INTRODUCTION

Capital Budgeting is a branch of accounting and has been developed due to

limitations of financial accounting. Financial accounting is primarily concerned
with record keeping directed towards the preparation of Profit and Loss Account
and Balance Sheet. It provides information regarding the profit and loss that the
business enterprise is making and also its financial position on a particular date.
The information concerning the business enterprise is helpful to the management to
control in a general way the major functions of a business viz., finance,
administration, production and distribution but details regarding operating
efficiency of these division are lacking. In fact, the development in the field of
Capital Budgeting is so quick and fields covered by it are expanding so much in
magnitude that it becomes difficult for the management to lay down management
policies, to guide the management decisions or evaluate operating management
performance with the information provided by financial accounting.
One of the important inputs in managerial decision-making is financial
data. There is, however, no single concept of budget, which can cater to all
management needs. The needs concept of budget depends on the conditions
under which the budgets are required to be measured and the purpose for which
measurement is required.

SCOPE OF THE STUDY

Profit is always a matter of primary concern to management. The volume of
sales never remains constant. It fluctuates up and down with fluctuations in volume.
Profit is actually the result of interplay of different factors like Budget, volume and
selling price. Effectiveness of a manager depends on his capability to make right
predictions about future profits. This can be done when correct relationship existing
between Budget, volume and profit. Knowledge of relationship among Budget,
volume and profit is of immense help to management. This knowledge of Budgetvolume-profit relationship helps management to find out right solution for such
problems as are given below.

MEANING OF BUDGETING

A budget is an important concept in microeconomics, which uses a budget line to

illustrate the trade-offs between two or more goods. In other terms, a budget is an
organizational plan stated in monetary terms. In summary, the purpose of budgeting
is to: Provide a forecast of revenues and expenditures, that is, construct a model of
how our business might perform financially if certain strategies, events and plans
are carried out. Enable the actual financial operation of the business to be measured
against the forecast.

DEFINITION
Budget does
1. Provide forecast of revenues and expenditures, that is, construct a model of
how our business might perform financially if certain strategies, events and
plans are carried out.
2. Enable the actual financial operation of the business to be measured against
the forecast.

IMPORTANCE OF THE STUDY

The title selected for this project work is Budget analysis in THE
COMPANY. In any manufacturing industry the analysis of Budget and its impact
on profit with respect to volume of production is of much importance to sustain its
productivity and profitability operation.
The study of Budget and its impact is to understand and expand the
knowledge in this field.
Hence, in this project work, it is proposed to analyze the Budget involved
both fixed and variable, contribution per unit of production break-even sales,
P/V ratio, margin of safety.

STATEMENT OF THE PROBLEM

The general purpose of the study is to find out the Budget, the reasons for
the forecast variance and the impact of variance in profits. The need for the project
is to help the company to eliminate the Budget difference and achieve the profit to
the maximum extent.
There may be a significant difference between the standard Budget and the
actual Budget due to neglect of certain percentage of Budget which also forms a
part of the total Budget.

OBJECTIVES OF THE STUDY

The objectives of the study are:
Primary Objective
1. To find out the budget variance by comparing the standard budget and the
availability.
2. To control resources
3. To communicate plans to various responsibility center managers.
4. To motivate managers to strive to achieve budget goals.
5. To evaluate the performance of managers
6. To provide visibility into the company's performance

SCOPE OF THE STUDY

The Scope of the study pertains to various Budgets involved in the
production of various types of sprockets such as handle Budget, comber
Budget, bracket hanger Budget, Honda bracket Budget, material Budget
and labour Budget which involves the sprockets usage, Raw Material
Budget, process Budget, and manufacturing items.

RESEARCH DESIGN :
The study is based on the descriptive research design, which has
been selected due to the availability of information needed for the study.
This methodology was adopted to understand the performance levels and
impact on Budgets. This study and analysis will enable to understand the
Budget of expenditure and the need to minimize the Budget to achieve
the profitability of the business.

SOURCES OF DATA :
The study is based completely on the secondary data collected from
five years annual reports for the study, which are as follows:
a) Annual Reports
b) Interaction with Finance Executives.
c) Circulars and Notification of the Management.
Information gathered from the executives.

LIMITATIONS OF THE STUDY

The study covers the periods between 2005-2006 and 2009-2010. It does
not consider the changes that have taken place before and after the study.
The reliability and correctness of findings relied upon the information
provided in the annual report of the concern and information gathered from
the executives of The company
The calculations have been on the figures provided in the published financial
statements. Hence the study is subjected to limitations inherent to financial
accounting.
Consists of overall physical performance of different units.

REVIEW OF LITERATURE

A Budget is the value of economic resources used as a result of

producing or doing the things Budgeted (WM Harper).
Budget is a measurement, in monetary terms, of the amount of
resources used for the purpose of production of goods or rendering of services.
In fact, in order to assign a definite meaning to the term Budget, it
should be used with a modifier or an adjective according to the specific purpose
for its use. For example, direct Budget, fixed Budget, variable Budget,
controllable Budget, material Budget, selling Budget, prime Budget, marginal
Budget, differential Budget, standard Budget, estimated Budget, actual Budget,
joint Budget, conversion Budget, etc. have specific meanings.
ELEMENTS OF BUDGET
A Budget is composed of three elements i.e., Material, Labour and Other
expenses. Each of these elements may be direct or indirect. This is shown below.

RAW MATERIAL BUDGET

According to CIMA, London, Material Budget is the Budget of
commodities supplied to an understanding.

The substance from which the product is made is known as Material. All
material which become an integral part of the finished product and which can be
conveniently assigned to specific physical units are direct material.
Material Budgets includes Budget of procurement, freight inwards, taxes,
insurance, etc., directly attributable to the acquisition.

Raw Material constitutes an essential element of production. After raw

materials are purchased and temporarily placed in store, they are processed or
transformed into finished goods.

BUDGETING
The I.C.M.A., London has defined Budgeting as the ascertainment of
Budgets. It refers to the techniques and processes of ascertaining Budgets and
studies the principles and rules concerning the determination of Budget of products
and services.
Budget ascertainment is done by various methods and techniques such as job
Budgeting, process Budgeting, unit Budgeting, historical or absorption Budgeting,
marginal Budgeting, standard Budgeting, uniform Budgeting.

CAPITAL BUDGETING
It is the method of accounting for Budget. The process of recording and
accounting for all the elements of Budget is called Capital Budgeting.
The process of accounting for Budget from the point at which expenditure is
incurred or committed to the establishment of its ultimate relationship with Budget
centers and Budget units.

In its widest usage it embraces the preparation of

statistical data, the application of Budget control methods and the ascertainment of
the profitability of activities carried out planned.

BUDGET ACCOUNTANCY
It is an aid to management for decision making.
I.C.M.A., has defined Budget accountancy as follows:

The application of Budgeting and Budget accountancy principles, methods and

techniques to the science, art and practices of Budget control and the ascertainment
of profitability. It includes the presentation of information derived there form for
the purpose of managerial decision making.

BUDGET VOLUME PROFIT (CVP) ANALYSIS

The Budget-volume-profit (CVP) analysis shows the relationship between
Budgets, volume and profit. The Budget-volume-profit (CVP) analysis is a management
accounting tool to measure the effect of changes in volume: Budget: prices and product
mix on profit. Break-even analysis is a widely used technique to study CVP relationships.

BREAK EVEN ANALYSIS

The term Break-even analysis is concerned with the study of revenues and
Budget in relation to sales volume and particularly, the determination of that
volume of sales at which the firms revenues and total Budgets will be exactly
equal (or net income = zero).

MARGINAL BUDGETING
Marginal Budgeting is a technique, which by differentiating between fixed
Budget and variable Budget, primarily concern with two aspects.
(a) Ascertainment of marginal Budget and
(b) Determination of Budget volume profit relationship.
Marginal Budgeting is not a distinct method of Budgeting like job Budgeting
or process Budgeting. It is a technique, which provides presentation of Budget data
in such a way that true Budget-volume-profit relationship is revealed. Under this

technique, it is presumed that Budgets can be divided in two categories, i.e., fixed
Budget and variable Budget.

1. Variable Budget
Variable Budget is that part of total Budget, which changes directly in
proportion with volume. Total variable Budget changes with change in volume of
output. Variable Budgets are very sensitive in nature and are influenced by a variety
of factors. Main aim of Marginal Budgeting is to help management in controlling
variable Budget, because this is are of Budget which lends itself to control by
management.

2. Fixed Budget
Fixed Budget is that part of total Budget which does not change in response
to change in level of activity. For example, rent and insurance of building will
remain the same irrespective of units produced during a particular period.

PURPOSE OF MARGINAL BUDGETING.

All management desire to maximize profits and they always want to decide
whether they can undertake an additional activity with profit. Marginal Budget
technique as it deals with the Budget of the additional activity is highly useful for
such decision makings:
a. Starting an additional line of productions or sales :
b. Discontinuing or replacing the existing line with another line:

c. Increasing or decreasing the selling price or redistributing the sales to

various territories:
d. Fixing different selling prices for various product lines on for one and the
same product in different markets:
e. Buying outside or manufacturing in ones own plant:
f. Working overtime or starting an extra shift to cope up with additional work:
g. Repairing an existing machine or going in for new one :
h. Exporting when there is an assured home market.

All these come under the purview of decision making by the management
and marginal Budgeting technique is employed to help these decisions.

BREAK EVEN POINT

Break even point is the point of sale at which company makes neither profit
or nor loss. The marginal Budgeting technique is based on the idea that difference
of sales provides for a fund, which referred to as contribution. If actual sales level
is below break-even-point, the company will incur loss. When Budget-volume
profit relationship is presented graphically, the point, at which total Budget line and
sales line intersect each other, will be the break-even point.
Break-even analysis is useful for the management is the following ways.
It helps him in forecasting the profit.
It is helpful in setting up flexible budgets, since on the basis of the Budget
volume profit relationships one can ascertain the Budget, sales and profit at
different levels of activity.
It assists in performance evaluation for the purpose of management control.
It helps in formulating in the pricing policy by projecting the effect which
different price structure will have on Budget and profit.

CONTRIBUTION
Marginal Budgeting analysis depends a lot on the idea of contribution. In
this technique, efforts are directed to increase total contribution only. Contribution
is the sales variable Budget, i.e., marginal Budget.
Thus,
Contribution = Sales Variable Budget (or)
Contribution = Fixed Budget + profit.

PROFIT / VOLUME RATIO

When the contribution is expressed as a percentage of sales value, it is
known as profit volume ratio or P/V ratio or C/S ratio. It is known as profit
volume ratio or P/V or C/S ratio. It expresses relationship between contribution and
sales. Better P/V ratio is an index change in profit due to change in volume (or)
Better P/V ratio is an index of sound financial health of a company.
P/V ratio may be expressed as :P/V ratio = (Sales Variable Budget of sales) /sales
Or
P/V ratio = Contribution / Sales
Or
P/V ratio = Change in contribution / Change in sales
Or
P/V ratio = Change in profit / Change in sales

MARGIN OF SAFETY
The excess of the actual sales revenue (ASR) over the sales revenue (SR) at
BEP is known as the margin of safety.
Margin of safety (in Rs.) = actual sales (Rs.) Sales (in Rs.) at BEP.
The margin of safety ration indicates the percentage by which the actual
sales may be reduced before they fall below the break-even sales volume. It is
important that there should be a reasonable margin of safety. let a reduced level of
activity should prove disastrous. The validity of safety is advantageous for the
company. Margin if safety depends on level of fixed Budget, rate of contribution
and level of sales.
The amount of safety can also be directly determined with reference to the
margin of safety and P/V ratio.
Profit = (margin of safety (amount)) x P/V ratio
Or
Profit = (margin of safety (Unit) x Contribution per unit)

USES OF BUDGET VOLUME PROFIT ANALYSIS

This relationship enables management to predict profit over a wide range of
volume. This knowledge is very useful in preparing flexible budget.
1. In lean business season, company has to determine the price of the products
very carefully. It becomes necessary sometimes to bring down the price to
boost the sales of a product. For all decision like this, management must
determine, by Budget volume profit position of a reduction in price is
going to have on profit position of a company.

2. Analysis of Budget volume profit relationship helps in decision making.

There are situation when management has to decide whether it should add to
its capacity or not. With the knowledge Budget profit analysis, a manager
can easily take decision showing, in its how utilization of available capacity
will lead to increase in profit.

OPERATIONAL DEFINITION
a)

Production Units:
Here Production unit denotes the plant or factory, which indulge in
manufacture or production of any type of products or power
generation or lignite mining.

b)

Non-Production Units :
Here it denotes the work shop, transport service, medical facility,
administrative office, etc., where there is no manufacture or
production but service is rendered to facilitate smoother extraction of
lignite and generation of power.

c)

Fixed Budget :
Budget incurred by the business, which do not vary with the variation
in the volume of production. In other words, it remains constant
irrespective of the volume of production.

d)

Variable Budget :
Budgets incurred by the business, which will change with the change
in the volume of production. In other words, variable Budget will
increase when the volume of production increase and vice versa.

PROFILE OF THE INDUSTRY

GK Sons Engineering Enterprises Pvt, Ltd. is a renowned industrial group based at
Trichy, Tamil Nadu. The company is ISO 9001:2008 certified and engaged in precision
machining and sheet metal fabrication using Computerized Numerically Controlled (CNC)
lathes to manufacture the best quality precision components and extend Budget
competitive support to its customers.
The flagship company of GK Group of Industries, established in 1969,
manufactures customized Precision Components for Automotive, Boiler and Valve
industries.
GK Sons Engineering Enterprises Pvt. Ltd., is a renowned industrial group
founded by Sri. K. S. Gopalakrishnan based at Trichy, Tamil Nadu. It is an ISO 9001:2008
certified company and engaged in precision machining and sheet metal fabrication.
The flagship company of GK Group of Industries, established in 1969,
manufactures customized Precision Components for Automotive, Boiler and Valve
industries. It is strategically located at the heart of the city 5 km away from airport and a
km away from the Railway Station enabling easy access to customers across India and
abroad.
GK Sons is geared up to meet the global standards in manufacture of precision
components as specified by customers with a high degree of specialization and
sophistication in its services. GK Sons has received the BEST SUB-CONTRACTOR
award from BHEL, Trichy for performance, commitment and support.
PIONEER INDUSTRIES
Pioneer Industries was established in 1952 as a proprietary concern. Since its
inception, Pioneer Industries is engaged in Fabrication and Heat Treatment and is situated
in SIDCO, Developed Plots Estate, Thuvakudy, Trichy, an Industrial Estate located near
Bharat Heavy Electricals Ltd (BHEL). Pioneer manufactures pressed components and
structural fabrication for Boiler industry, Windmill, Process industry etc. This firm is now
taken over by GK Sons. Sunbeam Structurals Pvt. Ltd.

Sunbeam Structurals Pvt. Ltd. A sister concern of GK Sons Engineering

Enterprises Flagship Company is situated in siruganur, 25 km distance from Trichy on the
Trichy Chennai Highway. The unit spread over 5 acres of land has facilities to fabricate
Plate formed I Beams up to 63 mm thick. The lime has capacity to manufacture 400 T/
months. The company with handling capacity of 10 tons is capable of taking up
fabrication of allied products like Plus beams, Boxes etc.
Some of the facilities at Sunbeam structurals are

Multi torch profile gas cutting facility

Manufacturing bay with material handling facility (EOT 5 & 10 T)
Beam welding with twin torch in action over fixtures
Planer type auto welding machine (lmh 4000) with twin torch in action over fixtures.
Hydraulic powered beam bend removing press.

GK INDUSTRIAL PARK
G.K. Industrial Park is situated at a vantage location on the highway, linking the
industrial city of Trichy in central Tamil Nadu, with the state capital, Chennai.
GK Industrial Park is designed to accommodate a flexible development scheme
with a composition offering varying sizes of developed plots, built to suit infrastructure
and open development spaces.
GK Industrial Park has been developed with a vision to provide industries of all
sizes an opportunity to invest into an infrastructure which is proportionate to their
requirement. For more details visit the site.
OUR TEAM
Our team consists of dedicated & qualified staff and well trained employees with a
total strength of 400. We have a strong team of around 80 technically well-qualified
personnel. Our engineers have experience ranging from 10 to 30 years and have good
exposure to Process and Product Technology, Metrological Systems, QS/ISO9000
Systems, SIX Sigma, etc. Their aggressive desire to perform and excel has lead to
introduction of innovative ideas in all our business ventures. Constant training programs
are conducted to keep our teams skill and knowledge updated.
INFRASTRUCTURE & SERVICES

Our commitment to manufacture customised, high quality and accurate products is

strongly supported by our infrastructure facilities in terms of built-up area, machineries
and equipments.
SERVICES
GK Group of Industries provides valuable services in the field of Fabrication, Heat
Treatment and Precision Components. GK Sons, with its high-end vertical and horizontal
CNC (Computerized Numerically Controlled) Lathes provide customised and high quality
Precision Components to clients from Automobile, Boiler and Valve industries.
Fabrication and Heat Treatment service are also provided for Boiler industry, Windmill
industry, Process industry etc.Our customised service includes
MANUFACTURING AND ASSEMBLING PRODUCTS
High precision industrial valves using state-of-the-art technology.
Power steering components.
Automotive sub assemblies.
MANUFACTURING PRODUCTS

Pressed and fabricated high pressure boiler components.

Windmill components and structures.
Structural and Stainless Steel Fabrication.
Silencers.
Constant load hangers and Variable load hangers.
We, also undertake Heat Treatment services for metal stress relieving and

normalizing.
TECHNICAL TRAINING
We at GK Sons value education as an important tool for development and progress.
We provide technical training for individuals and students. The training is provided by our
staff, customers and outside faculty who have experience and working knowledge.
GK Sons, in collaboration with TREC-Step conducts regular training courses in
CNC Operations and Programming. After successful completion, the certificates were
issued to candidates by TREC-Step.

GK Sons is also providing Training in Collaboration with IL & FS for Welding and
Fitting program.
MIG, TIG, SMAW Welding Training are provided to candidates and also given On
the Job Training. IWS certifies the welders at the end of the Training period.
CLIENTS
Our quick, reliable, on-time and Budget-effective service have earned us reputed
clientele base both in India and abroad. Some of our esteemed clients are;

B H E L-Trichy (self certification status), Oliver Valves India Limited,

Continex Trade line India Pvt. Ltd, Rane TRW Steering Systems,
Reliance Industries Limited, Suzlon India Limited, Thermax Ltd,
Walchand Nagar Industries, XOMOX Group Companies & ISGEC Group.

QUALITY OBJECTIVES
ISO 9001:2008 certification to GK Sons is the mark of our quality process
adherence. At GK Sons, we strictly follow all quality assurance norms. Our quality control
begins right from material selection to final product. Machineries and equipment facilities
available with us enable us to manufacture high quality precision components and
fabricated structures with high degree of accuracy.
Every single product rolling out of our production unit undergoes quality assurance
test at every level. Our trained and experienced quality assurance team seamlessly carries
out quality test to ensure high quality products.

Our Quality Policy

We at GKEEPL are committed to manufacture products and components meeting
International standards and customer requirements in terms of quality, Delivery and
Response. We aim to achieve excellence through continual improvement with the
involvement of all employee and due concern for safety of life and property.
Our Quality Objectives
Reduction of non-conformance / Budget of rework.
Controlling machine down time.

Improving delivery and response.

Better utilization of manpower by providing training and growth opportunity.
Provision of good work environment and thrust on safety.
Promote innovative processes and better machinery utilization.
Ensure customer satisfaction and continual improvement.
Facilities to check materials using Spectro iSort (Portable Machine).

CHAPTER III
RESEARCH METHODOLOGY
METHODOLOGY OF THE STUDY
Tittle and the study unit:
The title of the current study is "A study on BUDGET ANALYSIS
OF The company, TRICHY.
RESEARCH DESIGN;
Analytical research is used in the study.
DATA COLLECTION METHODS;
This study has used the secondary data for in analysis. The major portion
of the company they have been extracted from the annual reports published by
company;

Secondary data
(i)company balance sheet
(ii) Profit and loss account
(iii) Annual report
PERIOD OF STUDY;
Study cover the time period of 5 years from the financial years The
company to 2009-2010.
RESEARCH METHODOLOGY
Following are the technical procedures of Research Methodology which are
explained in an appropriate way.
This section is categoried into three areas:
1. Research Design
2. Data Collection Methods
3. Data Analysis

RESEARCH DESIGN
Research design is the strategy for a study and the plan which the strategy is
to be carried out. It specifies the methods and procedures for the collection,
measurement, and analysis of data.
The strategy used for this study Budget Variance Analysis is Causal
Relationship. This particular design is suited for the study because it helps in the
interpretation of causation; found in experimentation, that some external factor
produces a change in the dependent variable.

DATA COLLECTION METHOD

The data is collected from the secondary source during the summer project
training period. The time period taken for collecting the data is two months from May to
July and the irregularities were handled by maintaining a proper Budgeting system.

DATA ANALYSIS
The Statistical tools used in this study are the Standard Deviation and co-efficient
of variation. This tendency helps to find if there is a significant difference between the
standard Budget and the actual Budget by finding out the mean variance.

Tools For Analysis

1) Ratio Analysis
2) Common Size Statement
3) Correlation

CALCULATION

GROSS PROFIT RATIO

This ratio is used to compare departmental profitability or product profitability.
If Budgets are classified suitably into fixed and variable elements, then instead of
Gross Profit Ratio one can also find out P/V ratio.
FORMULA
GROSS PROFIT RATIO =

Gross profit
----------------- x 100
Sales

Net Sales

= Sales Sales Returns

Gross Profit

= Sales Budget of goods sold

Budget of Goods Sold

= Opening Stock + Purchases Closing

Stock

NET PROFIT RATIO

This ratio establishes a relationship between net profit and sales. This ratio is
the overall measures of firms profitability. Higher the ratio of net operating profit
to sales is better the operational efficiency of the concern.
FORMULA

Net profit
Net Profit Ratio =

------------------ x 100
Net sale

OPERATING PROFIT RATIO

Operating profit ratio is indicative of the proportion that the Budget of
sales bears to sales. Budget of sales includes direct Budget of goods sold as
well as other operating expenses. It is an important ratio that is used to discuss
he general profitability of the concern. It is calculated by dividing the total
operating Budget by net sales.
FORMULA
Operating Profit
Operating Profit Ratio =

------------------------- x 100
Net sales

Operating Expenses = Administrative and Selling and Distribution Expenses

RETURN ON EQUITY RATIO
Return on equity measure the profitability of equity funds invested in
the firm. It is regarded as a very important measure because the reflect the
productivity of the ownership or risk capital employed in the firm.

It is

influenced by several factors earning power debt- equity ratio, average Budget
of debt funds and task rate. It can be calculated using by this formula.
FORMULA
Net Profit
Return on equity =

-------------------------Net Worth

Net Worth = Equity + preference + reserves

Significance:
The term net profit as used hear, means net income after payment of
interest and task including net operating income (i.e., non- operating income
minus non operating expenses).
Equity Share Holders Fund = Share Capital + Reserves + Profit - Losses

EARNINGS PER SHARE

This is calculated by dividing the net profit after tax and
preference dividend available to the shareholders by the number of equity
shares. This ratio helps in the assessment of the profitability of a firm from the
point of view of shareholders. It indicates the profit available to the equity
shareholders on a per share basis.
FORMULA
Net profit after tax & Preference dividend
Earning per share =

--------------------------------------------------Number of Shares

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

GROSS PROFIT RATIO

Gross profit
GROSS PROFIT RATIO =

-----------------

x 100

Sales

TABLE 4.1
(Rs in Thousand)

YEAR

GROSS PROFIT SALES

RATIO
(In %)

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

1691.75
1482.09
1822.77
1041.67
917.94

2681.48
2806.09
3001.94
2201.41
2108.11
AVERAGE

63.09
52.82
60.72
47.32
43.54

53.49

RATIO

SOURCE : Secondary data

Interpretation
The above table shows that the Net profit ratio of The company limited
for the period from 2005-2006 to 2009-2010. It ranges between 63.09 to 43.54
it was declining trend due to lesser sales value of power.

GROSS PROFIT

63.09

60.72
52.82

47.32

43.54

S
A
L
e
s

70
60
50
40
30
20
10
0

2005 -20062006-2007 2007 -20082008-2009 2009-2010

Gross Profit

NET PROFIT RATIOS

Net profit
Net Profit Ratio =

------------------ x 100
Net sales

TABLE 4.2
(Rs in Thousand

YEAR

NET PROFIT

NET SALES

RATIO
(In %)

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

1148.40
1143.50
1215.00
702.35
566.78

2681.48
2806.09
3001.94
2201.41
2108.11

AVERAGE RATIO

42.82
40.75
40.47
31.90
26.88

36.56

Source :Secondary data

Interpretation
The above table shows that the Net profit ratio of The company limited
for the period from 2005-2006 to 2009-2010. It fluctuates between 42.82 to
26.88. In the year The company it was at a higher level of 42.82 and at a lower
level of 26.88 in the year 2009-2010 this fluctuation is caused due to variation
in sales.

NET PROFIT

OPERATING PROFIT RATIO

Operating Profit
Operating Profit Ratio =

------------------------- x 100
Net sales

TABLE 4. 3
(Rs in Thousand

YEAR

OPERATING

NET SALES

PROFIT
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

RATIO
(In %)

1697.57
1472.73
1829.71
915.65
913.05

2681.48
2806.09
3001.94
2201.41
2108.11
AVERAGE RATIO

63.30
52.48
60.95
41.59
43.31
52.32

Source : Secondary Data

Interpretation
The above table shows that the operating profit ratio of The company Limited for
the period from The company. The ratio ranges from 63.30 to 41.59 the variation
mainly due to decline in sales.

EARNINGS PER SHARE

Net Profit after Tax

Earning per share =

----------------------------------Number of Equity shares

TABLE 4.4
(Rs in Thousand

YEAR

NET

PROFIT NO

AFTER TAX
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

OF

EQUITY RATIO

SHARES

1148.40
1677.70
1143.50
1677.70
1215.00
1677.70
702.35
1677.70
566.78
1677.70
AVERAGE RATIO

6.85
6.82
7.24
4.19
3.38
5.69

Source : Secondary data

Interpretation
The above table shows that the earning per share of The company for the period
from The company to 2009-2010. It ranges between 7.64 to 3.88.

NET PROFIT AFTER TAX

RETURN ON SHAREHOLDERS INVESTMENT

Net Profit after tax
Return on investment

------------------------------

x 100

Shareholders Fund

TABLE 4.5
(Rs in Thousand)

YEAR

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

PROFIT

AFTER SHARE

HOLDERS RATIO

TAX

FUND

(In %)

1148.40
1143.50
1215.00
702.35
566.78

5947.55
6824.25
7673.05
7990.38
8309.29
AVERAGE RATIO

19.31
16.76
15.83
8.79
6.82
13.41

Source :Secondary data

Interpretation
The above table shows that the Net profit ratio of THE COMPANY limited for
the period from The company. It indicates that the return on investment has declined
for the entire period of study. It ranges between 19.30 to 6.82.

PROFIT AFTER TAX

TABLE -4.6

CALCULATION OF GROSS MARGIN, GROSS PROFIT, etc.,

FOR FIVE YEARS FROM 2007-08 TO 2007-08
FINANCIAL PERFORMANCE Rs. In Thousand
Particulars

2005-06

2006-07

2007-08

2008-09

2009-10

Key parameter

Actual

Actual

Actual

Actual

Actual

Total income

3142.95

3448.48

3666.81

2699.59

2743.77

Less: Total exp

1455.11

2035.41

1910.13

1712.20

1869.11

Net income

1687.83

1413.08

1756.68

987.39

874.66

Add : depreciation

259.85

799.78

516.30

349.45

447.34

Gross margin

1951.61

1981.87

2339.07

1391.12

1365.28

Less : interest

3.92

69.10

66.09

54.28

43.28

Net profit before tax

1687.83

1413.08

1756.68

987.39

874.66

Provision for tax

539.43

269.57

541.68

285.04

307.88

Net profit after tax

1148.40

1143.51

1215.00

702.35

566.78

Depreciation

259.85

499.78

516.30

349.45

447.34

Gross internal resource

1408.25

1643.29

1731.31

1051.80

1014.12

Capital employed

7132.78

8682.64

9476.99

9526.00

8524.65

Networth

5947.55

6824.25

7673.05

7990.38

8309.29

GP on nw %

28.74

21.72

23.76

12.36

10.53

G.P/Capital Employed

23.72

17.07

19.23

10.37

10.26

PAT/Net Worth

19.31

16.76

15.83

8.79

6.82

TABLE -4.7
DIVIDEND

Dividend paid including

Year
2005-06
2006-07
2007-08
2008-09
2009-10
Source :Secondary data

Dividend paid in %

tax on dividend Rs. In

14.0
14.0
20.0
20.0
12.0

Thousand
264.97
264.97
382.24
382.60
235.55

INTERPRETATION:
The above table shows that the Dividend paid to shareholder of Limited for the
period from The company. It indicates that the Dividend paid for the entire period of
study. It ranges between 20 % to 20%.

DIVIDEND

TABLE 4.8

(Rs in Thousand

MAJOR SOURCES OF INCOME

Year

Purchase

Sales

2005-06
2006-07
2007-08
2008-09
2009-10

2558.80

86.48

2641.22

187.34

2815.37

198.15

2318.84

183.94

2379.79

230.30

Source :Secondary data

INTERPRETATION:
There is wide variation in the value of power sale during the period of study with a
high value of Rs.2815.37 Thousands in Rs. 2007-08 and low value of
2318.84 Thousands in 2008-09. it is because of variation In the power tariff
from year to year.

MAJOR SOURCES OF INCOME

TABLE 4.9
(Rs in Thousand)

Year
2005-06
2006-07
2007-08
2008-09
2009-10
Source :Secondary data

OTHER SOURCES OF INCOME

Intrest
Mis. Income
70.55
411.02
531.26
134.73
338.05
306.49
4.12
0.88
4.71
1.25

INTERPRETATION:
During the years of study, it is found that the other income like interest on
Bank deposit, long term investments rent received etc, has been steady with a higher
level of Interest and Income RS. 531.26 for 2006-07 Crs and Rs. 411.02 Crs for
2005-06.

TABLE 4.10

ELEMENTS OF EXEPENDITURE

Staff

Other

Year
Budget
2005-06
428.18
2006-07
487.12
2007-08
496.00
2008-09
512.19
2009-10
557.49
Source :Secondary data

Exp.
784.34
1005.55
825.94
925.20
827.98

Interest

Depreciation

Total

3.92
69.00
66.09
54.28
43.28

754.34
988.87
824.75
922.32
447.34

1970.78
2550.54
2212.78
2413.99
1876.09

INTERPRETATION:

Most of expenditure relate to production units. On review of the expenditure the

production unit expenditure ranges from 80S% to 87%. Expenditure incurred by nonproduction unit range from 20% to 13% .

ELEMENTS OF EXEPENDITURE

TABLE -4.11

BUDGET INCURED BY PRODUCTION UNITS

Staff

Other

Budget

Exp.

Interest

Depreciation

Total

285.25

615.88

3.66

254.65

1159.4

326.53

902.3

64.08

489.84

1782.8

330.97

718.15

66.09

507.91

1623.1

344.61
2009-10
368.49
Source :Secondary data

795.22
681.56

53.72
42.03

342.32
436.69

1535.9
1528.8

Year
2005-06
2006-07
2007-08
2008-09

INTERPRETATION:
Of the total expenditure incurred by the production units, the major
expenditure are remuneration and benefits and depreciation. As far as depreciation is
concerned, it is non cash expenditure. Other expenditure consists of a number of
miscellaneous items of expenditure.

BUDGET INCURED BY PRODUCTION UNITS

TABLE -4.12

STAFF BUDGET
Year
2005-06
2006-07
2007-08
2008-09
2009-10

PRODN

NON-PRODN

TOTAL

285.25

66.61

142.93

33.38

428.18

326.53

67.03

160.59

32.96

487.12

330.97

66.72

165.03

33.27

496

344.61

67.28

167.58

32.71

512.19

368.49

66.10

189

33.90

557.49

Source :Secondary data

INTERPRETATION:
From the above table inferred that the level of staff Budget is increased in
production and non production units is Rs. 368.49 Thousand in 2009-10 and Rs189
Thousand in 2009-10.

STAFF BUDGET

TABLE 4.13

DEPRICIATION
Year
2005-06
2006-07
2007-08
2008-09
2009-10

PRODN
254.65
489.84
507.91
342.32
436.69

%
97.99
98.01
98.37
97.95
97.62

NON-PRODN
5.2
9.93
8.39
7.13
10.65

%
2
1.98
1.62
2.04
2.38

TOTAL
259.85
499.77
516.3
349.45
447.34

Source :Secondary data

INTERPRETATION:
From the above table incurred that the level of Depreciation increased in
production and non production units is Rs. 507.91Thousand in 2007-08 and Rs 10.65
thousand in 2009-10

DEPRICIATION

600
489.84

500

507.91
436.69

400
342.32
Ratio

300

Series1

254.65

Series2

200
100

5.2
2005-06

9.93
2006-07

8.39
2007-08

year

7.13
2008-09

10.65
2009-10

TABLE - 4.14

INTEREST
Year
PRODN
2005-06
3.66
2006-07
64.08
2007-08
66.09
2008-09
53.72
2009-10
42.03
Source :Secondary data

%
93.12
92.86
100
98.96
97.11

NON-PRODN
0.27
4.92
0
0.56
1.25

%
6.87
7.13
0
1.03
2.89

TOTAL
3.93
69
66.09
54.28
43.28

INTERPRETATION:
From the above table incurred that the level of Interest increased in production
and non production units is Rs. 66.09 Thousand in 2007-08 and Rs 4.92 Thousands
in 2006-07

INTEREST

70

64.08

66.09

60

53.72

50
42.03

40
Ratio

Series1

30

Series2

20
10
0

3.66
0.27

4.92
0

0.56

1.25

2005-06 2006-07 2007-08 2008-09 2009-10

year

TABLE - 4.15

OTHER EXPENDITURE
Year
PRODN
2005-06
615.88
2006-07
902.3
2007-08
718.15
2008-09
795.22
2009-10
681.56
Source :Secondary data

%
81.32
97.24
87.07
86.21
82.32

NON-PRODN
141.46
86.57
106.6
127.17
146.43

%
18.67
8.75
12.92
13.78
17.68

TOTAL
757.34
988.87
824.75
922.39
827.99

INTERPRETATION:
From the above table incurred that the level of Other Expenditure increased in
production and non production units is Rs. 902.30 Thousand in 2006-07 and Rs
146.43 Thousand in 2009-10

OTHER EXPENDITURE

1000

902.3

900

795.22

800

718.15

681.56

700 615.88

Ratio

600
Series1

500

Series2

400
300
200

141.46
86.57

106.6

127.17

146.43

100

0
2005-06 2006-07 2007-08 2008-09 2009-10

year

TABLE 4.16

BUDGET INCURED BY NON PRODUCTION

Staff
Year
2005-06
2006-07
2007-08
2008-09
2009-10

Budget
142.93
160.59
165.03
167.51
189.00

Other Exp.

Interest

Depreciation

Total

141.46
86.57
106.60
127.17
146.43

0.27
4.92
0.00
0.56
1.25

5.20
9.93
8.39
7.13
10.65

289.86
262.01
280.02
302.37
347.33

Source :Secondary data

INTERPRETATION:
Of the total expenditure incurred by the non-production units, the major
expenditure are remuneration and benefits and depreciation. As far as depreciation is
concerned, it is non cash expenditure. Other expenditure consists of a number of
miscellaneous items of expenditure.

189

200
180

160.59

167.51

165.03

160142.93
140

146.43

141.46

127.17

Ratio

120

Staff Budget

106.6

100

Other Exp.

86.57

Interest

80

Depreciation

60
40
20

5.2
0.27

9.93
4.92

8.39

7.13
0.56

10.65
1.25

0
2005-06 2006-07 2007-08 2008-09 2009-10

year

TABLE 4.17
CALCULATION OF GROSS MARGIN, GROSS PROFIT, etc.,
FOR FIVE YEARS FROM 2007-08 TO 2007-08
FINANCIAL PERFORMANCE Rs. In Thousand
Particulars

2005-06

2006-07

2007-08

2008-09

2009-10

Key parameter

Actual

Actual

Actual

Actual

Actual

Total income

3142.95

3448.48

3666.81

2699.59

2743.77

Less: Total exp

1455.11

2035.41

1910.13

1712.20

1869.11

Net income

1687.83

1413.08

1756.68

987.39

874.66

Add : depreciation

259.85

799.78

516.30

349.45

447.34

Gross margin

1951.61

1981.87

2339.07

1391.12

1365.28

Less : interest

3.92

69.10

66.09

54.28

43.28

Net profit before tax

1687.83

1413.08

1756.68

987.39

874.66

Provision for tax

539.43

269.57

541.68

285.04

307.88

Net profit after tax

1148.40

1143.51

1215.00

702.35

566.78

Depreciation

259.85

499.78

516.30

349.45

447.34

Gross internal resource

1408.25

1643.29

1731.31

1051.80

1014.12

Capital employed

7132.78

8682.64

9476.99

9526.00

8524.65

Networth

5947.55

6824.25

7673.05

7990.38

8309.29

GP on nw %

28.74

21.72

23.76

12.36

10.53

G.P/Capital Employed

23.72

17.07

19.23

10.37

10.26

PAT/Net Worth

19.31

16.76

15.83

8.79

6.82

TABLE -4.18
CALCULATION OF P/V RATIO, BREAK EVEN SALES
AND MARGIN OF SAFETY I
Particulars
Capacity

2005-06

2006-07

2007-08

2008-09

2009-10

76

99

100

98

100

80

104

105

103

105

31581

48132

52130

58721

58001

58023

88467

103596

82790

54931

6682

10911

11829

10980

12261

51340

77556

91768

71810

42670

640

746

872

699

405

88

88

89

87

78

Break even sales 35888

Rs. In Thousand

54695

58573

67700

74667

Margin of safety 22135

Rs. In Thousand

33772

45023

15090

-19736

utilization %

production L.T.
Fixed Budget Rs.
In Thousand
Sales
Rs.

In

Thousand
Variable Budget
Rs. In Thousand
Contribution Rs.
In Thousand
Contribution per LT in Rs.
P/V ratio (rounded
off)

TABLE 4.19

CALCULATION OF P/V RATIO, BREAK EVEN SALES

AND MARGIN OF SAFETY UNIT IA
Particulars
Capacity

2005-06
0.10

2006-07
48.70

2007-08
107.03

2008-09
124.50

2009-10
126.80

0.03

14.61

32.11

37.35

38.04

44.32

16119.17

18158.09

21952.88

20303.22

0.00

13673.30

38285.32

37147.36

33212.30

8.13

2566.55

3856.00

3906.48

4068.42

11106.75

34429.32

33240.88

29143.88

760.22

1072.23

889.98

766.14

8%

90%

89%

88%

19900.20

20175.66

24532.79

23137.50

18109.66

12614.57

10074.80

utilization %

production
Fixed Budget
Sales
Variable Budget
Contribution
Contribution P/V
ratio (rounded off)

Break even sales

Margin of safety

(Rs in Thousand)

TABLE-4.20
(Rs in Thousand)

CALCULATION OF P/V RATIO, BREAK EVEN SALES

AND MARGIN OF SAFETY FOR UNIT II
Particulars
Capacity

2005-06
100.96

2006-07
82.90

2007-08
74.55

2008-09
61.22

2009-10
63.45

106.01

87.05

78.28

64.28

67.00

utilization %
production.

33193.80

33981.20

36646.20

42949.28

41543.93

82426.40

61517.50

53276.80

64355.29

77385.40

9890.29

9456.96

9107.21

8133.00

8474.70

72536.10

52060.60

44169.60

56222.64

68910.70

684.238

627.99

564.25

874.65

1034.38

88%

85%

82%

87%

89%

37720.20

39977.90

44690.50

49161.93

46653.04

44706.20

21539.60

8586.32

15193.36

30732.36

Fixed Budget
Sales
Variable Budget
Contribution
Contribution
P/V ratio

Break even sales

Margin of safety

CHAPTER - V
SUGGESTION AND FINDINGS
The Budget structure reveals that fixed Budget dominates variable Budget as
there is no direct input for production, thus being a labor oriented industry with use of
some specialized and conventional equipments.
1.

The Gross Profit ratio is ranges between 63.09 to 43.54. It was declining trend
due to lesser sales value of power.

2.

The net profit ratio ranges between 42.82 and 26.88.It was at a higher level of
42.82 and at a lower level of 26.88.

3.

The operating profit ratio range from 63.30 to 41.59. The variation due to
decline in sale.

4.

The earning per share for the period from The company to 2008-2009. It
ranges between 7.64 to 30.88.

5.

The return on investment has declined for the entire period of study. It range
between 19.30 to 6.82.

6.

The dividend paid to shareholder for the period of The company to 20072008.It ranges between 12% to 20%.

7.

Major source of income as revealed by the above table power sale. The lignite
sale is much lesser than the power sale. The value of power sale is high value
Rs.2815.37 thousand in 2005-06 and low value of Rs.2318.84 thousand in
2007-08.

8.

The other sources of income is higher level in interest and miscellaneous

income Rs.531.26 for 2005-06 thousand and Rs.411.02 thousand for 2009-10.

9.

The elements of expenditure in production unit ranges from 80% to 87%.

Expenditure incurred by non-production unit range from 20% to 13%.

10.

The level of staff Budget is increased in production and non-production unit is

Rs.368.49 thousand and Rs.189 thousand The level of depreciation increased in
production and non-production units is Rs507.91Thousands and 10.65
thousand

11.

The level of interest increased in production and non-production unit is

Rs.66.09 thousand and Rs.4.92 thousand The level of other expenditure
increased in production and non-production units is Rs.902.30Thousands and
Rs.146.43 thousand

12.

n all the years, actual sales crossed comfortably the break even sales.

13.

Margin of safety and the P/V ratio are in an advantageous position. The
profitability of the company seems to be in a consistent record.

14.

Analysis of profitability at different level of operation informs considerable

increase of profit with an increase of 5% in production.

CONCLUSION
Capacity utilization is the key factor which is to be maintained at more than
90% to ensure achievement of break even sales and earning profit.
As much as 90% of the Budget results in fixed nature in. Hence Budget
reduction in the financial nature. Such as interest, government fee and
administrative nature like remuneration and benefits, common expenditure etc,
need to be emphasized.
On review of the expansion activities, it is definite that the company would
be in a progressive line in future with its physical and financial performance with
significance. In this context, it is inevitable to mention that there has been a slash
in production level in Unit II on account of some obstruction, which is not fully
attributable to The company.
In the past five years from 2007-08 to 2007-08, The company achieved
profit more than 566.78 thousand with its highest profit of 1215 thousand in
2007-08 Hence expectation would be high on part of shareholders and prospective
investors. It is the duty of the employees and the management to fulfill the
anticipation.

BIBLIOGRAPHY

REFERENCE :
Capital Budgeting Principles & Practices Jain & Narin
Elements of Capital Budgeting and Stores Management
Budget and Management Accountancy
Capital Budgeting M.Y. Khan & P.K. Jain
Capital Budgeting Principles & Practices (Ninth Edition) M.N.
Arora

WEBSITE
www. google.com.
www. yahoo finance.com
www. wikipedia.com.

Annual reports of THE COMPANY ENGINEERING Limited.