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KOUSTUV BUSINESS SCHOOL A Project Report on Ratio Analysis of Financial Statements & Working of
KOUSTUV BUSINESS SCHOOL A Project Report on Ratio Analysis of Financial Statements & Working of

KOUSTUV BUSINESS SCHOOL

KOUSTUV BUSINESS SCHOOL A Project Report on Ratio Analysis of Financial Statements & Working of Capital

A Project Report on Ratio Analysis of Financial Statements & Working of Capital Management at HV Transmissions Ltd, Jamshedpur

of Capital Management at HV Transmissions Ltd, Jamshedpur F F A A C C U U

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KOUSTUV BUSINESS SCHOOL BHUBANESWAR JULY`2009 D D E E C C L L A A
KOUSTUV BUSINESS SCHOOL BHUBANESWAR JULY`2009 D D E E C C L L A A
KOUSTUV BUSINESS SCHOOL BHUBANESWAR JULY`2009 D D E E C C L L A A

KOUSTUV BUSINESS SCHOOL BHUBANESWAR

JULY`2009

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KOUSTUV BUSINESS SCHOOL

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CERTIFICATE BY GUIDE This is to certify that the following student is submitting the project
CERTIFICATE BY GUIDE This is to certify that the following student is submitting the project

CERTIFICATE BY GUIDE

This is to certify that the following student is submitting the project report titled “ A Ratio Analysis Of Financial Statements & Working Of Capital Management at HV TRANSMISSIONS Ltd. It is the original and bonafide work submitted in partial fulfillment of the requirement for the award of PGDM program.

KOUSTUV BUSINESS SCHOOL

Prof. GOPAL PRUSETH

(Project Guide)

KBS, Bhubaneswar

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ACKNOWLEDGEMENT In the course of this project I got an insight into the automobile industry,
ACKNOWLEDGEMENT In the course of this project I got an insight into the automobile industry,

ACKNOWLEDGEMENT

In the course of this project I got an insight into the automobile industry, came to know a lot about the basic working of an automobile company.

First and foremost I am very proud to be a student of Koustuv Business School, Bhubaneswar and am most grateful for having been given the chance to work with a reputed company like HVTL at the beginning of my career.

I would fail to do my duty if I didn’t take this opportunity to thank my faculty guide, Prof. Gopal Pruseth for his timely help and guidance. I would like to thank him whole heartedly for making me work harder so as to gain a more in depth knowledge of the subject which I am sure will help me a lot in the long run as well. I would say that this project wouldn’t have been the same without his support, guidance, encouragement and constant demand for improvement.

I am extremely grateful to Mr. Amitava Roy (AGM, Finance, HVTL) for granting permission to carry out the project work in his department. My company guide, Mr. Amit Kumar Agarwal, Manager is another person who has played a key role in the development of me as a person, in the completion of this project and in being educated about the automobile industry in general. Without the knowledge, attention and time that he has bestowed on me, this project would simply have been impossible. He is truly an inspiration for me and drove me towards working harder than my expectations which simply made me more ready for the corporate life. He truly gave me the corporate exposure I had thought of.

I would also like to thank Mr. Ashok Kumar, Mr. Girish Shivramakrishnan, Mrs. Sunayana for their immense support and guidance which helped me in understanding various aspects of the subject. I would also like to thank all the employees of the finance department for their valuable support, cooperation & help.

KOUSTUV BUSINESS SCHOOL

GOPAL KUMAR AGARWAL

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INDEX

INDEX

Declaration

Certificate By Guide

Acknowledgement

TOPICS

Introduction

Project Title

Objectives Of the Project

Methodology

Company Profile

The AutoMobile Industry

Tata Group

Tata Motors

HVTL Ltd

Financial Highlights of the Company

Ratio Analysis

Working Capital

Working Capital Management

Conclusion

Recommendations

Sources & Bibliography

KOUSTUV BUSINESS SCHOOL

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PART- A INTRODUCTION KOUSTUV BUSINESS SCHOOL 6 | Page
PART- A INTRODUCTION KOUSTUV BUSINESS SCHOOL 6 | Page

PART- A INTRODUCTION

KOUSTUV BUSINESS SCHOOL

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PROJECT TITLE A Project on Ratio Analysis of Financial Statements & Working of Capital Management

PROJECT TITLE

PROJECT TITLE A Project on Ratio Analysis of Financial Statements & Working of Capital Management at

A Project on Ratio Analysis of Financial Statements & Working of Capital Management at HVTL Ltd, Jamshedpur a 85% subsidiary of Tata Motors.

OBJECTIVES OF THE PROJECT

To analyse the financial statement of HV TRANSMISSIONS LIMITED from the Year 2003-04 to 2008-09.

To interpret the analysis and the trend of the financial results.

To use various activity ratios and liquidity ratios to find out the activity of assets and liabilities and to find out the liquidity position of the company.

Standardize financial information for comparisons.

Evaluate current operations .

Compare performance with past performance.

Compare performance against other firms or industry standards.

Study the efficiency of operations.

Study the risk of operations.

KOUSTUV BUSINESS SCHOOL

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METHODOLOGY Data Collection  Primary Source  Annual reports published by company.  Respondents of
METHODOLOGY Data Collection  Primary Source  Annual reports published by company.  Respondents of

METHODOLOGY

Data Collection

Primary Source

Annual reports published by company.

Respondents of HV Transmissions Ltd.

Secondary Source

Via mail, SEC or company websites.

Published collections of data.

Investment sites on the web.

Official web site of the company.

SAP

Data Presentation

Graphical and tabular representation of the collected data has been done to show the financial position of the HVTL firm.

Data Analysis & Interpretation

Here an analysis of the annual reports of the last five fiscal years (2003-04 to 2008-09) has been done. Various ratios have been calculated to find out the profitability and leverage of the firm. Various working capital ratios has been calculated to observe the working capital changes and comparisons have been made to of the last four years. A thorough study has been made about the Inventory management system of the company and an effort has been made to find out how well the company manages its inventories.

I have tried to evaluate the firm’s performance by using the past data of the firm with the present data, by the time series analysis over the period of 5 to 6 years.

KOUSTUV BUSINESS SCHOOL

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THE AUTOMOBILE INDUSTRY Indian automobile industry has grown leaps and bounds since 1898, a time
THE AUTOMOBILE INDUSTRY Indian automobile industry has grown leaps and bounds since 1898, a time

THE AUTOMOBILE INDUSTRY

Indian automobile industry has grown leaps and bounds since 1898, a time when a car had touched the Indian streets for the first time. At present it holds a promising tenth position in the entire world. The monthly sales of passenger cars in India exceed 100,000 units . A surge in economic growth rate and purchasing power led to growth in the Indian automobile industry, which grew at a rate of 17% on an average. The industry provided employment to a total of 13.1 million people as of 2006-07, which includes direct and indirect employment. The export sector grew at a rate of 30% per year during early 21st century.

India was one of the largest manufacturers of tractors in the world in 2005- 06, when it produced 2,93,000 units.

India is :

1. The second largest Two Wheeler manufacturer.

2. The Largest Tractor Manufacturer.

3. 4th largest Passenger Vehicle market in Asia.

4. 5th largest Commercial Vehicle manufacturer in the world.

5. The largest three wheeler market .

6. India has the fourth largest car market in the world.

KOUSTUV BUSINESS SCHOOL

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THE INDIAN AUTOMOBILE SECTOR Although India is the fifth largest automobile manufacturer in the world,
THE INDIAN AUTOMOBILE SECTOR Although India is the fifth largest automobile manufacturer in the world,

THE INDIAN AUTOMOBILE SECTOR

Although India is the fifth largest automobile manufacturer in the world, penetration level in the country is very low, especially in the case of passenger cars. This opens a huge opportunity for the automobile companies to explore the Indian market. Changing demography also adds to the increasing demand for the vehicles. The Indian automobile industry has also made a substantial effort in developing the R & D infrastructure. This has helped in upgrading the technology and at the same time, reduced production cost.

This provides good export opportunities for Indian manufacturers, which are being duly exploited by Tata motors, Ashok Leyland, Maruti in the African, and South American markets.

The fast growth of this industry is evident by the spurt in demand for automobiles in the last few years. This is well supported by the economic reforms that have been put in place, particularly in the financial sector and in foreign direct investment. During the last decade, conscious efforts have been made to fine-tune state policy to enable the Indian automobile industry to realize its potential to the fullest.

Abolition of licensing and removal of quantitative restrictions coupled with initiatives to bring the policy framework in step with WTO requirements have set the industry on a progressive path. The freeing of the industry from this restrictive environment has helped it to restructure, absorb new technologies and align itself to global development.

KOUSTUV BUSINESS SCHOOL

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Increasing competition as a result of liberalization has led to continuous modernization as well as
Increasing competition as a result of liberalization has led to continuous modernization as well as

Increasing competition as a result of liberalization has led to continuous

modernization as well as substantial price reduction keeping pace with the international

standards. Moreover, auto finance with aggressive marketing strategies has played a big

role in boosting the automobile demand.

Major Manufacturers Of Automobiles in India:-

Tata Motors

Maruti Udyog Ltd.

General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

TVS Motors

DC Designs

Swaraj Mazda Ltd

KOUSTUV BUSINESS SCHOOL

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PART- B COMPANY PROFILE KOUSTUV BUSINESS SCHOOL 12 | Page
PART- B COMPANY PROFILE KOUSTUV BUSINESS SCHOOL 12 | Page

PART- B COMPANY PROFILE

PART- B COMPANY PROFILE KOUSTUV BUSINESS SCHOOL 12 | Page

KOUSTUV BUSINESS SCHOOL

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ORIGIN OF TATA MOTORS TATA MOTORS, formely known as TELCO (Tata Engineering & Locomotive Company)
ORIGIN OF TATA MOTORS TATA MOTORS, formely known as TELCO (Tata Engineering & Locomotive Company)
ORIGIN OF TATA MOTORS TATA MOTORS, formely known as TELCO (Tata Engineering & Locomotive Company)

ORIGIN OF TATA MOTORS

TATA MOTORS, formely known as TELCO (Tata Engineering & Locomotive Company) is a multinational corporation headquatered in Mumbai,India. It is a largest automobile & commercial vehicle manufacturing company. The OICA ranked it as the world 20 th largest automaker, based on figures for 2006.

TATA MOTORS was established in the year 1945. It is a part of TATA GROUP. It presence indeed cuts across the length and breadth of India. Over 3 million Tata vehicles runs on Indian roads, since the first rolled out in 1954.

Jamsetji Nusserwanji Tata starts a private trading firm, laying the foundation of the Tata Group. The Tata Group comprises 96 operating companies in seven business sectors: information systems and communications; engineering; materials; services; energy; consumer products; and chemicals. The Group was founded by Jamsetji Tata in the mid 19th century, a period when India had just set out on the road to gaining independence from British rule. Consequently, Jamsetji Tata and those who followed him aligned business opportunities with the objective of nation building. This approach remains enshrined in the Group's ethos to this day. The Tata family of companies shares a set of five core values: integrity, understanding, excellence, unity and responsibility. These values, which have been part of the Group's beliefs and convictions from its earliest days, continue to guide and drive the business decisions of Tata companies. The Group and its enterprises have been steadfast and distinctive in their adherence to business ethics and their commitment to corporate social responsibility.

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TATA GROUP KOUSTUV BUSINESS SCHOOL 14 | Page

TATA GROUP

TATA GROUP KOUSTUV BUSINESS SCHOOL 14 | Page
TATA GROUP KOUSTUV BUSINESS SCHOOL 14 | Page

KOUSTUV BUSINESS SCHOOL

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HVTL (SUBSIDIARY OF TATA MOTORS) HV Transmissions Limited is a leading manufacturer of automotive transmissions,
HVTL (SUBSIDIARY OF TATA MOTORS) HV Transmissions Limited is a leading manufacturer of automotive transmissions,

HVTL (SUBSIDIARY OF TATA MOTORS)

HVTL (SUBSIDIARY OF TATA MOTORS) HV Transmissions Limited is a leading manufacturer of automotive transmissions,

HV Transmissions Limited is a leading manufacturer of automotive transmissions, components & engineering applications for a wide range of medium & heavy commercial vehicles.

HVTL was established on 13th March 2000 as a major subsidiary of Tata Motors by taking over operations of Tata Motors’ erstwhile Gearbox Division. Our manufacturing facilities are located in the industrial belt of Jamshedpur in the state of Jharkhand, 250 kms from Kolkata, India’a leading metro city and is well connected by road and rail to other major cities / locations.

The Company provides products and services of superior quality, matching with the current economic and business trends in Medium and Heavy Commercial Vehicle market.

and its turnover during

2008-09 was Rs. 142.59 crores . The Company is spread over an area of 81,440 sq.

meters.

HVTL has an asset base of Rs. 278.74 crores

KOUSTUV BUSINESS SCHOOL

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The Company has a capacity of producing 1,50,000 gear boxes per year. HVTL’s inherent strength
The Company has a capacity of producing 1,50,000 gear boxes per year. HVTL’s inherent strength

The Company has a capacity of producing 1,50,000 gear boxes per year.

HVTL’s inherent strength also lies in its excellent in-house Tool room & Tool Re-Grinding facilities, prompt component development and a modern Heat Treatment shop.

HVTL's

core

competencies

are

emphasized

through

excellence

in

engineering, manufacturing standards & ultimate utilization of human potential.

The Strength of HVTL lies in:-

Strong Parentage of TML.

Strong Manufacturing Base

High Cost Competitiveness in Products offered.

Professional Management

Qualified & skilled manpower

Extensive experience & expertise in Transmissions Manufacturing acquired over the years ( Since year 1954).

Product portfolio capable of serving diverse needs (vehicles of varying power- weight ratios) & flexible to adaptation to vehicles of diverse makes

Initiatives like TPM, KAIZEN, 5S, 6 Sigma, ISO/TS 16949 :2002 (E)

HVTL has signed the BE-BP Agreement with Tata Sons & has scored in the band of 450-550 in the previous TBEM External Assessment .

'All resulting in an environment congenial for learning, creativity and innovation’

KOUSTUV BUSINESS SCHOOL

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MARKET SHARE OF HVTL  Across the domestic market – HVTL 46% market share (No.
MARKET SHARE OF HVTL  Across the domestic market – HVTL 46% market share (No.

MARKET SHARE OF HVTL

MARKET SHARE OF HVTL  Across the domestic market – HVTL 46% market share (No. 1

Across the domestic market HVTL 46% market share (No. 1 OE supplier).

In Tata Motors, we have 71% market share, TML Pune has 26% & others 3%.

100% TML, Pune M&HCV gear box volumes will be on loaded to HVTL.

VISION

To be a Most preffered partner for transmissions to existing & potential customers in Domestic & International markets, offering best value for money & become a Rs. 1500 Crore company by 2014-2015.

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MISSION  Vendors & Services providers :- To foster a long- term relationship for mutual

MISSION

MISSION  Vendors & Services providers :- To foster a long- term relationship for mutual growth.

Vendors & Services providers :- To foster a long- term relationship for mutual growth.

Employees :- To create seamless organization that inculcated and promotes innovation, excellence, safe and high performance work culture adhering to Tata code of conduct.

Shareholders :- To consistently create shareholder value through sustainable and profitable growth by continuously seeking new business opportunities and employing best method and practices and employing best in class technologies.

Customers :- To provide best value for mobet to customers through quality, cost effective & innovative transmissions solutions.

Community :- To proactively participate in environmental protection & welfare of communities around us.

CORE VALUES

Integrity.

Customer Focus.

Corporate Citizenship.

Passion for Engineering.

Innovation.

Citizenship.  Passion for Engineering.  Innovation. J. R. D Tata “ No success or achievement

J. R. D Tata

“ No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means.”

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HVTL Function in a harmonious atmosphere stemming from adopting of the basic tenets of the
HVTL Function in a harmonious atmosphere stemming from adopting of the basic tenets of the

HVTL Function in a harmonious atmosphere stemming from adopting of the basic tenets of the Tata Group’s philosophy of respect for employees and a high concern for their needs and welfare.

HVTL’S Culture is driven by ownership, responsibility and accountability at different levels which had led to sure, systematic and continues improvement and learning. This is distinctly evident form quantum and sustained improvements. One such example is the significant improvements of product.

The Culture Of HVTL is characterised by:

A passion for engineering and innovation among the employees-a major transformation of facilities in the past years has taken place with many firsts in India such as unique high quality-low cost semi automated assembly line, automated shim selection, conveyorised and automatic painting, semi automated SqF line, 5-chamber shot blasting to mention a few.

An increasing seamless work-culture through an approach of defining accountability that ensures empowerment and calls for involvement in various functions of the organization to deliver objectives.

A learning and collaborative culture fostered by soliciting externally sourced expertise which has led to setting up of modern facilities at significantly low costs.

A team based culture with CFTs to achieve stretch targets on cost, quality and other key objectives. This culture, while fostering high performance also enables HVTL to strengthen its Coe competency of being the lowest cost manufacturer of M&HCV transmissions. In fact during the recent down turn HVTL was not only able to maintain the profit in the third and fourth quarters but also achieved marked improvements in areas such as variable conversion cost.

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MANAGEMENT Board of Directors – HVTL Name Position Mr. P M Telang Chairman Mr. C

MANAGEMENT

Board of Directors HVTL

MANAGEMENT Board of Directors – HVTL Name Position Mr. P M Telang Chairman Mr. C Ramakrishnan

Name

Position

Mr. P M Telang

Chairman

Mr. C Ramakrishnan

Director

Mr. S B Borwankar

Director

Mr. Govind Shankarnarayanan

Director

Mr. N S Kulkarni

Director

Chief Executive Officer

Name

Position

Mr. M L Bapna

CEO

Chief Financial Officer

Name

Position

Mr. Amitava Roy

CFO

Company Secretary

Name

Position

Mr. Vispi S Patel

Company Secretary

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Certificates Awarded to HVTL KOUSTUV BUSINESS SCHOOL 21 | Page
Certificates Awarded to HVTL KOUSTUV BUSINESS SCHOOL 21 | Page

Certificates Awarded to HVTL

Certificates Awarded to HVTL KOUSTUV BUSINESS SCHOOL 21 | Page

KOUSTUV BUSINESS SCHOOL

Certificates Awarded to HVTL KOUSTUV BUSINESS SCHOOL 21 | Page

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Factors Contributing to Continous Development, & High Performance  HV Transmissions is a part of
Factors Contributing to Continous Development, & High Performance  HV Transmissions is a part of

Factors Contributing to Continous Development, & High Performance

HV Transmissions is a part of the engineering business of TATA group of companies that is India’s largest and best-known conglomerate, with a turnover touching Rs.33, 000 Crores, ($ 7 Billion).

Having an Asset base of Rs.293.03 Crores.

Turnover for 2008-09 was Rs.142.59 Crores

A manpower base of 1528 men

An area of 81440 square meters

Production capacity of 150000 GBS per year

The company’s strength lies in:

Skilled & highly committed employees

In house tool room and tool regrinding facilities

Prompt component development centre

Modern heat treatment shop

It is the sole supplier of gearboxes to Tata Engineering Jamshedpur and Lucknow for their entire range of commercial vehicles which they produce.

The company also supplies gearboxes to Vehicle Factory, Jabalpur for fitment on vehicles for the Indian Army which is a remarkable achievement for it.

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 The company has its own Tool room and Tool regrinding facilities as well as
 The company has its own Tool room and Tool regrinding facilities as well as

The company has its own Tool room and Tool regrinding facilities as well as a modern Heat Treatment shop consisting of Continuous Carburizing furnaces and quenching presses.

The manufacturing operations are being carried out on modern State of the Art machine tools with close quality monitoring and extensive and rigorous testing facilities regularly.

Focussed approach to on Process Control systems helps the company to meet quality standards and delivery commitments for their customer’s.

HVTL’s core competencies are emphasized through excellence in engineering, manufacturing standards and ultimate utilization of human potential.

SAP 4.6 ERP(R/3ECG 6) software is central tool for information management at HVTL. It is used to integrate all business processes and supports effective decision making. It covers all functional areas and departments including finance.

KOUSTUV BUSINESS SCHOOL

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RELATIONSHIP WITH TATA MOTORS The technical relationship between the Holding company TATA MOTORS LTD. &
RELATIONSHIP WITH TATA MOTORS The technical relationship between the Holding company TATA MOTORS LTD. &
RELATIONSHIP WITH TATA MOTORS The technical relationship between the Holding company TATA MOTORS LTD. &

RELATIONSHIP WITH TATA MOTORS

The technical relationship between the Holding company TATA MOTORS LTD. &

subsidiary HV TRANSMISSIONS LTD. is that of a Job worker. Job working means

performing some operations on the raw materials or components of one organization

by another organization, due to specialization by the latter organization or outsourcing

/not having required capacity by the former organization. The latter organization is

known as the Job worker of the former one, for which the job worker gets revenue

commonly known as PROCESSING CHARGES.

The job worker gets the required material supply form the supplying organization on

which operations are performed and thereafter the output is returned to the supplier

for use in further production.

The job worker is a system where, the job worker processes the material & components

supplied to them into finished products & has to bear the expenses of conversion, which

is paid to them in the form of PROCESSING CHARGES.

Financial Highlights of the Company

HVTL has an authorized share capital of 5,00,00,000 equity shares of Rs. 10 each. It has issued, subscribed and paid up capital of 4,00,00,000 equity shares of Rs. 10 each. Of the above, 340000000 equity shares are held by Tata motors, the holding company.

KOUSTUV BUSINESS SCHOOL

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From being a loss making company in its initial years, HVTL is now in the
From being a loss making company in its initial years, HVTL is now in the

From being a loss making company in its initial years, HVTL is now in the pink of financial health. Production numbers have steadily moved up and so has HVTLs’ sales. All financial results of HVTL have improved over the years as a reflection of overall performance improvement.

In view of strong financial performance board of directors declared payment of an interim dividend of Rs. 3.50 per share. And final dividend of Rs. 1.50 per share on 40000000 equity shares fully paid up on March 31, 2008 consequently total dividend of Rs. 5 was given.

TURNOVER

Turnover has more than doubled since 2002-03, not only through rise in volumes but also through change in product mix and higher focus on spare parts. This shows that the firm is getting good business from its customers and the firm has been able to increase its customer base. Due to global recession the turnover slightly decreased.

to increase its customer base. Due to global recession the turnover slightly decreased. KOUSTUV BUSINESS SCHOOL

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Profit after Tax, Profit before Tax and EBIDT Profit before taxes (PBT) and Profit after
Profit after Tax, Profit before Tax and EBIDT Profit before taxes (PBT) and Profit after

Profit after Tax, Profit before Tax and EBIDT

Profit before taxes (PBT) and Profit after taxes (PAT) have increased many fold on account of increased volumes, higher efficiencies and better fund management. EBIDT (Earnings before Interest, Depreciation and Taxes) dipped slightly in 2005-06 due to market corrections in salary structure and higher provisions on account of retirement benefits. With increased volumes and better productivity it has improved.

PAT, PBT and EBIDT fell sharply due to global recession since the contraction in demand.

PAT, PBT and EBIDT fell sharply due to global recession since the contraction in demand. KOUSTUV

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Earnings per Share and Dividend per Share HVTL has been paying higher dividend to its
Earnings per Share and Dividend per Share HVTL has been paying higher dividend to its

Earnings per Share and Dividend per Share

HVTL has been paying higher dividend to its shareholders. The dividend per share increased considerably from Rs. 1.5 per share to Rs. 5 per share. This shows that the company is concerned for the maximization of the firm’s value which in turn maximizes shareholders profitability.

maximization of the firm’s value which in turn maximizes shareholders profitability. KOUSTUV BUSINESS SCHOOL 27 |

KOUSTUV BUSINESS SCHOOL

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PRODUCTS OF HVTL KOUSTUV BUSINESS SCHOOL 28 | Page
PRODUCTS OF HVTL KOUSTUV BUSINESS SCHOOL 28 | Page

PRODUCTS OF HVTL

PRODUCTS OF HVTL KOUSTUV BUSINESS SCHOOL 28 | Page

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 GBS – 40 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 29 | Page
 GBS – 40 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 29 | Page

GBS 40 Synchromesh Gear Box

 GBS – 40 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 29 | Page

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 GBS- 50 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 30 | Page
 GBS- 50 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 30 | Page

GBS- 50 Synchromesh Gear Box

 GBS- 50 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 30 | Page

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 GBS- 600 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 31 | Page
 GBS- 600 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 31 | Page

GBS- 600 Synchromesh Gear Box

 GBS- 600 Synchromesh Gear Box KOUSTUV BUSINESS SCHOOL 31 | Page

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 Auxiliary Gear Box KOUSTUV BUSINESS SCHOOL 32 | Page

Auxiliary Gear Box

 Auxiliary Gear Box KOUSTUV BUSINESS SCHOOL 32 | Page
 Auxiliary Gear Box KOUSTUV BUSINESS SCHOOL 32 | Page

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 GBS- 750/680 & GBS- 1400/9 KOUSTUV BUSINESS SCHOOL 33 | Page
 GBS- 750/680 & GBS- 1400/9 KOUSTUV BUSINESS SCHOOL 33 | Page

GBS- 750/680 & GBS- 1400/9

 GBS- 750/680 & GBS- 1400/9 KOUSTUV BUSINESS SCHOOL 33 | Page

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RATIO ANALYSIS Financial ratio analysis is the calculation and comparison of ratios which are derived
RATIO ANALYSIS Financial ratio analysis is the calculation and comparison of ratios which are derived

RATIO ANALYSIS

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.

This is the measure of inter relationship between different sections of the

financial statements which then is compared with the budgeted or forecasted results, prior year results and or the Industrial results. To be most important ratios must include

a study of underlying data. Ratios should be taken as guides that are useful in evaluating a company’s financial position and operations and making comparisons with results inprevious years or with other companies. The primary purpose of ratios is to point out

areas needing further investigations. Ratios will not carry meaningful business reasoning

if there is no supporting quantitative and financial information.

When it comes to investing, analyzing financial statement information (also known as quantitative analysis), is one of, if not the most important element in the fundamental analysis process.

Ratios are relationship expressed in mathematical terms between 2 individual groups of figures connected with each other. Different ratios are calculated to analyze and study different aspects of a firm. Ratios have been classified into the following groups:

Liquidity ratios

Activity ratios

Leverage ratios

Profitability ratios

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THE USE OF FINANCIAL RATIOS  Financial Ratio are used as a relative measure that
THE USE OF FINANCIAL RATIOS  Financial Ratio are used as a relative measure that

THE USE OF FINANCIAL RATIOS

Financial Ratio are used as a relative measure that facilitates the evaluation of efficiency or condition of a particular aspect of a firm's operations and status.

Ratio Analysis involves methods of calculating and interpreting financial ratios in order to assess a firm's performance and status.

Assessment of the firm’s past, present and future financial conditions.

Done to find firm’s financial strengths and weaknesses.

Primary Tools.

Financial Statements.

Comparison of financial ratios to past, industry, sector and all firms

SIGNIFICANCE OF USING RATIOS

The significance of a ratio can only truly be appreciated when:

It is compared with other ratios in the same set of financial statements.

It is compared with the same ratio in previous financial statements (trend analysis).

It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.

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USERS OF RATIO ANALYSIS  TRADE CREDITORS are interested in firm’s ability to meet their
USERS OF RATIO ANALYSIS  TRADE CREDITORS are interested in firm’s ability to meet their

USERS OF RATIO ANALYSIS

TRADE CREDITORS are interested in firm’s ability to meet their claims over a very short period of time. Their analysis will therefore, confine to the evaluation of the firm’s liquidity position.

SUPPLIERS OF LONG TERM DEBT, on the other hand ,are concerned with the firm’s long term solvency and survival. They analyse the firm’s profitability over time, it’s ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds (capital structure relationships). Long term creditors do analyse the historical financial statements, but they place more emphasis on the firm’s projected, or proforma, financial statements to make analysis about its future solvency and profitability.

INVESTORS, who have invested their money in the firm’s shares, are most concerned about the firm’s earnings. They restore more confidence in those firms that show steady growth in earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s financial structure to the extent it influences the firm’s earnings ability and risk.

MANAGEMENT of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and the firm’s financial condition is sound.

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MANAGERIAL USES OF RATIO ANALYSIS The following are the important managerial uses of ratio analysis
MANAGERIAL USES OF RATIO ANALYSIS The following are the important managerial uses of ratio analysis

MANAGERIAL USES OF RATIO ANALYSIS

The following are the important managerial uses of ratio analysis helps in financial forecasting : Ratio analysis is very helpful in financial forecasting. Ratios relating to past sales, profits and financial positions from the basis for setting future trends.

Helps in Comparison: With the help of ratio analysis, ideal ratios can be composed and they can be used for comparing a firm’s progress and performance. Inter firm comparison or comparison with industry averages is made possible by ratio analysis.

Financial Solvency of the Firm: Ratio analysis indicates the trends in financial solvency of the firm. Solvency has two dimensions long term solvency and short term solvency. Long term solvency refers to the financial viability of a firm and it is closely related with the existing financial structure. On the other hand, short term solvency is the liquidity position of the firm. With the help of ratio analysis conclusion can be drawn regarding the firm’s liquidity and long term solvency position.

Evaluation of Operating Efficiency : Ratio analysis throws light on the degree of efficiency in the management and utilization of its assets and resources. Various activity ratios measure this kind of operational efficiency and indicate the guidelines for economy in costs, operations and time.

Communication Value : Different financial ratios communicate the strength and financial standing of the firms to the internal and external parties. They indicate the over all profitability and capital gearing etc. of the firm.

Other Uses : Financial ratios are very helpful in the diagnosis of financial health of a firm. They highlight liquidity the, solvency, profitability and capital gearing etc. of the firm.

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INTERPRETATION OF RATIOS The interpretation of ratios is an important factor. Through calculation is also
INTERPRETATION OF RATIOS The interpretation of ratios is an important factor. Through calculation is also

INTERPRETATION OF RATIOS

The interpretation of ratios is an important factor. Through calculation is also important but it is only a clerical task whereas interpretation needs skills, intelligence and forsightedness. The interpretation of the ratios can be done in the following ways.

Single Absolute Ratio

meaningful

conclusions when a single ratio is considered in isolation. But single ratios may be studied in relation to certain rules of thumb which are based upon well proven contentions.

:

Generally

speaking

one

cannot

draw

Groups of Ratio : Ratios may be interpreted by calculating a group of related ratios. A single ratio supported by related additional ratios becomes more understandable and meaningful.

Historical

of

evaluating the performance of the firm is to compare its present ratios with the past ratios called comparison over time.

Comparisons:

One

of

the

easiest

and

most

popular

ways

Projected Ratios : Ratios can also be calculated for future standard based upon the projected financial statements. Ratio calculation on actual financial statements can be used for comparison with the standard ratios to find out variance, if any. Such variance helps in interpreting and taking corrective action for improvement in future.

Inter firm Comparison: Ratios of one firm can also be compared with the ratios of some other selected firms in the same industry at the same industry at the same point of time.

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LIMITATIONS OF RATIO ANALYSIS  A firm’s industry category is often difficult to identify .
LIMITATIONS OF RATIO ANALYSIS  A firm’s industry category is often difficult to identify .

LIMITATIONS OF RATIO ANALYSIS

A firm’s industry category is often difficult to identify.

Published industry averages are only guidelines.

Accounting practices differ across firms.

Sometimes difficult to interpret deviations in ratios.

Industry ratios may not be desirable targets.

Seasonality affects ratios .

TYPES OF RATIOS

Liquidity Ratios can current debts be met

Leverage Ratios can all debts be met

Activity Ratios how efficient is the operation.

Profitability Ratios how profitable is the operation

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FINANCIAL STATISTICS OF HVTL KOUSTUV BUSINESS SCHOOL 40 | Page
FINANCIAL STATISTICS OF HVTL KOUSTUV BUSINESS SCHOOL 40 | Page

FINANCIAL STATISTICS OF HVTL

FINANCIAL STATISTICS OF HVTL KOUSTUV BUSINESS SCHOOL 40 | Page

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NET SALES Gross sales for a period after cash discounts, returns, and freight expenses have
NET SALES Gross sales for a period after cash discounts, returns, and freight expenses have

NET SALES

Gross sales for a period after cash discounts, returns, and freight expenses have been deducted.

discounts, returns, and freight expenses have been deducted. The sales figures are encouraging as there is

The sales figures are encouraging as there is a positive trend and the rate of increase is considerably high. However considering the fact that it has only one customer in the form of Tata Motors Limited the figures infers an increase in sales of TML. So in order to increase sales in a higher rate HVTL should diversify its market. The net sales went up from Rs 13924.05 lakhs in year 2000-01 to Rs 19197.82 in year 2007-08 but decreased to 14259.23 in the year 2008 09.

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Profit Before Interest and Tax PBIT is essentially Net Income with interest, taxes, depreciation, and
Profit Before Interest and Tax PBIT is essentially Net Income with interest, taxes, depreciation, and
Profit Before Interest and Tax PBIT is essentially Net Income with interest, taxes, depreciation, and

Profit Before Interest and Tax

PBIT is essentially Net Income with interest, taxes, depreciation, and amortization added back to it. It can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. However, this is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation.

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Observation The profit before interest and tax has gone up from -836.38 lakhs to 7632.56
Observation The profit before interest and tax has gone up from -836.38 lakhs to 7632.56
Observation The profit before interest and tax has gone up from -836.38 lakhs to 7632.56
Observation The profit before interest and tax has gone up from -836.38 lakhs to 7632.56

Observation

The profit before interest and tax has gone up from -836.38 lakhs to 7632.56 lakhs in 2007-08 .This is a big achievement for HVTL. As it has proved its credibility as an organization.

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Profit Before Tax -PBT A profitability measure that looks at a company's profits before the
Profit Before Tax -PBT A profitability measure that looks at a company's profits before the

Profit Before Tax -PBT

A profitability measure that looks at a company's profits before the company has to pay corporate income tax. This measure deducts all expenses from revenue including interest expenses and operating expenses, but it leaves out the payment of tax.

This measure combines all of the company's profits before tax, including operating, non-operating, continuing operations and non-continuing operations. PBT exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from year to year.

a good idea of changes in a company's profits or earnings from year to year. KOUSTUV

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Observation The profit before tax is rising in a consistent rate showing a very positive
Observation The profit before tax is rising in a consistent rate showing a very positive
Observation The profit before tax is rising in a consistent rate showing a very positive

Observation

The profit before tax is rising in a consistent rate showing a very positive trend from Rs.-2203.96 lakhs in year 2000-01 to Rs.7246 in 2007-08 reducing to 2583.1 in 2008-09.

Profit after tax (PAT)

It the net profit earned by the company after deducting all expenses like interest, depreciation and tax.

PAT can be fully retained by a company to be used in the business. However dividend is paid to the share holders from this residue.

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Observation The profit after tax is rising in a consistent rate showing a very positive
Observation The profit after tax is rising in a consistent rate showing a very positive
Observation The profit after tax is rising in a consistent rate showing a very positive
Observation The profit after tax is rising in a consistent rate showing a very positive

Observation

The profit after tax is rising in a consistent rate showing a very positive trend from Rs.-2202.96 lakhs in year 2000-01 to Rs.4744.32 in 2007-08 .

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LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its short-term financial
LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its short-term financial

LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due.

The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.

Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio.

Current Ratio : The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities.

The concept behind this ratio is to ascertain whether a company's short- term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better.

Current assets normally includes cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages).

Interpretation

1. Relatively high ratio values mean that the business is liquid, but cash is not working.

2. If the current ratio is greater than 1.0, the business is liquid.

3. If the current ratio is less than 1.0, the business is illiquid.

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Observation HVTL has a current ratio ranging between 0.42 to 0.79. This indicates that the
Observation HVTL has a current ratio ranging between 0.42 to 0.79. This indicates that the
Observation HVTL has a current ratio ranging between 0.42 to 0.79. This indicates that the

Observation

HVTL has a current ratio ranging between 0.42 to 0.79. This indicates that the current assets of the firm are less than the current liabilities. This is because the firm has always maintained a negative net working capital. Its current liabilities have always been greater than current assets. Current liabilities is greater than current assets which shows that the company is able to recover its debtors faster and has a good bargaining facility with its suppliers.

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 Quick ratio : The quick ratio -the quick assets ratio or the acid-test ratio
 Quick ratio : The quick ratio -the quick assets ratio or the acid-test ratio

Quick ratio : The quick ratio -the quick assets ratio or the acid-test ratio -is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Interpretation

1. Relatively high ratio values mean that the business is liquid, but cash is not working.

2. If the current ratio is greater than 1.0, the business is liquid.

3. If the current ratio is less than 1.0, the business is illiquid.

business is liquid. 3. If the current ratio is less than 1.0, the business is illiquid.
business is liquid. 3. If the current ratio is less than 1.0, the business is illiquid.

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Observation The firm keeps a small fraction of the current assets in liquid form. The
Observation The firm keeps a small fraction of the current assets in liquid form. The
Observation The firm keeps a small fraction of the current assets in liquid form. The

Observation

The firm keeps a small fraction of the current assets in liquid form. The managerial efficiency of the firm prevents any situation of default in payment of current liabilities.

LEVERAGE RATIO

The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners.

The relationship of owner’s equity to borrowed funds is an important indicator of financial strength.

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The debt requires fixed interest payments and repayment of the loan and legal action can
The debt requires fixed interest payments and repayment of the loan and legal action can

The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment.

Note: The greater the proportion of equity funds, the greater the degree of financial strength. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds.

Debt Ratio : The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.

A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk.

health, the debt ratio can help investors determine a company's level of risk. KOUSTUV BUSINESS SCHOOL

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Observation This ratio compares the total debt (long term as well as short term) with
Observation This ratio compares the total debt (long term as well as short term) with

Observation

This ratio compares the total debt (long term as well as short term) with total assets. Up to the financial year 2007-08 total debts were a small proportion of total assets. However in the year 2008-09, total debts have become almost equal to total assets the reason being the term loan raised in the year 2008-09.

Debt-Equity Ratio : The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.

To a large degree, the debt equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.

means that a company is using less leverage and has a stronger equity position. KOUSTUV BUSINESS
means that a company is using less leverage and has a stronger equity position. KOUSTUV BUSINESS

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Observation The ratio indicates to what extent long term debts have been employed in relation
Observation The ratio indicates to what extent long term debts have been employed in relation
Observation The ratio indicates to what extent long term debts have been employed in relation

Observation

The ratio indicates to what extent long term debts have been employed in relation to shareholders funds. The extent of employment of long term debts in relation to shareholders funds has increased to 0.61 in 2007-08. The sudden hike in the ratio is because the company took a term loan in the financial year

2007-08.

Interest Coverage Ratio : This ratio measures the debt servicing capacity of a firm as fixed interest on long term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on loans. Thus, interest 45 coverage = EBIT / Interest From the point of view of the creditors, the larger the coverage, the greater is the ability of the firm to handle fixed charge capabilities and the more assured is the payment of interest to the creditors. However, too high a ratio may imply unused debt capacity.

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The lower the ratio, the more the company is burdened by debt expense. When a
The lower the ratio, the more the company is burdened by debt expense. When a

The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings available for such payments.

Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt.

the ability of the business to service the fixed interest charges on outstanding debt. KOUSTUV BUSINESS
the ability of the business to service the fixed interest charges on outstanding debt. KOUSTUV BUSINESS

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Observation This ratio measures the ability of a firm to service debts. HVTL has a
Observation This ratio measures the ability of a firm to service debts. HVTL has a
Observation This ratio measures the ability of a firm to service debts. HVTL has a

Observation

This ratio measures the ability of a firm to service debts. HVTL has a favorable interest coverage ratio which means that in the year 2006-07. HVTL had operating profits which were 19 times that of its interest liability. The interest coverage ratio decreased considerably in 2007-08 because fresh debts were raised by the firm in the year 2007-08 the service of the term loan required huge funds still decreasing in 2008-09.

Financial Leverage Ratio : Financial leverage refers to presence of fixed charge in the income statement of the firm. Interest amount does not change with PBIT, whereas the residual profits available to shareholders is affected by a change in PBIT. Thus the ratio measures the relationship between PBIT and PBT.

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Observation Financial leverage refers to presence of fixed charge in the income statement of the
Observation Financial leverage refers to presence of fixed charge in the income statement of the

Observation

Financial leverage refers to presence of fixed charge in the income statement of the firm. Interest amount does not change with EBIT, whereas the residual profits available to shareholders is affected by a change in EBIT.

Thus the ratio measures the relationship between PBIT and PBT.

For the last 4 years, the FL ratio has been favorable. This indicates that the firm is trading on Equity.

ACTIVITY RATIO

Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues.

Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios.

Inventory Turnover Ratio : Inventory Turnover Ratio indicates how fast inventory is sold. A high ratio is good from the viewpoint of liquidity and vice versa. A low ratio would signify that inventory does not sell fast and stays on the shelf or in the warehouse for a long time.

inventory does not sell fast and stays on the shelf or in the warehouse for a

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Observation The inventory turn over ratio ranges from 8.43 in the year 2000-01 to 8.50
Observation The inventory turn over ratio ranges from 8.43 in the year 2000-01 to 8.50

Observation

The inventory turn over ratio ranges from 8.43 in the year 2000-01 to 8.50 in the year 2008-09. It was highest in the year 2002-03 due to inventory control measures taken by the management. However, it has reduced since then and measures need to be taken to increase it .

Days Of Inventory Holding :

The number of days inventory is also known as average inventory period and inventory holding period.

A high number of days inventory indicates that their is a lack of demand for the product being sold.

A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands.

may indicate that the company is not keeping enough stock on hand to meet demands. KOUSTUV
may indicate that the company is not keeping enough stock on hand to meet demands. KOUSTUV

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Observation The number of days of inventory holding has been fluctuating since inception it gradually
Observation The number of days of inventory holding has been fluctuating since inception it gradually
Observation The number of days of inventory holding has been fluctuating since inception it gradually

Observation

The number of days of inventory holding has been fluctuating since inception it gradually came down to its lowest in year 2002-03 but went up once again. However, it is seen that it ranges from 43.31 days of inventory holding in year 2000-01 to 42.96 days in year 2008-09.

Fixed Asset Turnover Ratio : This ratio is a rough measure of the productivity of a company's fixed assets (property, plant and equipment or PP&E) with respect to generating sales. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Simply the higher the yearly turnover rate, the better.

It represents a multiplicity of management decisions on capital expenditures.

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Observation The fixed asset turnover ratio went up gradually from 1.04 in the year 2000-01
Observation The fixed asset turnover ratio went up gradually from 1.04 in the year 2000-01

Observation

The fixed asset turnover ratio went up gradually from 1.04 in the year 2000-01 to 2.06 in the year 2006-07 but due to capitalization in the year 2007-08 it fell to

0.66.

Total Assets Turnover Ratio : This ratio is also known as the investment turnover ratio. It is based on the relationship between the cost of goods sold and assets/ investments of a firm as reflected in its earning power. Depending upon the different concepts of assets employed, there are many variants of this ratio.

upon the different concepts of assets employed, there are many variants of this ratio. KOUSTUV BUSINESS
upon the different concepts of assets employed, there are many variants of this ratio. KOUSTUV BUSINESS

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Observation : As it is a manufacturing industry it has a higher composition of fixed
Observation : As it is a manufacturing industry it has a higher composition of fixed
Observation : As it is a manufacturing industry it has a higher composition of fixed

Observation :

As it is a manufacturing industry it has a higher composition of fixed assets .The total asset turnover ratio is consistently below 1 because the company is a job worker. However the trend shows that this ratio has been rising because of increase in sales from 0.72 in year 2000-01 to 0.96 in year 2004-05 .

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Profitability Ratios Profit margin analysis uses the percentage calculation to provide a comprehensive measure of
Profitability Ratios Profit margin analysis uses the percentage calculation to provide a comprehensive measure of

Profitability Ratios

Profit margin analysis uses the percentage calculation to provide a comprehensive measure of a company's profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks.

Basically, it is the amount of profit (at the gross, operating, pretax or net income level) generated by the company as a percent of the sales generated. The objective of margin analysis is to detect consistency or positive/negative trends in a company's earnings. Positive profit margin analysis translates into positive investment quality. To a large degree, it is the quality, and growth, of a company's earnings that drive its stock price.

EBIDTA : A company's cost of sales, or cost of goods sold, represents the expense related to labour, raw materials and manufacturing overhead involved in its production process. This expense is deducted from the company's net sales/revenue, which results in a company's first level of profit, or gross profit. The gross profit margin is used to analyze how efficiently a company is using its raw materials, labour and manufacturing-related fixed assets to generate profits. A higher margin percentage is a favorable profit indicator.

assets to generate profits. A higher margin percentage is a favorable profit indicator. KOUSTUV BUSINESS SCHOOL

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Observation The gross profit margin is consistently high. We can see that in year 2006-07
Observation The gross profit margin is consistently high. We can see that in year 2006-07

Observation

The gross profit margin is consistently high. We can see that in year 2006-07 it went up to 41.94% then reduced to 18.12% in 2008-09.

Net Profit Margin : Often referred to simply as a company's profit margin, the so-called bottom line is the most often mentioned when discussing a company's profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company's profit margins on a systematic basis.

to take a comprehensive look at a company's profit margins on a systematic basis. KOUSTUV BUSINESS
to take a comprehensive look at a company's profit margins on a systematic basis. KOUSTUV BUSINESS

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Observation The net profit margin rose considerably from 15.82% in the year 2000-01 to 25.62%
Observation The net profit margin rose considerably from 15.82% in the year 2000-01 to 25.62%
Observation The net profit margin rose considerably from 15.82% in the year 2000-01 to 25.62%

Observation

The net profit margin rose considerably from 15.82% in the year 2000-01 to 25.62% in 2006-07 but is decreased in the year 2008-09. The trend however shows a consistent net margin since 2003-04.

Return On Equity : This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.

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Widely used by investors, the ROE ratio is an important measure of a company's earnings
Widely used by investors, the ROE ratio is an important measure of a company's earnings

Widely used by investors, the ROE ratio is an important measure of a company's earnings performance. The ROE tells common shareholders how effectively their money is being employed. Peer company, industry and overall market comparisons are appropriate; however, it should be recognized that there are variations in ROEs among some types of businesses.

should be recognized that there are variations in ROEs among some types of businesses. KOUSTUV BUSINESS
should be recognized that there are variations in ROEs among some types of businesses. KOUSTUV BUSINESS

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Observation HV Transmission Limited has done well in terms of return on equity which shows
Observation HV Transmission Limited has done well in terms of return on equity which shows
Observation HV Transmission Limited has done well in terms of return on equity which shows

Observation

HV Transmission Limited has done well in terms of return on equity which shows that in year 2000-01 it was -27.54% but in year 2007-08 it has risen to 33.74, in turn decreasing to 12.91 in 2008-09%.

Return On Investment : In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction.

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Return on investment is a very popular metric because of its versatility and simplicity. That
Return on investment is a very popular metric because of its versatility and simplicity. That

Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.

other opportunities with a higher ROI, then the investment should be not be undertaken. KOUSTUV BUSINESS
other opportunities with a higher ROI, then the investment should be not be undertaken. KOUSTUV BUSINESS

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Observation The return on investment had been quiet encouraging where as it has been inconsistent
Observation The return on investment had been quiet encouraging where as it has been inconsistent
Observation The return on investment had been quiet encouraging where as it has been inconsistent

Observation

The return on investment had been quiet encouraging where as it has been inconsistent . It is fluctuating every year. A more sustainable and consistent figures are something which the management should look forward to achieve. It ranges from -5.15% in year 2000-01 to 9.27% in year 2008-09.

Earnings Per Share -EPS : The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

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When calculating, it is more accurate to use a weighted average number of shares outstanding
When calculating, it is more accurate to use a weighted average number of shares outstanding
When calculating, it is more accurate to use a weighted average number of shares outstanding

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

It is also a major component used to calculate the price-to-earnings valuation ratio. KOUSTUV BUSINESS SCHOOL

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Observation The earning per share has gone up considerably which is a very good news
Observation The earning per share has gone up considerably which is a very good news
Observation The earning per share has gone up considerably which is a very good news

Observation

The earning per share has gone up considerably which is a very good news for the share holders . From 0 in year 2000-01 it has climbed to 11.86 in year 2007-08 with a decrease to 4.86 in the year 2008 09.

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WORKING CAPITAL Working capital, also known as net working capital, is a financial metric which
WORKING CAPITAL Working capital, also known as net working capital, is a financial metric which

WORKING CAPITAL

Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

An increase in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors.

Gross Working Capital : Total current assets.

Net Working Capital : Current assets -Current liabilities.

Net operating working capital (NOWC) : Operating CA Operating CL =

(Cash + Inv. + A/R) (Accruals + A/P)

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FACTORS TO CONSIDER  Accounts receivable management  Inventory management  Diversification of operations 
FACTORS TO CONSIDER  Accounts receivable management  Inventory management  Diversification of operations 

FACTORS TO CONSIDER

Accounts receivable management

Inventory management

Diversification of operations

Type of business

Grain merchandising practices

Prepayment activity

Leverage

Expansion plans

PRINCIPLES OF WORKING CAPITAL

There are four principle of working capital management. They are being depicted as below :

(i) Principle of Risk Variation: -The goal of WC management is to establish a suitable trade between profitability and risk. Risk here refers to a firm's ability to honor its obligation as and when they become due for payments. Larger investment in current assets will lead to dependence. Short term borrowings increases liquidity, reduces risk and thereby decreases the opportunity for gain or loss On the other hand the reserve situation will increase risk and profitability And reduce liquidity thus there is direct relationship between risk and profitability and inverse relationship between liquidity and risk.

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(ii) Principle of Cost Capital: -The various sources of raising WC finance have different cost
(ii) Principle of Cost Capital: -The various sources of raising WC finance have different cost

(ii) Principle of Cost Capital: -The various sources of raising WC finance have different cost of capital and the degree of risk involved. Generally higher the cost lower the risk, Lower the risk higher the cost. A sound WC management should always try to achieve the balance between these two.

(iii) Principle of Equity Position: -This principle is considered with planning the

total investment in current assets. As per this principle the amount of WC investment in each component should be adequately justified by a firms equity position. Every rupee contributed current assets should contribute to the net worth of the firm The level of current assets may be measured with the help of two ratios. They are:

Current assets as a percentage of total assets.

Current assets as a percentage of total sales.

(iv) Principle of Maturity Payment: -This principle is concerned with planning

the source of finance for WC. As per this principle a firm should make every effort to relate maturities of its flow of internally generated funds in other words it should plan its cash inflow in such a way that it could easily cover its cash out flows or else it will fail to meet its obligation in time.

NEED FOR WORKING CAPITAL

For earning profit and continue production activity, the firm has to invest enough funds in Current Assets in generating sales. Current Assets are needed because sometimes sales do not convert into cash instantaneously and it includes an operating cycle.

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ESTIMATING WORKING CAPITAL NEEDS Working Capital needs can be estimated by three different methods, which
ESTIMATING WORKING CAPITAL NEEDS Working Capital needs can be estimated by three different methods, which

ESTIMATING WORKING CAPITAL NEEDS

Working Capital needs can be estimated by three different methods, which have been successfully applied in practice.

They are follows:

1. Current Assets Holding Period: To estimate Working Capital requirements

on the basis of average holding period of Current Assets and relating them to costs based on the company's experience in the previous years. This method is based on the operating cycle concept.

2. Ratio of Sales: To estimate Working Capital requirements as a ratio of sales

on assumption that Current Assets change with sales.

3. Ratio of fixed Investment: To estimate Working Capital requirements as a

percentage of fixed investment.

CRITERIA FOR EVALUATION OF WORKING CAPITAL MANAGEMENT.

Working capital can be considered in 2 ways.

One, When working capital is viewed as the difference between current assets and current liabilities, the basic objective of working capital appears to be one of providing adequate cover to meet the current obligations of a company as and when they become due. This approach lays greater emphasis on the liquidity aspect of working capital.

Second, When working capital is looked upon as the amount held in different forms of current assets to provide adequate support to the smooth functioning of the normal business operations of a company the objective becomes one of deciding the tradeoff between liquidity and profitability.

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WORKING CAPITAL MANAGEMENT Decisions relating to working capital and short term financing are referred to
WORKING CAPITAL MANAGEMENT Decisions relating to working capital and short term financing are referred to

WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash Management : Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

Inventory Management : Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs -and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity.

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 Debtors Management : Identify the appropriate credit policy, i.e. credit terms which will attract
 Debtors Management : Identify the appropriate credit policy, i.e. credit terms which will attract

Debtors Management : Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.

Short Term Financing: Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

(or overdraft), or to "convert debtors to cash" through "factoring". KOUSTUV BUSINESS SCHOOL 81 | Page

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GROSS WORKING CAPITAL The firm's investment in current assets (such as cash and marketable securities,
GROSS WORKING CAPITAL The firm's investment in current assets (such as cash and marketable securities,

GROSS WORKING CAPITAL

The firm's investment in current assets (such as cash and marketable securities, receivables, and inventory).

Gross Working Capital refers to the firm's investment in Current Assets. Current Assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short-term securities, debtors (account receivables or book debts), bills receivables and stock (inventory).

The concept of Gross Working Capital focuses attention on two aspects of Current Assets' management. They are:

a) Way of optimizing investment in Current Assets.

b) Way of financing current assets.

Gross Working Capital = Total Current Assets of the company during the financial year.

Gross Working Capital = Total Current Assets of the company during the financial year. KOUSTUV BUSINESS

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Observation The gross working capital of the firm decreased initially but since 2003 it has
Observation The gross working capital of the firm decreased initially but since 2003 it has
Observation The gross working capital of the firm decreased initially but since 2003 it has

Observation

The gross working capital of the firm decreased initially but since 2003 it has been increasing considerably. The gross working capital for the financial year 2008-09 is Rs. 3620.46 lakhs.

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NET WORKING CAPITAL Net Working Capital, is defined as Current Assets minus Current Liabilities. Current
NET WORKING CAPITAL Net Working Capital, is defined as Current Assets minus Current Liabilities. Current

NET WORKING CAPITAL

Net Working Capital, is defined as Current Assets minus Current Liabilities. Current assets include stocks, debtors, cash & equivalents and other current assets. Current liabilities include all the short-term borrowings.

Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditors or accounts payables, bills payables and outstanding expenses. Net Working Copulate can be positive or negative. A positive Net Working Capital will arise when Courtney Assets exceed Current Liabilities and vice versa.

Concept of Net Working Capital

This is a qualitative concept. It indicates the liquidity position of and suggests the extent to which working Capital needs may be financed by permanent sources of funds. Current Assets should be optimally more than Courtney Liabilities. It also covers the point of right combination of long term and short-term funds for financing court Assents. For every firm a particular amount of net Working Capital in permanent. Therefore it can be financed with long-term funds.

The net working capital metric is directly related to the current ratio. If you look at the calculation of the current ratio, you see that you use the same balance sheet data to calculate net working capital.

Net Working Capital = Total Current Assets Total Current Liabilities

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Observation The net working capital of the firm has been negative throughout since its inception.
Observation The net working capital of the firm has been negative throughout since its inception.

Observation

The net working capital of the firm has been negative throughout since its inception. There has been various changes in the net working capital of the firm. However, the current liabilities of HVTL have always been greater than the current assets.

CONCLUSION

From the ratio analysis of the firm we come to know about the profitability of the firm. Leverage ratios indicate the composition of long term debts and its impact on overall financial position of the firm. Liquidity ratios give idea maintenance of liquid assets in the company. From the analysis of the working capital and its components of HVTL, we found that the company follows aggressive policy of managing liquidity . The company is earning huge profits and is in good financial health.

HVTL despite having a negative net working capital, the company is in sound financial health. This indicates the managerial efficiency of the company. The company does not have unnecessary funds tied up in the form cash or any current assets increasing the liquidity and thus decreasing the profitability of the company. As there is a tradeoff between profitability and liquidity the firm maintains current assets up to the level necessary for the smooth functioning of the business.

On the current liabilities side, there are various non cash provisions for employees of the company. Sundry creditors are managed by keeping a close check on the deferral period. The profitability ratio shows that the organization is making good profits and paying dividend worth Rs.5 per share. Which proves HVTL’s credibility.

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RECOMMENDATIONS  The revenue from the sale of products and other income for the year
RECOMMENDATIONS  The revenue from the sale of products and other income for the year

RECOMMENDATIONS

The revenue from the sale of products and other income for the year 2008-09 is Rs.14294.06 lakhs which has decreased in comparison to the previous year which was Rs.19229.42 lakhs.

The company paid 2459.90 lakhs as the dividend which has increased in comparison to the previous year, which was Rs 701.97 lakhs.

The relationship between HVTL and Tata Motors is that of a job worker. The gear boxes are produced in accordance with the production schedule received from Tata Motors. Whatever is produced is dispatched to Tata Motors immediately.

The gross working capital of the firm decreased initially but since 2003 it has been increasing considerably. The gross working capital for the financial year 2008-09 is Rs. 3620.46 lakhs.

The net working capital of the firm has been negative throughout since its inception. There has been various changes in the net working capital of the firm. However, the current liabilities of HVTL have always been greater than the current assets.

Ideally the current ratio of 2:1 is considered satisfactory. But, HVTL has a current ratio ranging between .71 to .58 this indicates that the current assets of the firm are less than the current liabilities. This is because the firm has always maintained a negative net working capital. Its current liabilities have always been greater than current assets.

HVTL has been able to save Rs. 281 lakhs in the financial year 2008-09 by direct material cost reduction.

Profit after tax has reduced by 58.27% for the financial year 2008-09 in comparison to the previous year PAT due to global recession affecting customer’s demand.

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