Financial Statement Analysis Essays

Financial Statement Analysis Essays Financial Statement Analysis Essay Financial Statement Analysis Essay Financial Statement Analysis is an analysis which highlights important relationships in the financial statements. It focuses on evaluation of past operations as revealed by the analysis of basic statements. Financial Statement analysis embraces the methods used in assessing and interpreting the results of past performance and current financial position as they related to particular factors of interest in investment decisions. It is an important means of assessing past performance and in forecasting and planning future performance. Techniques of Financial Analysis: Various techniques can be used in the analysis of financial data to emphasise the comparative and relative importance of data presented and to evaluate the position of the firm. These techniques of financial analysis are intended to show relationships and changes. Among the widely can be used of these techniques are the following: 1. Horizontal Analysis 2. Vertical Analysis 3. Trend Analysis 4. Ratio Analysis Introduction to Finance: FINANCE HAS MANY DICTIONARY MEANING SUCH AS MANAGEMENT OF MONEY, PROVIDE WITH MONEY, FIND CAPITAL ETC. FINANCE PLAYS AN IMPORTANT ROLE IN ANY ORGANIZATION. FINANCE HAS NOW DAYS BECOME A SPECIALIZED FUNCTION. IT REQUIRE s overall knowledge of the environment in which it is needed. Finance includes money, banking or credit of different types and classes. Finance is viewed differently by different people depending upon their interests. Management’s promoters, shareholders, lenders (creditors), customers and other have all participated in financing the organization or business enterprise. MEANING DEFINATION: Finance is the process of conversion of accumulated funds to productive use. Finance helps to direct the flow of economic activity and facilitates its smooth operation. : Finances are the agent that produces the result. There are many definitions of Finance. Of all the best was of Howard and Upturn as â€Å"that administrative area of set of administrative functions in an organization which has to do with the management of the flow of cash so that the organization will have the means to carry out its objectives as satisfactorily as possible and at the same time meets its obligations as they become due. Finance is concerned with task of providing funds need by the enterprise on the forms that are most favorable towards the attainment of the organizational goals and objectives. The functions of finance are not merely furnishing funds to the organization. Finance has a broader meaning as it covers financial planning, forecasting of cash receipts and disbursements, rising of funds, use and allocation of funds and financial cash. The area of operation of finance management varies from one company to another, industry-to-industry etc. USERS OF FINANCIAL ANALYSIS: Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the Balance sheet and the profit and Loss account. Financial analysis can be undertaken by the management of the firm, or by parties outside the firm, viz.. , owners, creditors, investors and others. The nature of analysis will differ depending on the purpose of the analyst. Trade creditors are interested in firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore. Confine to the evaluation of he firm’s liquidity position. Suppliers of long-term debt, on the other hand, are concerned with the firm’s long-term solvency and survival. They analyse the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of finds (capital structure relationships). Long-term creditors do analyse the historical financial statements, but they place more emphasis on the firm’s projected, or proforma, financial statements to make analysis about its future solvency and profitability Investors, who have invested their money in the firm’s shares, are most concerned about the firm’s earnings. They restore more confidence in those firms that show steady growth in earnings. As such, they concentrate on the analysis lf the firm’s present and future profitability. They are also interested in the firm’s financial structure to the extent it influences the firm’s earnings ability and risk. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and that the firm’s financial condition is sound. The different techniques for financial statement analysis are: i) Ratio Analysis ii) Trend Series Analysis ii) Common size statement analysis iv) Comparative statement analysis NEED FOR THE STUDY: The major objectives of financial statement analysis are to provide decision makers information about a business enterprise for use in decision-making. Users of financial statement information are the decision makers concerned with evaluating the economic situation of the firm and predicting its future co urse. This study may intended to know the requisition of financial analysis to communicate data to concerned users and their influence on decision making by users. Hypothesis of the Study: This study is to be conducted with a hypothesis that use of ratio analysis as a financial analysis technique is a very effective device to communicate financial data to users. And it can be done with an intention of communicating financial information and to assist decision making process. OBJECTIVES OF THE STUDY: This study is to be conducted with the following objectives- To know about financial statements and their interpretation To study about ratio analysis as a technique of financial analysis To explain the financial analysis process by way of analysing financial data of sample company i. . Maha Cement. SCOPE OF THE STUDY Scope of the study is to study on financial Statement Analysis on Maha Cement. INDUSTRY PROFILE HISTORY OF CEMENT: It must interest to know how cement is made today visa the historical background. Ever since civilizations stepping in the earth, people sought a material that would bind stones into a solid, formed mass. The Assyrians and Babylonians used cl ay for this purpose, and the Egyptians advanced to the discovery of lime and gypsum mortar as a binding agent fro building such structures as the Pyramids. The Greeks made further improvements and finally the Romans developed cement that produced structures of remarkable durability. The secret of Roma success in making cement was traced to the mixing of slaked lime with pozzolana, a volcanic ash from Mount Vensuvius. This process produced cement capable of hardening under water. During the Middle Ages this art was lost and it was not until the scientific spirit of inquiry revived that the rediscovered the secret of hydraulic cement – cement that will harden under water. Most of the building foundations in the Roman forum were constructed of form of concrete, placed in some locations to a depth of 12 feet. The great Roman baths built about 27 B. C. , the Coliseum, and the huge Basilica of Constantine are examples of early Roman architecture in which cement mortar was used. Portland cement today, as in Aspdin’s day, is a predetermined and carefully proportioned chemical combination of calcium, silicon, iron, and aluminum. Natural cement gave way to Portland cement, which is a predictable, known product of consistently high quality. Aspdin established a plant in Wakefield to manufacture Portland cement, some of which was used in 1828 in the construction of the Thames River Tunnel. But it was almost 20years later when J. D. White and Sons set up a prosperous factory in Kent that the Portland cement industry saw its greatest period of early expansion, not only in England, but also in Belgium and Germany. Portland cement was used to build the London sewer system in 1859-1867. Thomas A. Edison was a pioneer in the further development of the rotary kiln. In 1902, in his Edison Portland Portland_Cement Works in New Village, NJ, he introduced the first long kilns used in the industry 150 feel long in contrast to the customary 60 to 80 feet. Today, some kilns are more that 500 feet long. Parallel improvements in crushing and grinding equipment also influenced the rapid increase in production. Since grinding process consumes most of the energy various grinding systems like ball mill/vertical roller mill/roller presses has been the result of technological developments. Blending takes place in silos with air blown in from the bottom to aerate the contents. Various new designs were also developed to increase the efficiency of mixing. HOW CEMENT IS MADE? :- Two main methods of cement manufacturing were prominent, the Dry process and the Wet process. Dry process now has almost replaced the wet process since wet process consumes high thermal energy for drying the moisture. When rock is the principal raw material, the first step after quarrying in both processes is the primary crushing. Mountains of rock are fed through crushers capable of handling pieces as large as and oil drum. The first crushing reduces the rock to a maximum size of about 6 inches. The rock then goes to secondary crushers or hammer mills for reduction to about 3 inches or smaller. It is then ground in ball mill to fine powder with other ingredients like clay/iron ore/bauxite to create a combination of values for silica/alumina/lime etc in the mixture. If the process is wet, the grinding goes on in with water so that slurry is resulted after grinding. This slurry is further mixed in mixers and pumped to kiln. For a dry process kiln, the ground powder is sending to blending silos for uniform mixing of components added during the grinding stage. This blended material is feed to the preheater/calciner. The preheated is a group of cyclones placed over one another where in material comes down and hot gases goes up heating the material and calcining it in the process. Calcinations means liberating carbon dioxide and converting calcium carbonate to Calcium oxide. Calciner is nothing but a duct added to give more residence time to material for calcinations. This partially calcined material then comes to the kiln, which is refractory lined rotating tube having burner fitted in the other end. This burner fires coal/oil/natural gas to create a temperature of 1600 Deg cent at the discharge end. As the material in the kiln rolls down towards the discharge end, various reactions takes place amongst the components resulting in a mass known as clinker. This clinker is then cooled in coolers. The coolers are either planetary type or grate type. Grate coolers of modern time are much efficient resulting in better heat recuperation and allows reusing this heat in the kiln. The cooled clinker then either goes to storage silo or clinker yard. From the clinker yard it is taken for grinding. In case ordinary Portland cement is made only gypsum(4-6%) is added before grinding. In case of Portland pozzolona cement additives like Flyash/brick etc are added. Grinding again is same like for raw material grinding with ball mill or with latest technologies like vertical mill/Roller press etc. The cement powders then taken to packing plant or discharged from silo to a bulk loader directly. COMPANY PROFILE MAHA CEMENT PROFILE Establishment: The Organization â€Å"My Home Cement Industries Limited† is a fast growing and leading Indian industrial group having its head office at Hyderabad and works at Meelacheruvu in Nalgonda district in Andhra Pradesh. It belongs to the groups of my home constructions limited, a leading construction company in South India. The company is new entrant in the field of cement manufacturing where already leading brankds like Priyadarshini, Ramco, Raasi and Kakatiya have got deep penetration into the market. The brand name of the cement produced by the company is â€Å"Maha Cement† which is expected to have an image of Mahashakti and Mahavalue. M/s My Home Cement Industries Limited is a public limited company, which is incorporated in 1955. The company commenced its commercial products from 1st july 2000. The cement conforms to the ISI standards and is being marketed under the name of Maha Cement. Maha Cement Industries, a leading cement manufacturing company in Andhra Pradesh having an installed capacity of 6 Million Tonns per annum for immediate placement at their 3 plants located in Andhra Pradesh. Location of plant The factory is situated at Mellaceruvu, Nalgonda district . The pricipal raw material for the plant is limestone and is available in abundant quantities near the plan. Location of the plant at Meelacheruvu has the following advantages. 1. Cheap availability of the required land 2. Abundant water resources 3. Proximity of raw materials 4. Proximity of market 5. Availability of financial subsidiary 6. Plant is nearer to head quarter 7. Wearer to railway siding 8. Well connected road and rail transport 9. Availability of labors Salient features of Maha Cement High strength and great durability A very susceptible saving in cost (up to 20-25%) due to low setting time Superior quality of cement resulting in a better overall finish Stronger bonding with aggregates. Till now the company has not faced much difficulty in marketing its products. As the quality of cement produced by the company has been proved to very good. It has been well accepted by the markets in Andhra Pradesh and Tamilnadu. The company has established wide dealer network throughout the Andhra Pradesh and Chennai and at some places of Tamilnadu (north). In additions the group companies my home construction projects on hand would by cement from the company. The marketing department is aptly directed by AVP (marketing). The dealers are carefully selected after making a through analysis of the same. The company has marketing officers placed at strategic places to maintain the sales. RESEARCH METHODOLOGY Data: Both primary data and secondary data will be used but much stress may give to primary data in the form of financial reports of the company. Primary data with regards to financial data of MAHA CEMENT will be collected from the concerned authorities. Secondary data has to be collected by way of review of existing literature, reference books and articles in accounting and financial journals. This data can be used for gaining an insight into understanding how to interpret financial data and the result thereto. Sample: The sample for this particular study was MAHA CEMENT. Statistical Techniques: Ratios will be used as statistical techniques to analyse the data collected. CHAPTERIZATION I will divide the Total study into five Chapters and I will follow this plan of the study for the better outcome of the Project. 1st Chapter is allotted for the study about Introduction to the Topic, Objectives of the present study, Need, scope, Methodology and Limitations of the Study. 2nd Chapter is allotted for the study about Company and Organization Profile. 3rd Chapter deals with Theoretical background that supports the study. 4th Chapter Mainly emphasizes the Data analysis and interpretation. 5th Chapter is allotted for conclusion and suggestions.