ratio analysis of r.s fasteners

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IN R.S FASTENERS (#249/13. G.T ROAD, DORAHA) In Partial Fulfillment of the requirement for the degree of BACHELOR OF BUSINESSADMINISTRATION ( BBA ) Panjab university chandigarh SUBMITTED TO: SUBMITTED BY: Department of Commerce and KAMALJOT KAUR Business administration Univ.R.No.11309000222 Guru Nanak National College Doraha

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Page 1: RATIO ANALYSIS OF R.S FASTENERS

IN

R.S FASTENERS(#249/13. G.T ROAD, DORAHA)

In Partial Fulfillment of the requirement for the degree of BACHELOR OF BUSINESSADMINISTRATION ( BBA )

Panjab university chandigarh

SUBMITTED TO: SUBMITTED BY:

Department of Commerce and KAMALJOT KAUR

Business administration Univ.R.No.11309000222

Guru Nanak National College Doraha

Page 2: RATIO ANALYSIS OF R.S FASTENERS

PREFACE

Finance is regarded as the lifeblood of a business organization. This is because the modern money economy, finance is one of the basic foundations of all kind of the economic activities. For any business student, who is striving to perform outstanding it is paramount importance that apart from theoretical knowledge, they must also gain some practical knowledge.

The training project deals with providing an opportunity to management student to have the knowledge of real world concept in the depth of its usage. As per the requirement of BBA degree, students are sent to different industrial unities for gaining practical experience.

This report is a result of 8 weeks of management summer training in R.S FASTENERS. The project report is concerned with “To study the ratio analysis of R.S FASTENERS”. R.S FASTENERS is dealing with the manufacturing of nuts, bolts, washers, Steel metal components.The main purpose of this report is to give a written account on whatever I have studied about the company.

I have tried my best to present the true picture of the company.

Page 3: RATIO ANALYSIS OF R.S FASTENERS

CERTIFICATE

This project report

Of

Kamaljot Kaur

( University Roll No. 11309000222)

Titled

An Analytical study of Ratio Analysis

In

R.S FASTENERS

G.T ROAD DORAHA

Is approved andIs acceptable in quality and form

Mr. Gursharanjit SinghExternal Examiner

Head of Department of Commerce

( G.N.N College, Doraha )

Page 4: RATIO ANALYSIS OF R.S FASTENERS

ACKNOWLEDGEMENT

First of all, I would like to thank the alimighty god for his blessings showed on me during the training programmed.

I would also like to express my special thanks to Mr. SANJIV KUMAR MAHESHWARI who permits me for doing training in R.S FASTENERS.

I am extremely grateful to the Chief Finance Officer Mr. RAM SAROOP for his constant encouragement and valuable suggestions through-out my summer training and project for his cooperation extended to me.

It is really a matter of pleasure and sense of gratitude, I especially thank MS. PREETINDER KAUR without whose supervision I would not able to make project report.

I also express my sincere gratitude towards DR. NARINDER SINGH SIDHU (Principal of G.N.N college DORAHA) and PROF. GURSHARANJIT SINGH (Head of Department of commerce) and PROF. BALPREET KAUR who has always been source of inspiration.

I am thankful to all my teachers who have provided me the guidance, help and whole hearted cooperation during the training.

Last but not the least, my parents and friends were always there to give me moral support in difficult situations.

KAMALJOT KAUR

Page 5: RATIO ANALYSIS OF R.S FASTENERS

DECLARATION

I hereby declared that entitled project report on “RATIO ANALYSIS” is originally prepared by me In Partial Fulfillment of the requirement for the degree of BACHELOR OF BUSINESS ADMINISTRATION (BBA) Panjab university chandigarh

Kamaljot kaurUni. Roll no. 11309000222

Place…………

Doraha …….....

Page 6: RATIO ANALYSIS OF R.S FASTENERS

CONTENTS

Chapter No.

Topic Page no.

1. INTRODUCTION 1-30

A. INTRODUCTION TO COMPANY 1-13

B. INTRODUCTION TO RATIO ANALYSIS

14-30

2. OBJECTIVES OF THE STUDY 31

3. RESEARCH METHODOLOGY 32

4. DATA ANALYSIS AND INTERPRETATION

33-55

5. FINDINGS 56

6. SUGGESSTIONS 57

7. LIMITATIONS 58

COCLUSION 59

BIBLIOGRAPHY 60

ANNEXURE 61-71

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Page 8: RATIO ANALYSIS OF R.S FASTENERS

Light that shines through the ever growing, ever evoling group that is R.S FASTENERS started in 1980. company has gained unquestionable supremacy in the wide range of fasteners. RSF, with accreditation of ISO/TS 1649:2002, enjoys the reputation for producing the widest range of critical application fasteners for automobile,2 wheelers ,agricultural tractor,heavy engine- eering equipments, chemical industry, military and customized products.The company’s manufacturing plant spread over 10,000 sq.mts. with production faclilities of 2000 metric tones per annum, manned by a dedicated team of employees working in perfect harmony,supllying over 350 items to about 110 customers.RSF has installed sophisticated and precision machines and instruments to ensure production of superior quality fasteners. Keeping in mind the competitive and growing needs of customer,RSF is always on the look-out for expansion and modernization.

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GENERAL PROFILE

COMPANY NAME : R.S FASTENERS head office3062, ST.no.12, new janta nagar,Ludhiana : 141003. ph. O167507814Works: #249/13. G.T ROAD, DORAHADISTT : LUDHIANA ( PB )Ph. 01628256860

Website : www.r.s.fasteners.com

Revenue : 124 lac

Net worth : 10 lac.(app.)

Turnover : 28 lac.(app.)

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NAME OF PARTNERS:

SANJIV KUMAR MAHESHWARI

RAJESH KUMAR MAHESHWARI

AJAY KUMAR MAHESHWARI

PARTNERS OF THE COMPANY

CONTROLBY

Sanjiv KumarMaheshwari

(Partner sales)Ajay KumarMaheshwari

( Partner purchases )

Rajiv KumarMaheshwari

(Partner works)

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WORKING OF PARTNERS

MANAGING PARTNER

PARTNERWORKS

PRODUCTION SUPERVISOR

HELPERS

FITTERS

MAINTAINACE I/C

PURCHASE EXECUTIVE

PARTNERPURCHASE

PARTNERSALES

MR

QC INCHARGE

QUALITYCONTROL

INSPECTOR

INCOMINGINSPECTION

INPROCESSINSPECTION

FINAL INSPECTION

ACCOUNTS

Page 12: RATIO ANALYSIS OF R.S FASTENERS

LIST OF SOME OF OUR CUSTOMERS

M/S Mahindra & Mahindra limited, Zaherrabad/haridwar.M/S force Motor LTD, Pune.M/S QH Tablors Ltd.,Gurgaon/Manesar/Dehradune.M/S Remsons Industuries Ltd., Mumbai/Daman.M/S Mahindra Ugine Steel Co. Ltd,Nasik.M/S Majestic Auto Limited,Ghazibad/Ludhiana.M/S Rane Madras Ltd,Chennai/Mysore/Pondy/panthnaagarM/S Rane TRW Steering system Ltd. TrichyM/S ZF Steering Gear India Limited, Pune.M/S Suprajit Engineering Ltd.,Pune/panthanagar.M/S Dana India Pvt. Ltd., PuneM/S Mahindra & Mahindra Limited, SAS Nagar MohaliM/S Mahindra & Mahindra Limited,IBD,Chandigarh.M/S Mahindra & Mahindra Limited, Chappancherri.M/S Kirlosker Toyoda, BangloreM/S RSB Internatinal Ltd., PuneM/S International Tractors Ltd., HoshiarpurM/S Sonassomic Lemforder Ltd., Gurgaon. AND MANY MORE

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QUALITY POLICY

WE ARE COMMITED TO MANUFACTURE AND SUPPLY, PRODUCTS THAT ADHARE TO CONTACTUAL SPECIFICATIONS AND SPECIFICATIONS AND SATISFY CUSTOMERS IN TERMS OF CONSISTENT QUALITY COMPETITIVE PRICE, TIMELY DELIVERY AND COMPANY IS COMMITTED TO COMPLY WITH REQUIREMENTS AND CONTINUALLY IMPROVE THE EFFECTIVENESS OF THE QUALITY MANAGEMENT SYSTEM.

Sd/- S. Maheshwari(partner)

VISISON/MISSION

VISION

To be the largest and the most respected domestic company with global footprints mission.

MISSION

Be the no.1 company on a global level. Export to more than 100 countries through supply of nuts and

bolts’ Create own brand presence in export and domestic market

through market penetration. Introduce more more products

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PRODUCT PROFILE:

The company is mainly producing fasteners (nuts & bolts) for automobiles, 2 wheelers, heavy chemical industries, agricultural tractor, military and customized products. The company has gained unquestionable supremacy in the wide range of fasteners.

MAIN TYPES OF NUTS:

The main types of nuts are as follow

MAIN TYPES OF NUTS

HEX NUTS

NYLOCK NUTS

LOCK NUTS

WHEEL NUTS

PROJECTION SQUARE WELD

NUTS

FLANGED NUTS

HEX WELD NUTS

SPECIAL NUTS

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HEX NUTSRANGE METRIC-M3 TO M60INCHES-THRED AVAILABLE-UNF, UNC, BSW, 1\4” TO 2”MANUFACTURING FACILITIES-HOT FORGE, COLD FORGE, MACHINEDMATERIAL- AISI-1010, 1015, 15B25,1541, as per requirement

NYLOCK NUTS:RANGE METRIC-M4 TOM30INCHES-THRED AVIALABLE- UNF, UNC, BSW,AND AS PER CUSTOMERS REQUIREMENTS1\4”TO1”FINISH-PLAIN, YELLOW PLATED, BLACKMANUFACTURING FACILITIES-COLD FORGE,MACHINED

LOCK NUTS:RANGE METRIC-M3TOM60

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INCHES-1\4”TO2”FINISH- PLAIN, BZP, YELLOW PLATED, BLACK, TRIVALENTMATERIAL-AISI-1010, 1015, 15B25, 1541MANUFACTURING FACILITIES-HOT FORGE, COLD FORGE, MACHINED

WHEEL NUTS:RANGE METRIC-M3 TOM35INCHES-1\4” TO2”FINISH-PLAIN, BZP, YELLOW PLATED, BLACKMATERIAL-AISI-1010, 1015, 1541, 15B25

PROJECTION SQUARE WELD NUTS:

Page 17: RATIO ANALYSIS OF R.S FASTENERS

RANGE METRIC-M4TOM16INCHES-1\4” TO1\2”FINISH- RUST PREVENTIVE OILMATERIAL-AISI-1010, 1015, 15B25, 1541, AS PER REQUIREMENTMANUFACTURING FACILITIES-COLD FORGE

FLANGE NUTS:RANGE METRIC- M4 TO M30INCHES-1\4” TO1\2”, AS PER REQUIREMENTFINISH-PLAIN, BZP, YELLOW PLATED, BLACKMANUFACTURING FACILITIES-COLD FORGE, HOT FORGE

HEX WELD NUTS:RANGE METRIC-M4 TO M16

Page 18: RATIO ANALYSIS OF R.S FASTENERS

INCHES-1\4” TO 1\2”FINISH-RUST PREVENTIVE OILMATERIAL- AISI1010, 1015, 15B25, 1541MANUFACTURING FACILITIES- COLD FORGE

SPECIAL NUTS:ALL AS PER CUSTOMER REQUIREMENT

Page 19: RATIO ANALYSIS OF R.S FASTENERS

SWOT ANALYSIS

STRENGTH

1. Visitory management with strong focus an growth and diversification.

2. Established sales network in all major cities of the country.3. Core competency in manufacturing different type of nuts.4. Produts are well accepted in the markets.5. Easy availability of raw material.

OPPORTUNITIES

1. Arrival of new technologies.2. Scope for expansion in international market.3. good quality offers a very good opportunity to R.S Fasteners in local

& international market.4. R&D centre continuously on improving quality standards introducing

new & unique in their product.

WEAKNESSES

1. High cost structure.2. No separate R&D facility.3. Poor supply chain causes wastages of resources and increases and

increase cost.4. The price of raw material and finished goods move in tandem with

international prices, which are,in turn,have positive correlation with the prices of petrochemical products.

THREATS

1. Rules & regulations.2. Arrival of new companies3. Change in government policies and business cycles.4. Continuous quality improvement will be the need of the hour for

which urgent measures are called for from all shareholders.

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GOVERNING REGULATIONS

Acknowledgement of registration of firms by registrar of firms.

Certificate of Punjab pollution control board for grant consent to operate an industrial plant.

Certificate of registration issued under central excise.

Importer exporter code issued to director, R.S.Fasteners.

Certificate of registration issued under central sales act, 1956.

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FINANCE DEPARTMENT OF COMPANY :

As the present day, business activities are predominantly carried on by company form of organization, there is need to give the emphasis to the financial practices and problemsof the company.To fulfill this need the company has a different department for controlling the finance activities of the company. As the company is a partnership firm all the finance activities are controlled by one of the partner i.e. Sanjiv Maheshwari. All the receipt and payments are made by them and a proper control is established by him. The accounting activities are done by Mr. Ramsaroop and all other functions are done by Miss. Preetinder kaur.

OBJECTIVES:

The main objectives of the finance department are as follow;

1. Acquiring sufficient funds : The main aim of finance department is to assess the financial needs of the company and finding out suitable sources for raising the funds. The sources should be commensurate with the needs of the business.

2. Proper utilization of funds : Though raising of funds is important but their effective utilization is more important. The funds should be used in such a way that maximum benefit is derived from them.

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3. Increasing profitability : The planning and control of finance function aims at increasing profitability, sufficient funds will have to be invested.

4. Maximizing firm value : Finance function also aims at maximizing the value of firm .Beside profits ,the type of sources used for raising funds ,the cost of funds ,the condition of money market ,the demand for products are some other considerations which also influence a firm value.

5. RATIO ANALYSIS

The term “Ratio” refers to the numerical and quantitative relationship between two items or variables. The relationship can be exposed as

Percentages

Fractions

Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements. So, that the strengths and weaknesses of a firm, as well as its historical performance and current financial condition can be determine. Ratio reflects a quantitative relationship helps to form a quantitative judgement.

A ratio is only a comparison of the numerator with the denominator. The term ratio refers to the numerical or quantitative relationship between two figures. Ratio is designed to show how one number is related to another. In simple words. Ratio is the numerical relationship between two variables which are connected with each other in same way or the other.

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DEFINITION :

According to Hunt, William and Donaldson, “Ratios are simply a means of high lighting in the arithmetical terms the relationship between figures drawn financial statements.”

According to J. Betty , “The term accounting ratios is used describe significant relationships exits between figures shows on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of the accounting organization.”

STEPS IN THE RATIO ANALYSIS

A. The first task of the financial analysis is to select the information relevant to the decision under consideration from the statements and calculates appropriate ratios.

B. To compare the calculated ratios of the same firm relating to the past or with the industry ratios. It facilitates in assessing success or failure of the firm.

C. Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after comparison in the shape of report or recommended courses of action.

IMPORTANCE OF RATIO ANALYSIS

Comparison of a firm with its own performance in the past.

Comparison of one firm with another firm in the industry.

Comparison of one firm with the industry as a whole.

Comparison of an achieved performance with predetermined standards.

Comparison of one department of a concern with other departments.

Page 25: RATIO ANALYSIS OF R.S FASTENERS

BASIS OR STANDARDS OF COMPARISON

Ratio are relative figures reflecting the relation between variables. They enable analyst to draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves us the comparison with related effects. This is the basis of ratio analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm at the same point of time.

Competitor’s ratio, of the same most progressive and successful competitor firm at the same point of time.

Industry ratio, the industry ratios to which the firm belongs to.

Projected ratios, ratios of the future developed from the projected of proforma financial statements.

NATURE OF RATIO ANALYSIS

Ratios analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The following are the four steps involved in the ratio analysis.

Selection of relevant data from the financial statements depending upon the objective of analysis.

Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratio of same firm in

the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with the ratios of the industry to which the firm belongs.

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INTERPRETATION OF RATIO

Calculation of ratio is comparatively simple, routine clerical in nature but the interpretation of ratio is highly sophisticated and intricate phenomenon. The benefit of ratio analysis depends a great deal upon the correct interpretation. It needs skills, intelligence, training and intuition of high order on the part of the analyst.

The following are different ways in which ratios may be interpreted :-

1. Individual Ratio :- Individual ratio may have significance of its own. For example if the current ratio of one unit continuously falls, It may indicate probable insolvency. But generally single ratio may not convey any sense. However single ratios may be studied with reference to certain popular rules of thumb with can only give approximations. Care must be exercised because such. comparison may be erroneous or unrealistic.

2. Group Ratio :- Ratio may be interpreted by considering groups of several related ratio. Such interpretation may be studied along with liquid ratio. Such interpretation may be more meaningful. For example- current ratio may be studied along with return on investment.

3. Comparisons with projections:- in a business unit where system of budgetary control and forecast is in existence, projected financial statement are usually drawn. Ratios calculated based on such projected financial statements shall be compared. Variances shall be calculated and analysis by reasons and persons. It shall enable to take corrective action wherever required.

4. Inter- firm comparison :- Ratios of one unit may be compared with the ratios of another identical unit. Such comparison is useful for evaluations relatives financial position of the unit or industry. While making such comparisons, care must be taken regarding the difference of accounting methods, policies, procedures and terminology being followed by different units.

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GUIDELINES FOR USE OF RATIO

1) Accuracy Of Financial Statement:- The reliability of ratios is linked to accuracy of information of ratios in these statements. Before calculation ratio one should see whether proper concepts and conventions have been used for preparing financial statements or not. This statement should also be properly audited by competent auditors. The precaution will establish the reliability of data given in financial statement.

2) Selection Of Ratios :- Another precaution in ratio analysis is the proper selection of appropriate ratios. The ratio should match the purpose for which these required. Calculation of large number of ratio without determining their need in the present context may confuse the things instead of solving them. Only those ratio should be selected which can throw proper light on the matter to be discussed.

3) Caliber of the Analyst :- The ratio is only the tools of analysis and their interpretation will depend upon the caliber and competence of the analyst. He should be familiar with the various financial statements and the significance of changes etc. A wrong interpretation may create havoc for the concern since wrong conclusions may lead to wrong decisions. The utility of ratio is linked to the expertise of the analyst.

4) Ration Provides Only a Base :- The ratio are only guidelines for the analyst, he should not base his decisions entirely on them. He should study any other relevant information, situation in the concern, general economic environment, etc. before reaching final conclusions. The study of ratios in isolation may not always prove useful. A businessman will not afford single wrong decisions because it may far- reaching consequences. The interpreter should use the ratio as guide and may try to solicit any other relevant information which helps in reaching correct decision.

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ADVANTAGES OF RATIO ANALYSIS

Ratio can assist management in its basic functioning like forcasting, planning and controlling etc. performances of the various divisions associated with the firms can be calculated with the help of the ratio analysis.

Following are the some advantages of ratio analysis :-

1) Simplifies Financial Statements :- Ratio analysis helps in studying the whole story of the change occurring in the financial condition of the business. Thus we can say that ratio analysis simplifies the comprehension of the financial statement.

2) Facilitates Inter Firm Comparison:- Ratio analysis provides sufficient data in order to compare inter firm performance. Ratio highlights the factors associated with successful and unsuccessful firms, strong and weak firms.

3) Helpful In Intra Firm Comparisons:- Ratio analysis is also useful in comparing the results of different divisions of the firm. These ratios decide their efficiency in the past as well as in the future.

4) Helpful In Planning:- As we know that planning and forcasting is the important part of the firm, so ratio analysis helps in deciding the various norms that may indicate future success in failure.

Thus, we can say ratio analysis is helpful in various ways and can assist the company to move in the direction of success and helps in culling away the faults or errors.

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USEFULNESS OF RATIO ANALYSIS

1) Usefulness For Short Term Creditors :- Short term creditors, bills payables, creditors for expenses etc. they are interested in analyzing the liquidity of unit. They determine the firm ability to meet its current obligations with the help of liquidity ratios such as current ratio and quick ratio.

2) Usefulness For Long Term Creditors :- Long term creditors are financial institutions, debenture holders, mortgage creditors etc. are interested in analyzing the capacity of the unit of reply periodical interest and repayments of loan on schedule.

3) Usefulness To Employees :- Employees are interested in fair wages adequate fringe benefits and bonus linked with productivity. Ratio analysis provides them adequate information regarding efficiency and profitability of the unit. This knowledge helps them to bargain with the management regarding their demands for improving wages, bonus etc.

4) Usefulness To Government:- Government is interestedto know the overall strength of the industry. Various financial statements published by industry units to calculate ratios for determining short term, long term and overall financial positions of the concerns. Profitability indexes can also be prepared with the help of ratios. Government may base its future policies on the basis of industrial information available from various units.

5) Usefulness For Investors :- The investors can determine the magnitude and direction of the movement in firm earnings with the help of profitability ratios such as earning per ratio, dividend per share, etc. After analyzing the relevant ratios the present investors can decide whether to hold, sell or purchase the shares and the prospective investors can decide whether or not to buy the shares.

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LIMITATIONS OF RATIO ANALYSIS

In spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting financial statements. The following are the main limitations of accounting ratios:

1. Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm can not always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc.

2. False Results:Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct.

3. Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affects the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison.

4. Qualitative factors are ignored:Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.

5. Effect of window-dressing:In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the

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convenience to show the financial position of the company in a better way.

6. Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it.

7. Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000.

CLASSIFICATION OF RATIOS :-

The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. Various ratios can be classified as follows:-

1) Traditional Ratio2) Functional Classification3) Significance Ratios

Traditional classification

It includes the following:

Balance sheet (or) position statement ratio: They deal with the relationship between two balance sheet, e.g. the ratio of current assets to current liabilities etc., both the items must, however, pertain to the same balance sheet.

Profit & loss account (or) revenue statement ratio: these ratios deal with the relationship between two profit & loss account items, e.g. the ratios of gross profit to sales etc.

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Composite (or) inter statement ratio: These ratios exhibit the relation between a profit & loss account or income statement item and a balance sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.

SIGNIFICANCE RATIOS :-

Some ratios are important than others and the firm may classify them as primary and secondary ratios. The primary ratio is one which is of the prime importance to a concern. The others ratiosa that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE:

1. Liquidity ratio2. Leverage ratio3. Activity ratio4. Profitability ratio5. Overall profitability ratio

LIQUIDITY RATIOS :- Liquidity refers to the ability of a concern to meet its current obligations as & where there becomes due. The short term obligations of a firm can be met only when there are sufficient liquid assets. The short term obligations met by realizing amounts from current, floating or circulating assets. The current assets should either be calculated liquid or near liquidity. They should be convertible into cash for paying obligations of short term nature. If current assets can pay off current liabilities, then liquidity position will be satisfactory.

To measure the liquidity of a firm the following ratios can be calculated:

1) Current assets2) Quick or acid test or liquid ratio3) Absolute liquid ratio or cash position ratio

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A) CURRENT RATIO:Current ratio may be defined as relationship between current assets & current liabilities. This ratio also known as “working capital ratio” is a general measure of liquidity and is most widely used to make the analysis of a short term financial position or liquidity of a firm. It is calculated by following method

CURRENT RATIO =Current Assets/Current Liabilities

COMPONENTS OF CURRENT RATIO

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Outstanding and accured expenses

Cash at bank Bank overdraft

Bills receivable Bills payable

Inventories Short term advances

Work-in –progress Sundry creditors

Marketable securities Dividend payable

Short term investments Income-tax payable

Sundry debtors

Prepaid expenses

Current Ratio measures short term liquidity of the concern and its ability to meet its short term obligations within a time span of a year.

It shows the liquidity position of the enterprise and its ability to meet current obligations in time.

Higher ratio may be good from the point of view of creditors. In the long run very high current ratio may affect profitability ( e.g. high inventory carrying cost)

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Shows the liquidity at a particular point of time. The position can change immediately after that date. So trend of the current ratio over the years to be analyzed.

Current Ratio is to be studied with the changes of NWC. It is also necessary to look at this ratio along with the Debt-Equity ratio.

B) Quick or Acid Test Ratio: Quick ratio, also known as Acid test or Liquid ratio is more rigorous test of liquidity than the current ratio. The term liquidity refers to the liabilities of the firm to pay its short term obligation as and when they become due. Current assets included inventory and prepaid expenses which is not easily convertibles into cash with in a short period not considered in current assets quick ratio may be define as a relationship between quick assets and currents liabilities. An asset is said to be liquid if it is converted into cash with in a short period without loss of value.

QUICK RATIO = QUICK ASSETS /CURRENT LIABILITIES

COMPONENTS OF QUICK OR LIQUID RATIO

QUICK ASSETS CURRENT LIABILITIES

Cash in hand Outstanding or accured expenses

Cash at bank Bank overdraftBills receivable Bills payableSundry debtors Short term advancesMarketable securities Sundry creditorsTemporary investments Dividend payable

Income tax payable

C) ABSOLUTE LIQUID RATIO : Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding there realization into cash immediately or in time.Hence absolute liquid ratio should also be calculated together with the current ratio and quick ratio so as to exclude even

Page 35: RATIO ANALYSIS OF R.S FASTENERS

receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets include cash in hand etc. the acceptable forms for this is 50% (or) 0.50% (or)1:2 i.e.,Rs.=1 worth absolute liquid assets are considered to pay Rs. 2 worth current liabilities in time as all the creditors are nor accepted to demand cash at the same time and then cash may also be realized from debtors and inventories.

COMPONENTS OF ABSOLUTE LIQUID RATIO

ABSOLUTE LIQUID RATIO CURRENT LIABILITIES

Cash in hand Outstanding expensesCash at bank Bank overdraftInterest on fixed assets Bills payable

Short term advanceSundry creditorsDividend payable

2. LEVERAGE RATIO:- The leverage on solvency ratio refers to the ability of a concern to meet its long term obligations.The following ratio serves the purpose of determining the solvency of the concern.

(b) PROPRIETORY RATIO :- A variant to the debt equity ratio to the proprietary ratio which is also known as equity ratio. The ratio establishes relationship between shareholder funds to total assets of the firm.

COMPONENTS OF PROPRIETORY RATIO

Absolute liquid ratio= Absolute liquid ratio/Current liabilities

Proprietary Ratio = shareholder fund / Total assets

Page 36: RATIO ANALYSIS OF R.S FASTENERS

2.

ACTIVITY RATIO :- Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly effect the volume of sales. Activity ratio measures the efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are also called turnover ratio.

A)WORKING CAPITAL TURNOVER RATIO :- It indicates the velocity of the utilization of net working capital. This indicates the no. of times the working capital is turned over in the course of a year. A higher ratio indicates efficient utilization of working capital and a lower ratio indicates indicates inefficient utilization.

Components of working capital

Current assets Current liabilities

Cash in hand Outstanding expenses

SHAREHOLDER FUND TOTAL ASSETS

Share capital Current assetsReserve and surplus Cash in hand and at bank

Bills receivableInventoriesSundry debtorsPrepaid expensesMarketable securities

Working capital turnover ratio= cost of goods sold

Working capital = current assets – current liabilities

Page 37: RATIO ANALYSIS OF R.S FASTENERS

Cash at bank Bank overdraftBills receivable Bills payableInventories Short-term advancesWork-in-progress Sundry creditorsMarketable securities Dividend payableShort term investments Income-tax payableSundry debtorsPrepaid expenses

(b) FIXED ASSETS TURNOVER RATIO:- It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets.

Fixed assets turnover ratio = cost of sales/net fixed assets

Cost of sales = Income from services

Net fixed assets = Fixed assets – Depreciation

c) CAPITAL TURNOVER RATIO:- Sometimes the efficiency and effectiveness of the operations are judged by comparing the cost of sales or sales with amount of capital invested in the business and not with assets held in the business,though in both cases the same result is expected. Capital invested in the business may be classified as long-term and short-term capital.

Capital turnover ratio = cost of goods sold/capital employed

Capital employed = capital+ reserves & surplus

Page 38: RATIO ANALYSIS OF R.S FASTENERS

d) CURRENT ASSETS TO FIXED ASSETS RATIO :- This ratio differs from industry to industry. The increase in the ratio means that debtors and stock are increased too much orr fixed assets are more intensively used. If the current assets increase with the corresponding increase in profit, it will show that the business is expanding.

COMPONENTS OF CURRENT ASSETS TO FIXED ASSET RATIO

3. PROFITABILITY RATIO :- The primary objective of business is to earn profits because profit is the engine that drives the business enterprise.

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Building

Bills receivable Plant

Inventories Vehicles

Work-in-progress

Marketable securities

Sundry debtors

Current assets to fixed assets ratio = current assets/fixed assets

Page 39: RATIO ANALYSIS OF R.S FASTENERS

A) NET PROFIT RATIO :- Net profit ratio establishes a relationship between net profit after tax and sales and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm.

Net profit ratio = net profit after tax/net sales

Net profit after tax = Net profit(-)depreciation(-)interest(-)income tax

c) RETURN ON TOTAL ASSETS :- Profitability can be measured in terms of relationship between net profit and assets. This ratio is also known as profit-to assets ratio. It measures the profitability of investment. The overall profitability can be known.

Return on assets = Net profit/Total assets

Net profit = Earning before interest and tax

B) RESERVES AND SURPLUS TO CAPITAL RATIO :- It reveals the policy by the company with regard to growth shares. A very high ratio indicates a conversation dividend policy and increased ploughing back to profit. Higher the ratio better will be the position.

Reserves & surplus to capital = Reserves & surplus/ capital

d) OPERATING PROFIT RATIO :- operating ratio establishes the relationship between cost of goods and other operating expenses on the one hand and the sales on the other.

Total assets = Fixed assets + Current assets

Operating ratio = operating cost/net sales

Page 40: RATIO ANALYSIS OF R.S FASTENERS

Operating profit ratio is calculated by dividing operating profits by sales.

Operating profits = net sales – operating cost

Operating profit ratio = operating profit/ sales

G) RETURN ON INVESTMENT :- Return on shareholders investment, popularly known as return on investment or return on shareholders or proprietor’s funds is the relationship between net profit after interest and tax and the proprietor’s fund.

Return on shareholders investment = net profit after interest and tax/shareholders funds

Page 41: RATIO ANALYSIS OF R.S FASTENERS

OBJECTIVES OF THE STUDY

1) To study the present financial system of R.S FASTENERS.

2) To determine the profitability, liquidity ratios.

Page 42: RATIO ANALYSIS OF R.S FASTENERS

3) To know the current trend of assets and liabilities.

4) To analyze the liquidity position of the firm.

5) To analyze the capital structure of the company with the help of leverage ratio.

6) To offer appropriate suggestions for the better performance of the organization.

Page 43: RATIO ANALYSIS OF R.S FASTENERS

RESEARCH METHODOLOGY

Research is an art of scientific investigation advances learner’s dictionary of current English.

“Research is a careful investigation or injury especially through search for finding new fact in any branch of knowledge.”

Page 44: RATIO ANALYSIS OF R.S FASTENERS

The research done during this project was primary and secondary research i.e. the data was collected through direct methods. The systematic designed, collection & analyses of data relevant to a specific marketing situation facing an organization.

COLLECTION OF DATA

There are several ways of collection the appropriate data which differ considerably in context of money< cost, time and other resourcesat disposable of the researcher.

There are two types of data:

a) Primary data

b) Secondary data

PRIMARY DATA :- Primary data are those which are collected afresh and for the first time, thus happen to be original in character. In the case of descriptive research, researcher from survey whether sample survey or census survey it is called primary data.

SECONDARY DATA :- secondary data are those which have already been collected by someone else and have already been passed through statically process.

Page 45: RATIO ANALYSIS OF R.S FASTENERS

Analysis of short term Financial Position or test of liquidity

A)LIQUIDITY RATIO

(a) CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

CURRENT RATIO YEAR 2008-2009 YEAR 2009-2010Current Assets 163607608.17 314374027.31Current Liabilities 54594268.02 220788892.57Current Ratio 3.01 1.83

Page 46: RATIO ANALYSIS OF R.S FASTENERS

Interpretation :- According to banker’s rule of thumb 2:1 is the ideal ratio of the current ratio as compared to previous year; current ratio has decreased in current year. Because of decrease in current assets.

(b) QUICK RATIO = QUICK ASSETS /CURRENT LIABILITIES

Particular 2008-2009 2010-2010Current Assets 103202141.72 307769019.16Current Liabilities 54594268.02 220788892.57

Quick Ratio 1.89 1.39

2009 2010

0

0.5

1

1.5

2

2.5

3

3.5

Year

Curre

nt A

ssets

Page 47: RATIO ANALYSIS OF R.S FASTENERS

2009 20100

0.20.40.60.8

11.21.41.61.8

2

Year

Qui

ck R

atio

Interpretation:- According to banker’s rule of thumb 1:1 is the ideal ratio for liquid ratio. As compared to previous year, liquid ratio has decrease in current year.

(c)ABSOLUTE LIQUID RATIO = LIQUID RATIO CURRENT LIABILITIES

Particular 2008-2009 2009-2010 Liquid Assets 97367927.22 296237680.8Current Liabilities 54594268.02 220788892.57Absolute Liquid Ratio 1.78 1.34

Page 48: RATIO ANALYSIS OF R.S FASTENERS

2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Year

Abs

olut

e liq

uid

Rat

io

Interpretation :- As compared to previous year absolute ratio has decreased in current year because of increase in current liabilities.

(d)WORKING CAPITAL = CURRENT ASSETS – CURRENT

LIABILITIES

WORKING CAPITAL RATIO

YEAR 2008-2009 YEAR 2009-2010

Current AssetsInventoriesSundry debtorsCash & Bank balanceLoan & advances

61272671.4594701925.981698020.245801603.50

97786024.15289315442.384688411.659648055.36

TOTAL 163474221.17 401437933.54

Page 49: RATIO ANALYSIS OF R.S FASTENERS

Current Liabilities 54594268.02 220788892.57Working capital ratio

108879953.15 180649040.97

Working capital ratio

2008-2009 2009-20100

20000000400000006000000080000000

100000000120000000140000000160000000180000000200000000

Year

Amou

nt

Interpretation :-

As compared to previous year has been increased in current year. Because of increased in current liabilities and decreased on current assets.

(B)PROFITABILITY RATIO

(a) GROSS PROFIT RATIO = GROSS PROFIT * 100 SALES

GROSS PROFIT RATIO YEAR 2008-2009 Year 2009-2010Net sale 236762542.52 401482564.42

Gross profit 31584123.17 52291147.72Gross profit ratio 13.33 13.02

Page 50: RATIO ANALYSIS OF R.S FASTENERS

2008-2010 2009-201012.85

12.9

12.95

13

13.05

13.1

13.15

13.2

13.25

13.3

13.35

Year

Amou

nt

Interpretation :- As compared to previous year, gross profit ratio has been decreased from 13.33 to 13.02 in the current year.

(b) NET PROFIT RATIO = NET PROFIT AFTER TAX * 100 NET SALES

NET PROFIT RATIO YEAR 2008-2009 YEAR 2009-2010Net profit after tax 5782106.85 9536298.09Net sales 236762542.52 401482564.42Ratio 2.44 2.37

Page 51: RATIO ANALYSIS OF R.S FASTENERS

2009 20102.32

2.34

2.36

2.38

2.4

2.42

2.44

Year

N.P

ratio

k

Interpretation :- As compared to previous year, net profit ratio has decline.

(C) CASH PROFIT RATIO :- CASH PROFIT * 100 NET SALES

CASH PROFIT RATIO YEAR2008-2009 YEAR 2009 -2010 Cash profit Net profit Add:- depreciation

5782106.355680211.86

9536298.0911339320.80

TOTAL 11462318.21 20875618.84Net sales 236762542.52 401482564.42Cash profit ratio 4.8 5.1

Page 52: RATIO ANALYSIS OF R.S FASTENERS

2008 - 2009 2009-20104.65

4.7

4.75

4.8

4.85

4.9

4.95

5

5.05

5.1

Year

Am

ou

nt

Interpretation :- As compared to previous year, cash profit ratio has been increased.

(C) ACTIVITY RATIO :-

(a) INVENTORY TURNOVER RATIO = COGS AVERAGE STOCK

Particular 2008-2009 2009-2010Cost of goods sold 205178419.35 439761101.50Average Inventory at cost

61272671.45 97786024.15

Inventory turnover ratio

3.34 3.57

Page 53: RATIO ANALYSIS OF R.S FASTENERS

Interpretation :- As compared to previous year there is decrease in the ratio of current year.

(B) DEBTOR TURNOVER RATIO :- NET CREDIT SALES AVERAGE DEBTORS

Interpretation :- As compared to previous year, debtor turnover ratio has been decreased due to increase in sales.

2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

Year

Inve

ntor

yTu

rnov

er R

atio

DEBTOR TURNOVERRATIO

2008-2009 2009-2010

Net Credit Annual Sales 505180506.02 643473082.10Average Trade Debtors 94701925.8 89315442.38Debtors Turnover Ratio 5.33 2.22

Page 54: RATIO ANALYSIS OF R.S FASTENERS

(c) CREDITOR TURNOVER RATIO :- NET CREDIT PURCHASES AVERAGE CREDITORS

2009 20100

1

2

3

4

5

6

Year

Cre

dit

ors

tu

rno

ve

r ra

tio

Interpretation :-

CREDITOR TURNOVER RATIO

2008-2009 2009-2010

Net credit annual purchase

268803474.27

472810230.88

Average trade creditors 52159254.02

203953820.57

Creditors turnover ratio 5.15 2.31

Page 55: RATIO ANALYSIS OF R.S FASTENERS

As compared to previous year, creditors turnover ratio has been decreased in creditors in current year.

(D)WORKING CAPITAL TURNOVER RATIO = COGS

AVERAGE WORKING STOCK

2008-2009 2009-20101.85

1.855

1.86

1.865

1.87

1.875

1.88

Year

Wor

king

cap

ital r

atio

WORKING CAPITAL RATIO

2008-2009 2009-2010

Cost of sale 205178419.35 349191416.7Net working capital 110248620.15 184947617.74Working capital turnover ratio

1.86 1.88

Page 56: RATIO ANALYSIS OF R.S FASTENERS

Interpretation :- As compared to previous year, working capital ratio has been increased in the current year.

(D) SOLVENCY RATIO

(a) DEBT EQUITY RATIO = TOTAL LONG TERM DEBTS SHAREHOLDERS FUND

DEBT EQUITY RATIO YEAR 2008-2009 YEAR 2009-2010Total long term debt 91415679.04 426750085.30Shareholders fund 102665219.08 202721427.87TOTAL 0.89 1.33

2008-2009 2009-20100

0.2

0.4

0.6

0.8

1

1.2

1.4

Year

Debt

equ

ity ra

tio

Interpretation :- As compared to previous year, debt equity ratio has been decreased due to increase in long debt in current year.

Page 57: RATIO ANALYSIS OF R.S FASTENERS

(b) FUNDED DEBT TO TOTAL CAPITALISATION = TOTAL LONG TERM DEBT * 100

TOTAL CAPITALISATION

FUNDED DEBTED TO TOTAL CAPITALISATION

YEAR 2008-2009 YEAR2009-2010

Total long term debt 91415679.04 426750085.30Shareholders fund 102665219.08 202721427.87TOTAL 0.89 1.33

2008-2009 2009-20100

0.2

0.4

0.6

0.8

1

1.2

1.4

Year

Amou

nt

Interpretation :-

Page 58: RATIO ANALYSIS OF R.S FASTENERS

As compared to previous year, funded debt to capitalization ratio has been decreased due to increase in long debt in current year.

(c) DEBT EQUITY RATIO = SHAREHOLDERS FUND TOTAL ASSETS

EQUITY RATIO YEAR 2008-2009 YEAR 2009-2010Shareholders fund 102665219.08 202721427.87Total 102665219.08 202721427.87Total assets Current assets Fixed assets

164842888.1729238009.95

405736510.3168130941.15

Total 194080898.12 473867451.46Debt equity ratio 0.53 0.43

2008-2009 2009-20100

0.1

0.2

0.3

0.4

0.5

0.6

Year

Debt

equ

ity ra

tio

Page 59: RATIO ANALYSIS OF R.S FASTENERS

Interpretation:- As compared to previous year, equity ratio has been decreased due to increase in shareholders fund and total assets in current year.

(d) SOLVENCY RATIO = TOTAL LIABILITIES TO OUTSIDERS TOTAL ASSETS

SOLVENCY RATIO YEAR 2008-2009 YEAR 2009-2010Total liabilities to outsiders fund

91415679.04 426750085.30

Total assets Fixed assetsCurrent assets

29238009.95164842888.17

68130941.15405736510.31

Total 194080898.12 473867451.46 SOLVANCY RATIO 0.47 0.90

2008-2009 2009-20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Year

Amou

nt

Interpretation :-

Page 60: RATIO ANALYSIS OF R.S FASTENERS

As compared to previous year, solvency ratio has been increased due to decrease in shareholders fund and total assets in current year.

(e ) FIXED ASSETS TO NETWORTH = FIXED ASSETS AFTER TAX

SHAREHOLDERS FUND

FIXED ASSETS TO NETWORTH RATIO

YEAR2008-2009 YEAR 2009-2010

Fixed assets after tax 29238009.95 68130941.15Shareholders fund 102665219.08 202721427.87Total 0.28 0.33

2008-2009 2009-20100.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

0.33

Year

Amou

nt

Interpretation :-

Page 61: RATIO ANALYSIS OF R.S FASTENERS

As compared to previous year, fixed assets to net worth ratio has been increased due to increase in shareholders fund and decrease in current assets.

(f) FIXED ASSETS TO LONG TERM FUND = FIXED ASSETS LONG TERM DEBT

2008-2009 2009-2010

0.32

0.33

0.34

0.35

0.36

0.37

0.38

Year

Amou

nt

Interpretation :-

FIXED ASSETS TO LONG TERM FUND

YEAR 2008-2009 YEAR2009-2010

Fixed assets 29238009.95 68130941.15Long term funds Secured loans 84326442.82 178780072.52Total 0.34 0.38

Page 62: RATIO ANALYSIS OF R.S FASTENERS

As compared to previous year, fixed assets long term fund ratio has been increased due to increase in long term funds.

(g) CURRENT ASSETS TO SHAREHOLDERS FUND = CURRENT ASSETS SHAREHOLDERS FUND

CURRENT ASSETS TO SHAREHOLDERS FUND RATIO

YEAR 2008-2009 YEAR 2009-2010

Current assets Inventories Sundry debtorsCash and bank Loans and advances

61272671.4594701925.981698020.245801603.50

97786024.15289315442.384688411.659648055.36

Total 163474221.17 401437933.54Shareholders fund 102665219.08 202721427.87Ratio 1.59 1.98

Page 63: RATIO ANALYSIS OF R.S FASTENERS

2008-2009 2009-20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Year

Amou

nt

Interpretation :- As compared to previous year, current assets to shareholders fund has been increased due to increase in current assets.

(e)OVERALL PROFITABILITY RATIO

(a) RETURN ON SHAREHOLDER = NET PROFIT AFTER TAX INVESTMENT SHAREHOLDERS FUND

RETURN ON SHAREHOLDER INVESTMENT

YEAR2008-2009 YEAR 2009- 2010

Net profit after tax 5782106.35 9536298.09Shareholders fund 102665219.08 202721427.87Total 5.63 4.70

Page 64: RATIO ANALYSIS OF R.S FASTENERS

2008-2009

2009-2010

4.2

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

Year

Am

ount

Interpretation :- As compared to previous year, return on shareholders investment has been decreased due to increased in the profits in current year .

(b) TOTAL ASSETS TURNOVER RATIO = COST OF GOODS SOLD TOTAL ASSETS

TOTAL ASSETS TURNOVER RATIO

YEAR 2008 -2009 YEAR 2009- 2010

COGS 205178419.35 439761101.50TOTAL ASSETS Fixed assetsCurrent assets

29238009.95 164842888.17

68130941.15473867451.46

TOTAL 1.05 0.92

Page 65: RATIO ANALYSIS OF R.S FASTENERS

2008-2009 2009-2010 0.85

0.9

0.95

1

1.05

Year

Amou

nt

Interpretation :- Total assets turnover ratio has been decline.

(d) RETURN ON EQUITY CAPITAL = NET PROFIT-PREFERENCE EQUITY SHARE CAPITAL

RETURN ON EQUITY CAPITAL

YEAR 2008-2009 YEAR 2009-2010

Net profit after tax 5782106.35 9536298.09Equity share capital 18338776.26 23941355.35Ratio 0.31 0.39

Page 66: RATIO ANALYSIS OF R.S FASTENERS

2008-2009 2009-20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Year

Amou

nt

Interpretation :- As compared to previous year, current assets to shareholders fund has been increased due to increase in current assets.

(d)RETURN ON GROSS CAPITAL EMPLOYED = NET PROFIT AFTER TAX

GROSS CAPITAL EMPLOYED

RETURN ON GROSS CAPITAL EMPLOYED

YEAR 2008-2009 YEAR 2009-2010

NET PROFIT AFTER TAX

5782106.35 9536298.09

GROSS CAPITAL EMPLOYED Inventories Sundry debtorsCash and bank

61272671.4594701925.981698020.245801603.50

97786024.15289315442.384688411.659648055.36

Page 67: RATIO ANALYSIS OF R.S FASTENERS

Loans & advancesTotal 163474221.17 401437933.54Ratio 3.53 2.37

2008-2009 2009-20100

0.5

1

1.5

2

2.5

3

3.5

4

Year

Am

ount

Interpretation :- As compared to previous year, return on gross capital employed has been decreased.

(e)RETURN ON NET CAPITAL EMPLOYED =

NET PROFIT NET PROFIT EMPLOYED

RETURN ON NET CAPITAL EMPLOYED

YEAR2008-2009 YEAR2009-2010

NET PROFIT AFTER TAX

5782106.35 9536298.09

NET CAPITAL EMPLOYEDInventoriesSundry debtors

61272671.4594701925.98

97786024.15289315442.38

Page 68: RATIO ANALYSIS OF R.S FASTENERS

Cash and bank Loans and advances Less:- Current liabilities

1698020,245801603.5054594268.02

4688411.659648055.06220788892.57

Total 108879953.15 180649040.97Total 5.31 5.27

2008-2009 2009-20105.25

5.26

5.27

5.28

5.29

5.3

5.31

Year

Amou

nt

Interpretation :- As compared to previous year, net capital employed has been decreased.

Page 69: RATIO ANALYSIS OF R.S FASTENERS

FINDING OF THE STUDY

Page 70: RATIO ANALYSIS OF R.S FASTENERS

From the study we find out that the sundry debtors has been increased by 34.14% in 2010 from 2009.

The working capital has also increased 17.088% as compared to last year.

We have also study that the current assets has been also increased 27.98% in 2010 from the last year 2009.

The current liabilities has been decreased in the current year so the company have need to maintain reserve and surplus and invest them.

Gross profit is increased by 207.55 lakhs.

The fixed assets have been increased by 388.12 lakhs while long term liabilities to outsiders have relatively 3353.26 lakhs. This fact depicts that the policy of the company is to purchase fixed assets from long term sources of finance thereby not affecting the working capital.

The cost of goods sold has increased nearly by 2345.15 lakh from the last year 2009.

Net profits after tax of the company have decline by 0.07%.

The sales has increased in absolute figures in 2010 as compared to 2009.

Page 71: RATIO ANALYSIS OF R.S FASTENERS
Page 72: RATIO ANALYSIS OF R.S FASTENERS

SUGESSTIONS OF THE STUDY

The following suggestions are made on the basis of above study:

a) As the company does not have enough cash & bank balance to meet its current liabilities so company is required to increase its cash.

b) The company should capitalize its reserves and surplus.c) The company should improve overall profitability.d) The company should raise additional funds through debt

because interest on debt is a tax deductible expense.e) The company should use short term funds for meeting

fluctuations in working capital.

Page 73: RATIO ANALYSIS OF R.S FASTENERS

LIMITATIONS OF THE STUDY

Page 74: RATIO ANALYSIS OF R.S FASTENERS

A. This study is based on annual reports of the company

B. This study is very time consuming.

C. Ratios may not prove to be the ideal tool for inter-firm companies.

D. The two firms may adopt different accounting policies. So the results may not be comparable.

E. Ratios are depends upon the original data base. If the original data base is not correct then the ratios will be misleading.

F. Ratios are based on the past data. They can’t reliable guide to future performance, as future is dependent on various aspects of business.

Page 75: RATIO ANALYSIS OF R.S FASTENERS

FROM THE STUDY CONCLUDE SOME POINTS WHICH ARE DESCRIBED AS FOLLOWS:

Page 76: RATIO ANALYSIS OF R.S FASTENERS

The current assets consist of debtors,stock,marketable securities and loans and advances. Current assets and current liabilities are more than 2009. the current ratio is increased by the previous year but it is satisfactory. Absolute liquid ratio is less than previous year we can say that liquidity position need to be improved and cash must be properly managed.

The equity ratio of the company is less than the previous year so long term solvency position is poor.

The company’s reserve and surplus are more than the previous year and its share capital is same.

The net working capital of the company is increasing.

Page 77: RATIO ANALYSIS OF R.S FASTENERS

1.Management Accounting and Business Finance ( 2007)

-Gupta Shashi K.-R.K Sharma2.Financial Management

- Shashi K. Gupta- R.K sharma-Neeti Gupta

3. Management Accounting and Business Finance ( 2010 )

-Gupta Shashi K.-R.K Sharma

4.Internet Site –www. r.s fasteners.com

5. Annual Report of R.S Fasteners ( 2009 )

6.Annual Report of R.S Fasteners ( 2010 )

Page 78: RATIO ANALYSIS OF R.S FASTENERS

ANNEXURE

Page 79: RATIO ANALYSIS OF R.S FASTENERS

TRADING ACCOUNT AS ON 31 ST MARCH2010 OF R.S FASTENERS

Particular Amount(Rs.)

Particular Amount(rs.)

To opening stock

61272671.45By sale central RD. 60327730.42

To purchases raw material

52420694.25 By sale Punjab RD. 341154834.00

To purchases goods

321070740.00 =401482564.42

To wages598970.00

By closing stock (valued at cost)

97786024.15

To packing expenses

677154.00

To dies and tools 1630888.00

To consumables stores

6300354.00

To electricity charges

941613.00

To oil and lubricants

1288245.75

To job work 776110.40

446977440.85

To gross profit (13.02%)

52291147.72

Grand total 499268588.57

499268588.57

PROFIT & LOSS ACCOUNT AS ON 31 ST MARCH 2010 0F R.S FASTENERS

Page 80: RATIO ANALYSIS OF R.S FASTENERS

PARTICULAR AMOUNT(Rs.)

PARTICULAR

AMOUNT(Rs.)

To AMC charges 24697.00 By gross profit

52291147.72

To Audit charges 110000.00 By generator rent

96000.00

To Bank Charges 298386.73 By interest income

215341.77

To Bonus 216189.00

To Building Repair 274803.68

To Calibration on Expenses

3300.00

To Car Expenses 332617.00

To Computer Expenses

22603.00

To Depreciation 11339320.80

To Dies & Tools Repair 247508.50

To Diwali Expenses 48780.00

To Donation & Charity 27100.00

To E.P.F 81506.00

Page 81: RATIO ANALYSIS OF R.S FASTENERS

To E.S.I 28457.00

To Electric Repair 96684.00

To Excise Duty Revised

44141.00

To Electric Load ext. Charges

327500.00

To Fees & Membership

2000.00

To Fire & Penalty 1400.00

To Freight,Cartage & Octori

2422262.91

To Generator Expenses

262464.00

To Insurance 115034.00

To Interest on Car Loan

42684.00

To Interest on late deposit

8276.00

To Interest on Bank 17117290.60

To Interest on Capital 1845451.00

To Interest on Unsecured loan

1796694.00

To I.S.O Expenses 38000.00

To Labour & Staff Welfare

85370.00

To Lease & Rent 120000.00

To L.W.W 51235.00

Page 82: RATIO ANALYSIS OF R.S FASTENERS

To labour charges 5203.00

To legal charges 18000.00

To machinery repair 836992.00

To miscellaneous expenses

42510.48

To office electricity expenses

16617.00

To postage & courier 26628.85

To printing &stationary 89351.00

To processing fees 751087.00

To professional charges

272500.00

To rebate & discount 1020722.27

To rent,rate&taxes 25585.00

To salary &wages 493100.00

To salary to partners 1500000.00

To scooter expenses 27845.00

To service tax 3573.00

To telephone expenses

58351.49

Page 83: RATIO ANALYSIS OF R.S FASTENERS

BALANCE SHEET AS ON 31 ST MARCH 2010 OF R.S FASTENERS

To segration charges

887.09

To testing charges

803.00

To traveling charges(foreign)

295130.00

=43066191.40

To net profit TRF. To capital

a/c

9536298.09

Total 52602489.49 Total 52602489.49

Page 84: RATIO ANALYSIS OF R.S FASTENERS

LIABILITIES AMOUNT ( RS.) ASSESTS AMOUNT (RS.)

Partners capital account

23941355.35 Fixed assets 68130941.15

Secured loan 178780072.52

Unsecured loan 50357131.02 Current assets loan & advances

405736510.31

Current liabilitities 220788892.57

Total =473867451.46 =473867451.46

Page 85: RATIO ANALYSIS OF R.S FASTENERS

TRADING ACCOUNT AS ON 31 ST MARCH 2009 0F R.S.FASTENERS

PROFIT & LOSS ACCOUNT AS ON 31 ST MARCH 2009 OF R.S FASTENERS

PARTICULAR AMOUNT(RS.)

PARTICULAR AMOUNT(RS.)

To opening stock 20706600.00 By sale capital central RD.

41744056.52

To purchases raw material

239661479.00 By sale punjab RD.

195018484.00

To wages 624848.00 By sale punjab export

0.00

To packing expenses

491149.00 By sale trading goods

0.00

To dies and tools 1629587.00 236762542.52

To consumables stores

1199988.00 By closing stock 61272671.45

To electricity charges

805648.00

To oil and lubricants

707398.40

To job work 624393.00

To gross profit (13.34%)

31584123.17

Total 298035213.97 298035213.97

Page 86: RATIO ANALYSIS OF R.S FASTENERS

To scooter expenses

18470

Particular Amount (Rs.)

Particular Amount (Rs.)

To AMC charges

29503 BY gross profit 31584123.17

To advance 5000 By generator rent 80000

To audit fees 65000

To bank charges 878393.33

To bonus 188504.00

To calibration expenses

300

To car expenses 202059

To computer expenses

5091100

To dies & tool repair

73104

To depreciation 5680211.86

To diwali expenses

43490

To donation 21200

To E.P.F 128287

To E.S.I 44774

To electric repair 73649

To fees nd membership

1828

To freight and cartage

1978243

To generator expenses

96300

To insurance 133921

To interest on car loan

58559

To interest on late deposit

249

To interest on bank 9303379

To interest on capital 1518097

To interest on unsecured loan

866272

To I.S.O expenses 147935

To labour and staff welfare

76045

To lease and rent 70000

To L.W.W 40619

To legal charges 33100

To machinery expenses

782575.25

To miscellaneous expenses

119828.46

To postage 33249.28

To printing and stationary

47451

To processing fees 280826

To rebate & discount 240000

To rent,rate & taxes43223

To salary & wages 317674

To salary to partners 1500000

Page 87: RATIO ANALYSIS OF R.S FASTENERS

To telephone expenses

51305

To traveling expenses

358169

=25601704.18

To net profit 6062418.99

Total =31664123.17 =31664123.17

Page 88: RATIO ANALYSIS OF R.S FASTENERS

BALANCE SHEET AS ON 31 ST MARCH 2009 OF R.S FASTENERS

LIABILITIES AMOUNT( RS.)

ASSETS AMOUNT( RS.)

Partners capital acconut

18338776.26 Fixed assets 29238009.95

Secured loan 84326442.82

Unsecured loan 36821411.02 Current assets, loans and advances

164842888.17

Current liabilitities

54594268.02

Total 194080898.12 194080898.12

Page 89: RATIO ANALYSIS OF R.S FASTENERS