analysis of financial statement of hec

8/8/2019 Analysis of Financial Statement of Hec

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INTRODUCTIONINTRODUCTIONy HEC LTD. Is a Public Sector Undertaking, under Ministry of Heavy

Industry, Government of India, is a leading organization in India.y HEC was incorporated on 31.12.1958 under the

Companies Act, 1956. The company started production in the year1964. It was established under the Ministry of Industry with theprimary objective of achieving self sufficiency and self reliance in

the field of design and manufacture of equipment and machineryfor core sector, especially steel industries. It was visualized at thattime that one steel plant of one million ton capacity will be addedevery year in India, which however, did not materialize.Consequently the demand for steel making machinery was neveras high as it was expected. Hence HEC diversified its area of

operation in other core sectors like mining, railways, defense etc.Currently, the company is engaged in the manufacture and supplyof capital equipment, machine tools and spares needed for thecore sector industries namely; steel, coal, cement, power, defense,aluminum, ship building and railways etc.


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y The head office and three plants of the company are situated inRanchi, the capital of the newly formed state Jharkhand. The

company has its offices in New Delhi and Kolkata.y Capital Base: The authorized capital of the company is Rs.

500crores and the paid up capital is Rs.453.24crores.y The company has three manufacturing units and one project and

consultancy division viz.Foundry Forge Plant (FFP)

Heavy Machine Building Plant (HMBP)Heavy Machine Tool Plant (HMTP)Project Division (TKP)


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OBJECTIVE OF THE STUDYOBJECTIVE OF THE STUDY

y TO STUDY THE SYSTEM AND PROCEDURE FOLLOWED BY THECOMPANY IN FINANCE

y

y TO KNOW THE EARNING CAPACITY OF THE BUSINESSy

y TO JUDGE THE EFFICIENCY AND EFFECTIVENESS OFMANAGEMENT

y

y TO KNOW ABOUT CASH FLOWy

y TO KNOW ABOUT ACCOUNTING POLICYy

y TO KNOW THE ACTIVITIES OF A CONCERN WHICH ARE DONE INFAVOUR OF SOCIETY


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MISSION,VISION & GOALMISSION,VISION & GOALy VISIONy To be a major Heavy Engineering Company in India providing quality products and

services to the Steel, Mining, Coal, Railways and other Strategic Sectors.y

MISSIONy To acquire and maintain leading position as suppliers of quality equipment, spares,

systems & services for the Steel, Mining, Coal, Railways and other Strategic Sectors.y To make the Revival Plan sustainabley To expand business into allied areas and other priority sectors of the economy.y GOALy GROWTHy To attain substantial jump in production and bring about sustained growth to

attain production level of Rs.3000 crores by 2011-12.y

y PROFITABILITYy To provide reasonable & adequate return on capital employed, primarily through

improvement in operational efficiency, capacity utilization & productivity, in order togenerate adequate internal resources to finance the companys growth.


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y HUMAN RESOURCE PLANNING & DEVELOPMENTy To enable each employee to achieve his optimum potential,

improve his capabilities, perceive his role and responsibilities andparticipate in and contribute to the growth and success of thecompany.

y To continuously invest in human resourcesand be alive to their needs, hopes and aspirations.

y 4) CUSTOMER SATISFACTIONy To build a high degree of customer confidence by providing

increased value for his money through improved product quality,delivery, performance and customer service.

y

y 5) MODERNISATIONy To upgrade and modernize plants and equipment with the aim of

increasing availability of machines/equipment and removingbottlenecks.

y 6) TECHNOLOGYy To achieve technological excellence in operation by developmentof indigenous technology and efficient absorption and adaptation

of imported technologies to suit business needs and prioritieswith a view to providing a competitive advantage to the company.


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METHODOLOGY ADOPTEDMETHODOLOGY ADOPTEDy The study has been based on literature survey ,

conversion with the concerned authorities and the analysisof field data , recorded data and secondary data on :-

SIGNIFICANT ACCOUNTING POLICY

DIFFERENT COMPONENT OF CASH FLOW STATEMENTDIFFERENT FINAL ACCOUNTSTECHNIQUE OF FINANCIAL STATEMENT ANALYSISUNDERSTANDING THE EXISTING SYSTEM OF HANDLINGTHESE SITUATION

y


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FINANCE DEPARTMENT OF HECFINANCE DEPARTMENT OF HECy 1) FINANCE AND ACCOUNT DEPARTMENT OF HEAVY MACHINE

BUILDING PLANT (HMBP) ---y Mainly finance and account department deal with organization

function and different role of the organization. The function under theadministrative control of the general manager of the plant and under

the functional control of the director finance of the corporation he isthe financial advisor to the general manager and is responsible towatch the financial interest of the plant and report there on to thegeneral manager and director finance.

y

y FUNCTION OF THE FINANCE AND ACCOUNTS DEPARTMENT BROADLYAS UNDER--:

y a) To advice in all matter having financial implication.y b) To watch the financial interest of the project and suggest measure

for economy in expenditure and remedies against wastage in materiallabor and other expenditure.

y c) To keep the account of the project and to compile the financialstatement of accounts in accordance with statutory


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y requirement and according to the rules and procedureprescribed from time to time.

y d) To consolidate and compile the budget estimate of theproject for submission to the headquarters.

y e) To have budgetary and financial review periodically asprescribed for submission to the authorities concerned.

y f) To collect, compile cost particulars as may be prescribedfrom time to time and present the same with comment to

the management of the project and to the headquarter.y g) To secure adequate accounting control over assets,

liabilities revenue & expenses.y h) To prepare monthly trial balance periodical final accounts.y i) To prepare annual profit and loss accounts and balance

sheet for submission to management.y j) To deal with objection raised by they government audity statutory audity internal audit and dispose them off as expediously as

possible


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SECTION OF THE FINANACESECTION OF THE FINANACEDIVISIONDIVISION

Following are the section in the financedivision--:ADMINISTRATION

ESTABLISHMENT FINANCEPAY BILLSPROVIDENT FUND ACCOUNTSWORK FINANCEWORK ACCOUNTSWORK BILLSFOREIGN PAYMENTSSTORE FINANCE


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y STORE BILLS&OFF LOADING ACCOUNTSy STORE ACCOUNTSy CUSTODY STORE ACCOUNTSy STORE VERIFICATIONy BOOKS AND COMPILATIONy SALES ACCOUNTINGy CASH AND DISBURSEMENTy DATA PROCESSINGy TIME KEEPING


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SIGNIFIACANT ACCOUNTINGSIGNIFIACANT ACCOUNTINGPOLICYPOLICY

y The Financial statements have been preparedy as of a going concern on historical cost convention and on

accrual method of accounting in accordance with thegenerally accepted accounting principles.

y 2 FIXED ASSETSy Fixed assets (Other than land acquired free of cost from

State Government) are carried at the cost of acquisition orconstruction less accumulated depreciation Land acquiredfree of cost from State Government is valued of Rs.1/- peracre.

y

y 3 INVENTORY VALUATIONy i) Inventory is valued at actual /estimated cost or net

realiasable value, whichever is lower. ii) Finished goods andwork in progress are valued at actual /estimated factorycost or net realiasable value whichever is lower


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y INVESTMENTy Investment held/intended to be held over one year (i.e. being

long term ) are valued at cost less provision for diminution invalue other than temporary, while current quoted investmentsare valued at lower of cost or market value

y INVENTORYy Non moving items of stores are analysed from time to time.

Materials found surplus on physical verification are eitherdisposed off or reviewed to find out alternative uses for thesame. Loss,if any, is accounted for when it is ascertained.

y

DEFERRED REVENUE EXPENDITUREy To lump sum payment towards foreign collaboration in the

form of technical knowhow, documentation and reports forany product is treated as Deferred Revenue Expenditure,which is written off in five

y years.


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y REVENUE RECOGNITIONy i) Sales are recorded when significant risks and rewards of

ownership are transferred to the customers. Part supplies againstlong term contracts for which bills have been raised areaccounted for at contract price or provisional price. In case of dispatches for which challans and gate passes have been issuedbut bills are not raised, sales are accounted for at contract orprovisional prices as unbilled sales.

y Sales are accounted for inclusive of excise duty but exclusive of sales tax.

y PROVISION FOR WARRANTYy A provision of 0.5% on sales is made for liabilities under

contractual obligations/ warranties. Expenses onwarranties/contractual obligation are accounted for againstnatural heads in the year of incurrence.


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y DEPRECIATIONy Depreciation on fixed assets is charged on straight line method as

per the rates prescribed in the Schedule XIV of the Companies Actand in respect of additions to / deductions from the fixed assetsduring the year; depreciation is charged on prorata monthly basis.

y SUNDRY DEBTORSy This includes items billed at provisional rates pending finalization of

prices and receipt of formal orders from customers and also value

of dispatches which are unbilled after adjustment on pro-rata basisof advances/ progress payments received against the relevantcontract.


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SCHEDULE 25 NOTES ON ACCOUNTS. The accounts of the Company have been prepared on

going concern basis which is dependent on theavailability of finance and its future profitability. TheCompany continues to be a Sick Industrial Company withinthe meaning of Section 3(1)(o) of Sick IndustrialCompanies (Special Provisions) Act, 1985 with its negative

net worth.


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FINANCIAL STATEMENTFINANCIAL STATEMENT

ANALYSIS OF HECANALYSIS OF HECy Financial statement analysis is defined as the process of identifying

financial strengths and weaknesses of the firm by properly establishingrelationship between the items of the balance sheet and the profit and lossaccount.

y OBJECTIVE OF FINANCIAL STATEMENT ANALYSISy To know the efficiency of the management.y To assess the earning capacity or profitabilityy To measure the solvencyy To judge the financial strengthy To know the trend of the businessy Helpful in comparative studyy To judge the capability of payment of fixed cost bearing securities


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TOOLS/TECHNIQUE OF FINANCIAL STATEMENTANALYSIS

y COMPARATIVE STATEMENTy Statements for two or more years are placed side by side thenthese are called comparative financial statements. These statements may

be prepared for the purpose of comparing profitability with the help of figures of production, sales, expenses etc.

y COMMON SIZE STATEMENTy Statements which tell about the relationship of various item of a financial

statement with some common item. In common size income statementssales figure is taken at 100 and other figures are expressed as percentage of sale.

y TREND ANALYSISy When profitability and financial position over a series of years are studied

then it is called trend analysis. It is the most useful form of horizontalanalysis.

y RATIO ANALYSIsy Ratio analysis is expressing the relationship between various item of profit

and loss account and balance sheet. Ratio analysis is one of the mostimportant tools as it is very much helpful to know the profitability, solvencyand efficiency of the concerned.

y CASH FLOW STATEMENTy Cash flow analysis is the study of movement of cash into the organization as

well as movement of cash out of organization. cash flows into the businessthen it is called positive cash flow or cash inflow and when cash flows out of the business then it is called negative cash flow or cash outflow.


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y TREND ANALYSISy When the analysis done for the purpose of comparing the

financial statement over a period of years i.e. more than twoyears then it is called trend percentage analysis. Trendanalysis tells us the upward or downwards direction andfurther computes the percentage relationship that eachvariable bears to the same variable in the base year.

y Trend analysis is calculated from the following formulae--:y Amount of item of current year/amount of item of

base year X100y Following is the information about HEC lmt. For year

2006, 2007, 2008 , 2009.CURRENT

ASSET

2007

RS.

2008

RS.

2009

RS.Cash &bankbalance

1456.10 1077.08 5531.23

SUNDRYDEBTOR

10755.44 14529.19 20460.21

INVENTORY 12293.59 12465.39 12305.62


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y

CURRENT-ASSET

ABSOLUTE AMOUNTS TREND PERCENTAGE

2007 2008 2009 2007%

2008%

2009%

CASH & BANKBALANCE

1456.1 1077.08

5531.23 100 73.97 379.87

SUNDRYDEBTOR

10755.44

14529.19

20460.21

100 135.09 190.23

INVENT-ORIES

12293.59

12465.39

12305.62

100 101.39 100.09

total 24505.13

28071.66

38297.06

100 114.55 156.28

COMPARATIVE BALAN C E SHEETSAS AT 31 ST MAR C H 2007, 2008, AND 2009


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Working notes-:Trend percentage is calculated as follows-:1) cash and bank balancesIn the year 2008--: In the year 2009=1077.08/1456 X100 = 73.97% 5531.23/1456.10=379.87%Comment- there is overall increase in current assets over the year so is

showing the increasing trend. On the basis of such trend we can saycurrent assets may be increased in future also.

y 2) SUNDRY DEBTORy In the year 2008 In the year 2009

14529.19/10755.4 X 100 = 135.08 20460.21/10755.44 X100 =y 190.23y Comment- there is overall increase in current assets over the year so is

showing the increasing trend. On the basis of such trend we can saycurrent assets may be increased in future also.

y

y 3) INVENTORIESy In the year 2008 in the year 2009y 12465.39/12293.59 X 100=101.39 12305.62/12293.59=100.09%y Comment- there is overall decrease in current assets over the year so is

showing the decreasing trend. On the basis of such trend we can saycurrent assets may be decrease in future also.


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y DEBT-EQUITY-RATIO=LONG TERM DEBT/SHARE HOLDER FUNDSy Long term ratio=54.83; share holder fund=62719.16y Debt equity ratio=54.83/62719.16=0.000814:1

y Comment long term financial position of this company is notvery good because its debt equity ratio which is 0.000814:1 isless than 2:1 which is considered as safe company.

y TOTAL ASSET TO DEBT RATIO=TOTAL ASSET/LONG TERM ASSETy Total asset= 39807.68 ; long term asset=54.83y Total asset to debt ratio= 39807.68/54.83 =72.72:1

y Comment- total asset to debt ratio is very high higher ratio ishealthy sign because it provides security lenders for provides longterm loan to the business. There should not be very high or verylow ratio. It should be a satisfactory ratio.

y PROPRIETORY RATIO=SHAREHOLDER FUND/TOTAL ASSET ONCAPITAL EMPLOYED

y Shareholder fund=60607.89+21118.21 = 81726.16 ; total asseton capital employed=39807.68

y Propreitory ratio=81726.16/39807.68=2.05:1


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y Comment- this ratio highlights that how much proportion of shareholders fund is employed in the total assets of an enterpriseso this ratio is very important from the creditors security point of view because higher the ratio indicates the adequate safety forcreditors. So we can say proprietary ratio should have neither avery high nor a very low.

analysis of financial statement of hec

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