Financial Analysis and the Performance

8/13/2019 Financial Analysis and the Performance

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A STUDY ON FINANCIAL PERFORMANCE & ANALYSIS IN GARMENTS

BY

SURESH KUMAR.K

Reg. No.: 311411631!

OF

MEENAKSHI COLLEGE OF ENGINEERING

A PRO"ECT REPORT

S#$%''e( 'o ')e

FACULTY OF MANAGEMENT STUDIES

In partial fulfillment of the requirements

For the Award of the Degree

OF

MASTER OF BUSINESS ADMINISTRATIONIN

*HUMAN RESOURCE+

ANNA UNI,ERSITY

CHENNAI - 6 !

"ULY 1

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http://upload.wikimedia.org/wikipedia/en/7/78/Anna_University,_Chennai_logo.gif


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DECLARATION

I, K. SURESH KUMAR student ofMEENAKSHI COLLEGE OF ENGINEERING hereby

declare that theproject report entitled/A STUDY ON FINANCIAL PERFORMANCE &

ANALYSISIN GARMENTS has been done by me and is submitted in partial fulfillment of

the requirement for the award of degree in masters in business administration.

P02e: C)e *SURESH KUMAR. K+

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ACKNOWLEDGEMENT

I take an opportunity to express my thanks to our principal D. G. GUNASEKARAN B.S25 B.E5

M.E5 ( P).D who has given me the opportunity to do this project at KUTTI BABA

GARMENTS P,T LTD.

I am thankful to D. R.R. RA"A MOHAN5 B.E5 ( M.B.A. Head of the epartment !f

"usiness #dministration for extending his valuable in the preparation of a report.

I am also thankful to M.R.R. RA"A MOHAN5 B.E5 M.B.Awho has given me guidance and

support to do this project report. I also thank all our staff members who help to do this reportsuccessfully.

I am also thankful to M. MATHIAS 7 MANAGERand all my well$wishers who have assisted

me in successful completion of my %roject.

#nd above all, I would like to express my heartful thanks to all the members of the %ersonnel

epartment of KUTTI BABA GARMENTS P,T LTD, for their constant help & co$operationrendered during the project work.

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MEENAKSHI COLLEGE OF ENGINEERING

NO: 15 ,EMBULIAMMAN KO,IL STREET5

8EST K.K. NAGAR5 CH79

Bonafide Certificate

'ertified that this %roject report titled /A STUDY ON FINANCIAL

PERFORMANCE & ANALYSIS;5 undertaken in KUTTY BABA GARMENTS5

MR.BARAKATHULLAH.M.Ris the bonafide work of

M. SURESH KUMAR.K5who carried out the research work under my supervision. 'ertified

further, that to the best of my knowledge the work reported herein does not form part of any other

project report or dissertation on the basis of which a degree or award was conferred on an earlier

occasion on this or any other candidate.

M. R. SATHYA5 MBA5 *P.)(+.

F2#0'< g#(e

D. R.R. RA"A MOHAN

He( o= ')e (e>'%e'

D. G. GUNASEKARAN. B . S25 B.E5 M.E5 P).D

HEAD OF THE INSTITUTION

S#$%''e( =o ')e ??7?o2e 'o $e )e0( o@@@@@@@@@@@@@@@@@@@

I'e0 e%e E'e0 e%e

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TABLE OF CONTENTS

CHAPTER NO CONTENTS PAGE NO

1. INTRODUCTION

(.( Introduction)

(.* Importance of the study+

(. -cope of the study

(./ !bjectives of the study

(.0 1eview of literature2

(.) 'ompany profile(0

(.+ Industry profile()

. RESEARCH METHODOLOGY

*.( 1esearch design *3

*.* 4ools and techniques for analysis *3

*. 1atio analysis *(

*./ ata collection method */

*./ 1atio analysis and interpretation *0

3. F(g o= ')e '#(< /3

4. SUGGESTIONS AND RECOMMENDATIONS /3

!. CONCLUSION /(

6. BIBLIOGRAPHY /(

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1. INTRODUCTION:

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International best practice in microfinance around the world suggests good financial analysis is

the basis for successful and sustainable microfinance operations. -ome would even say that

without financial analysis your 8:I will never achieve sustainability.

1. IMPORTANCE OF THE STUDY

4he study location includes only with the company, the survey will be having a limit of the

working employees. 4his study focuses the major part of the analysis statements which has an

outflow of the figures.

4he study will be carried out mainly based on the information gathered from the

-econdary ata mainly "alance -heet and %rofit and =oss #ccount.

4he study will be limited to observations of the past. 4he observation made will be

related to laws operated in the past.

-ufficient data will not be made available to study the current operations being carried

out in the company.

4he company being under the >utti "aba ?arments and in the direct administration of

the government, it is not in a position to enjoy the full control of ownership. It is also not

in a position to fix prices for major products produced by it.

SIGNIFICANCE OF FINANCIAL PERFORMANCE ANALYSIS

Interest of various related groups is affected by the financial performance of a

firm. 4herefore, these groups analy@e the financial performance of the firm. 4he type of analysis

varies according to the specific interest of the party involved.T(e 2e('o: interested in the liquidity of the firm 5appraisal of firmAs liquidity6

Bo( )o0(e: interested in the cash$flow ability of the firm 5appraisal of firmAs capital

structure, the major sources and uses of funds, profitability over time, and projection of future

profitability6

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I?e'o: interested in present and expected future earnings as well as stability of these earnings

5appraisal of firmAs profitability and financial condition6

Mge%e': interested in internal control, better financial condition and better performance

5appraisal of firmAs present financial condition, evaluation of opportunities in relation to this

current position, return on investment provided by various assets of the company, etc6

1.3 SCOPE OF THE STUDY

4o show the status of any organi@ation or a firm at a given period of time. 4he study

finds out the operational efficiency of the organi@ation and suggests the proper utili@ation and

allocation of cash resources, to improve the efficiency of the organi@ation. 4he working

capital of the organi@ation will be further revealed through the adoption of various techniques

available for analysis. 4hese techniques reveal the measures that can adopt to improve the

existing trend.

1.4 OB"ECTI,ES OF THE STUDY

PRIMARY OB"ECTI,E:

4o study the financial performance of the organi@ation.

4he purpose of such an analysis is to assess a health and performance of the

organi@ation.

SECONDARY OB"ECTI,ES:

4o understand the strategy of the organi@ation.

4o calculate and soundly analy@e financial ratios.

4o benchmark the companyBs performance to their competitors in order to assess a

relative performance measure.

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4o predict the future performance and financial position

4o describe the sources of information for financial statement analysis

4o analy@e the comparative balance sheets.

1.! RE,IE8 OF LITERATURE:

FINANCIAL PERFORMANCE:

4he word B%erformance is derived from the word BparfourmenA, which means

Bto doA, Bto carry outA or Bto renderA. It refers the act of performing, execution, accomplishment,

fulfillment, etc. In border sense, performance refers to the accomplishment of a given task

measured against preset standards of accuracy, completeness, cost, and speed. In other words, it

refers to the degree to which an achievement is being or has been accomplished. In the words of

:rich >ohlar 4he performance is a general term applied to a part or to all the conducts of

activities of an organi@ation over a period of time often with reference to past or projected cost

efficiency, management responsibility or accountability or the like. 4hus, not just the

presentation, but the quality of results achieved refers to the performance. %erformance is used to

indicate firmAs success, conditions, and compliance. :inancial performance refers to the act of

performing financial activity. In broader sense, financial performance refers to the degree to

which financial objectives being or has been accomplished. It is the process of measuring the

results of a firm;s policies and operations in monetary terms. It is used to measure firm;s overall

financial health over a given period of time and can also be used to compare similar firms across

the same industry or to compare industries or sectors in aggregation.

FINANCIAL PERFORMANCE ANALYSIS:

In short, the firm itself as well as various interested groups such as managers,

shareholders, creditors, tax authorities, and others seeks answers to the following important

questionso'o o= ')e =% ' g?e >o' o= '%e

. Ho ')e F20 Pe=o%2e o= ')e =% o?e g?e >eo( o= '%e

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4hese questions can be answered with the help of financial analysis of a firm. :inancial analysis

involves the use of financial statements. # financial statement is an organi@ed collection of data

according to logical and 'onceptual :ramework 03 consistent accounting procedures. Its purpose

is to convey an understanding of some financial aspects of a business firm. It may show a

position at a moment of time as in the case of a "alance -heet, or may reveal a series of activities

over a given period of time, as in the case of an Income -tatement. 4hus, the term Bfinancial

statementsA generally refers to two basic statements< the "alance -heet and the Income

-tatement. 4he B02e S)ee' shows the financial position 5condition6 of the firm at a given

point of time. It provides a snapshot and may be regarded as a static picture.

"alance sheet is a summary of a firmAs financial position on a given date that shows 4otal

assets C 4otal liabilities D !wnerAs equity.E

4he 2o%e ''e%e' 5referred to in India as the profit and loss statement6 reflects the

performance of the firm over a period of time. Income statement is a summary of a firmAs

revenues and expenses over a specified period, ending with net income or loss for the period.E

However, financial statements do not reveal all the information related to the financial operations

of a firm, but they furnish some extremely useful information, which highlights two important

factors profitability and financial soundness. 4hus analysis of financial statements is an

important aid to financial performance analysis. :inancial performance analysis includes analysis

and interpretation of financial statements in such a way that it undertakes full diagnosis of the

profitability and financial soundness of the business.E 4he analysis of financial statements is a

process of evaluating the relationship between component parts of financial statements to obtain

a better understanding of the firmAs position and performance.E 8etcalf, 1. F. and %. =. 4itard,

%rinciples of #ccounting, F. ". -aunders, 5%hiladelphia6(2+),'onceptual :ramework.

4he financial performance analysis identifies the financial strengths and weaknesses of the firm

by properly establishing relationships between the items of the balance sheet and profit and loss

account. 4he first task is to select the information relevant to the decision under consideration

from the total information contained in the financial statements. 4he second is to arrange the

information in a way to highlight significant relationships. 4he final is interpretation and drawing

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of inferences and conclusions. In short, financial performance analysis is the process of

selection, relation, and evaluation.E

AREAS OF FINANCIAL PERFORMANCE ANALYSIS

:inancial analysts often assess firm;s production and productivity performance,

profitability performance, liquidity performance, working capital performance, fixed assets

performance, fund flow performance and social performance. However in the present study

financial health of ?-14' is measured from the following perspectives'0 A0


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1ecent empirical studies have concluded that inappropriately sequenced financial liberali@ation

has been an important contributory factor to the boom and crash cycles in emerging economies

5Filliamson and 8ahar (226. ?ourinchas et al. 5(2226 studied lending boom episodes across

ninety$one countries during the period (2)3(22), and concluded that the probability of

experiencing a financial crisis was significantly greater following a lending boom, linking this to

financial liberali@ation. mpirical studies by emirguc$>unt and etragiache 5(226 and

Hutchison and 8cill 5(2226* found that a financial crisis was more likely in a liberali@ed

financial system, particularly when the institutional support was weak. >aminsky and 1einhart

5(2226 concluded that in eighteen of the twenty six banking crises in their sample, the financial

sector had been liberali@ed some time during the previous five years 51ajan *33(6.

#ccording to -undararajan 5(2226, orderly liberali@ation often requires implementation of

critical and massive reforms simultaneously. Fhat is needed is a package of reforms involving

different components of the financial sector, such as aspects of banking supervision, money

markets, monetary operations and central banking. He argues that, at the least, this is necessary

for financial stability reasons, and to be able to be effective in implementing stabili@ation

policies.

4he influential views on the sequence of liberali@ation of dwards 5(22a6 and 8c>innon

5(226 assert that domestic financial market liberali@ation and current account liberali@ation

should be implemented first, followed by capital account liberali@ation. 8oreover, early

literature on the optimal sequencing of economic reform also suggests the importance of capital

controls during the process of development. In this view, liberali@ation of the capital account

should not be undertaken until the end of the process7 freeing up capital flows prematurely

before domestic and trade liberali@ation could lead to economic instability 58c>innon (2+,

(227 dwards (2/7 "alassa (2237 ?lick and Hutchison *3336.

8c>innon 5(226 and "urkett and =otspeich 5(226 argue that there are at least two reasons why

capital account liberali@ation should be delayed until the end of the reform sequence. :irst, if

inflows occur prior to the completion of trade reforms, the domestic allocation of foreign savings

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may not be efficient. -econd, whether or not trade reforms are initially in place, a rapid inflow of

capital will cause real appreciation of the exchange rate, which makes it difficult for domestic

tradable producers to adjust to the removal of protection. 4hus, a massive influx of capital at the

time liberali@ation occurs, finances an unusual increase in imports while decreasing exports and

gives out the wrong long$run price signals to private market participants 5dwards (2/6. In

addition, other elements of a supporting %olicy package for orderly capital account liberali@ation

are restructuring weak and insolvent banks. Indeed, where banks are weak or insolvent, one

would want to restrict their access to international capital flows, and so there may be a case for

imposing controls on selective capital movements. :urthermore, there would be a need to

strengthen auditing, accounting and disclosure practices 5-undararajan 8c>innon 5(226 has

attempted to account for institutional capabilities and weaknesses, with Bthe optimal order of

economic liberali@ationA. It is thus argued that how fiscal, monetary, and foreign exchange

policies are sequenced is of critical importance. ?overnment cannot, and perhaps should not,

undertake all liberali@ing measures simultaneously. Instead, there is an BoptimalA order of

economic liberali@ation, which may vary for different liberali@ing economies depending on their

initial conditions.

58c>innon (22, p. ++6 8c>innon elaborates by suggesting that the speed of adjustment is

sluggish in the goods markets, and faster in the financial markets. 4hus, financial markets could

not be reformed in the same manner and at the same time as other markets, without creating

awkward difficulties. 1ecognition of these problems has led to the proposition of sequencing in

financial reforms. -uccessful reform of the real sector is seen as a prerequisite to financial

reform. 4hus, financial restraint would have to be maintained during the first stage of economic

liberali@ation. :urthermore, different aspects of reform programs may work at cross$purposes,

disrupting the real sector in the process.

4his is precisely what -achs 5(226 labeled as Bcompetition of instrumentsA. -uch conflict can

occur when abrupt increases in interest rates cause the exchange rate to appreciate rapidly thus

damaging the real sector. -equencing becomes important again. It is thus suggested that

liberali@ation of foreign markets should take place after liberali@ation of domestic financial

markets. In this context, proponent views on financial liberali@ation suggest caution in

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sequencing in the sense of a gradual process of liberali@ation emphasi@ing the achievement of

macroeconomic stability and adequate bank supervision as preconditions for successful financial

reform. It is also argued by proponent views of financial liberali@ation that the authorities should

move more aggressively on financial reform in good times, and rather slowly when borrowersA

net worth is reduced by negative shocks, such as recessions and losses due to changes in the

terms of trade 5Forld "ank (22b7 #restos and emetriades (2226.

FINANCIAL PERFORMANCE

:inancial performance analysis is vital for the triumph of an enterprise. :inancial

performance analysis is an appraisal of the feasibility, solidity and fertility of a business, sub$

business or mission. #ltman and berhart 5(22/6 reported the use of neural network in

identification of distressed business by the Italian central bank. Jsing over (,333 sampled firms

with (3 financial ratios as independent variables, they found that the classification of neural

networks was very close to that achieved by discriminate analysis.

4hey concluded that the neural network is not a clearly dominant mathematical technique

compared to traditional statistical techniques. ?epp and >umar 5*336 incorporated the time

biasE factor into the classic business failure prediction model. Jsing #ltman 5(2)6 and!hlsonAs 5(236 models to a matched sample of failed and non$failed firms from (23As, they

found that the predictive accuracy of #ltmanAs model declined when applied against the (23As

data. 4he findings explained the importance of incorporating the time factor in the traditional

failure prediction models.

'ampbell 5*336 constructed a multivariate prediction model that estimates the probability of

bankruptcy reorgani@ation for closely held firms. -ix variables were used in developing the

hypotheses and five were significant in distinguishing closely held firms that reorgani@e from

those that liquidate. 4he five factors were firm si@e, asset profitability, the number of secured

creditors, the presence of free assets, and the number of under$secured secured creditors. 4he

prediction model correctly classified +.0K of the sampled firms.

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1.6 COMPANY PROFILE: Kutti Baba ?arment 'ompany is a new business that will begin sales in ecember

of *3(*. 4he company would manufacture quality children;s clothing and accessories and sell

them through retail stores. I would like to start this business so I can offer parents; children;s

items that do not currently exist, along with a line of quality clothing. I have (* years experience

in sales and really enjoy working with the public, so the selling end of the business is what

appeals to me. #s a consumer it is important that I get a high quality product. 4his is a big

emphasis for me in creating these garments. I want to produce top quality product at affordable

prices. I also want to work in -quamish and to be able to offer local people work. 4o this end, it

is my goal to find local suppliers, such as the "rush & "obbin and Insight -igns for my

production and other needs. I believe this is a good business to be in and can;t wait to get started.

,o ( Mo S''e%e':

Kutti Baba Garment'ompany is a manufacturer of quality children;s products. Fe

offer our customers top quality clothing and accessories at excellent prices. !ur goal is to

produce the majority of our product locally. Fe will be introducing an average of * new

products per quarter, based on customer requests and the need in the marketplace.

O$e2'?e:

!ur primary objectives over the next year are to'?e B02e S)ee' S''e%e':

4he comparative balance sheet analysis is the study of the trend of the same items, group

of items and computed items in two or more balance sheets of the same business enterprise on

different dates. 4he changes in periodic balance sheet items reflect the conduct of a business.

4he changes can be observed by comparison of the balance sheet at the beginning and at the end

of a period and these changes can help in forming an opinion about the progress of an enterprise.

"alance sheets as on two or more different dates are used for comparing the assets, liabilities and

the net worth of the company. 'omparative balance sheet analysis is useful for studying the

trends of an undertaking.

A(?'ge

'omparative statements help the analyst to evaluate the performance of the company.

'omparative statements can also be used to compare the performance of the firm with theaverage performance of the industry between different years.

It helps in identification of the weaknesses of the firm and remedial measures can be

taken accordingly.

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Co%%o Se B02e S)ee' A0


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4he data collected is secondary in nature. 4his is due to the nature of analysis, which only

call for secondary data

SOURCE OF DATA

4he source of data is the various yearAs balance sheet, profit and loss account and

statements provided by the company. 4hey were used for the analysis and for preparing reports.

4he records maintained by the company where referred to get the required information.

.! RATIO ANALYSIS AND INTERPRETATION

GROSS PROFIT RATIO*R. I L2+

Ye Go Po=' Ne' S0e R'o *I J+

97 ).(02 23.) ++.*2

7 /*./3* (3*.+ ++.3

71 2*2.2/+ ((2).)2 ++.+(

1711 (3++.+/ (0/./) +2.0+

1171 (/(./+ ().(( +2.+3

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GRAPHICAL REPRESENTATION OF CHANGE OF DIRECTION OF

GROSS PROFITRATIO

76

76.5

77

77.5

78

78.5

79

79.5

80

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

RATIO

RATIO

INTERPRETATION

4he ?ross %rofit for the financial year *33+$*33 was recorded as per the ratio is ++.*2K, where

as the years between *33$*332 went through a change in the ratio of ++.3Kand the companyAs

profit went upward in *332$*3(3 with the ratio of ++.+(K, 4hus, it is showing the steady

growth in the company profile.

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NET PROFIT RATIO: *R. I L2+

Ye Ne' Po=' Ne' S0e R'o *I J+

97 *(*.0/ 23.) *.+

7 (03.+ (3*.+ (.2*

71 **).+0 ((2).)2 (.20

1711 *20.* (0/./) *(.+2

1171 00./0 ().(( *(.((

GRAPHICAL REPRESENTATION OF CHANGE OF DIRECTION OF

NET PROFITRATIO

RATIO

23.87

13.92

18.95 21.79 21.11

0

5

10

15

20

25

30

2007-

2008

2008-

2009

2009-

2010

2010-

2011

2011-

2012

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

INTERPRETATIONutti

"aba ?arments =imited has shown (,)(.)2 51s. in lakhs6 during the year *332$*3(3.Fhile the

Oet 'ash from investing activities depicts 1s.0+2.)0 in the year *332$*3(3.4here was a

increase in net stock on hire during the financial year *332$*3(3 of )+,3. 51s. in lakhs6.4he

financial year *332$*3(3 depicts the Oet cash from financing activities amount of 1s.*(+(2./2

shows upward profit in the company. 'ash and cash equivalents at the end of the year were

1s./2.0 it shows that the company position in the year *332$*3(3. 'ash and cash equivalents

at the end of the year were 1s. *).+( it shows that the company position in the year *3(3$*3((.

'ash and cash equivalents at the end of the year were 23.3 it shows that the company position

in the year *3(($*3(*.

PROFIT & LOSS ACCOUNT

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BALANCE SHEET:

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CHAPTER !

!.1 FINDINGS

%rofitability indicates the efficiency and effectiveness with which the operations arebeing carried on. It has been found out that the profitability and investments being made

by the firm are sound and showing an increasing trend.

4he fixed asset of the company contributes more than 03K of the total asset position of

the company. 4he company indicating good asset position of the company. 4he company

has also got sufficient reserves and -urplus to meet the future financial contingencies of

the company.

!. SUGGESTIONS

4o avoid fluctuation in working capital value of sundry creditors should be under

controllable.

?rowth rate of the company will be improved by maintaining the stocks.

Forking capital is very essential for an organi@ation by calculating trend analysis the

working capital need is increasing year by year. 4he company should increase the current

asset and decrease the current liability to meet the future working capital needs.

4he ratio between sales and fixed asset turnover, capital employed is changing year by

year because of changes in sales so organi@ation has to increase the sales.

4o avoid gradual increase in current assets the company should concentrate on the

customer debt 5debtors6.

4he company can reduce the cost of production and try to improve its profitability.

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6. CONCLUSION:

In this study an attempt has been made to analy@e the overall financial performance ofmadras industries lining limited. 4he study shows that the overall performance of the company is

not satisfactory. 4hrough the company is a profit making organi@ation, its profit is not up to the

mark with respect to the asset employed in the organi@ation. 4he analysis and interpretation of

various data relating to financial performance helped to reach into a conclusion that the

efficiency of the analysis is not sufficient. It is also reveals that the company is not having a

satisfactory liquidity and profitability position.

4he overall success of any company depends upon the working capital position. -o it

should be handled properly because it shows the efficiency and financial strength of the

company. 4herefore the company should adhere to strict measures in every sphere of its

activities to bring the company back to sufficient working capital position and improve its

financial performance.

BIBLIOGRAPHY:

4he Impact of 'orporate ?overnance on :inancial %erformance

Documents

Financial Analysis and the Performance