A STUDY OF FINANCIAL STATEMENT ANALYSIS ON NERO AIRFILTERS

CORPORATION LIMITED, COIMBATORE.

CHAPTER – I

INTRODUCTION

The Statement of the firm can be measured by its financial results, i.e., by its size of
earnings Riskiness and profitability are two major factors which jointly determine the value of
the concern. Financial decisions which increase risks will decrease the value of the firm and on
the other hand, financial decisions which increase the profitability will increase value of the firm.
Risk and profitability are two essential ingredients of a business concern. There has been a
considerable debate about the ultimate objective of firm Statement, whether it is profit
maximization or wealth maximization.

It is observed that while considering the firm Statement, the profit and wealth
maximization are linked and are effected by one-another. A company’s financial Statement,
therefore is normally judged by a series of ratios or figures, however there are following three
ratio parameters which can be used to evaluate financial Statement, they are:

a) Return on Equity

b) Earnings per Share and

c) Price Earnings Ratio.

All three parameters are discussed in detailed along with various other ratios. However, it
is to be noted that fundamentally, the balance sheet indicates the financial position of the
company as on that point of time. However, profit and loss account is a Statement, which is
prepared for a particular financial year. In Indian context, where an analyst has to rely upon the
audited financial Statement for a particular company, the Statement is to be judged from the
financial Statement only. This chapter however indicates some of the techniques, which can be
used for such analysis of financial Statement.
NEED FOR THE STUDY:

 Financial Statement analysis is an important tool for measuring the financial Statement of
any company.
 The main aspect of financial management is working capital management and it should
be done on day-to-day basis.
 Hence the company permits me to do in the area of finance. This study helps to review
the financial Statement of the company.

SCOPE OF THE STUDY

 The scope of the study to find out the financial Statement of the NERO AIR FILTERS
CORPORATION LIMITED, COIMBATORE. Last five years

 The sincere attempt has been made to include all the aspect relating to the study

 for this purpose of analysis financial Statement of the company has done from the last
four year published financial Statement and all the aspects the researcher should be
included in the report.

SIGNIFICANCE RATIOS

 Some ratios are important than others and the firm may classify them as primary and
secondary ratios. The primary ratio is one, which is of the prime importance to a concern.
The other ratios that support the primary ratio are called secondary ratios.

STATEMENT OF THE PROBLEM

 Nowadays due to the policy of the changing government and also due to the competition
in the globalize era, the financial performance of the NERO AIRFILTERS
CORPORATION LIMITED is not appreciable. Though the company developed well, it
could not earn much profit as like the other private sectors company involved in similar
 business. There is no proper instruction from the authorities and from the ministry.
Further there is considerable delay in implementing the new system because of more
formalities to change the existing system. The financial performance of the NERO
AIRFILTERS CORPORATION LIMITED should be analyzed well increase the
profit and make the company to compete with others doing similar business.

OBJECTIVES OF THE STUDY

To study the financial Statement analysis of “NERO AIR FILTERS CORPORATION

LIMITED, COIMBATORE.

 To study the financial position of NERO AIR FILTERS CORPORATION

LIMITED, COIMBATORE. Over the period of last five years
 To study the fixed asset position of over the period of last five years
 To study the relationship between the current assets and fixed asset
 To estimate the polity and sales for the future period
 To analyze the financial changes over a period of five years.
 To analyze the financial Statements of the company by using financial tools.
 To suggest effective measures in the existing system of the company.

RESEARCH METHODOLOGY:

Research means “know about new things”. Sometimes, it may refer to scientific and systematic
search pertinent information on specific topic.
In fact research is an art of scientific investigation.

According to Clifford Woody research comprises of. “define and redefining problem,
formulating hypothesis or suggested solution, collecting, organizing and evaluating data; making
deduction and reaching conclusion; and at last carefully testing the conclusion to determine
whether they fit the formulating hypothesis”.
Redman and Moray define research as a “systematic effort to gain new knowledge”. Research
can be defined as the search of knowledge or any systematic investigation to establish fact.

The primary purpose for applied research (as opposed to basic research) is
discovering, interpreting, and the development of methods and systems for the advancement of
human knowledge on a wide variety of scientific matters of our world and the universe. Research
can use the scientific method, but need not do so. Research can also be said as a process that is
followed by a person to answer either his/her own queries or somebody else queries about a
particular object, person, subject etc

DATA COLLECTION:

The data collections classified into two types are

 Primary data
 Secondary data

SECONDARY DATA

The secondary data are data are collected from information which is used by other. It is not direct
information. This information is already collected and analysis by other and that information is
used by others. The secondary data are collected from following:-

 Company’s annual report

 Company’s website

Manual

DATA ANALYSIS:

The data’s analyzed using the following tools:-

 Comparative Balance sheet

 Common size balance sheet
  Ratio analysis
 Trend Analysis.

LIMITATIONS OF THE STUDY:

 The study is restricted for a period of five years

 Assumed that 5 years are a responsible period to get fault accurate picture Policies and
practices of management of the company.
 Due to the inadequate time it is not possible to analyze all respects relevant to the study.
 The analysis is based on annual reports of the company.
 Authorities were reluctant to reveal full information about the working of the Company.

CHAPTERIZATION OF THE STUDY:

 CHAPTERIZATION I: Deals with Introduction
 CHAPTERIZATION II: Deals with Review of literature
 CHAPTERIZATION III: Deals with Company profile
 CHAPTERIZATION IV: Deals with Data Analysis and Interpretation
 CHAPTERIZATION V: Deals with Finding Suggestion and Conclusion
 CHAPTER II

REVIEW OF LITERATURE

REVIEW OF LITERATURE

INTRODUCTION

It is necessary since it familiarizes the researches with concepts and conclusions already
evolved by earlier analysts. It also enables the present researcher to find out the scope for further
study and to frame appropriate objectives for the proposed evaluation. Since the proposal of the
study is to measure the Study On Financial statement analysis At Nero air filters corporation
limited . The previous studies in this area of researches are briefly reviewed. It also includes the
opinions expressed by various authors in leading articles, journals, books etc.

A.S. Shiralashetti in their paper “Performance appraisal of the Sai leaf plate industry, karur- A
Case Study” discusses about the trends in capital employed and net worth of the firm. It also
considered the trends in sales, cost of goods sold, gross profit/loss and net profit/loss during the
period. The result were found that the overall performance of the Sai leaf plate industry, karur
has been poor from 2002-2003 to 2008-09.

Chundawat and Bhanawat (2000) analyzed the working capital management practices in IDBI
assisted tube and type companies for the period 1994-1998 by using some relevant ratios and
concluded that the working capital management ;of IDBI assisted companies was more effective
than the industry as a whole.

Deloof3 2003 discussed that most of the firms had a large amount of each invested in working
capital. It can therefore be expected that the way in which working capital is managed will have
a significant impact on profitability of those firm. Using correlation and regression tests he found
a significant negative relationship between gross operating income and the number of days
accounts receivable, inventories and accounts payable of firms. On the basis of these results he
suggested that managers could create value for their shareholders by reducing the number of
days’ accounts receivable and inventories to a reasonable minimum.
Dheenadayalan V. and Mrs. R. Deviananbrasi (2007) he had suggested that the “Z” score of
the sample units remain below the grey area from 1997-07 but in the year 2001-02, the “Z” score
is -0.29. After 2001-02, the decreases in the score indicate that the sample unit is not financially
sound and healthy. The sample units need to put in efforts to increases the score. This will help
the sample unit to avoid any damage to its liquidity and solvency positions, thereby avoiding
financial distress and bankruptcy.

Dr. Hamandou Boubacar(2011) in their paper “The financial performance of foreign Bank
subsidiaries” discuss about the relationship between the performance of bank foreign subsidiaries
and the degree of the implication of the present banks in the organization and the management of
their activities abroad. The result were found that ownership means share of the capital held by
the parent bank.

Dr. K. Srinvas(2010) in their paper “Pre and Post Merger financial performance of merged
Banks in India”- A selected study is conducted and analysis the financial performance of Bank of
Baroda, Punjab National Bank, Oriental Bank of Commerce, HDFC Bank, ICICI Bank and
Centurions Bank of Punjab. Then found that the private sector merged banks performed well as
compared to the public sector merged banks.

Dr. P.B. Bhatasna and J.R. Raiyani (2011) in their paper “A study on Financial Health of
Textile Industry in India: A “Z” – Score Approach” revealed that all the sample companies like
SPML Ltd and WIL Ltd were financially sound enough during the study period bearing SSML
and SKNL which had slightly lower “Z” score on the basis of average scores during the study
period.

Dr. Prasanta Paul (2011) in their paper, “financial performance evaluation – A Comparative
study of some selected “NBFCS” found that selected companies differ significantly in terms of
their financial performance indicators from one to another may be fer sha different services they
provide.

Eijelly, 2004 elucidated that efficient liquidity management involves planning and controlling
current assets and liabilities. The relation between profitability and liquidity was examined, as
measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock
companies using correlation and regression analysis. The study found that the the cash
conversion cycle was of more importance as a measure of liquidity than the current ratio that
affects profitability. The size variable was found to have significant effect on profitability at the
industry level. The result was stable and had important implications for liquidity management.

G.Foster in his study on financial analysis stated that “it is the process of identifying the
financial strength and weakness of the firm by properly establishing relationship between the
item in the balance sheet and the profit and loss account. Financial analysis can be under taken
by management of the firms, or by parties outside the firm , viz., owners, creditors, investors and
others.

M.Kannandasan (2007) he has made an attempt to have an insight into the examination of
financial health of a watch company in India. To evaluate the financial conditions and
performance of a company, this study used the Z-Score model, and finally, it was concluded that
the financial health of the company was good and financial viability is also healthy.

M. Velavan (2010) in his study measures “Financial Health of E.I.D. Parry Sugar Limited using
“Z” scores Model- A Case Study”. In this study, the financial health of E.I.D Parry Sugars
Limited as per Altman guide lines, the financial health of the sample units were tested through Z-
Score and finally, it was concluded that the financial health of the company was good and
financial viability is also healthy.

REFERENCES:

 Accountancy. R.K. Mittal,A.K.Jain. Financial Management- Theory and Practice.

Shashi.K.Gupta , R.K. Sharma.
 Essentials of Corporate Finance 2nd edition ,Irwin /McGraw-Hill.Ross, S.A.,R.W.
Westerfield and B.D. Jordan.
 Basic Financial Management ,8th edition ,Prentice -Hall,Inc. Scott, D.F., J.D Martin, J.W.
Petty and A.Keown.
 CHAPTER III

COMPANY PROFILE AND INDUSTRY PPROFILE

NERO AIRFILTERS CORPORATION LIMITED, COIMBATORE

COMPANY PROFILE

To manufacture and deliver the finest quality Three Wheeler Rear And Front Wheel Excel, Two
And Three Wheeler Gear Parts and other automobile products, is the sole aim of Nero Air filters
Spare Parts. Recognized as the manufacturer and supplier of auto products like Three Wheeler
Rear and Front Wheel Excel, we have gained a huge market share in India, especially in New
Delhi, the capital of India. The range is precision designed as per the prevalent standards, which
makes it ideal for use in automobiles of all brands.

 Established In year: 1998

 Company Founder: N.Natchimuthukounder,
 The company Managing Director: N.Santhoshkumar.
 The company Employees in Workers: 410.
 The company locates in: Coimbatore

Business Type

 Manufacturer, Supplier

Primary Competitive Advantages

 Latest manufacturing processes like molding, forging, machining etc.

 Timely delivery of products via client's choice of mode
 Continuous research for better and improved products
 Emphasize on client's recommendations and feedback
Product Range

 Brake Shoe
 Camshaft
 Clutch Assembly
 Clutch Center Holder
 Clutch Hub
 Clutch Plate
 Friction Free Cable
 Gear Parts
 Three Wheeler Rear And Front Wheel Excel
 Two And Three Wheeler Gear Parts
 Valve Set

Vision &Mission Statement

Mission

 Customer Service and Product Innovation tuned to diverse needs of individual and
corporate clientele.
 Continuous technology up gradation while maintaining human values.
 Progressive globalization and achieving international standards.
 Efficiency and effectiveness built on ethical practices.
 Customer Satisfaction through
 Providing quality service effectively and efficiently
 Periodic Customer Service Audits
 Success through Teamwork, Integrity and People

Vision

 Consistently make good Products at the friendliest Prices.

 Constantly Grow in Volume and Value through New Ideas.
INDUSTRY PROFILE

INTRODUCTION OF THE ORGANIZATION

Introduction
Automobile industry, the business of producing and selling self-powered vehicles, including
passenger cars, trucks, farm equipment, and other commercial vehicles. By allowing consumers
to commute long distances for work, shopping, and entertainment, the auto industry has
encouraged the development of an extensive road system, made possible the growth of suburbs
and shopping centers around major cities, and played a key role in the growth of ancillary
industries, such as the oil and travel businesses. The auto industry has become one of the largest
purchasers of many key industrial products, such as steel. The large number of people the
industry employs has made it a key determinant of economic growth.

ng of automobiles have become key elements of industrial economies. But along with greater
mobility and job creation, the automobile has brought noise and air pollution and automobile
accidents rank among the leading causes of death and injury throughout the world. But for better
or worse, the 1900s can be called the Age of the Automobile, and cars will no doubt continue to
shape our culture and economy well into the 21st century.

Automobiles are classified by size, style, number of doors, and intended use. The typical
automobile, also called a car, auto, motorcar, and passenger car, has four wheels and can carry
up to six people, including a driver. Larger vehicles designed to carry more passengers are called
vans, minivans, omnibuses, or buses. Those used to carry cargo are called pickups or trucks,
depending on their size and design. Minivans are van-style vehicles built on a passenger car
frame that can usually carry up to eight passengers. Sport-utility vehicles, also known as SUVs,
are more rugged Than passenger cars and are designed for driving in mud or snow.

In 2007 manufacturing plant in more than 25 countries produced 73.2 million passenger cars
.The automobile is built around an origin various systems supply the origin with fuel, cool it
daring operation, lubricate its moving parts and remove exhaust gases it creates. The origin
produces mechanical power that is transmitted to the automobile’s wheels through adverting
which includes a transmission. One or more dive shafts, a differential gear and axles. Suspension
system which includes sparing and shock absorbers, customs the ride and help protect the vehicle
from being damaged by bumps heavy loads and other shersis. Wheel and tares support vehicles
on the road way and when rotated by powered axles, propel the vehicle forward or backward.
Steering speed. Electrical systems starts and operate the engine monitor and control many
aspects of the vehicle operation and powers such components as head light and radios. Safety
features such as bumpers air bugs and seat bells help protect occupants in an accident.

The history of the automobile actually began about 4,000 years ago when the first wheel was
used for transportation in India. In the early 15th century the Portuguese arrived inching and the
interaction of the two cultures led to a variety of new technologies, including the creation of a
wheel that turned under its own power. By the 1600s small steam-powered engine models had
been developed, but it was another century before afull-sized engine-powered vehicle was
created.

In 1769 French Army officer Captain Nicolas-Joseph Cugnot built what has been called the first
automobile. Cugnot’s three-wheeled, steam-powered vehicle carried four persons. Designed to
move artillery pieces, it had a top speed of a little more than 3.2km/h (2 mph) and had to stop
every 20 minutes to build up a fresh head of steam. As early as 1801 successful but very heavy
steam automobiles were introduced in England. Laws barred them from public roads and forced
their owners to run themliketrains on private tracks. In 1802 a steam-powered coach designed by
British engineer Richard Trevithick journeyed more than 160 km (100 mi) from Cornwall to
London.

Steam power caught the attention of other vehicle builders. In 1804 American inventor Oliver
Evans built a steam-powered vehicle in Chicago, Illinois. French engineer OnésiphorePecqueur
built one in 1828. British inventor Walter Handcock built a series of steam carriages in the mid-
1830s thatwereused for the first omnibus service in London. By the mid-1800s England had
anextensive network of steam coach lines. Horse-drawn stagecoach companies and the
newrailroad companies pressured the British Parliament to approve heavy tolls on steam-
powered road vehicles. The tolls quickly drove the steam coach operators out of business.
During the early 20th century steam cars were popular in the United States. Most famouswas the
Stanley Steamer, built by American twin brothers Freelan and Francis Stanley. AStanley Steamer
established a world land speed record in 1906 of 205.44 km/h (121.573mph). Manufacturers
produced about 125 models of steam-powered automobiles, including the Stanley, until 1932.

AUTOMOBILES IN THE 20TH CENTURY

For many years after the introduction of automobiles, three kinds of power sources wherein
common use: steam engines, gasoline engines, and electric motors. In 1900 more than2,300
automobiles were registered in New York City; Boston, Massachusetts; and Chicago, Illinois. Of
these, 1,170 were steam cars, 800 were electric cars, and only 400were gasoline cars. Gasoline-
powered engines eventually became the nearly universal choice for automobiles because they
allowed longer trips and faster speeds than engines powered by steam or electricity. But
development of gasoline cars in the early 1900s was hindered in the United States by legal
battles over a patent obtained by New York lawyer George B. Selden. Selden saw a gasoline
engine at the Philadelphia Centennial Exposition in 1876. He then designed a similar one and
obtained a broad patent that for many years was interpreted to apply to allgasoline engines for
automobiles.

Although Selden did not manufacture engines or automobiles, he collected royalties from those
who did. Advances in automobile technology in the 1980s included better engine control and
theuse of innovative types of fuel. In 1981 BayerischeMotorenWerke AG (BMW)introduced an
on-board computer to monitor engine performance. A solar-poweredvehicle, SunRaycer, traveled
3,000 km (1,864 mi) in Australia in six days.

Other Improvements

During the 1980s and 1990s, manufacturers trimmed 450 kg (1,000 lb) from the weight of the
typical car by making cars smaller. Less weight, coupled with more efficient engines, doubled
the gas mileage obtained by the average new car between 1974 and1995. Further reductions in
vehicle size are not practical, so the emphasis has shifted to using lighter materials, such as
plastics, aluminum alloys, and carbon composites, in the engine and the rest of the vehicle.
Looking ahead, engineers are devising ways to reduce driver errors and poor driving habits.
Systems already exist in some locales to prevent intoxicated drivers from starting their vehicles.
The technology may be expanded to new vehicles. Anti-collision systems with sensors and
warning signals are being developed. In some, the car’s brakes automatically slow the vehicle if
it is following another vehicle too closely. New infrared sensors or radar systems may warn
drivers when another vehicle is in their “blind spot.”

Catalytic converters work only when they are warm, so most of the pollution they emit occurs in
the first few minutes of operation. Engineers are working on ways to keep the converters warm
for longer periods between drives, or heat the converters more rapidly.
ORGANIZATION STRUCTURE:
 CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

INTRODUCTION OF THE TOPIC

MEANING OF FINANCIAL STATEMENTS

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are: -

 The Balance Sheet

 Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and owners
equity, and so on and the Profit And Loss account shows the results of operations during a
certain period of time in terms of the revenues obtained and the cost incurred during the year.
Thus the financial statement provides a summarized view of financial positions and operations of
a firm.

MEANING OF FINANCIAL ANALYSIS

1. The term financial analysis is also known as ‘analysis and interpretation of financial
statements’ refers to the process of determining financial strength and weakness of the
firm by establishing strategic relationship between the items of the Balance Sheet, Profit
and Loss account and other operative data.
2. The first task of financial analysis is to select the information relevant to the decision
under consideration to the total information contained in the financial statement. The
second step is to arrange the information in a way to highlight significant relationship.
The final step is interpretation and drawing of inference and conclusions. Financial
statement is the process of selection, relation and evaluation.
FEATURES OF FINANCIAL ANALYSIS
 To present a complex data contained in the financial statement in simple and
understandable form.
 To classify the items contained in the financial statement in convenient and rational
groups
 To make comparison between various groups to draw various conclusions.

PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS

 To know the earning capacity or profitability.
 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest & dividends.
 To make comparative study with other firms.
 To know the trend of business.
 To know the efficiency of mgt.
 To provide useful information to mgt.

PROCEDURE OF FINANCIAL STATEMENT ANALYSIS

The following procedure is adopted for the analysis and interpretation of financial statements:-
 The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the management so that he may be able to find out
whether these plans are properly executed or not.
 The extent of analysis should be determined so that the sphere of work may be decided. If
the aim is find out. Earning capacity of the enterprise then analysis of income statement
will be undertaken. On the other hand, if financial position is to be studied then balance
sheet analysis will be necessary.
  The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form.
 A relationship is established among financial statements with the help of tools &
techniques of analysis such as ratios, trends, common size, fund flow etc.
 The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for help in decision making.
 The conclusions drawn from interpretation are presented to the management in the form
of reports.

TYPES OF FINANCIAL ANALYSIS

There are different ways of analysis the financial statements:

1. ON THE BASIS OF PROCESS OF ANALYSIS

a) Horizontal Analysis: This is used when the financial statement of a number of years are
to be analyzed. Such analysis indicates the trends and the increase or decrease in various
items not only in absolute figures but also in percentage form. This analysis indicates the
strengths and weaknesses of the firm. This analysis is also called as dynamic analysis
because it also shows the trend of the business.

b) Vertical Analysis: This is used when financial statements of a particular year or on a

particular date are analyzed. For this type of analysis we generally use common size
statements and the ratio analysis. It involves a study of quantitative relationship among
various items of balance sheet and profit and loss account. This type of analysis is static
analysis because this is based on the financial results of one year. Vertical analysis is
useful when we have to compare the performance of different departments of the same
company.
 c) Among these two types of analysis, horizontal analysis is more useful because it brings
out more clearly the trends of working of a firm. This gives us more concrete bases for
future planning.

2. ON THE BASIS OF INFORMATION AVAILABLE

a) Internal Analysis: This analysis is based on the information available to the business firm
only .Hence internal analysis is made by the management. Internal analysis is more
reliable and helpful for financial decisions.

b) External Analysis: This analysis is made on the basis of published statements, reports
and information’s. This analysis is made by external parties such as creditors, investors,
industry’s, financial analysis etc. external analysis is less reliable in comparison to
internal analysis because of limited and often incomplete information.

3. ON THE BASIS OF NUMBER OF FIRMS

a) Inter-Firm Analysis: When financial analysis of two or more companies or firms are
analyzed and compared over a number of accounting periods, it is called inter-firm
analysis.

b) Intra -Firm Analysis: intra-firm analysis is concerned with the analysis of financial
performance of different units or departments or segments of the same enterprise or company.
Similarly when financial statements of two or more years of the same firm are analyzed and
compared it is also called as intra-firm analysis.

4. ON THE BASIS OF OBJECTIVES

a) Accounting Analysis: Accounting analysis is analysis of past financial performance and

involves examining how generally accepted accounting principles and conventions have been
applied in arriving at the values of assets, liabilities, revenues and expenses.
 b) Prospective Analysis: Prospective analysis involves developing forecasted financial
statements keeping in view the changes that are likely to shape and affect the business given the
assumptions about these changes and the limitation of the forecasting technique used. This is
quite complicated analysis.

METHODS/TOOLS OF FINANCIAL ANALYSIS

A number of methods can be used for the purpose of analysis of financial statements.
These are also termed as techniques or tools of financial analysis. Out of these, and enterprise
can choose those techniques which are suitable to its requirements. The principal techniques of
financial analysis are:-

a. Comparative financial statements

b. Common-size statements
c. Trend analysis
d. Ratio analysis
e. Funds flow analysis
f. Cash flow analysis
g. Breakeven point analysis

a. Comparative Financial Statements:

When financial statements figures for two or more years are placed side-side to facilitate
comparison, these are called ‘comparative Financial Statements’. Such statements not only show
the absolute figures of various years but also provide for columns to indicate to increase or
decrease in these figures from one year to another. In addition, these statements may also show
the change from one year to another on percentage form. Such cooperative statements are of
great value in forming the opinion regarding the progress of the enterprise.
Objectives purpose or significance of comparative financial statements

 To simplify data
 To make inter period/inter-firm comparison
 To indicate the trends
 to enable forecasting
 To indicate the strengths and weaknesses of the firm
 To compare the performance
 To analyze expenses
 To analyze profits

TOOLS FOR COMPARISON OF FINANCIAL STATEMENTS

Comparative financial statement is a tool of financial analysis that depicts change in each
item of the financial statement in both absolute amount and percentage term, taking the item in
preceding accounting period as base.
COMPARISON AND ANALYSIS OF FINANCIAL STATEMENTS MAY BE CARRIED
OUT USING THE FOLLOWING TOOLS:

1. Comparative Balance Sheet :

The comparative balance sheet shows increase and decrease in absolute terms as well as
percentages, in various assets, liabilities and capital. A comparative analysis of balance sheets of
two periods provides information regarding progress of the business firm. The main purpose of
comparative balance sheet is to measure the short- term and long-term solvency position of the
business.

2. Comparative Income Statement :

Comparative income statement is prepared by taking figures of two or more than two accounting
periods, to enable the analyst to have definite knowledge about the progress of the business.
Comparative income statements facilitate the horizontal analysis since each accounting variable
is analyzed horizontally.
COMMON- SIZE STATEMENTS:
Common size statements are such statements in which the items of financial statements
are covered into percentage of common base. In common-size income statement, by assuming
net sales as 100(i.e %) and other individual items are converted as percentage of this. Similarly,
in common –size balance sheet, total assets are assumed to be 100 (i.e %) and individual assets
are expressed as percentage.

OBJECTIVES OF COMMON SIZE STATEMENTS

1. Presenting the change in various items in relation to total assets or total liabilities or net
sales.
2. Establishing a relationship.
3. Providing a common base for comparison.

TYPES OF COMMON SIZE STATEMENTS

1. Common-Size Balance Sheet :

A common –size balance sheet is a statement in which total of assets or liabilities is assumed to
be equal to 100 and all the figures are expressed as percentage of the total. That is why it is
known as percentage balance sheet.
Common-size balance sheet facilitates the vertical analysis since each item of the Balance
Sheet is analyzed vertically.

2. Common-Size Income Statement:

Common-size income statement is a statement in which the figures of net sales is assumed to be
equal to 100 and all other figures of “profit and loss A/c” are expressed as percentage of net
sales. This statement facilitates the vertical analysis since each accounting variable is analyzed
vertically. One can draw conclusion, regarding the behavior of expenses over period of time by
examining these percentages.
C. TREND ANALYSIS:

Trend percentage are very useful is making comparative study of the financial statements
for a number of years. These indicate the direction of movement over a long time and help an
analyst of financial statements to form an opinion as to whether favorable or unfavorable
tendencies have developed.
This helps in future forecasts of various items. For calculating trend percentages any year
may be taken as the ‘base year’. Each item of beast year is assumed to be equal to 100 and on
that basis the percentage of item of each year calculated.

RATIO ANALYSIS:

MEANING:

Absolute figures expressed in financial statements by themselves are meaningfulness.

These figures often do not convey much meaning unless expressed in relation to other figures.
Thus, it can be say that the relationship between two figures, expressed in arithmetical terms is
called a ratio.
“According to R.N. Anthon “A ratio is simply one number expressed in terms another. It
is found by dividing one number into the other.”

TYPES OF RATIOS

1. Proportion or Pure Ratio or Simple ratio.

2. Rate or so many Times.
3. Percentage
4. Fraction.
OBJECTS AND ADVANTAGES OR USES OF RATIO
ANALYSIS
1. Helpful in analysis of financial statements.
2. Simplification of accounting data.
3. Helpful in comparative study.
4. Helpful in locating the weak spots of the business.
5. Helpful in forecasting
6. Estimate about the trend of the business
7. Fixation of ideal standards
8. Effective control
9. Study of financial soundness.

LIMITATION OF RATIO ANALYSIS

1. False accounting data gives false ratios
2. Comparisons not possible of different firms adopt different
3. Accounting policies.
4. Ratio analysis becomes less effective due to price level
5. change
6. Ratios may be misleading in the absence of absolute data.
7. Limited use of a single Ratio.
8. Window-Dressing
9. Lack of proper standards.
10. Ratio alone are not adequate for proper conclusions
11. Effect of personal ability and bias of the analyst.
CLASSIFICATION OF RATIOS

In view of the financial management or according to the tests satisfied, various ratios have been
classified as below:
Liquidity Ratios:
These are the ratios which measure the short-term solvency or financial position of a
firm. These ratios are calculated to comment upon the short-term paying capacity of a concern or
the firm’s ability to meet its current obligations.
Long –Term Solvency and Leverage Ratios: Long-term solvency ratios convey a firm’s
ability to meet the interest cost and repayment schedules of its long-term obligation e.g. Debit
Equity Ratio and Interest Coverage Ration. Leverage Ratios.

Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resource of a firm
has been employed. These ratios are also called turnover ratios because they indicate the speed
with which assets are being turned over into sales e.g. debtors turnover ratio.

Profitability Ratios:
These ratios measure the results of business operations or overall performance and
effective of the firm e.g. gross profit ratio, operating ratio or capital employed. Generally, two
types of profitability ratios are calculated.
o In relation to Sales, and
o In relation in Investment
FUNCTIONAL CLASSIFICATION IN VIEW OF FINANCIAL MANAGEMENT OR
CLASSIFICATION ACCORDING TO TESTS

Liquidity Ratios Long-term Activity Ratios Profitability Ratios

Solvency and
Leverage Ratios
-Current Ratio Financial Operating Inventory Turnover In Relation to Sales.
-Liquid Ratio Composite Ratio. Gross Profit Ratio.
(Acid) Test or -Debt. Equity Debtors Turnover Operating Ratio.
Quick Ratio. Ratio Ratio Operating Profit
-Absolute liquid or -Debt to Total Fixed Assets Ratio.
-Cash Ratio. Capital Ratio Turnover Ratio Net Profit Ratio.
-Debtors -Interest Total Asset Expenses Ratio
Turnover Ratio Coverage Ratio Turnover Ratio In relation to
-Creditors Turnover -Capital Gearing Working Capital investments
Ratio Ratio Turnover Ratio. Return on
-Inventory Turnover Payables Turnover Investments.
ratio Ratio Return on capital.
Capital Employed Return on Equity
Turnover Ratio Capital.
Return on total
Resources
Earning per share.
Price Earning Ratio.

CASH-FLOW STATEMENT
Cash – flow statement is a statement showing inflows (receipts) and outflows (payments)
of cash during a particular period. In other words, it is summary of sources and applications of
each during a particular span of time.
OBJECTIVES OF CASH FLOW STATEMENT:
1. Useful for Short-Term Financial Planning.
2. Useful in Preparing the Cash Budget.
3. Comparison with the Cash Budget.
4. Study of the Trend of Cash Receipts and Payments.
5. It explains the Deviations of Cash from Earnings.
6. Helpful in Ascertaining Cash Flow from various Separately.
7. Helpful in Making Dividend Decisions.

COMPARATIVE BALANCE SHEET TENSILE NERO AIRFILTERS CORPORATION

LIMITED, COIMBATORE.

2012-2013 TO 2015-2016
(Rs. in crores)
Particulars 2012-2013 2013-2014 2014-2015 2015-2016
Absolute % of Absolute % of Absolute % of Absolute % of
change change change change change change change change
Capital and
liabilities:
Capital 153.08 14 9.51 0.8 213.34 17 0.61 .04
Reserves and 9502.96 80 2097.76 10 21943.61 94 3062.2 7
surplus
Deposits 65264.39 65 65427.02 40 13920.86 6 (26083.23) (11)
Borrowings 4977.41 15 12734.12 33 14392.4 28 1675.26 2.5
Other 3831.71 18 13000.76 51.5 4666.75 12 851.04 2
liabilities and
provisions

Total capital 83729.55 50 93269.17 37 55136.96 16 (20494.12) (5.1)

and liabilities

Assets:

Investments 21060.04 42 19710.45 27.5 20196.5 22 (8396.03) (7.5)

Advances 54757.96 60 49702.49 34 29750.48 15 (7305.23 (3.25)
Fixed assets (57.32) (1.4) (57.3) (1.4) 185.47 5 (307.27) (7.5)
Capital work 51.64 54 41.72 28.2 (189.66) -100 0.00 0.00
in progress
Current assets 7917.23 37 23871.8 81 5194.17 10 (4485.58) (8)
Total assets: 83729.55 50 93269.16 37 55136.96 16 (20494.11) (5.1)

INTERPRETATION
 The capital of industry increased by 14% in 2012-2013, 0.8% in 2013-2014, 17% in 2015-
2016,and .04 % in 2016-2017.This shows that there is fluctuation in the rate of increase in
the capital. In 2013-2014 and 2015-2016 the rate of increase in capital is more than that of
2014-2015 and 2015-2016.
 There is a huge fluctuation in the rate of increase in reserves and surplus also. This shows
that industry is effectively utilizing its reserves and surplus.
 In 2012-2013 deposits increase by 65%, in 2013-2014 it increased by 40%, and an
increase of 6% in 2014-2015 in 2015-2016 deposits fall by 11%.this shows that the
industry has replayed its deposits in this year.

 The borrowings are also showing a fluctuating rate of increase in 2015-2016the

borrowings have increased at a very low rate. This shows that industry has repaid a large
amount of borrowings in this year and thereby reducing the dependence on outside debt.
 The investments are also increasing but with lower rates compared to the preceding years
 Similarly advances rose by 60% in 2013-2014 , an increase of 34% in 2014-2015 ,15%
increase in 2014-2015 and finally decreased by 3.25% in 2015-2016

 Three has been a consistent decline in the fixed assets over years. in 2013-2014and 2014-
2015 it decreased by 1.4 % ,increased by 5% in 2015-2016 and again decreasing by 7.5%
in 2015-2016 this is mainly due to increase in the rate of depreciation in the subsequent
years.
 A huge fluctuation is revealed from current assets. it increased by 37% in 2012-2013 ,rate
of increase rose to 80% in 2012-2013and then the it increased at a much lower rate i.e. at
10%.this shows that the industry is effectively utilizing its working capital. there is a fall
in current assets in 2015-2016 by 8 %.this is mainly due to the repayment of deposits in
the years 2015-2016.
 COMPARATIVE INCOME STATEMENT OF NERO AIRFILTERS CORPORATION
LIMITED, COIMBATORE.

2012-2013 TO 2015-2016
(rs. In crores)
Particulars 2012-2013 2013-2014 2014-2015 2015-2016
Absolute % of Absolute % of Absolut % of Absolute % of
change change change change e change change change change
Income:

Operating 5941 46.3 10156 54.1 10676 37 (902.84) (2.3)

income

Expenditure
:

Interest 3026.56 46 6761.05 70.4 7125.74 43.5 (758.31) (3)

expended
Operating 1180.36 36 2211.05 49.3 1463.62 22 (1109.07 (14)
expenses
Total 4206.92 43 8972.1 64 8589.36 37.2 (1867.38 (5.9)
expenses )
Operating 1734.67 59 1183.73 25.2 2086.29 35.5 964.54 12.1
profit

Provision 1199.8 126.1 613.58 28.5 1038.78 37.5 1364.14 36

and
contingenci
es
Net profit
for the year 534.87 27 570.15 22.4 1047.51 34 (399.6) (10)
Extraordinar
y items 0.00 0.00 0.00 0.00 0.00 0.00 (0.58) 0.00
Profit
brought 135.13 254.5 105.22 56 704.83 21 1438.05 144
forward
 Total 670 32.55 675.37 25 1752.34 51.4 1037.87 20
profit/(loss):

INTERPRETATION:-

 The net profit shows a fluctuating trend i.e it increased by 27% in 2012-2013 ,22.4%
increase in 2013-2014 ,and increased by 34% in 2014-2015 and finally if falls by 10% in
2015-2016 .this may be due to decline in operating income and increased tax liability in
the year 2015-2016.
 The interest expenses from the period 2012-2016 showed an increasing trend but
decreased in 2015-2016 due to repayment of borrowings.
TREND ANALYSIS

TREND PERCENTAGE NERO AIRFILTERS CORPORATION LIMITED,

COIMBATORE.

2011-2016
(Base year 2011-2016) Percentage (%) figures
Particulars 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
Deposits 100 165 231 245 219
Advances 100 160 214 247 239
Net profit 100 127 155 207 187
 TREND PERCENTAGE NERO AIRFILTERS CORPORATION LIMITED,
COIMBATORE.

2011-2016

300
TREND PERCENTAGE
250
207
200 187
155
150 127
100
100

50

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

INTERPRETATION:

 There is a continuous increase in the deposits till the year ending 2014-2015 followed by
a downfall in the year ending 2015-2016 due to repayment of deposits in this year.
 Similarly advances also shows as increasing trend till the year ending 2014-2015
followed by a slight downfall in the year ending 2015-2016.
 There has been a substantial increase in net profit till the year ending 2012.In four years it
has been more than double. The overall performance of the industry is satisfactory.
RATIO ANALYSIS

CURRENT RATIO:
An indication of a company's ability to meet short-term debt obligations; the higher the
ratio, the more liquid the company is. Current ratio is equal to current assets divided by current
liabilities. If the current assets of a company are more than twice the current liabilities, then that
company is generally considered to have good short-term financial strength. If current liabilities
exceed current assets, then the company may have problems meeting its short-term obligations.

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY

TABLE 4.1
CURRENT RATIO

Year Current Assets Current Liabilities Current Ratio

(Rs. In crores) (Rs. In crores)
2011-12 21632.56 21396.16 1.01
2012-13 29549.79 25227.88 1.17
2013-14 53421.59 38228.64 1.39
2014-15 58615.76 42895.38 1.36
2015-16 54130.18 43746.43 1.23
CHART 4.1
CURRENT RATIO

Current Ratio
1.39 1.36
1.4 1.23
1.17
1.2 1.01
1
0.8
0.6
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
An ideal solvency ratio is 2. The ratio of 2 is considered as a safe margin of solvency due
to the fact that if current assets are reduced to half (i.e.) 1 instead of 2, then also the creditors will
be able to get their payments in full.
But here the current ratio is less than 2 and more than 1 which shows that the industry has
current assets just equal to the current liability which is not satisfactory as the safety margin is
very less or zero. Therefore the industry should keep more current assets so that it can maintain a
satisfactory safety margin.
LIQUID RATIO:

Liquid ratio is also known as ‘Quick’ or ‘Acid Test ‘Ratio. Liquid assets refer to assets which are
quickly convertible into cash. Current Assets other stock and prepaid expenses are considered as
quick assets.

Quick Ratio = Total Quick Assets

Total Current Liabilities

Quick Assets = Total Current Assets – Inventory

TABLE 4.2
LIQUID RATIO

Years Current assets Current liabilities Ratio

2011-12 12929.97 21396.16 0.60
2012-13 17040.22 25227.88 0.67
2013-14 37121.33 38228.64 0.97
2014-15 38041.13 42895.38 0.88
2015-16 29966.56 43746.43 0.68
CHART 4.2
LIQUID RATIO

LIQUID RATIO
0.97
1 0.88

0.8 0.67 0.68

0.6
0.6

0.4

0.2

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
A quick ratio of 1:1 is considered favorable because for every rupee of current liability,
there is atheist one rupee of liquid assets. A higher value of ratio is considered favorable. Here
this ratio is less than 1 in 2011-2016 it is close to 1 which is not satisfactory. This means the
industry has not managed its funds properly in this particular period. Therefore industry should
rationally utilize its funds to maintain an ideal liquid ratio.
EARNING PER SHARE:
In order to avoid confusion on account of the varied meanings of the term capital employed, the
overall profitability can also be judged by calculating earnings per share with the help of the
following formula:

Earning Per Equity Share = Net Profit after Tax –Prefrence Dividend
No. of Equity shares

The earnings per share of the company help in determining the market price of the equity
shares of the company. A comparison of earning per share of the company with another will also
help in deciding whether the equity share capital is being effectively used or not. It also helps in
estimating the company’s capacity to pay dividend to its equity shareholders.

TABLE 4.3
EARNING PER SHARE

Net Income Available For No. Of Equity Shares EPS

Year Shareholders (Rs. In crores)
(Rs. In crores)
2011-12 2005.2 73.6716 27.22
2012-13 2540.07 88.9823 28.55
2013-14 3110.22 89.9266 34.59
2014-15 4157.73 111.2687 37.37
2015-16 3758.13 111.325 33.78
CHART 4.3
EARNING PER SHARE

EARNING PER SHARE

40 37.37
34.59 33.78
35
30 27.22 28.55

25
20
15
10
5
0
Year 2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
Earnings per Share are the most commonly used data which reflects the performance and
prospects of the company. It affects the market price of shares. Here the Earning Per Share is
shows a persistent increases till the year 2014-15after that in the year 2015-16 Earnings Per share
is followed by a downfall due to decline in profits.
DIVIDEND PER SHARE:

It is expressed by dividing dividend paid to equity shareholders by no. of equity shares.

This shows the per share dividend given to equity shareholders. It is very helpful for potential
investors to know the dividend paying capacity of the company. It affects the market value of the
company.
Dividend per Share = Dividend Paid To Equity Shareholders/
No. Of Equity Shares

TABLE 4.4
DIVIDEND PER SHARE

Year Dividend Paid No. Of Equity DPS

(Rs. In crores) Shares
(Rs. In crores)
2011-12 632.96 73.6716 8.59
2012-13 759.33 88.9823 8.53
2013-14 901.17 89.9266 10.02
2014-15 1227.7 111.2687 11.03
2015-16 1224.58 111.325 11
CHART 4.4
DIVIDEND PER SHARE

DIVIDEND PER SHARE

12 11.03 11
10.02
10 8.59 8.53

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

Here the Dividend Per Share is increasing year after year except a little decline in 2015-
16 otherwise the dividend per share ratio of the industry is quite satisfactory which shows the
industry has a good dividend paying capacity.
NET PROFIT RATIOS:

This ratio indicates the Net margin on a sale of Rs.100. It is calculated as follows:
Net Profit Ratio = Net Profit X 100/ Net Sales
This ratio helps in determining the efficiency with which affairs of the business are being
managed. An increase in the ratio over the previous period indicates improvement in the
operational efficiency of the business. The ratio is thus on effective measure to check the
profitability of business.

TABLE 4.5
NET PROFIT RATIO
Year Net Profit Sales Net Profit Ratio
(Rs. In crores) (Rs. In crores)
2011-12 2005.2 9409.9 21.3
2012-13 2540.07 13784.49 18.42
2013-14 3110.22 22994.29 13.52
2014-15 4157.73 30788.34 13.5
2015-16 3758.13 31092.55 12.08
CHART 4.5
NET PROFIT RATIO

NET PROFIT RATIO

25
21.3
20 18.42

15 13.52 13.5
12.08

10

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
Although both the sales and net profit have increased during the above period but the Net
Profit Ratio of the industry is declining continuously. This is because of the reason that net
profits have not increased in the same proportion as of the sales.
OPERATING PROFIT RATIO:

This ratio is calculated as follows:

Operating Profit Ratio = Operating Profit X100/ Net Sales

The difference between net profit ratio and net operating profit ratio is that net operating profit
is calculated without considering non-operating expenses and non-operating incomes. If we
deduct this ratio from 100, the result will be operating ratio. Higher operating profit ratio enables
the organization to recoup non-operating expenses out of operating profits and provide
reasonable return.

TABLE 4.6
OPERATING PROFIT RATIO:

Year Operating Profit Sales Operating Profit

(Rs. In crores) (Rs. In crores) Ratio (in %)
2011-12 2956 9409.9 31.41
2012-13 4690.67 13784.49 34.02
2013-14 5874.4 22994.29 25.54
2014-15 7960.69 30788.34 25.85
2015-16 8925.23 31092.55 28.7
CHART 4.6
OPERATING PROFIT RATIO:

Operating Profit Ratio

34.02
35 31.41
28.7
30 25.54 25.85
25
20
15
10
5
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
In the year 2011-12 the operating profit is 31.41% & 34.02% respectively. After that it
has been consistently declined from the year 2014-15 and again gaining momentum in 2016.
This may be due to the reason that operating expenses have been increased more as compared to
sales during the above period consequently reducing the operating profits. Therefore the industry
should check on unnecessary operating expenses to correct this situation and to provide a
sufficient return.
RETURN ON NET WORTH:
It measures the profitability of the business in view of the shareholders. It judges the
earning capacity of the company and the adequacy of return on proprietor’s funds. Shareholders
and potential investors are interested in this ratio.

It is calculated as below:
Return on Net Worth = Net Profit after Interest and Tax x 100/ Shareholder’s Funds

TABLE 4.7
RETURN ON NET WORTH:

Year Net Profit After Interest Shareholder's Fund Return On Net

And Tax Worth (in %)
(Rs. In crores) (Rs. In crores)
2011-12 2005.2 12899.97 15.54
2012-13 2540.07 22555.99 11.26
2013-14 3110.22 24663.26 12.61
2014-15 4157.73 46820.21 8.88
2015-16 3758.13 49883.02 7.53
CHART 4.7
RETURN ON NET WORTH:

RETURN ON NET WORTH

18
15.54
16
14 12.61
12 11.26

10 8.88
7.53
8
6
4
2
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
The net profit after interest and tax have increased slowly till the year 2014-15 followed by a
downfall due to high interest payments, operating expenses and taxation liability. Consequently
the net worth ratio has declined considerably and has reduced to more than half in the year 2015-
16 than it was in 2015-16
RETURN ON CAPITAL EMPLOYED:

It establishes relationship between profit before interest and tax and capital employed. It
indicates the percentage of return on the total capital employed in the business. This ratio is also
known as Return on Investment. It measures the overall efficiency and profitability of the
business in relation to investment made in business. It also shows how efficiently the resources
are used in the business. Comparison of one unit with that of the other or performance in one
year with that of the same unit is possible. It is calculated as below:

TABLE 4.8
RETURN ON CAPITAL EMPLOYED:

Year Net Profit Before Capital Employed Return On Capital

Interest And Tax Employed (in %)
(Rs. In crores) (Rs. In crores)
2011-12 9098.09 146263.25 6.22
2012-13 12694.05 226161.17 5.61
2013-14 20006.54 306429.48 6.52
2014-15 28540.34 356899.69 7.99
2015-16 27842.9 335554.53 8.29
CHART 4.8
RETURN ON CAPITAL EMPLOYED:

RETURN ON CAPITAL EMPLOYED

10
6.22 7.99 8.29
5.61 6.52
5

0
2011-12
2012-13
2013-14
2014-15
2015-16

INTERPRETATION:
The above table exhibits the return on capital employed ratio of the industry for last five
years. This ratio measures the earning of the net assets of the business. The ratio was 6.22% in
year 2011-12. After that it raised to the tune of 5.61%, 6.52%, 7.99% and 8.29% in year 2011-12
to 2015-16 years respectively. It leads to the conclusion industry rising but very little proportion
of return on capital employed.
DEBT- EQUITY RATIO:

The Debt-Equity ratio is calculated to find out the long-term financial position of the
firm. This ratio indicates the relationship between long-term debts and shareholder’s funds. The
soundness of long-term financial policies of a firm can be determined with the help of this ratio.
It helps to assess the soundness of long-term financial policies of a business. It also helps
to determine the relative stakes of outsiders and shareholders. Long-term creditors can assess the
security of their funds in a business. it indicates to what extent a firm depends upon lenders to
meet its long-term financial requirements. A low Debt-Equity ratio is considered better from the
point of view of creditors.

TABLE 4.9
DEBT- EQUITY RATIO:

Year Debt Equity Debt Equity Ratio

(Rs. In crores) (Rs. In crores)
2011-12 154759.45 12899.97 11.99
2012-13 228832.96 22555.99 10.14
2013-14 319994.86 24663.26 12.97
2014-15 352974.87 46820.21 7.53
2015-16 329417.94 49883.02 6.6
CHART 4.9
DEBT- EQUITY RATIO:

DEBT - EQUITY RATIO

14 12.97
11.99
12
10.14
10
7.53
8 6.6
6

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
The ratio shows the extent to which funds have been provided by long-term creditors as
compared to the funds provided by the owners. Here the Debt-Equity ratio for the above period
is always high. This shows that the industry is more relying on outside funds as compared to
internal sources of capital, in its capital structure. From the long-term lenders point of view this
ratio is not satisfactory.
PROPRIETORY RATIO:
It is also called shareholders equity to total equity ratio or net worth to total assets ratio or
equity ratio. It compares the shareholder’s funds to total assets. It is calculated by dividing
shareholder’s funds by total assets.

Proprietary Ratio = Shareholder’s Fund/ Total Assets

It helps to determine the long-term solvency of a company. This ratio measures the
protection available to the creditors. Higher the ratio, lesser is the likelihood of insolvency in
future, as the management has to use lesser debts and vice versa. Thus, this ratio is of great
importance to the creditors.

TABLE 4.10
PROPRIETORY RATIO:

Years Shareholder's Funds Total Assets Proprietory Ratio

(Rs. In crores) (Rs. In crores)
2011-12 12899.97 167659.4 0.07
2012-13 22555.99 251388.95 0.08
2013-14 24663.26 344658.11 0.07
2014-15 46820.21 399795.07 0.12
2015-16 49883.02 379300.96 0.13
CHART 4.10
PROPRIETORY RATIO:

0.14 0.13
PROPRIETORY RATIO
0.12
0.12

0.1
0.08
0.08 0.07 0.07

0.06

0.04

0.02

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

Above table exhibits the proprietary ratio of the industry for last five years. It was 7%
in2011-12, after that was 8% in year 2013-14. Similarly it was once again reduced to 7 % in the
year 2013-14. After 2007 it registered increase and was 12% and 13% in the year 2014-15 and
2015-16 respectively. Hence it leads to the conclusion owners have less than 13% stake in the
total assets of the industry. It is not a good sign as far the long term solvency is concerned.
FIXED ASSETS TURNOVER RATIO:

It is also called as Sales to Fixed Assets Ratio. It measures the efficient use of fixed
assets. This ratio is a measure of efficient use of fixed assets. It is calculated as:
Fixed Assets Turnover Ratio = Cost of goods sold or Sales/Net Fixed Assets

It measures the efficiency and profit earning capacity of the business. Higher the ratio,
greater is the intensive utilization of fixed assets and a lower ratio shows under utilization of the
fixed assets. This ratio has a special importance for manufacturing concerns where investment in
fixed assets is very high and the profitability is significantly dependent on the utilization of these
assets.

TABLE 4.11
FIXED ASSETS TURNOVER RATIO:

Year Sales Net Fixed Assets Fixed Assets

(Rs. In crores) (Rs. In crores) Turnover Ratio
2011-12 9409.9 4038.04 2.33
2012-13 13784.49 3980.72 3.46
2013-14 22994.29 3923.42 5.86
2014-15 30788.34 4108.89 7.49
2015-16 31092.55 3801.62 8.17
CHART 4.11
FIXED ASSETS TURNOVER RATIO:

FIXED ASSETS TURNOVER RATIO

9 8.17
7.49
8
7 5.86
6
5
3.46
4
2.33
3
2
1
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
Here the fixed assets employed in the business shows a decreasing trend except in the
year 2015-16 where fixed assets have again increased. This may be due to increase in rate of
depreciation in subsequent years. Nevertheless, the fixed assets turnover ratio has been
consistently increasing. It indicates that fixed assets have been effectively used in the business
without much additional investment in the period of study and also the capital is not blocked in
fixed assets.
CREDIT-DEPOSIT RATIO:
This ratio is very important to assess the credit performance of the industry. The ratio
shows the relationship between the amounts of deposit generated by the industry has well as their
deployment towards disbursement of loan and advances. Higher credit deposit ratio shows
overall good efficiency and performance of any industry institution.

Credits
Credit Deposit Ratio   100
Deposits ss

Credit means disbursement of advances, Deposit mean sum of fixed deposit, saving
deposit and current deposit.

TABLE 4.12
CREDIT-DEPOSIT RATIO:

Year Advances Deposits Credit Deposit Ratio (in%)

(Rs. In crores) (Rs. In crores)
2011-12 91405.15 99818.78 91
2012-13 146163.11 165083.17 88
2013-14 195865.6 230510.19 84
2014-15 225616.08 244431.05 92
2015-16 218310.85 218347.82 99
CHART 4.12
CREDIT-DEPOSIT RATIO:

CREDIT DEPOSIT RATIO

105
99
100

95 92
91
90 88
84
85

80

75
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

Above table exhibits credit deposit ratio of the industry during last 5 years. In the year
2016 ratio was 91% and it declined to 88% and 84%in the year 2011-12 and 2012-13 2013- 14
respectively. In the year 2014-15 and 2015-16 ratio was increased to 92% and 99% respectively.
It leads to conclusion that credit performance of the industry is very good.
CASH FLOW STATEMENT OF INDUSTRY

2011-2012 2012-13 2013-14 2014-15 2015-16

Profit before tax 2,527.20 3,096.61 3,648.04 5,056.10 5,116.97
Net cash flow-
9,131.72 4,652.93 23,061.95 -11,631.15 -14,188.149
operating activity
Net cash used in
-3,445.24 -7,893.98 -18,362.67 -17,561.11 3,857.88
investing activity
Net cash used in fin.
-1,227.13 7,350.90 15,414.58 29,964.82 1,625.36
activity
Net inc/dec in cash and
4,459.34 4,110.25 20,081.10 683.55 -8,074.57
equivalent
Cash and equivalent
8,470.63 12,929.97 17,040.22 37,357.58 38,041.13
begin of year
Cash and equivalent
12,929.97 17,040.22 37,121.32 38,041.13 29,966.56
end of year
 CHAPTER V

CONCLUSION
On the basis of various techniques applied for the financial analysis of industry we can arrive at a
conclusion that the financial position and overall performance of the industry is satisfactory.
Though the income of the industry has increased over the period but not in the same pace as of
expenses. But the industry has succeeded in maintaining a reasonable profitability position.

The industry has succeeded in increasing its share capital also which has increased around 50%
in the last 5 years. Individuals are the major shareholders. The major achievement of the industry
has been a tremendous increase in its deposits, which has always been its main objective. Fixed
and current deposits have also shown an increasing trend.

Equity shareholders are also enjoying an increasing trend in the return on their capital. Though
current assets and liabilities (current liquidity) of the industry is not so satisfactory but industry
has succeeded in maintaining a stable solvency position over the years. As far as the ratio of
external and internal equity is concerned, it is clear that industry has been using more amount of
external equity in the form of loans and borrowings than owner’s equity. Industry’s investments
are also showing an increasing trend. Due to increase in advances, the interest received by the
industry from such advances is proving to be the major source of income for the industry

SUGGESTIONS
 Although the short term liquidity position is quite satisfactory as per revealed by liquid
ratio but the current ratio is below the ideal ratio of 2:1.So the industry should make
efforts to increase its current assets to maintain a safety margin and to maintain a better
liquidity position.
 The profitability of the industry for the period under study is not satisfactory. Profits are
increasing but not with same pace as of the expenditure due to higher reliance on debt
capital in the form of borrowings and loans for financing capital structure.
 So in order to improve profitability, the industry should reduce its dependence on
external equities for meeting capital requirements. Consequently, the interest expenses
will decline and profits will increase which is good for the industry. Similarly non
productive expenses should be curtailed to improve profitability.
 Higher trend of credit deposit ratio reveals that the industry has performed satisfactorily
as regard to granting loans and advances to generate income. It suggests that the credit
performance of industry is good and it is performing its business well by fulfilling the
major objective of granting credit and accepting deposit. So in order to have more
creditability in the market the industry should maintain its credit deposit ratio.
 Though the industry has been successful in increasing it’s deposits but to further improve
upon such situation it can introduce some new and attractive schemes for public. Such
schemes can be in the form of higher rate of interest and shorter maturity period for FD’s
etc.
 Industry should try to finance more and more projects. Financing will help it to earn
higher amount of profits.

 The industry is having a greater reliance on debt capital. The increasing reliance on
external equities may prove hazardous in the long run. So in order to remedy this
situation industry should increase its focus on internal equities and other sources of
internal financing.
 Industry can also think for improving its day-to -day service to its clients. Such service
can be improved by providing prompt service and showing an attitude of co-operation to
its clients. It will help to give a kind of confidence to the public and build a better public
image.
 To achieve the objective of rural development it should open more and more branches in
different rural areas of the country. It will facilitate in providing help to rural poor
farmers and other living below the poverty line. Industry can appoint commission agents
for different area who can encourage general public to invest in the capital of the industry
and make more deposits in industry .
 The industry should simplify the procedure of advances for quick disbursement.
  To achieve organizational success a proper independent working atmosphere
should be developed to achieve desired objective more effectively.
 Last but not least, industry should adopt branch automation experiment to control
the operational cost

BIBILOGRAPHY
BOOKS REFERRED:
 Accountancy. R.K. Mittal, A.K.Jain. Financial Management- Theory and Practice.
Shashi.K.Gupta , R.K. Sharma.
 Essentials of Corporate Finance 2nd edition, Irwin /McGraw-Hill. Ross, S.A., R.W.
Wester field and B.D. Jordan.
 Basic Financial Management, 8th edition, Prentice -Hall, Inc. Scott, D.F., J.D Martin,
J.W. Petty and A.Keown.
 ANNEXURE

BALANCE SHEET OF NERO AIRFILTERS CORPORATION LIMITED,

COIMBATORE.

(Rs. In crores)
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
Capital and
liabilities:
Total share 1086.75 1239.83 1249.34 1462.68 1463.29
capital
Equity share 736.75 889.83 899.34 1112.68 1113.29
capital
Share application 0.02 0.00 0.00 0.00 0.00
money
Preference share 350.00 350.00 350.00 350.00 350.00
capital
Reserves 11813.20 21316.16 23413.92 45357.53 48419.73
Revaluation 0.00 0.00 0.00 0.00 0.00
reserves
Net worth 12899.97 22555.99 24663.26 46820.21 49883.02
Deposits 99818.78 165083.17 230510.19 244431.05 218347.82
Borrowings 33544.50 38521.91 51256.03 65648.43 67323.69
Total debt 146263.25 226161.17 306429.48 356899.69 335554.53
Other liabilities 21396.17 25227.88 38228.64 42895.39 43746.43
and provisions
Total liabilities 167659.42 251388.95 344658.12 399795.08 379300.96

Assets:
Cash and 6344.90 8934.37 18706.88 29377.53 17536.33
balances with rbi
Balances with 6585.07 8105.85 18414.45 8663.60 12430.23
industry’s
,money at call
Advances 91405.15 146163.11 195865.60 225616.08 218310.85
Investments 50487.35 71547.39 91257.84 111454.34 103058.31
Gross block 5525.65 5968.57 6298.56 7036.00 7443.71
Accumulated 1487.61 1987.85 2375.14 2927.11 3642.09
depreciation
Net fixed assets 4038.04 3980.72 3923.42 4108.89 3801.62
Capital work in 96.30 147.94 189.66 0.00 0.00
progress
Other assets 8702.59 12509.57 16300.26 20574.63 24163.62
Total assets 167659.40 251388.95 344658.11 399795.07 379300.96

Contingent 97507.79 119895.78 177054.18 371737.36 803991.92

liabilities
Bills for 9803.67 15025.21 22717.23 29377.55 36678.71
collection
Book value(Rs.) 170.35 249.55 270.37 417.64 445.17
EPS 27.22 28.55 34.59 37.37 33.78
No. of equity 736716094 889823901 899266672 1112687495 1113250642
shares
PROFIT AND LOSS ACCOUNT OF NERO AIRFILTERS CORPORATION LIMITED,
COIMBATORE.

(Amount In Cores)
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
Income:
Interest earned 9409.90 13784.49 22994.29 30788.34 31092.55
Other income 3416.14 4983.14 5929.17 8810.77 7603.72
Total income 12826.04 18767.63 28923.46 39599.11 38696.27
Expenditure:
Interest expended 6570.89 9597.45 16358.50 23484.24 22725.93
Operating 3299.15 4479.51 6690.56 8154.18 7045.11
expenses
Total expenses 9870.04 14076.96 23049.06 31638.42 29771.04
Operating profit 2956 4690.67 5874.40 7960.69 8925.23
Other provision 428.80 1594.07 2226.36 2904.59 3808.26
and contingencies
Provision for tax 522 556.53 537.82 898.37 1358.84
Net profit 2005.20 2540.07 3110.22 4157.73 3758.13
Extraordinary 0.00 0.00 0.00 0.00 (0.58)
items
Profit b/f 53.09 188.22 293.44 998.27 2436.32

Total 2058.29 2728.29 3403.66 5156.00 6193.87

Preference 0.00 0.00 0.00 0.00 0.00
dividend
Equity dividend 632.96 759.33 901.17 1227.70 1224.58
Corporate 90.10 106.50 153.10 149.67 151.21
dividend tax
Pershare data
Eps(rs.) 27.22 28.55 34.59 37.37 33.78
Equity dividend 85.00 85.00 100.00 110.00 110.00
(%)
Book value(rs) 170.35 249.55 270.37 417.64 445.17
Appropriations
Transfer to 547.00 248.69 1351.12 1342.31 2008.42
statutory reserve
Transfer to other 600.01 1320.34 0.00 0.01 0.01
reserve
Proposed 723.06 865.83 1054.27 1377.37 1375.79
dividend/transfer
to govt
Balance c/f to 188.22 293.44 998.27 2436.32 2809.65
balance sheet
Total 2058.29 2728.30 3403.66 5156.01 6193.87