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Index/Content
1. Company
Profile
9
2. Business
Areas
..10
3. Vision and
Mission
...12
4. CMD
Profile
..13
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5. Management
Team
15
6. Major Awards And Land
Marks
....18
7. Industry
Profile
..19
8. Objective of
Study
.22
9. Benefits of
Study
23
10. Limitations ofStudy
..24
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11. Introduction to Financial
Management
.25
Objectives of Financial
Management
26
12. Functions Of Financial
Management
27
13. Challenges to Financial Management in hotel
industry28
14. Findings-Ratio
Analysis
30
15. Overview
5416. Suggestions
....61
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17. Conclusions
62
18. Webography
...63
Company Profile
Bhagwati Group was founded in 1989 by the visionary
thinker & entrepreneur par excellence Mr.NarendraSomani, The Chairman & Managing Director who
with his revolutionary business acumen and
enterprising attitude created this enterprise from
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scratch. Bhagwati Banquets & Hotels Ltd - a
renowned public limited company, listed at BSE and
NSE exchange, with its vision and novel innovations
has created an admired empire in the field of food and
hospitality industry.
Operating as The Grand Bhagwati, it aims to provide
quality, excellent food and great services in food &
catering segment and today, it is the ONLY
ORGANISED CORPORATE CATERING
COMPANY across India.
BBHL is a company offering the best of both worlds.
A unique understanding of the culture and
communities combined with the collective expertise of
an executive team contributing over 22 years of
experience in the service industry.
BBHL has one of its kind and unique banquetingmodels in India. Looking forward and creating
benchmarks in the hospitality segment, the company
opened first of its kind star category Banqueting hotel
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with best of the amenities in the year 2002 under the
brand name "The Grand Bhagwati".
BBHL with the above success has already chartered
the future map fueling more growth. For this,
company has built an exclusive Five Star hotel
convention centre & Club in the city of Surat. The
company now is expanding Pan India with its
Restaurants, Banquet halls & outdoor catering
operations in the city of Jaipur, Bangalore, Nagpur,
Pune, Mumbai, Hyderabad, Jodhpur, Indore etc.
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Business Areas
TGB Hotels
Ahmedabad Rajkot
Surat
Banquets
Ahmedabad Rajkot
Surat
Jaipur
Conventions
Surat
TGB World Cuisine Restaurants
Jaipur
Surat
Forth Coming Restaurants
Mumbai
Bangalore
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Jodhpur
Indore
Pune
Nasik Nagpur
Hyderabad
TGB Outlets
TGB Little Italy
Murugan Express
TGB Bakeries
The Grand Bhagwati
TGB Municipal Market
TGB Iscon Mall TGB Vastrapur
TGB Bopal
TGB Maninagar
TGB Karnavati Club
TGB Judges Bunglow
TGB Sattadhar
TGB Patang TGB Shahibaug
TGB Rajkot
TGB Surat
TGB Little Italy
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Murugan Express
TGB HL Commerce College Circle
TGB Management Outlets
Karnavati Club
Patang (The 1st Revolving Restaurant)
Gujarat Cricket Association (GCA)
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Vision & Mission
Vision
We at The Grand Bhagwati are committed to
meeting and exceeding the expectations of our
guests, through continuous dedication and
perfection by our team, whom we rely upon to
make it happen and are committed to their growth,
development and welfare, resulting to create
extraordinary value for our stake-holders.
Mission
We aim to take our vision not just across Gujarat
but to every metro pan India and wherever else our
imagination takes us. TGB will soon have its
presence across India through Banquets,
Conventions, Hotels, Restaurants and Bakerys &
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Cafs at all major tourist destinations.
CMD Profile
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Management Team
Hotel TGB - NewsTitle: The Best Multi Cuisine Restaurant in
Ahmedabad
Date: Apr 5 2011
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Major Awards & Citation
"The Marketing Man of the Year award -2006"
by Ahmedabad Management Association. Mr.
Narendra Somani CMD of the company has been
felicitated by AMA-Zydus Cadila . This award was
given for his significant & exemplary contribution in
the hospitality segment and taking the brand "The
Grand Bhagwati" to the newer heights. The award was
given by Mr. Praful Patel- Union Civil Aviation
Minister at AMA complex.
"The Most Promising Small Enterprise of the
Year" award declared by CNBC TV-18. Competing
with 35000 SMEs entries The Bhagwati Banquets &
Hotels Ltd won the prestigious award organized by
ICICI Bank powered by CRISIL across India at theIndia Emerging Awards-2006.
"Sindh Bhushan Award" as "Young
Entrepreneur of the year 2006" Mr. Narendra
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Somani was also felicitated and awarded by the All
India Sindhi Association of Industries & Commerce.
National award for excellence in Hotel
Management organized by the International
Association of Education for World Peace (IAEWP),
USA.
Felicitated for Excellent Cooperation extended to India
Tourism by Ministry of Tourism, India.
Landmarks
Landmarks
1989: Incorporation of Bhagwati Group
2002: First Deluxe Hotel The Grand Bhagwati at
Ahmedabad
2006: Awarded Most Promising Small Enterprise
of the Year by CNBC TV-18
2010: Gujarats Biggest 5 Star Hotel & Convention
Centre at Surat
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Industry Profile
As per a report published by the World Travel and
Tourism Council, India stood 18th as far as business
travel was concerned and it featured alongside the top
5 most visited destinations in 2010.
According to a study conducted by the World Travel
and Tourism Council the hospitality industry in India
is all set to grow at a steady rate of 15 percent per
annum. However the growth rate will shoot up in the
next few years considering the number of rooms
required by both luxury and budget hotels. The growth
in the next two to three years is surely going to be
stupendous with almost 2, 00,000 rooms added to theexisting 110,000.
Dwelling perfectly on the principle of ATITHI DEVO
BHAVA' (GUEST IS GOD) the hotels in India are just
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the apt concoction of luxury, humility and unparallel
hospitality. The hotels in India are known for offering
the best of products and services at absolutely pocket
friendly rates.
As per expert hoteliers the hotel industry in India is
estimated to grow at a rate of 8.8 percent between the
years 2007-16. This will place India on the second
position in the list of the fastest growing tourism
industries in the world. The phenomenal growth of the
hotel industry in India would not have been possible
without the Initiatives taken the government. The open
sky policies and the enormous infrastructural
investments made by the Indian government have only
fastened the development of the hospitality sector in
the country.
The Indian hotel industry is affecting the economy
both directly and indirectly. The growth of the hotel
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industry in India has created employment
opportunities for millions of Indians. According to
estimates almost 20 million people are employed with
the hotel industry in India.
Over the last decade and half the mad rush to India,
business opportunities has intensified and elevated
room rates and occupancy levels in India. Even budget
hotels are charging Rs.11250 per day. The successful
growth story of 'Hotel Industry in India' seconds only
to China in Asia Pacific.
'Hotels in India' has a supply of 110,000 rooms.
According to the India tourism ministry, 4.4 million
tourists visited India in 2009 and the figure went up to
almost 10 million in 2010. 'Hotels in India' has ashortage of 150,000 rooms fueling hotel room rates
across India. With tremendous pull of opportunity,
India is a destination for hotel chains looking for
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growth. The World Travel and Tourism Council,
India, data says, India ranks 18th in business travel
and will be among the top 5 in this decade. Sources
estimate, demand is going to exceed supply by at least
100% over the next 2 years. Five-star hotels in metro
cities allot same room, more than once a day to
different guests, receiving almost 24-hour rates from
both guests against 6-8 hours usage. With demand-
supply disparity, 'Hotel India' room rates are most
likely to rise 25% annually and occupancy to rise by
80%, over the next two years. 'Hotel Industry in India'
is eroding its competitiveness as a cost effective
destination. However, the rating on the 'Indian Hotels'
is bullish.
'India Hotel Industry' is adding about 60,000 qualityrooms, currently in different stages of planning and
development and should be ready by
2012. MNC Hotel Industry giants are flocking India
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and forging Joint Ventures to earn their share of pie in
the race. Government has approved 300 hotel projects,
nearly half of which are in the luxury range. Sources
said, the manpower requirements of the hotel industry
increased from 7 million in 2002 to 15 million in
2010.
With the Rs.1035 billion software services sector
pushing the Indian economy skywards, more and more
IT professionals are flocking to Indian metro cities.
'Hotel Industry in India' is set to grow at 15% a year.
This figure will skyrocket in 2010, when Delhi hosts
the Commonwealth Games. Already, more than 50
international budget hotel chains are moving into India
to stake their turf. Therefore, with opportunities galore
the future 'Scenario of Indian Hotel Industry' looksrosy.
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List of Key Players in Hotel Industry in India
Below is a list of the major hotel groups in India
Inter Continental
Taj Group
Oberoi Group of Hotels
ITC Welcome group of Hotels
The Park Group of Hotels
Le Meridien Group of Hotels
Welcome Heritage Group of Hotels
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Objective of Study
To gain the practical experience in the field of
interest.
To get the overview of functional as well as the
managerial areas of the company.
To gain the knowledge about the industry and the
company as well.
To get the training from well qualified and trained
personnel.
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To study the companys procedures and
functioning in detail.
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Benefits of Study
There are various benefits of performing the summer
training at The Grand Bhagwati.
Firstly, I got to learn and experience the day to
day functioning of a 5 star hotel.
Got a chance to be a part of it and observe the
managerial as well as the functional areas.
Quality guidance and co-operation by the HODs.
Got an opportunity to know about the back offices
or the functional areas of the hotel
Experienced the functioning on the practical
basis.
Got to know how the things work in practical life.
It feels prestigious while working with one of the
best hotels in the state.
Learnt about the financial management and how it
is settled.
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Got to experience the hard working HR
department and the tactics they utilize to control
the human resource.
Experienced the food and beverage production
department and learnt how the things were
managed and operated over there.
Learnt about the sales and marketing departmentand what are the strategies that are used.
Limitations of Study
No limitations of study.
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Study of the department
Finding of the study
Recommendations Conclusion
Bibliography
What is financial management?
Financial Management means planning, organizing,
directing and controlling the financial activities such
as procurement and utilization of funds of the
enterprise. It means applying general management
principles to financial resources of the enterprise.
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Objectives of Financial Management
Scope/Elements
1. Investment decisions includes investment in fixed
assets (called as capital budgeting).Investment in
current assets are also a part of investment
decisions called as working capital decisions.
2. Financial decisions - They relate to the raising of
finance from various resources which will depend
upon decision on type of source, period of
financing, cost of financing and the returns
thereby.
3. Dividend decision - The finance manager has to
take decision with regards to the net profit
distribution. Net profits are generally divided into
two:
Dividend for shareholders- Dividend and the
rate of it has to be decided.
Retained profits- Amount of retained profits
has to be finalized which will depend upon
expansion and diversification plans of the
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The financial management is generally concerned with
procurement, allocation and control of financial
resources of a concern. The objectives can be-
1. To ensure regular and adequate supply of funds to
the concern.
2. To ensure adequate returns to the shareholders
which will depend upon the earning capacity,
market price of the share, expectations of the
shareholders?
3. To ensure optimum funds utilization. Once the
funds are procured, they should be utilized in
maximum possible way at least cost.
4. To ensure safety on investment, i.e., funds should
be invested in safe ventures so that adequate rate
of return can be achieved.
5. To plan a sound capital structure-There should be
sound and fair composition of capital so that a
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balance is maintained between debt and equity
capital.
Role and Importance of Finance Department
ensure that there are adequate funds available to
acquire the resources needed to help the organization
achieve its objectives.
ensure costs are controlled.
ensure adequate cash flow.
establish and control profitability levels.
One of the major roles of the finance department is to
identify appropriate financial information prior to
communicating this information to managers and
decision-makers, in order that they may make
informed judgments and decisions.
Finance also prepares financial documents and final
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accounts for managers to use and for reporting
purposes (i.e. Annual general Meeting, etc)
Functions of Financial Management
1. Estimation of capital requirements: A finance
manager has to make estimation with regards to
capital requirements of the company. This will
depend upon expected costs and profits and future
programmes and policies of a concern.
Estimations have to be made in an adequate
manner which increases earning capacity of
enterprise.
2. Determination of capital composition: Once
the estimation has been made, the capital structure
have to be decided. This involves short- term and
long- term debt equity analysis. This will depend
upon the proportion of equity capital a company
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is possessing and additional funds which have to
be raised from outside parties.
3. Choice of sources of funds: For additional funds
to be procured, a company has many choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial
institutions
c. Public deposits to be drawn like in form of
bonds.
Choice of factor will depend on relative merits
and demerits of each source and period of
financing.
4. Investment of funds: The finance manager has
to decide to allocate funds into profitable ventures
so that there is safety on investment and regular
returns is possible.
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5. Disposal of surplus: The net profits decision has
to be made by the finance manager. This can be
done in two ways:
a. Dividend declaration - It includes identifying
the rate of dividends and other benefits like
bonus.
b. Retained profits - The volume has to be
decided which will depend upon expansion,
innovational, diversification plans of the
company.
6. Management of cash: Finance manager has to
make decisions with regards to cash management.
Cash is required for many purposes like payment
of wages and salaries, payment of electricity and
water bills, payment to creditors, meeting current
liabilities, maintenance of enough stock, purchaseof raw materials, etc.
7. Financial controls: The finance manager has not
only to plan, procure and utilize the funds but he
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also has to exercise control over finances. This
can be done through many techniques like ratio
analysis, financial forecasting, cost and profit
control, etc.
Hotel Industry Financial Challenges
Hotel industry is an exciting and multifaceted industry
that offers a variety of career opportunities to those
who have earned a hotel/restaurant management
degree. Careers with hotel, restaurant, gaming, and
wine and spirit companies are readily available to such
graduates. In addition, careers with service firms that
support hospitality companies in the areas of
accounting, consulting, real estate development,
architecture, interior design, real estate brokerage,
hotel valuation, investment banking, mortgage
brokerage, insurance, advertising, and technology are
also available to those with hospitality degrees.
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Financial Challenges:
A multifaceted industry
Low profitability
Fluctuating sales volume
Labor intensive
Capital intensive
Reliance on discretionary income
While a hospitality business typically requires a
relatively low level of operating inventories, it
requires a relatively high level of capital for its real
estate component. This component often includes
buildings, operating systems, guest room furniture,
and restaurant equipment. Securing financing to
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acquire these assets is a continuing challenge for
management.
Finally, hospitality businesses rely heavily on the
discretionary income of their customers. During a
weak economy, when household discretionary income
is low, the hospitality industry usually suffers. High-
end establishments, such as resorts and fine dining
restaurants, normally feel the effects of a weak
economy first, but eventually, the entire industry feels
the financial pain. However, as soon as the economy
takes a turn for the better, consumers return,
discretionary spending increases, and the industry
prospers. Accurately predicting these economic
fluctuations, and knowing when to buy and sell
hospitality assets, can be financially lucrative for the
astute hospitality investor.
The financial tools utilized by modern-day management to
address these challenges and
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Opportunities are the focus of this book.
Understanding of these financial tools and applying
them to the challenges and opportunities they will
soon face when they take jobs in the industry will
serve hospitality graduates well throughout their
business careers.
Findings: Balance sheet as at 31st march, 2010
(Rs. In Lacks)
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Particulars As on
31/3/
2010
As on
31/3/
2009
SOURCES OF FUNDS:
Share Holders Funds
Share capitalReserve & Surplus
Amount for Preferential
convertible warrants
Loan Funds
Secured Loan
Deferred Tax Liabilities
2928.6410745.85
0.00
9898.34
392.38
2928649852.21
620.22
4120.31
349.22
TOTAL 23965.21 17870.60
APPLICATION OF FUNDS:
Fixed Assets
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Gross Block
Less: Accumulated
Depreciation
Net Block
W.I.P. & advances on
capital AC
INVESTMENTS
CURRENT ASSETS,
LOANS AND
ADVANCES
Inventories
Sundry debtors
Cash and bank balance
Loans and advances
5191.24
1358.00
3833.24
15702.73
540.99
1116.26
835.09
1877.02
3517.01
4496.01
1162.65
333.35
7873.88
540.95
710.68
827.13
1912.74
3271.27
7345.39 6721.83
LESS: CURRENT
LIABILITIES &
PROVISIONS
3635.51 1153.08
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NET CURRENT ASSETS 3709.88 5568.75
MISCELLANEOUS
EXPENDITURE
(To the extent not written off or
adjusted)
Branch division
178.36 553.67
TOTAL 23965.21 17870.60
Ratio Analysis
It is the most important technique offinancial
analysis in which quantities are converted into
ratios for meaningful comparisons, with past
ratios and ratios of other firms in the same or
different industries. Ratio analysis determines
trends and exposesstrengths or weaknesses of
a firm. It is a tool used by individuals to
conduct a quantitative analysis of
information in a company's financial
39
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statements. Ratios are calculated from
current year numbers and are then compared
to previous years, other companies, the
industry, or even the economy to judge the
performance of the company. Ratio analysis is
predominately used by proponents of
fundamental analysis.
Ratiobasics
Ratio Analysis compares one figure in one financial
statement (say P&L account or Balance Sheet) with
another figure in the same financial statement or inanother financial statement of the company. A ratio is
expressed in the numerator denominator format. Thus
the numerator and denominator can be either from the
P&L account or the Balance sheet of the same
company. Ratios gives color to absolute figures. For
example a profit of Rs.100 lakhs means very little to
an analyst because he needs to know what the sales
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was or what the net worth was against which the
Rs.100 lakhs was earned. More than the
profit, the ratio of profit to sales and the ratio of profit
to net worth are useful to
understand the performance of a company. Thus if
profit grew from Rs 100 lakhs to Rs 125 lakhs, while
it is good, what is more important is how it stacked up
against the sales achieved or the net worth deployed.
Hence, ratio analysis facilitates intra firm
comparison. I.e. comparison of your companys
performance in the current year with your companys
performance in the previous year. It also facilitates
inter firm comparison. I.e. Comparison of your
companys performance in the current year with your
competitors performance in the current year. Peer
review, as this is called, helps you benchmark yourperformance with your peers. Ratios help in
ascertaining the financial health of the company and
also its future prospects. These ratios can be classified
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under various heads to reflect what they measure.
There may be a tendency to work a number of ratios.
Being thorough in the computation and interpretation
of a few ratios would be ideal.
Computing Ratios
When a ratio has a P&L figure both in the numerator
and in the denominator or has aBalance sheet figure both in the numerator and in the
denominator it is called a Straight
Ratio. Where it has the P&L figure in the numerator
and the balance sheet figure in the
Denominator or the balance sheet figure in the
numerator and the P&L figure in the
Denominator it is called a Cross or Hybrid Ratio.
Following table shows the category of the ratios
and their respective measures:
Categories of ratio What they Measure
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Liquidity ratios Short term solvency
Capital Structure
Ratio
Long term solvency
Profitability ratios Ability to make profit
Coverage ratios Adequacy of money for
payments
Turnover ratios Usage of Assets
Capital Market ratio Wealth maximization
A: Liquidity or Short Term Solvency Ratios
Liquidity refers to the speed and ease with which an
asset can be converted to cash.
Liquidity has two dimensions: ease of conversion
versus loss of value. Any asset can be quickly
converted to cash if the price is slashed. A house
property valued at Rs 25 lakhs can be converted to
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cash within 24 hours if you slash the price to Rs 5
lakhs!
So a liquid asset is really one which can be converted
to cash without major loss of value.
An illiquid asset is one that cannot be en-cashed
without a major slash in price.
Current assets are most liquid. Fixed assets are least
liquid. Tangible fixed assets like
land and building and equipment arent generally
converted to cash at all in normal
business activity. They are used in the business to
generate cash. Intangibles such as
trademark have no physical existence and arent
normally converted to cash.
Liquidity is invaluable. The more liquid a business is,
the less is the possibility of itfacing financial troubles.
But too much of liquidity too is not good. Thats
because liquidity has a price tag.
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Liquid assets are less profitable to hold. Therefore
there is a trade off between the
advantages of liquidity and foregone potential profits.
Liquidity or Short term solvency ratios provide
information about a firms liquidity. The
primary concern is the firms ability to pay its bills
over the short run without undue
stress. Hence these ratios focus on current assets and
current liabilities. These ratios are
particularly useful to the short term lenders. A major
advantage of looking at current assets and current
liabilities is that their book values approximate
towards their market values. Often these assets and
liabilities do not live long enough for the two to step
out of line.
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Current Ratio
This is the ratio of current assets to current liabilities.
Also known as liquidity ratio, cash asset ratio, and
cash ratio; a liquidity ratio that measures a company's
ability to pay short-term obligations. it is computed as
follows:
Current Ratio=Current Assets / Current
Liabilities
Because current assets are convertible to cash in one
year and current liabilities are
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payable within one year, the current ratio is an
indicator of short term solvency. The unit
of measure is times. For instance if the current ratio
is 1.4 we say that the ratio is 1.4 times. It means that
current assets are 1.4 times the current liabilities. To a
short term lender, including a creditor, a high current
ratio is a source of comfort. To the firm, a high current
ratio indicates liquidity, but it also may mean
inefficient use of cash and other current assets. The
current radio is affected by various types of
transactions. For example suppose the firm borrows
over the long term to raise money. The short term
effect would be an increase in cash and an increase in
long term debt. So the current ratio would rise.
Finally, a low current ratio is not necessarily bad for a
company which has a largeReservoir of untapped borrowing.
Ideal current ratio preferred by bank is 1.33
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Current ratio=7345.39/3635.51=2.02
Net Working capital
This is the ratio of sales to net working capital. Networking capital would mean current assets less current
liabilities.
Net working capital=Current asset-current
liability
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The amount of money a company has on hand, or will
have, in a given year. Working capital is calculated by
subtracting current liabilities from current assets That
is, one takes the value of all debts and obligations for
the current year and subtracts that from the value of all
cash and assets that might reasonably be converted
into cash in the current year. This is a good measure of
the short and medium-term financial health of a
company, and may indicate by how much it can
expand its operations without resorting to borrowing
or another capital raising tactic. Working capital is
also called operating assets or net current assets.
Net working capital=7345.39-3635.51=3709.88
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Debt Equity Ratio
It is a measure of a company's financial leverage
calculated by dividing its total
liabilities by stockholders' equity. It indicates what
proportion of equity and debt the company is using to
finance its assets. Also known as the Personal
Debt/Equity Ratio, this ratio can be applied to personal
financial statements as well as corporate ones.
A high debt/equity ratio generally means that acompany has been aggressive in financing its growth
with debt. This can result in volatile earnings as a
result of the additional interest expense.
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If a lot of debt is used to finance increased operations
(high debt to equity), the company could potentially
generate more earnings than it would have without
this outside financing. If this were to increase earnings
by a greater amount than the debt cost (interest), then
the shareholders benefit as more earnings are being
spread among the same amount of shareholders.
However, the cost of this debt financing may outweigh
the return that the company generates on the debt
through investment and business activities and become
too much for the company to handle. This can lead to
bankruptcy, which would leave shareholders with
nothing. The debt/equity ratio also depends on the
industry in which the company operates. For example,
capital-intensive industries such as auto manufacturingtend to have a debt/equity ratio above 2, while
personal computer companies have a debt/equity of
under 0.5.
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Debt Equity Ratio=Long Term
liability/Shareholders funds
Hence,
D.E.R=9898.34/13674.49=0.7239
Proprietary ratio
It indicates the extent to which the tangible assets are
financed by owners fund. This is a variant of the debt-
to-equity ratio. It is also known as equity ratio or net
worth to total assets ratio.This ratio relates the
shareholder's funds to total
assets. Proprietary / Equity ratio indicates the long-
term or future solvency position of the business.
This ratio throws light on the general financial
strength of the company. It is also regarded as a test of
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the soundness of the capital structure. Higher the ratio
or the share of shareholders in the total capital of the
company better is the long-term solvency position of
the company. A low proprietary ratio will include
greater risk to the creditors.
Proprietary ratio= (tangible net worth/total
tangible assets)*100
PR = (3632.32/4521.49)*100= 80.33
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Gross Profit Ratio
GPR is the ratio ofgross profit to net sales expressed
as a percentage. It expresses the relationship between
gross profit and sales.
(Gross Profit / Sales)*100
The term gross profit refers to the difference between
sales and works cost.
Higher the percentage the better it is for the company.
Gross profit ratio may be indicated to what extent the
selling prices of goods per unit may be reduced
without incurring losses on operations. It reflects
efficiency with which a firm produces its products. As
the gross profit is found by deducting cost of goodssold from net sales, higher the gross profit better it is.
There is no standard GP ratio for evaluation. It may
vary from business to business. However, the gross
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profit earned should be sufficient to recover all
operating expenses and to build up reserves after
paying all fixed interest charges and dividends.
Causes/reasons of increase or decrease in gross profit
ratio:
It should be observed that an increase in the GP ratio
may be due to the following factors.
Increase in the selling price of goods sold without any
corresponding increase in the cost of goods sold.
Decrease in cost of goods sold without corresponding
decrease in selling price. Omission of purchaseinvoices from accounts. Under valuation of opening
stock or overvaluation of closing stock. On the other
hand, the decrease in the gross profit ratio may be due
to the following factors. Decrease in the selling price
of goods, without corresponding decrease in the cost
of goods sold. Increase in the cost of goods sold
without any increase in selling price. Unfavorable
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purchasing or markup policies. Inability of
management to improve sales volume, or omission of
sales. Over valuation of opening stock or under
valuation of closing stock Hence, an analysis ofgross
profit margin should be carried out in the light of the
information relating to purchasing, mark-ups and
markdowns, credit and collections as well as
merchandising policies.
Gross Profit Ratio= (1601.50/8298.23)*100 =
19.30%
Operating Profit
This is the ratio of operating profit to sales.
Operating Profit / Sales
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The term operating profit is the difference between
gross profit and administration and
selling overheads. Non operating income and expenses
are excluded. Interest expenditure
is also excluded because interest is the reward for a
particular form of financing and has
nothing to do with operational excellence.
Higher the percentage the better it is for the company.
Operating Profit= (97604 / 8298.23) = 11.76
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Net profit Ratio
This is the ratio of net profit to sales.
(Net Profit / Sales)*100
The term net profit refers to the final profit of the
company. It takes into account all
incomes and all expenses including interest costs.
Higher the percentage the better it is for the company.
NP ratio is used to measure the overall profitability
and hence it is very useful to proprietors. The ratio isvery useful as if the net profit is not sufficient, the firm
shall not be able to achieve a satisfactory return on its
investment.
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This ratio also indicates the firm's capacity to face
adverse economic conditions such as price
competition, low demand, etc. Obviously, higher the
ratio the better is the profitability. But while
interpreting the ratio it should be kept in minds that
the performance of profits also is seen in relation to
investments or capital of the firm and not only in
relation to sales.
It measures Overall Profitability of the company.
Net Profit Ratio = (976.04 / 8298.23)*100 =
11.76%
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Inventory Turnover Ratio
A ratio showing how many times a
company's inventory is sold and replaced over a
period.
This ratio should be compared against industry
averages. A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either
strong sales or ineffective buying.
High inventory levels are unhealthy because they
represent an investment with a rate of return of zero. It
also opens the company up to trouble should prices
begin to fall.
The days in the period can then be divided bythe inventory turnover formula to calculate the days it
takes to sell the inventory on hand or "inventory
turnover days".
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It can also be expressed as the ratio of cost of goods
sold to average inventory. While
closing inventory is technically more correct, average
inventory could be used since an
external analyst is unsure whether the year end
numbers are dressed up. The numerator is Cost of
goods sold and not sales because inventory is valued
at cost. However to use Sales in the numerator is
also a practice that many adopt. If the inventory
turnover ratio is 3, it means that we sold off the entire
inventory thrice. As long as we are not running out of
stock and hence losing sales, the higher this ratio is,
the more efficient is the management of inventory. If
we turned over inventory over 3 times during the year,
then we can say that we held inventory for
approximately 121 days before selling it. This is calledthe average days sales in Inventory and is given by
the following formula:
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365 / Inventory turnover ratio
The ratio measures how fast we sold our products.
Note that inventory turnover ratio and
average days sales in inventory measure the same
thing.
It is calculated as follows:
Inventory turnover ratio = sales / inventory
It may also be calculated as
= COGS / inventory
Hence, I.T.R. = sales / inventory
= 8298.23 / 1116.26 = 7.43
Average days sales in Inventory = 365 /
Inventory turnover ratio
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= 365 /7.43 = 49.13
Average Inventory ratio
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It indicates the number of times the inventory is
rotated during the relevant accounting period.
It is obtained by the summation of the opening stock
and closing stock and further divided by 2.
Average Inventory Ratio= (Opening stock +
Closing stock)/2
= (427.44+680.16) /2= 767.52
Debtors Turnover Ratio
This is the ratio of sales to closing debtors.
Sales / Debtors
While closing debtors is technically more correct,
average debtors could be used since anexternal analyst is unsure whether the year end
numbers are dressed up.
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If the debtors turnover ratio is 8, it means that we
collected our outstanding 8 times a
year. As long as we do not miss out sales, the higher
this ratio is, the more efficient is the
management of debtors. This ratio is far easier to
grasp if we converted it into number of days. If we
turned over debtors 8 times a year, we can say that
debtors on an average were 45 days. This is called the
average days sales in receivable and is given by the
following formula:
365 / Receivable turnover ratio
The ratio is often called the Average Collection
period.
Debtors Turnover Ratio= (8298.23 / 835.09) = 9.94
times
Average Collection period= 365 / 9.94 = 36.72 days
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Creditors Turnover Ratio
In so far as we wanted to know how well we used our
debtors we must also know how well we utilize the
creditors. Towards this we compute the Creditors
turnover ratio which is the ratio of purchases to
closing creditors.
Credit Purchases / Creditors
Average creditors could also be used since an external
analyst is unsure whether the year
end numbers are dressed up.
If the creditors turnover ratio is 5, it means that we
paid our outstanding 5 times a year.As long as we do not miss out purchases, the smaller
this ratio is, the more efficient is the
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management of creditors. This ratio becomes more
understandable if we convert it into number of days. If
we turned over creditors 5 times a year, we can say
that creditors on an average were 73 days. This is
called the average days purchases in payables and
is given by the following formula:
365 / Creditors turnover ratio
The ratio is often called the Average Payment
period.
Creditors Turnover Ratio= 2706.29 / 1941.69
= 1.40 times
Average Payment period =.365 / 1.40 = 260.71
Days
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Asset Turnover Ratio
This is the ratio of sales to total assets.
Sales / Total Assets
While total assets is technically more correct,
average assets could also be used.
Average asset is the simple average of opening and
closing assets.
If the total assets turnover ratio is 4, it means that for
every rupee invested we have
generated Rs.4 of sales. The term total assets would be
the sum of fixed assets andcurrent assets.
The higher the ratio the better it is for the company.
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The reciprocal of the total assets turnover ratio is the
Capital Intensity ratio. It can be
interpreted as the rupee invested in assets needed to
generate Re.1 of sales. High values
correspond to capital intensive industries.
1 / Total assets turnover ratio
Asset Turnover Ratio= 8298.23 / 3833.25 = 0.8
Fixed Assets turnover ratio
This is the ratio of sales to fixed assets.
The fixed assets should typically be on net basis i.e.
net of accumulated depreciation.
Sales / Net fixed assets
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Average fixed assets i.e. the simple average of
opening and closing fixed assets can also
be used. If the fixed assets turnover ratio is 3, it means
that for every rupee invested in fixed assets we have
generated Rs.3 of sales.
The higher the ratio the better it is for the company.
Fixed Assets turnover ratio = 8298.23 / 3833.25 =
2.16
Current Asset Turnover Ratio
Ratio that indicates how efficiently a firm is using
its current assets to generate revenue.
Net sales/Current Assets
Current Asset Turnover Ratio = 8298.23 / 3709.88
= 2.24
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Return on Assets
An indicator of how profitable a company is relative to
its total assets. ROA gives an idea as to how
efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual
earnings by its total assets, ROA is displayed as a
percentage. Sometimes this is referred to as "return on
investment".
ROA tells you what earnings were generated from
invested capital (assets). ROA for public companies
can vary substantially and will be highly dependent on
the industry. This is why when using ROA as a
comparative measure, it is best to compare it against a
company's previous ROA numbers or the ROA of a
similar company.
The assets of the company are comprised of both debtand equity. Both of these types of financing are used
to fund the operations of the company. The ROA
figure gives investors an idea of how effectively the
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company is converting the money it has to invest into
net income. The higher the ROA number, the better,
because the company is earning more money on less
investment. For example, if one company has a net
income of Rs.1 million and total assets of Rs. 5
million, its ROA is 20%; however, if another company
earns the same amount but has total assets of Rs.10
million, it has an ROA of 10%. Based on this example,
the first company is better at converting its investment
into profit. When you really think about
it, management's most important job is to make wise
choices in allocating its resources. Anybody can make
a profit by throwing a ton of money at a problem,
but very few managers excel at making large profits
with little investment.
ROA= NPAT / Total Assets = 976.04 / 23965.21 =
0.04
Return on Capital Employed
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This is the more popular ratio and is the ratio of EBIT
to capital employed
(EBIT / Capital employed)*100
The term capital employed refers to the sum of net
fixed assets and net working capital.
This ratio measures the productivity of money.
Higher the percentage the better it is for the company.
ROCE= (1385.54/2928.64)*100 = 47.31%
Return on Equity Capital
In real sense, ordinary shareholders are the real owners
of the company. They assume the highest risk in the
company. (Preference share holders have a preference
over ordinary shareholders in the payment
of dividend as well as capital.
Preference share holders get a fixed rate
of dividend irrespective of the quantum of profits of
the company). The rate of dividends varies with the
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availability of profits in case of ordinary shares only.
Thus ordinary shareholders are more interested in the
profitability of a company and the performance of a
company should be judged on the basis of return on
equity capital of the company. Return on equity capital
which is the relationship between profits of a company
and its equity can be calculated as follows:
Return on Equity Capital = [(Net profit after
tax Preference dividend) / Equity share
capital] 100
This ratio is more meaningful to the
equity shareholders who are interested to know profits
earned by the company and those profits which can be
made available to pay dividends to them.
Interpretation of the ratio is similar to the
interpretation of return on shareholders investment
and higher the ratio better is.
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ROEC = [(976.04 - 0.00) / 2928.64]*100 =33.33
Earnings per Share
This is the ratio of profit after tax and preference
dividends to number of equity shares outstanding.
(Profit after tax / No. of equity shares)
This measures the amount of money available per
share to equity shareholders.
The EPS has to be used with care. Two companies
raising identical amounts of money
and making identical after tax profits can report
substantially different EPS.
Consider this example. A Ltd. raises Rs.100 lakhs of
equity with each share having a
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face value of Rs.10. The premium on issue is Rs.90
implying that 1, 00,000 shares are
raised. In accounting speak, Rs.10 lakhs goes to equity
account and Rs.90 lakhs goes to
share premium account. Suppose the company makes
a profit after tax of Rs.50 lakhs.
Since there are 1 lakhs shares outstanding the EPS is
Rs.50. The return on net-worth is
50%. Now B Ltd. raises Rs.100 lakhs of equity with
each share having a face value of Rs.10. The premium
on issue is Rs.40 implying that 2,00,000 shares are
raised. In accounting speak, Rs.20 lakhs goes to equity
account and Rs.80 lakhs goes to share premium
account. Suppose the company makes a profit after tax
of Rs.50 lakhs. Since there are 2 lakhs shares
outstanding the EPS is Rs.25. The return on net-worthis 50%.
Both companies have the same RONW, the same face
value per share, but the first
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company returns an EPS of Rs.50 and the second an
EPS of Rs.25
EPS= (976.04 / 2928.64)*10= 3.33
Price Earning Ratio
This is the ratio of market price per equity share to
earning
per share. Also known as the PE multiple, the
following is the formula:
Market price per share / Earnings per share.
Suppose the PEM is 12. Typically, this means that if
all earnings are distributed as
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dividends then it would take the investor 12 long years
before he recovers his initial
investment. If that be so, why do investors invest in
companies with high PEM? Reason:
Investors expect the companys earnings to grow. The
PEM can hence be looked upon as
an investors confidence in the growth prospects of the
company.
PER = 10 / 3.33 = 3
Dividend per Share
The the sum of declared dividends for every ordinary
share issued. Dividend per share (DPS) is the total
dividends paid out over an entire year (including
interim dividends but not including special dividends)divided by the number of outstanding ordinary shares
issued.
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Dividend per Share (DPS) = (Dividends
announced during the period / Number of
Shares in issue)
Dividends per share are usually easily found on quote
pages as the dividend paid in the most recent quarter
which is then used to calculate the dividend yield.
Dividends over the entire year (not including any
special dividends) must be added together for a proper
calculation of DPS, including interim dividends.
Special dividends are dividends which are only
expected to be issued once so are not included. The
total number of ordinary shares outstanding is
sometimes calculated using the weighted average over
the reporting period.
Dividends are a form of profit distribution to theshareholder. Having a growing dividend per share can
be a sign that the company's management believes that
the growth can be sustained.
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DPS = (292.86 / 2928.64) = 0.10
Dividend Payout Ratio
The payout ratio provides an idea of how well
earnings support the dividend payments. More mature
companies tend to have a higher payout ratio.
Dividend per share/EPS
Dividend payout ratio is the fraction of net income a
firm pays to its stockholders in dividends. The part of
the earnings not paid to investors is left for investment
to provide for future earnings growth. Investors
seeking high current income and limited capital
growth prefer companies with high Dividend payoutratio. However investors seeking capital growth may
prefer lower payout ratio because capital gains are
taxed at a lower rate. High growth firms in early life
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generally have low or zero payout ratios. As they
mature, they tend to return more of the earnings back
to investors.
DPR = 0.10/3.33 = 0.03
Capital Gearing Ratio
Closely related to solvency ratio is the capital
gearing ratio. Capital gearing ratio is mainly used toanalyze the capital structure of a company.
The term capital structure refers to the relationship
between the various long-term form of financing such
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as debentures, preference and equity share capital
including reserves and surpluses. Leverage of capital
structure ratios are calculated to test the long-term
financial position of a firm.
The term "capital gearing" or "leverage" normally
refers to the proportion of relationship between equity
share capital including reserves and surpluses to
preference share capital and other fixed interest
bearing funds or loans. In other words it is
the proportion between the fixed interest or dividend
bearing funds and non fixed interest or dividend
bearing funds. Equity share capital includes equity
share capital and all reserves and surpluses items that
belong to shareholders. Fixed interest bearing funds
includes debentures, preference share capital and other
long-term loans.Capital gearing ratio is important to the company and
the prospective investors. It must be carefully planned
as it affects the company's capacity to maintain a
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uniform dividend policy during difficult trading
periods. It reveals the suitability of company's
capitalization.
Capital gearing ratio = (Preference
share capital + Debentures + long term
borrowings) / Equity funds
CGR = (9898.34 / 2928.64) = 3.38
Return on Capital Employed
A ratio that indicates the efficiency and profitability of
a company's capital investments.
ROCE should always be higher than the rate at
which the company borrows; otherwise any increase in
borrowing will reduce shareholders' earnings.
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A variation of this ratio is return on average capital
employed (ROACE), which takes the average of
opening and closing capital employed for the time
period. This is the more popular ratio and is the ratio
of EBIT to capital employed
(NPAT / Capital employed)*100
The term capital employed refers to the sum of net
fixed assets and net working capital.
This ratio measures the productivity of money.
Higher the percentage the better it is for the company.
ROCE = (976.04/ 2928.64)*100 = 33.33
Return on owners Fund
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This ratio is of practical importance to the proprietors
as well as prospective investors. It enables them to
compare the earning capacity of the enterprise with
that of other enterprise. There should be a minimum
return on investment to shareholders. Bankers and
financers will not be ready to finance if it does not
show adequate profit.
(NPAT / Shareholders Funds)*100
ROF= (976.04 / 13674.49)*100 =7.14
Overview
Sources of long term finance
Working Capital Management
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Management of Inventory
Sources of long term finance
finance is the life blood of business. It is of vital
significance for modern business which requires huge
capital. Funds required for a business may be
classified as long term and short term. Finance is
required for a long period also. It is required for
purchasing fixed
assets like land and building, machinery etc. Even a
portion of working capital, which is required to meet
day to day expenses, is of a permanent nature. Tofinance it we require long term capital. The amount of
long term capital depends upon the scale of business
and nature of business. A business requires funds to
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purchase fixed assets like land and building, plant and
machinery, furniture etc. These assets may be regarded
as the foundation of a business. The capital required
for these assets is called fixed capital. A part of the
working capital is also of a permanent nature. Funds
required for this part of the working capital and for
fixed capital is called long term finance.
Purpose of long term finance
Long term finance is required for the following
purposes:
1. To Finance fixed assets:
Business requires fixed assets like machines, Building,
furnitureetc. Finance required to buy these assets is for a long
period,
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because such assets can be used for a long period and
are not for
resale.
2. To finance the permanent part of working
capital:
Business is a continuing activity. It must have a
certain amount of
working capital which would be needed again and
again. This part
of working capital is of a fixed or permanent nature.
This
requirement is also met from long term funds.
3. To finance growth and expansion of business:
Expansion of business requires investment of a hugeamount of
capital permanently or for a long period.
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Sources of long term finance
The main sources of long term finance are as follows:
1. Shares:
These are issued to the general public. These may be
of two types:
(i) Equity and (ii) Preference. The holders of shares
are the owners
of the business. Here Equity shares are issued.
Authorized share capital is 50000000 Equity
shares of Rs.10/- each
Issued, Subscribed and paid up capital is
29286400 Equity shares of Rs.10/- each fully paid-
up.
2. Debentures:
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These are also issued to the general public. The
holders of
debentures are the creditors of the company.
No debentures are issued here.
3. Public Deposits :
General public also like to deposit their savings with a
popular
and well established company which can pay interest
periodically
and pay-back the deposit when due.
4. Retained earnings:
The company may not distribute the whole of its
profits among its
shareholders. It may retain a part of the profits andutilize it as
capital.
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5. Term loans from banks:
Many industrial development banks, cooperative
banks and commercial banks grant medium term loans
for a period of three to five years.
Here, Term Loans are granted from Axis Bank
Ltd., Indian Overseas Bank , SBI.
Foreign Currency Term Loan from SBI.
Cash credit from SBI and Axis Bank Ltd.
6. Loan from financial institutions:
There are many specialized financial institutions
established by
the Central and State governments which give long
term loans at
reasonable rate of interest. Some of these institutionsare:
Industrial Finance Corporation of India (IFCI),
Industrial
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Development Bank of India (IDBI), Industrial Credit
and Investment
Corporation of India (ICICI), Unit Trust of India
(UTI ), State
Finance Corporations etc.
Vehicle Loans from:
Reliance Capital Ltd. - 4.48 lac
ICICI Bank Ltd. - 2.56 lac
Kotak Mahindra Bank Ltd. 44.50 lac
Axis Bank Ltd 2.83 lac
Working Capital Management
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A managerial accounting strategy focusing on
maintaining efficient levels of both components of
working capital, current assets and current liabilities,
in respect to each other. Working capital management
ensures a company has sufficient cash flow in order to
meet its short-term debt obligations and operating
expenses.
Implementing an effective working capital
management system is an excellent way for many
companies to improve their earnings. The two main
aspects of working capital management are ratio
analysis and management of individual components of
working capital.
A few key performance ratios of a working capital
management system are the working capital ratio,
inventory turnover and the collection ratio. Ratioanalysis will lead management to identify areas of
focus such as inventory management, cash
management, accounts receivable and payable
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management. Here the Net Working Capital of the
company is Rs. 3709.88
Management of Inventory
Inventory management is primarily about specifying
the shape and percentage of stocked goods. It is
required at different locations within a facility or
within many locations of a supply network to proceed
the regular and planned course of production and stock
of materials.
The scope of inventory management concerns the fine
lines between replenishment lead time, carrying costs
of inventory, asset management, inventory forecasting,
inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory,
available physical space for inventory, quality
management, replenishment, returns and defectivegoods and demand forecasting. Balancing these
competing requirements leads to optimal inventory
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levels, which is an on-going process as the business
needs shift and react to the wider environment.
Inventory management involves a retailer seeking to
acquire and maintain a proper merchandise assortment
while ordering, shipping, handling, and related costs
are kept in check. It also involves systems and
processes that identify inventory requirements, set
targets, provide replenishment techniques, report
actual and projected inventory status and handle all
functions related to the tracking and management of
material. This would include the monitoring of
material moved into and out of stockroom locations
and the reconciling of the inventory balances. Also
may include ABC analysis, lot tracking, cycle
counting support etc. Management of the inventories,
with the primary objective of determining/controllingstock levels within the physical distribution function to
balance the need for product availability against the
need for minimizing stock holding and handling costs.
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The reasons for keeping stock
There are three basic reasons for keeping an inventory:
Time - The time lags present in the supply chain,
from supplier to user at every stage, requires that
you maintain certain amounts of inventory to use
in this "lead time."
Uncertainty - Inventories are maintained as
buffers to meet uncertainties in demand, supply
and movements of goods.
Economies of scale - Ideal condition of "one unit
at a time at a place where a user needs it, when he
needs it" principle tends to incur lots of costs in
terms of logistics. So bulk buying, movement and
storing brings in economies of scale, thusinventory.
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There are basically three main categories/stages of
inventory.
Raw Material- In the company, the raw
materials that are used mainly includes the raw
eatable items such as fruits and vegetables,
cereals and dry fruits, different types of flour,
spices, juices, milk, etc.These are some of the
raw materials that are daily used in kitchen of
the hotel.
Work in Progress-When the raw materials are
inputted for the production process, it is known
as work in progress.
Finished goods-finished goods are the final
product that is obtained after the production
process.
Each and every department keeps the
checklist of the Inventories that are used
during a particular period of time and than
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the financial data is handed over to the
finance department. it is checked weekly ,
monthly , quarterly and yearly.
Suggestion
Hotel should increase the wages level of the
employees.
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Hotel provides food & accommodation for free as
additional facilities localize dont take
advantage of accommodation although they are
not provided the additional allowances to
compensate this faculty; therefore they feel like
loosing something. Therefore Hotel should
provide allowances to those who are not using
food and/or accommodation or any other
complimentary services/facilities provided by
hotel.
The authority of Hotel must take steps to reduce
stress and monotony among employees for job
The hotel can put a suggestion/complain box
where every body can drop their
views/problems/complains/suggestions.
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Conclusion
From the research material reviewed, itappears that the extensive investment in TGBhotels all over Gujarat is proved to be a hugesuccess. There is evidence of the Peoplessatisfaction which supports revenue
maximization objectives.The hospitality industry has a stronger passionfor customer satisfaction than ever before andTGB should support this trend.Winning customers heart and satisfaction
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through unique hospitality allow themanagement to cater the business successfully.
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Webography
1. http://www.accountingformanagement.com/
2. http://www.investopedia.com/
3. http://thegrandbhagwati.com/
http://www.accountingformanagement.com/http://www.investopedia.com/http://thegrandbhagwati.com/http://www.accountingformanagement.com/http://www.investopedia.com/http://thegrandbhagwati.com/