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Financial Statement Analysis

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Financial Statement Analysis-FIN621
VU
Lesson-45
SUMMARY OF FINDGINS
Table-9
COST OF TRANSPORTATION
Rs. in million
1976-77
1977-78
1978-79
1979-80
Cost of cane purchased
22.26
24.51
13.81
2.60
Carriage & incidentals
2.15
3.48
1.95
0.23
Carriage as % of cost
10%
14%
14%
9%
Table-10
PER TON COST OF TRANSPORTATION
1976-77
1977-78
1978-79
1979-80
Carriage and incidentals (Rs. in 2.15
3.48
1.95
0.23
million)
Cane procured (Tons)
140,292
166,271
93,731
14,375
Average per ton cost (Rs)
15.32
20.92
20.80
16.00
Table-11
EMPLOYEE STRENGTH
Actual strength during the years
As per PC1
1976-77
1977-78
1978-79
1979-80
Permanent
185
605
625
615
495
Seasonal
556
639
655
590
638
Total
741
1244
1280
1205
1133
% increase
68%
73%
63 %
53%
Table-12
COST OF ESTABLISHMENT
1976-77
1977-78
1978-79
1979-80
Cost (Rs. in million)
7.72
9.11
8.90
8.51
Sugar produced (tons)
11344
14015
8007
1206
Cost per ton of sugar (Rs)
681
650
1112
7053
162
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Financial Statement Analysis-FIN621
VU
Table-13
PRODUCTIVITY PER EMPLOYEE
1976-77
1977-78
1978-79
1979-80
Sugar produced (Tons)
11344
14015
8007
1206
Employee-strength
1244
1280
1205
1133
Productivity per person (Tons)
9.1
10.9
6.6
1.1
Table-14
FINANCIAL EXPENSES
Rs. in million
1976-77
1977-78
1978-79
1979-80
Financial expenses
4.5
4.6
5.5
8.0
Sales
58
52
42
20
Financial expenses as % of sales
8%
9%
13%
40%
SUMMARY OF FINDGINS
No.
Area
Findings
1.
Finance:
·
Financial position poor
·
Equity eroded
·
Debt burden: Rs.57 m
·
Financial Charges: Rs.8 m
·
Poor Liquidity
2.
Profitability:
·
Constantly losing.
·
Losses understand.
Reasons:
·
not enough cane
·
high transportation cost.
·
heavy fixed costs.
·
vicious circle of financial charges
3.
Raw Material:
·
Requires 185,000 tons cane.
·
Cane from local area: 5-44% only.
·
Bringing cane from far off places.
·
erroneous PC1
4.
Production:
·
sugar production capacity: 15,000 ton
·
Never met target.
·
High fixed cost of production.
5.
Administration:
·
Excess employees.
·
Excess per ton cost of establishment.
·
Low productivity.
163
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Financial Statement Analysis-FIN621
VU
OVERALL ASSESSMENT
1.
The unit has been a losing concern over since 1965 when it became operational.
Accumulated loss as on June 30, 1980 was over Rs.114 million as against equity of Rs.81 million.
Equity thus stood completely eroded. The unit is consequently dependent entirely on debt, which
amounted to Rs.57 million as on June 30, 1980. This involved annual financial charges of Rs.8 million.
2.
The feasibility of this unit had been projected on the clear assurance that abundant
sugar-cane will be available in the vicinity. These assurances proved entirely erroneous. Supplies of
sugar-cane from the vicinity were very inadequate. The company has had to supplement procurement by
additional purchases from distant areas. This involved excessive cost of transportation. Even then the
unit could not manage to procure the required quantity of cane. Below capacity operations of the plant
has, therefore, been a crippling constraint.
3.
A number of steps are being taken at unit and government level to improve sugar-cane
availability. This includes loans to growers for seeds and fertilizers, and award of a higher purchase
price for sugar-cane above the controlled rate. These measures are expected to aid the project but it may
not, however, still be able to overcome its financial difficulties.
4.
The unit could in fact procure only 8% of its cane requirement during 1979-80, of
which only 5% was procured locally, despite award of a higher purchase price for sugar-cane above the
controlled rate. Inadequate cane availability and heavy fixed costs (due to excessive employee-strength
and increasing burden of financial charges) remain serious constraints.
5.
The project therefore does not seem to be a viable one. Prospects of its dis-investment
and privatization may be seriously looked into.
164