CONTENTS

CHAPTER NO. CHAPTER NAME List of Figures List of Tables List of Charts 1 2 3 4 5 6 Introduction Research Design Company Profile Data Analysis & Interpretation Summary Of Findings Suggestions & Conclusion Bibliography Annexure PAGE NO. 2 3-4 5-6 7-38 39-45 46-70 71-130 131-134 135-138 139-140

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LIST OF FIGURES

PICTURE NO.
3.1 3.2 3.3 3.4

TITLE

PAGE NO.

Computerised Hosiery Machine Dyeing Machine Knitting Machine A Hoarding of Lux Cozi

62 63 65 68

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LIST OF TABLES

TABLE NO.

TITLE

PAGE NO.

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21

Current Assets, Loans And Advances Current Liabilities And Provisions Calculation Of Working Capital Current Assets, Loans And Advances Current Liabilities And Provisions Calculation Of Current Ratios Calculation Of Quick Ratios Calculation Of Absolute Liquid Ratios Calculation Of Proprietary Ratios Calculation Of Total Coverage Ratio Calculation Of Solvency Ratio Calculation Of Fixed Assets Ratio Calculation Of Fixed Asset Turnover Ratios Calculation Of Total Asset Turnover Ratios Calculation Of Working Capital Turnover Ratios Calculation Of Debtors Turnover Ratio Calculation Of Debt Collection Period Calculation Of Creditors Turnover Ratio Calculation Of Credit Payment Period Calculation Of Inventory Turnover Ratio Calculation Of Return On Capital Employed (ROCA)

72 72 73 76 76 77 79 82 85 87 89 91 94 96 98 100 102 104 106 108 111

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4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 4.30

Calculation Of Return On Shareholders Funds Calculation Of Net Profit Ratio Calculation Of Operating Profit Ratio Calculation Of Fixed Interest Coverage Ratio Calculation Of Fixed Dividend Coverage Ratio Calculation Of Price Earning (P/E) Ratio Calculation Of Operating Expenses Ratio Calculation Of Return On Asset Calculation Of Return On Investment

113 115 117 119 121 123 125 127 129

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LIST OF GRAPHS

GRAPH NO. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21

TITLE

PAGE NO.

Working Capital Current Ratios Quick Ratios Absolute Liquid Ratios Proprietary Ratios Total Coverage Ratio Solvency Ratio Fixed Assets Ratio Fixed Asset Turnover Ratios Total Asset Turnover Ratios Working Capital Turnover Ratios Debtors Turnover Ratio Debt Collection Period Creditors Turnover Ratio Credit Payment Period Inventory Turnover Ratio Return On Capital Employed (Roca) Return On Shareholders Funds Net Profit Ratio Operating Profit Ratio Fixed Interest Coverage Ratio

74 78 80 83 86 88 90 92 95 97 99 101 103 105 107 109 112 114 116 118 120

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4.22 4.23 4.24 4.25 4.26

Fixed Dividend Coverage Ratio Price Earning (P/E) Ratio Operating Expenses Ratio Return On Asset Return On Investment

122 124 126 128 130

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CHAPTER -1
INTRODUCTION

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1.1 GENERAL INTRODUCTION

A financial statement is an organized collection of data according to the logical consistent accounting procedure. Financial statement contain summarized information of firms financial affairs, organized systematically. They are means of present the firms financial situation to the owners, creditor and general public. The top management is responsible for the preparation of financial statements. Finance is the life of a business; it is rightly termed, as the science of money. Finance is very essential for the smooth running of the business.

Financial management is that managerial activity which is concerned with planning and controlling of a firms financial reserve. Financial management, as an academic discipline, has undergone fundamental changes as with regard to its scope and coverage. In the early years of its evaluation it was treated synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline a broad scope has to be included, in addition to procurement of funds. Efficient use of resources is universally recognized.

All business organizations prepare their financial statements after completing the financial year. This report deals with the assessment of the financial performance of a company, LUX Hosiery Ltd., which is engaged in manufacturing of garments in India. The analysis is done for the years 2005-2006, 2006-2007 and 2007-2008.

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LUX HOSIERY INDUSTRIES LTD.

Economic liberalization has thrown up significant opportunities and challenges for the Indian industry. Foremost among them, is the globalization of the Indian market, leading to the growing sophistication of the Indian consumer. Rise in disposable incomes, changing attitudes towards consumption and increasing exposure to global lifestyles through the electronic media have combined to create newer and bigger markets of consumers who demand products and services of international standards.

Lux Hosiery Industries Ltd was established in the year 1957. Today LUX is a recognized player in the export industry and as in a process to increase its marketing network worldwide. If you look for high fashion inner and casual wear, with updated global designs, with fantastic fabric, photo quality prints, all at a very competitive cost, delivered within a reasonable period, then the company aspires to take pride in having priority shelves in almost all the known fashion hubs worldwide in the near future.

1.2 THEORETICAL BACKGROUND OF STUDY INTRODUCTION:

Financial statements are primarily prepared for decision-making. They play a dominant role in setting the framework of managerial decisions. The published financial statements of business may be of considerable interest to present the same to their respective potential shareholders, managers, moneylenders, banks, financial institutions, trade organizations and many others.

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MEANING OF FINANCIAL STATEMENT ANALYSIS Definition:

Financial analysis is the process of Identifying the financial strengths and weakness of firm by properly establishing relationship between the items of the balance sheet and profit and loss account. The purpose of financial analysis is to diagnose the information contained in the financial statements so as to judge the profitability and financial soundness of the firm. A financial analyst, analyses the financial statements with various tolls of analysis before commenting upon the financial position of the enterprises.

Tools of financial statement analysis:

1. Comparative statements 2. Common size statements 3. Trend Analysis 4. Funds flow analysis 5. Cash flow analysis 6. Ratio analysis

1. Comparative Statements:
The comparative balance sheet analysis is the study of trend of the same items, group of items and computed items in two or more balance sheet of the same business enterprise on different dates. The changes in periodic balance sheet items at the beginning and at the end of a period can be observed, which reflect the conduct of a business.

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2. Common size statements:

Common size financial statement facilitates both type of analysis, horizontal as well as vertical analysis, it not only compares across years but also each individual item of a group of assets and liabilities as related to the total of the group in respect of every year. It shows individual current asset as a percentage of total current assets and so on. The main advantage of common size statements is that a comparison of the performance and financial condition in respect of different units of the same industry can also be done.

3. Trend Analysis:
The easiest way to evaluate the performance of a firm is to compare its present ratio with the past ratios. When financial ratios over a period of time are compared, it is known as time series or trend analysis, it gives an indication of a direction of change and reflects whether financial performance has improved or has deteriorated or has remained constant overtime.

4. Funds flow analysis:

Fund flow statement is a method by which we study changes in the financial position of a business enterprise between the beginning and ending financial statements dates. It is a statement showing sources and application of trends for a period of time, it is a complimentary statement to the income statement. Funds flow statement considers both capital and revenue items.

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5. Cash flow analysis:

It is a statement of changes in the financial position of firm on cash basis and hence it is called cash flow statement. It summarizes the causes for changes in the cash position of business enterprises between dates of two balance sheets. Cash flow statement is a statement which describes the inflow and out flow of cash and cash equivalents.

6. Ratio Analysis:
Ratio analysis is a technique of calculation of number of accounting ratios from the data found in the financial statements. The comparison of these accounting ratios with those of the previous years or with those of other concerns engaged in similar line of activities or with those of standard ratios, and interpretation of its comparison helps to understand the standing and position of the firm.

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CLASSIFICATION OF RATIOS
1. LIQUIDITY RATIOS
Current ratio

Liquid ratio Absolute Liquid Ratio

2. TURNOVER RATIOS
Working capital turnover ratio Inventory turnover ratio Debtor turnover ratio Creditor turnover ratio Fixed asset turnover ratio Total Asset Turnover Ratio

3. LONG TERM SOLVENCY RATIOS

Debt Equity Ratio Capital Gearing Ratio Proprietary ratio Total coverage ratio Solvency ratio Fixed asset ratio

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4. PROFITABILITY RATIO
Return on Capital Employed Fixed Interest Coverage Ratio Fixed dividend Coverage Ratio Net profit ratio Operating ratio Price Earning Ratio Operating Expenses Ratio Return on investment, Return on asset Return on shareholders Funds

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LIQUIDITY RATIOS
The term liquidity refers to firms ability to meet its current liabilities when they become due; liquidity ratios are used to measure the liquidity position or short-term financial position of a firm. The bankers and creditors are interested in the liquidity position. The ratios, which reflect the short-term solvency of a business unit, are current ratio, quick ratio, working capital ratio turnover ratio, stock turnover ratio, and debtors turnover ratio. There are four types of comparison Trend ratios Comparison of items within a single years financial statement of a firm. Inter-firm comparison

Comparison with standard plans.

TREND RATIOS:
This involves a comparison of the ratios of a firm overtime. In other words, present ratios are compared with past ratios of the same firm. Trend ratios indicate the direction of change in the performance that is improvement, deterioration or constancy over the years.

INTER FIRM COMPARISON:

This involves comparison of the ratios of a firm with those of others in the same line of business as for the industry as whole. Inter firm comparison reflects the performance of a firm in relation to its competitors. A good company is that which has good profitability as well as a sound financial position; either one or the other being good alone does not make a company sound. Ratios as tool for establishing true profitability and financial position of a company can be classified as below.

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LIQUIDITY RATIOS
I) CURRENT RATIO:
Current ratio is defined as the ratio of current assets to current liabilities; it shows the relationship between total current assets and total current liabilities. It is a measure of firms short-term solvency. Current ratio is also called working capital ratio. It is calculated as follows: Current ratio= Current asset Current liability It is a liquidity ratio that measures a company's ability to pay short-term obligations. Current Assets are those that can be converted into cash within a year. Current Liabilities and provisions are those liabilities that are payable within a year. A current ratio of 2:1 indicates a highly solvent position. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its shortterm assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

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II) QUICK RATIO:

Liquid ratio is the ratio of liquid assets to liquid liabilities. It establishes the relationship between quick assets and liquid liabilities. It is also called acid test ratio. It is computed as follows: Liquid Assets Liquid Ratio = liquid liabilities

Liquid or quick assets include cash, bank balance, debtors, bills receivables and shortterm marketable securities. In other words they are current assets minus stocks & prepaid expresses. Stock cannot be included in quick assets because it is not easily and readily convertible into cash. Liquid or quick liabilities in other words are current liabilities minus bank overdraft. Quick ratio is considered to be superior to current ratio in testing the liquidity position of a firm. It is an improvement of current ratio because in the calculation of quick ratio, the weakness of current ratio is overcome. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firms liquidity. A quick ratio of 1:1 is considered ideal.

III) ABSOLUTE LIQUID RATIO:

Though receivables are generally more liquid than inventories, there may be debts having doubt regarding their real stability in time. So, to get an idea about the absolute liquidity of a concern, both receivables and inventories are excluded from current assets and only absolute liquid assets such as cash in hand, cash at bank and readily realizable securities are taken into consideration. ALR is calculated as follows:

Absolute Liquid Assets =

Absolute Liquid Assets Current Liabilities

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LONG-TERM SOLVENCY RATIOS

As already observed, the short-term creditors like banks and suppliers of raw materials, are interested in the short-term solvency of a firm. For the analysis of short-term solvency or current financial position, liquidity ratios are used. The shareholders, debenture holders and other long-term creditors like financial institutions are more interested in long-term financial position or long term solvency of a firm. Leverage or Long-term solvency ratios are used for such an analysis. These ratios are also used to analyze the capital structure of a company. That is why these ratios are also called as capital structure ratios. The term solvency generally refers to the firms ability to pay the interest regularly and repay the principal amount of debt on due date. There are two aspects of long-term solvency of a firm.

i) ii)

Ability to repay the principal amount of loan or due date. Regular payment of interest.

Accordingly, there are tow types of leverage ratios. The first type of leverage ratios is based on the relationship between owned capital and borrowed capital. These ratios are calculated from the balance sheet items. The second types of leverage ratios are coverage ratios they are computed from profit and loss account.

1. DEBT-EQUITY RATIO:
It expresses the relationship between debt and equity of the firm. It is calculated to measure the relative claims of outsides against the firms assets. It is the ratio of the amount invested by outsiders to amount invested by the shareholders. Alternatively this ratio indicates the relative proportion of debt and equity in financing the assets of a company.

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It is computed as follows: Debt equity ratio = Outsiders funds (Debt) Shareholders funds (Equity)

A ratio of 1:1 is considered to be a satisfactory ratio although there cannot be any standard norm for all types of business. A high ratio shows that creditors have invested more in the business than the shareholders. A low ratio indicates a smaller claim of creditors.

2. PROPRIETARY RATIO:
This ratio establishes the relationship between shareholders funds and the total assets. It indicates the proportion of total assets financed by shareholders. It is usually computed as a percentage.

It is computed as follows: Proprietary ratio = Share holders funds Total assets or total resources

Shareholders funds include equity share capital, preference share capital and all reserves and surplus minus fictitious assets. Total assets include all assets including goodwill. Some others exclude goodwill also from total assets. It reflects the general financial strength of the company. It enables creditors to find out the proportion of shareholders funds in total assets. Higher the ratio of share of shareholders in total capital of the company, better is the long-term solvency position of the company.

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3. CAPITAL GEARING RATIO:

This ratio is used to analyze the capital structure of the company. The term capital gearing refers to the proportion between fixed income bearing funds and equity shareholders funds. Fixed income bearing funds include debentures, other long-term loans and preference share capital. Equity shareholders funds include equity capital and all reserves and surpluses that belong to equity shareholders.

Capital gearing ratio =

Fixed income bearing funds Equity shareholders funds

Capital gearing ratio reveals the companys capital structure. This ratio is important not only to the company but also to investors. The capital-gearing ratio may affect the companys dividend policy, building up of reserves etc. This ratio shows the effect of the fixed interest/dividend funds on the profit available to equity shareholders.

4. TOTAL OR OVERALL COVERAGE RATIO:

This ratio is also known as fixed charges coverage ratio. It measures the ability of a firm to service all fixed obligations out of its earnings. The fixed obligations include interest on loans and debentures, preference dividend, lease payment and loan repayment.

It is computed as follows. Total coverage ratio = EBIT Total fixed charges This ratio reflects the overall ability of the firm to service outside liabilities.

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5. SOLVENCY RATIO:
This ratio expresses the relationship between total assets and total liabilities. It is a pure ratio calculated to measure the solvency of the firm. It is computed as follows:

Solvency Ratio: Total liabilities Total assets

Generally there is no standard set. But the lower the ratio of total liabilities to total assets, more satisfactory and stable is the long-term solvency position of the firm.

6. FIXED ASSET RATIO:

It is the relationship between fixed assets and total capital employed by the firm. It indicates the amount invested in fixed assets out of the capital employed.

Fixed Asset Ratio =

Fixed Asset Total capital Employed

By convention an ideal ratio is 0.6: 1. If it is more it indicates better financial position and otherwise a lower financial state than the standard set.

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ACTIVITY RATIOS:

1. WORKING CAPITAL TURNOVER RATIO:

This is a measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales. It is calculated as follows:

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

2. INVENTORY TURNOVER RATIO:

Inventory turnover ratio also known as stocks turnover ratio establishes the relationship between cost of goods sold and average inventory. It helps in determining the liquidity of a business concern, this ratio indicates how many times during the period the firm has turned or replaced its inventory. In other words, it shows the rate at which inventories are converted into sales and then into cash.

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Although the first calculation is more frequently used, COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors. Inventory turnover ratio is a measure of liquidity of inventory. This ratio indicates the speed with which the inventory is sold. A high turnover ratio indicates that inventory is sold fast. On the other hand, a low turnover ratio reflects over investment in inventories, accumulation of huge sock etc. This ratio is also an index of profitability.

3. DEBTORS TURNOVER RATIO:

A debtor turnover ratio is also called receivable turnover ratio. It relates net credit sales to sundry debtors. This ratio indicates the rate at which cash is generated by turnover of debtors. It measures how fast a firm collects its debts.

It is calculated as follows: Debtors turnover ratio = Net Credit Sales Debtors

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The term debtor for this ratio is the amount of the debtors plus bills receivables at the end of an accounting period. Sometimes the ratio is computed by taking the average of opening and closing debtors. It should be remembered that provision for bad and doubtful debts should not be deducted from debtors. When the credit sales are not given, the total sales may be used. The debtor turnover ratio indicates the quality of debtors by measuring the rapidity as slowness in collection process. A shorter collection period (higher turnover ratio) indicates prompt payment of debtor while a longer period (lower turnover ratio) indicates the in efficiency of credit collection.

4. CREDITORS TURNOVER RATIO:

Creditors turnover ratio is the ratio between net credit purchases and the amount of sundry creditors. It implies the credit period enjoyed by the firm in paying creditors.

It is computed by using the following formula. Creditors turnover ratio = Net credit purchases Sundry creditors (including Bills payable)

The term creditor for this ratio is amount of the creditors plus bills payable at the end of an accounting period. Sometimes the ratio is computed by taking average of opening and closing creditors. The ratio reflects whether terms of credit allowed by suppliers are liberal or stringent. A high creditors turnover ratio (short period) shows that creditors are being paid promptly; while a low turnover ratio (longer period) reflects liberal credit terms granted by suppliers.

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5. FIXED ASSETS TURNOVER RATIO:

This is a measure of the productivity of a firm, it indicates the amount of sales generated by each rupee spent on fixed assets, and the amount of fixed assets required to generate a specific level of revenue. Changes in this ratio over time reflect whether or not the firm is becoming more efficient in the use of its fixed assets. It is computed as follows: Fixed assets turnover ratio = Sales Fixed assets Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each rupee of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets This ratio measures the efficiency in the utilization of fixed assets. A high ratio reflects overtrading; on the other hand, a lower ratio indicates idle capacity and excessive investment in fixed assets.

TOTAL ASSET TURNOVER RATIO:

This is a measure of the productivity of a firm, it indicates the amount of sales generated by each rupee spent on total assets, and the amount of total assets required to generate a specific level of revenue. Changes in this ratio over time reflect whether or not the firm is becoming more efficient in the use of its assets. It is computed as follows: Total assets turnover ratio = Sales Total assets

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PROFITABILITY RATIOS

The ultimate aim of any business enterprise is to earn maximum profit. A firm should earn profits to survive and grow over a long period of time. To the management, profit is the measure of efficiency and control. To the owners, it is a measure worth of their investment. To the creditors, it is the margin of safety. The management of the Company is very much interested in the profitability of the Company. Besides the management, creditors and owners also are interested in the profitability of the Company. Creditors want to get interest and repayment of principal regularly whereas owners want to get a reasonable return on their investment.

The profitability of a firm can be easily measured by its profitability ratios; Profitability ratios measure the ability of a firm to earn an adequate return on sales, total assts and invested capital. Profitability ratios are calculated either in relation to sales or in relation to investment.

1. GROSS PROFIT RATIO:

Gross profit ratios measure the relationship of Gross Profit and Sales. The gross profit ratio indicates the extent to which selling prices of goods per unit may decline without resulting in losses on operations of a firm. It reflects the efficiency with which a firm produces its products.

Gross profit ratio =

Gross profit Net sales

X 100

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As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit ratio, better the results. A low gross profit ratio indicates high cost of goods sold due to unfavorable purchasing policies, upper sales, lower selling prices excessive competition etc. Gross Profit ratio indicates the margin of profit on sale. It is useful to ascertain whether the average percentage of mark-up on the goods sold is maintained. There is no ideal Gross profit ratio for evaluation. However, the Gross profit ratio should be sufficient to cover all operating expenses, fixed interest charges, dividends and appropriation of reserves.

2. NET PROFIT RATIO:

Net profit ratio is the ratio of net profit to sales. It is known as the profit margin. It is usually expressed as a percentage. It is calculated as Net profit ratio = Net profit after tax X 100 Net sales

Here Net profit is the balance of profit and loss account after adjusting interest and taxes and all non-operating expenses and non-operating incomes. A high net profit ratio would indicate higher overall efficiency of the business, better utilization of limited resources and reasonable returns to owners. A low net profit ratio would mean low efficiency and inadequate returns to owners.

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3. OPERATING PROFIT RATIO:

This ratio establishes the relationship between operating profit and sales and is calculated as follows:

Operating Profit Ratio = Operating Profit before Interest and Taxes (OPBIT) * 100 Net Sales This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met. Higher the ratio, better it is for the firm. Assuming a constant gross profit margin, the operating profit ratio tells us about a company's ability to control its other operating costs or overheads.

4. RETURN ON INVESTMENT:
Return on investment refers to the relationship between net profit and the proprietors funds. Return on investment means operating profit or net profit before deducting interest on long-term funds employees on used in business.

ROI =

EBIT TOTAL CAPTIAL EMPLOYED

Capital Employed

= Fixed assets + investments + current Asset - Current liabilities

Alternatively, if net capital employed is calculated from the liability side, it includes: 1. Equity and preference capital 2. Reserves and surplus 3. Debentures and long term loans

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Significance of ROI:
Operating ratio does not show the profitability on investment, while capital turnover ratio, doesnt show the profitability on sales. However, ROI being product of abovementioned two ratios, it reflects the overall profitability. It is used as a basis for various managerial decisions like expansion and diversification of activities. It is very important in capital budgeting.

5. RETURN ON ASSETS:
Return on Asset means net profit after tax as compared to total resources or total of all revisable assets, including intangible assets. This ratio measures the productivity of total resources or assets of a concern it indicates the profitability of the business.

Return on Assets =

Net profit Total Assets

x 100

This number tells you how effective your business has been at putting its assets to work. The ROA is a test of capital utilization - how much profit (before interest and income tax) a business earned on the total capital used to make that profit. As such, there cannot be any norms for this ratio. It depends on the industry in which the firm is operating.

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6. RETURN ON SHAREHOLDERS FUNDS:

This is the ratio of Net profit to shareholders fund or net worth. It measures the profitability from the shareholders point of view. It is calculated as follows: RETURN OF SHARE HOLDER FUND = PROFIT AFTER INTEREST AND TAX SHARE HOLDER FUND

This ratio indicates how effectively the company has utilized the shareholder funds. It is an index to know whether the owners are getting satisfactory rate of return on their investment. A higher ratio indicates better utilization of owners funds and higher productivity; the ideal ratio being 13%.

7. RETURN ON CAPITAL EMPLOYED:

It is a ratio that indicates the efficiency and profitability of a company's capital investments. It is calculated as:

Return on Capital Employed = Operating Profit before Interest and Taxes(OPBIT)* 100 Capital Employed

ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.

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8. EARNINGS PER SHARE (EPS):

Earnings per share, is the ratio between net profit available for equity shareholders after tax and preference dividend and number of equity shares. It is calculated as: EPS = Net profit after tax Number of equity shares

The more earnings per share, better is the performance and the future prospects of the company. A high earnings per share suggests the possibility of more cash dividend and bonus shares, as there is a rise in the market price of the share.

9. FIXED INTEREST COVERAGE RATIO:

A ratio used to determine how easily a company could pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

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10. FIXED DIVIDEND COVERAGE RATIO:

A ratio used to determine how easily a company could pay dividend to its shareholders. The dividend coverage ratio is calculated by dividing a company's profit after tax (PAT) of one period by the company's dividend expenses of the same period:

Fixed Dividend Coverage Ratio =

Profit after Tax (PAT) Fixed Dividend

11. OPERATING EXPENSES RATIO:

The operating expense ratio also known as the OER is the ratio between the total operating expenses and the effective gross income for an income producing property. Operating expenses are costs associated with the operation and maintenance of income producing properties. They include such items as property taxes, property management fees, insurance, wages, utilities, repairs and maintenance, supplies, advertising, attorney fees, accounting fees, trash removal, pest control, etc. The operating expense ratio shows the percentage of a property's income that is being used to pay maintenance and operational expenses.

Operating Expenses Ratio = Operating Expenses * 100 Net Sales

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12. PRICE EARNING RATIO:

It is the valuation ratio of a company's current share price compared to its per-share earnings. Calculated as:

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

1.3. DEFINITION OF CONCEPTS

(a) Financial analysis: - The use of financial data to evaluate the financial portion of a firm. (b) Balance sheet: - Statement showing assets and liabilities of the business as on a particular date and time. (c) Income statement: - A summary of a firms revenues and expenses over a specified period ending with net income and loss for the period. (d) Financial ratio: - An index that relates two accounting members and is obtained by dividing one number by the others.

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(e) Liquidity: - Ability to meet short term obligation when they become due. (f) Profit: - Measure of efficiency and control. (g) Profitability: - The ability to earn an adequate return on sales, total assets and invested capital. (h) Shareholder equity: - Total assets - total capital (i) Current asset: - Assets convertible in to cash during current year (j) Current liability: - Liabilities payable during the current year (k) Debt: - Borrowed capital (l) Equity: -capital assured by firm (m) Debenture: - Borrowed capital (n) Returns: - Revenue - all costs (o) Taxes: - To be paid/payable to government as a penalty for having made money (p) Retained earnings: - Part of profit after taxes retained in the business (q) Fixed assets: - Long term assets whos cost could be recovered over time in terms of depredation (r) Long term liabilities: - Those liabilities payable in a period more than one year (s) Industry: - A collection of firms in same line of industry (t) Provision: - fixed interest on borrowed capitals (u) Turn over: - Conversion of ratio of assets in to sales (v) Debtor: - A person who has to give money to company (w) Creditor: - A person who has to get money from company (x) Prepaid expenses: - Part of current assets Ex- advance paid (y) Market price of equity: - price of equity and debentures in Secondary market.

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1.4 STATEMENT OF THE PROBLEM

Finance is the most important part of an organization. The success of these organizations solely depends on the way the finances are managed. The financial analysis in this study is undertaken to investigate about the financial position of Lux Hosiery Industries Ltd; how it has performed for the last 3 years and to further analyze its financial statements so as to derive meaningful conclusions, interpretation of the represented information and suggestion and recommendation. A comparative study of the last 3years has been undertaken using ratios which involves comparison of ratios of the over the years. These will help indicate the direct change in the performance, improve, deterioration or the constancy over the years.

THE FINANCIAL PERFORMANCE OF THE COMPANY IS COMPARED ACROSS THREE YEARS USING THE FOLLOWING STUDIES:

(a) Analysis of the relationship between current liabilities & current assets. (b) Analysis of the liquidity and profitability of the current assets and current liabilities. (c) Analysis of various components of working capital such as cash, marketable securities, receivables& inventories. (d) Analysis of the long- term financial position of the firm over a period of time. (e) Find out the impact of business fluctuations, technical developments etc on financial performance.

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LUX Hosiery Industries Ltd. is a public sector undertaking mainly into manufacturing garments. This study considers an external analysis point of view with the help of past and latest financial statements. The financial position has been analyzed potentially. However, firm-industry comparisons are not attempted because of lack of availability of data of various firms. An intra organizational comparison for a run through of three years has been taken into consideration.

1.5 NEEDS AND PURPOSE OF THE STUDY

To provide financial information that assists in estimating the earning potentials of the business.

To provide reliable financial information about the economic resources and obligations.

To determine the present and future earning capacity and profitability of the concern.

To find out the financial stability of a business concern. To study the procedures and techniques included in the financial aspects of a concern.

To determine the short term and long term solvency of the firm.

This study takes into consideration the following groups involved in a firm.

1. Trade Creditor:
Existing and potential creditors those who lend resources to a firm; they need information to evaluate the safety and desirability of their credit investment. Creditors are interested in firms ability to meet their claims over a short period of time.

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2. Management:
Management of the firm would be interested in every aspects of financial analysis. It is their over all responsibility to see that the resources of the firm are used most effectively and efficiently and that the financial condition is sound. This work will provide sufficient information for management. ROI, various costs as a percentage of sales, gross and net profit of percentage of sales, assets turnover ratios, etc. reflect this.

3. Suppliers of long term deposit:

They are concerned with a firms long-term solvency and survival. This study will provide information about profitability over time, its ability to generate cash to be able to pay interest and repay principle, and the relationship between various services of funds in specific debt &equity.

4. Investors:
Investors, who have invested their money in the firm in the form of shares, are concerned about firms earnings. This study work will provide information about the firms present and future profitability.

5. Employees and union:

Suppliers of services to the firm, such as employees and their union, are vitally interested in the firms survival and possible growth conditions and its ability to pay its bills in this case, wages and salaries when due.

- 37 -

6. Current and potential customers:

Current and potential customers of the firm may depend on the firm to supply a needed product or service. This dependency makes them interested in the firms present and prospective economic health.

1.6 OBJECTIVE OF THE STUDY

The objective of the study is to analyze the financial position of the firm by using the various financial techniques and tools. To know the various sources of funds that the firm utilizes. To know the liquidity position of the firm. To know the amount of debt in the firm and the amount of shareholders funds. To analyze the profitability position of the firm. To know the volume of sales activity in the firm. To compare operations and costs position of the company between profit making and loss making periods. Based on information furnished in the financial statement, analyzing and interpreting the strengths and weakness of the firm through Ratio Analysis.

- 38 -

CHAPTER-2
RESEARCH DESIGN

- 39 -

CHAPTER: 2 RESERCH METHODOLOGY OF STUDY

2.1 RESEARCH DESIGN:

Research design simply means a search for facts answers to questions and solutions to problems. It is a prospective investigation. Research is a systematic and logical study of an issue on problems through scientific method. Research is a systematic and objective analysis and recording of controlled observation that may lead to development of generation, principles, resulting in predictions and possible ultimate control of events.

A Research design is the arrangement of condition for the collection and analysis of data in a manner that aims to combine relevance to research purpose with economy in procedure. There are various research designs, but descriptive and analytical research design in most suitable for this study.

This research is descriptive in nature and involves the following steps

Information is collected from various generals to understand the industrial background.

To understand the theory behind financial performance analysis, various textbooks have been referred to.

Information is downloaded from various websites to understand the industrial background.

The study period has been decided which is 3 years (2009- 2011). Annual reports and other published data have been collected from the company.

- 40 -

Identification of financial ratios has been done - literally to reflect the liquidity, solvency and efficiency and profitability of the firm. In this case the ratios classes used are:

LIQUIDITY RATIOS LONG TERM SOLVENCY RATIOS PROFITABILITY RATIOS TURNOVER RATIOS ACTIVITY RATIOS

Calculation of the above ratios over the study period. Tabulation, graphical representation, analysis and interpretation of the attained data.

Forwarding certain recommendations and suggestions to the company and also drawing a conclusion out of the study.

- 41 -

2.2 DATA SOURCE:

There are mainly two types of data sources. They are as follows 1. Primary data 2.Secondary data

Primary data: The data that is originally collected by an investigator or agency for the first time through a direct source for a statistical investigation and used in the statistical analysis is known as primary data.

Secondary data: The data published or unpublished which has already been collected and processed by some agency or person and taken over from there and used by any other agency for their statistical work is termed as secondary data.

Most of the data collected is secondary in nature and include: Annual reports of the company. Journals - Business world, Business line, India today. Internet and daily newspaper. Other books and accounts maintained by company.

- 42 -

2.3 FIELD WORK:

Fieldwork is done for the collection of data. For the purpose of collecting primary data, fieldwork involved was visiting the premises of Lux Hosiery Industries Ltd. Also, collection of secondary data involved some fieldwork such as visiting the office premises of the company to collect the annual reports and company magazines. Secondary data was also topped from the company web site.

2.4 LIMITATIONS OF THE STUDY:

Though sincere attempt has been made during the study, certain limitations cannot be avoided. They are:

1. The findings of the study are confined to secondary data attained from the company namely Balance Sheet and Profit and Loss a/c.

2. Financial accountants prepare all statements and any analysis done and conclusion reached is influenced by personnel judgment.

3. Financial statements disclose only monetary facts and they ignore non-monetary facts.

4. It does not look into the areas such as working capital management, cash management, inventory management, marketing performance, and stock market performance etc.

5. Elaborate investigation regarding the profitability, income and expenses could not be done, as this area is very sensitive and confidential.

6. There is a restriction in the time criteria, as it is relevant for only the determined period.

- 43 -

6. The analysis is only based on ratios and percentages hence the analysis is not fully complete. The exact financial position cannot be determined therefore.

2.5 DATA COLLECTION INSTRUMENT:

This research is descriptive in nature so no such data collection instruments such as questionnaires were employed in particular. Most of the data was collected from published information.

2.6 OVERVIEW OF THE REPORT:

CHAPTER 1: Introduction This chapter talks about the importance of financial management in analyzing the financial performance and gives a general introduction about the hosiery industry in India.

CHAPTER 2: Research Methodology: The Research Methodology of the study states the research design; sources of data, fieldwork, data processing and analysis plan; overview of the report, expected contribution of the study, limitation of the study etc.

CHAPTER 3: Company Profile: This chapter views the industrial background of the study, origin and growth of Lux Hosiery Industries Ltd. and its business activities, present status of the study organization, product information and organizational chart etc.

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CHAPTER 4: Data Analysis and Interpretation: In this chapter the data collected is compiled, processed and analyzed. This data is also represented here in tabular and graphical forms and then interpreted according to the ideals set.

CHAPTER 5: Summary of Findings, Suggestions and Conclusions: This chapter contains the summary of major findings from the study about the financial condition of the company. Some suggestions that have been made to the company on the basis of this study are also mentioned here and an overall conclusion that has been derived is stated as well.

Annexure: The basic material used for the study including the balance sheets, profit and loss account, and the various schedules for the respective years are attached here for reference.

Bibliography: An account of the published material used for reference during the study is accounted for in this segment.

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CHAPTER -3
COMPANY PROFILE

- 46 -

In keeping with its ambition of delivering world-class performance to this increasingly demanding market, Lux Hosiery Industries Ltd., has focused on achieving global excellence in cost, quality and productivity. Success did not come easily - behind it lays a saga of business transformation and dedication. From a small hosiery brand, Lux has transformed into one of the foremost names in the innerwear market. This has happened because a team had the focus, courage and confidence to swim against the tide, going beyond the call of duty.

MISSION:
To become the No.1 Inner and casual wear producer with the highest quality, comfort and 100% customer satisfaction.

At LUX, they have a passion for excellence that is rare in todays work environment. You feel it when you walk through the doors. You see it in the diligent work of their employees, many of whom are like family members, all committed to carrying on the tradition of quality, service and integrity that began with the founder.

CHAIRMANS MESSAGE:
More than anything, a company is known by its growth, and over the past years we have been able to present your company as a force to reckon with. In this, our twelfth annual report to shareholders, I am pleased to say that by any measure, 2006-2007 was a year of major accomplishments for LUX, and the people who keep this company strong and growing. Not since its inception in 1995 have so many positive developments taken place in a single year that had such a favourable impact on the firm.

- 47 -

PUBLIC ISSUE IPO

Public Issue of 2000000 Equity Shares of Rs 10 each for Cash at a Premium of Rs40 per share, aggregating Rs 10 Crores Issue Opens On 9/15/2009 Closes On 9/23/2009 Money Payable On Application 15.00 Allotment 35.00

OBJECT OF THE ISSUE:

The objects of the present IPO issue are: 1. To meet the enhanced working capital requirement of the company, 2. To meet the expenses of the issue, and 3. To list the equity shares of the company on Calcutta and Ahmedabad Stock Exchanges.

PROMOTERS:
The main promoters of the Company are Sri Ashok Kumar Todi, Sri Pradip Kumar Todi, Smt Shakuntala Devi Todi and Smt Prabha Devi Todi. Sri Pradip Kumar Todi aged 40, is the Whole Time Director of the Company. He came into business in 1983 and he was instrumental in developing new patterns, yarn combinations, knitting technologies, which helped the company to introduce new products from time to time. His contribution in introducing new styles and in decreasing production costs helped the Company to enhance its profit margin.

- 48 -

Sri Ashok Kumar Todi aged 45, Director of the Company has proved himself as a good salesman and a good marketing person. He innovated various schemes for distributors, retailers and even for consumers. Mr. Ashok Kumar Todi has an experience of around 25 years in Hosiery Industry. He is instrumental in scaling up the turnover of LHIL and BHML over a period of time. Mr. Todi has devised various schemes for BHML based on the feedback received from the distributors, retailers, and on the various schemes being launched by the competitors, to the wholesalers, retailers and consumers such as: a) Issue of coupons to the ultimate consumers with purchase of any product, which entitles them to Tata Sumo, Tata Indica, Maruti Omni Van etc., on lucky draw. b) Issue of coupons to the retailers with purchase of 3 boxes of any products which entitles them to Maruti Zen, Bajaj Scooter, Videocon Refrigerator, etc on lucky draw. c) Issue of coupons to wholesalers with purchase of 15 boxes of any products, which entitles them a guaranteed gift and Santro, Motorcycle, Colour Televisions etc., on lucky draw.

- 49 -

DETAILS OF OTHER COMPANIES/FIRMS WITH WHICH PROMOTERS ARE ASSOCIATED:

a. M/s Biswanath Hosiery Mills Limited. b. M/s J.M Hosiery Factory c. M/s. Todi Exports (India). d. M/s. Jaytee Exports. e. M/s. S.D International. f. M/s A.B Industries.

GROWTH PLAN:
During the year, LUX chalked out programs of expansion and prepared for the strategic future growth plan. They have been able to tap new market points and develop loyal dealership network and strengthen the existing setup. The major factors that contributed to these are expansion of the companys sales and marketing department. The lifeline of their business is the attraction and retention of customers. They are constantly adding to those relationships, and accelerated the process during the recently completed year, again in large measure due to the addition of new technologies at their R&D levels.

- 50 -

BUILDING FOR THE FUTURE:

To continue the forward momentum of LUX, it will require not only solid growth from continuing operations, but the continued development of their R&D that fit their corporate culture, and bring to their family of companies the strong commitment they have to excel in all aspects of customer relations and ongoing operations. To achieve of wider presence in the market at the retail level, they are undergoing policy discussions on opening their own chain stores for the existing exhaustive range of innerwear and the new segment i.e. the casual wear line.

The establishments of new branch offices, in new market areas, which are still untapped, drive their organic growth. They seek to raise the needed capital to fund this growth through a variety of financial instruments that make sense for the company and its shareholders. They do not mortgage their future on questionable investments, but rather those that compliments their growth strategy. They have already received several strong signals of support from leading financial institutions that believe in their evolving role as one of the foremost hosiery companies that employ state-of-the-art techniques in developing new designs.

Having spent virtually his entire working career in this industry, the chairman, Mr. Ashok Kumar Todi, has never been more certain of the future, and the important role his company will play in it. For these reasons, he has no hesitation in saying to us that more than ever an investment in LUX is an investment in the future, and that his brief operating history, measured against all that is unfolding as the gates of global commerce open very wide, is but a prelude to the many exciting days that lie ahead for this company, and all those who believe in it. He hopes that we join them in the journey ahead, and he welcomes us as he charts new patterns for progress in a rapidly changing world.

- 51 -

CORE VALUES:

CUSTOMER PARTNERSHIP
The benchmark for our success is customer satisfaction. Lux delights its customers through a range of products that not only deliver on comfort but are constantly upgraded to keep the styling in line with the latest trends.

RESPECT FOR PEOPLE

At Lux, it is universally acknowledged that people are their most valuable assets. Accordingly, they try to provide the best possible work-environment and treat the Lux team like family members instead of employees. They reward excellence and initiative, promote training, participation and equal-opportunity. Teamwork and leadership are part of their culture at every level. This results in empowering people to work with dedication, responsibility and accountability

INTEGRITY
Business integrity is a way of life at Lux. The Company is proud to stand by integrity and transparency in all its dealings and ensures adherence to the highest standards of business ethics

- 52 -

WHAT HAS MADE LUX ONE OF THE MOST POPULAR BRANDS IN INDIA:
It is the strategies used by them: Specific corporate objectives related to market trends. Target markets that are vertical specific. Market share and revenue goals for each product segment of focus. A 12-24 month product roadmap tied to market trends. Pricing, packaging and bundling options with revenue tied to each. Vertical specific go-to-market strategies and tactics. Strategic alliance partners with financial goals ties to its strategy. High profile customers and industry influencers to substantiate the value proposition. Initiatives to address the top weaknesses. A commitment to make organizational changes to support the strategy. Approval across the entire executive management team. Company wide communication of the strategy at all levels. Realistic alignment of the strategy to compare resources (people, budget, expertise). Measurable goals defined for each time period.

- 53 -

GLOBAL BUSINESS:
Today LUX is a recognized player in the export industry and as in a process to increase its marketing network worldwide. If you look for high fashion inner and casual wear, with updated global designs, with fantastic fabric, photo quality prints, all at a very competitive cost, delivered within a reasonable period, then the company aspires to take pride in having priority shelves in almost all the known fashion hubs worldwide in the near future.

STRENGHTHS:

QUALITY:
LUX is maintaining the highest standards of quality as per industry norms and the best to its consumers, stringent quality control measures are followed at all stages of production from purchase of yarn to the finished product. The company has one of the most modern knitting plants in India; this unit is located at Tirupur. Equipped with stateof-the-art machinery, this plant has as in-house laboratory and R&D facilities. Computerized equipment has also been installed for patterns and maintaining the required parameters.

Our quality has been praised worldwide and we have been able to associate with a wellknown international brand called Gen-X fassions, Italy, and we are marketing the Gen-X under garments in India.

- 54 -

GOODWILL:
LUX is in its golden jubilee year and the company enjoys a very strong goodwill in the trading fraternity, media and above all its customers. The company enjoys the customer confidence on account of their product specialty i.e comfort, style and price-value. The broad price range has accommodates diverse customers and their satisfaction is paying off.

RANGE:
LUX knitted products range is one of the widest in India and it is spending a fortune in its advertising campaigns.

BRAND LUX:
LUX, which started as a small company that used almost no advertising in the beginning years developed such a string brand that the company went from one shop to hundreds and transformed its brand into a household name.

On the other half of the story, it went on for such an aggressive advertising with an already famous brand name and has successfully presented its product superiority over its competitors.

PACKAGING:
Package design is as much a sign of the times as it is functional. It may seem to be little more that a protective container, but as the external manifestation of a brand, its role is much more pivotal. LUX had always given priority to this aspect.

- 55 -

INNOVATIONS

LEAD

TO

EXCELLENT

RESULTS:

IMPLEMENTING SAP
The SAP Customer Relationship Management (SAP CRM) application provides best-inclass functionality for marketing, sales, and service. By supporting customer-facing business processes across multiple interaction channels, SAP CRM enables our organization to focus on strategies for customer-driven growth and to differentiate them in the market by providing a superior customer experience.

With SAP CRM, you get the help you need to delight your customers, empower your teams, and grow your business.

LUX has always given importance to its research and development programmes. This has followed heavy investments in procuring, testing and sampling equipments and softwares.

The companys R&D department is always putting its efforts in improving product quality and developing new designs.

In the course of rapid expansion and development, and to have an insight detail of the quantity, variety and distribution of our products, the performance of the various dealers across the country and having an efficient cost mechanism, LUX will very soon implement SAP for which steps have been already taken and are in the testing stage.

- 56 -

THIS WILL HELP IN:

Business process management Multi-point data entry on a centralized single SAP server maintained and managed at the corporate office, ensuring a safe and tamper proof mechanism.

Keeping track at all levels from procurement of raw materials to sale. Track of inward delivery of consumables and raw materials. Keeping up-to-date statistics of warehouse stock. Prepare report of expenditure and sales at any point of time. Reduction in order processing time Processing of dealer orders at different purchase points.

SOUND

TECHNIQUE,

FIT

EQUIPMENT,

PERFECT

GAME: OUR MARKETING NETWORK:

PRODUCTS:
LUX is Indias one of the largest hosiery brands, with varieties, right from the rural to semi rural to urban as well as the elite segment. The company is coming up with new varieties of winter wear to add to its already exhaustive range.

PACKAGING:
The company strengthened its packaging for better presentation of its products in form of latest trendy packs as per the demands of the fashion industry. To make our string presence felt in the retail sector, the company is developing new packaging design concepts that will place us ahead of our competitors. All these innovations and concepts are being taken care of by Ogilvy & Mather, Mumbai a global advertising agency. - 57 -

PRICING:
Effective pricing is the most important part of the marketing strategy of a company and the company has successfully devised a pricing mechanism which has yielded excellent results. Distributors of Lux get the edge in form of superior products, and very aggressive advertising and above all pricing which is the backbone of our marketing wing. To maintain trade goodwill, the company has been organizing annual dealer conferences in various cities in India as well as abroad.

PROMOTION:
Lux has always focused on lavish add campaigns for the range Lux cozi as art of its marketing strategy. 1n 2010-2011, it has enhanced its presence on the television ad circuit on prominent channels like Zee Network, Sony and Star India along with Doordarshan which has the highest viewer ship in India. The company started a campaign with slogan Apna luck pehen ke chalo and it became an instant hit. The exclusive range GEN-X has also retained a big chink in the promotional budget of ads and promotion to around 25 crores annually (consolidated). The company went for celebrity endorsement for all its ranges to enforce its brand appeal.

- 58 -

GROWTH:
Thanks to the visionary leadership of the board of directors and senior management team, they have completed a dynamic strategy plan to guide them forward. The shared vision amongst staff emphasizes their underlying corporate principles. The result is a comprehensive blueprint built on their competencies that identify growth areas and a firm belief in catering to the comfort of their customers. To promote ongoing success, Lux has created a solid infrastructure to manage its growth. Enhanced protocols and tools are now in place to monitor customer needs and ensure continuous quality improvement. As it looks back to its history, Lux is proud of its accomplishments and is excited to plan for the challenges and opportunities of the future.

COMPETITION:
The hosiery industry in India is preparing to face tough times, with exporters reporting declining earnings due to competition in the global market. The competition is mainly from new bases in Central Asia, Indonesia, Thailand, Hong Kong and Pakistan. The exporters are facing a problem as the depreciation in the currencies of these countries has been much more than that of the Indian rupee. New types of yarn are now being imported from these countries to compete with the world markets and the domestic market. This yarn is polyester-based and is attractive in colors.

Kitonak and Daspa are the two synthetic yarns imported from Taiwan besides Peach and Split yarns are other synthetic yarns which are being imported. These yarns are available at Rs 120 to Rs 220 per kg in the local market. Acrylic yarn is being eased out by these polyester yarns.

- 59 -

Otherwise the hosiery industry is facing slump as not many orders have been received by the local manufacturers from other states. The readymade garments of China and other countries are giving a competition to the Indian goods in the domestic market. The hosieries are a worried lot in view of the easy flow of the Chinese goods. However, they maintain that this is just a beginning and they can compete with these countries provided the Central and the state governments support them. Mr Prem Sagar Jain, founder president of the Readymade Hosiery Manufacturers Welfare Association says the Centre has reimposed C form which had been removed after six years of struggle. This has created a new problem for small scale buyers from other states. The buyers have to pay 10 per cent sales tax if they do not procure C form. Similarly the state government has imposed a 4 per cent entry tax on the hosiery yarns which is also a big handicap for the development of the industry. Mr Jain points out that the Union Government has earmarked Rs 25,000 crore for the ugradation of the textile industry. But they cannot avail of this benefit because of the strict rules for procuring NOC from the Pollution Control Board. They have to get the NOC if the investment is more than Rs 25 lakh whereas the small scale industries limit is Rs 5 crore. Mr Vipin Dhand, General Secretary and Mr Sunil Dutt say Maharashtra, Gujarat, Delhi and Tamil Nadu have reduced the taxes to promote the hosiery industry. Now the manufacturers of these states buy fabric from Ludhiana and they prepare the finished products in their own states instead of buying the readymade goods from Ludhiana. Ludhiana manufactures hosiery cloth worth Rs 180 crore (12,000 tonnes) every month. Readymade garments worth Rs 1200 crore are exported from Ludhiana to other countries annually like the USA, the UK and European and West Asia. The hosiery industry is also faced with the problem of severe power cuts.

- 60 -

EXISTING COMPETITORS:
There is also tough competition faced by the hosiery industry in India itself. Major players in the domestic market include: Rupa & Co. Pvt Ltd. JG Hosiery Pvt Ltd. as brand Amul Balram Hosiery Works TT Hosiery Bhawani Textiles Ltd. as brand Dollar VIP Hosiery etc.

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VARIOUS

MACHINERY

USED

BY

LUX

HOSIERY

INDUSTRIES LTD.

FIGURE 3.1: COMPUTERISED HOSIERY MACHINE

- 62 -

DYEING MACHINE:
APPLICATION:
The machine used by them is suitable for dyeing all types yarn in package form and for dyeing zipper tapes, small width fabrics and warp beams.

FIGURE 3.2: DYEING MACHINE

- 63 -

FEATURES:
It can work on low liquor ratio ranging from 1:3 to 1:5 depending on nature of yarn and loading factor.

The machine operation does not require overhead hoist or working platform. The foundation is simple. Machine can be installed on mezzanine or higher floors also. Costs less than vertical dyeing machines for small capacities.

ADVANTAGES:

Variable loading possible from 50% upwards of the rated capacity with almost constant liquor ratio without using any dummies.

Heat exchanger is coil type, directly fitted inside the color addition tank resulting in most efficient and fast heat transfer.

The tubes are fully flooded but still works on air pad dyeing system, thus saving energy.

Opening/closing and locking/unlocking of all tube lids are done simultaneously and automatically by electro-pneumatic devices.

Design ensures complete drain of liquor from the machine every time. Thus, preventing contamination.

- 64 -

KNITTING MACHINE:

FIGURE 3.3: KNITTING MACHINE

- 65 -

TYPES:
There are domestic and industrial models, with either flat or circular beds that produce rectangular or tubular fabrics. Double bed machines have two flat beds facing each other, in order to produce purl and plain rib fabrics plus a variety of multi patterns. Ribbing attachments can be added to single bed machines to achieve a similar result. Late 20th Century domestic/studio/home models typically use up to 200 latch hook needles to hold the stitches in a standard or bulky size needle. A carriage or cam box is passed across the bed of needles causing the needle movements required to produce each next stitch. By various selection methods, e.g. punch cards, particular needles can be caused to travel by alternate pathways through the cam box. Thus needles will knit or not, and the unknitted yarn portions will lie under (slip stitch) or over the needle or be held in the needle hook (tuck stitch). Needles can be placed in holding position to allow short row shaping.

Most of these machines can knit two color "fair isle" patterns automatically, and have machine stitch patterning features such as plating and knit weaving. Plating refers to knitting with two strands of yarn that are held in such a way that one is in front of the other. Plated effects can be particularly striking in a ribbed fabric. Knit weaving refers to a technique in which a separate piece of yarn, often heavier than the knitted fabric, is carried along and caught between stitches to produce an effect like weaving. With knit woven fabric, the purl side (usually the wrong side) is the right side of the fabric. With the addition of a lace carriage, stitches can be transferred from one needle to the next. The yarn passes through a tensioning mechanism and down through the knit carriage, which feeds the yarn to the needles as they knit.

Domestic knitting machines use the weft knitting method which produces a fabric similar to hand knitting. Knitting proceeds more quickly than in hand knitting, where (usually

- 66 -

two) straight needles are held in the hand and each stitch is manipulated individually across the row. Knitting machines work an entire row of loops in a single movement.

ADVANTAGES:
The fabric produced using a knitting machine is of a more even texture than hand-knitted fabric, which is particularly noticeable on large areas of plain stocking stitch. This is an advantage, and saves a considerable amount of time. Many people prefer the look of hand knitting and skilled hand knitters can produce quite even fabric, while machine knitters need little skill to produce a good fabric as the machine tension does the job for them. Some stitch patterns (e.g., tuck stitches) are much easier to produce with a knitting machine, while others (e.g. garter stitch) are much easier to produce with hand knitting. The Standard 200 bed knitter can knit the finest yarns up to a good sport weight while the heavier yarns knit better on a bulky knitting machine.

OTHER METHODS:
Knitting can be performed on other tools which have no moving parts, for example a knitting Nancy and larger tools of that family. Stitches are formed by lifting loops over a peg or nail, one stitch at a time, to produce flat or more often tubular fabric. These nonmachine knitting tools have been called many different names, including knitting looms or knitting frames, which can lead to confusion with knitting machines.

- 67 -

AD CAMPAIGN OF LUX COZI:

FIGURE 3.4: A HOARDING OF LUX COZI

- 68 -

CORPORATE INFORMATION
BOARD OF DIRECTORS

Shri Ashok Kumar Todi Shri Pradip Kumar Todi Shri Raghunath L Wadhwa Shri Snehashish Ganguly Shri Nandanandan Mishra Shri Navin Kumar Todi Shri Deoki Nandan Soni

Chairman Managing Director Director Director Director Director Company Secretary

REGISTRATRS AND SHARE TRANSFER AGENTS

Karvy Computershare Private Limited Karvy House 48, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034 e-mail: mailmanager@karvy.com

AUDITORS
M/s Modi Sunil & Associates Chartered Accountants Kolkata 700 012

- 69 -

BANKERS
Allahabad Bank Park Street Branch Kolkata 700 016

REGISTERED OFFICE
Lux Hosiery Industries Ltd. 39, Kali Krishna Tagore Street Kolkata 700 007 e-mail: lux@cal2.vsnl.net.in

- 70 -

CHAPTER 4
ANALYSIS AND INTERPRETATION

- 71 -

TABLE 4.1: SHOWING THE CURRENT ASSETS, LOANS AND ADVANCES OF THE FIRM CURRENT ASSETS
Accrued Interest Inventories Sundry Debtors Cash and 24906.00 140609853.00 452465928.53 24558.00 328571299.65 553511164.62 11327344.75 6714.00 430825964.74 420779837.77 18907727.87

2008-2009

2009-2010

2010-2011

Bank 5533755.88

Balances Loans Advances and 7282269.00 18827325.34 24727513.56

TOTAL

605916712.41

912261692.36

895247757.94

TABLE 4.2: SHOWING THE CURRENT LIABILITIES AND PROVISIONS OF THE FIRM CURRENT LIABILITIES
Sundry Creditors Other Liabilities Advance Customers Unclaimed dividend Provisions 7516617.88 9599824.23 12240361.00 9237.00 26157.00 from 5710001.00 6383745.00 12222288.88 344139597.39 508934462.99 18635461.21 360711265.92 26208247.87 Current 15190170.13

2008-2009

2009-2010

2010-2011

TOTAL

372556386.40

543562730.43

411408320.67

- 72 -

TABLE 4.3: SHOWING THE CALCULATION OF WORKING CAPITAL OF THE FIRM

PARTICULARS 2008-2009
Current Assets 605916712.41 Current Liabilities 372556386.40

2009-2010
- 912261692.36 543562730.43

2010-2011
- 895247757.94 411408320.67 -

Net Capital

Working 233360326.01

368698961.93

483839437.27

ANALYSIS:
The Working Capital for the year 2008 2009 is Rs. 233360326.01 The Working Capital for the year 2009 2010 is Rs. 368698961.93 The Working Capital for the year 2010 2011 is Rs. 483839437.27

It can be observed from the table that the working capital has been on a constant rise throughout the three years. The increase in working capital has been steady.

- 73 -

GRAPH 4.1: SHOWING THE WORKING CAPITAL

Working Capital 600000000 500000000 Working Capital 400000000 300000000 200000000 100000000 0 Net Working Capital Year 2008 - 2009 2009 - 2010 2010 - 2011 483839437.3 368698961.9 233360326

FINANCIAL RATIOS OR LIQUIDITY RATIOS:

Liquidity is defined as the ability to realize value in money, the most liquid asset. It refers to the ability of the firm to pay in cash, the obligations that are due. The corporate liquidity has two dimensions quantitative and qualitative. They refer to the ability to meet all present and potential demands on cash from any source in a manner that minimizes cost and maximizes the value of the firm. Thus, corporate liquidity is a vital factor in business.

- 74 -

I. SHORT TERM FINANCIAL RATIOS:

A. CURRENT RATIO:
It is a ratio, which express the relationship between total currents Asset to total current liability.

Calculated as:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

TABLE 4.4: SHOWING THE CURRENT ASSETS, LOANS AND ADVANCES OF THE FIRM CURRENT ASSETS
Accrued Interest Inventories Sundry Debtors Cash and 24906.00 140609853.00 452465928.53 24558.00 328571299.65 553511164.62 11327344.75 6714.00 430825964.74 420779837.77 18907727.87

2008-2009

2009-2010

2010-2011

2007-2008

Bank 5533755.88

Balances Loans Advances and 7282269.00 18827325.34 24727513.56

TOTAL

605916712.41

912261692.36

895247757.94

- 75 -

TABLE 4.5: SHOWING THE CURRENT LIABILITIES AND PROVISIONS OF THE FIRM

CURRENT LIABILITIES
Sundry Creditors Other Liabilities Advance Customers Unclaimed dividend Provisions

2008-2009

2009-2010

2010-2011

344139597.39

508934462.99 18635461.21

360711265.92 26208247.87

Current 15190170.13

from 5710001.00

6383745.00

12222288.88

9237.00

26157.00

7516617.88

9599824.23

12240361.00

TOTAL

372556386.40

543562730.43

411408320.67

TABLE 4.6: SHOWING THE CALCULATION OF CURRENT RATIOS:

YEAR

PARTICULARS

FIGURES

CURRENT RATIO

2008-2009 2009-2010 2010-2011

Current Assets / Current Liabilities Current Assets / Current Liabilities Current Assets / Current Liabilities

605916712.41 / 372556386.40 912261692.36 / 543562730.43 895247757.94 / 411408320.67

1.66 1.71 2.24

- 76 -

ANALYSIS:
The Current Ratio for the year 2009 2006 is 1.66 The Current Ratio for the year 2010 2007 is 1.71 The Current Ratio for the year 2011 2008 is 2.24

It can be observed from the table that the Current Ratio has increased over the three years time period from 1.66, to 1.71 and then to 2.24.

GRAPH 4.2: SHOWING THE CURRENT RATIO

Current Ratio
2.24 1.66 1.71

2.5 2 1.5 Ratio 1 0.5 0 2008-2009 2009-2010 Year

2010-2011

- 77 -

INTERPRETATION:
The most desired state of current ratio is 2:1. The company has a current ratio of 1.66:1 in 2008-2009, 1.71:1 in 2009-2010 and 2.24:1 in 2010-2011. This shows that the company has maintained a favourable condition of their current assets and current liabilities in the third year whereas there has been a continuous movement towards this ideal in the previous two years.

B. QUICK RATIO:
Quick Ration = Quick Assets Quick Liabilities

Quick Ratio gives the abilities of the firm to pay its liabilities without relying on the sale and recovery of its inventories. The quick ratio is a more stringent measure of liquidity because inventories, which are least liquid of current assets, are excluded from the ratio. Quick Assets = Current Assets Goodwill Preliminary Expenses Quick Liabilities = Current Liabilities Bank Overdraft

- 78 -

TABLE 4.7: SHOWING THE CALCULATION OF QUICK RATIOS YEAR QUICK ASSETS QUICK QUICK QUICK RATIO

LIABILITIES ASSETS / QUICK LIABILITIES

2008 2009 2009 2010 2010 2011

465306859.4

365039768.52

465306859.4 / 365039768.52

1.27

583690392.7

533962906.20

583690392.7 / 533962906.20

1.09

464421793.2

399167959.67

464421793.2 / 399167959.67

1.16

ANALYSIS:
The Quick Ratio for the year 2008 2009 is 1.27 The Quick Ratio for the year 2009 2010 is 1.09 The Quick Ratio for the year 2010 2011 is 1.16

The Quick Ratio first decreases from 1.27 to 1.09 and then increases to 1.16. This shows an undulating fluctuation in the current ratio.

- 79 -

GRAPH 4.3: SHOWING THE QUICK RATIO

Quick Ratio

1.16

1.27

1.09

2008-2009

2009-2010

2010-2011

INTERPRETATION:
The standard Quick ratio that must be obtained by all businesses is 1:1. The company has maintained a quick ratio of 1.27:1 in 2008-2009, 1.09: 1 in 2009-2010 and 1.16:1 in 2010-2011. It is evident that the company has maintained a favourable quick ratio in all three years.

- 80 -

C. ABSOLUTE LIQUID RATIO:

Absolute Liquid Assets = Absolute Liquid Assets Current Liabilities

It is the ratio of absolute liquid assets to current liabilities. Both receivables and inventories are excluded from the current assets and only absolute liquid assets, such as, cash in hand, cash at bank and readily realizable securities are taken into consideration. Absolute Liquid Ratio = Cash in hand + Cash at Bank + Short Term Securities

- 81 -

TABLE 4.8: SHOWING THE CALCULATION OF ABSOLUTE LIQUID RATIOS YEAR ABSOLUTE CURRENT LIQUID ASSETS ABSOLUTE ABSOLUTE LIQUID RATIO

LIABILITIES LIQUID ASSETS / QUICK LIABILITIES

2008 2009 2009 2010 2010 2011

553375588

365039768.52

553375588 / 365039768.52

1.52

11327344.75

533962906.20

11327344.75 / 533962906.20

0.21

18907727.87

399167959.67

18907727.87 / 399167959.67

0.47

ANALYSIS:
The Absolute Liquid Ratio for the year 2008 2009 is 1.52 The Absolute Liquid Ratio for the year 2009 2010 is 0.21 The Absolute Liquid Ratio for the year 2010 2011 is 0.47

The Absolute Liquid Ratio has been increasing and decreasing alternatively over the three years time period. It first decreased from 1.52 in 2008-2009 to 0.21 in 2009-2010 and then increased to 0.47 in 2010-2011.

- 82 -

GRAPH 4.4: SHOWING THE ABSOLUTE LIQUID RATIO

Absolute Liquid Ratio

0.47

0.21 1.52

2008 2009

2009 2010

2010 2011

INTERPRETATION:
The firm has a trend of fluctuating absolute liquid ratio. Since this ratio shows the ability of the firm to pay off its short-term dues using the absolute liquid assets, the level of cash and short-term securities vary and expose the firms alternative states to pay their dues in the respective years.

- 83 -

II. LONG TERM FINANCIAL RATIOS/ LONG TERM SOLVENCY RATIOS: A. PROPRIETARY RATIO:
This ratio establishes the relationship between shareholders funds and total assets. It indicates proportion of total assets financed by shareholder. It is usually computed in percentage.

Proprietary Ratio = Shareholders Funds Total Tangible Assets

- 84 -

TABLE 4.9: SHOWING THE CALCULATION OF PROPRIETARY RATIOS YEAR SHAREHOLDER TOTAL FUNDS SHAREHOLDER PROPRIETARY RATIO

TANGIBLE FUNDS / TOTAL ASSETS TANGIBLE ASSETS

2008 125953194.58 2009 2009 138304127.17 2010 2010 147807131.91 2011

632231729.3

125953194.58 / 632231729.3

0.2

963314232.3

138304127.17 / 963314232.3

0.14

987030011.8

147807131.91 / 987030011.8

0.15

ANALYSIS:

The Proprietary Ratio for the year 2008 2009 is 0.20 The Proprietary Ratio for the year 2009 2010 is 0.14 The Proprietary Ratio for the year 2010 2011 is 0.15

The Proprietary Ratio has been increasing and decreasing alternatively over the three years time period. It first decreased from 0.2 in 2008-2009 to 0.14 in 2009-2010 and then increased to 0.15 in 2010-2011.

- 85 -

GRAPH 4.5: SHOWING THE PROPRIETARY RATIO

Proprietory Ratio

2008 2009 Year 2009 2010

0.15

0.14

2010 2011 0 0.05 0.1 Ratio 0.15

0.2

0.2

INTERPRETATION:

This ratio reflects the financial strength of the company. Higher the ratio better is the long-term solvency position of the firm. The companys long-term solvency position is comparatively high in the year 2008-2009, with a proprietary ratio of 20%. In the years 2009-2010 and 2010-2011, the proprietary ratio is more or less constant at 14% and 15% respectively. The long-term solvency position, therefore, is strongest in the year 20092010 and weaker in the other two years.

- 86 -

B. TOTAL OR OVERALL COVERAGE RATIO:

This ratio measures the ability of a co to service all fixed obligation out of its earnings. TOTAL COVERAGE RATIO = EBIT .

TOTAL FIXED CHARGES

TABLE 4.10: SHOWING THE CALCULATION OF TOTAL COVERAGE RATIO YEAR EBIT TOTAL FIXED CHARGES EBIT TOTAL FIXED CHARGES 2008 2009 2009 2010 2010 2011
26103021.94 8067663.95 26103021.94 / 3.24 8067663.95 44913867.58 18956841.49 44913867.58 / 2.37 18956841.49 57981019.43 33792139.98 57981019.43 / 1.72 33792139.98

/ TOTAL COVERAGE RATIO

ANALYSIS:
The Total Coverage Ratio for the year 2008 2009 is 3.24 The Total Coverage Ratio for the year 2009 2010 is 2.37 The Total Coverage Ratio for the year 2010 2011 is 1.72

- 87 -

The Total Coverage Ratio has been decreasing throughout the three years time period. It first decreased from 3.24 in 2008-2009 to 2.37 in 2009-2010 and then finally decreased to 1.72 in 2010-2011.

GRAPH 4.7: SHOWING TOTAL COVERAGE RATIO

Total Coverage Ratio

3.5 3

3.24

2.37 2.5 2 Ratio 1.5 1 0.5 0 2008-2009 2009-2010 Year 2010-2011 1.72

INTERPRETATION:
This ratio reflects the over all ability of a company to serve outsiders liabilities. The Total Coverage Ratio has fallen from 3.24 in 2008-2009 to 2.37 in 2009-2010 and further to 1.72 in 2010-2011. This makes it clear that the ability of the firm to serve outsiders liabilities is decreasing year after year and hence, the situation is satisfactory.

- 88 -

C. SOLVENCY RATIO:
This ratio expresses the relationship between total assets and total liabilities. This ratio is calculated to measure the solvency of the firm SOLVENCY RATIO= TOTAL LIABILITIES TOTAL ASSETS

TABLE 4.11: SHOWING THE SOLVENCY RATIO YEAR TOTAL TOTAL TOTAL SOLVENCY

LIABILITIES ASSETS

LIABILITIES RATIO / TOTAL

ASSETS 2008 2009 2009 2010 2010 2011

638130709.6 629371251.6 638130709.6 629371251.6 957511549.6 953368100.6 957511549.6 953368100.6 979107223.1 968950624.1 979107223.1 968950624.1 / 1.01 / 1.00 / 1.01

ANALYSIS:
The Solvency Ratio for the year 2008 2009 is 1.01 The Solvency Ratio for the year 2009 2010 is 1.00 The Solvency Ratio for the year 2010 2011 is 1.01

- 89 -

The Solvency Ratio has remained stable during the three years with very minimal fluctuation of 0.01.

GRAPH 4.8: SHOWING THE SOLVENCY RATIO

Solvency Ratio

1.01

1.01

1
2008-2009 2009-2010 2010-2011

INTERPRETATION:
There is no standard or ideal set for this ratio. From the table and the graph it can be analyzed that the companys Solvency ratio has been constant over the three years and is set at 1.01 in 2008-2009, 1.00 in 2009-2010 and 1.01 in 2010-2011. The longterm solvency of the firm is proved to be in a favourable condition because of the stability of the ratio. Also, the correlation of total assets and total liabilities has not varied much, which shows a favourable condition.

- 90 -

D. FIXED ASSETS RATIO:

This ratio indicates the relationship between fixed asset and total capital employed by firm. It indicates amount invested in fixed asset out of total capital employed. FIXED ASSET RATIO = TOTAL FIXED ASSETS TOTAL CAPITAL EMPLOYED

TABLE 4.12: SHOWING THE FIXED ASSETS RATIO YEAR FIXED ASSETS TOTAL CAPITAL EMPLOYED FIXED ASSETS / TOTAL CAPITAL EMPLOYED 2008 2009 2009 2010 2010 2011
23277439.20 53368626.43 23277439.20 / 53368626.43 41106408.20 52305373.57 41106408.20 / 52305373.57 73702866.20 50202881 73702866.20 / 50202881

FIXED ASSETS RATIO

0.44 0.79 1.46

ANALYSIS:
The Fixed Assets Ratio for the year 2008 2009 is 0.44 The Fixed Assets Ratio for the year 2009 2010 is 0.79 The Fixed Assets Ratio for the year 2010 2011 is 1.46

- 91 -

The Fixed Assets Ratio has been increasing throughout the three years time period. It first increased from 0.44 in 2008-2009 to 0.79 in 2009-2010 and then finally increased to 1.46 in 2010-2011.

GRAPH 4.9: SHOWING FIXED ASSETS RATIO

Fixed Assets Ratio

0.44

1.46 0.79

2008-2009

2009-2010

2010-2011

INTERPRETATION:
This ratio measures the efficiency in utilization of the fixed assets of a firm. The standard set for this ratio is 0.6:1. As is evident from the table and the graph, the company has increased its Fixed Assets Ratio during the three years 2008-2009, 20092010 and 2010-2011 from 0.44 to 0.79 and to 1.46 respectively. According to this analysis, it can be interpreted that the company has met the ideal standards and the position and use of fixed assets is good. Also, the highest achieved utilization of fixed assets was in the year 2010-2011 and there is a trend of increasing Fixed Assets Ratio, which is favourable for the company.

- 92 -

TURNOVER OR ACTIVITY RATIOS:

Activity ratios measure how effectively the firm employs its resources. These ratios are also called Turnover Ratios, which involve comparison between the level of sales and investment in various accounts inventories, debtors, fixed assets, working capital, etc. Activity ratios are used to measure the speed with which various accounts are converted into sales or cash. The following activity ratios are calculated for analysis:

A. FIXED ASSETS TURNOVER RATIO:

This ratio measures the speed with which the fixed assets of the firm are converted into sales or cash.

Fixed Assets Turnover Ratio = Net Sales Net Fixed Assets

- 93 -

TABLE 4.13: SHOWING THE CALCULATION OF FIXED ASSET TURNOVER RATIOS

YEAR

NET SALES NET FIXED NET SALES FIXED ASSETS / FIXED ASSETS NET ASSET TURNOVER RATIO

2008 2009 2009 2010 2010 2011

1464089929.02

23277439.20

1464089929.02/ 62.9 23277439.20 1791553243.53/ 43.58 41106408.20 1650628828.84/ 22.4 73702866.20

1791553243.53

41106408.20

1650628828.84

73702866.20

ANALYSIS:
The Fixed Assets Turnover Ratio for the year 2008 2009 is 62.9 The Fixed Assets Turnover Ratio for the year 2009 2010 is 43.58 The Fixed Assets Turnover Ratio for the year 2010 2011 is 22.4

The Fixed Assets Turnover Ratio has decreased constantly during the three years time period from 62.9 in 2008-2009 to 43.58 in 2009-2010 and finally to 22.4 in 2010-2011.

- 94 -

GRAPH 4.10: SHOWING THE FIXED ASSET TURNOVER RATIO

Fixed Asset turnover Ratio

2010 2011

22.4

Year 2009 2010

43.58

2008 2009

62.9

10

20

30

40 Ratio

50

60

70

INTERPRETATION:
The higher the fixed assets turnover ratio, the better the condition is for the firm. According to the table and the graph, the ratio has been decreasing constantly from 62.9 to 43.58 and to 22.4 in the years 2008-2009, 2009-2010 and 2010-2011 respectively. This makes it evident that in the year 2008-2009, the rate with which fixed assets were turned into cash was much faster than in the other two years. The rate with which fixed assets are turning into cash is becoming slower. This could be due to various reasons including depreciation, increased production capacity, increased price etc.

- 95 -

B. TOTAL ASSET TURNOVER RATIO:

This ratio measures the speed with which the total assets, or all the assets of the firm including fixed assets and current assets, are converted into sales or cash.

Total Asset Turnover Ratio = Net Sales Total Assets

TABLE 4.14: SHOWING THE CALCULATION OF TOTAL ASSET TURNOVER RATIOS:

YEAR

NET SALES TOTAL ASSETS

NET SALES TOTAL / TOTAL ASSET TURNOVER RATIO

ASSETS

2008 2009 2009 2010 2010 2011

1464089929.02

632231729.3

1464089929.02/ 2.32 632231729.3 1791553243.53/ 1.86 963314232.3 1650628828.84/ 1.67 987030011.8

1791553243.53

963314232.3

1650628828.84

987030011.8

ANALYSIS:
The Total Asset Turnover Ratio for the year 2008 2009 is 2.32 The Total Asset Turnover Ratio for the year 2009 2010 is 1.86 The Total Asset Turnover Ratio for the year 2010 2011 is 1.67

- 96 -

From the table above it can be observed that the Total Assets Turnover Ratio has decreased constantly during the three years time period from 2.32 in 2008-2009 to 1.86 in 2009-2010 and finally to 1.67 in 2010-2011.

GRAPH 4.11: SHOWING THE TOTAL ASSET TURNOVER RATIO

Total Asset Turnover Ratio

2.5 2 1.5 Ratio 1 0.5 0

2.32 1.86 1.67

2008 2009

2009 2010 Year

2010 2011

INTERPRETATION:
The higher the total assets turnover ratio, the better the condition is for the firm. According to the table and the graph, the ratio has been decreasing constantly from 2.32 to 1.86 and to 1.67 in the years 2008-2009, 2009-2010 and 2010-2011 respectively. This makes it evident that in the year 2008-2009, the rate with which assets were turned into cash was much faster than in the other two years. The rate with which assets are turning into cash is becoming slower. This may involve reasons including increased price of assets such as replacement of machinery etc.

- 97 -

C. WORKING CAPITAL TURNOVER RATIO:

This ratio is computed to test efficiency with which the net working capital is utilized by business concern. A high working capital turnover ratio indicates over trading of total assets whereas a low ratio indicates idle capacity. Working Capital Turnover Ratio = Net Sales Net Working Capital

TABLE 4.15: SHOWING THE CALCULATION OF WORKING CAPITAL TURNOVER RATIOS:

YEAR

NET SALES NET WORKING CAPITAL

NET SALES WORKING / NET CAPITAL TURNOVER RATIO

WORKING CAPITAL

2008 2009 2009 2010 2010 2011

1464089929.02

233360326.01

1464089929.02/ 6.27 233360326.01 1791553243.53/ 4.86 368698961.93 1650628828.84/ 3.41 483839437.27

1791553243.53

368698961.93

1650628828.84

483839437.27

ANALYSIS:
The Working Capital Turnover Ratio for the year 2008 2009 is 6.27 The Working Capital Turnover Ratio for the year 2009 2010 is 4.86 The Working Capital Turnover Ratio for the year 2010 2011 is 3.41

- 98 -

From the table above it can be observed that the Working Capital Turnover Ratio has decreased constantly during the three years time period from 6.27 in 2008-2009 to 4.86 in 2009-2010 and finally to 3.41 in 2010-2011.

GRAPH 4.12: SHOWING THE WORKING CAPITAL TURNOVER RATIO

Working Capital Turnover Ratio

2010 2011

3.41

Year 2009 2010

4.86

2008 2009

6.27

4 Ratio

- 99 -

INTERPRETATION:
There is no standard ideal for the Working Capital Turnover Ratio. According to the above table and chart, it is evident that the Working Capital Turnover Ratio is constantly decreasing from 6.27 in 2008-2009 to 4.86 in 2009-2010 and finally to 3.41 in 20102011. The most favourable condition maintained by the company here is in the year 2008-2009. Overall, the Working Capital Turnover Ratio indicates a satisfactory state of the firm.

D. DEBTORS TURNOVER RATIO:

This ratio indicates the rate at which cash is generated by turnover of debtors. It relates net credit sales to sundry debtors. DEBTOR TURNOVER RATIO = NET CREDIT SALES DEBTORS

- 100 -

TABLE 4.16: SHOWING THE CALCULATION OF DEBTORS TURNOVER RATIO:

YEAR

CREDIT SALES

AVERAGE DEBTORS

SALES AVERAGE DEBTORS

/ DEBTORS TURNOVER RATIO

2008 2009 2009 2010 2010 2011

1464089929.02 388961744.3

1464089929.02 / 3.76 388961744.3

1791553243.53 502988546.6

1791553243.53 / 3.56 502988546.6

1650628828.84 487145501.2

1650628828.84 / 3.39 487145501.2

ANALYSIS:
The Debtors Turnover Ratio for the year 2008 2009 is 3.76 The Debtors Turnover Ratio for the year 2009 2010 is 3.56 The Debtors Turnover Ratio for the year 2010 2011 is 3.39

From the table above it can be observed that the Debtors Turnover Ratio has decreased constantly during the three years time period from 3.76 in 2008-2009 to 3.56 in 20092010 and finally to 3.39 in 2010-2011. The decrease has been very minimal and the ratio has remained more or less constant.

- 101 -

GRAPH 4.13: SHOWING THE DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

3.8 3.7 3.6 Ratio 3.5 3.4 3.3 3.2

3.76

3.56

3.39

2008 2009

2009 2010 Year

2010 2011

INTERPRETATION:
This ratio indicates the liquidity position of inventory of a firm. The higher the ratio, the better is the management of debtors of the firm. A very high Debtors Turnover Ratio is also not healthy for a firm because it indicates very high levels of credit sales. The Debtors turnover Ratio has remained more or less constant through these three years. This indicates a favourable situation of the firm where the debtors are manages well.

- 102 -

E. DEBT COLLECTION PERIOD

Debt Collection Period indicates the number of days it takes for the firm to collect cash for the credit sales made during the year.

Debt Collection Period =

No. Of Days in a year Debtors Turnover

TABLE 4.17: SHOWING THE CALCULATION OF DEBT COLLECTION PERIOD:

YEAR

NO. DAYS

OF DEBTORS

NO.

OF DEBT / COLLECTION PERIOD (DAYS)

TURNOVER DAYS RATIO DEBTORS TURNOVER RATIO

2008 2009 2009 2010 2010 2011

365

3.76

365 / 3.76

97.07

365

3.56

365 / 3.56

102.53

365

3.39

365 / 3.39

107.67

ANALYSIS:
The Debt Collection Period for the year 2008 2009 is 97.07 days The Debt Collection Period for the year 2009 2010 is 102.53 days The Debt Collection Period for the year 2010 2011 is 107.67 days

- 103 -

From the table above it can be observed that the Debt Collection Period has been increasing throughout the three years. It first increased from 97.07 days in 2008-2009 to 102.53 days in 2009-2010 and then finally to 107.67 days in 2010-2011.

GRAPH 4.14: SHOWING THE DEBT COLLECTION PERIOD

Debt Collection Period

108 106 104 102 Days 100 98 102.53 96 94 92 90 2008 2009 2009 2010 Year 2010 2011 97.07 107.67

INTERPRETATION:
There is no standard number of days that is set as an ideal for collection of debt. Looking at the company debt collection data, it has been increasing over the years and it is most favourable for a company to collect its dues as soon as possible.

- 104 -

F. CREDITORS TURNOVER RATIO:

This is the ratio between net credit purchases and sundry creditors. It implies that credit period enjoyed by the firm in paying creditors. CREDITOR TURNOVER RATIO = NET CREDIT PURCHASES SUNDRY CREDITORS

TABLE 4.18: SHOWING THE CALCULATION OF CREDITORS TURNOVER RATIO:

YEAR

CREDIT

AVERAGE

CREDIT

CREDITORS

PURCHASES CREDITORS PURCHASES TURNOVER / AVERAGE RATIO CREDITORS 2008 2009 2009 2010 2010 2011 261314890.62
434822864.5

224244691.65

145732737.4

224244691.65 145732737.4

/ 1.54

406217306.36

426537030.2

406217306.36 426537030.2

/ 0.95

261314890.62 434822864.5

/ O.60

ANALYSIS:
The Creditors Turnover Ratio for the year 2008 2009 is 1.54 The Creditors Turnover Ratio for the year 2009 2010 is 0.95 The Creditors Turnover Ratio for the year 2010 2011 is 0.60

- 105 -

From the table above it can be observed that the Creditors Turnover Ratio has decreased constantly during the three years time period from 1.54 in 2008-2009 to 0.95 in 20092010 and finally to 0.60 in 2010-2011.

GRAPH 4.15: SHOWING CREDITORS TURNOVER RATIO

Creditors Turnover Ratio

0.6

1.54

0.95

2008-2009

2009-2010

2010-2011

INTERPRETATION:
A high creditors turnover ratio shows that creditors are being paid promptly, usually there is no fixed norm for this ratio. According to the available data, it can be understood that in the earlier years the company was very prompt in paying off its dues but it is taking longer in the recent years to pay off its dues and is enjoying a longer credit period.

- 106 -

G. CREDIT PAYMENT PERIOD:

Credit Payment Period indicates the number of days it takes for the firm to pay back its dues for the credit purchases made during the year. Credit Payment Period = No. Of days in a year Creditors Turnover Ratio

TABLE 4.19: SHOWING THE CALCULATION OF CREDIT PAYMENT PERIOD:

YEAR

NO. DAYS

OF CREDITORS NO. TURNOVER DAYS RATIO

OF CREDIT / PAYMENT PERIOD (DAYS)

CREDITORS TURNOVER RATIO

2008 2009 2009 2010 2010 2011

365

1.54

365 / 1.54

237.01

365

0.95

365 / 0.95

384.21

365

O.60

365 / O.60

608.33

ANALYSIS:
The Credit Payment Period for the year 2008 2009 is 237.01 days The Credit Payment Period for the year 2009 2010 is 384.21 days The Credit Payment Period for the year 2010 2011 is 608.33 days

- 107 -

From the table above it can be observed that the Credit Payment Period has been increasing throughout the three years. It first increased from 237.01 days in 2008-2009 to 384.21 days in 2009-2010 and then finally to 608.33 days in 2010-2011.

GRAPH 4.16: SHOWING THE CREDIT PAYMENT PERIOD

Credit Payment Period

700 600 500 Days 400 300 200 100 0 2008 2009 2009 2010 Year 237.01 384.21

608.33

2010 2011

INTERPRETATION:
From the above data, it can be seen that the firm is taking longer year after year to pay back its dues for all the credit purchases that it has made during the year. This is not a very good sign because it indicates that the firm is not capable of paying off its debts even though this gives them the liberty to enjoy a longer credit period.

- 108 -

H. INVENTORY TURNOVER RATIO:

This ratio establishes relationship between net sales and average inventory of a firm for a particular year. Inventory Turnover Ratio = Net Sales/Average Inventory

TABLE 4.20: SHOWING CALCULATION OF INVENTORY TURNOVER RATIO

YEAR

NET SALES

AVERAGE INVENTORY

NET SALES / INVENTORY AVERAGE INVENTORY TURNOVER RATIO 8.58

2008 2009 2009 2010 2010 2011

1464089929.02

170580578.6

1464089929.02/ 170580578.6

1791553243.53

234590576.3

1791553243.53/ 234590576.3

7.64

1650628828.84

379698632.2

1650628828.84/ 379698632.2

4.35

ANALYSIS:
The Inventory Turnover Ratio for the year 2008 2009 is 8.58 The Inventory Turnover Ratio for the year 2009 2010 is 7.64 The Inventory Turnover Ratio for the year 2010 2011 is 4.35

- 109 -

The Inventory Turnover Ratio has been decreasing throughout the three years time period. It first decreased from 8.58 in 2008-2009 to 7.64 in 2009-2010 and then finally decreased to 4.35 in 2010-2011.

GRAPH 4.17: SHOWING INVENTORY TURNOVER RATIO

Inventory Turnover Ratio

8.58 7.64

9 8 7 6 5 Ratio 4 3 2 1 0

4.35

2008-2009

2009-2010 Year

2010-2011

INTERPRETATION:
Usually, a high inventory turnover indicates efficient management of inventory because stock is sold more frequently. Here, the company has had a fluctuating ratio through the years but a high inventory turnover has been maintained in the earlier years. This signifies that the company has managed its inventory very efficiently in 2008-2009 and 2009-2010 but the efficiency level for the same has fallen in 2010-2011.

- 110 -

PROFITABILITY RATIOS:

A. RETURN ON CAPITAL EMPLOYED:

It refers to the rate at which the capital employed is being brought back into the firm in the form of sales or cash.

Return on Capital Employed = Operating Profit before Interest and Taxes(OPBIT)* 100 Capital Employed

- 111 -

TABLE 4.21: SHOWING THE CALCULATION OF RETURN ON CAPITAL EMPLOYED (ROCA): YEAR OPBIT CAPITAL OPBIT * 100 RETURN CAPITAL ON

EMPLOYED /

EMPLOYED CAPITAL EMPLOYED (%) 2008 2009 26103021.94

53368626.43 26103021.94 *100 / 53368626.43

49.91

2009 2010 44913867.58

52305373.57

44913867.58 *100 / 52305373.57

85.86

2010 2011 57981019.43

50202881

57981019.43 *100 / 50202881

115.5

ANALYSIS:
The Return on Capital Employed for the year 2008 2009 is 49.91%. The Return on Capital Employed for the year 2009 2010 is 85.86% The Return on Capital Employed for the year 2010 2011 is 115.5%

The Return on Capital Employed has increased throughout the three years. The initial percentage was 49.91 in the year 2008-2009. It rose to 85.86% in 2009-2010 and finally to 115.5% in 2010-2011.

- 112 -

GRAPH 4.18: SHOWING THE RETURN ON CAPITAL EMPLOYED

Return on Capital Employed 115.5 85.86

120 100 80 Return (%) 60 40 20 0 2008 2009 2009 2010 Year 49.91

2010 2011

INTERPRETATION:
The above table and graph declare that the rate of return on capital employed has been increasing exponentially over the years. In 2008-2009, the return is 49.91%, which increases to 85.86% in 2009-2010 and further to 115.5% in 2010-2011. This is a very good indication of the firms business returns. The firm is in an extremely favourable condition where return on capital employed is concerned.

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B. RETURN ON SHAREHOLDERS FUNDS:

This is the ratio of net profit to share holders fund. It measures profitability from the shareholders point of view. RETURN OF SHARE HOLDER FUND = PROFIT AFTER INTEREST AND TAX SHARE HOLDER FUND

TABLE 4.22: SHOWING THE CALCULATION OF RETURN ON SHAREHOLDERS FUNDS:

YEAR EAT

SHAREHOLDER EAT FUNDS

100

/ RETURN

ON

SHAREHOLDER SHAREHOLDER FUNDS FUNDS (%) 8.92

2008 11235702.99 125953194.58 2009 2009 20660668.09 138304127.17 2010 2010 20408401.45 147807131.91 2011

11235702.99* 100/ 125953194.58 20660668.09*100/ 138304127.17 20408401.45*100/ 147807131.91

14.94

13.81

ANALYSIS:
The Return on Shareholders Funds for the year 2008 2009 is 8.92% The Return on Shareholders Funds for the year 2009 2010 is 14.94% The Return on Shareholders Funds for the year 2010 2011 is 13.81%

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The Return on Shareholders funds has increased and decreased alternatively during the three years. The initial percentage was 8.92 in the year 2008-2009. It rose to 14.94% in 2009-2010 and finally decreased to 13.81% in 2010-2011.

GRAPH 4.19: SHOWING THE RETURN ON SHAREHOLDERS FUNDS

Return on Shareholders' Funds

8.92 % 13.81 %

14.94 %

2008 2009

2009 2010

2010 2011

INTERPRETATION:
This ratio shows how effectively the company has utilized shareholders funds. Higher ratios indicate better utilization of owners funds. Though the ratio has been fluctuating over the three years, the return on shareholders funds has been satisfactorily received. The returns were lowest in the year 2008-2009 and highest is the year 2009-2010. Since an assumed ideal is 13%, the company has attained the required rate of return in the years 2009-2010 and 2010-2011.

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C. NET PROFIT RATIO:

Net profit ratio is the ratio of net profit to sales. It indicates managements efficiency in manufacturing, administrating and selling products. NET PROFIT RATIO = NET PROFIT AFTER TAX 100 NET SALES

TABLE 4.23: SHOWING THE CALCULATION OF NET PROFIT RATIO:

YEAR

PROFIT AFTER TAX

NET SALES

PROFIT

NET

AFTER TAX PROFIT * 100 / NET RATIO SALES

2008 2009 11235702.99 2009 2010 20660668.09 2010 2011 20408401.45

1464089929.02

11235702.99*100/ 0.77 1464089929.02 20660668.09*100/ 1.15 1791553243.53 20408401.45*100/ 1.24 1650628828.84

1791553243.53

1650628828.84

ANALYSIS:
The Net Profit Ratio for the year 2008 2009 is 0.77 The Net Profit Ratio for the year 2009 2010 is 1.15 The Net Profit Ratio for the year 2010 2011 is 1.24

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The Net Profit Ratio has been on a constant rise throughout the three years. It has risen from 0.77 in 2008-2009 to 1.15 in 2009-2010 and finally to 1.24 in 2010-2011.

GRAPH 4.20: SHOWING THE NET PROFIT RATIO

Net Profit Ratio

0.77 1.24

1.15

2008-2009

2009-2010

2010-2011

INTERPRETATION:
A high net profit would indicate a higher over all efficiency of business. Even though the companys Net Profit Ratio has been minimal during the three years 0.77%, 1.15% and 1.24%, the trend is that of growth. This is a positive indication towards a more effective and efficient business.

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D. OPERATING PROFIT RATIO:

Operating Profit Ratio = Operating Profit before Interest and Taxes (OPBIT) * 100 Net Sales

TABLE 4.24: SHOWING THE CALCULATION OF OPERATING PROFIT RATIO:

YEAR

OPBIT

NET SALES

OPBIT * 100 / OPERATING NET SALES PROFIT RATIO

2008 2009 2009 2010 2010 2011

26103021.94

1464089929.02

26103021.94*100/ 0.77 1464089929.02

44913867.58

1791553243.53

44913867.58*100/ 1.15 1791553243.53

57981019.43

1650628828.84

57981019.43*100/ 3.51 1650628828.84

ANALYSIS:
The Operating Profit Ratio for the year 2008 2009 is 0.77 The Operating Profit Ratio for the year 2009 2010 is 1.15 The Operating Profit Ratio for the year 2010 2011 is 3.51

The Operating Profit Ratio has been on a constant rise throughout the three years. It has risen from 0.77 in 2008-2009 to 1.15 in 2009-2010 and finally to 3.51 in 2010-2011.

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GRAPH 4.21: SHOWING THE OPERATING PROFIT RATIO

Operating Profit Ratio

4 3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2008 2009 2009 2010 Year 2010 2011 0.77 1.15

3.51

INTERPRETATION:
The Operating Profit Ratio has been rising throughout the three years. This is a positive sign for the overall returns of the company. The operating activities have been effectively handled and the company is following a growth trend in its Operating Profit Ratio.

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E. FIXED INTEREST COVERAGE RATIO:

This ratio measures the ability of a company to service all fixed interest obligations out of its earnings. Fixed Interest Coverage Ratio = Earnings before Interest and Taxes (EBIT) Fixed Interest

TABLE 4.25: SHOWING THE CALCULATION OF FIXED INTEREST COVERAGE RATIO:

YEAR

EBIT

FIXED INTEREST

EBIT / FIXED FIXED INTEREST INTEREST COVERAGE RATIO

2008 2009 2009 2010 2010 2011

26103021.94

3070163.95

26103021.94 / 3070163.95

3.23

44913867.58

12939821.49

44913867.58 / 12939821.49

3.47

57981019.43

26247668.98

57981019.43 / 26247668.98

2.21

ANALYSIS:
The Fixed Interest Coverage Ratio for the year 2008 2009 is 3.23 The Fixed Interest Coverage Ratio for the year 2009 2010 is 3.47 The Fixed Interest Coverage Ratio for the year 2010 2011 is 2.21

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The Fixed Interest coverage Ratio has increased and decreased alternatively during the three years. It has risen from 3.23 in 2008-2009 to 3.47 in 2009-2010 and finally decreased to 2.21 in 2010-2011.

GRAPH 4.22: SHOWING THE FIXED INTEREST COVERAGE RATIO

Fixed Interest Coverage Ratio

3.47 3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2008 2009 2009 2010 Year 2010 2011 2.21 3.23

INTERPRETATION:
There is no ideal state for this ratio, but the higher the ratio, better is the ability of the company to pay its fixed interests as due. The ratio first rose from 3.32 in 2008-2009 to 3.47 in 2009-2010 and then fell to 2.21 in 2010-2011. Studying these statistics, the company has been in a favourable condition in the past years comparatively to pay off its due interests than in the last year.

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F. FIXED DIVIDEND COVERAGE RATIO:

This ratio measures the ability of a company to service all fixed dividend obligations out of its earnings.

Fixed Dividend Coverage Ratio =

Profit after Tax (PAT) Fixed Dividend

TABLE 4.26: SHOWING THE CALCULATION OF FIXED DIVIDEND COVERAGE RATIO:

YEAR

PROFIT AFTER TAX

FIXED DIVIDEND

PAT / FIXED FIXED DIVIDEND DIVIDEND COVERAGE RATIO

2008 2009 2009 2010 2010 2011

11235702.99

4997500

11235702.99 /

2.25

20660668.09

6017020

20660668.09 /

3.43

20408401.45

7544471

20408401.45 /

2.71

ANALYSIS:
The Fixed Dividend Coverage Ratio for the year 2008 2009 is 2.25 The Fixed Dividend Coverage Ratio for the year 2009 2010 is 3.43 The Fixed Dividend Coverage Ratio for the year 2010 2011 is 2.71

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The Fixed Dividend Coverage Ratio has increased and decreased alternatively during the three years. It has risen from 2.25 in 2008-2009 to 3.43 in 2009-2010 and finally decreased to 2.71 in 2010-2011.

GRAPH 4.23: SHOWING THE FIXED DIVIDEND COVERAGE RATIO

Fixed Dividend Coverage Ratio

2008 2009

2.71

Year 2009 2010

3.43

2010 2011 0 1 2 Ratio

2.25

INTERPRETATION:
The Fixed Dividend Coverage Ratio of the Company has been alternatively rising and falling. The higher the ratio, more favourable is the condition of the firm to pay its fixed promised dividends. The firm was in its strongest position to pay its dividends in 20092010 and the weakest position to pay them in 2008-2009. The ratio has started rising again in the last year (2010-2011), which is a positive indicator.

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G. PRICE EARNING RATIO: (P/E RATIO)

The Price Earning Ratio shows the relation between the market price of a share and the earning of the share and makes evident the rate of earning in relation with the price. P/E Ratio = Market Price per Share (MPS) * 100 Earnings per Share (EPS)

TABLE 4.27: SHOWING THE CALCULATION OF PRICE EARNING (P/E) RATIO:

YEAR

MPS

EPS
2.51

MPS / EPS
10 / 2.51

P/E RATIO 3.98 2.56 2.55

2008 2009 10 2009 2010 10 2010 2011 10

3.91

10 / 3.91

3.92

10 / 3.92

ANALYSIS:
The Price Earning Ratio for the year 2008 2009 is 3.98 The Price Earning Ratio for the year 2009 2010 is 2.56 The Price Earning Ratio for the year 2010 2011 is 2.55

The Price Earning Ratio has decreased in no proportion during the three years. It has fallen from 3.98 in 2008-2009 to 2.56 in 2009-2010 and finally to 2.55 in 2010-2011. The last two years have remained more or less constant with a minimal difference of 0.01.

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GRAPH 4.24: SHOWING THE PRICE EARNING RATIO

Price Earning Ratio

3.98 4 3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2008 2009 2009 2010 Year 2010 2011 2.56 2.55

INTERPRETATION:
The Price Earning Ratio was highest in the year 2008-2009 and has remained almost constant during 2009-2010 and 2010-2011. Overall, the condition is improving with the passage of time because the price paid for every share in relation with the earning per share is on a decreasing trend.

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H. OPERATING EXPENSES RATIO:

This ratio signifies the relation between the expenses of running the business and the overall sales of the firm. Operating Expenses Ratio = Operating Expenses * 100 Net Sales

TABLE 4.28: SHOWING THE CALCULATION OF OPERATING EXPENSES RATIO:

YEAR

OPERATING NET EXPENSES SALES

OPERATING EXPENSES NET SALES

OPERATING / EXPENSES RATIO (%) 37.08

2008 542897678.64 2009 2009 742304377.91 2010 2010 1650628828.84 2011

1464089929.02 542897678.64*100 / 1464089929.02

1791553243.53 742304377.91*100/ 1791553243.53

41.43

1650628828.84 1650628828.84*100 41.68 / 1650628828.84

ANALYSIS:
The Operating Expenses Ratio for the year 2008 2009 is 37.08 The Operating Expenses Ratio for the year 2009 2010 is 41.43 The Operating Expenses Ratio for the year 2010 2011 is 41.68

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The Operating Expenses Ratio has been on a constant rise throughout the three years. It has risen from 37.08 in 2008-2009 to 41.43 in 2009-2010 and finally to 41.68 in 20102011.

GRAPH 4.25: SHOWING THE OPERATING EXPENSES RATIO

Operating Expenses Ratio

37.08 % 41.68 %

41.43 % 2008 2009 2009 2010 2010 2011

INTERPRETATION:
The Operating Expenses Ratio has been on a constant rise during the three years. This shows that even though the sales have increased, the expenses have increased at a comparatively higher rate than that of the increase of sales.

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I.

RETURN ON ASSET:

Here return means net profit after tax on returns or all receivables for what ever the amount invested on total asset returns for amount invested on all realizable asset. RETURN ON ASSET = NET PROFIT 100 TOTAL ASSET

TABLE 4.29: SHOWING CALCULATION OF RETURN ON ASSET

YEAR

NET PROFIT

TOTAL ASSET

NET PROFIT / TOTAL ASSET

RETURN ON ASSET

2008 2009 2009 2010 2010 2011

11235702.99

629371251.6

11235702.99 / 629371251.6

1.79 2.17 2.11

20660668.09

953368100.6

20660668.09 / 953368100.6

20408401.45

968950624.1

20408401.45 / 968950624.1

ANALYSIS:
The Return on Assets for the year 2008 2009 is 1.79 The Return on Assets for the year 2009 2010 is 2.17 The Return on Assets for the year 2010 2011 is 2.11

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The Return on Assets has been increasing and decreasing alternatively throughout the three years time period. It first increased from 1.79 in 2008-2009 to 2.17 in 2009-2010 and then finally decreased to 2.11 in 2010-2011.

GRAPH 4.26: SHOWING RETURN ON ASSETS

Return On Asset

2010-2011

2.11

Year 2009-2010

2.17

2008-2009 0 0.5 1 % 1.5

1.79

2.5

INTERPRETATION:
There is no standard norm for the Return on Assets. It is normally based on the average return in the entire industry. It has alternatively increased and decreased during the three years but overall, there has been a satisfactory return on assets for the company.

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J. RETURN ON INVESTMENT:
Return on investment refers to relationship between net profit and proprietors funds. This is return to investors for there investment in the form of profit. ROI = EBIT TOTAL CAPTIAL EMPLOYED

TABLE 4.30: SHOWING THE CALCULATION OF RETURN ON INVESTMENT

YEAR

EBIT

TOTAL CAPITAL EMPLOYED

EBIT / TOTAL CAPITAL EMPLOYED

RETURN ON INVESTMENT

2008 2009 2009 2010 2010 2011

26103021.94

53368626.43

26103021.94 / 53368626.43

0.49

44913867.58

52305373.57

44913867.58 / 52305373.57

0.86

57981019.43

50202881

57981019.43 / 50202881

1.15

ANALYSIS:
The Return on Investment for the year 2008 2009 is 0.49 The Return on Investment for the year 2009 2010 is 0.86 The Return on Investment for the year 2010 2011 is 1.15

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The Return on Assets has been increasing throughout the three years time period. It first increased from 0.49 in 2008-2009 to 0.86 in 2009-2010 and then finally increased to 1.15 in 2010-2011.

GRAPH 4.27: SHOWING RETURN ON INVESTMENT

Return On Investment
1.15
1.2 1 0.8 Return 0.6 0.4 0.2 0 2008-2009 2009-2010 Year 2010-2011

0.86

0.49

INTERPRETATION:
ROI reflects the overall profitability of a firm. This ratio is useful for managerial decisions and helps in understanding the relation between funds employed and returns from the particular investment. Usually, higher the ratio, better are the results in the company. The Return on Investments has been constantly rising for the firm during these three years, which indicates a favourable overall profitability condition of the company.

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CHAPTER 5
SUMMARY OF FINDINGS

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5.1 SUMMARY OF FINDINGS

1. The company has maintained a favourable condition of their current assets and current liabilities in the third year whereas there has been a continuous movement towards the ideal of 2:1 in the previous two years.

2. The company has maintained a favourable and above average quick ratio in all three years.

3. The firm has a trend of fluctuating absolute liquid ratio, which shows the ability of the firm to pay off its short-term dues using these assets.

4. The proprietary ratio has decreased from the initial figures attained. This shows that the companys long-term solvency position has decreased over a period of time.

5. The Total Coverage Ratio of the firm dipped every year indicating that the ability of the firm to serve outsiders liabilities is also decreasing year after year and hence, the situation is satisfactory.

6. The long-term solvency of the firm is proved to be in a favourable condition because of the stability of the Solvency Ratio. Also, the correlation of total assets and total liabilities has not varied much, which shows a favourable condition.

7. The company has met the ideal standards of the Fixed Asset Ratio and the position and use of fixed assets is good. There is also a trend of increasing Fixed Assets Ratio, which is favourable for the company.

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8. The Fixed Asset Turnover Ratio and Total Asset Turnover Ratio indicate that the rate with which assets are turning into cash is becoming slower with the passage of time.

9. A dip in the Working Capital Turnover Ratio indicates a satisfactory state of the firm in this aspect because there is no standard to be met, but the values are in a decreasing trend.

10. The Debtors turnover Ratio has remained more or less constant through the three years, which indicates a favourable situation of the firm where the debtors are managed well. Also, since the ratio is not very high, it can be said that the firm had a limited amount of credit sales.

11. Through the Creditors Turnover Ratio, it can be understood that in the earlier years the company was very prompt in paying off its dues but it is taking longer in the recent years to pay off its dues and is enjoying a longer credit period.

12. The Inventory Turnover Ratio signifies that the company has managed its inventory very efficiently in 2005-2006 and 2006-2007 but the efficiency level for the same has fallen in 2007-2008.

13. The rate of return on capital employed has been increasing exponentially over the years. This is a very good indication of the firms business returns and shows that the firm is in an extremely favourable condition in this aspect.

14. Though the rate of return on shareholders funds has been fluctuating over the three years, the returns have been satisfactorily received.

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15. Even though the companys Net Profit Ratio and Operating Profit Ratio have been minimal over the three years, there is a trend of increasing profits, which is a positive indication towards a more effective and efficient business. 16. Studying the Fixed Interest Coverage Ratio and Fixed Dividend Coverage Ratio, the firm has been able to manage to pay its due interests and dividends satisfactorily.

17. The Price Earning Ratio denotes that the condition of the firm is improving with the passage of time because the price paid for every share in relation with the earning per share is on a decreasing trend.

18. A rise in the Operating Profit Ratio shows that even though the sales have increased, the expenses have increased at a comparatively higher rate than that of the increase of sales.

19. The Return on Investment has been on a constant rise depicting that even though the rate is not very high, there is a growing trend, which indicates a favourable overall profitability condition of the company.

20. The Return on Asset has been fluctuating over the three years, but since there are no ideal standards to be met, there has been a satisfactory return on assets for the company.

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CHAPTER 6
SUGGESTIONS AND CONCLUSION
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6.1 SUGGESTIONS
1. The firm must try to maintain its current ratio by recording its current assets and current liabilities since a growing trend in the current ratio is depicted. This will help the firm to maintain its short-term solvency position.

2. The absolute liquid ratio has been fluctuating over the years and this is not in favour of the firm because it determines an unstable short-term solvency position. Therefore, the cash in hand and bank, the short-term marketable securities and other absolute liquid assets must be maintained in proportion with the current liabilities.

3. The Proprietary Ratio has dipped in the later years showing that the shareholders funds are not managed very efficiently. An effort must be made to handle the owners resources well and to maintain the proportion of these funds to the total assets of the firm.

4. The Total coverage Ratio, Fixed Interest and Dividend Coverage Ratios of the firm have also been falling every year showing a decreased ability of the firm to pay off its dues in time. This is an unfavorable condition of the firm as it reduces the credibility of the firm and also its goodwill.

5. The Fixed Assets turnover Ratio and Total Asset Turnover Ratio and Return on Fixed Assets exemplify that the rate at which these assets are turning into sales or cash are reducing year after year. This calls for attention towards an increased amount of care of the assets of the firm such as repairing of assets, replacement of machinery, accounting for depreciation etc.

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6. There is a decrease in the Working Capital Turnover Ratio, which shows that the working capital usage has increased with the increase in sales but at a much higher rate than the standard. This is not a positive change for the firm because it reflects inefficient use of the working capital. Using the working capital more optimally and maintaining the proportion between current assets and liabilities can rectify this fault.

7. The Creditors Turnover Ratio indicates that the firm has increased the time taken to pay off its dues in the later years. This is a negative sign because it hints at a decreased credibility and goodwill of the firm. Therefore, the firm must make an effort to pay off its dues as soon as possible.

8. A decline in the Inventory Turnover Ratio shows that the inventory was not managed well. The stock levels were rising in the later years due to which the average return on stock was declining. To resolve this issue, the stock needs to be handled efficiently and it need to be made sure that the inventory levels do not rise.

9. A rise in the Operating Profit Ratio shows that even though the sales have increased, the expenses have increased at a comparatively higher rate than that of the increase of sales. Here, to minimize costs, the theory of economies of scale and the like could be implemented and tried.

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6.2 CONCLUSION
Lux Hosiery Industries Ltd was established in the year 1957. Today it is a recognized player in the export industry and as in a process to increase its marketing network worldwide. Lux Hosiery Industries Ltd. is a public sector undertaking mainly into manufacturing garments.

This study considers an external analysis point of view with the help of past and latest financial statements. The financial position has been analyzed potentially with the use of ratio analysis. Various ratios concerning the firms liquidity, solvency, costs, profitability and turnover have been calculated to examine the financial status of the firm. However, firm-industry comparisons are not attempted because of lack of availability of data of various firms. An intra organizational comparison for a run through of three years has been taken into consideration.

Overall, the company has maintained a favourable financial position considering the working capital, total assets, turnover and profits status. But there are certain weak aspects in the utilization of assets, creditors, and inventory for which the study has been shown and recommendations have been made as well.

The Hosiery industry in India is at a glance of major competition due to several other influential players in the market. During the year, the company has aimed to chalk out programs of expansion and prepared for the strategic future growth plan. The establishments of new branch offices, in new market areas, which are still untapped, drive their organic growth. They seek to raise the needed capital to fund this growth through a variety of financial instruments that make sense for the company and its shareholders. They have also set up their R&D department and work on a continuous research and innovation process. Today LUX is a recognized player in the export industry and as in a process to increase its marketing network worldwide.

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BIBLIOGRAPHY

- 140 -

1. STANDARD TEXT BOOKS:

a) Management Accounting by R.K.Sharma and Gupta, 2nd Edition Kalyani Publishers, New Delhi. b) Management Accounting by I.M.Pandey,vikas publishing house. c) Financial Management by M.Y. KHAN & P.K.Jain Tata MC-Graw-Hill Publishers, New Delhi.

2. COMPANYS SPECIFIC PUBLISHED INFORMATION:

a) Annual report 2008-2009 b) Annual report 2009-2010 c) Annual report 2010-2011

3. WEBSITES USED: a) www.google.com b) www.wikipedia.com c) www.luxhosiery.com d) www.sudhamahosiery.com

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ANNEXURE

- 142 -

Income Statement As on( Months ) Profit / Loss A/C Net Sales Operating Income (OI) OPBDIT OPBDT OPBT Non-Operating Income Extraordinary/Prior Period Tax Profit after tax(PAT) Cash Profit Dividend-Equity Balance Sheet As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total(BT) Liabilities Equity Share Capital Reserves Total Debt Creditors and Acceptances Other current liab/prov. Balance Sheet Total(BT) 31-Mar09(12) Rs mn %OI 1449.83 99.65 1454.86 100.00 27.39 1.88 19.32 1.33 17.49 1.20 0.55 0.04 -0.35 -0.02 6.40 11.28 13.12 6.11 0.44 0.78 0.90 0.42 31-Mar10(12) Rs mn %OI 1791.55 99.76 1795.79 100.00 51.15 2.85 38.22 2.13 30.48 1.70 1.49 0.08 0.30 11.62 20.65 28.39 7.68 0.02 0.65 1.15 1.58 0.43 31-Mar11(12) Rs mn %OI 1650.04 99.93 926.72 100.00 18.75 2.02 13.63 1.47 12.45 1.34 0.22 0.02 -0.08 -0.01 4.26 8.33 9.51 5.55 0.46 0.90 1.03 0.60

31-Mar-11 Rs mn 26.32 23.28 5.90 0.84 140.61 452.47 13.02 636.11 Rs mn 52.84 71.09 139.11 344.14 28.93 636.11

%BT 4.14 3.66 0.93 0.13 22.10 71.13 2.05 100.00 %BT 8.31 11.18 21.87 54.10 4.55 100.00

31-Mar-10 Rs mn 51.05 41.11 0.00 2.80 328.57 553.51 30.18 956.16 Rs mn 52.90 84.05 275.61 508.93 34.66 956.16

%BT 5.34 4.30 0.00 0.29 34.36 57.89 3.16 100.00 %BT 5.53 8.79 28.82 53.23 3.62 100.00

31-Mar-09 Rs mn 5.34 3.17 3.44 0.53 200.55 325.46 23.58 968.73 Rs mn 52.82 65.75 133.69 287.16 17.31 556.73

%BT 0.96 0.57 0.62 0.10 36.02 58.46 4.24 100.00 %BT 9.49 11.81 24.01 51.58 3.11 100.00

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