See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/316878739

ANALYSIS OF FINANCIAL STATEMENTS IN THE SUGAR INDUSTRY

Conference Paper · April 2017

CITATION READS

1 14,580

2 authors, including:

Dilip Patil
Karamveer Ankushrao Tope Samarth S.S. S. K. Ltd.,
4 PUBLICATIONS 6 CITATIONS

SEE PROFILE

All content following this page was uploaded by Dilip Patil on 12 May 2017.

The user has requested enhancement of the downloaded file.

 ANALYSIS OF FINANCIAL STATEMENTS IN THE SUGAR INDUSTRY

Authors:
Dilip. S. Patil
Finance Manager,
Padmabhushan Krantiveer Dr. Nagnathanna Naikawadi Hutatma Kisan Ahir S. S. K.
Ltd., Walva, Dist. Sangli. Maharashtra. #8275304763 mail: dilip.patil4@gmail.com

CMA J. N. Mohanthy
Honorary Financial Advisor,
Vasnatdada Sugar Institute,
Pune

Abstract
“This paper aims at making financial analysis of a sugar entity in terms of liquidity, solvency,
operational efficiency and profitability. Management practices with professional approach tend
to improve the financial performance of sugar factories by implementing some innovative
practices to reduce the controllable cost and generating additional revenues.”

Keywords: Financial statements, Analysis, Ratio analysis, Variance analysis

Introduction
The basis for financial analysis, planning and decision making reflects in scientific analytical
financial statement which mainly consists of Balance Sheet and Profit & Loss account of a
sugar factory. This summarized financial report provides the operating result and financial
position of a sugar factory and detailed analytical information contained therein is useful for
assessing the operational efficiency and financial soundness of a sugar factory.

What is Financial Statement?

Financial statements are structured representation of the financial position and financial
performance of an entity. Financial statements provide information about an entity’s
i) Assets ii) Equity & Liabilities iii) Income and expenses, including gains and losses and
iv) Cash flows.

Significance of Analysis of Financial Statements

Financial analysis is useful and significant to different users in the following ways:

(a) Finance Manager: Financial analysis techniques enable the finance manager to make
constant reviews of the actual financial operations of the sugar factory for analyzing the
causes of major deviations, which may help in taking corrective action.

(b) Top Management: Financial analysis helps the Top Management in measuring the
success of the company’s operations, appraising the individual’s performance and
evaluating the system of internal control.

(c) Trade Payables: The traders are particularly interested in sugar factory’s ability to meet
their claims over a very short period of time, which evaluate factory’s liquidity position.

(d) Lenders: Banks and Financial Institutions are concerned about the sugar factory’s long
term solvency and survival. They analyze the historical financial statements to assess its
future solvency and profitability.

(e) Investors: Investors, who have invested their money in the sugar factory’s shares, are
interested in the sugar factory’s earnings and present and future profitability to ascertain its
effects on sugar factory’s earning.

1
 (f) Others: Economists, Researchers, Government etc., analyze the financial statements to
study the economic conditions for price regulations, taxation and other similar purposes.

Tools of Analysis of Financial Statements

The most commonly used techniques of financial analysis are as follows:

A) Comparative Statements: The comparative Profit & Loss account gives an idea of
the progress of business over a period of time. The changes in absolute money values and
percentages can be determined to analyze the profitability of the business. This analysis is
also known as ‘horizontal analysis or Intra sugar factory analysis. Horizontal analysis
compares each item with an item for a selected base year.

“One cannot be the finest without comparing with rest”

SUMMERISED COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2014-15 & 2015-16
YEAR CANE CRUSHING PRODUCTION
2014-15 674765.310 MT 894855 QTLS
2015-16 731132.950 MT 967000 QTLS Rs.Lakhs
1) INCOME 2014-15 2015-16 Diff. (+/-) Change%
1.1) Sugar Realization 26109.58 27801.88 1692.30 6.48
1.2) Bagasse 279.15 542.60 263.45 94.37
1.3) Molasses 948.16 1312.77 364.61 38.46
1.4) Other Income 163.29 485.05 321.76 197.06
TOTAL (1) 27500.18 30142.30 2642.12 9.61
2) COST OF PRODUCTION
2.1) Raw Material Cost 20677.80 24070.15 3392.35 16.41
2.2) Manufacturing Overheads 2921.23 1685.72 (1235.51) (42.29)
2.3) Salary & Wages 1393.13 1643.43 250.30 17.97
2.4) Administrative Exp. 444.12 525.19 81.07 18.26
TOTAL (2) 25436.28 27924.49 2488.21 9.78
GROSS PROFIT 2063.91 2217.81 153.91 7.46
3) Depreciation 269.91 309.51 39.60 14.67
4) Interest 1760.75 1848.54 87.79 4.99
5) TOTAL COST OF PRODUCTION
(2+3+4) 27466.94 30082.54 2615.60 9.52
6) NET PROFIT (1-5) 33.24 59.76

Interpretation:
During the financial year 2015-16 the factory crushed 7.31 lac MT of sugar crane &
produced 9.67 lakh quintals of sugar as per the Balance Sheet of March 2016, the factory
has holding sugar stock of Rs. 321.74Cr., this was mainly because of lower market price
during financial year 2015-16. The sugar prices have gone far below the FRP, therefore
sugar factory was compelled to carry over stock in an anticipation of better price in future.
The above table gives idea about deviation in absolute figures in rupees as compared to
year 2014-15. The financial statements indicated in above table, is prepared for successive
periods 2014-15 & 2015-16, where it shows the changes in percentages over a period of
time.

2
B) Common Size Statements: The common size statements analysis compares each
item with a base item of two different factories to realize where we actually stand as
compared to other sugar factories and what the exact reasons of deviation are. This analysis
is also known as ‘Vertical analysis or Inter sugar factory analysis’.

“The difference between running and ruining the business is high cost”

Fixed
Variable Cost Income
Name of The Financial Cost Rs. Rs. Contribution
Company Year Rs. PMT Lakh PMT PMT
1 2 3 4 5 6 =(5-3)
X Sugar Mill 2015-2016 3786.54 2397.90 4122.69 336.14
Y Sugar Mill 2015-2016 3546.00 2425.10 4242.91 696.91

C) Trend Analysis: Trend analysis studies the financial history, operational results &
financial position of a sugar factory over a series of years using the historical data to observe
the percentage changes in selected data.

“Costing is strange racing where falling considered wining”

Trend Analysis
SUMMARISED COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2013-14 & 2015-16
Rs. Lakhs TREND%
1) INCOME 2013-14 2014-15 2015-16 2013-14 2014-15 2015-16
1.1) Sugar Realization 21264.26 26109.58 27801.88 100.00 122.79 130.74
1.2) Bagasse 491.04 279.15 542.6 100.00 56.85 110.5
1.3) Molasses 1006.51 948.16 1312.77 100.00 94.2 130.43
1.4) Other Income 219.93 163.29 485.05 100.00 74.24 220.55
TOTAL (1) 22981.74 27500.18 30142.3 100.00 119.66 131.16
2) COST OF PRODUCTION
2.1) Raw Material Cost 18138.73 20677.8 24070.15 100.00 114 132.7
2.2) Manufacturing Overheads 1226.14 2921.23 1685.72 100.00 238.25 137.48
2.3) Salary & Wages 1330.54 1393.13 1643.43 100.00 104.7 123.52
2.4) Administrative Exp. 263.7 444.12 525.19 100.00 168.42 199.16
TOTAL (2) 20959.11 25436.28 27924.49 100.00 121.36 133.23
GROSS PROFIT 2022.63 2063.91 2217.81 100.00 102.04 109.65
3) Depreciation 276.56 269.91 309.51 100.00 97.6 111.91
4) Interest 1727.26 1760.75 1848.54 100.00 101.94 107.02
COST OF PRODUCTION
(2+3+4) 22962.93 27466.94 30082.54 100.00 119.56 130.95
NET PROFIT 18.81 33.24 59.76 100.00 176.91 316.51

The above table indicates financial trend is positive and the better financial management of
the sugar factory year to year.

D) Ratio Analysis: It is a tool for comparison of the previous year’s figures of the sugar
unit, other entities, and the industry. It helps the management to take proper decision after
analysis.

3
 “Ratios are like true friends. They tell us our shortcomings and strengths”

FINANCIAL RATIO STATEMENT AND VARIANCES

S.no Particulars Concept 2014-15 2015-16 Variance
Liquidity
A
Ratios
Current Assets/ Current
A.1
Current Ratio Liabilities 1.10 1.18 0.08
A.2 Working Capital Current Assets Less Current
(Rs.Lakhs) Liabilities 2590.92 5541.34 2950.42
Cash Profit
A.3
(Rs.Lakhs) Net Profit +Depreciation 303.15 369.27 66.12
Net operating Income+Int.
A.4
D.S.C.R +Dep. /Total Debt service 1.38 1.91 0.53
DSCR WORKINGS :

Rs.Lakhs
2015-
PARTICULARS 2014-15 16
CASH AVAILABLE FOR DEBT SERVICE :
NET PROFIT 33.24 59.76
ADD:DEPRECIATION 269.91 309.51
INTEREST ON TERM LOAN 548.72 248.45
TOTAL CASH AVAILABLE FOR DEBT SERVICE 851.88 617.72
DEBTS TO BE SERVICED :
REPAYMENT OF TERM LOAN 66.54 75.50
INTEREST ON TERM LOAN 548.72 248.45
TOTAL DEBT TO BE SERVICED 615.26 323.95
D.S.C.R. 1.38 1.91
AVERAGE D.S.C.R. 1.56

Interpretation
Above statement show that, significant improvement in major liquidity ratios. Current ratio
has increased from 1.10 to 1.18 in the year 2015-16. An ideal current ratio is 2:1.

4
 “Absolute figures unless converted into relative ones are meaningless.”

FINANCIAL RATIO STATEMENT AND VARIANCES

S.no Particulars Concept 2014-15 2015-16 Variance
A Solvency /Leverage Ratio
Total Debt/ Net
A.1
Debt Equity Ratio Worth 2.56 1.40 -1.16
Net
A.2 worth/Total
Solvency Ratio Assets 0.07 0.13 0.06
Net
A.3 worth/Fixed
Fixed asset to Net worth Ratio Assets 0.72 0.82 0.10
Gross
A.4 Gross profit to Total Income profit/Total
Ratio (%) Income 0.08 0.07 -0.01
Net profit to Total Income ratio Net Profit/Total
A.5
(%) Income 0.12 0.20 0.08
(Income -Rm-
A.6
Gross Value added (Rs.Lakhs) P&C-Pac) 6185.52 5516.14 -669.38
Gross Value
A.7 added-
Net Value added (Rs.Lakhs) Depreciation 5915.60 5206.93 -708.67
(Raw material
+Process &
A.8 Raw material to Value of output
Chem.)/Value
of output 76.04 80.65 4.61
Wages/Total
A.9
Wages to Total Income (%) Income 5.07 5.45 0.38
Interest /Value
A.10
Interest to Value output (%) output 6.4 6.13 -0.27
Net
A.11
Net Profit to Equity (%) profit/Equity 3.18 5.64 2.46
Capital employed Turnover Sales / Capital
A.12
ratio Employed 4.90 2.35 -2.55
Return on Capital Employed EBIT/Capital
A.13
(%) Employed 31.98 14.86 -17.12

Interpretation

1) The table shows that the total Debt Equity ratio has decreased in the year 2015-2016 from
2.56 to 1.40. During FY 2015-16 factory has raised soft loan from banks to pay FRP as per
Government norms this has resulted substantial increase in outside liabilities.

2) The above table shows the gross profit ratio of the table indicates that the ratio in the year
2015 was 0.08 and in the year 2016 it decreased to 0.07.

5
 “Analyzing is like dissecting. It may not change the past it can improve the future”

Variance Analysis
Intra Firm Variance Analysis for the year 2014-15 and 2015-16
Absolute
Particulars 2014-15 2015-16 Variance Variance Formula
Rs. Lakh
14-15yr's pmt contribution X
Cane Crushed Lakh MT 6.75 7.31 0.56 201.36 excess crushing
1) Income From Operations PMT Income PMT
1.1) Sugar Reliazation 3905.23 3802.58 -102.64 -750.45 PMT variance X 15-16 yr's crushing
1.2) Bagasse 41.37 74.21 32.84 240.13 PMT variance X 15-16 yr's crushing
1.3) Molasses 140.52 179.55 39.04 285.41 PMT variance X 15-16 yr's crushing
1.4) STOCK IN PROCESS -35.79 -0.01 35.79 261.65 PMT variance X 15-16 yr's crushing
1.5) Other Income 24.20 66.34 42.14 308.13 PMT variance X 15-16 yr's crushing
TOTAL (1) 4075.52 4122.69 47.17
2) Variable Cost PMT Expnediture PMT
2.1) Cane Purchase & Related
Exp 2627.84 2708.70 -80.85 -591.15 PMT variance X 15-16 yr's crushing
2.2) Sugarcane Purchase Tax 0.00 88.15 -88.15 -644.52 PMT variance X 15-16 yr's crushing
2.3) Cane H& T Expenses 432.86 494.76 -61.90 -452.60 PMT variance X 15-16 yr's crushing
2.4) Cane Supply Expenses 2.62 0.16 2.46 18.00 PMT variance X 15-16 yr's crushing
2.5) Cane Feeding Exp. 1.12 0.40 0.72 5.27 PMT variance X 15-16 yr's crushing
2.6) Salary& Wages (20%) 41.29 44.96 -3.66 -26.78 PMT variance X 15-16 yr's crushing
2.7)Machinery Repairs &
Maintenance 75.06 68.37 6.69 48.90 PMT variance X 15-16 yr's crushing
2.8) Process & Chemicals 34.65 32.93 1.73 12.63 PMT variance X 15-16 yr's crushing
2.9) Packing Expenses 59.73 43.08 16.65 121.72 PMT variance X 15-16 yr's crushing
2.10)Other Stores 23.30 28.15 -4.85 -35.49 PMT variance X 15-16 yr's crushing
2.11)Factory Overhead 240.18 58.03 182.15 1331.78 PMT variance X 15-16 yr's crushing
2.12)Interest on Working Capital
Loan 179.62 218.85 -39.23 -286.81 PMT variance X 15-16 yr's crushing
TOTAL (2) 3718.28 3786.54 -68.26
3) Contribution Rs. PMT Cane 357.23 336.14
4) Fixed Cost
4.1) Salary & Wages (80%) 1114.50 1314.74 -200.24 -200.24 Increase in Salary & Wages
4.2) Administrative Expenses 444.12 525.19 -81.08 -81.08 Increase in Adm. Exp.
4.3) Depreciation 269.91 309.51 -39.60 -39.60 Increase in Dep. Exp.
4.4) Interest on Term Loan 548.72 248.45 300.27 300.27 Decrase in Int. Exp
TOTAL (4 ) 2377.25 2397.90 -20.65
Net Variance (+)/(-) 26.52
Last year’s Profit(+)/(-) 33.24
Current year’s Profit/Loss (+)/(-) 59.76

6
Interpretation

1) Variable cost
The total variable cost PMT has increased from Rs.3718.28 lakh to 3786.54 lakh as
compared to financial year 2014-15. This is mainly due to increase in cane cost, sugar cane
purchase tax and interest on working capital loan due to huge carryover stock of sugar.

2) Fixed cost
The total fixed cost has increased from Rs.2377.25 lakh to 2397.90 lakh as compared to
financial year 2014-15. This is mainly due to rise in salary and wages, administrative
expenses and deprecation expenditure.

3) Income From Operations

Income from operations includes value of sugar, molasses, bagasse & other income, here
below detail analysis of decrease in per MT of sugar realization is done:
Factory has crushed 6.75 Lakh M.T. sugar cane in financial year 2014-15 and in the year
2015-16 there is an increase of 0.56 Lakh M.T. due to good rain fall and rise in per hectare
sugar cane production. From the above statement, it shows higher sugar production of 0.72
Lakh Qtl. as compared to 2014-15. Sugar recovery has slightly declined by 0.03 % during
2015-16.

After examining the variance in crushing, production, recovery and sugar realization, the
actual impact on Profit and Loss account comes to Rupees 750.45 lakhs which is calculated
as under:

S.No. Particulars
Decrease (
Sugar realization
Cane Crushing In Lakhs)
variance PMT(Rs.)
A) Decrease in Sugar Realization current Year (B) (C)
(A)
C=(A)*(B)
102.65 731133 750.45

MICRO ANALYSIS OF DECREASE IN SUGAR REALIZATION

Loss in
Avg. Sugar Lakhs
Loss due to decrease in sugar price per Avg. Sugar price per Sugar Production D=(A)-
B.1
realization Qtl in 2014- Qtl in 2015-16 in 2015-16 (Qtls) (B)*(C)/1L
15 (Rs.)(A) (Rs.)(B) (C)
2944.73 2875.07 967000 673.61
Recovery
Loss in
B.2 Loss due to low sugar recovery % Sugar Recovery in Sugar Recovery in (%)C= (B)-
2014-15 (%)(A) 2015-16 (%) (B) (A)
13.26172 13.22605 -0.03567
Sugar
Cane Crushing in Yr. Recovery Loss in Production
15-16 (in MT) % in Qtls (C)
B.2(a) Less Sugar Production due to low sugar recovery (A) (B) C=(A)*(B)/1
0
731133 -0.03567 2607.95

Amount In
Less Sugar Avg. Sugar price Lakhs
B.2(b) Loss due to decrease in sugar recovery in Rs. Production (Qtls) per Qtl in 2014-15 C=(A)*(B)
(A) (Rs.) (B)
2,607.95 2944.73 76.80
Total Loss due to decrease in Sugar Realization ( Rs. Lakh) (B.1 + B.2(b) 750.45

7
E) Cash Flow Analysis: It is the analysis of actual movement of cash inflow and outflow in
an organization. The flow of cash into the sugar factory is called as cash inflow and the flow
of cash out of the sugar factory is called as cash outflow. The difference between the inflow
and outflow of cash is the net cash flow.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31-03-2016

S.no Particulars Amount Amount

A CASH FLOW FROM OPERATING ACTIVITIES
A.1 Net Profit before tax and transfer to general reserve 70.74
A.2 Depreciation expense 309.51
A.3 Interest on term Loan 248.45

Operating Profit before working capital changes 628.70

Adjustments for changes In Working Capital
A.4 (Increase)/Decrease in current assets (15,338.01)
A.5 (Increase)/Decrease in advances & receivables 8,023.80
A.6 Increase/(Decrease) in working capital Loan 2,333.66
A.7
Increase/(Decrease) in current liabilities & provisions 3,825.70 (1,154.85)
NET CASH FROM OPERATING ACTIVITIES (526.15)
B CASH FLOW FROM INVESTING ACTIVITIES
B.1 Sale of Investment 624.45
B.2 Purchase of fixed assets (876.50)
B.3 Payment of long term debts (75.49)

NET CASH FROM INVESTING ACTIVITIES (327.54)

C CASH FLOW FROM FINANCING ACTIVITIES
C.1 Amount raised through share capital 12.53
C.2 Proceeds from Long term debts 2,885.17
C.3 Interest Expense on term Loan (248.45)

NET CASH FLOW FROM FINANCING ACTIVITIES 2,649.25

NET(DECREASE)/INCREASE IN CASH AND CASH
D
EQUIVALENTS (A+B+C) 1,795.56
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF
THE PERIOD 106.81
E
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (D+E) 1,902.37

Cash Flow Interpretation

The cash flow statement depicts that sugar factory has raised funds by redemption its
Investment and issue of share capital as well from long term loan to meet operational
expenditure and capital expenditure.

8
F) Funds Flow Analysis: A Fund Flow Statement is a summarized statement of the
movement of Funds from different activities of a sugar factory during an accounting period.

“Know what you own and what you owe”

SUMMERIZED COMPARATIVE BALANCE-SHEET

AS ON 31 ST MARCH, 2015 & 2016
( Rs. Lakh )

Particulars 2014-15 2015-16 Diff. (+/-)

A) OWN CAPITAL
Share Capital 1046.91 1059.44 12.53
Reserves & Surplus 1045.28 1056.27 10.99
Profit & Loss A/c(+/-) 93.39 153.15 59.76
TOTAL (A) 2185.58 2268.86 83.28
B) LONG TERM DEBTS
Term loan 2812.72 5151.52 2338.80
Soft Loan 295.81 220.32 (75.49)
Voluntary Deposits 2476.69 3023.07 546.38
TOTAL (B) 5585.22 8394.91 2809.69
C) CURRENT LIABILITIES
Working Capital Loan 12283.43 14617.09 2333.66
Current liabilities/provisions. 12953.11 16778.81 3825.70
TOTAL (C) 25236.54 31395.90 6159.36
TOTAL LIABILITIES (A+B+C) 33007.34 42059.67 9052.33
D) CAPITAL INVESTMENT
Gross Fixed Assets 7922.61 12510.96 4588.35
Less: Accum. Depn. 4903.79 5213.30 309.51
Less: Revaluation Reserve 0.00 3711.85 3711.85
Net Fixed Assets 3018.82 3585.81 566.99
INVESTMENT 2161.07 1536.62 (624.45)
TOTAL (D) 5179.89 5122.43 (57.46)
E) CURRENT ASSETS
Current Assets 16836.37 32174.39 15338.01
Advances & Receivables 10884.28 2860.48 (8023.80)
Cash and Bank Balances 106.81 1902.37 1795.56
TOTAL (E) 27827.46 36937.24 9109.78
TOTAL ASSET ( D+E) 33007.35 42059.67 9052.33
NET WORKING CAPITAL(E-C) 2590.92 5541.34 2950.42
NET WORTH(A) 2185.58 2268.86 83.28
Current Ratio ( E ÷ C ) 1.10 1.18
Capital Employed (Net F.Asset + Net W.C.) 5609.74 9127.15
Debt Equity Ratio ( B ÷ A ) 2.56 3.70

9
 “Finance is lifeblood of business only when it flows in the right direction”

FUNDS FLOW STATEMENT

FOR THE YEAR 2015-16

2015-16
I) SOURCES OF FUNDS : Rs. Lakh
A) Long Term Sources
Depreciation 309.51
Share Capital 12.53
Reserves & Surplus 10.99
Profit & Loss A/c(+/-) 59.76
Term loan 2338.80
Voluntary Deposits 546.38
Decrease in Investment 624.45
Total Long Term Sources 3902.42
B) Short Term Sources
Working Capital Loan 2333.66
Current liabilities/provisions. 3825.70
Decrease In Advances & Receivables 8023.80
Total Short Term Sources 14183.16
C) TOTAL SOURCES(A+B) 18085.58
II) APPLICATIONS OF FUNDS :
A) Long Term Uses
Capital Expenditure(Excl. Reval. Asset) 876.50
Decrease in Soft Loan 75.50
Total Long Term Uses 952.00
B) Short Term Uses
Increase in Current Assets 17133.58
Total Short Term Uses 17133.58
TOTAL APPLICATIONS (A+B) 18085.58

Interpretation
From the funds flow statement sugar factory has generated Rs. 18085.58 Lakh funds during
the Financial Year 2015-16, out of which long term sources is Rs.3902.42 lakh and short
term sources is 14183.16 lakh. The use of long term funds is Rs.952 lakh and use of short
term funds is Rs. 17133.57 lakh.
Conclusion
Financial ratio analysis and common-size analysis help to gauge the financial performance
and condition of a sugar factory through an examination of relationships among these many
financial items. A thorough financial analysis of a sugar factory requires examining its
efficiency in putting its assets to work, its liquidity position, its solvency, and its profitability.
We can use the tools of common-size analysis and financial ratio analysis, to help
understand where a company has been. We then use relationships among financial
statement accounts in pro forma analysis, forecasting the sugar factory’s income statements
and balance sheets for future periods, to see how the sugar factory’s performance is likely to
evolve. The above various types of financial analysis indicate the positive performance of
sugar factory which is now a day’s essential to turnaround the financial position of the sick
units.

10

View publication stats