~$Ah Alloys.docx1

8/8/2019 ~$Ah Alloys.docx1

1/61

A

PROJECT REPORT

ON

GENERAL OVERVIEW OF FINANCEDEPARTMENT

AT SHAH ALLOYS

SUBMITTED BYHEMIL SHAH

ROLL NO: 49

SECTION: C

SUBMITTED TO

L.J.INSTITUTE OF COMPUTER APPLICATION

PROJECT GUIDE

PRO. Shah Mikin M.


2/61

INDEX

Declaration

Preface

Acknowledgement

Training certificate

Certificate

Executive summary

Literature survey

Profit & Loss Account

Balance Sheet

Financial department

Financial Activities @ Shah Alloys

Financial Ratios


3/61

DECLARATION

I have completed this project report entitled GENRAL OVERVIEW OF FINANCE

DEPERTMENT at Shah alloys ltd, in partial fulfillment of requirement of MBA as a

trainee under the guidance of Mr. S. S. Shah. I hereby ensure that confidential

data of this report will be used only for academic purpose.

Date:


4/61

Signature:

. (Hemil Shah)

PREFACEIn recent past data our country has developed interest in professionalism in

management. In connection to our course MBA our institution helps in

doing so.

The theoretical study practical study has differences in concept. Student

studying in collage and other management institution are generally more

aware of theoretical studies, as per the syllabus and requirement. The

world has become like an integrated circuit which is internally small built up

and performs various function in small existence today. These are days of

being aware of practical world in all respect.

On our part of our course it is compulsory for each management student to

undergo practical training. Students are all allowed to take 6 to 8 weeks

training in FINANCE DEPARTMENT for the stipulated time. This report

represents overview of FINANCE DEPARTMENT of SHAH ALLOYS.


5/61

ACKNOWLEDGEMENT

This is last stage of report preparation where I want to say thanks to

all people for their constant support and motivation. Its my delight to

use the opportunity for conveying our thanks to all those peoples,

who helped us and made this training possible.

First of all I would to thank university for including the summer

training in MBA course and my institute L. J. Institute of Management

Studies.

I am glad to acknowledge Mr. S. S. SHAH for giving their support

during training and for arranging the visit to various sections of

financial department. I am very much thankful of all staff members of


6/61

all levels who have directly or indirectly help us during our training

lenure.

TRAINING CERTIFICATE


7/61

CERTIFICATE

This is to certify that Hemil Rakeshkumar Shah student of L.J.Institute of

computer application carried out his 6 weeks training at SHAH ALLOYS in

accordance to the requirement of university to proceed in Third semester. Sowe here by accept this report as part of training.

College seal Director


8/61

EXECUTIVE SUMMARYSHAH ALLOYS has been taking care of each and every aspect in terms of

culture, discipline, accountability and responsibility. In SHAH ALLOYS all decisions

are taken by the higher authorities and are based on all favourable and

unfavourable aspects. SHAH ALLOYS invites quotations on few companies onlyand takes experience based decision. In SHAH ALLOYS all departments work are

dependent on each felt authority seen in its hierarchy.

SHAH ALLOYS is not only a company it is a family which I felt during my

training.


9/61


10/61

A ratio:

Is the mathematical relationship between two quantities in the form of a

fraction or percentage.

Ratio analysis:

Is essentially concerned with the calculation of relationships which after properidentification and interpretation may provide information about the operations

and state of affairs of a business enterprise.

The analysis is used to provide indicators of past performance in terms of

critical success factors of a business. This assistance in decision-making reduces

reliance on guesswork and intuition and establishes a basis for sound judgement.

TypesofRatios

Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term financial

obligations when and as they fall due.

The main concern of liquidity ratio is to measure the ability of the firms to

meet their short-term maturing obligations. Failure to do this will result in the

total failure of the business, as it would be forced into liquidation.

Current Ratio

The Current Ratio expresses the relationship between the firms current assets

and its current liabilities.

Current assets normally includes cash, marketable securities, accounts

receivable and inventories. Current liabilities consist of accounts payable, short

term notes payable, short-term loans, current maturities of long term debt, accrued

income taxes and other accrued expenses (wages).

s


11/61

The rule of thumb says that the current ratio should be at least 2, that is the

current assets should meet current liabilities at least twice.

Quick Ratio

Measures assets that are quickly converted into cash and they arecompared with current liabilities. This ratio realizes that some of current

assets are not easily convertible to cash e.g. inventories.

The quick ratio, also referred to as acid test ratio, examines the ability of

the business to cover its short-term obligations from its quick assets only

(i.e. it ignores stock). The quick ratio is calculated as follows

Clearly this ratio will be lower than the current ratio, but the difference

between the two (the gap) will indicate the extent to which current assetsconsist of stock.

Asset Management/Activity Ratios

If a business does not use its assets effectively, investors in the businesswould rather take their money and place it somewhere else. In order for the

assets to be used effectively, the business needs a high turnover.

Unless the business continues to generate high turnover, assets will be idle

as it is impossible to buy and sell fixed assets continuously as turnover

changes. Activity ratios are therefore used to assess how active various

assets are in the business.


12/61

Average Collection Period

The average collection period measures the quality of debtors since it

indicates the speed of their collection.

The shorter the average collection period, the better the quality of debtors,

as a short collection period implies the prompt payment by debtors.

The average collection period should be compared against the firms credit

terms and policy to judge its credit and collection efficiency.

An excessively long collection period implies a very liberal and inefficient

credit and collection performance.

The delay in collection of cash impairs the firms liquidity. On the other

hand, too low a collection period is not necessarily favourable, rather it may

indicate a very restrictive credit and collection policy which may curtailsales and hence adversely affect profit.

Inventory Turnover

This ratio measures the stock in relation to turnover in order to determine

how often the stock turns over in the business.

It indicates the efficiency of the firm in selling its product. It is calculated by

dividing he cost of goods sold by the average inventory.


13/61

Total Assets TurnoverAsset turnover is the relationship between sales and assets

The firm should manage its assets efficiently to maximise sales.

The total asset turnover indicates the efficiency with which the firm uses all

its assets to generate sales.

It is calculated by dividing the firms sales by its total assets.

Generally, the higher the firms total asset turnover, the more efficiently its

assets have been utilised.

Fixed Asset Turnover

The fixed assets turnover ratio measures the efficiency with which the firm

has been using its fixed assets to generate sales.

It is calculated by dividing the firms sales by its net fixed assets as follows:

Generally, high fixed assets turnovers are preferred since they indicate a

better efficiency in fixed assets utilisation.


14/61


15/61

Debt Ratio

This is the measure of financial strength that reflects the proportion of

capital which has been funded by debt, including preference shares.

This ratio is calculated as follows:

With higher debt ratio (low equity ratio), a very small cushion has

developed thus not giving creditors the security they require. The company

would therefore find it relatively difficult to raise additional financial support

from external sources if it wished to take that route. The higher the debt ratiothe more difficult it becomes for the firm to raise debt.

Debt to Equity ratio

This ratio indicates the extent to which debt is covered by shareholders

funds. It reflects the relative position of the equity holders and the lenders and

indicates the companys policy on the mix of capital funds. The debt to equity

ratio is calculated as follows:


16/61

Times Interest Earned Ratio

This ratio measure the extent to which earnings can decline without causing

financial losses to the firm and creating an inability to meet the interest cost.

The times interest earned shows how many times the business can pay its

interest bills frohm profit earned.

Present and prospective loan creditors such as bondholders, are vitally

interested to know how adequate the interest payments on their loans are

covered by the earnings available for such payments.

Owners, managers and directors are also interested in the ability of the

business to service the fixed interest charges on outstanding debt.

The ratio is calculated as follows:

Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time.

Without profit, there is no cash and therefore profitability must be seen as a

critical success factors.

A company should earn profits to survive and grow over a long period of time.

Profits are essential, but it would be wrong to assume that every action

initiated by management of a company should be aimed at maximizing profits,

irrespective of social consequences.

Profitability is a result of a larger number of policies and decisions. The

profitability ratios show the combined effects of liquidity, asset management

(activity) and debt management (gearing) on operating results. The overall

measure of success of a business is the profitability which results from the

effective use of its resources.


17/61

Gross Profit Margin

Normally the gross profit has to rise proportionately with sales.

It can also be useful to compare the gross profit margin across similar

businesses although there will often be good reasons for any disparity.

Net Profit Margin

This is a widely used measure of performance and is comparable across

companies in similar industries. The fact that a business works on a very low

margin need not cause alarm because there are some sectors in the

industry that work on a basis of high turnover and low margins, for

examples supermarkets and motorcar dealers.

What is more important in any trend is the margin and whether it compares

well with similar businesses.


18/61

Return on Investment (ROI)

Income is earned by using the assets of a business productively. The more

efficient the production, the more profitable the business. The rate of return on

total assets indicates the degree of efficiency with which management has used

the assets of the enterprise during an accounting period. This is an important

ratio for all readers of financial statements.

Investors have placed funds with the managers of the business. The managers

used the funds to purchase assets which will be used to generate returns. If the

return is not better than the investors can achieve elsewhere, they will instructthe managers to sell the assets and they will invest elsewhere. The managers lose

their jobs and the business liquidates.

Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the

owners of the business. It also shows potential investors into the business what

they might hope to receive as a return. The stockholders equity includes share

capital, share premium, distributable and non-distributable reserves. The ratio

is calculated as follows:


19/61

Earning Per Share (EPS)

Whatever income remains in the business after all prior claims, other than

owners claims (i.e. ordinary dividends) have been paid, will belong to the

ordinary shareholders who can then make a decision as to how much of this

income they wish to remove from the business in the form of a dividend, and

how much they wish to retain in the business. The shareholders are

particularly interested in knowing how much has been earned during the

financial year on each of the shares held by them. For this reason, an earning

per share figure must be calculated. Clearly then, the earning per share

calculation will be:

Market Value Ratios

These ratios indicate the relationship of the firms share price to dividends and

earnings. Note that when we refer to the share price, we are talking about theMarket value and not the Nominal value as indicated by the par value.

For this reason, it is difficult to perform these ratios on unlisted companies as

the market price for their shares is not freely available. One would first have to

value the shares of the business before calculating the ratios. Market value

ratios are strong indicators of what investors think of the firms past

performance and future prospects.


20/61

Dividend Yield Ratio

The dividend yield ratio indicates the return that investors are obtaining on their

investment in the form of dividends. This yield is usually fairly low as the

investors are also receiving capital growth on their investment in the form of an

increased share price. It is interesting to note that there is strong correlation

between dividend yields and market prices. Invariably, the higher the dividend,

the higher the market value of the share. The dividend yield ratio compares the

dividend per share against the price of the share and is calculated as:

Notice a healthy increase in the yield from 2000 to 2002. The main reason for

this is that the dividend per share increased while at the same time, the price of

a share dropped.

This is fairly unusual because share prices usually increase when dividends

increase. However there could be number of reasons why this has happened,

either due to the economy or to mismanagement, leading to a loss of faith in the

stock market or in this particular stock.

Normally a very high dividend yield signals potential financial difficulties and

possible dividend payout cut. The dividend per share is merely the total dividend

divided by the number of shares issued. The price per share is the market price

of the share at the end of the financial year.


21/61

Price/Earning Ratio (P/E ratio)P/E ratio is a useful indicator of what premium or discount investors are

prepared to pay or receive for the investment.

The higher the price in relation to earnings, the higher the P/E ratio which

indicates the higher the premium an investor is prepared to pay for the share.

This occurs because the investor is extremely confident of the potential growth

and earnings of the share.

The price-earning ratio is calculated as follows:

High P/E generally reflects lower risk and/or higher growth prospects for

earnings.

The above ratio shows that the shares were traded at a much higher premium

in 2000 than were in 2002. In 2000 the price was 26.8 times higher than earnings

while in 2002, the price was only 12 times higher.

Dividend CoverThis ratio measures the extent of earnings that are being paid out in the form

of dividends, i.e. how many times the dividends paid are covered by earnings

(similar to times interest earned ratio discussed above).

A higher cover would indicate that a larger percentage of earnings are beingretained and re-invested in the business while a lower dividend cover would

indicate the converse.


22/61

Dividendpay-out ratio

This ratio looks at the dividend payment in relation to net income and can be

calculated as follows:

Note: Even though the dividend yield has increased, the dividend payout

ratio has reduced, showing that a lower proportion of earnings were paid

out as dividend. The ratio has only reduced slightly, however, from 50.7% in

2000 to 49.4% in 2002. Generally, the low growth companies have higher

dividends payouts and high growth companies have lower dividend payouts.


23/61

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31ST MARCH

SCH.Year ended on

31.03.2010(Rupees)

Year ended on31.03.2009(Rupees)

A) INCOME

1Gross Revenue from

operations 16 8,468,464,174 10,160,311,147

Less :- Excise Duty 889,855,703 1,127,744,489

Net Revenue fromoperations 7,578,608,471

2Increase / (Decrease) in

Stocks 17 106,919,630

3 Other Income 18 58,932,108

TOTAL :- 7,744,460,209

B) EXPENDITURE

1 Material consumed 19 109.542 6,160,467,062 111.647

2Manufacturing & Other

Exps. 20 2,248,222,627

3 est & Finance Charges 21 751,619,205

TOTAL :- 9,160,308,894

C)Net Profit / ( Loss ) before

Dep. and Taxation (1,415,848,685)

D) Depreciation 347,652,990

E)Profit / ( Loss ) before

Taxation (1,763,501,675)

F)Provision for Taxation -

Current Tax -

SHAH ALLOYS LIMITED.


24/61

- FBT 1,197,516

-Deferred Tax (528,643,522)

Short prov. of I. Tax forearlier year W.O/ (W.B) -

(527,446,006)

G) Profit / (Loss) after Tax (1,236,055,669)

H)Less : Prior period

adjustments 17,632,095

[Refer Note No. 17 of Sch.22]

(I)Profit / ( Loss ) before extra

ordinary item. (1,253,687,764)

J)Add : Extraordinary item. (Refer

Note No 9 of Sch 22 ) 213,847,854

Profit / ( Loss ) after extraordinary item. (1,039,839,910)

K)Bal. brought forward from

Previous Year 85,046,930

TOTAL :- (954,792,980)

L) Appropriations

Proposed Dividend writtenback -

Corporate Dividend Taxwritten back -

Debenture RedemptionReserve -

Balance Carried toBalance Sheet (954,792,980)

(954,792,980)

Earning per share Basic (63.33)

Earning per share Diluted. (63.33)(Nominal value of Rs. 10each) (P.Y. Rs.10 each)

( Refer Note No. 21 of Sch21)

Significant accountingpolicies

Notes forming part of Accounts 22

Schedule refer to herein above form an integral part of financial

statement For, Shah Alloys Ltd.As per our report of even date attached

For, Parikh & MajmudarFor, Talati &

Talati

Chartered AccountantsChartered

Accountants Chairman

Partner Partner

Hiten ParikhUmeshTalati Director

M. No 40230 M. No 34834


25/61

SHAH ALLOYS LIMITED.

BALANCE SHEET AS AT 31 ST MARCH 2009

Sch. As at31.03.2010(Rupees)

As at 31.03.2010(Rupees)

As at 31.03.2009(Rupees)

(A) SOURCES OF FUNDS

1 Shareholders' Funds

a) Share Capital 1 197,975,400 197,9

b) Reserves and Surplus 2 773,393,895 971,369,295 1,100

2 Loan Funds

a) Secured Loans 3 6,211,832,333 5,640

b) Unsecured Loans 4 953,671,240 7,165,503,573 727,1

8,136,872,868

(B) APPLICATION OF FUNDS

1 Fixed Assets 5

a) Gross Block 5,559,393,567 4,882

b) Less : Depreciation 1,820,418,317 1,473

Net Block 3,738,975,250 3,408

c) Capital work-in-progress 158,004,288 3,896,979,538 791,3

2 Investments 6 399,506,276

3 Deferred Tax Assets 790,862,580

(Refer note No. 22 of Sch-22)

4Current Assets & Loans &

Advances

a) Inventories 7 1,852,963,392 1,507

b) Sundry Debtors 8 679,572,175 409,6

c) Cash & Bank Balances 9 186,387,880 232,5

d) Other current Assets 10 5,389,220 3,8

e) Loans & Advances 11 1,145,096,496 1,557

3,869,409,163 3,711

Less : Current Liabilities &Provisions


26/61

a) Current Liabilities 12 1,578,092,090 895,7

b) Provisions 13 19,956,720 17,9

1,598,048,810 913,7

Net Current Assets 2,271,360,353

5 Miscellaneous Expenditures 14 4,270,941

[to the extent not written off oradjusted]

6 Profit & Loss Account: 15 773,893,180

8,136,872,868

Significant accounting policies

Notes forming part of Accounts 22

Schedule refer to herein above forman integral part of financial

statement For, Shah Alloys LtAs per our report of even dateattached

For, Parikh & Majmudar For, Talati & Talati

Chartered Accountants Chartered Accountants Chairman

Partner Partner

Hiten Parikh Umesh Talati Director

M. No 40230 M. No 34834


27/61

FINANCE

DEPARTMENT


28/61

Introduction:

Finance department is most important department of any organization and

company. Because it manages all finance resources of company. Because it

manages all finance resourse of company. It does financial activities which are

concerned with the planning & controlling of the firms financial resources.

Financial management involves selling financial assets or securities such asshare and bonds, debentures to the financial investors in the capital markets to

raise necessary funds by borrowing from banks, financial institution & other

resources.


29/61

There exists as inseparable relationship between the finance functions on the

other, almost all kinds of business activities, directly or indirectly, involves the

acquisition & usage of money.

FINANCE DEPARTMENT @ SHAH ALLOYS

Concurrence section

Bills payment section

Import payments

Raw material Service & contract project

Central account section

Annual reports & Results

Taxation (Income Tax)


30/61

Indirect taxation section

Banking sections

Operations

Working capital management

Budgeting and costing

The above hierarchy shows the structure of division of finance department @

SHAH ALLOYS. From the hierarchy it gets clear thatthere are total 6 division of

the finance department.


31/61

FINANCIAL

ACTIVITIES@

SHAHALLOYSFinancial activities are divided among different sections and sub

department in depth under this title. This will help to understand in depth

various aspects of the financial department in a public sector like SHAH

ALLOYS. Activities are as follows:-

1)Working capital management

2)Banking section

3)Central accounting & taxation

4)Indirect taxation

5)Inventory sections


32/61

1) working capitalmanagement

An Introduction To Working Capital Management

Working capital means the part of the total assets of the business that

change from one form to another form in the ordinary course of business

operations.

Concept of working capital:-

The word working capital is made of two words 1.Working and 2.Capital

The word working means day to day operation of the business, whereas the

word capital means monetary value of all assets of the business.

Working capital : -

Working capital may be regarded as the life blood of business. Working capital

is of major importance to internal and external analysis because of its close

relationship with the current day-to-day operations of a business. Every business

needs funds for two purposes.

Long term funds are required to create production facilities through

purchase of fixed assets such as plants, machineries, lands, buildings & etc

Short term funds are required for the purchase of raw materials, payment of

wages, and other day-to-day expenses. It is other wise known as revolving or

circulating capital. It is nothing but the difference between current assets and

current liabilities. i.e.


33/61

Working Capital = Current Asset Current Liability.

Businesses use capital for construction, renovation, furniture, software,

equipment, or machinery. It is also commonly used to purchase inventory, or to

make payroll. Capital is also used often by businesses to put a down paymentdown on a piece of commercial real estate. Working capital is essential for any

business to succeed. It is becoming increasingly important to have access to more

working capital when we need it.

Conceptofworkingcapital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability

Current Assets Current Liabilities

Cash in hand / at

bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary

investment

Prepaid expenses

Accrued incomes

Bills Payable

Sundry Creditors

Outstanding

expenses

Accrued expenses

Bank Over draft


34/61

Working capitalin termsoffive components:

1. Cash and equivalents: - This most liquid form of working capital requires

constant supervision. A good cash budgeting and forecasting system provides

answers to key questions such as: Is the cash level adequate to meet current

expenses as they come due? What is the timing relationship between cash inflow

and outflow? When will peak cash needs occur? When and how much bank

borrowing will be needed to meet any cash shortfalls? When will repayment be

expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If

you do, is the amount of accounts receivable reasonable relative to sales? Howrapidly are receivables being collected? Which customers are slow to pay and

what should be done about them?

3. Inventory:- Inventory is often as much as 50 percent of a firm's current assets,

so naturally it requires continual scrutiny. Is the inventory level reasonable

compared with sales and the nature of your business? What's the rate of

inventory turnover compared with other companies in your type of business?

4. Accountspayable:- Financing by suppliers is common in small business; it is

one of the major sources of funds for entrepreneurs. Is the amount of money

owed suppliers reasonable relative to what you purchase? What is your firm's

payment policy doing to enhance or detract from your credit rating?

5. Accruedexpenses and taxespayable:- These are obligations of your company

at any given time and represent a future outflow of cash.


35/61

Two differentconceptsofworkingcapitalare:-

Balance sheet or Traditional concept

Operating cycle concept.

Balancesheet or Traditional concept:-

It shows the position of the firm at certain point of time. It is calculated in

the basis of balance sheet prepared at a specific date. In this method there are

two type of working capital:-

Gross working capitalNet working capital

Gross working capital:-

It refers to the firms investment in current assets. The sum of the current

assets is the working capital of the business. The sum of the current assets

is a quantitative aspect of working capital. Which emphasizes more on

quantity than its quality, but it fails to reveal the true financial position of

the firm because every increase in current liabilities will decrease the gross

working capital.

working capital:-

It is the difference between current assets and current liabilities or the excess

total current assets over total current liabilities.

Working capital= current assets - current liabilities.


36/61

Net working capital: -

It is also can defined as that part of a firms current assets which is financed wi

long term funds. It may be either positive or negative. When the current asse

exceed the current liability, the working capital is positive and vice versa.

Operating cycle concept:-

The duration or time required to complete the sequence of events right from

purchase of raw material for cash to the realization of sales in cash is called the

operating cycle or working capital cycle.


37/61

RAW

MATERIA

L

WORK IN

PROGRES

S

FINISH

GOODSSALES

DEBTORS

& BILLS

RECEIVAB

CASH

OPERATING CYCLE


38/61

TypesofWorking Capital:-

TYPES OFWORKINGCAPITAL

ON THE BASIS OFB/S CONCEPT

GROSS WORKINGCAPITAL

NET WORKINGCAPITAL

ON THE BASIS OFTIME

REGULARWORKINGCAPITAL

TEMPORARYWORKINGCAPITAL

SEASONALWORKINGCAPITAL

SPECIFIC

WORKINGCAPITAL


39/61

SIGNIFICANCE OF WORKING CAPITAL:-

SIGNIFICAN--CE OF

WORKINGCAPITAL

PAYMENT

TOSUPPLIERS

DIVIDENDDISTRIBUTI-

ON

INCREASEDEBT

CAPACITY

INCREASEIN FIX

ASSETS

INCREASEEFFECIENC-

Y

EASY LOANFROMBANKS


40/61


41/61

fewer product lines, just

in time ordering will

reduce average days.

Receivables

Ratio

(in days)

Debtors *

365/

Sales

= x

days

It takes you on average

x days to collect monies

due to you. If your

official credit terms are

45 day and it takes you

65 days.

One or more large or

slow debts can drag out

the average days.

Effective debtor

management will

minimize the days.

Payables

Ratio

(in days)

Creditors *

365/

Cost of

Sales (or

Purchases)

= x

days

On average, you pay

your suppliers every x

days. If you negotiate

better credit terms this

will increase. If you pay

earlier, say, to get a

discount this will

decline. If you simply

defer paying your

suppliers (without

agreement) this will also

increase - but your

reputation, the quality

of service and any

flexibility provided by

your suppliers may

suffer.


42/61

Current

Ratio

Total

Current

Assets/

Total

Current

Liabilities

= x

times

Current Assets are

assets that you can

readily turn in to cash or

will do so within 12

months in the course of

business. Current

Liabilities are amount

you are due to pay

within the coming 12

months. For example,

1.5 times means that

you should be able to

lay your hands on $1.50

for every $1.00 you

owe. Less than 1 times

e.g. 0.75 means that you

could have liquidity

problems and be under

pressure to generate

sufficient cash to meet

oncoming demands.

Quick Ratio (Total

Current

Assets -

Inventory)/

Total

Current

Liabilities

= x

times

Similar to the Current

Ratio but takes account

of the fact that it may

take time to convert

inventory into cash.

WorkingCapital

Ratio

(Inventory+

Receivables

-

Payables)/

Sales

As %Sales

A high percentagemeans that working

capital needs are high

relative to your sales.


43/61


44/61

Procedural aspectsofbanking system:-

The payment slip prepared by the payment system system is received than

cheques are prepared for the payment of releted invoice of goods or services.

Collecting information about balance of all banks accounts is also done by this

section. Transferring funds from banks account excess balance to cash credit

account to save the interest.

Collecting bank statement details and finding difference of balance. Preparing

reconciliation statement to match final balance of account with bankbook.

3)Central accounting & Taxation section:-

The whole finance department is here divided into various sections like billspayment, banking, cash, insurance, raw material consumption, etc.

Each section has to account for their respective areas by the way of payment

to the parties, receiving payments from the parties, or through passing the

journal vouchers.

All the accounting done by the various sections are consolidated here in

Central Accounts Section.

Annual budget presented by Finance Minister is analyzed to find out the

impact on the operations of the company.

There are various items of Direct Taxation like tax rate, dividend tax,

surcharge, various amendments affecting provisons for calculating the

Taxable business income, the provisons relating to the assessment, appeal

etc. are analyzed to find out the total impact for the company.

Such indirect tax affects the operation in purchase of various raw materials,

chemicals, spares items and sale of finished goods etc.

Every year the company is suppose to pay tax to the Central Government on

its taxable business income.

The taxable business income is estimated based, actual operation so far over

subject to provisons of the Income Tax Act.


45/61

Function of central accounting system:-

General

Accounting work in Central Account section

Consolidation of Accounts

Audit

Function of taxation Cell:-

Analysis of budget presented by finance minister

Payment Tax

Filling of Annual Return of Income

Assessment of the Return of Income


46/61

4)INDIRECT TAXATION:-

VAT(Value Added Tax):-

Company also purchases raw material and sells finished goods. For

that it must be pay VAT & CST.

CST(Central Sales Tax):-

This is the income central tax Government.

This tax must be pay , but if company done transaction with other

state.

Central Government gives Input Tax Credit

Input Tax Credit applicable on the capital item which are use for the

production of taxable goods like plant & material.

Input Tax Credit also applicable on the product on mainly which are

buying for resale.

This Input Tax Credit applicable for the following buying:-

y Raw Material

y

Processing Materialy Consumable items

y Packing Material

Service Tax:-

Service Tax cover under the custom duty , Excise duty and service tax

rules.

Revenue of service tax belongs to the central government and rulesand regulation formed by the central government.


47/61

There is a process ofVAT & CST payment as

under:-

1.Registration

2.Payment

3.Return

4.Assessment

5.Appeal

5)Inventorysection:-

Inventory section is responsible for making all acconting related to stores &

valuation of inventories. Stores department when receives any material

they send Material Receiving Report (MRR) to stores account section. When

stores department issues material to user department they inform storesaccounts section. Sometimes the users department returns the issued

material, than the store account section makes the reserve entry for that.

stores accounts section prepares inventory ledger by the weighted average

method which shows how much stores material is issued, how much is in

stock, how much is returned by the users department etc., stores accounts

section also prepares final account stores.

y INPUTS:-

o ITEM CODE:- Number is given to each item stored in ware house for

unique identification.

o QUANTITY- Quantity of items received and accepted.

o VENDORS CODE:- identification for vendors of goods.


48/61

y OUTPUTS:-

o GRR:- Goods Receipt Report that contains all details entered for the

transaction.

y CONTROLLING FUNCTION OF INPUTS:-

o Item code

oSafety stock

o

Reorder leveloExpire Date(optional)

y CONTROLLING FUNCTION OF OUTPUTS:-

oNon moving items lists

o

PO historyoCENVAT/MODVAT

oCritical item status


49/61

FINANCIAL RATIOS

OF SHAH ALLOS


50/61

CURRENT RATIO:The level of current assets against current liabilities called current

ratio. It is obtained by dividing current assets by current liabilities; it is

useful for knowing the short-term creditors. The higher the ratios

better the liquidity of company. Generally it is believed that ratio of

2:1 is good enough but this ratio is differed company-by-company &

situation-by-situation. Some companies satisfied with 1:1 but

according to chore committee 1.33:1 ratio is indicates good liquidity

position.

CURRENT RATIO= current assets/current liabilities

z

ParticularsMar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

Total CurrentAssets 163.13 166.89 169.31 85.08 65.18

Total CurrentLiabilities 19.64 31.5 19.78 20.5 13.92

Current

Ratio 8.31 5.30 8.56 4.15 4.68


51/61

Interpretation:-

Now we looking the above graph we can say that in year 2005 to 2009 are

increasing trend .In year2004-05 to 2008-09. Current ratio is increase

almost two times because current liability not is not more increase to

compare with current assets and very importance is that to control on

liability and wastage of raw material.

QUICK RATIO:All the current assets are not eqally liquid. While cash is readily

available to make payments to suppliers and debtors can be quickly

converted into cash, inventories are two steps away from conversion

into cash. The quick ratio, or acid test ratio, is computed as a

supplement to the current ratio the ratio relates highly liquid current

assets, usually current assets less inventories, to current liabilities.

0

1

2

3

4

5

6

7

8

9

5-Mar 6-Mar 7-Mar 8-Mar 9-Mar

Currant Ratio

Currant Ratio


52/61

Quick ratio=Quick assets/Quick liabilities

Quick assets= current assets inventories

Quick liabilities= current liabilities bank overdraft

ParticularsMar

09

Mar

08

Mar

07

Mar

06

Mar

05QuickAssets 112 106.31 115.03 38.12 21.83Quick

Liabilities 19.64 31.5 19.78 20.5 13.92Quick Ratio 5.70 3.37 5.82 1.86 1.57

Interpretation-

Now, we looking the above graph we can clearly say that quick ratio increase

1.57 to 5.7 in year 2004-05 to 2008-09. it is the almost tree time increase

because of stock are steadily maintain by company to compare with the current

assets are increase year by year.

0

1

2

3

4

5

6

7


Quick Ratio

Quick Ratio


53/61

Cash ratio

This is also called as super quick ratio. This ratio considers only the

absolute liquidity available with the firm since cash and bank balance

and short term marketable securities are the most liquid assets of the

firm financial analyst look at a cash ratio if the super liquid assets are

too much in relation to the current liabilities then it may affect the

profitability of the firm.

Cash ratio= cash + bank + marketablesecurities/ total current liabilities

*100

Particulars

9

Mar

8

Mar

7

Mar

6

Mar

5

MarCash andBank 8.58 5.91 68.68 14.41 4.33

TotalCurrentLiabilities 19.64 31.5 19.78 20.5 13.92

Cash ratio 0.436864 0.187619 3.472194 0.702927 0.311063


54/61

Interpretation

Now we looking for the above graph we can see that in the year 2004-05 cash

ratio is 0.31 and suddenly increase in March 2007 is 3.47and then suddenly

decrease for next two yea r. Because of the economical recession in the market

from last two year.

INVENTORY TURNOVER RATIO

Inventory turnover is a valuable measure of selling efficiency and inventory

quality. It expresses the frequency with which average level of inventoryinvestment is turnover through operations. It signifies the liquidity of the

inventory.

This ratio indicates how many times in a year the stock is turnover. However a

high inventory turnover may also result from a low level of inventory which may

lead to frequent stock outs and loss of sales and customer goodwill.

=COGS/AVERAGE STOCK

0

0.5

1

1.5

2

2.5

3

3.5

4


Cash ratio

Cash ratio


55/61

ITR, average of inventory at the beginning and end of the year is taken in

general average may be used when a flow figure ( in this case cogs ) is

related to a stock figure (inventory)

ParticularsMar

09

Mar

08

Mar

07

Mar

06

Mar

05

Cogs 169.49 186.38 168.03 158.64 148.59

Average

stock55.86 57.43 50.62 45.16 48.81

Inventory

Ratio 3.03 3.25 3.32 3.52 3.03

2.7

2.8

2.9

3

3.1

3.2

3.3

3.4

3.5

3.6





56/61

Interpretation

Now we looking the above graph we can say that from the year 2004-05 to 2008-

09 stock turnover ratio is between 3 to 3.5. Company is success in maintaining in

cost of goods sold and stock in steadily. It is good for the company. Company

reduces its raw material due to less demand in the market. Hence, there are less

production is to be done. It happen due to company wants to achieve some short

term benefits. Company have to increase its benefits because it affects the good

will of the company . it also been seen that due to less inventory company is fails

to complete its order timely.

FIXED ASSET TURN OVERRATIO:

the FAT ratio measures the net sales per rupees of investment in fixed

assets

net sales/net fixed assets

this ratio measures the efficiency with which fixed assets are employed. A

high ratio indicates a high degree of efficiency in assets utilization while alow ratio reflects an in efficient use of assets. However this ratio should be

used with cautions because when fixed assets of the firm are old and

substantially depriciated the fixed assets turnover ratio tends to be high

(because the denominator of the ratio is very low)


57/61


58/61

NET WORKING CAPITAL

This ratio represent that part of long term fund represented by net worth

and long term debt that are permanently blocked in the current assets.

certain minimum level of safety stock, permanent customer, un paid bills,

compensatory minimum bank balance and cash balance re the example of

permanent working capital.

=TOTAL CURRENT ASSETS-TOTAL CURRENT LIABILITIES

ParticularsMar

09

Mar

08

Mar

07

Mar

06

Mar

05TotalCurrent

Assets 163.13 166.89 169.31 85.08 65.18

TotalCurrentLiabilities 19.64 31.5 19.78 20.5 13.92

Net Working

Capital 143.49 135.39 149.53 64.58 51.26


59/61

We can see that net working capital is continuously increase so its a good for the

company.

SALES TO WORKING CAPITAL RATIO

ParticularsMar

09

Mar

08

Mar

07

Mar

06

Mar

05

Sales157.07 192.61 188.5 182.73 167.05

Workingcapital 143.49 135.39 149.53 64.58 51.26

Sales to

working 1.09 1.42 1.26 2.83 3.26

0

20

40

60

80

100

120

140

160


Net Working Capital

Net Working Capital


60/61

Interpretation

This ratio is computed by dividing working capital by sales . this ratio helps

to measure efficiency of the utilization of net working capital. It signifies

that for an amount of sales. A relative amount of working capital is needed.

If any increase in sales is contemplated, working capital should be adequate

& thus this ratio helps management to maintain the adequate level of

working capital.

Debtors turnover ratio

Debtor turnover ratio is calculated by dividing the net credit sales by

average debtors outstanding during the year. it measures the liquidity of

firms debts net credit sales are the gross credit sales minues returns, if any

from customers. Average debtors are the average of debtors at beginning

and at the end of the year. This ratio shows how rapidly debt are collected.

the higher the Debtor turnover ratio the better it is for the organization.

= credit sales/averagedebtors

0

0.5

1

1.5

2

2.5

3

3.5


Sales to working capital

Sales to working capital


61/61

~$Ah Alloys.docx1

Documents

Transcript of ~$Ah Alloys.docx1