8/8/2019 Typeing Work (12!08!10)

1/46

Chapter I

INTRODUCTION

The signification of financial performance analysis of any business

undertaking in general or in particular hardly needs any emphasis. Notably as a potent

instrument. Proper financial analysis not only helps largely in finding goal deviation

of available both physical and financial.

Its scope is for expansive because the techniques of financial analysis that are

employed for diagnosing the economic health of an enterprise eventually helps both

the internal and external parties concerned with the interest in the profitability of that

enterprise in evaluating its over all performance.

Financial Performance Analysis : the Concept

Simply financial analysis by scientific evaluation of the profitability and

financial strength of any business concern infect, financial analysis in the process of

making a study on the financial and operational data contained in the profit and loss

account and the balance sheet of a give concern and there by satisfying the

information needs of the internal and external users of such data. On the other hand,

financial analysis of the process of scientifically making a proper and comparative

evaluation of the profitability and financial health of the given concern on the basis of

summarized and analyzed data in the output of financial analysis.

Thus it follows the above that the analysis of financial statements as financial

analysis of the results dawn by the analysis (or) management accounts obviously the

analysis of such results is made by the management by decision making process.

Thus, it is evident that the financial analysis being so, starts where the

summarization of financial data in the form of usual profit and loss account and

balance sheet ends. In other words financial analysis is the end of that continuous

flow of accounting cycle which starts from classification, recording, summarizing,

presentation and analysis of data and ends with interpretation of he results obtained

from such an analysis. Notably in practice the entire exercise up to the point of

analysis of the financial and accounting data is performed by the accounts division of

8/8/2019 Typeing Work (12!08!10)

2/46

a business enterprise where as analysis (or) evaluation part is the major concern of

management.

Placing the analysis and interpretation of financial statements are an attempt to

determine the meaning and signification of these financial statements so that a

forecast could be made of the prospects for the future earning ability, to pay interest

and debt machines (both current and long term) and profitability of a sound dividend

policy. Financial statement of a business enterprise are valuble in the sense that they

relate how the financial data of the concerned enterprise fit into the facbric of its

accounting system.

The analysis and interpretation of the financial statements results in the

presentation of the information that will aid in decision making by business managers,

investors and creditors as well as other groups who are interested in the financial

status and operating results of a business.

According to more, financial is process, syntheses and summarization of

financial and operative data embodied in the financial statements with a view of

getting an insight with the operative activities of a business enterprise weasels, views

it as technique X raying the financial position as well as the progress of the

company by establishing strategic relationships between the components of balance

sheet and profit and loss account and other operative data, financial analysis

eventually unveils the meaning and significance of the various items embodied in the

financial statements, also known as the financial blue prints of a business concern.

As mentioned earlier, the major and the most significant financial statements

of a business concern are the profit and loss account and the balance sheet. The profit

and loss account is a dynamic statement that records income(s) and expense(s)

between the two balance sheet dates, the balance sheet is a static statement which

shows the financial position on a certain date. Thus, the latter is an intentions

photograph of the assets, liabilities and the net worth of an enterprise at a particular

unit of time.

8/8/2019 Typeing Work (12!08!10)

3/46

The analysis of both the statements gives a comprehensive understanding of

business operations of the related concern as also of their impact on the financial

health. A careful perusal of profit and loss account throws ample light on the

operating efficiency, inventory management, control over indirect overheands and

other policies pursued by the concern. Moreover, a study of the major individual

items of other statements will measure the activity and the profitability of the

enterprise. Since both the major financial statements are interrelated the exclusive

analysis of either of them would not lead to purposive exercise.

The main purpose of financial is to make available to creditors, shareholders

and general public adequate information about and evaluation of corporations

financial conditions.

Special interest to banks and other lenders of funds to corporations, are the

various ratios that enable creditors and investors to analyze the progress of company.

These ratios help in comparing current accomplishments and financial prospects of a

business corporation with those of its past as well as those of similar corporations.

The general public and particularly and particularly the investors in corporate

securities are concerned about the soundness of a business in which they have

purchased or contemplating to purchase a share of ownership. The analysis of a

companys securities requires valuation of its art performance as reflected in the

previous financial statements and of its probable future performance considering the

overall business environment and futuristic trends.

Meaning and Significance of Ratio Analysis

Finance has many meanings such as management of money, provide with

money, find capital etc., finance places an important role in any organization. Finance

now a day became a special function. It requires over all knowledge of the

environment in which it is read.

8/8/2019 Typeing Work (12!08!10)

4/46

Finance includes money banking and credit of different types and classes. It I

viewed different by different people depending upon their interest, like management

promoters, shareholders organization or business enterprise.

Definition

There are many definitions of finance of all the best was Harvard and

UPTONs definition. They defined finance as That administrative area of set of

administration functions in an organization, which have to do with the management of

the flow of the cash so that the organization will have the means to carry out its

objectives as satisfactory as possible and at the same time meet its obligations as they

become due.

Meaning of Financial Management

Financial management is the managerial activity, which is concerned with

planning and controlling of the financial resources. Financial management is not a

totally independent area. It is an integral part of the overall management.

It draws heavily all related disciplines and fields of study namely economics,

accounting, marketing, production and quantitative methods. Although these

disciplines are interrelated there are key differences among them.

Functions

Managerial finance functions are those functions which require skilful

planning. Control and execution of financial activities. Routine finance functions, on

the other hand, do not require a great managerial ability to carry them out. They are

chiefly clerical in nature and is incidental to the effective handling of managerial

financial functions.

There are 4 important managerial finance functions.

1. Investment or long term assets mix decision.

2. Financing or capital mix decision.

3. Dividend or profit allocation decision.

4. Liquidity or short term asset mix decision.

8/8/2019 Typeing Work (12!08!10)

5/46

Investment Decision

Investment decision or capital budgeting is the oldest area of the recent

thinking in finance. It relates to allocation of capital and involves decisions to commit

funds to long term assets which would yield benefits in future. It is one of the verysignificant aspect in the task of measuring the prospective profitability of new

investments. Because the capital budgeting decision involves risk. Investment

proposals should therefore, be evaluated in terms of both expected return and risk.

Finance Decision

Financing decision is the second important function to be performed by the

financial manager. Broadly, he must decide when, where and how to acquire funds tomeet the firms investment needs. The central issue before him is to determine the

proportion of equity and debt. The mix of debt and equity is known as the firms

principle capital structure. Then the financial manager must strive to obtain the best

financing mix on optimum capital structure for his firm. The firms capital structure

is optimum then the marker value of the shares is maximized. The use of debt it

always increase risk. Once the financial manager is able to determine the debt

combination of debt and equity, he must raise the appropriate best combination of

debt and equity, among the best available sources.

Dividend Decision

Dividend decision is he third major financial decision. The financial manager

must decide whether the firm should distribute all the profits, or return them, or

distribute a portion and retain the balance. Like the debt policy, the dividend policy

should be determined in terms of its impact on shareholders value. The optimum

dividend policy is one, which maximizes the market value of the firms shares. Thus,

if shareholders are not indifferent to the firms dividend policy, the financing manager

must determine the optimum dividend pay out ratio.

Liquidity Decision

Current assets management which effects a firms liquidity is yet another

important finance function, in addition guarding the firm against the dangers of

illiquidity and insolvency. Investment in current assets effects firms profitability,

8/8/2019 Typeing Work (12!08!10)

6/46

liquidity and risk. A conflict exists between profitability and liquidity while managing

the current assets. If the firm does not invest sufficient funds in current assets it will

become illiquid and it would lose profitability as idle current assets would not earn

anything. So the financial manager should develop sound techniques of managing the

assets. Financial decision thus directly concern the firms decision to acquire or

dispose of assets and require commitment or recommitment of funds on a continuous

basis.

Objectives of the Financial Management

The objectives shows that financial management as an academic discipline,

concerned with decision making in regard to the size to composition of assets and

level of structure of financing. He objectives provide a frame work for optimum

financial decision making.

Scope of the Financial Management

The scope of financial management is divided into two categories.

1. Traditional approach

2. Modern Approach

Traditional Approach

The traditional approach to the scope of financial management refers to its

subject, mathematics in the academic literature in the initial stages of its evolution as

a separate branch of academic study. In the earlier stages financial management was

knows as corporate finance. As the name suggests the concern of the corporate

finance functions was treated by the traditional approach in the narrow sense ofprocurement of funds by corporate enterprises to meet their financing needs. The term

procurement was used in a broad sense so as to include the work of raising funds

externally. This defined, the field of study dealing with finance was tracked as

encompassing three inter-related aspects of raising an administering resources from

outside.

The traditional approach to the scope of the finance function evolved during

the 1920s and 1930s dominated the academic thinking during early fifties. It has now

8/8/2019 Typeing Work (12!08!10)

7/46

been described as it suffers from serious limitations. The weakness of the traditional

approach fall into two broad categories.

1. Those relating to the treatrnent of various topics and the emphasis

attached to them.

2. Those relating to the basic concept and analytical framework of the

definitions and scope of the finance.

Modern Approach

The modern approach views the term financial management in a broad sense

and provides a conceptual and analytical framework for financial decision making.According to it, the issues involved in acquiring external funds, the main concern of

financial management is the efficient and wise allocation of funds to various use

defined in a broad sense, it is viewed as an integral part over-all management.

The new approach is an analytical way viewing the financial problems of a

firm. The main contents of this approach are what is the total volume of funds an

enterprise should commit? The principal contents of modern approach to the financial

management can said to be

i) How large should an enterprise be, and how fast should it grow?

ii) In what form should it hold assets?

iii) What should be the composition liabilities ?

The three questions posed above the major financial problems of the firm. In other

words, financial management according to the new approach is concerned with

the solution of three major problems relating to the financial operations of a firm.

Corresponding the three questions namely investment, financing and dividend

decisions. Thus, financial management, in the modern sense of the firm, can be

broken down into three major decisions as functions of finance they are ;

1. The investment decision

2. The financing decision

3. The dividend policy decision.

8/8/2019 Typeing Work (12!08!10)

8/46

Financial Statements

A firm communicates financial information to the users through financial

statements and reports. The financial statements contain summarized information the

firms financial affairs, organized systernatically. They are the means of foreseen thefirms financial situation to users. Preparation of financial statements is the

responsibility of top management. As these statements ate used by the investors and

financial analysts to examine the firms performance in order to make investment

decisions. They should be prepared very carefully and contain as mush information as

possible.

Two basic financial statements ate prepared for the purpose of external

reporting to the owners, investors and creditors are

1. Balance sheet

2. Profit and loss Account or Income statement.

Financial statements ate prepared form the accounting records, maintained by

the firm. The generally accepted accounting principles and pricedured are followed to

prepare these statements.

Meaning of the Ratio

A ratio is a mathematical relationship between two related items in expressed

in quantitative from. When the definition of ratio is explained with reference to the

items shown in financial statements, then it is called accounting ratio. Hence an

accounting ratio is defined as quantitative relationship between two or more items of

the financial statements connected with each other.

This quantitative relationship (i.e., ratio) may be expressed in either of the

following ways :

A. In proportion : In this from the amounts of the two items are being expressed

in a common denominator. The example of this form of expression is the

relationship between current assets and current liabilities 2 :1.

8/8/2019 Typeing Work (12!08!10)

9/46

B. In rate or times or Co efficient : In this form a quotient obtained by divide

one item by another item is taken as unit of expression. The example of this

form is sales divide by stock (say it comes 6), thus 6 time is the ratio between

sales and stock. It is important to note that when ratio is expressed in this

form, it is called as turnover and is written in times.

C. In percentage : In this form a quotient obtained by dividing one item by

another is multiplied by one hundred and it becomes percentage form of

expression, for example the relationship between profit and sales may be

expressed as 25 percent.

Need and Significance of Ratio AnalysisThe need significance of ratio analysis is due to the following facts :

i) Business facts shown in financial statements do not carry any importance

individually. This importance lies in the fact that they are interrelated.

Hence there is need for established relationship between various but

related items, if any correct and accurate conclusion is to be drawn by their

uses.

ii) Ratio analysis is a tool for the interpretation of financial statements. It is

also significant because ratio help the analyst to have a deep knowledge

into the data given in statement. In fact, they are basically dumb ratio

provide power to speak.

On account of the above facts plus the utility discussed earlier, the use of ratio

analysis has increased considerably. It is now being used as a device to diagnose the

financial health of business concern. It signifies whether the financial health of the

concern is vital, strong, good or poor and weak. Like doctors prescription ratios

represent the figures containing the condensed report of the position, progress and

problems of the concern. Like the management, outsiders, creditors, bankers and

shareholders etc., may also use ratio analysis as a tool for financial analysis and

interpretation. Ratio analysis may high light upon the few phases of the business

operations in which the outsiders are most interested by ascertaining the rate and

direction of change and future potentialities. Thus ratio analysis is a powerful tool for

better internal and external analysis.

8/8/2019 Typeing Work (12!08!10)

10/46

Objectives of Ratio Analysis

Ratio analysis serves the purpose of various parties interested in financial

statements. Primarily, the object of ratio analysis is to help management in analyzing

and interpreting the financial statements to get adequate information useful for the performance of various functions like planning, co-ordination, control,

communication and forecasting etc., although each ratio is to some specific utility for

a particular used the general utility or ratio analysis may be summarized as under.

i) Trends in costs, sales profits and other related facts are revealed by the

past ratios and future event can be forecasted on the basis of such trends.

ii) Ideal ratio may be constructed and the relationship found between strategic

ratios can be used for achieving the desired co ordination.

iii) Ratios may be used as instrument of management control particularly in

the areas of sales and costs.

iv) Ratios also facilitate the functional communication. It can be easily

conveyed through the ratios as what has happened during the two

intervening periods.

v) Ratios may also be used as a measure of efficiency since ratios being

possible.

vi) To helps in investment decisions to make profitability investments.

Procedure of Ratio Analysis

The following is generally followed, while analyzing the financial statements

through ratio analysis.

a) Arrangement of data

b) Classification

c) Interpretation of calculated ratios

d) Projections through ratios

Classification of Ratios

Ratios may be classified from various stand points. Some of the possible

classifications are being mentioned below.

8/8/2019 Typeing Work (12!08!10)

11/46

a) Classification by Statements : This classification is based on those

statements from which informations are obtained for calculating the ratios,

since accounting information are obtained mostly from two statements i.e.,

balance sheet and profit and loss account. Therefore, the following are

included in this classification.

1. Balance sheet : These are also sometimes called financial ratios and include.

i. Liquidity ratio.

ii. Current ratio

iii. Stock ratio

iv. Capital generating ratio

2. Balance sheet and profit and Loss account ratios : These are also called

inter statements ratios or combined ratios or mixed ratios and include.

i. Return on capital

ii. Return on shareholders fund

iii. Stock turnover

iv. Debtors turnover

v. Creditors turnover

vi. Working capital turnover

vii. Current assets turnover

viii. Total turnover

ix. Fixed assets

x. Net sales to tangible assets

b) Classification by Users : This classification is based on the parties who are

interested in making the case of these ratios. This classification includes

i) Ratios management

ii) Ratios for creditors

iii) Ratios for shareholders

c) Classification by relative importance : This classification includes

a. Primary Ratios

b. Secondary performance Ratios

c. Secondary credit Ratios

d. Growth Ratios

d) Classification by relative importance

8/8/2019 Typeing Work (12!08!10)

12/46

e) Classification by nature

f) Classification by purpose

Thought this ratio analysis identifies the ability of the firm meet its current

obligations, the extent to with the firm has used its long term solvency by borrowing

funds. The efficiency with which the firm is utilizing its various assets in generating

sales revenue and the overall operating efficiency and performance of the firm is net

with out limitations.

Even with these limitations ratio analysis helps in identifying the strengths and

weaknesses of the firm to certain extent. The process of identification of strengths and

weakness is by comparison with standards. The standard may be industrial standards,

firms past Ratios and the ratios of the leaders of the industry.

Limitations of Ratios

The following are the limitations of ratios

1. Ratios are not an end in themselves but they are means to achieve a

particular end.

2. A single ratio itself is not important or has limited value because trend

is more significant in the analysis. At the same time, a change in a

particular ratio is meaningful, only when it is studied with reference to

other ratios. The accuracy and correctness of ratios are totally

dependent upon the reliability of the data contained in financial

statements on the basis of which ratios are calculared.

3. Ratios become meaningless if details from which they are derived in

this is more true when there is some sort of window dressing in the

financial statements.

4. Ratios may the comparative study complicated and misleading an

account of changes in price level.

Inherent limitations of financial ratios : Experts View

Various financial ratios like current assets to current liabilities, which help to

determine and interpret the strengths and weaknesses of any company are subject to

inherent limitations.

8/8/2019 Typeing Work (12!08!10)

13/46

The balance sheet and profit and loss account of a company being a

combination of recorded facts, accounting conventions, accepted accounting

principles and personal judgments, the financial ratio derived from these could not

be considered as exact measures.

This aspect is highlighted in a background paper circulated to bankers to

merchant bankers participating in a tow-day programme on project appraisal which

is opened and organized by the Industrial and Technical Consultancy Organisation of

Tamil Nadu (ITCOT)

Any single financial ratio by itself could not give a complete picture. Because

over emphasis in a past ratio without considering other ratios could lead wrong

inferences. Therefore all relevant ratios should be taken together and their effects

should be assessed before arriving at a correct conclusion. Each ratio makes its own

contribution to the interpretation of financial condition. So, it must be considered in

connection with other ratios to obtain a clear picture of soundness or weakness of a

concern.

8/8/2019 Typeing Work (12!08!10)

14/46

COTTON INDUSTRY PROFILE

Cotton:

Cotton is a white gold, natural vegetable fiber of great economic importance

as a raw material for cloch. Its wide speed use is largely due to the case with which itsfiber are spun in to yarn. Cottons strength, absorbency, and capacity to be washed

and dyed also make it adoptable to a considerable variety of textile products. Cotton

its fashionable, natural and versatile

History:

The oldest cotton fibers and boil fragments, dated from around 5000 B.C.,

were discovered in Mexico. In 5000 B.C., the greek historian Herodotus reported of a

pant that bore fleece cotton has been in India and Egypt forever 5000 years. Cotton

was grown by Native Americans as early as 1500. in England in the 1700s, it was

against the law import or manufacture fabric made of cotton since it was a threat to

the sheep and wool industry. American colonists were able to grow lots of cotton, but

processing was difficult. It was not until the 1700s that the cotton industry flourished

in the United states.

It was ten that Slater, an Englishmen, built the first American Cotton mill

these mills converted cotton fibers into yarn and cloth. In 1793 Eli whitney developed

the cotton gin, which mechanically separates the seed from the lint fiber. Whitney

named his machine a gin, short for the word engine technology has improved over

the past centuries making cotton growth and production much more efficient

Cotton Plant

Cotton is produced by small trees and shrubs which bear botanical mane

GOSSIPIER. One or two week after showing shoots appear and 50 to 80 days later

flowering begins. First buds are formed. After three weeks blossoms appear after

blossoming the petals fall offend the offspring or the boll develops. The bolls divided

by partition into 3-5 sections contain seeds. Fiber grows on the seeds. The plant has

certainly been grown and used in India for at least 5000 years and probably for much

longer. Cotton was used also by the ancient Chinese, Egyptians, and North and South

Americans.

I nearly spring seeds are planted one to three in seed, by mechanical planters,

seed beds. Plants are irrigated fertilized and weeded, as needed, during the 25 week

growing cycle. The first true leaves appear after two to four weeks with the bud, also

8/8/2019 Typeing Work (12!08!10)

15/46

known as a square appearing about five seven weeks after planting. The white

blossoms become pollinated, turn light pink and then wither at about nine weeks

letting the cotton boll develop, producing the fibers and seeds that are harvested.

The cotton bolls open naturally over time and defoliant chemical is applied

grounder air to ensure top quality. This helps the leaves dry and fall off and any

remaining closed bolls to open. A mechanical cotton harvester moves though the field

picking the cotton, which then packed into truck load sized modules and taken to

the gin. The gin separated the cotton fibers from the seeds. Cleaning equipment

removes twigs and other debris. The fiber, now called lint, is packed into 500 pound

bales and then transported to textile mills.

He cotton is carded roomed, making all of the fibers run parallel, and then

spun in to thread. Some whole cotton seed is fed to cattle. Some seed is further

processed. The fine linter fibers are removed and the seed is pressed and cooked,

producing cotton seed oil ad meal.

Variets:

There are five main varieties grown throughout the world Egyptian. American

pima, sea island, Asiatic and upland. The most prominent types of cotton grown in

California are upland, whose fiber lengths are 13/16 to 11/4 in length, and

American pima, whose fiber lengths are 15/16 to 11/2 seventeen states in the nation

produce cotton with over 14 million acres of cotton planted annually.

TYPES OF COTTON:

India grows all the four major types of cotton G arbor turn, G hirsute, G

herbaceous, and barb dense the first hybrid in the cotton crop was developed in India,

in surat, by dry C T patel (H4 intra hirsute in 1970) more than 200 varieties and

hybrids were evolved in the subsequent five decades. Hybrids occupy around 45% of

cotton crop in India, as in 1998. important landmarks in the Indian cotton history

include the development and release of native hybrids like G got DH37, G got 9,

DDH 2 and drought tolerant straights varieties like SRT 1, renuka, LRA 5166, anjali

and Rajat.

8/8/2019 Typeing Work (12!08!10)

16/46

CULTIVATION:

Successful cultivation of cotton requires alone growing season, plenty of

sunshine and water during the period growth, and dry weather for harvest. It

cultivated in countries with hot climate as India, China, USA, Pakistan. Cotton

producing areas in India are spread thought out the country. Panjab, Hariyana,

maharastra, Andhra Pradesh, Thailand and Karnataka are the major cotton producing

states.

Cotton is shown around May & Jane and harvested around September, to

December. In different parts of the country a number of methods, chemical and

mechanical, have been used to control weeds and grass, including intensive spraying

of herbicide before and after planting.

COTTON INSECTS AND DISEASE:

In addition to the flowers. The under side of each leaf of the cotton plant

contains a small cuplike structure holding nectar. These deposits and the succulent

stem make the plant attractive to a variety of insert pests. Chief among these is the

boll weevil. The use of early maturing strains of cotton plus the application of several

comical and control methods have greately reduce loses from boll-weevil infestation

the boll worm the pink larva of a small month is beloved to have been a native of

India but is now parasitic on cotton all over the world. Quarantine, fumigation of

seed, and destruction of trash removed from the cotton in ginning arecontrol measures

boll-worm tobacco budworm also is one of the most damaging cotton pests in terms

of loses and control costs. Army worm, trips, lygus, and red spider are among other

scientific pests.

PROCESSING:

Raw cotton kappas which is picked from fileds contains seed. To separate the

seed from raw cotton it is taken to machine called gins. Where seed is separated from

kappas. The kappas with seeds so generated is called lint. It is in loose from the

cotton above lint is pressed and packed in bal from in hydraulic/pneumatic press and

taken to mills.

8/8/2019 Typeing Work (12!08!10)

17/46

USES:

Like lumber, cotton comes in many varieties and qualities, each suitable fro

different purposes. The longlint fibres are used for many thins, most of which begin

with a thread, yarn or cotton fabric. Clothing and bedding items are common

products. The smaller cotton fibers. As linters, are removed from the seed and are

used as stuffing for furniture and components of linoleum, plastics and inulation.

MARKETING:

In determining the value of cotton samples are drawn from random bale and

evaluated according to staple, grade, and character. Staple refers to fiber length. Fiber

length can be classified into three grades i.e., 1. short staple, 2. medium staple, 3. long

staple.

Grader refers to color, brightness, and amount of foreign matter. Color groping

indicates the degree of whiteness. Character refers to the diameter, strength, body,

maturity, uniformity, and smoothness of the fiber.

COTTON SEED:

Once a waste-disposal problem for gains, cotton seed is a valuable by-

product. The seed goes to oil mills, where it is deleted of its linters in an operation

similar to ginning. The brae seed is then cracked and the kernel removed. The meal

that remains after the oil has been extracted is high in protein. Linters are used for

padding in furniture and automobiles, for absorbent cotton swabs, an for miniature of

many celloulose products such as rayon, plastics, lacquers and smokeless power for

munitions.

The hulls, or husks, are used as feed for cattle. Kernels, or meats, provide

cotton seed oil refining, provides fatty acids for industrial products also in India cotton

seed is directly expelled and cotton seed cake containing oil up to 6% is directly used

as a cattle feed.

PRODUCTS:

Cotton is still a principal raw material for the worlds textile industry, but its

dominant position has been seriously eroded by synthetic fiber. Increased global

production, emergence of synthetic as an alternative to cotton textile and improved

productivity are mainly contributing for world supply. World demand for cotton

8/8/2019 Typeing Work (12!08!10)

18/46

continued to be erotic, and some groups lobbied for increased price supports. But an

up word trend began in the 1980s.

World production of cotton in the early 1990s stood at 18.9 million metric tns

annually. The leading producers include USA China, India, Pakistan and Turkey.

Cotton textiles commend a significant share in exports from India it accounts for

nearly 22% of the total exports.

TOP PRODUCTING COUNTRIES:

The majority of the cotton is produced in the cotton belt of the. United States,

ranging along the southern part of the nation from California to Florida and Virginia.

In the 2004, cotton was produced in 13 California countries from as for north as glen

country ands far south as imperial country. Major production areas Fresno, kings and

Merced countries.

COTTON EXPORTS FROM INDIA:

As late as 1815, India exported to England alone goods worth $1,300,000.

One third of contemporary Indies exports earnings the textile sector. Cotton alone

constitute around 60% of the raw material. Cottons shares in world textiles

manufacturing is around 45% where as in India, its share is around 70%.

LINT : Blouses, shirts, Yarn, Rugs, Pants, Rope,

Money, Towels, Sheets.

DEBRIS : Tilled into soil, compost.

COTTONSEED : Planting seed, margarine, cosmetics, soaapsalad

dressing.

LINTERS : Paper, bandages and gauze, cellophane,

linoleum.

INDIAN TEXTAILE INDUSTRY:

Largest gross and net foreign exchange earner

31% of the exports earnings with practically no import content.

31% of the incastrial production

7% of GDP.

Direct employment to nearly 3 crows of people.

8/8/2019 Typeing Work (12!08!10)

19/46

10% of excise revenue.

PROFILE OF THE INDIAN TEXTILE INDUSTRY

Organization sector Installed capacityNo.of mills 1875

Ring spinning 36 Mn spindles

OE spinning 3,79,579 rotors

Looms 1,19,033 (mill sector)

SSI SECTON

No.of mills 861

Ring spinning 1.65 Mn spindle

OE spinning 37,702 rotors

8/8/2019 Typeing Work (12!08!10)

20/46

FINDINGS

The following are the findings after a detailed study about working capital

management in Sri Dhana Lakshmi Cotton & Rice Mills (p) Ltd.

The net working capital position of Sri Dhana Laksmi Cotton & Rice Mills (P)

Ltd is gradually increasing thought out the study period of 2002-2003 to 2006-

07.

It is observed that the current Ratio is more than the standard norm i.e, 2:1

under the period of study.

The quick ratio Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd shows

increasing trend under the period of study 2002-03 to 2006-07.

It is found that the company cash & bank balances gradually increased from

the study period of 2002-03 to 2006-07.

The Inventory turnover ratio had been fluctuated through out the study period

of 2002-03 to 2006-07.

From the debtors turnover ratio It is observed that the debtors are collecting

rapidly.

It is observed that the working capital turnover ratio had been fluctuated under

the period of study.

It is found that the Creditors Turnover Ratio of Sri Dhana Lakshmi Cotton &

Rice Mills (P)Ltd is under fluctuating trend from the period of Study 2002 -03

to 2006-07.

The Debt Equity Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd had

been fluctuated through out the study period of 2002-03 ot 2006-07.

8/8/2019 Typeing Work (12!08!10)

21/46

SUGGESTIONS

The net Working capital of Sri Dhana Lakshmi Cotton & Rice Mills (P)

Ltd had been increasing year to year. It is suggested that the company

should continue the same level of net working capital in future to make the

profits.

The Current Ratio is more than the standard norm. it is good to the

organization. It is advised to maintain in future also..

It is suggested to maintain same levels of quick ratio for the up coming

years to meet the current requirements of Sri Dhana Lakshmi Cotton &

Rice Mills (P) Ltd .

The company cash and bank balances increased gradually year by year. It

should be maintain in future also for meet the liquidity operations.

The inventory turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills

(P) Ltd is in fluctuated during the study period of 2003-07 it is not

factorable to the company. So, the company must try to maintain optimum

inventory levels to meet the stock requirements.

The Debtors turnover ratio is under satisfactory position. It is suggested to

maintain the same levels in future for better liquidity of debtors.

The company should maintain same collection period in case of debtors

for better trade credit management in future.

The working capital turnover ratio of Sri Dhana Lakshmi Cotton & Rice

Mills (P) Ltd is decreasing year by year. It indicates less efficiency of firm.

So, that company must try to improve it and make more sales by utilization

of working capital.

The Debt equity ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd

show that the total debt is less that the total share holder funds. It is

advised to maintain the same proportion in future to make better financial

soundness of company.

The company payable management is not favorable. It is suggest that to

maintain optimum ratio for better trade credit management.

8/8/2019 Typeing Work (12!08!10)

22/46

CONCLUSION

By observing the study we may conclude that, the present study has been

conducted to analyzed and evaluated the working capital position of Sri Dhana

Lakshmi Cotton & Rice Mills (P) Ltd through ratios.

The performance of company is observed through the Liquidity, leverage,

Turnover Ratios. With reference of the study we can observe that

The liquidity position of the company is under satisfactory condition. Thus,

the company is in a position which can satisfy the current obligations. There is some

fluctuations in Turnover Ratios and Leverage Ratio. The profitability of the firmincreasing significantly through out the study period of 2002-03 to 2006-07. the long

term solvency of the firm is under satisfactory position.

The recommendations and given, if adopted will improve position of the

company substantial and optimal profitability coupled with better service and

satisfactions for the investors may be achieved.

8/8/2019 Typeing Work (12!08!10)

23/46

BIBLIOGRAPHY

AUTHOR NAME TITLE OF THE

BOOK

PUBLICATIONS

M.Y. KHAN & P.K.JAIN

FINANCIALMANAGEMENTTEXT ANDPROBLEMS

TATA McGRAW-HILI PUBLISHINGCOMPANYLIMITED, NEWDELHI

PRASANNACHANDRA

FINANCIALMANAGEMENTTHEORY ANDPRACTICE

TATA McGRAW-HILI PUBLISHINGCOMPANYLIMITED, NEWDELHI

I.M.PANDEY FINANCIALMANAGEMENT

VIKAS PUBLISHINGHOUSE PVT.LTD,

NEW DELHI

ANNUL REPORTS OF SRI DHANA LAKSHMI COTTON & RICE MILLSPVT.LTD.,

WEBSITES :

www.sridhanalakshmi.comwww.cottonindia.com

http://www.sridhanalakshmi.com/http://www.cottonindia.com/http://www.sridhanalakshmi.com/http://www.cottonindia.com/

8/8/2019 Typeing Work (12!08!10)

24/46

Liquidity Ratios

Current ratio :CL

CA

Year Current Assets Current

Liabilities

Ratio

2002-03 50,66,42,016 16,55,64,081 3.06

2003-04 46,60,76,935 9,01,97,262 5.17

2004-05 55,50,12,846 13,80,70,153 4.02

2005-06 57,86,56,641 10,68,33,433 5.42

2006-07 69,33,82,521 10,23,58,861 6.77

2007-08 92,74,28,861 13,15,35,985 7.05

2008-09 85,69,81,023 12,08,43,915 7.09

8/8/2019 Typeing Work (12!08!10)

25/46

Quick Ratio :ilitiesCurrentLib

sQuickAsset

Year Quick Assets Current

Liabilities

Ratio

2002-03 19,62,93,228 16,55,64,081 1.19

2003-04 15,96,92,453 9,01,97,262 1.77

2004-05 20,74,79,783 13,80,70,153 1.50

2005-06 21,66,06,426 10,68,33,433 2.03

2006-07 21,85,49,696 10,23,58,861 2.14

2007-08 28,90,09,002 13,15,35,985 2.2 (2.197)

2008-09 26,07,07,727 12,08,43,915 2.16

8/8/2019 Typeing Work (12!08!10)

26/46

Cash Ratio :bilitiesCurrentLia

eBankBalancCash +

Year Cash + Bank Current

Liabilities

Ratio

2002-03 1,24,83,161 16,55,64,081 0.08

2003-04 1,06,18,526 9,01,97,262 0.12

2004-05 1,5360,979 13,80,70,153 0.11

2005-06 1,73,76,708 10,68,33,433 0.16

2006-07 1,67,09,680 10,23,58,861 0.16

2007-08 2,20,57,637 13,15,35,985 0.17

2008-09 1,70,01,772 12,08,43,915 0.14

8/8/2019 Typeing Work (12!08!10)

27/46

Leverage Ratios:

Cash Ratio :sequityrShareholde

btLongtermde

'

Year Cash + Bank CurrentLiabilities

Ratio

2002-03 35,33,05,469 40,13,61,305 088

2003-04 34,20,86,587 43,14,37,865 0.79

2004-05 42,13,67,714 52,77,67,132 0.80

2005-06 47,08,67,122 68,41,21,724 0.69

2006-07 62,88,88,305 84,28,36,431 0.75

2007-08 72,36,97,146 97,48,46,023 0.742008-09 79,36,50,247 104,87,75,186 0.76

8/8/2019 Typeing Work (12!08!10)

28/46

Net Profit Ratio :Sales

taxesersttrEarningsaf +int

Year Earning

interest +

Taxes

Sales Ratio

2002-03 3,13,32,218 176,44,15,544 0.018

2003-04 3,00,76,560 143,54,63,619 0.021

2004-05 9,63,75,756 157,24,07,472 0.061

2005-06 16,07,26,312 175,47,60,942 0.092

2006-07 13,32,00,297 196,24,83,183 0.083

2007-08 13,86,79,655 238,19,02,558 0.058

2008-09 7,84,14,753 246,86,12,971 0.032

8/8/2019 Typeing Work (12!08!10)

29/46

Sales to Capital Employed Ratio :loyedCapitalemp

Sales

Year Sales Capital

Employed

Ratio

2002-03 176,44,15,544 46,43,56,047 3.8

2003-04 143,54,63,619 45,64,36,900 3.15

2004-05 157,24,07,472 60,18,52,200 2.61

2005-06 175,47,60,942 75,18,61,555 2.33

2006-07 196,24,83,183 95,96,53,355 2.05

2007-08 238,19,02,558 99,66,16,187 2.39

2008-09 246,86,12,971 123,85,21,669 1.99

8/8/2019 Typeing Work (12!08!10)

30/46

Sales to Fixed Assets Ratio :ANetF

Sales

.

Year Sales Net Fixed

Assets

Ratio

2002-03 176,44,15,544 46,28,56,047 3.81

2003-04 143,54,63,619 45,33,97,714 3.17

2004-05 157,24,07,472 59,67,74,259 2.63

2005-06 175,47,60,942 74,22,15,791 2.36

2006-07 196,24,83,183 86,34,91,249 2.27

2007-08 238,19,02,558 97,70,75,676 2.44

2008-09 246,86,12,971 122,91,94,757 2.008 (2.01)

8/8/2019 Typeing Work (12!08!10)

31/46

Total Assets Turnover Ratio :sTotalAsset

NetSales

Year Sales Total Assets Ratio

2002-03 176,44,15,544 96,94,98,063 1.822003-04 143,54,63,619 92,10,13,835 1.56

2004-05 157,24,07,472 115,53,65,046 1.36

2005-06 175,47,60,942 132,90,18,196 1.32

2006-07 196,24,83,183 165,15,35,876 1.19

2007-08 238,19,02,558 192,25,45,048 1.24

2008-09 246,86,12,971 197,31,58,777 1.25

8/8/2019 Typeing Work (12!08!10)

32/46

Fixed Asset Turnover Ratio :FixedAsset

NetSales

Year Net Sales Fixed Assets Ratio

2002-03 176,44,15,544 71,97,83,043 2.452003-04 143,54,63,619 74,56,86,630 1.93

2004-05 157,24,07,472 92,21,75,382 1.71

2005-06 175,47,60,942 111,43,32,198 1.58

2006-07 196,24,83,183 128,52,76,650 1.53

2007-08 238,19,02,558 145,25,43,717 1.64

2008-09 246,86,12,971 178,51,85,652 1.38

8/8/2019 Typeing Work (12!08!10)

33/46

Current Assets to Fixed Assets Ratio :sFixedasset

etsCurrentAss

Year Current Assets Fixed Assets Ratio

2002-03 50,66,42,016 46,28,56,047 1.0952003-04 46,60,76,935 45,49,36,900 1.024

2004-05 55,50,12,846 60,03,52,200 0.924

2005-06 57,86,56,641 75,03,61,555 0.771

2006-07 69,33,82,521 95,81,53,355 0.723

2007-08 92,74,28,861 99,51,16,187 0.932

2008-09 85,69,81,023 123,70,21,669 0.693

8/8/2019 Typeing Work (12!08!10)

34/46

Working Capital Turnover Ratio :capitalNetworking

Sales

Year Sales Net Working

Capital

Ratio

2002-03 176,44,15,544 34,10,77,935 5.17

2003-04 143,54,63,619 37,58,79,673 3.82

2004-05 157,24,07,472 41,69,42,693 3.77

2005-06 175,47,60,942 47,18,23,208 3.72

2006-07 196,24,83,183 59,10,23,660 3.32

2007-08 238,19,02,558 79,58,92,876 2.99

2008-09 246,86,12,971 73,61,37,108 3.35

8/8/2019 Typeing Work (12!08!10)

35/46

Receivable Turnover Ratio

Debtors Turnover Ratio :)Re( ceivableBilsDebtors

Sales

+

Year Sales Debtors Ratio

2002-03 176,44,15,544 15,06,89,851 11.71

2003-04 143,54,63,619 11,64,16,643 12.33

2004-05 157,24,07,472 15,20,08,848 10.34

2005-06 175,47,60,942 13,39,96,417 13.09

2006-07 196,24,83,183 14,73,96,417 13.31

2007-08 238,19,02,558 20,59,73,689 11.56

2008-09 246,86,12,971 13,75,34,380 17.95

8/8/2019 Typeing Work (12!08!10)

36/46

Average Collection Period :noverratioDebtorstur

ayearNoofday sin

Year Days Debtors

turnovers

Ratio

Collection

period

2002-03 365 11.71 31

2003-04 365 12.33 30

2004-05 365 10.34 35

2005-06 365 13.09 28

2006-07 365 13.31 27

2007-08 365 11.56 32

2008-09 365 17.95 21

8/8/2019 Typeing Work (12!08!10)

37/46

Inventory Turnover Ratio :Inventory

Sales

Year Sales Inventory Ratio

2002-03 176,44,15,544 31,03,48,788 5.692003-04 143,54,63,619 30,63,84,482 4.69

2004-05 157,24,07,472 34,75,33,063 4.52

2005-06 175,47,60,942 36,20,50,215 4.85

2006-07 196,24,83,183 47,48,32,825 4.13

2007-08 238,19,02,558 63,84,19,859 3.73

2008-09 246,86,12,971 59,62,73,296 4.14

8/8/2019 Typeing Work (12!08!10)

38/46

Inventory Period :atioInventoryR

ayeardayofNo sin..

Year Days Inventory

Ratio

Period

2002-03 365 5.69 64.15

2003-04 365 4.69 77.83

2004-05 365 4.52 80.75

2005-06 365 4.85 75.26

2006-07 365 4.13 88.38

2007-08 365 3.73 97.86

2008-09 365 4.14 88.16

8/8/2019 Typeing Work (12!08!10)

39/46

Net Profit Margin :sales

axofitaftertPr

Year Profit after tax Sales Ratio

2002-03 3,13,32,218 176,44,15,544 0.0178 0.022003-04 3,00,76,560 143,54,63,619 0.021 0.02

2004-05 9,63,75,756 157,24,07,472 0.061 0.06

2005-06 16,07,26,312 175,47,60,942 0.092 0.09

2006-07 16,32,00,297 196,24,83,183 0.083 0.09

2007-08 13,86,79,655 238,19,02,558 0.058 0.06

2008-09 7,84,14,753 246,86,12,971 0.032 0.03

8/8/2019 Typeing Work (12!08!10)

40/46

Return on equity :Networth

PAT, Net worth = share Capital + Reserve

Year PAT Net Worth Ratio

2002-03 3,13,32,218 40,13,61,305 0.0782003-04 3,00,76,560 43,14,37,865 0.069

2004-05 9,63,75,756 52,77,67,132 0.183

2005-06 16,07,26,312 68,41,21,724 0.235

2006-07 16,32,00,297 84,28,36,431 0.194

2007-08 13,86,79,655 97,48,46,023 0.142

2008-09 7,84,14,753 104,87,75,186 0.075

8/8/2019 Typeing Work (12!08!10)

41/46

Debt Ratio :NetworthTotaldebt

Totaldebt

+

Year Total

Debt

Net worth TD + NW Ratio

2002-03

35,33,05,469

40,13,61,305

75,46,66,774

0.468

2003-04

34,20,86,587 43,14,37,865

77,35,24,452

0.442

2004-05

42,13,67,714 52,77,67,132

94,91,34,846

0.444

2005-06

47,08,67,122 68,41,21,724

115,49,88,846

0.408

2006-07

62,88,88,305 84,28,36,431

147,17,24,736

0.427

2007-08

72,36,97,146 97,48,46,023

169,85,43,169

0.426

2008-09

79,36,50,247 104,87,75,186

184,24,25,433

0.431

8/8/2019 Typeing Work (12!08!10)

42/46

EPS (Earnings per Share) :SharesofNo

PAT

..

Year PAT No. of Shares EPS

2002-03 3,13,32,218 31,95,000 9.812003-04 3,00,76,560 31,95,000 9.41

2004-05 9,63,75,756 31,95,000 30.16

2005-06 16,07,26,312 31,95,000 50.31

2006-07 16,32,00,297 31,95,000 51.08

2007-08 13,86,79,655 31,95,000 43.41

2008-09 7,84,14,753 31,95,000 24.54

8/8/2019 Typeing Work (12!08!10)

43/46

Return on net worth Ratio :Networth

sbeforetaxeNetprofits

Year PBT NW Ratio

2002-03 5,11,12,368 40,13,61,305 12.732003-04 6,45,38,958 43,14,37,865 14.95

2004-05 12,90,50,405 52,77,67,132 24.45

2005-06 19,19,35,727 68,41,21,724 28.05

2006-07 19,87,80,917 84,28,36,431 23.58

2007-08 20,94,49,946 97,48,46,023 21.49

2008-09 11,71,17,490 104,87,75,186 11.17

8/8/2019 Typeing Work (12!08!10)

44/46

Current Asserts =bilitiesCurrentLia

ertsCurrentass

Quick ratios =bilitiesCurrentLia

esinventorsiCurrent

CASH RATIO =bilitiesCurrentLia

SecuritiesmarketableCas +

Cash + Marketable Securities

Net Working Capital Ratio = NetAssets

CapitalNetWorking

Debt Ratio =NetWorthTotaldebt

Tataldebt

+

Debt Equity Ratio =NewWorth

TotalDebt

Inventory Turnover Ratio =2

sin ginventorycloentyOpeninginv

Raw material inventory turnover ratio =MaterialAverageRaw

nsumedMaterialCo

Work-in-process inventory turnover ratio :processinkAverageWor

oductionCostof

Pr

Debtors Turnover Ratio =torsAverageDeb

sCreditSale

Net Assets Turnover Ratio =NetAssets

Sales

Total Assets Turnover Ratio =sTotalAsset

Sales

8/8/2019 Typeing Work (12!08!10)

45/46

Working Capital Turnover Ratio =AssetsNetCurrent

Sales

Gross Profit Margin =Sales

ldtofgoodssoSales cos

Net Profit Margin =Sales

axofitafterTPr

Operating Expenses Ratio =Sales

xpensesPoeratingE

Return on Investment =sTotalAsset

TIEBIT )(

Return on Equity =NetWorth

axofitafterTPr

Earning per Share =aresNumberofSh

rTaxprofitafte

Dividend per share =aresNumberofSh

Dividends

Dividend payout Ratio =ShareEarningper

rShareDividendpe

Price Earning Ratio =ShareEarningper

eperShareMarketValu

8/8/2019 Typeing Work (12!08!10)

46/46