as of a given point in time.

Stability

Stability refers to the company’s ability to remain in business in the long run,

without having to sustain significant losses in the conduct of its business. Assessing a

company's stability requires the use of theincome statement and the balance sheet, as

well as other financial and non-financial indicators.

3.3 TOOLS OF FINANCIAL ANALYSIS

A financial analyst can adopt the following tools for analysis of the financial

statement. These are also termed as methods of financial analysis.

18

3.3.1 RATIO ANALYSIS

Ratio analysis is the process of determining and presenting in arithmetic terms,

the relationship between figures and group figures drawn from the financial statement.

Ratio analysis of a business enterprise centers on effort to drive quantitative measures

or guide concerning that expected capacity of the firm to meet its future financial

commitment in a firm automatically turn of a core of relationship for guidance as

people prefer to work with the data which appears to be concentrate in nature. Ratio

analysis is the technique of analysis and interpretation of various ratios for helping in

making certain decision. It is one of the powerful tools for financial analysis. The main

use of ratio analysis is to help in decision making and facilitate intra-firm comparison.

Ratio analysis is a commonly used analytical tool for verifying the performance

of a firm. Easy computed ratios explain their wide appeal although interpretation is

problematic, especially when two or more ratios provide conflicting signals.Ratio

analysis is a diagnostic tool that helps to identify problem areas and opportunities

within a company.

Ratio Analysis is the most commonly used analysis to judge the financial

strength of a company. A lot of entities like research houses, investment bankers,

financial institutions and investors make use of this analysis to judge the financial

strength of any company.This analysis makes use of certain ratios to achieve the above-

mentioned purpose. There are certain benchmarks fixed for each ratio and the actual

ones are compared with these benchmarks to judge.

It is also defined as “an expression of the quantitative relationship between two

numbers”. (Wixion, Kell, Bedford 1970).

3.3.2 SIGNIFICANCE OF RATIO ANALYSIS

Ratio analysis determines the following. The ability of the firm is to meet its

current obligation.

1. The extent to which the firm has used its current obligation.

19

2. The efficiency with which the firm is utilizing its various assets in

generating sales revenue.

3. The overall operating efficiency and performance of the firm.

3.3.3 RATIO ANALYSIS

 

The ratio analysis is one of the most powerful tools of financial analysis with

any relevant information, situation in the concern, general economic environment, etc.

Ratio analysis helps in making decision for the information provided in the financial

statement.

The following are the ratios’ calculated in this present study.

1. Current Ratio

2. Liquid Ratio

3. Debt Equity Ratio

4. Proprietary Ratio

5. Fixed Assets Ratio

6. Gross Profit Ratio

7. Net Profit Ratio

8. Return on Assets Ratio

9. Fixed Assets Turn Over Ratio

10. Working Capital Turn Over Ratio

3.3.4 ADVANTAGES OF RATIO ANALYSIS

Ratio analysis helps the various groups in the following manner:

1. Workout the profitability

 Accounting ratio helps to measure the profitability of the business by

calculating the various profitability ratios. It helps the management to know about the

earning capacity of the business concern. In this way profitability ratios show the actual

performance of the business.

20

2. Workout the solvency

  With the help of solvency ratios, solvency of the company can be measured.

These ratios show the relationship between the liabilities and assets. In case external

liabilities are more than that of the assets of the company, it shows the unsound

position of the business. In this case the business has to make it possible to repay its

loans.

3. Helpful in analysis of financial statement

 Ratio analysis help the outsiders just like creditors, shareholders, debenture-

holders, bankers to know about the profitability and ability of the company to pay them

interest and dividend etc.

4. Helpful in comparative analysis of the performance

With the help of ratio analysis a company may have comparative study of its

performance to the previous years. In this way company comes to know about its weak

point and be able to improve them.

5. Simplifying the accounting information

  Accounting ratios are very useful as they briefly summaries the result of

detailed and complicated computations.

6. Workout the operating efficiency

Ratio analysis helps to work out the operating efficiency of the company with

the help of various turnover ratios. All turnover ratios are worked out to evaluate the

performance of the business in utilizing the resources.

21

7. Working out short-term financial position

Ratio analysis helps to work out the short-term financial position of the

company with the help of liquidity ratios. In case short-term financial position is not

healthy efforts are made to improve it.

8. Helpful for forecasting purposes

Accounting ratios indicate the trend of the business. The trend is useful for

estimating future. With the help of previous years’ ratios, estimates for future can be

made. In this way these ratios provide the basis for preparing budgets and also

determine future line of action.

3.3.5 LIMITATIONS OF RATIO ANALYSIS

To make a better interpretation a number of ratios have been calculated which is

likely to confuse the analyst.

There is no well accepted standard or rules for all ratios.

Change in accounting procedure by a firm often makes ratio analysis

misleading.

3.4 COMPARITIVE FINANCIAL STATEMENT

The comparative financial statements are the statements of the financial

position at different periods of time. The elements of financial position are shown in a

comparative form so to give an idea of financial position at two or more periods. Any

statement prepared in a comparative form will be covered in comparative statements.

From practical point of view, generally two financial statements (balance sheets and

income statements) are prepared in comparative form for financial analysis purposes.

Not only the comparison of two periods but also the relationship between balance sheet

and income statement enables and in depth study of financial position and operative

results. The comparative statement may show:

I. Absolute figures (rupee amount)

II. Changes in absolute figures i.e., increase or decrease in absolute figures.

22

III. Absolute data in terms of percentages.

IV. Increase or decrease in terms of percentages.

The analyst is able to draw useful conclusions when figures are given in

comparative position. The figures of sales for a quarter, half-year or one year may tell

only the present position of sales efforts. When sales figures of previous periods are

given along with the figures of current periods then the analyst will be able to study the

trends of sales over different periods of time. Similarly, comparative figures will

indicate the trend and direction financial position and operating results.

The financial data will be comparative only when same accounting principles

are used in preparing these statements. In case of any deviation in the use of

accounting principles this fact must be mentioned at the foot of financial statements

and the analyst should be careful in suing these statements.

3.4.1 COMPARITIVE BALANCE SHEET

The comparative balance sheet analysis is the study of the trend of the same

items, group of items and computed items in two or more balance sheets of the same

business enterprise on different dates. The changes in periodic balance sheet items

reflect the conduct of the business. The changes can be observed by comparison of

the balance sheet at the beginning and at the end of a period and these changes can

help in forming and opinion about the progress of an enterprise. The comparative

balance sheet has two columns for the data of original balance sheets .a third column

is used to show increase in figures. The fourth column may be added for giving

percentages of increases or decreases.

3.4.2 COMPARATIVE INCOME STATEMENT

The income statement gives a result of the operations of a business. The

comparative income statement gives an idea of the progress of a business over a period

of time. The changes in absolute data in money values and percentages can be

determined to analyze the profitability of the business. Like comparative balance sheet,

income statement also has four columns. First two columns give figures of varies items

23

for two years. The third and fourth columns are used to show increase or decrease in

figures in absolute amounts and percentages respectively.

3.5 TREND ANALYSIS

The financial statements may be analyzed by computing trends of series of

information. This method determines the direction upwards or downwards and involves

the computation of the percentage relationship that each statements item bears to the

same item in base years. The information for a number of years is take up at one year,

generally the first year, is taken as a base year. The figures of the base years are taken

as 100 and trend ratios for other years calculated on the basis of base year.

The term "trend analysis" refers to the concept of collecting information and

attempting to spot a pattern, or trend, in the information. In some fields of study, the

term "trend analysis" has more formally-defined meanings.

Although trend analysis is often used to predict future events, it could be used to

estimate uncertain events in the past.

An aspect of technical analysis that tries to predict the future movement of a

stock based on past data. Trend analysis is based on the idea that what has happened in

the past gives traders an idea of what will happen in the future. 

3.6 COMMON –SIZE STATEMENT

The common size statement, balance sheet and income statement are shown in

analytical percentages. The figures are shown as percentages of total assets, total liabilities

and total assets. The total assets are taken as 100 and different assets are expressed as a

percentage of the total. Similarly, varies liability are taken as a part of total liabilities. These

statements are shown are also known as component percentage are 100 percent statements

because every individual item is stated as percentage of the total 100. The shortcomings in

comparative statements and trend percentages are changes in items could not be compared

with the totals that have been covered up. The analyst is able to assess the figures in relation

to total values. The common –size statements may be prepared in the following way:

24

The total assets are liabilities are taken as 100.

The individual assets are expressed as a percentage of total assets

i.e., 100 and different liabilities are calculated in relation to total

liabilities.

3.7 COMMON SIZE INCOME STATEMENT

The items in the income statement can be shown as percentages of sales to

show the relations of each item to sales. A significant relationship can be established

between items of income statement and volume of sales. The increase in sales will

certainly increase selling expenses and not administrative or financial expenses. In case

the volume of sales increases to a considerable extent, administrative and financial

expanses may go up. In case the sales are declining, the selling expenses should be

reduced at once.

CHAPTER 4

ANALYSIS OF FINANCIAL PERFORMANCE

25

4.1 INTRODUCTION

Analysis of statement means such as a treatment of the information

contained in the two statements as to afford a full diagnosis of the profitability of the

financial position on the firm concerned.

The company’s financial information is contained in balance sheet and profit

and loss account.

In this chapter the financial performance of Sri Vishnu Shankar Mills Limited is

analyzed with the help of ratio analysis, trend analysis and comparative and common

size statement. 

4.2.1 CURRENT RATIO

 

The ratio of current assets to current liabilities is called ‘current ratio’. In order

to measure the short- term liquidity or solvency of as concern, company meets its

current obligation as and when they are due for payment.

 

 

                                                  Current Assets

Current Ratio        =      -----------------------------

                                                Current Liabilities

 

The term current assets includes debtors, stock, bills receivable, bank and cash

balances, prepaid expenses due short-term investment.

The term current liabilities include creditors, bank overdraft, bills payable, outstanding

expenses, income received in advance, etc.

TABLE 4.1

CURRENT RATIO

26

YearCurrent Assets

(Rs.in lakhs)

Current Liabilities

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 3210.43 2867.75 1.1

2007-08 2093.20 2035.70 1.42

2008-09 4172.03 3523.61 1.18

2009-10 4817.10 7370.86 0.65

2010-11 7586.54 7578.8 1.00

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table 4.1, it is inferred that the current ratio position showsa

fluctuation trend.The highest current ratio 1.42 is shown in the year 2007-08. The

lowest ratio 0.65 is shown in the year 2009-10. The standard current ratio is 2.1.The

above calculation shows that the current ratio during the study period is less than the

standard ratio.

CHART 4.1

CURRENT RATIO

27

2006-07 2007-08 2008-09 2009-10 2010-110

0.20.40.60.8

11.21.41.6

1.1

1.42 1.18000000000001

0.650000000000003

1

Year

Rat

io

4.2.2 LIQUID RATIO

This ratio is also called ‘Quick’ or Acid test ratio. It is calculated by comparing

the quick assets with current liabilities.

28

   

                                                             Liquid assets

                        Liquid ratio     =       ------------------------

                                                        Current liabilities

 

                        Liquid assets=current assets-(stock + prepaid expenses)

 

Quick or liquid assets refer to assets, which are quickly convertible in to cash.

Current assets other than stock and prepaid expenses are considered as quick assets.

TABLE 4.2

LIQUID RATIO

  YearQuick Assets

(Rs.in lakhs)

Current Liabilities

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 1345.70 2867.75 0.46

2007-08 1182.77 2035.70 0.58

2008-09 2306.56 3523.61 0.65

2009-10 2556.76 7370.86 0.03

2010-11 3101.12 7578.8 0.41

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table it is inferred that, (The liquid ratio measures the firm’s

ability to meet short term liabilities). The highest liquid ratio (0.65) is shown in the

year 2008-09. It implies that a major portion of the mill’s current assets are tied up in

inventions resulting a low liquid ratio is shown in the year 2009-10. The unit uses the

short-term loans (cash credit) to pay the current liabilities.

 

CHART 4.2

LIQUID RATIO

 

29

2006-07 2007-08 2008-09 2009-10 2010-110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.46

0.58

0.650000000000003

0.34

0.41

Year

Rat

io

4.2.3 DEBT EQUITY RATIO

This ratio is ascertained to determine long-term solvency position of a

company. Debt equity ratio is also called external-internal equity ratio.

30

 

                                                                        External equities

                     Debt Equity Ratio          =        -----------------------    

                                                                        Internal equities

 

The term external equity refers to total outsiders liabilities. Internal equity

refers to shareholders funds or the tangible net worth. Here shareholder refers to only

the equity shareholders.

TABLE 4.3

DEBT EQUITY RATIO

YearExternal equities Assets

(Rs.in lakhs)

Internal equities

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 8631.62 1232.35 7.00

2007-08 9366.12 1333.62 7.02

2008-09 1537.33 1777.15 8.63

2009-10 20915.35 1323.31 15.80

2010-11 2248.57 1374.22 1.63

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table it is inferred that, the highest Debt equity ratio was shown

in the year 2010-11 due to increase in the long-term liabilities. The highest amount of

External equities (Rs.2248.57) and internal equities (1374.22). The mill had valid long-

term liabilities under TUF scheme during the year 2009-10.

31

CHART 4.3

DEBT EQUITY RATIO

 

 

2006-07 2007-08 2008-09 2009-10 2010-110

2

4

6

8

10

12

14

16

18

7 7.028.63

15.8

1.63

YEAR

RA

TIO

32

4.2.4 GROSS PROFIT RATIO

 

This ratio also known as gross margin or trading margin ratio. Gross profit ratio

indicates the difference between sales and direct costs. Gross profit ratio explains the

relationship between profit and net sales.

 

                                                                     Gross profit

           Gross Profit Ratio           =                                                         * 100

         Net sales

A highest ratio will be due to the result of one or more of the following factors; 

Increase in selling price without change in the cost of goods sold.

Decrease in cost goods sold, with selling price and decrease in cost of

goods Sold.

Increase in selling price and decrease in cost of goods sold.

Increase in the sales mix, the proportion of population of products with

Higher gross profit margin.

TABLE 4.4

GROSS PROFIT RATIO

YearGross profit

(Rs.in lakhs)

Net sales

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 709.53 5115.07 13.87

2007-08 939.38 6602.96 14.20

2008-09 859.55 6736.10 12.70

2009-10 953.61 8234.30 11.58

2010-11 1025.10 14904.43 6.81

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

33

INTERPRETATION

From the above table it is inferred that, the highest gross profit ratio ( 14.20)

recorded percent during the year 2007-08 to rising prices of raw materials and heavy

cost of power and fuel, the gross profit has reduced during the study period. In order to

overcome the rising price of power and fuel, the management has started its own power

production unit within the premises. Hence the cost of power will be reduced in the

near future.

CHART 4.4

34

GROSS PROFIT RATIO

 

2006-07 2007-08 2008-09 2009-10 2010-1102468

10121416

13.87 14.212.7

11.58

6.81

Year

Rat

io

 

4.2.5 PROPRIETARY RATIO

35

 

This ratio compares the shareholders funds or owner’s fund and total tangible

assets. In other words, this ratio expresses the relationship between the proprietor’s

fund and the tangible assets.

   

                                         Shareholders fund

Proprietary ratio =

                                        Total tangible assets

The ratio showed the general sounders of the company. It is of particular

interest to the creditors of the company as it helps them top ascertaining the

shareholders funds in the total assets of the business. A high ratio indicates safety to the

creditor and a low ratio shows greater risk to the creditors.

TABLE 4.5

PROPRIETARY RATIO

YearShareholders fund

(Rs.in lakhs)

Total assets

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 1232.35 10429.43 0.11

2007-08 1666.62 11773.21 0.14

2008-09 1777.15 17984.95 0.09

2009-10 1323.31 22850.12 0.06

2010-11 1374.22 24600.86 0.05

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

 INTERPRETATION

36

The above table shows the relationship of owner’s fund to total assets. The

proprietary ratio ranges between 0.11 times to 0.05 times during the study period. The

highest ratio was 0.14 times during the period 2007-08. The ratio has declined at the

end of the period due to the fact that the reserves have been used for acquisition of

assets during the modernization of the mill. The lower proprietary ratio indicates a

greater risk to the creditors. The mill should take efforts to improve the long-term

solvency position of the mill by increasing shareholders fund.  

CHART 4.5

37

PROPRIETARY RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.020.040.060.08

0.10.120.140.16

0.11

0.14

0.09

0.060.05

Year

Rat

io

4.2.6 FIXED ASSET RATIO

38

The ratio establishes the relationship between fixed assets and long-term funds.

The objectives of calculating this ratio is to ascertain the proportion of long-term funds

invested in fixed assets.

 

                                               Fixed Assets

Fixed assets ratio   =                                                                   

                                              Long- term Funds

 

The ratio should not generally be more than ‘1’. If the ratio is less than one, it

indicates that a portion of working capital has been financed by long-term funds.

TABLE 4.6

FIXED ASSETS RATIO

YearFixed Assets

(Rs.in lakhs)

Long term Funds

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 9936.44 8631.6 1.15

2007-08 10850.86 9366.12 1.15

2008-09 14302.33 15337.33 0.93

2009-10 18735.91 20915.35 0.89

2010-11 17737.66 2248.51 0.78

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table it is inferred that, the fixed ratio shown the decreasing

trend. The highest fixed ratio (1.15) was recorded during the year 2006-07. Normally

increase o fixed asset ratio of a sign of good performance and indicates the effective

use of fixed assets...

CHART 4.6

FIXED ASSETS RATIO

39

2006-07 2007-08 2008-09 2009-10 2010-110

0.2

0.4

0.6

0.8

1

1.2

1.4 1.14999999999999

1.14999999999999

0.93 0.890.78

Year

Rat

io

 

4.2.7 NET PROFIT RATIO

40

This ratio is also called as Net profit to sales ratio. It measures the

management’s efficiency in operating the business successfully from the owner’s point

of view. It indicates the return on shareholders’ investment. Higher the ratio better is

the operational efficiency of the business concern.

 

                                Net profit after tax

Net profit ratio = ------------------------------ * 100

                                     Net sales

 

Net profit includes non-operating incomes and profits. Similarly net profit is the

after reducing non-operating expenses. Provision for tax is also subtracted while

determining net profit.

TABLE 4.7

NET PROFIT RATIO

YearNet Profit

(Rs.in lakhs)

Net Sales

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 192.36 5115.07 3.78

2007-08 539.56 6602.96 8.16

2008-09 215.82 6736.10 3.20

2009-10 453.84 8234.30 5.51

2010-11 103.38 14904.43 5.42

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table it is inferred that, the net profit ratio varies between 3.78

and 5.42 during the study period. It indicates that the earning capacity of the mill was

much below the earning capacity of the industry. In the year 2007-08, net profits ratio

of the mill has increase to 8.16. In the year 2008-09 the net profit ratio of the mill has

decreased to 3.20. The reason for the decline in the net profit is due to higher interest

and depuration.

41

CHART 4.7

NET PROFIT RATIO

2006-07 2007-08 2008-09 2009-10 2010-110123456789

3.78

8.16

3.2

5.51 5.42

Year

Rat

io

42

4.2.8 RETURN ON ASSETS RATIO

The profitability ratio is measured in terms of the relationship between profit

and assets. The return on asset as may also be called profit-to assets ratio.

                                                                  Net profit

                                 Return on assets = ------------------------ * 100

                                                                   Total assets

 

The return on assets based on the ratio would be an underestimate as the interest

paid to the lenders is excluded from the net profit. In point of facts, the real return own

the total assets is the net earnings available and interest to lenders as owners as well as

creditors finance assets.

TABLE 4.8

RETURN ON ASSETS

  

YearNet Profit

(Rs.in lakhs)

Total Assets

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 368.78 10429.43 3.53

2007-08 808.56 11773.21 0.068

2008-09 388.82 17984.95 0.021

2009-10 707.84 22850.12 3.09

2010-11 266.39 24600.86 1.08

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

INTERPRETATION

From the above table it is inferred that, the return on assets is mismatched

during the study period and erratic between 0.021 percent and 3.35 percent. In the year

2008-09 the ratio is lowest at 0.021 percent due to low returns. In the year 2006-07, the

ratio was better than the future years due to high profitability of the company.

43

CHART 4.8

RETURN ON ASSETS

2006-07 2007-08 2008-09 2009-10 2010-110

0.51

1.52

2.53

3.54 3.53

0.068 0.021

3.09

1.08

Year

Rat

io

 

44

 4.2.9 FIXED ASSETS TRUN OVER RATIO

This ratio determiners efficiency of utilization fixed assets and profitability of a

business concern. Higher the ratio more is the efficiency in utilization of fixed assets. A

lowest ratio is the indication of utilization of fixed assets.

                     

 

                                                             Net sales

Fixed Assets Turn Over Ratio = --------------------------------

                                                          Fixed assets

 

 

  The ratio should not generally be more than’ 1’ if the ratio is less one it

indicates that a portion of working capital has been financed long term funds.

TABLE 4.9

FIXED ASSETS TURNOVER RATIO

YearNet Sales

(Rs.in lakhs)

Net Fixed Assets

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 5115.09 9936.44 0.51

2007-08 6602.96 10850.86 0.608

2008-09 6736.10 14302.33 0.47

2009-10 8234.30 18735.91 0.44

2010-11 149004.43 17737.96 0.84

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

 INTERPRETION

             It is evidence from table 3.9 that fixed assets turnover ratio of the mill is

showing fluctuating trends. The ratio ranged between 0.51 times and 0.84 times during

the study period. The ratio has raised in from 0.51 times and 0.608 times between

2006-07 and 2007-08. The highest ratio of 0.84 times recorded in the year 2010-11.

45

CHART 4.9

FIXED ASSETS TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.10.20.30.40.50.60.70.80.9

0.51

0.608000000000001

0.47 0.44

0.840000000000001

Year

Rat

io

46

4.2.10 WORKING CAPITAL TURN OVER RATIO

 

Working capital ratio measure the defective utilization of working capital. It is

also measure the smooth running of business. The ratio establishes the relationship

between cost of sales and working capital.

 

                                                        Sales

Working capital turnover ratio    =

                                                      Working capital

 

 

In case company can achieve higher volume of sales with the relatively small

amount of working capital. It is an indication of the operating efficiency of the

company.

TABLE 4.10

WORKING CAPITAL TURNOVER RATIO

YearNet Sales

(Rs.in lakhs)

Working Capital

(Rs.in lakhs)

Ratio

(Percentage)

2006-07 5115.09 342.88 14.72

2007-08 6602.96 857.50 7.70

2008-09 6736.10 3648.48 1.84

2009-10 8234.30 4080.01 2.01

2010-11 149004.43 6828.70 2.18

SOURCE: Annual Reports of Sri Vishnu Shankar Mills Limited. (2006-2011)

   

INTERPRETION

 

It is evident from table 3.10 that the working capital turns over ratio decreasing

between 14.72 times to 2.18 times during the study period. The ratio has been raised

from 1.84 times to 2.18 times between2008-09 to 2010-11. The ratio was highest at

14.76 times during 2006-07.

47

CHART 4.10

WORKING CAPITAL TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-1102468

10121416 14.72

7.7

1.84 2.01 2.18

Year

Rat

io

48

4.3 TREND ANALYSIS

For trend analysis, the use of index number is generally advocated. The procedure

followed is to assign the number 100 to items of the base year and to calculate

percentage change in item of other years in relation to the base year.

4.3.1 TREND ANALYSIS-SALES

The Total Sales of the company includes credit sales and cash sales. Total sales can be

calculated by using following formula

Total Sales = Cash Sales + Credit Sales

TABLE 4.11TREND ANALYSIS-SALES

Year Sales

(Rs in lakhs)

Trend percentage

2006-2007 5115.07 100

2007-2008 6602.96 129.08

2008-2009 6736.10 102.01

2009-2010 8234.30 122.23

2010-2011 14904.43 181

Source: Annual reports of Sri Vishnu Shankar Mills Ltd

INFERENCE

From the above table 4.11 the highest percentage of 129.08 is recorded in the year

2007-2008. The trend percentage shows fluctuation during the study period.

CHART 4.11

49

TREND ANALYSIS-SALES

2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

40

80

120

160

200

100

129.08

102.01122.23

181

Trend percentage

IV.3.2 TREND ANALYSIS-PROFIT

50

TABLE 4.12

TREND ANALYSIS-PROFIT

Year Profit

(Rs in lakhs)

Trend percentage

2006-2007368.78

100

2007-2008808.56

219.25

2008-2009388.82

48.05

2009-2010707.84

182.04

2010-2011266.39

37.63

Source: Annual reports of Sri Vishnu Shankar Mills Ltd

INFERENCE

From the above table 4.12 the lowest percentage of 37.63 is recorded in the year

2010-2011 and the highest percentage of 219.25 is recorded in the year 2007-2008.

Throughout the study period it shows a fluctuation.

CHART 4.12

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TREND ANALYSIS-PROFIT

2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

50

100

150

200

250

100

219.25

48.05

182.04

37.63

Trend percentage

4.3.3 TREND ANALYSIS-CURRENT ASSET

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Current assets sometimes called as liquid assets are those resource of a firm

which are either held in the form of cash or expected to be converted into cash within

the accounting period or operating cycle of a business.

TABLE 4.13

TREND ANALYSIS-CURRENT ASSET

Year Current asset

(Rs in lakhs)

Trend percentage

2006-2007 3210.43 100

2007-2008 2093.20 65.20

2008-2009 4172.03 199.33

2009-2010 4817.10 115.46

2010-2011 7578.80 157.31

Source: Annual reports of Sri Vishnu Shankar Mills Ltd

INFERENCE

From the above table 4.13 the lowest percentage of 65.20 is recorded in the year

2007-2008 and the highest percentage of 199.33 is recorded in the year 2008-2009. The

trend percentage shows fluctuation during the study period.

CHART 4.13

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TREND ANALYSIS-CURRENT ASSET

2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

50

100

150

200

250

100

65.2

199.33

115.46

157.31

Trend percentage

4.3.4 TREND ANALYSIS-CURRENT LIABILITIES

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Current liabilities are debts payable within an accounting period. Current assets

are converted into cash to pay current liabilities. Sometimes new liabilities may be

incurred to liquidate the existing ones.

TABLE 4.14

TREND ANALYSIS-CURRENT LIABILITIES

Year Current liabilities

(Rs in lakhs)

Trend percentage

2006-2007 2867.75 100

2007-2008 2035.70 70.98

2008-2009 3523.61 173.12

2009-2010 7370.86 209.19

2010-2011 7578.80 102.82

Source: Annual reports of Sri Vishnu Shankar Mills Ltd

INFERENCE

From the above table 4.14 the lowest percentage of 70.98 is recorded in the year 2007-

2008 and the highest percentage of 209.19 is recorded in the year 2009-2010. The trend

percentage shows fluctuation during the study period.

CHART 4.14

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TREND ANALYSIS-CURRENT LIABILITIES

2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

50

100

150

200

250

10070.98

173.12

209.19

102.82

Trend percentage

4.3.5 TREND ANALYSIS-MANUFACTURING COST

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The Cost of Manufacturing of the particular product is known as

Manufacturing Cost. Manufacturing cost of the product is one of the main aspects that

determine the price of the products.

TABLE 4.15

TREND ANALYSIS-MANUFACTURING COST

Year Manufacturing cost

(Rs in lakhs)

Trend percentage

2006-2007 293.20 100

2007-2008 311.60 106.14

2008-2009 391.41 125.72

2009-2010 351.58 89.76

2010-2011322.33

91.73

Source: Annual reports of Sri Vishnu Shankar Mills Ltd

INFERENCE

From the above table 4.15 the lowest percentage of 89.76 is recorded in the year

2009-2010 and the highest percentage of 125.72 is recorded in the year 2008-2009. The

trend percentage shows fluctuation during the study period.

CHART 4.15

TREND ANALYSIS-MANUFACTURING COST

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2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

20

40

60

80

100

120

140

100 106.14

125.72

89.76 91.73

Trend percentage

4.16 COMMON SIZE BALANCE SHEET

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The financial statements prepared in terms of common base percentage are

called common size balance sheet. The common size balance sheet from the year 2006-

2007 to 2010-2011 is presented in the table 4.16

TABLE 4.16

COMMON SIZE BALANCE SHEET

Particulars 2006-07 2007-08 2008-09 2009-10 2010-11

Liabilities:

Share Capital 19 28 22.80 11.50 10.57

Reserve & Surplus 0.81 0.27 0.26 0.22 0.12

Secured Loans 33 34.80 26.94 20.50 28.36

Unsecured Loans 2.40 2.50 4.50 3.08 2.60

Current Liabilities 44.79 34.43 45.50 64.70 58.35

Total 100 100 100 100 100

Assets:

Fixed Assets 89.68 90.60 90.60 88.60 88.50

Investment 0.03 0.10 0.10 0.10 -

Current Assets 10.29 9.30 9.30 11.30 11.50

Total 100 100 100 100 100

INFERENCE:

59

The Table 4.16 shows the common size balance sheet for the period from 2006-

2007 to 2010-2011.From the above analysis, share capital shows the percentage of

change from 19 to 10.57%.It indicates the decreasing trend. Reserve and surplus shows

a change from 0.81 to 0.12%.It indicates the decreasing trend. Unsecured loan shows a

change from2.40 to 2.60%.It indicates the increasing trend. Current liabilities show the

percentage change from 44.79 to 58.35. It indicates the increasing trend.

In current assets shows an increasing trend of change in percentage from 10.29

to 11.50. Investments show a percentage of change from0.03 to0.10. It

indicatesanincreasing trend. Fixed assets show the lesser percentage of change

from89.68 to88.50.

Current liabilities have a major portion in liabilities side while loans, advances

and deposits have a major portion in assets side.

CHAPTER 5

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION

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5.1 INTRODUCTION

In an organization the finance department plays a vital role to take decisions for

the expansion or diversion of business. 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.

Financial analysis is the process of identifying the financial strength and weakness of

the firm by properly establishing relationship between the items of the balance sheet

and profit and loss account.

Hence the present study “A Study on Financial Performance ofSri Vishnu

Shankar Mills Limited at Rajapalayam” has been made. This study is mainly based on

secondary data collected from balance sheet and profit and loss account. The period

of study is 2006-2011. Ratio analysis and trend analysis and trend analysis are made

based on the following findings are made.

The main objective of the study is to analyze the financial performance of

spinning mill and to analyze the financial stability and overall performance of Sri

Vishnu Shankar Millto analyse the profitability and solvency position of the unit and

to offer suggestions to improve the financial performance of Sri Vishnu Shankar

Mills Ltd.

5.2 SUMMARY OF FINDINGS

The current ratio was highest in the period 2007 – 2008 (1.42) and

lowest in the period 2009 – 2010 (0.65).

The quick ratio was highest in the period 2008 – 2009 (0.65) and

lowest in the period 2009 – 2010 (0.03)

The debt-equity was highest in the period 2009 – 2010 (15.80) and

lowest in the period 2010 – 2011 (1.63).

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The gross profit ratio was highest in the period 2007 – 2008 (14.20)

and lowest in the period 2010 – 2011 (6.81).

The proprietary ratio was highestin the period 2007 – 2008 (0.14) and

lowestin the period 2010 – 2011 (0.05).

The fixed assets ratiowas highest in the period 2006 – 2007 and2007 -

2008 (1.15) and lowest in the period 2010 – 2011 (0.78).

The net profit ratiowas highest in the period 2007 – 2008 (8.16) and

lowest in the period 2008 – 2009 (3.20).

The return on asset ratiowas highest in the period 2006 – 2007

(3.53) and lowest in the period 2008 – 2009 (0.021).

The fixed assets turnover ratio was highest in the period 2010 – 2011

(0.84) and lowest in the period 2009 – 2010 (0.44)

The working capital turnover ratio was highest in the period 2006 –

2007 (14.72) and lowest in the period 2008 – 2009 (1.84).

5.3 SUGGESTIONS

The following suggestions give the valuable inputs, on the financial performance

analysis of the company.

1. Control should be taken on administrative expenses, manufacturing and selling

expenses.

2. The current ratio is in a decreasing position. So care should be taken.

3. Quick ratio must be improved by the liquidity position.

4. Cash balance and bank balance should be kept at optimum.

5. Company account should be computerised and introduce accounting package

like Tally, SAP etc.

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6. The company should minimize the manufacturing cost and maximize selling

price of the yarn.

5.4 CONCLUSION

The informative and interesting study on financial performance of Sri Vishnu

Shankar Mills Limited at Rajapalayam is made with the Annual Reports and Balance

Sheet of the company. The study reveals the financial position for the last five years.

There is no profit in 2006 – 2007. Some ratios show fluctuation in the financial

performance of the company. The company has long term as well as short term

solvency. The study helps to apply the theoretical knowledge in to practice. The overall

success of a company depends upon its financial performance.

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