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INTRODUCTION

Financial statements (or financial reports) are formal records of a business'


financial activities. These statements provide an overview of a business'
profitability and financial condition in both short and long term

Financial statement analysis refers to an assessment of the viability,


stability and profitability of a business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make
use of information taken from financial statements and other reports. These
reports are usually presented to top management as one of their basis in
making business decisions. Based on these reports, management may:

• Continue or discontinue its main operation or part of its business;


• Make or purchase certain materials in the manufacture of its product;
• Acquire or rent/lease certain machineries and equipments in the
production of its goods;
• Issue stocks or negotiate for a bank loan to increase its working
capital.
• Other decisions that allow management to make an informed
selection on various alternatives in the conduct of its business.

The basic requirements to start a new business are - 7 - 'M' - Man,


Machine, Material, Market, Method, Money and Management. But the
most important factor is Money because with the help of money, we can
manage the other six factors. So the basic needs start with money and to
arrange it, every new project has to undergo a process of Project Financing.
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Project Financing is the process of arranging money from its


suppliers i.e. mainly Bankers. We have to show our plans, future prospects
and all other requirement that need finance. But only absolute value does
not help us. We have to show comparative data and this comparative is best
presented with the help of ratio. Before financing any project the banker
looks into the crux of the project i.e. key ratios of that particular project.

Financial statement analysis is important to boards, managers,


payers, lenders and others who make judgments about the financial health
of organizations. One widely accepted method of assessing financial
statements is ratio analysis, which uses data from balance sheet and income
statement to produce values that have easily interpreted financial meaning.
Most of the organizations or companies routinely evaluate financial
condition by calculating various ratios and comparing the values to those,
looking for differences that could indicate weaknesses or opportunities for
improvement.

Ratio analysis can be used to compare the risk and return


relationship of the firm. Ratio analysis is a widely used tool of financial
analysis. It is defined as the systematic use of ratio to interpret the financial
statement so that the strength and weaknesses of the firm as well as its
historical performance and current financial condition can be determined.

Ratios are highly important profit tools in financial analysis that help
financial analysts implement plans that improve profitability, liquidity,
financial structure, leverage, and turnover. Although ratios report mostly
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on past performances, they can be predictive too, and provide lead


indications of potential problem areas.

COMPANY PROFILE

"BILT is India's largest paper company and the only Indian company to
rank amongst top 100 paper companies in the world"

BILT is the undisputed leader in the Indian paper industry. It is also India's
largest manufacturer and exporter of paper, with a strong presence in all
segments of the usage spectrum that includes Writing & Printing Paper,
Industrial Paper and Specialty Paper. Complementing this is a diversified
production infrastructure with six manufacturing units spread across the
country.

Locations
The group used to be headquartered out of the groups own premises Thapar
House , in Janpath Lane, Connaught Place, but is now based in Gurgaon
due to better returns from Thapar House being rented out. They have
factories in the following locations

• Ballarpur or Ballarshah - factory started in 1956


• Shree Gopal, Yamuna Nagar District, Haryana - factory started in
1936
• Kamalapuram
• Sewa
• Bhigwan
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• Ashti

In recent years, BILT has evolved as a more dynamic,


knowledge driven organization focused towards creation of
stakeholder value. In the process, it has also transformed
the paper industry from its traditional 'commodity market'
mindset to a branded one. Today, BILT not only has the
range, but also a well entrenched distribution network that
enables it to reach customers, any time, any place.

Promoters

The group was started by Mr. Lala Karam Chand Thapar, and after his
death in 1963 run by eldest son- Mr. L M Thapar. From Independence till
the 1980s it was one of the top 10 business houses in India.

The current Chairman of the company is Mr. Gautam Thapar


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SCOPE

SELECTION OF THE PROJECT

When the project report is prepared it includes all the aspects of


projects like company's product and its market, manufacturing process,
operational viability, its financial projection and various ratios. This helps
the management to understand whether the project is practically possible or
not. Ratio analysis gives the idea about the profitability of the project.

By studying the various ratios and other related aspects of the project
report presented to them for finance bank or financial institutions come to
know various aspects such as its technical feasibility, economical
feasibility, financial feasibility, marketability, etc. and if the Financial
Institutions/Banks is satisfied with the project report then only the
Financial Institutions/Banks provide the finance of the company's project.

Project report gives projected financial statements and on basis of


that ratios are calculated. Ratio analysis helps in judging the operational
efficiency of the management's ability to repay short and long term loans,
doing inter-firm comparison and to assess the future growth of the
company. The ratio analysis of the company is done before investing or
providing credit to the company. This is the reason of selecting the project.
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SIGNIFICANCE OF THE STUDY

Analysis of financial ratios has become very significant due to the


widespread interest of various parties in the financial results of a business
unit. A number of parties and bodies, besides owners and shareholders,
including creditors, potential suppliers, debenture holders, credit financial
institutions like banks industrial finance corporation, etc., potential
investors, employees trade unions, important customers, economist,
investment analyst, taxation authorities and the Government have a stake in
the financial results of a company. Various people look at the financial
ratios from various angles. Some of the interested parties in financial ratio
analysis are :

Shareholders :
Shareholders want to judge the earning capacity of the company, its
prospects for future growth and prosperity. They also look for the higher
dividend capacity of the firm.

Employees :
The demand for wage rise, bonus, better working conditions etc., depends
upon the profitability of the firm and in turn depends upon financial
position. For this employees are interested in profitability ratio of the firm.

Government :
In respect of a Government Company, the Members of Parliament, the
Public Accounts Committee is interested in its working and financial
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results. Government Agencies are equally interested in accordance with the


legal provisions and whether profits disclosed are correct for the purpose of
taxation, grant of loans, license etc.

Investors :
These are particular about the long-run stability of the business unit. The
investor expects that his capital will be protected from more than a normal
amount of the risk.

Creditors :
The short-term creditors want to find out the ability. of the company meet
the debts as and when they fall due. The long-run creditors are interested in
knowing the company's ability to pay the interest on the amount borrowed
by it and also to pay the debt itself on maturity date.

Management :
The management of the business is greatly interested in knowing the
financial position of the firm. Financial ratios eyes and ears of the
management and it facilitates in drawing future course of action, further
expansion etc.

Financial Institutions/Banks :
The Financial Institutions/Banks who provide credit to the company would
be interested to know the capacity of the firm to discharge its liabilities in
time.
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HYPOTHESIS

That at the time of project appraisal different ratios gives financial


feasibility to the project in future.

OBJECTIVE

 To judge the financial position of the company on the basis of


ratio analysis

 To identify the reason for change in the profitability of the


company.

LIMITATIONS

 It is difficult to forecast future on the basis of past record.

 Its scope is limited to Ballarpur Industries Limited hence general


conclusions can’t be drawn on basis of ratio analysis.
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RESEARCH METHODOLOGY

Introduction :

Research is the process of a systematic and in-depth study or search of any


particular topic, subject or area of investigation, backed by the collection,
complication, presentation and interpretation of relevant details or data. It
is a careful search or enquiry into any subject matter, which is an endeavor
to discover to find out valuable facts, which would be useful for further
application or utilization. The research that involves scientific theories, the
discovery of new techniques, a modifications of old concepts or knocking
of an existing theory, concept or technique. It may develop a hypothesis
and test it. It may also establish relationships between variables and
identity the means for problem solving.

The research procedure involves the following basic elements:

1. Selection of Subject.

2. Selection of Title of Dissertation.

3. Selection of Time Period.

4. Collection of Data.

5. Reliability of Data.

6. Analysis of Data.

7. Reporting.

Research wants to make familiar, how his research work is associated with
the above-mentioned elements: -
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1. Selection of Subject:

The selection of a subject for research is a commitment of one's time


and efforts in a particular direction. There should not be any haste in
deciding on the topic, nor in defining any scope. The research subject may
be selected from the following sources:

a) Theory of one's own interest,

b) Local Daily problems,

c) Technological changes,

d) Unexplored areas,

e) Discussions with research advisor or guide.

Researcher had chosen the subject for its research work from the
source of "Working field" listed above, because researches is associated
with the personnel who deals in the financial management aspect of the
enterprises, and the thinks that he can easily and smoothly carryout this
research work on the subject concerned.

Objects behind selection of the subject:


Researcher had selected the subject for accomplishing the following
objects:

(i) To ascertain the financial position of the company.

(ii) To examine the earning capacity and efficiency of business


activities.
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(iii) To determine long term and short-term solvency of the


company.

(iv) To determine the profitability and future prospects of the


company.

(v) To investigate the future potential of the company.

(vi) To know whether the resources are productively utilized.

(vii) To know whether the shareholders and investors / lenders of


the company are getting their due share of dividend, interest
and repayment of loans.

(viii) To study the trend of the changes in the financial position of


the company.

(ix) To know about the financial policies adopted by the


management of the company for its smooth and rapid progress
/ development.

2. Selection of Title of Dissertation:

Keeping in view the nature and object behind the selection of subject
under research, this dissertation is title as "Interpretation & Analysis of
Financial. Statements of Ballarpur Industries Limited"

3. Selection of Time Period:

The three-year period is chosen for the study of the above subject.
The period starts from financial accounting year 2005 to financial
accounting year 2007.

Reasons behind selection of three year time period:


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Researcher feels that three year time period is sufficient for the analysis
and interpretation of financial statements of company. Researchers also
feel that the objects for which research is undertaken can be fulfilled by
considering above mentioned time period.
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4. Collection of Data:

The data required and necessary for the research study may be obtained
from the following means:

(i) Documentary i.e. published and unpublished.


(ii) Interview and
(iii) Questionnaire

The data for the research study may be classified into two groups:-

(i) Documentary source :

(a) Researcher has collected the data, quantitative and theoretical


form documentary source of the company, which includes published
and unpublished matter both. This documentary source is the
secondary data. Researcher has collected from published audited
annual reports of the company and unpublished data from the books
and other related papers of the company.

(b) Researcher has also collected data from websites of the company
and also other business websites. Researcher has also taken help
from his guide.

(ii) Interview and Questionnaire:


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Researcher has collected information, which is based on secondary


data only.
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5. Reliability of Data :

Researcher feels that data collected for the research work is quite
reliable and authentic. This is because the data has been collected from
audited annual reports of the company. Researcher fully satisfied with the
data collected and means for the research work.

6. Analysis of Data:

The data collected for the research purpose is analyzed by ratio


analysis.

Researcher has chosen the above tool for his research work and feels
that they will serve the best to the title of the research study.

7. Reporting :

In this study the structure analysis is adopted for analyzing the financial
statement of the company.
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DATA COLLECTION METHOD


USED FOR PROJECT WORK

The data collected for the project work is secondary in nature.

My project deals in the analysis and interpretation of financial


statement of Ballarpur Industries Limited, so I thought the best way to
obtain this information would be take guidance from my project guide,
who is well versed with the topic.

To gather information about the project work, first of all I wrote e-


mail to the office of Ballarpur Industries Limited and in turn they send a
copy of annual reports of last three years. After receiving annual reports, I
analyze the financial statements of the company by ratio analysis method
with the help of my project guide and interpret according to particular
ratios.

The researcher dealt with in regards to the Project Work was


"Interpretation & Analysis of Financial Statement of Ballarpur Industries
Limited". The books, which the researcher referred to, were "Financial
Management by R.P. Rustagi" and "Analysis of Financial Statement by T.
S. Grewal".
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The books, which I referred to, gave me the information about the
ratio analysis, how to analyze the financial statement and how to interpret.

The site to which I referred to was www.bilt.com where I got the


information about the profile of the company, its history, its board of
directors, its product and services etc.
RATIO ANALYSIS

INTRODUCTION :

Ratio analysis is a very powerful analytical tool useful for measuring


performance of an organization. The ratio analysis concentrates on the
interrelationship among the figures appearing in the financial statements.
The ratio analysis helps the management to analyze the past performance
of the firm and to make further projections. Ratio analysis allows interested
parties like shareholders, investors, creditors, Government and analysis to
make an evaluation of certain aspects of a firm's performance.

Ratio analysis is a process of comparison of one figure against another,


which make a ratio, and the appraisal of the ratios to make proper analysis
about the strengths and weaknesses of the firm's operation. The calculation
is a relatively easy and simple task but only the skilled analyst can make
the proper analysis and interpretation of the ratios. While interpreting the
financial information, the analyst has to be careful in limitations imposed
by the accounting concepts and methods of valuation. Information of non-
financial nature will also be taken into consideration before a meaning
analysis is made. Ratio analysis is extremely helpful in providing valuable
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insight into a company's financial picture. Ratios normally pinpoint a


business strengths and weakness in two ways :

 Ratios provide an easy way to compare present performance with


past.

 Ratios depict the areas in which particular business is competitively


advantaged or disadvantaged through comparing ratios to those of other
businesses of the same size within the same industry.
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Ratio Analysis of Ballarpur Industries Limited :

There are many ratios, but among the most· useful are those that
evaluate liquidity, leverage, activity & profitability. Each of the ratios
compares different numbers that assess the firm's operations. The ratios are
especially informative when compared to prior periods or industry averages
or the ratios of the other firms. For the purpose of analysis and
interpretation, the researcher has grouped the accounting ratios of Ballarpur
Industries Limited into four broad categories, viz.
A) Liquidity Ratios
B) Leverage Ratios
C) Activity Ratios
D) Profitability Ratios

A) Liquidity Ratios :

The liquidity refers to the maintenance of cash, bank balance and


those assets, which are easily convertible into cash in order to meet the
liabilities as when arising. So, the Liquidity Ratios study the firm's short-
term solvency and its ability to pay off the liabilities.

The Liquidity Ratios provide a quick measure of liquidity of the firm by


establishing a relationship between its current assets and its current
liabilities. The Liquidity Ratios are also called the Balance Sheet ratios
because the information required for calculation of Liquidity Ratios is
available in the Balance Sheet only. Some of the common liquidity ratios
are:
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(i) Current Ratio :

It is the most common and popular measure of studying the liquidity


of a firm. It is calculated as follows :

Current Ratio = Current Assets


Current Liabilities

The current assets include those assets, which are in form of cash, near cash or
convertible into cash with in a period of 1 year. The term current assets also
include prepaid expenses and short investments, if any. The current liabilities
include all types of liabilities which will mature for payment within a period of
one year e.g. bank overdraft, bills payable, trade creditors, outstanding expenses,
provision for tax, proposed dividend, unclaimed dividend, accrued interest etc.

The Current Ratio throws light on the firm's ability to pay its current liabilities
out of its current assets. The Current Ratio calculated as above is to be compared
with a standard ratio. Generally, a Current Ratio of 2 times or 2:1 is considered
to be satisfactory.

(ii) Quick Ratio :

It is also called the Acid Test Ratio or Liquid Ratio. This ratio establishes
the relationship between quick liquid current assets and current liabilities.
Quick Ratio is used as a measure of the company's ability to meet its
current obligations. A current asset is considered to be liquid if it is
convertible into cash without loss of time and value. The Quick Ratio may
be calculated as follows:
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Quick Ratio = Quick Assets


Current Liabilities

Generally, a Quick Ratio of 1: 1 is considered to be satisfactory. The Quick


Ratio is considered to be a better test of liquidity than the Current Ratio.

(iii) Absolute Liquidity Ratio:

This ratio is also known as Super Quick Ratio or Cash Ratio or Cash
Reservoir Ratio. This ratio considers only the absolute liquidity available
with the firm. The cash and bank balance are no doubt; the most liquid
assets and the marketable securities are also considered as highly liquid
assets. In order to have an idea of immediate/super liquidity, therefore, the
cash + bank balance + marketable securities with the current liabilities. The
Absolute Liquidity Ratio/Cash Ratio is calculated as follows:

Absolute Liquidity Ratio = Super Quick Assets


Current Liabilities

The Absolute Liquidity Ratio of magnitude up to 1:2 may be


satisfactory and a firm need not maintain too much of highly/super liquid
assets.

B) Leverage Ratios:
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This ratio calculates the proportionate contributions of owners and


creditors to a business, sometimes a point of contention between the two
parties. Creditors like owners to participate to secure their margin of safety,
while management enjoys the greater opportunities for risk shifting and
multiplying return on equity that debt offers.
(i) Debt Equity
(ii) Ratio :

Capital is derived from two sources: shares and loans. It is quite


likely for only shares to be issued when company is formed, but loans are
invariably raised at some later date. There are numerous reasons for issuing
loan capital. For instance, owners might want to increase their investment
but avoid the risk, which attaches to share capital, and they can do this by
making secured loan. In either case, the effect is to introduce an element of
gearing or leverage into the capital structure of the company. There are
numerous ways so but the debt equity ratio is perhaps most commonly
used.

Debt Equity Ratio = Long Term Debt


Shareholders funds

This ratio indicates the relationship between loan funds and net
worth of the company, which is known as gearing. If the proportion of debt
to equity is low, a company is said to be low-geared, and vice-versa. A debt
equity ratio of 2:1 is the norm accepted by financial institutions for
financing of project. The higher the gearing, the more volatile the return to
shareholders.
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(ii) Interest Coverage Ratio:

This ratio is also called the times interest earned ratio and it measures the
ability of the firm to pay the fixed interest liability. The Interest Coverage
Ratio may be calculated as follows:

Interest Coverage Ratio = EBIT


Interest

Where EBIT = Earnings Before Interest & Taxes, and


Interest = Fixed interest liability of the firm.

It may be observed that EBIT is the operating profit of the firm,


therefore the Interest Coverage Ratio measures as to how many times the
interest liability of the firm is covered with the operating profits of the
firm. This ratio gives an idea as to how much fall in EBIT, the firm can
sustain before it commits a default in payment of the interest liability. The
higher the Interest Coverage Ratio, the better it is both for the firm and for
the lenders.

(iii) Financial Leverage :

The term Financial Leverage refers to the use of fixed charge


securities such as debentures and the variables charge securities such as
equity shares in the capital structure to finance the total assets of the firm.
So, the financial leverage refers to presence of fixed charge (in the form of
interest) in the income statement of the firm. The fixed charge is fixed in
amount and do not vary with the change in the EBIT, whereas the return
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available to equity shareholders, which is a residual balance, is affected by


the change in the EBIT. The Financial Leverage Ratio measures the
relationship between EBIT and EBT (earnings before tax) and is calculated
as follows:

Financial Leverage Ratio = EBIT


EBT

The Financial Leverage Ratio tells about the extent of change in EBI
as a result of change in EBIT. The Financial Leverage Ratio may be
favorable or unfavorable. The ratio is favorable if return on assets is more
than the cost of funds used to acquire the assets and is unfavorable in the
other situation. A favorable Financial Leverage Ratio is also known as
Trading on Equity.

(iv) Proprietary Ratio :

The Proprietary Ratio expresses the relationship between


shareholders funds and total assets. It is calculated as follows :

Proprietary Ratio = Shareholders Funds


Total Assets

Reserves marked specifically for a particular purpose should not


included in calculation of shareholders funds. A high Proprietary Ratio is
indicative of strong financial position of the business. The higher the ratio,
the better it is.
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B) Activity Ratios :

The Activity Ratios are also called the Turnover Ratios or


Performance Ratios. An Activity Ratios is a measure of movement and
thus indicates as to how frequently an account has moved/turned over
during a period. It shows as to how efficiently and effectively the assets of
the firm are being utilized. The Activity Ratios therefore, measure the
effectiveness with which the firm uses its resources. These ratios are
usually calculated with reference to sales/cost of goods sold and are
expressed in terms of rate or times. The Activity Ratios may be calculated
for all the specific assets; however, some of the important activity ratios are
as follows :
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(i) Inventory Turnover Ratio:

The Inventory Turnover Ratio is also known as Stock Turnover


Ratio. It established the relationship between the cost of goods sold during
the year and the average inventory held during the year by the firm. It is
calculated as follows :

Inventory Turnover Ratio = Cost of Goods Sold


Average Inventory

Where, Average Inventory = Opening Stock +Closing Stock


2
Cost of Goods Sold = Opening Stock + Purchase - Closing Stock
= Net Sales - Gross Profit.

There is no ideal ratio for evaluating an I/T Ratio of a firm so it


should be compared with the I/T Ratio of other firm or past I/T Ratios of
the same firm. The higher the inventory turnover rate means the more
efficiently a company is able to grow sales volume.

(ii) Debtors Turnover Ratio :

The debtor's turnover ratio reveals the velocity of receivables


collection by matching the annual credit sales to the average receivables. In
case the firm sells goods on credit, the realization of sells revenue is
delayed and the receivables (both debtors and/or bills) are created. The
cash is realized from these receivables at later stage. The speed with which
these receivables are collected affects the liquidity position of the firm.
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This ratio attempts to throw light on the collection and credit policies of the
firm. This ratio is calculated as follows:

Debtors Turnover Ratio = Credit Sales


Debtors + Bills Receivables

(iii) Fixed Assets Turnover Ratio :

This ratio indicates the extent to which the investments in fixed


assets contribute towards sales. If compared with a previous period, it
indicates whether the investment in fixed assets has been judicious or not.
This ratio is calculated as follows:

Fixed Assets Turnover Ratio = Sales


Fixed Assets

An increase in the fixed assets figure may result from the


replacement of an asset at an increased price or the purchase of an
additional asset intended to increase production capacity. The latter
transaction might be expected to result in increased sales whereas the
former would more probably be reflected in reduced operating costs.

C) Profitability Ratios :
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The Profitability Ratios measure the profitability or the operational


efficiency of the firm. There are two groups of person who specifically
interested in the analysis of the profitability of the firm. These are -

(i) the management, which is interested in the overall profitability


and operational efficiency of the firm, and

(ii) the equity shareholders who are interested in the ultimate returns
available to them. The performance of the firm can be evaluated
in terms of its earnings with reference to a given level of assets or
sales or owner interest etc. Broadly, the Profitability Ratios are
calculated by relating the returns with the (i) sales of the firm (ii)
assets of the firm and (iii) the owner's contribution.

(i) Gross Profit Ratio:

The Gross Profit Ratio is also called the average mark up


ratio. This ratio measures the efficiency of the company's operations. This
ratio represents the excess of sales proceeds during the period under
observations over their cost. It is calculated by comparing the gross profit
of the firm with the net sales as follows:

Gross Profit Ratio = Gross Profit x 100


Net Sales

The gross profit is the difference between the sales revenue and the
cost of generating those sales. Therefore, the gross profit amount and the
gross profit ratio depend upon the relationship between the selling price
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and the cost of production including direct expenses. The gross profit ratio
reflects the efficiency with which the firm produces/purchases the goods.

(ii) Operating Profit Ratio :

The operating profit refers to the pure operating profit of the firm i.e.
the profit generated by the operation of the firm and hence is calculated
before considering any financial charge (such as interest payment), non-
operating income/loss and tax liability etc. The operating profit is also
termed as Earnings Before Interest and Taxes (EBIT). The Operating Ratio
may be calculated as follows:

Operating Profit Ratio = EBIT x 100


Net Sales

The Operating Profit Ratio shows the percentage of pure profit


earned on every 1 rupee of sales made. The higher the operating profit
margin, the greater pricing flexibility a firm has in its operations. However,
it could also indicate the degree of cost control management a firm
possesses.

(iii) Net Profit Ratio :

The Net Profit Ratio establishes the relationship between the net
profit (after tax) of the firm and the net sales. It is calculated as follows :

Net Profit Ratio = Net Profit x 100


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Net Sales

The Net Profit Ratio measures the efficiency of the management in


generating additional revenue over and above the total cost of operations.
The Net Profit Ratio shows the overall efficiency in manufacturing,
administrative, selling and distributing the product. This ratio is designed
to focus attention on the net profit margin arising from business operations
before interest "and tax is deducted. The higher the profit margin, the more
pricing flexibility a firm may have in its operations or the greater cost
control initiated by management.

(iv) Operating Expenses Ratio :

The Operating Expenses Ratio is the measure of cost control and is


computing by establishing the relationship between expense items and the
sales. It is calculated as follows :

Operating Expenses Ratio = Expenses x 100


Net Sales

It may be observed that the Operating Expenses Ratio and Operating


Ratio are complementary to each other.

(v) Operating Ratio :

The Operating Ratio is calculated as follows:

Operating Ratio = Cost of Goods Sold +


Operating Expenses x 100
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Net Sales

This ratio measures the extent of costs incurred for making the sales.
This ratio shows relationship between cost of goods sold plus operating
expenses with the net sales. This ratio is closely related with the ratio of
operating profit to net' sales, which can be- obtained by subtracting the
operating profit from 100, i.e., operating ratio plus operating profit ratio is
100. A rise in Operating Ratio indicates decline in efficiency and vice-
versa. Lower the ratio, better it is.

(vi) Return on Assets (ROA) :

The Return on Assets of a company determines its ability to utilize


the Assets employed in the company efficiently and effectively to earn a
good return. The ROA measures the profitability of the firm in terms of
assets employed in the firm. The ROA is calculated by establishing the
relationship between the profits and the assets employed to earn the profit.
It is calculated as follows:

Return on Assets (ROA) = Net Profit x 100


Total Assets

Usually the profit of the firm is measured in terms of the net profit
after tax and the assets are measured in terms of total assets or total
tangible assets or total fixed assets. The ROA shows as to how much is the
profit earned by the firm per rupee of assets used.

(vii) Return on Total Shareholders Equity (ROE) :


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The ROE examines profitability from the perspective of the equity


investors by relating profits available for the equity shareholders with the
book value of the equity investment. The return from the point of view of
equity shareholders may be calculated by comparing the net profit less
preference dividend with their total contribution in the firm. It is calculated
as follows :

Return on Total Net Profit After Tax x 100


Shareholders Equity = Average Total
(ROE) Shareholders Equity

The ROE indicates as to how well the funds of the owner have been used
by the firm. It also examines whether the firm has been able to earn
satisfactory return for the owners or not.

(viii) Return on Capital Employed (RCE):

The profitability of the firm can be analyzed from the point of view of the
total funds employed in the firm. The term funds employed or the capital
employed refers to the total long-term sources of funds. It means that the
capital employed comprises of shareholders funds plus long-term debts. It
is calculated as follows:

Return on Capital Employed Net Profit x 100


=
(RCE) Total Capital Employed

(ix) Earnings Per Share (EPS) :


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The EPS is one of the important measures of economic performance


of a corporate entity. The flow of capital market conditions would be made
on the evaluation of EPS. A higher EPS means better capital productivity.
It is calculated as follows :

Net Profit
Earnings Per Share =
Number of Equity Share

EPS is one of the major factors affecting the dividend policy of the
firm and the market prices of the company. Growth in EPS is more relevant
for pricing of shares from absolute EPS. A steady growth in EPS indicates
a good track of profitability.

(x) Dividend Per Share :

Sometimes the equity shareholders may not be interested in the EPS


but in the return which they are actually receiving from the firm in the form
of dividends. The amount of profits distributed to shareholders per share is
known as DPS. Generally, companies declare dividends in term of
percentage of paid up capital and may be calculated as follows :

Dividend Paid To Ordinary


Dividend Per Share = Shareholders
Number of Equity Share
P a g e | 34

(x) Dividend Pay-out Ratio :

The dividend pay-out ratio is the ratio between the DPS and the EPS
of the firm Le. it refers to the proportion of the EPS which has been
distributed by the company as dividends. It may be noted that the
DPS and the DP ratio both depends upon the statutory provisions
relating to compulsory appropriations of profits. It is calculated as
follows :

Dividend Per Equity Share


Dividend Pay-out Ratio =
Earnings Per Share

RATIO ANALYSIS OF BILT.

(Rs In crore)

Sr. No. 2009 2008 2007

A)Liquidity ratios

1) Current Ratio = 1537.4186 1379.732 876.621

Current Assets 538.8329 373.6624 347.895

Current liabilities 2.85 3.69 2.52

2) Quick ratio = 871.4918 869.5636 381.0106


P a g e | 35

Quick Assets 538.8329 373.6624 347.895

Current liabilities 1.62 2.33 1.10

3) Absolute Liquidity
ratio= 371.1817 521.4163 155.5282

Super quick assets 538.8329 373.6624 347.895

Current liabilities 0.69 1.40 0.45

INFERENCE OF RATIO ANALYSIS

1) CURRENT RATIO :

3.69
4
2.85
3 2.52
Current
Ratio 2

Year
P a g e | 36

The general norm for current ratio is 2:1.

It means that the current assets of the firm are 2 times that of the current
liabilities. The current ratio therefore shows the extent to which the current
assets, which are quickly convertible into cash exceeds the current
liabilities, which will be shortly payable.

Such a high ratio indicates that the company has idle funds. The excess
liquidity prevents the company from maximizing its wealth.
P a g e | 37

2. Quick Ratio :

quickratio

2.5

1.5

0.5

0
2007 2008 2009

Observation

A Quick Ratio of 1:1 is considered to be satisfactory because that the


quick assets of the firm are just equal to current liabilities and there does
not seem to be possibility of default in payment of the firm.

Initially, the company had satisfactory quick ratio but over the years,
the excess liquidity has implied that the funds are not being optimally
utilized.
P a g e | 38

3. ABSOLUTE LIQUIDITY RATIO

Observation

This ratio considers only the absolute liquidity available with the
firm. The cash and bank balance are no doubt; the most liquid assets and
the marketable securities are also considered as highly liquid assets. In
order to have an idea of immediate/super liquidity, therefore, the cash +
bank balance + marketable securities are compared with the current
liabilities.
P a g e | 39

The absolute liquidity ratio is satisfactory in F.Y. 07-08 which meant


the company had enough cash to fulfill their current liabilities. However,
the position hasn’t been as satisfactory in current F.Y.

LEVERAGE RATIOS
(Rs In
crore)
Sr. No. 2009 2008 2006
B)Leverage ratios

1) Debt equity Ratio = 2189.1185 1453.5938 1188.8941


Long term debt 1987.3153 1634.3693 1634.5
Shareholders equity 1.10 0.89 0.73

2) Interest coverage ratio = 438.8437 360.5965 311.9946


Earning before interest
and tax 110.2126 105.7096 105.4494
Interest 3.98 3.41 2.96

3) Financial Leverage =
Earning before interest and tax 438.8437 360.5965 311.9946
Earning before tax 328.6311 254.8869 206.5452
1.34 1.41 1.51

4) Proprietary ratio= 1987.3153 1634.5 1498.123


Shareholders funds 4942.0652 3618.4701 3119.8091
Total Assets 0.40 0.45 0.48
P a g e | 40

B) LEVERAGE RATIOS

1) DEBT EQUITY RATIO

1.2

0.8

0.6

0.4

0.2

2007
2008
2009

Observation

A Debt equity ratio of 2:1 is the norm accepted by financial


institutions for financing of projects. This means that the firm has
employed long term debt to the extent of 2 times to that of shareholder
funds.

The company has lower debt-equity ratio than generally accepted


which implies that the company has invested more of its own funds in the
P a g e | 41

business. In general, the lower the debt-equity ratio, the higher the degree
of protection enjoyed by the creditors.

2) INTEREST COVERAGE RATIO

Observation

An Interest Coverage Ratio of 2:1 is considered reasonably by


financial institutions. It means that the operating profits of the firm are 2
times that of its interest liabilities. It may be observed that EBIT is the
operating profit of the firm; therefore, the interest coverage ratio measures
as to how many times the interest liability of the firm is covered with the
operating profits of the firm.
P a g e | 42

The overall interest coverage ratios are higher than the standard
norm, which indicate a better sign both for the firm and for the lenders. For
the firm the profitability of committing default is reduced and for the
lenders the firm is considered to be less risky.

3) FINANCIAL LEVERAGE

Observation

The financial leverage tells about the extent of change in EBI as a result of change
in EBIT. The financial leverage may be favorable or unfavorable. The financial
leverage ratio is favorable if return on assets is more than the cost of funds used to
acquire the assets and is unfavorable in the other situation.
P a g e | 43

This ratio was higher in FY 06-07 i.e. 1.51 but it goes on decreasing up to FY
08-09. This indicates a low interest outflow & consequently lower borrowings.
P a g e | 44

4) PROPRIETARY RATIO

Observation

This ratio establishes the relationship between proprietor's funds and


total assets. Proprietor's funds mean share capital plus reserves and surplus,
both of capital and revenue nature. Loss should be deducted. Funds payable
to others should not be added. The difference between this ratio as %
represents the ratio of total liabilities to total assets.

This ratio has decreased slightly during the study period. This shows
that the dependence on outsiders for financing assets has increased.
P a g e | 45

Activity Ratio

(Rs In
crore)
Sr. No. 2009 2008 2007
C)Activity ratios

1) Inventory turnover ratio = 1507.3652 1209.4652 1145.807


Cost of goods sold 84.9575 70.6157 55.48875
Average Inventory 17.74 17.13 20.65

2) Debtors turnover ratio = 2317.777 1908.7217 1790.2782


Credit Sales 389.0533 283.5761 185.9832
Debtors+Bills receivable 5.96 6.73 9.63

3) Fixed assets turnover ratio = 2317.777 1908.7217 1790.2782


Sales 3404.647 2238.7381 2243.1881
Fixed assets 0.68 0.85 0.80

1) INVENTORY TURNOVER RATIO :


P a g e | 46

Observation

This ratio establishes the relationship between the cost of goods sold
during the year and the average inventory held during the year by the firm.
The numerator is the cost of goods sold and not the net sales. This is
because the inventory account is carried at cost and it must be compared
with the other figure at cost level only. The average stock may be taken as
the average of yearly opening stock and closing stock.

This ratio measures the velocity of conversion of stocks into sales.


The higher the ratio, the more efficient is the management of inventories.
This company has had satisfactory turnover ratios.
P a g e | 47

2) DEBTORS TURNOVER RATIO

Observation

The debtor's turnover ratio reveals the velocity of receivables collection by


matching the annual credit sales to the average receivables. In case the firm sells goods
on credit, the realization of sells revenue is delayed and the receivables (both debtors
and/or bills) are created. The cash is realized from these receivables at later stage. The
speed with which these receivables are collected affects the liquidity position of the
firm.

This ratio in FY 06-07 was 9.63 but goes on decreasing. This shows that the
company's fund is blocked for a long time in debtors. The company has not been
efficient in converting debtors into cash.
P a g e | 48

3. FIXED ASSETS TURNOVER

Observation

This ratio shows how well the fixed assets are being utilized. In computing fixed
assets turnover ratio, the fixed assets are generally taken at written-down value at the
end of the year. However, there is to rigidity about it. It may be taken at original cost or
at present market value depending on the object of the comparison. In fact, the ratio will
have automatic improvements if the written-down value is used. It would be better if the
°ratio is worked out on the basis of the original cost of fixed asset.

The ratio has fallen down in 08-09 and suggests that the fixed assets should be
utilized more efficiently.
P a g e | 49

3. FIXED ASSETS TURNOVER

Observation

This ratio shows how well the fixed assets are being utilized. In
computing fixed assets turnover ratio, the fixed assets are generally taken
at written-down value at the end of the year. However, there is to rigidity
about it. It may be taken at original cost or at present market value
depending on the object of the comparison. In fact, the ratio will have
automatic improvements if the written-down value is used. It would be
better if the °ratio is worked out on the basis of the original cost of fixed
asset.
P a g e | 50

The ratio has fallen down in 08-09 and suggests that the fixed assets
should be utilized more efficiently.

Profitability Ratios
(Rs In crore)
Sr. No. 2009 2008 2007
D) Profitability ratios

1) Gross Profit Ratio = 810.4118 699.2542 644.4712


Gross Profit X 100 2317.777 1908.7217 1790.2782
Net Sales 35% 37% 36%

2) Operating Profit ratio = 438.8437 360.5965 311.4494


Earning before interest and tax X 100 2317.777 1908.7217 1790.2782
Net Sales 18% 18% 17%

3) Net Profit ratio = 255.1004 214.0355 168.1328


Profit after tax X 100 2317.777 1908.7217 1790.2782
Net Sales 11% 11% 9%

4) Operating Expenses ratio = 400.357 363.3168 346.005


Expenses X 100 2317.777 1908.7217 1790.2782
Net Sales 17% 19% 19%

5) Operating ratio= 1907.7222 1572.7793 1491.812


COGS + Operating expenses X 100 2317.777 1908.7217 1790.2782
Net Sales 82% 82% 83%

1) GROSS PROFIT RATIO


P a g e | 51

37%
37%
37% 36%
36%
Gross Profit Ratio
36% 35%
35%
35%
34%
2007 2008 2009
Year

Observation

The gross profit is the difference between the sales revenue and he
cost of generating those sales. Therefore the gross profit amount and the
gross profit ratio depend upon the relationship between the selling price
and the cost of production including direct expenses. The gross profit
reflects the efficiency with which the firm produces/purchases the goods.

The gross profit has declined in F.Y. 08-09 which indicates that there is
increase in cost of goods sold which has affected the profitability of the
firm in that year.
P a g e | 52

2. OPERATING PROFIT RATIO

18%
18% 18% 18%
18%
18%
17%
O perating Profit
Ratio
17% 17%
17%
17%
17%
16%
2007 2008 2009
Year

Observation

The operating profit refers to the pure operating profit of the firm i.e.
the profit generated by the operation of the firm and hence is calculated
before considering any financial charge, non-operating income/loss and tax
liability etc. The operating profit shows the percentage of pure profit
earned on every 1 rupee of sales made.

The ratio has remained pretty much consistent over the years.
P a g e | 53

2) NET PROFIT RATIO :

Observation

This ratio shows the net contributions made by every 1 rupee of sales
to the owner funds. The net profit ratio indicates the proportion of sales
revenue available to the owner of the firm and the extent to which the sales
revenue can decrease or the cost can increase without inflicting a loss on
the owners. So, the net profit ratio shows the firm's capacity to face the
adverse economic situations.
P a g e | 54

The net profit has remained pretty much consistent over the years. This
indicates that there is no improvement in the operational efficiency of the
business.
P a g e | 55

4. OPERATING EXPENSE RATIO

19% 19%
19%
19%

Operating
18%
Expense 18% 17%
Ratio
17%
17%
16%
2007 2008 2009
Year

Observation

Operating expense ratio is calculated to ascertain the relationship


that exits between operating expenses and volume of sales. It indicates the
portion of sales, which is consumed by the various operating expenses.
Thus, such an analysis throws good light on the level of efficiency
prevailing in different aspects of the work. This ratio can be analyzed to
identify the rate of consumption of raw material in the production process.

The operating expenses are declined in F.Y. 08-09. This declining


trend is due to the increase in sales.
P a g e | 56
P a g e | 57

5. OPERATING RATIO :

83%
83% 83%
83%
83%
Operating82%
Ratio 82% 82%
82%
82%
82%
82%
81%
2007 2008 2009
Year

Observation

This ratio measures the extent of costs incurred for making the sales.
This ratio shows relationship-between cost of goods sold plus operating
expenses with the net sales. This ratio is closely related with the ratio of
operating profit to net sales, which can be obtained by subtracting the
operating profit from 100, i.e., operating ratio plus operating profit ratio is
100.

The operating ratio shows a satisfactory result: This is due to


increase in raw material, cost on amount product, etc. It also increases sales
P a g e | 58

& marketing expenses due to heavy sales promotion expenditure incurred


by the company.
P a g e | 59

Profitability Ratio

(Rs In crore)
Sr. No. 2009 2008 2007

6) Return on Assets = 255.1004 214.0355 168.1328


Profit after tax X 100 3404.647 2238.7381 2243.1881
Total Fixed Assets 7% 10% 7%

7)Return on total shareholders’ equity 255.1004 214.0355 168.1328


Profit after tax X 100 1987.3153 1634.5 1498.123
Total shareholders’ equity 13% 13% 11%

8) Return on capital employed = 255.1004 214.0355 168.1328


Profit after tax X 100 4176.433 3088.1468 2687.0171
Total capital employed 6% 7% 6%

9) Earnings per share = 255.1004 214.0355 168.1328


Profit after tax 18.572 16.32 16.24
No. of equity shares 13.74 13.11 10.35

10) Dividend per share= 57.5217 46.5188 69.455


Dividend paid to ordinary shareholders 18.572 16.32 16.24
No. of equity shares 3.10 2.85 4.28

11) Dividend per share= 3.10 2.85 4.28


Dividend per share 13.74 13.11 10.35
Earnings per share 0.23 0.22 0.41

6. RETURN ON ASSETS :
P a g e | 60

Observation

The ROA measures the profitability of the firm in terms of assets


employed in the firm. Usually the profit of the firm is measured in terms of
the net profit after tax and the assets are measured in terms of total assets or
total tangible assets or total fixed assets. The ROA shows as to how much
is the profit earned by the firm per rupee of assets used.

This ratio has shown increase from FY 07- 08 but decrease in FY


08-09. This shows that the company has purchased new assets or the profit
is decreasing as compared to sales.
P a g e | 61

7. RETURN ON TOTAL SHAREHOLDERS EQUITY :

Observation

The return from the point of view of equity shareholders may be


calculated by comparing the net profit less preference dividend with their
total contribution in the firm. The ROE indicates as to how well the funds
of the owner have been used by the firm. It also examines whether the firm
has been able to earn satisfactory return for the owners or not.

This ratio has remained consistent over the last two years.
This reflects the productivity of the ownership (risk) capital employed in
the firm.
P a g e | 62
P a g e | 63

8. RETURN ON CAPITAL EMPLOYED :

Observation

The profitability of the firm can be analyzed from the point of view
of the total funds employed in the firm. The term funds employed or the
capital employed refers to the total long-term sources of funds. It means
that the capital employed comprises of shareholders funds plus long-term
debts.

This ratio has also shown increase in FY 07 - 08 but decrease in FY


08-09. This is due to the effect of taxation and not due to the capital
structure.
P a g e | 64
P a g e | 65

9. EARNINGS PER SHARE :

Observation

The more the earning per share better are the performance and
prospects of the company. Generally 10-20 times of EPS are considered as
a justified market price of a share.

The EPS of the company has increased satisfactorily in FY 07 - 08 but only


marginally in FY 08-09 due to the increase in number of equity shares as
compared to net profit.
P a g e | 66
P a g e | 67

10. DIVIDEND PER SHARES :

Observation

Sometimes the equity shareholders may not be interested in the EPS


but in the return which they are actually receiving from the firm in the form
of dividend~. The amount of profits distributed to shareholders per share is
known as DPS. Generally, companies declare dividends in term of
percentage of paid up capital.
P a g e | 68

The DPS of the company is Rs.4.28/- in FY 06-07. It decrease in FY


07-08 but again it increase further. This indicates that the company is
consistent in giving dividend that is showing a growth rate.
P a g e | 69

11. DIVIDEND PAY-OUT RATIO :

Observation

The dividend pay-out ratio is the ratio between the DPS and the EPS
of the firm i.e. it refers to the proportion of the EPS which has been
distributed by the company as dividends. It may be noted that the DPS and
the DP ratio both depends upon the statutory provisions relating to
compulsory appropriations of profits.

This ratio has decreased which reflects that the company is slightly
conservative in distributing the dividends.
P a g e | 70

SUGGESTIONS

After analysis and interpretation of the financial statement of


Ballarpur Industries Limited, the following are the suggestions for the
betterment of the company :

It is emphasized here that one has to keep in mind; there will be


always scope for future development in any concern and in any
department.

1. The company should try to improve its current ratio and quick
ratio, as excess liquidity affects the overall profitability of the firm.

The company can invest its idle funds in order to earn more profits and
thus increase the earning per share. This would benefit the shareholders
and put the company in better light.

2. Another area where the management needs to draw its attention


as far as turnover is concerned is to manage its fixed assets

The company needs to manage its fixed assets more efficiently in order
to further increase its sales. The contribution of fixed assets in the
revenue generation hasn’t proved to be satisfactory.
P a g e | 71

3. The company needs to work on its gross profit ratio by


decreasing the cost of goods sold.

Although, the other profit ratios haven’t shown a decline but they haven’t
shown an increase as well. This suggests that there has been no
improvement in the operational efficiency of the company.

The company needs to work towards reducing its costs in order to


achieve higher profits.

4. The company should try to improve debtor's turnover proportion.


This will help the company to convert debtors into cash.

The company should make credit sales to those customers from


whom the amount can be collect more quickly. The more quickly
the debtor pay, the less is the risk from bad debts, and so the
lower the expenses of collection and increase the liquidity of
firm.

5. The company should try and increase it dividend payout ratio.

Whenever profit incur the company should try to give more dividend
to both equity and preference shareholders. Increasingly these ratios will
definitely helps the market share price to shoot up.
P a g e | 72

CONCLUSION

After analyzing and interpreting the whole financial statement of


Ballarpur Industries Limited for a five years starting from 2006-07 to 2008-
09 and on the basis of annual reports, the researcher have arrived at
inferences which are shown at the end of analysis.

On the basis of inferences the researcher has arrived on final


conclusions. They are as follows:

A) Liquidity Position :

 The Liquidity position of the company is good during the


year. It can be judged by the satisfactory result of absolute ratio
during the period, when the ratios are equal to or more than the
ideal ratios.

 The current ratio and quick ratio are higher than the ideal
ratio. It shows the company's excess liquidity.
P a g e | 73

Overall the liquidity position of the company is good which shows


the managerial efficiency in utilizing current assets in the business.

B) Leverage Position:

 The Leverage position of the company is good in short term as


well as in long term position of the company due to higher
interest coverage ratio, lower debt equity ratio and financial
leverage in previous years.

C) Activity Position:

 The business activity of the company is efficient and effective


during the period, which is beneficial to the liquidity, leverage and
profitability position of the company.

 The high inventory turnover ratio highlights the overall


effective and efficiency of the business activities and management
in making productive utilization of the assets and capital of the
company so that there is better profitability during the period.

 But the debtor's turnover ratio is decreasing which shows that


the company is not efficient in converting debtors into cash.

 Also, the assets need to be utilized more efficiently.

D) Profitability Position:
P a g e | 74

 The gross profit of the company is declining, which has


affected the profitability of the company.

 Beside this ratio, the overall profitability of the company is


satisfactory during the study period, which is the positive sign for
the company.

 The profitability has also affected due to decrease in return on


capital employed, which reflects the productivity of ownership
capital employed in the firm and also due to earning per share ratio.
Therefore the overall financial position of the company is good, on the
basis of determinants of ratio analysis i.e. Liquidity, Leverage, Activity and
Profitability Ratios. The financial position of the company can be said
sound in short term and long term, which indicates that there may be no
financial crisis in future.
P a g e | 75

BIBLIOGRAPHY

 Books Referred … Authors

 Financial Management … R.P Rustagi

 Analysis of Financial
Statements … Vivek Sharma
P a g e | 76

 Website :
www.bilt.com

 Other :
Annual Reports of Ballarpur Industries Limited

Balance sheet of BILT

(---In
Crs)

Jun ' 09 Jun ' 08 Jun ' 07


Sources of funds
Owner's fund
Equity share capital 185.73 163.25 162.45
Share application money - - -
Preference share capital - - 5.00
Reserves & surplus 1,814.70 1,470.02 1,326.36
Loan funds
Secured loans 744.90 1,018.39 991.27
Unsecured loans 591.56 435.21 197.63
P a g e | 77

Jun ' 09 Jun ' 08 Jun ' 07


Total 3,336.89 3,086.86 2,682.71
Uses of funds
Fixed assets
Gross block 3,268.19 3,151.91 3,204.45
Less : revaluation reserve - - -
Less : accumulated depreciation 1,285.10 1,133.37 1,187.73
Net block 1,983.09 2,018.54 2,016.72
Capital work-in-progress 393.24 217.76 224.79
Investments 285.51 18.64 54.97
Net current assets
Current assets, loans & advances 1,352.17 1,395.50 875.57
Less : current liabilities & provisions 689.50 586.96 519.49
Total net current assets 662.67 808.54 356.08
Miscellaneous expenses not written 12.37 23.38 30.15
Total 3,336.89 3,086.86 2,682.71
Notes:
Book value of unquoted investments 285.51 18.64 -
Market value of quoted investments - - -
Contingent liabilities 619.29 202.55 191.54
Number of equity sharesoutstanding (Lacs) 1857.57 1632.80 1624.50

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