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SUBMITTED to the
UNIVERSITY OF MADRAS
By
Rajesh Naganathan
SCHOOL OF MANAGEMENT
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 .
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)
Rajesh Naganathan
Place: Chennai
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.
Company Guide
Designation
Department
ACKNOWLEDGEMENTS
Chapter No. Contents Page Nos.
1 INTRODUCTION
2. RESEARCH OBJECTIVES
3 RESEARCH METHODOLOGY
QUESTIONNAIRE
FOR ANALYSIS
6 FINDINGS
7 RECOMMENDATIONS
8 CONCLUSION
9 BIBLIOGRAPHY
ANEXURES
I. QUESTIONNAIRE
III.OTHERS, IF ANY
List of Tables / Illustrations / Graphs
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.
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.
The company has 12 cold room distribution points, strategically located for quick
and easy distribution of its products.
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.
HIGHLIGHT:
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.
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
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.
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”
⇒ Listed company
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.
HIGHLIGHTS
In ‘Hatsun’ Dairy milk pouch are packed are in three different brand names such as
They are:
1. 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”.
2. Accounting conventions
3. Postulates
4. Personal judgments
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:
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:
CHAPTER 3
RESEARCH METHODOLOGY
The research design for this study is descriptive. In this design, the researcher can
discover causes and can report what is happening.
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.
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.
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.
3. Measuring efficiency
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
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.
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
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
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
9
FORMULA FOR TREND VALUE IS Y c =a+bx
100000
50000
Actual
Forcasted
0
2004 2005 2006 2007 2008
-50000
-100000
RATIO ANALYSIS:
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
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
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
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
(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
500
0
2003- 2004- 2005- 2006- 2007-
-500
RATIO
-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:
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.
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
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:
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
SHAREHOLDERS FUNDS
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
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-
Current ratio of the company is satisfactory only by the year 2008 (1.15). So the
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
the inventory ratio from 46.07 in 2006-07 to 29.21 in 2007-08. The company
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
Debtors turnover ratio is not satisfactory as it has the collection period has
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.
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.