A

PROJECT REPORT
ON
ANALYSIS OF FINANCIAL STATEMENTS
For
M/S MAHVEER MEDICAL AND GENERAL STORES
Submitted to
UNIVERSITY OF PUNE
For The Partial Fulfillment Of
Bachelor Of Business Administration Award
-Submitted ByJAIDEEP SALIGRAM SONAWANE
T.Y B.B.A (Sem-VI)
Under The Guidance Of
PROF. SARIKA V. DHARANKAR

K.T.H.M COLLEGE, NASHIK

(Academic year 2013-2014)

ACKNOWLEDGEMENT

I am thankful to Mr. JAGDISH K BHANSALI,

Proprietor, M/S MAHVEER MEDICAL AND GENERAL STORES, SINNER,
DIST. Nashik, to help me by giving their precious time and providing me all the
required information and the documents.
I am thankful to all of those who helped me in the
completion of the project. No words can adequately express my debts of gratitude
to Dr.D.M. DHONDGE Sir, (Principal of K.T.H.M.College,Nashik) for providing
the golden opportunity of submitting the project.
I acknowledge the support encouragement extended for
this study by DR. R. D. Darekar Sir, (Co-Ordinator of Bachelor of Business
Administration Department) for giving me proper guidance & helping me for
completing this project.
I express my gratitude to my project guide Mrs. Sarika
V. Dharankar who not only co-operated but also extended valuable guidance
helpful suggestions contribution that have progressively enhanced the project
Place :Nashik.
Date - /

/
JAIDEEP. S. SONAWANE
(T.Y.B.B.A.)

DECLARATION
This is to declare that I, JAIDEEP S. SONAWANE, student of
bachelor in Business Administration (Course Period 2013-2014),
Nashik . Mahaveer Medical And General Stores, have given
original data and information to the best of my knowledge in the
project report titled ANALYSIS FINANCIAL STATEMENT
under the guidance of MRS. SARIKA V DHARANKAR and that,
no part of this information has been used for any other assignment
but for the partial fulfillment of the requirement towards the
completion of the said course.
I have prepared this report independently and I have gathered all the
relevant information personally. I have prepared this project for
partial fulfillment of B.B.A. (Finance) Under Graduate Course.
I also agree in principle not to share the vital information with any
other person outside the organization and will not submit the project
report to any other university.

PLACE: NASHIK
DATE: / /

JAIDEEP .S. SONAWANE

T.Y. B.B.A. (FINANCE)

INDEX
Sr.No.
CHAPTER 1
1.1
1.2
1.3
1.4
1.5

Topic
INTRODUCTION
Introduction of Topic
Objectives of Study
Scope of the study
Limitation of the study
Research Methodology

CHAPTER 2
2.1
2.2
2.3
2.4

PROFILE OF THE FIRM

Proprietors profile
History of the Firm
Organizational Structure
Product of the firm

CHAPTER 3
3.1
3.2
3.3
3.4
3.5

CONCEPTUAL BACKGROUND
Introduction of Financial Statements
Meaning And Definition of Financial Statement Analysis
Types of Financial Analysis
Tools & Techniques of Financial Analysis
Conceptual framework of Ratio Analysis

CHAPTER 4

ANALYSIS & INTERPRETATION OF

FINANCIAL STATMENTS
CONCLUSION
ANNEXURE
BIBLIOGRAPHY

Page No.

CHAPTER I

INTRODUCTION

1.1 INTRODUCTION TO THE TOPIC

This project is prepared for the analysis and interpretation of financial
statements of M/S MAHAVEER MEDICAL AND GENERAL STORES. It deals
with the various different types of medicines and other cosmetic items.
It is prepared to know the financial position of the shop. It also helps to know the
proper utilization of the resources and other different positions of the shop such as
Liquidity, solvency, profitability etc..
The financial statements are prepared for a particulars period to review & report
the periodical progress by the shop. It will also help to find out any weakness or
threats of the current business planning.
It will help to give the practical knowledge, information about the business
transactions. Also help in finding out the Profit & Loss A/C or Income &
Expenditure A/C occurred during particular period. The financial statements are
also needed for decision making & planning for the procurement of adequate funds
& the efficient & adequate use of resources.

1.2 OBJECTIVES OF THE STUDY

To study the concept of analysis of financial statement by
using the techniques of ratio analysis.
To study of focus on facts on a comparative basis relating to
the performance of a firm.
To study the performance of a firm in determining the
important aspects of a business such as liquidity, solvency,
overall profitability, capital gearing, etc.
To know the future opportunities and threats for firm.

1.3 SCOPE OF THE STUDY

1) The scope of the study is to understand the actual working

and analysis of financial statement.

2) The project will help to study the relationship between the

items of the balance sheet and of profit and loss account.

3) While doing project report one should know the various

techniques that are used in analyzing financial statements.

4) Ratio analysis is one of the popular tools of financial

statement analysis

1.4 LIMITATION OF THE STUDY

1) Generally firm do not provide financial statements to any
outside person or for any project work.

2) Some of the information is not accurate, due to which

approximate values were used for the analysis. Hence, the
results also reveal approximate values.

3) The project is based on theoretical guidelines and as per

situations. Hence, it may not be applicable to different situations.
4) The time constraint of the project of two months is not sufficient to
study.
5) Financial statements are analyzed only on the basis of ratios.
The ratios cant be taken as ultimate judgment of companys
financial position.

1.5 RESEARCH METHODOLOGY

A careful investigation or enquiry especially through search for new facts
in any branch of knowledge.

MEANINGResearch methodology is a way to systematically solve the research problem. It

may be understood as a science of the study how research is done scientifically.
The various steps that are generally adopted by researcher in study his research
problem along with the logic behind them. It is necessary for the researcher to
know not only the research method or techniques but also the methodology. Thus
when we talk of research methodology we not only talk at the research methods
but also consider the logic behind the methods we use in the contest of our research
and explain why we are using particular method or techniques and why we are not
using other so that research are capable of being evaluate either by research
himself or by other.

DATA SOURCE AND DATA COLLECTION

The task of data collection begins after a research problem has been defined. While
deciding about the method of data collection to be used for the study, the
researcher should keep in mind two types of data viz. Primary & Secondary.

Sources
of Data

Primary
Data

PRIMARY DATA-

Secondar
y Data

Primary data are original and first hand information. The source of such
information is the individuals and the incidents around them generally.
Information relating to the project was collected during formal and informal
discussions with the proprietor of shop.
Queries arising in due course of the project brought into the notice of concerned
authority and necessary explanation and solutions are adapted.

SECONDARY DATAThe source of information through documents concerning individuals and

institutions are known as secondary data or documentary source
.
Secondary data is generated with the help of following:
Annual Report: Majority of information gathered from the annual reports of the
company. These reports consist of Trading And Profit & Loss A/c; Balance Sheet
of 3 years.
Reference Books: Theory relating to the subject matter and various concepts taken
up from various financial reference books published by University of Pune.

CHAPTER 2
PROFILE OF THE FIRM

2.1

PROPRIETORS PROFILE

NAME OF PROPRIETORMR. Jagdish Khemchand Bhansali

[ M/S MAHAVEER MEDICAL AND GENERAL STORES]

ADDRESSNear Bus Stand, Tal. Sinner, Dist. Nashik-422103

DATE OF BIRTH5TH April 1976
STATUSIndividual Male
Permanent Account Number (PAN)AAUPB3126G

2.2 HISTORY OF FIRM

MR. Jagdish Khemchand Bhansali, after completing his Graduation in

Pharmacy, planned to open a Medical Shop in
Sinner, Dist. Nashik. His elder brother provide him financial help to
open the shop.
And with their mutual efforts, M/S MAHAVEER MEDICAL AND
GENERAL STORES, was set up in 2005.
In starting phase, the shop operates on a smaller scale with limited
products. But today they have variety of product like, all types of
medicines, pharmaceutical products, cosmetic, daily used products etc..
Now it is one of the popular Medical Shop in that area. In last year, they
started another shop which deals in food products.

2.3 ORGANIZATIONAL STRUCTURE

Propriet
or

Helper

Helper

2.3 PRODUCT OF THE FIRM

CHAPTER 3
CONCEPTUAL
BACKGROUND

3.1 INTRODUCTION
OF
FINANCIAL STATMENTS
A Financial Statement is a compilation of data, which is logically and
consistently organized according to accounting principles. Its purpose
is to convey an understanding of some financial aspects of a business
firm. It shows a position at a movement in time, as in the case of
balance sheet, or reveals a series of activities over a given period of
time, as in the case of an income statement.
Financial statements are the major means through which firms present
their financial situation to stock holders, creditors and general public.
The majority of firms which include extensive financial statements in
their annual reports, which receive wide distribution.

3.2 MEANING
AND
DEFINITION
OF
FINANCIAL STATEMENTS ANALYSIS

Financial analysis is also referred as Financial Statements Analysis.

The term financial analysis, also known as an Analysis &
Interpretation of financial statements, refers to the process of
determining financial strengths and weakness of firm by establishing
strategic relationship between the items of balance sheet, Profit and Loss
Account and other operative data.

According to MYERS,

Analysis of financial statements is the systematic numerical

calculation of the relationship between one fact with the other to
measure the profitability, operational, efficiency, solvency and the
growth potential of the business.

3.3 TYPES OF FINANCIAL

ANALYSIS

On the basis
of Material
Used

On the basis
of Modus
Operandi

External
Analysis
Internal
Analysis

Horizontal
Analysis
Vertical
Analysis

On the basis
of Period
Short Term
Long Term

3.3 TOOLS &TECHNIQUES OF

FINANCIAL ANALYSIS

TOOLS &
TECHNIQUES
OF FINANCIAL
ANALYSIS

RATIO
ANALYSIS

FUND
FOLW
ANALYSIS

CASH
FLOW
ANALYSIS

TREND
ANALYSIS

RATIO ANLAYSIS
Ratio analysis a technique of analysis and interpretation of financial
statements. It is a process of establishing and interpreting various ratios for
helping in making certain decisions.
For example- Liquidity, Profitability, Turnover and Solvency ratio.

FUNDS FLOW ANALYSIS

Funds flow statement is a method by which one studies the changes in the
financial position of a business enterprise between beginning and the ending
financial statements dates. It is a statement showing sources and uses of funds
for a period of time.

CASH FLOW ANLYSIS

A statement of changes in the financial position of firm on cash basis is called
a cash flow analysis/ statement. A cash flow statement summarizes the causes
of changes in cash position of a business enterprise between dates of two
balance sheets.

TREND ANALYSIS
Trend analysis is also trend as Intra-Firm comparison wherein financial
statements of the same enterprise for two or more years are compared. The
financial statements may be analyzed by computing trends of series of
information.

3.4 CONCEPTUAL FRAMEWORK OF

RATIO ANALYSIS
A ratio is a simple arithmetical expression of the relationship of one number
to another. It may be defined as the indicated quotient of two mathematical
expressions.
According to Kohler,
A ratio is the relation, of the amount, a, to another, b, expressed as the ratio
of a to b; a:b ( a is to b); or as a simple fraction, integer, decimal fraction or
percentage.

Meaning of Ratio Analysis

Ratio analysis is a technique of analyzing the financial statements by

computing ratios.
In other words, ratio analysis is a process of determining and interpreting
relationships between the items of financial statements to provide a
meaningful understanding of performance and financial position of an
enterprise. Ratio analysis is an accounting tool to present accounting variables
in a simple, concise, intelligible and understandable form.
According to Myers, Ratio analysis is a study of relationship among the
various financial factors in a business.

Objectives of Ratio Analysis

1. Measuring the profitability of business.
2. Judging the operational efficiency of the business.
3. Assessing the solvency of the business.
4. Measuring Short and Long-Term Financial Position of the firm.
5. Facilitating Comparative Analysis of the performance.

Types of Ratios

(A)

Liquidity Ratio :

These are the ratios, which measures the short-term solvency and
financial position of a firm. These ratios are calculated to comment
upon the short-term paying capacity of a concern or the firms ability to
meet its current obligations.
The sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities.

Current Ratio :
The current ratio is the ratio of total current asset to total
current liabilities.
Current Assets
Current Ratio =
Current Liabilities
Current Assets are the assets that are either in the form of cash or
cash equivalents in a short time (say, within a years time) and
Current Liabilities are liabilities repayable in a short time.

Quick Ratio :
Quick ratio is a relationship of liquid assets with current
liabilities and is computed to assess the short term liquidity of
the enterprise in its correct form.
Liquid/Quick Asset
Quick Ratio = ___________________

Current Liabilities

Absolute Liquidity Ratio :

This ratio is computed by dividing the absolute liquid asset by
current liabilities. Its objective is to calculate it together with
current ratio and quick ratio so as to exclude even receivables
from the current assets and find out the absolute liquid asset.
Absolute Liquid Ratio =

(B)

Absolute Liquid Assets

______________________
Current Liabilities

Profitability Ratio :

The primary objective of a business is to earn profits. A business need

profit not only for its existence but also for its expansion and
diversification.
Profitability Ratios are calculated to measure the overall efficiency of
the business. Generally, profitability ratios are calculated either in
relation to sales or in relation to investment to measure the profitability
of the firm.
Gross Profit Ratio :
This ratio establishes the relationship of gross profit on sales to
net sales of a firm, which is calculated in percentage.
This ratio is computed by dividing gross profit by the net sales.

Gross Profit Ratio =

Gross Profit X 100

________________
Net Profit

This ratio indicates the degree to which the selling price of goods per
unit may decline without resulting in losses from operations to the firm.
Net Profit Ratio :
This ratio measures the relationship between net profit and net
sales.
The main objective of computing this ratio is to determine the
overall profitability due to various factors such as operational
efficiency, trading on equity etc.

Net Profit X 100

Net Profit Ratio = ________________
Net Sales
Operating Ratio :
This ratio measures the relationship between operation cost and
net sales.
The main objective of computing this ratio is to determine the
operational efficiency with which production and/or purchases
and selling operations are carried on.
Operating Cost X 100
Operating Ratio = ____________________
Net Sales
Operating Cost = Cost of Goods Sold + Operating Expenses

Operating Profit Ratio :

This ratio measures the relationship between operating profit and

net sales. The main objective of computing this ratio is to
determine the operational efficiency of the business.
Operating Profit X 100
Operating Profit Ratio = ____________________
Net sales
Operating Profit = Net Profit + Non-operating Expenses
+ Non-operating Income.

Return On Total Asset :

This ratio measures the relationship between net profit before
interest and tax, and total assets.
The main objective of computing this ratio is to find out how
efficiently the total assets have been used by the business.
Net Profit before Interest and Tax X 100
Return on Total Asset = ________________________________
Total Asset

Return On Capital Employed/ Return On Investment :

This ratio measures a relationship between Net Profit before
Interest and Tax and Capital Employed, in order to find out how
efficiently the long-term funds supplied by the creditors and
shareholders have been used.
R.O.I

Net Profit before Interest and Tax X 100

= ____________________________________
Capital Employed

Capital Employed = Shareholders Fund + Long-term Debts

- Fictitious Asset

 Return on Equity :
This ratio measures the relationship between Net Profit after
Interest and Tax, and Preference dividend, Equity shareholders
Funds. It is computed to find out how efficiently the funds
supplied by the Equity Shareholders have been used.
N.P after Interest and Tax and Preference dividend X 100
R.O.E =
_____________________________________________
Equity shareholders Funds

(C)

Turnover Ratio :

Profit depends on the rate of turnover and the net margin. Turnover
ratios also termed as Activity or Performance Ratio, judges how well
the facilities at the disposal of enterprise are being utilized.
In other words, these ratios measure the effectiveness with which a
concern uses resources at its disposal. Higher turnover ratio means,

better use of capital or resources, which in turn, means better

profitability ratio.
Fixed Asset Turnover Ratio :
This ratio establishes a relationship between Net Sales and Fixed
Assets. The objective of computing this ratio is to determine the
efficiency with which the fixed assets are utilized.
Net sales/ C.O.G.S
Fixed Asset Turnover Ratio = ______________________
Net Total Fixed Asset

Working Capital Turnover Ratio :

This ratio establishes a relationship between Net Sales and
Working Capital. Its objective is to indicate the velocity of
utilization of Net Working Capital and the number of times the
working capital is turned over in the course of year.
Net Sales
Working Capital Turnover Ratio = _____________________
Working Capital

Stock/ Inventory Turnover Ratio :

This ratio establishes a relationship between Costs of Goods

Sold and Average Inventory. This ratio is computed to determine
the efficiency with which the inventory is utilized.
Costs of Goods Sold
Stock Turnover Ratio = ________________________
Average Inventory
Opening Stock + Closing Stock
Average Inventory = _______________________________
2

Debtors Turnover Ratio :

This ratio establishes the relationship between Net Credit Sales
and Average Debtor ( or receivable) of the year.
The objective of computing this ratio is to determine the
efficiency the trade debtors are managed.
Net Credit Sales
Debtors Turnover Ratio = ____________________
Average Debtor
Average Debtor = O/P Debtors + C/S Debtor +
O/P B/R + C/S B/R
2
Average collection Period: It provides the approximation of
the average time that it takes to collect debtors. It is computed
by dividing 365 days or 12 months or 52 Weeks by the
number of debtors turnover. It is determined as :
365 days or 12 months or 52 Weeks
Average collection Period =
Debtors Turnover

 Creditors Turnover Ratio :

It shows the relationship between the Net Credit Purchases and
Average Creditors ( or Payable). Its objective is to determine the
efficiency with which the creditors are managed.
Net Credit Purchases
Creditors Turnover Ratio =
Average Creditors (or Payable)
Average Creditors = O/P Creditor + C/S Creditor
O/P B/P + C/S B/P
2
Average Payment Period : This period Shows an Average
Period for which the Credit Purchases remain outstanding or
the credit period enjoyed by the enterprise in paying
creditors. It is determined as :
365 days or 12 months or 52 Weeks
Average Payment Period =
Creditors Turnover

(D)

Solvency Ratio :

These ratios provide an insight into the financial techniques used by a

firm and focus, as a consequence, on the long term solvency position
with regard to, periodic payment of interest during the period of loan,

repayment of principal on maturity or in predetermined installments on

due dates.
Debt- Equity Ratio :
The Debt- Equity Ratio is computed to ascertain the soundness
of the long-term financial position of the firm. This ratio
expresses the relationship between Long-term Debts and
Shareholders Fund.
Long-term Debts
Debt- Equity Ratio =
Shareholders Fund

Total Asset to Debt Ratio :

It establishes the relationship between Total Assets and Total
Long-term Debts. It measures the safety margin available to the
providers of long-term debts.
Total Assets
Total Asset to Debt Ratio =
Long-term Debts

Proprietary Ratio :
Proprietary Ratio establishes the relationship between
Proprietors Funds and Total Assets. This ratio shows the extent
to which the shareholders own the business.
Its objective is to measure the proportion of Total Asset financed
by Equity or Proprietors Fund.
Proprietors Funds or Shareholders Fund
Proprietary Ratio =
Total Asset ( Excluding Fictitious Asset )

CHAPTER 4
ANALYSIS
AND
INTERPRETATION
OF FINANCIAL
STATEMENTS

LIQUIDITY RATIOS
Current Ratio :
Current Assets
Current Ratio =
Current Liabilities

Year
2010-2011
2011-2012
2012-2013

Current
Assets
1825201.29
2654408.54
2175251.29

Current

Ratio

Liabilities
234985.74
398779.36
350846.98

7.76 :1
6.6:1
6.2:1

Current Ratios
8
6
Ratio 4
2
0

2010-2011

2011-2012

2012-2013

Interpretation
The current ratio has been decreasing year after year which
shows decreasing working capital. As an conventional rule, a current ratio of
2:1 is consider satisfactory.
Hence the liquidity position of Mahaveer Medical & General Store is
satisfactory because all the three years current ratio is not below the standard
ratio 2:1.

Quick Ratio :
Liquid/Quick Asset
Quick Ratio = ___________________
Current Liabilities

Year
2010-2011
2011-2012
2012-2013

Quick

Current

Assets
986349.29
1079432.5

Liabilities
234985.74
398779.36
350846.98

4
1292602.3
9

Ratio
4.1:1
2.7:1
3.6:1

Quick Ratio

Ratio

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

2010-2011

2011-2012

2012-2013

Interpretation
Quick ratio indicates rupees of quick asset available for each rupee
of current liability. As a quick ratio of 1:1 is consider satisfactory , a
firm easily meet all current claims.
From the above calculation it is clear that the liquidity position of
Mahaveer Medical & General Story is satisfactory. Because for all
three years the quick ratio is not below the standard ratio of 1:1.

Absolute Liquidity Ratio :

Absolute Liquid Assets

Absolute Liquid Ratio =

______________________
Current Liabilities

Year

2010-2011
2011-2012
2012-2013

Absolute

Current

Liquid

Liabilities

Assets
61096.29
57487.54
63152.45

234985.74
398779.36
350846.98

Ratio

0.25:1
0.14:1
0.18:1

Absolute Liquidity Ratio

0.25
0.2
Ratio

0.15
0.1
0.05
0

2010-2011

2011-2012

2012-2013

Interpretation
The acceptable norm of this ratio 50% or 0.5:1 , i.e. Re.1 worth
absolute liquid asset are considered adequate to pay Re.2 worth current
liabilities.
But the absolute liquidity ratio is below the acceptable norm so the
cash position is not utilize effectively and efficiently.

PROFITABILITY RATIOS
Gross Profit Ratio:
Gross Profit Ratio =

Gross Profit X 100

________________
Net Profit

Year
2010-2011
2011-2012
2012-2013

Gross

Net Sales

Ratio

Profit
2102728
1166097.92
1802074.9

9194259.8
8358418
11033111.8

22.8%
13.95%
16.33%

Gross Profit Ratio

25.00%
20.00%
15.00%
Ratio

10.00%
5.00%
0.00%
2010-2011

2011-2012

2012-2013

Interpretation
In the year 2010-2011 the gross profit ratio was 22.80% but in
2011-2012 it is decreased to 13.95% which shows lower earning
capacity of the business with reference to its sales. But in 2012-2013 ,
the ratio increased to 16.32%. due to sale at higher price.
Therefore the gross profit ratio for 3 years reveals satisfactory
condition of the business.

Net Profit Ratio:

Net Profit X 100
Net Profit Ratio = ________________
Net Sales

Year
2010-2011
2011-2012
2012-2013

Net Profit
1542347.4
7
611219.09
1196371.74

Net Sales
9194259.8
8358418
11033111.8

Ratio
16.77%
7.31%
10.84%

Net Profit Ratio

18.00%
16.00%
14.00%
12.00%
10.00%
Ratio

8.00%
6.00%
4.00%
2.00%
0.00%
2010-2011

2011-2012

2012-2013

Interpretation
Net profit is the measure of overall profitability. In the year 20102011 net profit is 16.77% which is decreased to 7.31% in 2011-2012.
Which shows that the profitability is decreased.
But in 2012-2013 there is a slight increased in the profit which
shows appreciation in the profitability of the firm.

 Operating Ratio:
Operating Cost X 100
Operating Ratio = ____________________
Net Sales
Operating Cost = Cost of Goods Sold + Operating Expenses

Year
2010-2011
2011-2012
2012-2013

Operating
Cost
7664326.5
7760614.8
9
9847906.5
8

Net Sales

Ratio

9194259.8
8358418
11033111.8

83.35%
92.84%
89.25%

Operating Ratio
95.00%
90.00%
Ratio 85.00%
80.00%
75.00%
2010-2011

2011-2012

2012-2013

Interpretation
Operating Ratio indicates an average operating cost incurred on a sale
of goods worth Rs. 100. Lower the ratio, greater is the operating profit
to cover the non-operating expenses, to pay dividend and to create
reserves.
Hence in the year 2010-2011, the ratio is 83.35%, which indicates
higher operating profit among the three.

Operating Profit Ratio:

Operating Profit X 100
Operating Profit Ratio = ____________________
Net sales
Operating Profit = Net Profit + Non-operating Expenses
+ Non-operating Income.

Year

Operating

2010-2011
2011-2012
2012-2013

Profit
1609092.1
7
802898.09
1261636.4

Net Sales

Ratio

9194259.8
8358418
11033111.8

17.5%
9.6%
11.4%

Operating Profit Ratio

20.00%
18.00%
16.00%
14.00%
12.00%

Ratio 10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2010-2011

2011-2012

Interpretation

2012-2013

This ratio indicates an average operating margin earned on a sale of

Rs.100 and what portion of sales is left to cover non-operating
expenses, to pay dividend and to create reserves.
Higher ratio (In the year 2010-2011, which was 17.50%) indicates more
efficient is the operating management. Because of higher gross profit
and lower operating expenses.

Return on Total Asset:

Net Profit before Interest and Tax X 100
Return on Total Asset = ________________________________
Total Asset

Year

N.P Before

Total

Interest

Assets

Ratio

2010-2011
2011-2012
2012-2013

and Tax
1542347.4
7
611219.09
1196371.74

2771383.2
9
3082649.5

55.65%
19.82%
40.53%

4
2946357.2
9

Return On Total Assets

60.00%
50.00%
40.00%
Ratio 30.00%
20.00%
10.00%
0.00%
2010-2011

2011-2012

2012-2013

Interpretation
This ratio indicates the firms ability of generating profit per rupee of
total assets. Higher the ratio, the more efficient the managements and
utilization of total assets.
Hence in the year, 2010-2011, Return on Total Asset is 55.65%, which
shows that there is a efficient utilization of total assets in the firm.

 Return On Capital Employed/ Return On Investment :

Net Profit before Interest and Tax X 100

R.O.I = ____________________________________
Capital Employed
Capital Employed = Shareholders Fund + Long-term Debts
- Fictitious Asset

Year

2010-2011
2011-2012
2012-2013

N.P Before

Capital

Interest

Employed

and Tax
1542347.47
611219.09
1196371.74

5260393.82
1769134.43
5247244.47

Ratio

29.32%
26.6%
22.8%

Interpretation
Return on Capital Employed indicates the firms ability of generating
profit per rupee of capital employed. Higher the ratio, the more
efficient the management and utilization of capital employed in the
firm.In the year, 2011-2012, the ratio was 26.60%, which shows the
higher returns as compared to the other two years.

TURNOVER RATIOS

Fixed Asset Turnover Ratio:

Net sales/ C.O.G.S
Fixed Asset Turnover Ratio = ______________________
Net Total Fixed Asset

Year
2010-2011
2011-2012
2012-2013

Net Sales
9194259.8
8358418
11033111.8

Net Total
Fixed Asset
587982
367941
592756

Ratio
15.63Times
22.71Times
18.61Times

Fixed Asset Turnover Ratio

25
20

Times

15
10
5
0

2010-2011

2011-2012

2012-2013

Interpretation
It indicates the firms ability to generate sales per rupee of investment
in the fixed assets. Higher the ratio, the more efficient the management
and utilization of fixed assets, and vice versa.
Hence in the year,2010-2011, the ratio was 15.63 Times, which was the
lowest among all three years. But in the next year, the ratio was higher
i.e. 22.71 Times, which shows that there is the increase in the efficient
utilization of fixed asset.

 Working Capital Turnover Ratio:

Net Sales
Working Capital Turnover Ratio = _____________________
Working Capital

Year
2010-2011
2011-2012
2012-2013

Net Sales
9194259.8
8358418
11033111.8

Working
Capital
1590215.55
2255629.18
1824404.31

Ratio
5.78Times
3.7Times
6.04Times

Working Capital Turnover Ratio

7
6
5
Times

4
3
2
1
0

2010-2011

2011-2012

2012-2013

Interpretation
Working Capital Turnover Ratio indicates the firms ability to generate sales
per rupee of working capital. In general, higher the ratio, the more efficient
the management and utilization of working capital and vice versa.
Hence in the year, 2012-2013, the ratio was 6.04 Times. Which was higher as
compared to preceding 2 years, that shows firms effective utilization of
working capital.

Stock Turnover Ratio:

Costs of Goods Sold
Stock Turnover Ratio = ________________________
Average Inventory
Opening Stock + Closing Stock
Average Inventory = _______________________________
2

Year

Cost of
Goods Sold
7091531.8
7192320.08
9231036.9

2010-2011
2011-2012
2012-2013

Average

Ratio

Inventory
1706914
1465843
1360750.45

4.15Times
4.9Times
6.78Times

Stock Turnover Ratio

7
6
5
Times

4
3
2
1
0

2010-2011

2011-2012

2012-2013

Interpretation
Stock/ Inventory Turnover Ratio indicate the speed with which the inventory
is converted into sales. A high ratio indicates efficient performance since an
improvement in the ratio shows same volume of sales has been maintained
with a lower investment in stocks.

In the year 2012-2013, the ratio was 6.78 Times, which was higher as
compared to preceding 2 years. Thus the Stock Turnover Ratio of Mahaveer
Medical And General Store is satisfactory.

Debtors Turnover Ratio:

Net Credit Sales
Debtors Turnover Ratio = ____________________
Average Debtor
Average Debtor = O/P Debtors + C/S Debtor +
O/P B/R + C/S B/R
2

Year
2010-2011
2011-2012
2012-2013

Net Credit
Sales
9194259.8
8358418
11033111.8

Average
Debtor
1596225.6
1221990.9
154954.3

Ratio
5.76Times
6.84Times
7.12Times

Debtors Turnover Ratio

8
7
6
5
Times

4
3
2
1
0

2010-2011

2011-2012

2012-2013

Average collection Period :

365 days or 12 months or 52 Weeks

Average collection Period =
Debtors Turnover

Average Collection Period

70
60
50
40
Days 30
20
10
0

2010-2011

2011-2012

2012-2013

Interpretation
Debtors Turnover Ratio indicates the number of times the debtors are turned
over during the year. Higher the value of Debtors Turnover the more liquid
are the debtors.
In the same way, shorter collection period, better the quality of debtors. Since
the shorter collection period implies the prompt payment by debtors.
Here the collection period is decreased every year and the debtors turnover is
increased, which shows satisfactory collection period of Mahaveer Medical
and General Stores.

Creditors Turnover Ratio:

Net Credit Purchases
Creditors Turnover Ratio =
Average Creditors (or Payable)
Average Creditors = O/P Creditor + C/S Creditor
O/P B/P + C/S B/P

Year

Net Credit
Purchases
7355407.8
7410586.08
8274833.8

2010-2011
2011-2012
2012-2013

Average
Creditors
392707.3
354019
351223.8

Creditors Turnover Ratio

25
20

Times

15
10
5
0

2010-2011

2011-2012

2012-2013

Ratio
18.73Times
20.93Times
23.56Times

 Average Payment Period:

365 days or 12 months or 52 Weeks

Average Payment Period =
Creditors Turnover

Average Payment Period

25
20
15
Days

10
5
0

2010-2011

2011-2012

2012-2013

Interpretation
The average payment period ratio represents the average number of days
taken by the firm to pay its creditors. Generally, lower the ratio, the better is
the liquidity position of the firm. But the higher payment period also implies
greater credit period enjoyed by the firm.
Creditors Turnover Ratio is increasing every year and the payment period is
decreasing, which shows unsatisfactory creditworthiness of the firm.

SOLVENCY RATIOS

Debt- Equity Ratio:

Long-term Debts
Debt- Equity Ratio =
Shareholders Fund

Year
2010-2011
2011-2012
2012-2013

Long-term
Debts
853795.21
914735.75
1029138.57

Shareholders
Funds
1682602.34
1769134.43
1566371.74

Ratio
0.50:1
0.52:1
0.66:1

Debt-Equity Ratio
0.7
0.6
0.5
Ratio

0.4
0.3
0.2
0.1
0

2010-2011

2011-2012

2012-2013

Interpretation
Debt-Equity Ratio indicates the margin of safety to long-term creditors. A low
debt-equity ratio implies the use of more equity than debt which means a
larger safety of margin for creditors since owners equity is treated as a
margin of safety by the creditors and vice versa.
Hence the Debt-Equity Ratio is increasing, earlier it was 0.51 in the year
2010-2011, which is increased to 0.66 in the year 2012-2013. Which shows
there is a more use of debt than equity.

 Total Asset to Debt Ratio:

Total Assets
Total Asset to Debt Ratio =
Long-term Debts

Year
2010-2011
2011-2012
2012-2013

Total Assets

Long-term

2771383.29
3082649.54
2946357.29

Debts
853795.21
914735.75
1029138.57

Total Asset to Debt Ratio

Ratio

3.4
3.3
3.2
3.1
3
2.9
2.8
2.7
2.6

2010-2011

2011-2012

2012-2013

Ratio
3.24:1
3.36:1
2.86:1

 Proprietary Ratio:
Proprietors Funds or Shareholders Fund
Proprietary Ratio =
Total Asset (Excluding Fictitious Asset)

Year

Shareholders

Total Assets

2010-2011
2011-2012
2012-2013

Funds
1682602.34
1769134.43
1566371.74

2771383.29
3082649.54
2946357.29

Ratio
0.60:1
0.57:1
0.53:1

Proprietory Ratio
0.6
0.58
0.56
Ratio

0.54
0.52
0.5
0.48

2010-2011

2011-2012

2012-2013

Interpretation
Proprietary Ratio indicates the extent to which the assets of the company can
be lost without affecting the interest of creditors of the company. As this ratio
represents the relationship of owners funds to total assets, higher the ratio,
better is the long-term solvency position of the company.
Since the ratio is decreasing, from 0.6 to 0.53, which shows poor solvency
position of the firm.

CHAPTER-5
CONCLUSION

Conclusion
From this project we learn application of theory into practical. By this project
I learn to apply ratio in practical. The firm is gaining profit and they are trying to
increase their profit. By analyzing the financial statement of company we are able
to determine the companys current financial position. From the project we have
concluded that a Mahaveer Medical and General Stores have a good financial
position and has been able to pay their liabilities.
1. Current ratio is in a better condition,which shows good current position.
and is used to repay short term debt promptly and it shows better ability
to repay short term commitment.
2. After computing gross profit ratio in the first year gross profit is
maximum, but after that its falls, hence company needs to improve
gross profit.
3. As per the net profit ratio, the firm needs to improve net profit in order
to maintain the overall profitability.
4. The collection period is decreased every year and the debtors turnover
is increased, which shows satisfactory collection period of Mahaveer
Medical and General Stores.

SUGGESTION

 Firm has to improve its overall profitability by improving the

Gross Profit and Net Profit.
The firm has to take proper care of their solvency position. As
the Proprietary Ratio is decreasing continuously.
There is a more use of debt than equity in the firm. This will be
maintained in the future.
Payment period should be improved in order to maintain their
creditors
Operating cost should be maintained by the firm.

BIBLIOGRAPHY

Bibliography
Analysis of Financial Statements (Thakur Publications,
Pune).

 Analysis of Financial Statements (T.S. Grewal, C.B.S.E,

New Delhi).
Financial Management Accounting, Dr Suhas Mahajan
Financial Management Dr. S.N.Maheshwari.

ANNEXURE