shree renuka sugars ltd (2)
TRANSCRIPT
CHAPTER-1
INTRODUCTION
OVERVIEW OF SUGAR INDUSTRY:
India is one of the largest consumer and second largest producer of sugar
in the world. With 516 sugar mills operating in India during SY 2008P in
different parts of the country, the Indian sugar industry has been a focal
point for socio-economic development in the rural areas.
The sugar industry, in India, is highly fragmented. There is a large
number of small sugar mills located in various parts of the countries. In
SY 2008, a total of 516 sugar factories crushed cane for an average of
152 days. Cooperative mills largely operate in Maharashtra, Gujarat,
Uttar Pradesh and Karnataka. In addition, there are a number of players
in the unorganised segment, producing gur and khandsari, which are less
refined forms and act as a substitute.
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Sugarcane Acreage & Production:
The sugar industry in India uses only sugarcane as input, hence sugarcane
acreage and production is a key factor in determining sugar production
for the year. The area under sugarcane cultivation has gradually increased
over the years mainly due to the diversion of land by the farmers from
other crops to sugarcane for economic reasons.
Sugar mills have been largely established in large sugarcane growing
states like Uttar Pradesh, Maharashtra, Andhra Pradesh, Karnataka,
Gujarat and Tamil Nadu. These six states together account for 80-90% of
the sugarcane produced in India.
Accordingly, the leading sugar producing states are Uttar Pradesh,
Maharashtra, Tamil Nadu, Gujarat, Andhra Pradesh and Karnataka,
accounting for 85-95% of the total sugar produced in India.
In SY 2008P, these states accounted for about 90% of the total sugarcane
production in India, with Maharashtra and Uttar Pradesh leading with
24% and 37% respectively of the total sugarcane production, and for
about 92% of total sugar production in India, again with Maharashtra and
Uttar Pradesh leading with 34% and 28% respectively of the total sugar
produced in India.
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Sugar Cycle:
Process of Sugar Cycle
Sugar industry typically follows a cycle which spans over a period of five
to seven year. Higher sugarcane and higher sugar production results in a
fall in sugar prices, which in turn result in non-payment of dues to
farmers. This compels the farmers to switch to other crops thereby
causing a shortage of sugarcane, which in turn lead to an increase in
sugarcane prices and thereby increases profits. Since prices of sugarcane
have increased, farmers now switch back to sugarcane production, which
in turn leads to a fall in sugar prices.
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INTRODUCTION TO FINANCE:
Finance is the lifeblood and central nerve system of any business
organization. This because of the modern money oriented economy. Just
as circulation of blood is necessary in the human body to maintain life,
finance is very essential to the business organization for smooth running
of the business. Finance is one of the basic foundations of all kinds of
economic activities. It is the master key, which provides access to all the
sources for being employed in manufacturing and merchandising
activities .The importance of Financial Management cannot be denied. In
every organization where funds are involved, sound Financial
Management is indispensable. Efficient management of any business
enterprise is closely linked with efficient management of its finance.
DEFINITION OF FINANCE:
Ray G.JONES and Dean Dudley observe that the word finance comes
from Latin word ‘Finis’ in simple word Finance is the economics and
accounting. Economics is proper utilization of scare resources and
accounting is keeping a record of thing.
Kenneth Midglay and Ronald Burns state “Finance is the process of
organizing the flow of funds so that a business firm carry out its
objectives in the most efficient manner and meet its obligations as they
fall due.”
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SCOPE OF FINANCE:
Until the middle of the century, the scope of finance was simply that of
rising of funds from various sources and looking after the legal and
accounting relationship between the company and the suppliers of
various sources of funds.
However, several technological innovations and improvements, widening
marketing operation, strong corporate structure etc. took place in 1950’s
have since reduced the popularity of traditional approach finance.
The scope of finance function is as wide as the periphery of finance. It
concentrates primarily on more money management and different
auxiliaries, which are incidental to it. For effective money management,
the different resources of business enterprises must be mobilized.
The finance penetrates all the activities irrespective of whether they relate
to product, pricing, expansion and re-organization and in fact anything,
which needs finance.
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IMPORTANCE OF FINANCE:
The importance of finance is one of the important areas of the
management. It is the management of monetary affairs of the
organization. It considered as that administration area or set of
administration function, which relate to arrangement of cash and credit,
so that the organization may have the means to carry out its objective. So
it is rightly said “Finance is the life blood of the Business Economy”
Finance is a very important tool for the organization for its smooth
working. Without of finance, neither a business can be started nor
successfully run. Provision of sufficient funds at the required time is the
key of success of a business. As a matter of fact, finance may be said to
be a circulatory system of the economic body.
A business needs the finance at every stage of its operation. Some of the
operation or stage where the finance is required for the organization is:
For starting of a business
For operating of a business
For expansion and modernization of a business
For closing up or liquidation of the business.
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ABOUT THE SUBJECT:
The preparation of financial statements is not the end aim. The purpose
of preparing the statement is to use them for decision making. The
statement becomes further planning and forecasting. An opinion is
formed in respect to the financial conditions and concern. The analysis
of these statements involves their decision according to similar groups
and arranged in desired form. The interpretation involves the expansion
of financial facts in a simplified manner.
The financial statement analysis is largely a study of relationship among
the various financial factors as shown by different statement are an
attempt to determined the significance and meaning of the financial
statement data so that the forecast may be made by prospects for future
earning, ability to pay interest and delete maturities (both current and
long term) and profitability of a sound dividend policy.
The analysis and interpretation being out the mystery behind the figures
in financial statement. The interpretation includes the comparisons of the
smaller figures at different time, different figures at the same point of
time.
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INTRODUCTION:
Every organization, irrespective of size and mission, may be viewed as a
financial entity. Management of the organization, particularly a business
firm, is confronted with issues and decision like the following which
have important financial implication:
What kind of plant and machinery should the firm buy?
How should it raise finance?
How much should it invest in inventories?
What should be its credit policy?
How should it gauge and monitor its financial performance?
MEANING OF RATIO ANALYSIS:
Ratio is the relationship between two accounting numbers. It is one of the
effective tools of financial analysis. It indicates the relationship of
accounting aspect like profit and profit and sales, incomes and expenses,
current assets and liabilities etc. with each other and reflects the
soundness of concern.
Ratio Analysis is the technique of the computation of number of
accounting ratios from the data derived from the financial statements, and
comparing those with the ideal or standard ratios or the previous year’s
ratios or the ratios of other similar concerns. It is a technique of
comparative analysis in which current year ratios are compared with the
past or other organizations which are in similar line of operations so as to
ascertain the financial soundness of the concern.
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USERS (interested parties):
1. SHAREHOLDERS
Some shareholders are interested in the performance of the
company. They want to judge the long term solvency position,
return capital employed and earnings per share of a company.
2. ANALYST ADVISOR :
They advise the present and potential investors about their buy or
sell and lending decisions by reviewing all financial characteristics
and make inter firm comparisons.
3. TAX AUTORITIES :
They are the financial rate to judge the reliability of financial
information presented by the assesses.
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IMPORTANCE OF RATIO ANALYSIS:
Ratio Analysis stands for the process of determining and presenting the
relationship of items and groups of items in the financial statements. It is
an important technique of financial analysis. It is an important technique
of financial analysis. It is a way by which financial stability and health of
a concern can be judged. The following are the main points of
importance of Ratio Analysis:
1) Accounting ratios reveal the financial positions of a concern.
This helps the banks, insurance companies and other financial
institutions in lending and making investments decisions.
2) Ratio Analysis is an instrument for diagnosing the financial
health or condition of a business. Financial analysts can
diagonise the financial condition of an enterprise through ratio
analysis. They evaluate the important aspects of the conduct of a
business like liquidity, solvency, capital gearing, profitability
etc.
3) Accounting ratios simplify, summaries and systematize the
accounting figures in order to make them more understandable
and in lucid form. They highlight the interrelationship which
exists between various segments of the business as expressed by
accounting statements.
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4) Ratio Analysis is an invaluable aid to the management in the
efficient discharge of its basic functions of forecasting, planning,
communications, controlled. Ratios are a useful instrument of
management control, particularly in the areas of sales and costs.
5) Ratios are very helpful in establishing standard costing system
and budgetary control.
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LIMITATIONS OF RATIO ANALYSIS:
1) Ratios are calculated from the data found in the financial
statements. The Financial statements suffer from a number of
limitations. That means the ratio, derived from the financial
statements are also subjected to those limitations.
2) Financial analysis is based on ratio analysis will give miss leading
results if the effects of change in price level are not taken into
account in the compilation of ratio analysis.
3) Ratio alone is adequate for judging the financial position of a
business. They cannot be taken as final as regards the financial
position of a business other things also have to see.
4) Ratios give just a fraction if information needed for judging the
financial soundness of a concern, such the information obtained
from the ratios must be used in conjunction with the information
obtained from others sources so as to judge the financial soundness
of a concern correctly.
5) A ratio is hyper sensitive. A new entry of a transaction can change
its magnitude drastically.
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STEPS INVOLVED IN RATIO ANALYSIS:
1. Selection of relevant data from the financial statements depending
upon the objective of the analysis.
2. Calculating of appropriate ratios from the above data.
3. Comparision of calculated ratios with the ratios of the same firm in
the past or the ratios developed from projected financial statements
the ratios of some other firms of the comparision with the ratios of
the industry to which the firm belongs.
4. The ratio analysis involves the comparison for useful interpretation
of the financial statements. A single ratio in itself does not indicate
favorable or unfavorable conditions. It should be compared with
some standards.
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CHAPTER-2
RESEARCH DESIGN
INTRODUCTION:
The efficiency of the company is mainly measured by its financial
stability. It can be assesses with the help of audited and certified
financial statements.
Ratio Analysis is an important tool for financial strength of the
company. Ratio analysis is the technique of analyses and interpretation
of financial statement through calculation of a number accounting ratios
from the financial statements for the purpose of comparisons of
accounting ratio with those of previous year with those other concern
engaged in similar line of activities or with the standards to draw
conclusion about the financial performance of the organisaton.
Analyses and interpretation of various accounting ratio give (skilled and
experienced analyst) a better understanding of the financial condition of
the organization through financial statement.
TITLE OF THE STUDY:
This project is submitted under the title “RATIO ANALYSIS” at Shree
Renuka Sugars Ltd Belgaum, where a special preference is given to
Ratio Analysis.
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STATEMENT OF PROBLEM:
The success and failure of the company depends on the financial results
that the company has achieved during the period, which will be reflected
in financial statements. Analysis and interpretation of financial
statements of its regular exercise to review the performance of the
company the present study is undertaken to analyse the financial position
of the concern. i.e., whether the concern is in profit or loss or in break
even.
OBJECTIVE OF THE STUDY:
To study and analyse financial statements of the concern.
To identify the loops, and finding techniques to improve the same.
To know the current assets and current liabilities structure of
SRSL.
To study and compare the financial performance of HAL over the
last five years.
Competition of different accounting ratios, to analyse the financial
performance of concern for current year.
To know the solvents of the firm and to decide about the long
term liquidity of the funds of the organization.
To suggest and recommend a proper techniques for Ratio Analysis
of SRSL.
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SCOPE OF THE STUDY:
The study has been done to analyse the financial performance of SRSL
for the period of 4years from 2005-2009. The study help in the learning
of the financial statements as well as understanding the various
components involved in the analysis of the financial statements. The
financial statement consists of Balance Sheet, Profit and Loss and Profit
and Loss Appropriation account. Through this studying the financial
statement of previous 4years is analysed.
METHODOLOGY OF STUDY:
To get relevant data the correct result is necessary to conduct a research
study in a Methodical way. Important criteria for the validity of any
research study lies in Methodology adopted by it. As these was no
primary data to be collected, only secondary data was used for research
this secondary data is analysed for the project to be carried out.
DATA COLLECTION AND ANALYSIS:
The secondary data was collected such as annual reports and study
report was set to purpose of calculating the ratios.
Based on secondary data collected, analysis was carried out using Ratio
Analysis as tool and the findings of the study where interpreted and
recommendation were given.
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INFORMATION NEEDS:
Balance Sheet of 2005-06, 2006-07, 2007-08, 2008-09
Profits and Loss accounts of 2005-06, 2006-07, 2007-08, 2008-09
Working Results
Annual Reports
LIMITATIONS OF STUDY:
It has not been possible to calculate all the ratios for the purpose
of analysis due to non availability of data.
This basically been an academic study suffers from time and the
cost constrains.
Highly confidential matter could not been procured due to known
and unknown reasons.
Findings and conclusions are applicable to this concern only and
cannot be generalized.
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CHAPTER-3
COMPANY PROFILE:
About Shree Renuka Sugars:
Shree Renuka Sugars Ltd (SRSL) is a transnational agribusiness
and bio energy corporation.
Shree Renuka Sugars Ltd was not born out of necessity, but it was
a result of a compelling vision to emerge as the most efficient
sugar processor and the largest marketer of sugar and ethanol in
India, to consolidate large renewable business and to drive an
inspiring business model.
The company was founded by Mr.Narendra Murkumbi and his
mother Mrs.Vidya Murkumbi in 1998, not just dreamers but
doers in their own right.
The combination of dreamers and doers produced enriching
results over the last decade. The company has emerged among the
most exciting proxies of a conventional Indian industry. The
company has been one of the largest and fastest growing sugar
companies in India and now has exposed its global footprint with
an entry in Brazil through acquisitions.
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The company is currently the 5 th largest sugar producers in the
world, leading manufacturer of sugar in India-the world’s largest
sugar market and one of the largest refiners globally.
It operates 7 sugar mills in India with a total crushing capacity of
35000 tons crushed per day and two large port based sugar
refineries with capacity 1.7 million tons per annum.
It has significant presence in South Brazil, the most cost-efficient
and scalable production area with a total cane crushing capacity of
14million tons at its 4 mills.
Shree Renuka Sugars Ltd has its corporate office in Mumbai
(India) and headquarters in Belgaum in the state of Karnataka
(India).
Key Business:
Shree Renuka Sugars Ltd has integrated cane crushing capacities in
India responsible for the production of-
Sugar
Ethanol and
Power.
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Shree Renuka Sugars Ltd (SRSL) Business Segments:
Shree Renuka Sugars Ltd business operations can be segregated into four
segments as below:
Sugar Division
Distillery Division
Co-generation Division and
Engineering.
Shree Renuka Sugars Ltd Vision:
“To become the most efficient processor of sugar and the largest
marketer of sugar and ethanol in India. To become one of the largest
producers of sugar (cane and refined), renewable energy and bio-fuel
(ethanol) in India”.
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ORGANISATIONAL CHART
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Strengths of Shree Renuka Sugars Ltd:
Extensive Integration :
Shree Renuka Sugars is extensively integrated, extracting the
maximum value out of sugarcane through the processing of cane,
molasses and bagasse to produce sugar, power and ethanol. In 2007-
08, revenues of the Company’s non-sugar business increased from
15% in 2006-07 to28% in 2007-08, and its proportion in the bottom-
line enhanced from 28% to77% during the period
Strong global presence :
The Company is the second largest exporter of sugar from India with
a presence in the Middle East, South East Asia and East Africa,
among others. This export revenue provides the Company with an
enhanced trade flow larger than its production, acting as a
consolidator and enabling it to capitalise on global price as well as
purchasing trends.
Preferred supplier status :
The Company is a sugar ‘supplier of choice’ across brand-enhancing
Multinational companies that produce carbonated soft drinks, fruit
juices, chocolates, baby foods and dairy products. Its clients include
reputed names like Coca Cola, Pepsi, ITC, Britannia, Nestle and
Cadbury, among others.
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Successful acquisitions :
The Company scaled capacity by acquiring co-operative mills and
leased production assets, reducing direct and opportunity costs. It
acquired a standalone ethanol plant of 100 KL expanded to 300 KL, to
cater to the ethanol requirements of oil marketing companies (OMC)
located in the coastal states of Goa, Maharashtra and Kerala for
exports. The Company also acquired a strategic 54% stake in KBK
Chem- Engineering Pvt. Ltd., engaged in providing turnkey solutions
(EPC contracts) in the field of distilleries, ethanol plants and biofuels.
Increasing capacities :
The Company has relentlessly enhanced its capacity. Since its IPO in
October2005, its sugar capacity grew seven-fold (5,000 TCD to
37,500 TCD), ethanol capacity 15-fold (60 KLPD to 450 KLPD to
900 KLPD by March 2009) and power capacity eight-fold (20 MW
to158 MW).
Moderating the impact of sugar cyclicality :
The Company is unique in consuming multiple feedstocks (sugarcane
and raw sugar). During the off-season, it consumes raw sugar for
conversion, enhancing its asset utilisation and sustaining cash flows.
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Super fixed asset utilization :
The Company enjoys one of the industry’s highest capacity utilisation
and asset turnover ratios on the back of a longer operating season,
higher sugar content availability in cane and dual raw material
capability. It produces 20 tons of sugar per TCD capacity, as against
the top four sugar companies by market capitalisation (excluding
SRSL) which produce 10 tons of sugar per TCD capacity.
Technical expertise:
The Company has tied up with Tate & Lyle Industries PLC of UK – a
GBP 4.07- billion organisation and one of Europe’s largest sugar
refiners (for the Company’s refinery business). The international
partner provides a robust technical expertise in refining.
Institutional focus :
The Company directly markets sugar to institutional buyers – a
paradigm shift from the tradition of selling to wholesale agents and
dealers. This has translated into a relatively large market share, an
effective hedge against price-driven risks. This has also rationalised
working capital outlay and has reduced the Company’s
dependence on sugar brokers.
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Locational advantages:
The Company enjoys a number of advantages on account of its South
Indian location. It enjoys a longer crushing season (over 200 days,
starting from October till May), higher recovery (10-20% higher than
that of other regions), matured market for cogeneration power as well
as port proximity (160-200 kms).
Excellent farmer relationships:
Farmer dues are cleared on time, encouraging them to grow more
sugarcane than switching to alternatives. Being shareholders, farmers
also enjoy a preferential sale and an attractive dividend income. The
Company enjoys the benefit of healthy relationships with more than
5,000 farmers as shareholders.
Seamless sugarcane collection network:
The Company possesses a dedicated department to supervise cane
development and procurement. It is engaged in organising the
harvesting programme for desired cane quantity and quality to be
harvested daily, with adequate transportation to the mills. Besides, it
acquires cane directly from the farmers without going through
intermediaries.
SRSL Identity:
Shree Renuka Sugars ltd. (SRSL) defied convention to create a dynamic
business model in a challenging cyclical sector.
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Diversified Business:
Convergence of three businesses in one organization. Sugar, Biofuels,
Renewable energy.
Decade-old presence:
Possesses India’s largest sugar refining capacity(6,000TPD)
Accounts for over 20% of India’s international sugar trade.
India’s leading fuel ethanol producer.
Definitive numbers as per Annual Report 2008 - 09:
SRSL COMPANY
SRSL SUGAR BUSINESS
SRSL REFINING BUSINESS
SRSL POWER BUSINESS
SRSL ETHANOL BUSINESS
Market capitalizationRs. 62,572mn
Cane crushing capacity35000TCD
Refining capacity6,000TPD
Generating capacity 173 MW
Distillery capacity 900 KLPD
Foreign Holding30.54%
Cane crushing 8 units
Refining facilities 1 standalone unit and 3 units at mills
Exportable capacity 95 MW
Sales volume65 mn litres
Promoter Holding
Recovery10.73%
Volume refined
Average realization
Average realization per
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Initiatives:
Pioneered the concept of leased sugar manufacturing assets in
India.
Popularised the concept of sugar refining as an independent
business vertical: strengthened sugar refining technology.
Emerged as the first Indian sugar company to establish a
manufacturing footprint outside India.
Exponentially increased the ethanol manufacturing capacity.
Globally-focused Capacity:
Shree Renuka Sugars was the only Indian company intent on
concurrently building sugar refining capacities to cater to the global
market.
Invested in advanced sugar refining technology to meet exacting
EU quality parameters.
Created India’s largest cumulative refining capacity (6,000 TPD)
that is primarily port-based.
Engaged in the commissioning of India’s largest refinery (3,000
TPD) in Gujarat: expected to be commercial in 2010-11.
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Global Positioning:
Shree Renuka Sugars became India’s first company to acquire a foreign
sugar company. The company acquired a sugar company in Brazil, the
largest global sugar producing and exporting nation in return for the
following benefits:
Securing majority of its annual raw sugar feedstock requirement
of 2 mn tons(2010-11 onwards).
Value-addition and profitability of its Indian refinery operations.
A first-hand insight into global trends and opportunities in the
sugar and ethanol segments.
Globalised Mindset:
Created a business model derisked through a presence in sugar
(from cane), refining, ethanol and co-generated power with
technology that generates revenue even in the absence of cane.
Stretched the value chain a step in both directions-cane cultivation
on 18,000 hectares through its Brazilian acquisition at one end and
quality, refined sulphurless sugar at the other.
Established a trading hub in Dubai to capitalize on trade
opportunities in the Asian region.
Leveraged its rich knowledge to generate engineering and project
management revenues through its stake in KBK Chem
Engineering Pvt. Ltd around 35% revenue from global
assignments; Rs.2,500 mn order book as on September 30,2009.
Overview of Indian Operations:
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1) The 7cane crushing units of Shree Renuka Sugars Ltd are located
in the States of Karnataka and Maharashtra in India.
2) Units in Karnataka, Munoli, Athani, Havalga, Gokak, Raibag.
3) Units in Mahahrashtra: Arag, Ratnaprabha, Panchagana.
4) Raibag and Arag are operated on lease, Panchagana is operated on
BOOT for cogeneration and the remaining units are owned by
Shree Renuka Sugars Ltd.
5) SRSL has 2 refining capacities on the east coast at Haldia in West
Bengal and on the west coast at Kandla in Gujarat.
6) The acquisition of a majority stake in KBK Chem-Engineering Pvt
Ltd facilities turnkey distillery, ethanol and bio-fuel plant
solutions.
7) The company has also acquired a 100KLPD distillery from
Dhanuka Petrochem (Khopoli, Maharashtra) that converts rectified
spirit into ethanol and increase its capacities to 300KLPD.
Overview of Brazil Operations:
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1) SRSL has acquired two companies in Brazil:
Vale do Ivai is wholly owned subsidiary of SRSL
SRSL owns 50.34% of Renuka do Brazil S/A (formerly
Equipav Acucar e Alcool)
Combined crushing capacity of 13.6 million tons(under
expansion to 15.5mn mt)
2) Total inward invest in Brazil so far is USD 350mn.
3) Shree Renuka is the second largest buyer of raw sugar world-wide
since 2009 and buys 100% of its requirements from Brazil.
Synergy of Brazil Investment with Asia Demand:
India, South Asia and the Middle East are emerging of the largest
sugar import markets in the world with increasing challenges of
land and water availability.
Sugar/Ethanol sector in Brazil has low operating cost, high
scalability and highly conducive climatic conditions.
Ability to cultivate significant portion of cane supply allows
manufacturer to capture of value of the agriculture part of the
business.
BOARD LEVEL STRATEGIES AND PLANS:
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SRSL believe in the Jack Welch’s saying “Good Business leaders create
a vision, articulate the vision, passionately own the vision, relentlessly
drive it to completion”
Here is a proof:
SRSL, possess the largest capacities in sugar manufacture, distillery and
cogeneration per ton of cane crushed. Going ahead, SRSL expect to
commission India’s largest capacity in the shortest possible time across
all verticals.
General Strategy Used For Securing Raw Materials:
1. Facilitating sugarcane development and crop loans to enhance
sugarcane planting in SRSL reserve area.
2. Aligning farmer’s interest by making them Shareholders in the
company.
3. Paying on time, irrespective of prevailing industry cycle.
4. Providing quality seeds, agri-inputs and fertilizer subsidies to
farmers.
5. Assisting farmers to enhance yields.
6. Educating farmers about cane advantages over other crops.
7. Developing irrigation sources and other forms of land
development.
8. Encouraging commercial Banks and government agencies to
provide soft loans to sugarcane growers.
9. Creating Shree Renuka Sugars Development Foundation,
Promoting education, Healthcare and Educating Framer life quality
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RESULT: SRSL cane procurement has increased year on year since
inception and SRSL drawal rate is now close to 100%.
Shree Renuka Sugars Ltd Products:
1. Sugar : Renuka Sugars produces ECII grade refined sugar
conforming to EU norms (less than 45 ICUMSA). The company’s
phosphorisation process produces sulphurless sugar for direct
consumption and industrial usage in Europe and Africa.
SRSL’s two integrated refineries are located in Munoli and Athani.
Madhur-the sugar of choice:
SRSL launched ‘Madhur’, a sugar brand
for the retail markets, in November 2007. Within 3 years of its
launch, Madhur has emerged as the fastest growing brand in its
category (CAGR 46%).
2. Power :
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SRSL produces power from bagasse
(sugar by-product) for captive consumption and sale to the state
grid. Besides, this bagasse based cogeneration plant is eligible for
carbon credit compensation under the Kyoto product. SRSL’s
cogeneration capacity increases to 143 MW with exportable
surplus of 70 MW in the SY 2008-09.
3. Ethanol :
Alcohol is produced from molasses, a
brown-coloured residue left after sugar extraction from cane juice.
The alcohol can be purified to produce fuel grade ethanol that can
be blended with petrol. In SY 2008-09, SRSL’s distillery capacity
touched 930 KLPD (630 KLPD from molasses to ethanol and 300
KLPD from rectified spirit to ethanol).
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4. Bio-fertilisers :
The residue products from distillery operations blended with
chemicals are sold as bio-fertilisers.
SRSL’s Competitive Advantages:
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Capacity growth: The company multi-folded its capacity, growing
organically and inorganically: sugar producing capacity increased from
5,000 TCD to 35,000 TCD; sugar refining capacity grew to 6,000 TPD;
ethanol producing capacity surged from 60 KLPD to 900 KLPD; captive
power generation increased from 20 MW to 173 MW. The Company
invested Rs.15,010 mn in asset creation over the five years leading to
2008-09.
Integrated player: The Company is completely integrated across the
sugar value chain from cane cultivation to sugar (from cane), sugar
refining, ethanol and power. More than Rs. 3,223 mn revenues accrued
from co-product businesses, accounting for 14% of the Company’s
revenues.
Financial strength: SRSL’s superior performance is vindicated by its
financials: debt-equity ratio stood at 0.62, strengthening its ability to
borrow and sustain growth; cash profit was a healthy Rs. 2,911 mn in
2008-09, operating margin stood at 16.73%, interest cover was a strong
4.38, reflecting the company’s comfortable debt-servicing ability.
Inorganic Success: The Company acquired Ratnaprabha Sugars Limited
and Gokak Sugars Limited, leased four units and operated each
profitability thereafter. It acquired a standalone 100 KL distillery. In
2008-09, the Company acquired a 100% stake in VDI, a Brazilian sugar
and ethanol player.
Seshadripuram Institute of Commerce & Management Page 35
Non-cyclical business model: The Company’s multi feed stock
capability for its sugar and power business facilitates asset utilization
beyond the sugar season and a continuous cash flow for the organization.
The Company refined 663,032 tons of raw sugar and sold 232 mn units
of power in 2008-09.
Excellence at Shree Renuka Sugars Ltd:
1. Operations :In a business with diverse manufacturing opportunities, there is a
premium on product, process and capacity selection leading to
competitiveness. Shree Renuka Sugars consciously selected to
integrate sugar manufacture with downstream possibilities in its
factories across Maharashtra and Karnataka. It invested in
integration within a year of inception, emphasising its
understanding of multi-product profitability. The Company
processes co-products to generate ethanol, power and bio-
fertilisers. Of its five factories, three possess integrated facilities,
while the rest are in the process of integration.
a. Sugar :The Company’s ten manufacturing units enjoy a cumulative
capacity of 37,500 TCD. Most of these units were situated near
ports – the closest was port-based, while the most distant was only
150 kms away - enhancing their flexibility to address domestic and
export markets. The Munoli and Athani raw sugar units (1,000
TPD each) enhanced off-season asset utilisation, while the
Company commissioned a 2,000-TPD sugar refinery, strategically
Seshadripuram Institute of Commerce & Management Page 36
located in the port-town of Haldia to facilitate imports and enhance
exports.
Highlights 2007-08: All sugar manufacturing units achieved a near 100%
capacity utilisation.
The Company averaged over 20 tons of sugar production
per TCD of crushing capacity, twice the industry standard.
b) Ethanol:Ethanol will enjoy growing demand, following an enhanced
demand for ‘green’ energy and an expanding need for increased oil
security amid depleting reserves. The Company’s distilleries (600
KLPD going to 900 KLPD) convert molasses and/or juice into
ethanol for fuel and potable purposes.
Highlights 2007-08 It acquired a 54% stake in KBK Engineering, an ethanol
technology company. The stake will be increased to 67% in
August 2009.
It invested Rs. 60 million in Dhanuka Petroleum (100
KLPD), which specialises in direct fuel ethanol production
from rectified spirit.
Outlook:It redesigned its ethanol plants to flexibly produce ethanol from
molasses and/or sugarcane juice depending on the relative prices of
sugar and ethanol. It is expected to increase its current capacity
from 600 KLPD to 900 KLPD in SY 08-09.
Seshadripuram Institute of Commerce & Management Page 37
c) Co-generation:In a power-intensive business like sugar manufacture, the saving grace is
the Company’s ability to generate power from sugar by-product bagasse.
The Company enjoys a 129 MW co-generation capacity, leaving an
adequate exportable surplus of 70 MW. The bagasse-based co-generation
units qualify as a clean development mechanism project, helping the
Company earn carbon credits.
Highlights 2007-08:The export of power increased by 302% from 38 million units
in 2006-07 to 153 million units in 2007–08.
Outlook:An additional 40.5 MW will be made operational during
2008-09.
2. Cane Management :
In a business where the growing space is finite and the options
varied, the Company is required to consistently demonstrate cane
viability at all times.
To incentivise sugarcane planting and protect the sugarcane
acreage in its command areas, the Company remunerates farmers
higher than the SMP. The Company is favourably located; its
manufacturing units are located in southwest India, a region that
enjoys a high cane recovery; besides, the state enjoys a crushing
season of six-seven months against four-five months in other sugar
producing regions. The consequent viability in growing cane
translates into enhanced availability for the Company, leading to
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related economies of scale and consequent growth. Besides, both
states of the Company’s presence do not have State Administered
Prices (SAP) of cane. The Company undertakes various cane
development initiatives and provides crop loans to augment cane
production in its various command areas. It also provides
numerous other agroinputs and fertiliser subsidies to encourage
sugarcane production. Dedicated cane procurement teams manage
cane procurement. The Company purchases sugarcane directly
from farmers, eliminating intermediaries. Its harvesting
programme is based on crop age, variety and maturity for desired
cane quantity and quality leading to streamlined procurement.
Cane managers issue cutting orders or harvesting permits, based on
date-wise cum pre-harvesting maturity surveys.
Highlights 2007-08:The Company’s cane crushing increased 71% from2,702,200 tons
in 2006-07 to 4,623,550 tons in 2007- 08.
3. Farmer Relationships :
In a business where the raw material supplier enjoys the flexibility
to market produce to another buyer or shift focus to alternative
crops, there is a premium on the need to graduate a transaction to a
relationship of mutual sustainable benefit.
The building block of growth at Shree Renuka Sugars is trusted
farmer relationships. Over the years, this trust has translated into a
Seshadripuram Institute of Commerce & Management Page 39
willingness to grow cane in good years and bad, leading to
increased crushing in every single year of the last five years.
This distinctive company-farmer relationship is enshrined in a
paradigm understanding: at the Company, farmers are not just
treated as vendors, but partners. There is a broad realisation that if
growth is to be sustainable, one will need the other.
This inevitability has been most visibly manifested in a large
number of farmers – accounting for a significant 9% of the
Company’s equity - being shareholders.
This trust has been manifested in various other initiatives
undertaken by the Company:
Coordination and management of cane harvest and
transportation, saving farmers’ effort, time and money.
Education of farmers in cane economics over competing crops.
Development of small irrigation sources on a collective basis to
widen acreage under cultivation.
Close working with commercial banks and government
agencies to provide soft loans to sugarcane growers.
The Company also formed a trust – Shree Renuka Sugars
Development Foundation – to promote sustainable education,
healthcare and holistic wellbeing of farmers and the local community.
Seshadripuram Institute of Commerce & Management Page 40
4. Marketing :In a business where the Company markets diverse products across
different customer segments, there is a need to identify the nature
of the customer, with the objective to enhance organisational
value.
Shree Renuka Sugars markets around 25% of its sugar to
institutional buyers, 5% to retail stores and the rest to domestic and
international customers through spot trading.
The Company accounts for 20% of the country’s ethanol market. It
entered into a three-year agreement with major oil marketing
companies to supply 217 million litres, at an agreed price of Rs.
21.50 per litre.
Highlights 2007-08:
Ethanol supply to customers in four states (Karnataka, Andhra
Pradesh, Goa and Kerala).
Packaged sugar marketing through retail brands like Big Bazaar
and Metro.
Outlook: The Company intends to enhance its market share of the
fuel ethanol market. A proprietary brand of refined sugar will be
launched for the retail market.
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5. QUALITY :In a business where the raw material is drawn from diverse points,
it is imperative to produce an end product of consistently high
quality at all times.
Shree Renuka Sugars has invested consistently and
comprehensively in quality management. The Company complies
with stringent quality guidelines demanded by clients. Besides, its
plants, processes and practices are periodically inspected for
quality standards. The Company has standardised operating
procedures across its owned and leased units, leading to a high
level of operational consistency.
Highlights 2007-08:
The Company applied for HACCP certification. It’s reduced the
sugar rejection rate to below 0.5% of the aggregate sugar sold.
Outlook:
Going ahead, the Company seeks to enhance quality standards.
Seshadripuram Institute of Commerce & Management Page 42
Corporate Social Responsibility:
Shree Renuka Sugars believes in superior performance linked to a spirit
of prosperity-sharing with stakeholders – underlining its approach to
corporate social responsibility. To institutionalise this approach, the
Company created Shree Renuka Sugars Development Foundation, a trust
working in the field of education, healthcare and hygiene. To serve the
broader interests of its employees and their families, the Company
created a trust called Shree Renuka Sugars Employee Welfare Trust to
service education, health, recreation, financial and social requirements.
These trusts enjoy their respective corpus, enhancing accountability.
Collectively, these trusts own 4.81% of the Company’s equity, generating
a precious dividend income for onward deployment.
Education: The Company created schools for the children of cane
harvesters who travel a long distance during the cane harvesting
period. These elementary schools (Sakhar Shala) are functional
near most of our units. The Foundation also runs primary schools
with an emphasis on good teaching staff and facilities for quality
education. Scholarships were provided to deserving students,
especially the girl child.
Healthcare: Primary healthcare facilities were made available at
all plant locations supported by qualified doctors and state-of-the-
art equipment. A focus on first-aid and timely ailment diagnosis
facilitated effective medical support. A speciality multi-bed
hospital is being planned for the Burlatti village in Athani Taluk
Seshadripuram Institute of Commerce & Management Page 43
(Belgaum district) to cater to the rural population. Health check-up
camps were organised quarterly, attended by employees and local
resident.
Hygiene and environment: Safe drinking water was provided free
to employees. Environment protection was prioritised. The local
forest department worked with the Company to create green belts
in the plant vicinity. Village camps were conducted for children
and adults to enhance the awareness of hygiene and environment
protection. A large land area was dedicated to the production of
bio-fertilisers of the distillery effluent, ensuring 100% bio-
degradation and waste recycling contributing to the green
revolution. The Company donated budgeted funds to various
educational, art and cultural institutes as well as to relevant
initiatives around the factory area.
Seshadripuram Institute of Commerce & Management Page 44
MILESTONES:
1998 Acquistions of the assets of Nizam Sugars Ltd.
1999 Commencement of production at Munoli.
2000 Commencement of 11.2 MW cogeneration plant at Munoli.
2001 Start of 60 KLPD distillery at Munoli.
2002 Establishments of 250 TPD sugar refinery at Munoli.
2003 Leasing of first co-operative mill.
2004 SRSL IPO launched.
2005 Acquisition of Greenfield project at Athani(Karnataka)
2006 Acquisition of sugar mill in Sindhkheda and relocated to Havalga (Karnataka).
2007 Acquisition of KBK Chem Engineering Pvt Ltd.
2008 Commissioning of 2000 TPD port-based refinery at Haldia
2009 Commissioning of a cogeneration plant in Panchganga cooperative sugar mill.
2010 Acquisition of 100% stake in Equipav Acucar Alcool S/A (Now renamed as Renuka do Brazil S/A)
Seshadripuram Institute of Commerce & Management Page 45
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
LIQUIDITY RATIO:
Liquidity ratio measures the ability of firm to meet current obligations. In
fact, analysis liquidity needs the presentation of cash budget and fund
flow statement, but liquidity ratios, by establishing relation between cash
and other current assets to current obligations, provide a quick measure
of liquidity. A firm should ensure that it does not have excess of
liquidity. This failure of company to meet its obligations due to lack of
sufficient of liquidity, will results in credit worthiness, loss of creditor’s
confidence or even legal tangles results in the closure of company. The
firm’s fund will be unnecessarily tied up in current assets. Therefore it is
necessary to strike a proper highly liquidity and lack of liquidity.
IMPORTANT LIQUIDITY RATIOS:
1. CURRENT RATIO
2. LIQUID RATIO
3. ABSOLUTE LIQUID RATIO
4. INVENTORY TO WORKING CAPITAL RATIO
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1. Current ratio :
Current Ratio is a measure of the firm’s short term solvency. It
indicates the availability of current assets in rupees for every current
liability. It is the relationship between total current assets to current
liability of the firm. The ratio greater than one means that, the firm
has more current assets than claims against them a current ratio of 2:1
is considered as satisfactory.
Table No.1:
Table showing Current Ratio
Year 2005 2006 2007 2008 2009
Current
Assets
2061.81 1865.49 2018.57 3342.4 17099.67
Current
Liability
1718.89 1235.25 1212.09 2175.28 9439.36
Current
Ratio
1.15 1.51 1.66 1.53 1.81
All amounts in million Indian Rupees
.
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Current Assets
CURRENT RATIO = -------------------------
Current Liability
Chart No. 1
Graph Showing Current Assets and Current Liability
2005 2006 2007 2008 20090
2000
4000
6000
8000
10000
12000
14000
16000
18000
Current AssetsCurrent Liability
Seshadripuram Institute of Commerce & Management Page 48
Graph with year and current ratio:
2005 2006 2007 2008 20090
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Current Ratio
Current Ratio
Analysis:
From the above table it is evident that, all the years of current ratio is
less than the expected standard ratio 2:1
Interpretation:
From the above graph, current ratio of the year 2009 is satisfactory when
compared to other current ratios of previous year which has maintained
more than 1:1 proportion but less than the standard ratio 2:1.
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2. Liquid Ratio :
The Standard Quick Ratio is 1:1. If liquid ratio is less than
standard ratio, it can be concluded that the concern is not liquid.
But if an organization had greater Quick Ratio than Standard Ratio
of 1:1, it can be concluded that concern is liquid. It can pay-off its
short-term liabilities out of it’s quickly realize assets without any
difficult. Because the liquid assets is greater than liquid liabilities
is greater than Standard Quick Ratio. It shows the Quick Ratio is
increasing every year in company.
Table no.2:
Table showing Liquid Ratio
Year 2005 2006 2007 2008 2009
Liquid
Assets
938.35 743.66 1016.88 1473.32 7076.46
Current
Liability
1781.89 1235.25 1212.09 2175.28 9439.36
Liquid
Ratio
0.52 0.60 0.83 0.67 0.74
All amounts in million Indian Rupees
Seshadripuram Institute of Commerce & Management Page 50
Liquid Assets
LIQUID RATIO = ----------------------------
Current Liability
Chart No. 2:
Graph Showing Liquid Assets and Current Liability
2005 2006 2007 2008 20090
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Liquid AssetsCurrent Liability
Seshadripuram Institute of Commerce & Management Page 51
Graph with Year and Liquid Ratio:
2005 2006 2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Liquid Ratio
Liquid Ratio
Analysis:
The Liquid Ratio of 1:1 indicates a highly solvent position. As per the
above table, Liquid Ratios of all the year is less than 1:1 proportion.
Interpretation:
From the above graph, the liquid ratios of the year 2005 is 0.52 which
shows further increment of Liquid ratio upto 0.83 in the year 2007, which
is the highest liquid ratio of all the 4years. And in 2008 there is decline of
Liquid Ratio tending to 0.67 but in 2009 there is increase in Liquid Ratio
upto 0.74 times
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3. Absolute Liquid Ratio :
This ratio is also known as super quick ratio. This ratio considers
only the Absolute Liquidity available with the firm. The cash, the
bank balance and marketable securities are considered as highly
liquid assets. If the highly liquid assets are too much in relation to
the current liability than it may affect the profitability of the firm,
as these assets are the most unproductive assets of all.
Table No.3:
Table Showing Absolute Liquid Ratio
All amounts in million Indian Rupees
Year 2005 2006 2007 2008 2009
Absolute
Liquid Assets
627.02 171.66 306.71 133.86 2102.83
Current
Liabilities
1781.89 1235.25 1212.09 2175.28 9439.36
Absolute
Liquid Ratio
0.35 0.13 0.25 0.06 0.22
Chart No.3:
Seshadripuram Institute of Commerce & Management Page 53
(Cash+Bank+Short term investments)
Absolute Liquidity = ------------------------------------------------------
Ratio Current Liabilities
Graph Showing Absolute Liquid Assets and Current Liability
2005 2006 2007 2008 20090
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Absolute Lquid AssetsCurrent Liability
Graph with year and Absolute Liquid Ratio:
Seshadripuram Institute of Commerce & Management Page 54
2005 2006 20070
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Absolute Liquid Ratio
Analysis:
From the above table one can visualize that none of the years have
Absolute Liquid Ratio to meet the required Standard Ratio 1:2
Interpretation:
By seeing the graph above one can interpret the Absolute Liquidity Ratio
of the organization, which is not satisfactory in any of the years.
4. Inventory to Working Capital Ratio :
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In order to ascertain that there is no over stocking the ratio of
inventory to working capital is calculated.
It is calculated by:
Table No.4:
Table Showing Inventory to Working Capital Ratio:
.
All amounts in million Indian Rupees
Year 2005 2006 2007 2008 2009
Inventory 1123.46 1121.83 1001.69 1869.08 10023.21
Working
Capital
279.92 630.92 806.48 1167.12 7660.31
Inventory
to WC
4.01 1.78 1.24 1.60 1.308
Seshadripuram Institute of Commerce & Management Page 56
Inventory
Inventory to Working Capital = -------------------------
Working Capital
Chart No.4:
Graph Showing Inventory and Working Capital
2005 2006 2007 2008 20090
2000
4000
6000
8000
10000
12000
InventoryWorking Capital
Graph Showing Inventory to Working Capital Ratio:
Seshadripuram Institute of Commerce & Management Page 57
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Inventory to WC Ratio
Inventory to WC Ratio
Analysis:
Ideal Inventory to Working Capital Ratio 1:1, except 2005, all other
consequent year from 2005 to 2009 has maintained more than unity but
less than 2:1 which is good for organization.
Interpretation:
From the above Graph we can conclude that all the years has good
inventory to working capital ratio, but in the year 2005 Inventory to
Working Capital ratio is 4.01times which is high compared to other
years.
LEVERAGE RATIO:
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Leverage or capital ratios are those ratios which measure the relative
interest of lenders and proprietors in a business organization. These ratios
indicate the long-term solvency position of an organization. These ratios
help the management in the proper administration of the capital.
A company should have a short term as well as long term financial
position. Company financial or capital structure ratios are calculated by
these short term and long term financial position. These ratios indicate
mix of funds provided to owners and lenders. As a rule, this ratio should
be an appropriate mix of department and owners equity in financing
company’s assets.
Most Commonly used Leverage Ratios are:
1. Solvency Ratio
2. Proprietary Ratio
3. Fixed Assets to Net Worth Ratio
4. Current Assets to Net Worth Ratio
5. Current Liability to Net Worth Ratio
6. Total Liability to Total Assets
1. Solvency Ratio:
Solvency ratio is the ratio between the total assets and total
liability of the concern. It means the ability of the concern to meet
Seshadripuram Institute of Commerce & Management Page 59
its total liability of its concern. Though no ideal solvency ratio of a
concern has been established, one can say higher the solvency ratio
of a concern, the financial position and lower the solvency ratio,
the weaker is it financial position.
Table No.5:
Table showing Solvency Ratio
All amounts in million Indian Rupees
Year 2005 2006 2007 2008 2009
Total
Assets
1459.29 2598.42 7763.34 10072.75 22998.48
Total
Liability
3323.61 7227.84 11241.44 18909.34 35937.54
Solvency
Ratio
0.439 0.359 0.690 0.532 0.639
Chart No.5:
Graph Showing Solvency Ratio:
Seshadripuram Institute of Commerce & Management Page 60
2005 2006 2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Solvency Ratio
Solvency Ratio
Analysis:
From the above table, solvency ratio of 2007 and 2008 bearing 0.69 and
0.63 is considered to be good when compared to other years.
Interpretation:
The solvency ratio indicates the ability of the concern to meet its liability
out of its Total Assets. In last five years solvency ratio of the concern is
favourable. The solvency ratio of 2007 and 2009 is 0.69 and 0.63 which
is said to be good for a concern.
2. Proprietary Ratio :
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The proprietary ratio is an index of the amount of proprietary fund
invested in Total Assets of a concern. It is also indicates the
proportion between owned capital and loaned capital. In addition,
it indicates the relative risk of the owners and the creditors of the
company.
Higher the proprietary ratio, the stronger is the financial position of
the concern and lower the proprietary ratio the weaker is the
financial position of an enterprise. A ratio of 5:1 is considered
ideal.
Table No.6:
Table Showing Proprietary Ratio
Year 2005 2006 2007 2008 2009
Net Worth 637.18 2224.43 3357.44 6399.42 12641.93
Total Assets 1459.29 2598.42 7763.34 10072.75 22998.48
Proprietary
Ratio
0.43 0.85 0.43 0.63 0.54
All amounts in million Indian Rupees
Chart No. 6:
Seshadripuram Institute of Commerce & Management Page 62
Net Worth
Proprietary Ratio = --------------------
Total Assets
Graph Showing Proprietary Ratio
2005 2006 2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Proprietary Ratio
Proprietary Ratio
Analysis:
From the above table we can visualize that, the year 2006 has maintained
higher proprietary ratio of 0.85times compared to other years.
Interpretation:
From the above graph we can conclude that the company has maintained
higher Proprietary Ratio in the year 2006 that is 0.85times compared to
other 4years. And it is said that higher the Proprietary Ratio stronger is
the financial position of the company.
3. Fixed Assets to Net Worth Ratio :
The Fixed Assets to Net Worth Ratio indicates that the proportion
of fixed assets financed by the owners or proprietors. In other
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words, it indicates as to extent the owners have invested funds on
the fixed assets, which constitute the main structure of the
business. The ideal fixed assets to net worth ratio for an industrial
undertaking is 67% that is the fixed assets should not be constitute
more than 67% of the proprietor’s fund.
Table No.7:
Table Showing Fixed Assets to Net Worth Ratio
Year 2005 2006 2007 2008 2009
Fixed Assets 1054.93 1193.52 5623.03 6911.56 12568.56
Net Worth 637.18 2224.43 3357.44 6399.42 12641.93
Fixed Assets
to Net Worth
Ratio
1.65 0.536 1.674 1.08 0.944
All amounts in million Indian Rupees
Chart No.7:
Graph Showing Fixed Assets to Net Worth Ratio
Seshadripuram Institute of Commerce & Management Page 64
Fixed Assets
Fixed Assets to Net Worth Ratio = ----------------------
Net Worth
2005 2006 2007 2008 20090
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Fixed Assets to Net Worth
Fixed Assets to Net Worth
Analysis:
The above table shows the proportion of Fixed Assets to Net Worth Ratio
which is fluctuating every year.
Interpretation:
The above graph shows that, the year 2005, 2007, and 2008 has 1.65,
1.67 and 1.08 times of Fixed Assets to Net Worth which is good for
enterprise compared to 2006 and 2009’s ratio of 0.53 and 0.99times.
4. Current Assets to Net Worth Ratio :
This ratio indicates proportion of the current assets financed by the
owner. There is no standard current asset to net worth ratio, we can
Seshadripuram Institute of Commerce & Management Page 65
Current Assets
say that, if this ratio is high, the financial strength of the concern is
good and if this ratio is low, the financial position of the concern is
weak.
Table No.8:
Table Showing Current Assets to Net Worth Ratio:
All amounts in million Indian Rupees
Year 2005 2006 2007 2008 2009
Current
Assets
2061.81 1865.49 2018.57 3342.4 17099.67
Net Worth 637.18 2224.43 3357.44 6399.42 12641.93
Current
Assets to
Net Worth
3.23 0.83 0.60 0.52 1.35
Chart No.8:
Graph Showing Current Assets to Net Worth Ratio
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Current Assets
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
3.5
Current Assets to Net Worth Ratio
Current Assets to Net Worth Ratio
Analysis:
From the above table, we can conclude the proportion of Current Assets
to Net Worth in years 2005 and 2009 is satisfactory when compared to
other years.
Interpretation:
Higher the current assets to net worth ratio, higher will be financial
strength of the concern. As per above graph 2005 has maintained
3.23times of Current Assets to Net Worth ratio and 2009 has maintained
1.35times of Current Assets to Net Worth ratio.
5. Current Liability to Net Worth Ratio :
The ratio indicates the relative contribution of the short term
creditors and owners in the capital of an enterprise. The desirable
level set for this ratio is 33.33. If the actual ratio were very high, it
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would mean that the liability base of the concern would not
provided an adequate cover for the long term creditors. That means
it would not be difficult for the concern to long term fund.
Table no.9:
Table Showing Current Liability to Net Worth Ratio
All amounts in million Indian Rupees
Year 2005 2006 2007 2008 2009
Current
Liability
1781.89 1235.25 1212.09 2175.28 9439.36
Net Worth 637.18 2224.43 3357.44 6399.42 12641.93
Current
Liability to
Net Worth
2.79 0.55 0.36 0.33 0.74
Chart No.9:
Graph Showing Current Liability to Net Worth Ratio
Seshadripuram Institute of Commerce & Management Page 68
Current Liability
Current Liability to Net Worth = ---------------------------
Net Worth
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
Current Liability to Net Worth Ratio
Current Liability to Net Worth Ra-tio
Analysis:
The above table indicates Current Liability to Net Worth ratio which is
decreasing from year to year. We can see a gradual raise in 2009 with
0.55times.
Interpretation:
The above graph indicates the proportion of Current Liability to Net
Worth in which the ratio of 2005 to 2009 are 2.79, 0.55, 0.36, 0.33and
0.74 out of which 2005’s Current Liability to Net Worth is more
compared to other 4years.
6. Total Liability to Total Assets Ratio :
One may like including Current Liability on the ground that they
are important determinants of company’s financial risk since they
represent obligations and pressure on company and restrict its
Seshadripuram Institute of Commerce & Management Page 69
activities. Thus, to assess the proportion of total funds short term
and long term provided by outsiders to finance total assets.
Table No.10:
Table Showing Total Liabilities to Total Assets Ratio
Year 2005 2006 2007 2008 2009
Total
Liabilities
3323.61 7227.84 11241.44 18909.34 35937.54
Total
Assets
1459.29 2598.42 7763.34 10072.75 22998.48
TL to TA 2.27 2.781 1.44 1.877 1.562
All amounts in million Indian Rupees.
Chart No. 10:
Graph Showing Total Liability to Total Assets
Seshadripuram Institute of Commerce & Management Page 70
Total Liability
Total Liability to Total Assets = ------------------------
Total Assets
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
Total Liability to Total Assets Ratio
Total Liability to Total Assets Ratio
Analysis:
From the above table, we can conclude that the proportion of Total
Liability and Total Assets in 2006 is more when compared to other years
of proportion.
Interpretation:
The ratio indicates the proportions of total funds, short and long term
provided by outsiders to finance Total Assets. The ratio calculated above
indicates that the year 2006 has higher rate of proportion 2.78 times
compared to other years.
ACTIVITY RATIOS:
Funds of the creditors and owners are invested in various assets to
generate sales and profit. These ratios are employed to evaluate the
efficiency with the company manager and utilize its assets. These ratios
Seshadripuram Institute of Commerce & Management Page 71
are also called as Turnover ratios they indicate the speeds with assets are
being converted or Turnover into Sales. Activity ratio, thus, involve
relationship between sales to assets. A proper balance between sales and
assets generally reflects that assets are managed well. Several Activity
Ratios are calculated to judge effectiveness of assets utilisation.
Some of the Activity Ratios are:
1. Cash Turnover ratio
2. Inventory Turnover ratio
3. Working Capital Turnover Ratio
4. Debtors Turnover Ratio
5. Current Assets Turnover Ratio
6. Fixed Assets Turnover Ratio
7. Total Assets Turnover Ratio
8. Fixed Assets to Net Worth
9. Net Sales to Net Worth
1. Cash Turnover Ratio :
Cash Turnover ratio or cash velocity is the ratio between cash and
turnover or sales. This ratio indicates the extent of which cash
resources are utilized by the enterprise; it is also helpful in
determining the liquidity of a company. The ideal Cash Turnover
Seshadripuram Institute of Commerce & Management Page 72
ratio is 10:1 as such; Cash Turnover ratio of 10:1 or more indicates
the utilsation of cash resources of the enterprise. In addition less
than 10:1 indicates that the cash resources of the enterprise are not
effectively utilized.
Table No.11:
Table Showing Cash Turnover Ratio
Year 2005 2006 2007 2008 2009
Net Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Cash 627.02 171.66 306.71 133.86 2102.83
Cash
Turnover
Ratio
10.195 46.69 23.87 136.27 10.62
All amounts in million Indian Rupees.
Chart No. 11:
Graph Showing Cash Turnover ratio
Seshadripuram Institute of Commerce & Management Page 73
2005 2006 2007 2008 20090
20
40
60
80
100
120
140
160
Cash Turnover Ratio
Cash Turnover Ratio
Analysis:
The above table indicates Cash Turnover Ratio; the year 2008 has
satisfactory Cash Turnover Ratio compared to others.
Interpretation:
The ideal Cash Turnover Ratio is 10:1, in the above graph we can see all
the years of Cash Turnover Ratio has maintained more than the standard
ratio 10:1 which is a good sign for a firm.
2. Inventory Turnover Ratio :
A considerable amount of a company’s capital may be tied up in
the financing of raw materials, work-in-progress and finished
goods. It is important to ensure that the level of Stocks is kept as
Seshadripuram Institute of Commerce & Management Page 74
low as possible, consistent with the need to fulfill customer’s order
in time. If the inventory turnover ratio has decreased from past, it
means that either inventory is growing or sales are dropping. In
addition to that, if a firm has a turnover that is slower than for its
industry, then there may be obsolete goods on hand. Or inventory
stocks may be high.
Table No.12:
Table Showing Inventory Turnover Ratio
Year 2005 2006 2007 2008 2009
COGS 1785.60 2160.81 1589.18 8048.67 1547.43
Avg. Stock 1122.645 1061.76 1435.38 5946.14 10023.21
Inventory
Turnover Ratio
1.59 2.03 1.10 1.35 0.15
All amounts in million Indian Rupees.
Chart No. 12:
Graph Showing Inventory Turnover Ratio
Seshadripuram Institute of Commerce & Management Page 75
COGS
Inventory Turnover Ratio = ---------------------
Average Stock
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
Inventory Turnover Ratio
Inventory Turnover Ratio
Analysis:
From the above table we can visualize that in the year 2006, bearing
Inventory Turnover Ratio of 2.03 times has maintained the highest
turnover ratio compared to other years.
Interpretation:
From the above Chart we can conclude, in the year 2006 inventory
turnover ratio being 2.03 times, whereas in the year 2009, the inventory
ratio is 0.15 times.
Note: It is said that if Inventory Turnover Ratio has decreased from past,
it means that either Inventory is growing or sales is dropping.
3. Working Capital Turnover Ratio :
The working capital turnover ratio is the ratio that expresses the
relationship between working capital and net sales.
Seshadripuram Institute of Commerce & Management Page 76
Working Capital is the excess of Current Assets over Current
Liability. This ratio indicates the efficient or inefficient utilisation
of Working Capital of an enterprise. There is no ideal or standard
working capital turnover ratio. The working capital ratio is
generally expressed as a proportion and can be calculated using the
following formula.
Table No.13:
Table Showing Working Capital Turnover Ratio
Year 2005 2006 2007 2008 2009
COGS 1785.60 2160.81 1589.18 8048.67 1547.43
Avg. WC 455.08 718.36 986.8 4413.71 7660.31
WCTR 3.92 3.00 1.610 1.82 0.20
All amounts in million Indian Rupees.
Chart No. 13:
Graph Showing Working Capital Turnover Ratio
Seshadripuram Institute of Commerce & Management Page 77
Net Sales
Working Capital Turnover = ------------------------------------
Ratio (Average Working Capital)
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Working Capital Turnover Ratio
Working Capital Turnover Ratio
Analysis:
From the above table, we can visualize that in the year 2009 has a least
Working Capital Turnover Ratio of 0.20 times when compared to the
highest Working Capital Turnover Ratio of 3.92 times in the year 2005.
Interpretation:
From the above graph, it can be concluded that in the year 2009 the
working capital turnover ratio is of 0.2 times whereas in the year 2005
has the highest Working Capital Turnover Ratio of 3.92 times. And in the
year 2006, 2007 and 2008 has respective Working Capital Turnover
Ratio of 3 times, 1.61 times and 1.82 times.
4. Debtors Turnover Ratio :
Seshadripuram Institute of Commerce & Management Page 78
The debtor’s turnover ratio is also known as the accounts
receivable turnover ratio and it is the ratio that expresses the
relationship between average debtors and sales.
A debtor refers to sundry debtors plus bills receivable. Further,
debtors mean gross debtors, i.e., before deducting the bad debts
and reserves for doubtful debts.
Sales mean net credit sales, i.e. credit sales minus sales returns.
The accounts receivable ratio indicates the rate at which the
amounts are collected from the debtors. It also indicates liquidity
of the concern. The debtor’s turnover ratio is generally expressed
in rate. It can be calculated using the following formula:
Table No.14:
Table Showing Debtors Turnover Ratio
All amounts in million Indian Rupees.
Year 2005 2006 2007 2008 2009
Cr Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Avg.
Debtors
368.71 462.98 436.625 764.52 1042.65
DTR 17.33 17.31 16.77 23.86 21.42
Chart No.14:
Seshadripuram Institute of Commerce & Management Page 79
Credit Sales
Debtors Turnover Ratio = -------------------------
Average Debtors
Graph Showing Debtors Turnover Ratio
2005 2006 2007 2008 20090
5
10
15
20
25
30
Debtors Turnover Ratio
Debtors Turnover Ratio
Analysis:
From the above table, we can see that in the year 2008 has the highest
Debtors Turnover Ratio bearing 23.86 times.
Interpretations:
From the graph we can conclude that the company has maintained
satisfactory level, by maintaining the consistency ratios without much
increase or decrease in the ratios.
In the year 2008 and 2009 has higher ratio of 23.86 times and 21.42 times
respectively. Higher the ratio, the better will be the position of the firm.
5. Current Assets Turnover Ratio :
Seshadripuram Institute of Commerce & Management Page 80
Current assets turnover ratio indicates the company’s ability to
generate the sales of rupee from current assets. This ratio is the
relationship between the sales and current assets of the firm. There
is no standard current assets turnover ratio. Yet, the inference is the
high current assets turnover ratio indicates of better utilisation of
current assets. On the other hand, a low current assets turnover
ratio suggest that the current assets have been utilize properly.
Table NO.15:
Table Showing Current Assets Turnover Ratio
Year 2005 2006 2007 2008 2009
Net Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Current
Assets
2061.81 1865.49 2018.57 3342.4 17099.67
CATR 3.10 4.29 3.62 5.45 1.30
All amounts in million Indian Rupees.
Seshadripuram Institute of Commerce & Management Page 81
Net Sales
Current Assets Turnover Ratio = -----------------------
Current Assets
Chart No. 15:
Graph Showing Current Assets Turnover Ratio
2005 2006 2007 2008 20090
1
2
3
4
5
6
Current Assets Turnover Ratio
Current Assets Turnover Ratio
Analysis:
From the above table we can conclude that, there is proper utilisation of
current assets in the year 2006 and 2008 when compared to other years.
Interpretation:
The ratio shows how much the company able to generate the sales from
the amount of current assets. In the year 2008 company generated the
sales of 5.45 which were more when compared with other year. And in
2009, the company generate 1.30 times of sales, which is less compare to
other year.
6. Fixed Assets Turnover Ratio :
Seshadripuram Institute of Commerce & Management Page 82
This ratio explains the relationship between the costs of goods sold
and fixed assets. It explains the efficiency with which fixed assets
have been used in utilisation of fixed assets and better profits. The
fixed assets calculated after deduction of depreciation. The
standard fixed assets turnover ratio is 5 times. Therefore, a fixed
turnover ratio of 5 times more indicates better utilisation of fixed
assets.
Table No.16:
Table Showing Fixed Assets Turnover Ratio
Year 2005 2006 2007 2008 2009
Net Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Fixed
Assets
1054.93 1193.52 5623.03 6911.56 12568.56
FATR 6.05 6.71 1.30 2.63 1.77
All amounts in million Indian Rupees.
Seshadripuram Institute of Commerce & Management Page 83
Net Sales
Fixed Assets Turnover Ratio = ----------------------
Fixed Assets
Chart No.16:
Graph Showing Fixed Assets Turnover Ratio
2005 2006 2007 2008 20090
1
2
3
4
5
6
7
8
Fixed Asset Turnover Ratio
Fixed Asset Turnover Ratio
Analysis:
From the above table one can analyse that in the year 2005 and 2006 the
Fixed Assets Turnover ratio is high which means the Fixed Assets are
used well in the organization.
Interpretation:
From the above graph, we can visualise in the year 2005 and 2006 has
good Fixed Assets Turnover Ratio of 6.05 and 6.71 but following
consequent years of 2007, 2008 and 2009 had least Fixed Asset Turnover
Ratio compared to 2005 and 2006.
7. Total Asset Turnover Ratio :
Seshadripuram Institute of Commerce & Management Page 84
Total assets turnover ratio refers to the company’s ability to
generating the sale from all financial sources committed to total
assets. The assets include net fixed assets and current assets. The
greater the ratio of turnover or conversion, the more efficient is the
utilisation. The ideal of turnover ratio is sales should be least two
times the value of assets.
Table No.17:
Table Showing Total Assets Turnover Ratio
.
Year 2005 2006 2007 2008 2009
Net Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Total
Assets
1459.29 2598.42 7763.34 10072.75 22998.48
TATR 4.380 3.084 0.943 1.810 0.971
All amounts in million Indian Rupees.
Chart No.17:
Seshadripuram Institute of Commerce & Management Page 85
Net Sales
Total Assets Turnover Ratio = -------------------
Total Assets
Graph Showing Total Assets Turnover Ratio
2005 2006 2007 2008 20090
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Total Assets Turnover Ratio
Total Assets Turnover Ratio
Analysis:
From the above table, we can conclude that the year 2005 has 4.38 times
of total assets turnover ratio which is satisfactory compared to other year.
Interpretation:
The total assets turnover ratio indicates the company’s ability to produce
the volume of sale for a given amount of Total Assets. And it says that
higher the ratio is higher the utilisation of assets. The total assets turnover
ratios of 2005 to 2009 are 4.38, 3.08, 0.94, 1.81 and 0.97 out of which the
year 2005 has more turnover ratio compared to other years.
8. Net Sales to Net Worth :
Seshadripuram Institute of Commerce & Management Page 86
Net sales to net worth ratio are the ratio between sales and net
worth. This ratio is the good index of the utilisation of the owner’s
fund. It also indicates whether there is over trading or under
trading. In addition, it indicates whether there is over capitalization
or under capitalization.
Table No.18:
Table Showing Net Sales to Net Worth Ratio
Year 2005 2006 2007 2008 2009
Net Sales 6392.47 8015.85 7323.69 18241.69 22342.17
Net
Worth
637.18 2224.43 3357.44 6399.42 12641.93
NS to
NW
10.03 3.60 2.181 2.85 1.767
All amounts in million Indian Rupees.
Chart No.18:
Graph Showing Net Sales to Net Worth Ratio
Seshadripuram Institute of Commerce & Management Page 87
Net Sales
Net Sales to Net Worth = ------------------
Net Worth
2005 2006 2007 2008 20090
2
4
6
8
10
12
Net Sales to Net Worth Ratio
Net Sales to Net Worth Ratio
Analysis:
From the above table we can conclude, the proportion of Net Sales to Net
Worth of each year is deducting from year to year.
Interpretation:
Net Sales to Net Worth ratio indicates whether there is over capitaliastion
or under capitalisation. It serves as a guide in the proper administration of
a company.
The proportion of Net Sales to Net Worth ratio has been declining from
10.03 to 3.60, 3.60 to 2.18 in 2005 to 2007 respective years and also we
can see the decline in Net Sales to Net Worth ratio from 2.85 to 1.76 in
2008 to 2009.
PROFITABILITY RATIO:
Seshadripuram Institute of Commerce & Management Page 88
A Company should earn profit to survive and grow over a long period.
Profit is essential but it would wrong to assume that every action taken
by the management of a company should be aimed at maximization of
profit, irrespective of social consequences. A profit is the difference
between the revenue and expenses over a period of time (usually one
year). Profit is ultimate ‘output’ of the company, and it will have no
future if it will fail to make sufficient profit. Therefore, a financial
manager should continuously evaluate the efficiency of the company.
Beside the management of the company, creditors and owners are also
interested in the profitability of the company. Creditors want to get
repayment of principle regularly. Owners want to get require rate of
interest for their investment. This possible only when company earns
profit regularly.
The Profitable Ratios are:
1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Expenses Ratio
4. Administrative Expenses Ratio
5. Selling and Distribution Ratio
6. Earning Per Share
7. Return on Investment
8. Return on Share Holders Fund
9. Return on Total asset employed
10.Return on Capital Employed
1. Gross profit ratio :
Seshadripuram Institute of Commerce & Management Page 89
The Gross profit margin reflects the efficiency with which the
management produces each unit of product. This ratio indicates the
average spread between the costs of goods sold and the sales
revenue. When we subtract the gross profit from 100 percent, we
obtain ratio of goods sold to sales. Both these ratios show profit
related to sales after deduction of production costs and indicates
the relationship between production cost and selling prices.
Table No.19:
Table Showing Gross Profit Ratio
Year 2005 2006 2007 2008 2009
Gross
Profit
4606.87 5855.04 5734.51 10193.02 20794.74
Sales 6392.47 8015.85 7323.69 18241.69 22342.17
G/P
Ratio
72.06% 73.04% 78.30% 55.87% 93.07%
All amounts in million Indian Rupees.
Seshadripuram Institute of Commerce & Management Page 90
Gross Profit
Gross Profit Ratio = ------------------ * 100
Sales
Chart No.19:
Graph Showing Gross Profit Ratio
2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Gross Profit Ratio
Gross Profit Ratio
Analysis:
The above table is showing Gross Profit Ratio. Year 2008 has least Gross
Profit Ratio. And the year 2009 has comparatively a good Gross Profit
Ratio.
Interpretation:
From the above graph one can conclude in the year 2009 has good Gross
profit ratio compared to 2008 which has least Gross profit ratio, whereas
Gross profit ratio for the year 2005, 2006, and 2007 is in incrementing
proportion from 72.06% to 73.04% and from 73.04% to 78.30%.
2. Net Profit Ratio:
Seshadripuram Institute of Commerce & Management Page 91
Net profit is obtained when Operating Expenses, interest and taxes
are subtracted from gross profit. Net profit margin establishes a
relationship between net profit and sales indicates management’s
efficiency, manufacturing, administration and selling the product.
This ratio is overall measures of the company’s ability to turn each
rupee sales into net profit.
Table No.20:
Table Showing Net Profit Ratio
Year 2005 2006 2007 2008 2009
Net
Profit
334.63 555.80 544.33 927.86 1435.11
Sales 6392.47 8015.85 7323.69 18241.69 22342.17
N/P
Ratio
5.23% 6.93% 7.43% 5.08% 6.42%
All amounts in million Indian Rupees.
Chart No. 20:
Seshadripuram Institute of Commerce & Management Page 92
Net Profit
Net Profit Ratio = ---------------- * 100
Sales
Graph Showing Net Profit Ratio
2005 2006 2007 2008 20090.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Net Profit Ratio
Net Profit Ratio
Analysis:
From the above table we can analyse that, the year 2007 has a good Net
profit. The year 2008 has relatively low net profit.
Interpretation:
We can see that, the graph showing Net Profit has a frequent raise in the
consequent years of 2005, 2006, and 2007 with raise in 5.23% to 7.43%.
But had a least Net Profit in the year 2008.
Seshadripuram Institute of Commerce & Management Page 93
3. Operating Expenses Ratio:
Cost of sales includes direct cost of goods sold as well as other
operating expenses, which have matching relationship with sale. It
excludes incomes and expenses which have no bearing on
production and sales, i.e., non operating incomes and expenses as
interest and dividend received on investments, interest paid on long
term loans and debentures, profit or loss on of fixed assets or long
term investment. The operating ratio indicates the efficiency of the
management in the conduct of the business.
A low operating ratio is an indication of the operating efficiency of
the business. On the other hand, a high operating is an indication of
the operating efficiency of the business. This ratio should be
analysed further to throw lights of efficiency prevailing in different
elements of total cost.
Table No.21:
Seshadripuram Institute of Commerce & Management Page 94
Operating expenses + COGS
Operating Expenses Ratio = -------------------------------------- * 100
Net Sales
Table Showing Operating Expenses Ratio
All amounts in million Indian Rupees
Chart No. 21:
Seshadripuram Institute of Commerce & Management Page 95
Year 2005 2006 2007 2008 2009
Operating
Expenses
2022.44 2499.39 2111.53 9221.42 3085.47
Sales 6392.47 8015.85 7323.69 18241.69 22342.17
OER 31.63% 31.18% 28.83% 50.555 13.81%
Graph Showing Operating Expenses Ratio
2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Operating Expenses Ratio
Operating Expenses Ratio
Analysis:
From the above table we can analyse that, the year 2009 has least
operating expenses ratio and the year 2008 has high operating expenses
compared to other years.
Interpretation:
It is said that, higher the operating ratio lower will be the Net Profit ratio.
The year 2009 had least operating expenses ratio of 13.81% which in turn
yield high net profit ratio of 6.42%.
4. Administrative expenses Ratio :
Seshadripuram Institute of Commerce & Management Page 96
It refers to all expenses which are incurred for the general
administration of the concern .Examples of administrative
expenses are office salaries, office rent, printing and stationary,
postage and telegrams.
It is expressed as follows:
Table No.22:
Table Showing Administrative Expenses Ratio
Year 2005 2006 2007 2008 2009
Admin.
Exp.
75.96 133.43 212.72 389.50 365.77
Sales 6392.47 8015.85 7323.69 18241.69 22342.17
AER 1.18% 1.66% 2.90% 2.13% 1.637%
All amounts in million Indian Rupees.
Chart No.22:
Seshadripuram Institute of Commerce & Management Page 97
Administrative expenses
Administrative expenses ratio = ----------------------------------- * 100
Net Sales
Graph Showing Administrative Expenses Ratio
2005 2006 2007 2008 20090.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Administrative Expenses Ratio
Administrative Expenses Ratio
Analysis:
The above table shows Administrative expenses ratio. The year 2005 has
least administrative expenses ratio of 1.18%. And in the year 2007 has
2.90%
Interpretation:
We can interpret from the above graph, the year 2007 bearing
Administrative expenses ratio of 2.90% has 7323.69mn of sales over
212.72mn administrative expenses, leading to highest administrative
expenses compared to other years.
5. Selling and Distribution expenses ratio :
Seshadripuram Institute of Commerce & Management Page 98
It refers to all those expenses incurred for the selling and
distribution of goods. Examples of this are advertisement, cash
discount allowed, carriage outwards, etc.
It is expressed as follows:
Table No.23:
Table Showing Selling and Distribution Overhead Ratio
Year 2005 2006 2007 2008 2009
Selling and
Distribution
148.78 431.78 220.72 722.75 315.03
Sales 6392.47 8015.85 7323.69 18241.68 22342.17
Selling and
Distribution
Ratio
2.32% 5.38% 3.013% 3.962% 1.41%
All amounts in million Indian Rupees.
Chart No.23:
Seshadripuram Institute of Commerce & Management Page 99
Selling and Distb’n expenses
Selling and Distb’n expenses ratio = --------------------------------------- * 100
Net Sales
Graph Showing Selling and Distribution Expenses Ratio
2005 2006 2007 2008 20090.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Selling and Distribution Expenses Ratio
Selling and Distribution Expenses Ratio
Analysis:
From the above analytical table we can observe there are high selling and
distribution expenses ratio in the year 2006 with 5.38% and least ratio in
the year 2009 with 1.41%.
Interpretation:
The graph of the year 2005 has the selling and distribution ratio of 2.32%
which has increased to 5.38% in 2009. But has a fall in 2007 with
3.013% and again rise of 3.962% in 2008 and had a least ratio of 1.41%
in 2009.
6. Earning Per Share :
Seshadripuram Institute of Commerce & Management Page 100
The EPS is one of the important measures of economic
performance of a corporate entity. The flow of capital to the
companies under the present imperfect capital market conditions
would be made on the evaluation of EPS.
A higher EPS means better capital productivity. EPS is one of the
most important ratios which measures the net profit earned per
share. EPS is one of the major factors affecting the dividend policy
of the firm and the market prices of the company. A steady growth
in EPS year after year indicates a good track of profitability. EPS
is computed by dividing the net profit after tax and dividend to
preference shareholders.
Table No.24:
Table Showing Earning Per Share
Year 2005 2006 2007 2008 2009
Earning
Per Share
23.79 23.98 21.04 2.78 4.99
Chart No.24:
Seshadripuram Institute of Commerce & Management Page 101
Net Profit after tax
EPS = -------------------------------
No. of Equity Shares
Graph Showing Earning Per Share
2005 2006 2007 2008 20090
5
10
15
20
25
30
Earning Per Share
Earning Per Share
Analysis:
From the above table 2006 bears 23.98 EPS compared to 2008’s
EPS had least EPS bearing 2.78
Interpretation:
A higher EPS means better Capital Productivity. In the Year 2006
EPS recorded to be 23.98 which showed better capital productivity
compared to other ratios, whereas 2008 showed less capital
productivity with 2.78 as EPS.
7. Return on Investment :
Seshadripuram Institute of Commerce & Management Page 102
The strategic aim of a business enterprise is to earn a return on
capital. If in any particular case, the return in the long-run is not
satisfactory, then the deficiency should be corrected or the activity
be abandoned for a more favourable one. The rate of return on
investment is determined by dividing net profit or income by the
capital employed or investment made to achieve that profit.
It is calculated as follows:
Table No.25:
Table Showing Return on Investments Ratio
Year 2005 2006 2007 2008 2009
N/P
before
Tax
490.52 745.53 779.91 1137.01 2176.47
Total
Capital
Employed
637.18 2224.43 3357.44 6399.42 12641.93
ROI 76.98% 33.51% 23.22% 17.76% 17.216%
All amounts in million Indian Rupees.
Chart No.25:
Seshadripuram Institute of Commerce & Management Page 103
N/P before Interest and taxes
Return on Investment = ------------------------------------------ * 100
Total Capital Employed
Graph Showing Return on Investment
2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Return On Investment
Return On Investment
Analysis:
From the above analytical table, we can conclude the year 2005 has
highest Return on Investment bearing 76.98% and least Return on
Investment at the year 2009 bearing 17.216%
Interpretation:
From the above graph, we can conclude that the year 2005 has higher
Return on Investment of 76.98% with 637.18mn of total capital
employed whereas 2009 bearing had 17.216% of Return on Investment
with 12,641.93mn of total capital employed.
8. Return on Shareholders Fund :
Seshadripuram Institute of Commerce & Management Page 104
This ratio expresses the net profit in terms of the equity
shareholders funds. This ratio is an important yardstick of
performance for equity shareholders since it indicates the return on
the funds employed by them. However, this measure is based on
the historical net worth and will be high for old plants and low for
new plants.
Table No.26:
Table Showing Return on Share Holders Funds Ratio
Year 2005 2006 2007 2008 2009
N/R after
Tax
407.34 562.70 544.33 745.47 1435.11
SHF 637.18 2224.43 3357.44 6399.42 12641.93
Return
on SHF
63.92% 25.29% 16.21% 11.64% 11.35%
All amounts in million Indian Rupees.
Chart No.26:
Seshadripuram Institute of Commerce & Management Page 105
N/P after interest and tax
Return on Shareholders Fund = ------------------------------------- * 100
Shareholders Fund
Graph Showing Return on Share Holders Fund
2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Return on SHF
Return on SHF
Analysis:
From the above analytical table, the year 2005 has higher Return on
Shareholders Fund Compared to 2009 which has least Return on
Shareholders Fund.
Interpretation:
From the above graph, we can visualise the year 2005’s Shareholders
Fund contributing to 637.18mn with Return on Shareholders Fund of
63.92%, which shows greater sign of Return on Shareholders Fund
compared to other years.
9. Return on Total Assets Ratio :
Seshadripuram Institute of Commerce & Management Page 106
The Return on total assets measures the profitability of company.
The return on assets is calculated by establishing the relationship
between the profit and the total assets employed to earn that profit.
Thus, the return on total assets measures the overall efficiency of
the management in generating profit given level of assets at its
disposal.
Table No.27:
Table Showing Return on Total Assets Ratio
Year 2005 2006 2007 2008 2009
EAT+Interest 407.34 562.70 544.33 745.47 1435.11
Total Assets 1459.29 2598.42 7763.34 10072.75 22998.48
Return On
Total Assets
27.91% 21.65% 7.01% 7.40% 6.24%
All amounts in million Indian Rupees.
Chart No. 27:
Seshadripuram Institute of Commerce & Management Page 107
EAT + Interest
Return on Total Assets Ratio = ------------------------ * 100
Total Assets
Graph Showing Return on Total Assets Ratio
2005 2006 2007 2008 20090.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Return on Total Assets Ratio
Return on Total Assets Ratio
Analysis:
The above table indicates, the return on Total assets of the year 2005 is
more when compared to others.
Interpretation:
From the above graph we can conclude that Return on Total Assets in the
year 2005 is more constituting to 27.91% as company has maintained less
total assets compared to other years and least Return on Total Assets in
the year 2009 constituting to 6.24%
10. Return on Capital Employed Ratio:
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Return on capital employed is the ratio of adjusted net profit to
capital employed in percentage. The return on ‘Capital Employed”
may be based on gross capital or net capital employed.
Formulation for calculation of return on capital employed is as
follows:
Table No.28:
Table Showing Return on Capital Employed Ratio
Year 2005 2006 2007 2008 2009
PAT 407.34 562.70 544.33 745.47 1435.11
Capital
Employed
637.18 2224.43 3357.44 6399.42 12641.93
Return On
Capital
Employed
63.92% 25.29% 16.212% 11.649% 11.351%
All amounts in million Indian Rupees.
Chart No.28:
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PAT
Return on Capital Employed Ratio = -------------------------- * 100
Capital Employed
Graph Showing Return on Capital Employed
2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Return on Capital Employed Ratio
Return on Capital Employed Ratio
Analysis:
The above table represents the capital employed ratio. The table clearly
shows capital is properly employed, except in 2008 and 2009, which has
got least ratio. The year 2005 shows good capital employment.
Interpretation:
From the above graph one can interpret that the year 2005 has good
capital employment with highest ratio of 63.92%. Year 2008 and 2009
has least ratio 0f 11.64% and 11.35% respectively.
CHAPTER-5
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FINDINGS, SUGGESTION AND CONCLUSIONS
The current ratio for the year 2005 is 1.15, which increased to 1.51
in 2006 and again there is a rise of current ratio in the year 2007
upto 1.66 but in 2008 there is slight decline of current ratio tending
to 1.53 and at the year 2009 has the highest ratio of 1.89 compared
to other previous year current ratios.
The liquid assets and current liability of SRSL in the year 2007 is
satisfactory as it has maintained liquid ratio of 0.83 times which is
close to 1:1 standard ratio. Whereas in the year 2005, the liquid
ratio has least proportion of 0.52 times. But we can observe there is
increment of liquid ratio from 0.52 to 0.60 and 0.60 to 0.83 in
respective years of 2006 and 2007.
When we analyse the data and graphs of absolute liquid ratio of
SRSL, necessary steps has to be taken to increase current liability
inorder to maintain the norms of absolute liquid ratio of 1:2.
The company has maintained good inventory to working capital
ratio with all ratios being more than ideal ratio 1:1.
The solvency ratio indicates the ability of the concern to meet its
liability out of its total assets. Higher the solvency ratio better will
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be the financial position. Here the company has good solvency
ratio in 2007 and 2009 with 0.69 and 0.63times.
We can see that proprietary ratio in the year 2006 having a ratio of
0.85 times is considered to be a sound capital structure for the
company. As it is said that the proprietary ratio tending to unity is
considered to be the stronger financial position of the company.
It is said that a fixed assets turnover ratio of 5 times more,
indicates better utilisation of fixed assets. And from the graph of
fixed assets turnover ratio, we can see better utilisation of fixed
assets in the year 2005 and 2006 as it has 6.05 times and 6.71 times
of fixed assets turnover ratio.
The fixed assets to net worth ratio is said to be satisfactory in the
year 2005, 2007 and 2008 compared to 2006 and 2009. As those
3years had maintained more than unity value compared to 0.53 and
0.99 in 2006 and 2009 respective years.
A current asset to net worth ratio throws a light on financial
strength of the concern. Higher the current assets to net worth,
ratio, higher will be financial strength of the concern. The
company has maintained current asset to net worth ratio to the
mark in 2005and 2009 when compared to other years.
The above table indicates current liability to net worth ratio which
is decreasing from year to year.
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The total liability to total assets gives an idea of total funds, short
term and long term provided by outsiders to finance total assets,
here the company shows higher rate of proportion of total liability
to total assets in the year 2006 with 2.78 times.
The more cash turnover ratio indicates the effective utilisation of
cash resources of the enterprise. The company has maintained
more than the standard ratio 10:1 in all the years. It has been
successful in effective utilisation of cash resources of enterprise.
By looking at analytical table and chart of inventory ratio, it is
found that in the year 2009, COGS is less compared to past years
and average stock has been increase compared to past years.
Whereas in the year 2006 has a highest record of sales with an
inventory turnover ratio of 2.03 times.
The working capital turnover ratio of SRSL in the years of 2007,
2008 and 2009 had least working capital turnover ratio of 1.61,
1.82 and 0.2 times. And the highest working capital turnover ratio
recorded at the year 2005 and 2006 were 3.92times and 3times
respectively.
The higher the debtor’s turnover ratio is considered to be a sound
financial position. The SRSL has maintained its consistency to
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keep the debtors turnover ratio at its peak. In the year 2008 and
2009 has a sound ratio of 23.86 times and 21.42 times respectively.
The current assets turnover ratio of the company represents the
sales from the amount of current assets. In SRSL, the 2009 sales
has been generated more with current assets turnover ratio of 5.45
times with net sales of 18241.69mn, which is the good sign of
utilisation of current assets whereas we can see least utilisation of
current assets at the year 2009 with current assets turnover ratio of
1.30 times.
The total assets turnover ratio indicates the company’s ability to
produce the volume of sale for a given amount of total assets. The
company has maintained 4.38 total assets turnover ratio in the year
2005 which is more compared to other years TATR -3.08, 0.94,
1.81 and 0.971. The year 2005 has utilized the assets effectively
compare to other year.
A net sale to net worth ratio indicates whether there is over
capitalisation or under capitalisation. It serves as a guide in the
proper administration of a company. We can see decline in ratio
from 2005 to 2007 with 10.03 to 2.181 decline and increase in ratio
from 2.18 to 2.85 in 2007 to 2008 and again decline in 2008 to
2009 from 2.85 to 1.767 times.
The gross profit ratio of the SRSL has been in good position, as we
can see there is increase in gross profit ratio from 2005 to 2007
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with gross profit ratio of 72.06% to 78.30%, but there was a slight
drop in gross profit ratio in the year 2008 tending to 55.87%. But
had a greatest raise in gross profit in the year 2009 tending to
93.07%.
The graph showing net profit of SRSL, had recorded the highest
net profit ratio at the year 2007 of 7.43% and also showed a sound
net profit from the year 2005 to 2007 with net profit being
increased from 5.23% to 7.43% and also we can observe a slight
fall in net profit at the year 2008 tending to 5.08% and there is
greatest increase in net profit with 6.42%.
It is said that lower the operating ratio, higher will be the net profit
ratio, as we interpret the analytical table we can find 2009 has least
operating expenses ratio of 13.81% which inturn yields the highest
net profit ratio of 6.42%.
The administration expenses ratio is been increasing from 2005 to
2007 with 1.18% to 2.90%. But we can observe fall in
administration expenses ratio in consequent years of 2008 and
2009 with 2.13% to 1.637%.
Selling and distribution ratio is constantly fluctuating from 2005 to
2009, as we can see increase in ratio from 2005 to 2006 and again
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fall of ratio in 2007 and again raise in selling and distribution
expenses ratio in 2008 and finally showing least ratio in the year
2009.
The EPS of 2005, 2006 and 2007 is satisfactory with 23.79, 23.98
and 21.04 respectively. But there is a decline in 2008’s and 2009’s
EPS contributing only 2.78 and 4.99 respectively. It is said that a
higher EPS means better capital productivity, from the analytical
table and chart we can interpret that 2006 had better capital
productivity as its EPS had a value of 23.98 times.
We can see SRSL, has high ROI at the year 2005 bearing 76.98%
with less of total capital employed with 637.18mn compared to
other years of capital employed, which shows good ROI position
of the company.
Shree Renuka Sugars Ltd has good return on shareholders’ fund, at
the year 2005 with 63.92% with shareholders fund contributing
around 637.18mn whereas other years shows gradual fall in return
on shareholders’ funds from 25.29% to 11.35% w.r.t 2006 to 2009.
Return on total assets of SRSL is more in the year 2005 with
27.91% compared to other consequent year which contributes
around 21.65%, 7.01%, 7.40% and 6.24% from 2006 to 2009.
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The company’s return on capital employed has a good percentage
in all years, with 63.92% in 2005; 25.29% in 2006; 16.215 in 2007
but ratio had been declined in 2008 to 2009 from 11.64% to
11.35%. The company’s return on capital employed is satisfactory.
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