TABLE OF CONTENTS Chapter No. Particulars Page No.

Chapter 1

Introduction

Chapter 2

Industry Profile

Chapter 3

Company profile

Chapter 4

Review of Literature

23

Chapter 5

Research Objectives

30

Chapter 6

Research Methodology

33

Chapter 7

Analysis and Interpretation

39

Chapter 8 8.1 8.2 8.3

Summary and findings Findings Recommendations Conclusions

100 101 105 106

Chapter 9

Annexure

107

Chapter 10

Bibliography

108

-1-

LIST OF TABLES
S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Particulars RETURN ON TOTAL ASSETS RATIO PROFITABILITY RATIO PROFITABILITY EARNINGS RATIO RETURN ON INVESTMENT RATIO OPERATING RATIO OPERATING PROFIT RATIO ADMINISTRATION EXPENSES RATIO SELLING AND DISTRIBUTION EXPENSES RATIO INVENTORY TURNOVER RATIO INVENTORY TURNOVER PERIOD DEBTORS TURNOVER RATIO DEBTS COLLECTION PERIOD CREDITORS TURNOVER RATIO DEBTS PAYMENT PERIOD RATIO WORKING CAPTIAL TURNOVER RATIO CAPTIAL TURNOVER RATIO FIXED ASSETS TURNOVER RATIO TURNOVER PER RUPEE OF GROSS BLOCK RATIO TURNOVER PER EMPLOYEE RATIO CURRENT RATIO LIQUID RATIO COMMON SIZE BALANCE SHEET ANALYSIS Page No. 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 92 94

COMPARATIVE BALANCE SHEET ANALYSIS TREND ANALYSIS REGRESSION ANALYSIS

-2-

LIST OF CHARTS

S. No.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Particulars
RETURN ON TOTAL ASSETS RATIO PROFITABILITY RATIO PROFITABILITY EARNINGS RATIO RETURN ON INVESTMENT RATIO OPERATING RATIO OPERATING PROFIT RATIO ADMINISTRATION EXPENSES RATIO SELLING AND DISTRIBUTION EXPENSES RATIO INVENTORY TURNOVER RATIO INVENTORY TURNOVER PERIOD DEBTORS TURNOVER RATIO DEBTS COLLECTION PERIOD CREDITORS TURNOVER RATIO DEBTS PAYMENT PERIOD RATIO WORKING CAPTIAL TURNOVER RATIO CAPTIAL TURNOVER RATIO FIXED ASSETS TURNOVER RATIO TURNOVER PER RUPEE OF GROSS BLOCK RATIO TURNOVER PER EMPLOYEE RATIO CURRENT RATIO LIQUID RATIO

Page No. 41 43 45 47 49 51 53 55 57 59 61 63 35 37 69 71 73 75 77 79 81

-3-

CHAPTER:

INTRODUCTION

-4-

INTRODUCTION OF THE STUDY:

Finance may be defined as that administrative area or set of administrative functions in an organization which relate with the arrangement of cash and credit so that the organization may have the means to carry out its objective as satisfactorily as possible.

The main activities to the successful administration of finance in any organization comprise financial planning, raising the needed funds, financial analysis and control. Analysis of financial statement in a business deserves much attention in carrying out finance function. It helps to regains prospective analysis of operative period for the purpose of evaluating the wisdom and efficiency of financial planning. Analysis of what has happened should be of great value in improving the standards, techniques and procedures of financial control involved in carrying out finance function.

FINANCIAL MANAGEMENT

Financial management is broadly concerned with the procurement and effective utilization of funds by a business firm. Financial management emerged as a distinct field of study at the turn of this century. Its evolution may be divided into three broad phases.

The Traditional Phase and Modern Phase Finance theory, in general resist on the premise that the goal of the firm to its equity shareholders. This means that the goal of the firm should be to maximize of market value of its equity shares the goals of maximization of shared as wealth, expressing the shareholders point of view, several alternatives have been suggested, maximization of earning per share, maximization of returns on equity etc., maximization of profit is not as inclusive goal as maximization of shareholders wealth. It suffers from several limitations like profit is obscure terms not a proper guide to decision making. expressed either on a per share basis or in relation to investment etc. It should be

-5-

FINANCIAL ANALYSIS The financial statement provides a summary of the account of a business enterprise. To understand the financial performance and condition of a firm, its stakeholders look at the three financial statements, Viz, the balance sheet, the profit and loss account and the sources and uses of a funds statement.

BALANCE SHEET It shows the financial position of the firm at the accounting period.

PROFIT AND LOSS ACCOUNT It shows how the firm performed financially over the accounting period.

SOURCES AND USES OF FUNDS STATEMENT It shows what have been the sources and uses of funds during the accounting period.

-6-

SYNOPSIS
The researcher as part of curriculum has conducted a study to find out to financial performance of the company. The data utilized for the study is secondary in nature. The required data is collected from the budgeted formats, Flash results and Five- year annual diary of the company. The data has been collected for a period of five years from 2002-03 to 2006 07.

The ratios concerned in the study are profitability ratios and turnover ratios. The profitability ratios includes Returns on total assets, Profitability ratio, Profitability earnings, Administrative expenses ratio, Selling and Distribution expenses ratio, Return on investment, operating profit ratio, Value added as a percentage on turnover, Value Added Per employee.

The turnover ratios include inventory turnover ratio, inventory turnover Period, Debtor turnover ratio, Debt collection period, creditors turnover ratio, Debt payment period, working capital turnover ratio, Fixed assets turnover ratio, Capital turnover ratio, Turnover per rupee of gross block, Turnover per employee. The Solvency ratio includes current ratio.

-7-

CHAPTER:

Industry Profile

-8-

INTRODUCTION OF THE INDUSTRY

Engineering and capital goods industry in India faced a bullish trend in the year 2000. It was expected that the industry would look up after being battered by the years of recession. In Financial year 1999, engineering and capital goods sector went up by nearly 11.5%.

This reaffirmed the performance in the sector. However, the euphoria didnt last long and FY2000 witnessed a sharp fall in the growth in the sector. In FY2000 the index went up by just 5.4% (As per CMIE reported figures).

Engineering sector is inextricably linked to the performance of power sector. Investments in power generation, distribution and transmission have almost dried up, which is eventually reflected in the performance of engineering companies.

Engineering goods

demand is derived from the

demand

in consumer

products. Falling import barriers on consumer goods has resulted in a sharp decline in the demand of capital goods. Apart from this the government has curtailed capital expenditure so as to control the fiscal deficit

Nearly 70% of the revenues of most of the listed and unlisted engineering companies come from the power sector. The demand may take the form of other

direct demand or a derived demand. In FY2000, the capacity addition in the production capacity of power sector was 3433 MW.

According to the industry estimates we need almost 7.8% growth in the installed capacity to cater to the needs of the economy growing at almost 6% p.a. This translates into a capacity addition of 6768 MW with a base of installed capacity as on March 31, 1999 and growth rate considered at 7%. We can easily make out that the addition to the capacity is nearly 50% of the increase in projected demand.

-9-

Showdown in capacity additions is reflected in the overall power shortage, which stood at nearly 7% in the month of November 2000. The most recent exit from India is that of UK power Major Power Gen. However, we see this stage as a transition phase of the power industry. Major reforms have been initiated at all levels in India. Uniform regulatory framework, Electricity Bill 2000, is in place and would soon be placed in the parliament for discussion. We expect that there is a realization of the power crises and the bill would not face much difficulty in arriving at the consensus.

The bill propounds more prominent role of the private sector in the developing power infrastructure and removes most of the redundant bureaucratic hurdles. This also allows a level playing field to the private power producer vis--vis the public sector and also provides a room for better returns on capital employed.

We feel that the bill would be passed in the next session of the Parliament. This would result in a large-scale activity in the power sector. In a short term we feel that the scenario may go from bad to worse but in medium to long term we foresee a major activity in the sector. Some of the major beneficiaries would be companies like BHEL, ABB, Siemens, Larsen & Turbo and also the companies in the business of generation, distribution and transmission of power like TEC, BSES, Ahmedabad Electricity and CESC.

- 10 -

CHAPTER:

COMPANY PROFILE

- 11 -

COMPANY PROFILE

Bharat Heavy Electrical Ltd., (BHEL) is the largest engineering and manufacturing enterprise of its kind in India and is one of the leading international companies in the field of power equipment manufacture. The first plant of BHEL was set up at Bhopal in 1956, which signaled the dawn of the Heavy Electrical Industry in India. In the early sixties, three more major plants were set up at Haridwar, Hyderabad and Tiruchirappalli, which form the core of the diversified range, systems and service the BHEL offers today.

BHEL range of services extends from project feasibility studies to after-salesservice successfully meeting diverse needs through turnkey capability. The company has 14 manufacturing units, 4 power sector regional centers, 8 service centers and 18 regional offices besides project sites spread all over India and abroad. The company has formed a Strategic Business Unit for Ceramics at Bangalore. BHEL is today the largest engineering and manufacturing enterprise of its kind in India, with a well recognized track record of performance, making profits continuously since 1971 72 and paying dividends since 1976-77. BHEL manufactures over 180 products under 30 major

product groups and caters to core sectors of the Indian economy viz., Power Generation and Transmission Industry, Transportation, Telecommunication, Renewable Energy, etc.

The quality & reliability of its products is due to the emphasis on design, engineering and manufacturing to international standards by acquiring and adapting some of the best technologies from leading companies in the world, together with technologies developed in its own R & D centers. BHEL has acquired certifications to both ISO 9000 & ISO 14000 standards for its operations and has also adopted the concepts of Total Quality Management. BHEL has adopted Occupational health and safety standards as per OHSAS 18001. Two of its divisions have acquired certification to OHSAS 18001 standard and the other units are in the process of acquiring the same.

- 12 -

BHELs operations are organized around three business sectors, namely power industry including Transmission, Transportation, Telecommunication & Renewable Energy and International Operations. This enables BHEL to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market.

OBJECTIVES OF BHEL :

1. GROWTH

To ensure a steady growth by enhancing the competitive edge of BHEL in existing business, new areas and international operations so as to fulfill national expectations from BHEL.

2. PROFITABILITY

To provide a reasonable and adequate returns on Capital Employed, primarily through improvement in operational efficiency capacity utilization and productivity and generate adequate internal resources to finance the companys growth.

3. CUSTOMER FOCUS

To build a high degree of customer confidence by providing increased value for his money through in international standards of product quality, performance and superior customer service.

- 13 -

4. ORIENTATIONS

To enable each employee to achieve his potential, improve his capabilities, perceive his role and responsibilities and participate and contribute positively to the growth and success of the company. To invest in human resources continuously and be alive their needs.

5. TECHNOLOGY

To achieve technological excellence in operations by development of indigenous technologies and efficient absorption and adaptation of imported technologies to suit business needs and priorities and provide a competitive advantage to the company.

6. IMAGE

To fulfill the expectations which stake holders like Government as owner, employees, customers and the country at large have from BHEL.

BHEL has supplied :

Equipment for over 90,000 MW of power generation for utilities, captive and industrial uses.

Over 25,000 Motors with Drive Control Systems to Power Projects, Petrochemicals, Refineries, Steel, Aluminium, Fertilizer, Cement Plants etc.

Over one million Valves to Power Plants and other industries.

- 14 -

VISION: BHELs vision is to make a world class engineering enterprise committed to enhancing share holder value. MISSION: BHEL mission is to be an Indian multinational engineering enterprise providing total business solutions through quality products, system and service in the fields of energy, transport, infrastructure and other potential areas. STRENGTH : The greatest strength of BHEL is its highly skilled and committed people. Every employee is given an equal opportunity to develop himself and improve his position. Continuous training and retraining, career planning, a positive work culture and participative style of management have engendered development of a committed and motivated work force leading to enhanced productivity and higher levels of quality.

VALUES: y y y y y y y Zeal to excel and zest for change. Integrity and fairness in all matters. Respect for dignity and potential of individuals. Strict adherence to commitments. Ensure speed of response. Foster learning, creativity and team work. Loyalty and pride in the company.

- 15 -

OTHER UNITS OF BHEL:

1) Steam less Steel Tube Plant - Trichy 2) High Pressure Boiler Plant Trichy 3) Heavy Electrical Plant Bhopal 4) Industrial Valves Plant Govindaval 5) Heavy Electrical Equipment Plant Haridwar 6) Central Foundary Forge Plant Haridwar 7) Heavy Equipment Plant Haridwar 8) Electronic Division Bangalore 9) Industrial Insulted Plant Jagdishpur 10) Component Fabrication Plant Rudhrapur 11) Silicon Solar Cell Plant Gurgon 12) Heavy Equipment Repair Plant Varanasi

COMPETITORS: y y y y ABB SIEMENS GEC VOLTAS

- 16 -

MAJOR IMPORTS FROM ABROAD:

a) AB Sand irk, Sweden. b) Hyundai, South Korea. c) Reiner Brach, Germany. d) Ferromex, Belgium. e) Metal one, Japan. f) Ducon technologies, USA.

MAJOR SUPPLIERS IN INDIA:

a) Steel Authority of India b) The Indian Iron Steel Co. Ltd c) Tube Investment of India d) Dynalog (India) Ltd e) Controls & Switch Gear Co. f) Delton Cables g) Tata Iron & Steel Co. Ltd h) Super Forgings & Steels Ltd i) Bhushan Steel & Strips j) Jindal Steel & Steels k) Uttam Galva Steels Ltd

- 17 -

MAJOR CUSTOMERS:

a) State Electricity Board b) Tata Iron & Steel Co. Ltd c) Jindal Steel & Steels d) Hindustan Zinc e) Bhushan Steel & Strips f) Saint Gobin g) National Thermal Power Corporation h) Walchand

Board of Directors of BHEL:

1. 2. 3. 4. 5.

Ashok K. Puri, Chairman & Managing Director A.K. Mathur, Director (IS&P) K. Ravikumar, Director (Power) C.P. Singh, Director (Finance) N.K. Sinha, Company Secretary

- 18 -

BAP PRODUCT PROFILE:

Fans
Fans for steam generators and various industrial applications: Axial reaction fans of single stage and double stage type for clean air application Axial impulse fans for clean air and flue gas applications Single and double suction type radial fans clean air dust laden hot gas applications up to 400oC

Air Heaters
Air heaters for steam generators and various industrial applications: Regenerative air heaters in s broad range of sized and capacities Tubular air heaters for steam generators and process industries, for various duty conditions

Electrostatic Precipitators Dust collectors for steam generators and various industrial applications Electrostatic Precipitators in a broad range of sizes and capacities. Maximum gas flow per precipitator up to 250 m3/sec and collection efficiency up to 99.99% Electrostatic precipitators for recovery boilers to recover black particulate for recycling.

Mechanical Separators   Cyclone type mechanical separators for steam generators and industrial applications. Coal / Ash Handling Equipment, Desalination Plants and Wind Electric Generators.

- 19 -

BOILER AUXILIARIES PLANT, RANIPET :

The boiler Auxiliaries Plant, a unit of BHEL located at Ranipet about 120 KMs from the city of Chennai is one of the manufacturing divisions of BHELs. The plant has recorded a turn over of around Rs.30807 lakhs during the financial year 200102. The product profile of the unit caters to both power and industrial sectors.

TECHNICAL COLLABORATION

BHEL, Ranipet had technical collaboration for boiler auxiliaries form leading international players like erstwhile M/s. CE APCo, USA, M/s. KKK, Germany and M/s. Flakt industry, Sweden. Recently the company has extended its business portfolio to non-conventional energy by supplying Wind Electric Generators with the back up of M/s. Nordex A/S, Denmark. Another ongoing partnership of the company is with M/s. Hamon Rothemuhle, Germany in the field of Bag Filters.

UNITS INSTALLED CAPACITY

In the power sector, BHEL, Ranipet was actively associated with the enhancement of the installed capacity in the country, since the beginning of the plant in 1982. The unit has established itself as a reliable single source for air pollution control equipments, fans air preheaters and other accessories like gates, dampers, louvers for power plants. BHEL, Ranipet has supplied ESPs for eighteen 500MW units, 148 units in the range of 200 MW to 250 MW, 65 units of 100 MW to 130 MW and 64 units of 12 MW to 80 MW.

- 20 -

In addition, BAP has supplied ESPs for 71 industrial boilers and around 100 ESPs for other industrial applications. The air preheaters and fans supplied for various 500 MW, 250 MW 200/210 MW and low rated units located at various sites in the country are also performing to the utmost satisfaction of the customers. Boiler

auxiliaries have also been exported, for e.g. to Alarish in Egypt. The unit is actively participating in few global renders and will be a strong contender for boiler auxiliaries required for IPPs coming Up in India. In desalination business BHEL, Ranipet has presence in India with eleven plants of capacities ranging from 20 cubic meters per day to1 MGD at Ramanathapuram district in Tamilnadu. The company is keen to expand its business in this area of business.

Equipment for over 90,000 MW of power generation for utilities, captive and industrial uses. Over 25,000 Motors with Drive Control Systems to Power Projects, Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement Plants etc. Over one million Valves to Power Plants and other industries.

The unit a shop floor area of around 93000 Sq.m. and has the state of the art manufacturing facilities along with necessary inspection and testing facilities. The manufacturing facilities include sophisticated CNC turning and machining centers, vertical borers, metal forming machines like press brakes, rolling machining centers, vertical borers, metal forming machines like press brakes, rolling machines, sectional rolling machines, presses etc. the plant has modern welding facilities, heat treatment facilities and has the capability to meet stringent quality in fabrication and machining. The inspection and testing like ultrasonic scanning, radiography and a modern metrology.

- 21 -

ORGANISATION CHART OF BHEL, BAP, RANIPET

- 22 -

INTRODUCTION TO FINANCE & ACCOUNTS DEPARTMENT:

The finance & Accounts Dept. of BAP, Ranipet is headed by SDGM. This department is responsible for making the balance sheet and profit & loss account of the plant. In order to make the flow of work in an easy and efficient manner the department is classified into different sections which are given below:

INDIGENOUS SUPPLIERS BILL PASSING SYSTEM Integrated with PO master of Purchase Dept. for PO details and stores receipt voucher (SRV) table and Day book (DB) Table of Stores Dept. (DTS) Direct to site Table of material planning department for quality details.

FOREIGN SUPPLIERS BILL PASSING SYSTEM Integrated with PO master of purchase dept. for PO details SRV table for quality details, Bank payment advice slip (BPAS) for actual payment and exchange Rate particulars, Regional Operating Division (ROD) debits for freight, customs duty, Demurrage, port handling charges, forwarding agents commission and other relevant charges.

MSA BILL PASSING SYSTEM Integrated with PO Master, form issue position (IP) Material Accounting statement (MAS) of MSA Dept. for PO, work order, Rate details and off cut and scrap recovery.

FREIGHT BILL PASSING SYSTEM Outward (shipping) bill system is integrated with loading advice slip (LAS) & Goods consignment Note (GC) of shipping Dept. Site table of

Commercial Dept. and Rate Master for Distance, Customer, Weight, Estimation, Rate and other relevant details.

- 23 -

SRV PRICING SYSTEM Integrated with PO Master & SRV Table for pricing without any manual input. Posting to General Ledger (GL) and other subsidiary ledgers will be done instantly along with pricing.

PRICED STORES LEDGER SYSTEM Instant pricing and instant PSL & GL instantly on Dynamic Weighted Average Rate basis as and when issue voucher are raised, provided sufficient stock I available in PSL Adjustment (EAL) are automatically fed into system as and when Adjustment SRVs (ASRVs) are raised by sections to adjust the cost already booked against the work orders and also to rectify the PSL rate master.

GENERAL LEDGER SYSTEM (GL) GL system is a real time on-line system. Sectional ledgers, subsidiary Ledgers, GL, section Trial balance (TB) and TB can be taken readily as and when required. Inter unit statements, Balance Sheet, Link sheets & detailed schedules can be taken from GL without any manual input. Fixed Assets ledger & Depreciation calculation system is integrated with GL and all posting to GL will be done automatically.

CASH AND BANK SYSTEM Preparation of cash receipts are done through online system which is integrated with GL system. Daily statements like cash receipts, payments, unpaid, TA, cash balance with denomination, etc., are taken from GL system without any manual intervention. Cheque printing, suppliers, cheque forwarding memo with details, Dispatch Advice Slip, Bank Book, Bank JV generation and necessary postings to GL are done thro on-line system without any manual input by cheque section. The following two finance systems are developed and maintained by

information center

- 24 -

PAY ROLL SYSTEM It is integrated with P & A system. Payment of monthly salary and other allowances, all monthly recoveries from salary, attendance maintenance, employees personal details and other personal payments are taken care.

COSTING SYSTEMS Turnover, WIP, FG & Limitation working is based on input from PSL & GL system of finance Dept., Time Docket of production Dept., Design weight of GMs of Engineering system, production Details of production system and dispatch details of commercial Dept.,

SALES ACCOUNTING Sales Accounting is one of the most important areas in Finance & Accounting function. It is the sales function which creates valid claims on

customers and gives authority for collection of money from debtors and thus completing the total business cycle and generation of surplus funds for growth.

PAYMENT TERMS Payment terms are agreed upon with customers by the contracting agency may vary from customer and nature of the contracts. The general payment terms are an advance (generally 10%) is taken as advance money along with the issuance of LOI. Normally a sum of 80-85% is taken as payment against supplies upon submission of invoices. Generally an amount of 2-10% is retained by the customer as retention money which is realized after the performance guarantee test is done and the warranty period is over (Deferred Debt.)

EXCISE DUTY Excise Duty is the duty on manufacture and the duty liability is fastened immediately after goods are manufactured; whether these are sold or not it is immaterial. Such duty is paid at the time and place of removal.

SALES TAX Sales Tax is an indirect tax charged on sale of goods for consideration. It can be segregated as inter state sale and intra state sale. - 25 -

CHAPTER:

REVIEW OF LITERATURE

- 26 -

THEORETICAL EXPLANATION OF FINANCIAL ANALYSIS TOOLS:

In business usage the term financial statement analysis and interpretation are applied to almost any kind of detailed inquiry into financial data. It is a technical tool in the hands of financial executives to measures the financial progress. It is an attempt to determine the significance and meaning of the financial statement data so that a forecast can be made on the prospects of future earning ability to pay interest and debt maturity both current as well as long term and to study the probability of a sound dividend policy. The techniques are used to ascertain or measure the performance of the company as a whole.

Review of literature consists of theoretical study of the following sub topics

y y y y y

Ratio Analysis Comparative Balance Sheet Analysis Common size Balance Sheet Analysis Trend Analysis Regression Analysis

RATIO ANALYSIS
The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios. A financial ratio is the relationship between two accounting figures expressed mathematically. Ratios provide clues to the financial position of a concern. These are the pointers and indicators of financial strength, soundness, position or weakness of an enterprise. One can draw conclusions about the exact financial positions of a concern with the help of ratios.

- 27 -

Ratio analysis is a process of comparison of one figure against another, which make a ratio, and the appraisal of the ratios to make proper analysis about the strengths and weaknesses of the companys operations. Ratio analysis is extremely helpful in providing valuable insight into a companys financial picture

MEANING OF RATIOS

Ratios are relationship express in mathematical terms between figures which are connected with each other in some manner. Obviously, no purpose will be served by comparing two sets of figures which are not at all connected with each other. Moreover, absolute figures are also unfit for comparison. Ratios can be expressed in two ways;

TIMES

When one value is divided by another, the unit to express the Quotient is termed as Times. For example, if out of 100 product is Employees 95% is Finishing goods or product ratio can be expressed as Follows: 95/100 = 0.95 times.

PERCENTAGE

If the quotient obtained is multiplied by 100, the unit of expression is termed As PERCENTAGE. For instance, in the above example, the product ratio as a Percentage of the total number of employees is as follows: 0.95* 100 = 95%

- 28 -

CLASSIFICATION OF RATIOS.

Ratios are classified in several ways. Different approaches are used for classifying ratios. There is no uniformity in classification by experts. They have adopted different stand points for classifying ratios into various groups. Some of the classifications are discussed below:

a) Classification of ratio by statements.

Under this method, ratios are classified on the basis of statements from which the information is obtained for calculating the ratios. The only statements which provide information are balance sheet and profit and loss account.

b) Classification by users.

Under this classification the ratios are grouped on the basis of the parties who are interested in making use of the ratios.

Ratios for management Operating ratio Return on Investment Stock turnover Debtors turnover Debt equity Creditors turnover

Ratios for creditors Current ratio Solvency ratio Creditors turnover Fixed assets

c) Classification of ratios by purpose/function.

Generally ratios are used for the purpose of assessing Profitability, activity or operating efficiency and financial position of a Concern. Based on the purpose the ratios are classified as Profitability

- 29 -

Classifications of ratios Analysied

1. Short term solvency ratio 2. Profitability ratio 3. Turnover Ratio

S hort-Term S olvency Ratio: The short-term solvency ratios, which measure the liquidity of the firm and its ability to meet its maturing short-term obligations. Liquidity is defined as the ability to realize value in money, the most liquid of assets. It refers to the ability to pay in cash, the obligations that are due.

Profitability Ratio: The purpose of study and analysis of profitability ratios are to help assessing the adequacy of profits earned by the company and also to discover whether profitability is increasing or declining. EPS is one of the most important ratios, which measures the net profit earned per share. EPS is one of the major factors affecting the dividend policy of the firm and the market prices of the company. A steady growth in EPS year after year indicates a good track of profitability.

Turnover Ratios: Activity ratios measure how effectively the firm employs its resources. These ratios are also called turnover ratios which involve comparison between the level of sales and investment in various accounts - inventories, debtors, fixed assets, etc., activity ratios are used to measure the speed with which various accounts are converted into sales or cash.

- 30 -

COMPARATIVE BALANCE SHEET ANALYSIS

The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise.
Balance sheets as on two or more different dates are used for comparing the assets, liabilities and the net worth of the company. Comparative balance sheet analysis is useful for studying the trends of an undertaking.

Advantages

Comparative statements help the analyst to evaluate the performance of the company.

Comparative statements can also be used to compare the performance of the firm with

The average performance of the industry between different years.

It helps in identification of the weaknesses of the firm and remedial measures can be done meritly

Taken accordingly.

COMMON SIZE BALANCE SHEET ANALYSIS :

A statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common size balance sheet. The figures are shown as percentages of total assets, total assets and total liabilities. The total assets are taken as 100 and different assets are

- 31 -

expressed as a percentage of the total. Similarly, various liabilities are taken as a percentage of total liabilities. These statements are useful in analysis of the performance of the company by analyzing each individual element to the total figure of the statement. These statements will also assist in analyzing the performance over years and also with the figures of the competitive firm in the industry for making analysis of relative efficiency.

TREND ANALYSIS

The financial statements may be analyzed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement bears to the same year in base year. The information for a number of years is taken up and one year, generally the first year, is taken as a base year. The figures of the base year are taken as 100 and trend ratios for other years are calculated on the basis of base year. This helps the analyst to see the trend of figures, whether upward or downward.

In financial analysis the direction of changes over a period of years is of crucial importance. Time series or trend analysis of ratios indicates the direction of change. This kind of analysis is particularly applicable to the items of profit and loss account. This procedure may be called as trend-percentage method.

REGRESSION ANALYSIS

fundamental and versatile research technique that seeks to explain an

outcome (dependent) variable in terms of multiple predictor (independent) variables. This analysis reveals the nature and strength of the relationship between each predictor variable and the outcome, independent of the influence from all other predictors. The term typically refers to Ordinary Least Squares (OLS) regression, which models a linear relationship among variables.

- 32 -

CHAPTER :

Research Objectives

- 33 -

OBJECTIVES OF THE STUDY :

Primary Objective
The primary objective of the present study is to conduct a comprehensive financial performance analysis of BHEL by analyzing the profitability, solvency & liquidity position of the company

Secondary objective
The secondary objectives are listed below:   To study the present financial position of BHEL

To study the financial performance of BHEL by analyzing the profitability, solvency and liquidity position of the company.

To project the future Sales, Profit & working Capital of BHEL and to ascertain the strengths and weaknesses of the company

To suggest measures for further improvement, if any.

STATEMENT OF THE PROBLEM:

The success of industry mainly depends on many factors viz., sales and profit of a business concern, rate of return of the industry and the organization,

optimum inventory the industry carries, methods of long term and short term funding, treasury management etc., and this could be achieved by observing good management practices. It is in this context the study is initiated in BHARAT HEAVY ELECTRICIAL LIMITED to find out their financial management system of previous 5 years and find out the problems if any and the performance of the BHEL with the help of ratios and other techniques of financial analysis.

- 34 -

SCOPE OF THE STUDY :

The purpose of the study was to know the financial performance of the unit. For this the ratio analysis tool was most suitable. This would reveal the solvency position of the unit. The trend of sales and profitability for the past 5 years was calculated to know if any deviations occurred and to know the reasons for it. However the study had its own limitations like ratio analysis is a post-mortem analysis and the data utilized were secondary in nature etc.

FINANCIAL ANALYSIS :

The financial statement provides a summary of the account of a business enterprise. To understand the financial performance and condition of a firm, its stakeholders look at the three financial statements, Viz, the balance sheet, the profit and loss account and the sources and uses of a funds statement

- 35 -

CHAPTER :

Research Methodology

- 36 -

5.1 IMPORTANCE OF THE STUDY

Boiler industry has a vital role to share in the contribution of economic development. India is a major importing country in terms of boilers. In order to understand the role of electrical and boiler industrial performance of India, a comprehensive study of the financial management with respect to the financial performance analysis of BHEL has been undertaken.

Hence, the present study focuses on the financial performance of BHEL for a period of five years from 2002-03 to 2006-07.The project study mainly focuses on the critical assessment of the financial performance of BHEL and deals with financial statement analysis, financial planning and financial control.

5.2 SCOPE OF THE STUDY

The scope of the present study is limited to the following aspects.

y y y y y y

Ratio Analysis Trend Analysis Common Size Balance Sheet analysis Comparative Balance sheet Regression Analysis The study finds out the operational efficiency of the organization and suggests the proper utilization and allocation of cash resources to improve the efficiency of the organization.

The financial position of the organization will be further revealed through the adoption of various techniques available for analysis.

These techniques reveal the measures that can adopt to improve the existing trend.

- 37 -

5.3 RESEARCH METHODOLOGY

This part highlights the period of the study, sources of data and techniques used in the analysis. It focuses on the critical assessment of the financial position of BHEL These are illustrated and explained as under:

RESEARCH DESIGN

Research design is purely and simply the framework or plan for a study that guides the collection and analysis of the data. The function of researcher is to ensure that the required data collected are accurate and economical also

Analytical research technique was adopted in the project. Generally, analytical techniques are designed to analyze something and it collects data for a definite and certain purpose.

The project study mainly focuses on the critical assessment of the financial position of BHEL, and deals with financial statement analysis, financial planning and financial control.

5.4 PLAN OF ANALYSIS

Data collected from all the available sources will be tabulated, analyzed, interpreted and supported with relevant chart, ratios, tables, graphs, etc., where ever necessary and suggestions arising there of will also be listed in the project. An attempt has been made to study the working capital management as part and parcel of treasury operations at BHEL.

- 38 -

5.4.1 PRIMARY DATA

 With a purpose to strengthen and validate the study, personal contacts were made with the executives and officials of the finance division of BHEL in the form of personal discussion, data collection, analysis of reports and MIS formats etc.,

5.4.2 SECONDARY DATA

 The secondary data are collected from Company reports, institute magazines, department manuals, brochures mainly form the balance sheet, income and expenditure and periodicals etc.,

5.4.3 METHOD OF COLLECTION

 The data for the analysis are collected and gathered from the printed company reports of BHEL, official files, records, ledgers and other available related materials

PERIOD OF STUDY

 The study period covers the financial performance of BHEL during the five year period commencing 2002-03 to 2006-07

- 39 -

5.5 DATA ANALYSIS TECHNIQUES USED UNDER THE STUDY

 Ratio analysis  Comparative balance sheet analysis  Common size balance sheet analysis  Trend analysis  Regression analysis 5.6 LIMITATIONS OF THE STUDY  The project study is mainly based on information gathered from secondary data, mainly the printed Balance Sheet and Profit and Loss Account.

 Time period being a major constraint, it is insufficient to cover the various aspects of finance within the prescribed period.

 The whole study is based on the observations in the past over a five year time horizon which can be related to the laws that operated in the past as there is no evidence that the laws will continue to operate in future also.  Being a company under the direct control of BHEL Delhi and also under the indirect administration of the government, it is not possible to fix the prices for some of the major products produced. It is not in a position to enjoy the control of ownership.

 The company face the challenges of the international boilers markets , on the profitability of the boiler industry as a whole in India. Therefore, five year period is subject to major fluctuations in terms of profitability. - 40 -

PROFITABILITY RATIOS
Profit making is the main objective of business. Aim of every business concern is to earn maximum profit in absolute terms and also in relative terms. Profit is to maximum in terms and also in relative terms. Profit is to maximum in terms of risk undertaken and capital employed. Ability to make maximum profit from optimum utilization of resources by a business concern is termed as profitability. Profit is an absolute measure of earning capacity. Profitability depends on sales, costs and utilization of resources. The following are various ratios used to analyze profitability.

Expenses ratios
These ratios are also known as supporting ratios to operating ratio. They indicate the efficiency with which business as a whole functions. It is better for the concern to know how it is able to save or waste over expenditure in respect of different items of expenses. i) Administration expenses ratio: Administration expenses ratio / net sales * 100 ii) Selling and distribution expenses ratio: Selling and distribution expenses ratio / Net sales * 100

TURN OVER RATIOS

This ratio is called stock velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. Stock turnover ratio is obtained by dividing the cost of sales by average stock.

- 41 -

CHAPTER :

Analysis & Interpretation

- 42 -

ANALYSIS AND INTERPRETATION

PROFITABILITY RATIOS

7.1 Return on Total Asset Return on total asset ratio is calculated to measure the productivity of total assets. In the term of fictitious assets refer to the preliminary expenses, debit balance of profit and loss account and other similar losses shown on balance sheet asset side.

Formula :

Return on total asset = (Net profit before tax/Total asset excluding

fictitious Assets)*100

Table 5.1 Net Fixed Asset 3139 3021 2763 2618 2597 Return on total Asset ratio 65.02 52.53 77.45 221.08 487.25

Year 2002-03 2003-04 2004-05 2005-06 2006-07

Profit before Tax 2041 1587 2140 5788 12654

Interpretation: The ratio is showing a mixed trend. The decrease in ratio at 2003-04 is due to the wage revision and then it shows a raising implies the increasing profit. Again there is a downfall because of the increasing price of the material and components. And then 2006-07 is due to the wage revision and then it shows a raising implies the increasing profit.

- 43 -

Return on Total Asset ratio Figure no.1

500 450 400 350 300 PERCENTAGE 250 200 150 100 50 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 44 -

5.2 Profitability Ratio: Gross turnover less Excise Duty, the Net turnover is the value of Production. Profit before tax to Gross turnover less Excise Duty is calculated to know the profitability for the given value of production. FORMULA : Profitability ratio = (Profit before tax/Net turnover)*100

Table 5.2 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Profit before tax 2041 1587 2140 5788 12654 Net turnover 28232 33340 51216 72907 100947 Profitability Ratio 7.22 4.76 4.17 7.94 12.54

Interpretation: Profitability ratio is increased from 2002-03. In 2003-2004 the ratio shows a decreased trend this is because of the wage revision. In 2003-04, the ratio has come down because of the increase in steel prices. In 2003-04 steel price have gone up by 30% compared to 2002-03 and in 2004-05, steel and components prices have gone up. From June 2005-06 onwards prices are stabilizing and the profitability is increased from 2006-07.

- 45 -

PROFITABILITY RATIO Figure no.2

14 12 10 8 PERCENTAGE 6 4 2 0 2002-03 2003-04 2004-05 YEARS 2005-06 2006-07

- 46 -

5.3 Profitability Earnings

Profit before tax to personnel payments is calculated to know whether sufficient profitability is earned by paying salary to its employees. This is used for inter unit comparison.

Formula : Profitability Earnings= (Profit before tax/Personnel Payments)*100

Table 5.3 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Profit before tax 2041 1587 2140 5788 12654 Personnel payment 6312 6956 7280 7997 9973 Profitability Earnings 32.33 22.81 29.39 72.38 126.88

Interpretation: Profitability with respect to personnel payment are in the mixed trend. In 2003-04 and 2004-05 profitability earnings is very low because of high personnel Payment due to wage revision,It ben stabilized from 2005-06 and 200607 .

- 47 -

PROFITABILITY EARNINGS Figure no.3

140 120 100 80 PERCENTAGE 60 40 20 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 48 -

5.4 Return on Investment This ratio is called return on Capital employed . It measures the sufficiency or otherwise of profit in relation to capital employed. Return on Investment = operating profit / Capital employed * 100 The term operating profit means profit before interest and tax

FORMULA: Return on investment = (Operating profit/Capital employed) *100

TABLE: 5.4 Year 2002 03 2003 04 2004 05 2005 - 06 2006-07 Operating profit Rs in Lakhs 5464 5087 5740 9558 18279 Capital employed Rs in Lakhs 4919 5910 9191 8401 6319 Ratio 111.0 86.0 62.5 113.77 289.27

INFERENCE In 2002-03 it has been increased to 111.0. But in 2003-04, 2004-05, it has been decrease to 86.0 and 62.4 respectively. But presently the ratio 113.77 in 2006 is satisfactory. And stabilized from 2006-07 and 2007-08.

- 49 -

Return on investment

Figure no.4

300 250 200 PERCENTAGE 150 100 50 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 50 -

5.5 Operating ratio This ratio indicates the relationship between total operating expenses and sales Operating ratio = Cost of sales + Operating expenses / Net sales * 100 Operating ratio measures the amount of expenditure incurred in production sales and distribution of output. I t indicates operational efficiency of the concern. Lower the ratio more is the efficiency.

FORMULA: Operating ratio = (Cost of sales + operating expenses/ Net sales)*100

TABLE No. 5.5 Cost of sales+ operating expenses Rs in lakhs 48959 60006 94552 130468 170961

Year 2002-03 2003-04 2004-05 2005-06 2006-07

Net sales Rs in lakhs 28232 33340 51216 72907 100947

Ratio 173.4 179.9 184.6 178.9 169.35

INFERENCE

The ratio is increasing and decreasing. In the year 2002 03,2003-04 the ratio is lower indicates more efficiency during that year and in 2004 05 and 2006-07 the ratio is higher indicates less efficiency going on to lower indicates.

- 51 -

OPERATING RATIO Figure no. 5

185 180 175 PERCENTAGE 170 165 160 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 52 -

5.6 Operating profit ratio It is the ratio of profit made from operating sources to the sales usually shown as a percentage. It shows the operational efficiency of the firm and is measure of the managements efficiency in running the routine operations of the firm

FORMULA: Operating profit ratio = (operating profit/sales)*100

Table 5.6 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Operating profit Rs in lakhs 5464 5087 5740 9558 18279 Sales Rs in lakhs 26191 31753 49076 67119 88293 Ratio 20.86 16.02 11.69 14.24 20.70

INFERENCE The Operating profit is decreasing in the mixed trend; the reason for this is due to increase in the input cost and it been stabilized and fornt oriented from the year200607.

- 53 -

OPERATING PROFIT RATIO

Figure no.6

25 20 15 PERCENTAGE 10 5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 54 -

5.7Administration Expenses Ratio:

This ratio is calculated in support to operating ratio. They indicate the Efficiency with business as whole function. It is better for the concern to know how it is able to save or waste over expenditure n respect of administration expenses.

FORMULA: Administration expense ratio = (Administration expenses/Net sales)*100

Table 5.7 Year Administration expenses Rs in lakhs 3295 3360 3450 3610 5375 Net sales Rs in lakhs 28232 33340 51216 72907 100947 Ratio

2002-03 2003-04 2004-05 2005-06 2006-07

11.67 10.08 6.74 4.95 5.32

INFERENCE

The administration expense is moving. It was fluctuating, from 2004-05 onwards it was in decreasing trend. It 2005-06 , 2006-07 it was 4.95, 5.32 due to increase in turn over. Higher turn over will have lower ratio.

- 55 -

ADMINISTRATION EXPENSES RATIO Figure no.7

12 10 8 PERCENTAGE 6 4 2 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 56 -

5.8 Selling and Distribution Expenses Ratio:

This ratio is also calculated in support to operating ratio. They indicate efficiency with which business as a whole function. This will increase in proportion to sales.

FORMULA: Selling & Distribution Expenses = Selling & distribution expenses *100 Net sales

Table. 5.8 Year Selling& distribution expenses Rs in lakhs 128 140 150 160 250 Net sales Rs in lakhs Ratio

2002-03 2003-04 2004-05 2005-06 2006-07

28232 33340 51216 72907 100947

0.45 0.42 0.29 0.22 0.25

INFERENCE

The selling & distribution expenses are in the line with the turnover. If the turnover goes up, the ratio will be lower. Due to increase in the volume of business and turnover the ratio is in the decreasing trend.

- 57 -

SELLING AND DISTRIBUTION EXPENSES RATIO Figure no.8

0.45 0.4 0.35 0.3 percentage 0.25 0.2 0.15 0.1 0.05 0 1 2 3 years 4 5 C

- 58 -

5.9 Inventory Turnover Ratio: This ratio is called stock velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. Stock turnover ratio is obtained by dividing the cost of sales by average stock.

FORMULA: Inventory turnover ratio = (Cost of goods sold / average inventory)

Table 5.09 Year 2002 03 2003 04 2004 05 2005 - 06 2006-07 Cost of goods sold Rs in lakhs 26191 31753 49076 67119 88293 Average inventory Rs in lakhs 4975.5 7051.5 12870.5 18825.5 24698 TIMES 5.26 4.50 3.81 3.56 3.57

INFERENCE The ratios are fluctuating; high ratios indicate the efficient Inventory management And efficiency of business operations.

- 59 -

INVENTORY TURNOVER RATIO Figure no.9

6 5 4 percentage 3 2 1 0 1 2 3 years 4 5

- 60 -

TURNOVER RATIOS 5.10 Inventory Turnover period:

Inventory turnover ratio can be related to time. The ratios can be expressed in term of days or months. The general objective is to increase the stock velocity as much as possible or in effect, decrease the days or months for which items remain in stock.

FORMULA : Inventory turnover period= (Average stock/Cost of goods sold) * Months in a year

Table 5.10 Year Average Inventory 4975.5 7051.5 12870.5 18825.5 24698.5 Cost of goods sold Inventory Turnover Period Ratio 2.28 2.66 3.15 3.35 3.36

2002-03 2003-04 2004-05 2005-06 2006-07

26191 31753 49076 67119 88293

Interpretation: The ratio shows a mixed trend. The ratio is raising in the last four years i.e., 2.27, 2.66, 3.14,3.35,3.37. This shows the inventory period of moving is increasing.

- 61 -

Inventory Turnover period Figure no.10

3.5 3 2.5 2 PERCENTAGE 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 62 -

5.11 Debtors turnover ratio:

Debtors turnover ratio is also called as receivables turnover ratio. A business concern generally adopts different methods of sales. Goods are sold on credit based on credit policy adopted by the firm.

FORMULA: Debtors turnover ratio = Net credit sales / Average receivables

Table 5.11 Year 2002 03 2003 04 2004 05 2005 - 06 2006-07 Sales Rs in lakhs 26191 31753 49076 67119 88293 Avg. a/c receivables Rs in lakhs 2872 3026 2870 3508 2114 Ratio 9.12 10.49 17.09 19.13 41.77

INFERENCE

Higher ratios show that better is the liquidity of the debt collection from the customer is good, specially at 2006-07 better debts collection are and good upholded.

- 63 -

DEBTORS TURNOVER RATIO Figure no.11

45 40 35 30 PERCENTAGE 25 20 15 10 5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 64 -

5.12 Debt Collection Period

The average collection period measure the liquidity of the debtors, since a collection period implies the prompt payment of the debtors. It also measures the credit worth ness of the company. The average collection should be compared against the firms credit terms and policies to judge its credit and collection efficiency.

FORMULA: Debt collection period = (Average accounts receivable/ credit\ sales)* Months in a year Table 5.12 Year Avg a/c receivable Credit Sales Debt collection period 1.22 1.09 0.67 0.58 0.25

2002-03 2003-04 2004-05 2005-06 2006-07

2872 3026 2870 3508 2114

28232 33340 51216 72907 100947

Interpretation:

Higher turnover ratio and the shorter collection period conveys quick payment on the part of the debtors. Collection period has been reduced from 1.22 months to 0.67,0.58,0.25 month shows the efficiency of the management.

- 65 -

DEBT COLLECTION PERIOD Figure no.12

1.4 1.2 1 0.8 PERCENTAGE 0.6 0.4 0.2 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 66 -

5.13 Creditors turnover ratio:

This ratio is also known as accounts payable. A business concern usually purchases raw materials, services and goods on credit. The quantum of payables of a business concern depends upon its Purchase policy, the quantity of purchase and suppliers credit policy. Creditors turnover ratio indicates the number of times the payable rotate in a year.

FORMULA: Creditors turnover ratio = Net credit purchase / Average accounts payable

TABLE No. 5.13 Year Purchases Rs in Lakhs 15713 21391 38707 56130 69424 Average accounts payable Rs in Lakhs 5573 6337 7992 9858 14704 Ratio

2002 - 03 2003 04 2004 05 2005 06 2006-07

2.82 3.38 4.84 5.69 4.72

INFERENCE The purchase as increased due to volume of business, the ratios are satisfactory in the company point of view.

- 67 -

Creditors Turnover Ratio Figure no.13

6 5 4 PERCENTAGE 3 2 1 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 68 -

5.14 Debt Payment Period:

The Debt Payment Ratio indicates the interval of payment period. If the firm does not pay off its creditors within time, it will adversely affect the goodwill of the business.

FORMULA: Debt Payment ratio = (Average accounts payable / Credit purchase) * Months in a year.

Table No. 5.14 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Avg a/c Payable 5573 6337 7992 9858 14704 Credit Purchase 15713 21391 38707 56130 69424 Debt Payment Ratio 4.26 3.55 2.48 2.11 2.54

Interpretation:

- 69 -

The credit period shows the reducing trend from 2002-03 to 2003-04. In the global market, this is generally good for this company. This will raise the image of the company as it can able to meet its financial obligation.

DEBT PAYMENT PERIOD Figure no.14

4.5 4 3.5 3 PERCENTAGE 2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 70 -

5.15 Working capital turnover ratio:

This ratio is the measure of the efficiency of the employment of the working capital. It indicates the overtrading and under trading and is harmful for the smooth conduct of the business. The ratio finds out the relation between the cost of sales and working capital.

FORMULA: capital

Working capital turnover ratio = Net Turnover /Net working

Table 5.15 Working capital turnover Year Net Turnover Net Working Capital ratio 17.66 8.56 8.00 -59.37 -10.85

2002-03 2003-04 2004-05 2005-06 2006-07

28232 33340 51216 72907 100947

1599 3894 6396 -1228 -9297

Interpretation: High ratio indicates lower investment of working capital and more profit. This was due to lower current asset. But this will not be in the case of future

- 71 -

WORKING CAPITAL TURNOVER RATIO Figure no.15

4.5 4 3.5 3 PERCENTAGE 2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 72 -

5.16 Capital Turnover Ratio:

Managerial

efficiency

is

also

calculated

by

establishing the relationship between cost of sales or sales with the amount of capital invested in the business. Lower ratio shows the lower profit and higher ratios show the higher profit.

FORMULA: employed)

Capital Turnover Ratio = (Cost of goods sold/capital

Table 5.16 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Cost of goods sold 26191 31753 49076 67119 88293 Capital Employed 4919 5910 9191 8401 6319 Capital turnover Ratio 5.32 5.37 5.34 7.99 13.97

Interpretation: The capital turnover ratio from 2002-03 to 2006-07 except in 2004-05, shows a gradual increase, which depicts that the assets as a whole are efficiently utilized.

- 73 -

CAPITAL TURNOVER RATIO Figure no.16

14 12 10 8 PERCENTAGE 6 c 4 2 0 2002-03 2003-04 2004-05 2005-06 YEARS 2006-07

- 74 -

5.17 Fixed assets turn over ratio: This ratio determines efficiency of utilization of fixed assets and profitability of a business concern. Higher the ratio, more is the efficiency in utilization of fixed assets. A lower ratio is under utilization of fixed assets.

FORMULA: Fixed Assets turnover ratio = (Cost of sales / Net fixed assets)

Table 5.17 Year 2002 03 2003 04 2004 05 2005 06 2006-07 Sales Rs in Lakhs 26191 31753 49076 67119 88293 Fixed assets Rs in lakhs 3139 3021 2763 2618 2597 Ratio 8.34 10.51 17.76 25.64 33.99

INFERENCE The ratio shows that the fixed assets are efficiently utilized. The ratios are showing up gradually i.e., from 2002 03 to 2006 07 is 8.34, 10.51, 17.76 ,25.68 and 33.99 respectively.

- 75 -

FIXED ASSETS TURNOVER RATIO Figure no.17

35 30 25 20 PERCENTAGE 15 10 5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 76 -

5.18 Turnover per Rupee of Gross Block:

This ratio is calculated on the basis of historical coat basis. This will reveal the efficiency of the utilization the fixed assets and profitability of a business concern.

FORMULA : Turnover per rupee of Gross Block = (Net turnover/Gross Block)

Table 5.18 Turnover per rupee Year Net Turnover Gross Block of gross block 2.62 3.03 4.59 6.33 8.44

2002-03 2003-04 2004-05 2005-06 2006-07

28232 33340 51216 72907 100947

10751 10993 11153 11520 11962

Interpretation: Generally the ratios are in the increasing trend, i.e., 2.63, 3.03, 4.59, 6.33,8.44 from 2002-03 to 2006-07 respectively, which highlights that the assets utilized very efficiently.

- 77 -

TURNOVER PER RUPEE OF GROSS BLOCK Figure no.18

9 8 7 6 PERCENTAGE 5 4 3 2 1 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 78 -

5.19 Turnover Per employee

This ratio indicates how much each employee is contributing to the turnover. This will be helpful for the comparison basis.

FORMULA : Turnover per employee = (Net Turnover /No. of Employee)

Table 5.19 Year Net Turnover No. of employees Turnover per employee 12.91 15.73 24.46 35.05 46.41

2002-03 2003-04 2004-05 2005-06 2006-07

28232 33340 51216 72907 100949

2187 2120 2094 2080 2175

Interpretation: Generally the ratios have the increasing turnover, i.e., 12.91, 15.73, 24.46,35.05 and 46.41from 2002-03 to 2006-07. This shows that each employee is contributing the best of him.

- 79 -

TURNOVER PER EMPLOYEE Figure no.20

50 45 40 35 30 PERCENTAGE 25 20 15 10 5 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 80 -

SOLVENCY RATIOS
5.20 Current Ratio: The ratio of current assets to Current Liabilities is called Current ratio In order to measure the short term liquidity or solvency of a concern, comparison of current assets and current liabilities is inevitable. Current ratio=Current assets/Current liabilities

FORMULA: Current ratio = (current assets/ current liabilities)

Table 5.20 Year 2002-03 2003-04 2004-05 2005-06 2006-07 Current assets Rs in lakhs 8892 13740 20913 25515 51662 Current liabilities Rs in lakhs 7293 9846 14517 26743 60959 Ratio 1.22 1.40 1.44 0.95 0.85

INFERENCE The ratios are lesser than the standard norm (2:1) which indicates the down trend.

- 81 -

CURRENT RATIO Figure no. 5.20

1.6 1.4 1.2 1 PERCENTAGE 0.8 0.6 0.4 0.2 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 82 -

5.22 Liquid ratio: This ratio is also called quick or Acid test ratio. It is calculated by comparing the quick assets with current liabilities

FORMULA: Liquid ratio = (Current assets (CA) Closing stock (CS) / Current Liability)

Table 5.22 Year 2002 03 2003 04 2004 05 2005 - 06 2006-07 CA CS Rs in Lakhs 3637 4892 4020 4757 23023 Current Liability Rs in Lakhs 7293 9846 14517 26743 60959 Ratio 0.50 0.49 0.28 0.17 0.38

INFERENCE

The liquid ratio is declining year by year. The prescribed norm is 1:1.

- 83 -

LIQUID RATIO Figure no.5.21

0.5 0.45 0.4 0.35 0.3 PERCENTAGE 0.25 0.2 0.15 0.1 0.05 0 2002-03 2003-04 2004-05 2005-06 2006-07 YEARS

- 84 -

5.4 COMMON SIZE BALANCE SHEET ANALYSIS FOR THE YEAR: (BHEL)
DDETAILS SOURCES OF FUNDS: SCHEDULES 20022003 20032004 20042005 20052006 20062007

Shareholders Funds:
Capital Funds from Head office Funds to and from CO under CCC Reserves & Surplus (A) Loan Funds: Secured Loans Unsecured Loans (B) TOTAL (A+B) APPLICATION OF FUNDS: Fixed Assets: Gross Block Less: Depreciation Net Block Capital Goods, W-IP Inter Division Accounts(Dr.Bal) Funds to & from CO under CCC A/c (Dr.Bal) (C) CURRENTASSET S, LOANS & ADVANCES: Inventories Sundry Debtors Cash &Bank Balances Other Current Assets Loans & Advances (D) 1 1A 13.53 12.79 12.33 8.48 5.46

1D 2

3.58 80.11 97.22 2.78 2.78 100

6.51 78.64 97.94 2.06 2.06 100

86.34 98.67 1.33 1.33 100

7.19 82.93 98.60 1.40 1.40 100

8.20 85.79 99.45 0.55 0.55 100

3 4

6 1C

88.09 62.37 25.71 0.82 59.72

85.18 61.77 23.42 0.44 53.65

83.29 62.66 20.63 0.24 22.21 9.16

59.19 45.74 13.45 0.65 92.21

39.58 30.98 8.59 1.27 120.9 0 130.7 6

86.25

77.51

52.24

106.3 1

8 8 8 8 8

43.06 23.53 0.62 5.65 72.85

68.56 23.45 1.45 5.23 98.67

126.1 5 21.43 0.98 7.61 156.1

106.6 6 18.02 0.85 5.52 131.1

94.75 69.86 0.035 6.28 170.9

- 85 -

7 Less: Current Liabilities & Provisions: Current Liabilities Provisions (E) Net Current Assets (D-E) Miscellaneous Expenses Deferred Revenue Exp TOTAL

10 11

55.04 4.71 59.75 13.10 -

63.93 12.36 76.29 22.38 0.11 100

96.23 12.18 108.4 1 47.76 100

127.1 2 10.30 137.4 1 6.31 100

193.1 2 8.57 201.6 9 30.76 100

12

0.65 100

- 86 -

Interpretation
In common size balance sheet analysis in BHEL, it is found that the total assets and liabilities are taken as 100% total and other components of assets and liabilities are also expressed in terms compared to total asset and total liability. The total capital % shows a decreasing trend for the last two years. There is also a fluctuation in reserves & surplus in the last few years due to introduction of accounting sections. The percentage of unsecured loan funds is decreasing which states the availing of no fresh loan secured from the year 02 to 07 for the purpose of expansion of the business. The total net worth has fluctuation, which is because of fluctuation in the reserves & surplus. The company adopted regrouping of certain Boilers and ancillary transaction in line with industrys practice of representing the same. This has vitiated the trend in current liabilities from the old years. Fixed assets have increased in figures during all the years of study. It is due to a part of current liability arrives net profit have contributed to the increase in fixed assets. The current asset part has considerably decreased since 2005-2006 and it is due to decrease in loans and advances. There is a decrease in inventory; it is because the company is doing mass production.

- 87 -

Comparative Balance Sheet (2002-2003 & 2003-2004) :

Particulars Sources of Funds 1.Share Holders Funds a. Capital Funds from Head office Inter Division Accounts Funds to and from CO b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans Total (1+2) Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Inter Division Accounts ( (Dr.Bal). Funds from Co under CCC 3.Current Asserts ,Loans & Advances a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances
Schedule

(Rs. in thousands)
Absolute Change Change %

2002-2003

2003-2004

1 1A 1B 1D 2

165085 43782 977825 1186692 33875 1220567

165085 83992 1014926 1264003 26591 1290594

40210 37101 7311 7284 70027

0.00 47.87 3.66 6.12 27.39 5.43

3 4

1075139 -761288 313851 9991 323842

1099327 -797146 302181 5709 307890

24188 5858 11670 4782 16452

2.20 0.76 3.86 83.76 87.62

1C

728884 -

692431 -

36453 -

5.26 -

8 8 8 8 9

525535 287150 7559 68967 889211

884835 302590 18658 67323 1273406 825016 159557 984573 288833

359300 15440 11099 1644 384195 153197 102092 255289 128906

40.61 5.10 59.49 0.24 30.17 18.57 63.98 25.93 44.63

4.Less: Current Liabilities a. Liabilities b. Provisions 5.Net Current Assets (3-4) 6.Miscellaneous Expenditure (to the extent not written off) Deferred Revenue Total

10 11

671819 57465 729284 159927

12

7914 1220567

1400 1290594

6474 70027

450 5.433

- 88 -

Interpretation
Current Financial Position and Liquidity Position: The current assets have decreased by Rs.384195 (30.17%) and sundry debtors have increased by Rs.15440 (5.10%). On the other hand, there has been a increase in inventories amounting to Rs.359300 and increased by (40.61%).

Long Term Financial Position There is an increase in fixed assets of about Rs.16452 (87.62%). There is no long-term secured loans and increased in unsecured loan as to Rs7284(27.39%),This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company.

Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.37101 (3.66%). This fact depicts that there is a increase in the profitability of the concern.

- 89 -

Comparative Balance Sheet (2003-2004 & 2004-2005) : (Rs. in thousands) Schedule Particulars 2003-2004 2004-2005 Absolute Change % Change Sources of Funds 1.Share Holders Funds 1 a. Capital 165085 165085 0.00 0.00 1A Funds from Head office 1B Inter Division Accounts 83992 83992 -100 1D Funds to and from CO 1014926 1156187 141261 12.22 2 b. Reserves & Surplus 4.33 1264003 1321272 57269 2.Loan Funds a. Secured Loans 3 b. Unsecured Loans 26591 17817 8774 4 49.25 Total 1290594 1339089 48495 3.62 Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Inter Division Accounts ( (Dr.Bal). Funds from Co under CCC 3.Current Asserts ,Loans & Advances a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances 4.Less: Current Liabilities a. Liabilities b. Provisions 5 1099327 -797146 302181 5709 1115348 -839030 276318 3196 16021 71884 25863 2513 1.44 8.57 9.36 78.63

1C

692431 -

297372 122592

395059 122592

132.85 100

8 8 8 8 9

884835 302590 18658 67323 1273406

1689257 287026 13093 101936 2091312 1288650 163055 1451705 639607

804422 15564 5565 34613 817906 463634 3498 467132 350774

47.62 15.88 42.50 33.96 39.11 35.98 2.15 32.18 54.84

10 11

5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Deferred Revenue Total

825016 159557 984573 288833

12

1440 1290594

1339089

1440 48495

-100 3.62

- 90 -

Interpretation
Current Financial Position and Liquidity Position: The current assets have increased by Rs.817906 (39.11%) and sundry debtors have decreased by Rs.15564 (15.88%). On the other hand, there has been a increase in inventories amounting to Rs.804422 (47.62%). Long Term Financial Position There is an increase in fixed assets of about Rs28376 (87.99%). There is no long-term secured loans and increased in unsecured loans as to Rs.8774 thousand (49.25). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.141261 (12.22%). This fact depicts that there is a increase in the profitability of the concern.

- 91 -

Comparative Balance Sheet (2004-2005 & 2005-2006) : Particulars Sources of Funds 1.Share Holders Funds a. Capital Funds from Head office Inter Division Accounts Funds to and from CO b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Inter Division Accounts ( (Dr.Bal). Funds from Co under CCC 3.Current Asserts ,Loans & Advances a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances
Schedule

Rs in thousands Absolute Change Change %

2004-2005

2005-2006

1 1A 1B 1D 2

165085 1156187 1321272 17817 1339089

165085 139957 1613889 1918931 27291 1946222

139957 457702 597659 9474 607133

100 139.59 100 145.23 34.71 145.34

3 4

1115348 -839030 276318 3196

1152010 -890250 261760 12691

36662 51220 14558 9495

103.29 106.10 94.73 397.10

1C

297372 122592

1794638 -

1497266 122592

603.50 100

8 8 8 8 9

1689257 287026 13093 101936 2091312

2075770 350783 17582 107340 2551475 2473959 200383

386513 63757 4489 5404 460163 1185309 37328 1222637 -516740

122.89 122.21 134.29 105.30 122.00 191.98 122.90 184.22 19.21

4.Less: Current Liabilities a. Liabilities b. Provisions 5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Deferred Revenue Total

10 11

1288650 163055 1451705 639607

12

1339089

1946222

607133

145.34

- 92 -

Interpretation

- 93 -

Current Financial Position and Liquidity Position: Particulars

Schedule

2005-2006

2006-2007

Absolute Change

Change %

The current assets have increased by Rs460163 (122%) and sundry debtors have increased by Rs.63757(122.21%). On the other hand, there has been a increase in inventories amounting to Rs386513 (122.89%). Long Term Financial Position There is an increase in fixed assets of about Rs24053. There is no long-term secured loans and increased in unsecured loans as to Rs.9474 thousand (34.71%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.597659 (145.23%). This fact depicts that there is a increase in the profitability of the concern.

- 94 -

Sources of Funds 1.Share Holders Funds a. Capital Funds from Head office Inter Division Accounts Funds to and from CO b. Reserves & Surplus

1 1A 1B 1D 2

165085 139957 1613889 1918931

165085 247700 2592979 3005764 16696 3022460

107743 979090 1086833 10595 1076238

100 0.00 43.50 37.76 36.16 0.00 63.46 35.61

2.Loan Funds a. Secured Loans b. Unsecured Loans Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Inter Division Accounts ( (Dr.Bal). Funds from Co under CCC 3.Current Asserts ,Loans & Advances a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances

3 4

27291 1946222

1152010 -890250 261760 12691

1196209 -936482 259727 38248

44199 46232 2033 25557

3.69 4.94 0.78 66.82

1C

1794638 -

3654255 -

1859617 -

50.89 0.00

8 8 8 8 9

2075770 350783 17582 107340 2551475

2863867 2111388 1071 189824 5166150 5836989 258931 6095920 -929770

788097 1760605 16511 82484 2614675 3363030 58548 3421578 -806903

27.52 83.39 154.64 43.45 50.61 57.62 22.61 56.13 86.79

4.Less: Current Liabilities a. Liabilities b. Provisions 5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Deferred Revenue

10 11

2473959 200383 2674342 -122867

12

0.00

Total 1946222 3022460 Comparative Balance Sheet (2005-2006 & 2006-2007) :

1076238

35.61

- 95 -

Interpretation
S.NO DETAILS 2002-03 [Base year] 2003-04 2004-05 2005-06 2006-07 Trend Analysis

Current Financial Position and Liquidity Position: The current assets have increased by Rs 2614675 (50.61%) and sundry debtors have increased by Rs.1760605 (83.39%). On the other hand, there has been a increase in inventories amounting to Rs 788047 (27.52%). Long Term Financial Position There is an increase in fixed assets of about Rs27590 (67.6%). There is no longterm secured loans and increased in unsecured loans as to Rs.10595 thousand (63.46%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.979090 (37.76%). This fact depicts that there is a increase in the profitability of the concern.

- 96 -

1.

Sales

100

121.24

187.38

256.27

337.11

Increased

2.

PBIT

100

77.16

103.73

281.91

602.25

Increased

3.

Profit Before Tax

100

77.76

04.85

283.59

620

Increased

4.

Operating profit Current Assets

100

93.10

105.05

174.93

334.54

Increased

5.

100

154.52

235.19

286.94

580.98

Increased

6.

Current Liabilities

100

135.01

199.05

366.69

835.86

Increased

7. 8.

Fixed Assets Total Turn over

100 100

96.24 117086

88.02 165.17

83.40 248.50

82.73 326.00

Decreased Increased

9.

Capital employed No. of Employees in thousands Physical turnover Purchase

100

120.15

186.85

170.79

128.46

Decreased

10.

100

96.94

95.75

95.10

99.45

Increased

11.

100

136.14

312.33

427.16

561.91

Increased

12.

100

136.14

312.33

427.16

561.91

Increased

13.

Personnel payments

100

110.20

115.34

126.70

158.00

Increased

5.6 TREND ANALYSIS :

(Rs in lakhs)

- 97 -

Interpretation of Trend analysis:

a) The sales have continuously increased in all the years up to 2007. The percentage in 2007 is 337.11 as compared to 100 in 2002-2003.The increase in sales is quite satisfactory which is due to the completion of Boiler Auxiliary Plant (BAP) expansion and higher value added products

b) The net worth has been showing considerable increase over the five year period.

c) The Capital employed has Increased substantially in the year 2006-2007 is compared to last four year. This is due to decrease in value of production and higher demand for the product and also due to higher capacity addition due completion of BAP expansion project.

d) The Purchases has been increased in all the years up to 2007.due to the increases of production and demand and to higher capacity addiction of completion of BAP formal projects.

e) The Personnel payments & no.of .Employees are increased substantially all thr years up to 2007 due to the increased trend for the forthcoming year on Production and higher demand for the products BAP expansion projects.

- 98 -

5.7 Regression analysis

5.7.1 Sales to profit: YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 TOTAL X = Y = A, b = SALES(X) 2619 3175 4908 6712 8829 26243 PROFIT (Y) 204 159 214 579 1266 2422 XY 534276 504825 1050312 3886248 11177514 17153175 X^2 6859161 10080625 24088464 45050944 77951241 164030435

Independent Variables (Sales) Dependent Variables (Profit) Constants.

Regression Equation Y on X is, Yc = a + bx To Find out the values of a, b Y = Na + bX XY = aX + bX By substituting this equation, 2422= 5(a) + 26243(b) ---------------------------*(26243) 17153175 = 26243(a) + 164030435(b) --------*(5) 63560546 = 131215 (a) + 688695049(b) 85765875= 131215 (a) + 820152175(b) ------------------------------------------------22205329= 131457126(b) b = 0.16892 By substituting b value in equation (1), 2422 = 5(a) +26243(b) 2422 = 5(a) +26243 * 0.16892 - 99 -

2422 = 5 a + 4432.97 2010.96 = 5 a a = - 402.19 The future sales estimation for the year 2007 is 9000 for the year 2008 is 10000 By substituting the values of a, b in the regression line Y on X is, For 2008: Y = -402.19 + 0.16892(9000) Y = 1118.09 Millions For 2009: Y = -402.19+ 0.16892(10000) Y = 1287.01 Millions Interpretation

Here the variable `y is taken as Profit and `x is taken as Sales.

The estimated sale for 2009 is based on the actual for nine months up to December 2008 and realistic estimates for the balance three months of the year 2008-09. The estimated sales for 2009-10 are based on the budget estimates by the organization with a growth rate factor for 2008-09. The projection of Rs1118.09 millions. And Rs.1287.01 millions. for the next two years indicates increase in profit due to estimation that the price of Raw Material and Finished goods may vary at a higher rate that result in such a huge increase in profit. Thus the regression analysis estimates a higher quantum of profitability for the organization in the coming two years 2007-2008 and 2008-2009

- 100 -

5.7.2 Debtors to Sales

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-07 TOTAL SALES (X) 2619 3175 4908 6712 8829 26243 DEBTORS(Y) 287 303 287 351 2112 3340 XY 751653 962025 1408596 2355912 18646848 24125034 X^2 82369 91809 82369 123201 4460544 4840292

X = Independent Variables (Sales) Y = Dependent Variables (Debtors) A, b = Constants Regression equation Y on X is, Yc = a + bX To Find out the values of a, b. Y = n a + b X XY = a X + bX2 By substituting this equation, 3340= 5 a + 26243 b --------------------------*(26243) 24125034 = 26243 a + 4840292 ----------*(5)

87651620 = 131215 a + 688695049 b 120625170= 131215 a + 24201460 b -------------------------------------------------32973550 = -17314510 b b = 1.9043

- 101 -

By substituting b value in equation (1), 3340 = 5 a + 26243 b 3340 = 5 a +26243(1.9043) a = -9327 The future sales estimation for the year 2007 is 9000 Millions and for the year 2008 is 10000 Millions For 2007: Y = - 9327+ 1.9043*(9000) Y = 2646 Millions For 2008: Y = -9327 + 1.9043 *(10000) Y = 2837 Millions

INTERPRETATION
Here the variable `x is taken as Sales and variable `y as Debtors.

The estimated sale for 2009 is based on the actual for nine months up to December 2008 and realistic estimates for the balance three months of the year 2008-09. The estimated sales for 2009-10 are based on the budget estimates by the organization with a growth rate factor for 2008-09.
The projection of Rs.2646 millions and Rs.2837 millions. indicates increase in debtors due to increase in sales. Most of the sales made by the company are taken as credit sales. So increase in sales will result in increase in the amount of debtors.

Thus the regression analysis estimates a higher quantum of sundry debtors for the organization for the coming two years 200708and 2008-09

- 102 -

5.7.3 Sales to OPERATING EXPENSES:

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-07 TOTAL SALES (x) 2619 3175 4908 6712 8829 26243 OPERATING EXPENSES 2277 2825 4548 6335 8267 24252 XY 5963463 8964375 22321584 42520520 72989343 152759285 X^2 6859161 10080625 24088464 45050944 77951241 164030435

X = Independent Variables (Sales) Y = Dependent Variables (W.C) A, b = Constants. Regression equation Y on x is, Yc = a + bX To Find out the values of a, b Y = n a + bX XY = ax + bX2 By substituting this equation, 24252 = 5 a + 26243 b -----------------------------*(26243) 152759285 = 26243 a + 164030435 b----------*(5) 636445236 = 131215 a + 688695049 b 763796425 a =131215 a + 820152175 b --------------------------------------------------127351189 = 131457126 b b = 0.97

- 103 -

By substituting b value in equation (1), 24252 = 5 a + 26243 b 24252 = 5 a + 26243 (0.97) a = -240.74 The future sales estimation for the year 2008 is 9000 millions and for the year 2009 is 10000 millions. For 2008: Y = -240.74 + 0.97 *(9000) Y = 8489.26 Millions For 2009: Y = -240.74 + 0.97*(10000) Y = 9460 Millions

INTERPRETATION:
Here the variable `x is taken as Sales and variable `y as operating expenses. The estimated sale for 2009 is based on the actual for nine months up to December 2008 and realistic estimates for the balance three months of the year 200809. The estimated sales for 2009-10 are based on the budget estimates by the

organization with a growth rate factor for 2008-09. In this analysis, working capital required for the next 2 years is projected. Here the operating expenses are projected based on estimated future sales that in turn are derived by experience. The projected operating expenses of Rs. 8489.26 millions. And Rs.9460 millions for the next two years are required because of expected increase in sales. Most of the production and other operational requirements like chemicals and catalysts, utilities and repairs and maintenance are made by the company out of operating expenses. So increase in sales will result in increase in the amount of capital demands also.

Thus the regression analysis estimates a higher quantum of operating expenses for the organization for the coming two years 2007-08 and 2008-09.

- 104 -

CHAPTER:

Findings, Recommendations and Conclusion

- 105 -

FINDINGS, RECOMMENDATIONS AND CONCLUSIONS FINDINGS:

 In 2002-03 it has been increased to 111.0. But 2003-04, 200405, 2005-06 and 2006-07 there has been decreased to 86.0, 62.4, 113.77 and 289.27 respectively. The profit is low up to 2005. In 2006 & 07 it has increased gradually.  The ratio is increasing and decreasing. In the year 2002-03 the ratio is lower indicates more efficiency during that year and in 2004-05 , 2005-06 and 2006-07 ratio is higher, indicates less efficiency.  Administration expense is moving has turnover every year increases the expenses as a percentage on turnover decreases. The management must take steps to check the expenses. In 2005 - 06 the ratio is low due to increase in turnover and increases in 2006-07 as 5.32  In 2002 - 03 the ratio has increased to 0.45. In 2003-04 the ratio has decreased to 0.42. In 2004 - 05 and 2006 the ratio has come down due to higher turnover and increases in 2006-07 as 0.25 .  The ratios are fluctuating; high ratios indicate the efficient inventory management and efficiency of business operations.
 The ratios show an increase in trend of 9.93, 11.02, 17.85 ,

19.13 and 41.17 from 2002- 03 to 2006-07 respectively except in 2002 - 03. This gradual increase show that better is the liquidity of the datas.  The ratios show that the fixed assets are efficiently utilized. The ratios are showing up gradually i.e., from 2002 03 to 2006 07 is 7.21, 8.34, 10.51, 17.76 , 25.68 and 33.99 respectively except in 2002 03.  The capital turnover ratio from 2002 03 to 2006 07, it is gradually increasing and decreasing. Higher ratio indicates

- 106 -

higher efficiency and lower ratio indicates in effective usage of capital.  An ideal ratio is 2: 1. The ratios from 2002 03 to 2006 07 are 1.22, 1.40, 1.44, 0.95 and 0.85 which are lesser than the standard norm.

 The acid test ratio is declining year by year 2005-06 is 0.17 and presently it is 0.38 which is not satisfactory. The ideal liquid ratio are the generally accepted norm for liquid ratio is 1  Profitability indicates the efficiency and effectiveness with which the operations are being carried on. It has been found out that the profitability is on the increase over the five year period of study except the year 2002-03  Total Turnover being made by the firm are sound and showing an increasing trend.  The PBIT achieved by the company shows an increasing trend because of increase in production and Sales  Operating Profit has also been increased by significant reduction in Operating Expenses by the Company by judicious management of Sales operations and also through good treasury operations  The average collection period of the company is showing an increasing trend. This is because of rise in credit giving policy made by the company.  The average payment period is also started showing an increasing trend indicating delayed payment being made to the creditors. This indicates more time taken by the Company to repay the Suppliers.  There is a significant and steep increase in the turnover position of the company.

- 107 -

 The Current asset of the company is good and this is because of rise in Funds from co Under CCC being made by the Company.  The Inventory Turnover of the company is satisfactory. There is no holding up of inventory thereby saving interest on investment amount. This is because of effective production techniques implemented by the company.  The current financial position of the Company compared over the last five years is appreciably increased, for which credit could be taken.  The Fixed Assets of the company contributes Good of the Total Assets of the Company indicating good asset position of the company. The company has also got sufficient Reserves and Surplus year after year, to meet the future financial contingencies of the company.  Though the liquidity position of the Company is moderate, it showed an increasing trend for the last two years. This is because of increase in Other Current Assets of the firm.  It is found that there is an increase in Reserves and Surplus Funds. The total resource of the company for the last Five years is showing an increasing trend, which will contribute to a major extent for the companys production purposes in future.

 The Funds from Head Office Stable position of the company is satisfactory. The Funds in all the year and this is because of consistency in maintaining the required level of inventories and also significant increase in level of operations due to the completion and capitalization of the expansions cum modernization project.  The Physical Turnover Ratio of the company is sound indicating effective utilization of Assets for production purposes.

- 108 -

 The Personell Payments requirement of the company to carry out the production purpose is good and is not suffering from any inadequacy.  The Trend Analysis reveals that the Total Sources position of the company is good and enough to meet the future requirements of the company to carry out its activities.  The Common Size Balance Sheet shows a healthy trend in Current Assets and Current Liabilities of the firm indicating changes in policies of repayment made by the company.  It is projected from Trend Analysis that the sales trend of the company for the last 5 years is more than satisfactory. This analysis is showing an increasing trend in all aspects such as Earnings before Interest and Tax, Profit Before Tax, Current Assets, Capital employed and Total Turnover and accretion to the Expansion.  It is projected from Regression Analysis that there will be an increase in profits for the forthcoming year. There may be some marginal effect due to changes in Government Policies and wide fluctuations in the international prices of Boilers Auxiliaries which are matched by the increase in product prices. Due to sample constraint, this analogy may not however be sustainable.  It has been found out that overall solvency position of the company is Healthy and it shows an increasing trend. This indicates the enhancement of credit worthiness of the company.

- 109 -

RECOMMANDATIONS : 1. The unit may forecast selling and distribution expenses approximately and then enters into the contract with the customers, so that company need not incurred the distribution expenses from its sources. 2. The company shall concentrate on networking capital. 3. The Company should be taken to increase the price quoted for the customers, so that Sales Index will be improved. 4. The Steps should be taken to improve the more holding Transportation strength for fast supply of the firm. 5. Steps should be taken to find out substitute materials in order to the imported materials.

- 110 -

CONCLUSION:

Bharat Heavy Electrical Limited has been performing well in the capital and engineering goods industry Boiler Auxiliaries plant being one of the unit of BHEL, has been showing an increasing trend in its profitability position for the past 19 years which depicts a good sign. The turnover ratios indicate that the average collection period has been reduced from two months to one month and working capital ratio is a satisfactory one. The solvency ratio indicates that the larger part of the funds is tied up in inventory. So the company must take steps to improve its liquidity position.

The company has a high operational efficiency and most of the ratios seem to be satisfactory from the point of view of both the investors and lenders. The other important factor which is worth mentioning here is that the company has been progressing steadily on its capacity utilization in line with its growing financial performance.

- 111 -

ANNEXURE
The extra information related to BHEL that have been collected are, 1, According to BSE Market Capital was Rs. 55700.03. 2, Ownership Central Govt.- Commercial Enterprises. 3. Auditor D.R.Mehta & Associates. 4, Registrar Karvy Computer share Pvt. Ltd. 5, Earnings Per Share (EPS) Rs. 77.13. 6, Shares outstanding Rs. 24,47,60,000. 7, Average daily volume(30 days) Rs. 31.57. 8, Share holding as per Sep 2006 Promoter owned 67.72% Public owned 1.17% FIIs owned 21.91% Others owned 9.20%

- 112 -

BIBLIOGRAPHY :

1.

Cost and Management Accounting

T.S.Reddy, Y.HariPrasadReddy; Reprint 2003 Published by Margham publications, Chennai-600 017.

2.

Financial and Management Accounting

T.S.Reddy Y.Hariprasad Reddy; Second edition Published by Margham publications, Chennai-600 017.

3.

Financial Management

Khan& Jain; Thirteenth Edition-1996 Published by Chaitaya Publications, Chennai-600 023.

4.

Prasanna Chandra, Fundamentals of Financial Management, 3rd ed: Tata McGraw- Hill Publishing Company New Delhi.

Websites referred:

1. www.bhel.com 2. mopng@nic.net.in 3. www.icai.org 4. www.ifmr.com 5. www.mma.org 6. www.icwai.org

- 113 -

ABSTRACT OF THE BALANCE SHEET AS ON 2001-02 to 2005-06 Particulars 2002-02 Actual (In lakhs) 32961 33528 28232 10675 2040 2041 15154 10751 3139 5255 2872 5573 8892 7293 4919 22768 5464 3295 128 6312 2187 43543 15713 26191 2003-04 Actual (In lakhs) 38848 40499 33340 11014 1574 1587 19316 10993 3021 8848 3026 6337 13740 9846 5910 28253 5087 3360 140 6956 2120 53877 21391 31753 2004-05 Actual (In lakhs) 54441 60684 51216 11916 2116 2140 35222 11153 2763 16893 2870 7992 20913 14517 9191 45476 5740 3450 150 7280 2094 72934 38707 49076 2005-06 Actual (In lakhs) 81909 83773 72907 16807 5751 5788 50818 11520 2618 20758 3508 9858 25515 26743 8401 63349 9558 3610 160 7997 2080 105904 56130 67119 2006-07 Actual (In lakhs) 107454 113360 100947 27664 12286 12654 66201 11962 2567 28639 21114 14704 51662 60959 6319 82668 18279 5375 250 9973 2175 127746 69424 88293

Total Turnover Gross Turnover Net Turnover Value added PBIT PBT Consumption Gross Block Net fixed Assets Closing stock Sundry debtors Sundry creditors Current Assets Current Liabilities Capital employed Operating Expenses Operating Profit Admn. Expenses Selling Expenses Personnel Payments No. of Employees(In thousands) Physical Turnover Purchases Cost of Sales

- 114 -

- 115 -

- 116 -

- 117 -