anil project working
TRANSCRIPT
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I acknowledge my greatest thanks to Mr. R.R. SINGH for the gracious help
without which I could not have completed my project on study offinancial
statement analysis in ARSS INFRASTRUCTURE ltd Bhubaneswar.
I would like to pay my sincere gratitude which I owe to Mr. SWARUP PANIGRAHI
(FACULTY OF GIM) my esteemed project guide for his valued help and guidance
which he gave me when I needed it the most. It was only due to his sincere help
and effort that I was able to end up with this project.
Date :
Place :BHUBANESWAR
Signature:
I Mr. ANIL SHAW GOND, a student of MBA, 3rd semistar, Biju Pattnaik university
of technology, Rourkela, session(2011-2013) here by declaring that the summer
internship project report, entitled FINANCIAL STATEMENT ANALYSIS in ARSS
INFRASTRUCTURE LtdBHUBANESWAR is the outcome of my own work and the
same has not been submitted to any University/ Institute for the award of any
degree or any professional course.
All the data and analytic statement being stated in the project that had been
submitted by me may be accepted as fully authentic genuine.
Bhubaneswar
DATE: MBA (2010-2012)
Regd no: 1006278002
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INTRODUCTION
Financial statement analysis applies analytical tools and techniques to general
purpose. Financial statements and related data to derive estimates and
inferences useful in business decision. It is the screening tool in selecting
investment or merger decisions. It is the forecasting tool of future financialconditions and consequences.
It is the diagnostic tool in assessing financing, investing and operating activities
it describes our uncertainty in decision making.
DEFINATION OF FINANCIAL STATEMENT ANALYSIS:
It report a company is post financial performance and current financial position.
They are designed to provide four primary business activities.
(i) Planning(ii) Financing(iii) Investing(iv) Operating activities.
Financial statement analysis helps us to answer these questions.
Shareholders and creditors assess future company prospects for investing and
lending decisions. Board of directors used the financial statements information in
monitoring management decision. Employees and unions use financial
statements in labour negotiations. Supplier use financial statement inestablishing the credit terms. Credit rating analysis uses the financial statement
for the purpose of credit rating. Auditors use financial statement in assessing the
fair presentation on their clients financial statement numbers.
Financial statement analysis helps the share holders to answer the future
learning potential, current financial conditions, current capital strategies etc.
Use of the financial statement is broadly divided into the internal uses and the
external uses. By using the financial statement internal uses, taking the strategic
and operating decision of a firm. External uses are not directly involved in the
firm s operation. These uses must rely on information provided by management
as a part of the financial reporting process. Creditors looks to the financial
statement for evidence concerning the ability of the borrowers to pay periodic
interest payment and repay the principle amount when the lo0an matures.
Equity investors are generally invested in assessing the future profitability and
riskiness of projects.Merger and acquisition analysts are interested in
determining the economic value and assessing the financial and operating
compatibility of potential merger candidates.
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Company profile
ARSS is one of the fastest growing construction companies of India, focusing
on infrastructure construction segment including highways, buildings and railways.
Incorporated in 17th May 2000 by a group of professionals, it has rapidly achieved a
turnover of Rs. 1013.00 corers. It has completed 80 projects across India, with
aggregate contract value of over Rs. 7000 million, for various clients all over India.
ARSS has a unique business model, with proven expertise in innovative thinking,
project and cost management. We are focused on delivering high quality work within
budgeted time and costs, as evident in the various accolades and repeat business. Wehave also developed an appropriate blend of entrepreneurs and hands on
professionals, constantly thinking & executing innovative and cost effective solutions
to clients' requirements.
Today it is acknowledged as a company that continues to empower India, enabling
the nation to surge ahead in different core sectors. At the heart of all our development
efforts is the attempt to touch and improve the quality of life of people across the
length and breadth of the country.
In fact, ARSS, as an industry leader in engineering construction, currently nurtures
projects that span across such diverse segments as railway, real estate and highways,
all of which impact the nation of India, and the progress of its people.
ARSS, even as you read this, is bringing to bear its wealth of engineering and
construction expertise to develop infrastructure aimed at further propelling the nation
forward, into the 21st century and beyond.
BOARD OF DIRECTORS OF ARSS INFRASTRUCTURE LTD.
CHAIRMAN
Mr.Subash Agarwal
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Managing Director
Mr. Rajesh Agarwal
Chief Executive Officer
Mr. Sunil Agarwal
Chief Operating Officer
Mr.Anil Agarwal
VISIONs
To be a respected global player in the infrastructure development sector.
To satisfy our customers and enhance our shareholders wealth.
To have innovation and commitment as the two mantras that drives us.
To attract, develop and sustain the best talents in the industry.
To continue to focus on the culture of trust.
To provide continuous learning opportunities while meeting the
expectations of our employees, stakeholders and the community.
MISSION
To develop infrastructure through effective use of new ideas and cuttingedge technology.
To become a major player in the railway infrastructure sector. To conquer new horizons and new heights. To do this while enriching and enhancing the quality of human life. To diversify into marine, gas and oil pipelines systems as well as airport
projects.
To set our eyes on international arenas and no longer remain limited todomestic projects.
To be a leader in the road infrastructure sector.
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GOAL
Focus on profitability.
Focus on achievement.
Focus on quality.
Focus on connectivity.
Focus on linking lives.
Focus on bridging the gap.
Focus on competence.
Focus on achievements.
Focus on sustainability
.
ACHIEVMENT
Laurels and achievements In 2008-09, the company was awarded with
three World Bank-assisted projects by the government of Orissa.
Unprecedent growth Registered an increase of 99% in the consolidated
revenue over the previous year.
Strong order book Contracts worth Rs.2, 788.37 corers as on March 31,2010.
Risk reduction The best parts of our contracts are with esteemed clients
such as the government, PSUs and other government agencies, thereby
reduction the risk of default and delayed payments.
Nurturing relationships Maintained long-term relationship with these
reputed clients with our clients-centric policies. This resulted in repeat
orders from the government of Orissa, railways department, rail vikas
nigam limited and RITE.
Expansion into new arenas Diversified successfully into irrigation and
canal construction.
Growing bid capacity Enhanced our bid capacity by strengthening our
technical and financial capability and by drawing on our long years of
experience. Successfully bid and procured additional projects.
Expertise and experience Adequately mobilised resources including
equipment, raw material and personnel at short notice while maintaining atrack record of speedy completion of projects.
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CONTRACTS TAKEN BY COMPANY
The company has proposed to take high value technical contracts in entire
country and has also negotiated some important contracts for railway and
other important infrastructure projects. One of the most economical and
biggest project taken by the company is the Golden Quadrilateral project
joining the four metros in the country. The company has taken the
construction of NH-5 within Orissa and the work is going on with doubling of
the road track of the National High way.
A. ROAD WORKSL.NO NAME OF WORK Value of
contract
In lakhs
1 Improvement of Panikoili- Ragadi Road in the
district of Jaipur.
537.57
2 Improvement of Pattamundai- Raj Nagar Road
In the district of Kendrapara.
514.41
3 Repair such as widening & strengthening to
road from Pokhariput level crossing to
Khandagiri (NH-5) Via Gandamunda in
Bhubaneswar (4 laning of the road)
771.76
4 Providing a two lane carriage way to
Jagannathpur-Phulbaniroad as a part of
Vijayawada-Ranchi corrider.
1828.61
5 Special repair such as improvement to Jayadev
Vihar junction at Bhubaneswar for the year
2007-08
347.90
6 Widening of the single lane to two way carriage
way of NH-224
876.65
7 Construction of roads at paradeep Refinery 1346.15
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site, Paradeep, Orissa, IOCL.
B. RAILWAY WORKSL.NO NAME OF WORK Value of
Construction
In Lakhs
1 New BG railway line between Tomka Keonjhar-
Banshpani of Khurda Road division in E.Co.
Railway.
306.93
2 Khurda road Yard Remodelling: Supplying and
Staking of hard durable stones machine
crushed trak ballast at Khurda road.
44.79
3 Construction of road bed including major and
minor bridges facilities and general notification
in connection with construction of New BG line
between Haldharpur & paradeep in East cost
Railway in the State of Orissa, India.
1828.62
C. BRIDGE WORKConstruction of sub-structure consisting of Pile and open foundation,
piers, abutments and other ancillary works for 5 major bridges. CA NO/
IRCON/RVNL.RBRP/Major Bridges between Rajathagarh-Barang.
1. Construction of Road over Bridge of Punamagate Railway level crossingincluding the approaches on Bhubaneswar of R.D.
2. Construction of Steel Girder Bridge (30.5m span) in the work RailwaySiding from Gatora to in plant yard (KM 0.963 to KM 12.880) for NTPC-
SIPAT SSTPP PKG-1.
3. Construction four ROBs in the Railway Siding from Gatora to Inplantfor NTPC Sipat (total 4 nos.of ROB).
4. Construction of three nos.PSC girder bridges (Major Bridges) of MGRsystem of NTPC sipat to Dipak in Package-II and Package-V.
D. IRRIGATION WORKSWe are construction a Dam and its appurtenant works in the Panchkula
district of Haryana valuing Rs.120 Corers. This involves design / delivering
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/ erecting radical gates, Hoist Bridge mounted on trestles and allied
component.
The work is to provide an impound reservoir for storing base flow of
almost throughout the year. Work involved is 35 laces cubic metre of
earthwork, 50 thousand cubic meter of concrete, 20 thousand cubic meter
of RR masonry including and 300 square meter of spill way gate 10,000
meter of 46mm. Hole drilled and grouted for making the spill way & dam
structure.
Nature of Work Client
Contract
Value
(Rs. in
lacs)
Project
Status Start Date
Construction of K dam
and its apaushalya
purtenant works
Haryana
Irrigation
Department
11299.19 Joint
Venture
Mar7, 2008
Construction of
Baharagora distributory
dam Executive
Engineer
Konar
Canal
Division
3600.00 Independent Dec24, 2007
CURRENT CONTRACTS/PROJECTS
Widening and strengthening of the Chandbali- Bhadrak-Anadpur carriageway
to two lanes.
Widening and strengthening of the Bhawanipatna- Khariar Carriageway to two
lanes.
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Widening and strengthening of the Berhampur- Taptapani carriageway to twolanes.
Construction of bridges, platforms, station buildings, passenger amenities,
platform shelters and more between Tirunelveli and Tenkasi junctions.
Construction of pavements and repair of the Cuttack- Paradeep Road.
Enabling railway connectivity to coal and iron ore yards under Civil Works
Phase I, ENORE.
Construction of station buildings, platforms, approach road, service building
and more for the BG Railway line from New Maynaguri in West Bengal to
Jogighopa in Assam.
Construction of a four-lane approach road from NH-31 to the plant site of
Koderma TPS in Jharkhand.
Construction of rail infrastructure facility for transportation of coal from Naila
Railway Station.
Improvement of the Vijaywada-Ranchi corridor from Rairakhole to Naktideol.
Construction of major and minor bridges, retaining walls, stations and more
between Harsauli-Rewari.
AREAS OF OPERATION OF ARSS INFRASTRUCTURE
CORPORATE OFFICE - NEW DELHI.
REGISTERED OFFICE- BHUBANESWAR.
BRANCH OFFICE HARYANA, RAJASTAN, CHATISGARH, MUMBAI,
ANDHRA PRADESH, TAMIL NADU.
WORKS/SITE OFFICE ASSAM, JHARKHAND, KERALA.
ACCOUNTING POLICIES
1. BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost
convention on accrual basis of accounting in accordance with generally
accepted accounting principles [GAAP] , accounting standards issued by
the institute of chartered accounting of India, as applicable and the
relevant provisions of the companies Act, 1956.
2. USE OF ESTIMATES
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In preparing the financial statements in conformity with accounting
principles generally accepted in India, Management is required to make
estimates and assumption that affect the reported amount of assets and
liabilities as at the date of the financial statements and the amounts of
revenue and expense during the reported period. Actual results could
differ from those estimates. Any revision to such estimates is recognised
in the period the same is determined.
3. FIXED ASSETS
Fixed assets are stated at cost of acquisition inclusive of taxes,
duties, freight and other incidental expenses related to acquisition and
installation less accumulated depreciation. Self-constructed assets are
capitalised at cost including an appropriate share of overhead.
4. DEPRECIATION
Depreciation is provided on straight line method at the rates
specified in schedule-XIV to the companies Act, 1956.
Depreciation on addition/deletion of fixed assets during the year is
provided on pro-rata basis with reference to the date of addition/deletion.
5. BORROWING COSTS
Borrowing costs that are attributable to the acquisition,construction or production of a qualifying asset are capitalised as part of
cost of such asset till such time the asset is ready for its intended use or
sale. All other borrowing costs are recognised as expense in the period in
which they are incurred.
6. INVESTMENT
Investment in integrated joint ventures are carried at cost net of
adjustments for the companys share in profits or losses as recognised.
7. INVENTORIES
1. Raw materials, stores and spares and finished goods.
Raw materials, construction materials and finished
Goods are valued at the lower of cost and net
Realisable value.
2. Work -in-progress
The work-in-progress is valued as percentage of
Completion contract method as per accountingStandard 7 on construction contracts issued
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by the institute of chartered accountants of India.
8. REVENUE RECOGNITION
The company follows the percentage of completion method as
accounting standard-7 on construction contracts issued by the institute
of chartered accountants of India to recognise revenue in respect of
contracts executed. Contract revenue is accounted for on the basis of bills
submitted to clients/bill certified by clients and does not include material
supplied by the clients free of cost. Other revenue and expenses are
accounted for on accrual basis.
9. TAXES ON INCOME
Tax on income for current period is determined on the basis of taxable
income and tax credits computed in accordance with the provisions of the
income tax Act, 1961.
Deferred tax is recognised on timing differences between the accounting income
and the taxable income for the year, and quantified using the tax rates and laws
enacted or substantively enacted as on the balance sheet date.
10. EMPLOYEE BENEFITS
1)Short-term employee benefits
All employee benefits falling due wholly within twelve
months of rendering the services are classified as short-employee benefits. The
benefits like salaries, wages short-term compensated absence etc. and the
expected cost of bonus is recognised in which the employee renders the related
services.
2) Post- employment benefits
Defined contribution plan: The Company has a defined contribution
plan for state governed provident fund scheme and employees state insurance
scheme. The contribution paid/payable under the scheme is recognised during
the period in which the employee renders related service.
3)The company is in the process of finalising a agency for managing
the gratuity fund ascertaining the liability on the basis of actuarial valuation.
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Pending finalisation of the same liability for current year has been provided on
adhoc basis.
11. CONTIGENT LIABILITES AND CONTIGENT ASSETS
No provision is made for liabilities which are contingent in nature, unless it
is probable that an asset has been impaired or aliability incurred as on the
balance sheet date and a reasonable estimate of the resulting loss can be made.
Details of contingent liabilities are given below:
Contingent assets are neither recognised nor disclosed in the financial
statements.
12. OVERDUE CHARGES IN RESPACT OF LOAN
SL. NO. Name of the statute to which the
liability relates
Amount
1 Orissa sales tax Act 106.27
2 Orissa entry tax Act 34.44
3 Central sales tax Act 500.16
4 Rajasthan vat Act 219.99
5 Andhra Pradesh commercial taxes
(ET)
2.08
6 Orissa electricity Act 47.22
7 Corporate guarantees to sister
concern of the company:
A ARSS bio fuel (P) Ltd. 260.00
B Anil contractors (P) Ltd. 600.00
8 Performance bank guarantee 12,689.36
TOTAL 14,459.52
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Overdue charges if any levied by financial institution/banks/NBFC
are not considered during the currency of the loan. The same is
considered as a financial expense in the year of final settlement of loan
amount.
CUSTOMERS OF ARSS INFRASTRUCTURE LTD
The companys valued customers are:
Govt. of Orissa
Govt. of Haryana
Rail Vikash Nigam Limited
RITES Limited
IRCON International LimitedNational Thermal Power Corporation(NTPC)
National Highway Authority of India (NHAI)
ESSEL Mining
Damodar Valley Corporation
Orissa State Disaster Mitigation Authority (OSDMA)
Indian Oil Corporation Limited (IOCL).
Hindustan Petroleum Corporation Limited (HPCL).
Jaipur Development Authority
East Coast Railway
South Eastern Railway
North Western Railway
Southern Railways
Central Railway
Northeast Frontier Railways
Tamil Nadu Industrial Road Infrastructure Corporation Limited.
Jindal Steel And Power Limited
Vishakhapattanam Steel Plant
Rourkela Steel plant.
Vedanta Aluminum Limited
JOINT VENTURES OF THE ARSS INFRASTRUCTURE LTD:
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The joint venture partners, in mutual consultation with one another determine
the quantum of work to be executed by each joint venture partners vide entering
into memoranda of understanding/joint venture agreement. The work awarded
to joint venture is executed by them independently or through the sub-
contracting to the third party including the joint ventures partners.
The Company has entered into following joint venture agreements: -
1. HCIL - ARSSSPL - TRIVENI (JV)
2. HCIL - KALINDEE - ARSSPL (JV)
3. HCIL - ADHIKARIYA - ARSS (JV)
4. NIRAJ - ARSS (JV)
5. ARSS - HCIL (CONSORTIUM)
6. ATLANTA - ARSS (JV)
7. PATEL - ARSS (JV)
8. ARSS - TRIVENI (JV)
9. SOM DATT BUILDERS -ARSS (JV)
10. ARSS-MVPL (JV)
11. BACKBONE-ARSS (JV)
12. ARSS-ANPR (JV)
CAPITAL RAISED DURING THE YEAR :( Amount in Thousands)
2005-
06
2006-07 2007-
08
2008-
09
2009-10 2010-
11
2011-
12
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Public
issue
Nil Nil Nil Nil 1030153000
Bonus
issue
Nil 69007000 Nil Nil Nil
Share
application
money
Nil Nil Nil Nil Nil
Right
issue
Nil Nil Nil Nil Nil
SCOPE OF THE STUDY
The present study is confirmed to ARSS infrastructure projects ltd. only.
Corporate office is situated at SBI colony paschim vihar. New Delhi and the
registered office are located at mancheswar industrial estate, Bhubaneswar,
Orissa. ARSS infrastructure projects ltd. Is a leading construction company of
India. It also holds most of the projects, relating to construction of high ways inOrissa.
ARSS infrastructure projects ltd. An ISO 9000: 2001 company (abbreviated as
ARSS) was in corporate on 17th may 2000 under the jurisdiction of the register
of companies, Orissa. With present turnover more than 100 corers, the company
has emerged as a major contributor towards growth of infrastructure related
activity in other spheres, in regard to developing infrastructure facilities related
to central and state govt. organization viz CPWD, state PWD and PSUs like
RITES ltd. Rail vikas nigam limited.
The study aims at analyzing the financial statements of ARSS infrastructure
projects ltd. The time period assumed under the study is limited to last five
financial years i.e. 2003-2004, 2004-2005, 2005-2006, 2006-2007 and 2007-
2008.
The scope of this study includes the following aspects:
Origin of ARSS infrastructure projects ltd. Operation of ARSS infrastructure projects ltd. Work force distribution. Information regarding finance department and its function.
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OBJECTIVES OF THE STUDY
Focus on determining financial strength and weakness of ARSSinfrastructure projects ltd.
To study and analyze the operating efficiency of the organization To know what is the liquidity position of the organization To analyze the trends in various items included in the balance sheet and
income statement using ratio analysis.
Interpreting the results of the study for meaningful conclusion andsuggestion
RESEARCH METHODOLOGY
Collection of data:
The study banks upon both the primary as well as secondary sources for
gathering the required information.
Primary data sources: primary data are collected from individuals, officials, a
guide views and meeting the various financial executives of ARSS infrastructure
projects ltd.
Secondary data sources: secondary dates are collected from internal sources
as well as external sources.
The secondary sources include: Annual report Commercial data Official records in the organization Files Books on subjects Published report relevant to the topic News, letters and other publications Website
LIMITATIONS OF THE STUDY
1. Limitation of time2. All the relevant data are not available3. Certain information was kept confidential by ARSS infrastructure projects
ltd. Managed on the ground of confidentiality.
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4. Extensive analysis could not be made due to limited source of funds.Inspite of all these difficulties, the researcher has tried his best collect all
relevant data or information to make his study successful.
5. Also there is another problem of not getting the monthly data of theinventory.
6. There was a problem of distance of that particular organization from us.7. Cross sectional analysis is absent
Areas of study
1. Ratio analysis2. Common size income analysis3. Common size positional analysis4. Comparative income statement analysis5. Comparative positional statement analysis6. Cash flow statement analysis.7. Time series analysis.
THEORITICAL PRESENTATION OF RATIOANALYSIS
1. MEANING OF RATIOA ratio is a simple arithmetical expression of the relationship of onenumber to another. It may be defined as the indicated quotient of two
mathematical expressions. According to accountants Handbook by Wixom,
Kelly and Bedford, a ratio is an expression of the quantitative relationship
between two numbers.
Ratio analysis stands for the process of determining relationship of items,
group of items in the financial statement. IT is an important technique of
financial analysis. It is a way by which financial stability and health of a
concern can be judged. The following are the main points in use of ratio
analysis.
Helps in decision making Helps in financial forecasting and planning Helps in communicating Helps in co-ordination Helps in control Utility to share holders Utility to creditors
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Utility to employees Utility to government Tax and audit requirement
The objectives of ratio analysis are the followings
Financial forecasting Facilitates comparisons Cost control Proper communication
Guidelines or precautions for use of ratios
The calculation of ratio may not be difficult task there use is not easy. The
information on which these are based, the constraints of financial statement,objectives for using them , the caliber of the analyst, etc. are important factors
which influence the use of ratios . Following guidelines or factors may be kept in
mind while interpreting various ratios.
Limitations for ratio analysis:
Limited use of time Lack of adequate standard Inherent limitations of accounting
Changes of accounting procedure Window dressing Personal bias Incomparable Absolute figures distortive Price level changes Ratios no substitute
Classification of ratios
The ratio analysis is one of the most powerful tools of financial analysis. Broadly
ratios are classified into four categories.
a) Liquidity ratiob) Activity ratioc) Profitability ratiod) Leverage ratio
LIQUIDITY RATIO
Liquidity refers to the ability of a concern to meet its current obligations as andwhen it becomes due. It determines the credit worthiness of a company to meet
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its short term liabilities or commitments. To measure the liquidity of a company,
the following ratios can be calculated.
i) current ratioii) quick or acid test or liquid ratioiii) absolute liquid ratio or cash position ratio
1. Current ratioCurrent ratio may be defined as the relationship between current asset and
current liabilities. Current ratio, also known as working capital ratio, is ameasure of general liquidity and is most widely used to make the analysis of a
short term financial position or liquidity of a firm. It is calculated by dividing the
total of current asset by current liabilities.
Current ratio = current asset/ current liability
A relatively high current ratio is an indication that the firm is liquid and has the
ability to pay its obligations in time as and when they become due. On the other
hand, a relatively low current ratio represents that the liquidity position of the
firm is not good and the firm shall not be able to pay its current liabilities. As a
conversion the minimum of 2:1 ratio is referred to a bankers of thumb rules.
In a time series analysis of current ratio for last five years it is assumed that on
the ground of liquidity position the ARSS infrastructure limited is sound. The
YEAR CURRENT ASSET CURRENT LIABILITIESCURRENTRATIOS
2011-12 140951.69 115689.41 121836294264
2010-11 12177114518 3232071801 3.767587872
2009-10 6988782501 1705834194 4.096988163
2008-09 3585863626 1320224186 2.716102056
2007-08 2156643952 951070095 2.267597271
2006-07 540845439 141025428 3.835091633
2005-06 307866662 131472347 2.341683776
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current ratio is excess than the target current ratio which is 1.50.that means
there is an excess blockage of capital, so management should take certain steps
to reduce the current asset.
2. Quick asset or acid test ratioQuick ratio also known as Acid test ratio or Liquid ratio is a more rigorous test of
liquidity than the current ratio. It may be refined as the relationship between
quick or liquid assets and current liability. Current asset excluding inventories,
work in progress and prepaid expenses are known as quick asset or liquid
assets.
Liquid ratio= liquid assets/ current liabilities
Usually a high acid test ratio is an indication that the firm is liquid and has the
ability to meet its current obligations. on the other hand a low quick ration
represent that the firm liquidity position is not good. As a rule of thumb or as
convention quick ratio of 1:1 is considerable satisfactory.
YEAR QUICK ASSET CURRENTLIABILITY
ACID TEST RATIO
2011-12
2010-11
4133931536 3232071801 1.279034561
2009-10
3209282007 1705834194 1.881356358
2008-09
1619317130 1320224186 1.226547087
2007-08
1534540792 951070095 1.613488638
2006-07
467546604 141025428 3.315335473
2005-06
203660327 131472347 1.549073487
In a time series analysis of quick ratio, it is satisfactory position. According to
the rule of thumb quick ratio of 1:1 is a comfortable position for any company. If
we analysis the data for six years it is comfortable.
3. ABSOLUTE LIQUID RATIO
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Absolute liquid ratio is the relationship between the absolute liquid asset and the
current liabilities. Absolute liquid assets are finding out by subtracting the bills
receivable and sundry debtors from the liquid assets.
Absolute liquid ratio=(cash in hand + cash at bank +short term
marketable securities )/ current liabilities
The standard norm is 0:5:1 or 1:2 which means that re.1 of absolute liquid
assets are sufficient to pay Rs. 2 worth of current liabilities. This ratio is not used
widely because a huge amount of idle cash has to be kept.
With the above data it is analyzed that the cash and cash equivalent is sufficient
for the firm for current operation .on the ground of liquidity there is no problem
but on the ground of absolute liquid asset it is more than the current liability.
The absolute liquid asset is more due to presences of NSC certificate in the
marketable security .the company holding the same due to the some Security is
required in the process of taking the government contracts.
Comparison between the current ratio, quick ratio and cash ratio
YEAR CURRENTRATIOS
ACID TESTRATIO
CASH RATIO
2011-12
2010-11 3.767587872
1.279034561 1.142884926
2009-10 4.096988163
1.881356358 1.46647985
YEAR ABSOLUTE LIQUIDASSET
CURRENTLIABILITIES
CASH RATIO
2011-12
2010-11 3693886142 3232071801 1.142884926
200910 2501571472 1705834194 1.46647985
2008-09 1274625221 1320224186 0.965461196
2007-08 880966422 951070095 0.926289688
2006-07 322410299 141025428 2.286185574
2005-06 131868458 131472347 1.00301288
5
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2008-09 2.716102056
1.226547087 0.965461196
2007-08 2.267597271
1.613488638 0.926289688
2006-
07 3.835091633
3.315335473 2.286185574
2005-06 2.341683776
1.549073487 1.003012885
When it is compared between the current ratio & acid test ratio it is found that
acid test ratio is comfortable in all years .but current ratio is excessive in 2010-
11 and 2009-10.the excessive is Due to in these two years there is a huge
inventories .so management should use economic order quantity model to
reduce the inventory level. Cash ratio
(b) EFFICIENCY or ACTIVITY RATIO
Activity ratio measures the efficiency or effectiveness with which a firm manages
its resources or assets. These ratios are also called turnover ratios because they
indicate the speed with which the assets are converted into sales. Basically there
are three activity ratios:
(i) Inventory or stock turnover ratio(ii) Debtors turnover ratio(iii) Creditors or payable turnover ratio.
(i) inventory or stock turnover ratioEvery firm has to maintain a certain level of inventory of finished goods so as
to be able to meet the requirements of the business. The level of inventory
should neither be too high nor be too low. High level of inventory is not
satisfactory due to the unnecessary blockage of capital, over stocking,
chances of pilferage, theft etc. on the other hand, too low inventory shouldmaintained.
INVENTORY TURNOVER RATIO= COST OF GOODS SOLD/ AVERAGE
INVENTORY
Inventory turnover ratio measures the conversation of stock into sales.
Usually a high inventory turnover ratio indicates efficient management of
inventory because more frequently the stocks are sold; the lesser amount of
money is required to finance the inventory. On the other hand a low
inventory turnover ratio indicates an efficient management of inventory.
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Year
COST OF GOODS
SOLD
AVERAGE
INVENTORY
INVENTORY TURNOVER
RATIO2011-12
2010-11 8915457251 5736038128 1.554288352
2009-10 7625408085 2791896534 2.731264569
2008-09 4892335677 1252404050 3.906355682
2007-08 2530581376 347700998 7.278038863
2006-07 1069510979 88752585 12.05047694
2005-06 497891428 81317926 6.122775783
This time series analysis of inventory turn over ratio gives a clear picture that
from 2005-06 to 2010-11 the inventory turnover ratio decline except in
2006-07.decling this ratio means it is not a good indictor of inventory
management system .this is due to delay of the projects .So managementshould start the projects as soon as possible.
(ii) Debtor or receivable turnover ratioA concern may sell goods on cash or as well as on credit. Credit is one of the
important elements of sales promotion. Debtors arise due to the credit policy
adopted.
(a) Debtors turnover ratioDebtor turnover indicates the velocity of debt collection of the firm. In simple
words it indicates the number of times the debtors are turned over during a
year.
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DEBTOR TURNOVER RATIO= NET ANNUAL credit SALE/ AVERAGE
TRADE DEBTOR
Debtor velocity indicates the number of times the debtors are turned over during
a year. Generally, higher the value of debtors turnover ratio the more efficient is
the management of debtors or sales or more liquid is the debtors. Similarly lowdebtors turnover implies inefficient management of debtors or sales and less
liquid debtors.
YEARNET CREDIT ANNUALSALE
AVERAGE TRADEDEBTOR
DEBTORS TURNOVERRATIO
2011-2012
2010-11 12574659671 749181575 16.78452873
2009-10 10130855134 607328183 16.68102258
2008-09 6282413084 541053918 11.61143626
2007-08 3155032088 399355338 7.900312799
2006-07 1338321101 108464088 12.33884068
In a time series analysis it is found that debtors turnover ratio is comparatively
better in 2010-2011 &2009-10.it shows that there is a better receivable
management in recent years which is a good indictor of managerial efficiency.
With the holding of less cash company will manage effectively and
efficiently.
(b) Average collection period ratioThe average collection period represents the average number of days for which a
firm has to wait before its receivables are converted into cash.
AVERAGE COLLECTION PERIOD = (AVERAGE TRADE DEBTOR*NO
OF WORKING DAYS)/ NET credit SALES(day)
Average collection period ratio measures the quality of debtor. Generally, the
shorter the average collection period the better is the quality of debtors as a
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short collection period implies quick payment by debtors. Similarly, a higher
collection period implies an inefficient collection performance which adversely
affects the liquidity or short term paying capacity of the firm.
YEAR AVERAGE TRADEDEBTORS
SALES PER DAY AVERAGE COLLECTIONPERIOD
2011-12
2010-11 749181575 41633703.87 17.99459345
2009-10 607328183 33551680.94 18.10127439
2008-09 541053917.5 20812507.52 25.99657524
2007-08 399355338 10516773.60 37.973
2006-07 108464088 4461070.337 24.31346736
2005-06 36478584 2008223.503 18.16460366
Average collection period in 2010-11, 2009-10 &2005-06 are better than any
other year. In these years average collection period decreases which means
more multiple of cash holding for receivable. So with the less proportion of
cash firm manage the project efficiently.
Relationship between debtor turnover ratio and average collection
period
With the comparison of two data, we have found that there is an inverse
relationship between the debtor turnover ratio and average collection period.
(iii) Creditors or payable turnover ratioIn the course of business operations a firm has to make credit purchase and
short term liabilities. A supplier of goods, i.e., creditors is naturally interested in
the finding out how much time the firm is likely to take in repaying its trade
creditors.
It is calculated as net credit annual purchases / average creditors
YEAR DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD2011-12
2010-11 16.78452873 17.99459345
2009-10 16.68102258 18.10127439
2008-09 11.61143626 25.99657524
2007-08 7.900312799 37.973
2006-07 12.33884068 24.31346736
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The ratio indicates the velocity with which the creditors are turnover in relation
to purchases. Generally higher the creditors velocity better it is or otherwise
lower the creditors velocity, less favorable.
AVERAGE PAYMENT PERIOD RATIO
The average payment period ratio represents the average number of days taken
by the firm to pays its creditors. Generally lower the ratio better the liquidity
position of the firm and higher the ratio, less liquid is the position of the firm.
(iv) Working capital turnover ratioWorking capital turnover ratio indicates the no. of times the working capital is
turned over in the course of a year. It measures the efficiency with which the
working capital is being used by firm.
WORKING CAPITAL TURNOVER RATIO= COST OF SALES/ AVERAGE
WORKING CAPITAL
AVERAGE WORKING CAPITAL=( OPENING WORKING CAPITAL+
CLOSING WORKING CAPITAL)/2
A higher ratio indicates efficient utilization of working capital and a low ratioindicates otherwise. But a very high working capital turnover ratio is not good
for any firm. This ratio can be used for making of comparative and trend analysis
for different firms in the same industry and for various periods.
In this time series analysis it is found that working capital turnover ratio
decreases gradually. That means for one unit of cost of sale more working
capital is necessary. Which is a negative impact of the utilization of workingcapital .in the recent years there is not proper utilization of the working capital?
YEAR COST OF GOODSOLD
AVERAGEWORKINGCAPITAL
WORKING CAPITALTURNOVER RATIO
2011-12
2010-11
8915457251 7113995512 125.3227843
2009-10
7625408085 3774293873202.0353566
2008-09 4892335677 1735606649 281.8804411
2007-08
2530581376 802696933 315.2598785
2006-07
1069510979 288107162.5 371.2198509
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So management reduces the working capital so that working capital utilization
productively.
Profitability ratio
Profitability is the overall measures of the efficiency of the operations of thebusiness. It indicates the effectiveness of the decision taken by the management
from time to time. The main objective behind the calculation of profitability
ratios to enlighten the end results of the business activities which will be the
main criterion for the assessment of the efficiency of the business. The lower
profitability ratio may rise because of high expenditure, and other such reasons.
The external parties like bankers, creditors, suppliers, financial institutions etc.,
look at the profitability ratio of the company to safeguard for the interest on
lending. Equity share holders look after the profitability ratio from the point of
view of return to their investment. Let us discuss the important profitability
ratio.
Profitability ratios are divided in to 3 categories
1) Sales based profitability ratio2) Capital based profitability ratio3) Asset based profitability ratio
Sale based profitability ratio
i. Gross profit margin ratio:The gross profit margin ratio shows the margin left after meeting manufacturing
cost. It is calculated as= (contract revenue-direct contract
expenses)/contract revenue *100
If the gross profit ratio is higher it is better. A lower gross profit ratio indicatesthe unfavorable conditions such as lower selling price without proportionate
reduction in the cost of production etc. it may be used as an indicator of the
efficiency of the production operation and the relation between production cost
and selling price.
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In a time series analysis it is shown that gross profit ratio increases gradually. It
is a better signal to the ARSS infrastructure limited. It shows that for RS 1 of
income there is a gross profit of 28% .that shows that contract expenses
reduced. Gross profit ratio shows that it is adequate to cover other operating
expenses or not .there is a standard norm for that. It is a good indictor of firms
efficiency.
ii. Operating profit ratio:The operating profit ratio compares the relationship between the operating profit
and the sales. The ratio is calculated as under:
Operating profit ratio = operating profit/ net sales
Operating profit = gross profit- operating expenses
YEAR OPERATINGPROFIT
Contractrevenue
OPERATING PROFITRATIO
2011-12
2010-11 2425460566 12490111161 19.41904707
2009-10 1676240559 10065504283 16.65331922
2008-09 937449850 6243752255 15.014206392007-08 443332926 3136709419 14.13369448
2006-07 177485306 1338321101 13.26178791
2005-06 54108778 602467051 8.981201198
In the time series analysis it is shown that operating profit increases gradually
.so it shows the efficiency of the company increases. It was 8% in 2005-06while
in recent year it is more than 19 %.the operating efficiency of the firm increases.
iii. Net profit ratio:
YEAR GROSS PROFIT Contractrevenue
GROSSPROFITRATIO
2011-12
2010-11 3574653910 12490111161 28.6198727
2009-10 2440096198 10065504283 24.2421654
2008-09 1351416578 6243752255 21.6443017
2007-08 606128043 3136709419 19.3236912
2006-07 268810122 1338321101 20.0856223
2005-06 104575623 602467051 17.3578991
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The net profit ratio is also called as overall profitability ratio. This ratio shows the
earning capacity of the capital; employed in the business. It is calculated as:
Net profit ratio= net profit after tax / net sales
The ratio shows that the earnings left for the share holders (both equity andpreference) as a percentage of net sales. It measures the overall efficiency of
production, administration, selling, financing, and tax management. When the
net profit is calculated for this ratio purpose we should add non operating
expenses and deduct non operating income.
YEAR NETPROFIT
Contractrevenue
otherincome
net profit-otherincome
net profitratio
2011-
122010-11
1121652010
12574659671
84548510
1037103500 8.247567
2009-10
900732325 10130855134
65350851 835381474 8.245913
2008-09
500865072 6282413084
38660829 462204243 7.357113
2007-08
270978997 3155032088
29233380 241745617 7.662224
2006-07
94745106
1338321101
8307565 86437541 6.458655
2005-06
32587937 607647597
032587937 5.362966
In a time series analysis it is found that the net profit ratio is overall stable.
There is a very less
Volatility in the net profit. It is with in the range of 5% to 8 %.
Comparison of gross profit, operating profit and net profit ratio :
YEAR net profit
ratio
OPERATING PROFITRATIO
GROSS PROFIT
RATIO
2011-12
2010-11
8.2475671
48
19.41904707 28.6198727
2009-10
8.2459127
38
16.65331922 24.2421654
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2008-09
7.3571132
11
15.01420639 21.6443017
2007-08
7.6622237
19
14.13369448 19.3236912
2006-07
6.4586548
73
13.26178791 20.0856223
2005-06
5.3629664
89
8.981201198 17.3578991
If we compare the three sales ratios in this time series analysis it shows that in
every year net profit, gross profit and operating profit increases gradually. That
signifies productive efficiency increases gradually.
iv. Return on capital employed:This ratio is also called the overall profitability ratio. This ratio shows the earning
capacity of the capital employed in the business. It is calculated as:
Return on capital employed= operating profit/ capital employed
Operating profit is the profit before interest and tax. Capital employed includes
the total of equity share capital, preference share capital, undistributed profit,
reserve and surplus, long term liabilities less fictitious assets and non business
assets.
The ratio reflects the overall efficiency with which the capital is employed.
If we analyzed the ratios in a time series analysis we have found that in 2010-11efficiency of capital decreases. But it is not due to the increases in operating
YEAR OPERATINGPROFIT
NET CAPITALEMPLOYED
RETURN ON CAPITALEMPLOYED(%)
2011-12
24254605662010-11 12177114518 20.13
2009-10 1676240559 7969969779 21.03
9374498502008-09 3770395572 24.86
2007-08 443332926 2009063422 22.066
2006-07 177485306 686376327 25.85
2005-06 54108778 309327274 17.49
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expenses .it is due to blockage of capital in current assets. In this company
inventory turn over ratio decreases.
Comparison between return on capital employed, inventory turn over
ratio and operating profit ratio
Return on capital employed depends upon two important ratios
Inventory turn over ratio Operating profit ratio
When inventory turn over ratio increases than return of capital employed
increases
When operating profit ratio increases return on capital employed increases.
In 2010-11 ROCE is 20.13% at that time inventory turn over ratio is 1.55but due
to high operating profit margin return on capital employed increases.
In 2006-07 it is highest .that is 25.85%.it is because of increase in the inventory
turn over ratio is
YEAR RETURN ONCAPITALEMPLOYED(%)
INVENTORY TURNOVERRATIO
OPERATING PROFITRATIO(%)
2011-12
1.554288352 19.419047072010-11 20.13
2.7312645692009-10 21.03 16.65331922
15.014206392008-09 24.86 3.906355682
14.133694482007-08 22.066 7.278038863
2006-07 25.85 12.05047694 13.26178791
8.981201198
2005-06 17.49 6.122775783
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12.05, although operating profit is 13.26.in this 2006-07 capital invested in
inventory is efficiently utilized because the highest velocity in the inventory. so it
increases the return on capital employed.
Return on share holders fund
Return on share holders fund: profit after interest and tax/ share
holders fund *100
This ratio measures the profitability of the firm from the view point of share
holders. The ratio can be calculated as:
A higher ratio is better which indicates a good return to the share holders.
YEAR PROFIT AFTER INTERESTAND TAX SHARE HOLDERS FUND Return on shareholdersFund (%)
2011-12
2010-11 1121652010 4484068964 25.01415609
2009-10 900732325 3379668127 26.65150219
2008-09 500865072 1483513976 33.76207303
2007-08 270978997 997336456 27.17026891
2006-07 94745106 293892012 32.23806777
2005-06 32587937 123762906 26.33094039
Return on equity capital:
The return on equity (ROE) is important profit indicator to share holders of the
firm. It is calculated as
Return on equity= net profit after tax-preference dividend / equity
share capital
YEAR NET PROFIT minus PREFERENCEDIVIDEND
EQUITY SHARECAPITAL
RETURN ONEQUITY capital
2011-12
2010-11 1121652010 148432300 755.665721
2009-10 900732325 148432300 606.8304035
2008-09 500865072 125540000 398.9685136
2007-08 270978997 125540000 215.8507225
2006-07 94745106 107960500 87.75904706
2005-06 32587937 25970000 125.4830073
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In this analysis return on equity capital increases significantly .this is due to
existence of huge amount of reserve and surplus. This reserve and surplus are
share premium reserve, free reserve and capital reserve. Because this company
has very less pay out ratio, the retaining earnings are reinvested and due to that
return on equity capital increases. Return on share holder fund decreases in the
recent year is due to the return on the total asset. in 2010-11 return on total
asset is 6% while in other years such as2006-07 it is 11%.and 2007-08 &2008-
09 it is 9%.decreases in the return on total asset is a major reason for decrease
in return on share holder s fund.
v. Return on total asset:
The return on total ratio indicates the profit after tax against the investment in
total asset. It helps to know whether the assets are using properly or not. It can
be calculated as :
Return on total asset: net profit after tax/ total asset*100
YEARPROFIT AFTERTAX TOTAL ASSET
RETURN ON TOTALASSET (%)
2011-12
2010-11 1121652010 17330417538 6.472158028
2009-10 900732325 9675803973 9.309121263
2008-09 500865072 5090619757 9.83898024
2007-08 270978997 2960133518 9.154282918
YEAR RETURN ON EQUITYcapital (%)
Return on shareholdersfund
RETURN ON CAPITALEMPLOYED(%)
2011-122010-11 755.665721 25.01415609 20.13
2009-10 606.8304035 26.65150219 21.03
2008-09 398.9685136 33.76207303 24.86
27.170268912007-08 215.8507225 22.066
2006-07 87.75904706 32.23806777 25.85
2005-06 125.4830073 26.33094039 17.49
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2006-07 94745106 827401757 11.45091912
2005-06 32587937 431738074 7.548080413
Return on the total asset decreases in recent year is due to the huge presence of
illiquid inventory. Data shows that inventory possess around 63% of current
asset. Huge inventory magnify the problem on return on total asset. so
management should try to reduce the inventory.
vi. Earnings per share :The earnings per share ratio help in determining the market price of equity share
of the company and its capability to pay the dividend to share holders. It iscalculated as:
Earnings per share = net profit after tax/ no. of equity share
YEAR PROFIT AFTER TAX-PREFERENCEDIVIDEND
NO.OF EQUITYSHARE
EARNING PERSHARE
2011-12
2010-11 1121652010 14843230 75.5665721
2009-10 900732325 14843230 70.482008-09 500865072 12554000 39.90
2007-08 270978997 12454000 23.77
2006-07 94745106 10671050 10.53
2005-06 32587937 2597000 18
(In 2005-06 there is a face value of RS 100.in 2006-07 there a stock split and
the face value reduced to RS 10.so we adjust accordingly.)
(this company does not issue any preferential share.)
The earnings per share ratio are mainly useful for companies with public trade
shares.
vii. Price earnings ratio:Price earnings ratio shows the market value of every rupee earning in the firm.
The ratio is mainly used to compare the industry average. A high price earnings
ratio indicates an overvalued share and low ratio shows the share is
undervalued. The ratio is calculated as:
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Price earnings ratio: market price per equity share/ earnings per share
Yearmarketprice EPS
P/ERATIO
2011-12
2010-11 953 75.57 12.61082
2009-10 539 70.48 7.64756
(The market prices are the average prices on 31st march 2010 & 2011 in national
stock exchange)
(The face value of the share is Rs 10)
If we compare the stock between the two years it is found that on March 2009-
10it is relatively cheaper than 2010-11.because in 2009-10 P/E ratios is 7.64
viii. Payout ratio:The payout ratio shows the portion of earning per share used for the distribution
of dividend and the portion retained for the plouhging back of profit. This ratio is
calculated as:
Payout ratio= dividend for equity share/ earnings per share
year DIVIDEND PER EQUITYSHARE
EPS PAYOUT RATIO%
2011-122010-11 1 75.57 1.323276432
2009-10 2 70.48 2.837684449
2008-09 1 39.9 2.506265664
2007-08 1 23.77 4.206983593
2006-07 0 10.5 0
With the time series analysis of five year it is shown that pay out ratio is less
than 5%.That signifies that the company is more growth oriented .the company
reinvests its capital in its core business &expands the business .so due to thatin near future there is a chance of high capital appreciation of share prices.
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(c) Coverage ratioCoverage ratios are used to test the adequacy of cash flows generated through
earnings for the purpose of meeting debt and lease obligations, including the
interest coverage ratio and the fixed charge coverage ratio. Coverage ratio give
the relationship between the financial charges of a firm and its abilities to serve
them. There are mainly three ratios under this head. Those are :
i. interest coverage ratio: fixed interest cover ratio or interestcoverage ratio measures the ability of the concern to service its debt.
This ratio tells us how many times the firm covers or meets the
interest payments associated with debt. From lenders point of view,
this ratio assumes greater importance. This ratio is computed as:
Interest coverage ratio= earnings before interest and tax/ interest
expenses
YEAR EBIT INTERESTEXPENSES
FIXED INTEREST COVERRATIO
2011-12
2010-11 2510009076 990312007 2.534563913
2009-10 1741591411 530739775 3.281441288
2008-09 976110679 270174025 3.612896092
2007-08 472566305 94163206 5.018587674
2006-07 177485306 37559074 4.725497386
This ratio indicates that ability of the firm to repay the interest on time .this
ratio is very important for the creditor point of view. This is in decline that
means credit risk increases in comparative previous years.
.
(d) Leverage ratio or test of solvencyThe term solvency refers to the ability of a concern to meet its long term
obligations. The long term creditors of a firm are primarily interested in knowing
the firms ability to pay regularly interest on long term borrowings, repayment of
the principal amount on maturity and security of their loans. Long term solvency
ratios indicate a firms ability to meet the fixed interest and costs and
repayments of long term borrowings. The following are the ratios determines the
solvency of the concern:
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i. Debt equity ratioii. Proprietary ratioiii. Interest coverage ratioiv. Leverage ratio
i. Debt equity ratio:Debt equity ratio also known as the external- internal equity ratio is calculated
to measure the relative claims of outsiders and the owners (I.e., shareholders)
against the firms asset. This ratio indicates the relationship between the
external equities or the outsiders funds and the internal equities or the share
holders fund.
Debt equity ratio= long term debt/ share holders fund
The share holders fund consist of equity share capital, preference share capital,
reserves, revenue reserves, reserves for contingencies, sinking funds etc.
outsiders fund include both current and fixed liabilities.
The debt equity ratio is calculated to measures the extent to which the debt
financing has been used in a business. The ratio indicates the proportionate
claims of owners and the outsiders claim against the firms asset. A ratio of
1:1may be usually considered to be satisfactory ratio.
YEAR LONGTERMDEBT SHARE HOLDERSFUND DEBT EQUITYRATIO
2011-12
2010-11 12846348575 4484068964 2.864886485
2009-10 6296135846 3379668127 1.862945002
2008-09 3607105782 1483513976 2.4314606
2007-08 1962797061 997336456 1.96803902
2006-07 533509743 293892012 1.81532577
2005-06 317036714 123762906 2.561645684
The low debt equity ratio is favorable which signifies the low financial risk is
there in a company. But here it shows that in the recent year 2010-2011 debt
equity ratios is higher, that is 2.86. Means in this company there is a financial
risk increases. It happens due to the more debt capital is there compare to the
share holders fund.
ii. Interest coverage ratio
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This ratio is used to test the debt servicing capacity of a firm. This ratio is
calculated by dividing the net profit before interest and taxes by fixed interest
charge.
Interest coverage ratio= net profit before interest and tax/ fixed
interest
Interest coverage ratio indicates the number of times interest is covered by the
profits available to pay the interest charges. Generally, higher the ratio, safer is
the long term creditors.
YEAREBIT
INTEREST INTEREST COVERAGERATIO
2011-12
2010-
11
2510009076 990312007 2.53456
2009-10
1741591410 530739775 3.28144
2008-09
976110679 270174025 3.6129
2007-08
472566306 94163206 5.01859
2006-07
177485306 37559074 4.7255
2005-06
59289324 20192164 2.93625
Interest coverage ratio indicates the number of times interest covered by the
profits available to pay the interest charges. Too high interest coverage ratio
may imply that firm is not using debt as a source of finance so as to increase the
earning per share. Interest coverage ratio decreases gradually after the year
2007-2008. Means this is a good symbol for Arss infrastructure projects limited.
In the recent year 2010-2011 the interest coverage ratio is 2.53.
iii. Leverage ratio:All the business enterprises employee debt fund, equity fund, so as to maximize
the profits and earnings available for the equity share holders. The basic
advantage of using the debt is i.e. the after tax cost of debt is less and the
interest is deductable. The term leverage refers to employment of debt fund. A
leverage ratio indicates the use of debt fund in the capital structure of the
concern. When earning exceeds the cost of fund, it is said to be favorable and
when the return is the less the cost of fund it is said to be unfavorable.
The leverage is three types.
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Operating leverage Financial leverage Combined leverage
Operating leverage: it indicates the extent of the change of earnings before
interest and tax due to the change in sales volume. It is calculated as:
Operating ratio= contribution/ EBIT
Contribution is nothing but sales minus variable cost. There is inverse
relationship between the operating leverage and fixed cost. Higher the fixed
cost, lower the contribution. Lower the fixed cost, higher the contribution. EBIT
is not anything but sales less variable cost less fixed cost.
A high operating ratio means large effect on EBIT due to small changes in
sales. The operating leverage explains the impact of changes in sales revenue
and operating incomes.
Financial leverage: when the firm uses debt fund in its capital structure to
finance its need, then the firm is said to financial leverage. Financial leverage
measures the changes in the earnings before tax due to the change in earnings
before interest and tax(operating incomes) .the calculation is as :
Financial leverage= EBIT/ EBT
The leverage may be favorable or unfavorable. When the return on investment
exceeds the cost of debt capital, a firm is said to have favorable financial
leverage. It is also known as trading on equity. When the cost of debt capital
exceeds the return on investment, then the firm said to have unfavorable
financial level.
2005-06 2006-07
2006-07 2007-08
2007-08 2008-09
2008-09 2009-10
2009-10 20
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Common size income statement analysis
We prepare the common size statement analysis for knowing the percentage ofany item as per the sales which is taken as 100 percent. Here in this above
income statement it is shown that the operating profit gradually increases,
because the direct expenses are gradually decreases. And also the net profit
after tax increases slowly because of the proper management. Also the selling
expenses are gradually decreases.
100 1338321101 100 3136709419 100 6243752255 100 10065504283 100 12
82.6421 1069510979 79.91 2530581376 80.68 4892335677 78.36 7625408085 75.76 8
17.3579 268810122 20.09 606128043 19.32 1351416578 21.64 2440096198 24.24 3
0.51344 12890331 0.963 29828204 0.951 140461371 2.25 262364862 2.607
2.77166 31787216 2.375 50703745 1.616 97277799 1.558 172315888 1.712
3.16558 29137580 2.177 42761762 1.363 102739612 1.645 193751628 1.925
1.92603 17509689 1.308 39501406 1.259 73487946 1.177 135423261 1.345
8.9812 177485306 13.26 443332926 14.13 937449850 15.01 1676240559 16.65 2
0.85989 0 0 29233380 0.932 38660829 0.619 65350851 0.649
9.84109 177485306 13.26 472566306 15.07 976110679 15.63 1741591410 17.3 2
2.72856 37559074 2.806 94163206 3.002 270174025 4.327 530739775 5.273
7.11253 139926232 10.46 378403100 12.06 705936654 11.31 1210851635 12.03 1
1.70345 38455481 2.873 107424103 3.425 205071582 3.284 310119311 3.081
5.40908 101470751 7.582 270978997 8.639 500865072 8.022 900732324 8.949 1
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Common size balance sheet statement analysis
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In the above balance sheet it is shown that the share holders fund in this year is
25.87 % of the total liability. Whereas the previous years record it was 34.93%
of the total liability. It means the equity share capital is going down and a
increase in the borrowing or debt capital.
COMPARATIVE BALANCE SHEET STATEMENT ANALYSIS:
2006-2007
2006-2007
2007-2008
2007-2008
2008-2009
2008-2009
2009-2010 2009-2010
2010-2011
2010-2011
20-1
CUL
rel
107960500
13 125540000
4.241
125540000
2.466
148432300
1.534
148432300
0.856
erve
us
1859315
12
22.
5
87179645
6
29.4
5
13579739
76
26.6
8
32312358
27
33.4 43356366
64
25.0
2
eers
293892012
35.5
997336456
33.69
1483513976
29.14
3379668127
34.93
4484068964
25.87
ured 378665727
45.8
975277469
32.95
2182193801
42.87
4457664482
46.07
9298977607
53.66
ecuren
0 0 10000000 0.338
41061473 0.807
12226366 0.126
99156117 0.572
eredability
13818588
1.67
26449497 0.894
63626322 1.25 120410804
1.244
216143050
1.247
rentty
sion
141025428 17 951070096 32.13 1320224183 25.93 1705834194 17.63 3232071801 18.65
ities 533509743
64.5
1962797062
66.31
3607105779
70.86
6296135846
65.07
12846348575
74.13
ities8274017
55100
2960133518
100 5090619755
100 9675803973
100 17330417539
100
ock 267822016
32.4
777522645
26.27
1466203210
28.8 2583740502
26.7 4739831072
27.35
tmen 18256201 2.21 25436921 0.859 38212921 0.751 34440872 0.356 361851873 2.088nt 3348609
3340.
516496767
9555.7
330284533
4859.4
955823015
6557.6
999909800
1357.6
5nd
nces2059845
0724.
950696715
717.1
355741027
810.9
514064809
3614.5
421861345
0612.6
1
ditur478100 0.0
6530000 0.01
8340000 0.00
768840098 0.71
151620074 0.29
8
t8274017
57100
2960133518
100 5090619757
100 9675803973
100 17330417538
100
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Comparative balance sheet is the study of that trend of the same items ,group
of items and computed items in two or more balance sheet of the same business
enterprise on the different dates.
Comparative balance sheet of an enterprise as on two or more dates can be
used for comparing assets, liabilities and capital and ascertaining increase ordecrease on those items.
PARTICULARS 2009-2010 2010-2011 %
(percentage)
1 Contract revenue 10,065,504,283 12,490,111,161 124.08828022 contract direct expenses 7625408085 8915457251 116.9177722
3 gross profit(1-2) 2,440,096,198 3,574,653,910 146.4964337
4 personal expenses 262,364,862 419,228,525 159.7883656
5 administrative expenses 172,315,888 263,421,011 152.8709941
6 selling expenses 193,751,628 184,312,599 95.12828403
7 Depreciation 135,423,261 282,231,209 208.4067441
8 operating profit(3-4-5-6-7) 1,676,240,559 2,425,460,566 144.696449
9 other income 65350851 84,548,510 129.3762953
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COMPARATIVE PROFIT AND LOSS ACCOUNT STATEMENT ANALYSIS:
The profit and loss account shows the net profit and net loss on the account of
business operations. A comparative profit and loss account shows the operating
results for a number of accounting periods so that changes in data in terms of
money and percentage from one period to another may be known.
2009-20102009-2010 2010- 2011 2010-2011
% increase/decrease
PARTICULARS
a)sharecapital 148432300 100 148432300 100 0b)reserve andsurplus 3231235827 100 4335636664 134.1788992 34.17889922
share holdersfund 3379668127 100 4484068964 132.6777895 32.67778952
a)secured loan 4457664482 100 9298977607 208.6064944 108.6064944
b)unsecuredloan 12226366 100 99156117 811.0023616 711.0023616c)deffered taxliability 120410804 100 216143050 179.5046979 79.50469793d)currentliability andprovision 1705834194 100 3232071801 189.471627 89.47162698
Liabilities 6296135846 100 12846348575 204.0354416 104.0354416
total liabilities 9675803973 100 17330417539 179.1108789 79.11087892
net block 2583740502 100 4739831072 183.4484178 83.44841784Investment 34440872 100 361851873 1050.646665 950.6466648
current asset 5582301565 100 9990980013 178.9759994 78.97599936loan andadvances 1406480936 100 2186134506 155.4329284 55.43292838misc.expenditure 68840098 100 51620074 74.98547431
-25.01452569
total asset 9675803973 100 17330417538 179.1108789 79.11087891
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Cash flow statement
Cash is the basic input needed to keep the operations of the business going on a
continuing basis. It is also the final output expected to be realized by selling the
products manufactured by the manufacturing unit. Cash is both the beginning
and the end of the business. Sometimes it so happens that a business unit earns
efficient profit but in spite of this it is not able to pay its liabilities when they
become due. So the business unit should always try to keep sufficient of cash
neither more nor less because the shortage of cash will threaten the firms
liquidity and solvency where as excessive cash will not be fruitfully utilized willsimply remain idle and will affect profitability of the business.
Effective cash management implies a proper balancing between the two
conflicting objectives of liquidity and profitability. It is also difficult to predict
cash inflow and outflow accurately and there is no perfect confidence between
the inflows and outflows of cash giving rise to either cash outflows exceeding
inflows or cash inflows exceeding outflows. It is one of the important tool of cash
management because it throws light on cash inflows and outflows of a particular
period.
Cash flows comprise cash on hand and demand deposits with banks. Cash
equivalents are held for the purpose of meeting short term cash commitment
rather than for investment or purposes. Cash flows as inflows and outflows of
cash and cash equivalents.
Classification of cash flows
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According to As-3(revised) cash flows for a period can be classified into 3
categories cash flows:
. Cash flow from operating activities is derived from the principal revenue
producing activities of the enterprise.
. Cash flows from investing activities are the activities involving acquisitions and
disposal of the long term asset and other investment not included.
. Cash flow from financing activities are the activities that results in the changes
in the size and composition of the owners capital including preference share
capital and the borrowings of the enterprise.
Objectives
It provides the information to user of financial statement with a basis toassess the ability of the enterprise to generate cash and cash equivalents.
The needs of the enterprise to utilize these cash flows. AS-3 deals with the provisions of information about the historical changes
in cash and cash equivalents.
Scopes:
An enterprise should prepare a cash flow statement and should present itfor each period for which financial statements are presented.
Users of enterprises financial statements are interested in how theenterprise generates and uses cash and cash equivalents.
USEFULNESS:
Predicts future cash flows. Determine the ability to pay dividends and other commitments. Shows the relationship of net income to changes in the business cash. Efficiency in cash management. Discloses success or failure of cash planning. Evaluates management decisions. Enhances the comparability of reports.
LIMITATIONS:
It gives the main items of inflows and outflows of cash only and does notshow the liquidity position of the company.
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This statement is not a substitute of income statement which shows bothcash and non cash items. Therefore net cash flows dont necessarily mean
net income of the business. It cannot replace the funds flow statement as
it cant show the financial position of the concern in totality.
composition of cashinflow
particulars 2005-2006 2006-2007
2007-2008 2008-2009
2009-2010 2010-2011
cash flow from operatingactivity
-35.335910
5
-9.726420
86
-51.574140
9
43.7149495
-265.4059
98
-183.7911
47
cash flow from investingactivity
-107.27845
6
-260.3970
75
-216.10639
6
-225.696
18
-353.4450
98
-670.4860
74
cash flow from financingactivity
242.6143663
370.1234958
367.680537
281.981229
718.8510955
954.2772211
Total 100 100 100 100 100 100
calculation of total cashinflow
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
ash flow fromperating activity
-11151578 -6397739
-132841307 150036559
-1002904487 -758434569
ash flow fromnvesting activity
-33855759
-171281147
-556632754
-774624663
-1335582760
-2766835200
ash flow fromnancing activity 76566105 243455795 947047536 967803779 2716362840 3937930868
otal cash inflow 31558768 65776909 257573475 343215675 377875593 412661099
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SWOT ANALYSIS
STRENGTH OF THE COMPANY
The company depends upon the services of its key managerial personneland to attract and retain them.
It competitive strengths include its projects management expertise. Thecompany has successfully executed 86 projects involving construction of
300 km roads and highways, 200 km of rail tracks, 10 minor and major
bridges, and other general civil engineering works over the span of nine
years. It owns a sizable fleet of construction equipment, enabling it to rapidly
mobilizes the same project sites.
Majority of the clients are the government of the states or centralgovernment, public sector undertakings and other government agencies.
Large corpus of equipment Professional human resource approach Track record of time bound execution of projects. Decentralized control and management with adequate delegation of
power.
It has a good brand recall in eastern India
Weakness of the company
Some of group companies namely Anil contracts private limited, M/SHindustan construction, and M/S Anil Agarwal and ARSS engineering and
technology private limited are in the same type of business, which may
arise the conflict between the group of companies and the business
strategy of the company. The group companies incurred the loss in previous year which can affect
the business of the company.
The company has not carried out an independent appraisal of the workingcapital management.
The companys revenue totally depends on the contracts awarded bycentral and state government and their agencies.
There are no certainties regarding the completion of the projects. It canbe cancelled, postponed the payment, delayed etc. by which the cash flow
statement, revenues and earnings etc are affected.
The insurance coverage of the company may not project against certainoperating hazard.
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The working capital requirement of the company is depend on the bankfinance. Any changes in interest rates or banking policy will adversely
affect the companys business.
Excessive dependence on govt. work orders. The company intends tominimizes this risk with attention to private sector projects in parallel.
Opportunity for the company
companys emphasis on the railways segment can be a positive from thegrowth point of view, given that Indian Railways are likely invest huge
sums in expanding and upgrading the railways infrastructure in the
country.
The company is totally concentrated on a single stats i.e. Orissa can be apositive side for the company. Because every year new projects come to
the Orissa; in recent years POSCO and Arcelor- Mittal steel project come
to Orissa. A huge growth in railway construction is based on the proposed outlays
planned through the Eleventh 5 years plan, Mission 2015 and several new
initiatives. The ministry of railways has also floated the integrated
Modernization plan to keep pace with the expected growth in business for
railways.
Thrust on infrastructure development by the union and state Govt.coupled with massive allocation of funds.
Facilitation activities by the Govt. The company can use its brand value.
Threats of the company
Increasing competition in bidding process, face competition from nationaland international companies.
High working capital requirement; if deficiency will occur, that will affectthe financial strength of the company.
Increase in cost or non availability of equipment, materials or fuel; Engagement of sub contractors or other agencies in the course of
execution of roads and railway projects.
Dependence on the joint ventures to qualify for the bidding process. Seasonality and weather condition. The company may be liable for the defaults committed by the joint
venture partners in the course of execution of the project undertake by it
jointly.
The company should complete the project in time. The company should look after their inventory.
Suggestion
The company has to take more care of their inventory
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In the recent years the inventory gradually decreases, means it is not agood indication for the company. So the management should have to take
more care of the inventory.
CONCLUSION
ARSS infrastructure limited is a growing company but its total value isnt
reflected in market because of lack of efficient management in inventory poor
asset management system and so on. So ARSS infrastructure limited should
develop strategies to improve the inventory management system.