1
CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
Financial statement:
A financial statement is an organized collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some financial aspects of a
business firm. It may show a position at a moment of time as in the case of a balance sheet, or may
reveal a series of activities over a given period of time, as in the case of an income statement.
Thus, the term financial statement generally refers to the basis statements;
i) The income statement
ii) The balance sheet
iii) A statement of retained earnings
iv) A statement of charge in financial position in addition to the above two statement.
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Methods or Devices of Financial Analysis
Comparative Statement
Trend analysis
Common Size Statement
Ratio analysis
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ii) Comparative balance sheet:
Comparative balance sheet as on two or more different dates can be used for
comparing assets and liabilities and finding out any increase or decrease in those items. Thus, while
in a single balance sheet the emphasis is on present position, it is on change in the comparative
balance sheet. Such a balance sheet is very useful in studying the trends in an enterprise.
2) Trend analysis:
Trend percentage is immensely helpful in making a comparative study of the
financial statement for several years. The method of calculating trend percentages involves the
calculating of percentages relationship that each item bears to the same item in the base years
4) Ratio analysis:
Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers
to the relationship expressed in mathematical terms between two individual figures or group of
figures connected with each other in some logical manner and are selected from financial statements
of the concern. The ratio analysis is based on the fact that a single accounting figure by it self may
not communicate any meaningful information but when expressed as a relative to some other figure,
it may definitely provide some significant information the relationship between two or more
accounting figure/groups is called a financial ratio helps to express the relationship between two
accounting figures in such a way that users can draw conclusions about the performance, strengths
and weakness of a firm.
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CLASSIFICATION OF RATIO
A. Liquidity Ratio
a. Current Ratio
c. Proprietary Ratio
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f. Fixed Assets Turnover Ratio
c. Operating Ratio
d. Expenses Ratio
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LIQUIDITY RATIO
It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also
called ‘Short-term Solvency Ratio’. These ratios are used to assess the short-term financial position
of the concern. They indicate the firm’s ability to meet its current obligation out of current
resources.
In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current obligations
as they fall due”.
a. Current Ratio
a. Current Ratio:-
The current ratio is a popular financial ratio used to test a company's liquidity by deriving the
proportion of current assets available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term
assets (cash, cash equivalents, marketable securities, receivables and inventory)
are readily available to pay off its short-term liabilities (notes payable, current
portion of term debt, payables, accrued expenses and taxes). In theory, the
higher the current ratio, the better.
. Formula:
Current assets
Current ratio = -------------------------
Current liabilities
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Current Assets:-‘Current assets’ includes those assets which can be converted into cash with in a
year’s time.
Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors(Debtors –
Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid
Expenses.
Current Liabilities :- ‘Current liabilities’ include those liabilities which are repayable in a year’s
time.
Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed
Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year.
It means that current assets of a business should, at least , be twice of its current liabilities. The
higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities
more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital.
The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio
can be improved by an equal decrease in both current assets and current liabilities.
b. Quick Ratio:-
The quick ratio – also called as the quick assets ratio or the acid-test ratio - is a liquidity
indicator that further refines the current ratio by measuring the amount of the
most liquid current assets there are to cover current liabilities. The quick ratio is
more conservative than the current ratio because it excludes inventory and other
current assets, which are more difficult to turn into cash. Therefore, a higher ratio
means a more liquid current position. Quick ratio indicates whether the firm is in a position to pay its
current liabilities with in a month or immediately.
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Formula:
Liquid assets
Quick ratio = -------------------------
Current liabilities
‘Liquid Assets’ : It means those assets, which will yield cash very shortly.
Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This
ratio is a better test of short-term financial position of the company.
(B) Leverage or Capital Structure Ratio :- This ratio disclose the firm’s ability to meet the interest
costs regularly and Long term indebtedness at maturity.
First Approach : According to this approach, this ratio expresses the relationship between
long term debts and shareholder’s fund.
Formula:
Debt Equity Ratio= Long term Loans / Shareholder’s Funds or Net Worth
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Long Term Loans:- These refer to long term liabilities which mature after one year. These include
Debentures, Mortgage Loan, Bank Loan, and Loan from Financial institutions and Public Deposits
etc.
Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share
Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss
Account.
Formula:
Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term
liabilities. Generally, debt equity ratio of is considered safe.
If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term
point of view, as it indicates that more and more funds invested in the business are provided by long-
term lenders.
The lower this ratio, the better it is for long-term lenders because they are more secure in that case.
Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.
b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and gives the same
indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both
equity and debt.
Formula:
10
Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In
other words, the proportion of long term loans should not be more than 67% of total funds.
A higher ratio indicates a burden of payment of large amount of interest charges periodically and the
repayment of large amount of loans at maturity. Payment of interest may become difficult if profit is
reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is
better from the long-term solvency point of view.
c. Proprietary Ratio:- This ratio indicates the proportion of total funds provided by the owners or
shareholders.
Formula:
Significance :- This ratio should be 33% or more than that. In other words, the proportion of
shareholders funds to total funds should be 33% or more.
A higher proprietary ratio is generally treated an indicator of sound financial position from long-
term point of view, because it means that the firm is less dependent on external sources of
finance.
If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing
their money.
d. Fixed Assets to Proprietor’s Fund Ratio :- This ratio is also know as fixed assets to net worth
ratio.
Formula:
Fixed Asset to Proprietor’s Fund Ratio = Fixed Assets / Proprietor’s Funds (i.e., Net Worth)
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Significance :- The ratio indicates the extent to which proprietor’s (Shareholder’s) funds are sunk
into fixed assets. Normally, the purchase of fixed assets should be financed by proprietor’s funds. If
this ratio is less than 100%, it would mean that proprietor’s fund are more than fixed assets and a
part of working capital is provided by the proprietors. This will indicate the long-term financial
soundness of business.
e. Capital Gearing Ratio:- This ratio establishes a relationship between equity capital (including all
reserves and undistributed profits) and fixed cost bearing capital.
Formula:
Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L Balance / Fixed cost Bearing
Capital
Whereas,
Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan
Significance:- If the amount of fixed cost bearing capital is more than the equity share capital
(including reserves and undistributed profits), it will be called high capital gearing and if it is
less, it will be called low capital gearing.
The high gearing will be beneficial to equity shareholders when the rate of interest/dividend
payable on fixed cost bearing capital is lower than the rate of return on investment in business.
Thus, the main objective of using fixed cost bearing capital is to maximize the profits available
to equity shareholders.
f. Interest Coverage Ratio:- This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated
as follows:
Formula:
Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest Charges
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Significance :- This ratio indicates how many times the interest charges are covered by the profits
available to pay interest charges.
This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit
just equals interest, it is an unsafe position for the lender as well as for the company also , as nothing
will be left for shareholders.
(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the bases of ‘cost of sales’ or
sales, therefore, these ratio are also called as ‘Turnover Ratio’. Turnover indicates the speed or
number of times the capital employed has been rotated in the process of doing business. Higher
turnover ratio indicates the better use of capital or esources and in turn lead to higher profitability.
a. Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during
the year and average stock kept during that year.
Formula:
Significance:- This ratio indicates whether stock has been used or not. 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.
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The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business
where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the
profitability may be quit high.
b. Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and
average debtors during the year :
Formula:
Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R
While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors,
so that it may not give a false impression that debtors are collected quickly.
Significance :- 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. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the
expenses of collection and increase in the liquidity of the firm.
By comparing the debtors turnover ratio of the current year with the previous year, it may be
assessed whether the sales policy of the management is efficient or not.
c. Average Collection Period :- This ratio indicates the time with in which the amount is
collected from debtors and bills receivables.
Formula:
Average Collection Period = Debtors + Bills Receivable / Credit Sales per day
Here, Credit Sales per day = Net Credit Sales of the year / 365
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Second Formula :-
Average collection period can also be calculated on the bases of ‘Debtors Turnover Ratio’. The
formula will be:
Significance :- This ratio shows the time in which the customers are paying for credit sales. A
higher debt collection period is thus, an indicates of the inefficiency and negligence on the part of
management. On the other hand, if there is decrease in debt collection period, it indicates prompt
payment by debtors which reduces the chance of bad debts.
d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases and
average creditors during the year .
Formula:-
Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average B/P
Note :- If the amount of credit purchase is not given in the question, the ratio may be calculated on
the bases of total purchase.
Significance :- 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.
d. Average Payment Period :- This ratio indicates the period which is normally taken by the firm to
make payment to its creditors.
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Formula:-
Significance :- The lower the ratio, the better it is, because a shorter payment period implies that the
creditors are being paid rapidly.
d. Fixed Assets Turnover Ratio :- This ratio reveals how efficiently the fixed assets are being
utilized.
Formula:-
Fixed Assets Turnover Ratio = Cost of Goods Sold / Net Fixed Assets
Significance:- This ratio is particular importance in manufacturing concerns where the investment in
fixed asset is quit high. 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 a fall in this ratio, it will show that
fixed assets have not been used as efficiently, as they had been used in the previous year.
e. Working Capital Turnover Ratio :- This ratio reveals how efficiently working capital has
been utilized in making sales.
Formula :-
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Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
A high working capital turnover ratio shows efficient use of working capital and quick turnover of
current assets like stock and debtors.
(D) Profitability Ratios or Income Ratios:- The main object of every business concern is to earn
profits. A business must be able to earn adequate profits in relation to the risk and capital invested in
it. The efficiency and the success of a business can be measured with the help of profitability ratio.
ii. What is the rate of gross profit and net profit on sales?
Profitability ratio can be determined on the basis of either sales or investment into business.
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(A) Profitability Ratio Based on Sales :
a) Gross Profit Ratio : This ratio shows the relationship between gross profit and sales.
Formula :
Significance:- This ratio measures the margin of profit available on sales. The higher the gross profit
ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be
adequate enough not only to cover the operating expenses but also to provide for deprecation,
interest on loans, dividends and creation of reserves.
b) Net Profit Ratio:- This ratio shows the relationship between net profit and sales. It may be
calculated by two methods:
Formula:
Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and Administrative
Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on short-term debts etc.
Significance :- This ratio measures the rate of net profit earned on sales. It helps in determining the
overall efficiency of the business operations. An increase in the ratio over the previous year shows
improvement in the overall efficiency and profitability of the business.
(c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and operating
expenses in comparison to its sales.
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Formula:
Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100
Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. + Discount +
Bad Debts + Interest on Short- term loans.
‘Operating Ratio’ and ‘Operating Net Profit Ratio’ are inter-related. Total of both these ratios will be
100.
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the business
enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and
operating expenses. Lower the operating ratio is better, because it will leave higher margin of profit
on sales.
(d) Expenses Ratio:- These ratio indicate the relationship between expenses and sales. Although the
operating ratio reveals the ratio of total operating expenses in relation to sales but some of the
expenses include in operating ratio may be increasing while some may be decreasing. Hence,
specific expenses ratio are computed by dividing each type of expense with the net sales to analyse
the causes of variation in each type of expense.
(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100
(a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio.
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It may be calculated as:
(d) Office and Administrative Expenses Ratio = Office and Administrative Exp./ Net Sales*100
Significance:- Various expenses ratio when compared with the same ratios of the previous year
give a very important indication whether these expenses in relation to sales are increasing,
decreasing or remain stationary. If the expenses ratio is lower, the profitability will be greater and if
the expenses ratio is higher, the profitability will be lower.
These ratios reflect the true capacity of the resources employed in the enterprise. Sometimes the
profitability ratios based on sales are high whereas profitability ratio based on investment are low.
Since the capital is employed to earn profit, these ratios are the real measure of the success of the
business and managerial efficiency.
I. Return on Capital Employed :- This ratio reflects the overall profitability of the business.
It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is
usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’.
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Formula:
Return on Capital Employed = Profit before interest, tax and dividends / Capital Employed
*100
Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves + P&L
Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) – Non-
Operating Assets like Investment made outside the business.
Return on Capital Employed Shows the overall profitability of the funds supplied by long term
lenders and shareholders taken together. Whereas, Return on shareholders funds measures only the
profitability of the funds invested by shareholders.
For calculating this ratio ‘Net Profit after Interest and Tax’ is divided by total shareholder’s funds.
Formula:
Return on Total Shareholder’s Funds = Net Profit after Interest and Tax / Total Shareholder’s
Funds
Where, Total Shareholder’s Funds = Equity Share Capital + Preference Share Capital + All
Reserves + P&L A/c Balance –Fictitious Assets
Significance:- This ratio reveals how profitably the proprietor’s funds have been utilized by the
firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability
and strength of the firm.
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(b) Return on Equity Shareholder’s Funds:-
Equity Shareholders of a company are more interested in knowing the earning capacity of their
funds in the business. As such, this ratio measures the profitability of the funds belonging to the
equity shareholder’s.
Formula:
Return on Equity Shareholder’s Funds = Net Profit (after int., tax & preference dividend) /
Equity Shareholder’s Funds *100
Where, Equity Shareholder’s Funds = Equity Share Capital + All Reserves + P&L A/c
Significance:- This ratio measures how efficiently the equity shareholder’s funds are being used in
the business. It is a true measure of the efficiency of the management since it shows what the earning
capacity of the equity shareholders funds. If the ratio is high, it is better, because in such a case
equity shareholders may be given a higher dividend.
(c) Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity shareholders
on a per share basis. All profit left after payment of tax and preference dividend are available to
equity shareholders.
Formula:
Earning Per Share = Net Profit – Dividend on Preference Shares / No. of Equity Shares
Significance:- This ratio helps in the determining of the market price of the equity share of the
company. The ratio is also helpful in estimating the capacity of the company to declare dividends on
equity shares.
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(d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference dividend
are available to equity shareholders.
But of these are not distributed among them as dividend . Out of these profits is retained in the
business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the
dividend distributed to equity shareholders divided by the number of equity shares.
Formula:
(e) Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available to
equity shareholders and the dividend distributed among them.
Formula:
OR
(f) Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the E.P.S.
and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated on the basis
of the market value of share
(g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity
share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value
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of a share of a company & is widely used by investors to decide whether or not to buy shares in a
particular company.
Significance :- This ratio shows how much is to be invested in the market in this company’s shares
to get each rupee of earning on its shares. This ratio is used to measure whether the market price of a
share is high or low.
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1.2 INDUSTRY PROFILE
Elevators and escalators include new equipments and services. This industry is directly
related to the construction industry. The trends and the movements of the construction industry
impact the elevator and escalator market directly. Demand and order intake for new elevators
tracks GDP growth and developments in construction activity with about a one-year lag.
With infrastructure development and growth in the real estate industry, the market for
elevators and escalators is on an upward spiral. According to industry experts, all metros and
upcoming cities with an urban population of over one million are growing markets for elevators
and escalators. Residential buildings and commercial establishments like shopping malls and call
centre along with infrastructure projects like airports and metro railways are driving this growth.
The elevator and escalator industry has seen a near 25 per cent growth over the last
three to four years. For the current year, industry representatives see the numbers touch 35,000
units with a turnover of about Rs 4,200 crores.
Against 125 escalators in 1998, the number sold in 2007 is over 2,000. Similarly, elevator speeds
have improved. From 1.75 meter per second, the speeds now spoken of are six metres and above.
Imperial Tower building in Mumbai is to be installed with about 36 such lifts. Johnson is in talks
with New Zealand-based TL Jones to provide value-added features inside the lift-cars such as
display screens.
From the Archimedes's cab on the hemp rope powered by hand to hydraulic elevators to energy
efficient, environment friendly elevators, vertical transportation has seen a sea change in the
Indian market in terms of high speed, safety and smooth ride as the demand of elevators
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witnesses a sharp increase in the last few years.
"The most important growth driver of elevator business in our industry is urbanisation. The
annual gross domestic product growth has remained at a solid 6-8 per cent and the elevator
market has grown up to 20 per cent on annual basis," says Minna Mars of Kone Corporations,
one of the largest elevator companies in India. There are players like Mitsubishi, Kone, Schindler
among others in the organised sector, and many regional players that constitute the elevator
market.
”There is no doubt that with changing lifestyle the consumer preference for the elevators has also
changed and when a client comes to us for booking, he also enquires about the kind of elevator
we are providing”, says an executive of a construction company.
"With the scarcity of land in major cities, the need is now more than ever before for a vertical
growth instead of a horizontal expansion, one of the key reasons why we see more and more of
20 plus floor buildings coming up across major cities," he further says.
5. Schindler India
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With its 30-year expertise in superior quality elevators, Johnson Lifts is a leading name in south
India where it provides turnkey services using speed control technology, evergreen lifts and the
like. The company's various factories in Chennai have a total annual capacity of 1,500 units. It
has so far installed over 8,000 lifts across the country.
Johnson Lifts cater to a wide spectrum of clients that include passenger, hospital, freight lifts,
car lifts and scenic lifts
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Otis Elevator Company commenced sales in 1853. Today, Otis is the undisputed global leader
for Elevators. With over 150 years of experience and the subsequent expertise gathered, the
safety and quality offered by Otis Elevators remain unmatched.
The India operations and sales of the company are managed under the name OTEL - Otis
Elevator Company (India) Limited.
Otis Elevators India handles the entire process right from manufacturing to servicing and even
marketing of quality elevators and escalators. They also deal in export of elevator components.
With a web of service centers spanning the country, Otis Elevator India has also become one of
the biggest recruiters in its field with an impressive figure of 6,000 for employee strength.
The Company's new technology products include Otis 300VF Infinity and the Otis
200VF.
Otis offers a comprehensive line of elevator choices designed to meet vertical transportation
needs
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Fujitec India
Fujitec India Pvt. Ltd is a subsidiary of Fujitec Singapore Corporation Ltd. The parent
company Fujitec Co. Ltd in Japan is a world-wide provider of people-transportation systems
for 56 years. Fujitec specializes in the design, manufacture, installation and servicing of a
range of people-moving systems. The products include elevators, escalators, autowalks and
dumbwaiters. Our key strength is our ability to offer an innovative and integrated approach to
design, production, installation and after sales service
The Mitsubishi Electric Group operates on the corporate principle of contributing to creating a
vibrant and affluent society by enhancing its technologies, services, and creative powers, as a
leader in the manufacture and sales of electric and electronic equipment used in Energy and
Electric Systems, Industrial Automation, Information and Communication Systems, Electronic
Devices, and Home Appliances.
Mitsubishi Electric elevators and escalators are defined by the phrase, Quality in
Motion. It’s a concept that has grown out of an attention to detail that manifested in exceptional-
quality products as far back as the 1930s. Our customers appreciate the higher standard that we
set for ourselves. They know that the level of attention to detail we’re famous for will protect
their investments in what are widely acknowledged to be the highest quality elevators, escalators
and moving walks available.
Mitsubishi elevators are used in skyscrapers all over the world, leading the
industry in performance, safety, design, comfort and economy. With constantly evolving quality
and years of accumulated experience, our elevators continue to establish benchmarks for quality
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in the industry, and consistently set new standards for performance and reliability. Our most
technologically innovative elevators provide architects and developers with new options for
inventive building design
Schindler Group is the largest supplier of escalators and the second largest manufacturer of
elevators worldwide. Founded in Switzerland in 1874, the Schindler Group employs around 45
000 people worldwide and comprises two core areas of business: Elevators & Escalators, which
contributed 62% of sales in 2008, and ALSO, a distributor of information technology and
consumer electronics in Europe.
The parent company Schindler Holding Ltd. is listed on the SIX Swiss Exchange, and has around
43000 employees and its operations span all five continents.
Schindler designs, installs, services and modernizes transport systems for almost every building
type worldwide. Globally, Schindler equipment moves more than 900 million people per day.
Schindler India is a part of the Schindler Group, the largest supplier of escalators and the second
largest manufacturer of elevators worldwide.
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Hitachi Asia is one of four regional headquarters for Hitachi’s worldwide operations, the other three
being North America, Europe and China. Established in 1989, HAS operates in 10 offices across 7
Asian countries (India, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam). It has
full responsibility for Hitachi’s sales and marketing operations in Asia – in market sectors such as
information systems, power and industrial systems, digital media systems, consumer products and
international procurement. With a customer–driven philosophy, the company constantly delivers
innovative solutions to meet the sophisticated demands of our customers.
Under the Power & Industrial Systems Group, the Elevator / Escalator Division is responsible for the
sales and marketing of Hitachi’s Elevators, Escalators and Moving SideWalks to regions including
Southeast Asia, South Asia and the Middle East. With engineering support from our sister company,
Hitachi Elevator Engineering (S) Pte Ltd, we will continue to strive to expand our sales territories in
the near future.
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ETA - MELCO ENGINEERING COMPANY, INDIA
ETA-Melco Engineering Company Private Limited, India has its Corporate Office in
Chennai with branch offices in Mumbai, New Delhi, Kolkata, Chennai, Bangalore and
Hyderabad. ETA-Melco is the exclusive, authorised representatives - responsible for
carrying out marketing, installation and maintenance of Mitsubishi Elevators and Escalators
in India.
ETA-Melco represents Mitsubishi Elevators and Escalators in all the above territories.
Activities cover design, marketing, supply, installation and maintenance of all types of
vertical transportation equipments. They have sold over 32,000 units in the 30 years of its
operation.
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Mitsubishi Group is one of the largest Japanese companies operating worldwide,
manufacturing and marketing a wide range of products and services.
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1.4 PRODUCT PROFILE
NexWay-S Series AW
Standard Machine Room Passenger Elevators (with worm geared traction
machine)
For high rise building, medium rise building, hotel, commercial building,
residential building, station, hospital, private residence
Use Passenger/Service
Rated Capacity (Kg) 450-1350
Number of persons 6-20
Rated Speed (m/sec) 1.0 - 2.5
Maximum number of stops 32
Maximum travel (m) 120
ELENESSA
Machine-Room-Less Passenger Elevator
For medium rise building, hotel, commercial building, residential building,
station, hospital, private residence
Use Passenger
Rated Capacity (Kg) 450-1600
Number of persons 6-21
Rated Speed (m/sec) 1.0 - 1.75
Maximum number of stops 30
Maximum travel (m) 80
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NexWay-S Series IP/AP
Compact Machine Room Passenger Elevators (with PM gearless traction
machine)
For high rise building, medium rise building, hotel, commercial building,
residential building, station, hospital, private residence
Use Passenger/Service
Rated Capacity (Kg) 750-2500
Number of persons 10-33
Rated Speed (m/sec) 0.75 - 2.5
Maximum number of stops 36
Maximum travel (m) 120
NexWay
High Speed Passenger Elevator
For high rise building, medium rise building, hotel, commercial building,
residential building
Use Passenger/Service
Rated Capacity (Kg) 750-1630
Number of persons 10-24
Rated Speed (m/sec) 2.0 - 4.0
Maximum number of stops 48
Maximum travel (m) 150
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SEB-0
Home Elevator
For private residence
Use Passenger
Rated Capacity (Kg) 200
Number of persons 3
Rated Speed (m/sec) 0.33
Maximum number of stops 4
Maximum travel (m) 10
GFM-T
Freight Elevator
For warehouse/factory
Use Freight
Rated Capacity (Kg) 750-6000
Number of persons -
Rated Speed (m/sec) 0.5 - 1.0
Maximum number of stops 16
Maximum travel (m) 30
GPM-III
High Speed Passenger Elevator
For high rise building
36
Use Passenger/Service
Rated Capacity (Kg) 120-1800
Number of persons 16-24
Rated Speed (m/sec) 5.0 - 6.0
Maximum number of stops 64
Maximum travel (m) 200
Use Freight
Rated Capacity (Kg) 30-500
Number of persons -
Rated Speed (m/sec) 0.38 - 0.75
Maximum number of stops 8
Maximum travel (m) 15
Series Z Escalators
For office, hotel, commercial bldg., station, subway and other applications
Use General/Public
Inclined Angle 30"/35"
Rated Speed (m/sec) 30
37
Maximum rise (m) 13000(30°) 6000(35°)
Spiral Escalators
For office, hotel, commercial bldg., station, subway and other applications
Use General
Inclined Angle 30"
Rated Speed (m/sec) 25
Maximum rise (m) 6600
Use General
Inclined Angle 12"
Rated Speed (m/sec) 30
Maximum rise (m) 6500
Use General
Inclined Angle 0° / 3° / 6° / 9° / 11.31° / 12°
38
Rated Speed (m/sec) 30 / 40 / 45
Maximum rise (m) 8000
PRIMARY OBJECTIVE:
The basic objective of studying is to know the financial performance of the company
39
SECONDARY OBJECTIVES:
To analyse and interpret the trends as revealed by various ratios of the company in particular.
To know the borrowings of the company as well as the liquidity position of the company.
To study the profits of the business and net sales of the business
To study the changes in the assets, liabilities structure of the company during the period
of study.
.
The study is based on the accounting information of the ETA-MELCO ENGINEERING PVT. LTD.
The study covers the period of 2004-2009 for analyzing the financial statement such as Prpfit and
Loss statements and balance sheets.
40
Considering the availability of time, information and sources of study is confined to the performance
of the ETA-MELCO ENGINEERING PVT. LTD. This study aims at analyzing the overall financial
performance of the company using various financial tools.
LIMITATIONS OF STUDY :
The analysis and interpretation are based on secondary data contained in the published
annual reports of ETA-MELCO ENGINEERING PVT. LTD. for the study period.
Due to the limited time available at the disposable of the researcher the study has been
Ratio itself will not completely show the company’s good or bad financial position.
Inter firm comparison was not possible due to the non availability of competitors data.
The study of financial performance can be only a means to know about the financial
condition of the company and cannot show a through picture of the activities of the
company.
CHAPTER 2
REVIEW OF LITERATURE
41
CHAPTER 3
RESEARCH METHODOLOGY
understood as a science of studying how research is done scientifically. So, the research
42
methodology not only talks about the research methods but also considers the logic behind the
Descriptive research is used in this study because it will ensure the minimization of bias
and maximization of reliability of data collected. The researcher had to use fact and
information already available through financial statements of earlier years and analyse these to
make critical evaluation of the available material. Hence by making the type of the research
From the study, the type of data to be collected and the procedure to be used for this
The required data for the study are basically secondary in nature and the data are
43
The sources of data are from the annual reports of the company from the year 2004-
2005 to 2008-2009.
The data collected were edited, classified and tabulated for analysis. The analytical
1. Comparative statement.
3. Trend Analysis.
4. Ratio Analysis.
CHAPTER 5
ANALYSIS AND INTERPRETATION
COMPARATIVE STATEMENTS:
44
.
I Sources of Fund
1. Shareholder's Fund :
Share capital 8,000,000.00 8,000,000.00 0.00 0.00%
Reserves & Surplus 40,190,080.00 78,870,975.00 38,680,895.00 96.24%
II Application of Funds
1. Fixed Assets :
(A). Gross Block 21,940,203.00 30,016,496.00 8,076,293.00 36.81%
less: Accumulated
Depreciation 7,929,658.00 11,315,442.00 3,385,784.00 42.70%
Net Block 14,010,545.00 18,701,054.00 4,690,509.00 33.48%
130,466,211.0 160,976,329.0
[C] 0 0 30,510,118.00 23.39%
-
Miscellaneous Expenditure 5,758.00 0.00 -5,758.00 100.00%
45
INFERENCE:
1. The comparative balance sheet of the company during the year 2005 &
2006 reveals that the share capital of the company remains the same while
there is a considerate increase in Reserves and Surplus i.e., 96.24%.
2. The current assets has increased by RS.30,510,118 i.e., 23.39% and the
cash has increased by RS.19,825,090 i.e., 85.24%. There is a slight decrease
of inventories of around 22.91%.
3. The current liabilities show a decrease of Rs. 3,382,817 i.e., 3.54% which
means that the company has paid back 3.54% of the loans payable within an
year.
I Sources of Fund
1. Shareholder's Fund :
Share capital 8,000,000.00 8,000,000.00 0.00 0.00%
Reserves & Surplus 78,870,975.00 106,388,097.00 27,517,122.00 34.89%
46
Add: Provision for the year -103,209.00 60,844.00 164,053.00 -158.95%
710,427.00 771,271.00 60,844.00 8.56%
II Application of Funds
1. Fixed Assets :
(A). Gross Block 30,016,496.00 53,682,067.00 23,665,571.00 78.84%
less: Accumulated
Depreciation 11,315,442.00 15,955,807.00 4,640,365.00 41.01%
Net Block 18,701,054.00 37,726,260.00 19,025,206.00 101.73%
INFERENCE:
1. The comparative balance sheet of 2006 & 2007 shows that there is no change in the
share capital while there is an increase of reserves and surplus by 34.89%.
2. The current assets have shown a small increase of 8.81 % as there are other components
showing some decrease. The inventory has decreased by Rs.3, 017,069 at 30.77%. The
47
cash & bank balances and other current assets have shown a decrease of 7.86% &
3.79% respectively.
4. The working capital shows an increase of Rs. 8,552,760 at 12.42%. The efficient usage
of working capital will result in generation of more sales.
I Sources of Fund
1. Shareholder's Fund :
Share capital 8,000,000.00 8,000,000.00
48
Reserves & Surplus 106,388,097.00 146,813,678.00 40,425,581.00 38.00%
II Application of Funds
1. Fixed Assets :
(A). Gross Block 53,682,067.00 62,095,739.00 8,413,672.00 15.67%
less: Accumulated
Depreciation 15,955,807.00 24,100,547.00 8,144,740.00 51.05%
Net Block 37,726,260.00 37,995,192.00 268,932.00 0.71%
INFERENCE:
1. The comparative balance sheet of the company during the year 2007 & 2008 reveals
that the share capital remains same and the reserves and surplus shows an increase of
Rs. 40,421,581 due to profits.
49
2. The total fixed assets shows an increase of Rs.15, 476,542 i.e., 41.02%. But the
accumulated depreciation has increased by Rs. 8,144,740 which is around 51.05%.
hence it would in turn result in decreasing the overall value of the fixed assets in the
market.
3. The currents liabilities and the provisions show an increase of Rs. 70,419,789 and Rs.
104,864,404 respectively, that is 79.38% on the whole.
Sources of Fund
1. Shareholder's Fund :
Share capital 8,000,000.00 8,000,000.00 0.00
Reserves & Surplus 146,813,678.00 194,759,581.00 47,945,903.00 32.66%
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2. Deferred Tax Liability 399,833.00 138,709.00 -261,124.00 -65.31%
Add: Provision for the year
399,833.00 138,709.00 -261,124.00 -65.31%
Application of Funds
1. Fixed Assets :
(A). Gross Block 62,095,739.00 121,530,936.00 59,435,197.00 95.72%
less: Accumulated
Depreciation 24,100,547.00 35,203,724.00 11,103,177.00 46.07%
Net Block 37,995,192.00 86,327,212.00 48,332,020.00 127.21%
1. The comparative balance sheet for the year 2008 & 2009 shows that there is an increase
in the reserves and surplus of Rs. 47, 945,903 while the share capital remains the same.
2. The total fixed assets show an increase of 65.28% which is Rs.34,729,750 while the
capital work-in-progress shows an decrease of 89.44%.
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3. The total current assets have increased by 24.16% with sundry debtors and inventories
showing minimal increase of 14.51% & 18.05% respectively. The other current assets
show a higher rate of increase at 71.31% while the loans and advances has decreased by
44.99%. This implies that a part of loan has been paid back and very less advances has
been acquired.
COMMONSIZE STATEMENTS:
Consolidated Balance sheet of the company:
s.No. Particulars 2005 2006 2007 2008 2009
Sources of Fund
1. Shareholder's Fund :
Share capital 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00
Reserves & Surplus 40,190,080.00 78,870,975.00 106,388,097.00 146,813,678.00 194,759,581.00
52
Add: Provision for the year 158,796.00 -103,209.00 60,844.00
813,636.00 710,427.00 771,271.00 399,833.00 138,709.00
I Application of Funds
1. Fixed Assets :
(A). Gross Block 21,940,203.00 30,016,496.00 53,682,067.00 62,095,739.00 121,530,936.00
less: Accumulated
Depreciation 7,929,658.00 11,315,442.00 15,955,807.00 24,100,547.00 35,203,724.00
Net Block 14,010,545.00 18,701,054.00 37,726,260.00 37,995,192.00 86,327,212.00
Sources of Fund
1. Shareholder's Fund :
Share capital 16.33% 9.13% 6.95% 5.15% 3.94%
Reserves & Surplus 82.01% 90.05% 92.38% 94.59% 95.99%
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2. Deferred Tax Liability 1.34% 0.93% 0.62% 0.26% 0.07%
Add: Provision for the year 0.32% -0.12% 0.05% 0.00% 0.00%
1.66% 0.81% 0.67% 0.26% 0.07%
I Application of Funds
1. Fixed Assets :
(A). Gross Block 44.77% 34.27% 46.62% 40.01% 59.90%
less: Accumulated
Depreciation 16.18% 12.92% 13.86% 15.53% 17.35%
Net Block 28.59% 21.35% 32.76% 24.48% 42.55%
1. An analysis of pattern financing of the company shows that ETA-Melco Eng. Pvt. Ltd
is more traditionally financed. It implies that the company depends on its own funds
(i.e.,99.93%) than the outsider’s funds.
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2. The proportion of current assets to total assets has increased comparing to current liabilities
which serve as an evidence for good working capital position of the company.
3. There is a consistent increase in reserves and surplus in the company due to a consistent
increase in the profits during these years.
4. Investments, Miscellaneous expenditure and deferred liabilities have their own limited
contribution to their respective side totals.
less:
B) Expenditure
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Opening stock 7,007,474.00 12,720,921.00 9,805,998.00 0.00 0.00
Common Size Income Statement of ETA-Melco Eng. Pvt Ltd from 2005 to 2009:
56
Particulars 2005 2006 2007 2008 2009
B) Expenditure
INFERENCE:
57
TREND ANALYSIS:
58
2005 2006 2007 2008 2009
% % % % %
Income 100 135.63 155.85 288.46 390.83
PBT 100 136.43 132.02 204.52 280.41
PAT 100 172.49 122.71 222 297.27
Trend Analysis
450
400
Percentage values
350
300 Income
250
PBT
200
150 PAT
100
50
0
2005 2006 2007 2008 2009
Periods
INFERENCE:
1. By taking 2005 as base year (100%) the sales, profit before tax (PBT) and net profit or
profit after tax (PAT) during the study period were analysed by taking trend as a tool.
2. The profit before tax shows consistent increase during the years with the highest in the
3. The profit after tax (PAT) which is also known as Net Profit slopes downwards in the
year 2007 but moves in the favorable direction due to less financial and interest charges
4. The income of the company shows drastic growth during these years especially in the
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RATIO ANAYLYSIS
1. CURRENT RATIO :
Inference:
The above table and diagram shows that the current ratio in the year 2005 was 1.37 and then in
increases to 1.75 in the year 2006, further move upwards to 1.79 and in the year 2008 it slashed
down to 1.58 and finally in the year 2009 it decreased to 1.50. Here, the current ratio
fluctuates from year to year below the ideal ratio of 2.
An ideal solvency ratio is 2. The ratio of 2 is considered as a safe margin of solvency due to the
fact that if current assets are reduced to half (i.e.) 1 instead of 2, then also the creditors will be
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2. QUICK RATIO :
Inference:
The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1 in
the years 2005 to 2009 with 2007 holding the highest. Indicates the ability of the entity to meet
unexpected demands from liquid current asses
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