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1.

INTRODUCTION

Financial ratios are very similar to health checkups, like in our day to day life we do to a doctor
and undergo various tests similarly in case of financial ratios we need to understand various
concepts behind companies operational and investment strategies so as to get a first hand
information of our investment prospects in that company. When you go to the doctor you may be
loaded with various kinds of tests such as X-rays, ECG, Blood test and several other tests, each
kind of the test give you different kinds of results in terms of functioning of your body. The same
goes for the financial ratios various types of ratios give you an idea of working of the various
organs (read: aspects) of the target company or industry. These can be measured in terms of
understanding the profitability, of valuation and capital structure.

Financial ratios are derived from various resources; there are actually various information of the
company which are derived from the sources such as balance sheets, income statements cashflow
statement etc. Now the information that is derived form each of these resources are utilized to
derivate comparisons and then these comparisons are used to predict the future prospects of the
company.

The analysis happens when you take up the financial ratios that you have derived at and compare
it with the competitors, industry standards, or the company’s performance over the years. Such
analysis involves comparison of financial data to gain insights into business performance.

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2. COMPANY BRIEF PROFILE

2.1. BRIEF DETAILS OF THE TOP MANAGEMENT

Surendra Hiranandani, Founder and Managing Director, House of Hiranandani (HOH) has the
distinction of transforming barren land into some of India’s most vibrant lifespaces. The real
estate projects undertaken by his firm over the years across Mumbai, Bengaluru, Chennai and
Hyderabad visibly blend aesthetic beauty with practicality and sustenance.

He is a pioneer in introducing indigenous species of trees and shrubs into the fabric of urban
communities. Today his company is synonymous with innovation, quality construction,
transparency, superior design and adherence to delivery schedules.

He has also been honoured with numerous awards such as, for adapting the best of foreign
technology to the skills of Indian engineering and labour artistry by the American Concrete
Institute; not to mention a fellowship from the Indian Plumbing Association for his contribution
to the plumbing profession – He is credited with the introduction of copper plumbing and the use
of fly ash in concrete across the country.

He is also an eminent member of the Royal Institution of Chartered Surveyors and is also
associated with various charitable trusts across the country. He is the President of the Unaided
Schools Forum and is the Managing Trustee of House of Hiranandani Foundation which runs
two of Mumbai's best schools at Powai and Thane.

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2.2. SIZE OF THE ORGANIZATION

House of Hiranandani (HOH) is a leading business conglomerate, developing iconic destination


projects in India. Since its inception in 2005, it has created a unique position within the Indian
real estate arena, drawing from its rich lineage of over three decades of strong architectural
heritage of its founders the Hiranandani Constructions.

House of Hiranandani is a company which has been in business or over 20 years. It is the sister
concern o Hiranandani Construction Private Limited which has been in business for over 40
years and is known for its elite and classy constructions throughout Mumbai.

HOH has around 150 permanent employees working under various departments. This number
does not include the number of supervisors, skilled and unskilled laborers involved in
construction as they are hired on contractual basis.

The places where HOH has its projects are:

1) Bangalore

2) Chennai

3) Hydrabad

HOH has about 18 projects spread across the above mentioned geographies. The projects include
2-3 BHK apartments, duplexes, pent houses and villas.

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2.3 VISION AND MISSION

Since their inception into India’s urbane terrains, HOH has upturned the way living spaces are
designed. And with that, we have transformed the ethos and aesthetics of real estate in India.

Pillared by a unique approach to designing and planning, they invest heavily in research and
development ensuring that each of our developments surpass industry benchmarks and redefine
value engineering and design. Our name, since the beginning, has been associated with
excellence and they are creating sustainable value for our customers, stakeholders, business
associates, employees and society at every step of our development.

Through environmentally friendly concepts of New Urbanism, their focus has been on
transforming suburban sprawls of land into well-planned urban communities that nourish an
outstanding sense of living. And our developments stand as living proof. Apart from residences,
they have established numerous schools, colleges, institutions, and hospitals through affiliates,
trusts, clubhouses and community spaces, all of which have earned unmatched international
repute.

Symbolic to their construction, their developments encompass the ether of the residents’ lives
entirely, by introducing retail outlets, hospitality centers, healthcare and educational institutions
etc. within the realms of House of Hiranandani community. Their aim is to integrate every family
into a bigger, more inclusive community.

They are cognizant of the fact that they have maneuvered successfully through a turbulent time
in this industry’s history. As they move forward, they will carry our legacy forward proudly and
will persevere to take it to new heights through a committed adherence to the values that they
stand for. These values are manifest in their passion for perfection, endless innovation and
advancements.

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3. INDUSTRY ANALYSIS: REAL ESTATE SECTOR

3.1 PESTLE

PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S
for Social, T for Technological, L for Legal and E for Environmental. It gives a bird’s eye view
of the whole environment from many different angles that one wants to check and keep a track of
while contemplating on a certain idea/plan.

The framework has undergone certain alterations, as gurus of Marketing have added certain
things like an E for Ethics to instill the element of demographics while utilizing the framework
while researching the market. All the aspects of this technique are crucial for any industry a
business might be in. More than just understanding the market, this framework represents one of
the vertebras of the backbone of strategic management that not only defines what a company
should do, but also accounts for an organization’s goals and the strategies stringed to them.

Political:

These factors determine the extent to which a government may influence the economy or a
certain industry. [For example] a government may impose a new tax or duty due to which entire
revenue generating structures of organizations might change. Political factors include tax
policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it
may affect the business environment (economic environment) to a great extent.

The political factors and decisions affecting the real estate sector are:

 In August 2015, the Union Cabinet approved 100 Smart City Projects in India which has
increased the scope for building innovative and sustainable projects in both commercial and
residential fronts for the real estate companies.

 Government of India’s Housing for All initiative is expected to bring US$ 1.3 trillion
investments in the housing sector by 2025. Under Union Budget 2018-19, Pradhan Mantri
Awas Yojana (PMAY) (Gramin) was allocated Rs. 33,000 crore (US$ 5.10 billion) while the
urban programme of the scheme was allocated Rs. 31,500 crore (US$ 4.87 billion). In May
2018, construction of additional 150,000 affordable houses was sanctioned. The scheme is

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expected to push affordable housing and construction in the country and give a boost to the
real estate sector.

 The Government has also raised FDI limits for townships and settlements development
projects to 100 per cent. Real estate projects within the Special Economic Zone (SEZ) are
also permitted 100 per cent FDI

 The creation of single window clearance for construction by Brihanmumbai Municipal


Corporation has reduced the red-tapeism and bureaucracy in the clearance process of the
projects and leading to reduction in cost and reduction in corruption in this forum.

Economic:

These factors are determinants of an economy’s performance that directly impacts a company
and have resonating long term effects. [For example] a rise in the inflation rate of any economy
would affect the way companies’ price their products and services. Adding to that, it would affect
the purchasing power of a consumer and change demand/supply models for that economy.
Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth
patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain
specific industries who’re undergoing this analysis.

The economic factors and decisions affecting the real estate sector are:

 New investment proposed by the government such as Rs. 7060 crore to build smart cities. In
this course Ease of availability of financier has aided the government in achieving its ‘Home
by all 2022’ programe.

 Investment friendly tax reforms can act as an economical tool to revive almost dead India
economy.

 Department of Industrial Policy and Promotion (DIPP), the construction development sector
in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$
24.67 billion in the period April 2000-December 2017. As The Government has raised FDI
limits for townships and settlements development projects to 100 per cent. Real estate
projects within the Special Economic Zone (SEZ) are also permitted 100 per cent FDI

Social:
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These factors scrutinize the social environment of the market, and gauge determinants like
cultural trends, demographics, population analytics etc. An example for this can be buying trends
for Western countries like the US where there is high demand during the Holiday season.

The Social factors and decisions affecting the real estate sector are:

 Rise in preference of buying small houses. People have started having nuclear families with
less number of kids. The demand for large houses have reduced as the urban mentality of
space efficiency has increased.

 With the cars coming into family and transportation facilities improved, the real estate
consumer attitudes are changing, and residential suburbanization trend will be more obvious.
Residential suburbanization is an essential trend in the city development. With the city
expanded, due to the land area is limited, the population density is increasing, which results
in more cost of congestion.

Technological:

These factors pertain to innovations in technology that may affect the operations of the industry
and the market favorably or unfavorably. This refers to automation, research and development
and the amount of technological awareness that a market possesses.

The technological factors and decisions affecting the real estate sector are:

 Much like the e-commerce websites that offer a personalized wish list of the items people
have shown their interest in, websites able to define the customers with the kind of property
they prefer and would be interested in buying. As advancing technology and automation
redefine the buyer and broker interaction on real estate, it becomes indispensable to enhance
the buyers overall property purchase journey and create a feel-good vibe about the numerous
online options. In the present-day retail world, experiential marketing is already an important
factor of attracting customers. Real estate consultants now face increasing pressure on
finding tech-driven ways to enhance their customer experience. Usage of renting, booking
and buying property online. Some of the top players in web based real estate companies are
99 acres, housing.com and commonfloor.com

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 Usage of fabricated constructions and dry wall technology has been introduced in India,
Malaysia, China and Thailand.

Legal:

These factors have both external and internal sides. There are certain laws that affect the business
environment in a certain country while there are certain policies that companies maintain for
themselves. Legal analysis takes into account both of these angles and then charts out the
strategies in light of these legislations. For example, consumer laws, safety standards, labor laws
etc.

The legal factors and decisions affecting the real estate sector are:

With the introduction of RERA bill the following legal implications have happened:

 If a developer makes changes to the project, you need to be informed about it in advance. If
there are major changes to the project overall, like to the public areas, two-thirds of the
allottees must provide prior written consent before they can carry out these changes.

 All projects should be registered with RERA, even those that are in the construction phase
and before they start promoting the project.

 You will have a lot of relevant information as a buyer at disposal like: project plans, layouts,
government approvals, land title status, and information about subcontractors. You are
entitled to have timelines for completion too. Developers and promoters can use promotional
material to talk about their projects, and you can now trust that all the features they advertise
are part of the project. Their advertising campaigns are supposed to contain clear and
comprehensive information about their projects.

 More projects delivered on time! Developers have to stick to their committed timelines for
project completion and delivery.

 Promoters are required to provide RERA with regular progress updates, and home buyers can
follow these updates on the RERA portal.

 Standardized agreements will be signed between all parties, aiming to balance out
responsibilities for both parties in the transaction.
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 Buying decisions would be faster. Processes would be more transparent, and it will become a
lot easier for the Home Buyer post RERA. Home Loans will be more accessible.

 Lenders would be more confident in approving projects. APFs will come faster and the cash
flow of the developers will be smoother.

 By appointing a regulatory body to oversee both Home buyers and Developers both will have
more accountability and Real Estate as an industry will become more organized.

 RERA will also help in handling any disputes with respect to the project. Home buyers and
Developers will now have some governing body to look up to.

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Environmental:

These factors include all those that influence or are determined by the surrounding environment.
This aspect of the PESTLE is crucial for certain industries particularly for example tourism,
farming, agriculture etc. Factors of a business environmental analysis include but are not limited
to climate, weather, geographical location, global changes in climate, environmental offsets etc.

The environmental factors and decisions affecting the real estate sector are:

 In a survey by earnest and young for Brigade group it was found that many people in the
heart of the cities like Delhi, Mumbai and Kolkata are willing to shift to suburbs due to the
unfavorable change in the climatic conditions of the cities and rising pollution levels.

 Delhi was recorded to feature in the top 3 most polluted cities in the world and hence
affecting the desirability of people wanting to stay there.

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3.2 PORTER’S FIVE FORCES ANALYSIS:

Michael Porter’s ‘Five forces model’ can be used to explain market profitability and
attractiveness. By using this guideline company identifies which factors are affecting the
competitive situation within the industry. Market profitability is affected by five forces shown in
the figure below. (Porter, 1980)

Bargaining power of suppliers:

Professor Michael Porter dissertated in his book of "competitive advantages" that "suppliers
might put pressure on enterprises in some industries by use of the threat that increases the price
or reduce the quality of the products or services". The supplies of the real estate industry are
lands, building materials and equipment. At present, the suppliers of general building materials
and equipment have weaker bargaining power, and those of the special materials and equipment
have some bargaining power, but the land provider has high bargaining power. The land belongs
to nation or individuals, the developers purchase its tenure or ownership, and they are subject to
the effects of national and local government’s land policy. The cost of land acquisition is an
important part of real estate total cost, and the land supply is limited, which makes the land
suppliers have high supply-side bargaining power. Although the government has introduced a
number of policies to stabilize the real estate prices, but whether the prices of ordinary residence
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or high-grade is still rising, which follows that the second-hand house’s price is also increasing
dramatically.

An other important category of suppliers is the bank. They have the power to decide whether to
fund a venture or not and at what rate. Banks have now become highly conservative especially
after the economic downturn. Are significantly affected by the monetary regulations like the
Repo rate & CRR formulated by the Central Bank of the country. This is in turn affects the real
estate sector.

Consequently the bargaining power of suppliers is very strong

Bargaining power of customers:

Purchasers are the object of products or services. They could be individuals, families,
organizations and government departments. So it is foundational and prerequisite for the
enterprise‘s success to understand the bargaining power of buyers and to analyze their purchase
behavior and characteristics. Real estate products are high-grade consumer goods. It’s a big
decision to purchase real estate product whether for business or for individuals, therefore, they
consider the prices very carefully.

1) The purchaser’s bargaining power has changed. Private consumption-oriented buyers use
more time to "bargain”. As the real estate market is also being standardized, the developers are
facing lack of unified management of the price; and so the price competition among enterprises
has become increasingly fierce, as a result of this, this has increased bargaining power of the
buyers.

2) The developers give large price fluctuations rights to the distribution staff, and their income
have a direct relationship with the sales performance, which leads to the difference of the price in
the same property. The buyers have realized the “prices flexibility" in the process of buying
property, and that the buyer bargaining power is enhanced.

3) The Media constantly reports the irregularities of certain developers, and have been warned
consumers against real estate consumer traps, which make some buyers misunderstand the
market and lower confidence in developers. These indirectly lead to the buyer bargaining power
being increased.

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4) The new market entrants have increased, and they often take price war for more market share,
which has increased the buyers’ bargaining power.

Threat of new entrants:

In a real estate business, there is always a threat of new entrants. This can happen through
competitor’s expansion to area or new agency setting up its business in the same city. In both
cases, the situation should be taken seriously and try to maintain own status and market position.
Having loyal customers is a good way of reducing the impact of new entrants.

The real estate market is a relatively unique market, and its uniqueness lies in the high-input,
high-yield, and high-risk. Since the introduction of reform and opening up, real estate has been
separated from the construction industry and has developed rapidly. There are 67 real estate
development enterprises as of 2018

Threat of substitute products:

India’s real estate market is still in the formative age, and the target customers are constantly
changing. This is because consumption patterns gradually changed from the public consumption
before urbanization and opening up FDI, to commercial consumption rapidly increasing.
However, personal consumers become increasingly critical, and the consumers’ demands of
commercial, business and others become increasingly high. The transformation of Consumer
attitudes and the high-grade price of the real estate provide an opportunity for the substitute. For
example, in the residential market, although the current houses are good enough, will be replaced
by newer better housing if not quickly be sold. People’s demands always changes with their
conception of property investment.

Changes in the consumption level lead to the flourish of substitutes. For example, in the
residential consumption, at the beginning of year 2000 there is no luxury villa any more, but
there are lot of villas now, which seize high-grade and ordinary residential market share. This
situation will continue to occur for a long time.

With the cars coming into family and transportation facilities improved, the real estate consumer
attitudes are changing, and residential suburbanization trend will be more obvious. Residential
suburbanization is an essential trend in the city development. With the city expanded, due to the

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land area is limited, the population density is increasing, which results in more cost of
congestion. Furthermore, overcrowding leads to the deterioration of the environment, which
forces out some resident and organs of the city. This trend has already occurred in many
developed cities, and now has been evident gradually in India. Whether people are willing to go
to the outskirts for residence or not is based on the cost-effectiveness analysis, and an important
factor is traffic fare. Therefore, lowering the traffic cost becomes the decisive factor for transfer
to the outskirts or not. Although the trend of residential suburbanization is inevitable, it doesn’t
mean that developers build houses in the outskirts will certainly sell well; there still will be
vacant houses, uncompleted residential flats. This shows that the market only accept the
commodities that meet people’s need. So developers should make decisions based on many
aspects such as transportation, water, electricity, natural gas and other infrastructure as well as
medical care, natural environment.

The competition between industry rivals

Competition within the industry usually refers to that the real estate rivals provide the same or
similar properties to the consumer in the same area. They focus on the market outlet in order to
achieve greater market share. The competitive intensity within the real estate industry depends
largely on the number of competitors, the balance of power, product differentiation, market
supply and demand. When the number of industry competitors is large, their power is at the same
level, the difference between real estate products is smaller, and market oversupply exists, the
competition within the real estate industry will be very intense. Competition include the price
war, the advertising war, the property management, product improvement and increased services.
Competition between industry competitors is the most important one of the five mentioned
above. Generally speaking, the customers need more than one business groups, and the
enterprises carry out their business activities under the siege and restrictions of competitor
groups, which come not only from the domestic market, but also from other countries and
regions. The competitions exist not only within the real estate industry, and some enterprises
outside the industry may adopt other cooperation with existing enterprises to compete. The
contentions not only determine their market position, but also directly affect their profitability,
and so it is necessary to analyze the competition situation within the industryThere are

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approximately 67 real estate development enterprises in domestic market. Normally, in an
industry where there are more enterprises and there will be more intensity.

Although there are many real estate development enterprises, but their development capacity per
year is very small, and the market is being dominated by few large enterprises, and they adjust
their prices and other tactics which affect others. Especially when major competitors have almost
the same strength, the competition between will become fiercer only amongst them. In fact, the
number of enterprises within the industry and their relative size reflect the industry
concentration, normally measured by the market share of some major development enterprises
occupy. Higher the industry concentration, the number of enterprises within the industry is
relatively smaller. When one or a few large enterprises occupy most market share, competition
will relative ease.

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4. COMPANY ANALYSIS: HOUSE OF HIRANANDANI

4.1 SWOT:

SWOT analysis is a strategic planning tool originated in 1960s by Albert S Humphrey. SWOT
analysis is divided into two groups:

 internal factors: strengths and weaknesses existing internally in a company

 external factors: opportunities and threats presented by business environment

SWOT analysis is a great tool to determine company’s strengths and weaknesses which are
connected to business environment opportunities and threats. It gives the company a good image of
the market with its evolving opportunities and threats.

STRENGTHS: WEAKNESSES:

 multilingual staff  High maintenance costs for renting


apartments
 good regional networks
 limited resources and capabilities to
 reliable, all-inclusive sales service
expand
 strong customer base due to current
 need for employees with certain
tenants and loyal customers
language skills
OPPORTUNITIES: THREATS:

 Good networks make it realistic to  Interest to Indian real estate market will
expand business regionally. stagnate or decrease.

 To hire new employees with knowledge  Due to increasingly cautious buying


of new potential markets. behavior, properties will be sold with
lower prices and demand for luxurious
 To extend its property portfolio to cover
villas could decrease.
more destinations and property types.

Strengths:

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It has multiple projects and a strong foothold in Bangalore, Chennai, Hyderabad and Mumbai. It
is a new innovative company with stylish architectures. It has presence in US, Canada,
Singapore, Dubai, Australia, New Zealand etc. Multilingual staff and each employee’s networks
for their home country are valuable assets for HOH. It makes it possible for them to approach
and cooperate with foreign clients which would usually be out of their reach. Staff‟s language
skills are a great marketing asset to entice people to the office where they know they can get
service at their native language. All-inclusive sales service appeals to customers who are fairly
unknown with the property purchase process. HOH can help them with contracts and other legal
issues. It is a company that believes in strong value system

HOH has worked in Mumbai for years and gained a decent customer base and broad variety of
properties. Some of their customers are coming to Chennai annually and renting an apartment
from them. It is also possible and highly likely that if they decide to buy a house from the area,
they approach HOH first. This is a big opportunity for HOH and they are doing their best to
convert these clients from renting to buying customers. Customers‟ loyalty is important and
therefore everything should be done correctly to keep them satisfied. The company has won
several awards from big players like NDTV, Zee, CNBC, CRISIL etc

Weaknesses:

As the business is depending on foreign networks, HOH cannot compete equally from all
nationalities. It is highly likely that for instance French customer would do business with agency
with French employees. However, it is impossible to master all languages so it is obvious that the
customer base needs to be cropped rationally. The lack of employees is affecting another issue as
well, the expansion possibilities. If HOH wants to expand its business by opening new offices in
other cities, it inevitably needs to recruit some new employees. It is impossible for them to be in
many places at the same time. Hiring new, skilled employees would lower current’s employees’
workload.

Opportunities:

Expansion possibilities create various opportunities for HOH. By moving to new regions, it can
gain bigger market share from the overall market in Costa Blanca. New employees are required
to implement this change. Recruiting skillful professionals will bring in their existing networks

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and knowhow. Another way to enlarge its business is through expanding property portfolio.
When they have more properties of various types from different areas, it increases the possibility
of meeting customers’ wants and needs.

Some other opportunities other than the above are:

 It can leverage its strong foothold in Bangalore and Chennai and expand its operations into
other parts of the country.

 It can also increase its global operations by mergers and acquisitions

 Global expansion through tie-ups with international players can give it a new market

Threats:

Possible threats exist due to global economical situation and customers‟ preferences. Changes in
world economy and especially within the ASIA, reflects on housing market as well. With on
average less money to spend, customers are more cautious and calculative when doing big
purchases like buying a house. Tight economical situation lowers customers’ budgets as well as
banks’ capability of giving bigger loans. These combined gives people less money to use to
purchase a property. That can lead into excess of houses from higher price category in the
market. That would mean lower profit margins for real estate agencies.

The other general threats are:

 It would face strong competition from global brands in real estate while entering new
markets

 Increasing cost of raw materials and fuel prices

 Unfavorable market conditions due to economic recessions can affect business

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4.2 PORTER’S VALUE CHAIN FRAMEWORK

HOH’S VALUE CHAIN

Primary activities:

Inbound logistics:

The activities concerned with receiving the materials from suppliers, storing and handling these
materials within the organization. For HOH, the most important inbound logistics concern
ordering and receiving the raw materials to be used for construction that includes raw materials
like cement, sand, bricks, iron rods etc. another major element is laborer. The raw materials are
stored in the construction sites itself and there are supervisors supervising the issue and
consumption of the raw materials.

Another inbound logistic in HOH concern receiving and handling the information about
properties. That includes taking pictures and detailed property information which is then used in
marketing.

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Operations:

These are all the activities (for example production floor or production line) that convert inputs
of products or services into semi-finished or finished products. Operational systems are the
guiding principle for the creation of value. Especially in bigger companies, this category can be
split into subgroups. The activities related to the production of goods and services are relatively
complex in case of a real estate company.

In HOH the major operational activity includes the construction of the buildings where the inputs
are land, raw material (Cement, bricks, iron rods etc.), labor and capital and the output is the
building. The major managers and facilitators in the operation process are architects, supervisors,
labor suppliers etc.

Outbound logistics:

The activities relate to distribution of the final product (goods or services) to the customer is
known as outbound logistics. In HOH distributing the final product to the customer includes
taking customers to the office, property viewings and in case of a sale, helping with all the
documentation and handing over the keys after making sure everything is ready. Both the
property itself and all paperwork should be ready when closing the deal. This applies to both for
sale and for rent properties.

The HOH outbound also include customer service in the office, showing properties for customers
and all actions and paperwork needed to closing the deal. Services related to properties for rent
are maintenance work, providing cleaning service and pick-up service for customers.

Marketing and sales:

These activities relate to analyzing the customer needs and defining the target group.
Organization uses marketing tools (advertising, sales promotions) in order to improve company
awareness and to attract customers to purchase their products. Various different media can and
should be utilized in marketing. Due to fast-paced technological developments, the nature of
marketing has been constantly developing in recent years. Nowadays social media is a major part
of modern business and its opportunities should be well researched and identified.

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HOH’s major marketing advantage is goodwill of its parent company Hiranandani constructions’
goodwill of creating elite projects which are icons in Mumbai. Hence, HOH very efficiently
encashes this advantage in its all platforms for marketing its products, and this gives HOH an
edge over all its competitors.

Other than that HOH uses all major marketing tools online (website and social media) and offline
(hoarding and advertisements) and has designated teams managing the marketing activities.

Service:

Includes all services either before or after the sale of the product. These can consist of
arrangements, meetings, and after-sales services. In HOH, there is plenty of customer service to
do, from initial customer contact to after-sales services. Usually even before the actual meeting, a
lot of information about customer’s needs and property details are shared via email or website.
Arranging a meeting with a potential customer finally determines how to proceed from there.
And also in the end there has to various assurances the company needs to give to the customer
regarding repairs etc.

Support activities:

(Firm) Infrastructure:

Working infrastructure is basically a must for any company willing to survive and succeed. It
creates the foundation for the company to build on.

In HOH firm infrastructure includes planning and control systems, such as finance, accounting
and corporate strategy. There are designated managers with qualified teams looking after the
business activity of HOH and putting in place the firm’s infrastructure.

Technology development:

Activities related to technological knowledge, equipment, training, and innovation. In today’s


business, these are crucial competences for most companies in order to be successful. In many
businesses, this is the activity that determines which company can exceed its competitors by
having a superior technology.

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The major technological development that HOH has done is making its properties available to
virtual house hunting through websites like commonfloor.com etc.

Human resource management:

Consist of recruiting, training and motivating the employees. The importance of HRM is
constantly growing in all businesses. More and more resources are put to development of human
resource management. Competition between companies for highly-skilled professionals is fierce.
That sets its own challenges to companies to have decent recruitment procedures. Also training
and motivating the current employees play an important role in keeping them satisfied and not
willing to leave to work for other companies.

HOH has a designated human resources team which looks after hiring professionals for
rendering various office services. But, as HOH is a real estate company there is a huge need of
skilled and unskilled laborer on day to day basis for construction, HOH takes help of contractors
and also create contacts with various labor unions.

Procurement:

Materials needed to successfully run company’s operations. These can involve acquiring supplies
needed to run everyday business. The goal is to use company’s resources wisely and obtain high-
quality products with as low prices as possible.

In HOH the procurement team does activities like entering into and managing relationships with
suppliers, negotiating to arrive at the best prices, making product purchase agreements with
suppliers and outsourcing agreements. HOH effectively uses these primary and support activities
as building block to create valuable property with distinctiveness.

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4.4 BCG MATRIX

As seen in the BCG matrix above, HOH has different property types which all bring different
value for the company. Stars with high profit margin are villas and other properties such as
renovated bungalows or townhouses with high quality and price. With them it is easier to gain
higher profit margin than with apartments. On the other hand their demand fluctuates more than
with city center apartments. Investing on these ‘stars’ would improve HOH’s position.
Apartments with decent condition and location can be considered as cash cows. The demand for
apartments close to all amenities is steady and their medium selling price means steady cash flow
for the company.

Apartments for rent are in the verge of cash cow and dog. They as well bring steady profits but
require quite a lot of maintenance and service. However, customers expect real estate companies
to have them in their property portfolio. Divesting rentals from their business, company could
focus more of their energy towards selling properties. At the end of the day, each company
should do its decision based on their own profitability calculations. If the workload and financial
investments are outweighed by profits, it is reasonable to continue providing rental services.

HOH Properties also have a few question marks which are sometimes called ‘problem children’.
They might prove to be success and after investing, considered as stars. If they are considered as
23
unprofitable, they should be divested from the business. In HOH‟s case, these question marks
are new developments in new market areas and used bank properties. Bank foreclosure
properties are commonly in relatively bad condition and sold with reasonable prices. Their bad
condition and high number raises challenges for HOH when planning on marketing these
properties. But mostly due to their low prices, there is a demand for foreclosure properties.

As HOH is constantly looking ways to improve and expand its business, it has added some new
developments from new market areas for its portfolio. Examples of these are properties in the
Chennai and Hyderabad. Along with opportunities, they bring some obvious constraints. Their
remote location makes it hard for HOH to be able to be physically present and observe the
property development. Therefore they are depending on local partners who provide the
information and possibly show properties for potential customers. In these kinds of
developments good networking is vital in order to succeed. Another good example of expansion
is a new building development in interiors of Bangalore. HOH is participating on promoting
luxurious villas and apartments in a beautiful location. But in order to make it profitable for
HOH, customers should contact them and show their interest. Then HOH could contact its local
partners and organize a property viewing for interested customers. In case of a purchase, HOH
would get their share from marketing the properties.

It is worth noticing that the Boston Matrix is just a way to generalize products. It is possible for
cash cows to lose money while dogs can be very profitable at some particular time. It is all
dependent on the circumstances and market conditions that determine the profitability of each
strategic business unit. (Boston Consulting Group, 1986).

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4.5 ANSOFF’S MATRIX

The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff and was introduced
in his article "Strategies for Diversification" in the Harvard Business Review (1957). It helps organization
to decide which way it can develop its business actions, changing the product, expanding to new markets
or doing both simultaneously. This matrix includes four strategies: market penetration, product
development, market development and diversification. In addition to four main strategies, other factors
affecting the strategic choice should be considered, such as available resources, competition and
condition of the market. Before entering a new market, it is essential to know whether the market is
growing, declining or entering a saturation phase.

Existing Products New Products


Existing Markets Market Penetration Product Development
New markets Market Development Diversification

Market penetration

Market penetration is the least risky growing strategy from the Ansoff matrix. It uses company’s
already existing resources and capabilities. Therefore, market penetration has its limits and once
all its opportunities have been utilized, new growth strategy is needed to take the firm further.

HOH tries to increase its market share by staying at its current market with existing products. It
tries to attract competitors’ customers by using advertisements, campaigns and other marketing
tools.

Product development

These days business is more competitive than ever and therefore product development is a key to
success in many industries. In manufacturing industries, it is great way to approach current
customers with new products. Customer loyalty towards the company and its brand determines at
the end the success of product development. However, in real estate business customer loyalty
isn’t as common as in other sectors as purchases are less frequent. For HOH launching new
products (properties) to the existing market is a common strategy by especially in big cities
Bangalore. For HOH Product development doesn’t solely mean developing the product portfolio

25
itself but also the services related to selling a property. Hence HOH has bought in various other
services like 2 years of free maintenance and 1 time of free waterproof painting as new schemes.

Market development

Market development is a good strategy when the company’s strengths lie on the product, not on
particular market area or customer segment. This strategy has its risk as it usually requires heavy
investments, for instance opening an office in new target area.

For HOH new markets can be either additional market segments or geographical regions. This is
required in order to expand the business and gain additional profits. HOH takes this market
development is a natural step forward. Nevertheless, accurate forecasting and knowledge about
the target area is needed and taken care of in order to plan and run the change successfully

Diversification

Diversification is the most risky strategy as it requires both product and market development.
Careful risk assessments should be conducted to make sure that the company is not overly
optimistic with its ambitious plans. Trying to achieve too much too early can lead the company
out from its comfort zone and into trouble. This growth strategy can be only recommended to big
companies with high expertise and solid resources. Diversification can be divided into two
categories: unrelated and related diversification. Unrelated diversification means that the
company doesn’t have any previous experience about the new industry or market. Related
diversification on the other hand, is used when companies stay in a market which they are
somewhat familiar with.

HOH does not involve in much diversification as they are very comfortable and are of the belief
that their business capabilities suit best to the existing product and market. Minor changes in
services provided and areas can be done but any huge diversification is a unwelcomed change for
HOH

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5. INTRODUCTION – CONTEXT OF THE ORGANISATION AND DEPARTMENT

5.1. NATURE OF PROBLEM

The real estate industry is a very old industry. There have been players in this market since ages
and the number of new entrants is also raising a lot day by day because this is a very high
yielding industry. Because of this the competition in this industry is very steep. All the
competitors feel the need to keep a tab on each other’s activities all the time. Also customer of
the real estate sector wants to be well informed about all the aspects of the real estate company
they are looking forward to invest it because the product of the real estate company is a huge
investment for th4e customers themselves. There are other players of this market too which are
brokers, investors etc. All these stakeholders need a lot of insight before getting involved in any
kind of transactions with the real estate companies. Lot of analysis, comparison and due
diligence goes in before getting drawn in in this sector.

5.2. OBJECTIVE OF THE STUDY

The major objective behind this study is to simplify a long array o financial data and make it
understandable. It is to study the ways to analyze and use financial figures to interpret a firm’s
health which would help in both recognizing firm’s position and also analyzing the health of the
competitor organizations. And also to find out if the company is leading towards unfavorable
conditions. Such presentations are generally done in the form various ratios derived out of the
financial statements such as Balance Sheet, Profit and Loss statements and the summaries given
in the Management decisions and analysis reports in the balance sheet of the target company.
This study focuses on choice of presentation within the financial elements as a disclosure
medium to the top level management helping them to take informed decisions.

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5.3. UTILITY OF THE STUDY

 The real estate investors, brokers and other stakeholders rely heavily on certain ratios for
analyzing the health of the real estate company.

 As the real estate companies are dealing in a type of asset which the customers is very
cautious about buying and do heavy due diligence before buying. In such cases these
representations can act as an driving force as it will give a overall summary about the
companies performance signaling its credibility.

 Hence, the management also is always keen on keeping a close eye upon every operational
and non-operational changes happening in the company.

 This acts as a yard stick to measure the efficiency of the company.

 If the ratios show a growth and is communicated to the employees of the organization then it
becomes a motivational factor as they will be able to understand how their hard work is
contributing to the growth of the company.

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5.4. LIMITATION OF STUDY

Time: The time of two months is too short to fully understand the needs of the company, the
requirement of the industry and also to gain enough trust so as to get the financials of the
company to study.

Limited data: The company was very hesitant to share their company information sometime even
very basic ones which resulted to be a huge barrier in making this project. Hence some of the
parts such as company history, organization turn over, the size of the organization etc.

Also this acted as a significant shortcoming in doing certain analysis such as the Mackinsey’s 7S
framework as it cannot be complete without inputs such as Staff, System , Strategy, Skills etc.

Busy Schedule of the concerned executives: The concerned project guide form the company was
at a very vital position of the organization which made it difficult to get his appointment and
discuss about the project.

The research is done on the basis of the financial figures gathered form financials the listed
competitors in the market.

The analysis is done on the companies which are listed but it is to be noted that HOH is not a
listed company hence some of the ratios are not considered with the view of irrelevance to the
target company

Time Frame: The data collected in the study is for a limited time period that is for the financial
year 2017-2018.

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6. METHODOLOGY

6.1 APPROACH, SOURCES AND METHOD

This research is both exploratory and quantitative in context and in design. It is exploratory in
the sense that the researcher found no published literature discussing norms, industry figures, and
peculiarities in the education subsector using financial ratios. More so, it is a quantitative
research in the sense that it aims to draw out conclusions from the financial data gathered,
summarized, and processes. The financial information is obtained from the financial statement of
the various real estate companies as essence of operational performance and financial soundness.
Hence the data used in this research is primary in nature as it is all gathered by the researcher
form the financial statement of the competitor’s company. But also the formula used in the
research method is secondary in nature as they are picked up form various financial books. The
analysis is static in nature and the data used is as of 31st March 2017 for all the companies. The
following ratio analysis would be done to measure the operational performance and financial
soundness of the a competitor company of HOH.

6.2 SAMPLE

The sample taken for this research is Godrej properties as it is considered to be the closest
competitor of HOH and is operating in all the places where HOH has its projects. As Godrej
properties is a listed company so all the related data was available in the annual reports.

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6.3 METHOD OF ANALYSIS

Ratios are one of the most popular financial analysis tools. A ratio expresses a mathematical
relationship between two items. To be useful comparisons, however, the two values must be
related in some way. For this study there are some widely used ratios that should be of interest to
investors which has been selected. As with all ratios, a comparison with other firms in similar
industries is useful, and a comparison of these ratios for the same firm from period to period is
important in pinpointing trends and changes. It is also important to keep in mind that these ratios
are interrelated and should be examined together rather than independently.

The data collected were edited, classified and tabulated analysis. The analytical tools used in this
study are various ratio analysis tools.

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7. PRESENTATIONS OF DATA:

GODREJ
SR. NO NAME OF RATIO FORMULA PROPERTIES

Inventory Turnover Sales/((Inventory at the beginning of the year


1 Ratio + Inventory at the end of the year)/2) 0.81
Debtor's Turnover
2 Ratio Net Credit sales/( Average trade debtors) 8.93

Investment Turnover Net Sales/(Shareholder's Equity + Debt


3 Ratio Outstanding) 0.81

Fixed Asset
4 Turnover Ratio Net Sales/Fixed tangible Assets 15.58

Total Debt to Total Debt/ (Total Debt +Shareholder's


5 owner's fund equity) 1.65

Financial Charges (EBIT + Fixed Charges before tax)/ (Fixed


6 coverage ratio charges before tax + Interest) 3.31

Return on Capital Net operating profit/ (Total Asset - Current


7 Employed Liabilities) 8.09
Operating Profit
8 Margin Operating Income/ Net Sales -0.23

9 Current Ratio Current assets/ current liabilities 1.02

(Total Current assets - Inventory - Prepaid


10 Quick Ratio expenses) / Current Liabilities 2.47

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9. ANALYSIS AND DISCUSSION

Ratio analysis uses financial report and data and summarizes the key relationship in order to
appraise financial performance. The effectiveness will be greatly improved when trends are
identified, comparative ratios are available and inter-related ratios are prepared.

1) Inventory Turnover Ratio:

Inventory turnover ratio basically measures at what rate the company sells its inventory. A low
turnover implies to weak sale automatically. In the real estate industry this ratio acts as a big tool
to indicate the demand of the properties being sold by a certain company. It also helps in
indicating if the company is capable of selling its properties against the rate of construction the
company is engaging into. The real estate sector is a very consumer sensitive business hence the
inventory turnover ratio going down cannot be termed as low quality of construction or
company’s reputation being bad. The reason can be various economic reforms and other external
factors too. Hence it is very important to take into consideration the inventory turnover ratio of
the whole industry and then comparing it with the turnover of the company to determine the
firm’s performance adequately.

Sales
(Inventory at the beginning of the year + Inventory at the end of the year)/2

In the given example of Godrej Properties the inventory turnover is 8.9 times against the industry
turnover being 7.92 times. Therefore here we understand that Godrej properties is selling it’s
inventory 8.9 times whereas the whole industry put together is able to sell their inventory 7.9
times showing that Godrej properties is performing better in selling its already made properties
than majority of it’s competitors.

2) Debtor’s Turnover ratio:

It is a type of ratio which indicates that how many times a company is fit to turn its accounts
receivables into cash in financial year. In other word it indicates that how many times a business
can collect its average debtors in a year. One turn mean each time the company has successfully

33
collected its average receivable. This shows how efficient the company is in collecting its due
over the credit sales from the customers. This is a type of liquidity ratio the company is more liquid as
soon as it is able to convert its credits into cash.

Net Credit Sales


Average Trade Debtors

In terms of a real estate company this is a very crucial ratio as maximum of the customers pay in
credit and the period of repayment is as high as 120 days to 360 days because the value of
properties is very high and the product of a real estate company is a fixed asset for the customer.
Also in many cases the credit period is proportional to the construction period of the properties.
A hence a high debtors turnover ratio also indicate customer satisfaction.

The debtors’ turnover ratio of Godrej Properties is 8.93 which indicates that the company will be
able to convert its account receivables to cash 8.93 times. As discussed earlier this indicates a
high level of customer satisfaction as the customers are less likely to default in payments if their
needs are adequately satisfied. Also this shows that the company is quite liquid.

3) Investment Turnover Ratio:

The investment turnover ratio compares its earning with its equity and funds borrowed. This
estimates the capability of the management to generate revenue against the borrowings. The term
turnover here denotes the number of times the management is able to multiply its revenue from
the funds it has borrowed.

Net Sales
(Shareholder's Equity + Debt Outstanding)

But there is a major issue in this ratio which makes it incapable of painting the proper picture,
which is revenue always does not mean profit as the concept of cost is being totally ignored in
this ratio. In the real estate industry the cost factor is a major point as the cost involved in any
project is very high and hence this ratio does tell us about the management capabilities but fails
to paint a full picture in case of real estate companies.

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The Investment turnover ratio of Godrej Properties is 0.81 times. This indicates that the company
will be able to generate revenue 0.81 times of the borrowings which is not optimum as it
indicates a shortfall of revenue to pay off its borrowings.

4) Fixed Asset Turnover ratio:

Fixed asset turnover ratio compares the fixed assets with the revenue. This is a very relevant ratio for the
industries such as manufacturing, agriculture and real estate where there is a lot of capital employed for
fixed assets in the form of land, machines, property etc. This ratio specifically measures the capability of
the management to generate revenue from the fixed asset investments. Hence this would automatically
denote that the higher the fixed asset turnover ratio the more effectively has the company utilized the
investment in fixed asset to generate revenue.

Net Sales
Fixed tangible Assets

In the real estate sector this is a very relevant ratio as this shows how optimally the resources are
being used. The real estate companies substantially invest in purchase of machineries, land and
property, these activities are core to the business hence to denote optimal utilization of these
resources this is an important ratio.

The fixed asset turnover ratio of Godrej Properties here is 15.58 times. This indicates that the
management of the company has the capacity of yielding revenue from the current fixed assets
15.58 times. This indicated the efficiency of the fixed assets employed and also the capacity of
the management to utilize its investment over fixed asset optimally.

5) Total Debt to owner’s fund

This ratio is also known as debt to capital ratio. This ratio is a measurement of a firm’s financial leverage.
This ratio is calculated by considering the firm’s interest bearing debts both long term and short term
against the total capital of the firm. This ratio measures the amount of debts a company utilizes to funds
its operating activities in comparison to its capital. Hence this ratio is used to measure the risk factor in
case there is downfall in the revenue of the firm how well will the company be able to handle it. This risk
analysis is done by considering the relationship between equity and capital.

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Total Debt
Total Debt + Shareholder's Equity

For a real estate company this will denote that in case of any change of reforms or any other
factor, if the sales of the company reduce how it will impact the company against its leverages.

The total debt to owner’s fund ratio of Godrej properties was 1.65 this means the company
utilizes it’s debts 1.65 times to fund its operating activities against its capital employed.

6) Financial Charges coverage ratio

Financial charges coverage ratio is also known as fixed charge coverage ratio. This ratio checks
the firm’s capability to cover its fixed financial costs such as lease payment, preference share
dividend payment, insurance payment etc. before paying its interests and taxes. This in short
checks the firm’s credibility to meet at least its fixed costs and therefore making this ratio very
useful for customers and investors. Fixed charge coverage ratio is an expanded version of interest
coverage ratio.

EBIT + Fixed charges before tax


Fixed charges before tax + Interest

For a real estate company the fixed costs are very high, costs like lease, insurance, machinery
maintenance etc. form a big chunk of the operating cost of a real estate company. So for medium
and small construction company this acts as a very important ratio. Because obviously if a
company who cannot do its lease payments and insurance payments for a long time wouldn’t be
able to survive in the business. Higher fixed cost indicate less risky and a healthy business
making it more desirable to invest.

The financial charges coverage ratio of Godrej properties was 3.31. This indicates that the
company is capable of paying its fixed costs 3.31 times before paying the interest and tax. Which
implies that the business position of Godrej properties is less risky as it is quite capable of paying
its fixed cost.

7) Return on capital employed


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Return on capital employed ratio derives how efficiently the assets are performing against the
long term financing done. This ratio shows how optimally the management is able to use the
capital employed to generate operating profit. The two factors involved in this ratio is the capital
employed against the net operating profit. This is a pure profitability ratio measuring how many
rupees of profit can each rupee of capital employed is able to generate. Hence naturally the
higher the ratio would the more favorable it is as it would mean each unit of capital employed is
able to generate more profit. This is a very efficient ratio as this is able to cover the shortfall that
is there in the Investment turnover ratio.

Net Operating Profit


Total Asset - Current Liabilities

In a real estate company the amount of capital employed is large and there are also various other
incomes and business that a real estate company is generally involved in like leasing, renting etc.
So to measure the operational efficiency of a real estate company in its core business this ratio is
apt to paint a clear picture. By this ration we can understand how optimally is the capital
employed is being used in working and growth of the core business.

The ROCE of Godrej Properties is 8.09 this means that the company is capable of generating
8.09 rupees of revenue against 1 rupee of capital employed. Hence this implies that the capital
employed is being used optimally and efficiently in the growth of the main construction business
of the company.

8) Operating Profit Margin

Operating profit margin widely means how much profit a firm is making against each rupee of
sale after paying variable costs but before paying interest or tax. This ratio is also known as
return on sales. This shows the efficiency of the business in controlling the expenses related to
business operations. Also, this also denoted he income generated from the regular business and
not one time transactions. This ratio is a very important ratio for internal evaluation by the
managers and with the help of this ratio it can be determined which project is performing well
and which one is lagging and needs extra work to be done.

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Operating Income
Net Sales

In a real estate company there are generally multiple projects that are running simultaneously
therefore this ratio helps to determine the individual performance of the projects and also overall
operating performance of the company.

The operating income margin of Godrej Properties is -0.23 which is not a desirable ratio, it
shows that the company is unable to make enough profit after paying off its variable costs.

9) Current Ratio

Current ratio is one of the most common ratio across all industries, it is also know as working
capital ratio. It is a liquidity ratio that measures the company’s capability to pay short-term and
long-term obligations. Current ratio is called “current” because unlike all other ratios it includes
all current assets and liabilities. The ratio under 1 indicates that the company’s liabilities are
greater than its assets, which also questions the credibility of the company of paying back its
debts.

Also this ratio considers the current assets which indicates that the company’s capabilities to
payoff the debts in limited time without selling the fixed assets. Current assets are those assets
which can be easily converted into cash within a short period of time. If a company is required to
sell off its fixed assets to pay its current liabilities then it would imply that the company is not
making enough money. A high current ratio on the other hand means high value of the current
assets which is sufficient enough to pay the company’s debts. This ratio directly indicates the
health of the company. Hence, the current ratio indicates the overall debt burden on a company.

Current Assets
Current Liabilities

The current ratio of Godrej Properties is 1.02 means that the company has enough value to
payoff it’s both short term liabilities. So because the current ratio is more than 1 this indicates
that the company is a healthy company.
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10) Quick Ratio

Quick ratio is also one of the most common ratio. This is a type of liquidity ratio also known as
acid test ratio. It is a ratio which measures the capability of the company to pay off all its current
liabilities only with “Quick Assets”. Quick assets here mean assets that can be convertible to
cash within 90 days. The examples for quick asset can be cash, cash equivalents those are short
term bonds, equity, marketable securities, receivables from current accounts etc. The name quick
itself means that in case of emergencies how easily the company will be able to pay off its
current liabilities.

The fixed assets or the long term assets’ basic use is to generate revenue, it is not considered
desirable to sell and encash those to pay of the short term liabilities of the company, such
instances not only affect the revenue generating capability of the company but also indicate to
the investors that the company is not performing well. High quick ratios are more favorable
because they indicate that there are more quick assets against the current liabilities.

Current Assets - Inventory - Prepaid Expenses


Current Liabilities

The Quick ratio of Godrej Properties is 2.47. This indicates that Godrej properties has the
capability to pay its current liabilities 2.47 time out of its quick assets. This shows that there are
more quick assets against the current liabilities and hence showing the company to be more
liquid.

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9. CONCLUSION

9.1. INFERENCES

Figures, in their absolute forms, shown in the financial statements are neither significant nor able
to be compared. In fact, they are dump. But ratios have the power to speak.

A ratio analysis is a quantitative analysis of information contained in a company’s financial


statements. Ratio analysis is used to evaluate various aspects of a company’s operating and
financial performance such as its efficiency, liquidity, profitability and solvency

When investors and analysts talk about fundamental or quantitative analysis, they are usually
referring to ratio analysis. Ratio analysis involves evaluating the performance and financial
health of a company by using data from the current and historical financial statements. The data
retrieved from the statements is used to - compare a company's performance over time to assess
whether the company is improving or deteriorating; compare a company's financial standing with
the industry average; or compare a company to one or more other companies operating in its
sector to see how the company stacks up.

Ratio analysis can be used to compare information taken from the financial statements to
gain a general understanding of the results, financial position, and cash flows of a business.
This analysis is a useful tool, especially for an outsider such as a credit analyst, lender, or
stock analyst. These people need to create a picture of the financial results and position of a
business just from its financial statements. However, there are a number of limitations of
ratio analysis to be aware of. They are:

Historical: All of the information used in ratio analysis is derived from actual historical
results. This does not mean that the same results will carry forward into the future.
However, you can use ratio analysis on pro forma information and compare it to historical
results for consistency.

Historical versus current cost: The information on the income statement is stated in current
costs (or close to it), whereas some elements of the balance sheet may be stated at historical
cost (which could vary substantially from current costs). This disparity can result in unusual
ratio results.
40
Inflation: If the rate of inflation has changed in any of the periods under review, this can
mean that the numbers are not comparable across periods. For example, if the inflation rate
was 100% in one year, sales would appear to have doubled over the preceding year, when in
fact sales did not change at all.

Aggregation: The information in a financial statement line item that you are using for a ratio
analysis may have been aggregated differently in the past, so that running the ratio analysis
on a trend line does not compare the same information through the entire trend period.

Operational changes: A company may change its underlying operational structure to such an
extent that a ratio calculated several years ago and compared to the same ratio today would
yield a misleading conclusion. For example, if you implemented a constraint analysis
system, this might lead to a reduced investment in fixed assets , whereas a ratio analysis
might conclude that the company is letting its fixed asset base become too old.

Accounting policies: Different companies may have different policies for recording the
same accounting transaction . This means that comparing the ratio results of different
companies may be like comparing apples and oranges. For example, one company might
use accelerated depreciation while another company uses straight-line depreciation , or one
company records a sale at gross while the other company does so at net.

Business conditions: You need to place ratio analysis in the context of the general business
environment. For example, 60 days of sales outstanding for receivables might be considered
poor in a period of rapidly growing sales, but might be excellent during an economic
contraction when customers are in severe financial condition and unable to pay their bills.

Interpretation: It can be quite difficult to ascertain the reason for the results of a ratio. For
example, a current ratio of 2:1 might appear to be excellent, until you realize that the
company just sold a large amount of its stock to bolster its cash position. A more detailed
analysis might reveal that the current ratio will only temporarily be at that level, and will
probably decline in the near future.

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Company strategy: It can be dangerous to conduct a ratio analysis comparison between two
firms that are pursuing different strategies. For example, one company may be following a
low-cost strategy, and so is willing to accept a lower gross margin in exchange for more
market share. Conversely, a company in the same industry is focusing on a high customer
service strategy where its prices are higher and gross margins are higher, but it will never
attain the revenue levels of the first company.

Point in time: Some ratios extract information from the balance sheet. Be aware that the
information on the balance sheet is only as of the last day of the reporting period. If there
was an unusual spike or decline in the account balance on the last day of the reporting
period, this can impact the outcome of the ratio analysis.

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9.2. MANAGERIAL IMPLICATIONS

The term ‘Analysis’ refers to rearrangement and simplification of data given in the financial
statement. The analysis is done by establishing the relationship between the items of the Balance
sheet and Profit and Loss Account. Financial analysis refers to an assessment of the viability,
stability and profitability of a business, or Company. It is a process of examining and comparing
financial data. Analysis refers to the proper arrangement of financial data. Analysis of financial
statements means an attempt to determine the significance and meaning of data presented in
financial statements. Such an analysis makes use of various analytical tools and techniques to
data of financial statements so as to derive from them certain relationships that are significant
and useful for decision making. It is performed by professionals who prepare reports using ratios
that make use of information taken from financial statements and other reports. These reports are
usually presented to top management as one of their basis in making business decisions. Based
on these reports, management may: 1. Continue or discontinue its main operation or part of its
business. 2. Make or purchase certain materials in the manufacture of its product. 3. Acquire or
rent/lease certain machinery and equipment in the production of its goods. 4. Issue stocks or
negotiate for a bank loan to increase its working capital. 5. Other decisions that allow
management to make an informed selection on various alternatives in the conduct of its business.
Moore and Jaedicke have defined financial analysis as process of synthesis and summarization of
financial operative data with a view to getting an insight in to the operative of a business
enterprise.

Useful in Financial Position Analysis:


Accounting ratios reveal the financial position of the concern. This helps the banks, insurance
companies and other financial institutions in lending and making investment decisions.

Useful in Simplifying Accounting Figures:


Accounting ratios simplify, summarise and systematize the accounting figures in order to make
them more understandable and in lucid form. They highlight the inter-relationship which exists
between various segments of the business as expressed by accounting statements. Often the
figures standing alone cannot help them convey any meaning and ratios help them to relate with
other figures.
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Useful in Assessing the Operational Efficiency:

Accounting ratios helps to have an idea of the working of a concern. The efficiency of the firm
becomes evident when analysis is based on accounting ratio. They diagnose the financial health
by evaluating liquidity, solvency, profitability etc. This helps the management to assess financial
requirements and the capabilities of various business units.

Useful in Forecasting Purposes:


If accounting ratios are calculated for a number of years, then a trend is established. This trend
helps in setting up future plans and forecasting. For example, expenses as a percentage of sales
can be easily forecasted on the basis of sales and expenses of the past years

Useful in Locating the Weak Spots of the Business:


Accounting ratios are of great assistance in locating the weak spots in the business even though
the overall performance may be efficient. Weakness in financial structure due to incorrect
policies in the past or present are revealed through accounting ratios

Useful in Comparison of Performance:


Through accounting ratios comparison can be made between one departments of a firm with
another of the same firm in order to evaluate the performance of various departments in the firm.
Manager is naturally interested in such comparison in order to know the proper and smooth
functioning of such departments. Ratios also help him to make any change in the organisation
structure.

Aid to Measure General Efficiency:


Ratios enable the mass of accounting data to be summarised and simplified. They act as an index
of the efficiency of the enterprise. As such they serve as an instrument of management control.

Aid to Measure Financial Solvency:


Ratios are useful tools in the hands of management and other concerned to evaluate the firms
performance over a period of time by comparing the present ratio with the past ones. They point
out firm’s liquidity position to meet its short term obligations and long term solvency.

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Facilitate Decision-Making:
It throws light on the degree of efficiency of the management and utilisation of the assets and
that is why it is called surveyor of efficiency. They help management in decision-making.

Aid in Corrective Action:


Ratio analysis provides inter-firm comparison. They highlight the factors associated with
successful and unsuccessful firms. If comparison shows an unfavourable variance, corrective
actions can be initiated. Thus, it helps the management to take corrective action.

Act as a Good Communication:


Ratios are an effective means of communication and play a vital role in informing the position of
and progress made by the business concern to the owners and other interested parties. The
communications by the use of simplified and summarised ratios are more easy and
understandable.

Detection of Unfavourable Factors:


Analysis of financial statements enables the analyst to find out the soundness or otherwise of a
business. If the analysis reveals financial unsoundness, the factors responsible for such
unsoundness can be separated and corrective action taken without loss of time.

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PART C

APPLICATION OF CONCEPTS SKILL TECHNIQUES AND TOOLS LEARNT AT


PIMSR:

PIMSR has will equipped us with skills that form an excellent foundation for new careers. The
art of managing and juggling life has been learnt pretty efficiently in PIMSR. Certainly a smart
personality with soft skills is an attractive feature to sweep anyone off our feet. Presenting a list
of the most important skills that I learnt at PIMSR and applied it in my summer internship
programme.

TIME MANAGEMENT

We all agree to the fact that, Time Management is the key to build a stronger foundation for
success. I have always been incredibly fascinated about how the most successful people manage
their time! All of us in one or the other stage of life have faced difficulty to manage our time as
per requirements. We have always known time management as to set priorities, manage to meet
deadlines, set and achieve goals, effectively organize daily actions, and make decisions faster.

At PIMSR we are taught time management from a different perspective. They don’t believe in
managing time or prioritizing time but they would make us learn to multiply time. Most
successful entrepreneurs today are multipliers. They have figured out ways to actually create
more time while everyone else is still living with the fallacy that time is finite. How in the world
do us multiply time? Simple. Us multiply our time by giving ourself the emotional permission to
spend time on things today that create more time tomorrow. Instead of asking the question: what
are the most important things I have to do today? Us would ask: what are the things I could do
today that would free up more time tomorrow? From the time management perspective, our life
is a sequence of big and small choices and decisions. It is those choices that we really manage,
not the flow of time.

"The bad news is time flies. The good news is us're the pilot." By-Michael Altshuler

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QUICK RESPONSIVENESS

In today’s global race every company expects its workforce to have rigor and responsiveness in
skills. It is not just enough to be a problem solver! The real challenge is how quickly and
effectively the errors are diagnosed and rectified. And thus the main idiosyncrasy of a
management person is quick responsiveness. Leading organizations stress on these skills in their
employees, as they want to eliminate non-value added waste time while simultaneously
increasing the competitiveness by serving consumers better and faster. Decision making is the
most basic building block of our life, career, and community. The faster and more strategically
we stack these blocks, the faster and more efficaciously we achieve positive change.

At PIMSR we follow a practical way of learning using case-studies and assignments that would
take us to the real world problems. Solving these assignments and tasks trains us to provide
faster inputs and respond to the erroneous details. This practical way of learning has trained our
mind in such a way that we would think rationally about how our options would align the
ultimate objective.

CONCISE PRESENTATION SKILLS

Presentations and public speaking skills are very useful in many aspects of work and life.
Presenting information clearly and effectively is a key skill to get our message or opinion across.
Today, presentation skills are required in almost every field. I have seen many people feel
terrified when asked to make their first public talk.

A PIMSR we are trained to be professional in terms of communication and showmanship.


Sessions at a PIMSR are interactive and would help to develop confidence and capability to give
good presentations. Standing up in front of audience and speaking well, are also some of the
extremely helpful competencies, which can be improved at business schools. The art of a good
presentation is that it has to be to the point, concise, precise and care must be taken that it is not
stretched beyond a limit. Digressing from the original topic is what must be avoided as far as
possible.

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IMPRESSION MANAGEMENT

Impression management is a goal-directed conscious or subconscious process in which the


person attempts to influence the perception of their image. The minute us want to make a certain
impression, us have to try and promote ourself according to the objective us want to achieve and
accomplish. It all comes down to how us want to present ourself (self-presentation). The manner
us present ourself may either cause harm or benefit. For the reason that, the way us present
ourself is the way people would look at us. If us come up as negative to someone then that’s how
they’ll perceive us or if us come up positive, then they’ll see us as a positive person. It all
depends on the impression us leave and our self-presentation of ourself. Remember: First
impression, lasts long. Yes! This kind of holds true.

It is not merely about designer clothing and overpriced suits but we were guided about what us
look the best in. Certainly we have to judge ourself and have dress rehearsals, if us are little low
in confidence. But seeing ourself and analyzing as to how us will look best will result to improve
our confidence. The career management sessions at a business school will help us in this..

COMMUNICATION SKILLS

Communication is an art, which is believed as one of the key objectives at any business school.
If we take a survey, majority will agree that communication skills are the most integral part in the
business world. It is almost impossible to teach how to communicate albeit there are courses and
workshop to overall groom us to handle the corporate world. We project ourselves by the way we
talk. Body language is a key component as far as communicating is concerned. Proper posture,
gesture, movements, and eye contact are some of the important skills every individual has to
learn to succeed in the business environment. In the business world, especially marketing and
sales components rely heavily on communication skills. For sales people, communication
techniques are like bread and butter. Convincing a client to consider any product/software is the
hallmark of an adroit negotiator. Everything ultimately boils down to how us present ourself. A
business school is the ultimate place to practice and master these communication techniques. Us
may be required to address a panel during interviews or give a presentation about our work, us

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stand out courtesy our soft skills. We are molded in this fashion the students of all streams are
equipped with the above skills.

TEAM WORK

In a fast paced business environment, team work is often a crucial part. Companies today
increasingly employ teaming and gathering experts in temporary groups to solve problems. More
and more people in nearly every industry now work on teams that differ in duration and have
continuous shifting membership. Teaming presents technical and interpersonal challenges. Every
individual in a team is expected to get up and speed quickly on new topics. In these
circumstances everyone has to learn how to work with others from different functions, divisions,
and cultures. Individuals who learn to team well acquire knowledge, skills, and are found good in
networking.

PIMSR classes have a lot of group projects, presentations and case studies. Almost every
subjects divides students into study groups and then students work within these 5-6 member
groups. At PIMSR we are also provided opportunities to work as part of clubs, organizing events,
fests and more. As a result, us can pick up throughout the coursework is how to work well with
others. Teaming at a PIMSR helps us to execute and learn at the same time.

NETWORKING

Networking is a skill that does not come naturally to everyone. Some people are simply too shy;
others consider networking pretentious, phony, or even manipulative. However there is no doubt
that networking has huge benefits. No matter how us look at it, our success in business
environment hinge on our ability to successfully network. Our peers may be competing with us
for promotion, but they are also critical to our success. The higher us go in our career the more
our success will depend on our ability to work across functional lines. That means us need to
establish good working relationships with our peers.

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Establishing a perfect balance with peers, while networking is what is taught at PIMSR in a very
proper way. Meeting/interacting with other students at college is one of the many reasons why
people attend lectures and events. At PIMSR we have a strong teamwork atmosphere that
encourages interaction among students inside and outside of class. It is also essential that us
network with other people currently active in industry while us are in campus. Such people
include alumni, faculty, guest speakers, or corporate recruiters. These are the ones who can help
us make additional connections that will be important to our career. They may also be able to
help us get a job after graduation.

WORK LIFE BALANCE

Trying to juggle business, work, family, friends, achievement, personal downtime, etc. can
definitely take its toll and make us feel pulled in all sorts of directions. It does not have to be this
way. The very concept of attaining balance is a big part of the problem. The idea of balance
means that all of our activities must get equivalent time and attention to be perfect. However, in
today’s fast moving highly materialistic world, it rather becomes a big task to manage home and
work. If us are guided with regards to the art of balancing, us are bound to cause less problems
for ourself.

PIMSR prepared us to handle our life in a better way. It is like a final rehearsal to our tiring
future life. If striking a proper balance is grasped and learnt at this stage, it becomes rather easy
to tackle life ahead. We are taught this right from college, but in this phase, it can be learnt best.
Fortunately, a professional life will practically make us sound.

ANALYTICAL MINDSET

Analytical skill-set is a critical component of visual thinking that gives one the ability to solve
problems quickly and effectively. It involves a methodical step-by-step approach to thinking that
allows us to break down complex problems into single and manageable components. A good
businessman, manager, leader have one thing is common which is an analytical mindset. An
analytical mindset may help us figure out multiple possibilities and work on different angles to a
problem.

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Learning at PIMSR is all about expanding our analytical horizons. The numerous tasks us need
to undertake always require a certain propensity towards analysis. It is a niche of a
leader/businessman to analytically view any task at hand and put forth multiple cases with
regards to the problem. A PIMSR has sharpened our analytical prowess to a very professional
level. As in a business oriented environment, we will always be needed to think in that fashion.

SETTING PRIORITIES

Business is all about setting priorities and organizing work load. Priorities can often be tricky to
battle at the workplace. While us may sit down at night and write down the goals us hope to
achieve at work tomorrow, the order in which us complete them and devote the most attention to,
each one sheds light on how well us can prioritize. Us know that sinking feeling us have when
there's too much on our plate? When us try to tackle our tasks by priority, but it feels like
everything's important? It's a problem that everyone faces at some point or another, and while it's
difficult to skillfully juggle multiple priorities and competing responsibilities, it's not impossible.
Well, this art is based on judgment. Some tasks require more attention and time devotion. Some
require less. Of all the things us learn in a business school, perhaps this is the most important.
Because unless us master the knack of setting priorities, it is not possible to implement the other
assets. PIMSR kind of makes us set our goals so that our task is achieved in the most efficacious
way.

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LEARNINGS FORM SIP

Finding a job can be a challenge, especially if you don’t have experience. Unfortunately, you
need to obtain a job before you can gain experience. Internships are a great way for college
students, recent graduates or anyone considering a career change to obtain valuable work
experience.

Gain valuable work experience:


The hands-on work experience interns receive is invaluable and cannot be obtained in a
classroom setting, making this one of the most important benefits of internships. We have the
opportunity to apply acquired knowledge to real work experiences, witnessing firsthand the day-
to-day job duties they can expect to encounter in their chosen field. In addition to learning the
specialized skills of a particular field, transferable skills such as communication, teamwork, and
computer proficiency are also obtained in an internship, fully preparing interns to enter the
workforce upon graduation.

Explore a career path


Exploring is an important part of the college experience, and internships are a great way for
students to acquaint themselves with the field they are interested in. Some students begin college
with a major or career path in mind, and end up changing their minds later on. Taking on an
internship while in college allows students to work in their desired field, helping them decide if
the field is right for them. By graduation, students who interned are more likely to feel confident
they chose the right degree.

Give yourself an edge in the job market


One of the most important internship benefits is that college graduates who already have some
work experience in the form of an internship stand out to potential employers. Internship
experience makes a college grad more marketable as they usually require less training and can
handle more responsibilities. You may also receive a higher starting salary than those who do not
have internship experience and are entering the workforce or starting a new career.

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Develop and refine skills:
You can learn a lot about your strengths and weaknesses during an internship. Internships allow
for feedback from supervisors and others who are established in the field, and offer a unique
learning opportunity that you may not have again as a working adult. Embrace the mistakes you
make as an intern and the many things that you won’t know. Ask questions, observe, and take
risks to get the most out of your internship training experience.

Network with professionals in the field


In the working world, it’s all about who you know. As an intern, you will be surrounded by
professionals in the industry. Internships are more than just about earning credit, getting a grade,
or making money; internships provide an opportunity to learn from the people around you, ask
questions, and impress. The professionals you encounter during an internship can be your future
colleagues or the connection to your first job.

Gain confidence
Internships allow you to test out specific techniques learned in the classroom before entering the
working world. It’s an opportunity to apply what you have learned in a safe environment where
mistakes are expected – rather than learn the hard way in your first job out of college.

During my internship with House of Hiranandani I was working with the Strategic Management
Team. I my reporting manager himself was the strategic head of the company. During my
interactions with him the best thing I learnt is the way they use different values form each
department for their own advantage. I learnt small tricks and techniques with which the
managers used to interpret and connect the dots between various departments.

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I after my internship I have set a long term goal to myself to be working in the Strategy
Department at a certain point. And the short term goal to achieve this is interacting with my peers
and faculty of different streams to gain knowledge about various departments in the organization

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