Project

“AN EVALUATION OF FINANCIAL PERFORMANCE OF
INDIAN HEAVY ELECTRICAL INDUSTRIES”

- A STUDY AT BANGALORE.,
Dissertation submitted to the
BANGALORE UNIVERSITY
In partial fulfillment of the requirements for the award of the POST
GRADUATE DEGREE
Of
MASTER OF FINANCE AND ACCOUNTING
Submitted by
HARSHA.S
Reg. No. 1OATCM5014
Under the guidance of

Dr.H.PRAKASH,
M.Com, Ph.D.
GOVERNMENT OF KARNATAKA
GOVT RAMNARAYANA CHELARAM COLLEGE OF COMMERCE AND
MANAGEMENT
Basveshwara Circle, Palace Road, Bangalore-560001
2
2001
111 -- 2
2001
122
CERTIFICATE BY THE PRINCIPAL
This is to certify that Mr.Harsha.S BEARING REGISTER No.

10ATCM5014 has successfully completed the PROJECT REPORT
entitled “AN EVALUATION OF FINANCIAL PERFORMANCE OF INDIAN
HEAVY ELECTRICAL INDUSTRIES - A STUDY AT BANGALORE.”. He has
prepared and submitted the report under the guidance of
Dr.H.PRAKASH.
The project report is being submitted to BANGALORE UNIVERSITY in

partial fulfillment for the requirement of award of M.F.A degree.
Place: Bangalore Dr. VENUGOPAL

Date: (PRINCIPAL)
CO-ORDINATOR’S CERTIFICATE
This is to certify that the dissertation entitled “AN EVALUATION OF

FINANCIAL PERFORMANCE OF INDIAN HEAVY ELECTRICAL
INDUSTRIES - A STUDY AT BANGALORE.,”is the original & bonafide
research work carried out by Mr.HARSHA.S bearing Reg. No.
10ATCM5014 under the guidance and supervision of Dr.H.PRAKASH,
Associate Professor, Govt. R.C. College of Commerce and
Management.
Place: Bangalore Dr. B.CHANDRASHEKARA

Date: Co-ordinator M.F.A
GUIDE’S CERTIFICATE
This is to certify that the dissertation entitled “AN

EVALUATION OF FINANCIAL PERFORMANCE OF HEAVY ELECTRICAL
INDUSTRIES-A STUDY AT BANGALORE” is the original & bonafide
research work carried out by Mr.HARSHA.S bearing Reg. No.
10ATCM5014 under my guidance.
Place: Bangalore Dr.H.PRAKASH
Date:
STUDENT’S DECLARATION
I hereby declare that the dissertation entitled “AN EVALUATION

OF FINANCIAL PERFORMANCE OF HEAVY ELECTRICAL INDUSTRIES-A
STUDY AT BANGALORE”. has been carried out by me under the
guidance and supervision of Dr.H.PRAKASH, M.Com, Ph.D, Govt.
R.C.College of Commerce & Management, Bangalore., submitted in
partial fulfillment for the award of degree of Master of Finance And
Accounting of Bangalore University.
I also declare that no part of this representation has been

previously published or submitted as a project representation for any
degree, diploma, associate ship, fellowship or any other similar title to
any university or institution.
Place: Bangalore HARSHA.S

Date: Reg. No. 10ATCM5014
ACKNOWLEDGMENT
I am happy to express my gratitude to Dr. VENUGOPAL,
Principal of Govt. R. C. College of Commerce and Management
& Dr.B.Chandrashekara Co-ordinator of M.F.A for their
encouragement, guidance and many valuable ideas important
to me for my project, with great pressure.
I extend my gratitude towards guide of the project

Dr.H.PRAKASH, under whose valuable guidance, constant
interest and encouragement. I have been able to complete the
project successfully. This co-operation is not useful only for this
project but, will also be a constant source of inspiration for the
future.
I am also thankful to my parents, all my lecturers and my friends

for theirs constant help in preparation of my project
successfully.
HARSHA.S
Reg. No. 10ATCM5014
“AN EVALUATION OF FINANCIAL PERFORMANCE OF INDIAN HEAVY ELECTRICAL
INDUSTRIES”- A STUDY AT BANGALORE.
CONTENTS
CHAPTER NO. PARTICALARS PAGE NO.
CHAPTER – 1 INTRODUCTION 1 - 18
CHAPTER – 2 LITERATURE REVIEW 19 - 44
CHAPTER – 3 RESEARCH DESIGN 45 - 48

& OVERVIEW OF THE STUDY
CHAPTER – 4 ANALYSIS & INTERPRETATION OF DATA 49 - 87
CHAPTER – 5 FINDINGS, SUGGESTIONS AND 88 - 95

CONCLUSION
ANNEXURES – Financial Statements
BIBLIOGRAPY
Government R. C. College of Commerce and Management. Page i

LIST OF TABLES
TABLE NO PARTICLARS PAGE

NO
TABLE 4.1 TRENDS ANALYSIS, CROMPTON GREAVES 51
TABLE 4.2 TRENDS ANALYSIS BHARAT HEAVY ELECTRICALS 53
TABLE 4.3 TRENDS ANALYSIS, KIRLOSKAR ELECTRIC CO 55
TABLE 4.4 TRENDS ANALYSIS BHARAT ELECTRONICS 57
TABLE 4.5 CROSS SECTIONAL DATA FOR OUR REGRESSION 59
ANALYSIS
TABLE 4.6 CONVERTED TO THE NEAREST HUNDREDS 60
TABLE 4.7 COMPUTED TABLE FOR THE REGRESSION ANALYSIS 60
TABLE 4.8 DERIVED THE LEAST SQUARE MODEL 60
TABLE 4.9 RANKING OF RELATIVE IMPACT OF THE VARIABLES 61
TABLE 4.10 COMMAN SIZE BALANCE SHEET OF CROMPTON 63
GREAVES
TABLE 4.11 COMMAN SIZE BALANCE SHEET OF BHARAT HEAVY 65
ELECTRICALS
TABLE 4.12 COMMAN SIZE BALANCE SHEET OF KIROLSKAR 67
ELECTRICALS
TABLE 4.13 COMMAN SIZE BALANCE SHEET OF BHARATH 69
ELECTRONICS
TABLE 4.14 COMMAN SIZE INCOME STATEMENT OF CROMPTON 71
GREAVES
TABLE 4.15 COMMAN SIZE INCOME STATEMENT OF BHARAT 73
HEAVY ELECTRICALS
TABLE 4.16 COMMAN SIZE INCOME STATEMENT OF KIRLOSKAR 75
ELECTRIC CO
TABLE 4.17 COMMAN SIZE INCOME STATEMENT OF BHARATH 77
ELECTRONICS
TABLE 4.18 ALTMAN'S Z -- SCORE, CROMPTON GREAVES 80
TABLE 4.19 ALTMAN'S Z -- SCORE, BHARAT HEAVY ELECTRICALS 82
TABLE 4.20 ALTMAN'S Z -- SCORE, KIRLOSKAR ELECTRIC CO 84
TABLE 4.21 ALTMAN'S Z -- SCORE,BHARAT ELECTRONICS 86
Government R. C. College of Commerce and Management. Page ii

LIST OF CHARTS
CHART
PARTICLARS PAGE NO
NO
CHART 4.1 TRENDS ANALYSIS, Crompton Greaves 51
CHART 4.2 TRENDS ANALYSIS Bharat Heavy Electricals 53
CHART 4.3 TRENDS ANALYSIS, Kirloskar Electric Co 55
CHART 4.4 TRENDS ANALYSIS Bharat Electronics 57
CHART 4.5 ALTMAN's Z -- SCORE, Crompton Greaves 81
CHART 4.6 ALTMAN's Z -- SCORE, Bharat Heavy Electricals 83
CHART 4.7 ALTMAN's Z -- SCORE, Kirloskar Electric Co 85
CHART 4.8 ALTMAN's Z -- SCORE,Bharat Electronics 87
Government R. C. College of Commerce and Management. Page iii

“AN EVALUATION OF FINANCIAL PERFORMANCE OF INDIAN HEAVY
ELECTRICAL INDUSTRIES” - A STUDY AT BANGALORE.
CHAPTER- 1
INTRODUCTION
1.1: INTRODUCTION
Measuring performance has been part and parcel of any successful business
entity. It is strategic because the long run survival of any organization depends on
its performance. Managements use performance measurement to evaluate the
overall health of organization.
Analysis of capital structure is an important task which financial
managers of every organization go through before formulating capital structure
decisions of their company. Even the investors and promoters have to take every
important measure so as to lead their organization towards growth as well as reap
maximum profit along with maximization of company’s value by its
performance. These all actions need careful watch of their company, which is
helped by capital structure analysis.
Capital Structure refers to the way a corporations finances itself through

some combination of equity sales, equity options, bonds, and loans. Optimal
capital structure refers to the particular combination that minimizes the cost of
capital while maximizing the stock price. Capital structure is the mix of the
various types of debt and equity capital maintained by a firm. The more debt
capital a firm has in its capital structure, the more highly leveraged the firm is
considered to be. The permanent long term financing of a company, including
long- term debt, common stock and preferred stock, and retained earnings.
One of the key issues in the capital structure decision is the relationship
between the capital structure and the value of the firm. The capital structure or
financial leverage decision is examined from the point of view of its impact on
the value of the firm. The optimum capital structure is one that maximizes the
market value of the firm.
Government R. C. College of Commerce and Management. Page 1

Capital structure analysis even helps an organization to decide whether it
should go for debt financing or whether it should it finance itself with their own
sources of reserves and surplus.
1.2: INTRODUCTION TO ELECTRICITY IN INDIA
Unlike other technological developments in the West, which were introduced in

India after a time lag, electricity was introduced in India in the form of galvanic
electricity (both electro chemical and electromagnetic) through telegraphy. The
first experimental line was set up in Kolkata in 1839 at the Botanical Gardens
along the river Hooghly.
Electricity in the form of lighting arrived 35 years later with the former princely
state of Bikaner introducing electricity in the subcontinent. In 1886 Jamsetji Tata
installed a dynamo driven power plant in his residence, which was later extended
to the adjacent Gymkhana Chambers ten years later. When the Taj Mahal Hotel
was built in 1903, it was equipped with a modern power generator.
The Government of India invited Crompton to help in the preparation of an

Electric Lighting Act in 1896. Subsequently, the Indian Electric Company Ltd.
Was registered in London in January 1897, which changed its name to become
the Calcutta Electric Supply Corporation (CESC). A CESC power station started
its operation on April 17, 1899.
The first major hydroelectric project (4.5 MW) in India was on the Cauvery River
at Sivasamudram, commissioned by the Maharaja of Mysore in 1899. It
commenced power supplies to the Kolar Gold Mines in 1902. The capacity was
increased to 42 MW in stages by 1927.
In 1903, the Madras Electric Supply Corporation of India Ltd. installed a power
plant and subsequently set up power plants in different cities including Karachi,
Kanpur, Allahabad, Nagpur, Rangoon and Tibet.

The Tata Hydroelectric Power Supply Co. was registered on November 7, 1910
and the license obtained by the syndicate for power generation was transferred to
the Company. The country’s largest hydropower station was commissioned in
1911 with a 32 MW capacity which transmitted power to Bombay on a 110 kV
transmission line. To meet the increased load demand, Tata Sons Ltd. promoted a
new Company - Andhra Valley Power Supply Co. in 1916 and commissioned a
72 MW power plant at Shivpuri in 1922. A third company – Tata Power Co. Ltd.
was incorporated in 1919 and set up an 88 MW generating station at Bihar in
1927.
During this decade major railway workshops, defense installations, ordnance

factories, collieries, dockyards, oil, flour, jute and textile mills were equipped
with diesel or steam driven generators and electric drives. By the time India got
her Independence in 1947, the total installed capacity in the country was 1392
MW (884 MW Thermal and 508 Hydro).
1.3: ADVENT OF MANUFACTURING OF ELECTRICAL

EQUIPMENT IN INDIA
In the beginning, no overseas company set up a manufacturing facility in India.

They were merchandising and contracting through their local agents in India like
Kilburn & Co., Martin & Co., Killick Nixon, F&C Osler & Co. Balmer Lawrie,
Jessop & Co., John Flemming etc. Anticipating the growing demand for
electricity, particularly in the textile mills, Greaves Cotton, the biggest group of
spinning mills, set up its electrical engineering department in 1904 while F&A
Parkinson and Verity & Co. holding Agency for Crompton took up contract jobs
for electrification.
After commissioning, the Calcutta and Madras power plants, Crompton

established its offices in the two cities in 1899 and 1904 respectively. GEC
(India) Ltd. came to India in 1911 as a distributing company, Siemens in 1922
and AEI (India) Ltd. In 1924. Indian Cable Co. set up a manufacturing plant in
Jamshedpur in 1923, Westinghouse Brakes & Signals in Calcutta in the late

1920s, Crompton Parkinson in Bombay in 1937, Philips Electrical Co. (India)
Ltd. in Calcutta in 1931, Union Carbide (India) Ltd. for batteries (National
Carbon Products) in 1934 and AEI Manufacturing Co. Ltd. in Calcutta in 1939.
Among the Indian companies, Bengal Lamps was established to manufacture
electric lamps in 1932, India Electric Works Ltd. started an integrated design
ceiling fan factory in Calcutta around the same time. Other important companies
include Larsen & Toubro (a partnership of two enterprising young Danes) in
1938, Bajaj Electricals (1938), Ess Ess Kay Engg. (1935), Jyoti Ltd. (1943),
Mysore Electricals (1945) , Kirloskar Electric (1946) and GFM Manufacturers,
Punjab (1946) etc.
1.4: INTERNATIONAL TRENDS
Over the past two decades, the power plant equipment industry has been
witnessing a process of consolidation. In the late 1970s there were 10 to 12
players and today there are about 4 to 6. This consolidation has resulted in
stronger Companies with increased size, economies of scale, wider product
ranges and Enhanced financial strength. They now have greater access to markets
and higher Bargaining power as a result of combined technological strengths. The
major Consolidation which has taken place is detailed below:
• Eighties:
• GEC UK + Alcatel France GEC Alstom
• ASEA Sweden + BBC Switzerland ABB
• ABB acquired 39 companies and the power transmission and power distribution
business of Westinghouse Electric Corporation to become a technology leader in
T&D business.
• Nineties
• Siemens acquired Westinghouse’s fossil power plant activities in 1998 and also
Voith Germany’s Hydro division and Parson’s Power Engineering.
• Babcock Borsig Power took over B&W Spain
• GE Hydro bought over Kvaerner

• GEC Alstom and ABB merged to become ABB-Alstom Power (AAP) 2000
• Alstom bought ABB’s stake in AAP
• GE (USA) bought EGT, France 2003 & 2004
• Siemens AG bought Alstom’s industrial turbine business
• Areva bought Alstom T&D business
• Hitachi Japan took over the assets of insolvent Babcock Borsig.
In the case of the user sector there has been a shift in the
fuel mix used to generate electricity since the 1970s. The use of oil has declined
after the oil shocks. Prior to the oil shocks, oil accounted for nearly 23% of the
fuels used in electricity generation, but since then, its share has fallen to under
10% today.
While coal continues to remain the dominant fuel for electricity
generation, generation from nuclear power increased rapidly from the early 1970s
to the mid 1980s, while natural gas fired generation has grown rapidly in the
1980s and the 1990s.
Hence the technology and equipment for electricity generation has also
undergone a shift from mainly coal and oil based to natural gas, hydro and
nuclear. In the future renewables will make its presence felt.
1.5: CURRENT STATUS IN INDIA
The Indian heavy electrical equipment industry has registered a 27% growth
during 2004-05 as compared to the year 2003-04. The performance of the heavy
electrical equipment industry is closely linked to the power programme, which
continues to languish due to fund constraints. The progress on the reform front
for State Electricity Boards has also been rather slow. Theft of power, free /
subsidized electricity and heavy T&D losses are the major issues responsible for
the weak financial condition of the SEBs and require serious attention.
During the 9th Five Year Plan (1997-2002), the Indian Government had fixed a
targetof 40245.2 MW for capacity addition, comprising 29545.5 MW thermal,
9819.7 MW for hydro and 880 MW for nuclear. Unfortunately, due to various
constraints, the Government itself could add only about 19,000 MW compared to
the planned addition.

1.6: THE HEAVY ELECTRICAL MACHINERY INDUSTRY IN

INDIA
The development of the Indian heavy electrical machinery industry is directly

linked to the performance of the Power sector in India. With India’s
development, the need for more and better power supply has become essential for
industries to grow. Thus with increasing focus on capacity expansion in the
Power sector, the heavy electrical machinery manufacturing industry is
expanding vigorously.
1.7: A SNAPSHOT OF THE INDIAN HEAVY ELECTRICAL

MACHINERY INDUSTRY:
The heavy electrical machinery segment in India is monitored by the Ministry of

Heavy Industries and Public Enterprises. The heavy electrical machinery segment
manufactures a wide range of products including boilers, generators,
transformers, switchgears and control gears needed mainly by the power sector.
Evolution of the Indian heavy electrical machinery industry:
Throughout the 1990s and in recent years, industry experts have been trying to
ascertain methods to achieve and sustain growth across segments in the industry
and to help India become a manufacturing hub. The ever increasing demand for
power in India has led to a widening gap between the supply and demand of
electrical machinery to be able to service the planned developmental needs in
India.
In the past two decades the industry has witnessed large scale consolidation. The
consolidation has resulted in stronger companies with increased size, economies
of scale, wider product ranges and enhanced financial strength. Companies now
have greater access than before to foreign markets and higher bargaining power
as a result of combined technological strengths through
Technology transfer from global majors.
However, the industry is still highly fragmented with more than 50 per cent of the
manufacturers with a turnover of less than Rs. 500 million. This is because there
are many companies in the unorganized sector that manufacture transformers,

switchgears, and other products in the lower technology fields. In the organized
sector the domestic manufacturers mainly consist of Public Sector
Units (PSUs).
1.8: GROWTH OF THE HEAVY ELECTRICAL MACHINERY

INDUSTRY:
Electricity generation is expected to double in the world between 2002 and 2025.
The strongest growth in electricity consumption is projected in the emerging
economies. As per the estimates of the International Energy Outlook, investments
in the power sub-segment in the developing countries in Asia are expected to be
the fastest growing in the world in the next two decades.
India’s per capita energy consumption is very low. With the growing economy,
changing lifestyles, increasing electrification of rural and semi – urban areas, the
consumption of electricity is expected to increase, leading to higher per capita
electricity consumption. As per the Ministry of Power and the Central Electricity
Authority (CEA), per capita electricity consumption is set to increase from 585
units in 2007–2008 to 1000 units by 2011–2012.
1.9: SIZE AND STRUCTURE OF THE HEAVY ELECTRICAL

MACHINERY SEGMENT:
Heavy electrical machinery covers machinery for power generation, transmission,

distribution and utilization. This includes generators, boilers, various types of
turbines, transformers, switchgears, insulators and other allied items. These are
used in multicore projects for power generation including nuclear power stations,
petrochemical complexes, chemical plants, integrated steel plants and metal units.
The Government of India has an ambitious mission of addition in generation of
power named ‘For All 2012’. A capacity addition of 72 000 MW would be
required to achieve power for all in India. This scale of expansion in capacity is
expected to stimulate demand in a big way for heavy electrical machinery. The
technology available in India is almost at par with that in the international market
barring some exceptions like high voltage equipment.
It is believed that the history and growth of BHEL, symbolizes the overall growth
pattern of the heavy electrical machinery industry in the country. BHEL has the
unique distinction of being one of the very few companies in the world,

manufacturing all major power generation equipment together under one roof.
Now since the demand for electricity has been increasing steadily, there is a
burgeoning need for more electrical machinery manufacturers as BHEL alone is
not able to fulfill the entire demand.
The industry has been upgrading the existing technology and is now capable of
taking up turnkey contracts for export markets as well. The industry has been
delicensed and foreign collaborations are allowed with 100 percent FDI. The
country is planning to add 150 000 MW to the power generation capacity in the
next 10 years. This will generate substantial demand for heavy electrical
machinery.
There is a strong base for the manufacture of heavy electrical machinery in the
country. The present buoyancy in the Indian economy would further create
demand for electrical machinery through industrial growth and general economic
development.
1.10: LARGE MANUFACTURERS IN THE INDIAN ELECTRICAL

MACHINERY INDUSTRY:
MANUFACTURER COMPANY SECTORS/ PRODUCTS

DESCRIPTION
ABB Have 14 manufacturing Control systems, high
facilities and more than voltage products and
6500 employees. ABB systems, transformers,
Group is leveraging its India cables and accessories and
operations for projects, generators.
products,
Services, engineering, and
R&D. India are a hub for the
South Asia region.
Crompton Greaves Started its India operations Transformers,

in 1937. One of India’s transmission products,

largest private sector generators and
companies. It is a Lighting products.
diverse company engaged in
designing, manufacturing
and
Marketing technologically
advanced electrical
machinery.
Bharat Heavy Electricals Established more than 40 Switchgears, boilers,
Limited years ago, it is the largest turbines, generators,
company in the industry. Its transformers,
range of 180 products caters compressors, capacitors
to power generation and etc.
transmission,
Transportation, telecom, and
renewable energy industries.
Kirloskar Electric Established in 1946 it is one Motors, generators,

of India’s leading switchgears,
manufacturers of transformers, and other
Electrical machinery and electrical products
power equipment. Is capable Like DC machines.
of manufacturing a range of
custom
Made products.
Larsen & Toubro It is one of the largest Switchgear, control and

private sector companies in automation systems and
the business. meters, turbine casings etc
It manufactures custom
designed and engineered
electrical machinery and
systems.

Alstom Employs more than 3 300 Boilers, generators,
people in India and has 4 turbines, heat exchangers
manufacturing etc.
facilities. Alstom India has
full capabilities in
engineering, manufacturing,
project management and
supply of power generation
equipment.
Havells One of the fastest growing Cables, switchgear,

indigenous electrical and capacitors
power and lighting equipment
distribution equipment
Manufacturing companies.
Employs over 8 000
employees
and has manufacturing
facilities spread across
USA, Europe and
Africa.
Thermax An Indian company having Boilers and heaters are its

5 manufacturing facilities major products
and has been in the business
of manufacturing electrical
Equipment for more than 3
decades. Its products are
sold in more than 40
countries worldwide.

BHARAT Bangalore complex is the Digital Switches,
BEL’s first and largest unit
ELECTRONICS Stabilizer Systems,
and it accounts for two-
LIMITED. thirds of both the company’s Simulators, Integrated
turnover and manpower.
Circuits, Transformers
This unit’s product range
covers over 300 Defence
and Civilian products.
Ghaziabad is the second
largest unit of BEL and it
specializes in radars,
communication equipments
& microwave-components.
1.11: GLOBAL SHARE IN PRODUCTION OF INDIAN

COMPANIES:
India is the only developing country besides China, which produces the entire
range of electrical power generation and transmission machinery. Indian
companies enjoy majority of the market share in production across most
segments in the industry. But a large number of collaborations with foreign
manufacturers are taking place in the industry leading to the growth of several
joint venture companies5
1.12: COMPARISON OF INDIAN MANUFACTURERS WITH

GLOBAL LEADERS:
Indian manufacturers are yet to reach the kind of competency levels the global
manufacturers have with regard to technology, delivery and quality parameters.
On the cost parameter, common. characteristics apply to the Indian heavy
electrical machinery industry when compared with the western companies in the
industry. According to a report published by an industry association Indian
Electronic and Electrical Manufacturers Association (IEEMA), the Indian heavy
electrical machinery industry is weak compared to global manufacturers with
respect to automation in production, Research and Development (R&D)
expenditure, training and development.

1.13: CONTRIBUTION OF THE HEAVY ELECTRICAL
MACHINERY INDUSTRY TO THE INDIA ECONOMY:
More than 95 per cent of the electrical machinery successfully installed in

operation in India has been produced, installed and commissioned by the Indian
electrical machinery industry itself. Most of the products required for the
industrial, commercial, and domestic sectors are manufactured by the Indian
heavy electrical machinery industry. India has developed strong capabilities in
manufacturing top-end and high technology products like transformers, turbines
and generators that are at par with international standards. The industry had a
volatile time during the period 1997– 1998 to 2001–2002, but has been showing
positive trends since 2002–2003. The heavy electrical machinery segment has
exhibited a strong growth.
1.14: ADVANTAGES THAT ARE DRIVING GROWTH OF THE

INDUSTRY:
1. India’s quality standards are far more superior from some of the Asian tigers in
the heavy electrical machinery industry.
2. The cost advantage that China enjoyed over India in the last few years was in
the range of 20–25 per cent whereas now that cost advantage over India is
reducing and is now about 5 per cent.
3. Key strength of the industry is in being able to customize manufacturing of
products.
4. Nuclear deal could lead to more business for electrical machinery
manufacturers.
1.15: BOTTLENECKS IN GROWTH OF THE INDIAN HEAVY

ELECTRICAL MACHINERY INDUSTRY:
1. Big challenges cited by industry experts are timely availability of raw materials
and infrastructural deficiencies.

2. The Government of India has set ambitious plans to increase the power
generation capacity of India. However, there are doubts about whether these
targets will be achieved due to sluggish growth of the power sector.
1.16: STRUCTURE OF THE SECTOR
Chart: 1.1
Chart: 1.2
The segment has a fragmented structure with 53% of the manufacturers with a
turnover of less than Rs.50 crores. This is also due to the fact that there are many
companies in the unorganized sector who are manufacturing transformers,

switchgears, contactors and energy meters in the low technology band. This is in
evidence mainly in the product categories which are of standard nature. In power
generation equipment where the emphasis is mainly on projects the market is
dominated by a few large players.
51% of the industry comprised of public limited
companies including PSUs and the balance were private companies including
closely held, partnership firms and subsidiaries of multinationals.
When the equipment manufacturers were asked about their opinion
about the future structure of the sector, 34% of the companies had no opinion or
vision about the future. 46% felt that there will be consolidation / shake out and
20% were of the opinion that the entry of foreign players in the industry will lead
to fragmentation.
It is expected that product segments like high voltage transformers, turbines, HT
circuit breakers, higher capacity electric motors, generators and alternators will
witness a consolidation phase in India. In the low voltage equipment categories
where the technology barrier is not high, the industry will witness fragmentation
with more players entering India especially from China which is expected to be a
strong
competitor. However, the majority of the respondents felt that only players who
have proven technology, produce quality products and render a package of
services will be able to survive in the future.
Chart: 1.3

Only 40% of the manufacturing companies were involved in the entire range of
activities like design, engineering, manufacturing, erection, commissioning and
servicing. These companies are also EPC contractors in the power sector. The
other companies are manufacturing products which are supplied directly to
OEM’s, or to the utility companies, or through distribution channels and hence
activities like erection and servicing are not required.
1.17: TECHNOLOGY
The manufacturers and users felt that the technology available in India for most
of the products was available in India barring a few products required for high
voltage lines. Raw materials like CRGO steel, amorphous cores for low loss
transformers, high voltage insulation papers, cables and joint accessories above
132 kV, OPGW,
G/S above 145 kV, disturbance recorders for 132 kV Sub-stations are still
imported since they are not manufactured either due to lack of availability of
technology, or the volumes required are not economical.
POWERGRID has already implemented/implementing the
following new technologies and the domestic companies are quickly gearing
themselves to either developing or acquiring these technologies.
• Modern route survey technique using GPS, GIS, satellite imagery, ALTM
etc
• 765 kV transmission system
• Flexible AC transmission system (FACTS)
• High surge impedance loading line
• ulti circuit and compact tower
• Gas Insulated switchgear in urban/scarce land areas
• Enhanced thermal limit (95 deg. C.) for transmission line
• High temperature endurance conductor (235 deg. C.) etc.

1.18: BENCHMARKING WITH INTERNATIONAL COMPANIES
Some broad indicators in terms of benchmarking of the industry on the basis of

financial parameters has been done against a few global players.
Operational Efficiencies
Financial Parameters
Sales have been on the rise even during the recessionary period because of the
demand from the power sector. The growth rate has been excellent in 2004-05 as
compared to 2003-04 at 27% and that too over 21% over the previous year.
Exports as compared to domestic sales, have fallen in 2004-05 after a 7.8%
growth in 2003-04.
Chart: 1.4

Chart: 1.5
The previous year has witnessed an unprecedented rise in basic metal prices like
copper, aluminum, and CRGO steel. This is evident from the graph below.
Further, due to the inverted duty structure, companies have increased
procurement of complete equipment, thereby adding to the cost of raw materials
and bought outs.
Value added for an industry is the difference between the value of the output and
the value of the inputs namely raw materials & bought outs. In other words we
can attribute this difference to the value added to the product by the company. In
this sector it has been noted that the value added as a percentage of net sales has
shown a sharp decline from 45% in 2008 to 43% in 2009 and 30% in 2010. This
is mainly due to two reasons:
 The unprecedented increase in the cost of raw materials like copper,

aluminum and CRGO steel and the inability of the industry to increase
prices to that effect has made a dent on the profit margins and value
addition.

 Secondly with the reduction in customs duties and the inverted duty
structures, companies find it economical to import complete equipment,
test it and sell thereby value addition is only in terms of profit margin and
testing charges.
The country is facing an acute shortage of supply along with high price
fluctuations and erratic delivery schedules and production of this steel is
nonexistent in India. Heavy Electrical Industries in India play an important role in
solving the above problems. in recent years due to globalization the entry of new
multinational companies in heavy electrical industry has a tremendous impact on
the domestic industries. This study is undertake in order to evaluate such
domestic industries

CHAPTER-2
LITERATURE REVIEW
INTRODUCTION
2.1: PURPOSE OF THE STUDY
The industrial public enterprises play an important role in the developing

countries. They operate in a large scale variety of industries ranging from
Petrochemicals to textiles. They have produced over 50 percent of the industrial
output in Egypt, Somalia, and the United Republic of Tanzania and over 25 per
cent in India and Turkey. Their share in total manufacturing investment has been
as high as 90 per cent in Egypt and 50 per cent in Mexico. Relatively vast
resources have been made available to this sector in the developing countries.
The economic welfare of a country is likely to be substantially effected by the
nature and size of the output of public enterprise. It is, therefore, important to
assess the contribution of public enterprises in the countries welfare and to ensure
that they work towards maximizing benefits.
The public enterprises are expected to achieve many different and often
conflicting objectives. For example, they are supposed to generate some financial
surplus which may, at times, be contradictory to other objectives like reducing
unemployment or promoting employee’s welfare or developing skills or
contributing to growth or technical progress, and the correction of regional
imbalances. Many times, public enterprises engaged in manufacturing are not
financially profitable because of some factors like poor capacity utilization,
industrial relations problems, equipment failures, managerial shortcomings, and
huge inventory accumulations, but their inefficiency is usually protected by
vague references to their contribution to economic welfare.
An attempt has been made in that paper to find out the empirical classification of
financial measures of performance in Indian public Heavy Electrical enterprises
and how it differs from that of Private Heavy Electrical enterprises.

2.2: RESEARCH METHODOLOGY
The study is based on four randomly selected manufacturing companies in the

public and private sectors. Out of which two of them are in the public sector
while other two belong to private sector. All the selected companies have paid-up
share capital of at least Rs. one crores.
All the measures of profitability are selected for this study that is Return on
investment, Profit margin and Capital turnover. But for managerial performance
debt-equity structure, fixed assets management and solvency are selected.
These measures are preferred because they have been used most commonly in
practice for judging the performance of an enterprise.
In the research paper they have identified 91 unique financial measures related to
the chosen basis of measuring performance. Many of the measures included are
highly correlated with one another because of commonality of financial
components used in their calculations. All the overlapping measures cannot be
eliminated by inspection. Principal component analysis is used to find out such
Inter-relationships. Principal component analysis groups variables into a few
independent factors that retain maximum information contained in the original
information set. The technique has been used to isolate the independent patterns
of the selected financial measures of performance in public enterprise. However,
an attempt has also been made to compute the result of the Principal component
analysis for public and private sector enterprise separately, and then doing the
combined analysis to find out the differences.
The Principal component analysis is sensitive to the data which are not normally
distributed. The effective use of Principal component analysis also requires that
the variables should not be easily derived from one another. The variables are
carefully scrutinized to minimize this type of error.
In order to facilitate the interpretation, initial factor solutions are generally
rotated. Rotational procedures are available to produce either orthogonal or
oblique factors. The factors are rotated with the help of both Principal component
analyses and factor analyses and the factor structure were found to be more or
less the same under the either method.

INTRODUCTION ABOUT FINANCIAL ANALYSIS
2.3: IMPORTANCE OF FINANCE:
Finance is regarded as the lifeblood of the business enterprises.

This is because in the modern money oriented economy finance is one of the
basic foundations of all kinds of economic activities. It provides access to all the
sources being employed in manufacturing and merchandising activities. It has
been rightly termed universal lubricant, which keeps enterprise dynamic.
The finance functions are an essential and at the same time a very
distinct segment of the overall managerial function. It is indispensable in any
organization as it helps in:
• Financial planning and successful promotion of an enterprises.
• Acquisition of funds as and when required at the minimum possible cost.
• Proper use and allocation of the funds.
• Taking sound financial decision.
• Increasing the wealth of the investor and the nation.
• Promotion and mobilizing individual and corporate saving
This unique of finance given it an elevated status, which it

deserves in the overall business functions. Hence efficient management of every
business functions. Hence efficient management of every business enterprise is
closely
linked with efficient of its finance. Finance is the genesis of the entire business
activity.
2.4: FORMS OF FINANCE
The subject of all finance has been traditionally classified into two classes:
1) Public finance

2) Private finance
 Public finance
It deals with the requirements and disbursements of funds in the

government institution like states, local self-government and central
governments.
 Private finance
It is concerned with requirements, receipts and disbursements of

funds in case of an individual, a profit seeking business organization and a
non-profit organization.
2.5: MEANING OF FINANCE:
Finance holds the key to all activities. The Sanskrit saying

“Arthasachivah” which means, “finance reigns supreme”, speaks volumes for the
significance of the finance function of an organization.
Financial management refers to all those managerial activities or efforts
which are concerned with ascertainment of the finance, short term as well as long
term needed by the firm, determination of the sources suitable under the given
circumstances and collection of the funds in time, and control over the utilization
of funds.
Financial management refers to the application of general
management principles to particular financial operation. Financial management is
that part of management which is concerned mainly with raising funds in the
most economic and suitable; using these funds as probably as possible; planning
future operation, and control current performance and future developments
through financial accounting, cost accounting, budgeting, statistics and other
means.
Financial management is an excellent tool by means of which
resources can be allocated to various project, depending upon their importance
and pay-off capacities. It provides the best guide for future resources allocation
by a firm. It provides relatively uniform yardsticks for judging most of the
enterprise’s operations and projects.

Definition
J.F.Bradely defines financial management as, “The area of the
business management devoted to a judicious use of capital and careful selection
sources of capital in order to enable a spending unit to move in the direction of
reaching its goals”.
Weston and Brigham, “Financial management is an area of
financial decision making, harmonizing individual motives and enterprise goals.”
2.6: DECISIONS IN FINANCIAL MANAGEMENT
Financial decisions are the decision relating to financial matters of

a corporate entity. Financial requirement, Investment, Financing and Dividend
decisions are the most important areas of financial management, which facilitate
a business firm to wealth maximization. Financial decisions have been considered
as the means to achieve long term objective of the corporate.
Financial Decisions
2.7: FINANCIAL DECISION:
The function of finance involves three major decisions the firm

must make, the investment decision, the financing decision, and the dividend

decision. Each must be considered in relation to the objective of the firm, an

optimal combination of the three will maximize the value of the firm to its
shareholders. Because the decisions are interrelated, we must consider their joint
impact on the market price of the firm’s stock, so we shall examine each of them.
• INVESTMENT DECISION:
Investment decision is concerned with allocation of funds to both

capital and current assets. Capital assets are financed through long term funds and
current assets are financed through short-term funds. The financial manager has
to carefully allocate the available funds to recover not only the cost of funds but
also must earn sufficient returns on the investments. Capital budgeting, CVP
analysis are the techniques generally used in the process of investment decisions.
• FINANCING DECISION:
The financial decision is the decision regarding when, where and

how to acquire funds to meet the firm’s investment needs. Financing decisions is
concerned with identification of various sources of funds. Funds are available
through primary market, financial institution and through the commercial banks.
Cost associated with each of the instrument or sources different. This decision
will be made by considering the different factors like inflation, size of the
organization, government policies, etc.
• DIVIDEND DECISION:
The third major financial decision relates to the disbursements of profits
back to investors who supply capital to the firm. The dividend is concerned with
the quantum of profit to be distributed among shareholders. The management
must decide whether the firm distribute all the profits are retained them or
distribute a portion and retain the balance. Theoretically, this decision should
depend on whether company or the shareholders can make more profitable use of
funds. However in practice a number of other functions like the market price of

shares, the trend of earnings, the tax positions of shareholders etc., play an
important role in determination of dividend policy of a business enterprise.
2.8: FINANCIAL ANALYSIS
The basis for financial planning, analyzing and decision-making is

the financial information. Financial information is needed to predict, compare
and evaluate the firms earning ability. It is also requiring to aid in economic
decision making investment and financing decision-making. The financial
information of an enterprise is contained in the financial statements or accounting
reports.
The financial score of the firm is kept by the accounting system. It
points out the problems faced or likely to be faced by the firm. It also brings to its
notice opportunities that are likely to arise. It indicates possible action when
needed.
Financial statements are the product of accounting work done
during the accounting period; say a year. Financial statement normally includes
Balance Sheet and profit and loss account also called Income statement. These
are also described as summarized presentation of monetary data organized
according to certain accounting principles and procedures.
The financial statements are historical documents and relate to a
past period. The period is normally of one year duration. Many business
enterprises prepare their financial statement frequently.
The analysis of financial statements is process of evaluation
relationship between component parts of financial statement to obtain a better
understanding of the firm’s position and performance.
A firm communicates financial information to the user through
financial statement and reports. Financial statements contain summarized
information of the firm’s financial affairs; organized systematically they are
means to present the firm’s financial situation to the users.
Analysis of financial statements involves methodical compilation
of accounting data, identification relevant data, expressing the relationship to
identify strong and weak areas of business operations and to seek possible answer
to problems in view.

Planning helps every management in using the limited resources

of the firm efficiently and economically. The future plans of the firm should be
paid down in views of the firm’s financial strengths and weakness. Thus,
financial analysis is the starting point for making plans, before using any
sophisticated forecasting and budgeting procedures.
Financial analysis is the process of identifying the financial
strengths and weakness of the firm by properly establishing relationship between
the items of the Balance sheet and Profit and loss account. The analysis includes
establishing relationship comparison and setting trends.
2.9: SIGNIFICANCE AND PURPOSE OF FINANCIAL ANALYSIS
 Analysis of financial statement is an attempt to measure the enterprise

liquidity, profitability, solvency and other indicators to assess its efficiency
and performance. Analysis of financial statement is linked with the objective
and interest of the individual agency involved. Some of the agencies
interested in the enterprise include investors, bankers, lenders, customers,
employees, management and regulatory authorities like tax authorities, stock
exchanges. Many of these agencies have diverse and conflicting interests.
 An investor is interested in the profitability and safety of his investment and

would like to know whether the business is profitable, has growth potential
and is progressing on sound lines.
 Bankers and lenders are interested in servicing of their loans by their

enterprise, that is, regular payment of interest and repayment of principal
amount at scheduled dates. Bankers and lenders would also like to know the
safety of their investment and reliability of returns. Employees interested in
better emoluments and continuation of the business, would like to know its
financial performance and profitability.
 Management concerned in the financial performance and financial condition

of the enterprise. It would like to know about its viability as an ongoing

concern, management of cash, debtors and fixed assets, and adequacy of

capital structures.
 Regulatory authorities would like to ensure that the financial statement

prepared are according to the specified laws and rules and are to the
safeguard the interest of various concerned agencies.
 Different agencies thus look at the enterprise from their responsible view
point, and are interested in, knowing about its profitability and financial
position. In short, a detailed cause and effect study of profitability and
financial condition is the overall objective of financial statement analysis.
2.10: TOOLS OF FINANCIAL ANALYSIS:
There are many methods of techniques used to analyze the

financial statements. Those are
 Ratio analysis
 Trend analysis
 Capital Structure analysis
 Comparative analysis
 Common size analysis
 Cash flow analysis
 Fund flow analysis
 Du-Pont Analysis etc…
• RATIO ANALYSIS:
Ratio analysis is an important and powerful technique or method.
It is used as a yardstick for evaluating the financial condition and performance of
a firm. Analysis and interpretation of various accounting ratios gives a better
understanding of financial condition and performance of the firm in a better
manner than the perusal of financial statements.
• TREND ANALYSIS:

Trend analysis is a statistical device applied in the analysis of

financial statements to reveal the trend of items with the passage of time.
• CAPITAL STRUCTURE ANALYSIS

The permanent long-term financing of a company, including long-term debt,
common stock and preferred stock, and retained earnings. It differs from financial
structure, which includes short-term debt and accounts payable.
The capital structure of a company is the particular combination of debt, equity

and other sources of finance that it uses to fund its long term financing.
The key division in capital structure is between debt and equity. The proportion
of debt funding is measured by gearing.
This simple division is somewhat complicated by the existence of other types of

capital that blur the lines between debt and equity, as they are hybrids of the two.
Preference shares are legally shares, but have a fixed return that makes them
closer to debt than equity in their economic effect. Convertible debt may be likely
to become equity in the future.
• COMPARATIVE ANALYSIS:
Comparative financial statements indicate the direction of
movement with respect of financial position and operating results of the firm.
The importance of comparative financial statements can be understood from the
requirement of the Companies Act, 1956 which makes obligatory for all
companies to prepare the final accounts of the companies by presenting current
year as well as previous year figures.
• COMMON SIZE ANALYSIS:
The common size statements represent the relationship of different
items, contained in a financial statement, with some common item by expressing
each item as a percentage of the common item.

• CASH FLOW ANALYSIS:

A cash flow statement explains the causes of changes in cash
position of a business enterprise, between two dates of balance sheets. Cash flow
statement is a tool that is available to the management to assess, monitor and
control the liquidity available in the enterprise.
• FUND FLOW ANALYSIS:
Funds flow analysis is a device that indicates the various means
through which funds have been obtained, during a specified period and the ways
they have been used. It shows the inflows and outflows of funds.
• DU-PONT ANALYSIS:
The DuPont analysis is a method for assessing a company's return
on equity (ROE). It is also often called the DuPont identity. The DuPont analysis
breaks down a company's ROE by analyzing asset efficiency or turnover ratio,
operating efficiency and financial leverage—this approach measures a company's
gross book value.
2.11: RATIO ANALYSIS:
Ratio analysis is an important and powerful technique or method.

It is used as a yardstick for evaluating the financial condition and performance of
a firm. Analysis and interpretation of various accounting ratios gives a better
understanding of financial condition and performance of the firm in a better
manner than the perusal of financial statements.
MEANING:
A ratio or a financial ratio is a relationship between two
accounting figures, expressed mathematically. Ratio analysis helps to ascertain
the financial condition of the firm. In financial analysis, a ratio is compared
against a benchmark for evaluating the financial positions and performance of a
firm. Financial ratios help to summarizes large quantities of financial data to
make qualitative judgement about the firm’s financial performance.

UTILITY OF RATIO ANALYSIS:

It is a most important tool of financial analysis. Many diverse
groups of people are illustrated in analyzing the financial information to indicate
the operating and financial efficiency and the growth of the firm. The people use
ratios to determine those financial characteristics of the firm in which they are
interested with the help of ratios, one can determine:
1. The ability of the firm to meet its current obligations the extent to which
the firm has used its long-term solvency by borrowing funds.
2. The efficiency with the firm is utilizing its assets in generating the sales
revenue.
3. The overall operating efficiency and performance of the firm.
4. With help of ratios an inter-firm comparison can be made.
5. Measure the overall profitability of the concern.
6. Helpful in assessing the long-term financial viability of a firm.
LIMITATIONS OF RATIOS:
1. It is difficult to decide on the proper basis of comparison.
2. The comparison is considered difficult because of difference in situations

of two companies or one company over the years.
3. The price level changes make the interpretation of ratios invalid.
4. The difference in defamations of items in the Balance sheet and profit and
loss statement makes the interpretation of ratios difficult.
5. The ratios calculated at a point of time are less informative and defective
so they suffer from short-term changes.
6. The ratios are generally calculated from past financial statements and thus
are no indicators of the future.

7. There are no well-accepted standards and rules of thumbs for all ratios,
which can be accepted as norms. It renders interpretations of ratios
difficult.
8. Change in accounting procedure by a firm often makes ratio analysis

misleading, e.g., a change in the valuation methods of inventories.
9. Like financial statements, ratios also suffer from the inherent weakness of
accounting records such as their historical nature. Ratios of the past are
not necessarily true indicators of the future.
It helps the analysis to get a better insight about financial strength and weakness
of firm. At the same time, it is important to understand that ratio analysis
provides a symptomatic analysis of a company’s performance and financial
condition. To view each ratio separately and assess the financial situation on that
basis is not a recommended practice.
This is so because each ratio reflects a symptom but all the symptoms may be
combined and analysis as a whole before a diagnosis can be made. Ratio analysis
can be used in the similar way by a financial manager. They are related and
interrelations must be understood. Each managerial decision affects not only one
ratio but also a number of ratios.
Ratio analysis is a powerful tool of financial analysis. A ratio is
defined as “The relationship between accounting figures expressed
mathematically, is known as financial ratio”.
In financial analysis, a ratio is used as an index or yardstick for
evaluation the financial position and performance of a firm. It helps the analyst to
make qualitative judgment about the firm’s position and performance.
It involves comparison for a useful interpretation of the financial
statements. It should be compared with some standards.
The standards of comparison are:
∗ Ratios calculated from the past statements of the same firm.

∗ Ratios developed using the projected financial statements of the same
firm.

The easiest way to evaluate the performance of a firm is to compare its

present ratios with past ratios, and the ratios of are firm with some selected firms
in the same industry, at the same point in time
2.12: USING FINANCIAL RATIOS
Calculating financial ratios is a pointless exercise unless you understand how to

use them. One overriding rule of ratio analysis is this: A single ratio provides
very little information, and may be misleading. You should never draw
conclusions from a single ratio. Instead, several ratios should support any
conclusions that you make.
With that precaution in mind, there are several ways that ratios can be used to
draw important conclusions.
We know business is mainly concerned with the financial activities. In order to

ascertain the financial status of the business every enterprise prepares certain
statements, known as financial statements. Financial statements are mainly
prepared for decision making purpose. But the information as is provided in the
financial statements is not adequately helpful in drawing a meaningful
conclusion. Thus, an effective analysis and interpretation of financial statements
is required. Analysis means establishing a meaningful relationship between
various items of the two financial statements with each other in such a way that a
conclusion is drawn. By financial statements we mean two statements:
(I) Profit and loss Account or Income Statement
(ii) Balance Sheet or Position Statement
These are prepared at the end of a given period of time. They are the indicators of
profitability and financial soundness of the business concern. The term financial
analysis is also known as analysis and interpretation of financial statements. It
refers to the establishing meaningful relationship between various items of the
two financial statements i.e. Income statement and position statement. It
determines financial strength and weaknesses of the firm. Analysis of financial
statements is an attempt to assess the efficiency and performance of an enterprise.
Thus, the analysis and interpretation of financial statements is very essential to

measure the efficiency, profitability, financial soundness and future prospects of

the business units.
Types of financial statement are:
1) Comparative statement
2) Common size statement
3) Trend analysis
Financial analysis serves the following purposes:

1. Measuring the profitability
The main objective of a business is to earn a satisfactory return on the funds

invested in it. Financial analysis helps in ascertaining whether adequate profits
are being earned on the capital invested in the business or not. It also helps in
knowing the capacity to pay the interest and dividend.
2. Indicating the trend of Achievements
Financial statements of the previous years can be compared and the trend
regarding various expenses, purchases, sales, gross profits and net profit etc. can
be ascertained. Value of assets and liabilities can be compared and the future
prospects of the business can be envisaged. Assessing the growth potential of the
business. The trend and other analysis of the business provide sufficient
information indicating the growth potential of the business.
3. Comparative position in relation to other firms
The purpose of financial statements analysis is to help the management to make a

comparative study of the profitability of various firms engaged in similar
businesses. Such comparison also helps the management to study the position of
their firm in respect of sales, expenses, profitability and utilising capital, etc.
4. Assess overall financial strength
The purpose of financial analysis is to assess the financial strength of the

business. Analysis also helps in taking decisions, whether funds required for the
purchase of new machines and equipments are provided from internal sources of
the business or not if yes, how much? And also to assess how much funds have
been received from external sources.
5. Assess solvency of the firm

The different tools of an analysis tell us whether the firm has sufficient funds to
meet its short term and long term liabilities or not.
PARTIES INTERESTED
Analysis of financial statements has become very significant due to widespread
interest of various parties in the financial results of a business unit. The various
parties interested in the analysis of financial statements are:
(i) Investors :
Shareholders or proprietors of the business are interested in the well being of the
business. They like to know the earning capacity of the business and its prospects
of future growth.
(ii) Management :
The management is interested in the financial position and performance of the

enterprise as a whole and of its various divisions. It helps them in preparing
budgets and assessing the performance of various departmental heads.
(iii)Trade unions :
They are interested in financial statements for negotiating the wages or salaries or
bonus agreement with the management.
(iv) Lenders :
Lenders to the business like debenture holders, suppliers of loans and lease are
interested to know short term as well as long term solvency position of the entity.
(v) Suppliers and trade creditors :
The suppliers and other creditors are interested to know about the solvency of the
business i.e. the ability of the company to meet the debts as and when they fall
due.
(vi)Tax authorities :
Tax authorities are interested in financial statements for determining the tax
liability.
(vii) Researchers:

They are interested in financial statements in undertaking research work in

business affairs and practices.
(viii)Employees :
They are interested to know the growth of profit. As a result of which they can
demand better remuneration and congenial working environment.
(ix)Government and their agencies :
Government and their agencies need financial information to regulate the

activities of the enterprises/ industries and determine taxation policy. They
suggest measures to formulate policies and regulations.
(x) Stock exchange :
The stock exchange members take interest in financial statements for the purpose
of analysis because they provide useful financial information about companies.
Thus, we find that different parties have interest in financial statements for
different reasons.
Lawrence Hamil (1998) stated that one of the most important tools for assessing
the strength of an organization within its industry is financial analysis. Managers,
investors and strategist all employ some form of this analysis as a beginning point
for their strategic decision-making. Investors, strategists use financial analysis in
making decision about whether to engage in certain business decision. They
provide managers with a measurement of how the company is doing (performing)
in comparison with its performance in past years and with the performance of
competitors in the industry.
Although, financial analysis is useful for decision-making, there are

some weaknesses that should be noted. Any picture that it provides of
the company is based on past data. Although trends may be noteworthy, this
picture should not automatically be assumed to be
applicable to the future. In addition, the analysis is only as good as the accounting
procedures that generated the information. When making comparisons between
companies; one should keep in mind the variability of accounting procedures
from firm to firm.

2.13: COMPARATIVE STATEMENT
Comparative statements are financial statements that cover a different time frame,
but are formatted in a manner that makes comparing line items from one period
to those of a different period an easy process. This quality means that the
comparative statement is a financial statement that lends itself well to the process
of comparative analysis. Many companies make use of standardized formats in
accounting functions that make the generation of a comparative statement quick
and easy.
IMPORTANCE AND USES

The benefits of a comparative statement are varied for a corporation. Because of
the uniform format of the statement, it is a simple process to compare the gross
sales of a given product or all products of the company with the gross sales
generated in a previous month, quarter, or year. Comparing generated revenue
from one period to a different period can add another dimension to analyzing the
effectiveness of the sales effort, as the process makes it possible to identify trends
such as a drop in revenue in spite of an increase in units sold.
Along with being an excellent way to broaden the understanding of the success of
the sales effort, a comparative statement can also help address changes in
production costs. By comparing line items that catalogue the expense for raw
materials in one quarter with another quarter where the number of units produced
is similar can make it possible to spot trends in expense increases, and thus help
isolate the origin of those increases. This type of data can prove helpful to
allowing the company to find raw materials from another source before the
increased price for materials cuts into the overall profitability of the company.
A comparative statement can be helpful for just about any organization that has to
deal with finances in some manner. Even non-profit organizations can use the
comparative statement method to ascertain trends in annual fund raising efforts.
By making use of the comparative statement for the most recent effort and
comparing the figures with those of the previous year’s event, it is possible to
determine where expenses increased or decreased, and provide some insight in
how to plan the following year’s event.

FEATURES OF COMPARITIVE STATEMENTS:-

1) A comparative statement adds meaning to the financial data.
2) It is used to effectively measure the conduct of the business activities.
3) Comparative statement analysis is used for intra firm analysis and inters
firm analysis.
4) A comparative statement analysis indicates change in amount as well as

change in percentage.
5) A positive change in amount and percentage indicates an increase and a

negative change in amount and percentage indicates a decrease.
6) If the value in the first year is zero then change in percentage cannot be
indicated. This is the limitation of comparative statement analysis. While
interpreting the results qualitative inferences need to be drawn.
7) It is a popular tool useful for analysis by the financial analysts.
8) A comparative statement analysis cannot be used to compare more than

two years financial data.
2.14: COMMON SIZE FINANCIAL STATEMENTS
Common size ratios are used to compare financial statements of different-size

companies or of the same company over different periods. By expressing the
items in proportion to some size-related measure, standardized financial
statements can be created, revealing trends and providing insight into how the
different companies compare.

The common size ratio for each line on the financial statement is calculated as
follows:
Item of Interest
Common Size Ratio =
Reference Item
For example, if the item of interest is inventory and it is referenced to total assets
(as it normally would be), the common size ratio would be:
Inventory
Common Size Ratio for Inventory =
Total Assets
The ratios often are expressed as percentages of the reference amount. Common
size statements usually are prepared for the income statement and balance sheet,
expressing information as follows:
• Income statement items - expressed as a percentage of total revenue

• Balance sheet items - expressed as a percentage of total assets
The ratios in common size statements tend to have less variation than the absolute
values themselves, and trends in the ratios can reveal important changes in the
business. Historical comparisons can be made in a time-series analysis to identify
such trends. Common size statements also can be used to compare the firm to
other firms.
Comparisons between Companies (Cross-Sectional Analysis)
Common size financial statements can be used to compare multiple companies at

the same point in time. A common-size analysis is especially useful when
comparing companies of different sizes. It often is insightful to compare a firm to
the best performing firm in its industry (benchmarking). A firm also can be
compared to its industry as a whole. To compare to the industry, the ratios are
calculated for each firm in the industry and an average for the industry is

Calculated. Comparative statements then may be constructed with the company

of interest in one column and the industry averages in another. The result is a
quick overview of where the firm stands in the industry with respect to key items
on the financial statements
FEATURES OF COMMON SIZE STATEMENT
1. A common size statement analysis indicates the relation of each

component to the whole.
2. In case of a Common Size Income statement analysis Net Sales is taken as
100% and in case of Common Size Balance Sheet analysis total funds
available/total capital employed is considered as 100%.
3. It is used for vertical financial analysis and comparison of two business
enterprises or two years financial data.
4. Absolute figures from the financial statement are difficult to compare but
when converted and expressed as percentage of net sales in case of
income statement and in case of Balance Sheet as percentage of total net
assets or total funds employed it becomes more meaningful to relate.
5. A common size analysis is a type of ratio analysis where in case of
income statement sales is the denominator (base) and in case of Balance
Sheet funds employed or total net assets is the denominator (base) and all
items are expressed as a relation to it.
6. In case of common size statement analysis the absolute figures are
converted to proportions for the purpose of inter-firm as well as intra-firm
analysis.
Limitations
As with financial statements in general, the interpretation of common size

statements is subject to many of the limitations in the accounting data used to
construct them. For example:

1. Different accounting policies may be used by different firms or within the

same firm at different points in time. Adjustments should be made for
such differences.
2. Different firms may use different accounting calendars, so the accounting
periods may not be directly comparable
2.15: TREND ANALYSIS
Trend analysis calculates the percentage change for one account over a period of
time of two years or more.
Percentage change
To calculate the percentage change between two periods:
Calculate the amount of the increase/ (decrease) for the period by subtracting the
earlier year from the later year. If the difference is negative, the change is a
decrease and if the difference is positive, it is an increase.
FEATURES OF TREND ANALYSIS
1) In case of a trend analysis all the given years are arranged in an ascending
order.
2) The first year is termed as the “Base year” and all figures of the base year
are taken as 100%.
3) Item in the subsequent years are compared with that of the base year.
4) If the percentages in the following years is above 100% it indicates an
increase over the base year and if the percentages are below 100% it
indicates a decrease over the base year.
5) A trend analysis gives a better picture of the overall performance of the
business.
6) A trend analysis helps in analysing the financial performance over a
period of time.

7) A trend analysis indicates in which direction a business is moving i.e.

upward or downwards.
8) A trend analysis facilitates effective comparative study of the financial
performance over a period of time.
9) For trend analysis at least three years financial data is essential. Broader
the base the more reliable is the data and analysis.
2.16: CAPITAL STRUCTURE: THEORY AND ANALYSIS
Financing decisions involve raising funds for the firm. It is concerned with
formulation and designing of capital structure or leverage. The most crucial
decision of any company is involved in the formulation of its appropriate capital
structure. The best design or structure of the capital of a company helps the
management to achieve its ultimate objectives of minimizing overall cost of
capital, maximizing profitability and also maximizing the value of the firm.
The capital structure decision of a firm is concerned with the determination of
debt equity composition. Capital structure ordinarily implies the proportion of
debt and equity in the total capital of a company. The term capital may be
defined as the long – term funds of the firm. Capital is the aggregation of the
items appearing on the left hand side of the balance sheet minus current
liabilities.
In other words capital may be expressed as follows:
Capital = Total Assets – Current Liabilities.
Further, capital of a company may broadly be categorized into equity and debt.
The total capital structure of a firm is represented in the following figure:

Total Capital
Equity Capital Debt Capital
Equity Share Capital Term Loans

Preference Share Capital Debentures
Share Premium Deferred Payments Liabilities
Retained Earnings Other Long term Debt
Established companies generally have track record of their profit earning

capacity, which helps them to create their creditworthiness. The lenders feel safe
to invest their funds in such companies. Thus, there is ample scope for this type
of companies to collect debt. But a company cannot freely i.e. without having any
limit. The company must have to chalk out a plan to collect a debt in such a way
that the acceptance of debt becomes beneficial for the company in terms of
increase in EPS, profitability and value of the firm.
If the cost of capital is greater than the return, it will have an adverse effect on
company’s profitability, value of the firm and its EPS. Similarly, if company is
unable to repay the debt within the scheduled period it will affect the goodwill of
the company in the credit market and consequently may create problems in future
for collecting further debt. Other factors remaining constant, the company should
select its appropriate capital structure with due consideration.

Capital structure involves a choice between risk and expected return. The optimal
capital structure strikes the balance between these risks and returns and thus
examines the price of the stock.
Significant variations with regard to capital structure can easily be noticed among
industries and firms within the same industry. So it is difficult to generate the
model capital structure for all business undertakings. The following is an attempt
to consolidate the literature on various methods to suggest by researchers in
arriving at optimal capital structure.
Notations used:
• V = value of firm
• FCF = free cash flow
• WACC = weighted average cost of capital
• rs and rd are costs of stock and debt
• re and wd are percentages of the firm that are financed with stock and
debt.
2.17: BANKRUPTCY AND FINANCIAL VIABILITY ANALYSIS
After making above analysis, it has been tried to evaluate the financial health and
viability of these banks by using Altman Z-Score model. Altman (1968) coined
a multivariate Z-score analysis to assess financial health and to predict
Bankruptcy. It has been considered a powerful diagnostic tool that forecasts the
bankruptcy. The model is defined as: (Z =1.2X1 + 1.4X2 + 3.3X3 +0.6X4 +
0.999X5) wherein, the variables X1 to X4 are computed as percentage values
while X5 variable is obtained in number of times and signify as: X1 is the ratio of
working capital to total assets, X2 is the ratio of retained earnings to
total assets, X3 is the ratio of earnings before interest and tax to total assets, X4 is
the ratio of market value of equity to book value of debt, X5 is the ratio of sales
to total assets. The model discriminate the sampled unit(s) in three categories in
terms of Z-score output in relation to the financial performance.

Category Z-score value Inference/Implications
I Below 1.8 Weak Performance/Bankruptcy zone

II 1.8 – 3.0 Healthy Performance
III above 3.0 Very Healthy/Sound performances
Thus in this study TREND, REGRESSION, COMMAN SIZE and Altman Z-

Score model Analysis methods are used as base to evaluate the Electrical
Industry in India.
Thus in this study we have use the methods such as Trend Analysis to check the
performance of Share holders Fund ,Gross Earnings ,Profit After Tax, Profit
Before Tax. In the study we have also used regression analysis along with
Common Size Balance Sheet with Income Statement, With ALTMAN's Z -
SCORE

CHAPTER-3
RESEARCH METHODOLOGY
Research refers to a search for knowledge. The advanced learner’s dictionary of

current English lays down the meaning of research as “a careful investigation
or enquiry especially through search for new facts in any branch of knowledge.”
Research methodology is a way to systematically
solve the research problem. It may be understood as a science of studying how
research is done scientifically. In it we study the various steps that are generally
adopted by a research in studying his research problem along with the logic
behind them. Methodology refers to methods adopted to carry out the research
and steps adopted to solve the problem finding solution. The research
methodology has wider dimension and wider scope than that of research
methods.
3.1:TITLE OF THE STUDY:
“An Evaluation of Financial Performance of Indian Heavy Electrical

Industries “- A study at Bangalore.
3.2:STATEMENT OF THE PROBLEM:
This study helps to understand the Financial Performance of the Indian heavy
electrical industry so has to support the generation of power which is the basic
need and the major shortage source of energy and hurdle for the process of nation
building .The research is based on the financial Analysis tools such as trend
analysis, Regression Analysis, Capital structure Analysis,.
3.3:OBJECTIVES OF THE STUDY
1. To assess the profitability of four heavy electrical industries at Bangalore.

2. To evaluate Share Holders Fund So as to assess the Financial
Performance of the heavy electrical industries using Trend analysis.

3. To Analyse overall performance of heavy electrical industries using

Common Size analysis.
4. To Diagnoise the probability of bankruptcy of heavy electrical industries
using Altman’s Z- score Model.
5. To understand the status of the heavy electrical industries.
3.4:STUDY DESIGN:
A research design is the master-plan or a model for the conduct of formal

investigation. It is one that provides for a frame work within which the researcher
is to work. There are three types of research design, namely;
• Exploratory Research
The type of the study or research used in this project is an exploratory research
design. It mainly involves surveys and facts findings enquiries of different kinds.
The major purpose of exploratory research is a description of the state of the
affairs, as it exists at present. Thus a study is a fact finding investigation with
adequate interpretation. It focuses on particular aspects or dimensions of the risk
and return of mutual fund. It is designed that it gathers descriptive information
and provides information for formulating more sophisticated studies.
The design used in this research is experimental design. In this study an attempt
has been made to experiment the MODEL –“ An Evaluation of Financial
Performance of Indian Heavy Electrical Industry - A study at Bangalore”
taking four Major companies of Heavy Electrical Industry of INDIA out of
which two are from public sector and other two are from private sector which
have units in Bangalore as the sample.
3.5:TYPES OF DATA
Secondary and Primary data has been used for the analysis purpose.

3.6:STUDY FRAME:
The research is a Quantitative as it involves a collection of secondary data of four

companies for a term of 5 years and applying statistical tools to get the results.
3.7:SAMPLE TECHNIQUE
The sampling technique used is the convenient sampling. As the name implies,
the sample is selected because they are convenient.
3.8:DATA GATHERING PROCEDURE
The major data relevant for this research is secondary data which has been
Collected from annual Reports and Websites.
3.9:LIMITATIONS OF THE RESEARCH
A. Sample restricted to two Government companies and two Public

Companies.
B. Data considered for five years only.
C. The research is subject to a time span of three months.
D. Results arrived at, are generalized for the entire sample.
3.10: OVERVIEW OF THE STUDY:
• CHAPTER 1
Deals with general information of the Heavy Electrical industry In India
• CHAPTER 2
Review of literature Deals with general information of financial management
and financial analysis, significance and purpose of financial analysis, decision
making based on financial analysis, tools of financial analysis, accounting
ratio as a tool of financial analysis, importance of accounting ratios

• CHAPTER 3
Describes the design of the study. It gives the introduction statement of the
problem, objective of the study, scope of the study, methodology of the study,
plan of analysis, limitations of the study.
• CHAPTER4
Gives the interpretation and analysis of financial statements through Trend
analysis, charts and graphical representation.
• CHAPTER 5
Shows the findings based on analysis and interpretation and also Gives
suggestions and conclusions based on findings.

CHAPTER-4
DATA PRESENTATION AND ANALYSIS
4.1: INTRODUCTION
In this chapter, both primary and secondary data are made use for the analysis. Due to the
problem faced in generating primary data from public companies in Bangalore, I resorted to
generating the data from private companies based/branch in Bangalore. From this secondary
data, I picked the key financial performance indicators. These indicators are companies’
Shareholders’ Fund, Gross Earning/Turnover, and Profit after Tax and Profit before Tax. This
financial data was collected over a Five-year period. I therefore, used this secondary data to
run the trend analysis of the companies’ financial performance using Excel software.
I also derived from the secondary data the cross-sectional data over a Five-year period for the
regression analysis. From this, I computed the multiple regression analysis. The result of this
multiple regression gave me the least square model of the study.
METHODS OF FINANCIAL ANALYSIS

A number of methods can be used for the purpose of analysis of financial statements. These
are also termed as techniques or tools of financial analysis. Out of these, and enterprise can
choose those techniques which are suitable to its requirements. The principal techniques of
financial analysis used are
1. Trend Analysis
2. REGRESSION Analysis
3. COMMAN SIZE Analysis
4. ALTMAN's Z - SCORE Analysis

4.2: TRENDS ANALYSIS OF SELECTED COMPANIES’ FINANCIAL

PERFORMANCE.
TREND ANALYSIS
Trend percentage are very useful is making comparative study of the financial statements for
a number of years. These indicate the direction of movement over a long time and help an
analyst of financial statements to form an opinion as to whether favorable or unfavorable
tendencies have developed. This helps in future forecasts of various items.
For calculating trend percentages any year may be taken as the ‘base year’. Each item of base
year is assumed to be equal to 100 and on that basis the percentage of item of each year
calculated.
Table 4.1
FINANCIAL DETAILS OF CROMPTON GREAVES LIMITED
*` in crores
SHARE HOLDERS GROSS PROFIT PROFIT AFTER

YEAR FUND EARNINGS BEFORE TAX TAX
2006-07 674.3 378.27 307 192.37
2007-08 930.75 557.82 485.65 313.92
2008-09 1241.89 688.03 614.27 397.09
2009-10 1764.72 982.54 910.64 617.34
2010-11 2304.08 1028.59 927.01 694.33

*Source-Secondary Data

GRAPH 4.1
FINANCIAL DETAILS OF CROMPTON GREAVES LIMITED
2500
2000
1500
SHARE HOLDERS FUND
GROSS EARNINGS
PROFIT BEFORE TAX
1000 PROFIT AFTER TAX
500
0
2006-07 2007-08 2008-09 2009-10 2010-11
Interpretation:
The table 4.1 and graph 4.1 it is clear that the share holder fund as stable
growth from 2006-2007 to 2008-2009 but from 2008-2009 to 2010-2011 there is a drastic
Change in fund. The Gross earnings, Profit before Tax and Profit After Tax has stable growth
from 2006-2007 to 2008-2009 but from 2008-2009 to 2009-2010 there is drastic increase and
from there is a slight increase till 2010-2011.

Table 4.2
FINANCIAL DETAILS OF BHARAT HEAVY ELECTRICALS
LIMITED
*` in crores
SHARE HOLDERS GROSS PROFIT PROFIT
YEAR FUND EARNINGS BEFORE TAX AFTER TAX
2006-07 8788.26 4027.52 3725.79 2414.7
2007-08 10774.21 4769.72 4424.4 2859.34
2008-09 12938.81 5208.48 4940.14 3138.21
2009-10 15917.36 7151.42 6739.88 4310.64
2010-11 20153.84 9570.04 9119.36 6011.2

GRAPH 4.2
FINANCIAL DETAILS BHARAT HEAVY ELECTRICALS LIMITED
25000
20000
15000 SHARE HOLDERS FUND

GROSS EARNINGS
PROFIT BEFORE TAX
10000
PROFIT AFTER TAX
5000
0
2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation:
The table 4.2 and graph 4.2it is clear that the share holder fund as stable
growth from 2006-2007 to 2008-2009 but from 2008-2009 to 2010-2011 there is a drastic
Change in fund. The Gross earnings, Profit before Tax and Profit After Tax has stable growth
from 2006-2007 to 2008-2009 but from 2008-2009 to 2010-2011.

Table 4.3
FINANCIAL DETAILS OF KIRLOSKAR ELECTRIC CO LIMITED
*` in crores
SHARE HOLDERS GROSS PROFIT PROFIT

YEAR FUND EARNINGS BEFORE TAX AFTER TAX
2006-07 101.88 591.39 23.43 17.49
2007-08 125.25 727.77 26.98 23.67
2008-09 165.98 866.66 34.84 30.21
2009-10 195.27 840.73 46.08 37.59
2010-11 189.65 823.88 2.13 2.11

GRAPH 4.3
FINANCIAL DETAILS KIRLOSKAR ELECTRIC CO LIMITED
1000
900
800
700
600
SHARE HOLDERS FUND
500 GROSS EARNINGS

PROFIT BEFORE TAX
400
PROFIT AFTER TAX
300
200
100
0
2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation:
growth from 2006-2007 to 2009-2010 but there is slight decrease in year 2010-11. The Gross
earnings has stable increase from year 2006-2007 to 2008-2009 but a slight decrese from
2008-2009 to 2010-2011 Profit before Tax and Profit After Tax has stable growth from 2006-
2007 to 2008-2009 but from 2008-2009 to 2009-2010 there is drastic increase but there is a
slight decrease in 2010-2011.

Table 4.4
FINANCIAL DETAILS OF BHARAT ELECTRONICS LIMITED
*` in crores
SHARE GROSS PROFIT PROFIT
YEAR HOLDERS FUND EARNINGS BEFORE TAX AFTER TAX
2006-07 2592.15 1134.58 1045.75 718.16
2007-08 3233.13 1245.62 1149.51 826.74
2008-09 3807.12 1180.99 1059.9 745.76
2009-10 4345.68 1087.25 961.94 720.87
2010-11 5002.57 1266.76 1133.96 861.47

GRAPH 4.4
FINANCIAL DETAILS OF BHARAT ELECTRONICS LIMITED
6000
5000
4000
SHARE HOLDERS FUND

3000 GROSS EARNINGS
PROFIT BEFORE TAX
PROFIT AFTER TAX
2000
1000
0
2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION:
growth from 2006-2007 to 2010-2011. The Gross earnings, Profit before Tax and Profit After
Tax has stable growth from 2006-2007 to 2008-2009 but from 2008-2009 to 2009-2010 there
is slight decrease and from there is a slight increase till 2010-2011.

4.3: REGRESSION ANALYSIS
The study adopted the use of regression techniques to analyze the relative impact of the
quantitative variables used in measuring Companies’ performance. Here, we adopted again
the use of key selected performance variables. Our regression model therefore becomes
Y= bo + b1PAT + b2PBT + b3SHF + ei
Where
Y = Gross Earning / Turn Over
PAT = Profit After Tax
PBT = Profit Before Tax
SHF = Share Holders’ Fund
ei = errorterm
Table 4.5
CROSS SECTIONAL DATA FOR OUR REGRESSION ANALYSIS
*` in crores
SHARE GROSS PROFIT BEFORE PROFIT AFTER

YEAR HOLDERS FUND EARNINGS TAX TAX
2006-07 8380.25 12156.59 5101.97 3342.72
2007-08 9029.38 15063.34 6086.54 4023.67
2008-09 10400.48 18153.8 6649.15 4311.27
2009-10 12993.91 22223.03 8658.54 5686.44
2010-11 15793.63 27650.14 11182.46 7569.11
Total 56597.65 95246.9 37678.66 24933.21


Table 4.6
From 4.16 above converted to the nearest hundreds
YEAR GE(X1) SHF(X2) PBT(X3) PAT(X4)
2006-07 83.8025 121.5659 51.0197 33.4272
2007-08 90.2938 150.6334 60.8654 40.2367
2008-09 104.0048 181.538 66.4915 43.1127
2009-10 129.9391 222.2303 86.5854 56.8644
2010-11 157.9363 276.5014 111.8246 75.6911
Table 4.7
COMPUTED TABLE FOR THE REGRESSION ANALYSIS.
X1 X2 X3 X4 X12 X22 X32 X42

83.80 121.57 51.02 33.43 7022.86 14778.27 2603.01 1117.38
90.29 150.63 60.87 40.24 8152.97 22690.42 3704.60 1618.99
104.00 181.54 66.49 43.11 10817.00 32956.05 4421.12 1858.70
129.94 222.23 86.59 56.86 16884.17 49386.31 7497.03 3233.56
157.94 276.50 111.82 75.69 24943.87 76453.02 12504.74 5729.14
∑X1= ∑ X2= ∑ X3= ∑ X4= ∑ X12= ∑ X22= ∑ X32= ∑ X42=
565.98 952.47 376.79 249.33 67820.87 196264.07 30730.50 13557.78
Table 4.8
From the above results, I now derived the least square model as;
VARIABLES Result
Share Holders’ Fund 0.499211
Profit Before Tax 1.261645
Profit After Tax 1.812747

4.4: ANALYSIS OF LEAST SQUARE MODEL
From the results generated, we can see there is a positive relationship or correlation between
our dependent variable (Y) and all the independent variables (Profit After Tax, Profit Before
Tax and Share holders’ Fund). The result shows that 1% changein Gross Earning/Turnover is
equal to 0.499211 of Share Holders’ Fund. We also saw that 1% change Gross Earning
results to 1.812747of Profit After Tax. Finally, changes in Gross Earning results to
1.261645of Profit Before Tax.
Table 4.9
RANKING OF RELATIVE IMPACT OF THE VARIABLES ON THE
DEPENDENT VARIABLES
VARIABLES RANKING
Profit After Tax 1.812747
Profit Before Tax 1.261645
Share Holders’ Fund 0.499211
From the above, it is obvious that Profit after Tax has more relative impact on the Gross
Earning (The impact could be as result of the cross-sectional generation of the data used).
The results shown by the ranking means that the Share Holders’ Fund has more impact than
Profit after Tax which is 1.81274

4.5: COMMON SIZE FINANCIAL STATEMENT ANALYSIS
Common Size Statement involves representing the income statement figures as a percentage
of sales and representing the balance sheet figures as a percentage of total assets.
Financial statements represent absolute figures and a comparison of absolute figures can be
misleading. For example, the cost of goods sold might have increased but as a percentage of
sales it might have decreased. So, to have a perfect understanding about these increases and
decreases, the figures reported are converted into percentages to some common base. In
Income Statement, Sales figure is assumed to be 100% and all other figures are expressed as
a percentage of sales.
In Balance Sheet, the total of assets is taken as 100% and all other figures are expressed as a
percentage of total assets. This type of Statement so prepared is called as the Common Size
Statement and the analysis performed on the Common Size Statement is called as the
Common Size Financial Statement Analysis or otherwise called as Vertical Analysis.

“AN EVALUATION OF FINANCIAL PERFORMANCE OF INDIAN HEAVY ELECTRICAL INDUSTRIES”- A STUDY AT BANGALORE.
Table 4.10
COMMAN SIZE BALANCE SHEET OF CROMPTON GREAVES LIMITED*` in crores
CROMPTON GREAVES LIMITED
Particulars Mar '07 ` % Mar '08 ` % Mar '09 ` % Mar '10 ` % Mar '11 ` %
Sources Of Funds
Equity Share Capital 73.3200 7.7642 73.3200 7.2002 73.3200 5.6593 128.3000 7.1616 128.3000 5.5362
Share Application Money 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Preference Share Capital 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Reserves 586.0100 62.0550 842.6700 82.7518 1153.9900 89.0727 1622.0000 90.5387 2161.5100 93.2698
Revaluation Reserves 14.9700 1.5852 14.7600 1.4495 14.5800 1.1254 14.4200 0.8049 14.2700 0.6158
Secured Loans 241.3500 25.5575 62.3700 6.1249 34.5200 2.6645 13.8200 0.7714 8.2300 0.3551
Unsecured Loans 28.6900 3.0381 25.1900 2.4737 19.1500 1.4781 12.9600 0.7234 5.1700 0.2231
Current Liabilities 934.6900 98.9781 1108.2000 108.8274 1265.8800 97.7091 1534.6300 85.6617 1634.3800 70.5240
Provisions 158.0400 16.7355 254.1000 24.9531 510.3800 39.3945 395.9000 22.0988 407.1100 17.5669
Total Liabilities 944.3400 100.0000 1018.3100 100.0000 1295.5600 100.0000 1791.5000 100.0000 2317.4800 100.0000
Application Of Funds
Fixed assets 390.0000 41.2991 492.7100 48.3855 510.7100 39.4200 533.8100 29.7968 875.3000 37.7695
Capital Work in Progress 43.3800 4.5937 22.5900 2.2184 12.9500 0.9996 33.0300 1.8437 47.6900 2.0578
Investments 135.1100 14.3075 194.3300 19.0838 265.5200 20.4946 688.0600 38.4069 781.6400 33.7280
Inventories 247.0100 26.1572 262.9500 25.8224 281.3200 21.7142 303.5300 16.9428 405.7200 17.5069
Sundry Debtors 803.8900 85.1281 956.2200 93.9036 1012.2600 78.1330 1212.7900 67.6969 1510.1800 65.1647
Cash and Bank Balance 137.5700 14.5680 109.6700 10.7699 181.4900 14.0086 112.4300 6.2757 124.2200 5.3601
Loans and Advances 244.1000 25.8490 294.1500 28.8864 516.5500 39.8708 402.3100 22.4566 587.5500 25.3530
Fixed Deposits 36.0000 3.8122 47.9800 4.7118 291.0200 22.4629 436.0700 24.3411 26.6700 1.1508
Miscellaneous Expenses 0.0000 0.0000 0.0000 0.0000 0.0000
Total Assets 944.3300 100.0000 1018.3000 100.0000 1295.5600 100.0000 1791.5000 100.0000 2317.4800 100.0000

INTERPRETATION:
The common size balance sheet for the year 2006-07 to 2010-11 is as follows
Share capital of the company is increasing in %age of the net worth. In 2006-07 it was
`73.32cr and was constant till 2008-09 and from 2008-09 0n wards it is `128.3cr to this
shows there is issue of new shares .Secured loan for the company has decreasing trend.. Fixed
asset of the company is decreasing in this year from 41.29% in 2006-07 to 37.76%in 2010-
11. Current liability and is increasing year by year.

Table 4.11
COMMAN SIZE BALANCE SHEET OF BHARAT HEAVY ELECTRICALS LIMITED *` in crores
BHARAT HEAVY ELECTRICALS LIMITED
Particulars Mar '07` % Mar '08` % Mar '09` % Mar '10` % Mar '11` %
Sources Of Funds
Share Application Money 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0.0000 0.0000
Preference Share Capital 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0.0000 0.0000
Reserves 8,543.50 96.2367 10,284.69 94.6207 12,449.29 95.1186 15,427.84 96.1529 19664.3200 96.7866
Revaluation Reserves 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0.0000 0.0000
Secured Loans 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0.0000 0.0000
Unsecured Loans 89.33 1.0062 95.18 0.8757 149.37 1.1413 127.75 0.7962 163.3500 0.8040
Current Liabilities 11,957.32 134.6911 16,632.97 153.0258 23,415.10 178.9026 28,097.73 175.1171 31469.5800 154.8914
Provisions 5,708.25 64.2995 7,608.68 70.0010 4,975.58 38.0158 4,417.98 27.5347 15030.3700 73.9786
Total Liabilities 8,877.59 100.0000 10,869.39 100.0000 13,088.18 100.0000 16,045.11 100.0000 20317.1900 100.0000
Fixed Assets 988.3 11.1325 980.82 9.0237 1,469.96 11.2312 2,414.96 15.0511 3400.4800 16.7370
Capital Work in Progress 306.58 3.4534 658.47 6.0580 1,212.70 9.2656 1,550.49 9.6633 1762.6200 8.6755
Investments 8.29 0.0934 8.29 0.0763 52.34 0.3999 79.84 0.4976 439.1700 2.1616
Inventories 4,217.67 47.5092 5,736.40 52.7757 7,837.02 59.8786 9,235.46 57.5593 10963.0300 53.9594
Sundry Debtors 9,695.82 109.2168 11,974.87 110.1706 15,975.50 122.0605 20,688.75 128.9412 27354.6200 134.6378
Cash and Bank Balance 2,068.91 23.3049 1,511.02 13.9016 1,950.51 14.9028 865.08 5.3915 1430.1500 7.0391
Loans and Advances 5,517.59 62.1519 7,366.17 67.7699 4,616.67 35.2736 4,801.24 29.9234 13267.0700 65.2997
Fixed Deposits 3,740.00 42.1286 6,875.00 63.2510 8,364.16 63.9062 8,925.00 55.6244 8200.0000 40.3599
Total Assets 8,877.59 100.0000 10,869.39 100.0000 13,088.18 100.0000 16,045.11 100.0000 20317.1900 100.0000

INTERPRETATION:
Share capital of the company is increasing in % age of the net worth. In 2006-07 it was
`244.76cr but in year 2007-08 and 0n wards it is `489.5cr this shows there is issue of new
shares .unsecured loan for the company has increasing trend... Fixed asset of the company is
increased in this year from 11.13% in 2006-07 to 16.73%in 2010-11. Current liability and is
increasing year by year.

Table 4.12
COMMAN SIZE BALANCE SHEET OF KIROLSKAR ELECTRICALS *` in crores
Kirloskar Electricals
Sources Of Funds
Equity Share Capital 80 3.0842 80 2.4733 80 2.1007 80 1.8406 80 1.5990
Share Application Money 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0 0.0000
Preference Share Capital 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0 0.0000
Reserves 2,512.15 96.8495 3,153.13 97.4840 3,727.12 97.8676 4,265.68 98.1426 4,922.57 98.3928
Revaluation Reserves 0 0.0000 0 0.0000 0 0.0000 0 0.0000 0 0.0000
Secured Loans 0.88 0.0339 1.38 0.0427 1.21 0.0318 0.73 0.0168 0.41 0.0082
Unsecured Loans 0.84 0.0324 0 0.0000 0 0.0000 0 0.0000 0 0.0000
Current Liabilities 2,868.41 110.5842 3,334.53 103.0923 4,304.00 113.0154 4,476.20 102.9861 7,639.52 152.6994
Provisions 493.52 19.0264 492.51 15.2267 528.02 13.8649 1,694.88 38.9949 573.6 11.4652
Total Liabilities 2,593.87 100.0000 3,234.51 100.0000 3,808.33 100.0000 4,346.41 100.0000 5,002.98 100.0000
Fixed Asset 385.67 14.8686 413.49 12.7836 467.45 12.2744 489.96 11.2728 483.71 9.6684
Investments 12.28 0.4734 11.98 0.3704 11.98 0.3146 11.98 0.2756 11.98 0.2395
Inventories 1,321.20 50.9357 1,423.44 44.0076 2,505.99 65.8029 2,536.90 58.3678 2,460.77 49.1859
Sundry Debtors 1,693.41 65.2853 2,058.89 63.6535 2,278.20 59.8215 2,168.36 49.8886 2,903.25 58.0302
Loans and Advances 426.86 16.4566 666.54 20.6070 688.07 18.0675 1,700.44 39.1230 778.06 15.5519
Fixed Deposits 1,210.81 46.6799 1,667.86 51.5642 2,090.83 54.9015 2,981.67 68.6009 5,591.09 111.7547
Total Assets 2,593.86 100.0000 3,234.53 100.0000 3,808.33 100.0000 4,346.40 100.0000 5,003.00 100.0000

INTERPRETATION:
Share capital of the company is decreasing in % age of the net worth. In 2006-07 the equity
was `80cr with 3.08% constant till 20011.Secured loan for the company has increasing
trend... Fixed asset of the company is decreased in terms of % in this year from 14.86% in
2006-07 to 9.66 %in 2010-11. Current liability and is increasing year by year

Table 4.13
COMMAN SIZE BALANCE SHEET OF BHARATH ELECTRONICS *` in crores
Bharath Electronics
Sources Of Funds
Share Application Money 6 4.4940 0 0.0000 0 0.0000 0 0.0000 0 0.0000
Preference Share Capital 12 8.9881 12 7.0851 23.77 7.5996 15.47 4.6035 7.74 2.2688
Reserves 47.81 35.8101 75.18 44.3880 86.89 27.7799 124.48 37.0421 131.39 38.5139
Revaluation Reserves 4.8 3.5952 4.8 2.8340 4.8 1.5346 4.8 1.4284 0 0.0000
Secured Loans 24.43 18.2983 33.24 19.6257 117.34 37.5152 104.11 30.9805 100.4 29.4299
Unsecured Loans 7.2 5.3929 10.88 6.4238 29.46 9.4188 36.67 10.9121 51.1 14.9787
Current Liabilities 176.38 132.1100 213.15 125.8487 258.52 82.6523 261.58 77.8396 326.37 95.6676
Provisions 11.5 8.6136 13.86 8.1833 52.37 16.7434 34 10.1175 24.29 7.1200
Total Liabilities 133.51 100.0000 169.37 100.0000 312.78 100.0000 336.05 100.0000 341.15 100.0000
Fixed Assets 11.58 8.6742 13.32 7.8654 160.43 51.2900 168.56 50.1562 161.42 47.3178
Investments 62.76 47.0112 62.76 37.0593 65.09 20.8095 85.79 25.5274 108.56 31.8227
Inventories 26.04 19.5056 46.83 27.6528 73.62 23.5366 91.22 27.1432 116.17 34.0535
Sundry Debtors 137.89 103.2884 159.86 94.3962 189.58 60.6094 200.05 59.5263 196.33 57.5512
Loans and Advances 38.73 29.0112 58.05 34.2781 77.21 24.6843 34.97 10.4056 48.23 14.1379
Fixed Deposits 13.87 10.3895 25.45 15.0280 29.48 9.4249 26.21 7.7990 0 0.0000
Total Assets 133.5 100.0000 169.35 100.0000 312.79 100.0000 336.07 100.0000 341.14 100.0000

INTERPRETATION:
Share capital of the company is varying in % age of the net worth. In 2006-07 the equity was
`31.27cr with `23.42 but in 2007-08 it changed to `33.27cr with 33.27%, in 2008-09 it was
`19.64cr with a 16.1519 %but from 2009-10 its `50.52CR with 15.03335% in 2009-10 and
14.8% in 2010-11.Secured loan for the company has increasing trend... Fixed asset of the
company is increased in this year from 8.67% in 2006-07 to 47.3%in 2010-11. Current
liability and is increasing year by year.

TABLE 4.14
COMMAN SIZE INCOME STATEMENT OF CROMPTON GREAVES LIMITED *` in crores
CROMPTON GREAVES LIMITED
Mar '07` % Mar '08` % Mar '09` % Mar '10` % Mar '11` %
Income
Net Sales 3,401.17 96.94 3,930.50 98.27 4,678.79 101.42 5,395.59 96.89 6,086.13 97.56
Other Income 35.62 1.02 74.03 1.85 -67.25 -1.46 124.18 2.23 95.68 1.53
Stock Adjustments 71.81 2.05 -4.72 -0.12 1.66 0.04 49.29 0.89 56.84 0.91
Total Income 3,508.60 100.00 3,999.81 100.00 4,613.20 100.00 5,569.06 100.00 6,238.65 100.00
Expenditure
Raw Materials 2,562.04 73.02 2,693.26 67.33 3,101.11 67.22 3,534.44 63.47 4,083.39 65.45
Power & Fuel Cost 23.72 0.68 28.82 0.72 29.04 0.63 31.02 0.56 35.9 0.58
Employee Cost 174.26 4.97 200.99 5.02 227.23 4.93 255.79 4.59 310.17 4.97
Other Manufacturing Expenses 15.08 0.43 122.55 3.06 173.63 3.76 200.37 3.60 245.26 3.93
Selling and Admin Expenses 278.09 7.93 339.62 8.49 351.8 7.63 508.56 9.13 500.68 8.03
Miscellaneous Expenses 77.14 2.20 56.75 1.42 43.53 0.94 56.38 1.01 40.86 0.65
Preoperative Exp Capitalized 0 0.00 0 0.00 -1.17 -0.03 -0.04 0.00 -6.2 -0.10
Interest 31.91 0.91 31.51 0.79 28.55 0.62 20 0.36 20.69 0.33
Depreciation 39.36 1.12 40.66 1.02 45.21 0.98 51.9 0.93 80.89 1.30
Total Expenses 3,130.33 89.22 3,441.99 86.05 3,925.17 85.09 4,586.52 82.36 5,210.06 83.51
Operating Profit 342.65 9.77 483.79 12.10 755.28 16.37 858.36 15.41 932.91 14.95
3,508.60 100.00 3,999.81 100.00 4,613.20 100.00 5,569.06 100.00 6,238.65 100.00

INTERPRETATION:
The common size income statement for the year 2006-07 to 2010-11 reveals the
following.-
The sales figure increasing year after year. In the year 2006-07, cost of sales is 73.02 % of the
total income. Administrative and other expenses are fluctuating. As the sales increased there
is heavy increase in the net profit of the organization. The net profit shows an increasing
trend; in 2006-07 it was `342.65Cr with a % of 9.7% but has increased to `932.91CR. The
company must adopt correct pricing and control the unnecessary expenses to attain high
profits

TABLE 4.15
COMMAN SIZE INCOME STATEMENT OF BHARAT HEAVY ELECTRICALS LIMITED *` in crores
BHARAT HEAVY ELECTRICALS LIMITED
Income
Net Sales 17,362.89 96.32 19,541.08 91.35 26,614.36 92.44 33,226.25 94.67 42,022.76 97.35
Other Income 482.32 2.68 1,023.12 4.78 1,023.88 3.56 1,085.73 3.09 1,015.31 2.35
Stock Adjustments 181.37 1.01 827.33 3.87 1,151.54 4.00 786.65 2.24 127.35 0.30
Total Income 18,026.58 100.00 21,391.53 100.00 28,789.78 100.00 35,098.63 100.00 43,165.42 100.00
Expenditure
Raw Materials 8,561.41 47.49 10,400.69 48.62 15,587.43 54.14 17,752.74 50.58 19,887.45 46.07
Power & Fuel Cost 259.08 1.44 273.07 1.28 341.82 1.19 337.99 0.96 402.86 0.93
Employee Cost 2,366.93 13.13 2,602.30 12.17 2,991.27 10.39 6,449.17 18.37 5,396.71 12.50
Other Manufacturing Expenses 1,733.59 9.62 1,464.58 6.85 2,086.06 7.25 2,980.25 8.49 3,482.76 8.07
Selling and Admin Expenses 887.55 4.92 1,664.57 7.78 2,412.22 8.38 279.72 0.80 3,939.30 9.13
Preoperative Exp Capitalized 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Interest 43.33 0.24 35.42 0.17 30.71 0.11 33.5 0.10 54.73 0.13
Depreciation 244.61 1.36 297.21 1.39 334.27 1.16 458.01 1.30 475.61 1.10
Total Expenses 13,999.06 77.66 16,621.81 77.70 23,581.30 81.91 27,913.71 79.53 33,595.38 77.83
Operating Profit 3,545.20 19.67 3,746.60 17.51 4,184.60 14.54 6,099.19 17.38 8,554.73 19.82
18,026.58 100.00 21,391.53 100.00 28,789.78 100.00 35,098.63 100.00 43,165.42 100.00

INTERPRETATION:
following.-
total income and has increased to 97.35% in 2010-11. Administrative and other expenses are
fluctuating. The sales have increased with a heavy growth in the net profit of the organization.
The net profit shows an increasing trend; in 2006-07 it was `3545.2Cr with a % of 9.7% has
increased to `8554.73CR. The other income of the company was increased year by year

TABLE 4.16
COMMAN SIZE INCOME STATEMENT OF KIRLOSKAR ELECTRIC CO LIMITED *` in crores
KIRLOSKAR ELECTRIC CO LIMITED
Income
Net Sales 591.39 100.60 727.77 97.13 866.66 101.33 840.73 97.40 823.88 99.55
Other Income -4.97 -0.85 0.78 0.10 8.74 1.02 12.79 1.48 3.7 0.45
Stock Adjustments 1.47 0.25 20.72 2.77 -20.11 -2.35 9.68 1.12 0 0.00
Total Income 587.89 100.00 749.27 100.00 855.29 100.00 863.2 100.00 827.58 100.00
Expenditure
Raw Materials 532.4 90.56 681.3 90.93 647.39 75.69 624.81 72.38 633.09 76.50
Power & Fuel Cost 1.08 0.18 1.33 0.18 8.28 0.97 8.72 1.01 0 0.00
Employee Cost 12.17 2.07 15.96 2.13 72.51 8.48 78.4 9.08 78.35 9.47
Other Manufacturing Expenses 0.6 0.10 0.42 0.06 4.48 0.52 4.4 0.51 43.25 5.23
Selling and Admin Expenses 11.08 1.88 18.36 2.45 44.39 5.19 51.22 5.93 0 0.00
Preoperative Exp Capitalized -0.02 0.00 -0.03 0.00 -0.61 -0.07 -0.09 -0.01 0 0.00
Interest 5.02 0.85 5.52 0.74 28.25 3.30 30.42 3.52 25.76 3.11
Depreciation 0.92 0.16 0.9 0.12 13.26 1.55 15.36 1.78 16.19 1.96
Total Expenses 558.52 95.00 718.78 95.93 778.94 91.07 769.14 89.10 783.4 94.66
Operating Profit 34.34 5.84 29.71 3.97 67.61 7.90 81.27 9.41 40.48 4.89
587.89 100.00 749.27 100.00 855.29 100.00 863.20 100.00 827.58 100.00

INTERPRETATION:
following.-
total income and has decreased to 76.5% in 2010-11. Administrative and other expenses are
fluctuating. The sales have increased with a heavy growth in the net profit of the
organization. The net profit shows a increasing trend, but not up to mark in 2006-07 it was
`34.34CR with a % of 5.84% has increased to ` 4.48CR . The company must adopt correct
pricing and control the unnecessary expenses to attain high profits with proper strategies.

TABLE 4.17
COMMAN SIZE INCOME STATEMENT OF BHARATH ELECTRONICS
Bharath Electronics
Income
Net Sales 3,901.01 94.28 4,071.22 94.65 4,593.94 86.51 5,195.63 95.03 5,482.11 94.29
Other Income 176.43 4.26 221.24 5.14 66.97 1.26 243.54 4.45 326.11 5.61
Stock Adjustments 60.06 1.45 8.83 0.21 649.58 12.23 28.11 0.51 5.58 0.10
Total Income 4,137.50 100.00 4,301.29 100.00 5,310.49 100.00 5,467.28 100.00 5,813.80 100.00
Expenditure
Raw Materials 2,125.25 51.37 2,063.81 47.98 3,040.50 57.25 3,024.54 55.32 3,135.77 53.94
Power & Fuel Cost 32.77 0.79 32 0.74 28.9 0.54 27.22 0.50 30.45 0.52
Employee Cost 517 12.50 659.2 15.33 755.79 14.23 1,009.58 18.47 1,041.86 17.92
Other Manufacturing 78.82 1.91 29.76 0.69 6.89 0.13 15.87 0.29 17.05 0.29
Expenses
Selling and Admin Expenses 205.21 4.96 195 4.53 231.55 4.36 240.75 4.40 260.84 4.49
Preoperative Exp Capitalized -0.41 -0.01 -0.1 0.00 -0.08 0.00 -0.36 -0.01 -0.19 0.00
Interest 4.24 0.10 3.71 0.09 15.49 0.29 9.37 0.17 10.79 0.19
Depreciation 84.59 2.04 92.64 2.15 105.6 1.99 115.94 2.12 122.04 2.10
Total Expenses 3,002.92 72.58 3,055.43 71.04 4,129.50 77.76 4,380.03 80.11 4,547.01 78.21
Operating Profit 958.15 23.16 1,024.62 23.82 1,114.02 20.98 843.71 15.43 940.68 16.18
4,137.50 100.00 4,301.29 100.00 5,310.49 100.00 5,467.28 100.00 5,813.80 100.00

INTERPRETATION:
following.-
total income and has slightly increased to 53.94% in 2010-11. Administrative and other
expenses are fluctuating. The sales have increased with a heavy growth in the net profit of the
organization. The net profit show a decreasing trend, in 2006-07 it was `958.15 with a % of
23.16% has increased to `4940.68 CR. The company must adopt correct pricing and control
the unnecessary expenses to attain high profits with proper strategies

Performance Evaluation of Heavy Electrical Industries at Bangalore
4.6: ALTMAN’S Z -- SCORE
A common use of financial statement analysis is identifying the areas that need
further investigation or analysis. One of these is predicting FINANCIAL DISTRESS. Models
of financial distress commonly referred to as BANKRUPTCY PREDICTION MODELS;
examine the trend and behavior of selected ratios. Characteristic of these ratios are used in
identifying the likelihood of future financial distress. Models presume that evidence of
distress appears in financial ratios and that we can detect it sufficiently early for us to take
actions to avoid risk of loss or to capitalize on this information.
The most well-known model of financial distress is ALTMAN’s Z – Score. Altman’s

z- score uses multiple ratios to generate a predictor of distress. Altman’s z- score uses a
statistical technique (multiple discriminate) to produce a predictor that is a linear function of
several explanatory variables. This predictor classifies or predicts the likelihood of
bankruptcy or non-bankruptcy. Five financial ratios are included in the Z – score
1. X 1 = Working Capital / Total Assets.

2. X 2 = Retained Earning / Total Assets.
3. X 3 = Earnings before Interest & Tax / Total Assets.
4. X 4 = Shareholder’s Equity / Total Liability.
5. X 5 = Sales / Total Assets.
X1, X2, X3, X4, and X5 are viewed as reflecting
1. Liquidity,
2. Age of Firm & Cumulative Profitability,
3. Profitability,
4. Financial Structure, and
5. Capital Turnover Rate, respectively.
The Altman’s Z – score is computed as

Z = 0.717 *X 1 + 0.827 * X 2 + 3.107 * X 3 + 0.420 * X 4 + 0.998 X 5
A Z- score of less than 1.20 suggests a high probability of bankruptcy, while Z- score
above 2.90 imply a low probability of bankruptcy. Scores between 1.20 and 2.90 are in the
gray or ambiguous area.
Although Altman’s Z- score is a useful mean of predicting financial distress, yet it is

not proved evidence that a Z- score is a better means of analyzing long-term solvency than is
the integrated use of other analysis tools.

ALTMAN's Z - SCORE
Altman’s Z - score =
0.707 * X 1 + 0.847 * X 2 + 3.107 * X 3 + 0.420 * X 4 + 0.998
* X 5
TABLE 4.18
ALTMAN's Z -- SCORE, CROMPTON GREAVES LIMITED
Particulars 2006-07 2007-08 2008-09 2009-10 2010-11
Working Capital 375.84 308.67 506.38 536.60 612.85
Total Asset 944.33 1018.30 1295.56 1791.50 2317.48
Retained Earning 512.69 769.35 1080.67 1493.70 2033.21
Earning Before Interest 378.27 557.82 688.03 982.54 1028.59

& Tax
Shareholde's Equity 73.32 73.32 73.32 128.30 128.30
Total Liabilities 944.34 1018.31 1295.56 1791.50 2317.48
Sales 3401.17 3930.50 4678.79 5395.59 6086.13
X1 0.40 0.30 0.39 0.30 0.26
X2 0.54 0.76 0.83 0.83 0.88
X3 0.40 0.55 0.53 0.55 0.44
X4 0.08 0.07 0.06 0.07 0.06
X5 3.60 3.86 3.61 3.01 2.63
Altman's Z -- score 5.61 6.44 6.26 5.66 4.95
*` in crores

GRAPH 4.5
ALTMAN's Z -- SCORE, CROMPTON GREAVES LIMITED
5
X1
4 X2
X3
3 X4
X5
2
Altman's Z -- score
0
2007 2008 2009 2010 2011
INTERPRETATION:
In the case of CROMPTON GREAVES LIMITED their Altman’s Z- score comes in

between 5.61 to 4.95 i.e. it lays in the region of gray area. However the score is more than the
standard of 2.9. Which shows its low probability of bankruptcy? Also the score is varying
year by year but then also the company is safer. So we can predict that CROMPTON
GREAVES LIMITED Ltd. is a growing company which will give better result in the future

TABLE 4.19
ALTMAN's Z- SCORE, BHARAT HEAVY ELECTRICALS LIMITED
Particulars 2006-07 2007-08 2008-09 2009-10 2010-11
Working Capital 7574.42 9221.81 10353.18 11999.82 14714.92
Total Asset 8877.59 10869.39 13088.18 16045.11 20317.19
Earning Before Interest

& Tax 4027.52 4769.72 5208.48 7184.92 9570.04
Sales 17362.89 19541.08 26614.36 33226.25 42022.76
X1 0.85 0.85 0.79 0.75 0.72
X2 0.93 0.90 0.91 0.93 0.94
X3 0.45 0.44 0.40 0.45 0.47
X4 0.03 0.05 0.04 0.03 0.02
X5 1.96 1.80 2.03 2.07 2.07
Altman's Z -- score 4.77 4.54 4.61 4.79 4.85

*` in crores

GRAPH 4.6
ALTMAN's Z- SCORE, BHARAT HEAVY ELECTRICALS LIMITED
10
7
Altman's Z -- score
6
X5
5 X4
X3
4
X2
3 X1
0
2007 2008 2009 2010 2011
INTERPRETATION:
In the case of BHARAT HEAVY ELECTRICALS LIMITED their Altman’s Z- score comes
in between 4.77 to 4.85 i.e. it lays in the region of gray area. However the score is more than
the standard of 2.9. Which shows its low probability of bankruptcy Also the score is
increasing year by year which means that the company is going towards safer side day by
day. So we can predict that BHARAT HEAVY ELECTRICALS LIMITED Ltd. is a growing
company which will give better result in the future.

TABLE 4.20
ALTMAN's Z - SCORE, KIRLOSKAR ELECTRIC CO LIMITED
2010-
Particulars 2,007 2,008 2008-09 2009-10 11
Working Capital 56.15 90.20 77.95 75.15 65.77
Total Asset 133.50 169.35 312.79 336.07 341.14
Earning Before Interest &

Tax 29.37 30.49 76.35 94.06 44.18
Sales 618.67 764.99 962.93 905.57 895.22
X1 0.42 0.53 0.25 0.22 0.19
X2 0.36 0.44 0.28 0.37 0.39
X3 0.22 0.18 0.24 0.28 0.13
X4 0.23 0.20 0.16 0.15 0.15
X5 4.63 4.52 3.08 2.69 2.62
Altman's Z -- score 6.01 5.90 4.31 4.09 3.55

*` in crores

GRAPH 4.7
ALTMAN's Z - SCORE, KIRLOSKAR ELECTRIC CO LIMITED
14
12
10
Altman's Z -- score
8 X5
X4
6 X3
X2
4 X1
0
2007 2008 2009 2010 2011
INTERPRETATION:
In the case of KIRLOSKAR ELECTRIC CO LIMITED their Altman’s Z- score comes in between
3.55 to 6.01 i.e. it lays in the region of gray area. However the score is more than the standard
of 2.9. Which shows its low probability of bankruptcy Also the score is decreasing year by
year which means that the company is going towards danger side day by day.

TABLE 4.21
ALTMAN's Z - SCORE, BHARAT ELECTRONICS LIMITED
Particulars 2006-07 2007-08 2008-09 2009-10 2010-11
Working Capital 2161.27 2775.33 3282.18 3813.03 4448.32
Total Asset 2593.86 3234.53 3808.33 4346.40 5003.00
Earning Before Interest &

Tax 1134.58 1245.86 1180.99 1087.25 1266.79
Sales 3901.01 4071.22 4593.94 5195.63 5482.11
X1 0.83 0.86 0.86 0.88 0.89
X2 0.97 0.97 0.98 0.98 0.98
X3 0.44 0.39 0.31 0.25 0.25
X4 0.03 0.02 0.02 0.02 0.02
X5 1.50 1.26 1.21 1.20 1.10
Altman's Z -- score 4.28 3.90 3.61 3.43 3.35

*` in crores

GRAPH 4.7
ALTMAN's Z -- SCORE, BHARAT ELECTRONICS LIMITED
6
Altman's Z -- score
5 X5
X4
4 X3
X2
3 X1
0
2007 2008 2009 2010 2011
INTERPRETATION:
In the case of BHARAT ELECTRONICS LIMITED their Altman’s Z- score comes in

between 3.36 to 4.28 i.e. it lays in the region of gray area. However the score is more than the
standard of 2.9. Which shows its low probability of bankruptcy Also the score is decreasing
year by year which means that the company is going towards danger side day by day.

CHAPTER- 5
FINDINGS, SUGGESSIONS & CONCLUSION
5.1: FINDINGS
5.1a: Crompton Greaves
• Companies gross earning is good it is increasing year on year with profit before tax
and profit after tax with share holders fund, This shows company is financially strong
and is performing well
• Though the share holders fund is increasing Year On Year the fixed assets in terms of
percentage is decreasing where there piling up of inventories results in blocking of
funds
• The increasing of debtors year on year has resulted in blocking of working capital and
has led to increase of creditors year on year
• The operating of growth rate is between 9 to 17% which is satisfactory and the
expenses hold huge share in gross earnings.
• The use of ALTMAN's Z- SCORE model it shows the company is in good position
but in decreasing trend

5.1b: Bharat Heavy Electricals
• The increase of Share holders fund shows the companies is financially strong this
proves the company is performing well with the increase in gross earning with profit
before tax with Profit after tax
• The company has issued new shares to public and also there is huge piling up of
debtors and inventories along with cash in bank and hand this reduces the companies
working capital with liquidity this has resulted in growth of current liabilities
• There is also growth of fixed assets along with increase of share holders fund this
shows the increase trend of up gradation in technology
• The operating growth rate is between 14 to 20% year on year which is a good returns
and the expense is holds little less space in Income Statement when compared with
Private companies as the profit margined is good
• By the use of ALTMAN's Z- SCORE model the analysis shows that the company is
far from bank bankruptcy with stable growth rate

5.1c: Kirloskar Electric Co
• The company’s Performance is satisfactory as there is slight increase in Share holders

fund year on year, Though there is growth in gross earnings the Profit After and
Before tax as fallen drastically because of Transfer to Capital redemption Reserve
• There is huge amount of liability to be cleared by company along with growth of
debtors and reduction of inventory piling up year on year
• There is reduction in percentage of fixed assets when compared with year on year this
shows lack of technological up gradation
• The companies expenses hold huge percentage of share in Income statement and
operating profit is between 4 to 8% which is not satisfactory for the company
• The use of ALTMAN's Z- SCORE model the analysis shows that the company is far
from bank bankruptcy whit a dangerous decreasing trend in the analysis year on year

5.1d: Bharat Electricals
• The Companies Performance is Good as the share holders fund has increased in
tremendous way which yields maximum returns to share holders with the increase in
the gross earnings along with Profit Before tax and Profit After tax
• The company has managed the debtors, inventories and the cash and bank balances
well and this has resulted in good performance
• The companies fixed assets growth is far from satisfactory and this shows the less
trend of up gradation in technology
• The operating profits are best in over all analysis which is between 16 to 24% but in
decreasing trend and also the expenses are increasing year on year but when
compared to other companies it has maintained good margined.
• The use of ALTMAN's Z- SCORE model the analysis shows that the company is far
from bank bankruptcy but with the decreasing growth

5.1e: Over all about industry
• The companies in industry, over all capital growth are good.

• The profit margin of products lies between on an average of 11 to 15% which results
in slow growth of profits to share holders
• The expenses hold huge share on average of 83 to 88% which is not good for growth
of industry
• The public sector companies have huge share in growth of Indian heavy electrical
industry
• This shows the public sector companies a financial strong and performing well
• The companies have huge piling up of inventories and also debtor which resulted in
dependence on external fund.
• Though the use of ALTMAN's Z- SCORE model, the analysis shows that the
company is far from bank bankruptcy with decreasing trends shows dangerous in
future for the industry.
• The industry is not capable of adopting itself to the growth in technology this shows
why the industry is failing in growth

5.2 Suggestion
 The Companies in Indian Heavy Electrical Industry profits over the years has
been decreasing when compared to previous years. The company must increase
the profit in future. The Companies must take steps to increase the profits level.
 The Gross Profits ratio can be improved by increasing the gross profits and the
factors decreasing the gross profit ratio should be thoroughly checked timely
whither they are operating factors or any misleading factors.
 A Non-operating expense of the Companies in Indian Heavy Electrical Industry

is high. So the managements should take necessary steps to reduce the non-
operating expenses. The managements should take steps to reduce the borrowed
capital.
 The managements Should Use the Techniques of Costing such ac ABC Costing,
Just in time ,Etc to reduce operating expenses of Companies in Indian Heavy
Electrical Industry
 Net fixed asset of the Companies in Indian Heavy Electrical Industry has
increased and even though they are not utilizing the enhanced technology to
increase sales. So the managements should take initiative steps for the proper
utilization of the resources.
 The liquidity position of the Companies in Indian Heavy Electrical Industry is

quite satisfactory. And this must be improved further for the purpose of proper
utilization of the liquid assets of the Companies
 The operating Profits position of the Companies in Indian Heavy Electrical
Industry is not satisfactory for the last five years. It is fluctuating over the years
and there is no standard ration maintained. So the managements should take steps
to improving the cash position of the Companies.

 Debt equity ratio has not satisfactory for the past five years. So the company has
enough scope for the more long-term borrowings from the outsiders as its current
ratio is also good and has a sufficient amount of current assets...
 The sales of the organization can be further increased by improving the quality
through optimum utilization of Companies in Indian Heavy Electrical Industry
resources (i.e. assets, raw materials, credit system, etc.) and that in turn will
increase the overall profits of the organization.
 The Managements must find out the reasons for the decrease in sales and must
take appropriate measures.
 The Managements must also study the market position and it also find the demand
prevailing in the market for the products and thus this will guide them to enhance
their sales volume.

5.3: Conclusion
On studying the financial performance of Companies in Indian Heavy Electrical Industry

for a period of five years from 2007 to 2011, the study reveals that the financial performance
is better. Companies in Indian Heavy Electrical Industry has been able to maintain optimal
cost positioning. Despite price drops in various products, the company has been able to
maintain and grow its market share to make strong margins in market, contributing to the
strong financial position of the company. The company was able to meet its entire
requirements for capital expenditures and higher level of working capital commitment with
higher volume of operations and from its operating cash flows.
Finally the financial health of an organization is most important to be competitive among the
world’s best. Slow down of the restructuring process of Electricity Boards and their financial
turnaround may become a constraint for the electrical equipment manufacturers since a large
sum of outstanding appear in their books and this would hamper the financial development, if
no positive steps are taken immediately.
The industry in India is focused largely on domestic demand. Currently the export volumes
are less than `.3, 000 crores out of total sales of `21,000 crores. The larger companies are
significantly involved in exports. There are tremendous opportunities for the heavy electrical
industry in India to enter global markets if the companies are able to match quality and
technology levels at competitive prices. There is every reason to believe that the better
managed Indian companies who are already involved in exports in a fairly big way will be
able to enhance their export business prospects. It is necessary for the middle order of this
industry sector to look at exports seriously. This will help them to emerge as bigger and
better players not only in the domestic scenario, but also in the global markets.

ELECTRICAL INDUSTRIES - A STUDY AT BANGALORE.
Crompton Greaves
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Sources Of Funds
Total Share Capital 128.3 128.3 73.32 73.32 73.32
Equity Share Capital 128.3 128.3 73.32 73.32 73.32
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 2,161.51 1,622.00 1,153.99 842.67 586.01
Revaluation Reserves 14.27 14.42 14.58 14.76 14.97
Networth 2,304.08 1,764.72 1,241.89 930.75 674.3
Secured Loans 8.23 13.82 34.52 62.37 241.35
Unsecured Loans 5.17 12.96 19.15 25.19 28.69
Total Debt 13.4 26.78 53.67 87.56 270.04
Total Liabilities 2,317.48 1,791.50 1,295.56 1,018.31 944.34
Gross Block 1,604.18 1,171.40 1,111.53 1,055.51 915.31
Less: Accum. Depreciation 728.88 637.59 600.82 562.8 525.31
Net Block 875.3 533.81 510.71 492.71 390
Capital Work in Progress 47.69 33.03 12.95 22.59 43.38
Investments 781.64 688.06 265.52 194.33 135.11
Inventories 405.72 303.53 281.32 262.95 247.01
Sundry Debtors 1,510.18 1,212.79 1,012.26 956.22 803.89
Cash and Bank Balance 124.22 112.43 181.49 109.67 137.57
Total Current Assets 2,040.12 1,628.75 1,475.07 1,328.84 1,188.47
Loans and Advances 587.55 402.31 516.55 294.15 244.1
Fixed Deposits 26.67 436.07 291.02 47.98 36
Total CA, Loans & Advances 2,654.34 2,467.13 2,282.64 1,670.97 1,468.57
Deffered Credit 0 0 0 0 0
Current Liabilities 1,634.38 1,534.63 1,265.88 1,108.20 934.69
Provisions 407.11 395.9 510.38 254.1 158.04
Total CL & Provisions 2,041.49 1,930.53 1,776.26 1,362.30 1,092.73
Net Current Assets 612.85 536.6 506.38 308.67 375.84
Miscellaneous Expenses 0 0 0 0 0
Total Assets 2,317.48 1,791.50 1,295.56 1,018.30 944.33
Government R. C. College of Commerce and Management. Page A

Crompton Greaves
Profit & Loss account ------------------- in Rs. Cr. -------------------
Income
Sales Turnover 6,411.18 5,627.68 4,971.85 4,277.34 3,692.17
Excise Duty 325.05 232.09 293.06 346.84 291
Net Sales 6,086.13 5,395.59 4,678.79 3,930.50 3,401.17
Other Income 95.68 124.18 -67.25 74.03 35.62
Stock Adjustments 56.84 49.29 1.66 -4.72 71.81
Total Income 6,238.65 5,569.06 4,613.20 3,999.81 3,508.60
Expenditure
Raw Materials 4,083.39 3,534.44 3,101.11 2,693.26 2,562.04
Power & Fuel Cost 35.9 31.02 29.04 28.82 23.72
Employee Cost 310.17 255.79 227.23 200.99 174.26
Other Manufacturing Expenses 245.26 200.37 173.63 122.55 15.08
Selling and Admin Expenses 500.68 508.56 351.8 339.62 278.09
Preoperative Exp Capitalised -6.2 -0.04 -1.17 0 0
Total Expenses 5,210.06 4,586.52 3,925.17 3,441.99 3,130.33
Operating Profit 932.91 858.36 755.28 483.79 342.65
PBDIT 1,028.59 982.54 688.03 557.82 378.27
Interest 20.69 20 28.55 31.51 31.91
PBDT 1,007.90 962.54 659.48 526.31 346.36
Depreciation 80.89 51.9 45.21 40.66 39.36
Other Written Off 0 0 0 0 0
Profit Before Tax 927.01 910.64 614.27 485.65 307
Extra-ordinary items 0 0 0 0 0
PBT (Post Extra-ord Items) 927.01 910.64 614.27 485.65 307
Tax 232.68 293.3 217.18 171.73 114.63
Reported Net Profit 694.33 617.34 397.09 313.92 192.37
Total Value Addition 1,126.67 1,052.08 824.06 748.73 568.3
Preference Dividend 0 0 0 0 0
Equity Dividend 141.13 80.65 73.31 58.65 47.13
Corporate Dividend Tax 23.29 13.7 12.46 9.97 6.61
Per share data (annualised)
Shares in issue (lakhs) 6,414.92 6,414.92 3,665.67 3,665.67 3,665.67
Earning Per Share (Rs) 10.82 9.62 10.83 8.56 5.25
Equity Dividend (%) 110 110 100 80 70
Book Value (Rs) 35.7 27.28 33.48 24.99 17.99
Government R. C. College of Commerce and Management. Page B

Bharat Heavy Electricals

Sources Of Funds
Reserves 19,664.32 15,427.84 12,449.29 10,284.69 8,543.50
Revaluation Reserves 0 0 0 0 0
Networth 20,153.84 15,917.36 12,938.81 10,774.21 8,788.26
Secured Loans 0 0 0 0 0
Unsecured Loans 163.35 127.75 149.37 95.18 89.33
Total Debt 163.35 127.75 149.37 95.18 89.33
Total Liabilities 20,317.19 16,045.11 13,088.18 10,869.39 8,877.59
Gross Block 8,049.30 6,579.70 5,224.43 4,443.03 4,134.61
Less: Accum.
Depreciation 4,648.82 4,164.74 3,754.47 3,462.21 3,146.31
Net Block 3,400.48 2,414.96 1,469.96 980.82 988.3
Capital Work in Progress 1,762.62 1,550.49 1,212.70 658.47 306.58
Investments 439.17 79.84 52.34 8.29 8.29
Inventories 10,963.03 9,235.46 7,837.02 5,736.40 4,217.67
Sundry Debtors 27,354.62 20,688.75 15,975.50 11,974.87 9,695.82
Cash and Bank Balance 1,430.15 865.08 1,950.51 1,511.02 2,068.91
Loans and Advances 13,267.07 4,801.24 4,616.67 7,366.17 5,517.59
Fixed Deposits 8,200.00 8,925.00 8,364.16 6,875.00 3,740.00
Total CA, Loans &
Advances 61,214.87 44,515.53 38,743.86 33,463.46 25,239.99
Current Liabilities 31,469.58 28,097.73 23,415.10 16,632.97 11,957.32
Provisions 15,030.37 4,417.98 4,975.58 7,608.68 5,708.25
Net Current Assets 14,714.92 11,999.82 10,353.18 9,221.81 7,574.42
Miscellaneous Expenses 0 0 0 0 0
Total Assets 20,317.19 16,045.11 13,088.18 10,869.39 8,877.59
Government R. C. College of Commerce and Management. Page C

Bharat Heavy Electricals

Income
Sales Turnover 44,002.76 34,613.43 28,504.05 21,775.60 19,058.33
Excise Duty 1,980.00 1,387.18 1,889.69 2,234.52 1,695.44
Net Sales 42,022.76 33,226.25 26,614.36 19,541.08 17,362.89
Other Income 1,015.31 1,085.73 1,023.88 1,023.12 482.32
Stock Adjustments 127.35 786.65 1,151.54 827.33 181.37
Total Income 43,165.42 35,098.63 28,789.78 21,391.53 18,026.58
Expenditure
Raw Materials 19,887.45 17,752.74 15,587.43 10,400.69 8,561.41
Power & Fuel Cost 402.86 337.99 341.82 273.07 259.08
Employee Cost 5,396.71 6,449.17 2,991.27 2,602.30 2,366.93
Other Manufacturing
Expenses 3,482.76 2,980.25 2,086.06 1,464.58 1,733.59
Selling and Admin Expenses 3,939.30 279.72 2,412.22 1,664.57 887.55
Preoperative Exp
Capitalised 0 0 0 0 0
Total Expenses 33,595.38 27,913.71 23,581.30 16,621.81 13,999.06
Operating Profit 8,554.73 6,099.19 4,184.60 3,746.60 3,545.20
PBDIT 9,570.04 7,184.92 5,208.48 4,769.72 4,027.52
Interest 54.73 33.5 30.71 35.42 43.33
PBDT 9,515.31 7,151.42 5,177.77 4,734.30 3,984.19
Depreciation 475.61 458.01 334.27 297.21 244.61
Profit Before Tax 9,039.70 6,693.41 4,843.50 4,437.09 3,739.58
Extra-ordinary items 79.66 46.47 96.64 -12.69 -13.79
PBT (Post Extra-ord Items) 9,119.36 6,739.88 4,940.14 4,424.40 3,725.79
Tax 3,088.13 2,326.35 1,799.31 1,565.06 1,311.09
Reported Net Profit 6,011.20 4,310.64 3,138.21 2,859.34 2,414.70
Total Value Addition 13,707.93 10,160.97 7,993.87 6,221.12 5,437.65
Equity Dividend 1,524.85 1,140.58 832.18 746.52 599.66
Shares in issue (lakhs) 4,895.20 4,895.20 4,895.20 4,895.20 2,447.60
Equity Dividend (%) 311.5 233 170 152.5 245
Book Value (Rs) 411.71 325.16 264.32 220.1 359.06
Government R. C. College of Commerce and Management. Page D

Kirloskar Electric Co
Sources Of Funds
Preference Share Capital 7.74 15.47 23.77 12 12
Reserves 131.39 124.48 86.89 75.18 47.81
Revaluation Reserves 0 4.8 4.8 4.8 4.8
Networth 189.65 195.27 165.98 125.25 101.88
Secured Loans 100.4 104.11 117.34 33.24 24.43
Unsecured Loans 51.1 36.67 29.46 10.88 7.2
Total Debt 151.5 140.78 146.8 44.12 31.63
Application Of Funds 0.529396 0.533159 0.706953 0.265389 0.239792
Gross Block 161.42 281.84 257.94 38.66 36.49
Less: Accum. Depreciation 0 113.28 97.51 25.34 24.91
Net Block 161.42 168.56 160.43 13.32 11.58
Investments 108.56 85.79 65.09 62.76 62.76
Inventories 116.17 91.22 73.62 46.83 26.04
Sundry Debtors 196.33 200.05 189.58 159.86 137.89
Total Current Assets 368.2 309.55 282.15 233.71 191.43
Loans and Advances 48.23 34.97 77.21 58.05 38.73
Fixed Deposits 0 26.21 29.48 25.45 13.87
Total CA, Loans &
Advances 416.43 370.73 388.84 317.21 244.03
Current Liabilities 326.37 261.58 258.52 213.15 176.38
Provisions 24.29 34 52.37 13.86 11.5
Total CL & Provisions 350.66 295.58 310.89 227.01 187.88
Net Current Assets 65.77 75.15 77.95 90.2 56.15
Miscellaneous Expenses 0 0 0 0 1.98
Total Assets 341.14 336.07 312.79 169.35 133.5
Government R. C. College of Commerce and Management. Page E

Kirloskar Electric Co
Income
Sales Turnover 895.22 905.57 962.93 764.99 618.67
Excise Duty 71.34 64.84 96.27 37.22 27.28
Net Sales 823.88 840.73 866.66 727.77 591.39
Other Income 3.7 12.79 8.74 0.78 -4.97
Stock Adjustments 0 9.68 -20.11 20.72 1.47
Total Income 827.58 863.2 855.29 749.27 587.89
Expenditure
Raw Materials 633.09 624.81 647.39 681.3 532.4
Power & Fuel Cost 0 8.72 8.28 1.33 1.08
Employee Cost 78.35 78.4 72.51 15.96 12.17
Selling and Admin Expenses 0 51.22 44.39 18.36 11.08
Preoperative Exp Capitalised 0 -0.09 -0.61 -0.03 -0.02
Total Expenses 783.4 769.14 778.94 718.78 558.52
Operating Profit 40.48 81.27 67.61 29.71 34.34
PBDIT 44.18 94.06 76.35 30.49 29.37
Interest 25.76 30.42 28.25 5.52 5.02
PBDT 18.42 63.64 48.1 24.97 24.35
Depreciation 16.19 15.36 13.26 0.9 0.92
Other Written Off 0.1 0 0 0 0
Profit Before Tax 2.13 48.28 34.84 24.07 23.43
Extra-ordinary items 0 -2.2 0 2.91 0
PBT (Post Extra-ord Items) 2.13 46.08 34.84 26.98 23.43
Tax 0.02 8.5 4.64 3.6 1.65
Total Value Addition 150.31 144.33 131.55 37.48 26.11
Preference Dividend 0 0 2.77 0 0
Equity Dividend 0 0 0 0 0
Corporate Dividend Tax 0 0 0.47 0 0
Shares in issue (lakhs) 505.21 505.21 505.21 332.69 312.69
Equity Dividend (%) 0 0 0 0 0
Book Value (Rs) 36.01 34.64 27.2 32.6 25.29
Government R. C. College of Commerce and Management. Page F

Bharat Electronics
Sources Of Funds
Equity Share Capital 80 80 80 80 80
Reserves 4,922.57 4,265.68 3,727.12 3,153.13 2,512.15
Revaluation Reserves 0 0 0 0 0
Net worth 5,002.57 4,345.68 3,807.12 3,233.13 2,592.15
Secured Loans 0.41 0.73 1.21 1.38 0.88
Unsecured Loans 0 0 0 0 0.84
Total Debt 0.41 0.73 1.21 1.38 1.72
Total Liabilities 5,002.98 4,346.41 3,808.33 3,234.51 2,593.87
Gross Block 1,789.00 1,702.17 1,579.90 1,430.76 1,324.80
Less: Accum. Depreciation 1,305.29 1,212.21 1,112.45 1,017.27 939.13
Net Block 483.71 489.96 467.45 413.49 385.67
Investments 11.98 11.98 11.98 11.98 12.28
Inventories 2,460.77 2,536.90 2,505.99 1,423.44 1,321.20
Sundry Debtors 2,903.25 2,168.36 2,278.20 2,058.89 1,693.41
Loans and Advances 778.06 1,700.44 688.07 666.54 426.86
Fixed Deposits 5,591.09 2,981.67 2,090.83 1,667.86 1,210.81
Total CA, Loans &
Advances 12,661.44 9,984.11 8,114.20 6,602.37 5,523.20
Current Liabilities 7,639.52 4,476.20 4,304.00 3,334.53 2,868.41
Provisions 573.6 1,694.88 528.02 492.51 493.52
Net Current Assets 4,448.32 3,813.03 3,282.18 2,775.33 2,161.27
Miscellaneous Expenses 0 0 0 0 0.96
Total Assets 5,003.00 4,346.40 3,808.33 3,234.53 2,593.86
Government R. C. College of Commerce and Management. Page G

Bharat Electronics
Income
Excise Duty 58.57 41.88 40.79 43.04 63.7
Net Sales 5,482.11 5,195.63 4,593.94 4,071.22 3,901.01
Other Income 326.11 243.54 66.97 221.24 176.43
Stock Adjustments 5.58 28.11 649.58 8.83 60.06
Total Income 5,813.80 5,467.28 5,310.49 4,301.29 4,137.50
Expenditure
Raw Materials 3,135.77 3,024.54 3,040.50 2,063.81 2,125.25
Power & Fuel Cost 30.45 27.22 28.9 32 32.77
Employee Cost 1,041.86 1,009.58 755.79 659.2 517
Selling and Admin Expenses 260.84 240.75 231.55 195 205.21
Preoperative Exp Capitalised -0.19 -0.36 -0.08 -0.1 -0.41
Total Expenses 4,547.01 4,380.03 4,129.50 3,055.43 3,002.92
Operating Profit 940.68 843.71 1,114.02 1,024.62 958.15
PBDIT 1,266.79 1,087.25 1,180.99 1,245.86 1,134.58
Interest 10.79 9.37 15.49 3.71 4.24
PBDT 1,256.00 1,077.88 1,165.50 1,242.15 1,130.34
Depreciation 122.04 115.94 105.6 92.64 84.59
Profit Before Tax 1,133.96 961.94 1,059.90 1,149.51 1,045.75
Extra-ordinary items 22.64 84.06 32.65 44.21 7.11
PBT (Post Extra-ord Items) 1,156.60 1,046.00 1,092.55 1,193.72 1,052.86
Tax 295.09 324.88 346.89 366.81 334.49
Total Value Addition 1,411.24 1,355.50 1,089.00 991.63 877.67
Equity Dividend 172.8 153.6 149.6 165.6 144
Shares in issue (lakhs) 800 800 800 800 800
Equity Dividend (%) 216 192 187 207 180
Book Value (Rs) 625.32 543.21 475.89 404.14 324.02
Government R. C. College of Commerce and Management. Page H

BIBLIOGRAPHY
Primary data were collected by face to face interview method with the
employees of the companies
Secondary data were being collected from the following sources:
BOOKS:
 Financial management , T.S Reddy and Y. Hariprasad Reddy, New

Delhi: Tata Mc Graw hill Publishing company Ltd., 1999, 3rd Edition
 Management and Accounting, M.A Sahaf , Tata McGraw Hill Publishing
Company Ltd, 5th Reprint - 2006 - New Delhi, 4th Edition.
 Financial Management , IM .Pandey, Vikas Publishing house Pvt Ltd, 6th
Reprint -2006- New Delhi , 8th Edition.
 Working capital Management, IM .Pandey, Vikas Publishing house Pvt
Ltd, 6th Reprint -2006- New Delhi , 8th Edition.
WEBSITES
• www.caclub.com
• www.icai.org
• www.bseindia.com
• www.nseindia.com
• www.bhel.com
• www.bel.com
• www.moneycontrol.com
Government R. C. College of Commerce and Management. Page a

ANNUAL REPORTS
 ABB
 Crompton Greaves
 Bharat Heavy Electricals Limited
 Kirloskar Electric
 Larsen & Toubro
 Alstom
 Havells
 Thermax
 Bharath Electronics
GENERAL ARTICLES AND MAGAZINES
 REPORT ON THE INDIAN CAPITAL GOODS INDUSTRY

 ASSESSMENT OF PERFORMANCE MEASUREMENT IN
BUSINESS STRATEGY IMPLEMENTATION AMONG COMPANIES
IN KADUNA TOWN By Adekola Ali
 IEEMA PRE-BUDGET MEMORANDUM 2011-12 MEASURING
MARKETING PERFORMANCE:
 A CRITIQUE OF EMPIRICAL LITERATURE ,Marcin Pont and Robin
Shaw,Deakin University
Government R. C. College of Commerce and Management. Page b

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“AN EVALUATION OF FINANCIAL PERFORMANCE OF

INDIAN HEAVY ELECTRICAL INDUSTRIES”

Under the guidance of

This is to certify that Mr.Harsha.S BEARING REGISTER No.

The project report is being submitted to BANGALORE UNIVERSITY in

Place: Bangalore Dr. VENUGOPAL

This is to certify that the dissertation entitled “AN EVALUATION OF

Place: Bangalore Dr. B.CHANDRASHEKARA

This is to certify that the dissertation entitled “AN

Place: Bangalore Dr.H.PRAKASH

I hereby declare that the dissertation entitled “AN EVALUATION

I also declare that no part of this representation has been

Place: Bangalore HARSHA.S

I extend my gratitude towards guide of the project

I am also thankful to my parents, all my lecturers and my friends

CHAPTER NO. PARTICALARS PAGE NO.

CHAPTER – 2 LITERATURE REVIEW 19 - 44

CHAPTER – 3 RESEARCH DESIGN 45 - 48

CHAPTER – 4 ANALYSIS & INTERPRETATION OF DATA 49 - 87

CHAPTER – 5 FINDINGS, SUGGESTIONS AND 88 - 95

ANNEXURES – Financial Statements

Government R. C. College of Commerce and Management. Page i

TABLE NO PARTICLARS PAGE

Government R. C. College of Commerce and Management. Page ii

CHART 4.2 TRENDS ANALYSIS Bharat Heavy Electricals 53

CHART 4.3 TRENDS ANALYSIS, Kirloskar Electric Co 55

CHART 4.4 TRENDS ANALYSIS Bharat Electronics 57

CHART 4.5 ALTMAN's Z -- SCORE, Crompton Greaves 81

CHART 4.6 ALTMAN's Z -- SCORE, Bharat Heavy Electricals 83

CHART 4.7 ALTMAN's Z -- SCORE, Kirloskar Electric Co 85

CHART 4.8 ALTMAN's Z -- SCORE,Bharat Electronics 87

Government R. C. College of Commerce and Management. Page iii

Capital Structure refers to the way a corporations finances itself through

Government R. C. College of Commerce and Management. Page 1

1.2: INTRODUCTION TO ELECTRICITY IN INDIA

Unlike other technological developments in the West, which were introduced in

The Government of India invited Crompton to help in the preparation of an

Government R. C. College of Commerce and Management. Page 2

During this decade major railway workshops, defense installations, ordnance

1.3: ADVENT OF MANUFACTURING OF ELECTRICAL

In the beginning, no overseas company set up a manufacturing facility in India.

After commissioning, the Calcutta and Madras power plants, Crompton

Government R. C. College of Commerce and Management. Page 3

1.4: INTERNATIONAL TRENDS

Government R. C. College of Commerce and Management. Page 4

1.5: CURRENT STATUS IN INDIA

Government R. C. College of Commerce and Management. Page 5

1.6: THE HEAVY ELECTRICAL MACHINERY INDUSTRY IN

The development of the Indian heavy electrical machinery industry is directly

1.7: A SNAPSHOT OF THE INDIAN HEAVY ELECTRICAL

The heavy electrical machinery segment in India is monitored by the Ministry of

Government R. C. College of Commerce and Management. Page 6

1.8: GROWTH OF THE HEAVY ELECTRICAL MACHINERY

1.9: SIZE AND STRUCTURE OF THE HEAVY ELECTRICAL

Heavy electrical machinery covers machinery for power generation, transmission,

Government R. C. College of Commerce and Management. Page 7

1.10: LARGE MANUFACTURERS IN THE INDIAN ELECTRICAL

MANUFACTURER COMPANY SECTORS/ PRODUCTS

Crompton Greaves Started its India operations Transformers,

Government R. C. College of Commerce and Management. Page 8

Kirloskar Electric Established in 1946 it is one Motors, generators,

Larsen & Toubro It is one of the largest Switchgear, control and

Government R. C. College of Commerce and Management. Page 9

Havells One of the fastest growing Cables, switchgear,