a study of financial performance through ratios

7/31/2019 A Study of Financial Performance Through Ratios

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CHAPTER. 1

INTRODUCTION


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the enterprise dynamic. No business, whether big, medium or small can be started

without an adequate amount of finance. Right from the very beginning, i.e. conceiving an

idea to business, finance is needed to promote or establish the business, acquire fixed

assets, make investigations such as market surveys, etc. develop product, keep men and

machine at work, encourage management to make progress and create values. Even an

existing concern may require further finance for making improvements or expanding the

business.

The scope of finance involves shaping the fortunes of the enterprise as it involves the

most vital decisions of allocation of capital. A broad and farsighted outlook has to be

taken into consideration to ensure the funds of the enterprise are utilized in the most

efficient manner. Financial decisions have far reaching consequences for the firm because

they influence the size, profitability, growth, risk, and survival of the firm.

1.2Finance Function

Finance function is the most important of all business functions. It remains a focus of all

activities . It is not possible to substitute or eliminate this function because this business

will close down in the absence of finance. He need for money is continuous. It start with

the setting up an enterprise and remains at all the times. The development and expansionof business rather needs more commitment for funds. The funds will have to be raised

from various sources. The sources will be selected in relation to the implications attached

with them. The receiving of money is not enough.. its utilization is more important. The

money once received will have to be returned also. If its use is proper then its return will

be easy otherwise it will create difficulties for repayment. The management should have

an idea of using money profitably. It may be easy to raise funds that it may be difficult to

repay them. The inflows and outflows of funds should be properly matched.


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The basic functions of finance are:

1. Establishing assets management policy: The finance functions are concerned with

the control of the cash flows in order to estimate and arrange for cash requirements of anenterprise. The formation of sounds and consistent assets management policies is an

indispensable pre-requisite to successful financial management.

2. Estimating and controlling cash flows and requirements: The prime responsibility

of finance function is to see that an adequate supply of cash is on hand at the proper time

for smooth flow of operations of the company. Since flow of cash originates in sales and

cash requirements are closely related to the volume of sales, the fulfillment of he

responsibility of providing cash in the proper amount at the proper time requires

forecasting.

3. Investments decisions or capital budgeting: It involves the excisions of capital

commitment of long term assets that would yield benefits in future. The significant aspect

of investments decisions is task of measuring the prospective profitability of new

investment.

4. Financing decision: It includes where and how to require funds to meet the firms

investments needs. It determines the proportion of equity and debt that is the capital

structure of the firm in such a way as to obtain the best financing mix or the optimum

capital structure.

5. A proper trade- off must be achieved between profitability and liquidity . The

current assets should be invested in such a way that the funds would be made available

when needed. A firm performs finance functions simultaneously and continuously in the

course of business.


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Financial Statement

Finance statement is a collection of data organized according to logical and consistent

accounting procedures. Its purpose is to convey an understanding of some financial

aspects of a business firm. It will show a position at the moment in time, as in the case of

a balance sheet, or may reveal a serious of activities over a given period of time, as in the

case of an income statement. The term financial statement refers to the two statements:

1. The position statement or the balance sheet

2. The income statement or the profit and loss account.

Financial statements are also called as financial reports. In the words of Anthony

financial statements, essentially are interim reports, presented annually and reflector

division of the life of an enterprise into more or less arbitrary accounting period more

frequently a year.

1.3Nature of financial statement

1. Recorded facts: The term recorded facts refers to the data taken out from the

accounting records. The figures of various accounts such as cash in hand, cash at

bank, bills receivables, sundry debtors, fixed assets etc.

Are taken as per the figures recorded in the accounting books.

2. Accounting conventions: Certain accounting conventions are followed while

preparing financial statements. The convention of valuing inventory at cost or market

price, whichever is lower is followed .The use of accounting conventions makes

financial statements comparable, simple and realistic.

3. Postulates: The accountant makes certain assumptions while making accounting

records. One of these assumptions is that the enterprises treated as a going concern.

This assumption is also known as realization postulate.


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1.6Uses of Financial Statement

The financial statement are mirror which reflects the financial position and operating

strength or weakness of the concern. The number of persons are interested in the analysisof the financial statement of a concern for assessing its financial conditions in terms of

profitability, liquidity or solvency.

1. Management: The financial statements are useful for assessing the efficiency for

different cost centers. The management is able to exercise cost control through these

statements. The efficient and inefficient spots are brought to the notice of the

management. The management is able to decide the course of action to be adopted in

the future.

2. Creditors: Creditors are interested in the financial position of the purchasing concern

to ascertaining its short term liquidity position.

3. Bankers : The bankers is interests to see that the loan amount is secure and the

customer is also able to pay the interest regularly. The banker will analyze the

balance sheet to determine financial strength of the concern and profit and loss

account will also be analyzed to find out the earning position.

4. Inventors: The investors include both short term and long term investors. They are

interested in the security of the principal amount of loan and regular interest

payments by the concern.

5. Government: The financial statements are used to assess tax liability of business

enterprise. These statements enable government to find out whether business is

following various rules and regulations or not. These statements also become a base

for framing and amending various laws for the regulation of business.

6. Trade association: These associations provide service and protection to the

members. They may analyze the financial statements for the purpose of proving

facilities to these members.

7. Stock exchange: The stock exchanges deal in purchase and sale of securities of

different companies. The financial statements enable the stock brokers to judge the

financial position of different concerns.


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1.7Financial statement Analysis:

The term financial analysis also known as analysis and interpretation of financial

statements refers to the process of determining financial strengths and weaknesses of the

firm by establishing strategic relationship between the items of the balance sheet, profit

and loss account and other operative data.

In the words of Myers financial statement analysis is largely a study of relationship

among the various financial factors as disclosed by a single set of statements, and a study

of trend of these factors as shown in a series of statements.

Steps involved in the analysis of financial statement are:

1.Analysis:Analysis of the financial statements means splitting up or re-grouping of the figures in the

financial statement and the desired homogenous and comparable of the data found in the

financial statements into groups of few principle elements according to their resemblance

and affinities and presenting them in the form most convenient for interpretation.

2. Comparison:

More splitting or re-grouping of the figures found in the financial statements into the

desired component parts is not sufficient for judging the profitability and the financial

statements are dissected or split into the required comparable component parts.

The comparable components parts must be compared with each other and their relative

magnitudes must be measure.

3. Interpretation:

After the financial statements are analyzed or dissected into comparable component parts

and their relative magnitudes of the comparable component parts is measured through


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comparison, then the results means the formation of rational judgement and drawing of

proper conclusions about the progress.

Objectives of analysis and interpretation of Financial Statements;

1) To determine the progress of a concern.

2) To measure the operational efficiency of the concern.

3) To Judge the financial position of the concern.

4) To ascertain the future prospects of the concern.

1.8Types of Financial Analysis

A.On the basis of material used

External analysis: This analysis is done by outsiders who do not have accessto the detailed internal accounting records of the business firm. The outsiders

include investors, creditors, government agencies and general pubic.

Internal analysis: The analysis conducted by persons who have access to the

internal accounting records of a business firm is known as internal analysis.

Such an analysis can be performed by executives and employees of the

organization as well as government agencies which have statutory powers

vested in them.

B.On the basis of Modus Operandi

Horizontal analysis: It refers to the comparison of financial data of a

company for several years. The figures for this type of analysis are presented

horizontally over a number of columns. The figure of the various years are

compared with standard or base year. Comparative statements and trend

percentages are two tools employed in horizontal analysis.

Vertical analysis: It refers to the study of relationship of the various items in

the financial statements of one accounting period. In this type of analysis the

figures from financial statement of a year are compared with a base selected

from the same years statements. It is also known as static analysis.


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Common size financial statement and financial ratios are the two totals

employed in vertical analysis.

1.9Tools, Techniques or Methods of FinancialAnalysis:

The analysis interpretation of financial statements is used to determine the financial

position and results of operations s well .A number of methods or devices are used to

study the relationship between different statements.

The important methods of financial analysis are:

1) Comparative statement analysis

2) Common size statement analysis

3) Trend analysis

4) Cash flow analysis

5) Funds flow analysis

6) Ratio analysis

Comparative statement analysis:

In this technique, the statement are prepared to examine and compare the assets,

liabilities, incomes and expenses at the current year with the previous year. These

statements exhibit the magnitude and direction of changes the operating results and the

financial status of an enterprise. It provides columns to indicate the changes in absolute

terms and also in percentage terms.

Common size statement analysis:

In this technique, the statement are prepared to examine the changes that have taken place

year after year in relation to total assets, total liabilities and net sales that is each item of

asset is expressed as a percentage of the total assets and each item of liability is expressed

as a percentage of total liability.

Trend analysis:


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It helps in identifying the direction in which the organization is moving .It involves the

ascertainment arithmetical relationship of each item of several years with the same of

base year.

Cash flow analysis:

It refers to the analysis of changes in the financial position of a firm of cash. Cash flow

statement explains the changes in cash position between two account periods. The term

cash in the cash flow analysis refers to the inflow and outflow of cash.

Funds flow analysis:

Funds flow analysis is a source of application funds or net working capital. It is a

technical device designed to highlight the change in the financial conditions of a businessenterprise between two balance sheet dates.

Ratio analysis:

It is a tool used to present the figures of financial statements in a simple concise and

intelligent form. It is a process of establishing meaningful relationship between two

figures.


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CHAPTER . 2

DESIGN OF THE STUDY


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2. Design of The Study

2.1: INTRODUCTION

Financial Performance is a subjective measure to know how well a firm can use

assets from its primary mode of business and generate revenues. It is also used as a

general measure of a firm's overall financial health over a given period of time. There are

many different ways to measure financial performance, but all measures should be taken

in aggregation. Measuring the results of a firms policies and operations in monetary

terms, These results are reflected in the firms return on investment, return on assets,

value added.

2.2: STATEMENT OF THE PROBLEM:

The topic is selected to analyze changes in the financial position of the company

for the past five years, which have increased its capital, turnover and profits. The study is

conducted to know the changes in the various items of balance sheet and income

statement and to analyze their impact on the profitability, liquidity and the overall

financial position of the company.

2.3: OBJECTIVES OF THE STUDY:-

1. To study all the financial statements of past five years and to identify the changes in

the various items present in them.

2. To make the analysis and interpretation of ratios more effective by using various

ratios to understand the composition of various expenses and the proportion of the

profit (Gross, Operating, and net) to sales in the statement. Estimation of liquidity

ratios, operating ratio solvency ratios, profitability ratios, in order to ascertain the

financial statements by establishing between them.


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3. To analyze the financial risk of the company is exposed to and examines the short-

term liquidity and long-term solvency position of the company.

4. To study the working capital management of the company.

5. To examine the increase in the various cost items in relation to the sales and to point

out the area in which improvement can be made.

2.4: SCOPE OF THE STUDY:-

The study is limited only to the MOTHER DAIRY, Yelahanka. The current study is

undertaken for the purpose of knowing the overall financial performance of MOTHER

DAIRY.

2.5: METHODOLOGY OF STUDY:

Data has been collected from primary sources and secondary sources.

Primary data:

It constitute the data collected through personal interview, with different persons of

Finance Department.

Secondary data:-The secondary sources for the study are made available through:-

1. Annual reports of the company.

2. Magazines and generals

3. Text books, internet and financial statements

2.6: TOOLS OF ANALYSIS:-

The data so collected is proposed to be analyzed with the help of simple mathematical

and accounting tools like Ratio Analysis, Comparative statements and Funds Flow

Statement and Trend percentage

Research Instrument:-

Balance Sheet .


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Income statement .

Profit and loss account.

2.7: LIMITATIONS OF THE STUDY:--

1. A detail study could not be carried out because of lack of time.

2. The results of the study are based on the assumption that all the information provided

by the respondents is correct.

2.8: CHAPTER SCHEME

1. It coversIntroduction to Finance , Scope and Importance of Financial Finance

Function, Nature of Financial Statement, Objectives of Financial Statement, Types of

Financial Statement, Uses of Financial Statement, Financial Statement Analysis,Objectives of Analysis and Interpretation of Financial Statements, Types of Financial

Analysis, Tools, Techniques or Financial Analysis:

2. It covers title of the study, Statement of the problem, Objectives of the study, Scope of the

study, Methodology of the study, Research instruments ,Limitations of the study.

3.It covers Company Profile, Functions Of Dairy Co-Operative Society, Scope Of Union,

Functions Of Union, Role Of Milk Federation, Function of Federation, Quality Policy, Area of

Operation, Ownership Pattern, Product Profile, Competitors Information, Certificate

4.It covers theoretical background of, Meaning Of Ratio, Classifications of Ratios

objective and ,significance of ratios.

5. It covers Analysis of data and Interpretation.

6. It coversSummary of Findings, Conclusion and Recommendations.


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CHAPTER. 3

COMPANY PROFILE


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3.COMPANY PROFILE

3.1. HISTORY OF DAIRY CO-OPERATIVE IN INDIA

The co-operative movement started in India in the last decade of the 19th

century

with two objects in view, i.e. to protect the farmers from the hands of the private money

leaders and to improve their economic condition.

The history of Dairy Development movement in India is a new one. The most notable of

this venture was a Khera district co-operative milk producer union limited of Anand,

Gujarat. But after independence, the national government took great initiative in setting

up new Dairy co-operative in many parts of India. The National Dairy Development

Board was set up to make the ambitious project a success.

Dairy industry is playing a vital role in providing quality and hygienic milk and

milk products at competitive prices to the urban consumers as well as it is providing

employment opportunities to the rural people

3.2. Operation Status:

The average procurement of milk touched a pack of 20.28 LKPD in November

1999. In March 2000 liquid milk sales was at the level of 15.2 LLPD. The sales of cattle

feed were 1, 10,605 during 1999-2000. The turnover of the organization during 1999-

2000 was Rs 998.39 crores.


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facilities include supply of cattle feed, fodder, veterinary services training and know how

on scientific animal husbandry.

3.4. MILK FEDERATION:-

The role:-

The Karnataka Co-operative milk producers federated Ltd, came into existence on

1.5.1984 by federating the milk unions in the state and thus forming the state level apex

organization. The federation is implementing the project activities .When all the project

activities are completed, the main role of the federation will be to market surplus, milk

products and to produce and supply centralized inputs.

3.5. FEDERATION FUNCTIONS:-

Presently Mother Dairy and Nandini milk products at Bangalore are under the control

of KMF. Four cattle feed plants, a Central Training Institute and a centralized testing and

quality control laboratory are functioning, under the direct control of KMF. Co-

ordination of activities between the unions and developing market for the increasing milk

production is the responsibility of KMF. The Respective unions are organizing local milk

market in the area of union. Surpluses and deficiencies of liquid milk amongst the

members milk union and disposing milk added the federation Managers product at

remunerative price.

However the federation organizes marketing of liquid milk and products outside the

state.

Milk and milk products are sold under NANDINI brand name, which has become

household name in Karnataka. To make products available to consumers, distribution

network has been established and sales depots are commissioned at Bangalore, Hubli,

Chennai, Tirupathi, and Mangalore. The distribution network includes 150 major

professional wholesale dealers spreading across all the southern states of India. The

major quality of milk is sold as liquid milk. In these parts other products like Butter,

Ghee, and SMP (Skim Milk Power), WMP, Pedha, and Flavored milk. Burfis, Panner,

Khova, Jamoon mix, Jamoons, Mysore Paks, Badam powder and Ice cream are sold.


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PROCUREMENT

Mother Dairy has a unique nature of homogenizing the milk and selling it to the

consumers through Bulk Vending Booths FRP (Fiber Reinforcement Plastic) tanks. In

addition to production of toned Milk in sachet, it also produces Full Cream Milk in sachet

(6.0% FAT and 9.0% SNF) and products like White Butter, Ghee, Curds, Ice-cream, ac

well as Buttermilk in sachets..

The capacity of Mother Dairy is about 4.0 lakh liters per day. The mother dairy procures

around 2.0 to 2.4 lakhs liters per day from Kolar milk unions the milk is processed and

sold to consumer of Bangalore city through bulk vending booths FRP(Fiber

Reinforcement Plastic) tanks and sachets.

The Mother Dairy has a ice cream plant of 300 liters capacity per day and it tie up with

the Gujarat co operative milk marketing federation for manufacture of ice cream in the

brand name AMUL. This apart ice cream in the brand of NANDINI is sold by the mother

dairy.

The Mother Dairy has a milk powder plant of 30 metric tones capacity per day . The

surplus milk of affiliated district milk unions is procured and converted as milk powder.

The Mother Dairy is headed by a director who is functional director cadre officer of the

federation in the pay scale of 12800-16720 and duly supported by managerial cadre

officers.

The unit is located in YELAHANKA has the following address

MOTHER DAIRY. (KMF).

GKVK POST YELAHANKA

BANGALORE - 560065


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3.6. Quality policy:

Every employee of Mother Dairy will strive for customer satisfaction by providing

quality milk and milk products at competitive rates and timely delivery through continual

improvement.

3.7.Area of operation:

The Mother Dairy KMF operates regionally.

It operates throughout the Karnataka.

Now the emphasis is given to extend the marketing territory apart from the Karnataka.

3.8.Ownership Pattern:

Karnataka state government in association with National Dairy Development Board funds

of the Mother Dairy, KMF. Mother Dairy was commissioned under operation flood-2

with a processing capacity of 2 lakh per day on 7-12-1984, with an investment of Rs.

6.97 crores, at Yalahanka new town in a total area of 28.09 acres.

It is expanded to 4 lakh liters under operation flood-3 during 1993-94 with an additional

cost of Rs. 3.64 crores. Total investment for this project is Rs. 10.61 crores.


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3.9.PRODUCT PROFILE

NANDINI PRODUCTS RANGE

NANDINI MILK:-

Nandini toned milk

Nandini homogenized milk

Nandini full cream milk

Nandini good life milk

NANDINI MILK PRODUCTS;

Nandini curd

Nandini ghee

Nandini butter

Nandini panner

Nandini khova

Nandini mysorepak

Nandini skimmed milk power

Nandini badam power

Nandini jamoon mix

Nandini ice cream

Nandini burfi

Nandini processed cheese

Nandini bulk cheddar cheese

Nandini bite


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VARIETIES OF ICE CREAM MANUFACTURED:

PLAIN VARIETIES

Vanilla

Strawberry

Mango

Pineapple

Chocolate

NUT VARITIES:-

Butterscotch

Kaju draksha

PREMIUM VARITIES:-

Kesar pista

Black current

Anjir

Cappuccino

STICK VARITIES:-

Orange candy

Mango dolly

Raspberry dolly

Chocobar

FANDOOS

Vanilla

Strawberry

Sundae


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3.10.COMPETETORS INFORMATION

The success of each and every business unit mainly depends on how brilliantly it

faces the competition and a Mother dairy is not an exception. It has almost 93% market

share in Bangalore and presently it is the brand for milk products. The major competitors

to Mother Dairy are as follows:

Heritage:- heritage is engaged in producing of milk products like butter, curd etc

Good Morning

Arogya

Nilgiries: nilgiries is also engaged in producing milk and curd etc

Dodla

Gomota

Milk way

Swastika

3.11.ISO 9002 and HACCP is 15000 certificate

Mother Dairy has obtained ISO 9002 and HACCP certificate from Bureau of Indian

standards (BIS) of government of India from December 2000. Mother dairy is the first

and only dairy to secure the comprehensive certificate in the entire south India. The

importance of obtaining this certificate is to:-

Procure ,manufacture and distribute the products under controlled

set of procedures as per ISO 9003.

To identify a probable occurrence of hazards during the process of

procurement, manufacturing and distribution.

To identify the severity of hazards during critical control point.

To control the identified hazards and to produce the products of

international food safety standards.


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CHAPTER .4

THEORITICAL

BACKGROUND


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4.RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is the process

of establishing and interpreting various ratios(quantitative relationship between figures

and groups of figures).It is with the help of ratios that the financial statements can be

analyzed more clearly and decisions made from such analysis.

4.1Meaning of ratio

A ratio is a simple arithmetical expression of the relationship of one number to another. It

may be defined as the indicated quotient of two mathematical expressions. According to

Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the

quantitative relationship between two numbers.

4.2Classification of Ratios

Ratio may be classified in a number of ways keeping in view the particular purpose.

Ratios indicating profitability are calculated on the basis of the profit and loss account,

those indicating financial position are calculated on the basis of the balance sheet and

those which show operating efficiency or productivity or efficient use of resources are

calculated on the basis of figures shown in the profit and loss account and the balance

sheet. To achieve the purpose effectively ratios may be classified as under:

A. Classification according to the nature of accounting statement from which the

ratios are derived

1) Balance sheet ratios: It deals with the relationship between two balance sheets

items.


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2) Profit and loss account ratio: This type of ratio show the relationship between two

items which are in the profit and loss account e.g. Gross profit ratio, net profit

ratio, operating ratio.

3) Combined or composite ratios: This ratio shows the relationship between the

items one of which is taken from profit and loss account and other from balance

sheet e.g. Debtors turnover ratio, stock turnover ratio, capital turnover ratio.

B. Classification from the point of view of financial management.

1) Liquidity ratio: Liquidity means ability of a firm to meet its current liabilities. This

ratio measures the short term solvency or financial position of a firm. These ratios are

calculated to comment upon the short term paying capacity of a concern or the firms

ability to meets its current obligation.

2) Capital structure: These ratios are used to analyze the long term solvency of a

business. There are two aspects of long term solvency of a firm.

a) Ability to repay the principle amount when due

b) Regular payment of interest.

3) Turnover ratios: These ratios are used to indicate the efficiency with which assets

and resources of a firm are being utilized. These ratios are known as turnover ratios

because they indicate the speed with which assets are being converted or turned over

into sales .A higher turnover ratio generally indicates better use of capita resources

which in turn as a favorable effect on the profitability of the firm.

4) Profitability ratios: Profitability is the overall measures of the companies with regad

to efficient and effective utilization of resources at their command it indicates in a

nutshell the effectiveness of the decisions taken by the management from time to

time. Profitability ratios are of utmost importance from time to time. Profitability

ratio are of utmost importance for a concern. These ratios are calculated to enlighten

the end results of business activities which is the overall efficiency of a business

concern.


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4.3 Meaning significance and objective of ratios

1) Current Ratio: It is the most widely used ratio. It is the ratio of current assets to

current liabilities. It shows a firms ability to cover its current liabilities with its

current assets. It is expressed as.

Current assets

Current ratio = Current liabilities

Significance and objective

Current ratio throws good light on the short term financial position and policy. It is an

indicator of a firms ability to promptly meet its short term liabilities. Relatively high

current ratio indicated that the firm is liquid and has ability to meet its current

liabilities.

2)Quick Ratio: This ratio is also known as acid test ratio. It is a more severe test liquidity

of a company. It shows the ability of a business to meet its immediate financial

commitment.

Quick assets

Quick ratio =

Current liabilities


Quick ratio is a more rigorous test of liquidity of a firm than the current ratio. When

quick ratio is used along with current ratio, it gives a better picture of the firms ability to

meet its short term liabilities out of its short term assets.


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3)Absolute liquid ratio:

Absolute liquid assets

Absolute liquid ratio =Current liabilities


This ratio is calculated to find out the cash liquidity of a company. Higher the ratio, the

higher is the cash liquidity A low is not a serious matter because the company van always

borrow from a bank for short term requirements.

4)Debt Equity Ratio: This ratio measures the relationship between long term debts and

shareholders funds.

Long-term debtDebt-equity ratio =

Shareholders equity

Significance and objectives

This ratio shows the relative amount of funds supplied to the company by outsiders and

by owners. A low debt equity ratio implies a greater claim of owners on the assets of the

company than the owners. On the other hand, a high debt equity ratio indicates that the

claims of the debtors are greater than those of the owners.

5)Proprietary Ratio : This ratio measures the relationship between shareholders funds

and total assets.

Shareholders Funds

Proprietary ratio =

Total Assets

6)Interest Coverage Ratio: This ratio indicates whether the business earns sufficient

profit to pay periodically the interest charges.


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EBIT

Interest coverage ratio =Interest expense


This ratio is very important from lenders point of view because it indicates the ability of a

company to pay interest out of its profits.

7)Debt to Total funds Ratio:

This ratio shows the relationship between the debts and total funds employed in the

business.

Debts

Debts To Total Funds ratio =

Total Funds

Significance and objectives :

This ratio shows the proportion of funds supplied by outsiders in the total funds

employed in the business. This ratio also serves the purpose of indicating the possibility

of raising additional loans.

8)Capital Gearing Ratio:

This is the ratio between the fixed interest bearing securities and equity share capital.

Fixed Income Securities

Debts To Total Funds ratio =

Equity Shareholders Funds


A company is highly geared if this ratio is more than one. If it is less than one, it is low

geared. A highly geared company has the advantage of trading on equity.


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9)Inventory Turnover Ratio: This ratio establishes the relationship between the costs ofgoods sold and average stock.

Cost of goods soldInventory Turnover Ratio =

Average inventory


This ratio indicates he efficiency of a firms inventory management. It also gives rate at

which stocks are converted into sales and then into cash.

10)Debtors Turnover Ratio: This ratio indicates the relationship between the net credit

sales and trade debtors. It shows the rate at which cash is generated by the turnover of

debtors.

Net credit annual salesDebtors turnover ratio =

Average trade debtors


This ratio lies in the fact that debtors constitute one of the important items of current

assets and this ratio indicates as how many days the average sales are tied up in the

amount of debtors.


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11)Fixed assets Turnover Ratio: This ratio indicates the efficiency with which the firm

is utilizing its investments in fixed assets such as plant and machinery, land and building,

etc.

Sales

Fixed assets turnover ratio =

Net fixed assets


A high ratio indicates efficient utilization of fixed assets in generating sales and a low

ratio may signify that that the firm has an excessive investment in fixed asset.

12)Working Capital Turnover Ratio: This ratio indicates the efficiency or inefficiency

in the utilization of working capital in making sales.

Cost of sales

Working capital turnover ratio =Average working capital


A high working capital turnover turn over ratio shows the effective utilization of working

capital in generating sales.

13)Capital Turnover Ratio: This ratio shows the relationship between sales and total

capital employed.

Sales

Capital turnover ratio =

Total capital employed


This ratio shows the efficiency with which capital employed in the business is used. A

high capital turnover ratio indicates the possibility of greater profit and low capital

turnover ratio is a sign of insufficient sales and possibility of lower profits.


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14)Creditors Turnover Ratio: This ratio measures the relationship between credit

purchases and average accounts payable.

Net credit annual purchases

Creditors turnover ratio =

Average trade creditors

15)Gross Profit Ratio: This ratio expresses the relationship between gross profit and

sales.

Gross ProfitGross profit ratio = 100

Net sales


It indicates the average margin on the goods sold. It shows whether the selling prices are

adequate or not.

16) Net profit Ratio: This is a ratio of net profit to net sales.

Net profit

Net profit ratio = 100Net sales

Significance and objectives:

It is the overall measure of a firm ability to turn each rupee of sales into profit. It

indicates the efficiency with which a business is managed.


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17)Operating Ratio: This ratio explains the relationship between cost of goods sold and

sales.Operating cost

Operating ratio = 100

Net sales


The operating ratio is the yardstick to measure the efficiency with which a business is

operated. It shows the percentage of net sales that is absorbed by operating expenses.

18) Return on Investment: It measures the overall profitability. It is ascertained by

comparing profit earned and capital employed to earn it.

Profit before interest and taxes

ROI ratio = X 100

Capital employed


It is the only ratio which measures satisfactorily the overall performance of a business

from the point of view of Profitability. This ratio indicates how well the management has

utilized the funds supplied by the owners and creditors.

19)Return o proprietors Equity:It shows the ratio of net profit to owners equity.

Net profit after tax and interest

ROI ratio = X100

Shareholders funds


This ratio measures the return on the total proprietors equity of the shareholders.


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CHAPTER .5

ANALYSIS OF DATA


36/91

RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is the process

of establishing and interpreting various ratios(quantitative relationship between figures

and groups of figures).It is with the help of ratios that the financial statements can be

analyzed more clearly and decisions made from such analysis.

Meaning of ratio

A ratio is a simple arithmetical expression of the relationship of one number to another. It

may be defined as the indicated quotient of two mathematical expressions. According to

Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the

quantitative relationship between two numbers.

CURRENT RATIO

Current ratio is defined as the relationship between current assets & current liabilities this

ratio is also known as working capital ratio is a measure of general liquidity & is most

widely used to make the analysis to the short term financial position or liquidity of a firm.

Current ratio=current assets/ current liabilities.

Current Assets

Current ratio =Current Liabilities

Table No

5.1

TABLE SHOWING CURRENT RATIO

Year Current Assets Current Liabilities Current ratio

2003-04 154931328 74655895 2.07

2004-05 138387552 47706064 2.9


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2005-06 135278340 77424018 1.74

2006-07 145017717 72007722 2.01

2007-08 189848116 85444313 2.22

GRAPH -5.1

GRAPH SHOWING CURRENT RATIO

INTERPRETATION

From the above graph it is clear that the current ratio has been increased from 2003-04

i.e to 2.07 to 2.9%.And there after it has been decrease in the year 04-05 to 1.74 and in

2006-07 to 2007-08 again it has increased from 2.01% to 2.22% .This shows that the

dairy has improved its current ratio.

QUICK RATIO

Quick ratio, is also known as acid test or liquid ratio is a more rigorous test of liquidity

than the current ratio. The term liquidity than to pay its short term obligations as & when

they became due quick ratio may be define as the relationship between quick assets and

& current liabilities and assets is said to be liquid if it can be converted into cash within a

short period without loss of value.

Liquid ratio=Liquid Assets / Current Liabilities.

Current ratio

0

0.5

11.5

2

2.5

3

3.5

2003-04 2004-05 2005-06 2006-07 2007-08

Current ratio


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Absolute liquid assets

Absolute liquid ratio =Current liabilities

Table No 5.2

TABLE SHOWING QUICK RATIO

5.2 GRAPH. GRAPH SHOWING QUICK RATIO

0

0.5

1

1.5

2

2.5

2003-04 2004-05 2005-06 2006-07 2007-08

Quick ratio

Quick ratio

Year Quick Assets Current Liabilities Quick ratio

2003-04 99527500 74655895 1.33

2004-05 107854468 47706064 2.26

2005-06 97252238 77424018 1.25

2006-07 80971926 72007722 1.12

2007-08 91558248 85444313 1.07


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INTERPRETATION

From the above graph it is clear that the quick ratio has been increased from 2003-05 i.e.

1.33 to 2.26 and there after it has been decreased from 2005-08 i.e 1.25 to 1.07.This

indicates that the ratio is above the standard and the company has the ability to meet its

liquid or current liabilities.

ABSOLUTE LIQUID RATIO

Absolute liquid assets include cash in hand and at bank and marketable securities or

temporary investments. The acceptable norm for this ratio is 50% or 0.5:1 or 1:2 that is

Rs one worth absolute liquid assets are considered adequate to pay Rs 2 worth current

liabilities in time as all the creditors are not expected to demand cash at the same time

and then cash may also be realized from debtors and inventories.

Absolute liquid assetsAbsolute liquid ratio =

Current liabilities

Table No5.3

TABLE SHOWING ABSOLUTE LIQUID RATIO

Year Absolute Liquid Assets Current Liabilities Absolute liquid

ratio

2003-04 61387316 74655895 0.82

2004-05 59822293 47706064 1.25

2005-06 23107618 77424018 0.29

2006-07 10191643 77424018 0.14

2007-08 7370916 85444313 0.08


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GRAPH - 5.3

GRAPH SHOWING ABSOLUTE LIQUID RATIO

INTERPRETATION

From the above graph it is clear that the absolute liquid ratio has been increased from the

2003-05 i.e 0.82 to 1.25 and from there after it has been decreased from 2005-08 i.e from

0.29 to 0.08.It indicates that the company has in sufficient liquidity position to pay off

its short term liabilities.

INVENTORY TURNOVER RATIO

Inventory turn over ratio also known as stock velocity & is normally calculated as

sales/average inventory or cost of goods sold/average inventory. It indicateswhether inventory has been efficiently used or not. The purpose is to see whether

only the required minimum funds have been locked up in inventory. Inventory

turn over ratio indicates the number of time the stock has been turned over during

the period & evaluates the efficiency with which a firm is able to manage its

inventory. A stock turnover of 8 times a year is considered ideal.

Absolute liquid ratio

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2003-04 2004-05 2005-06 2006-07 2007-08

Absolute liquidratio


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Cost of goods sold

Inventory Turnover Ratio =Average inventory

Table No5.4

TABLE SHOWING INVENTORY TURNOVER RATIO

Year Cost of goods sold Average Stock Inventory

Turnover Ratio

2003-04 966046089 55403828 17.43

2004-05 1098673069 42968456 25.56

2005-06 1122742029 34279593 32.7

2006-07 1272790056 51035946 24.9

2007-08 1703223557 81167530 20.9

GRAPH - 5.4

GRAPH SHOWING INVENTORY TURNOVER RATIO


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INTERPRETATION

From the above graph it is clear that the inventory turnover ratio has been increased from

the 2003-06 i.e 17.43 to 32.7 and from there after it has been decreased from 2006-08 i.e

from 24.9 to 20.9. It indicates that the company has inefficient management of inventory

and has excess stock in relation to production and sales.

INVENTORY CONVERSION PERIOD

Days in a year

Inventory Conversion Period =

Inventory Turnover Ratio

Table No5.5

. TABLE SHOWING INVENTORY CONVERSION PERIOD

Year Days in a year Inventory turn over

ratio

RATIO

2003-04 365 17.43 20.4

2004-05 365 25.56 14.26

2005-06 365 32.7 11.14

Inventory Turnover Ratio

0

5

10

15

20

25

30

35

2003-04 2004-05 2005-06 2006-07 2007-08

Inventory TurnoverRatio


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2006-07 365 24.9 14.63

2007-08 365 20.9 17.46

GRAPH - 5.5

GRAPH SHOWING INVENTORY CONVERSION PERIOD

INTERPRETATION

From the above graph it is clear that the inventory conversion period has been decreasing

from the 2003-06 i.e 20.4 to 11.14 and there after it has been increasing from 2006-08 i.e

11.14 to 17.46.this indicates that the company has taken adequate measures to reduce theinventory period.

DEBTORS TURN OVER RATIO

A concern may sell goods on cash as well as on credit. Credit is one of the important

elements of sales promotion. The volume of sales can be increased by following a liberal

credit policy may result in trying up substantial funds of firm in the form of trade debtors.

Trade debtors are expected to be converted into cash within a short period & are included

in current assets. Hence the liquidity position of concern to pay its short term obligation

in time depends upon the quality of its trade debtors.

0

5

10

15

20

25

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO

RATIO


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Net credit annual sales

Debtors turnover ratio =

Average trade debtors

Table No

5.6TABLE SHOWING DEBTORS TURNOVER RATIO

Year Credit sales Average Trade

Debtors

Debtors Turnover

Ratio

2003-04 1131530176 13405511 84.4

2004-05 1279675642 15560295 82.23

2005-06 1265251998 18488386 68.4

2006-07 1479900312 22198901 66.6

2007-08 1987487342 24342600 81.64

GRAPH - 5.6

GRAPH SHOWING DEBTORS TURNOVER RATIO

INTERPRETATION

Debtors Turnover Ratio

0

10

20

30

40

50

60

70

80

90

2003-04 2004-05 2005-06 2006-07 007-08

Debtors Turnover Ratio


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From the above graph it is clear that the debtors turnover ratio has been decreased from

2004-07 i.e 84.4 to 66.6. And in 2007-08 it has increased by 81.64 and shows that the

companys debtors are making payments promptly. By this it indicates that the company

has inefficient management of the debtors & also has more investment in working

capital. This is due to reasons of changes in companys credit policy or inability to collect

from its debtors.

WORKING CAPITAL TURNOVER RATIO

Working capital turn over ratio indicates the velocity of the utilization of net working

capital. This ratio indicates the number of time the working capital is turned over in the

course of a year. This ratio measures the efficiency with which working capital is being

used by the firm & a higher ratio indicates efficient utilization of working capital & a low

ratio indicates otherwise. But a high working capital & a low ratio indicates otherwise.

Cost of sales

Working capital turnover ratio =Average working capital

Table No5.7

TABLE SHOWING WORKING CAPITALTURNOVER RATIO

Year Sales Average Working

Capital

Working Capital

Turnover ratio

2003-04 1131530176 80275433 14.09

2004-05 1279675642 85478460 14.97

2005-06 1265251998 74267905 17.03

2006-07 14799900312 65432159 22.6

2007-08 1987487342 88706899 22.4

GRAPH - 5.7


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GRAPH SHOWING WORKING CAPITAL TURNOVER RATIO

INTERPRETATION

From the above graph it is clear that the Working capital turnover ratio has been

increased from 2003-08 i.e. 14.09 to 22.4. It indicates that the company has efficient

utilization of working capital in generating sales

SOLVENCY RATIO

This ratio is a small variant of equity ratio & simply can be calculated has 100-equity

ratio. The ratio indicates the relationship between the total liabilities to outsiders to total

assets of firm.

Total assets

Solvency ratio =

Total liabilities

Table No5.8

TABLE SHOWING SOLVENCY RATIO

0

5

10

15

20

25

2003-04 2004-05 2005-06 2006-07 2007-08

Working Capital Turnover ratio

Working

Capital


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Year Total Assets Total Liabilities Solvency ratio

2003-04 460332463 27683676 1.66

2004-05 436041705 254935751 1.71

2005-06 453734449 229927331 1.97

2006-07 475812379 276723301 1.71

2007-08 518989153 322036740 1.61

GRAPH - 5.8

GRAPH SHOWING SOLVENCY RATIO

INTERPRETATION

0

0.5

1

1.5

2

2.5

2003-04 2004-05 2005-06 2006-07 2007-08

Solvency ratio

Solvency ratio


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From the above graph it is clear that the solvency ratio has been increasing from 2003-

06 i.e from 1.66 to 1.97and there after it has been decreasing from 2006-08 i.e from 1.71

to 1.61 .It indicates that the company has more satisfactory in the long term solvency

position.

INTEREST COVERAGE RATIO

It is used to test the debt servicing capacity of a firm. The ratio is also known as interest

coverage ratio. This ratio is calculated by dividing the net profit before interest & taxes

by fixed interest charge.

EBITInterest coverage ratio =

Interest expense

Table No - 5.9

TABLE SHOWING INTEREST COVERAGE RATIO

Year EBIT/ Interest charges InterestCoverage Ratio

2003-04 74812415 11687179 6.4

2004-05 90448681 9950185 9

2005-06 46330836 8270810 5.6

2006-07 82932593 7785238 10.6

2007-08 115578941 6527407 17.7

GRAPH 5.9

GRAPH SHOWING INTEREST COVERAGE RATIO


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INTERPRETATIONFrom the above graph it is clear that the interest coverage ratio has been increasing from

2003-05 i.e from 6.42 to 9 and there after decreasing from 2004-06 i.e 9 to 5.6.And from

2006-08 it has increasedby 17.7.This indicates if the companys earnings fall, it can be

able to meet its commitment of fixed interest charges out of its profits.

NET FIXED ASSETS TURNOVER RATIO

This ratio calculated by dividing sales & net fixed assets depreciation this ratio

indicates the efficiency with which the firm is utilizing its investments in fixed assets.

SalesNet Fixed Assets Turnover Ratio=

Net Fixed Assets

Table No5.10

. TABLE SHOWING NET FIXED ASSETS TURNOVER RATIO

Year Sales Net Fixed Assets Fixed Assets

Turnover Ratio

2003-04 1131530176 305401135 3.7

2004-05 1279675642 297654153 4.29

Interest Coverage Ratio

0

2

4

6

8

10

1214

16

18

20

2003-04 004-05 2005-06 2006-07 2007-08

Interest Coverage Ratio


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2005-06 1265251998 318456107 3.97

2006-07 1479900312 330794662 4.47

2007-08 1987487342 329141037 6.03

GRAPH - 5.10

GRAPH SHOWING NET FIXED ASSETS TURNOVER RATIO

INTERPRETATION

From the above graph it is clear that the fixed assets turnover ratio has been increasingfrom 2003-08 i.e from 3.7 to 6.03.It indicates that the company has efficient utilization of

fixed assets in generating sales.

NET PROFIT RATIO

This is the ratio of net profit to net sales.

Net profit

Net profit ratio = 100

Net sales

Table No5.11

TABLE SHOWING NET PROFIT RATIO

Year Net profit Sales Net Profit Ratio

Fixed Assets Turnover Ratio

0

1

2

3

4

5

6

7

2003-04 2004-05 2005-06 2006-07 2007-08

Fixed Assets


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2003-04 61101056 113150176 5.39

2004-05 78651402 1279675642 6.14

2005-06 37691715 1265251998 2.97

2006-07 74782953 1479900312 5.05

2007-08 108740526/ 1987487342 5.47

GRAPH - 5.11

GRAPH SHOWING NET PROFIT RATIO


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INTERPRETATION

From the above graph it is clear that the net profit ratio has been increasing from 2003-08

i.e. from 5.39 to 5.47. It indicates that the company is managing to improve its net profit

& also indicates the scope for improvement and fluctuation is due to the expenses & sales

fluctuation.

DEBT EQUITY RATIO

This ratio attempts to measure the relationship between long term debts & owners fund.

In other words, this ratio measures the relative claims of long term creditors on the one

hand owners on the other hand, on the assets of the company.

Long-term debt

Net Profit Ratio

0

1

2

3

4

5

6

7

2003-04 2004-05 2005-06 2006-07 2007-08

Net Profit Ratio


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Debt-equity ratio =

Shareholders equity

Table No5.12

TABLE SHOWING DEBT EQUITY RATIOYear Long Term Debts Owners fund Debt equity ratio

2003-04 128486099 73694768 1.74

2004-05 115984574 91245113 1.27

2005-06 102217887 50285426 2.03

2006-07 117468610 87246678 1.34

2007-08 115700000 120892426 0.95

GRAPH - 5.12

GRAPH SHOWING DEBT EQUITY RATIO

INTERPRETATION

From the above graph it is clear that the Debt Equity ratio has been decreasing from

20003-08 i.e. from 1.74 to 0.95.It indicates that the ratio claims to outsiders are greater

that those of owners fund & also indicates unfavorable to the company because the

Debt equity ratio

0

0.5

1

1.5

2

2.5

2003-04 2004-05 2005-06 2006-07 2007-08

Debt equity ratio


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company may not be able to get credit without paying very high interest rates to

outsiders.

PROPRIETORY RATIO

A variant to the debtequity ratio is the proprietary ratio which is also known as equity

ratio or share holders to total equities ratio or net worth to total assets ratio. This ratio

establishes the relationship between share holders funds or total assets of the firm .The

ratio of proprietary funds to total funds is an important ratio for determining long term

solvency of the firm. The components of this ratio are shareholders funds or proprietors

funds and total assets.

Shareholders Funds

Proprietary ratio =

Total Assets

Table No5.13

. TABLE SHOWING PROPRIETORY RATIO

Year Owners Fund Total Assets Proprietary ratio

2003-04 73694768 4603324646 16.0

2004-05 91245113 436041708 20.9

2005-06 50285426 453734449 11.08

2006-07 87246678 475812379 18.33

2007-08 120892426 / 518989153 23.29

GRAPH - 5.13

. GRAPH SHOWING PROPRIETORY RATIO


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INTERPRETATION

From the above graph it is clear that the Proprietory ratio has been increasing from 2003-

04 i.e from 16.0 to 23.29. It indicates that ratio in all the years is below 50% which

indicates unfavorable situation to owners.

DEBTS TO TOTAL FUNDS RATIO

This ratio shows the relationship between debts to total funds employed in the business.

Debt

Proprietary ratio

0

5

10

15

20

25

2003-04 2004-05 2005-06 2006-07 2007-08

Proprietary ratio


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Debt to Total Funds Ratio ratio =

Total Funds

Table No5.14

. TABLE SHOWING DEBTS TO TOTAL FUNDS RATIO

Year Debt Total Funds Inventory

conversion period

2003-04 203141994 276836762 0.73

2004-05 120755178 254935751 0.47

2005-06 179641905 229927331 0.78

2006-07 189476332 276723010 0.68

2007-08 201144313 322036740 0.62

GRAPH - 5.14

GRAPH SHOWING DEBTS TO TOTAL FUNDS RATIO

INTERPRETATION

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2003-04 2004-05 2005-06 2006-07 2007-08

Inventory conversion period

Inventory conversion

period


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From the abovr graph it is clear that the debts to total funds ratio has been decreasing

from 2003-08 i.e from 0.73 to 0.62.It indicates that the company has better position to its

creditors to pay debt and raising additional loans.

CAPITAL TURNOVER RATIO

Capital turnover ratio is the relationship between sales & capital employed. This ratio is

calculated to measure the efficiency with which a firm a utilizes its resources or the

capital employed.

Sales

Capital turnover ratio =

Total capital employed

Table No5.15

TABLE SHOWING CAPITAL TURNOVER RATIO

Year Sales Capital Employed Capital turnover

ratio

2003-04 1131530176 452866869 2.93

2004-05 1279675642 388335644 3.292005-06 1265251998 376310431 3.36

2006-07 1479900312 403804657 3.66

2007-08 1987487342 / 433544840 4.58

GRAPH - 5.15


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GRAPH SHOWING CAPITAL TURNOVER RATIO

INTERPRETATION

From the above graph it is clear that the debts to Total Funds Ratio has been increasing

from 2003-08 i.e from 2.93 to 4.58.Which indicates that the company has efficiently

used its capital employed & has the possibility of greater profitability.

RETURN ON INVESTMENT

Capital turnover ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2003-04 2004-05 2005-06 2006-07 2007-08

Capital turnover ratio


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This is the most important test of profitability of a business. It measures the overall

profitability. It is ascertained by comparing profit earned & capital employed to earn it.

Profit before interest and taxes

ROI ratio = X 100

Capital employed

Table No5.16

TABLE SHOWING RETURN ON INVESTMENT RATIO

Year PBIT Capital employed RATIO

2003-04 74812415 452866869 19.3

2004-05 90448681 388335644 23.2

2005-06 46330836 376310431 12.31

2006-07 82932593 403804657 20.5

2007-08 115578941 433544840 26.65

GRAPH - 5.16

GRAPH SHOWING RETURN ON INVESTMENT RATIO

INTERPRETATION

RATIO

0

5

10

15

20

25

30

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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From the above graph it is clear that the Return on Investment ratio has been increasing

from 2003-08 i.e from 19.3 to 26.65 .It indicates that management has utilized the funds

supplied by the owners as well as creditors & return on those funds are also good.

RETURN ON EQUITY.

This ratio is also known as return on share holders funds. It shows the ratio of net profit

to owners equity.

Earnings After Tax

Return on Equity ratio =

Owners Funds

Table No5.17

TABLE SHOWING RETURN ON EQUITY RATIO

Year EAT Owners Fund RATIO

2003-04 61101056 73694768 82.9

2004-05 78651402 91245113 86.1

2005-06 37691715 50285426 74.9

2006-07 74782953 87246678 85.7

2007-08 108740526 120892426 89.9

GRAPH - 5.17


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GRAPH SHOWING RETURN ON EQUITY RATIO

INTERPRETATION

From the above table it is clear that the Return on Equity Ratio has been increasing from

2003-08 i.e from 82.9 to 89.9. It indicates that the company has very good profitability &

return on the total equity of the owners fund is good.

FUNDED DEBT TO TOTAL CAPITALISATION RATIO

RATIO

0

10

20

30

40

50

60

7080

90

100

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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The ratio establishes a link between the long term funds raised from outsiders & total

long term funds available in the business.

Funded Debt

Funded Debt To Total Capitalization ratio =

Total Capitalization

Table No5.18

TABLE SHOWING FUNDED DEBT TO CAPITALISATION RATIO

Year Funded Debt Total Capitalization RATIO

2003-04 12593711 202180867 6.22

2004-05 12593711 2072229687 6.07

2005-06 12593711 152503313 8.25

2006-07 12463724 204715288 6.08

2007-08 12151900 236592427 5.13

GRAPH - 5.18

GRAPH SHOWING FUNDED DEBT TO CAPITALISATION RATIO

INTERPRETATION

RATIO

0

1

2

3

4

5

6

7

8

9

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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From the above graph it is clear that the Funded Debt To Capitalisation Ratio has been

decreasing from 2003-05 i.e to 6.07 and there after increased to 8.25 and from 2006-08

i.e to 5.13.It indicates that the company has not relied much on outside sources for

raising long term funds but there is enough scope for the firm to raise long term loans

from outsiders.

FIXED ASSETS TO NET WORTH RATIO

The ratio establishes the relationship between fixed assets & owners fund.

Fixed Assets

Fixed Assets To Net Worth Ratio ratio =

Owners Funds

Table No5.19

TABLE SHOWING FIXED ASSETS TO NET WORTH RATIO

Year Fixed Assets Owners Fund RATIO

2003-04 305401135 73694768 414.41

2004-05 297654153 91245113 326.21

2005-06 318456107 50285426 633.29

2006-07 330794662 87246678 379.14

2007-08 329141037 120892426 272.25

GRAPH - 5.19


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GRAPH SHOWING FIXED ASSETS TO NET WORTH RATIO

INTERPRETATION

From the above graph it is clear that the fixed assets to net worth ratio has been

decreasing from 2003-08 i.e from 414.41 to 272.25.It indicates that the owners fund are

less than fixed assets so the company has to depend upon the outsiders to finance the

fixed assets.

RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS

The ratio is calculated by diving the total of current assets by the amount of share holders

fund or owners fund.

Current Assets

Ratio Of Current Assets To Proprietors Funds =Owners Funds

Table No5.20

RATIO

0

100

200

300

400

500

600

700

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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TABLE SHOWING CURRENT ASSETS TOPROPRIETORS FUNDS RATIO

Year Current Assets Owners Fund RATIO

2003-04 1549313128 73694768 210.23

2004-05 138387552 91245113 151.66

2005-06 135278340 50285426 269.02

2006-07 145017717 87246678 166.2

2007-08 189848116 120892426 157.03

GRAPH - 5.20

GRAPH SHOWING CURRENT ASSETS TOPROPRIETORS FUNDS RATIO

INTERPRETATION

From the above graph it is clear that the current assets to proprietors funds ratio has been

decreased from 20003-08 i.e from 210.23 to 157.03. It indicates that the owners fund are

less than current assets so that the company has to depend upon the outsiders to finance

the current assets.

FIXED ASSETS TO TOTAL LONG TERM FUNDS

RATIO

0

50

100

150

200

250

300

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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A variant to the ratio of fixed assets to net worth is the ratio of fixed assets to long term

funds.

Fixed Assets

Fixed Assets To Total Long Term Funds =

Total Long Term Funds

Table No5.21

TABLE SHOWING FIXED ASSETS TO TOTAL LONG TERM FUNDS RATIO

Year Fixed Assets Total Long Term Funds RATIO

2003-04 305401135 202180867 1.51

2004-05 297654153 207229687 1.43

2005-06 318456107 152503313 2.08

2006-07 330794662 204715288 1.61

2007-08 329141037 236592427 1.39

GRAPH - 5.21

GRAPH SHOWING FIXED ASSETS TO TOTAL LONG TERM FUNDS RATIO

INTERPRETATON

RATIO

0

0.5

1

1.5

2

2.5

2003-04 2004-05 2005-06 2006-07 2007-08

RATIO


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From the above graph it is clear that the Fixed Assets to Total Long Term Funds Ratio

has been decreased from 2003-05 i.e from 1.51 to 1.43 and thereafter increasing to 2.08

in 2005-06 and has been declining from 2006-08 to 1.39.It indicates that the company has

financed a part of the fixed assets out of current funds or working capital which is not a

good financial policy.

GROSS PROFIT RATIO

Gross profit ratio measures the relationship of gross profit to net sales & is usually

represented as a percentage.

Gross ProfitGross profit ratio = 100

Net sales

Table No5.22

TABLE SHOWING GROSS PROFIT RATIO

Year Gross Profit Sales Gross ProfitRatio

2003-04 165484085 1131530176 14.6

2004-05 181002570 1279675642 14.1

2005-06 142509966 1265251998 11.2

2006-07 207110254 1479900312 13.9

2007-08 284263783 1987487342 14.3

GRAPH NO - 5.22


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GRAPH SHOWING GROSS PROFIT RATIO

INTERPRETATION

From the above graph it is clear that the Gross Profit Ratio has been decreasing

from 2003-06 i.e from 14.6 to 11.2.And there after increasing from 2006-08 i.e from 13.9

to 14.3. A low gross profit ratio indicates high cost of goods sold due to unfavorable

purchasing policies, excessive competition or due to lower sales or lesser selling prices.

High gross profit ratio indicates increase in sales or selling prices or reduction in cost of

goods sold.

The ideal ratio of gross profit ratio is 25% to 35%. Therefore this indicates that the

companys profitability position is not favorable. However in the year 2006-08 the gross

profit ratio has slightly increased to 14.3% due to increased sales as a result of more

publicity campaign.

OPERATING RATIO

Gross Profit Ratio

0

2

4

6

8

10

12

14

16

2003-04 2004-05 2005-06 2006-07 2007-08

Gross Profit Ratio


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A operating ratio establishes the relationship between cost of goods sold +operating

expenses on the one hand sales on the other .In other words, it measures the cost of

operations per rupee of sales.

Operating cost

Operating ratio = 100Net sales

Table No5.23

TABLE SHOWING OPERATING RATIO

Year COGS +operating

Expenses

Net Sales Operating Ratio

2003-04 1064497168 1131530176 94.02004-05 1199302880 1279675642 93.7

2005-06 1229041439 1265251998 97.1

2006-07 1403256946 1479900312 94.8

2007-08 1882719267 1987487342 94.7

GRAPH - 5.23

GRAPH SHOWING OPERATING RATIO

INTERPRETATION

92

93

94

95

96

97

98

2003-04 2004-05 2005-06 2006-07 2007-08

Operating Ratio

Operating Ratio


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From the above graph it is clear that the operating ratio has been decreased from 2003-05

i.e from 94.0 to 93.7 and increased there after to 97.1 in 2005-06 ,But decreased from

2006-08 to 94.7. The ideal ratio is 75% to 85%. In all the years i.e. from 2003-08 the

operating ratio of the company is more than 85% which indicates that the operating

expenses is more than net sales.

OPERATING PROFIT RATIO

Operating ProfitGross profit ratio = 100

Sales

Table No5.24

TABLE SHOWING OPERATING PROFIT RATIO

Year Operating Profit / Sales Operating

Profit Ratio

2003-04 67033005 1131530176 5.92

2004-05 80372759 1279675642 6.282005-06 36210556 1265251998 2.86

2006-07 76643364 1479900312 5.17

2007-08 104768073 1987487342 5.27

GRAPH NO - 5.24


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GRAPH SHOWING OPERATING PROFIT RATIO

INTERPRETATION

From the above graph it is clear that the operating profit ratio has been decreased from

2003-08 from 5.92 to 5.27.Which indicates that the operating expenses or more.

0

1

2

3

4

5

6

7

2003-04 2004-05 2005-06 2006-07 2007-08

Operating Profit Ratio

Operating Profit Ratio


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CHAPTER. 6

SUMMARY OF

FINDINGS,

CONCLUSION AND

RECOMMENDATIONS


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6.1 SUMMARY OF FINDINGS

The current ratio has been increased from 2003-08 i.e.from 2.07to 2.22% .This

shows that the company has improved its current ratio.

The quick ratio has been increased from 2003-05 i.e. 1.33 to 2.26 and there after it

has been decreased from 2005-08 i.e 1.25 to 1.07.This shows that the ratio is above

the standard and the company has the ability to meet its liquid or current liabilities.

The absolute liquid ratio has been decreased from 2003-08 i.e 0.82 to 0.08 .It

shows that the company has in sufficient liquidity position to pay off its short

term liabilities.

The inventory turnover ratio has been increased from the 2003-06 i.e 17.43 to 32.7

and has declined in 2006-08 to 20.9. From study it reveals that the company has

inefficient management of inventory due to excess of stock in relation to production

and sales.

The inventory conversion period has been decreasing from the 2003-06 i.e 20.4

to 11.14 and increased in 2006-08 to 17.46.This shows that the company has

taken adequate measures to reduce the inventory period.

The Working capital turnover ratio has been increased from 2003-08 i.e. 14.09 to

22.4. It shows that the company has efficient utilization of working capital in

generating sales.

The interest coverage ratio has been increasing from 2003-05 i.e from 6.42 to 9 and

declined in 2004-06 to 5.6.And in 2006-08 it has raised to 17.7.This shows if the

companys earnings fall, it can be able to meet its commitment of fixed interest

charges out of its profits.


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The fixed assets turnover ratio has been increasing from 2003-08 i.e from 3.7 to

6.03.It shows that the company has efficient utilization of fixed assets in generating

sales.

The net profit ratio is in increasing trend from 2003-08 i.e. from 5.39 to 5.47.% It

shows that the company is to improving its net profit and fluctuation is due to the

expenses & sales fluctuation.

The Debt Equity ratio has been decreasing from 2003-08 i.e. from 1.74 to 0.95.It

shows that the ratio claims to outsiders are greater than those of owners funds.

The Proprietary ratio has been increasing from 2003-04 i.e from 16.0 to 23.29%. It

indicates that ratio in all the years is below 50% which shows unfavorable situation

to owners.

The debts to total funds ratio has been decreasing from 2003-08 i.e from 0.73 to

0.62.It shows that the company has better position to its creditors to pay debt

raised.

The Return on Investment ratio has been increasing from 2003-08 i.e from 19.3 to

26.65 .It shows that management has utilized the funds supplied by the owners as

well as creditors & return on those funds are generating revenue .

The Funded Debt To Capitalisation Ratio has been decreasing from 2003-05 i.e to

6.07 and shows increasing trend in 2006-08 from 8.25 to 5.13.It shows that the

company has not relied much on outside sources for raising long term funds.

The Gross Profit Ratio has been decreasing from 2003-06 i.e from 14.6 to 11.2.And

has raised to 14.3% in 2006-08 .Therefore this shows that the companys is trying

to achieve its profitability position .

6.2.CONCLUSION


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Finance is called the science of money. It studies the principles and methods of

obtaining control over money from those who have saved it, and the administration of it

by those into whose control it passes.

The liquidity ratios analyzed indicates that the short term liquidity position of the

company is slightly below the set standards and may face a problem of shortage of

working capital if the liquidity position of the company does not improve.

The turnover ratios which measures the operating efficiency of the company indicates

that the company has to make use of the available resources and also increase the sales

volume.

The profitability ratios are used to measure the overall efficiency has not of much

improvement in the past five years. Thus the company should take effective measure to

increase its profitability position.

6.3.RECOMMANDATIONS


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As the companys liquidity position to pay its short term liabilities is less it has to

improve its liquidity position by realizing funds from debtors and inventories.

As the company is maintaining high inventory turnover it has to deduce to

increase its production and sales to generate revenue out of it.

As the companys outsiders funds are greater than owners funds it has to raise

funds from owners in order to avoid paying high interest rates to outsiders to get

credit.

The debts to total funds ratio has better position to its creditors to pay debt raised,

from outsiders it can raise additional loans for its operations.

The inventory conversion period has been increasing measures should be taken

to reduce for inventory conversion to generate more sales.

Debtors turnover ratio has been fluctuating which reduces efficient management

and more in investment in working capital, measures should be taken to increase

collection from trade debtors.

Average collection Period has been decreasing , it is suggested to maintain the

same.

Working capital turnover Ratio is increasing, it is suggested to maintain the same.

Net profit ratio has been increasing in little variation the expenses has to be

reduced and sales to be increased to improve the net profit.


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The Fixed Assets to Net Worth Ratio has been decreasing the owners funds are

less than fixed assets. The dependency upon the outsiders to finance the fixed

assets has to reduce.

Ratio Of current assets To Proprietors Funds has been decreasing to improve

working capital current assets has to be invested more.

Gross profit ratio has been increasing in little variation the expenses has to be

reduced and sales to be increased to improve the gross profit.

Operating Profit Ratio has been increased to reduce operating expenses which is

good for profitability position of the company.


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CHAPTER . 7

BIBILIOGRAPHY


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BIBLIOGRAPHY

1. Reference Books:

M Y KHAN & PK JAI Management Accounting (Fourth Edition)

SHASHI K. GUPTA,R.K. SHARMA Management Accounting (First Edition)

SHASHI K. GUPTA, R.K. SHARMA, NEETI GUPTA, Financial Management

(Second Edition).

WEBSITE:- www.kmfnandini.com


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CHAPTER. 7

APPENDICES ANDANNEXURES


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TRADING ACCOUNT FOR THE YEAR ENDED 2003-04 AND 2004-05

SL.P A R T I C U L A R S

SCH YEAR YEAR

NO. NO. 2003-04 2004-05

EXPENDITURE:

1 Opening Stock 45 53,064,072.19 55,341,352.31

2 Purchases 46 73,310,764.02 103,528,437.18

3 Interunit\Union Purchases 47 836,427,327.70 898,115,137.99

4 Inter Federation Purchases 47A 0.00 0.00

5 Procurement Transportation 48 9,993,724.09 9,701,067.95

6 Processing & Manufacturing 49 48,591,554.99 62,520,160.55

Expenses

Gross Profit transfered to 165,484,085.70 181,002,570.89

Profit and Loss A/C

TOTAL - 1,186,871,528.69 1,310,208,726.87

INCOME

7 Sales - (Local Sales) 50 1,014,501,710.11 1,184,657,031.68

8 Interunit\Union sales 51 117,028,466.27 95,018,610.53

9 Inter Federation Sales 51A 0.00 0.00

10 Closing Stock 52 55,341,352.31 30,533,084.66

Gross Loss transfered to

Profit and Loss A/C

TOTAL - 1,186,871,528.69 1,310,208,726.87


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TRADING ACCOUNT FOR THE YEAR ENDED 2005-06 AND 2006-07


SCH YEAR YEAR

NO. NO. 2005-06 2006-07

EXPENDITURE:

1 Opening Stock 45 30,533,084.66 38,026,102.38

2 Purchases 46 122,201,965.96 1,191,563,263.24

3 Interunit\Union Purchases 47 933,304,864.90 22,348,766.00

4 Inter Federation Purchases 47A 0.00 0.00

5 Procurement Transportation 48 13,513,949.48 18,828,542.70

6 Processing & Manufacturing 49 61,214,269.27 66,068,575.33

Expenses

Gross Profit transfered to 142,509,966.88 207,110,254.40

Profit and Loss A/C

TOTAL - 1,303,278,101.15 1,543,945,504.05

INCOME

7 Sales - (Local Sales) 50 1,209,176,554.00 1,377,114,741.49

8 Interunit\Union sales 51 56,075,444.77 102,785,571.23

9 Inter Federation Sales 51A 0.00 0.00

10 Closing Stock 52 38,026,102.38 64,045,191.33


Profit and Loss A/C

TOTAL - 1,303,278,101.15 1,543,945,504.05


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TRADING ACCOUNT FOR THE YEAR ENDED 2007-08

SL. P A R T I C U L A R S SCH CURRENT YEAR

NO. NO. 2007-08

EXPENDITURE:

1 Opening Stock 45 64,045,191.33

2 Purchases 46 1,606,734,493.17

3 Interunit\Union Purchases 47 22,674,493.80

4 Inter Federation Purchases 47A 0.00

5 Procurement Transportation 48 27,464,814.15

6 Processing & Manufacturing 49 80,594,435.20

Expenses

Gross Profit transfered to 284,263,783.70

Profit and Loss A/C

TOTAL - 2,085,777,211.35

INCOME

7 Sales - (Local Sales) 50 1,793,054,175.82

8 Interunit\Union sales 51 194,433,166.84

9 Inter Federation Sales 51A 0.00

10 Closing Stock 52 98,289,868.69


Profit and Loss A/C

TOTAL - 2,085,777,211.35


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PROFIT & LOSS ACCOUNT FOR THE YEAR 2003-04


SCH CURRENT YEAR

NO. NO. 2003-04

EXPENDITURE

Gross Loss B/F

1 Staff Expenses 53 45,939,187.21

2 Adminstration Expenses 54 10,744,347.44

3 Taxes 55 2,024,179.00

4 Selling & Distribution Exps. 56 19,885,650.62

5 Interest & Bank Charges 57 11,687,179.29

6 Loss on sale/revaluation of Assets 58 0.00

7 Depreciation : 20

- Depreciation on fixed assets 21,881,894.69

- Lease amount on BVB sites written off

NET PROFIT 61,101,056.75

TOTAL - 173,263,495.00

INCOME

Gross Profit B/F 165,484,085.70

8 Other Income 60 5,211,978.93

9 Interest on Deposit & Advances 61 2,461,715.92

10 Profit on sale/revaluation of 62 105,714.45

assets

11 Grant receipts from : 63 0.00

- N.D.D.B.

- Government of Karnataka

NET LOSS

TOTAL - 173,263,495.00


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PROFIT & LOSS ACCOUNT FOR THE YEAR 2004-05 2005-06


SCH YEAR YEAR

NO. NO. 2005-06 2004-05

EXPENDITURE

Gross Loss B/F

1 Staff Expenses 53 49,508,171.03 44,928,316.30

2 Adminstration Expenses 54 9,908,841.11 9,675,424.57

3 Taxes 55 368,310.28 1,847,093.00

4 Selling & Distribution Exps. 56 23,166,704.65 23,780,661.70

5 Interest & Bank Charges 57 8,270,810.77 9,950,185.92

6 Loss on sale/revaluation of Assets 58 0.00 0.00

7 Depreciation : 20

- Depreciation on fixed assets 23,715,694.00 22,003,882.54

- Defunct Borewell Value written off 241,526.52

NET PROFIT 37,691,715.21 78,651,402.73

TOTAL - 152,630,247.05 191,078,493.28

INCOME

Gross Profit B/F 142,509,966.88 181,002,570.89

8 Other Income 60 9,340,083.72 8,316,626.88

9 Interest on Deposit & Advances 61 533,005.00 1,757,669.27

10 Profit on sale/revaluation of 62 247,191.45 1,626.24

assets

11 Grant receipts from : 63 0.00 0.00

- N.D.D.B.


NET LOSS

TOTAL - 152,630,247.05 191,078,493.28


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PROFIT & LOSS ACCOUNT FOR THE YEAR 2006-07 2007-08


SCH YEAR YEAR

NO. NO. 2007-08 2006-07

EXPENDITURE

Gross Loss B/F

1 Staff Expenses 53 84,089,965.91 63,782,030.83

2 Administration Expenses 54 36,154,511.66 9,684,772.52

3 Taxes 55 310,505.20 384,401.00

4 Selling & Distribution Expenses. 56 34,617,464.37 32,869,570.28

5 Interest & Bank Charges 57 6,527,907.53 7,765,238.29

6 Loss on sale/revaluation of Assets 58 724,832.17 0.00

7 Depreciation : 20 24,633,769.28 24,130,516.77

- Depreciation on fixed assets

- Defunct Borewell Value written off

NET PROFIT 108,740,526.74 74,782,953.64

TOTAL - 295,799,481.86 213,399,483.33

INCOME

Gross Profit B/F 284,263,783.70 207,110,254.40

8 Other Income 60 8,058,856.93 4,192,289.63

9 Interest on Deposit & Advances 61 987,245.29 1,301,854.00

10 Profit on sale/revaluation of 62 2,489,595.94 795,085.30

assets

11 Grant receipts from : 63 0.00 0.00

- N.D.D.B.


NET LOSS

TOTAL - 295,799,481.86 213,399,483.33


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BALANCE SHEET FOR THE YEAR ENDED AS ON 2003-04

SL.PARTICULARS

SCH CURRENT YEAR

NO. NO. 2003-04

SOURCE

a study of financial performance through ratios

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