1

ABSTRACT
This project study gives the analysis of financial performance of ELGI ULTRA
INDUSTRIES LTD, COIMBATORE. The researcher used the following tools like,
comparative balance sheet, ratio analysis, trend analysis, correlation. The main aim
of this study is to study the financial performance analysis of the company,
forecasting is also done to determine the future trend of the sales and profit.
Finally, findings, benefits to the company, valuable suggestion and
recommendations are given to the company for better prospects and improving the
performance in future.

ACKNOWLEDGEMENT

2
First and foremost I dedicate this project to the almighty lord who is solely
responsible for all the outstanding performance in my life.
I express my sincere thanks to our Chairman Lion Dr.K.S.Rangasamy, MJF,
of K. S. R. Educational Institutions, Tiruchengode for providing the facilities to do
the project.
I have pleasure in expressing my gratitude and my thanks to
Dr.P.S.S.Srinivasan B.E., M.Tech., Ph.D., MISTE., ISHMT., FMFPI., and Principal
KSR College of technology for providing me an opportunity to do this project.
I express my sincere thanks to Mr.K.Prabhakar B.Sc., MBA., (Ph.D) Director
of KSR School of management for granting me permission to do the project work.
I express my sincere thanks to Mrs.A.Lakshmi M.A., M.B.A., M.Phil, B.Ed.,
MISTE, (Ph.D) HOD of KSR School of management for granting me permission to
do the project work
It is my privilege to express my deep sense of gratitude to Mr. M.Vijayakumar
M.B.A., M.Phil., (Ph.D) for her support and encouragement given to me during the
entire course of study.
I would like to thank Mr. Balasubramanian Manager-Finance of Elgi Ultra
Industries Ltd for helping me during the project work.
Last but not the least I thank my parents and friends for supporting me and
lending me a helping hand during the study.

CONTENTS
Chapter
I

Description
INTRODUCTION

Page No

3
1.1 Introduction

II

1.1.1 Finance

01

1.1.2 Finance management

02

1.1.3 Key activities of financial management

03

1.1.4 Financial analysis

04

1.1.5 Method of analysis and interpretation

04

1.2 Objectives of the study

05

1.3 Scope of the study

05

1.4 Need for the study

06

1.5 Limitation of the study

06

1.6 Chapterization of the study

07

CONCEPTS AND REVIEW

III

2.1 Concept for the study

08

2.2 Company Profile

10

2.3 Product Profile

11

RESEARCH METHODOLOGY
3.1 Research Design

14

3.2 Data collection details

14

3.3 Tools of the study

15

IV

DATA ANALYSIS AND INTERPRETATION

RESULTS AND DISCUSSION

18

5.1 Findings of the study

44

5.3 Suggestion of the study

46

5.4 Conclusion

47

APPENDICES
REFERENCES

LIST OF TABLES

S.No

Title

Page No

1.

Calculation of current ratio

22

2.

Calculation of quick ratio

23

3.

Calculation of working capital ratio

Turnover ratio

4.

25

Calculation of Fixed assets

Turnover ratio

26

5.

Calculation of operating ratio

27

6.

Calculation of proprietary ratio

29

7.

Calculation of debt-equity ratio

30

8.

Comparative balance sheet

33

9.

Calculation of co-efficient of correlation

39

10.

Calculation of actual trend

41

LIST OF FIGURES

S.No

Title

Page No

1.

Chart of current ratio

22

2.

Chart of quick ratio

24

3.

Chart of working capital

Turnover ratio

4.

25

Chart of fixed assets

Turnover ratio

26

5.

Chart of operating ratio

28

6.

Chart of proprietary ratio

29

7.

Chart of debt-equity ratio

31

8.

Percentage of fixed assets

37

9.

Percentage of current asset

And fixed assets

10.

38

Percentage of profitability for the

Future period

40

11.

Percentage of trend value

42

12.

Percentage of sales for the

Future period

43

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CHAPTER I
INTRODUCTION
1.1 INTRODUCTION
1.1.1 FINANCE
In the modern money oriented economy, finance is one of the basic
foundations of all kinds of economic activities. It is the master key which provides
access to all the sources being employed in manufacturing, and merchandising
activities. It has rightly been said that business needs money to make more money.
Finance is a specialized function and it draws heavily on other related
functions. Finance has undergone a significant change and is concerned with the
flow of funds and decisions relating to business operations affecting the valuation of
the firm.
Finance function covers decisions relating to investment, financing, and
dividends, the administrative area or set of administrative functions in an
organization, which have to do with management of the flow of cash so that the
organization will have to carry out its objectives as satisfactorily as possible and at
the same time meet its obligation as they become due.
Finance may be defined as that administrative area or set of
administrative functions in an organization which relate with the arrangement of cash
and credit so that the organization may have the means to carry out its objective as
satisfactorily as possible.

7
1.1.2 FINANCIAL MANAGEMENT
Financial management is broadly concerned with the acquisition and use of
funds by a business firm. Financial management emerged as a distinct field of study
at the turn of this century. Its evolution may be divided in to three broad phases:
The Traditional phase
The Transitional phase and
The modern phase

1.1.3 KEY ACTIVITIES OF FINANCIAL MANAGEMENT

There are three broad activities of financial management:
I.FINANCIAL ANALYSIS PLANNING AND CONTROL
Assessing the financial performance and condition of the firm.
Forecasting and planning the financial future of the firm.
Estimating the financial needs of the firm.
Instituting appropriate system of control to ensure that the actions of
managers are congruent with the goals of the firm.
II.MANAGEMENT OF THE FIRMS ASSETS STRUCTURE
Determining the capital budgets
Managing the liquid assets
Establishing the credit policy and
Controlling the level of inventories.
III. MANAGEMENT OF THE FIRMS FINANCIAL STRUCTURE
Establishing the debt-equity ratio or financial leverage
Determining the dividend policy

1.1.4 FINANCIAL ANALYSIS

The financial statement provides of summary of the accounting of a
business enterprise. To understand the financial performance and condition of a
firm, its stockholders look at three financial statements the balance sheet, the
profit and loss accounts and the sources and uses of funds statement.
BALANCE SHEET
It is a statement of financial position of a business at a specified moment of
time. It represents all assets owned by the firm at a particular moment of time and
the equities of the owners and outsiders against those assets at that time.
PROFIT AND LOSS ACCOUNTS
It shows what has happened to business as a result of operations
between two balance sheet dates.
1.1.5 METHODS OF ANALYSIS AND INTERPRETATIONS
Comparative balance sheet analysis
Ratio analysis
Trend analysis
Correlation analysis

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1.2 OBJECTIVES OF THE STUDY

To Study the financial position of ELGI ULTRA INDUSTRIES over the period
of five years
To Study the liquidity, solvency and profitability position of ELGI ULTRA
INDUSTRIES for the period from 02-03 to 05-06.
To Study the Fixed Asset position over the period of Five years.
To study the relationship between current assets and fixed assets
To estimate the profitability and sales for the future period
1.3 SCOPE OF THE STUDY
The scope of the study is to find out financial performance of the Elgi Ultra
Industries for the past four years. A sincere attempt has been made to include all the
aspect relating to the study. For this purpose analysis of financial performance of the
company has done from the last four years published financial statement and all
aspects the researcher should be included in the report.

11

1.4 NEED OF THE STUDY

Financial analysis is a powerful mechanism which helps in ascertaining the
strengths and weakness in the operation and financial position of an enterprise.
According to Myers, Financial analysis is defined as follows:
Financial statement analysis is largely a study of the relationship among
the various financial factors in a business as disclosed by a single set statement and
a study of the trend of these factors as shows in series of statement.
Financial analysis is the process of identifying the financial strengths and
weakness of the firm by properly establishing relationship between the items of the
balance sheet and the profit and loss accounts.
Financial analysis can be undertaken by management of firm, or by
parties of outside the firm, viz, own as creditors, investors and others. The nature of
analysis will differ depending on the purpose of analysis.
1.5 LIMITATION OF THE STUDY
Every research has its own technical and managerial limitations. Time was
one of the main limitations of this study. Because of the lack of time the analysis is
based on the secondary data collected from the balance sheet, profit and loss
accounts and other records of the organizations from years
2002-2006.

12

1.6 CHAPTERIZATION OF THE STUDY

Chapter I:

These deals with introduction, need for the

Study, objectives of the study and scope of the
Study.

Chapter II:

This chapter deals with concepts of the study

Company profile and product profile.

Chapter III:

These deals with Research Design, Data collection

details and tools for the study.

Chapter IV:

These deals with Data Analysis and Interpretations

Chapter V:

These deals with Findings, Benefits of the study

Recommendations and Suggestions.

13

CHAPTER II
CONCEPTS AND REVIEW
2.1 CONCEPTS OF THE STUDY
Balance sheet
Balance sheet is a statement of financial position of a business at a specified
moment of time. It represents all the assets owned by the company at a particular
moment of time and the claims of owners and outsiders against those assts at the
time. It is in a snapshot of the financial condition of the business at that time. It is one
of then most significance financial statement.
Assets
Assets representing economic resources are the valuable possessions
owned by the firm. These possessions should be capable of being measured in
monitory term. Assts are the future benefits. Assets may be classified into current
asset and fixed asset. Whether an asset is fixed or current however depends on the
nature of business itself
Current Assets
Assets that are in the form of cash or that can be converted into cash within a
short period of time (usually twelve months) are known as current assets. Cash in
hand, cash at bank, debtors and short term investment are examples as floating or
circulating assets.
Fixed Assets
Fixed assets are assets of a relatively permanent nature which are used in the
operation of the business and are not intended for sale. Fixed Assets are carried at
the cost of acquisitions of construction or book value less accumulated depreciation.

14

Liability
Liabilities are debts payable in the future by the firm to its creditors. They
represent economic obligation to pay cash or to provide goods on services in some
future period. Expenditure of liability, Bills payable, interest payable, taxes payable,
debentures, bonds borrowings from banks and financial institution, public deposits.
Liabilities are two types current liability and long term liability

Current Liability
These are the liability repayable within a short period, not exceeding one
year. The current asset are converted into cash to pay the current liability, bills
payable, bank overdraft are example for the current liability.

15

2.2 COMPANY PROFILE

Elgi Ultra Industries Ltd., belongs to the ELGI Group based in Coimbatore, India.
The combined annual business of the group is in excess of Rs.4000 Million and
employs close to 2400 people. ELGI group includes,
Elgi Equipments compressors/ Automotive Service Equipment
Elgitread India Ltd Tread Rubber
Elgi Ultra Industries Ltd
Elgi Ultra Industries Limited, an ISO 9000:2001 company started its operations in
the year 1983. It currently manufactures products for different industries, which
includes Consumer Durables. Textile Accessories, Drip Irrigation Systems, Plastic
Extruded Components, Horns, Wipers, Industrial Fabrics and Rubber Moulded
Components. The annual business is about Indian Rs.10 million (US $ 9 million) and
employs close to 200 people.
The group was founded by Sri. L.R.G. Naidu and had its beginnings as early as
year 1917. The promoters were involved in the agriculture, transportation and
manufacturing business. The first company in the group was floated in the year 1959
and thereafter the group has made a steady progress.
The promoters decided to use their manufacturing strength in the textile industry
through their association with Elgi Polytex Ltd. The company was formed in the year
1981 riding on the expertise of the promoters in managing manufacturing companies
and aided by the ever-growing market for quality textile, machinery spares and
components. The product profile of the company grew with the industry.
The Companys name changed to Elgi Ultra Industries Ltd., in the year 1996.

16

The Company is having two divisions namely Polytex Division and Ultra Division.

2.3 PRODUCT PROFILE

POLYTEX DIVISION
The main products are;
Synthetic Spindle Tapes used to rotate the spindles.
Loom components parts of weaving looms
High pressure plastic hoses and tubes pneumatic applications in
automobiles
Industrial Fabrics
Flat belts To transmit power from motor to machinery
Rubber Molded components used in the field of automobile, life, textile
and processing industries
LDPE Semi embossed films used as liner material in rubber industry
Drip Irrigation System
The company manufacturers synthetic spindle tapes and flat belts with the
technical and financial collaboration from verseidag Beltech Ag, Switzerland. These
products enjoy market leadership in the domestic market and the wide acceptance in
the international markets including quality European Markets.

17

ULTRA DIVISION
The consumer boom in the early 1990s encouraged the group to enter into the
manufacture on consumer durables. The ability of the customer to value quality,
performance and the aesthetics of the products offered resulted in the group offering
the First Table Top Wet Grinder. The in-house designing and engineering skills were
very much utilized in the development and launch of the product. The Companys
involvement in the product started through the opening of the Ultra Division in the
year 1994-95.
Currently, the Company has designed products for both domestic and the
exports markets and has a range for both the small and large families. The range
includes the 2 liters version (Ultra Frind+) and the 1.25ltrs version (Ultra Pride+) both
in the 220 volts as well as 110 volts categories (to meet the specific needs of USA
markets). These products are also exported to USA, Middle and South Eastern
markets.
The company has its Registered and Administrative offices at Coimbatore and
the Manufacturing facility at Arasur, on the outskirts of Coimbatore. The company
currently employs around 200 people.
QUALITY POLICY
To achieve customer satisfaction the commitments and providing reliable
products and services.
This will be achieved through,

18
Customer focus in all activities
Continuous improvements in systems & work methods
Compliance with statutory requirements
Ensuring fair and ethical practices
ORGANISATION CHART

Director

DirectorOperations

HOD-Finance
& Accounts

HOD-Marketing
ULTRA
Division

Systems inCharge
HOD-Marketing
POLYTEX
Division
Textile& nonTextile Division

HOD-Marketing
POLYTEXAgro & Auto
Division

HODManufacturing
POLYTEX
Division

HOD P & A

MR
HOD-R & D and
QA
POLYTEX
Division

HODCommercial

QC IN-Charge
Ultra Division

HOD-D & D
Ultra Division

HOD-Maintenance
(Electronic & Engineering)
Plastic
Division
In charge

Rubber
Division
In Charge

Plastic
Division
In Charge

Tool
Room
In Charge

Mech.
Maint.
In Charge

19

CHAPTER III
RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
Research methodology is a scientific and systematic search for pertinent
information on a specific topic. Research methodology is a way to systematically
solve the research problem. It is the conceptual structure within which the research
is conducted. It helps the researcher to know the criteria which they can decide that
certain technique and procedures will be applicable to certain problem and other will
not.
3.2 DATA COLLECTION DETAILS
For a research, researcher may depend either on primary data on
secondary data. Primary data is usually collected with the help of questionnaires.
Secondary data is collected from published journals or magazines or reports.
In the present study, most of the information is collected from balance
sheets, profit and loss accounts and other books of accounts of the company.
Besides, some informations are collected through discussions with finance and other
executives of the finance department.

20

3.3 TOOLS OF THE STUDY

Since the project work is done in the area of finance, most of the applied are
tools of financial and statistical analysis. Statistical tools such as correlation analysis,
trend line graphs or charts are also used for analysis.
The tools of financial analysis such as,
Ratio analysis
Comparative balance sheet
Correlation analysis
Trend analysis
Ratio analysis
Ratio analysis is one of the most powerful tools of financial analysis. According
to accountants handbook by wixon, a ratio is an expression of the quantitative
relation ship between two numbers. Ratio analysis is the process of establishing
and interpreting various ratios for helping in making certain decisions. The ratio
analysis is helping to analyses and interprets the financial health of an enterprise.
Comparative Financial Statement
The comparative financial statement is used to trace the period changes in the
financial performance of the company. The comparative statement will contain the

21
financial statement of at least two years. The comparative financial statement may
show,

Absolute figures of each item of financial statement

Absolute figures of increase or decrease in each item of financial
statements
Increase or decrease in each item of financial statement in
percentage.
The comparative income statements disclose the period changes in net profit
or net loss in operations. The comparative income statements may show absolute
change from one period to another period to another and if desired the changes inn
percentages. Since the figures for two or more period are shown side by side. The
reader can quickly ascertain whether the sales have increased or decreased,
whether the cost of sales have increased or decreased etc. thus reading
comparative income statements will give meaningful conclusion.
The comparative balance sheet as on two or more dates can be used for
comparing assets and liabilities and to find out increase or decrease if any. Thus
comparative balance sheet gives emphasis on changes of items of balance sheet.
Such a balance sheet is very helpful in understanding trends in a company.
Correlation
Correlation analysis deals with the association or co-variation between two or
more variables and helps tom determine the degree of relationship with them. The
correlation measures the closures of the relationship between the variables. Thus the
association of any two variables is known as correlation. Thus correlation analysis
refers to the technique used in measuring the closeness of the relationship between

22
the variables. When deviations are taken from an assumed mean the formula is
applicable.
xy
r = __________
x2*y2
Projection of profit for the future
The researchers are used the tool trend analysis to project the level of profit
& sales for the future. The basic objective of the study of trend analysis is to predict
the figure behavior or the data. If a trend can be determined, than the ratio of change
of progress can be ascertained and tentative estimate concerning the future made
accordingly. Such for costs are immense use of framing the basic policies and its
planning for the future. However these forecasts are based on the assumptions that
the conditioning determining this growth may reasonably ro persist in future.
The straight line trend is represented by the equation
Yc = a + bx
Where a & b are constants.
a = computed trend figure of the Y variable
b = amount of change in Y variable associated with changes of one
unit of this X variable.
Where

X is time deviation & x = 0

Then a = y/b
b = xy/x2

23

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION
The preparation of financial statements is the not end aim. The purpose of
preparing these statements is to use them for decision making. The statement
becomes a tool for the future planning and forecasting. The analysis and
interpretation of financial statement is to judge their meaning and significance. An
opinion is formed in respect to the financial condition of the concern. The statements
are rearranged and divided in to suitable forms. The analysis of these statements
involves their division according to similar groups and arranged form. The
interpretation involves the explanation financial facts in a simplified manner.
The analysis and interpretation is essential to bring out the mystery behind the
figures in different periods, different figures in the same period etc. the analysis and
interpretation of financial statements is used to determine the financial position and
results of operation as well.
Ratio Analysis
Ratio analysis is one of the techniques of financial analysis where ratios are
used as a yardstick for evaluating the financial condition and performance of a firm.
Analysis and interpretation of various accounting ratios gives a skilled and
experienced analyst, a better understanding of the financial condition and
performance of the firm than what he could have obtained only through a perusal of
financial statements.

24
Ratios are relationships expressed in mathematical terms between figures
which are connected with each other in some manner.

Classification of Ratios
Ratios can be classified into different categories depending upon the basis of
classification.
The traditional classification has been on the basis of the financial statement
to which the determinants of a ratio belong. On this basis the ratios could be
classified as:
Profit and Loss Account Ratios, i.e., ratios calculated on the basis of the item
of the Profit and Loss account only, gross profit ratio, stock turnover ratio, etc.
Balance Sheet ratios, i.e., ratios calculated on the basis of the figures of
Balance Sheet only, e.g., current ratio, debt-equity ratio, etc.
Composite Ratios or inter-statement ratios, i.e., ratios based on figures of
profit and loss account ass well as the balance sheet, e.g., fixed assets
turnover ratio, overall profitability ratio, etc.

25

The above classification of ratios can be depicted by means of the

following charts.

ACCOUNTING
RATIOS

Traditional

P&L A/c
Ratios

Balance
Sheet
Ratios

Composite
Ratios

Functional

Profitability
Ratios

Coverage
Ratios

Turnover
Ratios

Liquidity
Ratios

Finance
Ratios

Stability
Ratios

26

The ratio analysis of Elgi Ultra Industries Ltd, from the year 2002-2003 to
2005-2006 is given below
Current Ratio
This ratio is an indicator of the firms commitment to meet its short-term
liabilities. It is expressed as follows:
Current Asset
Current Liabilities

Current assets mean assets that will either be used up or converted into cash
within a years time or during the normal operating cycle of the business, whichever
is longer. Current liabilities mean liabilities payable within a year or by creation of
current liabilities.

27

CALCULATION OF CURRENT RATIO

(2002-03 to 2005-06)
TABLE 3.2.1
Year

Current

Current

2002-03
2003-04
2004-05
2005-06

Asset
Liabilities
41,78,78
49,58,56
75,00,91
52,54,23
95,21,84
36,58,66
107,52,39
33,32,89
Source: Secondary data

Current Ratio
.84:1
1.43:1
2.60:1
3.23:1

Significance
The current ratio is an index of the concerns financial stability since it shows
the extent of the working capital which is the amount by which the current assets
exceed the current liabilities.
CHART OF CURRENT RATIO 3.2.2

28

2. Quick Ratio
This ratio is also termed as acid test ratio or liquidity ratio. This ratio is
ascertained by comparing the liquid assets (i.e., assets which are immediately
convertible into cash without much loss) to current liabilities. Prepaid expenses and
stock are not taken as liquid assets. The ratio may be expressed as:

Liquid Assets
Current Liabilities

CALCULATION OF QUICK RATIO

(2002-03 to 2005-06)
TABLE

Liquidity

Current

Quick

Year

Asset

Liability

Ratio

02-03

103,57,42

643,40,67

.16:1

03-04

116,45,68

756,87,93

.15:1

04-05

121,29,52

799,65,53

.15:1

05-06

1113,32,84

904,29,48

.13:1

3.2.3

29

Source: secondary data

Significance
A comparison of the current ratio with quick ratio shall indicate the inventory
hold-ups.

CHART OF QUICK RATIO 3.2.4

3. Working Capital Turnover Ratio

30

This is also known as Working Capital Leverage Ratio. This ratio indicates
whether or not working capital has been effectively utilized in making sales. In case a
company can achieve higher volume of sales with relatively small amount of working
capital, it is an indication of the operating efficiency of the company. The ratio is
calculated as follows:

CALCULATION OF WORKING CAPITAL TURNOVER RATIO

(2002-03 to 2005-06)
TABLE 3.2.5
Working
Capital
Year

Net Sales

Working Capital

Turnover Ratio

02-03

75,85,26

89,87,45

0.5

03-04

548,54,20

789,54,56

1.5

04-05

78,65,48

70,12,58

2.5

652,51,75
789,54,75
Source Data: Secondary Data

3.5

05-06

CHART OF WORKING CAPITAL TURNOVER RATIO 3.2.6

31

4. 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 indicated whether the
investment in fixed assets has been judicious or not. The ratio is calculated as
follows:
Net sales
Fixed assets (net)
Calculation of Fixed Asset Turnover Ratio
(2002-03 to 2005-06)
TABLE 3.2.7
Fixed Asset
Turnover
Year

Net Sales

Fixed Asset

Ratio

02-03

588,54,64

610,87,88

0.14

03-04

684,47,67

670,54,87

1.25

32

04-05

587,58,63

550,48,97

2.89

05-06

787,54,87
879,87,98
Source: Secondary Data

0.75

CHART OF FIXED ASSET TURNOVER RATIO 3.2.8

Operating Ratio
This ratio is a complementary of net profit ratio. In case the net profit ratio is
20%, it means that the operating ratio is 80%. It is calculated as follows:
Operating Costs

*100

Net Sales
Operating costs include the cost of direct materials, direct labour and other
overheads, viz., factory, office or selling. Financial charges such as interest,
provision for taxation, etc., are generally excluded from operating costs.
Calculation of operating Ratio
(2002-03 to 2005-06)
TABLE 3.2.9
Year

Operating Cost

Net Sales*100

Operating

33

Ratio
02-03

77,69,49

89,17,71

87.12

03-04

93,60,92

105,09,41

89.07

04-05

103,77,18

110,96,40

93.52

05-06

105,70,55
123,72,05
Source: Secondary Data

85.44

Significance
This ratio is the test of the operational efficiency with which the business is
being carried. The operating ratio should be low enough to leave a portion of sales to
give a fair return to the investors.

CHART OF OPERATING RATIO 3.2.10

34

Proprietary Ratio
It is a variant of debt-equity ratio. It establishes relationship between
the proprietors funds and the total tangibles assets. It may be expressed as:
Shareholders funds
Total tangible assets

Calculation of proprietary ratio

(2002-03 to 2005-06)

35

TABLE 3.2.11
Shareholders
Year

Fund

Proprietary
Total Assets

Ratio

02-03

103,57,42

643,40,67

0.16

03-04

116,45,68

756,87,93

0.15

04-05

121,29,52

799,65,53

0.15

05-06

113,32,84
904,29,48
Source: Secondary Data

0.13

Significance
This ratio focuses the attention on the general financial strength of the
business enterprise. The ratio is of particular importance to the creditors who can
find out the proportion of shareholders funds in the total assets employed in the
business.
CHART OF PROPRIETARY RATIO 3.2.12

Debt-Equity Ratio

36
The debt-equity ratio is determined to ascertain the soundness of the long-term
financial polices of the company. It is also known as External-Internal equity ratio. It
may be calculated as follows:
External Equities
Internal Equities
The term external equities refers to total outside liabilities and the term
internal equities refers to shareholders funds or the tangible net worth. In case the
ratio is 1 it is considered to be quite satisfactory.
Calculations of Debt-Equity Ratio
(2002-03 to 2005-06)
TABLE 3.2.13
Debt-Equity
Year

External Equity

Internal Equity

Ratio

02-03

487,73,21

103,57,42

4.7

03-04

585,36,54

116,45,68

2.03

04-05

628,65,88

121,29,52

5.18

05-06

681,26,47
113,32,84
Source: Secondary Data

6.01

Significance
The ratio indicates the proportion of owners stake in the business. Excess
liabilities tend to cause insolvency. The ratio indicates the extent to which the firm
depends upon outsiders for its existence. The ratio provides a margin of safety to the
creditors. It tells the owners the extent to which they can gain the benefits or
maintain control with a limited investment.

CHART OF DEBT-EQUITY RATIO 3.2.14

37

Comparative Balance Sheet

The comparative balance sheet as on two dates can be used for comparing
assets and liabilities and finding out any increase or decrease in assts and liabilities.
The comparative balance sheet of ELGI ULTRA INDUSTRIES LTD, COIMBATORE
from year 02-03 to 05-06 given into Table
Reserves and Surplus
The analysis of Table shows that the reserves and surplus of Elgi Ultra Industries
Ltd, Coimbatore increases continuously from the year 02-03 to 05-06. The absolute
figures of increase in the reserves shoes that the reserves and surplus has become
an important internal source of finance for Elgi Ultra Industries Ltd, Coimbatore.

Secured Loans

38
The loan for which the company has to offer some securities are called secured
loan. The secured loan of Elgi Ultra Industries Ltd., shown in the table increases
continuously since 02-03. The company can avoid this financial risk by depending
more on own funds.
Current Liabilities and Provision
The comparative balance sheet Table of Elgi Ultra Industries Ltd, show the
variation of current liabilities. The various in the current liabilities should be studied in
relation in current assets. In 02-03 the current liabilities has increased by 110.99%.
The increase in current assets this year us 237.14%. So it can be concluded that the
working capital position this year is good.
Fixed Assets
The comparative balance sheet Table of Elgi Ultra Industries Ltd from the year
02-03 to 05-06 shows that the fixed assets has increased continuously till 05-06. This
is because of the companys decision to expand its activities.
Current Assets, Loans Advances
The comparative balance sheet table of Elgi Ultra Industries Ltd from the year
02-03 to 05-06 shows that the current assets has increased in all years. But due to
total industrial lack ness the sundry debtors is increasing continuously from the year
02-03. This is the reason for increase in the current assets.

COMPARTIVE BALANCE SHEET

(02-03) TO (03-04)

39

TABLE 3.2.15
02-03
particulars

03-04
(Rs.in

thousands)

% of Inc/Dec
(Rs.in Inc/ Dec

thousands)

Rs.

LIABILITIES
Shareholders
share capital
Reserve
& 3,83,179

4,17,043

33,864

8.84

Surplus
Funds

and 1,74,954

1,71,138

-3,816

2.18

Head Office
Inter Division 2,89,421

3,45,655

56,234

19.43

A/C
Loans

34,334

8,039

30.57

Secured loans
Current
9,77,795

10,87,588

1,09,793

11.23

liabilities

1,35,598

67,716

99.76

21,91,356

2,71,830

14.16

3,52,800

75,191

27.09

2,855

-90,579

96.94

progress
Current Assts, 8,20192

10,33,517

2,13,325

26.01

Loans

7,14,336

49,039

7.37

3,883

2,607

204.31

83,965

22,247

36.05

fund 26,295

& 67,882

provision
liabilities
provision
TOTAL
19,19,526
ASSETS
Fixed Assets 2,77,609
Net Block
Capital

93,434

expenditure in

& 6065,297

Advances

1,276

Inventories
Sundry
Debtors Cash
and
balance
Other
Loans

bank
C.A 61,718
&

40
Advances
TOTAL

19,19,526
21,91,356
Source: Secondary Data

2,71,830

14.16

COMPARATIVE BALANCE SHEET

(03-04) TO (04-05)
03-04
particulars

Inc/Dec
(Rs.in 04-05

thousands)

% of Inc/Dec

Rs.

(Rs. in
thousands)

LIABILITIES
Shareholders
share capital
Reserve

& 4,17,043

4,82,588

65,545

15.72

Surplus
Funds and Head 1,71,138

1,68,304

-2,834

-1.65

Office
Inter

3,66,081

-9.574

-2.77

1,21,178

-86,844

252.94

Secured loans
Current liabilities 10,87,588

7,63,713

-3,23,875

-29.78

&

1,23,444

-12,154

-8.96

19,95,308

-1,96,048

-8.95

3,07,470

-45,330

-12.85

74,030

71,175

2,492.99

8,40,335

-1,93,182

-18.69

6,45,565

-68,771

-9.627

1,770

-2,113

-54.42

Division 3,45,655

A/C
Loans

fund 34,334

provision 1,35,598

liabilities
provision
TOTAL
21,91,356
ASSETS
Fixed Assets Net 3,52,800
Block
Capital

2,855

expenditure
progress
Current
Loans
Advances
Inventories

in

Assts, 10,33,517
& 7,14,336
3,883

41
Sundry Debtors
Cash and bank
balance
Other C.A Loans 83,965
& Advances
TOTAL

1,26,138

42,173

21,91,356
19,95,308
-1,96,048
Source: Secondary Data

50.23
-8.95

COMPARATIVE BALANCE SHEET

(04-05) TO (05-06)
05-06
particulars

04-05

(Rs.

(Rs. in

thousands)

Inc/Dec Rs.

% of Inc/dec

In

thousands)
LIABILITIES
Shareholders
share capital
Reserve

& 4,82,588

5,27,459

44,871

9.29

Surplus
Funds and Head 1,68,304

1,65,908

-2,396

-1.42

Office
Inter

Division 3,66,081

1,15,124

-2,20,957

-6.75

A/C
Loans

fund 1,21,178

68,598

-52,580

43.39

Secured loans
Current liabilities 7,63,713

6,77,320

-86,393

-11.39

&

1,13,684

-9,760

-7.91

16,68,093

-3,27,215

-16.399

3,43,613

36,143

11.75

5,181

-68,849

-93.00

7,29,901

-1,10,434

-13.14

provision 1,23,444

liabilities
provision
TOTAL
19,95,308
ASSETS
Fixed Assets Net 3,07,470
Block
Capital

74,030

expenditure
progress
Current

in

Assts, 8,40,335

42
Loans

& 6,45,565

Advances

1,770

4,18,544

-2,24,021

-35.17

20,280

18,510

1,045.76

1,50,574

24,436

19.37

Inventories
Sundry Debtors
Cash and bank
balance
Other C.A Loans 1,26,138
& Advances
TOTAL

19,95,308
16,68,093
-3,27,215
Source: Secondary Data

-16.399

TO STUDY THE FIXED ASSETS POSITION OVER THE PERIOD OF FIVE YEARS
TABLE 3.2.16
Amt of fixed Assets

Percentage of Total

years

(Rs. In thousands)

assets

02-03

673,960

11.39

03-04

791,760

13.38

04-05

796,334

13.46

05-06

883,887
Source: Secondary Data

PERCENTAGE OF FIXED ASSET 3.2.17

14.94

43

TO STUDY THE RELATIONSHIP BETWEEN CURRENT ASSTS AND FIXED

ASSETS
TABLE 3.2.18
Fixed assets

Current assets

years

(Rs. In thousands)

(rs. In thousands)

02-03

673,960

1,486,765

03-04

791,760

1,751,736

04-05

796,334

1,487,670

05-06

883,887
Source: Secondary Data

1,186,725

PERCENTAGE OF CURRENT ASSET AND FIXED ASSET 3.2.19

44

CALCULATION OF CO-EFFICIENT OF CORRELATION

TABLE 3.2.20

Year

X
(F.A)

(X883887)

Dx2

Y(C.A)

(y1168725)

Dy2

Dxdy

2002

6,73,960

dx
-209927

4406934533

1,486,765

318,040

11,011,494,416

-6,675,518,308

2003

7,91,760

-92,127

8487384129

1,751,736

583,011

3,399,018,261

-537,110,544

2004

7,96,334

-87,553

7665527809

1,487,670

318,945

101,725,913

-2,792,459,159

2005

8,83,887

1,168,725

2006

8,96,745

12,858

165328164

904,075

-264,650

700,396,225

-3,402,869,700

n=

x=

dx=

dx2=

y=

dy=

y2=

4,042,686

3,76,749

20725174635

678971

955346

15212634815

Source: Secondary data

45
= dxdy-(dx)( dy)/(Ndx2-(dx)2Ndy2-(dy)2)
= -161498144(-271693)(248509)/(7*2826743565(271693)27*1554365648(248509)2)
= 0.128

TO ESTIMATE THE PROFITABILITY FOR THE FUTURE PERIOD

TABLE 3.2.21
Profit after tax provision
YEAR

(Rs. In thousands)

2002

375,753

2003

109,617

2004

475,162

2005

520,033

2006

583,130
Source: Secondary data

PERCENTAGE OF PROFITABILITY FOR THE FUTEUR PERIOD 3.2.22

46

Actual Trend
TABLE 3.2.23
Trend
year
01-02
02-03
03-04
04-05
05-06
total
A

x
-2
-1
0
1
2
x=0

x2
4
1
0
1
4
x2=10

y
375753
409617
475162
520033
583130
y=2363695

y/n=236695\5=474739
xy/x2=5251710\10=52517

Future period of 2007

YEAR 06-07 = 474739 + 157551 = 6302910
The future value of 2007 is Rs.630290

xy
-751506
-409617
0
520033
1166260
xy=525170

Value
368705
420222
472739
525256
576773

47
PROJECTED TREND VALUE EXPECTED PROFIT FOR THE FORTH COMING
YEARS (02-03 TO 05-06)
TABLE 3.2.24
Profit after tax

Trend value

Year

(Rs. In thousands)

(Rs. In thousands)

02-03

754,207.30

03-04

809,300.41

04-05

864,393.63

05-06

919,486.63

06-07

630,290

PERCENTAGE OF TREND VALUE 3.2.25

TO ESTIMATE THE SALES FOR THE FUTURE PERIOD

TABLE 3.2.26

Year

Sales (Rs. In thousands)

48
2002

2,219,990

2003

3,295,656

2004

2,640,242

2005

2,877,261

2006

2,558,616
Source: Secondary data

PERCENTAGE OF SALES FOR THE FUTURE PERIOD 3.2.27

49

CHAPTER V
RESULTS AND DISCUSSION
5.1 FINDINGS
1. The current ratio is satisfactory during the study period
2. Liquid ratio is satisfactory through out the study period, under the study with
the maximum of 0.15 in the year 03-04.
3. The profit ratio is satisfactory; it found that company can make good profit in
the future period also.
4. As per comparative balance sheet they are gradually increasing total assets
and liabilities even through decreasing in the year 04-05 compared to
previous year.

50
5. The company has not adopted stable credit policy towards its debtors. The
companys efficiency in debt collection is not good.
6. Over the period of five years from 02-03 to 05-06, the fixed assets of the
company showing an increasing trend. In 02-03 the fixed assets was Rs.1,
1486, 765crs it was increase to Rs.1, 586, 725crs in 05-06.

7. An analysis of current assets and fixed assets relationship carried by the

researcher gave a low degree of positive result of +1.148. This onlights there
is a significant relationship between current assets and fixed assets.
8. A projected trend of profitability of the company for the forthcoming years
showing an increasing trend of Rs.74, 42, 073lakhs in 02-03 and in
Rs.91,94,866lakhs in 05-06.
9. The study shows that reserves and surplus position is also remained
satisfactory. This has been confirmed by maintaining the reserve and surplus
position at increasing level. In 02-03 it was 19.92, it was increasing to 38.62%
into years 05-06.
10. The debt collection period ratio of the company shows a decreasing trend.
The higher debt collection period ratio was recorded in the year 02-03.
11. The lowest in the year 05-06. This is a good sign to the company.
12. The working capital turnover ratio of Elgi Ultra industries showed an
increasing trend upto 2003 to 2004.
13. A proprietary ratio of company shows a decreasing trend during the study
period ranging from 05-06.

51

5.3 SUGGESTION AND RECOMMENDATION

1.

It is observed that the company does not follow any method of financing of
working capital. So, in order to maintain a trade off between profitability
and liquidity, the company should follow a well planned financing
performance of working capital.

2.

As the average debt collection period is 30 days the debt collection

process should be accelerated so as to maximize credit sales and to
minimize cost associated with debt collection and investment in debtors.

3.

The profitability ratios based on sales are an important indicator of the

operational efficiency of manufacturing enterprise. However, they suffer
from a serious limitation in that they are not useful from the viewpoint of
the owners of the firm

4.

The operating ratio will indicate whether the cost component is high or low
in the figure of sales. In case of the comparison shows that there is

52
increase in this ratio, the reason for such increase should be found out and
management be advised to check the increase.
5.

The proprietary ratio focused the attention on the general financial strength
of business enterprise. The ratio is of particular importance to the creditors
who can find out the proportion of shareholders funds in the total assets
employed in the business.

6.

The current ratio and quick ratio was at a satisfactory level for all financial
years. It shows that the company was able to meet its current obligations.

7.

A test applied to check the solvency of the company in terms of cash

(absolute liquid ratio) seems to be unsatisfactory to meet the emergencies.
So, it is recommended to take quick and effective measures to rectify the
absolute liquid ratio as early as possible.

5.4 CONCLUSION
The project done for evaluating the financial performances of Elgi Ultra
Industries Ltd Coimbatore gives a clear idea about the companys financial
position. The study is expected to help understanding the overall financial
performance of the company. Further, it is hoped that the suggestion made into
project shall bring the attention of management

53