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INTRODUCTION

After preparation of the financial statements, one may be interested in

knowing the position of an enterprise from different points of view. This can
be done by analyzing the financial sratemenr wirh the help of different
tools of analysis such as ratio analysis, funds flow analysis, cash flow
analysis, comparative statement analysis, etc. Here I have done financial
analysis by ratios. In this process, a meaningful relationship is
established between two or more accounting figures for comparison.

• Financial ratios are widely used for modeling purposes both by practitioners
and researchers. The involves many interested parties, like fhe owners,
management, personnel, customers, suppliers, compeiiiors, regulatory
agencies, and academics,
each having their views in applying financial statement analysis in their
evaluations. Praciitioners use financial ratios, for instance, to forecast
the future success of companies, while the researchers’ main interest has
been to develop models exploiting these ratios. Many distinct veas of
research involving financial ratios can be discerned. Historically one
can observe several major themes in ihe financial analysis literature. There
is overlapping in the observable themes, and they do not necessarily
coincide with what theoretically might be the best founded areas.

Financial statements are those statements which provide information

about profitability and financial position of a business. It includes iwo
statements, i.e., profit & loss a/c or income statement and balance sheet or
position statement.

The income statement presents the summvy of the income earned and the
expenses incurred during a financial year. Position statement presents the
financial position of the business at the end of the yev.

• Before understanding the meaning of analysis of financial statements, it is

necessary to understand the meanlng of ’analysls‘ and ‘financlal statements‘
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• Analysis means establishing a meaningful relationship between various items of the
two financial statements with each other in such a way Aat a conclusion is drawn.
By financial statements, we mean iwo statements- (1) profit & loss a/c (2) balance
sheet. These are prepared ai the end of a given period of time. They are
indicators of profitability and financial soundness of the business concern.

• Thus, analysis of financial statements means establishing meaningful

relationship between various items of ihe two financial statements, i.e.,
income statement and position statement

• Short- terixi creditors

They are interested in knowing whether the amounts owing to them will be

7• Long —term creditors

They ve interested in knowing whether the principal amouni and interest

Shareholders

They ve interested in profitability, return and capital appreciation.

7• Management

The management is inreresied in ihe financial position and performance

7• Trade unions

They are interested in financial statements for negotiating the wages or salaries

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• ADITYA BIRLA GROUP

o Type Priv:lte Conglomerate/Listed Companies.

o Founded l960s

o Headquarters «» Mumbai, India

o Key people % Kumar Manualam Blrla (Chairman)

o Ldustrv Metals and several others.

Aluminium, Copper, Cement, Fenilizer,

o pro
Textile, Fibre, etc.
d

o Revenue $24 billion

o Employees l00.000+

o Subsidiaries Several.

o Website ha ://www.aditabirla.com/

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•é• The Aditya Birla group is one of the lndla s largest business houses, operating in 15
countries. it has 16 manufacturing unit in India as well as overseas (Thailand,
Indonesia, Malaysia, Philippians, Egypt, and Canada) and international trading
operation spanning Singapore, ,united kingdom, unired states, south Africa
,Tanzania
,Myanmar ,and Russia.

*i• Wifh all united accredited with ISO 9002 ceniFicate and nine of
them ISO certified, the p•roup is committed ro being a global
benchmark group.

•i• The group reaches out to ihe core sector in India like cement, textile,
aluminum, fertilizer, power, telecommunication, industrial chemical,
insulators and financial services.

•!• The Aditya Birla group is a dominant player in all irs areas of operation:

• A world leader in viscose staple fiber(VSF)

• A non-ferrous metals power house:
(I) one of the asias largest integrated aluminum procedure, and amone the most cost-
efficient.
{ii) Fastest growing copper company in Asia
• World’s largest slngle location producer of palm oil
• Third largest producer of insulators
• Fourth largest producer of carbon black in world
• Among the ten largest producer of cement
• The second largest producer of viscose filament yarn(VFY) in India
• The second largest producer of cvbon black in India
• Life insurance joint venture, Birla sun life insurance company ltd, is India's second
largest private sector insurance company.
• Insulators joint venture with bila NGK insulators pvt.ltd is Indla's largest and world‘s
third largest producer of insulators.
• Emerging player in high growrh IT services and BPO sectog
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 Groucom anies

q Grasim Industries Ltd.

p Hindalco Industries
Ltd. q Aditya Birla Nuvo
Ltd. q UltraTech Cement
Ltd.

Indian companies

q PSI Data Systems

q Aditya Birla Minacs Worldwide Limited
q Essel Mining & Industries Ltd
q Idea Cellular Ltd.
q Aditya Birla Insulators
q Aditya Birla Retail Limited
q Aditya Birla Chemicals (India) Limited

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4• ADITYA BIRLA NUVO LTD- An overview

Aditya Birla Nuvo Ltd, a diverse conglomerate with a dozen businesses in its

fold, is part of the US $29.2 billionAdit a Birla Grou Be it revenue,

profitability, market capitalisation or corporate social responsibility, the

Aditya Birla Group has a strong corporate track record of success,
enterprise, values and sustainability practices. The Group is in the league of
Fortune 500 and is all poised ro ride on the global surge of newer
business opportunities through acquisitions and expansions.
Aditya Birla Nuvo, propelled by an intellectual capital of over 37,000
people, provides dynamic career opportunities in a growth-oriented
environment through continuous learning and cross-functional exposure in
various streams. The company has an interesting mix of businesses under its
fold ranging from textiles, carbon black, and insulators ro IT, BPO,
telecom, retail, asset management and financial services.

• Our Vision

To be a with a clev focus on Premium global conglomerate

each business.

•
Our Mission

To deliver superior value to our customers, shareholders employees and society

at large

• Our Values

Integrity
Commitment
Passion
Seamlessness
Speed

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é• More information on Aditya Birla Nuvo s businesses and brands:

• Viscose Filament Yarn Indian Rayon

• Garments Madura Garments
• Carbon Black Hi-Tech Carbon
• Agri solutions Indo Gulf Fenilizers
• Textiles Jaya Shree Textiles
• Insulators Adits'a Birla Insulaiors

•z Subsidiaries

• Life Insurance Birla Sun Life Insurance Company Limited (JV with Sun Life
Financial Inc of Canada)
• Business Process L utsourcing Aditya Birla Minacs Worldwide Limited
• Software services PSI Data Systems Limited
• Financial services Birla Global Finance Company I,imired, Birla
Insurance Advisory and Broking Services Limited, Birla Sun Life
Distribution Company Limited, Apollo Sindhoori Capital Investments
Limited, Aditya Birla Capital Advisors Private Limited
• Gaments Madura Garments Lifestyle Retail Company Limited, Peter England
Fashions and Retail I,imited

't• Joint ventures

• Telecom Idea Cellular Limited

• Asset management Birla Sun Life Asset Management Company Limited

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 Growth Business Yalue business

(88. %) 76. ‘to Siervices

Apparel Retail (100%l

Contract Exports (100%)

Distribution 100 %
Reta? broking 76 %

¥BFC
Insuraoce Adtâsory
Private equ'rty

Rayon Carban Black Insulators Fertilizers Text“£es

REPRESRNT JOINT VENTURS

REPRESENT SUBSIDIARIES

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7• As a leading player, Aditya Birla Nuvo ranks as:

• India s second largest producer of viscose filament yarn (VFY)

• The country's largest premium branded apparel company

• The second largest producer of carbon black in India

• Largest manufacturer of linen fabric in India

• Among the mosi energy efficient fertiliser plants

• India‘s largest and the ›s'orld’s fourth largest producer of lnsulators

P Among Aditya Birla Nuvo’s joint ventures and subsidiary companies are:

• Idea Cellular Limited, the fifth largest mobile telephony service provider in India

• Birla Sun Life Insurance, one of the leading life insurance companies in India

• Birla Sun Life Asset Management, one of the leading asset

management companies in India

• Aditya Birla Minacs Worldwide Limited, among the iop four BPO
players in India and among the top 15 globally

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't• SAFETY POLICY

• Company is committed to ensure safety, health and clean environment

for our employees. The necessary organizational set up such as safety
department and committee to promote the awareness shall be maintained.
Training programme and seminars and seminars to promote safery
activities will be conducted regularly. Regular safeiy audits will be
carried out with the help of internal and external agencies and remedial
measures implemented. Company gives a due weight age to healrh and
safety while seleciing plant, equipment, machinery and placement of
personal safety performance of the factory will be a part of their annual
report.

t• ENVIRONMENTAL POLICY

• Company believes thai preservation of environment is essential for the

survival of our business, employees, socieiy and surroundings. They
achieve it wiih the involvement of our workforce, vendors, customers and
neighbourhood. Through:

•’ Compliance with relevant laws and regulations.

•’ Efficient use of available resources.
•^ Adoption of eco friendly technologies.
•^ Education and sustained efforts of continual improvements.
•’ Safe, clean and healthy work practice.
•’ Commitment to prevent air and water pollution by adopting appropriate
technology and practices.

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 4• INDIAN RAYON

The late Prime Minister Lal bhadur shastri laid the foundation stone of
Indian rayon and industries ltd. It was in corporated on the 26'h
September 1956 under the company acr of 1956 and the company was
getting the commencement certificate on IS“’ feb.1958.

13"' April 19£3 and on the same day company took its trial production.

Shree moraji vidya one of the leading industrialist of Gujarat wiih a

view manufacture viscose filament yan(VFY)IN collaboration wiih von-
kohorn international of USA stvted this organization.

Once a sick company and virtually on ihe verge of closure was taken over
by shree Aditya Vikram Birla in 1966, who believed
consolidation,expantion and diversification, because of his believed and
sincerity toward work the company has not only tuned around but
has also made up strong market position today. By 1975 the jayshree
textiles has merged with Indian rayon. The Indian rayon industries
ltd. Is public ltd.

LOCATION

Indian rayon unii is located at VERAVAL, in district of junagadh on NH-8 approx.

185 kms.fromxhe place is 1 meter above sea level. The internal land, popularly known
as prabhas kshltra’ the out rldge of veraval, which has religious radius of approx.
5.5kms envelope lord somnath temple, the bhalka Tirth and triveni

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»VISION

• To be preferred choice of customer in premium segment of viscose filament

yarn global mvket and benchmarked chlor alkali producer while remaining
committed to the interests of all stack holders.

MISSION

• To produce viscose filament yarn to meer the expectations of

customers in premium segment.
• To achieve minimum cost of production through innovation,
development & involvement of employees and vendors.
• To maintain clean, safe and pollution free environment.

t• COMPANY POLICY

• Company is committed io be the preferred choice of customers while

taking care of interests of all stakeholders. They are also committing to
abide by applicable legal and other requirements and ensure continual
improvements in all spheres of activities. They also adopt world class
manufacturing practices and maintain a high morale of employees.

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't• BRIEF PROFILE UF THE COMPANY

The rayon plant located at VERAVAL is an ISO 9002 and ISO l400l
certified plant. The main product of the rayon plant is viscose filament
yarn apart from chemical sulphuric acid, carbon-di sulphide, which
are both consumed in- house and sodium sulphuric which is a by-
product.

The total production is as follows:

Pot spun yarn: - 41.5 TDP

Continuous spun yarn: - 5.00
TDP
Exports constitute aboui 17% of total turnover.

INDIAN RAY?i›N COMPANY, VERAVAL is a public ltd company.

It is a large-scale industry. It is a capital oriented unit because automatic
machineries done all the works. It can be called heavy industry because
the systems of
heavy industries are seen like capital investment is very huse production cycle
and installation of heavy and costly machineries the work of ihe unit has been
divided into 42 depanments.

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 ORGANISATION SRTUCTURE FINAN CIAL

DEPARTMENT

Board of directors

Executive President (Rayone Division) President & C.F.O. (Corporate Finance Division)
GM Finance

Sr. Vice President

Sr. Manap•er (AC)

Assistant Manager
Assistant Manager Assistant
Creditors
Cash Manager
Salary

Officer Officer t ]fficer

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 ANALYSIS

Raiio Analysis enables the business owner/manager to spot trends in a business and to
compare its perfomance and condition with the average performance of similar businesses in
the same industry. To do ihis compare your ratios wiih the average of businesses similv to
yours and compare your own ratios for several successive years. watching especially for any
unfavorable trends that may be starting. Ratio analysis may provide the all-important early
warning indications that allow you to solve your business problems before your business is
destroyed by them.

The Balance Sheet and the Statement of Income are essential, but they are only the stating
point for successful financial management. Apply Ratio Analysis to Financial Siatemenis to
analyze rhe success, failure, and progress of your business.

Importance of financial statement analysis in an organization.

In our money-oriented economy, Finance may be defined as provision of money at rhe time it
is needed. To everyone responsible for provision of funds, it is problem of securing
importance to so adjust his resources as io provide for a regular outflow of expenditure in
face of an irregular inflow of income.

I. The profii and loss account (Income Statement).

2. The balance sheet

In companies, these ve the two statements that have been prescribed and their contents have
been also been laid down by law in mosi countries includinp• India.

There has been increasing emphasis on

(a) Giving infomaiion to ihe shareholder in such a manner as to enable them to grasp it
easily.

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 (b) Giving much more information e.g. funds ñow sratemenr, again with a view io facilitating
easy understanding and to place a year results in perspective through comparison wirh post
year results.

(c) The directors report being quire comprehensive to cover ihe factors ihat have been
operating and are likely to operate in the near future as regards to the various functions of
production, marketing, finance, labour, government policies, environment in general.

Financial statements are beine made use of increasingly by parties like Bank, Governments,
Institutions, and Financial Analysis etc. The statement should be sufficiently informative so
as to serve as wide a curia as possible.

The financial statement is prepared by accounts based on the activities that take place in
production and non-production wings in a factory. The accounts convert activities in
monetary terms to the help know the position.

7• Uses of Financial Statement Analysis.

The main uses of accounting statements for; -

Executives : - To formulate policies.

Bankers : - To establish basis for Granting Loans.

Institutions } Auditors : - To extend Credii facility to business.

Investors : - To assess the prospects of the business and to know

whether they can get a good return on their investment.

Accountants : - To study the statement for compvative purposes.

Government Agencies: - To srudy from an angle of tax collection duty lev

Total Funds L*tiliscd

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 '2• TYPES OF RATIOS

1. Liquidity ratios

2. Turnover Ratios

3. Leverage Ratios

4. Profitability Ratios

1. Liquidity ratios:—

Liquidity refers of the ability of a firm to meet its obligation in rhe short run,
usually one year or when they become duration for payment.

A proper balance between liquidly and profitability is required for efficient

Financial Management.

Liquidity raiios are based on the relationship between current assets the sources
for meeting short-term obligation and current liabilities.

The ratios, which indicate the liquidity of a firm, are: -

A. Current Ratio.
B. Acid test Ratio.
C. Net working capital.

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A. Current Ratio.

The current Ratio is rhe ratio of current liabilities it is calculated as: -

Current assers
Current ratio
Current Liabilities

The current asseis include cash and Bank Balance, Marketable securities, Bills,
Receivable, Inventories, Loans and advances, Advances Payment and prepaid
expenses.

The current liabilities include creditors, bills payable bank overdraft short-tern
loans, outstanding expense & income tax payable, unclaimed divided and
proposed dividend.

Te current ratio measures ihe ability of the firm to meet its current liabilities. The
current asseis get converted into cash into the operational cycle of the firm and
provide the fund needed to pay current liabilities. The higher ihe ratio, to ward
off.

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•t• Calculation of current ratio with diagram

Particulars
2019-20 2020-21 2021-22 2022-23
Current
assets 1626.27 1426.32 2112.05 2257.21
Current
liabilities 498.70 453.38 700.37 773.48
Current
ratio 3.2fi 3.15 3.0 2.9

t• Diagram

3.3—
3.26

3.2
3.1S

3.1

2.9
2.9

2019-20 2020-21 2021-22 2022-23

39

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 B.QUICK RATIO

The Quick Raiio is sometimes called the "acid-test" ratio and is one of the best
measures of liquidity. It is figured as shown below:

QUICK RATIO = current assets — inventories

Current liabilities — bank over draft

The Quick Ratio is a much more exacting measure ihan the Current Ratio. By
excluding inventories, it concentrates on the really liquid assets, with value that is
fairly cenain. It helps answer the question: "If all sales revenues should
disappear, could my business meet its current obligations with the readily
convertible 'quick’ funds on hand?"

An acid-test of 1 :1 is considered satisfactory unless ihe majority of your

"quick assets" ve in accounts receivable, and the pattern of accounts receivable
collection lags behind the schedule for paying current liabilities.

•» Calculation of quick ratio with diagram

Particulars 2019-20 2020-21 2021-22 2022-23

Liquid
assets 1099.94 951.06 1335.45 1509.61
liquid
liabilities 498.70 453.38 700.37 773.48
Current
2.21 2.10 1.91 1.95
ratio

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 • Diagram

2.25
2.21

2.15
2.1
2.1
2.0S -

1.95
1.95
1.91
1.9
1.8S
1.8
1.75

2019-20 2020-21 2021-222222222-2222222222

2022-23

C. Working capital turnover ratio

Working capital refers to the investment by the company in shoe ierms asseis
such as cash, markeiable securities. Net current assers or net working capital refers to rhe
current asseis less current liabilities.

Symbolically, ii means,

Net Current Assets = Current Assets Current Liabilities.

Definitions of Working Capital:

The followin @, are ihe most important definitions of Working capital:

I) Working capital is rhe difference between the inGow and outflow of funds. In

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 other words it is the net cash inflow.

2) Working capital represents the total of all current assets. In oiher words it is
the Gross working capital, it is also known as Circulating capital or
Current capital for current assets is rotating in rheir nature.

3) Working capital is defined as the excess of current assets over current

liabilities and provisions . In other words it is the Net Current Asseis or Net
Working Capital

It is calculated as,

Wokinp• capital turnover ratio = Sales / Working capital

•t• CALC ULATION OF WORKING CAPITAL TURN OVER RATIO WITH

DIAGRAM

Particulars 2019-20 2020-21 2021- 2022-23

22
sales 2786.39 3577.9 4137. 5001.04
52
Working
capital 1l?7.57 3672.94 1411. 1483.73
68
W.C.T.O
2.47 0.97 2.93 3.37
.
ratio

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DEBTORS TURN1 OVER RATIO

The debtor s turnover ratio is determined by dividing the net credit sales by average
debtors outstanding durinp• the yev.

Therefore

Debtors turnover raiio = Net credit sales

Average debtors

N[_1›TE;- Here there is no specification about ner credit purchase and average debtors
So, assume that (net credit sales = net sales)
(Average debtors = debtors)

The main function of this ratio is to measure how rapidly debts are collected.

A high rario is indicative of shorter time lag between credit sales and cash collection/
A low ratio indicates that debis are not being collected rapidly.

•« Calculation of debtors turnover ratio with diagram

Particulars 2019-20 2020-21 2021-22 2022-23

Net sales 2786.39 3577.89 4137.52

Debtors 415.44 595.99 7fi0.98 887.23

Debtors

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 2. TURN OVER RATIOS

Tunover Ratios are also referred ro as Activity ratio or Assets Management ratios. This ratio
establishes relationship between the level of activity represented by sales or cost of goods
sold and levels of various assets.

A. INVENTORY TURN OVER RATIO

This Ratio is computed by dividing net sales by inventory

Thus,

Net sales
Inventory Turnover ratio
Average Inventory
The numerator of this ratio is the net sales for the year and the
denominator is the Inventory balance at the end of the year.

This ratio is deemed to reflect the efficient the management of inventories

and vice versa.

This statement need not be always true. A low level of inventory may
cause a higher inventory turnover ratio.

It mighi be arp•ued that the inventory turnover ratio may be

Cost of goods sold

Inventory Turnover ratio
Average Inventory

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 •» Calculation of inventory turnover ratio with diagram

2019-20 2020-21 2021-22 2022-23

Particulars

Sales 2786.39 3577.89 4137.52 5001.04

Average
inventory 158.37 205.45 277.61 336.12
Inventory
T.O. ratio 17.6 17.41 14.90 14.88

C.CREDITORS TURN OVER RATIO

Credltor s turnover ratio is a rate between net purchase and average amouni of creditor
Outstanding during the year.

Creditors turnover ratio = Net credii purchases

Average of creditors

Average creditors = Average of creditors outstanding at rhe Beginning and ai the end of the
year.

A low turnover raiio reflects liberal terms granted by suppliers, while a high turnover ratio
shown Aat accounts are settled rapidly.

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 The creditor‘s turnover ratio is an important tool as a firm can reduce its requirement of
current asseis by relying on suppliers creditors.

The inteni to which trade creditors are willing ro wait for payment can be approximated
by the creditors turnover ratio.

NOTE;- Here, there is no specification about net credii purchase and average of creditors,
So, let assume that, (net credit purchase = Net Purchase)
(Average of creditors = creditors)

•» Calculation of creditors turnover ratio with diagram

Particulars 2019-20 2020-21 2021-22 2022-23

N
et
Purchase 2447.75 3190.45 3781.72 4690.fi7

Creditors 265.88 232.19 330.01 463.94

Creditors 13.74 11.46 10.11

9.21
T.O. ratio

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 • Diagram
16
13.74
14

11.46
10.11
10 9.21

2019-20 2020-21 2021-22 2022-23

3. LEVERAGE or CAPITAL STRUCTURE RATIO

These ratios refer to the use of debt finance long term solvency of the firm
can be examined by using leverage or capital raiios.

The leverage ratio or capital structure raiio can be defined as rhe financial
ratios which fhrow light on the long rem solvency of a firm reflected in its
ability to assure the long tern creditors with regards to.

I. Periodic payment of interest during the period of loan.

2. Repayment of Principe on maturity or in predetermined instalments at
due dates.

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A. DEBT-EQUITY RATIO

This ratio reflecrs the relative claims of creditors and share holders against the assets of the
finn, debi equiry ratios establishment relationship between borrowed funds and owner capital
to measure ihe long term financial solvency of the finn. The ratio indicates the relative
proportions of debt and equity in financing the asseis of the firm.

It is calculated as follows

Debt equity ratio = Debt / Equity

The debrs side consist of all liabilities (that include show term and long term liabilities) of the
finn. The equity side consists of new worth (plus) preference capital.

The lower the debt equity ratio the higher in the degree of protection enjoyed by the creditors.

The debt equity ratio defined by the controller of capital issue, debt is defined as long rerm
debt plus preference capital which is redeemable before 12 years and equity is defined as paid
up equity capital plus preference capital which is redeemable alter 12 years.

The general norm for this ratio is 2: l. on case of capital intensive industries as norms of 4:1 is
used for fenilizer and cemeni industry and a norms of 6:1 is used for shipping units.

•» Calculation of debt-equity ratio with diagram

2019-20 2020-21 2021-22 2022-23

Particulars

Debt 1731.27 3005.91 2943.73 4fi79.45

Equity 2207.61 3124.55 4023.74 4121.6fi

Debt-equity
ratio 0.78 0.96 0.7 l.14

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 • Diagram
1.2 1.14

1 0.96

0R78
o.g
0.7

0.6

0.4

0.2

0
Z019-20
2020-21 2021-22 2022-23

B. DEBT — ASSET RATIO

The debit asset ratio establishes a relationship between borrowed funds and the asseis of firm.

It is calculated as:

Debt
Debt Asset Ratio = -—-—-—------—---—-—-—-—-—-—---—
Asset

Debt includes all liabilities. Shon term as well as long term and the assets include the total of
all the assets (ihe balance sheet total)

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 •» Calculation Of Debt — Asset Ratio With Diagram

2019-20 2020-21 2021-22 2022-23

Particulars

Debt i73l.27 3005.91 2943.73 4fi79.45

Asset 3938.88 6130.46 6967.47 4121.66

Debt- asset
ratio 0.44 0.96 0.42 l. 14

1.2 — 1.14

0.96

0.8

0.6

0.44 0.42
0.4

0.2

2019-20 2020-21 2021-22 2022-23

• Diagram

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E. PRICE EARNINGS RATIO

PE ratio is closely related to rhe earnings yield/earnings price ratio. It is actually the
reciprocal of the laiter. This ratio is computed dividing the market price of ihe shares by
rhe EPS. Thus,

PE raiio = Market Price of Share

EPS

The PE ratio reflects the price currently being paid by the market for each rupee of
currently reported EPS. In other words, the Pdf ratio measures investors’ expectatlons and
rhe market appraisal of the performance of a firm. In estimating ihe earnings, therefore,
only normally sustainable earnings associated with the assets are taken into account. That
is, the earnings ve adjusted for income from, say, discontinued operations and
extraordinary items as well as many other items not expected to occur. This raiio is
popularly used by securlty analJ'sts to assess a flrln s performance as expected by lhe
investors.

'$• Calculation of PE ratio with diagram

2019-20 2020-21 2021-22 2022-23

Particulars

Ratios 30.6 41.8 53.6 30.8

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64

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