Ratio analysis @ gadag textile mill project report mba finance

A STUDY OF ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS

LIST OF TABLES

Table No. Name of the Table Page No.
1 Comparative Balance sheet
2 Comparative Income Statement
3 Comparative Balance sheet
4 Comparative Income Statement
5 Common-size Income Statement
6 Common-size Balance Sheet
7 Trend Income Statement
8 Trend Balance Sheet
9 Current Ratio
10 Quick Ratio
11 Inventory turnover ratio
12 Total Assets Turnover Ratio
13 Gross Profit Ratio
14 Net profit Ratio

LIST OF CHARTS

Chart No. Name of the Chart Page No.
1 Current Ratio
2 Quick Ratio
3 Inventory Turnover Ratio
4 Total Assets Turnover Ratio
5 Gross Profit Ratio
6 Net Profit Ratio

Institute of management studies BIMS
BAGALKOT

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS GCTM
HULKOTI

I Chapter 1
 Executive summary
 Purpose of the Study
 Objectives of the Study
 Methodology
 Limitations of the study

II Chapter 2
 Introduction to the company
 History of the company
 Introduction
 Profile of the company
 Organization structure

III Chapter 3
 Introduction to the topic
 Techniques of analysis and Interpretation
 Findings
 Suggestions
 Conclusion
 SWOT Analysis of the company

IV Chapter 4
Appendix
 Bibliography
 Annexure

BABASAB PATIL Page 2

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CHAPTER-1

EXECUTIVE SUMMARY:


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Gadag Co-Operative Textile Mill Ltd Hulkoti established in 1972 by late
shri.K.H.Patil at Hulkoti in Gadag district. It is producing main product as yarn. The
company started with a production cost of RS.220lakhs.It is started producing yarn in
the year 1973.

It was a great experience to undergo summer in plant training on “A study on
financial Analysis and Interpretation” .During the study I found that the company
is carrying its activity in producing yarn. .This study is conducted in order to know
how the organization is maintaining the financial statements. So as to identify the
problems of such a title and give suggestions and conclusions. In addition to this
concept studying the over all organization role of different department functions of
their respective departments, procedures and policies.

In this report I made an effort to know the financial position of the GCTM
Company .My topic is “A study of financial Analysis and Interpretation” which
means that a process to identify the financial performance of a firm by properly
establishing the relationship between the items of balance sheet and profit or loss
account. Thus, we can say that, Financial Analysis is a starting point for making plans
before using any sophisticated forecasting and planning.

Purpose of the study

A company’s balance sheet and profit & loss accounts are valuable
information sources for identifying risk taking and assessing risk management
effectiveness. Although amounts found on these statements does not provide valuable
insights of performance so Financial analysis and Interpretation is required for
determining good or bad performance of company and also for determining its causes.
The study includes the calculation of different financial ratios, Trend analysis,


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comparative income and Balance sheet, common size cash flow and fund flow
statements. It compares five years financial statements of the company to know its
performance in these different years.
This report includes the profile of the G.C.T.M.Hulkoti. It contains brief
introduction ,nature of the business, product profile and process and organization
structure.
This report includes the findings and suggestions, conclusions of the study
done in order to give better suggestions.

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

For the analysis of data the simple percentage method is used and the data is
shown by using the some graphs.

Finally the study has helped to me in many ways to acquire the knowledge
about the company performance and its profitability.

OBJECTIVES OF ANALYSIS AND INTERPRETATION :

Following are the main objectives of analysis and interpretation of financial
statements.

1.To study the earning capacity of the firm

2. To study the progress of the firm


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3 To assess the efficiency of the firm.

4 To determine the firms paying capacity to measure the financial
Performance of the firm.

5. To prepare the comparative statements of the mill. By using the
Financial Statements of past years

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

METHODOLOGY OF DATA COLLECTION:
Before the collection of data, it is often advisable to all other aspects of the study. We
need to recognize the scope, need and importance as well as the objectives of the
study. After the purpose has been defined, the next step is to decide about the sources
of data. The sources of information may be primary as well as secondary sources.
This chapter entails a review of all the data obtained and it relevance to the study
being undertaken.

DATA COLLECTION METHOD: There are two types of data collection methods.
1. Primary data collection method
2. Secondary data collection method

PRIMARY SOURCES:
The primary data are collected by the thorough and detailed discussion was conducted
with the financial controller and Accounts officer and also discussion with college
internal guide.

SECONDARY SOURCES:
The secondary data includes sales reports, purchase reports and financial statements
of the company.

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And also information from the text sources.

SAMPLING DESIGN:
0Sampling unit : Financial Statements
1Sampling Size :Last five years financial statements
2Sampling procedure : Direct

LIMITATIOMS OF THE STUDY

• The study is conducted on a general basis.
• Time Constraint
• Restrictions on Behalf of the company
• Inter firm and intra firm comparison is not possible


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CHAPTER-2

HISTORY OF THE COMPANY :
GADAG CO-OPERATIVE TEXTILE MILL LTD
HULKOTI
Hulkoti is small village has a population of 10000, having a different sections
of people. The main occupation of the maximum people is agriculture. In this village
there is no irrigation facilities; dry land cultivation is the only way to forming
committee.
In the village the main crops are cotton, jawar, chilly, groundnut etc. The main
commercial crops are chilly & cotton. All these marketed in and around Gadag.
Farmers are exploited by the private traders and commission agents. To protect the
forming committees late Shri.K.H.Patil decided to establish the co-operative mill in


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Hulkoti. Most of the farm laborers are unemployed due to dry land cultivation. To
solve the unemployment problem and also to protect the forming committees from
commission agents they started the mill.
The mill is situated in village Hulkoti near Gadag i.e. 6k.m from Gadag. Late
shri.K.H.Patil, politician leader decided to start the mill in this place. The main
purpose of starting the mil is to provide the employment opportunities to the people.
He is devoted fully for the establishment of co operative network around Hulkoti
providing various amenities and scope for development of farmers
The mill is started with mission of providing employment opportunities and
save the formers from the commission agents. The main crop grown surrounding
Hulkoti is cotton, this was an opportunity to start the mill . This is one of the co-
operative society located on either side Karwar-Bellary road between Hulkoti and
Gadag. It is started with a Ginning and pressing unit.
After successful setting up of Ginning and Pressing unit by Gadag co-
operative cotton sale society ,the next ambition of the Co operators was to establish a
Textile Mill of 25,000 spindles capacity which would consume the main agriculture
produce by paying remunerative price to cotton growers and to the farming
community.

The Gadag Co-operative Textile Mill is established in the year 1972 by late
shri K.H.Patil .It is started with project cost of Rs.220 Lakhs.

INTRODUCTION

The Gadag Co-operative Textile Mill is started by Late Shri.K.H.Patil, to
protect the forming committee by private traders and the commission agents. It is
started in this place because of availability of raw materials and also the labours.


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The Gadag co-operative textile mill is started in the year 1972 with a project
cost of Rs.220 Lakhs. The G.C.T.M commenced is production in the year 1973. The
project cost is met with the following manner.

1 Members Shares Contribution - Rs.040.00 lakhs

2 Government Share Contribution - Rs.080.00lakhs

3 Term Loans (IFCI) - Rs.100.00lakhs

Total - Rs.220.00lakhs

INFRUSTRUCTURE FACILITY:

Land and building 33.71 Lakhs
Plant and machinery 177.70 Lakhs
Miscellaneous 24.08 Lakhs
Contingency 6.00 Lakhs
Working capital margin 22.00 Lakhs
Free op 15.00 Lakhs
erative expenses


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220 lakhs
Total

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

CUSTMORS:

1) Samrudha Over Sales Ltd., Mumbai

2) Suryajoti International mill ltd ,. Sinkandrabad

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

4) Suryalaxmi Cotton Mills Ltd., Sinkandrabad

Nature of the business:

The first step the company purchases the raw material i.e. cotton from
the farmers. Then it mixes it with different quality cotton according to the
quality of yarn needed.


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The next step is cleaning the minor part and spraying the water to it.
Then it kept 1 day in the cool place. Next step it goes to major cleaning part it
goes to all cleaning of the cotton.

The next process is carding process. Here the cotton will become
smoothly and white. Next goes to the simplex method. In this cotton becomes
big layers and it makes the group of layers.

The next procedure is rolling and grilling. Here the big layers are
rolled and it is separated from the group and comes in the form of loose thread
and next process is drafting and twisting and the thread becomes strong and it
comes layer by layer in the form of thin yearn. The next step is noting here if
thread goes into two parts the machine will join it. It is called noting process.

Finally after all these process the raw material is converted into the
finished goods which are in the form of yarn.

MISSION:
“To Purchase the creation of values for all its Customers,
Employees, members (shareholders) and society at large”


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VISION:

“To be a premier Textile company with a clear focus to become
globally competitive through growth and Technology up
gradation committed to excellence in quality service and co-
operatives. “

COMPITATORS:.

Modern days are the competitive days wherever you go, in which ever field
you enter there is competition; one must know how competition in the market
makes it absolutely necessary for manufacturers to think of advertising. For
new product, strategies and by doing all these to in areas the sales.

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

1) Banahatti Co-operative Spinning Mill Ltd.
2) Sangola Co-operative Spinning Mill Ltd.
3) Farmers Co-operative Spinning Mill Ltd.

COMPANY PROFILE:
THE GADAG CO-OPERATIVE TEXTILE MILL LTD. HULKOTI
Name – 582 205.
This Co-operative Society registered under the Co-operatives
Status Societies Act of 1959

Location Karnataka state, Gadag Dist, Hulkoti


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Chairman Shri D.R. Patil, Ex M.L.A. Gadag.
Area of
operation Gadag Haveri
New-Delhi, South Korea, China and Couple of European
Export places countries(through agents& Govt institutes)
Nature of
Business Production and sale of YARN
Membership
and Share
capital 3021 Co-operative societies and 817.71 Lakhs
No of
departments 8 [Eight] Departments
Number of
employees 450
Elected members – 18
No of Board of Ex – office members – 1
Directors Nominated by Govt – 3

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

Storage
capacity 7500 Million TON.

Land area-90525 sq.ft
Area of mill Buildup area- 643.45 sq.mtrs

ORGANIZATION STRUCTURE:

Share Holders


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Board of Directors

Chairman

Managing Director

P&I Production Finance Administration Security Marketing

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

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

Helpers Assistants Helpers Helpers Helpers

Workers

HUMAN RESUORCE MANAGEMENT:


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Human Resources is an activity involved in direction & co-ordination of
human relations in a organization there by obtaining maximum production at the
minimum effort stress & strain on individual workers.

Functions

.
1. Staffing & Employment
2. Welfare Amenities
3. Training & Development.
4. Compensation, Wage & Salary Administration.
5. Motivation & Incentives.
6. Employee records.
7. Labour on Industrial Relation.
8. Organizational planning, development & task specification

Management is considered as an art of getting thing done through
others with a view to achieve the common objectives of the organization . but these
objectives can be achieved only if the organization is managed efficiently . The
management of the organization is considered to be efficient of it is able to contribute
their maximum towards the realization of the organization. The organization believes
that the management should not primarily be considered with full and proper
utilization of physical factors such as raw material and machinery but also pay
attention to the human factors . On which the maximum utilization of physical factors
depend.


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The Personnel Manager also says that Material may be purchased at the most
competitive prices and machines was worked to their full capacity but the output
cannot be maximized without the co-operation of the workers.

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

AM to 4.30 PM First shift
4.30 PM to 12.30AM second shift
12.30 AM to 8.30AM third shift

CLASSIFICATION OF THE WORK FORCE :

Work force of the society shall be classified as under :

1) Permanent
2) Badli
3) Trainee or apprentice

WELFARE FACILITIES IN GCTM:
Following are the Welfare Facilities provided by GCTM to its workers.


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1) Canteen:
The personnel department administers the canteen . the main
responsibilities are to prepare and distribute the food stuff as per the
scheduled timings the different counters and to maintain hygienic
condition printed and supplied by the company.
2) Medical Facilities :
Workmen covered under the ESI scheme and their family members will
receive medical facility under the employees state insurance as in force
from time to time.And also one hospital is their in the organization
premises for general and first aid treatments.

3) Quarter’s Facilities :
The quarters are provided for the permanent employees who are
working in the GCTM. There are A,B,C,D and E type of quarter are
being provided to the employees on the seniority basis .

4) Transport Facilities;

The employees are provided with bus facilities.There are one bus and
one maxi cab is there which pickups the people scattered in the Gadag
city and after the duty hours they are dropped back at the same fixed
points
5) School and College :

A school and pre university colleges has been constructed in the
Hulakoti near to the company which are handed to the state education
department . For the maintenance and repairs or replacements of furniture and
electrical fitting is carried out by the company.

ATTENDANCE:


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1) Every employee shall be at this place or work at the time fixed and
notified under clause and of these standing orders from time to time.

2) The starting and closing of work and starting and finishing of
intervals period will be signaled by means of siren, bell or similar
devices.

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

4) The attendance register shall be entered from time to time cards and
any employees failing to record or get marked the time on the card is
liable to be treated as absent.

5) Employee coming late or leaving early without permission shall be
liable to deductions from their salary /wages as provided for in the
payment of wages act 1936. For this purpose time shall be calculated
in units of 30 minutes.

SALARY AND WAGES :


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

2. An employee shall check his salary or wages immediately on receipt.
No claim for shortages will be considered once the recipient has left
the immediate presence of the person making payment.

Any dispute or complaint regarding wages shall be brought to the
notice of the management or any other officer appointed for the
purpose as early as possible. It shall be the duty of the management or
the officer appointed to attend to such complaints without much delay.

3. Unpaid Salaries and Wages : Any salaries and wages due to the
employee
Not paid on the usual pay day on account of the salaries and wages
remaining unclaimed or for any other reason will be paid 3 days after
the specified date of payment or when claim has been substantiated by
the employee or on his behalf of his legal representative provided such
claim is made and substantiated within one year from the date on
which the salary or wages become due to the employee.


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ADMINISTRATION DEPARTMENT

Administrative department play very important role in the organization for its
smooth running of the business and success of this company is mainly depending on
the efficient administration of the G.C.T.M.

This department looks after administrative functions such as payment of
salaries, arrangement of meetings, and formation of policies etc, the general functions
of this department are as follows.

 Maintenance of files, records etc. up to date, collecting and presenting data in
the form of useful information from the records.
 Implementing the organization systems, procedures and policies in a
coordinated manner.
 Ensuring smooth running of the office buy interfacing with the eternal
agencies as required. For ex-payment of telephone bills, electricity, water
supply bills etc.
 Maintenance of the office premises.
 Providing required facilities.


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MODERNIZATION PROGRAMME

After a period of 18 years there was a need for upgrading technology of
certain machines and to eater to the export needs, the Management proposed a
Modernization Programme at a cost of Rs. 429.00 Lakhs. The term, lending
institutions sanctioned Rs. 236.69 Lakhs and the balance Rs. 192.31 lakhs was from
the internal resources of the Mills. The Mill replaced Carding Machines, winding
machines and added one Open End Spinning machine and one Imported Auto Conner
of latest technology. With the implementation of this Project there was improvement
in the productivity and the quality of the finished product.

To meet the standards of the quality yarn in demand, both in domestic as well
as in International markets, the Management of the Mills thought it inevitable to
launch another Modernization Programme covering Machinery from blow room to
Spinning was planned. This programme, with an estimated cost of Rs. 920 Lakhs was
approved by the national Co-operative Development Corporation (N.C.D.C.) and the
Government of Karnataka.

As part as Modernization Programme, N.C.D.C. has sanctioned Rs. 736.00
Lkahs, while Government of Karnataka contributed Rs. 136.00 Lkahs as share capital.
The rest amount of Rs. 46.00 Lkahs was mobilized from Members of the Society
through shares.

With successful implementation of 2nd Phase of Modernization Programme,
the latest version of Auto leveler Machinery at Carding and Drawing Sections are
inducted and commissioned. Following this, efforts are being made to raise the
productivity to high standards. Further, completion of Modernization enables us to
qualitative requirement of requirement of International market Standards.


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PURCHASE DEPARTMENT:

The purchase department is play the important role in every organization.
To run the business continuously purchase department plays a vital role. Purchase
activity has developed the long relationship with the vendors of the company.
Purchasing is a social and managerial function which creates the value for production
unit. To satisfy the needs of the company there is a need of purchases as per
requirements of the company by considering the price quality and quantity.

OBJECTIVES OF THE PURCHASE DEPARTMENT

 The company should have deep knowledge of variety of cottons.

 The company should know the Quality assurance

 Buying quality cotton.

 Experimenting the quality cotton.

 Proper arrangement of the transportation facilities.

 Minimizing transportation cost.

 Observing quality of the cotton.

 Minimization of the purchase cost.


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COTTON PURHASES:

The mill purchase its cotton at the open auction held by co-operative namely
Gadag cotton sale society and T.A.P.C.S.M. society of the Annigeri , Gokak
and also mill has purchases cotton from other states like Maharashtra
Federation Punjab Federation, Tamilnadu, and from CCI(cotton co-operation
of India).

The purchase department decides the when to purchase ,where to
purchase and how much to purchase by discussing with a managing director
and the production manager. Purchasing dept sends the purchase order to the
vendors. The company major purchases are in CCI only. Because the required
quality of the cotton is available in one place and also in more quantity.


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PURCHASE PROCEDURE:

1. The company collects the samples from the various suppliers.
2. That cotton will be check in laboratory
3. After getting a results they are conducting a meeting at where they are
finalizing which cotton to purchase.
4. The purchase committee includes:
1) Managing Director 2) General Manager
3)Production Manager 4) Quality Controller
5)Cost Department Head

5. Then they bargain with the suppliers relating to the price. If suppliers if a
farmer or any of the private cotton trader then the bargaining is necessary.
If they purchase the cotton form CCI or MSCF the prices are fixed.
6. The payment period is usually 30 days to all suppliers.
7. Before bargaining with suppliers the company collecting the daily cotton
market reports which helps them to determining the price.

MAIN SUPPLIERS:

Cotton corporation of India

Maharastra State Cotton Federation

PVT Cotton Traders.

From Members and Formers.


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The following table indicates purchase of cotton.

Year Cotton(lakhs kg)

2003-04 37.37
2004-05 33.37
2005-06 30.67
2006-07 29.40
2007-08 33.83

Table showing purchase of cotton from 2004-08


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MARKETING DEPARTMENT

Marketing department is a vital department of the organization . Marketing has
developed the long relationship with the customer from purchasing and selling
products.

“ Marketing is a social and managerial function which by individual and group
obtained want and need and want through creating exchange products and
value with other’’.

Marketing of Yarn :

The mill manufactures 10s, 20s, 30s, 40s, 60s, 80s, 100s, 2/20s, 2/40s, 2/60s
etc. In the form of hanks as well as cones as per the prevailing market demand
sale of hank yarn and cone yarn from 50:50 respectively we have been
fulfilling the hank yarn obligation stipulated by the textile commissioner ,
government of India at the end of every quarter . The daily production of yarn
is about 8,500 kgs and mill is working round the clock for all the seven days
of the week.

Special preference in selling yarn is given to weavers co-operative Apex
organization and Karnataka Handloom Development Corporation export of
yarn has been our priority yarn is being exported to countries like South
Korea through agency.

Packing of Yarn:


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Packing is a process of converting to a product for protection hanks yarn are
packing in the bale from and cones yarn are packing from bags. Bales is
consist of 181.6 kgs. And bag is consists of 50 kgs

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

1) By phone

2) By their own sales depots and

3) By local sales agents.

Sales promotion:

The company not adopted any Aggressive measures for the promotion of its
sales such as advertising lotteries etc. But some basic measures which are
adopted normally by every concern such as discounts.


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STORES DEPARTMENT

In G.C.T.M there is Stores Department is one which stores all the materials,
equipments and spare parts etc. Which are needed in the signalization for its
smooth running .The main function of this department is to provide the needs
of the organization i.e. machines spares parts, packaging materials, tools, oils
ect. To run business continuasally this department plays very important rolein
the organization. In this department they provide materials according to order
made by the different departments in the organization. The orderslip must be
sing by the M.Director department head.

Objectives of the Stores Department :

1) Concentrating towards smooth running of the production process.

2) Facilitating all required equipments on time .

3) Reduction of Inventory equipments on time .

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

5) Proper maintenance of all equipments.

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

a) Materials stores

b) General Stores.


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a) Material Stores: It is a sub department of the stores , which maintain the
stock of raw material needed in the plant i.e. cotton , paper cones , bags . This
department mainly concerned with storage of 30 days stock of raw material in
the plant.

b) General Stores: It is also a sub department of the stores which maintaining
the stock of general material like ,paper ,files ,uniforms of workers ,shoes
,goggles, helmets, glows, cups, spare parts of machines , stationeries and other
lubricants and packing materials.

These all materials are stored under bin system. In this department each
material or item will be assigned a number to it which is called as Bin number.
There are about 11,000 items are maintained in this department and all have
been assigned in No’s. Bin number is a 9 digit number, which will help in

recognizing the item very quickly and accurately.

The first three numbers in Bin card will giving the information about which
section . and the second 3 digit will gives information about which equipment
and the last 3 digit will gives information of which item it is.

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


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1) Material Receipts Ledger.

2) Material Issued Ledger.

At he time of each entry in the ledger they are quoting the date, item number
quantity price / piece, total price.

PRODUCTION DEPARTMENT:

Production means conversion of raw materials into a finished product. In this
mill they are producing the yarn. i.e. cotton is converted as yarn (finished product).
The G.C.T.M is one of spinning mill, it is taken permission from the government
spinning and textile. In future it is plan to produce a cloths but now it is producing
only Yarn. The G.C.T.M has a well equipped building and also plant and
machineries.

In mill they set the machines sequentially as per work flow i.e. plant layout
system is applied very systematically. In production to control the wastages, to save
the time, to increase work efficiency and to increase the productivity the plant layout
play a vital role. We study about plant layout in theoretically but this project helps me
to know it in practically .


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THE WORK FLOW MODEL:

MIXING: Bales of different counts are mixed along with usable wastes,
on different percentage in the mixing bins, cotton bales of different quality are opened
and stacked, called stock mixing, 24 Hours for conditioning before it is process
further.

BLOW ROOM: Cotton in losses form is spending on mixing bale
openers and taken further of different cleaning points where the cotton is beaten and
trash is extracted. Finally converted into Lap form of different length, weigh per yard,
depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is
converted from Lap form to slive form. During this process trash, short fibers and
other impurities are extracted the different cleaning points, like licker in, Flats section
Units. The sliver is produced of different Hank depending on the counts.


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PREPARATORY: Cards sliver is drawn through different drafting Rollers
and the sliver is elongated and increasingly the length of the sliver and radiating in the
cross section by passing through different drafting rollers and convert into a suitable
package by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the
drafting rollers as final treatment to the material and further increasing the length and
reduction the cross section of the material. This process the material process through
Ring and Traveler and would on the bobbin to form a suitable package the giving
optimum of the twist depending on count of the yarn.
CONE WINDING: Here the yarn spun is cleaned by passing through
cleaning devise called slub catcher and would through suitable package of required
length and weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving
necessary twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of
the machine called Reel in the form of Hank and are make in the form of Knots. There
are two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a
press depending on the count and weight of the boundless are as per requirements.
Bundles are pressed in the form of Bale depending on the count, Plain or Cross as per
the requirement from the market.

PACKING: Here number of cones or cheeses is bagged depending on the
count of the yarn number of cones and weight of the cones. Depending on the
requirement of the market.


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QUALITY CONTROL DEPARTMENT:

Quality Control Department is a vital department of this organization.
Because it provide information regarding quality of the raw materials and also
finished goods. To purchasea standard quality materials there should be
quality control department. According to the experts the first step is imported
in business i.e. in production activities the first step is the raw material.
Therefore while purchasing the raw material the quality control department is
important.

Quality Control Department is the key factor to producing the quality
products. Quality control Department plays an important role in controlling
and increasing the quality of the product and it also helps in increasing the
efficiency of the products. Quality control should be exercised at the all key
stages of the production processes, so that it helps in the stoppage of the
variation in the final product.

In the GCTM Quality Control Department there is laboratory where the
samples of the cotton are tested before purchase. In this lab 1.25 crore worth
machine is installed which is completely computerized machine and it is also
one of the well equipped lab in the Karnataka.

FUNCTION OF THE QUALITY CONTROL DEPARTMENT :

o Random lab weight checking

o Within lap variation


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o Cleaning efficiency

o Waste study speeds

o Wrapping checking

o Naps study

o Uniformity checking

o Idle spindle

o Top roller pressure checking

o Rewinding study

o Gauge and tension weight checking

o Knot inspection

o Knot weight checking

OBJECTIVE OF THE QUALITY CONTROL DEPARTMENT:

 Increasing customer satisfaction

 Producing the quality products.

 Reduction in the scrap

 Continuous improvement in the productivity.

 Reduction in production overheads.

 Quick response to order fulfillment.


HULKOTI

BASIC CONCEPTS USED IN TEXTILE MILL

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

Kapas : Cotton with seeds and impurities

Lint : Cotton free from seeds and impurities

Ginning : The mechanical process of separating the cotton fibers from
seeds

Bale : A bundle or packages of cotton compressed and bound with
cord or wire weight round about 170 Kgs.

Spinning : The process of drawing out and twisting the fiber of cotton,
Wool etc. Into thread or yarn either by hand or machine.

Spindles : The rods or pins of spinning machine known as the ring frame holding
the bobbins on the which yarn wound as it is spun . Such spinning is
expressed in terms of the number or spindles or rotors.

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


HULKOTI

spindles rollers are used.

Yarn : A textile thread obtained by twisting of consecutively disposed and
Straightened ultimate composite fibers.

Hank & cones: Yarn is supplied to the market in to different forms hank yarn and
cone yarn . Hank yarn is convenient form of bleaching, ,
and transport but needs winding before placing on the loom .
It is used by hand loom weavers .Cone yarn however eliminates the
Need form winding and can be directly used in power looms .

Count : A count is measure of thickness or fitness of yarn ,The various
counts
groups manufactured are 10s , 20s , 24s, 30s,32s,34s,40s, 60s, 80s
100s both in Hank and Cone.
Lower counts indicates coarse yarn and higher counts indicates fine
Yarn


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FINANCE DEPARTMENT

Finance department is vital department of a organization .Finance is concerned
with providing and using cash and credit for carrying on business correctly.

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

SI.NO Category No.of Share Holders Share Captial

1) ‘A’ Class Individual /Member 3019 107.46

2) ‘B’ Class (K.A.I.C.) 1 015.00

3) ‘C’ Class (State Government) 1 695.26

Total 3021 817.72


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Mill has funds that may be raised

1) By issue of Shares

2) By receiving deposits from members.

3) By raising loans

4) By entrance fees

5) By accepting donations, subsidies and grants.

6) By commercial institutions.

Deduction can be made from the sale of proceeds of the cotton brought by members
at rate not exceeding 7% of the sale products.

The mill may raise loans discount on the bill and overdrafts as and when necessary
from the industrial finance corporation of India.

WORKING CAPITAL FINANCE

Introduction :

Funds available for a period of one year or less are called short term finance. The
short term funds are used to finance working capital. The main source of short term
working capital are as follows:

1) Trade Credit:

Trade credit refers to the credit that a customer gets from supplier of goods in
the normal course of business. In practice , the buying firm do not have to pay cash
immediately for the purchase made . This deferral of payments is a short term
financing called trade credit .It contributes to about one third of the short term


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financing .Open account trade credit appears as sundry creditors on the buyers
balance sheet . Trade credit may also take the form of bills payable.

2) Bank Finance For Working Capital :

Banks are the main institutional source of working capital finance. After trade
credit, bank credit is the most important source of financing working capital
requirements of firms. A bank considers a firm’s sales and production plan and
desirable levels of current assets in the determining its working capital requirements.
The amount approved by the bank for the firms working capital is called credit limit.
Bank do not lend 100% of the credit limit. A firm can draw funds from its bank
within the maximum credit limit sanctioned. It can draw funds in the following forms.

a) Overdrafts: Under the overdraft facility, the barrower is allowed to withdraw
funds in excess of the balance in his current in his current account up to a certain
specified limit during as stipulated period.

b) Cash Credit: A borrower is allowed to withdraw funds form the bank up to the
sanctioned credit limit. He is not required to borrow the entire sanction credit, rather,
he can draw periodically.

3) Commercial Paper :

Commercial paper represent unsecured promissory notes by firm to raise short
term funds. Commercial paper is cheaper source of raising short term finance as
compared to the bank credit and proves to be effective even during a period of tight
bank credit. However , it can be used as a source of finance only by large companies
enjoying high credit rating and sound financial health.

4) Installment Credit :

This is another method by which the asset are purchased and the possession of
goods is taken immediately but the payment is made in installment over a


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predetermined period of time Generally interest is charged on the unpaid price or it
may be adjusted in the price. It is used as source of short term working capital.

5) Accrued Expenses :

Accrued Expenses are the expenses which have been incurred but not yet due and
hence not yet paid also. The most important item of accruals are wages and salaries,
interest and taxes. Wages and Salaries are usually paid on monthly, fortnightly or
weekly basis for the service already rendered by employees. In the same manner,
accrued interest and taxes also constitute a short term source of finance

SOURCE OF FINANCE USED BY

THE GADAG CO-OPERATIVE TEXTILE MILL LTD. HULKOTI

The GCTM have raised different variety of Finance for working capital purpose.
Which are as follows :

1) Trade Credit: We already set the trade credit is the credit that a customer gets
from the suppliers. GCTM purchased the cotton from different organization like
Cotton sale society of Gadag and Cotton Society of Annigeri . We can know the
percentage of trade credit in the balance sheet of GCTM.

2) The GCTM make the sale of different areas like Bangalore ,Solapur and also other
states .It also sells the yarn to Karnataka Handloom Development Corporation etc.,
from these some percentage of Advance they get.

3) Other Source of Finance:

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


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2) N.C.D.C. Loan

3) Bijapur D.C.C. Bank Ltd

Objective and Finance Department;

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

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

 To the exact reason for profit and loss.

 To know the financial position of the business.

 To know the progress of the business from year to year

 To have valuable information for legal and purpose

Functions of Financial Department:

• To prepare Trading A/c

• To prepare Profit and Loss A/c

• To prepare Balance Sheet

• Maintenance of accounts is under taken

• Rate fixing

• Suppliers bill paying


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• Maintenance of cash and bank balance.

CHAPTER- 3


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INTRODUCTION TO THE TOPIC

ANALYSIS AND ITERPRETATION OF FINANCIIAL
STATEMENTS :

Financial statements provide summarized view of the financial position
and operation of the company. Many parties are interested in financial statement
analysis to know about the financial position of the firm. They include investors,
creditors, lenders, suppliers etc It is process of establishing the meaningful
relationship between the items of financial statements. To know financial position
of the company with the help of past and present performance of the company.
Items includes Balance sheet, Profit and loss account, Reports and Explanatory
notes.

Meaning of financial statements:
Financial statements are the consolidated and summarized form of business
transactions which are pre-pared at the end of each accounting year.
These statements reveal the financial information of the business enterprises for a
certain period. The financial statements are prepared for ascertainment of results of a
business and communicate the accounting information to the users. The financial
statement provides answers to the following questions.

1) What is the financial status of the firm on a particular date?
2) How is the firm’s financial performance over the period?

Here for the project the profit and loss a/cs, balance sheet are used for
comparative analysis and interpretation of the study.


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1) Balance sheet:

Balance sheet is the statement of financial position of a business
concern as on specified date. It represents all the assets owned by the firm and
liability owed to others. In other words, it contains the various assets, liabilities
and owners equity as on particular date. The balance sheetis prepared on the
basis of following equation.

ASSETS = EQUITIES

(A) = (E)

Or Assets = Owners equity + creditors equity

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

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

This statement explains the financial performance of a business
concern for the particular period. It explains the net result of the business
operation between two balance sheet dates. The income statement is pre-pared
on the basis of revenue principle, realization principle and also on the basis of
matching principle. The realized revenues are matched against its related
expired cost. The result is net profit or loss for the year.
The equation is as under:

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

THE FINANCIAL ANALYSIS AND INTERPRETATION.

The significance of financial statement not lies in their preparation
but in their analysis and interpretation. Therefore analysis and interpretation is
an attempt to determine the importance of financial statements. It increases the
meaning of accounting data. To provide more understanding in layman’s
language. That helps to forecast the future earnings, ability to pay dividend
policy etc. the analysis and interpretation are 2 terms complementary to each
other. For interpretation analysis is necessary. And analysis without
interpretation is meaningless.

ANALYSIS : “A process of grouping or sub grouping of a given data for the
purpose of developing some relationships among the groups either for decisions
or for future prediction”

The financial analysis involves the division of facts or information on
the basis of some definite plans and to classify them into groups on the basis of
some conditions and presenting them in most convenient, simple and
understandable. Therefore analysis involves the following:

1. Study and understanding of the data presented in the financial
statements.
2. Collection of additional information necessary for interpretation.
3. presentation of the financial data in logical and simple manner
4. Grouping and sub grouping of the items given in the financial
statements on the basis of common characteristics.


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

6. The data provided in the financial statements is re arranged and
methodically classified for comparisons. For this purpose some standards
are established for comparison such as :
1. Past year figures may be used as standard for comparison
with the present year figures.
2. Future years estimated figures may be used as standards.
3. Another progressive or successful firm‘s figures may be
us e used as standards.
4. over all industry figures may be used as standards for a
Comparison.

The relationship can also be established from one item of statement to the
other item of statement. E.g.Net profit or gross profit to sales, current assets to current
liabilities, cost of sales to inventory, fixed assets to capital etc.

INTERPRETATION:

To interpret means to put the meaning of data in simple and
understandable manner to a layman. Interpretation can be made only after
analysis. It is the explanation of the conclusion drawn from analysis in simple
terms. The interpretation involves the following.

1) Study of relationship among the of items of financial
statements.
2) Study of trend over a period or actual data with the standard
data used for comparison


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3) Conclusions or inferences are put in simple terms for easy
and more understanding for a common man.

USES OR ADVANTAGES OF ANALYSIS OF FINANCIAL STATEMENTS.

1) It helps to determine financial strength or weakness of the business firm.
2) It highlights the significant facts and relations which cannot be
understood by mere reading of financial statements.
3) It is based on some logical and scientific method and is useful for
decisions.
4) It is useful to understood multidirectional relationships of the various
items of financial statements.
5) It minimizes the threat of wrong or delayed decisions.
6) It helps to evaluate correctness and accuracy of the decisions.

TOOLS OF FINANCIAL ANALYSIS OR TECHNIQUES OF ANALYSIS

1) Comparative Financial statements
2) Common size statement
3) Ratio Analysis
4) Trend Analysis

Comparative statements


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Comparative financial statements are those statements which summaries and present
related accounting data for number of years. It is an arrangement of the financial
statements in such a manner that each element of the financial statement is
comparable with same element of the financial statement of another period. Generally
the financial statements of two periods are used for comparable study. While pre-
paring comparative statements one should keep in mind that the accounting principles,
policies should be same. Any material change in such principles policies etc.
comparative statements useless.

A comparative statement provides the following.

1.Absolute change in amount or figures.
2.Absolute change in percentages.
3.Increase or decrease in figures and percentages.

Advantages of comparative statements.

1. It is helpful for inter period comparison.
2. It is helpful for inter firm comparison.
3. It is useful to study the trends of various elements of financial statements.

Types of comparative statements.

For the purpose of comparative analysis the financial statements are classified into
2 types namely,

1) Comparative balance sheet.
2) Comparative income statement.


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1)Comparative balance sheet.

Under this technique the balance sheet of two different dates or balance
sheets of one firm to another firm may be used for comparative study. an
item or group of item of one balance sheet is compared with the same item
or group of item of another balance sheet. The comparative balance sheet
is helpful to study the liquidity position, financial status, long term
financial position etc. following are the steps for pre-pare comparative
balance sheet. I) Redraft the balance sheet in vertical form.
II) Pre-pare two additional columns one for absolute change
and and another for percentage change.
III) Study the trend (increase or decrease) and form the
opinions.
IV) Interpret the same.

2)Comparative income statements:

The comparative income statement is pre-pared to study growth rate in
profitability, expenses, cost of goods sold etc. usually two years income statements
are compared. For this purpose two additional columns are prepared for recording the
absolute change and percentage change. The facts and figures in the financial
statements i.e.( Balance sheet P&L a/c Reports & also some notes )can be
transformed into meaningful and useful figures through a process called Analysis and
Interpretation.


HULKOTI

Comparative Income Statements for the year 2008-09
ParticularsTHE GADAG CO-OPERATIVE TEXTILE MILL.LTD- HULKOTI
2007-08 2008-09 Absolute Absolute
increase/d increase/
ecrease in decrease
Rs in %
A) Net sales 274253348. 256739185 -17514163 -6.38%

Less : cost of 185292474 180378194 -4914280 -2.65%
goods sold
(Op.stock+purch
ase-clo.stock) .

Material 78144336 72311126 -5833210 -7.46%
consumed

Less:
manufacturing
expenses(cost of .263436810. 252689320 -10747490 -4.07%
production)

Cost of goods 108165378 4049865 -6766673 -62.55%
sold

Gross profit 9848419.5 10967021 1118602 11.35%

Less : operating 968119 -6917156 -9764268 -76.42%
expenses
Administration
expenses

Add : Non
operating 12776730 3012462 -17649513 128.44%
Incomes

-3520-176 -0.37%
Operating profit 13744848.97 -3904694 14307

Less: Interest 9295525 9260319

4449324 -13165013 395.88%
Net Profit/loss


HULKOTI

Comparative Balance Sheet As on 31-3-2008-09
PARTICULARS 2007-08 2008-09 INCREASE/DECREASE INCREASE/DECREASE
IN Rs IN %
Current Assets
Cash in hand 40460.35 27094 -13366 -33%
S. debtors 51709943 51003132 -706811 -1.4%
Other C. Assets 86804486.9 75843397 -10961090 -13%
(cash at bank , 8
advances, other
receivables
,closing
stock.etc)

A) Total current 138554890 12687362 -11678267 -8.4
assets 3

Less : current
liabilities 49593595. 52486226 2892631 5.8
Others payables
19831776 20192707 360931 1.8
B) Total current
liabilities 69425372 72678933 3253561 4.7

Working capital 69129518 54194690 -14934828 - 21
C) = (A-B)

D) Fixed assets
180660460 18121183 551374 0.3
4
E) capital
employed
E) =(C+D) 249789979 23540652 -14383455 -5.75
4

81773300 81773300 - -
Share capital
12945560 12945560 -
Reserve fund
180562312 18323387 2671558 1.4
Other Funds
0
66940000 -38900000 -5.8
Long term loans
63050000

92431193 13165013 14
Less: loss
10559620
(previous year)
6

Capital 249789979 23540652 -14383455 -5.75
employed 4


HULKOTI

ANALYSIS:
1. The above Income statement realize that there is decrease in cost
of goods sold (4.07%),net sales(6.38%) and also Gross Profit
compare to 2007-08. There is 62.55% decrease in gross profit i.e.
Rs.6766673. It is more than 50% decrease in gross profit.
2. In the statement we can realize that for 27,42,53,348 net sales the
manufacturing expenses is 7,81,44,366 in the year 2008, but
compare to present year(2008-09) the manufacturing cost is more
i.e. for 25,67,39,185 net sales the m. expenses are Rs. 7,23,11,126
3. There is also increase in operating cost RS. 1118602 i.e. 11.35%
in the year 2008-09 compare to 2007-08
4. There is an decrease in Non-operating Income i.e. 76.42%. These
all results in Net loss during the year 2008-09 of Rs. 13165013.
5. The above comparative balance sheet shows the liabilities are
more compare to previous year.

INTERPRETATION:

The company’s financial performance is not appreciable because there is heavy loss
in the year 2008-09. There is need of control on manufacturing expenses and also
other expenses and liabilities.


HULKOTI

Comparative Income Statements for the year 2007-08

Particulars 2006-07 2007-08 Absolute Abso
increase/decrease incre
in Rs in %


HULKOTI

A) Net sales 254655866. 274253348. 19597481.6 7.69
5 1

Less : cost of
46274537 55889767 9615230 20.7
goods sold
153536359 180187848 26651489 17.3
Opening stock
55889767 50785141 -5104626 -9.13
+ purchases
-closing stock
110734727. 88960874.1 -21773853.4 -19.6
Material 5
consumed

83442868.2 78144336.1 -5298532.1 -6.34
Less: 4 4
manufacturing 36072802.9 15.8
expenses(cost 227364007. 263436810.
of production) 2 1

Cost of goods
sold 27291869.3 108165378 -16475331.3 -60.3

Gross profit 11396502.5 9848419.5 -1548083 -13.5

Less : 15895366.8 968118.5 -14927248.3 -93.9
operating
expenses
Administratio 29619683.9 12776730.4 -16842953.48 -56.8
n expenses 5 7
-5112501.78 -27.1
18857350.7 13744848.9
5 7
-2140602.93 -18.7
Add : Non
operating 11436127.9 9295525.04
Incomes 7 -2971898.89 -40%

Operating 4449323.89
profit 7421222.78

Less: Interest

Net Profit


HULKOTI

THE GADAG CO-OPERATIVE TEXTILE MILL.LTD- HULKOTI
Comparative Balance Sheet As on 31-3-2007-08


HULKOTI

PARTICULARS 2006-07 2007-08 INCREASE/DECREASE INCREASE/DECREASE
IN Rs IN %
Current Assets
Cash in hand 20530 40460.35 19930 97%
S. debtors 47320434 51709943 4389509 9.0%
Other C. Assets 91604851 86804486.9 -4800364.02 -5.24%
(cash at bank , 8
advances, other
receivables
,closing
stock.etc)
138945815 138554890 -390924.7 -0.28%
A) Total current
assets
58462247.0 49593595. -8868651.11 -15.16%
Less : current 1
liabilities 19831776 958911.05 5.08%
Others payables 18872865
B) Total current 77335112 69425372 -7909740.05 -10.23%
liabilities

61610703 69129518 7518815.4 12.20%
Working capital
C) = (A-B)

D) Fixed assets 180401907 180660460 513850.4 0.28%

E) capital
employed 242012610 249789979 7777369 3.21%
E) =(C+D)

81772700 81773300 600 -
Share capital 12945560 12945560 -
Reserve fund 177234868 180562312 3327444 1.87%
Other Funds 66940000 66940000
Long term loans
96880517 92431193 -4449324 4.59%
Less: loss
(previous year)

Capital 242012610 249789979 7777369 3.21%
employed

ANALYSIS:


HULKOTI

1) In the year 2007 increase in sales is amounted to Rs.19597481.60 that is 7.69%.
The opening stock and purchases has increased by 20.77%& 17.35% and The closing
manufacturing expenses is decreased in the 2008 to 5104626 & 5298532.1(9.13% &
6.34%). The cost of goods sold is increased to Rs. 36072802.9(15.86%). Due to
decrease in closing stock the Gross Profit is decreased to 16475331.3(60.36) in the
year 2008.

2) The operating expenses have reduced in the year 2008 by Rs. 1548083(13.58%).
This is because of control over administrative expenses.

3) There is decrease in Non-operating income in 2008 to Rs.16842953.48i.e. 56.86%.
and Non-operating Expenses is reduced to Rs. 2140602.93 i.e. 18.71%
The Gross Profit is reduced in the year 2008 to Rs.2971898.89(40%) compare to the
year 2007.
4) By seeing the comparative Balance Sheet, there is slight difference in capital
employed and also liabilities.

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

INTERPRETATION:

The company ‘s Financial performance in the year 2008 is not appreciable because of
decrease in revenue and control over cost results into decrease in Gross Profit and the
Net Profit compare to 2007.


HULKOTI

ANALYSIS AND ITERPRETATION OF FINANCIAL STATEMENTS:

2.COMMON SIZE STATEMENTS:

The financial statements are prepared with the absolute figures. Reading of
absolute figures is not easy for quick grasping or understanding. Therefore they are
converted into simple figures such as percentages to their totals for easy
understandings. In case of balance sheet each item of the asset is expressed to the total
assets and each liability to the total liability. Similarly in case of income statement
each item of revenue or expenses are expressed to total sales.
When the financial statements of the same concern for several years are
converted into percentages and presented for the comparative study are called
comparative statements. The total size of the financial statement is fixed as 100 .
All the items of the statements are expressed as percentages to the total.

PROCEDURE:
1.Incase of Balance Sheet total assets and total liabilities are considered as 100.
2. Each item of asset is expressed interms of percentage to the total assets. Similarly
each liability to total liabilities.
3. Incase of Income statement total sales is treated as 100.
4. Each item of revenue and expense is expressed as a percentage to the total sales.
5. Study of these percentages to establish relationship
6. Interpretation of the relationship in simple terms.

TYPES OF COMMON SIZE STATEMENTS:
1. Common Size Income Statement
2. Common Size Balance Sheet


HULKOTI

1.Common Size Income Statements:

These statements are prepared to study the proportion of various elements
of income statement items to the total sales revenue.The total sales items is
considered Rs.100 and all other items are expressed as a percentage to the total
sales. In case of increase in sales tends to increase in the expenses directly
related to sales. This kind of analysis helps to study the operational efficiency
and financial performance of the concern.

1. COMMON SIZE BALANCE SHEET:
Common Size Balance Sheet means the size of the balance sheet of
various years or items or firms is to brought to a common figure. That is the
totals of the assets and liabilities are considered as 100 and all the items of
assets and liabilities are expressed in terms of percentages. The relationships
are established with one item to its respective total and is compared with
another years Balance Sheet.
Alternatively capital employed may also be considered as 100 and all
other items of the balance sheet are expressed in percentages.
This kind of Analysis is helpful to study the Financial Position Liquidity
Solvency etc. of the concern in various years

THE GADAG CO-OPERATIVE TEXTILE MILL-HULKOTI.

COMMON SIZE INCOME STATEMENT
FOR THE YEAR ENDING 31-3-2008-09


HULKOTI

2008 2009
Particulars RS % RS %

Sales 27425334 100 256739185 100
-cost of 8 96 252689320 98
sales 26343681
0 4.0 4049865 2
Gross 0 10967021 4.27
profit 10816538 3.6 -6917156 -2.2
-operating 9848419 0.4 -9260319 7
expenses 968119 0 -16177475 -3.6
9295525 3.3 3012462 0
-Non -8327406 -2.9 -13165013 -5.8
operating 12776730 8 7
exp 4449324 4.6 1.17
5 -5
+Non 1.6
operating 7
Incomes
Net profit/
loss
WORKING NOTES:
1.Calculation of cost of goods sold
2008 2009

Opening stock 55889767 50785141
+purchases
18018784 168779141
-closing stock
8 39186088
Materiaconsumed
50785141 180378194
Manufacturing exp
18529247 72311126
4 252689320
Cost of sales
78144336
26343681


HULKOTI

0

COMMON SIZE BALANCA SHEET:
Particulars Rs(2008) % Rs(2009) %
Liabilities
Sharecapital 81773300 19.78 8177300 19.70
Reserves 12945560 3.12 12945560 3.12
Other long 24750232 60.00 24628387 59.35
term loans 1 0
Current liabilities 17.00 17.58
68874222 100 72678933 100
Assets:
Fixed assets 43.60 43.85
Current assets 18091575 33.46 18121183 30.57
P&La/c(loss) 6 22.80 4 25.45
13829959 100 12687362 100
2 1
92431193 10559620
6


HULKOTI

ANALYSIS:
1.By seeing the above statement we come to know that there is slight changes in
long term liabilities, but in current liabilities is increased to 0.58% in the year
2009.

2. In the 2009 the current assets are less compare to the year 2008. It shows that
the company is not utilizing the working capital properly.

3.From the common size Income statement we can see that the operating
expenses are increased compare to previous year. It is because of not control over
on expenses

4.This increasing expenses will results in the losses.

INTERPRETATION:


HULKOTI

The above statement reveals that the company is not utilizing the funds properly. The
cost goods sold are increasing . This will results in the loss of the company.

3. TREND ANASLYSIS:

The trend analysis is another tool of financial analysis. Trend means a tendency.
Trend analysis is review and appraisal of tendency in accounting variables. This
analysis is more suitable for forecasting or budgeting. This analysis a series of trends
information. It discloses the direction of items in the financial statement either
upward , downward on constant over a period of time.
For the purpose of calculating trend percentages number of years financial
statements are required. Trend ratio are calculated on the basis of base year
information .The trend ratios on popular is statistics and are similar to index numbers.
Which indicate the movement or fluctuation in various elements financial of
statements of the business.

PROCEDURE:
1. Arrangement of years of the financial statements in ascending order.
2. Select a normal year as a base year usually first year may be considered as the
base year.
3. Consider all the figures of base year as 100
4. Conversion of other years figures on the basis of base year percentage.
5. Study the trend percentages by establishing some relationship among them.
6. Interpretation of the trend series in simple terms.

FORMULA FOR CALCULATION OF TREND PERCENTAGES.
100 *Next years figures
Base year figures

TREND ANALYSIS:

HULKOTI

The following figures are extracted from the annual repots of the G.C.T.M
Particulars 2005 2006 2007 2008 2009

Sales 269932512 231390442 254655866 274253348 256739185
Cost of 267396134 215622553 227364007 263436840 252689320
goods sold

Profit -7733598 -228728 7421223 4449324 -13165013

TREND RATIOS:(Base year is 2005)
particular 2005 2006 2007 2008 2009
s
Sales 100 85.6 94.2 101.4 94.99
1 2 7
Cost of 100 94.25
goods 80.4 84.8 98.26
sold 2 1

Profit 100 -170.22
57.53
-2.95 95.9
5


HULKOTI

ANALYSIS:
1. The sales is increased constantly except 2006.The cost of goods sold is
increasing as compare to sales. i.e. in the year 2007 the sales are 94.22, the
cost of goods sold is 84.81 but in the year 2006 the sales are 85.61 the cost of
goods sold is 80.42. by seeing this we come to know that the cost of sales are
increase.
2. The Trend Analysis shows that there is loss in the year 2006 and 2009.

3. The above statement reveals that the sales are decreased but the costs are same
compared to all years.

4. From the above Analysis we come to know that there is a profits in the year
2007 & 08. Except these years the company is under loss.

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

ITERPRETATION:
The above statements reveals that the company sales is less in the present year. It
indicates that the production is less compare to previous year.


HULKOTI

RATIO ANALYSIS:

INTRODUCTION:

The financial statement of a company contains a lot of information about
the financial performance of the company. Financial statements mainly consist of the
Balance Sheet and Profit and Loss Accounts. These statements give the overall
picture of the company, but to analyse each aspect of business extensively, financial
ratios are used. The Balance Sheet and the Statement of Income are essential, but they
are only the starting point for successful financial management. Financial Ratio


HULKOTI

Analysis derived from Financial Statements analyses the success, failure, and
progress of business.

Ratio Analysis is a very powerful analytical tool useful for measuring the
performance of an organization. The ratio analysis concentrates on the
interrelationship among the figures appearing in the mentioned financial statements.
The ratio analysis helps the management to analyze the past performance of the firm
and to make further projections

As the organization employs capital on fixed assets for the purpose of equipping itself
with the required manufacturing facilities to produce goods and services which are
saleable to the customers to earn revenue, it is necessary to measure the degree of
success achieved in this bearing. This ratio establishes the relationship between the
amount of sales revenue and the amount of capital employed on fixed assets.

Ratio refers to the establishment of relationship between any two inter-related
variables .For example, both the amount of profit and the amount of sales revenue
earned are inter-related as one is influenced by another.
Accounting Ratios shows the inter-relationships that exist among various
accounting data. Accounting Ratios express the relationships, in the mathematical
terms, between two or more items(of financial statements and others) which have a
cause and effect relationship or which are connected with each other in one way or
the other.
Since the Analysis and Interpretation of Financial Statements is made with the
help of ratios it is called Ratio Analysis. The ratio analysis is , an effective tool or a
device to diagnose the financial and operational diseases of business enterprises. The
Ratio Analysis of Financial Statements stands for the purpose of arrangement of data,
computation of ratios, interpretation of the ratios so computed and projections
through ratios.

STEPS IN RATIO ANALYSIS:


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1) Collect all the data required for computing the necessary ratios which
in turn depends upon the purpose of calculating the ratios
2) With the help of above information, compute the necessary
accounting ratios.
3) Compare the ratios so computed either with the ratios of the same
company for the previous year/s.
4) Interpret the ratios in the light of the comparison, draw inferences, and
prepare reports.

Various Accounting Ratios (Functional wise classification)
• Liquidity Ratios
• Turnover/activity Ratios
• Profitability Ratios

LIQUIDITY RATIOS:

Liquidity refers to the ability of the organization to generate cash internally
from business operations or to raise cash externally from the financial
institutions so that it can meet all its cash requirements and discharge all its
current obligations. It is not an exaggeration but a fact that liquidity is very
essential for the very survival of the organization.
The liquidity ratios measure the firm’s ability to meet its short-term (less than
one year) obligations as and when they become due. Liquidity ratios establish a
relationship between cash and other current assets to provide a measure of then
liquidity of the organization.
The corporate liquidity has two dimensions namely, quantitative and
qualitative concepts. The quantitative concept includes the quantum, structure and
utilizations of liquid assets and in qualitative concepts, it is the ability to meet all


HULKOTI

present and potential demands on cash from any source in manner that minimizes cost
and maximize the value of the form. Thus corporate liquidity is vital facto in business
excess liquidity, through a generator of solvency would reflect lower profitability,
deteriorations in managerial efficiency increased speculation and unjustified
expansion, extension of too liberal credit and dividend policies. Too little liquidity
then may lead to frustrations of business objections, reduced rate of return, business
opportunity missed and weakening of morale. The important ratios to measure the
liquidity of a firm are:

A) Current Ratio
B) Quick/Acid Test Ratio

A) Current Ratio: The ability of a company to meet its short-term commitment
is normally assessed by comparing Current Assets with Current Liabilities. As
the Working Capital is equivalent to the difference between Current Assets and
Current Liabilities, or as the Working Capital is the excess of Current Assets
over Current liabilities, this ratio is called Working Capital Ratio. This ratio
establishes the relationship between Current Assets and Current Liabilities

CURRENT ASSETS TO CURRENT LIABILITIES =
Current Assets / current liabilities


Ratio analysis @ gadag textile mill project report mba finance

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