A

Research Project Report on

“A Study on Financial Ratio Analysis”

Undertaken

At

Austin Engineering Company Ltd.

Submitted By:

Devangi Thumbar

MAM Sem. - VII

En. No: 137364585002

Submitted to:
Gujarat Technological University – Ahmadabad

Faculty Guide Company Guide

Prof. Khyati V. Rayani Mr. Nashir Patta

N.R. Vekaria Institute of Business Management Studies

Junagadh

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2
 DECLARATION

I hereby declare that this Project Report titled A Study on Financial Ratio Analysis
submitted by me to the N.R.Vekariya MAM College – Junagadh is a bonafide work
undertaken by me and it is not submitted to any other University or Institution for the
award of any degree diploma/ certificate or published any time before.

Name and Address of the Student Signature of the Student

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 ABSTRACT

This finance project report on ratio analysis assesses the financial strength and
weakness of Austin Engineering Co. through Financial Ratio Analysis. To evaluate
the performance of the company by using ratios as a yardstick to measure the
efficiency of the company. To understand the liquidity, profitability and efficiency
positions of the company during the study period. To evaluate and analyze various
facts of the financial performance of the company. To make comparisons between the
ratios during different periods.

Ratio analysis is a comprehensive tool of analysis in that it seeks to measure and

establish cause and affect relationship between either two items of balance sheet, say
current ratio, that is, Ratio of current assets to current liabilities.

Ratio is used to assess the return on investment, solvency, liquidity, resources

efficiency, profitability, and capital market valuation of the company. Ratio analysis
is thus a relative and more focused analysis of financial statements. That does not
mean that it can be used independently of other tools and techniques.

Austin Engineering Co. Ltd. has both long term as well as short term sources for
financial its needs. The company is gradually increasing its general reserve, so that
the amount of loan taken or so to be taken reduces in due course of time. The
inventory holding period is increasing, so the company has to bear high storage cost
for storing the outputs. Austin Engineering Company Ltd. I have given some
suggestion and conclusion on the basis of my project study.

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 ACKNOWLEDGE

It is my personal belief that no report is the result of only its other’s efforts. There are
many people who contribute something, and they play a significant role in making the
effective report that is capable of achieving its purpose. Therefore, I would like to
take this opportunity to thank all those people who have helped me in project, guiding
me towards the achievement of its purpose.

It gives me great pleasure and privilege to acknowledge to my college N.R. Vekariya

MAM College – Junagadh and Director which gave me a great opportunity for
gathering practical knowledge.

To begin with I would like to express my immense gratitude to Mr. Nashir Patta to
solve my all doubts also, I would like to thank staff member Austin Engineering Co.
Ltd. Patla for valuable suggestion given by them, which were so helpful to me in
many ways.

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 TABLE OF CONTENT
Declaration
Abstract
Acknowledge

Sr. No. Particular Page No.

1. Introduction 9-39
1.1 Concept of Ratio 10
1.1.1 Nature of the Ratio Analysis 12
1.1.2 Limitation of Ratio Analysis 13
1.1.3 Importance of Ratio Analysis 14
1.1.4 Steps in Ratio Analysis 15
1.1.5 Classification of Ratio 17
1.2 Industry Analysis 19
1.2.1 History of Bearing Industry 20
1.2.2 Bearing Industry in India 21
1.2.3 Market Size 23
1.2.4 Global Market 24
1.2.5 Growth of Bearing Industry 26
1.2.6 International Scenario 29
1.2.7 Future Market 30
1.2.8 Major Manufactures in India 31
1.2.9 Industry Analysis 36
2. Literature Review 40-43
3. Company Information 44-83
3.1 History & Development 46
3.2 Company Profile 50
3.3 Contribution of Unit 51
3.4 Size of Organization 52
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 3.5 Vision, Mission, Values & Goals 53
3.6 Products of Company 55
3.7 Organization Structure 56
3.8 Production Department 58
3.9 Financial Department 62
3.10 Marketing Department 67
3.11Human Resource Department 72
3.12 SWOT Analysis 79
3.13 BCG Matrix 81
4. Research Methodologies 84-90
4.1 Research Problem 86
4.2 Research Design 86
4.3 Objective of the Study 87
4.4 Statement Of Hypothesis 88
4.5 Data Collection Method 89
4.6 Scope of the Study 90
4.7 Limitation of Study 90
5. Data Analysis &Interpretation 91-109
5.1Interpreatation Analysis 92
5.2 Calculation of ANOVA test 107
6. Finding, Suggestion & Conclusion 111
7. Appendix 115-118

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 LIST OF TABLE/ GRAPH/ FIGURE
Sr. No. Particulars Table/ Graph/ Page No.
Figure No.
TABELS
1 Company Profile Table No. 3.1 50
2 Financial Planning Table No. 3.2 66
3 International Buyers Table No.3.3 72
4 No. of Employees Table No. 3.4 79
5 Working Capital Turnover Ratio Table No.5.1 93
6 Inventory Turnover Ratio Table No. 5.2 94
7 Receivable Turnover Ratio Table No. 5.3 95
8 Current Assets Turnover Ratio Table No. 5.4 96
9 Current Ratio Table No.5.5 97
10 Quick Ratio Table No. 5.6 98
11 Absolute Liquid Ratio Table No.5.7 99
12 Gross Profit Ratio Table No. 5.8 100
13 Gross Profit Table No. 5.9 100
14 Cost of Goods Sold Table No. 5.10 101
15 Net Profit Ratio Table No. 5.11 103
16 Proprietary Ratio Table No. 5.12 104
17 Return on Capital Employed Ratio Table No. 5.13 105
18 Reserve & Capital Ratio Table No. 5.14 106
FIGURES
19 Classification of Ratio Figure No. 1.1 17
20 Manufactures in Industry Figure No. 1.2 31
21 Industry Analysis Figure No. 1.3 36
22 Organization Structure Figure No. 3.1 57

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23 Production Process Figure No. 3.2 60
24 Accounting Department Figure No. 3.3 63
25 Financial Department Figure No. 3.4 65
26 Marketing Department Figure No.3.5 68
27 Organization of HRD Figure No. 3.6 73
28 SWOT Analysis Figure No. 3.7 79
29 BCG Matrix Figure No.3.8 81
GRAPHS
30 Working Capital Turnover Ratio Graph No. 5.1 93
31 Inventory Turnover Ratio Graph No. 5.2 94
32 Receivable Turnover Ratio Graph No. 5.3 95
33 Current Assets Turnover Ratio Graph No.5.4 96
34 Current Ratio Graph No. 5.5 97
35 Quick Ratio Graph No. 5.6 98
36 Absolute Liquid Ratio Graph No. 5.7 99
37 Gross Profit Ratio Graph No. 5.8 102
38 Net Profit Ratio Graph No. 5.9 103
39 Proprietary Ratio Graph No. 5.10 104
40 Return on Capital Employed Ratio Graph No. 5.11 105
41 Reserve & Capital Ratio Graph No. 5.12 106

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 Chapter 1
Introduction

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1.1 Concept of the Ratio

Finance is life blood of the business. The financial management is the study about the
process of procuring and judicious use of financial resources is a view to maximize
the value of the firm. Financial analysis is the process of identifying the financial
strengths and weaknesses of the firm and establishing relationship between the items
of the balance sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios, which are derived
from the information in a company’s financial statement. The level and historical
trends of these ratios can be used to make inferences about a company’s financial
condition, its operations and attractiveness as an investment. The information in the
statement is used by

 Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity
position of the company.
 Investors, to know about the present and future profitability of the company
and its financial structure.
 Management, in every aspect of the financial analysis. It is the responsibility
of the management to maintain sound financial condition in the company.

There by the value of the owners i.e. the example of equity share holders in a
company is maximized. The traditional view of financial management looks into the
following function that a finance manager of a business firm will perform.

 Arrangement of short term and long term funds from the financial institutions.
 Mobilization of funds through financial instruments like equity shares, bond
Preference Share, debentures etc.
 Orientation of finance with the accounting function and compliance of legal
provision relating to funds procurement, use and distribution. With increase in
complexity of modern business situation, the role of the financial manager is
not just confirmed to procurement of funds, but this area of functioning is
extended to judicious and efficient use of funds available to the firm, keeping
view the objectives of the firm and expectations of providers of funds.

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Meaning of Ratio

Ratio analysis is the process of determining and interpreting numerical relationship

based on financial statements. A ratio is a statistical yardstick that provides a measure
of the relationship between two variables or figures. A ratio analysis is a quantitative
analysis of information contained in a company’s financial statements. This
relationship can be expressed as a percent or as a quotient.

Ratio analysis is used to evaluate various aspects of a company’s operating and

financial performance such as its efficiency, liquidity, profitability and solvency.
Ratio analysis is a form of financial statement analysis that is used to obtain a quick
indication of a firm’s financial performance in several key areas. The ratios are
categorized as short-term Solvency Ratios, Debt Management ratios, Asset
Management Ratios, Profitability Ratios, and Market value Ratios.

Meaning of Ratio Analysis

Ratio analysis is the method or process by which the relationship of items or group of
items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of an analyst
but their group of ratio he would prefer depends on the purpose and objective of
analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we
will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.

Ratio analysis can provide valuable information about a company’s financial health.
A financial ratio measures a company’s performance in a specific area. For example,
you could use a ratio of a company’s debt to its equity to measure a company’s
leverage. By comparing uses greater debt in the conduct of its business.

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A company whose leverage ratio is higher than a competitor’s has more debt per
equity. You can use this information to make a judgment as to which company is a
better investment risk.

However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several
ratios are taken as a group.

Objective of Ratio

Ratio is work out to analyze the following of business organization:-

1) Solvency-
a) Long term
b) Short term
c) Immediate
2) Stability
3) Profitability
4) Operational efficiency
5) Credit standing
6) Structural analysis
7) Effective utilization of resources
8) Leverage or external financing

1.1.1 Nature of Ratio Analysis

Ratio analysis is a technique of analysis and interpretation of financial statement. It is

the process of establishing and interpreting various ratios for helping in marking
certain decision. It is only a means of understanding of financial strengths and
weaknesses of a firm. There are a number of ratios which can be calculated from the
information given in the financial strengths and weaknesses of a firm.

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There are a number of ratios which can be calculated from the information given in
the financial statements, but the analyst has to select the appropriate data and calculate
only a few appropriate ratios. The following are the four steps involved in the ratio
analysis.

 Selection of relevant data from the financial statement depending upon the
objective of the analysis.
 Calculation of appropriate ratios from the above data.
 Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios development from projected financial statement or the ratios
of some other firms or the comparison with ratios of the industry to which the
firm belongs.

1.1.2 Limitations of ratio analysis

1 It is always a challenging job to find an adequate standard. The conclusions

drawn from the ratios can be no better than the standards against which they are
compared.
2 When the two companies are of substantially different size, age and diversified
products, comparison between them will be more difficult.
3 A change in price level can seriously affect the validity of comparisons of ratios
computed for different time periods and particularly in case of ratios whose
numerator and denominator are expressed in different kinds of rupees.
4 Comparisons are also made difficult due to differences of the terms like gross
profit, operating profit, net profit etc.
5 If companies resort to ‘window dressing’, outsiders cannot look into the facts
and affect the validity of comparison.
6 Financial statements are based upon part performance and part events which
can only be guides to the extent they can reasonably be considered as dues to
the future.
7 Ratios do not provide a definite answer to financial problems. There is always
the question of judgment as to what significance should be given to the figures.
Thus, one must rely upon one’s own good sense in selecting and evaluating the
ratios.

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1.1.3 Importance of Ratio Analysis

Ratio analysis is an important tool for analyzing the company's financial performance.
The following are the important advantages of the accounting ratios.

 Analyzing Financial Statements

Ratio analysis is an important technique of financial statement analysis. Accounting
ratios are useful for understanding the financial position of the company. Different
users like as investors, management. Bankers and creditors use the ratio to analyze the
financial situation of the company for their decision making purpose.

 Judging Efficiency
Accounting ratios are important for judging the company's efficiency in terms of its
operations and management. They help judge how well the company has been able to
utilize its assets and earn profits.

 Locating Weakness
Accounting ratios can also be used in locating weakness of the company's operations
even though its overall performance may be quite good. Management can then pay
attention to the weakness and take remedial measures to overcome them.

 Formulating Plans
Although accounting ratios are used to analyze the company's past financial
performance, they can also be used to establish future trends of its financial
performance. As a result, they help formulate the company's future plans.

 Comparing Performance
It is essential for a company to know how well it is performing over the years and as
compared to the other firms of the similar nature. Besides, it is also important to know
how well its different divisions are performing among themselves in different years.
Ratio analysis facilitates such comparison.

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1.1.4 Steps in Ratio Analysis

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards.

The standard ratio may be the past ratio of the same firm or industry’s average ratio or
a projected ratio or the ratio of the most successful firm in the industry. In interpreting
the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless
the calculated ratio is compared with some predetermined standard. The importance
of a correct standard is oblivious as the conclusion is going to be based on the
standard itself.

Parties Interested in Ratio Analysis

Ratio analysis serves the purpose of various parties interested in financial statements.
Primarily the objectives of ratio analysis and interpreting the financial statement is to
get adequate information useful for the performance of various functions like
planning, coordinating, controlling, communication and forecasting etc.

The interested parties may be:

Share holders/Investors:

Investor in the company will like to access the financial position of company where
he is going to invest. The first concern would be the security of the investment and
then the return on the investment in the form of interest and dividends. So, investors
concentrate on the firm’s financial structure to the extent that influences the firm’s
earning ability and risk.

Trade creditors:

They are interested in firm’s ability to meet its claims over a short period of time. So
their analysis is usually confined to evaluation of firm’s liquidity position.

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The long term creditors:

They are concerned with firm’s long term future solvency and survival. They analyze
the firm’s profitability over a period of time, its ability to generate cash, ability to pay
interest, repay the principle and relationship between various sources of funds.

Employees:

Employees are interested in financial position the concern especially profitability.

Their wages and amount of fringe benefits are related to the volume of profits earned
by the concern. The employees make use of the information available in the financial
statements.

Government:

Government is interested to know the overall financial health of the company.

Various financial statements published by the industrial units are used to calculate the
ratios for determining short-term, long-term and overall financial position of the firm.
Government may base its future policies on the basis of industrial information
available from various units.

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1.1.5 Classification of Ratios

The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purpose. Various accounting ratios can be classified as follows:

Figure: 1.1 Classifications of Ratios

Traditional
Classification

Functional Significance
Classiffiacation Ratios

classification
of Ratios

1. Traditional Classification

It includes the following.

Balance sheet position statement ratio: They deal with the relationship between two
balance sheet items, e.g. the ratio of current assets to current liabilities etc. both the
items must, however, pertain to the same balance sheet.

Profit & loss account revenue statement ratios: These ratios deal with the relationship
between two profit& loss account items, e.g. the ratio of gross profit to sales etc.

Composite inter statement ratios: These ratios exhibit the relation between a profit &
loss account or income statement item and a balance sheet items, e.g. stock turnover
ratio, or the ratio of total assets to sales.

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2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity ratios
and profitability ratios.

3. Significance Ratios

Some ratios are important than others and the firm may classify them as primary and
secondary ratios. The primary ratio is one, which is of the prime importance to a
concern. The other ratios that support the primary ratio are called secondary ratios.

Guideline for use of Ratios

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios
are:

 Accuracy of financial statements

 Objectives or purpose of analysis
 Selection of ratio
 Quality of Analysis
 Use of standards

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 1.2 Industry Analysis

Introduction

Although the development of India’s ball and bearing roller bearing industry is not
quite enviable, it can be said without contradiction that India has relatively strong
base for the manufacture of bearings. There are about 12 large and medium units
which together turn out over 100 million bearing every year.

Almost all unites have foreign collaboration. The Indian bearing industry makes
around 500 types of bearing over 3000 types of bearing used by the Indian industry.
Bulks of these are only of standard types and are used mostly in low-technology areas
like electric motors, water pumps, and by the automotive sector

The current Indian bearing industry is worth Rs. 3500 crore. In this, automotive
segment account for 45% of revenues, which amount to 1350 crore and the remaining
bearing markets, the organization segment manufacture caters to 50% of the demand.

About 15% of the production is by the unorganized segment in India, and the
remaining 40% is by the aftermarket segment and has increased by more than 30% the
financial year 2010-2011.

Though the demand from the aftermarket segment is increasing, the growth rate is
decline compared to the year 2010-2011. The aftermarket, 7% demand is from the
engineering application segment, 6% from LVC segment, 5% from MUV segment,
13% from tractor and the remaining 18% from automotive ancillary segmentation rest
of the 60% demand is from the railway sector.

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1.2.1 History of bearing industry

The idea of using a rolling element to move heavy items back to ancient Egypt. The
Egyptians used logs to roll their large stone pieces closer to the construction areas
when building the pyramids.

At first bearing were manufactures of lignum Vitae, in 1500 which is very heavy,
hard. The natural oils in this wood assisted in the manufacturing process by acting as
a cutting fluid. These bearings are known for “wet” applications such as propeller
driven vessels, water wheels, and pumps. Wooden bearings were known to be long
wearing, strong, readily available and easy to replace. They were lubricated with
tallow or other animal facts.

Lonardo da Vinci, famous for his painting and drawing, also had many ideas for
mechanical engineering projects. Many of his employ as a hydraulic engineer serving
the Duke of Milan; he spent much of this time analyzing bearings, linkages, gears and
various other mechanical transmission modes. Many of Da. Vinci’s ideas are still
celebrated in the engineering world today.

With the 1700 the changes in manufacturing processes were changing the way people
lived and worked. Iron was becoming more popular and was replacing wood in many
factories. With new progress in manufacturing there was also a need for more precise
machine tools.

The wood turning lathe is known to be the oldest machine tool, and in the mid 1700
innovations in iron allowed for the production of more precise machine tools. With
new inventions, there came a need for more source of energy to power these
machines. The steam engine became a practical source of power with the invention of
the cylinder boring machine, also known as the boring mill. The invention brought
with it easier ways to produce good quality iron on much larger scales then
previously. This enabled the growth of industry and the greater need for machinery to
be built, which led to new styles of bearings required in the building of these new
materials to make bearings.

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In 1839 Lsaac Babbit invented an antifriction alloy with a low melt temperature. This
alloy could be formed and molded to produce an ideal surface for bearings. With the
introduction of this Babbit metal, the use of wooden diminished slightly. In the latter
half of the 1800 new steel making processes were created by Henry Bessemer. His
new process allowed steel to be made much more economically. This led to the use of
steel in the construction of new building and steel also become more widely used in
bearing and machinery manufacturing.

With the inventions of the 1990 including motorcars, robotics, computer and the
newer, faster machine tool, bearings have become more significant to production
lines. Newer materials have enabled us to produce bearings at a lesser cost to the
consumer. Materials used in bearings are also used in common everyday living.
Bearings are now made with a variety of metals, plastics, and in some cases, wood is
still in use.

1.2.2 Bearing Industry in India

The Indian bearing industry manufactures over 500 varieties of bearings. Considering
this figure, the industry has a lot of scope for growth and development. The current
Indian bearing industry is worth Rs .3, 500 corers. In this, automotive segment,
accounts for 45% of the revenues, which amounts to Rs. 1,350 corers and the
remaining 55% of the revenues, which amount to 2,150 corers that influenced by
other industries through him ports.

The Indian Bearing industry has grown gradually over the past few years. The
industrial segment has developed rapidly since the time of industrial evolution and is
regarded as the main hub of modern machineries. The bearing industry plays crucial
role in the automotive sector. The increase in the demand for high- speed engines &
machineries, spanning over a large section of industry, has create afresh challenge for
the bearing industry.

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Today, The reverse several large and medium units which together manufacture over
100 million bearings every year in India. The manufacturing of innovative, durable,
reliable products has led to the revolution in the bearing industry. The bearing
industry has evolved significantly due to the expansion of production units in India.
Considering the growth of bearing industry as well as other industries, India has a lot
of potential to expand its business. The industry is expected to grow by leaps and
bounds in the coming years.

The bearings industry was estimated at Rs 12.5 billion in FY 12. The organised sector
is estimated to have a share of 65 per cent of the market with imports accounting for
about 30 percent and the unorganized sector accounting for the rest. According to
industry sources, the Indian bearing industry has been growing at a CAGR of 8.2 per
cent in the last six years.

In this, automotive segment accounts for 45 per cent of the revenues, which amount to
Rs 1,350 crore and the remaining 55 per cent of revenues are being contributed by
industrial demand. In the automotive bearings market, the organised segment
manufacturers cater to 50 per cent of the demand.

Bearings are mainly manufactured using high grade steel or alloy steel, which exposes
them to global steel price movement. In general, raw material accounts for about two
third of company’s cost structure or around 58% of bearing manufacturer’s revenue.
While bearing manufacturers have relatively strong pricing flexibility owing to
technology knowhow and strong aftermarket presence; their profitability was also
impacted during FY12-FY14 in the backdrop of increase in steel prices and weak
demand.

Out of bearing raw material cost, bearing rings/races constitute major share of raw
material followed by that of rollers, cages and seals. Given that bearings find
application in computer hardware to aerospace industry, the complexity of bearing
ring varies with its applications, weight and size. The entry barrier are relatively lower
for smaller bearing rings but technological knowhow as well as manufacturing
capabilities becomes a differentiating factor as complexity/size of bearing increases.

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After witnessing flattish performance during FY12-FY14, Indian bearing industry has
witnessed healthy growth of 12.7% during FY15 supported by recovery in domestic
automotive sector as well as improved off-take in industrial activity.

1.2.3 Market size

The market for automotive bearing is growing at a rate of almost 27% per annum in
the 2005-2006. This is mainly because of multiple models in every vehicle segment
entering the market.

The overall automotive industry has grown at the rate of 34% per annum from the
year 2012. Aftermarket demand for automotive bearing is increasing but at a slower
rate as compared to the growth in vehicle population. Manufacturers are expecting
sustained growth of 15% in the aftermarket mainly due to increase in population of
two wheelers, passenger cars, and utility vehicle segments.

Some of the restraints, faced by the bearing manufacturers are longer life due to
improved technology, improved fuel quality and better maintenance of the vehicle.
This reduces the replacement rate, which in turn leads to slower growth in the
aftermarket demand. Increase of imports due to 5% decrease in duty rates is affecting
the market for the domestic participants.

Vehicle owners prefer imported bearing due to lower costs. Cost difference is almost
50% between the domestic bearing and the imported bearings. E.g. the bearing
manufactured in India is priced at 25 and the bearings imported from China are priced
at 12 in the year 2014-2015. There is an increase imports from China and South Korea
due to costs and greater demand.

There has also been increase in prices of domestic brands as the cost of production
has gone up due to increase in steel prices. Indian manufacturers are also facing a
threat from the spurious parts manufacture duplicate parts and sell them in the names
of both domestic and foreign companies. This is the biggest threat to the India
manufacturers as these eats away their share in the aftermarket and affects their
growth.

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Indian manufactures are taking multiple steps to overcome the challenges facing the
Indian market. Manufacturers are investing more in research to develop better
technologies, which increase the life of the bearings. Companies are giving a warranty
of 1 to 2 years on the bearings.

1.2.4 Global Market

The global bearings market is generally seen as the worldwide sales of rolling
bearings, comprising ball and roller bearing assemblies of various designs, including
mounted bearing units. SKF estimates that the global rolling bearing market size in
2015 in volume increased by 4% year over-year and reached between SEK 330 and
340 billion.

The industrial original equipment bearing markets accounted for almost 40% of world
demand and included manufacturers of light and heavy industrial machines and
equipment, as well as aerospace, off-highway and railway vehicles. Sales through
distributors (industrial distribution and the independent vehicle aftermarket)
maintained around 30% of world bearing demand, of which around 30% is related to
the vehicle service market and around 70% to the industrial market.

The automotive original equipment bearing markets, including two and four-wheelers,
accounted for more than 30%. Europe accounts for 25% of the total world market
with Germany alone accounting for almost 10%.

The Americas now represent slightly more than 20% of global demand, of which the
USA, Canada and Mexico together account for about 80%. In South America, Brazil
is the major market and makes up more than 60% of regional demand.

Asia’s share of the world bearing market was relatively unchanged and accounted for
almost 50% compared with less than 30% ten years ago. China’s share of the total
world bearing market was slightly down to about 25%.

25
Japan’s share of the world bearing market accounts for slightly more than 10%. Other
Asian markets with sizeable bearing production account for about 10%, including
India, Thailand, Indonesia, Malaysia and the Republic of Korea.

The Chinese bearing market, which remains the largest of the emerging markets, is
very fragmented, with the main international bearing companies accounting for about
one third of the market while the other two thirds of the market consists of a host of
local manufacturers. Some of the largest include: Wafangdian (ZWZ), Luoyang
(LYC), Harbin (HRB), Zhejiang Tianma (TMB), Wanxiang Qianchao, and C&U.

The Indian bearing market accounts for less than 5% of the world bearing market. The
players in that market include international manufacturers and several local
manufacturers such as SKF, NEI, NRB, ABC and TATA.

SKF is the world leader on the bearings market with other major international
companies including the Schaeffer Group, Timken, NSK, NTN, and JTEKT. SKF
estimates that the top 6 world bearing manufacturers represent about 60% of the
global rolling bearing market while the group of Chinese bearing companies,
including small and larger ones, represents less than 20% in the world with more than
80% of their sales in Asia, less than 10% in Europe, less than 7% in Americas. The
remaining 20% of Chinese bearing companies includes many smaller regional
competitors.

Radial deep groove ball bearings are the most common rolling bearing type,
accounting for almost 30% of the world bearing demand. Other major ball bearing
types include angular contact ball bearings, self-aligning ball bearings, thrust ball
bearings and automotive wheel hub ball bearing units.

Roller bearings account for less than half of worldwide rolling bearing sales. Roller
bearings are named after the roller shape, such as cylindrical roller bearings, needle
roller bearings, tapered roller bearings and spherical roller bearings.

26
All of these are available for loads acting across the shaft (radial bearings) and for
loads that are parallel with the shaft (thrust bearings). The largest roller bearing family
is the tapered roller bearing, with about 20% of the world bearing market.

1.2.5 Growth of Bearing Industry

The Indian Bearing industry has grown progressively over the past few years. The
industrial segment has developed rapidly since the time of industrial evolution and is
regarded as the main hub of modern machineries. The bearing industry plays crucial
role in the automotive sector. The increase in the demand for high- speed engines &
machineries, spanning over large section of industry, has create a fresh challenge for
the bearing industry.

Today, Several large and medium units which together manufacture over 100 million
bearings every year in India. The manufacturing of innovative, durable, reliable
products has led to the revolution in the bearing industry. The bearing industry has
evolved significantly due to the expansion of production units in India.

Due to high demand of commercial vehicles and two wheelers in India, the
automotive sector is here to play an important role for the bearing industry. A wide
range of bearings is used in the automotive industry for trucks, tractors, commercial
vehicles etc., which has added new dimension to its growth.

To overcome the quality Imbalance, Indian manufacturers are investing more and
more in research and development and adopting innovative technologies to increase
the life of their bearings. They are constantly on a look out to manufacture reliable
and economic able airings keeping in mind the current market scenario. The growth of
bearing industries in India has been stop end oscine it made its attack in late 40s with
small and standard bearings.

27
At present, the Indian industry manufactures small and medium bearings mainly in
five categories: ball bearings, cylindrical roller bearings, taper roller bearings,
spherical roller bearings and needle roller bearings. The bearings are manufactured
taking into consideration the designs and specifications needed by various industries.

The bearing industry showed a steady growth of 27 % in the year 2014. The
anticipated growth rate was possible because of production of commercial vehicles in
the automotive sector. Since 2012, the overall automotive industry has grown at the
rate of 34% per annum. The bearing manufacturing is directly related to innovations
in machine tools, process technology and use of highly reliable materials.

There has been an increase in the demand of automotive bearings in India but its rate
of growth has been much slow has compared to the auto mobile industry. The bearing
manufacturers are expecting sustained growth of 15% mainly due to the rise in the
number of two wheelers, passenger cars and utility vehicles.

Demand Determinants

Bearings of various types and sizes are used for different applications.
The major applications are as follows:
 Automobile
 Railways
 Electrical Motors
 Electric Fans
 Diesel Engines
 Pumps
 Machine Tools
 Textile machinery
 Steel Plants
 Sugar Plants
 Heavy earth moving equipment
 Other heavy industries

28
The demand for bearing can be clubbed under following categories:

Original Equipment Manufacturer (OEM) Market

The OEM market for bearing represents the demand arising out of the original vehicle
and industrial manufacturers. The demand for the OEM market directly depends upon
the growth in user industry. This market is characterized by requirements of high
quality, stringent delivery norms and lower margins.

OEM’s have been facing prize competition in their own markets; continue exert price
pressure on the local bearing suppliers the bearing capacity available in the country is
in excess of demand, resulting in price reduction. The OEM bearing market is likely
to weakness better days ahead on account of upswing in automobile industry and
manufacturing sector.
OEM demand is mostly generated in Automobile, Machine manufacturer, Plant
manufacturer, where in the bearing is used as part of the new equipment or
machinery.

Replacement Market
Replacement demand is the after demand where as a part of the maintenance of the
machinery or rotating machine, the bearings are replaced by new bearings after it is
failed as natural life deterioration/ wear or tear or due to premature failures and need
replacement.

The replace market is highly price sensitive and has higher share of unorganized and
cheaper imported bearings. In the last two year, India automobile and industrial sector
are facing increased market and economy growth.

This has led to higher growth in OEM segment and higher growth in replacement
demand. The organized players have been concentrating on improving share in the
replacement market, which earlier was dominated mostly by the small scale and
cottage industries. Replacement market accounts for 40% of total demand for bearing
industry. The margins in this market are relatively higher placed as compared to OEM
market.

29
1.2.6 International Scenario

Bearings worldwide were doing significantly better. Orders were increasing globally
and were forecast to grow 6.5% per year through 2015 to $ 42 billion. With supply
levels remaining high worldwide, bearing prices overall were expected to rise in 2013.
Conversely, prices for imports were expected to increase in 2013.

As bearing from china came into the United States, selling at below market values,
the federal government has levied anti-dumping duties of up to 59.3 %. Lead times for
all bearing continued to fall 10 to 20 percent with 60 percent of buyers receiving
product within a week, according un one survey. Average lead time was about 2.6
weeks, down 19 percent from one year ago.

Supply and demand for different bearing designs-ball, roller etc. - can vary based
primarily upon the types of applications most prevalent in the country's industrial
sector. But because each of the major anti-friction bearing designs (i.e., ball and
roller, with other types tending to be derived from the major design) is used in such
wide and diverse array of setting, most countries that comprise significant bearing
markets (i.e., over about $100 million per year in annual sales) utilize both types in
relatively large amounts.

While the industrialized nations tend to exhibit the largest and most mature (and thus
most cyclical) bearing market, the fastest growing markets are usually found within
the developing nations of Asia, Latin America and (to a lapses extent) Africa/Mideast.
Many such countries have been reforming and liberalizing their economies in recent
years, in order to attract external investment capital and expand their industrial
sectors.

Industrial machinery applications dominate the word bearing market, abounding for
over half total global donates. Industrialization programs in developing countries tend
to involve substantial amount of such machinery, and while in many cases there
countries import machinery already incorporating bearings, the aftermarket tends to
be sizable.

30
The motor vehicle sector comprises the second largest application for anti-friction
bearing in value terms, although it is des smaller than its industrial machinery
counterparts. Investment and implementation of new production technologies
continually improve productivity. With very rapid scientific advances, the bearing
technology cycle has been squeezed into shorter periods so that productivity has been
growing faster than bearing end-markets. This puts continuous pressure on the
industry to combine.

The entry of China, for example, into world has not only created additional capacity,
but also lowered prices of some bearings to levels not seen since the 1960s. The China
factor has also cut into some of Japan's exports, thus impacting Japan's in country
capacity (as Thailand and Singapore did with small ball bearing) and the United
States by lowering general prices levels. Eastern Europe, India and other areas are
developing in a similar pattern.

In addition, bearing material and bearing quality have improved and extended bearing
life. Longer bearing life reduces the demand for replacement bearing, and thereby,
further contributes to surplus capacity. Lastly, the closed Japanese markets contribute
to overcapacity in slow economic times elsewhere in the world.

1.2.7 Future Market

The international manufacturers have directed the fore to higher precision, coupled
with high productivity. Their efforts are concentrated on improving the quality of the
bearings to the highest levels possible. Thus, the lie of bearings would carry higher
loads and the noise levels would be improved, they would carry higher loads and the
noise levels would be reduced to the minimum.

Though bearing sizes and categorization have been standardized, design modifications
do take place continually in order to improve the overall performance of the product.
Products as such, may not be a significant area of concentration.

31
With the attack of excellent quality volume production by the Japanese
manufacturers, some bearing manufacturers have moved towards bearings with
spaced application, including ready assemblies that carry rolling bearings integrated
in to them.

Newer material such as plastics and even ceramics have been experimented with and
developed for special applications. Other manufactures have reorganized to bring in
economy of large volumes, experimented and developed, such as use of plastics and
even ceramics.

The pace and achievement of the above mention goals in bearing manufacture can
directly be liked to innovation in machine tools, process technology and material
properties. In machine tools, this stress is constantly on improving the precision levels
and productivity.

Automation at every stage is most common. This is done within the machine and in
transfer from machine to machine in to line manufacture, to achieve close control on
operations and monitor the pre-process corrections.

1.2.8 Major Manufactures in India

Figure: 1.2 Manufactures in Industry

SKF Bearing

FAG Bearing

NRB Bearing

Timken bearing

ABC Bearing

Bimetal Bearing

Menon Bearing

32
  SKF bearings

SKF is established in 1907. The number of employees of SKF is 48404. There

technical center is worldwide.SKF is a pioneering and renowned global technology
provider whose basic strength is the capability to consistently create new technologies
and utilize them to manufacture products that serve competitive benefits to their
clients.

The company achieved the same by blending its hands-on experience and expertise
across more than 40 industries across SKF technology platforms including bearings
and units, lubrication systems, seals, services. Moreover the motive of the company is
to lower down the environmental impact of an asset during its entire lifecycle both in
terms of their as well as customer operations.

 FAG Bearings

Incorporated in 1962, in 2002 FAG Bearings Ltd has been integrated into a very
strong and healthy network together with LuK and INA to form the Schaeffler group.
Headquartered in Vadodara, Gujarat, India the company is ISO 9001 and 14001 and
TS 16949 certified.

33
Having its wide presence across all core industrial and automotive segments, FAG
group has been a proud and leading partner in such technical advancement providing
Indian industry with superior quality bearings of modern technology. Moreover the
group is considered as the number 1 supplier of hub bearings to the Indian passenger
car industry.

In 1997, FAG Bearing India set up the country's first 100% EOU for bearings.
Bearings produced at the EOU plant have gained ready acceptance and recognition of
customers located in Europe, USA, Asia and Africa. FAG India is a leading OEM
supplier to the automotive industry, mechanical and electrical engineering industry,
besides the Railways.

 NRB Bearings

NRB is incorporated in 1965, and Headquartered of NRB in Mumbai. NRB Bearings

is Public type of company. Number of employees of NRB is 4700. NRB Bearings is
the reputed and biggest needle roller bearings along with the cylindrical roller
bearings provider. It initiated as the Indo French venture with Nadella and led the
manufacturing and production of needle roller bearings in the country.

The manufacturing department of the company produces spherical roller bearings,

ball bearings, tapered roller bearings, clutch release bearings, cylindrical and needle
roller bearings .Revenue of NRB is US$ 56 million.

34
  Timken Bearings

It is incorporated in 1899.it is public company .There number of employees are

16000. Timken Company is a global service provider of bearings and related
assemblies and components. In 2003, the company acquired the entire business of its
biggest domestic competitor in the bearing business and with time it also headed in
the manufacturing of test equipments utilized for varied purposes including
lubricating oil properties.

The group operates in 28 countries and is an important member of WBA (World

Bearing Association) that is an unincorporated and nonprofit industrial association.
Since then, Timken has led the industry with significant breakthroughs in bearing
technology.

Timken offers friction management solutions that maximize performance, fuel-

efficiency and equipment life. Wherever parts move and turn, you will find Timken
products and services making things run a little smoother, safer and more
efficiently. Revenue of the company is US$ 3.1 billion.

 ABC Bearings

ABC is incorporated in 1961, and it is public company. ABC Bearings is one of the
largest producers of cylindrical roller bearings, taper roller bearings and slewing
bearings.

35
The company is one of the pioneering original equipment manufacturer and supplier
to the automotive industry all across the world. Being an ISO 2002 and 14001 along
with TS 16949 certified company, the company has been awarded for its quality, cost
performance and conformance to stringent and superior quality standards.

 Bimetal Bearings

Incorporated in 1961, Bimetal Bearings Limited is an Indian based company engaged

and leading in the manufacturing of bushings, engine bearings, alloy powder, thrust
washers and bimetallic strips. The engine bearings are available as both plated as well
as non plated bearings attainable in the form of copper and aluminum based alloys,
main bearings, connecting rod bearings and roll formed flange bearings.

All the facilities are ISO 14001 and TS 16949 certified and covers all segments of
automotive zone including LCVs, MUVs, passenger cars, tractors, two wheelers, and
industrial engines along with defense and railway establishments. Revenue of
company is US$ 27 Million.

 Menon Bearings Ltd.

At Menon Bearings Ltd., a company promoted by the Flagship of Menon Group to

manufacture world class thin walled bimetallic engine Bearings, Bushes and Thrust
Washers.

36
MBL manufactures a whole range of Bearings, Bushes & Thrust washers for light and
heavy automobile engines, two wheeler engines as well as for Compressors & for
refrigerators, air conditioners and other types of internal combustion engines. It was
started in India in 1992 and has sizable exports to the USA, UK, Israel, Turkey,
France etc.

1.2.9 Industry Analysis

Figure: 1.3 Industry Analysis

Bargaining
Power of
Suppliers

Threat of New Industry Threat of

Entrants Rivalry Substitutes

Bargaining
Power of
Buyers

 Bargaining power of Supplier

The term 'suppliers' comprises all sources for inputs that are needed in order to
provide goods or services.
Supplier bargaining power is likely to be

37
High when

 The market is dominated by a few large suppliers rather than a fragmented

source of supply
 There are no substitutes for the particular input
 Employee solidarity

Bearing industry have low power of supplier because of that reason there are not that
much big company for providing there product as per there demand.

 Bargaining power of buyer’s

 Determines how much customers can require demands on margins and

volumes.
 Monopoly

High when

 Buyer’s are concentrated

 Buyer’s purchase significant proportion of production
 The customer knows about the production costs of the product

Low when

 Producer threaten forward integration

 Producer supply critical of buyer’s input

Bearing industry has high bargaining power of buyer because of that reason there
is some significant proportion of product purchase by the buyers.

38
  Threat of New Entrants

The threat of new entries will depend on the extent to which there are barriers to
entry.

 High initial investments and fixed costs

 Brand loyalty of customers
 Scarcity of important resources, e.g. qualified expert staff
 Existing players have close customer relations

In bearing industry threat of new entrants is low because of that reason for the
production of bearing there is spend high profit of the company in the research and
development .patent is also become one limitation for the company.

 Threat of Substitutes

A threat from substitutes exists if there are alternative products with lower prices of
better performance parameters for the same purpose.

 The threat of substitutes is determined by following factors.

 Brand loyalty of customers.
 Close customer relationships.
 Current trends.

There is low threat of substitutes because of that reason there are no use of other
product in place of bearings.

 Competitive Rivalry between Existing Players

This force describes the intensity of competition between existing players

(companies) in an industry

39
  Competition between existing players is likely to be high when.
 There are many players of about the same size.
 Players have similar strategies.
 There is not much differentiation between players and their products.

In the bearing industry there is high advantages gained by first mover advantages. It
means that there are advantages for the company which is use extra technology as
compare to their competitors.

40
 Chapter 2
Literature Review

41
Literature Review

There are various studied were conducted relating to operational performance of the
company from which most relevant literature were reviewed.

Gupta MC and RJ Huefner (1972)

Emphasis that financial ratio analysis using ratio between key values help investor.
Cope with the massive amount of number in company financial statement. For
example, they can compute the percentage of net profit a company is generation on
the funds it is deployed.

Lamberson M (1995)

He define that a sound business analysis tells other a lot about good sense and
understanding of the difficulties that a company will face. We have to make sure that
people know exactly how we arrived to the final financial position.

Pandey IM and KLW Parera (1997)

He stated that the financial statement contain in information about the financial
consequences and source and uses of financial resources, one should be able to say
whether the financial condition of a firm is good or bad; whether it is improving
deteriorating.

Weinraub HJ and S Visscher (1998)

Financial analysis is the process of identifying the financial strengths and weaknesses
of the firm by properly establishing relationship between the items of the balance
sheet and the profit and loss account. Financial analysis can be undertaken by
management of the firm or by parties outside the firm like owners, creditors, investors
and others.

Nissim, D & Penman (2001)

“Financial statement analysis for use in equity valuation.” The financial statement
analysis is hierarchical, with ratios lower in the ordering identified as finer
information about those higher up.

42
Deloof (2003) found a significant negative relation between gross operating income
and the number of day’s accounts receivable, inventories and accounts payable. Thus,
he suggests that managers can create value for their shareholders by reducing the
number of day’s accounts receivable and inventories to a reasonable minimum. He
also suggests that less profitable firms wait longer to pay their bills.

Eljelly (2004) stated that, efficient liquidity management involves planning and
controlling current assets and current liabilities in such a manner that eliminates the
risk of inability to meet short-term obligations and avoids excessive investment in
these assets. The relation between profitability and liquidity was examined, as
measured by current ratio and cash gap (cash conversion cycle) on a sample of joint
stock companies in Saudi Arabia using correlation and regression analysis. The study
found that the cash conversion cycle was of more importance as a measure of liquidity
than the current ratio that affects profitability.

The size variable was found to have significant effect on profitability at the industry
level. The results were stable and had important implications for liquidity
management in various Saudi companies. First, it was clear that there was a negative
relationship between profitability and liquidity indicators such as current ratio and
cash gap in the Saudi sample examined. Second, the study also, revealed that there
was great variation among industries with respect to the significant measure of
liquidity.

Filbeck G and Kruegr (2005)

“Ratio analysis is a process of evaluating the relationship between component part of

financial statement to obtain a better understanding of a firm position and
performance.”

Made kumbirai and Robet webb (2010)

“Financial ratios are employed to measure the profitability, liquidity and credit quality
performance of banks and it is useful to increasing profitability of companies”

43
Y.a babaloala and F.R abiola (2013)

“Ratio analysis is present relationship between financial analysis and accounting, and
the fundamental role which accounting holds though the information, it produces, into
analysis work”

Petersen and Rajan (1997) demonstrate that receivables are directly tied to
profitability and capital market access, and Deloof and Jegers (1999) study the
demand side of trade credit and illustrate that payables are directly related to
financing deficits.

As discussed by Atanasova (2007) and shown by Molina and Preve (2009),

most firms supply and demand trade credit simultaneously; firms with better access
to trade credit find it easier to finance receivables and inventory.

44
Chapter 3 Company
Information

45
Introduction

“Austin engineering co. Ltd.” is a well known and reputed company in the world of
ball and roller bearing. The company plant is situated at village Patla, Taluka Bhesan,
a back word area in the district of Junagadh.

Though anxious and extensive up gradation in the plan, machineries instruments and
in manufacturing processed and making with the needs of customers “Austin
Engineering Co. ltd.” Has a success to get name and fame as ‘aec’ the symbol of
excellence.

In India amongst some of the well known ball bearing manufacturing Austin is having
the largest range of bearing. Moreover the company is and ISO 9001:2000 and
ISO/TS 16949:2002 company. Thus company as a term I climbing ladder of success,
presently.

Provide perfect solutions to the demand for top quality, precision engineered
bearings with

 Top-of-the-line engineering with highest standards

 Thorough knowledge of applications and fitments

 Wide range of products in almost any quantity

 Truly effective global delivery network

46
3.1 History & Development

In 1973, there was great need for some good automatic industry in the field of
bearing. At that time a team of some qualified engineers decided to produce a high
quality bearing and thus “Austin Engineering Co. Ltd.”

The history of “Austin Engineering Co. Ltd.” was started by all team of five engineers
in 1973. At the first of establishment it was started as a part partnership firm. It was
converted into private company on 27th July, 1978, due to rapid development and
increment in demand of bearing. The company at that time was located at G.I.D.C.
estate in Junagadh City.

On 2nd November, 1985 this company was converted into public limited under the
name “Austin Engineering Co. Ltd.” And purchase the trademark “aec” in the year
1994.

Because of some problem such as shortage of paper supply in appropriate place for
expansion etc. “Austin Engineering Co. Ltd.” Has establishment its second unit, on
15th February, 1987, which is located at patla, a village near Junagadh.

1973
 Partnership firm formed by five technocrats.
 Started manufacturing needle roller cage assemblies with the manpower of 10
and the capital investment of 3500 US Dollars.
1974
 Started manufacturing cylindrical roller bearings and groove ball bearings us
to 50mm width.
1975
 Started manufacturing single row spherical roller bearings.
1978
 Partnership firm converted into Private Limited Company.

47
1982
 Stared supplying bearing for gear box application to premier Automobiles
Limited for passenger cars.
1984
 Stared supplying case-carburized especially heat treated ground components
and King-pin to TELCO for light and heavy commercial vehicles.
1985
 Converted into public limited company and offered shares to public.
1986
 Started new plant (Unit 2) with installation of machinery and
testing/measuring equipment imported from Germany.
 Started exporting bearing to developed countries such as U.K., U.S.A and
Italy.
1990
 Increased manufacturing capacity 600mm diameters.
 Started manufacturing double row tapered and spherical roller bearing.
1991
 Awarded indefinite rate contract with All India State Road Transport
Undertaking (ASRTU) for 78 sizes of bearings for their passenger’s vehicles.
1993

 Started manufacturing flexible roller bearings.

1995

 Manufacturing capacity increased to 800mm diameter.

1997

 Started manufacturing flush ground single row angular contact ball bearing for
US and European Market.
1998

 Started production of four row tapered roller and multi-row cylindrical roller
bearings for roll-neck application in steel plants.
1999

 Awarded ISO 9001 certification from TUV Rhineland.

48
2000
 Established AEC Europe S.R.L. in Milan, Italy.
2002
 Development stainless steel bearings (for Atomic Energy Plant).
2003
 Development Constant Section bearing.
2004
 Established Accurate Engineering Co. in U.S.A.
 AEC in US, Accurate Engineering inc. , Auburn
2006
 Awarded ISO/TS 16949:2002 by TUV Rhineland.
2007
 Starting production 1000mm bearings.
 EEPC India awarded silver Trophy in 2006-07.
2008
 Development crossed cylindrical and tapered roller bearings.
2010
 OD range increase 1828mm in crossed roller bearings.
2011
 Started implementation of ISO 14001 & OHSAS 18001.
2012
 Awarded ISO 14001:2004 & OHSAS 18001:2007 certifications from TUV
Rhineland.
 The process of development is on the way of progress.
2014
 Developed high precision axial-radial bearings.
2015
 Developed super high precision bearing (P2 precision class accury

49
Achievements
 Backup roller bearings for sendzimir Cold Strip Mills.

 Multi-row cylindrical roller bearings and four row tapered roller bearings for
roll neck applications in rolling mills.

 Flush ground single row angular contact ball bearings.

 Precision class cylindrical roller bearings for machine tool spindle

applications.

 Thin section series ball bearings: 618 And 619…….series.

 Engine crank and other application bearing for battle tanks and armored
vehicles.

 Flexible roller bearings.

 ISO/TS certification for quality management.

 ISO 14001 & Ohsas 18001 certification for quality management.

50
3.2 Company Profile
Table: 3.1 Company Profile
Name “Austin Engineering Co. Ltd.”

Address “Austin Engineering Co. Ltd.”

Patla, Taluka:- Bhesan
Via:-Ranpur (Sorath)
Post:- Hadmatiya – 362030
District:- Junagadh (INDIA)

Phone No. (02873) 252223,24,67,68

Fax (02873) 252225

E-Mail info@aec.com

Website www.aec.bearing.com

Junagadh Office 101, G.I.D.C. Estate,

Vadla Road,
Junagadh-362030

Brand Name “AEC”

Type of Product Industrial Product

Cost Auditor SB Parikh & Company Vadodara

Bankers Bank of Baroda

51
Promoter’s Body

Board of Directors
Mr. N.C. VADGAMA : Chairman & Executive Director
Mr. R.R. BAMBHANIA : Managing Director
Mr. J.R. BHOGAYTA : Executive Director
Mr. S.V. VAISHNAV : Non Executive Director
Mr. B.R. SUREJA : Non Executive Director
Mr. K.J. MEHTA : Non Executive Director
Mr. D.B. NAKUM : Non Executive Director

Auditors
Dhirubhai Dand & Co.
Chartered Accountants
Gokul Chambers
Junagadh 362001

Cost Auditors
S.B.Parikh & Co.
Vadodara

Bankers
Bank of Baroda
Azad Chowk Branch, Junagadh

52
3.3 Contribution of Unit

Austin Engineering Co. manufactures various types of bearing. It also exports its
products to USA, Italy, and Srilanka, New Zealand etc. Thus, it earns foreign
exchange, which is very beneficial for the nation. Moreover, this unit contributes
towards society, industry & country which are:

To Society:
Company is located at Palta village near Bhesan so it also helps in developing
backward area moreover it provides employment to workers of rural as well as urban
areas.

To Industry:
Austin produces an industrial product so it directly contributes to other country. It is
having 15-20 % market share in the industry. So it contributes mush in the total
production of industry.

To Nation:
The majority of Company’s product is import substitute it saves foreign exchange.
AEC’s 30% is export orientation so it helps to earn foreign exchange to Nation.

3.4 Size of Organization

On the basis of size, there are mainly three size of organization.

1) Large Scale Organization

2) Medium Scale Organization
3) Small Scale Organization

When the company has the investment in its fixed assets up to 25 lakh it is small scale
unit, in medium scale between 25 lakh & 1 crore for large scale should be more than1
crore.

53
“Austin Engineering Co. Ltd.,” fall under the large scale industry because of its invest
in fixed assets is more than 1 crore, it has 7 crore or equity equipment’s & machinery
& has employed 660 workers.

As far as the “Austin Engineering Co. Ltd.,” is concern, it is a large scale industry,
because we can apply all the relevant features of the large scale organization the unit.
The investment of “Austin Engineering Co. Ltd.,” is in fixed assets is Rs.
213,535,665. So it is known as a large scale unit.

Feature of large scale unit:

1) Large Investment i.e. more than 3 corers

2) Upon Date Machinery
3) Better Credit

3.5 Vision, Mission, Value & Goals of the Company

Vision of the company:

 We strongly believe that one should always improve continuously.

 Utilize resources in a most efficient way.
 Be versatile to adapt changes.
 Serve society in a most efficient manner.

Mission of the company:

 Increasing manufacturing capability up to 2100mm Dia.

 Development slewing rim bearing for heavy earth moving & construction
equipment.
 Increase adherence to the training calendar.
 Reduce new development cycle time, machine idleness, electrical &
mechanical breakdowns etc…
 To implement the ISO/TS 16949 quality system.
 To increase the marketing capability up to 2100mm diameter.

54
Value of the company:

 Generally, every firm has its own values by which its image is made. The
value of “Austin Eng. Co. Ltd.” is as under.
 Always improve continuously.
 Utilize resources in a most efficient way.
 Be versatile to adopt changes.
 Serve society in a most efficient manner.

Goals of the Company:

The common objectives that generally a business firm is having which AUSTIN also
accept are as under:

 Customer Satisfaction
 Profit maximization
 Optimum use of resources Economic
 Creation of customers
 Innovation

 Supply of the desired quality of goods

 Providing employment Social
 Fair deal to employees
 Create healthy society

 Development of regional area

 Export development National

Moreover, AUSTIN accept the goal of continues improvement and effective

utilization of available resources. A very important thing about it is that it is versatile
to adopt changes.

55
3.6 Products of the Company

Austin Engineering Company Ltd. is a large scale company and heavily wide product
range. Company has more than 4000 products in their product range.

Front line main products of the Austin Engineering Company Ltd. are as under:

Cylindrical roller Tapper roller Ball bearing

Needle roller Tapered roller bearing Spherical roller

56
3.7 Organization Structure

Organization structure refers to the way that an organization arranges people and jobs
so that it work can be performed and its goals can be met. When a work group is very
small and face to face communication is frequent, formal structure may be
unnecessary, but in a larger organization decision have to be made about delegation of
various tasks.

Thus, procedures are established that assign responsibilities for various functions. It is
this decision that determines the organization structure.

In this business management there are many types of organization structure.

 Line organization
 Line & Staff organization
 Function organization
 Staff organization
 Committee organization

“Austin Engineering Co. Ltd.” There is a line and staff organization. So authority and
responsibility moves up ward to down ward. Staff person guides time manager in
taking decision.

57
 Figure: 3.1 Organization Chart

Board of
director

Managing
director

Jt. Managing
director

General
manager

Personnel Works Marketing Finanace

Manager Manager Manager Manger

Production Sales officer

Engineers Sales Man

Account
Manager

58
3.8 Production Department

Introduction

A company is started with producing some or the other product production is process
in which the raw materials are converted into finished goods, where raw materials
passed in different stays or procedure & finished goods or product is made.

Austin Engineering is a consumer oriented because this company. Is producing

bearing in order words the company offers a wide range of bearings to different
category of buyers like automobiles, defense, state road, transport, corporation, steel
plants, thermal plants, cement plants, sugar & paper industry, fan & pump industries,
auto & rail engines & material handling equipment. So bearing is core of any
machines so its manufacturing procedure is providing & developing

Raw Material

The basic requirement to produce any product is the raw material. Raw material is an
element by which the whole production process starts. So, procurement of raw
material very important role here. The efficiency of finished product depends on its
raw material just like the strength of a building depends on its foundation.

“AUSTIN ENGINEERING CO. LTD.,” purchases its raw materials from domestic
unit as well as the units from other units. It purchases from different places of
Junagadh.

The raw materials required in the production of ball bearing & roller includes some
chemicals & some are sheet of brass, bush, forged rolled ring etc.

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Material Storage Facility

It is very important for every business units to have material storage facility. The
proper storage facility influences the production. The materials of different stages of
production such as raw materials, work in progress materials, finished products,
wastage materials etc. The storage should be such that the product can be protected
the quality is maintained.

AEC has a separate storage facility of materials. The benefit of the storage inside the
factory is that the production process goes smoothly. Moreover they do not have to
spend extra time and money for transportation of stored materials.

The company has a separate place for the storage of finished goods. The final product
is sent to the customers according to their orders form them. Thus, no one can say that
the company does not have good storage facility for different types of materials.

Machinery and Equipment

Machinery and equipment plays an important role in any manufacturing company.

The advancement in the machinery makes the product more qualitative and it makes
an impact on the quality of the production.

Austin engineering company Ltd. Is a reputed firm in the field of manufacturing

bearing. It is specially know for its maximum range of bearings in all over the Asia.
So, according to this range, it has also a big range of the machinery to produce the
bearings.

The total number of the machines are 215. moreover, apart from this, the company
has given extreme important to quality maintenance and so it is having 48 testing
instruments also.

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These machines includes mainly grinding, lapping, furnace, air compressor, drilling
and packaging machines. Then different sizes of machines are there. The list of
machinery includes domestic as well as important machines for better efficiency.

Figure: 3.2 Production Process

Purchase of raw material

Turning of races and roller

Heat treatment

Grinding of races and rollers

Trapping and super finishing

Inspection and grinding

Assembling, cleaning, oiling and packaging

Storage and dispatch

 Purchase of raw material:

Bearings are made through following raw material:

Steel bars and tube, steel wire, steel ball, races, rollers etc. it is supplied by Mahindra
and Mahindra ltd, summand’s Udyog, social steel ltd.

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  Turning of races and roller:

This is the second step of manufacture proper bearing from the raw material to
finished products. In this step races and roller are turned in required size by trained
worker and then it is transferred to main unit.

 Heat treatment:

This is the step in which the all races and rollers are given heat through electric roller
and electric furnace at 8450 to 8600 temperature through which defective pieces are
removed.

 Grinding of races and rollers:

This is the step, after heat treatment, the part of races and rollers are refined inner and
outer part of races and rollers are given through the grinding machine.

 Trapping and super finishing:

In this step there are checking of roller and races because it has single mistake of
defect in outer and inner side of races and rollers. If any races and rollers are defective
that piece is tapped. Than offer, super finishing will be done on that part.

 Inspection and Grinding:

After the procedure for making a bearing all the races and rollers are inspected by the
inspection department and then after grades fixed by the company, the precious
sample is gone mass production.

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  Assembling, Cleaning, Oiling and Packaging:

There are separate department of bearing, all kind of bearing are managed and its size,
quality and shape are measured bearing are assembled. After the assembling of the
bearing, the cleaning and oiling of bearing is done and then the bearing finally goes at
packaging department where this bearing has given “aec” trade mark.

 Storage and Dispatch:

After passing through the above step, the finished products are stored in go down,
from where they are dispatched as per order. The transportation capacity is mainly
done by Transport Company.

3.9 Financial department

Introduction

The scope of financial management that is the views about financial functions have
undergone remarkable changes over time. Till 1950, finance function was regarded as
the function only of raising finance for business, and consequently the discussion
centered round different sources of finance, financial institution and financial
documents etc. since last 30-40 year, however, an effective and utilization of finance
has also been considered as an important function of financial management.

As a result of it, the scope of financial management has widened now and this
development has been given due place in the present day syllabi on this subject. In the
present chapter we shall first consider the meaning and scope of financial
management.

Then we shall familiarize ourselves with the issues included in the finance functions.
Finally, we shall describe the role of financial manager, his functions etc.Thus
financial management does not stop at procuring the required finance. It has also to
see that it is effectively utilized in business.

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It is concerned with maintain adequate funds on meet the expenses of both revenue
and capital nature. It has to manage the finances in sauce a way that the goal of
business, say, profit maximization, is realized.

Accounting department

In “Austin Engineering co. Ltd.” Finance manager is head of finance department and
assistance manager is working under him. Finance manger is responsible for all the
activity of finance department. He assists the work for various duties of finance
department. Under assistant manager is there who looks often all matter of accounts
which are necessary for the company.

Figure: 3.3 Accounting Departments

General Manager

Finance manager

Assistant of finance manager

Account manager

Assistant account manager

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Sources of capital

Financial management involves the three important areas:

 Investment decision
 Financing decision
 Dividend policy

Among them, the investment decision is the first step to be up by the owners. This
involves the decision regarding the procurement of funds. So it is necessary to study
the different sources of finance available. This decides the cost of capital.

So the sources you selected to procure the fund should be such that they would
minimize the cost of capital. The term and condition of different institution should be
studied and compared while taking the decision about borrowed capital. The balance
between owned and borrowed capital should also be kept in mind at that time.

At the stage of business firm, generally is brought by the owner and some outside
institution, banks, etc. but when the business start growing, the reinvestment of profits
becomes also an important sources of capital.

 Equity share capital

 Bank of Baroda
 Retained earnings

Organization structure

“Austin engineering company limited” has following staff structure for finance
department.

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 Figure: 3.4 Financial Structures

Chairmen &
Director

General
Manager

Finanace
Manager

Financial Financial
Manager Officer

Account Exice Clerk Accountnt Clerk

Financial planning

Planning always plays an important role arranging different activity of the

organization. As planning determine future course of action in present. Financial
planning relates with financial activity of the organization.

More clearly financial planning means deciding in advance, the financial activities to
be carried on to achieve the basic objectives of the firm. Financial planning is the
most affecting factor to financial resources and position of the company.

So, financial manager should formulate financial plan after considering running
condition and position of the firm. Financial planning is highly related with
disbursement of income and creation of income. The success of business is highly on
financial planning.

Definition: - “The process of estimating the funds requirements of a firm and

determining the sources of funds is called financial planning.”

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Above definition simplifies that financial planning relates with determining the future
course of action related with financial department.

Financial planning or plan can be formulated for different period of as following.

 Long Terms planning

 Medium Term Planning
 Short Term planning

Austin Engineering Co. Ltd. has good financial planning. Bank of Baroda provides
finance to the company. In long term planning this company think about expansion of
business & modernization of company.

Financial planning

An “AEC” makes three types of planning. These are on the basis of time period like
short term planning for six month to one year medium term planning for five year and
also long term planning.

Project and operations are carried out under long term planning and other day
operations are carried out under short term planning for the routine activities.

The major important decision is taken at the head office in Junagadh at a result the
finance cum account department at “aec” plan do not undergo any type of specific
financial planning.

Table: 3.2 Financial Planning

Planning Period (in year) Purpose

Short term 1 Production & daily expenses

Medium term 5 Increase W.E. & replace mach.

Long term 10 Expansion & modernization

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Capitalization

Capitalization means valuation of the capital of the firm from financial point of view
capitalization means accumulated for some business purpose to earn rate of return.
There are three types of capitalization:

 Fair capitalization: Book value = Real value

 Over capitalization: Book value > Real value
 Under capitalization: Book value < Real value

This company’s earning is Rs. 3,73,10,646 and capital investment is Rs. 12,47,61,492.
So it shows that capital investment is more than earning so it means it is over
capitalized.

Capital structure

Capital structure refers to various sources of capital i.e. equity shares, preference
shares, debenture etc. capital structure means security mix in capital structure there is
existed one or more than one securities. There are basically 3 patterns of capital
structure:

1. Equity share
2. Equity & preference share
3. Equity, preference & debenture

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3.10 Marketing Department

Introduction

Marketing department is important. Marketing is a social and managerial process that

involves identifying unsatisfied needs and wants of consumer, producing goods and
services to satisfy those needs and wants, determine appropriate price, promotion and
distribution and maintaining relation with market is marketing.

As “Austin Engineering Co. Ltd.” is manufacturing the industrial goods so its product
is produce as per order of consumer so it suggest marketing work direct with
consumer so potential exchange for the purpose of satisfying consumer needs.

Figure: 3.5 Marketing Department

Chairman

Managing
director

Asst.
marketing
manager

Sales
officer

Dispatch clerk Salesmen

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Product Planning

Product planning is one of the important functions of marketing department. Product

will be fulfilling the need of society and present bundle of satisfaction to the
customers. I have study in this company that how the company taken decision
regarding product.

In “aec” whether they want to take any decision regarding products they always
handle product research and according they formulate strategies. It is producing the
bearing as per the order placed by their customers, so they make change according to
their instructions.

Market Segmentation

This company has selected original equipment manufacturers come as a target market
in the basis of heavy users and others varies segments. They are given most important
to the segment which is quality and durability conscious of medium user and light
user are also there is in the segmentation.

In “Austin Engineering Co. Ltd.” They have selected target market to satisfy the
workers of customers. They divided the target market in different division.

 Indian defense department

 Steel plant & steel rolling mills
 Textile machinery manufactures
 Power plants
 Indian railways
 State road transport under taking throughout India
 Overseas customers in USA, UK, EUROPE, etc.

Pricing Policy

Pricing is decided through following methods:

 Cost plus pricing method

 Target pricing method

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  Going rate pricing method
 Skimming pricing method
 Penetration pricing method

Out of these methods “Austin Engineering Co. Ltd.” adopts cost plus pricing method
as there is much high demand of bearing.

This company applies a ‘price line’ policy in selling bearing. We can say that, a part
from using cost plus pricing method. This company tries to set price level nearer to
the price in the market.

Channel of Distribution

Distribution channel is very important aspect for any of the company. The most
important factor for channel, choice & channel management is economic criteria i.e.
cost & profits. There are two types of channels

 Direct

 Indirect

In “Austin Engineering Co. Ltd.” they are producing bearing and i.e. industrial
goods. So in this case, direct channel will be more effective then indirect channel.
So, the company mostly uses directs channel of distribution from manufacturer to
consumer.

For replacement market, the company uses indirect channel of distribution. For this
they have appointed zone wise dealers under whom sub dealers are appointed.

Sales Promotion

Sales promotion is referred to the other than personal selling, advertising and
publicity, while stimulates consumers purchasing and dealers effectiveness free
samples, exhibition and free offers when in any big cities like Bangalore, Mumbai,
etc.

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Marketing Research

Marketing research is very important because it gives knowledge regarding changing

attitude of consumer towards their product and it is also important while formation of
marketing strategies.

There are following methods of marketing research such as:

 Survey method
 Observation method
 Panel method
 Experiment method

Among all these methods, Austin generally uses any of the method as per
requirement. According to marketing research of the company they think that it is
important because it can give knowledge of the consumer and change in pattern of
demand.

International marketing

International marketing means the dealing between two or more countries with
agreement for the export and import of the products.

In “Austin Engineering Co. Ltd.” international marketing is involved by exporting its

product in different countries. This company export about 60% of its total production
into different countries. This company exports its product mainly in following
countries.

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 Table: 3.3 International Buyers

Italy Sri Lanka South Arabia

Netherland Sudan Bangladesh

U.S.A. New Zealand U.K.

This company is having good marketing in other countries and in international trade
company uses the “ship” (sea) as a way of transportation and this company opened the
leave credit account.

3.11 Human Resource

Introduction

HRM is very important to run any types of business because HRM deal with human
resources and if they are satisfy they will certainly perform their task enthusiastically.
HRM is the key to the whole organization.

The concept of HRM is application not only to factory, but it is equally important in
office, sales department, laboratory where the management must win the co-operation
of their subordinates.

The plan of business may be logically sound and structure of organization may be
perfect, but if the requirement and training of HR are unscientific business can ability
of its employees. Therefore, it is necessary to direct motive, develop and manage their
activity.

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The plan of business may be logically sound and structure of organization may be
perfect, but if the requirement and training of HR are unscientific business can ability
of its employees. Therefore, it is necessary to direct motive, develop and manage their
activity.

This company has a good management and large department of manager and
employees.

Organization of HRD

In “Austin Engineering Company Ltd.” there is separate HR department where all

function regarding HR is performed.

Figures: 3.6 Organisation of HRD

General manager

HR
manager

personal Personnel
relation officer
officer

personnel
assistence
officer

Time
keeper

Time
keeper
clerk

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Recruitment & Selection

 Recruitment:

Recruitment means search of prospective employee to suit the job requirement as

represented by job specification out of prospective applicants. “Austin Engineerin/g
Co. Ltd.” makes recruitment through three methods.

 Direct method
 Indirect method
 Third party method

 Selection:

In “Austin Engineering Co. Ltd.” for in selection level they use direct method.

 Application
 Preliminary interview
 Personnel interview
 Medical checkup

Training and development programmed

“Austin Engineering Co. Ltd.” mostly selects the trained and experienced person. The
new employees are recruited under experienced employees. They are kept directly on
machine.

The company has need for training because of ISO awareness, reducing bed habit,
reducing stress, for industrial skill in employees. It gives theoretical and practical both
training. Every worker and manager wants to increase his products so every manager
is motive to worker and employees.

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The company practices to develop their employers by giving them training and
conducted educational cases, awareness programs, practical demonstrations etc.

Job Description

Job description is one of the most important documents to provide organization and
functional introduction. It provides all information about designation and
responsibility. Every worker takes responsibility to do his work.

Promotion and transfer policy

 Promotion:

In “Austin Engineering Co. Ltd”, promotion is given on the basis of seniority. At

lower level also promotion is made from operative level to supervisory level and from
that to office clerk. The employee is selected for promotion keeping in view his work
performance, regularity and seniority.

 Transfer:

Transfer policy is horizontal movement policy. It does not change employee’s status,
authority or salary but only place is changed. The Austin Company has its two units.
As per requirement transfer is done from one unit to another.

Wage and Salary Administration

In Austin the system is totally computerized and wages and salary of employees are
fixed. In this company there are overall 655 workers among which 25 are females and
60 staff members and other at lower level. On 7th or 8th of every month the wages are
paid. A ready slip is given to the employees who contain entire data regarding the net
pay and by showing this slip the concerned person gets his amount immediately.

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The amount of salary is paid after contribution for provident fund and the remaining
amount is paid. The company pays wage as per minimum wage act to all workers. \

ESI Scheme

The full form of E.S.I. is employees’ service insurance. It is social scheme providing
insurance when any type of difficulty comes on employees or on his family.

Provident Fund Scheme

In “Austin Engineering Co. Ltd.”, 24% provident fund is given of which 12% is
workers contribution.

In this company new scheme has also been started mane or family provident fund
scheme. According to which the family members are given 1.6% of his salary after
the death of employees.

From provident fund the employees can also take loan for any purpose like marriage,
house, education, etc without payment of any interest.

Complaint Management Process

Grievance is written by an employee is respect of wages, allowance, job assignment

transfer etc.

In “Austin Engineering Co. Ltd.” grievance has not arises among employees till now
due to satisfactory wage and salary and other facilities. But in some cases there is
following procedure:

1. If any problem arises, then employee may first contact the superior. Answer is
given by the superior within 3 day to a week.

77
 2. He may approach to his department head that will inquire the matter
personally and give his answer within week.
3. He may contact the factory manager personally or may give written complain.
Reply is given within week.
4. If they also not satisfied he may contact management through trade union.

Benefits & Services

Management is concerned with attracting and keeping employees, whose performance

meets at least minimum level of acceptability. Benefits and services are things which
attract a workers attention and stimulate him / her to work.

In “AUSTIN ENGINEERING CO. LTD.,” employees get many benefits which are as
under:

Medical Facility: “AUSTIN ENGINEERING CO. LTD.,” provides medical facility

to their workers and family members they have appointed doctors for their better
safety.

Bonus Facility: Generally, all company gives bonus once in a year to their workers.
“AUSTIN ENGINEERING CO. LTD.,” also provide bonus to each and every
employee once in a year up to some percent of their total salary & wages with gifts
also.

Bus Facility: They provide bus facility also because company is situated at Patla
village is far from Junagadh city. So the workers living in city are provided bus
facility by the company so that there will not be any problem for employees regarding
transport.

Canteen Facility: The Company also provides canteen facility to the workers. In
which workers can get lunch and other snacks at reasonable rate.

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Loan Facility: Company provides loan without interest such as home loans, loan for
furniture, vehicle, etc. up to 25 to 50 thousands.

Safety Facility: The Company provides some safety devices to the workers of
production department as some treatment of this department may be hazardous for the
workers.

Other Facility: It includes the facility of free telephone service at home for the
executive personnel working in the company.

 Yearly bonus 20%

 15 days gratuity per year
 30days leaves per year
 8 days medical leaves
 Tea allowance
 Washing allowance
 Attendance bonus
 2 Pair uniform in a year
 Free interest loan
 Get together programmed with family in year
 All the employees are contributing one day salary in case of death of any
employee. In addition company is also providing 3 months’ salary to the nominee
 Social camp
 Every year1K.G. sweet box to all employees on festival of Dasher a

No. of Employees

Employees and workers are the core or heart of the business. To run the business in an
efficient way employees are must in the organization.

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In “AUSTIN ENGINEERING CO. LTD.,” there are 665 workers and employees. All
are not even as far as skilled are concerned. They are distributed according to their
skill into 6 categories.

Table: 3.4 No. of Employees

Sr. No. Description No. of

Employees

1 Office And Administration 130

2 Quality Assurance 70

3 Direct Manufacturing 220

4 Indirect Manufacturing 190

5 Engineers 25

6 Supervisors 20

Total 655

3.12 SWOT Analysis of the Company

Figure: 3.7 SWOT Analyses

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Strength of the company

 Direction are well experienced and technically qualified with well succession
plan.
 26 years and enjoys its brand name in the market.
 The company has wide market network with established customer.
 Able to obtain skilled workers at comparative lower cost.
 Company is a profit making and self performance are improving year after
year.

Weakness of the Company

 The industry is high capital intensive and such operating at the minimum
economic volume assumes greater significance.
 A serious threat is being faced import due to decline in duly rates and at the
same time domestic manufacturers are subject to the increased levies.
 The manufacturers are facing a threat from the fake parts manufacturer
duplicate parts and sell them in the names of popular brands in the
replacement market at lower price.
 Steel and alloy steel are the basic raw material for the bearing industry and
their prices are expected the upward trend in the coming future.
 Higher inventory holding also lead to increase indirect cost.
 A decline in the capacity utilization would lead to a major negative impact on
the operational parameters considering the huge initial capital outlay.

Opportunity of the Company

 The demand for bearing industry is derived from demand in 2 user segment
automotive and industrial sector. The automotive industry is the largest user
segment for Indian bearing market.
 India in one of the faster passenger car market in the world and it is already
the second largest two wheeler manufacturer globally. The Indian domestic
market will continue to be dominated by small cars.

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  The Indian economy has growth of average 8% over the last few years and is
expected to keep this growth trend over the next decade.

Threats of the company

 Over all global scenario presents a mix picture impact of political situation in
24 gypt and Libya on global economic sever.
 Oil price always remain an issue of concerns.
 Inflationary trends in Indian economy remain unwarranted rising input cost is
a major concern that leads to uncertainty in the growth.
 Consistent increase in the steel prices poses a pressure on the cost and margin
to bearing manufacturers.
 Cheap import from China and South Asian countries have shown an
increasing trend, causing depression in the domestic consumption and pressure
on your company’s margin.

3.13 BCG Matrix

BCG Matrix is basically based on the study of the review note. It is a study of relation
between market share and market growth. And, the level of high and low rating scale
is classified.

Figure: 3.8 BCG Matrix Model

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 1. Stars:
Stars are high growth businesses or products competing in market where they are
relatively strong compared with the competition. Need of the heavy investment is
necessary to sustain growth.

So, in here, the company relates to heavy investment and in return the heavy returns
for their customers.

2. Cash Cows:
Cash cows are low-growth businesses or products with a relatively high market share.
These are mature, successful businesses with relatively little need for investment.
They need to be managed for continued profit – so that they continue to generate the
strong cash flows that the company needs for its Stars.

Now, Austin is in the cash cows stage in present.

3. Question Marks:
Question marks are businesses or products with low market share but which operate
in higher growth markets. This suggests that they have potential, but may require
substantial investment in order to grow market share at the expense of more powerful
competitors.

4. Dogs
The term “dogs” refers to businesses or products that have low relative share in
unattractive, low- growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in.

Now, Austin Engineering Company is cash cow stag. But company has good
opportunity in future because most of the factors are in the favor of company and
growth rate of company is also high.

So, that if company can enter in stage of STARS in future so company must adopted
all opportunity today for better future in Bearing Industry.

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Current Status of the Company

At present the Austin engineering company Ltd. Has becomes a wide and popular unit
in the market. The trademark of the company is “AEC” in the initial years of the
company was produced only 40 verities of bearings and now it produce 4000 to 4500
bearings varieties.

Therefore we can say that the company has large growth and development in the field
of bearings due to its high quality and increasing demand. Thus the of the firm its
turnover is increasing year by year. At present these company investment four cores.
So, the size of the AUSTIN ENGINEERING COMPANY is large scale.

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Chapter 4 Research
Methodologies

85
Research Methodology

Research Methodology is a way to systematically solve the research problem. It may

be understood as a science of studying now research is done systematically. In that
various step, those are generally adopted by a researcher in studying his problem
along with the logic behind them. It is important for research to know not only
research method but also know methodology. “The procedures by which researchers
go about their work of describing, explaining and predicting phenomenon are called
methodology.”

Method comprises the procedures used for generating, collecting and evaluating data.
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem.

 To recognize the various type of information which are necessary for the study
of ratios analysis.
 Collection of data from various department of AEC to analysis the ratio
analysis of AEC
 For understanding the various reports, personal interviews are conducted.
 With the help of various techniques are:
 Operating Cycle analysis
 Working Capital Management
 Common size statement
 The overall position of AEC is studied and analyzed
 Suggestions are given on the basis of finding for better understanding of ratio
analysis.

Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how much
time, money and effort will be required to collect that necessary data, this is also
important step. Data collection plays an important role in research work. Without
proper data available for analysis you cannot do research work accurately.

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4.1 Research Problem

A systematic method of findings solution to a problem is research. It means whenever

a research is undertaken it is either to solve a problem or undertaken in the search of
new facts. It is done to get familiarity or to achieve new insights. It can be done to
determine the frequency with which something occurs a research problem is one
which requires a researcher to find out the solution for the given problem i.e., To find
out by which course of action the objective can be attained in the context of a
environment.

Ratio Analysis serves as a most important parameter for analyzing the company’s
financial status. The problem there for underlies in understanding the ratios of the
company and taking decisions based on it so that companies’ capacity may be further
improve.

“A study on Ratio Analysis at Austin Engineering Company Limited.”

4.2 Research Design

After defining research problem the next step is to prepare concrete plan of further
research work successfully completion of research detailed plan of action. It gives
direction to the researcher and avoid ambiguity research design is a plan of action for
the major parts involved in research project good planning gives direction for
successful completion of the project research design is also called as blue print of the
proposed study.

“Research design is the plan structure and strategy of investigation conceived so

as to obtain the answer to the research question and control the variance.”

The research design of this project is done as per first I have collected the basic
information I have gone the research through secondary data collection method. So,
first of all I have collected the general information. Then all the data of financial
statement is collected through annual reports of the company.

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4.3 Objective of the Study

 To guide the management in taking some important decision of some polices

of the firm like pricing policy etc.
 To provide necessary information to shareholder who have invested their
savings.
 Financial ratio analysis shows the current position of the firm in terms of the
type of assets owned by a business firms and the different liabilities due
against the enterprise.
 Financial ratio analysis helps in assessing and predicting the earning prospects
and growth rates in earning which are used by investors while comparing
investment alternatives and other users in judging earning potential of business
enterprise.

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4.4 Statement of Hypothesis

Hypo’ means ‘less than’ & ‘thesis’ means ‘generally field vie w’. So, hypothesis is a
“less generally held view.”

Next step in the research study is to formulate a tentative explanation or solution of

those problems in the form of a proposition. This tentative explanation or solution, the
validity of which is still to be tested, is called hypothesis.

In simple words, hypothesis means opposition of something which needs to be proved

or disproved within certain criteria, researchers do mainly 2 type of hypothesis like
descriptive & relational, depending on what is his requirement he will go for the
calculation of hypothesis.

Here the hypothesis that some companies do the ratio analysis and it may be true or
false. depend on the hypothesis that all company do the ratio analysis .but may be
some time it may be wrong .so, our hypothesis is can be rejected and it may be right
then the hypothesis selected.

We can set hypothesis like,

Null hypothesis [Ho]: There is difference among analysis different ratio in

company between 2012-1016.

Alternative hypothesis [H1]: There is no difference among analysis ratio in

company between 2012-2016.

After the study and interpretation and by comparison of another ball bearing
company, we will come to know that the hypothesis should be accept or reject.

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4.5 Data Collection Method

Types of Data Collection

1. Primary data collection

2. Secondary data collection

1) Primary data
The primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. Primary data can collect through personal interview, to
support the secondary data.

2) Secondary data collection method (literature review)

The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company
etc. It will save the time, money and efforts to collect the data. Secondary data also
made available through trade magazines, balance sheets, books etc.

Some project is based on primary data collected through personal interview of head of
account department, head of department and other concerned staff member of finance
department.

But primary data collection had limitations such as matter confidential information
thus project is based on secondary information collected through five years annual
report of the company, supported by various books and internet sides. The data
collection was aimed at study of ratio analysis of the company.

Project is based on

 34 Annual report of AEC

 35 Annual report of AEC
 36 Annual report of AEC
 37 Annual report of AEC
 38 Annual report of AEC

90
4.6 Scope of the Study

Scope of finance ratio analysis is subset of the whole body of business analysis.

 Analysis of financial ratio is analysis through which we can know about the
financial position of the company.
 The analysis is been used by those parties who are interested in the company’s
profit and other related information.
 The analysis can be used by creditors, money lenders, shareholders,
management itself, investors, government etc.
So, the scope of the financial statement is very wide. It expresses all the required
information about the company. It gives every year’s all the financial information.

4.7 Limitation of Study

 The process of analyzing financial ratio is very time consuming.

 Financial ratios are based on historical costs and as such the impact of rice
level change is completely ignored.
 Financial ratios provide financial statistics of past events, but they are not
forward looking.
 The accuracy of financial information largely depends on how accurately
financial ratios are prepared. If their preparation is wrong, the information
obtained from their analysis will who also be wrong which may mislead the
user in making decision.
 The skills used in analysis without adequate knowledge of the subject matter
many lead to negative direction similarly biased attitude of the analyst may
also lead to wrong judgment and conclusion.
 Financial ratios analysis does not provide answers to all the user’s questions.
In fact, it usually generates more questions.

91
Chapter 5 Data
Analysis &
Interpretation

92
Analysis & Interpretation

Financial statement can be analysis on different basis like ratio analysis, comparative
analysis etc. I have selected ratio analysis. I have calculated different ratios which
gives the idea about the company’s position and performance.

Ratio analysis is very much powerful tool of analysis of financial statement. Ratios
are relationship expressed in mathematical terms between figures which are connected
with each other in some manner.

Ratio may be defined as “the indicated quotient of two mathematical expressions.” In

financial analysis, ratio is used as a benchmark for evaluating the financial position
and performance of the firm.

Ratio analysis is a technique of analysis and interpretation of financial statements. It is

the process of establishing and interpreting various ratios for helping in making
certain decisions. It is only a means of understanding of financial strengths and
weaknesses of a firm.

93
 𝐒𝐚𝐥𝐞𝐬
𝟏) 𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =
𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥

Table: 5.1 Working Capital Turnover Ratio

Particular 2011-12 2012-13 2013-14 2014-15 2015-16

Sales 1021,500,677 872,697,741 883,650,053 982,885,136 864,357,675

Net working 343,297,627 363,411,476 417,146,928 455,996,597 461,569,000

capital

W.C TOR 2.98 2.40 2.12 2.16 1.87

Graph : 5.1 Working Capital Turnover Ratio

Working Capital Turnover Ratio

3.5

2.5

1.5 working capital turnover

0.5

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

High working capital ratio indicates the capability of the organization to

achieve maximum sales with the minimum investment in working capital. Company’s
working capital ratio shows mostly more than two, except for the year 2015-16
because of excess of cash balance in current assets which occurred due to encashment
of deposits. In the year 2011-12 the ratio was around 3, it indicates that the capability
of the company to achieve maximum sales with the minimum investment in working
capital.

94
 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝
𝟐) 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲

Table: 5.2 Inventory Turnover Ratio

Particular 2011-12 2012-13 2013-14 2014-15 2015-2016

COGS 433,156,377 520,433,711 463,296,547 400,008,998 456,788,900

Average 428,201,306 425,054,636 434,954,981 470,206,033 514,220,000

Inventory

Inventory 1.01 1.22 1.06 0.85 0.89

TOR

Graph: 5.2 Inventory Turnover Ratio

Inventory Turnoer Ratio

1.4
1.2
1
0.8
0.6 Inventory Turnoer
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

Inventory turnover ratio indicates the efficiency of the firm in producing and
selling its products. It was observed that Inventory turnover ratio indicates maximum
sales achieved with the minimum investment in the inventory. As such, the general
rule high inventory turnover is desirable but high inventory turnover ratio may not
necessary indicates the profitable situation. An organization, in order to achieve a
large sales volume may sometime sacrifice on profit, inventory ratio may not result
into high amount of profit.

95
 𝐆𝐫𝐨𝐬𝐬 𝐒𝐚𝐥𝐞𝐬
𝟑) 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐀𝐜𝐜𝐨𝐮𝐧𝐭 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞

Table: 5.3 Receivable Turnover Ratio

Particular 2011-12 2012-13 2013-14 2014-15 2015-2016

Gross 1021,500,677 872,697,741 883,650,053 982,885,136 864,357,675

Sales

Sundry 181,744,075 210,209,383 249,753,942 247,426,936 224,837,000

Debtors
Receivable 5.62 4.15 3.54 3.97 3.84
TOR

Graph: 5.3 Receivable Turnover Ratio

Receivable Turnover Ratio

6

3
Recevable Turnover Ratio

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

Receivable turnover ratio is high in 2011-2012 and low turnover ratio in 2015-2016.

96
 𝐒𝐚𝐥𝐞𝐬
𝟒) 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬

Table: 5.4 Current Assets Turnover Ratio

Particular 2011-12 2012-13 2013-14 2014-15 2015-2016

Gross 1021,500,677 872,697,741 883,650,053 982,885,136 864,357,675

Sales

Current 672,665,127 688,268,479 733,622,892 796,578,453 788,556,000

Assets

Current 1.52 1.27 1.20 1.23 1.00

Assets
TOR

Graph: 5.4 Current Assets Turnover Ratio

Current Assets Trnover Ratio

1.6
1.4
1.2
1
0.8
Current Assets Trnover Ratio
0.6
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

It was observed that current assets turnover ratio does not indicate any trend
over the period of time. Turnover ratio was 1.52 in the year 2011-12 and decrease to
1.20 in the year 2013-14, but it increased in the year 2014-15, because of high cash
balance. Cash did not help to increase in sales volume, as cash is non earning asset.

97
 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬
𝟓) 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑹𝒂𝒕𝒊𝒐 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Table: 5.5 Current Ratio

Particular 2011-2012 2012-2013 2013-14 2014-15 2015-2016

Current Assets 672,665,127 688,268,479 733,622,892 796,578,453 788,556,000

Current liabilities 329,367,500 324,857,003 316,475,964 340,581,856 326,987,000

Current Ratio 2.04 2.12 2.32 2.34 2.41

Graph: 5.5 Current Ratio

Current Ratio
2.5

2.4

2.3

2.2

2.1 Current Ratio

1.9

1.8
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

The current ratio indicates the availability of funds to payment of

current liabilities in the form of current assets. A higher ratio indicates that there were
sufficient assets available with the organization which can be converted in cash,
without any reduction in the value. As ideal current ratio is 2:1, where current ratio of
the firm is more than 2:1, it indicates the unnecessarily investment in the current
assets in the form of debtor and cash balance. Ratio is higher in the year 2015-16
where cash balance is more than requirement which came through encashment of
deposits of funds.

98
 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬 − 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝟔) 𝑸𝒖𝒊𝒄𝒌 𝑹𝒂𝒕𝒊𝒐 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Table: 5.6 Quick Ratio

Particular 2011-2012 2012-13 2013-14 2014-15 2015-2016

C.A – 244,463,821 263,213,843 298,667,911 326,372,420 274,336,000

Inventories

Current 329,367,500 324,857,003 316,475,964 340,581,856 326,987,000

liabilities

Quick Ratio 0.74 0.81 0.94 0.96 0.84

Graph: 5.6 Quick Ratio

Quick Ratio
1.2

0.8

0.6
Quick Ratio
0.4

0.2

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

Quick ratios establish the relationship between quick or liquid assets and
liabilities. An asset is liquid if it can be converting in to cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset. Inventories are
considered as less liquid. Inventory normally required some time for realizing into
cash. The liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is more
than 1:1 over the period of time, it indicates that the firm maintains the over liquid
assets than actual requirement of such assets.

99
 𝐀𝐛𝐬𝐨𝐥𝐮𝐭𝐞 𝐋𝐢𝐪𝐮𝐢𝐝 𝐀𝐬𝐬𝐞𝐭𝐬
𝟕) 𝑨𝒃𝒔𝒐𝒍𝒖𝒕𝒆 𝑳𝒊𝒒𝒖𝒊𝒅 𝑹𝒂𝒕𝒊𝒐 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Table: 5.7 Absolute Liquid Ratio

Particular 2011-2012 2012-13 2013-14 2014-15 2015-2016

Cash & 28,702,741 22,861,959 16,016,807 30,672,718 17,976,000

Bank
Balance
Current 329,367,500 324,857,003 316,475,964 340,581,856 326,987,000
liabilities

Absolute 0.09 0.07 0.05 0.09 0.05

liquid ratio

Graph: 5.7 Absolute Liquid Ratio

Absolute Liquid Ratio

0.1

0.08

0.06
Absolute Ratio
0.04

0.02

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation

Even though debtors and bills receivables are considered as more liquid then
inventories, it cannot be converted into cash immediately or in time. Therefore while
calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand
cash at bank, short term marketable securities are taken in to consideration to measure
the ability of the company in meeting short term financial obligation.

100
 𝐒𝐚𝐥𝐞𝐬 − 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝
𝟖) 𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑹𝒂𝒕𝒊𝒐 = 𝐗 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬

Profit = Sales – Cost of Goods Sold

𝑪𝑶𝑮𝑺 = 𝑶𝒑𝒏𝒊𝒏𝒈 𝑺𝒕𝒐𝒄𝒌 + 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆 + 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆 𝑹𝒆𝒍𝒂𝒕𝒆𝒅 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔

− 𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑺𝒕𝒐𝒄𝒌

Table: 5.8 Gross Profit Ratio

Particular 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Gross profit 70567062 55233936 55200000 63700000 200372127

Net Sales 688623368 835909167 852200000 1017300000 154189951

Gross profit 10.06% 6.6% 6.0% 6.3% 13%

Ratio

Table: 5.9 Gross Profit

Year Net Sales - Cost of Goods Sold Gross Profit

2011-2012 688623368 - 805172228 70567062

2012-2013 835909167 - 1026271337 55233936

-2012-2013 852200000 - 1123939167 55200000

2014-2015 1017300000 - 1296702005 63700000

2015-2016 1541895451 - 1341523324 200372127

101
 Cost of goods sold:

Table: 5.10 Cost of goods sold

Year 2011-12 2012-2013 2013-2014 2014-2015 2015-2016

Opening 15556566 19856018 36756647 26929159 40022661

inventory

+ Purchase 809471680 1043171966 1114111679 1309795507 1348153631

-Closing 19856018 36756647 26929159 40022661 46652968

inventory

= Cost of goods 805172228 1026271337 1123939167 1296702005 1341523324

Sold

102
 Graph: 5.8 Gross Profit Ratio

Gross Profit Ratio

14

12

10

6 Gross Profit

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation:

Gross profit ratio is not every year increase. In year 2010-11, ratio is 10.06 and in
year2011-12, ratio is 6.6, it is decrease in this year. In Year 2012-2013 gross profit
ratio is 6.0, year 2013-2014 ratio is 6.3 and last year 2014-15 is 13%. Every year
purchasing sufficiency is increase and cost of sales is low. This condition is a better to
the company. Gross profit is sufficient to recover all operating expenses.

103
 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭
𝟗) 𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑹𝒂𝒕𝒊𝒐 = 𝐗 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬

Table: 5.11 Net Profit Ratio

Year 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Net Profit 70567062 55233936 55200000 63700000 30725503

Net sales 669249073 807630173 857700000 1030600000 873381109

Net Profit 10.5% 6.83% 6.43% 6.18% 3.5%

Ratio

Graph: 5.9 Net Profit Ratio

Net Profit Ratio

12

10

6
Net Profit
4

0
2011-12 2012-13 2013-14 2014-15 2005-16

Interpretation:

Net profit ratio is indicates the profitability of the company. In year 2010-11, ratio is
10.5.but it is decrease in year 2011-12 by 3.5 it is 32 on that year .in company last
three year to net profit ratio is year 2012-13, 2011 – 12, and 2012-13 is respectively
6.43%,6.83 % and 6.18%. Ratio is increase by only 9% 2010-11 year compare to
2011-12. Year 2012 – 1 compare to previous year only few percentage increase. This
condition is show profitability and it is very sufficient net profit ratio.

104
 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 ′ 𝐬 𝐅𝐮𝐧𝐝
𝟏𝟎) 𝑷𝒓𝒐𝒑𝒓𝒊𝒆𝒕𝒂𝒓𝒚 𝑹𝒂𝒕𝒊𝒐 = 𝐗 𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

Table: 5.12 Proprietary Ratio

Year 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Shareholder’s 500583235 532994840 546129683 570177099 569778000

Fund

Total Assets 672665127 688268479 733622892 796578453 788556000

Proprietary 0.74 0.77 0.74 0.71 0.72

Ratio

Graph: 5.10 Proprietary Ratio

Proprietary Ratio
0.78
0.77
0.76
0.75
0.74
0.73
0.72 Proprietary Ratio
0.71
0.7
0.69
0.68
0.67
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation:

The higher ratio, the stronger position of the enterprise as it signifies that the
proprietors have provided longer funds to purchase assets. The higher ratio is in the
year 2012-13. It shows good position, because here shareholder’s funds are increased
and total assets are also increased. The company is able to make more investment,
purchase more assets, having good capital and reserves and also have good liquid
assets on hand.

105
 𝐄𝐁𝐈𝐓
11) 𝐑𝐞𝐭𝐮𝐫𝐧 𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝 = 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐝 X 100

Table: 5.13 Return on Capital Employed

Year 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

EBIT 91755523 37613078 40128455 44352737 19006000

Capital 502778921 534460919 546675518 570400792 569881000

Employed

Return on 18.25 7.04 7.34 7.77 3.34

C.E. Ratio

Graph: 5.11 Return on Capital Employed Ratio

Return Capital Employed Ratio

20

15

10
Capital
Employed Ratio
5

0
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation:

The higher value of return on capital employed is favorable an indicating that

the company generates more earning per capital employed. And the company
generates more earning at the time of 2011-12 and than passing a year
company’s earning decline because the company will give more benefits to the
capital employed. Year 2015-16 profitability down toward the capital
employed.

106
 𝐑𝐞𝐬𝐞𝐫𝐯𝐞
12) 𝐑𝐞𝐬𝐞𝐫𝐯𝐞 𝐚𝐧𝐝 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐚𝐭𝐢𝐨 = 𝐂𝐚𝐩𝐢𝐭𝐚𝐥

Table: 5.14 Reserve & Capital Ratio

Year 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Reserve 465805235 498216840 511351683 535399099 535000000

Capital 34778000 34778000 34778000 34778000 34778000

Reserve & 13.39 14.33 14.70 15.40 15.38

Capital
Ratio

Graph: 5.12 Reserve & Capital Ratio

Reserve & Capital Ratio

16
15.5
15
14.5
14
13.5 Reserve & Capital
Ratio
13
12.5
12
2011-12 2012-13 2013-14 2014-15 2015-16

Interpretation:

The higher ratio, the stronger position of the enterprise as it signifies that the higher
ratio is in the year 2015-16. It shows good position, because here the reserve is
increased and capital is also increased but the comparisons with the capital, a reserve
is more increased. The company is able to make more investment, purchase more
assets, having good capital and reserves and also have good liquid assets on hand.

107
 HYPOTHESIS TESTSTING

HO: - There is difference among analysis different ratio in company between

2012- 2016

H1:- There is no difference among analysis different ratio in company between

2012- 2016

2011-12 2012-13 2013-14 2014-15 2015-16

Particular

Working capital turnover ratio 2.98 2.40 2.74 2.16 1.87

Inventory turnover ratio 1.01 1.22 1.31 0.85 0.89

Current ratio 2.04 2.12 2.61 2.34 2.41

Quick ratio 0.74 0.81 1.24 0.96 0.84

Gross profit ratio 10.06 6.6 6.0 6.3 13

Net profit ratio 10.5 6.83 6.43 6.18 3.5

Absolute ratio 0.09 0.07 0.05 0.09 0.05

27.42 20.05 18.92 18.88 22.56

TOTAL
N= 107.83/35 7 7 7 7 7
3.08 3.92 2.86 2.70 2.70 3.22

ANOVA TEST

SSC = ∑

nj ( xj– x)2

j=1

= 7 (3.92-3.08)2 + 7(2.86-3.08)2 + 7(2.70-3.08)2 + 7(2.70-3.08)2 + 7(3.22-3.08)2

= 13.28

108
 nj C

SSE = ∑ ∑
2
( xij – x )
j

i=1j=1

= (2.98-3.92)2 + (1.01-3.92)2 + (2.04-3.92)2 + (0.74-3.92)2 + (10.06-3.92)2 + (10.5-

3.92)2 + (0.09-3.92)2 + (2.40-2.86)2 + (1.22-2.86)2 + (2.12-2.86)2 + (0.81-2.86)2 +
(6.6-2.86)2 + (6.83-2.86)2 + (0.07-2.86)2 + (2.12-2.70)2 + (1.06-2.70)2 + (2.32-2.70)2 +
(0.94-2.70)2 + (6.0-2.70)2 + (6.43-2.70)2 + (0.05-2.70)2 + (2.16-2.70)2 + (0.85-2.70)2 +
(2.34-2.70)2 + (0.96-2.70)2 + (6.3-2.70)2 + (6.18-2.70)2 + (0.09-2.70)2 + (1.87-3.22)2 +
(0.89-3.22)2 + (2.41-3.22)2 + (0.84-3.22)2 + (13-.3.22)2 + (3.5-3.22)2 + (0.05-3.22)2

= 360.02

nj C

2
SST = ∑ ∑ (xij – x)

i=1 j=1

SST = SSC + SSE

= 13.28 + 360.02

= 373.3

109
 ANOVA TABLE:-

Sources of variance SS d.f Mss Fc

SSC 13.28 C= 7 1.90 0.14
SSE 360.02 N-C = 28 12.86 0.85
Total 373.3 N-1 = 34 10.98 -

At 5% level of significance =

FC < FT

0.14<2.37

; .Test is significance.

There for Null Hypothesis is accepted and AlterNet hypothesis is rejected

There is significance difference between in analysis of different ratio at Austin

engineering company.

110
 Chapter 6
Findings/ Suggestions
& Conclusion

111
Findings

 After analyzing the financial statement I found that the current assets and current
liabilities are managed in good ways.
 The position of debt to equity is good. The company have decrease their long term
liabilities and increase the own fund. So it can be able to meet liabilities.
 The liquid position of the company is not that much good. The liquid liabilities of
the company increases which affects to the liquid position of the company.
 The gross profit and net profit is on increasing level.
 The total asset which is blocked in the company is not satisfactorily working. It
cannot be able to increase the net profit.
 The proprietary ratio shows that there is strong fund in the company to purchase the
assets. They can meet the requirement of assets.

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Suggestions

 The liquid position of the company is not good. To have liquidity, the company has
to decrease its liabilities.
 To increase net profit the company has to increase productivity and sales.
 The investment in fixed assets is increasing from last 5 years. It is good thing but if
it is not used efficiently then it is of no use it cannot help in making profit. So, that
it will help in improving productivity and ultimately it will lead to have a handsome
profit.
 I would suggest another thing that the current liability of the company is increases.
It is not good. The company should make control over the current liabilities. So that
working capital can be used efficiency into the company.

113
Conclusion

After analyzing the financial statement with the help of ratio analysis it can be conclude
that Austin Engineering Co. Ltd. is on raising path. The company’s sale is increased in
2015-16, it is been on fluctuating.

If I see the current assets of the company it is on increasing level but at the same time C.L.
is also increasing C.A. increases, it is good but they have to control the C.L., so that
working capital position of the company can be efficient.

The profit of the company is increasing gradually. The cash balance is also good and on
increasing level. This shows good liquid position in the company.

The shareholder’s funds are also on increasing level year by year. It is good for the
company to retain their earnings and it will be also helpful to cope up with the
contingencies. So, overall financial performance and position of Austin Engineering Co.
Ltd. is good.

114
Bibliography

 Ambrish Gupta, “Financial Accounting for Management”, Pearson Publication,

3rd edition 2009
 Eljelly”Liquidity profitability tradeoff- an empirical investigation in an
emerging market”, international journal of commerce and management. (2004)
 Haworth and Westhead” Ratio Analysis: Turned Down By The Bank” (April
2003)
 The accounting world Icfai University (April 2008) “Ratio Analysis”
 Nissim, D & Penman “Ratio analysis and equity valuation: from research to
practice” (2001)
 Gupta mc and Rj huefner “A cluster analysis study of financial ratios and
industry characteristics” (1972)
 Mabe kumbirai and Robert webb “A financial ratio analysis of commercial
bank performance in south Africa.” (2010)
 Y.A. babaloala and F.R. abiola “Financial Ratio Analysis of firms: A tool for
Decision Making (2013)

WEBSITE
WWW.aec-bearing.com.viewd on 7 Sep., 2016 (2.30 AM)
http://bearingsindustry.com/indprofile.htm viewed on 10 Oct., 2016 (9:35 PM)

Financial Accounting for Management – Ambrish Gupta

Research & Methodology - C. R. Kothari

Management Accounting - S. N. Maheshwari

Financial Management - I. M. Pandey

115
Chapter 7 Appendix

116
 Appendix
Profit and Loss Account

Particular 2016 2015 2014 2013 2012

Sales 864,357,675 982,885,136 883,650,053 872,697,741 1021,500,677

+ other income 22,274,659 27,786,839 23,917,709 25,047,569 31,491,000

886,632,334 1010,671,975 907,567,762 897,745,310 1052,991,677

- Excise duty 164,348,334 27,684,536 34,186,653 35,428,187 35,800,000

Revenue from operation 722,284,000 982,987,439 873,381,109 862,317,113 1,017,191,677

Other income 15,950,000 2,507,852 14,348,032 8,435,218 13,398,477

Total income 738,234,000 985,495,291 887,729,141 870,752,331 1,030,590,154

Expenses

Cost of material consumed 211,021,000 314,078,273 264,943,572 229,591,110 368,375,111

Purchase of stoke 137,838,000 149,424,623 145,357,571 134,921,946 126,884,551

Change in inventories (37,462,000) (37,325,527) (9,268,139) (9,654,932) (82,695,763)

Employee benefit expense 183,443,000 169,088,459 146,556,371 147,364,369 131,790,507

Finance cost 10,342,000 9,417,371 6,946,129 12,006,026 11,076,669

Depreciation 13,129,000 13,085,229 21,835,857 20,794,865 19,892,958

Other cost 238,929,000 323,374,126 271,229,325 298,115,869 363,510,598

Total expenses 757,240,000 941,142,554 847,600,686 833,139,253 938,834,631

Profit before exceptional (19,006,000) 44,352,737

117 40,128,455 37,613,078 91,755,523
and extraordinary item
 and tax (3-4)

Exceptional items - - - - -

Profit before extraordinary (19,006,000) 44,352,737 40,128,455 37,613,078 91,755,523

item and tax (5-6)

Extraordinary items - - - - -

Profit before tax (19,006,000) 44,352,737 40,128,455 37,613,078 91,755,523

Tax expense

Current tax - 15,950,000 14,240,000 12,145,000 30,000,000

Deferred tax (3,216,000) (4,454,773) (4,837,048) (1,559,423) (1,920,925)

Total tax (3,216,000) 11,495,227 9,402,952 10,585,577 28,079,075

Profit for the period (22,222,000) 32,857,510 30,725,503 27,027,501 63,676,448

BALANCE SHEET

Particulars 2016 2015 2014 2013 2012

Shareholder’s funds
(a) Share Capital 34,778,000 34,778,000 34,778,000 34,778,000 34,778,000

(b) Reserves and Surplus 535,000,000 535,399,099 511,351,683 498,216,840 465,805,235

Non- current liabilities
(a) Long-term borrowings 103,000 223,693 545,835 1,466,079 2,195,686
(b) Deferred Tax liabilities ---------------- ---------------- --------------- 1,777,930 3,337,353
(Net)
(c) Long-term Provisions 43,399,000 33,818,433 21,547,257 2,760,669 1,607,430
Current Liabilities
(a) Short term borrowings 90,176,000 93,518,511 53,148,904 71,663,025 81,829,244

118
(b) Trade payables 157,573,000 173,290,118 184,062,984 164,557,692 154,573,735

(c) Other current liabilities 50,509,000 38,089,280 45,970,032 34,238,245 32,668,745

(d) Short term provisions 28,729,000 35,683,947 33,294,044 54,398,041 60,295,776
TOTAL : 941,471,000 944,801,081 884,698,739 852,369,139 837,091,204
II ASSETS
1. Non-current assets
(a) Fixed assets
(i) Tangible assets 91,902,000 96,629,186 103,162,420 113,907,808 116,030,011
(ii) Intangible assets 30,634,000 25,675,783 27,205,060 27,203,412 28,251,351
(b) Non-current 17,86,000 4,057,625 4,899,773 5,330,273 5,330,273
investments
(c) Deferred Tax Assets 13,553,000 8,729,659 3,059,118 ---------------- ---------------
(Net)
(d) Long-term loans and 15,058,000 13,130,375 12,749,476 17,659,167 14,814,442
advances

2. Current assets

(a) Inventories 514,220,000 470,206,033 434,954,981 425,054,636 428,201,306

(b) Trade receivables 224,837,000 247,426,936 249,753,942 210,209,383 181,744,075

(c) Cash and Cash 17,976,000 30,672,718 16,016,807 22,861,959 28,702,741

equivalents

(d) Short-term loans and 31,428,000 48,186,602 32,806,481 30,024,138 33,831,999

advances

(e) Other current assets 95,000 86,164 90,681 118,363 185,006

TOTAL : 941,471,000 944,801,081 884,698,739 852,369,139 837,091,204

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