AN ORGANIZATIONAL STUDY ON PROFITABILITY ANALYSIS OF TRAVANCORE COCHIN CHEMICALS LTD.

Report submitted to M G University in partial fulfillment of the requirements for the award of the degree ofMASTER OF BUSINESS ADMINISTRATION

Submitted ByLIGINA JALEELReg. No. 32856 Under the guidance ofMr. Burny KunjappanASST.PROFESSORMUSALIAR INSTITUTE OF MANAGEMENT

MUSALIAR COLLEGE OF ENGINEERING AND TECHNOLOGYPATHANAMTHITTA 689 653, Kerala

MUSALIAR COLLEGE OF ENGINEERING AND TECHNOLOGYPATHANAMTHITTA

CERTIFICATE

This is to certify that this report is based on the organization study conducted by Ligina Jaleel at Travancore Cochin Chemicals Ltd. is in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION, degree program of MAHATMA GANDHI UNIVERSITY, KOTTAYAM.

Signature of the Faculty GuideSignature of the Head of Department

Signature of the Examiner

DECLARATION

I hereby declare that this project report entitled Organizational Study on Travancore Cochin Chemicals Ltd. has been prepared by me during the year 2011-13, under the guidance of Mr. Burny Kunjappan, Department of Management Studies, Musaliar College of Engineering and Technology, Pathanamthitta.

I also hereby declare that this project report has not been submitted to any other University or institute for the award of any degree or diploma.

PathanamthittaLigina JaleelDate

ACKNOWLEDGEMENT The elation and gratification of this organization study will be incomplete without mentioning all who helped me to make it possible, whose encouragement and guidance were valuable to me throughout conducting the organizational study.First and foremost I thank God Almighty for giving me the ability to do this study and make the venture a success.I express my sincere thanks to my guide Mr. K.J. Sabu (Accounts Officer) Travancore Cochin Chemicals Ltd. for providing the necessary guidelines to conduct the study at the organization. I am also thankful to all the department heads for their valuable suggestions and constructive criticism throughout the preparation of the report. I am obliged to my Guide for her valuable guidance and help throughout the completion of the study. I extend my thanks to all the lecturers and staff members of the Department of Management studies for their tireless help. Last but not the least I express my sincere gratitude to my parents and friends for their constant help and encouragement and valuable prayers motivating me mentally for the successful completion of this organization study.

Ligina Jaleel

CONTENTS

INTRODUCTION

Introduction Research problem (Statement of the problem) Significance of the study Scope of the study Objectives of the study Research Methodology (Methodology) Tools of analysis Limitations of the study

INDUSTRIAL PROFILE & COMPANY PROFILE

REVIEW OF LITERATURE

ANALYSIS AND INTERPRETATION OF DATA

FINDINGS

CONCLUSION

SUGGESTIONS

BIBLIOGRAPHY

LIST OF TABLES

1Table of Current Ratios

2Table of Liquid Ratios

3.Table of Debt Ratios

4.Table of Debt-Equity Ratios

5.Table of Proprietary Ratios

6.Table of Debt Service Coverage Ratios

7.Table of Inventory Turnover Ratios

8.Table of Debtors Turnover Ratios

9.Table of Average College period

10.Table of Net Asset Turnover Ratios

11.Table of Fixed Asset Turnover Ratios

12.Table of Working Capital Turnover Ratios

13.Table of Gross Profit Ratios

14.Table of Operating Ratios

15.Table of Cost of Goods sold Ratios

16.Table of Other Operating Expense Ratios

17.Table of Net Profit Ratios

18.Table of Return on Investment

19.Table of Return on Equity Capital

20.Table of Earnings per share

LIST OF FIGURES / CHARTS

1Current Ratios Analysis

2Liquid Ratios Analysis

3.Debt Ratios Analysis

4.Debt-Equity Ratios Analysis

5.Proprietary Ratios Analysis

6.Debt Service Coverage Ratios Analysis

7.Inventory Turnover Ratios Analysis

8.Debtors Turnover Ratios Analysis

9.Average College period Analysis

10.Net Asset Turnover Ratios Analysis

11.Fixed Asset Turnover Ratios Analysis

12.Working Capital Turnover Ratios Analysis

13.Gross Profit Ratios Analysis

14.Operating Ratios Analysis

15.Cost of Goods sold Ratios Analysis

16.Other Operating Expense Ratios Analysis

17.Net Profit Ratios Analysis

18.Return on Investment Analysis

19.Return on Equity Capital Analysis

20.Earnings per share Analysis

INTRODUCTION

INTRODUCTION In todays world there is a realization that every society has limited financial and managerial resources and those must be allocated effectively rather than wasted away. Finance being life blood of business has to be effectively managed. The profitability of every business depends on how well funds are being raised and managed for the successful performance of any business, the optimum utilization of scares financial resources especially in working capital management is closely related with the profit planning of the firm.

A developing country requires an increasing volume of investments not only in fixed assets but also in working capital. Because of the scarcity of the investable resources, the rate of growth of such an economy depends to a great extent on the effective utilization of working capital.

Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. Every business needs some amount of working capital. A new concern requires a lot of liquid funds to meet initial expenses like promotion, formation, etc, greater the size of unit, generally, larger will the requirement of working capital needed goes on increasing with the growth and expansion of business till it attains maturity.

The funds require for carrying out current operations have been variously called short term finance, short term funds and working capital. Fixed capital is that part of resources invested in fixed or profit earning asset of the business. Working capital represents that part of business, which make the business work.

The investors are interested in earning the maximum return on their investment and to maximum their wealth. A firm on the other hand needs to provide funds to finance its long term growth. By earnings we mean a companys reported profits after all expenses including depreciation, interest and taxes have been provided.

DETERMINATION OF PROFITS

The excess or revenues earned over expenses incurred for earning that revenue is known as profits. Income statement or profit and loss account is prepared to determine the profits. The determination of correct profit is of Immense significance due to the following: For correct reporting to the shareholders. For declaration of dividends, the amount and trend of earnings or profits is the starting point. For ascertaining the operating efficiency of the company. For deciding about the future expansion and growth. For ascertaining the intensive use of capital For determining credit worthiness of the firm. For ascertaining the importance of the industry in the national economy.

SOURCES OF PROFITSThe following are the main sources of earning profits:

I. Income from businessIncome from operations of the business is the main source of profits. Self-financing or sloughing back of profits depends mainly on this source of income. Generally higher the income from business, the larger would be the reserves or retained earnings.

II. Income from other sourcesOther sources refer to those sources which are allied to the main objects of the firm. Income from such subsidiary sources should be shownSeparately while preparing the income statement because of uncertainties of such Income.

III. Income from investmentsSometimes, the surplus funds of a company are invested in purchase; of outside investments, such as government securities, bonds, shares and debentures of other companies etc. income from such investments should also be shown separately.

RESEARCH PROBLEMThe project study made an attempt to analyze the profitability of the company. The study reveals the various aspects of it .Business is conducted primarily to earn profits. The amount of profit earned measures the efficiency of a business. The greater the volume of profit, the higher is the efficiency of the concern. The profit of a business may be measured and analyzed by studying the profitability of investments attained by the business. Profitability is the measure of efficiency of business. Therefore, the present study made an attempt to analyze the profitability of the company.SIGNIFICANCE OF THE STUDY It ensures that firm is able to continue its operation and that it has sufficient ability to satisfy both manufacturing short term debt and upcoming operational expenses. It focuses on three main issue come under the working capital management such as: holding cash, float and managing cash. It is useful to financial position analysis in assessing the operational efficiency of the concern.

SCOPE OF THE STUDY This study helps to understand the profitability and liquidity position of Travancore Cochin Chemicals Limited, Cochin. The study would help the industry to create awareness about their financial condition and know the strength and weakness of their financial performance. The study can provide better suggestion for improving their financial performance.

OBJECTIVES OF THE STUDY Primary objective:The primary objective of the research study is to study the impact of liquidity and profitability Analysis of TCC Ltd.

Secondary objectives:

To measure, test and evaluate the liquidity position of TCC Ltd To determine the profitability position of TCC Ltd and risk associated with it To analyze the operating efficiency of the company To analyze the financial soundness of the organization To ascertain overall performance of the company

METHODOLOGY

A comparative and analytical study is undertaken to study the impact of liquidity position and profitability of TCC Ltd. The study required data to be collected from secondary sources.

Secondary data is gathered through last 5 year annual reports from finance department of the company, books, magazines and newspapers, business journals and internet.

TOOLS OF ANAYSIS Ratio analysis.

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables.

Comparative balance sheet.

Statement showing financial data for two or more than two years, placed side by side to facilitate comparison is called Comparative balance sheet. Comparative balance sheet not only show the absolute figures of different years but also provide columns to indicate the increase or decrease in these figures from one year to another. In addition, these statements also show changes in percentage form.

Trend analysis.Trend Projection Analysis is used to find out the trend values for the coming years based on the past years trend values. The study will show the trend or direction of movement over a long period of time and from this direction one can get a better view of future trend value or the performance.

Correlation.

A measure of the strength of linear association between two variables. Correlation will always between -1.0 and + 1.0. If the correlation is positive, we have a positive relationship. If it is negative, the relationship is negative n (xy) (x) (y)r=[n x2 (x2)] [ny2 - y)2]

N = Number of valuesX = First scoreY = Second score For the purpose of profitability analysis, the profit and loss account and balance sheet of the company have been analyzed with the help of the data obtained in the financial statements, financial ratios have been calculated.

LIMITATION OF THE STUDY The study has been limited to a period of five years only and the inferences derived on period may not represent the true position of the concern. The time period provided for the study was in efficient. The market analysis was based on the feedback collected by the company. The study is mainly based on secondary data.CHAPTER SCHEME The project report consist of 5 chaptersThe first chapter is introduction and design of the study, which includes introduction, research problem, significance of the study, scope of the study, objective of the study, research methodology, tools of analysis, limitations of the study and the chapter scheme.The second chapter consists of profile of the study area which includes industry profile and company profile.The third chapter exhibits the review of literature and theoretical frame work. The fourth chapter consists of analysis and interpretation of data. The fifth chapter consists of findings, conclusion, and suggestions

INDUSTRIAL PROFILE & COMPANY PROFILE

INDUSTRY PROFILE & COMPANY PROFILEINDUSTRY PROFILEChemicals are essential to millions of consumer goods, enabling hi-tech advances in industries as diverse as aerospace, computing and telecommunications. The chemical industry comprises companies engaged in the conversion of raw materials; oil, natural gas, air, water, metals, that are then used to make a wide variety of consumer goods, as well as input for agriculture, manufacturing, construction and service industries.The chemical industry consists of company engaged in the processing and refinement of agricultural and industrial chemicals as well as gases. Chemicals are used to make a wide variety of consumer goods, besides being necessary in the agriculture, manufacturing, construction, and service industries. The European Union and the US are home to the worlds largest chemical companies.The chemical industry comprises the companies that produce industrial chemicals. Central to the modern world economy, it converts raw materials (oil, natural gas, air, water, metals and minerals) into more than 70,000 different products. These products include petro chemicals, agro chemicals, ceramics, polymers, and rubber, oleo chemicals (oil, fats, and waxes), explosives, fragrances, and flavors. The chemical industry is, thus, central to the modern world economy.The Chlor-alkali industry forms a significant part of chemical industry. The Chlor-alkali process is an industrial process for the electrolysis of sodium chloride solution (brine). Depending on the method several products beside hydrogen can be produced. If the products are separated, chlorine and sodium hydroxide are the products; by mixing, sodium hypochlorite or sodium chlorates are produced, depending on the temperature.Globally, the chemical industry is mainly concentrated in three areas of the world: Western Europe, North America, and Japan. The European community is the largest producer, followed by the US and Japan. The chemical industry, one of the largest in the US is an enterprise worth $674 billion.

INDUSTRY-GLOBAL SCENARIO If we refer back to the world chemical industries we will be astonished by the fact that use of chemicals and chemical process is started in 7000 B.C. in those early days of civilization, some artisans from Middle East refined Alkali and Limestone for producing glass. After them, people from China invented black powder which was nothing but Chemical Explosive. In 1635, different chemicals were produced for tanning in Massachusetts.But, the large scale world chemical industries with proper from and infrastructure came in to existence in 19th century. The last half of 19th century experienced tremendous advancement in the field of Organic Chemistry which gave the world chemical industry massive boost. The world chemical industry started their journey of development in real terms.In 1850, world chemical industries were managed to produce synthetic dyes which were being used in the textile industries. In 1890, production of SULPHURIC Acid, Caustic Soda and Chlorine started at a mess level by the world chemical industries. Then came to revolutionary chemical products, the first one was Rayon which was made from wood fiber and which changed the total scenario of Textile Industry. The second ones impact was even larger. It was synthetic fertilizers which led to green revolution in agriculture resulting in drastic improvement in agricultural crop yield.Chemical industry is nearly a $3 trillion global enterprise. Globally, the chemical industry is mainly concentrated in three areas of the world: Western Europe, North America and Japan. The European community is the largest producer, followed by the US and Japan.The recession had hit the chemical industry hard. Shying from a lack of demand, chemical companies shelved their growth strategies, with plants idled or running at historically low rates, company looked for avenues to streamlines operations and increase productivity. The global chemical industry is, however, recovering from the recession-hit lows.Demand for chemicals tracks global industrial production and global GDP very closely. The chemical industry was particularly affected by the weak industrial demand in the second half of 2008 and in the first half of 2009. The draw in production in the chemical industry has been almost in sync with low production in the key customer industries of housing, construction, automotive, electrical, furniture, and paper. The global Chlor-alkali industry saw improvements in pricing and production during the first half of 2010, much to the relief of major players that had watched operating rates worldwide fall to the their lowest levels in a decade after the crash of late 2008. Global caustic soda demand plummeted in the first half of 2009 after reaching record highs in late 2008.Over the past three years, the global CHLOR-alkali industry has experienced one of the most volatile periods in history. The swing from a record growth year in 2007 to the dramatic contraction in 2008 and 2009 demonstrates the risks and challenges the industry has been forced to navigate. Currently, the global industry is again on a growth path and demand is poised to surpass the peak demand period of 2007 by the end of the year. However, the recovering pattern varies by region and there are different drivers affecting the outlook for key markets. Wild the most challenging period appears to be over for now, certain risks remain. The issue of over capacity will put pressure on industry margins in some regions, while cost-advantaged derivatives will derive expansions elsewhere.Caustic soda prices are currently rising globally as tight inventories in the European and US markets support higher regional prices and pull price upwards in the regions. The tight inventories reflect the uneven demand recovery for chlorine and Caustic across regions. As trade flows have become more dynamic, caustic prices have become more globalized and supply or demand imbalances in one region affect other regions more quickly than ever before.China will continue to be the driver of global CHLOR-alkali capacity expansion, adding the most capacity. Regional demand growth, particularly in china, is expected to consume much of this regions production. The global economy recovery will stimulate demand growth for both chlorine derivatives and caustic soda.

INDUSTRY-INDIAN SCENARIOThe Chlor-alkali industry forms a significant part of the Indian chemical industry. The key chemicals in the Chlor-alkali industry are Caustic Soda Chlorine (including liquid chlorine) Soda ash Majority of soda ash is used in the glass industry which accounts for 45% of total consumption. Chemicals and soaps and detergents are other major end uses, accounting for 25% and 11% of global soda ash consumption respectively. Soda ash can also replace caustic soda in certain industries like pulp and paper, water treatment and certain sectors in chemicals.The main drivers for the expert of Alkali chemicals are Flakes of Sodium hydroxide (caustic soda), Disodium Carbonate light (soda ash), Sodium Hydroxide in Aqueous solution (soda lye) and other Disodium Carbonate. This year India has exported mainly to UAE, Sri Lanka, USA, Oman, Kenya, and Bangladesh. Indian caustic soda industry has been largely able to meet entire requirement of caustic soda in India. The Indian industry was self-sufficient in its requirement over since 1975. Caustic soda has been in the list of imports permitted under OGL particularly for actual users since 1980-81. The imports were, however, limited because of the pricing policy of the Indian industry. The capacities installed by the producers in Chinese Taipei, Indonesia, and EU (excluding France) are far higher than the requirement in their own country. Further, with the imposition of anti-dumping duties on a number of other countries, the producers in the subject countries are finding it lucrative to export top India. The excess capacities in these countries have put tremendous pressure on the producers to look for markets in these countries. Resultantly, the exporters from Chinese Taipei, Indonesia, and EU (excluding France) have quoted very low prices for export to India. It would also be relevant to point out that the producers in these countries have at times not directly offered for supplies to India, substantial volumes have been offered by traders in third countries for supply of caustic soda originating in these countries. The offers being by traders, naturally, these traders have taken can of their margins also. The prices quoted by the producers in these countries are, therefore, still lower. The petitioners believe that the prices offered are far below the associated cost of production. Thus, the exporters from Chinese Taipei, Indonesia, and EU (excluding France) have restored to dumping of caustic soda in the Indian market.The chemical industry is a significant component of Indian economy with revenues at approximately US$ 28 billion. It constitutes 6.7% of Indias GDP and 10% of total exports. The total production of caustic soda in the country during the year was around 23.26lakhs MT registering and increase of approximately 6%.

INDUSTRY-STATE SCENARIOThe chemical industry touches our lives in many different ways. Whether it is thermoplastic furniture we use or a synthetic garment we wear or a drug we consume we are inextricably linked to it. The industry is a vital part of the agricultural and industrial development in India and has key linkages with several others downstream industries such as automotive, consumer durables, engineering, food processing, etc. Keralas chemical industry improved its performance by increasing production and sales by 10 -25% and 15-20% respectively.Caustic soda is one of the basic inorganic chemicals manufactured from common salt. There are basically four products manufactured from common salt and are caustic sodas, chlorine, hydrochloric acid, and sodium hypochlorite (by-product).In Kerala only a few companies are engaged in the production of caustic soda. About 300 TPD caustic soda is produced by these companies. These are used in the manufacturing of soap, textile, plastic, etc. in the view of the high transportation cost and hazardous natural of chemicals transported, the caustic soda industry in the state is more localized and the consuming units have come nearer to the manufacturing unit. Also, because of the high transportation cost, it is not possible to export caustic soda in large volume from the state.COMPANY PROFILEINTRODUCTION TO THE COMPANYThe TCC Ltd is a state public sector undertaking owned by the Government of Kerala, situated at Udyogamandal in Cochin, the industrial belt in the state. The factory and registered office is located 20 km away from the Cochin international airport and 15km from Ernakulum Railway station. TCC is located in the banks of river Periyar, one of the finest water ways in Kerala and is recognized as an artery of costal trade and commerce. TCC is a heavy chemical industry engaged in the manufacture and marketing of caustic soda and allied chemicals.

Chairman & Managing Director : Mr. SubramanianCompany Secretary :Smt. Susan AbrahamHISTORY OF THE COMPANYIn 1950, FACT started their ammonia plant. They wanted to produce Ammonium Chlorate which is a fertilizer, using ammonia from their newly installed ammonia plant. For that they required HCl gas. Fact at that time was purely a fertilizer unit and HCl gas was a chlor alkali industry product, they wanted to install a separate chlor alkali unit for supply of HCl gas to FACT. In 1950 a joint venture was registered by fact and their technology supplies M/s. Mettur chemical and industrial corporation, under the name Travancore Mettur Chemicals (TMC). As the period was post war II, TMC could not raise sufficient fund. As the plant equipments ordered started arriving at Cochin airport, TMC could not take delivery by payment. By that time knowing that a chlor alkali industry is being installed at Udyogamandal two other companies. M/S. HIL and M/S. IRE started setting up their plants at Udyogamandal with the idea of using chlor- alkali products for their production process. TMC represented them Travancore-Cochin state Government regarding their financial problem. The Government came to know that with the closing down of TMC, two other companies at a major plant of FACT have to be shut down. So the Travancore-cochin Government gave massive financial assistance to TMC and with that company renamed as TCC (Travancore Cochin chemicals). Commercial production in 1954 is 20 tons per day production capacity. The production process employed was electro sis and the technology used was Mercury Cell Technology. TCC has been the pioneer producer of Rayon grade caustic soda in the country. The production capacity was gradually raised to 160 TDP in 1975.In 1997 TCC started a 100 TDP caustic soda plant employing membrane cell technology which is energy efficient and environment friendly Technology. The plant was supplied by M/S. Asahi Glass Company, Japan. In 2002 the capacity of AGC plant was increased to 125 TDP. In 2005 and 2006 a 25 TDP caustic soda plant each employing membrane cell technology were installed. The plant was supplied by M/S. UHDE, Germany. In 2004, TCC stopped operations of its last mercury cell plant. At present TCC has 175 TDP caustic soda production capacities employing the latest membrane cell technology.PRESENT SITUATIONTCC is the only chlor-alkali unit in Kerala. In India there are about forty chlor-alkali units as competitors. TCC owns 109 acres of land and around 690 people are working in TCC in three shifts. The plants are functioning utilizing full capacity.

LOCATIONThe Travancore-Cochin Chemicals Limited (TCC) is a State Public Sector Undertaking owned by the Government of Kerala situated at Udyogamandal in Cochin industrial belt. The factory and registered office is located 20 KMfrom the Cochin International Airport and 15 KM from the Ernakulum railway station.

MISSIONTCC is committed to supply quality chemicals at competitive prices tocustomers. Customer satisfaction, Concern for Environment and Safety are our priorities.We intend to achieve: Utmost level of conservation of all resources including energy. Cost effectiveness in all the operations. Regular up gradation of technologies used in processing. Compliance with laws and statutory regulation.

CORPORATE OBJECTIVES Produce and market chemicals and caustic soda economically and in an environmentally sound manner. To maintain optimum levels of efficiency and productivity and to secure optimum returns on investment. To maximize profits from projects taken up. To continuously upgrade the quality of human resource of the company and to promote organization development. To continuously improve the plant operational safety and to confirm statutory pollution control standards. To ensure corporate growth by expansion and diversification. To care for community around.

The Growth Stages of TCC1956- A continuous caustic fusion plant with a capacity to upgrade 20 tons of caustic soda/day was installed.1958- A chlorine liquefaction plant was added mainly to meet demand from the new DDT plant of Hindustan Insecticides Ltd, Ernakulum1960- Production of caustic soda was raised to 30 tons/day.1963- The caustic soda capacity was raised to new level of 40 TDP. The company established new units for the manufacture of sodium hydro-sulphate with rated capacity 30 TDP.1967- The capacity of caustic soda plant was raised to 60 TPD as per third stage of expansion.1970- A 60 TPD caustic soda concentration plant (CCF) was set up. 1975- Forth stage of expansion: a 100 TPD caustic soda plant was set up1976- The company set its own water pumping and purification station.1980- Export of hydrochloric acid to gulf countries1983- Installed an indigenously developed plant to recover mercury from effluents.1987- Installed hydrogen firing system in continuous caustic fusion plant.1988- Replaced graphite anodes by titanium anodes.1990- Brine De- chlorination unit commissioned.1992- Research and development department was set up1994- The company planned to set up a plant employing membrane cell technology for the production of caustic soda in collaboration with ASAHI GLASS Company of Japan with a capacity of 100 TPD.1997- The company commissioned the new membrane technology plant in July with 100MT capacity.2000- The company set up a brine purification plant.2002- Capacity of AGC plant increased from 100 TPD to125 TPD caustic soda.2005-06- Two 25 TDP each UDHE plant were installed which utilizes membrane cell technology, each making an overall capacity of 175TPD.ACHIEVEMENTS OF TCCTCC is always in the forefront to adopt and incorporate the latest technology in its plants. Several innovative and advanced technologies were implemented to achieve higher production, energy conservation, environmental control and economy in inputs. The company has been dynamic to be proactive to market and thus to come out as a profitable public sector undertaking. TCC has been bestowed with various awards for excellent performance with regard to production, productivity, energy conservation and environmental protection, which is considered as an award for commitment rather than for efficiency.1981 - Best Performance Award for Safetyin the State from Directorate of Factories & Boilers, Government of Kerala.1987 - Award for best performance in safety in India under chemical industries.1988-89- Best Pollution Control Award under group Heavy InorganicIndustries" in Kerala, fromKerala State Pollution Control Board1989 -Award for Best Performance in Safety in India under "Chemical industrial From National safety council1989-90 Prize for Productivity from Kerala State Productivity Council.1993 - Best Performance award for Energy Conservationin the State of Kerala under group "Chemical & Fertilizers above 3000 KVA" from Government of Kerala.

1994-95 - Best Performance award for the Productivity in the State of Kerala under group Large Industries from Kerala State Productivity Council.

1995-96Best Performance award for Productivity in the State of Kerala under Large Industries" from Kerala State Productivity Council.1996 - Best performance award for energy conservation in the state of Kerala under Major industries group from Energy Management Centre, Government of Kerala.1998 - Best performance award for Energy Conservation in the State of Kerala under group "Major Industries from Energy Management Centre, Government of Kerala.1998 - Performance award for Energy Conservation undergroup "Chlor-alkali Sector", Ministry of Power, and Government of India.2003 - Kerala State Energy Conservation Award (2000) in the category of large Scale Industry.2005 - National Energy Conservation award under Chlor-Alkali Sector.2006 Kerala State Energy Conservation Award.2008 - Pollution Control award from Kerala State Pollution Control Board.

DEPARTMENTAL STRUCTURE

TCC

ADMINISTRATIONPRODUCTION

MATERIALSACCOUNTSPERSONNELMARKETING

COSTINGPURCHASE

BILLSINVENTORY CONTROL

MARKETING ACCOUNTS

STORES

ESTABLISHMENT

GENERAL ACCOUNTS

CASH & FINANCE

PROVIDENT FUND

INTERNAL AUDIT

DEPARTMENTAL STRUCTUREMAJOR CUSTOMERS OF TCCTCC has large number of customers using its products far and near.CAUSTIC SODACustomers: Hindustan Newsprint Ltd, Kottayam; Travancore Rayons Ltd, Perumbavoor; FACT Ltd, Udyogamandal; HLL, Cochin; India Rare Earth Ltd, Cochin; Mysore Paper Mills Ltd; Tamil Nadu Newsprint and Paper Ltd; etc.CHLORINE Customers: Hindustan Insecticides, Cochin; Mysore Paper Mills Ltd; Kerala Minerals and Metals, Kollam; Hindustan Newsprint.HYDROCHLORIC ACID Customers: Kerala Minerals and Metals, Kollam; Kerala Chemicals and Proteins; Indian Rare Earth Ltd, Cochin; Hindustan Newsprint Ltd, Kottayam; FACT Ltd, Udyogamandal; Minerals and Rutiles Ltd; Asia Glues and Chemicals.SODIUM HYPOCHLORITEIndia Rare Earth Ltd, CochinMAJOR COMPETITORSTCC is the only chlor alkali unit in the public sector in India. Some of the major competitors are:1. Atul Ltd, Ahmedabad2. Bilt Chemicals, New Delhi3. Century Rayon, New Delhi4. Chem Fab Alkalies, Pondicherry5. Champlast Sanmat Ltd, Mumbai6. PCW Ltd, Mumbai7. Grassini Industries, Nagda, Madhya Pradesh8. Gujarat Alkalies and Chemicals, Gujarat9. Gujarat Heavy Chemicals, Ahmedabad10. Hukumchand Jute and Industries, Kolkata11. Indian Petrochemicals Corporation, Gujarat12. India Rayon and Industries, Mumbai13. Jayshree Chemicals, Orissa14. Kothari Petrochemicals, Chennai15. Saurashtra Chemicals, Gujarat16. Southern Petrochemical Industries Corporation, Chennai17. Sree Rayalaseema Alkalies and Allied Chemicals, Kurnool, Karnataka18. Tata Chemicals, Gujarat19. The Andhra Sugars, Andhra Pradesh20. The Tuticorin Alkali Chemicals and Fertilizers, TuticorinFUNCTIONAL DEPARTMENTS/DIVISIONSThere are two main divisions at TCC Production & Administration Divisions.The Administration department is classified into 4 subsidiary departments: Materials Marketing Personnel Accounts

Materials DepartmentMaterials department deals with the procurement of all materials required for the day to day functions of the company. Under materials department there are three sections1. Purchase Section This section deals with: Purchase of stock items as required by inventory control Purchase of maintenance items required by the maintenance planning and plat sections Purchasing of raw materials required for the process Purchase of bulk consumable for the process Purchase of demanded items Payment against delivery through bank

2. Stores Section - Store section deals with: Maintaining a minimum stock of items required by various departments Issuing of stock items required by various departments according to the materials requests.

3. Inventory Control Inventory Control is an essential function of stores department. It helps to reduce cost and increase profit of the organization. Codification of material is done by manager inventory control. For controlling the inventory, certain levels of inventory such as maximum, minimum and re-order level is prepared. When the stock reaches the re-order level, purchase request is made.

Marketing DepartmentMarketing department deals with sale of all the finished products. Its main functions include finding out customers, price fixation, terms of delivery and payment fixation, etc.Personnel DepartmentHuman Resource is considered as the most vital asset of an organization. TCC has a well-defined employee power. It helps the organization to perform well in the market. The functions of the Personnel department include: Identifying the training needs. Implementing the required training. Maintaining training recordsThis department is further divided into human resource, general, protection and medical departments. Accounts DepartmentThe accounts department is further sub-divided into eight subsidiaries:1. Costing Department The costing department of the company helps the management to fix the cost of production and fix the price of finished goods. Its functions include budget preparation, budgetary control and cost analysis.2. Bills section The bills section deals with maintaining all records, books of accounts, ledgers and statutory forms in connection with the purchase of all materials. The main function is to maintain sundry creditors ledger.3. Marketing Accounts section This section deals with maintenance of accounts relating to the sales of all finished goods. The main function is to maintain sundry debtors ledger.4. Establishment section This section maintains all accounts in connection with the payment of wages, salaries, overtime wages, short leave, increments, etc. of employees.5. General Accounts section This section deals with the preparation of final accounts and all the adjustment entries in connection with the preparation of final accounts.6. Cash & Finance section This section deals with the cash flow analysis, i.e., sending Cheques for collection, issue of Cheques to parties and watching the cash position all the time.7. Provident Fund The PF department maintains all accounts related with the collection of PF contribution from employees and employer, collection of voluntary PF contribution, sanctioning of such loans, etc.8. Internal Audit This section is a part of accounts department, but not under the control of accounts department. The main function of internal audit section is the verification of accounts if there is a financial commitment.FUTURE PLANS TCC is in process of setting up a power project on its own. Electricity is one of the raw materials for the company. It contributes to about 60% of the production cost. The company would like go for cheaper source of power and insulate itself from the future tariff hikes of the electric supply utility. A hydel power project is under consideration at present. Due to the high demands of the projects, the company is planning to increase the production capacity 50 tons per day. In addition to the usual products TCC is planning to produce sodium chlorite and sponge iron. These products have high demand in market. The main products of the company are hydrogen. TCC is planning supply this hydrogen to FACT. The company is also planning to start a distilled water system within the company.The IT sector of the world is developing in the fast way. TCC is going to become a part of it. The company is going to start a park and community centre with the corporation of the panchayat authority. The construction works are in progress. Two projects-hidal and coal based are under consideration at present. In 1992, the R&D of the company started working on a project to manufacture synthetic rutile along with the regional laboratories setup a pilot plant to manufacture synthetic rutile. It succeeded in developing the technology. It is now ready for commercialization and the company has proposed a plant in the district.

PROBLEMS AND CHALLENCES FACED BY THE COMPANY. TCC is a public undertaking, the political condition of the state affect the management of the company. The major decision of the company has to be approved by the Government which delays the implementation of plants and thereby causing organizational inflexibility. TCC is a heavy consumer of electricity and in recent past electricity tariff increased many folds. As the environment consciousness is very high in Kerala, it may require increase in the investment in pollution.The infrastructure of the company is obsolete compared to other.

REVIEW OF LITERATURE

REVIEW OF LITERATURETHEORETICAL OVERVIEW

Metcalf and Titard : "Analysis of financial statements a process of evaluating the relationship between component part of a financial statement to obtain a better understanding of a firm's operation and performance ".

Mycers: " Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a set of statements, and a study of the trend of these factors as shown in a series of statements '.

Andre Luiz de Souza Guimaraes conducted a study about profitability. The purpose of this study is to analyze the adequacy of a working capital management normative model, in terms of profitability, liquidity and solvency. Through an empirical and analytical research, the analysis of variance results (ANOVA) of a sample containing financial information from 621 healthcare insurance companies for the year 2006, show that different working capital structures are associated with different levels of profitability, liquidity and solvency, suggesting a preference order different from the one theorized by Fleuriet / Braga. The results indicate that a certain structure - where financial current assets exceed onerous current liabilities, and cyclical current assets exceed cyclical current liabilities - is associated with higher levels of profitability, liquidity and solvency. In addition, the study reiterates the importance of efficient management of working capital to the performance and survival of health care insurance companies. Among the most important strategic decisions of managers are those involving the financing of the company (Barton e Gordon, 1987). Nevertheless, organizational research has produced few works in this area (Mizruchi e Stearns, 1994). This study supports the notion that effective management of working capital is important for the financial health of healthcare insurers.

The integration of strategic planning to the capital budget process, with special attention to alternative working capital financing structures, may be useful for companies of all. Sizes and should not be restricted to large corporations, deserving greater attention from organizational researchers and practitioners.

Chakra Borty (2008) evaluated the relationship between. working capital and profitability of Indian pharmaceutical companies. He pointed out that there were two distinct schools of thought on this issue: according to one school of thought, working capital is not a factor of improving profitability and there may be a negative relationship between them, while according to the other school of thought, investment in working capital plays a vital role to improve corporate profitability, and unless there is a minimum level of investment of working capital, output and sales cannot be maintained - in fact, the inadequacy of working capital would keep fixed asset inoperative.

Weston and Brigham (1981) rightly notes that "the financial management profit is the test of efficiency and a measure of control, to the owners a measure of the worth of their investment, to the creditors the margin of safety, to the government a measure of taxable capacity and a basis of legislative action and to the country profit is an index of economic progress, national income generated and the rise in the standard of living", while profitability is amount come out of profit.

PROFIT

Profit is an excess of revenues over associated expenses for an activity over a period of time. Terms with similar meanings include earnings, income', and

'Margin'. Lord Keynes remarked that 'profit is the engine that drives the business enterprise'. Every business should earn sufficient profits to survive and

Grow over a long period of time. It is the index to the economic progress, improved national income and rising standard of living. No doubt, profit is the legitimate object, but it should not be over emphasized. Management should try to maximize its profit keeping in mind the welfare of the society. Thus, profit is not just the reward to owners but it is also related with the interest of other segments of the society. Profit is the yardstick for judging not just the economic, but the managerial efficiency and social objectives also.

PROFITABILITY

Profitability means ability to make profit from all the business activities of an organization, company, firm, or an enterprise. It shows how efficiently the management can make profit'by using all the resources available in the market.

According to Harward & Upton, "profitability is the 'the ability of a given investment to earn a return from its use."

However, the term 'Profitability' is not synonymous to the term 'Efficiency'. Profitability is an index of efficiency; and is regarded as a measure of efficiency and management guide to greater efficiency. Though, profitability is an important yardstick for measuring the efficiency, the extent of profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and conversely, a proper degree of efficiency can be accompanied by an absence of profit The net profit figure simply reveals a satisfactory balance between the values receive and value given. The change in operational efficiency is merely one of the factors on which profitability of an enterprise largely depends. Moreover, there are many other factors besides efficiency, which affect the profitability.

PROFIT & PROFITABILITYSometimes, the terms 'Profit' and 'Profitability' are used interchangeably. But in real sense, there is a difference between the two. Profit is an absolute term, whereas, the, profitability is a relative concept. However, they are closely related and mutually interdependent, having distinct roles in business. Profit refers to the total income earned by the enterprise during the specified period of time, while profitability refers to the operating efficiency of the enterprise. It is the ability of the enterprise to make profit on sales. It is the ability of enterprise to get sufficient return on the capital and employees used in the business operation.

As Weston and Brigham rightly notes "to the financial management profit is the test of efficiency and a measure of control, to the owners a measure of the worth of their investment, to the creditors the margin of safety, to the government a measure of taxable capacity and a basis of legislative action and to the country profit is an index of economic progress, national income generated and the rise in the standard of living", while profitability is an outcome of profit. In other words, no profit drives towards profitability .Firms having same amount of profit may vary in terms of profitability. That is why R. S. Kulshrestha has rightly stated, "Profit in two separate business concern may be identical, yet, many a times, and it usually happens that their profitability varies when measured in terms of size of investment".

PROFITABILITY ANALYSIS

Profitability analysis is a component of enterprise resource planning that allows administrators to forecast the profitability of a proposal or optimize the profitability of an existing project. Profitability analysis can anticipate sales and profit potential specific to aspects of the market such as customer age groups, geographic regions, or product types.

Profitability analysis can help key personnel in an enterprise to:

Identify the most and least profitable clients. Identify the most and least profitable products or services. Discover which sources of information offer the most reliable facts. Optimize responses to changing customer needs. Evolve the product mix to maximize profits in the medium and long term. Isolate and remedy the causes of decreasing profit margins.

PROFITABILITY RATIO Definition of 'Profitability Ratios' 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. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. Profitability ratios measure a companys ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed. Common examples of profitability ratios include return on sales, return on investment, return on equity, return on capital employed (ROCE), cash return on capital invested (CROCI), gross profit margin and net profit margin. All of these ratios indicate how well a company is performing at generating profits or revenues relative to a certain metric. Different profitability ratios provide different useful insights into the financial health and performance of a company. For example, gross profit and net profit ratios tell how well the company is managing its expenses. Return on capital employed (ROCE) tells how well the company is using capital employed to generate returns. Return on investment tells whether the company is generating enough profits for its shareholders. For most of these ratios, a higher value is desirable. A higher value means that the company is doing well and it is good at generating profits, revenues and cash flows. Profitability ratios are of little value in isolation. They give meaningful information only when they are analyzed in comparison to competitors or compared to the ratios in previous periods. Therefore, trend analysis and industry analysis is required to draw meaningful conclusions about the profitability of a company. Some background knowledge of the nature of business of a company is necessary when analyzing profitability ratios. For example sales of some businesses are seasonal and they experience seasonality in their operations. The retail industry is example of such businesses. The revenues of retail industry are usually very high in the fourth quarter due to Christmas. Therefore, it will not be useful to compare the profitability ratios of this quarter with the profitability ratios of earlier quarters. For meaningful conclusions, the profitability ratios of this quarter should be compared to the profitability ratios of similar

ANALYSIS AND INTERPRETATION OF DATA

ANALYSIS AND INTERPRETATION OF DATA Financial Analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various techniques used in analyzing financial statements, such as comparative statements, common-size statements, trend analysis, fund flow and cash flow analysis, cost volume-profit analysis and ratio analysis. Also known as analysis and interpretation of financial statements, refers to the process of determining financial strengths and weaknesses of the firm by establishing strategic relationship between the items of balance sheets, profit and loss account and other operative data. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and the financial soundness of the firm.This chapter contains the analysis and interpretation of data.

PROFITABILITY ANALYSIS OF THE TCC LTDProfitability is the net result of a large number of policies and decisions. The ratios examined thus provide some information about the way the firm operating, but the profitability ratios shows the combined effects of liquidity, asset management and debt management on operating results. In this framework report the following profitability ratios are used.Ratio AnalysisRatio Analysis is powerful tool of financial analysis. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio. Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firms financial performance.

Solvency Ratios

1. Current Ratio

Liquidity ratio

1. Liquid/Quick/Acid-Test Ratio

Leverage Ratios

1. Debt Ratio

2. Debt Equity Ratio

3. Proprietary Ratio

4. Debt Service Coverage Ratio

Activity Ratios & Turnover ratios

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Average Collection Period (Days)

4. Net Assets Turnover Ratio

5. Fixed Assets Turnover Ratio

6. Working Capital Turnover Ratio

Profitability Ratios

1. Gross Profit Ratio (%)

2. Operating Ratio (%)

3. Cost of Goods Sold Ratio (%)

4. Other Operating Expenses Ratio (%)

5. Net Profit Ratio (%)

6. Return on Investment (ROI - %)

7. Return on Equity Capital (REC - %)

8. Earnings per Share (EPS in Rs)

Liquidity ratiosThe most common ratios, which indicate the extent of liquidity or lack of it, are: (i) Current ratio (ii) Quick ratio.Current ratioCurrent ratio is calculated by dividing current assets by current liabilities. Current assetsCurrent ratio = Current liabilities

Current assets include cash and those assets that can be converted into cash within a year, such as marketable securities, debtors and inventories. Prepaid expenses are also included in current assets as they represent the payments that will not be made by the firm in the future. All obligations maturing within a year are included in current liabilities. Current liabilities include creditors, bills payable, accrued expenses, short-term bank loan, income tax liability and long-term debt maturing in the current year.The current ratio is a measure of the firms short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them. As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. Table below shows current ratios of TCC Ltd. for the study period.

Table of Current RatiosPeriod of studyCurrent AssetsCurrent LiabilitiesCurrent Ratio

2007 2008345754740.63

2008 2009363647010.77

2009 2010400748980.82

2010 2011389056790.68

2011 2012530878590.68

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of fluctuation in current ratios over the study period is shown in the Figure belowCurrent Ratio Analysis

Current Ratio Analysis

InterpretationStandard current ratio of a sound business is two and TCCs current ratio is below one in the study period. The highest ratio was 0.82 in F.Y. 2009 10 and the lowest was in F.Y. 2007 08 i.e. 0.63. Therefore, it shows that the company is suffering from inadequate working capital. That is they cannot meet their short term obligations in time. The main reason for the decrease in current ratio is that, in all the five years the current liabilities of the company are more than the current assets.Liquid RatioLiquid ratio is also known as acid-test ratio or quick ratio or near money ratio. It establishes a relationship between quick or liquid assets and liquid liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Liquid assets consist of all current assets minus inventories and prepaid expenses. Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. Prepaid expenses are not available to pay off current debts. Liquid liabilities consists of all current liabilities minus bank overdraft. The quick ratio is found out by dividing liquid assets by Liquid liabilities. Quick or Liquid AssetsQuick / Liquid / Acid Test Ratio = Quick or Liquid liabilities

Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition. Table below shows quick ratios of TCC Ltd. for the study period.

Table of Liquid RatiosPeriod of studyLiquid AssetsLiquid LiabilitiesQuick Ratio

2007 2008243954740.45

2008 2009213247010.45

2009 2010237548980.48

2010 2011302456790.53

2011 2012317678590.40

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of fluctuation in Liquid ratios over the study period is shown in Figure below.Liquid Ratio Analysis

Liquid Ratio Analysis

InterpretationLiquid ratios of TCC Ltd. over the study period were below one and therefore, it confirms that short term solvency of the firm is unsound in the study period. Higher quick ratio was in F.Y. 2010-11 and lowest was in F.Y. 2011-12.Leverage ratiosTo judge the long-term financial position of the firm, financial leverage, or capital structure ratios are calculated. The process of magnifying the shareholders return through the use of debt is called financial leverage or financial gearing or trading on equity. Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt in total financing. Leverage ratios are also computed from the profit and loss items by determining the extent to which operating profits are sufficient to cover the fixed charges. Several debt ratios may be used to analyze the long term solvency of a firm.Debt RatioThe firm may be interested in knowing the proportion of the interest bearing debt (also called funded debt) in the capital structure. It may, therefore compute debt ratio by dividing total debt by capital employed or net assets. Total DebtDebt Ratio = Net Assets or Capital Employed

Table of Debt RatiosPeriod of studyTotal DebtCapital employedDebt Ratio

2007 2008520965410.80

2008 2009535967180.80

2009 2010562163310.89

2010 2011501053930.93

2011 2012376842290.89

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of fluctuation in changes in Debt ratios over the study period is shown in the Figure below.Debt Ratio Analysis

InterpretationThe debt ratios of TCC Ltd. for the study period indicates that more than 80% of its net assets are financed by lenders or the stake of owners is quite low I the total capital employed by the company. From the creditors point of view, the trend is risky and undesirable.

Debt-Equity RatioDebt-equity ratio expresses the relationship between the external and the internal equities or that between the borrowed capital and the owners capital. Outsiders FundDebt Equity Ratio = Shareholders Fund

Shareholders funds consist of preference share capital, equity share capital, capital reserve, revenue reserve, reserve for contingencies, sinking fund for renewal of fixed assets and redemption of debentures less fictitious assets. Outsiders funds include all debt/liabilities to outsiders: long-term and short-term. The low ratio is viewed as favorable from the long-term creditors point of view. Higher ratio is unfavorable. Generally, a ratio of 1:1 is considered to be satisfactory.Debt-equity ratios of TCC Ltd. for the study period.Period of studyOutsiders fundShareholders fundDebt-Equity Ratio

2007 2008520921312.44

2008 2009535921312.51

2009 2010562121312.64

2010 2011501021312.35

2011 2012376821311.77

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of fluctuation in Debt-Equity ratios over the study period is shown in the Figure below.Debt-Equity Ratio Analysis

InterpretationThe debt-equity ratios of TCC Ltd. for the study period indicate that lenders contribution is more than 2 times of owners contribution in most of financial years. From the creditors point of view, the trend is risky and undesirable.

PROPRIETARY RATIO

It is important in determining the long term solvency of the firm. Higher the shareholders fund less is the possibility of insolvency. This ratio indicates the long term solvency extent of trading or equity, protection, available to creditors. It is the relationship between the shareholders fund and total assets.

Shareholders fundProprietary ratio = x 100 Total assets

PROPRIETARY RATIO

YEARSHAREHOLDERS FUNDTOTAL ASSETS RATIO

2007 20082131.1912516.570.17

2008 20092131.1913127.220.16

2009 20102131.1912028.200.18

2010 20112131.1911460.530.19

2011 - 20122131.1911460.530.19

PROPRIETARY RATIO

INTERPRETATIONHigher the ratio or the share of shareholders in the total capacity of the company better is the long term solvency of the company. From the analysis the proprietary ratios in an increasing trend from the year 2008 2009

Debt Service Coverage RatioDebt service coverage ratio (DSCR) measures how effectively a companys operations generated income is able to cover outstanding debt payments. The DSCR is calculated by dividing a companys total net operating revenue during a given period by its total required payments on outstanding debt in the same period. Net Operating Revenue Debt Service Coverage Ratio = Total payments on outstanding debt

DSCR values greater than one is preferable and correlates more strongly with a companys ability to repay its outstanding debts.Debt Service Coverage RatiosPeriod of studyNet Operating RevenueTotal payments outstanding on debtDebt Service Coverage Ratio

2007 200813922894.82

2008 200914767901.87

2009 201013326602.02

2010 201112317271.69

2011 201218816113.08

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Debt Service Coverage Ratios over the study period is shown in the Figure belowDebt Service Coverage Ratio Analysis

Debt Service Coverage Ratio AnalysisInterpretationDSCRs of TCC Ltd are at acceptable level for the study period.

ACTIVITY RATIOSActivity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets. These ratios are also called turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Several activity ratios are calculated to judge the effectiveness of asset utilization.INVENTORY TURNOVER RATIOInventory turnover indicates the efficiency of the firm in producing and selling its product. It is calculated by the cost of goods sold by average inventory. Cost of Goods Sold Inventory Turnover Ratio =Average Inventory

Generally, a high inventory turnover is indicative of good inventory management. A low inventory turnover implies excessive inventory levels than warranted by production and sales activities, or a slow moving or obsolete inventory.

INVENTORY TURNOVER RATIOPeriod of studyCost of goods soldAverage inventoryInventory turnover Ratio

2007 2008957010189.40

2008 20091075015047.15

2009 20101024416326.28

2010 20111145886613.23

2011 20121397119507.16

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Debt Service Coverage Ratios over the study period is shown in the Figure belowInventory Turnover Ratio Analysis

InterpretationInventory turnover ratios of TCC ltd shows a highly fluctuating trend over the study period. There are no standard norms for inventory turnover. A full assessment of adequacy of inventory level can be done only after studying the inventory level of similar firms or competitors of TCC Ltd and industry average.Debtors Turnover RatioThis ratio attempts to measure the collectability of debtors and other account receivables. It shows the rate at which the trade debts are collected. Debtors include the amount of bills receivables and book debts at the end of the accounting period. If the firm has not been able to collect the debtors within a reasonable period of time, its funds are unnecessarily locked up in receivables. Financial analysis employ two ratios to judge the quality or liquidity of debtors: Debtor turnover and average collection period. Debtors turnover is found out by dividing credit sales by average debtors.

Credit Sales Debtors Turnover Ratio = Average debtors

Table of Debtors Turnover RatiosPeriod of studyCredit SalesAverage DebtorsDebtors Turnover Ratio

2007 2008939012297.64

2008 20091206397412.39

2009 20101075211309.52

2010 20111291118946.82

2011 20121537418068.51

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of changes in in Debtors Turnover Ratios over the study period is shown in Figure belowDebtors Turnover Ratio Analysis

The average number of days for which debtors remain outstanding is called the average collection period (ACP) and can be computed as follows 360 Average collection period(ACP) = Debtors turnover

The Average collection period of TCC LtdTable of Average collection periodPeriod of studyDebtors turnoverAverage collection period(days)

2007 20087.6447

2008 200912.3929

2009 20109.5238

2010 20116.8253

2011 20128.5142

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of changes in average collection period over the study period is shown in Figure belowAverage collection period Analysis

InterpretationDebtors turnover ratios and average collection period of TCC ltd over the study period look satisfactory. But a full assessment can be done only after knowing the credit period granted by the firm and aging schedule of debtors.

Net assets Turnover RatioThe relationship between sales and net assets is called net assets turnover ratio. Sales Net Asset Turnover = Net assets

Table 10 below shows Net assets turnover of TCC Ltd for the study period .

Net Assets Turnover RatiosPeriod of studyCredit SalesAverage DebtorsDebtors Turnover Ratio

2007 2008939065541.43

2008 20091206367611.78

2009 20101075265631.64

2010 20111291155602.32

2011 20121537446573.30

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Net Assets Turnover Ratios over the study period is shown in Figure belowNet Assets Turnover Analysis

InterpretationNet assets turnover analysis of TCC Ltd. over the study period indicates an increasing trend over the years. Sales revenue is steadily increasing over years. But book value of fixed assets needs to be verified for full assessment of operating performance of the company.

FIXED ASSETS TURNOVER RATIO

This ratio indicates the extent to which the investments in fixed assets contribute towards sales. If compared with a previous year, it indicates whether the investment in fixed assets has been judicious or not. The ratio is calculated as follows.

Net SalesFixed assets turnover ratio= x 100 Fixed Assets

FIXED ASSETS TURNOVER RATIOYEARNET SALESFIXED ASSETSRATIO

2007 200811035.737998.211.38

2008 200912539.439406.431.33

2009 20109384.568558.101.10

2010 201112061.257783.041.55

2011 - 201210747.847221.631.49

FIXED ASSETS TURNOVER RATIO

INTERPRETATION

Here all fixed assets to turnover ratio are above one. That means sales are almost equal to the fixed assets. The highest ratio was 1.55 in the year 2010 2011 and the lowest was 1.10 in 2009 2010. There was an increasing trend for the past years because of increase in sales and decrease in fixed assets. We can see that increase or decrease in fixed does not results to increase or decrease in the sales.

Working Capital Turnover RatioWorking capital Turnover ratio is computed by dividing sales by net working capital. Sales Working Capital Turnover = Net current assets

Working Capital Turnover of TCC Ltd. for the study periodWorking Capital Turnover RatiosPeriod of studyCredit SalesAverage DebtorsDebtors Turnover Ratio

2007 20089390-2017-4.66

2008 200912063-1065-11.33

2009 201010752-891-12.07

2010 201112911-1789-7.22

2011 201215374-2551-6.03

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Working Capital Turnover Ratios over the study period is shown in Figure.Working Capital Turnover Ratio Analysis

Working Capital Turnover Ratio AnalysisInterpretationAll working capital turnover ratios of TCC Ltd. over the study period are negative, because of the negative working capital. Current liabilities exceed current assets in the entire study period. Even though it is fluctuating, it shows an improving trend from F.Y. 2010-11 onwards.

PROFITABILITY RATIO Definition of 'Profitability Ratios'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. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.Profitability ratios measure a companys ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed. Profitability ratios are calculated to measure the operating efficiency of the company. Generally, two major types of profitability ratios are calculated. Profitability in relation to sales. Profitability in relation to investment

GROSS PROFIT RATIOThis ratio establishes the relationship between gross profit and sales. It is calculated by using the following formula:Gross ProfitGross Profit Ratio= x 100 Net Sales

Gross Profit RatioYearGross ProfitNet SalesGross ProfitRatio

2007-081392939014.82%

2008-0914761206312.33%

2009-1013321075212.39%

2010-111231129119.53%

2011-1218811537412.23%

Average GP ratio 12.26%

Sources: annual report of the company

GROSS PROFIT RATIO

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)

INTERPRETATION As per the above table it is found that the percentages of gross profit ratio are 14.82, 12.33, 12.39, 9.53 and 12.23 respectively. Greater gross profit is shown in the year 2007-08. The average gross profit ratio is 12.26.

Operating RatioOperating ratio establishes relationship between the cost of goods sold, and the other operating expenses and sales. The other operating expenses include the cost of goods, administrative expenses, financial expenses and selling expenses.Operating CostOperating Ratio =x 100Net Sales

OrCost of goods sold + operating expensesx 100Net Sales

Operating RatiosPeriod of studyOperating costNet SalesOperating Ratio(%)

2007 200896769393103.05

2008 2009108641206390.06

2009 2010104381075297.08

2010 2011115531291189.48

2011 2012141521537492.05

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Operating Ratios over the study period is shown in Figure belowGross Profit Ratio

InterpretationThe operating ratios over the study period indicates that more than 90% of the sales have been consumed by the operating cost and only less than 10% is left to cover the interest charge, income tax payment, dividend and retention of profit as reserves. In F.Y. 2007 08 operating cost crosses the total sales revenue which is a severe condition.Expenses RatioExpenses ratio is also known as supporting ratio to operating ratio. It analyses each aspect of cost of sales and / or operating expenses in details just to find out how offer the concern is able to save or making over expenditure in respect of different items of expenses. For this, relationship of each item of expenses to sales is established. There are many expenses ratio, some of which are

Cost of goods sold Cost of Goods Sold Ratio = x 100 Net Sales

Table of Cost of Goods Sold RatiosPeriod of studyCost of Goods soldNet SalesCost of Goods Sold Ratio (%)

2007 200895709390101.92

2008 2009107501206389.12

2009 2010102441075295.28

2010 2011114581291188.75

2011 2012139711537490.87

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of changes in Cost of Goods sold Ratios over the study period is shown in Figure belowCost of Goods Sold Ratio Analysis

Other Operating Expenses Other Operating Expense Ratio = x 100 Net Sales

Selling and Administrative Expenses Ratios of TCC LtdTable of Cost of Goods Sold RatiosPeriod of studyOther Operating ExpensesNet SalesOther Operating Expenses Ratio (%)

2007 200810693901.13

2008 2009114120630.95

2009 2010194107521.80

2010 201195129110.74

2011 2012181153741.18

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of changes in Other Operating Expenses Ratios over the study period is shown in figure belowTable of Cost of Goods Sold Ratios

InterpretationThe changes of cost of goods sold ratios over the study period is same like operating ratios but other operating expenses ratios shows a highly fluctuating trends over the period. But it is less than 2% of the total sales revenue.Net Profit RatioNet Profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit ratio is calculated as Net Profit Net Profit Ratio = x 100 Net Sales

Cost of Goods Sold RatiosPeriod of studyCost of Goods soldNet SalesCost of Goods Sold Ratio (%)

2007 20082893900.30

2008 2009-28112063-2.33

2009 2010-24910752-2.32

2010 2011-47112911-3.65

2011 2012239153741.55

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Net Profit Ratios over the study period is shown in Figure below.Net Profit Ratio Analysis

InterpretationHigher the ratio of net profit to sales better is the operational efficiency of the concern. This ratio is used to measure the overall profitability and hence, it is very useful to proprietors. Net Profit ratios of TCC Ltd. over the study period shows fluctuating trend and most of F.Y. it have negative net profit.Return on Investment (ROI)The conventional approach of calculating return on investment (ROI) is to divide PAT (Profit after taxes) by investment. Investment represents pool of funds supplied by shareholders and lenders. But EBITDA (Earnings before interest, taxes, depreciation and Amortization) represents a more general indicator of firms financial performance by computing earnings from core business operations, without including the effects of capital structure, tax rates and depreciation policies, ROI of TCC Ltd is calculated based on EBITDA

EBITDA Return on Investment = Total AssetsWhere, Total Assets = Net fixed assets + Current AssetsReturn on InvestmentPeriod of studyEBITDATotal AssetsROI (%)

2007 200813921202811.57

2008 200914761146212.88

2009 201013321146111.62

2010 201112311123910.95

2011 201218811251615.03

Source: Annual Reports of TCC Ltd.(Rs. in Lakhs)A graphical representation of changes in Return on Investment over the study period is shown in Figure below.Return on Investment

InterpretationThis ratio is one of the most important ratios for checking the overall efficiency of the firm. Analysis of ROI of TCC Ltd for the study period reveals that it can maintain only an average of 12% return to the investment made over the years and level of return was at its maximum in F.Y. 2011-12.Return on Equity Capital (REC)Shareholders are the owners of the company. In a company there are two types of shareholders. Preference shareholders have a preference over ordinary shareholders in the payment of dividend and capital. They get a fixed rate divided irrespective of the amount of profit of the company. But the rate of dividend varies with the availability of profit in the case of ordinary shares, and so, they are more interested in the profitability of the company.

Net Profit after tax Preference Dividend Return on Equity Capital = Equity Share Capital (Paid-up)

Return on Equity CapitalPeriod of studyEBITDATotal AssetsROI (%)

2007 20082821311.31

2008 2009-2812131-13.19

2009 2010-2492131-11.68

2010 2011-4712131-22.10

2011 2012239213111.22

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)

A graphical representation of changes in Return on Investment over the study period is shown in Figure below.

Return on Equity Capital AnalysisInterpretationThis ratio is meaningful to the equity shareholders, and the interpretation is the higher the ratio, the better the result. Due negative net profit over most of the years in the study period, TCCs REC is not attractive to shareholders.Earnings per Share (EPS)Earnings per share is calculated by dividing the net profit after taxes and preferences divided by total number of equity shareholder. Net Profit after tax Preference Dividend Earning per share= No. of Equity Share

Earnings per SharePeriod of studyNet ProfitNo. of Equity sharesEPS

2007 20082767000213119000.13

2008 2009-2805500021311900-1.32

2009 2010-2491700021311900-1.17

2010 2011-4714300021311900-2.21

2011 201223862614.28213119001.12

Source : Annual Reports of TCC Ltd.(Rs. in Lakhs)Earnings per Share Analysis

InterpretationDue negative net profit over most of the years in the study period, TCCs EPS is not attractive to shareholders. But some clear earnings are shown in F.Y. 2007 08 and 2011 12.

Summary of Ratio AnalysisSummary of Ratio Analysis for the Study Period

Item2007-20082008-20092009-20102010-20112011-2012

Liquidity Ratios

Current Ratio0.630.770.820.680.68

Liquid/Quick/Acid-Test Ratio0.450.450.480.530.40

Leverage Ratios

Debt Ratio0.800.800.890.930.89

Debt Equity Ratio2.442.512.642.351.77

Proprietary Ratio18.3213.6110.364.709.40

Debt Service Coverage Ratio4.821.872.021.693.08

Activity Ratios

Inventory Turnover Ratio9.407.156.2813.237016

Debtors Turnover Ratio7.6412.399.526.828.51

Average Collection Period (Days)4729385342

Net Assets Turnover Ratio1.431.781.642.323.30

Fixed Assets Turnover Ratio1.101.541.441.752.13

Working Capital Turnover Ratio-4.66-11.33-12.07-7.22-6.03

Profitability Ratios

Gross Profit Ratio (%)-1.9210.884.7211.259.13

Operating Ratio (%)103.0590.0697.0889.4892.05

Cost of Goods Sold Ratio (%)101.9289.1295.2888.7590.87

Other Operating Expenses Ratio (%)1.130.951.800.741.18

Net Profit Ratio (%)0.30-2.33-2.32-3.651.55

Return on Investment (ROI - %)11.5712.8811.6210.9515.03

Return on Equity Capital (REC - %)1.31-13.19-11.68-22.1011.22

Earning per Share (EPS in Rs)0.13-1.32-1.17-2.211.12

Source: Annual Report of oTCC Ltd.(Rs. in Lakhs)

COMPARATIVE BALANCE SHEET

The 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. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of the balance sheet at the beginning and the end of the period and these changes can help in forming an option about the progress of an enterprise.

A comparative balance sheet has two columns to records the figures of the current year and the previous year. A third column is used to show the decrease or increase in figures. A fourth column may be added to giving percentage of increase or decrease. In the balance sheet the emphasis is on status in the comparative balance sheet it is on change. Comparative balance sheet shows the assets, liabilities and owners equity of business enterprises at the beginning and at the end of the accounting period with increase and decrease in the absolute data in terms of rupees and percentage. The single balance sheet focus on the financial status of the firm as on a particular date, while the comparative balance sheet focuses on the changes that have taken place in one accounting period. The changes in the balance sheet items are the result of acquisition or sale of asset change in current asset and current liabilities, issue of shares profit or loss etc.

COMPARATIVE BALANCE SHEET AS 31st MARCH 2007 2008

Particulars20072008Increase/Decrease% of Increase / Decrease

Fixed Assets (Net)63997998.211599.0224.99%

Capital work in progress1915.16942.00-973.1650.81%

Investments0.300.30--

Profit & Loss Account1384.53861.51-523.0237.76%

Current Assets and Loans & Advances2588.753376.06987.3138.14%

Total Assets1228.9313378.081090.158087%

Share capital2131.192131.19--

Reserve & Surplus----

Share holders fund2131.292131.19--

Loans: secured5092.815387.47294.665.79%

Unsecured----

Deferred Tax Liability----

Current liabilities & Provisions5063.935859.42795.4915.7%

Total liabilities12287.313378.081090.158.87%

INTERPRETATION

The current asset of the company has increased to Rs. 987.37 in the year 2007 at the rate of 38.14%, the current liability has also increased to Rs. 795.49 at a rate of 15.17% compared to the year 2006. The liquidity position of the company was found satisfactory. The fixed assets acquired by the company is Rs. 1599 lakhs at rate of 24.99% only 5.79% of fixed assets are acquired through secured loans are the remaining 19.2% is utilized from the working capital of the company. The reserves account of the company is not satisfactory as the company has not earned any profit in the year 2008.

COMPARATIVE BALANCE SHEET AS 31st MARCH 2008 2009

Particulars20082009Increase/Decrease% of Increase / Decrease

Fixed Assets (Net)7998.219406.431408.2217.61

Capital work in progress942.001.16-940.8499.88%

Investments0.302.302666.66%

Profit & Loss Account861.51813-48.515.63%

Current Assets and Loans & Advances3576.063717.35141.273.95%

Total Assets13378.0813940.22562.144.20%

Share capital2131.192131.19--

Reserve & Surplus----

Share holders fund2131.192131.19--

Loans: secured5387.476225.70838.2315.56%

Unsecured----

Deferred Tax Liability----

Current liabilities & Provisions5859.425583.33-276.094.71%

Total liabilities13378.0913940.22562.144.20%

INTERPRETATION

The current asset of the company has increased to Rs. 141.27 lakhs. Current liabilities has decreased to Rs. 276.09 Lakhs compared to the year 2007. The liquidity position of the company is satisfactory. The fixed assets acquired by the company is Rs. 1408.22 Lakhs and the secured loans are increased by Rs. 838.23 lakhs the remaining is utilized from the working capital The financial position of the company is not satisfactory.

COMPARATIVE BALANCE SHEET AS 31st MARCH 2009 2010

(Rupees in Lakhs)

Particulars20092010Increase/Decrease% of Increase / Decrease

Fixed Assets (Net)9406.438558.10-848.339.02%

Capital work in progress1.1610.579.41811.20%

Investments2.302.30--

Profit & Loss Account813785.33-27.673.40%

Current Assets and Loans & Advances3717.353457.23-260.106.10%

Total Assets13940.2212813.53-1126.698.08%

Share capital2131.192131.19--

Reserve & Surplus----

Share holders fund2131.192131.19--

Loans: secured6225.704836.46-1389.2422.31%

Unsecured-372.05372.05-

Deferred Tax Liability----

Current liabilities & Provisions5583.335473.83-109.501.96%

Total liabilities13940.2212813.53-1126.69-8.08%

INTERPRETATION The current asset of the company has increased to Rs. 260 lakhs. The current liability is decreased to Rs. 109.5 Lakhs compared to the past year. The liquidity position of the company is not satisfactory. The amount of fixed assets acquired by the company is Rs. 8558 Lakhs and the secured loans are also decreased by Rs.1389.24 lakhs. It reveals that the fixed asset are sold and loans are paid.

The reserves account of the company is not satisfactory.

COMPARATIVE BALANCE SHEET AS 31st MARCH 2010 2011(Rupees in Lakhs)Particulars20102011Increase/Decrease% of Increase / Decrease

Fixed Assets (Net)8558.107783.04-775.0690.06%

Capital work in progress10.5741.3230.75290.92%

Investments2.302.30--

Profit & Loss Account785.331065.88280.5535.72%

Current Assets and Loans & Advances3457.233636.45179.225.18%

Total Assets12813.5312528.99-284.542.22%

Share capital2131.192131.19--

Reserve & Surplus----

Share holders fund2131.192131.19--

Loans: secured4836.465267.23420.778.91%

Unsecured372.05429.4457.3915.43%

Deferred Tax Liability----

Current liabilities & Provisions5473.834701.13-772.714.12%

Total liabilities12813.5312528.99-284.542.22%

INTERPRETATION The current asset of the company has increased to Rs. 179.00 lakhs and current liabilities has decreased to Rs. 772.7 Lakhs. The liquidity position of the company is satisfactory. The fixed assets of the company is decreased by Rs. 77.06 lakhs and long term loans are increased by s. 430.77 lakhs. This shows that company use loan to maintain working capital. There is no reserve and surplus. The company have no profitability.

COMPARATIVE BALANCE SHEET AS 31st MARCH 2011 2012

(Rupees in Lakhs)

Particulars20112012Increase/Decrease% of Increase / Decrease

Fixed Assets (Net)7783.047221.63-561.417.21%

Capital work in progress41.32229.93188.61456.46%

Investments2.302.30--

Profit & Loss Account1065.881315.05249.1723.38%

Current Assets and Loans & Advances3636.454006.67370.2210.18%

Total Assets12528.9912775.58246.591.99%

Share capital2131.192131.19--

Reserve & Surplus----

Share holders fund2131.192131.19--

Loans: secured5267.235248.91-18.320.35%

Unsecured429.44497.4568.0115.845

Deferred Tax Liability----

Current liabilities & Provisions4701.134898.03196.94.19%

Total liabilities12528.9912775.58246.591.99%

INTERPRETATION The current asset of the company has increased to Rs. 370.00 lakhs in the year 2011. The current liabilities are also increased to Rs. 196.9 Lakhs. It reveals that the working capital position of the company is satisfactory. There is no money kept as reserve and surplus. The fixed assets acquired by the company decreased to Rs. 561.41. The long term loans are increased to Rs. 49.69. It reveals that the loan amount is spend for maintain working capital.

TREND ANALYSIS

Comparing the past data over a period of time with a base year is called trend analysis. Under this technique, information for a number of years taken up and one year (usually the first year) is taken as taken as the base year. Each item of the base year is taken as 100 and on that basis the percentage for the other years are calculated. The object of calculating trend percentages is to show the direction of the change upward or downward.

TREND ANALYSIS OF SALES(Rs. in lakhs)YEARSALES (Rs. in lakhs)TRENDINCREASEOR DECREASE

200810877.301000

200912320.67113.2713.27

201010850.5399.75-0.25

201113537.10124.4524.45

201211617.63106.816.81

TREND ANALYSIS OF SALES

INTERPRETATIONThe above table shows the trend of sales in the study period, it also shows a fluctuating trend. In 2008 2009 shows a increase trend, later it declined. Now company shows are increasing trend. TCC has high amount of sales in 2010 2011

TREND ANALYSIS PROFIT(Rs. in lakhs)

YEARPROFIT(Rs. in lakhs)TRENDINCREASEOR DECREASE

2008523.011000

200948.529.28-90.72

201027.675.29-94.71

2011-280.55-53.64-153.64

2012-249.17-47.64-147.64

TREND