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FINANCIAL STATEMENT ANALYSIS

AT

M/S. HATSUN AGRO PRODUCTS LIMITED


Project work

SUBMITTED to the

UNIVERSITY OF MADRAS

In partial fulfillment of the

Requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

By

Rajesh Naganathan

(Reg. No. MA80393)

SCHOOL OF MANAGEMENT

D.G. VAISHNAV COLLEGE

Chennai – 600106.

APRIL - 2009
BONAFIDE CERTIFICATE

This is to certify that the project report titled “Financial Statement Analysis”

is a bonafide record of work carried out by Mr. Rajesh Naganathan at M/s. Hatsun Agro
Products Limited, as a summer project from May (dd/mm/yyyy) to June (dd/mm/yyyy),
in partial fulfillment of the requirements for the award of the degree of MASTER OF
BUSINESS ADMINISTRATION by UNIVERSITY OF MADRAS during the academic
year 2008 – 2009 .

Prof. V.Ganeshan, Faculty Name

DEAN

College seal
DECLARATION

I , Rajesh Naganathan hereby declare that the project work titled “Financial Statement
Analysis” by me for the award of degree of Master of Business Administration has not
formed the basis for the award of any other Degree, Diploma, Associate ship, Fellowship
or other similar titles and this dissertation has been done by me under the guidance of
(Company Guide/s)

(Signature of the student)

Rajesh Naganathan

Place: Chennai

Date: 30th May 2009


FOURTH PAGE : (On Company Letterhead)

This is to certify that (Student Name), student of Master of Business Administration,


School of Management, D.G.Vaishnav College, Arumbakkam, Chennai, has successfully
completed his/her six weeks project work in our company, during the period from May
(dd/mm/yyyy) to June (dd/mm/yyyy) as part of his/her post graduate studies.

During the period of project work, he/she has done project titled
”-------------------------------“. He is found to be committed to the assignments/studies
assigned and has shown desire to learn and complete the tasks systematically.

We wish him/her a bright future and all success in future endeavors.

For (company name)

Company Guide

Designation

Department
ACKNOWLEDGEMENTS
Chapter No. Contents Page Nos.

1 INTRODUCTION

1.1 INDUSTRY PROFILE

1.2 COMPANY PROFILE

1.3 PRODUCT PROFILE / ORGANISATION STRUCTURE

1.4 ABOUT THE TOPIC

1.5 SURVEY OF LITERATURE

1.6 NEED FOR THE STUDY

1.7 SCOPE OF STUDY

2. RESEARCH OBJECTIVES

2.1 PRIMARY OBJECTIVES

2.2 SECONDARY OBJECTIVES

3 RESEARCH METHODOLOGY

3.1 TYPE OF RESEARCH

3.2 RESEARCH APPROACH

3.3 SOURCES OF DATA

3.4 SAMPLING PLAN

3.4(1) POPULATION AND SAMPLING UNIT


3.4(2) SAMPLE SIZE

3.4(3) SAMPLING PROCEDURE

3.5 MODE OF DATA COLLECTION

3.6 DATA COLLECTION INSTRUMENT

3.7 DESIGN & PRETESTING OF

QUESTIONNAIRE

3.8 TOOLS AND TECHNIQUES USED

FOR ANALYSIS

4 LIMITATIONS OF THE STUDY

5 DATA ANALYSIS AND INTERPRETATION

6 FINDINGS

7 RECOMMENDATIONS

8 CONCLUSION

9 BIBLIOGRAPHY

ANEXURES

I. QUESTIONNAIRE

II. MARKET FIGURES

III.OTHERS, IF ANY
List of Tables / Illustrations / Graphs

Table No. Title Page No.


CHAPTER 1
INTRODUCTION

1.1 COMPANY PROFILE

Hatsun Agro products Ltd is India's largest private dairy. From a modest icecream
manufacturer to one of the leading names in India's dairy sector in just a span of three
decades, Hatsun now stands majestically as a hallmark of successful entrepreneurship. Be
it in the dedication to quality, in employing the world's latest technology, innovative
marketing strategies, or bringing prosperity to hundreds of thousands of farmers in the
south.
It started as a creamy dream in 1970: Arun Icecreams, the rich, delicious brand that has
captured the hearts of millions of icecream lovers. With over 70 delightful varieties it has
enjoyed continuous patronage from customers all over south India. Arun Icecreams is
manufactured at the most modern plant of its kind in Chennai. From the ingredients, to
the packaging and distribution, stringent quality control is maintained at every stage
which has made Arun Icecreams the first icecream brand in India to win the 9001
certification for quality and world-class manufacturing facilities. Arun Icecreams reaches
the consumers through the largest network of exclusive parlors in India. These and the
many Arun mini-parlors in the rural areas provide employment to thousands of people.
Hatsun came up with Arokya - the standardized, homogenised and bacteria clarified milk.
Arokya milk is still unsurpassed in purity, thickness and quality and has made it one of
the most preferred milk brands consumed by several hundred thousand households every
day and then came Hatsun Komatha. This product is Hatsun's proud contribution of a
superior quality, lower fat milk which Hatsun calls 'Cow's milk'. Komatha is the perfect
symbolization of the values and attributes of the provider of fresh milk - the cow. Hatsun
handles a total 1.8 million litre a day. Hatsun's quest for quality starts at procurement,
two times a day, 365 days of the year at over a thousand collection centers, from more
than a hundred thousand farmers. Hatsun sources its milk with an ever watchful eye,
always keen on quality. It is an enthusiastic and bustling activity when milk takes its first
step in its journey to the consumers' homes.

Company / Infrastructure
The Company has an excellent milk collection system with chilling centers in more than
50 locations and a fleet of more than 1348 vehicles on contract for procurement.
Its milk shed area is spread over 10 districts in Tamilnadu and 3 in Karnataka and covers
over 70,000 milk producers and 2000 medium and bulk milk vendors.
The Company is also involved in dairy extension services to farmers for the development
of livestock quality and yields.
Besides this the company also has tie up with banks for arranging agricultural loans to
milk producers.
More than 110 veterinary doctors under direct employment rendering full-scale animal
care to the milk producers.

Hatsun's state of the art processing and packaging plants are located in Salem,
Kancheepuram, Madurai, Palacodu in TamilNadu and Honnali, Belgaum in Karnataka.
After procurement, milk vans then take the procured milk to these plants where the milk
has to undergo a quality test again to enter the plant. Then the weight is checked. After
that, using superior technologies milk is subjected to pasteurisation, homogenisation, and
bacteria clarification.

Hatsun is a pioneer in India of the world-acclaimed homogenisation processes where the


fat globules are broken and evenly distributed in the milk making it rich and wholesome.
An unyielding commitment to quality has formed the backbone of Hatsun's business
ethics right from its start. At every stage, intensive procedures to preserve quality are
undertaken to ensure the purity of the milk. The entire Hatsun staff work in harmony as
one family in enforcing the tough standards that Hatsun set for itself as basic guidelines.
Each milk packet packaged-using German technology-reaches the consumer with this
assurance: The Hatsun Quality

Everyday Hatsun's fleet of puff-insulated trucks travel 3.9 times the distance around the
world, i.e. 1, 82,730 km taking milk for consumption by homes across the states of
Tamilnadu, Karnataka, Goa and Kerala. Hatsun takes pride in having its large cold-chain
network in India ensuring that each and every one of its consumers gets fresh milk day
after day.

Hatsun's dairies are ISO 9001:2000 and HACCP (Hazard Analysis Critical Control Point)
certified. The Salem plant has received ISO 14001 and been certified eco-friendly. The
quality assurance of Hatsun ensures that stringent quality standards and norms of
American Dairy Products Institute (ADPI) are fully met. The success of Arun Icecreams
has been taken as a case study by the Indian Institute of Management, Ahmedabad,
India's leading business school.
Company / Network

The company has achieved excellence in establishing an extremely efficient supply chain
management, better logistics and widespread distribution network spearheaded by
exclusive franchisee outlets. All the brands of the company enjoy very strong brand
equity and despite being in a price sensitive market, its brands command a premium.
ARUN Icecream is sold through exclusive franchisee outlets and is occupying the top slot
in Tamilnadu and figures within the top three in the south India. With the commissioning
of plant in Belgaum, the company has entered into the Goa, Pune and southern districts of
Maharashtra markets. The company has also entered into International markets during the
financial year (2004-05). The company has implemented an arrangement, whereby Arun
icecream is now available in Seychelles. Arun Icecream is also being exported to Brunei.

Company / Quality & Certification

o Food Safety Standard of ISO 22000:2005


o Quality Management System Standard of ISO 9001:2000
o Environmental Management System Standard of ISO 14001:2004
o Export Inspection Council of India (Ministry of Commerce & Industry Govt. Of
India) Certificate of Approval of Quality for Export of Milk Product.
o The Milk and Milk Product Order -1992 Registration (Ministry of Agriculture,
Govt. Of India)

Quality & Food Safety Policy


We, Hatsun Agro Product Ltd., Processors of Branded Milk and Milk Products are
committed to satisfy our esteemed customers by:

 Adopting Quality and Food Safety Management System


 Adhering Statutory & Legal Requirements
 Ensuring best Quality Products and value for Customer's money
 Maintaining Timely Delivery
 Developing Good working atmosphere and culture
 Taking every effort to up-grade the milk producers by providing
required services and facilities
Also aiming at continual improvement in all spheres of our activities through periodical
review of our above policy and resetting the quality and Food Safety objectives.

Company/ Sales and distribution network


 The company has strong logistics and distribution network Around 1,000
exclusive ice cream parlors spreading over entire Tamil Nadu and Parts of Andhra
Pradesh and Karnataka cater to the needs of the consumers.

 The company has 12 cold room distribution points, strategically located for quick
and easy distribution of its products.

 In the milk segment, the company’s distribution network comprises of 150


wholesale distributors and over 8,500 dealers for milk.

 More than 500 milk van handling distribution and covering a distance of 250 to
300 kms each.

 Leader in liquid milk among the private sector dairies and market leader for
southern ice cream market.

 Export of milk powder and butter oil to more than 30 countries namely Dubai,
Saudi, Arabia, Iran, Ceylon, Singapore, Yemen, Thailand, Malaysia, Algeria,
Canada, Japan, etc and targeting 20%of the total revenues form export by 2009.
 The company has started manufacturing value added milk powder, butter oil,
butter and ghee and started exporting powder and butter oil to Gulf, Canada,
South Asian nations and African countries. The exports potentials look very
promising with the cut back and abolition of subsidies for dairy products in
America and European countries.

 In addition, ARUN ice creams are available in Brunei and Seychelles and steps
are being taken to market ARUN ice creams in Singapore.

 The company derives its strength form its strong rural linkage with farmers by
sheer organization of geographically penetrated milk collection network.

 The company enjoys excellent relation with bankers multiple banking and the
track record of loan is standard.

1.2 Our Products


1. MILK / AROKYA
Arokya is India’s first bacteria clarified milk. Arokya uses German
technology to remove the dead pathogenic bacteria completely from milk.
This helps to retain the natural taste & flavor of milk. Using American
technology, the butterfat globules are broken into smaller particles
making Arokya wholesome to the last drop.

HIGHLIGHT:

 Top selling private milk brand in Tamil Nadu,


Karnataka and Kerala.
 Only brand after state-owned AAWIN (Tamil
Nadu), NANDHINI (Karnataka) and MILMA
(Kerala) to have a state-wide reach and even better
than co-operatives in reach.

 No private dairy sells this volume in India.

Hatsun Komatha Toned Milk


Another fresh milk in the stable of Hatsun, Hatsun Komatha Toned Milk was
launched in the year 2000. A lighter milk than Arokya, Hatsun Komatha Toned Milk
comes with all the good processing technologies deployed by Hatsun, i.e.,
homogenization, pasteurisation and bacteria clarification. This ensures that the high
quality and hygiene standards set by Hatsun for its products are met.
Distribution Stockists / Agents. We reach our customers through our wide network of 30
Distribution Stockists and over 1500 Agents in Tamil Nadu / Bangalore.
Pack sizes: 5000ml, 500ml, 250ml, 200ml & 1

Hatsun Santosa FULL CREAM Milk


A relatively new product in Hatsun's basket of offerings, Hatsun Santosa Full Cream
Milk, is full cream milk that caters to niche commercial markets.

Hatsun Santosa Full Cream Milk is well suited for Hotels and Catering needs as it is ideal
for preparation of curd, lassi, milk shakes, sweets, payasam, tea and coffee.

Pack sizes: 2000ml, 1000ml, 500ml & 150ml

Special packs for the food service industry


We have introduced a new Food Service Pack of 5 liter. at an attractive price, keeping in
mind the needs of hotels and institutions. The following benefits will accrue through its
use:

• Convenience in handling during transportation


• Convenience in cold storage
• Reduction in spillages / losses from packs / cans
• Assurance of quality delivery that is packed in the dairy plant
• Tamper Proof
• Correct quantity delivery

A choice of global standards

Hatsun produces the following variants of milk powder in accordance with

ADPI (Extra Grade) standards. They are:

 Skimmed Milk Powder-Low heat, Medium heat and High heat

 Full Cream Milk Powder (Whole Milk Powder)-Normal and Instant

2. MILK Products / Hatsun Cooking Butter

Hatsun's all-natural high-quality Cooking Butter has something that makes it stand out
from the crowd - it has dollops of 'zeal' in it. Hatsun Pasteurised Cooking Butter is made
from the choicest of creams, churned from pure farm fresh milk. It is then processed in a
high-tech dairy plant where hygiene and quality are given utmost importance. This
ensures that sweets, savouries and cakes have a great taste and aroma.
Pack sizes: 200g and 500g

MILK Products / Hatsun Cow ghee

At Hatsun, we decided that Hatsun would be different from other branded ghees that
jostle for your attention. So, what makes Hatsun Ghee different? The nutty taste of
Hatsun Ghee - a special grade ghee, is perfect for Indian cuisine in general and sweet
making in particular. Being made only from cow milk, all the freshness and uniqueness
associated with cow milk can be found in Hatsun Ghee. It has the distinct property of
carrying and enhancing the flavour of practically any dish that one briefly fries in Hatsun
Ghee.
Hatsun Ghee comes with the 'Agmark' seal of quality.

MILK Products / Hatsun Butter Milk

 Rich & tasty buttermilk made from farm-fresh milk


 Available in easy-to-carry 200 ml pouch
MILK Products / Hatsun Curd
Hatsun Curd is a semi-solid fermented milk product, with excellent consistency. It
has a very low bacteria count making it extremely healthy in nature and delightfully tasty
in character.

MILK Products / Hatsun Paneer


Made from farm-fresh milk. A higher milk solid make it tastier and helps in
retaining texture & shape. Ideal to cook mouth-watering dishes.

3. Beverages / Aaros Milk / Badam Milk

• Made from pure creamy milk from a high quality dairy


• Tasty, thick and full of strength
• Badam Milk also available

Beverages / Aaros Tea / Masala Tea

• Made from select and high quality tea gardens


• Strong, has Fine Taste and Good Colour
• Masala tea also available

Beverages / Aaros Coffee

• Made from exquisite quality coffee beans


• Very fine filter coffee taste

Beverages / Aaros Ragi

• Made from high quality roasted ragi grains


• Tasty and very Refreshin

4. Arun Icecreams

The company has been in the Ice creams business for more than 35 years and it’s the
premium product of the company. The company was the first to introduce the “Sit & eat
concept” in ice cream industry. It has been successful in giving verities in ice creams
satisfying the tastes and preference of various analogous groups. The brand “Arun” is a
house hold name in south India and the brand value itself worth several crores.
Arun Ice cream is the No.1 ice cream brand in South India. There are over 70
unforgettable varieties, each distinct in taste with regular additions to the range. Arun has
over 1000 exclusive parlours. Among these, many of them are India’s first & trendsetters
in their category. Like amazing ‘Colour Magic’ an ice cream that changes colours.

HIGHLIGHTS OF HATSUN
⇒ Well known company with strong brands “ARUN” and
“AROKYA”

⇒ Largest Private Dairy in the Country.

⇒ Market leader in Ice cream and Standardized milk in south India.

⇒ Excellent linkage with farmers in South India.

⇒ Sound and growing export business.

⇒ State of the art facilities with grass root developments.

⇒ Expansion of the existing dairy ingredient capacity in Krishnagiri


District in Tamil Nadu.

⇒ IIM (A) case study on Arun Brand in 1999.

⇒ Strong distribution network with city, town and rural reach.

⇒ Listed company

⇒ Company’s white Gold scheme for enhancement of milk


production and village prosperity is fast gaining popularity.

⇒ Powder plant in Dharmapuri district to go on stream by


February’09

1.3. Product Profile

1. Arun Icecreams
Arun surprised the ice cream industry itself by overtaking the industry
growth rate of 12% by growing at a rate of 30%. And commanding an astounding market
share of 34% in the entire Southern market. The network reaches out to all the urban
regions and even small towns with populations of 30,000. Thereby, giving lakhs and
lakhs of families a delightful and affordable ‘ice cream outing’.
During the year 2007-2008, the ice cream division achieved a turn over of
around Rs.438 millions and it expected to achieve a target of around Rs.500/- millions
during the current financial year.

The company also earns export revenue by exporting ice cream to


MALDIVES. It has been dispatching ice cream by air to ANDAMAN Island. Arun is a
familiar in BRUNEI and SEYCHELLES.

HIGHLIGHTS

 Four – decade old, No. 1 selling brand in Tamil


Nadu.

 Within Top-3 leading brands in other southern


states.

 Estimated market share of close to 35% in


south India.

In ‘Hatsun’ Dairy milk pouch are packed are in three different brand names such as

1) Arokya 2) Komatha 3) Santhosa

1) Arokya Milk pouch


S.No Quantity (ml) Fat S.N.F Price
1 5000ml 4.5% 8.5% 80Rs
2 1000ml 4.5% 8.5% 19Rs
3 500ml 4.5% 8.5% 9.50Rs
4 200ml 4.5% 8.5% 4Rs

2) Komatha Milk pouch

Quantity (ml) Fat S.N.F Price


S.No
1 1000ml 3.0% 8.5% 15Rs
2 500ml 3.0% 8.5% 7.5Rs
3 250ml 3.0% 8.5% 4Rs

3) Santhosa Milk pouch

S.No Quantity (ml) Fat S.N.F Price

1 2000ml 6.0% 9.0% 40Rs


2 1000ml 6.0% 9.0% 20Rs
3 500ml 6.0% 9.0% 10Rs
4 200ml 6.0% 9.0% 4Rs

1.4 ABOUT THE TOPIC

“FINANCIAL STATEMENTS” refer to formal and original statements prepared by a


business concern to disclose its financial information. In the words of Hampton J.J “The
statements disclosing status of investments is known as balance sheet and the statement
showing the result is known as profit and loss account”. Thus, the term financial
statements prepared by accountants at the end of a specific period.

They are:
1. Profit and loss account

2. Balance sheet or statement of financial position.


Now-a-days another statement is also prepared known as “surplus statement” or “retained
earnings statement”. Numbers of schedules are also prepared to supplement the data and
information contained in the balance sheet and profit and loss account

Schedules of assets, debtors, creditors, investment etc are some examples of some of the
schedules which are attached to the financial statements. These statements put together,
are called “package of financial statements”.

Financial statements are based on the following facts:


1. Based on recorded facts

2. Accounting conventions

3. Postulates

4. Personal judgments

Importance of financial statements:


Financial statements are prepared in order to show the financial position of the
organization/company. These statements are prepared periodically in order to inform
about the future prospects of the business concern. The financial statement is useful to
the following :
1. Management

2. Financiers

3. Creditors

4. Investors
Types of Analysis
Financial statement analysis is of different types. The process of analysis is classified
on the basis of information used and “modus operandi” of analysis. The classification
is as under:
1. On the basis of information used:

(a) External analysis

(b) Internal analysis

2. On the basis of “modus operandi”of analysis:

(a) Horizontal analysis

(b) Vertical analysis

1.5 Need / Objectives of the study

 To study the financial position at M/s. HATSUN AGRO


PRODUCT LIMITED.

 To measure the managerial efficiency of the company

 To measure the short- term and long- term solvency of the


company.

 To suggest ways and means to improve the present position of


the company

 To analyze the financial statements by using various techniques


1.6 Scope of study
o The study will help the company to identify their liquidity,
profitability, creditworthiness of customers and repayment
capacity.

o It will help the company to forecast about future expansion


and diversification.

o The company can study the various opportunities and


threats it faces from other competitors.

o It will also help to analyze the efficiency utilization of


working capital.

CHAPTER 2

RESEARCH OBJECTIVES

Primary objectives:

The primary objective is to analyze the financial statements of M/s.Hatsun Agro Product
Ltd, Chennai.
Secondary objectives:

 To analyze the working capital, profitability, liquidity,


creditworthiness of customers and repayment capacity by making
use of various ratios.

 To analyze the various financial factors disclosed by a single set of


statements and a study of the trend of these factors as shown in the
series of statements.

CHAPTER 3

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN


Research methodology is a way to systematically solve the research problem. It may be
understood as a science how research is done scientifically. It has many dimensions and
research methods constitute a part of the research methodology.

The research design for this study is descriptive. In this design, the researcher can
discover causes and can report what is happening.

3.2 AREA OF OPERATION

Under this head of Financial Statement Analysis, the area to be covered by the study is
confined to M/s. HATSUN AGRO PRODUCTS LTD as whole.

3.3 PERIOD OF STUDY

The period of study is confined to five years i.e. 2003-04 to 2007-08.

3.4 SOURCES OF DATA

The data that is used for the research purposes is secondary data. The main sources of
data are the company’s budgeted annual report and actual reports.

3.5 TOOLS AND TECHNIQUES USED

The tools and techniques used for the study are:


1.Ratio analysis

2.Trend analysis

RATIO ANALYSIS
A ratio is simply the relationship between two or more things. Ratios help to summarize
large quantities of financial data and to make qualitative judgment about the firm’s
financial performance. For example, a measurement of income may be compared to a
measurement of size. Data for the financial ratios are taken from the balance sheet, the
cash flow statement and the income statement.
Uses of ratio analysis
Financial ratios can be put to many uses.
1. To be used by an operator or a business manager in managerial analysis.

2. To be used by a lending agency in credit analysis.

3. Measuring efficiency

4. Facilitating investment decisions

5. Inter firm comparisons

CLASSIFICATION OF RATIOS
The ratios can be classified as:
Classification by statements

Balance sheet ratios Profit and loss a/c ratios B/s and P&L a/c ratios

Liquidity ratio Gross profit ratio Return on investment


Current ratio Operating ratio Stock turnover
Proprietary ratio Operating profit ratio Debtors turnover
Debt equity ratio Expenses ratio Creditors turn over
Fixed assets ratio Net profit ratio Fixed assets turnover
Capital gearing ratio Return on shareholders
funds
TREND ANALYSIS
Through trend analysis one can predict the future with the help of the past data. The
trend analysis can be done using the following techniques:
• Simple average method

• Moving average method

- 3 years moving average

- 4 years moving average

- 5 years moving average


CHAPTER 4

LIMITATIONS OF THE STUDY

 The time period have been taken for the study is only 5 financial years (2003-
04to 2007-08) which cannot be taken as mean for conclusion. It should done
by keeping in mind the overall picture and the prevailing economic and
political situation.

 Ignores price level changes.

 Financial statements are essentially interim reports.

 Accounting concepts and conventions.

 Influence of personal judgment

 Disclose only monetary facts.


CHAPTER 5
DATA ANALYSIS INTERPRETATION

TREND ANAYLSIS
STATEMENT SHOWING SALES TREND
(Rs in 000s)
Year 2004 2005 2006 2007 2008
Sales 3,661,115 4,538,276 5,448,186 5,852,828 8,631,936

CALCULATION OF TREND VALUES


YEAR SALES(Y) X X^2 XY TREND
VALUES

2004 3661115 -2 4 -7322230 3375229.4

2005 4538276 -1 1 -4538276 4500848.8

2006 5448186 0 0 - 5626468.2

2007 5852828 1 1 5852828 6752087.6

2008 8631936 2 4 17263872 7877707

N=5 ∑Y=2813234 ∑X=0 ∑X^2=10 ∑XY=1125619


1
4
FORMULA FOR TREND VALUE IS Y c =a+bx

a = ∑ Y/N = 28132341/5 =5626468.2

b = ∑ X Y/∑X^2 = 11256194/10 =1125619.4


SALES TREND

18000000
16000000 7877707

14000000
12000000 6752087.6
5626468.8
10000000 Forcasted
4500848.8 8631936 Actual
8000000
3375229
6000000 54481865852828
4538276
4000000 3661115
2000000
0
2004 2005 2006 2007 2008

FORCASTED TREND VALUE

YEAR SALES (Rs. In 000’s)


2009 9003326.4
2010 10128945.8
2011 11254565.2
2012 12380184.6
2013 13505804

STATEMENT SHOWING WORKING CAPITAL TREND


YEAR 2004 2005 2006 2007 2008
WORKING 17414 -30804 -3541 -89633 116013
CAPITAL

Year WORKING X X^2 XY Trend

CAPITAL(Y) Values
2004 17414 -2 4 -34828 -25784
2005 -30804 -1 1 30804 -11947.1
2006 -3541 0 0 - 1889.8
2007 -89633 1 1 -89633 15726.7
2008 116013 2 4 232026 29563.9

N=5 ∑Y=9449 ∑Y=0 ∑X^2=10 ∑XY=13836

9
FORMULA FOR TREND VALUE IS Y c =a+bx

a = ∑ Y/N = 9449/5 =1889.8

b = ∑ X Y/∑X^2 =138369/10 =13836.9

WORKING CAPITAL TREND


150000

100000

50000
Actual
Forcasted
0
2004 2005 2006 2007 2008
-50000

-100000

FORECASTED TREND VALUE


Year Working capital trend value (Rs.000’s)
2009 43400.8
2010 447845.8
2011 461682.7
2012 475519..6
2013 489356.5

RATIO ANALYSIS:

ANALYSIS OF CURRENT RATIO:

Current ratio = Current Assets


Current liabilities

Year Current Assets Current Liabilities Ratio


03-04 317620 300206 1.06
04-05 252949 283753 0.89
05-06 317994 321535 0.99
06-07 380592 470225 0.81
07-08 892978 776965 1.15
ANALYSIS OF CURRENT RATIO:

ANALYSIS OF CURRENT RATIO

1.2
1
0.8
RATIOS 0.6
0.4
0.2
0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

Interpretation:
From the table it shows that the current ratio of the company has been
decreased during 04-05 from 1.06 to 0.89 and it has increased as well as decreased each
financial year. Finally it has been increased to 1.15. Higher ratio indicates high liquidity
position. Ideal ratio is 2:1.
GROSS PROFIT RATIO
GROSS PROFIT RATIO=GROSS PROFIT
NET SALES

GROSS PROFIT=NET SALES – COST OF GOODS SOLD


COST OF GOODS SOLD=RAW MATERIALS CONSUMED+
MANAFACTURING EXPENSES+ DIRECT WAGES+OPENING
FINISHEDGOODS-CLOSING FINISHED GOODS

ANALYSIS OF GROSS PROFIT RATIO:

YEAR NET SALES GROSS PROFIT RATIO


03-04 3619097 801672 22.15%
04-05 4491875 836202 18.62%
05-06 5403442 1034171 19.14%
06-07 5852828 1167148 19.94%
07-08 8631936 1660334 19.23%
ANALYSIS OF GROSS PROFIT RATIO

ANALYSIS OF GROSS PROFIT RATIO

23.00%
22.00%
21.00%
20.00%
RATIO
19.00%
18.00%
17.00%
16.00%
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

INTERPRETATION:
We can see that the gross profit ratio of the company is fluctuating year by year
i.e. alternate years there is an increase in the gross profit ratio. If there is an increase
in the percentage of gross profit as compared to the previous years then one of the
factors can be taken into account:
1. The selling price of the goods has gone up without corresponding increase in the
cost of goods sold.
2. The cost of goods sold has gone down without corresponding decrease in the

selling price of the goods.

3. Omission of purchases or sales figures might have inflated.

If there is a decrease the following factors can be taken into account:

1. Decrease in the selling price of the goods without corresponding decrease in he

cost of goods sold and vie-versa

2. Omission of sales

3. Stock at the end may be undervalued or the opening stock may have been

overvalued.

This ratio indicates the degree to which the selling price of goods per unit may

decline without resulting in any losses from operations to the firm.


NET PROFIT RATIO

NET PROFIT RATIO=NET PROFIT AFTER TAX


NET SALES

YEAR NET PROFIT AFTER TAX NET SALES RATIO


03-04 53853 3619097 1.48
04-05 7351 4491875 0.16
05-06 42453 5403442 0.78
06-07 81460 5852828 1.39
07-08 173256 8631936 2
Analysis of Net Profit Ratio

ANALYSIS OF NET PROFIT RATIO

2
1.8
1.6
1.4
1.2
RATIO 1
0.8
0.6
0.4
0.2
0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

INTERPRETATION:

The above table shows relationship between net profit after tax and net sales of the

company for five years. We can see that the ratio keeps on fluctuating from year to year.

In the first year it is 1.48%, but it has decreased to 0.16% in the second year thereby
showing that operational efficiency is not up to the mark. Gradually, it starts to increase

thereby showing better operational efficiency of the company.

WORKING CAPITAL TURNOVER RATIO:

Analysis of Working capital turnover ratio


This ratio is a measure of the efficiency of the employment of the working
capital. It indicates over trading and under trading and is harmful for the smooth conduct
of business. This ratio finds out the relation between cost of sales and working capital. It
helps in determining the liquidity of a firm in as much as it gives the rate at which
inventories are converted to sales and then to cash.

Working capital turnover ratio = net sales / net working capital

(Rs in 000’s)

Net
Year sales Net working capital Ratio
03-04 3619097 17414 207.83
04-05 4491875 -30804 -145.82
-3541 -
05-06 5403442 1525.96
06-07 5852828 -89633 -65.3
07-08 8631936 116013 74.4
ANALYSIS OF WORKING CAPITAL RATIO

ANALYSIS OF WORKING CAPITAL


RATIO

500

0
2003- 2004- 2005- 2006- 2007-
-500
RATIO

2004 2005 2006 2007 2008

-1000

-1500

-2000
YEARS

Interpretation:

This ratio indicates whether or not working capital has been effectively utilised
in making sales. In case a company can achieve higher volume of sale with relatively
small amount of working capital, it is an indication of the operating efficiency of the
company. The ratio shows a constant trend over the period. So it indicates that the
company has suffered lack of working capital for meeting its day to day activities.
INVENTORY TURNOVER RATIO:

INVENTORY TURNOVER RATIO = COST OF SALES


AVERAGE STOCK

YEAR COST OF SALES AVG INVENTORY RATIO


03-04 3619097 36168 100.06
04-05 4491875 65139 68.95
05-06 5403442 96556 55.96
06-07 5852828 137160 42.67
07-08 8631936 295512 29.21
Analysis of Inventory turnover Ratio

ANALYSIS OF INVENTORY
TURNOVER

120
100
80
RATIO 60
40
20
0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

INTERPRETATION:
As already stated, the inventory turnover ratio indicates the liquidity of the inventory .A
high inventory ratio indicates brisk sales. But the ratio of the company gradually
decreases. A low inventory ratio results in blocking of funds in inventory which
ultimately would result in heavy losses for the company as the stock may become
obsolete or deteriorate in quality.
CURRENT ASSETS TO WORKING CAPITAL RATIO:

The ratio shows the relationship between current assets and working capital purpose of
this ratio is to calculate the percentage of working capital influenced in current assets.

It is calculated as current assets / working capital.

WORKING
YEAR CURRENT ASSETS CAPITAL RATIO
03-04 317620 17414 18.24
04-05 252949 -30804 -8.21
05-06 317994 -3541 -89.8
06-07 380592 -89633 -4.25
07-08 892978 116013 7.7
ANALYSIS OF CURRENT ASSETS TO WORKING CAPITAL
RATIO

CURRENT ASSETS TO WORKING


CAPITAL RATIO

20
0
-20
RATIO -40
-60
-80
-100
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

INTERPRETATION:

The above table shows that the current assets working capital ratio. The ratio
is gradually fluctuating year by year because the company has got lower value of current
assets in working capital. So it indicates that the company’s current assets position in
working capital is not at a satisfactory level.
DEBTORS TURNOVER RATIO:

Average accounts receivable


Accounts receivable period = Annual sales / 365

YEAR ACCOUNTS RECIVABLE ANNUAL SALES/365 RATIO


03-04 23623000 9915334 2
04-05 40134000 12306507 3
05-06 64030000 14803951 4
06-07 52549000 16035145 3
07-08 149654000 23649140 6
Analysis of Debtors Turnover Ratio

ANALYSIS OF DEBTORS TURNOVER


RATIO

6
5
4
RATIO 3
2
1
0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS

INTERPRETATION:
The above table shows the accounts receivable period maintained by the
company during the year 2003-2004 was 2 days. In the year 2005 to 2006 it’s increased
from 2 days to 3 days. Then 2006-2007 it’s slowly decreased to 3 days. In the year 2007-
2008 it’s increased to 6 days. The accounts receivable period should be less for efficient
collection of account receivable, but it’s very high shows inefficiency in collection

LONG TERM SOLVENCY RATIOS:

1. DEBT EQUITY RATIO= TOTAL LONG-TERM DEBT

SHAREHOLDERS FUNDS

YEAR LONG TERM DEBT SHAREHOLDERS FUNDS RATIO


(SECURED LOANS) (SHARE CAPITAL +RESERVES+P&L A/C)
03-04 423671 222752 1.9
04-05 692510 230103 3
05-06 702485 305628 2.3
06-07 523582 360731 1.45
07-08 837156 481576 1.74
Analysis of Debt Equity Ratio

ANALYSIS OF DEBT EQUITY RATIO

3
2.5
2
RATIO 1.5
1
0.5
0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
YEARS
2. FIXED ASSET RATIO

FIXED ASSSTS RATIO = FIXED ASSETS

TOTAL LONG- TERM FUNDS

YEAR FIXED ASSETS TOTAL-LONG TERM FUNDS RATIO


(SHAREHOLDERS FUNDS +SECURED LOANS)
03-04 968356 646423 1.5
04-05 1259319 922613 1.36
05-06 1337467 1008113 1.33
06-07 1436041 883953 1.62
07-08 1754211 1318732 1.33
Analysis of Fixed Assets Ratio

FIXED ASSETS RATIO

1.8
1.6
1.4
1.2
RATIO

1
0.8
0.6
0.4
0.2
0
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
YEARS

INTERPRETATION:
Long-term solvency position of the company is good. Debt-equity ratio of

the company is not satisfactory as in all the five years it crosses the ideal ratio which is

1.The fixed assets ratio more than 1 implies that fixed assets are purchased with short-

term funds which is not a prudent policy.


CHAPTER 6
FINDINGS

Current ratio of the company is satisfactory only by the year 2008 (1.15). So the

company has to concentrate on short term funds.

 Working capital turnover ratio indicates that the company has suffered for lack

of working capital for is day-to-day liabilities that too in the year 2006. Later

it gradually reduced. Later in 2008, the position reached to 74.40

 Inventory turnover ratio of the company indicates that efficient operation of

the company and effective utilization of raw materials. There is a decrease in

the inventory ratio from 46.07 in 2006-07 to 29.21 in 2007-08. The company

needs to review the stock positions periodically.

 In average the company has got lower value of current assets in working

capital. But while observing the last 2 years performance i.e., 2007 to 2008 it

increase from -4.25 to 7.7.


 The company has earned normal profit during this study period.

 Debtors turnover ratio is not satisfactory as it has the collection period has

increased from 3 days in 2005-2006 to 6 days in 2007-2008. This shows an in

efficiency on the part of the company with respect to debts.

CHAPTER 7

RECOMMENDATIONS

⇒ The Company must maintain its current ratio to the standard 2:1. The
Company must procure current assets in order to maintain a healthy
current ratio.

⇒ Matching principles shall be adopted for financing of funds (i.e.,) long


term funds can be employed for financing fixed assets and short term
funds can be employed for financing current assets.

⇒ As the company is financed more on non-traditional line (high debt or


equity) it is appreciable to be conservative in its financing.

⇒ The fixed asset ratio should also be maintained to 0.67 which is


considered to be an ideal ratio.
CHAPTER 8
CONCLUSION

After an in- depth study of “FINANCIAL STATEMENT ANALYSIS” at M/s


HATSUN AGRO PRODUCTS LTD, CHENNAI, following conclusions are drawn.

In the last five years there has been a steady increase in gross profit value and percentage.
The annual turnover of the company has also been on an increasing trend, this is mainly
due to the Company’s effective cost control measures and excellent supply chain
management. On the other hand, the Company has to focus on managing effective
working capital as in three successive financial years the Company had negative working
capital which could hamper the progress of the Company.

The debt equity ratio and the fixed asset ratio also needs to improve.

Overall, the Company’s financial position is satisfactory and progressive even though
some aspects need more focus.

The Company which has completed a decade recently in dairy industry has the
opportunity to grow in the near future.

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