hari krishna 14aj1e0051

8/17/2019 Hari Krishna 14aj1e0051

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“A STUDY ON RATIO ANALYSIS”

OF

I N D E X

CHAPTER CONTENTS

CHAPTER-1 Introduction

Ob!cti"!# o$ t%! #tud&

N!!d o$ t%! #tud&

Sco'! o$ t%! #tud&

(!t%odo)o*& o$ t%! #tud&

Li(it+tion# o$ t%! #tud&

CHAPTER-,

Indu#tr& 'ro$i)!CHAPTER- Co('+n& 'ro$i)!

CHAPTER-. T%!or!tic+) +#'!ct# o$ r+tio

+n+)i#

CHAPTER-/ D+t+ +n+)i# +nd int!r'r!t+tion

CHAPTER-0 Findin* +nd #u**!#tion#

Conc)u#ion

bib)io*r+'%&

CHAPTER I

INTRODUCTION


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RATIO ANALYSIS

INTRODUCTION2

Financial statements are prepared primarily for decision making. They play a dominant role in

setting the frame work of managerial decisions. Financial analysis “ the process of identifyingthe financial strengths and weakness of the firm by properly establishing relationship between

the items of the balance sheet and the profit and loss account” there are various techniques or

methods used in analyzing financial statements, such as comparative statement, schedule of

changes in working capital, trend analysis, common size statement, funds flow and cash flow

analysis, cost volume profit and ratio analysis, the ratio analysis is the most powerful tool of

financial analysis.

3!+nin*4

ince we are using the term “ratio relation to financial statement analysis it may properly

mean an accounting ratio or financial ratio”

D!$inition!

"ccording to #yers ratio analysis is a study of relationship among the various financial

factors in a business

I('ort+nc!!

The ratio analysis is the most important tool of the finance analysis the various groups of

people having a different are interested in analysis

NEED FOR THE STUDY$

Financial analysis must require for a company in this cut through competition. %ecause of that

reason ratio analysis is used in analyzing the company&s position 'nown that fact the success


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of an organization depends upon the financial management. This situation has created an

interest to study and analysis some of the financial aspects of this organization. (ence a study

may be undertaken of financial analysis through ratio in )*"'"" )+T*- "T td

O56ECTI7E OF THE STUDY$

The ratio analysis is one of the most power full tools of financial analysis. /t is the process of

establishing and interpreting various ratios 0qualitative relationship between figures and group


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of figures1. The purpose of preparation of ratio analysis is to optimize and facilitate

comparison with reference to periods, another organization or and industry organization.

PRI3ARY O56ECTI7E$

To analysis the financial performance of the firm through calculation of various ratios.

SECONDARY O56ECTI7E$

• To study the financial strengths and weaknesses of the firm.

• To e2amine the short term solvency of the firm.

• To study the techniques of ratio analysis for decision3making.

•

To understand an item wise study of the company of financial performance of thecompany.

• To make suggestions if any for improving the financial position of the company.

• To find out the reason of the problem and to evaluation possible way of the resolving

the problems.

SCOPE OF THE STUDY$

The scope of the study is limited to collect in the financial data published in the annual report

of the company with reference of the ob4ectives stated above and any analysis of the data with

a view to suggest favorable solution to the various problems related to financial performance.


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The pro4ect “ratio analysis of )*"'"" )+T*- "T td provides information with

regard to the comparatives common size recent trends and development and comprehensive

review of the financial performance of the bank. The pro4ect gives an insight of the various

tools to ascertain and evaluated the financial performance of the )*"'"" )+T*-

"T td

The magnitude and scope of a pro4ect is generally defined by its ob4ectives. onstraints and

methodology that has adopted to analysis the information however the scope of the percentage

at macro level i.e., the overall performance of the )*"'"" )+T*- "T td.

RESEARCH 3ETHODOLO8Y$

To achieve a fore said ob4ective the following methodology has been adopted. The

information for this report has been collected through the primary and secondary sources


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19 PRI3ARY SOURCES2

/t is also called as first handed information the data is collected through the

observation in the organization and interviews with officials. %y asking questions with the

accountants and other persons in the financial department. "s part from these some

information is collected through the seminars, which are held by )*"'"" )+T*-

"T td

,9SECONDARY SOURCES$

These secondary data is e2isting data which is collected data by others that is sources

are financial 4ournals, annual reports of the )*"'"" )+T*- "T td, website and

other publications of )*"'"" )+T*- "T td

LI3ITATIONS OF THE STUDY$

• ack of awareness of power generating sets of )*"'"" )+T*- "T td

ack of time is another limitation factors the schedule period of a weeks are not


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sufficient to make the study independently regarding ratio analysis in )*"'""

)+T*- "T td

• The busy schedule of the officials in the )*"'"" )+T*- "T td is another

limiting factor. 5ue to the busy schedule of officials restricted me to collect the

complete information about organization.

• The study is conducted in a short period, which was not detailed in all aspects.

CHAPTER II

INDUSTRY :CO3PANY PROFILE


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The teel /ndustry dates back to the ancient times in "rmenia which is appro2imately around

three thousand and five hundred %efore hrist. The teel /ndustry in the modern times was

initiated during the medium half of nineteenth century 0during 6789s to be precise1. The

initiator of it was a person named #r. (enry %essemer of +ngland.

"t the same time, another person named #r. :illiam 'elly, a resident

of ;nited tates, has also started the production of steel and was completely an independent

approach from #r. %essemer. The process in which the first ever production of steel was

carried out came to be known as %essemer process. This helped the steel industries to produce

steel in large quantities and also at comparatively low costs.

The teel /ndustry was enriched and modernized through the introduction sawrapid innovations in the processes of steel production which got its impetus from the increased

want for steel from various industries namely, railway industry, automobile industry, industry

involved in construction of bridges, etc. 5uring this time period, the enhanced demand as well

as supply of steel pushed the ranking of ;" to the first position, in terms of the steel

production.

INDUSTRY PROFILE

INDIAN STEEL INDUSTRY PROFILE

The utilization of the -pen3(earth system of steel production continuedappro2imately from the year 6


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-2ygen )rocess came into e2istence which produces steel in a more quick and efficient

manner.The early 6


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significantly to conform to global standards.

/ndia has set a vision to be an economically developed nation. The steel industry is

e2pected to play a ma4or role in /ndia&s economic development in the coming years. The steel

industry of /ndia has a very high growth potential and is e2pected to register significant

growth in the coming decades. /ndia is e2pected to emerge as a strong force in the global steel

market in coming years.

The two ma4or aspects that are e2pected to play a significant role in the growth of

the steel industry in /ndia are

o "bundant availability of iron ore in the country

o The country has well established facilities for steel production. The ma4or sectors

where consumption of steel is e2pected to grow in the coming years areo (ousing

o Cround transportation

o (i3tech engineering industries such as power generation, petrochemicals, fertilizers.

This is much less compared to the global average of 6D9kg. The per

capita consumption level of developed nations like the ;nited tates of "merica is D99kg. /n

this respect, one of the ma4or initiatives that need to be taken is to focus on increasing the

consumption of steel in the rural areas of /ndia. The potential for the growth of consumption

of steel in the rural areas of /ndia for purposes like rural housing, rural infrastructure, etc is

high which needs to be tapped efficiently.

.

/n order to realize the growth potential in the steel industry of /ndia,

it is aspects in this regard is the availability of inputs. hortage of inputs like coke has led to

increase in costs earlier. #oreover proper infrastructure facilities like transport infrastructure,

power etc are of prime importance in maintaining the competitiveness of the industry. #ostdeveloped countries have regulations that are aimed to protect the domestic steel industry. The


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/ndian steel industry has comparatively much lesser protection through regulations. )roper

regulatory measures should be adopted by the government to protect the domestic steel

industry.

POSITION OF STEEL INDUSTRY

The steel industry in the world, which was characterized as a sunset

industry two decades ago, is e2periencing a vast change in scenario. The fast developing

hinese steel industry has far outstripped the world steel giants. ;nited tates, *ussia and

?apan, which were leading steel producers, are more in a position to claim that position.

hina producing less than a million tons of steel prior to revolution in 6998 the global steel production

stood at 66B> million tones, showing a rise of = percent over the last year. The countries in

outh "merica, / 0former oviet ;nion1 +urope and Eorth "merica have actually shown

negative growth. The "sian continent for the first time produced more crude steel than the rest

of the world combined.

#a4or shift has taken place because during >998 with hina producing

BD< million tons of steel, accounting for B> percent of the world steel production. 5uring

>998, hinese steel production increased by =< million tones i.e. by >8 percent. hinese steel

output was more than three times that of ?apan and four times of ;" during >998. )er capita

consumption of steel in the world was estimated to be 6@9 kg during the year >998. (owever

in /ndia it stood at only B8 kg during the same year. /ndian steel production was B7 million

tones, which accounted for only B.D percent of the world steel output. /n view of the fact that

/ndian population is 6=percent of the global population, the production of steel is much lower in /ndia.

"lthough /ndia is the second largest populated country in the world, it ranks

eighth in steel production. teel "uthority of /ndia td 0"/1 is ranking 6@ th among the

world&s largest steel producing companies.

.


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:ith staff competition in the global market, the formation of giant companies to

reduce cost and add to profitability has become the regular feature in the industry. #erger and

acquisitions have become the order of the day. The recent attempt of the #ittal teel to

acquire "rcelor, a u2emburg based +uropean company, if succeeds, will make #ittal teel

produce over 669 million tons of steel per year, i.e. about 69 percent of the global steel output.

8O7ERN3ENT POLICY

/n the new /ndustrial policy announced in ?uly, 6


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The floor price for seconds and defective continues till date. /mports of seconds and

defectives of steel are allowed only through three designated ports of #umbai, alcutta and

hennai.

#andatory pre3inspection certificate by a reputed international agency for

every import consignment of seconds and defectives. /n the union %udget >99@397 the import

duty on seconds and defective has been further reduced from >9G to 69G. /ndia is the fifth

largest producer of steel in the world. /ndia teel /ndustry has grown by leaps and bounds,

especially in recent times with /ndian firms buying steel companies overseas. with huge

demands for stainless steel in the construction of new airports and metro rail pro4ects.

INDUSTRY STATISTICS

Covernment targets to increase the production capacity from 8= million tones

annually to 6>D #T in the first phase which will come to an end by >966 3 6>. urrently with

a production of 8= million tonnes /ndia accounts for over @G of the total steel produced

globally, while it accounts to about 8G of global steel consumption. The steel sector in /ndia

grew by 8.BG in #ay >9999


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Hurd)!#

)ower shortage hampers the production of steel ;se of outdated process for

production ags behind in the production of stainless steel 5eficiency of raw materialsrequired by the industry abour productivity is low. /t is 6DD tons per worker per year against

=99 tons in :estern +urope as per estimates inadequate shipment capacity and transport

structure.

Str!n*t%#

There are many strong points of the industry that makes it one of the leading names

in the global steel industry. The rate of labor wage in /ndia is among one of the lowest in the

world thereby making large scale production feasible.

In"!#t(!nt#

Eumerous steel companies some ma4or pro4ects in the pipeline to invest in /ndia

teel industry. teel companies have earmarked more than 699 million ;5 for the setting up

of sponge iron units in 'oppel and %ellary in 'arnataka.

A5OUT

:e )*"'"" )+T*- "T0)1 T5 , an /- 997 certified company,

estd in 6


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:e are located in the most important 4unction in outh /ndia i.e., J/?"K":"5",

connecting south to the other parts in /E5/". -urs is an "ssociate concern of #L '*/TE"

+EC/E++*/EC :-*' one of the leading #anufacturers of the systems and spares for

ugar /ndustries, ement /ndustries, Thermal )ower )lants, #ining plants and other "llied

Industriesformorethan4decades.

:e at heart have a strong commitment to quality and progress enabling us

to keep up with Clobal developments in the field of astings. /n addition to satisfying the

demand for e2tending the types and dimensions of the castings produced, it does its utmost to

provide the best of the services.

Pr+>+#+ S'!ctro C+#t %+# #t+t!-o$-t%!-+rt (+nu$+cturin* !?ui'(!nt

+nd $+ci)iti!# to 'roduc! ?u+)it& #t!!) c+#tin*# #u'')&in* to )!+din* OE3S +nd 'ion!!r#

in Su*+r < C!(!nt< Po@!r 8!n!r+tion #!ctor# in Indi+ +nd +cro## t%! @or)d9 :e are

backed by our e2perienced professional work force comprising of highly skilled workmen and

engineers supported by most sophisticated machine tools meeting the customerIs requirement

in terms of quality, quantity and delivery9

PSC b!)i!"!# in !#t+b)i#%in* +nd (+int+inin* c)o#! +nd )on*-)+#tin* r!)+tion#%i' @it% it#

!(')o&!!#< cu#to(!r#< +nd t%! co((unit& in @%ic% it i# )oc+t!d9

P+tt!rn S%o'2

" team of e2perienced draftsmen and pattern makers work with e2pertise #ethodist on

pattern design and making, seeding the production of sound quality and dimensionally

accurate castings.


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5!+rin* P!d+#t+) 85 C+rri!r Turbin! Out!r C+#in*

3ou)din* +nd 3!)tin*2

l.Eo 5escription #akeL#odel izeLapacity Mty

6

#edium Frequency /nduction

Furnace 0:ith 5ual Track )ower

)ack of >>89':1

/nductotherm

"(#+5"%"5

0 3T , No#

>

#edium Frequency /nduction

Furnace 0:ith 5ual Track )ower

)ack of D89':1

/nductotherm

"(#+5"%"5> #T H 6#T

6 Eo

each

B#edium Frequency /nduction

Furnace 0)ower )ack of B999':1

/nductotherm

"(#+5"%"57#T > Eo

D ontinuous and #i2er :esman 6B #TL(r 6Eo

8 and #uller

J#+ Foundry

+quipment > #TL(r 6Eo

:e are equipped fettling tools like )neumatic chippers, grinders and a shot blasting machine

with chamber size of Dm N Dm

3ou)din* +nd 3!)tin*


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HEAT TREAT3ENT

l.Eo

5escription #akeL#odel izeLapacity Mty

6%ogie Type +lectric (eat Treatment

Furnace

?-#/E5 F;*E"+

%angalore

7 #T capacity

>.8 N > N 6.= #ts 0

N % N (1

6Eo

>%ogie Type +lectric (eat Treatment

Furnaceelf

D9 #T apacity

D.8 N = N B #ts6 Eo

B Trench for :ater Muenching@m 2 Dm 2 8m0depth1

pit

D Trench for -il Muenching0:ith (eat+2changer and ooling Tower1

>m 2 Bm 2 >m0depth1 pit

H!+t tr!+t(!nt i# c+rri!d out +# '!r t%! docu(!nt!d int!rn+tion+) St+nd+rd# or +# '!r

t%! c)i!nt r!?uir!(!nt +nd #'!ci$ic+tion9

%!+t 'i

3ACHINE SHOP 2

:e are very much pleased say that ma4or portion of our production is supplied in either proof

machined or finished machined condition. /n house we are equipped with most precesive

machinery with 5*-05igital *ead -uts 1 installed.


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l.Eo5escription #akeL#odel izeLapacity Mty

6 7& athe #achine 'irloskar .($>68mm

"%$6D>8mm6Eo

> 6>& athe 0(eavy 5uty1 #achine

igma #achine Tools,

%atala

.($ D78mm

"%$6=89mm >Eos

B 67& athe #achineigma #achine Tools,

%atala

.(.DB8mm,

"%$D699mm6Eo.

D 69& athe #achine #ysore 'irloskar .($>78mm

"%$>99mm6Eo.

8 7& )lanning #achine'amala #achine Tools,

%atala>D99mm stoke 6Eo.

= >D& haping #achine /mported =99mm stoke 6Eo.

@Jertical Turning athe 05ouble

(ead1/mported #a2imum 5ia


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#achine C+*#"EK #a2. ength$ D #.

67.P 6B9 pindle (orizontal %oring

#achine

("*#"EE,

C+*#"EK.

#a2. %ore 5ia$=99

mm

#a2.ength$6.> #.

6 Eo.

6< >D& haping #achine ooper ,Cermany 5ia$699mm 6 Eo

PLANO 3ILLER1 7TL1 7TL,

Su*+r 3i)) S'+r!#

:e are catering our services to all #a4or -+# and pioneers in ugar /ndustry in /ndia since

the last 68yrs. :e supply ma4or spares of the sugar mill from ane )reparatory +quipment ,

(ead tock , %earing (ousing "ssemblies to Trash )lates.

C+n! Cutt!r A##(b)& Sid! C+' A##(b)& Tr+#% 5!+( A##!(b)&

To'C+' A##!(b)&H!+dStoc>


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.

St!+( Turbin! C+#tin*#

:e manufacture team Turbine castings of various grades which are heat resistant and creep

resistant.

5!+rin* Hou#in*# 5!)) 3out% 895 C+rri!r

out!rc+#in*

PRABASASPECTROCAST PLTD9

PRABASH NA8AR< ENIBEPADU<

7I6AYAADA /,1 1=< INDIA9

)hone $ Q7D>@6=, >7D>76= ,>7D6@@B

Fa2$ Q7D6@@D.

+3#ail$ prakasaspectroRrediffmail.com


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CHAPTER-III

THEORETICAL ASPECTS OF RATIO ANALYSIS

3EANIN8 OF RATIO$

"ccording to accountant&s hand book by wi2on, kell and %edford “ a ratio is an e2pression of the

quantitative relationship between two numbers”.

" ration is a simple arithmetical e2pression of the relationship of one number to another. /t may

be defined as the indicated quotient of two mathematical e2pressions.

*atio provides clues by financial position of a concern. -ne can draw conclusions about

the e2act financial position of a concern with the help of ratios.*ation analysis is a technique of

analysis and interpretation of financial statements. /t is the process of establishing and

interpreting various ratios for helping in marking certain decisions.

PURPOSE OF RATIO ANALYSIS$

The ratio analysis is one of most power full tools of financial analysis it is used as a device to

analyze and interpret the financial health of enterprise. /t is used with the help of ratios that the

financial statements can be analyzed more clearly and decision made from such analysis.

%y the use of ratio analysis one can measure the financial conditions of

a firm and can point out whether the conditions is strong&s, good questionable or poor.

21


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3ANA8ERIAL USES OF RATIO ANALYSIS$

(elps in decision making.

(elps in financial forecasting and planning. (elps in communicating.

(elps in co3ordination.

(elps in control.

-ther uses.

INTER-FIR3 CO3PARISON$

*atios of one firm can also be compared with the ratios of some other selected firms in the same

industry at the same point of time. This kind of comparison helps in evaluation relative financial position and performance of the firm

.

LI3ITATIONS OF RATIO ANALYSIS$

*atio analysis is one of the most powerful tools of financial management. Through ratios are

simple to calculate and easy to understand, they suffer from some serious limitations.

imited use of a single ratio.

ack of adequate standards.

/nherent limitations of accounting. hange of accounting procedure.

:indow dressing.

)ersonal bias.

;n3comparable

"bsolute figures distortive.

)rice level changes.

*atios no substitutes.

CLASSIFICATION OF RATIOS$

The use of ratio analysis is not confined to financial manager only there are different parties

interested in the ration analysis for knowing the financial position of a firm for different

22


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purposes. /n view of various users of ratios, there are #ay tips of rations which can be calculated

from the information given in the financial statements. The particular purpose of the user

determines the particular ratios that might be used for financial analysis.

TYPES OF RATIOS2

everal ratios calculation from the accounting data can be grouped into various classes according

to the financial activities or function to be evaluated. The various parties that are generally under

taken financial analysis to measure solvency and profitability of the firm. #anagement is

interested in evaluating every aspect of all parties and see that the firm grows profitability. /n

view of the requirements of the various users of ratios, we may classify them into the following

four important categories.

6. iquidity ratios.>. everage ratios.B. "ctivity ratios.D. )rofitability ratio

iquidity ratio measures the ability of the firm to meet its current obligations analysis, if

liquidity needs the preparation of cash. %udgets and cash fund flow statement. %ut liquidity

ratios by establishing rotation cash an other current assets to current obligations provide a quick

measure of liquidity. " firm should ensure that it does not suffer from lack of liquidity, and also

that it is not too much highly liquid, and also that it is not too much highly liquid. The failure of

a company to meets it obligations due to lack of sufficient liquidity will result in bad credit

image. " very high degree of liquidity is also bad. /deal assets earn nothing. The firm&s funds

will be unnecessarily tied up in current assets. Therefore it is necessarily to strike proper balance

between liquid and lack of liquidity.

1 Li?uidit& r+tio#2 The most common ratios, which indicate the e2tent of liquidity or lack

of it, are.

a1 urrent ratio. b1 Muick of acid test or liquid ratio.c1 "bsolute liquid ratio or cash position ratio

23


24/63

a1 CURRENT RATIO$

Current ratio is the ratio, which express relationship between current asset

and current liabilities. Current asset are those which can be conerted into

cash within a short period o! ti"e, nor"all# not exceedin$ one #ear. %hecurrent liabilities which are short& ter" "aturin$ to be "et.

urrent assets $ current liabilities

urrent ratio may be defined as the relationship between current assets and current liabilities.

CURRENT ASSETS$

urrent assets are those assets which are converted in to cash easily or in short period.

CURRENT LIA5ILITIES$

urrent liabilities are those liabilities which are payable in a short period

The current ratio is measure of the firms short term solvency. " current ratio of >$6 usually

considered as ideal. /f current ratio is less then >, it indicates that the business does non en4oy

adequate liquidity however a current ratio is more then B, it indicates that the firm is having idealfunds and as not invested them properly. "s a conventional rule, a current ratio of > of 6 or more

is considered satisfactory. The current ratio represents a margin of safety for credits.

Muick ratioLacid test ratioLliquid ratio$

24

urrent assets

urrent ratio S ......

urrent liabilities


25/63

Muick ratio is used as a measure of the company&s ability to meet its current obligations. This

ratio is calculated as supplanted as supplement to the current ratio in analyzing the liquidity of

the firm. This can be calculated as$

Muick asset$ current assets 3 0stockQprepaid1

Muick liabilities$ current liabilities3 0stockQbank overdraft1

" normal standard of 6$6 acceptable quick ratio. " very high or very low ratio is not desirable. /t

is used to measure the ability of the company meet its liabilities at short notice.

"1 A5SOLUTE LIGUIDITY RATIO OR CASH RATIO OR SUPER GUICB RATI-$

"bsolute liquidity ratio is also be calculated together with current ratio and acid test ratio as to

e2clude even receivables from the current assets and find out the absolute liquid assets

0-r1

25

Muick assets

Muick ratio S ..

Muick liabilities

"bsolute liquid assets

"bsolute liquid ratioS urrent liabilities

ash Q short3term securities

ash ratio S

urrent liabilities


26/63

"bsolute liquid assets S cash in hand Q cash at bank Q short3term investments.

The acceptable norm per this ratio of 89G or 9.8$6 0or1 6$>.

, C+'it+) Structur!L!"!r+*! R+tioLon*-T!r( So)"!nc& R+tio2

The long term financial stability of firm is considered as dependent upon its ability indicate the

relative&s interests of owners and creditors in a business. The ratios, which are measuring the

long3term solvency, are$

a1 5ebt3equity ratio. b1 hare holder&s equityLproprietor&s ratioLequity ratio.c1 apital gearing ratio.d1 Fi2ed asset turnover ratioe1 /nterest coverage ratio.

A DE5T-EGUITY RATIO$

5ebt3equity ratio indicates the relationship between long3term debts and share holders funds. /t

helps in knowing the soundness of the long3term financial policies of a company. /n refle2 therelative&s clime of creditors and share holders against the assets of the business. /t is calculated

as$

26

ong term debt

5ebt3equity ratio S .

hareholder&s funds


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ong3term liabilities S long3term debtQdebenturesQother long3term liabilities

hare holders fundsS equity share capital Q preference share capital Q reserves U fictitious assets.

The ideal ratio is >$6.

5 PROPRIETARY RATIO$

The proprietary ratio is also known as equity ratio or share holders to total equity&s ratio or net

worth to total assets ratio. This ratio establishes the relationship between share holders fund to

total assets of the firm is calculated as$

Eet worth S shareholders funds

Total assets S fi2ed assets Q current assets

" high proprietary ratio indicative of strong financial position of business. The higher the ratio,

the better it is.

C CAPITAL 8EARIN8 RATIO2

apital gearing ratio determines the future financial structure pf the business. " company that is

highly geared will have to raise funds by issuing fresh equity funds, where as a lowly geared

company would find with attractive to raise funds by way of term loans and debentures. it is

calculated by the following formulae$

27

Eet worth

)roprietary ratio S

Total assets

5ebentures Q term loans Q preference share capital

apital Cearing *atio S 33333333333333333333333333333333333333333333333333333333333333333333

+quity share capital Q reserves U fictitious assets


28/63

D FIXED ASSET TURNO7ER RATIO$

This ratio indicates the mode of financing. The fi2ed assets. /t is calculated as$

apital employed S equity share capital Q preference share capital Q reservesQ long termliabilities U fictitious assets.

6.=@ s considered as ideal.

E INTEREST CO7ERA8E RATIO$

%he interest coera$e ratio is a 'nancial ratio that "easures a co"pan#(s

abilit# to "a)e interest pa#"ents on its debt in a ti"el# "anner. *nli)e the

debt serice coera$e ratio, this li+uidit# ratio reall# has nothin$ to do with

bein$ able to "a)e principle pa#"ents on the debt itsel!. nstead, it

calculates the 'r"(s abilit# to a-ord the interest on the debt.

28

Eet ales

Fi2ed asset turnover ratio S 333333333333333333333333333333

era$e /ixed

+%/T 0+arnings before /nterest H Ta21

/nterest coverage ratio S 33333333333333333333333333333333333333333333333

/nterest e2penses

http://www.myaccountingcourse.com/financial-ratios/http://www.myaccountingcourse.com/financial-ratios/debt-service-coverage-ratiohttp://www.myaccountingcourse.com/financial-ratios/debt-service-coverage-ratiohttp://www.myaccountingcourse.com/financial-ratios/


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This ratio is of = is normally considered as ideal.

ACTI7ITY RATIO TURNO7ER RATIO$

"ctivity ratios measure how efficiency the firm employees its resources. These ratios involve

comparison between the level of sales and investment it various accounts such as inventories,

debtors, creditors, fi2ed assets etc., activity ratios are used to measure the speed with which

various accounts are converted in to sales are cash.

+very turn over ratio is calculated by dividing cost of goods sold of net sales by respective

account and each ratio gives the speed in which it turns cash or sales.

Co#t o$ *ood# #o)d c9*9# #+)!# *ro## 'ro$it

The ma4or turn over ratios is$

a1 /nventory turnover ratioLstock turnover ratio. b1 5ebtor&s turnover ratio.c1 reditor&s turnover ratio.d1 apital turnover ratioe1 :orking capital turnover ratio

f1 Fi2ed assets turnover ratiog1 Total assets turnover ratio

"1 IN7ENTORY TURNO7ER RATIO$

/nventory turnover ratio indicates the number of times the stock has been turn over during the

paid evaluates the efficiency with which a firm is able to manage its inventory.

29

ost of goods sold

/nventory turnover ratio S 3333333333333333333333333333333333

"verage inventory

-perating stock Q closing stock

"verage inventory S 33333333333333333333333333333333333333

>


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Not! $3 6. .g.s is not known, sales may be taken as c.g.s.

>.if opening stock and closing stock are not given, the given stock is treated as average stock.

>. " stock turnover ratio of 7 is considered ideal. " high stock turnover ratio indicates that

the stocks are fast moving and get converted into sales quickly.

%1 DE5TORS TURNO7ER RATIO$

5ebtor&s turnover ratio indicates the velocity of debt collection of a firm. /n indicates the number

of times the number of debtors turns over a year. 5ebtors turn over ratio the relationship between

debtors and sakes. This can be calculated by the following formulae.

Not!$

6. 5ebtor&s turnover ratio of 69 to 6> is an ideal.>. 5ebtors include bills receivables.B. " high debtors turnover ratio or low debt collection period is indicative of sound credit

management policy

30

Eo. of days in the year

tock conversion period S 333333333333333333333333333

tock turnover ratio

Eet credit sales

5ebtors turnover ratio S 33333333333333333333333333333333333

"verage debtors

-pening debtors Q closing debtors

"verage debtors S 33333333333333333333333333333333333333

>


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5ebt collection period of >B>, B= days is considered ideal.

1 DE5TORS TURNO7ER RATIO$

reditor&s turnover ratio e2presses the relationship between creditors and purchases. /t is

calculated as follows$

Not!$6. reditors include bills payable.>. reditor turnover ratio of 6> of more is an ideal.

5ebt payment period of B9 or less no. of days is not better indication.

51 CAPITAL TURNO7ER RATIO$

31

Eo. of days in a year 5ebt collection period S 3333333333333333333333333333 5ebtor&s turnover ratio

Eet credit purchasesreditors turnover ratio S 3333333333333333333333333333333 "verage creditors

-pening creditors Q closing creditors"verage debtors S 3333333333333333333333333333333333333

>

Eo. of days in a year

5ebt payment period S 3333333333333333333333333333333333333

reditor turnover ratio


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/t is used to show how the capital employed is efficiency used in the business. /t indicates the

firms& ability to generate sales per rupee capital employed.

apital employed S long3term funds Q reserve and surpluses Q preferential share capital Q equity

share capital.

+1 ORBIN8 CAPITAL TURN O7ER $

:orking capital is concern is directly related to sales. The current assets like debtors, builds

receivables, cash, stock etc., changing with the increase are decrease in sales. This ratio e2plains

the relationship between c.g.s to working capital.

:orking capital S current assets3 current liabilities

Not!$

" high working capital turnover ratio indicates efficient utilization of funds.

F1 FIXED ASSETS TURNO7ER RATIO$

This ratio e2plains the relationship between net sales to fi2ed assets. This can be calculated by

the following formulae.

32

Eet sales

apital turnover ratio S 3333333333333333333333333333

apital employed

ost of goods sold

:orking capital turnover ratio S 3333333333333333333333333333

:orking capital


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Not!2

This ratio of 8 is considered as ideal a high fi2ed assets turnover ratio indicates better utilization

of the firms fi2ed assets.

C1 Tot+) +##!t# turno"!r r+tio$

This ratio e2plains the relationships between net sales to total assets. This can be calculated by

the following formulae

Total assets S fi2ed assets Q current assets

PROFITA5ILITY RATIOS$

)rofitability ratios measure the profitability of a concern. Cenerally they are calculated in

relation to sales or in relation to investments. The various profitability ratios are discussed under.

/n relation to sales

". Cross profit ratio.%. Eet profit ratio.. -perating ratio.5. -perating profit ratio.+. +2penses ratio.

33

Eet sales

Fi2ed assets turnover ratio S 33333333333333333333333333333333

Fi2ed assets

Eet sales

Total assets turnover ratio S 333333333333333333333333333333333

Total assets


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"1 8ROSS PROFIT RATIO$

Cross profit ratio measures the gross margin on total net sales of a company. This ratio measures

the efficiency of company&s operations and can be used to compare with previous year&s results.

(igh the gross profit ratio better is for the company.

Cross profit S net sales U cost of goods sold

c.g.s S opening stock Q purchases U closing stock

Eet sales S sales U sales returns

Not!2

There is no ideal gross profit ratio is higher the ratio, the better will be the performance of the

business.

%1 NET PROFIT RATIO$

This ratio is designed to focus attention on the net profit margin arising from business operations

after interest and ta2.

Eet profit S earnings after ta2 and interest.

Eet profit S gross profit Q 0office and administrative e2penses Q selling H distribution e2penses

Q financial e2penses1

There is no ideal ratio, the higher the ratio more profitable is the business.

34

Cross profit

Cross profit ratio S 3333333333333333333333333333 2699

Eet sales

Eet profit

Eet profit ratio S 33333333333333333333 2 699

Eet sales


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1 OPERATIN8 RATIO$

-perating ratio establishes the relationship between cost of goods sold and other operation

e2penses on the one hand and the sales on the other.

0-r1

-perating cost S c.g.s Q office and administrative e2penses Q selling H distribution e2penses.

" low operating ratio is an indication of operating efficiency of the business low the, the better it

is.

51 OPERATIN8 PROFIT RATIO$

/t establishes the relationship between operating profit and sales. /t can be calculated by the

following formulae.

0or1

35

-perating ratio

-perating ratio S 33333333333333333333333 2 699

Eet sales

ost of goods sold Q operating e2penses

-perating ratio S 333333333333333333333333333333333333333333333332 699

Eet sales

-perating profit

-perating profit ratio S 33333333333333333333333333333333 2 699

Eet sales


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Not!2

The higher the ratio, the better it is

+1 EXPENSES RATIO$The expense ratio is a measure of what it costs an investment

company to operate a mutual fund. An expense ratio is determined

through an annual calculation, where a fund's operating expenses

are divided by the average dollar value of its assets under

management. Operating expenses are taken out of a fund's assets

and lower the return to a fund's investors.

36

-perating profit ratio S 6993 -perating

)articular e2pense

+2penses ratio S 3333333333333333333333333333333 2 699

Eet sales

Factory e2penses

e.g. factory e2penses ratio S 333333333333333333333333333333333333 2 699

Eet sales

http://www.investopedia.com/terms/i/investmentcompany.asphttp://www.investopedia.com/terms/i/investmentcompany.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/o/operating_expense.asphttp://www.investopedia.com/terms/a/aum.asphttp://www.investopedia.com/terms/a/aum.asphttp://www.investopedia.com/terms/i/investmentcompany.asphttp://www.investopedia.com/terms/i/investmentcompany.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/o/operating_expense.asphttp://www.investopedia.com/terms/a/aum.asphttp://www.investopedia.com/terms/a/aum.asp


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CHAPTER - 7

DATA ANALYSIS

AND

INTERPRETATION

CURRENT RATIO$

The current ratio is calculated by dividing current assets with current liabilities. /t is a measure of

firm&s short term solvency. "s rules a current ratio of >$6 is satisfactory.

urrent assets

urrent ratio S 3333333333333333333333333333333

urrent liabilities

The following table shows the position of current ratio of the E during the period of >998366.

Kears urrent assets urrent liabilities *atio

>99739< >>[email protected] 6@7DD@.


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>99D=BD@=B8 667@@=.6D >.97

>96636> >@>D86.@7 [email protected] >.B8

>96>36B >=9==7. 689676.87 6.@B

>96B36D >79>8>


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INTERPRETATION$

• "ccording to the above table, the current ratio of E is almost satisfactory operations.

• 5uring the year >9973>99B which is not satisfactory but in the

later stage the current ratio is improve, which is an indication for satisfactory operation of

the firm.

• /n the year >9999739.97 which shows the better performance of the

firm and in the year >99739< it ratio increases to >.B8.

• %ut in the year >999999739< >99969366 >96636> >96>36B >96B36D

Muick

assets

6.98 >8B>9=.@D >>>8=B.D666BBB899.DD68 >8D68=.>=

urrent

liabilities

6@7DD@.= 6.7@B7 >.97B889

table 8.>

GUICB RATIO 8RAPH$

39


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0

500000

1000000

1500000

2000000

2500000

uic) assets

Current liabilities

uic) ratio

Figure 8.>

INTERPRETATION2

• /f we observe the above analysis it is clear that the liquidity position of the E is

satisfactory.

• 5uring period >9973999=39@ its ratio is

6.86>= which is an indication that the firm is liquid and has the ability to meet its currentor liquid liabilities.

• 5uring the year >9999739< its ratio is

increased to >.97 and in the year >99


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The following table shows the position of absolute liquid ratio of E during the period of

>99736D.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

"ll assets D=89>.>@ 6=76.D8 @9@>.D@ [email protected]< B.6Durrent

liabilities

6@7DD@.<

7

6=@B8>


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• /n the year >99739=6. and in the year >99969366 the absolute liquidity ratio is 9.96D>, in the year >9973

9< the absolute liquidity ratio is 9.9=66 and in the year >99D@.

• From the above analysis from the year >969366, the absolute liquidity is very low i.e.

absolute liquidity assets are very low compared to current liabilities.

• The reason is E is not maintained the cash balances all the payment is done through

the apseb.

ACTI7ITY RATIO OR TURNO7ER RATIO$

"ctivity ratio measure how efficiency the firm employees its resources. These ratio involved

comparison between the levels of sales and investment in various accounts such as inventories,

debtors, creditors, fi2ed assets etc. activity ratio are measure the speed with which various

accounts are converted into sales and cash.

+very turnover ratio is calculated by dividing cost of goods sold or net sales by respective

account and each ratio gives the speed in which it turns cash or sales.

AIN7ENTORY TURNO7ER RATIO$

/nventory turnover ratio indicates the efficiency of the firm in selling its products. /t is calculated

by dividing the sales by the average inventory.

ost of goods sold

/nventory turnover ratio S 3333333333333333333333333333333333 "verage stock

The following table shows the position of inventory turnover ratio of the E during the period

of >99736D.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

c.g.s >[email protected]= >9>BD>.=8 >68=87.>D >98=D6.9= >>9>6=.8D >D


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"vg.

stock

>9=>9.6= >7@>7B6.=< >7778.D7 >=>B


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• %y over all conclusion the selling process of E is not in a satisfactory position

IN7ENTORY CON7ERSION PERIOD$

Eo. of days in a year

/nventory conversion period S 33333333333333333333333333333333333333

tock turnover ratio

The following table shows the position of inventory conversion ratio of the ) during the

period >99=366

)articulars >99739< >99969366 >96636> >96>36B >96B36D

Eo. of

days in a

year

B=8 B== B=8 B=8 B=8 B==

i.t.r B 86.>=


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IN7ENTORY CON7ERSION PERIOD 8RAPH$

0

50

100

150

200

250

300

350

400

o. o! da#s in a #ear

i.t.r

i.c.p

Figure 8.8

INTERPRETATION$

• 5uring the year >99739


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• 5uring the year >99@9 and stock conversion period

is 8>.9@.

• 5uring the year >969366, the stock turnover ratio is 96636> the stock turnover ratio is @.669> and stock conversion period is

86.>=.

• /f we observe the above analysis, the stock turnover ratio is high during the periods >9973

999969366 and slightly low during the periods.

DE5TORS TURNO7ER RATIO$

Eet credit sales

5ebtors turnover ratio S 33333333333333333333333333333

"vg. debtors

The following table shows the position of debt turnover ratio of the E during the period of

>99=366

)articulars >99739< >99969366 >96636> >96>36B >96B36D

n.c. sales D9


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0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

n.c. sales

a. ebtors

ebtors turnoer ratio

Figure 8.=

INTERPRETATION$

• 5uring the year >9973999.67@=.

• 5uring the year >969366, the debtor&s turnover ratio is >.9D=B.

• 5uring the year >96636> the debtors turnover ratio is 6.96>36B the debtors turnover ratio is >.8>6=

• 5uring the year >96B36D the debtors turnover ratio is B.9=@>

DE5T COLLECTION PERIOD$

Eo. of days in year

5ebt collection period S 333333333333333333333333333333333

5ebtor&s turnover ratio

The following table shows the position of debt collection period of the E during the period of

>99=366.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

47


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Eo. of days

in a year

B=8 B== B=8 B=8 B=8 B==

d.t.r B.8@=7 9.D8@6 >.9D=B 6..8>6= B.9=@>

d.c.p 69>.9D=8 [email protected] [email protected]@9@ 67=.@


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/f we observe the above analysis, the debtors turnover ratio in the year >99739< is B.8@=, in the

year >99739< the ratio is decreased to 9.D8@6 again in the year >969366 the ratio is increased to

>.9D in the year >99.8>6=.

The debt collection period in the year >99.9D and in the year >969366, it is [email protected] in

the year >9973999@397, it is 67=.@< and

in the year >99739 D.B< B.BD>6

Table 8.=

49


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CREDITORS TURNO7ER RATIO 8RAPH$

0

50000

100000

150000

200000

250000

n.c. purchases

$. creditors

Creditors turnoer

ratio

DE5T PAY3ENT PERIOD$

reditor turnover ratio e2penses the relationship between creditors and purchases

Eo of days in year

5ebt payment period S 333333333333333333333333333333333333

reditor&s turnover ratio

The following table shows the position of debt payment period ratio of the E during the

period of >99=3>966

.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

Eo of days

in a year

B=8 B== B=8 B=8 B=8 B==

c.t. ratio 6.@>78 6.=>>> D.B< B.BD>@

d.p.p >66.6=8 >88.=D@ 7B.966 @9.


51/63

0

50

100

150

200

250

300

350

400

o o! da#s in a #ear

c.t. ratio

d.p.p

Figure 8.7

INTERPRETATION TO CREDITORS TURNO7ER RATIO2

/n the year >99839= ratio is >66.6=8 and debt payment is >66.6=8, in >99=39@ is >88.=D@ and

>>8.=D@9 in >99@397 it is D.B99739


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/ % %* : %

0

0.1

0.2

0.3

0.4

0.5

0.6

Figure 8.<

INTERPRETATION2

• /n the year >99739, the fi2ed assets turnover ratio is 9.D@696>36B, the fi2ed assets turnover ratio is 9.8D8 years.

TOTAL ASSETS TURNO7ER RATIO$

The ratio e2plains the relationship between the net sales to total assets

Eet sales

Total assets turnover ratio S 33333333333333333333333333333333

Total assets

The following table shows the position of total assets turnover ratio of the E during the period

of >99=369

.

)articulars >99739< >99969366 >96636> >96>36B

52


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Eet sales D99 9.D9

Table 8.<

TOTAL ASSETS TURN O7ER RATIO 8RAPH$

2008&092009&102010&112011&122012&13

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

t.a.t.r

%otal assetset sales

Figure 8.69

INTERPRETATION2

• /n the year >997399996636>, the total assets turnover ratio is 9.B8D>.• /n the year >96>36B, the total assets turnover ratio is 9.D9.

• From the above analysis total assets turn over ratio is slightly increased.

• The total assets turnover of 9.D9 implies that companies generates to sales *s. 9.D9

for 6 rupee investments, fi2ed and current assets together.

53


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PROFITA5ILITY RATIOS$

The profitability ratios measure the overall performance and effectiveness of the firm.

)rofits are the difference between revenue and e2penses over a period of times. -wens want toget required rate return on their investments. This is possible only when the company earns

enough profits. The company should earn profit to survive and grow over a long period of time.

Cenerally two ma4or types of profitability ratios are calculated.

• )rofitability in relation to sales

• )rofitability in relation to investment

0"1 8ROSS PROFIT RATIO$

Cross profit ratio measures the gross margin on total net sales of a company. This ratio measures

the efficiency of companies operations. There is no ideal ratio, higher gross profit ratio, better is

for the company.

Cross profit

Cross profit ratio S 3333333333333333333333333333333333 2699

Eet sales

The following table shows the position of gross profit ratio of E during the period of >99=366.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

Cross

profit

>9B789D=D7.>9 >999@6=@D>.>=

54


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Eet sales D9=D D=.7BBD D@.>7B7 D=.B=B7

Table 8.69

8ROSS PROFIT TURNO7ER RATIO 8RAPH$

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

;ross pro't

et sales

$.p.r

Figure 8.66

INTERPRETATION$

• From the above analysis, the gross profit ratio is high during the year >99@397! it is

89.>7B> which indicate satisfactory performance.

• The ratio during the year >99@397 and >99739< is also satisfactory.

• %ut in the year >99739997

respectively.

NET PROFIT RATIO$

This ratio is designed to focus attention on the net profit margin arising from business operations

after income ta2. Their is no ideal ratio, the higher the ratio more profitable is the business.

Eet profit

55


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Eet profit ratio S 33333333333333333333333333 2 699

Eet sales

The following table shows the position of net profit ratio of the E during the period of >99=3

66.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

Eet profit [email protected] 69D8.7@ 86=B.79 3=B9B. 6D> 36.=>< B.=6 D.>>@@

T+b)! /911

NET PROFIT RATIO 8RAPH2

&100000

0

100000

200000

300000

400000

500000

et pro't

et sales

n.p.r

56


57/63

Figure 8.6>

INTERPRETATION2

• To observe the above table, the net profit is high during the year >99969366 it become negative profit and the ratio during the years >99739< and

>9999=3

66.

)articulars >99739< >99969366 >96636> >96>36B >96B36D

Eet profit >=68@B>D.=D89B.9D >DB@D@=D.=6 B8688=.7@

Eet sales D9= 8D.687 =8.@@D @8.>9>

57


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T+b)! /91,

OPERATIN8 RATIO 8RAPH$

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

et pro't

et sales

o.p.r

Figure 8.6B

INTERPRETATION2

• From the above analysis the operating ratio is high during the year >9999739< and >99969366 ratio is decreased 8D.6D7 to compare to all the years.

58


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CHAPTER 7

FINDIN8S : SU88ESTIONS

:

CONCLUSIONS

FINDIN8S

• The organization )*"'"" )+T*- "T td which works under *# is

basically service oriented organization. /t is not established to earn large profit i.e., #oto

is not to earn profits but to provide service to the customer.

• There was good development in the current ratio by the efficient working of the

management.

• There was good development in the quick ratio of the firm with fast paying debtors.

59


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• There is need to concentrate on the areas like absolute liquid ratio and e2penses ratio

where e2penses are more compared to sales.

• The firm was improved its debtors turnover ratio, creditors turnover ratio, fi2ed assets

turnover ratio and total assets turnover ratio.

• The stock turnover ratio of the firm is satisfactory where stocks are getting converted into

sales quickly.

• The working capital ratio of the form / low, which indicates inefficient utilization of

working capital.

SU88ESTIONS

• ince the organization is mainly concentrated on services rather then profit it has to be

improved in some areas like absolute liquid ratio, e2penses ratio, debtors turnover ratio,

total assets turnover ratio, working capital ratio etc.

• /t is advised for the company to maintain the same level of current ratio&s as it obtained

in >969366 i.e., >.B8.

• The management is suggested to maintain the absolute liquid assets to the e2tension and

when the necessity arises to pay short term obligation in time.

• /t is to be suggested to the firm to increase the debtor&s turnover ratio in succeeding

years by increasing the quality trade debtors leading to sales promotion in the product of

the firm and increasing the liquidity position of the concerns.• The management is suggested to improve creditors turnover ratio and fi2ed assets

turnover ratio. The firm&s fi2ed assets have to be utilized efficiently.

• /t is to be suggested that the firm should maintain the sufficient level of assets to its

turnover by that it can be in satisfactory position.

60


61/63

• /t is to be suggested to the firm to maintain the greater value of working capital turnover

ratio as the management of working capital is regarded as the very important element.

CONCLUSION

The financial statements analysis provides a clear3cut picture about the financial position,

profitability, liquidity, solvency and the application of the financial sources of an organization.The financial management has to formulate wide varieties of plans and policies regarding total

assets and total liabilities with respect to the movements. The financial management is also

called as the custodian of financial resources of the investors. Therefore the financial

management should take care of the all available resource and make them into real and e2act

application. The financial department is also a “watch dog” or “a police” for the financial

resource, which are invested by the company into different ventures and portfolios and invested

by different public.

(ence, the financial statement analysis acts as a supplier in distribution of all inputs which are

playing a vital role in the managerial decision marking. The organization is the composition of

different departments such as marketing, human resource, production etc., however the activities

of all the depts. "re resolve around the financial department. The financial department is

61


62/63

concluded as an important wing in the organization through its distinct nature e2plained by the

financial statements analysis

CHAPTER 7I

5I5LIO8RAPHY

61 .n.maheswari. #anagement accounting and financialontrol

>1 *.k.sharmaHsashi k gupta.. #anagement accounting

B1 #.y.khanHp.k.4ain financial management

D1 )rassana handra

financial management81 "nnual reports of “)*"'"" )+T*- "T td” 0>969 366to >96D3681

62


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hari krishna 14aj1e0051

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