INDEX

1. 2. 3. 4. 5.
Executive Summary Objective Introduction To Topic Research Methodology Company Profile Product and Services Financial Highlights Graphical Presentation of Operational and Financial Results

Pg. No.
05 06 07 09 10 13 17 18 19 23 24 25 26 27 28 30 34 53 60 73 76 77 78 79

6.

Information Of Ratio Analysis Financial Statement Analysis History Of Financial Analysis Conceptual Framework Of Ratio Analysis Users of Accounting Information What Did The Users Of Accounts Need To Know? Which ratios will each of these groups be interested in? Information and Analysis Ratio Analysis Classification of Ratios

6. 7. 8. 9. 10. 11. 12.

EXPORT PROCESS INVOLVEMENT OF FOREIGN EXCHANGE AND RISK MANAGEMENT OBSERVATIONS, FINDINGS AND SUGGESTIONS BIBLIOGRAPHY BALANCE SHEET PROFIT & LOSS ACCOUNT CASH FLOW STATEMENT

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Executive Summary
Project Title: Financial Statement Analysis and Interpretations. Company Name: Siyaram Silk Mills Ltd.

Introduction:
Siyaram Silk operates through divisions like fabrics, yarn, garments, furnishings, and exports. It offers textile brands like Siyarams, Mistair, J. Hampstead, Oxemburg, Miniature and Featherz. The company operates four weaving plants, two yarn plants, and a readymade garment plant spread across Maharashtra and Gujarat. It has an installed capacity of 367 looms, 439 stitching machines, and 4,500 tons of yarn dyeing capacity, of which 1,500 tons were installed in FY07. Siyaram Silk has also ventured into retail, opening a few shops where all its brands will be under one roof. Siyaram Silk exports to countries in Europe, the Middle East, Africa, Australia, America, and Latin America. In FY07, the sale of readymade garments grew by around 32%, whereas the sale of yarn grew by around 28%. For the same period, the company installed 99 looms, which increased fabric-weaving capacity by 5 MMPA. In FY07, it formed two subsidiaries namely Siyaram Polycote Ltd and Oxemberg Clothing Ltd.

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OBJECTIVES
To obtain a true insight into financial position of the company. To make comparative study of financial statements of different years. To draw the correct picture of the financial operations of the company in terms of liquidity, solvency, turnover, profitability etc. To find out the reasons for unsatisfactory results. To study the Tata motors cost reduction programme.

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Introduction to Topic
Every financial manager is involved in financial decision making and financial planning in order to take right decision at right time, he should be equipped with sufficient past and present information about the firm and its operations and how it is changing overtime. Much of this information that is used by financial manager to take various decisions and to plan for the future is derived from the financial statements. The project, Financial Statement Analysis and Interpretations of Siyaram Silk Mills Ltd. focuses to analyze the financial statements and to study different ratios over the period of 5 years to determine the financial position of Siyaram Silk Mills Ltd. Financial analysis involves the use of various financial statements. These statements do several things. First, the balance sheet summarizes the assets, liabilities and owners equity of a business at moment in time, usually the end of a year or a quarter. Next the income statement summarizes the revenues and expenses of the firm over a period of time while balance sheet represents a snapshot of the firm s financial position at a moment in time. Financial management is planning and controlling of financial resources of a firm with a specific objective. Since, financial management as a separate discipline is of recent origin, it is still in a developing stage. It is very crucial for an organization to manage its funds effectively and efficiently. Financial management has assumed greater importance today as the financial strategies required to survive in the competitive environment have become very important. In the financial markets also new instruments and concepts are coming and one must say that a finance manager of today is operating in a more complex environment. A study of theories and concepts of financial management has therefore become a part of paramount importance for academics as well as for practitioners but there are many concepts and theories about which controversies exist as no unanimous opinion is reached as yet. Page 4

The project, Financial Statement Analysis and Interpretations of Siyaram Silk Mills Ltd. further aims at discussing and understanding the concepts of financial management of Alfa Laval (India) Limited; the functions expect to be performed by the financial management as well as the objectives of financial managements.

Research Methodology

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The focus of this chapter is on the methodology used for the collection of data for research. Data constitutes the subject matter of the analyst. The primary sources of the collection of sources of the collection of data are observations, Interviews and the questionnaire technique. The secondary sources are collections of data are from the printed and annually published materials. A questionnaire form is prepared to secure responses to certain questions. It is device for securing answers to questions by using a form.

Primary Data:
Data that is collected for the specific purpose at hand is called as primary Data. The Primary Data was collected in the following manner: The history of the Siyaram Silk Mills Ltd. Other company related information. Areas of operations.

Secondary Data:
Secondary data highlights the contextual familiarities for primary data collection. It provides rich insights into the research process. Secondary data is collected through following sources: 1. Published Sources: Annual report of Siyaram Silk Mills Ltd. from the year from 2004 to 2008. Profit and Loss accounts statements. Balance sheet (assets and liabilities).

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COMPANY PROFILE
SIYARAM SILK MILLS LIMITED is a part of the SIYARAM PODDAR GROUP OF COMPANIES was incorporated on 29th June 1978. The group, founded in 1954, was into the textile (yarns, fabrics and garments), paper/paperboards and tyre (rubber tyres and tubes) businesses. While Govind Rubber Ltd. (GRL) was into the auto and bicycle tyres and tubes business, Balkrishna Industries Ltd. (BIL) was into the manufacturing of paperboards, tyres/tubes and synthetics. Initially, Siyaram Silk Mills Ltd. was engaged in trading activity of suiting and shirting. Over the period of time, the company has expanded, diversified and integrated its facilities substantially and presently has facilities for manufacturing and marketing of suiting, shirting, texturising, dyeing yarn and ready-made garments. Its popular brands included Oxemberg (shirts, trousers and jeans), J.Hampstead (wool fabric), MSD & many more. Siyaram was incorporated in June 1978 as a private limited company and was converted into a public limited company in 1980. Siyaram had a strong presence in the lower and medium segment of the domestic suitings market. The company had three manufacturing plants situated at Thane and Raigad in Maharashtra and Silvassa in the union territory of Dadra & Nagar Haveli, producing over 27.5 million meters of fabrics annually & having a 4% market share in the Rs 50 billion suitings and shirtings market.

VISION
To be a global leader in fashion fabrics and delight the customer by creating products that offer unmatched superiority.

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MISSION
To Achieve Total Customer Satisfaction To Remain Globally Competitive by Focussed Attention in Conversion Cost Attaining International Productivity Levels Minimizing Wastage Leveraging Economies of Scale To continue to invest in technologies to keep ourselves future ready To continuously invest in Human Resource Development

Twenty years and counting thats how long Siyarams Suitings has been at it, coaxing Indians abroad to return home to their roots. Indeed, Siyarams tune and slogan Coming Home to Siyarams has lasted well over two decades and is still going steady. The company has shown uninterrupted growth in sales as well as in profitability. The company enjoys excellent reputation in the fiercely competitive textile market and it has a proven track record of continuous growth, so far untouched by recession and intense competition. Stringent quality norms and an eye for detail is what make Siyaram products unique. Produced in its eco friendly high-tech plants at Tarapur and Silvassa where a configuration of Shuttleless Dornier Rapier, Sulzer Projectile & Toyoda Air Jet weaving machines create the fabric, the world-class processing-cum-finishing plant at Tarapur is one-of-its-kind with its machinery imported from Japan, Italy, U.K., Germany and Switzerland. This is the only plant in India which can process various blends like polyester-viscose, poly-wool, polyester-cotton, all under one roof. Having a strong team of qualified chemical, electronics and mechanical engineers, Page 8

Siyarams put emphasis on talented manpower to ensure timely delivery and skill to produce tailor-made products. Manpower across functions, have been nurtured over the years and have remained with the company in a mutually satisfying relationship and today ,Siyarams is one of the few remaining branded textile companies that can boast of low employee turnover ratios. The vision is to translate the domestic leadership to global levels by ensuring customer delight by catering to their every need and be a global leader in the textile and fashion industry. Growth translates to added responsibility and Siyarams have opened its doors to young professionals today to work in a thriving environment that encourages freedom as well as experimentation. Siyarams new crop of managers have begun laying the foundation for the company to reach unprecedented heights. Being the leaders, this difficult part of this task is building inroads into largely unchartered territory and we need enthusiastic individuals with conviction and passion to join us in this task across all functions.

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PRODUCTS
FABRIC & BRANDS
Siyaram's is home to some of the country's leading textile brands. It is one of our most prestigious brands, and has been leading the fashion revolution for over two decades.

1. OXEMBERG
Oxemberg, a 12 year old brand from the Siyaram Poddar Group and a trusted name in textiles launches their formal and casual wear at the 48th National Garment Fair in Mumbai. It is a readymade line of shirts in cottons, rayons, polyblends, terrycots and woolen blends. The product range comprises of formal shirts and trousers, casual shirts and trousers, jeanswear and accessories viz., handkerchiefs and socks. Oxemberg, has always taken great pride in being the trend setters in men's fashion. A part of the Siyaram Poddar Group, Oxemberg is a multi - product men's wear wardrobe brand that offers contemporary clothing options, which exemplify excellent quality and genuine value. The range is right for the pocket too. In view of these latest fashion trends, Oxemberg has enabled the common man to constantly upgrade his look right where he is. Men's wear will never be the same again. Its only natural, therefore, that Oxemberg epitomizes this single most quintessential attribute-Style. This is a brand that personifies the modern man whose wit, versatility and ingenuity make him ready for anything. Each aspect of Oxemberg garments go through international standards of quality inspection. Every detail in the fabric is woven to perfection, an end product that accentuates the style icon in You.

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The last 12 years has seen Oxemberg make a successful foray into the global markets and has received enthusiastic response in Germany, United Kingdom, Australia, Switzerland, New Zealand, Middle East, Spain and Sri Lanka.

2. J.HAMPSTEAD
J.Hampstead one of India's most premium brands showcases range of wool and woolen blends for those who seek high quality fabrics. J.Hampstead was a very popular suiting brand in Europe, renowned for its premium 100% wool suitings woven from rich natural fibers like merino wool, cashmere and woolsilk. In 1995, Siyaram tied up with J.Hampstead for marketing its suitings in India. The company imported the fabric from Italy. It was priced in the range of Rs 1,500-1,600 per meter. In September 1997, Siyaram decided to begin manufacturing the brand at its plants with technical assistance from J.Hampstead. The product was slightly different from the imported version and was priced in the range of Rs 275-1000 per meter. J.Hampstead also provides interesting blends and designs. J.Hampstead had been rated the top Suiting Brand as per the report published in the Economic Times, Mumbai. Siyaram earmarked around Rs 50 million for the marketing, sales and promotion of J Hampstead. The first phase of this promotion was in the form of commercials featuring Indian tennis superstars Leander Paes and Mahesh Bhupati. These commercials with the positioning line, The finest fabric in the world,'were aimed at positioning the brand in the premium segment.

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3. MSD MONDAY to SUNDAY DRESSING

New Ready-to-wear brand: MSD - Monday to Sunday Dressing (For Men Only). Recognising the increasing role that retail plays in the country and with a clear focus to tap into this trend, Siyaram's is now getting into the RTW sector with a view to capture the ever changing fashion trends. The company is now forward integrating itself from fabric manufacturing to a designer of readymade garments and accessories for men. The Company plans to get into the readymade sector with their new brand "Siyaram's MSD" incorporating the latest design trends. The "Siyaram's MSD" (an acronym of Monday to Sunday Dressing) range is a complete range of garments and accessories catering to the lifestyle, aspirations and tastes of the neo-Indian. With a guiding philosophy of - One Man, One Brand, Many Moods, Many Occasions the Siyarams MSD brand has an offering that is multi-faceted and diverse. Targeted at the core target segment of 20-35yr olds, the range will comprise of formals, semi formals, casuals and club wear. Starting with shirtings in the initial stages, the brand will offer Complete Wardrobe Solutions to the young Indian male. The two greatest USPs of the Siyaram's MSD Brand would be the extensive 30,000odd retail outlets from where its fabrics are already sold (no other brand in the country has such a wide penetration) and secondly, the Fabric Expertise that Siyaram's has, which would ensure that the consumer gets the best quality at an affordable price. Siyarams MSD is targeted at todays youth and aims to provide its customers the best product quality at the most affordable prices. Shirts would priced between Rs. 600-Rs. 1200 and trouser between Rs. 500-Rs. 1400. Every product will carry the new flarrow as the symbol of style, passion, dynamism and timelessness. Page 12

The Siyarams MSD brand has ambitious plans to become the largest ready-to-wear mens brand within the next 5-years and an aggressive marketing plan has been put in place to achieve the same.

4. MISTAIR
Mistair is the fabric for the new age man who his young at his heart. Innovative finishes, classic feel and a stamp of luxury is the hallmark of Mistair. Having a range of fashion fabrics of its own, Mistair has two categories of fabrics one is Work wear and the other luxury wear. Mistair fabric is for Bickers and Rockers for a young energetic relaxed look. Mistair has a refreshingly new range of fashion fabrics in speciality weaves, finishes and textures, created specially for the new generation.

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Financial Highlights of Siyaram Silk Mills Ltd. over 5 Years

YEAR
Sales & Other Income PBIDT PAT Share Capital

2008
629.79 39.53 8.6 9 .37 126. 99 136. 36 4 .68 145. 53 10.38 3.37%

2007
533.27 45.37 17.34

2006
456.76 42.64 14.83

2005
339.68 29.15 7.6 6 .25 99 .31 105 .56

2004
305.04 24.25 7.4

9.37 12 3.39 13 2.76

6.25 111 .93 118 .18

6.25 93 .71 99 .96

Reserves & Surplus

Shareholder Funds

Dividends

4.68 14 1.69 7.56 7.14%

3.12 189 .09 21.6 6.31%

2.5 16 8.9 9.34 3.70%

2.5

Book value of the Share P/E ROE

159.94 8.35 3.62%

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Graphical presentation of operational and financial Results

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Financial Statement Analysis

Introduction:
A Financial Statement is a compilation of data, which is logically and consistently organized according to accounting principles. Its purpose is to convey an understanding of some financial aspects of a business firm. It shows a position at a movement in time, as in the case of balance sheet, or reveals a series of activities over a given period of time, as in the case of an income statement. Financial statements are the major means through which firms present their financial situation to stock holders, creditors and general public. The majority of firms which include extensive financial statements in their annual reports, which receive wide distribution.

Nature of financial statement Analysis:

Financial Statement Analysis consist of the application of analytical tools and techniques to the data in financial statements in order to derive from them measurements and relationships that are significant and useful for decision making. The process of financial analysis can be described in various ways, depending on the objectives to be obtained. Financial analysis can be used as a preliminary screening tool in the selection of stocks in the secondary market. It can be used as a forecasting tool for future financial conditions and results. It may be used as a process of evaluation and diagnosis of managerial, operating or other problem areas. Above all, financial analysis reduces reliance on intuition, guesses and thus narrows the areas of uncertainty that is present in all decision making processes. Financial analysis does not lesson the need for judgment but rather establishes a sound and systematic basis for its rational application.

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Sources of Financial Information:

The financial data needed in financial analysis come from many sources. The primary source is the data provided by the firm itself in its annual report and required disclosures. The annual report comprises the income statement, the balance sheet, and the statement of cash flows, as well as footnote to these statements. Besides this information such as the market price of securities publicly traded corporations can be found in the financial press and the electronic media daily. The financial press also provides information to stock price indices for industries and for market as a whole.

The Principal Tools of Analysis:

In the analysis of financial statements, the analyst can have a variety of tools available from which he can choose the best suited to his specific purpose. The following are the important tools of analysis.

The Principles Tools/Techniques of Financial Analysis:

Ratio Analysis Funds Flow Analysis Cash Flow Analysis Trend Analysis

Ratio Analysis:
This is the important tool available to financial analyst for their work. An accounting ratio shows the relationship in mathematical terms between two interrelated accounting figures. The figures have to be interrelated, because no useful purpose will be served if ratios are calculated between two figures, which are not all related to each other.

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Funds Flow analysis:

Funds flow analysis has become an important tool in the analytical kit of financial analysis, credit granting institutions and financial managers. This is because the balance sheet of the business reveals its financial status at a particular point of time. It reveals the changes in working capital position. It tells about the sources from which the working capital was obtained and the purpose for which it was used. It brings out the changes, which have taken place behind the balance sheet. The information it contains in the selection, reclassification and summarization of the data contained in profit and loss account and balance sheet, it is no way replacement of either these statements. To provide a comparative view of movement of funds by the statement of changes in financial position is prepared for the period covered by the profit and loss account as well as the corresponding previous period.

Cash Flow Analysis:

Cash flow analysis is a statement, which measures inflows and outflows of cash on account of any type of business activity. The cash flow statement also explains reasons for such inflows and outflows of cash. Cash flow statement maybe prepared on the basis of actual or estimated data. A projected cash are the where came part of the statement. Sources of cash can be both internal as well as external. A proper planning of cash resources will enable the management to have cash available when ever resources will enable the management to have cash available whenever needed and put it to some profitable or productive use in case there is surplus cash available.

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Trend Analysis:
Analysts make a trend analysis of performance over the past five to ten years to get an overall picture. Trend analysis is made in respect of sales, cost of sales, gross profit, net profit (before tax), net profit (after tax), net worth, debt, dividend policy, bonus and Rights issues, return on net worth, earnings per share, etc.

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History of financial Analysis

Analysis of financial statements has had its greatest growth since 1990 s. A major impetus came from increasing need from increasing need on the part of grantors of commercial credit such as bankers, financial institutions etc, to understand the condition of their customer. At the same time businessman need to understand their own conditions of their own enterprise in order to assure its survival in stress of competition. Satisfaction of these needs has been assisted by the continuous development of accounting as a science and passing of income tax law in1993. This required preparation of balance sheets and income statements, as they are the basic statements required for the income tax purpose. Thus a reasonably reliable data from which typical financial ratios could be calculated has become increasingly available. Between 1919 and 1929 four men pioneered in development of financial ratios. These where James bliss who published a book on this subject in 1923. Alexander wall, head of Robert Morris associates and Raymond W Dunning, published a work on this subject in 1928 and Roy Foulke, who made some of the first detailed compilations and studies between 1925 and 1928.

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Conceptual Framework of Ratio Analysis

Financial ratios are always fascinating because they convey the impression of precision in analyzing the financial position of the company. Financial ratios are only tools of analysis. However their effectiveness depends upon the know how of using them for specific purpose. The ratio is relationship between two variables. Any number of relationships that is ratio can construct provided we first identify the variables to be studied. Therefore there is nothing like standard set of ratios which can be used at any time for any purpose. New ratio can be developed specifically for the purpose or the mechanics of constructing the given ratio can be suitably adjusted to suit the purpose. Intact a resourceful financial analyst can develop novel and fascinating ratios which can serve his purpose better than the pedestrian stock. Having established the point that ratios should be constructed and used keeping in view the purpose, we shall examine generally the purpose for which the ratio analysis could be employed. Ratios are used as tools of appraising financial performance of the company. There two distinct viewpoints in such analysis; the managements viewpoint and the investors viewpoint. The interests of both these groups are not mutually exclusive; they are complimentary to each other. Both these groups are interested in key areas that compromise the financial performance of the company.

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Users of Accounting Information

The list of categories of readers and users of accounts includes the following people and groups of people: Investors Lenders Managers of the organization Employees Suppliers and other trade creditors Customers Governments and their agencies Public Financial analysts Environmental groups Researchers: both academic and professional

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What do the Users of Accounts Need to Know?

Investors - To help them determine whether they should buy shares in the business, hold on to the shares they already own or sell the shares they already own. They also want to assess the ability of the business to pay dividends. Lenders - To determine whether their loans and interest will be paid when due. Managers - Might need segmental and total information to see how they fit into the overall picture Employees - Information about the stability and profitability of their employers to assess the ability of the business to provide remuneration, retirement benefits and employment opportunities Suppliers and other trade creditors - Businesses supplying goods and materials to other businesses will read their accounts to see that they don't have problems: after all, any supplier wants to know if his customers are going to pay their bills! Customers - The continuance of a business, especially when they have a long term involvement with, or are dependent on, the business Governments and their agencies - The allocation of resources and, therefore, the activities of business. To regulate the activities of business, determine taxation policies and as the basis for national income and similar statistics Local community - Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the business and the range of its activities as they affect their area Financial analysts - They need to know, for example, the accounting concepts employed for inventories, depreciation, bad debts and so on Page 23

Environmental groups - Many organizations now publish reports specifically aimed at informing us about how they are working to keep their environment clean.

Researchers - Researchers demands cover a very wide range of lines of enquiry ranging from detailed statistical analysis of the income statement and balance sheet data extending over many years to the qualitative analysis of the wording of the statements

Which ratios will each of these groups be interested in?

Investors Lenders Managers Employees Suppliers and other trade creditors Customers Governments and their agencies Local Community Financial analysts Researchers Return on Capital Employed Gearing ratios Profitability ratios Return on Capital Employed Liquidity Profitability Profitability This could be a long list Possibly all ratios Depends on the nature of their study.

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Information and Analysis

Financial analysis is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account.

Analysis and Interpretation of Financial Statements:

Financial statement comprises the following: Trading and Profit and Loss Account which give the results of a year s working. Profit and loss appropriation account, which gives details about the disposal of the retained income. Balance sheet which gives the financial position of the undertaking as on the accounting date.

The meaning of Analysis and Interpretation:

The financial statements are of much interest to a number of groups of persons. Apart from management, there are other interested parties like shareholders, debenture holders, potential investors, large and small bankers, trade creditors, journalists etc. who are increasingly getting interested in the analysis and interpretation of financial statements. According to F Wood business accounting to interpret means, to put the meaning of a statement into simple terms for the benefit of person . This is essentially done through the tools of analysis such as comparative statements, common size statements and ratio analysis. The tools of analysis only help in establishing relationship between one accounting figure and another in the financial statements and go no far. It is the expert who has to grasp the significance of related figures and from an opinion as to whether Page 25

the ratio calculated indicates the favorable or adverse state of affairs. Therefore, while analysis comprises resolving the statement by breaking them in to simpler statements by a process of understanding the terms of such statement and forming opinions or inferences about the financial health, profitability, efficiency and such other aspects of the under taking.

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Ratio Analysis
Introduction:
Ratio analysis is a powerful tool of financial analysis. A ratio analysis is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things . In financial analysis, a ratio is used as an index or yardstick for figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of the firm. An accounting figure conveys meaning when it is a related to some other relevant information. The relationship between two accounting figures expressed mathematically is known as a financial data and to make a qualitative judgment about the firm s financial performance.

Standard of Comparison:
The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standard of comparison may consist of: Ratios calculated from the past financial statements of the same firm. Ratios developed using the projected or pro forma, financial statements of the same firm. Ratios of some selected banks, especially the most progressive and successful at the same point in time. Ratios of the industry to which firms belongs.

To evaluate the performance of a firm, compare its current ratios with the past ratios.

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When financial ratios over a period of time are compared, it is known as time series or trend analysis. It gives an indication of the direction of change and reflects whether the firm s financial performance has improved or deteriorated or remained same over time. The analyst should not simply determine the change, but more importantly he should understand why ratios have changed. The change may be affected by changes in the accounting polices without material change in the firm s performance. Sometimes future ratios are used as the standard of comparison. Future ratios can be developed from the projected or Performa financial statements. The comparison of past ratios with future shows the firms relative strength and weaknesses in the past corrective actions should be initiated. Another way of comparison is to compare ratios of one firm with some selected firm in the same industry at the same point in time. This kind of comparison is known as the cross sectional analysis. In most cases it is more useful to compare the firm s ratios of carefully selected competitor, which have similar operations. This kind of comparison indicates the relative financial position and performance of the firm. A firm can easily resort to such a comparison, as it is not difficult to get the published financial statements of similar firms. To determine the financial condition and performance of a firm, its ratios may be compared with average ratios of industry to which the firm belongs. This sort of analysis, known as the industry analysis helps to ascertain the financial standing and capability of the firm in the industry to which it belongs. Industry ratios are important standards in view of the fact that each industry has its characteristics, which influence the financial and operating relationships. But there are certain practical difficulties in using the industry ratios. First it is difficult to get average

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ratios for the industries. Second, even if industry ratios are available, they are the averages of the strong and weak firms. Sometimes spread may be so wide that the average may belittle utility. Third, the average may be meaningless and the comparison futile if the firms with in the same industry widely differ in their accounting polices and practices. If it is possible to standardize the accounting data for companies in the industry and eliminate extremely strong and extremely weak firms. The industry ratios will prove to be very useful in evaluating the relative financial condition and performance of the firm. Ratios are generally expressed in various forms. They are: 1. Pure ratios which are arrived at by the simple division of one number by other e.g. Current assets to current Liabilities ratio are 2:1. 2. Rate, which is the ratio between two numerical facts usually over a period of time e.g. stock turnover, is three times a year. 3. Percentage, which is special type of rate expressing the relation in hundredth e.g. gross profit, is 25% on sales. Ratio analysis when rightly used offers the following advantages: i. It facilitates the compression of financial statements and evaluation of several aspects such as financial health, profitability and operational efficiency of the undertaking. ii. It provides inter firm comparison to measure the efficiency and help the management to take remedial measures. iii. iv. It is also helpful in forecasting corporate sickness and help the management to take corrective actions.

Investment decisions can at times be based on the conditions revealed by certain ratios.

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We can simply make a list of the ratios we can use here but it's much better to put them into different categories. If we look at the questions in the previous section, we can see that we talked about profits, having enough cash, efficiently using assets - we can put our ratios into categories that are designed exactly to help us to answer these questions. The categories we want to use, section by section, are: a) Profitability: has the business made a good profit compared to its turnover? b) Return Ratios: compared to its assets and capital employed, has the business made a good profit? c) Liquidity: does the business have enough money to pay its bills? d) Asset Usage or Activity: how has the business used its fixed and current assets? e) Gearing: does the company have a lot of debt or is it financed mainly by shares?

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Classification of Ratios
Several ratios calculated from the accounting data can be grouped in to various classes according to financial activities or functions to be evaluated. The parties, which generally undertake financial analysis, are short term and long term creditors, owners and management. Short term creditors main interest is in the liquidity position or the short term solvency and profitability of the firm. Similarly owners concentrate on firms profitability and analysis of the firms financial positions. Management is interested in evaluating every aspect of the firms performance. They have to protect the interest of the parties and see that the firm grows profitably. One of the ways of classification according to the following basis is more effective for analyzing and interpreting the financial statements: Profitability Ratio Turnover Ratio Financial Ratio Leverage Ratio

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YEAR
Current Ratio Acid Test Ratio

2008
1.9243 1.1621

2007
1.5709 1.0456

2006
1.9201 1.1730

2005
1.9768 1.1080

2004
2.6091 1.484

Debt-equity Ratio Debt-assets Ratio Interest Coverage Ratio

1.9835 0.6648 2.1436

1.4582 0.5932 4.4375

1.0993 0.5236 6.8837

1.1808 0.5414 2.7244

1.1805 0.5414 4.5399

Inventory turnover Debtors turnover Fixed assets turnover Gross Profit Margin Ratio EBITDA Margin Net Profit Margin Return on Assets Earning Power Return on Equity

6.8466 4.5303 3.0676

7.1888 4.6192 3.4479

6.6466 5.3800 3.6059

5.3274 4.8473 2.9417

4.8136 4.2263 2.1135

0.0488 1.0680 0.0161 0.0259 0.0626 0.0630

0.0736 1.0166 0.0372 0.0679 0.1038 0.1306

0.0856 1.0164 0.0347 0.0652 0.1188 0.1254

0.0683 1.0177 0.0243 0.0362 0.0772 0.0719

0.0713 1.0309 0.0252 0.03427 0.0651 0.0740

PE Ratio Market Value to Book Value

146.494624 9.3616

129.3418 42 18.2387

142.0364 65 12.1537

167.2195 42 8.2075

100.9042 4.8136

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Profitability Ratios:
Profitability is an indication of the efficiency with which the operations of the business are carried on. The primary objective of a business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. Profit is the engine that drives the business enterprise . A business needs profits not only for its existence but also for its expansion and diversification. The investors want an adequate return on their investments, workers want higher wages, creditors want higher security for interest and loan and so on. The following ratios are included in this category:

Gross Profit Margin It measures the efficiency of production as well as pricing.

It basically shows the margin left after meeting the manufacturing costs.

Gross Profit / Net Sales

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Significance:
This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm. It also helps in ascertaining whether the average percentage mark up on the goods is maintained. In this case increase in the percentage of gross profit as compared to previous year, it is indicator of following factors: 1. Selling price of goods has gone up without corresponding increase in cost of goods sold. 2. The cost of goods sold has gone down without corresponding decrease in the selling price of goods.

Interpretations:
A lower gross profit ratio, generally indicates high cost of goods sold due to the unfavorable purchasing polices, lesser sales, lower selling prices, excessive competition, over investment in plant and machinery. Gross profit ratio is decreasing, which means the profitability of the company is decreasing. Gross profit ratio is decreasing due to more increase in sales as compared to gross profit for the year 2006-2007. but for the year 200-2006 gross profit is increasing which shows that profitability of the company is good and healthy for this year. This ratio is increasing due to more increase in gross profit as compared to increase in sales.

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Net Profit Margin It shows the earnings left for shareholders as a percentage of
sales & also reflects the overall efficiency of the firm.

Net Profit / Net Sales

Significance:
This ratio helps in determining the efficiency with which the affairs of the business are being managed. As increase in the ratio over the previous period indicates improvement in the operational efficiency of the business provided the gross profit is constant.

Interpretations:
This ratio indicates the firm s capacity to face adverse economic conditions such as price competition, low demand etc. obviously, higher the ratio, the better is the profitability.

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Net profit ratio is increasing for the year 2006-2007. This exhibit that the profitability of the company is good. The shareholders of the company are happy as their earnings are getting better day by day. But for the year 2007-2008 the net profit ratio is decreasing, which indicates that profitability of the company is decreasing. Net profit ratio is decreasing as increase in sales is much more than the increase in net profit.

Overall Profitability Ratios:

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Profits are the measures of overall efficiency of a business. Overall profitability or efficiency of a business can be measured in terms of profits related to investments made in the business. Higher the profits, the more efficient is the business considered.

Return on Equity
the form.

It measures the profitability of the equity funds invested in

PAT / Total Shareholder funds

Significance:
This ratio indicates percentage of net profit available for equity share holders to equity shareholder s fund. It indicates the productivity of the ownership capital employed in the firm.

Interpretations:

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This ratio is one of the most important ratios used in overall efficiency of the firm. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As this ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The inter-firm comparison of this ratio determines whether investments in the firm are attractive or not as the investors would like to invest where the returns are higher. The return on shareholders fund ratio has seen a relative decrease. This shows that company needs to work on utilizing its resources better year by year, which would then indicates that overall efficiency of the company is increasing. As the returns are higher, the investments in the company are attractive.

understanding of a company's ability to generate returns from its available capital base.

Return on Capital Employed - It measure narrows the focus to gain a better

Significance - By comparing net income to the sum of a company's debt and

equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital. The return on capital employed is an important measure of a company's profitability. Many investment analysts think that factoring debt into a company's total capital provides a more comprehensive evaluation of how well management is using the debt and equity it has at its disposal. Investors would be well served by focusing on ROCE as a key, if not the key, factor to gauge a company's profitability. An ROCE ratio, as a very general rule of thumb, should be at or above a company's average borrowing rate.

Liquid Ratios:
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Liquidity refers to the ability of a concern to meet its current obligations as and when they become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easily met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and short term creditors are interested in liquidity position of the concern.

Current Ratio - This ratio indicates the margin of safety available with the
company.

Current Assets / Current Liabilities

Significance:

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The current ratio indicates the margin of safety available with the company to meet short term liability. i.e. higher the current ratio, the larger the amount of rupees available per rupee of current liability, the more is the firms ability to meet current obligations and the greater is the safety of funds of short term creditors. Thus current ratio, in a way is the measure of margin of safety to the creditors.

Interpretations:
Current ratio 2:1 shows excellent liquidity position of the firm. Current ratio between 1:1 to 2:1 shows satisfactory position of the company. Ratio less than 1:1 shows no liquidity at all. For SSI it should be at least 1.33:1. Current ratio of any company may be 2:1. But according to USA accounting standards any company should maintain ratio of 1.33:1. As the current ratio of Siyaram Silk Mills Ltd. is more than 1.33:1 for the year 2004-2008 this shows that current ratio is favorable from the company`s as well as shareholders point of view. Thus company is in position to meet its current liabilities out of its current assets.

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Quick Ratio - Quick ratio, also known as Acid Test Ratio, is a more rigorous test of
liquidity than the current ratio. The term liquidity refers to ability of the firm to pay its short term obligations as and when they become due.

Current Assets Inventories / Current Liabilities

Significance:
Usually, a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and so on the other hand a low quick ratio represents that the firms liquidity position is not good. Quick ratio may be defined as the relationship between liquid assets and current or liquid liabilities. As a thumb rule or as a convention quick ratio 1:1 is considered as satisfactory.

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Interpretations:
The standard of liquid ratio is 1:1. The company s liquidity ratio for the last five years is more than 1, which indicates the liquidity position of the company is good. Thus liquid assets are more than current liabilities. So company is in position to pay its obligations.

CASH RATIO:. The cash ratio is an indicator of a company's liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash, cash equivalents or invested funds there are in current assets to cover current liabilities. It is the most stringent measure of liquidity. It only looks at the most liquid shortterm assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities Cash & Bank balances + Current Investments / Current Liabilities

Significance: Page 42

The cash ratio is the most stringent and conservative of the three shortterm liquidity ratios (current, quick and cash). It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities Interpretations: Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn't necessarily a bad thing, so don't focus on this ratio being above 1:1. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. The ratio is seen to decrease in case of siyaram silk mills ltd. The reason could be that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns.

CAPITALIZATION RATIO - The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth.

Significance: A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, Page 43

which consists of both long-term debt and shareholders' equity. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion. It assumes that management can earn more on borrowed funds than it pays in interest expense and fees on these funds. However successful this formula may seem, it does require a company to maintain a solid record of complying with its various borrowing commitments. A company considered too highly leveraged (too much debt) may find its freedom of action restricted by its creditors and/or have its profitability hurt by high interest costs. Of course, the worst of all scenarios is having trouble meeting operating and debt liabilities on time and surviving adverse economic conditions. Lastly, a company in a highly competitive business, if hobbled by high debt, will find its competitors taking advantage of its problems to grab more market share. As mentioned previously, the capitalization ratio is one of the more meaningful debt ratios because it focuses on the relationship of debt liabilities as a component of a company's total capital base, which is the capital raised by shareholders and lenders.

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Turnover Ratio:
Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, the larger is the amount of sales and the profits. Activity ratio measures the efficiency with which a firm manages the assets. These ratios are called as turnover ratios because they indicate the speed with which assets are converted or turned over in to sales.

Inventory Turnover Ratio - This ratio indicates whether investment in inventory

is efficiently used or not. It therefore explains whether the investment in inventories is with in proper limits or not.

COGS / Average Inventory

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Significance:
Average inventory is calculated by taking stock levels of raw materials work in process, finished goods at the end of each month, adding them up and dividing by twelve. The inventory turnover ratio indicates the liquidity of the inventory. A high inventory turnover ratio indicates the brisk sales. The ratio is therefore, a measure to discover the possible trouble in the form of over stocking and overvaluation. It is difficult to establish the standard ratio of inventory because it will differ from industry to industry.

Interpretations:
Provision for obsolete stock, slow moving items is deducted from the inventory. Faster the production, fewer product lines, just in time ordering will reduce overall inventory. The ratio is sticky and not showing improvement during the last 5 years. It is nearly around 5, which indicates, for sale of Rs. 100/- the company has to keep inventory of Rs. 20/- in stores. There is scope of improvement.

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Debtors Turnover Ratio - Debtors constitute an important constituent of current

assets and therefore the quality of debtors to a great extent determines a firm s liquidity.

Net Sales / Average Sundry Debtors

Significance:
Sales to account receivables ratio indicates the efficiency of the staff entrusted with collection of book debts. The higher the ratio, the better it is, since it would indicate that debts are being collected more promptly. For measuring the efficiency, it is necessary to set up a standard figure. A ratio lower than a standard will indicate inefficiency. The ratio helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales.

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Interpretations:
Since the ratio of debts is declining in comparison to preceding years and the debt collection period is increasing. This also shows that company s sales are increasing to preceding year. But to maintain profitability and sales the company has to decrease the debt collection period. Thus, to decrease the debt collection period the company has to adopt certain policy s to attract the customers to pay debts. Policies like trade credit, cash credit.

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Export Process in Brief

To understand the function of the foreign exchange of the company it is necessary to first understand the function of export. To be very precise I had made a block diagram of the export process which will tell us the procedure in very short manner. Export procedure consists of many things like Pre-Shipment procedure, Post-Shipment procedure, Documentation, Foreign Exchange Management, etc However the export procedure is vey lengthy, but in this project we will study the function Foreign Exchange Management in detail and Export procedure briefly The process consists of: 1. Procurement of Order 2. Application for LC 3. Production 4. Shipment of Goods 5. Foreign Client Makes a Payment

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Page 50

1. PROCUREMENT

OF

ORDER

This is the first stage where the Siyarams get an order from the foreign client. It is one of the most difficult stages. Talented marketing executives of Siyaram work too hard to get through this. Once the order is confirmed the procedure of export starts.

2. APPLICATION

FOR

LETTER

OF

CREDIT

A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client.

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1. Demand for LC

Siyar am

Forei gn Client

2. Request for LC

4. Issues LC

Advisi ng Bank

3. LC Issuance Instructions

Issuin g Bank

Example: Siyarams (Beneficiary) gets order of export from Dubai party named Dubai Garments Ltd. (DGL) (Foreign Client or Importer). So Siyarams will request DGL to open an LC in favor of Siyarams. DGL will approach to their bank (Issuing Bank), to open an LC and transfer the same to the bankers of the Siyarams (Advising Bank). Bankers of Siyarams will in return pass the LC to Siyarams.

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3. PRODUCTION PHASE Once the order is confirmed from the client, Siyaram will start its production as per the requirement of the client. Usually the export order is huge and requires lot of capital. So here corporate houses take Working capital loan from bank in the form of EPC or PCFC. These loans are quite cheaper as compare to normal working capital loan; it is because of great demand of export in a country. Indian government is always in a favor to boost export. So they provide exporters loans at a cheaper rate.

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Export Packing Credit: The loan is disbursed in INR at an interest rate charged as per RBI directives, which is erased through lodging export bills as and when they are realized. However if repayment is overdue, the banks can charge interest rates at their discretion. Currently the rate is Prime Lending rate (PLR) minus 2.5% for corporate and PLR minus 4.5% for textile sector. Under this facility the exporter has the option of booking a forward contract for the export proceeds. Packing Credit in Foreign Currency: Commonly known as PCFC, packing credit in foreign currency is an extension of packing credit, wherein credit, provided for raw materials/inputs from both domestic and foreign markets, is granted in foreign currency. Banks have their own line of credit with the foreign banks and interest is charged at LIBOR (London Interbank Offered Rate) plus an interest spread that is agreed upon by the bankers and exporter subject to a minimum of 1% till the due date. Under this facility the exporter does not have the option of booking a forward contract or profit from any dollar appreciation against the rupee

4. SHIPMENT

OF

GOODS:

Once the goods are manufactured proper packaging and branding is done, as per the requirements of the client. After all this procedure the export department of the company starts the shipment of goods. Shipment of the goods is not easy it requires lots of documentation. For carrying out the procedures related to shipment of goods, selection of a freight forwarding agent is very important.

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Freight Forwarder: An international freight forwarder is an agent for the Siyarams in moving the export goods to an overseas destination. Freight forwarders assist Siyarams in preparing price quotations by advising on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and their handling fees. Once the order is ready for shipment, freight forwarders should review all documents to ensure that everything is in order. Largely, the following procedure may be followed for shipment of goods: Submit documents to Freight Forwarder, instructing him to book space on the steamer/ airline. The Siyarams is expected to provide the following documents to the Clearing & Forwarding Agents, who are entrusted with the task of shipping he consignments, either by air or by sea. Invoice Packing List Declaration in form SDF (to meet the requirements as per FEMA) in duplicate. A.R.E. - From 1 and 2 copy Any other declarations, as required by Customs On account of the introduction of Electronic Data Interchange (EDI) system for processing shipping bills electronically at most of the locations - both for air or sea consignments - the C&F (Clearing & Forwarding) Agents are required to file with Customs the shipping documents, through a particular format, which will vary

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depending on the nature of the shipment. The C&F agents are also charged with the task of getting Shipping Bill/ Bill of Export passed by Custom Authorities (obtaining customs authorities LET EXPORT (LEO) endorsement on the shipping bill). After completing the shipment formalities, the C & F Agents are expected to forward to the Siyarams the following documents: Customs endorsed Export Invoice & Packing List Duplicate of Form SDF Exchange control copy of the Shipping Bill, processed electronically A.R.E. (original & duplicate) duly endorsed by Customs Bill of Lading or Airway bill, as the case may be Once the goods have been shipped, Siyarams is required to send a Shipment Advice in aligned format to the importer intimating the date of shipment of the consignment by a named vessel and its expected time of arrival at the destination port. 5. FOREIGN CLIENT MAKES
A

PAYMENT

Client makes the payment as per the agreement between the Siyarams and the client. If suppose Siyarams has taken a loan for this export order, the repayment of the loan is done immediately once the client disburse the amount in our bank.

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INVOLVEMENT OF FOREIGN EXCHANGE AND RISK MANAGEMENT

Risk is central to all business. Modern day business operates under various Risks of varying degrees, which not only has the potential to affect profitability but also the very survival of the Company. As the Company grows work and decisions making gets delegated and decentralized. Officers at various levels while performing their duties are required take decisions which have far reaching implications and involve a high degree of risk. Volatile business conditions only add to the risk involved. Taking reasonable and well understood risks is required to earn returns. On one hand adequate return on money invested has to be ensured while on the other hand risk has to be effectively managed. More often than not, higher the risk, higher the returns. Hence an effective Risk Management Policy is the need of the hour. In view of the importance of Risk Management, the Listing Agreement requires the Company to identify the risk, measure and access the risk, monitor and control the risk and frame Policy to mitigate the risk. In order to have an effective Risk Management Policy, the Company will have to examine risk at the macro as well as micro levels of its operations. To enable the Company to reap the benefits of Risk Management Policy, it should be reviewed on a continuous basis in the light of changing business environment and improved upon at regular intervals to cover newer areas of risk affecting the Company. Page 57

Accordingly, the Company has made an attempt to identify risk that affect the business and framed a Policy to mitigate the Risk. Imports without natural hedging by way of export earnings will cause substantial hardships in the event of violent foreign exchange fluctuations as the company has a Imports and Borrowings in Foreign Currency.

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FOREIGN EXCHANGE EXPOSURE: Exchange exposure is defined as the extent to which transactions of Siyarams denominated in currencies other than the home currency. Exposure arises because Siyarams denominates transactions in a foreign currency or it operates in a foreign market. The exposure is measured by the value of the transactions in the foreign currency. Basically, there are three types of exposure that I studied in Siyarams Transaction OR Conversion Risk Translation OR Accounting Risk Operating OR Economic Exposure

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Transaction Exposure The risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms. Often, when a company identifies such exposure to changing exchange rates, it will choose to implement a hedging strategy, using forward rates to lock in an exchange rate and thus eliminate the exposure to the risk. Siyarams is mostly exposed to transactional risk, and they use hedging mechanism to minimize their risk. Page 60

Translation Exposure The risk that a company's equities, assets, liabilities or income will change in value as a result of exchange rate changes. This occurs when a firm denominates a portion of its equities, assets, liabilities or income in a foreign currency. Accountants use various methods to insulate firms from these types of risks, such as consolidation techniques for the firm's financial statements and the use of the most effective cost accounting evaluation procedures. In many cases, this exposure will be recorded in the financial statements as an exchange rate gain (or loss).

Economic Exposure An exposure to fluctuating exchange rates, which affects a company's earnings, cash flow and foreign investments. The extent to which a company is affected by economic exposure depends on the specific characteristics of the company and its industry. Most large companies attempt to minimize the risk of fluctuating exchange rates by hedging with positions in the forex market. Companies that do a lot of business in many countries, such as import/export companies, are at particular risk for economic exposure.

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FOREIGN EXCHANGE RATES: Exchange risk is defined as the net potential gains and losses which can arise from the exchange rate changes due to the foreign exchange exposure of Siyarams Siyarams sell the goods in the international market; we had seen in the above section how it is exposed to risk (Transaction Exposure). Exchange rates fluctuate on daily basis Siyarams can make profit or make loss in this fluctuation. Example: The company has got an export order of $10,00,000 on June 15, 2009 the profit

for the company behind this deal is 10% and the exchange rate on this date is suppose Rs. 45. So the total deal is of 4.5 Crores. Party has agreed for the payment of this order on Aug 15, 2009 and if the rate on that date is Rs.40 than the calculations goes like that: Particulars Goods sold ($10,00,000 X 45) Profit Payment Received ($10,00,000 X 40) Exchange rate loss. Profit /Loss Amt 4,50,00,000 45,00,000 4,00,00,000 50,00,000 (5,00,000)

In the above case exchange loss exceeds the profit on deal, so here Siyarams should try to hedge their risk. This was just an example to explain how the profit Page 62

making deal can be converted into the loss making deal due to the fluctuation and exposure of exchange rates.

EXPOSURE

TO

USD/INR

Once the deal is finalized Siyarams dispatch the goods to the client, in the whole process the major point of concern is that, when we are going to receive the payment. This concern is not only of Siyarams but it is of each and every corporate house who deals in exports, and so the hedging mechanism is used to cover the losses due to fluctuation in the exchange rates. It is basically how much Siyarams is exposed to currency fluctuation. If price of the dollar has the fluctuation of 5% in a year, than we can say the exposure is 5%, appreciation or depreciation Example: Siyarams gets an order and the payment is expected in different months in part. In the month of June the deal was finalized and then we are about to receive the payment in the 3 parts.

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Here the treasury department of the Siyarams tries to predict the prices of the currency, so that they can take necessary action. As we can see in the above figure there is the treasury department of the Siyarams has predicted the prices in the payment period.

HEDGING MECHANISM: Whenever the export deal is finalized the Siyarams cover their risk, use the hedging mechanism. This mechanism is used through Forward Booking. To understand how Siyarams undergo the forward booking. So it is very necessary to understand the concept of forward booking.

Forward Booking Foreign currency forward contracts are used as a foreign currency hedge when a organization has an obligation to either make or take a foreign currency payment at some point in the future. If the date of the foreign currency payment and the last trading date of the foreign currency forwards contract are matched up, the investor has in effect "locked in" the exchange rate payment amount.

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By locking into a forward contract to sell a currency, the seller sets a future exchange rate with no upfront cost. For example, a U.S. exporter signs a contract today to sell hardware to a French importer. The terms of the contract require the importer to pay Euros in six months' time. The exporter now has a known euro receivable. Over the next six months, the dollar value of the euro receivable will rise or fall depending on fluctuations in the exchange rate. To mitigate his uncertainty about the direction of the exchange rate, the exporter may elect to lock in the rate at which he will sell the Euros and buy dollars in six months. To accomplish this, he hedges the euro receivable by locking in a forward.

This arrangement leaves the exporter fully protected should the currency depreciate below the contract level. However, he gives up all benefits if the currency appreciates. In fact, the seller of a forward rate faces unlimited costs should the currency appreciate. This is a major drawback for many companies that consider this to be the true cost of a forward contract hedge. For companies that consider this to be only an opportunity cost, this aspect of a forward is an acceptable "cost". For this reason, forwards is one of the least forgiving hedging instruments because they require the buyer to accurately estimate the future value of the exposure amount.

Like other future and forward contracts, foreign currency futures contracts have standard contract sizes, time periods, settlement procedures and are traded on regulated exchanges throughout the world. Foreign currency forwards contracts

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may have different contract sizes, time periods and settlement procedures than futures contracts. Foreign currency forwards contracts are considered over-thecounter (OTC) because there is no centralized trading location and transactions are conducted directly between parties via telephone and online trading platforms at thousands of locations worldwide.

Key Points:

Developed and grew in the late '70s when governments relaxed their control over their currencies

Used mainly by banks and corporations to manage foreign exchange risk Allows the user to "lock in" or set a future exchange rate. Parties can deliver the currency or settle the difference in rates with cash.

Example: Currency Forward Contracts Corporation A has a foreign sub in Italy that will be sending it 10 million Euros in six months. Corp. A will need to swap the euro for the Euros it will be receiving from the sub. In other words, Corp. A is long Euros and short dollars. It is short dollars because it will need to purchase them in the near future. Corp. A can wait six months and see what happens in the currency markets or enter into a currency forward contract. To accomplish this, Corp. A can short the forward contract, or euro, and go long the dollar. Corp. A goes to Citigroup and receives a quote of .935 in six months. This allows

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Corp. A to buy dollars and sell Euros. Now Corp. A will be able to turn its 10 million Euros into 10 million * .935 = 935,000 dollars in six months.

Six months from now if rates are at .91, Corp. A will be ecstatic because it will have realized a higher exchange rate. If the rate has increased to .95, Corp. A would still receive the .935 it originally contracts to receive from Citigroup, but in this case, Corp. A will not have received the benefit of a more favorable exchange rate.

COMING

TO

SIYARAMS

Actual Realization Because of Forwards = 48.0000 Profit = 45.5000 48.0000 = 2.5

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Interpretation Siyarams dispatch the goods on 6th June, 2009. At the time of delivery Siyarams Treasury Manager Mr. Shruti Sheel Jahanwar feels that they should think about the exchange risk and try to mitigate it. The price of the dollar on 6th June, 2009 was 47.00 per dollar.

Mr. Jhanwar is a smart manager, he tries to predict the prices of the dollar at the time of realization or when they are about to receive the payment. Mr. Jhanwar use to read newspapers, and try to keep track on the economic indicators that affect the foreign exchange rates. So after doing the whole exercise he felt that the price of the dollar will further go down. So his perception on the price of the dollar is Rs. 45.00 per dollar on September 6, 2009.

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Now, Mr. Jhanwar approaches their bankers and asks for the forward booking. The forward booking at the bank was available at the rate of 48.00 per dollar for September 6, 2009. Mr. Jhanwar books the contract.

On 6th September, 2009 client makes the payment. At the time of payment the price of the dollar was 45.50 per dollar. If he would have not booked the forwards there would have been a substantial loss due to foreign exchange fluctuation.

OBSERVATIONS AND FINDINGS

Based on the interpretations and calculations of my project, I can conclude that though the Siyaram Silk Mills Ltd is earning the consistent profit. The financial performance of the company for the 5 years reflected a good growth in sales and though all the market segments sustained or bettered their performance over the previous years. Cost overrun in a few long term projects impacted the profitability. However, the company s track record has always been oriented towards profitable growth and with the strong fundamentals; the company is well placed to grow continuously on major fronts.

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The company has strong short term liquidity position as both the liquidity ratios are favorable and appreciable which concludes that company has got sufficient assets to pay off short term debts as and when they fall due. Sales turnover for the year 2008 under review was at RS. 629.79 Cr registering an increase of about 18.1% over the previous year. The turnover for the year 2008 stood at Rs. 629.79 Cr. which crossed five hundred crore rupee mark. The company has strong solvency position as all the solvency ratios are favorable. Debt-equity ratio is favorable indicating equal share of owners and creditors. The book value of the companys shares for the year 2008 has gone down to Rs. 145.53 as compared to other years but has also shown some improvement as compared to the previous year.. The return on shareholders funds and the return on total capital employed declined to 6% for the year 2008 respectively, indicating that the company needs to take care while investing its capital. The company has decreasing overall profitability ratios indicating ineffective use of funds provided be shareholders and creditors. The margins across all business segments for the 5 years were better. The company has to absorb the extra costs in a long term projects due to which the profitability was low impacting the overall performance of the company. The overall performance of the company is good and there is a continuous flow of project business. The company is continuing its drive for volume with continued focus on profitability. In order to forecast the bankruptcy the above multivariate model can be put to use as it considers all the key factors relevant for credit analysis. Another scientific multivariate analysis can be done. The widely used one is the Altaman score, it helps in the prediction of the corporate bankruptcy. The following analysis of the Altman Z score was done for Siyaram Silk Mills Ltd. & it was interpreted that it is Page 70

very much above 2.99 & so Siyaram Silk Mills Ltd. Is a healthy firm & the free of bankruptcy need not be feared.

SUGGESTIONS
For assessing the creditworthiness of the potential customer or client, the Credit Scoring Model (the ad hoc multivariate analysis) can be brought to use. In this the client can be rated between 0-15 & then by looking at its total points the credit worthiness of the client can be judged. POINTS Character Average Past Payment Capacity Profit Margin Quick Ratio Cash Flow On time Up to 30 days late Up to 60 days late

0-5% Less than 0.75 Low

6-10% 0.75-1.25 Average

More than 10% More than 1.25% High Page 71

Capital Current Ratio Debt-equity Ratio Interest Earned Collateral Net Worth Per cent Assets Free Market value to Net Worth Conditions

Less than 1 Less than 1 Less than 2X

1-1.15 1-2 2X-3X

Less than 1.5 Less than 2 Less than 3X

Low Low Low

Average Average Average

High High High

Recession

Average

Prosperity Total

Bibliography
Books:
Financial Management Introduction to Financial Accounting Introduction to Management Accounting Financial Management Financial Management Financial Management Management Accounting By Satish M. Inamdar By Horngren By Grey Sundem By M Y Khan/ P K Jain By I M Pandey By S M Inamdar By M G Patkar

Internet sites:
http://en.wikipedia.org/wiki/Financial_statement http://en.wikipedia.org/wiki/Financial_ratios Page 72

http://cpaclass.com/fsa/ratio-01a.htm http://beginnersinvest.about.com/od/financialratio/Financial_Ratios.htm http://www.esesv.com http://www.investopedia.com http://www.google.com http://www.fabric2fashion.com http://www.siyaram.com

BALANCE SHEET YEAR SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Less:Impairment of Assets Net Block 2008 9.37 126.99 136.36 185.92 84.56 270.48 406.84 2007 9.37 123.39 132.76 112.52 81.08 193.6 326.36 2006 6.25 111.93 118.18 83.06 46.86 129.92 248.1 2005 6.25 99.31 105.56 77.25 47.4 124.65 230.21 2004 6.25 93.71 99.96 85.04 32.97 118.01 217.97

302.78 101.31 0 201.47

237.3 85.92 0 151.38

203.73 82.69 0 121.04

197.04 75.1 0 121.94

177.84 79.55 0 98.29

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Lease Adjustment Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities PROFIT & LOSS ACCOUNT YEAR INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses

0 4.83 0.24

0 26.77 0.14

0 5.07 0.14

0 1.19 0.14

0 5.48 0.14

108.9 132.57 1.12 33.48 276.07

75.07 127.75 1.4 21.7 225.92

73.29 99.36 1.05 15.72 189.42

64.15 67.69 0.79 14.13 146.76

63.37 70.01 1.92 13.57 148.87

44.65 13.67 58.32 217.75 0 1.54 18.99 -17.45 406.84 3.63

45.85 15.99 61.84 164.08 0 1.13 17.14 -16.01 326.36 3.56

42.21 9.03 51.24 138.18 0 1.04 17.37 -16.33 248.1 3.21

21.02 5.42 26.44 120.32 0 1.03 14.41 -13.38 230.21 2.64

21.04 2.31 23.35 125.52 0 1.18 12.64 -11.46 217.97 3.28

200803 589.93 0.26 589.67 7.49 32.63 629.79

200703 524.84 0.3 524.54 7.75 0.98 533.27

200603 449.77 0.4 449.37 9.88 -2.49 456.76

200503 339.64 5.9 333.74 4.38 1.56 339.68

200403 317.7 21.81 295.89 5.54 3.61 305.04

273.43 9.25 27.33 107.95

232.83 7.32 21.87 88.23

206.58 5.51 14.19 82.17

153.4 5.45 10.23 59.54

133.77 6.95 8.89 54.04

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Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit Adjst. below Net Profit P & L Balance brought forward Appropriations P & L Balance carried down Dividend Equity Dividend %

163.05 9.25 590.26 39.53 10.72 28.81 16.55 12.26 0.71 0.53 1.51 9.51 0.91 8.6 -0.2 5.04 9.48 4.87 4.68 50

130.34 7.31 487.9 45.37 6.72 38.65 15.55 23.1 3.55 0.35 -0.32 19.52 2.18 17.34 0.55 0.45 15.48 5.04 4.68 50

99.81 5.86 414.12 42.64 4.13 38.51 14.21 24.3 5.25 0.5 2.94 15.61 0.78 14.83 0.57 2.84 18.56 0.46 3.12 50

77.94 3.97 310.53 29.15 6.35 22.8 11.85 10.95 0.9 0 1.93 8.12 0.52 7.6 0.33 2.24 7.85 2.84 2.5 40

73.74 3.4 280.79 24.25 3.13 21.12 10.04 11.08 0.85 0 2.76 7.47 0.07 7.4 -0.12 2.71 7.82 2.24 2.5 40

YEAR
CASH FROM OPERATION PAT Depreciation Deferred tax TOTAL Less Working Capital increase or decrease

2008
9.51 16.55 1.51 27.57 217.75 -190.18

2007
19.52 15.55 -0.32 34.75 164.08 -129.33

2006
15.61 14.21 2.94 32.76 138.18 -105.42

2005
8.12 11.85 1.93 21.9 120.32 -98.42

2004
7.47 10.04 2.76 20.27 125.52 -105.25

CASH FROM INVESTING ACTIVITIES Net Block Increase or decrease in Net block Add Depreciation

201.47 50.09 16.55

151.38 30.34 15.55

121.04 -0.9 14.21

121.94 23.65 11.85

98.29 98.29 10.04 Page 75

Purchase or Sale of Fixed Assets Increase in investment Increase or decrease in Capital WIP

66.64 0.1 -21.94 44.8 -234.98

45.89 0 21.7 67.59 -196.92

13.31 0 3.88 17.19 -122.61

35.5 0 -4.29 31.21 -129.63

108.33

108.33 -213.58

FREE CASH FLOW

CASH FROM FINANCING ACTIVITIES Increase in Equity Capital Increase in Share Premium Non Convertible Debenture Debt Dividend Paid

136.36 0 0 270.48 4.68 411.52

132.76 0 0 193.6 4.68 331.04

118.18 0 0 129.92 3.12 251.22

105.56 0 0 124.65 2.5 232.71

99.96 0 0 118.01 2.5 220.47

DIFFERENCE Difference of Cash and Cash Equivalent Difference in Answer

176.54 -0.28 176.82

134.12 0.35 133.77

128.61 0.26 128.35

103.08 -1.13 104.21

6.89 0.56 6.33

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