Ratio Analysis at Micro Finish

Evaluation of financial performance appraisal
Industry profile
Global valve market
The valve market, by and large, is shared by various manufacturers based on technology,
manufacturing capacities, and brand name quality and price competitiveness. US, Germany,
Italy & Japan are the leading countries manufacturing valves with 50% of total world
production.
Tyco is the world's largest producer of valves and controls with 80 brands. The company has
pioneered new designs and technologies in this field.
The demand for valves is witnessing growth in almost all areas. All core sectors of industry,
namely power, oil and gas, water and infrastructure projects, metal and mining, chemicals,
drugs and pharmaceuticals, and food and beverages, require various types of valves for
expansion of capacities, de-bottlenecking or routine maintenance and repair of plants.
The valve industry will continue to grow at 7-8 per cent per annum. Exports may grow at
10-12 per cent per annum due to India becoming competitive compared to manufacturers in
Japan, Europe and USA. The global market for industrial valves is forecast to increase 4.4
percent annually through 2011 to $77.6 billion. Gains will be driven by generally healthy
global economic conditions, encouraging investment in key valve markets such as the US,
China and Germany. Growth will instead be much more profound in the rapidly developing
nations of the world such as China, India and Malaysia. Gains in valve demand will be
stimulated by positive economic and fixed investment growth in these areas, while an
expanding market for expensive automated valves and actuators will also aid the overall
valve markets in the US, Japan and Western Europe.
Indian valve industry
Good news is now knocking the doors of the Indian Valve Industry. After a brief slow down
in the activities for past few years, the Indian valve industry has now entered the growth
phase of the business life cycle. Indian valve industry is now on the threshold of a major
transformation.
JSS DVH-IMSR, Dharwad Page 1

Its globalization in the true sense for the Indian valve industry with MNCs rushing to India
to tap the growing valve market in India and to take advantage of the low cost labor, at the
same time make India their export hub for global market. As far as the Indian valve
manufacturers go, they are gearing themselves up to explore the overseas markets and at the
same time working hard to reach the top position in the domestic market. MNCs today are
approaching India as a major outsourcing destination for valve manufacturing the reason
being a large pool of technically qualified personnel, low manufacturing costs and a large
English speaking population.
India is already a manufacturing hub for many internationally renowned valve and pumps
manufacturers such as Crane, Audco, Flowserve, Durco, AK, KSB, Spirex Sarco and
Xomox.
The domestic valves industry has reached the required level of sophistication to enable it to
address export demand and India is competitively placed to cater to the international
demands. The market is large enough to offer opportunities to all manufacturers irrespective
of the size of their operations.
The Indian companies are looking at Middle East as a lucrative market as a number of
multibillion petrochemicals complexes are coming up in the region. The growth of valve
industry depends totally on the growth of other industries like infrastructure, refinery,
chemical industry, petroleum etc. All these sectors including power, oil & gas ,
pharmaceutical & petrochemicals is expected to grow at a rapid pace and Steel are further
going to boost the growth of valve industry
Indian valve market
The world's best brands are also produced locally in the country through fully owned
subsidiaries or joint ventures. India today produces world-class products and the country is
emerging as a large exporter of valves. Like other countries India too has small
manufacturers and almost all manufacturers have their own niche markets. The market is
large enough to offer opportunities to all manufacturers irrespective of the size of their
operations. The quality of Indian valves is, by and large, acceptable to domestic users
depending on the service and application. However, large organizations in key sectors have
strict buying criteria where the best brands are purchased after a complete techno-

commercial scrutiny of offers depending on the criticality of the application. In fact, India is
fast becoming a large exporter of valves now that free imports do not really pose a problem
for market growth.
The organized sector of the India valve industry is estimated to be Rs 900 crore, while the
unorganized sector contributes additionally over to Rs 500 crore. Close to 50% of the market
is shared by two companies (L&T and BHEL), while the rest have individual market shares
of 4% or less.
There are over 100 companies mostly in the unorganized or the small scale sector and the
industry as is evident is highly fragmented. The growth rate of this industry is estimated at
10 to 15%.
Hubli market
Hubli is one of the fastest developing industrial hubs in Karnataka after Bangalore, with
more than 1000 allied small and medium industries already established basically located in
Gokul Road & Tarihal regions of Hubli. There are machine tools industries, electrical, steel
furnitures, food products, rubber and leather industries and tanning industries. With the
establishment of K.E.C, Bhoruka textile Mill, Universal Group of Industries, Microfinish
Group, N.G.E.F, K.M.F, BDK Group of Industries and Murudeshwar Ceramics. It has
gathered momentum in industrial development.
To promote the overall economic development of varied industries, institutions and business
houses "Karnataka Chamber of Commerce & Industry" was formed, it's one of the premier
association, which has been gaining momentum in achieving potential growth and prosperity
in Hubli region .And one more key aspect of industrialization for Hubli-Dharwad was
foundation of Agricultural Produce Market Committee, which aimed at providing hassle free
market conditions for farmers, to establish regulated & stimulated production of various
agricultural related commodities & goods.
Background of the company

Microfinish group of companies

Microfinish was set up in the year 1971. The Microfinish is manufacturing industrial pumps
and valves. Microfinish is known for its quality product and as got certificate of ISO 9001.
Microfinish Valves Pvt. Ltd. manufactured Ball Valves, Bellows sealed globe valves, Globe
valves for chlorine service & Knife edged gate valves. In the 1980’s Microfinish started the
manufacture & sales of chemical process & slurry pumps.
Microfinish is group of seven companies. The companies are as follows:
1. Microfinish Valves Pvt. Ltd.

2. Microfinish Pumps Pvt. Ltd.
3. Flowserve-Microfinish Valves Pvt. Ltd.
4. Flowserve-Microfinish Pumps Pvt. Ltd.
5. Manjira Engineers Pvt. Ltd.
6. Prab Engineers Pvt. Ltd.
7. Specialty Engineers.
Flowserve Pvt. Ltd. USA
Flowserve Pvt. Ltd is a U.S.A company which was set up in early 1920. Flowserve Pvt. Ltd.
Produces engineered and process pumps, precision mechanical seals, automated and manual
quarter-turn valves, control valves and valve actuators, and provide a range of related flow
management services, primarily for the process industries. Flowserve Pvt. Ltd is having its
business more than 30 countries o name few are Canada, Belgium, Australia, India,
Argentina, Mexico, Germany, etc. Flowserve Pvt. Ltd. of USA.
In 1997 Flowserve Pvt. Ltd. of USA came to India by entering into a joint venture with a
Microfinish of Hubli. As Microfinish is known for its quality products worldwide, the
Flowserve Corporation made of a Technical collaboration with the Microfinish Valves.
Flowserve Pvt. Ltd. came to India and gave technical and management training to the
employees of the Microfinish in the year 1996. Flowserve Pvt. Ltd. inspected the spare parts
which that came out to be more than there expectation. Later Microfinish started of its
separate 100% exporting unit and came to be known as Flowserve Microfinish Pvt. Ltd.,
Hubli.

Flowserve Microfinish Valves Pvt. Ltd.
Flowserve Microfinish is one of the 100% EOU (Export Oriented Unit) in the city of Hubli.
From this year they have to pay the tax. The Flowserve Microfinish group of companies
consist of two units namely Flowserve Microfinish Valves Pvt. Ltd. (FMVPL) and
Flowserve Microfinish Pumps Pvt. Ltd. (FMPPL).
FLOWSERVE MICROFINISH VALVES Pvt. LIMITED is one of the pioneer firms in the
manufacture of Ball and Plug valves. It was established in November 1997 to cater to the needs
of Ball and Plug valves. The organization’s manufacturing facilities are housed in an
independent and well laid-out building with ample scope for future expansion, located at
Industrial Estate-Hubli, which is one of biggest and developing industrial center in the state of
Karnataka. The city is well connected by Road & Rail and situated between Pune & Bangalore
of National Highway No-4. The units have 15000sqfts and 10000sqfts of built up area to house
the facilities respectively and both divisions have an open space of 10000sqfts and 15000sqfts
respectively for further expansion. Around 70+ workers are working in a single shift.150+ cores
yearly turnover is done by these companies.
Flowserve Microfinish Valves Pvt. Ltd and Flowserve Microfinish pumps Pvt. Ltd., have a
documented quality system to meet the requirements to ensure that its orders are processed,
products and manufactured to meet the requirements of the customers. Flowserve
Microfinish Valves Pvt. Ltd. in addition meets requirements of PED 97/23/EC.
The Company is catering the major needs of industries in the field of petrochemicals,
refineries, fertilizers, fine-chemicals, pharmaceuticals, food & beverages and other general
chemical industries.
Now the Flowserve Microfinish Pvt. Ltd. exports to more than 15 countries to name a few:
➢ USA
➢ South Africa

➢ Australia
➢ U.K
➢ Taiwan
➢ Hong Kong
➢ Germany
➢ Belgium
➢ Korea
➢ Brazil
➢ Mexico
➢ Singapore

Company Profile
Table: 2.1
Name of the organization Flowserve Microfinish Valves Pvt. Ltd.
Type of organization Private limited company
Registered office CTS no 568/1, industrial area,
Hubli -30.
Promoters Flowserve Corporation, USA &
Microfinish valves ltd, Hubli
Year of establishment 1997
Product Manufacturing & exporting of industrial

valve
Accounting year 1st April to 31st march
No of directors 5
Factory area 3.5 Acres, Built Up area:15000 Sq
Production Capacity 5562 Valves &125564 Valves Components
Production Marketing Marketed By Flowserve Corporation USA

Quality Certification ISO 9001:2000, Got CE marking

certification
OSHAS 18000 [British Standard]
List of directors Mr. Tilak K. Vikamshi (Managing Director)
Mr. Deepak K. Vikamshi (Director)
Mr. William D. Brown (Director)
Mr. S. Gopinath (Director)
Mr. Mc Geehin Thomas (Director)
VISION
Vision is to manufacture quality valve products for the process industry worldwide. We
embrace the concept of total quality and people involvement to enhance “TOTAL
QUALITY SATISFACTION” and commit to maintain this standard of excellent through
continual improve and use of quality management systems.
MISSION
Mission is to manufacture quality valve products for the process industry worldwide. We
embrace the concept of total quality and people involvement to enhance “TOTAL
CUSTOMER SATISFACTION” and commit to maintain this standard of excellent
through continual improve and use of quality management systems.
QUALITY SYSTEM & POLICY

The organization has received the ISO 9001 certificate as per 2000 edition for being the
highest sold standards and gaining a brand quality with the family products. The
organization produces quality ball valves, plug valves.
“The organization mission is to be the world class leader in manufacturing quality valve
products for the process industry worldwide, they embrace the concept of the total quality
and people involvement to achieve ‘total customer satisfaction’ and commit to maintain this
standard of excellence through continues improvements.
QUALITY OBJECTIVES
➢ To maintain the total system
➢ To implement quality policy through people training and involvement at all levels in
organization.
➢ To achieve and excel in leadership for Quality in worldwide market for its product
range and set the standard for industry.
➢ To strive to reduce the cost without compromise on quality.
➢ Always maintain good relationship with its clients for continuous business without
any conflict between them.
➢ Organization chart

LOCAL
SHIFT
PRODUCTION
ADMINISTRATIO
PLANNING
MAINTAINANC
PERSONNEL
RECEIVING
INPROCESS
MANAGING
ASSISTANT
SALES
ASSEMBLY
PLANNING
BOARD
QUALITY
.SHIFT
STORE
II
FINAL
PURCHASER
INCHARGE
AND
OF
IANDAND
SHIPPING
ACCOUNTANT
PRODUCT
NAND
ASSURANCE
ASSEMBLY
PURCHASE
E AND
SUPERVISOR
IN-CHARGE
OFFICER
DIRECTOR
OFFICER OFFICER
IN-CHARGE
QUALITY
OFFICER II
IIN-
IN-
PURCHASE
ACCOUNTS
ENGINEER
CHARGE ASST.
IN-
CHARGE

Product profile
Introduction of Valves
A valve is a device that regulates the flow of a fluid (gases, liquids, fluidized solids, or
slurries) by opening, closing, or partially obstructing various passageways. Valves are
technically pipe fittings, but are usually discussed as a separate category.
Valves come in a wide variety of styles, sizes and pressure classes and in design, function
and application. Today’s continuum of availability of valves extends from simple water
faucets to control of the process.
Types of valves:
➢ Gate valves
➢ Plug valves

➢ Ball valves
➢ Butterfly valves
➢ Cryogenic ball valves
➢ Diaphragm valves
➢ Globe valves
➢ Piston valves
➢ Fire safe valves
Among these valves Flow Serve Microfinish Valves Private Limited., manufactures only
Ball Valves and Plug valves.
Table: 2.2
SL Maximum Material of
Products Size Range
No PR Rating construction
15-200 #300 CS/SS
1 Ball Valve
15-50 #800 CS/SS
15-300 #150 CS/SS
2 Plug Valve
15-300 #300 CS/SS
Ball valves:
Ball valves find application mainly as stop valves. As stop valves it has following attributes.
Figure 1: Ball valve 1
Figure 2: Ball valve 2

Plug Valves:
The plug valves are known for its durability and easy replacement of plug which is main
component for plug valves.
Figure 3: Plug valve 1
Figure 4: Plug valve 2
DEPARTMENTAL STUDY
ADMINISTRATIVE AND ACCOUNTS DEPARTMENT
Personnel
Administration
Account
officer
&
Assistant
Accounts

Administration Department
Objective: Is to recruit the personnel, providing suitable training to employees, welfare, time
office functions, stationary, obligations and other administrative functions. The personnel
officer is responsible for preparation of returns. He is responsible for housekeeping of office
and factory premises, maintaining personnel files and record, canteen administration.
Functions of Administration Department (H.R):
1. Training
2. Recruitment
3. Safety
4. House Keeping
1. Training
Objective: Is to provide adequate training to the personnel of all departments performing

activities affecting quality.
Responsibility: Administration and Accounts (A & A) In-charge through personnel officer is

overall responsible to ensure that the training needs of personnel of all the departments are

fulfilled, to identifying the appropriate trainer in consultation with the top management for
arranging the training.
In charge of respective departments are responsible to appraise and to forward the training
requirements of their department personnel to personnel officer. Training is given for
employees one’s or twice in a month depending on the need.
In training the following aspects are covered: Product Application, Basic Computer
Knowledge, Instrument Knowledge, Industrial Safety and First Aid, Statistical Quality
Control, ISO Awareness (9001:2000), Leadership Quality, Manpower Handling,
Commercial Acumen, Communication Skills, Identification and Traceability, Material
Handling
2. Recruitment
Personnel Officer is responsible for recruiting the right person for the right job. He takes
into consideration the knowledge, skill and work experience of the person.
3. Safety
Objective: To ensure safe and healthy environment for personnel.
Responsibility: Administration and Accounts in charge through personnel officer is

responsible for safety related activities.
Procedure: Safety c committee meeting is conducted every quarter. Safety related training
for staff and workers is conducted once in two months such as Fire Extinguisher, Chemical
Hazardous, Personal Hygiene etc and first-aid facility is also provided for workers.
4. House keeping
Objective: To ensure good, healthy, clean, neat and safe work environment.
Responsibility: While the activities are co-ordinate by the personnel officer, each and every
individual in the organization is responsible for the implementation.

Procedure: For effective implementation of the system, the entire premises of the company
are divided into sub-zones as Production and Assembly division, Quality Assurance
division, Administration and Accounts division etc. Each sub-zone is headed by a team
leader and supported by co-ordinates, supervisory staff and workers.
Accounts Department
Objectives: This department is playing a vital role by providing and maintaining the entire
details of each and every financial activities of the company. This department takes care of
both the accounts handling and functions of the personal and administration.
➢ To provide accurate and complete systematic information of financial activities.

➢ To maintain all the books of the accounts and other financial documents.
➢ To prepare periodic financial statements of the company like Profit and Loss
Account and Balance Sheet.

Books of Accounts maintained by the Accounts Department:

It maintains its complete accounts in the TALLY software package and takes print copies of
following registers every year:
➢ General Ledger Register

➢ Purchase Register
➢ Sundry Debtors Register
➢ Sales Register
➢ Sundry Creditors Register
➢ Debit and Credit Note Register
➢ Journal Register
➢ Bills Discounting and Collected Register
➢ Asset Register
➢ Cash Book with Bank column Register
➢ Stock Register
PLANNING AND PURCHASING DEPARTMENT
Store
Sales&
Planning
Local
Store
Planning&
Purchase
Shipping
Officer
Purchaser
Officer I
II
Department
Officer

Planning
Objective: The main activity of this department is to ensure that all processed or purchased
products and service meet the specified requirements. It also ensures smooth flow of
production activity by planning the purchase of raw materials, castings, forging, fasteners
and even capital goods.
Monthly Manufacturing plan: It is applicable to all work orders and relative activity of
department with respect to manufacturing plan. Planning is done for handling of resources
and to meet the delivery assurance.
Types of plan:
➢ Tentative plan: It is a plan for a particular which is drawn five weeks prior to a
month.
➢ Final plan: It is a plan which is issued one week earlier to the particular month. It can
be modified, if required on the basis of information from other departments.
Important highlights
➢ Planning & Purchase in charge is responsible for drawing tentative and final
“Monthly manufacturing plan” through planning assistant.
➢ Production & Assembly in charge is responsible for modifying to meet urgent
customer requirements.
➢ Plan is drawn to approximate 90% of capacity and 10% of capacity is reserved to
meet urgent amendments.
➢ Tentative plan is modified or amended if required on the basis o feedback
information from other departments.
➢ Final plan is issued one month earlier to the particular month.
➢ Final plan is amended, if required on the basis of feedback from Production &
Assembly department.
➢ Valves which are planned to be manufactured in a particular month but could not be
manufactured are re-planned in consultation with P&A Department.
➢ Cause of not meeting the plan is discussed with P&A Department.

Purchase Department
Objectives: To ensure that all the purchase/processed items and services to meet the
specified requirements.
Scope: Applicable to all raw materials but bought out items, sub contracted items, capital
goods, consumable and services to be produced.
Steps involved in purchasing are:
➢ Purchase activity starts from work order given by sales department.

➢ To prepare bill of materials
➢ To arrive at the total requirement of materials
➢ To check in stock at stores
➢ To select the approved vendor from the list of approved vendor and place the order
for required material.
➢ To prepare the GRIR and inform inspection department after receipt of material.
➢ To store the accepted material and return the rejected material to vendor and issue
the accepted material to production and assembly department.
Selection and evaluation of the vendor:

The potential vendor are selected based on experience, reputation, capability etc. and this is
done by the head of PPD. The capability of vendor is assessed based on the items supplied
and evaluation of the items is done on site by purchase officer and quality department
personnel. If the supplier is acceptable, the purchase officer is instructed to get the samples
for inspection. QA department carries out a sample piece inspection and the report is
submitted to PPD head for review. The purchase order should clearly specify the material
grade, type, class related to Indian /International standards etc.
As per the requirement, the QAD verifies the product at vendor’s premises and asks for
release of the products after successful verification. Based on the performance of vendor in
first supply it will be enlisted in “list of approved vendors”. Purchase officer maintains
record of all these vendors and also approved vendors.
Product identification and Traceability:

All raw materials and products received will be identified by any one or combination of the
following means:
• Color code
• Heat No.
• Reference No.
• Batch/Lot No.
• Tag
• Drawings
➢ Castings: On receipt of castings for material identification, the appropriate color

coded with applicable color codes, preferably in rectangular form around the heat
No. for components. Castings are alphanumerical manner for example “8YRH”- ‘8’
indicates the year of manufacturing, ‘Y’ month (November), ‘R’ date and ‘H’ shift
head. Identification of the vendor to whom the castings belongs will be traced by
reference number or heat number.
➢ Bars: The bar Consisting of four parts first part is of material symbol and diameter
of bar, second part alpha numeric No. which refers year of purchase refers to
particular size, third part consists the number of bars received in the corresponding
lot and Fourth part consists of the cut length in the corresponding bar. The Store
personnel identify the bars as per company engineering standard and color code will
be applied on both ends of the bars. Also bar is affixed with a reference number at its
ends.
➢ Fasteners: Fasteners other than B7 and 2H will be coded with applicable
color/punched for material identification. Batches of fasteners are identified for the
size and material by providing tag suitably. Identification of the vendor from whom
he supply is received will be traced by batch No. given by concerned receiving
quality personnel and batch No. are recorded in the “History register for fasteners”.
➢ Other items: Teflon, Grafoil, spiral etc., are identified by their OD, ID, Thickness,
or diameter in Goods Received, Inspection Non-Conformity Review and Disposition
Report Number. Trace ability of components are also maintained with identification
throughout the process from receipt and during all stage of production and assembly.

Stores: It is very important section of the organization. It provides general guidelines for
monitoring stock levels from material receipt stage through finished components/finished
valves. Store officers are responsible for proper accounting, handling and storage of raw
material/ components and products. Store officers of respective stores are responsible for
planning the storage space in stores section and assigning the material to identified location
and maintain records of receipt and issue of material. The stores are identified as under:
• Store 1- Sand castings, Investment castings, Levers, Stems, End caps, Adapters etc.
• Store 2- Fasteners, Teflon, Gland, Seat springs, spring disc, Accessories etc.
PRODUCTION AND ASSEMBLY DEPARTMENT

Production &
Assembly
Shift I Maintenance Assembly Shift II
Machine Maintenance Fitters Machine

Operation Assistance Operation
Helpers Helpers
Production Department
The production department ensures that production process is identified planned and carried
out under controlled conditions in accordance with monthly manufacturing plan.

Objective: The objective of the production department is to improve the productivity, to

reduce the cost of production without any compromise on quality and to manufacture ‘non-
defective quality products’ training the people.
The production Process is carried out in the following 3 steps:

➢ Design development review
➢ Process control
➢ Production planning and process
Design development review: The assistance in development activity by FMVPL commence

after receipt of component drawings. The control and issue of drawings is done as per work
instructions. Patterns/dies whenever required are developed by FMVPL through suppliers.
PAD develops process, tooling, jigs, and fixtures and manufactures components, sub
assemblies and assemblies as detailed in PAD work instruction. Castings/machined
component are sent for their review/approval. Components after final review are released for
bulk production. The PAD head, through the shift in-charge will review the general
assembly drawing and/or components of new design or modifications.
Process control: The production department ensures that the manufacturing process is
carried out in accordance with monthly manufacturing plan, which is as per procedure for
production planning. The production department head plans the production operations. The
department head will ensure the suitable maintenance of equipment for process capability.
Equipments are verified as capable of producing in accordance with product specification.
The product and process characteristics are monitored in consultation with quality assurance
department and non-conformity components are duly identified and disposed off. Any
special/extra services to the product are complied with as against the customer’s demand.
Shift in-charge responsibility is to ensure that tools and instruments are kept in appropriate
places and record of issue and receipt is maintained and submit instrument is due for
calibration. He is also responsible to place indents to the planning and purchase department
upon exhaustion of material.
Different Operations of PAD are Turning, Milling, Drilling and Tapping, Grinding and
Buffing & polishing.

Production planning and process: After receiving the work order the production and
assembly in-charge will instruct the production personnel to check whether required material
available or not. If material is not available the report will made to planning and purchase
department. Return note will be provided if excess material issued by store department.
Material issue slip has to provide by the production personnel while collecting the material
to processing from stores. Non-conformity Review and disposition report has to be made
when components are finished and returned to store through finished components
inspection. Material requisition note has to be prepared for collecting the components for
assembly.
The shift in-charge will collect the drawing from the draftsman for the processing. The
production and assembly in-charge prepares the daily production schedule through which he
schedules the production and machine loading the shift in charge will load the machines and
provide instruction to the machine operators by means of job cards along with relevant
drawing.
The production and assembly in-charge will allocate material for sub contracting for
machining through the store officer. The production and assembly in-charge schedules the
assembly and prepares the daily assembly schedule and ensures that the same is carried out
through the shift in-charges who prepare the assembly job card and give instructions to the
operators/ fitters.
After assembly the products are handed over to the final inspection and testing section along
with valve assembly and testing status format and assembly job card. After clearance from
quality assurance department the shift in-charge will send the assembled products to
dispatch section and finish valve completion note is given to the stores.
Assembly Department
Assembly preparation: P&A personnel collect duly machined and accepted components as
per work order and assembly job card. Debar all sharp corners if any. Clean all components
using de-greasing solution and water by brushes or other appropriate method. Dry the
components by blowing the air.

Assembly method: Here the products are assembled with light coat, screw stud bolts into the
tapped holes in the body, apply light coat of silicon lubricant on the chamfered surface of the
stem washer and Slide the stem washer on to the stem with the chamfered ID side. Apply
light coat of silicon lubricant on packing rings of ID. Be careful not to scratch the ID of the
packing rings on the threaded section of the stem. Apply light coat of silicon lubricant on
one side of the gland surface place the packing gland, ground spring washer and check nut
and gland nut on the stem and then tighten the check nut according to stem nut torque chart.
Post assembly: If fire safe valve, write F/S on valves. Write work order No. on the valve.
Provide end caps on both sides and hand over valves for testing to the QAD.
Corrective action: Corrective actions are taken to eliminate the cause of actual non-
conformities in order to prevent re-occurrence. All the non-conformities at receiving, In-
process and final stage are recorded in “Non-conformity Review Report”. Corrective action
is initiated by the functional in-charge based on criticality of problem, repetitiveness of non-
conformities, and impact of non-conformity on final product. For taking corrective action
respective section head takes the nonconformance details and identify the root causes of
non-conformity by analyzing the data, by using techniques & tools of quality, brain storming
as appropriate. Based upon the root cause analysis necessary corrective action is planned
correctively and preventive action report is prepared. The verification of the effectiveness of
the corrective action taken will be done by department in-charges over a period. If corrective
action found effective then non-conformity is closed.

QUALITY ASSURANCE DEPARTMENT
Quality
Assurance In
charge
Receiving In-process Final Product

Quality Quality
Workers
Component Testing
Objective: The main objective of this department is to ensure that quality is maintained
throughout the production process till the product is dispatched. This department is to ensure
that the documented procedure is prepared to meet the requirements of ISO 9001 and the
quality policy. It is responsibility of quality assurance department head to ensure that the
requirements of ISO 9001 as concerned to the quality assurance department are met.
This is the department where the pre-quality checking & Final quality checking is done.
Earlier days this department was known as the Inspection department where they used to
just inspect the production without bothering about the customer’s satisfaction. After some
years this department is named as the Quality Control department where more important was
given to the customer’s satisfaction & now days this department is known as the Quality
Assurance where the manufacturers assure about their products.

The quality assurance department is the one where the job is checked after each & every
step & in quality checking the only finished jobs are checked. Quality Assurance procedures
comply with the highest industry standards. We can supply products with Chemical-
Mechanical Test Reports (CMTR's), Non Destructive Testing (NDT: Mag Particle, X-ray,
Dye Penetrant tests), NACE certification, CE markings, SAA/Atex approval and AGA
approved product & assemblies.
Department sections:
1. Receiving Items Quality Inspection: The raw material received by PPD with challen
which consists of serial number, date, quantity, weight, identification etc. All
materials are coming from outside such as castings, bars, and bought items-nuts,
bolts and subcontractor items are inspected as per the drawings or according to the
applicable work instructions, purchase order, work order, standard codes and
company engineering standards. Receiving Quality Engineer is responsible to ensure
that the quality of incoming components/ raw materials/products in accordance with
the established methods and the quality of all accepted items are confirming to the
specified requirements. The various methods of inspecting the components are
visual, dimensional and special tests. There are three main inspections:
• Receiving raw material quality inspection (Castings)
• Quality inspection of sub contracted items
• Quality inspection of bought out items
1. In process quality inspection: Components taken for further process are also
inspected. Machines that are used in the manufacturing process are also inspected
periodically. Here the products are inspected visually & dimensionally if ok then it is
sent to final inspection. In process Quality Engineer is responsible to ensure that the
in process components /raw material/products are in accordance with the established
methods and quality of all accepted items are confirming to the specified
requirements.

2. Final product quality inspection: This inspection is mainly to check if any of the
lapses that may have occurred in the above stages. Final Product Engineer is
responsible to ensure that the products are in accordance with the established
methods and the quality of all the accepted items is confirming to the specified
requirements.
3. Calibration: All inspections, measuring and testing equipments including machines

are subjected to calibration in order to ensure positive control of inspection,
measuring and test equipments to demonstrate the conformances of products to
specified requirements. There is master list that includes all inspection, measuring
and test equipments.
The following are the some tests done on the raw material & the finished products:
➢ Visual inspection: Here the Brand name, size & class, Material code, drawing
number, cracks, defects, identification and testability is being checked just by
looking at the raw material.
For Ex. 8YRH
Where
8-Year code, R-Date of working, Y-Month, H-Shift Head.
➢ Dimensional checking: Dimensions are measured here using gauges & instruments.
➢ Functional checking:
• Visual & Dimensional Inspection
• Dye Penetrate examination
• Magnetic Particles examination
• Radiography examinations and reports (X-ray)
• Hardness testing
• Hydro leak shell & Seat testing
• Pneumatic test & Torque testing
• high pressure nitrogen / Helium test

• Fire safe testing

• Cryogenic testing
• High temperature Steam testing
• Cyclic testing
• Fugitive Emission testing
• High Pressure testing
Status identification report has following color codes

➢ Green: Conforming
➢ Yellow: Rework
➢ Black: Accepted on deviation
➢ Red: Rejected
➢ Blue: Hold
FINANCIAL ANALYSIS

Financial analysis is the selection, evaluation and interpretation of financial data, along with
other pertinent information, to assist in investment and financial decision- making. Financial
analysis may be used internally to evaluate issues such as employee performance, the
efficiency of operations, and credit policies, and externally to evaluate potential investments
and the credit-worthiness of borrowers, among other things.
The analyst draws the financial data needed in financial analysis from many sources. The
primary source is the data provided by the firm itself in its annual report and required
disclosures. The annual report comprises the income statements, the balance sheet, and the
statement of cash flows. Certain businesses are required by securities law to disclose
additional information.
The financial statements provide a summarized view of the financial position and operations
of the firm. Therefore much can be learnt about a firm from a careful examination of its
financial statements as performance reports. The analysis of the financial statement is thus
an important aid to financial analysis. Financial analysis is the important point for making
plans, before using any sophisticated forecasting and planning procedures. Understanding
the past is a prerequisite for anticipating the future.
Financial analysis is the process of identifying the financial strengths and weaknesses of the
firm by properly establishing relationships between the items of the balance sheet and the
profit and loss account. Financial analysis can be under taken by management of the firm, or
by parties outside the firm, viz. owners, creditors, investors and others. The nature of
analysis will differ depending on the purpose of the analyst.
FINANCIAL STATEMENTS
The Financial statements are the end product of the financial accounting process. The
financial statements are nothing but the financial information presented in concise and

capsule form, and the financial information is the information relating to the financial
position of any firm. Therefore the financial statements are the depiction of the financial
position of firm.
The basic source which provides the financial information is the annual report of the
company, which is presented by the company to its shareholders at the annual general
meeting.
This annual report contains the chairman’s report, the balance sheet, the income Statement,
the auditor’s report together with number of schedules, annexure etc. The presentation of
annual report is a statutory requirement under the companies Act of 1956.
STEPS IN FINANCIAL ANALYSIS
1. Select the information relevant to the decision under consideration from total
information contained in the financial statement.
2. Arrange the information is a way to highlight significant relationship.
3. Interpretation and drawing of inferences and conclusions.
TECHNIQUES/TOOLS OF THE FINANCIAL ANALYSIS
The methodology adopted for the AFS may be varying from one situation to another.
However, the following are some of the common techniques of the AFS:
➢ Comparative financial statements
➢ Common-size financial statements
➢ Trend percentage analysis
The ratio analysis is the most common, comprehensive and powerful tool of the AFS.
IMPORTANCE OF RATIO ANALYSIS
As a tool of financial management ratio are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis and enables the drawing

inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:
➢ Liquidity position
➢ Long term solvency
➢ Operating efficiency
➢ Overall profitability
➢ Inter firm comparison
➢ Trend analysis.
Yet another factor which influences the usefulness of ratios is that there is difference of
opinion regarding the various concepts used to compute the ratios. There is always room for
diversity of opinion as to what constitutes shareholders equity, debt, assets, and profit and so
on. Different firms may use these terms in different senses or the same firm may use them to
mean different things at different times.
Reliance on a single ratio, for a particular purpose may not be a conclusive indicator. For
instance, the current ratio alone is not an adequate measure of short term financial strength;
it should be supplemented by the acid test ratio, debtors turnover ratio and inventory
turnover ratio to have real insight into the liquidity aspect.
In brief, ratio analysis suffers from some serious limitations. The analyst should not be
carried away by its oversimplified nature, easy computation with a high degree of precision.
The reliability and significance attached to ratios will largely depend upon the quality of
data on which they are based. They are as good as the data itself. Nevertheless, they are an
important tool of financial analysis.
Title of the project
“Evaluation of financial performance appraisal”
Name of the organization

‘Flowserve Microfinish Valves Pvt. Ltd.’
Statement of problem
Evaluation of financial performance is an integral part of overall corporate management. It

is one of the significant tools for performance evaluation. It is effective only through ratio
analysis. As ratios provide a benchmark for companies against their own performance in
industry. This study of financial performance appraisal helps to know the financial position
of the company, its future growth and ensures its existence. Thus ratios provide all timely
and relevant information for inter-firm and intra-firm comparisons.
In this project I have selected only intra-firm comparison.
Objectives of the study
➢ To get practical exposure of the company and its environment.

➢ To study organization in brief.
➢ To study departments of the organization.
➢ To ascertain financial performance of the company using ratio analysis.
Scope of the study
The study is conducted to ascertain
➢ Organization structure and its departments within a limited period of time.

➢ The financial performance of the company using last five years financial statements.
The years are 2005, 2006, 2007, 2008 and 2009.
Methodology
This project is an analytical research where in the researcher has to use the available facts as
information and analyze these to make a critical evaluation of materials.
Types of data:

➢ Primary data: This data is required mainly for organization study and departmental
study.
➢ Secondary data: This data is required for both organization study (History of the
company) and for calculation of various ratios to find financial performance.
Sources of data:
➢ Primary data: This data can be collected through personal interaction with external
guide and managers of respective departments. The personal interaction includes the
lecture of particular department followed by question-answer session.
➢ Secondary data: This data is collected from annual reports of last five years and old
project reports done in the past by other student in company.
Tools/Techniques and materials used for the study:
➢ Accounting Ratios.
➢ Annual Reports ( Financial statements)
➢ Old project reports
Limitations of the study
➢ The study was restricted only to the analysis of financial performance of last five
years, at FMVPT.
➢ The major study based on secondary data only on the annual report of the Company.
➢ It doesn’t cover an entire spectrum of financial management.
➢ As project is prepared for academic purpose only it suffers from the limitations of
the time.
➢ The employees couldn’t spare sufficient time due to busy schedule
Ratio Analysis
Introduction
Ratio analysis is a powerful tool of financial analysis. Financial analysis is the process of
identifying the financial strengths and weaknesses of the firm by properly establishing
relationships between the items of balance sheets and the profit and loss account.

Accounting ratios are relationships in mathematical terms between figures which are
connected with each other in some manner. In financial analysis ratio is used as a
benchmark for evaluating the financial position and performance of a firm. The absolute
accounting figures reported in financial statements do not provide a meaningful
understanding of performance and financial position of the firm. An accounting figure
conveys meaning when it is related to some other relevant information. The relationship
between two accounting figures, expressed mathematically, is known as a financial ratio.
Ratios help to summarize large quantities of financial data and to make qualitative judgment
about the firm’s financial performance.
Definition
Ratio analysis is defined as, “The systematic use of ratio to interpret the financial statement
so that the strength and weakness of the firm as well as its historical performance and
current financial condition can be determined. In the financial statements we can find many
items are co-related with each other For example current assets and current liabilities, capital
and long term debt, gross profit and net profit, purchase and sales etc.
Users of Financial Analysis

➢ Trade creditors
➢ Suppliers of long-term debt
➢ Investors
➢ Management
Standards of comparison
➢ PAST RATIOS: ratios are calculated from past financial statements of some of
company.
➢ COMPETITORS RATIOS: ratios of some selected companies especially most
successful and progressive competitors.
➢ INDUSTRY RATIOS: ratios of the industry to which the firm / Company belongs.

➢ PROJECTED RATIOS: ratios developed using the projected financial statements of

the same Company.
Limitations of ratio analysis
Ratio analysis is a widely used tool of financial analysis. Yet it suffers from various
limitations. The operational implication of this is that while using ratios the conclusions
should not be taken on their face value. Some of the limitations which characterize ratio
analysis are:
➢ Difficulty in comparison: One serious limitation of ratio analysis arises out of the
difficulty associated with their comparisons are vitiated by different procedures
adopted by various firms. The differences may relate to:
• Differences in the basis of inventory valuation (e.g. last in first out, first in
first out, average cost and cost).
• Different depreciation methods (i.e. straight line vs. written down basis).
• Estimated working life of assets, particularly of plant and equipment.
• Amortization of intangible assets like good will, patents and so on.
• Amortization of deferred revenue expenditure such as preliminary
expenditure and discount on issue of shares.
• Capitalization of lease.
➢ Impact of inflation: The second major limitation of the ratio analysis as a tool of
financial analysis is associated with price level changes. This, in fact, is a weakness
of the traditional financial statements which are based on historical costs. An
implication of this feature of the financial statements as regards ratio analysis is that
assets acquired at different periods are, in effect, shown at different prices in the
balance sheet, as they are not adjusted for changes in the price level. As a result, ratio
analysis will not yield strictly comparable and, therefore, dependable results. To
illustrate, there are two firms which have identical rates of returns on investments,
say 15%. But one of these had acquired its fixed assets when prices were relatively
low, while the other one had purchased them when prices were high. As a result, the
book value of the fixed assets of the former type of firm would be lower, while that
of the latter higher.

➢ Conceptual Diversity: Yet another factor which influences the usefulness of ratios
is that there is difference of opinion regarding the various concepts used to compute
the ratios. There is always room for diversity of opinion as to what constitutes
shareholders equity, debt, assets, and profit and so on. Different firms may use these
terms in different senses or the same firm may use them to mean different things at
different times. Reliance on a single ratio, for a particular purpose may not be a
conclusive indicator. For instance, the current ratio alone is not an adequate measure
of short term financial strength; it should be supplemented by the acid test ratio,
debtors turnover ratio and inventory turnover ratio to have real insight into the
liquidity aspect.
Classification of ratios
Several ratios calculated from the accounting data can be grouped into various classes
according to financial activity or function to be evaluated. The parties interested in financial
analysis are short and long term creditors, owners and management. In view of the various
uses of ratio can be classified in to following into categories namely:
a. Liquidity Ratios
b. Leverage Ratios
c. Activity Ratios
d. Profitability Ratios
a. LIQUIDITY RATIOS:
Liquidity refers to the ability of firms to meet its obligations in the short run, usually one
year. Liquidity ratios measure the ability of the firm to meet its current obligation. Liquidity
ratios, by establishing a relationship between cash and other current asset to current
obligations, provide a quick measure of liquidity. A firm should ensure that it does not suffer
from lack of liquidity, and also that it does not have excess liquidity, it is necessary to strike
a proper balance between high liquidity and lack of liquidity. Following are liquidity ratios,
which are explained in detail.

1. Current ratio
The current ratio is a measure of the firm’s short-term solvency. It indicates the availability
of current asset in rupees for every rupee of current liability. A ratio greater than one means
that, the firm has more current assets than current claims against them. As a conventional
rule, a current ratio of 2:1 is considered satisfactory. The current ratio represents a margin of
safety for creditors. The current ratio is a test of quantity, not quality i.e. it does not measure
quality of current assets. Liabilities are not subject to any fall in value, they have to be paid
but current assets can decline in value.
Current ratio is calculated by dividing current assets by current liabilities:
Current
Current
Currentliabilities
assets
Ratio=

Table: 4.1 Rs in lakhs
particulars 2004-05 2005-06 2006-07 2007-08 2008-09

current assets 1457.6 1465.31 1552.9 2209.66 2333.34
current
482.2 396.2 234.02 750.97 387.99
liabilities
current ratio 3.02 3.69 6.64 2.94 6.01
Graph: 4.1
Interpretation:
From the above graph it is evident that current ratio of the firm is more than the standard or
acceptable norms i.e. 2:1. Above graph shows that current ratio of the firm has been
increased compared to previous year (2007-2008) which implies that there is increase in the
current assets of the firm as compared to current liabilities.
2. Quick Ratio
The ratio is referred as quick ratio because it is a measurement of firm’s ability to convert
current assets quickly into cash in order to meet its current liabilities. It is also called acid-
test ratio. Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon
without a loss of value. Current assets included in this are cash and bank balances, short

term marketable securities, debtors / receivables, thus current assets which are excluded in
this are prepaid expenses and inventory. Quick ratio of 1:1 is considered as satisfactory as
firm can easily meet all current claims. Ratio is calculated as follows:
Quick
Current
Current
Ratio= assets -
liabilities
Inventories

Current Inventori Quick Current Quick

Year
assets es assets liabilities ratio
2004-
1457.6 558.58 899.02 482.2 1.86
05
2005-
1465.3 602.7 862.6 396.2 2.18
06
2006-
1552.9 688.36 864.54 234.02 3.69
07
2007-
2209.66 749.84 1459.82 750.97 1.94
08
2008-
2333.34 735.47 1597.87 387.99 4.12
09
Graph: 4.2
Interpretation:
It is evident from the graph which shows that quick ratio has been increased compared to the
previous year (2007-2008) and also with the base year (2004-2005), which indicates that
liquidity position of the firm is more than standard or acceptable norm i.e. 1:1, which in turn
indicates that liquidity position of the firm is good.

3. Cash Ratio
Since cash is the most liquid asset, it is useful to examine the cash ratio as it indicates
liquidity position of company and firms commitment to meet its short -term liabilities. Trade
investments or marketable securities are equivalent of cash and hence can be included in
cash ratio. The ratio is calculated as follows:
Cash
Current
Cash
Ratio=
liabilities
+ Short-term
Investments

Cash and Short-term Total Current Cash
Years
Bank Invs. cash liabilities ratio
2004-05 211.18 0.11 211.29 482.2 0.44
2005-06 372.48 0.21 372.69 396.2 0.94
2006-07 207.3 0.21 207.51 234.02 0.89
2007-08 470.74 0.2 470.94 750.97 0.63
2008-09 749.83 0.2 750.03 387.99 1.93
Graph: 4.3
Interpretation:
It is evident from the graph which shows that cash/absolute liquid ratio has been increased
as compared to the previous year (2008-2009) and also to the base year (2004-2005) which
indicates that cash ratio of the firm is sufficient or more than the required on standard norm
i.e. 0.5:1 which in turn indicates that the firm has sufficient amount of liquid assets to meet
the short term liabilities.
4. Interval Measure
Interval
Avg.
Current
measure=
dailyassets
operating
-
Inventories
expenses
Interval measure relates liquid assets to average daily operating cash outflows. The daily
operating expenses will be equal to cost of goods sold plus selling, administrative and

general expenses less depreciation (other non-cash expenditure) divided by number of days
in the year (360).
Interval
Quick Operating Deprecia Avg. daily Op.
Years measure
assets exps. tion exps.
(days)
2004-
899.02 207.47 48.23 0.44233333 2032
05
2005-
862.6 177.69 43.7 0.37219444 2318
06
2006-
864.54 218.62 43.93 0.48525 1782
07
2007-
1459.82 313.54 43.47 0.75019444 1946
08
2008-
1597.87 299.2 36.86 0.72872222 2193
09
Graph: 4.4
Interpretation:
It is evident from the graph which shows that interval measure (Days) has been increased as
compared to the previous year (2007-2008) and also to the base year (2004-2005) which
shows that a firm has sufficient liquid assets to meet the operations for the days indicated by
the interval measure, which implies that the firm has enough liquidity to meet the operating
expenses.
5. Net working capital Ratio
The difference between current assets and current liabilities excluding short-term bank
borrowing is called Net working capital (NWC) or net current assets (NCA). NWC is used
as a measure of a firm’s liquidity. Between the firms, the one having larger NWC has the
greater ability to meet its current obligations. NWC measures the firm’s reservoir of funds.
It can be related to net assets. NWC ratio is calculated as follows:
NWC
Net working
Net
Ratio=
assets
capital

Current Current Net NWC

Years NWC
assets liabilities assets ratio
2004-05 1457.6 482.2 975.4 1188.67 0.82
2005-06 1465.3 396.2 1069.1 1266.67 0.84
2006-07 1552.9 234.02 1318.88 1489.81 0.89
2007-08 2209.66 750.97 1458.69 1647.44 0.89
2008-09 2333.34 387.99 1945.35 2127.05 0.91
Graph: 4.5
Interpretation:
It is evident from the graph which shows that NWC ratio has been increasing YoY,
compared to the previous year (2007-2008) and the base year (2004-2005) which indicates
the firm has enough liquidity to meet the immediate obligation of the firm. Higher the NWC
ratio better for the firm to meet the current obligation.
a. LEVERAGE RATIOS
The short-term creditors, like bakers and suppliers of raw material, are more concerned with
the firm’s current debt paying ability. On the hand, long –term creditors, like debenture
holders, financial institutions etc. are more concerned with the firm’s long-term financial
strength. In fact, a firm should have a strong short as well as long-term financial position. To
judge the long-term financial position of the firm, financial leverage ratios are calculated.
These ratios indicate mix of funds provided by owners and lenders. As a general rule, there
should be an appropriate mix of debt and owners’ equity in financing the firm’s assets.
The long term lenders / creditors would judge the soundness of a firm on the basis of the
long term financial strength measured in terms of its ability to pay the interest regularly as
well as repay the installment of the principal on due dates or in one lump sum at the time of
maturity. The leverage ratio may be defined as financial ratio which throw light on long
term solvency of a firm as reflected in its ability to assure the long term lenders with regard

to periodic payment of interest during the period of loan and repayment of principal on
maturity or in pre determined installment at due dates.
Leverage ratio may be calculated from the balance sheet items to determine the proportion
of debt in total financing. Leverage ratios are also computed from the profit and loss items
by determining the extent to which operating profits are sufficient to cover the fixed charges.
Note:
At FMVPL (Flowserve Microfinish Valves Pvt. Ltd.), the debt financing or debt part is
absent in capital structure. Therefore, assets are financed from net worth only. Hence it is
not possible to calculate all the leverage ratios except one ratio i.e. capital employed to net
worth ratio.
Capital employed to net worth ratio

CE-to-NW
Net
Netassets
worth
Ratio=
This is an alternative way of expressing the basic relationship between debt and equity. One
may want to know: How much funds are being contributed together by lenders and owners
for each rupee of owners’ contribution. This is calculated as follows:
Net assets= Net fixed assets + Net current assets

Net Share Capital employed to
Years R&S Net worth
assets capital NW ratio
2004-
1188.07 349 839.32 1188.32 0.99
05
2005-
1266.14 349 913.74 1262.74 1.00
06
2006- 1489.44 349 1139.3 1488.35 1.00

07 5
2007- 1298.0
1610.98 349 1647.09 0.97
08 9
2008-
2095.93 349 1777.7 2126.7 0.98
09
Graph: 4.6
Interpretation:
It is evident from the graph which shows that capital employed to net worth ratio has been
decreased compared to previous year (2007-2008).
b. ACTIVITY RATIOS
Activity ratios are employed to evaluate the efficiency with which the firm manages and
utilizes its assets. The better the management of assets, the larger the amount of sales. An
activity ratio may, therefore, be defined as a test of the relationship between sales and
various asset of a firm. These ratios are also called turnover ratios because they indicate the
speed at which assets are being converted or turned over into sales and also called efficiency
ratios or asset utilization ratios because the efficiency with which the Assets are used would
be respected in the speed and rapidity with which asset are converted into sales. A proper
balance between sales and assets generally reflects that assets are managed well. Several
activity ratios can be calculated to judge the effectiveness of asset utilization.
1. Inventory turnover
➢ Inventory turnover: This ratio indicates the number of times inventory is replaced
the year. It measures the relationship between the cost of goods sold and the
inventory level. Inventory turnover indicates the efficiency of the firm in producing
and selling its product. It is calculated by dividing the cost of goods sold by the
average inventory.

Inventory
Cost
Avg.
ofinventory
goods
turnover=
sold
Average Inventory is calculated as follows:
Average Inventory = (Opening stock + Closing stock)/2
In my project, am using the Net sales instead of cost of goods sold.
Op. Cl. Avg. Inventory

Years Net sales
stock Stock Inventory turnover
2004-05 2007.23 NA 558.58 279.29 7.19
2005-06 1623.38 558.58 602.71 580.645 2.79
2006-07 2127.91 602.71 688.36 645.535 3.29
2007-08 2685.92 688.36 749.84 719.1 3.74
2008-09 3057.02 749.84 735.48 742.66 4.12
Graph: 4.7
Interpretation:
It is evident from the graph which shows that inventory turnover ratio has been increased
compared to previous year (2007-2008). However, it is much less than standard ratio of 8
times. It indicates high cost of holding and maintaining inventories.

Raw Avg.
material
Material
raw material
inventory
turnover=
consumed
inventory
➢ Raw material inventory turnover: It is important to examine the efficiency with

which the firm converts raw materials into work-in-process and work-in-process into
finished goods. That is, it shows the level of raw materials inventory held by the firm
on an average. The raw material inventory should be related to materials consumed.
Op. Cl. RM
Purchases Materials Avg. RM
Years stock(R Stock inventory
(RM) consumed inventory
M) (RM) turnover
2004-
0 1217.47 450.74 766.73 225.37 3.40
05
2005-
450.74 959.89 372.38 1038.25 411.56 2.52
06
2006-
372.38 1249.7 420.9 1201.18 396.64 3.03
07
2007-
420.9 1786.61 525.98 1681.53 473.44 3.55
08
2008-
525.98 1640.31 489.88 1676.41 507.93 3.30
09
Graph: 4.8
Interpretation:
It is evident from the graph which shows that RM inventory turnover ratio has been
decreased compared to previous year (2007-2008) and also to the base year (2004-2005)
which indicates that RM are not immediately converted into the finished goods, which
implies that the firm is not efficient to handle the inventory.

1. Debtors Turnover
A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of
companies. When the firm extends credits to its customers, debtors are created in the firm’s
accounts. Debtors are convertible into cash over a short period and therefore, are included in
current assets. The liquidity position of the firm depends on the quality of debtors to a great
extent. Financial analysts apply following ratios to judge the quality of debtors:
➢ Debtors turnover: It indicates the number of times debtors turnover each year.
Generally, the higher the value of debtors turnover, the more efficient the
management of credit.
To outside analyst, the information about credit sales and opening and closing
balances of debtors may not be available. Therefore, debtors turnover can be
calculated as follows:
Debtors
Net
Avg.credit
Debtors
turnover=
sales

Years Net sales Debtors Drs. Turnover

2004-05 2007.23 664.98 3.02
2005-06 1623.38 464.11 3.49
2006-07 2127.91 628.89 3.38
2007-08 2685.92 910.05 2.95
2008-09 3057.02 819.35 3.73
Graph: 4.9
Interpretation:
It is evident from the graph which shows that the debtor turnover ratio has substantially
increased compared to previous year (2007-2008) which indicates efficient credit
management of the firm where more number of debtors is converted into cash which
improve the current assets of the firm.
ACP=
Debtors
360 turnover
➢ Collection period: The average number of days for which debtors remains
outstanding is called the average collection period (ACP) and can be computed as
follows:
Avg. collection period

Years Drs. Turnover
(Days)
2004-05 3.01848176 119
2005-06 3.49783457 103

2006-07 3.3835965 106

2007-08 2.95139827 122
2008-09 3.7310307 96
Graph: 4.10
Interpretation:
From the graph it shows that average collection period of the firm has been decreased
compared to previous year (2007-2008) and also to the base year (2004-2005) which implies
that time taken for converting receivables into cash has been reduced which shows efficient
credit management of the firm.
1. Assets Turnover Ratios
Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to
maximize sales. The relationship between sales and assets is called assets turnover. Several
assets turnover ratios can be calculated:
➢ Net assets turnover: The net assets turnover should be interpreted cautiously. The
net assets in the denominator of the ratio include fixed assets net of depreciation.
Thus old assets with lower book (depreciation) values may create a misleading
impression of high turnover without any improvements in sales. Since net assets
equal capital employed, hence this ratio is called as capital employed turnover.
Net
Net
Netassets
sales
assets
turnover=

Net assets= Net fixed assets + Net current assets.
Years Net sales Net assets Net assets turnover

2004-05 2007.23 1188.67 1.69
2005-06 1623.38 1266.67 1.28
2006-07 2127.91 1489.81 1.43
2007-08 2685.92 1647.44 1.63
2008-09 3057.02 2127.05 1.44
Graph: 4.11
Interpretation:
From the above graph it is evident that net assets turnover ratio has been decreased
compared to previous year (2007-2008) and also in base year (2004-2005) which indicates
net assets are not properly being utilized to improve the sales of the firm. It shows
management is not efficient to maximize its sales.

Total
Net
Total
assets
sales
assets
turnover=
➢ Total assets turnover: This ratio shows the firm’s ability in generating sales from
all financial resources committed to total assets.
Total assets= Net fixed assets + Current assets.
Years Net sales Total assets Total assets turnover

2004-05 2007.23 1447.96 1.39
2005-06 1623.38 1569.65 1.03
2006-07 2127.91 1828.5 1.16
2007-08 2685.92 2014.69 1.33
2008-09 3057.02 2525.57 1.21
Graph: 4.12
Interpretation:
It is evident from the graph shows that total assets turnover ratio has been decreased as
compared to previous year (2007-2008) and also to the base year (2004-2005) which
indicates that management is not so effectively utilized total assets of the firm.
➢ Fixed and current assets turnover: The firm may wish to know its efficiency of
utilizing fixed assets and current assets separately.
Fixed
NetNet
fixed
assets
sales
assets
turnover=

Years Net sales Net fixed assets Fixed assets turnover

2004-05 2007.23 212.66 9.44
2005-06 1623.38 197.03 8.24
2006-07 2127.91 170.55 12.48
2007-08 2685.92 152.3 17.64
2008-09 3057.02 150.58 20.30
Graph: 4.13
Interpretation:
It is evident from the graph which shows that fixed assets turnover ratio has been increased
YoY which shows that management of the firm has efficiently utilized the fixed assets of the
firm which has resulted in the increase in the net sales of the firm.
Current
Current
Net assets
sales
assets
turnover=
Years Net sales Current assets Current assets turnover

2004-05 2007.23 1457.6 1.38
2005-06 1623.38 1465.31 1.11
2006-07 2127.91 1552.9 1.37
2007-08 2685.92 2209.66 1.22
2008-09 3057.02 2333.34 1.31

Graph: 4.14
Interpretation:
It is evident from the graph which shows that the current asset turnover ratio has been
increased as compared to previous year (2007-2008) which indicates that management is
efficiently utilized the current assets of the firm which has resulted in the increase in the net
sales of the firm.
➢ Net current assets turnover: A firm may also like to relate net current assets to
sales. It is calculated as follows:
Net
Netcurrent
Net
current
sales
assets
assets
turnover=
Net current assets

Years Net sales Net current assets
turnover
2004-05 2007.23 975.41 2.06
2005-06 1623.38 1069.11 1.52
2006-07 2127.91 1318.89 1.61
2007-08 2685.92 1458.68 1.84
2008-09 3057.02 1945.35 1.57
Graph: 4.15
Interpretation:

It is evident from the graph which shows that net current assets turnover ratio has been
decreased as compared to previous year (2007-08) and also with the base year (2004-05)
which shows that net current assets of the firm not efficiently utilized by the firm.
a. PROFITABILITY RATIOS
A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits, irrespective of concerns for customers,
employees, suppliers or social consequences. Except such infrequent cases, it is a fact that
sufficient profits must be earned to sustain the operations of the business to be able to obtain
the funds from investors for expansion and growth and to contribute towards the social
overheads for the welfare of society. Profit is the difference between revenues and expenses
over period of time. Profit is the ultimate output of a company and it will have no future if it
fails to make sufficient profits.
The profitability ratios are calculated to measure the operating efficiency of the company.
Besides the management of the company, creditors and owners are also interested in the
profitability of the company. Creditors want to get interest and repayment of principal
regularly. Owners want to get a required rate of return on their investment. This is possible
only when company earns enough profits.
Generally, two major types of profitability ratios are calculated:
a. Profitability in relation to sales

b. Profitability in relation to investment
a. Profitability in relation to sales
Gross profit margin: The gross profit margin reflects the efficiency with which
management produces each unit of product. This ratio indicates the average spread between
the cost of goods sold and the sales revenue. When we subtract the gross profit margin from

100 per cent, we obtain the ratio of cost of goods sold to sales. Both these ratios show profits
relative to sales after the deduction of production costs and indicate the relation between
production costs and selling price. A high gross profit margin relative to industry average
implies that the firm is able to produce at relatively lower cost. It is calculated as follows:
× 100
Gross
Gross
Net
profit
sales
profit
margin=
Gross profit= sales – Cost of goods sold.

COGS= Opening stock + Purchases – Closing stock.

Gross profit
margin
Years Net Sales COGS Gross profit
(in
percentage)
2004-05 2007.23 658.89 1348.34 67.17
2005-06 1623.38 915.76 707.62 43.58
2006-07 2127.91 1164.05 963.86 45.30
2007-08 2685.92 1725.13 960.79 35.77
2008-09 3057.02 1654.67 1402.35 45.87
Graph: 4.16
Interpretation:
It is evident from the graph which shows that GP margin of the firm has been increased as
compared to previous year (2007-08) which indicates that firm trying to reduce the cost of
production by increasing the net profit margin which shows management effectiveness in
controlling cost by minimizing it.
× 100
Net
Profit
profit
Netafter
sales
margin=
tax
Net profit margin: Indicates management’s efficiency in manufacturing, administering and

selling the products. This ratio is the overall measure of firm’s ability to turn each rupee
sales into net profit. If the net margin is in adequate, the firm will fail to achieve satisfactory
return on shareholders’ funds. This ratio indicates the firm’s capacity to withstand adverse

economic conditions. A firm with high net margin ratio would be in an advantageous
position to survive in the face of falling selling prices, rising costs of production or declining
demand for the product. It is calculated as follows:

Net profit margin
Years Profit after tax Net sales
(in percentage)
2004-05 464.63 2007.23 23.15
2005-06 391.8 1623.38 24.13
2006-07 544.95 2127.91 25.61
2007-08 487.36 2685.92 18.14
2008-09 806.26 3057.02 26.37
Graph: 4.17
Interpretation:
It is evident from the graph which shows the net profit margin of the firm has been increased
as compared to previous year (2007-08) and also with the base year (2004-05) which implies
that ability of the management to meet the operating expenses and also leads to increase
return to the shareholders and the firm ability to withstand adverse economic conditions.
The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deductable
and therefore, a firm pays more interest pays less tax. Thus conventional measure of net
profit margin is affected by the firm’s financing policy. For true comparison of the operating
performance of firms, we must ignore the effect of the financial leverage; the measure of
profit must ignore interest and its tax effect. Taxes are not controllable by a firm and also
one may not know the marginal corporate tax rate while analyzing the published data.
Therefore, the margin ratio may be calculated on before tax basis, as follows:
× 100
Profit
NetEBIT
margin=
sales

EBIT= Earnings Before Interest and Taxes
Profit margin
Years EBIT Net Sales
(in percentage)
2004-05 466.58 2007.23 23.24
2005-06 401.68 1623.38 24.74
2006-07 550.48 2127.91 25.87
2007-08 464.45 2685.92 17.29
2008-09 1255.1 3057.02 41.06
Graph: 4.18

Interpretation:
It is evident from the graph which shows that profit margin of the firm has been increased as
compared previous year (2007-08) and also to the base year (2004-05) which shows that
profit of the firm has been increased since it indicates efficient working management.
Expenses Ratio:
Operating expense ratio: This ratio explains the changes in the profit margin (EBIT to
sales) ratio. A higher operating expenses ratio is unfavorable since it will leave a small
amount of operating income to meet interest, dividends, etc.
× 100
Operating
Net
Operating
sales
expense
ratio=
expenses
Operating expenses= COGS + Selling Exps. + General & Adm. Exps.
Op. Exps.
Ratio
Other Op.
Years COGS Op. Exps. Net Sales (in
Exps.
percentag
e)
2004-05 658.89 207.47 866.36 2007.23 43.16
2005-06 915.76 177.69 1093.45 1623.38 67.36
2006-07 1164.05 218.62 1382.67 2127.91 64.98
2007-08 1725.13 313.54 2038.67 2685.92 75.90
2008-09 1654.67 299.2 1953.87 3057.02 63.91
Graph: 4.19
Interpretation:
It is evident from the graph which shows that operating expense ratio has been decreased as
compared to previous year (2008-09) which indicate ability of the management towards

controlling the cost of production and also firm has managed to increase the return to the
shareholders.
Cost of goods sold ratio: As COGS contributed directly/indirectly profit margin to the
organization. COGS indicates profit earned during the period.
× 100
COGSNet
COGS
ratio=
sales
COGS ratio
Years COGS Net Sales
(in percentage)
2004-05 658.89 2007.23 32.82
2005-06 915.76 1623.38 56.41
2006-07 1164.05 2127.91 54.70
2007-08 1725.13 2685.92 64.22
2008-09 1654.67 3057.02 54.13
Graph: 4.20
Interpretation:
It is evident from the graph that shows COGS of the firm has been decreased as compared to
the previous year which shows that gross profit margin of the firm has been improved which
indicate management efficiency towards controlling the cost of production.
b. Profitability in relation to investment
Return on Investment (ROI)
The term investment may refer to total assets or net assets. The funds employed in net assets
are known as capital employed.

➢ ROA & ROCE: The conventional approach of calculating ROI is to divide PAT by
investment. Investment represents pool of funds supplied by shareholders and
lenders, while PAT represents residue income of shareholders, therefore it is
conceptually unsound to use PAT in calculation of ROI and also PAT is affected by
capital structure. It is therefore more appropriate to use one of the following
measures of ROI for comparing the operating efficiency of the firm.
Return
NetTotal
profit
onassets
assets
after tax
ROA=
Total assets= Net fixed assets + Current assets.
OR
Return
Total
EBIT
on capital employed
ROCE=employed

Current Total
Years PAT NFA ROA
assets assets
2004-05 464.63 212.66 1457.6 1670.26 0.28
2005-06 391.8 197.03 1465.31 1662.34 0.24
2006-07 544.95 170.55 1552.9 1723.45 0.32
2007-08 487.36 152.3 2209.66 2361.96 0.21
2008-09 806.26 150.58 2333.34 2483.92 0.32
Graph: 4.21
Interpretation:
It is evident from the graph which shows that ROA has been increased as compared to the
previous year (2007-08) and also to the base year (2004-05) which indicates that the
operating efficiency of the firm is good.
ROE
Profit
Net
= worth
after tax
➢ ROE (Return on equity): Common or ordinary shareholders are entitled to residual

profits. Thus net profits after taxes represent their return. A return on shareholders’
equity is calculated to see the profitability of owners’ investment. ROE indicates
how well the firm has used the resources of owners. It is calculated as follows:
Net worth= Share capital + Reserves & surplus
Years PAT Net worth ROE

2004-05 464.63 1188.32 0.39

2005-06 391.8 1262.74 0.31
2006-07 544.95 1488.35 0.37
2007-08 487.36 1647.09 0.29
2008-09 806.26 2126.7 0.38
Graph: 4.22
Interpretation:
It is evident from the graph which shows that Return on equity has been increased as
compared to the previous year (2007-08) which shows that firm has efficiently utilized the
resources of the owners properly which shows in the graph there is subsequent increase in
the ROE of the firm.
Earnings per share (EPS)
One such measure of measuring the profitability of the shareholders’ investment is to

calculate the earnings per share. EPS calculations made over years indicate whether or not
the firm’s earnings power on per-share basis has changed over that period. The EPS of the
company should be compared with the industry average and EPS of other firms. EPS simply
shows the profitability of the firm on a per-share basis; it does not reflect how much is paid
as dividend and how much is retained in the business. It is calculated as follows:
EPS=
Profit
Number
after tax
of shares
outstanding

No. of shares
Years PAT EPS
o/s
2004-05 464.63 34.9 13.31
2005-06 391.8 34.9 11.22
2006-07 544.95 34.9 15.61
2007-08 487.36 34.9 13.96
2008-09 806.26 34.9 23.10
Graph: 4.23
Interpretation:

It is evident from the graph which shows that EPS of the firm has been increased as
compared to the previous year (2007-08) and also to the base year (2004-05) which indicates
that profitability of the firm on per share basis has been increased.
Dividend per share (DPS)
DPS=Total
NumberDividend
of shares
(cash dividend) to
outstanding
eq.shareholders
The net profits after taxes belong to shareholders. But the income, which they really receive,
is the amount of earnings distributed as cash dividends. Therefore, a large number of present
and potential investors may be interested in DPS, rather than EPS. DPS is calculated as
follows:
Proposed Interim No. of

Years Total Div. DPS
Div. Div. shares o/s
2004-05 139.6 69.8 209.4 34.9 6
2005-06 174.5 104.7 279.2 34.9 8
2006-07 0 279.2 279.2 34.9 8
2007-08 139.6 139.6 279.2 34.9 8
2008-09 139.6 139.6 279.2 34.9 8
Graph: 4.24
Interpretation:

It is evident from the graph which shows that DPS of the firm has been remain constant
from (2005-06) to (2008-09) which indicates that no change in the DPS ratio, shows that
decision of dividend earning remains constant for equity shareholders.
Dividend-Payout ratio
It shows inter relationship between DPS to EPS. It indicates the company’s overall
performance and contribution made to shareholders.
DPEPS
DPS
ratio =
This ratio is calculated as follows:
Years DPS EPS DP ratio

2004-05 6 13.3131805 0.45
2005-06 8 11.226361 0.71
2006-07 8 15.6146132 0.51
2007-08 8 13.9644699 0.57
2008-09 8 23.1020057 0.35
Graph: 4.25
Interpretation:
It is evident from the graph which shows that Dividend payout ratio has been decreased as
compared to the previous year (2007-08) and also to the base year (2004-05) which shows
that company wants to retain more amount of funds after paying dividends to shareholders
i.e. out of Rs 1 firm wants to retain 66 paisa for the firm and 34 paisa pay out to the equity
shareholders which will increase the Reserves and Surplus.
Findings

➢ Company’s liquidity position is too high. It indicates over-capitalization and under

trading i.e. current ratio is 6.01 times as against standard 2.00 times and quick ratio is
4.12 times as against standard 1.00 times.
➢ Company’s ability to meet all operating expenses is very strong and it is most
acceptable.
➢ As compared to total net assets, holding working capital is very high i.e. during
2008-09 it is just Re 0.92 working capital for every Re 1.00 net assets.
➢ Inventory turnover ratio is below standard ratio of 8.00 times, i.e. 4.11 times during
2008-2009. It indicates company clear its stock for four times a year. It shows high
cost for holding and maintaining inventories.
➢ Company’s credit collection period is quiet healthy as compared to previous year.
I.e. during 2007-08 it was 122 days, 2008-09 it is 96 days.
➢ Gross profit margin is very strong as cost of goods sold is 54.13% and GP is 45.87%
during 2008-09.
➢ Profit after tax is also very steady and increasing in trend.
➢ EPS of the company is very attractive, as it shows Rs. 23.10 per equity share in
2008-09 as against Rs. 13.94 per Eq. share in 2007-08.
➢ Company should make sincere and continuous efforts to maintain appropriate

liquidity level, so as to make it fair-capitalization.

➢ Company must not maintain/idle cash over actual requirements.

➢ As net WC ratio is very high, hence company must adopt strict procedure to control
this kind of variations.
➢ Inventory turnover ratio must increase at least to 8 times, by decreasing cost of
holding inventory.
➢ Yet company needs to make effective receivables system by revising existing credit
policy and credit discount.
➢ Company must maintain same rate of GP in future also. It needs continuous study
and control over cost, demand and supply.
General Conclusion
➢ Company’s overall financial performance is quite healthy and sound.

➢ Company is having strong ability to meet all kinds of contingencies.
➢ Management of receivable and credit is also made in the light of future changes.

➢ Company runs under “management of objectives” (MBO) theory but not

“Management by Exceptions” (MBE).
➢ Most of the financial results are not static but fluctuating in nature.
Specific Conclusion
➢ Profitability ratio of the company during 2008-09 is quiet high and healthy. (It
includes GP margin, NP margin, ROI etc.)
➢ Turnover ratios are quite lower than standard/idle ratios. Therefore, company must
evaluate causes for low turnover ratios.
➢ Company is working within its limited parameters and in the light of future expected
changes.
➢ Last but not the least, companies financial and non-financial performances are up to
the mark and it is having strong financial support to face any kind of recessions.

Ratio Analysis at Micro Finish

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Ratio Analysis at Micro Finish

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Evaluation of financial performance appraisal

Global valve market

Indian valve industry

JSS DVH-IMSR, Dharwad Page 1

Indian valve market

JSS DVH-IMSR, Dharwad Page 2

Background of the company

JSS DVH-IMSR, Dharwad Page 3

Microfinish is group of seven companies. The companies are as follows:

1. Microfinish Valves Pvt. Ltd.

Flowserve Pvt. Ltd. USA

JSS DVH-IMSR, Dharwad Page 4

Flowserve Microfinish Valves Pvt. Ltd.

JSS DVH-IMSR, Dharwad Page 5

JSS DVH-IMSR, Dharwad Page 6

Name of the organization Flowserve Microfinish Valves Pvt. Ltd.

Type of organization Private limited company

Registered office CTS no 568/1, industrial area,

Promoters Flowserve Corporation, USA &

Microfinish valves ltd, Hubli

Year of establishment 1997

Product Manufacturing & exporting of industrial

Accounting year 1st April to 31st march

Factory area 3.5 Acres, Built Up area:15000 Sq

Production Capacity 5562 Valves &125564 Valves Components

Production Marketing Marketed By Flowserve Corporation USA

JSS DVH-IMSR, Dharwad Page 7

Quality Certification ISO 9001:2000, Got CE marking

OSHAS 18000 [British Standard]

List of directors Mr. Tilak K. Vikamshi (Managing Director)

Mr. Deepak K. Vikamshi (Director)

Mr. William D. Brown (Director)

Mr. S. Gopinath (Director)

Mr. Mc Geehin Thomas (Director)

QUALITY SYSTEM & POLICY

JSS DVH-IMSR, Dharwad Page 8

JSS DVH-IMSR, Dharwad Page 9

JSS DVH-IMSR, Dharwad Page 10

JSS DVH-IMSR, Dharwad Page 11

Figure 1: Ball valve 1

Figure 2: Ball valve 2

JSS DVH-IMSR, Dharwad Page 12

Figure 4: Plug valve 2

JSS DVH-IMSR, Dharwad Page 13

Functions of Administration Department (H.R):

Objective: Is to provide adequate training to the personnel of all departments performing

Responsibility: Administration and Accounts (A & A) In-charge through personnel officer is

JSS DVH-IMSR, Dharwad Page 14

Objective: To ensure safe and healthy environment for personnel.

Responsibility: Administration and Accounts in charge through personnel officer is

JSS DVH-IMSR, Dharwad Page 15

➢ To provide accurate and complete systematic information of financial activities.

JSS DVH-IMSR, Dharwad Page 16

Books of Accounts maintained by the Accounts Department:

➢ General Ledger Register

PLANNING AND PURCHASING DEPARTMENT

JSS DVH-IMSR, Dharwad Page 17

JSS DVH-IMSR, Dharwad Page 18

Steps involved in purchasing are:

➢ Purchase activity starts from work order given by sales department.

Selection and evaluation of the vendor:

Product identification and Traceability:

JSS DVH-IMSR, Dharwad Page 19