Financial Analysis Of Hmt

1.1 Introduction

Industrialization commenced in earnest only after the independence in 1947. From a predominantly agrarian economy, India has moved towards rapid industrialization with the state retaining the privilege of entrepreneurship an authority in a system of mixed economy. For four decades, the focus had been on the public sector, which was perceived as a means of achieving industrial growth with social justice.

It was Pandit Jawaharlal Nehru the 1st prime minister of independent India, who laid the foundation of a strong industrial base for the country. It was he who should be given the chief credit for fostering the creation of a rich scientific and technological pool by which the country is benefiting today. During his time many dams were built such as the one at Bhakra Nangal. In the mixed economy followed during that period as per his brand of socialist ideology, in which both the public and private sectors were given the scope and the opportunities to grow. The private sector was allowed to function along with public enterprises, but under the control of the government with strict licensing and supervision. Initially, this led to a rapid industrialization with large capital-intensive industries in the public sectors. A number of state owned industrial enterprises were established in various sectors - In steel, power, heavy engineering etc. It cannot be denied that much of the industrial and scientific advance achieved by India of which are proudly boasted today owe a lot to his foresight and vision. He called all theses projects ÐŽ§The Temples of Modern IndiaЎЁ that would bring about the countryÐŽ¦s progress and prosperity.

But unfortunately many of the state owned and run enterprises in various sectors did not function successfully and satisfactorily due to structural, operational, managerial, marketing, and other such deficiencies so that the public sector came to be looked upon as inefficient, not yielding, the results that have been expected of them, some of them even turning out to be white elephants. At the same time many of them did serve the socio economic objectives which was the purpose behind their setting up, but this being quite cited as the reason and made an excuse for their inefficient functioning, largely the consequences of their not being run on commercial principles. These reasons causing inefficiency in the functioning of the industries, brought the country to a state of crisis, prompting the government to make a complete turn around by introducing the National Industrial Policy (NIP) in 1991 which sought to build on past industrial achievements and depend on market mechanisms to make Indian industry internationally competitive. However there were some enterprises dating from that era that showed very good growth and development and made a significant contribution to the 2 advance of industry and technology in their respective sectors. Among such outstanding examples of the success of public sector enterprises in the country is HMT, which can be said to have given a very good account of itself in terms of efficient operations and in the contribution to the development of technology in a sophisticated sector, attaining the best international standards. It is IndiaÐŽ¦s largest machine tools manufacturer, recognized world wide for excellence in precision engineering.

Globalization and liberalization have brought immense changes and to opportunities to Indian industries, more so to the public sector. Originally setup to be a vehicle of social changes as well as a business enterprise, the public sector undertaking today finds itself marginalized.

Theoretical Background of the Study

1.2 Financial Analysis

Financial statements i.e. the profit and loss account and the balance sheet, no doubt contains a large number of accounting or financial figures. But at a quick glance they do not convey much information. However when they are analyzed and interpreted they give a clear picture of the financial adventures of the firm, and made to tell the story of the actual progress and the financial position of a firm in clear and simple language, which can be easily understood even by a layman.

1.2.1 Definition

In the words of Metcalf and Titard, ÐŽ§Analyzing financial is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of a firmÐŽ¦s position and performanceЎЁ

1.2.2 Steps in Financial Analysis

1. Analysis

Analysis of financial statement means splitting up or grouping of the figures found in the financial statements into desired, homogeneous, and comparable component parts. In other words, itÐŽ¦s the re-classification and re-arrangement of the data found in the financial statements into groups of a few principal elements according to their resemblances and affinities and presenting them in the form most convenient for interpretation.

2. Comparison

After the figures contained in the financial statements are dissected or split into the required comparable component parts, the comparable component parts i.e. the inter-connected figures must be compared with each other and their relative magnitude or relationship must be measured.

3. Interpretation

After the analysis and comparison of financial statements, the results must be interpreted. Interpretation of result means the formation of rational judgment and the drawing of proper conclusions about the process, financial position and future prospects of the business through careful study of the relationship of component parts obtained through analysis and comparison.

1.2.3 Objectives of financial analysis

1. To determine the progress of the concern.

2. To measure the operational efficiency of the concern.

3. To judge the financial position i.e. the short-term liquidity position and the long-term solvency of the concern.

4. To ascertain the future prospects of the concern.

1.2.4 Tools or techniques of financial analysis

The important tools or techniques of financial analysis are,

1. Comparative financial statement analysis

2. Common size statement analysis.

3. Trend