Anil Project Working
Anil Project Working
Anil Project Working
SINGH for the gracious help without which I could not have completed my project on study of financial statement analysis in ARSS INFRASTRUCTURE ltd Bhubaneswar.
I would like to pay my sincere gratitude which I owe to Mr. SWARUP PANIGRAHI (FACULTY OF GIM) my esteemed project guide for his valued help and guidance which he gave me when I needed it the most. It was only due to his sincere help and effort that I was able to end up with this project.
Date Place
: :BHUBANESWAR
Signature:
I Mr. ANIL SHAW GOND, a student of MBA, 3rd semistar, Biju Pattnaik university of technology, Rourkela, session(2011-2013) here by declaring that the summer internship project report, entitled FINANCIAL STATEMENT ANALYSIS in ARSS INFRASTRUCTURE Ltd BHUBANESWAR is the outcome of my own work and the same has not been submitted to any University/ Institute for the award of any degree or any professional course.
All the data and analytic statement being stated in the project that had been submitted by me may be accepted as fully authentic genuine.
INTRODUCTION Financial statement analysis applies analytical tools and techniques to general purpose. Financial statements and related data to derive estimates and inferences useful in business decision. It is the screening tool in selecting investment or merger decisions. It is the forecasting tool of future financial conditions and consequences. It is the diagnostic tool in assessing financing, investing and operating activities it describes our uncertainty in decision making. DEFINATION OF FINANCIAL STATEMENT ANALYSIS: It report a company is post financial performance and current financial position. They are designed to provide four primary business activities. (i) (ii) (iii) (iv) Planning Financing Investing Operating activities.
Financial statement analysis helps us to answer these questions. Shareholders and creditors assess future company prospects for investing and lending decisions. Board of directors used the financial statements information in monitoring management decision. Employees and unions use financial statements in labour negotiations. Supplier use financial statement in establishing the credit terms. Credit rating analysis uses the financial statement for the purpose of credit rating. Auditors use financial statement in assessing the fair presentation on their clients financial statement numbers. Financial statement analysis helps the share holders to answer the future learning potential, current financial conditions, current capital strategies etc. Use of the financial statement is broadly divided into the internal uses and the external uses. By using the financial statement internal uses, taking the strategic and operating decision of a firm. External uses are not directly involved in the firm s operation. These uses must rely on information provided by management as a part of the financial reporting process. Creditors looks to the financial statement for evidence concerning the ability of the borrowers to pay periodic interest payment and repay the principle amount when the lo0an matures. Equity investors are generally invested in assessing the future profitability and riskiness of projects.Merger and acquisition analysts are interested in determining the economic value and assessing the financial and operating compatibility of potential merger candidates.
Company profile ARSS is one of the fastest growing construction companies of India, focusing on infrastructure construction segment including highways, buildings and railways. Incorporated in 17th May 2000 by a group of professionals, it has rapidly achieved a turnover of Rs. 1013.00 corers. It has completed 80 projects across India, with aggregate contract value of over Rs. 7000 million, for various clients all over India. ARSS has a unique business model, with proven expertise in innovative thinking, project and cost management. We are focused on delivering high quality work within budgeted time and costs, as evident in the various accolades and repeat business. We have also developed an appropriate blend of entrepreneurs and hands on professionals, constantly thinking & executing innovative and cost effective solutions to clients' requirements. Today it is acknowledged as a company that continues to empower India, enabling the nation to surge ahead in different core sectors. At the heart of all our development efforts is the attempt to touch and improve the quality of life of people across the length and breadth of the country. In fact, ARSS, as an industry leader in engineering construction, currently nurtures projects that span across such diverse segments as railway, real estate and highways, all of which impact the nation of India, and the progress of its people. ARSS, even as you read this, is bringing to bear its wealth of engineering and construction expertise to develop infrastructure aimed at further propelling the nation forward, into the 21st century and beyond.
Managing Director Mr. Rajesh Agarwal Chief Executive Officer Mr. Sunil Agarwal Chief Operating Officer Mr.Anil Agarwal
VISIONs To be a respected global player in the infrastructure development sector. To satisfy our customers and enhance our shareholders wealth. To have innovation and commitment as the two mantras that drives us. To attract, develop and sustain the best talents in the industry. To continue to focus on the culture of trust. To provide continuous learning opportunities while meeting the expectations of our employees, stakeholders and the community.
MISSION To develop infrastructure through effective use of new ideas and cutting edge technology. To become a major player in the railway infrastructure sector. To conquer new horizons and new heights. To do this while enriching and enhancing the quality of human life. To diversify into marine, gas and oil pipelines systems as well as airport projects. To set our eyes on international arenas and no longer remain limited to domestic projects. To be a leader in the road infrastructure sector.
GOAL Focus on profitability. Focus on achievement. Focus on quality. Focus on connectivity. Focus on linking lives. Focus on bridging the gap. Focus on competence. Focus on achievements. Focus on sustainability . ACHIEVMENT Laurels and achievements In 2008-09, the company was awarded with three World Bank-assisted projects by the government of Orissa. Unprecedent growth Registered an increase of 99% in the consolidated revenue over the previous year. Strong order book Contracts worth Rs.2, 788.37 corers as on March 31, 2010. Risk reduction The best parts of our contracts are with esteemed clients such as the government, PSUs and other government agencies, thereby reduction the risk of default and delayed payments. Nurturing relationships Maintained long-term relationship with these reputed clients with our clients-centric policies. This resulted in repeat orders from the government of Orissa, railways department, rail vikas nigam limited and RITE. Expansion into new arenas Diversified successfully into irrigation and canal construction. Growing bid capacity Enhanced our bid capacity by strengthening our technical and financial capability and by drawing on our long years of experience. Successfully bid and procured additional projects. Expertise and experience Adequately mobilised resources including equipment, raw material and personnel at short notice while maintaining a track record of speedy completion of projects.
CONTRACTS TAKEN BY COMPANY The company has proposed to take high value technical contracts in entire country and has also negotiated some important contracts for railway and other important infrastructure projects. One of the most economical and biggest project taken by the company is the Golden Quadrilateral project joining the four metros in the country. The company has taken the construction of NH-5 within Orissa and the work is going on with doubling of the road track of the National High way.
A. ROAD WORK SL.NO NAME OF WORK Value of contract In lakhs 1 2 3 Improvement of Panikoili- Ragadi Road in the district of Jaipur. Improvement of Pattamundai- Raj Nagar Road In the district of Kendrapara. Repair such as widening & strengthening to road from Pokhariput level crossing to Khandagiri (NH-5) Via Gandamunda in Bhubaneswar (4 laning of the road) 4 Providing a two lane carriage way to Jagannathpur-Phulbaniroad as a part of Vijayawada-Ranchi corrider. 5 Special repair such as improvement to Jayadev Vihar junction at Bhubaneswar for the year 2007-08 6 7 Widening of the single lane to two way carriage way of NH-224 Construction of roads at paradeep Refinery 1346.15 876.65 347.90 1828.61 771.76 514.41 537.57
B. RAILWAY WORK SL.NO NAME OF WORK Value of Construction In Lakhs 1 New BG railway line between Tomka KeonjharBanshpani of Khurda Road division in E.Co. Railway. 2 Khurda road Yard Remodelling: Supplying and Staking of hard durable stones machine crushed trak ballast at Khurda road. 3 Construction of road bed including major and minor bridges facilities and general notification in connection with construction of New BG line between Haldharpur & paradeep in East cost Railway in the State of Orissa, India. C. BRIDGE WORK Construction of sub-structure consisting of Pile and open foundation, piers, abutments and other ancillary works for 5 major bridges. CA NO/ IRCON/RVNL.RBRP/Major Bridges between Rajathagarh-Barang. 1. Construction of Road over Bridge of Punamagate Railway level crossing including the approaches on Bhubaneswar of R.D. 2. Construction of Steel Girder Bridge (30.5m span) in the work Railway Siding from Gatora to in plant yard (KM 0.963 to KM 12.880) for NTPCSIPAT SSTPP PKG-1. 3. Construction four ROBs in the Railway Siding from Gatora to Inplant for NTPC Sipat (total 4 nos.of ROB). 4. Construction of three nos.PSC girder bridges (Major Bridges) of MGR system of NTPC sipat to Dipak in Package-II and Package-V. D. IRRIGATION WORKS We are construction a Dam and its appurtenant works in the Panchkula district of Haryana valuing Rs.120 Corers. This involves design / delivering 1828.62 44.79 306.93
/ erecting radical gates, Hoist Bridge mounted on trestles and allied component. The work is to provide an impound reservoir for storing base flow of almost throughout the year. Work involved is 35 laces cubic metre of earthwork, 50 thousand cubic meter of concrete, 20 thousand cubic meter of RR masonry including and 300 square meter of spill way gate 10,000 meter of 46mm. Hole drilled and grouted for making the spill way & dam structure.
Contract Nature of Work Client Value (Rs. in lacs) Construction of K dam and its apaushalya purtenant works Construction of Baharagora distributory dam Executive Engineer Haryana Irrigation Department Konar Canal Division
Mar7, 2008
CURRENT CONTRACTS/PROJECTS Widening and strengthening of the Chandbali- Bhadrak-Anadpur carriageway to two lanes. Widening and strengthening of the Bhawanipatna- Khariar Carriageway to two lanes.
Widening and strengthening of the Berhampur- Taptapani carriageway to two lanes. Construction of bridges, platforms, station buildings, passenger amenities, platform shelters and more between Tirunelveli and Tenkasi junctions. Construction of pavements and repair of the Cuttack- Paradeep Road. Enabling railway connectivity to coal and iron ore yards under Civil Works Phase I, ENORE. Construction of station buildings, platforms, approach road, service building and more for the BG Railway line from New Maynaguri in West Bengal to Jogighopa in Assam. Construction of a four-lane approach road from NH-31 to the plant site of Koderma TPS in Jharkhand. Construction of rail infrastructure facility for transportation of coal from Naila Railway Station. Improvement of the Vijaywada-Ranchi corridor from Rairakhole to Naktideol. Construction of major and minor bridges, retaining walls, stations and more between Harsauli-Rewari. AREAS OF OPERATION OF ARSS INFRASTRUCTURE CORPORATE OFFICE - NEW DELHI. REGISTERED OFFICE- BHUBANESWAR. BRANCH OFFICE HARYANA, RAJASTAN, CHATISGARH, MUMBAI, ANDHRA PRADESH, TAMIL NADU. WORKS/SITE OFFICE ASSAM, JHARKHAND, KERALA. ACCOUNTING POLICIES 1. BASIS OF ACCOUNTING The financial statements are prepared under the historical cost convention on accrual basis of accounting in accordance with generally accepted accounting principles [GAAP] , accounting standards issued by the institute of chartered accounting of India, as applicable and the relevant provisions of the companies Act, 1956. 2. USE OF ESTIMATES
In preparing the financial statements in conformity with accounting principles generally accepted in India, Management is required to make estimates and assumption that affect the reported amount of assets and liabilities as at the date of the financial statements and the amounts of revenue and expense during the reported period. Actual results could differ from those estimates. Any revision to such estimates is recognised in the period the same is determined. 3. FIXED ASSETS Fixed assets are stated at cost of acquisition inclusive of taxes, duties, freight and other incidental expenses related to acquisition and installation less accumulated depreciation. Self-constructed assets are capitalised at cost including an appropriate share of overhead. 4. DEPRECIATION Depreciation is provided on straight line method at the rates specified in schedule-XIV to the companies Act, 1956. Depreciation on addition/deletion of fixed assets during the year is provided on pro-rata basis with reference to the date of addition/deletion. 5. BORROWING COSTS Borrowing costs that are attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of cost of such asset till such time the asset is ready for its intended use or sale. All other borrowing costs are recognised as expense in the period in which they are incurred. 6. INVESTMENT Investment in integrated joint ventures are carried at cost net of adjustments for the companys share in profits or losses as recognised. 7. INVENTORIES 1. Raw materials, stores and spares and finished goods. Raw materials, construction materials and finished Goods are valued at the lower of cost and net Realisable value. 2. Work -in-progress The work-in-progress is valued as percentage of Completion contract method as per accounting Standard 7 on construction contracts issued
by the institute of chartered accountants of India. 8. REVENUE RECOGNITION The company follows the percentage of completion method as accounting standard-7 on construction contracts issued by the institute of chartered accountants of India to recognise revenue in respect of contracts executed. Contract revenue is accounted for on the basis of bills submitted to clients/bill certified by clients and does not include material supplied by the clients free of cost. Other revenue and expenses are accounted for on accrual basis. 9. TAXES ON INCOME Tax on income for current period is determined on the basis of taxable income and tax credits computed in accordance with the provisions of the income tax Act, 1961. Deferred tax is recognised on timing differences between the accounting income and the taxable income for the year, and quantified using the tax rates and laws enacted or substantively enacted as on the balance sheet date. 10. EMPLOYEE BENEFITS 1) Short-term employee benefits All employee benefits falling due wholly within twelve months of rendering the services are classified as short-employee benefits. The benefits like salaries, wages short-term compensated absence etc. and the expected cost of bonus is recognised in which the employee renders the related services. 2) Post- employment benefits Defined contribution plan: The Company has a defined contribution plan for state governed provident fund scheme and employees state insurance scheme. The contribution paid/payable under the scheme is recognised during the period in which the employee renders related service. 3) The company is in the process of finalising a agency for managing the gratuity fund ascertaining the liability on the basis of actuarial valuation.
Pending finalisation of the same liability for current year has been provided on adhoc basis. 11. CONTIGENT LIABILITES AND CONTIGENT ASSETS No provision is made for liabilities which are contingent in nature, unless it is probable that an asset has been impaired or a liability incurred as on the balance sheet date and a reasonable estimate of the resulting loss can be made. Details of contingent liabilities are given below: SL. NO. 1 2 3 4 5 6 7 Name of the statute to which the liability relates Orissa sales tax Act Orissa entry tax Act Central sales tax Act Rajasthan vat Act Andhra Pradesh commercial taxes (ET) Orissa electricity Act Corporate guarantees to sister concern of the company: A B 8 TOTAL ARSS bio fuel (P) Ltd. Anil contractors (P) Ltd. Performance bank guarantee 260.00 600.00 12,689.36 14,459.52 47.22 106.27 34.44 500.16 219.99 2.08 Amount
Contingent assets are neither recognised nor disclosed in the financial statements. 12. OVERDUE CHARGES IN RESPACT OF LOAN
Overdue charges if any levied by financial institution/banks/NBFC are not considered during the currency of the loan. The same is considered as a financial expense in the year of final settlement of loan amount. CUSTOMERS OF ARSS INFRASTRUCTURE LTD The companys valued customers are: Govt. of Orissa Govt. of Haryana Rail Vikash Nigam Limited RITES Limited IRCON International Limited National Thermal Power Corporation(NTPC) National Highway Authority of India (NHAI) ESSEL Mining Damodar Valley Corporation Orissa State Disaster Mitigation Authority (OSDMA) Indian Oil Corporation Limited (IOCL). Hindustan Petroleum Corporation Limited (HPCL). Jaipur Development Authority East Coast Railway South Eastern Railway North Western Railway Southern Railways Central Railway Northeast Frontier Railways Tamil Nadu Industrial Road Infrastructure Corporation Limited. Jindal Steel And Power Limited Vishakhapattanam Steel Plant Rourkela Steel plant. Vedanta Aluminum Limited
The joint venture partners, in mutual consultation with one another determine the quantum of work to be executed by each joint venture partners vide entering into memoranda of understanding/joint venture agreement. The work awarded to joint venture is executed by them independently or through the subcontracting to the third party including the joint ventures partners. The Company has entered into following joint venture agreements: 1. HCIL - ARSSSPL - TRIVENI (JV) 2. HCIL - KALINDEE - ARSSPL (JV) 3. HCIL - ADHIKARIYA - ARSS (JV) 4. NIRAJ - ARSS (JV) 5. ARSS - HCIL (CONSORTIUM) 6. ATLANTA - ARSS (JV) 7. PATEL - ARSS (JV) 8. ARSS - TRIVENI (JV) 9. SOM DATT BUILDERS -ARSS (JV) 10. ARSS-MVPL (JV) 11. BACKBONE-ARSS (JV) 12. ARSS-ANPR (JV)
CAPITAL RAISED DURING THE YEAR :( Amount in Thousands) 200506 2006-07 200708 200809 2009-10 201011 201112
Nil Nil
Nil
Nil
Nil Nil
1030153000 Nil
69007000 Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
SCOPE OF THE STUDY The present study is confirmed to ARSS infrastructure projects ltd. only. Corporate office is situated at SBI colony paschim vihar. New Delhi and the registered office are located at mancheswar industrial estate, Bhubaneswar, Orissa. ARSS infrastructure projects ltd. Is a leading construction company of India. It also holds most of the projects, relating to construction of high ways in Orissa. ARSS infrastructure projects ltd. An ISO 9000: 2001 company (abbreviated as ARSS) was in corporate on 17th may 2000 under the jurisdiction of the register of companies, Orissa. With present turnover more than 100 corers, the company has emerged as a major contributor towards growth of infrastructure related activity in other spheres, in regard to developing infrastructure facilities related to central and state govt. organization viz CPWD, state PWD and PSUs like RITES ltd. Rail vikas nigam limited. The study aims at analyzing the financial statements of ARSS infrastructure projects ltd. The time period assumed under the study is limited to last five financial years i.e. 2003-2004, 2004-2005, 2005-2006, 2006-2007 and 20072008. The scope of this study includes the following aspects: Origin of ARSS infrastructure projects ltd. Operation of ARSS infrastructure projects ltd. Work force distribution. Information regarding finance department and its function.
OBJECTIVES OF THE STUDY Focus on determining financial strength and weakness of ARSS infrastructure projects ltd. To study and analyze the operating efficiency of the organization To know what is the liquidity position of the organization To analyze the trends in various items included in the balance sheet and income statement using ratio analysis. Interpreting the results of the study for meaningful conclusion and suggestion
RESEARCH METHODOLOGY Collection of data: The study banks upon both the primary as well as secondary sources for gathering the required information. Primary data sources: primary data are collected from individuals, officials, a guide views and meeting the various financial executives of ARSS infrastructure projects ltd. Secondary data sources: secondary dates are collected from internal sources as well as external sources. The secondary sources include: Annual report Commercial data Official records in the organization Files Books on subjects Published report relevant to the topic News, letters and other publications Website
LIMITATIONS OF THE STUDY 1. Limitation of time 2. All the relevant data are not available 3. Certain information was kept confidential by ARSS infrastructure projects ltd. Managed on the ground of confidentiality.
4. Extensive analysis could not be made due to limited source of funds. Inspite of all these difficulties, the researcher has tried his best collect all relevant data or information to make his study successful. 5. Also there is another problem of not getting the monthly data of the inventory. 6. There was a problem of distance of that particular organization from us. 7. Cross sectional analysis is absent Areas of study
1. 2. 3. 4. 5. 6. 7.
Ratio analysis Common size income analysis Common size positional analysis Comparative income statement analysis Comparative positional statement analysis Cash flow statement analysis. Time series analysis.
THEORITICAL PRESENTATION OF RATIOANALYSIS 1. MEANING OF RATIO A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to accountants Handbook by Wixom, Kelly and Bedford, a ratio is an expression of the quantitative relationship between two numbers.
Ratio analysis stands for the process of determining relationship of items, group of items in the financial statement. IT is an important technique of financial analysis. It is a way by which financial stability and health of a concern can be judged. The following are the main points in use of ratio analysis.
Helps in decision making Helps in financial forecasting and planning Helps in communicating Helps in co-ordination Helps in control Utility to share holders Utility to creditors
Utility to employees Utility to government Tax and audit requirement The objectives of ratio analysis are the followings Financial forecasting Facilitates comparisons Cost control Proper communication
Guidelines or precautions for use of ratios The calculation of ratio may not be difficult task there use is not easy. The information on which these are based, the constraints of financial statement, objectives for using them , the caliber of the analyst, etc. are important factors which influence the use of ratios . Following guidelines or factors may be kept in mind while interpreting various ratios. Limitations for ratio analysis: Limited use of time Lack of adequate standard Inherent limitations of accounting Changes of accounting procedure Window dressing Personal bias Incomparable Absolute figures distortive Price level changes Ratios no substitute
Classification of ratios The ratio analysis is one of the most powerful tools of financial analysis. Broadly ratios are classified into four categories. a) b) c) d) Liquidity ratio Activity ratio Profitability ratio Leverage ratio
LIQUIDITY RATIO Liquidity refers to the ability of a concern to meet its current obligations as and when it becomes due. It determines the credit worthiness of a company to meet
its short term liabilities or commitments. To measure the liquidity of a company, the following ratios can be calculated. i) ii) iii) current ratio quick or acid test or liquid ratio absolute liquid ratio or cash position ratio
1. Current ratio Current ratio may be defined as the relationship between current asset and current liabilities. Current ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short term financial position or liquidity of a firm. It is calculated by dividing the total of current asset by current liabilities. Current ratio = current asset/ current liability A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its obligations in time as and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities. As a conversion the minimum of 2:1 ratio is referred to a bankers of thumb rules.
In a time series analysis of current ratio for last five years it is assumed that on the ground of liquidity position the ARSS infrastructure limited is sound. The
current ratio is excess than the target current ratio which is 1.50.that means there is an excess blockage of capital, so management should take certain steps to reduce the current asset. 2. Quick asset or acid test ratio Quick ratio also known as Acid test ratio or Liquid ratio is a more rigorous test of liquidity than the current ratio. It may be refined as the relationship between quick or liquid assets and current liability. Current asset excluding inventories, work in progress and prepaid expenses are known as quick asset or liquid assets. Liquid ratio= liquid assets/ current liabilities Usually a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current obligations. on the other hand a low quick ration represent that the firm liquidity position is not good. As a rule of thumb or as convention quick ratio of 1:1 is considerable satisfactory.
QUICK ASSET
CURRENT LIABILITY
In a time series analysis of quick ratio, it is satisfactory position. According to the rule of thumb quick ratio of 1:1 is a comfortable position for any company. If we analysis the data for six years it is comfortable. 3. ABSOLUTE LIQUID RATIO
Absolute liquid ratio is the relationship between the absolute liquid asset and the current liabilities. Absolute liquid assets are finding out by subtracting the bills receivable and sundry debtors from the liquid assets. Absolute liquid ratio=(cash in hand + cash at bank +short term marketable securities )/ current liabilities The standard norm is 0:5:1 or 1:2 which means that re.1 of absolute liquid assets are sufficient to pay Rs. 2 worth of current liabilities. This ratio is not used YEAR 2011-12 2010-11 200910 2008-09 2007-08 2006-07 2005-06 ABSOLUTE LIQUID ASSET 3693886142 2501571472 1274625221 880966422 322410299 131868458 CURRENT LIABILITIES 3232071801 1705834194 1320224186 951070095 141025428 131472347 CASH RATIO
With the above data it is analyzed that the cash and cash equivalent is sufficient for the firm for current operation .on the ground of liquidity there is no problem but on the ground of absolute liquid asset it is more than the current liability. The absolute liquid asset is more due to presences of NSC certificate in the marketable security .the company holding the same due to the some Security is required in the process of taking the government contracts. Comparison between the current ratio, quick ratio and cash ratio
CURRENT RATIOS
CASH RATIO
1.226547087 0.965461196 2.716102056 1.613488638 0.926289688 2.267597271 3.315335473 2.286185574 3.835091633 1.549073487 1.003012885 2.341683776
When it is compared between the current ratio & acid test ratio it is found that acid test ratio is comfortable in all years .but current ratio is excessive in 201011 and 2009-10.the excessive is Due to in these two years there is a huge inventories .so management should use economic order quantity model to reduce the inventory level. Cash ratio
(b) EFFICIENCY or ACTIVITY RATIO Activity ratio measures the efficiency or effectiveness with which a firm manages its resources or assets. These ratios are also called turnover ratios because they indicate the speed with which the assets are converted into sales. Basically there are three activity ratios: (i) (ii) (iii) Inventory or stock turnover ratio Debtors turnover ratio Creditors or payable turnover ratio.
(i)
Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. The level of inventory should neither be too high nor be too low. High level of inventory is not satisfactory due to the unnecessary blockage of capital, over stocking, chances of pilferage, theft etc. on the other hand, too low inventory should maintained. INVENTORY TURNOVER RATIO= COST OF GOODS SOLD/ AVERAGE INVENTORY Inventory turnover ratio measures the conversation of stock into sales. Usually a high inventory turnover ratio indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. On the other hand a low inventory turnover ratio indicates an efficient management of inventory.
AVERAGE INVENTORY
This time series analysis of inventory turn over ratio gives a clear picture that from 2005-06 to 2010-11 the inventory turnover ratio decline except in 2006-07.decling this ratio means it is not a good indictor of inventory management system .this is due to delay of the projects .So management should start the projects as soon as possible.
(ii)
A concern may sell goods on cash or as well as on credit. Credit is one of the important elements of sales promotion. Debtors arise due to the credit policy adopted.
(a)
Debtor turnover indicates the velocity of debt collection of the firm. In simple words it indicates the number of times the debtors are turned over during a year.
DEBTOR TURNOVER RATIO= NET ANNUAL credit SALE/ AVERAGE TRADE DEBTOR Debtor velocity indicates the number of times the debtors are turned over during a year. Generally, higher the value of debtors turnover ratio the more efficient is the management of debtors or sales or more liquid is the debtors. Similarly low debtors turnover implies inefficient management of debtors or sales and less liquid debtors.
In a time series analysis it is found that debtors turnover ratio is comparatively better in 2010-2011 &2009-10.it shows that there is a better receivable management in recent years which is a good indictor of managerial efficiency. With the holding of less cash company will manage effectively and efficiently.
(b)
The average collection period represents the average number of days for which a firm has to wait before its receivables are converted into cash. AVERAGE COLLECTION PERIOD = (AVERAGE TRADE DEBTOR*NO OF WORKING DAYS)/ NET credit SALES(day) Average collection period ratio measures the quality of debtor. Generally, the shorter the average collection period the better is the quality of debtors as a
short collection period implies quick payment by debtors. Similarly, a higher collection period implies an inefficient collection performance which adversely affects the liquidity or short term paying capacity of the firm.
SALES PER DAY AVERAGE COLLECTION PERIOD 41633703.87 33551680.94 20812507.52 10516773.60 4461070.337 2008223.503 17.99459345 18.10127439 25.99657524 37.973 24.31346736 18.16460366
Average collection period in 2010-11, 2009-10 &2005-06 are better than any other year. In these years average collection period decreases which means more multiple of cash holding for receivable. So with the less proportion of cash firm manage the project efficiently. Relationship between debtor turnover ratio and average collection period YEAR DEBTORS TURNOVER RATIO 2011-12 2010-11 16.78452873 2009-10 16.68102258 2008-09 11.61143626 2007-08 7.900312799 2006-07 12.33884068 AVERAGE COLLECTION PERIOD 17.99459345 18.10127439 25.99657524 37.973 24.31346736
With the comparison of two data, we have found that there is an inverse relationship between the debtor turnover ratio and average collection period. (iii) Creditors or payable turnover ratio
In the course of business operations a firm has to make credit purchase and short term liabilities. A supplier of goods, i.e., creditors is naturally interested in the finding out how much time the firm is likely to take in repaying its trade creditors. It is calculated as net credit annual purchases / average creditors
The ratio indicates the velocity with which the creditors are turnover in relation to purchases. Generally higher the creditors velocity better it is or otherwise lower the creditors velocity, less favorable. AVERAGE PAYMENT PERIOD RATIO The average payment period ratio represents the average number of days taken by the firm to pays its creditors. Generally lower the ratio better the liquidity position of the firm and higher the ratio, less liquid is the position of the firm. (iv) Working capital turnover ratio
Working capital turnover ratio indicates the no. of times the working capital is turned over in the course of a year. It measures the efficiency with which the working capital is being used by firm. WORKING CAPITAL TURNOVER RATIO= COST OF SALES/ AVERAGE YEAR COST OF GOOD SOLD AVERAGE WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO
AVERAGE WORKING CAPITAL=( OPENING WORKING CAPITAL+ CLOSING WORKING CAPITAL)/2 A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio is not good for any firm. This ratio can be used for making of comparative and trend analysis for different firms in the same industry and for various periods.
In this time series analysis it is found that working capital turnover ratio decreases gradually. That means for one unit of cost of sale more working capital is necessary. Which is a negative impact of the utilization of working capital .in the recent years there is not proper utilization of the working capital?
So management reduces the working capital so that working capital utilization productively. Profitability ratio Profitability is the overall measures of the efficiency of the operations of the business. It indicates the effectiveness of the decision taken by the management from time to time. The main objective behind the calculation of profitability ratios to enlighten the end results of the business activities which will be the main criterion for the assessment of the efficiency of the business. The lower profitability ratio may rise because of high expenditure, and other such reasons. The external parties like bankers, creditors, suppliers, financial institutions etc., look at the profitability ratio of the company to safeguard for the interest on lending. Equity share holders look after the profitability ratio from the point of view of return to their investment. Let us discuss the important profitability ratio. Profitability ratios are divided in to 3 categories 1) Sales based profitability ratio 2) Capital based profitability ratio 3) Asset based profitability ratio Sale based profitability ratio i. Gross profit margin ratio:
The gross profit margin ratio shows the margin left after meeting manufacturing cost. It is calculated as= (contract revenue-direct contract expenses)/contract revenue *100
If the gross profit ratio is higher it is better. A lower gross profit ratio indicates the unfavorable conditions such as lower selling price without proportionate reduction in the cost of production etc. it may be used as an indicator of the efficiency of the production operation and the relation between production cost and selling price.
YEAR
GROSS PROFIT
Contract revenue
2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 3574653910 2440096198 1351416578 606128043 268810122 104575623 12490111161 10065504283 6243752255 3136709419 1338321101 602467051 28.6198727 24.2421654 21.6443017 19.3236912 20.0856223 17.3578991
In a time series analysis it is shown that gross profit ratio increases gradually. It is a better signal to the ARSS infrastructure limited. It shows that for RS 1 of income there is a gross profit of 28% .that shows that contract expenses reduced. Gross profit ratio shows that it is adequate to cover other operating expenses or not .there is a standard norm for that. It is a good indictor of firms efficiency. ii. Operating profit ratio:
The operating profit ratio compares the relationship between the operating profit and the sales. The ratio is calculated as under: Operating profit ratio = operating profit/ net sales Operating profit = gross profit- operating expenses
In the time series analysis it is shown that operating profit increases gradually .so it shows the efficiency of the company increases. It was 8% in 2005-06while in recent year it is more than 19 %.the operating efficiency of the firm increases. iii. Net profit ratio:
The net profit ratio is also called as overall profitability ratio. This ratio shows the earning capacity of the capital; employed in the business. It is calculated as: Net profit ratio= net profit after tax / net sales The ratio shows that the earnings left for the share holders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, and tax management. When the net profit is calculated for this ratio purpose we should add non operating expenses and deduct non operating income. YEAR NET PROFIT Contr act revenue othe r incom e net profitother net profit income ratio
1257465 9671 1013085 5134 6282413 084 3155032 088 1338321 101 6076475 97
In a time series analysis it is found that the net profit ratio is overall stable. There is a very less Volatility in the net profit. It is with in the range of 5% to 8 %. Comparison of gross profit, operating profit and net profit ratio : YEAR net profit ratio OPERATING PROFIT RATIO GROSS PROFIT RATIO
8.2475671 48 8.2459127 38
19.41904707
28.6198727
16.65331922
24.2421654
15.01420639
21.6443017
14.13369448
19.3236912
13.26178791
20.0856223
8.981201198
17.3578991
If we compare the three sales ratios in this time series analysis it shows that in every year net profit, gross profit and operating profit increases gradually. That signifies productive efficiency increases gradually. iv. Return on capital employed:
This ratio is also called the overall profitability ratio. This ratio shows the earning capacity of the capital employed in the business. It is calculated as: Return on capital employed= operating profit/ capital employed Operating profit is the profit before interest and tax. Capital employed includes the total of equity share capital, preference share capital, undistributed profit, reserve and surplus, long term liabilities less fictitious assets and non business assets. The ratio reflects the overall efficiency with which the capital is employed.
YEAR 2011-12
OPERATING PROFIT
2425460566 2010-11 2009-10 1676240559 937449850 2008-09 2007-08 443332926 2006-07 177485306 2005-06 54108778 12177114518 7969969779 3770395572 2009063422 686376327 309327274 20.13 21.03 24.86 22.066 25.85 17.49
If we analyzed the ratios in a time series analysis we have found that in 2010-11 efficiency of capital decreases. But it is not due to the increases in operating
expenses .it is due to blockage of capital in current assets. In this company inventory turn over ratio decreases.
Comparison between return on capital employed, inventory turn over YEAR RETURN CAPITAL EMPLOYED (%) ON INVENTORY TURNOVER RATIO 1.554288352 2.731264569 3.906355682 7.278038863 12.05047694 OPERATING PROFIT RATIO(%)
2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 20.13 21.03 24.86 22.066 25.85 19.41904707 16.65331922 15.01420639 14.13369448 13.26178791 8.981201198
Return on capital employed depends upon two important ratios Inventory turn over ratio Operating profit ratio
When inventory turn over ratio increases than return of capital employed increases When operating profit ratio increases return on capital employed increases. In 2010-11 ROCE is 20.13% at that time inventory turn over ratio is 1.55but due to high operating profit margin return on capital employed increases. In 2006-07 it is highest .that is 25.85%.it is because of increase in the inventory turn over ratio is
12.05, although operating profit is 13.26.in this 2006-07 capital invested in inventory is efficiently utilized because the highest velocity in the inventory. so it increases the return on capital employed.
Return on share holders fund Return on share holders fund: profit after interest and tax/ share holders fund *100 This ratio measures the profitability of the firm from the view point of share holders. The ratio can be calculated as: A higher ratio is better which indicates a good return to the share holders. YEAR 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 1121652010 900732325 500865072 270978997 94745106 32587937 Return on equity capital: The return on equity (ROE) is important profit indicator to share holders of the firm. It is calculated as Return on equity= net profit after tax-preference dividend / equity share capital YEAR 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 NET PROFIT minus PREFERENCE DIVIDEND 1121652010 900732325 500865072 270978997 94745106 32587937 EQUITY SHARE CAPITAL 148432300 148432300 125540000 125540000 107960500 25970000 RETURN ON EQUITY capital 755.665721 606.8304035 398.9685136 215.8507225 87.75904706 125.4830073 4484068964 3379668127 1483513976 997336456 293892012 123762906 25.01415609 26.65150219 33.76207303 27.17026891 32.23806777 26.33094039 PROFIT AFTER INTEREST AND TAX SHARE HOLDERS FUND Return on share holders Fund (%)
RETURN ON EQUITY Return on share capital (%) holders fund 755.665721 606.8304035 398.9685136 215.8507225 87.75904706 125.4830073 25.01415609 26.65150219 33.76207303 27.17026891 32.23806777 26.33094039
In this analysis return on equity capital increases significantly .this is due to existence of huge amount of reserve and surplus. This reserve and surplus are share premium reserve, free reserve and capital reserve. Because this company has very less pay out ratio, the retaining earnings are reinvested and due to that return on equity capital increases. Return on share holder fund decreases in the recent year is due to the return on the total asset. in 2010-11 return on total asset is 6% while in other years such as2006-07 it is 11%.and 2007-08 &200809 it is 9%.decreases in the return on total asset is a major reason for decrease in return on share holder s fund. v. Return on total asset:
The return on total ratio indicates the profit after tax against the investment in total asset. It helps to know whether the assets are using properly or not. It can be calculated as : Return on total asset: net profit after tax/ total asset*100
TOTAL ASSET
200607 200506
94745106 32587937
827401757 431738074
11.45091912 7.548080413
Return on the total asset decreases in recent year is due to the huge presence of illiquid inventory. Data shows that inventory possess around 63% of current asset. Huge inventory magnify the problem on return on total asset. so management should try to reduce the inventory.
vi.
The earnings per share ratio help in determining the market price of equity share of the company and its capability to pay the dividend to share holders. It is calculated as: Earnings per share = net profit after tax/ no. of equity share
PROFIT AFTER TAX-PREFERENCE DIVIDEND 1121652010 900732325 500865072 270978997 94745106 32587937
(In 2005-06 there is a face value of RS 100.in 2006-07 there a stock split and the face value reduced to RS 10.so we adjust accordingly.) (this company does not issue any preferential share.) The earnings per share ratio are mainly useful for companies with public trade shares.
vii.
Price earnings ratio shows the market value of every rupee earning in the firm. The ratio is mainly used to compare the industry average. A high price earnings ratio indicates an overvalued share and low ratio shows the share is undervalued. The ratio is calculated as:
Price earnings ratio: market price per equity share/ earnings per share
market price
EPS
P/E RATIO
953 539
75.57 70.48
12.61082 7.64756
(The market prices are the average prices on 31st march 2010 & 2011 in national stock exchange) (The face value of the share is Rs 10) If we compare the stock between the two years it is found that on March 200910it is relatively cheaper than 2010-11.because in 2009-10 P/E ratios is 7.64
viii.
Payout ratio:
The payout ratio shows the portion of earning per share used for the distribution of dividend and the portion retained for the plouhging back of profit. This ratio is calculated as: Payout ratio= dividend for equity share/ earnings per share year 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 DIVIDEND PER EQUITY SHARE 1 2 1 1 0 75.57 70.48 39.9 23.77 10.5 EPS PAYOUT RATIO % 1.323276432 2.837684449 2.506265664 4.206983593 0
With the time series analysis of five year it is shown that pay out ratio is less than 5%.That signifies that the company is more growth oriented .the company reinvests its capital in its core business & expands the business .so due to that in near future there is a chance of high capital appreciation of share prices.
(c)
Coverage ratio
Coverage ratios are used to test the adequacy of cash flows generated through earnings for the purpose of meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio. Coverage ratio give the relationship between the financial charges of a firm and its abilities to serve them. There are mainly three ratios under this head. Those are : i. interest coverage ratio: fixed interest cover ratio or interest coverage ratio measures the ability of the concern to service its debt. This ratio tells us how many times the firm covers or meets the interest payments associated with debt. From lenders point of view, this ratio assumes greater importance. This ratio is computed as:
Interest coverage ratio= earnings before interest and tax/ interest expenses
EBIT
This ratio indicates that ability of the firm to repay the interest on time .this ratio is very important for the creditor point of view. This is in decline that means credit risk increases in comparative previous years. .
(d)
The term solvency refers to the ability of a concern to meet its long term obligations. The long term creditors of a firm are primarily interested in knowing the firms ability to pay regularly interest on long term borrowings, repayment of the principal amount on maturity and security of their loans. Long term solvency ratios indicate a firms ability to meet the fixed interest and costs and repayments of long term borrowings. The following are the ratios determines the solvency of the concern:
Debt equity ratio Proprietary ratio Interest coverage ratio Leverage ratio
i.
Debt equity ratio also known as the external- internal equity ratio is calculated to measure the relative claims of outsiders and the owners (I.e., shareholders) against the firms asset. This ratio indicates the relationship between the external equities or the outsiders funds and the internal equities or the share holders fund. Debt equity ratio= long term debt/ share holders fund The share holders fund consist of equity share capital, preference share capital, reserves, revenue reserves, reserves for contingencies, sinking funds etc. outsiders fund include both current and fixed liabilities. The debt equity ratio is calculated to measures the extent to which the debt financing has been used in a business. The ratio indicates the proportionate claims of owners and the outsiders claim against the firms asset. A ratio of 1:1may be usually considered to be satisfactory ratio. YEAR 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 LONGTERM DEBT 12846348575 6296135846 3607105782 1962797061 533509743 317036714 SHARE HOLDERS FUND 4484068964 3379668127 1483513976 997336456 293892012 123762906 DEBT EQUITY RATIO 2.864886485 1.862945002 2.4314606 1.96803902 1.81532577 2.561645684
The low debt equity ratio is favorable which signifies the low financial risk is there in a company. But here it shows that in the recent year 2010-2011 debt equity ratios is higher, that is 2.86. Means in this company there is a financial risk increases. It happens due to the more debt capital is there compare to the share holders fund.
ii.
This ratio is used to test the debt servicing capacity of a firm. This ratio is calculated by dividing the net profit before interest and taxes by fixed interest charge. Interest coverage ratio= net profit before interest and tax/ fixed interest Interest coverage ratio indicates the number of times interest is covered by the profits available to pay the interest charges. Generally, higher the ratio, safer is the long term creditors. YEAR EBIT 201112 201011 200910 200809 200708 200607 200506 INTEREST INTEREST COVERAGE RATIO
Interest coverage ratio indicates the number of times interest covered by the profits available to pay the interest charges. Too high interest coverage ratio may imply that firm is not using debt as a source of finance so as to increase the earning per share. Interest coverage ratio decreases gradually after the year 2007-2008. Means this is a good symbol for Arss infrastructure projects limited. In the recent year 2010-2011 the interest coverage ratio is 2.53.
iii.
Leverage ratio:
All the business enterprises employee debt fund, equity fund, so as to maximize the profits and earnings available for the equity share holders. The basic advantage of using the debt is i.e. the after tax cost of debt is less and the interest is deductable. The term leverage refers to employment of debt fund. A leverage ratio indicates the use of debt fund in the capital structure of the concern. When earning exceeds the cost of fund, it is said to be favorable and when the return is the less the cost of fund it is said to be unfavorable. The leverage is three types.
Operating leverage Financial leverage Combined leverage Operating leverage: it indicates the extent of the change of earnings before 200506 200607 2007-08 200708 2008-09 200809 2009-10
2006-07
200910 201
interest and tax due to the change in sales volume. It is calculated as: Operating ratio= contribution/ EBIT Contribution is nothing but sales minus variable cost. There is inverse relationship between the operating leverage and fixed cost. Higher the fixed cost, lower the contribution. Lower the fixed cost, higher the contribution. EBIT is not anything but sales less variable cost less fixed cost. A high operating ratio means large effect on EBIT due to small changes in sales. The operating leverage explains the impact of changes in sales revenue and operating incomes. Financial leverage: when the firm uses debt fund in its capital structure to finance its need, then the firm is said to financial leverage. Financial leverage measures the changes in the earnings before tax due to the change in earnings before interest and tax(operating incomes) .the calculation is as : Financial leverage= EBIT/ EBT The leverage may be favorable or unfavorable. When the return on investment exceeds the cost of debt capital, a firm is said to have favorable financial leverage. It is also known as trading on equity. When the cost of debt capital exceeds the return on investment, then the firm said to have unfavorable financial level.
100 1338321101
100 3136709419 79.91 2530581376 20.09 606128043 0.963 2.375 2.177 1.308 13.26 0 13.26 2.806 10.46 2.873 7.582 29828204 50703745 42761762 39501406 443332926 29233380 472566306 94163206 378403100 107424103 270978997
100 6243752255 80.68 4892335677 19.32 1351416578 0.951 1.616 1.363 1.259 14.13 0.932 15.07 3.002 12.06 3.425 8.639 140461371 97277799 102739612 73487946 937449850 38660829 976110679 270174025 705936654 205071582 500865072
100 10065504283 78.36 21.64 2.25 1.558 1.645 1.177 15.01 0.619 15.63 4.327 11.31 3.284 8.022 7625408085 2440096198 262364862 172315888 193751628 135423261 1676240559 65350851 1741591410 530739775 1210851635 310119311 900732324
100 124 75.76 24.24 2.607 1.712 1.925 1.345 16.65 0.649 17.3 5.273 12.03 3.081 8.949
8 82.6421 1069510979 3 17.3579 268810122 12890331 31787216 29137580 17509689 177485306 0 177485306 37559074 139926232 38455481 101470751
89 35
9 0.51344
9 2.77166 3.16558 1.92603 8.9812 0.85989 9.84109 2.72856 7.11253 1.70345 5.40908
9 8 8 6 4
1 2 24
25
1 3 8 5
9 15 3 11
We prepare the common size statement analysis for knowing the percentage of any item as per the sales which is taken as 100 percent. Here in this above income statement it is shown that the operating profit gradually increases, because the direct expenses are gradually decreases. And also the net profit after tax increases slowly because of the proper management. Also the selling expenses are gradually decreases.
20062007
20 0620 07
20072008
200 7200 8
20082009
2008 2009
2009-2010
200 9201 0
20102011
2010 2011
201 -12
RTICUL RS share pital reserve d rplus are olders nd secured an unsecure oan deffered x liability current bility d ovision abilities
1079605 00 1859315 12 2938920 12 3786657 27 0 1381858 8 1410254 28 5335097 43 8274017 55 2678220 16 1825620 1 3348609 33 2059845 07 478100 8274017 57
12554000 4.24 0 1 87179645 29.4 6 5 99733645 33.6 6 9 97527746 32.9 9 5 10000000 0.33 8 26449497 0.89 4 95107009 32.1 6 3 19627970 62 29601335 18 66.3 1 100
12554000 0 13579739 76 14835139 76 21821938 01 41061473 63626322 13202241 83 36071057 79 50906197 55 14662032 10 38212921 30284533 48 55741027 8 340000 50906197 57
14843230 0 43356366 64 44840689 64 92989776 07 99156117 21614305 0 32320718 01 12846348 575 17330417 539 47398310 72 36185187 3 99909800 13 21861345 06 51620074 17330417 538
46.0 7 0.12 6 12041080 1.24 4 4 17058341 17.6 94 3 62961358 46 96758039 73 25837405 02 34440872 55823015 65 14064809 36 68840098 96758039 73 65.0 7 100
tal abilities
t block
vestmen
77752264 26.2 5 7 25436921 0.85 9 16496767 55.7 95 3 50696715 17.1 7 3 530000 0.01 8 29601335 18 100
tal set
In the above balance sheet it is shown that the share holders fund in this year is 25.87 % of the total liability. Whereas the previous years record it was 34.93% of the total liability. It means the equity share capital is going down and a increase in the borrowing or debt capital.
Comparative balance sheet is the study of that trend of the same items ,group of items and computed items in two or more balance sheet of the same business enterprise on the different dates. Comparative balance sheet of an enterprise as on two or more dates can be used for comparing assets, liabilities and capital and ascertaining increase or decrease on those items.
PARTICULARS
2009-2010
2010-2011 12,490,111,161 8915457251 3,574,653,910 419,228,525 263,421,011 184,312,599 282,231,209 2,425,460,566 84,548,510
% (percentage) 124.0882802 116.9177722 146.4964337 159.7883656 152.8709941 95.12828403 208.4067441 144.696449 129.3762953
1 2 3 4 5 6 7 8 9
Contract revenue contract direct expenses gross profit(1-2) personal expenses administrative expenses selling expenses Depreciation operating profit(3-4-5-6-7) other income
2009-2010 PARTICULARS a)share capital b)reserve and surplus share holders fund a)secured loan b)unsecured loan c)deffered tax liability d)current liability and provision Liabilities total liabilities net block Investment current asset loan and advances misc. expenditure total asset
20092010
2010- 2011
2010-2011
% increase/ decrease
148432300 3231235827 3379668127 4457664482 12226366 120410804 1705834194 6296135846 9675803973 2583740502 34440872 5582301565 1406480936 68840098 100 9675803973
0 34.17889922 32.67778952 108.6064944 711.0023616 79.50469793 89.47162698 104.0354416 79.11087892 83.44841784 950.6466648 78.97599936
99156117 811.0023616 216143050 179.5046979 189.471627 204.0354416 179.1108789 183.4484178 1050.646665 178.9759994 155.4329284
100 3232071801 100 12846348575 100 17330417539 100 4739831072 100 361851873 100 9990980013 100 2186134506
100 17330417538
The profit and loss account shows the net profit and net loss on the account of business operations. A comparative profit and loss account shows the operating results for a number of accounting periods so that changes in data in terms of money and percentage from one period to another may be known.
Cash flow statement Cash is the basic input needed to keep the operations of the business going on a continuing basis. It is also the final output expected to be realized by selling the products manufactured by the manufacturing unit. Cash is both the beginning and the end of the business. Sometimes it so happens that a business unit earns efficient profit but in spite of this it is not able to pay its liabilities when they become due. So the business unit should always try to keep sufficient of cash neither more nor less because the shortage of cash will threaten the firms liquidity and solvency where as excessive cash will not be fruitfully utilized will simply remain idle and will affect profitability of the business.
Effective cash management implies a proper balancing between the two conflicting objectives of liquidity and profitability. It is also difficult to predict cash inflow and outflow accurately and there is no perfect confidence between the inflows and outflows of cash giving rise to either cash outflows exceeding inflows or cash inflows exceeding outflows. It is one of the important tool of cash management because it throws light on cash inflows and outflows of a particular period.
Cash flows comprise cash on hand and demand deposits with banks. Cash equivalents are held for the purpose of meeting short term cash commitment rather than for investment or purposes. Cash flows as inflows and outflows of cash and cash equivalents.
According to As-3(revised) cash flows for a period can be classified into 3 categories cash flows: . Cash flow from operating activities is derived from the principal revenue producing activities of the enterprise. . Cash flows from investing activities are the activities involving acquisitions and disposal of the long term asset and other investment not included. . Cash flow from financing activities are the activities that results in the changes in the size and composition of the owners capital including preference share capital and the borrowings of the enterprise.
Objectives It provides the information to user of financial statement with a basis to assess the ability of the enterprise to generate cash and cash equivalents. The needs of the enterprise to utilize these cash flows. AS-3 deals with the provisions of information about the historical changes in cash and cash equivalents. Scopes: An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented. Users of enterprises financial statements are interested in how the enterprise generates and uses cash and cash equivalents.
USEFULNESS: Predicts future cash flows. Determine the ability to pay dividends and other commitments. Shows the relationship of net income to changes in the business cash. Efficiency in cash management. Discloses success or failure of cash planning. Evaluates management decisions. Enhances the comparability of reports.
LIMITATIONS: It gives the main items of inflows and outflows of cash only and does not show the liquidity position of the company.
This statement is not a substitute of income statement which shows both cash and non cash items. Therefore net cash flows dont necessarily mean net income of the business. It cannot replace the funds flow statement as it cant show the financial position of the concern in totality.
calculation of total cash inflow 20052006 cash flow from operating activity cash flow from investing activity cash flow from financing activity total cash inflow 11151578 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 -6397739 132841307 150036559 1002904487 -758434569
33855759 171281147 556632754 774624663 1335582760 2766835200 76566105 31558768 243455795 947047536 967803779 2716362840 3937930868 65776909 257573475 343215675 377875593 412661099 composition of cash inflow 2005-2006 20062007-2008 20082009-2010 20102007 2009 2011 - 43.7149 35.335910 9.726420 51.574140 495 265.4059 183.7911 5 86 9 98 47 107.27845 260.3970 216.10639 225.696 353.4450 670.4860 6 75 6 18 98 74 242.61436 370.1234 367.68053 281.981 718.8510 954.2772 63 958 7 229 955 211 100 100 100 100 100 100
particulars cash flow from operating activity cash flow from investing activity cash flow from financing activity Total
SWOT ANALYSIS STRENGTH OF THE COMPANY The company depends upon the services of its key managerial personnel and to attract and retain them. It competitive strengths include its projects management expertise. The company has successfully executed 86 projects involving construction of 300 km roads and highways, 200 km of rail tracks, 10 minor and major bridges, and other general civil engineering works over the span of nine years. It owns a sizable fleet of construction equipment, enabling it to rapidly mobilizes the same project sites. Majority of the clients are the government of the states or central government, public sector undertakings and other government agencies. Large corpus of equipment Professional human resource approach Track record of time bound execution of projects. Decentralized control and management with adequate delegation of power. It has a good brand recall in eastern India
Weakness of the company Some of group companies namely Anil contracts private limited, M/S Hindustan construction, and M/S Anil Agarwal and ARSS engineering and technology private limited are in the same type of business, which may arise the conflict between the group of companies and the business strategy of the company. The group companies incurred the loss in previous year which can affect the business of the company. The company has not carried out an independent appraisal of the working capital management. The companys revenue totally depends on the contracts awarded by central and state government and their agencies. There are no certainties regarding the completion of the projects. It can be cancelled, postponed the payment, delayed etc. by which the cash flow statement, revenues and earnings etc are affected. The insurance coverage of the company may not project against certain operating hazard.
The working capital requirement of the company is depend on the bank finance. Any changes in interest rates or banking policy will adversely affect the companys business. Excessive dependence on govt. work orders. The company intends to minimizes this risk with attention to private sector projects in parallel.
Opportunity for the company companys emphasis on the railways segment can be a positive from the growth point of view, given that Indian Railways are likely invest huge sums in expanding and upgrading the railways infrastructure in the country. The company is totally concentrated on a single stats i.e. Orissa can be a positive side for the company. Because every year new projects come to the Orissa; in recent years POSCO and Arcelor- Mittal steel project come to Orissa. A huge growth in railway construction is based on the proposed outlays planned through the Eleventh 5 years plan, Mission 2015 and several new initiatives. The ministry of railways has also floated the integrated Modernization plan to keep pace with the expected growth in business for railways. Thrust on infrastructure development by the union and state Govt. coupled with massive allocation of funds. Facilitation activities by the Govt. The company can use its brand value.
Threats of the company Increasing competition in bidding process, face competition from national and international companies. High working capital requirement; if deficiency will occur, that will affect the financial strength of the company. Increase in cost or non availability of equipment, materials or fuel; Engagement of sub contractors or other agencies in the course of execution of roads and railway projects. Dependence on the joint ventures to qualify for the bidding process. Seasonality and weather condition. The company may be liable for the defaults committed by the joint venture partners in the course of execution of the project undertake by it jointly. The company should complete the project in time. The company should look after their inventory.
In the recent years the inventory gradually decreases, means it is not a good indication for the company. So the management should have to take more care of the inventory.
CONCLUSION ARSS infrastructure limited is a growing company but its total value isnt reflected in market because of lack of efficient management in inventory poor asset management system and so on. So ARSS infrastructure limited should develop strategies to improve the inventory management system.