A SUMMER TRAINING PROJECT REPORT ON WORKING CAPITAL OF HMT

IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE DEGREE OF MBA

MASTER OF BUSINESS ADMINISTERATION (2011-2013)

Submitted to: Miss GAGANDEEP KAUR

Submitted By: POOJA RANI MBA-3rd Sem.

SWAMI DEVI DYAL INSTITUTE OF ENGINEERING& TECHNOLOGY

BARWALA, PANCHKULA
1

DECLARATION
I, Nidhi Dixit Sri, bearing Reg. No.07gk579, hereby declare that the report titled Analysis of financial statement using Ratio Analysiss submitted to Kurukshetra University, Kurukshetra in partial fulfillment of the requirement for the award of Master

of Business Management under the guidance and supervision of Miss. Nidhi Aggarwal faculty, Swami Devi Dyal Engg. & Tech. Barwala. I this no part is taken from any other report. This work is originally completed by me and the information provided in the study is authentic to the best of my knowledge.

(Nidhi Dixit)

ACKNOWLEDGEMENT
Gratitude is the hardest of emotions to express and often one does not find adequate words to convey that entire one feels. I am extremely grateful to the management of HMT Ltd PINJORE, for giving me an opportunity to pursue Summer Training at the factory. Its my proud privilege & pleasure to express a deep sense of gratitude to Mr. J.K Jain (JGM Finance), Mr. Dharmveer (Manager Accounts) for their pin point guidance, help, active cooperation encouragement & supervision throughout this project. The assistance & cooperation extended by other staff member helped me to successfully accomplish this project report and its objectives. A special thanks to all my trainee friends whose company made the working atmosphere cheerful and helped me to complete the project .

(Nidhi Dixit)

PREFACE
MBA is the stepping stone to the management carrier and to develop good managers is necessary that the theoretical must be supplement with exposure to the real environment. Theoretical knowledge just provides the base and it is not sufficient to produce a good manager thats why the practical knowledge is needed. Therefore the summer training and project report is an essential requirement for the MBAs student. The objective of this training is to make the person aware about the corporate world their problems, their rules. It raise the level of performance is one or more of its aspects and this may be achieved by providing new knowledge and information relevant to the job. This project report helps the student to utilize his skills properly and learn field realities but also provide a chance to the organization to find out talent among the building managers in the very beginning.

TABLE OF CONTENTS
SL NO. CONTENTS
Certificate of company Declaration Acknowledgement Preface List of contents List of graphs INTRODUCTION Introduction to topic Statement of problem Introduction to the company

PAGE NO.
2 3 4 5 6 7

Chapter 1

8 11 15

Chapter 2

REVIEW OF LITERATURE

21

Chapter 3

RESEARCH METHODOLOGY Research design Objectives of study Scope of the study Data collection techniques Limitation of the study

23 24 25 26 27

Chapter 4 Chapter 5 Chapter 6 Chapter 7

DATA ANALYSIS AHD INTERPRETATION Data analysis & interpretation 54-77 FINDINGS & SUGGESSTIONS

31

68

CONCLUSION

71

BIBLIOGRAPHY

73

LIST OF GRAPHS AND FIGURES S.NO.

1)

CONTENTS
LIQUIDITY RATIO CURRENT RATIO QUICK RATIO ABSOLUTE LIQUIDITY RATIO CAPITAL STRUCTURE RATIO DEBT-EUITY RATIO DEBT TO TOTAL FUNDS RATIO FIXED ASSETS RATIO PROPRIETARY RATIO TOTAL DEBT TO TOTAL ASSETS FIXED ASSETSS TO PROPRIETORS FUND INTEREST COVERAGE RATIO

PAGE NO.
42 43 45

2)

47 48 49 50 51 52 53

3)

ACTIVITY RATIO FIXED ASSETS TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO STOCK TURNOVER RATIO DEBTORS TURNOVER RATIO DEBT COLLECTION PERIOD

55 56 57 58 59 60 61 62

4)

PROFITABILITY RATIO GROSS PROFIT RATIO NET PROFIT RATIO OPERATING NET PROFIT RATIO

CHAPTER-1

INTRODUCTION

1.1 INTRODUCTION OF FINANCE

Finance is the life blood of business. It is rightly termed as the science of money. Finance is very essential for the smooth running of the business. According to Wheeler, Finance is that business activity which is concerned with the organization and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise.Financial management is that managerial activity which is concerned with the planning and controlling of a firm financial reserve. Financial management as a academic discipline, has undergone fundamental changes as regards its scope and coverage. In the early years of its evolution it was treated synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline, a broader scope so as to include in addition to procurement of funds, efficient use of resources is universally recognized. Financial analysis can be defined as a study of relationship between many factors as disclosed by the statement and study of the trend of these factors. The basis for financial planning, analysis and decision-making is the financial information. Financial information is needed to predict, compare and evaluate the firms earning ability. It is also required to aid in economic decision making investment and financing decision making. The financing information of an enterprise is contained in the financial statements or accounting reports.

FINANCE DEPARTMENT Any business for the matter whether large or small, profit motive is considered to be afinancial concern and its success or failure to a large extent depends on its financialdecisions. Efficiency of the organization is brightened only when there is efficientmanagement of its finance.Financial pans may take many forms but any good plan must be related to thecompanies eisting strengths and weaknesses. The strengths must be understood if theyare to be used to proper advantages and weaknesses must be recognized and correctmeaures is to be taken in accordance with the forecasting and budgeting procedures,but the plan must begin with financial analysis. Financial analysis is the evaluation andintepretaiton of a companys fiscal position and operaitons.

FUNCTIONS OF FINANCE DEPARTMENT: The various funcitons under finance department are: Planning of funds Acquisiton of funds Allocaiton of funds Investment of funds Dividend decision Recording of the transaction Preparing of financial statements Evaluation of financial performancePlanning of funds:

Planning of funds is a careful estimate made by the manager about the total fundsrequired which includes both fixed and working capital requirments. This estimation isdone by a keen observation over physical acitivities of the factory. The working capitalrequirments in HMT are more. In the year 2008-09 the total budgeted amount is Rs.124crores but sanctions are made as follows: 52 crores from governement 10 crores from head office 2 crores from other HMT divisions 12 lakhs from bill discounting 5 crore from capital profits.

Acquisitions of the fund: The HMTMBX will acquire the fund from different sources like: UCO [united commercial bank] which is consortium of 9 banks tha tprovidessecured loan by hypothecation of assets like inventories, machineries etc. Government of India: it will provide funds only for capital expenditure andVRS. Debtors receivable
Loan from head office

Planning of funds: Planning of funds is a careful estimate made by the manager about the total fundsrequired which includes both fixed and working capital requirments. This estimation isdone by a keen observation over physical acitivities of the factory. The working capitalrequirments in HMT are more. In the year 2008-09 the total budgeted amount is Rs.124crores but sanctions are made as follows: 52 crores from governement 10 crores from head office 2 crores from other HMT divisions 12 lakhs from bill discounting 5 crore from capital profits.

Acquisitions of the fund: The HMT will acquire the fund from different sources like: UCO [united commercial bank] which is consortium of 9 banks thatprovidessecured loan by hypothecation of assets like inventories, machineries etc. Government of India: it will provide funds only for capital expenditure andVRS. Debtors receivable Loan from head office Sale of scrap:[this yearsprofit from sale of scrap is Rs.83,00,000]

Allocation fund in HMT are made as follows: Material planning (Machines tools) -50% Salary (basic pay + DA + DP + allowances+amenities)30% Other expenses (electricity, miscellaneous expenses etc) 15% Interest payments 5%

Investment of funds:
Investment decisions comprises of investment in capital assets, investment in currentassets which is based on the inventory and credit proposals purchasssed by HMT andby studying requirmmments of working

10

capital. The investmentin capital assets is doneafter a careful study over the profitability,safety, liquidity and solvency factor of thoseassets.

Dividend decisions:
Divident decision involves the determination of the percentage of profits to be paid to itshareholders. This percentage is decided after considering the factors such as marketprice of the shares the trend in earnings, the tax position and the profitability use offunds.Currently the HMTMBX is not making any profits and hence no dividends.

Recording of the transactions:

Each and every transaction that takes place daily has to be recorded properly forthepurpose of having better control over the funds and for optimize them. All thetransactions are recorded in journal and then posted to the ledger. The informaitonstored in ledger will be used to prepare the financial performance. The financialstatement includes trading a/c and income statement and thebalance sheet.

Various sections under finance department :

Inward Bill Section (IBS) Outward Bill Section (OBS) Wage Section Cash and Provident fund Section Main Accounts

11

PLANNING DEPARTMENT
It is a pre-determined future course of action. It is the advanced planning of the futureactivities. Planning is the determination of personnel and machine programmers. Itinvolves planning of human resource requirements as well as machine requirements as well as machines requirements. It also involves forecasting of personnel and machineneeds, changing values of employees as well as machines to suit the organizationneeds.

PURCHASE DEPARTMENT
The functions of purchase department in HMT are decentralized and each unit isresponsible for procurement of its requirement based on the approval annual operationplans subject to quarterly review based order or market feedback.

Objectives of purchase department:

To ensure timely procurement and supply of material. To ensure fair consistent and transparent purchase practices are followed. To ensure continuous search for alternate source supply. To act as information center for material To ensure investment made on inventory is at optimum level.

Purchasing procedure:
Following is the procedure involved in the purchase of materials: 1. Indent 2. Material purchase requisite 3. Circulation of enquiries 4. Repairs of offers 5. Comparative statement. 6. Recommendations for procurement 7. Proposed for purchase 8. Financial concurrence

12

9.GMs sanction for purchase 10. Placement of order 11. Confirmation of order 12. Follow up 13. Receipt at stores 14. Preparation of material inwards slip 15. Inward inspection

PRODUCITON DEPARTMENT
Production is the process of converting the raw materials into finished products. HMThas been designed & built using modern production engineering techniques. It has aflow production technique employed all stages to ensure high quality at low cost. Theplant is equipped with special purpose production units, test equipment and massproduction machinery. HMT follows batch production. MATERIAL MANAGEMENT DEPARTMENT For manufacture of finished goods raw material are required by assembling manycomponents. Finished goods are manufactured so in order to check and control thevarious activities right from the purpose of the raw material to disposals of finishedgoods to customer. Materialdepartment carries this out. HMT started with one product in 1953 and is now dealingwith 26 products. Total machines are 426 in that 250 are idle.The main reasons for idle machines are:Reduction in manpower Reduction in sales turnover. Each material has BOM (bill of material).

RATIO ANALYSIS

MEANING: Ratios are simply a means of highlighting in arithmetical terms the relationship between figures drawn from financial statements. In simple words, ratio is a simple expression of the relationship of one number to another number. A financial ratio is a relationship between two accounting figures expressed mathematically. A ratio can also be expressed as percentage by multiplying the ratio by 100. Ratio provides clues about the financial position of a concern. These are the indicators of financial strength,
13

soundness, position or weakness of an enterprise. One can draw the exact conclusions about the financial position of the concern with the condition over time as a way of identifying and evaluating performance trends.

SIGNIFICANCE OF RATIO ANALYSIS

It is helpful in decision making. It is helpful in simplifying financial statements. It is helpful in controlling costs. It is helpful in locating weak spots. It is helpful in preparing comparative statements.

It is helpful in measuring efficiency.

LIMITATIONS OF RATIO ANALYSIS

Limited use of a single ratio. Lack of adequate standards. Wrong ratio based on wrong data. Change in accounting figures (window dressing). Incorrect comparisons & difficulty in forecasting.

LIQUIDITY RATIOS OF HMT LTD.

Liquidity refers to the ability of a concern to meet its current obligations. These obligations can be met by current assets. Thus, liquid ratios indicate the ease of turning assets into cash. If current assets can pay off current liabilities then the liquid position will be satisfactory. On the other hand if current liabilities cannot be easily met out of current assets then liquidity position will be treated as bad. By interpreting these ratios we can determine the degree to which assets, which are quickly convertible into cash, exceed the liabilities which require almost immediate cash payments. These ratios are very useful to bankers, suppliers, other short-term creditors and all financial statements users.

14

These liquid ratios are: Current Ratio Quick Ratio Absolute Liquid Ratio

A) CURRENT RATIO OF HMT LTD.

It is a traditional ratio used to measure a companys liability and establishes the relationship between Current assets and Current liabilities. The formula for calculating the ratio is: Current ratio = Current assets Current liabilities CURRENT ASSETS = CASH + BANK + DEBTORS + SHORT-TERM INVESTMENTS + PRE PAID EXPENSES + STOCK CURRENT LIABILITIES = CREDITORS + BANK OVERDRAFT + SHORT-TERM LOANS + OUTSATNDING EXPENSES + BILL PAYABALE

B) QUICK RATIO OF HMT LTD.

With the help of this ratio the capacity of the firm to pay off its current liabilities within a month or immediately is measured. This ratio expresses the relationship between the liquid assets and current liabilities. Liquid assets are those assets which can be converted into cash quickly without much loss of time and value. Quick ratio sometimes called Acid Test Ratio and is one of the best measures of liquidity. It is a supplementary test of the ability of a business to meet its current obligations. The quick ratio is much more an exact measure than current ratio, by excluding inventories and prepaid expenses. Quick ratio = Liquid assets Current liabilities LIQUID ASSETS = CURRENT ASSETS PREPAID EXPENSES STOCK
15

C) ABSOLUTE LIQUIDITY RATIO OF HMT LTD.

A subsequent innovation in ratio analysis, absolute liquidity ratio which eliminates any unknown surrounding receivables. Although receivable, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion that the absolute ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets.

The formula for computing absolute liquid ratio is:Absolute liquid ratio = Absolute liquid assets Current liabilities ABSOLUTE LIQUID ASSETS = CASH + BANK + MARKETABLE SECURITIES.

16

1.2 COMPANY PROFILE

After establishing two machine tools factories and a watch factory in Bangalore, the Pinjore unit was established as the third machine tool factory. It went into production on 1st October 1963. The factory has been designed, built and commissioned entirely by Indian talent in a record period of 17 months of breaking the ground on the may 2, 1962.

Company History - HMT Ltd.

YEAR EVENTS 1953 - The Company was Incorporated in Bangalore. The Company was converted into a Public Limited Company on May 13, 1977. The main objects of the Company is Manufacturing of the Machine Tools, Metal forming presses and press brakes, pressure die, casting machines and automatic plastic injection moulding machines, Automatic plastic injection moulding machines, Paper cutting machines, Automatic plastic injection moulding machines, Paper cutting machines, Tractors 25/35/55 HP, Lamps and Lamp making machines, Printing Machinery, Printing Machinery, Watches. Some of the trade names of the watches manufactured are Janata, Sona, Pilot, Tarun, Nutan, Jawhar, Automatic Day and Date, Priya, Chinar, Nishat, Rakhee, Avinash and Kohinoor.

The Machine Tool Division at HMT Bangalore, was the oldest manufacturing unit of the Company and the product lines consist of 16 types of metal working machines. The Die Casting Division was set up for the manufacture of Die Casting and Plastic Injection Moulding machines in technical collaboration with Reifenhaeuser GmbH & Co. of West Germany.

HMT has two fully-owned subsidiaries now - HMT (International) Ltd, which is a trading company and HMT (Bearings) Ltd, which manufactures ball and roller bearings. It also has a partly-owned subsidiary - Praga Tools Ltd - based in Secunderabad.

The union minister of state for industry released a new HMT automatic day date watch Ranjit incorporating euro-style dial, and a new ladies watch Preeti.

17

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

The company has introduced 350 range of Citizen watches in Mumbai along with its latest EcoDrive models, which absorb power thorough any source of light.

The company has entered into a manufacturing and marketing alliance with Tennmax Industrial Ltd. of Hong Kong.

HMT Ltd has been named as one of the top ten brands in India by a recent survey conducted by A&M-ORG-MARG. HMT has been ranked as the top seventh brand among the main brands in the annual survey that covers 60 brands from all over the country. HMT is also the only public sector company whose brand has features among the top ten in the survey. The brand has emerged as seventh from the 22nd position held last year.

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

Citizen Watches (India) Limited, is a joint venture between the Citizen Watch Company, Japan which holds a 51 per cent stake and Doshi Time Industries holding 49 per cent stake. It has a total paid up capital of Rs eight crores.

An MoU (memorandum of understanding) signed between the Government and HMT has delegated power to HMT to sanction schemes for incentives cum rewards.

1999 - The Industry Ministry has directed the state-owned Hindustan Machine Tools to explore possibilities of joint venture formation for its watch division.

The company has tied up with Tennmax of Hong Kong and is currently marketing the HMTTennmax brand in India.

18

After Kenya and Nigeria, HMT had signed a MoU for setting up a watch assembly unit Zimbabwe.

The shareholders of Hindustan Machine Tools Ltd (HMT) approved a proposal to increase the company's authorised share capital to Rs 200 crores from the present Rs 135 crores.

2000 - Icra has assigned an LAAA (SO) rating and an MAAA (SO) rating to the Hindustan Machine Tools (HMT) bonds of Rs 469 crore 10-year tenure and Rs 40.43 two-year tenure.

HMT (International) Ltd., a wholly owned subsidiary of HMT Ltd., has been awarded the EEPC trophy for its achievements in export of technical services during the year 1998-99.

2001- Mr Manohar Joshi, Union Minister for Heavy Industries and Public Enterprises, has unveiled the HMT 4922 tractor at a launch ceremony organised at Pinjore, Chandigarh. With the introduction of the new actor,

2002 HMT Ltd has informed that consequent upon relinquishing of the charge of Chairman & Managing Director, Tractor, upon resignation by Mr R A Sharma on July 04, 2002 Mr M S Zahed, Director, Organisation & Management has taken additional charge of the post of Chairman & Managing Director, Tractor of the Company.

2003 HMT Ltd has informed BSE that pursuant to Order dated January 9, 2003 from the Department of Heavy Industry, Ministry of Heavy Industries & Public Enterprises, Government of India, New Delhi, Shri M.S. Zahed, Chairman & Managing Director (Acting) and Director (Organisation & Management) has been appointed as Chairman & Managing Director of the Company for a period of 5 years from the date he assumes charge of the post or till the date of his superannuation or until further orders, whichever is earlier. Shri.M.S Zahed assumed charge of the post of January 09, 2003.

19

HMT enters into Memorandum of Understanding with PNB, UCO Bank and State Bank of Mysore and has launched SBM-HMTAgri Farm Scheme to promote Agriculture mechanisation in south India.

Pinjore Unit of HMT at Chandigarh is facing a financial crisis and turnover has dropped to 5060cr .

Shri Naresh Chaturvedi has been appointed as a part time official Director on the Board of Directors.

Shri Navin Kumar, Joint Secretary to GOI has been appointed as Part Time Official Director on the Board of Directors of the company.

2004 HMT Ltd. has informed that the equity shares of the Company have been delisted from the Bangalore Stock Exchange Limited, the Regional Exchange for HMT Limited, with effect from January 3, 2004.

HMT signs agreement with UK-based Trantor for high power tractors

HMT bags CMTI-PMT Trust Award

HMT enters into a Technology Collaboration Agreement with M/s Trantor Vehicles Ltd

HMT Ltd. enters into a Technology Collaboration Agreement with Trantor Vehicles Ltd. U.K.

Signs MoU with State Bank of India (SBI) for tractor finance

2005 HMT inks agreement with ONGC, MRPL HMT in dialogue with Japanese co for MUV
20

2006 HMT Ltd has Shri. R Asokan, Director (Finance), Department of Heavy Industry, New Delhi has been appointed as Part-time Official Director on the Board of the Company vide Presidential Order dated October 30, 2006, with effect from October 30, 2006

Hmt Ltd. has informed that HMT (International) Limited, the wholly owned Subsidiary of HMT Limited, Bangalore, would set up Indo-Zimbabwe Technology Centre (IZTC) in Harare and India Technology Centre (ITC) in Bulawayo.

HMT Ltd has informed that the Company has established a high tech Engine Emission Testing Laboratory in R&D Centre at its Tractor Division, Pinjore at an investment of Rs 50 million.

2007 HMT Ltd has appointed Shri. N Gokulram, Additional Secretary & Financial Adviser, Ministry of Heavy Industries & Public Enterprises, as Part-time Official Director on the Board of the Company vide Presidential Order dated January 22, 2007, with effect from January 22, 2007 and until further orders vice Shri. R Asokan, Director (Finance), Department of Heavy Industry, New Delhi.

Dr. Surajit Mitra has been appointed as Part-time Official Director on the Board of the Company vide Presidential Order F.No.5(35)/1995-PE.X (Vol.II) dated March 06, 2007, until further orders with effect from March 06, 2007.

2008 HMT Ltd. has informed that Shri B.S. Meena has been appointed as Part-time Official Director on the Board of HMT Limited vide Presidential Order F. No. 5 (35)/ 1995- PE. X dated January 25, 2008, until further orders with effect from January 25, 2008.

Hmt ltd has appointed Shri S. Behuria, Additional Secretary & Financial Adviser to Government of India, Ministry of Heavy Industries & Public Enterprises, New Delhi, as Part-time Official Director on the Board of HMT Limited vide Presidental Order F. No. 5(35)/1995-PE.X dated
21

October 14, 2008, until further orders with effect from October 14, 2008". Further the Company has submitted the List of Directors of the Company as on October 14, 2008.

HMT Ltd has appointed Shri S G Sridhar, General Manager (Technical), Hindustan Latex Ltd, as Director (Operations) on the Board of the Company with effect from December 15, 2008, vide Presidential Order dated October 22, 2008.

2010 Hmt Ltd has informed that Shri Harbhajan Singh has been appointed as Part-time Official Director on the Board of the Company with effect from January 11, 2010

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VARIOUS UNITS & DIVISIONS OF HMT

UNITS PRODUCT/DIVISION LOCATION/STATE BANGLORE I. MACHINE TOOLS (KARNATAKA) 1953 YEAR

II.

DIE CASTING BALL SCREWS

BANGLORE (KARNATAKA) 1971

III.

MACHINE TOOLS & TRACTORS

PINJORE (HARYANA)

1963 1971

IV.

MACHINE TOOLS PRINTING MACHINES

KALAMESSERY (KERALA)

1965 1972

V.

MACHINE TOOLS PRESSES

HYDERABAD (ANDHRA PRADESH)

1967 1972

AJMER VI. MACHINE TOOLS (RAJASTHAN) 1973

VII.

WRIST WATCHES

BANGLORE

1962

SRINAGAR VIII. WRIST WATCHES (JAMMU & KASHMIR) 1975

TAMKAR IX. WRIST WATCHES (KARNATAKA) 1972

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AWARDS OVER THE YEARS

YEAR 1982-1983 DESCRPITION NPC AWARD FOR PRODUCTIVITY TO MACHINE TOOLS AWARD FOR LONGEST ACCIDENT FREE PERIOD BY NATIONAL SAFETY COUNCIL AWARD FOR HIGHEST REDUCTION IN ACCIDENT FREQUENCY RATE BY HARYANA LABOUR DEPARTMENT FIE FOUNDATION/PMT TRUST AWARD TO MACHINE TOOLS AWARD FOR BEST CANTEEN ARRANGEMENT BY HARYANA LABOUR DEPARTMENT CII AWARD FOR EXCELLENCE IN PRODUCTIVITY TO TRACTORS RUNNERS UP NATIONAL SAFETY AWARD OF GOVT. OF INDIA / MINISTRY OF LABOUR INDIRA GANDHI MEMORIAL AWARD OF AP PUBLIC ENTERPRISES EMPLOYEES FEDERATION TO TRACTOR DIVISION SECOND BEST AWARD FROM NPC TO TRACTOR DIVISION

1984-1985

1984-1985 1985-1986

1985-1986 1986-1987

1987-1988

1988-1989 1989-1990

1991-1992

BEST PRODUCTIVITY AWARD FROM NPC TO TRACTOR DIVISION

1993-1994

SECOND BEST AWARD FROM NPC TO MACHINE TOOLS DIVISION

1994-1995

FIE / PMT CMTI TRUST AWARD IN IMTEX-95 FOR HMC-320 HM/C HARYANA STATE AWARD FOR PROMOTION OF SMALL SCALE AND ACCILLARIES TO TRACTOR DIVISION FIE AWARD IN IMTEX-98 FOR HMC-400 EM/C TO MACHINE TOOL ISO-9001 CERTIFICATION FROM KEMA, HOLLAND
24

1995-1996 1997-1998 2000-2001

Structure of HMT tractors

HMT TRACTORS

MANUFACTURING UNITS

MARKETING DIVISION

HMT TRACTORRS PINJORE HARYANA

HMT TRACCTORS MOHALI, PUNJAB

HMT TRACTORS HYDRABAD, A.P.

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VISION AND MISSION

Our Corporate Vision

Our Corporate Mission To establish ourselves as one of the worlds premier companies in the engineering field having strong international competitiveness To achieve market leadership in India through ensuring customer satisfaction by supplying internationally competitive products and services To achieve sustained growth in the earnings of the group on behalf of shareholders

CORPORATE OBJECTIVES AND GOALS

To encourage the modernization of Indian Industry through the supply of engineering goods and services of world class excellence

To maintain technological leadership through continuous efforts to update product technology and manufacturing methods

To globalize our operations by developing a mix of international markets and businesses To ensure a satisfactory return on capital employed, to meet the growth needs and the aspirations of our stakeholders.

To present an active, pleasant and productive environment.

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PRODUCTS AND SERVICES

WATCHES

The Mechanical Range Hand wound Gents & Ladies - Desh Ki Dhadkan Automatic Day-date- The Watch that lasts & lasts Series of Quartz Watches Elegance Roman Utsav Sangam - Its all about YOU - ONLY For MEN - The Well Dressed Watch - Absolutely Modern, Absolutely Indian - Value for Money, For those who value Money - For cute faces - Good as Gold - Sign of Good Times - The fragrance watch

Lalit

Pace Swarna Shreyas Chandan

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Braille

- A gift of time to the blind

&

Also

Customized

watches

for

Institutions

Special Clocks Tower Clock Solar Clock Population Clock Display Clock

Floral Clock

International Clock

Master slave Clock

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TRACTORS

MODEL 2522 3022 3522 5022 6522 7511 2522 OS 3522 CS 3522 DX 6522 CS 4922 EDI

HP RANGE 25 30 35 50 65 75 25 35 35 65 49

MAIN FEATURE AVL fuel efficient engine & New Style Bonnet Fuel efficient engine (HMT Design); New Style Bonnet AVL adapted fuel efficient engine & New Style Bonnet HMT Design Heavy Duty Tractor HMT Design; Power steering & ROPS Low height and width for orchard applications Wetland cultivation Direct Axle Drive Wetland cultivation AVL adapted fuel efficient engine & New Style Bonnet

ENGINES 25, 30, 35, 45 & 58 CS: Coastal Special

Gen-set & Commercial applications

DX: Direct Axle OS: Orchard Special

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HMT's Milestones
YEAR 1953 1961 1962 1963 1965 1967 1971 1971 1972 1972 1973 1975 1975 1975 1978 1981 1981 UNITS/DIVISIONS Machine Tools I Machine Tools II Watch Factory I Machine Tools III Machine Tools IV Machine Tools V Tractor Division Die Casting Division Printing Machinery Division Watch Factory II Precision Machinery Division Machine Tools VI HMT (International) Ltd. Watch Factory III Watch Factory IV HMT Bearings Limited Quartz Analog Watches LOCATION Bangalore Bangalore Bangalore Pinjore Kalamassery Hyderabad Pinjore Bangalore Kalamassery Bangalore Bangalore Ajmer Bangalore Srinagar Tumkur Hyderabad Bangalore STATE Karnataka Karnataka Karnataka Haryana Kerala Andhra Pradesh Haryana Karnataka Kerala Karnataka Karnataka Rajasthan Karnataka Jammu & Kashmir Karnataka Andhra Pradesh Karnataka

30

1982 1982 1983 1985 1986 1991

Watch Factory V Specialized Watch Case Division Stepper Motor Division Ball Screw Division CNC Systems Division Central Re-conditioning Division

Ranibagh Bangalore Tumkur Bangalore Bangalore Bangalore

Uttar Pradesh Karnataka Karnataka Karnataka Karnataka Karnataka

TRACTOR SPARE PARTS

MANUFACTURING & OFFERING TRACTOR SPARE PARTS & ACCESSORIES FOR ALL TYPES OF TRACTORS MANTION BELOW :MASSEY FERGUSON TRACTOR

MAHINDRA & MAHINDRA TRACTOR SWARAJ TRACTOR EICHER TRACTOR ESCORT TRACTOR SONALIKA TRACTOR FORD TRACTOR ZETOR (HMT) TRACTOR NEW HOLLAND TRACTOR FARMTRAC TRACTOR POWETRAC TRACTOR ETC

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Brake Drum for Zetor (HMT) Tractor

BRAKE DRUM FOR ZETOR OR HMT TRACTOR we are the leading providers of comprehensive range of Brake Drum. These brake drums are manufactured by using high quality raw material which is procured from the reliable vendors. A Brake Drum is a brake in which the friction is caused by a set of shoes or pads that press against the inner surface of a rotating drum. The drum is connected to a rotating wheel. Our MAK Brake drums are well known for their flexibility, low maintenance and high operating speed and to deliver consistent performance.

Brake Drums

We are engaged into offering a brake drums for all tractors mf, ford, mahindra, swaraj, escort, eicher, hmt and others.

Payment Terms:

L/C (Letter of Credit), T/T (Bank Transfer), Other

Front Wheel Hubs For All Tractors

32

We offer a wide range of front wheel hubs for all tractors including ford, swaraj, mahindra, escort, eicher, hmtand others for jcb machine also. Payment Terms: L/C (Letter of Credit), T/T (Bank Transfer), Western Union, Other

Production Capacity: as per requirement of customers Delivery Time: Packaging Details: prompt delivery assured packaging

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Chapter-2 REVIEW OF LITERATURE

34

REVIEW OF LITERATURE
India is mainly an agricultural country. Agriculture in India is unique in its characteristics,where over 250 crops are cultivated in its varied agro-climatic regions, unlike 25-30 cropsgrown in many of the developed nations of the world. Tractors are part of agricultural machinery industry and forms an integral part of farm mechanization and plays a very crucial role in increasing productivity. Tractor is used for multitude of uses; it is used in agriculture for both land reclamation and for carrying outcultivation of various crops. It is also employed for carrying out various operations related to raising of crops by attaching suitable implements and to provide the necessary energy for performing various crop production operation involved in the production of agricultural crops.Tractors are capital intensive, labour displaying used as a mode of transport, in electricitygeneration, in construction industry and for haulage operation.As a Green Revolution in the sixties, the total food grain production increased from a mere50.8 million tones during 1950-51 to 217 million tons in 2009-10 and productivityincreased from 522 kg/ha to more than 1,500 kg/ha. The increase in production of food grainswas possible as a result of adoption of quality seeds, higher dose of fertilizer and plant protection chemicals. Irrigation played a major role in increasing the productivity. Increasedcropping intensity and higher quantity of inputs can no longer be effectively managed byanimal power alone and, therefore, farmers adopted tractors, irrigation pumps, harvesters and power threshers extensively.

35

Chapter -3 RESEARCH METHODLOGY

36

RESEARCH METHODLOGY
The main conclusion and give recommendation it is necessary to search about the given topic. As my topic is related to the working capital, the secondary data has been very useful for this purpose. The cost audit reports of various years have been used in analyzing the data. Mainly secondary data has been used. To know about the working capital management, I have talked to various persons in accounts departments.

Main topics of Research methodology are:

Reason for choosing this topic Objective of the study Research Methodology Steps in Research Methodology o Collection of data o Organization of data o Presentation of data o Interpretation of data

COLLECTION OF DATA: both the primary and secondary data has been collected from the market and the company respectively. The secondary data are provided through the annual report; website etc. of the company and the primary data was collected through the medium of face-to-face intersection/interviews with the business person in the market.

ORGANIZATION OF DATA: Data once collected needed to be organization for further processing. Data collected by me was carefully gone through then the relevant and useful matter was assorted and properly organized.

PRESENTATION OF DATA: The data collected is no use unless and unstill it is given in presentable form. Thus after proper organization the data is given in a presentable form with complete detail with the help of bar diagrams, pie chart etc.

INTERPRETATION OF DATA: After carefully analyzing the data, it has been apply interpreted in order to give concrete conclusion and proper recommendation.

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3.1 NATURE OF RESEARCH

This research employed four type of research: Descriptive research. Analytical research. Qualitative research. Quantitative research.

DESCRIPTIVE RESEARCH OR EX-POST FACT RESEARCH

To conduct the research work accurately, we conducted descriptive research. It includes surveys and fact finding inquires of diff. Kinds. It is done to know following fact: The HMT sales are move influenced by quality. Frequency of using HMT product. Liking in respect of quality. Media for awareness of schemes.

ANALYTICAL RESEARCH In it, we have to use facts and information already available and analysis these to make an evaluation for project.

QUALITATIVE RESEARCH
In selecting the approximate research design of the study and the type of data needed, the choice of data collection techniques is four grouped. It is done for: Consumers needs. Consumers preference for brand. In depth understanding of consumers. Availability for consumers.

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QUANTITATIVE RESEARCH
Quantitative research is obtained to rate the different aspect on parameters. Image of brand. Brand loyalty. Expectation of customers. Awareness among consumers for schemes

3.2OBJECTIVE OF THE STUDY

The main objective of ratio analysis is to show the firms relative strengths and weakness. The objectives of ratio analysis are as follows:

It determines the financial condition and financial performance of the firm.

It involves comparison for a useful interpretation of the financial statements

It helps in finding solutions to unfavorable financial statements.

It helps to take suitable corrective measures when the financial conditions and performance are unfavorable to the firm, in comparison to other firms in the same industry.

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

The overall operating efficiency and performance of the firm.

3.3 SCOPE OF THE STUDY:

This study is about the ratio analysis of HMT LIMITED, which is a part of financial analysis. Ratio analysis is perhaps the first financial tool developed to analyze and interpret the financial statement and is still used widely for this purpose.
39

Financial performance analysis is a well researched area and innumerable studies. Have proved the utility and usefulness of this analytical technique. This research seeksto Investigate and constructively contribute to help: The company in finding out the gray areas for improvement in performance. The company to understand its own position over time. The managers to understand their contribution to the performance of thecompany. The present and potential investors, outside parties such as the creditors, debtors, government and many more to get an idea of the overall performance of the firm. Theresearcher can further analyze the cash flow statement, funds flow statement, working capital analysis, balance sheet analysis, marketing trends toknow the financial and liquidity position of the HMT Limited.

3.4 DATA COLLECTION:

Since the study is restricted only to financial statements of HMT Limited, there is no scope for the primary collection of data.The data collection is done through Secondary data which is collected byreferring annual reports i.e. balance sheets, profit and loss account etc, of HMT Limited.

3.6 LIMITATIONS OF THE STUDY

In spite of the best efforts the study was subjected to the following limitations: Managers sometimes denied from disclosing some important financial matters that can be helpful in this study. Some information related to the study, which had been collected from the company was rounded off because of some influence. At some place approximate figures had been taken as per instructions of company officers. The time period given to me for the completion of the project was short as in such a short span of time it becomes difficult to complete any project in detail.

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The staff members were too bus in their audit work because our training period fallen in between their audit period. I could have gained a lot if they could have spared more time for me.

Some officers were too busy to give a sincere response and hence their response may not relate to real picture. Other private players are entering into joint ventures with foreign partners. Thus these competitors are getting sophisticated technologies that HMT is not able to do.

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CHAPTER 4 DATA ANALYSIS&INTERP RETAION

42

RATIO ANALYSIS OF DATA OF HMT LTD.

Ratio analysis is a means of better understanding of financial strengths & weaknesses of a concern. And hence, my study is based on the data related to last 4 years and all the financial analysis are made on the basis of these ratios only. These are as Follows:ANALYSIS OF

SHORT TERM FINANCIAL POSITION OF HMT

SHORT TERM FINANCIAL POSITION

LIQUIDITY RATIOS

EFFICIENCY / ACTIVIRY RATIOS

PROFITABILITY RATIOS

ANALYSIS OF LIQUIDITY RATIOS OF HMT LTD.

Short term obligation of a concern can be met only if there is sufficient amount of liquid assets. Liquidity refers to the ability of a concern to meet its current obligations. These obligations can be met by current assets. Thus, liquid ratios indicate the ease of turning assets into cash. If current assets can pay off current liabilities then the liquid position will be satisfactory. On the other hand if current liabilities cannot be easily met out of current assets then liquidity position will be treated as bad. By interpreting these ratios we can determine the degree to which assets, which are quickly convertible into cash, exceed the liabilities which require almost immediate cash payments. These ratios are very useful to bankers, suppliers, other short-term creditors and all financial statements users.

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These liquid ratios are: Current Ratio Quick Ratio Absolute Liquid Ratio

A) CURRENT RATIO OF HMT LTD.

It is a traditional ratio used to measure a companys liability and establishes the relationship between Current assets and Current liabilities. It indicates the general liquidity or short term financial position of a company. It is calculated by dividing total current assets by total current liabilities. An ideal current ratio is 2:1. The formula for calculating the ratio is: Current ratio = Current assets Current liabilities Where, CURRENT ASSETS = CASH + BANK + DEBTORS + SHORT-TERM INVESTMENTS + PREPAID EXPENSES + STOCK CURRENT LIABILITIES = CREDITORS + BANK OVERDRAFT + SHORT-TERM LOANS + OUTSATNDING EXPENSES + BILL PAYABLES

COMPARISON OF CURRENT RATIOS OF HMT LTD.

Year current assets Current liabilities current ratio 1.36:1 1.32:1 1.26:1 1.23 2008-09 17562.05 12822.52 2009-10 16629.92 12561.91 2010-11 19433.19 15439.99 2011-12 19846.50 16160.56

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GRAPH SHOWING CURRENT ASSETS & CURRENT LIABILITIES OF HMT

Curent assets / current liabilities
25000 20000 15000 10000 5000
0

Current assets Currentliabilities

2008 -09

2009 2010-10Years 11 10

201112

GRAPH SHOWING CURRENT RATIO OF HMT

current ratio
1.4 1.3 1.2 1.1 2008-09 2009-10 2010-11 2011-12 current ratio

INTERPRETATION:Generally accepted current ratio is 2:1. As above diagram and current ratio states that the current ratio of HMT for the last four year is less than 2:1 and it is constantly decreasing. So current ratio of the company is not satisfactory because the ratio is much below the accepted standard of 2:1. So it indicates lack of liquidity and shortage of funds. The current ratio was 1.36:1 in 2008-09, which has decreased to 1.23 in last year. This is the main reason for non performance of HMT Tractor division.

SUGGESTIONS:Company should try to maintain the ratio at the standard level. Company should try to pay its liabilities in time, which will help it to maintain a good financial position.

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B) QUICK RATIO OF HMT LTD.

With the help of this ratio the capacity of the firm to pay off its current liabilities within a month or immediately is measured. This ratio expresses the relationship between the liquid assets and current liabilities. Liquid assets are those assets which can be converted into cash quickly without much loss of time and value. Quick ratio sometimes called Acid Test Ratio and is one of the best measures of liquidity. It is a supplementary test of the ability of a business to meet its current obligations. The quick ratio is much more an exact measure than current ratio, by excluding inventories and prepaid expenses. It concentrates on the really liquid assets, with values that are fairly certain. An ideal quick ratio is said to be 1:1. The idea is that for every rupee of current liabilities, there should be at least one rupee of liquid assets.

Quick ratio = Liquid assets Current liabilities LIQUID ASSETS = CURRENT ASSETS PREPAID EXPENSES STOCK

LAST FOUR YAERS COMPARISON OF QUICK RATIOS OF HMT LTD.

Year Liquid assets Current liabilities Quick ratio

2008-09 13475.26 12822.52

2009-10 12604.93 12561.91

2010-11 15794.42 15439.99

2011-12 16467.76 1616056

1.05:1

1.003:1

1.0229:1

1.0191:1

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GRAPH SHOWING LIQUID AND CURRENT ASSETS OF HMT

20000 15000 10000 5000 0 liquid assets current liabilities

2008-09

2009-10

2010-11

2011-12

GRAPH SHOWING QUICK RATIOS OF HMT

quick ratio
1.06 1.05 1.04 1.03 1.02 1.01 1 0.99 0.98 0.97 2008-09 2009-10 2010-11 2011-12

quick ratio

INTERPRETATION
An acid test or quick ratio of 1:1 is considered satisfactory. As above diagram and calculation shows that quick ratio of HMT is more than 1:1. So it is satisfactory. But it is constantly decreasing. So it should be considered that it shouldnt declines.

SUGGESTIONS
Company should maintain the standard. It should not be more than that nor be less than standard ratio. Company should try to make good investments in short term assets.
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C) ABSOLUTE LIQUIDITY RATIO OF HMT LTD.

A subsequent innovation in ratio analysis, absolute liquidity ratio which eliminates any unknown surrounding receivables. Although receivable, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion that the absolute ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. The formula for computing absolute liquid ratio is:Absolute liquid ratio = Absolute liquid assets Current liabilities

ABSOLUTE LIQUID ASSETS = CASH + BANK + MARKETABLE SECURITIES

LAST FOUR YEARS COMPARISON OF ABSOLUTE LIQUID RATIO OF HMT LTD.

Year Absolute assets Current liabilities Absolute liquid ratio 12822.52 0.26:1 12561.91 0.26:1 15439.99 0.19:1 16160.55 0.20:1 2008-09 liquid 3364.67 2009-10 2570.29 2010-11 2997.69 2011-12 3214.29

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GRAPH SHOWING ABSOLUTE LIQUID ASSETS AND CURRENT ASSETS OF HMT

Absolute liquid assets/current liabilities

20000

AL / CL

15000 10000 5000 0 200809 200910 201011 201112

Absolute liquid Assets Current liabilities

Years

GRAPH SHOWING ABSOLUTE LIQUID RATIO

Absolute liquid ratio 0.3 0.25

ALR

0.2 0.15 0.1 0.05 0 200809 200910 Years 201011 201112 Absolute liquid Ratio

INTERPRETATION
As above calculation and diagram stated that absolute liquidity ratio is less than 0.5:1 and it is constantly decreasing. So it shows that there is inadequacy of cash and short-term securities.

SUGGESTIONS
Company should maintain the standard rate of this ratio. Company should try to reduce its liabilities.
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ANALYSIS OF EFFICIENCY AND ACTIVITY RATIOS OF HMT LTD.

As name suggests these ratios interpret the efficiency of a concern. Activity ratios reflect the intensity with which the firm uses assets in generating sales. These ratios indicate whether the firms investment in assets is too large, it could be that the funds tied up in those assets, should be used for more immediate productive purposes. If the investment is too small, the firm may be providing some poor services to customer or inefficiently producing its products. This ratio is meant to compute the paying period and receipt period of the cash. The company has paid its debts in how much time and it can receive its cash in how much time If the company is able to pay and receive the amount in minimum days only then that company will be treated as capable.

So by this we can determine the efficiency of the company by these ratios: Stock Turnover Ratio Debtors Turnover Ratio Average Collection Period Creditors Turnover Ratio Average Payment Period Working Capital Turnover Ratio Fixed Assets Turnover Ratio

A) STOCK TURNOVER RATIO OF HMT LTD.

This ratio reveals how well inventory is being managed. This ratio is also known as Velocity. It is a measure of number of times average inventory has been sold during the year. It indicates whether inventory has been efficiently used or not. The purpose is to see whether only required minimum funds have been locked up in the inventory. The greater the number of times per year inventory turnover is, the more efficiently it is being used. The smaller the inventory turnover is in relation to annual sales, the greater the sales activity that the inventory is able to support. In short, it shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year. The higher the ratio, the better it is since it indicates that stock is selling quickly.

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Formula to compute this ratio is:Inventory turnover ratio = Cost of goods sold Average stock or inventory COST OF GOODS SOLD = OPENING STOCK + PURCHASES + DIRECT EXPENSES CLOSING STOCK AVERAGE STOCK = (OPENING STOCK + CLOSING STOCK) / 2 Inventory conversion period = Days in year Inventory turnover ratio -

LAST FOUR YEARS COMPARISON OF STOCK TURNOVER RATIO OF HMT LTD.

Year COGS Average Inventory Invtry. Turnoverratio

2008-09 12982.2 4195.88 3.09:1

2009-10 17918.1 4055.89 4.41:1

2010-11 21854.44 3831.88 5.70:1

2011-12 20312.77 3408.75 5.96:1

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GRAPH SHOWING COST OF GOODS SOLD & AVERAGE INVENTORY OF HMT

COGS/Average inventory
25000 20000 15000 10000 5000 0 200809 200910 Years 201011 201112 Average Inventory COGS

GRAPH SHOWING STOCK TURNOVER RATIO

Inventory turnover ratio 7 6 5 4 3 2 1 0 200809 200910 Year 201011 201112 Inventory turnover Ratio

INTERPRETATION
The conversion of stock into sales is measured by inventory turnover ratio. As above calculation and diagram shows that inventory turnover ratio of HMT is not satisfactory it is decreasing continuously but last few years it is increasing. It means we are able to effective utilization of inventory.

SUGGESTIONS
Company should take care of stock turnover ratio and try to increase it. Company should decrease its conversion period.
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B) DEBTOR TURNOVER RATIO OF HMT LTD.

This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. A lower debtor turnover ratio will indicate the inefficient credit sales policy of the management. It means that credit sales have been made to customer who does not deserve much credit.

Trade debtors are expected to be converted into cash within a short period and are included in current assets. Hence, the liquidity position of a concern to pay its short term obligations in time depends upon the quality of its trade debtors. Two kinds of ratios can be computed to evaluate the quality of debtors: Debtors Turnover Ratio Average Collection Period

Formula for its computation is:Debtors Turnover Ratio = Net credit sales Average debtors NET CREDIT SALES = TOTAL CREDIT SALES RETURN INWARDS AVERAGE DEBTORS = (OPENING DEBTORS + CLOSING DEBTORS) / 2

LAST FOUR YEARS COMPARISON OF DEBTORS TURNOVER RATIO OF HMT

Years Net credit sales Average Debtors Debtor turnover ratio 2008-09 13536.4 12918.12 1.047:1 2009-10 19472.39 9964.48 1.954:1

(All amount in Lakhs)

2010-11 24460.57 11307.53 2.16:1 2011-12 22214.08 13015.99 1.71:1

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GRAPH SHOWING NET CREDIT SALES AND AVERAGE DEBTORS OF HMT

Net credit sales/Average Debtors
30000 25000 20000 15000 10000 5000 0 200809 200910 YEARS 201011 201112 Net credit sales Avg. Debtors

GRAPH SHOWING DEBTORS TURNOVER RATIOS OF HMT

Debtor turnover ratio 2.5 2 1.5 1 0.5 0 200809 200910 201011 201112 Debtor turnover Ratio

Years

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DEBTOR COLLECTION PERIOD

This ratio shows the time in which the customer is paying for credit sales. Increase in this ratio indicted the excessive blockage of funds with debtors; increase the chances of bad debts. On the other hand, if there is a decrease in debts collection period, it indicates prompt payment by debtors, which reduces the chances of bad debts. Average Collection Period = No. of days in a year Debtors turnover ratio

LAST FOUR YEAR COMPARISON OF DEBTOR COLLECTION PERIOD OF HMT LTD.

Year Debtor collection period 2008-09 348 2009-10 187 2010-11 169 2011-12 213

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GRAPH SHOWING AVERAGE COLLECTION PERIOD OF HM

Debtor collection period 400 350 300 250 200 150 100 50 0 200809 200910 201011 201112

Debtor collection Period

Year

INTERPRETATION
As the calculation and diagram shows the debtor collection of HMT Ltd. Is high which indicates the blockage of fund in debtors, which increases the chances of bad debts

SUGGESTIONS
Company should decrease the credit period which is allowed to the customers. Company should increase those schemes by which they can collect money easily and soon. It can also implement discount schemes.

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C) CREDITOR TURNOVER RATIO

In the course of business operations, a firm has to make credit purchases and incur short term liabilities. A supplier of goods i.e. creditors are interested in finding out how much time the firm is likely to make repayments to trade creditors. This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm. Formula to compute this ratio is:Creditors Turnover Ratio = Net credit purchases Average Account Payable NET CREDIT PURCHASES = TOTAL CREDIT PURCHASES RETURN OUTWARDS AVERAGE ACCOUNT PAYABLE = (OPENING ACCOUNT PAYABLE + CLOSING ACCOUNT PAYABLE) / 2

LAST FOUR YEARS COMPARISON OF CREDITOR TURNOVER RATIO OF HMT LTD.(Amount in Lakhs)
Year Net credit purchases Average creditor 2008-09 9718.84 10613.12 2009-10 14554.7 8884.58 1.63 2010-11 17304.35 8131.40 2.13 2011-12 14905.41 7866.37 1.89

Creditors turnover ratio 0.92

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GRAPH SHOWING NET CREDIT PURCHASES & AVERAGE CREDITORS OF HMT

Credit purchases/average creditor
20000 15000 10000 5000 0 200809 200910 YEAR 201011 201112 Net credit Purchases Average creditor

GRAPH SHOWING CREDIT TURNOVER RATIO OF HMT

Creditor turnover ratio 2.5 2 1.5 1 0.5 0 200809 200910 Year 201011 201112 Creditor turnover Ratio

CREDITOR PAYMENT PERIOD

This ratio indicates the period which is normally taken by the firm to make payment to its creditors. It is calculated by as follows:Creditor payment period= No. of days in the year Creditor turnover ratio

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LAST FOUR YEAR COMPARISON OF AVERAGE PAYMENT PERIOD OF HMT LTD.

Year Average payment period 2008-09 397 2009-10 224 2010-11 171 2011-12 193

GRAPH SHOWING AVERAGE PAYMENT PERIOD

Average payment period 450 400 350 300 250 200 150 100 50 0 200809 200910 201011 201112

Average payment Period

Years

INTERPRETATION
As the calculation and diagram show the payment period of hmt is high, this indicates that the creditors are being paid very slowly. This is due to inadequate funds. But there is some progress than previous year. So lack of funds and losses of HMT is main reason of high payment period.

SUGGESTIONS
Company should try to increase creditors turnover ratio. Company should try to decrease the average payment period and try to maintain it.

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D) WORKING CAPITAL TURNOVER RATIO

This ratio is of particular importance in non-manufacturing concerns where current assets play a major role in generating sales. This ratio reveals how efficiently working capital has been utilized in producing sales. A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. Formula to compute this ratio is:Working Capital Turnover Ratio = cost of goods sold Working Capital

LAST

FOUR

YEARS

COMPARISON

OF

WORKING

CAPITAL

TURNOVER RATIO OF HMT LTD.(Amount in Lakhs)

Years COGS Working capital Working ratio. capital 2008-09 12982.2 4739.53 turnover 2.7 2009-10 17918.1 4068.01 4.4 2010-11 21854.44 3993.20 5.47 2011-12 20312.77 3685.95 5.511

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GRAPH SHOWING COGS & WORKING CAPITAL OF HMT

Working capital 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 200809 200910 201011 201112

Working capital

Years

GRAPH SHOWING WORKING CAPITAL TURNOVER RATIO

working capital turnover ratio

6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12 working capital turnover ratio

INTERPRETATION
This ratio also indicate the weak position of working capital but as compare to 2008-09, present position of working capital ratio in HMT is much better. So this ratio indicates the under utilization of working capital.

SUGGESTIONS Company should try to improve its working capital management.

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E) FIXED ASSETS TURNOVER RATIO OF HMT LTD

Formula for the computation of this ratio is:Fixed Assets Turnover Ratio = Cost of Goods Sold Net Fixed Assets

LAST FOUR YEARS COMPARISON OF FIXED ASSET TURNOVER RATIOS OF HMT LTD.(Amount in Lakhs)
Years COGS Net fixed assets Fixed assets ratio 2008-09 12982.2 2590.59 5.01 2009-10 17918.1 286.97 7.8 2010-11 21854.44 2023.47 10.81 2011-12 20312.77 2103.84 9.65

GRAPH SHOWING COGS AND NET FIXED ASSETS

Fixed assets ratio 12 10 8 6 4 2 Fixed assets ratio

0
200809 200910 201011 201112

Years

INTERPRETATION
This ratio is particular importance in manufacturing concern where the investment in fixed assets is quite high. This ratio reveals how efficiently the fixed assets are being utilized. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is fall in this ratio, it will show that assets have not been used as efficiently, as they had been used in the previous year. If we see the fixed assets of hmt ltd in the current year, it is highest among the last four year except 2010-11 year. So it indicates that there is better utilization of fixed assets in 2011-12.
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ANALYSIS OF PROFITABILITY RATIO OF HMT LTD

Profitability is a measure of efficiency and control. Earnings of more and more profits with the optimum utilization of available resources of business are called profitability. It expresses efficiency and effectiveness of business with which business has been operated. All parties to a concern whether outsiders or insiders to the business are interested in the profitability of the business. Profitability of a business is generally represented by its net profits.

NET PROFIT RATIO OF HMT LTD.

Net profit ratio establishes a relationship between net profit and sales. Sales provide a primary appraisal of net profits related to investments. It indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This ratio is overall measure of firms profitability. Formula for the computation of net profit ratio is:Net profit Ratio = Net profit Net sales

LAST FOUR YEARS COMPARISON OF NET PROFIT RATIO OF HMT LTD.(Amount in Lakhs)
Year Net profit Net sales Net profit ratio 2008-09 (5108.84) 13536.4 (37.74%) 2009-10 (3297.59) 19472.39 (16.93%) 2010-11 (3196.83 24435.96 (13.1%) 2011-12 (4222.50) 21963.21 (19.1%)

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GRAPH SHOWING PROFIT/LOSS & NET SALES OF HMT

P & L / Net sales 30000 25000 20000 15000 10000 5000 0 -5000 -10000 Years 2008-09 2009-10 2010-11 2011-12 Net profit Net sales

GRAPH SHOWING NET PROFIT RATIO

Net profit ratio 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% -30.00% -35.00% -40.00% Years Net profit ratio 200809 200910 201011 201112

INTERPRETATION
Above diagram and calculation shows that HMT Ltd is suffering from losses continuously. It is very critical situation. But after2008-09 the loss ratio is decreasing it shows that HMT is in better condition from the previous situation. A lot if amount is blocked in inventories and creditors. Management should consider of there things so that HMT will again come back in its profit

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CHAPTER-5 FINDINGS & SUGGESTIONS

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5.1 FINDINGS:
In the year 2005-06 the ratio has been increased to 2.38 but it has comedown to 1.60 in the year 200607. Hence the company must takenecessary measures to meet standard ratio. The working capital turnover ratio has decreased to 3.36 in the year 2006-07 when compared to the base year 2004-05 which indicates that the ratiois not satisfactory.

The fixed asset turnover ratio has been increased in the year 2005-06when compared to base year i.e.

2004-05 but it has got down in the year 2006-07. Hence the company must utilize the assets efficiently. The debt equity ratio has decreased gradually during the 3 years. So thecompany must repay the borrowings within given time. The proprietary ratio has increased in 3 years. Hence, the long termsolvency is satisfactory. Gross profit ratio is increased to 64.95 in the year 2006-07 whencompared to the year 2004-05. Hence, the gross profit ratio is highlysatisfactory. The net profit ratio is also highly satisfactory. By this the company canenjoy huge profits and it al so indicates growth trend of the company. The operating ratio is favorable because it has crossed 100%. The return share holders fund has increased gradually which measure its profitability from the shareholders point of view. The increase in return on equity indicates that the company is performing well and the equity share holders can get back high returns. This helps the company to gain popularities. The return on assets has increased gradually which shows the unfavorable situation for the company. Hence the total assets must beutilized effectively. The companys cash profit ratio was gone down to 34.95 in the year 2005-06 when compared to base year. But the company has taken measures to change the depreciation method which has led the 66

company to increaseits cash profit ratio in the year 2006-07. The administration expense ratio is gradually increased in 3 years which isan unfavorable situation for the company because it indicates the negative effect on net profit. Hence, the administration expense must be controlled efficiently The decrease of total asset turnover ratio in the year 2006-07 when compared to other 2 years i.e. 2004-05 and 2005-06. This indicates that there is decrease in sales. Hence, the company should utilize total assets effectively to generate sales.

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5.2

Suggestions:
In HMT collection period is very high which may result in bad debts for company. So it should be controlled. HMT needs to reduce payment period so that company should pay debt in time & credit worthless in not spoiled. No purchases should be made till stock is disposed off. Worker participation in management should be encouraged. Training should be given to them so as to make them aware of new technologies. Input Output ratio should be increased. Vendor development should be corrected. Optimum utilization of Man- Power The product of HMT is good. But main problem is related to inadequacy of funds. So management should stress on sufficient funds, so that supply can be according to demand.

Advertising budget of Rs.2crore in HMT is as follows

Press 40% Outdoor Print 10% 20% So abovebudget states that there is no place for electronic media i.e. T.V, Radio, advertisement. So HMT Ltd. should plan for electronic media because these days electronic media has major place in advertisements. 30%

Exhibition

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5.3 CONCLUSIONS:
After completing all the study of the project of RATIO ANALYSIS in HMT Ltd., the result, which I found in this study are as follows: HMT Tractors at present occupy 7th position in the tractor industry which was 2nd in 1986-87. this was due to : o Increase in competition o Non-modernization of production methods o Entry of new private companies in the tractor market Sales are constantly decreasing during 1997-98 to 2006-07. hence profitability has declined over the time period. Due to increase in the time period for the realization of debtors, cash and bank balances has been decreased. The company is more dependent on outsiders funds. Production has started decreasing from 1998-99. it needs a special attention of the management to remove all the bottlenecks responsible for such a downward trend which affects profitability negatively. Stock turnover ratio is decreasing constantly it shows that capital is blocked into the inventory. A lower debt turnover ratio indicates that sales have been made to customers who did not deserve much credit.

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BIBILIOGRAPHY
1. Sharma, R.K., and Gupta, Shashi K., Management Accounting and Business Finance, New Delhi, Kalyani Publishers, Eleventh Edition, 2001. 2. Pandey, I.M. Financial Management, New Delhi Vikas Publishing house. 3. Ramachandran, N, and Kalkani, Ram Kumar, Financial AccountingForManagement, New Delhi, Tata McGraw Hill 4. D. K. Goel, Rajesh Goel, Shelly Goel, Management Accounting and

FinancialManagement, New Delhi, Avichal Publishing Company. 5. Cooper, Donald R-and Pamels Schindler, Business Research Methods, Tata McGraw Hills, New Delhi. 6. Kothari , C.R., Research Methodology

BOOKS
Research Methodology by C.R.Kothari Marketing Research by D.D Sharma Financial management by I.M Pandey

WEBSITES

www.hmttractor.org www.google.com www.wikipaedia.org

www.google.com
123oye.com

www.wikipedia.com www.businessline.com. www.learnmarketing.net

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