Company Profile

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Chapter : 1

Company Profile
Name of the Company

The name of the company is Videocon Industries Limited.


Registered Address

The registered address of Videocon Industries Limited is as follows

14 KM Stone, Aurangabad – Paithan Road,

Village: Chittegaon, Tal. Paithan,

Dist: Aurangabad – 431 101 (Maharashtra)


Brief Introduction of the Activities
Videocon is a very popular and reliable company in consumer
durable sector. It was established in 1987 by late. Nandlal Madhavlal
Dhoot. At that time it had entered the market with color and black and white
televisions and washing machines. The year 1989-90 saw the advent of the
Home Entertainment systems, Electric Motors and A.C Refrigerators.
Videocon started manufacturing coolers in the year 1991. In 1995 Videocon
entered into glass shells manufacturing and in 1996 it came with the
manufacturing of kitchen appliances and crude oil. In 1998 Videocon
ventured into compressors and compressor motors. It took over Philips TV
plant in 2000 and 3 plants of Electrolux India in 2005. In the same year
Videocon acquired Thompson CPT.
Status in the Market
Special Achievements

(1) Videocon has the largest panel production facility in the world under one
roof providing very high economies of scale.

(2) It is one of the world’s largest and most respected CRT glass
manufacturers.

(3) Videocon has a name in firing the largest furnace of its kind in the world
with a tank size of 3300 sq ft.

(4) Videocon is among one of the very few companies in the world who
have been able to convert sand to Television.

(5) Videocon is one of the largest and most acknowledged CPT


manufacturers in the world.

(6) Videocon has been successful in manufacturing India’s first rust free
Washing Machine.
Financial Highlights

Details 2007 2008 2009


Sales 87102.58 101051.28 93812.69
EBIT 13935.47 16958.81 12147.05
PAT 8552.19 8542.95 4006.62
Capital Employed 59591.42 79165.41 103620.34
Operating Ratio 67.31% 62.26% 71.57%
Return on Capital 23.39% 21.42% 11.72%
Employed
Current Ratio 4.48:1 8.12:1 8.94:1
E.P.S 3.85 3.71 1.73
Dividend Rate
E.P. Ratio
Meaning of analysis and objective of study

Financial statement analysis is largely a study of relationships


among the various financial factors in a single set of statement and
study of the trends of these factors as shown in a series of
statement. It is a process of selecting, relating and evaluating the
financial factors in a business.
The first and most important function of financial statement is to
serve those who control and direct the business to the end of
securing the profit and maintaining a sound financial condition. Some
of the questions like how efficiently the capital of the business is
being utilized, how the credit standards are observed and whether
the financial conditions are being improved are answered from the
financial statement.
The devices of financial analysis help the interested readers to
analyze the figures given in various financial statement which in turn
help in achieving the ultimate aim of interpreting the financial
statements.
Chapter : 2
Results of
Operations
Profit of Three Years

2007 2008 2009


GP 38121.24 48140.81 35486.45
NP 8552.19 8542.95 4006.62
EBIT 13935.47 16958.81 12147.05
EBT 10828.96 11669.68 5783.44
EAT 8552.19 8542.95 4006.62
Meaning and Importance of Cash flow Statement

A statement showing Inflow and Outflow of cash during the last year
and as a result of which the balance of cash at the end of the year is
derived, is called the ‘Cash flow Statement’.

The importance of preparing this statement is as follows:-

1. Efficient Cash Management


If the finance manager has a clear idea of
cash receipts and payments, cash resources can be efficiently
managed.

2. Useful for Internal Financial Management


The management can plan out various expenses
requiring huge capital if it has good idea about the time period when
the required money will be in hand. This avoids the possibility of
borrowing funds at high interest rates.

3. Information about Cash Receipts and Payments


This statement will give information about the trend
of cash receipts and payments that will be useful to the management
to meet any future contingencies and also to capture any profitable
opportunity.

4. Useful for Control


The cash flow statement helps in facilitating
managerial control on the use of cash.

5. Ease in Obtaining Funds


By comparing the figures of cash flow
statement, the cash planning and control becomes more effective.
Liabilities can be paid off as and when they mature. This improves
and raises the prestige of the firm in the market.
6. Gives clear cash income
Cash flow statement helps to explain the gap between the
net profit and cash balance.
Cash flow Statement

Particulars 30th Sept. 30th Sept. 30th Sept.


2007 2008 2009
A. CASHFLOW FROM
OPERATING ACTIVITIES
Net Profit before Tax and 10828.96 12947.78 5783.44
Exceptional Items
a) Depreciation / Amortisation / 5017.83 6602.07 5771.52
Impairment
b) Interest and Finance Charges 3106.51 4011.03 6363.61
c) Provision for Finance 6.83 2.19 4.72
Encashment
d) Provision for Warranty and 20.09 20.46 217.62
Maintenance Expenses
e) Provision for Gratuity 6.58 4.33 17.90
f) Provision for Exchange Rate 1023.91 (1023.91) -
Fluctuation
g) Diminution in value of 40.30 640.16 (53.15)
Investments
h) Profit/Loss on Sale of Fixed 1.45 (66.37) 99.60
Assets
i) Provision for doubtful debts 27.73 38.99 39.68
j) Interest Received (211.84) (600.44) (264.74)
k) Income / Loss from (246.06) (116.65) 4.76
Investments and Securities
Division
l) Exceptional Items - (1278.10) -
Cash flow from Operating 19622.30 21181.54 17984.96
Activities before Working Capital
changes
a) Inventories (937.82) (1752.20) (1946.29)
b) Sundry Debtors (1997.42) (2725.34) (1291.92)
c) Other Current Assets 323.99 41.32 (134.70)
d) Loans and Advances (4849.72) (27418.24) (7957.85)
e) Current Liabilities 271.98 (153.91) 756.21
Cash flow from Operating 12433.32 (10826.84) 7410.41
Activities
Less: Income Tax Paid 1072.57 1084.35 919.86
Less: Fringe Benefit Tax Paid 23.91 23.19 16.50
Net Cash flow from Operating 11336.84 (11934.38) 6474.05
Activities (A)
B. CASH FLOW FROM
INVESTING ACTIVITIES
Proceeds from Sale of Fixed 48.95 1186.33 3203.99
Assets
Adjustment on Account of - 550.20 74.12
Producing Properties
Interest Received 211.84 600.44 264.74
Income from Investments and 246.06 116.65 (4.76)
Securities Division
Less:
Increase in Fixed Assets (9058.96) (13623.72) (10080.15)
including Capital Work-in-
progress
Increase in Producing Properties (979.32) (1255.67) (5.10)
Increase in investments (Net) (3080.96) (6518.24) 16708.89
Purchase consideration of (72.63) (152.83) (20348.85)
Subsidiaries
Net Cash flow from Investing (12685.02) (19096.84) (10187.12)
Activities (B)
C. CASH FLOW FROM
FINANCING ACTIVITIES

Increase in Equity Share Capital 1.08 83.57 1.05


Share Application / Warrants - - 950.01
Subscription Money Received
Securities Premium Received 47.66 3770.85 11.90
Forfeited Shares - - 2.72
Increase / Decrease in Secured - 12492.00 22389.12
Term Loans from Banks
Increase / Decrease in Working - (806.49) 1702.45
Capital Loan from Banks
Increase / Decrease in (5506.51) 16587.05 (12810.77)
Unsecured Loans
Redemption of Secured Non (1628.94) (1107.96) (753.74)
Convertible Debentures
Payment of Dividend (809.92) (842.21) (268.59)
Corporate Tax on Dividend (113.23) (142.80) (45.25)
Interest and Finance Charges (3106.51) (4011.03) (6363.61)
Paid
Net Cash flow from Financing (1123.29) 26022.98 4815.29
Activities (C)
Net Change in Cash and Cash (2471.47) (5008.24) 1102.22
Equivalents (A+B+C)
Opening Balance of Cash and 11362.55 8891.08 3882.84
Cash Equivalents
Closing Balance of Cash and 8891.08 3882.84 4985.06
Cash Equivalents
Conclusion

Following are the findings from cash flow statement of the year 30 th
September, 2009

1. Net profit before tax and extraordinary items as on 30 th September, 2009


is 6084.66 millions.

2. All adjustments of operating activities consist of Rs. 19083.99 millions for


the year

3. After change in working capital cash generated from operation amounted


to Rs. 8079.92 millions.

4. So, net profit from operating activities for the year 2009 is Rs. 7142.17
millions.

5. The cash flow in investing activities for the year 2009 as on 30 th


September is Rs 5433.83 millions.

6. Cash flow financing activities for the year 2009 as on 30 th September is


Rs. 8554.91 millions

7. Total of operating activities, investing activities and financing activities is


amounted to Rs. 6846.57 as on 30th September, 2009.
Chapter : 3
Ratio Analysis
Meaning, Importance and Classification of Ratio
Analysis

Ratios are presentation techniques, which help the reader to get an


idea about the performances and position of the firm with least efforts. With
the help of ratios, the reader can get an overall view of the firm.

The importance of preparing ratios is as follows:-

(1) Simplifies financial statements

Ratio analysis simplifies the comprehension of financial statements. It


gives the reader full idea about the overall situations of the firm without
going deep into the financial statements.

(2) Facilitates inter – firm comparison

Ratio analysis provides data for inter – firm comparison. Ratios


highlight the factors associated with successful and unsuccessful firms.

(3) Makes intra – firm comparison possible

Ratio analysis makes possible the comparison of performance of


different divisions of the firm. Ratios are helpful in deciding about the
company’s efficiency in the past and its likely performance in the future.

(4) Helps in planning

Ratio analysis helps in planning and forecasting.

(5) Helps in decision making


Some times ratios may indicate better guideline for decision making.
The Classification of ratio is done as follows:-

(1) Traditional Classification

The ratios are grouped into three categories on the basis of financial
statement from which the figures are taken for computing the ratios. This is
known as the traditional classification and has been grouped in this form
since the advent of ratio analysis. Classification of the ratios based on the
traditional method is done as follows

(a) Revenue Statement Ratios

These ratios are computed on the basis of items taken from revenue
statement.

(b) Balance Sheet Ratios

When two items or group of items appearing in the balance sheet are
compared, the ratios so obtained are the balance sheet ratios.

(c) Composite Ratios

A ratio showing the relationship between one item taken from the
balance sheet and another taken from the profit and loss account is called
a composite or combined ratio.

(2) Functional Classification

Ratios are also grouped in accordance with certain tests. On this


basis there are five categories of ratios

1. Profitability Ratios in relation to Sales

(1) Gross profit ratio

(2) Net profit ratio

(3) Expense ratio

(4) Operating ratio

2. Profitability Ratios in relation to Investments


(1) Return on capital employed

(2) Return on shareholders’ fund

(3) Return on equity shareholders fund

(4) Return on equity share capital

(5) Earnings per share

(6) Dividend per share

(7) Price earning ratio

(8) Dividend yield ratio

3. Activity / Turnover Ratios

(1) Overall turnover ratio

(2) Fixed assets turnover ratio

(3) Debtors ratio

(4) Debtors turnover ratio

(5) Creditor’s ratio

(6) Creditor’s turnover ratio

(7) Stock turnover ratio

(8) Working capital turnover

(9) Book value per share

4. Liquidity Ratios

(1) Current ratio

(2) Liquid ratio

(3) Quick / acid test ratio

5. Leverage Ratios
(1) Proprietary ratio

(2) Debt equity ratio

(3) Capital gearing ratio

(4) Long term fund to fixed asset ratio

6. Coverage Ratios

(1) Interest coverage ratio

(2) Debt service coverage ratio


Profitability Ratios

(1) Gross profit ratio

Meaning

It is the basic measure of profitability of business. It expresses


relationship between gross profits earned to net sale.

Implication

High ratio implies the cost of production to be relatively low. Low ratio
suggests that the firm’s cost of production is not under control.

Formula

Gross Profit Ratio = (Gross Profit / Sales) * 100

Particulars 2007 2008 2009


Gross Profit 38121.24 48140.81 35486.45
Sales 87102.58 101051.28 93812.69
Ratio 43.77% 47.64% 37.83%

Interpretation

Gross Profit of the company is fluctuating. So it is not a good


sign for the company. It increases from 43.77% to 47.64% in the year 2008
and then decreases to 37.83%.
(2) Net profit ratio

Meaning

This ratio measures the relation between the net profits and sales of
the firm. The reasonable ratio ensures adequate return to the owners.

Implication

High ratio implies that the business will withstand adverse economic
conditions of decline in selling price, rising cost of production and falling
demand of the product. Decline in the ratio implies that the proportions of
administrative as well as selling and distribution expenses have risen
considerably.

Formula

Net Profit Ratio = (Net Profit / Sales) * 100

Particulars 2007 2008 2009


Net Profit 8552.19 8542.95 4006.62
Sales 87102.58 101051.28 93812.69
Ratio 9.82% 8.45% 4.27%

Interpretation

The Net Profit has decreased drastically in the three years. Net profit in
the year 2008 is 8.45% which has decreased as compared to the year
2007 i.e. 9.82%. And then it has further decreased in year 2009 by another
4.18%.
(3) Expense ratio

Meaning

For the purpose of ascertaining relationship between operating


expenses and net sales, expense ratios are computed. Expense ratios
includes ratios like administrative expense ratio, selling expense ratio,
financial expense ratio, cost of goods sold ratio etc. These ratios over a
number of years reveal the extent to which the expenses either increase or
decrease in relation to sales.

Implication

High ratio indicates that only a small part of sales revenue is available
for meeting financial liabilities.

Formula

Expense Ratio = (Expense / Sales) * 100

Particulars 2007 2008 2009


Expense 73688.90 84876.98 86187.12
Sales 87102.53 101051.28 93812.69
Ratio 84.60% 83.99% 91.87%

Interpretation

Expense ratio is 84.60% in the year 2007. It decreases by


0.61% in the year 2008 and reaches 83.99%. It increases drastically in the
year 2009 which is very unfavorable. The expense ratio is very important
for analyzing the profitability of the firm.
(4) Operating ratio

Meaning

It is a ratio showing relationship between cost of goods sold plus


operating expenses to sales. Operating expenses include
administrative and selling and distribution expenses.

Implication

Lower the ratio, greater is the operating profit to cover the non –
operating expenses, to pay the dividend and to create reserves and vice
versa.

Formula

Operating Ratio = (Cost of Goods Sold + Operating Expenses) / Net


Profit * 100

Particulars 2007 2008 2009


Cogs + Op Exp 49661.17 60726.1 65580.9
Net Profit 82854.24 97536.54 91630.41
Ratio 67.31% 62.26% 71.57%

Interpretation

As seen in the expense ratio here as well the operating


ratio is very fluctuating.
(5) Return on capital employed

Meaning

Return on capital employed enables the management to show


whether the funds entrusted to it have been properly used or not. It
considers the long term funds employed in business supplied by the
creditors and owners both. Where the profitability of different departments
is to be compared, or when inter firm comparison is required the return on
capital employed is a useful concept.

Implication

Higher ratio suggests more efficient management and utilization of


capital employed.

Where the profitability of different departments is to be compared, or


when inter firm comparison is required the return on capital employed is a
useful concept.

Formula

Return on Capital Employed = (EBIT / Capital Employed) * 100

Particulars 2007 2008 2009


EBIT 13935.47 16958.81 12147.05
Capital 59591.42 79165.41 103620.34
Employed
Ratio 23.39% 21.42% 11.72%

Interpretation

Return on capital employed says that higher the ratio is better for the
firm. So the company will try to increase their ratio. Here, the ratio is
gradually decreasing which is not good for the company in terms of
profitability. But it still needs to achieve higher target.
(6) Return on share holder’s fund

Meaning

Profit is earned for the owners of the business due to which they are
interested in the returns they get on their money invested in the company
business. This return is measured with the help of the return on
shareholder’s fund.

Implication

This ratio indicates how profitably the funds provided by the owners
have been used in the business. Higher the ratio, more efficient is the
management and utilization of the shareholder’s fund.

Formula

Return on Shareholder’s Fund = (Equity Profit / Shareholder’s Fund) *


100

Particulars 2007 2008 2009


Equity Profit 8552.19 8542.95 4006.62
Shareholder’s 3206.18 2754.6 2754.16
Fund
Ratio 266.74% 310.13% 145.48%

Interpretation

The return on share holder fund is less in 2007.The company


had good earnings in the year 2008 but in 2009 it has again decreased a
lot which is not a good sign.
(7) Return on equity share capital

Meaning

This ratio shows the profit available to equity shareholders in relation


to the capital invested by them.

Implication

This ratio indicates profitability of the firm from the viewpoint of the
real owners of the company who are ordinary shareholders, who bear all
the risks of the business. Higher the ratio, more efficient is the
management and utilization of equity share capital.

Formula

Return on Equity Share Capital = [(Net Profit After Tax – Preference


Dividend) / Equity Capital] *
100

Particulars 2007 2008 2009


PAT – Pref. 8515.38 8506.14 3970.01
Dividend
Equity Capital 2209.45 2293.02 2294.07
Ratio 385.40% 370.96% 173.06%

Interpretation

The ratio is important as it indicates the profitability of the firm


form the point of view of the real owners who are ordinary shareholders.
The return of equity share capital was good to an extent in 2008 but it
decreased drastically in the next year in 2009.
(8) Return on equity shareholder’s fund

Meaning

The return on equity shareholder’s fund shows the profit available to


only equity shareholders in relation to the capital invested by them.

Implication

Higher the ratio, more efficient is the management and utilization of


equity shareholder’s fund.

Formula

Return on Equity Shareholder’s Fund = [(Profit After Tax –


Preference Dividend) / Equity Shareholder’s Fund] * 100

Particulars 2007 2008 2009


PAT – Pref. 8515.38 8506.14 3970.01
Dividend
Equity 3204.69 2753.11 2754.16
shareholder’s
Fund
Ratio 265.72% 308.96% 144.15%

Interpretation

The return on equity share holder fund has increased in the year
2008. The rate of diminishing is seen greatly in the year 2009.
(9) Earning per share

Meaning

This ratio measures the profit available to the equity shareholders on


per share basis. It is not the actual amount paid to the shareholders as
dividend but it is the maximum that can be paid to them.

Implication

Higher the ratio, more efficient is the management and utilization of


equity shareholder’s capital.

Formula

Earning per share = (Profit After Tax – Preference Dividend) / No. Of


Equity
Shares

Particulars 2007 2008 2009


PAT – Pref. 8515.38 8506.14 3970.01
Dividend
No. of equity 2209.45 2293.02 2294.07
shares
Ratio 3.85 3.71 1.73

Interpretation

There is a constant decrease in the EPS in all the three years,


which is not a good sign for the company as well as for the share holders.
(10) Dividend per share

Meaning

It is the proportion of actual dividend received to the earning per


share or the amount which belongs to the equity shareholders. It is
obtained by dividing the actual dividend per share by the earning per share.

Implication

This ratio indicates that, higher the return on equity and higher the
retention rate, higher will be the rate of growth in earnings the company can
sustain.

Formula

Dividend Per Share = Total Dividend Declared / No. Of Shares

Particulars 2007 2008 2009


Total Dividend 982.56 311.58 584.2
No. of shares 155.44 155.44 155.44
Ratio 6.32 2.00 3.76

Interpretation

The dividend declared has decreased in the second year but then in
the third year it has again decreased. So, company needs to increase the
dividend per share.
(11) Price earning ratio

Meaning

It shows the relation between the market price of the share and the
earnings per share. It signifies the price that is currently ruling in the market
for each rupee of earnings being made by the company per share.

Implication

The higher the price earning ratio, the better it is for the owners.

Formula

Price Earning Ratio = Market Value Per Share / Earning Per Share

Particulars 2007 2008 2009


Market Value per 233.25 242.75
Share
Earning per 3.71 1.73
Share
Ratio 62.87 140.32

Interpretation
(12) Dividend yield ratio

Meaning

The dividend yield is calculated on the basis of market value per


share. It is the percentage of dividend actually received to market value per
equity share.

Implication

Formula

Dividend Yield Ratio = (Dividend Per share / Market Value Per share)
* 100

Particulars 2007 2008 2009


Dividend per 6.32 2.00 3.76
Share
Market Value per 233.25 242.75
Share
Ratio 0.86% 1.55%

Interpretation
Activity / Turnover Ratios

(1) Overall turnover ratio

Meaning

It is calculated to get an overall idea about the overall return in


relation to capital employed. The ratio suggests how many times
company is able to turnover in relation to the capital employed.

Implication

Formula

Overall Turnover Ratio = Net Sales / Capital Employed

Particulars 2007 2008 2009


Net Sales 82854.24 97536.54 91630.41
Capital 33951.45 44883.9 66520.33
Employed
Ratio 2.44 Times 2.17 Times 1.38 Times

Interpretation

The overall turnover ratio shows a declining trend in the three years
which is beneficial for the company.
(2) Fixed assets turnover ratio

Meaning

To ascertain the efficiency and profitability of business, the total fixed


assets are compared to sales.

Implication

If this ratio is low, it indicates that investments in fixed assets is more


than what is necessary and must be reduced. Higher the ratio, there is
more effective use of the fixed assets to earn profit in the business.

Formula

Fixed Assets Turnover Ratio = Sales / Fixed Assets

Particulars 2007 2008 2009


Sales 87102.58 101051.28 93812.69
Fixed Assets 53194.71 59266.71 60202.73
Ratio 1.64 Times 1.71 Times 1.56 Times

Interpretation

The ratio increased in the year 2007.Though the company is able to


increase the ratio to a certain extent in the year 2008, it again decreases in
the year 2009.
(3) Debtors ratio

Meaning

This ratio shows the number of days taken to collect the dues of
credit sales. It shows the efficiency or otherwise of collection policy of an
enterprise.

Implication

The higher this ratio, the more unsatisfactory position it shows. It


suggests that the credit and collection policy is weak. This would result into
unsatisfactory state of working capital and weak liquid position.

Formula

Debtors Ratio = (Debtors + Bills Receivables) / Average Daily Credit


Sales

Particulars 2007 2008 2009


Debtors 13142.54 15828.89 17081.13
Credit Sales 87102.58 101051.28 93812.69
Days 365 365 365
Ratio 55 Days 57 Days 66 Days

Interpretation

(4) Debtors turnover ratio


Meaning

This ratio suggests the number of times the amount of credit sale is
collected during the year.

Implication

Higher Debtors turnover ratio implies better liquidity, as debtors make


prompt payment. Whereas, lower Debtors turnover ratio indicates poor
credit policy of the management that results into large amount of bad debts
and less profitability.

Formula

Debtors Turnover Ratio = Credit Sales / Average Debtors

OR

Debtors Turnover Ratio = No. Of Days / Debtors Ratio

Particulars 2007 2008 2009


No. of days 365 365 365
Debtor’s Ratio 55 57 66
Ratio 6.64 Times 6.40 Times 5.53 Times

Interpretation

Higher turnover ratio indicates less number of days which


suggests that the credit policy and the collection policy is efficient. The
company’s debtor’s turnover ratio has continuously decreased which is
unfavorable for the company.

(5) Creditor’s ratio


Meaning

Creditor’s ratio suggests the number of days within which we make


payment to our creditors for credit purchases.

Implication

Higher creditor’s ratio suggests quick payment policy of the firm.


Short creditor’s ratio suggests less market standing of the firm.

Formula

Creditors Ratio = (Creditors + Bills Payable) / Average Daily


Purchases

Particulars 2007 2008 2009


Creditors 5953.76 4930.47 6105.92
Credit Purchase 50060.08 54728.29 57307.48
Days 365 365 365
Ratio 43 Days 33 Days 39 Days

Interpretation

(6) Creditor’s turnover ratio


Meaning

The creditor’s turnover ratio suggests the number of credit


purchase is to be made during the year.

Implication

Formula

Creditor’s Turnover Ratio = Credit Purchase / Average Creditors

OR

Creditor’s Turnover Ratio = No. Of Days / Creditor’s Ratio

Particulars 2007 2008 2009


No. of days 365 365 365
Creditor’s ratio 43 33 39
Ratio 8.49 Times 11.06 Times 9.36 Times

Interpretation

The ratio in the year 2007 is 8.49 times which increases to 11.06
times in the year 2008 which further decreases to 9.36 times in the year
2009.

(7) Stock turnover ratio


Meaning

The ratio signifying the efficiency of sales is called the stock turnover
ratio. It shows the number of times the average stock is turned over during
the year.

Implication

Higher the turnover, the business would be more profitable. But very
high ratio is also not preferable as it would mean under – investment in
inventory which would mean that the firm is not able to meet the customer’s
demand fully. Low turnover indicates over investment in stocks.

Formula

Stock Turnover Ratio = Cost Of Sales / Average Stock

Particulars 2007 2008 2009


Cogs 48981.34 52910.47 56143.96
Avg. Stock 3172.89 3470 3578.19
Ratio 15.44 Times 15.25 Times 15.69 Times

Interpretation

From the above table we can see that the company has done well in
recent years. It shows that the company is making its stock turnover
frequently.

(8) Working capital turnover


Meaning

Implication

Formula

Working Capital Turnover = Sales / Net Working Capital

Particulars 2007 2008 2009


Sales 87102.58 101051.28 93812.69
Net Working 37839.49 66215.62 78117.55
Capital
Ratio 2.30 Times 1.53 Times 1.20 Times

Interpretation

(9) Book value per share


Meaning

Implication

Formula

Book Value Per Share = Proprietor’s Fund / No. Of Shares

Particulars 2007 2008 2009


Proprietor’s Fund 56783.81 68137.97 72050.41
No. of shares 155.44 155.44 155.44
Ratio 365.31 438.36 463.43

Interpretation

Liquidity Ratios
(1) Current Ratio

Meaning

The current ratio shows the proportion between current assets and
current liabilities.

Implication

It indicates rupees of current assets available for each rupees of


current liability. Too high ratio indicates presence of idle funds with the firm
or absence of investment opportunities. Too low ratio may indicate problem
of short term solvency.

Formula

Current Ratio = Current Assets / Current Liability

Particulars 2007 2008 2009


Current Assets 48711.25 75518.57 87956.59
Current Liability 10871.76 9302.95 9839.04
Ratio 4.48:1 8.12:1 8.94:1

Interpretation

The liquid position seems to be quite appropriate and the firm is


efficient enough in collecting the debts. The current ratio is in increasing
trend which is good for the company.

(2) Liquid ratio


Meaning

Liquid ratio is the variant of current ratio, designed to show the


amount of funds available to meet immediate payments.

Implication

Formula

Liquid Ratio = Liquid Assets / Liquid Liabilities

Particulars 2007 2008 2009


Liquid Assets 45538.36 72048.57 84378.4
Liquid Liabilities 10856.64 9264.59 9806.89
Ratio 4.19:1 7.78:1 8.60:1

Interpretation

The liquid position seems to be quite appropriate and the firm is


efficient enough in collecting the debts. The liquid ratio is in an increasing
trend.

(3) Quick / Acid Test Ratio


Meaning

The measure of absolute liquidity may be obtained by only cash


and bank balance as well as ready marketable securities with Liquid
liabilities.

Implication

Formula

Quick Ratio = Quick Assets / Liquid Liabilities

Particulars 2007 2008 2009


Quick Assets 8891.08 3882.84 4985.06
Liquid Liabilities 10856.64 9264.59 9806.89
Ratio 0.81:1 0.41:1 0.51:1

Interpretation

From the above calculations we can say that in the three years the
acid test ratio is not quite satisfactory.

Leverage Ratio
(1) Proprietary ratio

Meaning

The proprietary ratio shows the proportion of proprietor’s funds to the


total assets employed in the business. It consists of share capital and
reserves.

Implication

Higher ratio signifies stronger financial position of the enterprise that


shows that the proprietors have provided larger funds to purchase the
assets.

Formula

Proprietary Ratio = (Proprietor Fund / Net Asset) * 100

Particulars 2007 2008 2009


Proprietor fund 56783.81 68137.97 72050.41
Net Asset 111959.17 152438.21 168969.27
Ratio 50.71% 44.69% 42.64%

Interpretation

Proprietary ratio shows the financial position of the company. The


ratio in year 2007 is 50.71% and in 2008 the ratio has decreased to 44.69%
and further decreased to 42.64% in 2009 which shows that it is in
decreasing trend.

(2) Debt Equity Ratio


Meaning

The debt equity ratio establishes relationship between the outside


long term liabilities and the owner’s funds.

Implication

Higher debt equity ratio indicates that outside creditors have a larger
claim of the business. Lower ratio is not beneficial from the view point of
the company because it is not profitable from the view point of equity share
holders as benefit of trading on equity is not availed of and the rate of
equity dividend will be comparatively lower.

Formula

Debt Equity Ratio = (Long Term Liability / Shareholder’s Fund) * 100

Particulars 2007 2008 2009


Long term 30746.76 42130.79 63766.17
liability
Shareholder’s 28844.66 37034.62 39854.17
fund
Ratio 106.59% 113.76% 159.99%

Interpretation

The Debt – Equity ratio shows upward trends which shows the long
term liability are more used and the advantages of equity is taken.

(3) Capital gearing ratio


Meaning

The capital gearing ratio expresses the proportion of preference


share capital + debentures and ordinary capital.

Implication

The higher this ratio, the capital structure of this company is said to
be completely geared. Higher the ratio, more unstable will be the ordinary
shares because major shares of the profit will be absorbed by debenture
interest and preference dividend and there will be greater fluctuations in the
rate of equity dividend.

Formula

Capital Gearing Ratio = (Fixed Interest Bearing Capital/Ordinary


capital) *
100

Particulars 2007 2008 2009


Fixed interest 31206.85 42590.88 64226.26
bearing capital
Ordinary capital 2669.54 2753.11 2754.16
Ratio 1168.99% 1547.00% 2331.97%

Interpretation

Capital gearing ratio is showing an upward trend which indicates that


the equity share capital is increasing and the preference share capital is
decreasing.
(4) Long term fund to fixed assets

Meaning

This ratio shows the relationship between fixed capital and fixed
assets. This ratio should always be 1:1 or more i.e. the fixed capital must
be more than fixed assets or must at least be equal to fixed assets.

Implication

If fixed capital is less than fixed assets it implies that short term funds
have been used in purchasing fixed assets.

Formula

Long Term Fund To Fixed Assets = (Long Term Fund / Fixed Assets)
* 100

Particulars 2007 2008 2009


Long term fund 59591.42 79165.41 103620.34
Fixed assets 53194.71 59266.71 60202.73
Ratio 112.03% 133.57% 172.12%

Interpretation
Coverage Ratios

(1) Interest coverage ratio

Meaning

The interest coverage ratio indicates as to how many times the profit
covers the payment of interest on debentures and other long term loans.

Implication

Higher the ratio, more sound is the financial strength of the company.
Very high ratio shows the firm is not making proper use of outside debt.
Lower ratio indicates that the firm is using excessive debt.

Formula

Interest Coverage Ratio = PBDIT / Interest Paid

where, PBDIT stands for profit before depreciation, interest and tax.

Particulars 2007 2008 2009


PBDIT 18953.30 23560.88 17918.57
Interest paid 3106.51 4011.03 6363.61
Ratio 6.10 Times 5.87 Times 2.82 Times

Interpretation
(2) Debt service coverage ratio

The debt service coverage ratio is computed as follows

Debt Service Coverage Ratio =


EBDIT / [Interest + Principal / (1 – tax rate)]

where, EBDIT stands for earning before depreciation, interest and


tax.
Chapter : 4
Accounting Policies
and Notes
Significant Accounting Policies
(1) Basis of Accounting

(a) The financial statements are prepared under historical cost


convention, except for certain Fixed Assets which are revalued, using the
accrual system of accounting.

(b) The preparation of financial statements requires the management


of the company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the contingent
liabilities as at the date of financial statements and reported amounts of
income and expenses during the year.

(2) Fixed Assets

(a) Fixed assets are stated at actual cost, except for those fixed
assets that have been stated at revalued amounts, less accumulated
depreciation / amortisation and impairment loss, if any. The actual costs
are inclusive of all additional expenses related to the acquisition and
installation of the respective assets.

(b) The advances given for acquiring fixed assets are shown under
Capital Work in Progress which is carried at cost, comprising of direct cost,
attributable interest and related incidental expenditure.

(3) Joint Ventures for Oil and Gas Fields

In respect of unincorporated joint ventures entered into by the


Company for oil and gas exploration and production activities, the
company’s share in the assets and liabilities as income and expenditure of
Joint Venture Expenditure is accounted for. The investment in such joint
venture is treated as long term investment and carried at cost.

(4) Exploration, Development Costs and Producing Properties

The company follows the “Full Cost” method of accounting for its oil
and natural gas exploration and production activities, which in all are
treated as capital work-in-progress and are accumulated in a cost centre.
(5) Abandonment Costs

The full eventual estimated liability towards costs relating to


dismantling, abandoning and restoring well sites and allied facilities is
recognized as liability for abandonment cost.

(6) Depreciation and Amortisation

The company provides depreciation on fixed assets held in India on


written down value method and the depreciation on fixed assets held
outside India are provided by the company on straight line method.
Producing Properties are depleted using the “Unit of Production Method”.
Leasehold Land is amortised over the period of lease.

(7) Impairment of Assets

The Fixed Assets or a group of assets and Producing Properties are


reviewed for impairment at each Balance Sheet date.
(8) Investments
(a) Current Investments
Current investments are carried at lower of cost or quoted/fair value.
(b) Long Term Investments
Quoted Investment are valued at cost or market value whichever is
lower. Unquoted Investments are stated at cost. The decline in the value of
the unquoted investment, other than temporary, is provided for.
(9) Inventories
Inventories including crude oil stocks are valued at cost or net realizable
value whichever is lower. Cost of inventories comprises of all costs of
purchase, conversion and other costs incurred in bringing the inventories to
their present location and condition. Cost is determined on Weighted
Average basis.
(10) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as part of
the cost of that asset. A qualifying asset is one that necessarily takes
substantial period of time to get ready for intended use. Other borrowing
costs are recognized as an expense in the period in which they are
incurred.
(11) Excise and Customs Duty
Excise Duty in respect of finished goods lying in factory premises and
Custom Duty on goods lying in customs bonded warehouses are provided
for and included in the valuation of inventory.

(12) CENVAT/Value Added Tax


CENVAT/Value Added Tax Benefit is accounted for by reducing the
purchase cost of the materials/fixed assets.

(13) Revenue Recognition


(a) Revenue is recognized on transfer of significant risk and reward in
respect of ownership.
(b) Sale of Crude Oil and Natural Gas are exclusive of Sales Tax. Other
Sales/turnover includes sales value of goods, services, excise duty, duty
drawback and other recoveries such as insurance, transportation and
packing charges but excludes sale tax and recovery of financial and
discounting charges.
(c) Insurance, Duty Drawback and other claims are accounted for as and
when admitted by the appropriate authorities.
(d) Dividend on investments is recognized when the right to receive is
established.

(14) Foreign Currency Transactions


(a) Transactions in foreign currencies are recorded at the exchange rate
prevailing on the date of transactions. Current Assets and Current
Liabilities are translated at the yearend rate.
(b) Foreign Currency liabilities in respect of loans availed for fixed assets
and outstanding on the last day of the financial year are translated at the
exchange rate prevailing on that day and any loss or gain arising out of
such translation is recognized, as the case may be, as income or expense
for the year.
(c) Forward contracts other than those entered into to hedge foreign
currency risk on unexecuted firm commitments or of highly probable
forecast transactions are treated as foreign currency transaction and
accounted accordingly.
(d) All other derivative contracts including forward contract entered into for
hedging foreign currency risks on unexecuted firm commitments and highly
probable forecast transactions which are not covered by the existing
Accounting Standard (AS) 11, are recognized in the financial statements at
fair value as on the balance sheet date.
(15) Translation of the financial statements of foreign branch
(a) Revenue items are translated at average rates.
(b) Opening and closing inventories are translated at the rate prevalent at
the commencement and close, respectively, of the accounting year.
(c) Fixed assets are translated at the exchange rate as on the date, of the
transaction. Depreciation on fixed assets is translated at the rates used for
translation of the value of the assets to which it relates.
(d) Other current assets and current liabilities are translated at the closing
rate.

(16) Employee Benefits


(a) Short Term Employee Benefits
Short Term Employees Benefits are recognized as an expense at the
undiscounted amount in the Profit and Loss Account of the year in which
the related services are rendered.
(b) Post Employment Benefits
(I) Provident Fund
The Company contributes monthly at a determined rate for the
provident fund.
(ii) Gratuity
The Company provides for gratuity (a defined benefit retirement plan)
to all the eligible employees.
(Iii) Leave Encashment
Liability in respect of leave encashment is determined using the
projected unit credit method with actual valuations as on the balance sheet
date and gains/losses are recognized immediately in the profit and loss
account.
(17) Taxation
Income tax comprises of current tax, deferred tax and fringe benefit
tax. Provision for current income tax and fringe benefit tax is made on the
assessable income/benefits at the rate applicable to relevant assessment
year.

(18) Share Issue Expenses


Share issue expenses are written off to Securities Premium Account.
(19) Premium on Redemption of Bonds/Debenture
Premium on Redemption of Bonds/Debentures are written off to
Securities Premium Account.
(20) Research and Development
Revenue expenditure pertaining to Research and Development is
charged to revenue under the respective heads of account in the period in
which it is incurred. Capital expenditure, if any, on Research and
Development is shown as an addition to Fixed Assets under the respective
heads.
(21) Accounting for Leases
(a) Operating Leases
Rentals in respect of all operating leases are Charged to Profit and
Loss Account.
(b) Finance Leases
(I) Rentals in respect of all finance leases entered before 1st April, 2001
are charged to Profit and Loss Account.
(II) In accordance with Accounting Standard - 19 on "Accounting for
Leases" issued by the institute of Chartered Accountants of India, assets
acquired under finance lease on or after 1st April, 2001, are capitalized at
the tower of their fair value and present value of the minimum lease
payments and are disclosed as "Leased Assets".
(22) Warranty
Provision for the estimated liability in respect of warranty on sale of
consumer electronics and home appliances products is made in the year in
which the revenues are recognized, based on technical evaluation and past
experience.
(23) Prior Period Items
Prior period items are included in the respective heads of accounts
and material items are disclosed by way of notes to accounts.
(24) Provision, Contingent Liabilities and Contingent Assets
Provisions comprise liabilities of uncertain timing or amount.
Provisions are recognized when there is a present obligation as a result of
past events and it is probable that there will be an outflow of resources.
Chapter : 5
Director’s Report
The performance of the Company, on standalone basis, for the
financial year ended on 30th September, 2009 is summarized as below

(Rs. in Millions)

Particulars Year
ended
30th
Sept.,
2009
Net sales 91630.41
Other Income 340.15
Total Income 91970.56
Profit before Interest, Depreciation, Exceptional 17918.57
Items and Tax
Interest and Finance charges 6363.61
Depreciation 5771.52
Exceptional Items -
Profit before Tax 5783.44
Provision for Taxation 1776.82
Profit after Tax 4006.62
Operations

Highlights on the performance of the Company during the year


under review are summarized here as under

(1) Consumer Electronics and Home Appliances

(2) Oil and Gas

(3) Telecom

(4) Power

Appropriations

(1) Dividend

The Directors have recommended a dividend of Rs. 21 per equity


share for the financial year ended on 30th September, 2009. The dividend, if
approved by the shareholders, will entail a payout of Rs. 541.14 million
including dividend distribution tax of Rs. 78.61 million.

(2) Transfer to General Reserve

The Directors propose to transfer Rs. 1,000.00 million to the


General Reserve. An amount of Rs. 22,438.44 million is proposed to be
retained in the profit and loss account.

Fixed Deposits

The Company has never accepted any fixed deposit within the
meaning of Section 58A of the Companies Act, 1956 and as such, no
amount of principle or interest was outstanding as of the Balance Sheet
date.

Personnel

A statement of the Particulars of Employees required under Section


217(2A) of the Companies Act, 1956, read with the Companies Rules,
1988, is annexed and forms part of this Report.
Maintaining a long-term perspective is the foundation for the
Company’s Human Resource policies. Human Resource programmes are

designed with a long-term perspective and implemented with dedication

and persistence.

This Company offers diverse training programmes to its employees

according to their position to encourage learning and development.

The Company offers its employees a competitive, unique rewards


system which motivates employees to perform better by helping them to
enhance their quality of life.

Listing

The equity shares of the Company are listed on the Bombay Stock

Exchange Limited and National Stock Exchange of India Limited.

Consolidated Financial Statements

The Audited Consolidated Financial Statements, based on the


Financial Statements received from the subsidiaries, associates and joint

ventures, as approved by their respective Board of Directors, have been

prepared in accordance with the requirements of Accounting Standard 21

on Consolidated Financial Statements.


Chapter : 6
Auditor’s Report
The auditors of the company are as follows

(1) M/S khandelwal jain & co,


chartered accountants,
Mumbai
(2) M/S kadam & co,
chartered accountants,
Ahmednagar.

The auditor’s report is unqualified as the notes to the accounts


referred to in the auditor’s report are self explanatory and therefore
do not call for any further clarifications under section 217(3) of the
companies act, 1956.
Chapter : 7
Common Sized
Statement
Profit and Loss Account – Common Size

Particulars 2007 2008 2009 % % %


2007 2008 2009
Net Sales 82854.2 97536.54 91630.41 100 100 100
4
(-) Cogs 48981.3 52910.47 56143.96 59.1 54.2 61.27
4 2 5
Gross Profit 33872.9 44625.98 35486.45 40.8 45.4 38.73
8 8
(-) Operating
Expenses
Production and 8737.91 12379.60 7206.86 10.5 12.6 7.87
Exploration 5 9
Expenses
Salaries, Wages 1053.48 1158.18 1264.23 1.27 1.19 1.38
and Employee
Benefits
Manufacturing and 6791.83 7815.63 9436.94 8.20 8.01 10.30
other expenses
Interest and 3106.51 4011.03 6363.61 3.75 4.11 6.94
Financial Charges
Depreciation 5017.83 6602.07 5771.52 6.05 6.77 6.30
Total 24707.5 31966.51 30043.16 29.8 32.7 32.79
6 2 7
Other Income 1663.62 288.22 340.15 2.01 0.30 0.37
Profit Before Tax 10828.9 11669.68 5783.44 13.0 11.9 6.31
6 7 6
Provision for
Taxation
Current Tax 1232.70 1350.00 881.20 1.49 1.38 0.96
Deferred Tax 1020.18 1753.80 879.09 1.23 1.80 0.96
Fringe Benefit Tax 23.89 22.93 16.53 0.03 0.02 0.02
Profit for the year 8552.19 8542.95 4006.62 10.3 8.76 4.37
2
Excess provision 35.37 7.15 736.82 0.04 0.01 0.81
for income tax
Transfer from 530.55 - - 0.64 - -
Debenture Bonds
Balance Brought 8380.87 14516.42 20619.94 10.1 14.8 22.50
Forward 2 8
Balance Available 17498.9 23066.52 25363.38 21.1 23.6 27.68
8 2 5

Balance Sheet – Common Size

Particulars 2007 2008 2009 % % %


2007 2008 2009
SOURCE OF
FUNDS
(1)
Shareholder’s
Funds
(a) Share 2669.54 2753.11 2754.16 2.38 1.81 1.63
Capital
(b) Reserve & 54114.27 65384.86 69296.25 48.3 42.8 41.01
Surplus 3 9
(2) Share - - 950.01 - - 0.56
Application
Money Pending
Allotment /
Warrant
Subscription
(3) Deferred 2579.00 4244.30 5123.38 2.30 2.78 3.03
Tax Liability
(Net)
(4) Loan Funds
(a) Secured 33435.01 44012.54 67350.37 29.8 28.8 39.86
Loans 6 7
(b) Unsecured 19161.35 36043.40 23495.10 17.1 23.6 13.90
Loans 1 4
Total 111959.17 152438.2 168969.27 100 100 100
1
APPLICATION
OF FUNDS
(1) Fixed
Assets
(a) Gross Block 88835.65 102373.0 103191.05 79.3 67.1 61.07
3 4 6
(b) 35640.94 43106.32 42988.32 31.8 28.2 25.44
Depreciation, 3 8
Amortisation,
Impairment
(c) Net Block 53194.71 59266.71 60202.73 47.5 38.8 35.63
1 8
(2) Investments 20924.97 26955.88 30648.99 18.6 17.6 18.14
9 8
(3) Current
Assets, Loans
and Advances
(a) Inventories 13936.44 15688.64 17634.93 12.4 10.2 10.44
5 9
(b) Sundry 13142.54 15828.89 17081.13 11.7 10.3 10.10
Debtors 4 8
(c) Cash / Bank 8891.08 3882.84 4985.06 7.94 2.55 2.95
Balance
(d) Other 227.06 185.74 320.43 0.20 0.12 0.19
Current Assets
(e) Loans and 12514.13 39932.46 47935.04 11.1 26.2 28.37
Advances 8 0
48711.25 75518.57 87956.59 43.5 49.5 52.05
1 4
Current
Liabilities and
Provisions
Current 7939.54 7783.24 8537.12 7.09 5.11 5.05
Liabilities
Provisions 2932.22 1519.71 1301.92 2.62 0.99 0.77
10871.76 9302.95 9839.04 9.71 6.10 5.82
Net Assets 37839.49 66215.62 78117.55 33.8 43.4 46.23
0 4
Total 111959.17 152438.2 168969.27 100 100 100
1
Comparison of Common Size with absolute –
Profit & Loss and Balance Sheet

(1) The sales of the firm in the year 2007 was Rs. 87102.58 millions which
increased to Rs. 101051.28 millions in the year 2008 and again decreased
to Rs. 93812.69 millions in the year 2009.

(2) Due to increase in sales, there is increase in gross profit in the year
2008. In the year 2007 gross profit was Rs. 38121.24 millions, which
increased to Rs. 48140.81 millions in 2008 and in year 2009 it was Rs.
35486.45 miilions.

(3) There is increase in operating expenses from year 2007 to 2009. In


2007 it was Rs.49661.17 millions, in 2008 it was Rs. 60726.1 millions and
in 2009 it was Rs.65580.9 millions. This shows that there is increase in
expenses by the firm.

(4) The interest expenses in the year 2007 was Rs.3106.51 millions, in
2008 it was Rs.4011.03 millions and in 2009 it was Rs.6363.61 millions.
This shows that there is increase in the interest payment of the firm.

(5) In the year 2007 the net profit was Rs. 8552.19 millions, in 2008 it was
Rs. 8542.95 millions and in 2009 it was Rs. 4006.62 millions.

(6) In this common size statement of the balance sheet for three years,
shareholders fund for the year 2007 was Rs. 321068.27 millions, for 2008 it
was Rs. 68137.97 millions and for 2009 it was Rs.72050.41 millions. So
here we can say that there is an increasing trend in the shareholders fund.

(7) Loan funds amount for three consecutive years 2007, 2008 and 2009
are Rs. 52596.36 millions, Rs. 80055.94 millions and Rs. 90845.47 millions
respectively.

(8) Fixed assets of the firm have been depreciated year after year. In 2007
it was Rs. 53194.71 millions, for 2008 it was Rs. 59266.71 and for 2009 it
was Rs. 60202.73 millions.
(9) Net current assets of the firm for the year 2007 were Rs. 37839.49
millions, for 2008 it was Rs. 66215.62 millions and for 2009 it was Rs.
78117.55 millions.

(10) Total of assets and liabilities for the year 2007 amounted to Rs.
111959.17 millions, for 2008 it was Rs. 152438.21 millions and for the year
2009 it was Rs. 168969.27 millions.
Chapter : 8
Conclusion &
Findings
I have prepared this report on the basis of the information
available in the annual report of Videocon Industries Limited.
From the above report, I conclude that of Videocon Industries
Limited has a good future. The company has good technology for the
production of its products.
Total sales of the company are fluctuating from the last three years.
The amount of dividend declared by the company is also increasing
year by year. So, according to me, Videocon Industries Limited is
doing an excellent business and it is a very profitable and popular
company.

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