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BLUE STAR LIMITED

Name

:
Paul Tigga

Jayant

Roll No: 13PGP024

Accounting Policies followed by the Company


S.No

Area

Fixed Asset

Accounting Policy

Fixed assets are stated at cost, less accumulated depreciation and

impairment losses if any


CWIP are carried at cost
Borrowing costs relating to acquisition of fixed assets which takes
substantial period of time to get ready for their intended use are also
included in the cost of the assets to the extent these relate to the period up

2.

Intangible Assets

to the
Intangible assets acquired separately are measured on initial recognition at
cost.

3.

Depreciation and

Following initial recognition, intangible assets are carried at cost less

accumulated amortisation and accumulated impairment losses


Development expenditure capitalised is amortised over the period of

expected future sales from the related project not exceeding ten years.
Softwares are amortised on written down value of assets effectively over a

period 6 years.
Technical knowhow is amortised on straight line basis over a period of 6

years.
Depreciation is charged on all assets at rates applicable under Schedule XIV

of Companies Act, 1956, on written down value of assets.


Cost of leasehold land is amortised on a straight line basis over the period of

lease.
Investments are classified into current investments and long term

investments.
Long-term investments are carried at cost.
A provision for diminution in value is made to recognise a decline other than

temporary in the value of the investments.


Current investments are carried in the financial statements at lower of cost

and fair value determined on an individual investment basis.


Raw materials, stores and components are valued at lower of cost or net

realizable value
materials and other items held for use in the production of inventories are

Amortisation

4.

Investments

Inventory
valuation

not written down below cost if the finished products in which they will be

incorporated are expected to be sold at or above cost.


Work-In-Progress and Finished goods are valued at lower of cost and net
realisable value being the estimated selling price in the ordinary course of
business, less estimated costs of completion and estimated costs necessary

6.

SALES

to make the sale..


Cost is determined on a weighted average basis.
Revenue from long term contracts.
Contract revenue earned in excess of billing has been reflected under Other
Current Assets and billing in excess of contract revenue is reflected under

Other Current Liabilities in the balance sheet.


Sales taxes and Value added taxes (VAT) are excluded from revenue.
Excise duty deducted from revenue (gross) is the amount that is included in
the revenue (gross) and not the entire amount of liability arising during the

8.

Taxation

year.
Interest income is recognized on accrual basis.
Provision for tax is made both for current and deferred tax.
Provision for current tax is made at the current tax rates based on

assessable income.
Deferred tax assets are recognised only to the extent that there is virtual
certainty supported by convincing evidence that sufficient future taxable
income will be available against which such deferred tax assets can be

realised.
Minimum Alternate Tax (MAT) paid in accordance with the Income Tax Act,
1961, which gives rise to future economic benefits in the form of adjustment
of future income tax liability, is considered as an asset.

9.

10.

Borrowing Cost

Borrowing costs directly attributable to the acquisition, construction or

Earnings per

production of an asset
All other borrowing costs are expensed in the period they occur.
Basic earnings per share are calculated by dividing the net profit or loss for

share

the period attributable to equity shareholders by the weighted average


number of equity shares outstanding during the period.

Component wise analysis


(Rs in million)
Particulars (cr)
Fixed Assets
CWIP
Inventories
Cash and Bank
Depreciation

Mar 13
4620.17
30.79
5088.23
109.78
328.98

Mar 12
4146.00
190.15
4371.55
508.06
314.45

Marc11
3940.55
193.20
4945.07
464.89
317.11

Mar 10
3758.79
25.96
2580.08
204.32
347.33

Mar 09
3325.12
247.89
2080.58
91.55
258.83

Fixed asset: In year 2013 company invested heavily to set up manufacturing plant in Himachal Pradesh and
Ahmedabad.
Depreciation: Company uses Straight line method to calculate the depreciation..
CWIP: Mainly comprises of Construction of Plant & Machinery.

The Cash Flow Analysis

Going through the above table we get the following trend


Net Cash from Operating Activities: The operating activities include the regular business activities. This
doesnt include the long term investment or capital cost.
In the year 2011 the net cash from operating activities is - 749 since there was an increase in inventories and trade
receivables.
Investing activities: as in above table there has been continuous investment since 2009. Later in 2013
investment activities of the company decreased.

Financing activities: This accounts for external activities such as selling more stock and issuing dividend. Thus
from the table we see there had been a continuous financing activity since 2009. But in 2011 company took loans
for upcoming projects.
Net cash flow: This depicts the cash inflow and outflow from the company. There was cash inflow from year 2009
to 2012 but in the year 2013 cash outflow was more because of the investing activity in setting up the new
manufacturing plant in himachal Pradesh and ahmedabad.

Financial Analysis
Operational and financial Ratio
Particulars
Earnings Per Share

Mar 2013
5.75

Mar 2012
-9.91

Mar 2011
17.23

Mar 2010
23.52

Mar 2009
20.05

Dividend per share

Payout ratio

0.52

-0.1

0.40

.34

0.34

Significance: It is the profit to the equity share holder after paying the long term liabilities, tax dividend and
preferred dividend. Higher the ratio is higher is the benefit to the share holder and for the company.
Analysis: This ratio showed a decline in 2011 and 2012. Increase in eps during 2009-2010 and 2013 signifies
company was trying to recover still it could not recover to its earlier state as in 2009. Thus benefits were not
satisfactory for the shareholders.
Significance: When all the outside liabilities are paid this is the leftover dividend and share earnings to the share
holders. It is the form of profit distributed to the shareholders. Higher ratio depicts that companies growth can be
sustained.
Analysis: There is a rapid decline in DPS since 2010 to 2012 . Company has been retaining much of its profit for
the future investment which was used to set up manufacturing plant in himachal Pradesh and ahmedabad.
Significance: It is the ratio of the dividend to earning per share. This is the amount paid in dividend to the share
holders. Lower ratio indicates that the company is increasing the retained earnings of the firm whereas higher ratio
indicates substantial amount it is being paid in form of dividend to the share holder.
Analysis: This ratio follows a increasing trend except the year 2012. This implies that the company was increasing
the dividend paid to the share holders.

Margin Ratio
Particulars
EBIT margin(%)

Mar 2013
3.66

Mar 2012
-.67

Mar 2011
8.70

Mar 2010
11.26

Significance: This is the firms operating profitability. This depicts the ratio of earnings before tax , interest and
depreciation divided by total revenue. Since this ratio excludes depreciation and amortization it provides much
clearer view of core profitability. Higher the ratio lower is the operating expense and higher is the profit.
Analysis: This ratio increased in 2009-2010 and there was a decline from 2011-2012, following which there was
increase in 2013. 2012 suffered the major setback and profitably was the lowest.

Performance Ratio
Particulars
ROA(%)

Mar 2013
2.14

Mar 2012
-3.57

Mar 2011
6.92

Mar 2010
12.69

Mar 2009
13.68

Return On Capital

11.95

-1.98

32.44

59.92

73.79

ROE(%)

10.69

-17.02

29.10

49.29

57.36

Sales/Fixed

6.39

6.92

7.96

7.40

8.34

1.16

1.09

1.29

1.52

1.91

-60.50

-248.26

13.76

7.20

14.20

Employed(%)

Asset(x)
Asset

turnover

ratio
W capital ratio

Significance: This ratio indicates the efficiency of the company to use its asset to generate the earnings. This is in
relation to the assets how profitable is the company. Company becomes more profitable when this ratio is high,
whereas lower value indicates profitability is decreasing.
Analysis: Overall this ratio is decreasing since 2009 to 2012 , assets were not being properly utilised. Later this
ratio showed a increment in 2013 progressing towards profitability. Still Profitability was not too high.
Significance: This ratio shows the effectiveness and profitability of a company based on the capital investment of
the company. This ratio should be high as compared to borrowings of the company. Since high borrowing decrease
the shareholders earnings.
Analysis: This ratio shows a gradual drop since 2009 -2012. Companys borrowings increased substantially in the
year 2012. Later in the year 2013 borrowings became less since it was able to pay some of its debts.
Significance: This is the amount of net income returned as the percentage of share holders equity. This ratio
shows that how much the company generates the profit with the amount invested by the share holders. Its higher
ratio indicates company is efficient is utilising the shareholders investment to generate the income.
Analysis: there is overall decline in this ratio from 2009 to 2012. Only in year 2013 this showed a increment where
it was successful in managing the investment efficiently.
Significance: This is the ratio that depicts how company can generate profit out of fixed assets available to the
company which includes property plant and equipment. Higher ratio indicates the efficiency of the company to
generate the revenue out of fixed asset investment.

Analysis: there is an overall decrement in the ratio indicating company was is not able to generate profit from the
fixed assets available to it. Thus only factor contributing to the profitability was investment made by the
shareholders.
Significance: The amount of sales generated from the assets. This ratio is to check whether the growth of
company is proportional to the sales. It indicates the firms efficiency to generate sales or revenue from the assets.
So higher ratio is preferred. Firms with low margin have high ratio and with high margin have lower ratio.
Analysis: Except for the year 2013 there had been a gradual decrement in this ratio. As sales generated from the
assets was declining this ratio also decreased.
Significance: This ratio indicates whether the company has short term assets to cover the short term debt. If this
ratio is below 1 , then it shows negative working capital. While when this ratio is above 2 indicates company is not
investing excess on assets. Higher ratio is good whereas lower ratio indicates the chances of the company to fail to
cover its short term debts and can lead to bankruptcy.
Analysis: Since 2009 to 2011 there was gradual drop in the ratio but in year 2012 there was significant decline
.Availability of short term assets were not enough to cover the short term debts. Although the ratio is not good but
we can see the improvement in year 2013.

Efficiency ratio
Particulars
Payable days

Mar 2013
102.42

Mar 2012
99.46

Mar 2011
94.00

Mar 2010
87.40

Significance: This ratio indicates how long the company takes to pay its creditors. If this ratio increases, then
company is paying its suppliers slowly hence financial status must be worsening.
Analysis: Overall this ratio is increasing from 2009 to 2013 indicating the no. of days this firm takes to pay to its
creditors is increasing. Signifies worsening of financial status of the firm.

Valuation parameter
Particulars
Yield(%)

Mar 2013
1.90

Mar 2012
0.53

Mar 2011
0.88

Mar 2010
2.20

Significance: This is the return income on the investment.


Analysis: Overall this ratio depicts a decline indicating the income return from the investment was not good and it
was decreasing year after year. Later in 2013 there is increment which shows the scope of improvement.

Growth Ratio
Particulars
EPS Growth(%)

Mar 2013
158.04

Mar 2012
-157.51

Mar 2011
-26.71

Mar 2010
17.30

Mar 2009
3.56

Net

2.45

-5.53

14.43

1.01

12.60

growth( %)

sales

Significance: This shows the growth of earning per share since last two reporting period. Its minus sign indicates
the negative growth as compared to last year. So positive and more value since last reporting period indicates
growth.
Analysis: Eps growth was positive in 2009,2010 and 2013 whereas in year 2011 and2012 it was negative.
Negative value in year 2011 and 2012 indicate that Eps was less as compared to previous year. Whereas It was
high in year 2013.

Financial stability Ratio


Particulars
Current Ratio

Mar 2013
0.97

Mar 2011
0.99

Mar 2011
1.12

Mar 2010
1.27

Mar 2009
1.17

Quick Ratio

0.65

.72

.83

1.07

0.97

Debt/Equity Ratio

0.75

0.79

0.73

0.13

0.07

Interest cover

2.05

-0.26

10.32

33.72

14.81

Significance: It depicts the effectiveness of a firm to meet its short term debts. It is a comparison between firms
current asset to liabilities. Lower the value indicates firms difficulty to meet its current obligation. Also if a firm has
good long term prospects it might be able to borrow against those to meet the current creditors demand.
Analysis: This ratio has been declining since 2009 . This is negative sign. The company will find it hard to meet its
short term debts. As long as company doesnt derives a long term plan to increase its profitability this condition will
not be favourable. Setting up new manufacturing plant in himachal Pradesh and Ahmedabad can produce
favourable condition.
Significance: This is the firms short term liquidity. This ratio indicates the firms capability to meet the short term
obligation through the most liquid asset. Higher the ratio higher is the liquidity of the firm and ease at which it can
pay the short term liability.
Analysis: Overall this ratio shows a decline except in the year 2010. The company doesnt has much of liquid
assets. This indicates the inefficiency of the company to meet the current obligations.
Significance: This uses the data from prior fiscal year in calculation. In increasing interest rates it becomes a risk
to invest on companies having higher debt to equity ratio. In case the ratio is greater than 1 , companies assets are
financed through debt else through equity.
Analysis: There ratio kept on increasing since 2009. If this ratio keeps on increasing , this will not attract the
investors. Till this year assets were financed through equity.
Significance: This indicates how easily company can pay the interest on outstanding debt. Lower ratio indicates
company is burdened by debt. Thus higher ratio is preferred. When this ratio is below 1 this indicates company is
not generating enough revenue to satisfy its interest on debts.
Analysis: Till 2012 this ratio kept on declining indicating the difficulty of the company to pay the interest on
outstanding debts. This also indicates that debts are increasing year after year. Later in 2012 the ratio increased ,
which shows positive signal towards improvement.
Reference:

Blue Star Ltd ANNUAL REPORT 2008-09 to 2011-12


http://www.bluestarindia.com
http://smctradeonline.com