FINANCIAL PERFORMANCE EVALUATION OF INDIAN RARE EARTHS LIMITED

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FINANCIAL PERFORMANCE EVALUATION OF INDIAN RARE EARTHS LIMITED, CHAVARA

By NITHEESH.V.S Reg. No. 97709631022

INTRODUCTIONThe performance of an organization is evaluated through the analysis of the financial statements. Financial statements are prepared primarily for decision making. They play a dominant role in setting the frame work of managerial decisions. Analysis of financial statements helps in determining financial strength and weakness of the firm by establishing strategic relationship between the items of the Balance Sheet and Profit and Loss account.

INDUSTRY PROFILEMinerals and Mining Industry Mining industry is one of the largest industries in the world. Mining industry is concerned with the direct tapping and utilization of natural resources which is mostly perishable. Traditionally, the focus of mining industry has been the extraction of metals from minerals using several methods of extraction and beneficiation.

COMPANY PROFILEIndian Rare Earths Limited (IREL) is a Central Public Sector Undertaking under the administrative control of the Department of Atomic Energy, Government of India. The Company is engaged in the mining of beach sands through its three Plants namely Chavara, Manavalakurichi and Orissa Sands Complex (OSCOM) located in the coastal areas of Kerala, Tamil Nadu and Orissa respectively for the separation and marketing of about 440 thousand tones of Ilmenite per annum and associated heavy minerals like rutile, zircon, monazite, sillimanite and garnet.

REVIEW OF LITERATURESreevastava (1997) explains that financial analysis are undertaken to interpret the position of an enterprise. Financial analysis includes the study of relationships within a set of financial statements at a point in time. Analysis of financial statement is a process of evaluating the relationship between component part of a financial statement to obtain a better understanding of a firms position and performance Chandra (2009) describes that analysis of financial statement is of interest to lenders, investors, security analysts, managers, corporate boards, regulators and others. It is helpful in assessing the corporate excellence, judging credit worthiness, forecasting bond ratings, predicting bankruptcy and assessing market risk.

OBJECTIVES OF THE STUDY To study the financial performance of the company for last5 years. To compare the financial position of the company for last five years. To analyze and interpret the liquidity and profitability position of the organization. To analyze the causes of changes in the cash position of the organization. To give suggestions based on the findings.

TOOLS FOR ANALYSISThe various tools used for the analysis are; Ratio Analysis Comparative Analysis Cash Flow Analysis

DATA ANALYSIS AND INTERPRETATION1.RATIO ANALYSIS A ratio is the relationship between two financial data. In financial analysis, a ratio is used as the basis for evaluating the financial position and performance of a firm. Ratio analysis is an important and widely used tool of financial statement.The various ratios used for analysis are; A. LIQUIDITY RATIOS B. PROFITABILTY RATIOS

A. LIQUIDITY RATIOSLiquidity is the ability of the firm to meets its current liabilities as they fall due. Since liquidity is basic to continuous operations of the firm it is necessary to determine the degree of liquidity of the firm. Following are the important ratios for this purpose. The various Liquidity Ratios are;

a. Current Ratio b. Quick Ratio c. Absolute Liquidity Ratio

a. Current RatioYear

2006 34462.00

2007 34439.50

2008 39227.25

2009 43198.57 14539.78 2.97:1

2010 43020.88 15737.81 2.73:1

Current Assets Current Liabilties Current Ratio

21233.35 1.62:1

24355.28 1.41:1

14028.53 2.80:1

b.Quick RatioYear 2006 26847.23 2007 29610.37 2008 2009 2010

Quick Assets Current Liabilities Quick Ratio

33727.17

37177.76

36448.99

21233.35

24355.28

14028.53 14539.78

15737.81

1.26:1

1.22:1

2.40:1

2.55:1

2.32:1

c. Absolute Liquidity RatioYear 2006 2007 2008 2009 2010

Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio

18645.01

20201.24

23381.71

27281.30

26829.57

21233.35

24355.28

14028.53

14539.78

15737.81

0.88:1

0.83:1

1.67:1

1.87:1

1.70:1

B.PROFITABILTY RATIOSProfitability is an indication of the efficiency with which the operations of the business are carried on. Profitability Ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. The various Profitability Ratios are; Gross Profit Ratio Net Profit Ratio Return on Total Assets

Gross Profit RatioYear Gross Profit Net Sales Gross Profit Ratio 2006 2007 10005.23 7684.13 36012.00 30602.96 25.10% 27.78% 77.29% 24.63% 14.18% 29597.25 33655.99 33709.76 2008 22875.78 2009 8288.04 2010 4781.53

Net Profit RatioYear 2006 2007 2008 2009 2010

Net Profit (after interest, tax but before dividend) Net Sales

4240.85

6422.72

15557.49

5676.80

2307.44

30602.96

36012.00

29597.25

33655.99

33709.76

Net Profit Ratio

13.86%

17.83%

52.56%

16.86%

6.85%

Return on Total AssetsYear 2006 2007 2008 2009 2010

Net Profit (before interest, tax & dividend) Total Assets Return on total assets

7704.36

10023.00

8276.09

8545.09

4822.49

50741.14

56425.86

61434.5

63369.57

63245.54

15.18%

17.76%

13.47%

13.48%

7.63%

COMPARATIVE ANALYSISComparative statement analysis is a method of tracing the periodic changes in the financial performance of the company. It will contain items at least for two periods. An investigation of the comparative financial statements helps to highlight the significant facts and point out the items which need further analysis. The comparative financial statements are statements of the financial position of different periods of time. Normally it is the Balance sheet and Profit and Loss account which alone are prepared in a comparative form.

COMPARATIVE BALANCE SHEET FOR THE YEAR 31st Mar2009&31st Mar 2010Particulars

31/03/2009 8,636.50 38,629.23 3,320.42 50,586.15

31/03/2010 8,636.50 38,922.48 2,213.61 49,772.59

Increase/Decrease Nil 293.25 (1,106.81) (813.56)

% of change

1. Sour of Fund Capital Reserves and Surplus Unsecured Loan TOTAL 2. Application of Fund 1.Fixed Assets 2.Investments 3.Deferred Tax Assets 4. Current Assets, Loans and Advances Current Assets Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances

0.76% -33% -1.61%

20,169.58 1.42 1,603.98

20,223.24 1.42 2,094.03

53.66 490.05

0.27%

30.55%

6,020.81 833.48 27,281.30 1,485.22 7,577.66 43,198.57

6,571.89 785.76 26,829.57 1,171.05 7,662.61 43,020.88

551.08 (47.72) (451.73) (314.17) 84.95 (177.69)

9.15% -5.73% -1.66% -21.15% 1.12% -0.41%

Less: Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets 5,631.43 8,908.35 28,658.79 6,429.86 9,307.95 27,283.07 798.43 399.60 (1,375.72) 14.18% 4.49% -4.80%

5. Miscellaneous Expenditure

152.38

170.83

18.45

12.11%

TOTAL

50,586.15

49,772.59

(813.56)

1.61%

COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MAR 09 & 31ST MAR 1031/03/2009INCOME

31/03/2010

Increase/Decrease

%of Change

Gross Sales Less : Excise duty Net Sales Compensation for Processing Thorium Increase/(Decrease) in Stock Other IncomeTOTAL

33,669.82 13.83 33,655.99 1,443.83 50.47 3,873.74 39,024.03 3,790.89 14,864.69

33,715.60 5.84 33,709.76 979.06 1,135.38 2,581.58 38,405.78 3,978.44 16,432.21

45.78 (7.99) 53.77 (464.77) 1,084.91

0.14% -57.77% 0.16% -32.19% 2149.61%

(1,292.16) (618.25) 187.55

-33.36% 1.58%

EXPENDITURE Materials Consumed Employee's Remuneration and Benefits Manufacturing and Other Expenses Interest Depreciation

4.95% 1,567.52 10.55% 9,850.06 233.36 1,973.30 30,712.30 TOTAL 11,213.01 40.95 2,003.07 33,667.68 1,362.95 (192.41) 29.77 2,955.38 9.62% 13.84% -82.45% 1.51%

PROFIT BEFORE EXTRA ORDINARY ITEMS, PRIOR PERIOD ADJUSTMENTS AND TAXATION Extraordinary Items and Prior Period Adjustments Profit Before Tax

8,311.73 4,738.10 (3,573.63) 43%

(23.68) 8,288.05 2,611.25 43.44 4,781.54 67.12 (3,506.51) 283.44% -42.31%

Provision for Tax

2,474.10 5,676.80 2,307.44 35,919.00

(137.15) (3,369.36) 2,655.95

-5.25% -59.35 7.98%

Profit after Tax Balance brought forward PROFIT AVAILABLE FOR APPROPRIATION Appropriations : Proposed Dividend Tax on Dividend Transfer to General Reserve BALANCE CARRIED TO BALANCE SHEET

33,263.05 38,939.85

38,226.44

(713.41)

-1.83%

1,727.30 293.55 1,000.00

1,727.30 286.88 200.00 (6.67) -2.27% (800.00) -80

35,919.00 38,939.85

36,012.26 38,226.44

93.26 (713.41)

-0.26%

-1.83%

CASH FLOW ANALYSISCash flow analysis is a method of analyzing the financing, investing, and operating activities of a company. The primary goal of cash flow analysis is to identify, in a timely manner, cash flow problems as well as cash flow opp