FINANCIAL RATIO ANALYSIS @ BIG BAZAAR

ABSTRACT

This technical study explains in detail the analysis of financial statements of a company. It
provides insights into two widely used financial tools, ratio analysis and common size
statements analysis. The objective of this note is to help the reader understand how these
tools should be used to analyze the financial position of a firm. To demonstrate the process
of financial analysis, Big bazaar balance sheet and income statements are analyzed in this
note.

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CHAPTER-I
INTRODUCTION

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 CHAPTER-I
INTRODUCTION

The study of financial ratio analysis is prepared for the purpose of presenting a periodical
review or report by the management of and deal with the state of investment in business and
result achieved during the period under review. They reflect the financial position and
operating strengths or weaknesses of the concern by properly establishing relationship
between the items of the balance sheet and remove statements.

Financial statement analysis can be under taken either by the management of the firm or by
the outside parties. The nature of analysis defers depending upon the purpose of the
analysis. The analyst is able to say how well the firm could utilize the resource of the
society in generating goods and services. Turnover ratios are the best tools in deciding these
aspects.

Hence it is overall responsibility of the management to see that the resource of the firm is
used most efficiently and effectively and that the firm’s financial position is good. Financial
statement analysis does indicate what can be expected in future from the firm.

A research design is the way or the methods or the procedure followed to conduct an
scientific research. Some of the types of research design are exploratory research design,
descriptive research design and causal research design. Each has its own meaning. Causal
research design helps us to know a cause and effect relation between two variables, whereas
exploratory research design is used to find new ideas and insight. Descriptive research
design is a type of research method that is used when one wants to get information on the
current status of a person or an object. in this study there only one company and no new
ideas are to be found. The major focus would be on to know current financial position of
BIG BAZAAR. For this a descriptive type of research design is used.

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OBJECTIVE OF THE STUDY:-

Objective means the main purpose of the report i.e. stating why this report is
prepared and what it wants to say. The only objective of this study is to BIG BAZAAR’S
current financial position with the use of various financial ratios.

SCOPE OF THE STUDY

This study covers the financial performance of the company and activity engaged in
whole financial process of the company.

Financial performance covers the aspects like liquidity, leverage, activity, and
profitability of the company.

This study further compares the financial statement to know the relative financial
position of the company.

Finally, a trend analysis also is carried out to evaluate the trends in financial statements
of the company.

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NEED OF THE STUDY

Financial Performance measures whether the company’s strategy and its

implementation and execution are effectively contributing towards profitability, Liquidity,
Efficiency and Solvency so that the business can be carried out smoothly ensuring success,
growth and bottom line improvement. Hence the present study seeks to make an in-depth
analysis of the performance in retail stores from all perspective.

RESEARCH METHODOLOGY

TIME PERIOD:-

Data from 2018 to 2022 are collected to analyze the performance of the BIG BAZAAR.

DATA COLLECTION METHOD: -

There are two ways one can collect data i.e.

 PRIMARY DATA

 SECONDARY DATA

through primary source (which means generating one’s own information by surveys or
interviews etc. or through secondary source (which are readily available like information in
newspaper, magazines, websites etc.). For this report only secondary data are used as the
basic objective is to study BIG BAZAAR’S financial position, there is no need to conduct a
survey or interviews, which are sources of primary data.

TYPE OF DATA:-

Data included in the balance sheet, profit and loss account and cash flow statement of the
company are used.

METHOD OF ANALYSIS:-
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Various financial ratios are used to evaluate the corporate financial positions along with
various graphs and charts.

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LIMITATIONS OF THE STUDY:-

1) Data is never cent percent correct. So if the data used in the report for evaluation are
incorrect or incomplete the results would be misleading.
2) Alteration of data at source of origin can alter the results.
3) Time constraints.

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 CHAPTER-II
REVIEW OF LITERATURE

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 CHAPTER-II
REVIEW OF LITERATURE

There are a number of studies that address claims about Big bazaar’s impacts on
local labor markets, emphasizing the retail sector. However, we regard much of this
literature as uninformative about the causal impact of Big bazaar on retail employment and
earnings. First, some of the existing work is by advocates for one side or the other in local
political disputes regarding Big bazaar’s entry into a particular market. These studies are
often hastily prepared, plagued by flawed methods and arbitrary assumptions, and sponsored
by interested parties such as Big bazaar itself, its competitors, or union groups(e.g., Bianchi
and Swinney, 2004; Freeman, 2004; and Rodino Associates, 2003), and can hardly be
expected to provide impartial evidence on Big bazaar’s effects. Hence, they are not
summarized here. There is also an academic literature on the impact of big bazaar stores,
focusing on the effects of Big bazaar openings on local employment, retail prices and sales,
poverty rates, and the concentration of the retailing industry, as well as the impact on
existing businesses. This research is limited by three main factors: the restriction of much of
it to small regions (often a single small state); its lack of focus on employment and earnings
effects; and its failure to account for the endogeneity of Big bazaar locations, either at all or
(in our view) adequately. Many of these studies, especially the early ones, focus on the
effects of Big bazaar at the regional level, spurred by the expansion of Big bazaar into a
particular region. The largest number of studies focus on the effects of Big bazaar on retail
businesses and sales, rather than on employment and earnings. The earliest study, which is
typical of much of the research that has followed, is by Stone (1988). He defines the “pull
factor” for a specific merchandise category as the ratio of per capita sales in a town to the
per capita sales at the state level, and examines the changes in the pull factor for different
merchandise categories in host and surrounding towns in Iowa after the opening of Big
bazaar stores. Stone finds that in host towns, pull factors for total sales and general
merchandise (to which all Big bazaar sales belong) rise after the arrival of Big bazaar. Pull
factors for eating and drinking and home furnishing also go up because Big bazaar brings in

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more customers. However, pull factors for grocery, building materials, apparel, and
specialty stores decline, presumably due to direct competition from Big bazaar. He also
finds that small towns surrounding Big bazaar towns suffer a larger loss in total sales
compared to towns that are further away.7 Related results for other regions—which
generally, although not always, point to similar conclusions—are reported in Keon, et al.
(1989), Barnes, et al. (1996), Davidson and Rummel (2000)

Although accounting ratios are used to analyze the company's past financial performance,
they can also be used to establish future trends of its financial performance. As a result, they
help formulate the company's future plans.

Comparing Performance

It is essential for a company to know how well it is performing over the years and as
compared to the other firms of the similar nature. Besides, it is also important to know how
well its different divisions are performing among themselves in different years. Ratio
analysis facilitates such comparison.

Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are: -

 The Balance Sheet

 Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and
owners equity, and so on and the Profit and Loss account shows the results of operations
during a certain period of time in terms of the revenues obtained and the cost incurred

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during the year. Thus the financial statement provides a summarized view of financial
position and operations of a firm

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step
is to arrange the information in a way to highlight significant relationship. The final step is
interpretation and drawing of inference and conclusions. Financial statement is the process
of selection, relation and evaluation.

Features of Financial Analysis

 To present a complex data contained in the financial statement in simple and

understandable form.
 To classify the items contained in the financial statement inconvenient and rational
groups.

 To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

 To know the earning capacity or profitability.

 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest & dividends.
 To make comparative study with other firms.
 To know the trend of business.
 To know the efficiency of mgt.
 To provide useful information to mgt

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Procedure of Financial Statement Analysis

 The following procedure is adopted for the analysis and interpretation of financial
statements:-
 The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find
out whether these plans are properly executed or not.
 The extent of analysis should be determined so that the sphere of work may be
decided. If the aim is find out. Earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if financial position is to be
studied then balance sheet analysis will be necessary.
 The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form.
A relationship is established among financial statements with the help of tools &
techniques of analysis such as ratios, trends, common size, fund flow etc.
 The information is interpreted in a simple and understandable way. The significance
and utility of financial data is explained for help indecision making.
 The conclusions drawn from interpretation are presented to the management in the
form of reports.

Analyzing financial statements involves evaluating three characteristics of a company: its

liquidity, its profitability, and its insolvency. A short-term creditor, such as a bank, is
primarily interested in the ability of the borrower to pay obligations when they come due.
The liquidity of the borrower is extremely important in evaluating the safety of a loan. A
long-term creditor, such as a bondholder, however, looks to profitability and solvency
measures that indicate the company’s ability to survive over a long period of time. Long-
term creditors consider such measures as the amount of debt in the company’s capital
structure and its ability to meet interest payments. Similarly, stockholders are interested in
the profitability and solvency of the company. They want to assess the likelihood of
dividends and the growth potential of the stock.

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Comparison can be made on a number of different bases.

Following are the three illustrations:

1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year
with the same item or relationship in one or more prior years. For example, Sears, Roebuck
and Co. can compare its cash balance at the end of the current year with last year’s balance
to find the amount of the increase or decrease. Likewise, Sears can compare the percentage
of cash to current assets at the end of the current year with the percentage in one or more
prior years. Intra-company comparisons are useful in detecting changes in financial
relationships and significant trends.
2. Industry averages.

This basis compares an item or financial relationship of a company with industry averages
(or norms) published by financial ratings organizations such as Dun & Bradstreet, Moody’s
and Standard & Poor’s. For example, Sears’s net income can be compared with the average
net income of all companies in the retail chain-store industry. Comparisons with industry
averages provide information as to a company’s relative performance within the industry.
3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis
of the published financial statements of the individual companies. For example, Sears’s total
sales for the year can be compared with the total sales of its major competitors such as
Kmart and Wal-Mart. Intercompany comparisons are useful in determining a company’s
competitive position.

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Tools of Financial Statement Analysis

Various tools are used to evaluate the significance of financial statement data. Three
commonly used tools are these:

 Ratio Analysis
 Funds Flow Analysis
 Cash Flow Analysis
Ratio Analysis:
 Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and measurable
factors (quantitative). This means crunching and analyzing numbers from the
financial statements. If used in conjunction with other methods, quantitative analysis
can produce excellent results.

 Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous
years, other companies, the industry, or even the economy in general. Ratios look at
the relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future.

Meaning of Ratio:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick
that measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a
ratio is an expression relating one number to another. It is simply the quotient of two
numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute
figures as “so many times”. As accounting ratio is an expression relating two figures or
accounts or two sets of account heads or group contain in the financial statements.

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Meaning of Ratio Analysis:
Ratio analysis is the method or process by which the relationship of items or group
of items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used both in
trend and static analysis. There are several ratios at the disposal of an analyst but their group
of ratio he would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we
will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.

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

financial ratios of several companies from the same industry. Ratio analysis can provide
valuable information about a company's financial health. A financial ratio measures a
company's performance in a specific area. For example, you could use a ratio of a
company's debt to its equity to measure a company's leverage. By comparing the leverage
ratios of two companies, you can determine which company uses greater debt in the conduct
of its business. A company whose leverage ratio is higher than a competitor's has more debt
per equity. You can use this information to make a judgment as to which company is a
better investment risk.

However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several ratios
are taken as a group.

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Objective of Ratios:

Ratios are worked out to analyze the following aspects of business organization-

A) Solvency-
a. Long term
b. Short term
c. Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing

STEPS IN RATIO ANALYSIS:

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

 To compare the calculated ratios with the ratios of the same firm relating to the pas6t
or with the industry ratios. It facilitates in assessing success or failure of the firm.

 Third step is to interpretation, drawing of inferences and report writing conclusions

are drawn after comparison in the shape of report or recommended courses of action.

 Third step is to interpretation, drawing of inferences and report writing conclusions

are drawn after comparison in the shape of report or recommended courses of action.

Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are certain
pre-requisites, which must be taken care of. It may be noted that these prerequisites are not
conditions for calculations for meaningful conclusions. The accounting figures are inactive

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in them & can be used for any ratio but meaningful & correct interpretation & conclusion
can be arrived at only if the following points are well considered.

1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there
must be sufficient evidence that the data is correct.

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

section analysis otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group of
ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to
calculate a ratio must be related to each other, otherwise there is no purpose of
calculating a ratio.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios are

 Accuracy of financial statements

 Objective or purpose of analysis

 Selection of ratios

 Use of standards

 Caliber of the analysis

Importance 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 & enables the drawing of

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interference regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:

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1] Liquidity position

2] Long-term solvency

3] Operating efficiency

4] Overall profitability

5] Inter firm comparison

6] Trend analysis.

Liquidity position: -
With the help of Ratio analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet
its current obligation when they become due. A firm can be said to have the ability to meet
its short-term liabilities if it has sufficient liquid funds to pay the interest on its short
maturing debt usually within a year as well as to repay the principal. This ability is reflected
in the liquidity ratio of a firm. The liquidity ratio is particularly useful in credit analysis by
bank & other suppliers of short term loans.

Long-term solvency: -

Ratio analysis is equally useful for assessing the long-term financial viability of a
firm. This respect of the financial position of a borrower is of concern to the long-term
creditors, security analyst & the present & potential owners of a business. The long-term
solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s
that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The
leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of
various sources of finance or if it is heavily loaded with debt in which case its solvency is
exposed to serious strain. Similarly the various profitability ratios would reveal whether or
not the firm is able to offer adequate return to its owners consistent with the risk involved.

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Operating efficiency:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint
of management, is that it throws light on the degree of efficiency in management &
utilization of its assets. The various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the
sales revenues generated by the use of its assets- total as well as its components.
Overall profitability:
Unlike the outsides parties, which are interested in one aspect of the financial
position of a firm, the management is constantly concerned about overall profitability of the
enterprise. That is, they are concerned about the ability of the firm to meets its short term as
well as long term obligations to its creditors, to ensure a reasonable return to its owners &
secure optimum utilization of the assets of the firm. This is possible if an integrated view is
taken & all the ratios are considered together.
Inter firm comparison:
Ratio analysis not only throws light on the financial position of firm but also serves
as a stepping-stone to remedial measures. This is made possible due to inter firm
comparison & comparison with the industry averages. A single figure of a particular ratio is
meaningless unless it is related to some standard or norm. One of the popular techniques is
to compare the ratios of a firm with the industry average. It should be reasonably expected
that the performance of a firm should be in broad conformity with that of the industry to
which it belongs. An inter firm comparison would demonstrate the firms position vice-versa
its competitors. If the results are at variance either with the industry average or with those of
the competitors, the firm can seek to identify the probable reasons & in light, take remedial
measures.
Trend analysis:
Finally, ratio analysis enables a firm to take the time dimension into account. In
other words, whether the financial position of a firm is improving or deteriorating over the
years. This is made possible by the use of trend analysis. The significance of the trend
analysis of ratio lies in the fact that the analysts can know the direction of movement, that is,
whether the movement is favorable or unfavorable. For example, the ratio may be low as

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compared to the norm but the trend may be upward. On the other hand, though the present
level may be satisfactory but the trend may be a declining one.

Advantages of Ratio Analysis:

Financial ratios are essentially concerned with the identification of significant

accounting data relationships, which give the decision-maker insights into the financial
performance of a company. The advantages of ratio analysis can be summarized as follows:
 Ratios facilitate conducting trend analysis, which is important for decision making
and forecasting.
 Ratio analysis helps in the assessment of the liquidity, operating efficiency,
profitability and solvency of a firm.
 Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.
 The comparison of actual ratios with base year ratios or standard ratios helps the
management analyze the financial performance of the firm.
Limitations of Ratio Analysis:

Ratio analysis has its limitations. These limitations are described below:
Information problems
 Ratios require quantitative information for analysis but it is not decisive about
analytical output.
 The figures in a set of accounts are likely to be at least several months out of date,
and so might not give a proper indication of the company’s current financial
position.
 Where historical cost convention is used, asset valuations in the balance sheet could
be misleading. Ratios based on this information will not be very useful for decision-
making.
Comparison of performance over time

 When comparing performance over time, there is need to consider the changes in
price. The movement in performance should be in line with the changes in price.

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 When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in
technology.
 Changes in accounting policy may affect the comparison of results between different
accounting years as misleading.
Inter-firm comparison

 Companies may have different capital structures and to make comparison of

performance when one is all equity financed and another is a geared company it may
not be a good analysis.
 Selective application of government incentives to various companies may also
distort intercompany comparison. Comparing the performance of two enterprises
may be misleading.
 Inter-firm comparison may not be useful unless the firms compared are of the same
size and age, and employ similar production methods and accounting practices.
 Even within a company, comparisons can be distorted by changes in the price level.

 Ratios provide only quantitative information, not qualitative information.

 Ratios are calculated on the basis of past financial statements. They do not indicate
future trends and they do not consider economic conditions.Evaluation of efficiency

 Effective tool

CLASSIFICATIONS OF RATIOS:

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

1. Traditional Classification

2. Functional Classification

3. Significance ratios

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1. Traditional Classification

It includes the following.

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

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

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

2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios,
activity ratios and profitability ratios.

3. Significance ratios

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

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

1. Liquidity ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

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LIQUIDITY RATIOS

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

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

 Current ratio

 Quick (or) Acid-test (or) Liquid ratio

 Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as Working capital ratio is a measure of general liquidity
and is most widely used to make the analysis of a short-term financial position (or) liquidity
of a firm.

Current assets
Current ratio = Current Liabilities

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Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors

Prepaid expenses

(b) QUICK RATIO:

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability
of a firm to pay its short-term obligations as & when they become due. Quick ratio may be
defined as the relationship between quick or liquid assets and current liabilities. An asset is
said to be liquid if it is converted into cash with in a short period without loss of value.

Quick or liquid assets

Quick ratio = Current Liabilities

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Components of quick or liquid ratio

QUICK ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

Income tax payable

(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more liquid than inventories,
yet there may be doubts regarding their realization into cash immediately or in time. Hence,
absolute liquid ratio should also be calculated together with current ratio and quick ratio so
as to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets

Absolute liquid ratio = Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50%
(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth
current liabilities in time as all the creditors are nor accepted to demand cash at the same
time and then cash may also be realized from debtors and inventories.

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Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills payable
Short-term advances
Sundry creditors
Interest on Fixed Deposit
Dividend payable
Income tax payable

2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long term
obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed
interest and costs and repayment schedules associated with its long term borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

 PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as equity ratio.
This ratio establishes relationship between share holders funds to total assets of the firm.

Shareholders funds

Proprietory ratio = Total assets

SHARE HOLDERS FUND TOTAL ASSETS

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Share Capital Fixed Assets

Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Reserves & Surplus
Short-term investments
Sundry debtors
Prepaid Expenses

3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly effect the volume of sales. Activity ratios
measure the efficiency (or) effectiveness with which a firm manages its resources (or)
assets. These ratios are also called “Turn over ratios” because they indicate the speed with
which assets are converted or turned over into sales.

 Working capital turnover ratio

 Fixed assets turnover ratio

 Capital turnover ratio

 Current assets to fixed assets ratio

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(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the no. of
times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.

Working capital turnover ratio=cost of goods sold/working capital.

Components of Working Capital

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CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors

Prepaid expenses

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit
earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed
assets. Lower ratio means under-utilization of fixed assets.

Cost of Sales

Fixed assets turnover ratio = Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

30
(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by comparing the
cost of sales or sales with amount of capital invested in the business and not with assets held
in the business, though in both cases the same result is expected. Capital invested in the
business may be classified as long-term and short-term capital or as fixed capital and
working capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated
to study the uses of various types of capital.

Cost of goods sold

Capital turnover ratio = Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means that trading is
slack or mechanization has been used. A decline in the ratio means that debtors and stocks
are increased too much or fixed assets are more intensively used. If current assets increase
with the corresponding increase in profit, it will show that the business is expanding.

Current Assets

Current Assets to Fixed Assets Ratio = Fixed Assets

31
Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Buildings

Bills receivable Plant

Inventories Vehicles

Work-in-progress

Marketable securities

Short-term investments

Sundry debtors

Prepaid expenses

PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is
the engine, that drives the business enterprise.

 Net profit ratio

 Return on total assets
 Reserves and surplus to capital ratio
 Earnings per share
 Operating profit ratio
 Price – earning ratio
 Return on investments

32
NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales and
indicates the efficiency of the management in manufacturing, selling administrative and
other activities of the firm.

Net profit after tax

Net profit ratio= Net sales

Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax

Net Sales = Income from Services

It also indicates the firm’s capacity to face adverse economic conditions such
as price competitors, low demand etc. Obviously higher the ratio, the better is the
profitability.

RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and assets. This
ratio is also known as profit-to-assets ratio. It measures the profitability of investments. The
overall profitability can be known.

Net profit

Return on assets = Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

33
 (c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A very high ratio
indicates a conservative dividend policy and increased ploughing back to profit. Higher the
ratio better will be the position.

Reserves& surplus

Reserves & surplus to capital = Capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated by dividing the
net profits earned by the company and those profits after taxes and preference dividend by
total no. of equity shares.

Net profit after tax

Earnings per share = Number of Equity shares

The Earnings per share is a good measure of profitability when compared with EPS of
similar other components (or) companies, it gives a view of the comparative earnings of a
firm.

(e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and
other operating expenses on the one hand and the sales on the other.

34
 Operating cost

Operation ratio = Net sales

However 75 to 85% may be considered to be a good ratio in case of a manufacturing under

taking.

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

Operating profit = Net sales - Operating cost

Operating profit

Operating profit ratio = Sales

(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and earnings per share.
The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether (or) not to buy shares in a
particular company.

Generally, higher the price-earning ratio, the better it is. If the price earning ratio falls, the
management should look into the causes that have resulted into the fall of the ratio.

35
 Market Price per Share

Price – Earning Ratio = Earnings per Share

Capital + Reserves & Surplus

Market Price per Share = Number of Equity Shares

Earnings before Interest and Tax

Earnings per Share = Number of Equity Shares

(g) RETURN ON INVESTMENTS

Return on share holder’s investment, popularly known as Return on investments (or) return
on share holders or proprietor’s funds is the relationship between net profit (after interest
and tax) and the proprietor’s funds.

Net profit (after interest and tax)

Return on shareholder’s investment = Shareholder’s funds

The ratio is generally calculated as percentages by multiplying the above with 110.

36
Purpose of Ratio Analysis:

1] To identify aspects of a business’s performance to aid decision making

2] Quantitative process – may need to be supplemented by qualitative factors to get a

complete picture.

3] 5 main areas-

 Liquidity – the ability of the firm to pay its way

 Investment/shareholders – information to enable decisions to be made on the extent
of the risk and the earning potential of a business investment
 Gearing – information on the relationship between the exposure of the business to
loans as opposed to share capital
 Profitability – how effective the firm is at generating profits given sales and or its
capital assets
 Financial – the rate at which the company sells its stock and the efficiency with
which it uses its assets
Role of Ratio Analysis:

It is true that the technique of ratio analysis is not a creative technique in the sense that it
uses the same figure & information, which is already appearing in the financial statement.
At the same time, it is true that what can be achieved by the technique of ratio analysis
cannot be achieved by the mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of
performance, either individually or in relation to those of other firms in the same industry.
The process of this appraisal is not complete until the ratio so computed can be compared
with something, as the ratio all by them do not mean anything. This comparison may be in
the form of intra firm comparison, inter firm comparison or comparison with standard ratios.
Thus proper comparison of ratios may reveal where a firm is placed as compared with
earlier period or in comparison with the other firms in the same industry.

37
Ratio analysis is one of the best possible techniques available to the management to impart
the basic functions like planning & control. As the future is closely related to the immediate
past, ratio calculated on the basis of historical financial statements may be of good
assistance to predict the future. Ratio analysis also helps to locate & point out the various
areas, which need the management attention in order to improve the situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e.
liquidity, solvency, activity, profitability & overall performance, it enables the interested
persons to know the financial & operational characteristics of an organisation & take the
suitable decision.

Fund Flow Analysis:

Fund may be interpreted in various ways as

(a) Cash,

(b) Total current assets,

(c) Net working capital,

(d) Net current assets.

For the purpose of fund flow statement the term means net working capital. The flow of
fund will occur in a business, when a transaction results in a change i.e., increase or
decrease in the amount of fund.

According to Robert Anthony the funds flow statement describes the sources from which
additional funds were derived and the uses to which these funds were put.

In short, it is a technical device designed to highlight the changes in the financial condition
of a business enterprise between two balance sheets.

38
Different names of Fund-Flow Statement
 A Funds Statement
 A statement of sources and uses of fund
 A statement of sources and application of fund
 Where got and where gone statement
 Inflow and outflow of fund statement
Objectives of Fund Flow Statement
The main purposes of FFS are:
 To help to understand the changes in assets and asset sources which are not readily
evident in the income statement or financial statement.
 To inform as to how the loans to the business have been used.
 To point out the financial strengths and weaknesses of the business.
Format of Fund Flow Statement
Sources Applications
Fund from operation Fund lost in operations

Non-trading incomes Non-operating expenses

Issue of shares Redemption of redeemable preference share

Issue of debentures Redemption of debentures

Borrowing of loans Repayment of loans

Acceptance of deposits Repayment of deposits

Sale of fixed assets Purchase of fixed assets

Sale of investments (Long Term) Purchase of long term investments

Decrease in working capital Increase in working capital

39
Steps in Preparation of Fund Flow Statement.
1. Preparation of schedule changes in working capital (taking current items only).
2. Preparation of adjusted profit and loss account (to know fund from or fund lost in
operations).
3. Preparation of accounts for non-current items (Ascertain the hidden information).
Preparation of the fund flow statement.

Cash Flow Statement:

Cash is a life blood of business. It is an important tool of cash planning and control. A firm
receives cash from various sources like sales, debtors, sale of assets investments etc.
Likewise, the firm needs cash to make payment to salaries, rent dividend, interest etc.

Cash flow statement reveals that inflow and outflow of cash during a particular period. It is
prepared on the basis of historical data showing the inflow and outflow of cash.

Objectives of Cash Flow Statement

1. To show the causes of changes in cash balance between the balance sheet dates.
2. To show the actors contributing to the reduction of cash balance inspire of
increasing of profit or decreasing profit.
Uses of Cash Flow Statement
1. It explaining the reasons for low cash balance.
2. It shows the major sources and uses of cash.
3. It helps in short term financial decisions relating to liquidity.
4. From the past year statements projections can be made for the future.
5. It helps the management in planning the repayment of loans, credit arrangements
etc.
Steps in Preparing Cash Flow Statement
1. Opening of accounts for non-current items (to find out the hidden information).
2. Preparation of adjusted P&L account (to find out cash from operation or profit, and
cash lot in operation or loss).
3. Comparison of current items (to find out inflow or outflow of cash).

40
 4. Preparation of Cash Flow Statement.
To preparing Account for all non-current items is easier for preparing Cash Flow Statement.

Cash from operation can be prepared by this formula also.

Net Profit + Decrease in Current Assets - Increase in Current Assets

OR

Increase in Current Liabilities Decrease in Current Liabilities.

Usefulness of the Statement of Cash Flows

The information in a statement of cash flows should help investors, creditors, and others
assess the following aspects of the firm’s financial position.

 The entity’s ability to generate future cash flows.

By examining relationships between items in the statement of cash flows, investors
and others can make predictions of the amounts, timing, and uncertainty of future
cash flows better than they can from accrual basis data.

 The entity’s ability to pay dividends and meet obligations.

If a company does not have adequate cash, employees cannot be paid, debts settled,
or dividends paid. Employees, creditors, and stockholders should be particularly
interested in this statement, because it alone shows the flows of cash in a business.
 The cash investing and financing transactions during the period.
By examining a company’s investing and financing transactions, a financial
statement reader can better understand why assets and liabilities changed during the
period.

The reasons for the difference between net income and net cash
Net income provides information on the success or failure of a business enterprise.
However, some are critical of accrual basis net income because it requires many estimates.
As a result, the reliability of the number is often challenged. Such is not the case with cash.
Many readers of the statement of cash flows want to know the reasons for the difference

41
between net income and net cash provided by operating activities. Then they can assess for
themselves the reliability of the income number.
In summary, the information in the statement of cash flows is useful in answering the
following questions.
 How did cash increase when there was a net loss for the period?
 How were the proceeds of the bond issue used?
 How were the expansions in the plant and equipment financed?
 Why were dividends not increased?
 How was the retirement of debt accomplished?
 How much money was borrowed during the year?
 Is cash flow greater or less than net income?
Cash Flow Statement

Inflow of Cash Amount Outflow of cash Amount

Redemption of preference
Opening cash balance *** ***
shares

Cash from operation *** Redemption of debentures ***

Sales of assets *** Repayment of loans ***

Issue of debentures *** Payment of dividends ***

Raising of loans *** Pay of tax ***

Collection from debentures *** Cash lost in debentures ***

Refund of tax *** Closing cash balance ***

Cash from operation can be calculated in two ways:

Cash Sales Method
Cash Sales – (Cash Purchase + Cash Operation Expenses)
Net Profit Method
It can be prepared in statement form or by Adjusted Profit and Loss Account.
42
CHAPTER-III
INDUSTRY PROFILE
&
COMPANY PROFILE

43
 INDUSTRY PROFILE

Retail industry largest industry, accounting for are 11% of the country’s GDP and
around 8% of the employment retail industry in India is at the cross roads. It has emerged as
one of the most dynamic and fast paced industry with several players entering the market,
but because of the heave intial investment required break even is difficult to achieve and
many of these players have not tasted success so far.

However the future is promising; the market is growing, government policies are becoming
more favorable and emerging technologies are facilitating operations. Retailing in India is
gradually inching its way towards becoming the next boom industry. The whole concept of
shopping has altered in terms of format and consumer buying behavior ushering in a
revolution in shopping in India.

SOMEKEY FACTORS

 RETAIL IS India’s largest industry accounting for over 11% of the country’s GDP
and around 8%of the employment.
 The market size of th Indian retail industry is about US $313 billion.
 Retailing in India is gradually inching its way towards becoment the next boom
industry.
 A large young working population with average age of 24 years

INDIA’S CONSUMPTION COSMO

During the past decade, private final consumption expenditure has been the key driver of
economic growth in India.

44
 Growth
domestic
product
$973billio
n

Capital
Government Private final Formation
spending consumption $273 billion
$108 billion Expenditure (29%)
(11%) $592billion
(60%) (2922

Utility payments Consumption

Fuel transportation spending
Electricity, water $350 billion
communication
Expenditure on
medical &
education
$242billion

The $ 350 billion consumption spending provides the single biggest business opportunities
in India and is divided into sa,e key categories led by food, fashion and home products

45
 Fashion
Accessories
Fashion Consumer
5.5%
Accessories Durable
$225b
5.5% 4%
$225b $14b
Fashion
Accessories
5.5% Furniture
Fashion
$225b 3.4%
Accessories
$12b
5.5%
$225b
Fashion
Accessories
Fashion
5.5%
Accessories
$225b
5.5%
Fashion
$225b
Accessories Fashion
5.5% Accessories
$225b 5.5%
$225b

COMPANY PROFILE : Pantaloon Retail (India) Limited, is India’s leading retailer that
operates multiple retai formats in both the value and lifestyle segment of the Indian
consumer market. Headquartered in Mumbai (Bombay), the company operates over 13

46
million square feet of retail, has over 11000 stores across 71 cities in India and employs
over 30,000 people.

The company’s leading formats include pantaloons, a chain of fashion outlets, Big Bazaar,
a uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look,
touch and feel of Indian bazaars with aspects of modern retail choice, convenience and
quality and central, a chain of seamless destination malls. Some of its formats include brand
factory, blue sky, all top 11 stars and sitara. The company also operates an online portal,
futurebazaar.com.

A subsidiary company, Home solutions Retail (India)limited, operate Home Town, a large –
format home solutions store, collection I, selling home furniture products and e-zone
focused on catering to the consumer electronics segment.

Pantaloon Retail was recently awarded the international retailer of the year 2007 by the US
– based National Retail Federation (NRF) and the Emerging market retailer of the year 2007
at the world retain congress held in Barcelona.

Pantaloon Retail is the flagship company of Future Group, a business group.

Catering to the entire Indian consumption space.

THE FUTURE GROUP AS GIVEN BY THE GENERAL MANAGER:

“Future Bazaar.com is owned and operated by Future Bazaar India Ltd. (FBIL).

FBIL is a part of the Future Group, India’s largest retain conglomerate. FBIL is the e-
commerce arm of the Future Group. The company was incorporated in 2018 and began
business in 2022.

As part of India’s largest retail chain, we enjoy the benefits of buying in bulk for the entire
group. Out aim is to get you a great range of products at great prices.

Core competency of the business… what makes us different from other.!!

47
 A choice of more than 20,000 products.
 Delivery across more than 1600 cities and towns in India covering around 17,000 pin
codes.
 Fast deliveries – tie ups with world leaders in logistics & transportation services
 A dedicated customer care helpline for any queries.
 Always offering Manufacturer’s guarantee as opposed to seller’s guarantee, which
most of the other online shopping sites offer.
 Aggressive prices –FutureBazaar.com has the benefit of leveraging the sourcing
network of the Future Group’s retail chains. This sourcing network straddles a wide
range of product requirements, thus being able to offer us economies of scale thereby
– unbelievable prices to it’s customers.
 Unmatched selection of products an Brands - we have more than 20,000 products
which crates the flexibility to offer a large range of choices to customers. We also
have partnerships with most of the brands available in the country, which allows us
to get the latest in the range to our customers. We have been able to create some
major popularity ripples with our corporate clients with products like mobiles,
electronics, laptops, MP3 players, T-shirts, Gift Vouchers and so on.
 Seamless end-to-end Logistics solution – we pride ourselves in having built an end-
to-end logistics solution, right from stocking, dispatching, and delivery confirmation
up to post-sales support. Our back-end infrastructure enables us to service around
16,000 pin codes across India.
 Dedicated Customer Care for online customers as well as corporate clients – We
have a dedicated team straddling client servicing, sourcing, logistics and customer
service for all our customers.
 “our Brand Association” – Most importantly out parentage & association with
humungous retail brands like Big Bazaar, Pantaloons, Central and many more, lends
tremendous amount of trust jj& credibility to our end consumers.”

48
ABOUT FUTURE GROUP

Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of
India’s leading business houses with multiple business spanning across the consumption
space. While retai forms the core business activity of Future Group, group subsidiaries are
present in consumer finance, capital, insurance, leisure and entertainment, brand
development, retail, real estate development, retail media and logistics.

Led by its flagship enterprise, Pantaloon Retail, the group operates over 12 million
square feet of retail space in over 63 cities and towns and 65 rural locations across India.
Pantaloon Retail was awarded the International Retailer of the year – 2007, by the US-based
National Retail Federation, the largest retail trade association and the Emerging Market
Retailer of the year 2007 at the World Retail Congress in Barcelona.

Future Group believes in developing strong insights on Indian consumers and

building businesses based on Indian ideas, as espoused in the group’s core value of ‘Indian
ness’. The groups corporate credo is, ‘Rewrite rules, Retain values’ More about Future
Group.

The FutureBazaar.com’ promise as given by the General Manager:

Manufacturer’s warranties on all products
Future Bazaar sells only original products from authorized dealers; so all applicable
products carry the original manufacturer’s warranty. Customers can visit any of the
authorized service centers of the manufacturer if required. The invoice accompanying the
product is your warranty document, so please preserve it.
Guaranteed Delivery
Future bazaar guarantees to deliver the exact product you selected, without defects.
In case you have received a different product, or if the product was damaged in
transit, please let us know and we will ensure that we replace the product or ensure
that your money is refunded. Please note that delivery times vary according to
products to products 95%of our deliveries take place with in the committed time.

49
 Secure Payments

We are committed to encuring that no payment misuse happens, so we work with bank
and payment gateways to ensure that your information is protected. Payments are protected
both by us and by the policies of your bank, and the chances of fraud in these channels are
actually very low.

We also have a Risk Management team that scrutinizes all payments to ensure that there
are no fraudulent transactions. Our office address is also available for anyone who wishes to
contact us in person. moreover, being part of India’s largest retail company with a presence
all over India, we are omnipresent.

Our simple 16-Days Return Policy – No questions asked!

If you have purchased something at FutureBazaar.com ad the product did not meet your
expectations or does not fit your needs, then you can return the product to us, no questions
asked, as long as it is in its original packaging and accompanied by its invoice. Just contact
our Customer Care and we’ll arrange to pick up the product from your home – simple.

Prompt Customer Support

Our Customer Care is manned by dedicated personnel, who can take decisions and
resolve your problems. They are empowered to solve your problems and are aware of the
processes and means to handle them. In case they cannot solve the problem at their end, they
will trigger the required action on your half or advise you the best possible method to a
successful fulfillment of all your queries/issues. Be assured that when you call us, your call
is being taken seriously.

Values:

o Indian ness: Confidence in ourselves.

o Leadership: To be a leader, both in thought and business
o Respect & Humility: To respect every individual and be humble in our conduct.
o Introspection: Leading to purposeful thinking.

50
 o Openness: To be open and receptive to new ideas, knowledge and information.
o Valuing and Nurturing Relationships: To build long term relationships.
o Simplicity & positivity: Simplicity and positivity in our thought, business and action.
o Adaptability: To be flexible and adaptable, to meet challenges.

Mission;

We share the vision and belief that our customers and stakeholders shall be served
only by creating and executing future scenarios in the consumption space leading to
economic development. We will be the trendsetters in evolving delivery formats, creating
retail realty, making consumption affordable for all customer segment.

We shall infuse Indian brands with confidence and renewed ambition. We shall be
efficient, cost – conscious and committed to quality in whatever we do.

We shall ensure that our positive attitude, sincerity, humilityand united

determination shall be the driving force to make us successful.

Sone Ki Chidiya

When the Mughals first came to India they were drawn by the lure of her fabulous
wealth – India was known as the “Sone Ki Chidiya”, literally –“ “The Golden Bird”.

According to economic historian Angus Maddison in his book the World Economy:
A Millennial Perspective, India had the world’s largest economy in the 1 st century and 12
th century , with a 33% share of world GDP in the 1 st century and 29% in 1100 CE.
During 1700 AD, Mughal era, India’s share was 24%, more than the whole of Western
Europe. It came down to 3.8% in 1950s. paul Kennedy, in this highly regardd book, The
Rise and Fall of the Great Powers: Economic Change and Military conflict from 1600 to
2000 estimates that in 1750.

India’s share o the world trade was nearly 25 percent. It came down to 0.5% in the
1960s and now stands at around 1..5%.

51
 The Indian economy is once again at the centre of the global attention. As domestic
consumption drives economic growth in India, Future Group hopes to play a pivotal role in
bringing back the Sone Ki Chidiya.

Future Ventures:

Future Ventures, seeks to promote and participate in innovative and emerging

business ventures in India. The company intends to play a role in powering
entrepreneurship, by promoting or participating in diverse business activities, primarily in
“consumption-led” sectors in the country, which it defines as sectors whose growth and
development will be determined primarily by the growing purchasing power of Indian
consumers and their changing tastes, lifestyle and spending habits.

The company will also participate in businesses where it exercises control or

influence, and can add value as active shareholders, by utilizing the experience and
knowledge of the Future Group, and specifically its parent, pantaloon Retail ltd.

Meet India’s king of Retail

Pantaloon’s Kishore Biyani has become India’s largest retailer, but still has several
aces up his John Miller shirtsleeves.

In India’s chaotic markets, Ishore Biyani is the unchalleged king of retail. He has the
knack of catchings rivals off-guard and striking where it hurts most.

52
 And now that he’s set himself the task of tetaining control of the largest retail space
in the country, he won’t let anyone – suppliers or international promoters included – catch
him slacking.

The latest to face the wrat of the 43-year-old is South African hyper market Shoprite,
which opened shop in Mumbai (images) last month through a franchise agreement with
local company Normal Lifestyle.

The hypermarket began retailing products from big boys Nestle (Get Quote),
Unilever and Procter & Gamble at consumer discounts of 20-30 percent, loweer than even
Biyani’s his Big Bazaar Stores.

Instead of chewing his nails, Biyani turmed confrontationist, asking why the
multinationals were offering Shoprite better prices, even withdrawing Nestle products from
his stores when the company did not respond.

Two days later the Nestle products were back, but not before the company had
clarified its stance. Says Biyani, “shoprite is involved in predatory pricing. There are rules
against this in every part of the world.”

But as a result of his tough stance, the three MNC’s have asked Shoprite to roll back
the offers or face withdrawal of supplies, he say and he was proved right when the Kolkata
Pantaloon store became a raging success and Biyani stepped on to the turf as a super retailer.

53
 Other professionals have wondered where Biyani picked up the tricks of the retailing
trade. Some has learned from his own mistakes, he admits. Others he picked up from the big
boys of international retail.

“I read every book on Sam Walton, Macy’s, Marks & Spencer and management
gurus like Tom Peters whose book ‘Reimagine’ impressed me.” Even now he reads a
management book every fortnight – Stephen Covey, Robert Kaplanor James Collins.

But unusual as it might seem, he also made it a point to stay away from these stores.
The reason: “by going to a Wal-Mart or a Macy’s, you could get overwhelmed into thinking
that was the best model and stop learning,” he says.

Mr.Gopikishan Biyani, Whole time Director

Gopikishan Biyani is a commerce graduate and has more than twenty years of experience in
the textile business.

Mr.Rakesh Biyani, Whole time Director

Rakish Biyani is a commerce graduate and has been actively involved in category
management, retail stores operations, IT and exports. He has been instrumental in the
implementation of the various new retail formats.

Mr.Vijay Kumer Chopra, Independent Director

V.K Chopra is a fellow member of The Institute of chartered Accountants of India (ICAI)
by profession and is a certified Associate of Indian Institute of Bankers (CAIIB). His
banking career spans over 31 years and he has served senior management position in Central
Bank of Commerce, SIDBI Corporation Bank and SEBI.

INTRODUCTION TO BIG BAZAAR

 A chain of shopping malls in Indian currently with 31 outlets owned by Kishore

Biyani Pantaloon group.
 Big Bazaar is not just hyper market.
 Provides the best products at the best price.
54
  Reflects the look and feel of Indian bazaars at their modern outlets.
 Allover India, Big Bazaar attracts a few thousands customers on any regular day.

BIG BAZAAR LOGO:

Big Bazaar – is se sasta aur accha kahin nahi

Type – subsidiary of Pantaloon Group

Founded – 2001

Head quarters – Jogeshware, Mumbai, India

Industry – retail

Products – department stores

Parents – Future Group

Website – http://www.bigbazaar.com

55
CHAPTER-IV
DATA ANALYSIS
&
INTERPRITATION

56
 CHAPTER-IV

DATA ANALYSIS & INTERPRITATION

RATIO ANALYSIS

1) Profitability ratio:-

The name says it all. It shows the profitability of the firm.

Every corporate house or firm needs to earn profit not only to survive but also to expand or
diversify. Not only this, profit needs to be earned to give returns to investors, payment to
creditors, salaries and wages to the employees, and the list goes on.

This class of ratio are used to evaluate the company’s ability to generate excess revenue
over expenses

A) Gross profit ratio:-

GP ratio is a ratio which shows relationship between sales and gross profit. It is a very
effective tool for finding the operational performance of the company.

This can be found out by dividing gross profit by net sales.

GPR = GROSS PROFIT /NET SALES *110

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET SALES 401.09 408.21 421.85 446.95 496.17
GROSS 97.03 113.56 116.56 121.82 127.67
PROFIT
GP RATIO 24.19% 25.37% 25.26% 25.02% 23.51%

57
 600

500

400
NET SALES
300 GROSS PROFIT
GP RATIO
200

100

0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis:-

By viewing this we see that the gross profit ratio increases from year 2017 to 2018 but then
this ratio decreases inspite of increase in gross profit.This means that gross profit increases
although ratio decreases.

B) Net Profit Ratio:-

NP ratio is an another tool to measure the profitability of the firm. It is an indicator about
how efficient is the firm is and well it is able to control it’s costs. It’s an indicator about
how much revenues are converted into actual profits by the company.

This can be calculated by dividing profit after tax by net sales.

NPR = NPAT / NET SALES *110

58
 (IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
PAT 14.25 15.41 16.36 16.77 17
NET SALES 401.09 408.21 421.85 446.95 469.17
NP RATIO 3.30% 3.53% 3.64% 3.53% 3.62%
500
450
400
350
300 PAT
250 NET SALES
200 NP RATIO
150
100
50
0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis: -

By analyzing this graph we see that profit margin increase year by year except year 2022
that mean company achieve good profit from business and company tries to maintain this by
increasing net sales .
2) Liquidity ratio:-
Lteiquidity ratios are those ratios which show the company’s ability to meet the company’s
short term obligations. These ratios help to measure the ability of the firm to pay back their
obligations when they become due.
A) Current ratio:-
This is a balance sheet financial performance ratio which shows whether the company has
the ability or assets to repay their current liabilities over the next one year.if the ratio is more
than1:1 that means company has those assets to repay their current liabilities, if less
opposite would be the situation.
It could be found out by dividing current assets by current liabilities.

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CURRENT RATIO = CURRENT ASSET / CURRENT LIABLITIES

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
CURRENT 48.95 48.33 51.89 54.98 59.94
ASSET
CURRENT 55.39 55.56 58.48 62.30 71.82
LIABLITIES
CURRENT 0.88 0.87 0.89 0.88 0.83
RATIO

80

70

60

50 CURRENT ASSET
CURRENT LIABLITIES
40
CURRENT RATIO
30

20

10

0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis:-

We say that current ratio is high till year 2019 but in year 2022 its become too much low
mainly due to its current liability increase and also its asset increase with that. So company
believes in tries to maintains that ratio.

60
B) Acid test ratio:-

Another type of liquidity ratio, which measures short term liquidity position of the company
is acid test ratio also known as quick ratio.

This ratio suggest whether the firm has enough short term assets to cover its short term
liabilities without selling it’s inventory. This means the company having enough backing to
pay current assets almost immediately.

For this liquid assets are divided by liquid liabilities, where liquid assets includes all current
assets except for inventory and prepaid expenses, because they cannot be converted into
cash immediately for payments, while liquid liabilities include all current liabilities except
for bank overdraft and cash credit because they are not to be paid immediately.

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QUICK OR ACID TEST RATIO = LIQUID ASSET / LIQUID LIABILITIES

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
LIQUID 15.44 16.18 16.57 15.27 17.15
ASSET
LIQUID 55.39 55.56 58.48 62.30 71.82
LIABILITIE
S
QUICK OR 0.26 0.27 0.27 0.23 0.22
ACID TEST
RATIO

80

70

60

50 LIQUID ASSET

40 LIQUID LIABILITIES
30
QUICK OR ACID TEST
20 RATIO
10

0
2011-12
2010 2012-13
2011 2013-14
2012 2014-15
2013 2015-16
2014

Analysis: -

Quick ratio is increasing till the year 2018, then it has shown a declining trend. It means that
quick assets is not increasing by the same percentage as the current liabilities.

62
Turnoverratios:-

Accounting ratios that measure a firm's ability to convert different accounts within their
balance sheets into cash or sales. Companies would like to convert those accounts into cash
as fast as possible. This type of turnover ratios shows if they are able to do so or not.

Inventory turnover ratio:-

In accounting, the Inventory turnover is a measure of the number of times inventory is sold
or used in a time period such as a year. The equation for inventory turnover equals the Cost
of goods sold divided by the average inventory. Inventory turnover is also known as
inventory turns, stock turn, stock turns, turns, and stock turnover.

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INVENTORY TURNOVER RATIO = COGS/AVGRAGE STOCK

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2022-
COGS 297.32 297.5 307.65 327 343.99
AVERAGE
STOCK 34.84 33.84 34.74 38.52 42.26
INVENTORY
TURNOVER
RATIO 8.53 8.79 8.86 8.49 8.15

400

350

300 COGS
250
AVERAGE STOCK
200

150 INVENTORY
TURNOVER RATIO
100

50

0
2011-12
2010 2012-13
2011 2013-14
2012 2014-15
2013 2015-16
2014

Analysis:-

The inventory turnover ratio is not consistent from the year 2018 to the year 2022. From
the year 2018 to the year 2019, it has shown an increasing trend, indicating that number of
times the inventory is sold or used has increased. But it has declined in 20221 and 2022
showing that number of times the inventory sold or used has decreased.

A) Fixed asset turnover ratio:-

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Fixed asset turnover is the ratio of sales to value of fixed assets, indicating that how well the
company uses its fixed assets to generate sales.

Higher the ratio, the better it is because it would mean that the company has less amount of
money tied up in fixed assets for each unit of sales revenue.

A declining ratio indicates that the company has overinvested in plant, machinery, or other
fixed assets.

65
FIXED ASSETS TURNOVER RATIO = NET SALES / FIXED ASSETS

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET SALES 401.09 408.21 421.85 446.95 496.17
FIXED 284.96 340.12 357.49 371.63 390.56
ASSETS
FIXED 1.41 1.20 1.18 1.20 1.27
ASSETS
TURNOVE
R RATIO

Analysis:-

This ratio has declined all these years except 2022 where it has shown a bit of improvement.
This ratio shows that how much of sales is generated by using fixed assets.

B) Current assets turnover ratio:-

It indicates the companies capability of generating sales by effectively using its current
assets.

Higher current ratio is good for the company as it indicates that the company is able to
generate maximum amount of sales revenue with minimum amount of capital. Vice versa
would be the case if the ratio is low.
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CURRENT ASSET TURNOVER RATIO = NET SALES / CURRENT ASSET

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET SALES 401.09 408.21 421.85 446.95 496.17
CURRENT
48.95 48.33 51.89 54.98 59.94
ASSET
CURRENT 8.19 8.45 8.14 8.14 8.28
ASSET
TURNOVE
R RATIO

600

500

400 NET SALES

300 CURRENT ASSET

200
CURRENT ASSET
TURNOVER RATIO
100

0
2011-12
2010 2012-13
2011 2013-14
2012 2014-15
2013 2015-16
2014

Analysis: -

Current Assets Turnover Ratio is increasing in one year and decreasing in another year and
so forth. This means that the amount of sales generated by current assets is increasing in one
year and then decreasing in another and so forth.

C) Assets turnover ratio.

Asset turnover is a financial ratio that measures the efficiency of a company's use of
its assets in generating sales revenue or sales income to the company.

67
ASSET TURNOVER RATIO = NET SALES / AVGRAGE ASSET

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
SALES 401.09 408.21 421.85 446.95 496.17
AVGRAGE
ASSETS 173.49 196.42 180.36 189.36 198.26
ASSET
TURNOVE
R RATIO 2.45 2.08 2.34 2.36 2.50

500
450
400
350
300 SALES
250 AVGRAGE ASSETS
200 ASSET TURNOVER RATIO
150
100
50
0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis: -

The company is able to increase its assets turnover ratio over the years. This increasing
trend in ratio shows increase in sales generated by increase in overall assets of the company.

D) Working capital turnover ratio:

Working capital means current assets minus current liabilities. The working capital turnover
ratio is used to analyze the relationship between the money used to fund operations and the
sales generated from these operations. The higher the working capital turnover, the better
because it means that the company is generating a lot of sales compared to the money it uses
to fund the sales.

68
WORKING CAPITAL TURNOVER RATIO = NET SALES / WORKING CAPITAL

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET SALES 401.09 408.21 421.85 446.95 496.17
WORKING 22.89 27.84 23.53 23.79 21.9
CAPITAL
WORKING 17.52 15.66 17.93 18.79 22.66
CAPITAL
TURNOVE
R RATIO

600

500

400 NET SALES

300 WORKING CAPITAL

200
WORKING CAPITAL
TURNOVER RATIO
100

0
2011-12
2010 2012-13
2011 2013-14
2012 2014-15
2013 2015-16
2014

Analysis

69
Working capital turnover ratio has increased since the year 2019. It indicates that lot of sales
is generated as compared to the money used in funding the sales.

3) Solvency ratio:-

Solvency ratio’s measures company ability to meet its long term obligations. It provides an
assessment of the likelihood of a company to continue congregating its debt obligations.

A) Debt equity ratio =

It is a long term solvency ratio which indicates how much part of the capital is provided by
shareholders and how much part by creditors.

Also termed as external internal ratio, a 1:1 ratio indicates creditors and shareholders have
equal contribution in total capital.

A ratio higher than 1:1 means the portion of assets contributed by shareholders is more,
which creditors like because it gives more creditability of their money to them.

A ratio lower than 1:1 meansthe contribution of assets by creditors is more, which
shareholders like to get money from creditors.

70
DEBT EQUITY RATIO = DEBT / SHAREHOLDER’S FUND

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
DEBT 40.56 46.62 55.17 64.94 49.03
SHAREHOLDER’S 67.48 73.24 71.66 76.17 82.26
FUND
DEBT EQUITY 0.60 0.64 0.77 0.85 0.60
RATIO

90
80
70
60
50 DEBT
40 SHAREHOLDER’S FUND
30 DEBT EQUITY RATIO
20
10
0
2011-12 2012-13 2013-14 2014-15 2015-16
2010 2011 2012 2013 2014

Analysis:-

Debt equity ratio has increased from the year 2018 to the year 2020 indicating that outside
creditors for the company has increased over the years. But in the year 2022, this ratio has
declined showing decrease in outside creditors.

71
PROPRIETARY RATIO = TOTAL ASSETS / PROPRIETORS FUND

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
PROPRIETORS
65.29 70.75 68.54 71.32 76.34
FUND
TOTAL 333.91 388.44 409.38 426.61 450.5
ASSETS
PROPRIETARY 0.196 0.182 0.177 0.177 0.179
RATIO
500
450
400
350
300
PROPRIETORS FUND
250
TOTAL ASSETS
200
PROPRIETARY RATIO
150
100
50
0
2011-12
2010 2012-13
2011 2013-14
2012 2014-15
2013 2015-16
2014

Analysis: -

This ratio has declined from the year 2018 to the year 2022. It indicates that the capital
structure of the company has more of debts as compared to proprietor’s fund.

B) Return on asset ratio:-

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings.

It indicates number of dollar earned on each dollar of asset.

Higher ratio means the company is earning more dollars per dollar of asset.

72
RETURN ON ASSET RATIO = NET PROFIT AFTER TAX / NET ASSETS

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET PROFIT 14.25 15.41 16.36 16.77 17
AFTER TAX
NET ASSETS 173.49 196.42 180.36 189.36 198.26
ROA RATIO 8.11% 7.34% 8.52% 8.33% 8.57%

250

200

150 NET PROFIT AFTER TAX

NET ASSETS
100 ROA RATIO

50

0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis:

Except the year 2018, it has shown an increasing trend. It shows that earning of company is
more as compare to each unit of asset.

C) Return on Equity (ROE)

Return on equity (ROE) measures the rate of return on the ownership interest (shareholders'
equity) of the common stock owners. It measures a firm's efficiency at generating profits
from every unit of shareholders' equity (also known as net assets or assets minus liabilities).
ROE shows how well a company uses investment funds to generate earnings growth. ROEs
between 16% and 20% are generally considered good.

73
RETURN ON EQUITY= PAT/AVG. SHAREHOLDER EQUITY

(IN $ BILLION)
2017-18 2018-19 2019-20 2020-21 2021-22
NET PROFIT
AFTER TAX 14.25 15.41 16.36 16.77 17.00
AVG.
SHAREHOLDER
EQUITY 66.54 70.36 72.45 73.96 79.26
ROE RATIO 19.91% 20.48% 21.20% 21.32% 21.45%

90
80
70
NET PROFIT AFTER TAX
60
50 AVG. SHAREHOLDER
EQUITY
40
ROE RATIO
30
20
10
0
2011-12
2011 2012-13
2012 2013-14
2013 2014-15
2014 2015-16
2015

Analysis: It has shown an increasing trend from the year 2018 till the year 2022. It indicates
that company’s efficiency in generating profit from shareholder’s equity has increased all
these years.

74
CHAPTER-V
FINDINGS

SUGGESTIONS

CONCLUSION

75
FINDINGS

1. The current ratio has shown non fluctuating trend as 1.15, 1.17, 1.38 and 1.23 during 2018,
2019, 2020, 2021 and 2022.

2. The quick ratio is also in non fluctuating trend throughout the period 2018– 19 resulting as
0.67, 0.69, 0.75, 0.78.The Company believes in high profitability and low liquidity position.

3. The proprietary ratio has shown a non fluctuating trend. The proprietary ratio is decreased
compared with the last year.

4. The stock working capital ratio decreased from 3.21 to 1.39 in the year 2018 – 19.

5. The capital gearing ratio is decreased form 2018 – 14(0.17, 0.16 and 0.82) and increased in
2022 to 0.85.

6. The debt-equity ratio increased from 0.44-0.59 in the year 2018-19.

7. The gross profit ratio is in fluctuation manner. It decreased in the current year compared with
the previous year from 23.1% to 18.97%.

8. The net profit ratio is also decreased in the current year compared with the previous year
from 15.54% to 11.78%.

9. The operating ratio is increased in the current year compared with the previous year from
81.8% to 83.28%.

11. The return on capital employed is increased in the year 2018 and 2020 while it decreased in
the year 2019 and 2022.

12. The earning per share is maximum in the year 2019-2020 and minimum in the year 2018-
2019.

13. Dividend payout ratio is maximum in the year 2018-2018 and minimum in the 2019-2020.

14. Cost of goods sold shows a non fluctuating pattern in the year 2018-2020 and increased in
the year 2020-2022.
76
15. The cash ratio shows a non fluctuating pattern in the year 2018, 2020 and 2022 but
decreased in the year 2020.

16. Return on proprietorship fund is maximum in the year 2019-2020 and minimum in the year
2020-2022.

17. The operating profit ratio shows almost similar pattern in all years but it is maximum in the
year 2018-2019 and minimum in the year 2019-2020.

SUGGESTIONS:

1. Liquidity refers to the ability of the concern to meet its current obligations as and when
these become due. The company should improve its liquidity position.

2. The company should make the balance between liquidity and solvency position of the
company.

3. The profit ratio is decreased in current year so the company should pay attention to this
because profit making is the prime objective o every business.

4. The cost of goods sold is high in every year so the company should do efforts to control
it.

5. The long term financial position of the company is very good but it should pay a little
attention to short term solvency of the company.

77
CONCLUSION

 Ratio analysis has a major significance in analyzing the financial performance of a

company over a period of time. Decisions affecting product prices, per unit costs,
volume or efficiency have an impact on the profit margin or turnover ratios of a
company.
 Financial ratios are essentially concerned with the identification of significant
accounting data relationships, which give the decision-maker insights into the financial
performance of a company.
 The analysis of financial statements is a process of evaluating the relationship between
component parts of financial statements to obtain a better understanding of the firm‘s
position and performance.
 The first task of financial analyst is to select the information relevant to the decision
under consideration from the total information contained in the financial statements. The
second step is to arrange the information in a way to highlight significant relationships.
The final step is interpretation and drawing of inferences and conclusions. In brief,
financial analysis is the process of selection, relation and evaluation.
 Ratio analysis in view of its several limitations should be considered only as a tool for
analysis rather than as an end in itself. The reliability and significance attached to ratios
will largely hinge upon the quality of data on which they are based. They are as good or
as bad as the data itself. Nevertheless, they are an important tool of financial analysis.
 Ratios make the related information comparable. A single figure by itself has no
meaning, but when expressed in terms of a related figure, it yields significant
interferences. Thus, ratios are relative figures reflecting the relationship between related
variables. Their use as tools of financial analysis involves their comparison, as single
ratios, like absolute figures, are not of much use.

78
BIBLIOGRAPHY

79
 BIBILIOGRAPHY

TEXT BOOKS:
1. FINANCIAL MANAGEMENT: - I M Pandey. VIKAS PUBLISHING HOUSE PVT LTD,
12th edition, 2022.
2. FINANCIAL MANAGEMENT: Theory and Practice - Prasanna Chandra. McGraw Hill
Education, 8th edition, 2018.
3. FINANCIAL MANAGEMENT: Text, Problems and Cases - M Y Khan, P K Jain, McGraw
Hill Education, 7th edition, 2020.
4. FINANCIAL MANAGEMENT: Principles and Practice - S N Maheswari, Sultan Chand &
Sons, 2019.
5. BANK FINANCIAL MANAGEMENT: Indian Institute of Banking and Finance, MAC
MILLAN, 2011.
6. FINANCIAL ACCOUNTING: A Management Perspective - R. Narayanaswamy, PHI, 3rd
edition, 2009.

JOURNALS and MAGAZINES:

1. Finance India, Indian Institute of Finance, New Delhi.

2. ICFAI Journal of Accounting Research, ICFAI University Press, Hyderabad.
3. Journal of Accounting and Finance, Jaipur.
4. International Economics & Finance Journal (IEFJ), Peking University, New Delhi.
5. Finance India, Indian Institute of Finance, Delhi.
6. The Global Journal of FINANCE AND ECONOMICS, Serials Publications, New Delhi.

WEBSITES:

 www.bigbazaar.com
 www.moneycontrol.com
 www.wikipedia.com

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