Ratio analysis @ gadag textile mill project report mba finance

A STUDY OF ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS

LIST OF TABLES

Table No. Name of the Table Page No.1 Comparative Balance sheet2 Comparative Income Statement3 Comparative Balance sheet4 Comparative Income Statement5 Common-size Income Statement6 Common-size Balance Sheet7 Trend Income Statement8 Trend Balance Sheet9 Current Ratio10 Quick Ratio11 Inventory turnover ratio12 Total Assets Turnover Ratio 13 Gross Profit Ratio14 Net profit Ratio

LIST OF CHARTS

Chart No. Name of the Chart Page No.1 Current Ratio2 Quick Ratio3 Inventory Turnover Ratio4 Total Assets Turnover Ratio5 Gross Profit Ratio6 Net Profit Ratio

Institute of management studies BIMS BAGALKOT

I Chapter 1

Executive summary

Purpose of the Study

Objectives of the Study

Methodology

Limitations of the study

II Chapter 2

Introduction to the company

History of the company

Introduction

Profile of the company

Organization structure

III Chapter 3

Introduction to the topic

Techniques of analysis and Interpretation

Findings

Suggestions

Conclusion

SWOT Analysis of the company

IV Chapter 4

Appendix

Bibliography

Annexure

BABASAB PATIL

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS GCTM HULKOTI

CHAPTER-1

EXECUTIVE SUMMARY:

BABASAB PATIL


Gadag Co-Operative Textile Mill Ltd Hulkoti established in 1972 by late

shri.K.H.Patil at Hulkoti in Gadag district. It is producing main product as yarn. The

company started with a production cost of RS.220lakhs.It is started producing yarn in

the year 1973.

It was a great experience to undergo summer in plant training on “A study on

financial Analysis and Interpretation” .During the study I found that the company

is carrying its activity in producing yarn. .This study is conducted in order to know

how the organization is maintaining the financial statements. So as to identify the

problems of such a title and give suggestions and conclusions. In addition to this

concept studying the over all organization role of different department functions of

their respective departments, procedures and policies.

In this report I made an effort to know the financial position of the GCTM

Company .My topic is “A study of financial Analysis and Interpretation” which

means that a process to identify the financial performance of a firm by properly

establishing the relationship between the items of balance sheet and profit or loss

account. Thus, we can say that, Financial Analysis is a starting point for making plans

before using any sophisticated forecasting and planning.

Purpose of the study

A company’s balance sheet and profit & loss accounts are valuable

information sources for identifying risk taking and assessing risk management

effectiveness. Although amounts found on these statements does not provide valuable

insights of performance so Financial analysis and Interpretation is required for

determining good or bad performance of company and also for determining its causes.

The study includes the calculation of different financial ratios, Trend analysis,

BABASAB PATIL


comparative income and Balance sheet, common size cash flow and fund flow

statements. It compares five years financial statements of the company to know its

performance in these different years.

This report includes the profile of the G.C.T.M.Hulkoti. It contains brief

introduction ,nature of the business, product profile and process and organization

structure.

This report includes the findings and suggestions, conclusions of the study

done in order to give better suggestions.

This study has done by taking the past five years financial statements of the

company.

For the analysis of data the simple percentage method is used and the data is

shown by using the some graphs.

Finally the study has helped to me in many ways to acquire the knowledge

about the company performance and its profitability.

OBJECTIVES OF ANALYSIS AND INTERPRETATION :

Following are the main objectives of analysis and interpretation of financial

statements.

1.To study the earning capacity of the firm

2. To study the progress of the firm

BABASAB PATIL


3 To assess the efficiency of the firm.

4 To determine the firms paying capacity to measure the financial

Performance of the firm.

5. To prepare the comparative statements of the mill. By using the

Financial Statements of past years

6. To know past performance and financial position of the mill.

METHODOLOGY OF DATA COLLECTION :

Before the collection of data, it is often advisable to all other aspects of the study. We

need to recognize the scope, need and importance as well as the objectives of the

study. After the purpose has been defined, the next step is to decide about the sources

of data. The sources of information may be primary as well as secondary sources.

This chapter entails a review of all the data obtained and it relevance to the study

being undertaken.

DATA COLLECTION METHOD: There are two types of data collection methods.

1. Primary data collection method

2. Secondary data collection method

PRIMARY SOURCES:

The primary data are collected by the thorough and detailed discussion was conducted

with the financial controller and Accounts officer and also discussion with college

internal guide.

SECONDARY SOURCES:

The secondary data includes sales reports, purchase reports and financial statements

of the company.

BABASAB PATIL


And also information from the text sources.

SAMPLING DESIGN:

Sampling unit : Financial Statements

Sampling Size :Last five years financial statements

Sampling procedure : Direct

LIMITATIOMS OF THE STUDY

The study is conducted on a general basis.

Time Constraint

Restrictions on Behalf of the company

Inter firm and intra firm comparison is not possible

BABASAB PATIL


CHAPTER-2

HISTORY OF THE COMPANY :

GADAG CO-OPERATIVE TEXTILE MILL LTD

HULKOTI

Hulkoti is small village has a population of 10000, having a different sections

of people. The main occupation of the maximum people is agriculture. In this village

there is no irrigation facilities; dry land cultivation is the only way to forming

committee.

In the village the main crops are cotton, jawar, chilly, groundnut etc. The main

commercial crops are chilly & cotton. All these marketed in and around Gadag.

Farmers are exploited by the private traders and commission agents. To protect the

forming committees late Shri.K.H.Patil decided to establish the co-operative mill in

BABASAB PATIL


Hulkoti. Most of the farm laborers are unemployed due to dry land cultivation. To

solve the unemployment problem and also to protect the forming committees from

commission agents they started the mill.

The mill is situated in village Hulkoti near Gadag i.e. 6k.m from Gadag. Late

shri.K.H.Patil, politician leader decided to start the mill in this place. The main

purpose of starting the mil is to provide the employment opportunities to the people.

He is devoted fully for the establishment of co operative network around Hulkoti

providing various amenities and scope for development of farmers

The mill is started with mission of providing employment opportunities and

save the formers from the commission agents. The main crop grown surrounding

Hulkoti is cotton, this was an opportunity to start the mill . This is one of the co-

operative society located on either side Karwar-Bellary road between Hulkoti and

Gadag. It is started with a Ginning and pressing unit.

After successful setting up of Ginning and Pressing unit by Gadag co-

operative cotton sale society ,the next ambition of the Co operators was to establish a

Textile Mill of 25,000 spindles capacity which would consume the main agriculture

produce by paying remunerative price to cotton growers and to the farming

community.

The Gadag Co-operative Textile Mill is established in the year 1972 by late

shri K.H.Patil .It is started with project cost of Rs.220 Lakhs.

INTRODUCTION

The Gadag Co-operative Textile Mill is started by Late Shri.K.H.Patil, to

protect the forming committee by private traders and the commission agents. It is

started in this place because of availability of raw materials and also the labours.

BABASAB PATIL


The Gadag co-operative textile mill is started in the year 1972 with a project

cost of Rs.220 Lakhs. The G.C.T.M commenced is production in the year 1973. The

project cost is met with the following manner.

INFRUSTRUCTURE FACILITY:

Land and building

Plant and machinery

Miscellaneous

Contingency

Working capital margin

Free op

erative expenses

33.71 Lakhs

177.70 Lakhs

24.08 Lakhs

6.00 Lakhs

22.00 Lakhs

15.00 Lakhs

BABASAB PATIL

1 Members Shares Contribution - Rs.040.00 lakhs

2 Government Share Contribution - Rs.080.00lakhs

3 Term Loans (IFCI) - Rs.100.00lakhs

Total - Rs.220.00lakhs


Total

220 lakhs

Project cost of Rs.220Lakhs is met for all these facilities i.e. to establishment

of the company.

CUSTMORS:

1) Samrudha Over Sales Ltd., Mumbai

2) Suryajoti International mill ltd ,. Sinkandrabad

3) Dhanalaxmi (C&R) Mill, Ganapavaram.

4) Suryalaxmi Cotton Mills Ltd., Sinkandrabad

Nature of the business :

The first step the company purchases the raw material i.e. cotton from

the farmers. Then it mixes it with different quality cotton according to the

quality of yarn needed.

The next step is cleaning the minor part and spraying the water to it.

Then it kept 1 day in the cool place. Next step it goes to major cleaning part it

goes to all cleaning of the cotton.

BABASAB PATIL


The next process is carding process. Here the cotton will become

smoothly and white. Next goes to the simplex method. In this cotton becomes

big layers and it makes the group of layers.

The next procedure is rolling and grilling. Here the big layers are

rolled and it is separated from the group and comes in the form of loose thread

and next process is drafting and twisting and the thread becomes strong and it

comes layer by layer in the form of thin yearn. The next step is noting here if

thread goes into two parts the machine will join it. It is called noting process.

Finally after all these process the raw material is converted into the

finished goods which are in the form of yarn.

MISSION:

“To Purchase the creation of values for all its Customers,

Employees, members (shareholders) and society at large”

VISION:

BABASAB PATIL


“To be a premier Textile company with a clear focus to become

globally competitive through growth and Technology up

gradation committed to excellence in quality service and co-

operatives. “

COMPITATORS:.

Modern days are the competitive days wherever you go, in which ever field

you enter there is competition; one must know how competition in the market

makes it absolutely necessary for manufacturers to think of advertising. For

new product, strategies and by doing all these to in areas the sales.

These following companies are the competitors of the G.C.T.M.

1) Banahatti Co-operative Spinning Mill Ltd.

2) Sangola Co-operative Spinning Mill Ltd.

3) Farmers Co-operative Spinning Mill Ltd.

COMPANY PROFILE:

Name

THE GADAG CO-OPERATIVE TEXTILE MILL LTD.

HULKOTI – 582 205.

Status

This Co-operative Society registered under the Co-operatives

Societies Act of 1959

Location Karnataka state, Gadag Dist, Hulkoti

Chairman Shri D.R. Patil, Ex M.L.A. Gadag.

BABASAB PATIL


Area of

operation Gadag Haveri

Export places

New-Delhi, South Korea, China and Couple of European

countries(through agents& Govt institutes)

Nature of

Business Production and sale of YARN

Membership

and Share

capital 3021 Co-operative societies and 817.71 Lakhs

No of

departments 8 [Eight] Departments

Number of

employees 450

No of Board of

Directors

Elected members – 18

Ex – office members – 1

Nominated by Govt – 3

Production

capacity 8,500 kgs of yarn per day as per the 2008-09 report.

Storage

capacity 7500 Million TON.

Area of mill

Land area-90525 sq.ft

Buildup area- 643.45 sq.mtrs

ORGANIZATION STRUCTURE:

Share Holders

Board of Directors

BABASAB PATIL


Chairman

Managing Director

P & I Production Finance Administration Security Marketing

Dy. Dy. Dy. Dy. Sr. Dy. Manager Manager Manager Manager Supervisor Manger

Extension Q.C. Accounts Assistants Jr. AssistantsOfficer Officer. Assistants Supervisors

Helpers Assistants Helpers Helpers Helpers

Workers

HUMAN RESUORCE MANAGEMENT:

Human Resources is an activity involved in direction & co-ordination of

human relations in a organization there by obtaining maximum production at the

minimum effort stress & strain on individual workers.

BABASAB PATIL


Functions

.

1. Staffing & Employment

2. Welfare Amenities

3. Training & Development.

4. Compensation, Wage & Salary Administration.

5. Motivation & Incentives.

6. Employee records.

7. Labour on Industrial Relation.

8. Organizational planning, development & task specification

Management is considered as an art of getting thing done through

others with a view to achieve the common objectives of the organization . but these

objectives can be achieved only if the organization is managed efficiently . The

management of the organization is considered to be efficient of it is able to contribute

their maximum towards the realization of the organization. The organization believes

that the management should not primarily be considered with full and proper

utilization of physical factors such as raw material and machinery but also pay

attention to the human factors . On which the maximum utilization of physical factors

depend.

The Personnel Manager also says that Material may be purchased at the most

competitive prices and machines was worked to their full capacity but the output

cannot be maximized without the co-operation of the workers.

BABASAB PATIL


The company works 24 hours a daily. The work is divided into 3 shifts i.e.

AM to 4.30 PM First shift

4.30 PM to 12.30AM second shift

12.30 AM to 8.30AM third shift

CLASSIFICATION OF THE WORK FORCE :

Work force of the society shall be classified as under :

1) Permanent

2) Badli

3) Trainee or apprentice

WELFARE FACILITIES IN GCTM:

Following are the Welfare Facilities provided by GCTM to its workers.

1) Canteen:

The personnel department administers the canteen . the main

responsibilities are to prepare and distribute the food stuff as per the

scheduled timings the different counters and to maintain hygienic

condition printed and supplied by the company.

BABASAB PATIL


2) Medical Facilities :

Workmen covered under the ESI scheme and their family members will

receive medical facility under the employees state insurance as in force

from time to time.And also one hospital is their in the organization

premises for general and first aid treatments.

3) Quarter’s Facilities :

The quarters are provided for the permanent employees who are

working in the GCTM. There are A,B,C,D and E type of quarter are

being provided to the employees on the seniority basis .

4) Transport Facilities;

The employees are provided with bus facilities.There are one bus and

one maxi cab is there which pickups the people scattered in the Gadag

city and after the duty hours they are dropped back at the same fixed

points

5) School and College :

A school and pre university colleges has been constructed in the

Hulakoti near to the company which are handed to the state education

department . For the maintenance and repairs or replacements of furniture and

electrical fitting is carried out by the company.

ATTENDANCE:

1) Every employee shall be at this place or work at the time fixed and

notified under clause and of these standing orders from time to time.

BABASAB PATIL


2) The starting and closing of work and starting and finishing of

intervals period will be signaled by means of siren, bell or similar

devices.

3) After the siren bell every employee should present at the place of

work.

4) The attendance register shall be entered from time to time cards and

any employees failing to record or get marked the time on the card is

liable to be treated as absent.

5) Employee coming late or leaving early without permission shall be

liable to deductions from their salary /wages as provided for in the

payment of wages act 1936. For this purpose time shall be calculated

in units of 30 minutes.

SALARY AND WAGES :

1. Notice specifying pay days shall be displayed on the notice board of

the Society .

2. An employee shall check his salary or wages immediately on receipt.

No claim for shortages will be considered once the recipient has left

the immediate presence of the person making payment.

BABASAB PATIL


Any dispute or complaint regarding wages shall be brought to the

notice of the management or any other officer appointed for the

purpose as early as possible. It shall be the duty of the management or

the officer appointed to attend to such complaints without much delay.

3. Unpaid Salaries and Wages : Any salaries and wages due to the

employee

Not paid on the usual pay day on account of the salaries and wages

remaining unclaimed or for any other reason will be paid 3 days after

the specified date of payment or when claim has been substantiated by

the employee or on his behalf of his legal representative provided such

claim is made and substantiated within one year from the date on

which the salary or wages become due to the employee.

ADMINISTRATION DEPARTMENT

BABASAB PATIL


Administrative department play very important role in the organization for its

smooth running of the business and success of this company is mainly depending on

the efficient administration of the G.C.T.M.

This department looks after administrative functions such as payment of

salaries, arrangement of meetings, and formation of policies etc, the general functions

of this department are as follows.

Maintenance of files, records etc. up to date, collecting and presenting data in

the form of useful information from the records.

Implementing the organization systems, procedures and policies in a

coordinated manner.

Ensuring smooth running of the office buy interfacing with the eternal

agencies as required. For ex-payment of telephone bills, electricity, water

supply bills etc.

Maintenance of the office premises.

Providing required facilities.

MODERNIZATION PROGRAMME

BABASAB PATIL


After a period of 18 years there was a need for upgrading technology of

certain machines and to eater to the export needs, the Management proposed a

Modernization Programme at a cost of Rs. 429.00 Lakhs. The term, lending

institutions sanctioned Rs. 236.69 Lakhs and the balance Rs. 192.31 lakhs was from

the internal resources of the Mills. The Mill replaced Carding Machines, winding

machines and added one Open End Spinning machine and one Imported Auto Conner

of latest technology. With the implementation of this Project there was improvement

in the productivity and the quality of the finished product.

To meet the standards of the quality yarn in demand, both in domestic as well

as in International markets, the Management of the Mills thought it inevitable to

launch another Modernization Programme covering Machinery from blow room to

Spinning was planned. This programme, with an estimated cost of Rs. 920 Lakhs was

approved by the national Co-operative Development Corporation (N.C.D.C.) and the

Government of Karnataka.

As part as Modernization Programme, N.C.D.C. has sanctioned Rs. 736.00

Lkahs, while Government of Karnataka contributed Rs. 136.00 Lkahs as share capital.

The rest amount of Rs. 46.00 Lkahs was mobilized from Members of the Society

through shares.

With successful implementation of 2nd Phase of Modernization Programme,

the latest version of Auto leveler Machinery at Carding and Drawing Sections are

inducted and commissioned. Following this, efforts are being made to raise the

productivity to high standards. Further, completion of Modernization enables us to

qualitative requirement of requirement of International market Standards.

PURCHASE DEPARTMENT:

BABASAB PATIL


The purchase department is play the important role in every organization.

To run the business continuously purchase department plays a vital role. Purchase

activity has developed the long relationship with the vendors of the company.

Purchasing is a social and managerial function which creates the value for production

unit. To satisfy the needs of the company there is a need of purchases as per

requirements of the company by considering the price quality and quantity.

OBJECTIVES OF THE PURCHASE DEPARTMENT

The company should have deep knowledge of variety of cottons.

The company should know the Quality assurance

Buying quality cotton.

Experimenting the quality cotton.

Proper arrangement of the transportation facilities.

Minimizing transportation cost.

Observing quality of the cotton.

Minimization of the purchase cost.

BABASAB PATIL


COTTON PURHASES:

The mill purchase its cotton at the open auction held by co-operative namely

Gadag cotton sale society and T.A.P.C.S.M. society of the Annigeri , Gokak

and also mill has purchases cotton from other states like Maharashtra

Federation Punjab Federation, Tamilnadu, and from CCI(cotton co-operation

of India).

The purchase department decides the when to purchase ,where to

purchase and how much to purchase by discussing with a managing director

and the production manager. Purchasing dept sends the purchase order to the

vendors. The company major purchases are in CCI only. Because the required

quality of the cotton is available in one place and also in more quantity.

PURCHASE PROCEDURE:

BABASAB PATIL


1. The company collects the samples from the various suppliers.

2. That cotton will be check in laboratory

3. After getting a results they are conducting a meeting at where they are

finalizing which cotton to purchase.

4. The purchase committee includes:

1) Managing Director 2) General Manager

3)Production Manager 4) Quality Controller

5)Cost Department Head

5. Then they bargain with the suppliers relating to the price. If suppliers if a

farmer or any of the private cotton trader then the bargaining is necessary.

If they purchase the cotton form CCI or MSCF the prices are fixed.

6. The payment period is usually 30 days to all suppliers.

7. Before bargaining with suppliers the company collecting the daily cotton

market reports which helps them to determining the price.

MAIN SUPPLIERS:

Cotton corporation of India

Maharastra State Cotton Federation

PVT Cotton Traders.

From Members and Formers.

BABASAB PATIL


The following table indicates purchase of cotton.

Year Cotton(lakhs kg)

2003-04 37.37

2004-05 33.37

2005-06 30.67

2006-07 29.40

2007-08 33.83

Table showing purchase of cotton from 2004-08

MARKETING DEPARTMENT

BABASAB PATIL


Marketing department is a vital department of the organization . Marketing has

developed the long relationship with the customer from purchasing and selling

products.

“ Marketing is a social and managerial function which by individual and group

obtained want and need and want through creating exchange products and

value with other’’.

Marketing of Yarn :

The mill manufactures 10s, 20s, 30s, 40s, 60s, 80s, 100s, 2/20s, 2/40s, 2/60s

etc. In the form of hanks as well as cones as per the prevailing market demand

sale of hank yarn and cone yarn from 50:50 respectively we have been

fulfilling the hank yarn obligation stipulated by the textile commissioner ,

government of India at the end of every quarter . The daily production of yarn

is about 8,500 kgs and mill is working round the clock for all the seven days

of the week.

Special preference in selling yarn is given to weavers co-operative Apex

organization and Karnataka Handloom Development Corporation export of

yarn has been our priority yarn is being exported to countries like South

Korea through agency.

Packing of Yarn:

Packing is a process of converting to a product for protection hanks yarn are

packing in the bale from and cones yarn are packing from bags. Bales is

consist of 181.6 kgs. And bag is consists of 50 kgs

Mode of Sales : In this organization orders are normally done through:

BABASAB PATIL


1) By phone

2) By their own sales depots and

3) By local sales agents.

Sales promotion:

The company not adopted any Aggressive measures for the promotion of its

sales such as advertising lotteries etc. But some basic measures which are

adopted normally by every concern such as discounts.

STORES DEPARTMENT

BABASAB PATIL


In G.C.T.M there is Stores Department is one which stores all the materials,

equipments and spare parts etc. Which are needed in the signalization for its

smooth running .The main function of this department is to provide the needs

of the organization i.e. machines spares parts, packaging materials, tools, oils

ect. To run business continuasally this department plays very important rolein

the organization. In this department they provide materials according to order

made by the different departments in the organization. The orderslip must be

sing by the M.Director department head.

Objectives of the Stores Department :

1) Concentrating towards smooth running of the production process.

2) Facilitating all required equipments on time .

3) Reduction of Inventory equipments on time .

4) Working like a traffic signal to signalize to all equipments.

5) Proper maintenance of all equipments.

This Stores Department is divided in to two sub departments they are:

a) Materials stores

b) General Stores.

BABASAB PATIL


a) Material Stores: It is a sub department of the stores , which maintain the

stock of raw material needed in the plant i.e. cotton , paper cones , bags . This

department mainly concerned with storage of 30 days stock of raw material in

the plant.

b) General Stores: It is also a sub department of the stores which maintaining

the stock of general material like ,paper ,files ,uniforms of

workers ,shoes ,goggles, helmets, glows, cups, spare parts of machines ,

stationeries and other lubricants and packing materials.

These all materials are stored under bin system. In this department each

material or item will be assigned a number to it which is called as Bin number.

There are about 11,000 items are maintained in this department and all have

been assigned in No’s. Bin number is a 9 digit number, which will help in

recognizing the item very quickly and accurately.

The first three numbers in Bin card will giving the information about which

section . and the second 3 digit will gives information about which equipment

and the last 3 digit will gives information of which item it is.

The stores department is maintaining mainly two ledgers , they are:

1) Material Receipts Ledger.

2) Material Issued Ledger.

BABASAB PATIL


At he time of each entry in the ledger they are quoting the date, item number

quantity price / piece, total price.

PRODUCTION DEPARTMENT:

Production means conversion of raw materials into a finished product. In this

mill they are producing the yarn. i.e. cotton is converted as yarn (finished product).

The G.C.T.M is one of spinning mill, it is taken permission from the government

spinning and textile. In future it is plan to produce a cloths but now it is producing

only Yarn. The G.C.T.M has a well equipped building and also plant and

machineries.

In mill they set the machines sequentially as per work flow i.e. plant layout

system is applied very systematically. In production to control the wastages, to save

the time, to increase work efficiency and to increase the productivity the plant layout

play a vital role. We study about plant layout in theoretically but this project helps me

to know it in practically .

BABASAB PATIL


THE WORK FLOW MODEL:

MIXING: Bales of different counts are mixed along with usable wastes,

on different percentage in the mixing bins, cotton bales of different quality are opened

and stacked, called stock mixing, 24 Hours for conditioning before it is process

further.

BLOW ROOM: Cotton in losses form is spending on mixing bale

openers and taken further of different cleaning points where the cotton is beaten and

trash is extracted. Finally converted into Lap form of different length, weigh per yard,

depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is

converted from Lap form to slive form. During this process trash, short fibers and

other impurities are extracted the different cleaning points, like licker in, Flats section

Units. The sliver is produced of different Hank depending on the counts.

BABASAB PATIL


PREPARATORY: Cards sliver is drawn through different drafting Rollers

and the sliver is elongated and increasingly the length of the sliver and radiating in the

cross section by passing through different drafting rollers and convert into a suitable

package by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the

drafting rollers as final treatment to the material and further increasing the length and

reduction the cross section of the material. This process the material process through

Ring and Traveler and would on the bobbin to form a suitable package the giving

optimum of the twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through

cleaning devise called slub catcher and would through suitable package of required

length and weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving

necessary twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of

the machine called Reel in the form of Hank and are make in the form of Knots. There

are two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a

press depending on the count and weight of the boundless are as per requirements.

Bundles are pressed in the form of Bale depending on the count, Plain or Cross as per

the requirement from the market.

PACKING: Here number of cones or cheeses is bagged depending on the

count of the yarn number of cones and weight of the cones. Depending on the

requirement of the market.

BABASAB PATIL


QUALITY CONTROL DEPARTMENT:

Quality Control Department is a vital department of this organization.

Because it provide information regarding quality of the raw materials and also

finished goods. To purchasea standard quality materials there should be

quality control department. According to the experts the first step is imported

in business i.e. in production activities the first step is the raw material.

Therefore while purchasing the raw material the quality control department is

important.

Quality Control Department is the key factor to producing the quality

products. Quality control Department plays an important role in controlling

and increasing the quality of the product and it also helps in increasing the

efficiency of the products. Quality control should be exercised at the all key

stages of the production processes, so that it helps in the stoppage of the

variation in the final product.

In the GCTM Quality Control Department there is laboratory where the

samples of the cotton are tested before purchase. In this lab 1.25 crore worth

machine is installed which is completely computerized machine and it is also

one of the well equipped lab in the Karnataka.

FUNCTION OF THE QUALITY CONTROL DEPARTMENT :

o Random lab weight checking

o Within lap variation

o Cleaning efficiency

BABASAB PATIL


o Waste study speeds

o Wrapping checking

o Naps study

o Uniformity checking

o Idle spindle

o Top roller pressure checking

o Rewinding study

o Gauge and tension weight checking

o Knot inspection

o Knot weight checking

OBJECTIVE OF THE QUALITY CONTROL DEPARTMENT:

Increasing customer satisfaction

Producing the quality products.

Reduction in the scrap

Continuous improvement in the productivity.

Reduction in production overheads.

Quick response to order fulfillment.

BABASAB PATIL


BASIC CONCEPTS USED IN TEXTILE MILL

Fiber : A slender filament ; a fine thread like part of a substance .

Kapas : Cotton with seeds and impurities

Lint : Cotton free from seeds and impurities

Ginning : The mechanical process of separating the cotton fibers from

seeds

Bale : A bundle or packages of cotton compressed and bound with

cord or wire weight round about 170 Kgs.

Spinning : The process of drawing out and twisting the fiber of cotton,

Wool etc. Into thread or yarn either by hand or machine.

Spindles : The rods or pins of spinning machine known as the ring frame holding

the bobbins on the which yarn wound as it is spun . Such spinning is

expressed in terms of the number or spindles or rotors.

Rotors : In the modern of spinning known as the open end spinning instead of

spindles rollers are used.

BABASAB PATIL


Yarn : A textile thread obtained by twisting of consecutively disposed and

Straightened ultimate composite fibers.

Hank & cones: Yarn is supplied to the market in to different forms hank yarn and

cone yarn . Hank yarn is convenient form of bleaching, ,

and transport but needs winding before placing on the loom .

It is used by hand loom weavers .Cone yarn however eliminates the

Need form winding and can be directly used in power looms .

Count : A count is measure of thickness or fitness of yarn ,The various

counts

groups manufactured are 10s , 20s , 24s, 30s,32s,34s,40s, 60s, 80s

100s both in Hank and Cone.

Lower counts indicates coarse yarn and higher counts indicates fine

Yarn

BABASAB PATIL


FINANCE DEPARTMENT

Finance department is vital department of a organization .Finance is concerned

with providing and using cash and credit for carrying on business correctly.

The mill has membership and paid up share capital as on 31st march 2007

SI.NO Category No.of Share Holders Share Captial

1)

2)

3)

‘A’ Class Individual /Member

‘B’ Class (K.A.I.C.)

‘C’ Class (State Government)

3019

1

1

107.46

015.00

695.26

Total 3021 817.72

BABASAB PATIL


Mill has funds that may be raised

1) By issue of Shares

2) By receiving deposits from members.

3) By raising loans

4) By entrance fees

5) By accepting donations, subsidies and grants.

6) By commercial institutions.

Deduction can be made from the sale of proceeds of the cotton brought by members

at rate not exceeding 7% of the sale products.

The mill may raise loans discount on the bill and overdrafts as and when necessary

from the industrial finance corporation of India.

WORKING CAPITAL FINANCE

Introduction :

Funds available for a period of one year or less are called short term finance. The

short term funds are used to finance working capital. The main source of short term

working capital are as follows:

1) Trade Credit:

Trade credit refers to the credit that a customer gets from supplier of goods in

the normal course of business. In practice , the buying firm do not have to pay cash

immediately for the purchase made . This deferral of payments is a short term

financing called trade credit .It contributes to about one third of the short term

financing .Open account trade credit appears as sundry creditors on the buyers

balance sheet . Trade credit may also take the form of bills payable.

BABASAB PATIL


2) Bank Finance For Working Capital :

Banks are the main institutional source of working capital finance. After trade

credit, bank credit is the most important source of financing working capital

requirements of firms. A bank considers a firm’s sales and production plan and

desirable levels of current assets in the determining its working capital requirements.

The amount approved by the bank for the firms working capital is called credit limit.

Bank do not lend 100% of the credit limit. A firm can draw funds from its bank within

the maximum credit limit sanctioned. It can draw funds in the following forms.

a) Overdrafts: Under the overdraft facility, the barrower is allowed to withdraw

funds in excess of the balance in his current in his current account up to a certain

specified limit during as stipulated period.

b) Cash Credit: A borrower is allowed to withdraw funds form the bank up to the

sanctioned credit limit. He is not required to borrow the entire sanction credit, rather,

he can draw periodically.

3) Commercial Paper :

Commercial paper represent unsecured promissory notes by firm to raise short

term funds. Commercial paper is cheaper source of raising short term finance as

compared to the bank credit and proves to be effective even during a period of tight

bank credit. However , it can be used as a source of finance only by large companies

enjoying high credit rating and sound financial health.

4) Installment Credit :

This is another method by which the asset are purchased and the possession of

goods is taken immediately but the payment is made in installment over a

predetermined period of time Generally interest is charged on the unpaid price or it

may be adjusted in the price. It is used as source of short term working capital.

BABASAB PATIL


5) Accrued Expenses :

Accrued Expenses are the expenses which have been incurred but not yet due and

hence not yet paid also. The most important item of accruals are wages and salaries,

interest and taxes. Wages and Salaries are usually paid on monthly, fortnightly or

weekly basis for the service already rendered by employees. In the same manner,

accrued interest and taxes also constitute a short term source of finance

SOURCE OF FINANCE USED BY

THE GADAG CO-OPERATIVE TEXTILE MILL LTD. HULKOTI

The GCTM have raised different variety of Finance for working capital purpose.

Which are as follows :

1) Trade Credit: We already set the trade credit is the credit that a customer gets

from the suppliers. GCTM purchased the cotton from different organization like

Cotton sale society of Gadag and Cotton Society of Annigeri . We can know the

percentage of trade credit in the balance sheet of GCTM.

2) The GCTM make the sale of different areas like Bangalore ,Solapur and also other

states .It also sells the yarn to Karnataka Handloom Development Corporation etc.,

from these some percentage of Advance they get.

3) Other Source of Finance:

1) K.C.C. Bank Ltd.,

2) N.C.D.C. Loan

BABASAB PATIL


3) Bijapur D.C.C. Bank Ltd

Objective and Finance Department;

To have permanent record of all the transaction for future reference.

To know the result of the business in terms of profit and losses.

To the exact reason for profit and loss.

To know the financial position of the business.

To know the progress of the business from year to year

To have valuable information for legal and purpose

Functions of Financial Department:

To prepare Trading A/c

To prepare Profit and Loss A/c

To prepare Balance Sheet

Maintenance of accounts is under taken

Rate fixing

Suppliers bill paying

Maintenance of cash and bank balance.

BABASAB PATIL


CHAPTER- 3

BABASAB PATIL


INTRODUCTION TO THE TOPIC

ANALYSIS AND ITERPRETATION OF FINANCIIAL

STATEMENTS :

Financial statements provide summarized view of the financial position

and operation of the company. Many parties are interested in financial statement

analysis to know about the financial position of the firm. They include investors,

creditors, lenders, suppliers etc It is process of establishing the meaningful

relationship between the items of financial statements. To know financial position

of the company with the help of past and present performance of the company.

Items includes Balance sheet, Profit and loss account, Reports and Explanatory

notes.

Meaning of financial statements:

Financial statements are the consolidated and summarized form of business

transactions which are pre-pared at the end of each accounting year.

These statements reveal the financial information of the business enterprises for a

certain period. The financial statements are prepared for ascertainment of results of a

business and communicate the accounting information to the users. The financial

statement provides answers to the following questions.

1) What is the financial status of the firm on a particular date?

2) How is the firm’s financial performance over the period?

Here for the project the profit and loss a/cs, balance sheet are used for

comparative analysis and interpretation of the study.

1) Balance sheet:

BABASAB PATIL


Balance sheet is the statement of financial position of a business

concern as on specified date. It represents all the assets owned by the firm and

liability owed to others. In other words, it contains the various assets, liabilities

and owners equity as on particular date. The balance sheetis prepared on the

basis of following equation.

ASSETS = EQUITIES

(A) = (E)

Or Assets = Owners equity + creditors equity

Or Assets = (Share capital + Reserves + surplus-Losses) +outside liabilities

2)Income statement(Profit and loss a/cs:

This statement explains the financial performance of a business

concern for the particular period. It explains the net result of the business

operation between two balance sheet dates. The income statement is pre-pared

on the basis of revenue principle, realization principle and also on the basis of

matching principle. The realized revenues are matched against its related

expired cost. The result is net profit or loss for the year.

The equation is as under:

Revenues = gains – (Expenses + Losses) = net profit or loss.

BABASAB PATIL


THE FINANCIAL ANALYSIS AND INTERPRETATION.

The significance of financial statement not lies in their preparation

but in their analysis and interpretation. Therefore analysis and interpretation is

an attempt to determine the importance of financial statements. It increases the

meaning of accounting data. To provide more understanding in layman’s

language. That helps to forecast the future earnings, ability to pay dividend

policy etc. the analysis and interpretation are 2 terms complementary to each

other. For interpretation analysis is necessary. And analysis without

interpretation is meaningless.

ANALYSIS : “A process of grouping or sub grouping of a given data for the

purpose of developing some relationships among the groups either for decisions

or for future prediction”

The financial analysis involves the division of facts or information on

the basis of some definite plans and to classify them into groups on the basis of

some conditions and presenting them in most convenient, simple and

understandable. Therefore analysis involves the following:

1. Study and understanding of the data presented in the financial

statements.

2. Collection of additional information necessary for interpretation.

3. presentation of the financial data in logical and simple manner

4. Grouping and sub grouping of the items given in the financial

statements on the basis of common characteristics.

5. Development relationship from one group to another group for further

study.

BABASAB PATIL


6. The data provided in the financial statements is re arranged and

methodically classified for comparisons. For this purpose some standards

are established for comparison such as :

1. Past year figures may be used as standard for

comparison with the present year figures.

2. Future years estimated figures may be used as standards.

3. Another progressive or successful firm‘s figures may be

us e used as standards.

4. over all industry figures may be used as standards for a

Comparison.

The relationship can also be established from one item of statement to the

other item of statement. E.g.Net profit or gross profit to sales, current assets to current

liabilities, cost of sales to inventory, fixed assets to capital etc.

INTERPRETATION:

To interpret means to put the meaning of data in simple and

understandable manner to a layman. Interpretation can be made only after

analysis. It is the explanation of the conclusion drawn from analysis in simple

terms. The interpretation involves the following.

1) Study of relationship among the of items of financial

statements.

2) Study of trend over a period or actual data with the standard

data used for comparison

3) Conclusions or inferences are put in simple terms for easy

and more understanding for a common man.

BABASAB PATIL


USES OR ADVANTAGES OF ANALYSIS OF FINANCIAL STATEMENTS.

1) It helps to determine financial strength or weakness of the business firm.

2) It highlights the significant facts and relations which cannot be

understood by mere reading of financial statements.

3) It is based on some logical and scientific method and is useful for

decisions.

4) It is useful to understood multidirectional relationships of the various

items of financial statements.

5) It minimizes the threat of wrong or delayed decisions.

6) It helps to evaluate correctness and accuracy of the decisions.

TOOLS OF FINANCIAL ANALYSIS OR TECHNIQUES OF ANALYSIS

1) Comparative Financial statements

2) Common size statement

3) Ratio Analysis

4) Trend Analysis

Comparative statements

Comparative financial statements are those statements which summaries and present

related accounting data for number of years. It is an arrangement of the financial

statements in such a manner that each element of the financial statement is

comparable with same element of the financial statement of another period. Generally

the financial statements of two periods are used for comparable study. While pre-

paring comparative statements one should keep in mind that the accounting principles,

BABASAB PATIL


policies should be same. Any material change in such principles policies etc.

comparative statements useless.

A comparative statement provides the following.

1.Absolute change in amount or figures.

2.Absolute change in percentages.

3.Increase or decrease in figures and percentages.

Advantages of comparative statements.

1. It is helpful for inter period comparison.

2. It is helpful for inter firm comparison.

3. It is useful to study the trends of various elements of financial statements.

Types of comparative statements.

For the purpose of comparative analysis the financial statements are classified into

2 types namely,

1) Comparative balance sheet.

2) Comparative income statement.

BABASAB PATIL


1)Comparative balance sheet.

Under this technique the balance sheet of two different dates or balance

sheets of one firm to another firm may be used for comparative study. an

item or group of item of one balance sheet is compared with the same item

or group of item of another balance sheet. The comparative balance sheet

is helpful to study the liquidity position, financial status, long term

financial position etc. following are the steps for pre-pare comparative

balance sheet. I) Redraft the balance sheet in vertical form.

II) Pre-pare two additional columns one for absolute change

and and another for percentage change.

III) Study the trend (increase or decrease) and form the

opinions.

IV) Interpret the same.

2)Comparative income statements:

The comparative income statement is pre-pared to study growth rate in

profitability, expenses, cost of goods sold etc. usually two years income statements

are compared. For this purpose two additional columns are prepared for recording the

absolute change and percentage change. The facts and figures in the financial

statements i.e.( Balance sheet P&L a/c Reports & also some notes )can be

transformed into meaningful and useful figures through a process called Analysis and

Interpretation.

Comparative Income Statements for the year 2008-09

Particulars 2007-08 2008-09 Absolute increase/decrease in Rs

Absolute increase/decrease in %

A) Net sales 274253348. 256739185 -17514163 -6.38%

BABASAB PATIL


Less : cost of goods sold(Op.stock+purchase-clo.stock) Material consumed

Less: manufacturing expenses(cost of production)

Cost of goods sold

Gross profit

Less : operating expenses Administration expenses

Add : Non operating Incomes

Operating profit

Less: Interest

Net Profit/loss

185292474 180378194 -4914280 -2.65%

.

78144336 72311126 -5833210 -7.46%

.263436810.

108165378

252689320

4049865

-10747490

-6766673

-4.07%

-62.55%

9848419.5

968119

12776730

13744848.97

9295525

4449324

10967021

-6917156

3012462

-3904694

9260319

-13165013

1118602

-9764268

-17649513

-3520-17614307

11.35%

-76.42%

128.44%

-0.37%

395.88%

THE GADAG CO-OPERATIVE TEXTILE MILL.LTD- HULKOTI Comparative Balance Sheet As on 31-3-2008-09

PARTICULARS

2007-08 2008-09 INCREASE/DECREASE IN Rs

INCREASE/DECREASE IN %

BABASAB PATIL


Current AssetsCash in hand S. debtorsOther C. Assets(cash at bank , advances, other receivables ,closing stock.etc)

A) Total current assets

Less : current liabilitiesOthers payables

B) Total current liabilities

Working capitalC) = (A-B)

D) Fixed assets

E) capital employedE) =(C+D)

Share capital

Reserve fund

Other Funds

Long term loans

Less: loss (previous year)

40460.355170994386804486.98

270945100313275843397

-13366-706811-10961090

-33%-1.4%-13%

138554890 126873623 -11678267 -8.4

49593595.

19831776

52486226

20192707

2892631

360931

5.8

1.8

69425372 72678933 3253561 4.7

69129518 54194690 -14934828 - 21

180660460 181211834 551374 0.3

249789979 235406524 -14383455 -5.75

81773300

12945560

180562312

66940000

92431193

81773300

12945560

183233870

63050000

105596206

-

-

2671558

-38900000

13165013

-

1.4

-5.8

14

Capital employed

249789979 235406524 -14383455 -5.75

BABASAB PATIL


ANALYSIS:

1. The above Income statement realize that there is decrease in cost

of goods sold (4.07%),net sales(6.38%) and also Gross Profit

compare to 2007-08. There is 62.55% decrease in gross profit i.e.

Rs.6766673. It is more than 50% decrease in gross profit.

2. In the statement we can realize that for 27,42,53,348 net sales the

manufacturing expenses is 7,81,44,366 in the year 2008, but

compare to present year(2008-09) the manufacturing cost is more

i.e. for 25,67,39,185 net sales the m. expenses are Rs. 7,23,11,126

3. There is also increase in operating cost RS. 1118602 i.e. 11.35% in

the year 2008-09 compare to 2007-08

4. There is an decrease in Non-operating Income i.e. 76.42%. These

all results in Net loss during the year 2008-09 of Rs. 13165013.

5. The above comparative balance sheet shows the liabilities are

more compare to previous year.

INTERPRETATION:

The company’s financial performance is not appreciable because there is heavy loss

in the year 2008-09. There is need of control on manufacturing expenses and also

other expenses and liabilities.

BABASAB PATIL


Comparative Income Statements for the year 2007-08

Particulars 2006-07 2007-08 Absolute

increase/decrease in Rs

Absolute increase/decrease in %

A) Net sales

Less : cost of goods soldOpening stock+ purchases -closing stock

Material consumed

Less: manufacturing expenses(cost of production)

Cost of goods sold

Gross profit

Less : operating expenses Administration expenses

Add : Non operating Incomes

Operating profit

254655866.5 274253348.1 19597481.6 7.69%

4627453715353635955889767

5588976718018784850785141

961523026651489-5104626

20.77%17.35%-9.13%

110734727.5 88960874.1 -21773853.4 -19.66%

83442868.24

227364007.2

78144336.14

263436810.1

-5298532.1

36072802.9

-6.34%

15.86%

27291869.3

11396502.5

15895366.8

29619683.95

18857350.75

11436127.97

7421222.78

108165378

9848419.5

968118.5

12776730.47

13744848.97

9295525.04

4449323.89

-16475331.3

-1548083

-14927248.3

-16842953.48

-5112501.78

-2140602.93

-2971898.89

-60.36%

-13.58%

-93.90%

-56.86%

-27.11%

-18.71%

-40%

BABASAB PATIL


Less: Interest

Net Profit

THE GADAG CO-OPERATIVE TEXTILE MILL.LTD- HULKOTI

Comparative Balance Sheet As on 31-3-2007-08

PARTICULARS

Current AssetsCash in hand S. debtorsOther C. Assets(cash at bank , advances, other receivables ,closing stock.etc)

2006-07 2007-08 INCREASE/DECREASE IN Rs

INCREASE/DECREASE IN %

205304732043491604851

40460.355170994386804486.98

199304389509-4800364.02

97%9.0%-5.24%

138945815 138554890 -390924.7 -0.28%

BABASAB PATIL


A) Total current assets

Less : current liabilitiesOthers payables

B) Total current liabilities

Working capitalC) = (A-B)

D) Fixed assets

E) capital employedE) =(C+D)

Share capital

Reserve fund

Other Funds

Long term loans

Less: loss (previous year)

58462247.01

18872865

49593595.

19831776

-8868651.11

958911.05

-15.16%

5.08%

77335112 69425372 -7909740.05 -10.23%

61610703 69129518 7518815.4 12.20%

180401907 180660460 513850.4 0.28%

242012610 249789979 7777369 3.21%

81772700

12945560

177234868

66940000

96880517

81773300

12945560

180562312

66940000

92431193

600

-

3327444

-4449324

-

1.87%

4.59%

Capital employed

242012610 249789979 7777369 3.21%

ANALYSIS:

1) In the year 2007 increase in sales is amounted to Rs.19597481.60 that is 7.69%.

The opening stock and purchases has increased by 20.77%& 17.35% and The closing

manufacturing expenses is decreased in the 2008 to 5104626 & 5298532.1(9.13% &

6.34%). The cost of goods sold is increased to Rs. 36072802.9(15.86%). Due to

decrease in closing stock the Gross Profit is decreased to 16475331.3(60.36) in the

year 2008.

BABASAB PATIL


2) The operating expenses have reduced in the year 2008 by Rs. 1548083(13.58%).

This is because of control over administrative expenses.

3) There is decrease in Non-operating income in 2008 to Rs.16842953.48i.e. 56.86%.

and Non-operating Expenses is reduced to Rs. 2140602.93 i.e. 18.71%

The Gross Profit is reduced in the year 2008 to Rs.2971898.89(40%) compare to the

year 2007.

4) By seeing the comparative Balance Sheet, there is slight difference in capital

employed and also liabilities.

5) There is increase in working capital i.e.12.20% compare to previous year.

INTERPRETATION:

The company ‘s Financial performance in the year 2008 is not appreciable because of

decrease in revenue and control over cost results into decrease in Gross Profit and the

Net Profit compare to 2007.

ANALYSIS AND ITERPRETATION OF FINANCIAL STATEMENTS:

2.COMMON SIZE STATEMENTS:

BABASAB PATIL


The financial statements are prepared with the absolute figures. Reading of

absolute figures is not easy for quick grasping or understanding. Therefore they are

converted into simple figures such as percentages to their totals for easy

understandings. In case of balance sheet each item of the asset is expressed to the total

assets and each liability to the total liability. Similarly in case of income statement

each item of revenue or expenses are expressed to total sales.

When the financial statements of the same concern for several years are

converted into percentages and presented for the comparative study are called

comparative statements. The total size of the financial statement is fixed as 100 .

All the items of the statements are expressed as percentages to the total.

PROCEDURE:

1.Incase of Balance Sheet total assets and total liabilities are considered as 100.

2. Each item of asset is expressed interms of percentage to the total assets. Similarly

each liability to total liabilities.

3. Incase of Income statement total sales is treated as 100.

4. Each item of revenue and expense is expressed as a percentage to the total sales.

5. Study of these percentages to establish relationship

6. Interpretation of the relationship in simple terms.

TYPES OF COMMON SIZE STATEMENTS:

1. Common Size Income Statement

2. Common Size Balance Sheet

1.Common Size Income Statements:

BABASAB PATIL


These statements are prepared to study the proportion of various elements

of income statement items to the total sales revenue.The total sales items is

considered Rs.100 and all other items are expressed as a percentage to the total

sales. In case of increase in sales tends to increase in the expenses directly

related to sales. This kind of analysis helps to study the operational efficiency

and financial performance of the concern.

1. COMMON SIZE BALANCE SHEET:

Common Size Balance Sheet means the size of the balance sheet of

various years or items or firms is to brought to a common figure. That is the

totals of the assets and liabilities are considered as 100 and all the items of

assets and liabilities are expressed in terms of percentages. The relationships

are established with one item to its respective total and is compared with

another years Balance Sheet.

Alternatively capital employed may also be considered as 100 and all

other items of the balance sheet are expressed in percentages.

This kind of Analysis is helpful to study the Financial Position Liquidity

Solvency etc. of the concern in various years

THE GADAG CO-OPERATIVE TEXTILE MILL-HULKOTI.

COMMON SIZE INCOME STATEMENT

FOR THE YEAR ENDING 31-3-2008-09

Particulars

2008

RS %

2009

RS %

BABASAB PATIL


Sales

-cost of

sales

Gross

profit

-operating

expenses

-Non

operating

exp

+Non

operating

Incomes

Net

profit/loss

274253348

263436810

10816538

9848419

968119

9295525

-8327406

12776730

4449324

100

96

4.00

3.6

0.40

3.3

-

2.98

4.65

1.67

256739185

252689320

4049865

10967021

-6917156

-9260319

-16177475

3012462

-13165013

100

98

2

4.27

-

2.27

-

3.60

-

5.87

1.17

-5

WORKING NOTES:

1.Calculation of cost of goods sold

Opening stock+purchases-closing stock

MateriaconsumedManufacturing exp

Cost of sales

2008

55889767

180187848

50785141

185292474

78144336

263436810

2009

50785141

168779141

39186088

180378194

72311126

252689320

BABASAB PATIL


COMMON SIZE BALANCA SHEET:

Particulars Rs(2008) % Rs(2009) %

Liabilities

Sharecapital

Reserves

Other long

term loans

Current liabilities

Assets:

Fixed assets

Current assets

P&La/c(loss)

81773300

12945560

247502321

68874222

180915756

138299592

92431193

19.78

3.12

60.00

17.00

100

43.60

33.46

22.80

100

8177300

12945560

246283870

72678933

181211834

126873621

105596206

19.70

3.12

59.35

17.58

100

43.85

30.57

25.45

100

ANALYSIS:

1.By seeing the above statement we come to know that there is slight changes in

long term liabilities, but in current liabilities is increased to 0.58% in the year

2009.

2. In the 2009 the current assets are less compare to the year 2008. It shows that

the company is not utilizing the working capital properly.

3.From the common size Income statement we can see that the operating

expenses are increased compare to previous year. It is because of not control over

on expenses

BABASAB PATIL


4.This increasing expenses will results in the losses.

INTERPRETATION:

The above statement reveals that the company is not utilizing the funds properly. The

cost goods sold are increasing . This will results in the loss of the company.

3. TREND ANASLYSIS:

The trend analysis is another tool of financial analysis. Trend means a tendency.

Trend analysis is review and appraisal of tendency in accounting variables. This

analysis is more suitable for forecasting or budgeting. This analysis a series of trends

information. It discloses the direction of items in the financial statement either

upward , downward on constant over a period of time.

For the purpose of calculating trend percentages number of years financial

statements are required. Trend ratio are calculated on the basis of base year

information .The trend ratios on popular is statistics and are similar to index numbers.

Which indicate the movement or fluctuation in various elements financial of

statements of the business.

PROCEDURE:

1. Arrangement of years of the financial statements in ascending order.

2. Select a normal year as a base year usually first year may be considered as the

base year.

3. Consider all the figures of base year as 100

4. Conversion of other years figures on the basis of base year percentage.

5. Study the trend percentages by establishing some relationship among them.

6. Interpretation of the trend series in simple terms.

FORMULA FOR CALCULATION OF TREND PERCENTAGES.

100 *Next years figures

BABASAB PATIL


Base year figures

TREND ANALYSIS:

The following figures are extracted from the annual repots of the G.C.T.M

Particulars 2005 2006 2007 2008 2009

Sales

Cost of

goods sold

Profit

269932512

267396134

-7733598

231390442

215622553

-228728

254655866

227364007

7421223

274253348

263436840

4449324

256739185

252689320

-13165013

TREND RATIOS:(Base year is 2005)

particular

s

2005 2006 2007 2008 2009

Sales

Cost of

goods

sold

Profit

100

100

100

85.61

80.42

-2.95

94.22

84.81

95.95

101.47

98.26

57.53

94.99

94.25

-170.22

BABASAB PATIL


ANALYSIS:

1. The sales is increased constantly except 2006.The cost of goods sold is

increasing as compare to sales. i.e. in the year 2007 the sales are 94.22, the

cost of goods sold is 84.81 but in the year 2006 the sales are 85.61 the cost of

goods sold is 80.42. by seeing this we come to know that the cost of sales are

increase.

2. The Trend Analysis shows that there is loss in the year 2006 and 2009.

3. The above statement reveals that the sales are decreased but the costs are same

compared to all years.

4. From the above Analysis we come to know that there is a profits in the year

2007 & 08. Except these years the company is under loss.

5. The above statement reveals that the cost of goods are increased compare to

sales.

ITERPRETATION:

The above statements reveals that the company sales is less in the present year. It

indicates that the production is less compare to previous year.

BABASAB PATIL


RATIO ANALYSIS:

INTRODUCTION:

BABASAB PATIL


The financial statement of a company contains a lot of information about

the financial performance of the company. Financial statements mainly consist of the

Balance Sheet and Profit and Loss Accounts. These statements give the overall

picture of the company, but to analyse each aspect of business extensively, financial

ratios are used. The Balance Sheet and the Statement of Income are essential, but they

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

Analysis derived from Financial Statements analyses the success, failure, and

progress of business.

Ratio Analysis is a very powerful analytical tool useful for measuring the

performance of an organization. The ratio analysis concentrates on the

interrelationship among the figures appearing in the mentioned financial statements.

The ratio analysis helps the management to analyze the past performance of the firm

and to make further projections

As the organization employs capital on fixed assets for the purpose of equipping itself

with the required manufacturing facilities to produce goods and services which are

saleable to the customers to earn revenue, it is necessary to measure the degree of

success achieved in this bearing. This ratio establishes the relationship between the

amount of sales revenue and the amount of capital employed on fixed assets.

Ratio refers to the establishment of relationship between any two inter-related

variables .For example, both the amount of profit and the amount of sales revenue

earned are inter-related as one is influenced by another.

Accounting Ratios shows the inter-relationships that exist among various

accounting data. Accounting Ratios express the relationships, in the mathematical

terms, between two or more items(of financial statements and others) which have a

cause and effect relationship or which are connected with each other in one way or

the other.

Since the Analysis and Interpretation of Financial Statements is made with the

help of ratios it is called Ratio Analysis. The ratio analysis is , an effective tool or a

device to diagnose the financial and operational diseases of business enterprises. The

BABASAB PATIL


Ratio Analysis of Financial Statements stands for the purpose of arrangement of data,

computation of ratios, interpretation of the ratios so computed and projections

through ratios.

STEPS IN RATIO ANALYSIS:

1) Collect all the data required for computing the necessary ratios which

in turn depends upon the purpose of calculating the ratios

2) With the help of above information, compute the necessary

accounting ratios.

3) Compare the ratios so computed either with the ratios of the same

company for the previous year/s.

4) Interpret the ratios in the light of the comparison, draw inferences, and

prepare reports.

Various Accounting Ratios (Functional wise classification)

Liquidity Ratios

Turnover/activity Ratios

Profitability Ratios

LIQUIDITY RATIOS:

Liquidity refers to the ability of the organization to generate cash internally

from business operations or to raise cash externally from the financial

institutions so that it can meet all its cash requirements and discharge all its

current obligations. It is not an exaggeration but a fact that liquidity is very

essential for the very survival of the organization.

The liquidity ratios measure the firm’s ability to meet its short-term (less than

one year) obligations as and when they become due. Liquidity ratios establish a

BABASAB PATIL


relationship between cash and other current assets to provide a measure of then

liquidity of the organization.

The corporate liquidity has two dimensions namely, quantitative and

qualitative concepts. The quantitative concept includes the quantum, structure and

utilizations of liquid assets and in qualitative concepts, it is the ability to meet all

present and potential demands on cash from any source in manner that minimizes cost

and maximize the value of the form. Thus corporate liquidity is vital facto in business

excess liquidity, through a generator of solvency would reflect lower profitability,

deteriorations in managerial efficiency increased speculation and unjustified

expansion, extension of too liberal credit and dividend policies. Too little liquidity

then may lead to frustrations of business objections, reduced rate of return, business

opportunity missed and weakening of morale. The important ratios to measure the

liquidity of a firm are:

A) Current Ratio

B) Quick/Acid Test Ratio

A) Current Ratio: The ability of a company to meet its short-term commitment

is normally assessed by comparing Current Assets with Current Liabilities. As

the Working Capital is equivalent to the difference between Current Assets and

Current Liabilities, or as the Working Capital is the excess of Current Assets

over Current liabilities, this ratio is called Working Capital Ratio. This ratio

establishes the relationship between Current Assets and Current Liabilities

BABASAB PATIL


CURRENT ASSETS TO CURRENT LIABILITIES =

Current Assets / current liabilities

BABASAB PATIL

Year Current

assets

Current

Liabilities

Ratio

2004-

2005

1172919

02

7204632

5

1.62

2005-

2006

119869

315

68946971 1.73

2006-

2007

1389498

15

7733511

2

1.79

2007-

2008

1385548

90

6942537

2

1.9

9

2008-

2009

1268736

21

7267893

3

1.7

4


current ratio

0

0.5

1

1.5

2

2.5

2004-2005

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

ANALYSIS:

1. The above chart shows that there is a slight fluctuations in the current assets

and current liabilities.

2. In present year the current ratio is less i.e. 1.74 compare to previous year.

3. The above chart reveals that the current ratio is increasing year by year except

2009

INTERPRETATION: The current ratio is not satisfactory with a standard i.e.2:1.so

company as to maintain standard current ratio. In the present year the current ratio is

not satisfactory.

BABASAB PATIL


Quick ratio:

Quick ratio is also known as liquid ratio or acid test ratio or near money ratio.

It is the ratio between quick or liquid assets and quick liabilities. As pointed out, the

current ratio in the study of solvency may be sometimes misleading due to high ratio

of stock to current assets.

Quick ratio= Quick assets

Quick liabilities

Quick assets = current assets- inventories

Quick liability= current liability- bank over draft

Year Quick assets Quick liabilities

Ratio

2004-2005 64343512 59498988 1.08

2005-2006 66826151 68946971 0.96

2006-2007 76593359 77335112 0.99

2007-2008 80483135 69425372

1.16

2008-2009 80584499 72678933

1.11

BABASAB PATIL


Quick Ratio

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Year

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

ANALYSIS:

1. The above chart shows that there is slight fluctuation in Quick assets and

Quick liabilities.

2. In the year 2009 the quick ratio is less i.e. 1.11 compare to 2008 quick ratio

i.e. 1.16. there is slight difference in quick ratio i.e. (0.05)

3. The quick ratio is highest in the year 2004-05 i.e.0.67 comparing to all next

years

4. The above chart reveals that there is not much difference in liquid ratios of

the company.

ITERPRETATION: In the present year the quick ratio is not satisfactory because

the quick assets is less than the quick liabilities.

BABASAB PATIL


TURNOVER/ ACTIVITY RATIOS:

Another important dimension of liquidity or the short term financial position is the

computation of the rates at which different short-term assets are converted into cash

and how promptly the liabilities have been discharged. The important ratios used for

this purpose are Stock Turnover Ratio, Fixed Assets Turnover Ratio, and Working

Capital Turnover Ratio.

1) Inventory/Stock turn over ratio:

This ratio is also known as stock velocity. This ratio is calculated to consider

the adequacy of the quantum of capital and its justification for investing in inventory.

A firm must have reasonable stock in comparison to sales. It is the ratio of cost of

sales and average inventory. This ratio helps the financial manager to evaluate

inventory policy.

Inventory turnover ratio= cost of goods sold/average stock

Cost of goods sold = op.stock + pur + direct exps – cl. Stock

Average stock= op.stock +cl.stock/2

Year Cost of

goods sold

Average

stock

Ratio

2004-2005 267396134 46596794.5 0.57

2005-2006 215622553 46438443.5 4.64

2006-2007 227364007 51082152 4.45

2007-2008 263436840 53337453.5 4.93

2008-2009 252689320 44985614.5 5.62

BABASAB PATIL


Inventory turnover ratio

0

1

2

3

4

5

6

Year

year

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

ANALYSIS:

1. From the above chart we come to know that the stock is increased year by

year. The stock ratio is 5.62 in the year 2009 compare to previous year i.e.

4.93in the year 2008.

2. The increasing stock will be results in raise of cost of production.

3. when the cost of goods sold increases the profitability automatically decreases

i.e. the company face the problem of loss

4. The above chart shows that the Ratios are increasing year by year.

INTERPRETATION:

The above table realize that the company have a more stock. It is not favorable for the

company because it increases the costs.

BABASAB PATIL


Profitability Ratios:

Gross profit ratio:

It is ratio of Gross profit to net sales expressed as percentage. It shows the

relationship between gross profit and sales.

Gross profit/ sales*100

Gross Profit Ratio

0

2

4

6

8

10

12

Year

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

BABASAB PATIL

Year G/P Sales Ratio

2004-2005 2536378 269932512 0.93

2005-2006 15767889 231390442 6.81

2006-2007 27291869 254655866 10.71

2007-2008 10816538 274253348 3.94

2008-2009 4049865 256739185 1.57


ANALYSIS::

1 . The above table reveals that the Gross Profit is increased in the year

2006-07. But remaining years it is declining.

2. In the year 2006-07 the sales are good compare to all remaining years. So the gross

profit is increased to 10.71 in this year.

3. In the year 2004-05 the gross profit is less i.e. 0.93 compare to all next year

because of the purchasing costs are more compare to others years.

INTERPRETATION:

The above chart shows that the Gross Profit is declining year by year. It is decline

1.57 in the 2009. It is not favorable for the company.

BABASAB PATIL


2)NET PROFIT RATIO:

It is ratio of Net profit to net sales expressed as percentage. It shows the

relationship between Net profit and sales.

Net profit/ sales*100

Year Net Profit

sales Ratio

2004-2005 -7733598 269932512 -2.86

2005-2006 -228728 231390442 -0.098

2006-2007 7421223 254655866 2.91

2007-2008 4449324 274253348 1.62

2008-2009 -13165013

256739185 -5.12

BABASAB PATIL


Net Profit Ratio

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Year

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

ANALYSIS:

1.The above chart shows that the company is facing heavy loss in the year

2009.beacuase the reasons behind this is one is the previous year losses and also the

expenses are increased year by year.

2. The above chart reveals that company financial statements it is recovering losses in

the year 2007-08 but it is not possible in the year 2009

3. The above statement reveals that the company is under a loss because of increase in

the costs but the sales are declining.

ITERPRETATION: The above chart shows that the company is under loss. Because

the expenses are more than the incomes.

BABASAB PATIL


FINDINGS:

1.From the Income statement i found that the operating expenses increased compare

to previous year. There is need of control on expenses.

2.From the comparative statement of 2008-09 we can find that there is decrease .

(21%) in working capital compare to the year 2008. The current assets less but the

current liabilities are more, so the company have to utilize funds properly i.e. there is

a need of control on expenses

3. According to comparative Statements we come to know that the

sales Gross profit are declining compare to previous year (2008)

4.Liquidity ratios

Current ratios: The current assets ratio as per calculation it

is observed that, it has been increased by

1.62 to 1.73 to 1.79 to 1.99 to 1.74 from 2005 to 2009. It doesn’t

reaches the standard ratio, so it is unfavorable to the company

5. Inventory turn over ratio

Inventory turn over ratio has been increased continuously i.e. 0.57

to . 4.64 to 4.45 to 4.93to 5.62 from 2005

to 2009 so it is not favorable to the . . Company.

6. From the above financial analysis I found that in the present year

the company is under loss.

7. The gross profit is found to be very low compare to previous

year. The gross profit is declining .It reveals that the companies

position is not appreciable

8. The trend analysis reveals that the sales declining year by year

but there is slight fluctuation in costs.

BABASAB PATIL


SUGGETIONS:

1. Ratio analysis indicates that the firm is not in good health none of the ratios are not

reaching the standard . It is necessary enhance the operating efficiency.. Hence the

firm should concentrate on enhancing the operating efficiency of the firm for

enhancement of share holders wealth

2. From the study it is found that the funds are used for short term assets which should

be avoided. The long term sources of funds should be used for long term assets and

not for short term assets.

3. The Gross Profit ratio indicates that the gross profit is declining year by year, it is

not good for the company so it as to take measures to control the operating costs.

4. The company needs to maintain good inventory turnover ratio by increasing the

sales.

5. The current ratio of the company doesn’t reach standard ratio, so company need to

concentrate on increasing the current ratio by increasing in current assets

\CONCLUSION:

This study helps to know that the companies financial position. The sales of

the company is decline in the year 2009. There is increases costs in some years so it is

needs to reduce its costs.

As the study helps to know that the changes in financial statements i.e.

increase or decrease in the liabilities and assets. By the ratio analysis we come to

BABASAB PATIL


know that the companies solvency. The company have to take some measures to

control the costs.

This study helps us to know that the companies financial position is not

appreciable because there is loss in the present year due to high expenses. so it has to

control the costs.

By the analysis of financial statements I conclude that, overall financial

performance of the company is not satisfactory. The company can try to take a some

measures to increase profit i.e. proper utilization of available resources.

SWOT ANALYSIS OF THE GADAG CO-OPERATIVE TEXTILE MILL LTD

STRENGTHS

1) Good reputation in the market2) Good network of dealers3) Well connected with roads4) Well established in infrastructure facilities5) 45% share capital given by the government6) New specialized types of machines7) Good support from the farmers as well as from the society8) Financially strong

WEAKNESSES

1) No nation wide brands2) Less sales promotion activities3) Large work force4) Partly automated 5) lack of R&D6) Low labour productivity7) Not concentrating towards competition

OPPORTUNITIES

1) Land is available for expansion2) Company can tie with other reputed company3) Existence of a large market4) Possibility of 100% automations 5) Market expansion

BABASAB PATIL


6) They are shortly getting the ISO 9001

THREATS

1) Decreasing in agricultural production2) Globalization and liberalization3) Cut through the competition 4) Taste and fashion of customers turning towards the ready made garments5) Negligence of Government as well as less guidance and low support from the . Government

BABASAB PATIL


CHAPTER - 4

Bibliography:

Accounting for Managers by J. Made Gowda

Management Accounting byR.S.N.pillai and Bhagavathi

Annual reports of the G.C.T.M Hulkoti

BABASAB PATIL


ANNEXURE:

Income and Expenditure A/C of Gadag Co-Operative Textile Mill.

Incomes 2005 2006 2007 2008

BABASAB PATIL


SalesLess: cost of goods sold

G/p

Other income

Total

Expenditure

Administration exp

Interest

Depreciation Provision for bad debts and D.D

Maintenance of vehicles

Net profit/Loss

269932512

15387344

2536378

13944630

283877142

8249677

13893862

421916

500000

1149152

-7733598

231390442

215622553

15767889

6240291

22008180

8820456

11769457

388323

1258671

-228728

254655866

227363997

27291869

2961984

30253853

9571046

11436128

345205

-

1480251

7421223

274253348

263436810

10816538

12776730

23593268

7551010

9295525

309944

-

1987465

4449324

BALANCE SHEET:

particulars

2005

2006 2007 2008

2009

BABASAB PATIL


Liabilities

Share capitalReserve fundOther fundsLong term loansCurrent liabilities

Total

Fixed assetsCurrent A:Cash in handCash at bankS.DebtorsAdvancesOther receivablesFixed depositsClosing stockPrevious year lossLoss for the year

Total

817700001294556016688302580857337

58128988

400584910

179219995

151435027450353711421616172633633

2067997252948390963

817710001294556017312298068310000

67576971

403726511

172689456

415504634497515790314062468631633

487697253043163104073012

128728

4037

817727001294556017723486866940000

77335112

416228240

180401907

2053018446450473204345151421500000

489522762356456

96880517

416228240

817733001294556018056231266940000

69425371

411646544

180915756

40460162287265170994256873791854786

470654358071755

817733001294556018323387063050000

72678933

413681663

181211834

27094193463105100313248584281021508

432802746289122

105596206

41368166

BABASAB PATIL


BABASAB PATIL


Ratio analysis @ gadag textile mill project report mba finance

Economy & Finance

Transcript of Ratio analysis @ gadag textile mill project report mba finance