dawar shoe financial analysis

7/27/2019 Dawar Shoe Financial Analysis

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INTRODUCTION TO RATIO ANALYSIS and

INTERPRETITION

OBJECTIVE:

To understand the information contained in financial statements with a

view to know the strength or weaknesses of the firm and to make forecast about

the future prospects of the firm and thereby enabling the financial analyst to

take different decisions regarding the operations of the firm.

RATIO ANALYSIS:

Fundamental Analysis has a very broad scope. One aspect looks at the

general (qualitative) factors of a company. The other side considers tangible

and measurable factors (quantitative). This means crunching and analyzing

numbers from the financial statements. If used in conjunction with other

methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance

sheet, income statement, and cash flow statement. It's comparing the number

against previous years, other companies, the industry, or even the economy in

general. Ratios look at the relationships between individual values and relate

them to how a company has performed in the past, and might perform in the

future.

MEANING OF RATIO:A ratio is one figure express in terms of another figure. It is a

mathematical yardstick that measures the relationship two figures, which are

related to each other and mutually interdependent. Ratio is express by dividing

one figure by the other related figure. Thus a ratio is an expression relating one

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number to another. It is simply the quotient of two numbers. It can be expressed

as a fraction or as a decimal or as a pure ratio or in absolute figures as so

many times. As accounting ratio is an expression relating two figures or

accounts or two sets of account heads or group contain in the financial

statements.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of

items or group of items in the financial statement are computed, determined

and presented.

Ratio analysis is an attempt to derive quantitative measure or guides

concerning the financial health and profitability of business enterprises. Ratio

analysis can be used both in trend and static analysis. There are several ratios

at the disposal of an annalist but their group of ratio he would prefer depends

on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this

section, we will focus on a technique, which is easy to use. It can provide you

with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis

compares financial ratios of several companies from the same industry. Ratio

analysis can provide valuable information about a company's financial health. A

financial ratio measures a company's performance in a specific area. For

example, you could use a ratio of a company's debt to its equity to measure a

company's leverage. By comparing the leverage ratios of two companies, you

can determine which company uses greater debt in the conduct of its business.A company whose leverage ratio is higher than a competitor's has more debt

per equity. You can use this information to make a judgment as to which

company is a better investment risk.

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However, you must be careful not to place too much importance on one ratio.

You obtain a better indication of the direction in which a company is moving

when several ratios are taken as a group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) ProfitabilityD) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between to or more variables

/ accounting figures, such relationship can be expressed in different ways as

follows

A] As a pure ratio:

For example the equity share capital of a company is Rs. 20,00,000 &

the preference share capital is Rs. 5,00,000, the ratio of equity share capital to

preference share capital is 20,00,000: 5,00,000 or simply 4:1.

B] As a rate of times:

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In the above case the equity share capital may also be described as 4

times that of preference share capital. Similarly, the cash sales of a firm are

Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to

cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying

that the credit sales are 2.5 times that of cash sales.

C] As a percentage:

In such a case, one item may be expressed as a percentage of some

other item. For example, net sales of the firm are Rs.50,00,000 & the amount of

the gross profit is Rs. 10,00,000, then the gross profit may be described as 20%

of sales [ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio

may be the past ratio of the same firm or industrys average ratio or a projected

ratio or the ratio of the most successful firm in the industry. In interpreting the

ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless

the calculated ratio is compared with some predetermined standard. The

importance of a correct standard is oblivious as the conclusion is going to be

based on the standard itself.

TYPES OF COMPARISONS

The ratio can be compared in three different ways

1] Cross section analysis:

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One of the way of comparing the ratio or ratios of the firm is to compare

them with the ratio or ratios of some other selected firm in the same industry at

the same point of time. So it involves the comparison of two or more firms

financial ratio at the same point of time. The cross section analysis helps the

analyst to find out as to how a particular firm has performed in relation to its

competitors. The firms performance may be compared with the performance of

the leader in the industry in order to uncover the major operational

inefficiencies. The cross section analysis is easy to be undertaken as most of

the data required for this may be available in financial statement of the firm.

2] Time series analysis:

The analysis is called Time series analysis when the performance of a

firm is evaluated over a period of time. By comparing the present performance

of a firm with the performance of the same firm over the last few years, an

assessment can be made about the trend in progress of the firm, about the

direction of progress of the firm. Time series analysis helps to the firm to assess

whether the firm is approaching the long-term goals or not. The Time series

analysis looks for (1) important trends in financial performance (2) shift in trend

over the years (3) significant deviation if any from the other set of data\

3] Combined analysis:

If the cross section & time analysis, both are combined together to study

the behavior & pattern of ratio, then meaningful & comprehensive evaluation of

the performance of the firm can definitely be made. A trend of ratio of a firm

compared with the trend of the ratio of the standard firm can give good results.

For example, the ratio of operating expenses to net sales for firm may be higher

than the industry average however, over the years it has been declining for the

firm, whereas the industry average has not shown any significant changes.

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The combined analysis as depicted in the above diagram, which clearly shows

that the ratio of the firm is above the industry average, but it is decreasing over

the years & is approaching the industry average.

PRE-REQUISITIES TO RATIO ANALYSIS

In order to use the ratio analysis as device to make purposeful

conclusions, there are certain pre-requisites, which must be taken care of. It

may be noted that these prerequisites are not conditions for calculations for

meaningful conclusions. The accounting figures are inactive in them & can be

used for any ratio but meaningful & correct interpretation & conclusion can be

arrived at only if the following points are well considered.

1) The dates of different financial statements from where data is taken must

be same.

2) If possible, only audited financial statements should be considered,

otherwise there must be sufficient evidence that the data is correct.

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3) Accounting policies followed by different firms must be same in case of

cross section analysis otherwise the results of the ratio analysis would be

distorted.

4) One ratio may not throw light on any performance of the firm. Therefore,

a group of ratios must be preferred. This will be conductive to counter

checks.

5) Last but not least, the analyst must find out that the two figures being

used to calculate a ratio must be related to each other, otherwise there is

no purpose of calculating a ratio.

CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON

USER

STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM

2] REVENUE 3] ACTIVITY RATIO CREDITORS

STATEMENT 4] PROFITABILITY 2] RATIO FOR

RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FORLONG TERM

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CREDITORS

BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from

financial statements. Figures may be taken from Balance Sheet , P& P A/C, or

both. One-way of classification of ratios is based upon the sources from which

are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called

Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of

debt to equity. While calculating these ratios, there is no need to refer to the

Revenue statement. These ratios study the relationship between the assets &

the liabilities, of the concern. These ratio help to judge the liquidity, solvency &

capital structure of the concern. Balance sheet ratios are Current ratio, Liquid

ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock

working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue

statement ratios. These ratio study the relationship between the profitability &

the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio,

Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is

found in the balance sheet & other in revenue statement.There are two types of composite ratios-

a) Some composite ratios study the relationship between the profits & the

investments of the concern. E.g. return on capital employed, return on

proprietors fund, return on equity capital etc.

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b) Other composite ratios e.g. debtors turnover ratios, creditors turnover

ratios, dividend payout ratios, & debt service ratios

INTRODUCTION

There were about 200 footwear exporting firms in Agra exporting to

several countries, but besides these firms, there were also about 6,000

small-scale footwear-manufacturing units functioning in the town that

were yet to make a breakthrough in the world market.

DAWAR TODAY

An OHSAS 18001 & SA 8000 ISO 9001 & 14001 Company

For more than Two decades, Dawar Group has controlled the Specification,

Production, Distribution and Technical information of footwear

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technology. "Dawar Group" was founded in "1977" on the modest scale in

the city Agra. A move to set-up more Units were necessary to cope with

the abrupt increase in the volume of business. As a part of its expansion

and diversification drive, Two manufacturing Units came into existence

under the Group.

DAWAR FOOTWEAR IND:-

is a Govt. recognized export house engaged in the manufacture & export of

Men's Footwear i.e Classic- Comfort Classic & Sport Line & all type of

Uppers.

DAWAR LSD:-

is a Govt. recognized export house engaged in the manufacture & export of

Ladies Footwear *Fashion *Comfort *Sporty *Woven Ankled-Mid-Long

Boots, Shoes & Sandals..

Expansion:-

In house production of PU, TPR Soles and Shoes

Dawar family is a large and growing family. It extends beyond the people

who work for Dawar Group. Their families are also an integral part of it.

The Group shares the hopes and aspirations of its people and their children.

It goes out of its way to reward their hard work and dedication.

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"Saksham Dawar Memorial Trust" is a small but significant step in that

direction. Its a child education programme for the children of the workers.

In addition to this, it also provides monetary assistance to a large number of

its worker's children studying in other schools.

The Group also works in association with a number of NGO's to fulfill its

other social welfare commitments. It also organizes regular health check-

ups for the families of its workers. But these efforts are not enough. There

is a lot more that needs to be done. Nobody understands it more than the

chairman of the Group, "Mr. Puran Dawar".LEADING FROM THE

FRONT

An OHSAS 18001 & SA 8000 ISO 9001 & 14001 Company

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Mr. Puran Dawar(Chairman)

Mr. Prem Agarwal(General Manager)

Dawar Group is led from the front by "Mr. Puran Dawar", a pro-active

veteran from the shoe industry. Mr. Dawar is a widely travelled person and

has been associated with the shoe industry for more than three decades. He

understands the dynamics of shoe business and how it is conducted in the

international market.

With his clear vision and rock solid dedication, he has brought Dawar

Group this far and continues to lead it with missionary zeal.

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It is Mr. Dawar's concern for his people and environment related issues that

has endeared him to one and all. A visit to Group's manufacturing facility

and corporate office reflects these concerns.

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Mr. Prem Agarwal , General Manager is a seasoned professional who looks

after the day to day affairs of the company.

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OUR PEOPLE

Dawar Group is indebted to its people for their unflinching support and

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dedication. They have stood by us in our good, bad and ugly times. They

have crafted some of the finest shoes for most of the top names in

international footwear and fashion industry. They have made us a force to

reckon with in the fiercely competitive global footwear industry.

We, at one end, have not failed them either. To begin with, we have

provided them with a world class working environment envied by many in

the industry. Its a hazard free, airy, well lit and well built working facility

we are talking about with clean toilets and adequate drinking water.

Its a facility that encourages performance by its ambience. Hot Indian

summer is hardly a distraction. Their health is a matter of concern to us.

Medical check-ups by qualified doctors are organised at regular intervals to

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monitor their health and welfare. Then, there is a cafetaria for people where

they get subsidised food items.

There is a volleyball court in the front amidst sprawling greens. It has

witnessed many a competitive in-house tourneys. It is important for our

people to know the joy of winning and the agony of losing to each other.

But together they make a formidable team of 800 strong and highly skilled

people we are proud of.

WORK STRENGTH

For a company to stay ahead in terms of quality and competitiveness, it has

to rely on the strength of its own infrastructure and resources. We, at

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Dawar Group, realised it very early. Today, we not only have a most

modern manufacturing complex but also an array of sophisticated machines

to produce a diverse range of world class footwear.

Besides a number of Italian Lasting Machines and German Closing

Machines, there are other machines at various stages of production. The

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assembly line manufacturing enhances production and ensure quality. On-

line Quality Control Checks by seasoned professionals enable us to monitor

consistency in production of a particular order.

From shoe upper to complete shoes, everything is produced in-house there

by reducing production lead time and enhancing cost effectiveness. Over

the years, the group has kept a sturdy pace with technological advances in

footwear production. It has continuously upgraded its infrastructure to

produce quality footwear.

Installed Capacity

2000 pairs/day - Ladies Shoes

4000 pairs/day - Men's Shoes

1200 pairs/day - Children shoes

QUALITY POLICY

At Dawar, we look at quality from a different perspective. Concern for

quality is ingrained in our system. It is an integral part of our thought

process. And that is how it has become a tangible aspect of our products.

You can see and feel it. Quality is not talking about it; it is doing it. It

should be inherent in your belief system

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Over the years, we at Dawar, have evolved our own quality policy turned

to the capabilities of our people. They produce quality because we provide

them quality environment and facilities. We lead the crusade for quality

from the front. At Dawar, quality is people driven. Workers produce it,

professionals inspect it and together they deliver it. From time to time our

people undergo orientation programmes conducted with the assistance of

technocrats to understand qualitative aspects of products we make. To top

it all, the management of Dawar Group monitors the production process to

ensure that each footwear bears Dawar's seal of 'Quality Always'.

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Awards

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ENVIRONMENT FRIENDLY COMPANY

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Inherent in the work culture of "Dawar Group" is a deep concern for

conservation & Preservation of the environment. The sprawling greens in

front of its Corporate Headquarters and Manufacturing facility is one such

example.A modern waste treatment plant has been installed to ensure its

surroundings are not polluted. The facility has been designed meticulously

to match international standards in terms of temperature control, noise

levels etc.

It has "top-of-the-line fire fighting" arrangements. The walls in the

working areas are fitted with fire fighting equipments and fire exits routes

are painted all over the work area. The electricity cables have been laid

under the watchful eyes of professionals as per the prescribed standards. To

educate our workers regarding the use of chemicals, regular orientation

programmes are conducted. Our concern for our environment and the

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measures we have taken to preserve it have got us an "ISO 14001"

Certification.

RESEARCH & DEVELOPMENT

Dawar group is constantly innovating new designs. In sync with latest

trends in the European standards, development of new designs goes on

round the year at our Research and Development department.

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At Dawar group , commitment to provide high class and quality service

continues, right from the designer's sketchbook through to the performance

of our shoes on a customer's foot.

Dawar group has adopted latest footwear technology to give new

dimension to the creative designers.

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Success is never a matter of desire, it is the product of hard work and

vision. The phenomenal success of Dawar Group proves it. With effective

presence in more than "40" countries and a turnover exceeding, the group

has been growing steadily.

It's success is simply a by product of the implicit faith and confidence its

buyers have in its capabilities. It has never let them down. And that is

because their every requirement is met as per their exact specifications.

Today, the Group exports its footwear to some of the top names in fashion

and footwear business. "United Colours Of Benetton, Lumberjack" etc. are

some of the brands it makes footwear for.

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Our product range is exhibited in many prestigious fairs like "Riva Del

Garda (Italy), GDS (Germany) and WSA (USA)".

For us at Dawar every customer, no matter big or small, counts. Whenever

visiting our "Corporate headquarters" in India, each customer is looked

after well. We have even made independent work stations for them to work

with freedom. All the work stations are equipped with modern

telecommunication facilities. We cherish the mutually rewarding

relationship we share with our customers worldwide.

OUR MAIN MARKET

(1) UK & Europe (2) Scandinavia (3) Australia & North America

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The brand "DAWAR" has been able to maintain its aura of exclusivity and

distinction in the global market. Our brand "DAWAR" cherish the dreams

of people from across the world by providing footwear of their choice.

With the growing popularity, proliferation comes along.

The company has elaborated the brand concept by launching a variety of

sub-brands and shoes to suit different occasions. The new brand were

coined with attractive catchword, thus helping the customers finding the

right shoes. Our range of brand caters to every need in footwear world.

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PRODUCTS

WOMENS COLLECTION 2010

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MENS COLLECTION 2010

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BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in to

liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover

ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities

of the concern e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in

financing the assets of the concern e.g. capital gearing ratios, debt equity ratios,

& Proprietory ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as

Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover

ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios,

gross profitratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on

investment, return on equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims

of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt

service ratios.

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BASED ON USER:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses

ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

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LIQUIDITY RATIO: -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)

obligations. The ratios, which indicate the liquidity of a company, are Current

ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

CURRENT RATIO

Meaning:

This ratio compares the current assests with the current liabilities. It is also

known as working capital ratio or solvency ratio. It is expressed in the form of

pure ratio.

E.g. 2:1

Formula:

Current assetsCurrent ratio =

Current liabilities

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The current assests of a firm represents those assets which can be, in the

ordinary course of business, converted into cash within a short period time,

normally not exceeding one year. The current liabilities defined as liabilities

which are short term maturing obligations to be met, as originally contemplated,

with in a year.

Current ratio (CR) is the ratio of total current assets (CA) to total current

liabilities (CL). Current assets include cash and bank balances; inventory of raw

materials, semi-finished and finished goods; marketable securities; debtors (net

of provision for bad and doubtful debts); bills receivable; and prepaid expenses.

Current liabilities consist of trade creditors, bills payable, bank credit, provision

for taxation, dividends payable and outstanding expenses. This ratio measures

the liquidity of the current assets and the ability of a company to meet its short-

term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted

into cash in the operating cycle of the firm and provides the funds needed to

pay for CL. The higher the current ratio, the greater the short-term solvency.

This compares assets, which will become liquid within approximately twelve

months with liabilities, which will be due for payment in the same period and is

intended to indicate whether there are sufficient short-term assets to meet the

short- term liabilities. Recommended current ratio is 2: 1. Any ratio below

indicates that the entity may face liquidity problem but also Ratio over 2: 1 as

above indicates over trading, that is the entity is under utilizing its current

assets.

LIQUID RATIO:

Meaning:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare

the quick assets with the quick liabilities. It is expressed in the form of pure

ratio. E.g. 1:1.

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The term quick assets refer to current assets, which can be converted into,

cash immediately or at a short notice without diminution of value.

Formula:

Quick assetsLiquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA

refers to those current assets that can be converted into cash immediately

without any value strength. QA includes cash and bank balances, short-term

marketable securities, and sundry debtors. Inventory and prepaid expenses are

excluded since these cannot be turned into cash as and when required.

QR indicates the extent to which a company can pay its current liabilities

without relying on the sale of inventory. This is a fairly stringent measure of

liquidity because it is based on those current assets, which are highly liquid.

Inventories are excluded from the numerator of this ratio because they are

deemed the least liquid component of current assets. Generally, a quick ratio of1:1 is considered good. One drawback of the quick ratio is that it ignores the

timing of receipts and payments.

CASH RATIO

Meaning:

This is also called as super quick ratio. This ratio considers only the absolute

liquidity available with the firm.

Formula:

Cash + Bank + Marketable securities

Cash ratio =

Total current liabilities

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Since cash and bank balances and short term marketable securities are the

most liquid assets of a firm, financial analysts look at the cash ratio. If the super

liquid assets are too much in relation to the current liabilities then it may affect

the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the

organization. An earnings per Share representsearning of the company

whether or not dividends are declared. If there is only one class of shares, the

earning per share are determined by dividing net profit by the number of equity

shares.

EPS measures the profits available to the equity shareholders on each share

held.

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Formula:

NPAT

Earning per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the company as

it indicates that the business is more profitable enough to pay the dividends in

time. But remember not all profit earned is going to be distributed as dividends

the company also retains some profits for the business

DIVIDEND PER SHARE:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share

held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividend paid to

equity shareholders out of the profit available to the equity shareholders.

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Formula:\

Dividend per share

Dividend Pay out ratio = *100Earning per share

D/P ratio shows the percentage share of net profits after taxes and after

preference dividend has been paid to the preference equity holders.

GEARING

CAPITAL GEARING RATIO:-

Meaning:

Gearing means the process of increasing the equity shareholders return

through the use of debt. Equity shareholders earn more when the rate of the

return on total capital is more than the rate of interest on debts. This is also

known as leverage or trading on equity. The Capital-gearing ratio shows the

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relationship between two types of capital viz: - equity capital & preference

capital & long term borrowings. It is expressed as a pure ratio.

Formula:

Preference capital+ secured loan

Capital gearing ratio =

Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of

assets of a concern.

PROFITABILITY

These ratios help measure the profitability of a firm. A firm, which generates a

substantial amount of profits per rupee of sales, can comfortably meet itsoperating expenses and provide more returns to its shareholders. The

relationship between profit and sales is measured by profitability ratios. There

are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

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GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is definedas the excess of the net sales over cost of goods sold or excess of revenue

over cost. This ratio shows the profit that remains after the manufacturing costs

have been met. It measures the efficiency of production as well as pricing. This

ratio helps to judge how efficient the concern is I managing its production,

purchase, selling & inventory, how good its control is over the direct cost, how

productive the concern , how much amount is left to meet other expenses &

earn net profit.

Formula:

Gross profitGross profit ratio = * 100

Net sales

NET PROFIT RATIO:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is

usually expressed in the form of a percentage.

Formula:

NPATNet profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and

preference shareholders) as a percentage of net sales. It measures the overall

efficiency of production, administration, selling, financing, pricing and tax

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management. Jointly considered, the gross and net profit margin ratios provide

an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view of the

total funds employed in the firm. The term fund employed or the capital

employed refers to the total long-term source of funds. It means that the capital

employed comprises of shareholder funds plus long-term debts. Alternatively it

can also be defined as fixed assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the

owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE

indicates the efficiency with which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed

FINANCIAL

These ratios determine how quickly certain current assets can be converted into

cash. They are also called efficiency ratios or asset utilization ratios as they

measure the efficiency of a firm in managing assets. These ratios are based on

the relationship between the level of activity represented by sales or cost ofgoods sold and levels of investment in various assets. The important turnover

ratios are debtors turnover ratio, average collection period, inventory/stock

turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These

are described below:

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DEBTORS TURNOVER RATIO (DTO)

Meaning:

DTO is calculated by dividing the net credit sales by average debtors

outstanding during the year. It measures the liquidity of a firm's debts. Net

credit sales are the gross credit sales minus returns, if any, from

customers. Average debtors are the average of debtors at the beginning

and at the end of the year. This ratio shows how rapidly debts are

collected. The higher the DTO, the better it is for the organization.

Formula:

Credit salesDebtors turnover ratio =

Average debtors

INVENTORY OR STOCK TURNOVER RATIO (ITR)

Meaning:ITR refers to the number of times the inventory is sold and replaced during the

accounting period.

Formula:

COGSStock Turnover Ratio =

Average stock

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ITR reflects the efficiency of inventory management. The higher the ratio, the

more efficient is the management of inventories, and vice versa. However, a

high inventory turnover may also result from a low level of inventory, which may

lead to frequent stock outs and loss of sales and customer goodwill. For

calculating ITR, the average of inventories at the beginning and the end of the

year is taken. In general, averages may be used when a flow figure (in this

case, cost of goods sold) is related to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high

ratio indicates a high degree of efficiency in asset utilization while a low ratio

reflects an inefficient use of assets. However, this ratio should be used with

caution because when the fixed assets of a firm are old and substantially

depreciated, the fixed assets turnover ratio tends to be high (because the

denominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or

ultimate solvency of the company.

In other words, Proprietary ratio determines as to what extent the owners

interest & expectations are fulfilled from the total investment made in the

business operation.

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Proprietary ratio compares the proprietor fund with total liabilities. It is usually

expressed in the form of percentage. Total assets also know it as net worth.

Formula:

Proprietary fund

Proprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio = Fixed assets + current liabilities

STOCK WORKING CAPITAL RATIO:

Meaning:

This ratio shows the relationship between the closing stock & the working

capital. It helps to judge the quantum of inventories in relation to the working

capital of the business. The purpose of this ratio is to show the extent to which

working capital is blocked in inventories. The ratio highlights the predominance

of stocks in the current financial position of the company. It is expressed as a

percentage.

Formula:

StockStock working capital ratio =

Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the composition &

quality of the working capital. This ratio also helps to study the solvency of a

concern. It is a qualitative test of solvency. It shows the extent of funds blocked

in stock. If investment in stock is higher it means that the amount of liquid

assets is lower.

DEBT EQUITY RATIO:

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MEANING:

This ratio compares the long-term debts with shareholders fund. The

relationship between borrowed funds & owners capital is a popular measure of

the long term financial solvency of a firm. This relationship is shown by debt

equity ratio. Alternatively, this ratio indicates the relative proportion of debt &

equity in financing the assets of the firm. It is usually expressed as a pure ratio.

E.g. 2:1

Formula:

Total long-term debt

Debt equity ratio =

Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process

of the increasing the equity shareholders return through the use of debt.

Leverage is also known as gearing or trading on equity. Debt equity ratio

shows the margin of safety for long-term creditors & the balance between debt

& equity.

RETURN ON PROPRIETOR FUND:

Meaning:

Return on proprietors fund is also known as return on proprietors equity or

return on shareholders investment or investment ratio. This ratio indicates

the relationship between net profit earned & total proprietors funds. Return on

proprietors fund is a profitability ratio, which the relationship between profit &

investment by the proprietors in the concern. Its purpose is to measure the rate

of return on the total fund made available by the owners. This ratio helps to

judge how efficient the concern is in managing the owners fund at disposal.

This ratio is of practical importance to prospective investors & shareholders.

Formula:

NPAT

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Return on proprietors fund = * 100Proprietors fund

CREDITORS TURNOVER RATIO:It is same as debtors turnover ratio. It shows the speed at which payments are

made to the supplier for purchase made from them. It is a relation between net

credit purchase and average creditors

Net credit purchaseCredit turnover ratio =

Average creditors

Months in a yearAverage age of accounts payable =

Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher

creditors turnover ratio or a lower credit period enjoyed signifies that the

creditors are being paid promptly. It enhances credit worthiness of thecompany. A very low ratio indicates that the company is not taking full benefit of

the credit period allowed by the creditors.

IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. Theimportance of ratio analysis lies in the fact that it presents facts on a

comparative basis & enables the drawing of interference regarding the

performance of a firm. Ratio analysis is relevant in assessing the performance

of a firm in respect of the following aspects:

1] Liquidity position,

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2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding the

liquidity position of a firm. The liquidity position of a firm would be satisfactory if

it is able to meet its current obligation when they become due. A firm can be

said to have the ability to meet its short-term liabilities if it has sufficient liquid

funds to pay the interest on its short maturing debt usually within a year as well

as to repay the principal. This ability is reflected in the liquidity ratio of a firm.

The liquidity ratio are particularly useful in credit analysis by bank & other

suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financialviability of a firm. This respect of the financial position of a borrower is of

concern to the long-term creditors, security analyst & the present & potential

owners of a business. The long-term solvency is measured by the leverage/

capital structure & profitability ratio Ratio analysis s that focus on earning power

& operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in this

respect. The leverage ratios, for instance, will indicate whether a firm has a

reasonable proportion of various sources of finance or if it is heavily loaded with

debt in which case its solvency is exposed to serious strain. Similarly the

various profitability ratios would reveal whether or not the firm is able to offer

adequate return to its owners consistent with the risk involved.

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3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant from

the viewpoint of management, is that it throws light on the degree of efficiency

in management & utilization of its assets. The various activity ratios measures

this kind of operational efficiency. In fact, the solvency of a firm is, in the

ultimate analysis, dependent upon the sales revenues generated by the use of

its assets- total as well as its components.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the

financial position of a firm, the management is constantly concerned about

overall profitability of the enterprise. That is, they are concerned about the

ability of the firm to meets its short term as well as long term obligations to its

creditors, to ensure a reasonable return to its owners & secure optimum

utilization of the assets of the firm. This is possible if an integrated view is taken

& all the ratios are considered together.

5] INTER FIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but

also serves as a stepping-stone to remedial measures. This is made possible

due to inter firm comparison & comparison with the industry averages. A single

figure of a particular ratio is meaningless unless it is related to some standard

or norm. one of the popular techniques is to compare the ratios of a firm with

the industry average. It should be reasonably expected that the performance of

a firm should be in broad conformity with that of the industry to which it belongs.An inter firm comparison would demonstrate the firms position vice-versa its

competitors. If the results are at variance either with the industry average or

with the those of the competitors, the firm can seek to identify the probable

reasons & in light, take remedial measures.

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6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension into

account. In other words, whether the financial position of a firm is improving or

deteriorating over the years. This is made possible by the use of trend analysis.

The significance of the trend analysis of ratio lies in the fact that the analysts

can know the direction of movement, that is, whether the movement is favorable

or unfavorable. For example, the ratio may be low as compared to the norm but

the trend may be upward. On the other hand, though the present level may be

satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-maker insights

into the financial performance of a company. The advantages of ratio analysis

can be summarized as follows:

Ratios facilitate conducting trend analysis, which is important for

decision making and forecasting.

Ratio analysis helps in the assessment of the liquidity, operating

efficiency, profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm

comparisons.

The comparison of actual ratios with base year ratios or standard

ratios helps the management analyze the financial performance ofthe firm.

LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:

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1] Information problems

Ratios require quantitative information for analysis but it is not decisive

about analytical output .

The figures in a set of accounts are likely to be at least several months

out of date, and so might not give a proper indication of the companys

current financial position.

Where historical cost convention is used, asset valuations in the balance

sheet could be misleading. Ratios based on this information will not be

very useful for decision-making.

2] Comparison of performance over time

When comparing performance over time, there is need to consider the

changes in price. The movement in performance should be in line with

the changes in price.

When comparing performance over time, there is need to consider the

changes in technology. The movement in performance should be in line

with the changes in technology.

Changes in accounting policy may affect the comparison of results

between different accounting years as misleading.

3] Inter-firm comparison

Companies may have different capital structures and to make

comparison of performance when one is all equity financed and another

is a geared company it may not be a good analysis.

Selective application of government incentives to various companies

may also distort intercompany comparison. comparing the performance

of two enterprises may be misleading.

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Inter-firm comparison may not be useful unless the firms compared are

of the same size and age, and employ similar production methods and

accounting practices.

Even within a company, comparisons can be distorted by changes in the

price level.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do

not indicate future trends and they do not consider economic conditions.

PURPOSE OF RATIO ANLYSIS:

1] To identify aspects of a businesses performance to aid decision making

2] Quantitative process may need to be supplemented by qualitative

Factors to get a complete picture.

3] 5 main areas:-

Liquidity the ability of the firm to pay its way

Investment/shareholders information to enable decisions to be made

on the extent of the risk and the earning potential of a business

investment

Gearing information on the relationship between the exposure of the

business to loans as opposed to share capital

Profitability how effective the firm is at generating profits given sales

and or its capital assets

Financial the rate at which the company sells its stock and theefficiency with which it uses its assets

ROLE OF RATIO ANALYSIS:

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It is true that the technique of ratio analysis is not a creative technique in

the sense that it uses the same figure & information, which is already appearing

in the financial statement. At the same time, it is true that what can be achieved

by the technique of ratio analysis cannot be achieved by the mere preparation

of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability &

efficiency of performance, either individually or in relation to those of other firms

in the same industry. The process of this appraisal is not complete until the ratio

so computed can be compared with something, as the ratio all by them do not

mean anything. This comparison may be in the form of intra firm comparison,

inter firm comparison or comparison with standard ratios. Thus proper

comparison of ratios may reveal where a firm is placed as compared with earlier

period or in comparison with the other firms in the same industry.

Ratio analysis is one of the best possible techniques available to the

management to impart the basic functions like planning & control. As the future

is closely related to the immediate past, ratio calculated on the basis of

historical financial statements may be of good assistance to predict the future.

Ratio analysis also helps to locate & point out the various areas, which need the

management attention in order to improve the situation.As the ratio analysis is concerned with all the aspect of a firms financial

analysis i.e. liquidity, solvency, activity, profitability & overall performance, it

enables the interested persons to know the financial & operational

characteristics of an organisation & take the suitable decision.

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EVALUATION OF DAWAR SHOE LIMITED THROUGH RATIO

COMPANY PROFILE

THE COMPANY

DAWAR SHOE Limited is a professionally managed Public Limited

company quoted on the Bombay Stock Exchange. Since its inception in 1962,

DAWAR SHOE has been serving the global market with wide range of

electronic products meeting the international standards for safety and reliability

such as UL, VDE etc. They specialize in Test and Measurement Equipment,

Power Conversion and UPS Systems, Self-Service Terminals for Banking

Sector and Fuel Dispensers for Petroleum Sector. DAWAR SHOE enjoys

worldwide recognition for the quality of its products, business integrity and

innovative engineering skills.

ABOUT DAWAR SHOE:

Dawar shoe started its operation in October 1962.

It is a professionally managed 40 years old public limited company.

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It is quoted on BOMBAY STOCK EXCHANGE.

It serves customer global customer par excellence.

It specialized in Test & measurement instruments, power conversion, &

UPS & fuel dispensers for petroleum sector.

It enjoys worldwide recognition for the quality of its business integrity &

innovative engineering skills.

MISSION:

To deliver high quality, carefully, engineered products, on time, with in

budget, as per the customer specification in a manner profitable to both,

our customers & so to us.

VISION:

To be a global player, recognized for quality & integrity.

To be the TOP INDIAN COMPANY as conceived by our customers.

To be THE BEST company to work for, as rated by our employees.

GOAL:

Goal at Dawar shoe is extract ordinary customer service as we provide

our customer needs in the personal service industry.

CORPORATE MISSION

1] To achieve healthy and profitable growth of the company in the interest of our

customers & the shareholders.

2] To encourage teamwork, reward innovation and maintain healthyinterpersonal relations within the organization.

3] To expand knowledge and remain at the leading edge in technology to serve

the global market.

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4] To understand the customers needs and provide solutions than merely

selling products.

5] To create intellectual capital by investing in hardware and embedded

software development.

VALUES & BELIEFS:

Their values & beliefs required that they -

Treat employees with respect & give them an opportunity for input on

how to continuously improve their service goals.

Offer opportunities for growth, professional development & recognition.

Provide most effective & corrective action, to resolve customer service

issues, to ensure customer satisfaction.

Foster an open door policy, which encourages interaction, discussion &

ideas to improve work environment & increase productivity.

Do it right the first time & every time is their team commitment * our

way of doing business, it ensures as growth & prosperity.

THE 21ST CENTURY SUCCESS

DAWAR SHOE had planned to enter the 21st Century with a program for

a fast and healthy growth in the global market based on companys high

technology foundation and the reputation of four decades for prompt customer

service and as a reliable solution provider. After completing three years in the

new era, we can say with pride that we have been delivering our promises to

our customers and the shareholders.

DAWAR SHOE has entered the field of Professional Services starting

with the Banking and the Petroleum Industry. Focus on developing embedded

system software has been also enhanced. We believe that professional

services sector is poised to grow at a very rapid pace.

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QUALITY IS OUR WORK CULTURE - ISO 9001:2000

Quality at DAWAR SHOE is a part of our peoples attitude. Entire

organization is committed to create an environment that encourages individual

excellence and a personal commitment to quality. In DAWAR SHOE, Quality is

everybodys responsibility and all strive to do it right the first time. It is

therefore natural that DAWAR SHOE Limited is certified for quality with ISO

9001:2000 registration.

QUALITY POLICY:

Dawar shoe will deliver to its customer products & services that

consistently meet or exceed their requirement.

Dawar shoe will achieve this by total commitment & involvement of every

individual.

Dawar shoe will encourage its employees & suppliers to develop quality

products prevent defects & make continual improvement in all

processes.

QUALITY OBJECTIVE:

Dawar shoe is an ISO 9001:2000 certifies company.

100% customer satisfaction.

On time delivery every time reduction is out going PPM to 10,000

RESEARCH AND DEVELOPMENT

Developing innovative products with the latest technology is the core

strength of DAWAR SHOE. The Science & Technology Ministry of the Govt. of

India accredits our R&D Laboratories. We have a large team of dedicated,

highly qualified skilled engineers who excel in the latest state-of-the-art-technology. DAWAR SHOE is recognized not only for manufacturing standard

products but also in providing solutions and services as per the customer

specifications. We spend more than 4% of the company revenue in Research &

Development activities.

Specific areas in which the company carries out R&D

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1. Development of new product especially hi-tech intelligent product &

electronic transaction control system.

2. Improvement in the existing products & production processes, import

substitution.

3. Development of products to suit exports markets.

4. Customizing the products to the customers specifications & adaptation

of imported technology.

The company has achieved its position of leadership in the Indian

instrumentation industry & continuous to maintain it through its strong grip of

technology. Almost all the products manufactured by the company are import

substitution items, which are fully developed in house. It has resulted in

considerable saving of foreign exchange. With the company, R&D is an ongoing

process. The ministry of science & technology, Government of India, recognizes

the companys R&D.

Through a continuous interaction with production& Quality Assurance

Department takes up redesign of existing products. This is done to achieve

state of the art in our design & to bring about improvement to get maximum

performance / cost ratio.

FUTURE PLAN OF ACTION

Major R&D activity is concentrated around up gradation of product

design & re-alignment of production processes to bring about improved quality

at lower cost. This will greatly help the company in facing competition in local

markets from foreign companies.

EXPORT

DAWAR SHOE currently exports over 25% of its production to Western

Europe, Canada & USA. Over 30 million U.S. Dollars worth of Power Systems

and Test Instruments from DAWAR SHOE are today operational in UK,

Germany, France, Sweden, Belgium, Canada, and USA & Australia.

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PRODUCTS OF DAWAR SHOE:

a. TEST & MEASUREMENT INSTRUMENTS

b. HIGH POWER AC SYSTEMS (UPS, Frequency Converter,

Inverter, Isolation Transformer)

c. HIGH POWER DC SYSTEMS (DC Power Supply, DC

Uninterruptible Power Supply)

d. ATM INSTACASH

e. POWER SUPPLIES, AC-DC POWER SUPPLY, DC/DC

CONVERTERS, SMPS, INVERTERS, STABILIZER, LINE

CONDITIONER, ISOLATION TRANSFORMER

ATM INSTACASH

The Banking Automation

Division of DAWAR SHOE

was launched in 1993, when

we introduced INSTACASH-

Indias first indigenously

manufactured ATM

INSTACASH demonstrated

DAWAR SHOEs skills in

design, hardware

manufacturing and software

integrations. Our in house

R&D group is constantly

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striving to scan the rapidly changing technology and offer suitable end to end

solutions. We are into Self Service Delivery Systems, MICR Cheque Processing

and Smart Card based solutions. The latest is IMAGEENABLED Cheque

Processing solution- QUICKCLEAR.

DAWAR SHOE LIMITEDBALANCE SHEET AS AT 31ST MARCH 2008

(RS.000)

AS AT 31ST 2008

SOURCES OF FUNDS

SHAREHOLDERS FUND

Share capital 5,00,00

Reserves and surplus 16,29,6921,29,69

LOANS

Secured 12,13,48

Unsecured 3,67,99

15,81,47

DEFFERED TAX LIABILITY (NET) 1,06,85

TOTAL 38,18,01

APPLICATION OF FUNDS

FIXED ASSETSGross block 15,90,33

Less: depreciation 10,32,96

Net block 5,57,37

Capital work in progress 54,36

6,11,73

INVESTMENT 1,22,32

CURRENT ASSESTS, LOANS &

ADVANCES

Inventories 19,09,77

Sundary debtors 18,49,35Cash & bank balances 3,31,32

Loan & advances 5,80,36

46,70,80

CURRENT LIABLITIES &

PROVISIONS

Current liabilities 15,36,09

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Provisions 57,57

15,93,66

NET CURRENT ASSESTS 30,77,14

MISCELLANEOUS EXPENDITURE 6,84

Total 3818,01

PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2008(RS.000)

AS AT 31-3-2008

INCOME:

Sales and operating earnings 48,19,19

Other income 80,50

Variation in stock 1,31,07

50,30,76

EXPENCES:

Materials consumed 18,97,28

Purchase of trading goods 8,61,75Payments to & provision for 9,95,04

Employees

Manufacturing expenses 2,21,37

Excise duty 65,05

Other expenses 5,76,71

Interest & finance charges 2,60,22

Depreciation 1,05,37

Less: transferred to revaluation 1,15 1,04,22

49,81,64

PROFIT BEFORE TAX 49,12

PRIOR YEAR ADJUSTMENT (NET)

PROVISION FOR TAXATION

Current tax 24,42

Deferred tax liability / (Assets) 4,02

PROFIT AFTER TAX 20,68

Balance brought forward from previousyear 1

Balance available for appropriation 20,69

Appropriations:

General reserve 20,68

Surplus / (loss) carried to B/S 1

Proposed dividend

Tax on proposed dividend

20,69

Basic earning per share (rupee) 0.41

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0.41

BALANCE SHEET AS AT 31ST

MARCH 2009(RS.000)

AS AT 31-3- 2009

SOURCES OF FUNDS

SHAREHOLDERS FUND


Reserves and surplus 16,55,19

21,55,19

LOANS

Secured 10,27,55

Unsecured 4,53,1614,80,71

DEFFERED TAX LIABILITY (NET) 87,21

TOTAL 37,23,11


FIXED ASSETS

Gross block 17,40,97


Net block 6,00,04

Capital work in progress 29,746,29,78

INVESTMENT 1,47,26


ADVANCES


Sundary debtors 19,05,76

Cash & bank balances 3,95,25

Loan & advances 8,98,62

51,02,42

CURRENT LIABLITIES &PROVISIONS


Provisions 1,20,76

21,62,32


MISCELLANEOUS EXPENDITURE 5,97

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TOTAL 37,23,11


AS AT 31-3-2009

INCOME:

Sales and operating earnings 59,62,22Other income 15,04

Variation in stock (59,27)

59,17,99

EXPENCES:


Purchase of trading goods 10,37,52

Payments to & provision for 10,63,96

Employees


Excise duty 72,69Other expenses 7,62,23



Less: transferred to revaluation 1,03 1,06,94

57,91,50

PROFIT BEFORE TAX 1,26,49



Current tax 63,19

Deferred tax liability / (Assets) (19,64)

PROFIT AFTER TAX 82,94


Balance available for appropriation 82,95

Appropriations:



Proposed dividend 50,00

Tax on proposed dividend 6,41

82,95


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BALANCE SHEET AS AT 31ST MARCH 2010(RS.000)

AS AT 31-3- 2010

SOURCES OF FUNDS

SHAREHOLDERS FUNDShare capital 5,00,00


22,42,59

LOANS

Secured 11,38,86

Unsecured 5,58,29

16,97.15


TOTAL 40,35,07


FIXED ASSETS



Net block 6,01,55

Capital work in progress 15,29

6,16,84

INVESTMENT 1,48,34


ADVANCES



Cash & bank balances 4,49,74

Loan & advances 850,58

53,98,08


PROVISIONS


Provisions 3,12,02

21,28,19


TOTAL 40,35,07


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AS AT 31-3-2010

INCOME:


Other income 31,39

Variation in stock 53,99

74,75,85

EXPENCES:




Employees


Excise duty 70,08




Less: transferred to revaluation 93 1,09,96

72,00,99


PRIOR YEAR ADJUSTMENT (NET) 25,71


Current tax 1,19,50

Deferred tax liability / (Assets) 8,13

PROFIT AFTER TAX 17294


Balance available for appropriation 1,72,98

Appropriations:




Tax on proposed dividend 9,61

1,72,98


BALANCE SHEET AS AT 31ST MARCH 2011(RS.000)

AS AT 31-3- 2011

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SOURCES OF FUNDS

SHAREHOLDERS FUND



24,14,91

LOANS

Secured 17,23,12

Unsecured 5,36,89

22,60,01


TOTAL 47,66,94


FIXED ASSETS



Net block 8,21,84

Capital work in progress -

8,21,84

INVESTMENT 2,32,91


ADVANCES



Cash & bank balances 6,04,64Loan & advances 10,04,02

58,48,21


PROVISIONS


Provisions 4,80,87

21,36,02


TOTAL 47,66,19


AS AT 31-3 2011

INCOME:


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Other income 41,69

Variation in stock (38,45)

74,23,55

EXPENCES:




Employees


Excise duty 75,41




Less: transferred to revaluation 84 1,25,84

70,00,24




Current tax 1,50,84

Deferred tax liability / (Assets) (3,31)

PROFIT AFTER TAX 2,75,78


Balance available for appropriation 2,75,85

Appropriations:

General reserve 1,73,20



2,75,85


CALCULATIONS AND INTERPRETATION OF RATIOS

1] CURRENT RATIO:

Formula:

Current assets

Current ratio =

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Current liabilities

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Current assets 46,70,80 51,08,39 53,98,08 58,28,21

Current liabilities 15,93,66 21,62,32 21,28,19 21,36,02

Current ratio 2.93 2.36 2.53 2.72

COMMENTS:

In dawar Shoe Company the current ratio is 2.72:1 in 2004-2005. It

means that for one rupee of current liabilities, the current assets are 2.72 rupee

is available to the them. In other words the current assets are 2.72 times the

current liabilities. Almost 4 years current ratio is same but current ratio in 2010-

2011 is bit higher, which makes company more sound. The consistency

increase in the value of current assets will increase the ability of the company to

meets its obligations & therefore from the point of view of creditors the company

is less risky. (The available working capital company is in increasing order.

2007-2008 - 30,77,14

2008-2009 - 29,46,07

2009-2010 - 32,69,89

2010-2011 - 36,92,19

The company has sufficient working capital to meets its urgency/obligations. A company has a high percentage of its current assets in the form

of working capital, cash that would be more liquid in the sense of being able to

meet obligations as & when they become due. From this working capital, the

company meets its day-to-day financial obligations.

Thus, the current ratio throws light on the companys ability to pay its

current liabilities out of its current assets. The Dawar shoe Companys has a

very good liquidity position of company.

2] LIQUID RATIO:

Formula:

Quick assetsLiquid ratio =

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Quick liabilities

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Quick assets 21,80,67 23,01,01 24,01,30 29,11,31Quick liabilities 15,93,66 21,62,32 21,28,19 21,36,02

Liquid ratio 1.36 1.06 1.12 1.36

COMMENTS:

The liquid or quick ratio indicates the liquid financial position of an

enterprise. Almost in all 4 years the liquid ratio is same, which is better for the

company to meet the urgency. The liquid ratio of the Dawar shoe Company has

increased from 1.12 to 1.36 in 2010-2011. Day to day solvency is more sound

for company in 2010-2011 over the year 2009-2010.

This indicates that the dependence on the short-term liabilities &

creditors are less & the company is following a conservative working capital

policy.

Liquid ratio of Company is favorable because the quick assets of the

company are more than the quick liabilities. The liquid ratio shows the

companys ability to meet its immediate obligations promptly.

3] PROPRIETORY RATIO:

Formula:

Proprietary fund shareholders fund

Proprietary Ratio=--------------------------- or = ----------------------------------------

Total Fund Fixed assets+curr.Liabilities

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Proprietary fund 21,29,69 21,55,19 22,42,59 24,14,91

Total fund 52,82,53 57,38,17 66,14,92 66,70,05Proprietary ratio 40 37.55 33.90 36.20

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COMMENTS:

The Proprietary ratio of the company is 36.20% in the year 2010-2011. It

means that the for every one rupee of total assets contribution of 36 paise has

come from owners fund & remaining balance 66 paise is contributed by the

outside creditors. This shows that the contribution by outside to total assets is

more than the owners fund. This Proprietary ratio of the Company shows a

downward trend for the last 4 years. As the Proprietary ratio is not favorable the

Companys long-term solvency position is not sound.

4] STOCK WORKING CAPITAL RATIO:

Formula:

StockStock working capital ratio =

Working Capital

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Stock 19,09,77 19,02,79 21,46,20 19,32,88Working Capital 30,77,14 29,46,07 32,69,89 37,12,19

Stock working

capital ratio

62.06 64.58 65.63 52.06

COMMENTS:

This ratio shows that extend of funds blocked in stock. The amount of

stock is increasing from the year 2007-2008 to 2009-2010. However in the year

2010-2011 it has declined to 52%. In the year 2010-2011 the sale is increased

which affects decrease in stock that effected in increase in working capital in

2010-2011.

It shows that the solvency position of the company is sound.

5] CAPITAL GEARING RATIO:

Formula:

Preference capital+ secured loan

Capital gearing ratio =Equity capital & reserve & surplus

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YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Secured loan 12,13,48 10,27,56 11,38,86 1,72,312

Equity capital &

reserves & surplus

21,29,69 21,55,19 22,42,59 2,41,491

Capital gearing ratio 56.97 47.67 50.78 71

COMMENTS:

Gearing means the process of increasing the equity shareholders return

through the use of debt. Capital gearing ratio is a leverage ratio, which indicates

the proportion of debt & equity in the financing of assets of a company.

For the last 3 years [i.e2007-2008TO 2008-2009 ] Capital gearing ratio is all

most same which indicates, near about 50% of the fund covering the secured

loan position. But in the year 2010-2011 the Capital-gearing ratio is 71%. It

means that during the year 2010-2011 company has borrowed more secured

loans for the companys expansion.

6] DEBT EQUITY RATIO:

Formula:

Total long term debt

Debt equity ratio = Total shareholders fund

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Long term debt 15,81,47 14,80,70 16,97,15 22,60,01

Shareholders

fund

21,29,69 21,55,19 22,42,59 24,14,91

Debt Equity Ratio 0.74 0.68 0.75 0.93

COMMENTS:

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The debt equity ratio is important tool of financial analysis to appraise the

financial structure of the company. It expresses the relation between the

external equities & internal equities. This ratio is very important from the point of

view of creditors & owners.

The rate of debt equity ratio is increased from 0.74 to 0.93 during the

year 2007-2008 to 2010-2011. This shows that with the increase in debt, the

shareholders fund also increased. This shows long-term capital structure. The

lower ratio viewed as favorable from long term creditors point of view.

7] GROSS PROFIT RATIO:

Formula:

Gross profitGross profit ratio = * 100

Net sales

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Gross profit 24,54,48 37,65,90 45,57,45 42,37,52Net sales 43,45,46 51,02,37 68,76,89 68,09,78

Gross profit Ratio 56.48 73.80 66.27 62.22

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COMMENTS:

The gross profit is the profit made on sale of goods. It is the profit on

turnover. In the year 2007-2008 the gross profit ratio is 56.48%. It has

increased to 73.80% in the year 2008-2009 due to increase in sales without

corresponding increase in cost of goods sold. However the gross profit ratio

decreased to 66.27% in the year 2009-2010.

It is further declined to 62.22% in the year 2010-2011, due to high cost of

purchases & overheads. Although the gross profit ratio is declined during the

year 2009-2010 to 2010-2011. The net sales and gross profit is continuously

increasing from the year 2007-2008 to 2010-2011.

8] OPERATING RATIO:

Formula: COGS+ operating expenses

Operating ratio = *100Net sales

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

COGS +

Operating

18,90,98 +

2,21,37 +

21,96,32 +

2,69,98 +

28,33,02 +

3,07,51 +

2,57,226+

27,141+

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expenses 5,76,71 7,62,23 9,17,94 84,478Net sales 43,45,46 51,02,37 68,76,89 6,80,978Operating ratio 61.88% 63.27% 59% 54.16%

COMMENTS:

The operating ratio shows the relationship between costs of activities &

net sales. Operating ratio over a period of 4 years when compared that indicate

the change in the operational efficiency of the company.

The operating ratio of the company has decreased in all 4 year. This is

due to increase in the cost of goods sold, which in 2007-2008 was 61.88%, in

2008-2009 was 63.27%, in 2009-2010 was 59% & in 2010-2011 it is 54.16%.

though the cost has increased in 2008-2009 as compared to 2007-2008, it is

reducing continuously over the next two years, indicate downward trend in cost

but upward / positive trend in operational performance.

9] EXPENSE RATIO:

The ratio of each item of expense or each group of expense to net sales is

known as Expense ratio. The expense ratio brings out the relationship

between various elements of operating cost & net sales. Expense ratio

analyzes each individual item of expense or group of expense& expresses them

as a percentage in relation to net sales.

A] MANUFACTURING EXPENSES:

Formula:

Manufacturing expenses

Manufacturing expense ratio = *100

Net sales

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YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Manufacturing

expenses

2,21,37 2,69,98 3,07,51 2,71,41

Net sales 43,45,46 51,02,37 68,76,89 68,09,78Manufacturing

expenses ratio

5% 5.29% 4.47% 3.98%

COMMENTS:

The manufacturing expense is shows the downward trend. During the year

20072008 to 2008-2009 the manufacturing expense increased because there

is increase in the charges like labour, rent , power & electricity, repair to plant &machinery & miscellaneous works expenses. The manufacturing expense

during the year 2007-2008 to 2010-2011 is decreased from 5% to 3.96%. This

indicates that the company has control over the manufacturing expense.

B] OTHER EXPENSES:

Formula:

Other expenses

Other expense ratio = *100

Net sales

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

Other expenses 5,76,71 7,62,23 9,17,94 8,44,78

Net sales 43,45,46 51,02,37 68,76,89 68,09,78Other expenses

ratio

13.2% 14.93% 13.34% 12.40%

COMMENTS:

The other expense of company is increased during the 2007-2008 to 2009-

2010, because increase in the charges of rent of office, equipment lease rental,

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printing & stationary, advertisement & publicity, transport outward & other

charges. But during the year 2010-2011 the other expenses is decrease from

13.34% to 12.40%. Because decrease in equipment lease rental, advertisement

& publicity, transport charges, commission & discount, sales tax & purchase tax

. This indicates that the company also controlling the other expenses.

10) NET PROFIT RATIO

Formula:

NPATNet profit ratio = * 100

Net sales

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

NPAT 20,98 82,94 1,72,94 2,75,78

Net sales 434546 51,02,37 68,76,89 68,09,78Net profit ratio 0.48 1.6 2.5 4.04

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0

1

2

3

4

5

2001-2002 2002-2003 2003-2004 2004-2005

NET PROFIT

COMMENTS:

The net profit ratio of the company is low in all year but the net profit is

increasing order from this ratio of 4 year it has been observe that the from

2007-2008 to 2010-2011 the net profit is increased i.e. in 2009 it is increased by

1.12 in 2009-2010 by 0.9 & in 2010-2011 by 1.54.

Profitability ratio of company shows considerable increase. Companys

sales have increased in all 4 years & at the same time company has been

successful in controlling the expenses i.e. manufacturing & other expenses.

It is a clear index of cost control, managerial efficiency & sales

promotion.

11] STOCK TURNOVER RATIO:

Formula:

COGSStock Turnover Ratio =

Average stock

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011COGS 18,90,98 21,96,32 28,33,02 25,72,26Average stock 5,49,90 5,97,58 6,73,11 6,89,30

Stock Turnover

Ratio

3.4 3.6 4.20 3.73

COMMENTS:

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Stock turnover ratio shows the relationship between the sales & stock it

means how stock is being turned over into sales.

The stock turnover ratio is 2007-2008 was 3.4 times which indicate that

the stock is being turned into sales 3.4 times during the year. The inventory

cycle makes 3.4 round during the year. It helps to work out the stock holding

period, it means the stock turnover ratio is 3.4 times then the stock holding

period is 3.5 months [12/3.4=3.5months]. This indicates that it takes 3.5 months

for stock to be sold out after it is produced.

For the last 4 years stock turnover ratio is lower than the standard but it

is in increasing order. In the year 2007-2008 to 2010-2011 the stock turnover

ratio has improved from 3.4 to 3.73 times, it means with lower inventory the

company has achieved greater sales. Thus, the stock of the company is moving

fast in the market.

12] RETURN ON CAPITAL EMPLOYED:

Formula:

NPAT

Return on capital employed = *100 Capital employed

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

NPAT 20,68 82,94 1,72,94 2,75,78Capital employed 38,18,01 37,23,11 40,35,07 47,66,93Return on capital

employed

0.54 2.23 4.28 5.79

COMMENTS:

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The return on capital employed shows the relationship between profit &

investment. Its purpose is to measure the overall profitability from the total

funds made available by the owner & lenders.

The return on capital employed of Rs.5 indicate that net return of Rs.5 is

earned on a capital employed of Rs.100. this amount of Rs.5 is available to take

care of interest, tax,& appropriation.

The return on capital employed is show-increasing trend, i.e. from 0.54 to 5.79.

All of sudden in 2007-2008 the return on capital employed increased from 0.54

to 5.79. This indicates a very high profitability on each rupee of investment &

has a great scope to attract large amount of fresh fund.

13] EARNING PER SHARE:

Formula:NPAT

Earning per share =Number of equity share

YEAR 2007-2008 2008-2009 2009-2010 2010 -2011

NPAT 20,98,000 82,94,000 1,72,94,000 2,75,78,000

No.ofequity share 50,00,000 50,00,000 50,00,000 50,00,000Earning per share 0.41 1.66 3.46 5.52

COMMENTS:

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Earning per share is calculated to find out overall profitability of the

company. Earning per share represents the earning of the company whether or

not dividends are declared.

The Earning per share is 5.52 means shareholder gets Rs. 5.52 for each

share of Rs. 10/-. In other words th

dawar shoe financial analysis

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