INTRODUCTION

MEANING OF FINANCE
Finance is the life blood of every organization. The business is commenced with finance: Finance helps to meet the uncertainties arising out of the business. The finance function can be divided into three broad categories. Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium or small, needs finance to carry on its operations and achieve its targets finances is some indispensable today that it is rightly said that it is the life blood of an enterprise.

DEFINITION OF FINANCE
Finance may be defined as the provision of money at the time of need. As a management function it has a special meaning. Finance may be defined as procurement of funds and for plan for their effective utilization. It can be broadly defined as the activity concerned with planning, raising, controlling and administrating of the funds used in business. WHEELER defines Business finance is that finance which is concerned with the acquisition and the conservation of capital funds in meeting the financial needs and overall objectives of business enterprises.

FUNCTIONS OF FINANCE
The five basic corporate finance functions are those functions related to; 1) Raising capital to support company operations and investments (financing functions); 2) Selecting those projects based on risk and expected return that are the best use of a companys resources (capital budgeting functions); 3) Management of company cash flow and balancing the ratio of debt and equity financing to maximize company value (financial management function); 4) Developing a company governance structure to encourage ethical behavior and actions that serve the best interests of its stockholders (corporate governance function); 5) Management of risk exposure to maintain optimum risk return trade-off that maximizes shareholders value (risk management function).

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IMPORTANCE OF FINANCE
Right

from the very beginning finance is required. Even an existing concern may require future finance for making improvement or expanding the business. Thus the importance of finance cannot be over-emphasized. The importance of finance can be seen in the following fields and they are as follows: To purchase fixed assets such as land, building machinery, furniture etc. To pay for purchase of raw material, wages etc. To replace existing assets. To hold stock of raw materials and finished goods.

THE MAIN OBJECTIVES OF FINANCE FUNCTION ARE: Mobilization of resources of economy. Channelizing the money in productive activities. Generating income or profits. Creating assets or profits. Contributing to the activities of promotion of the economy. Equitable development of the economy, in the process of finance transforms
economy.

FINANCE FUNCTION
Deals with control of funds. Advising the top management in decision making. Management of day to day monetary transactions. Budgetary control. Recording historical data (book keeping). Mobilization of resources for the economy. Channelizing the money in productive activities. Generating income or profit. Creating assets for the uses of masses. Contributing to the activities of promotion of the economy.

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INTRODUCTION TO FINANCIAL MANAGEMENT

Financial management is the managerial activity which is concerned with the planning and controlling of the firm financial resources. It was a branch of economics till 1890, and as a separate discipline, it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today. INNOVATIVE OR PERISH is the slogan of this century. If a company is innovative, it can be run successfully in its future periods. The threat of competition alarmed the businessman to be made creative and efficient. Hence it is the obligation of a finance manager to be vigilant in increasing the efficiency level of a company. The subject of financial management is of immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing. And there are still certain areas where controversies exist for which unanimous solutions have been reached yet. Mangers are interested in this subject because one among the crucial decisions of the firm are those related to finance, and an understanding of the theory of financial management provides them with conceptual and analytical insights to make those decisions skillful.

DEFINITION
According to HOWARD AND OPTION Financial management may be defined as the area or set of administrative function in an organization which relates to arrangement of cash and credit so that the organization may have the means to carry out its objectives as satisfactorily as possible.

FINANCIAL MANAGEMENT EXECUTIVES

IN

THE

MIND

OF

Financial management is a subject which deals with the tools and techniques through which a companys balance sheet is constructed. It offers to the executives in building items in liability and asset side balance sheet. It clearly guides the financial manager to select long term as well as short term funds and its allocation to capital and revenue expenditure hence ultimately is used as a communication tool to convince the investors about the performance of a corporate entity.

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IMPORTANCE OF FINANCIAL MANAGEMENT Profit maximization Wealth maximization

PROFIT MAXIMIZATION:
Profit earning is the main aim of every economic activity. A business being an economic institution must earn profit to cover its cost and provide funds for growth. No business can survive without earning profit. Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection against risks which cannot be ensured. The accumulated profits enable a business to face risks like fall in prices, competition from other units, adverse government policies etc. Thus, profit maximization is considered as the main objective of business.

WEALTH MAXIMIZATION:
Wealth maximization is the appropriate objective of an enterprise. When the firm maximizes the stockholder can use this wealth to maximize his individual utility. This objective helps in increasing the value of shares in the market.

OTHER OBJECTIVES BALANCED ASSET STRUCTURE

The subject of financial management must have goal of maintaining balanced asset structure of the company. The sizes of fixed assets are to be decided scientifically. The size of current assets must permit the company to exploit the investment on fixed assets. Therefore balances between fixed assets and current assets have to be maintained.

LIQUIDITY
The liquidity objective of company will exploit the long b-term vision of a company. If a firm is liquid management of cash flow yielded in increasing the companys capacity to meet short term as well as long term obligations of the company.

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JUDICIOUS PLANNING OF FUNDS

The concept of wealth or profit maximization is achieved only when a company reduces its cost. Cost here not only refers to the overall cost of operation but also the cost of funds. The weighted average cost of different sources of funds must be minimum. With the proper blend of debt of equity mix, short term or current liabilities are to be planned consciously so that the cost incurred on this should not become a burden to the organization.

FINANCIAL DECISIONS
INVESTMENT DECISIONS FINANCING DECISIONS DIVIDEND DECISIONS LIQUIDITY DECISIONS

INVESTMENT DECISIONS
Investment decisions are referred to the activity of deciding the patterns of investment, both short term as well as long term investment, in other words capital assets and the current liabilities. It has to show how the funds can be invested in assets which would yield maximum returns to the business concern.

FINANCING DECISIONS
It is another important decision where a business concern has to take maximum care in financing different proposals. The appropriate mix of finance with debt to equity directly contributes to the profitability of a business unit. The instruments that are to be selected must aim at maximizing the returns to the investors and to protect the interest of creditors.

DIVIDEND DECISIONS
The ultimate objective of a business concern is to fulfill the desires of the equity shares namely, high percentage of dividend, maximum return to share holders etc. hence a sound decision on dividend is been taken. Traditional phase Transitional phase Modern phase New Horizon College Page 5

TRADITIONAL PHASE
It lasted for about four decades. The tools were its important features. The tool of financial management was mainly on certain events like formation, issuance of capital, major expansion, merger, reorganization in the life cycle of the firm. The approach was mainly descriptive and instructional. The outsiders point of view was mainly viewed from the point of the investment bankers, lenders and other outside interests.

TRANSITIONAL PHASE
It began around the early forties and continued through the early fifties. Through the nature of financial management during the phase was similar to that of traditional phase.

MODERN PHASE
It began in the mid fifties and has witness an accelerated phase of development with the infusion of ideas from economic theory and application of quantitative features of modern phase is; The scope of financial management is considered to be rational matching of funds to their uses in the light of appropriate decision criteria. The approach of financial management has become more analytical and quantitative. The point of view of the managerial decision making has become dominant.

FINANCIAL ACCOUNTING is defined as the science and art of recording

and classifying business transactions and making significant summaries for the determination of yearend profit or loss and their effect on owners capital, assets and liabilities. So the objectives of financial accounting are: To ascertain the operating result of the company. To reveal the financial position of the business & To enable control over the operation as well as resources of the business.

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FINANCIAL STATEMENTS
The day to day transactions of the business are recorded, classified and summarized, to determine the profitability of the enterprise and also to find out the financial statements. The aim of maintaining various records is to determine the profitability of the enterprise from the operations of the business and the financial position. The statement prepared from various records of a concern is known as financial statement. According to ANTONY, Financial statement essentially, are interim reports, presented annually and reflect a division of the life of an enterprise into more or less arbitrary accounting period more frequently a year. From the above definition, it is clear that financial statements are the formal, original, summarized and organized statement, prepared from financial accounts as on a certain date, for the purpose of disclosing the financial health of a business in terms of performance of progress (i.e., solvency) and prospects.

VARIOUS FINANCIAL STATEMENTS

Financial statements include at least two basic statements. They are: The income statement The position statement These two statements are prepared by every business concern at the end of every accounting year.

INCOME STATEMENT
Also called as the Trading and Profit and Loss account are those which are been prepared by business concern in order to know the profit earned and the loss sustained during a specified period.

POSITION STATEMENT
Also called as the Balance Sheet are those which are been prepared by a business concern in a particular date, showing the financial position or condition on the state of affairs of the company within a particular point of time. More specifically it contains detailed information about the companys assets and liabilities. Assets refer to tangible or intangible rights of a business which carry some future benefits. Fixed assets refers to those assets which are not held for resale in the normal course of business, while current assets are those assets which are held in cash, or for their conversion in cash within a period of one year or for their consumption in the production of goods or rendering services in the course of business. Liabilities refer to the financial obligation of an enterprise other than New Horizon College Page 7

owners fund. Current liabilities are those liabilities which falls due within a period of one year are called long term liabilities. Fund contributed by owner to the company are called as owners equity.

STATEMENT OF RETAINED EARNINGS

It is a statement which shows the profit earned by the company during a year have been appropriated (i.e., distributed or utilised) as a division on share, transfer to reserve etc. and how much of the profit are retained as surplus profits.

STATEMENT OF CHANGE IN FINANCIAL POSITION

It is a statement which disclose the resources made available to a concern during a particular period to finance its activities and uses to which those resources have been applied. It is prepared to identify the flow or movement of working capital or cash flow in and out of a business enterprise. It is prepared for better understanding of the affairs of a business. The financial statements provide a summarized view of the financial position and operations of the firm. Therefore a lot can be learnt about a firm from a careful examination of its financial statements such as valuable documents, performance reports. Thus the analysis of financial statements is an important aid to financial analysis.

A statement of change in financial position may take any of the following forms:
1. A statement of changes in working capital of concern, popularly known as fund flow statement. 2. A statement of changes in the cash position of a concern, popularly known as cash flow statement.

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NATURE OF FINANCIAL STATEMENTS

The financial statements provide a summary of the accounts of a business enterprise. According to The American Institute of Accountants, financial statements reflect a combination of recorded facts, accounting conventions and personal judgments and the judgments conventions applied affect them materially. The data exhibited in financial statements are the results of the combined effect of: Recorded facts Accounting conventions,& Personal judgments used in the applications of accounting conventions. Thus the financial statements data is the result of the combined effects of the above three factors. Financial statements are prepared by following certain principles. The conservatism indicates that all the anticipated losses are to be taken into account and where as all the anticipated profits are not to be taken into account while preparing financial statements. Such conventions will not reflect the true position of business as the actual position of the business definitely will be better as compared to the position depicted from the financial statements.

MEANING OF FINANCIAL STATEMENT ANALYSIS

In the words of JHON N. MYERS, Financial statement analysis is largely a study of the relationship among the various financial factors. In a business as disclosed by a single set of statement and a study of the trends of these factors as shown in a series of statements. Analysis is a process of critically examining in detail the accounting information given in the financial statements. The main focus of financial analysis will be on the key figures shown in the financial statements and their significant relationships that exist between them. T he analysis of financial statements is a process of evaluating the relationship between the component parts of financial statements to obtain a better understanding of the firms position and performance. For the purpose of analysis individual items are studied and also their interrelationship with other related figures are established. Sometimes the data are rearranged to have a better understanding of the information with the help of different common tools and techniques for the purpose. Analysis of the financial statements refers to the treatment of information contained in the profitability and financial portion of the firm concerned. For this purpose financial statement are methodically classified, analyzed and compared with the figures of previous year of other similar firm. Interpretation is determining the meaning and drawing the interference or conclusions with regard to results of significant relationship between the items correlated.

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Financial analyst is a person who performs all the activities in the analysis of the financial statement. The first task of the financial analyst is to select the information relevant to the statement. The second step involved in the financial analysis is to arrange the information in such way that it highlights their significant relationship. The final step is to interpret and draw interferences and conclusion. Analysis of financial statements really means an attempt to determine the significance and meaning of the data presented in the financial statements. Such analysis makes use of various analytical tools and techniques of data of financial statements so as to derive from them certain relationship that are significant and useful for decision making. In the words of KENNEDY & MEDULLAR the analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities and profitability of sound dividend policy. Therefore financial statement analysis converts the mass data into useful information which are always scarce in supply. It pinpoints the strengths and weakness of a business undertaking by using various common tools and techniques such as comparative analysis, ratio analysis etc. Such analyzed information is used by the management, bankers, creditors, investors and other to form judgments about the operating performance and financial statement analysis helps in evaluating a business performance according to some specific objectives.

OBJECTIVE OF FINANCIAL STATEMENT ANALYSIS

The main objective of analysis of financial statement is to: The present and future earning capacity or profitability of the concern. The operational efficiency of the concern as a whole and of its various parts of departments. The short term and long term solvency of the concern for the benefits of the debenture holders and trade creditors. The comparative study in regard to one firm with another firm or one department with the other department. The financial stability of a business concern The real meaning and significance of financial data. The long term liquidity of its funds. The possibility of development in the future through forecasting and preparing the budget.

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PROCEDURES OF FINANCIAL STATEMENT ANALYSIS

The analyst should acquaint himself with the principles and postulates of accounting. The financial date given in the statement should be recognized and rearranged. This is reduced to a standard form. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios, trends, common size, fund flow etc. The information is interpreted in simple and understandable way. The significance and utility of financial data is explained for helping in decision taking. The conclusion drawn from interpretation is presented to the management in the form of reports.

PARTIES INTERESTED IN FINANCIAL STATEMENT ANALYSIS

The financial statement which contains the financial data is useful to different categories of users. They are described briefly below:

Management: The management of company is interested in knowing its financial

conditions, profitability and progress. It uses a number of tools and techniques available to analyze the financial data. Such analysis is used by the management to exercise control over the business and also to take decisions for its growth, expansion and development more effectively and efficiently.

Shareholders:

The shareholders are the suppliers of basic capital to run the business; such capitals are exposed to all kinds of risks of ownership. Shareholders are interested in profitability, high market value of this holding and better dividend declaration. The current earnings of the company determine and profitability and also the long term solvency of the company.

Creditors:

Creditors include short term creditors like bankers, trade creditors and also long term credit grantors like debentures holders and financial institutions etc. All creditors are mainly interested in the short term and long solvency of the company. They are also interested in the profitability because profit is viewed as the primary is viewed as the primary source for payment of interest on loans and debentures.

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Government:

Financial statements are used by various government departments like Income tax, Excise duty etc. to determine the tax liability of the company. On the basis, the government determines tax policy, import export policies, industry policies etc. for the industries and companies.

Employees: Employees are interested in the financial position of a concern for which
they serve. The payment of bonus depends upon the size of the profit earned. They would like to know the bonus paid is enough to them. They are interested in knowing the income statement of the company.

Consumers:

Consumers are interested in knowing the establishment of good accounting control, so that the cost of production may be reduced with the resultant of the prices of goods they buy.

Purchaser of the business:

Any person or purchaser of a going concern analyzes the financial statements to the real value of the company. It also makes an assessment of the financial and operating strengths and weakness of the business.

Other interested groups: Financial statement analysis also serves the need for
many other user groups. For example- workers trade unions analyze the financial statements to prepare ground for collective bargaining, to claim bonus, etc. Researchers also get useful data from the analysis of financial statement to make comparative study of profitability of many companies.

USES OF FINANCIAL STATEMENT ANALYSIS

The financial statements are the mirrors which reflect the financial position and operating strength or weakness of the concern. The following are the major uses of financial statements: As a report of stewardship. As a basis for fiscal policy. To determine the legality of dividends. As a guide to advice dividend action. As a basis for the granting of credits. As informative for prospective investors in an enterprise.

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As a guide to the value of investment already made. As an aid to government supervision. As a basis for price or rate regulation. As a basis for taxation.

TECHNIQUES OF FINANCIAL ANALYSIS

The following techniques can be used in connection with analysis and interpretation of financial statements; Comparative analysis Common size statement Trend percentage analysis Fund flow statement Cash flow statement Ratio analysis Net working capital analysis

Comparative analysis (Horizontal analysis): It is one of the important

tools of analysis of financial statements. These statements are prepared in a way, so as to provide time perspective for the consideration of various elements of financial position embodied in such statements. It has been that balance sheet and profit and loss account are the two important financial statements. Comparison of financial statements is accomplished by setting balance sheet and profit and loss account of two years side by side, and studying the changes that have occurred in the individual figures. Thus the comparison of financial statements means where the financial statements of a company are compared with the financial statements of earlier years of the company.

Common size statement: This statement indicates the relationship of various

items with some common items. In the income statement, the sales figure is taken as base and all other figures are expressed as percentage of sales. Similarly, in the balance sheet the total of assets and liabilities is taken as base and all other figures are expressed as a percentage to this total. The percentage calculated can be easily compared with the corresponding percentages and other periods and meaningful conclusions can be drawn.

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This analysis is an important tool of horizontal financial analysis. This method is immensely helpful in making a comparative study of the financial statements of several years. Under this method trend percentages are calculated for each item or the financial statements taking the figure of base year as 100. The starting year is usually taken as the base year. The trend percentages show the relationship of each item with its preceding years percentages. These percentages can also be presented in the form of index numbers showing relative change in the financial data of certain period. This will exhibit the direction to which the company is proceeding. The trend ratios may be compared with industry in order to know its strength and calculating for all items in financial statements.

Trend percentage analysis:

Fund flow statement: It is an attempt to report the flow between various assets
and liabilities and owners capital during an accounting period. Fund flow statement is prepared to indicate in summary form, changes occurring in items of financial position between two balance sheet dates. This statement is prepared in order to reveal clearly the various sources from where the funds are procured to finance the activities of business concern during the accounting period and also bring to highlight the uses to which these funds are put during the required period. Fund flow statement is also known by various other names such as Statement of sources and application of fund, Where got, where gone statement, statement of funds generated and expended, etc. In a fund flow statement the term fund means net working capital i.e., the difference between current assets and current liabilities.

Cash flow statement: A cash flow statement is a statement of changes in Cash

position between the beginning and end of the period. It is a statement, which summarize the sources from which cash payments are made during a particular period of time, say a month or a year. A cash flow statement shows the various sources of cash inflow and use of cash outflow during a period this explaining thus explaining the changes in cash position of the business.

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A ratio is simply one number which is expressed in terms of another number. In other words, a ratio expresses mathematical relationship between one number and other. Ratio analysis is done to develop meaningful relationship between individual items or groups of items usually shown in the periodical financial statements published by the concern. An accounting ratio shows the relationship between the interrelated accounting figures as gross profit to sales, current assets to current liabilities, loaned capital to owned capital, etc.

Ratio analysis:

RATIOS
Traditional classification Balance sheet ratios Profit and loss account ratio Composite mixed or interstatement ratio Finanacial classification Liquid ratio Solvency ratio Activity ratio Profitability ratio Leverage ratio Significance classification Primary Secondary

This statement is prepared to know the net changes in working capital of a business between two specified dates. It is prepared from current assets and current liabilities of the said dates to show the net increase or decrease in working capital.

Net working capital:

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SIGNIFICANCE AND PURPOSE OF THE FINANCIAL STATEMENT ANALYSIS

Financial statement analysis performs the essential function of converting mass data into useful information. Such analyzed financial information senses many and various purposes as described below;

i.

Judging profitability:

Profitability is a measure of the efficiency and success of a business enterprise. A company which earns profit at a higher rate is definitely considered a good company by the potential investors. The potential investors analyze the financial statements to judge the profitability of a company so as to decide whether to invest in a company or not.

ii.

Judging liquidity: Liquidity of a business refers to its ability to pay off its
short term liabilities when these become due: short term creditors like trade creditors and bankers make an assessment of liquidity before granting the credit.

iii.

Judging solvency:

Solvency refer to the ability of a company to meet its long-term debts. Long term creditors like debenture holders and financial institutions judge the solvency of the company before any lending decisions. They analyze companys profitability over a number of years and its ability to generate sufficient cash to be able to repay their claims.

iv.

Forecasting and budgeting: Financial analysis is the starting point for

making plans by forecasting and preparing budgets. Analysis of financial statements of the past years helps a great deal in forecasting for the future.

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LIMITATIONS OF FINANCIAL ANALYSIS

Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm. But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitations of financial statements. The financial analyst has also to be careful about the impact of price level changes, window dressing Of financial statements, changes in accounting policies of a firm, accounting concepts and convention, personal judgments, etc. Some of the important limitations of financial analysis are summed up as below; i. It is only a study of interim reports. ii. Financial analysis is based upon only monetary information and non monetary factors are ignored. iii. It does not consider changes in price levels. iv. As the financial statements are prepared on the basis of a going concern, it does not give exact position. Thus accounting concepts and conventions cause a serious limitation to financial analysis. v. Analysis is only a means and not an end in itself.

ANALYSIS OF FINANCIAL PERFORMANCE OF PR LOGISTICS

A study on financial performance of PR Logistics is undertaken in order to know the financial performance and position of the PR Logistics and to know the strength and weakness of PR Logistics and to assess the profitability. Comparative Balance Sheet statement, Comparative Income Statement and Ratio Analysis (Financial Statement) is the tool used as a yardstick for evaluating the financial condition and performance of the business firm. The research has been conducted to know and understand the business operations of PR Logistics. An attempt is made to study the financial performance and the factor influencing the financial aspects. The researcher also extended his scope to analyze the liquidity position, strength and weaknesses of PR Logistics in handling the financial operations. For a systematic study, the tables and graphs were drawn wherever required. Basically the scope of the study was limited to Bangalore office. But consolidated financial reports of all the divisions in India were considered for analysis. Limitation of past records, time constraints etc. have their impact on the study.

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RATIO ANALYSIS
Ratio analysis is an important quantitative techniques used for the analysis and interpretation of financial statement. In fact, it is the mostly widely used tool of financial analysis. It is the process of identifying the financial strengths, weakness, and opportunities and threats of the firm by properly establishing relationship between the items of the balance sheet and profit and loss account. Ratio analysis is the technique of calculating a number of accounting ratio from the data or figures in the financial statements. Comparing the computed accounting ratio with those of the previous year or with those of other concerns engaged in similar line of activities or with those of standard or ideal ratio and interpreting of comparison (i.e., drawing conclusion from the comparison of the accounting ratio). In short, it is a technique of interpretation of financial statements with the help of the accounting ratios derived from the financial statements.

MEANING OF RATIO AND RATIO ANALYSIS:

A ratio is simply one number expressed in items of another number. In other words, a ratio expressed mathematical relationship between one number and other. For example, the ratio of 200 to 100 is expressed as 2:1 or as 2. Thus a ratio is calculated by dividing one figure into another.

INTERPRETATION OF RATIOS:
Broadly speaking, ratios may be interpreted in four different ways as follows: An individual ratio may have significance of its own. For example a ratio of 25% of net profit on capital employed shows a satisfactory return. Ratio may be interpreted by making comparison over time. For example, ratio of net profit on capital employed is 25%. This ratio may be compared with same ratio of a number of past years. Such a comparison will indicate the trend of rise, decline or stability of the profitability. Ratio of any one firm may be compared with ratios of other firms in the same industry. This is known as inter-firm comparison. Such a comparison shows the efficiency of a firm as compared to other firms. Ratios may be interpreted by considering a group of several related ratios. For example, the utility of current ratio is enhanced if it is used along with other related ratios like quick ratio or acid test ratio, stock turnover ratio, etc.

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PROCEDURE FOR RATIO ANALYSIS:

The technique of ratio analysis involves certain steps. They are: Restructuring, classification, grouping of the data found in the financial statement in a form suitable for analysis. Calculation of the required ratio from the restructured or classified data. Comparison of the required ratio from restructured or classified data. Comparison of the computed ratio with the standard established. The established standards may be budgetary standards, historical standards, industrial or market standards or ideal standards. Interpretation of the comparison.

STANDARDS OF COMPARISON:
The ratio analysis involves comparison for a useful interpretation of the financial statement. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standards, standards may exist of: Past ratio: Ratio calculated from the past financial statement of the same firm. Competitors ratio: Ratio of some of the selected firms, especially the most progressive and successful competitors at same point of time. Industry ratio: Ratio of the industry to which the firm belongs. Projected ratio: Ratio developed using the projected, or Performa financial statement of the same firm.

CLASSIFICATION OF RATIOS:
Ratio may be classified as follows: A. Classification according to the nature of accounting statement from which the ratio are derived: Balance sheet ratio: This ratio deals with relationship between two items appearing in the balance sheet, e.g. current ratio, liquid ratio, debt equity ratio etc. Profit or loss account ratio: This ratio shows the relationship between two items which are in the profit and loss account itself, e.g. gross profit ratio, net profit ratio, operating ratio etc. Combined or composite ratio: This ratio shows the relationship between the items from profit and loss account and the other from balance sheet. E.g. Rate of return on capital employed debtors turnover ratio, stock turnover ratio, capital turnover ratio etc.

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B. Classification from point of view of financial management or objective: Liquidity ratio Capital structure ratio Turnover ratio Profitability ratio

LIQUIDITY RATIO: Liquidity means ability of a firm to meet its current liabilities. The liquidity ratio, therefore, tries to establish a relationship between current liabilities, which are the obligation soon becoming due and current assets, which presumably provide the source from which these obligations will be met. The failure of a company to meet its obligation due to lack of adequate liquidity will result in bad credit rating, loss of creditors confidence or even in low suits against the company. The following ratios are commonly used to indicate the liquidity of business. Current ratio Quick ratio Absolute liquid ratio.

CURRENT RATIO (WORKING CAPITAL RATIO): Current ratio measures the ability of the firm to meet its current liabilities. Current assets get converted into cash in the operating cycle of the firm and provide the funds needed to pay current liabilities. Apparently higher the current ratio greater the short term solvency. Current asset include cash and those assets which can be converted into cash within a year, such as marketable securities, bills receivables, debtors less provision for bad and doubtful debts, prepaid expenses, inventories. Prepaid expenses include in current assets as they represents the payments that will not be made by the firm in future. Current liabilities includes creditors, bills payable, accrued expenses, bank overdraft, income tax payable, unclaimed dividends, dividends payable, outstanding expenses.

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QUICK RATIO:
This ratio is also called as liquid ratio. This ratio is same as the current ratio except that it includes inventories. This ratio concentrates on cash, debtors (excluding bad debts) marketable securities and receivables in relation to current obligations and thus provides more penetrating measures of liquidity that the current ratio. This ratio establishes relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon, without loss of value. Inventories are considered to be less liquid inventories normally require sometime for realization into cash. The quick ratio is found out by dividing quick assets by current liabilities. Therefore 1:1 ratio is considered as ideal ratio for a business concern. Liquid ratio is shown as:

Cash Ratio:
Since cash is the liquid asset, a financial analyst may examine the ratio of cash and its equipment to current liabilities. Trade investments or marketable securities are equipment of cash therefore; they may be included in the computation of cash ratio or absolute liquidity ratio or super quick ratio. Hence, only absolute liquid assets such as cash in hand, cash at bank, marketable securities are taken into considered. 1:2 is considered as ideal ratio. This ratio is shown as:

CAPITAL STRUCTURE RATIO OR GEARING RATIO

Capital structure ratios are also known as solvency ratios or leverage ratios. These are used to analyze the long term solvency of any particular business concern. These are two aspect of long term solvency of a firms ability to repay the principle amount when due and regular payment of interest. In other words, long term creditors like debenture holders, financial institution etc. are interest in the security of their loan amount as well as the ability of the company to meet interest costs. They, therefore, also consider the earning capacity of the company to know whether it will be able to pay off interest on loan amount. Liquidity ratios discussed earlier indicate short term

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financial strength whereas solvency ratios judge the ability of a firm to pay of its long term liabilities. Important capital structure ratios are: Debt equity ratio Proprietary ratio Interest coverage ratio Debt to total funds ratio

Debt equity ratio:

This ratio attempts to measure the relationship between long term debt and shareholders funds. In other words, this ratio measures the relative claims of long term creditors on the one hand and owners on the other hand, on the assets of the company. This ratio is calculated by any of the two methods: Method 1:

Long term debts include debentures, long term loans, say from financial institutions etc. shareholders funds, on the other hand, include share capital (both equity and preference) and accumulated profits in the form of general reserve, capital reserve and any other fund that belongs to the shareholders. Past accumulated losses and deferred expenditures like preliminary expenses should be deducted while computing shareholders funds. Method 2: This is a variant of debt equity ratio. It measures the relationship between shareholders funds and total assets. Its formula is:

Shareholders funds comprise of ordinary share capital, preference share capital and all items of reserves and surplus. Total assets include all tangible assets and only those intangible assets which have and define realizable value.

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Interest coverage ratio (debt service ratio or fixed charges cover): This ratio indicates whether the business earns sufficient profit to pay periodically the interest charges.

Debt to total funds ratio:

This ratio shows the relationship between debt and total funds employed in the business.

The term debt include long term and current liabilities like sundry creditors, bills payable, bank overdraft, outstanding expenses etc. Total funds employed include shareholders funds, long term loans and current liabilities.

TURNOVER RATIOS:
Turnover ratios are also called as Performance ratios or Activity ratios are used to indicate the efficiency with which assets and resources of the firm are being utilized. These ratios are known as turnover ratios because they indicate the speed with which assets are being converted or turned over sales. These ratios, thus express the relationship between sales and various assets. A higher turnover ratio generally indicates better use of capital resources which in turn has a favorable effect on the profitability of the firm. Important turnover ratios: Inventory turnover ratio Debtors turnover ratio Fixed assets turnover ratio Working capital turnover ratio Capital turnover ratio Creditors turnover ratio

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Inventory turnover ratio (stock turnover ratio) This ratio is calculated by dividing the cost of goods sold by average inventory.

Inventory turnover ratio (receivable turnover ratio): This ratio indicates the relationship between net credit and trade debtors. It shows the rate at which cash is generating by the turnover of debtors. It is computed as follows:

FIXED ASSETS TURNOVER RATIO:

This ratio indicates the efficiency with which the firm is utilizing its investments in fixed assets such as plant and machinery, land, building etc. It is computed as under:

The term fixed assets means depreciated value of fixed assets.

WORKING CAPITAL TURNOVER RATIO:

This ratio indicates the efficiency or inefficiency in the utilization of working capital in making sales. It is computed as follows:

The term net working capital means current assets minus current liabilities.

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CAPITAL TURNOVER RATIO:

This ratio shows relationship between cost of sales or sales and the total capital employed.

CREDITORS TURNOVER RATIO:

This ratio is also known as Payables turnover ratio, measures the relationship between credit purchases and average accounts payable.

PROFITABILITY RATIO:
Every business should earn sufficient profits to survive and grow over a long period of time. In fact, efficiency of a business is measured in terms of profits. Profitability ratios are calculated either in relation to sales or in profits. Profitability ratios are calculated either in relation to sales or in relation to investment. Profitability in relation to sales indicates the amount of profit per rupee of sales. Similarly, profitability in relation to investments indicates the amount of profit per rupee invested in assets if a company is not able to earn a satisfactory return on investment, it will not be able to pay a reasonable return to its investors and the survival of the company may be threatened. Important profitability ratios are:

GROSS PROFIT RATIO: This ratio expresses the relationship between gross profit and sales. It is calculated as follows:

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 NET PROFIT RATIO: Net operating profit ratio: This is the ratio of net operating profit to net sales. Its formula is:

Net profit ratio: This ratio of net profit to net sales. It is computed as:

OPERATING RATIO AND EXPENSE RATIOS: This is also an important profitability ratio. This ratio explains the relationship between cost of goods sold and operating expenses on one hand and net sales on the other hand.

RETURN ON INVESTMENTS (ROI) OR RETURN ON CAPITAL EMPLOYED (ROCE) This is the most important test of profitability of a business. It measures the overall profitability. It is ascertained by comparing profit earned and capital employed to earn it. It is calculated as follows:

RETURN ON EQUITY (ROE) This ratio establishes the relationship between the net profit available to equity shareholder and the amount of capital invested by them.

Return on proprietors equity Return equity capital New Horizon College Page 26

 EARNINGS PER SHARE (EPS): This ratio measures the earning per equity shares i.e. it measures the profitability of the firm on a per share basis. It is calculated:

DIVIDEND PAYOUT RATIO: It indicates the percentages of equity shares earnings distributed as dividends to equity shareholders. Its formula is:

DIVIDEND YIELD RATIO: Dividend is declared by a company as a percentage of par values or paid up value or a specific amount per equity shares.

PRICE EARNINGS RATIO (P/E RATIO): This is the market price of shares expressed as multiple of earnings per earning per shares (EPS).

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THESE ARE THE OTHER FORMULAES

1. NET PROFIT VERSUS TOTAL INCOME RECEIVED

2. TOTAL FUNDS VERSUS INVESTMENTS

3. LOANS BORROWED VERSUS LOANS GRANTED (ADVANCED)

4. CURRENT ASSETS VERSUS CURRENT LIABILITIES

5. DEPOSIT VERSUS LOANS GRANTED

6. NET WORTH VERSUS TOTAL ASSETS

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ADVANTAGES OF RATIO ANALYSIS

Ratio analysis simplifies the understanding of financial statements. It is valuable aid to the management in the efficient discharge of its basic function of forecasting and planning. It serves as an effective means of communication. It informs the profitability, operating efficiency, financial position of the concern to shareholders, prospective investors, creditors and other interested parties. It helps the management in having effective control over the various operations of the enterprise. It helps the management in decision making, formulation of policies and performance appraisal. It facilitates inter-firm comparison. That is, provides the necessary data for interfirm comparison. Ratios are very helpful in establishing standard costing system and budgetary control. It even facilitates intra-firm comparison. Thus, it provides relevant data for the comparison of the performance of the different department or divisions of the same firm.

LIMITATIONS OF RATIO ANALYSIS

There is no consistency in the meaning of certain accounting ratios. As such the items used in the calculation of ratio differ from one analyst to another. That means ratios become non-comparable. Financial analysis is based on accounting ratios will give misleading results, if the effects of changes in price levels are not taken into account in the computations of accounting ratios. A ratio is hypersensitive. A new entry of transactions can change its magnitude drastically. The quality of assets must be considered in interpreting the ratio. A single ratio in itself is not important, or has limited value. A change in a particular ratio is meaningful only when it is studied with reference to other ratios. Ratios gain significance only when they are compared with standard ratios. However, it is very difficult to lay down fixed standard or ideal ratios. Ratios are not end in themselves rather, on a selective basis, they may help to answer significant questions.

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CONCLUSION:
On the basis of advantages and limitations of ratio analysis discussed above, it may be concluded that ratios are extremely useful if used with caution. Ratio analysis should not be performed mechanically. This may prove not only misleading but also dangerous. Limitations of ratio analysis should always be kept in mind as precautions while drawing any conclusions from the ratios.

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RESEARCH DESIGN:
Accounting is the scoreboard of business. It translates the diverse activities of a company into a set of objective number that provide information about the companys performance, problems and the planning of future actions. The study undertaken is an effort toward the interpretation of Balance Sheet and Income statement for a period of three years. The main purpose of the study is to study the health of the company from the point of view of leverage, liquidity and profitability. The study was undertaken in WIPRO.

STATEMENT OF THE PROBLEM

An evaluation of WIPRO. In order to find out solvency, liquidity, profitability and turnover of one of the process of the company.

OBJECTIVE OF THE STUDY:

To study the liquidity and profitability position of the company. To analyze the financial statements of the company with special emphasis on the credit worthiness. To judge the solvency of the company. To study the working efficiency of the company. To compare the financial position of the firm in the current year with the previous year financial position. To make suitable corrective measures when the firms financial conditions and performance are unfavorable to the firm when compared to the other firm in the same industry.

SCOPE AND DESIGN OF THE STUDY:

The study of financial performance of PR LOGISTICS is for a reference period of three years the year ending 2007-2008 to 2009-2010. The study clearly depicts the financial soundness of the company as in the past, present and future. This study is done for analyzing the technique and interpretation of financial statement. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analyze is not an end itself. It is only a means of better understanding of financial strength and weaknesses of a firm. Calculation of mere ratio does not serve any purpose, unless several appropriate ratios are analyzed and interpreted. There are a

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number of ratios which can be calculated from the information given in the financial statement, but the analyst have to select the appropriate data and calculate only a few appropriate ratios from the same, keeping in mind the objective of analysis. The ratio may be used as a symptom like blood pressure, the pulse rate or the body temperature and their interpretation depends upon the caliber and competence of the analyst.

RESEARCH METHODOLOGY
The financial reports and statements have been properly arranged for the purpose of analysis. Ratios have been used as a tool of analysis to interpret the financial performance of the firm. The results of the ratio were compared with industry ratios. As it is single case study the data have been derived from the financial statements and depends upon the objectives of the analysis such as: Interpretation of the ratios. Financial statement and balance sheet. The whole study includes the companys operations and the techniques followed by them. Moreover to make the project more interesting to the reader, I have added charts and graphs that are drawn from the companys results. I have tried my best to cover the vast area of financial management and control which I took as a special reference with, ratio analysis to study the financial aspects of the company. Tools for data collection: The data collected for the purpose of analysis were:-

PRIMARY DATA
Primary data are those which are collected first hand by the person involved in the study in order to find out certain descriptive information pertaining to the study at hand. This data could be both quantitative and qualitative as well.

PRIMARY SOURCE: Information provided by the finance and accounts manager. SECONDARY DATA:
Secondary data are those data which are originally being generated. It includes findings based on research done outside organization as well as data generated in the house for earlier study.

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SECONDARY SOURCE:
Published annual reports of the company. Internet. College library.

TOOLS OF ANALYSIS
Ratio analysis

LIMITATIONS OF STUDY:
The study is limited PR LOGISTICS. The study is limited to only three years financial data. Hence the results drawn from the study cannot be predicted for the future also. Some of the information is confidential which the company was not able to disclose. The study has time constraint of only one month. The data used in study is secondary in nature.

Chapter scheme
Chapter 1- Introduction
The introduction part serves the general information of financial statements. It also provides meaning, objective and limitations of financial statement analysis. Also gives a brief insight into the company.

Chapter 2- company profile

The profile gives the data on the evolution, growth, development and the present status of the organization. It includes vision and mission statements of the company. It gives the profile of the products in which they are dealing with.

Chapter 3- Research methodology

It describes the proposed research design and includes the title of the study, the reason for selecting statement of the problem. It also describes the analysis and interpretation of the financial statements which is done using the common tools of financial statement analysis i.e. comparative analysis and ratio analysis. It also reveals the scope, objective, need and limitation of the study.

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Chapter 4- Data analysis and interpretation

This chapter provides the analysis and interpretation of financial statement analysis. It also provides tables, graphs and interpretation of the data collected through secondary sources.

Chapter 5- Suggestions, Findings and Conclusions

It summarizes the information and provides suggestions based on the findings

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Introduction to company
Group Companies History Company Profile Registered Office Address Board of Directors Auditors

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3. INTRODUCTION

3.1Introduction of company
Wipro Limited (Wipro), together with its subsidiaries and associates (collectively, the company or the group) is a leading India based provider of IT Services and Products, including Business Process Outsourcing (BPO) Services, globally. Further, Wipro has other business such as India and Asia Pac IT Services and products and Consumer Care and Lighting. Wipro is headquartered in Bangalore, India. Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives clients. Wipro has 40+ Centers of Excellence that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. Wipro is the World's first CMMI Level 5 certified software services company and the first outside USA to receive the IEEE Software Process Award. Wipro is a $3.5 billion Global company in Information Technology Services, R&D Services, Business process outsourcing. Team Wipro is 75,000 Strong from 40 nationalities and growing. Wipro is present across 29 countries, 36 Development countries, Investors across 24 countries. Largest third party R&D Service provider in the world. Largest Indian Technology Infrastructure management service provider. A vendor of choice in the middle east Among the top 3 Indian BPO Service provider by Revenue (* Nass com) Among the top 2 Domestic IT Services companies in India (*IDC India)

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3.2 Group Companies

Wipro Infrastructure Engineering Ltd. Wipro Inc. C Mango Pvt. Ltd. Wipro Japan KK Wipro Shanghai Ltd. Wipro Trademarks Holding Ltd. Wipro Travel Services Ltd. Wipro Cyprus Private Ltd. Wipro Consumer Care Ltd. Wipro Health Care Ltd. Wipro Chandrika Ltd.(a) Wipro Holdings (Mauritius) Ltd. Wipro Australia Pvt. Ltd. WMNETSERV Ltd.(a) Quantech Global Service Ltd. 3D Network Pvt. Ltd. Planet PSG Pvt. Ltd. Spectra mind Inc.

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3.3 History
Wipro started in 1945 with the setting up of an oil factory in Amalner a small town in Maharashtra in Jalgaon District. The product Sunflower Vanaspati and 787 laundry soap (largely made from a bi-product of Vanaspati operations) was sold primarily in Maharashtra and MP. The company was aptly named Western India Products Limited. The Birth of the name Wipro - As the organization grew and diversified into operations of Hydraulic Cylinders and Info-tech, the name of the organization did not adequately reflect its operations. Azim Premji himself in 1979 selected the name "Wipro" largely an acronym of Western India Products. Thus was born the Brand Wipro. The name Wipro was unique and gave the feel of an 'International" company. So much so that some dealers even sent their cheques favouring Wipro (India) Limited. Fortunately, the banks accepted them!!By the early 90s, Wipro had grown into various products and services. The Wipro product basket had soaps called Wipro Shikakai, Baby products under Wipro Baby Soft, Hydraulic Cylinders branded Wipro, PCs under the brand name Wipro, a joint venture company with GE named Wipro GE and software services branded Wipro. The Wipro logo was a 'W", but it was not consistently used in the products. It was clearly felt that the organization was not leveraging its brand name across the various businesses. The main issue remained whether a diverse organization such as Wipro could be branded under a uniform look and feel and could there be consistent communication about Wipro as an organization.

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3.1Company Profile
Business-Description Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally. The Group's principal activity is to offer information technology services. The services include integrated business, technology and process solutions including systems integration, package implementation, software application development and maintenance and transaction processing. These services also comprise of information technology consulting, personal computing and enterprise products, information technology infrastructure management and systems integration services. The Group also offers products related to personal care, baby care and wellness products. The operations of the Group are conducted in India, the United States of America and Other countries. During fiscal 2007, the Group acquired Wipro Cyprus Pvt Ltd, Retail box Bv, Enabler Informatica SA, Enabler France SAS, Enabler Uk Ltd, Enabler Brazil Ltd, Enabler and Retail Consult GmbH, Cmango Inc, Cmango (India) Pvt. Ltd, Saraware Oy, Quantech Global Services and Hydroauto Group AB

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Global IT Services and Products

The Company's Global IT Services and Products segment provides IT services to customers in the Americas, Europe and Japan. The range of its services includes IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services and research and development services in the areas of hardware and software design. Its service offerings in BPO services include customer interaction services, finance and accounting services and process improvement services for repetitive processes.

The Global IT Services and Products segment accounted for 74% of the Company's revenues and 89% of its operating income for the year ended March 31, 2007 (fiscal 2007). Of these percentages, the IT Services and Products segment accounted for 68% of its revenue, and the BPO Services segment accounted for 6% of its revenue during fiscal 2007.

Customized IT solutions
Wipro provides its clients customized IT solutions in the areas of enterprise IT services, technology infrastructure support services, and research and development services. The Company provides a range of enterprise solutions primarily to Fortune 1000 and Global 500 companies. Its services extend from enterprise application services to e-Business solutions. Its enterprise solutions have served clients from a range of industries, including energy and utilities, finance, telecom, and media and entertainment. The enterprise solutions division accounted for 63% of its IT Services and Products revenues for the fiscal 2007.

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Technology Infrastructure Service

Wipro offers technology infrastructure support services, such as help desk management, systems management and migration, network management and messaging services. The Company provides its IT Services and Products clients with around-the-clock support services. The technology infrastructure support services division accounted for 11% of Wipro's IT Services and Products revenues in fiscal 2007.

Research and Development Services

Wipro's research and development services are organized into three areas of focus: telecommunications and inter-networking, embedded systems and Internet access devices, and telecommunications and service providers. The Company provides software and hardware design, development and implementation services in areas, such as fiber optics communication networks, wireless networks, data networks, voice switching networks and networking protocols. Wipro's software solution for embedded systems and Internet access devices is programmed into the hardware integrated circuit (IC) or application-specific integrated circuit (ASIC) to eliminate the need for running the software through an external source. The technology is particularly important to portable computers, hand-held devices, consumer electronics, computer peripherals, automotive electronics and mobile phones, as well as other machines, such as process-controlled equipment. The Company provides software application integration, network integration and maintenance services to telecommunications service providers, Internet service providers, application service providers and Internet data centers.

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Business Process Outsourcing Service

Wipro BPO's service offerings include customer interaction services, such as ITenabled customer services, marketing services, technical support services and IT helpdesks; finance and accounting services, such as accounts payable and accounts receivable processing, and process improvement services for repetitive processes, such as claims processing, mortgage processing and document management. For BPO projects, the Company has a defined framework to manage the complete BPO process migration and transition. The Company competes with Accenture, EDS, IBM Global Services, Cognizant, Infosys, Satyam and Tata Consultancy Services. India and Asia Pac IT Services and Products The Company's India and Asia Pac IT Services and Products business segment, which is referred to as Wipro Info-tech, is focused on the Indian, Asia-Pacific and MiddleEast markets, and provides enterprise clients with IT solutions. The India and Asia Pac IT Services and Products segment accounted for 16% of Wipro's revenue in fiscal 2007. The Company's suite of services and products consists of technology products; technology integration, IT management and infrastructure outsourcing services; custom application development, application integration, package implementation and maintenance, and consulting

Wipro's system integration services

Include integration of computing platforms, networks, storage, data center and enterprise management software. These services are typically bundled with sales of the Company's technology products. Wipro's infrastructure management and total outsourcing services include management and operations of customer's IT infrastructure on a day-to-day basis. The Company's technology support services include upgrades, system migrations, messaging, network audits and new system implementation. Wipro designs, develops and implements enterprise applications for New Horizon College Page 42

corporate customers. The Company's solutions include custom application development, package implementation, sustenance of enterprise applications, including industry-specific applications, and enterprise application integration. Wipro also provides consulting services in the areas of business continuity and risk management, technology, process and strategy.

Consumer Care and Lighting

Wipro's Consumer Care and Lighting business segment accounted for 5% of its revenue in fiscal 2007. The Company's product lines include hydrogenated cooking oil, soaps and toiletries, wellness products, light bulbs and fluorescent tubes, and lighting accessories. Its product lines include soaps and toiletries, as well as baby products, using ethnic ingredients. Brands include Santoor, Chandrika and Wipro Active. The Wipro Baby Soft line of infant and child care products includes soap, talcum powder, oil, diapers and feeding bottles and Wipro Sanjeevani line of wellness products. The Company's product line includes incandescent light bulbs, compact fluorescent lamps and luminaries. It operates both in commercial and retail markets. The Company has also developed commercial lighting solutions for pharmaceutical production centers, retail stores, software development centers and other industries. Its product line consists of hydrogenated cooking oils, a cooking medium used in homes, and bulk consumption points like bakeries and restaurants. It sells this product under the brand name Wipro Sunflower.

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1.5. Registered Office Address

WIPRO LIMITED Doddakannelli, Sarjapur Road, Bangalore 560 035, India. Tel : +91-80-28440011 Fax : +91-80-28440512

1.6. Board of Directors

Azim H . Premji Dr Ashok S Ganguly B .C. Prabhakar Dr. Jagdish N. Sheth N.Vagual Bill Owens Former Chief Ex.Officer,Nortel P. M. Sinba Former Chairman Pepsico India Holdings Chairman Former Chief Ex.Officer Nortel Practitioner of Law Professor Of Marketing-Emory Uni.Usa. Chairman-ICICI Bank Ltd

Azim Premji Chairmen & Managing Director

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1.7Auditors
KPMG BSR & Co.

Audit committee N Vaghul P M Sinha B C Prabhakar Chairman Member Member

Board Governance and Compensation Committee Ashok S Ganguly - Chairman N Vaghul P M Sinha - Member - Member

Shareholders Grievance and Administrative Committee B C Prabhakar Azim H Premji - Chairman - Member

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 Introduction To The Ratio Analysis Liquidity Ratios Profitability Ratios Finance Structure Ratios Valuation Ratios
The Du-Pont Chart

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4.1 Introduction Of The Ratio Analysis

Ratio analysis involves establishing a comparative relationship between the components of financial statements. It presents the financial statements into various functional areas, which highlight various aspects of the business like liquidity, profitability and assets turnover, financial structure. It is a powerful tool of financial analysis, which recognizes a companys strengths as well as its potential trouble spots. It can be further classified as in different categories of Ratio. Liquidity Ratios Profitability Ratios Asset Turnover Ratios Finance Structure Ratios Valuation Ratios

4.2 Liquidity Ratio

Liquidity refers to the existence of the assets in the cash or near cash form. This ratio indicates the ability of the company to discharge the liabilities as and when they mature. The financial resources contributed by owners or supplemented by outside debt primarily come in the cash form as under in the balance sheet form. The following Liquidity Ratios are calculated for the company. Current Ratio Quick Ratio Net Working Capital

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4.2.1. Current Ratio

This ratio shows the proportion of Current Assets to Current Liabilities. It is also known as Working Capital Ratio as it is a measure of working capital available at a particular time. Its a measure of short term financial strength of the business. The ideal current ratio is 2:1 i.e. Current Assets should be equal to Current Liabilities. Current Ratio = Current Assets Current Liabilities Current Analysis Year Ratios 2005-06 1.26 2006-07 1.58 Ratio 2007--08 1.44 2008-09 1.67 2009-10 2.13

Table 4.2.1 Quick Ratio Analysis

CURRENT RATIO ANALYSIS

2.5 2.13 2 1.58 1.5 1.44 1.26 CURRENT RATIO ANALYSIS 1 1.67

0.5

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.2.1 Quick Ratio Analysis

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Interpretation
Current ratio is always 2:1 it means the current assets two time of current liability. After observing the figure the current ratio is fluctuating. In the year 2010 ratio is showing good shine. Hear ratio is increase as a increasing rate from 2006 to 2010. Company is no where near the ideal ratio in every year but every company can not achieve this ratio. Current ratio is increased in 2007-08 as compared to 2003-04 because of increase in Inventories 100.96% and 123.77 % increased in Cash and Bank balance. Current ratio is decreased in 2005-06 as compared to the last year because of increase in liabilities by 45.39% and 93.19% in increasing in Provision.

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4.2.2 Quick Ratio

This ratio is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the quick assets by quick liabilities. Quick Assets are obtained by deducting stocks from current assets. Quick liabilities are obtained by deducting bank overdraft from current liabilities. Quick Ratio = Quick Assets Current Liabilities Quick Ratio Year 2005-06 2006-07 2007--08 2008-09 2009-10 Ratios 1.2 1.5 1.4 1.6 2.0 Table 4.1.2 Quick Ratio Analysis

QUICK RATIO ANALYSIS

2.5 2 2 1.5 1.5 1.2 QUICK RATIO ANALYSIS 1 1.6 1.4

0.5

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.1.2 Quick Ratio Analysis

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Interpretation Standard Ratio is 1:1 Companys Quick Assets is more than Quick Liabilities for all these 5 years. In 2009-10 the ratio is increasing because of increase in bank and cash balance. So all the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation in all the years. In 2007-08 quick ratio is decreased because the increase in quick assets is less proportionate to the increased quick liabilities. The Quick ratio was at its peak in 2009-10, while was lowest in the 2006-07.

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4.2.3 Networking Capital

Networking capital = Current Assets Current Liabilities Net working capital 2006-07 2007-08 2008-09
10497.8 13798.0 28050.0

Year Trend

2005-06
4534.3

2009-10
61577.0

Table4.2.3NetworkingCapital

NETWORKING CAPITAL RATIO

70000 61577 60000 50000 40000 30000 20000 10497.8 10000 0 2005-06 2006-07 2007-08 2008-09 2009-10 4534.3 13798 28050 NETWORKING CAPITAL RATIO

Figure 4.2.3 Networking capital

Interpretation This ratio represents that part of the long term funds represented by the net
worth and long term debt, which are permanently blocked in the current assets. It is Increasing Double than year by year because of assets increasing fast than liabilities.

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4.3 Profitability Ratios A company should earn profits to survive and grow over a long period of time. It would be wrong to assume that every action initiated by management of company should be aimed at maximizing profits, irrespective of social as well as economical consequences. It is a fact that sufficient must be earned to sustain the operation of the business to be able to obtain funds from investors for expansion and growth and to contribute towards the responsibility for the welfare of the society in business environment and globalization. The profitability ratios are calculated to measure the operating efficiency of the company. The following Profitability Ratios are calculated for the company. Gross Profit Ratio Operating Profit Ratio Net Profit Ratio Rate Of Return On Investment Rate Of Return On Equity

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4.3.1 Gross Profit Ratio

This is the ratio expressing relationship between gross profit earned to net sales. It is a useful indication of the profitability of business. This ratio is usually expressed as percentage. The ratio shows whether the mark-up obtained on cost of production is sufficient however it must cover its operating expenses. Gross Profit Ratio = Gross Profit X 100 Sales Gross profit ratio analysis Year 2005-06 2006-07 2007--08 2008-09 2009-10 Trend 29.8 31.7 32.6 33.7 33.0 Table 4.4 Gross Profit Ratio Analysis

GROSS PROFIT RATIO ANALYSIS

34 33 32 31 30 29 28 27 2005-06 2006-07 2007-08 2008-09 2009-10 29.8 GROSS PROFIT RATIO ANALYSIS 31.7 32.6 33.7 33

Figure 4.4 Gross Profit Ratio Analysis Interpretation GP Ratio shows how much efficient company is in Production. GP is decreasing 2009-10 due to higher production cost. Gross sales and services are increasing year by year so in effect Gross profit ratio is increasing year by year up to 2009.

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4.3.2 Operating Profit Ratio

This ratio shows the relation between Cost of Goods Sold + Operating Expenses and Net Sales. It shows the efficiency of the company in managing the operating costs base with respect to Sales. The higher the ratio, the less will be the margin available to proprietors. Operating Profit Ratio = COGS+Operating expenses X 100 Sales Operating ratio Year 2005-06 2006-07 2007--08 2008-09 2009-10 Trend 83.5 80.0 79.0 77.9 81.7 Table 4.3.5 Operating Profit Ratio Analysis

OPERATING PROFIT RATIO

84 83 82 81 80 79 78 77 76 75 2005-06 2006-07 2007-08 2008-09 2009-10 80 79 77.9 OPERATING PROFIT RATIO 81.7 83.5

Figure 4.3.5 Operating Profit Ratio Analysis

Interpretation
Operating ratio is lowest during current 2009. This shows that the expenses incurred to earn profit were less compared to the previous two years. Operating ratio is decreases from 2006 to onward decreasing rate. From the graph conclusion is made that company is not on the right track by efficiently cutting down manufacturing, administrative and selling distribution expenses.

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4.3.3. Net Profit Ratio

= Net profit x 100 Net sales Net profit ratio 2005-06 2006-07 2007-08
16.3 19.4 19.2

Year Trend

2008-09
19.8

2009-10
17.7

Table 4.3.6 Net Profit Ratio Analysis

NET PROFIT RATIO

25 20 16.3 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 NET PROFIT RATIO 19.4 19.2 19.8 17.7

Figure 4.3.6 Net Profit Ratio Analysis

Interpretation
After observing the figure the ratio is fluctuating. Company has rise in its net profit in 2008-09 as compared to the previous year because the company has increased its sales 41.45% . Though the companys sale is continuously rising but the net profit is not so much increased so management should take some steps to decrease its expenses. Sales is decrease in 2010 compare to 2009 The overall ratio is showing good position of the company.

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4.3.4 Return On Investment

Rate of Return on Investment indicates the profitability of business and is very much in use among financial analysts. ROI= EBIT X 100 Total Assets Return On Investment 2006-07 2007--08 2008-09
39.7 35.7 30.6

Year Trend

2005-06
32.7

2009-10
18.6

Table 4.3.4 Rate of Return on Investment Ratio Analysis

RETURN ON INVESTMENT
45 40 35 30 25 20 15 10 5 0 39.7 32.7 35.7 30.6

18.6

RETURN ON INVESTMENT

2005-06

2006-07

2007-08

2008-09

2009-10

Figure 4.3.4 Rate of Return on Investment Ratio Analysis

Interpretation
From the above observation it can be seen that ratio is fluctuating. In the year 2007-08 Rate of Return on Investment is slightly increase as compared to previous year Ratio is decreasing after 2007 at a decreasing rate because of assets increase compare to sales. The companys Total Assets is increased to 86.51%, so ROI is decreased so conclusion made that company is not utilizing its assets and investment efficiently.

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4.3.5 Rate of Return on Equity Rate of Return on Equity shows what percentage of profit is earned on the capital invested by ordinary share holders. Rate of Return on Equity = Profit for the Equity Net worth Rate of return on Equity Year Trend % 2005-06
22.2

2006-07
11.5

2007--08
7.1

2008-09
10.0

2009-10
5.5

Table 4.3.5 Rate of Return on Equity Ratio Analysis

RATE OF RETURN ON EQUITY

25 20 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 22.2

11.5 7.1

10 5.5

RATE OF RETURN ON EQUITY

Figure 4.3.5 Rate of Return on Equity Analysis

Interpretation
ROE is remaining almost same between 2007 to 2009, but it is decrease in2010 because the company has increase share capital but profit not getting that much increase. Company is getting same return on equity. As a result the share holders are getting higher return every year and investment portfolio scheme selection was a judicious decision taken by the company. This happens because Profit and Share Capital both increasing same way.

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4.4 Asset Turnover Ratios

Asset Turnover Ratio are basically productivity ratios which measure the output produced from the given input deployed. This relationship is shown as under Productivity = Output Input Assets are inputs which are deployed to generate production (or sales). The same set of assets when used intensively produces more output or sales. If the asset turnover is high, it shows efficient or productive use of input. The following Assets Turnover Ratios are calculated for the company. Total Assets Turnover Net Fixed Assets Turnover Net Working Capital Turnover Inventory Turnover Ratio Debtor Turnover (in times)

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4.4.1 Total Asset Turnover Ratio

The amounts invested in business are invested in all assets jointly and sales are affected through them to earn profits. Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the efficiency with which assets were turned over a period. Total Asset Turnover Ratio = Sales Total Assets Total assets turnover ratio Year Trend 2005-06
1.5

2006-07
1.5

2007-08
1.6

2008-09
1.5

2009-10
1.2

Table 4.4.1 Total Asset Turnover Ratio Analysis

TOTAL ASSERT TURNOVER RATIO

1.8 1.6 1.6 1.4 1.2 1.2 1 0.8 0.6 0.4 0.2 0 2005-06 2006-07 2007-08 2008-09 2009-10 TOTAL ASSERT TURNOVER RATIO 1.5 1.5 1.5

Figure 4.4.1 Total Asset Turnover Ratio Analysis

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Interpretation
The total assets turnover ratio is almost same in all years. The Assets turnover Ratio is near by 1.5 in all 5 years which shows effective utilization of assets from the companys view point. In the year 2007-08 ratio is increased because of companys total assets is increased by 24.52%, but sales is increased by 29.92%.So the ratio is increased but in current year it is decreased because sale increasing by 41.45% and Assets increasing by 49.28%.

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4.4.2 Net Fixed Assets Turnover

To ascertain the efficiency & profitability of business the total fixed assets are compared to sales. The more the sales in relation to the amount invested in fixed assets, the more efficient is the use of fixed assets. It indicates higher efficiency. If the sales are less as compared to investment in fixed assets it means that fixed assets are not adequately utilized in business. Of course excessive sale is an indication of over trading and is dangerous. Net Fixed Assets Turnover Ratio = Sales Net Fixed Assets Total fixed assets turnover ratio Year Time 2005-06
4.0

2006-07
4.2

2007--08
4.9

2008-09
4.0

2009-10
2.4

Table 4.4.2 Net Fixed Asset Turnover Ratio Analysis

TOTAL FIXED ASSERT TURNOVER RATIO

6 5 4 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10 2.4 TOTAL FIXED ASSERT TURNOVER RATIO 4.2 4.9 4

Figure 4.4.2 Net Fixed Assets Turnover Ratio Analysis

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Interpretation
Here the ratio of Net Fixed Asset Turnover is continuously increasing up to 2008 and after that it has started declined. Because sales as well as assets both are equally increase. Net Fixed Assets Turnover Ratio is increasing year by year because of Sale is increasing continuously. It indicates that the company maximizes the use of its fixed assets to earn profit in the business so that whatever amount is invested by company in fixed asset, gives maximum productivity which helps to increase sales as well as profit.

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4.4.3 Inventory Turnover Ratio

Inventory Turnover Ratio: The no. of times the average stock is turned over during the year is known as stock turnover ratio. Inventory Turnover Ratio = COGS Average stock Total Inventory turnover ratio Year Time 2005-06 2006-07 2007-08
30.3 22.6 24.3

2008-09
19.8

2009-10
16.0

Table 4.4.3 Inventory Turnover Ratio Analysis

TOTAL INVENTORY TURNOVER RATIO

35 30.3 30 25 20 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 24.3 22.6 19.8 16 TOTAL INVENTORY TURNOVER RATIO

Figure 4.4.3 Inventory Turnover Ratio Analysis

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Interpretation From the above calculation we can say that the ratio is decreasing. It means inventory is not converted in to sales. So that it is bad for the company. In 2005-06 ratio is increased as compared to after that all year so management should take care about good efficiency of stock management. But in 2008 onward ratio is decreasing because of increase in COGS. So company should devise a systematic operational plan for inventory control.

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4.4.4 Average age of Inventories

This ratio indicates the waiting period of the investments in inventories and is measured in days, weeks or months. Inventory turnover and average age of inventories are inversely related. Average age of Inventories Ratio = 360 days Inventory Turnover Average age of Inventories Year Days 2005-06
11.9

2006-07
15.9

2007--08
14.8

2008-09
18.2

2009-10
22.4

Table 4.4.4 Average age of Inventories Ratio Analysis

AVERAGE AGE OF INVENTORIES

25 22.4 20 15.9 15 11.9 AVERAGE AGE OF INVENTORIES 10 14.8

18.2

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.4.4 Average age of Inventories Ratio Analysis

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Interpretation
This graph shows that inventory convert into cash in short time period. Inventory turnover ratio is low in 2005-06. So, in this year inventory is converted in cash 11.9 days. The inventory conversation in to cash time duration is increases from 2006 to every year so the management should try to efficient inventory conversation, so it will It shows that company effectiveness utilizing its Inventories in quickly.

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4.4.5 Debtor Turnover Ratio

Debtor turnover ratio: The debtor turnovers suggest the no. of times the amount of credit sale is collected during the year. Debtors Turnover Ratio = Sales Average Debtors Debtors turn over in (times) Year Time 2005-06
4.9

2006-07
3.8

2007--08
3.7

2008-09
3.7

2009-10
1.5

Table 4.4.5 Debtor Turnover Ratio Analysis

DEBTORS TURNOVER RATIO

6 4.9

3.8

3.7

3.7

DEBTORS TURNOVER RATIO

2 1.5 1

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.4.5 Debtor Turnover Ratio Analysis

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Interpretation
Debtor turnover indicates how quickly the company can collect its credit sales revenue. Here the ratio is continuously decreasing, so that the companys collection of credit sales is efficient management is improved its collection period every year so it shows that the management have an ability to collect its money from his debtors. So they can invest that money on Assets, HRD and other investments.

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4.5 Finance Structure Ratios

Finance Structure Ratios indicate the relative mix or blending of owners funds and outsiders debt funds in the total capital employed in the business. It should be noted that equity funds are the prime fund which increase progressively through reinvestment of profits, while outside debt funds are supplementary funds and are added at the discretion of the management. The following Finance Ratios are calculated for the company. Debt Ratio Debt-Equity Ratio Interest Coverage Ratio

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4.5.1 Debt Ratio Debt ratio indicates the long term debt out of the total capital employed. Debt Ratio = Long Term Debt Total Capital Employed Table 4.5.1 Debt Ratio Analysis

Debt Ratio Year Trend 2005-06 0.0284 2006-07 0.0165 2007-08 0.0114 2008-09 0.0383 2009-10 0.384

DEBT RATIO
0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.0284 0.0165 0.0383 0.0114 DEBT RATIO 0.384

Figure 4.5.1 Debt Ratio Analysis Interpretation From the above calculation it seems that the ratio is fluctuating. In 2009-10 the ratio is increased as compared to the previous year because the total loan funds1 are increased by 661.56%. In 2007-08 Company has issued equity Share and also loan is decreased. Its means that now company trying to increasing Trading on equity.

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4.5.2 Debt-Equity Ratio

This ratio is only another form proprietary ratio and establishes relation between the outside long term liabilities and owner funds. It shows the proportion of long term external equity & internal Equities. Debt Equity Ratio = Total Long Term debt Share holder equity Table 4.5.2 Debt-Equity Ratio Analysis Debt- Equity Ratio Year Trend 2005-06 0.027 2006-07 0.012 2007-08 0.011 2008-09 0.030 2009-10 0.376

DEBT EQUITY RATIO

0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.027 0.012 0.011 0.03 DEBT EQUITY RATIO 0.376

Figure 4.5.2 Debt-Equity Ratio Analysis Interpretation It shows companies accumulated more equity than required company has to refocus to its strategic policies and plans and try to accumulate more debt funds in future so as to make the balance between debt and equity. There is only current year ratio is some what sufficient.

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4.5.3 Interest Coverage Ratio

Interest Coverage Ratio: The ratio indicates as to how many times the profit covers the payment of interest on debentures and other long term loans hence it is also known as times interest earned ratio. It measures the debt service capacity of the firm in respect of fixed interest on long term debts. Interest Coverage Ratio = EBIT Interest Interest coverage ratio Year Trend 2005-06
3.4

2006-07
5.0

2007--08
4.5

2008-09
4.2

2009-10
21.9

Table 4.5.3 Interest Coverage Ratio Analysis

Series 1
25 21.9 20

15 Series 1 10 5 5 3.4 4.5 4.2

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.5.3 Interest Coverage Ratio Analysis Interpretation After observing the figure it shows that the ratio has mix trend up to 2008. In the year 2009-10 company has not much debt compare to EBIT so interest coverage ratio is high but in 2007-08 company increasing its external debt so company have pay more interest among its earnings so interest coverage ratio falling down compare to previous year.

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4.6 Valuation Ratios

Valuation ratios are the result of the management of above four categories of the functional ratios. Valuation ratios are generally presented on a per share basis and thus are more useful to the equity investors. The following Valuation Ratios are calculated for the company. Earnings Per Share Dividend pay-out Ratio P/E Ratio Profit Margin

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5.6.1 Earnings Per Share This ratio measures profit available to equity share holders on per share basis. It is not the actual amount paid to the share holders as dividend but is the maximum that can be paid to them. Earnings per Share = Net Profits for Equity Shares No. of Equity Shares Table 4.6.1 Earnings per Share Earnings Per Share Year Trend(Rs.) 2005-06 7.43 2006-07 11.70 2007-08 14.70 2008-09 20.62 2009-10 22.62

EARNING PER SHARE

25 20.62 20 14.7 11.7 EARNING PER SHARE 10 7.43 21.9

15

0 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 4.6.1 Earnings per Share Ratio Analysis Interpretation Earning per share is increasing as a increasing rate it is good for invester and share holder. In 2009-10 Profit is increasing by 42.30% and No Equity share Holder increased by 2.03%, Due to that EPS Ratio is increasing in Current year.

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4.6.2 Dividend Pay-out Ratio

This ratio indicate split of EPS between Cash Dividends and reinvestment of Profit. If the Company has Profitable projects than it will prefer to keep dividend pay out ratio lower. Dividend pay-out Ratio = Dividend per Share in Rs. Earnings per share in Rupees Table 4.6.2 Dividend Pay-out Ratio Analysis Dividend pay-out Ratio 2005-06 Year Trend(Rs.) 1.54 2006-07 4.68 2007-08 2.94 2008-09 3.77 2009-10 3.43

DIVIDEND PAY-OUT RATIO

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 2009-10 1.54 2.94 DIVIDEND PAY-OUT RATIO 3.77 3.43 4.68

Figure 4.6.2 Dividend Pay-out Ratio Analysis Interpretation In all years there is fluctuation in ratio. If the company wants to prosper in future with flying colors then ideally more amounts should be reinvested in the business rather than distributing as dividend. In 2007-08 company has reinvested in business for expansion.

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4.6.3 P/E Ratio

P/E Ratio is computed by dividing the current market price of a share by earning per share. This is Popular measure extensively used in Investment analysis. P/E Ratio = Current Market Price of Share Earnings per Share Table 4.6.3 P/E Ratio Analysis P/E Ratio Year Trend 2005-06 31.36 2006-07 19.91 2007-08 15.85 2008-09 11.30 2009-10 10.30

P/E RATIO
35 30 25 20 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 19.91 15.85 11.3 10.3 P/E RATIO 31.36

Figure 4.6.3 P/E Ratio Analysis Interpretation In 2006-07 P/E Ratios is high means Share price of company is Stable and Share holder are interested to invest in the companys share. But in 2008-09 P/E Ratio is Falling down word So company share price is not as stable as compare to previous year.

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4.6.4 Profit margin ratio

Profit margin ratio= Year Net Sales and Services PAT Ratio PAT/Sales*100 2008-09 149982 29,421
20%

2009-10 199796 32829 16%

2007-08 106030 20674

19%

2006-07 81605.6 16285.4

20%

2005-06 58400.23 10315

18%

Table 4.6.4 Profit margin ratio

PROFIT MARGIN RATIO

25 20 20 16 15 PROFIT MARGIN RATIO 10 19 20 18

0 2009-10 2008-09 2007-08 2006-07 2005-06

Figure 4.6.4 Profit margin ratio Interpretation The ratio is shows equal for middle three year it means the company has maintaing the equal ratio for year 2007 to 2009. The ratio shows decline in current year it is bad sign for the company.

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4.7 The Du-Pont Chart

ROA (IN %) 2009-10 2008-09 2007-08 2006-07 2005-06 30.88 53 63.08 67.8 75.6

Profit margin (in %) 2009-10 2008-09 2007-08 2006-07 2005-06 0.16 0.20 0.19 0.20 0.18

Assets turn over(in Rs.) 2009-10 2008-09 2007-08 2006-07 2005-06 1.93 2.65 3.32 3.39 4.20

Profit after tax 2009-10 2008-09 2007-08 2006-07 2005-06 32829 29421 20674 16285 10315

Sales 2000-10 199575 2008-09 149751 2007-08 106164 2006-07 81596 2005-06 58648

Sales 2009-10 2008-09 2007-08 2006-07 2005-06 199575 149751 106164 81596 58648

Asset 2009-10 2008-09 2007-08 2006-07 2005-06 103160 56535 31951 24049 13969

Table 4.7 Du-Pont chart

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Interpretation
DuPont chart shows that how profitability is there in the business. When profit margin is multiplied by total Assets turnover ratio that gives ROA. Profit Margin is obtained by dividing PAT by Total sales. Total Asset Turnover is obtained by the sales divided total assets. It is like a Tree having various braches connected to each other. It show companys efficiency in making right decision of Investment Total Assets turnover is decreasing in current year because of huge increase in net fix assets and net current asset which is more than double compare to previous year. The Chart shows the total assets turnover that indicate the companys efficiency in utilizing its assets. So overall it can be interpreted that the companys ROA is good. Company should try its best to increase sales and profit. The Du point chart Shows the complete picture of companys performance.

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FINDINGS
Though the sales has been continuously increased from past 3 years but the proportionate expenditure is also rising so overall not making any huge effect on net profit of this company. Hear the in 2007 company has reinvest profit for business expansion it is good shine for the company. The total expenditure is near by 80% of total income in every year. Every year PBT is near by 20% of total income. Fixed assets are efficiently utilized by the company due to which the profit of the company is increasing every year. Liabilities is increasing rate it mean company has to developed business. And purchase raw material on credit basis. Company has enough cash in hand so that in any condition company can take Any Financial decision easily. All the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation in all the years. GP Ratio shows how much efficient company is in Production.

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SUGGESTION
The companys future plans for expansion seem clear due to increased investment in Fixed Assets .Efficient use of these Assets has enabled the company to observe an increased profit. Though the companys sale is continuously rising but the net profit is not so much increased so management should take some steps to decrease its expenses. Company should try its best to increase sales and profit. The profit margin ratio shows decline in current year so that company should tray to increase profit after tax Current ratio is very good it is 2.13:1 so company has fully utilize cash liquidity for business development.

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BIBLIOGRAPHY
Books:
Annual Report of Wipro Limited for Financial Year 2004-05, 2006-07,2007-08. Narayanaswamy R., (1998): Financial Accounting: A Managerial Perspective, Prentice-Hall of India Private Ltd, New Delhi., Third Edition, Reprint 2003 Khan M.Y. and Jain P.K., (1992):Financial Management, Tata McGraw-Hill Publishing Co Ltd., New Delhi., Third Edition. .

Websites
http://www.wipro.com http://www.bseindia.com//shareholding/shareholding_new.asp http://www.cmie.com//indutries//gdp.asp http://www.wipro.com/investors/annual_reports.htm http://www.wipro.com/investors/pdf_files/AR07_08_first_book_final.pdf http://www.wipro.com/investors/pdf_files/AR07_08_second_book_final.pdf http://www.wipro.com/investors/pdf_files/Wipro_AR_2006_07_Part_1.pdf http://www.wipro.com/investors/pdf_files/Wipro_AR_2006_07_Part_2.pdf http://www.wipro.com/investors/pdf_files/Wipro_annual%20report_2005-06.pdf http://www.wipro.com/investors/pdf_files/Wipro_Annual_Report_2004_2005.pdf

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ANNEXURE-1 BALANCE SHEET

Rs (In Million)

2007-08 SOURCES OF FUNDS Share Holder's Funds Share Capital 2923 Share application money pending a 40 Reserves & Surplus 113991 Share holder's Equity 116954 Loan Funds Secured 2072 Unsecured 42778 Total Loan Funds 44850 Minority Interest 116 Total Sources of Funds 161920 APPLICATION OF FUNDS Fixed assets Goodwill 42209 Gross Block 56280 Less: Accumulated Depreciation 28067 Net Block 28213 Capital work in progress and advances 13370 Total Fixed Assets 83792 Investments 16022 Deferred Tax Assets(Net) 529 Current Assets, Loans & Advances Inventories 6664 Sundry Debtors 40453

2006-07

2005--06

2004-05

2003-04

2918 35 93042 95995 1489 2338 3827 29 99851

2852 75 63202 66129 451 307 758 66887

1407.14 12.05 51407.1 52826.3 215.89 405.03 620.92 265.33 53712.6

465.52

37083.7 37549.5 947.47 105.88 1053.35 163.84 38766.7

9477 35287 18993 18294 10191 37962 33249 590 4150 29391

3528 24816 12911 11905 6250 21683 30812 594 2065 21272

5663.16 20899.6 9951.77 10947.9 2603.85 19214.9 23504.9 495 1747.25 15518.3

5252.36 15607.1 7599.48 8007.63 1427.28 14687.3 19058.8 486.3 1292.02 11865.6

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Cash & Bank Balances Loan & Advances Total Current Assets Less: Current Liabilities & Provisions Current Liabilities Provisions Total Liabilities Net Current Assets Total Application of Funds

39270 29610 115997

19822 16387 69750

8858 12818 45013

5713.57 5562.85 28542

3242.7 5683.78 22084.1

39890 14530 54420 61577

33667 8033 41700 28050

18527 12688 31215 13798

12742.1 5302.14 18044.2 10497.8

8894.2 8655.58 17549.8 4534.28

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ANNEXURE-2 PROFIT & LOSS ACCOUNT

RS. (In Million) 2007-08

2006-07 151,330 1348 149982 2963 152945 102420 9547 124 7866 119957 32988 3868 29120 6 295 29,421 7238 1459 1268

2005-06 106805 775 106030 1536 107566 71484 7003 35 5265 83787 23779 3391 20388 -1 288 20674

2004-05 82330.3 724.7 81605.6 944.79 82550.3 54081.4 5638.13 56.12 3826.91 63602.6 18947.8 2749.59 16198.2 88.12 175.33 16285.4

2003-04 59161.07 760.84 58400.23 1315.99 59716.22 39150.23 5401.64 3097.15 35.07 47684.39 12031.83 1680.56 10351.27 -59.19 22.92 10315 5818.98 931.04 864.85

Income Gross Sales and Services Less: Excise Duty Net Sales and Services Other Income Total Income Expenditure Cost of Sales and Services Selling and marketing expenses General and administrative expenses Interest Total Expenditure
PROFIT BEFORE TAXATION Provision for taxation including FBT PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES

201451 1655 199796 4174 203970 140224 14216 10750 1690 166900 37070 4550

32520 -24 333 32829 2919 5846 1489

Minority interest Share in earning of Associates

PROFIT (PAT) FOR THE PERIOD

Appropriations Interim dividend Proposed dividend Tax on dividend

7129 1000

3478.84 493.38

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TRANSFERTO GENERAL RESERVE 22575

EARNINGS PER SHARE-EPS Equity shares of par value Rs.2/- each

19456

12545

12313.2

2700.13

Basic (in Rs.) Diluted (in Rs.) Basic (in Rs.) Diluted (in Rs.)

22.62

22.51 Number of Shares for calculating EPS 1,451,127,719 1,458,239,060

20.62 20.41
1,426,966,318 1441.469,952

14.7 14.48
1,406,505,974 1,427,915,724

11.7 11.6
1,391,554,372

14.87 14.85
693,870,390 694,545,321

1,404,334,256

ANNEXURE-3
CASH FLOW STATEMENT FOR THE YEAR ENDED ON MARCH 31
Rs(In Million)

2008 A. Cash Flow from Operating Activities Adjustments for : Depreciation and amortizations Amortizations of stock compensation Unrealized foreign exchange Net Interest on borrowings Dividend/interest Net (Profit)/Loss on sale of investments Gain on sale of fixed assets Working Capital Changes : Trade and other receivable Loans and advances Inventories Trade and other payables Net cash generated from operations Direct taxes paid Net cash generated by operating activities B. Cash flows from investing activities: Acquisition of property, fixed assets Plant and equipment(Inc. advances) Proceeds from sale of fixed assets Purchase of investments

2007

2006

2005

2004

5359 1166 -595 1690 -2802 -771 -174 -11885 -5157 -1565 6182 28518 -5459 23059

3,978 1,078 457 125 -2,118 -588 -10 -7,633 -299 -1,120 5,445 32,303 -4,252 28,051

3,096 688 65 35 -1,069 -238 -8 -6,991 -1,033 -317 6,150 24,102 -4,543

2,456.24 342.62 92.45 56.12 715.15 35.59 109.8 4,433.69 311.74 455.23 4,180.42 20,456.00 2,354.70

1971.85 -132.77 -762.41 -107 -3670.41 -359.89 -281.5 2748.13 -594 -1568.36

19,559 18,101.30 -2162.36

-14226 -13,005 479 149 -231684 -

-7927 113 -

6,465.43 -4100.97 168.98 121.86 70,145.11 -

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123,579 59,047 Proceeds on sale/from maturities on Investments Inter-corporate depo sit Net payment for acquisition of Business Dividend/interest income received Net cash generated by/(used in) Investing C. Cash flows from financing activities: Proceeds from exercise of Employee Stock Option Share application money pending allotment Interest paid on borrowings Dividends paid (including distribution tax Proceeds/(repayment) of long term Proceeds/(repayment) of short term Proceeds from issuance of shares by Subsidery Net cash generated by financing Activities Net increase in cash and cash equivalents During the period Cash and cash equivalents at the Beginning of the period Effect of translation of cash balance Cash and cash equivalents at the end of Period * 250013 150 -32790 2490 -25568 122042 -650 -6608 2,118 -19533 52,043 -2,777 923 16672

10706.51 66,383.54 48.06 285.3 617.99 -465.27 254.15 777.85 144035.2 14039.68

541 40 -1690 -12632 -74970 110641 55 21985 19476

9,458 35 -125 -8,875 142 1825 35 2495 11013

4,704 63 -35 -3,998 -268 -200

2,576.58 12.05 56.12 7,575.76 432.43 266.19

238.6

-262.36 463.02

266 3154 5714 -10 8858

-5209 2469.95 3242.7 0.92 5713.57

147.53 12954.48 -958.77 4210.08 -8.61 3242.7

19822 8858 -28 -49 39270 19822

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