CHAPTER 1 COMPANY PROFILE

1.1 HISTORY OF BYCYCLE INDUSTRY A bicycle, bike, or cycle, is a pedal-driven, human-powered vehicle with two wheels attached to a frame, one behind the other. First introduced in 19th-century Europe, bicycles now number over one billion worldwide, providing the principal means of transportation in many regions, notably China and the Netherlands. They are also a popular form of recreation, and have been adapted for use in many other fields of human activity, including children's toys, adult fitness, military and police applications, courier services, and cycle sports. The basic shape and configuration of a typical bicycle has hardly changed since the first chaindriven model was developed around 1885, although many important details have been improved, especially since the advent of modern materials and computer-aided design. These have allowed for a proliferation of specialized designs for individuals who pursue a particular type of cycling. The bicycle has affected history considerably, in both the cultural and industrial realms. In its early years, bicycle construction drew on pre-existing technologies; more recently, bicycle technology has, in turn, contributed ideas in both old and newer areas. Bicycle was seen in India in the year 1890. Import of cycles, however, started in 1905 and continued for more than 50 years. The Government in July 1953 announced complete ban on imports, but cycle kept on simmering in the country till 1961. In 1890, selling price of an imported bicycle was around Rs. 45/-; in 1917, during the First World War the price jumped to

Rs. 500/- but dropped considerably, month by month and came down to Rs. 35/- or so (U.K. makes) and Rs. 15/- or so (Japanese models). It would be interesting to mention that in 1919, five persons in Punjab imported cycles and used them on The Mall, Shimla. These included one Bishop, Two military men and two contractors including S. Pala Singh Bhogal (Grand Father of Mr. M.S. Bhogal of Ludhiana). Under special permission of the Governor, they were allowed to use cycles on The Mall only for one hour in a day. They imported B.S.A. Cross bar Cycle from U.K. and it used to be a kind of Mela at that particular hour on the Mall in Simla, the scene watched by hundreds of people everyday.

1.2

COMPANY PROFILE Bhogal Cycles is part of the Bhogal Group of Companies. The Bhogal Group has been in the business of manufacturing, trading and exporting of Bicycles and Components since 1938. BHOGAL is the leading brand in bicycle components in India. The group is also making huge inroads in the bicycles market through its brands BHOGAL and RYDWEL. Over the years, the group has received many state and national awards for production and safety. Our strengths include manufacturing excellence, aggressive marketing, innovative new products development strategy, etc. These have been recognized and appreciated in the Indian market, which has helped us in leadership in our field. When dealing with our companies, you are assured of the best product quality and excellent after sale service for complete customer satisfaction. Our Group consists of the following companies: Bhogal Sons (Regd) Bhogals Pvt Ltd Bhogal Cycles Indian Turn-O-Mat Industries

Bhogal Hobbytech

1.3 1.3.1

COMPANY PRODUCTS & COMPETITORS Major Products The Bhogal Cycles Ltd. Manufactures cycles, rims, free wheels, hubs & chains and cold rolled strips as a main product. Company has long portfolio of different range of cycles. Company has 132models in the list, covers all the three section-gents, ladies and kids. It also manufactures cycle parts for its own requirements. After fulfilling the requirements of company, it can export its remaining quantity. The main products are:i) ii) iii) Cycles Rims Hubs and Chains

1.3.2

Competitors in Cycle Market 1. 2. 5. Hero Avon Others (Neelam, KW, BS) 3. Atlas 4. Neelam

1.4

BRAND EQUITY Years of trust building has earned Bhogal the status of a household name. Bhogal have become synonymous with dependable quality at competitive price.

1.5

VISION As a manufacturing company, the company is committed to delivering quality at affordable price. Technological innovation has been one of the most natural advantages of its organisational structure. In fifty-two years of its being, it has invested heavily in its human capital. The highly motivated work force carries a sense of belonging. Their happiness is the key to its growth. Some

of the workers joined the company in their youth and now, their second generation is growing with it to be old enough to bequeath their trust to the generation next. They have grown with the company. 1.6 OVERSEAS In Bicycles and Bicycle Parts, the company distinguishes itself as the Largest Manufacturer Exporter from India. That it has enjoyed this status now for several years in a row, speaks of the popularity of its brands overseas. Bhogal is an Export House recognised by the Government of India. 1.7 APPLICATION Wide spectrum: commuting, touring, transport, adventure, fun & sport, vending / delivery operations, physical fitness, group pursuits etc. etc. The machines capability to perform anywhere out of no where, allows it an unimaginable number of applications. 1.8 CUSTOMER FOCUS In addition to the customer-specified requirements, the company ensures those not specified but considered necessary with reference to the intended use and any regulatory and legal requirements. 1.9 QUALITY MANAGEMENT SYSTEM ISO 9001: 2000 (E) by TUV Cert is in place. 1.10 PHILOSOPHY For every Bhogal product to be an excellent Value For Money (VFM) proposition, the company adopts a proactive role to determine level of satisfaction and understand the changing consumer aspirations. 1.11 DISTRIBUTION Inland, through a well-established network of about 600 Bhogal authorised dealers in cities and towns of India. A dedicated resource of more than 2,000 sub-dealers supports operations of the dealership. Overseas operations are conducted through Representatives in respective countries /

regions. The companys executives are regularly visiting overseas markets, Trade Fairs and Exhibitions. 1.12 LOGISTICS For safe and speedy delivery to the dealership points spread across the length and breadth of the country, the company employs a number of reputed transporters and haulers on a sub-contracting basis. For multiple delivery point trips, the companys accompanying attendants ensure correct and proper delivery. 1.13 MARKETING STRATEGIES Wide choice, updated quality, affordable price, streamlined distribution network and an appealing message. 1.14 LOYALTY The companys dealers have been with it all through. Many of them have grown into the second, even third generation of owners. Their hopes and aspirations are inseparably linked to the companys prosperity. This has fostered enduring relationships. 1.15 PRODUCTION

1.15.1 TECHNOLOGY To remain in step with the fast changing technology, the Research & Development division is constantly engaged in quality upgrades. Regularly updated, responsible, and sustainable cleaner production technologies are employed. 1.15.2 PLANNING The Production Planning & Control department works in tandem with the Inland and Overseas wings of the Marketing department to ensure correct and timely shipments.

1.15.3 WORK ENVIRONMENT:

Clean, congenial and commensurate environment keeps the work force motivated. Workers participation in goal setting makes them exceptionally self-driven. 1.16 HUMAN RESOURCE Recruitment and training hinges on the principle of right man for the right job on agreeable terms. On-job training, orientation training and HRD training are continuing processes.

1.17

PRODUCT REALISATION The processes and machinery employed are consistent with the Quality Management System in place. Periodical customer feedback on quality, level of satisfaction and servicing of complaints is relied upon as a regular input for improvement.

1.18

BUSINESS STRATEGY To keep ahead of the competition the company gainfully draws upon the emerging technologies, stays engaged in its constant endeavour to add value, and keeps a close watch on its costs.

1.19

A CUT ABOVE In customer relations, the company prefers to stay a shade different from the rest. By internalising the phenomenon called customer it relies on his feedback. Many of its innovations are born in such a co-operative environment.

1.20

SWOT ANALYSIS OF BHOGAL CYCLES Strengths

Good brand equity Latest technology High quality standards High production technology

Great research and development team Better growth potential

Weaknesses Long hierarchy Comparatively high prices

Opportunities As quality is good and prices are too high comparatively Bhogal Cycles can always easily liquidate stock pressure by slight reduction in prices. As brand equity is good and production base is too wide, Bhogal Cycles should form some good customers with whom direct business can be established, with this Bhogal Cycles will have quantity and regularity of sales. Shortened hierarchy shall provide scope of better customer service.

Threats Smaller players in the market are using Bhogal Cycles product price as a shield to push their products at lower price. Companies from Delhi and South India are entering into the market in Punjab, which can be a competitive threat for Bhogal Cycles in the coming future.

CHAPTER 2 THEORETICAL FRAMEWORK

FINANCIAL ANALYSIS
The term Financial Analysis also known as analysis and interpretation of financial statements refers to the process of determination of financial strengths and weaknesses of the firm by establishing strategic relationship between the items of profit and loss account and balance sheet.

Purpose: To use financial statements to evaluate an organization. - Financial performance Past Present Future

- Financial Position

Solvency Growth Earning Capacity

To have a means of comparative analysis across time in terms of In a Company Inter Company Industrial Averages

To apply analytical tools and techniques to financial statements to obtain useful information to aid decision making.

Financial Analysis is the starting point for making plans, before using sophisticated forecasting and planning procedure. Moreover, analysis and interpretation both are complementary to each others. Interpretation requires analysis while analysis is useless without interpretation.

Financial analysis involves comparison for similar figures in different periods, different figures in the same period and similar figures of different enterprises.

Information provided by financial statements is not an end in itself as no meanful conclusions can be drawn from statements alone. The information is made useful through analysis and interpretation.

TOOLS OF FINANCIAL ANALYSIS

There are number of methods and techniques that are used to analyse the financial position of a firm. The following are the methods that are generally used for analysis:1. 2. 3. 4. 5. 6. 7. Ratio Analysis Trend Analysis Comparative Statement Analysis Common Size Statement Analysis Fund Flow Statement Analysis Cash flow Statement Analysis CVP Analysis

The tools that I have used in my study are Ratio Analysis Trend Analysis Comparative Statement Analysis

The theoretical details of these are discussed as follows.

OBJECTIVES ANALYSIS

AND IMPORTANCE OF FINANCIAL STATEMENT

To assess the earning capacity or profitability of the firm. To assess the operational efficiency and managerial effectiveness. To assess the short term as well as long term solvency position of the firm.

To identify reasons for the change in profitability and financial position of the firm. To make inter firm comparisons. To make forecasts of future prospects. To assess progress over a period of time. To help in decision making and control. To provide information for taking credit.

PROCEDURE FOR FINANCIAL STATEMENT ANALYSIS

Broadly speaking there are three steps involved in the analysis of financial statements. These are:i. Selection:- It involves selection of information [data relevant to the purpose of analysis of financial statements]. ii. iii. Classification:- It involves methodicating the way of classifying the data. Interpretation:- It involves drawing inferences and conclusions.

Steps 1st Step:- Analyst should acquitain himself with principles postulates of accounting. 2nd Step:- Extent of analysis should be determined. Objectives of analysis should be set. 3rd Step:- Financial data given in statements should be re-organised and re-arranged. 4th Step:- Relationship should be established with the help of financial tools like ratio, trend etc. 5th Step:- Interpret the information. 6th Step:- Draw conclusion in the form of report.

COMPARATIVE STATEMENT ANALYSIS

The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. From practical point of view, generally, two financial statements (balance sheet and income statement) are prepared in comparative form for financial analysis purposes. Not only the comparison of the figures of two periods but also

relationship between balance sheet and income statements enables an indepth study of financial position and operative results. The two comparative statements are:i. ii. Comparative Balance sheet Income Statement

i.

Comparative Balance Sheet :- The comparative balance sheet is the study of the trend of the same items or group of items in two or more balance sheets of the same business enterprise on different dates. The changes can be observed and reflect the conducts of business.

ii.

Comparative Income Statement:- The income statement gives the results of the operations of a business. The comparative income statement gives an idea of the progress of a business over a period of time. The changes in absolute data money values and percentages can be determined to analyse the profitability of the business.

BHOGAL CYCLES. uses comparative statements to access its financial performance for current year with past years performance. It also uses the technique for making inter company comparison.

TREND ANALYSIS
The financial statements can be analysed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computation of the percentage relationship of each statements item base to the same item in the base year. The information for a number of years is taken and one year, generally, the first years is taken as a base year. The figures of the base years are taken as 100 and the trend ratios for other years are calculated on the basis of the base year. The analyst is able to see the trend of figures whether upwards or downwards.

Procedure for calculating trends 1. 2. One year is taken as base year. Generally, the first year is taken as base year. The figure of base year are taken as 100.

3.

Trend percentages are calculated in relation to the base year.

If a figure in other year is less than the figure in base year the trend percentage will be less than 100 and it will be more than 100 if figure is more than the base year figure.

Each year figure is divided by the base years figure. The base period should be carefully selected and should be a normal period.

BHOGAL CYCLES. uses trend analysis techniques to estimate its progress in corporate world.

INTRODUCTION TO 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 [quantitative relationship between figure and groups of figures]. It is with the help of ratios that the financial statements can be analysed more clearly and decisions made from such analysis.

Nature of Ratio Analysis Ratio Analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated from the information given in the financial statements but the analyst has to select the appropriate data and calculate only a few appropriate ratios keeping in mind the objectives of analysis.

Steps involved in the Ratios Analysis i. Selection of relevant data from the financial statements depending upon the objective of the analysis. ii. Calculation of appropriate ratios from the above data.

iii.

Comparison of calculated ratios with the ratios of the same firm in the past or the ratios developed from projected financial statements or the ratios of some others firms or comparison with the ratios of the industry to which the firm belongs.

iv.

Interpretation of the ratios.

Use or Significance of Ratio Analysis It is with the help of ratios that the financial that the financial statements can be analysed more clearly and decision made from such analysis. The use of ratios is not confined to financial managers only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. With the use of financial ratios, one can measure the financial condition of a firm and can point out whether the condition it strong, good, questionable or poor.

(a). 1. 2.

Managerial uses of ratio analysis Helps in decision making from the information provided in the financial statements. Helps in communicating the financial strength weakness of a firm in an understandable manner to the interested parties. Helps in co-ordination for efficient and effective business management. Helps in control standard ratios can be based upon proforma financial statements and deviations, if any, can be checked and removed by taking timely actions.

3. 4.

5.

Helps in financial forecasting and planning - planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Other uses budgetary control, standard costing etc.

6.

(b).

Utility to shareholders/Investors An investors in the company will like to assess the financial position of the concern where he is going to invest his first interest will be the security of his investment and then the return in the form of dividend or interest. He will assess the value of fixed assets and loans raised against them.

(c).

Utility to creditors

The creditors or supplies extend short term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at the specified time or not. If the current assets are quite sufficient to meet current liabilities then the creditors will not hesitate in extending credit facilities.

(d).

Utility to employees The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of fringe benefits are related to the volume of profits earned by the concern like gross profit, operating profit, net profit ratios etc.

(e).

Utility to Government Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short term, long term, and overall financial position of the concerns. Government may base its future policies on the basis of industrial information.

(f)

Tax Audit requirements Section 44 AB was inserted in Income Tax Act by the Finance Act, 1984. Under this section, every assessee engaged in any business and having a turnover or gross receipts exceeding Rs. 40 lakhs in required to get the accounts audited by chartered accountant and submit the tax audit report. Clause 32 of Income Tax Act requires that the following accounting ratios should be givem: (i). Gross profit/turnover (ii). Net profit/turnover (iii). Stock in trade /turnover (iv). Material consumed/Financial goods produced

Limitations Of Ratio Analysis Though ratios are simple to calculate and easy to understand yet they suffer from some serious limitations.

1.

Limited use of a single ratio:- A single ratio, usually does nor convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help in making any meaningful conclusion.

2.

Lack of adequate standards:- There are no well accepted standards or rules of thumb for all ratios which can be accepted as norms.

3.

Inherent limitations of Accounting:- Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of past are not necessarily true indicators of the future.

4.

Change of accounting procedure:- Change in accounting procedure by a firm often makes ratio analysis misleading eg. a change in valuation methods of inventories from FIFO and LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and unfavourable gross profit ratio.

5.

Window Dressing:- Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very careful in making decisions from ratio calculated from which such statements.

6.

Personal Bias:- Ratio are only means to financial analysis and not an end itself. Ratio has to be interpreted and different people may interpret the same ratio in different ways.

7.

Uncomparable:- Not only the industries differ on their nature but also the firms of a similar business widely differ in their size and accounting procedures etc. Hence, it makes comparison of ratios difficult and misleading.

8.

Absolute Figure Distortive:- Ratios devoid of absolute figures may prove Distortive as ratio analysis is primilarly a quantitive analysis and not a qualitative analysis.

9.

Price level changes:- while making ratio analysis, no consideration is made to changes in price levels and this make the interpretation of ratios invalid.

10.

Ratios no substitutes:- Ratio analysis is merely a tool of financial statement analysis. They are meaningless in absence of such statements.

11.

Cures not conclusion:- Ratios provide only dues to analyst and not final conclusions. They are to interpreted by experts and there are no standards rules of interpretation.

CLASSIFICATION OF RATIOS

In view of various users of ratios, there are many types of ratios which can be calculated from the information given in the financial statements. Eg. a supplier of goods of a firm on credit or a banker advancing a short term loan to a firm, is interested primilarly in short term paying capacity of the firm or say its liquidity.

Classification of Ratios

a. Traditional classification

b. Functional classification

c. Significance classification

B.

Functional Classification or Classification according to assets

Liquidity Ratios A. 1. Current Ratio 2. Liquid Ratio 3. Absolute Liquidity Ratio 4. Interval measure

Long term Solvency Or Leverage Ratios

Activity Ratios or Asset Mgt. Ratios 1.Inventory turnover Ratio 2.Debtor turnover Ratio 3.Fixed Assets turnover 4.Total asset turnover ratio 5. Working cap turnover ratio 6.Payable Turnover Ratio 7.Capital Employed turnover

Profitability Ratios

1.Debt equity ratio 2. Debt to total capital ratio 3. Interest coverage

a.In relations to sales :1.Gross profit ratio 2.Operating ratio 3.Operating profit ratio 4.Net profit ratio 5.Expense Ration

b. 1. Debtor turnover Ratio 2. Creditors turnover ratio 3. Inventory turnover Ratio

ratio 4. Cash flow/ debt ratio 5.Capital gearing

b.

In relation to

investment 1.Return on investments 2.Return on capital 3.Return on capital employed 4.Return on total resources 5.EPS

C.

6.P/E Ratio The ratios have also been classified according to their significance or importance. Some ratios are more important than others and a firm may classify them as primary and secondary ratios. The primary ratios are one which are of prime importance to a concern. The other ratios which support or explain the primary ratios are called secondary ratios. Eg. return on capital employed is a primary ratio and relationship of operating profit to sales or relationship of sales to total assets is a secondary ratio.

Classification according to significance or importance

Bhogal Cycles. uses ratio analysis along with trend and comparative statement analysis to judge its past, present and future performance. To see its growth its ditches and how to overcome item. It uses it to see its solvency, liquidity and profitability position.

CHAPTER 3 OBJECTIVES & RESEARCH METHODOLOGY

3.1 OBJECTIVES OF THE STUDY
The title of the study is, Financial Analysis of Bhogal Cycles. The primary objective of the study was to have knowledge of financial aspects of the company. Specifically the objectives of the study are as follows:1. 2. 3. 4. 5. To know the companys ability to meet its current and short terms obligations. To know the companys profitability position. To know the companys ability to tackle the long term obligations. To know about the trend of the profit and sales of the company. To know about the working capital requirements of the company.

3.2

RESEARCH DESIGN AND METHODOLOGY

Description of Research Design Research design is the choice of appropriate method of doing research keeping in view the nature of problem, the environment and the merits and demerits of each method.

Exploratory Research To study the, Financial Analysis of Bhogal Cycles. I had undergone exploratory research. For carrying out exploratory research, two approaches were adopted, these are:2. Literature Survey 3. Experience Survey

1.

Literature Survey:- It is the quickest and most economical way of doing research. Under this, one is to review the work of fellow researchers in the field who had been these before. After this, I made a through search of secondary source of information such as: [a] Books [b] Company records [c] Newspapers/Magazines [d] Trade Journals [e] Websites.

2.

Experience Survey:- I have attempted to top the experience and expertise by interacting with the knowledgeable persons concerned with the area of research such as finance, account manager of BHOGAL . Through a series of structured and unstructured interviews, these persons were requested to give their views and options on the various aspects.

3.3

SOURCES OF DATA
Data may be obtained either from primary or from secondary sources. A primary is one that itself collects the data and secondary source is one that makes available data which was collected by some other agency. Various books, companys records, newspapers, internet etc. were used for collecting data.

3.4

SAMPLING PROCEDURE
Sampling procedure is adopted when secondary data are not available for the problem under study. As my study was mainly on secondary data and it was easily available to me. Therefore, no sampling procedure was applicable. To fulfill the objectives financial analysis tools namely Ratio Analysis has been choosen.

3.5

LIMITATION
Although the training at Bhogal Cycles was a richful experience, yet the following problems were encountered by me during the course of my training.

1. 2. 3. 4. 5.

There was lack of co-operation at many times. Many difficulties were encountered while interviewing different personnel. There was no proper sitting arrangement for trainees which caused a lot of trouble. There was no special cell or staff for training purposes. The staff does not spare enough time for answering the questions of trainees.