A PROJECT REPORT ON

FINANCIAL PERFORMANCE ANALYSIS

A CASE STUDY OF

TYRE CORPORATION OF INDIA LIMITED

19, J.L.ROAD
KOLKATA-700071

SUBMITTED TO

ALL INDIA MANAGEMENT ASSOCIATION - CENTRE FOR MANAGEMENT

EDUCATION (AIMA – CME)

MANAGEMENT HOUSE, 14, INSTITUTIONAL AREA

LODHI ROAD, NEW DELHI: 110003

APRIL, 2008
BY
MANAS
REGN. NO: - 750621508

Guided By

Mr. S R Chakraborty
Deputy Finance Manager – TCIL

FOR THE PARTIAL FULFILMENT OF

POST GRADUATE DIPLOMA IN MANAGEMENT
 DEDICATED
TO MY
LOVING PARENTS

2
 PREFACE

A simple business operating entirely in

cash could measure its profits by simply
withdrawing the entire bank balance at the
end of the period, plus any cash in hand.
However, real businesses are not paid
immediately; they build up inventories of
goods to sell and they acquire buildings
and equipment. In other words: businesses
have assets and so they could not, even if
they wanted to, immediately turn these
into cash at the end of each period. Real
businesses also owe money to suppliers
and to tax authorities, and the proprietors
do not withdraw all their original capital
and profits at the end of each period. In
other words businesses also have
liabilities.

3
A modern balance sheet usually has three
parts: assets, liabilities and shareholders'
equity. The main categories of assets are
usually listed first and are followed by the
liabilities. The difference between the
assets and the liabilities is known as the
'net assets' or the 'net worth' of the
company.

Financial statement analysis is one of

the key areas in making financial decision
of the firm. The inter firm comparison
among the firm can also be done with the
help of ratio analysis. So it is a powerful
tool that helps to measure the financial
viability and profitability and liquidity
aspect of the firm. The benchmark of a
particular company can also be
determined with the help of ratio analysis.
Ratio analysis helps to analyze the

4
performance of the company on the basis
of its debt equity ratio. On the other hand
shareholder’s aspect can also be
computed with the help of shareholder’s
worth or net worth to equity ratio.

Therefore financial statement analysis is

one of the most important areas whether it
is Manufacturing, Distribution or Service
Organization.

With the help of Financial statement

analysis of the financial manager of a
company can be able to take the decision
regarding Strengthening Financial
Portion, Liquidity Position, Profitability
Position, Short Term Financing,
Negotiating Favorable Credit Terms, and
Controlling Movement of Cash,

5
Administering Accounts Receivable and
Monitoring the Investment in Inventories.

ACKNOWLEDGEMENT

I like to put a records my indebt ness,

sincere respect and heart full gratitude to
Mr. S R Chakraborty under whose my
able guidance I worked out my assignment
on this project.

I am also grateful to Mr. Basu who

provides me all the assistance in various
perspectives.

I am also grateful to Mr S N Roy who

helps me by providing various data
relating to my study and last but not least

6
 to Mr Madan Sarkar who has given me
the opportunity to get a project in this
Company.

So much their constant encouragement

and assistance at every stage that I don’t
without them it would ever have been
possible for me to complete the work.

DATE:
PLACE: (SOMA
DEY)

Contents
Chapters. Page
No.

1. INTRODUCTION. 8
Rationale behind study. 9
Objective of study. 11
Key Question. 12

2. RESEARCH METHODOLOGY. 14
Statement of research problem. 15

7
Procedure of data gathering/collection 15

3. PROFILE OF TYRE INDUSTRY. 17

Historical background of Tyres. 18
Tyre Manufacturing Process 22

4. COMPANY PROFILE.
29
Tyre Corporation Of India Ltd 30

5. THEORITICAL ANALYSIS 32
Financial Statement Analysis 33
Users of Financial Statement 35
Income Statement Analysis 39
Usefulness & Limitations of Income Statemen6t 39
Items of Income Statement 40
Cash Flow Statement Analysis 45

6. COMPILATION & TABULATION OF DATA 48

Existing position in terms of Financial Statement. 49
Existing position in terms of Cash Flow Analysis. 55

7 ANALYSIS & EVALUATION OF DATA

57
Graphical Representation 59
Brief Analysis 60

8 CONCLUSION 65
9 APPENDICES 68

8
10 BIBILIOGRAPHY 70

9
CHAPTER ONE
INTRODUCTION

10
RATIONALE BEHIND THE STUDY: -

Today the main slogan is “Survival for the

fittest” with the changing times, the
environment of business is fast changing.
The broad structure of every business
undertaking is taking shape in the new
style to functioning strategies and tactful
planning of market. The managerial
personnel taking business decision should
be aware of the present position of
Capital Structure and financial statement
and Profit & Loss Account and cash flow
position, as strong position of all the
above statements of a company helps to
strengthen the financial position of the
company,

11
Indian tyre industry in its long history has
made useful contribution towards earning
foreign to help gear Indian Economy. But
Indian today is best with nervous
problems. The free of Indian tyre have
been falling in the local and foreign
markets resulting in the erosion of
profitability of the industry.

The reasons for such deterioration are

many. The cost-push inflationary spiral
prevailing in the present economy is
eating away the vitality of the industry.

On the other hand, the award of wage

board, imposition of minimum bonus and
Simultaneously rise in the prices of
rubber, packing materials, other
ingredients, shipping, freight and

12
insurance have altogether increased the
cost of production.

The problem of marketing of Indian tyre

in the world markets depends upon the
production of quality tyre and
merchandising it. So the production of
tyre should be consumer oriented. Among
the tyre producing countries, India holds
a unique position home market where
usage of tyre is increasing from year to
year.

Hence, the problem financing by the

Indian tyre industry is to augment the
tyre production. Market research and
survey should be undertaken by the tyre
association, in right manner without delay
so that ever changing market strategy ‘

13
Exploration of the new markets at the
same time is sine quo non. Assiduous
propaganda should be undertaken in the
traditional and non-traditional markets for
which mare funds should be placed for
the purpose.

OBJECTIVE OF STUDY: -

The objective of the study of performance

analysis is to analyze and interpret about
the position of the company with the help
of working capital, different ratios such as
liquidity ratios, profitability related to
investment, leverage ratios etc. and
finding out whether the information
obtained through the financial statement
is viable or not as per industry norms are
concerned.

14
  To find out whether there is any
improvement in the position of working
capital or not?

If there is then what is the reason behind



that?

 If there is any improvement in the

position of the ratios over the past three
years?

 If the ratios are not satisfactory then what is

the reason behind that?

 To find out how other tyre manufacturing

companies are performing.

 To find out the strengths and weaknesses of

the company.

15
 Based on these suggest some proposals
that may help to improve financial position of
the company.

KEY QUESTIONS: -

 What is the market demand situation of

tyre in domestic market and global market?

 What is the estimated growth of Tyre

market in coming years? If there is any
detriment to the growth of the tyre industry?

 Who are the major key players in the

country and what have been their
performances?

 Whether the company is incurring losses in

current year?

16
 If the company is incurring losses for last
few years then what is the reason behind
that?

 Who are their major bankers?

 What initiatives are taken up by the banks

and financial institutions?

 What are the different activities are taken

up by the management of Tyre Corporation of
India Ltd as far as company growth is
concerned?

 Whether the company succeeds to

implement the new strategies?

17
CHAPTER TWO
RESEARCH
METHODOLOGY

18
 STATEMENT OF RESEARCH
PROBLEM: -

Measurement of the Financial position

and stability of Tyre Corporation of India
Ltd in Tyre Manufacturing Industry on the
basis of financial statement and the
income statement of the company. And
on the basis of all these statement we are
able to compute the net working capital
and the different performance ratios of
the company and thereby we are also
able to determine the present status of
the company.

PROCEDURE OF DATA COLLECTION:

-

19
 To make my case study analysis I have
adopted the following methodology:

 Background of the tyre industry with

global scenario has been studied with the
help of the relevant literatures and websites.

 Background of Tyre Corporation of India

Ltd has also been studied with the help of the
relevant literature and websites.

 Theoretical coverage on the subject

matter has to be done to know the existing
system of the company.

 Existing position of financial statement

relating to profit and loss and cash flow
statement of the company the existing
position of the company can be determined on

20
the basis on the basis of the existing
information and the documents that is
available within the organization and through
discussion with some senior officials and some
finance personnel and accounts officers.

 Conclusion and recommendation to be

done on the basis of all the available
information and the details that has been
collected from the company.

21
CHAPTER THREE
PROFILE OF TYRE
INDUSTRY

22
BACKGROUND OF TYRE INDUSTRY

IN INDIA

The origin of the Indian Tyre Industry

dates back to 1926 when Dunlop Rubber
Limited set up the first tyre company in
West Bengal. MRF followed suit in 1946.
Since then, the Indian tyre industry has
grown rapidly. Transportation industry
and tyre industry go hand in hand as the
two are interdependent. Transportation
industry has experienced 10% growth
rate year after year with an absolute
level of 870 billion ton freight. With an
extensive road network of 3.2 million
km, road accounts for over 85% of all
freight movement in India.

23
The tyre industry has evolved from the
more basic cross ply to the more
sophisticated radial tyres. Nylon cords
that impart low weight and additional
strength to the tyres have also replaced
Cotton ply. This industry is strongly
linked to the automobile sector. This
industry is also driven by agricultural and
infrastructural activity that takes place in
the region, as these two have an impact
on the transport sector. The global tyre
market currently is estimated at USD 70
billion while the Indian market is around
Rs. 100 million. The global market is
dominated by Goodyear-Sumitomo with
a share of 22%. On the other hand, the
domestic industry is dominated by MRF
Ltd. Several mergers and acquisitions
have characterized the global market, in
the recent past. This is essentially to

24
acquire technology, gain wider access to
markets and be competitive. Indian
players are also reengineering their
businesses and looking at strategic tie-
ups in this segment. In terms of
technology, radial tyre usage has been
catching up at a quick pace in the global
market. Almost all the automobile
segments have shifted to radial tyres
and the usage of cross ply is restricted to
trucks and buses only. On the other
hand, in the domestic market, the radial
tyres are being used only in the
passenger car segment while the rest of
them still stick to the cross ply variety.
This is because of the lower price of
cross ply and its re-tradability. In
addition, the poor quality of roads in
India restricts the use of such tyres.
Current Scenario Pricing Scenario Pricing

25
is influenced by the demand. Since the
tyre demand has not significantly
increased in the last one year, many of
the tyre companies have surplus stocks.
Hence in the last 2-3 months the tyre
companies are offering discounts
between 20 to 40 percent to car
manufacturers, but the car companies
are trying to squeeze more discounts.
The cheap imports of non-radial tyres
from China are also adding to the
present woos of these tyre
manufacturers. Exim Scenario The
export market for India has been
predominantly to the USA that accounts
for nearly 30% of exports from the
country. These are mostly of the cross
ply variety. However, of late India’s
share in the US market is being
threatened by China and Japan. These

26
two countries are able to offer prices
that are lower than that offered by
Indian manufacturers. In addition, these
two nations are logistically better placed
than India when it comes to exporting to
the USA. Domestic tyre manufacturers
are also facing threat from imports from
China and South Korea. The landed cost
of tyres from China is lower than the
Indian price by 30%. In addition, tyres
from South Korea are imported at 30%
customs duty while from other countries
the duty levied is 35%. Thus in both
cases the domestic tyre manufacturers
are feeling the heat. Government
Policies The recent budget policy of the
government has also not brought much
relief to the tyre manufacturers. The
major issues of concern are high import
duty on raw materials, ban on import of

27
used tyres, lack of exemption in import
duty for steel and polyester tyre cords
(currently being imported) and imports
of tyres from South Korea at lower duty.
Crystal Gazing The future is expected to
see many strategic alliances among the
domestic and global players to enable
them to have access to latest technology
and expand their distribution network. A
better distribution will also ensure easy
availability. The introduction of newer
auto models will significantly have a
bearing on the tyres demand. The tyre
companies will also be looking for tie-ups
with the OEM’s for better stability and
long-term relationship. For instance, the
international player Bridgestone has a
tie-up with Tatas for supply of tyres for
its model ‘Indica’. Bridgestone has
entered the Indian market in association

28
with Associated Cement Companies and
has set up a manufacturing plant at
Kheda in Madhya Pradesh. Hyundai’s
associate tyre manufacturer is reported
to set up operations at Sriperumbudur, in
Tamil Nadu.Other multinational tyre
companies are also likely to enter the
Indian market viz. Michelin with J.K.Tyres
and Pirelli of Italy, with Birla Tyres. Such
arrangements are very essential if one
has to remain competitive. The
government’s emphasis on improving
the road infrastructure will facilitate the
road transport sector that in turn will
brighten the prospects of the tyre
industry in the coming years.

TYRE MANUFACTURING PROCESS

29
Compounding and Banbury mixing
A Banbury mixer combines rubber stock,
carbon black and other chemical
ingredients to create a homogeneous
rubber material. Time, heat and raw
materials are factors utilized to engineer
material composition. The ingredients are

30
generally provided to the plant in pre-
weighed packages or are prepared and
weighed by the Banbury operator from
bulk quantities. Measured ingredients are
placed onto a conveyor system, and the
Banbury is charged to initiate the mixing
process.

Hundreds of
components
are combined
to form
rubber
utilized for
tyre
manufacturing. The components include
compounds which act as accelerators,
anti-oxidants, anti-ozonants, extenders,
vulcanizers, pigments, plasticizers,
reinforcing agents and resins. Most
constituents are unregulated and may not

31
have had extensive toxicological
evaluations. Generally speaking, the
Banbury operators' occupational
exposures to the raw materials have been
reduced by improvements in
administrative and engineering controls.
However, concern remains due to the
nature and quantity of components which
make up the exposure

Older mill with a trip bar located too high

to be effective. The operator, however,
has large gloves that would be pulled into
the mill before his fingers

Milling
Shaping of
rubber begins
in the milling
process. At the
completion of

32
the Banbury mixing cycle, rubber is placed
onto a drop mill. The milling process
shapes the rubber into flat, long strips by
forcing it through two set rolls rotating in
different directions at different speeds.
Mill operators are generally concerned
with safety hazards associated with the
open operation of the turning rolls. Older
mills usually had trip wires or bars which
could be pulled by the operator if he or
she got caught in the mill (see figure
80.4); modern mills have body bars at
about knee level that are automatically
triggered if the operator is caught in the
mills. Most facilities have extensive
emergency rescue procedures in place for
workers trapped in mills. Mill operators are
exposed to heat and noise as well as
components formed by the heating of, or
released from, rubber)

33
 Mill for calendar line with a body bar
guard that shuts down the mill if tripped
by workers

Extruding and calendaring

The calendar operation continues to shape

rubber. The calendar machine consists of
one or more (often four) rolls; through
which the rubber sheets are forced. The
calendar machine has the following
functions:

• · To prepare compounded rubber as a

uniform sheet of definite thickness and width
• To place a thin coat of rubber on a fabric
(“coating” or “skimming”)
• To force rubber into the interstices of fabric by friction (“fractioning”).

34
The rubber sheets coming off the calendar
are wound on drums, called “shells,” with
fabric spacers, called “liners,” to prevent
sticking.

The extruder is often referred to as a

“tuber” because it creates tube-like rubber
components. The extruder functions by
forcing rubber through dies of appropriate
shape. The extruder consists of a screw,
barrel or cylinder, head and die. A core or
spider is used to form the hollow inside of
tubing. The extruder makes the large, flat
section of tyre treads.

Component assembly and building

Tyre assembly
can be a highly
automated

35
 process. The tyre assembly machine
consists of a rotating drum, on which the
components are assembled, and feeding
devices to supply the tyre builder with
the components to assemble. The
components of a tyre include beads,
plies, sidewalls and treads. After the
components are assembled, the tyre is
often referred to as a “green tyre”.

Operator assembling a tyre on a single-

stage tyre machine

Tyre builders and other workers in this

area of the process are exposed to a
number of repetitive motion operations.
Components, often in heavy rolls, are
placed onto the feeding portions of the
assembly equipment. This may entail
extensive lifting and handling of heavy

36
rolls in a limited space. The nature of
assembly also requires the tyre builder to
perform a series of similar or identical
motions on each assembly. Tyre builders
utilize solvents, such as hexane, which
allow the tread and plies of rubber to
adhere. Exposure to the solvents is an
area of concern

After being assembled, the green tyre is

sprayed with a solvent- or water-based
material to keep it from adhering to the
curing mould. These solvents potentially
expose the spray operator, material
handler and curing press operator.
Nowadays, water-based materials are
mostly used.

Curing and Vulcanizing

Curing press operators place green tyres

into the curing press or onto press

37
loading equipment. Curing presses in
operation in North America exist in a
variety of types, ages and degrees of
automation. The press utilizes steam to
heat or cure the green tyre. Rubber
curing or vulcanization transforms the
tacky and pliable material to a non-tacky,
less pliable, long-lasting state.

Inspection and finishing

Following curing, finishing operations

and inspection remain to be performed
before the tyre is stored or shipped. The
finishing operation trims flash or excess
rubber from the tyre. This excess rubber
remains on the tyre from vents in the
curing mould. Additionally, excess layers
of rubber may need to be ground from
the side walls or raised lettering on the
tyre.

38
 One of the major health hazards that
workers are exposed to while handling a
cured tyre is repetitive motion. The tyre
finishing or grinding operations typically
expose workers to cured rubber dust or
particulate (see figure 80.9). This
contributes to respiratory illness in
workers in the finishing area. In addition,
a potential exists for solvent exposure
from the protective paint that is often
used to protect the sidewall or tyre
lettering.

39
CHAPTER FOUR

COMPANY
PROFILE

40
41
Tyre Corporation of India Limited

It was incorporated on 24 th February

1984 to vest to nationalized erstwhile
companies. It is to be one of the
important contributors in the Eastern
India to the segment in Tyre Industry
(Bias Cut Tyre) in terms of volume as
well as Quality, Production Standard,
Customer Services and Up- gradation of
Technology the main aim of TCIL is to
ensure Optimum Utilization of existing
plant capacity presently through
jobbing work for other tyre companies
and gradually through production of
own brand tyres.

To develop Professional Management

Culture consistent with the requirement
of industry, develop and retain

42
 committed and skilled workforce to
form a trusted

• Workforce to reach the goal.

• To explore and implement Technological
Up-gradation to reduce scrap generation and
increasing productivity and for greater cost
effectiveness.

• To implement ISO 9001–2000 and TS–

16949 at an early date.
• To strengthen capacity by Additional
Capital Equipments to meet the changed
market demand for 10.00-20 and above
sizes.

Existing Curing System of tyres to be

switched over to High Pressure Steam
Curing to reduce curing time and
increase productivity.

43
.

CHAPTER FIVE

44
THEORITICAL
ANALYSIS

45
FINANCIAL STATEMENT ANALYSIS:

Knowing is not the same as understanding,

so it is helpful to present an analogy.

Think of an investment as a water

reservoir. The value of the investment is
the volume of water in it. The
shareholder equity (net equity) on the
balance sheet measures this value.

Streams empty into the reservoir, adding

more water. These inflows are measured
by Revenues on the Income statement.

Streams run out of the reservoir, depleting

it. These outflows are measured by
Expenses on the Income statement.

46
The difference between these inflows and
outflows is the net income, also shown in
the Income statement.

When a neighbor joins in the investment

as a partner, he digs a canal from his own
reservoir so it drains into the reservoir.
This additional water is measured by an
increase in the share capital.

If you ask a neighbor to add to the

reservoir, it is considered as liability, thus
reducing net equity but increasing assets.
These are both shown on the Balance
Sheet.

While measuring the volume of water in

the reservoir at a point in time (balance
sheet) is relatively easy, keeping track of
the streams' volumes at every second of

47
the year is difficult. Accountants may
choose to ignore some streams: they may
not know that some streams exist: water
may be evaporating, and immeasurable.
As a result the income statement is easily
wrong. Regardless, the net sum of inflows
less outflows should equal the difference
in the reservoir (beginning vs. ending). The
statement of changes in shareholder
equity attempts this reconciliation.

None of the financial statements measures

your own personal share of the reservoir
when you have partners. It is up to the
individual investor to measure, not the
business totals, but his share. The method
to use ‘equity per share’ is shown at
shareholders' equity.

48
 USERS OF FINANCIAL
STATEMENT

Financial statements are used by a diverse

group of parties, both inside and outside a
business. Generally, these users are:

1. Internal Users: are owners, managers,

employees and other parties who are directly
connected with a company. Owners and
managers require financial statements to
make important business decisions that affect
its continued operations. Financial analysis are
then performed on these statements to
provide management with a more detailed
understanding of the figures. These
statements are also used as part of
management's report to its stockholders, as it
form part of its Annual Report. Employees also
need these reports in making collective

49
bargaining agreements (CBA) with the
management, in the case of labor unions or for
individuals in discussing their compensation,
promotion and rankings.

2. External Users: are potential investors,

banks, government agencies and other
parties who are outside the business but
need financial information about the
business for a diverse number of reasons.
Prospective investors make use of
financial statements to assess the viability
of investing in a business. Financial
analysis are often used by investors and is
prepared by professionals (Financial
Analysts), thus providing them with the
basis in making investment decisions.
Financial institutions (banks and other
lending companies) use them to decide
whether to grant a company with fresh

50
working capital or extend debt securities
(such as a long-term bank loan or
debentures) to finance expansion and
other significant expenditures.
Government entities (Tax Authorities)
need financial statements to ascertain the
propriety and accuracy of taxes and other
duties declared and paid by a company.
Media and the general public are also
interested in financial statements for a
variety of reasons.

In formal bookkeeping and accounting, a

balance sheet is a statement of the book
value of all of the assets and liabilities
(including equity) of a business or other
organization or person at a particular date,
such as the end of a "fiscal year." It is
known as a balance sheet because it
reflects an accounting identity: the

51
components of the balance sheet must be
equal, or in balance; in the most basic
formulation, assets must equal liabilities,
or assets must equal debt plus equity.

A balance sheet is often described as a

"snapshot" of the company's financial
condition on a given date. Of the four
basic financial statements, the balance
sheet is the only statement which applies
to a single point in time, instead of a
period of time.

A simple business operating entirely in

cash could measure its profits by simply
withdrawing the entire bank balance at the
end of the period, plus any cash in hand.
However, real businesses are not paid
immediately; they build up inventories of
goods to sell and they acquire buildings

52
and equipment. In other words: businesses
have assets and so they could not, even if
they wanted to, immediately turn these
into cash at the end of each period. Real
businesses also owe money to suppliers
and to tax authorities, and the proprietors
do not withdraw all their original capital
and profits at the end of each period. In
other words businesses also have
liabilities.

A modern balance sheet usually has three

parts: assets, liabilities and shareholders'
equity. The main categories of assets are
usually listed first and are followed by the
liabilities. The difference between the
assets and the liabilities is known as the
'net assets' or the 'net worth' of the
company.

53
The net assets shown by the balance sheet
equals the third part of the balance sheet,
which is known as the shareholders'
equity. Formally, shareholders' equity is
part of the company's liabilities: they are
funds "owing" to shareholders (after
payment of all other liabilities); usually,
however, "liabilities" is used in the more
restrictive sense of liabilities excluding
shareholders' equity. The balance of
assets and liabilities (including
shareholders' equity) is not a coincidence.
Records of the values of each account in
the balance sheet are maintained using a
system of accounting known as double-
entry bookkeeping. In this sense,
shareholders' equity by construction must
equal assets minus liabilities, and are a
residual.

54
55
 INCOME STATEMENT ANALYSIS:

An Income Statement, also called a

Profit and Loss Statement (P&L), is a
financial statement for companies that
indicates how net revenue (money
received from the sale of products and
services before expenses are taken out,
also known as the "top line") is
transformed into net income (the result
after all revenues and expenses have been
accounted for, also known as the "bottom
line"). The purpose of the income
statement is to show managers and
investors whether the company made or
lost money during the period being
reported.

56
 USEFULNESS AND LIMITATIONS OF
INCOME STATEMENT

Income statements should help investors

and creditors determine the past
performance of the enterprise; predict
future performance; and assess the risk of
achieving future cash flows.

However, information in an income

statement has several limitations:

items that might be relevant but cannot be

reliably measured are not reported (e.g.
brand recognition and loyalty)
some numbers depend on accounting
methods used (e.g. using FIFO or LIFO
accounting to measure inventory level)

57
some numbers depend on judgments and
estimates (e.g. depreciation expense
depends on estimated useful life and
salvage value).

ITEMS OF INCOME STATEMENT

OPERATING ITEMS:

Net Revenue - Inflows or other

enhancements of assets of an entity or
settlements of its liabilities during a period
from delivering or producing goods,
rendering services, or other activities that
constitute the entity's ongoing major or
central operations. Usually presented as
sales minus sales discounts, returns, and
allowances.

Expenses - Outflows or other using-up of

assets or incurrence of liabilities during a

58
period from delivering or producing goods,
rendering services, or carrying out other
activities that constitute the entity's
ongoing major or central operations.

Cost of goods sold - represents the

amount a product costs to produce

General and administrative expenses

(G & A) - represent expenses to manage
the business (officer salaries, legal and
professional fees, utilities, insurance,
depreciation of office building and
equipment, stationery, supplies)

Selling expenses - represent expenses

needed to sell products (e.g., sales
salaries and commissions, advertising,
freight, shipping, depreciation of sales
equipment)

59
R & D expenses - represent expenses
included in research and development

Depreciation - represents costs associated

with depreciated assets

NON-OPERATING ITEMS:

Other revenues or gains - revenues and

gains from other than primary business
activities (e.g. rent, patents). It also
includes unusual gains and losses that are
either unusual or infrequent, but not both
(e.g. sale of securities or fixed assets).

Other expenses or losses - expenses or

losses not related to primary business
operations.

60
IRREGULAR ITEMS:

They are reported separately because this

way users can better predict future cash
flows - irregular items most likely won't
happen next year. These are reported net
of taxes.

Discontinued operations is the most

common type of irregular items. Shifting
business location, stopping production
temporarily, or changes due to
technological improvement do not qualify
as discontinued operations.

Extraordinary items are both unusual

(abnormal) and infrequent, for example,
unexpected nature disaster, expropriation,
prohibitions under new regulations. Note:

61
natural disaster might not qualify
depending on location .
Changes in accounting principle is, for
example, changing method of computing
depreciation from straight-line to sum-of-
the-years'-digits. However, changes in
estimates (e.g. estimated useful life of a
fixed asset) do not qualify.

Earnings per share (EPS): Because of

its importance, earnings per share (EPS)
are required to be disclosed on the face of
the income statement. A company which
reports any of the irregular items must
also report EPS for these items either in
the statement or in the notes.

There are two forms of EPS reported:

62
Basic: in this case "weighted average of
shares outstanding" includes only actual
stocks outstanding.

Diluted: in this case "weighted average of

shares outstanding" is calculated as if all
stock options, convertible bonds, and
other securities that could be transformed
into shares are transformed. This way
number of shares increases and EPS
decreases. Diluted EPS is considered to be
a more accurate way to measure EPS.

63
 CASH FLOW STATEMENT ANALYSIS:

In financial accounting, a cash flow

statement is a financial statement that
shows a company's incoming and outgoing
money during a time period (often
monthly or quarterly). The statement
shows how changes in balance sheet and
income accounts affected cash and cash
equivalents, and breaks the analysis down
according to operating, investing, and
financing activities. As an analytical tool
the statement of cash flows is useful in
determining the short-term viability of a
company, particularly its ability to pay
bills. International Accounting Standard 7,
is the International Accounting Standard
that deals with cash flow statements.

64
 Operating Activities

Operating activities include the

production, sales and delivery of the
company's product as well as collecting
payment from its customers. This could
include purchasing raw materials, building
inventory, advertising and shipping the
product. Items which are added back to
the net income figure (which is found on
the Income Statement) to arrive at cash
flows from operations generally include:

Depreciation (loss of tangible asset value

over time)
Deferred tax
Amortization (loss of intangible asset value
over time)
Accounts payable

65
 Investing Activities

Investing activities focus on the

purchase of the long-term assets a
company needs in order to make and sell
its products, and the selling of any long-
term assets that are no longer needed by
the company. Items under Investing
Activities include:

Capital expenditures, which include

purchases (and sales) of property, plant
and equipment and Investments .

Financing Activities

Financing activities include the influx of

cash from investors such as banks and
shareholders, as well as the outflow of

66
cash to investors as the company
generates income. Other activities which
impact the long-term liabilities and equity
of the company are also listed in the
financing activities section of the cash flow
statement. Items under the Financing
activities section include:

Dividends paid
Sale or repurchase of the company's stock
Net borrowings

67
 CHAPTER SIX

COMPILATION &
TABULATION
OF DATA

68
PRESENT POSITION OF THE COMPANY (IN TERMS OF
FINANCIAL STATEMENT)

CHART 6.1

FINANCIAL STATEMENT FOR 2006-07

(RUPEES IN LAKHS)
SOURCES OF FUNDS Amount Amount

Shareholders Fund

a) Capital 9309.54
b) Reserve and Surplus 2505.33
11814.87
Loan Funds

a) Secured Loan 0.00

b) Unsecured Loan 64842.77
64842.77

TOTAL 76657.64

APPLICATION OF
FUNDS

a) Fixed Assets :
Gross Block 11668.57
Less: Depreciation 7234.64
Net Block 4433.93

69
b) Fixed Assets Held
For Disposal
Gross Block 69.87
Less: Depreciation 46.00
Net Block 23.87

c) Capital Work in
Progress 28.85
(including plant &
machineries awaiting
installation, capital
goods in stock & in
transit) 5.67
Less: Provision for
Capital Goods
37.82
d) Investments 0.05

e) Current Assets,
loans & advances:
Inventories 160.95
Sundry Debtors 560.53
Cash & Bank Balances 2256.69
Loans and Advances 29.18
Interest Accrued on
Deposits 41.94
Total Current Assets 3768.41
Less: Current
Liabilities and
Provisions 2555.63
Net Current assets 1212.78

70
f) Misc. Expenditure 40.74
g) Profit & Loss
account (loss) 70911.75

TOTAL 76657.64

71
 CHART 6.2

FINANCIAL STATEMENT FOR 2005-06

(RUPEES IN LAKHS)
Amount Amount
SOURCES OF FUNDS

Shareholders Fund

a) Capital 9309.54
b) Reserve and
Surplus 2505.33
11814.87
Loan Funds

a) Secured Loan 555.64

b) Unsecured Loan 59868.6
60424.24

TOTAL 72239.11

APPLICATION OF
FUNDS

a) Fixed Assets :
Gross Block 11666.97
Less: Depreciation 6642.06

72
 Net Block 5024.91

b) Fixed Assets Held

For Disposal
Gross Block 69.87
Less: Depreciation 45.52
Net Block 24.35

c) Capital Work in
Progress 28.85
(including plant &
machineries
awaiting
installation, capital
goods in stock & in
transit)
Less: Provision for
Capital Goods 0.00
28.85
d) Investments 0.05

e) Current Assets,
loans & advances:
Inventories 143.75
Sundry Debtors 614.36
Cash & Bank
Balances 2011.49
Loans and Advances 637.37
Interest Accrued on 33.12

73
 Deposits
Total Current Assets 3440.09
Less: Current
Liabilities and
Provisions 2462.61
Net Current assets 977.48

f) Misc. Expenditure 40.74

g) Profit & Loss
account (loss) 66142.73

TOTAL 72239.11

74
 CHART 6.3

FINANCIAL STATEMENT FOR 2004-05

(RUPEES IN LAKHS)
Amount Amount
SOURCES OF FUNDS

Shareholders Fund

a) Capital 9309.54
b) Reserve and
Surplus NIL
9309.54
Loan Funds

a) Secured Loan 1661.02

b) Unsecured Loan 55133.18
56794.2

TOTAL 66103.74

APPLICATION OF
FUNDS

a) Fixed Assets :
Gross Block 11556.02
Less: Depreciation 6072.05

75
 Net Block 5483.97

b) Fixed Assets Held

For Disposal
Gross Block 793.64
Less: Depreciation 628.33
Net Block 165.31

c) Capital Work in
Progress 50.67
(Including plant &
machineries
awaiting
installation, capital
goods in stock & in
transit)
Less: Provision for
Capital Goods 12.85
37.82
d) Investments 0.05

e) Current Assets,
loans & advances:
Inventories 262.21
Sundry Debtors 503.01
Cash & Bank
Balances 2271.28
Loans and Advances 524.54
Interest Accrued on 41.94

76
 Deposits
Total Current Assets 3602.98
Less: Current
Liabilities and
Provisions 3683.36
Net Current assets -80.38

f) Misc. Expenditure 40.74

g) Profit & Loss
account (loss) 60456.23

TOTAL 66103.74

77
 PRESENT POSITION OF THE COMPANY (IN TERMS OF
CASH FLOW ANALYSIS)

CHART 6.4

CASH FLOW
STATEMENT
(Rs. In lakh)
31st 31st 31st
Mar, Mar, Mar,
Details 2007 2006 2005
CASH FLOW FROM
OPERATING ACTIVITIES
PROFIT BEFORE TAX 4752. - 454.9
(PBT) 74 5686.5 1
Adjustment for:
594.0 577.2
Depreciation 8 581.52 8
-
118.6 129.3
Interest Income 2 113.65 5
4963. 3508.
Interest Expenses 84 4790 52
Profit on Sale of Fixed -
Assets 0.87 -80.91 17.12
-
Written back of past 2534.
interest liability - 13
Operating Profit Before 685.6 - 1860.
Working Capital Changes 9 509.54 11

78
 Adjustment for:
Trade and other - -
receivables 69.4 224.18 34.69
Inventories 17.2 118.4627.13
- -
Trade and other 125.5 1189.1 791.6
payables 1 9 7
-
Cash generated from 1804.4 1060.
operations 724.6 5 88
-
Cash flow before 1804.4 1060.
extraordinary items 5 88
Extra- ordinary items
(deferred revenue
expenditure) 15.69 5.18
-
Nat Cash Flow From 708.9 1804.4 1066.
Operating Activities 1 5 06
CASH FLOW FROM
INVESTING ACTIVITIES
Purchase of fixed
assets/capital work in - -
progress 8.68 103.54 21.86
Sale of fixed assets/ 2717.2
capital work in progress 1.26 5 56.61
122.5 155.4
Interest received 6 122.47 3
Nat Cash Flow From 115.12736.1190.1

79
 Investing Activities 4 8 8

CASH FLOW FROM

FINANCING ACTIVITIES
Proceeds from long term 302.1
borrowing (Gol) - 8
- -
Settlement of cash credit 555.6 1105.3 1281.
with banks 4 8 39
-
Interest paid 23.21 -86.14 79.94

- -
Nat Cash Flow From 578.8 1191.5 1059.
Financing Activities 5 2 15

Net increase/ decrease in - 197.0

cash 245.2 259.79 9
cash & cash equilavents
at the beginning of the 2011. 2271.2 2074.
year 49 8 19
cash & cash equilavents 2256. 2011.4 2271.
at the end of the year 69 9 28

80
CHAPTER SEVEN

ANALYSIS &
EVALUATION OF
DATA

81
 CHART 7.1

Existing position of the company Based on the

different Ratios

Different Profitability Ratios

2006- 2005- 2004-
2007 2006 2005

3768.4 3440.0 3602.9

CURRENT ASSETS 1 9 8
CURRENT 2555.6 2462.6 3683.3
LIABILITIES 3 1 6
CURRENT RATIO 1.47 1.4 0.98

CURRENT ASSETS- 3607.4 3296.3 3340.7

INVENTORIES 6 4 7
CURRENT 2555.6 2462.6 3683.3
LIABILITIES 3 1 6
QUICK RATIO 1.41 1.34 0.907

NET WORKING 1212.7

CAPITAL 8 977.48 -80.38
76657. 72239. 66103.
TOTAL ASSETS 64 11 74
NWC RATIO 0.016 0.014 -0.001

82
 64842. 60424. 56794.
TOTAL DEBT 77 24 2
11814. 11814. 9309.5
TOTAL EQUITY 87 87 4
DEBT/EQUITY
RATIO 5.49 5.11 6.1

Performance on the basis of RATIO ANALYSIS

GRAPH 7.1: CURRENT RATIO

CURREN T RA TIO

1.5

0.5

0
2004-2005 2005-2006 2006 - 2007

CURREN T RA TIO 0.98 1.4 1.47

GRAPH 7.2: QUICK RATIO

83
 QUICK RATIO

1.5

0.5

0
2004-2005 2005-2006 2006 - 2007

QUICK RATIO 0.907 1.34 1.41

GRAPH 7.3: DEBT EQUITY RATIO

DEBT EQUITY RATIO

6.5

5.5

4.5
2004-2005 2005-2006 2006 - 2007

DEBT EQUITY RA TIO 6.1 5.11 5.49

Brief Analysis:

From the viewpoint of the current ratio

analysis we can analyze that its current
ratio increases over the last three-year

84
span. We know that the standard current
ratio is 1.5, and in the last year, it was
near about 1.5. Therefore it can be said
that it company’s capabilities of pay off
its debt increases over the period of time.
Similarly from the quick ratio it cal also
be said that company’s moving towards a
better position than the last two year
position. Again from the viewpoint of the
debt equity ratio analysis, it can also said
that as the company is incurring losses
for the last few years, it is quite become
impossible for the company to pay off its
debt, and it also can be observe from
debt equity ratio. Therefore there is a
necessity of funding here comes for the
company to sustain in the market,
otherwise it is not possible for the
company to pay off its liabilities.

85
 GRAPH 7.4
Performance on the basis of NET WORKING CAPITAL

N ET WORKIN G CA PITA L

1500

1000

500

-500
2004-2005 2005-2006 2006 - 2007

N ET WORKIN G CAPITA L -80.38 977.48 1212.78

Since TCIL is incurring losses for the last

few years, its working capital become
irregular, its it is not possible for the
company to fund for their expenses and its
become quite cumbersome for the
company to sustain the present Indian
market scenario. We know that when
working capital is positive, the company
has the ability to pay off its debt and again
when the working capital is negative then

86
it is not possible to pay off its debt. In our
analysis we have seen that there is a
negative balance of working capital in the
year 2004 to 2005. But the company was
been able to maintain the level a good
amount of working capital after recovering
the negative working capital and reaches
to 1212.78 Crs within two years time i.e, in
2006-2007.

GRAPH 7.5
Financial Position (on the basis of financial statement)

Performance on the basis of FINANCIAL STATEMENT

87
 Financial Position

78000
76000
74000
72000
70000
68000
66000
64000
62000
60000
2004-05 2005-06 2006-07

Financial Position

From the above trend of financial

statement analysis we can interpret that
the financial position of the company
increases from Rs 66103.74 in 2004-2005
to Rs. 76657.64 in 2006-2007. That is to
say that the in terms of percentage the
growth rate was near about is Rs.
(76657.64- 66103.74)/Rs. 66103.64 =
15.97 %. This obviously a positive sign for
the company as far as the financial

88
 performance of the company is
concerned.

GRAPH 7.6
CASH FLOW TREND FOR THE LAST THREE YEARS

Performance on the basis of CASH FLOW ANALYSIS

Closing Cash Balance

2300
2250
2200
2150
2100
2050
2000
1950
1900
1850
31st Mar, 2005 31st Mar, 2006 31st Mar, 2007

Closing Cash Balance

From the above cash flow trend analysis we

can analyse that the cash balance position
of the company went down from Rs 2256.69
to Rs 2011.49 from 2005 to 2006. In terms
of percentage the rate of decrease was near
about 12.20 %. But again the closing cash

89
balance position of the company increases
from Rs 2011.49 to Rs. 2271.28. in terms of
percentage the rate of growth was near
about 12.92 %. Therefore we can interpret
that the rate of growth of greater than the
rate of decrease. That is to say that the
overall it is a good sign for the company for
the current year since the company was able
to keep a sufficient balance of liquid cash so
that it will help the company to avoid the
undesired circumstances.

90
CHAPTER EIGHT

CONCLUSION

91
The size of Indian Tyre industry is
estimated at about Rs.13, 000 crore,
comprising 40 players with an aggregate
installed capacity of over 600 lakh tyres.
The industry is raw material intensive
with raw material constituting over 50%
of the sales turnover, of which rubber
accounts for the major share of the
material cost. In Indian tyre industry,
capacities are concentrated in the hands
of a few large players with top four tyre
companies accounting for over 77% of
industry market share. Major demand
(about 60%) for tyres in India arises from
the replacement market while the OEMs
and exports account for the balance. In
terms of category, truck and bus tyre
segment account for nearly 70% of the
total industry turnover. The degree of
radicalization is poor in the Indian

92
market (except for passenger car tyres)
and cross ply tyres are most preferred.
Tyre production registered a growth of
10% in FY’06. The growth continued in
the current year (FY’07) with tyre
production registering a 12% growth in
Apr-Dec’05 period. Increase in
replacement demand due to buoyant
economic environment is the major
growth driver. Even as it is highly
concentrated, the Indian tyre industry is
intensely competitive. In a price-
sensitive market, the industry has not
been able to recover rising raw material
costs to full extent through product
pricing. With increase in prices of crude
oil and natural rubber, the input costs
continue to rise. Consequently, though
the revenues showed a healthy growth,
profitability remained depressed.

93
Decrease in customs duty over the years
has led to cheaper imports from China
and other South-East Asian countries and
has been a matter of concern for the
industry.

94
CHAPTER NINE

APPENDICES

95
 LIST OF CHARTS
Page No
CHART 6.1 Financial statement for 2006-07
49

CHART 6.2 Financial statement for 2005-06

51

CHART 6.3 Financial statement for 2004-05

53

CHART 6.4 Cash Flow Statement

55

CHART 7.1 Computations of Ratios

58

LIST OF GRAPHS

GRAPH 7.1 Debt Equity Ratio

60
GRAPH 7.2 Current Ratio
59

96
GRAPH 7.3 Quick Ratio.
59
GRAPH 7.4 Net Working Capital
61
GRAPH 7.5 Financial Statement Analysis
62
GRAPH 7.6 Cash Flow Analysis
63

97
CHAPTER TEN

BIBLIOGRAPHY

98
1. Financial Accounting by Institute of Chartered
Financial Analyst of India
2. Financial Management by Mr. I M Pandey.
3. Financial Management by Mr. Paresh P Shah.
4. Modern Accountancy by Mukherjee and Hanif
5. Financial Management by Mr. Khan & Jain

6. Internet sites: www.google.com,

www.yahoo.com,
www.khoj.com
www.tcil.com

99