A PROJECT REPORT

ON
ANALYSIS OF FINANCIAL STATEMENTS OF
SOUTH INDIA METAL COMPANY,
SHORANUR -2

A
PROJECT REPORT
SUBMITTED TO CALICUT UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD
OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION

SUBMITTED BY
SAJA.K.A
REGISTER NO:
UNDER THE GUIDANCE OF
RAMSEENA MISS (M.Com)

DEPARTMENT OF COMMERCE& MANAGEMENT STUDIES

ANSAR WOMEN’S COLLEGE,

PERUMPILAVU,THRISSUR,KERALA.
(Affiliated to the University of Calicut)
2008-2009

1 Saja.K.A
 ANSAR WOMEN’S COLLEGE PERUMBILAVU,
P.O KARIKKAD

Bachelor of Business Administration

CERTIFICATE

This is to certify that this Project Report

entitled at “SIMCO Metal Industry” with reference to overall study
is a bonafide record of placement training done by SAJA.K.A
(REG NO: )under my guidance and supervision and that is has not
previously formed the basis for the award of any degree, diploma,
associate ship, fellow ship to her

Head of the department Internal Guide

MR PRASAD. P MISS RAMSEENA
(Lecturer)
Dept of commerce& managent studies

2 Saja.K.A
DECLARATION

I hereby declare that the project report entitled

at“SIMCO METAL INDUSTRY” has been written and prepared by me
during the year 2008. The project was done under the valuable guidance and
supervision of RAMSEENA MISS (Department of Commerce &
Management Studies) ANSAR WOMEN’S COLLEGE PERUMPILAVU
In partial fulfillment of the requirement of the Degree of Bachelor of
Business Administration of Calicut University. I also declare that this study
is the result of my own effort and has not been submitted to any other
institution for the case of any Degree.

PLACE: PERUMPILAVU SAJA..K .A

DATE: FINAL BBA

ANSAR WOMEN’S COLLEGE

3 Saja.K.A
 ACKNOWLEDGEMENT

I would like to take this opportunity to express my profound thanks to

all people who have helped me with sound advice. I Acknowledge my
sincere thanks to Mr. Parameswaran of SIMCO for their sincere
guidance and help without which this placement would have been
Impossible.

I am deeply indebted to my guide Miss. Roopalakshmi.VC

(Department of Commerce) and Mr. Prasad. P(Head Department),
who has been constantly encouraging me at every stage of the work of this
placement training report. I cordially express my thanks to other staff
members for their whole hearted co operation.

Above all, I wish to express my gratitude to god and my parents under

whose divine guidance; I have able to successfully complete this work.

I myself, however remain solely responsible for the inadequancies and

blemishes that might have crept in to the report

Perumbilavu:
Date:

CONTENTS

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CHAPTER PAGE NO:

1. INTRODUCTION…………………………………………….8-11

2. COMPAN PROFILE…………………………………………13-27

3. FINANCIAL STATEMENT ANALYSIS OF SIMCO……..28-40

4. RATIO ANALYSIS OF SIMCO…………………………….41-73

5. SUMMARYOF FINDINGS &SUGGESTIONS…………….74-76

6. CONCLUSION………………………………………………..77

7. BIBLIOGRAPHY…………………………………………….78

8. ANNEXURE………………………………………………….79-85

CHAPTER-1

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 INTRODUCTION

Agriculture constitutes backbone of Indian Economy & in spite of

congested industrialization in the last four decades; Agriculture still occupies a place of
significance. Being the largest sector of the economic activity, it is the source of
livelihood for over 70 % of the population in the economy. Agricultures accelerate the
economic development to a very large proportion of population, capital for its own
development and surplus for investment in other productive sectors.
It is well known that agricultural production is the combined effect of a
variety of implements, fertilizers, irrigation, farm machinery, high yielding varieties of
seeds, etc….All these inputs in one way or another contribute to increasing in
productivity of agriculture & form under one. But these inputs become more effective
and their potential is better utilized if appropriate energy and power sources are made
available to the farmer.
The manufacturing of these agricultural implements & plays a dominant
role in small scale industrial sector of Kerala economy. This industry generally is
included in the agro based category units of small scale units. There are nearly
100small scale agricultural implements tools manufacturing units in KERALA. The main
location of these units is at SHORANUR at PALAKKAD District, {70% are at
SHORANUR itself}. The remaining units are spread over various parts of the state
especially in rural areas.
Total investments of these 100 units in plant and machinery are more than
Rs6Crores .The industry provides employment to nearly 300 people in this sector. The
ANNUAL turn over of these units is more than Rs20Crores and the main item of
manufacturing include Spade, Pick-axe, Hammer, Sickles etc…
It should be noted that various processes of manufacturing, raw materials,
machinery & equipments, investment, labour etc are required for small units. The
industry has been included in small scale units because it requires less investment when
compared to other large scale industries and also less technological background for

6 Saja.K.A
manufacturing process. The system of marketing agricultural implements is through
agents appointed at various parts of the country on commission basis. The products are
sold both inside & outside KERALA.
It may be stated that though these implements and machinery have been
developed mainly for usage in farms. The demand for hand tools and simple implements
continues due to small holding by the marginal farmer.

THE SOUTH INDIA METAL COMPANY

SOUTH INDIA METAL COMPANY is one of the reputed
Companies in KERALA which involved in the manufacturing of Agricultural
Implements, Garden Implements, Estate tools & Hand Tools. It has a very good
popularity in South India Markets.The South India Metal Company was established in
1936. The South India Metal Company is pioneers in he manufacturing field of
Agricultural and Horticultural implements, Garden tools, Estate tools and Hand tools.
The products of South India Metal Company have good market in South India. The
products of South India Metal Company have good market in South India. The company
has received various awards including first prize in the World Agricultural Fare at New
Delhi in 1961 for “Secatures” and second prize is the National Quality Award for
Agricultural Implements In 1986.

OBJECTIVES OF THE STUDY

Working capital management is a significant aspect of financial
Management. It is important that investment in current assets and the level of current
liabilities will have to be geared quickly to change in sales. It is also important that
apportion of working capital requirement is brought from Long term sources such as
equity or long term loans .In adequate working capital is a crisis and it may arise due to
poor working capital and financial management .
Every organization has adequate working capital for its efficient
functioning. As South India Metal Company, Shornur is a reputed institution it should

7 Saja.K.A
have sufficient working capital for its uninterrupted growth. The growth can be ensured
by a systematic and continuous analysis of fixed assets, current assets, fixed and current
liabilities, sales liquidity etc. An analysis of financial statements of South India Metal
Company will help to identify the weak points and convert it to strong points by taking
some remedial measures. The present study is an attempt in this direction.

THE MAIN OBJECTIVES OF THE STUDY ARE

1. To analyses the profitability of the business
2. To analyses the asset management of the firm.
3 To analyses the short term and long term financial position of the firm.
4. To make recommendation based on the analysis of financial statements.

PERIOD OF THE STUDY

The analyses of financial statement of South Indian Metal Company

have been made for a period of 5 years ranging from 2003-2008.

METHODOLOGY

The performance evaluation of an enterprise may be conducted by making

a comparative study of its own records and an attractive approach would here to analyses
the firm’s objectives and performance against absolute standard of efficiency. The study
was conducted on the basis of financial data from published records and other books with
both primary and secondary data. The data have been collected from partnership deed of
SIMCO, published financial statements of last 6 years, personal interview with office
staff and other relevant books and accounts of the firm.

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TOOLS USED FOR ANALYSIS
The study makes use of techniques like
1. Comparative Balance Sheet & Income Statements
2. Common Size Balance Sheet & Income Statements
3. Profitability Ratio.
4. Liquidity Ratio
5. Activity Ratio etc
Simple Mathematical Tools like
1. Averages
2. Percentages
Accounting Tools like
1. Ratios
2. Trend Analysis
& Statistical Tools were made also used for this analysis.

LIMITATONS OF THE STUDY

 The Sample Size is very small. Only 5 data were analyzed. So there is a possibility of
occurrence of some sampling errors. If the sample were large and representative, the
observation would have become more credible.
 It considers only monetary factors, non monetary factors are not considered.
 It is applicable only in the case of South Indian Metal Company, Shornur, not a study
of industry concerned
 The time allowed for the study is less.
 It has been conducted by using secondary data.

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COMPANY PROFILE

10 Saja.K.A
 CHAPTER-2
SOUTH INDIA METAL COMPANY – SHORANUR

COMPANY PROFILE

REGISTERED OFFICE : PURAYANNUR INDUSTRY – SHORANUR

S.S.I Reg. No. : 09/07/00380/PMT

AUDITOR : V.K.S NARAYANAN & CO

MANAGING DIRECTOR : P.DIVAKARAN

BANK : PUNJAB NATIONAL BANK

TRADE NAME : SIMCO

BRAND SYMBOL : LION

SOUTH INDIA METAL COMPANY located in SHORANUR is a

partnership firm established and registered in the year 1947. The founder of this firm is
PMC.DIVAKARAN NAMBOOTHIRIPAADU. The partners of the firm are
PURAYANNUR DIVAKARAN and PURAYANNUR VALSALA. The partners of the
firm are PURAYANNUR DIVAKARAN and PURAYANNUR VALSALA. The
managing partner of the firm is P.DIVAKARAN .The firm is running with 20 office staff
and 52 laborers.

HISTORY OF THE FIRM

SIMCO is a well known firm, manufacturing agricultural
implements and garden tools. South India Metal Company was established in 1936 as a
private company. Later partnership firm known as Purayannur Industries purchased the
company from the ABDUL SAMAD in the year 1947 and registered under the Indian
Partnership Act in 1956. The firm improved its working with the help of technical advice
of Sri C.K MENON and Sri K.K RAJA.

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STRUCTURE OF THE FIRM
Accounting to the partnership deed the firm consists of two partners.
PURAYANNUR DIVAKARAN and PURAYANNR VALSALA
The capital of the firm Rs 4, 00, 00 and contributed as under
PURAYANNUR DIVAKARAN -1, 60,000 /-
PURAYANNUR VALSALA-2, 0,000/-
The profit and loss of the firm after adjusting their interest salary and bonus to the
partners if any is divided among the two partners in the ratio of 40 % and 60%
respectively.
The managing partner of the firm is responsible for the overall and effective management
of the staff and whole establishment of SIMCO.

WORKING CAPITAL of SIMCO

The company invites deposits in the form of unsecured loans from
the partners for its day to day activities. It also invites deposits from outsides. These
deposits are used for meeting the company’s working capital requirements. It has also the
banking facilities such as overdrafts.

LOCATION OF THE FIRM

SIMCO is situated at Kulappully, 3 kilometers from Shornur Town.
There is about 8 acres of land for the company. The office, factory building, canteen,
workers, rest room, watch man sitting room, workers and staff quarters are well
constructed. As it is situated in the heart of Kulappully , all facilities such as road, rail
electricity, banking, communication etc are readily available there. Besides these
facilities the place is famous for small scale industries, especially Metal Industries
.Because of this the parcel booking office of almost all transport companies have been
opened here like T.V.S .Pattel Road ways, ABT ETC……

LAY OUT

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 The layout of the firm comprises factory buildings, office, canteen and rest room
for employees, security office and employers quarters well designed to accommodate
with in the available area even providing space for future expansion.

QUALITY CONTROL
SIMCO ranked first in its quality of products targeted towards user satisfaction.
The firm has received various awards including a first prize in the WORLD
AGRICUTURAL FAIR at NEW DELHI in 1961 for SECATURES and second prize in
the NATIONAL QUALITY AWARD FOR AGRICULTURAL IMPLEMENTS in 1986

PRODUCTS OF SOUTH INDIA METAL COMPANY

1. AGRICULTURAL IMPLEMENTS
 MAMATTY
 PICK-AXE
 GRUBBLING MATTOCK

2. HORTICULTURAL IMPLEMENTS
 KODAALI FORK
 DIGGING FORK
 MAMMATTY FORK
 DIGGING FORK

3. GARDEN TOOLS
 GARDEN SHARES
 TRENCHING HOE
 HAND FORK etc….

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 4. ESTATE TOOLS
 RUBBER TAPPING KNIFE
 PRUNNING SAW
 PRUNNING KNIFE

5. HAND TOOLS
 TM CUTTER
 ALAVANGOES
 FELLING KNIFE
 HAMMERS
 AXE
 SICKLE

COMPANY HAVE A MONOPOLY ON THE PRODUCTION OF

DIGGING FORK
PICK AXE
Pick-axe is an inevitable implements used by farmers and workers.These are used for
digging purposes.Two edges of pick-axe are sharpened one edge is pointed and the other
iand the other is flattered.So the operations become easier.
SPADE
Spade is an essential tool for several kinds of agricultural operations.It is mainly used for
turning up the soil or digging of the ground.It can be used both in light and hard soil.
HAMMER
Hammer is an indispresable tool for mining and quarry works. It is used for splitting
stones or rocks and is also used in the preparation of metal for load and building
constructions.The purpose for which it is being used the hammer is generally included in
the category of agricultural implements.

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 ORGANISATION CHART

Purayanur Industries

Managing Partner

Technical Manager Office Manager

Raw material Production and Finished Goods Accounting and

Purchase and Maintenance and sales Finance
Stores department Department Department Department

Foreman Charge man Sales Manager

Account Clerk

Sales Clerk

Wage Clerk
Raw material
Workers Store Keeper Dispatch clerk

Watchman Computer
Operator

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VARIOUS DEPARTMENTS

1) RAW MATERIALS PURCHASE AND STORES

DEPARTMENT

The working of the company starts from the Raw material purchase and stores de
partment. The raw material store keeper is the head of this department. There is one
assistant store keeper to help the raw material store keeper. The main functions of thsi
depatment

are (1) Purchasing of raw material (2) Storing of raw material (3) Issuing of raw material.

1)PURCHASING OF RAW MATERIAL

Purchase of raw material is the important function of the raw material
purchase and stores department.It includes the following steps

a) RECEIVING PURCHASE REQUISITION

Purchase requisition is a form used as a formal request to the purchasing
department to purchase materials.It gives the specification and quality materials to be
bought ,works order number and sanctions reference appilicable and data line for the
receipt of the materials.
When the stock of materials come to the re-ordering level ,the store
keeper prepare a purchase requisition.After receiving the purchase requisition,the
purchase manager will inform the same to several manager and then inform to
managing partner.Managing partner give consent to the purchase of such raw
material.After selecting the supplier the purchase manager will send purchase order to
those suppliers who supply the good quality material.

b) ISSUING OF PURCHASE ORDERS

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 A purchase order is an order to the supplier for specificed material it is the
evidence of the contract between the buyer and the supplier that binds both buyer and
supplier to the terms under which the order is placed. Purchase order will contain name
and address of both the parties,name of goods,quantity of goods etc…..After obtaining
the order the supplier will inform the date of dispatch,quantity,price &mode of delivery
of materials.The supplier send their goods to the consignee through TVS,KT etc… stated
in the indent.After receiving the materials storekeeper will check the quantity ,quality and
condition and will issue “ Goods received note” to facilitate the procurement department
to release the invoice for payment.

2.STORING OF MATERIAL
After receving the material ,store keeper place the material in proper
place and maintain a stores ledger containing three main column
a) Reciept column
b) Issue column
c) Balance column
On the basis of stores receipt note ,the store keeper accounts the receipt in the receipt
column of the stores ledger.It contain the quantity , rate and value of the material.

3.ISSUE OF RAW MATERIAL

Issue of raw material is done through the raw material indent. It is prepared
by the respective section chargeman showing the job order number, name of the
material,number or quantity etc…When the goods are issued, the storekeeper records it in
the issue column of the store ledger and balance is shown in the balance column.The
company adopt FIFO method for issuing the material .

PRODUCTION DEPARTMENT
Production is a process of converting rawmaterial into semi finished
goods or finished products.The working of the production department consist of the
following process:

17 Saja.K.A
1.RAIL CUTTING
The first step in production process is to cut the rail into comfortable
size.Mainlythe rail is divided into 3 parts head,centre and flange or bottom.Head is used
for making hammers, centre for making mammatties etc…The products which need high
carbon content are made by billets.
2.POWER FORGING
After Rail cutting it is then passed to the power forging section.A far heating the
rail upto red form furnure,it is passed to power hammers.The power hammers will give
Rough shape to the product.From here semi finished goods are passed to Hand forging
section.
3.HAND FORGING
Finishing work is manually done at hand forging section.Only that raw material
which is having rough shape is passed to hand forging section.
4.TEMPRATURE 0R HEAT PROCESSING
Tools are tempered on hardened under this process. Firstly the tools are heated
then suddenly cooling. This is another area of expert work because the qualities of the
tool or implements are very much depending on this process. Similarly sharper tools are
tempered in quenching oil and other tools are tempered is know.
5.GRINDING OR POLISHING
Under this process tools are grinded or polished. This process makes the tools are
very attractive. For this grinding wheels and polishing belts are used.
6.CUTLERY AND CARPENTARY
Next process is cutting and carpentry certain tools require handles. These handles
are fitted under this process. For handled, in this company ‘avail’ plants are used because
of the special quality in nature.
7.PAINTING AND PACKING
Some tools are painted in the red colour, some others in light rose and others in
varnish. Some special tools are electroplated. This process makes tools are very
attractive and prevent stain.

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 The painted or varnished tools are packed in convenient Quantities and then
transferred to finished goods stall. The process Of Production is given in diagram. The
diagram showing the Company process of section of production.

MAINTENANCE DEPARTMENT
Maintenance section is a part of production department. It helps to
make the production smoothly affinity. It consists of on maintenance engineer and his
workers. The workers include sharps, mechanist, man and fitters.Maintenance of a
machine means effort dissected towards maintaining the machine in a good condition.
Maintenance reduces break downs and helps in achieving targeted production. The
maintenance is done with out affecting production. The main duties of the department are
repair and maintenance of equipments of the factory.
The main functions of their department are:
1) To provide spare part to the machine.
2) To repair machine
3) To maintain the machine properly
4) To provide directions and instruction regarding options of machines.
The maintenance section is not a suppurate department. But it is a part of production
department. This helps to repair the machines and prevent the stoppage of production or
to avoid the interception in the flow of production process.

MARKETING DEPARTMENT
Marketing is a comprehensive term and includes all resources and set of
activities necessary to direct and facilitate the flow of goods and services from the point
of production to the consumption through the process of distribution .Marketing is the
process of all activities including for the exchange of goods and services from the point
of production to the point of consumption.
The marketing area of SIMCO product is the whole over South India. The
products are marketing directly by the firm. Sales manager is in charge of marketing
department. He is to make sales and keep all records and account in connection with

19 Saja.K.A
sales. Sales department divides the selling price of the products, profit on product and
production on the basis of demand.

The method is that the company has a sales representative to collect orders
from the dealer/retailers. The sale representatives will inform the orders and the
company directly will send the product to the dealer/retailers.

SALES DEPARTMENT
The sales manager with the help of sales clerk undertakes the sales activities.
Orders are received by the firm through agents on securing orders the sales clerk makes
arrangements for the delivery of goods. He records the products delivered, its quality,
price quantity etc in a book known as order book.For order worth Rs 3500 /- or more at a
times 15% discount will allowed for all items. It charges central sales tax and maximum
credit period is one and half month.It also provides credit sales on limited rates.

HUMAN RESOURCE DEPARTMENT

Main purpose of human resource department is to establish and maintain
sound personnel relation at all levels of organization and effective use of personnel by
ensuring good condition of employment.Human resource department is under the charge
of a human resource manager.
Functions of personnel management
1. Incentivating developing and maintaining motivation for work.
2. Wage & salary administrating and wage & salary surveys.
3. To provide benefits and service of insurance, health, hospitalization, medical care etc.
Types of workers
There are three types of workers in the company
1. Piece rate workers on the production department.
2. Administrative staff.
3. Security staff

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SIMCO consists of 100 workers.Among them 49 are permenant workers.It also has 17
office staff and 4 security staff.
The major functions of this department are:

RECRUITMENT AND SELECTION

Like any other company ,SIMCO also need different kinds of personnel for
metal works , supervisors , clerks and so on.This company specifies separate skill and
experience for all these work. SIMCO find out its human resources through various
source like advertisement ,unsolicitated application.

INDUSTRIAL RELATION
Trade union are a powerful instrument to promote and safe guard the interests of the
workers and to achieve the economical psychological and social goal of workers
Trade union of the company are as follows

 CITU
 INTUC
 B.M.S
 SIMCO Staff Association (staff union)

WELFARE
Labour comprises all human efforts of body and mind, which is exchanged for a
consideration in term of cash or kind or bosh. Welfare to a broad concept referring to a
condition of an individual or group of relationship – with the whole environmental.
Friendly existence physiological balance, population free existence and proper sanitation,
solid welfare is the prevention of decimation bred on costs, creed sex, establishment of
equity and fairness, ensuring safety. The office of economic welfare same time promotes
Economic development of society by increasing production, productivity and quality of
products and services.

21 Saja.K.A
WAGE AND SALARY ADMINISTRATION
There are different rule for determining the wages of workers and salary of
office staff. Office staff and watch man received fixed salary.But the workers receive
wages under piece rate system.The firm pays iut the wages as per the minimum wages
Act of 1948

Benefits given to employees

This organization provides following retirement benefits to the employee, i.e. Gratuity,
Provident fund and Pension etc.
FAMILY PENSION
Family pension is paid to employees who died before superannuating.Graded
person is provided. Those who retire get a lump sum but no pension. Minimum
eligibility condition of pension is to be 10 years experience.
PROVIDENT FUND
Provident fund is give to the employee by way of contribution equally done by employer
and the employees.
GRATUITY
Gratuity is calculated by using the following formula
Gratuity = Basic Pay + Dearness allowance X 15/26 X year of service
BONUS
SIMCO provide certain percentage of profit as a bonus in a festival season.
EMPLOYEE STATE INSURANCE
Both employees and employers contribute a fixed sum to ESI.
LOANS
The concern provide,loan facility to its employees in times of festival,marriage
and other needs.
CANTEEN FACILITY
The canteen facility are also provided to the employees. For availing this facility
the employees should take canten token from the office and then his token should be
given to canteen instead of cash.

22 Saja.K.A
SAFETY & SECURITY
Management is primarily responsible for safety. Management involves all
managers including top management. All department head and their management staff
including supervisors are equally responsible for safety of their workers and equipment.
A worker who is working with a machine is equally responsible for the safety of his life
as well as the lives of his colleagues. So as also the security man as the gate of his
factory thus we find safety encompasses every employee, every department and every
functionary in the organization.
60 minor accidents are reported in the last year. The main cause of these
accidents is to carelessness of the workers. Most of the workers are working near the
furnace. This is always a chance to burn body of the workers. The company can avoid
this accident to give more training and safety program to the workers.

OTHER ADMINSTRATIVE ACTIVITIES

PERFORMANCE APPRAISAL
The performance of each employee is evalutated by the respective supervisor
and the evaluation report is submitted to the top level executives by the
supervisor.According to this workers may rewarded at the monthly meeting.

ABSENTEESIM
There are two types of absentees. They are habitual absentees and non habitual
absentees. Habitual absentees will take leave frequently without any reason or
somewhere engaged in other wise, other than their workers in the company.Non habitual
absentees those who take leave very rarely. SIMCO permits 10 % absenteeism in a year

GRIEVANCE HANDLING

23 Saja.K.A
 If there is any grievance are occupied it will be reported to the top leve
managers and a mmeting will be called immediately.In this the workers and top level
management reveal their problems and complaints according to this proper action will be
taken

TIME OFFICE
For recording the attendance of workers instead of attendance register and
attendance card method is followed.It is placed in the time office. The attendance card
contains the name of the worker, ticket number, name of the dept in which he works,
working hours etc. At the time of his arrival the worker should submit his attendance
card. The charge man also records the attendance in a particular book the note book
include the name of worker, ticket number, 6time of arrival etc. After doing the charge
man submits this book to the personal manager and he will make tick marks on the
attendance card and this is the base for preparing wage sheet.

ACCOUNTING AND FINANCE DEPAREMENT

The accounting and finance department under the control of office manager.
It consists of account clerk wage clerk, sales clerk and dispatch clerk and computer
operator.

The main functions of the finance department are as follows.

1. Maintenance of liquid asset.The department ensures that there is adequate cash in
hand and at bank to meet its obligation at all times.
2. Building up reserves for growth expansion.
3. Maximisations of profit and wealth of the owners.
4. Ensuring maximum operational efficiency by efficient and effective utilization of
finance for ensuring financial discipline in the organization.
5. Evaluation of financial performance.

24 Saja.K.A
 6. Negotiate with bankers, financial institution and creditors.
7. The department undertakes financial planning to forecast the needs and source of
finance.

ACCOUNTING SYSTEM
The Accounting Department is fully computerized. The company maintains the accounts
on double entry system of Book-Keeping.Office manager is in charge of accounts section
and is responsible for the entire function of this section.
Main books of accounts
The company prepares mainly the following books.
Cash book : Cash book is prepared for entering all the receipt and
expenses of cash
Purchase day book : Transaction of credit purchase of goods are recorded
in this book
Sales day book: Sales day book includes all sales made in a day. There
are separate column for taxable and nontaxable items in these books.Two
separate column for @ 4 percentages and 10 %. At the end of every
month the sales clerk prepares sales day book.
General Ledger: A general ledger contains all other accounts.
Bankbook: The bank book contains the receipt and payments of check,
demand draft etc.
Personal Ledger: It includes personal accounts, which are divided into
two separate accounts. They are:
Sundry creditors:- All purchases are treated as credit purchase and so that
all purchases entered in to sundry creditors account.

Sundry debtors: - This account is kept for ending reminder and for

Calculating sundry debtors.

25 Saja.K.A
 CHAPTER 3

FINANCIAL STATEMENT ANALYSIS

Financial Statements are the principal sources of Financial Information.

They are the statements showing the financial position and the results of business
operation at the end of the accounting period. It is prepared on the basis of recorded
facts .The statements are prepared for a particular period, generally once in a year
According to John .N. Myer,” the financial statement provide a
summary of accounts of a business enterprise in the balance sheet reflecting the assets,
liabilities and capitals as on certain date and the income statements showing the results of
operations during a certain period. Financial statements are the outcome of summarizing
process of accounting.
Financial analysis refers to the process of determining financial strength
and weakness of the firm by establishing the strategic relationship between the items of
the Balance Sheet, Profit &Loss account and other operative data .It is the use of
financial statements to analyze a company’s financial position and performance and to
assess future financial performance. It is a technique of X-raying the financial position as
well as progress of a firm.
In the words of John .N. Myer “Financial statements analysis is largely a
study of relationship among the various financial factors in a business as disclosed by a
single set of statements and a study of the trend of these factors in a series of statements.”
The analysis and interpretation of financial statements is used to
determine the financial position and operation as well.
For analyzing and interpreting the financial statements, some important
tools used they are as follows.
1. Comparative Statements.

2. Trend Analysis.

26 Saja.K.A
 3. Common size statements.

4. Ratio Analysis.

5. Single and multiple bar diagram.

COMPARATIVE STATEMENTS

The comparative financial statements are statements which show

the financial position of a firm at different period of time. The changes in financial data
are best understood if the statements of two or more years are placed side by side to
facilitate comparison. Such statements are called Comparative Financial Statements.
The two Comparative Statements are Comparative Balance Sheet &
Comparative Income Statement.

COMPARATIVE INCOME STATEMENT

The Comparative Income Statements will show the operating results
for two periods and the amount as well as percentage increase or decrease in them. It
explains clearly the relation ship between sales and cost of goods sold and its effect on
gross profit. It gives an idea of a progress of a business over a period of time. The
changes in absolute data and money value and percentages can be determined to analyze
the profitability of the business.
Comparative Income Statement has four columns. First two columns
give figures of various items for two years. Third and fourth columns are used to show
increase or decrease in figures in absolute amounts and percentages respectively.
The increase or decrease in sales will be comparative with increase or
decrease in cost of goods sold. The second step of analysis should be the study of
operational profit .The increase or decrease in net profit will gave you an idea about
overall profitability. Thus an opinion is formed about profitability, i.e. whether good or
not.

27 Saja.K.A
TABLE 3-1
COMPARATIVE INCOME STATEMENT

PARTICULARS 2006-2007 2007-2008 ABSOLUTE %

Rs Rs INCREASE/ INCREASE/
DECREASE DECREASE

SALES 1,85,38,693.38 2,15,67,735.45 30,29,042.07 16.34

LESS COST OF
GOODS SOLD 1,43,4,7440.8 1,66,17,804.53 22,70,363.73 15.82
GROSS PROFIT 41,91,252.58 49,49,930.92 7,58,678.34 18.10

{ADD}.OTHER 10,37,88.54 54,571.39 49,217.15 47.42

INCOME

TOTAL 42,95,041.12 50,04,502.31 7,09,461.19 16.52

{LESS}OPERATING 31,47,563.54 36,69,114.19 5,21,55,0.65 16.57

EXPENSES
OPERATING 11,47,477.58 13,35,388.12 1,87,910.54 16.38
PROFIT

{LESS}. NON
OPERATING 7,24,581.60 7,83,111.02 58,529.42 8.07
EXPENSES
NET.OPERATING 4,22,895.98 5,52,227.10 1,29,381.12 30.59
PROFIT

INTERPRETATION

The comparative income statement gives above reveals that

1. There has been an increase in sales of Rs 30,29,042.07 in the year 2007- 2008while
the cost of goods sold has increased nearly by 15.82%ther by resulting in an
increase in gross profit of Rs.7,58,679.34.
2. The miscellaneous income decreased in the year 2007-2008.
3. In the year 2007-2008 operating expenses shows an increase of 16.57%.The
operating profit of the company is increased by 16.38%.
4. In the year 2007-2008the non operating expenses show an increase of 8.07%.

28 Saja.K.A
5. In the year 2007-2008 the net operating profit of the company is increased by
30.59%.There is a sufficient progress in the firm and the overall profitability of the
firm is good.

COMPARATIVE BALANCE SHEET

The comparative balance sheet analysis is the study of the same items
and computed items, in two or more balance sheet of the same business enterprise on
different dates. The changes in periodic balance sheet items reflect the conduct of a
business while interpreting comparative balance sheet the interpreter is expected to study
the aspects like current and liquidity position, long term financial position and
profitability of the concern.

TABLE 3-2

PARTICULARS 2006-2007 2007-2008 ABSOLUTE %

Rs Rs INCREASE/ INCREASE
DECREASE DECREASE

ASSESTS
CURRENT ASSETS
LOANS& ADVANCES

INVENTORIES: 60,11,711.33 56,47,238.96 3,64,472.04 6.06

SUNDRY DEBTORS 38,92,565.22 45,54,700.82 6,52,135.06 16.75

CASH AND BANK 1,65,825.63 87,653.10 78,172.53 47.14

BALANCE

LOANS&ADVANCE 5,16,294.98 5,63779.86 47,484,.88 9.197

TOTALCURRENT
ASSETS 1,05,86,397.16 1,08,43,372.74 2,56,975.58 2.43

FIXED ASSETS:

Fixed Assets 8,47,665.65 8,54,428.80 6,763.15 .797

29 Saja.K.A
TOTAL.FIXED
ASSETS 8,47,665.65 8,54,428.80 6,763.15 .797

TOTAL ASSETS 1,14,34,062.81 1,16,97,801.54 2,63,738.73 2.31

LIABILITIES
Current Liabilities
Current Liability 29,18,093.23 34,89,218.58 5,71,125.35 19.57
TOTAL.CURRENT
LIABILITIES 29,18,093.23 34,89,218.58 5,71,125.35 19.57

LONG.TERM
LIABILITIES:
Loans

Secured 32,94,765.74 33,03,299.00 9,133.26 .28

Unsecured 34,12,826.50 32,71,432.00 1,41,3945 4.14

TOTAL. LONG TERM

LIABILITIES 67,06,992.24 65,74,731 1,32,261.24 1.97

Owners Fund

Capital

Purayannur Industries 18,08,977.34 16,33,851.96 1,75,125.38 9.68

TOTAL.SHARE
HOLDERS FUND 18,08,977.34 16,33,851.96 1,75,125.38 9.68

TOTAL LIABILITIES 1,14,34,062.81 1,16,97,801.54 2,63,738.73 2.31

INTREPRETATION

1. The excess of current assets over current liabilities gives the working capital.
Both 2006-07 and 2007-08 shows that current assets exceed current liabilities.
The working capital in the year 2006-07 was Rs 76,68304.93 and in 07-08 Rs

30 Saja.K.A
 73,54,154.16. The working capital shows short term financial position of the
concern.
2. The inventories of the firm decreased by 6.06% as compared to 2006-07.This
indicates that there is no accumulation of inventory. The sundry debtors and
loans and advances increased by Rs 6, 52,135.6 and Rs 47,484 cash and bank
balances of the firm decreased by 47.14% compared to previous year. This
shows a decrease in the liquidity position of the firm
3. The figure of fixed assets and long term liabilities and capital reflect the long
term financial position o f the firm. Long term sources are used for financing
not only fixed assets but also a part of working capital. It is better to finance

fixed assets by raising long term funds.

4. The fixed assets increased by Rs 6,763.15 in the 2007-08 compared to

previous year. Long term liabilities shoe decrease of 4.14%.
5. The firm has no reserve and surpluses. This will adversely affect their
profitability. In the absence of reserves and surplus the firm has to depend on
external sources in the event of an emergency. This will create problem for
partners.

TREND ANALYSIS

The financial statement may be analyzed by computing trends of series

of information. This method determines whether the direction is upward or downward
and involves in the computation of the percentage relationship that each item bears to the
same item in the base year is taken as base year. The figures of the base year are taken as
base year. The figures of the base year are taken as 100 and trend ratio for other years
calculated on the basis of the base year

31 Saja.K.A
TABLE: 3-3
TREND ANALYSIS OF SALES

YEAR SALES {in Rs} TREND %

2003-04 1,63.16,381.37 100
2004-05 1,51,25,231.49 92.69
2005-06 1,94,23,836.66 119.04
2006-07 1,85,38,693.38 113.62
2007-08 2,15,67,735.45 132.18

GRAPH: 3-1

140

120

100

80
East
60

40

20

0
2003-04 2004-05 2005-06 2006-07 2007-08

TABLE 3-4

TREND ANALYSIS OF COST

32 Saja.K.A
 YEAR COST {in Rs} TREND %
2003-04 1,09,06,701.16 100

2004-05 1,02,81,014.31 94.26

2005-06 1,46,96,061.89 134.74

2006-07 1,43,47,440.80 131.55

2007-08 ,66,17,804.53 152.36

GRAPH 3-2

160

140

120

100

80 East

60

40

20

0
2003-04 2004-05 2005-06 2006-07 2007-08

TABLE 3-5

TREND ANALYSIS OF PROFIT

33 Saja.K.A
 YEAR PROFIT {in Rs} Trend %

2003-04 7,36,643.86 100

2004-05 4,13,564.53 56.14
2005-06 9,80,793.37 133.14
2006-07 4,22,895.98 57.41
2007-08 5,52,277.10 74.97

GRAPH: 3-3

140

120
100

80
East
60

40
20
0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION

Trend Analysis or trend percentage above has clearly given an idea about
sales, cost and profit of five years i.e. 2003-04,2004-05,006-07 and 2007-08.Sales of

34 Saja.K.A
2003-04 is taken as base year sales have been decreased in 204-05 when compared to the
base year. In the year 2005-06 sales have been increased by 19.04.I the year 2006-2007
trend percentage of sales is 113.62%.In the year 2007-08 sales has been increased
by132.18%.Trend analysis of sales shows both increasing as well as decreasing trend.
Cost of 2003-04 is taken as a base year. In the year 2004-05 trend
percentage of cost is 94.26% which is lower than the base year. But cost has increased by
34.74%, 31.55% and 52.36% in 2006-07 and 2007-08 respectively. Cost has increased
except in the year 2004-05
2003-04 is taken as the base year. Profit was highest in the year 2005-06.In
the year 2005-06 profit has been increased by 33.145.The profit has decreased except in
the year 2005-06.Profit shows a decreasing trend. The firm has no control over the cost.
Because of this an increasing cost adversely affected the profit.

COMMON SIZE STATEMENTS

The common size statements are shown in analytical

percentages. The figures are shown as percentages of total assets, total liabilities and total

35 Saja.K.A
sales. The total assets are taken as 100 and different assets are expressed as a part of total.

Similarly various liabilities are taken as a part of total liabilities. These statements are

also known as component percentage or 100 percent statement because every individual

item is expressed as total percentage of 100.The analyst is able to asses the figures in

relation to total values. The common size statements may be common size income

statements and common size balance sheet.

COMMON SIZE INCOME STATEMENTS.

A statement in which each expenses item is shown as a

percentage of net sales is called common size income statements. A sales figure is

assured to be 100 % and all percentage and all figures are shown as percentage of net

sales. The items in income statements can be shown as percentage of sales to show the

relation of each item to sales. A significant relation ship can be established between items

of income statements and volume of sales. The increasing sales will certainly increase

selling expenses and not administrative or financial expenses. In case the volume of sales

increases to a considerable extent, administrative and financial expenses should be

reduced at once. So a relationship is established between sales and other items in income

statement and the relationship is helpful in evaluating operational activities of the

enterprise.

C0MM0N SIZE BALANCE SHEET OF SIMCO

YEAR 2003-2008
PARTICULAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-08
S
Amount % Amount % Amount % Amount RS % Amount %
Rs Rs Rs Rs

36 Saja.K.A
1)LIABILITIE
S

1)Proprietors
Fund

a) Purayannur
Industries

2)Loan Funds

Secured 10,93,250.42 11.25 10,30,314.54 10.32 16,31,395.26 15.69 18,08,977.34 15.82 16,33,851.96 13.97

Unsecured

3)Current 16,85,068.61 17.35 27,49,223.02 27.53 23,09,726.27 22.22 32,94,165.74 28.81 33,03,299.00 28..24
Liabilities
39,53,454.40 40.70 39,57,576.00 39.63 38,18,842.00 36.74 34,12,826.50 29.85 32,71,432.00 27.97
TOTAL
LIABILITIES
29,81,808.04 30.70 22,50,099.49 22.52 26,35,774.72 25.35 29,18,093.23 25.52 34,89,218.58 29.82

97,13,581.47 100 99,87,213.05 100 1,03,95,738.2 100 1,14,34,062.8 100 1,16,97,801.5 100

II.ASSETS
1.Fixed Assets 7,42,554.74 7.64 6,20,406.61 6.21 5,40,723.30 5.20 8,47,665.65 7.41 8,54,428.80 7.30

2.Current
Assets
Loans
&Advances

Inventories 49, 40,267.1050.86 60,18,323.1 60.26 54,50,178.6 52.43 60,11,711.3 52.58 56,47,238.9 6 48.28

Sundry Debtors 32,65,810.21 33.62 26,48,334.42 26.52 38,52,554.41 37.06 38,92,565.22 34.04 45,44,700.82 38.85

Cash & Bank

Balance 3,28,204.36 3.38 2,80,744.06 2.81 1,79,727.05 1.73 1,65,825,63 1.45 87,653.10 0.75

Loans
&Advance 4,36,745.06 4.50 4,19,40486 4.20 3,72,554.86 3.58 5,16,294.98 4.52 5,63,779.86 4.82

Total Assets 97,13,581.47 100 99,87,21 3.05 100 1,03,95,738.25 100 1,14,34,062.81 100 1,16,97,801.54 100

INTREPRETATION
The table shows the sale of 5 years and its relationship with
other figures. The sales vary from year to year. The sales in the year 2003-2004 was Rs
1,63,16,381.37 which reduced to Rs 1,51,25,231.49 in the year 2004-05.But sales of

37 Saja.K.A
2005-06 shows an increasing trend and sales reached Rs 1,94,23,836,66.After a decrease
of Rs 18538693.38 in 2006-07 sales increased to Rs 2,15,67,735.45 in 2007-08.These
variation in sales may be due to the changes in marketing strategy adopted by the firm.
A comparison between sales and cost of goods sold gives a clear
picture of the firm’s position .In 2003-04 the cost of goods sold was Rs 10,90,6701.16
which was 66.84% of sales. In 200-05 the sale was decreased to Rs 1,51,25,231.49.But
the cost of goods sold was Rs10281012.31 which was 67.97% of sales. It resulted in a
decrease in gross profit of Rs 3,71,225.03 cost of goods sold was increased in 2005-
06.But because of increased sales, gross profit was satisfactory. In 2006-07 the sale was
decreased to Rs 1,85,38,693.38.But the cost of goods sold was Rs 1,43,47,440.80 which
is 77.39% sales. It resulted in a decrease in gross profit of Rs 5,36,522.19. Cost of goods
sold was increased in 2007-08.But because of increase sales, gross profit was satisfactory
Another important to be noted is the expenses. The expenses of the
firm in the year 2003-04 was 27,76,920.35 which was 17.02 of the sales. It increased to
19.26% in 2004-05.In the year 2005-06 the expenses of the firm increased to Rs
30,25,755.99 because of increased sales, its percentage was only 15.585.In the year 2007-
08,the expenses was Rs 35,34,875.96 which was 16.39% of sales.

CHAPTER – 4
RATIO ANALYSIS OF SIMCO

38 Saja.K.A
 Ratio Analysis is one of the methods of analyzing financial statement.
It is means of under standing better the financial strength soundness, weakness or
position of a firm.
According to Myer, Ratio Analysis is a study of relationship among the
various financial factors in a business. It is a process of establishing a meaningful
relationship between tow figures as a set of figures of a financial statement. Ratio can be
expressed in three ways. It may be expressed in times. If the quotient is multiplied by
hundred, it is expressed as percentage. It may also be expressed in terms of proportion
between tow figures. Thus, times percentage and proportion are three ways of expressing
ratios.

ADVANTAGE OR USES OF RATIO ANALYSIS

The use of Ratio Analysis as a tool of financial analysis has been
considerably increased in these days. Ration analysis can be of very valuable aid to
management in the discharge of its basic function of planning, forecasting, coordination,
communication and control. It is a devise to diagnose the disease of an enterprise. It is a
powerful tool of financial analysis. The advantages of Ratio Analysis is summarized as
below.

1. Ratios are helpful in judging financial performance of an enterprise over a

period of time. They tell the various aspects of management performance
and the overall financial position.
2. A study of the trend of strategic ratios may help the management in the task
of planning and forecasting.
3. The ratio measures the efficiency of operation of an enterprise. Hence they
can be used as tool of management control.
4. Ratio facilitate interfirm comparison

39 Saja.K.A
 5. It is possible to test the liquidity, solvency and profitability of the enterprise
through the technique of ratio analysis.
6. Some times, investment decisions are guided by certain ratios.
7. Ratio Analysis simplifies the comprehension of financial statement
8. Ratio Analysis communicate the financial strength or weakness of firm in a
more easy and understandable manner.
9. Thus, ratio analysis gives valuable information not only to management but
also to creditors, investors and share holders.

CLASSIFICATION OF RATIOS

On the basis of purpose, Ratio may be classified as under

1. Profitability Ratios
2. Turn over Ratios.
3. Financial Ratio

a) Liquidity or Short – term financial ratios

b) Solvency or Long – term financial ratio

ANALYSIS OF PROFITABILITY OF SIMCO

The ultimate aim of any business enterprise is to earn maximum
profit. Lord Keynes remarked, Profit is the engine that derives the business enterprises.
A firm should earn profit to survive and grow over a long period of time. To the
management profit is the measure of efficiency and control. To the owner, it is measure
worth of their investment. To the creditors it is the margin of safety. The management of
the company should know how efficiently they carry on business operations. In other
words the management of the company is very much interested in the profitability of the
company. Besides management, creditors and owners are also interested in the
profitability of the company.

40 Saja.K.A
 The profitability of a firm can be easily measured by its profitability
ratios. Profitability ratio measures the ability of the firm to earn an adequate return on
sales, total assets and invested capital. Profitability ratios are generally calculated either
in relation to sales or in relation to investment.

PROFITABLILTIY RATIOS BASED ON SALES

The general profitability ratios based on sales are gross profit ratio, net
profit ratio, operating profit ratios and expenses ratio.

GROSS PROFIT RATIO

Gross profit ratios show the relationship between gross profit to sales. To

calculate this ratio gross profit and net sales are required. This ratio indicates the

efficiency of production or trading operations. It is useful to as certain whether the

average percent age of mark up on the goods sold is maintained. A higher gross profit

ratio is always favorable to the firm.

GROSS PROFIT= GROSS PROFIT

---------------------X 100

NET SALES

GROSS PROFIT = SALES-COST OF GOODS SOLD

NET SALES= SALES – SALES RETURN

GROSS PROFIT RATIO OF SIMCO from 2003 to 2008

Table 4.1

41 Saja.K.A
 YEAR GROSS PROFIT NET SALES GROSS PROFIT

Rs Rs RATIO
2003-04 46,06,914.21 1,63,16,381.37 28.23%
2004-05 42,35,689.18 1,51,25,231.49 28.00%
2005-06 4,72,774.77 1,94,23,836.66 24.34%
2006-07 41,91,252.58 1,85,38,693.38 22.16%
2007-08 49,49,930.92 2,15,67,735.45 22.95%

GRAPH:4.1
Graph showing Gross Profit Ratio of SIMCO year 2003-08

30

25

20

15

10

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
The above bar diagram clearly indicates the Gross profit Ratio for the last

Five years. It indicates the margin of profits on sales. Gross profit ratio in the ear 2003 –
04 was the highest in 28.23%. Then it started decreasing. In the year 2007-08 Gross
profit ratio was 22.95%. Decrease in gross in gross profit ratios is mainly due to inability
of the management to improve the volume of sales and decrease in selling price with out
corresponding decrease in the cost of goods sold.

42 Saja.K.A
NET PROFIT RATIO

Net profit ratio is the ratio of net profit earned by a business to its net sales.
Net profit or net income is calculated by deducting the selling and distribution expense
and financial expenses from gorses profit. It measures over all profit it ability. It is
calculated as follows.
Net profit = Net Profit
-------------X100
Net Sales
Net profit = Gross Profit + Operating and non operating income – Operating and
non operating expenses.
TABLE: 4.2

Year Net Profit it (Rs) Net Sales Net Profit Ratio

2003-04 7, 36,643.86 1,63,16,381.37 4.51%

2004-05 4,13,564.53 1,51,25,231.49 2.73%
2005-06 9,80,793.37 1,94,23,836.66 5.04%
2006-07 4,22,895.98 1,85,38,693.38 2.28%
2007-08 5,52,277.10 2,15,67,735.45 2.56%

GRAPH: 4.2

Graph showing net Profit Ratio of Simco from 2003 – 08

43 Saja.K.A
 6

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Net profit ratio indicates management efficiency in manufacturing
administrating and selling the products. This is a measure of over all profitability. Net
profit ratio was the highest in the year 2005-06 ie 5.04%. But in the next year it again
decreased to 2.28% and in the 2007-08 net profit ratio was 2.56%. a low net profit ratio
would mean low efficiency and in adequate returns to the owners

OPERATING RATIO

This ratio establishes the relationship between operating cost and net
sales. This ratio is used to test the operating efficiency of the firm. It is calculated by
using the following formula.
Operating ratio= Cost of goods sold + operating expenses
---------------------------------------------------X 100
Net sales

44 Saja.K.A
TABLE: 4.2

OPERATING RATIO OF SIMCO FROM 2003-08

YEAR COST OF GOODS SOLD+ NET SALES OPERATIN

OPERATING EXPENSES G RATIO
2003-04 1,09,06,701.16+27,76,920.35 1,63,16,381.37 83.86%
=1,36,83,621.51
2004-05 1,02,81,014.31+29,13,706.71 1,51,25,231.49 87.24%
=1,31,94,721.02
2005-06 1,46,96,061.80+30,25,755.99 1,94,23,836.66 91.24%
=17,72,1871.99
2006-07 1,43,47,440.80+30,49,989.95 1,85,38,693.38 93.84%
=1,73,97,430.75
2007-08 1,66,17,804.53+35,34,875.96 2,15,67,735.45 93.44%
=2,01,52,680.49

GRAPH:4.3

Graph showing operating profit of SIMCO year 2003-08

94

92

90

88

86

84

82

80

78
2003-04 2004-05 2005-06 2006-07 2007-08

East 83.86 87.24 91.24 45

93.84 93.44 Saja.K.A
INTERPRETATION
The Operating Ratio of SIMCO indicates that for every Rs 100 % of
sales, cost of goods sold and operating expenses between 80% to 95%.

PROFITABILITY RATIO BASED ON INVESTMENT

These ratios are computed on the basis of investment in business. Important over all
profitability ratios are return on investment, return on owners funds etc.
RETURN ON INVESTMENT
When a firm investment money in business it naturally expects
adequate return on its investment. Therefore the firm wants to know how much profit is
earning on its investment. It is for knowing this return on investment is computer. ROI
measures the over al profitability. It establishes the relationship between profit or return
and investment. It is computed as follows.
ROI = Profit it before interest and Tax
------------------------------------------X100
Net capital employed
Net capital employed = Fixed asset –Current asset – current liabilities
TABLE: 4.5

RETURN ON INVESTMENT OF SIMCO YEAR 2003-08

Year Net Profit it (Rs) Net sales Net profit ratio

2003-04 18,40,356.36 67,31,773.43 27.34%

2004-05 13,44,713.79 77,37,113.56 17.38%
2005-06 1,86,716.71 77,59,963.53 24.03%

46 Saja.K.A
 2006-07 12,45,051.17 85,15,969.58 14.62%
2007-08 14,69,626.35 82,08,582.96 17.90%

GRAPH: 4.4
Graph showing return on investment of SIMCO from 2003-08

70

60

50

40
East
30

20

10

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION

Ideal return on capital employed 13.1 in the year 2006-07 ROI is below the
standard norm. but in all other years RIO was above the standard norm.

Return on owners Funds

This will help to measure the profitability from owner’s point of view. This is the
ratio of net profit to share holder’s funds or net worth. It is calculated in follows.

47 Saja.K.A
Return on owners fund = Net Profit after tax and interest
-------------------------------------------X 100
Owner’s fund

TABLE 4.6

YEAR NET PROFIT (Rs) NET SALES (Rs) NET PROFIT

RATIO
2003-04 7,36,643.86 10,93,250.42 67.38%

2004-05 4,13,564.53 10,30,314.54 40.14%

2005-06 9,80,793.37 16,31,395.26 60.12%

2006-07 4,22,895.98 18,08,977.34 23.38%

2007-08 5,52,277.10 16,33,851.96 33.80%

GRAPH:4.5
Graph showing Return on owners fund of SIMCO year 2003-08

48 Saja.K.A
 2007-08
15%
2003-04
30%
2006-07
10%

2005-06 2004-05
27% 18%

INTERPRETATION
This ratio helps to measure the profitability from the owners point of view. It
indicates how efficiently the owners funds have been utilized by the firm. In the year
2003-04 return on owner’s funds is 67.38%. But in the year 2007-08it was decreased to
33.80%.

ANALYSIS OF ASSET MANAGEMENT OF SIMCO

Asset management is an important function of financial
management. In this chapter an attempt is made to analyze the efficiency of the
management in managing the assets. Turn over ratios is used to measure the efficiency of
effectiveness with which a firm manages its resources or assets.

TURN OVER RATIOS OR PERFOMANCE RATIOS OR ACTIVITY

RATIOS
These ratios indicate how effectively the resources are being utilized by
a firm. In other words, these ratios reflect the efficiency of a firm in the asset

49 Saja.K.A
management. Turn over ratios related to sales. Sales have divert relationship to the
performance of the business. Higher sales mean better performance which means better
efficiency and productivity of the business. Higher sales also mean, more production
which is the result of the best possible utilization of physical resources. Important turn
over ratio is the following.

Fixed Asset Turnover Ratios

Fixed assets are used in the business to produce goods for sale. The
effective utilization of fixed assets will result in increased production and reduced cost.
Fixed asset turn over ratio is calculated by establishing the relationship between net fixed
asset and sales (or cost of goods sold) of the concern. It is used to judge the effectiveness
of the use of fixed assets.This ratio assumes added significance in the case of
manufacturing concern like SIMCO. An increase in this ratio is the indicator of
efficiency, work performance and a decrease in this ratio speaks of unwise and improper
investment in fixed assets. However in the labour intensive industries it is exported to be
high and in capital intensive industries it is bound to be low.
As a rule of thumb fixed asset turn over ratio of 5 times is considered ideal. Fixed assets
turn over ratio is calculated by following formula.

Fixed Asset Turnover Ratio = Net sales

-------------
Fixed asset

TABLE: 4.7

YEAR NET SALES FIXED ASSETS TURNOVER

Rs Rs RATIO

50 Saja.K.A
2003-04 1,63,16,381.37 7,42,554.74 22 TIMES
2004-05 1,51,25,231.49 6,20,406.61 25 TIMES
2005-06 1,94,23,836.66 5,40,723.30 36 TIMES
2006-07 1,85,38,693.38 8,47,665.65 22 TIMES
2007-08 2,15,67,735.45 8,54,428.80 25 TIMES

GRAPH: 4.6
Graph Showing Fixed Assets Turn Over Ratio from 2003

40
35
30
25
20
15
10
5
0
2003-04 2004-05 2005-06 2006-07 2007-08

East 22 25 36 22 25

INTERPRETATION
The above table indicates that from the year 2003 fixed asset turn over ratio is
showing an increasing trend and attained highest level of 36 times in 2005. The high
ratio is the sign of efficiency of fixed asset management. Another reason is SIMCO is a
labour intensive small scale unit.

Stock Turn over Ratio

51 Saja.K.A
Stock or Inventory Turn over ratio, measures how many times the average stock is sold
during the year. Higher inventory turn over ratio is always beneficial to the concern.
This ratio measures the effectiveness of the stock policy of the management. This ratio
indicates the relationship between cost of goods sold and average stock. This ratio is
calculated as follows.
Stock Turn over ratio = Cost of goods sold
------------------------
Average stock
Cost of goods sold = Opening stock + purchases – closing stock
Average stock = Openings stock +closing stock
2

TABLE 4.8Stock Turn over ratios of SIMCO from 2003-08

Year Cost of goods sold Average Stock Stock Turn over
Rs Rs Ratio

2003-04 1,09,06,701.16 46,89,844.71 2.33 times

2004-05 1,02,81,014.31 54,79,295.10 1.88 times
2005-06 1,46,96,061.89 57,34,250.86 2.56 times
2006-07 1,43,47,440.80 57,30,944.98 2.50 times
2007-08 1,66,17,804.53 58,29,475.15 2.85 times

GRAPH: 4.7
Graph showing stock turn over ratio of SIMCO from 2003-08

52 Saja.K.A
 3

2.5

1.5

0.5

0
2003-04 2004-05 2005-06 2006-07 2007-08

East 2.33 1.88 2.56 2.5 2.85

INTERPRETATION
The stock turn over ratio is below standard norm i.e. 8 times. It indicates that the firms
stock turned over into cash below 3 times in a year.

Debtors Turn over Ratio

This ratio is also known as Receivables Turn over ratio. It shows how quickly debtors
are converted into cash. It established the relation ship between credit sales and average
debtors. It can be calculated as follows.
Debtors Turn over Ratio = Credit sales
Average Debtors
Average Debtors = Opening Debtors + Closing Debtors
2

Table: 4.9
Debtors Turnover Ratio of SIMCO from 2003-08

53 Saja.K.A
Year Credit sales Average Debtors Debtors
Rs Rs Turnover Ratio
2003-04 1,63,16,381.37 30,43,246.68 5.36 times
2004-05 1,51,25,231.49 29,57,072.31 5.11 times
2005-06 1,94,23,836.66 32,50,444.41 5.97 times
2006-07 1,85,38,693.38 38,72,559.82 4.78 times
2007-08 2,15,67,735.45 42,18,633.02 5.11 times
GRAPH: 4.8
Graph showing Debtors Turnover Ratio of SIMCO from 2003-08

2
East
0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Debtors Turn over ratio indicates that how fast the debtors are turned over or converted
into cash. This depicts how fast the firm can collect the credit sales.
Debtors turn over ratio was highest in the year 2007-08 it was 4.78 times and in the year
2007-08 it was increased to 5.11 times

54 Saja.K.A
AVERAGE COLLECTION PERIOD
Average collection period indicates days in which debts are collected or
in other words, sales remain uncollected. This ratio is in fast interrelated with and
depended upon the receivable turnover ratio. It is calculated by dividing the days in a
year by the debtor’s turnover ratio.
Average collection period= Days in a year (360 or 365)
Debtors turn over ratio

TABLE: 4.10
Average Collection Period of SIMCO from 2003-08
Year DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD
2003-04 5.36 times 69 days
2004-05 5.11 times 72 days
2005-06 5.97 times 62 days
2006-07 4.78 times 77 days
2007-08 5.11 times 72 days

GRAPH: 4.9

Graph showing Average Collection Period of SIMCO from 2003-08

80

70

60

50

40

30

20

10

0
2003-04 2004-05 2005-06 2006-07 2007-08

East 69 72 62 77 72

55 Saja.K.A
INTERPRETATION
The above bar diagram clearly indicates the speed with which debts are collected.
From 2003-04 to 2007-08 it is seen that there is slight fluctuation in the average
collection period.
The average collection period is between 62 to 72 days.
The efficiency of management of receivable would be analyzed with that of management
of payables.

CREDITORS TURNOVER RATIO

Creditors turn over ratio shows the relation ship between net
credit purchases and average creditors including bills payable. This ratio
indicates the number of times creditors are paid. Creditor’s turnover ratio is
also called payables turnover ratio. It is computed by the following formula.
CREDITORS TURN OVER RATIO = NET CREDIT PURCHASE
AVERAGE CREDITORS INCLUDING BILLS PAYABLE

AVERAGE CREDITORS=OPENING CREDITORS+CLOSING DEBTORS

2
Net Credit Purchase=Total Credit Purchase – Purchase Returns
Total Purchase =Cash Purchase +Credit purchases

Year Total Purchase Average Creditors

Rs Creditors (Rs) Turnover Ratio
2003-04 65,54,924.28 24,00,994.49 2.73 times
2004-05 64,83,206.33 26,15,953.77 2.48 times
2005-06 71,43,407.80 24,42,937.10 2.92 times
2006-07 83,20,541.41 27,76,933.97 2.99 times
2007-08 99,08.548.21 32,03,655.91 3.09 times

56 Saja.K.A
GRAPH: 4.10
Graph shows Creditors Turn over Ratio of SIMCO from 2003-08

3.5
3
2.5
2
1.5
1
0.5
0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Creditors turn over ratio indicates that how fast the firm has to
make payment for the credit purchases. A lower ratio indicates the firm is
taking full advantage allowed by creditors. Above table indicates that
creditors turn over ratio is satisfactory.

AVERAGE PAYMENT PERIOD

57 Saja.K.A
 Average payment period means the credit period enjoyed by the firm in
paying creditors. In short it means creditors turn over is expressed in days or months. It is
computed by the following formula.

Average Payment = 365/360

---------------------------------------------
CREDITORS TURNOVER RATIO

In months = 12
-----------------------------------------------------
CREDITORS TURN OVER RATIO

TABLE: 4.12
Average Payment Period of SIMCO from 2003-08
Year Creditors Turn Over Ratio Average Payment Period
2003-04 2.73 times 134 days
2004-05 2.48 times 148 days
2005-06 2.92 times 125 days
2006-07 2.99 times 123 days
2007-08 3.09 times 119 days

GRAPH: 4.11

58 Saja.K.A
 160

140

120

100

80

60

40

20

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
This ratio indicates the speed with which payment against credit purchases are made.
Average payment period is between 119 and 134 days.In 2007-08 average payment

period is 119 days.

WORKING CAPITAL TURNOVER RATIO

Current assets will change with change in sales. This means working
capital is related with sales. The relation between sales and working capital is called
working capital turn over ratio. This ratio shows how many times the working capital is
turned over to produce sales. Working capital turn over is computed by the following
formula

Working Capital Turnover ratio = Net Sales

--------------------
Working Capital
Net Sales=Sales-Sales Return

Working Capital =Current Asset-Current Liabilities

59 Saja.K.A
 TABLE: 4.12
WORKING CAPITAL TURNOVER RATIO OF SIMCO FROM
YEAR 2003-08

YEAR NET SALES WORKING CAPITAL WORKING CAPITAL

Rs TURN OVER RATIO
2003-04 1,63,16,381.37 59,89,218.69 2.72 times
2004-05 1,51,25,231.49 71,16,706.95 2.12 times
2005-06 1,94,23,836.66 72,19,240.23 2.69 times
2006-07 1,85,38,693.38 76,68,303.93 2.42 times
2007-08 2,15,67,735.45 73,54,154.16 2.93 times

GRAPH: 4.12
WORKING CAPITAL TURN OVER RATIO FROM 2003-08

2.5

1.5

0.5

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION

Working Capital turnover ratio indicates the relationship between net sales and
working capital. The working capital turnover ratio in every year was below standard
norm. So the management should take necessary action to utilize the working capital
efficiently.

60 Saja.K.A
ANALYSIS OF LIQUIDITY OR SHORT TERM FINANCIAL
POSITION OF SIMCO
Liquidity means the firms liability to meet its current liabilities when they become due.
Christs and Roden defines the liquidity of an asset as money ness. Whether the liquidity
position of SIMCO is good or bad is analyzed by comparing the assets and liabilities of
SIMCO it can be analyzed by using various ratios.

LIQUIDITY RATIO
Liquidity ratio is used to measure the liquidity position or short tem financial
position of a firm. Various ratios like current ratio, liquid ratio and absolute liquid ratio
are used to measure the liquidity position of business.

1. CURRENT RATIO
Current ratio is defined as the ratio of current assets to current liabilities .It shows
the relation ship between total current assets and total current liabilities. Current ratio
is also called working capital ratio or banker’s ratio, generally current ratio of 2:1 is
considered satisfactory or ideal.
Current Assets
Current Ratio = -----------------------
Current Liabilities

TABLE: 4.14
CURRENT RATIO OF SIMCO FROM 2003-2008
Year Current Assets Current Liabilities Current Ratio

61 Saja.K.A
 Rs Rs Rs
2003-04 89,71,026.73 29,81,808.04 3.01:1
2004-05 93,66,806.44 22,50,099.49 4.16:1
2005-06 98,55,014.95 26,35,774.72 3.73:1
2006-07 1,05,86,397.16 29,18,093.13 3.62:1
2007-08 1,08,43,372.74 34,89,218.58 3.10:1

GRAPH 4:13
Graph showing current ratio of SIMCO year 2003-2008

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
During the years under study the current ratio is much above the standard
norm ie 2;1.The current ratio in most years shows the ratio around 4.However the rule of
2;1 should not be blindly followed while making interpretation of ratios.

2. LIQUID RATIO

62 Saja.K.A
 Liquid ratio is the ratio of liquid assets current liabilities. It establishes the
relation between quick assets and current liabilities .It is the measure f instant debt
paying ability of business enterprise. It is also called Acid Test Ratio.
Liquid Assets
Liquid Ratio= ------------------------
Current Liabilities
Liquid Assets = Current Assets-(Stock Prepaid Expenses)

TABLE: 4.15
LIQUID RATIO OF SIMCO FROM 2003-2008
Current Liquid Ratio
Year Current Asset –Stock =Liquid Asset Liabilities
Rs Rs

2003-04 89,71,026.73 29,81,808.04 1.35:1

-49,40,267.10=40,30,759.63
2004-05 93,66,806,44 - 22,50,099.49 1.49:1
60,18,323.10=33,48,483.34
2005-06 98,55,014.95 - 26,35,774.72 1.67:1
60,11,711.33=45,74,685.83
2006-07 1,05,86,397.16- 29,18,093.23 1.57:1
60,11,711,33=45,74,685.83
2007-08 1,08,43,372.74 34,89,218.58 1.49:1
-56,47,238.96=51,96,133.78

GRAPH: 4.14
Graph showing Liquid Ratio of SIMCO YEAR 2003-04

63 Saja.K.A
 1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Liquid Ratio is the ratio of Liquid Assets to current liabilities. It is
considered to be superior to current ratio in testing the liquidities of the firm. Standard
form of quick ratio is 1:1.Liquidity ratio above standard norm is good. Liquidity ratio
below 1:1 will not help to pay of its Current liabilities when they become due. From
2003-04 to 2007-08 Quick Ratio states that Liquid Liabilities can be easily paid off by
realizing Quick Assets without resorting to the sale of stock.

ABSOLUTE LIQUID RATIO

Although receivables i.e. debtors and bills receivable are generally more liquid
than inventories; there may be doubts regarding their realization into cash immediately or
in time. Therefore the absolute liquid ratio should also be calculated together with current
ratio and quick ratio. Absolute liquid ratio establishes the relationship between absolute
liquid assets and current liabilities
Absolute liquid assets=Cash in hand Cash at bank +Marketable securities

TABLE: 4.16

64 Saja.K.A
 Year Absolute Liquid Assets Current Absolute Liquid Ratio
Liabilities
Rs
2003-04 3,28,204.36 29,81,808.04 0.11:1
2004-05 2,80,744.06 22,50,099.49 0.12:1
2005-06 1,79,727.05 26,35,774.72 0.07:1
2006-07 1,65,825.63 29,18,093.23 0.06:1
2007-08 87,653.10 34,89,218.58 0.03:1

GRAPH:4.15
Graph sowing Asolute liquid ratio of SIMCO from 2003-2008

0.12

0.1

0.08

0.06

0.04

0.02

0
2003-04 2004-05 2005-05 2006-07 2007-08

INTERPRETATION
Absolute Liquid Ratio establishes the relationship between Absolute Liquid Assets
and Current Liabilities. Absolute Liquid Ratio of 5:1 is considered as ideal. Above group
shows that the absolute liquid ratio in various years. In no year the firm could attain the
standard norm. It is far below the standard norm. The concern may face serious crises to
meet the liabilities.

ANALYSIS OF SOLVENCY OR LONG TERM FINANCIAL

POSITION OF SIMCO

65 Saja.K.A
 The term solvency refers to the ability of a concern to meet its long term
obligation. The long term indebtedness of a firm includes Debenture holders, financial
institution providing medium and long term loans and other creditors selling goods on
installment basis.

DEBT EQUITY RATIO

Debt-Equity Ratio also known as External –Internal equity Ratio, is calculated to
measure the relative claims of the outsiders and the owners i.e. the share holders against
the firm’s assets. This ratio indicates the relationship between the external equity or
outsiders funds and the internal equities or the share holder’s funds.

Outsiders Funds
Debt Equity Ratio= --------------------------
Share holder Funds

External Equities
Debt Equity Ratio =--------------------------
Internal Equities

TABLE: 4.17
DEBT EQUITY RATIO OF SIMCO YEAR2003-2008
Year Debt Equity Debt Equity Ratio
Rs Rs
2003-04 56,38,523.01 10,93,250.42 5.15:1
2004-05 67,06,799.02 10,30,314.54 6.51:1
2005-06 61,28,568.27 16,31,395.26 3.76:1
2006-07 67,06,992.24 18,08,977.34 3.71:1
2007-08 65,74,731.00 16,33,851.96 4.02:1

66 Saja.K.A
GRAPH: 4.16
GRAPH SHOWING DEBT EQUITY RATIO OF SIMCO YEAR 2003-2008

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Debt Equity ratio includes the relative contribution of creditors and owners of the
business in its financing. It is an index of the degree of protection the creditors have.
Standard Debt Equity Ratio is considered to be 2:1.Both high and low Debt Equity Ratio
is not desirable to firm. From above bar diagram, it is clear that in 2004-05 debt equity
ratio was very high which very risky.But they have improved a lot and by 2006-2007
they brought the ratio near to the standard ratio i.e. 3.71:1.In the year 2007-08 Debt
Equity Ratio was increased to 4.02:1

INTEREST COVERAGE RATIO

67 Saja.K.A
Interest Coverage Ratio is also known as Debt Service Ratio. This ratio relates fixed
interest charges to the operating profits or earning before interest and tax .It shows
whether the concern is able to pay the interest and tax. It shows whether the company is
able to pay the interest and tax. It shows whether the company is able to pay the interest
and tax. It shows whether the company is able to pay the interest out of the profit.

Earning before interest and tax

Interest Coverage Ratio = -----------------------------------------
Interest

TABLE: 4.18
INTEREST COVERAGE RATIO OF SIMCO YEAR 2003-2008
Interest Coverage Ratio is also known as Debt Service Ratio.
This ratio relates fixed interest charges to the operating profits or earning before interest
and tax. It shows whether the company is able to pay the interest and tax. It shows
whether the company is able to pay the interest out of their profit.
INTEREST COVERAGE RATIO = Earning before Interest and Tax
-----------------------------------------
Interest
TABLE: 4.18

INTEREST COVERAGE RATIO OF SIMCO YEAR 2003-2008

Year Earning Before Interest and Tax Interest Interest

2003-04 18,40,356.36 9,33,131.78 1.97 times
2004-05 13,44,713.79 7,91,835.18 1.70 times
2005-06 18,66,716.71 7,57,702.03 2.46 times
2006-07 12,45,051.17 7,24581.60 1.72 times
2007-08 14,69,626.35 7,83,111.02 1.88 times

GRAPH: 4.17
GRAPH SHOWING INTEREST COVERAGE RATIO OF SIMCO FROM 2003-2008

68 Saja.K.A
 2.5

1.5

0.5

0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION
Interest Coverage Ratio shows how many times the interest charges are covered
by EBIT .It indicates the ability of the company in the payment of interest to creditors.
Standard Ratio is 6 to 7 times. The above bar diagram clearly shows that the interest
coverage ratio in 5 years i.e., from 2003-04 to 2007-08 is very low which clearly
indicates exercise use of debt and the inability to offer assured payment of interest to
creditors.

BAR DIAGRAM SHOWING THE RELATION SHIP BETWEEN CURRENT ASSETS

AND CURRENT LIABILITIES.

TABLE: 4.19
Table showing Current Assets and Current Liabilities from 2003-08
Year Current Assets Current Liabilities
Rs Rs
2003-04 89,71,026.73 29,81,808.04
2004-05 93,66,806.44 22,50,099.49
2005-06 98,55,014.95 26,35,774.72
2006-07 10,58,6397.16 29,18,093.23

69 Saja.K.A
 2007-08 10,84,3372.74 34,89,218.58

GRAPH: 4.18
GRAPH SHOWING CURRENT ASSETS AND CURRENT LIABILITIES FROM
2003-2008

12000000

10000000

8000000

6000000

4000000

2000000

0
2003-04 2004-05 2005-06 2006-07 2007-08

BAR DIAGRAM SHOWING THE RELATIONSHIP BETWEEN DEBT AND EQUITY

TABLE: 4.20
TABLE SHOWING DEBT AND EQUITY FROM 2003-04 TO 2007-08

Year Current Assets Current Liabilities

Rs Rs
2003-04 56,38,523.01 10,93,250.42
2004-05 67,06,799.02 10,30,314.54
2005-06 61,28,568.27 16,31,395.26
2006-07 67,06,992.24 18,08,977.34
2007-08 65,74,731.00 16,33,851.96

GRAPH: 4.19

70 Saja.K.A
GRAPH SHOWING DEBT AND EQUITY FROM 2007-08

7000000

6000000

5000000

4000000

3000000

2000000

1000000

0
2003- 2004-05 2005-06 2006-07 2007-08
2004

CHAPTER – 5
FINDINGS SUGGESTIONS AND CONCLUSIONS

FINDINGS

Shoranur is the sale centre of Agricultural and Horticultural implements. There are a
number of firms engaged in the production of agricultural and horticultural implements.
Among them, SIMCO stands first due to its high quality products.
1. When compared with other firms SIMCO is the only concern which get regular
tenders for their products from Tamilnadu

71 Saja.K.A
2. Products of SIMCO are sold not only with in Kerala but ALSO outside the state.
In short, it has its market in all states of South India including Orissa.
3. Workers of SIMCO are very efficient and majority of them are able to produce
more than the standard fixed. But they are facing the problem of hiring skilled
labors. Hence, they hire unskilled labours and provide sufficient training. As such
employees are taking time to get acquainted with the methods of production and
machines used.
4. The company is purchasing raw materials at very high prices which in turn
increases the cost of goods and hence decreases the profit .
5. Net Profit position of the business is not at all satisfactory. The operating
expenses of the business are very high.
6. The operating profit ratio is not satisfactory.
7. In the year 2006-07 Return On Investment is below the standard norm.
8. Inventory management of the firm is not satisfactory
9. The collection of debtors is not effective .In 2006-07 the firm has taken 77 days to
collect the credit sales.
10. Creditor’s turnover ratio of the firm is satisfactory.
11. On analyzing working capital turn over ratio, it is understood that the
management of working capital is not efficient.
12. During all year under study, current ratio shows that is much above the standard
norm.
13. A major portion of the current asset is blocked in trade.
14. The liquid ratio in all years under study above standard norm.
15. On comparing the current ratio and liquid ratio, it is understood that the current
ratio is much higher than liquid ratio position. It is because of excessive
investments in stock in trade.
16. The absolute liquidity position of the firm is in pathetic condition.
17. Debt Equity Ratio of the firm comes near to standard by 2006-07, which indicates
high degree of protection to creditors. The firm makes use of loan funds to
purchase fixed assets by paying interest.

72 Saja.K.A
SUGGESTIONS

1. The over investments in stock is a notable defect. This can be over come by
taking necessary steps for improving the sales.
2. The cash position of the firm is not at all satisfactory. Sufficient cash balance
should be kept in the firm so as to keep the available favorable position.
3. Necessary steps have to be taken to make the working capital management more
effective.
4. The profitability of any business depends to a very depends to a very extent on the
capacity of it to enhance sales. So new marketing techniques have to be
introduced.
5. Profit earned by the firm shows both increasing and decreasing trend. Due to this
fluctuation, firm is suggested to make use of owned funds rather than outsiders
fund.
6. Unnecessary funds locked up in inventory and debtors should be invested in some
profitable project which in turn helps in the expansion of the firm.
7. Some of the item included in the product line of SIMCO is out dated. Therefore
new models or new versions of such items should be introduced and outdated
items should be excluded from the product line.
8. Firm is suggested to give more attention to garden tools which contribute a
sizeable portion of the profit to the firm.
9. Since the firm is facing the problem of labour absenteeism, it is suggested to take
necessary measures to reduce the same and also provide additional incentives
which in turn motivate them to work more efficiently and effectively.
10. Advertisement programme should be improved for the increase in sales. SIMCO
is facing more competition from other units, therefore the strength and weakness
of the competitors should be studied and new strategies should be prepared
accordingly.
11. Firm should take measures to purchase raw materials at lower prices which
directly affects profit of the firm.

73 Saja.K.A
 CONCLUSION

The material for writing this project report was obtained

during the actual course of the allowed time period undergone at SIMCO,
Shoranur.The three weeks project helped me in getting a rare chance to familiarize
with the functioning of manufacturing organization .This project report enabled to
expose certain valuable conclusions pertaining to the short term and long term
liquidity position of the firm and its profitability. Though the firm has reached near
declining stage, but due to the importance of simple implements I agricultural sector,
it occupies the good position in small scale industries.
In short, this project report has given me an opportunity
to list and substantiate theoretical knowledge, which in turn facilitated its own
argumentation.

74 Saja.K.A
 BIBLIOGRAPHY
BOOKS
1. R.K Sharma and Sasi . K .Guptha “MANAGEMENT
ACCOUNTING” Kallyani Publishers, New Delhi 1991
2. I. M. Pandey “FINANCIAL MANAGEMENT” Vikas Publishing
House Pvt Ltd, New Delhi 1999
3. Khan .M.Y and Jain .P.K “FINANCIAL MANAGEMENT” Tata
Mc Graw Hill Publishing Company Ltd , New Delhi 1985
4. P.V Kulkarni “FINANCIAL MANAGEMENT” Himalaya
Publishing House, Mumbai 1996.

75 Saja.K.A
 5. Prasanna Chandra “FINANCIAL MANAGEMENT THEORY
AND PRACTICES” Tata Mc Graw Hill Publishing Company Ltd
New Delhi 2002.
6. S.P Guptha “STAISTICAL METHODS” Sulthan Chand and Sons,
New Delhi 1995.

REPORTS
1. Annual Reports of South India Metal Company 2003-08
2. Financial Statements of South India Metal Company fom2003-08

76 Saja.K.A
 ANNEXURE

COST STATEMENT OF SIMCO OF SIMCO FOR THE YEAR 2003-2008

Particulars 2003-04 2004-05 2005-06
Opening Stock of Raw Materials 12,82,677.75 17,62,722.68 12,89,552.21
Purchase 65,54,924.28 64,83,206.33 71,43,407.80
Expenses on Purchases 3,15,609.70 1,78,107.30 3,17,821.25
Materials available 81,53,211.73 84,24,036.31 87,50,781.26
Less:Closing Stock of
Raw Material 17,62,722.68 12,89,552.21 11,20,129.28
Material Cost 63,90,489.05 71,34,484.10 76,30,651.98
Direct Labour Cost 38,83,842.23 40,19,390.57 40,06,189.15
Add :Opening Stock of W/P 18,59,413.71 16,04,614.55 24,52,206.11
1,21,33,744.99 1,27,58,489.22 1,40,89,047.24
Less:Closing Stock of W/P 16,04,614.55 24,52,206.11 1,18,10,105.95

77 Saja.K.A
Prime Cost 1,05,29,230.44 1,03,06,283.11 1,18,10,105.95
Manufacturing Expenses 6,60,186.10 6,80953.20 6,12,883.32

Cost of Production 1,11,89,316.54 1,09,87,236.31 1,24,22,989.27

Add.Opening Stock of Finished
Goods 12,31,142.62 15,13,758.00 22,19,980.00
Finished Goods Purchased --- --- 20,37,192.62

Cost of Goods Available for sale 1,24,20,454.16 1,25,00,994.31 1,66,80,161.89

Less: Closing Finished Goods 15,13,758.00 22,19,980.00 19,84,100.00

COST OF GOODS SOLD 1,09,09,701.16 1,02,81,014.31 1,46,061.89

COST STATEMENT OF SIMCO FOR THE YEAR 2006-2008

Particulars 2006-07 2007-08
Opening Stock of Raw Materials 11,20,129.28 14,22,195.66
Purchase 83,20,541.71 99,08,548.21
Expenses on Purchases 4,45,834.13 3,51,414.00
Materials available 98,86,504.82 1,16,82,157.87
Less:Closing Stock of
Raw Material 14,22,195.66 16,67,019.10
Material Cost 84,64,309.16 1,00,15,138.77
Direct Labour Cost 39,85,028.66 43,57,258.34
Add :Opening Stock of W/P 22,78,941.29 30,41,134.78
Semi Finished goods purchases ----- 2,05,384.00
1,47,28,279.11 1,76,18,915.89
Less:Closing Stock of W/P 30,41,134.78 25,67,212.02
Prime Cost 1,16,87,144.33 1,76,18,915.89
Manufacturing Expenses 6,62,621.07 7,63,938.66

78 Saja.K.A
Cost of Production 1,23,49,765.50 1,58,15,642.53
Add.Opening Stock of Finished
Goods 19,84,100.00 14,78,095.00
Semifinished goods purchased 98,457.00 ----
Finished Goods Purchased 13,93,213.40 6,43,134.00
Cost of Goods Available for sale 1,58,25,535.80 1,79,36,871.53
Less: Closing Finished Goods 14,78,095.00 13,19,067.00
COST OF GOODS SOLD 1,43,47,440.80 1,66,17,804.53

PROFIT AND LOSS ACCOUNT OF SIMCO FOR THE YEAR ENDED 31st
MARCH 2003 – 2004
Year 31 / 03 / 2003 Particulars Year ended 31 / 03 /
2004
INCOME
16342713.03 Sales………………………… 1515819.13
2633163.00 Less:- returns………………….. 33387.64
16316381.37 15125231.49
802766.00 608528
Less:- exercise duty
15513615.37 14516703.49
10906701.16 10281014.31
4606914.21 Less:- cost of goods sold 4235689.18
10362.50 Gross profit 22731.50
4617276.71 Add:- other income 4258420.68

647578.58 633773.50
EXPENDITURE
1360556.08 1365545.23
Provision to office staff
768775.69 914387.98
2776920.35 Sales and distribution cost 2913706.71
1840356.36 Other general expenses 1344713.97
933131.78 Profit before interest and 791835.18
907224.58 552878.99
depreciation
170580.72 139314.26

79 Saja.K.A
 736643.86 Less:- interest 413564.53
Profit after interest
Depreciation
Profit transferred to purayannur
industries

PROFIT AND LOSS ACCOUNT OF SIMCO FOR THE YEAR ENDED 31st
MARCH 2005 – 2006
Year 31 / 03 / 2005 Particulars Year ended 31 / 03 /
2006

INCOME
19455006.66 Sales 18570636.53
31170.00 Less:- returns 31943.15
19423836.66 18538693.38
14696001.89 14347440.80
Less:- cost of goods sold

4727774.77 4191252.58
Gross profit
164697.93 103788.54
Add:- other income
4892472.70 4295041.12

EXPENDITURE
579290 646051.52
1538041.94 Provision to office staff 1504139.88
908424.05 Sales and distribution cost 899798.85

80 Saja.K.A
 1866716.71 Other general expenses 1245051.17
757702.03 724581.60

Profit before interest and

1109014.68 depreciation 520469.57
128221.31 Less:- interest 97573.59
Profit after interest
980793.37 422895.98
Depreciation
Profit transferred to purayannur
industries

PROFIT AND LOSS ACCOUNT OF SIMCO FOR THE YEAR ENDED 31st
MARCH 2007
Particulars Year ended 31 / 03 / 2007

INCOME
Sales 21665195.91
Less:- returns 97460.46

21567735.45
Less:- cost of goods sold
16617804.53
Gross profit 4949930.92
Add:- other income 54571.39
5004502.31

EXPENDITURE
Provision to office staff 686733.32
Sales and distribution cost 1120786.74
1127355.90

81 Saja.K.A
 Other general expenses 3534875.96

1469626.35
783111.02
Profit before interest and depreciation
Less:- interest
686515.33
Profit after interest
134238.23
Depreciation
552277.10
Profit transferred to purayannur
industries

SOUTH INDIA METAL COMPANY,SHORANUR -2,

BALANCE SHEET AS ON 31ST MARCH

PARTICULAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-08

S
Amount % Amount % Amount % Amount RS % Amount %
Rs Rs Rs Rs

1)LIABILITIE
S

1)Proprietors
Fund

a) Purayannur
Industries 10,93,250.42 11.25 10,30,314.54 10.32 16,31,395.26 15.69 18,08,977.34 15.82 16,33,851.96 13.97

2)Loan Funds

Secured 16,85,068.61 17.35 27,49,223.02 27.53 23,09,726.27 22.22 32,94,165.74 28.81 33,03,299.00 28..24

Unsecured 39,53,454.40 40.70 39,57,576.00 39.63 38,18,842.00 36.74 34,12,826.50 29.85 32,71,432.00 27.97

3)Current
Liabilities 29,81,808.04 30.70 22,50,099.49 22.52 26,35,774.72 25.35 29,18,093.23 25.52 34,89,218.58 29.82

TOTAL
LIABILITIES 97,13,581.47 100 99,87,213.05 100 1,03,95,738.2 100 1,14,34,062.8 100 1,16,97,801.5 100

82 Saja.K.A
II.ASSETS
1.Fixed Assets 7,42,554.74 7.64 6,20,406.61 6.21 5,40,723.30 5.20 8,47,665.65 7.41 8,54,428.80 7.30

2.Current
Assets
Loans
&Advances

Inventories 49, 40,267.1050.86 60,18,323.1 60.26 54,50,178.6 52.43 60,11,711.3 52.58 56,47,238.9 6 48.28

Sundry Debtors

Cash & Bank

Balance

Loans 32,65,810.21 33.62 26,48,334.42 26.52 38,52,554.41 37.06 38,92,565.22 34.04 45,44,700.82 38.85
&Advance
3,28,204.36 3.38 2,80,744.06 2.81 1,79,727.05 1.73 1,65,825,63 1.45 87,653.10 0.75

Total Assets
4,36,745.06 4.50 4,19,40486 4.20 3,72,554.86 3.58 5,16,294.98 4.52 5,63,779.86 4.82

97,13,581.47 100 99,87,21 3.05 100 1,03,95,738.25 100 1,14,34,062.81 100 1,16,97,801.54 100

83 Saja.K.A