Finance

What is Structure Product in Financial Services? Briefly Explain PMS Services and their future in Indian Financial Market. Structured products are synthetic investment instruments specially created to meet specific needs that cannot be met from the standardized financial instruments available in the markets. Structured products can be used: as an alternative to a direct investment; as part of the asset allocation process to reduce risk exposure of a portfolio; or to utilize the current market trend. A structured product is generally a pre-packaged investment strategy which is based on derivatives (i.e. options and to a lesser extent, swaps) but which features protection of principal if held to maturity. For example, an investor invests 100 dollars, the issuer simply invests in a risk free bond which has sufficient interest to grow to 100 after the 5 year period. For example, this bond might cost 80 dollars today and after 5 years it will grow to 100 dollars. With the leftover funds the issuer purchases the options and swaps needed to perform whatever the investment strategy is. Theoretically investors can just do this themselves, but the costs and transaction volume requirements of many options and swaps are beyond many individual investors. Origin Structured investments arose from the needs of companies which want to issue debt more cheaply. Traditionally, one of the ways to do this was to issue a convertible bond, that is, debt that under certain circumstances could be converted to equity. In exchange for the potential for a higher return (if the equity value would increase and the bond could be converted at a profit), investors would accept lower interest rates in the meantime. However this tradeoff and its actual worth is debatable, since the movement of the equity value of the company could be unpredictable. Investment Banks (financial institutions which help other companies issue bonds to borrow money) then decided to add features to the basic convertible bond, such as increased income in exchange for limits on the convertibility of the stock, or principal protection. These extra features were all based around strategies investors themselves could perform using options and other derivatives, except that they were pre-packaged as one product. The goal was again to give investors more reasons to accept a lower interest rate on debt in exchange for certain features. On the other hand the goal for the investment banks was to increase profit margins since the newer products with added features were harder to value, so that it was harder for the banks clients to see how much profit the bank was making from it. Interest in these investments has been growing in recent years and high net worth investors now use structured products as way of portfolio diversification. Structured products are also available at the mass retail level - particularly in Europe, where national post offices, and even supermarkets, sell investments on these to their customers. Financial institutions create investment products, known generically as structured products, that trade on a stock exchange and link the return on an investor's principal to the performance of an underlying security, such as a stock or basket of stocks, or to a derivative, such as a stock index. For example, the return on debt securities known as structured notes is determined by the performance of a stock index such as the Standard & Poor's 500 (S&P 500) rather than the market interest rate. The objective is to provide the potential for higher returns than are available through a conventional investment.

Each product has a distinctive name, often expressed as an acronym, and its terms and conditions vary somewhat from those offered by its competitors.

For example, in some cases the principal is protected and in others it isn't. But some features are characteristic of these complex investments -- their value always involves an underlying financial instrument and they require investors to commit a minimum investment amount for a specific term, such as three years. Portfolio Management Services: In today's complex financial environment, investors have unique needs which are derived from their risk appetite and financial goals. But regardless of this, every investor seeks to maximize his returns on investments without capital erosion. While there are many investment avenues such as fixed deposits, income funds, bonds, equities etc…. It is a proven fact that Equities as an asset class typically tend to outperform all other asset classes over the long run. Investing in equities, require knowledge, time and a right mind-set. Equity as an asset class also requires constant monitoring may not be possible for you to give the necessary time, given your other commitments.

1. Value Portfolio:

• Overview Value Portfolio is meant for investors with a Long Term investment horizon in the Indian Equity Markets. Discovering an original investment idea involves deep and meticulous analysis to discover the hidden true values. The portfolio’s investments philosophy revolves around finding value. As such, the investment philosophy is not dependent on the market trends but banks on the power of the intellect. A business is prudently picked for investment after a thorough study of its underlying hidden long-term potential. To purchase a piece of great business at a fraction of its true value is the discipline. • Portfolio Objective The Portfolio aims to deliver superior wealth creation by way of long term compounding effect, with investments in good businesses run by great business managers. • Portfolio Characteristics  Value based stock selection  Investment Approach : “Buy & Hold”  Investments with Long term perspective  Aim to Maximize post tax return due to Low Churn

 Focused portfolio construction Capital preservation consciousness* * No capital guarantee • Investment Philosophy  Identify and purchase a piece of great business at a fraction of its true value. Investments with a Long-term investment View. The fund manager strongly believes that “Money is made by Sitting”  Investments are identified by a Bottom up Approach. The aim is to identify potential long-term wealth creators by focusing on individual companies and their management bandwidth.  Margin of Safety

What are various sources of Raising Finance? Suggest the Combination of Equity, Debt and Others to have a better financial standing in the Market with Interpretation. As we are aware finance is the life blood of business. It is of vital significance for modern business which requires huge capital. Funds required for a business may be classified as long term and short term. You have learnt about short term finance in the previous lesson. Finance is required for a long period also. It is required for purchasing fixed assets like land and building, machinery etc. Even a portion of working capital, which is required to meet day to day expenses, is of a permanent nature. To finance it we require long term capital. The amount of long term capital depends upon the scale of business and nature of business.

Long Term Finance

A business requires funds to purchase fixed assets like land and building, plant and machinery, furniture etc. These assets may be regarded as the foundation of a business. The capital required for these assets is called fixed capital. A part of the working capital is also of a permanent nature. Funds required for this part of the working capital and for fixed capital is called long term finance.

SOURCES OF LONG TERM FINANCE The main sources of long term finance are as follows: 1. Shares: These are issued to the general public. These may be of two types: (i) Equity and (ii) Preference. The holders of shares are the owners of the business. 2. Debentures: These are also issued to the general public. The holders of debentures are the creditors of the company. 3. Public Deposits : General public also like to deposit their savings with a popular and well established company which can pay interest periodically and pay-back the deposit when due. 4. Retained earnings:

The company may not distribute the whole of its profits among its shareholders. It may retain a part of the profits and utilize it as capital. 5. Term loans from banks: Many industrial development banks, cooperative banks and commercial banks grant medium term loans for a period of three to five years. 6. Loan from financial institutions: There are many specialised financial institutions established by the Central and State governments which give long term loans at reasonable rate of interest. Some of these institutions are: Industrial Finance Corporation of India ( IFCI), Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), Unit Trust of India ( UTI ), State Finance Corporations etc. These sources of long term finance will be discussed in the next lesson.

Shares Issue of shares is the main source of long term finance. Shares are issued by joint stock companies to the public. A company divides its capital into units of a definite face value, say of Rs. 10 each or Rs. 100 each. Each unit is called a share. A person holding shares is called a shareholder. Preference Shares : Preference Shares are the shares which carry preferential rights over the equity shares. These rights are (a) receiving dividends at a fixed rate, (b) getting back the capital in case the company is wound-up. Investment in these shares are safe, and a preference shareholder also gets dividend regularly. Equity Shares: Equity shares are shares which do not enjoy any preferential right in the matter of payment of dividend or reppayment of capital. The equity shareholder gets dividend only after the payment of dividends to the preference shares. There is no fixed rate of dividend for equity shareholders. The rate of dividend depends upon the surplus profits. In case of winding up of a company, the equity share capital is refunded only after refunding the preference share capital. Equity shareholders have the right to take part in the management of the company. However, equity shares also carry more risk. Debentures Whenever a company wants to borrow a large amount of fund for a long but fixed period, it can borrow from the general public by issuing loan certificates called Debentures. The total amount to be borrowed is divided into units of fixed amount say of Rs.100 each. These units are called Debentures. These are offered to the public to subscribe in the same manner as is done in the case of shares. A debenture is issued under the common seal of the company. It is a written acknowledgement of money borrowed. It specifies the terms and conditions, such as rate of interest, time repayment, security offered, etc.

Types of Debentures : Debentures may be classified as: a) Redeemable Debentures and Irredeemable Debentures b) Convertible Debentures and Non-convertible Debentures. Redeemable Debentures : These are debentures repayable on a pre-determined date or at any time prior to their maturity, provided the company so desires and gives a notice to that effect. Irredeemable Debentures : These are also called perpetual debentures. A company is not bound to repay the amount during its life time. If the issuing company fails to pay the interest, it has to redeem such debentures. Convertible Debentures : The holders of these debentures are given the option to convert their debentures into equity shares at a time and in a ratio as decided by the company. Non-convertible Debentures: These debentures cannot be converted into shares. Public Deposits It is a very old source of finance in India. When modern banks were not there, people used to deposit their savings with business concerns of good repute. Even today it is a very popular and convenient method of raising medium term finance. The period for which business undertakings accept public deposits ranges between six months to three years. Retained Earnings Like an individual, companies also set aside a part of their profits to meet future requirements of capital. Companies keep these savings in various accounts such as General Reserve, Debenture Redemption Reserve and Dividend Equalisation Reserve etc. These reserves can be used to meet long term financial requirements. The portion of the profits which is not distributed among the shareholders but is retained and is used in business is called retained earnings or ploughing back of profits. As per Indian companies Act., companies are required to transfer a part of their profits in reserves. The amount so kept in reserve may be used to buy fixed assets. This is called internal financing.

Borrowing From Commercial Banks :

Traditionally, commercial banks in India do not grant long term loans. They grant loans only for short period not extending one year. But recently they have started giving loans for a long period. Commercial banks give term loans i.e. for more than one year. The period of repayment of short term loan is extended at intervals and in some cases loan is given directly for a long period. Commercial banks provide long term finance to small scale units in the priority sector. SHORT TERM FINANCE Hopefully you managed to get the right sources of short term finance in the drag and drop activity. Let us have a look in a bit more detail at each of the main types of short term finance. Bank Overdraft Most businesses have an account with a bank. The bank deals with all the deposits (money put into the account) and withdrawals (money taken out). Most banks know that businesses do not always receive money from sales straight away. If you run a sandwich bar in a local trading estate then you might get money straight away when you sell your sandwiches. If you are a business selling electrical equipment to an electrical retailer then you may not get paid straight away when you deliver your goods. When differences occur in the money a business receives from sales (its revenue or turnover) and the money it has to pay out on labor, machinery, equipment, distribution and so on (its costs) the firm can face difficulties. The money flowing into a business from sales and the amount it spends on costs that go out of the business is called its cash flow. Trade Credit This is a period of time given to a business to pay for goods that they have received. It is often 28 days but some businesses might not pay for 6 months and on some occasions even a year after they have received goods. Hill Farm Furniture is a small business based between Nottingham and Lincoln. The business makes high quality kitchen furniture. The vast majority of the work done by the business is strictly to order and made to suit the specific requirements of the customer. Hill Farm use wood - lots of it! When they receive a delivery from their supplier they do not pay straight away. They will receive a 28 day period before having to settle the bill. Factoring Factoring involves raising funds on the security of the company’s debts, so that cash is received earlier than if the company waited for the debtors to pay. Most factoring companies offer these three services: •

Sales ledger accounting, despatching invoices and making sure bills are paid.

•

Credit management, including guarantees against bad debts.

•

The provision of finance, advancing clients up to 80% of the value of the debts that they are collecting.

a) Sales ledger administration The factoring company will take over the administration of receivable department, maintaining the sales records, credit control and the collection of receivables. It is claimed that the factor will be able to obtain payment from customers more quickly than if the company was to make collection on its own. The cost of this administrative service is a fee based on total value of debts assigned to the factor. The fee rate is based on work which is to be done and the risk level of bad debts.

b) Credit management For a fee the factor can provide up to 100% protection against nonpayment of approved sales. The factoring company will always assess the credit profile of an enterprise before entering into such an agreement. As outlined above the risk level of the company’s debts will be the main factor in determining the fee charge. c) Provision of finance This is the main product which most factoring companies offer. Factor companies provide finance which is used to boost the working capital; of the business. The factoring is not as cheap as may be the bank overdrafts and because the bank borrowing is also flexible it is imperative that the company should approach the bank first. However, factoring can be particularly useful when a company has exhausted its overdraft and is not yet in position to raise new equity. Cash credit Account This account is the primary method in which Banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account. Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank.

What is Primary and Secondary Market? Explain their Rules and Regulations as per SEBI Norms? Capital Market Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds. In other words, it is concerned with the raising of money capital for purposes of making long-term investments. The market consists of a number of individuals and institutions (including the Government) that canalise the supply and demand for long -term capital and claims on it. The demand for long term capital comes predominantly from private sector manufacturing industries, agriculture sector, trade and the Government agencies. While, the supply of funds for the capital market comes largely from individual and corporate savings, banks, insurance companies, specialised financing agencies and the surplus of Governments. The Indian capital market is broadly divided into the gilt-edged market and the industrial securities market. 

The gilt-edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI). Government securities are tradeable debt instruments issued by the Government for meeting its financial requirements. The term giltedged means 'of the best quality'. This is because the Government securities do not suffer from risk of default and are highly liquid (as they can be easily sold in the market at their current price). The open market operations of the RBI are also conducted in such securities.

 The industrial securities market refers to the market which deals in equities and debentures of the corporates. It is further divided into primary market and secondary market. •

Primary market (new issue market):- deals with 'new securities', that is, securities which were not previously available and are offered to the investing public for the first time. It is the market for raising fresh capital in the form of shares and debentures. It provides the issuing company with additional funds for starting a new enterprise or for either expansion or diversification of an existing one, and thus its contribution to company financing is direct. The new offerings by the companies are made either as an initial public offering (IPO) or rights issue.

The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of primary markets are:

 This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).  In a primary issue, the securities are issued by the company directly to investors.  The company receives the money and issues new security certificates to the investors.  Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.  The primary market performs the crucial function of facilitating capital formation in the economy.  The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."  The financial assets sold can only be redeemed by the original holder. •

Secondary market/ stock market (old issues market or stock exchange):- is the market for buying and selling securities of the existing companies. Under this, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. The stock exchanges are the exclusive centres for trading of securities. It is a sensitive barometer and reflects the trends in the economy through fluctuations in the prices of various securities. It been defined as, "a body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating and controlling the business of buying, selling and dealing in securities". Listing on stock exchanges enables the shareholders to monitor the movement of the share prices in an effective manner. This assist them to take prudent decisions on whether to retain their holdings or sell off or even accumulate further. However, to list the securities on a stock exchange, the issuing company has to go through set norms and procedures.

Regulatory Framework In India, the capital market is regulated by the Capital Markets Division of the Department of Economic Affairs, Ministry of Finance. The division is responsible for formulating the policies related to the orderly growth and development of the securities markets (i.e. share, debt and derivatives) as well as protecting the interest of the investors. In particular, it is responsible for (i) institutional reforms in the securities markets, (ii) building regulatory and market institutions, (iii) strengthening investor protection mechanism, and (iv) providing efficient legislative framework for securities markets, such as Securities and Exchange Board of India Act, 1992 (SEBI Act 1992); Securities Contracts (Regulation) Act, 1956; and the Depositories Act, 1996. The division administers these legislations and the rules framed there under. The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992, in order to protect the interests of the investors in securities as well as promote the development of the capital market. It involves regulating the business in stock exchanges; supervising

the working of stock brokers, share transfer agents, merchant bankers, underwriters, etc; as well as prohibiting unfair trade practices in the securities market. The following departments of SEBI take care of the activities in the secondary market: Market Intermediaries Registration and Supervision Department (MIRSD) - concerned with the registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets, such as equity, equity derivatives, debt and debt related derivatives.

 Market Regulation Department (MRD) - concerned with formulation of new policies as well as supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories.

 Derivatives and New Products Departments (DNPD) - concerned with supervising trading at derivatives segments of stock exchanges, introducing new products to be traded and consequent policy changes. Policy Measures and Initiatives A number of initiatives have been undertaken by the Government, from time to time, so as to provide financial and regulatory reforms in the primary and secondary market segments of the capital market. These measures broadly aim to sustain the confidence of investors (both domestic and foreign) in the country’s capital market. The policy initiatives that have been undertaken in the primary market during 2006-07 include:

SEBI has notified the disclosures and other related requirements for companies desirous of issuing Indian depository receipts in India. It has been mandated that: - (i) the issuer must be listed in its home country; (ii) it must not have been barred by any regulatory body; and (iii) it should have a good track record of compliance of securities market regulations.



As a condition of continuous listing, listed companies have to maintain a minimum level of public shareholding at 25 per cent of the total shares issued. The exemptions include:- (i) companies which are required to maintain more than 10 per cent, but less than 25 per cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii) companies that have two crore or more of listed shares and Rs. 1,000 crore or more of market capitalization.

 SEBI has specified that shareholding pattern will be indicated by listed companies under three categories, namely, 'shares held by promoter and promoter group'; 'shares held by public' and 'shares held by custodians and against which depository receipts have been issued'.

 In accordance with the guidelines issued by SEBI, the issuers are required to state on the cover page of the offer document whether they have opted for an IPO (Initial Public Offering) grading from the rating agencies. In case the issuers opt for a grading, they are required to disclose the grades including the unaccepted grades in the prospectus.

 SEBI has facilitated a quick and cost effective method of raising funds, termed as 'Qualified Institutional Placement (QIP)' from the Indian securities market by way of private placement of securities or convertible bonds with the Qualified Institutional Buyers.

 SEBI has stipulated that the benefit of ‘no lock-in’ on the pre-issue shares of an unlisted company making an IPO, currently available to the shares held by Venture Capital Funds (VCFs)/Foreign Venture Capital Investors (FVCIs), shall be limited to:- (i) the shares held by VCFs or FVCIs registered with SEBI for a period of at least one year as on the date of filing draft prospectus with SEBI; and (ii) the shares issued to SEBI registered VCFs/FVCIs upon conversion of convertible instruments during the period of one year prior to the date of filing draft prospectus with SEBI.

 In order to regulate pre-issue publicity by companies which are planning to make an issue of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an issuer company to ensure that its publicity is consistent with its past practices, does not contain projections/ estimates/ any information extraneous to the offer document filed with SEBI. Similarly, the policy initiatives that have been undertaken in the secondary market during 2006-07 include: In continuation of the comprehensive risk management system put in place since May 2005 in T+2 rolling settlement scenario for the cash market, the stock exchanges have been advised to update the applicable Value at Risk (VaR) margin at least 5 times in a day by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. This has been done to align the risk management framework across the cash and derivative markets.



In order to strengthen the ‘Know Your Client’ norms and to have sound audit trail of the transactions in the securities market, 'Permanent Account Number (PAN)' has been made mandatory with effect from January 1, 2007 for operating a beneficiary owner account and for trading in the cash segment.

 In order to implement the proposal on creation of a unified platform for trading of corporate bonds, SEBI has stipulated that the BSE Limited would set up and maintain the corporate bond reporting platform. The reporting shall be made for all trades in listed debt securities issued by all institutions such as banks, public sector undertakings, municipal corporations, corporate bodies and companies.

 In line with the Government of India’s policy on foreign investments in infrastructure companies in the Indian securities market, the limits for foreign investment in stock exchanges, depositories

and clearing corporations, have been specified as follows:- (i) foreign investment up to 49 per cent will be allowed in these companies with a separate Foreign Direct Investment (FDI) cap of 26 per cent and cap of 23 per cent on Foreign institutional investment (FII); (ii) FDI will be allowed with specific prior approval of Foreign Investment Promotion Board (FIPB); (iii) FII will be allowed only through purchases in the secondary market; and (iv) FII shall not seek and will not get representation on the board of directors.

 The application process of FII investment has been simplified and new categories of investment (insurance and reinsurance companies, foreign central banks, investment managers, international organizations) have been included under FII.

 Initial issue expenses and dividend distribution procedure for mutual funds have been rationalised.

 Mutual funds have been permitted to introduce Gold Exchange Traded Funds.

 In the Government securities market, the RBI has ceased to participate in primary issues of Central Government securities, in line with the provisions of Fiscal Responsibility and Budget Management Act (FRBM Act).

 Foreign institutional investors have been allowed to invest in security receipts. Thus, the capital market plays a vital role in fostering economic growth of the country, as it augments the quantities of real savings; increases the net capital inflow from abroad; raises the productivity of investments by improving allocation of investible funds; and reduces the cost of capital in the economy.

Do the Ratio Analysis of Any Company of Your choice with Minimum 10 Ratios & their Interpretation.

INCOME STATEMENT OF TATA MOTORS

PARTICULARS REVENUES OTHER REVENUES TOTAL REVENUES COST OF GOODS SOLD

CURRENCY IN MILLIONS RS. 2007 2008 323612 19.6 325143.8 234753.6

356514.8 65 358086 254571.5

GROSS PROFIT SELLING GENERAL AND ADMIN EXPENSES, TOTAL R&D EXPENSES DEPRECIATION AND AMMORTIZATION, TOTAL OTHER OPERATING EXPENSES OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME INTEREST EXPENSES INTEREST AND INVESTMENT INCOME NET INTEREST EXPENSE INCOME (LOSS) ON EQUITY INVESTMENT CURRENCY EXCHANGE GAINS (LOSS) OTHER NON OPERATING INCOME (EXPENSES) EBT, EXCLUDING UNUSUAL ITEMS GAIN (LOSS) ON SALE OF ASSETS OTHER UNUSUAL ITEMS, TOTAL EBT, INCLUDING UNUSUAL ITEMS INCOME TAX EXPENSE MINORITY INTEREST IN EARNINGS EARNINGS FROM CONTINUING OPERATIONS NET INCOME

90390.2

103514.5

30811 850.2

35136.3 659.5

6880.9 17508.5 56050.6 34339.6 -4650.6 592.5 -4058.1 394.2 652.1

7820.7 24046.6 67663.1 35851.4 -9127.2 1696.6 -7430.6 652 1376.1

-1.4 31326.4

-0.6 30448.3

-52.2 31274.2 8832.1 -742.2

1103.6 -37 31514.9 8515.4 -1322.5

21699.9 21699.9

21677 21677

--

BALANCE SHEET OF TATA MOTORS CURRENCY IN MILLIONS RS. 2007 2008 11542.7 38331.7

ASSETS CASH AND EQUIVALENTS TOTAL CASH AND SHORT TERM INVESTMENTS ACCOUNT RECEIVABLE NOTES RECEIVABLE OTHER RECEIVABLES TOTAL RECEIBVABLES INVENTORY PREPAID EXPENSES OTHER CURRENT ASSETS TOTAL CURRENT ASSETS GROSS PROPERTY PLANT AND EQUIPMENT ACCUMULATED DEPRECIATION NET PROPERTY PLANT AND EQUIPMENT GOODWILL LONG TERM INVESTMENTS DEFERRED CHARGES, LONG TERM OTHER INTANGIBLES OTHER LONG TERM ASSETS TOTAL ASSETS LIABILITY AND EQUITY ACCOUNTS PAYABLE ACCRUED EXPENSES SHORT TERM BORROWINGS CURRENT INCOME TAXES PAYABLE OTHER CURRENT LIABILITIES, TOTAL UNEARNED REVENUE, CURRENT TOTAL CURRENT LIABILITIES LONG TERM DEBT CAPITAL LEASES MINORITY INTEREST DEFERRED TAX LIABILITY NON CURRENT TOTAL LIABILITIES COMMON STOCK ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS COMPREHENSIVE INCOME AND OTHER TOTAL COMMON EQUITY

11542.7 17022.2 84553 62.7 101638.5 31669 1247.3 16681.7 162669.2

38331.7 20605.1 76938.9 11.9 9755519 32946.4 3334.8 20504.7 192673.5

129408.3 -54266.5 75141.8 4430.1 11745.9 119.3

182484.4 -57652.4 124832 5661.6 26658.3 2442.1 1429.6

--

-254216.3

353697.1

48723.3 4704.9 34325 1084.2 38789.2 6.7 127633.7 38693.6

67832.8 5389.3 52503.2 901.4 62104.1 218 188948.8 63345.5

--

-2499.6 8172.7 176999.6 3853.6 19364 44087.8 9911.3 77216.7

4683.1 9744.5 266721.9 3854.9 15372.2 58523.7 9224.4 86975.2

TOTAL LIABILITIES AND EQUITY

254216.3

353697.1

LIQUIDITY RATIO Current ratio = current assets/ current liabilities 2008

2007

Current assets

192673.5

162,779.2

Current liability

188948.8

127633.7

Current ratio (2008)

192673.5/188948.8 = 1.01

Current ratio (2007)

162779.2/127,633.7 = 1.27

Quick ratio 2008

C.A. – Invent./ C.L 192673.5-32946.4/188,948.8 = .85

Quick ratio 2007

162,779.2-31669.0/127,633.7 = 1.02

Interval Measure

Current Assets-Inventory/average. Daily cash oper. Exp

For 2008Average daily cash oper. Exptotal cash exp./365 67663.1/365 = 185.3 Interval measure-

192673.5-32946.4/185.3 = 862 days

For 2007 Average daily cash oper. Exp- 56050.6/365 = 153.5 Interval measure-

162779.2- 31669.0/153.5 = 854 days

In liquidity ratio, we observe that current ratio in 2008 is less in comparison of 2007. it means companies efficiency decreases in paying current liability. And in quick ratio, it also decreases. In 2008, regular cash meet was 862 days in comparison of 854 of 2007. It means firms ability to pay its daily exp. Increases.

Leverage ratio

Total debt ratio-

Total Debt/ Capital Employed

Fro 2008

Total debt -

63345.5

Capital Employed-

Net Worth + Borrowing

(OR)

Share Capital + Debt. 86975.2+63345.5= 150320.7 63345.5/150320.7= .42

For 2007 Total debt-

38693.6

Capital employed-

77216.7+38693.6= 115910.3 38693.6/115910.3 = .33

Debt equity ratio

net worth/ total debt Net worth = share capital

For 2008

86975.2/63345.5 =1.37

For 2007

77216.7/38693.6 = 1.99

Capital Equity Ratio

Capital Employed/ Net Worth

For 2008

150320.7/86975.2 = 1.73

For 2007

115910.3/77216.7 =1.50

Interest coverage ratio

EBIT + depreciation/ interest

2008

2007

Earning before tax

30448.3

31326.4

Add: interest

9127.2

4650.6

39575.5

35977

For 2008

- 39575+78207/9127.2= 5.19

For 2007

-35977+6880.9/4650.6=9.12

In 2008, the long term financial position getting strong than 2008. Capability of paying long term debt. is increases. As we seen, debt ratio increases. And the contribution of debt is increases in 2008 than 2007. and the part of share capital is also increases in total capital employed than 2007. it means, company is increasing its capital through shares.

Activity ratio Inventory turnover ratio: cost of goods sold/inventory 2008

2007

Cost of goods sold

254571.5

234753.6

Inventory

32946.4

31669.0

For 2008:

254571.5/32946.4

=7.72

For 2007:

234753.6/31669.0

=7.41

Debtor turnover ratio: - sales/debtor For 2008:-

358086.0 (sales)/97555.9(debtor) = 3.67

For 2007:-

325143.89 (sales)/101638.5 (debtor) = 3.20

Average collection ratio:- sales/debtor For 2008:

358086.0 (97555.9 (debtor) =3.67

For 2007:-

325143.8 (sales)/101638.5 (debtor)= 3.20

Average collection period (2008) = 360/3.67 = 98 days Average collection period (2007) =360/3.20 =112 days

Assets turnover ratio:- Sales/Net assets or capital employed For 2008:-

358086.0 (sales)/150320.7 (C.E.) = 2.38

For 2007:-

235143.8 (sales)/115910.3 (C.E) = 2.80

Working capital turnover ratio:- Sales/Net Working Capital Net Working Capital = Current assets-Current liability For 2008

=192673.5-188948.8 = 3724.7

For 2007

=162779.9-127633.7 = 35145.5

For 2008:-

358086.0 (sales)/3724.7 (N.W.C) = 9.25

As we seen, company’s efficiency of using its assets is increasing in 2008 than 2007. The inventory turnover ratio which shows its efficiency of selling product is increasing. Average collection period is decreasing means company is selling its product more on cash basis in 2008 than 2007. but company’s assets turnover ratio is decreasing means sales is not growing according to its capital employed and working capital. Profitability Ratio Gross margin =

gross profit/sales

Gross margin (2008) = 103514/358086.0 =.29 Gross margin (2007) = 90390.2/325143.8 = .28

EBIT R Ratio= PAT/EBIT FOR 2008 = 21677.0/37878.9 = .57 FOR 2007 = 21699/35384.5

= .61

Return on investment = EBIT/Capital Employed For 2008

= 39575.5/150320.7= .26

For 2007

=35977/115910 = .31

Return on equity

= PAT/Net worth

For 2008

= 39575.5/150320.7 = .26

For 2007

= 35977/115910.3 = .31

Return on equity

= PAT/Net worth

For 2008

= 21677.0/86975.2 = .25

For 2007

= 21699.9/77216.7 = .28

In profitability ratio, the gross profit ratio is increasing in 2008 than 2007. it means its profit is growing in sales. But company’s EBIT ratio is decreasing means interest on capital and tax rate is increased in 2008 than 2007 which is responsible in decreasing its PAT. And company’s return on investment is decreased that indicates that its earning on capital employed is decreased in 2008 than 2007. and its ROE is also decreases means its PAT on its share capital is decreased.