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.1 Introduction Industrialization commenced in earnest only after the independence in 1947.

From a predominantly agrarian economy, India has moved towards rapid industrialization with the state retaining the privilege of entrepreneurship an authority in a system of mixed economy. For four decades, the focus had been on the public sector, which was perceived as a means of achieving industrial growth with social justice. It was Pandit Jawaharlal Nehru the 1st prime minister of independent India, who laid the foundation of a strong industrial base for the country. It was he who should be given the chief credit for fostering the creation of a rich scientific and technological pool by which the country is benefiting today. During his time many dams were built such as the one at Bhakra Nangal. In the mixed economy followed during that period as per his brand of socialist ideology, in which both the public and private sectors were given the scope and the opportunities to grow. The private sector was allowed to function along with public enterprises, but under the control of the government with strict licensing and supervision. Initially, this led to a rapid industrialization with large capital-intensive industries in the public sectors. A number of state owned industrial enterprises were established in various sectors - In steel, power, heavy engineering etc. It cannot be denied that much of the industrial and scientific advance achieved by India of which are proudly boasted today owe a lot to his foresight and vision. He called all theses projects The Temples of Modern India that would bring about the countrys progress and prosperity. But unfortunately many of the state owned and run enterprises in various sectors did not function successfully and satisfactorily due to structural, operational, managerial, marketing, and other such deficiencies so that the public sector came to be looked upon as inefficient, not yielding, the results that have been expected of them, some of them even turning out to be white elephants. At the same time many of them did serve the socio economic objectives which was the purpose behind their setting up, but this being quite cited as the reason and made an excuse for their inefficient functioning, largely the consequences of their not being run on commercial principles. These reasons causing inefficiency in the functioning of the industries, brought the country to a state of crisis, prompting the government to make a complete turn around by introducing the National Industrial Policy (NIP) in 1991 which sought to build on past industrial achievements and depend on market mechanisms to make Indian industry internationally competitive. However there were some enterprises dating from that era that showed very good growth and development and made a significant contribution to the 2 advance of industry and technology in their respective sectors. Among such outstanding examples of the success of public sector enterprises in the country is HMT, which can be said to have given a very good account of itself in terms of efficient operations and in the contribution to the development of technology in a sophisticated sector, attaining the best international standards. It is Indias largest machine tools manufacturer, recognized world wide for excellence in precision engineering. Globalization and liberalization have brought immense changes and to opportunities to Indian industries, more so to the public sector. Originally setup to be a vehicle of social changes as well as a business enterprise, the public sector undertaking today finds itself marginalized.

Theoretical Background of the Study 1.2 Financial Analysis Financial statements i.e. the profit and loss account and the balance sheet, no doubt contains a large number of accounting or financial figures. But at a quick glance they do not convey much information. However when they are analyzed and interpreted they give a clear picture of the financial adventures of the firm, and made to tell the story of the actual progress and the financial position of a firm in clear and simple language, which can be easily understood even by a layman. 1.2.1 Definition In the words of Metcalf and Titard, Analyzing financial is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of a firms position

and performance 1.2.2 Steps in Financial Analysis 1. Analysis Analysis of financial statement means splitting up or grouping of the figures found in the financial statements into desired, homogeneous, and comparable component parts. In other words, its the reclassification and re-arrangement of the data found in the financial statements into groups of a few principal elements according to their resemblances and affinities and presenting them in the form most convenient for interpretation. 2. Comparison After the figures contained in the financial statements are dissected or split into the required comparable component parts, the comparable component parts i.e. the inter-connected figures must be compared with each other and their relative magnitude or relationship must be measured. 3. Interpretation After the analysis and comparison of financial statements, the results must be interpreted. Interpretation of result means the formation of rational judgment and the drawing of proper conclusions about the process, financial position and future prospects of the business through careful study of the relationship of component parts obtained through analysis and comparison.

1.2.3 Objectives of financial analysis 1. To determine the progress of the concern. 2. To measure the operational efficiency of the concern. 3. To judge the financial position i.e. the short-term liquidity position and the long-term solvency of the concern. 4. To ascertain the future prospects of the concern. 1.2.4 Tools or techniques of financial analysis The important tools or techniques of financial analysis are, 1. Comparative financial statement analysis 2. Common size statement analysis. 3. Trend analysis or trend percentages. 4. Ratio Analysis. 5. Fund flow analysis. 6. Cash flow analysis. 7. Cost volume-profit analysis. 1.3 RATIO ANALYSIS 1.3.1 Meaning and definition Ratio analysis is one of the powerful tools of the financial analysis. A ratio can be defined as the indicated quotient of two mathematical expression and as the relationship between two or more things. Ratio is thus, the numerical or an arithmetical relationship between two figures. 1.3.2 Importance or Advantage of Ratio Analysis Ratio analysis stands for the process of determining and presenting the relationship of items and groups of items in the financial statements. Its an important technique of financial analysis. Its a way by which financial stability and health of a concern can be judged. Following are the main points of importance of ratio analysis. 1. Useful in revealing the financial position of the concern 2. Helps in simplifying accounting figures. 3. Helpful in assessing the operational efficiency. 4. Facilitates in forecasting. 5. Useful in comparison of performance. 1.3.3 Limitation of Accounting Ratios

Ratio analysis is very important in revealing the financial position and soundness of the business. But in spite of its advantages, it has some limitations, which restrict its use. These limitations should be kept in mind while making use of ratio analysis for interpreting the financial statements. The following are the main limitations of accounting ratios. 1. False results if based on incorrect accounting data. 2. No. idea of probable happening in future. 3. Comparison of two firms is possible only if they follow the same methods. 4. Changes in price levels make comparison for various years difficult. 5. No. common standards. 6. Different meanings assigned to the same term. 1.3.4 CLASSIFICATION OF ACCOUNTING RATIOS Liquidity Ratios 1. Current Ratio. 2. Quick Ratio. 3. Absolute Liquid Ratio. 4. Inventory to Working Capital Activity Ratios 1. Inventory turn over ratio 2. Debtors turn over ratio 3. Creditors turn over ratio 4. Cash turn over ratio 5. Working capital turns over ratio 6. Fixed assets turn over ratio 7. Current assets turn over ratio 8. Total assets turn over ratio 9. Sales to net worth ratio Leverage Ratios 1. Debt equity Ratio 2. Net worth ratio 3. Solvency ratio 4. Fixed assets to net worth ratio 5. Current liabilities to net worth ratio 6. Current assets to net worth ratio 7. Capital gearing ratio 8. Fixed assets ratio 9. Fixed change cover ratio 10. Debt service ratio 11. Dividend Cover ratio Profitability ratios 1. Gross profit ratio 2. Net profit ratio 3. Operating ratio 4. Expenses ratio 5. Operating profit ratio 6. Return on total resources 7. Return on investment ratio 8. Return on equity capital ratio 9. Earning per share 10. Pay out ratio 11. Price earning ratio

12. Dividend yield ratio 13. Bank value per share 14. Preference dividend cover 15. Equity dividend cover 2. Research Design 2.1 Title of the study A study on the analysis of the financial statements of HMT Machines Tools Limited, Bangalore. 2.2 Statement of the problem Hindustan Machine tools (Ltd), Machine Tools Division Bangalore holds a leading position in the industry. In the history of HMT Machine Tools it was making higher profit margin, but later on the profits showed a downward trend, in fact the company is running under loss since last few years. Therefore an attempt has been made in this study to identify the reasons for such a situation. Ratio analysis is used as a tool for evaluating the financial performance at HMT, Machine Tools LTD, Bangalore. 2.3 Objectives of the study This study is mainly aimed at examining the financial viability of HMT Machine Tools Ltd. Other objectives are as follows: i. To study all the financial statements. ii. To bring out the results of financial statements through ratio analysis. iii. To identify the factors affecting the financial and operational performances. iv. To draw conclusions from the findings. 2.4 Limitations of the study It's very difficult for long study to make it accurate due to many obstacles in collection and computation of data. The following are some of the reasons. 1. The analysis period is limited to 5 years and therefore the outcome may not be generalized. 2. Comparing the financial statements for the last five years has drawn inference about the concern's performance. Where as, the performance of company could not be compared with that of other such similar industries with which perhaps, the findings and conclusion could have been made more effective. 3. Being an outsider to the company with not much comprehensive and practical knowledge about the concern conclusions have been drawn purely based on calculation of ratios. Therefore the accuracy and dependably of conclusions and suggestions are limited to an extent. 2.5 Methodology Research Design The methodology that have been adopted while collecting the information and interpreting those in a meaningful way, are discussed below: 1. Collection of data The process of counting or enumerating or measuring together with the recording of results is called as collection of data. Data collection is of two types Primary data Secondary data. Primary data are those data, which are originally collected for the first time, for a specific purpose by an investigator. They are collected directly from the people from whom the enquiry is related. They are original in character. They are primary to the institution, which collects them; they are secondary to all other institutions, which refer such data. Secondary data are those data, which are collected, processed and used by someone else for their own purpose. They are either published or unpublished. They are secondary to all other institution

except the one, which has collected. 2. A detailed analysis and interpretation of the financial statements of HMT Ltd, Bangalore for the past 5 years. 3. Discussion with the officers of finance department and other concerned departments. Time Allocation table Steps Time Involved 1. Collection of information about the company 1 Week 2. Discussion held with related officers 1 Week 3. Analyzing and interpretation of financial statements 3 Weeks 4. Drawing the conclusions & giving recommendations 1 Week 5. Drafting the rough copy 3 Weeks 6. Preparation of the final report 2 Weeks 2.6 Research instruments 1. Primary data The only method through which primary data was collected pertaining to the operational and financial performance of the company is through direct interviews with the officers working in the finance department and personnel department. 2. Secondary data Most of the data i.e. about 90% is colleted through secondary source. They are as follows. a. Financial statements Balance sheets and profit and loss accounts of 1999-2000, 2000-2001, 2001-2002, 2002-2003, 20032004 was obtained from financial statements maintained by the firm b. Annual reports Apart from the data taken from financial statements other information regarding the overall operational and financial performance has been taken from annual reports. c. Information through Company Website d. Information taken from books Definitions and other important information are collected from books written by various authors.