Buildingblocksgroup.doc new

A study on

FINANCIAL STATEMENT ANALYSIS
With reference to
BUIDING BLOCKS PROJECTS PVT LTD.

VISAKHAPATNAM.

A Project report submitted to Andhra University, Visakhapatnam

In partial fulfillment of the requirement of award of the degree of
BACHELOR OF BUSINESS MANAGMENT
Submitted by

Mr. K. KRISHNA CHAITANYA
(REGD NO: 2010-1109084)

Under the guidance of

s.seshagiri kumar
Asst.proffesor, m.com.

GVP college for degree and PG courses (Autonomus)
(Accredited by NAAC with B++)
Gayatri valley, Rushikonda campus
Department of Management Studies.vsp-45.

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DECLARATION

I hereby declare that the project report entitled “FINANCIAL STATEMENT

ANALYSIS” with reference to Building Blocks Group has been prepared by me during

the year (2010–2013) under the guidance of S.SESHAGIRI KUMAR in partial

fulfillment of the requirement for the award of the degree of Bachelors of Business

Administration and has not been submitted earlier to any University / Institution for the

award of Degree / Diploma.

Date:

Place: Visakhapatnam K. KRISHNA CHAITANYA

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BONAFIDE CERTIFICATE
Certified that this project report title “FINANCIAL STATEMENT ANALYSIS

with reference to BUILDING BLOCKS GROUP LTD, Visakhapatnam is the

bonafide work of K.KRISHNA CHAITANYA (Reg.No.2010-1109084) who

carried out the analysis under my Supervision. Certified further, that to the best of

my knowledge the work reported here in does not form part of any other project

report or dissertation, on the basis of which a degree or award was conferred

earlier occasion on this or any other Candidate.

Seshagiri kumar.S
Asst.proffesor management studies

Date:
Place: Visakhapatnam

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ACKNOWLEDGEMENT
My sincere thanks to the Almighty God for having guided me thought-out my life.

It‟s my great pleasure to express my truthful and sincere thanks to smt. Rajini,

Director for her guidance for doing this project.

It‟s my great pleasure to express my truthful and sincere thanks to

G.SHAYAMALA RAO, Head of the Department, BBM, for his guidance for doing

this project.

I express my sincere thanks to S.SESHAGIRI KUMAR, for his valuable

suggestions and continuous encouragement throughout this project.

I express my thanks to Sri. MALLIKARJUNA RAO General Manager (F&A),

for providing me an opportunity to work on this project. I am extremely grateful to

Sri. V B S RAO who cooperated and coordinated me throughout the project without

whom this project would not have been a reality.

I wish to express my grateful thanks to the management and employees of

BUILDING BLOCKS PROJRCTS PVT LTD., for helping me in completing the

project successfully.

I express my gratitude to all my staff members of department of management

science for their help and timely advice to make my project much more effective.

(K KRISHNA CHAITANYA)

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INDEX
Page no.
CHAPTER – I

 Introduction & Methodology
 Financial Statement Analysis
4-11
 Objectives Of The Study
 Limitations Of The Study

CHAPTER – II
12-18
 Industrial Profile

CHAPTER – III 19-30

 Company Profile

CHAPTER – IV
31-34
 Theoretical concept of financial
statements

CHAPTER- V
35-38
 Data Analysis & Interpretation

CHAPTER VI

 Findings & Suggestions 79-82
 Conclusions

BIBILOGROPHY 86

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CHAPTER – I
(Introduction)

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FINANCIAL STATEMENT ANALYSIS

AN INTRODUCTION

Financial statements, as used in corporate business houses, refer to a set of report
and schedules, which an accountant prepares at the end of the period of time for a
business enterprise. The financial statements are the means with the help of which the
accounting system performs its main function of providing summarized information
about the financial affairs of the business. This statement comprises balance sheet or
position statement and profit and loss account or income statement. In India, every
company has to present its financial statements in the form and contents as prescribed
under section 211 of the Companies Act, 1956.

ANALYSIS OF FINANCIAL STATEMENTS

Financial analysis is to be determined by the significant operation and financial
characteristics of a firm from accounting data. It is a technique, typically devoted to
evaluate the past, current and projected performance of a business firm. Financial
analysis is an attempt to determine the significance and meaning of financial statement
data so that forecast may be made of the future prospects for earnings, ability to pay
interests and debit maturities and profitability.

Published financial statements are the only source of information about the
activities and affairs of a business entity available to the public, shareholders, investors
and creditors and the government. This various groups are interested in the progress,
position and prospect of such entity in various ways. But these statements howsoever,
correctly and objectively prepared, by themselves do not reveal the significance, meaning
and relationship of the information contained therein. For this purpose, financial
statements have to be carefully studied, dispassionately analyzed and intelligently
interpreted.

Financial analysis results in the presentation of information by arranging financial
statement data in a systematic manner that aids business managers, investor, and financial
statement can provide valuable insights into a company‟s performance.

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OBJECT OF FINANCIAL ANALYSIS

 To estimate the earning capacity of the firm
 To gauge the financial position and financial performance of the firm
 To determine the long term liquidity of the funds as well as solvency
 To determine the debt capacity of the firm
 To decide about the future prospects of the firm

TYPES OF FINANCIAL STATEMENT ANALYSIS

A distinction may be drawn between various types of financial analysis and it may be as
under:

(A) According to the nature of the analysis and the material used by him:
1. External analysis:-It is made by those who do not have access to the
detailed records of the company. This group, which has to depend almost
entirely on published financial statement, includes investors, credit
agencies and government agencies regulating a business in nominal way.
2. Internal analysis:- The internal analysis is accomplished by those who
have access to the books of accounts and all other information related to
business. While conducting this analysis, the analyst is a part of the
enterprise he is analyzing. Executives and employees of the enterprise
conduct it.
(B) According to the Modus Operandi of Analysis:
1. Horizontal analysis:-When financial statements for a number of years are
reviewed and analyzed, the analysis is called „Horizontal analysis‟. As it is
based on data from year to year rather than on one date or period of time
as a whole, this is also known as „Dynamic analysis‟.
2. Vertical analysis:- It is frequently used for referring to ratios developed
for one date or for one accounting period. It is also called as „Static
analysis‟. This is not very conductive to proper analysis of the firm‟s
financial position and its interpretation, as it does not enable to study data
in perspective.

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(C) According to the objective of analysis:
1. Long term analysis:-This analysis is made in order to study the long term
financial stability, solvency and liquidity as well as profitability and
earning capacity of a business. The objective of this analysis is to know
whether the firm will be able to earn a minimum amount, which will be
sufficient to maintain a reasonable rate of return on the investment.
2. Short term analysis:- This analysis is made to determine the short term
solvency, stability, liquidity and earning capacity of the business. The
requirement or not and sufficient borrowing capacity to meet
contingencies in the near future.

PARTIES INTERESTED IN FINANCIAL ANALYSIS:

1. Financial Executives:
First party interested in the financial analysis in the finance department of
the business concern who has a deep insight into the financial condition of the
enterprise and a view of the past performance, which helps in future decisions
making
2. Management:
The management of the concern is also interested in the analysis of the
statements because it helps them in reaching conclusions regarding the overall
operation of the business. The management is interested in every aspect of the
financial analysis. It is their overall responsibility to see that the resources of
the firm are used most effectively and efficiently and the firm‟s financial
position is sound. As such, return on analysis is very important to them.
3. Creditors:
Creditors also evaluate the financial statements and on the basis of this
financial statement they come about the credit worthiness of the business
enterprises and chosen to extend, maintain or restrict credit. Creditors will be
interested to give credit for those business enterprises having sound financial
position and having capable of being repayment of their credit. Some of the
aspects of enterprise operations that are of interest of the creditors are liquidity

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of funds, soundness of the financial structure, and profitability of the
operation, effectiveness of the working capital management etc. The bankers
and the trade creditors of a business enterprise are interested in its cash
generation and credit worthiness. They want to assess whether the enterprise
will as interest payments and due an agreed schedules. They get all this
information from the analysis of balance sheet and income statement of the
company.

4. Investors:
Investors, present as well as prospective, are interested in the measurement of
earning capital of securities. Every investor has the tendency to get fair return
on his or her investment. Investors have been increasingly concerned with the
cash generation capability of an enterprise primarily in terms of the flexibility
availability to such enterprises to acquire other business and new assets on an
advantageous basis. For this purpose each cash flow analysis and fund flow
analysis are very useful.
5. Government:
The financial statements are used to assess the tax liability of business
enterprise. The government studies economic situation of the country from
these statements enables the government to find out whether business is
following various rules and regulations or not.
6. Bankers:
The banker is interested to see that the loan amount is secure and the
customer is also able to take the interest regularly. The bankers will analyze
the balance sheet to determine financial strength of the concern and profits
and loss account with also is studied to find out the earning position. The
information provided by the analysis and interpretation of various financial
statements is important and useful to those groups also are interested in
working of the business due to one or other motive.

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IMPORTANCE OF FINANCIAL ANALYSIS

Financial analysis is very important for the management, shareholders, creditors,
investors and general public. Following are important points in this regard:

1. It simplifies, summarizes and systemizes a long array of accounting figures,
which prove very useful to the interested parties as it helps them in arriving at
valuable decisions.
2. Financial analysis is invaluable aid to the management in discharge if its basis
functions of forecasting, planning, coordination, communication and control.
3. It identifies the financial health of enterprise by evaluating important aspects of
business like liquidity, solvency, profitability, capital gearing etc. such an
evaluation enables conclusion to be drawn regarding financial health of business.
4. The process of analyzing financial statements involves the preparation and
interpretation of meaning device such as ratio and trend percentages. So with the
preparation of meaning devices the data becomes easy to establish its relationship
and other data can be easily ranked in terms of its relative significance
5. Without analysis of financial statements it is impossible to interpret the financial
statement figures. Therefore, interpretation requires analysis.
6. Owing to increasing demand for analytical information by business executives,
bankers and others it is necessary to have analysis and interpretation of financial
and operating data.

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OBJECTIVE OF THE STUDY

RATIONAL FOR THE STUDY

Financial analysis of an organization provides the clear view of its performance
parameters present as well in comparison to past performance. This analysis is important
for the management and also for outsiders dealing with organization as this shows the
way of functioning and the direction in which an organization is moving.

A management student should properly understand the various aspects of
financial analysis as if opted for specialization in financial management. That‟s why I
have selected “Financial Analysis” as a topic for my study.

OBJECTIVE OF THE STUDY

The objective of the study is to determine the clear picture of the company‟s
performance. The comparison of past and present performance helps to understand the
company‟s efficiency level and makes it able to understand what should be done to
improve its performance.

The objectives of the study are as under:

To study the resources pattern and their utilization with a view to analyze the
financial statements of BUILDING BLOCKS GROUP LIMITED.
To study performance and growth of income over period of time.
To analyze profitability and capital structure of the company .
To estimate the earning capacity of the firm
To gauge the financial position and financial performance of the firm
To determine the long term liquidity of the funds as well as solvency
To decide about the future prospects of the firm

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SCOPE OF THE STUDY

The study of financial statement analysis of BUILDING BLOCKS GROUP
LIMITED; is a very wide topic and could be a detailed study. But here it is intended to
the author a brief reports keeping in view the time factor. In the study many factors that
need detailed analysis could not be detailed in detail because of the limitations regarding
the length of the project and available time.

The scope of the study has, therefore, been limited to the presentation of
comparative balance sheets, common size balance sheet, cash flow statements and their
analysis and calculation of various ratios and their analysis.

METHODOLOGY

My visit to the premises of the Company‟s Registered Office, observation of
working, meeting the concerned authorities and the printed financial statement of the
company are the basis of the study. The sources of data may be classified into (a) primary
sources and (b) secondary sources.

Primary data:

Primary sources are original sources from which the researcher directly collects data that
have not been previously collected, e.g., collection of data directly by the researcher on
brand awareness, brand preference, brand loyalty and other aspects of consumer behavior
from a sample of consumers by interviewing them. Primary data are first-hand
information collected through various methods such as observation, interviewing, mailing
etc.

Secondary Sources

These are sources containing data that have been collected and compiled for another
purpose. The secondary data consist of readily available compendia and already compiled
statistical statements and reports whose data may be used by researches for their studies,
e.g., census reports, annual reports and financial statements of companies, Statistical
statements, Reports of Government Departments, Annual Reports on currency and
finance published by the National Bank for Ethiopia, Statistical Statements relating to
Cooperatives, Federal Cooperative Commission, Commercial Banks and Micro Finance
Credit Institutions published by the National Bank for Ethiopia, Reports of the National
Sample Survey Organization, Reports of trade associations, publications of international

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organizations such as UNO, IMF, World Bank, ILO, WHO, etc., Trade and Financial
Journals, newspapers, etc.

Secondary data consist of not only published records and reports, but also unpublished
records. The latter category includes various records and registers maintained by firms
and organizations, e.g., accounting and financial records, personnel records, register of
members, minutes of meetings, inventory records, etc.

Features of Secondary Sources: Though secondary sources are diverse and consist of all
sorts of materials, they have certain common characteristics.

First, they are readymade and readily available, and do not require the trouble of
constructing tools and administering them.

Second, they consist of data over which a researcher has no original control over
collection and classification. Others shape both the form and the content of secondary
sources. Clearly, this is a feature, which can limit the research value of secondary
sources.

Finally, secondary sources are not limited in time and space. That is, the researcher using
them need not have been present when and where they were gathered.

USE OF SECONDARY DATA

Uses

The secondary data may be used in three ways by a researcher. First, some specific
information from secondary sources may be used for refer-ence purposes.

Second, secondary data may be used as bench marks against which the findings of a
research may be tested.

Finally, secondary data may be used as the sole source of information for a research
project. Such studies as Securities Market Behavior, Financial Analysis of Companies,
and Trends in credit allocation in commercial banks, Sociological Studies on crimes,
historic a Bureau of Public Enterprises, Census Reports etc. serve as major data sources
for small studies, and the like depend primarily on secondary data. Year books, Statistical
reports of government departments, reports of public organizations like such research
studies.

Advantages

1. Secondary data, if available, can be secured quickly and cheaply.
2. Wider geographical area and longer reference period may be covered without
much cost. Thus the use of secondary data extends the researcher's space and time
reach.

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3. The use of secondary data broadens the database from which scientific
generalizations can be made.
4. The use of secondary data enables a researcher to verify the findings based on
primary data.

Disadvantages/limitations

1. The most important limitation is the available data may not meet, our specific
research needs.
2. The available data may not be as accurate as desired.
3. The secondary data are not up-to-date and become obsolete when they appear in
print, because of time lag in producing them.
4. Finally information about the where about of sources may not be available to all.

I also studied various concerned books for this purpose. This study is based
entirely on the published Financial Statements of BUILDING BLOCKS GROUP.

LIMITATIONS OF THE STUDY

The limitations of the present study are

1. In the study many factors that need detailed analysis could not be discussed in
detail because of the limitations regarding length of the project and available time.
2. The study is subject to limitations of the nature of financial analysis tools and
techniques.
3. Further the study takes into consideration the quantitative aspect of the
performance and not the qualitative aspect such as impact of industrial assistance
of company in the economic development of company in the economic
development of the state, on additional employment opportunities, contribution to
net domestic product and development of industrial estate etc.,

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CHAPTER – II
(Industry Profile)

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INDUSTRY STRUCTURE AND DEVELOPMENTS

The construction industry of India is an important indicator of the development as it
creates investment opportunities across various related sectors. The construction industry
has contributed an estimated 3, 84,282 crores to the national GDP in 2010-11 (a share of
around 8%). The industry is fragmented, with a handful of major companies involved in
the construction activities across all segments; medium sized companies specializing in
niche activities; and small and medium contractors who work on the subcontractor basis
and carry out the work in the field. The sector is labor-intensive and, including indirect
jobs, provides employment to more than 35 million people.Construction is a cyclical
industry it means it reflects fluctuation in national economy sensitively and rapidly.

Construction has a very large number of self-employed workers. Opportunities for
workers to form their own firms are better in construction than in many other industries.
Construction industry has different groups these were

1. The design group: includes people who have a basic interest in conceiving,
programming, synthesizing, & planning & physical environment.
2. The constructor group: those in the constructor group are people of action.
3. The support group: The motivation and interest those in the support group are as
varied as the list of professions would indicate.

The construction sector comprises establishments primarily engaged in the construction
of buildings or engineering projects (e.g., highways and utility systems). Establishments
primarily engaged in the preparation of sites for new construction and establishments
primarily engaged in subdividing land for sale as building sites also are included in this
sector. Construction work done may include new work, additions, alterations, or
maintenance and repairs. Activities of these establishments generally are managed at a
fixed place of business, but they usually perform construction activities at multiple
project sites.

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HISTORY

The period from 1950 to mid-60‟s witnessed the government playing an active role in the

development of these services and most of construction activities during this period were

carried out by state owned enterprises and supported by government departments. In the

first five-year plan construction of civil works was allotted nearly 50 per cent of the total

capital outlay. The first professional consultancy company,

National Industrial Development Corporation (NIDC), was set up in the public sector in

1954. Subsequently, many architectural, design engineering and construction companies

were set up in the public sector (Indian railways Construction Limited (IRCON),

National Buildings Construction Corporation (NBCC), Rail India Transportation and

Engineering Services (RITES), Engineers Indian Limited (EIL), etc.) and private sector

(M N Dastur and Co., Hindustan Construction Company (HCC), Ansals, etc.).

In India Construction has accounted for around 40 per cent of the development

investment during the past 50 years. Around 16 per cent of the nation's working

population depends on construction for its livelihood. The Indian construction

Industry employs over 3 crores people and creates assets worth over 20,000 crores.

It contributes more than 5 per cent to the nation's GDP and 78 per cent to the

gross capital formation. Total capital expenditure of state and central govt. will be

touching 8, 02,087 crores in 2011-12 from 1, 43,587 crores (1999-2000).

The share of the Indian construction sector in total gross capital formation (GCF) came

down from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to

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48 per cent in 1993-94 and stood at 44 per cent in 1999-2000. In the 21 st century, there

has been an increase in the share of the construction sector in GDP and capital formation.

GDP from Construction at factor c (at current prices) increased to 1, 74,571 crores

(12.02% of the total GDP) in 2004-05 from 1, 16,238 crores (10.39% of the total GDP)

in 2000-01.

The main reason for this is the increasing emphasis on involving the private sector

infrastructure development through public-private partnership and mechanisms

like Build-Operate-Transfer (BOT), private sector investment has not reached the

expected levels.

The Indian construction industry comprises 200 firms in the corporate sector. In addition

to these firms, there are about 1, 20,000 class a contractors registered with various

government construction bodies. There are thousands of small contractors, which

compete for small jobs or work as sub-contractors of prime or other contractors. Total

sales of construction industry have reached 42,885.38 crores in 2004 05 from 21,451.9

crores in 2000-01, almost 20% of which is a large contract for Benson & Hedges

CAREER WITH CONSTRUCTION INDUSTRY

Construction industry sector offers a great variety of career opportunities. People with

many different talents and educational backgrounds-managers, clerical workers,

engineers, truck drivers, trades workers, and construction helpers-find job opportunities

in the construction industry.

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In this industry most of the trade workers which includes both skilled and craft worker,

construction manager and labor their so many vacancies related to mechanical, structural,

civil engineer and other vacancies are there. The construction industry employs a number

of other workers apart from the construction trades the construction industry employs

nearly all of the workers in some construction craft occupations. In other construction

craft occupations, large numbers also work in other industries. Other industries

employing large numbers of construction workers include transportation equipment

manufacturing; transportation, communication, and utilities; real estate; wholesale and

retail trade; educational services; and State and local government.

GROWTH OF CONSTRUCTION INDUSTRY

Day by day construction sector is growing, the challenges continue raising awareness of

career opportunities in construction sector.

These innovative approaches address the following workforce needs of business while

also effectively helping workers find good jobs with good wages and promising career

pathways in the construction industry:

« expanding the pipeline of youth;

« helping alternative labor pools gain industry-defined skills and competencies;

« developing alternative training strategies;

« developing tools and curricula for enhancing skill sets;

« enhancing the capacity of educational institutions;

« developing industry-defined career ladders and lattices;

« developing strategies to retain and retrain incumbent workers; and

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« Assisting transitioning individuals from declining industries to high growth industries.

« Employment of production workers in construction has also increased.

FUTURE CHALLENGES

The Indian economy has witnessed considerable progress in the past few decades. Most

of the infrastructure development sectors moved forward, but not to the required extent of

increasing growth rate up to the tune of 8 to 10 per cent. The Union Government has

underlined the requirements of the construction industry.

With the present emphasis on creating physical infrastructure massive investment is

planned in this sector. The Planning Commission has estimated that investment

requirement in infrastructure to the tune of about 14, 50,000crores or US$320 billion

during the 11th five year plan period.

This is a requirement of an immense magnitude. Budgetary sources cannot raise this

much resources. Public Private Partnerships (PPP) approach is best suited for finding the

resources. Better construction management is required for optimizing resources and

maximizing productivity and efficiency.

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CHAPTER – III
(Company Profile)

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COMPANY PROFILE

INTRODUCTION

Building Blocks Group has laid its landmark in projects ranging from Infrastructure, Club

Houses, Eco Homes, and Residential Plots to Landing/Plotting for mixed-use

development. It was established in the year of 2009Headquartered in Hyderabad,

Building Blocks Group has its presence across the globe i.e. in U.S.A, U.K and Dubai.

With each of its projects, customers are assured with the highest standards in architectural

design and construction, building materials, facility management, on-time completion and

overall customer satisfaction. We take pride in developing and implementing

comprehensive real estate programs for our customers and cultivating a sense of trust in

the communities we serve. Upholding its corporate values, Building Blocks Group

assumes the utmost responsibility towards the environment and adopts sustainable

ecologically-neutral technologies in its projects.

Our deep commitment to superior value services, sustainable business processes, design

innovations, our visionary culture and our reputation of trust & transparency along with

national & social responsibility makes us the real estate company of choice. With truth,

service, respect and contribution as our code of conduct, we proudly say that we are

expending towards perfection edges.

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VISION
To offer Value added &Customer-centric property management services by
nourishing the idea of acceleration & enhancing the virtues of Real Estate industry by
excellence.

MISSION & VALUES
To offer services that ensures profit & steady returns on customer's investment thus
building customer confidence & a life-time relationship.

PHILOSOPHY

To establish Collaborative & Sustainable Business Partnerships
To offer superior value products and services
To help customers preserve and enhance their wealth
To live up to Social & Environmental Responsibilities

Logo comprises of Red & White Colors.

Red is an extreme and emotionally intense color which evokes passion symbolizing
strength and vitality. It's a color of enthusiasm, interest and energy. It brings focus to the
essence of life and living with emphasis on survival.

White associated with light, goodness & purity. It is considered to be color of
perfection, a good choice for new beginnings, and development in any direction.

From its very inception with a passion, Building Blocks has raised with full strength to
operate corporate standards as much larger real estate companies, which grabbed the
attention of customers for its transparent and perfect services.

Building Blocks Group has made a successful beginning and is edging towards
perfection

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ASSOCIATES TEAM
Building Blocks Group has a unique blend of multidisciplinary associates to offer the
best services to the customers and propel to heights with hi-end standards in quality
and services. The associates' team of Building Blocks Group includes:

GIRIDHARI CONSTRUCTIONS – Builders

RAO & ASSOCIATES – Legal Solicitors& Corporate Advisors

DESIGNSPACE – Master Planner, Architects, Interior Designers

S.S.REDDY & ASSOCIATES – Practicing Company Secretaries

VSPN & CO - Chartered Accountant

SMILE FACILITIES – Property Maintenance & Facility Management

MA FOI RANDSTAD – HR Recruitment Solutions

ALL E-TECHNOLOGIES, MICROSOFT – IT Services

LIQUID – Advertising & Branding

Since inception in 2009, Building Blocks Group has been a leader in providing
"Affordable Homes", making everyone's dream of owning a house true thus playing a
key role in the real estate industry.

The company's history is a story of experts with a combined experience of more than 60
years; the company follows the outsourcing methodology of business for Law,
Architecture and Engineering, ensuring high-end work and transparency in its dealings
across the business. A team of qualified and experienced experts as its core
competency, at Building Blocks Group, we feel we are well poised to deliver structured
and well-planned projects that not only exceed our clients' expectations, but are also
professionally managed and flawlessly executed.

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MILESTONES
DATE

January, 2009 50 Acres Gated Community
February, 2010 4 Projects- 500 Acres - Grandeur City
December, 2010 Grandeur City- Vizag
November, 2010 Grandeur City- Vijayawada
12 projects- 2000 Acres- Multiple
March, 2011
Grandeur Cities.

PROJECTS

Completed Projects In Hyderabad:

Located in the near to Shamshabad airport, Shadnagar 1 fetches a huge benefit of best
returns for investment. Surrounded by mega townships and huge housing projects like
DLF, My Home, AP Housing Board etc., Shadnagar 1 project makes an ideal living
space, with best-of-the-best amenities too.

GRANDEUR 2 is initiative of building those grandeur homes that every family loves
to be part of. The grand towers of residencies amidst lush green landscape and life's
joy amenities and facilities are what we devised for our 21st century modern dwellers.
These highly optimum living spaces are on the path of soon to be a reality.

GRANDEUR 3 is the project going to have all the modern facilities like gated
community, black top roads, lush green spaces, gym, club house, swimming pools,

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sports & games facilities, shopping complex, round-the-clock security and much
more.

GRANDEUR 4 is the project going to have 100% vaasthu compliance, flexible
housing options, bank loan facility, incredible features and benefits are the other add-
ons for Shadnagar 6, which make living a happy and joyful affair.

Completed Projects in Visakhapatnam

Located in the near to Anakapalle fetches a huge benefit of best returns for
investment. Surrounded by mega townships and huge housing projects like DLF, My
Home, AP Housing Board etc., project makes an ideal living space, with best-of-the-
best amenities too.

These highly optimum living spaces are on the path of soon to be a reality

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Owning a prime piece of land in the prized Kothavalasa area in itself is quite an idea.
In a very short span of time, the land value in the Kothavalasa area is due to go up,
and the value of your investments is going to quadruple, at the very least. For more
details on the planned developments in the Kothavalasa area, please look up our
Location section.

Grandeur 5 @ Vizag is a prestigious Gated Community facing NH5 in near vicinity
to IT Park. Visakhapatnam is second focused destination for information technology
after Hyderabad. The city will get an IT tower and a special economic zone park soon

Completed Projects in Vijayawada

GRANDEUR 1 is the project going to have 100% vaasthu compliance, flexible
housing options, bank loan facility, incredible features and benefits are the other add-
on, which make living a happy and joyful affair

Owning a prime piece of land in the prized area in itself is quite an idea. In a very
short span of time, the land value in the area is due to go up, and the value of your
investments is going to quadruple, at the very least. For more details on the planned
developments in the area, please look up our Location section

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These highly optimum living spaces are on the path of soon to be a reality

FUTURE PROJECTS:

GRANDONE

GRAND ONE is our initiative of building those grandeur homes
that every family loves to be part of. The grand towers of
residencies amidst lush green landscape and life's joy amenities and
facilities are what we devised for our 21st century modern
dwellers. These highly optimum living spaces are on the path of
soon to be reality

The projects are going to have all the modern facilities like gated community, black top
roads, lush green spaces, gym, club house, swimming pools, sports & games facilities,
shopping complex, round-the-clock security and much more. Topping this, the exclusive
planning & research we have put in shall bring you the most anticipated LOCATION,
QUALITY, PRICE three things stringed together. So gear up to lead life in the lovely
living spaces we are engineering for Us!

FARM ANANDA

Farm Amanda is a prestigious eco-friendly sustainable project of
Building Blocks Group venturing Eco Plots. "Living next to
green" is an old concept; "Living amidst green" is the new concept of living.
Unveiling this whole new concept of living, we present you to a greener way of living.

With its first venture on Warangal Highway, every care has been taken to build high-
performance, energy saving and green-riches homes. Experience a better living at
Farm Ananda, with 02 enriched air, green landscapes, serene views and of course a
happy home with green utilities.

With a vision Of providing green luxury zones in 15 strategic locations (in the first
phase) and a conscience of giving its turn to the environment, Building Blocks Group
has ventured Farm Ananda.

31

Farm Amanda has finest features such lands with clear title deeds, infrastructure
facilities, landscape gardens and parks, water harvesting, waste management, energy
and soil conservation procedures and eco-friendly sustainable constructions
contributing for a healthier and greener lifestyle. Come, experience the real meaning of
green life and explore happy living in the 'green paradise'.

CLUB ANANDA

Club Ananda is a hi-end leisure hospitality service provider,
making holidays 'an experience' in today‟s busy schedules of
families. Life today is enriched with swiftness, technology,
rapidity, and many more except that quality time we spend with
our families. Many of us today lack that touch of celebration,
happy moments with kids, regurgitation of old memories with
parents, a tinge of smoothening privacy with spouse etc. We are living high professional
lives filled with stress too. Wouldn't it be a wonderful life when all these come back to
our lives?

Yes, Club Ananda makes them possible with its wide range of services and offering
quality family holidays via vacation memberships. Club Ananda is a flagship company
of Building Blocks Group, with various holiday resorts such as"Arogyananda" (Health
Resort), "Kridananda" (Sports) "Divyananda" (Healing Resort)
and"Satchidananda" (Spiritual Resort).

"Arogyananda" is health resort where you can avail various health-related i.e. medical
and Para-medical services like Ayurveda, physiotherapy, ancient Indian therapies to
revive your health. "Kridananda" is sports resort where your holiday will be a never
before experience with all the best sports and games including golf, trekking and more
exciting sports. "Divyananda" is healing resort where you can rejuvenate your mind,
body and soul, experiencing holistic wellness through authentic spa therapies, both
Indian & international. "Satchidananda" is spiritual resort where you get 'food for your
soul'; your craving for peace of mind, solitude and tranquility gets quenched here.

Give holiday experience an interesting twist, enrich it with fun, happiness and joy at
Club Ananda with vacation memberships. Come, relive those moments for which you
are longing for!!

32

INFRA

BBG INFRA is
the infrastructure wing of soon to be giant Building Blocks
Group. It plays a key role in each project of the Building
Blocks. Backed with the best and expertise team, the most
modern engineering techniques employed by BBG will surely make every project a
spectacular one. As we know in construction industry, it's always delivering promised
quality on promised time matters. To fulfill such promises and make such an attribute a
hallmark of ours, BBG INFRA has taken shape. This separate entity alone stands as a
testimonial for our emphasis on satisfying customers and keeping up our word.

BBG INFRA has already made its valuable contribution in our project sites with many
needed social infra, but with mega projects in the pipeline, BBG INFRA is poised to be
a name to reckon with.

Building Blocks Group has also laid its mark in service sector, as it believes "Helping
hands are better than praying lips". By establishing "Building Blocks Foundation",
the group has been taking part in various service events, working it's best to give its
return to the society.
At Building Blocks, Corporate Social Responsibility has been a keystone as creating
value for society is always an integral part of Building Blocks. We presume

33

contributing to the development of society is an extension of our core practices. We
contemplate it as an internal process that reflects company's soul.
BBG FOUNDATION is a close to heart initiative of Building Blocks Group. The
social uplifting of underprivileged is the motive behind it. It also covers the
company's environmental responsibility, social responsibility and corporate
accountability activities. With this BBG would like to be a catalyst of change in
society. EDUCATION and EMPOWERMENT are the main stay of foundation; it
offers voluntary and financial support to these causes.

Every employee on critical issues to sensitize staff and provide opportunities for
significant participation in of the BBG shall be part of these activities. The aim is to
create awareness response to community needs.

34

BBG HAVE HOLISTICALLY INTEGRATED SOCIAL INITIATIVES
COVERING THE FOLLOWING:

Community Development programs like free Eye care camps, Aids Awareness- Programs for the
physically & mentally challenged.
Improving the quality of life for children
Undertake rural and community development projects
Create, maintain and support need-based and area-specific services to the poor and needy in the
areas of: Healthcare, Education, Training and Safety
Subsidized housing
Free education
Building temples

AWARDS:

CRISIL VERIFIED

BUILDING BLOCKS PROJ ECTS INDIA PRIVATE LIMITED,

Crisil Verification ID: 960283758994

Report DATE: JAN 16, 2012

Valid Till: Jan 15, 2013

BUSINESS DESCRIPTION:

The company takes a great pride in its reputation as Ap`s fastest growing real estate company
with projects ranging from residential plots, construction infrastructure, farming, clubs, and
Resorts.

FACT SHEET:

Year of incorporation: 2009
Legal status: private limited company
Industry :services
Nature of services: constructions
Products/services: plotted development, construction, infrastructure, farming and
leisure.

35

NO.Of Employers : 500
Bankers: Axis bank, Hyderabad, Andhra Pradesh.
Auditors: v s p n company, charted accountants.
Key Customers : PLOT OWNERS

36

CHAPTER – IV

(Theoretical Study)

37

PROCEDURE ANALYSIS

The process of analyzing financial statements involves the rearranging, comparing and

measuring the significance of financial and operating data. Interpretation, which follows

analysis, is an attempt to logical conclusion regarding the position and progress of the

business on the basis of analysis.

The procedure may be as under:

1. Deciding upon the extent of analysis: The depth, object and extent of analysis

have to be determined so that the scope of the analysis, tool of analysis and

the amount and quality of financial data required could be determined.

2. Going through the financial statement: Before analyzing and preparing any

statement or composing financial ratios, it is necessary to go through the

various financial statements of the firm.

3. Collection of necessary information: Other useful information that cannot be

revealed from financial statement but is useful for analysis hast to be collected

from management.

4. Rearranging of financial data: The data available has to be rearranged in a

useful manner before analysis and interpretation.

5. Analysis: In this step the actual analysis is made for which any technique such

as, comparative financial statements, trend analysis, ratio analysis and cash

flow statements, statements of change in working capital etc., can be used.

6. Interpretation: After analysis, interpretation is done and conclusions are

drawn. These interpretations are of vital importance to the management,

shareholder, and workers etc., to know the relative worth of the company.

39

TOOLS OF FINANCIAL ANALYSIS

The analysis of financial statements consists of relationships and trends, to

determine whether the financial position of the company is satisfactory or not. The

analytical methods or devices, listed below are used to ascertain or measure the

relationships among the financial statement‟s items.

Analytical methods and devices used in analyzing financial statements are as follows:

1. Comparative financial statements

2. Common size financial statements

3. Trend ratio

4. Ratio analysis

5. Cash flow statements

They may be discussed as under:

1. Comparative financial statements:

Statements prepared in a form that reflect financial data for two or more

periods are known as comparative statements. Financial data become

meaningful when compared with similar data for a previous period of a

number of prior periods. Annual data can be compared with similar data for

prior years. Comparative statements can be prepared for both types of

financial statements balance sheet as well as profit and loss account. The

comparative balance sheet shows the effect of operations on the assets and

liabilities i.e., change in the financial position during the period under

40

consideration. The comparative profit and loss account will present a review

of operating activities of the business.

2. Common size financial statements:

Comparative statements that give only the vertical percentage of ratios for

financial data without giving rupee values are known as common size

financial statements. They are also known as 100% statements. A common

size statement shows the relation of each component to the whole. It is useful

in vertical financial analysis and comparison of two business enterprises at a

certain date.

3. Trend analysis:

Under the technique of trend analysis the ratio of different items for various

periods are calculated and then a comparison is made. An analysis of the

ratios over the past few years may well suggest the trend or direction in which

the concern is going- upward or downward.

4. Ratio analysis

Ratio analysis is the most widely used tool for financial analysis. It is

essentially an attempt to develop meaningful relationship between individual

items or group of items in the balance sheet or profit and loss account. The

objects and utility of ratio analysis is confined not only to the internal parties

but to the credit suppliers, banks and lending institutions also. Ratio analysis

tells about the financial position of the enterprise as to whether the capital

structure of the business is in proper order, whether the capital structure of the

enterprise is satisfactory, whether the credit policy in relation to sales and

41

purchases is sound and whether the company is creditworthy. Thus, ratio

analysis highlights the liquidity, solvency, profitability and capital gearing

position.

5. Cash flow statements:

Cash flow analysis is a valuable aid to the financial executive and creditors for

evaluation the uses of funds by the firm and in determining how these uses

were financed. A cash flow statement indicates where funds came from and

where it was used during the period under review. They are important tools

for communication and very helpful for financial executives in planning the

intermediate and long term financing of the firm.

The financial statements are a mirror, which reflect the financial position and

operating strength or weakness of the business enterprise.

42

CHAPTER – V
(Data Analysis)

43

ANALYSIS AND INTERPRETATION

COMPARATIVE FINANCIAL STATEMENTS

These financial statements are so designed as to provide time perspective to the

various elements of financial positions contained therein. These statements give the data

for all periods stated so as to show:

1. Absolute money values of each time separately for each item separately for

each of the period stated.

2. Increase and decrease in absolute date in terms of money values.

3. Increase and decrease in terms of percentages.

4. Comparison expressed in ratios.

5. Percentage of totals

Such comparative statements are necessary for the study of trends and direction of

movement in the financial positions and operating results. This call for a consistency in

the practice of preparing these statements, otherwise comparability may be distorted.

Comparative statements enable horizontal analysis of figures.

COMPARATIVE BALANCE SHEET

A comparative balance sheet shows the balance of accounts of assets and

liabilities on different dates and also the extent of their increase or decrease between

these dates throwing light on the trends and direction of changes in the position over the

periods. This helps in prediction about the position of the business in future.

45

Comparative balance sheet as on 31st March 2010

In Rs.Cr.

Increase(+)
Percentage
Mar Mar Decrease(-)
„09 „10 (%)
In crores

12 mths 12 mths

Sources Of Funds

Total Share Capital 7.77 7.77 0.00 0.00

Equity Share Capital 7.77 7.77 0.00 0.00

Share Application Money 0.15 0.15 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 58.14 63.10 4.96 8.53

Revaluation Reserves 0.00 0.00 0.00 0.00

Net worth 66.06 71.02 4.96 7.51

Secured Loans 124.17 105.84 -18.33 -14.76

Unsecured Loans 25.47 21.12 -4.35 -17.08

Total Debt 149.64 126.96 -22.68 -15.16

Total Liabilities 215.70 197.98 -17.72 -8.22

Application Of Funds

Gross Block 174.41 171.90 -2.51 -1.44

Less: Accum. Depreciation 50.29 56.13 5.84 11.61

Net Block 124.12 115.77 -8.35 -6.73

Capital Work in Progress 0.11 0.17 0.06 54.54

Investments 0.36 0.36 0.00 0.00

46

Inventories 91.05 67.93 -23.12 -25.39

Sundry Debtors 9.54 7.17 -2.37 -24.84

Cash and Bank Balance 1.99 1.97 -0.02 -1.01

Total Current Assets 102.58 77.07 -25.51 -24.87

Loans and Advances 11.92 17.30 5.38 45.13

Fixed Deposits 3.57 3.92 0.35 9.80

Total CA, Loans & 118.07 98.29
-19.78 -16.75
Advances

Differed Credit 0.00 0.00 0.00 0.00

Current Liabilities 22.70 11.55 -11.15 -49.12

Provisions 4.27 5.07 0.80 18.74

Total CL & Provisions 26.97 16.62 -10.35 -38.38

Net Current Assets 91.10 81.67 -9.43 -10.35

Miscellaneous Expenses 0.00 0.00 0.00 0.00

Total Assets 215.70 197.98 -17.72 -8.22

47

INTERPRETATION:
In the above comparative balance sheet the Cash and Bank balance in 2009 is 1.99
and in 2010 it is 1.97, we observe that there is a decrease in cash and bank balance in
2010 when compared to 2009. The Capital work in progress position in 2009 is 0.11 and
2010 is 0.17 here we also observe that the there is a increase in capital in 2010 when
compared to 2009. We can see a big change in total assets which pose a fluctuation
during the years which mean that company is acquiring and selling of assets.
Share capital has been constant throughout the years but reserves are changing over the
years which add to the liabilities. The company has more secured loans compared to
unsecured loans. Similarly liabilities are also pretty hand and the company is able to
repay its debts as the sales have been fetching profits to the company since the years.

48

In Rs. Cr.

Increase(+)
Percentage
Mar Decrease(-)
Mar '10 (%)
'11 In crores

12 mths 12 mths

Sources Of Funds





Reserves 63.10 66.93 3.83 6.06


Net worth 71.02 74.85 3.83 5.39

Secured Loans 105.84 53.65 52.19 49.31

Unsecured Loans 21.12 8.46 -12.66 -59.94

Total Debt 129.96 62.11 -64.85 -51.07

Total Liabilities 197.98 136.96 -61.02 -30.82


Gross Block 171.90 171.72 -0.18 -0.10


Net Block 115.77 100.30 -15.47 -13.36


49

Investments 0.36 0.05 -0.31 -86.11

Inventories 67.93 28.58 -39.25 -57.92

Sundry Debtors 7.17 13.19 6.02 83.96

Cash and Bank Balance 1.97 1.91 -0.06 -3.04

Total Current Assets 77.07 43.68 -33.39 -43.32

Loans and Advances 17.30 15.99 -1.31 7.57

Fixed Deposits 3.92 5.70 1.78 45.40

Total CA, Loans & Advances 98.29 65.37 -32.92 -33.49

Deferred Credit 0.00 0.00 0.00 0.00

Current Liabilities 11.55 23.27 11.72 101.47

Provisions 5.07 6.04 0.97 19.13

Total CL & Provisions 16.62 29.31 11.69 76.35

Net Current Assets 81.67 36.06 -45.61 -55.84


Total Assets 197.98 136.96 -61.02 -30.82

50

INTERPRETATION:
The above present comparative balance sheets of the company for the period of March
2010-11. It can be observed that total liabilities and total assets pose a fluctuation during
the years which means that company is acquiring and selling of assets. We see a big
change in inventories level in 2010 and 2011 which shows that current assets are utilized
and work is in progress. Similarly liabilities are also pretty handy and the company is
able to repay its debts as the sales turnover has been fetching profits to the company since
the recent years.
Total share capital has been constant throughout the years but the reserves are changing
over the years which add to the liabilities. The company has more Secured loans when
compared to Unsecured loans .

51

In Rs. Cr

Increase(+)
Percentage
Decrease(-)
Mar '11 Mar '12 (%)
In crores

12 mths 12 mths

Sources Of Funds





Reserves 66.93 82.68 15.75 23.53


Net worth 74.85 90.60 15.75 21.04

Secured Loans 53.65 50.60 -3.05 -5.68

Unsecured Loans 8.46 6.81 -1.65 -19.50

Total Debt 62.11 57.41 -4.70 -7.56

Total Liabilities 136.96 148.01 11.05 8.07


Gross Block 171.72 171.82 0.10 0.05

52

Less Accum. Depreciation 71.42 78.59 7.17 10.04

Net Block 100.30 93.23 -7.07 -7.05

Capital Work in Progress 0.55 1.65 1.10 200

Investments 0.05 0.05 0.00 0.00

Inventories 28.58 53.29 24.71 86.46

Sundry Debtors 13.19 11.28 -1.91 -14.50

Cash and Bank Balance 1.91 2.84 0.93 48.70

Total Current Assets 43.68 67.41 23.73 54.33

Loans and Advances 15.99 15.65 -0.34 -2.13

Fixed Deposits 5.70 5.32 -0.38 -6.67

Total CA,Loans &
65.37 88.38 23.01 35.20
Advances



Provisions 6.04 8.53 2.49 41.22


Net Current Assets 36.06 53.08 17.02 47.20


Total Assets 136.96 148.01 11.05 8.07

53

Interpretation

The above tables present the comparative balance sheets of the company for the period

march 2009 to march 2012. It can be observed that total liabilities and total assets pose a

fluctuation during the years which mean that company is acquiring and selling of assets.

We can see a big change in inventory level in 2009 and 2010 which shows that current

assets are utilized and work is in progress. Similarly liabilities are also pretty handy and

the company is able to repay its debts as the sales turnover has been fetching profits to

the company since the recent past.

Share capital has been constant throughout the years but the reserves are changing over

the years which add to the liabilities. This company has more secured loans compared to

unsecured loans. On an average the current assets stood at Rs.50 crores but the bank

balance has been always low.

54

COMMON SIZE STATEMENT ANALYSIS

In the comparative financial statements it is difficult to comprehend the changes over the

years in relation to total assets, total liabilities and capital or total net sale. These

limitations of comparative statements made comparison between two or more firms of an

industry impossible because there is no common base for absolute figures. Again for an

interpretation of underlying causes of changes over time period, a vertical analysis is

required and this with comparative statements.

Common size financial statements are those in which figures reported are converted into

percentages to some common base. For this, items in the financial statements are

presented as percentages or ratio to total of items and a common base for comparison is

provided. Each percentage shows the relation of the individual item to its respective total.

COMMON SIZE BALANCE SHEET

In a common size balance sheet, total of assets or liabilities is taken as 100 and all the

figures are expressed as percentage of the total. Comparative common size balance sheets

for different periods help to highlight the trends in different items. If it is prepared for

different firms in an industry, it facilitates to judge the relative soundness and helps in

understanding their financial strategy.

55

COMMON SIZE BALANCE SHEET AS ON 31ST MARCH 2010

Mar „09 % of Mar „10 % of total
total
In Rs.Cr In Rs.Cr

12 mths 12 mths

Sources Of Funds





Reserves 58.14 26.95 63.10 31.87


Net worth 66.06 30.62 71.02 35.87

Secured Loans 124.17 57.57 105.84 53.46

Unsecured Loans 25.47 11.81 21.12 10.67

Total Debt 149.64 69.38 126.96 64.13



Gross Block 174.41 80.86 171.90 86.83


Net Block 124.12 57.54 115.77 58.47

56


Investments 0.36 0.17 0.36 0.18

Inventories 91.05 42.21 67.93 34.31

Sundry Debtors 9.54 4.42 7.17 3.62




Fixed Deposits 3.57 1.65 3.92 1.98

Total CA, Loans & 118.07 54.74 98.29 49.64
Advances



Provisions 4.27 1.98 5.07 2.56




Total Assets 215.70 100.00 197.98 100.00

57

INTERPRETATION:

The present Common size Balance sheets of accompany for the period March 2009 to

March 201. It can be observed that total liabilities and total assets are constant .It can be

We can see a big change in Inventory level in 2009 and 2010 which shows that current

That current assets are utilized and work is in progress. Similarly liabilities are also pretty

handy and the company is able to repay its debts as the sales has been fetching profits the

Company since the recent years.


the years which add to the liabilities. This company has more secured loans than

compared to Unsecured loans .

58


Mar „10 % of Mar „11 % of
total total
In Rs.Cr In Rs.Cr

12 mths 12 mths

Sources Of Funds





Reserves 63.10 31.87 71.43 44.49


Net worth 71.02 35.87 79.35 49.42

Secured Loans 105.84 53.46 70.33 43.80

Unsecured Loans 21.12 10.67 10.87 6.77

Total Debt 126.96 64.13 81.20 50.58



Gross Block 171.90 86.83 171.20 106.63


59

Net Block 115.77 58.47 107.45 66.93


Investments 0.36 0.18 0.05 0.03

Inventories 67.93 34.31 35.83 22.32

Sundry Debtors 7.17 3.62 8.22 5.12




Fixed Deposits 3.92 1.98 4.26 2.65

Total CA, Loans & 98.29 49.64 40.53
65.07
Advances



Provisions 5.07 2.56 5.52 3.44




Total Assets 197.98 100.00 160.55 100.00

60

INTERPRETATION:





Handy and the company is able to repay its debts as the sales has been fetching profits the




Compared to Unsecured loans.

61


Mar „11 % of total Mar „12 % of total

In Rs.Cr In Rs.Cr

12 mths 12 mths

Sources Of Funds





Reserves 71.43 44.49 66.93 48.87


Net worth 79.35 49.42 74.85 54.65

Secured Loans 70.33 43.80 53.65 39.17

Unsecured Loans 10.87 6.77 8.46 6.17

Total Debt 81.20 50.58 62.11 45.35



Gross Block 171.20 106.63 171.72 125.38


Net Block 107.45 66.93 100.30 73.23


62

Investments 0.05 0.03 0.05 0.03

Inventories 35.83 22.32 28.58 20.86

Sundry Debtors 8.22 5.12 13.19 9.63




Fixed Deposits 4.26 2.65 5.70 4.16

Total CA, Loans & 40.53 47.73
65.07 65.37
Advances



Provisions 5.52 3.44 6.04 4.41




Total Assets 160.55 100.00 136.96 100.00

63

INTERPRETATION:





Handy and the company is able to repay its debts as the sales has been fetching profits the




Compared to Unsecured loans .

64

RATIO ANALYSIS

Accounting ratios are relationships expressed in arithmetical terms between

figures which have a cause and effect relationship or which are connected with each other

in some other manner.

Accounting ratios are very useful tools for grasping the true message of the

financial statements and understanding them. Ratio analysis is defined as the “systematic

use of ratios to interpret the financial statements so that the strengths and weakness of an

organization as well as its historical performance and current financial condition can be

found out and analyzed”.

Interpretation of ratios forms a core part of ratio analysis. The usefulness of ratios

depends on the judicious interpretations.

USES OF RATIO ANALYSIS

Ratio is an important tool in financial analysis. Ratios are comparative study of

the relations between items of financial statements, which will reveal the profitability,

solvency as well as the overall financial position of a business enterprise.

The uses of ratio analysis may be summarized as follows

Ratio analysis helps to analyze and understand the financial health and trend of a

business.

Past performance and future projections could be easily reviewed with ratio

analysis.

“Inter-firm” and “intra-firm” comparison becomes possible with ratio analysis.

65

It is useful to the management in exercising control in various areas like

budgetary control, inventory control and financial control.

It helps in fixing accountability and responsibility of the different heads of the

departments so as to ensure an effective and planned performance.

It is beneficial to all the constitutes of the company as follows:

A. Management: The management is interested in ratios since it helps in the
formulation of policies, decision making and evaluating performance and
trends of the business.

B. Shareholders: Shareholder can use ratio analysis to understand and review
the operational efficiency of their company.

C. Investors: Investors can take decisions regarding the type of security and
the industry in which they should invest.

D. Government: Government is interested in the financial health of the
business. Ratio analysis will reflect the policy adopted by the management
of the company.

E. Creditors: Creditors need to assure themselves about the solvency and
liquidity position of the business.

F. Analysis: Ratio analysis is the most important tool used by financial
people. This will help them to compare and study the progress and
position of various firms with each other and also with the industry
standards.

66

PRECAUTIONS IN RATIO ANALYSIS

Ratios are valuable working tools for analysis and may prove only helpful in

making decisions. The following aspects should be kept in view while drawing

conclusions from the ratio analysis:

The reliability of the ratios will depend upon the reliability of the financial

statements themselves. Hence, analysis should insist on the submission of

audited and certified copies of financial statements.

The financial performance is affected by general economic conditions,

local factors and the competence of the management. While interpreting

ratios, these factors should be kept in mind.

One single ratio for a year may not provide a complete picture, but when a

group of ratios of one year are compared to another group of ratios of

other years, certain trends would be visible. Their utility is further

increased when comparisons are made with the rival firms, which are

doing well in the same business.

CLASSIFICATION OF RATIOS

The ratios may be classified as under

According to the statements from which they are calculated such as
balance sheet ratios, operating ratios and combined ratios.
According to the functional classification they are profitability ratios,
turnover ratios, solvency ratios and market test ratios.
According to their importance they are primary ratios and secondary
ratios.

67

OPERATING PROFIT MARGIN RATIO DEFINITION

The operating profit margin ratio indicates how much profit a company makes

after paying for variable cost of production such as wages, raw materials, etc. It is

expressed as a percentage of sales and shows the efficiency of a company controlling the

costs and expenses associated with business operations. Phrased more simply, it is the

return achieved from standard operations and does not include unique or one time

transactions. Terms used to describe operating profit margin ratios include operating

margin, operating income margin, operating profit margin or return on sales (ROS).

Operating profit margin formula

The operating profit margin ratio formula is calculated simply using:

Operating profit margin = Operating income ÷ Total revenue

(Or)

Operating profit margin = EBIT÷ Total revenue

Operating Profit Margin Meaning

The meaning of operating profit margin varies slightly, although the basics stay

the same across all industries. This makes it a common and important metric. Operating

profit margin ratio analysis measures a company‟s operating efficiency and pricing

efficiency with its successful cost controlling. The higher the ratio, the better a

company is. A higher operating profit margin means that a company has lower fixed cost

and a better gross margin or increasing sales faster than costs, which gives management

more flexibility in determining prices. It also provides useful information for investors to

68

determine the quality of a company when looking at the trend in operating margin over

time and to compare with industry peers. There are many ways for a company to

artificially enhance this ratio by excluding certain expenses or improperly recording

inventory. Revenues may also be falsified by recording unshipped products, recording

sales into a different period than they actually occurred, or more. Usually, it serves more

as a general measurement than a concrete value.

Gross Profit Margin Ratio Definition

The gross profit margin ratio, also known as gross margin, is the ratio of gross margin

expressed as a percentage of sales. Gross margin, alone, indicates how much profit a

company makes after paying off its Cost of Goods sold. It is a measure of the efficiency

of a company using its raw materials and labor during the production process. The value

of gross profit margin varies from company and industry. The higher the profit margin,

the more efficient a company is. Gross profit margin can be assigned to single products or

an entire company.

Gross Profit Margin Ratio Formula

Gross profit margin = Gross profit ÷ Total revenue

(Or) Gross profit margin = (Revenue – cost of goods sold) ÷ Total revenue

Gross Profit Margin Ratio Calculation

The gross profit margin ratio would be calculated using

Gross profit = revenue – cost of goods sold

69

Example: a company has Rs.15, 000 in sales and Rs.10, 000 in cost of goods sold. It

would be expressed as a percentage of sales by:

Gross profit margin ratio = (15,000 -10,000) / 15,000 = 33%

This means for every rupee generated in sales, the company has 33 cents left over to

cover basic operating costs and profit.

Applications of Gross Profit Margin

The gross profit margin ratio is an indicator of a company‟s financial health. It tells

investors how much gross profit every rupee of revenue a company is earning. Compared

with industry average, a lower margin could indicate a company is under pricing. A

higher gross profit margin indicates that a company can make a reasonable profit on

sales, as long as it keeps overhead costs in control. Investors tend to pay more for a

company with higher gross profit.

Gross Profit Margin Disadvantages

Many see gross profit margin disadvantages despite the common use of gross profit

margin ratios. The issue is that certain production costs are not entirely variable. Some

believe that only direct materials should be included as they are the only variable to

change in proportion to revenue. When applied, this new gross profit margin causes all

other related costs to be transferred to operational and administrative cost categories. This

tends to cause a higher gross margin percentage than originally. It is applied by certain

industries and businesses instead of the more common application. This formula is

Gross Profit Margin = (Revenue - Direct Materials) / Revenue

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Net Profit Margin Definition

The net profit margin, also known as net margin, indicates how much net income a

company makes with total sales achieved. A higher net profit margin means that a

company is more efficient at converting sales into actual profit. Net profit margin

analysis is not the same as gross profit margin. Under gross profit, fixed costs are

excluded from calculation. With net profit margin ratio all costs are included to find the

final benefit of the income of a business. Similar terms used to describe net profit

margins include net margin, net profit, net profit ratio, net profit margin percentage, and

more. To calculate net profit margin and provide net profit margin ratio analysis requires

skills ranging from those of a small business owner to an experienced CFO. This depends

on the size and complexity of the company.

.Net Profit Margin Formula

Using the net profit margin ratio formula, though essential, is a fairly simple process. The

difficulty is taking steps every day to keep the proper financial information to calculate

this and other financial ratios. Use this formula as a net profit margin calculator

Net profit margin = Net income ÷ Total revenue

Financial calculators exist which can simplify the process of net profit margin

calculation.

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Net Profit Margin Calculation

Example: a company has Rs.200, 000 in sales and Rs.50, 000 in monthly net income.

Net profit margin = Rs.50, 000 / Rs.200, 000 = 25%

this means that a company has Rs.0.25 of net income for every rupee of sales.

Applications

Net margin measures how successful a company has been at the business of marking a

profit on each rupee sales. It is one of the most essential financial ratios. Net margin

includes all the factors that influence profitability whether under management control or

not. The higher the ratio, the more effective a company is at cost control. Compared with

industry average, it tells investors how well the management and operations of a

company are performing against its competitors. Compared with different industries, it

tells investors which industries are relatively more profitable than others. Net profit

margin analysis is also used among many common methods for business valuation.

Return on Capital Employed (ROCE) Definition:

The return on capital employed ratio is used as a measurement between earnings and the

amount invested into a project or company.

Return on Capital Employed (ROCE) Meaning:

The return on capital employed is very similar to the return on assets (ROA), but is

slightly different in that it incorporates financing. Because of this the ROCE calculation

is more meaningful than the ROA. The ROCE is generally used to find out how efficient

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and profitable a company is from year to year. As it is a percentage a company can locate

problems or areas of improvement with the fluctuation of this ratio from year to year.

Return on Capital Employed (ROCE) Equation

The return on capital employed equation is as follows:

ROCE = EBIT or NI / (Total Assets - Current Liabilities)

Note: The earnings before interest and taxes, known as the operating income, is normally

used, but people can also use the Net Income if they would like to incorporate the net

interest and taxes into the ROCE formula.

Current Ratio Definition

Current ratio, defined also as the working capital ratio, reveals company's ability to meet

its short-term maturing obligations. Values for the current ratio vary by company and

industry. In theory, the larger the ratio is, the more liquid the business is. However,

comparing to the industry average is a better way to judge the performance. Current ratio,

quick ratio, and other terms are common measurements of cash in a company.

Current Ratio Explanation

Current ratios are commonly explained as a measure of a company's ability to pay the

current debt liabilities. For the lenders, current ratio is very helpful for them to determine

whether a company has a sufficient level of liquidity to pay liabilities. They would prefer

a high current ratio since it reduces their risk. For the shareholders, current ratio is also

important to them to discover the weakness in the financial position of a business. They

would prefer a lower current ratio so that more of the company‟s assets can be used for

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growing business. Although current ratio is an indicator of liquidity, investors should be

aware that it cannot give us the comprehensive information about company‟s liquidity.

Every industry has its own norms of current ratio. The better way to evaluate it is to

check a company‟s current ratio against its industry average. More importantly, investors

should look at the trend of the current ratio of the company, types of current assets the

company has and how quickly these can be converted into cash to meet company‟s

current liabilities.

Current Ratio Formula

The current ratio formula is: Current ratio = Current assets / Current liabilities

Current assets, when calculated diligently, represent cash and other assets that will be

converted into cash within one year. It normally included cash, marketable securities,

accounts receivable and inventories.

Current liabilities represent financial obligations that come due within one year. It

normally included accounts payable, notes payable, short-term loans, current portion of

term debt, accrued expenses and taxes.

Example: a business has Rs.5, 000 in current assets and Rs2, 500 in current liabilities.

Current ratio = 5,000 / 2,500 = 2 this means that for every rupee in current liabilities,

there are Rs.2 in current assets.

Quick Ratio Definition

The quick ratio, defined also as the acid test ratio, reveals a company's ability to meet

short-term operating needs by using its liquid assets. It is similar to the current ratio, but

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is considered a more reliable indicator of a company‟s short-term financial strength. The

difference between these two is that the quick ratio subtracts inventory from current

assets and compares the quick asset to the current liabilities. Similar to the current ratio,

value for the quick ratio analysis varies widely by company and industry. In theory, the

higher the ratio is, the better the position of the company is. However, a better benchmark

is to compare the ratio with the industry average.

Quick Ratio Explanation

Quick ratios are often explained as measures of a company‟s ability to pay their current

debt liabilities without relying on the sale of inventory. Compared with the current ratio,

the quick ratio is more conservative because it does not include inventories which can

sometimes be difficult to liquidate. For lenders, the quick ratio is very helpful because it

reveals a company‟s ability to pay off under the worst possible condition.

Although the quick ratio gives investors a better picture of a company‟s ability to meet

current obligations the current ratio, investors should be aware that the quick ratio does

not apply to the handful of companies where inventory is almost immediately convertible

into cash (such as retail stores and fast food restaurants).

Quick Ratio Formula

The Quick ratio formula is:

Current ratio = (Current assets – Inventories) / Current liabilities

Or = Quick assets / Current liabilities

Or = (Cash + Accounts Receivable + Cash equivalents) / Current liabilities

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Quick Ratio Calculation

Quick ratio calculation is a useful skill for any business that may face cash flow issues.

Quick assets include those current assets that presumably can be quickly converted to

cash at close to their book values. It normally includes cash, marketable securities, and

some accounts receivables.

Current liabilities represent financial obligations that come due within one year. It

normally included accounts payable, notes payable, short-term loans, current portion of

term debt, accrued expenses and taxes.

Debt to Equity Ratio

Definition:

Debt to equity ratio defined as an indication of management‟s reliance to finance its asset

on debt rather than on equity. It measures a company‟s capacity to repay its creditors.

The debt to equity ratio varies with different industry and company. Comparing the ratio

with industry peers is a better benchmark.

Debt to Equity Ratio Meaning:

The debt ratio means an indication of the gearing level of a company. A high ratio means

that a company may be over-leveraged with debt. This can result in high insolvent risk

since excessive debt can lead to a heavy debt repayment burden. However, when a

company chooses to rely largely on equity, they may lose the tax reduction benefit of

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interest payments. In a word, a company must consider both risk and tax issues to get an

optimal debt to equity ratio explanation that suits their needs.

Debt to Equity Ratio Formula

The debt to equity ratio formula is listed below:

Debt to equity ratio equation = total debt / total equity

Debt to Equity Ratio Calculation

Debt to equity ratio calculations are a matter of simple arithmetic once the proper

information is complied. Debts will include both current liabilities and long term

liabilities. Equity will include goods and property your business owns, plus any claims it

has against other entities.

Example: a company has Rs.10, 000 in total debt, and Rs.40, 000 in total shareholders‟
equity.

Debt to equity ratio = 10,000 / 40,000 = 0.25

This means that a company has Rs.0.25 in debt for every rupee of shareholders‟ equity.

Long-Term Debt-to-Equity Ratio

In risk analysis, it is a way to determine a company's leverage. The ratio is calculated by

taking the company's long-term debt and dividing it by the total value of its preferred and

common stock. Put graphically:

Ratio = Long-term debt / (Preferred stock + Common stock)

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The greater a company's leverage, the higher the ratio. Generally, companies with

higher ratios are thought to be more risky because they have more liabilities and less

equity.

Interest Coverage Ratio

The interest coverage ratio is used to determine how easily a company can pay interest

expenses on outstanding debt. The ratio is calculated by dividing a company's earnings

before interest and taxes (EBIT) by the company's interest expenses for the same period.

The lower the ratio, the more the company is burdened by debt expense. When a

company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses

may be questionable.

Formula:

The ability to stay current with interest payment obligations is absolutely critical for a

company as a going concern. While the non-payment of debt principal is a seriously

negative condition, a company finding itself in financial/operational difficulties can stay

alive for quite some time as long as it is able to service its interest expenses.

In a more positive sense, prudent borrowing makes sense for most companies, but the

operative word here is "prudent." Interest expenses affect a company's profitability, so

the cost-benefit analysis dictates that borrowing money to fund a company's assets has to

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have a positive effect. An ample interest coverage ratio would be an indicator of this

circumstance, as well as indicating substantial additional debt capacity.

The interest coverage ratio is a measure of the number of times a company could make

the interest payments on its debt with its earnings before interest and taxes, also known as

EBIT. The lower the interest coverage ratio, the higher the company's debt burden

and the greater the possibility of bankruptcy or default.

Interest coverage is the equivalent of a person taking the combined interest expense from

their mortgage, credit cards, auto and education loans, and calculating the number of

times they can pay it with their annual pre-tax income. For bond holders, the interest

coverage ratio is supposed to act as a safety gauge. It gives you a sense of how far a

company‟s earnings can fall before it will start defaulting on its bond payments. For

stockholders, the interest coverage ratio is important because it gives a clear picture of

the short-term financial health of a business.

General Guidelines for the Interest Coverage Ratio

As a general rule of thumb, investors should not own a stock that has an interest coverage

ratio under 1.5. An interest coverage ratio below 1.0 indicates the business is having

difficulties generating the cash necessary to pay its interest obligations. The history and

consistency of earnings is tremendously important. The more consistent a company‟s

earnings, the lower the interest coverage ratio can be.

EBIT has its short comings, though, because companies do pay taxes, therefore it is

misleading to act as if they didn‟t. A wise and conservative investor would simply take

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the company‟s earnings before interest and divide it by the interest expense. This would

provide a more accurate picture of safety, even if it is more rigid than absolutely

necessary.

Inventory Turnover Ratio

The inventory turnover ratio is one of the most important financial ratios. Of all the asset

management ratios, it gives the business owner some of the most important financial

information. The inventory turnover ratio measures the efficiency of the business in managing

and selling its inventory. This ratio gauges the liquidity of the firm's inventory. It also helps the

business owner determine how they can increase their sales through inventory control. Here is

the calculation for the inventory turnover ratio:

Net Sales/Inventory = # Times

In order to calculate the ratio, you take net sales off the company's income statement and

inventory off the balance sheet.

Interpretation:

Generally, a high inventory ratio means that the company is efficiently managing

and selling its inventory. The faster the inventory sells the fewer funds the company has

tied up. Companies have to be careful if they have a high inventory turnover as they are

subject to stock outs. If a company has a low inventory turnover ratio, then there is a risk

they are holding obsolete inventory which is difficult to sell. This may eat in to a

company's profit. However, the company may be holding a lot of inventory for legitimate

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reasons. They may be preparing for a holiday season in the case of the retail industry or

preparing for a strike, among other reasons.

It is important for a business owner to understand why the inventory turnover ratio is

high or low. In order to do that, the owner needs to look at the company's investment in

inventory and determine what inventory is being most productive. It is also important to

use comparative data such as time series (trend) or industry data with which to compare a

company's inventory ratio in order to analyze whether it is too high or too low.

Fixed Asset Turnover Ratio

The fixed asset turnover ratio measures the company's effectiveness in generating sales

from its investments in plant, property, and equipment. It is especially important for a

manufacturing firm that uses a lot of plant and equipment in its operations to calculate its

fixed asset turnover ratio.

Here is how the fixed asset turnover ratio is calculated:

Net Sales/Plant and Equipment = X Times

Interpretation: If the fixed asset turnover ratio is low as compared to the industry or past

years of data for the firm, it means that sales are low or the investment in plant and

equipment is too much. This may not be a serious problem if the company has just made

an investment in fixed asset to modernize, for example.

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Profitability Ratios Mar Mar Mar

2010 2011 2012

Operating Profit Margin (%) 21.74 20.30 22.88

Profit Before Interest and Tax
Margin (%)
16.20 14.09 17.29

Gross Profit Margin (%) 13.89 16.26 20.20

Cash Profit Margin (%) 12.36 16.14 17.98

Adjusted Cash Margin (%) 12.94 16.53 18.03

Net Profit Margin (%) 6.95 10.05 12.54

Adjusted Net Profit Margin (%)

7.54 10.43 12.60

Return on Capital Employed (%)

15.20 13.68 17.38

Return on Net Worth (%) 12.73 17.15 19.80

Adjusted Return on Net Worth
(%)
13.81 17.84 19.91

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Return on Long Term Funds (%)

17.82 16.22 21.84

Mar Mar Mar

Liquidity and Solvency 2010 2011 2012
Ratios

Current Ratio 1.10 0.91 0.93

Quick Ratio 2.28 1.26 0.99

Debt Equity Ratio 1.03 0.83 0.63

Long Term Debt Equity 0.73 0.55 0.30
Ratio

Total current asset ratio:

The total asset turnover ratio measures the ability of a company to use its assets to

generate sales. The total asset turnover ratio considers all assets including fixed assets,

like plant and equipment, as well as inventory and accounts receivable.

The calculation for the total asset turnover ratio is:

Net Sales/Total Assets = # Times

Interpretation: The lower the total asset turnover ratio, as compared to historical data for

the firm and industry data, the more sluggish the firm's sales. This may indicate a

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problem with one or more of the asset categories composing total assets - inventory,

receivables, or fixed assets. The small business owner should analyze the various asset

classes to determine where the problem lies.

Mar Mar Mar

Other Ratios 2010 2011 2012

Interest Cover 2.02 3.26 5.57

Inventory 4.05 4.47 2.68
Turnover Ratio

Debtors Turnover 18.74 11.86 11.60
Ratio

Investments 5.55 6.21 3.22
Turnover Ratio

Fixed Assets 1.29 1.22 1.45
Turnover Ratio

Total Assets 0.90 0.93 0.96
Turnover Ratio

Asset Turnover 0.84 0.74 0.83

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Graphically as follows which can give an elaborate explanation how the ratios changed
over the years

2.5

2

1.5
2009-2010
1 2010-2011
2011-2012
0.5

0
Current Ratio Quick Ratio Debt Equity Long Term Debt
Ratio Equity Ratio

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45
40
35
30
25
20 2011-2012

15 2010-2011

10 2009-2010
5
0
Interest Cover Inventory Debtors Investments Fixed Assets
Turnover Turnover Turnover Turnover
Ratio Ratio Ratio Ratio

25

20

15
2009-2010
10
2010-2011

5 2011-2012

0
Operating Gross Profit Cash Profit ROCE (%) Return on
Profit Margin Margin (%) Margin (%) Net Worth
(%) (%)

As it is evident from the above graphs, ROCE has risen from 16% odd to nearly 20%

which is a positive sign for the company. Operating profits are a bit of concern to the

company as they are tending towards a negative slope so necessary operational changes

are to be made to cope up with the industry profits. Return on net worth is not as

satisfactory as before but it is ok.

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CASH FLOW ANALYSIS

When it is desired to explain to management the sources of cash and its uses during a

particular period of time, a statement known as cash flow statement is prepared. A

statement of cash flow reports the inflows (receipts) and outflows (payments) of cash and

its equivalents of a organization during a particular period. It provides important

information that compliments profit and loss account and balance sheet. A statement of

cash flow reports cash receipts and payments classified according to the entities major

activities – operating, investing and financing during the period.

The main objective of cash flow analysis is to show the causes of changes in cash

balances during the period under consideration. Cash flow analysis also provides the

information to the management regarding movement of cash and the availability of cash.

This analysis is not only concerned with the good or bad management of cash but also the

liquidity position of the concern. It also helps the management in short-term financial

decision relating to liquidity.

UTITLITY OF CASH FLOW ANALYSIS

A cash flow statement is very important for financial management. It is an

essential tool of short term financial analysis, as a business enterprise needs sufficient

cash to meet its various obligations in the near future such as payment for purchase of

fixed assets, expenses of business etc., A historical analysis of different sources and

application of cash will enable the management to make reliable cash flow projections for

the immediate future. It may the plan out for investment of surplus or meeting the deficit,

if any

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The main uses of cash flow analysis are as follows:

Helps in efficient cash management: Cash flow analysis in evaluating financial

policies and cash position, as the cash is the basis for all operations. A projected

cash flow statement will enable the management to plan and coordinate the

financial operations.

Helps in internal financial management: Cash flow analysis provides information

about funds, which will be available from operation. This will help the

management in determining policies regarding financial management e.g.,

dividend policies, possibility of repayment of long term debt etc.,

Disclose the movement of cash: Cash flow statement discloses the complete story

of cash movement. The increase in or decrease of cash and the reason thereof can

be known. It discloses the reason for low cash balance in spite of low profit. The

comparison of original forecast with the actual result highlights the trends of

management of cash which may otherwise get undetected.

Discloses success or failure of cash planning: The extent of success or failure of
cash planning can be known by comparing the projected cash flow statement with
the actual cash flow statement and necessary remedial measures can be taken.

LIMITATIONS OF CASH FLOW ANALYSIS

Cash flow analysis is a useful tool of financial analysis, but it has its own limitations and

they are as follows

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Cash flow statement cannot be equated with the income statement. An income

statement takes into account both cash as well as non-cash items and therefore net

cash flow does not necessarily mean net income of the business.

The cash balance as disclosed by the cash flow statement may not represent the

real liquid position of the business. It can be easily influenced by postponing

purchase and other payments.

Cash flow statements cannot replace the income statement or funds flow

statement. Each of them has a separate function to perform.

PREPARATION OF CASH FLOW STATEMENT

Cash flow statement is prepared with the help of balance sheet, income statement,

and surplus appropriation statement and other given information. The measurement of

cash is primarily based on income statement as the items in any income statement are

shown on actual basis, whereas in cash flow statement they are shown on cash basis.

Cash flow measurement depends primarily on determining cash receipts and

disbursements over a given period.

The measurement of cash flow constitutes two aspects, determining the inflow of

cash and outflow of cash. The items constituting inflow of cash are the sources of cash

while outflow of cash is the application of cash.

SOURCES OF CASH OR CASH INFLOWS

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The transactions, which increase the cash position of the firm, are called as

sources of cash or cash inflows. The mains sources of cash inflows are as follows:

 Increase in share capital: Share capital rose whether in the form of preference

shares or equity capital, would constitute inflows of cash. The inflow would be to

the extent of actually received on issue of share. However, issue of shares by

capitalization of reserves or issue of shares for consideration other than cash or

issue of shares in conversion of debentures or long term loans would not be cash

inflows.

 Issue of debenture, loans etc., and the net amount received on the issue of

debentures and rising of loans will be considered as inflow of cash. However, if

the debentures are issued or loans rose for consideration other than cash, it will

constitute the inflow of cash.

 Reduction in or sale of assets: Sale proceeds of fixed assets and long term

investment to the extent payment being received in cash would be inflow of cash.

Similarly decrease in debtors and bills receivable will be inflow of cash.

 Other receipts: There may also be some other sources of cash inflows. For

example sale proceeds of byproducts of waste material, cash receipts of dividends

and interest, income tax refund, compensation received etc.,

APPLICATION OF CASH OR CASH OUTFLOWS

1. a net increase in any asset other than cash or fixed assets

2. a gross increase in fixed assets

3. a net decrease in any liability

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4. a retirement or purchase of stock and

5. The payment of cash dividends.

FORM OF CASH FLOW STATEMENT

There is no set format for cash flow statement. Like fund flow statements, it can

also be prepared in two forms, either in report form or in an account form. Under both

these forms any of the following types may be adopted

Remainder type: Under this type, the cash flow statement is divided into two

parts – sources of cash and application of cash. The difference of the totals of

both the sides would show increase in cash or decrease in cash during the

period under study. Self-balancing type: Under this type, cash flow statement

is prepared in the same way as in remainder type but in this method the short

side of the statement is balanced by showing change in the balance of cash.

Reconciling type: Under this method, opening and closing balance of cash are

tallied. The statement starts with the opening balance of cash. In this method,

all the inflows of cash are added and all outflows of cash are deducted, the

resulting figure will be closing balance of cash, which must tally with the cash

balance in the current year‟s balance sheet. This method is most popular and

widely used in practice.

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CASH FLOW REPORTING

The Securities and Exchange Board of India (SEBI) had issued a directive to all

recognized stock exchanges asking them to include a requirement of providing for cash

inflows information as a part of listing agreements. SEBI has also suggested that cash

flow statements should be prepared in accordance with the requirements of AS-3 (Indian

Accounting Standard-3). Accordingly all listed companies whose annual accounts

approved after 31st March 1996 were required to include a cash flow statement in their

annual reports. The Institute of Chartered Accountants of India (ICAI) has also revised

AS-3 and suggested disclosing of cash flow information.

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CASH FLOW STATEMENT

InRs. Cr

Mar'09 Mar„10 Mar„11 Mar‟12

Net Profit Before Tax 7.29 11.75 12.71 20.78

Net Cash From Operating
Activities
23.95 47.17 22.43 8.11

Net Cash (used in)/from
Investing Activities
0.81 1.22 -0.25 -1.09

Net Cash (used in)/from
Financing Activities
-24.43 -47.83 -21.02 -6.48

Net (decrease)/increase In
Cash and Cash
0.32 0.57 1.16 0.54
Equivalents

Opening Cash & Cash
Equivalents
5.57 5.89 6.46 7.61

Closing Cash & Cash
Equivalents
5.89 6.46 7.61 8.16

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CHAPTER – VI
(Findings & Suggestions)

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FINDINGS

The following are the findings I have come across from the financial statements.

 Quick ratio, being the acid test ratio, improved from 1.29 in mar 2010 to 1.87 in

mar 2011 which indicates that this company is able to pay its current liabilities in

time. But it can be improved by increasing the current assets.

 Though current ratio is not up to the mark till March 2010, the company is able to

meet the short term obligations and has sufficient working capital to pay off those

obligations since the ratio stands at 2.03 in mar 2011. A current ratio of 2:1 is

generally acceptable

 Return on capital employed (ROCE) increased from year to year showing that this

company is becoming efficient or that it is increasing its current liabilities

 Company‟s ratios are up to the mark

 Investors‟ wealth or shareholders‟ wealth is safe and people can invest in this

company as it is achieving profits regularly and also announced dividend

consecutively for the years.

 Comparative balance sheet shows the differences in the balance sheets i.e., the

changes in the assets and liabilities for the given couple of years

 Such balance sheets allow the company to assess the performance and to re-adjust

the changes made or to continue the changes if they are worthy. This company

made use of comparative balance sheets very well and made extraordinary

changes to reserves and surplus and invested in right places and made right use of

application of funds.

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 Owing to industry scenario, this company may have its pitfalls but on an average

according to the available financials this company is performing well in financial

management.

 From the cash flow statements we can observe that this company is fetching more

money from operating activities than the net income from financing and investing

activities. It should invest in profit making areas and increase its net income

 Also if we see the opening cash and closing cash from the cash flow sheet, it is

evident that closing balance exceeds the opening balance showing that the

company has hand full of cash at the end of the day.

 Company has no problems with the working capital requirements.

 Projections of cash flows match with the actual performance, though not

accurately, but the company‟s cash flows are competitive enough.

 This company is repaying its debts at regular intervals, which is a very positive

sign for the growth of the company.

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SUGGESTIONS

 By decreasing costs, Building Blocks can still increase its net income

 Various financial ratios like quick ratio, current ratio, operating profitability ratios

must be improved to compete with the peers

 EPS is far below and it must be increased

 Though quality of finished products is good, price must be competitive enough.

 Nothing destroys an activity more often than the lack of advertising campaigns.

People only patronize you if they know about what you have. So there is a need of

advertising the products which in turn add to the profits to the company.

 Watching the stock market to evaluate the performance of the company and

compare with its peers.

 This company should improve the profit margins.

 Large amount of money is not being effectively utilized as it is evident from the

ratios. So it is advised to invest in more areas.

 Even distribution of money in various areas is suggested to forecast the cash

flows accurately.

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CONCLUSION
Building Blocks is heading towards gaining more profits and more market share. This is

evident from its balance sheets, financial ratios, income statement, cash flows etc.

Quality of its finished products has substantially increased which is the key area for this

company. Its market is within the area of 28% which consists of mini cement production

companies too. By diversifying into power sector too, the company is able to meet its

power requirements which will not add to the expenses. When compared with its

competitors its EPS value is not up to the mark and the share price in NSE and BSE must

also be improved. It should find ways to manage the financial activities to compete with

its peers otherwise it has to face a lot of problems regarding customer satisfaction.

This company's debt to total capital ratio, at 18.01%, is in-line with the Construction

Materials industry's norm. Additionally, there are enough liquid assets to satisfy current

obligations. Accounts Receivable is among the industry's worst with 23.74 days‟ worth of

sales outstanding. This implies that revenues are not being collected in an efficient

manner. Last, Building Blocks Group is among the most efficient in its industry at

managing inventories, with only 151.64 days of its Cost of Goods Sold tied up in

inventory.

The profitability of the company has been increasing continuously since 2009 with the

turnover increasing. The profitability compared to the turnover is going on in balance

with the administrative and other costs. The current ratio of the company as discussed is

always much higher than the standard norms, which is also not favorable to the company,

this means that the big amount of money is not being utilized effectively as most of the

cash is tied up in debtors and inventories. The company should improve upon its credit

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policies and holding of inventories, as a company can save the cost of working capital by

reducing the same.

The company should also review the opportunities and threats to its business in the long

term perspective. The company is diversifying in various aspects. While the only threat to

the company in this field is from unorganized sector producing at a cheaper cost and

liability of excise duty is not there resulting in low cost of production. The company can

overcome this by maintaining its quality standards, as the consumer is nowadays ready to

pay for the quality products.

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REFERENCES

1. S.N.Maheswari : Management Accounting and Financial control

2. D.C.Sharma and K.G.Gupta: Management Accounting

3. M.Y.Khan and P.K.Jain : Financial Management

4. Published Accounts of Buildings blocks group Ltd.

Websites:

www.buildingsblocksgroup.com

www.quickmba.com

www.scribd.com

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http://business.mapsofindia.com/cement/types/

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http://www.moneycontrol.com

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