sip(mba09008032)

Executive summary

Industrial overview

In this demanding World where industries are growing rapidly the beverage

industries are of most rapidly growing one. The beverage industries have achieved

remarkable success all over the World and its growth strategy development are at its

peak. With the coordination of effective corporate strategies the industries have

marked new heights.

Organization Profile:

Nectar Beverages Pvt Ltd is located on the outskirts of Dharwad city on

National Highway 4.It is spread on sprawling 5.25 acres and has consistently

producing world class soft drinks. This plant is established in 1984.It has started

manufacturing from 1998 the International brands –Pepsi, 7-up, Mirinda Orange,

Objectives of the study:

To study and analyze the financial statements of Nectar Beverages Pvt. Ltd

Dharwad

To know Company’s ability regarding how it will maintain good financial

condition.

To ascertain level of profit generated by Nectar Beverages Pvt Ltd, Dharwad

To suggest possible future financial liquidity position of the firm.

MBA09008032 KES’s INSTITUTE OF EXCELLENCE IN MANAGEMENT SCIENCE

Findings

Current ratio was increasing from FY 2006-07 till 2007-08 but it has been reduced in the FY 2009-10. But company is maintaining good solvency ratio that is 2.34:1 as compared to standard ratio that is 2:1 so company is having good solvency position in the short run.

The company’s Quick ratio is increasing year by year it shows the company has good liquidity position.

Net working capital ratio is increasing year by year it shows good for the manufacturing company. It is considered as good measure of safety.

The debt equity ratio shows that the company was reduced debt for first 3 years but in the financial year 2009-10 it has got increased it shows company’s risk has been increased.

The inventory turnover ratio for the last FY i.e 2000-10 is very high it shows the company is converting inventories into sales very quickly which is good for the company. Due to this the conversion period has been reduced.

Fixed assets turnover ratio is increased it means the company is utilizing its fixed assets effectively and efficiently but current assets and total assets turnover ratio is been reduced.

The return on equity(ROE) was reducing for first 3 year but in the FY 2009-10 that is last year it has been increased which is good for the share holders.

CHAPTER I


INTRODUCTION ABOUT INDUSTRY:

Beverage industry in india

In this demanding World where industries are growing rapidly the beverage

industries are of most rapidly growing one. The beverage industries have achieved

remarkable success all over the World and its growth strategy development are at its

peak. With the coordination of effective corporate strategies the industries have

marked new heights.

The non-alcoholic beverage for the soft drink industry has been grabbing the

Indian market for the past decade. This beverage industry has won great popularity

ever since it started its operation and there has been no looking back since then.

Beverages have been described as making “the most extensive dietary impact of

foreign corporations in the developed World”. Soft drinks are predominantly

water. They help quench thirst and meet the body’s fluid requirement. They also

provide Carbohydrates as they are sweetened with sugar. Soft drink contributes such

nutrition to the diet but then still the company markets as simple refreshment.

The rumors about the soft drinks containing pesticides and its ill effects did

declined its sales but then upcoming it they are back on the track on a rise and now

they enjoy its popularity.

Soft Drinks

Soft drinks are non-alcoholic water-based flavored drinks that are optionally

sweetened, acidulated and carbonated. Some carbonated soft drinks also contain

caffeine; mainly the brown-colored cola drinks.

The term soft drink (more commonly known as soda or pop in parts of the United

States, Canada and in the U.K. as well as coke in parts of the U.S.) originally applied

to carbonated drinks made from concentrates, although it now commonly refers to

almost any cold drink that does not contain alcohol. The name "soft drink" specifies a

lack of alcohol by way of contrast to the term "hard drink" and the term "drink", the

latter of which is nominally neutral but often carries connotations of alcoholic

content. Beverages like colas, sparkling water, lemonade, and fruit punch are among


the most common types of soft drinks, while hot chocolate, tea, coffee, milk, tap

water, alcohol, and milkshakes do not fall into this classification

Major Players-Global

The global soft drink industry is highly concentrated, being largely controlled

by the two multinational companies; Coca Cola and PepsiCo. Coca Cola leads the

carbonated soft drink market in most countries in the world with 60% of the global

cola market with its flagship Coca-Cola brand. Other notable players include Cadbury

Schweppes.

Major Players in India

The two global majors Coca-Cola and PepsiCo dominate the soft drink market

in India. Coca-Cola, which had winded up its India operations during the introduction

of the FERA regime, re-entered India 16 years later in 1993. Coca-Cola bought local

brands-Thumps Up, Limca and Gold Spot from Parle Beverages and soft drink brands

Crush, Canada Dry and Sport Cola from Cadbury Schweppes in early 1999. Pepsi

started a couple of years before Coca Cola in 1991 has bought over Mumbai based

Duke’s range of soft drink brands. There are conflicting figures about their market

share. Some estimates put the market share of PepsiCo to be higher and some put the

market share of Coca Cola to be higher. However, the soft drinks segment, dominated

by these two companies, accounted for Rs 6,247 crore in sales in 2002.

Soft drink production area

The market preference is highly regional based. While cola drinks have main

markets in metro cities and northern states of UP, Punjab, Haryana etc. Orange

flavored drinks are popular in southern states. Sodas too are sold largely in southern

states besides sale through bars. Western markets have preference towards mango

flavored drinks. Diet coke presently constitutes just 0.7% of the total carbonated

beverage market.


Introduction about the topic:

“Study of Financial position of Nectar Beverages Pvt.Ltd Dharwad

through ratio analysis”

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm and establishing relationship between the items of the balance

sheet and profit & loss account.Financial ratio analysis is the calculation and

comparison of ratios, which are derived from the information in a company’s

financial statements. The level and historical trends of these ratios can be used to

make inferences about a company’s financial condition, its operations and

attractiveness as an investment.

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as

“The indicated quotient of two mathematical expressions” and as “The relationship

between two or more things.” In financial analysis a ratio is used as a benchmark for

evaluating the financial positions and performances of a firm. The absolute

accounting figures repeated in the financial statements do not provide a meaningful

understanding of the performance and position of a firm. An accounting figures

conveys meaning when it is related to some other relevant information. The

relationship between two or more accounting figures/ groups is called financial

ratio.A ratio helps to summarize large quantities of financial data and to make

qualitative judgement about the firm’s financial performance.

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for helping


in making certain decisions. It is only a means of understanding of financial strengths

and weaknesses of a firm.

Significance of ratio analysis:

As a tool of financial management, ratios are of crucial significance. The

importance of ratio analysis lies in the fact that it presents facts on a comparative

basis and enables the drawing of inferences regarding the performance of a firm.

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

following aspects:

I. Liquidity position

II. Long term solvency

III. Operating efficiency

IV. Overall profitability

V. Inter-firm comparison

VI. Trend analysis

Objectives of the study:

To study and analyze the financial statements of Nectar Beverages Pvt. Ltd

Dharwad

To know Company’s ability regarding how it will maintain good financial

condition.

To ascertain level of profit generated by Nectar Beverages Pvt Ltd, Dharwad

To suggest possible future financial liquidity position of the firm.


Limitations of the study:

The other most important limitation of the study is that the study slowly

depends on the published data and documents such as Balance sheet and Profit

and loss account.

It was difficult to obtain confidential data from the concern department with a

view point of secrecy that the company would like to observe.

The time limit for the study was another limitation.


CHAPTER II

ORGANISATION PROFILE

Soft drinks market in India:

India is one of the top five markets in terms of growth of the soft drinks

market. The per capita consumption of soft drinks in the country is estimated to be

around 6 bottles per annum in the year 2003. It is very low compared to the

corresponding figures in US (600+ bottles per annum). But being one of the fastest

growing markets and by the sheer volumes, India is a promising market for soft

drinks.

The major players in the soft drinks market in India are PepsiCo and Coca-

Cola Co, like elsewhere in the world. Coca-Cola acquired a number of local brands

like Limca, Gold Spot and Thums Up when it entered Indian market for the second

time. Pepsi Co’s soft drink portfolio also consists of Miranda and 7Up along with

Pepsi. The market share of each of the company is more or less the same, though there

is a conflict in the estimates quoted by different sources.

The major ingredient in a soft drink is water. It constitutes close to 90% of the

soft drink content. Added to this, the drink also contains sweeteners, Carbon dioxide,

Citric Acid/Malic acid, Colors, Preservatives, Anti Oxidants and other emulsifying

agents, etc.

PEPSICO IN INDIA!

PepsiCo entered India in 1989 and has grown to become one of the country’s

leading food and beverage companies. One of the largest multinational investors in

the country, PepsiCo has established a business which aims to serve the long term

dynamic needs of consumers in India.PepsiCo India and its partners have invested

more than U.S.$1 billion since the company was established in the country. PepsiCo

provides direct and indirect employment to 150,000 people including suppliers and

distributors.

PepsiCo nourishes consumers with a range of products from treats to healthy

eats that deliver joy as well as nutrition and always, good taste. PepsiCo India’s


expansive portfolio includes iconic refreshment beverages Pepsi, 7 UP, Mirinda and

Mountain Dew, in addition to low calorie options such as Diet Pepsi, hydrating and

nutritional beverages such as Aquafina drinking water, isotonic sports drinks -

Gatorade, Tropicana100% fruit juices, and juice based drinks – Tropicana Nectars,

Tropicana Twister and Slice. Local brands – Lehar Evervess Soda, Dukes Lemonade

and Mangola add to the diverse range of brands.

PepsiCo’s foods company, Frito-Lay, is the leader in the branded salty snack

market and all Frito Lay products are free of trans-fat and MSG. It manufactures

Lay’s Potato Chips; Cheetos extruded snacks, Uncle Chips and traditional snacks

under the Kurkure and Lehar brands. The company’s high fibre breakfast cereal,

Quaker Oats, and low fat and roasted snack options enhance the healthful choices

available to consumers. Frito Lay’s core products, Lay’s, Kurkure, Uncle Chipps and

Cheetos are cooked in Rice Bran Oil to significantly reduce saturated fats and all of

its products contain voluntary nutritional labeling on their packets.

The group has built an expansive beverage and foods business. To support its

operations, PepsiCo has 43 bottling plants in India, of which 15 are company owned

and 28 are franchisee owned. In addition to this, PepsiCo’s Frito Lay foods division

has 3 state-of-the-art plants. PepsiCo’s business is based on its sustainability vision of

making tomorrow better than today. PepsiCo’s commitment to living by this vision

every day is visible in its contribution to the country, consumers and farmers.

In everything we do, we strive for honesty, fairness and integrity

PepsiCo India is striding ahead rapidly towards enabling the global vision to

be the world's premier consumer products company focused on convenience foods

and beverages. PepsiCo India seeks to produce healthy financial rewards for investors

as it provide opportunities of growth and enrichment to its employees, business

partners and the communities in which it operates.


About Nectar Dharwad!

In 1984, Nectar Beverages used to produce the Parle products. Like the East

India Company centuries ago, the Coca Cola Company entered India in 1994 and

ordered all bottlers of Parle products to surrender their plants and businesses to them

on expiration of the contract in November 1997. The bottlers of India could not

measure up to the huge conqueror from Atlanta and therefore gave up. Some however

resisted but eventually were forced to give in. However, Fomento group had

outrightly rejected this neo-colonialism. Providence came to their rescue in the form

of a Pepsi franchise.

On November 23, 1997, Goa Bottling began producing products of Pepsi

Cola Company, Pepsi, Mirinda, Orange, Lehar Soda, Slice Mango, Mirinda Lemon,

7-Up and other products.

The Pepsi Cola Company (called Pepsi Foods Ltd. In India), although

THINKS GLOBALLY about its businesses, but it ACTS LOCALLY in its style.

It believes that local businesses, entrepreneurs, people, are best managed by

themselves. It strongly believes in furthering its businesses in India through Indians,

to be owned by Indians produced in Indian plants for the Indian people. Unlike Coca

Cola India, which is almost entirely run by American expatriates, Pepsi Company in

India (Pepsi Foods Ltd.), is 100% operated by people of Indian skin, culture and

pride. So when Goa Bottling Company produced products of Pepsi, the Coca Cola Co.

did its utmost to kill the livelihood of the employees at Nectar Beverages by

suspending supply of concentrates and various other tactics.

Nectar Beverages was brought to a standstill. The workers moved into the

streets themselves to sell Pepsi products. It was of those rare examples in the world

where there are no differences between Management and workers and both are

partners in fighting the common enemy.

Inspite of the plant being closed, all the workers were honorably paid, even

though there was total shutdown. Over capacity through Goa plants raised a question

of whether or not to restart Nectar Beverages.


Specially because if Nectar Beverages was going to produce international

drinking like Pepsi and 7-Up, it would need even more sophisticated machineries and

quality controls. Unanimously, the management and workers of Nectar Beverages

took the battle on themselves and with belief in this mission decided that they would

never allow Nectar Beverages to close.

Nature of the Business carried:

Nectar Beverages Pvt Ltd, is the mainly Product and target oriented company.

Since it is the franchisee of the PepsiCo, it carries the business as prescribed by

PepsiCo. It is producing the same products, as its parent company i.e Pepsi Company

like Pepsi, 7-Up, Mirinda, Slice etc.

Our Mission

Our mission is to be the world's premier consumer Products Company focused

on convenient foods and beverages. We seek to produce financial rewards to investors

as we provide opportunities for growth and enrichment to our employees, our

business partners and the communities in which we operate. And in everything we do,

we strive for honesty, fairness and integrity.

Our Vision

"PepsiCo's responsibility is to continually improve all aspects of the world in

which we operate - environment, social, economic - creating a better tomorrow than

today."

Our vision is put into action through programs and a focus on environmental

stewardship, activities to benefit society, and a commitment to build shareholder

value by making PepsiCo a truly sustainable company.

Our Quality Policy:

“Make, sell and deliver the beverage to the consumer as it was designed, in

order to derive preference.”


Safety Assured: Nectar Beverages follows one quality standard across the

globe.Nectar Beverages soft drinks meet the local Indian standards (Health Ministry

Standards for carbonated beverages notified July 15, 2004) which compare to the

best-in-class and most stringent international standards being followed anywhere in

the world.

Our products comply with the Prevention of Food Adulteration Act (PFA)

directive on the use of water in the preparation of soft drinks. We also comply with

Bureau of Indian Standards (BIS) for packaged drinking water. We use a six-stage

water purification process to deliver this standard consistently.

Nectar Beverages has a long-standing commitment to protecting the

consumers whose trust and confidence in its products is the bedrock of its success. In

order to ensure that consumers stay informed about the global quality of all Nectar

Beverages products sold in India, Nectar Beverages products carry a quality assurance

seal on them. The ‘One Quality Worldwide’ assurance seal appears on the entire

range of Nectar Beverage’s beverages.

Plant Nectar Beverages Pvt.Ltd. Dharwad:

Nectar Beverages Pvt. Ltd. belongs to the Pepsi Cola Family and firmly believes

in T.Q.P (Total Quality Performance). We have installed the best of automatic

equipment’s resulting in bacteria free products. Our Product contains useful vitamins

and isotonic salts. The production staff are trained to international standards by the

principals Pepsi Cola. The water being the main raw material is treated several times

to bring it to its pure from (bacterial free). The said pure water is then used for filling

and washing purpose. The total process starting from purity of water to raw syrup, to

final syrup and filling etc., is done with utmost care to avoid any biological

contamination.


PRODUCTS PROFILE

1. PEPSI

2. MIRINDA (Orange)

3. MIRINDA(Lemon)

4. MOUNTAIN DEW

5. SLICE

6. 7-UP

7. AQUAFINA

8. TROPICANA TWISTER

9. NIMBOOZ

Area of Operation:

NBPL has registered office in Dharwad and they are operating in most part of

the North Karnataka Districts. They are supplying their supplies to 14 districts which

are as follows:

1) Dharwad

2) Haveri

3) Davangere

4) Belgaum

5) Bagalkot

6) Hassan

7) Shimoga

8) Chikkamangalur

9) Bijapur


10) Chitradurga

11) Karwar

12) Koppal

13) Bellary

14) Gadag

Competitor’s information:Nectar Beverages Pvt Ltd facing the competition

mainly by Coke. It has competition for all its products by Coke.The major

fight between the Pepsi and Coca Cola products is as follows:

For Pepsi Coca Cola and Thumps Up

Slice Maaza

7-Up Sprite

Mirinda (Orange) Fanta

Mirinda (Lemon) Limca

Aquafina Kinley water


Organization Structure

Nectar Beverages Dharwad Management!


DEPARTMENTS

From the organization structure shown above we can observe that the

Departmentation is done on the basis of standard functions of the management.

HUMAN RESOURCE DEPARTMENT

Human Resource Management (HRM) is the function within an organization

that focuses on recruitment of, management of, and providing direction for the people

who work in the organization. Human Resource Management can also be performed

by line managers.

Human Resource Management is the organizational function that deals with

issues related to people such as compensation, hiring, performance management,

organization development, safety, wellness, benefits, employee motivation,

communication, administration, and training.

Duties and Responsibilities of HR Manager in Nectar Beverages are:

To implement provisions such as standing orders of the company factories

act etc to meet the statutory requirement.

To delegate the responsibility to workers, assessing the need of imparting

training to workers.

To ensure safe working conditions for the employees.

Recruitment Process in Nectar beverages:


The recruitment policy adopted by the organization has influence on its employees

and on the efficiency of the company. So the recruitment policy adopted by the

company should aim at right kind of potential candidates to ensure right kind

candidate have been stimulated for the job. The recruitment policy adopted by the

Nectar beverages pvt ltd is as follows:

1) The recruitment policy in the company begins with receiving the information

about the vacancy from the concerned department.

2) The plant manager and the HR Manager and other departmental heads discuss

the necessity of the job and take the decisions accordingly.

3) The HR Manager develops the job description and job specification

4) The next step is giving the advertisement for the requirement of the candidates

for required job.

Selection procedure in NBPL:

A nectar beverage has the simple selection procedure, as it is the franchisee unit.

The company follows the following procedure for selection:

1) Application banks

2) Preliminary interview

3) Tests

4) Final interview

Total Man power of Nectar Beverages Pvt Ltd:

CEO : 01

Managers : 05

Executives : 32

Staff : 09


Permanent Workers : 52

Temporary workers (season) :90

SALES AND MARKETING DEPARTMENT

Functions of Sales Department:

1) Sales Department is having the rounding system to every retail outlets in the

local markets once in a week. In case the retailers are finished with stocks they

contact through phones then the stocks are sent to them.

2) After collecting the order from the retailers the sales department orders the

production department to prepare the required stock to be sent on the

mentioned date.

3) Details of the payment procedures, transportation procedure, delivery dates,

etc are also handled by the sales departments

4) Sales team settles down the deal with the retailers and takes the invoice

agreement and then documentation process is carried.

5) The sales dept. sends the invoice copy to the shipping department which

carries the work of transforming the mentioned goods to the vehicle from the

stock room, and inform back to the sales department with the

acknowledgement.

FINANCE DEPARTMENT

Appointment of Auditors:

Auditor’s appointment will be done at the Head office (Delhi).At present

company’s auditor is O.P.Bagla & Co (Delhi).Yearly twice auditing is conducted i.e.

in the month of July and December.

Software used in the Finance Department:


From 2005, Company started using the Proft (+) windows based software for

maintaining the financial records. Before this year company used the Profit software

for its day to day operations.

Training in the Finance Department:

In the Finance Department, on the job training method is followed for the new

employees. Along with the on the job training, Head Office(Delhi) conducts some

lecture type of training once in three months.

PRODUCTION DEPARTMENT

Water treatment Plant:

Pure water is tasteless, colorless, and odorless. Water as it occurs in nature,

whatever the source, always contains impurities in solution or in suspension. The

determination of these impurities makes water analysis necessary and the control of

these impurities makes water conditioning essential.

SWEETENING AGENT AND SYRUP PREPERATION

Sweetening agents are those subsistence’s, which when blended with flavour,

acid etc. will provide satisfactory sweet taste in the finished beverages. They also

furnished body, which helps to carry or transits the flavour. They also give energy or

food value to the beverage.

SYRUP PREPERATION

The preparation of the syrup is certainly one of the most important operation

in the beverage plant, both from the stand point of sanitation and control of

concentration. The object in syrup making is to prepare satisfactorily bended and

finished syrup from which uniform beverages of high quality can be produced.

Normally required quantity of sugar of high quality is added to treated water

and heated to 850 C, in a high grade stainless steel double jack vessel. Activated


carbon is added to this to remove impurities. Impurities along with activated carbon

added to the sugar are separated form the sugar solution by filtering the sugar syrup.

Filter paper and Hyflo Supercel are used as filter aid. The temperature of the clear

syrup thus obtained is brought down to 200 C and stored is called “Simple” syrup.

When the syrup is completely prepared by the addition and blending of all

flavouring ingredients it is called as “Ready”/ “Finished” / Flavored syrup. The syrup

is ready for use in production process.

Overall Nectar Beverages Pvt Ltd Mission:

To achieve every batch incoming raw materials are checked for quality by

quality assurance departments.

Using high grade sugar.

The online and final product checks are carried out at regular intervals.

To purchase raw materials only from approved sources, approved by

independent laboratories of international repute.

Using equipments of superior grade stainless steel material.


CHAPTER III

METHODOLOGY

Types of Data used in the study:

Primary data

The data is collected by the interaction and through discussion with Deputy

Finance Manager of Nectar Beverages Pvt Ltd, Dharwad.

Secondary data

Information for the study is collected from the Balance sheet and Profit and

loss accounts of the company. Company’s’ Web site is also used to collect

information.

Sample Size:

I have taken 4 years financial statements for my topic study so my sample size

is 4 years financial statements.

Tools used to analyze the data:

I have been used the Ratios as a tool to study my project and analyze the

financial statements of the company. In ratios I took some important ratios to analyze.

Terms and concepts used in the study:


Several ratios calculated from the accounting data, can be grouped into various

classes accounting to financial activity or functions to be evaluated. We classify ratios

in to the following four important categories.

1. Liquidity ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

I. Liquidity ratio:

Liquidity refers to the ability of a firm to meet its obligations in the short run, usually

one year. Liquidity ratios are generally based on the relationship between current

assets (the sources for meeting short term obligations) and current liabilities.

The important liquidity ratios are:

1. Current Ratio

2. Acid Test ratio or Quick Ratio

3. Cash Ratio

4. Net Working Capital Ratio

1. Current ratio:

This ratio establishes a relationship between current assets and current liabilities. The

objectives of computing this ratio are to reflect the short-term financial strength

/solving of a firm. In other words the objective is to measure the safety margins

available for shot-term indicators. This ratio is expressed as under.

Current Ratio = Current assets/Current liabilities


2. Quick ratio:

Quick ratio is the more severe and stringent test of a firm’s ability to meet its current

obligation. It is wise to keep liquid assets at least equal to current liabilities. This ratio

is also known as liquid ratio/acid test ratio. This ratio is usually expressed as a pure

ratio i.e. 1:1. This ratio may be expressed as under.

Quick Ratio = Quick Assets / Current Liabilities

3. Cash ratio:

Cash is the liquid assets financial analyst may examine cash ratio and its equivalent to

current liabilities. Trade investment or marketable securities are equivalent of cash it

can be calculated using by dividing cash & bank and current liabilities.

Cash ratio = Cash & bank / Current liabilities

4. Net working capital ratio:

The difference between current assets and current liabilities excluding short-term

bank borrowing is called net working capital or net current assets. NWC is sometimes

used as a measure of a firm’s liquidity. The measure of liquidity is a relationship

rather than the difference between current assets and current liabilities

Net Working Capital ratio = Net Working Capital / Net assets

II. Leverage ratio:

Financial leverage refers to the use of debt finance, while debt

capital is a cheaper source of finance. It is a riskier source. Leverage ratios help in

assessing the risk arising from the rise of debt capital.

The important ratios are:

1. Proprietary ratio

2. Fixed assets to net worth ratio


1. Proprietary funds ratio:

Proprietary ratio is the ratio of shareholders funds to total assets. It is also called as

“net worth to total assets” ratio or “equity ratio”. It serves as a measure of long-term

solvency. It is shown as:

Proprietary funds ratio = Proprietary funds / Total assets *100

2. Fixed assets to net worth ratio:

This ratio establishes the relationship between fixed assets and shareholders fund i.e.

share capital plus reserve and surplus and retained earnings. The ratio can be

calculated as follows;

Fixed assets to net worth ratio = Fixed assets / Shareholders fund *100

III. Activity/efficiency/turnover ratio:

Activity ratios are employed to evaluate the efficiency

with which the firm manages and utilizes its assets. These ratios are also called

turnover ratios, because, they indicate the speed with which assets are being converted

or turned over into sales. Activity ratios thus involve a relationship between sales and

assets. The proper balance between sales and assets generally reflects that assets are

managed well.

Important ratios are:

1. Inventory turnover ratio

2. Inventory conversion period

3. Debtors turnover ratio

4. Average collection period

5. Fixed assets turnover ratio

6. Total assets turnover ratio

7. Current assets turnover ratio

8. Working capital turnover ratio


9. Net assets turnover ratio

1. Inventory turnover ratio:

Inventories turnover ratio indicates the efficiency of the firm in producing and selling

its products and measures how fast the inventory is moving through the firm and

generating sales. This ratio is calculated as under

Inventory turnover ratio = Cost of goods sold /Average inventory

2. Inventory conversion period:

This ratio is used to know the conversion of the company within how many days the

inventory been converted into sale. Thus it can be computed as:

Inventory conversion period = No of days / Inventory turnover ratio

3. Debtors turnover ratio:

The debtors turnover ratio is calculated to measure the efficiency of credit promotion

policy and credit collection policy. Debtors turnover ratio indicates the speed with

which the debtors are turned over during the year. It is expressed in number of times

the average debtors are turned over during a year. Average collection period

represents the average number of days for which a firm has to wait before their

receivables are converted into cash. The ratio can be calculated as under

Debtors turnover ratio = Net sales / Debtors

4. Average collection period:

The average collection period measures the quality of debtors since it indicates the

speed of their collection. The shorter the average collection period, the better the

quality of debtors since a short period implies the prompt payments by debtors.

Average collection period = No of days/ Debtors turnover ratio


5. Net assets turnover ratio:

The firm’s ability to produce a large volume of sales for a given amount of net assets

is the most important aspect of its operating performance. It can be calculated by

dividing the sales and net assets.

Net assets turnover ratio = Sales/Net assets

6. Fixed assets turnover ratio:

The fixed assets turnover ratio measures sales per rupee of investments in fixed assets.

The ratio is as under.

Fixed assets turnover ratio = Sales / Net fixed assets

7. Current assets turnover ratio:

This ratio is used to know the efficiency of utilization of current assets. This indicates

the efficiency with which firm uses all its assets to generate sales.

Current assets turnover ratio = Sales/ Current assets

8. Working capital turnover ratio:

This ratio is used if a firm may also like to relate net current assets (or net working

capital gap) to sales. It may thus compute net working capital turnover by dividing

sales by net working capital. The ratio is:

Working capital turnover ratio = Cost of goods sold/ Net working capital

9. Total assets turnover ratio:

This ratio shows the firm’s ability in generating sales from all financial resources

commited to total assets. Thus:

Total Assets Turnover ratio = Sales/ Total assets

IV. Profitability ratio:


Profitability reflects the final result of business operations. Profitability ratios

are calculated to measure operating efficiency of the company.

Important profitability ratios are:

1. Return on Equity

2. Return on investment

3. Gross profit margin ratio

4. Net profit ratio

1. Return on equity:

Common or ordinary shareholders are entitled to the residual profits. The rate

of dividend is not fixed; the earnings may be distributed to shareholders or retained in

the business. Nevertheless, the net profits after taxes represent their return. A return

on shareholders’ equity or net worth will include paid-up share capital, share premium

and reserves and surplus less accumulated losses. Net worth can also be found by

substracting total liabilities from total assets.

Return on equity = Profit after tax/Shareholders equity *100

2. Return on Investment

The Return on investments measures the overall effectiveness of

management in generating profits with its available assets.

Return On Investment = Total earnings/Total capital employed*100


3. Gross profit margin ratio:

The gross profit margin ratio reflects the efficiency with which management

produces each unit of product. This ratio indicates the average speed between the cost

of goods sold and sales revenues. The ratio is as under.

Gross profit ratio = Gross profit/ Sales*100

4. Net profit ratio:

Net profit is obtained when operating expenses interest and taxes are

substracted from the gross profit.

Net profit margin ratio establishes a relationship between net profit and sales.

It indicates management’s efficiency in manufacturing administering and selling the

products.

This ratio is the overall measures of the firm’s ability to turn each rupee sales

into net worth. This ratio also indicates the firm’s capacity to withstand adverse

economic conditions.

Net profit ratio = Net profit/ Sales


CHAPTER IV

ANALYSIS AND INTERPRETATION

1) TABLE SHOWING CURRENT RATIO

Year Current Assets Current Liablities Current Ratio

2006-07 5,47,97,324 2,16,56,121 2.53

2007-08 8,14,33,018 4,26,32,113 1.91

2008-09 11,04,12,215 3,17,13,911 3.48

2009-10 29,52,22,173 12,61,35,221 2.34

1) GRAPH SHOWING CURRENT RATIO


Interpretation : Table 1 shows that from year 2006-07 to 2008-09 current ratio was

increasing but in the year 2009-10 it got reduced so solvency has reduced but if we

compare with standard ratio that is 2:1 it shows company has maintained good

solvency position.

2) TABLE SHOWING QUICK RATIO

Year Quick Assets Current Liablities Quick Ratio

2006-07 3,47,24,203 3,95,88,903 0.88

2007-08 5,82,49,111 4,26,32,113 1.37

2008-09 7,70,61,659 3,17,13,911 2.43

2009-10 23,72,38,008 12,61,35,221 1.88

2) GRAPH SHOWING QUICK RATIO


Interpretation : Table 2 shows that from year 2006-07 to year 2008-09 it has been

increasing but in the year 2009-10 it got reduced it shows companies liquidity

position in the year 2010 got reduced but it is maintaining as per standard ratio that is

1.33:1 so company has still good liquidity position.

3) TABLE SHOWING CASH RATIO

YearCash & Bank balance

Current Liablities Cash Ratio

2006-07 61,37,886 3,95,88,903 0.16

2007-08 76,49,615 4,26,32,113 0.18

2008-09 1,09,57,975 3,17,13,911 0.35

2009-10 2,60,29,218 12,61,35,221 0.21


3) GRAPH SHOWING CASH RATIO

Interpretation : Table 3 Shows that Like both Current and Quick ratios the Cash

ratios also increased from FY 2006-07 to 2008-09 but in the FY 2009-10 it has

reduced it means the cash position of the company got reduced due to increase in the

current assets. So company has to maintain standard cash ratio.

4) TABLE SHOWING NETWORKING CAPITAL RATIO

YearNet Woking Captil Net assets

Net working captil ratio

2006-07 1,52,08,421 21,35,42,333 0.07

2007-08 3,88,00,905 20,08,46,406 0.19

2008-09 7,86,98,304 18,43,37,909 0.43

2009-10 16,90,86,952 29,92,21,097 0.57


4) GRAPH SHOWING NETWORKING CAPITAL RATIO

Interpretation : Table 4 shows that networking capital ratios is increasing year by

year in the year 2006-07 it was 0.07 it has got increased to 0.57 in the year 2009-10 it

shows that working capital is increasing year by year it is due to increase in the sales.

5) TABLE SHOWING PROPRIETARY RATIO

Year Proprietary fund Total Assets Proprietary Ratio

2006-07 7,01,95,700 26,83,39,657 0.26

2007-08 9,89,85,569 28,22,79,424 0.35

2008-09 14,63,71,366 29,47,50,124 0.50

2009-10 19,53,08,765 59,44,43,270 0.33


5) GRAPH SHOWING PROPRIETARY RATIO

Interpretation : Table 5 shows that Proprietary ratio is increased up to FY 2008-09

but in the FY 2009-10 this has got reduced that is from 0.50 to 0.33 it shows that

assets has been increased by raising the Debt that is by raising the secured and

unsecured loans it reduces the cost of capital but increases the risk of return.

6) TABLE SHOWING DEBT EQUITY RATIO

Year Long term debt Shareholders’ equity Debt equity ratio

2006-07 14,98,74,306 7,01,95,700 2.14

2007-08 13,19,80,993 9,89,85,569 1.33

2008-09 10,79,84,100 14,63,71,366 0.74

2009-10 26,43,18,536 19,53,08,765 1.35


6) GRAPH SHOWING DEBT EQUITY RATIO

Interpretation : Table 6 shows that from FY 2006-07 to FY 2008-09 the debt has

been reduced it means risk was getting reduced but in the FY 2009-10 its got

increased it means company has increased its risk of capital. The standard ratio is 2:1

but company is maintaining less than that it means company can raise even more

capital from Debt for future expansion.

7) TABLE SHOWING INVENTORY TURNOVER RATIO

Year Cost of goods sold Avg. InventoryInventory turnover ratio

2006-07 41,43,63,339 2,27,76,328 18.19

2007-08 45,52,27,264 2,16,28,514 21.05

2008-09 56,08,22,018 2,82,67,232 19.84

2009-10 85,55,94,432 2,88,33,681 29.67


7) GRAPH SHOWING INVENTORY TURNOVER RATIO

Interpretation : The Table 7 shows that in the FY 2008-09 inventory turnover ratios

was reduced but in the FY 2009-10 it increased very highly it shows inventories are

sold very quickly than last FY. Higher inventory turnover ratio is good for the

company.

8) TABLE SHOWING INVENTORY CONVERSION PERIOD

YearNo.of Days in a year

Inventory turnover ratio

Inventory conversion period

2006-07 360 18.19 19.79

2007-08 360 21.05 17.10

2008-09 360 19.84 18.15


2009-10 360 29.67 12.13

8) GRAPH SHOWING INVENTORY CONVERSION PERIOD

Interpretation : Table 8 shows the inventory conversion period for initial year that is

FY 2006-07 was high(19.79) it got reduced in the year 2007-08 again it has been

increased in the year 2008-09(18.15) but in the FY 2009-10 it has been reduced to

12.13. It means company is converting inventory into sales very early. It shows the

demand for Pepsi product is increasing.

9) TABLE SHOWING DEBTOR TURNOVER RATIO

Year Net Sales Avg. DebtorsDebtor turnover Ratio

2006-07 47,07,51,318 1,97,98,672 23.78

2007-08 51,78,26,450 2,37,28,489 21.82

2008-09 64,00,13,362 2,87,59,973 22.25

2009-10 95,21,61,933 6,07,00,866 15.69


9) GRAPH SHOWING DEBTOR TURNOVER RATIO

Interpretation : Table 9 shows that how receivables have been collected or how

quickly or slowly the receivables have been collected. From the table we can conclude

that the debtors have been collecting very slowly it means the company is taking more

time to collect the debtors which is not good for the solvency of the company or it

will reduce the solvency position of the company.

10) TABLE SHOWING AVERAGE COLLECTION PERIOD

Year No.of DaysDebtor turnover ratio

Avg. collection period

2006-07 360 23.78 15.14

2007-08 360 21.82 16.50

2008-09 360 22.25 16.18

2009-10 360 15.69 22.94


10) GRAPH SHOWING AVERAGE COLLECTION PERIOD

Interpretation : Table 10 shows the average number days taken to collect the

debtors. As per the table the collection period was reduced in the year that is from

16.18 to 16.50 but in the FY 2009-10 it has been increased very much that is 22.94.

This shows that company is taking more time to collect the debtors which is not good

for the solvency position of the company.

11) TABLE SHOWING CREDITORS TURNOVER RATIO

YearNet credit purchase Avg. Creditors

Creditors turnover ratio

2006-07 183340014 15567156 11.78

2007-08 209479453 12300180 17.03

2008-09 274010414 10921468 25.09


2009-10 461429930 30519478 15.12

11) GRAPH SHOWING CREDITORS TURNOVER RATIO

Interpretation : Table 11 shows that the creditors turnover ratios was increasing

from year 2006-07 to 2008-09 but it got reduced in the year 2009-10 that is in the year

2006-07 it was 11.78 but in the year 2007-08 it has been increased to 17.03 again in

the year 2008-09 it has been increased to 25.09 but it has been reduced to 15.12 in the

year 2009-10 it shows that creditors are allowing less period to pay for the purchases.

12) TABLE SHOWING FIXED ASSETS TURNOVER RATIO

Year Sales Fixed AssetsFixed Assets turnover ratio

2006-07 470751318 213542333 2.20

2007-08 517826450 200846406 2.58

2008-09 640013362 184337909 3.47


2009-10 952161933 299221097 3.18

12) GRAPH SHOWING FIXED ASSETS TURNOVER RATIO

Interpretation : Table 12 shows the ability to generate sales per rupee of fixed assets. The company was generating more sales per rupee of fixed asset from year 2006-07 to 2008-09 but it got reduced in the year 2009-10. It shows that companies’ generation of sales per rupee of fixed assets reduced little bit but it is generating good sales per rupee of fixed assets.

13) TABLE SHOWING CURRENT ASSETS TURNOVER RATIO

Year Sales Current AssetsCurrent Assets turnover ratio

2006-07 470751318 54797324 8.59

2007-08 517826450 81433018 6.36

2008-09 640013362 110412215 5.80


2009-10 952161933 295222173 3.23

13) GRAPH SHOWING CURRENT ASSETS TURNOVER RATIO

Interpretation : Table 13 shows the current assets turnover ratio. The current assets turnover ratio is reducing year by year that is in the year 2006-07 the ratio was 8.59 it got reduced to 6.36 in the year 2007-08 again it reduced to 5.80 in the year 2008-09 and again in the year 2009-10 it has been got further reduction that is 3.23. So companies’ turnover to current assets is reducing very much.

14) TABLE SHOWING TOTAL ASSETS TURNOVER RATIO

Year sales Total AssetsTotal Assets turnover ratio

2006-07 470751318 268339657 1.75

2007-08 517826450 282279424 1.83


2008-09 640013362 294750124 2.17

2009-10 952161933 594443270 1.60

14) GRAPH SHOWING TOTAL ASSETS TURNOVER RATIO

Interpretation : Table 14 shows how company is utilizing their total assets to generate the sales per rupee of its total assets. The total assets turnover was increasing from FY 2006-07 till 2008-10 but it got reduced in the FY 2009-10 it may be due to the reduction in the current assets turnover ratio. Company is still earning better from its assets.

15) TABLE SHOWING RETURN ON INVESTMENTS

Year Total EarningsTotal Capital Employed ROI

2006-07 59655697 238002788 25.07

2007-08 64196757 255966563 25.08


2008-09 81560301 270526481 30.15

2009-10 101767025 510953091 19.92

15) GRAPH SHOWING RETURN ON INVESTMENTS

Interpretation : Table 15 shows overall profitability of the company for the capital employed. The companies return for first 3 FY was good it was in increasing trend but it got reduced in the year 2009-10 it shows that in the last FY the company is getting less return on the capital employed.

16) TABLE SHOWING RETURN ON EQUITY

year PAT Net worth ROE

2006-07 34289251 60943666 56.26

2007-08 36146150 82666318 43.73


2008-09 55546779 138881097 40.00

2009-10 65935808 152663722 43.19

16) GRAPH SHOWING RETURN ON EQUITY

Interpretation : Table 16 shows the profitability of equity funds invested in the business. The return to the equity holders was reducing from 2007-08 till 2008-09 but in the FY 2009-10 it got increased it means the equity holders are getting better returns to their capital or their investment. It shows company is given better dividend to equity holders.

17) TABLE SHOWING GROSS PROFIT PROFIT RATIO

year Gross profit SalesGross profit margin ratios


2006-07 237672495 470751318 50.49

2007-08 262965384 517826450 50.78

2008-09 315901313 640013362 49.36

2009-10 435671115 952161933 45.76

17) GRAPH SHOWING GROSS PROFIT PROFIT RATIO

Interpretation : Table 17 shows the basic profitability of the company. The table shows that the companies basic profitability has been reduced very much even though company is earning good sales the basic profit is been reduced. It shows the company is following sales maximization policy rather than profit maximization policy.

18) TABLE SHOWING NET PROFIT RATIO

year Net profit SalesNet profit margin ratio


2006-07 28550513 470751318 6.06

2007-08 61985705 517826450 11.97

2008-09 111519726 640013362 17.42

2009-10 165853013 952161933 17.42

18) GRAPH SHOWING NET PROFIT RATIO

Interpretation : Table 18 shows that initially the net profit margin was less but year by year it is increasing. In the FY 2006-07 the ratio was 6.06 it has been increased to 11.97 in the year 2007-08 again in the FY 2008-09 it has been increased to17.42 but in the year 2009-10 the company has maintained same rate of profit even though its sales increased it shows company is making sales maximization policy.

CHAPTER V

FINDINGS AND SUGGESTIONS

FINDINGS:


Current ratio was increasing from FY 2006-07 till 2007-08 but it has been reduced in the FY 2009-10. But company is maintaining good solvency ratio that is 2.34:1 as compared to standard ratio that is 2:1 so company is having good solvency position in the short run.

The company’s Quick ratio is increasing year by year it shows the company has good liquidity position.

The cash ratio of the company has decreased in the last FY it shows company reduced its cash position.

Net working capital ratio is increasing year by year it shows good for the manufacturing company. It is considered as good measure of safety.

The proprietary ratio was increasing in the first 3 FY but in the FY 2009-10 it has been reduced it Shows Company is raising funds from debt.

The debt equity ratio shows that the company was reduced debt for first 3 years but in the financial year 2009-10 it has got increased it shows company’s risk has been increased.

The inventory turnover ratio for the last FY i.e 2000-10 is very high it shows the company is converting inventories into sales very quickly which is good for the company. Due to this the conversion period has been reduced.

The debtors’ turnover ratio is decreased so company is making more credit sales and it is collecting very slowly.

Fixed assets turnover ratio is increased it means the company is utilizing its fixed assets effectively and efficiently but current assets and total assets turnover ratio is been reduced.

The company’s ROI is been reducing year by year which is not good for the stake holders of the company.

The return on equity(ROE) was reducing for first 3 year but in the FY 2009-10 that is last year it has been increased which is good for the share holders.


The gross profit is been reduced year by year but net profit is been increased for first 3 years but remained same in both FY 2008-09 & 2009-10.

Even though company’s sales is increasing the profit remained unchanged it shows the company is following sales maximization policy.

SUGGETIONS:

The company has to use proper collection mechanism to reduce the collection period. It can do it by giving incentives for early payment

Company should not increase capital from Debt which is very risk for the company.

Company’s current assets turnover ratio is been reduced so company has to utilize current assets properly.

Company has to increase ROI. By using profit maximization policy in the long run

CONCLUSION

After doing this project I come to know that Nectar Beverages private limited company has a very sound financial position also I come to know how we can analyze the financial position of the company through various financial ratios. This project also indicates that Nectar Beverages private limited company has both long term and short term solvency. Company has also got good position to survive in the long run.


CHAPTER VI

BIBLIOGRAPHY

1. FINANCIAL MANAGEMENT (FIFTH EDITION)


M.Y.KHAN & P.K.JAIN

2. FINANCIAL MANAGEMENT (NINTH EDITION)

I.M.PANDEY

3. FINANCIAL MANAGEMENT

BALIGAR

4. COMPANY WEBSITE

www.nectarbeveragesdharwad.com


http://www.nectarbeveragesdharwad.com/

sip(mba09008032)

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