A Study on Ratio Analysis at HMT WATCHES LTD.BANGALORE

RATIO ANALYSIS STATEMENT OF HMT WATCHES LTD. 1

CHAPTER NO.

PARTICULARS PAGE NO

1. INTRODUCTION 04-30

2. RESEARCH DESIGN OF THE STUDY

31-36

3. COMPANY PROFILE 37-47

4. DATA ANALYSIS AND INTERPRETATION

48-82

5. SUMMARY OF FINDINGS, SUGGESTIONS

AND CONCLUSION

83-88

6. ANNEXURE 89-93

7. BIBLIOGRAPHY 94-95

CONTENTS

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INTRODUCTION

In an economy finance is defined as the provision of money at the time when

it is required. Every enterprise, whether big, medium of

small, needs finance to carry on its operations and

to achieve its targets. In fact, finance is so indispensable today that it is

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rightly said to be the lifeblood of an enterprise. Without adequate finance, no

enterprise can possibly accomplish its objectives.

DEFINITIONS

“That business activity which is concerned with the acquisition and

conservation of capital funds in meeting the financial needs and overall

objectives of business enterprise.”

-Wheeler

“Business finance can be broadly defined as the activity concerned with the

planning, raising, controlling and administering the funds used in the

business”.

-Guttmann and dough all

“Business finance deals primarily with raising, administering and disbursing

funds by privately owned business units operating in non-financial fields of

industry.”

CLASSIFICATION OF FINANCE

The subject of finance has been traditionally classified into two classes:

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Public finance

Public finance deals with the requirements receipts and disbursements of funds in

the government institutions like states, local self-governments and central

government.

Private finance

Private finance is concerned with requirements, receipts and disbursements of

funds in case of individual, a profit seeking business organization and a non-profit

organization.

Private finance can be classified into:

Personal finance;

Business finance; and

Finance of non-profit organizations.

Three main APPROACHES to finance:

i The first approach views finance as to providing of funds needed by a

Business on most suitable terms. This approach confines finance to the

raising of funds and to the

study of financial institutions and instruments from where funds can be

procured.

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FINANCE

PUBLIC FINANCE

-GOVERNMENT INSTITUTION-STATE GOVERNMENTS

-LOCAL SELF-GOVERNMENTS-CENTRAL GOVERNMENT

PRIVATE FINANCE

-PERSONAL FINANCE-BUSINESS FINANCE

-FINANCE OF NON-PROFIT ORGANISATIONS


ii The second approach relates finance to cash.

iii The third approach views finance as being concerned with rising of funds

and their effective utilization.

Business finance can further be sub-classified into three

categories:

OBJECTIVES OF FINANCIAL MANAGEMENT OR BUSINESS

FINANCE

Financial management is concerned with procurement and use of funds. Its

main aim is to use business funds in such a way that the firm’s value/earnings

Are maximized. Financial management provides a framework for selecting a

Proper course of action and deciding a viable commercial strategy. The main

Objective of a business is to maximize the owner’s economic welfare.

Objective can be achieved by:

1. Profit Maximization, and

2. Wealth Maximization

1. Profit Maximization. Profit earning is the main aim of every economic

Activity. A business being an economic institution must earn profit to

Cover its costs and provide funds for growth. No business can survive

without earning profit. Profit is a measure of efficiency of a business

enterprise. Profits also serve as a protection against

Risks which cannot be ensured. The accumulated profits enable a business

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BUSINESS FINANCE

SOLE-PROPRITORY FINANCE

PARTNERSHIP FIRMS FINANCE

COMPANY OR CORPORATION

FINANCE


to face risks like fall in prices, competition from other units, adverse

government policies etc. thus, profit maximization is considered as the main

objective of business.

2. Wealth Maximization. Wealth maximization is the appropriate

objective of an enterprise. Financial theory asserts that wealth maximization

is the single substitute for a stock holder’s utility. When the firm maximizes

the stock holder’s wealth, the individual maximizing stock holders wealth the

firm is operating consistently towards maximizing stock holders utility

SCOPE OF FINANCE FUNCTION

1. Estimating financial requirements

2. Deciding Capital Structure

3. Selecting a Source of Finance

4. Selecting a Pattern of Investment

5. Proper Cash Management

6. Implementing Financial Controls

7. Proper Use of Surpluses

1)Estimating Financial Requirements:

The first task of a financial manager is to estimate short-term financial

Requirements of his business. For this purpose he will prepare a financial

Plan for present as well as for future. The amount required for purchasing

fixed assets as well as needs of funds for working capital will have to be

Ascertained. The estimations should be based on sound financial principles

So that neither there are inadequate nor excess funds with the concern. The

inadequacy of funds will adversely affect day to day working of the concern

whereas excess funds may tempt a management to indulge in extravagant

Spending or speculative activities.

2)Deciding capital Structure:

It refers to the kind and proportion of different securities for raising funds.

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After deciding about the quantum of funds required it should be decided

Which type of securities should be raised? It may be wise to finance fixed

Assets through long term debts. If gestation period is longer, then share

Capital may be most suitable. Long term funds should be employed to

Finance working capital also, if not wholly then partially. Entirely depending

Upon overdrafts and cash credits for meeting working capital needs may not

Be suitable. A decision about various sources for funds should be linked to

The cost of raising funds. If cost of raising funds is very high then such

Sources may not be useful for long.

3)Selecting a Source of Funds: After preparing a capital structure,

an appropriate source of finance is Selected. Various sources from which

the finance may be raised, include: share capital, financial institution,

commercial banks, public deposits, etc. if finances are needed for short

periods then banks, public deposits and financial institutions may be

appropriate; on the other hand, if long – term Finances are required then

share capital and debentures may be useful. If the concern does not

want to tie down assets as securities then public deposits May be a

suitable source. If management does not want to dilute ownership Then

debentures should be issued in preference to shares. The need, purpose,

object and cost involved may be the factors influencing the selection of a

Suitable source of financing.

4)Selecting a Pattern of Investment:

The selection of an investment pattern is related to the use of funds. The

funds will have to be spent first on fixed assets and then an appropriate

Portion will be retained for working capital. Even a various categories of

Assets, a decision about the type of fixed or other assets will be essential.

While selecting a plant and machinery, even different categories of them

May be available. The decision making techniques such as Capital

Budgeting, Opportunity Cost Analysis etc. May be applied in making

decisions about capital expenditures. While spending on various assets,

the

Principle of safety, profitability and liquidity should not be ignored. A

Balance should be struck even in these principles. One may not like to invest

On a project which may be risky even though there may be more profits.

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5)Proper Cash Management:

it is also an important task of finance manager. He has to assess various cash

Needs at different times and then make arrangements for arranging cash.

Cash may be required to:

a) Purchase of raw materials,

b) Make payments to creditors,

c) Meet wage bills, and to meet day-to-day expenses.

d)

The usual sources of cash may be:

a) Cash sales,

b) Collection of debts,

c) Short term arrangements with banks etc.

6)Implementing financial controls:

An efficient system of financial management necessitates the use of various

Control devices. Financial control devices generally used are:

a) Return on investment,

b) Budgetary control,

c) Break even analysis,

d) Cost control,

e) Ratio analysis,

f) Cost and internal audit.

7)Proper use of surpluses:

The utilization of profits or surpluses is also an important factor in financial

Management. A judicious use of surpluses is essential for expansion and

Diversification plans and also in protecting the interests of shareholders. The

plugging back of profits is the best policy for further financing but it cashes

With the interests of shareholders. A balance should be struck in using funds for

paying dividend and retaining earnings for financing expansion plans, etc. the

market value of shares will also be influenced by declaration of Dividend and HKBK DC


expected profitability in future.

A finance manager should consider the influence of various

factors such as:

a) Trend of earnings of the enterprise,

b) Expected earnings in future,

c) Market value of shares,

d) Need for funds for financing expansion, etc. a judicious policy for

distributing surpluses will be essential for maintaining proper growth of

the unit.

FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT

1. Determining financial needs

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2. Selecting the sources of funds

3. Financial analysis and interpretation

4. Cost volume profit analysis

5. Capital budgeting

6. Working capital management

7. Profit planning and control

8. Dividend policy

Determining financial needs: a finance manager is supposed to

meet financial needs of the enterprise. For this purpose, he should

determine financial needs of the concern. Funds are needed to meet

promotional expenses, fixed and working capital needs.

Selecting the sources of funds: numbers of sources are available

for raising funds. A concern may resort to issue of share capital and

debentures. Long term funds may be acquired from the financial institution.

Working capital needs may be met by obtaining cash credit or overdraft

facilities from commercial banks.

Financial analysis and interpretation: the analysis and

interpretation of financial statement is an important task of a finance

manager. He is expected to know about the profitability, liquidity position, and short

term and long term financial position of concern.

Cost volume profit analysis: is an important tool of profit planning.

It helps to ascertain that at what point of production a firm will be able to

Recover its cost and volume? How much should be the output to earn

Capital budgeting: it is the process of making investment decisions in

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capital expenditure. It is an expenditure the benefits of which are to be

received over a expected period of time. It is an expenditure incurred for

acquiring or improving the fixed assets.

Working capital management: no business can run without an

adequate amount of working capital. Working capital refers to that part of

firm’s capital which is required for financing short term or current receipts

such as cash receivables and inventories.

Profit planning and control: the excess of revenue over expenditure

determines the amount of profit. Profit planning and control directly

influence the declaration of dividend, creation of surpluses, taxation etc.

Dividend policy: dividend policy is an important area of financial

management because interests of the shareholders and the needs of the

company are directly related to it.

After preparation of the financial statements, one may be interested in

knowing the position of an enterprise from different points of view. This can be

done by analyzing the financial statement with the help of different tools of

analysis such as ratio analysis, funds flow analysis, cash flow analysis,

comparative statement analysis, etc. Here I have done financial analysis by

ratios. In this process, a meaningful relationship is established between two or

more accounting figures for comparison.

Financial ratios are widely used for modeling purposes both by practitioners

and researchers. The firm involves many interested parties, like the owners,

management, personnel, customers, suppliers, competitors, regulatory

agencies, and academics, each having their views in applying financial

statement analysis in their evaluations. Practitioners use financial ratios, for

instance, to forecast the future success of companies, while the researchers'

main interest has been to develop models exploiting these ratios. Many

distinct areas of research involving financial ratios can be discerned.

Historically one can observe several major themes in the financial analysis

literature. There is overlapping in the observable themes, and they do not

necessarily coincide with what theoretically might be the best founded areas.

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Financial statements are those statements which provide information about

profitability and financial position of a business. It includes two statements,

i.e., profit & loss a/c or income statement and balance sheet or position

statement.

The income statement presents the summary of the income earned and the

expenses incurred during a financial year. Position statement presents the

financial position of the business at the end of the year.

Before understanding the meaning of analysis of financial statements, it is

necessary to understand the meaning of ‗analysis’ and ‗financial statements‘.

Analysis means establishing a meaningful relationship between various items

of the two financial statements with each other in such a way that a conclusion

is drawn. By financial statements, we mean two statements-

(1)Profit & loss a/c

(2)Balance sheet.

These are prepared at the end of a given period of time. They are indicators of

profitability and financial soundness of the business concern. Thus, analysis of

financial statements means establishing meaningful relationship between various

items of the two financial statements, i.e., income statement and position

statement Parties interested in analysis of financial statements Analysis of

financial statement has become very significant due to widespread interest of

various parties in the financial result of a business unit.

The various persons interested in the analysis of financial statements are:-

Short- term creditors:

They are interested in knowing whether the amounts owing to them will be paid as

and when fall due for payment or not.

Long –term creditors:

They are interested in knowing whether the principal amount and interest

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thereon will be paid on time or not.

Shareholders:

They are interested in profitability, return and capital appreciation.

Management :

The management is interested in the financial position and performance of the

enterprise as a whole and of its various divisions.

Trade unions :

They are interested in financial statements for negotiating the wages or salaries or

bonus agreement with management.

Taxation authorities

These authorities are interested in financial statements for determining the tax

liability.

RATIO ANALYSIS:-

Ratio Analysis enables the business owner/manager to spot trends in a business

and to compare its performance and condition with the average performance of

similar businesses in the same industry. To do this compare your ratios with the

average of businesses similar to yours and compare your own ratios for several

successive years, watching especially for any unfavorable trends that may be

starting. Ratio analysis may provide the all-important early warning indications

that allow you to solve your business problems before your business is destroyed

by them. The Balance Sheet and the Statement of Income are essential, but they

are only the starting point for successful financial management. Apply Ratio

Analysis to Financial Statements to analyze the success, failure, and progress of

your business.

Importance of financial statement analysis in an

organization.

In our money-oriented economy, Finance may be defined as provision of money at

the time it is needed. To everyone responsible for provision of funds, it is problem

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outflow of expenditure in face of an irregular inflow of income.

1. The profit and loss account (Income Statement).

2. The balance sheet

In companies, these are the two statements that have been prescribed and their

contents have been also been laid down by law in most countries including India.

There has been increasing emphasis on

(a) Giving information to the shareholder in such a manner as to enable them to

grasp it easily.30

(b) Giving much more information e.g. funds flow statement, again with a view to

facilitating easy understanding and to place a year results in perspective through

comparison with post year results.

(c) The directors report being quite comprehensive to cover the factors that have

been operating and are likely to operate in the near future as regards to the

various functions of production, marketing, finance, labour, government policies,

environment in general.

Financial statements are being made use of increasingly by parties like Bank,

Governments, Institutions, and Financial Analysis etc. The statement should be

sufficiently informative so as to serve as wide a curia as possible.

The financial statement is prepared by accounts based on the activities that take

place in production and non-production wings in a factory. The accounts convert

activities in monetary terms to the help know the position.

Uses of Financial Statement Analysis.

The main uses of accounting statements for; -

Executives: - To formulate policies.

Bankers: - To establish basis for Granting Loans.

Institutions \ Auditors: - To extend Credit facility to business.

Investors: - To assess the prospects of the business and to know whether

they can get a good return on their investment.

Accountants: - To study the statement for comparative purposes.

Government Agencies: - To study from an angle of tax collection duty levee

etc

PRECAUTATIONS TO BE TAKEN FOR USE OF RATIOS

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The calculation of ratios may not be difficult task but their use is not easy. The

Information on which these are based, the constraints of financial statements,

Objective for using them, the caliber of the analyst, etc. are important factors

Which influence the use of ratios? Following effective factors which must be

Kept in mind while interpreting various ratios:

Accuracy of financial statements: The ratios are calculated from the data

available in financial statements. The reliability of ratios is linked to the accuracy of information

in the statements. These statements should also be properly audited by competent auditors. The

precautions will establish the reliability of data given in the financial statements.

Objective or purpose of analysis: the type of ratios to be calculated will

depend upon the purpose for which these are required. If the purpose is to study current financial

position then ratios relating to current assets and current liabilities will be studied. The purpose

of ‘user’ is also important for the analysis of ratios. Creditors, a banker, an investor, a share

holder, all have different objects for studying ratios.

Selection of ratios: another precaution in ratio analysis is the proper selection of

appropriate ratios. The ratio should match the purpose for which these are required. Calculation

of large number of ratios without determining their need in the present context may confuse the

things instead of solving them. Only those ratios should be selected which can throw proper light

on the matter to be discussed.

Use of standards: the ratios will give an indication of financial position only when

discussed with reference to certain standards. Unless otherwise these ratios are compared with

certain standards one will not be able to reach at conclusions.

Caliber of the analyst: the ratios are only the tools of analysis and their interpretation will

depend upon the caliber and competence of the analyst. He should be familiar with various

financial statements and the significance of changes etc. a wrong interpretation may create havoc

for the concern since wrong conclusions may lead to wrong decisions. The utility of ratios is

linked to the expertise of the analyst.

Ratios provide only a base: the ratios are only guidelines for the analyst, he should not

base his decisions entirely on them. He should study any other relevant information, situation in

the concern, general economic concern, general economic environment, etc. before reaching

final conclusions.

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Functional classification or classification according to tests:

This is the most widely accepted classification of accounting ratios. Under this classification, accounting ratios

are classified on the basis of their nature or functions and in view of the financial management or according to

the tests satisfied, various ratios have been classified as follows:

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Liquidity Ratios

Current RatioLiquidity Ratio or Acid Test or Quick RatioAbsolute Liquid or Cash Ratio

Long-term Solvency and Leverage Ratio

Debt-Equity RatioFunded-Debt to Total Capitalisation RatioProprietry Ratio or Equity RatioSolvency Ratio or Ratio of Total Liabilties to Total AssetsFixed Assets to Net Worth or Proprietors Funds RatioFixed Assets to Long-Term Funds or Fixed Assets RatioRatio of Current Assets to Proprieters FundsDebt-Service Ratio or Interest Coverage Ratio

Activity Ratios

Inventory turnover ratioDebtors turnover ratioPayables Turnover RatioFixed Assets Turnover RatioTotal Asset Turnover RatioWorking Capital Turnover RatioCapital Employed Turnover

Profitability Ratios

A) In relation to SalesGross Profit RatioOperating RatioOperating Profit RatioNet Profit Ratio

B) In relation to investmentsReturn on share holders investment.Return on Equity CapitalEarnings per ShareReturn on capital employed


LIQUIDITY RATIOS:

These are the ratios which measure the short-term solvency or financial position of a firm. These ratios are

calculated to comment upon the short-term paying capacity of a concern or the firm’s ability to meets current

obligations. The various liquidity ratios are: current ratio, liquid ratio and absolute liquid ratio. Further to see

efficiency with which liquid resources have been employed by a firm, debtor’s turnover and creditor’s turnover

ratios are calculated.

The principal liquidity ratios are:

Current ratio or working capital ratio

liquid, Quick ratio, or acid test ratio

Absolute liquid ratio, cash ratio, or super quick ratio.

CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio, also

known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of

a short-term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total

of current liabilities.

QUICK OR ACID TEST OR LIQUID RATIO:

Quick ratio is that ratio which expresses the relationship between quick or liquid assets and current liabilities.

Quick/liquid ratio may be defined as the relationship between quick/liquid assts and current or liquid liabilities.

An asset is said to be liquid if it can be converted into cash within a short period of time. Current assets include

inventories and prepaid expenses which are not easily convertible into cash, thus are excluded in

liquid/quick/acid test ratio which is more rigorous test of liquidity.

ABSOLUTE LIQUID RATIO OR CASH RATIO:

Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be

doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion

that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as exclude

even receivables from the current assets and find out the absolute liquid assets. Absolute liquid assets include

cash in hand and at bank and marketable securities or temporary investments

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LONG-TERM SOLVENCY RATIO/LEVERAGE RATIO

Leverage ratios are the ratios, which measure the relative interests of the owners and creditors in an

enterprise. Long solvency ratios convey a firms ability to meet the interest costs and repayments schedules of

its long term obligations.

The principal leverage, capital structure or solvency ratios:

Long term Debt to shareholders fund (debt equity ratio).

Funded debt to total capitalisation ratio

Proprietary or equity ratio

Solvency ratio or Ratio total liabilities to total assets.

Fixed assets to net worth or proprietor’s funds ratio.

Fixed assets to long term funds or fixed assets ratio.

Ratio of current assets to proprietors funds

Debt service ratio or interest coverage ratio.

LONG TERM DEBT TO SHAREHOLDERS FUNDS (DEBT

EQUITY RATIO):

Debt equity ratio also known as external- internal equity ratio is calculated to measure the relative claims of

outsiders and the owners i.e. shareholders against the firm’s assets. This ratio indicates the relationship between

the external equities or the outsider’s funds and the internal equities or the shareholders.

FUNDED DEBT TO TOTAL CAPITALISATION RATIO:

The ratio establishes a link between the long-term funds raised from outsiders and total long-term funds

available in the business.

PROPRIETORY RATIO OR EQUITY RATIO:

The proprietary ratio which is also known as Equity Ratio or Share holders to Total Equities Ratio or Net worth to

Total Assets Ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm.

The components of this ratio are Shareholders funds or Proprietors Funds and Total Assets. The shareholders

funds are Equity Share Capital, Preference Share Capital, Undistributed profits, Reserves and Surpluses.

SOLVENCY OR RATIO OF TOTAL LIABILITIES TO TOTAL

ASSETS:

This ratio is a small variant of equity ratio. The ratio indicated the relationship between the total liabilities to

outsiders to total assets of firm.

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FIXED ASSETS TO NET WORTH RATIO OR FIXED ASSETS TO

PROPRIETORS FUNDS:

The ratio establishes the relationship between fixed assets and shareholders funds i.e. share capital plus

reserves, surpluses and retained earnings.

FIXED ASSETS TO TOTAL LONG TERM FUNDS OR FIXED

ASSETS RATIO:

The ratio indicates the extent to which the total fixed assets are financed by long-term funds of the firm.

RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS:

The ratio indicates the extent to which proprietor’s funds are invested in current assets.

DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO:

Interest coverage ratio indicates the number of times interest is covered by the profits available to pay the

interest charges. Long-term creditors of a firm are interested in knowing the firms ability to pay interest on their

long-term borrowings.

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ACTIVITY RATIOS

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed.

These ratios are also called turnover ratios because they indicate the speed with which assets are being turned

over into sales e.g. debtors turnover ratio.

The principal activity ratios are:

Inventory turnover ratio.

Debtors/receivables turnover ratio.

Creditors/payables turnover ratio.

Working capital turnover ratio.

Fixed assets turnover ratio.

Total assets turnover ratio.

Capital employed turnover ratio.

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio (I.T.R) indicates the number of times the stock has been turned over during the period

and evaluates the efficiency with which a firm is able to manage its inventory.

DEBTORS OR RECEIVABLE TURNOVER RATIO:

Debtors/Receivables Turnover or Debtors Velocity

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number

of times average debtors (receivables) are turned over during a year.

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Average Collection Period Ratio

The average collection period represents the average number of days for which a firm has to wait before its

receivables are converted into cash

CREDITORS/PAYABLES TURNOVER RATIO:

Creditor’s turnover ratio indicates the velocity of credit payment of firm. In simple words, it indicates the

number of times average creditors (payables) are turned over during a year.

Average Payment Period

The average payment period represents the average number of days for which a firm has to wait before its

payables are converted into cash.

WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of the utilisation of net working capital. This ratio indicates

the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency

with which the working capital is being used by a firm.

FIXED ASSETS TURNOVER RATIO:

Fixed assets turnover ratio is the ratio between fixed assets and turnover. Fixed assets, here, mean net fixed

assets, i.e., fixed assets less depreciation. Turnover means net sales, i.e., total sales less sales returns. A fixed asset

turnover ratio indicates the utilization of assets in generating sales.

TOTAL ASSETS TURNOVER RATIO:

Total assets turnover ratio is the ratio between the total assets and turnover or sales (i.e., net sales).

CAPITAL EMPLOYED TURNOVER RATIO:

Capital employed turnover ratio is the ratio between sales (i.e., net sales) and capital (i.e., long-term funds,

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comprising owners’ funds and long-term borrowed funds) employed in the business

PROFITABILITY RATIO

Profitability ratio measures the results of business operations or overall performance and effectiveness of the

firm. Profitability ratios are the ratios, which measure the profitability of a concern. In other words, they are the

ratios, which reveal the total effect of the business transactions on the profit position of an enterprise, and

indicate how far the enterprise has been successful in its aim.

Profitability ratios may be classified into two categories. They are

Profitability ratio in relation to sales:

Gross profit ratio

Net profit ratio

Operating ratio

Operating profit ratio

GROSS PROFIT RATIO:

It measures the relationship of gross profit to net sales and is usually represented as a percentage.

OPERATING RATIO:

Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the

one hand and sales on the other. In other words, it measures the cost of operations per rupee of sales

Interpretation of Operating Ratio:

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Operating ratio indicates the percentage of net sales that is consumed by operating cost. Obviously, higher the

operating ratio, the less favorable it is, because it would have a small margin (operating profit) to cover interest,

income-tax, dividend and reserves. However, 75 to 85% may be considered to be a good ratio in case of a

manufacturing undertaking.

OPERATING PROFIT RATIO:

Operating Profit = Net Sales – Operating Cost

Or

= Net Sales – (Cost of Goods Sold+ Administrative and Office expenses + Selling and Distributive Expenses)

NET PROFIT RATIO:

Net profit ratio establishes the relationship between net profit (after taxes) and sales, and indicates the

efficiency of the management in manufacturing, selling, administrative and other activities of the firm.

Profitability ratios in relation to investments:

Return on shareholders’ investment

Return on equity capital

Earnings per share

Return on capital employed

RETURN ON SHAREHOLDERS INVESTMENT ON NET WORTH:

Return on shareholders investment popularly known as ROI or return on share holder/proprietors funds is the

relationship between net profits (after interest and tax) and the proprietor’s funds.

RETURN ON EQUITY CAPITAL:

In real sense, ordinarily shareholders are the real owners of the company. They assume the highest risk in the

company; preference shareholders have a preference over ordinary shareholders in the payment of dividend as

well as capital. Preference shareholders get a fixed rate of dividend irrespective of the quantum of profits of the

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company.

EARNINGS PER SHARE (E.P.S):

Earnings per share are a small variation of return on equity capital and are calculated by dividing the net profit

after taxes and preference dividend by the total number of equity shares.

RETURN ON CAPITAL EMPLOYED RATIO:

Return on capital employed establishes the relationship between profits and the capital employed. It is the

primary ratio and most widely used to measure the overall profitability and efficiency of a business.

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RESEARCH DESIGN OF THE STUDY

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Research simply means a search for facts, answer to questions and solution to problems. Research is a systematic and logical study of an issue or problem or phenomenon through scientific method. It is a systematic and objective analysis and according of controlled observations that may lead to development generalization principle resulting in prediction and possibly ultimate control of events.

A research design is simply the framework or plan for a study that is used as a guide in collecting and analyzing the data. A research design is arrangements of condition for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy procedure. There various research design but descriptive and analytical research design is more suitable for the study. Research design is a logical and systematic planning which helps in directing to carry out a research.

It is overall operational pattern or framework of the project that stipulates what information is to be collected from which sources and by what procedures.

TITLE OF THE STUDY:

A Study on ‘RATIO ANALSIS’ With reference to HMT watches ltd.

INTRODUCTION TO THE PROBLEM:

Changes in the financial performance of the company could be due to several reasons,

changes in profitability, due to operating inefficiency, inefficiency in management of

debtors and inventories or underutilisation of company resources and such kind of many

more other reasons. The financial position of the company cannot be immobile, but it is

dynamic owing to the shift in its financial position with regard to various financial

parameters.

STATEMENT OF THE PROBLEM:

Analysis of the financial performance tries to visualise the reasons for shift in a sound

financial position and tires to establish a trend of the direction toward which the business

is moving. Therefore using general expression, the statement of the problem could be

generalized as an exposure of reasons for variation in the financial position of the

company.

SCOPE OF THE STUDY:

This project is a financial analysis of the company. Financial performance evaluation and

innumerable analytical studies have proved the utility and usefulness of this analytical

technique.

By analyzing financial performance by employing certain selected financial ratios the

company in question with Managers, present and potential investors, outside parties as

such as creditors and government sectors employees and many more and these parties

could get an idea of the performance of the company over the study period .While doing HKBK DC


so the project has accentuate upon obtaining an understanding of general competition in

this line of activity also. Therefore scope of the study extends over parties both insider

and outsides of the firms.

NEED AND PURPOSE OF THE STUDY:

By analyzing systematically the identified financial ratios, which reflect financial

performance well and sufficiently, the company could understand its own position over

time. Such a wide understanding will be of great relevance to the managers of the

company investors (present potential) as well as to any other party/parties interested in

the company.

OBJECTIVE OF THE STUDY:

Analysis of the financial performance of the company over the study period of 2007,

2008, and 2009.

To evaluate the important aspects of the business like liquidity, solvency, performance

and profitability

To detect certain financial ratios which are likely to reflect the inconsistency in profit?

To establish the inter-relationship between the various financial figures

To conduct firm comparative analysis for the study period of 2007, 2008, & 2009.

To draw valid conclusions recommendations based on the study.

To suggest remedial measures to the inefficiency and inconsistency problems faced by

the company.

HYPOTHESIS OR ASSUMPTIONS: This research is based on the following

Assumption:

Definitions and certain technical terms used for various financial ratios and

their interpretation in the project is assumed to be universal.

It is assumed that financial performance is the ultimate index of

performance of company.

It is also assumed that ratios selected for this study reveals the financial

performance well and satisfactorily

REFERENCE PERIOD:

For the purpose of carrying out this study the period of three financial years has

been referred 2007, 2008 & 2009.

METHODOLOGY:

This research is a large desk research and involved the following methods and the practices:

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Scanning through standard textbooks to understand the theories, concepts

and certain principals and norms behind financial performance, and their

efficiency and effectively.

Decision regarding the study period in this case was taken to be for a period

of years (2007,2008 & 2009)

Collection of industries and companies specific literature i.e., industrial background, companies profile and annual reports over the study period.

Identification of financial ratios likely to reveal the financial performance

adequately of the company, in this case it was calculated to be (a) Solvency ratios

(b) Activity ratios (c) Profitability ratios (d) liquidity

Calculation of these ratios over the study period and their tabulation and graphical

representation.

Finally forwarding certain recommendations and conclusions to the company in

question.

By and large the above research design was employed for the study.

SOURCES OF DATA:

A project of this nature is by and large a desk job a primary data is of little

relevance. Most data was secondary in nature and was extensively employed.

Primary data:

Primary data was collected through personnel interviews with the finance staff members and other executives and staff.

Secondary Data:

Trading and Profit and loss account and Balance sheet of the company for

the year 2007, 2008, & 2009

Company profile.

Product & service profile.

Internet : encyclopaedia, Wikipedia

Standard textbooks : Business research methods

o Management accounting

o Financial management

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FEILD WORK:

As such no fieldwork was involved for this study since this was an in-house desk research

job.

LIMITATION OF THE STUDY:

It being a sincere attempt there has been certain limitations during the study that could

not be avoided.

They are:

The major constraint for the study was the timing of the study the immensity

of the financial statement was another factor of limitation. The study is

based on the data given by the officials and reports of the company the

confidentiality of some facts and figures are also limitation.

Financial Statements analysis is suffers form inherent weakness of

accounting practice such as their historical nature matching principle etc.

Ratios give just a fraction of information needed for judging financial

soundness of the concern.

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COMPANY PROFILE

HMT Ltd is a public limited commercial organization involved in the manufacture

and sales of engineering goods as well as project consultancy. The company is

engaged in the business of manufacturing and selling tractors and food processing

machines. Their segments include machine tools, watches, tractors, bearings and

exports. The company's products include printing machine, bearings, and food

processing machine, machine tools, watches and tractors. They have five

subsidiaries namely HMT Machine Tools Ltd, HMT Watches Ltd, HMT Chinar

Watches Ltd, HMT (International) Ltd and HMT Bearings Ltd.

HMT Ltd was incorporated in the year 1953 by the Government of India as a

Machine Tool manufacturing company with the name Hindustan Machine Tools

Ltd. The company was incorporated with the objective of producing a limited range

of machine tools, required for building an industrial edifice for the country. Over

the years, the company diversified into Watches, Tractors, Printing Machinery,

Metal Forming Presses, Die Casting & Plastic Processing Machinery, and CNC

Systems & Bearings. In 1960s, the company set up new units at Pinjore,

Kalamassery and Hyderabad. In 1970s, they set up HMT International Ltd as a

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subsidiary company to channel HMT's products and technical services abroad.

They set up two units for manufacture of watches, one at Srinagar and another at

Tumkur. Also, they took over Machine Tool Corporation at Ajmer as their sixth

machine tool unit. In May 13, 1977, the company was converted into a public

limited company and in September 12, 1978, the name of the company was

changed from Hindustan Machine Tools Ltd to HMT Ltd. In 1980s, the company as

a part of vertical integration efforts, launched units to manufacture Watches at

Ranibagh, Watch Cases at Bangalore, Stepper Motors at Tumkur, CNC Systems at

Bangalore and Ball screws for use on CNC machines at Bangalore. They took over

Indo-Nippon Precision Bearings Ltd, a state owned unit as a subsidiary, which was

renamed HMT-Bearings Ltd. Also, they took over Praga Tools Ltd as another

subsidiary. In 1990s, the company restructured themselves into five Business

Groups viz., Machine Tools, Watches, Tractors, Industrial Machinery and

Engineering Components as part of Business Reorganization. In the year 1993,

they launched two new brands, namely 'Ramani' for gents and 'Utsav' for ladies. In

the year 1997, the tractors group launched a 45 HP Coastal Special model tractor

for application in coastal areas on Commercial basis. Also, they launched 59 HP

model tractors with Power Steering. In the year 1998, the company introduced 350

ranges of Citizen watches in Mumbai along with their latest Eco-Drive models,

which absorb power thorough any source of light. They entered into manufacturing

and marketing alliance with Tennmax Industrial Ltd. of Hong Kong. In August 1,

2000, the company received the approval of the Government of India for the

turnaround plan submitted by the company. Consequently, the company signed a

Memorandum of Understanding with the Government of India on August 11, 2000

detailing various actions to be taken on a time bound manner both by the

Government and the company. As per the restructuring plan, two separate

subsidiary companies, namely HMT Machine Tools Ltd and HMT Watches Ltd have

been incorporated and these subsidiaries will take over the business of Machine

Tools and Watches of the company.

In the year 2004, the company signed agreement with UK-based Tractor for high

power tractors. Also, they signed MoU with State Bank of India (SBI) for tractor

finance.

During the year 2004-05, an Emission Testing Lab with an investment of 4 crore

was set up to upgrade each of the engines to conform to emission norms. During

the year 2004-05, they increased the installed capacity of Machine Tools to 1479

Nos with the increase of 90 Nos. In the year 2006, the company established a high

tech Engine Emission Testing Laboratory in R&D Centre at their Tractor Division,

Pinjore with an investment of Rs. 50 million. During the year 2007-08, Praga Tools

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Ltd, a subsidiary

Company was amalgamated with HMT Machine Tools Ltd, another subsidiary

company. During the year 2008-09, the company initiated a number of operational

measures such as improvement in their products, rationalization of product mix,

operational methods, and capital investments, new strategies for marketing and

distribution and introduction of productivity improvement schemes. The Tractor

Group of the company has initiated a host of measures towards performance

improvement in right earnest, by appointment of new distributors and dealers in

select potential areas/ territories, engine upgradation for compliance of new

emission norms for all models of tractors, setting up of a new paint plant, entering

into MoUs with Banks/ Financing Agencies for priority loan sanction for the

purchase of HMT Tractors, dynamic business strategies, etc.

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Profile of Directors ( Government Directors)

Shri Saurabh ChandraAdditional Secretary and Financial Adviser Ministry of Commerce and Industry,Department of Industrial Policy and Promotion

Shri Saurabh Chandra, aged 54 years, an IAS Officer of 1978 Batch of Uttar Pradesh Cadre, has been appointed as a Part-time Official Director of HMT Limited. He is a graduate in Electrical Engineering from IIT, Kanpur and holds a Diploma in Management. Shri Saurab Chandra served in the State of Uttar Pradesh between 1979 to 1993 and worked in the Department of Finance; as Collector and Magistrate of Banda and Varanasi Districts; Administrator of Agra Municipal Corporation with concurrent charge of Vice Chairman of Agra Development Authority and Managing Director of U.P. Small Industries Corporation. During two year stint as Managing Director of U.P. Small Industries Corporation, he was able to turn around this loss making Company into a profit making undertaking.

During the period 1993 - 1998 he was Director in Department of Fertilizers, Ministry of Chemicals and Fertilizers handling project related work in the Department. He was associated with setting up of Oman India Project which is perhaps the largest and most successful overseas joint venture Company set up by CPSE/multi H state cooperatives.On his return to the State, he served as Commissioner, Varanasi Division and Lucknow Division and Secretary, Department of Irrigation. He worked as Joint Secretary in the Department of Revenue and Department of Disinvestment in the Ministry of Finance handling administration related matters of the Central Board of Excise and Customs and policy related matters respectively. He was associated with Initial Public Offering of the Power Grid Corporation of India Limited.Between November 2007 and February 2009, he was posted as Principal Secretary in the Department of tourism, Science and Technology and Rural Engineering services.

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Since February 2009, he is posted as Additional Secretary and Financial Adviser in the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. He is also holding additional charge of Financial Adviser to the Ministry of Micro, Small & Medium Enterprises, Department of Heavy Industries, Department of Public Enterprises and Ministry of Corporate Affairs. Shri Saurabh Chandra is also a Director on the Board of BHEL and Member of Governing Councils of National Institute of Design, Ahmedabad and Central Manufacturing Technology Institute, Bangalore.

Shri Harbhajan

Singh

Joint Secretary

Department of Heavy

Industry

Shri Harbhajan Singh, aged 54 years, an IAS Officer of 1983 Batch of Uttar

Pradesh Cadre, has been appointed as a Part-time Official Director of HMT Limited.

He is a post graduate in History and also a Law graduate

Shri Harbhajan Singh served in the State of Uttar Pradesh in various capacities as

Assistant/Sub-Divisional/Joint/District Magistrate; Chief Development Officer, General

Manager of U.P. Small Industries Corporation and U.P. Finance Corporation; and

gained experience in the field of Land Revenue Management and District

Administration between 1985 to 1997. He has worked in Education Department;

Industrial Development Department; Geology and Mines Department in the capacity

of Special Secretary; Secretary and Director and gained experience in the field of

Human Resource Development; Industries; Urban Development; Mines and Minerals

during the period 1997 to 2000.

Shri Harbhajan Singh has worked in the Ministry of Consumer Affairs, Food & Public

Distribution; Ministry of Civil Aviation; Ministry of Coal & Mines; Government of India,

as Director and Joint Secretary during 2000 to 2006.

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Company History

YEAR EVENTS 1953:- The Company was Incorporated in Bangalore. The

Company was converted into a Public Limited Company on May 13, 1977.

The main objects of the Company is Manufacturing of the Machine Tools,

Metal forming presses and press brakes, pressure die, casting machines and

automatic plastic injection moulding machines, Automatic plastic injection

moulding machines, Paper cutting machines, Automatic plastic injection

moulding machines, Paper cutting machines, Tractors 25/35/55 HP, Lamps

and Lamp making machines, Printing Machinery, Printing Machinery,

Watches. Some of the trade names of the watches manufactured are Janata,

Sona, Pilot, Tarun, Nutan, Jawhar, Automatic Day and Date, Priya, Chinar,

Nishat, Rakhee, Avinash and Kohinoor.

The Machine Tool Division at HMT Bangalore was the oldest

manufacturing unit of the Company and the product lines consist of 16

types of metal working machines. The Die Casting Division was set up

for the manufacture of Die Casting and Plastic Injection Moulding

machines in technical collaboration with Reifenhaeuser GmbH & Co. of

West Germany.

1961 - The Watch Factory at Bangalore had two operating divisions the

Watch Factory Division: set up during the year in technical collaboration with

Citizen Watch Co., Ltd., Tokyo, this division started with manufacture of

hand winding watches. A new plant was set up to manufacture self-winding

watches in collaboration with the same Japanese firm and Horological

Machinery: Division was established for the manufacture of sliding

headstock automatics in technical collaboration with M/s. Jos Petermann,

Switzerland.

The Watch Factory at Srinagar was set up for the manufacture of 3 lakh

hand winding watches.

1963 - The HMT, in Pinjore have two operating divisions attached to it, viz.,

Machine Tool Division and Tractor Division. The Machine Tool Division was

set up during the year. The Tractor Divisions was set up in technical

collaboration with Mototov Foreign Trade Corporation, Prasha, and

Czechoslavakia.

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1964 - The Two operating divisions attached to HMT, Kalamassery, were

the Machine Tool Division and the Printing Machine Division set up in

collaboration with Societa Nebiolo, Turin, Italy.

1965 - The HMT at Hyderabad had 3 operating divisions, the Machine Tool

Division primarily for the manufacture of special purpose machine tools. The

Press Division was set up in technical collaboration with M/s. Verson Allsteel

Press Co., Chicago, U.S.A. The Lamp Division was established for the

manufacture of lamps and lamp components in collaboration with United

Incandescent Lamp and Electrical Co., Ltd. (Tungsram), Budapest, Hungary.

1975 - The HMT at Ajmer was set up by the Govt. of India as the unit of

Machine Tool Corporation of India, Ltd. with effect from 1st April; the unit

was merged with HMT.

1976 - The manufacture of critical components like hair spring and main

spring were also taken up by setting up a new plant by the Watch Factory

Division at Bangalore.

The following collaborations agreements were concluded during the

year: With the Cross Company, Fraser, Michigan, U.S.A. for the

manufacture of special purpose machines in Hyderabad, With M/s.

Creusot - Loire, Paris, for the manufacturing of rotary web offset

printing machines, With M/s. Laeis - Werke AG, Trier, West Germany,

for the manufacture of refractory presses, A MOU with M/s. Tesa SA,

Renens, Switzerland, a subsidiary of Brown & Sharpe Manufacturing

Co., Rhode Inland, U.S.A., for the manufacture of precision measuring

instruments.

HMT (International), Ltd., with an issued capital of Rs 6 lakhs is a wholly

owned subsidiary of the Company.

All shares held by the President of India and his nominees. Out of the

issued capital, 7,122 No. of Equity shares were issued as fully paid-up

without payment in cash and 40,000 fully paid Equity shares were

allotted on amalgamation of the erstwhile Machine Tool Corporation of

India, Ltd., Ajmer.

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1977 - All shares issued to Govt. of India.

1978 - The Company undertook a scheme to expand the capacity of Watch

Factory to 4 lakh watches in 1979 and 5 lakh watches in 1980.

The Govt. approved a total investment of Rs 24.50 crores in the watch

factory to be established at Tumkur in Karnataka State for the

manufacture of 2 million watch movements.

The Company undertook to set up a project for the manufacture of 4

million fluorescent tubes per annum in collaboration for assembly line

with Tungsram of Hungary at a capital outlay of Rs 3.19 crores.

The Company undertook to diversify into the field of precision

meterological and measuring instruments at Srinagar. Govt. approval

was obtained during 1979-80 and negotiations were in progress for

foreign collaboration.

The Company undertook to set up a factory in Aurangabad, a

backward area in Maharashtra, for the manufacture of dairy

machinery.

Industrial license was obtained and a technical collaboration

agreement was entered into with Fortschritt Landmaschinen Export-

Import of German Democratic Republic (FLM).

In order to increase the capacity of tractor manufacture from 12,000

to 15,000 per annum, the Company undertook to set up a second line

of assembly operations at Mohali, Punjab.

The Company submitted a feasibility report to Govt. for the

manufacture of electronic watches. The Company concluded a MOU

with Hitachi and Citizen of Japan.

The Company offered technical collaboration to Industrial &

Commercial Development Corporation of Kenya (ICDC) to set up a

plant for the manufacture of machine tools in Kenya.

The company entered into an agreement with the Federal Govt. of

Nigeria to set up a plant for the manufacture of machine tools in

Nigeria. A new company under the name Nigeria Machine Tools, Ltd.

was incorporated in Lagos.

With effect from 12th September, the name of the Company was

changed from Hindustan Machine Tools, Ltd. to HMT Ltd.


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1980 - The Company entered into a collaboration agreement with Pegard

S.A. of Belgium for adding new models to the existing range of Horizontal

boring machines.

1981 - The Company proposed to manufacture silver oxide miniature

batteries in collaboration with Hitachi-Moxcell Ltd., Japan. These would be

used in electronic and quartz watches.

The Company received an industrial licence for the production of one

million stepper motors required for electronics watches.

The subsidiary formerly known as Indo Nippon Precision Bearings Ltd.,

changed its name to HMT Bearing Ltd. on 1st December.

1993 - To capture the growing urban market for fashionable watches, two

new brands viz., `Ramani' for gents and `Utsav' for ladies were launched.

Equity shares subdivided. 504, 19,400 shares issued to Government

of India.


1996 - The Company has decided to convert Lamp Division into a separate

wholly owned subsidiary.

All shares issued to Govt. of India.

1997 - Production also suffered due to slowdown in the economy coupled

with stiff competition from imported machines.

The Tractors Group launched a 45 HP Coastal Special model tractor for

application in coastal areas on Commercial basis.

A 59 HP model tractor with Power Steering was also launched during

the year. Orchard Special model tractor in 25 HP range was developed

and was under test marketing. Modernisation cum Expansion plan for

the Tractor division was chalked out for increasing the production

capacity of Tractor division to 30,000 tractors at a cost of Rs 110

crores in the next two years.

The entire net worth of this subsidiary was eroded and a reference

was made to BIFR as a sick company under the Sick Industrial

Companies (Special Provisions) Act, 1985.

All shares issued to Govt. of India.

The public sector HMT has indigenously manufactured four-colour

offset printing press for the first time in the country in its unit at

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Kalamassery.

The HMT has introduced three new models the HMT 3022, HMT 3522

and HMT 4511 coastal special have been fitted with fuel efficient

engines and heavy duty transmission.

The machine tools division of HMT has entered a new area of

manufacturing with press tools and dies.

The Machine tools division has also entered into a joint working

arrangement with MS Giana, Italy, for the manufacture heavy duty

CNC lathes for the defence sector. This range of products will be built

for the first time in the country.

HMT has signed a memorandum of understanding with the Union

government under which it is expected to increase its turnover to

Rs.1, 160 crore and post a net profit of Rs.10.45 crore for the year

ended March 1998.

HMT introduced ADD and dater watches priced at Rs.750/900 in

September. On August 15 the company launched Swarna series.

1998 - HMT International Ltd, a wholly-owned subsidiary of HMT, has

bagged an Rs.13-crore order for setting up an Entrepreneur Technical

Development Centre (ETDC) at Dakar in Senegal.

HMT International has already set up successfully training Algeria and

the Maldives. A batch of 17 Senegalese instructors has already

undergone training at HMT's international training centre in Bangalore.

The company is launching 15 new models in the automatic day/date

range.

HMT would issue 41, 25,000 ordinary shares of Rs.10 each to the

government. The company board has recently approved the allotment

of these shares. The company had already approached the Bangalore

Stock Exchange for issuing these shares to the government. A total of

10, 06, 45,165 equity shares of Rs.10 is listed with the bourse.

Machine tools giant HMT is in touch with world's number one MT

manufacturer Yamazaki Mazak to enter into a possible alliance to

manufacture the latter's machine cutting tools under a buy-back

arrangement.

HMT Ltd has bagged the FIE award for the best quality, design and

aesthetic appearance of a product at IMTEX '98.

HMT Ltd today announced a special voluntary retirement scheme

(VRS) for its lamp division employees under which those who opt for it

can remain at home with half their pay till such time that the public

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sector behemoth receives its due from the National Renewal Fund.

HMT International Ltd., a wholly owned subsidiary of HMT Ltd., which

has recently diversified into software exports, has entered into a

strategic alliance with A1- PHA data LLC of Abu Dhabi, a part of $500

million US group. The two companies would jointly develop software

business for HMT's Erp Solutions Vikas.

A MoU (memorandum of understanding) signed between the

Government and HMT has delegated power to HMT to sanction

schemes for incentives cum rewards.

The Government is making a fresh bid to privatise HMT Tractors, a

profit-making unit under the fold of public sector major HMT Ltd.

HMT has two fully-owned subsidiaries now - HMT (International) Ltd,

which is a trading company and HMT (Bearings) Ltd, which

manufactures ball and roller bearings. It also has a partly-owned

subsidiary

Praga Tools Ltd - based in Secunderabad.

The union minister of state for industry released a new HMT automatic

day date watch Ranjit incorporating euro-style dial, and new ladies

watch Preeti.

The HMT division has a capacity of manufacturing 18,000 tractors.

The company has introduced 350 ranges of Citizen Watches in Mumbai

along with its latest Eco-Drive models, which absorb power thorough

any source of light.

The company has entered into a manufacturing and marketing

alliance with Tennmax Industrial Ltd. of Hong Kong.

HMT Ltd has been named as one of the top ten brands in India by a

recent survey conducted by A&M-ORG-MARG. HMT has been ranked as

the top seventh brand among the main brands in the annual survey

that covers 60 brands from all over the country. HMT is also the only

public sector company whose brand has features among the top ten in

the survey. The brand has emerged as seventh from the 22nd position

held last year.

The company also proposes to convert 30% of the loan component

into equity.

Citizen Watches (India) Limited, is a joint venture between the Citizen

Watch Company, Japan which holds a 51 per cent stake and Doshi

Time Industries holding 49 per cent stake. It has a total paid up capital

of Rs eight crores.

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A MoU (memorandum of understanding) signed between the

Government and HMT has delegated power to HMT to sanction

schemes for incentives cum rewards.

1999 - The Industry Ministry has directed the state-owned Hindustan

Machine Tools to explore possibilities of joint venture formation for its watch

division.

The company has tied up with Tennmax of Hong Kong and is currently

marketing the HMT-Tennmax brand in India.

- After Kenya and Nigeria, HMT had signed a MoU for setting up a watch

assembly unit Zimbabwe.

The shareholders of Hindustan Machine Tools Ltd (HMT) approved a

proposal to increase the company's authorised share capital to Rs 200

crores from the present Rs 135 crores.

2000 - Icra has assigned an LAAA (SO) rating and an MAAA (SO) rating to

the Hindustan Machine Tools (HMT) bonds of Rs 469 crore 10-year tenure

and Rs 40.43 two-year tenure.

- HMT (International) Ltd., a wholly owned subsidiary of HMT Ltd., has been

awarded the EEPC trophy for its achievements in export of technical services

during the year 1998-99.

2001- Mr Manohar Joshi, Union Minister for Heavy Industries and Public

Enterprises, has unveiled the HMT 4922 tractor at a launch ceremony

organised at Pinjore, Chandigarh. With the introduction of the new actor,

2002-HMT Ltd has informed that consequent upon relinquishing of the

charge of Chairman & Managing Director, Tractor, upon resignation by Mr R

A Sharma on July 04, 2002 Mr M S Zahed, Director, Organisation &

Management has taken additional charge of the post of Chairman &

Managing Director, Tractor of the Company.

2003-HMT Ltd has informed BSE that pursuant to Order dated January 9,

2003 from the Department of Heavy Industry, Ministry of Heavy Industries &

Public Enterprises, Government of India, New Delhi, Shri M.S. Zahed,

Chairman & Managing Director (Acting) and Director (Organisation &

Management) has been appointed as Chairman & Managing Director of the

Company for a period of 5 years from the date he assumes charge of the

post or till the date of his superannuation or until further orders, whichever

is earlier. Shri.M.S Zahed assumed charge of the post of January 09, 2003.-

HMT enters into Memorandum of Understanding with PNB, UCO Bank and

State Bank of Mysore and has launched SBM-HMTAgri Farm Scheme to

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promote Agriculture mechanisation in south India.-Pinjore Unit of HMT at

Chandigarh is facing a financial crisis and turnover has dropped to 50-60cr .-

Shri Naresh Chaturvedi has been appointed as a part time official Director

on the Board of Directors.-Shri Navin Kumar, Joint Secretary to GOI has been

appointed as Part Time Official Director on the Board of Directors of the

company.

2004-HMT Ltd. has informed that the equity shares of the Company have

been delisted from the Bangalore Stock Exchange Limited, the Regional

Exchange for HMT Limited, with effect from January 3, 2004.-HMT signs

agreement with UK-based Trantor for high power tractors-HMT bags CMTI-

PMT Trust Award-HMT enters into a Technology Collaboration Agreement

with M/s Trantor Vehicles Ltd-HMT Ltd. enters into a Technology

Collaboration Agreement with Trantor Vehicles Ltd. U.K.-Signs MoU with

State Bank of India (SBI) for tractor finance

2005-HMT inks agreement with ONGC, MRPL-HMT in dialogue with

Japanese co for MUV

2006-HMT Ltd has Shri. R Asokan, Director (Finance), Department of Heavy

Industry, New Delhi has been appointed as Part-time Official Director on the

Board of the Company vice Presidential Order dated October 30, 2006, with

effect from October 30, 2006-Hmt Ltd. has informed that HMT (International)

Limited, the wholly owned Subsidiary of HMT Limited, Bangalore, would set

up Indo-Zimbabwe Technology Centre (IZTC) in Harare and India Technology

Centre (ITC) in Bulawayo.-HMT Ltd has informed that the Company has

established a high tech Engine Emission Testing Laboratory in R&D Centre at

its Tractor Division, Pinjore at an investment of Rs 50 million.

2007-HMT Ltd has appointed Shri. N Gokulram, Additional Secretary &

Financial Adviser, Ministry of Heavy Industries & Public Enterprises, as Part-

time Official Director on the Board of the Company vice Presidential Order

dated January 22, 2007, with effect from January 22, 2007 and until further

orders vice Shri. R Asokan, Director (Finance), Department of Heavy

Industry, New Delhi.- Dr. Surajit Mitra has been appointed as Part-time

Official Director on the Board of the Company vice Presidential Order

F.No.5(35)/1995-PE.X (Vol.II) dated March 06, 2007, until further orders with

effect from March 06, 2007.

2008- HMT Ltd. has informed that Shri B.S. Meena has been appointed as

Part-time Official Director on the Board of HMT Limited vide Presidential

Order F. No. 5 (35)/ 1995- PE. X dated January 25, 2008, until further orders

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with effect from January 25, 2008.- Hmt ltd has appointed Shri S. Behuria,

Additional Secretary & Financial Adviser to Government of India, Ministry of

Heavy Industries & Public Enterprises, New Delhi, as Part-time Official

Director on the Board of HMT Limited vide Presidental Order F. No.

5(35)/1995-PE.X dated October 14, 2008, until further orders with effect

from October 14, 2008".

2010- HMT Ltd has informed that Shri Harbhajan Singh has been appointed

as Part-time Official Director on the Board of the Company with effect from

January 11, 2010

PRODUCTS

WATCHES

The Mechanical Range

Hand wound Gents & Ladies - Desh Ki Dhadkan

Automatic Day-date- The Watch that lasts & lasts

Series of Quartz Watches

Elegance - Its all about YOU

Roman - ONLY For MEN

Utsav - The Well Dressed Watch

Sangam - Absolutely Modern, Absolutely Indian

Lalit - Value for Money, For those who value Money

Pace - For cute faces

Swarna - Good as Gold

Shreyas - Sign of Good Times

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http://www.hmtindia.com/html/historyoftime.htm


Chandan - The fragrance watch

Braille - A gift of time to the blind

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HMT's Milestones

YEAR UNITS / DIVISION LOCATION STATE

1953 Machine Tools I Bangalore Karnataka

1961 Machine Tools II Bangalore Karnataka

1962 Watch Factory I Bangalore Karnataka

1963 Machine Tools III Pinjore Haryana

1965 Machine Tools IV Kalamassery Kerala

1967 Machine Tools V Hyderabad Andhra Pradesh

1971 Tractor Division Pinjore Haryana

1971 Die Casting Division Bangalore Karnataka

1972 Printing Machinery Division Kalamassery Kerala

1972 Watch Factory II Bangalore Karnataka

1973 Precision Machinery Division Bangalore Karnataka

1975 Machine Tools VI Ajmer Rajasthan

1975 HMT (International) Ltd. Bangalore Karnataka

1975 Watch Factory III Srinagar Jammu & Kashmir

1978 Watch Factory IV Tumkur Karnataka

1981 HMT Bearings Limited Hyderabad Andhra Pradesh

1981 Quartz Analog Watches Bangalore Karnataka

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1982 Watch Factory V Ranibagh Uttar Pradesh

1982 Specialised Watch Case Division Bangalore Karnataka

1983 Stepper Motor Division Tumkur Karnataka

1985 Ball Screw Division Bangalore Karnataka

1986 CNC Systems Division Bangalore Karnataka

1991 Central Re-conditioning Division Bangalore Karnataka

Accolades - over the years

YEAR AWARD INSTITUTED BY

1960-61 Outstanding Performance President of India

1961-62 Outstanding Performance President of India

1970-71 Excellence Performance in Exports Govt. of Mysore

1971-72 Outstanding Export Performance Govt. of Mysore

1971-72 Outstanding Export Performance EEPC

1975-76National Award for Outstanding Export Performance

Ministry of Commerce

1978-79 Best Product at IMTEX - 79 PMT & FIE

1981-82 Best Export Performance EEPC

1981-82 Best Product at IMTEX - 82 FIE Foundation

1982-83 Export Excellence EEPC

1982-83Meritorious Performance in the field of Export


1983 Best Corporate Performance

Harvard Business School Association of India & Economic Times

1983-84 Most Effective OrganisationFoundation for Organisation Research (FORE)

1983-84 Best Productivity Organisation Research

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(FORE)


1984-85 Best ProductivityNational Productivity Council


1984-85Meritorious Performance in the field of Export


1985-86 Best Product at IMTEX - 86 CMTI - PMT Trust





1986-87 Excellence in Productivity CEI




1988-89 Company StandardsBureau of Indian Standards

1988-89 Best Product at IMTEX - 89 CMTI - PMT Trust


1988-89Outstanding Performance in Industrial Safety

National Safety Council


1988-89 Best Company for HRD Practices CEI

1990National Award for R&D Efforts in Industry - 1990 in the Mechanical Industrial Sector

Dept. of Scientific and Industrial Research

1989-90Valuable Contribution & Significant Encouragement to the cause of the Industrial Engineering Profession in India

H.N.THADANI


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1990-91Tech. Development for Machine Tools, Bangalore

Directorate General of Technical Development


1992 National Safety National Safety Council

1994Best Performance in Company Standardisation

Sir Jahangir Ghandy Trophy

1995 Best Products at IMTEX - 95CMTI - PMT Trust Award

1995 Best Product at IMTEX – 95 FIE Foundation

1995-96 Regional 'Top Exporters Shield'Engineering Export Promotion Council, Chennai

1996-97Regional 'Top Exporters Shield -Project Exporters'

Engineering Export Promotion Council, Chennai

1997-98 All India Trophy for Highest ExportersEngineering Export Promotion Council, Kolkata


1998 Best Products at IMTEX – 98CMTI - PMT Trust Award

1998-99Regional Trophy for Highest Exporters in the Group - Services Exporter

Engineering Export Promotion Council, Southern Region, Chennai


2001 Best Products at IMTEX – 2001CMTI - PMT Trust Award

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ORGANISATION SRTUCTURE

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HKBK DC


1. Current Ratio:

The current Ratio is the ratio of current liabilities it is calculated as: -

Current assets

Current ratio = - - - - - - - - - - - - - - - - - -

Current Liabilities

General ly current rat io of 2:1 is cons idered ideal for a concern i .e . , Current Assets should be twice of the Current Liabilities

TABLE 4.1

Year Wise Total Current Assets and Current Liabilities of HMT Watches limited.

(In lakhs)

year Current assets Current liabilities

Ratio

2006-2007 9796 18360 0.53

2007-2008 7769 20106 0.39

2008-2009 6448 21318 0.3

2009-2010 5772 22875 0.25

2010-2011 5284 25338 0.21

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2006-2007 2007-2008 2008-2009 2009-2010 2010-20110

5000

10000

15000

20000

25000

30000

Current assetsCurrent liabilitiesRatio

INTERPRETATION:

Current ratio measures the firm’s short-term solvency. The standard

norm for current ratio is (2:1). It is evident from the diagram that

every year current liabilities are exceeding the current assets I.e.

current liabilities are greater than the current assets which is not

satisfactory. Therefore it can be calculated that the liquidity performance

of the company is going down day by day.

2. LIQUID RATIO:-.Formula:

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QUICK RATIO (LIQUID RATIO) = Liquid Asset / Current Liabilities

TABLE 4.2 Year Wise Liquid Assets and Current Liabilities of

HMT WATCHES LIMITED

Year Liquid assets (CA-Inventories)

Current liabilities

Quick ratio

2009-2010 -245509 1550199 -0.15

2010-2011 -271684 1786002 -0.15

Liquid assets Current liabilities

Quick ratio-500000

0

500000

1000000

1500000

2000000

Series1

2009-2010

2010-2011

Series12009-20102010-2011

INTERPRETATION:

It is evident from the diagram that every year current liabilities are

exceeding the liquidassets I.e. current liabilities are greater than the

current assets which is not satisfactory. Therefore it can be calculated

that the liquidity performance of the company is going down day by day.

3. Working Capital:-

Working Capital It is calculated as,

Working capital turnover ratio = Sales / Working capital

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TABLE 4.3

CALCULATION OF WORKING CAPITAL TURN OVER RATIO WITH DIAGRAM

(In lakhs)

Year Sales Working capital

Working capital turnover ratio

2006-2007 3688 -8563 -0.43

2007-2008 1514 -12338 -0.12

2008-2009 1352 -14870 -0.09

2009-2010 1054 -17103 -0.06

2010-2011 882 -20054 -0.04

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

-25000

-20000

-15000

-10000

-5000

0

5000

Sales Working capitalWorking capital turnover ratio

INTERPRETATION

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Working capital is the difference between the inflow and outflow of funds. In

other words it is the net cash inflow. The diagram shows that the working

capital of last 5 years is always exceeding the net sales that means the net

outflow of cash is more than the net inflow of cash n the company is working

turnover is less n company is going in loss

.

4. INVENTORY TURN OVER RATIO

This Ratio is computed by dividing net sales by inventory

Thus,

Inventory turnover ratio= Net sales/ inventory

. It might be argued that the inventory turnover ratio may be

Cost of goods sold

Inventory Turnover ratio = --------------------------------------------

Average Inventory

TABLE 4.4

Calculation of inventory turnover ratio:

(In thousands)

Years Net sales Average inventory(total inventory/2)

Inventory turnover ratio

2009-2010 105414 161531 0.65

2010-2011 88171 163682 0.54

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Diagram Calculation of inventory turnover ratio:

Net salesAverage inventory(total inventory/2)

Inventory turnover ratio

020000400006000080000

100000120000140000160000180000

2009-2010

2010-2011

2009-20102010-2011

INTERPRETATIONThe numerator of this ratio is the net sales for the year and the denominator is the Inventory balance at the end of the year. This ratio is deemed to reflect the efficient the management of inventories and vice versa. This statement need not be always true. A low level of inventory may cause a higher inventory turnover ratio. From the graph it is clear that the net sales are decreasing in 2010-2011 as compared with 2009-2010. So the inventory ratio is decreasing.

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5. DEBTORS TURNOVER RATIO

Debtors turnover ratio = Net credit sales /Average debtors

NOTE; - Here there is no specification about net credit purchase and average debtors so, assume that (net credit sales = net sales) (Average debtors = debtors)

Table 4.5

Calculation of debtor’s turnover ratio with diagram

(In thousands)

Year Net sales debtors Debtor turnover ratio

2009-2010 105414 15172 6.94

2010-2011 88171 15986 5.5

Net sales debtors Debtor turnover ratio0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010-20112009-2010

INTERPRETATIONDuring the year 2009-2010 the net sales of the company is 105414 lakhs and the debtors value is 15172 lakhs, therefore the debtors turn over ratio is 6.94 that is near to 7.

On the other end during the year 2010-2011 the net sales is decreasing from 105414 to 88171 lakhs, and the debtors value is constantly increasing from 15172 to 15986 lakhs thus the debtors turnover ratio is increasing.

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6. CREDITORS TURN OVER RATIO

Creditors turnover ratio = Net credit purchases/Average of creditors

NOTE; - Here, there is no specification about net credit purchase and

average of creditors, so, let assume that, (net credit purchase = Net

Purchase) (Average of creditors = creditors)

Table 4.6

Calculation of creditor’s turnover ratio with diagram

(In thousands)

YEAR NET PURCHASE CREDITORS Creditors turnover ratio

2009-2010 17337 259289 0.066

2010-2011 24246 215049 0.112

NET PURCHASECREDITORS

Creditors turnover ratio

0

50000

100000

150000

200000

250000

300000

2009-2010

2010-2011

2009-20102010-2011

INTERPRETATION The creditor‘s turnover ratio is an important tool as a firm can reduce its requirement of current assets by relying on suppliers creditors.A low turnover ratio reflects liberal terms granted by suppliers, while a high turnover ratio shown that accounts are settled rapidly.

The graph above is showing that the creditors plot during both the years is exceeding the net purchases. So the creditors turnover ratio is below zero that is considered as nill. This indicates that creditors accounts are not setteled by the company rapidly and the company is going in loss.

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7. DEBT-EQUITY RATIO

Debt equity ratio = Debt / Equity

Table 4.7

Calculation of debt-equity ratio with diagram

(In thousands)

Year Debt Equity debt-equity ratio

2009-2010 12877479 134901 95.45

2010-2011 15344099 134901 113.74

DebtEquity

debt-equity ratio

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

2009-2010

2010-2011

2009-20102010-2011

INTERPRETATIONThis ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt equity ratios establishment relationship between borrowed funds and owner capital to measure the long term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity in financing the assets of the firm the above graph shows that debtors in 2010-2011 and 2009-2010 as well is greater than the equity.

8. DEBT – ASSET RATIO

Debt

Debt Asset Ratio = -------------------------------

Asset

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TABLE 4.8

Calculation of Debt – Asset Ratio with Diagram

(In thousands)

YEAR Debt Asset Debt Asset Ratio

2009-2010 12877479 190320 67.66

2010-2011 15344099 157825 97.22

YEARDebt

AssetDebt Asset Ratio

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Series1

Series2

Series3

Series1Series2Series3

INTERPRETATION

During the year 2009-2010 the debt value is 12877479 thousands while as the assets value is low that is 190320 thousands. Like wise during the year 2010-2011 the debts have increased to 15344099 thousands and the assets value has decreased to 157825 thousands. So the debts assets value is going on increasing year by year as it should go on decreasing day by day then only the company is in profit.

9. INTEREST COVERAGE RATIO

It is calculated as

Earnings before Interest &Taxes

(EBIT)

Interest coverage Ratio = ----------------------------

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Debt Interest

TABLE 4.9

Calculation of Interest Coverage Ratio with Diagram

(In lakhs)

Year EBIT Debt Interest Debt Equity Ratio

2006-2007 -11405 8161 -1.39

2007-2008 -5816 8864 -0.65

2008-2009 -6410 9982 -0.64

2009-2010 -5322 11061 -0.48

2010-2011 -12576 12798 -0.98

Interest Coverage Ratio Diagram

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2006-2007 2007-

2008 2008-2009 2009-

2010 2010-2011

0

500

1000

1500

2000

2500

3000

3500

4000

Operating incomes Net sales

Operating margin

Operating incomes Net salesOperating margin

INTERPRETATIONThis ratio measures the debt servicing of capacity of a firm in so far as fixed interest on long term loan is concerned. Interest coverage ratio determined by dividing the operating profits or earnings before interest and taxes by fixed interest charges on loans.

The graph shows that the debt interest is more than the earnings before interest and tax, which indicates debt equity ratio, is nil.

10. OPERATING MARGIN

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Operating margin = operating income/ Net sales

TABLE 4.10

Calculation of operating margin with diagram:

(In lakhs)

Year Operating incomes

Net sales Operating margin

2006-2007 3498 3688 0.94

2007-2008 618 1514 0.40

2008-2009 371 1352 0.27

2009-2010 1087 1054 1.031

2010-2011 790 882 0.89

Operating margin with diagram

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2006-2007 2007-

2008 2008-2009 2009-

2010 2010-2011

0

500

1000

1500

2000

2500

3000

3500

4000

Operating incomes Net sales

Operating margin

Operating incomes Net salesOperating margin

INTERPRETATION

Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin to determine the quality of a company, it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors. If a company's margin is increasing, it is earning more per dollar of sales. The higher the margin, the better For example, if a company has an operating margin of 12%, this means that it makes $0.12 (before interest and taxes) for every dollar of sales.

Here the margin is very less and is going on decreasing so the company needs to increase their operating incomes as well as their net sales.

HKBK DC


SUMMARY OF FINDINGS & SUGGESTIONS AND

CONCLUSION

SUMMARY OF FINDINGS & SUGGESTIONS

FINDINGS

HKBK DC


1. Current ratio is below the standard norm or ratio of 2:1, which refers that the company is going in loss.

2. The company has not been able to maintain its quick ratio above the standard ratio i.e. 1:1

3. There is not continuous improvement in the Liquidity position of the company from 2006-07 to 2009-10

4. The debt equity has tremendously increased because the profit of the company is decreased and also the company has not repaid its long term loans.

5. Proprietary ratio is decreasing when compared to last four years; it will show the long term insolvency.

6. Operating profit ratio has been decreasing compared to last four years.

7. There is not continuous growth in the companys Net profit ratio when compared from 2006-07 to 2009-10. The company is totally going in loss.

8. The earning per share of the company is tremendously decreasing for the last four years.

9. The increase in Debtors Turnover Ratio will show that the company has increased its credit sales.

RECOMMENDATIONS, SUGGESTIONS

After analyzing the overall performance of the present and past years working, a few short comings have came to notice. The company is not doing well overall, more care should be taken about same of the aspects of working capital will add to the profitability of the company. A efficient management of all the aspects of working capital provides a financial defense against stiff competition in the market and enhances the credit worthiness of the firm, enables the management to operate efficiently and

HKBK DC


flexible and allows the firm to take advantage of special favorable opportunities.

Keeping this view, the following recommendations are put forth after a detailed study was made:

1. The company can make an attempt to increase the sales by increasing advertisement and adding more distribution network.

2. Investment of excess cash balance in fixed deposit accounts in bank will yield better returns and also the liquidity position of the company will not be harmed.

3. However the sales of the company decreased from last 4 years. The company cannot follow a tight credit policy or restricting credit. Though, the company can make an attempt to bringing down the average collection period which has greatly exceeded by the warranted credit period.

4. The company can contribute towards better turnover figures if its marketing and distribution network is strengthened.

5. Operating profit is increased but the total income is decrease from last 4 years so other expenses can be reduced overcome this problem.

6. Better to invest in Fixed assets when there is more than sufficient capital

7. The company must take certain precautions to reduce the operating Expenses.

8. The credit purchase period is more in purchasing the raw materials so reduce the credit purchase.

9. Return on Investment is very less when compare to previous year so Take some decisions to increase the returns.

CONCLUSION

Ratios make the related information comparable. A single figure by

itself has no meaning, but when expressed in terms of a related figure,

it yields significant interferences. Thus, ratios are relative figures

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reflecting the relationship between related variables. Their use as tools

of financial analysis involves their comparison as single ratios, like

absolute figures, are not of much use.

Ratio analysis has a major significance in analyzing the financial

performance of a company over a period of time. Decisions affecting

product prices, per unit costs, volume or efficiency have an impact on

the profit margin or turnover ratios of a company.

Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-

maker insights into the financial performance of a company.

The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to

obtain a better understanding of the firm‘s position and performance.

The first task of financial analyst is to select the information relevant

to the decision under consideration from the total information

contained in the financial statements. The second step is to arrange

the information in a way to highlight significant relationships. The final

step is interpretation and drawing of inferences and conclusions. In

brief, financial analysis is the process of selection, relation and

evaluation.

Ratio analysis in view of its several limitations should be considered

only as a tool for analysis rather than as an end in itself. The reliability

and significance attached to ratios will largely hinge upon the quality of

data on which they are based. They are as good or as bad as the data

itself. Nevertheless, they are an important tool of financial analysis.

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BALANCE SHEET

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The Balance sheet shows the financial status of a business. The registered

companies are to

follow part 1 of schedule VI of company‘s \ act 1956 for recording Assets and

Liabilities in

The Balance Sheet.

Format of Balance Sheet as prescribed by companies Act.

Liabilities ASSETS

Share Capital Fixed Assets

Reserves & Surplus Investments

Secured loans Current Assets, Loan

Unsecured Loan Advance

Current Liabilities & provision Misc. Expenditures & Losse

Liabilities: -

Liabilities defined very broadly represent what the business entity owes to

other.

Share capital: -

There are two type of share capital: -

Equity Capital

Preference Capital

Equity Capital represents the contribution of the owners of the firm.

Preference capital represents the contribution of preference shareholders

and the dividend rate payable on it is fixed.

Reserve & Surplus: -

Reserve & Surplus are profits, which have been retained by the firm

reserves, are two types, revenue Reserve and Capital Reserve.

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Revenue Reserve represents accumulated retained earnings from

the profits of normal business operations.

Capital reserve arises out of gains, which are not related to normal

business operations. Surplus is the balance in the profit and loss

account, which has not been appropriated to any particular reserve

account. Reserve and surplus along with equity capital represent

Owner s equity.

Secured Loans: - These denote borrowings of the firm against which

specific securities have been provided. The important components of

secured loans are debentures, loans from financial institutions and loans

from commercial banks.

Unsecured Loans: - These are borrowing of the firm against which no

specific security has been provided.

The major components of unsecured loans are fixed deposits, loans and

advances from Promoters, Inter-Corporate borrowings and unsecured loans

from Banks.

Current Liabilities and Provision: -

Current Liabilities and Provision as per the classification under the

companies Act, Consists of the Following amounts due to the suppliers of

goods and services brought on credit, Advance payments received, accrued

expenses. Unclaimed dividends, Provisions for taxed, Dividends, Gratuity,

Pension etc.

Assets: -

Assets have been acquired at a specific monetary cost by the firm for the

conduct of its operation.

Fixed Assets: -

These assets have two characteristics. They are acquired for use over

relatively long period for carrying on the operations of the firm and they are

ordinarily not meant for resale. Examples for fixed assets are land, building,

plant, Machinery, patent & Copyrights.

Investments: -

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These are financial securities owned by the firm. Some investments

represent long-term commitments of funds. Usually those are the equity

shares of other firms held for income and control purpose. Other investments

are short term in nature and are rightly classified under current assets for

managerial purpose.

Current Assets, Loans and Advances: -

This category consists of cash and other resources, which get converted into

cash during the operating cycle of the firm current assets, are held for a

short period of time as against fixed assets, which are held for relatively

longer periods. The major component of current Assets is: cash, debtors,

inventories, loans and advances and pre-paid expenses.

Miscellaneous expenditure and losses: -

The consist of two items miscellaneous expenditure and losses

miscellaneous expenditure represent outlays such as preliminary expenses

and pre-operative expenses, which outlays such as preliminary expenses

which have not written off loss is shown on the right hand side (Assets side)

of the balance sheet.

BALANCE SHEET AS AT 31 ST MARCH 2011

(IN THOUSANDS)

PARTICULARS As at 31.03.2011

As at 31.03.2010

SOURCES OF FUND SHAREHOLDER’S FUNDCapital 6,49,01 6,49,01Reserves & Surplus LOAN FUNDSSecured loansUnsecured loans 1355,80,97 1355,80,97 1132,72,80 1132,72,80

1362,29,98 1139,21,81

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FIXED ASSETSGross block 189,10,27 190,06,32Less: depreciation 178,88,81 178,78,66Net block 10,21,46 11,27,66Machinery and equipment transit & under inspection/erection

7,48

INVESTMENTS NIL NIL NIL NIL

CURRENT ASSETS, LOANS & ADVANCESInventories 32,73,65 32,30,63Sundry debtors 1,59,86 1,51,72Cash a& bank balances 3,77,10 6,13,43Loans & advances 19,83 10,39

52,83,83 57,72,32

Less: CURRENT LIABILITIES & PROVISIONS

Current liabilities 178,60,02 155,01,99Provisions 74,78,42 73,72,98

253,38,44 228,74,97NET CURRENT ASSETS

200,54,61 171,02,65

MISCELLANEOUS EXPINDITURE(to the extent not written off or adjusted)

NIL NIL NIL NIL

PROFIT AND LOSS ACCOUNT

1552,63,13 1298,89,32

1362,29,98 1139,21,81

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2011.

(IN THOUSANDS)

PARTICULARS Year ended31.03.2011

Year ended31.03.2010

EARNINGS

Sales (gross) 8,81,71 10,54,14Less: excise duty 75,80 76,01Sales 8,05,91 9,78,13

Other income 7,89,44 10,84,26Accretion/(Depreciation) To Work-in-progress

NIL NIL

HKBK DC


Finished stock and scrap (16,92) (2,34,54)15,78,43 18,27,85

Less: OUTINGS

Materials 2,55,31 4,30,98Personnel 61,05,26 55,98,75Depreciation 92,40 1,08,58Other expenses 11,35,32 14,56,34Interest 1127,97,92 110,61,01VRS compensation written off 63,97,85 NIL

267,84,06 186,55,66

Profit/(Loss) before PPA (252,05,63) 168,27,81)Add: prior period adjustments (PPA) 1,68,18 7,13PROFIT/(LOSS) BEFORE TAX (253,73,81) (168,34,94)Provision for fringe benefit tax NIL NILPROFIT/(LOSS) AFTER TAX (253,73,81) (1668,34,94)

Balance brought forward from previous year

(1298,89,32) (1130,54,38)

Profit/(loss) after tax carried to balance sheet

(1152,63,13) (1298,89,32)

Basic/ diluted earnings per share of Rs.10 each

(391) (2,59)

Number of equity shares (weighted average basis)

649,01,00 649,01,00

HKBK DC


Fundamentals of Management Accounting, S. N. Maheshwari,

3rd Edition S. Chand & Sons Publications Delhi

Financial Management, Prasanna Chandra, Tata Mc Graw Hill,

New Delhi.

Financial Management, I. M. Pandey, Vikas Publishing, House,

Delhi, 3rd Edition.

Accounting for Managers, S. P. Jain, Simmi Agarawal, and K. L.

Narang Kalyani Publishers.

Dr. Jawaharlal Accounting and Finance for Manager 4th Edition

Himalayas Publishing House.

Company Brochure and Financial Report of the Company.HKBK DC


Magazines given by the Company

Annual Reports of the Company.

Financial Management by R. P. Rustagi, Galgotia Publishing

Company, New Delhi, 3rd Edition Vikas Publishing House, Pvt.

Ltd., New Delhi.

WEBSITES www.wikipedia.com www.himpub.com www.google.com

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http://www.google.com/

http://www.himpub.com/

http://www.wikipedia.com/

A Study on Ratio Analysis at HMT WATCHES LTD.BANGALORE

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Transcript of A Study on Ratio Analysis at HMT WATCHES LTD.BANGALORE