financial statement analysis----nagarjuna fertilizers and chemicals ltd

A

PROJECT REPORT

ON

FINANCIAL STATEMENT ANALYSISAT

NAGARJUNA FERTILIZERS AND CHEMICALS LTD.

IN PARTIAL FULFILLMENT OF THE AWARD OF MASTER OF BUSINESS ADMINISTRATION SUBMITTED TO

OSMANIA UNIVERSITY BY

SIVAJEERAJU.INDUKURI

(071060107)Malla Reddy Institute of Management

Secunderabad

(Affiliated to Osmania University, Hyderabad)

CERTIFICATE

This is to certify that the Dissertation entitled FINANCIAL

STATEMENT ANALYSIS that is being submitted by

SIVAJEERAJU.INDUKURI in partial fulfillment of the requirements for

the award of the degree of MBA in FINANCE & MARKETING to

MALLAREDDY INSTITUTE OF MANAGEMENT is a bonafide work

carried out by him under the guidance and supervision of the

undersigned.

The results embodied in this dissertation have not been submitted to

any other university or institution for the award of any degree or

diploma.

DATE:

Place:

Supervisor’s Signature and designation

DECLARATION

I here by declare that this project report titled “FINANCIAL STATEMENT

ANALYSIS” submitted by me to the department of business management, Osmania

University, Hyderabad, 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.

(SIVAJEERAJU.INDU

KURI)

ACKNOWLEDGEMENT

I am highly indebted to the management of NAGARJUNA

FERTILIZERS AND CHEMICALS LIMITED, for permitting me to do a

project in their company. My special thanks are due to Mr. K. V. K RAJU

and Mr. JANARDHANA REDDY of the company, for the valuable

information, guidance and for providing me the help needed to accomplish

this project.

I am thankful to Miss.ARUNA (faculty of MALLAREDDY

INSTITUTE OF MANAGEMENT), for his guidance, and encouragement

and valuable suggestions offered during this project.

I offer my sincere thanks to the management and staff of the college

for their support provided to me during my course.

(SIVAJEERAJU.INDUKURI)

ABSTRACT:

The present project “financial statement analysis” comprises of seven units.

Unit-I Deals with introduction about the project, objectives of the study, need, and

scope of the study.

Unit-II In this unit Research design, data sources, limitations, data collection methods.

UNIT-III In this unit Industry profile i.e. Industry over view .

UNIT-IV In this unit, information regarding the company profile and different methods

of financial statement analysis are discussed.

UNIT-V In this unit data analysis and interpretation of financial statements are done.

UNIT-VI The findings of the study are presented in this unit.

UNIT- VII In this unit, suggestions and to the project is presented.

CONTENTS

Chapter No. Name of the concept Page No.

I

Introduction 1-3

Objectives 4

Need, and scope 5

II

Research Methodology 6

Data Source, & limitations 6

III

Industry profile 7-20

IV Company profile 21-33

34-46

V Data Analysis & interpretation 48-78

VIFindings 79

VIISuggestions& Recomandations 80-81

Bibliography 82

INTRODUCTION

The project is taken up with an aim to study the financial statement analysis of NFCL.The study is mainly intended to know about the financial performance of NFCL.

A comparative study was made making use of financial statements of other two firms namely Chambal fertilizers & National fertilizers L.T.D. The comparativeStudy was done on the parameters like Qty produced, sales value, PAT, EPS ets.

About 95 per cent of the fertilizer produced in the world is used on farm crops. The United States is one of the world's leading producers of fertilizer. India is the fifth leading fertilizer producer in the world after Canada, China and France. India is the fourth largest consumer of fertilizer in the world. India is poised for another green revolution. With increasing population it needs to correspondingly increase its food production to feed its mammoth population. To be able to do this India is aiming to double its food production by 2010-12.However if this is going to happen then fertilizer industry is going to play a very crucial role and so it needs to increase its urea production.

Thus a project at a fertilizer company like Nagarjuna Fertilizers and Chemicals limited was interesting and challenging as well as it would not only provide an opportunity to get a picture of fertilizer industry (urea in particular) and study of Financial Statement Comparison, its process and techniques of Nagarjuna Fertilizers and Chemicals Limited (NFCL) but would also provide an opportunity to interact to industry people through NFCL employees.

OBJECTIVES

i. To study the financial statements of Nagarjuna Fertilizers and Chemicals Limited for the Financial years 2004-05 , 2005-06 &2006-07

ii. To compare with the financial statements of similar like Chambal, NFL in Fertilizer Industry.

iii. To study the over all performance of NFCL.

NEED OF THE STUDY:

Financial statement is an important source of information for evaluating the performance and prospects and prospects of a firm. If properly analyzed and interpreted, financial statements can provide valuable insights into a firm’s performance .analysis of financial statements is of interest to lenders (short term as well as long term), investors, security analysts, managers and others.

IMPORTANCE:Financial statement analysis may be done for a variety of purposes, which may range from a simple analysis of the short term liquidity position of the firm to a comprehensive assessment of the strengths & weakness of the firm in various areas .it is helpful in assessing corporate excellence, edging credit worthiness, forecasting bond ratings, evaluating intrinsic value of equity shares, predicting bankruptcy and assessing market risk.

The principal tool of financial statement analysis is financial ratio analysis which essentially involves a study of ration between various items or groups of items in financial statements; financial ratios may be divided into five broad types; liquidity ratio, leverage ratio, profitability ratio, turnover ratio and valuation ratios. Generally the financial ratios of a company are compared with some bench mark ratios. Industry averages often serve as bench mark ratios, while analysis based on a single set of financial statement is helpful, it may often have to be supplemented with time series analysis which provides insight into a firm’s performance and conditions over a period of time.

SCOPE OF THE STUDY:

The scope of the study is confined to NFCL Particularly Hyderabad division.

RESEARCH METHODOLOGY:

RESEARCH DESIGN:

Research design is some statement or specification of procedures for collecting and analyzing the information required for the solution of some specific problem.

Here exploratory research is used to analyze the performance of NFCL .Exploratory research is carried out by making use of primary data and secondary data.

DATA SOURCE:

Primary data:The primary data is obtained from one to one interaction with employees of the company.

Secondary data:It is collected from the books, journals, magazines, past records and all other types of published data and fact sheet, offer documents.

DATA COLLECTION METHODS:

The key for creating useful system is selectivity in collection of data and linking that selectivity to the analysis and decision issue of the action to be taken. the accuracy of collected data is of great significance for drawing correct and valid conclusions from the investigation. The Profit and Loss statement and Balance sheet of NFCL for three consecutive years viz 2004-05, 2005-06, and 2006-07 are taken. Subsequently P&L and balance sheet three consecutive years (2004to2007) of Chambal and NFL are downloaded from the respective web sites for comparison.

DATA ANALYSIS:

Mainly analytical (quantitative) tools are utilized .however qualitative tools were employed as and when required.

LIMITATIONS:

1) Study is based at Hyderabad division only, though NFCL has its operations in

Orissa, Madhya Pradesh, West Bengal and Karnataka also.

2) Too much dependence on secondary data

3) A much of relevant data is inaccessible because of the data being confidential

4) The time taken to undertake the project is very short ,hence only few parameters were taken for the study .

Industry Overview

Urea comes under the purview of essential commodity act and so its production , pricing

and distribution is controlled by the Department of Agriculture & Cooperation,

government of India under the Fertilizer (Control) Order, 1985(FCO), issued under the

Essential Commodities Act, 1955.

Fertilizer is a key ingredient in ensuring the food security of the country by increasing the

production and productivity of the soil. The domestic food grain production target has

been set at 320 million tonnes by 2011-12 from the present production of 210 million

tonnes. This target could be achieved by higher productivity through improved farming

practices, expansion of irrigation, better seeds and extensive and balanced use of

fertilizers.

Towards this end, the Department is planning to raise the production of urea from the

present installed capacity of 197 LMT to 300 LMT by the end of 11th Five Year Plan i.e.,

2011-12 by taking concrete steps to boost production and productivity, removing regional

imbalances in production and distribution, securing long term tie-ups for supply of

feedstock and raw material etc.

The demand for urea during 2005-06 was assessed at 234.25 LMT, the cumulative

availability at 239.78 LMT and sales at 221.91 LMT. In respect of DAP, the demand

assessment was 78.06 LMT, availability was 86.38 LMT and cumulative sales was 67.51

LMT. As regards MOP, the demand assessment was 28.88 LMT, the availability was

55.22 LMT and sales at 28.01 LMT.

This buoyant trend has continued during the current year with the demand during Kharif,

2006 in respect of urea at 122.37 LMT against which the availability was 125.04 LMT

and sales are estimated at 113.65 LMT. In respect of DAP, the demand during Kharif,

2006 was 33.10 LMT, the availability was 48.67 LMT and sales was 32.06 LMT. In

respect of MOP, the demand during Kharif, 2006 was 14.66 LMT, the availability is

estimated at 20.47 LMT and sales at 9.99 LMT.

Similarly, in respect of Rabi 2006-07, the demand for urea, DAP and MOP is at 127.08

LMT, 48.19 LMT and 18.57 LMT respectively. The DOF has made plans for ensuring

availability at the level of 149.39 LMT of urea, 50.37 LMT of DAP and 26.31 LMT of

MOP. The availability during the year 2006-07 is being augmented substantially through

imports of over 52 LMT of urea, 27.16 LMT of DAP and 26.98 LMT of MOP.

The Government has accorded high priority to boosting agricultural production through

greater fertilizer usage, increasing efficiency in the fertilizer sector and regional balance

in the production and availability of fertilizers. One of the major decisions of the

Government was to halt the process of liquidation and closing of public sector fertilizer

companies and to take steps for their revival. It may be noted that there are 8 urea plants

in the Eastern Region of the country which are closed.

This region has a high population density and huge demand for fertilizers. The

Government is in an advanced stage of preparing a concrete action plan for revival of

these plants. The revival of these plants will lead to an additional urea capacity of about

60 lakh tones and remove the existing regional disparity with regard to production and

availability of urea. The revival of the closed plants would also create an environment of

industrial development in backward regions of Bihar, Jharkhand, West Bengal and

Chhatisgarh. Further, it would also lead to employment generation in these regions.

The Department of Fertilizers has made huge strides in ushering in a new era of

efficiency, transparency and international competitiveness in the Indian fertilizer industry

in the last couple of years. The capacity utilization of urea units, which was only 92% in

2001-02 and 96.2% in 2002-03 and 98.7% in 2003-04, increased to over 100% of the

installed capacity 2004-05 onwards. It has been 102% in 2005-06. Similarly, in the field

of energy efficiency, in 2005-06, 22 urea units achieved better energy consumption levels

than their pre-set norms.

In the context of its significance on subsidy and production efficiency, the Government

has put special emphasis on early conversion of non-gas based urea units to gas and in the

last two years, 3 naphtha based units namely, CFCL-Gadepan-II and IFFCO-Phulpur-

I&II have converted to gas and a 4th unit namely, SFC-Kota will convert by the end of the

current financial year. For the remaining 8 functional non-gas based units, the

Department has made strenuous efforts with the other stakeholders such as Ministry of

Petroleum & Natural Gas, GAIL, gas producing companies, fertilizer companies and the

Fertilizer Association of India. As a result of these efforts, a concrete and cogent plan of

action to ensure pipeline connectivity and adequate availability of NG/LNG to the

fertilizer sector has been agreed upon. It will ensure availability of gas to the non-gas

based urea units by 2008-09 and for the revival of the closed urea units in the Eastern part

of the country by the year 2009-10. A few units are expected to use gas from new

technologies such as coal gasification and Coal Bed Methane. Conversion of all non-gas

based units to gas will result in subsidy saving of Rs. 3300 crore per annum.

Steps are being taken for additional urea production beyond 100% of the installed

capacity of the functional units. Some brown field expansion of the existing plants is also

in the pipeline. A special revival package for FACT, Cochin has been approved by the

Government in March 2006. As a result, the company has increased its efficiency and

production levels. A financial restructuring package for MFL, Chennai, which is passing

through a financial crisis, is also under consideration of the Government.

The Government is carrying out reforms in the delivery mechanism of fertilizers. A

Fertilizer Monitoring System which will track the movement of de-controlled fertilizers

as also production, distribution and sales of all fertilizers under the Concession Scheme is

proposed to be activated from 1st December 2006. The same system will also monitor the

dispatch of urea to each State, district-wise.

An important component of the policy of the Government to ensure long term food

security for the country and availability of fertilizers at reasonable rates to the farmers is

to encourage setting up of Joint Ventures in countries abroad where feedstock for

fertilizers is available at reasonable prices. This is so because the country has to import

substantial quantities of raw material and finished fertilizers such as urea, ammonia,

phosphoric acid, rock phosphate, sulphur, Di-Ammonium Phosphate (DAP) and Muriate

of Potash (MOP).

The Department has, therefore, adopted a very proactive approach of late in the matter. A

delegation led by Secretary (Fertilizers) visited Jordan and Morocco, countries which are

rich in phosphate deposits and are amongst the biggest producers of phosphates in the

world. Plans for cooperation and investment with major companies of these countries in

mining of rock phosphate and setting up of phosphoric acid plant were discussed.

Possibilities of sourcing potash economically from countries like Argentina, Belarus and

Thailand are also actively being explored. Another delegation led by Joint Secretary

(Fertilizers) has visited Nigeria recently and has held talks for long term import of LNG

to India for its fertilizer plants. Another delegation led by Principal Secretary to the Prime

Minister and including Secretary (Fertilizers) visited Kuwait last month and as a result a

Kuwaiti delegation is coming to India this month to visit Indian fertilizer and

petrochemical plants to hold discussions on areas of collaboration.

The Kuwaitis have also offered to take India as a partner in their Joint Venture in

fertilizer sector in Algeria. Possibility of similar joint ventures in countries such as Saudi

Arabia, Egypt, Myanmar, Bangladesh, Libya, Syria, Iran etc is also being explored.

All the aforementioned steps taken by the Government with a long term perspective in

view will result in reduction in subsidy expenditure on fertilizers in the years to come.

The requirement of subsidy on all fertilizers in the year 2005-06 was Rs. 20475.78 crore,

which is expected to rise to a level of Rs. 27000 crore in 2006-07. The rise in subsidy

expenditure has been mainly on account of rise in the prices of feedstock and raw

materials and increasing consumption levels of fertilizers.

However, the Government has kept the Indian farmer protected from these rising input

costs by keeping the MRP/indicative MRPs of fertilizers unchanged for the last four

years and subsidizing the sale of chemical fertilizers in the interest of food security of the

country and for promoting growth in agriculture and food grain production.

Urea comes under the purview of Essential Commodity act and so its production, pricing

and distribution is controlled by the Department of Agriculture & Cooperation,

government of India under the Fertilizer (Control) Order, 1985(FCO), issued under the


Urea industry consists of various players that are of public sector, private and cooperative

sector.

Main players of public sector are NFL (National Fertilizers Limited), RCF (Rashtriya

Chemicals and Fertilizers Limited)

Main players of private sector are NFCL (Nagarjuna Fertilizers And Chemicals Limited),

Chambal Fertilizers, Indo Gulf etc.

Main players of cooperative sector are IFFCO (Indian Farmers Fertilizer Cooperative

Limited) and KRIBHCO (Krishna Bharti Cooperative Limited).

The market share of various players are as shown in the pie chart below

Percentage share in urea production in the year 2004-05:

Pricing of urea:

Fertilizer comes under the purview of essential commodity and so its production, pricing

and distribution are controlled by the Department of Agriculture & Cooperation,

government of India. Under the Fertilizer (Control) Order, 1985(FCO), issued under the


Earlier “retention pricing cum subsidy” scheme was implemented for pricing of urea but

a new pricing policy keeping in view the recommendation of Expenditure Reforms

Commission was approved by the Government which came into effect from 1-4-2003. A

high powered fertilizer pricing review committee was constituted to review the existent

fertilizer subsidy scheme and propose a new methodology for subsidization of urea.

Accordingly the committee recommended that the unit wise RPS (retention pricing

scheme) to be discontinued and Normative Referral Price to be fixed for the gas based

urea units and DAP.

A Feedstock Differential Cost Reimbursement (FDCR) is given for a period of five years

for urea units. Expenditure reforms commission (Sep 2000) recommended dismantling of

existing RPS and in its place introduction of a Concession Scheme for urea units based

on feedstock used and the vintage of plants in respect of gas based units. Thereafter in

accordance with recommendations of Expenditure Reforms Commission, Government in

consultation with relevant department and ministry approved the new pricing scheme

replacing RPS (retention pricing scheme) in December 2002.

The new scheme came into effect in April 2003. The new policy aims at greater

uniformity, transparency and efficiency in distribution of subsidy to the urea units and

inducing them to take cost reduction methods on their own and become competitive.

There will be six groups based on vintage and feedstock for determining the group based

concession under the new Scheme, namely, pre-1992 gas based units, post-1992 gas

based units, pre-1992 naphtha based units, post-1992 naphtha based units, fuel oil/low

sulphur heavy stock (FO/LSHS) based units and mixed energy based units.

The mixed energy based group shall include such gas-based units that use alternative

feedstock/fuel to the extent of more than 25%.

The scheme was planned to be implemented in four phases to decontrol urea over a

period of six years: -

1. Stage I (2001/02) — adaptation of uniform concession for all five groups -pre-1992

gas based plants, post-1992 gas based plants, naphtha based plants, fuel oil/LSHS

based plants and mixed feed plants. Concession rate to be determined taking weighted

average RP of plants in each group as of 1 April 2000.

2. Stage II (2002-2005) — further reduction in concessions on naphtha fuel oil/LSHS

and mixed feed plant based on reduction in energy consumption and lowering of

capital related charges (CRC).

3. Stage III (2005/06) — concession on naphtha and mixed feed plants on basis of

assumed switch over to LNG.

4. Stage IV (w.e.f. 1.4.2006) — reduction in groupings from five to two namely

naphtha based plants being accepted for FDCR of Rs. 1,900 per ton. For all other

plants, concession to be NIL. Selling price of urea to be increased by 7 per cent per

annum from 2001 to Rs. 6,900 per ton on 1 April 2006, which would also be the

import parity price on urea.

Production

At present 57 fertilizer plants are operating of which 29 are producing urea, 20 DAP and

rest other type of fertilizers. The amount of urea produced during April 2005 – January

2006 is 17267000 MTs as against the target of 17281000 MTs1With permission of

government most of the companies are targeting more than 100 % capacity utilization.

Example – NFCL produced at the capacity of 116% of its capacity last year

1

NAGARJUNA FERTILIZERS AND CHEMICALS LtdIndustry in Harmony with Nature

The group

Foundation in 1973 by Late Shri K V K Raju, a technopreneur, with a modest investment

of Rs 180 Million (USD 24 million), the Nagarjuna Group is a prominent business house

in India. A diversified conglomerate, with interests in agriculture and energy, the Group

has as asset base close to Rs 30 Billion (USD 600 million).

In pursuit of its mission - serving society through industry, the Group is guided by its

values: commitment, Excellence, Ethics, Learning and Concern and is accountable to its

stakeholder’s viz., Customers, Investors, Business Partners, Associates and Community.

At Nagarjuna, dreams for the future are unending. Growth for us is journey to explore

areas of endless possibilities. If is this spirit of enterprise that propels The Nagarjuna

Group to look for challenging opportunities helping it surpass itself.

Group Chairman

Mr. K S Raju, born on June 29, 1950 at Nidadavole, West Godavari District, was

groomed in an agriculture family by his grandfather and father, Shri KVK Raju. He

completed Mechanical Engineering from University of Mysore in 1973 and dedicated

himself to the dream his father had natured. K V K realizing the zeal and dedication of

his son encouraged him.

He moved in as director to the flagship company of the Group Nagarjuna Fertilizer

project. He was proactive in doubling its capacity and leading the Group's foray in to core

sectors while structuring the businesses to meet the customer's needs.

Mr. K S Raju, like his father continued to emphasize the philosophy of industry in

harmony with nature. The 667 acres of sandy, salt barren land, devoid of vegetation

around the Group's Fertilizer Complex was turned into a vast green belt, under his

leadership. He has supported community development activities in areas of environment,

health, education and community asset creation. He has been closely associated with the

world Business Academy and State of the World Forum. In association with there forums

and ILO he founded the K V K Raju International Leadership Academy, to enable

managers to become value based leaders.

The Nagarjuna Group under the stewardship and guidance of Mr. K S Raju is emerging

as an enterprise based on values and commitment to the society at large.

Agri :

India is primarily an agrarian economy and agriculture to be a dominant force in the

foreseeable future. The strong potential for growth this sector offers can be gauged by the

fact that presently, Indian crop yields are among the lowest in the world. Despite being a

major producer, the country's presence in would trade is negligible.

For Nagarjuna this sector is on the top of its priority list. The Group has made significant

investments and presently derives a large percentage of its turnover and profits from agri

business. Adopting an integrated approach, the Group has involved itself in key aspects

of the farming cycle through plant nutrition, plant protection, micro irrigation

products and agri research and development. The objective of the Group is not only

farm productivity improvement but better returns for the farmers as well.

The close association that Nagarjuna has maintained with the farming community has

seen it become an integral part of their lives. In turn for the Group, it has meant a strong

presence in growth are and enabled it to establish vital linkage as India prepares to

become a major international player in agri products.

Plant Nutrition Business

Enormous pressure to produce more food from less land with shrinking natural resources

is a challenge for farmers. As a transition from the past, the need for providing balanced

and customized nutrition from the past, the need providing balanced and customized

nutrition to enhance agricultural productivity exists. Nagarjuna Fertilizers and Chemicals

Limited, the flagship company of the group, endeavors to fulfill this market need.

Nagarjuna Fertilizers and Chemicals Limited.

Nagarjuna Fertilizers and Chemicals Limited (NFCL), is among the largest fertilizer

companies in India with a turnover of about Rs. 10 billion (USD 200 million). Located at

Kakinada on the East coast NFCL's fertilizer facility is the single largest private sector

investment in South India. The first has-based fertilizer unit in the region, the facility unit

in the region, the facility produces 11, 94,600 MT Urea and 6, 90,000 MT Ammonia in

two streams. The plants are the best operated fertilizers units with one of the lowest

energy consumption rates in the world.

Spread over 1130 acres, two-thirds of the plant site is completely developed as a green

belt with trees and water bodies from virtually a barren and saline land. The Green Belt

extends over a kilometer with more than three lakh fifty thousand trees of 175 species, a

number of large water bodies with marine life, birds and animals. This is a humble tribute

towards our philosophy of industry in Harmony with Nature. NFCL has implemented a

comprehensive environment plan in the fertilizer plant at Kakinada, resulting in near zero

pollution of air water through treatment of chemical pollutants, recycling and effluent

control.

With over 4200 strong dealer network, spread around the country, the company's efforts

at customer interface include spot demonstrations, adoption of villages, farmer training

and kisan Meals. The company has also set-up Krishi Vigyan Kendras to impact regular

training in scientific agricultural practices and procedures for improving farm yield. The

Company markets a wide range of plant nutrients - Urea, MOP, Zinc Sulphates, Micro

Nutrient mixes, Growth Regulators and Organic Fertilizers under the Nagarjuna brand.

"Nagarjuna" is a synonym for quality, trust and well being among its customers.

Nagarjuna's market shares ranging from 27-50% in the areas of presence is hardly

surprising considering the above efforts at providing a better product range and

convenience to its customers. NFCL is also the best fertilizer unit in India in terms of

operating profit margin.

The company has achieved excellence in quality, plant safety and environmental

protection and has been conferred various recognition and awards. Some of these are

ISO 9001: 2002 by BVQL, Netherlands.

National Safety Award 1994, 1995, 1996, & 1997 by British Safety Council.

Award for Environmental control Strategies and Safety in Chemical Plants for the

year 1994 by Indian Chemical Manufactures Association.

Golden Peacock Environment Management award for 1998 by World Environment

Foundation, New Delhi.

Vana Mitra Award for the year 1999 for outstanding efforts made in developing and

sustaining the Green Belt by Govt. of AP.

ISO 14001 by BVQL, Netherlands.

OHSAS - 18001 certification by BVQL, India.

Environmental protection Award in Nitrogenous Fertilizer plants category for the

year 2002 - 02 by Fertilizers Association of India, New Delhi.

With a plethora of credits of its favor NFCL endeavors to be a total solution provider in

the plant nutrition segment in the near future. A range of customized nutrition products

will be developed and offered in increased number of markets in the time to come.

Products

Manufactured products –

Urea (46 % nitrogen) – used as fertilizer

Anhydrous ammonia – used for production of urea and several other products

Marketed products –

Diammonium phosphate (DAP) – used as fertilizer

Muriate of potash (MOP) – used as fertilizer, water softener and in the manufacturing of

KOH

Zinc sulphate heptahydrate- used as fertilizer

Zinc sulphate monohydrate – used as fertilizer

Services offered---KVK Raju krishi vigyan kendram for imparting knowledge,

technology and latest agricultural practices to farmers to increase farm output

Trading products – Specialty Fertilizers imported from Israel and China

Micro irrigation – providing water management services. Company ranks third in

providing micro irrigation solutions in the country

Operations (manufacturing)

The company has its manufacturing operations at Kakinada, East Godawari District, and

Andhra Pradesh. There are two manufacturing units. The gas based plant was established

with the help of technical expertise of Snamprogetti, Italy and Haldor Topsoe, Denmark.

Plant 1 Plant 2

Gas based 40% gas 60% naphtha

Urea: 1500 mt/day urea: 1500mt/day

Ammonia: 900mt/day ammonia: 900mt/day

In the year 2004-05 the company produced 13.93 lakh tones of urea as against the target

of 11.94 tones, which was an all time high. The British Safety Council conducted an audit

of company’s plants at Kakinada and awarded Five Star Rating to the Plants. During the

year, 2004-05, the company registered cumulative accident free days of 388 days as on

March 31, 2005. During the year under review the company’s plant received

ISO 9001:2000 upgraded certification for Quality Management System and ISO

14001:1996 re-certification for Environmental Management System.2

The Plant Protection Business

2

Plant protection chemicals are the next most important inputs affecting agricultural

productivity. The growing use of these agro chemicals has increased the resistance of

pest, rendering the products ineffective. Consequently, a market change to high value low

dosage products is evident in the market, Nagarjuna Agrichem Limited, focuses on

bringing in such valued products to the market to deep pace with the evolving plant

diseases and pests.

Nagarjuna agrichem limited.

As an integrated approach to agribusiness, the Group ventured in the manufacture of

highly effective plant protection products through Nagarjuna Agrichem Limited (NACL).

BASED ON Srikakulam district on the eastern coast of India, NACL has a modern

Agrochemical manufacturing facility set up at a total capital investment of Rs 570

million. (US$ 13 million). The manufacturing facility has been built on an area of 25

acres and another 75 acres has been developed into a green belt. NACl also has a

government recognized R&D Laboratory for developing process technology to

manufacture various chemicals.

A wide range of products including insecticides, Fungicides and Herbicides are

manufactured by the company. NACL is the first Indian manufactures of the Fungicides,

Tricylazole and Propiconazople. In the domestic market the company's products are sold

in retail packed formulations in sixteen States and also to several reputed companies.

Apart from catering to the Indian market, NACL exports to various countries in Asia,

Europe, Africa and Latin America.

During the last three years NACL has introduced several new products, many of which

were previously imported. Nagarjuna Agrichem is among the top five Indian companies

in the agrochemical industry with a turnover of Rs 2 Billion (USD 40 million) and is

slated to elevate into the top three Indian companies, in the next few years.

The micro irrigation business.

The importance of water management to an agricultural economy like India cannot be

over emphasized. Sprinkler and micro irrigation are well known ways of effective

utilization of water in the farmland. However, the area covered by there systems in India

is abysmally low as compared to the global averages. The Government of India has also

recognized this need and is taking a series of measures including subsidizing micro

irrigation systems. With renewed thrust, the market for micro irrigation systems is all set

to reach a historical zenith. The Nagarjuna group, with a field learning of over a decade

in this market is well placed to service the micro irrigation needs through Micro Irrigation

Division.

Agri research and development

The Nagarjuna Group recognized the need for scientific study, testing and validation of

various agri inputs in different agro climatic zones through out the country ensure the

best yields. Nagarjuna Agricultural research and development institute signifies this

commitment of the Nagarjuna Group to enhance value delivery to the customer.

Nagarjuna agriculture research and development institute

The Nagarjuna Group established Nagarjuna Agriculture Research and Development

(NARDI), a private sector agricultural R&D institute, in 1995. The Department of

Scientific and Industrial Research (DSIR), Govt. of India has recognized NARDI as a

non-profit, scientific and industrial Research Organization (SIRO). Eminent

academicians, administrators and management professionals govern NARDI while

eminent scientists from agriculture and allied fields, guide its research.

The well-developed laboratory-cum-office complex of NARDI is organized along with

farm service facility of 107 acres at Gowraram, Medak District, Andhra Pradesh, 50 km

away from Hyderabad. NARDI under takes field and laboratory testing of all agricultural

inputs at multi-location testing centers spread all over the country. Its facilities are

available for performance evaluation of hybrid varieties, transgenics and new

technologies.

Strict scientific conditions are ensured during testing by qualified and experienced field

staff. NARDI provides scientific validation services to help agri-business companies

market their products. NARDI also generates backup data for patenting or registration

under the sui generis systems.

Fuels

India is not only a net importer of crude ail but is also faces increased demand of

petroleum products. The shortage is expected to be acute in South India, the location of

the group's refinery project.

Nagarjuna Oil Corporation Limited

Nagarjuna Oil Corporation Limited ( NOCl ) is implementing a 6 million tonnes per

annum Refinery Project at Cuddalore, a coastal town in Tamil Nadu, with a capital outlay

of Rs. 39 billion (US$ 867 million). The refinery will have integrated facilities like

Captive power plant, dedicated water sources, Single point Mooring for import of crude

by Very Large Container Carriers (VLCC), two jetties and facilities for product

evacuation by road, rail and pipeline.

The project has been appraised and approved by Industrial development Band of India

(IDBI).The land acquisition process is almost complete while Mobil's Refinery from

Woerth, Germany, is being relocated. Most of the equipment has arrived at the site and

infrastructure works at the site are in progress. A competent project team is also in place.

The detailed engineering is nearing completion and leading organizations like ABB

Lumus and Krupp Uhde have associated themselves in different aspects of the project.

All major contracts like equipment supply, project management and licensor agreements

have been finalized while oil major IBP has tied up for marketing arrangement with

NOCL. The refinery is expected to be commissioned within 30 months from the date of

financial closure.

Corporate Social Responsibility

The Nagarjuna Group is a socially responsible corporate citizen. The Group supports

community development programs covering a wide range of activities like environment,

health, education; income generation and community assert creation. These activities

have created awareness of environment, good health and opportunities for a better life

among communities it is associated with.

Service Organizations

The service organizations of the Group include KVK Raju International Leadership

Academy, Nagarjuna foundation and Lakshmi Memorial Cancer Research Foundation.

The KVK Raju International Leadership Academy is a non-profit center for excellence in

leadership training. The academy endeavors to incorporate ethics and innate spiritual

values in management.

The Nagarjuna Foundation focuses on promoting sustainable development, humanities,

culture preservation, spiritually, philanthropy, philosophy and education. Recent

publications of the Foundations are "Cheluva Kannada Nadu" [A comprehensive

publication on Karnataka] and "Maa Telugu Talli" [A comprehensive publication on

Andhra Pradesh].

The Lakshmi Memorial Cancer Research Foundation (LMCRF) established in November

1996 in memory of Late Smt. Lakshmi Raju, wife of Mr. K.S.Raju, promotes early

cancer detection, prevention and cancer research.

NAGARJUNA GROUP OF COMPANIES

1985

Nagarjuna Fertilizers and Chemicals Limited

1992

Nagarjuna Investors Services Limited

1993

Nagarjuna Agrichem Limited

1995

Nagarjuna Agricultural Research & Development Institute

1997


The Hindu news paper dated 19.04.06 has published about the results of the company for the year 2005-06. The text of the news column is given below:

“Nagarjuna Fertilizers and Chemicals Ltd (NFCL) have achieved a record urea

production of 113.1 per cent of its capacity with a total of 13.79 lakhs tones during 2005-

06. The company produces urea in two units at the Kakinada facility. While Unit-1

produced 7, 03,645 tones, Unit-2 surpassed its capacity by producing 6, 75,571

tones. The total capacity of the plant is 11, 94,600 tones.

According to a company press release, the higher production was achieved under optimal

utilization of energy. NFCL has also managed to dispatch the entire production to

farmers. The company, a leading manufacturer of plant nutrients, also sold out its

products which include Mahazinc, Zinc Sulphate, Zeta, specialty fertilizers etc.”

Nagarjuna Investors Services Limited

1993

Nagarjuna Agrichem Limited

1994

Nagarjuna Palma India Limited

1995

Nagarjuna Agricultural Research & Development Institute

1996

Nagarjuna Power Corporation Limited

1997


INTRODUCTION AND BRIEFING:

FINANACIAL STATEMENT COMPARISON

Meaning and Types of Financial Statements:

A financial statement is an organized collection of data according to logical and

consistent accounting procedures. Its purpose is to convey an understanding of some

financial aspects of a business firm. It may show a position at a moment of time as in the

case of a balance sheet, or may reveal a series of activities over a given period of time, as

in the case of an Income Statement.

Thus, the ‘financial statements’ generally refers to two basic statements: (i) the Income

Statements, and (ii) the Balance Sheet. Of course, a business may also prepare (iii) a

Statement of Retained Earnings, and (iv) a Statement of Changes in Financial Position in

addition to the above two statements.

The meaning and significance of each of these statements is being explained below :

Financial Statements

Balance Sheet

Income Statements

Statement of Changes in Financial Position

Statement of Retained Earnings

1. Income Statement The Income Statement (also termed as Profit and Loss Account) is

generally considered to be the most useful of all financial statements. It explains what has

happened to a business as a result of operations between two balance sheet dates. For this

purpose it matches the revenues and costs incurred in the process of earning revenues and

shows the net profit earned or loss suffered during a particular period.

The nature of the ‘Income’ which is the focus of the Income Statement can be well

understood if a business is taken as an organization that uses ‘inputs’ to ‘produce’

output. The outputs are the goods and services that the business provides to its customers.

The values of these outputs are the amounts paid by the customers for them. These

amounts are called ‘revenues’ in accounting. The inputs are the economic resources used

by the business in providing these goods and services. These are termed as ‘expenses’ in

accounting.

2. Balance Sheet

It is a statement of financial position of a business at a specified moment of time. It

represents all assets owned by the business at a particular moment of time and the claims

(or equities) of the owners and outsiders against those assets at that time. It is in a way a

snapshot of the financial condition of the business at that time.

The important distinction between an Income Statement and a Balance Sheet is that the

Income Statement is for a period while Balance Sheet is on a particular date. Income

Statement is, therefore, a flow report, as contrasted with the Balance Sheet which is a

static report. However, both are complementary to each other.

3. Statement of Retained Earnings

The term retained earnings means the accumulated excess of earnings over losses and

dividends. The balance shown by the Income Statement is transferred to the Balance

Sheet through this statement, after making necessary appropriations. It is, thus, a

connecting link between the Balance Sheet and the Income Statement. It is fundamentally

a display of things that have caused the beginning-of-the-period retained earnings balance

to be changed into the one shown in the end-of-the-period balance sheet.

The statement is also termed as Profit and Loss Appropriation Account in case of

companies.

4. Statement of Changes in Financial Position (SCFP)

The Balance Sheet shows the financial condition of the business at a particular moment

of time while the Income Statement discloses the results of operations of business over a

period of time. However, for a better understanding of the affairs of the business, it is

essential to identify the movement of working capital or cash in and out of the

business. This information is available in the statement of changes in financial position of

the business. The statement may emphasize any of the following aspects relating to

change in financial position of the business:

i. Change in working capital position. In such a case the statement is termed as

SCFP (Working Capital basis) or popularly Funds Flow Statement.

ii. Change in cash position. In such a case the statement is termed as SCFP (Cash

basis) or popularly Cash Flow Statement.

iii. Change in overall financial position. In such a case the statement is termed

simply as Statement of Changes in Financial Position (SCFP).

ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENTS

Financial Statements are indicators of the two significant factors :

i. Profitability, and

ii. Financial soundness.

Analysis and interpretation of financial statements, therefore, refers to such a treatment of

the information contained in the Income Statement and the Balance Sheet Financial

Statements: Analysis and Interpretation

So as to afford full diagnosis of the profitability and financial soundness of the business.

A distinction here can be made between the two terms – ‘Analysis’ and

‘Interpretation’. The term ‘Analysis’ means methodical classification of the data given in

the financial statements. The figures given in the financial statements will not help one

unless they are put in a simplified form. For example, all items relating to ‘Current

Assets’ are put at one place while all items relating to ‘Current Liabilities’ are put at

another place. The term ‘Interpretation’ means explaining the meaning and significance

of the data so simplified.

However, both ‘analysis and ‘Interpretation’ are complementary to each other.

Interpretation requires Analysis, while Analysis is useless without Interpretation. Most of

the authors have used the term ‘Analysis’ only to cover the meanings of both analysis and

interpretation, since analysis involves interpretation. According to Myers, “Financial

statement analysis is largely a study of the relationship among the various financial

factors in a business as disclosed by a single set of statements and a study of the trend of

these factors as shown in a series of statements”. For the sake of convenience, we have

also used the term ‘Financial Statement Analysis’ throughout the chapter to cover both

analysis and interpretation.

TYPES OF FINANCIAL ANALYSIS

Financial Analysis can be classified into different categories depending upon (i) the

material used, and (ii) the modus operandi of analysis.

1. On the Basis of Material Used

According to this basis, financial analysis can be of two types:

(i) External Analysis. This analysis is done by those who are outsiders for the

business. The term outsiders include investors, credit agencies, government agencies and

other creditors who have no access to the internal records of the company. These persons

mainly depend upon the published financial statements. Their analysis serves only a

limited purpose. The position of these analysts has improved in recent times on account

of increased governmental control over companies and governmental regulations

requiring more detailed disclosure of information by the companies in their financial

statements.

(ii) Internal Analysis. This analysis is done by persons who have access to the books of

account and other information related to the business. Such analysis can, therefore, be

done by executives and employees of the organization or by officers appointed for this

purpose by the Government or the Court under powers vested in them. The analysis is

done depending upon the objective to be achieved through this analysis.

2. On the basis of modus operandi

According to this, financial analysis can also be of two types:

(i) Horizontal Analysis. In case of this type of analysis, financial statements for a

number of years are reviewed and analyzed. The current year’s figures are compared with

the standard or base year. The analysis statement usually contains figures for two or more

years and the changes are shown regarding each item from the base year usually in the

form of percentage. Such an analysis gives the management considerable insight into

levels and areas of strength and weakness. Since this type of analysis is based on the data

from year to year rather than on one date, it is also termed as ‘Dynamic Analysis’.

(ii) Vertical Analysis. In case of this type of analysis a study is made of the quantitative

relationship of the various items in the financial Statements on a particular date. For

example, the ratios of different items of costs for a particular period may be calculated

with the sales for that period. Such an analysis is useful in comparing the performance of

several companies in the same group, or divisions or departments in the same

company. Since this analysis depends on the data for one period, this is not very

conducive to a proper analysis of the company’s financial position. It is also called ‘Static

Analysis’ as it is frequently used for referring to ratios developed on one date or for one

accounting period.

It is to be noted that both analyses – vertical and horizontal – can be done simultaneously

also. For example, the Income Statement of a company for several years may be

given. Horizontally it may show the change in different elements of cost and sales over a

number of years. On the other hand, vertically it may show the percentage of each

element of cost to sales.

STEPS INVOLVED IN FINANCIAL STATEMENTS ANALYSIS

The analysis of the financial statements requires:

i. Methodical classification of the data given in the financial statements.

ii. Comparison of the various inter-connected figures with each other by different

‘Tools of Financial Analysis’.

Methodical Classification

In order to have a meaningful analysis it is necessary that figures should be arranged

properly. Usually instead the two-column (T form) statements, as ordinarily prepared, the

statements are prepared in single (vertical) column form “which should throw up

significant figures by adding or subtracting”. This also facilitates showing the figures of a

number a number of firms or number of years side by side for comparison purposes.

TECHNIQUES OF FINANCIAL ANALYSIS

A financial analysis can adopt one or more of the following techniques/tools of financial

analysis:

Financial Analysis Techniques

Ratio Analysis

CVP Analysis

Comparative Financial Statements

Trend Percentages

Funds Flow Analysis

Cash Flow Analysis

Common-size Financial Statement

1. Comparative Financial Statements

Comparative financial statements are those statements which have been designed in a

way so as to provide time perspective to the consideration of various elements of

financial position embodied in such statements. In these statements figures for two or

more periods are placed side by side to facilitate comparison.

(i) Comparative Income Statement. The Income Statement discloses Net Profit or Net

Loss on account of operations. A Comparative Income Statement will show the absolute

figures for two or more periods, the absolute change from one period to another and, if

desired, the change in terms of percentages. Since the figures for two or more periods are

shown side by side, the reader can quickly ascertain whether sales have increased or

decreased, whether cost of sales has increased or decreased, etc. Thus, only a reading of

data included in Comparative Income Statements will be helpful in deriving meaningful

conclusions.

(ii) Comparative Balance Sheet. Comparative Balance Sheet as on two or more

different dates can be used for comparing assets and liabilities and finding out any

increase or decrease in those items. Thus, while in a single Balance Sheet the emphasis is

on present position, it is on change in the comparative Balance Sheet. Such a Balance

Sheet is very useful in studying the trends in an enterprise.

Comparative Financial Statements can be prepared for more than two periods or on more

than two dates. However, it becomes very cumbersome to study the trend with more than

two periods data. Trend percentages are more useful in such cases. The technique of

computing trend percentage has been discussed later in the chapter.

The American Institute of Certified Public Accountants has explained the utility of

preparing the Comparative Financial Statements as follows:

“The presentation of comparative financial statements is annual and other reports

enhance the usefulness of such reports and bring out more clearly the nature and trend of

current changes affecting the enterprise. Such presentation emphasizes the fact that

statement for a series of periods is far more significant than those of a single period and

that the accounts of one period are but an installment of what is essentially a continuous

history. In any one year, it is ordinarily desired that the Balance Sheet, the Income

Statement and the Surplus Statement be given for one or more preceding years as well as

for the current year”.

The utility of preparing the Comparative Financial Statements has also been realized in

our country. The Companies Act, 1956, provides that companies should give figures for

different items for the previous period, together with current period figures in their Profit

and Loss Account and Balance Sheet.

2. Common-size Financial Statements

Common-size Financial Statements are those in which figures reported are converted into

percentages to some common base. In the Income Statement the sale figure is assumed to

be 100 and all figures are expressed as a percentage of this total.

Comparative Utility of Common-size Financial Statements. The comparative common-

size financial statements show the percentage of each item to the total in each period but

not variations in respective items from period to period. In other words, common-size

financial statements when read horizontally do not give information about the trend of

individual items but the trend of their relationship to total. Observation of these trends is

not very useful because there are no definite norms for the proportion of each item to

total. For example, if it is established that inventory should be 30% of total assets, the

computation of various ratios to total assets would be very useful. But since there are no

such established standards proportions, calculation of percentages of different items of

assets or liabilities to total assets or total liabilities is not of much use. On account of this

reason common size financial statements are not much useful for financial

analysis. However, common-size financial statements are useful for studying the

comparative financial position of two or more businesses. However, to make such

comparison really meaningful, it is necessary that the financial statements of all such

companies should be prepared on the same pattern, e.g., all the companies should be

more or less of the same age, they should be following the same accounting practices, the

method of depreciation on fixed assets should be the same.

3. Trend Percentages

Trend percentages are immensely helpful in making a comparative study of the financial

statements for several years. The method of calculating trend percentages involves the

calculation of percentage relationship that each item bears to the same item in the base

year. Any year may be taken as the base year. It is usually the earliest year. Any

intervening year may also be taken as the base year. Each item of base year is taken as

100 and on that basis the percentages for each of the items of each of the years are

calculated. These percentages can also be taken as Index Numbers showing relative

changes in the financial data resulting with the passage of time.

The method of trend percentages is a useful analytical device for the management since

by substituting percentages for large amounts; the brevity and readability are

achieved. However, trend percentages are not calculated for all of the items in the

financial statements. They are usually calculated only for major items since the purpose is

to highlight important changes.

While calculating trend percentages, care should be taken regarding the following

matters:

1. The accounting principles and practices followed should be constant throughout

the period for which analysis is made. In the absence of such consistency, the

comparability will be adversely affected.

2. The base year should be carefully selected. It should be a normal year and be

representative of the items shown in the statement.

3. Trend percentages should be calculated only for items having logical relationship

with one another.

4. Trend percentages should be studied after considering the absolute figures on

which they are based; otherwise, they may give misleading results. For example,

one expense may increase from Rs. 100 to Rs. 200 while the other expense may

increase from Rs. 10,000 to Rs. 15,000. In the first case trend percentage will

show 100% increase while in the second case it will show 50% increase. This is

misleading because in the first case the change though 100% is not at all

significant in real terms as compared to the other. Similarly, unnecessary doubts

may be created when the trend percentages show 100% increase in debt while

only 50% increase in equity. This doubt can be removed if absolute figures are

seen, e.g., the amount of debt may increase from Rs. 20,000 to Rs. 40,000 while

that of equity from Rs. 1,00,000 to Rs. 1,50,000.

5. The figures for the current year should also be adjusted in the light of price level

changes as compared to the base year, before calculating the trend percentages. In

case this is not done, the trend percentages may make the whole comparison

meaningless. For example, if prices in the year 1998 have increased by 100% as

compared to 1997, the increase in sales in 1998 by 60% as compared to 1997 will

give misleading results. Figures of 1998 must be adjusted on account of rise in

prices before calculating the trend percentages.

4. Funds Flow Analysis

Funds flow analysis has become an important tool in the analytical kit of financial

analysts, credit granting institutions and financial managers. This is because the Balance

Sheet of a business reveals its financial status at a particular point of time. It does not

sharply focus those major financial transactions which have been behind the Balance

Sheet changes. For example, if a loan of Rs. 2, 00,000 was raised and paid during the

accounting year, the balance sheet will not depict this transaction. However, a financial

analyst must know the purpose for which the loan was utilized and the source from which

it was obtained. This will help him in making a better estimate about the company’s

financial position and polices.

Funds flow analysis reveals the changes in working capital position. It tells about the

sources from which the working capital was obtained and the purposes for which it was

used. It brings out in open the changes which have taken place behind the Balance

Sheet. Working capital being the life-blood of the business, such an analysis is extremely

useful. The technique and the procedure involved in funds flow analysis has been

discussed in detail later in the book.

5. Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis is an important tool of profit planning. It studies the

relationship between cost, volume of production, sales and profit. Of course, it is not

strictly a technique used for analysis of financial statements. However, it is not strictly a

technique used for analysis of financial statements. However, it is an important tool for

the management for decision-making since the data is provided by both cost and financial

records. It tells the volume of sales at which the firms will break-even, the effect on profit

on account of variation in output, selling price and cost, and finally, the quantity to be

produced and sold to reach the target profit level.

The technique has been discussed in detail in a separate chapter later in the book.

6. Ratio Analysis

This is the most important tool available to financial analysts for their work. An

accounting ration shows the relationship in mathematical terms between two interrelated

accounting figures. The figures have to be interrelated (e.g., Gross Profit and Sales,

Current Assets and Current Liabilities), because no useful purpose will be served if ratios

are calculated between two figures which are not at all related to each other, e.g., sales

and discount on issue of debentures.

A financial analyst may calculate different accounting ratios for different purposes. This

has been discussed in detail in the next Chapter.

LIMITATIONS OF FINANCIAL ANALYSIS

Financial analysis is a powerful mechanism which helps in ascertaining the strengths and

weaknesses in the operations and financial position of enterprise. However, this analysis

is subject to certain limitations. Most of these limitations are because of the limitations of

the financial statements themselves. These limitations are as follows:

1. Financial Analysis is only a Means

Financial analysis is a means to an end and not the end itself. The analysis should be

drawn not in isolation, but keeping in view the overall picture and the prevailing

economic and political situation.

2. Ignores Price Level Changes

Financial statements are normally prepared on the concept of historical costs. They do not

reflect values in terms of current costs. Thus, the financial analysis based on such

financial statements or accounting figures would not portray the effects of price level

changes over the period.

3. Financial Statements are Essentially Interim Reports

The profit shown by Profit and Loss Account and the financial position as depicted by the

Balance Sheet is not exact. The exact position can be known only when the business is

closed down. Again, the existence of contingent liabilities and deferred revenue

expenditure make more imprecise.

4. Accounting Concepts and Conventions

Financial Statements are prepared on the basis of certain accounting concepts and

conventions. On account of this reason the financial position as disclosed by these

statements may not be realistic. For example, fixed assets in the balance sheet are shown

on the basis of going concern concept. This means that value placed on fixed assets may

not be the same which may be realized on their sale. On account of convention of

conservatism the income statement may not disclose true income of the business since

probable losses are considered while probable incomes are ignored.

5. Influence of Personal Judgment

Many items are left to the personal judgments of the accountant. For example, the method

of depreciation, mode of amortization of fixed assets, treatment of deferred revenue

expenditure – all depend on the personal judgment of the accountant. The soundness of

such judgment will necessarily depend upon his competence and integrity. However, the

convention of consistency acts as a controlling factor on making indiscreet personal

judgments.

6. Disclose only Monetary Facts

Financial statements do not depict those facts which cannot be expressed in terms of

money. For example, development of a team of loyal and efficient workers, enlightened

management, the reputation and prestige of management with the public, are matters

which are of considerable importance for the business, but they are nowhere depicted by

financial statements.

COMPARISON OF FINANCIAL STATEMENTS OF NFCL WITH INDUSTRY.

The profit and loss account and Balance Sheet of the following companies are copied

from the published annual reports and/or downloaded from the respective websites.

a. NFCL

b. Chambal Fertilizers

c. National Fertilizers Ltd.

The detailed analysis of Profit and Loss Account and Balance Sheet is done for the above

referred companies. The comparative studies are done on the following items in

particular.

Installed capacity

Capacity utilized or quantity produced

Sales Value

PBT

PAT

EPS

Debtors

Dividend on Equity Shares

Inventories

Current liabilities

Loans Advances

Published Financial Statements of Various Companies are given hereunder. The profit and loss account and balance sheet of the companies under study had been compared.

a. Financial Statements of NFCL:

NAGARJUNA FERTILIZERS & CHEMICALS LIMITED

Profit & Loss account for the year ended 31st March 2005(Rs in lacs)

Particulars Amount Amount

Incomesales, subsidy & equated freight 126639Other income 1767.37Remission of principal amount of loan 1464.7Total 129871

ExpenditurePurchases-traded products 10153.5Raw materials consumed 37625.9Power & fuel 28203.36Catalyst charge 1030.59Chemicals & consumables 426.63Salaries wages & benefits 3236.57(Increase)/decrease in stock -1878.4Packing material consumed 4233.23Transport & handling charges 9289.39Distribution expenses 364.96Other expenses 5245.23Depreciation 12159.1less: transfer from re-valuationReserve 22.72 12136.38Interest& financial charges 14278.63

Total 124346Profit/(Loss) before tax 5525.07Provision for tax-net 502.08deferred tax credit/(debit) -2070.29Fringe benefit tax NilProfit/(Loss) after tax 2952.7Balance brought forward 1166.34Less: debit balance on account of amalgamation -590.03Amount available for appropriation 14023.01AppropriationsDebenture redemption reserve -Preference dividend 0.18Dividend tax 0.02Balance carried to balance sheet 14022.81

14023.01

Profit & loss account for the year ended 31st March 2006Rs in lacs

Particulars Amount AmountIncomesales, subsidy & equated freight 145294.7Other income 2043.84Remission of principal amount of loan -Total 147338.6ExpenditurePurchases-traded products 7856.49Raw materials consumed 48110.6Power & fuel 33243.63Catalyst charge 540.21Chemicals & consumables 588.09Salaries wages & benefits 3933.23(Increase)/decrease in stock 584.25Packing material consumed 3813.02Transport & handling charges 9132.29Distribution expenses 461.77Other expenses 8515.62Depreciation 20363.63less: transfer from re-valuationReserve 8258.21 12105.42Interest& financial charges 13098.74Total 141938.4Profit/(Loss) before tax 5355.22Provision for tax-net 4158.95deferred tax credit/(debit) 5646.71Fringe benefit tax 157.78Profit/(Loss) after tax 6685.2Balance brought forward 14022.81

Less: debit balance on account of amalgamation -Amount available for appropriation 20708.01AppropriationsDebenture redemption reserve 7201.1Preference dividend 0.37Dividend tax 0.05Balance carried to balance sheet 13506.49

20708.01

Profit & loss account for the year ended 31st March 2007Rs in lacs

Particulars Amount AmountIncomesales, subsidy & equated freight 181524.00Other income 2799.32Remission of principal amount of loan -Total 184323.32ExpenditurePurchases-traded products 33831.06Raw materials consumed 53799.60Power & fuel 36952.33Catalyst charge 533.63Chemicals & consumables 603.20Salaries wages & benefits 4766.64(Increase)/decrease in stock (2206.73)Packing material consumed 5916.74Transport & handling charges 12613.88Distribution expenses 441.19Other expenses 6279.49Depreciation 20656.04less: transfer from re-valuationReserve 8246.95 12409.09Interest& financial charges 13779.39Total 179719.51Profit/(Loss) before tax 4603.81Provision for tax-net 4300.00deferred tax credit/(debit) 2949.32Fringe benefit tax 82.00Profit/(Loss) after tax 3171.13Balance brought forward 13506.49

Less: debit balance on account of amalgamation 1923.82Amount available for appropriation 14753.80AppropriationsDebenture redemption reserve -Preference dividend 0.37Dividend tax 0.06Balance carried to balance sheet 14753.37

14753.80

Balance sheet as at 31st March 2005Rs in lacks

Particulars Amount AmountSOURCES OF FUNDSShare holders fundsShare capital 46497.44Reserves & surplus 140199.8

186697.3Loan fundsSecured loans 144924.3Unsecured loans 4469.63 149393.9Deferred tax liability 31082.61Total 367173.8APPLICATIONS OF FUNDSFixed AssetsGross block 381570.4Depreciation (116935)Lease adjustments (5221.7)

259414.1Capital work in progress 1510.14Net block 260924.3Investments 66443.89Current assets, loans & advancesInventories 7620.13Sundry debtors 22170.64Cash & bank balances 1922.16Loans & advances 18163.62

49876.55Current liabilities & provisionsCurrent liabilities (9375.69)Provisions (695.23) 39805.63

Total 367173.8

Balance sheet as at 31st March 2006Rs in lacks


184470Loan fundsSecured loans 140176Unsecured loans 5151.47 145327.5Deferred tax liability 25435.9Total 355233.3APPLICATIONS OF FUNDSFixed AssetsGross block 380617.4Depreciation (136508)Lease adjustments (4824.27)

239284.9Capital work in progress 673.58Net block 239958.4Investments 67912.27Current assets, loans & advancesInventories 5776.2Sundry debtors 31124.31Cash & bank balances 6084Loans & advances 24529.91


Total 355233.3

Balance sheet as at 31st March 2007Rs in lacs


177148.09Loan fundsSecured loans 133633.47Unsecured loans 5729.72 139363.19Deferred tax liability 22486.58Total 338997.86APPLICATIONS OF FUNDSFixed AssetsGross block 383533.57Depreciation (157077.96)Lease adjustments (6295.15)

220160.46Capital work in progress 2048.34Net block 222208.80Investments 74057.03Current assets, loans & advancesInventories 8488.30Sundry debtors 31375.61Cash & bank balances 1499.95Loans & advances 24009.67


Total 338997.86

b. Financial Statements of Chambal Fertilizers:

CHAMBAL FERTILISERS & CHEMICALS LIMITEDProfit & loss account for the year ended 31st March 2005

(Rs in lakhs)Particulars Amount AmountIncome 225953.1Sales of Own Manufactured products includingsubsidy on fertilizersLess : Excise duty on sale of yarn 1101.25Sales of traded products including 224851.8subsidy on fertilizers 34486.55Income from operations of shipping business 8321.62(Include Rs 6593.86 lacks from charter-in ship(Previous year nil)Software & business process:Outsourcing services 286.98Other income 3002.61Total 270949.6ExpenditureIncrease/decrease in stocks -7148.32Purchases of goods for trading 35362.14Manufacturing &other expenses 196306.5Freight to charter-in ship -Finacial expenses 9676.91Depreciation 15131.81Total 249329Profit before exceptional items & tax 21620.59Exceptional items 6480.57Profit after exceptional items & before tax 28101.16Fringe benefit tax -Provision for tax 8930Provision for tonnage tax in shipping business -

Deferred tax charge / (Credit) -2891.36Profit after Tax 22062.52Transferred from debenture redemption reserve 1500Balance brought forward from previous year 20379.29Profit available for appropriation 43941.81Less: Appropriations:(1) Transfer to debenture redemption reserve 2600(2)Transfer to capital redemption reserve -(3) Transfer to general reserve 2500(4) Transfer to tonnage tax reserve 200(5) Proposed dividends on preference shares 30(6)Proposed dividend on equity share 7491.74(7) Tax on dividend 1071.57Balance carried to balance sheet 30048.5Basic & diluted earnings per share Rs 5.35Nominal value of share Rs 10Profit & loss account for the year ended 31st March 2006

(Rs in lacs)Income Amount AmountSales of Own Manufactured products includingsubsidy on fertilizers 194354.2Less : Excise duty on sale of yarn 977.55Sales of traded products including 193376.7subsidy on fertilizers 63176.51Income from operations of shipping business 17508.87(Include Rs 6593.86 lacks from charter-in ship(Previous year nil)Software & business process:Outsourcing services -Other income 1780.48Total 275842.5ExpenditureIncrease/decrease in stocks 2634.39Purchases of goods for trading 59414.56Manufacturing & other expenses 159877.2Freight to charter-in ship 6327.74Financial expenses 7511.14Depreciation 15895.48Total 251732.5Profit before exceptional items & tax 24109.99Exceptional items 4043.34Profit after exceptional items & before tax 28153.33Fringe benefit tax 203.49Provision for tax 11060Provision for tonnage tax in shipping business 32.16Deferred tax charge / (Credit) -3454.37Profit after Tax 20312.05Transferred from debenture redemption reserve 1600Balance brought forward from previous year 30048.5

Profit available for appropriation 51960.55Less: Appropriations:(1) Transfer to debenture redemption reserve 725(2)Transfer to capital redemption reserve 25(3) Transfer to general reserve 2500(4) Transfer to tonnage tax reserve 200(5) Proposed dividends on preference shares 1.19(6)Proposed dividend on equity share 7491.74(7) Tax on dividend 1050.88Balance carried to balance sheet 39966.74Basic & diluted earnings per share Rs 4.88Nominal value of share Rs 10

Profit & loss account for the year ended 31st March 2007(Rs in lacs)

Income Amount AmountSales of Own Manufactured products includingsubsidy on fertilizers 219227.86Less : Excise duty on sale of yarn 52.76Sales of traded products including 219175.1subsidy on fertilizers 22298.21Income from operations of shipping business 17657.29(Include Rs 6593.86 lacks from charter-in ship(Previous year nil)Software & business process:Outsourcing services -Other income 2234.93Total 261365.5ExpenditureIncrease/decrease in stocks -7938.53Purchases of goods for trading 26010.75Manufacturing & other expenses 192457.5Freight to charter-in ship 2373.33Financial expenses 9907.09Depreciation 17659.68Total 240469.8Profit before exceptional items & tax 20895.76Exceptional items 867.53Profit after exceptional items & before tax 21763.29Fringe benefit tax 123.08Provision for tax 9271.15Provision for tonnage tax in shipping business 39.17Deferred tax charge / (Credit) -2783.21Profit after Tax 15113.1Transferred from debenture redemption reserve 1029Balance brought forward from previous year 39966.74

less : Transitional Provision -383.26Add: Deferred Tax on Transitional Provision 130.27Profit available for appropriation 55855.85Less: Appropriations:(1) Transfer to debenture redemption reserve 3499(2)Transfer to capital redemption reserve(3) Transfer to general reserve 2500(4) Transfer to tonnage tax reserve 900(5) Proposed dividends on preference shares(6)Proposed dividend on equity share 7491.74(7) Tax on dividend 1273.22Balance carried to balance sheet 40191.89Basic & diluted earnings per share Rs 3.63Nominal value of share Rs 10

Balance sheet as at March 31st, 2005Rs in lacs

Particulars Amount Amount1.SOURCES OF FUNDS(1) Shareholders' Funds:(a) Share Capital 40600(b) Share capital suspense 1045.79© Reserves & surplus 42729.82

84375.61(2) Loan funds:(a) Secured loans 67886.08(b)Unsecured loans 25590.12

93476.2(3) Liabilities under deferred payments 24508(4) Deferred tax liability(Net) 38000.06Total 240359.9

2.APPLICATION OF FUNDS(1) Fixed assets:(a) Gross block 281241.3(b) Less: Depreciation 112880.8© Net block 168360.6(d) capital work in progress 659.76

169020.3(2) Investments 22711.37(3) Current assets, loans & advances:(a) Inventories 30110.5(b) Sundry Debtors 50096.76© cash & bank balances 3385.25(d) Other Current assets 294.51(e) Loans & advances 9149.09

93081.11Less:(4) Current Liabilities & provisions(a) liabilities 33020.55

(b) Provisions 12231.8945252.44

Net current Assets 47828.67(5) Miscellaneous expenditure 799.5Total 240359.9

Balance sheet as at March 31st, 2006(Rs in lacs)

Particulars Amount Amount1.SOURCES OF FUNDS(1) Shareholders' Funds:(a) Share Capital 41620.79(b) Share capital suspense -© Reserves & surplus 54495.56


79830.57(3) Liabilities under deferred payments 18294.61(4) Deferred tax liability(Net) 34545.69Total 228787.2


170307.7(2) Investments 25957.22(3) Current assets, loans & advances:(a) Inventories 24921.68(b) Sundry Debtors 31910.86© cash & bank balances 7829.85(d) Other Current assets 449.14(e) Loans & advances 10150.36

75261.89Less:(4) Current Liabilities & provisions(a) liabilities 24695.65(b) Provisions 18463.76

43159.41Net current Assets 32102.48(5) Miscellaneous expenditure 419.79Total 228787.2

Balance sheet as at March 31st, 2007(Rs in lacs)

Particulars Amount Amount1.SOURCES OF FUNDS(1) Shareholders' Funds:(a) Share Capital 41620.79(b) Share capital suspense -© Reserves & surplus 60590.71


189656.6(3) Liabilities under deferred payments 13341.21(4) Deferred tax liability(Net) 31632.21Total 336841.5


217835.1(2) Intangible Assets 629.91(3) Investments 36598.09(4) Current assets, loans & advances:(a) Inventories 35201.31(b) Sundry Debtors 52584.19© cash & bank balances 11084.61(d) Other Current assets 652.84(e) Loans & advances 9783.73

109306.68Less:(5) Current Liabilities & provisions

(a) liabilities 13677.97(b) Provisions 14048.51

27726.48Net current Assets 81580.2(6) Miscellaneous expenditure 198.27Total 336841.5

c. Financials Statements of National Fertilizers:

NATIONAL FERTILIZERS LIMITED

Profit & Loss account for the year ended 31st March 2005(Rs in lacs)

Particulars Amount AmountINCOMESales(Gross) 174497.13Less: Excise Duty 1849.25Sales(Net) 172647.9Subsidy from Govt of India 174758.3Other income 3257.22Closing Stock 9685.88

360349.3EXPENDITUREOpening stock 13011.89Purchase of semi finished goods 786.15Materials consumed 171674Salaries,wages,bonus,&other benefits 17528.16Power, and fuel 85506.59Freight and handling expenses 18930.31Repairs and maintenance 6661.14Other expenses 9329.92Interest and finance charges 2222.48Depreciation & amortization 12057.06Deferred revenue expenses written offVoluntary retirement scheme 1001.27

338709Profit for the year 21640.32Prior period adjustments(Net) -185.81Profit Before Tax 21454.51Less: Provision for taxation for current yearCurrent tax 7547Deferred tax -2157.83Fringe benefit tax

For earlier yearsTax -151.11Deferred tax 125.82 5363.88Profit After Tax 16090.63Brought Forward From Last year 34063.25Profit Available For Appropriation 50153.88

Profit & Loss Account for the year ended 31st March 2006(Rs in lacs)

Particulars Amount AmountINCOMESales(Gross) 164724.53Less: Excise Duty 1331.57Sales(Net) 163393Subsidy from Govt of India 195660.2Other income 3666.74Closing Stock 7544.25

370264.2EXPENDITUREOpening stock 9685.88Purchase of semi finished goods 445.86Materials consumed 196347Salaries,wages,bonus,&other benefits 17077.48Power, and fuel 75506.42Freight and handling expenses 18897.14Repairs and maintenance 6328.52Other expenses 13762.9Interest and finance charges 839.71Depreciation & amortization 12451.06Deferred revenue expenses written offVoluntary retirement scheme 1003.41

352345.1Profit for the year 17919.03Prior period adjustments(Net) 10.7Profit Before Tax 17929.73Less: Provision for taxation for current yearCurrent tax 8250Deferred tax -2082Fringe benefit tax 115For earlier yearsTax 154.13Deferred tax -147.45 6289.68Profit After Tax 11640.05

Brought Forward From Last year 43057.04Profit Available For Appropriation 54697.09

Profit & Loss Account for the year ended 31st March 2007(Rs in lacs)

Particulars Amount AmountINCOMESales(Gross) 166391.37Less: Excise Duty 1525.37Sales(Net) 164866Subsidy from Govt of India 221702.3Other income 2817.1Closing Stock 7716.6

397102EXPENDITUREOpening stock 7544.25Purchase of semi finished goods 77.9Materials consumed 217451.2Salaries,wages,bonus,&other benefits 16792.79Power, and fuel 81150.52Freight and handling expenses 20411.69Repairs and maintenance 5896.99Other expenses 8311.28Interest and finance charges 1673.62Depreciation & amortization 10605.6Deferred revenue expenses written offVoluntary retirement scheme 677.77

370673.8Profit for the year 26428.26Prior period adjustments(Net) -61.03Profit Before Tax 26367.23Less: Provision for taxation for current yearCurrent tax 11016Deferred tax -1842Fringe benefit tax 138For earlier yearsTax -493.3

Deferred tax -74.51Fringe benefit tax 13.03 8757.22Profit After Tax 17610.01Brought Forward From Last year 40007.68Profit Available For Appropriation 66497.69

Balance Sheet as at 31st March 2005(Rs in lacs)

Particulars Amount AmountSOURCES OF FUNDSShare Holders fundsShare Capital 49057.84Reserves & surplus 69589.22 118647.1Loan fundsSecured Loans 5949.46Deferred tax liability(Net) 23795.39Total 148391.9APPLICATION OF FUNDSFixed assetsGross Block 286225.18Less: Depreciation 181273.67Net Block 104951.51Capital work in progress 1191.27 106142.8Investments 0.18

106143Current assets, loans & advancesInventories 35084.16Sundry Debtors 43505.61Cash & bank balances 13347.89Loans & advances 8794.43

100732.09Less:Current liabilities & provisionsCurrent liabilities 50359.61Provisions 9805.25

60164.86Net current assets 40567.23Miscellaneous expenditure(to the extent not written off) 1681.72Total 148391.9


Particulars Amount AmountSOURCES OF FUNDSShare Holders fundsShare Capital 49057.84Reserves & surplus 76583.88 125641.7Loan fundsSecured Loans 22739.06Deferred tax liability(Net) 21565.94Total 169946.7APPLICATION OF FUNDSFixed assetsGross Block 289712.86Less: Depreciation 193410.43Net Block 96302.43Capital work in progress 1066.62 97369.05Investments 0.18

97369.23Current assets, loans & advancesInventories 32449.46Sundry Debtors 82447.16Cash & bank balances 1183.22Loans & advances 11093.16

127173Less:Current liabilities & provisionsCurrent liabilities 46153.64Provisions 9120.18



Particulars Amount AmountSOURCES OF FUNDSShare Holders fundsShare Capital 49057.84Reserves & surplus 88016.57 137074.4Loan fundsSecured Loans 22642.35Unsecured Loans 10070.91

32713.26Deferred tax liability(Net) 19649.43Total 189437.1APPLICATION OF FUNDSFixed assetsGross Block 290338.09Less: Depreciation 203259.76Net Block 87078.33Capital work in progress 2249.11 89327.44Investments 0.18

Current assets, loans & advancesInventories 34820.15Sundry Debtors 120571.6Cash & bank balances 1338.92Loans & advances 12571.52

169302.19Less:Current liabilities & provisionsCurrent liabilities 55065.22Provisions 14128.03


Financial Statements Comparison of NFCL with other Fertilizer Companies:

Year wise financial statement analysis summary is given hereunder:

2004-05Sl.No Particulars NFCL Chambal NFL1 Installed Capacity – Mts 990000 1518000 32310002 Production – Mts 1392538 1855806 34320003 % of production over installed capacity 141% 122% 106%4 Sales-Value 126639 224851.84 172647.885 PBT 5525.07 21620.59 21454.516 PAT 2952.70 22062.52 16090.63

% of PAT on Sale 2.33% 9.80% 9.40%7 Profit available for appropriation 14023.01 43941.81 50153.888 Dividend on equity shares - 7491.74 -9 EPS 0.70 5.35 3.2810 Receivables 22170.64 50096.76 43505.61

% of Receivables on sales 17.51 22.27 25.4011 Inventories 74620.13 30110.50 35084.1612 Loans & Advances 18163.62 9194.09 8794.4313 Current Liabilities (9375.69) 33020.55 50359.61

2005-06Sl.No Particulars NFCL Chambal NFL1 Installed Capacity – Mts 990000 1518000 32310002 Production – Mts 1379220 1901520 33440003 % of production over installed capacity 139% 125% 103%4 Sales – Value 145294.7 193376.65 163392.965 PBT 5355.22 24109.99 17929.736 PAT 6685.20 20312.05 11640.05

% of PAT on sales 4.60 10.50 7.127 Profit available for appropriation 20708.01 51960.55 54697.098 Dividend on equity shares - 7491.74 -9 EPS 1.56 4.88 2.37

10 Receivables 31124.31 31910.86 82447.161 % of Receivables on Sales 21.42 16.50 50.4511 Inventories 5776.20 24921.68 32449.4612 Loans Advances 24529.91 10150.36 11093.1613 Current Liabilities (14802.57) 24695.65 46153.64

2006-07

Sl.No Particulars NFCL Chambal NFL

1 Installed Capacity – Mts 990000 1518000 3231000

2 Production – Mts 1324054 1797202 33510003 % of production over installed capacity 133.74% 118.39% 103.71%

4 Sales – Value 181524.00 219175.10 1648665 PBT 4603.81 20895.76 26367.23

6 PAT 3171.13 15113.1 17610.01

% of PAT on sales 1.75% 6.89% 10.68%

7 Profit available for appropriation 14753.8 55855.85 66497.69

8 Dividend on equity shares - 7491.74 -

9 EPS 0.74 3.63 3.59

10 Receivables 31375.61 52584.19 120571.61 % of Receivables on Sales 17.28% 23.99% 73.13%

11 Inventories 8488.3 35201.31 34820.15

12 Loans Advances 24009.67 9783.73 12571.52

13 Current Liabilities -12713.3 13677.97 55065.22

* The PAT of NFCL is more than the PBT in financial 2005-06 is due to the deferred tax liability

which is more than the income tax provision.

Based on the data furnished in the above tables, the significant variances are analyzed and

provided hereunder:

1. Quantity Produced:

The Quantity Produced by NFCL is better than other companies.

The data is given hereunder.

Particulars NFCL Chambal NFL

Installation Capacity- Mts 990000 1518000 3231000

Quantity Produced – 2004-05 1392538 1855806 3432000

Quantity Produced – 2005-06 1379220 1901520 3344000

Quantity Produced 2006-07 1324054 1797202 3351000

The above table shows that NFCL has better utilization of Capacity than other Companies.

2. Sales:

Rs.In lakhs

The sales of NFCL are increasing year to year but as compare to chambal sales it is

low.

3. PBT

Rs. In lakhs

Particulars NFCL Chambal NFL

Sales 2004-05 126639 210677.6 172647.9

Sales 2005-06 145294.7 193376.7 163393

Sales 2006-07 181524 219175.1 164866

Particulars NFCL CHAMBAL NFLPBT 2004-05 5525.07 21620.59 21454.51PBT 2005-O6 5355.22 24109.99 17929.73PBT 2006-07 4603.81 20895.76 26367.23

4. PAT:

The PAT of is company for the Financial year 2004-05, 2005-06 and 2006-07 is given

hereunder:

Rs.In lakhsParticulars NFCL Chambal NFL

PAT 2004-05 2952.7 22062.52 16090.6

PAT 2005-06 6685.2 20312.05 11640.1

PAT 2006-07 3171.13 15113.1 17610

5. Percentage of PAT on sales:

0

5

10

15

20

25

30

1 2 3

% of PAT on Sales2006-07



6. EPS:

EPS of the three companies under study is given hereunder:

Particulars NFCL Chambal NFLEPS – 2004-05 0.70 5.35 3.28EPS – 2005-06 1.56 4.88 2.37EPS- 2006-07 0.74 3.63 3.59

EPS Chart:

% of PAT on Sales 2004-05 2.33 9.8 9.4

% of PAT on Sales 2005-06 4.6 10.5 7.12

% of PAT on Sales 2006-07 1.75 6.89 10.68

The EPS of NFCL is lesser than Chambal Fertilizer and National Fertilizer.

7. Receivables:

The realization of sales of NFCL is better than the other two companies under

8. Dividend on Equity shares

Rs.In lakhsParticulars NFCL CHAMBAL NFL

Dividend on equity shares 2004-05 - 7491.74 -



Particulars NFCL Chambal NFLReceivables 2004-05 22170.64 50096.76 43505.61

Receivables 2005-06 31124.31 31910.86 82447.16

Receivables 2006-07 31375.61 52584.19 120571.6% of Receivables to Sales – 2004-05 17.51 22.2 25.4

% of Receivables to Sales – 2005-06 21.42 16.5 50.45

% of Receivables to Sales – 2006-07 17.28 23.99 73.13

9. Inventories

Rs.In lakhs

11. Loans and Advances

Rs.In lakhs

12. Interest and Financial Charges:

The major expenditure of the companies is analyzed. The details of the expenditure are

furnished below.

Particulars NFCL Chambal NFL2004-05 14278.63 9676.91 2222.482005-06 13098.74 7511.14 839.712006-07 13779.39 9907.09 1673.63

The expenditure under the head Interest and Financial Charges incurred by NFCL is higher than the other two companies.

Particulars NFCL CHAMBAL NFLInventories 2004-05 74620 30110.5 35084.2Inventories 2005-06 5776.2 24921.68 32449.5Inventories 2006-07 8488.3 35201.31 34820.2

Particulars NFCL CHAMBAL NFLLoans & advances 2004-05 18164 9194.09 8794.43Loans &advances 2005-06 24530 10150.36 11093.2Loans &advances 2006-07 24010 9783.73 12571.5

FINDINGS:

1. The inter comparison Shows the following observations

2. The quantity sold from 2004-05 to 2006-07 has been reduced in case of all the firms. except NFL

3. Even though the quantity sold has been reduced, the value of sales has been increased during the period of study which indicates that the selling price has increased .

4. The changes in PAT of NFCL between 2004-05 and 2005-06,the sales increased by 14% and PAT increased by 126.5% that means increases at greater rate than change in sales which is favorable factor . from 2005-06 to 2006-07, the sales was increased by 24.9% but has been reduced by 47.4% which indicates that there may be increased in the cost of sales or other admin expenses

5. Between 04-05 and 05-06 ,incase Chambal & NFL sales were decreased but in case of NFCL sales were increased which is a favorable factor. Between 2005-06 &2006-07,inspite of increase in sales ,in case of all the 3 firms except NFL ,other two firms,the PAT has been reduced .

6. As the profit changes ,the EPS also changes in case of NFCL , inspite of increase in PAT ,in 2006-07,the EPS has reduced , it may be due to increase in the capital base .

7. In case of other two firms , the EPS has shown increasing tendency .In case of CHAMBAL ,even though there is decrease in PAT in 2005-06, the EPS has improved which is to be verified with the balance sheet as there is a profitability of reduction in capital base.

8. The quantum of receivables was shown increasing tendency fro m 2004-05 in all cases except in 2005-06 Chambal . this increase tendency indicates that the firms are adopting liberal credit policy.

9. Percentage of receivables with the sales In case of NFCL even though the sales increases ,the percentage of receivables with sales decreases , it may be due to improved efficiency in management of receivables.

10. Inspite of increase in the quantum receivables when compared with Chambal &NFL , NFCL has less percentage it reveals that it has better credit policy ie adopting efficient receivables management.

11. The decrease in interest charges may be due to decrease in debt base or may be due to decrease in rate of interest .

12. Except in quantity of sales ,in all indices , NFCL as shown unfavorable changes,the non payment of dividend from past two years inspite of having positive PAT is bad sign in the present context as the other companies are declaring dividends every year with an improved efficiency . it may be verified that the firm is utilizing the profits as investment.

13. Source of funds to avoid the floating costs or due to having better investment opportunities.

SUGGESTIONS AND CONCLUSIONS:

NFCL has to improve it sales in quantity and Rs.

It must reduce it’s cost of sales & admin expenses.

Must improve it’s PAT which is an indicator of it’s profitability.

To improve the EPS ,The firm can utilize the cheap cost funds like debt.

The decrease in interest charges may due to redemption of debt which can be compensated by raising new debts . the firm as to maintain the right mix of 2:1 as debt equity ratio.

The Financial cost of the company is higher compared to other companies under study. The Company should take measures to control Financial Cost which are more than the other Companies to improve its bottom line

The company has not declared any dividend in the last two financial years under study. It is suggested to declare minimum dividend to equity share holders so that the market capitalization will improve.

financial statement analysis----nagarjuna fertilizers and chemicals ltd

Documents

essential

essential

bench mark

expenditure

capital redemption

deferred tax

size financial

companys financial