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“A Study on Working Capital Management with

special reference to Indian Glycols Limited”

Working Capital Management is the specific area of finance dealing with the financial

decision corporations make, and the tools and analysis used to make the decisions. The

discipline as a whole may be divided between long-term and short-term decisions and

techniques. Both share the same goal of enhancing firm value by ensuring that return on

capital exceeds cost of capital, without taking excessive financial risks.

Capital investment decisions comprise the long-term choices about which projects

receive investment, whether to finance that investment with equity or debt, and when or

whether to pay dividends to shareholders. Short-term corporate finance decisions are

called working capital management and deal with balance of current assets and current

liabilities by managing cash, inventories, and short-term borrowings and lending (e.g., the

credit terms extended to customers).

Corporate finance is closely related to managerial finance, which is slightly broader in

scope, describing the financial techniques available to all forms of business enterprise,

corporate or not.

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Role of Financial Managers:

The role of a financial manager can be discussed under the following heads:

1. Nature of work

2. Working conditions

3. Employment

4. Training, Other qualifications and Advancement

5. Job outlook

6. Earnings

7. Related occupations

8. Let us discuss each of these in a detailed manner.

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Company profile

India Glycols is a leading company that manufactures green technology based bulk,

specialty and performance chemicals and natural gums, spirits, industrial gases, sugar and

nutraceuticals.

The company was established as a single mono-ethylene glycol plant in 1983. Since then,

IGL has brought together cutting-edge technology, innovation and an unflagging

commitment to quality, to manufacture a wide range of products that have found global

demand.

IGL’s state-of-the-art, integrated facilities manufacture chemicals including glycols,

ethoxylates, glycol ethers and acetates, and various performance chemicals. Its product

range spans the chemicals, spirits, herbal and other phytochemical extracts and guar gum,

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industrial gases and realty sectors, and finds application across an increasing number of

industries.

These products are manufactured in compliance with stringent global standards of plant

operations, quality and safety. The company’s facilities have been approved and certified

by international agencies including Det Norske Veritas (DNV). The operations at all

plants are closely monitored through distributed control systems (DCS), which facilitate a

high degree of control over the quality of products.

IGL businesses

IGL’s flagship chemicals division started out with a path-breaking green approach to

manufacturing ethylene oxide and derivatives. Using the molasses-ethyl alcohol-ethylene

'green route', the company is the only one of its kind in the world. With the emphasis now

increasingly shifting to green manufacturing, the chemical division is well poised to meet

the industry’s need for environmentally responsible products and production techniques.

Keeping in mind the critical dependence on agricultural feedstock, the company has

taken up several initiatives including backward integration into sugar manufacturing to

ensure seamless raw material availability. Other complementary initiatives include co-

opting the cane growing community to ensure cane availability while providing adequate

returns to the farmer.

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Apart from chemicals, India Glycols has a significant presence in the natural active

pharmaceuticals and nutraceuticals space with Ennature Biopharma; a well-established

natural gum division manufacturing guar gum and a variety of derivatives; a spirits

division that manufactures country and Indian-made foreign liquor adhering to the

highest quality standards; and Shakumbari Sugar – a well-established player in the Indian

sugar industry.

Exports

IGL has traditionally looked to leverage the export potential of its products. The company

has therefore initiated the process of aligning to emerging global trends and has

established facilities and operations that are in compliance with global good

manufacturing practices.

Customer focus

The company strives to achieve excellence through proactively addressing customer

needs and requirements. Integral to this approach is the identification and development of

customised products backed by research and development support.

IGL's R&D function is not only driven by organisational needs, but more importantly by

customer needs. Its R&D centre employs state-of-the-art equipment that empowers IGL

scientists and engineers to consistently deliver customised solutions that meet, and at

times, even exceed customer expectations.

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Vision and mission

Vision

To be one of the most respected and innovative manufacturers of internationally

sustainable products derived from natural, green or renewable resources, which add value

and continuous growth to all stakeholders and the society at large.

Mission

To manufacture and promote products, with concern for the environment and the

wellness of people across the globe, by deriving them from renewable, natural, agro and

waste feed stock. And to achieve this mission by deploying safe, eco-friendly and cost-

effective processes and technologies.

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Board of directors

India Glycols Limited is a professionally managed public limited company with Mr US

Bhartia leading the business operations. The company’s board of directors comprises:

Mr US Bhartia

Ms Jayshree Bhartia

Mr RC Misra

Mr Pradip Kumar Khaitan

Mr Jagmohan N Kejriwal

Mr MK Rao

Mr Ravi Jhunjhunwala

Mr Jitender Balakrishnan

Terms of Appointment of Independent Directors of the Company:

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The following have been appointed, by the shareholders in the Annual General Meeting

of the Company held on 20.09.2014, as the Independent Directors of the Company w.e.f

1st October 2014 for a period not exceeding 5 years:

Shri P.K. Khaitan

Shri Jitender Balakrishnan

Shri Ravi jhunjhunwala

Shri Jagmohan N. Kejriwal

Shri R.C.Misra

Highlights of the terms & conditions subject to which the aforesaid Independent

Directors have been appointed:

(1) They will be required to serve on the Committees of the Board of Directors as may be

decided by the Board of Directors from time to time.

(2) They will be bound by the Code for Independent Directors given in Schedule IV of

the Companies Act 2013 and the SEBI guidelines.

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(3) They will devote such time to the affairs of the Company as is required to meet the

expectations of their role & duties as Independent Director of the Company as prescribed

under Schedule IV of the Companies Act 2013.

(4) They will be required to attend the meeting of the Independent Directors of the

Company in addition to the Meetings of the Board of directors of the Company.

(5) They will be entitled to reimbursement of travel expenses incurred for attending the

meetings of Board of Directors or any committee thereof. They will be paid sitting fee

per meeting of the Board and any committee thereof as per the following schedule of fee:

(Amount in INR)

Board Meeting

20000

Audit Committee Meeting

20000

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Any other Committee Meeting

10000

(6) In the event of profits earned by the Company, they will be paid such commission out

of profits of the Company as may be decided by the Board of Directors subject to the

provisions of the Companies Act, 2013.

(7) The following disclosures should be sent to the Company for each financial year as

per the requirements of the Companies Act, 2013 and Rules thereunder:

Declaration of Independence under section 149(6)/149(7).

Declaration of Interest under section 184(1).

Declaration of non-disqualification under section 164(2).

(8) They must apply the highest standards of confidentiality, and not disclose to any

person or company (whether during the course of the Appointment or at any time after its

termination), any confidential information (including any price sensitive information)

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concerning the Company and its Group Companies with which you come across by virtue

of your position as an Independent Director of the Company.

(9) They may be terminated at any time in accordance with the provisions of the Articles

of Association of the Company or the provisions for the removal of directors under the

Companies Act, 2013.

(10) Upon termination or upon resignation for any reason, they will not be entitled to any

damages for loss of office and no fee will be payable in respect of any unexpired portion

of the term of the Appointment.

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Management team

India Glycols has a dynamic team of well-qualified and experienced professionals at its

helm. Drawn from diverse streams including finance, engineering, marketing and

management, the team provides key management, technical and other skills required for

successful day-to-day business operations. Leading the company are:

Mr Rakesh Bhartia, Chief Executive Officer

Mr Anand Singhal, Chief Financial Officer

Mr Sanjeev Gurwara - Marketing

Mr Manoj Pahwa, President - Ennature Biopharma

Mr RS Yadav, Head - Human Resources

Dr GBS Reddy, Head - Operations and R&D, Ennature Biopharma

Mr KK Lal , Head – Engineering

Note from the Chairman

We believe in green

Welcome to the India Glycols website.

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India Glycols is a leading public listed company that manufactures bulk, specialty and

performance chemicals and natural gums, spirits and nutraceuticals. It is an ISO 9001,

ISO 14001, OHSAS 18001 and ISO 22000 certified company.

Our company holds the distinction of being the only green petrochemical company of its

kind. It is the first and only company in the world to have commercialised the production

of ethylene oxide, its derivatives and glycols from renewable agricultural resources,

namely molasses or sugar cane.

We believe in green. Not only have we adopted several green technologies, we

continuously work to evolve new green methods, materials, innovative technologies and

systems to meet the specific requirements of global clients.

Our aim is to be at the forefront of efforts against global threats such as global warming,

stratospheric ozone depletion, resource depletion, bioaccumulation and persistent

chemicals.

To do this, we have implemented several green methodologies, including:

New solutions and products made via the green route, ie, from raw materials that

are renewable resources

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Novel technologies, including super critical technology for nutraceuticals. We use

super critical carbon dioxide as a green solvent during extraction processes

Novel catalysts and process improvements

Separation and post-refining technologies

Energy-efficient, renewable energy and water conservation projects

A focus on improving sustainability, by looking at energy usage, carbon

footprints and life cycle assessment of products

At India Glycols, we work towards lowering our impact on the planet by reducing:

Use of raw materials and non-renewable resources (for instance, by recycling

carbon dioxide used as a solvent)

Product toxicity

Wastes and emissions during manufacture

Risk and hazards from manufacturing

Environmental impact of products

Even our administrative processes are green; we have implemented SAP ERP solutions to

achieve paperless work and minimise time frames and paper usage.

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We believe that the green movement is on the rise with more and more people joining it

each year. We are proud of being a green petrochemical company with innovative

technologies and a vision of long-term sustainability.

“India Glycols relies on breakthroughs in green technologies. "

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Milestones

Set up in 1983, India Glycols has come a long way in establishing itself as a leading

chemicals manufacturer. Here are some of the key milestones the company has achieved

along its journey:

1983

Incorporated on 19th November 1983, as UP Glycols Limited.

1986

Renamed as India Glycols Limited on 28th August 1986.

1989

Commercial production commenced at MEG plant from 25th April 1989: capacity,

20,000MTPA.

1994

Commissioning of 13,000MTPA EO purification plant.

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Commissioning of 20,000MTPA ethoxylate plant.

1995

De-bottlenecking of MEG facility (20,000 to 25,000 MTPA).

1997

Commissioning of 10,000MTPA formulation plant.

1998

De-bottlenecking of MEG facility (25,000 to 30,000 MTPA).

Commissioning of 6,000MTPA sulphation plant.

1999

Commissioning of 85,000 BL PD new continuous process distillery.

De-bottlenecking of MEG facility (30,000 to 33,000 MTPA).

Increase in power generation capacity (6 to 18 MW).

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2001

Commissioning of glycol ether plant.

Commissioning of guar gum facility, 12,000MTPA capacity.

2002

Commissioning of bottling plant.

Expansion of MEG plant to 60,000MTPA.

2003

Addition of GE acetate facility.

Commissioning of ENA plant.

2005

Expansion of MEG production to 1 lakh MTPA.

Commissioning of ASU - III.

Commissioning of RAB unit.

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2006

Commissioning of Gorakhpur unit.

2007

Acquisition of Shakumbhari Sugar.

2008

Commissioning of CO2 plant.

Expansion of MEG plant to 200,000MTPA.

2009

Commissioning of Ennature Biopharma, Dehradun.

Commissioning of DEGEE acetate plant.

Expansion of formulation plant - CABS.

Expansion of ethoxylate plant (stirred reactor).

2010

“The Biomass based Cogeneration Project at Gorakhpur registered under CDM project

by UNFCCC.”

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Awards

2015

Award Soulmate Premium Whisky won the Gold Award at Monde Selection 2015 for its

logo

Organisations Organisation International Institute for Quality Selections

2014

Award India Glycols has been awarded The ICONIC IDC Insights Award 2014 in the

manufacturing and logistics vertical

Organisations International Data Corporation (IDC)

Award India Glycols honoured with the silver award for being one of the highest foreign

exchange earners in the Chemicals, Drugs, Pharma and allied sector

Organisations Federation of Indian export organisation

2013

Award Award of Business Leader of the Year – Innovation for year 2013 conferred to

our CMD,

Mr U.S. Bhartia

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Organisations Chemtech CEW Leadership & Excellence Awards

2008

Award Best Quality ENA Award in recognition of quality ENA production.

Best Enhanced Performance for enhanced performance in exports, northern region

Organisations Ciab

Concor

2005

Award International Safety Award in recognition and commendation of services rendered

to the cause of safety.

Organisation British Safety Council, UK

2004

Award Best Performing Power Plant

International Safety Award in recognition of proven track record of maintaining excellent

safety standards.

Organisations Wartsila

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British Safety Council, UK

2002

Award Safety Award in recognition and commendation of services rendered to the cause

of safety

National Safety Award for outstanding performance in industrial safety, in achieving

longest accident-free period.

Perfect Record Award for operating 7,208,784 employee hours without occupational

injury or illness

Organisations British Safety Council, UK

Ministry of Labour, Government of India

National Safety Council, USA

2001

Award Safety Award in recognition and commendation of services rendered to the cause

of safety

Organisation British Safety Council, UK

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2000

Award Safety Award in recognition and commendation of services rendered to the cause

of safety

Organisation British Safety Council, UK

1999

Award Safety Award in recognition and commendation of services rendered to the cause

of safety

Organisation British Safety Council, UK

1998

Award Safety Award in recognition and commendation of services rendered to the cause

of safety

Organisation British Safety Council, UK

1997

Award Award for Best Project / Entrepreneur in the biomethanation sector.

Organisation Ireda

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1992

Award Award of Merit for operating 27,55,364 employee hours without occupational

injury or illness

Organisation National Safety Council, USA

1991

Award National Safety Award for meritorious performance in industrial safety, in

achieving longest accident-free period

National Safety Award for outstanding performance in industrial safety as runner up in

achieving lowest average frequency rate

Organisation Ministry of Labour, Government of India

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Safety, health and environment

The safety and health of every IGL employee and preservation of the environment is an

integral part of the company's corporate policy. By investing in elaborate safety

measures, the company ensures that its employees are assured a safe working

environment and that the company's ecological footprint is minimal.

Safety

IGL has set up a number of systems to ensure the safety of the company's plants and

personnel. As always, the first line of defence remains prevention. Systems and

operations are therefore designed to prevent the smallest of mishaps that could lead to

accidents.

As a part of the safety protocol, IGL has laid down strict safety norms that employees,

irrespective of their position in the organisation, have to follow. The success of this

elementary measure is reflected in the company's excellent safety track record and the

number of awards bestowed by national and international organisations in recognition of

the safe working environment IGL has been able to secure for its employees.

Additionally, the following measures have been taken to continually monitor safety

processes:

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A Central Safety Committee to review and upgrade safe working practices has

been set up.

An emergency management plan is in place.

Systems have been set up to record and report any accident. All reported incidents

are thoroughly investigated and corrective action taken for preventing similar occurrences

in the future.

Provision of appropriate protective equipment and gear with usage being strictly

monitored to ensure safety.

Regular safety training programmes are conducted to train employees.

Various incentive schemes that serve to motivate employees to follow safe

working practices are in operation.

The company maintains its own fire station, fully equipped with fire tenders, modern

communication facilities and an elaborate auto fire hydrant system, deluge systems,

MVWS systems, and fixed foam systems, in addition to other equipment operated by

trained experts.

Live fire training drills are periodically organised to provide hands-on training and create

confidence among employees.

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Health

At IGL, employee health is a paramount consideration. The company has a medical

centre at the factory with basic amenities and qualified and experienced medical and

paramedical staff in attendance at all times to meet any contingency. An ambulance is

also available.

All employees are required to undergo annual medical check-ups for the timely diagnosis

of health problems. The company also offers a mediclaim policy that provides for

healthcare expenses and other benefits to employees and their family members.

Environment

IGL believes in the principles of good corporate citizenship that mandate the active

contribution of companies towards preserving the environment. Accordingly, IGL has

incorporated in its operations systems to ensure minimal environmental impact.

The company has made substantial capital investments to ensure proper treatment of

generated effluents to meet all relevant regulatory requirements. Additionally, the

company has undertaken the following initiatives:

A ferti-irrigation project, which has generated an enthusiastic response from

farmers.

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A bio-composting facility to produce natural manure. Farmers use the bio-

compost as an environmentally friendly substitute to chemical fertilisers.

IGL has also developed a green belt around its factory where approximately

65,000 trees of various species have been planted.

The company also achieved zero discharge from its ethanol plants by adopting

ferti-irrigation, bio-composting, RO and concentration followed by incineration, to

conserve fossil fuel.

The company is also actively working on various projects targeted towards developing a

Clean Development Mechanism (CDM).

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Corporate social responsibility (CSR)

Good governance demands adherence to social responsibility coupled with the creation of

value in the larger interest of the general public. India Glycols is committed to the

sustainable and integrated development and upliftment of the communities in and around

its facilities.

The company’s directors and employees contribute time and resources to further the

company’s various CSR initiatives. IGL’s activities begin in and around Kashipur

(Uttarakhand) in the areas of health, education, welfare and environment.

IGL organises medical camps three days a week where villagers can avail of medical

assistance, free of cost. IGL actively participates in organising blood donation camps,

facilitating tree plantation, facilitating the construction of roads, bridges and drains and

installing street lamps and hand pumps for drinking water in areas around the company’s

facilities.

The company also extends support to victims of monsoon floods, and participates in other

initiatives like distributing blankets to the poor during winter, promoting sports and

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socio-cultural activities in the state, supporting the local administration in fighting and

managing fire accidents and other disasters that occur in the areas neighbouring its plants.

IGL supports a community school at Dwarka, New Delhi, in collaboration with Nirmal

Society for Education Promotion, a charitable institution. The school is equipped with

modern facilities, good infrastructure, and a qualified and experienced faculty. The

company has also sponsored a faculty position in the Herbal Research and Development

Institute, Centre of Aromatic Plants, Dehradun, to promote herbal development in the

state of Uttarakhand.

India Glycols extends educational and on-job training to students of many professional

institutions such as The Institute of Company Secretaries of India, The Institute of

Chartered Accountants of India, and professionals from many other management and

engineering institutions, thus helping young professionals gain a foothold in the industry.

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OBJECTIVE OF THE STUDY

1. The study has great significance and provides benefits to various parties whom

directly or indirectly interact with the company.

2. It is beneficial to management of the company by providing crystal clear picture

regarding important aspects like liquidity, leverage, activity and profitability.

3. The study is also beneficial to employees and offers motivation by showing how

actively they are contributing for company’s growth.

4. The investors who are interested in investing in the company’s shares will also get

benefited by going through the study and can easily take a decision whether to

invest or not to invest in the company’s shares.

5. To study the present financial system at I.G.L.

6. To determine the Profitability, Liquidity Ratios.

7. To analyze the capital structure of the company with the help of Leverage

ratio.

8. To offer appropriate suggestions for the better performance of the organization

9. To evaluate the performance of the company by using ratios as a yardstick to

measure the efficiency of the company. To understand the liquidity, profitability

and efficiency positions of the company during the study period. To evaluate and

analyze various facts of the financial performance of the company. To make

comparisons between the ratios during different periods.

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RESEARCH METHODOLOGY

Data sources : Primary and Secondary.

Data approaches : Questionnaire.

Sample size : 50

Sample procedure : Convenience sampling.

Research Design : Descriptive.

Research design: Research design is simply the framework or plan for a study, Used

guide in collecting and analyzing data.

For the study: for conducting that research I selected the Descriptive research design.

Descriptive research design: Descriptive research is also called Statistical Research.

The main goal of this type of research is to describe the data and characteristics about

what is being studied. The idea behind this type of research is to study frequencies,

averages, and other statistical calculations. Although this research is highly accurate, it

does not gather the causes behind a situation. Descriptive research is mainly done when a

researcher wants to gain a better understanding of a topic. that is, analysis of the past as

opposed to the future.

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Descriptive research is the exploration of the existing certain phenomena. The details of

the facts wont be known. The existing phenomena’s facts are not known to the persons.

Source of Primary Data:

Primary Data collect from Company.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the company

provided statements.

2. Referring standard texts and referred books collected some of the information

regarding theoretical aspects.

3. Method- to assess the performance of the company method of observation of the

work in finance department in followed.

DETERMINING SAMPLE PLAN AND SIZE

For any research it is usually not possible to survey the entire population due to budget

and time constraints. Therefore we need to select a sample. Sampling frame is the pool

from which the interviewees are selected. The various elements to be considered while

sampling are:

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SAMPLE SIZE

The final sample size is almost always a matter of judgement rather than calculation.

Based on the objective of our research we selected a medium sample size, which was a

manageable size.

People approached: 50

SAMPLING UNIT

Sampling unit may be defined as a unit into which an aggregate is divided

The research was carried covering Gorakhpur region.

SAMPLING ERRORS

While interpreting the results we keep in mind the potential errors. Two sources of errors

are random sampling error, which arises due to the fact that the sample may not be a true

representative of the population, and non-sampling error which comes up because of

faulty coding, untruthful responses, respondent fatigue etc.

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LIMITATIONS

1. The study provides an insight into the financial, personnel, marketing and other

aspects of I.G.L. Every study will be bound with certain limitations.

2. The below mentioned are the constraints under which the study is carried out.

3. One of the factors of the study was lack of availability of sample information.

Most of the information has been kept confidential and as such as not assed as art

of policy of company.

4. Time is an important limitation. The whole study was conducted in a period of 60

days, which is not sufficient to carry out proper interpretation and analysis.

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Profitability

Business is conducted primarily to earn profits. The amount of profit earned measures the

efficiency of a business. The greater the volume of profit, the higher is the efficiency of

the concern. The profit of a business may be measured and analyzed by studying the

profitability of investments attained by the business.

MEANING AND DEFINITION OF PROFITABILITY:

The word 'profitability' is composed of two words, namely; profit and ability. The term

profit has already been discussed at length in detail. The term ability indicates the power

of a firm to earn profits. The ability of an enterprise also denotes its earning power or

operating performance. Also, that the business ability points towards the financial and

operational ability of the business. So, on this basis profitability may be defined as ―the

ability of a given instrument to earn a return from its use’ ’Weston and Brigham defines

profitability as "the net surplus of a large number of policies and decisions.

Profit being an absolute figure fails to indicate the adequacy of income or changes in

efficiency resulting from financial and operational performance of an enterprise. Much

difficulty and confusion comes home while interpreting the absolute figures of profit in

case of historical or inter-firm comparisons due to variation in the size of investment or

volume of sales etc. Such problems are handled by relating figures of profit either with

the volume of sales or with the level of investment. A quantitative relationship is thereof

established either in the form of ratios or percentages. Such ratios are names as

profitability ratios. Thus, profitability may be regarded as a relative term measurable in

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terms of profit and its relation with other elements that can directly influence the profit.

No doubt, profit and profitability are closely related and mutually interdependent, yet

they are two different concepts. "The accounting concept of profit measures what have

been accumulated, the analytical concept of profitability is concerned with future

accumulation of wealth."Profit of an enterprise, reports about the financial and

operational efficiency of the business. Whereas, profitability interprets the term profit in

relation to other elements likely to affect these profits in order to help in decision-

making. Profit is regarded as an absolute connotation as against profitability, which is

regarded as a relative concept. Where profit is the residual income left after meeting all

manufacturing, administrative expenses; profitability is the profit making ability of an

enterprise. The profit figure indicates the amount of earning of a business during a special

period. While, Profitability denotes whether these profits are constant or improved or

deteriorated, how and to what extent they can be improved. profit in two separate

business concerns may be identical, yet, at many times, it usually happens that their

profitability varies when measured in terms of size of investment* It has been aptly

remarked that the role played by profits and profitability in a business enterprises is

identical to the function carried out by blood and pulse in the human body.

Profitability is the ability to earn profit from all the activities of an enterprise. It indicates

how well management of an enterprise generates earnings by using the resources at its

disposal. In the other words the ability to earn profit e.g. profitability, it is composed of

two words profit and ability. The word profit represents the absolute figure of profit but

an absolute figure alone does not give an exact ideas of the adequacy orOtherwise of

increase or change in performance as shown in the financial statement of the Enterprise.

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The word ‘ability’ reflects the power of an enterprise to earn profits, it is called Earning

performance. Earnings are an essential requirement to continue the business. So we can

say that a healthy enterprise is that which has good profitability. According to hermenson

Edward and salmonson ‘profitability is the relationship of income to some balance sheet

measure which indicates the relative ability to earn income on assets employed.

CONCEPT OF PROFITABILITY:

 Accounting Profitability

Profitability is a measure of evaluating the overall efficiency of the business. The

best possible course for evaluation of business efficiency may be input-output

analysis. Profitability can be measured by relating output as a proportion of input

or matching it with the results of other firms of the same industry or results

attained in the different periods of operations. Profitability of a firm can be

evaluated by comparing the amount of capital employed i.e. the input with income

earned i.e. the output. This is popularly known as return on investment or return

on capital employed. It is regarded as the overall profitability ratio and has two

components; net profit ratio and turnover ratio. That is:

Return on Investment = Net Profit Ratio x Turnover Ratio

Or,

Return on Investment = Operating Profit x Sales

Sales Capital Employed Or, Return on Investment = Operating Profit

Capital Employed This method is increasingly accepted as an indicator of performance

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and capability. This is the reason for viewing operational and financial performance in

relation to the scale of resources of funds required in production. That is, "a given amount

of profit return should be evaluated in terms of the percentage profit return on the

investment of funds."5 Moreover, "the return on capital used depicts the effectiveness of

all the operating decisions from the routine to the critical, made by the management at all

levels of the organization from shop foreman to President.‖6

 Social Profitability

Along with the economic objective of earning profits, a business is also required

to perform a large number of social objectives. Besides providing better quality of

goods and services, it provides big employment opportunities to the people, better

condition of work, fulfill community needs, conserves resources etc. C. Mean

Cardiner rightly observed, "The darkness of avarice has been dispelled by the

light of a new kind of social responsibility." Social objectives may prove

profitable as well as expensive lo a concern. As some objectives aids in enhancing

profitability by attracting customers like in case of providing quality goods.

Whilst other may be counteractive such as elimination of pollution may cost the

company and reduce its profitability, but it creates social profitability. In other

words of Earnest Dale, these social objectives "appear lo urge the executive to

assume an infinitely broad-gauge burden of responsibilities to all the various

public with whom he clears."8That makes it an obligation on the part of the

company to disclose its financial, marketing, personnel and social objectives in a

simple and concise form to all the members of the concern so that they can judge

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the influence of these objectives on their jobs.

 . Value Added Profitability

Wealth generation is essential for every enterprise. Value added profitability indicates the

wealth generated (net value earned) as a result of manufacturing process during a

specified period. Wealth generation is the very essence for survival or growth of a

business. An enterprise may survive without making profit but would cease to do so

without adding value. "The enterprise, not making profit, is bound to become sick but not

adding value may cause its death over a period of lime."

Profit forms a part of value added. Thus, value added is a broader concept. "Value added

at particular level of operating capacity and claims should be determined as value added

can expose the efficiency and inefficiency of a business."™ The concept of value added

can be related to the concept of social profitability of an enterprise. The investment of an

enterprise comprises of the investment of shareholders, debenture holders, creditors,

financial institutions etc. If an enterprise fails to generate growth or add anything as value

added, it would simply mean that the enterprise is misusing public funds. This concept

represents the wealth distribution in a proper manner besides suggesting how productivity

can be increased when reducing the consumption of resources produces same or better

outputs.

 .Measurement of Profitability

The measurement of profitability for a concern is as important as the earning of

profits. The importance of measuring profitability has been stated by Hingorani,

Page 40 of 78
Ramanathan rand Grewal, "A measure of profitability is the overall measure of

efficiency."^Since, profitability is the outcome of many business activities.

Therefore, its measurement is a multistage concept. As stated before profitability

is a relative concept based on profits. But profits alone cannot express the concept

of profitability. Thus, there arises a need to established relationship between profit

and other variables. Some of the well-known techniques of measurement of

profitability are discussed below: -

Accounting Profitability The most common course of action adopted by a management in

measuring profitability is that several relationships between investment figures and its

related income figures are established. Profitability of a concern depends mainly up to

two factors; the rapidity of turnover of capital employed and the operating profit margin.

Profitability is the resultant figure obtained by the product of these two factors. Hence,

profitability can be maximized by maximizing each i.e. a better profitability level can be

achieved by improving the net profit ratio and turnover ratio of an enterprise. The net

profit ratio reveals the margin made in each sale in terms of percentage and the turnover

ratio states the rotation of the capital for affecting the sales proceeds. In technical terms

the combination of profitability with operating profit margin and turnover is known as the

'triangular relationship'. The significance of this relationship lies not only in the fact that

it can be utilized as a tool of analysis but also because that it can be directly calculated

from the earning and investment data. ―It is useful in describing the two basic Forces

bearing upon ultimate results and therefore, establishes the area of business operation

which must be properly controlled, if desired results are to be realized."™ The triangular

relationship can be expressed in the forms of equation as follows: -

Page 41 of 78
Sales Turnover = Operating Assets

Net Operating Profit And, Profit Margin = Sales

Net Operating Profit So, Profitability = Operating Assets

Here, the term operating assets describe the capital employed in fixed assets and current

assets. While, operating profit is the income earned from employing this capital in the

business. Where on one side, increasing the net profit and turnover ratios can increase

profitability, there on the other side profitability can also be increased by reducing

investment in fixed and current assets and increasing profit margin. Certain ways for

reducing the investment in fixed assets are suggested below: -

a) Disposing the idle plants and equipment’s.

b) Closing down the unprofitable departments and transferring the assets of such a

department to profitable ones.

c) Selling or leasing back the premise, which is not required.

d) Selling or disposing the tools and equipment’s which are either in worn out

condition or have become obsolete.

e) The variations arising in measurement of profit due to existence of different

methods of evaluating the assets must be duly recognized.

WEAKNESS OF PROFITABILITY:

Profitability is a full-fledged measure of evaluating overall business performance. Yet a

management more often comes across certain pitfalls while practicing it. The following

are some of the weak points that emerge in profitability analysis: -

Page 42 of 78
 Most of the techniques of profitability are bettered analyzed only if a comparative

study with the part results of the business or with the results of a similar business

is carried out. This sort of comparison only provides a glimpse of the past

performance. Moreover, forecasts based on part trend may subjects to time factor,

market conditions managements policies etc. resulting in defective planning and

unexpected results. And also the comparison of performance of two companies

operating under different situations creates difficulty,

 Profitability analysis may be regarded as only a beginning. It makes handy only a

fraction of information required for decisions making. Thus, the information

obtained only from profitability analysis cannot be gainfully interpreted but must

be used in conjunction with information collected from other sources to ensure

comprehensive analysis. Profitability must be looked upon as a means to an end

rather than an end in itself.

 Profitability is bound to be a carrier of human limitations. Since, it is the

management of organization that plans the future course of action after

interpreting the resulting already achieved. Where one management favors a

particular course of action the other may not be at consensus with it like, some

manages believe in adopting conservative policy, while some other prefer being

liberal with regards to business policies. More often the interpretation and

analysis is pure matter of managerial skills.

 Profitability often becomes a victim of windows dressing i.e. manipulation of

accounts in such a way that it concedes the vital facts in order to present a better

position of a firm than what actually it is. Eg. a high total assets turnover

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indicates the efficiency of management in making good use of tangible assets.

But assets with lower book value and lower depreciations may result in a

misleading figure of high total assets turnover ratio.

Page 44 of 78
ANALYSIS OF PROFITABILITY:

The most effective tool of analysis of profitability is ratio analysis. Ratios

revealing profitability are popularly called profitability ratios. Profits may be

derived either form operating or form non-operating activities. In the present

study emphasis is laid upon profits resulting from operating activities. The

profitability from such activities is analyzed in detail from the point of view of the

following considerations: -

 Profit Margin

 Return on Investment

 Earnings per Share

 Dividend Policy

 Asset turnover

1. Profit Margin

"The profit margin is a measure of overall profitability. These measures also

referred to as the net income percentage or the return on sales". Profit margins is

the return generated by the company's assets and represents the difference

between revenues and total expenditure." in a manufacturing concern the profit

margin results from sale of its products. In fact, "it is the key figure in the income

statement or profit and loss account." The best way of calculating profit margin is

to express them as a percentage of net sales i.e. sales minus sales returns, discount

and rebates etc. Sales are the main activity of all concerns; manufacturing or

merchandise. The aggregate of sale and other incomes becomes the total revenue

Page 45 of 78
but as against the net sales total revenue fails to indicate the effective volume of

business which does not reveal the true profit. A company is expected to earn

adequate profit on each rupee of sale else it would fails to give reasonable returns

to its shareholders and will not be in a position to cover fixed costs and fixed

charges on debts. There are certain constraints that put restrictions on the efforts

directed towards widening of profit margin. As the free economy featuring free

competition, consumerisation and public interest places limit on profit margin.

Likewise, inflation adds to difficulty in controlling cost accelerations. Yet, better

organization, technical innovations, effective administration etc. are certain

factors that provide answer to the problem of limiting the percentage of profit

margin to a great extent. "Terms like income, earning or profit are used

interchangeably. The more commonly used accounting forms of profit are gross

profit or operating profit (known as earnings before interest and tax) and net

profit" Profit margins can be studies in detail under three heads; gross profit

margin, net profit margin and operating profit margin.

 Net Profit Margin As pointed out by Hingorani, Ramanathan and

Grewal, "Net profit margin indicates the net margin earned in a sale of Rs.

100."Van Home states that net profit "tells us the relative efficiency of the

firm after taking into account all expenses and income taxes, but not extra-

ordinary charges"' Net profit is obtained after deducting amount of

operating expenses, interest and taxes from the gross profit amount. Net

profit after taxes is nothing but the sum of dividends (paid or provided for)

Page 46 of 78
plus the retained earnings. Net profit ratio is measured by dividing net

profit after taxes by sales. Thus,

Net Profit Margin = Profit after tax /Sales

2. Return on Investment

The most commonly used measure of profitability is the technique of relating the

profit output with the capita! Input, popularly called the rate of return on capital

invested. "This rate is the end-profit of a series of a quantitative variables

representing different interconnected and interdependent factor of business

operations." The return on investment is calculated by multiplying the profit

margin on sales with investment turnover. Profitability on the basis of return on

investment can be analyzed and interpreted under following categories: -

a) Return on Capital employed.

b) Return on Shareholders’ equity/Net Worth

c) Return on Paid-up share capital.

3. Earnings Per

Share Besides return on investment, equity shareholders may measure

profitability by computing earnings per share. "The earning per share simply

shows the profitability of the firm on a per share basis, it does not reflect how

Page 47 of 78
much is paid as dividend and how much is retained in the business. But as a

profitability index, it is a valuable and widely used ratio." 40 It is computed by

dividing the amount of net profit by the total numbers of equity shares:

Earnings Per Share = Net Profit after Tax Interest And Preference

Dividend /Number of Equity Shares X 100

4. Dividend Policy

The dividend policy of a firm greatly influences the dividends and retained

earnings. Dividends are cash payments made by the firm to its shareholders.

Retained earnings is the part of business surplus i.e. earning kept as reserve for

financing firm‘s long term growth. Thus, the dividend policy of a firm affects

wealth of the shareholders as well as firm's long term financing. Financial experts

are of the opinion that a company shall adopt a conservative dividend policy in

order to bring consistency in it because consistency in this regard means

company's shares are a better investment. Moreover, a policy of stable dividend

posses no- difficulty when the company is willing to raise finance. 'When the

dividends of a company widely fluctuate, the shareholders can never say what

they may get in any particular year from their holding in such a company.

Investment in the shares of such companies becomes a sort of speculation which

only a few can afford”

5. Assets Turnover Ratio

Page 48 of 78
Assets are used for generating sales. The relationship shared by sales and assets of

a firm is termed as assets turnover. This ratio is also called investment turnover

ratio. As mentioned earlier in this study, two-tier profitability is the end product

of profit margin and asset turnover. The turnover of assets in context with the

present study refers to the relationship existing between the rupee volume of sales

and assets employed in the steel Industries selected for this study. Assets turnover

ratios are best explained as activity indices. An increasing trend of assets turnover

ratio of an organization depicts effective utilization of assets. While, the

decreasing trend signifies ideal capacity of assets of the firm. Any change in total

asserts turnover ratio can be directly related with increase or decrease in fixed and

current assets utilization. If there is simultaneous increase in turnover ratios of

total assets fixed asset and current asset; it indicates active and full utilization of

fixed and current assets. On the other hand, increase in fixed asset turnover ratio

and decrease in current assets turnover ratio or vice-versa accompanied by

increase in total asset turnover ratio signifies that the asset featuring rising trend is

utilized to its optimum which as result are capable enough to offset the inefficient

utilization of fixed assets leading to increase in turnover of total assets. The assets

of a concern can be determined keeping the following considerations in mind: -

 Identifying various resources individually which are used by the concern.

 Valuation of these resources in monetary terms.

 Estimating the ownership degree present in each asset.

Page 49 of 78
Page 50 of 78
Page 51 of 78
Data Analysis & Interpretation

1. Opinion on Branch experience.

The Branch timings (9:30 am to 6:30 pm from Monday to Saturday) are

convenient

Parameter In Numbers In Percentage

Yes 45 90
No 5 10

Branch Timings
100
80
60
40
20
0
Yes No

Page 52 of 78
Interpretation

The purpose of this question is to know the whether the timings are

Convenient for the staff, 90% of respondents opinioned that timings are good and

10% of respondent that timings are n o t good.

Inference: As 90% responded well, it seems high number are happy with IGL

timings.

Page 53 of 78
2. The Branch ambience & layout is very friendly

Parameter In numbers In percentage

Yes 45 95

No 5 5

Branch Ambience
100
80
60
40
20
0
Yes No

Page 54 of 78
Interpretation

95% were of the respondent opinioned that Branch ambience is good, 5%

were of the opinioned that branch ambience is not good.

Inference: As 95% of respondents say branch ambience is good, so not too many respondents like

the branch ambience.

Page 55 of 78
3. The Branch was clean and well maintained

Parameter In numbers In percentage


Yes 45 95
NO 5 5

Branch Maintenance
100
80
60
40
20
0
Yes No

Page 56 of 78
Interpretation

95% were of the respondent opinioned that Branch cleanness is good, 14%

were of the opinioned that branch cleanness is not good.

Inference: As 95% of respondents say branch cleanness is good, so not too many respondents

like the branch cleanness.

Page 57 of 78
4. Opinion of the customer regarding Branch personnel?

The Branch personnel have listened to me patiently and have been able to respond to

my queries and clarifications

Parameter In In percentage

numbers
Yes 40 80
No 10 20

Branch Personnel

20%
Yes
80% No

Page 58 of 78
Interpretation

80% of respondents opinioned that branch personnel listened patiently& have been

able to respond to their queries, 20% of respondents opinioned it is n o t good.

Inference: As only 80% of respondents say branch personnel listens Patiently and have been

able to respond to queries and clarifications, so not too many respondents are satisfied.

Page 59 of 78
5. The Branch personnel have been very helpful and courteous

Parameter In numbers In percentage

Yes 40 80

No 20 20

Branch Personnel

80%
100%

20%
0%

Yes
No

Page 60 of 78
Interpretation

80% of respondents opinioned that branch personnel have been helpful and

courteous, 20% of respondents opinioned it is n o t good

Inference: As only 80% of respondents say branch personnel have been very helpful and

courteous, so not too many respondents are satisfied.

Page 61 of 78
6. The branch personnel have done a “Need Analyses‟ & „Risk Assessment‟ before

recommending any investment option

Parameter In numbers In percentage

Yes 44 85
No 6 15

Branch Personnel

85%
100%

15%
0%

Yes
No

Page 62 of 78
Interpretation

85% of the respondents opinioned that risk assessment before recommending any

investment is good, 15% of respondents opinioned that it is n o t good.

Inference: As only 85% of respondents say branch personnel does a Need Analyses‘ &

Risk Assessment‘ before recommending any investment option, so not too many respondents

have positive response.

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7. The branch personnel were aware of Product and Services and responded to your

queries

Parameter In numbers In percentage

Yes 47 95
No 3 5

Product & Services

No 5%

Yes 95%

0% 20% 40% 60% 80% 100%

Page 64 of 78
Interpretation

95% respondents opinioned that branch personnel responded to their queries and is good, 5% says

to be not good.

Inference: As 95% of respondents say branch personnel were aware of Product and Services and

responded to customer queries, so not too many respondents are satisfied.

Page 65 of 78
8. Clients opinion of transacting in Branches? The waiting time at the Teller Counter was

minimal.

Parameter In numbers In percentage

Yes 45 85

No 5 15

Teller Counter

15

85

Page 66 of 78
Interpretation

85% of respondent opinioned that waiting time is minimum at teller counter and it is good, 15%

of respondent opinioned that it is not good.

Inference: As 85% of respondents say waiting time at teller counter was minimal , not too many

were satisfied with transaction.

Page 67 of 78
9. The transactions done by us have been smooth & error free.

Parameter In numbers In percentage

Yes 47 95
No 3 5

Smooth & Error Free

95%
100%

50%
5%
0%

Yes
No

Interpretation

95% of respective opinioned that transactions are smooth and error free, 5% of respondent

opinioned that transactions are not good

Inference: As 95% responded very good, it seems high number are happy with transactions.

Page 68 of 78
10. I.G.L. looks into the feedback provided by you and takes necessary action if required.

Parameter In numbers In percentage

Very Good 45 90

Good 5 10

Action on Feedback

10

90

Interpretation

90% of respondent responded that I.G.L. looks into the feedback & is good, 10% said its not

good.

Inference: As 90% of respondents says I.G.L. looks into the feedback provided by clients and

takes necessary action if required, not too many were satisfied with transaction.

Page 69 of 78
FINDINGS

With reference to table no.1, 90% of customers are happy with the timings & they opinioned

that it is very good.

With reference to table no. 2, 80% of respondents like the branch ambience

& layout & find it friendly with reference to table no.3, 80% of respondents said branch was

clean and well maintained.

With reference to table no.4, 76% respondents view that Branch personnel had listened to them

patiently and have been able to respond to their queries and clarifications.

74% of respondent responded that Branch personnel had been very helpful and courteous with

reference to table no.5.

Page 70 of 78
With reference to table no. 6,72% of respondents opinioned that branch personnel does ‗Need

Analyses‘ & ‗Risk Assessment‘ of customer savings before recommending any investment option

to them.

With reference to table no.7,86% of respondent that branch personnel are aware of

Product and Services and responded to your queries.

With reference to table no 8, 80% of respondents opinioned that waiting time at the

Teller Counter is very good.

With reference to table no.9, 90% of respondent opinioned that transactions are

smooth and error free & is very good.

With reference to table no. 10, 82% of respondent responded that I.G.L. looks into

the feedback & is very good.

Page 71 of 78
Conclusion

Chapter titled ―analysis of profitability‖ describes the conceptual framework of

financial efficiency and profitability. Financial efficiency is the ability of a given

investment to earn a return from its use. It‘s vital instrument to measure not only the

business performance but also overall efficiency in its concerned. In present study seven

types of measurement tools of financial efficiency were discussed I.e. Gross profit ratio,

operating profit ratio, net profit ratio, earning per share, return on gross capital employed,

return on net capital employed, return and return on net worth. Generally, Earning per

share ratio uses widely and famous. The present study showed concept. Importance and

measurement tools for profitability performance for measure the efficiency of business

organization.

Page 72 of 78
Suggestion and recommendation

1. Liquidity refers to the ability of the concern to meet its current obligation as and

when there become due the company should improve its liquidity position.

2. The company should make the balance between liquidity and solvency position of

the company.

3. The profit ratio is decreased in current year so the company should pay attention

to this because profit making is the primary objectives of every company.

4. The cost of goods sold is high in every year so the company should be efforts to

control it.

5. The long term financial position of the company is very good but it should pay a

little attention to short term solvency of the company.

Page 73 of 78
Bibliography

 Company Introduction compiled from Human Resource Department, India

Glycols Limited.

 Information about various value added services, complied from Marketing

Department, idea cellular limited.

 Research methodology by R.C.KOTHARI

 Financial Management by Philip Kotlar

 Website: -

 www.google.com

 www.wikipedia.com

 http://www.indiaglycols.com/

Page 74 of 78
Annexure

Page 75 of 78
QUESTIONNAIRE

1) The Branch timings (9:30 am to 6:30 pm from Monday to Saturday) are


convenient?

a) Yes b) No

2) The Branch ambience & layout is very friendly?

a) Yes b) No

3) The Branch was clean and well maintained?

a) Yes b) No

4) The Branch personnel have listened to me patiently and have been able to
respond to my queries and clarifications?

a) Yes b) No

5) The Branch personnel have been very helpful and courteous?

a) Yes b) No

Page 76 of 78
6 The branch personnel have done a Need Analyses & Risk Assessment before

recommending any investment option?

a) Yes b) No

7) The branch personnel were aware of Product and Services and responded to your
queries?

a) Yes b) No

8) The waiting time at the Teller Counter was minimal?

a) Yes b) No

9) The transactions done by us have been smooth & error free?

a) Yes b) No

10) Yes I.G.L. looks into the feedback provided by you and takes necessary action if
required.

a) Yes b) No

Page 77 of 78
Page 78 of 78