SHIVANGI ENGINES Details of the company's business situation: 1 end 1994: (i) sharp recession, but (ii) continued

inflation 2 end 1994: inventory level at 90 days' stock 3 major discrepancy between inventory records of material and finance dept equivalent to inventoryin one of the company's plant 4 business involved 20,000 spare parts engines were 90% complete, but awaited balance items from suppliers steps: 1 when there is no mention of pref shares, assume that company has only equity shares 2 comment on sales over the period of 9 years 3 comment on sales margins over the period of 9 years 4 given net profit and EPS, find nos of shares 5 given face value of the share, find equity share capital 6 given dividend per share, find dividend amount 7 given return on equity (i.e., net worth), find net worth 8 split net worth into equity and reserves 9 growth of plants is manifold 10 given production area and nos of engines, find the production area per engine 11 given market share, find total market size. 12 find average price per engine

1 2

Year Sales (Rs. crores) Growth rate over previous year Net Profit (Rs. crores) Net Profit / Sales

Formula

1980 136 6

1989 392 18 4.59% 2.87 6.27 62.72 0.71 4.45 24.74% 13.55

1993 637 26 4.08% 3.87 6.72 67.18 0.95 6.38 24.55% 19.62

(2)/(1)

4.41% N.A.

Earnings per share (Rs) Nos of shares (nos. in crores) (2)/(3) Equity Share Capital (FV Rs. 10/-) (Rs crores) Dividend per share (Rs) Dividend Amount Dividend Payout Retained Earnings

1994 802 26% 24 -8% 2.99% -27% 3.31 7.25 72.51 0.98 7.11 29.61% 16.89

Comments 1 During 1980 to 1994 sales grew at CAGR of 22% and net profit grew at 17%. 2 During 1983 to 1984, a Sales grew 26% , but profit reduced by 8% b Sales margin of 4.08% in 1993 reduced by 27% to 2.99%

4a b c

(4b)/(2) (2)-(4b)

Return on equity Net Worth (Rs crores) (2)/(5) Share Capital Reserves incl Share Premium Increase in Reserves Increase in Reserves thru Retained Earnings Increase in Reserves thru Share Premium Number of plants Total production area (sq ft) Engines produced (nos) Production area per engine (sq ft/ engine) Market share Market size (Rs. in crores) Av Price / Engine (Rs lacs / engine)

14.70% 122 62.72 59.73

13.90% 187 67.18 119.87 60.14 19.62 40.52 13 283300 57500 4.93 37.9% 1681 1.11

10.80% 222 72.51 149.71 29.85 16.89 12.95 14 334000 63000 5.30 40.1% 2000 1.27 production are per engine, which was 14.96 sq ft / engine has been brought down considerably to about 5 sq ft/ engine.

2 149600 10000 14.96 61.1% 223 1.36

8 222400 44500 5.00 43.5% 901 0.88

Market growth (CAGR) at 27.6% over the period there is a decline in price.

Comments on the organisational structure: earlier, the organisation had a Functional Org set-up. when company grew from 2 plants to 14 plants, company should have gone for BU org structure. Instead, company followed a structure which had a mix of functional org set-up and BU set-up. By this method, a Divisional Controller would have reported to JH, and he would have regular feedback on inventory control. This would have averted the major inventory issues faced by the company.

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