42608686 project-report-on-financial-performance

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FINALCIAL PERFORMANCE ANALYSIS 1

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CONTENTS
CHAPTERS PARTICULARS PAGE-NO
Preliminary
index
Abstract
List of tables
List of charts
Chapter –I
Introduction
Introduction to study
Objectives of study
Need of study
Research methodology
Scope of the study
limitations
1-3
4
5
6
7
8
Chapter –II
profile
Company profile 9-23
Chapter –III
Analysis and interpretation of study
Introduction of analysis
Comparative income statement
Comparative balance sheet
Common size income statement
Common size balance sheet
Working capital changes
Ratio analysis
Balance sheet
24-38
39-42
43-46
47
48-51
52-55
56-66
67
Chapter- IV Findings
suggestions
conclusion
68
69
70
Chapter- V Bibliography

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ABSTRACT
Financial analysis is the process of identifying the financial
strengths and weakness of the firm by properly establishing the relations
ship between the items of the balance sheet and profit loss account.
Financial analysis can be undertaken by management of the firm, or by
parties outside the firm, viz. owners, creditors, investors and others. The
nature of analysis will differ depending on the purpose of analyst.
Management, creditors, investors and others to form
judgment about the operating performance and financial position of the
firm use the information contained in this statements can get further
insight about the financial strengths and weakness of the firm to make
their best use and to be able to spot out financial weakness of the firm to
take suitable corrective actions.
Thus financial analysis is the starting point for making
plans, before using any sophisticated forecasting and planning
procedures. Understanding the past is a prerequisite for anticipating
future.

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LIST OF THE TABLES
TABLE-NO PARTICULARS PAGE-NO
1. COMPARITIVE INCOME STATEMENT 2003-2004 39
5. COMPARITIVE BALANCE SHEET 2003-2004 43
9. COMMON SIZE INCOME STATEMENT 2003-2007 47
10. COMMON SIZE BALANCE SHEET 2003-2004 48
14. CHANGES IN WORKING CAPITAL 2003-2004 52
18. CURRENT RATIO 56
19. QUICK RATIO 57
20. NET WORKING CAPITAL RATIO 58
21. DEBT RATIO 59
22. DEBT EQUITY RATIO 60
23. CAPITAL EMPLOYED TO NET WORTH 61
24. INVENTORY TURNOVER RATIO 62
25. DEBTORS TURNOVER RATIO 63
26. COLLECTION PERIOD 64
27. GROSS PROFIT RATIO 65
28. NET PROFIT RATIO 66
29. BALANCE SHEET OF 2003-2007 67

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LIST OF CHARTS
TABLE-NO PARTICULARS PAGE-NO
1. LEQUIDITY RATIOS
1.1.CURRENT RATIO
1.2.QUICK RATIO
1.3.NET WORKING CAPITAL RATIO
56
57
58
2. LEVERAGE RATIOS
2.1.DEBT RATIO
2.2.DEBT EQUITY RATIO
2.3.CAPITAL EMPLOYED TO NET
WORTH
59
60
61
3. ACTIVITY RATIOS
3.1.INVENTORY TURNOVER RATIO
3.2.DEBTORS TURNOVER RATIO
3.3.COLLECTION PERIOD
62
63
64
4. PROFITABILITY RATIOS
4.1.GROSS PROFIT RATIO
4.2.NET PROFIT RATIO
65
66

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I

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INTRODUCTION
In our present day economy, finance is defined as the provision of
money at the time when it is required. Every enterprise, whether big, medium of

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small, needs finance to carry its operations and to achieve its targets. In fact,
finance is so indispensable today that it is rightly said to be the lifeblood of an
enterprise. Without adequate finance, no enterprise can possibly accomplish its
objectives.
Financial management is applicable to every type of organization,
irrespective of its size kind of nature. It is as useful to a small concern as to a big
unit. A trading concern gets the same utility from its application as a
manufacturing unit may expect. This subject is important and useful for all types of
ownership organizations. Where there is a use of finance. Financial management is
helpful. Every management aims to utilize its funds in a best possible and
profitable way. So this subject is acquiring a universal applicability.
It is indispensable in any organization as helps in:
(I) Financial planning and successful promotion of an enterprise;
(II) Acquisition of funds as and when required at the minimum possible
cost;
(III) Proper use and allocation of funds;
(IV) Taking sound financial decisions ;
(V) Improving the profitability through financial controls;
(VI) Increasing the wealth of the investors and the nation; and
(vii) Promoting and mobilizing individual and corporate savings.
OBJECTIVES OF FINANCIAL MANAGEMENT
Financial management is concerned with procurement and use of
funds. Its main aim is to use business funds in such a way that the firm’s

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value/earnings are maximized. There are various alternatives available for using
business funds. Each alternative course has to be evaluated in detail.
The pros and cons of various decisions have to look into before
making a final selection. The decisions will have take into consideration the
commercial strategy of the business. Financial management provides a framework
for selecting a proper course of action and deciding a viable commercial strategy.
The main objective of a business is to maximize the owner’s economic welfare.
This objective can be achieved by:
1. Profit Maximization
2. Wealth maximization
1. Profit maximization:
Profit earning is the main aim of every economic activity. A business
being an economic institution must earn profit to cover its costs and provide funds
for growth. No business can service without earning profit. Profits are a measure of
efficiency of a business enterprise. Profits also serve as a protection against risks
which cannot be ensured. The accumulated profits enable a business to face risks
like fall in prices, competition from other units, adverse government policies etc.
Thus, profit maximization is considered as the main objective of business:
(i) When profit – earning is the aim of business then profit maximization should
be the obvious objective.
(ii) Profitability is a barometer for measuring efficiency and economic prosperity
of a business enterprise, thus, profit maximization is justified on the grounds
of rationality.
(iii) Economic and business conditions do not remain same at all the times. There
may be adverse business conditions like recession, depression, severe
competition etc. A business will be able to service under unfavorable situation

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only if it has some past earnings to rely upon. Therefore a business should try
to earn more and more when situation is favorable.
(iv) Profits are the main sources of finance for the growth of a business. So, a
business should aim at maximization of profits for enabling its growth and
development.
(v) Profitability is essential for fulfilling social goals also. A firm by pursuing the
objective of profit maximization also maximizes socio- economic welfare.
2. Wealth maximization
Wealth maximization is the appropriate objective of an enterprise
financial theory asserts that wealth maximization is the single substitute for
stockholder’s utility. When the firm maximizes the stockholder’s wealth, the
individual stockholder can use this wealth to maximize his individual utility. It
means that by maximizing stockholder’s wealth firm is operating consistently
towards maximizing stockholder’s utility.
OBJECTIVES OF STUDY
1. To understand, to analyze and to suggest methods of improving profitability
management.
2. To identify the key factors affecting the profitability.
3. To have an insight into the management of profit in an organization.

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4. To examine the financial performance of the company for the period from 2003
to 2007.
5. To assess the working capital employed by the company.
6. To highlight the short comings in the area of finance with the aid of
comparative analysis and common size analysis funds flow analysis and to give
recommendations with a view to increase efficiency of the company.
7. To identifying the financial strength and weakness of the company.
8. Analyze the future earnings of the company , based on these give
the various suggestions.
NEED FOR THE STUDY
Financial statement analysis is used to identify the trends and
relationships between financial statement items. Both internal management and
external users (such as analysts, creditors, and investors) of the financial statements
need to evaluate a company's profitability, liquidity, and solvency. The most
common methods used for financial statement analysis are comparative statements,

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common-size statements, funds flow analysis and ratio analysis. These methods
include calculations and comparisons of the results to historical company data,
competitors, or industry averages to determine the relative strength and
performance of the company being analyzed.
Financial statement analysis is to diagnose the information contained
in financial statements so as to judge profitability and financial soundness of the
firm. Just like a doctor examines his patient by recording hi body temperature,
blood pressure, etc. before making conclusion regarding the illness and before
giving his treatment, a financial analyst analysis before commenting up on the
financial health or weakness of an enterprise.
RESEARCH METHODOLOGY
The research design refers to preplanning of what a researcher does in
his study. The design adopted in the study comes under exploratory and
evaluatory research. Since the data collected from the financial statements of the
company is analyzed under various financial and tactical tools.

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Data collection;
The study is based on the two types data is obtained from the chittoor
co-operative sugars ltd., chittoor.
They are:
 Primary data
 Secondary data
Primary Data;
Primary Data is obtained through the discussion with officials of the chittoor
co-operative sugars ltd., chittoor.
Secondary Data;
Secondary data is based on the past data i.e. [five years Annual Reports
2003-2007]
SCOPE OF THE STUDY
 In our present day economics, finance is defined as the provision of money at
the time when it is required. Every enterprise whether big medium or small
needs finance to carry on its operations and to achieve its target. In fact finance

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is so indispensable today that it is rightly said that it is the life blood of industry
without adequate finance no enterprise can possible accomplish it objectives
 Finance is therefore viewed as the most important area in every enterprise.
Therefore the management requires giving special attention on this .The
conventional approach to finance function in business high light the
procurement of funds on the mot economic and favorable terms to concern. But
it ignores the efficiency and prepares of the same for the successful running of
the enterprise. In every organization funds are needed for various ventures and
projects.
 The basis for financial planning and analysis is financial information, financial
need to Predict compare and evaluate the forms earning ability. It is also
required to aid in economic decision making., Investment and financial
statements or accounting reports
 It contains summarized information of the firm’s financial affairs,. Organized
systematically. They are the means to present the firm’s situation to owners,
creditors and general public, preparation of the statements is the responsibility
of top management. They should be prepared very carefully and contain as
much information a possible because they are very useful to judge the financial
efficiency of the company.
LIMITATIONS
 Financial statements are prepared on the basis of certain accounting concepts
and conventions.

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 Any change in the methods or procedures of accounting systems limits the
utility of financial statements.
 Ratios of the past are not true indicators of future.
 Financial analysis is based on monetary information and non monetary
information ignored.
 Liquidity ratio can mislead since current assets and current liabilities can
change quickly. Their utility become more doubtful for firms with seasonal
business.

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II

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COMPANY PROFILE
The irrigation in Chittoor district mostly depends on open
wells, recharge of water in the wells depends on ground water level and
rainfall. However, rainfall depends on monsoon, which is uncertain. The
soils in the district are almost suitable for sugarcane. In the good olden
days, total quantity of sugarcane produced in the district was converted as

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jaggery by Ganugas (bullock crushers) and power crushers. The jaggery
making was very difficult to the small farmers due to lack of crushers and
unfavorable prices. The big farmers also faced brought to the Chittoor &
Pakala, which are the market places with railway transportation. There
was a lot of exploitation of farmers by the jaggery mundi owners by
advancing the money with high interest rates, commission and also not
with proper weighing. The price fluctuation created by the traders was
also a reason for poor realization, but there was no other choice to the
farmers
EVOLUTION OF THE FACTORY
Under the above circumstances, the farmers and leaders of the district
felt the need for the establishing a factory in co-op sector to enable the sugarcane
farmers to get good returns. The Chittoor co-operative sugars ltd., Chittoor is the
first agro-based major industry in Rayalaseema area. It was first registered on
22.08.1955 under the APCS act. Its area of operation comprises of 192 villages in
21 mandals. Factory is located along Cudalore-Kurnool national high way no.18, 3
kms towards Kurnool from Chittoor town. It owns 85.96 acres of land. It was
first commissioned on 18.01.1963 with a licensed and installed capacity of 1000
tones cane crushing per day.
During 1974 its cane crushing capacity has been expanded to 1600
tones per day. Since 1989, modernization is being done in phases. Presently
factory is working at an average cane crushing of 1800-2000 tones per day.
CAPITAL STRUCTURE
Original project cost was Rs.128.50 lakhs. It has been funded from following
sources:
Rs. Lakhs

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I. Share capital from
a. Cane grower members 8.50
b. State Government 25.00
II. Loans
a. IFCI New Delhi 75.00
b. LICI Bombay 20.00
Total 128.50
III .Capital outlay
Land 2.38
Buildings 5.90
Plant and Machinery 109.34
Other assets 5.77
Pre-operative expenses 4.00
Vehicles 0.96
Total 128.35
IV. Present Value of the Assets as on 31.03.2000
V. Land 497.19
a. Buildings 423.85
b. Plant & Machinery 1155.70
c. Other assets 34.73
d. Transport vehicles 19.94
e. Total 2131.41

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Membership Share Capital No amount (in. lakhs)
a. Members 13448.00 185.57
State Government 1 1208.44
13449.00 1394.01
b. NRD & NRFD of members 213.69
c. Accumulated Loss of on 31.03.03 1782.39
(As per perform accounts)
3390.09
WORKING CAPITAL ARRANGEMENTS
Under Sugar cane control order (1966) of Government of India, cane
price is payable with in 14 days from the date of purchase where as sugar produced
is released for sale monthly over a period of 16 to 18 months. More than 70% of
cost of production is covered by sugar to comply with statutory provision in regard
to payment of sugar cane price with in 14 days. Hither to financing banks i.e.,
(District coop Central Bank) have been allowing loan @ 90% of levy sugar value
and 8 on open market sugar value. First time for this 99-2000 season, NABARD
have laid down, in their new credit policy guide lines, to compute and allow
pledge loan on sugar stocks restricting to statutory minimum cane price notified by
Government of India.
With this new guide line, though huge sugar stocks with abundant
loan drawing power are available, factory cannot draw loan to pay state advised
cane price to growers. The SMP notified by Government would not cover even
cultivation costs. The difference between state advisory price and statutory

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minimum cane price is about Rs.250 per MT. To receive the difference amount of
cane price cane suppliers have to wait till the entire sugar stocks are sold which
would take about 16 to 18 months. This particular condition introduced first time
this season is to be with drawn oilier wised cane growers would go in for
cultivation of alternate crops as the SMP would not cover even cultivation costs.
This issue is taken up by State Government with NABARD and Ministry of
finance, government of India.
MODERNISATION
During 1993-94 factory has planned to increase its cane crushing
capacity from 1600 TCD to 2500 TCD in phases. As a part of the program, under
1st
phase, factory has spent Rs.341.80 lakh and carried out 1 phase modernization.
During 1997 purchase of a new 3 MW Power Turbine has been finalized. It is
commissioned during this 99-2000 cane crushing season. The New Power turbine
and attending Electrical and Civil works put together is Rs.160 lakh. At a cost of
about Rs.90 lakh, installation of TRF system to Mills, modification of a boilers to
increase the capacity and modification of return biogases carrier are
executed/being executed to achieve a daily cane crushing of 2200 tones cane.
WAGE STRUCTURE
The wages of the workers are covered by “sugar wage board”
recommendations at “All India Level”.The minimum monthly wage of an unskilled
worker at stalling of the time scale is Rs.3, 901. Sugar year (season) is reopened
from 1st
Oct to 30th
Sep next year. Generally cane crushing operations are
commenced during 3 week of November and continued up to end of April of next
year. From May-Oct is off season.

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CANE DEVELOPMENT AND INCENTIVES TO CANE GROWERS
There is a separate agriculture wing in factory headed by a chief
Agriculture officer. Total area of operation is divided into 36 circles. For each
circle, there is one field men 36 field men’s work is supervised by 8 agricultural
officers. Following are developmental activities being implemented.
 Arrange soil testing at factory’s soil laboratory.
 A supply of improved varieties of seed in consultations with regional
agricultural research stations.
 Arrange survey and extend loans and subsides for drilling of surface and in well
bores.
 Arrange educational tours, to selected cane suppliers, within and outside the
state.
INCENTIVES PAID TO GROWERS
 50% of actual cane transport charges up to 40kms distances are subsidized.
 Cane transport charges beyond 40kms are subsidized 100%.
 Over and above state advised cane price, an incentive price of Rs.25 per MT is
paid to improved varieties supplied to factory.
 Fertilizers are supplied on loan, free of interest.

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 Pesticides & Feticides are supplied at subsidized rates.
 At ½ kg per tone of sugarcane supplied for cane crushing, sugar is supplied
subject to a minimum of 120 kegs & maximum of 100 kegs at subsidized rates.
WELFARE SCHEMES TO CANE GROWTH
 A marriage hall is constructed in factory’s premises with Rs.56.51lakhs
contributions from cane supply members. Rs.4,200 per day is charged as rent
from cane supply members and employees. Rs.7,350 per day is charged from
non members.
 5002 cane supply members are covered under Janata personal accident policy
for a period of 12 years commencing from Jan 98. Family of any deceased
member covered under this policy gets Rs.1,00,000 as compensation. 50% of
premium i.e., Rs.3.51 lakhs is subsidized by factory.
 5002 cane supply members are covered under “Janarogya Bhima Policy”.
Reimbursement charges up to a maximum of Rs.5,000 per year is expended
under this scheme. 50% of premium i.e., Rs.2.05lakhs is subsidized by factory.
MANAGEMENT
At present the elected board has assumed charge on 06.04.2000. The
present Board of Directors as detailed below:
President 1
Board of Directors 14
Employees Director 1

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Total 16
CHIEF EXECUTIVE & FUNCTIONING OF VARIOUS
DEPARTMENTS
a. Chief executive of the society is Managing Director having a seat on the Board.
b. There are five major departments
1. Administrative
2. Engineering
3. Manufacturing
4. Agriculture
5. Accounts & Finance
c. All aspects of Accounting, sugar cane weightiest and laboratory analysis reports
are computerized during 1989-90. For better cane regulation. Wireless System
was also introduced during 1989. At all 8 division Head Quarters and at
Administrative Office Wireless Stations and sets are installed.
d. All policy mater are decided by Board/Person-in-charge.
e. Cane price
Before commencement of sugar cane crushing season, Government of
India notifies statutory minimum cane price payable by each sugar factory.
This is to be paid within 14 days from the date of purchases. Over and above
the statutory minimum cane price state Government announces a State advisory
price payable by each Sugar factory. This SAP is being paid by us. We have

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crushed cane for the season 1999-2000 is 2,82,202.592 Mts with an average
recovery 9.038
f. Sugar :
Out of total sugar production of each season, 30% shall be delivered to
Government nominees for public distribution system at notified levy price. For
every season Government of India notifies levy sugar price application to each
Sugar Factory. Every month Government of India releases the Quantity of levy
sugar and open market sugar to be sold during each month. Open market sugar
is sold on tender system and is delivered against payment of cost plus duties.
g. Molasses
Molasses is a by product in the course of manufacture of Sugar.
From 1993 June molasses prices are decontrolled. Molasses is sold by inviting
tenders on All India basis by publishing Tender notice.
h. Engineering & Manufacturing Departments
During off season engineering and manufacturing departments attend
to overhauling and preventive maintenance and keep ready the plant for Cane
Crushing. During season factory works round the clock in three shifts.
i. Cane Department
Cane department is provided with sufficient executive staff. They
collect cane supply offers, from cane growers. Offers are being accepted
restricting the quantities to individual member’s 5 years supply average. Crop
loans are sanctioned by Banks under tie up arrangement with factory. One
month before commencement of cane crushing, prepares maturity survey is
conducted by drawing cane samples from agreement Cane fields. They are

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analyzed in Factory’s laboratory. Based on the analysis, cane harvest & supply
permits are issued to cane supply members limiting to Factory’s daily cane
crushing capacity. Factory provides about 60 to 80 hired Lorries to needy
growers. 50% of transport charges up to 40KM distance are subsidized by
factory. Transport charges beyond 40KM are subsidized 100%.
j. Liaison Farm
Factory is having a sugar cane liaison farm in an extend 4.80 Hec.
Factory brings improved varieties from sugar cane research stations multiplies
in its farm and supplies seed to growers.
(I) Total Strength of the establishment is
1. Permanent (Non Seasonal) 68
2. Seasonal Permanent 94
3. Consolidate Wagers (Seasonal) 167
4. Daily Wager(NMR) 244
Total 573
(II) Wage Structure
The Wages of workers are covered by “Sugar Wage Board”
Recommendations at “All India Level. The minimum monthly wage of an
unskilled worked at starting of time scale is Rs.3901/-
INVESTMENT ON FIXED ASSETS

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• The capital expenditure proposals are ascertained by the government of A.P.
prior A.P.Prior to this Accounts officer of the accounts department has to
prepare budget of the concern (through departmental heads.)
• Board of directors (BODs)/ director of sugar are authorized to decide
Investment on fixed assets.
• There is no limit fixed on the size of the investment on fixed assets. The
concern is having machinery’s worth 1 crore also. Some times in purchase of
large assets the procedure is resolutions are kept before MID or Director of
sugar if they feel to have the resolutions passed then it is kept and makes it
accepted in Board meeting.
• No officers of the undertaking exceeded the authorized limits of the fixed
assets.
• Based on the need & necessity of the firm the investment on the fixed asserts is
made. The MD or Director of sugar must approve it.
• No special techniques have been adopted for evaluating investment proposals
on the fixed assets. According to the decisions of the board various investment
proposals are made on the fixed assets.
• Based on Tender system & state level purchase co decisions fixed assets are
purchased.
• Tenders are scrutinized based on the viewing company’s past Performance,
quotation made, and standard of the asset.
• The method of depreciation is Straight-line method and based on IT Act.
Depreciation rates for the different assets are fixed at different Rates like on
machinery’s 10%
• On loose tools @ 6% & some assets doesn’t carry depreciation.
• No depreciation reserve fund has been maintained.

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CASH MANAGEMENT
• No Separate Organization For cash management is maintained in the society.
• Major things in the concern are the sugarcane. The sugarcane is a seasonal crop
and of course this is treated as main important thing for the firm. Tenders are
invited in purchasing the cane. Based on the availability of the sugar cane
working capital requirements are made.
• Tender are procedure adopted for this purpose.
• Liquidity question doesn’t arise because the society deals almost all each &
every transaction through bank, DD’s and Cheques.
• No policy has been followed regarding optimal cash balance in the society.
• Working capital requirements are mainly from the sugarcane growers.
• Through unsecured short-term loans & over drafts short-term loans are raised.
• Cash credit limits doesn’t arise.
• The head of the department regulates cash balances.
• Adequacy of cash balance doesn’t rise.
• There is no case were surplus/in adequacy of cash balances in the society.
INVENTORY MANAGEMENT
There is no question of setting up of the organization for maintenance
of materials & stores. Usually store keeper looks after the maintenance of the
materials & stores of the concern. Yes, there is a separate department for
purchases. Usually at the very beginning of the season sugarcane is purchased in
bulk. If needed further purchase is made by inviting tenders & quotations.
Usually purchase committee goes for the lower tender for purchase of sugarcane.

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The members of the purchasing committee are:
Chairman, Managing Director, Accounts Officer & other 2 members
selected by Director of Sugar.
The role of purchasing committee is it usually meets 4 times in a year i.e., for
every 3 months or according to the need and urgency of the firm. The role of
PC usually has a vital essence in the finalizing of pending indents. The PC
examines the various quotations made by growers and selects those tenders,
which are beneficial to the concern.
The methods of purchase department are:
• No delegation is made to lower level employees incase of purchase.
• There is no particulars policy made regarding the value of stock limits whatever
it may be like
Raw materials, work in progress, supplies and construction
materials, stores and spares, packing materials, process materials and other
materials if any. As agreements are made keeping in view our needs. So
there is no limits raise.
The Raw material used in the production is:
 Sugarcane.
 Sulphar.
 lime & other chemicals.
The Raw material requirements are estimated by:

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Chief chemist & stores manager.
Raw materials are purchased in bulk.
By means of factories contract Lorries or by private Lorries raw materials are
transported.
A raw material for the society is sugarcane usually chief engineer
estimates the raw materials agreement is making incase of purchase of raw
materials.
The basis for estimating raw material requirements is:
Sugarcane is a seasonal crop so this will be usually estimated by
CAGO (chief agriculture officer).How much production of sugarcane is there in
the state. The chief chemist& chief engineer prepare a statement in requirement of
raw materials of the concern and purchase it through direct method or making
tenders.
Once in year the purchase was made i.e. before starting of the season
raw materials are purchased. Therefore the raw materials for the whole year are
purchased once.
The spare pails requirements are estimated by:
Chief engineer. Based on the requests of the departmental heads spare
pails requirements are fulfilled. Storekeeper stores and spares control inventories.
Classification & codification technique has been adopted.

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By classification & codifications the inventory of the concern are made good
and gives maximum output to the concern.
Yes, there is overstocking of stores and spares in the society. The
cause for overstocking is:
Huge purchases with out consumption.
Though over stocking is there it is kept as dead stock in the stores but it can be
used in the production and it is not treated as waste stock.
For e.g.: if lime is 500/- per bag before 3 months it will be purchased
and stored. After 3months if its price went up to 800/- per bag then the stored one
is dead stock it can be used in the production of sugar it is not treated as waste.
The materials are purchased on both cash & credit.
If small payment to be made it will be paid immediately.
If larger amounts they can be paid according to the financial position of the
concern.
BILLS RECEIVABLES MANAGEMENT
Bills receivables arise only when the product is sold on credit basis
i.e., when credit sales take place bills came to the show. But the society sells the
sugar on cash & DD. Sale of sugar is mad by receiving cash/DD. So bills
receivable doesn’t arise. Society directly sells the sugar to government sometimes.
PROFITABILITY MANAGEMENT
Various products of the society are:
• Sugar, molasses, press mud contains sulphur used as fertilizers.
• The nature of the market is competitive.
• The size of the market is National wide.
The close competitors are:

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S.V.Sugar factory in Renigunta
Vani sugars in Punganur
Vellore Sugar Factory & Mayura Sugars in B.N.Kandriga.
The pricing practice followed by the enterprise is:
• Competitive pricing in case of sugar.
• Prices based on government award in case of cane.
• The enterprise products are priced correctly.
• The government for the fixation of prices of the products has fixed no
guideline.
• Profit motive is the primary objective in the fixation of the prices.
• Yes the enterprise adopting the system for profit planning & control.
Profit target is determined by:
• Minimizing the cost of production to achieve more profits.
The department involved in the profit planning is:
Accounts department.
For achieving the profits the management has been reviewing on cost of
production. To get good recovery in sugar frequent enlightenment program has
been done with members by agricultural experts and receive instructions to the
head of the institution.

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III

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ANALYSIS
AND
INTERPRETATION
INTRODUCTION TO FINANCIAL STATEMENTS

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A financial statement is a collection of data organized according to logical and
consistent accounting procedures. Its purpose is to convey an understanding of
some financial aspects of a business firm. It may show a position at a movement
in time, as in the case of balance sheet, or may reveal a series of activities over
a given period of time, as in the case of an income statement.
Financial statements are the outcome of summarizing process of
accounting. In the words of John N. Myer “the financial statements provide
summary of accounts of a business enterprise, the balance sheet reflecting the
assets, liabilities and capital as on a certain date and the income statement showing
the results of operations during a period.” financial statements are prepared as an
end result of accounting and are the major sources of financial information of an
enterprise. Smith and Asburne define financial statements as, “the end product of
financial accounting in a set of final statements prepared by the accountant of a
business enterprise that purport to reveal the financial position of the enterprise, the
result of its current activities, and an analysis what has been done with earnings.”
Financial statements are also called financial reports. In the words of
Anthony “financial statements, essentially are interim reports, presented annually
and reflect a division of the life of an enterprise into more or less arbitrary
accounting period more frequently a year.”
Nature of financial statements:
The financial statements are prepared on the basis of recorded
facts. The recorded facts are those which can be expressed in monetary terms.

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The statements are prepared for a particular period, generally one year. The
transactions are recorded in a chronological order, as and when the events happen.
The accounting records and financial statements prepared from these records are
based on historical costs. The financial statements, by nature, are summaries of the
items recorded in the business and these statements are prepared periodically,
generally for the accounting period.
The American Institute of Certified Public Accountants states the
nature of financial statements as “Financial Statements are prepared for the
purpose of presenting a periodical review of report on progress by the
management and deal with the status of investment in the business and the
results achieved during the period under review. They reflect a combination of
recorded facts, accounting principles and personal judgments.” The American
Accounting Association expresses in its statement. “Every corporate statement
should be based on accounting principles which are sufficiently uniform,
objective and well understood to justify opinions as to the condition and
progress of business enterprise. Its basic assumption was that the purpose of
periodic financial statements of a corporation is to furnish information that is
necessary for the formation of dependable judgments.”
Objectives of financial statements:
Financial statements are the sources of information on the basis of which
conclusions are drawn about the profitability and financial position of a

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concern. They are the major means employed by firms to present their financial
situation of owners, creditors and the general public. The primary objective of
financial statements is to assist in decision making. The Accounting Principles
Board of America (APB) states the following objectives of financial statements:
(i) To provide reliable financial information about economic resources and
obligations of business firm.
(ii) To provide other needed information about changes in such economic
resources and obligations.
(iii) To provide reliable information about changes in net resources (resources less
obligations) arising out of business activities.
(iv) To provide financial information that assists in estimating the earning
potentials of business.
(v) To disclose, to the extent possible, other information related to the financial
statements that is relevant to the needs of the users of these statements.
FINANCIAL STATEMENT ANALYSIS

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Financial analysis is the process of determining financial strengths
and weakness of the firm by establishing strategic relationship between the items
of the items of the balance sheet, profit and loss account and other operative data.
In the words of Myers, “financial statements analysis is largely a study of
relationship among various financial factors in a business as disclosed by a single
set of statements, and a study of the trend of these factors as shown in series of
statements
The purpose of financial analysis is to diagnose the information
contained in financial statements so as to judge the profitability and financial
soundness of the firm. The analysis and interpretation of financial statements is
essential to bring out the mystery behind the figures in financial statements.
Financial statements analysis is an attempt to determine the significance and
meaning of the financial statement data so that forecast may be made of the future
earnings, ability to pay interest and debt maturities (both current and long term)
and profitability of a sound dividend policy.
The term financial statement analysis includes both ‘analyses, and
‘interpretation’. A distinction should be made between the two terms. While the
term ‘analysis’ is used to mean the simplification of financial data by methodical
classification of the data given in financial statements, ‘interpretation’ means
‘explaining the meaning and significance of the data so simplified’. However, both
‘analysis and interpretation’ are interlinked and complementary to each other.
Analysis is useless without interpretation and interpretation without analysis is
difficult or even impossible.
Methods of Financial Analysis:

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The analysis and interpretation of financial statements is used to
determine the financial position and results of operations as well. A number of
methods or devices are used to study the relation ship between different statements.
An effort is made to use those devices which clearly analyze the position of the
enterprise. The following are the methods of analysis are generally used:
1. Comparative statements;
2. Common-size statements;
3. Funds flow analysis;
4. Ratio analysis;
1. Comparative Statements:
The Comparative financial statements are statements of financial
position at different periods; of time. The elements of financial position are shown
in comparative form so as to give an idea of financial position at two or more
periods. Any statement prepared in comparative form will be converted into
comparative statements. From practical point of view, generally, two financial
statements (balance sheet and income statement) are prepared in comparative form
for financial analysis purpose. Not only the comparison of the figures of two
periods but also be relationship between balance sheet and income statement
enables an in depth study of financial position and operative results.
i) Comparative Income Statement:

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The income statement gives the results of the operations of business.
The comparative income statement gives an idea of the progress of a business over
a period of time. The changes in absolute data in money values and percentage can
be determined to analyse the profitability of the business.
ii) Comparative Balance Sheet:
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.
2. Common-size Statements:
The common-size statements, balance sheet and income statement are
shown analytical percentages. The figures are shown as percentages of total assets,
total liabilities and total sales. The total assets are taken as 100 and different assets
are expressed as percentage of the total. Similarly, various liabilities are taken as
part of total liabilities, these statements also known as component percentage
because every individual item is stated as percentage of the total 100.

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The short comings in comparative statements and trend percentages
where changes in items could not be compared with the totals have been covered
up. The analyst is able to asses the figures in relation to total values.
i) Common-size Income Statement:
The items in income statement can be shown as percentages of sales
to show the relation of each item to sales. A significant relationship can be
established between items of income statement and volume of sales. The increase
in sales will certainly increase selling expenses and not administrative and
financial expenses. In case the volume of sales increases to considerable extent,
administrative and financial expenses may go up. In case total sales are declining,
the selling expenses should be reduced at once. So, a relationship is established
between sales and other items in income statement and this relationship is helpful
in evaluating operational activities of the enterprise.
ii) Common-size Balance Sheet:
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 common size balance
sheet can be used to compare companies of different size. The comparison of
figures in different periods is not useful because total figures may be affected by a
number of factors. It is not possible to establish standard norms for various assets.

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3. Funds flow analysis:
Funds flow statement shows the movement of funds and is a
report of the financial operations of the business undertaking. It indicates various
means by which funds were obtained during a particular period and the ways in
which these funds were employed. The flow of funds occur when a transaction
changes on the one hand and non-current account and on the other a current
account & vice- versa.
Flow of funds:
Various sources from which funds were raised and the uses to which these
funds were put. Funds flow statement is formulated on the basis of working
capital basis and on Cash basis
Steps in pre preparation of funds flow statement:
1. Increase or decrease of working capital
2. Funds from operations
3. Funds flow statement
Current Liabilities
Non-Current
Non-Current Liabilities
Current

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Importance of Funds flow statement :
1. It helps in the analysis of financial operations
2. It throws light on many perplexing questions of general interest
3. It helps in formation of a realistic dividend policy.
4. It acts as future guide
5. It helps in the proper allocation of resources
6. It helps in appraising the use of working capital
7. It helps in knowing the overall credit-worthiness of a firm
Funds flow statement:
1. It should be remembered that a funds flow statement is a substitute to the
income statement or a balance sheet. It provides only some additional
information as regards changes in working capital.
2. It cannot reveal continuous changes.
3. It is not an original statement but simply arrangement of data given in the
Financial statement.
4. Ratio analysis:
Ratio analysis is a powerful tool of financial analysis. It is used
as benchmark for calculating the financial position and performance of a firm. The
absolute accounting figure reported in the financial statements does not provide
the meaningful performance of financial position in the firm, ratio helps to
summarize the large quantity of data to make qualitative judgment about the firm’s
performance.

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Types of ratios:
Ratios are calculated from the accounting data are grouped into
various classes according to financial activity. In view of the requirement of
various users of ratios it is classified into four important categories:
1. Liquidity Ratio
2. Leverage Ratio
3. Activity Ratio
4. Profitability Ratio
1. LIQUIDITY RATIO:
It means the ability of the firm to meet its current obligations. The
ratio establishers the relationship between cash and other current assets to current
obligations. The most common ratios are:
i. Current ratio
ii. Quick ratio
iii. Net Working Capital ratio
i. Current ratio:
The current ratio indicates the availability of current assets in rupee for everyone of current
liability. If ratio is greater than it means that the firm has more current assets than current
liabilities against them.
Current Assets
Current Ratio = ----------------------
Current Liabilities
Standard Ratio is 2:1

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ii. Quick ratio:
The ratio establishes a relationship between liquid assets and liquid
liabilities. Inventories are considered to be less liquid a sit normally required
same time for realizing in cash and their values have tendency to fluctuate.
Hence quick ratio is found out by dividing the total of quick assets by total
current liabilities.
Quick Assets
Quick Ratio = ---------------------
Current Liabilities
iii. Networking capital ratio:
The difference between current assets and current liabilities
excluding short-term bank borrowing is called net working capital or net
current assets is sometimes used as a measure of a firm’s liquidity. It is
considered that, between two firms, the one having the larger NWC has the
greater ability to meet its current obligations. This is not necessarily so; the
measure of liquidity is a relationship, rather than the difference between current
assets and current liabilities. NWC, however, measures the firm’s potential
reservoir of funds. It can be related to net assets (or capital employed).
Net Working Capital
NWC Ratio =
Net Assets

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2. LEVERAGE RATIO:
Leverage ratio may be calculated from the balance sheet items to
determine the proportion of debt in total financing. It is also calculated form
income statement items to determine the extent to which operating profits are
sufficient to cover fixed charges. Leverage ratios are calculated to measure the
financial risk and the firm’s ability of using debt.
I. Debt ratio
ii. Debt-Equity ratio
III. Capital employed to net worth
i. Debt ratio:
Debt ratio used to analyses the long-term solvency of a firm.
The firm may be interested in knowing the proportion of the interest-
bearing debt in the capital structure. It may, therefore, compute debt ratio
by dividing total debt by capital employed or net assets. Total debt will
include short and long-term borrowing from financial institutions,
debentures/bonds, deferred payment arrangements for buying capital
equipments, bank borrowings, public deposits and any other interest-
bearing loan. Capital employed will include total debt and net worth.
Total Debt
Debt Ratio =
Capital Employed

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ii. Debt equity ratio:
Relationship between borrowed funds and owners equity a high
ratio shows a large share of financing by creditors relative to owners a low ratio
inputs in smaller claim of creditors. If the debtors equity ratio is high owners are
putting up relatively less money of there own it is danger signal for creditors.
iii. Capital employed to net worth ratio:
There is yet another alternative way of expressing
the basic relationship between debt and equity one may want to
know: How much funds are being contributed together by
lenders and owners for each rupee of the owner’s contribution?
This can be found out by calculating the ration of capital
employed or net assets to net worth.
Capital Employed
CE-to-NW Ratio =
Net Worth
3. ACITIVITY RATIO:
Activity ratios are employed to evaluate the efficiency
with which the firm managers and utilizes its assets. These are
also known as turnover rations. These ratio’s starts the
relationship between sales and assets. Some of the important
ratios are:
i. Inventory turnover ratio
ii. Debtors turnover ratio
III. Collection period

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I. Inventory turn over ratio:
The inventory turnover reflects the efficiency of inventory management
indicates the efficiency of the firm in producing and selling its product. A high
inventory turnover is indicative of good inventory management. It is calculated
by dividing the cost of goods sold by the average inventory. The higher the
inventory turnover larger the amount of profit
Cost of Goods Sold
Inventory Turn Over =
Average inventory
ii. Debtors turnover ratio:
Debtor’s turnover ratio explains the number of times the debt are
converted into cash within a short period of time. This ratio establishes the relation
between credit sales and debtors.
Sales
Debtor’s Turnover Ratio =
Total debtors
iii. Collection Period:
The average number of days for which debtors remain outstanding is
called the average collection period (ACP). The average collection period
measures the quality debtors since it indicated the speed of their collection.
debtors
Collection Period = x 360 days
Sales

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4. PROFITABILITY RATIO:
The profitability ratios are used to calculate the efficiency of operating
of the company. Profits are ultimate goal of every company and it should be
continuously evaluated in terms of profits. Generally two major profits are
calculated, they are
i. Gross profit ratio
ii. Net profit ratio
i.Gross profit ratio:
The first profitability ratio in relation to sales reflects the efficiency
with which management produces each unit of product. It is calculated by dividing
the Gross Profit with Sales.
Gross profit
Gross Profit ratio = x 100
Sales
ii. Net profit ratio:
Net profit ratio explains the net profit of the company after paying
taxes of particular period. It establishes relation between net profit and sales.
Net Profit
Net profit ratio=
Sales

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COMPARITIVE
INCOME STATEMENT

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Comparative inCome statement of
chittoor co-operative sugars ltd., 2003-2004
Particulars 31-3-2003 31-4-2004 Change
perCenta
ge
Sales 201486573 130517437 -70969136 -35.22%
Less: Cost of goods sold 239132131 155574480 -83557651 -34.94%
Gross profit/loss -37645558 -25057043 12588515 -33.44%
Less: Operating expenses 12609835 10532587 -2077248 -16.47%
Operating profit/loss -50255393 -35589630 14665763 -29.18%
Add: Other income
Miscellaneous income 9500299 1639130 -7861169 -82.75%
Interest received 118481 129866 11385 9.61%
Profit/loss before interest -40636613 -33820634 6815979 -16.77%
Less: Interest paid 26777116 28813070 2035954 7.60%
Profit/loss after interest -67413729 -62633704 4780025 -7.09%
Less: Loss up to last year 231799275 299213004 67413729 29.08%
Net loss cumulative -299213004-361846708 -62633704 20.93%
Source: Annual Reports of CCSL.
Interpretation:
From the above table it was analyzed that sales and cost of goods sold were
decreased so gross loss also decreased, and there was high decrease in
miscellaneous income (i.e. 82.75%) loss increased due to lack of operational
efficiency.

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perCenta
ge
Sales 130517437 96920394 -33597043 -25.74%
Gross profit/loss -25057043 -5323482 19733561 -78.75%
Less: Operating expenses 10532587 11133862 601275 5.71%
Operating profit/loss -35589630 -16457344 19132286 -53.76%
Add: Other income
Miscellaneous income 1639130 4383327 2744197 167.42%
Profit/loss before interest -33820634 -11930440 21890194 -64.72%
Less: Interest paid 28813070 23326176 -5486894 -19.04%
Interpretation:
From the above table it was analyzed that the percentage decrease in cost of
goods sold is more than the decrease in sales so gross loss also decreased due to
reduce in the cost of raw materials. Even though increase in operating expenses
operating loss decreased due to effective control of raw material cost.

Raghavendra Yadav
perCenta
ge
Sales 96920394 124629657 27709263 28.59%
Gross profit/loss -5323482 51751887 57075369 -1072.14%
Less: Operating expenses 11133862 35468649 24334787 218.57%
Operating profit/loss -16457344 16283238 32740582 -198.94%
Add: Other income
Miscellaneous income 4383327 4664988 281661 6.43%
Profit/loss before interest -11930440 21121207 33051647 -277.04%
Interpretation:
From the above table it was analyzed that sales percentage increased
and at the same time cost of goods sold decreased so the firm earned gross profit
due to high control in purchase of raw materials. Due to increase in operating
expenses loss increased (2.06%) the firm has no control over the operating
activities.

Raghavendra Yadav
perCenta
ge
Sales 124629657 368853567 244223910 195.96%
Less: Cost of goods sold 72877770 406536335 333658565 457.83%
Gross profit/loss 51751887 -37682768 -89434655 -172.81%
Less: Operating expenses 35468649 17197408 -18271241 -51.51%
Operating profit/loss 16283238 -54880176 -71163414 -437.03%
Add: Other income
Miscellaneous income 4664988 26265 -4638723 -99.44%
Profit/loss before interest 21121207 -53797634 -74918841 -354.71%
Profit/loss after interest -8198971 -93638075 -85439104 1042.07%
Interpretation:
From the above table it was analyzed that cost of goods sold increased
by (457.83%) but sales increased only (195.96) i.e. less than increase in cost of
goods sold so the firm incurred loss. Even though operating expenses decrease it
got operating loss due to high cost of production.

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COMPARITIVE
BALANCE SHEET

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Comparative balanCe sheet for the years2003-04
perCentag
e
Share capital 140,958,700 140,960,300 1,600 0.00%
Reserves 219,357,188 228,727,884 9370696 4.27%
U.D.P 64,227 64,227 0 0.00%
Reserves to be invested 24,703 24,703 0 0.00%
Audit fund 9,696 9,696 0 0.00%
Profit/loss -299,213,003 -361,846,708 -62633705 20.93%
A. Net worth 61,201,511 7,940,102 -53261409 -87.03%
Borrowings 235,616,210 223,822,462 -11793748 -5.01%
Deposits 28,836,536 28,812,457 -24079 -0.08%
B.Borrowings 264,452,746 252,634,919 -11817827 -4.47%
C. Capital employed (A+B) 325,654,257 260,575,021 -65079236 -19.98%
F.D.S with banks 250,000 2,250,000 2000000 800.00%
Shares in other co-operative institutions 228,550 228,550 0 0.00%
Loans to other co-operative factories 3,000,000 1,000,000 -2000000 -66.67%
Fixed assets 222,136,732 222,136,732 0 0.00%
Deficits 47,944 47,944 0 0.00%
D. Fixed assets 225,663,226 225,663,226 0 0.00%
Cash on hand 1,283,980 22,575 -1261405 -98.24%
Cash at bank 4,095,240 15,881,189 11785949 287.80%
Deposits with various agencies 1,254,826 1,261,226 6400 0.51%
Loans and advances to members 6,461,883 6,386,630 -75253 -1.16%
Debtors 54,412,361 54,894,708 482347 0.89%
Interest receivable 1,826,488 1,826,489 1 0.00%
Closing stock 219,662,805 96,849,740
-
122813065 -55.91%
E. Current assets 288,997,583 177,122,557
-
111875026 -38.71%
Creditors 182,912,074 115,020,074 -67892000 -37.12%
Outstanding interest 6,094,478 27,190,688 21096210 346.15%
F. Current liabilities 189,006,552 142,210,762 -46795790 -24.76%
G. Net current assets (E-F) 99,991,031 34,911,795 -65079236 -65.09%
H. Net assets (D+G) 325,654,257 260,575,021 -65079236 -19.98%
Interpretation:
From the above table it was analyzed that fixed deposits were
increased by 800% current assets and current liabilities were sufficiently decreased
due to current liabilities were paid out of current assets.

Raghavendra Yadav
perCentag
e
Share capital 140,960,300 140,961,400 1,100 0.00%
Reserves 228,727,884 248,088,004 19360120 8.46%
U.D.P 64,227 64,227 0 0.00%
Audit fund 9,696 9,696 0 0.00%
Profit/loss
-
361,846,708 -397103323 -35256615 9.74%
A. Net worth 7,940,102 -7,955,293 -15895395 -200.19%
Borrowings 223,822,462 266,073,588 42251126 18.88%
Deposits 28,812,457 29,154,179 341722 1.19%
B.Borrowings 252,634,919 295,227,767 42592848 16.86%
C. Capital employed (A+B) 260,575,021 287,272,474 26697453 10.25%
F.D.S with banks 2,250,000 2,750,000 500000 22.22%
Shares in other co- operative institutions 228,550 228,550 0 0.00%
Loans to other co- operative factories 1,000,000 1,000,000 0 0.00%
Fixed assets 222,136,732 222,577,781 441049 0.20%
Deficits 47,944 47,944 0 0.00%
D. Fixed assets 225,663,226 226,604,275 941049 0.42%
Cash on hand 22,575 1,878,931 1856356 8223.06%
Cash at bank 15,881,189 18,140,037 2258848 14.22%
Loans and advances to members 6,386,630 9,085,236 2698606 42.25%
Debtors 54,894,708 67,056,512 12161804 22.15%
Closing stock 96,849,740 110,043,158 13193418 13.62%
E. Current assets 177,122,557 209,301,589 32179032 18.17%
Creditors 115,020,074 108,107,592 -6912482 -6.01%
F. Current liabilities 142,210,762 148,633,390 6422628 4.52%
G. Net current assets (E-F) 34,911,795 60,668,199 25756404 73.78%
H. Net assets (D+G) 260,575,021 287,272,474 26697453 10.25%
Interpretation:
From the above table it was analyzed that the cash on hand
increased by 8223.06% current assets, current liabilities increased, net assets
increased by 10.25% and no change in fixed assets.

Raghavendra Yadav
perCentag
e
Share capital 140,961,400 141,140,700 179,300 0.13%
Reserves 248,088,004 264,309,028 16221024 6.54%
U.D.P 64,227 64,227 0 0.00%
Audit fund 9,696 9,696 0 0.00%
Profit/loss -397103323 -405303195 -8199872 2.06%
A. Net worth -7,955,293 245,159 8200452 -103.08%
Borrowings 266,073,588 404,340,806 138267218 51.97%
Deposits 29,154,179 31,024,046 1869867 6.41%
B.Borrowings 295,227,767 435,364,852 140137085 47.47%
C. Capital employed (A+B) 287,272,474 435,610,011 148337537 51.64%
F.D.S with banks 2,750,000 250,000 -2500000 -90.91%
Shares in other co-operative
institutions 228,550 228,550 0 0.00%
Loans to other co-operative factories 1,000,000 1,000,000 0 0.00%
Fixed assets 222,577,781 225,127,858 2550077 1.15%
Deficits 47,944 47,944 0 0.00%
D. Fixed assets 226,604,275 226,654,352 50077 0.02%
Cash on hand 1,878,931 141,219 -1737712 -92.48%
Cash at bank 18,140,037 7,249,943 -10890094 -60.03%
Deposits with various agencies 1,271,226 1,267,226 -4000 -0.31%
Debtors 67,056,512 73,209,660 6153148 9.18%
Closing stock 110,043,158 304,641,448 194598290 176.84%
E. Current assets 209,301,589 398,960,972 189659383 90.62%
Creditors 108,107,592 140,980,325 32872733 30.41%
F. Current liabilities 148,633,390 190,005,313 41371923 27.83%
G. Net current assets (E-F) 60,668,199 208,955,659 148287460 244.42%
H. Net assets (D+G) 287,272,474 435,610,011 148337537 51.64%
Interpretation:
From the above table it was analyzed that the net worth decreased by
103.08%, no change in fixed assets percentage and both current assets and current
liabilities were increased.

Raghavendra Yadav
Particulars 31-3-2006 31-3-2007
Chang
e
perCenta
ge
Share capital
141,140,70
0 142,553,600 1,412,900 1.00%
Reserves
264,309,02
8 268,006,835 3697807 1.40%
U.D.P 64,227 64,227 0 0.00%
Audit fund 9,696 9,696 0 0.00%
Profit/loss -405303195 -498,941,043 -93637848 23.10%
A. Net worth 245,159 -88,281,982 -88527141 -36110.09%
Borrowings
404,340,80
6 405,702,422 1361616 0.34%
Deposits 31,024,046 35,201,887 4177841 13.47%
B.Borrowings
435,364,85
2 440,904,309 5539457 1.27%
C. Capital employed (A+B)
435,610,01
1 352,622,327 -82987684 -19.05%
F.D.S with banks 250,000 250,000 0 0.00%
Shares in other co-operative institutions 228,550 228,550 0 0.00%
Loans to other co-operative factories 1,000,000 1,000,000 0 0.00%
Fixed assets
225,127,85
8 235,857,585 10729727 4.77%
Deficits 47,944 47,944 0 0.00%
D. Fixed assets
226,654,35
2
237,384,07
9 10729727 4.73%
Cash on hand 141,219 95,083 -46136 -32.67%
Cash at bank 7,249,943 17,849,583 10599640 146.20%
Debtors 73,209,660 75,541,003 2331343 3.18%
Closing stock 304,641,448 281,582,197 -23059251 -7.57%
E. Current assets
398,960,97
2
391,339,45
4 -7621518 -1.91%
Creditors 140,980,325 229,172,905 88192580 62.56%
Outstanding interest 49,024,988 46,928,301 -2096687 -4.28%
F. Current liabilities
190,005,31
3
276,101,20
6 86095893 45.31%
G. Net current assets(E-F)
208,955,65
9
115,238,24
8-93717411 -44.85%
H. Net assets (D+G) 435,610,01 352,622,32-82987684 -19.05%

Raghavendra Yadav
1 7
Interpretation:
From the above table it was analyzed that capital employed decreased
by 19.05% , current assets decreased and current liabilities increased due to funds
raised to short term borrowings and fixed assets increased by 4.73% due additional
assets purchased.
COMMON SIZE
INCOME
STATEMENT

Raghavendra Yadav
Common size inCome statement of
Particulars 31-3-03 31-3-04 31-3-05 31-3-06 31-3-07
Sales 100% 100% 100% 100% 100%
Less: Cost of goods sold 119% 119% 105% 58% 110%
Gross profit/loss -19% -19% -5% 42% -10%
Less: Operating expenses 6% 8% 11% 28% 5%
Operating profit/loss -25% -27% -17% 13% -15%
Add: Other income 0% 0% 0% 0% 0%
Miscellaneous income 5% 1% 5% 4% 0%
Interest received 0% 0% 0% 0% 0%
Profit/loss before interest -20% -26% -12% 17% -15%
Less: Interest paid 13% 22% 24% 24% 11%
Profit/loss after interest -33% -48% -36% -7% -25%
Less: Loss up to last year 115% 229% 373% 319% 110%
Net loss cumulative -149% -277% -410% -325% -135%
Interpretation:
From the above common size income statement it was analyzed that
cost of goods sold is more than the sales except the year 2006 due to high cost of
production due to in efficiency in controlling cost of production so, it got gross loss
in all the years except the year 2006. Operating loss had been decreasing from the

Raghavendra Yadav
years 2003-05, in the year 2006 it got operating profit (13%) and again it got
operating loss in the year 2007 due to inefficiency in controlling expenses. Net loss
had been incasing over the years due to the firm proved that over all inefficiency in
earning profits
COMMON SIZE
BALANCE SHEET

Raghavendra Yadav
Common size balanCe sheet of
chittoor co-operative sugars ltd.,2003-04
Particulars 2003 2004 Particulars 2003 2004
Share capital 27% 35%
F.D.S with
banks 0% 1%
Reserves to be
invested 0% 0%
Shares in other
co-operative institutions 0% 0%
U.D.P 0% 0%
Loans to other
co-operative factories 1% 0%
Reserves 0% 0% Fixed assets 43% 55%
Audit fund 43% 57% Deficits 0% 0%
Profit/loss -58% -90% Total fixed assets 44% 56%
Net worth 12% 2% Cash on hand 0% 0%
Cash at bank 1% 4%
Borrowings 46% 56%
Deposits with
various agencies 0% 0%
Deposits 6% 7%
Loans and advances
to members 1% 4%
Fixed liabilities 63% 65% Debtors 0% 0%
Outstanding interest 1% 7% Interest receivable 1% 2%
Creditors 36% 29% Closing stock 11% 14%
current liabilities 37% 35% Current Assets 56% 44%
Total 100% 100% Total 100% 100%
Interpretation:

Raghavendra Yadav
From the above table it was analyzed that fixed assets increased from
44% to 56% and fixed liabilities also increased from 63% to65% due to
additional fixed assets were acquired through borrowings. Current assets and
current liabilities are considerably decreased it may due to current liabilities are
paid out of current assets.
Share capital 35% 32% F.D.S with banks 1% 1%
Reserves to be
invested 0% 0%
Shares in other
U.D.P 0% 0%
Loans to other
Net worth 2% -2% Cash on hand 0% 0%
Cash at bank 4% 4%
Borrowings 56% 61%
Deposits with
Deposits 7% 7%
Loans and advances
to members 4% 4%
Total 100% 100% Total 100%100%
Interpretation:

Raghavendra Yadav
From the above table it was analyzed that fixed assets were decreased
due to fixed assets were sold and hold in current assets so, current assets
increased . Fixed liabilities were increased due to additional funds borrowed.
Current liabilities were decreased due to payment made to short term creditors.
Reserves to be
invested 0% 0%
Shares in other
U.D.P 0% 0%
Loans to other
Net worth -2% 0% Cash on hand 0% 0%
Cash at bank 4% 1%
Borrowings 61% 65%
Deposits with
Deposits 7% 5%
Loans and advances
to members 4% 1%
Total 100% 100%Total 100% 100%
Interpretation:

Raghavendra Yadav
From the above table it was analyzed that fixed assets were decreased
from 52% to 36% due to most of the fixed assets were converted into cash so
current assets were increased from 48% to 64%. Fixed liabilities were increased
from 66% to 70% due to additional funds were borrowed. Current liabilities were
decreased due to payment made to short term creditors.
Reserves to be
invested 0% 0%
Shares in other
U.D.P 0% 0%
Loans to other
Net worth 0% -14% Cash on hand 0% 0%
Cash at bank 1% 3%
Borrowings 65% 65%
Deposits with
Deposits 5% 6%
Loans and advances
to members 1% 3%
Total 100% 100% Total 100% 100%
Interpretation:

Raghavendra Yadav
From the above table it was analyzed that fixed assets were fixed
assets were increased from 36% to 38% and current assets were decreased from
64% to 62% due to additional assets were purchased from current assets. Fixed
liabilities were decreased from 70% to 56% current liabilities were increased due
to repaid long term borrowings through current liabilities.
WORKING
CAPITAL
CHANGES

Raghavendra Yadav
statement of Changes in working Capital
of chittor co-operative sugars ltd. 2003-2004
Particulars 2003 2004
inCreas
e
DeCrea
se
Current assets
Cash on hand 1283980 22575 1261405
Cash at bank 4095239 15881189 11785950
Deposits with various agencies 1254826 1261226 6400
loans and advances to members 6461883 6386630 75253
Debtors 54412361 54894708 482347
Interest receivable 1826489 1826489 0 0
Closing stock 219662803 96849740 122813063
Total current assets (A) 288997581 177122557
Current liabilities
Creditors 182912074 115020074 67892000
Outstanding interest 6094478 27190688 21096210
Total current liabilities (B) 189006552 142210762
Working capital (A-B) 99991029 34911795
Increase in working capital 65079234
145245931 145245931
Funds flow statement 2003-2004

Raghavendra Yadav
Sources Amount Applications Amount
Decrease in working capital 65079234Funds lost in operation 53263007
loans to sugar factories 2000000Fixed deposits made 2000000
Issue of shares 1600Borrowings 11793748
Deposits collected 24079
67080834 67080834
Interpretation:
From the above table it was analyzed that most of the funds were lost in
operations and decrease in working capital, loans are the major sources of
funds.
inCreas
e
DeCrea
se
Current assets
Cash on hand 22575 1878931 1856356
Cash at bank 15881189 18140037 2258848
Debtors 54894708 67056512 12161804
Closing stock 96849740
11004315
8 13193418
Total current assets (A)
17712255
7
20930158
9
Current liabilities
Creditors
11502007
4
10810759
2 6912482
Total current liabilities (B)
14221076
2
14863339
0
39091514 39091514

Raghavendra Yadav
Share capital 1100Increase in working capital 25756404
Deposits collected 341722Funds lost in operation 15896495
Borrowings 42251126Fixed deposits made 500000
Purchase of fixed assets 441049
42593948 42593948
Interpretation:
From the above table it was analyzed that funds were mostly loosed in
operations, additional funds required to meet the working capital needs of the
firm. Major sources of funds were deposits, long term borrowings.
inCreas
e
DeCrea
se
Current assets
Cash on hand 1878931 141219 1737712
Cash at bank 18140037 7249943 10890094
Debtors 67056512 73209660 6153148
Closing stock
11004315
8
30464144
8 194598290
Total current assets (A)
20930158
9
39896097
2
Current liabilities
Creditors
10810759
2
14098032
5 32872733
Total current liabilities (B)
14863339
0
19000531
3
Working capital (A-B) 60668199
20895565
9

Raghavendra Yadav
202291189 202291189
Fixed deposits with
banks 2500000
Increase in working
capital 148287460
Issue of shares 179300Fixed assets purchased 2550077
Borrowings 138267218
Funds from operation 8021152
150837537 150837537
Interpretation:
From the above table it was analyzed that most of the funds were used
for increase in working capital, to purchase fixed assets. Deposits, borrowings,
funds from operation are major sources of funds
inCreas
e
DeCreas
e
Current assets
Cash on hand 141219 95083 46136
Cash at bank 7249943 17849583 10599640
Debtors 73209660 75541003 2331343
Closing stock 304641448 281582197 23059251
Total current assets (A) 398960972 391339454
Current liabilities
Creditors 140980325 229172905 88192580
Total current liabilities (B) 190005313 276101206

Raghavendra Yadav
Decrease in working capital 93717411
111297967 111297967
Decrease in working capital 93717411Funds lost in operation 89940041
Issue of shares 1412900Fixed assets purchased 10729727
Borrowings 1361616
100669768 100669768
Interpretation:
From the above table it was analyzed that most of the funds were lost
in operations and remaining funds are used to purchase fixed assets. Deposits,
borrowings, decrease in working capital were major sources of funds.
RATIO

Raghavendra Yadav
ANALYSIS
LIQUIDITY RATIOS
Table1: Current ratio
Years Current assets Current liabilities Ratio
2003 288,997,580 189,006,552 1.53
2004 177,122,556 142,210,762 1.25
2005 206,490,630 148,633,390 1.39
2006 398,960,970 190,005,314 2.10
2007 391,339,953 276,101,207 1.42
Source: Annual Reports of CCSL

Raghavendra Yadav
Interpretation:
From the above graph it was analyzed that current ratio was decreased
from 1.53 to 1.25, increased to 1.39 and increased to 2.10 and again decreased to
1.42 .The current ratio is less than the rule of thumb 2:1 except the year 2006.
Table2: Quick ratio
Years Quick assets Current liabilities Ratio
2003 69,334,778 189,006,552 0.37
2004 80,262,817 142,210,762 0.56
2005 99,258,431 148,633,390 0.67
2006 94,319,524 190,005,313 0.50
2007 109,757,257 276,101,206 0.40

Raghavendra Yadav
Interpretation:
From the above graph it was analyzed that quick ratio was increased
from 0.37 to 0.67 and decreased to 0.40 it was due to improper maintenance of
quick assets. The quick ratio was below the rule thumb of 1:1 i.e. quick assets were
less than current liabilities.
Table3: Net working capital
Years Net working capital Net assets Ratio
2003 99,991,031 325,654,257 0.31
2004 34,911,795 260,575,021 0.13
2005 60,668,199 287,272,474 0.21
2006 208,955,659 435,610,011 0.48
2007 115,238,248 352,622,327 0.33

Raghavendra Yadav
Interpretation:
From the above graph it was analyzed that net working capital ratio
had decreased from 0.31 to 0.13 in 2004, increased to 0.21 in 2005, increased to
0.48 and again decreased to 0.33. it was due to the changes in working capital
requirements.
LEVERAGE RATIOS
Table1: Debt ratio

Raghavendra Yadav
Years Total debt Capital employed Ratio
2003 264452746 325654257 0.81
2004 452550346 260575021 1.74
2005 514161592 287272474 1.79
2006 668649834 435610011 1.53
2007 673709257 352622327 1.91

Raghavendra Yadav
Interpretation:
From the above graph it was analyzed that the debt ratio mostly
increased. It is due to increase in additional funds required year by year.
Table2: Debt equity ratio
Years Total debt Net Worth Ratio
2003 264452746 61201511 4.32
2004 452550346 7940102 57.00
2005 514161592 -7955293 -64.63
2006 668649834 245159 2727.41
2007 673709257 -88281982 -7.63
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that the lenders contribution is
more than the owners contribution, in the years 2005 and 2006 there is no owner’s
contribution. So, the debt equity ratio became negative.
Table3: Capital employed to net worth
Years Capital employed Net Worth Ratio
2003 325654257 61201511 5.32
2004 260575021 7940102 32.82
2005 287272474 -7955293 -36.11
2006 435610011 245159 1776.85
2007 352622327 -88281982 -3.99
Interpretation:
From the above graph it was analyzed that capital employed to net
worth was 5.32%, increased to 32.83% in 2004, became negative in 2005,2007 and

Raghavendra Yadav
in the year 2006 increased to 1776.85% due to changes in the value of net worth of
the firm.
ACTIVITY RATIOS
Table1: Inventory turnover
Years Cost of goods sold Average inventory Ratio
2003 239132131 234147889 1.02
2004 155574480 137597980 1.13
2005 102243876 83065442 1.23
2006 72877770 182464926 0.40
2007 406536335 264313376 1.54
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that the inventory turnover ratio
was very low in all the years, due to excess inventory levels in all the years.
Table2: Debtors turnover
Years Sales Debtors Ratio
2003 201486573 51412361 3.92
2004 130517437 54894708 2.38
2005 96920394 67056512 1.45
2006 124629659 73209660 1.70
2007 368853567 75541003 4.88
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that in 2005 and 2006 debtors
turnover ratio is very low due to most of the goods were sold on credit.
Table3: Collection period
Years Debtors Sales Ratio
2003 51412361 201486573 91.86
2004 54894708 130517437 151.41
2005 67056512 96920394 249.07
2006 73209660 124629659 211.47
2007 75541003 368853567 73.73
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that collection period
increased up to 2005 and then decreased, due to most of the goods were sold
on credit debts are outstanding.
PROFITABILITY RATIOS
Table1: Gross profit ratio
Years Gross profit/loss Sales Ratio
2003 -37645558 201486573 -18.68%
2004 -25057043 130517437 -19.20%
2005 -5323482 96920394 -5.49%
2006 51751887 124629659 41.52%
2007 -37682768 368853567 -10.22%
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that gross profit ratio was
negative for most of the years except the year 2006 it is due to inefficiency in
producing goods.
Table2: Net profit ratio
Years Net profit/loss Sales Ratio
2003 -67413729 201486573 -33.46%
2004 -62633704 130517437 -47.99%
2005 -35256615 96920394 -36.38%
2006 -8199872 124629659 -6.58%
2007 -93637848 368853567 -25.39%
Interpretation:

Raghavendra Yadav
From the above graph it was analyzed that in all the years the net
profit ratio is negative due to over all inefficiency in the firm.
Balance sheet

Raghavendra Yadav
Balance sheet of chittoor co-operative sugars ltd chittoor.for the years 2003-2007
LIABILITIES 31-3-2003 31-3-2004 31-3-2005 31-3-2006 31-3-2007 ASSETS 31-3-2003 31-3-200
Share
capital 140,958,700 140,960,300 140,961,400 141,140,700 142,553,600 F.D.S with banks 250,000 2,250
Reserves 219,357,188 228,727,884 248,088,004 264,309,028 268,006,835
Shares in other
co-operative
institutions 228,550 228
U.D.P 64,227 64,227 64,227 64,227 64,227
Loans to other
co-operative
factories 3,000,000 1,000
Reserves to
be invested 24,703 24,703 24,703 24,703 24,703 Fixed assets 222,136,732 222,136
Auditfund 9,696 9,696 9,696 9,696 9,696 Deficts 47,944 47
Borrowings 235,616,210 223,822,462 266,073,588 404,340,806 405,702,422 Cash on hand 1,283,980 22
Deposits 28,836,536 28,812,457 29,154,179 31,024,046 35,201,887 Cash at bank 4,095,240 15,881
Creditors 182,912,074 115,020,074 108,107,592 140,980,325 229,172,905
Deposits with
various agencies 1,254,826 1,261
Outstanding
interest 6,094,478 27,190,688 40,525,798 49,024,989 46,928,301
Loans and
advances to
members 6,461,883 6,386
Debtors 54,412,361 54,894
Interest
receivable 1,826,488 1,826
Closing stock 219,662,805 96,849
Loss 299,213,003 361,846
Total 813,873,812 764,632,491 833,009,187 1,030,918,520 1,127,664,576 Total 813,873,812 764,632

Raghavendra Yadav
findings

Raghavendra Yadav
FINDINGS
 Cost of goods sold was more than the sales except the year 2006. So, the
chittoor co-operative sugars ltd. got gross loss in most of the years.
 Operating loss decreased up to the year 2006 and then increased in the
year 2007.
 The chittoor co-operative sugars ltd. did not earned net profit in all the
years.
 It had been maintaining high inventory levels for all the years.
 In most of the years debtor’s collection period was very high.
 Most of the funds rose through debts with high interest rates.
 Most of the funds were lost in operations.

Raghavendra Yadav
Suggestions

Raghavendra Yadav
SUGGESSIONS
 CCSL should adopt cost control measures by drawing inspiration from
prospering sugar factories.
 CCSL should reduce operating and administrative expenses, it will
increase over all efficiency of the firm.
 A high level of debt introduces inflexibility in the firms operations due
to increaseasing interference and pressures from creditors. A high debt
company is able to borrow funds on very restrictive terms and
conditions. So, it should raise owners funds.
 CCSL can adopt forward integration strategy by opening retail outlets
where its own sugar can be sold. It increases revenues one hand and
cash position on the other.

Raghavendra Yadav
Conclusion

Raghavendra Yadav
CONCLUSION
 The present study of “FINANCIAL PERFORMANCE ANALYSIS IN
CHITTOOR CO-OPERATIVE SUGARS LTD,.” Was conducted with
the help of annual report. Various financial tools are used in the
study from the ratio analysis it has been found out that the average
collection period of the company is high and capital gearing is low.
To extent possible the study has achieved its stated objectives. It is on
the part of the company to accept the suggestions.
 CCSL Profitability position was deteriorated year by year, liquidity
position also moderate, long term solvency of the firm is also
moderate due to high debts, the firm’s efficiency in utilizing assets is
also very low.
 Finally the study helped me to acquire practical knowledge that was
only over by books and papers alone. I take up this opportunity to
thank one and all for making this study a complete one.

Raghavendra Yadav
BEBLIOGRAPHY

Raghavendra Yadav
BIBILOGRAPHY
BOOKS
 Financial Management I. M. Pandey Ninth Edition Vikash Publishing house
Pvt ltd.
 Financial Management Theory and Practice Prasanna Chandra Sixth
Edition Tata Mc Graw Hill Publishing company.
 Management Accounting Principles and Practice R. K. Sharma Sahashi K.
Guptha Eigth edition kalyani publishiers.
 Dr .S.N. Maheswari-financial management G.G.S. Indraprasatha university ,
new delhi.
WEBSITES
 www.cliffsnotes.com
 www.financial-education.com

Raghavendra Yadav
THAnK YOU

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