CHAPTER 1
INTRODUCTION
Finance holds the key to all human activity. It is guide for regulating
investment decisions and expenditure and endeavors to squeeze the most out of
every available rupee. Financial management is that managerial activity which is
concerned with the planning and controlling of the firms financial resources.
A financial analyst can adopt the following tools for analysis of the
financial statement. These are also termed as methods of financial analysis.
1.1.2.4 Uses
These can be useful indicators of measures to appraise the financial health
of an organization and its profitability, financial stability (long term and short term),
financial management and overall efficiency of the business.
The company was established in the year 1964 as M/s FESTO ELGI pvt
Limited, for manufacturing wood working machines in collaboration with M/S Festo
Maschinen Fabrik, Germany. Subsequently, the company diversified its activities in
the manufacture of DC motors, signal and transmission equipment for railways and
overhead traveling cleaners developed indigenously. The name of the company
was changed as M/s ELGI Electric and Industries Limited in the year 1994. There
are 3 manufacturing units at present under ELGI Electric & Industries Ltd.
I) Motor Division
• AC Motors
Corporate Office
Management
CHAPTER 2
1. The study is based on the data obtained from the annual reports of the
concern i.e. balance sheet.
2. The period under study has been only for 5 financial years i.e. 1999 – 2000
to 2003 – 2004.
3. The study doesn’t take into account the other areas such as dividend policy,
capital budgeting etc.
1
CHAPTER 3
RESEARCH METHODOLOGY
The collected data were presented in tables and these tables were
analyzed systematically. Ratio analysis, the vital financial tool was used to study
the financial performance of Elgi Electric & industries Ltd. A chart and various
diagrams are used to explain the analysis clearly. It is an undisputed truth that
graphs and diagrams render any complicated discussion and any intricate subject,
very simple to any casual reader of the thesis.
The secondary data were also collected from audited financial statements
periodicals and other records maintained by Elgi Electric & industries Ltd.
Data of 5 financial years are used for the purpose of study. The 5
years of study ranges from 1999- 2000 to 2003 – 2004.
3
CHAPTER 4
Figure 4.1.1.2
10
7.62
8 6.54 6.86
6 4.8
3.5
4
2
0
1999 – 2000 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004
INTERPRETATION
The table reveals Gross Profit Ratio showing slightly increasing trend, it was
low in the period 1999 – 2000 with 3.50% and raised during the period 2000 – 2001
1
to 7.62% then a sudden decrease in the next year to 4.80% and from that it started
raising to 6.86% in the period 2003 – 2004.
Net Profit Ratio = (Net Profit after Tax / Net Sales) x 100
Table 4.1.2.1
Figure 4.1.2.2
6 4.94
4.15
4 3.26
2.39
2
0.56
0
1999 – 2000 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004
INTERPRETATION
The ratio was highest in the period 2000 – 2001 and lowest in the period
1999 – 2000. It shows a fluctuating trend.
1
Table 4.1.3.1
Figure 4.1.3.2
15
9.42 9.54
10
5.63 5.96 6.31
5
0
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
Higher operating profit ratio shows better operating efficiency. The ratio was
high in period 2003 – 2004. Therefore the operating efficiency is better in periods
2002 – 2003 & 2003 – 2004.
1
Table 4.1.4.1
Figure 4.1.4.2
15
9.42 9.54
10
5.63 5.96 6.31
5
0
1999 – 20002 000 - 20012 001 - 20022 002 - 20032 003 - 2004
INTERPRETATION
The return on capital employed was low in the period 1999 – 2000 and
highest in the period 2003 – 2004. It shows the increasing trend so it is good for the
company.
1
Table 4.1.5.1
Figure 4.1.5.2
Return on Equity
30 27.04 26.11
22.48
20
12.74
10 4.15
0
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
The ratio was low in the period 1999 – 2000 and high in the period 2000 –
2001 and 2003 – 2004. Though there was a decline in the period 2001 – 2002 to
12.74% it shows the increasing trend in the succeeding periods.
Table 4.2.1.1
Figure 4.2.1.2
8
5.74 5.48
6 4.76 4.57 4.41
4
2
0
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
The Debtors turnover ratio shows a fluctuating trend. The ratio was low in
the period 2001 – 2002 and high in the year 2002 – 2003. Though it is fluctuating it
show a consistent position.
Table 4.2.2.1
Debtors
Debt Collection
Year Days in a Year Turnover
Period (in days)
(in times)
1999 – 2000 360 4.76 75.63
Figure 4.2.2.2
INTERPRETATION
Table 4.2.3.1
Figure 4.2.3.2
6 4.99 4.72
4.04 4.22
4 3
0
1999 – 2000 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004
INTERPRETATION
The Fixed Asset Turnover ratio shows an increasing trend. The ratio was
low initially and raised in succeeding periods to 4.99 in the period 2002 – 2003 and
it slightly decreased to 4.72 in the period 2003 – 2004.
Table 4.2.5.1
Figure 4.2.5.2
4.5
4.12
3.93 3.89
4
3.57
3.44
3.5
3
1999 – 2000 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004
INTERPRETATION
Table 4.2.6.1
1
Inventory
Year Days in a Year Turnover Ratio In days
(in times)
1999 – 2000 360 4.12 87.38
Figure 4.2.6.2
Stock Velocity
110 104.65
100.84
100 91.6 92.54
87.38
90
80
70
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
The inventory turnover ratio and the velocity period of the company
remained stable which is 3.44 times and 104.65 days. In 1999 – 2000 the velocity
period was 87.38. Introduction of proper stock control system like periodic stock
taking would bring down the velocity period.
Table 4.3.1.1
1
Current
Year Current Assets Ratio
liabilities
1999 – 2000 195,883,904 102,660,992 1.91
Figure 4.3.1.2
C u rren t R atio
INTERPRETATION
This ratio indicates the extent to which short term creditors are safe in terms
of liquidity of the current assets. Thus, higher the value of the current ratio, more
liquid the firm is and more ability it has to pay the bills. However a current ratio of
2:1 is considered generally satisfactory. As per the study the current ratio varies
from 1.78 to 2.26. The current ratio was satisfactory during 2000 – 2001, 2001 –
2002 and 2002 – 2003.
Table 4.3.2.1
1
Figure 4.3.2.2
Quick R atio
2 1.55
1.54
1.32 1.33
1.5 1.15
1
0.5
0
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
The quick ratio of 1:1 is considered satisfactory. Though the quick ratio
during the period of study are above the satisfactory level, the period 2001 – 2002
having the ratio 1.55 times was good to the company and it started decreasing in
the succeeding years.
Table 4.4.1.1
Share Holders
Year Total Debt Ratio
Fund
1
Figure 4.4.1.2
D e b t E q u ity R atio
1.5
1.1 1.08
0.99 0.93
1 0.81
0.5
0
1999 – 20002000 - 20012001 - 20022002 - 20032003 - 2004
INTERPRETATION
Table 4.4.2.1
Figure 4.4.2.2
INTERPRETATION
The ratio was high during the period 2000 – 2001 and low during the period
2003 – 2004. It shows a decreasing trend.
CHAPTER 5
5.1 FINDINGS
companies highest gross profit ratio was during the period 2000 –
2001.
2. Net Profit Ratio has a slow growth and decline during the period of
study. It indicates insignificant improvement in conditions of the
business.
3. Operating Ratio is the test of operational efficiency. The efficiency
has risen slightly during the period of study.
4. The Return on Capital Employed ratio shows increasing trend in all
financial years during the period of study. Highest of 21.83% was
during the period 2003 – 2004.
5. Return on Equity Ratio shows an increasing trend though there is a
slight decrease during the year 2001 – 2002. Highest during the
period 2000 – 2001 (27.04%).
6. Earning per Share Ratio in 2000 – 2001 and 2003 – 2004 is 0.76 and
0.74 respectively, these were the highest.
7. Debtors Turnover Ratio shows slight variations between the periods.
It varies from 4.41 to 5.74. Higher the ratio it signifies that the debt
are being collected more promptly. This ratio indicates that the debts
are being collected more promptly in the company.
8. Debt collection period indicates the quality of debtors since it
measures the fastness with which money is collected from them. As it
is between 2 to 3 months, it indicates the debt collection efficiency is
satisfactory in the business. In general the amount of receivables
should not exceed 3 – 4 months of credit sale.
9. Fixed asset turnover ratio shows an increasing trend in all the
financial years except during 2003 – 2004. The ideal ratio is 0.67.
During the period of study it doesn’t fall below 3.
10. Total asset turnover ratio shows an increasing trend in all the financial
years during the period of study. It shows that the assets are well
utilized.
11. Inventory turnover ratio indicates the utilization of inventory in an
efficient manner. It is therefore clear that the sales are quick and
stock does not consist of non-salable items. It was higher in 1999 –
2000, indicates speedier movement of stock. It has decreased from
4.12 to 3.44 with a difference of 0.68 times.
12. Stock velocity shows the duration of the stock at the company. The
company takes 87.38 days to 104.65 days to clear the stocks.
13. The current ratio was favorable during 2000 – 2003
14. the quick ratio was above the satisfactory level as it shows a
favorable trend
15. Debt equity ratio shows that the company is depending outsiders
more during the year 2000 – 2001.
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5.2 SUGGESTIONS
5.3 CONCLUSION