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RATIOS ON FIXED ASSETS

INTRODUCTION

Financial management is concerned with the planning and controlling of the

firms financial resource. It is often said that the financial management has receives less

emphasis as compared to topics like production and marketing. However the task of

financial planning and on tolling will assume relative more important role than in the past

due to certain changes that have taken place or will take place in economy

DEFINITION

Financial management is an area of financial decision making harmonizing

individual motives and enterprise goals.

- western and brigham

Accounting is often referred to as the language of business. It recoards prepare

transaction taken place during the accounting period with a view to prepare financial

statements. One of the important objectives of accounting is to measure the profit of the

business and to ascertain the financial position of the business.

At the former is done through the preparation of profit and Loss account and the

letter on require the preparation of balance sheet. These statements provide vital

information to several groups of affected parties like shareholders, creditors, employees

and other like researches, economist and FINANCIAL ANALYSIS.

FIXEDASSETS

Fixed Assets are investments by an organization in an asset that are used to produce

goods or provide services.

Classification of Fixed Assets

o Tangible

o Intangible

FINANCIAL MANAGEMENT

Management emerged as a distinct financial field of study at the turn of this

Century. Many eminent persons defined it in the following ways.

VCR INSTITUTE OF MANAGEMENT STUDIES, CHITTOOR Page1


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DEFINITIONS

According to GUTHMANN AND DOUGHAL Business finance can broadly bedefined as the activity concerned with planning, rising, controlling and administering of

funds used in the business.

According to BONNEVILE AND DEWEY Financing consists in the rising,

providing and managing of all the money, capital or funds of any kind to be used in

connection with the business.

According to Prof. EZRA SOLOMAN Financial management is concerned

with the efficient use of any important economic resource, namely capital funds.

FINANCE

The word Finance comes directly from the latin word finis. Finance may be

defined as the provision of money at that time it is wanted. For example recruitment of

workers in a factory, is clearly a responsibility of the production department. In addition

to this, finance may be required either for setting up a new unit or expansion or

modernization of the present unit etc., these financial requirements may be broadly

classified as short-term finance and long-term finance.

TYPES OF FINANCE

Finance is usually divided into two categories viz., public finance and business

finance.

PUBLIC FINANCE

Public Finance is normally concern with the ways of securing money for the

conduct of government and the administration of public funds.

BUSINESS FINANCE

It involves an analysis of various means of securing money for business

enterprises and the administration of this money by individuals or voluntary association



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etc., business finance is the further sub divided into Personal Finance, Partnership

Finance and Company Finance.

MEANING OF FINANCING

Financing is the process of organizing the flow of funds so that a business firm

can carry out its objectives in the most efficient manner and meet its obligations as and

when they fall due.

MEANING OF MANAGEMENT

Management is the Art of getting the things done through others. In other words

Management is What the Managers does.

MEANING OF FINANCIAL MANAGEMENT

Financial Management is concerned with the proper Management of Financial

Resources. Thus, the finance manager must see that the funds are procured in a manner

that the risk, cost and control considerations are properly balanced in a given situation

and there is optimum utilization of funds.

EVALUATION OF FINANCIAL MANAGEMENT

Financial Management emerged as a distinct field of study at the turn of the

20th Century. Its evaluation may be divided into three broad Phases:

Traditional Phase

Transititional Phase

Modern Phase

1. THE TRADITIONAL PHASE

The traditional phase was found its first manifestation in 1897 in the book

corporate finance written by Thomas Greene. A. Typical work of the traditional phase

is the Financial policy of corporations by Arthur S. Dewing. This book discusses types

of securities, procedures used in issuing these securities etc.

2. THE TRANSITIONAL PHASE



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The transitional phase began around the early 1940s and continued through the

early 1950s. Through the nature of Financial Management during this phase was similar

to that of the transitional phase.

In this phase greater emphasis was placed on the day-to-day problems faced by a

Financial Manager in the areas of funds analysis, planning and control. A representative

work of this phase is Essays on Business by Wilfred J. Witman etc.,

3. THE MODERN PHASE

The modern phase began in the 1950s. Since the beginning of this phase, many

significant developments have occurred in the fields of capital budgeting, working capital

management, capital structure theories etc.

FINANCIAL MANAGEMENTAND SCIENCE OR AN ART?

The Financial Management is neither a pure science nor an art. It deals with

various methods and techniques which can be adopted depending on the situation of

business and purpose of the decision. As a science it uses various statistical,

mathematical models and computer applications for solving the financial problems

relating to the firm, for example, capital investment appraisal, capital structure mix,

portfolio management etc., Along with the above a Finance Manger is required to apply

his analytical skills in decision making. Hence, Financial Management is both a

science as well as an art.

NATURE OF FINANCIAL MANAGEMENT

Finance Management is now regarded both as a science and as an art. It is based

on certain fundamental theories propounded by financial experts. As a science it heavily

draws on related branches Acknowledge like economics, accounting, statistics, operations

research and decision-making.

FINANCIAL MANAGEMENT AND ECONOMICS

Financial Management is in fact an integral part of managerial economics i.e.,

economics applied to decision making. Financial management draws heavily both from



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macro and microeconomics. Macroeconomics provides the finance manager with an

insight into the general economic environment and the variables like national income,

general price level etc., which influence the business activity. Microeconomics enables

the finance manager to know how forces like elasticity of demand, supply and demand

influences the economics of a firm and its pricing policy.

FINANCIAL MANAGEMENT AND ACCOUNTING

Financial Management and Accounting are closely related and are complimentary

to each other. While accounting is concerned with recording, classifying and

summarizing financial transactions and interpreting the results thereof, financial

management is concerned with decision making and wealth maximization. In accounting

revenue is recognized based on accrual method by matching expenses with sales. In

financial management the focus is on cash flows and their timing. Accounting is

historical in nature. It records past data and hence it is objective. Financial management

looks to the future. It involves decision making in the face of uncertainty. Hence it is

subjective in nature. In the following respects, both are complimentary to each other.

Profit as determined under accounting forms the basis for computation of earning

per share, which is of vital interest to the finance manager.

Divided policy determined by the finance manager depends up on the figure of

profits ascertained under financial accounting.

Investment decision taken by the finance manager are based on information

furnished by the accounts department.

FINANCIAL MANAGEMENT AND COST ACCOUNTING

Financial Management is concerned not only with procurement of funds but also

with effective utilization. The cost data furnished by the costing department helps the

finance manager to evaluate how effectively the funds are utilized and suggest measures

to keep costs under control.

FINANCIAL MANAGEMENT AND STATISTICS



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Statistics provide detailed data for decision making. The probability theory of

statistics offers the logic for dealing with the uncertainty of future events. It enables the

finance manager to understand the variables affects decision making.

FINANCIAL MANAGEMENT AND OPERATION RESEARCH

This is a branch of quantitative science used to analyze a business situation to find

an optimal solution. For example, problems like allocation of storage space, utilization of

transport facilities, choice of inventory etc. Can be solved with the help of operation

research. Linear programming is useful in making best of scarce resources.

FINANCIAL MANAGEMENT AND DECISION MAKING

Financial management involves decision-making. The theory of decision making

deals with the processes by which expectations under conditions of uncertainty are

formed. Finance is the life a blood of an organization it is all-pervasive in nature and

affects all the activities in the organization. In fact, it is a service function to other

departments. It is closely interlinked with the other functions of production, marketing

and personal. These departments mutually exchange information for formulation of

policies and decision making. The functional managers have the freedom to take

decisions on matters pertaining to their line of activity, but they have to take intoconsiderations the financial implication involved.

In a firm with plenty of funds, financial considerations do not matter much in

formulating policies regarding production, marketing and personnel. But in a firm facing

financial difficulties, financial considerations must be given due weight in formulating

policies. The linkage between financial management and other functional areas of

management is explained below.

FINANCIAL MANAGEMENT AND PRODUCTION

Production of goods requires large amounts of working capital, for which funds

have to be procured by the finance manager. Diversification of production, changes in

production process necessitate capital expenditure, for which the finance manager should

make funds available after proper evaluation.



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FINANCIAL MANAGEMENT AND MARKETING

The success of firm depends not only on the efficient utilization of funds, but also

its marketing effort and pricing policy. The marketing manager provides the finance

manager with information as to how different prices affect the demand for products, so

that an appropriate pricing policy can be formulated based on costs estimated at different

levels of production.

FINANCIAL MANAGEMENT AND PERSONNEL MANAGEMENT

Recruitment, training and placement of staff require finance. Decisions on these

issues can only be taken after considering the financial implications involved. In the face

of ever increasing competition, heavy investments have to be made on development of

human resources. Revision of pay scales, schemes for voluntary retirement etc., require

funds on a massive scale. Hence the finance manager should identify new sources to

procure the funds required.

SCOPE OF FINANCIAL MANAGEMENT

The approach to the scope and functions of financial management is divided for

the purpose of exposition two broad categories.

The Traditional Approach

The Modern Approach

THE TRADITIONAL APPROACH

The traditional approach to the scope of Financial Management refers to its

subject matter in academic literature, in the initial stages of its evolution as a separate

branch of academic study. The term Corporation Finance was used to describe what is

now known in the academic world as Financial Management.



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The traditional approach to the scope of finance function evolved during the

1920s and 1930s and dominated academic thinking during the 1940s and through the

yearly 1950s now, it has been discarded as its suffers from serious limitations. The

weakness of the traditional approach fall into two broad categories.

Those relating to the treatment of the various topics and the emphasis attached to

them.

Those relating to the basic concepts and analytical frame work of the definitions

and scope of finance function.

THE MODERN APPROACH

Under the modern concept, finance function is concerned with the financial

activities of planning, raising, allocating, and controlling of funds and using them for

generating returns. Thus, Finance Function according to modern experts may be

classified into two groups.

Executive Finance Function

Incidental / Routine Finance Function

EXECUTIVE FINANCE FUNCTION

The executive finance function calls for administrative skills in planning and execution of

finance function. It includes the following decisions.

A. Investment Decisions

B. Finance Decisions

C. Dividend Decisions

A. INVESTMENT DECISIONS

It is concerned with the allocation of funds to both capital and current assets.

Capital assets are financed through long term funds and the current assets are financed

through short-term funds. Thus, it consists of the following.

A) CAPITAL BUDGETING



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Effective allocation of capital is one of the most important functions of the

financial management in modern times. This function involves the firms decision to

commit its funds in long-term assets. The investment in long-term assets (fixed assets)

will be quite heavy and to be made immediately but the returns will be available after a

certain period. The investment decisions of a company are commonly called as the

capital budgeting decisions are capital expenditure decisions.

B) WORKING CAPITAL MANAGEMENT

The management of current assets is known as working capital management.

Managing current assets requires more attention than managing fixed assets.

B. FINANCING DECISIONS

The second important decision to be performed by the Finance Manager is the

financing decisions broadly speaking he must decide when, where and how to acquire

funds to meet the firms investment needs. Generally, the finance manager obtained

funds through primary markets, financial institutions and, commercial banks. A proper

balance has to be kept between the fixed and non-fixed cost-bearing securities.

C. DIVIDENDS DECISIONS

The return on shareholders capital is known as Dividend. The decision of

finance manager related to the distribution of earnings to the shareholders and the amount

to be retained in the firms is termed as dividend decisions. This decisions has been

considered through which a business firms performance is measured. The share-holders,

govt., bankers and others will understand the soundness of the business through dividend

decisions. There fore, the dividend decisions have been considered as another important

decisions of the finance function.

The investment, finance and dividend decisions are inter-related to each other and

therefore, the finance manager while taking any decisions should consider the impact

from all the three angles simultaneously.



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INCIDENTAL/ROUTINE FINANCE FUNCTION

It does not require a great managerial ability to carry put finance functions. These

are chiefly clerical and are incident to the effective handling of managerial finance

functions. Some of these functions are listed below:

Supervision of cash receipts and payments.

Safe custody of securities, insurance policies etc.,

Maintenance of records.

Reporting to management etc.,

GOALS/OBJECTIVES OF FINANCIAL MANAGEMENT

The objectives of financial management are broadly classified into two categories.

Basic Objectives

Other Objectives

1. BASIC OBJECTIVES:-

Traditionally, the basic objectives of financial management are the maintenance

of liquid assets and maximization of profitability. Maintenance of liquid assets means

that the firm has adequate cash in hand to meet its obligations at all time. And

maximization of profitability can be explained in the following lines.

PROFIT MAXIMIZATION:-

The financial objective of a firms is to maximize the owners economic welfare.

There is a controversy as to how the economic welfare of owners can be maximized.

According to this approach actions that increase profits should be undertaken and those

that degrees profits should be avoided. Hence maximization of profits is regarded as an

operational criterion for maximizing the owners economic welfare. Thus, profit is the

central economic objective of any business enterprise. The objective of profit

maximization is justified on account of the following reasons.



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A human being performing any economic activity rationally aims at utility

maximization.Utility can be measured in terms of profits. Thus, the profit

maximization is justified on the ground of rationality.

The firm by pursuing its objective of profit maximization also maximizes social

economic welfare.

Profit maximizatio9n will be a motive force to acquire monopoly in the imperfect

capital markets.

However, the objective of profit maximization is subject to criticize in recent

years on the following counts:-

It is argued that profit maximization is the result of perfect competition. But, in

modern markets, there exists no perfect competitions.

In modern markets, it is regarded as immoral difficult and unrealistic.

The precise meaning of profit maximization is not clear. There is a lack of

unanimity regarding the concept of profit i.e., profit before tax or profit after tax.

It does not specify the timing of expected returns.

It does not consider the risk and uncertainty of prospective earnings.

In view of the above reasons, the traditional theory of profit maximization has

often been criticized. It has lost its relevance in the modern business environment.

Hence, the modern financial experts are suggested the maximization of wealth as the

objective of the firm.

WEALTH MAXIMIZATION

Wealth maximization means maximizing the net present worth of a course of

action. The net present worth of a course of action is the difference between the gross

present worth of benefits and the amount of investment required to achieve those

benefits.

OTHER OBJECTIVES



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Besides the above basic objectives, the following are the other objectives of financial

management.

Ensuring return on capital employed

Value addition and profitability

Growth in earning per share and price earning ratio

Efficient utilization of short-term, medium and long-term finances

Maximization of finance charges

Ensuring financial discipline in the organization

FINANCIAL FUNCTIONS

The finance functions of raising funds, investing them in assets and distributing

returns earned from assets to shareholders are respectively known as financing,

investment and dividend decisions. While performing these functions, a firm attempts to

balance cash inflows and outflows. This is called as liquidity decision.

The finance functions can be divided into three broad categories.

Investment or long-term asset mix decision

Financing or capital mix decision

Dividend or profit allocation decision

Liquidity or short-term asset mix decision

INVESTMENT DECISION

Investment or capital budgeting involves the decisions of allocation of cash or

commitment of funds to long-term assets, which would yield benefits in future. It

involves measurement of future profitability, which involves risk, because of uncertain

future. Investment proposal should therefore be evaluated in terms of both expected

return and risk. Other major aspect of investment decision is the measurement of standard

or hurdle rate against which the expected return of new investment can be compared.

FINANCING DECISIONS



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Financing decision is the second important function to be performed by the fir.

Broadly, he must decide when, where, and how to acquire funds to meet the firms

investment needs. He has to determine the proportion of debt and equity. This mix of

debt and equity is known as the firms capital structure. The financial manager must

strive to obtain the least financing mix or the optimum capital structure where the

market value of share is maximized.

DIVIDEND DECISIONS

It is the third major financial decision. The financial manager decides whether the

firm should distribute all profits, or return them, or distribute a portion and return the

balance. The optimum dividend policy should be determined where is maximizes the

markets value of the share.

LIQUIDITY DECISIONS

Current assets management, which affects firms liquidity, is yet another finance

function in addition to the management of long-term assets. Current assets should be

managed effectively safeguarding the firm against the dangers of liquidity and

insolvency.

Investment in current assets affects the profitability, liquidity, and risk. A conflict

exists between profitability and liquidity while managing current assets. If the firm

doesnt invest sufficient funds in current assets it may. Become illiquid. But it could lose

profitability, as idle CA would not earn anything. Thus a proper takeoff must be achieved

between profitability and liquidity.

GOALS OF FINANCIAL MANAGEMENT

Maximize the value of the firm to its equity shareholders. This means that the

Goals of the firm should be to maximize the market value of its equity shares (Which

represent the value of the firm to its equity shareholders)

Investment Planning

Financial Structure



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Treasure Operations

Foreign Exchange

Investor Communication



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INDUSTRY PROFILE

India is the worlds second largest producer of food next to China, and has the

potential of being the biggest with the food and agricultural sector. The total food

production in India is likely to double in the next ten years and there is an opportunity for

large investments in food and food processing technology, skills and equipment,

especially in the areas of canning, dairy and food processing, specialty processing,

packaging, frozen food /refrigeration and thermo processing. Fruits and vegetables,

fisheries, milk and milk products, meet and poultry, packaged/convenience foods,

alcoholic beverages and soft drinks and grains are important sub sectors of the food

processing industry. Health food and health food supplements are another rapidly rising

segment of this industry which is gaining vast popularity amongst the health conscious.

India is one of the worlds major food producers but accounts for

less than 1.5 percent of international food trade. This indicates vast scope for both

investors and exporters. Food exports in 1998 stood at US dollars 5.8 billion whereas the

world total was US dollars 438billions. The Indian food industries sales turnover is Rs

140,000 crore (1crore=10 million) annually as at the start of year 2000. The industry has

the highest number of plants approved by the US food and Drug Administration (FDA)

outside the USA.Indias food processing sector covers fruit and vegetables; meat

and poultry; milk and milk products alcoholic beverages, fisheries, plantation, grain

processing and other consumer product groups like confectionery, chocolates and cocoa

products, Soya-based products, mineral water, high protein foods etc.

The most promising sub-sectors includes-soft-drink bottling,

Confectionery manufacture, Fishing, Aquaculture, Grain-milling and grain-based

products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato

paste, Fast-food, Ready-to-eat breakfast cereals, Food additives, flavors etc.

FOOD PROCESSING MARKET IN INDIA IN 2012-2013

India is one of the worlds major food producers but accounts for less than 1.5 per

cent of international food trade. This indicates vast scope for both investors and



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exporters. Food exporters in 1998 stood at US $ 5.8 billion whereas the world total was

US $438billion.

The Indian food industrys sales turnover is Rs 140,000crore (1crore=10 million)

annually as at the start of year 2000.

The industry requires about Rs 29,000 crore in investment over the next five years

to 2005 to create necessary infrastructure, expand production facilities and state-of-the-

art-technology to match the international quality and standards.

The office of the Agricultural Affairs of the USDA/Foreign Agricultural Services

in New Delhi says that one of Indias proudest accomplishments has been achieving a

tenuous self-sufficiency in food production and that the country produces a wide variety

of agricultural products at prices that ate at or below world values in most cases.

The Indian palate is accustomed to traditional foods, mostly wheat and rice based,

rather than potato and corn-based western palate. In marketing perspective, this is

considered an important factor for foreign marketers.

The USDA reports says initials consumer-ready food products may have to be

tailored to include Indian spices and traditional ingredients. In addition to traditional

tastes, there are other social factors which affect consumption in India. Hindus account

for approximately 80 per cent of Indias population, and while only 25 or 30 per cent arestrict vegetarians, beef slaughter is prohibited in all but two states (Kerala and Bengal)

and consumption of other meats is limited. Incidentally, India is the only country where

the US-base Mac Donalds sells its burgers without any beef content and offers purely

vegetarian burgers.

Indias middle class segment will hold the key to success or failure of the

processed food market in India. Of the countrys total population of one billion, the

middle class segments account for about 350-370 million. Though a majority of families

in this segment have non-working housewives or can afford hired domestic help and thus

prepare foods of their taste in their own kitchens, the profile of the middle class is

changing steadily and hired domestic help is becoming costlier. This is conducive to an

expansion in demand for Ready-to-eat Indian-style foods..



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Indias food processing sector covers fruit and vegetables; meat and poultry; milk

and milk products, alcoholic beverages, fisheries, plantation, grain processing and other

consumer product groups like confectionery, chocolates and cocoa products, Soya-based

products, mineral water, high protein foods etc.

According to latest official statistics, India exported processed fruits and

vegetables worth Rs 5240 million in 1997-98. The horticulture production is around 102

million tones. Foreign investment since 1991, when economic liberalization started, stood

at Rs 8,800crore. Products that have growing demand, especially in the Middle East

countries include pickles, chutneys, fruit pulps, canned fruits, and vegetables,

concentrated pulps and juices, dehydrated vegetables and frozen fruits and vegetables.

Another potential processed food product is meat and poultry products. Indiaranks first in world cattle population, 50 per cent of buffalo population and one-sixth of

total goat population of the world. Buffalo meat is surplus in India. There is vast scope to

set up modern slaughter facilities and cold store chains in meat and poultry processing

sector. Indias current level of meat and meat-based exports is around Rs 8,000 million.

In last six years foreign investment in this segment stood at Rs 5,000 million which is

more than 50 per cent of the total investment made in this sector

There are about 15 pure line and grandparent franchise projects in India. There

are 115 layer and 280 broiler hatcheries producing 1.3 million layer parents and 280

million broiler parents. They in turn supply 95 million hybrid layer and 275 million

broilers, day old chick. Presently there are only five egg powder plants in India which is

considered insufficient in view of growing export demand for different kind of powder-

whole egg, yolk and albumen. The scope of foreign investment and state-of-the-art

technology in this field is therefore tremendous.

Milk and milk products is rated as one of the most promising sectors which

deserves foreign investment in big way. When the world milk production registered a

negative growth of 2 per cent, India performed much better with 4 per cent growth. The

total milk production is around 72 million tones and the demand for milk is estimated at

around 80 million tones. By 2008, the value of the Indian dairy produce is expected to be

Rs 1,000,000 million. In last six years foreign investment in this sector stood at Rs 3600



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million which is about one-fourth of total investment made in this sector. Manufacture of

casein and lactose, largely being imported presently, has good scope. Exports of milk

products have been decanalised.

Grains could emerge as a major export earner for India in coming years. Indias

food grains production is now at around 225-230 million tones. These include rice, jawar,

bajra, maize, wheat, gram and pulses. Indian basmati rice enjoys command in the

international market. Besides growing Middle East market for basmati rice, many other

countries are showing interest for this food grains. In 1998-99 export of basmati and non-

basmati rice stood at Rs 6200 million. There is a total rice milling capacity of

186milliontones in the country.

Among plantation, tea emerged as major foreign exchange earner. India is thelargest producer and exporter of black tea. However, the most worrying factor for Indian

tea industry is that form early next year with the implementation of tea imports into the

country, India tea may face a stiff competition within the country as well, specially threat

of SriLankas presence in the Indian market is looming large.

The current years tea export prospect is not that very good in terms of forex

earnings because international prices have fallen significantly this year. An India export

between

150-170millionkilogramss of tea per annum. Of course, the scope of foreign

investment in this sector is good and the multinational tea companies would either be

trying for marketing joint ventures with the Indian producers or acquire stakes in Indian

tea companies. There is strong possibility of third country exports through such joining

ventures as quality wise still Indian teas are ruling the international market.

Alcoholic beverages are another are where India witnessed substantial foreign

investment. Foreign investment in this sector stood at Rs 7000 million which about 70

percent of the total investment made so far. The IMFL (Indian Made Foreign Liquor)

primarily comprises wine, vodka, gin, whisky, rum and brandy. Draught beer is a

comparatively recent introduction in the Indian market. The Indian beer market is

estimated at Rs 7000 million a year. One of the major advantages for any investor eyeing



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the Indian liquor market is that India offers enough raw materials like molasses, barely,

maize, potatoes, grapes, yeast and hops for the industry.

Yet another catchy investment sector is fisheries. There is growing canned

and processed fishes from India. The marine fish include prawns, shrimps, tuna,

cuttlefish, squids, octopus, red snappers, ribbon fish mackerel, lobsters, cat fish etc. in

last six years there was substantial investment is fisheries to the tune of Rs 30,0000

million of which foreign investments were of the order of Rs 7000 million. The potential

could be gauged by the fact that against fish production potential in the Exclusive

Economic Zone of 3.9 million tones, actual catch is to tune of 2.87 million tones.

Harvesting from inland sources is around 2.7 million tones.

The biggest bottleneck in expanding the food processing sector, in terms ofboth investment and exports, is lack of adequate infrastructure.

Without a strong and dependable cold chain vital sector like food processing

industry which is base mostly on perishable products cannot survive and grow. Even at

current level of productions, farm produce valued at Rs 70,000 million is being wasted

every year only because there is no adequate storage, transportation, cold chain facilities

and Cold chain facilities are miserably inadequate to meet the increasing production of

various perishable products like milk, fruits, vegetables, poultry, fisheries etc.

Prevention of Food Adulteration laws is not only stringent one but time

consuming also. It is considered as an archaic and no industry friendly food law. It

substantial varies from Codex standard. Hormonization of multiple food laws is an urgent

necessity.

Indian Food processing in the year of 2009

The Indian food processing market is one of the largest in terms of

production, consumption, and export and import prospects. Since India is one of the

major food producers worldwide, with new reforms, it presents exciting opportunities for

commercial openings for a wide range of investors across the globe.

RNCOS report, Indian Food Processing (2009), provides research and

objective analysis on the Food Processing Industry in India. This report helps clients to

analyze the opportunities critical to the success of the food processing industry in India.



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India Food Processing Industry

This section analyses the performance of the Indian food processing

industry. Currently, processed food accounts for merely 2% of total food production in

India, which is very low as compared to the western countries. Taking market forces such

as rising income level and changing consumer behavior due to rapid economic growth

into consideration, it is expected to reach a growth rate of 10% in 2010 and 25% in 2020.

in food processing sector, dairy products (includes milk, Ethnic sweets etc) and packed

food provides immense opportunities for investment.

Key Findings

Currently the Indian food processing industry is basically export oriented.

Although domestic consumption of processed food is low but it is fast picking up with

rising income levels and changing consumer behavior due to economic growth.

Indian processed food industry provides competitive advantages over other

countries due to cheap workforce, government initiatives (tax holidays) and availability

of raw materials.

Existence of untapped large consumer base with rising income levels. Indian

food processing level as compared to countries like USA, France and Malaysia continues

to remain very low. However, with the emerging positive market forces, it is all set toboom.

Food Processing Industries in India as per July 2013

The Indian food industry is estimated to be worth over US$ 200 million and

according to the Confederation of Indian Industry (CII) is expected to grow to USS 310

billion by 2015. India is one of the worlds major food producers but accounts for less

than 1.5 per cent of international food trade. This indicates vast scope for both investors

and exporters.

India is the worlds second largest producer of food next to China, and has the

potential of being the biggest with the food and agricultural sector. In this respect, the

country is endowed with a large production base for a variety of raw materials covering

food crops, commercial crops and fibers due to its varied agro-climate conditions.



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Also, India has the highest number of plants approved by the US Food and Drug

Administration FDA) outside the USA.

Important sub sectors in food processing industries are:- Fruit and Vegetable

Processing. Fish-processing, Milk processing, Meat and Poultry Processing,

Packaged/Convenience Foods, Alcoholic beverages and Soft drinks and Grain processing

etc.

Policy Initiatives

The Government has formulated and implemented several schemes to provide

financial assistance for setting up and modernizing of food processing units, creation of

infrastructure, support for research and development and human resource development in

addition to other promotional measures to encourage the growth of the processed food

sector.

The Centre has permitted under the Income Tax Act a deduction of 100 percent of

profit for five years and 25 per cent of profit in the next five years in case of new agro

processing industries set up to package and preserve fruits and vegetables.

Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise

duty on meat, poultry and fish products has been reduced from 16 percent to 8

percent. Most of the processed food items have been exempted from the purview of

licensing under the Industries (Development and regulation) Act, 1951,

Food processing industries were included in the list of priority sector for bank lending

in 1999.

Automatic approval for foreign equity up to 100 per cent is available for most of the

processed food items except alcohol, beer and those reserved for small scale sector

subject to certain conditions.

Complete exemption from duty to ready-to-eat packaged food.

Reduction of excise duty on refrigerated motor vehicles from 16.

The government has also enacted the Food Safety and standards Bill 2005 that seeks

to create a regulatory body for the food-processing sector and set standards for

manufacture and import of quality food.



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As can be seen, the present scenario of processing India consists of few large

National Processors, many regional level Processors, and tiny sector level processors.

In fact 90% of the processing industries are in the small scale and cottage/home scale.

There are 32 units in the organized sector with an installed capacity of 1,08,000Mts

per annum, representing 10% of the total installed capacity. They account for 30% of

total production of processed fruits and vegetable in India.

These national level processors having technology, marketing ability, procurement

ability, extension rapport with framers. The kind of situation should have normally

led to development of linkages between them. However the linkages have not

developed because the setting processing infrastructure is not excess capacity and

many sick units and very low.



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COMPANY PROFILE

INTRODUCTION

CHITTOOR CANNING PRIVATE LIMITED, CHITTOOR. (CCPL) is

established in year 1991. The production facility is located as, Company address:

CHITTOOR CANNING, PRIVATE LIMITED

100 Gollapalli,

Puttur road,

Chittoor.(AP).

HACCP TEAM

The management has identified and appointed suitably qualified personnel from

different disciplines to form the HACCP team and to develop and maintain HACCP

system.

This responsibility is in addition to the regular day to day functional responsibilities

of the individual member.

The major responsibility of the team to manage, perform and verify the works relating

to the food safety, quality and other key results are clearly identified and

communicated to the members of the team. Selection criteria and required expertise

of the team member is defined and documented.

HACCP COORDINATOR

A senior person Mr. M. Ganapathi of the management in the rank of gm plants has

been identified as the HACCP coordinator.

He, in addition to his normal functional responsibilities, is entrusted with the

authority and responsibility to ensure that the HACCP system is implemented and

maintained in accordance with the quality and food safety policy of the company.

Specific responsibilities of HACCP coordinator for the effective implementation of

the food safety program have been well defined.



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Management review

Apart from regular meetings, the top management at CCPL reviews the

organizations HACCP system at planned intervals such as after every internal

audit i.e. once in three months and also as per the necessity to ensure its

continuing suitability,

Adequacy and effectiveness of HACCP system. These reviews include assessing

opportunities for improvement and the need for changes in the HACCP system,

including the product safety,

Food Safety policy and objectives. The minutes of management review are

recorded.

The following members constitute the HACCP Team of the company

Sr.

no Name of person Designation

Role in the

HACCP Team Qualifica

tion

Experience(

yrs.)

1 Mr.M.Ganapathi General

manager

HACCP

Coordinator

B.E. 15

2 Mr.B. Madhu Production

Manager

Team

Coordinator

B.Sc. 12

3 Mr.GR. Bhargav Shift in charge Team

coordinator

B.Sc. 7

4 Ms.S Monjula Microbiologist Team member B.Sc. 4

5 Mr.K.Lokesh Chemist Team member B.Sc. 4

6 Mr.G.Yugandhar Plant eng. Team member Diploma 8

RESOURCES Management examines and provides all the resources needed by the HACCP

team to develop, implement and maintain HACCP system.

Through corrective actions, verification procedures or customers, management

carries out technology developments.



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In addition, resources needed are reviewed at the start of financial year.

The strategic location of the facility provides easy access to the growing and

harvesting area. CCPL has state of the art aseptic processing facility for

fruit processing.

The capacity of the plant is applicable.3 tones per hour for pulp and 1.5tonew per

hour for concentrate. Competent and qualified professionals manage the

production and administrative operations. It is manufacturing to various countries.

The raw materials, processed in a fully integrated aseptic line totally eliminate the

possibilities of the most severe microbiological hazards brought into the product.

The current good manufacturing practices and other prerequisite programmers

followed in the facility have been highly appreciated by many overseas buyers.

This has opened up highly sophisticated markets to CCPL within the short period

of its operation.

Today company is supplying the aseptic fruit pulp and concentrates to all major

buyers in the world and has got a very good brand image in the international

market.

CCPL has initiated the HACCP implementation Program me in their facility.

The HACCP and Quality policy of the company highlights the companys thecompanys goal and expectations towards quality.

PRODUCTS AND PROCESS

The company is manufacturing aseptic mango pulp produced by processing the

different varieties of mangos per the availability of raw material.

The production process for all packages is carried out at the same location as

addressed in the information sheet.

Following are the details of the product group



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Product group- 1: mango pulp and concentrate in aseptic packing

Sr. No. Product name Raw materials

Process

soused

01 Mango pulp

Different varieties of

mangos, citric acid,

ascorbic acid,

preservatives

Aseptic

process

SOURCE OF RAW MATEREALS

The major sourcing of premium variety of fruits and vegetables is from ratnagiri,

south Gujarat, Nasik, Mysore and Chittoor regions where companys qualified

agronomists check the quality of raw materials procured and also assist farmers

in their horticulture.

The HACCP systems described in this manual are applicable to the CCPL,

Chittoor for receiving of raw fruits, ripening, processing (pulping, preheating,

decanting, desecration, sterilization, aseptic filling), stacking and dispatch of fruit

pulp in aseptic bags in drums.

All the manufacturing processes such as receipt of raw material and packaging

materials, storage, ripening, processing which includes operations such as

washing, pulping, preheating, decanting, sterilizations, aseptic filling, packaging

and delivery are carried out in the same location.

The scope of the HACCP systems includes above mentioned processes.

BANKING FACILITIES

Apart from availing working capital consisting of pre-shipment and post-shipment

limit the company also availed term loan from SBI, Indian bank and EXIM for

capital expenditure.

Major portion of credit facilities is in foreign currency.

FUTURE PLANS

Development of the Indian market for CHITTOOR CANNING PVT LTD.



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Thrust of exports.

Expansion in 4t aseptic manufacturing capacity.

Use of it as a tool to further business goals.

Setting up of a central R and D lab.

Backward integration for improved quality of raw materials using contrctifarming

organics cultivation.

DRAWING AND USAGE OF POTABLE WATER

The water is drawn from the approved source via ground water.

The water is tested from an approved laboratory once in a year for chemical and

microbial quality.

Incase microbial quality is not satisfactory, water is chlorinated to the level of 2ppm.

The overhead tank and ground water tank (if any are covered to product

contamination due to birds, rodents, insects, animals, etc.

These water tanks are cleaned and disinfected before commencement of productin

during mango season.

Hooks are provided where ever hose connections are provided.

The water system is protected from any cross contamination from sewage water.

WASTE DISPOSAL PROCEDURE

The solid waste gets collected from the cutting hall, pulpers and bins is immediately

disposed off on continuous basis.

Other solid waste from the plant is collected from different sections, in separately

identifiable closed containers kept in convenient locations.

The collected wastes are disposed in trucks\trolleys specifically designed for the

purpose. Exclusive waste collection and disposal is provided to avoid cross

contamination. Waste collection tanks,

Waste - carrying trucks are washed and disinfected daily at the end of production

Hygienic supervisor ensures the continuous disposal of the so kid waste in order to

avoid accumulation of the solid waste.

The chemist at the end of every shift ensures the cleanliness of the waste disposal.



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The liquid wastes are disposed meeting the local municipal regulations.

BASIC INFORMATION

Company Name: CHITTOOR CANNING PVT LTD

Business type: Manufacturer Product \ service( we company sell) Mango pulp, guava pulp, papaya pulp

Product \ service(company buy) Mango pulp,

Number of employees 25-75 people

TRADE AND MARKET

Main markets: North America

South America

Eastern Europe

Southeast Asia

Africa

Oceania

Mideast

Eastern Asia

Western Europe

Total annual sales volume Us $ 10 million- us $50 million

Export percentage: 81%-90%

Total annual purchase volume: Below us $1 million

OWNERSHIP AND CAPITAL

Year established: 1991

Registered capital: Us$101 thousand

Ownership type: Corporation \ limited

Legal representative \ business owner: Mr. A. Rama Krishana Reddy

FACTORY INFORMATION

Factory size: 10000-40000 square meters

Factory location: Chittoor, Andhra Pradesh

No. of. Production lines: 4

No. of. RandD Staff: 7-15 people

No. of qc staff: 15-25 people



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PRODUCT PROFILE

MANGO PUREES AND CONCENTRATES

Alphorns Mango Puree

Totapuri Mango Concentrate

Totapuri Mango Puree



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Kesar Mango Puree

Raspuri Mango Puree

WHITE GUAVA PUREE AND CONCENTRATES

White Guava Puree

White Guava Concentrate

PINK GUAVA PUREE

Red Papaya Puree and Concentrate

Papaya Puree(Red, Natural)

Papaya Concentrate(Red, Natural)

POWDER

Spray Dried Ripe Mango Pulp Powder

Spray Dried Alphorns Mango Powder

Spray Dried Ripe Banana Pulp Powder

Spray Dried Orange Juice Powder

Spray Dried Pineapple Juice Powder

Spray Dried Lemon Juice Powder.



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FRUIT PULP

We offer a wide range of fresh pulp to our clients which are highly demanded all

across the world. Our range is extremely pure and fresh and is free from any sort of

artificial flavor and taste.

BANANA PULP

We offer our clients a rich collection of sweet bananas that are fresh and without any

spots and marks. These bananas are tasty and contain a rich amount of valuable nutrients

such as vitamin B6, vitamin C and potassium. Also, these are vital part of our complete

diet and can be dried and consumed as snack food

Features:

Highly Fresh

Tasty to eat

Valuable nutrients

Can be used in puddings

Cost-effective in nature.

GUAVA PULP

We offer our wide range of fresh guava pulp which are obtained from matured and clean

guavas and are ripened under controlled atmospheric conditions. Also, we provide utmost

attention in the method of processing so as to procure natural flavor.

These are also used for blending and in catering health drinks and other beverages.



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Features:

Fresh stock

Crunchy in taste

Contain valuable nutrients

Competitive pricing

MANGO PULP

The exclusive flavor of our mango pulp makes is delicious in taste and is demanded

all over the world. Our range of mango pulps is exceptionally juicy and luscious with great

flavor and taste. We also give utmost importance to grading of the packed range to

ascertain their freshness. Our gamut of sweetened mango pulp is offered in different

varieties of alphonso, totapuri and kesar and is one of the most favorite ranges amongst the

other pulp products. All of these are extracted from fresh mangoes and are processed

hygienically with the aid of advanced manufacturing plant, maintained in safe and clean

conditions to ensure that the products are protected from contamination.

Features:

Rich in taste

Contain valuable nutrients

Available at competitive prices

carefully packed



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PAPAYA PULP

We obtain our delicious papaya pulp from a fresh variety of papayas through a

series of process that includes washing, peeling, ripening, inspecting and thermally

processing the selected ones. These pulps are rich in nutrients such as Vitamin A and other

minerals and also used in cooking, pulp, jams and squashes. In catering our range, we take

special care of temperature for sea transport has to be maintained at 7 to 9 and air transport

9 to 10 degrees. Also, it has a shelf life of two to three weeks when stored at 7-10 degrees

C and RH 85-90%.

Features:

Delicious in taste

Possess valuable vitamins

Flavor and color of the fruit are retained

PINEAPPLE PULP

We extract our high grade pineapple pulp from selected ripened pineapples through

various procedures after proper inspection and processing. The pulp is converted to frozen

juices, drinks, fruit cheese and is also extensively popular as an accompaniment withcream used in puddings, baby food items, yoghurt and other dessert mixes. The flavor and

color are properly retained while processing.

Features:

Fresh stock

luscious in taste



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Available in natural color

Competitive pricing

NEED FOR THE STUDY

To draw the conclusions regarding the liquidity position of a firm.

Lies in the fact that it resents facts on a comparative basis and enable the drawing

of inferences regarding the performance of a firm.

To measure long-term solvency by the leverage / capital structure and profitability

ratios which focus on earning power and operating efficiency.

To reveal the strengths and weakness of the firm.

To throws light on the degree of efficiency in the management and utilization of

its assets.



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OBJECTIVES OF THE STUDY

The overall objectives of this study in, CHITTOOR CANNING PVT LIMITED,

CHITTOOR.Is to acquire knowledge about the Fixed Assets of the organization.

The other specific objectives are also as follows

To analyses the changes in the fixed assets of CHITTOOR CANNING PVT.LTD

during year under review

To analyses the funds flow position of CHITTOOR CANNING PVT LTD by

using ratio analysis.



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To analyses the firm has to meet its statutory obligations or not.

To identify the problems regarding to fixed assets management in the

CHITTOOR CANNING PVT LTD and give possible suggestions for better

management during the year under review.

To gain the knowledge about the Fixed Assets from the company.

To know different techniques used in maintaining cash receipts and payments

SCOPE OF THE STUDY

The current study under taken for the purpose of analyzing Fixed Assets

management of the CHITTOOR CANNING PVT LIMITED, which is situated At

Chittoor.

The study concentrates on various techniques involved in maintaining an

optimum level of Fixed Assets that involves maintaining of land and buildings,

plant and machinery etc.



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The study of financial analysis would provide an in-depth view about how the net

worths being raised by companies. The study helps in evaluating the financial

position of concern. Our approach is straight forward and consists with in a well

developed frame work for the further decision making.

The scope of the present study is the analysis of Fixed Assets of CCPL by

adapting Assets analysis, fund flow statement, simple percentage analysis, and

correlation.



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STATEMENT OF THE PROBLEM

The fixed assets management is the traditional financial statement of a business

enterprise. While they do furnish useful financial data regarding its operations, a serious

limitation of these statements is that they do not provide information regarding changes

in the firms financial position during a particular period of time.

Have long-term sources been adequate to finance fixed assets purchase

Does the firm posses adequate fixed assets

Has the liquidity position of the firm improved

Does the firm meet their requirements

In the present study an attempt is made to Analyses fixed assets of THE

CHITTOOR CANNING PVT LTD.



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LIMITATIONS

The Study is limited to only a particular company.

It is difficult to analyze the overall information regarding the company because

the analysis based for a specific period.

The study is limited to preceding five years.

The official did not reveal confidential aspects of the cash management of the

company, as the project was academic purpose.

Based on the analysis correct picture of efficiency of work cannot be determined.

The values are estimated, so exact result cannot be drawn.

`



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RESEARCH METHODOLOGY

Research is an act of objective, impartial, imperial and logical analysis and

recording of controlled observation, principles. It involves activities of collecting,

organizing and evaluating data, which leads to making deductions and reaching

conclusions.

DEFINITION OF RESEARCH

C.V. Good defines the research as careful, critical, disciplined inquiry, varying in

techniques and method according to the nature and conditions of the problem identified,

directed towards the classification or resolution or both of a problem.

MEANING OF RESEARCH DESIGN

A research design is the conceptual structure with in which the research would be

conducted. It informs what, where, when, how much, by what means a research study is

to be conducted.

DEFINITION OF RESEARCH DESIGN

According to C.Sell tic and others A research design is the arrangement of

conditions and analysis of data in a manner that aims to combine relevance to the

research purpose with Assets in procedure.

WEAKNESS

The procurement process in the company is cumbersome and subject to auditing.

Low exposure to the needs and dynamics of distribution business

Role clarity on the requirement of being an equipment supplier or a solution

provider

Acceptance of customers to execute low value high volumes jobs

Financing Capability

OPPORTUNITIES

Huge investment leading to greater demand of goods and services



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Demand leading to industry operating at full and over capacity

Early birds to learn faster and achieve repeat orders

Formation of business groups and tie ups for joint bidding

Healthier working environment and increased private sector participation in

operation of distribution circles also.

THREATS

Purchase preference may be extended to distribution sector

Increased in number of small contractors leading to price wars

Emergence of new players in the market.

Political pulls and pressures may jeopardize the hole process, raising alarm about

the privatization and being anti-people

DATA SOURCES

Data is required for an analysis is obtained through primary sources and

secondary sources. The primary data is collected through personal interview with the

officer of the company. The secondary data is collected from schedules to Fixed Assets

and various files of the company. This research methodology is the technique followed in

social research on a subject.

DATA SOURCES

Primary data:

Primary data collected through interaction with guide to understand the

general and specific aspects regarding utilization of sources.

Secondary data:

It is collected annual reports from the company



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REVIEW OF THE LITERATURE

INTRODUCTION TO FIXED ASSETS

FIXED ASSETS

Fixed assets are investments by an organization in assets that are used to

produce goods or provide services. These assets represent a major source of

future revenue potential to the enterprise, and may give some indication as to

future cash flows. Fixed asset accounting has several objectives: to giveinvestors, creditors, management, and tax and regulatory authorities accurate

information about these assets; to account for the use and disposal of these assets;

and to plan for new acquisitions through realistic budgeting. Accounting for the

acquisition, depreciation, and disposal of fixed assets in the historical cost system

is the primary focus of this chapter. Of late, many companies have started

revaluing their fixed assets so as to show them at their current values. The

implications of this growing practice are examined. Intangible assets like

goodwill and brands are of great importance to many enterprises, particularly

those engaged in providing services.

FIXED ASSETS IN PERSPECTIVE

Fixed assets are assets that are held by an enterprise for use in the

production or supply of goods and services, and not intended for sale in the

ordinary course of business. Whether an asset is affixed asset or not depends on

the purpose for which it is held. For example, the land on which a companys

factory is built is a fixed asset. However, if it plans to use land for property

development, it will be a current asset. The intention of the owner in holding an

asset determines its classification as a fixed or current asset.

Fixed assets also referred to as long-lived assets or long-term assets are

often divided into tangible and intangible categories. Tangible assets are fixed



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assets that have a physical existence and can be seen and felt, and include land,

buildings, plant, equipment, and vehicles. Property, plant, and equipment are

another term for tangible assets.

Intangible assets, on the other land, have no physical existence. Rather,

they represent legal rights or economic benefits.

The cost concept has the advantage of bringing objectivity in the accounts.

Value of fixed assets given in the balance sheet is not influenced by the personal

bias or judgment of those who furnish such statements. In the absence of cost

concept assets will be shown at their market values, which will depend on the

subjective views of persons who furnish financial statements.

The effects of inflation are more pronounced in case of fixed assets.Under the cost concept of accounting, depreciation calculated on the basis of

historical costs of old assets is usually lower than that of those calculated at

current value or replacement value. Under the cost concept of accounting

depreciation is calculated on the original cost of the fixed asset with the result that

only an amount equivalent to the original cost of the fixed asset is available for its

replacement when its life is over.

But the replacement cost of the asset will be more than the original cost on

account of inflation so that the replacement provision made by way of

depreciation charge on the original cost will be insufficient for the purpose. This

explains the need for charging depreciation on current value and showing the

fixed assets at the current values.

Fixed assets are valued at cost less a reasonable depreciation written off

and any fluctuation in their market. The utility of such assets is not in the least

affected by their market value being high or low; so any fluctuation in their

market price is not cared for. Thus, so far as business unit is a going concern,

fixed assets are valued at cost less a reasonable depreciation written off to date,

but when a business unit is not a going concern and is to be liquidated, current

releasable value of fixed assets becomes relevant.



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Out of fixed assets, land is an exception to the principle of valuation of

fixed asset at cost, less a reasonable depreciation written off. Land is usually

valued at the price at which it was purchased including registration charges and

brokerage paid. Depreciation is usually not provided on the land because it is not

subjected to depletion in value by its use. The value of the land usually increases

with the passage of time because of its limited availability so there is no need of

ay provision for depreciation in case of land.

Need for valuation of Fixed Assets

Valuation of fixed assets is important in order to have fair measure of

profit or loss and financial position of the concern.

Fixed assets are meant for use for many years. The value of these assets

decreases with their use or with time or for other reasons. A portion of fixed

assets reduced by use is converted into cash though charging depreciation. For

correct measurement of income proper measurement of depreciation is essential,

as depreciation constitutes a part of the total cost of production.

Evaluation Criteria

This section discusses the important evaluation techniques for capital

budgeting. A number of investment criteria (or capital budgeting techniques) are1. Discounted Cash Flow (DCF) Criteria

Net present value(NPV)

Internal Rate Return(IRR)

Profitability Index(PI)

2. Non-Discounted Cash Flow Criteria

Accounting Rate Return(ARR)

Payback Period(PBP)

Net present value method

The Net present value (NPV) method is the classic economic method of

evaluating the investment proposals. It is a DCF technique that explicitly

recognizes the time value of money.



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The formula for the net present value can be written as follows:

NPV = C1 + C2 + C3 + ------ + Cn _ Co

(1+K)1 (1+K) 2 (1+K) 3 (1+K) n

I. Internal Rate of Return Method

The Internal rate return (IRR) method is another discounted cash flow

technique, which takes account of the magnitude and timing of cash flows. Other

terms used to describe the IRR timing of cash flows.

IRR can be determined as follow

IRR= r- PVco-PVcfat r

PV

II.Profitability index method

Yet another time-adjusted method of evaluating the investment proposals

is the benefit-cost ratio or profitability index. Profitability is the ratio of the

present value of cash inflows, at the required rate of return, to the initial cash

outflow of the investment.

The formula for calculating benefit-cost ratio or profitability index as follows

PI = Present value of cash inflows

Initial cash outlay

= PV(Ct)

Co

III. Accounting rate of return method

The Accounting rate of return (ARR), also known as the Average rate of

return, uses accounting information, as revealed by financial statements to

measure the profitability of investment. There are number of alternative methods

for calculating ARR the most common usage of the ARR determined by the

following equation

ARR = Average annual profits after taxes x100

Average investment over the life of the project

IV.Pay Back Method



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The Pay back method is the most popular and widely recognized

traditional method of evaluating investment proposals. Payback is the number of

years requires recovering the original cash outlay invested in the project. If the

project generates constant annual cash inflows, the payback period can be

computed dividing cash outlay by the annual cash inflows. That is

Pay Back period = Initial Investment

Annual cash flow

= Co

C

MANAGEMENT OF FIXED ASSETS

The selection of various assets required to create the desired production

facilities and the decision as regards determination of the level of fixed assets is

primarily the task of the production people. However there are certain financial

considerations also involved in the same. As the decision relating to fixed assets

involve huge funds for a long period of time and are generally of irreversible

nature affecting the long term profitability of a concern, an unsound investment

decision may prove to be fatal to the every existence of the organization. Thus

management of fixed assets is of vital importance to any organization.

The process of fixed assets management involves.

1. Selection of most worthy projects or alternative of fixed assets

2. Arranging the requisite funds/capital for the same.

However some important aspects of fixed assets management are The first

important consideration to be kept in the mind is to acquire only that much

amount of fixed assets which will be just sufficient to ensure smooth and efficient

running of business. However in some cases it may be economical to buy certain

assets in a lot size.

1) The another important consideration to be kept in mind is the possible

increase in demand of the firms products necessitating expansion of its

activities. Hence a firm should have that much amount of fixed assets

which could adjust to the increased demand.



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2) The third aspect of fixed assets management is that firm must ensure

buffer stocks of certain essentials equipments to ensure un-interrupted

production in the event of emergencies. Some times there may be a break

down in some of the equipments or services affecting the entire

production. It is always better to have some alternative arrangement to

deal with such situations. But at the same time the cost of carrying such

buffer stocks should also be evaluated.

3) The fourth aspect of management of fixed assets is to consider the cost of

capital to be invested.

Principles of Fixed Assets Management

The main objective of fixed assets management is to make sound

investment in the fixed assets such as land, building, machinery etc.

The following are the main principles in managing fixed assets.

1. Selection of most appropriate and suitable fixed assets.

2. Financing and acquisition of fixed assets.

3. Sound depreciation policy.

4. Proper accounting of fixed assets.

5. Periodical appraisal of fixed assets.

RATIO ANALYSIS

The ratio analysis is the most powerful tool of the financial analysis.

Several ratios, calculated from the accounting data, can be grouped in to various

classes according to financial activity or function to be evaluated.

Definition

The indicated quotient of two mathematical expressions and as The

relationship between two or more things. It is evaluating the financial position

and performance of the firm.

As started in the beginning many diverse groups of people are interested in

analyzing financial information to indicate the operating and financial efficiency,

and growth of the firm.

The ability of the firm to meet its current obligations.



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The extent to which the firm has used its long-term solvency by

borrowings funds.

The efficiency with which the firm is utilizing its assets in generating

sales revenue.

The overall operating efficiency and performance of the firm.

Stages of Ratio Analysis

The following procedure is generally followed, while analyzing the financial

statements through ratio-analysis.

A) Arrangement of data

B) Classification of ratios

C) Interpretation of Calculated ratios

D) Projections through ratios

Expression of Ratios

The Ratios can be expressed in either of the following ways:

a) In Proportion: In this form the amounts of the two items are being expressed of

common denominator. The example of this form of expression is the relationship

between connects and current liabilities as 2:1.

The Parties Interested in Ratio Analysis

The person interested in the analysis of financial statement can be grouped under

three heads.

(i) Owners of investors

(ii) Creditors

(iii) Financial executives

Although all these groups are interested in the financial conditions and operating results

of an enterprise, the primary information that each seeks to obtain from these statement

differs materially reflecting the purpose that the statement is to serve.

Limitations to Ratio Analysis

1. Standards for Comparison



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Ratios of a company have meaning only when they are compared with some

standards and it is always a challenging job to find an adequate standard.

2. Company difference: Situation of two companies are never same. Similarly

the factors influencing the performance of a company in one year may change in

another year. Thus, the comparison of the ratios of two companies becomes different

situations.

3. Price level change

The interpretation and comparison of ratios are also rendered invalid by

changing value of money. A change in the price level can seriously affect the validity

of comparisons of ratios computed for different time periods.

4. Different definitions of variables

Comparisons are also made difficult due to definitions. The terms like gross

profit, operating profit etc. have precise definitions and there is a considerable

diversity in practice as to how they should be measured.

5. Changing situations

A balance sheet may fail to reflect the average or typical situation, as it is

prepared as of one moment of time.

6. Differences in accounting methods

Different companies, which valuing assets, writes-off, costs, expenses etc.,

differ from the company, find various differences among the accounting methods

used.

Uses of Ratio Analysis

It helps in decision-making.

Helps in financial forecasting and planning.

Communicating coordinator and control.

Unit of creditors

Tax audit requirements

Utility of creditors.



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Financial analysis is the process of identifies the financial strength and

weakness of the firm by properly establishing the relationship between the Items of

the balance sheet and the profit and loss account.

Types of Ratios

Ratios can be grouped into various classes according to financial activity or

function to be evaluated. The parties interested in financial analysis are short and long

term creditors, owners and management short-term creditors main interest is in the

liquidity position or the short-term solvency of the firm. Long-term creditors on the other

hand are more interested in the long-term solvency and profitability of the firm. In view

of the requirement of the various users of ratios, the ratios are classified into four

important categories.

A. Liquidity Ratios

B. Leverage Ratios

C. Activity Ratios / Turnover ratio

D. Profitability Ratio

A. Liquidity Ratio or Financial Ratios:

Current Ratio

Quick Ratio

Acid Quick Ratio

B. Leverage Ratio or Long term Ratio:

Debt Ratio

Debt to equity Ratio

Proprietary Ratio

C. Activity Ratio or Performance or Turnover Ratio:

Inventory Turnover Ratio

Fixed assets turnover Ratio

Currents assets turnover Ratio

Capital Employed to net worth Ratio

Total Assets turnover Ratio



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Working Capital Turnover Ratio

Sales to Capital Employed Ratio

D. Profitability Ratio

Gross Operating Ratio

Net profit Ratio

A. Liquidity Ratios

Liquidity Ratios means of the firm to meet its currents obligations. In fact analysis

of liquidity needs the preparation of cash budgets and cash flow and funds flow

statements but liquidity ratio by establishing a relationship between cased other assists to

current obligations. Provide a quick measure of liquidity, a firm should ensure that it does

not have excess liquidity. A very high degree is also bad idle assists earn nothing. The

firms funds will be necessarily tiled up in current assets therefore it is necessary to strike

a proper balance between high liquidity and lack of liquidity.

The common Ratio which indicate the extent of liquidity or lack of it are

Current Ratio

Quick Ratio

Current Ratio

The current ratio is calculated by dividing current assets by liabilities.

Curent ratio = Curent assents / Curent labilits

Current assets include cash and those assets, which can be converted into cash

within a year such as marketable securities debtors and inventories. Current liabilities

include creditors, bills payable accrued expenses, short-term bank loan, income-tax

liability and long-term debt maturing in the current year. Current ratios are measure of

the firms short-term solvency. It indicates the availability of current assets in rupees for

every one rupee of current liability.This rule is based on the logic that in a worst situation every if the value of

current assets become help that firm will be able to meet its obligations this current ratio

represents a margin of safety for creditors. The higher the current ratio the higher the

margin of safety. The large the amount of currents assets in relation to current liabilities.

The more firm ability to meet its current obligations. However an arbitrary stared of 2 to



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1 should not be blindly followed. Firms with less than 2 to 1 current ratio may be doing

well, while firm with 2 to 1 or even higher current ratio may be struggling to meet their

current obligations.

Quick Ratio

Quick Ratio established a relationship between quick or liquid assets and current

liabilities. As assets is liquid if it can be converted into cash immediately or reasonable

soon without loss of value. Cash is the most liquid asset other assets which are considered

to be relatively liquid and include in quick assets and marketable securities (temporary

quoted investments). The quick ratios are found out by dividing quick assets by current

liabilities.

Quick Ratio = Quick Assets / Current Liabilities

(OR)

Quick Ratio = Current Assets Inventories / Current Liabilities

Generally a quick ratio of 1 to is considered to represent a satisfactory current

financial condition. A quick ratio of 1 to 1 or more does not necessarily imply sound

liquidity position.

B. Leverage Ratio

The short-term creditors like banker and suppliers of raw materials are moreconcerned with firms current debt-paying ability on the other hand long term creditors,

like debenture holders financial position. To judge the long-term

Financial position of the firm financial leverage is capital structure, ratio are

calculated. These ratio indicated mix of debt and owners equity financing the firms

assets. Leverage ratio may be calculated from the balance sheet items to determine the

proportion of debt in total financing. Leverage ratios are also completed from the profit

and loss items by determining the extent.

The most common leverage ratio is

Debt Ratio

Debt- Equity Ratio

Proprietary Ratio

Debt Ratio



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Debt Ratio may be used to analyses the long-term solvency of a firm. The firm

erected in knowing the proposition of the interest bearing debt by capital employed. Total

debenture / bonds employed include totals debt and net worth.

Debt Ratio= Total Debt / (Total Debt Net Worth)

(OR)

Debt Ratio = Total Debt / Capital Employed

Debt Ratio shows the extent to which debt financing has been used in the

Business.The high ratio means that claims of creditors are greater than those of owners. A

High level of debt introduces inflexibility in the firms operations due to the increasing

inference and pressures from creditors.

Debt Equity RatioDebt Equity Ratio is directly computed by dividing total debt by total equity.

Debt Equity Ratio = Total Equity

A low ratio implies a greater clime of owners than creditors from the point of

view of creditors. It represents a satisfactory situation since a high proportion of quality

providers a larger margin of safety for them. The higher the debt-equity ration the larger

the shareholder earnings. When the cost debt is less than the firms overall rate of return

on investment. .

Proprietary Ratio

The total share holders tend net worth is compared with the total tangible assets of

this company. This ratio is calculated on the basis of the following formula.

It expresses the relationship between bet worth and total assets.

Proprietary Ratio = Net Worth / Total Assets

Net Worth = Equity Share capital + Preference + Share Capital + Reserve

Factious asset

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05 Kiran Projectwe