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SUBMITTED BY
ZARANA AGNIHOTRI
ROLL NO. 52
SUBMITTED TO
UNIVERSITY OF MUMBAI
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3rd SEMESTER
SUBMITTED BY
ZARANA AGNIHOTRI
Roll No.: 52
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K.P.B. HINDUJA COLLEGE OF COMMERCE
315, New Charni Road, Mumbai 400 004 Tel .: 022- 40989000 Fax: 2385 93 97. Email:
NAAC Re-Accredited A
1:2008 THE BEST COLLEGE OF UNIVERSITY OF MUMBAI FOR THE ACADEMIC YEAR 2010
Prin. Dr. Minu Madlani (M. Com., Ph. D.)
CERTIFICATE
Principal - _____________
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DECLARATION
The information submitted is true and original copy to the best of our knowledge.
Date - ______________
Place - Mumbai Signature of Student
(ZARANA AGNIHOTRI)
INDEX
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Sr.no Particulars Page no.
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Financial management refers to the efficient and effective management of money
(funds) in such a manner as to accomplish the objectives of the organization. It is
the specialized function directly associated with the top management.
The term typically applies to an organization or company's financial strategy,
while personal finance or financial life management refers to an individual's
management strategy.It includes how to raise the capital and how to allocate
capital, i.e. capital budgeting. Not only for long term budgeting, but also how to
allocate the short term resources like current liabilities. It also deals with the
dividend policies of the share holders.
Financial management can be defined as that activity of management which is
concerned with the planning, procuring and controlling of the firm's financial
resources
Objectives of Financial Management
- Profit maximization occurs when marginal cost is equal to marginal revenue.
- Wealth maximization means maximization of shareholders' wealth. It is an
advanced goal compared to profit maximization.
- Survival of company is an important consideration when the financial
manager makes any financial decisions.
- Maintaining proper cash flow is a short run objective of financial
management. It is necessary for operations to pay the day-to-day expenses.
- Minimization on capital cost in financial management can help operations
gain more profit.
Scope of Financial Management
- Estimating the Requirement of Funds: Businesses make forecast on funds
needed in both short run and long run, hence, they can improve the
efficiency of funding. The estimation is based on the budget e.g. sales
budget, production budget.
- Determining the Capital Structure: Capital structure is how a firm finances
its overall operations and growth by using different sources of funds. Once
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the requirement of funds has estimated, the financial manager should decide
the mix of debt and equity and also types of debt.
- Investment Fund: A good investment plan can bring businesses huge returns.
RATIO ANALYSIS
The absolute accounting figures reported in the financial statements do not provide
a meaningful understanding of the performance and financial position of a firm.
Meaning:
Although all these three groups are interested in the financial conditions and
operating results, of an enterprise, the primary information that each seeks to
obtain from these statements differs materially, reflecting the purpose that the
statement is to serve.
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Investors desire primarily a basis for estimating earning capacity. Creditors are
concerned primarily with liquidity and ability to pay interest and redeem loan
within a specified period. Management is interested in evolving analytical tools
that will measure costs, efficiency, liquidity and profitability with a view to make
intelligent decisions.
Classification of Ratios:
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1. Structural group: The following are the ratios in structural group:
Total capitalisation (Share capital + Reserves and surplus + long term loans)
ii) Debt to equity: Due care must be given to the; computation and interpretation
of this ratio. The definition of debt takes two foremost. One includes the current
liabilities while the other excludes them. Hence the ratio may be calculated under
the following two methods:
Long term loans + short term credit + Total debt to equity = Current liabilities and
provisions Equity share capital + reserves and surplus (or)
Long-term debt to equity = Long-term debt / Equity share capital + Reserves and
surplus
This ratio acts as a supplementary measure to determine security for the lenders. A
ratio of 2:1 would mean that for every rupee of long-term indebtedness, there is a
book value of two rupees of net fixed assets:
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The ratio is calculated by dividing the long-term debt by the amount of the net
working capital. It helps in examining creditors contribution to the liquid assets of
the firm.
2. Liquidity group: It contains current ratio and (Quick ratio) Acid test ratio.
3. Profitability Group: It has five ratio, and they are calculated as follows:
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4. Turnover group: It has four ratios, and they are calculated as follows:
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5. Miscellaneous group: It contains four ratio and they are as follows:
For the purpose of accounting the ratios can be divided into three main categories
1. Balance sheet Ratios: Ratios calculated from different items of the balance
sheet of the concern are called balance sheet ratios. For Eg.: Current Ratio,
Liquid Ratio, Proprietary Ratio, Capital Gearing Ratio, Debt Equity Ratio
etc.
2. Revenue statement Ratio: Ratios calculated from different items of the
Profit & Loss Statement of the Firm are called revenue statement Ratios. For
Eg.: Gross Profit Ratio, Net Turnover Ratio, Net Profit Ratio, Operating
Profit Ratio, Stock Turnover Ratio, etc.
3. Mixed Ratio: Ratios calculated from different items of the both balance
sheet and profit & loss statement are call mixed ratios. For Eg.: Working
Capital Ratio, Net profit to proprietary funds ratio, etc
Some of the ratios which are commonly used, in detail are as follow:
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i) Current ratio: It is computed by dividing current assets by current liabilities.
This ratio is generally an acceptable measure of short-term solvency as it indicates
the extent to which he claims of short term creditors are covered by assets that are
likely to be converted into cash in a period corresponding to the maturity of the
claims. Standard Ratio should be 2:1
Formula:
Where, Current Assets = Inventories+ cash Receivable+ cash & bank+ loans &
advances+ bills Receivable+ marketable securities
Current Liabilities = Payables+ short term loans+ bank overdraft+ cash credit+
outstanding expenses+ Provision for Tax
The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity
indicator that further refines the current ratio by measuring the amount of the
most liquid current assets there are to cover current liabilities.
The quick ratio is more conservative than the current ratio because it excludes
inventory and other current assets, which are more difficult to turn into cash.
Therefore, a higher ratio means a more liquid current position. The standard ratio
in this case is 1:1.
Formula:
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Quick Assets = Current Assets Stock in Trade
Quick Liabilities = Current Liabilities Bank Overdraft
iii) Debt-Equity Ratio: The debt-equity ratio is another leverage ratio that
compares a company's total liabilities to its total shareholders' equity. This is a
measurement of how much suppliers, lenders, creditors and obligors have
committed to the company versus what the shareholders have committed. Similar
to the debt ratio, a lower percentage means that a company is using less leverage
and has a stronger equity position.
Formula:
Long Term Debt = Secured Loans + Unsecured Loans
Shareholders Fund = Share Capital + Reserve
iv) Fixed Asset Ratio: The Ratio reveals the relation between the fixed assets and
proprietors Fund. It also shows how much fixed Assets are converted by the
proprietors fund. It is used for testing the solvency position and efficiency of the
management.
Formula: Fixed Assets ratio = Fixed Assets
Proprietors Fund
v) Net Profit Ratio: the ratio indicates the ratio of the Net profit to Net Sales. The
amount left out for the proprietors fund can be known from this ratio. This helps
in measuring the profitability of the business.
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Formula:
vi) Debtors Turnover Ratio: The ratio reveals the number of days the debtors
enjoyed as credit period allowed to them. It shows how quickly receivables or
debtors are converted into cash. It is a test of the liquidity of the debtors of a firm.
This ratio is also analyzed to study the debt collection policy of an enterprise. A
large credit period indicates a very bad collection policy.
Formula:
Oracle Financial Services Software Limited has two main streams of business. The
products division (formerly called BPD Banking products Division) and Prime
Sourcing. The company's offerings cover retail, corporate and investment banking,
funds, cash management, trade, treasury, payments, lending, private wealth
management, asset management and business analytics.
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The company undertook a rebranding exercise in the latter half of 2008. As part of
this, the corporate website was integrated with Oracle's website and various
divisions, services and products renamed to reflect the new identity post alignment
with Oracle.
Below are the ratios calculated for five the Financial years of the company.
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Adjusted Cash Margin(%) 26.64 30.17 32.07 32.20 27.24
Net Profit Margin(%) 26.63 31.66 36.34 35.03 41.79
1. Current ratio shows a decreasing trend from the financial year 2012 to 2014,
but after that its ratio has decreased by 80%. The current financial years ratio
is 1.97 i.e it has gradually increased its Solvency Rate.
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2. Even Quick Ratio shows a decreasing trend from the financial year 2012 to
2014, but after that its ratio has decreased by 80%. The current financial
years ratio is 1.93 i.e it has High solvency Rate
3. Dividend per share was Rs.655 per share in the year 2015 but tremendously
decreased to 100 per share in the current year.
4. Its Net operating profit Ratio per share has increased gradually from 2012 to
the current year from Rs. 310.32 to 410.91 in 2016
5. When analyzing the Management efficiency ratio, one of the key Element is
Debtors Turnover ratio which gradually increased from 2.72 in 2012 to 4.68
in 2016, which indicates the increased credit availability to them
6. Expense ratio indicates that the operating expenses with respect to its sales
has decreased over a period of time.
7. Also Dividend Payout ratio to Net profit has decreased from 531.53 in 2015
to 91.35 in 2016.
2. When the two companies are of substantially different size, age and diversified
products, comparison between them will be more difficult.
3. A change in price level can seriously affect the validity of comparisons of ratios
computed for different time periods and particularly in case of ratios whose
numerator and denominator are expressed in different kinds of rupees.
4. Comparisons are also made difficult due to differences of the terms like gross
profit, operating profit, net profit etc.
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5. If companies resort to window dressing, outsiders cannot look into the facts
and affect the validity of comparison.
6. Financial statements are based upon part performance and part events which can
only be guides to the extent they can reasonably be considered as dues to the
future.
Bibliography
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