Finance MBA Project
Finance MBA Project
Finance MBA Project
“FINANCIAL ANALYSIS”
SUBMITTED TO
UNIVERSITY OF PUNE
BY:-
MBA {FINANCE}
INSTITUTE OF MANAGEMENT
PUNE
2014-2015
0
DECLARATION
Place: - Pune
Date:-
1
*DISCLAIMER:-
2
INDEX
1. Company Profile 3
Research Methodology 7
2. Introduction 11
3. Theoretical Framework
Financial Analysis 13
Ratio Analysis 26
4. Body Of Thesis 41
5. Data Analysis 43
6. Finding 69
7. Recommendations 71
8. Conclusion 73
3
Acknowledgement
It was really a great pleasure & good experience in these two months in DUKES
RAVI Foods Pvt. Ltd.,
The two months with DUKES RAVI Foods Pvt. Ltd., has been a full of learning and
sense of contribution towards the organization. I would like to thank Mr. Nageshwarao
for giving me this opportunity for learning and sense of contribution towards the
organization. I take this opportunity to thank all people who made this experience a
memorable one.
While doing this project I have learnt so many things like posting of financial
transaction and credit control process which takes place in the company.
The project couldn’t have been completed without timely and vital help of other office
staff. Special thanks to all the staff of Finance staff of the RFPL. For their guidance,
keen interest, cooperation, inspiration, and of course moral support through my project
session.
4
Executive Summary of the Project
The project entitled “Financial Analysis” is carried out in DUKES RAVI Foods Pvt.
Ltd.,
It’s been an enriching & fascinating experience in working in DUKES RAVI Foods
Pvt. Ltd.,
The objective of my study is to know the financial analysis techniques adopted by
DPIL and its impact on long term dealings. The firm (DPIL) to analyze its
performance by taking into the consideration the past results.
The two months with DUKES RAVI Foods Pvt. Ltd., has been a full of learning and
sense of contribution towards the organization. I would like to thank Mr. Nageshwarao
for giving me this opportunity for learning and sense of contribution towards the
organization. I take this opportunity to thank all people who made this experience a
memorable one.
While doing this project I have learnt so many things like posting of financial
transaction and credit control process which takes place in the company.
The project couldn’t have been completed without timely and vital help of other office
staff. Special thanks to all the staff of Finance staff of the RFPL. For their guidance,
keen interest, cooperation, inspiration, and of course moral support through my project
session.
5
COMPANY PROFILE
LOGO OF COMPANY
6
7
Company profile:-
Company logo:-
Commencing of 1985
Company :-
8
VISION & MISSION OF COMPANY (VALUES)
CUSTOMER FOCUS
We are always customer focused and will deliver what the customer needs in
terms of value, quality and satisfaction.
CONSUMER DELIGHT
We recognize that our business can succeed only if we can create and keep
customers. We make products that offer good quality, taste and are
differentiated, and also deliver good nutrition to our customers.
TEAM WORK
Team work is the cornerstone of our business that helps deliver value to our
customer. We work together across the organizational structure to share
knowledge and expertise.
LEADERSHIP
9
RESEARCH METHODOLOGY
Research framework: This study is based on the data about DUKES RAVI Foods
Pvt. Ltd., For a detailed study of its financial statements, documents, system ratios
and finally to recognize and determine the position of the company.
Selection of data: From the Annual Reports of the Company for 5 years.
10
DESIGN OF THE STUDY
Title of the project: “Financial Analysis” At DUKES RAVI Foods Pvt. Ltd.,
Statement of the Problem:
11
Objectives of the study:
Accounting Ratios.
Financial Statements of the Company.
The study is done only on the Balance sheet and profit and Loss A/c
Study is based on information provided by the company.
The limitation of ratio analysis is itself a limitation in achievement the set
objective.
12
LIMITATION OF THE RESEARCH
The study is done only on the Balance sheet and profit and Loss A/c.
Attempts are made to window dress the accounts that is efforts are made to
manipulate the accounts in a manner that the picture being better than what
actually it is.
No fixed standard can be laid down for ideal ratios. Changing in price also leads
to change in the ratios calculated for a different period of a time. The financial
statements, therefore, be adjusted keeping in view the price level changes if a
meaningful comparison is to be made through accounting ratios.
13
INTRODUCTION
FINANCIAL ANALYSIS
The analyst draws the financial data needed in financial analysis from many sources.
The primary source is the data provided by the company itself in the annual report and
required disclosures.
14
THEORETICAL FRAME WORK
15
FINANCIAL ANALYSIS
Financial Statements
1. INCOME STATEMENT
2. POSITION STATEMENT
INCOME STATEMENT:-
Trading concerns, whose financial activities are restricted to purchases and sales of
goods, prepare Trading & Profit & Loss Account in order to ascertain their Net
Income/Net Loss. Manufacturing concerns require information regarding the cost of
production also, so they prepare one more additional account, known as
Manufacturing Account.
1. Ascertaining cost of production, Gross Profit/Gross Loss and Net profit/Net Loss.
2. Ascertaining cost of goods sold and establishing its relationship with the sales.
5. Comparing the actual performance of the business with the desired performance,
discovering the weakness of the business.
POSITION STATEMENT:-
It is the mirror which reflects the true position of the assets and liabilities of the
business on a particular date. Assets include all current and non-current assets and the
17
liabilities include creditor’s equities and proprietor’s equities. It is traditionally known
as Balance sheet.
18
FINANCIAL ANALYSIS
MEANING: -
19
DEFINITIONS:
According to Myers,
The use of financial analysis is made to measure the profitability, efficiency and
financial soundness of the business, to make comparative studies and effective
future.
20
IMPORTANT OF FINANCIAL ANALYSIS FOR DIFFERENT
USERS
Every person concerned with the affairs of the business has an interest in the financial
statements of the business. The information available from the analysis, serves the
interest of different sections. The, following parties have an interest in the analysis of
financial Statements :
1. MANAGEMENT:-
The management needs information regarding the profitability, operational
efficiency and financial soundness of the business, so that weaknesses of the
business may be identified and effective business plans may be formulated.
2. SHAREHOLDERS:-
The shareholders, the virtual owners of business corporate units have an
interest in the welfare and progress of the business .They want to know about the
profitability and future prospects of the enterprise. The requisite information is
available from the analysis of financial statements.
3. WORKERS:-
Employees of the business are interested in the profit of the business .In case of
sufficient profits; labour unions have moral justification to demand for higher
wages. Workers in the business are paid bonus on the basis of productivity and
profitability, so they have an interest in the financial analysis of the business.
4. CREDITORS :-
Creditors of the enterprise are interested in the short term and long term
financial soundness of the business .They want to ensure themselves ,Whether their
funds are safe and secured and the business is capable of making payment of
interest regularly and also refund as per agreements .
21
5. GOVERNMENT: -
Financial statements help government in determining tax liability .The
government is also capable of ascertaining the economic development of the
country through the financial analysis. The government requires the information for
formulating effective economic plans and balanced growth of different sectors and
regions of the economy.
6. POTENTIAL INVESTORS:-
The potential investor of the business have an interest in the operational
efficiency and profit earning capacity of the business unit .They would like to know
,how far their previous investment has been safe and how much the new investment
will be safer and secured .
8. STOCK EXCHANGE:-
It is an institution which deals in securities. In other words , it facilitates purchase
and sale of shares and debentures of companies . Stock exchanges are interested in the
financial statements, because they have to collect, analyse and report the financial
status of the companies.
22
TYPES OF FINANCIAL ANALYSIS
The following are the two types of financial analysis:
The financial analysis indicates the trend of purchases, sales, and direct expenses,
cost of production, gross profit, and net profit, asset and liabilities and other items.
Financial statements are analyzed over period of years from the comparative financial
statements of different years.
23
ADVANTAGES OR PURPOSES OF FINANCIAL ANALYSIS
Financial statements are prepared at certain point of time according to establishing
conventions. These statements are prepared to suit the requirements of the proprietor.
It is, therefore, necessary to analysis financial statements to measure the efficiency,
profitability, financial soundness and future prospects of the company. Financial
analysis serves the following purposes:
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4. Simplified, systematic and intelligible presentation of facts
Analysis of financial statements is an effective tool for simplifying,
systematizing and summarizing the monotonous figures. An average person can draw
conclusion can from these ratios. The facts can be made more attractive by graphs and
diagrams, which can be easily understood.
25
TOOLS OF FINANCIAL ANALYSIS
The following tools are used to measure the operational efficiency and financial
soundness of the enterprise:
1. Comparative Statements
3. Trend Analysis
4. Ratio Analysis
26
LIMITATION OF FINANCIAL ANALYSIS
27
5. Financial Statements are affected by Window dressing
The management displays rosy picture of the enterprise through financial
statements. Sometimes material information is concealed. Financial statements
sometimes contain false information. In order to show excellent profit, sales may be
exaggerated, stock may be overvalued and certain purchases may not be shown. In
such cases analysis of financial statements will also be incorrect.
7. Financial analysis spates the symptoms but does not arrive at the
diagnosis
Financial analysis shoes the trend of the affairs of the business. It may spot
symptoms of financial unsoundness and operational inefficiency but that cannot be
accepted. A final decision in this regard will require further investigation and thorough
diagnosis.
28
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 is the process of establishing the significant
relationship between the items of the performance and the financial position of the
firm.
DEFINITION:-
Kennedy and Mc Muller “The relationship of one to another expressed in the simple
terms of mathematical is known as ratio.”
According to Accountant book of Winsor and Bedford a ratio is “an expression of the
quantitative relationship between two numbers.”
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.
29
NATURE OF RATIO ANALYSIS:-
Ratio analysis is not 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.
There are number of ratios which can be calculated from the give information
given in the financial statements but the analyst has to select the appropriate data and
calculate only a few appropriate ratios from the same keeping in the mind the
objective of the analysis.
In short we can say that Ratio analysis is a technique of analysis and interpretation
of the financial statements. It is the process of establishing and interpreting various
ratios for helping in making certain decisions.
30
FACTORS TO BE CONSIDERED WHILE DOING OF RATIO
ANALYSIS:-
2. Purposes of analysis
The type of ratio to be calculated will depend on the purposes for which are
required. The purpose of user is also important for the analysis of ratios, a banker,
creditor, an investor, a shareholder; all have different objects for studying ratios.
3. Uses of standards
Another precaution in ratio analysis is the proper selection of appropriate ratios.
The ratio should match the purpose for which these are acquired. Only those ratios
should be selected which can throw proper light on the matter to be discussed.
4. Compilation of records
It is a usual practice to set out the major ratios first followed by less important
ratios and then finish with the least important ones. A complete record of ratios is
essential. They have to be worked out and supplied to the different users in time for
further action.
31
TECHNIQUES OF RATIO ANALYSIS
There are vital two techniques of ratio analysis which are explaines as follows:-
1. Horizontal Analysis
Horizontal analysis clarifies whether the company has a stable track record
or is the value of the ratio influenced by one time special circumstances.
Horizontal analysis helps to unveil trends which help analysts unveil
trends in the performance of the business. This helps them make more
accurate future projections and value the share correctly.
2. Cross-Sectional Analysis
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ADVANTAGES / OBJECTIVES OF RATIO ANALYSIS
Ratio analysis is very useful tool of management accounting. With this, we can
analyze business's financial position. We also check company's short term and long
term solvency with ratio analysis. Following are the main advantages of ratio
analysis:-
All our financial statements are made for providing information. But this
information is not helpful for decision making because financial statements provide
only raw information. When we calculate different ratios in ratio analysis, at that time,
we get useful information.
Every year we calculate lots of accounting ratios. When we make trend of all these
ratios, we can get useful information for our future forecasting and planning.
3. Helpful in Communication
Ratio analysis plays a vital role by considering the various ratios like long term
Solvency ratios, or by calculation of fixed assets to net worth ratio, fixed assets to long
term debt ratio, he can invest in particular company share leading with the satisfaction
of his investment decisions.
33
Every employee wants to increase his salary. He also wants to get more and more
incentives from company. For this, he takes help from company's profitability ratios.
Profitability ratios will be helpful for employees to pressure on the company for
increasing their salary.
8. Helpful in Co-ordination
No company has all the strength points. Company's financial result shows some
strength points and some weak points. Ratio analysis can create co-ordination between
strength points and weak points.
9. Helps in Control
Ratio analysis can also use for controlling our business. We can easily create the
standard of each financial item of our balance sheet and profit and loss account. On
this basis, we can also calculate standard ratios. By comparing standard ratios with
actual accounting ratios, we can find variance.
34
LIMITATIONS OF RATIO ANALYSIS
With above advantages of ratio analysis, it also faces or deals with some drawbacks as
discussed below:-
Ratios are useful in judging the efficiency of the business only when they are
compared with the past results of the business or with the results of a similar business.
Ratios are based only on the information which has been recorded in the financial
statements. Financial statements suffer from a no. of limitations; the ratios derived
therefore, are also subject to those limitations.
Ratios are only indicators; they cannot be taken as final regarding good or bad
financial position of business. Other things also must be considered. For e.g. A high
current ratio does not necessarily mean that the concern has a good liquid position in
case current assets mostly comprise of outdated stock.
4. Window dressing
5. No fixed standards
No fixed standards can be laid down for ideal ratios. For e.g. Current ratio is
generally considered to be ideal if current assets are twice current liabilities.
Ratios are a composite of many different figures. Some cover a time period,
others are at an instant of time while still others are only averages. A balance sheet
figure shows the balance of the account at one moment of one day. It certainly may
not be representative of typical balance during the year.
35
7. Based on forecasting or conjunctures
Ratios are often calculated as rough estimates and are often calculated with the
figures as on a particular date. Therefore, they are not accurate and precise. For e.g.
Solvency ratios, worked out for a firm engaged in seasonal business, whose
accounting year ends at a time when the sales are high, may appear quite favorable.
It may therefore be concluded that ratio analysis, if done mechanically, is not only
misleading but also dangerous. It is indeed a double edged sword which requires a
great deal of understanding and sensitivity of the management process rather than the
mechanical financial skill.
36
USERS OF FINANCIAL OR RATIO ANALYSIS
The management of the company may not be so concerned with the results. They
are usually more interested in the cause. This is because while other classes of
stakeholders do not have control over the working of the firm i.e. the cause, the
management does. All the other stakeholders question the management at the annual
general meeting.
Shareholders: Profitability
Shareholders, for obvious reasons, are most concerned about profitability. Their
investments are at risk and they expect to gain the maximum. For the shareholders, the
profitability ratios are the beginning point. They then follow the trail the ratios leave.
However over the past two decades the focus has been steadily shifting towards cash
flow ratios.
Debt holders and suppliers are concerned whether they will be paid the amount
promised to them at the date that was promised to them. It is for this reason that they
are very concerned about the liquidity of the firm. Slightest signs of liquidity issues
are met with supply cutbacks from suppliers.
While debt holders are suppliers are concerned about short term liquidity and
cash flow, credit rating agencies go a step ahead. They use solvency ratios to
rigorously analyze whether the company will be able to make good its obligations in
the long run or not.
37
STEPS IN RATIO ANALYSIS:-
1. Calculation of ratio.
2. Comparing the ratio with some predetermined standards. The standard ratio
may be the past ratio of the same firm or industry’s average ratio or a projected
ratio or the ratio of the most successful firm in the industry. In interpreting the
ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless
the calculated ratio is compared with some predetermined standard. The
importance of a correct standard is oblivious as the conclusion is going to be
based on the standard itself.
38
FORMS OF RATIO:-
As a pure ratio:
For example the equity share capital of a company is Rs. 20,00,000 & the
preference share capital is Rs. 5,00,000, the ratio of equity share capital to
preference share capital is 20,00,000: 5,00,000 or simply 4:1.
As a rate of times:
In the above case the equity share capital may also be described as 4 times
that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,
00,000 & credit sales are Rs. 30, 00,000. So the ratio of credit sales to cash sales
can be described as 2.5 [30, 00,000/12, 00,000] or simply by saying that the
credit sales are 2.5 times that of cash sales.
As a percentage:
39
CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO
2. BASED ON FUNCTION
Liquidity ratio
Leverage ratio
Activity ratio
Profitability ratio
3. BASED ON USER
40
Explanation of above stated ratios
If the ratios are based on the figures of balance sheet, they are called Balance Sheet
Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While
calculating these ratios, there is no need to refer to the Revenue statement. These
ratios study the relationship between the assets & the liabilities, of the concern.
Balance sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capital
gearing ratio, Debt equity ratio, and Stock working capital ratio.
B. Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue statement
ratios. These ratios study the relationship between the profitability & the sales of the
concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net
profit ratio, Net operating profit ratio, Stock turnover ratio.
C. Composite ratio:
These ratios indicate the relationship between two items, of which one is found
in the balance sheet & other in revenue statement.
E.g. return on capital employed, return on proprietors fund, return on equity capital,
debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt
service ratios.
2. BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to
liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.
A. Liquidity ratios:
41
It shows the relationship between the current assets & current liabilities of the
concern e.g. liquid ratios & current ratios.
B. Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the
assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary
ratios.
C. Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover
ratios & productivity ratios e.g. stock turnover ratios, debtor’s turnover ratios.
D. Profitability ratios:
It shows the relationship between profits & sales e.g. operating ratios, gross
profit ratios, operating net profit ratios, expenses ratios.
It shows the relationship between profit & investment e.g. return on investment,
return on equity capital.
3. BASED ON USER:
42
B. Ratios for the shareholders:
43
BODY OF THESIS
Objectives:-
Primary Objective:-
A study on Financial Analysis adopted by DPIL and impact on its Long term
operations.
Secondary Objective:-
The study is limited to financial analysis technique used by DPIL and hoe these
were utilized by the company.
Methodology:-
44
DATA ANALYSIS
45
1. Liquidity Ratio:-
Liquidity means ability of the business to pay its short-term liabilities. Inability
to pay-off shot term liabilities affects its creditability. These ratio are also termed as
‘Working capital ‘or ‘short-term solvency Ratio’. An enterprise must have adequate
Working Capital to run its day-to-day operation. The liquidity ratio provides a quick
measure of liquidity of the firm by establishing a relationship between current assets
and current liabilities.
46
12 11.32
10
8.41
8
Series1
6
Series2
4 3.43 Series3
2.85
2.04 2.15
1.54 1.69
2
0.43 0.75 0.57 0.45
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
On the basis of Liquidity Ratio, the firm ensures a proper balance between
high liquidity and lack of liquidity.
The most common ratios which indicates the extent of liquidity are
1. Current Ratio
2. Quick Ratio
3. Cash Ratio
1. Current Ratio:
Current Ratio measure short term debt paying ability. It indicates the
availability of current assets in rupee of current liability. A ratio greater than
one means that the firm has more current assets and current claims against
them. A generally acceptable current ratio is 2 to 1. But whether or not a
specific Ratio is satisfactory depends on the nature of the business and the
characteristic of its current assets and liabilities.
Current Liabilities
47
Financial year Current Assets Current Liabilities Current Ratio
50000000
45000000
40000000
35000000
Amount
30000000
25000000
20000000
15000000
10000000
5000000
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Year
2. Quick Ratio: -
48
A Quick ratio is a more penetrating test of liquidity. It is a refined measure of
the short-term debt paying ability by measuring short term liquidity. By
excluding inventories it concentrates on the really liquid assets, with value that
is fairly certain. Quick Ratio tests the ability of the business to meet its current
obligation even when the sales revenue disappears. A Ratio of 1:1 is considered
to represent a satisfactory current financial condition; however it does not
necessarily imply sound liquidity position.
Current Liabilities
49
100000000
10000000
1000000
100000
Current Assets – Stock
10000
Current Liabilities
1000 Quick Ratio
100
10
1
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
3. Cash Ratio: -
It measures the absolute liquidity of the business. This Ratio
considers only the absolute liquidity available with the firm. The absolute
liquidity ratio eliminates any unknown surrounding receivables, it only
test short-term liquidity in term of cash and marketable securities.
Current Liabilities
50
Cash &
Financial Marketable
Current
year Securities Cash Ratio
Liabilities
2008-2009 60,48,281 1,38,17,090 0.43
100000000
10000000
1000000
100000
10
0.1
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Comments:-This ratio indicates in the basis of the calculation that, Cash and
Marketable Securities liquidity in term of cash can be majorly utilized in 2010-
11 as compared with other financial years.
51
Interpretation & Analysis of Liquidity ratio:-
It is observed that the liquidity ratio of the organization have always been
above the standards required. But in year 2010-11 the ratio was to high which
means the current assets where to high as compare to current liabilities which
that the assets where kept ideal and not brought in use. Through the ratio we
can state that the financial health of a company s very strong.
52
2. TURN OVER RATIO:-
The most common ratio which indicates the efficiency of the business is
as follows.
This ratio finds out the number of times inventory is turned over on an
average in a year. This ratio is calculated for findings at what extent the
inventory has been utilized efficiently and what proportion of working Capital
has been locked up in inventory.
Average Inventory
53
Inventory Turn
Financial year COGS Avg. Inventory Over Ratio
1E+09
100000000
10000000
1000000
100000
10000
1000
100.21 68.53
100 35.15 53.81
13.31
10
1
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Comments:-This ratio indicates assets are managed/ used is reflected which can
be converted into the sales, which is maximum in the year 2009-2010 and again
declining in next year i.e. 2010-11.
54
2. Working Capital Turnover Ratio:-
This ratio measures the number of times the working capital is turned
over during the year. In a way this ratio also throws light on operating cycle
(conversion of current assets into cash) of the company. A low ratio indicates
slow moving operating cycle where as a high level implies that the company’s
current assets are utilized efficiently.
Net Sales
Working Capital Turnover Ratio = Working Capital
Working Capital
Financial year Net Sales Turnover Ratio
Working Capital
2008-2009 27,08,16,847 1,65,19,948 16.39
55
Working Capital & Inventory Turnover Ratio
120
100
Ratios
80
60
40
20
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
Comments:-This ratio indicates current assets that can be converted into cash
in short term which is calculated by subtraction of current assets with current
liabilities then it is related with Net Sales which on calculation is higher on
2006-07.
56
3. Fixed Assets Turnover Ratio:-
a. This ratio signifies the number of time to fixed assets are rotated or
used in business. A high ratio indicates that fixed assets are
contributing quit substantially in making sales, while low ratio
indicates that fixed assets are not being used efficiently.
Fixed Assets
Financial year Net Sales Fixed Assets Turnover Ratio
57
1E+09
100000000
10000000
1000000
100000
10000
1000
100
10
1
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
58
3. Total Assets Turnover Ratio:-
a. Measure the activity of the assets and the ability of the business to
generate sales through the use of the assets. It revels the efficiency
in managing a utilizing the total assets.
Total Assets
Total
Assets
Turnover Fixed Assets
Financial year Net Sales Total Assets Ratio Turnover Ratio
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Fixed Assets & Total Assets Turnover Ratio
25
22.00908924
20.85935611
20
15.29436512
15 13.39939327
Ratio
9.752515477
10
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
Fixed Assets Turnover Ratio Total Assets Turnover Ratio
According the above ratios it is observed that the operation cycle is small.
It is also observed no major of current assets is blocked in inventories as the
inventory ratios are too high. According to working capital ratio it can be said
that the current assets used for increasing the sales gives the high return.
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3. LEVERAGE RATIOS: -
Net Asset to Net-worth ratio: -This is another alternative way of expressing the
basic relationship between debt & Equity. This ratio gives the funds contributed
together by lenders and owners for each rupee of owner’s contribution.
Debt equity ratio: - It is also popular known as `external internal ‘equity ratio. It
relates all short-term &long-term recorded creditors’ claim on assets to the
owners recorded claim in order to measures the firm’s obligation to creditor in
relation to funds provided by the owner.
Net-Worth
Net Assets to Net-
Financial year Net Assets Net – Worth Worth Ratio
61
1.4
1.212791707 1.169310135
1.2
1
0.793716766
0.734395891
Ratio
0.8 0.7090864
0.6
0.4
0.2
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
Net Assets to Net-Worth Ratio
70000000
60000000
50000000
Amount
40000000
30000000
20000000
10000000
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
62
Interpretation & Analysis of Leverage Ratio:-
It can be seen that the net assets to net worth ratio is showing a
continues decreasing trend because the net assets decreased as well as the net
worth increased, but in the year 2006-07 it was observed the net assets where
more than the net worth. The overall decreases in the ratios imply that the
share of the owner’s capital in the net asset is increasing which reduces the
dependency of the company on borrowings.
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4. PROFITABILITY RATIO:-
Profitability reflects the final result of business operations. Profitability ratios are
calculated t measure the operating efficiency of the company. Beside management of the
organization, creditors and owners are also interested in the profitability of the firm.
1) Gross Profit
2) Net Profit Ratio
3) Return on Assets
4) Return on Equity
5) Return on capital Employed
This ratio reflects with which management produce each unit of product. Gross profit
ratio show profit relative to sales after the deduction of production cost. A high gross profit
margin relative to industry average implies that the firm is able to produce at relatively
lower cost. Where as a low gross profit margin may reflect higher cost of goods sold. Due to
the firms inability to purchase raw materials at favorable terms, inefficient utilization of
plant and machinery, or over investment in plant and machinery, resulting in higher cost of
production. This Ratio will also be low due to the fall in prices in the market or mark
reduction in selling price.
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Net Profit Ratio:-
This ratio is the overall measure of the firm’s ability to turn each rupee sales into Net
profit. If the net margin is inadequate, the firm will fail to achieve satisfactory return on
share holder funds. This ratio also indicates the firm’s capacity to with stand adverse
economic conditions. A firm with a higher net margin ratio would be in an advantage
position to survive in the face of falling selling price, rising cost of production or decline
demand for the product of net profit
Return on Assets:-
The profitability of the firm is measured by establishing relation of net profit with the
Total Assets of the organization. This ratio indicates the efficiency of utilization of assets in
generating revenue.
Return on Equity:-
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Return on Capital Employed:-
This is a percentage of profit to capital employed. It is the only measure, which can
be said to show the overall satisfactory performance of an under taking from the stand
point of profitability. It enables the management to show whether the funds entrusted to it
have been properly used or not. Higher the ratios better the result.
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Gross Profit Ratio = Gross Profit X 100
Sales
Net Profit
Financial year Net Profit Sales Ratio
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Gross Profit & Net Profit Ratio
4.5
3.924806169
4
3.5 3.198416358
Percentage
2.924554589
3 2.751326312
2.5 2.124843806
2
1.5
1
0.5
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
Initially the gross profit ratio showed a continuous increase up to 2008-09, but it has
shown a good increment in 2010-11. As net profit ratio is also showing almost the
continuous increased except in the year 2009-10, it has reduce by some percent.
In this year the net profit ratio had showed a high increment as compare to gross
profit ratio.
Total Assets
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Return On
Financial year PAT Total Assets Assets
Return On Assets
35 31.89642082
30
25
Ratio
20
14.89065066
15 13.4948185
11.37743679 10.8712218
10
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Years
Return On Assets
It is observed that the PAT has shown an growth in the last year i.e.2010-11 as
compared to early years and also the total asset have increased in last year 2010-2011.
The profit earned by the company on its total assets is increased which implies that
the assets of the company are used more proficiently at the last year.
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Return on Equity = PAT X 100
Net Worth
Return On
Financial year PAT Net – Worth Equity
Capital
Financial year PAT Employed ROCE Ratio
70
40
35
30
25
20 ROE RATIO
ROCE RATIO
15
10
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
The return on Equity and return on capital employed shareholders increased every
year since 2007-08 and is maximum in the year 2010-2011.
The efficient utilization of capital employed is observed and is increasing year by year.
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FINDINGS
72
FINDINGS
After going through the project following findings can be put down.
1) It appears from the study of the liquidity group ratios that there is lack of
working capital management.
2) The operating expenses increased more which resulted into increase in the
operating cost and decreased in the profit.
4) It appears from the earning per share that the profits are declining which
shows that the equity share holders bearing more and more risk and there is
no increase in the wealth of the equity shareholders.
6) Inventory turnover ratio increasing over last 3 years. It shows the better
improvement in the inventory management. Company is following the
scientific inventory management in controlling the inventory.
7) The company should also consider trading of its products using new strategies
so that it reaches the customers.
8) The company should also try to explore in to foreign market through exports to
take advantage of the untapped market.
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RECOMMENDATIONS
74
RECOMMENDATIONS
The organization can have a better utilization of asset, for e.g., by investing excess
cash in liquid assets, it can be utilize as idle cash as well as earn some returns.
As the capital structure of the company it is found that the firm is using mainly
borrowed funds to finance its requirements. This may prove to be more risky in the
future, therefore it is necessary for the company to utilize the resources available
very carefully as they are scarce.
The organization should trade in such businesses which have a good return and a
healthy margin.
The company should also consider trading of its products using new strategies so
that it reaches the customers.
The organization should also try to explore in to foreign market through exports to
take advantages of the untapped market
The organization perform multi business processes which are nearly interrelated with
each other belonging to dairy sector and having similar customer base, of one
business activity for other business activities by providing some attractive schemes
due to which the customer will be bounded to the organization and will have not for
one but for multi facilities.
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CONCLUSION
76
On the basis of the ratios that have been calculated and the interpretation
of those ratios, we can arrive at following conclusion:
1. The financial health of the organization has been found strong but
according to the current ratio it is being observed that in the year 2010-
2011 the current assets where kept idle due to which the current ratio
raised up to 11.32.
2. According to the cash ratio in the year 2010-2011 it has found that the cash
was kept idle and not utilized which give a rise in the ratio during that year.
3. The liquidity ratio of the organizations is very good through which we can
find out that the organization can pay out its debts whenever required.
6. It is also found that the assets are perfectly used for increasing sales. The
fixed assets are contributing a healthy for the sales.
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ANNEXURE
78
Annexure
79
Balance sheet 2009-2010
80
Balance sheet 2010-2011
81
Balance sheet 2011-2012
82
Balance sheet 2012-2013
83
REFERENCES
84
REFERENCES
Websites:-
www.indiaonestop.com
www.dukesindia.com
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