CHAPTER: II - PROFILE OF THE COMPANY

2.1 INTRODUCTION
In Gujarat the development of industries took place in big cities like Ahmadabad, Vadodara,
Rajkot, Surat etc. Hence the concentration of industries was in few cities. In order to achieve and
raise rural industrialization, the government of Gujarat has through GIDC established certain
industrial estates in rural areas. One such industrial estate is at Vitthal Udyognagar.
At present there are 257 industrial estates spread all over Gujarat of which Vitthal Udyognagar
Industrial Association is one of the largest and best. Vitthal Udyognagar Industries Association
(V.U.I.A) comes into existence in 1970 under the leadership of Shri B. I. Patel of Elecon
Engineering Company Limited and Shri J. V. Patel of GMM Pfaudler Limited. Since then the
association has not looked back and grown into one of the most formidable, forceful and
dynamic association of industries in Gujarat which undertake a variety of activities for the
benefit of all the industrial units. One can rightly said for this association that,
Coming together is beginning
Keeping together is progress
Working together is success
Vitthal Udyognagar Industrial Association is really Kohinoor of all industrial associations
functioning in Gujarat. It is said that, Vitthal Udyognagar = 1000 industries + 15 billion turnover
and direct employment to more than 25 thousand employee. This G.I.D.C also providing indirect
employment to more than 2 lacs people.
This estate is situated right on Anand. Moreover, Ahmadabad Bombay National High way No. 8
is passing nearly Anand which is just 8 kms. from the estate. The estate also enjoys the facilities
of broad gauge rail link with Anand, Ahmadabad, Vadodara and Bombay.
Vitthal Udyognagar has a concentration of engineering, plastics, chemicals, foundry, fabrication,
dairy and agricultural equipment, paint and varnishes, cosmetic and pharmaceuticals units. Out
of these selected for this study SGEL is situated at H-106, GIDC, V. U. Nagar.

2.2 PROFILE OF SWISS GLASCOAT EQUIPMENTS LIMITED

2.2.1 Introduction
SGEL is located at G.I.D.C, Vitthal Udyognagar, near Anand. The company was
incorporated on 26th August, 1991 and obtained its certificate of commencement of business on
5th March, 1992. Since its incorporation, this company has specialized in the designed and
manufacture of chemical and pharmaceutical process equipments.

2.2.2

History Growth and Development of SGEL

SGEL having its registered office at H-106, GIDC, Vitthal Udyognagar 388121, was
incorporated on 26th August, 1991. It received the certificate of commencement on 5th March
1992 and actual commercial production started from September, 1994. Since its time of
establishment it was public limited firm and still up to date. Company got a license under the
memorandum of an agreement on 11th November, 1993.
In the beginning the name of the company was Shri Glassteel Equipments Limited. But the
company having the same name was already in the existence; subsequently the name of the
company was changed to Swiss Glascoat Equipments Limited on 3rd March, 1991. The
authorized share capital of the company comprises of 5000000 equity shares of Rs 10 each. All
the shares have been issued, subscribed and paid up to the extent 5000000 shares of Rs 10 each.
The main promoter of SGEL is Mr. Sudarshan P. Amin. In short span at five year the company
has achieved 100% growth and recognition for its progress. There are few companies in these
line of work who manufacture glass lined equipment.
SGEL is the main competitor in the market it was the 1st company to introduce the concept of
plugfree reactors. It has the highest capacity of reactors up to 50,000 liters wich no other
company has.
The main objects of the company is to carry on the business as manufacturers, representatives,
producers, fabricators etc. of all classes, kinds, types, nature and description of glass lined,
exotic metals, equipments, tanks etc. The company is promoted by industrialist, businessmen
and professionals.
In a very short span of the companys existence, the company has shown the real spirit of a
Spartan by accomplishing many projects of varied nature. Today SGEL has emerged as a front
runner of domestic glass lining fraternity with the help of their trend selling products and
2

services by catering to industries as diverse as from dyes to pigments, from pharmaceuticals to

food processing, from chemical to pesticides, from intermediates to resins or any other
conceivable corrosion prone areas in chemical processing industry.
The history of fortifying storage or process equipments with the one thing or the other for
different usagers is more than 100 years old. SGEL was established with the technological
advancement glass lining is one of the best ways that apply serves the purpose due to its
inseparable characteristics. Swiss Glascoat not only has a history of being a de facto leader of
domestic market in design and development of reactors and vessels, but also continues to be an
innovator in working out effective and efficient solution to a wide variety or applications.
To create sustain and enhance a powerful platform with a total qualitative approach, to break the
monopolistic market of glass lined equipments and to provide a complete range of glass lined
products under one roof, Swiss Glascoat equipments was established with technological
development and advancement.
SGEL is manage by skillful and sensible directors who have also been its promoters having
requisite expertise over their respective field which is inevitable for the success of any company
SGEL is the pioneer which introduced axial propeller agitators in India. Swiss Glascoat does not
keep itself constrained to the DIN standard, with constant innovation; it tries to create its own
bench mark.
Quality management system adopted by Glascoat meets ISO 9001:2000 requirements. Quality
management system is periodically reviewed to improve the effectiveness for our commitments
to constant innovations and sound business practices. Maintaining the highest standards of
quality in product design, development and manufacturing, Glascoat provides a unique expertise
in glass lining industries. This expertise is evident in many successful Glascoat installations in
various industries across the nation. Thus, Glascoat is a perfect case of alignment between
quality, versatility and performance with economy.
The company spread across 42000 sq. M. area of fascination landscape with an ethnic built up of
administrative complex. The workshop area is encompassed within a large building which is
fully equipped with the latest engineering facilities comprising hi-tech instruments and on
advanced testing laboratory.

Today SGEL becomes front runner of domestic glass lining. There are very few companies in
the world who manufacture glass lined reactors vessels. In India only three companies
manufacture this product. In these three GMM is first with regard to market share and SGEL is a
front runner. Since its incorporation it has try to increase its market share and achieve high level
of efficiency and effectiveness.

2.2.3

Glimpse of the Company

Name of company : Swiss Glascoat Equipments Limited

Year of Incorporation : 26th August, 1991

Year of commencement of production: 1994

Industry Name : Glass and Glass Products

Type of Organization : Public Limited Company

Size of Organization : Large Scale

Email : marketing@glascoat.com

Internet : www.glascoat.com

Nature of activities: Fabrication and glass lining of process equipment for

chemical, pharmaceuticals, pesticides, dyes and intermediates food processing and allied
industries.

Mission:- Our Mission to create,sustain and enhance a powerful platform with a

total qualitative approach, where the fusion between demand and supply can happen in a
systematic way.

Vision :- Glascoat strode into new era with a relatively high-minded growth plan to

provide a complete range of glass lined goods under one roof.

Registered Office and Works :

H 106, G.I.D.C.,
Vitthal Udyognagar.
388121 - Gujarat (India).

Board of Directors:
1. Mr. Kanubhai K. Patel (Chairman)
2. Mr. Sudarshan Amin (Managing Director)
4

3. Mr. Shashikant Patel (Director)

4. Mr. Pareshbhai Shah (Director)
5. Mr. Ambalal Patel (Technical Director)
6.

Mr. Bhanubhai Patel (Director)

The board has constituted two committees, viz. the audit committee and the share transfer
committee. The names of the directors constituting these committees are given below:

Committees of Board of Directors

Audit Committee
1. Kanubhai Patel
2. Bhanubhai Patel
3. Pareshbhai Shah

Share Transfer
Committee
1. Pareshbhai Shah
2. Ambalal Patel

Figure 2.1 Committees of Board of Directors

Bankers
1. State Bank of India
2. UTI Bank Ltd

Statutory Auditors
Darji & Associates,
Chartered Accountants,
S-403, Kavita Shopping Centre,
Opp. G.P.O, Anand.

Legal Advisor
A. Mohey,
Mayavilla,
Mahadev Area,
Vallabh Vidyanagar.

Company Law Consultant

D.G.Bhimani and Associates,
Anand.

 Registrar and Transfer Agents

MCS Limited,
Neelam Apartments,
88, Sampatrao Colony,
Alkapuri, Vadodara.

Listing on Stock Exchanges

Stock Exchange

Code

1. Vadodara Stock Exchange Limited.

L272

2. Bombay Stock Exchange Limited, Mumbai.

522215

Awards and Certificate

ISO 9001 certified by LRQA (Lloyds register quality assurance)

Competitors and Customers

In India the company is facing competition from two competitors:
1. GMM Pfaudler Limited
G.I.D.C, Vitthal Udyognagar.
2. Navbharat India Limited
Hyderabad.
The company has customers from the field of chemicals, pharmaceuticals, petrochemicals,
pesticides and fertilizers such as follows:
1. Alpha Drug India Ltd.
3. Bharat Rasayan Ltd.
5. Cipla Ltd.
7. Excel Industries Ltd.
9. Hindustan lever Ltd.
11. Lupin Laboratories Ltd.
13. NATCO
15. Nestle India Ltd.
17. RPG Life Science Ltd.
19. Shasun Drug & Chemical Ltd.
21. Surya Medicine Ltd.

2. Aurobindo pharma Ltd.

4. Cadila Healthcare Ltd.
6. Department of Atomic Energy
8. Glen mark Pharmaceutical Ltd.
10. I.P.C.L
12. Max India Ltd.
14. Navdeep Chemical Pvt Ltd.
16. Ranbaxy Laboratories Ltd.
18. Sabero Organic Gujarat Ltd.
20. Sun Pharmaceutical Industries Ltd.
22. Tagros chemical India Ltd.
6

23. Unimark Remedies Ltd.

24. Zandu Chemical Ltd.

Codes and Standards

Glass lined equipments are manufactured to the highest quality standards of workmanship
and material. The reactors are generally as per DIN standard 28136 and manufactured in
accordance with ASME code for unfired pressure vessels, section VIII Division 1. All
clamps and flanges comply with ANSI / DIN standard. Equipments are also specially
designed and constructed to the clients own specifications.

2.2.4

Quality Objectives

Glascoats quality policy is implemented by adopting following quality objectives.

1.

Offering prompt delivery and services exceeding customer expectations.

2.

Meeting accelerated growth to become a market leader.

3.

Adopting innovative manufacturing processes.

4.

Imparting training to every employee and sub vendor of the organization to do the job first
time the right way.

5.

Enhancing established quality standards through benchmarking.

2.2.5 Quality Policy

1.

To manufacture & promote Glass lined Process Equipment for chemical,

pharmaceutical, pesticide& food processing industries.

2.

To provide our customers with products & services that exceeds their expectation.

3.

To establish, implement and review quality management system for continual

improvement to manufacture world class quality glaslined equipments.

4.

To ensure that the profits are shared by all those contributing to the growth of the
organization.

5.

To provide healthy working environment to employees & vendors.

The implementation of QMS will be reviewed periodically to improve the effectiveness of their
commitment to constant innovation &sound business practices.

2.2.6

RANGE OF PRODUCTS
GLASCOAT offers a product range that tops at all fronts!

The GLASCOAT product range consists of both ready-made (for standard requirement) and
custom-built (for unique requirement) equipment and accessories of versatile nature. This
includes an impressive array of Glass lined Reactors, Process Tanks, Evaporation Vessels,
Distillation Columns, Mixers and Agitators, Heat Exchangers, Dryers, Blenders, Agitated
Filters, Pipes, Valves & Fittings and other paraphernalia.

The company manufactures an entire range of glass-lined process equipment such as:

Equipments

Max. Size or Capacity

Reaction Vessel

63 Liters. To 40,000 Liters.

Conical Reaction vessel

63 Liters. To 10,000 Liters.

Receiver (Jacketed / Un Jacketed),

63 Liters. To 40,000 Liters.

Storage Tank

63 Liters. To 40,000 Liters.

Heat Exchanger / Condenser

1 To 30 Sq.m

Rotary Cone Vacuum Dryer

150 To 3000 Ltrs.

Agitated Nutsche

1 To 30 Sq.m

Column, Pipes & Fittings

2600 DN x 6500 mm L.

Glascoat manufactures various accessories for glass lined reactors. These are being used in sorts
of industries including fertilizers, pharmaceuticals, dyes & chemicals etc. The accessories
routinely made are flush bottom outlet valves, glass lined pipes, and glass lined flanged elbows,
crosses, tee pieces & tee pieces with reduced connections, reducing flanges & reducers.

Reaction Vessel

Horizontal Storage Tank

Vertical Storage Tank

Agitator Nutsche Filter

Rotary Cone Vacuum Dryer

Heat Exchanger / Condensor

All the equipments are used for Chemical, Pharmaceuticals, and Pesticides & Food Processing
Industries. These equipments are manufactured under approved Q.A. Plan of S.G.E.L.

2.3 Different department of SGEL:

MARKETING DEPARTMENT
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The marketing department is very important part of the company because it welcomes the
outside parties to purchase the product firstly the marketing people make survey in the chemical
process industries about the product to decide the awareness any popularity of it among the
people in that field.
They do the advertisement of the product through various modes like magazines, pamphlets etc.
This department is directly in contact with outside parties. They send drawing quotations and
other details to the parties as per their requirements.
They deal with the problems of the customers and also try to solve them. They are the one who
decides about the schedule of the factory and demand of the customers and they also try their
level best to satisfy the customers with their needs.
Thus the main functions of the marketing department are to provide the customers, to provide
them the best and to maintain business relations for betterment of the future transactions.
What I observed

Swiss Glascoat Equipments ltd has not adopted any special types of marketing strategies
because company's product creates a monopoly situation in a glass lined product market.

Swiss Glascoat Equipments Ltd has a plus point in marketing is that they are provide an
extent after sales services to the customers.

Swiss Glascoat Equipments Ltd coverage about 27 to 30 % market by their qualitative

glasslining product company's last year turn over IS about 50 crore and for current year the
target is Rs. 70 crore.
Customer communication

Producers is established for communicating with customers for requirement related to

a) Product Information
b) Inquiry and contract / order handling including amendments.
c) Customer feedback including complaints relating to performance of product.
DESIGN DEPARTMENT
The main functions of the design department are:

To design the planning

To prepare the design data sheet.

To prepare the design review report ~ Document release review report.

Document release note

Master list of drawing

10

The employees in design department make drawings as per DIN standard DIN standard (28136)
any ASME codes DIN is a German standard. and it is specially used for the glasslined works all
the tolerance in the drawings are specified according to DIN standards.
Following criteria are given due consideration designing and developing product or process

Life cycle

Safety

dependability

Durability

Maintability

Ergonomics

Environmental

Disposal and other risk.

Risk assessment of design and development includes
(a) Design failure mode and effect analysis
(b) Fault free analysis
(c) Reliability analysis
(d) Relationship diagrams
(F) Simulation techniques.
Product Modification / Innovation:
Product modification and innovations are going through considering the following points.

Requirement of new products.

Market Forces.

Ease of Production

Standardization

PURCHASE DEPARTMENT
The main function of this department is to place of the orders according to P.R.S. received from
the various departments like production store assembly etc.
They have to collect the quotations from the outside parties to purchase the raw material for the
product or stationery and miscellaneous items for the office work.

They decide the proper vendor as per suitable quotations. They have to keep records of
purchasing order any also have to maintain the necessary stock of the stationeries any materials
used in the company.
11

The main raw material is purchased from Baroda or Ahmedabad and other material like casting
parts and tools are bought from G.I.D.C. of Vitthal udhyognagar.
Supplier selection
To ensure that purchased products conform to specified requirements. The purchase products
include material purchased and products sub contracted for processing.
Suppliers are selected after evaluation of their capacity and performance capacity wise:
1.
2.
3.
4.
5.
6.

Evaluation of product samples past history with product.

Third party certification or registration with customer
On site evaluation of suppliers.
Suppliers are distinguished as manufacturers of standard
Experience in relevant manufacturing line.
Results of audits of suppliers management system and their capability.

Some Suppliers of Raw-material:

1.
2.
3.
4.
5.
6.
7.
8.

ESSAR Steel Ltd.

Steel Authority of India Ltd.
Remi Metal Ltd.
Vardhman Special Steel Ltd.
Echjay Industries Pvt. Ltd.
Bonfiglioli Transmission Pvt. Ltd.
Elecon Engineering Co. Ltd.
Crompton Greaves Ltd.

STORE DEPARTMENT
The store department is the "material bank" of the company which issues, the material to the
other departments concerned with the production process.
The store department keeps the records of stored material which are issued as per the
requirement in the production of the jobs.
It is the duty of the store officer to give regular information to the purchase officer about the
stock used and retained in the store. It also has to keen the record of monthly requirement and
the annual consumption of the raw material.

PLANNING AND PRODUCTION DEPARTMENT:

The main function of planning department is to plan the manufacturing system for timely
delivery of the product to the customer according to the dispatch schedule given by the

12

marketing department, scheduling is done on the priority basis. The production department does
the work to fulfill the schedule target.
The planning department makes schedule as per monthly planning. The planning must be
flexible enough to change due to any change in requirement of the customer or any other
consequences so the employees in the planning department must have quality of adaptability and
prediction.

About the Production Department:

There is no Lay Off in the production due to continuous production activity in the unit. Overall
Weightage of this division to the entire unit is 80 percent.

Problem in production from inception:

Initially the capacity of the furnace was not adequate to fulfill the increase in customer demand
for glass lined vessels. Welding and grinding forms a major part in the production process hence
Auto welding and enhance grinding machines would improve the productivity.

Main sub-sections of the production departments are :

Fabrication

NDT

Glass- Lining

Assembly

Testing.

Production Process
Production process can not start without Raw Material. So raw materials are the primary
requirement for SGEL product.

Raw Materials:Raw Materials consumed in manufacturing.

1. Enamel quality Low Carbon Steel
2. Boiler Quality Carbon Steel
13

3.
4.
5.
6.

Enamel Quality alloy Steel Forging

Enamel Quality Seamless Pipe.
Enamel Quality Casting.
Enamel Quality Casting, Forging.

Equipment Fabrication:
The Company has a fully equipped workshop with such facilities as a separate plate-cutting
yard, a plate bending machine, hydraulic press for swaging of nozzles, automatic welding
machines, welding positioners, sand-blasting units and other machinery necessary for fabrication
purposes.
Production Capacity in Tones:
Per Day 12.85 tones
Per Week 90 tones.
Per Month 350 tones.
Per Annum 4200 tones.
Material Handling Facility:
Overhead Cranes: Capacity 30 MT Clearance 7m (2 Nos.)
Capacity 7.5 MT Clearance 7m (2 Nos.)
Jib Cranes
Capacity 1.0 MT Clearance 7 m (5 Nos.)
Manipulator
Capacity 30 MT (01 No.)
Capacity 10 MT (01 No.)
Gullieth Cranes
5 MT (01 No.)
Fork Lift
2T (01 No.)

Future Programmes pertaining to production department:

Higher and faster production.

Manufacturing Non Standard Products with the same ease as experienced with
standard products.
Increasing Capacity of manufacturing both in terms of numbers / types / capacities.

QUALITY CONTROL:

14

The quality Assurance (QA) department does inspection and testing as per specification and
codes for every raw-material / consumable.
For every stage of manufacturing our Quality Assurance Plan elaborates methods of inspection,
criteria for acceptance, etc. QA performs the following tests on every reactor manufactured by
Glascoat.
The plant has an excellent Quality Assurance Department which ensures that each outgoing
product is up to par with established standards.
The plant has necessary inspection / testing tools such as ultrasonic testing equipment, digital
thickness gauges, and various other gauges and fixtures. It also has an X-ray center to determine
if any welding defects exist.

Glass-lining Test:

Glass frit raw material test

Alkali resistance and Acid resistance tests as per DIN standard

Thermal shock resistance test for instantaneous temperature differential resistance.

Spark test to check for pinholes / discontinuities.

Welding Test and Base Metal Test for both chemical and physical properties. The quality
management system adopted by SGEL meets ISO 9001: 2000 requirements.

ASSEMBLY DEPARTMENT:
After the glass lining activity is over, the various parts of the reactor are given a finishing touch
and then assembled to make the reactor ready for delivery. The reactor is checked by trial run
before delivery to the client.
When all the parts of the reactor are ready and approved, come to this department. Where all the
parts are assembled together seaming of gaskets is done in the shop. And they are used in the
assembly to prevent leakages, when outside parties come for the final inspection; hydraulic test,
spark test etc. are performed in this department.
15

Hydraulic Test: It is carried out to check any leakage from main shell, gaskets, jacket, and
bottom valve etc. the vessel is filled with water and its pressure is kept 6bar.
Spark Test: It is carried out for finding the small defects line pin holes, dents etc. in the glass
lining. These defects must be removed from the glass lining for proper functioning of the
reactor.

MAINTENANCE DEPARTMENT:
Maintenance department can be divided into the three sub departments
1. Mechanical maintenance
2. Electrical maintenance
3. Electrical Maintenance
4. Civil
There are mainly two methods to carry out maintenance in the workshop
a) Preventive maintenance: It is carried out weekly, monthly. Thus it is periodic and
scheduled in advanced.
b) Breakdown maintenance: It is carried out at the time of breakdown of machine in the
work shop.
Work Instruction
1.
2.
3.
4.

Servicing
Trouble shooting
Repairing of damaged portion
Mechanical complaint

GLASS LINING DEPARTMENT

The glass lining department is the "heart" of the company. It works at it utmost level to give the
best result and perfect impression of the company.
The SGEL does the glass lining with the recently developed Nuclea Gel 2200 by its own R & D
department, which is considered superior compared to the standard glass coatings available in
the market. Four to five cover coats follow the successive layers of ground coat.
Each coat is fused at a temperature above 800C in a fully automatic, computer-controlled
electric furnace, capable of handling upto 40,000 liter vessels.

The firing cycle and temperature gradients are monitored in a controlled atmosphere to achieve
the best possible results. The finished glass-lined products are then checked thoroughly for
uniformity and absence of defects.

16

The entire glass coated area is then spark-tested at a high voltage to verify that no pinholes or
dielectrically weak areas exist in the vessel.
The basis function of department is to prepare the glass of require quality withy the desired
properties. They convert the crystal of the glass in the powder form in ball mill by adding some
necessary chemicals in it.
Work instruction:
Following instructions given to the workers during glass lining
(a) Spraying (wet process)
(b) Baking
Baking temperature
1. Ground coat.
910 c to 930 C
2. Ground coat.
900 c to 920 C
3. Cover coat
840 C + 10 C
4. Dry process (powder coating)
5. Inspection of glass lining of equipment during glass lining process.
6. Perpetration of glass frit
7. Instruction for glass slip preparation, Coat glass slip preparation and Preparation of cover
site and Cover coat preparation for powdering process.
8. Instruction for spark testing of glass lining surface.

R & D DEPARTMENT:
The in-house R & D department, in close association with Central Glass and Ceramic and
Ceramic Research Institute, Calcutta, is constantly making improvements in the formulation of
glass to increase its resistance to corrosive chemicals, thermal shock and abrasion.
A new version of fluorine resistance glass has also been developed. With more and more process
being performed under unusual conditions, newer formulation of glass have been developed to
accommodate these processes the recently developed NUCLEA GEL-4000 exhibits
exceptionally good resistance at elevated temperature.
As compared to the standard glass GEL-2000 & GEL-2200, which can withstand temp up to
200C, NUCLEA GEL-4000 has been formulated specially keeping in view unusual
temperature conditions. Another significant part of a reactor is the mixer drive, the excellent
design and consistent accuracy of drive component offers true running of shaft for many years.
Each and every component of the drive is step mounted having machined matching faces; this
facilitates quick and easy assembly / disassembly without disturbing the alignment. They are in
true sense User friendly-convenient to install, use and maintain.
17

Glascoat is the pioneer in introducing axial propeller agitator in India. These agitators provide
true axial flow for better top to bottom mixing these outperform old style retreat curve impellers
which have a lot of swid but little mass transfer.
The advance drive and more efficient agitator together results in lower energy consumption and
reduced process time, A recent introduction has been Flange-mounted Beaver Tall Baffle these
can be conveniently installed through a nozzle from the top, without entering into the vessel or
removing the contents.
Flange mounting eliminates the need of stuffing box and glands. Hence the possibility of
leakage through gasket or packing is eliminated. Such baffles provide another advantage in
terms of lower minimum sensing volume.
With constant innovation, GLASCAOT is creating its own benchmarks. Besides standard
reactors, Glascoat also manufactures equipment to suit specific service conditions and to enable
hassle free maintenance as per own design.

FINANCED DEPARTMENT
Financial management is concerned with the acquisition; financing and management of assets
which affect the success of your firm and ultimately, the overall economy as well as to the extent
that funds are misallocated.
The growth of the economy will be slowed when economic wants are unfulfilled, this
misallocation of funds may work to the detriment if society. Finance is lifeblood for any
company if company had no marketing it will run smoothly but without finance it will not able
to move single step. Without finance company becomes just like a skeleton"
Function:
Financial management covers the following matter.

Raising at funds

Managing the funds

Utilisation of funds

Maximize the value of shares.

The finance department mainly deals with financial activities of the company it is directly
concerned with purchase department because to buy anything one must have the money.

18

This department keeps the record of the payments made to the employers as well as workers in
the form of salary, loan advance etc. They handle all the transactions related to the banks, and
financial institutes, creditors, money Lenders and also the shareholders.
This department also maintains the accounts of the company including the final accounts,
trading account, profit and loss account and balanced sheet.
PERFOMANCE:
Graph:-2.1 Turnover growth chart of SGEL

Turnover Growth Chart

500000
400000

333954 325402 326165

406427 415329

300000

Turnover

Turnover

200000
100000
0
2004-05 2005-06 2006-07 2007-08 2008-09

Years

The increase in yearly sales (turnover) from 2005 through 2009 is shown in the Line chart
below.
Graph:- Turnover increase chart of SGEL

19

Turnover
increase base on 2003-04
(
%
)
I
N
C
R
E
A
S
E

72.27

80
60
41.55
40

76.04

38.25
37.93
Turnover increase base on 2003-04

20
0
2004-05

2005-06

2006-07

2007-08

2008-09

YEAR

PERSONNEL DEPARTMENT
Personnel management may be defined as that field of management which has to do with
planning, organized any controlling the functions of procuring organizing any controlling the
functions of procuring developing maintaining any utilizing a labor force, such that the all
objectives for which the company is established are attained economically and effectively;
objectives of all levels or personnel are served to the highest possible degree; objective of
society are duly consider any served" personnel Management is that part of management
concerned with people all work and with their relationship within the organization.
It seeks to bring men and women, who make up an enterprise, enabling each to make his own
best contribution for success both as an individual and as a member of a working group."
"Manage the man tact fully is the most challenging job.

The main skill required in personnel department is to manage the men by motivating and
encouraging them.

Personnel department has to perform both managerial as well as operative functions like
Planning, organization, staffing, directing, controlling, reporting any integrating etc.

This department is the base of the company because its main function is to recruit the
efficient and potential employees who can make possible for the company to achieve the
common goal by performing the team work.

The other functions of the department are:

To maintain the records of staff members as well as workers.

To a not salaries to them as per their position and companies act.

To promote or to transfer the employees as per their performance

To keep records of various training programmes organized in the past year any also to
prepare training calendar for the New Year.
20

To permit the students of the colleges to the project work in the company any also provides
the necessary guidance to them.

To keep watch on the activities of the canteen and also the quality of the food provided there.

To keep records of legal matters relating members of the Company.

To make arrangements for co curricular activities periodically. Thus a personnel department

is the core of the company. It makes smoother path of the company.
Organization of Personnel Department:Human Resource Management is the co-ordination of human relation in the business
organization. There by obtaining maximum production with minimum of mental and physical
efforts and minimum of strength and group of workers as a whole without sacrificing genuine
well being of employees.
The personnel management is the process of attracting, holding and motivating people.
Personnel management has to perform like planning organization and coordinating and
controlling.
The SGEL as divided its HR Department into different part like security office, time keeping
department etc. The company has Permanent HR Department
Managing Director

General Manager

Manager HRD and Administration

Receptionist
Administrative Staff
Time- Keeping Office
Security

Time Keeping System:

Time and tide wait for nobody. One, who walks with time, gets fabulous success in life. Hence
time keeping plays significant role in the organizations. Punctual employee takes the
organization to the target.
Time officer keeps the watch on punctuality of employees. The personnel department maintains
the register of attendance, leave register, wages and salary register. From this information the
personnel manager comes to know about the regularity of the employees.
21

Different companies have different ways to keep attendance record. In some companies when
employees come they have to sign in the sheet then they can join the work.

In SGEL, punch card system is implemented for this purpose. Every employee is given punch
card while entering the unit, after recess and at the end of the shift.

In SGEL there are two shifts:

Shift-time

Recess

First 8.00 am to 4.30 pm

Midday to 12.30 pm

Second 4.00 pm to 12.30 am

8.00 pm to 8.20 pm

General 8.30 am to 5.00 pm

12.30 pm to 1.00 pm

Employees are given 7 casual leaves and general leaves for special circumstances.
Employee Services
Social responsibility is the most discussed aspect in the present corporate management. In the
present age only organization without a company is just matter of imagination and on other hand
company is much dependant on the organization for the satisfaction of various needs.
Organizations provide a wealth of services that employees find desirable. These services are
usually provided by the organization at no cost to the employees.

SGEL provides following employees services.

1. Canteen Facilities:2. Uniform Facilities:3. Medical Facilities:4. Credit Society Facility:5. Tour Arrangement:6. Diwali Special:Regular Employees

Managers/Staff/ Trainees/ Probationers and Workers

: 130

22

Contract workers( in-house)

: 150

Casual workers ( skilled and unskilled)

: 57

Contractors( in-house)

: 19

Contractors / Ancillaries / Vendors:

Dish forming

:2

Cold press components

Fabrication

:1

Drives & accessories

:2

Glass Lining

:1

:3

REFERENCES
1. Company Profile - SGEL.
3. Annual Reports of SGEL for the period of study.
6. Internet Websites
- www.glascoat.com
- www.google.com

CHAPTER: III - THEORETICAL ASPECTS OF THE STUDY

3.1 INTRODUCTION
Finance is the life blood and nerve centre of a business, just as circulation of blood is essential in
the human body for maintaining life. Finance is a very essential for smooth running of the
business. For efficient financial management timely and accurate financial information is
prerequisite. Such information one can collect from financial statements. All the statements
which the accountant prepare at the end of the period for a unit may be taken as financial

23

statements The term financial statements as is used in business refers to two statements (i)
balance sheet and (ii) profit and loss account.
Analysis of financial statements is a process of identifying the financial strength and weakness
of a company by establishing proper relationship between various financial facts and figures as
given in the set of financial statements. It refers to critical examination of the financial
information contained in the financial statements, in order to understand and make decisions
regarding the operations of the firm. The financial information of an enterprise is contained in
the financial statements or accounting reports. Balance sheet, profit and loss account and cash
flow statements are the three basic financial statements of great significance to owners,
management and investors. Analysis of financial statement is effectively used to predict,
compare and evaluate the firms earning ability. It is also required to aid in economic, investment
and financing decision making.1
Whether you watch analysts on CNBC or read articles in the Wall Street journal, youll here
experts insisting on the importance of doing your home work before investing in a company. In
other words investors should dig deep in to the companys financial statements and analyze
everything from the auditors report to the footnotes. But what does this advice really, mean, and
how does an investor follow it? The aim of this research work is to answer such questions by
providing a succinct yet advanced overview of financial statements analysis. In fact, not only
investors but also creditors, employees, government consumers, general public, financial
institutions, banks etc are interested to analyse financial statements of companies. This chapter
will give you a deeper undertaking of how to analyse there reports and how to identify the red
flags and gold nuggets of a company.

3.2 MEANING AND TYPES OF FINANCIAL STATEMENTS

A financial statement is a compilation of data, which is logically & consistently organized
according to accounting principles. It may show a position at a moment in time, as in case of a
balance sheet, or may reveal a series of activities over a given period of time, as in case of
income statement. Financial statements are the major means through which firms present their
financial situation to stakeholders, creditors and general public. In the words of Henery Fayol,
these financial statements are the eyes of an enterprise.
The term financial statements generally refer to two basic statements.
1.

Income statements and

24

2.

The balance sheet

Of course, a business may also prepare,
3.

A statement of retained earnings and

4.

A statement of changes in financial position

in addition to above two statements.

Financial Statements

Balance
Sheet

Income
Statement

Statement of
Retained
Earnings

Statement of
Changes in
Financial
Position
Financial

Figure-3.1 Types of financial statements

The meaning and significance of each of this statement is being explained below.

1. Balance Sheet
It is a statement of financial position of a business at a specified moment of time. The Balance
sheet states the assets, liabilities and capital of the business. The balance sheet, which is one of
the principal financial statements, is also known as statement of condition 3 The purpose of the
balance sheet is to show the resources that the company has, i.e. its assets, and from where those
resources come from, i.e. its liabilities and investments by owners and outsiders.

2. Income Statement/ Profit and Loss account

Income statement is prepared to determine the operational position of the concern. It is a
statement of revenues earned and expenses incurred for earning that revenue. It is a scoreboard
of the firms performance during a period of time. Since the profit and loss account reflects the
result of operations for a period of time, it is a flow statement. The profit and loss account is the
condensed and classified record of the gains and the losses causing changes in the owners
interest in the business for a period of time.

3. Statement of Retained Earnings

The term retained earnings means the accumulated excess of earnings over losses and dividends.
The balance shown by the Income statement is transferred to the balance sheet through this
statement, after making necessary appropriations. It is, thus a connecting link between the
25

balance sheet and the income statement. This statement is also termed as profit and loss
appropriation account in case of companies.

4. Statement of Changes in Financial Position

The balance sheet shows the financial condition of the business at a particular moment of time
while, the income statement discloses the results of operations of business over a period of time.
However, for a better understanding of the affairs of the business, it is essential to identify the
movement of working capital or cash in and out of the business. The statement of changes in
financial position may take any of the following two forms:
(a) Fund flow statement

(b)

Cash flow statement.

Fund flow statement is a statement of changes in the financial position of a firm on working
capital basis while cash flow statement is a statement of changes in the financial position of a
firm on cash basis.

3.3 MEANING OF FINANCIAL STATEMENTS ANALYSIS

Like lines in the palm or horoscope, financial statements can be studied, puzzled over and
scrutinized. The analysis of such statements provides valuable information for managerial
decisions. 5
Analysis of financial statements is the systematic numerical calculation of the relationship
between one fact with the other to measure the profitability, operational efficiency and the
growth potential the business.
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. Just like a doctor
examines his patient by recording

his body temperature, blood pressure etc. before making

conclusion regarding the illness and before giving his treatment, a financial analyst analyse the
financial statements with various tools of analysis before commenting upon the financial health
or weaknesses of an enterprises. The analysis and interpretation of financial statements is
essential to bring out the mystery behind the figures in financial statements.
In the word of Metcaff and Titard analyzing financial statement is a process of evaluating the
relationship between component parts of financial statements to obtain a better understanding of
a firms position and performance. 6
26

According to John N. Myer, Financial statement analysis is largely a study of relationship

among the various financial factors in a series of statements.7
According to Meigs, Johnson and Keller, Financial Analysis is the process of selection,
relation and evaluation.8
In the word of Kennedy and McMullen, The analysis and interpretation of financial
statements is an attempt to determine the significance and meaning of financial statements data
so that the forecast may be made of the prospects for future earnings, ability to pay interest and
debt on maturities (both current and long term) and probability of a sound dividend policy. 9

3.4 DIFFERENCE BETWEEN ANALYSIS & INTERPRETATION

Interpretation means to explain the financial position and earning capacity of the firm that may
be understood even by a layman who does not know accounting. Thus interpretation is to
explain financial statements on the basis of analysis.
The term financial statement analysis includes both analysis and interpretation. A distinction
should, therefore be made between this two terms. Analysis refers to the process of fact finding
and breaking down a complex set of figures in to simple statements, while interpretation stands
for explaining the real significance of these simplified statements. Scientific analysis is thus a
pre requisite to interpretation. Interpretation includes both analysis and criticism.
However, both analysis and interpretation are interlinked and complimentary

to each other.

Analysis is useless without interpretation and interpretation without analysis is difficult or even
impossible. Most of the authors have used the term analysis only to cover the meaning of both
analysis and interpretation & here also the term financial statement Analysis used to cover the
meaning of both analysis and interpretation.

3.5 OBJECTIVES OF ANALYSIS AND INTERPRETATION OF

FINANCIAL STATEMENTS
A few most specific common objectives of financial statements analysis are discussed below:
1. To measure the financial soundness of the firm.
2. To judge the solvency of the firm.
3. To access the profitability of the firm by present shareholders and prospective investors.
4. To judge the operational efficiency of the business.
5. It provides basis for inter firm and intra firm comparison.
27

6.
7.
8.
9.

To assess the growth potential of the business by using trend or dynamic analysis.
To present data in simple form and in systematic way.
To decide future line of action.
To assess the short term as well as long term liquidity position of the firm.

Thus, there are different objectives of financial analysis and interpretation.

According to Spicer & Pegler, the objective of analysis is to know and draw inference about.
1. Profitability
2. Solvency
3. Ownership
4. Financial strength
5. Trend
6. Gearing & cover

3.6 STEPS INVOLVED IN FINANCIAL STATEMENTS ANALYSIS

Analysis of financial statements involves three steps, they are: 10

Analysis
Comparison
Interpretation

1
2
3

Figure 3.2 Steps involved in financial statements analysis

1.

Analysis
The data for financial analysis taken primarily from the financial statement. The data shown in
the financial statements are either the balances of individuals accounts or group of balance of
many accounts. As a result, they lack homogeneity and uniformity. So to obtain the desired
homogeneous and comparable data the figures found in the financial statements have to be
analyzed. Analysis of financial statements means methodical classification of the data given in
the financial statements in to homogeneous and comparable parts. In short, it is the process of
regrouping or re- classifying the figures in the financial statements.

2. Comparison
28

Mere splitting up or regrouping of the figures found in the financial statements in to desired
compound parts is not sufficient for judging the profitability and financial

status of an

enterprise. After analysis the comparable component parts must be compared with each other
and their relative magnitudes must be measured.

3.

Interpretation

Analysis and comparison becomes mere exercise without interpretation. After analysis and
comparison the results must be interpreted. The interpretation of results means the formation of
rational judgment and drawing of proper conclusions about the progress, financial position and
future prospects of the business through careful study of the relationship of component parts
obtained through analysis and comparison.
Thus, financial analysis is the process of analysis, comparison and interpretation.

3.7 IMPORTANCE OF FINANCIAL STATEMENTS ANALYSIS

The analysis and interpretation of financial data highlight upon the significant facts and
relationships concerning various aspects of financial life of a business entity. So every person
who has interest in the business entity like to take decisions based on analyzed and interpreted
financial statements. In addition to the points discussed under the head objectives of financial
analysis the following factors have also enhanced the significance of analysis of financial
statements.

1.

Disclosure of facts
With the help of financial analysis, all facts relating to liquidity position, financing of fixed
assets, credit policy, quantum of working capital, solvency, and valuation of assets are made
available. Thus as a result of analysis all undisclosed facts come to light for the benefit of all
concerned parties.

2.

Effective decision making

Decision based on intuition are of personal nature and carry either no meaning or of negligible
value to other persons. Such decisions are not effective and impartial but are defective and
baseless. On the other hand, analysis and interpretation are based on some logical and scientific
methods, hence decisions taken on the basis seldom prove to be misleading and wrong.

3.

Effective planning and control

29

The analysis and interpretation of financial statements provides adequate information for
planning and controlling the affairs of the business. Future
forecast can easily be made by analysing past dates. The management can take corrective actions
by drawing inferences about routine activities.

4.

Measures operational efficiency

The management and owners are interested in knowing about the operational efficiency of
different activities of the concern. This can be judged by calculating different activity and
profitability ratios.

5.

Comparative study
With the help of financial analysis, business information and facts can be presented
comparatively. Such presentation is made either in the form of last few years position of
business or with other business units engaged in the same industry.

6.

Serving the need of interested parties

Different parties like creditors, investors, banks, govt. agencies, mgt. of firm etc. have varied
interests in the performance of the business. They search for information relating to their interest
in the financial statements. Financial analysis provides necessary information on timely basis to
these various parties.

3.8 LIMITATIONS OF FINANCIAL STATEMENTS ANALYSIS

Financial statements analysis is a powerful mechanism which helps in ascertaining the strength
and weakness in the operations and financial position of an enterprise. However this analysis is
subject to certain limitations. Most of these limitations are because of the limitations of the
financial statements themselves. There limitations are as follows.

1.

Suffers from limitations of financial statements.

Financial statements suffer from variety of weaknesses. Assets are disclosed in the balance sheet
at historical cost which is different from current cost. Similarly financial statements are prepared
according to certain conventions of a point of time, whereas investors are concerned with the
present & future of the firm .Personal judgments also affects the figures of balance sheet.
Financial statements suffer from these weaknesses, hence the analysis based upon these
statements cannot be said to be always reliable.

2.

Absence of universally accepted standard terminology

Accounting is not an exact science, so it does not comprise universally accepted terminology.
Different meanings are assigned to a particular term. Depreciation is provided by different

30

methods and an interest is charged at varied rates. In this way, there are a lot of chances of
manipulation. As a result financial analysis proves to be defectives.

3. Ignores price level changes

Financial statements are normally prepared on the concept of historical cost. They do not reflect
values in terms of current costs. Thus results disclosed by financial statements may be
misleading, if the price level changes are not taken in to consideration. Changes in price affect
cost of production, sales and values of assets; thereby the comparability of ratios suffers.

4. Ignores qualitative aspect

Financial analysis is the quantitative measurement of the performance of a firm. It does not
disclose the skill, technical know-how and the efficiency of its employees and managers. It
means that analysis of financial statements measure only the one sided performance of the
business. It also completely ignores human aspects.

5. Financial statements are essentially interim reports

The profit shown by profit and loss account and the financial position as depicted by the Balance
sheet is not exact. The exact position can be known only when the business is closed down.
Again the existences of contingent liabilities, deferred revenue expenditure make them more
imprecise.

6. It spottes the symptoms but not diagnose

Financial analysis shows the trends of the affairs of the business. It may spot symptoms of
financial weakness and operational inefficiency which can not be accepted. A final decision in
this regard will require further investigation and through diagnosis.

7. Financial analysis is only a means

Financial analysis is a means to an end not the end itself. The analysis should be used as a
starting point and the conclusion should be drawn not in isolation but keeping in view the
overall picture and the prevailing economic and political situation.

3.9 TECHNIQUES OF FINANCIAL STATEMENTS ANALYSIS

The financial statements, balance sheet and profit and loss account reclassified and arranged
logically for the purpose of analysis and establishing the relationship between various items are
studied horizontally and vertically. The various analytical methods or devices used to study this
31

horizontal or vertical relationship are known as techniques financial analysis. Dr. R.M.
Shrivastava has defined it as, methods employed to examine vertical as well as horizontal
relationship of different financial variables with a view to study profitability and financial
position of business are called tools of financial analysis 11. A number of such techniques are used
by the financial analyst but the most popular among them, are as follows:
1.

Comparative financial statements

2.

Common-size financial statements

3.

Trend analysis

4.

Ratio analysis

5.

Fund flow statement

6.

Cash flow statement

7.

Cost-volume profit analysis

Techniques of Financial Statements Analysis

Comparative
financial
Statements

Common-size
financial
statement

Trend
analysis

Ratio
analysis

Fund
flow
statement

Cash
flow
statement

Costvolume
profit
analysis

Figure: 3.3 Techniques of Financial Statements Analysis

It is not necessary to employee all these techniques for analytical purpose. The choice of a
particular technique would depend, by and large on the purpose of analysis. In short, a financial
analyst can adopt one or more of the above techniques of financial analysis.

CHAPTER: IV - ANALYSIS AND INTERPRETATION

4.1 COMPARATIVE FINANCIAL STATEMENTS
4.1.1 Concept & Meaning
32

Comparative financial statements are those statements which summarize and present related
accounting data for a number of years incorporating therein the changes in individual items. In
these statements, the financial data for two or more years are placed and presented in adjacent
columns so that it may provide a true perspective in order to facilitate periodic comparison the
firm.

4.1.2

Advantages

Comparative financial statements provide necessary information for the study of financial and
operational results over a period of time. Besides, comparative financial statements offer the
following advantages.

1. Easy evaluation
Comparative financial statements disclose trends in sales, production costs and profits through
which the financial position, efficiency and performance of a firm can easily be evaluated.
Increase in profit along with increase in sales is a good sign of healthy development.

2. Comparative evaluation
In these statements, figures of two or more period are placed side by side, hence inter period
comparison of various items becomes easy. With these statements, financial position of the firm
can be compared with the average of the specific industry or other firms engaged in the same
industry. Thus, inter period analysis or inter firm comparison is possible.

3. Identifies weaknesses
With the help of comparative statements weaknesses in the operating cycle financial health etc.
can easily be identified and suitable remedial steps may be taken.

4.1.3

Limitations

The following limitations of comparative financial statements must also be taken into account.
1. Comparison of two financial statements will become misleading if the basic accounting
principles have not been followed consistently.
2. Price level changes also reduce the reliability of comparative financial

statements.

3. Inter firm comparison can be misleading if the firms are not identical in size and age and
when they follow different accounting procedures with regard to depreciation, inventory
valuation etc.
33

4.1.4

Comparative Balance-sheet

Table 4.1:
Comparative Balance Sheet of

SGEL as on 31st March

2005 to 2009
(Rs. in 000 )
PARTICULARS

200405

200506

200607

200708

200809

SOURCES OF FUNDS

34

Shareholders' Funds
Share Capital

50000

50000

50000

50000

50000

336
33

47752

56586

74290

84863

83633

97752

10658
6

12429
0

134863

Secured Loans

48491

10896
8

11828
8

10707
1

141213

Unsecured Loans

16325

17275

18300

17694

22232

64816

12624
3

13658
8

12476
5

163445

15899

15662

20289

20013

20669

16434
8

23965
7

26346
3

26906
9

318978

95164

10703
7

13926
3

13402
2

138188

2875

33432

3002

Inventories

10566
3

90939

12194
6

12980
7

204753

Sundry Debtors

48482

49154

46748

94246

47202

Cash & Bank Balance

13406

26830

27543

16487

24611

loans & Advances

12606

25479

42635

34248

50475

18015
7

19240
2

23887
2

27479
0

327042

11385

96216

11467

13974

146252

Reserves & Surplus

Loan Funds

Deferred Tax Liability

TOTAL FUNDS EMPLOYED

APPLICATION OF FUNDS

Fixed Assets
Advances on capital account
and capital work in progress
Investments(at cost)
Current Assets, Loans and
Advances

L ess: Current Liab. and

35

Provisions
Net Current Assets
Miscellaneous Expenditure

66307

96186

12419
8

12504
4

180787

16434
8

23965
7

26346
3

26906
9

318978

(To the extent not written off)

TOTAL ASSETS (NET)

Source: Annual Reports

From the Table 4.1 following conclusions can be drawn.

1. The total funds employed from all the sources were Rs.164348 thousand, Rs.239657
thousand, Rs.263463 thousand, Rs.269069 thousand and Rs.318978 thousand in 200405, 2005-06, 2006-07, 2007-08 and 2008-09 respectively. So it can be concluded that
SGEL has been making a satisfactory progress as regard to total sources of funds.
2. The major sources of funds were shareholders fund. The amount of share capital was
equal for all the five years i.e. Rs. 50000 thousand. Reserves & Surplus for the same
company were Rs.33633 thousand, Rs.47752 thousand, Rs.56586 thousand, Rs.74290
thousand and Rs. 84863 thousand in 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09
respectively. It shows increasing trend throughout the period of study. It is good sign for
the company.
3. The second important source of funds was loan funds. Funds raised from this source
were Rs. 64816 thousand in 2004-05, Rs. 126243 thousand in 2005-06, Rs. 136588
thousand in 2006-07, Rs. 124765 thousand in 2007-08 and Rs. 163445 thousand in 200809.Out of the total loan funds most of the funds were in form of secured loans. The total
amount of loan funds was lower than shareholders funds. So it can be said that company
is not playing a game of trading on equity.
4. A small portion of total funds employed includes balance from deferred

tax liability. In

2004-05 funds from this source was Rs.15899 thousand, in 2005-06 Rs.15662 thousand,
in 2006-07 Rs.20289 thousand, in 2007-08 Rs.20013 thousand and in 2008-09 Rs.20669
thousand.
5. A move toward application of funds reveals that major part of the funds was

used to

finance fixed assets. The balance of net fixed assets was Rs. 95164 thousand in 2004-05,
Rs. 107037 thousand in 2005-06, Rs. 139263 thousand in 2006-07, Rs. 134022 thousand
36

in 2007-08 and Rs.138188 thousand in 2008-09.The trend is increasing year by year so

long term financial position of the company is also good.
6. The another important use of funds of the company during the period was investments.
The company has not any major investments during the five years under study. In 200405 it was Rs. 2 thousand, in 2005-06 it was Rs.3 thousand and form 2006-07 to 2008-09
it was Rs. 2 thousand each year respectively. Overall, it can be said that company was
not investing its major funds elsewhere.
7. Next to investment, one important aspect to study current financial and liquidity position
is working capital or net current assets. Net current assets for the company were
Rs.66307 thousand, Rs.96186 thousand, Rs.124198 thousand, Rs.135044 thousand, and
Rs.180787 thousand for 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 respectively.
The increase in net current assets means improvement in the current financial position of
the business. The second aspect which should be studied in current financial position is
the liquidity position of the concern. The balance of liquid assets i.e. cash and bank
balance and debtors shows upward trend means liquidity position of the concern is also
good.
From the above analysis we can conclude that both short- term and long-term financial position
of the company is satisfactory. The overall financial position and profitability of the firm is
really good.

37

4.1.5

Comparative Profit & Loss Account

Table 4.2 : Comparative Profit & Loss Account of SGEL

for the period 2004-05 to 2008-09
(Rs. in 000 )
200405

200506

200607

200708

33395
4

32540
2

32616
5

6285

1677

3324

7269
23056
37056
4

11806
-9682
32920
3

7694
15594
35277
7

40642 41532
7 9
203
3033
9
851
7586
3
8253 89682
42530
5155
1
64

18980
5

15349
8

17349
8

20915
3

Manufacturing Expenses
Store Consumption
Employees Remuneration and
Benefits
Interest and Financial Charges
Selling, General and
Administration Exps.
Depreciation
Miscellaneous Expenditure
Written Off

85504
14215

73751
12601

74139
16169

92278
14123

24587
0
13079
7
19864

10996
8377

14728
11362

16308
14779

21104
16318

27816
24188

27501
5703

26886
6342

24828
7909

24992
8895

29883
9280

34210
1

29916
8

32763
0

38686
5

48770
0

Profit

28463

30035

25147

38436

27863

PARTICULARS

200809

INCOME

Net Turnover
Other Income
Labour Income
Increase / Decrease in Stock

EXPENDITURE

Cost of Raw Material

38

Less/Add: Previous Year

Expenses Adj.
Add: excess provision of earlier
years
Profit Before Taxation
Taxation
Profit After Taxation
Add: Brought Forward Profit
Profit Available For
Appropriation

135

359

56

189

28328
11030
17298
6837

29676
9856
19820
8482

25091
9237
15854
12600

370
38806
14083
24723
13934

27674
10081
17593
14138

24135

28302

28454

38657

31731

Source: Annual Reports

From the Table 4.2 following conclusions can be drawn

1. As indicated in table 4.3 net turnover of SGEL was Rs.33954thousand in 2004-05 , Rs.
325402 thousand in 2005-06, Rs. 326165 thousand in 2006-07 ,Rs 406427 thousand in
2007-08 and Rs 415329 thousand in 2008-09. The net turnover looks increasing for
2007-08 & 2008-09 and decrease by Rs. 8552 thousand in 2005-06 and in 2006-07
decrease by Rs. 7789 thousand.
2. The other income were highest in 2004-05 i.e. Rs. 6285 thousand and lowest in 2005-06
i.e. Rs. 1677 thousand. Labour income was highest in 2005-06 i.e. Rs. 11806 thousand
and lowest in 2004-05 i.e. Rs 7269 thousand. The increase / decrease in stock are also
fluctuating. In short overall income of the company in 2004-05 was Rs. 370564
thousand, in 2005-06 was decrease by Rs. 41361 thousand and then after it shows
upward trend i.e. Rs. 352777 thousand in 2006-07, Rs. 425301 thousand in 2007-08 and
Rs. 515564 thousand in 2008-09.
3. The total expenditure were Rs. 342101 thousand in 2004-05, Rs. 299168 thousand in
2005-06, Rs. 327630 in 2006-07, Rs. 386865 thousand in 2007-08 and Rs. 487700
thousand in 2008-09. Out of these total expenditure major amount were spent for
purchase of raw material.
4. The next and main item is profit. Profit for the year amounted to Rs. 28463 thousand in
2004-05, Rs. 30035 thousand in 2005-06 ,Rs 25147 thousand in 2006-07, Rs 38436
thousand in 2007-08 and Rs 27863 thousand in 2008-09.
Profit before taxation also shows the same picture i.e. upward trend for 2004-05 & 200506 and decrease in 2006-07 and again increase in 2007-08 then decrease in 2008-09.
39

Profit after tax were Rs. 28328 thousand in 2004-05, Rs 29676 thousand in 2005-06, Rs.
25091 thousand in 2006-07, Rs. 38806 thousand in 2007-08 and Rs. 27674 thousand in
2008-09. Profit available for appropriations shows increasing trend during the period of
study.

4.2 COMMON-SIZE FINANCIAL STATEMENTS

4.2.1

Concept & Meaning

Financial statements that depict financial data in the shape of vertical percentage are known as
common-size statements. In such statements all figures are converted to a common unit by
expressing them as a percentage of a key figure in the statement. The common-size statements
are also known as percentage statements or 100 percentage statements or vertical statement.
It is important for the analyst to compare changes in the financial statements that occur from
period to period with certain base total with those periods. Since the base represents 100 in all
the statements in the comparison, it means there is a common basic for analysis and therefore,
the statements are referred to as common-size statements.
Kennedy and McMullen have rightly stated, The common-size statements are miniatures of
the originals and the common-size statements are identical in proportion.2
Common-size statements include common-size balance-sheet and common-size profit and loss
account. In vertical analysis, the common-size statements are used for inter firm comparison of
firms and relative industry, while in horizontal analysis, financial statements of different years
are converted into common-size statements and trend is analysed. These statements also known
as component percentage.

4.2.2

Steps involved in common-size analysis

In order to prepare common-size statements, following two steps are followed.

i)

The total assets, total liabilities, capital and total net sales are taken as 100.

ii)

The ratio that each item bears to the total is ascertained by dividing the individual money
amount by the total amount as contained in the statement and multiplying the quotient by
100. Thus, each percentage in the statement shows the relationship of individual item to its
representative total.

4.2.3

Importance

Common-size financial statements are useful when we wish to compare one company with
another for presentation of the data in the percentage form. Comparison can be made within the
40

company, with other companies in the same industry or with entire industry figures. It eliminates
problems relating to difference in organization size, it must be carefully established that the data
in the comparison are based on reasonable uniform and consistent accounting methods and
principles.
Therefore, the common-size statements serve dual purposes,

Ratios and trend percentages can be calculated which are as correct as calculated from
original data except some approximations.
Intra firm comparison is possible disregarding the size of the companies.

41

Table 4.3 : Common-size Balance Sheet of SGEL as on 31st March 2005 to 2

PARTICULARS

2004-05
Amou
%
nt

SOURCES OF FUNDS
Shareholders' Funds
Share Capital

50000

Reserves & Surplus

33633
83633

Loan Funds

10707
1
17694
12476
5
20013
26906
9

39.7
%
6.58%
46.3
%
7.44%
100
0%

95164

57.90
%

10703
7

13926
3

52.86
%

13402
2

49.8
%

2875

1.75%

33432

0%

0.001
%

44.66
%
13.95
%

3002

1.25%

0%

37.94
%
20.51
%
11.20
%
10.63
%
80.28
%
40.15
%
40.13
%

12194
6

12980
7

48.2
%
35.0
%

15899
16434
8

APPLICATION OF FUNDS

Investments(at cost)

Inventories

10566
3

Sundry Debtors

48482

Cash & Bank Balance

13406

8.16%

26830

Loans and Advances

12606

7.67%

25479

18015
7
11385
0

109.6
2%
69.27
%
40.35
%

19240
2
96216

16434
8

100.0
0%

23965
7

L ess: Current Liab. &

Provisions
Net Current Assets
Misc. Expenditure ( not
written off)
TOTAL ASSETS (NET)

12429
0

74290

44.90
%
6.94%
51.84
%
7.70%
100.0
0%

64816

Current Assets, Loans and

Advances

10658
6

56586

18.5
%
27.6
%
46.1
%

50000

11828
8
18300
13658
8
20289
26346
3

16325

Adv. on capital a/c. & capital

W.I.P.

97752

18.98
%
21.48
%
40.46
%

50000

45.47
%
7.21%
52.68
%
6.54%
100.0
0%

Unsecured Loans

Fixed Assets

47752

20.86
%
19.93
%
40.79
%

2007-08
Amou
%
nt

10896
8
17275
12624
3
15662
23965
7

48491

TOTAL FUNDS EMPLOYED

50000

2006-07
Amou
%
nt

29.51
%
9.93%
39.44
%
9.67%
100.0
0%

Secured Loans

Deferred Tax Liability

30.42
%
20.47
%
50.89
%

2005-06
Amou
%
nt

66307

64.29
%
29.50
%

90939
49154

96186

100.0
0%

Source: Annual
Reports
4.2.4:- Common-size Balance Sheet

46748
27543
42635
23887
2
11467
4
12419
8

0.001
%
46.29
%
17.75
%
10.45
%
16.18
%
90.67
%
43.53
%
47.14
%

26346
3

94246
16487

6.13%

34248
27479
0
13974
6
13504
4
-

100.0
0%

26906
9

12.7
%
102
3%
51.9
%
50.1
%
-

100
0%

Table: 4.4: Common-size Profit and Loss Account of SGEL for the period 2004
PARTICULARS

2004-05
Amou
%
nt

2005-06
Amou
%
nt

2006-07
Amou
%
nt
42

INCOME
Net Turnover
Other Income
Labour Income
Increase / Decrease in Stock
EXPENDITURE
Cost of Raw Material
Manufacturing Expanses
Store Consumption
Employees Remuneration and
Benefits
Interest and Financial Charges
Selling, General and Admini Exps.
Depreciation
Profit
Less/Add: Previous Year Exps. Adj.
Add: excess provision of earlier
yr.
Profit Before Taxation
Taxation
Profit After Taxation
Add: Brought Forward Profit
Profit Available For
Appropriation

33395
4
6285

100.0
0%
1.88%

32540
2
1677

100.0
0%
0.52%

32616
5
3324

100.0
0%
1.02%

7269
23056
37056
4
18980
5
85504

2.18%
6.90%
110.9
6%
56.84
%
25.60
%
4.26%

11806
-9682
32920
3
15349
8
73751

3.63%
2.98%
101.1
7%
47.17
%
22.66
%
3.87%

7694
15594
35277
7
17349
8
74139

2.36%
4.78%
108.1
6%
53.19
%
22.73
%
4.96%

14215
10996
8377
27501
5703
34210
1
28463
135
28328
11030
17298
6837
24135

3.29%
2.51%
8.23%
1.71%
102.4
4%
8.52%
0.04%

12601
14728
11362
26886
6342
29916
8
30035
359

8.48%
3.30%
5.18%
2.05%
7.23%

29676
9856
19820
8482
28302

4.53%
3.49%
8.26%
1.95%
91.94
%
9.23%
0.11%

16169
16308
14779
24828
7909
32763
0
25147
56

9.12%
3.03%
6.09%
2.61%
8.70%

25091
9237
15854
12600
28454

43

5.00%
4.53%
7.61%
2.42%
100.4
5%
7.71%
0.02%
7.69%
2.83%
4.86%
3.86%
8.72%

4.3 RATIO ANALYSIS

4.3.1

Introduction

Ratio analysis has emerged as the principal technique of analysis of financial statements. The
system of analysis of financial statements by means of ratio was, first made in 1919 by
Alexandar Wall.3

4.3.2

Meaning of Ratio

A ratio is a simple arithmetical expression of the relationship of one number to another and is
obtained by dividing the former by the later.A ratio may be defined as the indicated quotient of
two mathematical expressions.
According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of
the quantitative relationship between two numbers.4
Ratio analysis is a process of determining and presenting the relationship of items or group of
items in the financial statements. The relationship may be of two types:
i) Associate relationship and
ii) Cause / effect relationship
For example there is an associate relationship between cost of goods sold and cost of raw
material, whereas, there is cause / effect relationship between sales and profits. Both the
relationships are expressed in terms of ratios. Normally, the ratios may be expressed in
percentage, in times and in proportion.
In financial analysis, these ratios highlight the financial position of the business, and hence
known as financial ratios. They are also called structural ratio because they measure relative
importance of the items expressed in financial statements.

4.3.3

Objectives / Significance

In the words of J.Batty ratios can also assist management in its basic functions of forecasting,
planning, co-ordination, control and communication5.
The importance / objectives of ratios analysis is discussed below:

1. Simplifies accounting figures

Accounting figures in many cases fail to provide information in a desired way. Ratios simplify,
summarize and systematize accounting figures which can easily be understood by those do not
know the language of accounting.

2. Measures liquidity position

Ratio analysis helps in measuring the liquidity position of the firm. Liquidity position of a firm
is said to be satisfactory if it is able to meet its current obligation as and when they mature.

44

Various liquidity ratios are used for the purpose of credit analysis by banks and short term
lenders.

3. Measuring long- term solvency

Ratio analysis is equally important in evaluating the long term solvency of the firm. It is
measured by capital structure or leverage ratios.

4. Measures operational efficiency

Ratios are useful tools in the hands of management to evaluate the firms performance over a
period of time by comparing the present ratios with the past ratios. Various activity or turnover
ratios measure the operational efficiency of the firm. These ratios are used, in general, by
bankers, investors and other supplier of credit.

5. Measures profitability
The management as well as owners of a firm is primarily concerned with the overall profitability
of the firm. Profit and loss account reveals the profit earned or loss incurred during a period but
fails to convey the capacity of the firm to earn in terms of per rupee invested or per rupee of
sales. By calculating various profitability ratios an analyst can measure earning capacity of the
firm.

6. Facilities inter firm and intra firm compositions

Ratio analysis is the basis for comparing the efficiency of various firms in the industry and
various division of a business firm.

7. Trend analysis
Ratio analysis enables a firm to take the time dimensions into account. Trend analysis of ratios
reveals whether financial position of the firm is improving or deteriorating over years. With the
help of such analysis, one can ascertain whether the trend is favourable or adverse. For example,
any particular ratio may be less than general ratio but the trend may be increasing. On the
contrary, present level may be satisfactory but trend may be declining.

8. Managerial uses
Ratio analysis is an invaluable aid to management in discharging its basic functions such as
planning, communication, control co-ordination and decision making.

4.3.4

Limitations

1.Limited use of a single ratio

A single ratio would not be able to convey anything, as the single ratio in itself is meaningless, it
does not furnish a complete picture. Neither it can be explained, nor can any decision be taken
on this basis. Hence, it is essential to ponder over all relating ratios while drawing inferences.

2.Lack of standard ratios

In practice, there is no uniformity in the definition of various terms used in ratio analysis. For
example, some companies treat net current assets (current assets - current liabilities) as working

45

capital, while others only current assets. There are no well accepted standard or rules of thumb
for all ratios which can be accepted as norms.

3.Inherent limitations of accounting

Ratios are calculated from accounting records which are subject to accounting principles,
conventions, concepts and personal judgments. Any ratio based on the facts and figures of such
financial statements suffers from inherent limitations.

4.Window dressing
Window dressing means manipulation of accounts in a way so as to present a better picture than
what is actually it. By doing so, it is possible to cover up bad financial position. One should be
very careful in making a decision from ratios calculated from such financial statements.

5.Difference in accounting methods and systems

Comparability of financial statements is affected when various differences are traced out in
accounting methods and systems followed by different firms.

6.Price level changes

Changes in price level affect the comparability of ratios. A change in price level can seriously
affect the validity of comparison of ratios for different years.

7. Personal bias
Ratios have to be interpreted, but different people may interpret the same ratios in different way.
Ratios are only means of financial analysis, but not an end in themselves. It should be clearly
noted that ratios are only tools and personal judgment of the analyst is more important.

8.No substitute for sound judgment

Ratio analysis is one of the methods of interpretation and drawing inferences. It only provides
little information for decision making conclusions drawn from ratio analysis are not sure
indicators of bad or good management.

9.Qualitative factors ignored

Ratios are arithmetical expressions, so that qualitative aspects cannot be presented through
ratios. Normally, qualitative factors that may influence the conclusion drawn are ignored while
computing ratios.

10. Uncomparable
Not only industries differ in their nature but also the firms of the similar business widely differ
in their size and accounting procedures etc. It makes comparison of ratios difficult and
misleading.

4.3.5

Classification of ratios

Ratios may be classified into three broad categories.

Ratios

46

(A)

(B)

Traditional Classification
i) Balance-sheet Ratios

(C)

Functional Classification
Significance Ratios
i) Liquidity Ratios

i)

Primary Ratios
ii) Profit and loss account

ii) Activity / Efficiency ratios

ii) Secondary

Ratios
Ratios

iii) Profitability Ratios

iii) Composite / mixed Ratios

iv) Leverage Ratios

v) Investment Analysis Ratios

Figure: 4.1 Classifications of Ratios

In traditional classification ratios are classified on the basis of information given in the financial
statements, i.e. balance-sheet and profit and loss account to which the determinants of ratios
belong.
The British Institute of Management has recommended classification of ratios according to
importance for inter-firm comparison. The institute has suggested the following categories.
a) Primary ratios
b) Secondary ratios
The primary ratios are those which are of prime importance to a concern. The other ratios which
support or explain the primary ratios are called secondary ratios.

4.3.6 Ratio Analysis of SGEL

Ratio analysis is extremely helpful in providing a business strength and weakness in two ways.
Ratios provide an easy way to compare present performance with past.
Ratio depict the areas in which a particular business is completely advantaged or disadvantaged
through comparing ratios to those of other business of the some size within the same industry.
SGEL ratios are classified in to five categories. They are:
i) Liquidity Ratios
ii) Activity / Efficiency Ratios
iii) Profitability Ratios
iv) Capital Structure / Leverage Ratios
v) Investment Analysis Ratios

47

i ) LIQUIDITY RATIOS
These ratios play a key role in analysing the short term financial position of a business. Liquidity
refers to a firms ability to meet its current financial obligations as they arise. Christy and Roden
define the liquidity of an asset as moneyness. Commercial banks and other short-term
creditors i.e. supplier of goods and services are generally interested in such ratios. To measure
liquidity position of SGEL the following ratios have been calculated.

1) Current Ratio
Meaning and Computation
Current ratio may be defined as the relationship between current assets and current liabilities. It
is also known as working capital ratio or 2:1 ratio. It is calculated by dividing the current assets
by current liabilities.
Expressed as a formula, the current ratio is as follows:
Current Assets
Current Ratio = ----------------------Current Liabilities

Components
Current assets of a firm represent those assets which can be, in the ordinary course of business,
converted into cash within a period not exceeding one year. Current liabilities mean those
obligations which are to be paid within a period of one year out of current assets or by creation
of current liabilities. Components of current ratios are shown in figure 4.2.

1.
2.
3.
4.
5.

Components of Current Ratio

Current assets
Current liabilities
Cash and bank balance
1. Short term loans
Debtors
2. Creditors
Bills receivable
3. Bill payable
Stock
4. Bank overdraft
Short term investments
5. Income tax payable

48

6. Advance payment

6. Provision for tax

7. Marketable securities

7. Proposed dividend

8. Work in process

8. Outstanding expenses
9. Unclaimed dividend
Figure: 4.2 Components of current ratio

Ideal Current Ratio

A firm should have a reasonable current ratio. Although there is no hard and fast rule, yet a
current ratio of 2:1 considered satisfactory. This is referred as bankers rule of thumb or accepted
standard of liquidity.

Table 4.5: Current Ratio of SGEL for the period 2004-05 to

2008-09

Year
Graph

Ratio

Source2004-05
: Annual Reports 1.58

2005-06
2006-07
2007-08
2008-09

1.99
2.08
1.97
2.24

(In Times)
Index
100
125.95
131.65
124.68
141.77

4.1:
Current
ratio

of0

SGEL

for

the period 2004-05 to 2008-09

49

2.5
2

2.08 2

1.99 2

2.24

1.97 2

1.58

1.5

Raios

Ratio

0.5

Standard

0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

Current ratio measures short term solvency of a firm and reflects ability to meet short term
obligations when they are due. By using this ratio a credit manager or lending officer can lay
aside his flipping coin and arrive at the decisions based on some figures of logic and accuracy.
Table 4.5 shows current ratio of SGEL. The current ratio recorded for five years and was 1.58 in
2004-05, 1.99 in 2005-06, 2.08 in 2006-07, 1.97 in 2007-08 & 2.24 in 2008-09
It means the ratio for 2005-06, 2006-07 & 2008-09 are according to standard norm. The average
of current ratio is 1.97 for SGEL. From the graph it is clear that except 2004-05 the ratio is high
for SGEL. In 2008-09 it was good for SGEL and the firm had tried to maintain it in coming
years also. The table also shows index. The average of index is 124.81 for SGEL.

2) Quick / Liquid Ratio

Meaning and Computation
Liquid ratio is the measure of the instant debt paying ability of the business enterprise, hence it
is also called quick ratio or acid test ratio. This ratio establishes the relationship between
quick / liquid current assets and current liabilities. The formula used is:
Quick / Liquid Ratio =

Components

Quick / Liquid Assets

---------------------------Current Liabilities
Current Assets - (Stock + Prepaid Exp)
= -----------------------------------------------Current Liabilities

50

Liquid / quick assets refer to all the current assets except inventory and prepaid expenses. The
exclusion of inventory is based on the fact that it cannot be easily and readily converted into
cash. Prepaid expenses by their very nature do not provide cash; they merely reduce the
demand for cash required in one period because of payment in prior period. Current liabilities
have the same meaning as used for current ratio. Advance payment of tax is also considered as
prepaid expenses and deducted from current assets here.

Ideal Quick Ratio

A quick ratio of 1:1 is considered as an ideal ratio. If the liquid ratio is more than 1:1, the
financial position of the firm seems to be sound and good. One the other hand, if the ratio is less
than 1:1 the financial position of the firm is unsound.
Table 4.6: Liquid /Quick Ratio of SGEL for the period 2004-05 to
2008-09

Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
0.65
1.05
1.02
1.04
0.84

(In Times)
Index
100
161.54
156.92
160
129.23

Source: Annual Reports

Graph 4.2: Liquid/Quick ratio of SGEL for the period 2004-05 to

2008-09
1.2

1
0.8

Ratios

1.05 1

1.02 1

1.04 1

1
0.84

0.65

0.6
0.4

Ratio

0.2

Standard

0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

51

 Significance & Interpretation

Quick ratio is considered to be superior to current ratio in evaluating the liquidity position of the
firm. This ratio is real index of the liquidity or the short term solvency of a concern.
Table 4.6 shows quick ratio of SGEL during the period of study. The company has achieved ratio
more than standard in three years out of five years of study. the ratio was highest in 2005-06.i.e.
1.05 and lowest in 2004.05 i.e. 0.65. The average for this ratio is 0.92 for SGEL. On the other
hand the average index for SGEL is 141.54.The company has to take necessary steps to establish
upward trend of this ratio. Moreover they have to see if the ratio is according to standard norm
or not.

3) Absolute Liquid Ratio

Meaning and Computation
The absolute liquidity ratio is the relationship between the absolute liquid or super quick assets
to liquid or quick liabilities. The ratio is also known as Super Quick Ratio. The formula used
is:
Absolute Liquid Assets
Absolute Liquid Ratio = ----------------------------Liquid liabilities

Components

Absolute liquid assets refer to cash, bank and marketable securities. Liquid liabilities include all
current liabilities except bank overdraft as it is not to be paid immediately.

Ideal Absolute Liquid Ratio

This ratio pays more significance to liquidity when used in conjunction with current and quick
ratio. A standard of 0.5:1 or 1:2 in absolute liquidity ratio is an acceptable norm, because fifty
paisa worth of absolute liquid assets are considered sufficient for one rupee worth of current
liabilities.
Table 4.7 : Absolute Liquid Ratio of SGEL for the period
2004-05 to 2008-09
(In Times)
Year
2004-05
2005-06

Ratio
0.12
0.28

Index
100
233.33

52

2006-07
2007-08
2008-09

0.25
0.13
0.17

208.33
108.33
141.67

Source: Annual Reports

Graph 4.3: Absolute Liquid ratio of SGEL for the period 2004-05
to 2008-09
0.6
0.5

0.5

0.4

Ratios

0.5

0.28

0.3
0.2

0.5

0.5

0.5

0.25
0.13

0.12

0.17

0.1

Ratio
Standard

0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

Absolute liquid ratio helps in evaluating firms ability to meet its liability immediately. The
standard norm for this ratio is 0.50: 1.
Table 4.7 shows absolute liquid ratio of SGEL for the period under study.The ratio was 0.12 in
2004-05, 0.28 in 2005-06, 0.25 in 2006-07, 0.13 in 2007-08 & 0.17 in 2008-09 It was lower than
standard in all the years except. The average of the ratio is 0.19 which is lower than standard.
The average index for SGEL is 158.33.
From the graph it is clear that in all the five years this ratio is law for SGEL. It can be concluded
that the firm has to try to strengthen its liquidity position by keeping more cash on hand and
bank balance.

ii) ACTIVITY OR EFFICIENCY RATIOS:

The efficiency or activity ratios are those ratios calculated to measure the operational efficiency
of a business concern. The operational efficiency of a firm is judged based on its profit earning
capacity and the optimum utilization of its available resources in accordance with financial
policies relating to its operations. These ratios are also called as Turnover Ratios,
Performance Ratios. To measure operational efficiency of Swiss Glascoat Equipment Ltd.
following activity / efficiency ratios are calculated:

53

1) Debtors Turnover Ratio

Meaning and Computation
A firm may sell goods on cash as well as on credit. When the goods are sold on credit, the
parties to whom the goods have been sold are called as debtors or book debts in accounting
terminology. Therefore, Debtors Turnover Ratio is calculated to measure the efficiency of credit
promotion policy and credit collection policy. Thus, this ratio helps to know how far the firm is
successful in realizing the credit. This ratio establishes the relationship between net credit sales
and average receivable of the year. The formula used for its calculation is as follows:
Net Credit Sales
--------------------------------Debtors + Bills Receivables

Debtors Turnover Ratio =

Components
Credit sales means all credit sales minus sales returns. If the information about credit sales is not
available the figure of total sales may be assumed to be the credit sales. Debtors and bills
receivable which arise out of credit sales should only be considered. When data relating to
opening and closing balance of debtors and receivables are not available the receivables at the
end of the year may be considered for computing this ratio. Here total turnover is taken as net
credit sales, and closing balance of debtors and receivables is considered in place of average
receivables.
Table 4.8 : Debtors Turnover Ratio of SGEL for the period 2004-05
to 2008-09
(In Times)
Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
6.89
6.62
6.98
4.31
8.8

Index
100
96.08
98.4
62.55
127.72

Source: Annual Reports

Graph 4.4: Debtors Turnover ratio of SGEL for the period 2004-05 to
2008-09

54

Ratios

0 3 6 9

Ratio
6.89

8.8

6.98

6.62

4.31
Ratio

2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

This ratio shows how quickly debtors are converted in to cash. A higher debtors turnover ratio
shows the efficiency in collection of debtors that means debtors are being collected more
promptly. On the contrary, lower ratio indicates inefficiency of management in collection of
payment against credit sales in time or payments by debtors are delayed. There are no rules of
thumb or standard to interpret the ratio.
Table 4.8 shows debtors turnover ratio of SGEL. Debtors turnover ratio for SGEL shows
increasing trend except the year 2005-06 & 2007-08. The average of index for the same ratio is
96.95. In 2008- 09 the higher debtor turnover ratio shows that efficiency in collection to debtors
has increased.

2) Average Collection Period

Meaning and Computation
This ratio is, in fact, inter related with and dependent upon debtors turnover ratio. Average
collection period means the number of days over which debtors and bills receivable remain
uncollected. This period can be calculated by using following formula:
Average Collection Period =

365
---------------------Debtors Turnover

55

There is no standard which may be used as a norm while interpreting this ratio as the ratio may
be different from firm to firm depending upon its credit policy, nature of business and business
conditions.
Table 4.9: Average Collection Period of SGEL for the period 200405 to 2008-09
In Days
Index
100
98.83
99.05
160.43
78.58

Year
Ratio
2004-05
52.79
2005-06
55.14
2006-07
52.29
2007-08
84.69
2008-09
41.48
Source: Annual Reports

Graph 4.5: Average collection period of SGEL for the period 2004-05
to 2008-09

Ratio
52.29

41.48
Ratio

Ratios

55.14

50

52.79

84.69

2004-05 2005-06 2006-07 2007-08 2008-09

Years

Significance and Interpretation

A shorter collection period implies prompt payment by the debtors while a longer period reflects
delay in payments by debtors. Fast recovery is the indication of good debtors and less
probability of bad and unrecoverable debts.
Table 4.9 shows average collection period of SGEL during the period covered by study.
In case of SGEL the ratio was highest in 2007-08 i.e. 84.69 and lowest in 2008-09 i.e. 41.48.
The lower ratio in 2008-09 means fast recovery of debtors in this year by the company.
The index for this ratio registered mixed trend during the period of study. The average of index
is 107.38 for SGEL.

3) Total Assets Turnover Ratio:

56

 Meaning and Computation

This ratio expresses the relationship between cost of goods sold or net sales and total assets of a
firm. The ratio is calculated by using the following formula:
Net Sales
Total Assets Turnover Ratio = --------------Total Assets

Components

Total assets mean all fixed assets (less deprecation) and current assets. When the figure of cost
of goods sold is not available net sales can also be used to calculate total assets turnover ratio.
Fictitious assets like preliminary expenses, discount on shares, underwriting commission etc. are
excluded while calculating total assets.
Table 4.10: Total Asset Turnover Ratio of SGEL for the period
2004-05 to 2008-09
In Times
Index
100
90.08
71.07
81.82
73.55

Year
Ratio
2004-05
1.21
2005-06
1.09
2006-07
0.86
2007-08
0.99
2008-09
0.89
Source: Annual Reports

Graph 4.6: Total Assets Turnover ratio of SGEL for the period 200405 to 2008-09

Ratio
2

Ratios

1.21

1.09

0.86

0.99

0.89
Ratio

0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

A higher total assets turnover ratio is the indicator of effective utilization of investment in
assets, where as lower assets turnover ratio indicates that assets are not properly utilized in
comparison to sales. Thus, there is an over investment in assets. There is no any standard norm
for this ratio.

57

For SGEL the ratio shows mixed trend. In 2004-05 and 2005-06 it was above the average
i.e.1.01. In 2004-05 it was highest i.e. 1.21 & lowest in 2006-07 i.e.0.86.The average index of
SGEL is 83.30. It can be suggested that the company has to improve total asset turnover and
thereby establish upward trend for the ratio.

4) Fixed Assets Turnover Ratio

Meaning and Computation

This ratio expresses the relationship between fixed assets (less depreciation)
and net sales or cost of goods sold. Such investment in fixed assets is made
for the ultimate purpose of efficient sales; the ratio is used to measure the
fulfillment of that objective. This ratio is calculated by using following
formula:

Net Sales
Fixed Assets Turnover Ratio = ---------------------Fixed Assets (Net)
Table 4.11: Fixed Assets Turnover Ratio of SGEL for the Period 200405 to 2008-09
Year
2004-05
2005-06
2006-07
2007-08
2008-09

In Times
Index
100
86.61
66.67
86.32
85.75

Ratio
3.51
3.04
2.34
3.03
3.01

Source : Annual Reports

Graph 4.7:

Fixed Assets Turnover ratio of SGEL for the period

2004-05 to 2008-09

Ratio
Ratios

4
2
0

3.51

3.04

2.34

3.03

3.01
Ratio

2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

58

This ratio measures the efficiency and profit earning capacity of the firm. The higher the ratio,
the greater is the intensive utilization of fixed assets Lower ratio means under utilization of fixed
assets and excessive investment in these assets.
Table 4.11 Shows fixed assets ratio of SGEL for the period 2004-05 to 2008-09. Looking to
fixed assets turnover of SGEL, the trend seems decreasing for year2005-06 & 2006-07 and then
after increase in 2007-08 and then after decrease in 2008-09. The ratio was highest in 2004-05
i.e. 3.51 and lowest in 2006-07 i.e. 2.34. The average for the index is 85.07 for SGEL. It can be
conclude that under utilization of fixed assets and excessive investment in the assets by SGEL.

5) Working Capital Turnover Ratio

Meaning and Computation
This ratio establishes the relationship between net working capital and net sales or cost of goods
sold. The working capital turnover ratio indicates the velocity of the utilization of net working
capital. This ratio measures the efficiency with which the working capital is being used by a
firm. This ratio can be calculated as:

Net Sales
Working Capital Turnover Ratio = ----------------------------Net Working Capital

Components
Net working capital refers to current assets minus current liabilities. While sales refers to net
sales. Instead of sales, cost of goods sold is also used to calculate this ratio.
Table 4.12: Working Capital Turnover Ratio of SGEL for the
period 2004-05 to 2008-09
In Times
Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
5.04
3.38
2.63
3.01
2.3

Index
100
67.06
52.18
59.72
45.63

Source: Annual Reports

Graph 4.8: Working Capital Turnover ratio of SGEL for the period
2004-05

to 2008-09

59

Ratio
Ratios

6
4
2
0

5.04

2004-05

3.38

2005-06

2.63

2006-07

3.01

2007-08

2.3

Ratio

2008-09

Years

Significance and Interpretation

A high working capital ratio indicates efficient management of working capital. It means high
investment in working capital and more profits. On the contrary, low working capital turnover
ratio implies under trading. It means funds are not being used efficiently.
Table 4.12 shows working capital turnover ratio of SGEL for the period 2004-05 to 2008-09. In
case of SGEL the ratio was highest in 2004-05 i.e. 5.04 while lowest in 2008-09 i.e. 2.30. The
table also indicates index for the same ratio. The index registered decreasing tendency. The
average for the ratio is 3.27.
It can be concluded that there is no consistency in working capital turnover over the period of
study. The company has to take necessary steps to strengthen working capital position by
improving this ratio.

6) Capital Turnover Ratio

Meaning and Computation
This ratio establishes the relationship between net sales or cost of goods sold and capital
employed. The efficiency of business operations are judged by comparing sales amount with
capital employed in the business. Expressed as a Formula:
Net Sales
Capital Turnover Ratio = ----------------------Capital Employed

Components

For the purpose of calculating capital turnover capital employed refers to shareholders funds
means share capital, reserves and surplus and long term loan funds. Sales are taken net sales.
Instead of sales cost of goods sold is also taken to know capital turnover.

60

Table 4.13: Capital Turnover

Ratio of SGEL for the period

2004-05 to 2008-09
(In Times)
Index
100
64.44
59.56
72.44
61.78

Year
Ratio
2004-05
2.25
2005-06
1.45
2006-07
1.34
2007-08
1.63
2008-09
1.3
Source: Annual Reports
Graph 4.9: Capital Turnover ratio of SGEL for the period 2004-05 to
2008-09

Ratio
Ratios

3
2
1
0

2.25

1.45

1.34

1.63

1.3
Ratio

2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

This ratio is better measurement of efficient use of capital employed. Efficient use of capital
symbolizes profit earning capacity and management efficiency of the business. As such, higher
ratio shows higher profit and lower ratio shows lower profit.
Table 4.13 indicates trend of capital turnover ratio. In case of SGEL the ratio goes downward for
year 2005-06 & 2006-07 and goes increase for year 2007-08 & then decrease in 2008-09. The
ratio was highest in 2004-05 i.e. 2.25 and lowest in 2008-09 i.e. 1.30. The average for the ratio is
1.59. The average index is 71.64.
It can be concluded that the ratio of SGEL shows lower ratio in all the years except 2004-05,
that means lower ratio shows lower profit.

iii) PROFITABILITY RATIOS:

The primary objective of a business undertaking is to earn profits. Profit earning is considered
essential for survival of the business. In the words of Lord Keynes, Profit is the engine that
drives the business enterprise. The firms ability to earn maximum profit by the best utilization
of its resource is called profitability. These ratios indicate overall managerial efficiency.
Generally profitability ratios are calculated either in relation to sales or in relation to investment.

61

In this study to measure profitability of SGEL following profitability ratios has been calculated.

1) Gross Profit Ratio

Meaning and Computation
This ratio expresses the relationship of gross profit on sales to net sales in terms of percentage.
Expressed as a formula, the gross profit ratio is:
Gross Profit
Gross Profit Ratio = ----------------------- x 100
Net Sales

Components
It is calculated by deducting the cost of goods sold from net sales. Cost of goods sold includes
purchase price and direct expenses relating purchase such as carriage inward, octroi, etc. In case
of manufacturing concern like SGEL, cost of goods sold includes the sum of cost of raw
material used, wages, direct expenses and all other manufacturing expenses. Net sales mean total
sales minus sales return and excise duty.
Table 4.14: Gross Profit Ratio of SGEL for the period 2004-05 to 2008-09
Year
2004-05
2005-06
2006-07
2007-08
2008-09
Source: Annual Reports

Ratio
10.29
11.66
10.38
12.49
11.79

Index
100
113.31
100.87
121.38
114.58

Graph 4.10: Gross Profit Ratio of SGEL for the period 2004-05 to 2008-09

20

Ratio
11.66

10.38

12.49

11.79
Ratio

Ratios

10.29
2004-05

2005-06

2006-07

2007-08

2008-09

Years

62

Significance and Interpretation

This ratio measures the trading effectiveness and basic profit earning
Potentiality of a firm. The higher the ratio the greater will be the margin and that is why it is also
called margin ratio. The low gross profit ratio is the indication of the fact that profits are
declining in comparison to sales.
Table 4.14 indicates gross profit ratio of SGEL for the period 2004-05 to 2008-09. In 2007-08
the ratio was highest i.e. 12.49 and lowest in 2004-05 i.e.10.29. It shows the increase & decrease
trend. The average ratio is 11.32 and average index is 110.
It can be concluded that profitability of SGEL is fluctuating. Company has to take steps to
increase it.

2) Net Profit Ratio

Meaning and Computation
This ratio measures the relationship between net profit and sales of a firm. The net profit ratio is
determined by dividing the net profit by sales and expressed as a percentage. The formula used
is as follows:
Net Profit Ratio =

Net Profit after Tax

------------------------- x 100
Net Sales

Components

Net profit is the excess of revenue over expenses during a particular accounting period. Net sales
refer to sales minus sales return and excise duty. For the purpose of net profit ratio net profit
after tax is taken into account
Table 4.15: Net Profit Ratio of SGEL for the period 2004-05 to 200809

Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
5.18
6.07
4.85
6.08
4.24

(In Percentage)
Index
100
117.18
93.68
117.37
81.85

Source: Annual Report

63

Graph 4.11: Net Profit ratio of SGEL for the period 2004-05 to 200809

Ratio
Ratios

10
5
0

5.18

6.07

4.85

6.08

4.24
Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

Years

Significance and Interpretation

Thus ratio is the indication of overall profitability and efficiency of the business. A high net
profit ratio would only mean adequate return to the owners. A low net profit ratio on the other
hand would only indicate inadequate returns to the owners.
The net profit ratio of SGEL marked fluctuating trend during the period covered by study. The
average of the same ratio is 5.28 and average of index of this ratio is 102.02.
It can be concluded that profitability of SGEL is fluctuating. Company has to take steps to
increase it.

3) Operating Ratio
Meaning and Computation
This ratio expresses the relationship between operating costs and net sales expressed as a
formula:
Operating Costs
Operating ratio = ------------------------ x 100
Net Sales

Components
Operating expenses includes office and administrative expenses selling and distribution
expenses, cost of production, manufacturing expenses and all other expenses which are incurred
by the company for operation of business activities. Financial expenses such as interest, discount
provision for bad debts, preliminary expenses etc. are excluded from operating expenses.

64

Table 4.16: Operating Ratio of SGEL for the period 200405 to 2008-09
(In percentage)
Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
67.99
67.05
66.54
82.8
84.31

Index
100
98.62
97.87
121.78
124

Source: Annual Report

Graph 4.12: Operating ratio of SGEL for the period 2004-05 to 200809

Ratio
100

Ratios

67.99

67.05

66.54

82.8

84.31

50

Ratio

0
2004-05 2005-06 2006-07 2007-08 2008-09

Years

Significance and Interpretation

Operating ratio is measure of operational efficiency. This ratio over a number of years will
reveal the extent to which expenses vary in relation to sales.
Looking to the operating ratio of SGEL it shows lower trend for first three years but then after it
is increase means the company has no control on its operating costs. The average index is
108.45.
It can be concluded that SGEL has make greater control on its operating cost.

4) Return on Capital Employed

Meaning and Computation
The primary objective of making investment in any business is to obtain adequate return on
capital invested. Therefore, to measure the overall profitability of the firm, it is essential to

65

compare profit with capital employed. With this objective return on capital employed is
calculated. It is also called Return on Investment (ROI). This ratio expresses the relationship
between profit and capital employed and is calculated in percentage by dividing net profit by
capital employed. The formula used is as follows:
Net Profit before Int. and Tax
-------------------------------------- x 100
Capital Employed

Return on capital employed =

Components
Net profit means the profit before interest and tax while capital employed means gross capital
employed or net capital employed. Gross capital employed means the total assets used in the
business, i.e. Fixed Assets and Current Assets. Net Capital employed means total assets minus
current liabilities. Capital employed can also be computed by combining shareholders funds and
borrowed / loan funds. In case of SGEL capital employed consist of equity share capital,
Reserves and surplus and loan funds.
Table 4.17: Return on Capital Employed of SGEL for the period 2004-05 to 2008-09
Year
2004-05
2005-06
2006-07
2007-08
2008-09

(In Percentage)
Index
100
74.46
66.16
88.56
70.31

Ratio
24.82
18.48
16.42
21.98
17.45

Source:
Annual

Report
Graph 4.13: Return on Capital Employed of SGEL for the period 2004-05 to 2008-09

Ratio
Ratios

30
20
10
0

24.82

18.48

16.42

21.98

17.45
Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

Years

Significance and Interpretation

66

The return on capital employed provides a test of profitability related to the long term funds. The
higher the ratio the more effective and efficient would be the utilization of capital and vice versa.
Table 4.17 shows that the company earned highest return on capital employed in 2004-05 i.e.
24.82. It shows that in 2005-06 & 2006-07 it becomes down & then increase in 2007-08 & again
decrease in 2008-09. The average of the index is 79.90. It can be concluded that company get
less return on capital & shows less efficiency and effectiveness.

5) Return on Total Assets

Meaning and Computation

Profitability can be measured by establishing relationship between net profit and total assets.
This ratio is computed by dividing the net profits after tax by total assets. Expressed as a
formula:
Net Profit after Tax
Return on Total Assets = ------------------------------ x 100
Total Assets

Components

Total assets mean all net fixed assets, Current assets and non trading
investment. Here total assets include net fixed assets and current assets.
Table 4.18 : Return on Total Assets of SGEL for the period 2004-05 to 2008-09
(In Percentage)
Year
Ratio
2004-05
6.28
2005-06
6.62
2006-07
4.19
2007-08
6.05
2008-09
3.78
Source Annual Reports

Index
100
105.41
66.72
96.34
60.19

Graph 4.14: Return on Total Assets of SGEL for the period 2004-05
to 2008-09

67

Ratio
Ratios

8
6
4
2
0

6.62

6.28

6.05
4.19

3.78
Ratio

2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

This ratio measures the profitability of investments which reflects managerial efficiency. The
higher the ratio, the better is the profit earning capacity of the firm.
For SGEL, return on total assets for 2004-05 was 6.28. Then after it increase in 2005-06 i.e.6.62
& decrease in 2006-07 i.e.4.19 & than increase in 2007-08 & than decrease in 2008-09, so it
shows fluctuating. In 2008-09 it goes down and was 3.78. In 2005-06 it was highest i.e. 6.62.
The average of index for SGEL is 85.73.Overall all the picture of SGEL regarding return on total
assets is quite good.

6) Return on Shareholders Investment or Net Worth

Ratio:

Meaning and Computation

This ratio shows relationship between net profit after interest and tax and shareholders fund.
Thus,
Net Profit after Tax
Return on Shareholders Investment = -------------------------- x 100
Shareholders Funds

Components
For the purpose of this ratio net profit means profit after tax and
shareholders funds include equity share capital, preference share capital and
reserves and surplus if any.

68

Table 4.19: Return on Shareholders Investment (Net worth Ratio) of

SGEL for the period 2004-05 to 2008-09
In Percentage
Index
100
98.07
71.91
96.18
63.1

Year
Ratio
2004-05
20.68
2005-06
20.28
2006-07
14.87
2007-08
19.89
2008-09
13.05
Source: Annual Reports

Graph 4.15: Return on Shareholders Investments of SGEL for the

period 2004-05 to 2008-09

Ratio
30
20

Ratios

20.68

20.28

19.89

14.87

13.05

10

Ratio

0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and Interpretation

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm.
This ratio is of great importance to the present and prospective shareholders as well as
management of the company.
Table 4.19 shows return on shareholders investment of SGEL. The ratio registered decreasing
tendency for year 2005-06 & 2006-07 and then increasing in 2007-08 and again decreasing in
2008-09. The range of the ratio was 13.05 to 20.68. The index of the ratio was highest in base
year i.e. 100 and lowest in 2008-09 i.e. 63.10.
Looking to average of return on shareholders investments it is higher for SGEL in 2004-05 &
lowest in 2008-09.

69

iv) LEVERAGE / CAPITAL STRUCTURE RATIO

Leverage or capital structure ratios are calculated to judge the long term solvency or financial
position of the firm. Therefore, these ratios are also known as long term solvency ratios.
Following ratios are generally calculated to analyse the capital structure of a firm.

1) Debt-Equity Ratio
Meaning and Computation
This ratio indicates the relative proportion of debt and equity in financing the assets of a firm.
In other words, debt equity ratio reveals the relationship between internal and external sources
of funds of a firm. Expressed as a formula:
External Equities
Debt Equity Ratio = -------------------------Internal Equities
Total Debt
= ---------------------Shareholders Fund

Components
An external equity refers to the total outside liabilities i.e. short term and long term loans.
Internal equities means total paid up amount of equity and preference share capital plus amount
of reserves and surplus.

Table 4.20 : Debt-Equity Ratio of SGEL for the period

Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
0.77
1.29
1.28
1
1.21

In Proportion
Index
100
167.53
166.23
129.87
157.14

200405 to
200809

Source: Annual Reports

Graph 4.16: Debt Equity ratio of SGEL for the period 2004-05 to 2008-09

70

1.4

1.29

1.2
1
0.8

1.28
1

1.21
1

0.77

Ratio 0.6
Ratio

0.4

standard

0.2
0
2004-05

2005-06

2006-07

2007-08

2008-09

Year

Significance and Interpretation

This ratio plays an important role in analysing the long term solvency of a company. Normally,
debt equity ratio of 1:1 is reasonable. The purpose of the ratio is to get an idea of the cushion
available to outsiders on the liquidation of the firm. A high debt equity ratio indicates that claims
of outsiders creditors are greater than owner.
From table 4.20 and graph 16 it is clear that debt-equity ratio of SGEL is highest in 2005-06
i.e.1.29 & lowest in 2004-05 i.e.0.77.Ratio is higher in 2005-06, 2006-07 & 2008-09 as compare
to the standard. The average index of the ratio for SGEL is 144.15.
It can be conclude that the high ratio can be taken to mean that claim of outsiders are greater
than owner of SGEL.

2) Proprietary Ratio
Meaning and Computation
This ratio is also called Owners Equity or Net Worth to Total Assets Ratio. Proprietary ratio
established relationship between proprietors funds and total assets of the business. It is
calculated as follows:
Proprietary ratio =

Proprietors Funds
-------------------------Total Assets

Components

71

Proprietors funds include share capital, all reserves and surplus and undistributed profits. Total
assets include all current and fixed assets.

Table 4.21: Proprietary Ratio of SGEL for the period 200405 to 2008-09
Year
2004-05
2005-06
2006-07
2007-08
2008-09

In Proportion
Index
100
110
93.33
100
96.67

Ratio
0.3
0.33
0.28
0.3
0.29

Source: Annual Reports

Graph: 4.17: Proprietary ratio of SGEL for the period 2004-05 to 2008-09

R
a
t
i
o

0.6
0.5
0.4
0.3
0.2
0.1
0

0.5
0.3

0.5
0.33

0.5
0.28

0.5
0.3

0.5
0.29
Ratio
Standard

2004-05

2005-06

2006-07

2007-08

2008-09

Year

Significance and Interpretation

Higher the ratio, the more secured is the position of creditors and lower the ratio the greater is
the risk to creditors. Therefore, a higher ratio is an indication of sound financial position of a
company. A ratio of above 50% is generally considered safe for creditors.
Table 4.21 indicates proprietary ratio of SGEL. For SGEL, the ratio registered quite same trend
for all the five years. In all five years it was less than the standard i.e. 0.50. The average of the
ratio is 0.30. The average index of the ratio is 100.
It can be concluded that, financial position of SGEL is not good. It can be said that position of
creditors of SGEL are more risky.

72

3) Fixed Assets Ratio

Meaning and Computation
This ratio is also called the Capital Employed to Fixed Assets Ratio as per sound financial
policy; acquisition of fixed assets should be financed from long term funds only. It expresses the
relationship between long term funds or capital employed and fixed assets of the firm. Expressed
as a formula, the ratio is:
Long term funds / capital employed
Fixed Assets Ratio = ----------------------------------------------Fixed assets (Net)

Components
Long term funds include equity share capital, preference share capital, all
reserves and surplus and long term loan funds. Fixed assets mean net fixed
assets.
Table 4.22: Fixed Assets Ratio of SGEL for the period 2004-05 to 2008-09
Source:
Reports

Year
2004-05
2005-06
2006-07
2007-08
2008-09

Graph

In Proportion
Index
100
133.97
112.18
119.23
138.46

Ratio
1.56
2.09
1.75
1.86
2.16

Annual

4.18: Fixed
Assets
Ratio

of

SGEL for the period 2004-05 to 2008-09

2.5
2
1.5

2.16

2.09
1.561.5

1.5

1.75

1.86
1.5

1.5

1.5
Ratio

Standard

0.5
0
2004-05

2005-06

2006-07

2007-08

2008-09

73

 Significance and Interpretation

This ratio indicates whether proper adjustment between long term sources and long term uses of
capital exists or not. Normally a ratio of 1.5:1 is considered good. Fixed assets ratio of more
than one reveals that long term funds have been employed to finance current assets also. On the
contrary a ratio of less than one indicates that a part of fixed assets is financed by short term
funds i.e. bank overdraft.
Table 4.22 shows fixed assets ratio of SGEL. In case of SGEL the ratio was above standard for
all the years. The average of the ratio is 1.88. In 2008-09 fixed asset ratio was highest i.e. 2.16.
It can be conclude that the fixed assets ratio of more than one reveals that long term funds have
been employed to finance current assets also by the company.

vi) INVESTMENT ANALYSIS RATIOS

These ratios are helpful to the shareholders in analyzing their present and perspective
investment. With the help of these ratios, the shareholders can also compare the value of
their investment with dividend, earnings etc. The following ratios fall in this category.

1) Earnings per Share( EPS)

Meaning and Computation
The rate of dividend on share depends upon the amount of profits earned by the firm. Whatever
profits remains, after meeting all expenses and paying preference share dividend, belongs to
equity shareholders. These are the profits earned on equity share capital. This ratio can be
expressed as:
Profit after tax
Earnings per share or EPS = --------------------------------Number of equity shares
Table 4.23: Earnings Per Share of SGEL For the period 2004-05 to
2008-09

Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
3.46
3.96
3.17
4.94
3.52

(In Rs)
Index
100
114.45
91.62
142.77
101.73

74

Source: Annual Reports

Graph 4.19: Earnings per share of SGEL for the period 2004-05 to
2008-09
6

4.94

5
4

Ratios

3.46

3.96

3.52

3.17

3
2

Ratio

1
0
2004-05

2005-06

2006-07

2007-08

2008-09

Years

Significance and interpretation

This is a popular ratio as it measures the profitability of a company from owners stand point.
The higher the ratio the greater would be the market price of a companys share and vice versa.
It is evident from the table 4.23 that earning per share of SGEL, in 2004-05 i.e.3.46, in 2005-06
i.e.3.96, in 2006-07 i.e. 3.17, in 2007-08 i.e. 4.94, in 2008-09 i.e. 3.52.So it shows fluctuation in
ratio. The average of the EPS for SGEL is 3.81.The EPS was highest in 2007-08 for SGEL i.e.
4.94 and lowest in 2006-07 i.e.3.17.The average of the index is 110.11 for SGEL.
It can be concluded that the EPS is low for SGEL. The management should try to improve its
earning capacity and thereby they can increase market price of companys share also.

Dividend per Share (DPS)

Meaning and Computation

Thus, dividend per share ratio represents the dividend paid to shareholders on per share basis.
This ratio can be expressed as:
Dividend paid to equity shareholders
Dividend per Share = ------------------------------------------------No. of Equity Shares
Table 4.24: Dividend Per Share of SGEL for the period 2004-05 to 2008-09
(In Rs)
Year
2004-05
2005-06
2006-07
2007-08
2008-09

Ratio
1
1
1.2
1.2
1.2

Index
100
100
120
120
120
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Source: Annual Reports

Graph 4.20: Dividend per share of SGEL for the period 2004-05 to
2008-09
1.25
1.2

1.2

1.2

1.2

2006-07

2007-08

2008-09

1.15
1.1

Ratios

1.05
1

2004-05

2005-06

0.95
0.9

Years

Significance and interpretation

This ratio represents to what extent the profits have been received by the owners as
dividend. The investors, desiring more income would like to invest in the share of a high
dividend paying company.
Table 4.24 shows dividend per share of SGEL. Looking at DPS of SGEL there is no major ups
and downs in the ratio. The average of the ratio is 1.1. The table shows index of the ratio. The
average of the index is 112. It can be concluded that management has to take steps to increase
DPS and thereby they can increase profitability also.

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4.3.7 Du Pont Analysis:

It is a useful system of Analysis, which considers important interrelationships based on information
found in financial statements, it has been adopted by many firms in some from or the another. Chart
shows the Du Pont chart of SGEL.
Figure-4.3 Du Pont Analysis
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CHAPTER: V - FINDINGS & SUGGESTIONS

Many of the well established Indian Industrial houses have achieved development and are on the
path of significant advancement at global level. Just as our country made considerable progress
in almost all areas after freedom, we may note that glass lined sector was also not an exception.
Immediately after independence this country had to rely on other developed countries, mainly
for glass lined reactor vessels. The glass lined industry developed as an independent sector.
Despite some difficulties it paved way for progress. SGEL is shining name in the list of glass
lined industrial units.
SGEL serves need of various industries like chemical, petrochemical, pharmaceuticals, Agro
Chemicals and fertilizers, food processing and allied industries, oil and gas refinery, pesticides,
dyes and intermediaries etc. by providing them various equipments to suit their requirements.
Present study from financial point of view is referred to as financial statements analysis of
SGEL. The financial statements analysis can also be known as financial performance analysis
and financial analysis. Its scope is very vast. The objectives of this study may also become very
vast. But in the present study two selected units have been analysed from view point of
measuring their financial strengths and weaknesses. How far SGEL has succeeded in fulfilling
its objectives of market leadership, maximizing net worth, higher EPS etc. and what about
liquidity solvency, profitability and operational efficiency of the company have been the subject
maters.

5.1 INTRODUCTION
Analysis of financial statements is process of identifying the financial strengths and weaknesses
of a company by establishing proper relationship between various financial facts and figures as
given the set of financial statements. Financial statements analysis helps to convey an
understanding of some very significant aspects of the finance of a firm e.g. liquidity position,
profitability, financial soundness, operating efficiency etc. The present study deals with some of
such important aspects of SGEL located at Vitthal Udyognagar. For analysis of financial
statements of SGEL techniques like comparative analysis, common-size analysis, and ratio
analysis have been used. Statistical tools like mean, index number and graphs have also applied.
The study has been stretched up to five chapters. First chapter deals with the selection of
problem, research methodology used, and data collection and analysis. Second chapter narrates
profile of the company. The third chapter discusses theoretical aspects of the study. In the forth

78

chapter analysis and interpretation of financial statements of the unit has been presented. The
fifth chapter focuses on findings, conclusions and suggestions.

5.2 HISTORY, GROWTH AND DEVELOPMENT OF GLASS

LINED COMPANY
How one can say that the company is growing? There are few areas in which if a company is
ahead of others, it can be said that it is growing. These areas are:

Good organizational structure.

Establishing strong team of leaders.

Building and increasing brand recognition.

Highly appreciable social responsibility.

Earning more on investments.

Increasing earnings per share.

Distributing more dividends to shareholders.

By being a market leader and achieving global leadership.

Creating more job opportunity.

Continuous improvement in long term and current financial position.

The company whether it is family managed business or professionally managed should be fully
commuted to sustainable development. The company should be customer centric, nimble footed,
performance driven and accountable on all fronts.

5.2.1

Swiss Glascoat Equipments Limited

SGEL was incorporated as a public limited company in 1962 and set up a plant at G.I.D.C.
Vitthal Udyognagar-388121 at Anand. Since then the company has not looked back and grown
in to own of the most forceful and dynamic company. Main objectives and chief activities of the
company remains to be the production of various glass lined reactor vessels. The company has in
house R & D section in close association with central glass and ceramic research institute,
Calcutta carrying out research and development work. Despite of keen complication in all the
areas of the companys activity the company is able to maintain its performance and achieving
significant market share.

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5.3 FINDINGS
To analyse financial statements of SGEL techniques like comparative analysis, common-size
analysis and ratio analysis have been applied. To analyse financial statements of SGEL various
liquidity, activity, profitability, leverage and investment analysis ratios are computed, analysed
and interpreted in the present study. Major findings are discussed in following paragraphs:

i)

Liquidity Ratios

1.

Current Ratio

Current Ratio of a firm measures its short term solvency and reflects ability to meet short term
obligations. The average current ratio of SGEL is 1.97 it means lower than the standard.
2.

Liquidity Ratios

Liquid ratio is considered to be superior to current ratio in evaluating the liquidity position of the
firm. A liquid ratio 1:1 is considered to be a satisfactory ratio. In case of SGEL the average
liquid ratio is 0.92. It is not as per the standard. Out of five years under study liquid ratio is as
per standard for only three years for SGEL. It means liquidity position of the company is not
strong for all the years covered by the study.
3.

Absolute Liquid Ratio

This ratio helps in evaluating firms ability to meet its liability immediately. The standard norm
for this ratio is 0.50:1. The average of the ratio is 0.19 which is lower than standard.

ii) Activity Ratios

1.

Debtors Turnover Ratio

The average of the ratio is 6.72 for SGEL. This company is good in releasing credit. In 2008- 09
the higher debtor turnover ratio shows that efficiency in collection to debtors has increased.

2.

Average Collection Period

80

The average of the ratio for SGEL is 57.28. In case of SGEL the ratio was highest in 2007-08 i.e.
84.69 and lowest in 2008-09 i.e. 41.48. The lower ratio in 2008-09 means fast recovery of
debtors in this year by the company.
3. Total Assets Turnover Ratio
The average number of times the assets are turned over in a year in relation to sales for SGEL is
1.00. Company has to improve total asset turnover and thereby establish upward trend for the
ratio.
4.

Fixed Assets Turnover Ratio

This ratio measures efficiency of the company with which it utilize its investments in fixed
assets and sales generated from it. The average for the ratio is 2.99. It shows under utilization of
fixed assets and excessive investment in the assets by SGEL. As this ratio is very significant for
such manufacturing concern like SGEL has tried to improve it.
5.

Working Capital Turnover Ratio

In case of SGEL the ratio was highest in 2004-05 i.e. 5.04 while lowest in 2008-09 i.e. 2.30.The
average for the ratio is 3.27. There is no consistency in working capital turnover over the period
of study.
6. Capital Turnover Ratio
In case of SGEL the ratio was highest in 2004-05 i.e. 2.25 and lowest in 2008-09 i.e. 1.30. The
average for the ratio is 1.59. SGEL shows lower ratio in all the years that means lower ratio
shows lower profit.

iii) Profitability Ratios

1.

Gross Profit Ratio

The average gross profit of SGEL is 11.32%. As there is no standard gross profit ratio but
comparison of intra firm suggests higher is better. It shows fluctuation throughout the year.

2.

Net Profit Ratio

Net profit margin is the indicator of overall profitability and efficiency of the business. For
SGEL it can be said that return to the owners are not adequate. The net profit ratio of SGEL

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marked fluctuating trend during the period covered by study. The average of the same ratio is
5.28.
3.

Operating Ratio

The average operating ratio of SGEL is 73.74%. It means operating expenses are high for SGEL.
SGEL has to reduce operating expenses in comparison to sales. So the company has to take steps
to bring down it by reducing operating expenses.
4.

Return on Capital Employed

SGEL earned highest return on capital employed in 2004-05 i.e. 24.82. It shows that in 2005-06
& 2006-07 it becomes down & then increase in 2007-08 & again decreases in 2008-09. It shows
that company gets less return on capital & shows less efficiency and effectiveness.
5.

Return on Total Assets

The average ratio of SGEL is 5.38. The result seems to be quite good for SGEL in the sense that
the resources of the unit are not being utilized in a profitable manner.
6.

Return on Shareholders Fund

The profitability of SGEL from the view point of shareholders can be said to be satisfactory, the
ratio registered decreasing tendency for year 2005-06 & 2006-07 and then increasing in 2007-08
and again decreasing in 2008-09. The range of the ratio was 13.05 to 20.68.

iv)
1.

Leverage / Capital Structure Ratio

Debt- Equity Ratio

Debt-Equity ratio shows long term solvency of a company. Debt-equity ratio of SGEL is highest
in 2005-06 i.e.1.29 & lowest in 2004-05 i.e.0.77.Ratio is higher in 2005-06, 2006-07 & 2008-09
as compare to the standard. It means for SGEL claims of outsider are greater.

2.

Proprietary Ratio

This ratio highlights the general financial strength of the firm. For SGEL, the ratio registered
quite same trend for all the five years. The average of the ratio is 0.30. For SGEL the average is
lower than satisfactory level 0.50.

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3.

Fixed Assets Ratio

Fixed assets ratio of SGEL is above standard for all the years. The average of the ratio is 1.88. In
2008-09 fixed asset ratio was highest i.e. 2.16.

v) Investment Analysis Ratio

1.

Earning Per Share (EPS)

The average of the EPS for SGEL is 3.81.The EPS was highest in 2007-08 for SGEL i.e. 4.94
and lowest in 2006-07 i.e.3.17.The average of the index is 110.11 for SGEL.
2.

Dividend per Share (DPS)

Looking at DPS of SGEL there is no major ups and downs in the ratio. The average of the ratio
is 1.1. The table shows index of the ratio. The average of the index is 112.

5.4 SUGGESTIONS
5.4.1 Swiss Glascoat Equipments Limited
1.

Liquidity position of SGEL is not good because the average Current

ratio and Liquid

ratio are lower than the standard. So management has to take certain steps to improve these
ratios by maintaining proper balance of current assets and current liabilities.
2.

SGEL should review its credit policy and thereby try to shorten

average collection

period.
3.

Profitability position of the company is not good. Because both gross profit ratio and net
profit ratio are lower. So SGEL has to try to increase both gross profit and net profit by
increasing sales or by taking various steps to reduce costs.

4.

SGEL has tried to increase earnings per share and also distribute more

dividends to

attract more and more investors.

5.

In this era of LPG, SGEL has tried to increase the export of glass lined equipments. The
company has to create the market both inside and outside the country and thereby capture
more market share.

83

6.

Glass lined industry is an oligopolistic industry and also one of the fast growing industries.
The competition is increasing in this industry and in such a situation SGEL should
concentrate more on its marketing policies.

7.

Operating expenses of SGEL are very high. So SGEL has to take steps to reduce cost of
raw material, manufacturing expenses and other operating expenses so as to improve
operating efficiency.

8.

For manufacturing units it is advisable to maintain high assets turnover ratio and improve
it accordingly. Though there is no any standard but inter firm comparison reveals that
SGEL has lower fixed assets turnover. So SGEL has to try to increase its fixed assets
turnover ratio.

84