INTRODUCTION TO FERTILIZERS

Fertilizer is defined as any substance which is organic or inorganic, natural or artificial, supplies one or more of the chemical elements required for plant growth. Carbon, oxygen and hydrogen are directly supplied by air and water and therefore not treated as nutrients by the fertilizer industry. One of the vital industries for the Indian economy is the Indian Fertilizer Industry as it manufactures a very critical raw material for agriculture which is the major occupation of the country. The fertilizers especially like the ammonia urea plants are energy demanding in their operation.

INDIAN FERTILIZER INDUSTRY

Size of the Industry 57 large fertilizers plants and 57 large-sized and 64 medium- and small-sized chemical fertilizer production units in India producing urea, DAP, Complex fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN) Geographical distribution Output per annum Percentage in world market Cochin, Chennai, Kerala 121.10 lakh MT a year It ranks third in the world of Fertilizer production Market capitalization 25% to the GDP

Indian fertilizer industry's main objective is to ensure the supply of primary and secondary nutrients in the required quantities. The Indian Fertilizer Industry is the most energy intensive sectors according to the context of environmental discussions. As there is increasing productivity through the implementation of competent and pollution free technologies in the manufacturing sector it would be desirable in combining economic, environmental and social development objectives. Today the Indian fertilizer industry in the past 50 years has grown in size and stature as it ranks third in the world. Indian Fertilizer industry today has succeeded in meeting the demand of all chemical
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fertilizers over the years. The first manufacturing unit was started by the Indian Fertilizer Industry which was of Single Super Phosphate (SSP) in Ranipet near Chennai with a capacity of 6000 MT a year. India's green revolution in 60's gave a positive boost to this particular sector. The industry of Fertilizer experienced a faster growth rate and presently India is the third largest fertilizer producer in the world. According to Statistics, total capacity of the industry as in .2003 has reached a level of 121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient. In India, presently there are 57 large fertilizers plants producing urea, DAP, Complex fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN). There are others also boosting the Industry like the Tranvancore of India Ltd. (FACT) in Cochin, Kerala, and the another one Fertilizers Corporation of India (FCI) in Sindri, Bihar.Both of these were established as pedestal fertilizer units to have self sufficiency in the production of foodgrains. Later the industry gained impetus in its growth due to green revolution. Then followed by seventies and eighties when fertilizer industry witnessed an incredible boom in the fertilizer production.

Year of manufacture 1906 1933 1959 1959 1959 1960 1961 1965 1967 1968 1968 1968

Fertilizer product SSP AS Ammonium sulphate nitrate Urea Ammonium chloride Ammonium phosphate CAN Nitro phosphate DAP TSP Urea ammonium phosphate NPK complex fertilizers

Total number of units 65 10 No longer manufactured 29 1 3 3 3 11 No longer manufactured 2 6

The total indigenous capacity of N and P2O5 increased from 17 000 and 21 000 tonnes in 1950/51 to 12 276 million and 5 547 million tonnes in 2004/05.

TOP LEADING COMPANIES

Some of the public sector companies in India fertilizer industry:

National Fertilizers Limited Fertilizers & Chemicals Travancore Limited Rashtriya Chemicals & Fertilizers Limited Madras Fertilizers Limited Steel Authority Of India Limited Neyveli Lignite Corporation Limited Paradeep Phosphates Limited Pyrites, Phosphates & Chemicals Limited Hindustan Fertilizer Corporation Limited

Some of the private sector companies in Indian fertilizer industry:

Chambal Fertilizers & Chemicals Limited Ajay Farm-Chem Private Limited Balaji Fertilizers Private Limited Deepak Fertilizer and Petrochemicals Corporation Limited Bharat Fertilizer Industries Limited Coromandal Fertilizers Limited Gujarat Narmada Valley Fertilizer Co. Limited Meerut Agro Chemicals Private Limited Duncans Industries Limited Karnataka Agro Chemicals Godavari Fertilizers & Chemical Limited Shri Amba Fertilizers (I) Private Limited Tuticorin Alkali Chemi & Fertilizer Limited Gujarat State Fertilizers & Chemicals Limited Indo-Gulf Fertilizers & Chemicals Corporation Limited
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Southern PetroChemical Industries Corporation Limited Maharashtra Agro Industrial Development Corporation Zuari Industries Limited- Fertilizer Limited Mangalore Chemicals & Fertilizers Limited

The classification of the Indian Fertilizer Industry as "Red" represents it as a highly polluting industry. LATEST DEVELOPMENTS

Indian Fertilizer demand in 2007-08 was 26 MM tons, which went up to 29 MM tons in 2008-09 against a supply of 20 MM tons in 2008-2009.

It is forecasted that the demand for fertilizers in 2011-12 is going to be around 35.5 MM tons.

The leading role is to be played by Gujarat in fertilizer production. There is a lot of development going on to meet the demand of fertilizers in the country through indigenous production, self-reliance in design engineering and execution of fertilizer projects is very crucial. There are consultancies which organize themselves to undertake execution of fertilizer projects starting from concept/designing to commissioning of fertilizer plants in India and abroad.

Fertilizer serves as the key ingredient for the food security of the country, by increasing the production and productivity of the soil. The Industry has set the domestic food grain production target at 320 million tones by 2011-12 from the present production of 210 million tones. This target would only be achieved by higher productivity through improved farming practices, expansion of irrigation, better seeds and extensive and balanced use of fertilizers.

Today India has developed expertise for fabrication and supply of major and critical equipment such as high-pressure vessels, static and rotating equipment, Distributed Control System (DCS), heat exchangers and hydrolyser for fertilizer projects.

List of Fertilizer Industry in India CFL : Coromandal Fertilizer Limited

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DMCC : Dharmsi Morarji Chemicals Company Limited FACT : Fertilizers and chemical Travancore Limited FCI : Fertilizer Corporation of India Limited GFC : Godavari Fertilizers and Chemical GNFC : Gujarat Narmada Valley Fertilizer Company Limited GSPC : Gujarat State Fertilizer Company Limited HCL : Hindustan Copper Limited HFCL : Hindustan Fertilizer Corporation Limited IFFCO : Indian Farmers Fertilizer Co-operation Limited IISCO : Indian Iron steel Company Limited JCF : Jayshree Chemicals and Fertilizers KKIBHCO : Krishak Bharti Co-operative Limited MCFL : Mangalore Chemical and Fertilizer Limited MFL : Madras Fertilizer Limited MMTC : Minerals and Metals Trading Corporation NFL : National Fertilizers Limited RCFL : Rashtriya Chemical and Fertilizers Limited SAIL : Steel Authority of India Limited SFC : Shriram Fertilizers and Chemical SPIC : Southern Petrochemicals Industries Co-operative
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Limited TISCO : Tata Iron and Steel Company Limited JAEL : Juari Agro Chemicals Limited Growth of Indian fertilizer industries in India One of the major factors that have led to the rapid increase in the production capacity of fertilizers in India is the policy environment. With the formulation and implementation of investor friendly policies large investment poured in to the private public and co-operative sectors and this and this propelled the growth of the Indian fertilizer industry. Reports showed the total installed capacity of fertilizer production in 2004 to be 119.60 LMT of nitrogen and 53.60 LMT of phosphate. These figures went up to 120.61 LMT of nitrogen and 56.59 LMT of phosphate in 2007. The production of fertilizers was 113.54 LMT of nitrogen and 42.21 LMT of phosphate during 2005-06. The target of production for 2006-07 was set of 114.48 LMT of nitrogen and 48.20 LMT of phosphate. Though the target production was not met, there was a growth in production during 2006-07 as compared to the production during 2005-06. Indian fertilizer has reached international levels of capacity utilization by adopting various strategies for increasing the productions of fertilizers. These includes as under: Expansion and increase in efficiency through modernization and revamping of existing fertilizer units. Using alternative source such as coal or liquefied natural gas for the production of fertilizer especially urea. Reviving some of the closed fertilizers plants. Establishing joint venture projects with companies in countries. In order to meet the demand for gas this is one of the prime requirement for the production of nitrogenous fertilizers. India has entered into joint ventures with foreign companies in number of countries.
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The Indian large size fertilizer units manufacture wide varieties of

nitrogenous and

phosphate complex fertilizers. In 2005-06 large fertilizer units were 56. In addition to the nitrogenous and phosphates complex fertilizers the large scale units produce urea and ammonium Sulphate as by product. The single super phosphate is produced in India by 9 units. These are 72 small and medium scale fertilizer units. These unites operate mainly to produce SSP. The production of urea in India has reached near self-sufficiency. The requirement of the nitrogenous fertilizers is met through the indigenous industry. In the case of phosphate fertilizer the raw materials and intermediates are imported in large scale.

NATIONAL FERTILIZERS LIMITED (NFL)

NFL was incorporated on 23rd August 1974 with two manufacturing Units at Bathinda and Nangal Unit of Fertilizer Corporation of India came under the NFL fold. NFL, incorporated in 1974 is India's largest Central Public Sector Enterprise in Fertilizers Sector with a turnover of over Rs. 7300 crores and an overall annual installed capacity of 32.31 lakh tonnes of Urea. NFL has five Urea plants located at Nangal & Bathinda in Punjab, Panipat in Haryana and Vijaipur I & II plants in Madhya Pradesh. Apart from producing Urea, NFL is also engaged in manufacturing & marketing of Industrial products, trading of complex fertilizers and other Agro Products. NFL is under the administrative control of Ministry of Chemicals & fertilizers, Department of Fertilizers. The authorized capital of the company as on 31-03-2012 stood at Rs.1000 crore and the paid up capital at 490.58 crore, comprising Govt. of India share of Rs.479 crore (97.64%) and remaining Rs. 11.58 crore (2.36%) held by financial institutions and others. Its Registered Office is at New Delhi & Corporate office at NOIDA (U.P).

COMPANYS MISSION
NFLs mission is to be a market leader in fertilizers and a significant player in all its other business, reputed for customer satisfaction, reasonable reward to shareholders, ethics, professionalism and concern for ecology & the community.

COMPANYS VISION
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Company's vision is to provide farmers with sufficient good quality fertilizers and other agriinputs that provide sustainable development and help India achieve self-sufficiency in food grain production. At present, around 56% of NFL's urea production is based on natural gas, a clean and greener fuel. The remaining production is from fuel oil based plants, which are also undergoing revamp for changeover of feedstock to natural gas.

NFL OPERATING PLANTS ARE AT:

National Vijaipur, Distt. Madhya Email Fax Vijaipur Plant Tel. : 07544 Guna, Pradesh-473111. :cc@nfl.co.in 273089, 273109 Fertilizers Limited,

: 91- 7544 - 273101, 273090 Fertilizers Limited, Road,

National Gohana Panipat,

Haryana-132106. Email Fax Panipat PlantTel. : : nflpanipat@nfl.co.in 01802652515

: 0180- 2652481 to 485, &

0180- 2655570 National Sibian Bathinda, Punjab-151003. Email Fax Bathinda Plant Tel. : nfladm@nfl.co.in Fertilizers Limited, Road,

: 0164- 2270463; 0164- 2271270 : 0164- 2270220/2271200

National NayaNangal, Distt. Punjab-140126. Email Fax Nangal Expension Plant Tel. :

Fertilizers

Limited,

Ropar,

nangal@nfl.co.in : 0187-220541

: 0187-220543

COMPANY PROFILE
CAPITAL & RESERVES The Paid-up Capital and Reserves and Surplus as at 31 March, 2012 were Rs.491 crore and Rs. 1264 crore respectively. respectively. THE COMPANY Registered on Authorized Capital Paid Up Capital Capacity 23/8/1974 Rs. 500 crores Rs. 490.58 crores 13.70 lakh MT Nitrogen

The capacity has increased from 13.70 lakh MT nitrogen to 14.86 lakh MT nitrogen consequent upon commissioning of Nangal Unit revamp scheme II w.e.f. 1.4.2000. The total capacity of Urea is 32, 30,700 MT which in terms of Nitrogen comes to 14.86 lakh MT. LISTING AT STOCK EXCHANGES Companys equity shares are listed on the following Stock Exchanges: National Stock Exchange of India Limited
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Bombay Stock Exchange Limited Scrip Code: NSE : NFL: BSE :523630

Demat ISIN No. in NSDL INE870D01012 and CDSL MARKETING OFFICES NFL has an extensive network of marketing offices coordinated by its Central Marketing Office based at Noida. The Marketing territory is controlled by its three Zonal offices located at Chandigrah, Bhopal and Lucknow. These Zonal Offices in full are supported by well integrated network of Regional Offices and Area Offices. CENTRAL MARKETING OFFICE A-11 Sector-24, Noida-201301, UP

Zonal Office

Chandigarh

Bhopal

Lucknow

NANGAL UNIT INSTALLED CAPACITY Urea Methanol Project cost urea (including revamp) 478,160 MT 22,110 MT Rs.283.11 cr.
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Foreign exchange component (including revamp) Commissioned (urea revamp) PANIPAT UNIT INSTALLED CAPACITY Urea Commissioned Project cost Foreign exchange component 5,11,500 MT 01/09/1979 Rs.223.50 Cr. Rs.55.79 Cr.

Rs. 118.49 cr 01.02.2001

BATHINDA UNIT INSTALLED CAPACITY Urea Commissioned Project cost Foreign exchange component 5,11,500 MT 01/09/1979 Rs.239.30 Cr. Rs.67.87 Cr.

VIJAYPUR UNIT-I INSTALLED CAPACITY Urea Commissioned Project cost Foreign exchange component 8,64,000 MT 01/10/1988 Rs.533.00 Cr. Rs.185.20 Cr.

VIJAYPUR UNIT-2 INSTALLED CAPACITY Urea Commissioned 8,64,000 MT 01/03/1997

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Project cost Foreign exchange component

Rs.1071.00 Cr. Rs.431.00 Cr.

The installed capacities of Vijaipur unit-1 & II has been reassessed by Fertilizer Industry Coordination Committee (FICC) w.e.f. 1.4.2000 and the capacity of both the plant has increased from 7,26,000 MT to 8,64,600 MT from interim reassessed capacity of 8, 53,400 MT.

OVERALL PERFORMANCE OF NFL

PRODUCTION PERFORMANCE Company produced 34.01 lakh tonnes of Urea compared to 33.80 lakh tonnes of the previous year. The total included neem coated urea production of 6.4 lakh tonnes compared to 1.20 lakh tonnes of the previous year. The overall capacity utilization was 105.3%. Vijaipur Plant registered ever-best production of 19.14 lakh tonnes surpassing previous best of 18.71 lakh tonnes achieved in 2004-05. Extra production from Vijaipur Plants over and above the installed capacity was 1.85 lakh tonnes. Vijaipur-I and Vijaipur-II units achieved ever-best Ammonia production of 5.44 lakh tonnes and 5.86 lakh tonnes respectively surpassing previous best of 5.29 lakh tonnes and 5.60 lakh tones in 2005-06 and 2006-07 respectively. Vijaipur-II plant achieved ever-best urea production of 10.12 lakh tones surpassing previous best of 9.74 lakh tonnes in 2006-07. There was a shortfall of urea production at Panipat and Bathinda against their rated capacity, which was partially covered by additional production of 25.1 thousand tonnes from Nangal.

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Production(Urea)
34.2 34 33.8 33.6 33.4 33.2 33 32.8 2009-10 2010-11 2011-12 Production(Urea)

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SALES AND MARKETING The company, during 2011-12, sold 33.90 lakh tonnes of Urea against 33.59 LMT in last year. The company, during the year, achieved ever best sale of Industrial products worth Rs. 174 crore (Provisional) against Rs. 120 crore during 2010-11. During the year, the company sold 23124 MT of Ammonium Nitrate (Melt) worth 3762.05 lacs, a new product marketed this year, 49853 MT of Nitric Acid (equated 100% concentration level), 23124 MT of Ammonium Nitrate (Melt), 3395 MT of Sodium Nitrate, 1410 MT of Sodium Nitrite, 695352 NM3 of Argon, 10699 MT of Sulphur, 877817 NM3 of Liquid Oxygen etc.

Urea Sale at Plants S.No. 1. Location Panipat 39.00 MT 2. Bathinda 09.00 MT

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Total Sale as on 14.12.12

3.

Nangal 00.85 MT

4.

Raghogarh near Vijaipur 90.00 MT Total 138.85 MT

DIVIDEND NFL has a consistent track record of dividend payment. So far, your Company has disbursed cumulative dividend of Rs. 981.74 crore to the shareholders. The Board of Directors have recommended payment of dividend @ 7.8% (`0.78 per share) for the year 2011-12. The total dividend pay out would be Rs. 44.48 crore (including dividend tax of Rs. 6.21 crore), and a sum of Rs. 12.67 crore has been transferred to the General Reserves.

Earning per share

3.5 3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 2011-12 Earning per share

FINANCIAL PERFORMANCE During the year under review, the Company achieved turnover of Rs. 7341 crore (previous year Rs.5804 crore). The earnings before interest, depreciation and tax (EBIDTA) at Rs. 342
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crore was higher than Rs.302 crore achieved in previous year inspite of higher salaries and wages, repairs & maintenance, etc. mainly due to higher production/sale of urea and industrial products. The profit before tax was Rs. 184.20 crore (previous year Rs.203.92 crore) and profit after tax was Rs.126.73 crore (previous year Rs.138.50 crore).

Net Worth
1800 1750 1700 1650 1600 1550 1500 1450 2009-10 2010-11 2011-12 Net Worth

CORPORATE SOCIAL RESPONSIBILITY AND AGRICULTURE EXTENSION ACTIVITIES During the year 2010-11 & 2011-12, company earmarked 3.0 crores & 3.25 crores

respectively on CSR, against which a total expenditure of 1.90 crores has been incurred till 31-3-2012 (estimated) and 4.35 crores is being carried over to the year 2012-13 as per DPE guidelines. The details of the work carried out under CSR by Units and Marketing division in various districts viz. Guna, Hoshangabad & Indore in M.P., Jalgoan in Maharashtra, Solan in H.P., Nangal & Bathinda in Punjab, Panipat in Haryana, Jhansi and Badayun in U.P. and Mayurganj & Balsore in Odisha are as under: a) Basic Amenities: Drinking water facility, Approach roads, Toilets, Water tank, Tube wells, Overhead tanks, Anganwadies, Compost structures like NADEP / Vermi Pits, training on low cost agriculture practices to the Farmers etc.
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b) Children education: Provided Kitchen shed, Boundary wall, Sports infrastructure, Force lift pump, furniture, computers, ceiling Fans to the primary and middle schools in various villages situated in States of U.P, M.P, H.P & Haryana. 2245 beneficiaries were benefitted. c) Women Empowerment: Provided Multipurpose Women empowerment centers, stitching & sewing machines, Floor and Masala Grinding Mill and training programs on stitching/Embroidery/Food processing/Beautician/Sanitary pad making/Soft toys making etc. under women empowerment initiative in the States of U.P, M.P & H.P. 312 beneficiaries were benefitted. d) Afforestation: Around 73000 saplings planted. e) Installation of Solar Lights: 45 Solar Lights were installed at 8 adopted villages in the States of U.P, M.P, H.P, Punjab& Haryana. f) Children & Women Health Camps: 20 Children and Women Health camps were organized at various villages in the states U.P, M.P, Himachal Pradesh, Haryana and Maharashtra. 5546 beneficiaries were benefited by these camps. g) Animal Health Camps: 20 Health camps were organized in various villages of States U.P, M.P, Himachal Pradesh, Haryana, Rajasthan and Maharashtra. 7270 no. of beneficiaries were benefited by these camps. h) Water Harvesting / Ground water recharging: 7 Water harvesting structures were constructed (4 stop dams in Bhopal zone, renovation of 2 ponds and construction of a water harvesting tank in Chandigarh zone). ENVIRONMENT MANAGEMENT The company accords highest priority to industrial safety, Ecology & pollution control and has adopted 3Rs approach i.e reduce, reuse, recycle in an effort to have zero effulent discharge plants. Company has adopted an extensive Afforestation program. All the statutory standards are met by respective units.Silo system for collecting fly ash from ESP Hoppers using dense phase pneumatic conveying system has been installed at Panipat, Bathinda and

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Nangal Units for excavation of cash from the plants. This has helped to contain the ecological concerns in fly ash disposal. All the Units are ISO 9001-2000 certified for Quality Management System, ISO- 14001 certified for Environment Management System and have received OHSAS- 18001 certification for occupational health and safety management system.Company is putting up a Carbon Dioxide Recovery plant of 450 MTPD capacity for recovery of CO2 from Flue gases of Primary Reformer at Vijaipur. This will help in reduction of discharge of greenhouse gases. HUMAN RESOURCE MANAGEMENT The company has always believed that human resource is its most important asset and continues to work for its development and realization of its potential. To achieve growth and to foster motivational climate, several initiatives were taken up during the year. Modified Performance Related Pay Scheme for Executives and Non- Executives has been implemented and Group Productivity Allowance Scheme has also been introduced. The company has introduced Employees Economic & Social Rehabilitation Scheme, which protects the welfare of the family in case of demise/permanent disablement of employee during service. A new pension scheme for the benefit of employees is in the process of implementation. During the year, to inculcate leadership qualities with high values, moral and ethics in all supervisory staff and managerial cadre. Manpower strength of the company as on 31.03.2012 was 4515 comprising of 1942 Executives and 2573 Non-Executives. The Employer-Employee relationship continued to be harmonious during the year. There was no loss of production due to any adverse IR situation. The schemes for employees participation in Management continue to function successfully. There were continuous interactions between the Management and employees representatives on various issues keeping in view the best interest of employees and the company. The company continues to make efforts for improving employees health, well being and welfare and has taken steps for providing recreation, education and general welfare of employees.
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BATHINDA UNIT
Bathinda district in Punjab is one of the oldest and ninth largest district of Punjab situated in the heart of Malwa region. Bathinda is well known for cotton and agricultural production, also boasting a rapid development in industrialisation with thermal power plants Guru Nanak Dev Thermal Plant and Guru Hargobind Thermal Plant, Fertilizer Unit National Fertilizers Limited and a large oil refinery and these give boost to the city's economic growth. The district has three sub divisions - Bathinda, Rampura Phul, and Talwandi Sabo. Bathinda is also known as "The city of Lakes" for its five artificial lakes in the city.

About NFL Plant

Bathinda unit of NFL was commissioned on 1st Oct 1979 based on gasification technology of Feed Stock on LSHS /Fuel Oil with the annual installed capacity of 511500 MT of Urea. Subsequently as per guidelines of GOI, in order to reduce subsidy burden & Carbon footprint, NFL revamped the Bathinda Unit on LSTK basis for changeover of Feedstock from LSHS/FO to Natural Gas and commercial production on Gas was commenced during Jan 2013. SALIENT FEATURES OF BATHINDA UNIT Installed Capacity: Capital Investment: 349.41 Crores Initial Commencement of Production: October 1, 1979 March 28, 2013 511500 MTPA

Commencement of Production on Gas after Revamp:

Process
Ammonia: HTAS Steam Methane Reforming (SMR) Technology

Urea: Mitsu Toastsu total Recycle C Improved

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Raw material: Coal , LNG/ RLNG, Power, Water Captive Power Plant: 2 x 15 MW

Production Performance
5.6 5.4 5.2 5 4.8 4.6 4.4 2009-10 2010-11 2011-12 Production Performance

OUTLINE OF THE STUDY

The management of financial analysis is very important. It involves the study of financial statements comprising primarily the position statement or the balance sheet and the income statement or the profit and loss account of the company. Financial statements are the basic for decision making by the management as well as other outsiders who are interested in the affairs of the firm such as investors, creditors, customers, suppliers, financial institutions, employees, government and the general public. So it helps in future planning and control decisions.

OBJECTIVES OF THE STUDY:There have been various objectives for this study, the first of which is a detailed analysis of the financial statements that is the balance sheet and the income statement of UltraTech Cement Ltd.
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The second objective, however the most important one or in other word the principle aim of this project is the understanding and assessment of financial ratios based on the statements of the company.
The next aim of the project is to recognize the position of the company through those ratios and data available. This recognition is a leading factor in changes of each and every company and the base and root of lots of management decisions.

To learn and experience the practical functioning of the organization. To ascertain the companies financial strength and weakness. To ascertain the companys profitability position. To know the future need of finance for organization. To find out how the working capital needs are fulfilled. To find out whether National Fertilizers Limited(NFL) Bathinda is maintaining the satisfactory level of working capital.

SCOPE OF THE STUDY:The study is conducted at National Fertilizers Limited, Bathinda for 45 days. The concept of financial statements i.e. the position statement or the balance sheet and the income statement or the profit and loss account is used. To get the proper understanding of the concepts, balance sheet and profit and loss account have been studied. The scope of the study is limited up to the availability of financial records and information provided by employees. The study is related to period of last two years.

RESEARCH METHODOLOGY
RESEARCH DESIGN :
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. A research design is purely and simply the framework of plan for a study that guides the collection and analysis of data. It is a blue print that is followed in completing a study.

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Keeping in view the objectives of the project, I opted for conclusive, statistical research methods. Statistical Techniques: These techniques are used as they provide more accurate results. The method eases to identify individual cases and focuses on classes, average, percentages, measures of dispersion and others .As a result the research can make much more accurate generalization than by any other method. Recognition of information: This step is the recognition of various types of information which are necessary for the study of working capital. Data Collection Methods: Structured and non-disguised questionnaire has been used to achieve the objectives of this report .This proved to be a cost effective, accurate, and speedy way of achieving the desired objectives. The greatest advantage being its versatility. It opened a broad way of enticing the knowledge and opinions of the sample. Another important reason for choosing the method was its unbiasedness. No bias of the researcher can creep in and its easy to tabulate and interpret. Understanding of reports being prepared by the units: For understanding the various types of reports being sent to finance department by different section, personal interviews have been conducted with the concerned persons with prior permission from concerned department head.

Suggestions:
Suggestions on the basis of working capital have given for better results.For analyzing the concept the techniques have been used:

Ratio analysis
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Common size statement Statement of changes in working capital

LIMITATIONS OF THE STUDY: They do not prepare cash statement separately. Cash flow statement is prepared collectively for whole of the units. Time period for the study is limited. As the receipts from debtors is directed to the corporate office and hence not much information regarding the receivable management could be obtained.

Investment of funds are also made by corporate office, so it becomes difficult to know
that how much investment is made in different ways for continuous availability of funds.

INTRODUCTION OF FINANCIAL ANALYSIS:

Financial statements are prepared primarily for decision making. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. Financial analysis is the process of identifying the strengths and weaknesses of the firm by properly establishing relationship between the items of balance sheet and profit & loss account.

MEANING OF FINANCIAL ANALYSIS

Analysis is the process of critically examining in detailing accounting information given in the financial statements. Analyzing financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of firms position and performance. It is the process of determining financial strengths and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit & loss account and other operative data. The analysis of financial statements thus refers to the treatment of the information contained in the financial statements in a way so as
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to afford a full diagnosis of the profitability and financial position of the firm concerned. For this purpose financial statements are classified methodically, analyzed and compared with the figures of previous years or other similar firms.

Definition Of Financial Analysis

According to Kennedy and Memullar, The analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statements data so that a forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities and profitability of a sound dividend policy.

OBJECTIVES OF FINANCIAL ANALYSIS

The primary objective of financial statement analysis is to understand and diagnose the information contained in the financial statement with a view to judge the profitability and financial soundness of the firm, and to make forecast about future prospects of the firm. These are the following objectives of analysis may be stated to bring out the significance of such analysis: To assess the earning capacity of the firm. To assess the operational efficiency and managerial effectiveness. To assess the short term as well as long term solvency position of the firm. To make inter firm comparison. To make forecasts about future prospects of the firm. To assess the progress of the firm over the period of time. To help in decision making and control. To guide or determine the dividend action. To provide important information for granting credit.

Parties Interested in Financial Analysis

The following parties are interested in the analysis of financial statements. Investors
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 Management Creditors or suppliers Bankers and Financial institutions Employees Government Trade associations Stock exchanges Economists and researchers Taxation authorities

PROCEDURE OF FINANCIAL ANALYSIS

Broadly speaking there are three steps involved in the analysis of financial statements. These are: 1) selection 2) classification 3) interpretation. The first involve selection of information relevant to the purpose of analysis of financial statements. The second step involved is the methodical classification of the data and the third step includes drawing of inferences and conclusions. The following procedure is adopted for the analysis and interpretation of financial statements: 1) The analyst should acquaint himself with the principles and postulates of accounting. He should know the plans and policies of the management so that he may be able to find out whether these plans are executed or not. 2) The extent of analysis should be determined so that the sphere of work may be decided. If the aim is to find out the earning capacity of the firm then analysis of income statement is to be undertaken. On the other hand if financial position is to be studied then balance sheet analysis will be necessary. 3) The financial data given in the financial statements should be re-organized and rearranged. It will involve the grouping of similar data under same heads, breaking down of individual components of statements according to nature. The data is reduced to a standard form.
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4) A relationship is established among financial statements with the help of tools and techniques of analysis such as ratio, trends, common size etc. 5) The information is interpreted in a simple and understandable way. The significance and utility of financial data is explained for helping decision taking. 6) The conclusions drawn from interpretation are presented to the management in the form of report.

TYPES OF FINANCIAL ANALYSIS

We can classify various types of financial analysis into different categories depending upon 1) the material used 2) the method of operation followed in the analysis or the modus operandi of analysis. 1) ON THE BASIS OF MATERIAL USED: According to material used, financial analysis can be of two types: a) External Analysis b) Internal Analysis. a) External Analysis: This analysis is done by outsiders who do not have the asses to detailed internal accounting records of the business firm. These outsiders include investors, potential investors, creditors, potential creditors, government agencies and general public. b) Internal Analysis: The analysis conducted by the persons who have the asses to the internal accounting records of a firm is known as internal analysis. Such as analysis can be performed by executives and employees of the organization as well as government agencies which have statutory powers vested in them.

2) ON THE BASIS OF MODUS OPERANDI: according to the operation followed in the analysis, financial analysis can also be of two types: a) Horizontal Analysis and b) Vertical Analysis. a) Horizontal Analysis: Horizontal analysis refers to the comparison of financial data of a company for several years. The figures of various years are compared with standard year. A base year is year chosen as beginning point. This type of analysis is also called Dynamic Analysis. b) Vertical Analysis: Vertical analysis refers to the study of relationship of the various items in the financial statements of one accounting period.
27

3) ON THE BASIS OF ENTITIES INVOLVED: on the basis of entities involved in the analysis, it can be of two types: a) cross sectional b) time series. a) Cross Sectional: Cross sectional analysis involves comparison of financial data of a firm with other firms averages for the same time period. b) Time Series: Time series analysis involves the study of the performance of the same firm over a period of time. 4) ON THE BASIS OF TIME HORIZON: On the basis of time horizon, financial analysis can be of two types: a) short term analysis and b) long term analysis. a) Short Term Analysis: Short term analysis measures the liquidity if the firm. b) Long Term Analysis: Long term analysis involves the study of firms ability to meet the interest costs and repayment schedules of its long term obligations. The solvency, stability and profitability are measured under this type of analysis.

GOALS
Financial analysts often assess the firm's: 1. Profitability -its ability to earn income and sustain growth in both short-term and longterm. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the longterm; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and nonfinancial indicators.

28

METHODS OF FINANCIAL ANALYSIS

A numbers of methods or devices are used to study the relationship between different statements. The following methods of analysis are generally used: 1) 2) 3) 4) 5) 6) 7) Comparative Statements Trend Analysis Common- Size Statements Funds Flow Analysis Cash Flow Analysis Ratio Analysis Cost- Volume-Profit Analysis

1) COMPARATIVE STATEMENTS:The comparative financial statements are

statements of the financial position of different period of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. The comparative statements may show: a. b. c. d. Absolute figures (rupee amounts) Changes in absolute figures Absolute data in terms of percentages Increase or decrease in terms of percentages

From practical point of view, generally, two financial statements are prepared in comparative form for financial analysis purpose. These are balance sheet and income statement. These show not only the comparison of figures of two periods but also are relationship between balance sheet and income statement enables an in depth study of financial position and operative surplus. a. Comparative Balance Sheet: The comparative balance sheet analysis is the study of the trend of the same items, and computed items in two or more balance sheets of the
29

same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of balance sheet at the beginning and at the end of the period and these changes can help in forming an opinion about the progress of an enterprise.

COMPARATIVE BALANCE SHEET

As on 31.3.2011-12 and 31.3.2012-13

2012-13 (in cr.) ASSETS Fixed Assets Investments Current Assets 3203 2156 3090.09

2011-12 (in cr.)

Absolute change

%age change

1124.57 1845 2091.72

2078.43 311 998.37

64.90 14.42 32.31

Total Assets

8449.09

5061.29

3387.8

40.09

LIABILITIES Share capital 490.58 490.58 1181.60 82.25 6.50 -

Reserves & Surpluses 1263.85

30

Long-terms loans

1623.74

204.63

1419.11

87.40

CURRENT LIABILITIES S. Creditors Others Total current Liabilities Total Liabilities 6169.32 3127.46 3041.86 49.30 1888.21 902.94 2791.15 917.14 333.51 1250.65 971.07 569.43 1540.5 51.42 63.06 55.20

INTERPRETATION: 1) Comparative balance sheet reveals that during 2012-13 there has been increased in fixed assets of Rs. 2078.43 cr, i.e.64.90% while the share capital has remains same by Rs. 490.58 cr. and loans increased by Rs.1419.11 cr. 2) The current assets have increased by Rs.998.37 cr i.e. 87.40%. The current liabilities have increased by Rs. 1540.50 cr i.e. 55.20 % this depicts that the company is going up. 3) The overall financial position of the company is good.

b. Comparative Income Statement: The comparative income statement gives the results of the operations of the business. The statement discloses the net profit or net loss resulting from the operation of the business. Such statements show the operating
31

results for a number of accounting periods so that changes in absolute data from one period to another period may be stated in terms of absolute changes or in terms of percentages. This statement helps in deriving meaningful conclusion as it is very easy to ascertain the changes in sales volume, administrative expenses, selling and distribution expenses, cost of sales etc.

COMPARATIVE INCOME STATEMENT As on 31.3.2011-12 and 31.3.2012-13

Items

2012-13 (in cr.)

2011-12 (in cr.)

Absolute change

%age change

Sales (-)Cost goods sold of

7305.29

5791.03

1514.26

20.72

3401.90 4226.29

824.39

19.51

Gross Profit(1) 2389.13 3079 429.51 53.21 11.02 689.87 22.41

(-)Operating Expenses:(2) Operating Profit(1-2) (+)Other income

482.72

1959.62

636.66

24.52

2596.28

33.38

-0.65

-1.98

32

(-)Interest Paid 32.73 Net Profit 1983.85 66.24 0.07 2.09 96.75 278.92 22.60 9.15 57.09 86.18

Before Tax (-)tax expense Net profit

2562.77 1983.78 576.83 22.53

after tax

2.16

2560.61

33

INTERPRETATION:

34

The comparative income statement given above reveals that there has been an increase in net sales of 20.72 % and the cost of goods sold has decreased by 19.51 % thereby resulting in an increase in the gross profit of 22.41 %. Although the operating expenses have increased by 11.02 %, the increase in gross profit is sufficient to compensate for the increase in operating expenses and hence there has been an overall increase in operational profits amounting to rs 636.66cr i.e. 24.52 %.in spite of an increase in financial expenses of rs 57.09 cr and rs 2.09 for income tax. There is an increase in net profit after tax amounting to rs 576.83 cr i.e. 22.53%. It may be concluded that there is a sufficient progress in the company ang the overall profitability of the company is good.

2) TREND ANALYSIS: This analysis is important tool of horizontal financial analysis.

This analysis enables to know the changes in the changes in the financial function and operational between the times periods chosen by studying the trends of each item we can know the direction of changes. Under this method the trend percentage are calculated for

each item of the financial statements taking the figure of base year as 100. The starting year is usually taken as base year. The trend percentages show the relationship of each item with its preceding years percentages. While calculating the trend percentages, the following precautions may be taken: 1) The accounting principles and practices must be followed constantly over the period for which the analysis is made. This is necessary to maintain consistency and comparability. 2) The base year selected should be normal and representative year. 3) Trend percentages should be calculated only for those items which have logical relationship with one another. 4) Trend ratios of each item in other statement are calculated with reference to the same item in the base statement by using following formula: Absolute value of item in the statement under study/ absolute value of the same item in the base statement*100
35

5) Trend percentages should also be carefully studied after considering the absolute figures on which these are based. Otherwise they may give misleading conclusions. 6) To make the comparison meaningful, trend percentage of current year should be adjusted in the light of price level change as compared to base year. Limitation Of Trend Ratios The following are the main limitation of the trend ratios: 1) Trend ratios become incomparable if the same accounting practices are not followed. 2) Trend ratios do not take into consideration the price level changes. 3) Trend ratios must always be read with absolute data on which they are based, otherwise the conclusions may be misleading. 4) The trend ratios have to be interpreted in the light of certain non financial factors like economic condition, government policies, change in income and its distribution etc.

Trend Percentages (Base Year 2011 = 100) YEAR Sales Amount (in cr.) 2011 2012 2013 INTERPRETATION: 1) The sales have continuingly increased in all the years up to 2013. The % in 2013 is 143 as compared to 100 in 2011.the increased in sales is quite satisfactory.
36

Stock Trend % Amount (in cr.) 100 114 143 347.12 363.14 516.82 100 105 149 Trend %

Profit Before Tax Amount (in cr.) 1889.02 1983.85 2562.77 100 105 135.67 Trend %

5092.28 5791.03 7305.29

2) The figures of stock have also increased from 2011 to 2013.the increase in stock is more in 2013 as compare to earlier years. 3) Profit before tax has increased from 2011 to 2013 from 100 to 135.67 % respectively The expansion of firm is good.thr profit before tax is increased year by year. There is proper control on cost of goods sold. The overall performance of the concern is good. 4) COMMON SIZE STATEMENT: Common size financial statements are those in which figures reported are converted to some common base. Items in the financial statements are presented as percentage or ratios to total of the items and a common base for comparison is provided. Hence vertical analysis becomes possible. Each percentage shows the relation of the individual item to its respective total. Common size statements may be used for balance sheet as well as income statement. The short-comings in comparative statements and trend percentages where changes in items could not be compared with totals have been covered up. The analyst is able to assess the figures in relation to values.

1) Common Size Balance Sheet: In a common size balance sheet, total assets or total liabilities are taken as 100 and all figures are expressed as percentage of total, comparative common size balance sheet for different periods helps to highlight the trend in different items. If it is prepared for different firms in an industry, it facilitates to judge the relative soundness and helps in understand their financial strategy. The common size balance sheet can be used to compare companies of different sizes. The comparison of figures in different periods is not useful because total figures may be affected by a numbers of factors. It is not possible to establish standard norms for various assets. The trends of figures from year to year may not be studied and even they may not give proper results.

COMMONSIZE BALANCE SHEET

37

As on 31.3.2011-12 and 31.3.2012-13

2012-13 Amount (in % cr.) FIXED ASSETS Tangible asset Intangible assets Capital work in process Non-current investments Long term loans 548.35 1.27 2653.38 0.03 8.55 0.02 41.4 1.81

2011-12 Amount (in % cr.)

598.03 0.98 525.56 152.09

17.75 0.02 15.60 4.51

and 115.71

advances Other noncurrent assets 0.83 0.01 -

Total fixed assets CURRENT ASSETS Inventories Trade receivables Cash and cash equivalents Short term loans

3319.57

51.79

1276.66

37.90

516.82 2427.72 2.77

8.03 37.90 0.04 2.21

363.14 1601.45 29.44 97.69

10.78 47.54 0.87 2.9

and 142.22

advances Other current assets 0.56 0.01 -

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Total current assets Total assets SHARE CAPITAL AND RESERVES Share capital Reserve and surplus total CURRENT LIABILITIES Short term borrowing Trade payables Other current liabilities Short term provisions Total current liabilities NON-CURRENT LIABILITIES Long term borrowings Deferred tax income Other long term liabilities Long term provisions

3090.09 6409.66

48.21 100

2091.72 3368.38

62.10 100

490.58 1263.85 1754.43

7.66 19.71 27.37

490.58 1181.60 1672.18

14.56 35.08 49.64

1383.82 437.84 902.94 66.55 2791.15

21.60 6.83 14.08 1.03 43.54

421.84 430.88 333.51 64.42 1250.65

12.52 12.80 9.90 1.91 37.13

1600.81 71.00 22.93 169.34

24.98 1.11 0.36 2.64

191.22 5.68 85.28 2.53 13.41 155.64 0.40 4.62

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Total liabilities

non-current 1864.08

29.09

445.55

13.23

Total liabilities

6409.66

100

3368.38

100

2) Common Size Income Statement: In such a statement, sales figure is assumed to be equal to 100 and all other figures of cost or expenses are expressed as percentage of sales. The increase in sales will certainly increase the selling expenses and administrative or financial expenses. In case the volume of sales is increases to a certain extent, administrative and financial expenses may go up. So, a relationship between sales and other items in income statements. Comparative income statements for different periods help to reveal the efficiency or otherwise of incurring any cost or expenses. If it is being prepared for two firms, it shows the relative efficiency of cash cost items for the two firms.

COMMONSIZE INCOME STATEMENT As on 31.3.2011-12 and 31.3.2012-13

Items

2012-13 cr.)

(in %

2011-12 (in % cr.)

40

Sales (-)Cost goods sold Gross Profit(1) (-)Operating Expenses:(2) Operating Profit(1-2) (+)Other income (-)Interest Paid Net Profit

7305.29 of 4226.29

100 57.85

5791.03 3401.90

100 58.74

3079

42.15

2389.13

41.26

482.72 6.61

429.51

7.42

2596.28 35.54

1959.62

33.84

32.73 0.45

33.38

0.58

66.24 0.91 35.90 0.03

9.15

0.16

Before Tax (-)tax expense Net after tax profit

2562.77

1983.85

34.26

2.16

35.60

0.07

0.001

2560.61

1983.78

34.26

41

INTERPRETATION
The sales and gross profit has increased in 2012-13 as compared to 2011-12 and the percentage of gross profit to sales goes up from 41.26 to 42.15% because the cost of goods sold decreased. Operating expenses decreased by a percentage. The net profits have increased by 22.59% as compared to 2011-12. The overall profitability has increased in 2012-12 and the reason is a fall in the cost of sales. 5) FUNDS FLOW STATEMENT: This statement is prepared in order to reveal clearly the various sources where from the funds are procured to finance the activities of a business concern during the accounting period and also brings to highlights the uses to which these funds are put during the period.

III. SCHEDULE OF CHANGES IN WORKING CAPITAL

Particulars OPENING CLOSING EFFECT OF WORKING CAPITAL INCREASE CURRENT ASSETS Inventories Cash Balances Trade Receivables Loans & Advances Other Assets TOTAL CURRENT
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DECREASE

363.14 Bank 29.44

516.82 2.77

153.68 26.67

&

1601.45 97.69

2427.72 142.22 0.56

826.27 44.53 0.56

Current -

2091.72

3090.09

LIABILITES Short-Term Borrowings Trade Payables Loans Advances Other Liabilities TOTAL 333.51 1250.65 902.94 2791.15 569.43 430.88 and 64.42 437.84 66.55 6.96 2.13 421.84 1383.82 961.98

Working (C.A.-C.L.) Net

Capital 841.07

298.94

decrease

in

542.13

542.13

Working Capital 841.07 841.07 1567.17 1567.17

ANALYSIS OF CHANGES IN WORKING CAPITAL

The most important part of current assets the inventories and loans and advances are increased at closing year by 153.68 cr. and 44.53 cr. respectively.The cash and bank balance decreases to a high extent from 29.44 cr. to 2.77 cr.Trade receivables and other current asset also increased. On the other hand in the liabilities the both, short-term borrowings and other liabilities increased than the previous year by 961.98 cr. and 569.43cr. respectively So the Net working capital has decreases due to increase in the liabilities or decrease in the cash and bank balance in the year 2012-13. So the overall performance of working capital is not good because cash & bank balances decreased to a large extend. IMPORTANCE OF FUNDS FLOW STATEMENT:

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The importance of funds flow statement can be well followed from its various uses given below: a) It helps in the analysis of financial operations: The funds statements reveal the net effect of various transactions on the operational and financial position of the concern. It explain the causes for changes in the assets and liabilities between two different points of time and also the effect of these changes on the liquidity position of the company. b) It helps in the formation of dividend policy: Sometimes a firm has sufficient profits available for distribution as dividend but yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such cases a fund flow statement helps in the formation of a realistic dividend policy. c) It helps in the proper allocation of resources: A projected funds flow statement constructed for the future helps in making managerial decisions. d) It helps as a future guide: A projected funds flow statement act as a guide for future to the management. The management can come to know the various problems it is going to face in near future for want of funds.

Limitations of Funds Flow Statement: The funds flow statement has a number of uses; however, it has certain limitations also, which are listed as below: a) Funds flow statement is not a substitute of an income statement or balance sheet. It provides only some additional information as regards changes in working capital. b) It cannot reveal continuous changes. c) It is not an original statement but simply are-arrangement of data given the financial statements.

44

d) It is essentially historic in nature and projected funds flow statement cannot be prepared with much accuracy. e) Changes in cash are more important and relevant for financial management than the working capital.

RATIO ANALYSIS:It is done to develop meaningful relationship between

individual items or group of items usually shown in the periodical financial statements published by the concern. An accounting ratio shows the relationship between the two inter related accounting figures as gross profit to sales, current liabilities, loaned capital to owned capital etc. The ratios are of different types. These are as follow: Liquidity Ratios Profitability Ratios Activity/Turnover or performance ratios Stability Ratios

From above four types of ratios the most important ones are liquidity and profitability ratios. The description of these is as follow: Liquidity Ratios: Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. If current assets can pay off current liabilities, then liquidity position will be satisfactory. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations. To ensure the liquidity of the firm, the following ratio of can be calculated:
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Current Ratio:

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short term financial position of the firm.

COMPONENTS OF CURRENT RATIO

Current Assets

Current Liabilities

1. Cash in Hand 2. Cash at Bank 3. Marketable Securities 4. Short-term Investments 5. Bills receivables 6. Sundry debtors 7. Inventories 8. Work-in-progress 9. Prepaid expenses

1.Outstanding expenses 2.Bills Payable 3.Sundry Creditors 4.Short-term Advances 5.Income Tax Payable 6.DividendsPayable 7.Bank Overdraft(if not permanent)

Current Ratio = Current Assets / Current Liabilities 2012-13 =3090.09/2791.15 = 1.11 2011-12 =2091.72/1250.65 = 1.68

1. QUICK RATIO
46

The quick ratio is also known as quick assets ratio or acid-test ratio. The quick ratio is the relationship between quick assets and current liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value. So we can say that the cash in hand and cash at bank are the most liquid assets. Other quick assets are bills receivables sundry debtors marketable securities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are relatively more difficult to turn into cash within a given period of time. Therefore, a higher ratio means a more liquid current position. Quick Ratio = Quick/Liquid Assets Current Liabilities

Liquid Assets = Current Assets (Inventories + Prepaid Expenses)

COMPONENTS OF QUICK /LIQUID RATIO

Quick/ Liquid Assets 1. Cash In Hand 2. Cash at Bank 3. Bills Receivables 4. Sundry Debtors 5. Marketable Securities 6. Temporary investments Current Liabilities 1. Outstanding Expenses 2. Bills Payable 3. Sundry Creditors 4. Short Term Advances 5. Income tax payable 6.Dividend Payable 7.Bank Overdraft
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The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets. Another beneficial use is to compare the quick ratio with the current ratio. If the current ratios significantly higher, it is a clear indication that the company's current assets are dependent on inventory.

INTERPRETATION OF QUICK RATIO

Usually, a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good. As a rule of thumb of the acid test ratio is 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to current liabilities than the concern may be able to meet its short term obligations. A quick ratio of 1:1 does not necessarily means satisfactory liquidity position if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. In the same manner, a low quick ratio does not necessarily means a bad liquidity position as inventories are not absolutely non- liquid. Hence, a firm having a high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, firm having a low quick ratio may have a good liquidity position if it has fast moving inventories.

QUICK RATIO OF NFL FOR THE YEAR 2010- 2011 & 2011-2012 (IN CRORES)

48

Quick Ratio = Current Assets-inventories / Current Liabilities 2012-13 =3090.09-516.82/2791.15 = 92.20 2011-12 =2091.72-363.14/1250.65 = 1.39

As of march 31, 2013 with amounts expressed in Cr, NFL.s quick assets amounted to 2573.27 Cr. (balance sheet); while current liabilities amounted to 2791.15 Cr. (balance sheet). By dividing, the equation gives us a quick ratio of 92.20. As of march 31, 2012 with amounts expressed in Cr, NFLs quick assets amounted to 1728.58 Cr. (balance sheet); while current liabilities amounted to 1250.65 Cr. (balance sheet). By dividing, the equation gives us a quick ratio of 1.39. Profitability Ratios: The primary objective of a business undertaking is to earn profits. Profits area useful measure of overall efficiency of a business. Profits are the test of efficiency to the management and a measurement of control. Generally, profitability ratios are calculated in relation to sales or in relation to investment. The various profitability ratios are discussed below: Gross Profit Ratio: Gross profit ratio measures the relationship of gross profit to net sales and usually represented as a percentage. Thus, it is calculated by dividing the gross profit by sales: Gross Profit Ratio = Gross Profit/Net Sales*100 2012-13 =3079/7309.29*100 =42.15% Net Profit Ratio: Net profit ratio establishes a relationship between profit and sales, and indicates the efficiency of the management in firm. This ratio is the overall measure of firms profitability and is calculated as:
49

2011-12 =2389.13/5791.03*100 =41.26%

Net profit ratio= net profit after tax/net sales*100 Net Profit Ratio= Net Profit After Tax/Net Sales*100 2012-13 =2560.61/7305.29*100 =35.10% 2011-12 =1983.78/5791.03*100 =34.26%

Return on Investment: Return on investment, popularly known as ROI is the relationship between the net profits and the proprietors funds. As the primary objective of the business is to maximize its earnings, this ratio indicates the extent to which this primary objective of business is being achieved. The inter-firm comparison of this ratio determines whether the investment in the firm are attractive or not as the investors would like to invest in only where the return is higher.

ROI= Net profit/Shareholders Funds 2012-13 =2560.61/1754.43*100 =14.6% 2011-12 =1983.78/1672.18*100 =11.9%

b) TURNOVER RATIOS/ACTIVITY RATIOS

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios, because they indicate the speed with which assets are being turned over into sales, e.g. inventory turnover ratio indicates the rate at which the funds invested in inventories are converted into sales.

1. INVENTORY TURNOVER RATIO

50

Inventory turnover ratio indicates whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. This ratio indicates the number of times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. The ratio is calculated by dividing the cost of goods sold by the amount of average inventory at cost: Inventory Turnover Ratio = Cost of Goods Sold Average Inventory at Cost Generally, the cost of goods sold and the cost of average inventory may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculated as:

Inventory Turnover Ratio =

Net Sales Inventory

INTERPRETATION OF INVENTORY TURNOVER RATIO

A high inventory turnover ratio indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accumulations, accumulation of obsolete and slow moving goods and low profits as compared to total investment. A too high turnover of an inventory may not necessarily always imply a favourable situation. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm depending upon the nature of business.
51

INVENTORY TURNOVER RATIO OF NFL FOR THE YEAR 20102011 & 2011-2012 (IN CRORES)
Particulars Year 2011-12 Year 2010-11

Net Sales Inventory

(a) (b)

7305.29 516.82

5791.03 363.14 15.9

Inventory Turnover Ratio 14.1 (a/b)

As of march 31, 2012 with amounts expressed in Cr, NFLs Inventory amounted to 363.14 Cr. (balance sheet); while Net Sales amounted to 5791.03 Cr. (balance sheet). By dividing, the equation gives us a inventory turnover ratio of 15.9 i.e. 16 times an inventory is being turned over during a period. As of march 31, 2013 with amounts expressed in Cr, NFLs Inventory amounted to 516.82 Cr. (balance sheet); while Net Sales amounted to 7305.29 Cr. (balance sheet). By dividing, the equation gives us a inventory turnover ratio of 14.1 i.e. 14 times an inventory is being turned over during a period.

OBSERVATION
The analysis shows that the Inventory of NFL is being turned over 16 times in the year 20102011. However, the turning out of inventory decreases in the year 2011-2012 i.e. 14 times and the decrease in the turning out of inventory is may be due to low profits as compared to total investments or may be due over investment in inventories or due slow moving goods. So it is concluded that the inventory turnover ratio is better in the previous year than the current year but ratio in both the years under observation is fairly.

1. INVENTORY CONVERSION PERIOD

52

It may also be of interest to see average time taken for clearing the stocks. This can be possible by calculating inventory conversion period. This period can be calculated by dividing the number of days by inventory turnover ratio. The formula may be as:

Inventory Conversion Period = Number of Days in a Year Inventory Turnover Ratio

INVENTORY CONVERSION PERIOD OF NFL FOR THE YEAR 20102011 & 2011-2012 (IN CRORES)
Particulars Number of Days (a) Year 2011-12 365 14.1 Year 2010-11 365 15.9 22.9

Inventory turnover ratio (b) Inventory period (a/b)

conversion 25.8

As of march 31, 2011 with amounts expressed in Cr, NFLs Inventory turnover ratio is 15.9 and its Inventory Conversion period is 22.9 i.e. 23 days. It means that the inventory is disposed off or sold on an average in 23 days in the year 2011. As of march 31, 2012 with amounts expressed in Cr, NFLs Inventory turnover ratio is 14.1 and its Inventory Conversion period is 25.8 i.e. 26 days. It means that the inventory is disposed off or sold on an average in 26 days in the year 2012.

53

OBSERVATION
The analysis shows that the Inventory Conversion period of NFL is increases in the current year than the previous year. The difference is little, it is of 3 days. However, the disposed off or sold of an inventory is due to efficient management of an inventory, due to which more frequently the stocks are sold.

1. DEBTORS TURNOVER RATIO

Trade debtors are expected to be converted into cash within a short period and are included in current assets. Hence, the liquidity position of the concern to pay its short term obligations in time depends upon the quality of its trade debtors. Debtors turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number of times average debtors are turned over during a year, thus: Debtors Turnover Ratio = Net Credit Annual Sales Average Trade Debtors But when the information about opening and closing balances of trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated as:

Debtors Turnover Ratio = Total Sales Debtors

INTERPRETATION OF DEBTORS TURNOVER RATIO

The higher the value of debtors turnover the more efficient is the management of debtors/sales or more liquid are the debtors. Similarly, low debtors turnover implies inefficient management of debtors/sales or less liquid debtors. But a precaution is needed while interpreting a very high debtor turnover ratio because a very high ratio may imply a
54

firms inability due to lack of resources to sell on credit thereby losing sales and profits. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm depending upon the nature of business.

DEBTORS TURNOVER RATIO OF NFL FOR THE YEAR 2010- 2011 & 2011-2012 (IN CRORES)
Particulars Total Sales Debtors Debtors (a/b) (a) (b) Turnover Year 2011-12 7340.53 2427.72 Ratio 3 Year 2010-11 5804.03 1601.45 3.6

As of march 31, 2011 with amounts expressed in Cr, NFLs Debtors is 1601.45 and Total Sale is 5804.03, by dividing we get Debtors Turnover Ratio i.e. 3.6. As of march 31, 2012 with amounts expressed in Cr, NFLs Debtors is 2427.72 and Total Sale is 7340.53, by dividing we get Debtors Turnover Ratio i.e. 3.

OBSERVATION
The analysis shows that the Debtors Turnover Ratio of NFL is decreases in the current year than the previous year. It is 3.6 times in 2010-11 and is 3 times in 2011-12. However the
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difference is very little i.e. 0.6. The higher the value of debtors turnover the more efficient is the management of debtors/sales or more liquid are the debtors. Similarly, low debtors turnover implies inefficient management of debtors/sales or less liquid debtors.

1. AVERAGE COLLECTION PERIOD RATIO

The average collection period represents the average number of days for which a firm has to wait before its receivables are converted into cash. The ratio can be calculated as follows:

Average Collection Period = Number of Days in a Year Debtors Turnover Ratio

INTERPRETATION OF AVERAGE COLLECTION PERIOD

The shorter the average collection period the better is the quality of debtors as a short collection period implies quick payment by debtors. Similarly a higher collection period implies an inefficient collection performance which in turn adversely affects the liquidity or short term paying capacity of a firm out of its current liabilities. Moreover, longer the average collection periods, larger are the chances of bad debts. But a precaution is needed while interpreting a very short collection period because a very low collection period may imply a firms conservative policy to sell on credit or its inability to allow credit to its customers and thereby losing sales and profits.

AVERAGE COLLECTION PERIOD OF NFL FOR THE YEAR 20102011 & 2011-2012 (IN CRORES)
Particulars Year 2011-12 Year 2010-11

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Number of Days

(a)

365 3

365 3.6 101.3

Debtors Turnover Ratio (b)

Average Collection period 121.6 (a/b)

As of march 31, 2011 with amounts expressed in Cr, NFLs Debtors turnover ratio is 3.6 and its Average Collection period is 101.3 i.e. 101 days. As of march 31, 2012 with amounts expressed in Cr, NFLs Debtors turnover ratio is 3 and its Average Collection period is 121.6 i.e. 122 days.

OBSERVATION
The analysis shows that the Average Collection period of NFL is increases in the current year than the previous year. It is 101 days in 2010-11 and 122 days in 2011-12. It is not good for the company, as a higher collection period implies an inefficient collection performance which in turn adversely affects the liquidity or short term paying capacity of a firm out of its current liabilities. Moreover, longer the average collection periods, larger are the chances of bad debts.

1. WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of the net working capital. This ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital and vice- versa. This ratio can be calculated by dividing cost of sales by average working capital. Working Capital Turnover Ratio = Cost of Sales (Cost of Goods Sold)/ Average Working Capital

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If the figure of cost of sales is not given, then the figure of the sales can be used instead. On the other hand if opening working capital is not disclosed, then the working capital at the year end will be used.

Working Capital Turnover Ratio =

Cost of Sales or Sales Net Working Capital

Net Working Capital = Current Assets Current Liabilities

WORKING CAPITAL TURNOVER RATIO OF NFL FOR THE YEAR 2010- 2011 & 2011-2012 (IN CRORES)
Particulars Sales (a) Current (b) Current (c) Net (d= b-c) Working capital ratio (a/d) turnover 4.3 4.5 working capital 1682.76 1262.91 Liabilities 1407.33 828.81 Assets 3090.09 2091.72 Years 2011-2012 7340.53 Year 2010-2011 5804.03

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As of march 31, 2011 with amounts expressed in Cr. NFLs Sales amounted to 5804.03 Cr (balance sheet); while Net Working Capital amounted to 1262.91 Cr. (balance sheet). By dividing, the equation gives us a Working Capital Turnover ratio of 4.5 times. As of march 31, 2012 with amounts expressed in Cr. NFLs Sales amounted to 7340.53 Cr. (balance sheet); while Net Working Capital amounted to 1682.76 Cr.(balance sheet). By dividing, the equation gives us a working capital turnover ratio of 4.3 times.

OBSERVATION

The analysis shows that the Working Capital Turnover Ratio of NFL is slightly lower than the previous year. Generally, the lower the working capital turnover, the less efficient is the management of working capital. Meaning thereby, that there is not proper utilization of working capital and the span between deployment of resources and realization thereof by way of sales is more, which will ultimately result in high cost of capital.

Interpretation of the Analysis

From the whole analysis we can interpret that the company is going worse. As the liabilities of the firm are more than its assets. The other expenses of the firm are increasing day-by-day. But the sill firm is going on. The main reason behind this is social welfare. The firm is recovering its position through the rehabilitation scheme of National Diary Development Board (NDDB). This board has provided Rs. 13.60 crores this year for the recovery. The rest will be recovered by selling land which as deal of Rs. 15-20 crores. Here in this study we cannot do CVP analysis, the reason for it is that this firm is not fulfilling the main
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assumptions. By the entire study the conclusion is that the firm is facing worst position from last very 8 years.

Limitations of financial analysis: Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm. But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitations. Some of the limitations are summed up as below:

1. 2. 3. 4.

It is only a study of interim reports. Financial analysis is based only upon monetary information and monetary factors are ignored. It does not consider changes in price levels. As the financial statements are prepared on the basis of a going concern, it does not give exact position. Thus accounting concepts and conventions cause a serious limitation to financial analysis.

5. 6.

Changes in accounting procedure by a firm may be often make financial analysis misleading. Analysis is only a mean and not an end in itself. The analyst has o make an interpretation and draw his own conclusions. Different people may interpret the same thing in different ways.

Research Methodology
Research refers to the methods of finding and analyzing facts to assist managers in making rational marketing decisions. Research is not searching which is already searched. It is systematic, objective and organized enquiry undertaken to provide information for making sound and timely decisions. In very simple words it can be said that research is the industry of discovery.
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Features of Research
The marketing research is a process or a sequence of intellectual activities of mental facilities of mankind. The features of research are as follow: It is systematic: research is an organize activity. There is definite way or procedure in which research is conducted. It is scientific: the major aim of conducting research is to supply relevant information to the manager to enable him to make sound and timely decisions. It is managerial tool: Research is an effective tool in the kit of management team to making the decisions. Managements of today are faced with countless problems which are to be solved within minimum time and cost. It is research that provides required information for identifying the correct problem, selecting the most suitable solution and its implementation. Research Design The research design used here for this project is combination exploratory and explanatory designs. The very first step is the reorganization of various type of information, which is necessary for the study of financial statements. Then a personal interaction with the people concerned is made to figure out the results. Data Collection Methods There are two methods of data collection. First is primary data collection and second is secondary data collection. Primary data is the data which is first hand information collected personally by the person who needs it. It can be collected by questionnaires and personal interviews etc.
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Secondary data is data which is second hand information. The data already collected by someone else or published data is the form of secondary data. This is the data which is used by the investigator according to the need of study.

According to needed of project I have pursued secondary data collection method. I have used Milkfed website, research book, financial statements of Verka and finance related books for secondary data collection method. The findings & suggestions are based on personal intellectual.

Outline of the study

Financial analysis of the statements is very important in company management so that the various important decisions can be taken at time. It is very helpful for the related parties who are interested in the financial position of the firm. The rationale behind the study is to develop an understanding about the accounts department & financial statements. It gives the practical knowledge in accounts. This study also helps in identifying the strengths & weaknesses of the organizations. The study gives the chance to look into the matter deeply.

Scope of the study

The study is conducted only at Verka Milk Plant Bathinda Punjab for the period of 6 weeks. The study is based on secondary data and all the information is available within the company itself in the form of records. I have also personally investigated the financial statements of the company. So the scope of the study is limited up to the availability of officials records and the information provided by the staff of accounts department. There may be window dressing.

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Objectives
1. The primary objective of taking up this project was to gain insight and have as much as practical knowledge in the financial statements prepare in the company. 2. To know the present financial position of the organization for the purpose of better understanding of the system. 3. To analyze the financial statements of the plant. 4. To find out whether the company has maintained the necessary records in proper manner. 5. To check any shortcomings in the existing system and suggest appropriate measures. 6. To check also the quality of the products of Verka Milk Plant Bathinda.

Limitations of the study

There are main limitations of the study. These are as follow. 1. It is very difficult to take financial statements from the company as no one gives its correct figures. 2. There may be window dressing of the statements also. 3. As it is government institution no one has sufficient time to attend the trainees properly. 4. Without the proper help of trainer there is difficulty in analyzing statement. 5. Because of the lack of sufficient staff there is always hotchpotch of work. Everyone is busy in his or her own work. 6. There is no separate training department.

Suggestions
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1. As the unit running at loss the general manager should take the initiative to recover its loss either through the diversification or through increasing the sales. 2. There should be proper training cell for the employees as well as trainees. 3. The performance of the unit can be improved upon by insuring less wastage. 4. There should be check on the dealers of the units so they cannot be corrupt. 5. New recruitments should be there so as to maintain proper sufficient staff. 6. Marketing department should try to increase its sales by giving knowledge & awareness of Verkas quality of products.

Findings
There is proper system of maintaining the records and books of accounts. All the payments are made in time. The production in Verka Milk Plant is on demand so there is no much wastage. Special audit inspector is there to audit the financial statements elected by government. The records of last years are maintained. These can be used to establish a trend analysis. Shortcomings of organization and changes in demand can be estimated through the comparison of last years records. The plant has its motive of social welfare and profit earning. Verka Milk Plant Bathinda is the firm which is strengthening the dairy sector by providing remunerative prices for the milk. The plant is running on loss from last 8 years. There are many reasons for that.

Conclusion
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From the analysis of financial statements of Verka Milk Plant Bathinda we can conclude at the end that the unit is running at the loss. There are many reasons for this loss. The main are the hike in prices of milk, low rates of product, low commission to dealers lead to less sale of Verka products, rise in salaries, increasing variable expenses per year and also because of lack of awareness among customers. The other main reason of loss is that Verkas main aim is social welfare and not profit earning. Verka is brand known for its quality and welfare. This has improved the structure of Punjab dairy sector.

BIBLIOGRAPHY

AUTHOR

BOOK
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Sharma, R.K. Gupta, Shashi.k

Management Accounting Financial Management

Websites: www.google.com www.milkfed.nic.in

OTHER SOURCE OF INFORMATION Annual Reports of VERKA MILK PLANT.

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