A PROJECT REPORT ON

“FINANCIAL ANALYSIS”

DUKES RAVI Foods Pvt. Ltd.,

SUBMITTED TO

UNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT OF REQUIERMENT FOR THE

AWARD OF DEGREE OF M.B.A.

BY:-

MAGAR YUVRAJ SURYAKANT

MBA {FINANCE}

UNDER THE GUIDANCE OF:-

[DR. SANJAY PATANKAR]

ALL INDIA SHRI SHIVAJI MEMORIAL SOCIETY

INSTITUTE OF MANAGEMENT

PUNE

2014-2015

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 DECLARATION

I, undersigned, hereby declare that the project report entitled

“Financial Analysis of Dukes Ravi foods Pvt. Ltd.” written and submitted
by me to the University of Pune in partial fulfillment of requirement for the
award of degree of Master Of Business Administration under the guidance
of DR.SANJAY PATANKAR, is my original work and the conclusion
drawn there in are based on the material collected by myself.

Place: - Pune

Date:-

Magar Yuvraj Suryakant

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*DISCLAIMER:-

THE DOCUMENTS, WHAT SO EVER SHOWN IN THE PROJECT REPORT IS NOT

ORIGINAL & DOES NOT SHOWING ANY COMPANY PERSONNAL INFORMATION OR

DOES NOT BELONGS TO ANY COMPANY . IT IS FOR UNDERSTANDING PURPOSE.

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 INDEX

CHAPTER CONTENTS PAGE

NO. NO.
Acknowledgement 1

Executive Summary of the Project 2

1. Company Profile 3

 Vision & Mission of the company 6

 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

9. Annexure & References 75

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 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.

In this context, as a student of ALL INDIA SHRI SHIVAJI MEMORIAL SOCIETY

IOM, I would like to thank and express my gratitude towards Mr.Venkat (project
guide) for assigning me such a worthwhile topic & a supportive guidance. I am also
thankful to our college for their valuable guidance.

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.

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 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.

In this context, as a student of ALL INDIA SHRI SHIVAJI MEMORIAL SOCIETY

IOM, I would like to thank and express my gratitude towards Mr.Venkat (project
guide) for assigning me such a worthwhile topic & a supportive guidance. I am also
thankful to our college for their valuable guidance.

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.

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 COMPANY PROFILE

LOGO OF COMPANY

DETAILS ABOUT COMPANY

VISION & MISSION OF COMPANY

OBJECTIVES OF FINANCIAL STATEMENTS WITH RATIO

ANALYSIS

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Company profile:-

Company name:- DUKES RAVI Foods Pvt. Ltd.,

Company logo:-

Company proprietor:- Ramesh Agarwal – Chairman

Commencing of 1985
Company :-

Company turnover:- Rs. 100-400 Crore Approx

Company address:- 7 - 4 - 112, Madhuban Colony

Road, Kattedan, Hyderabad -
500 077, Andhra Pradesh, India

BRANCH:- Plot No. 8, Sector No. 1, IIE,

Rudrapur - 263153,
Uttarakhand, India
WEBSITE:-www.dukesindia.com

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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.

RESPECT FOR PEOPLE

We treat individuals with dignity and respect. We continue to be honest, open

and ethical in all our interactions with distributors, retailers, suppliers,
customers, and with each other.

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

We recognize that we can be a leading company through active delegation and

by creating leaders at every level of the organization.

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 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.

Types of data which helped to prepare the Report

1. Primary data: - primary data is that which collects information to be personally

used and studied, to prepare and reach the objectives stated.
2. Secondary data: - It is that which collects data only used to reach the aims of
objectives of the project. These data is collected from the financial reports of the
company.

Advantages of secondary data

1. It is economical and time saving.
2. It is helpful to understand the problems or confusions.
3. It provides the benchmark for the data collected by the researcher.

Selection of data: From the Annual Reports of the Company for 5 years.

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 DESIGN OF THE STUDY

Title of the project: “Financial Analysis” At DUKES RAVI Foods Pvt. Ltd.,
Statement of the Problem:

As ratios provide a benchmark for company’s against their own

performance in industry. The company wants to study the ratio’s and compare its
performance of past with the present performance with the help of ratio analysis,
various items of financial statement that ensure their existence as well as their
future progress.
Research Problem:

To know the Financial Position of the company and its Liquidity

Performance through comparing five years financial performance by applying
different financial Ratios.
Purpose of the study:

As it is very difficult to decide any inference from the mass of figures

included in financial statements. So in order to judge accurately the financial
health of the firm, it is generally regroup and analyze the figures as disclosed by
these financial statement.
The use of Ratio Analysis or Accounting Ratios enables conclusions to be
drawn from the figures as to know the earning capacity, operational efficiency,
and financial condition etc. of a concern.

The study includes the calculation of different financial ratios. It compares

three years financial statements of the company to know its performance in these
different years.

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Objectives of the study:

1. Main Objective is to study the different ratios used in DUKES RAVI

Foods Pvt. Ltd.,
2. To know the DUKES RAVI Foods Pvt. Ltd., financial performance
based on ratios.
3. To find out the companies efficiency based on past and present
profitability ratios.
4. To study the liquidity position of the company.
5. To improve its future performance by analyzing its financial
statements.

MEASUREMENT TECHNIQUE / STATISTICAL TOOLS:

 Accounting Ratios.
 Financial Statements of the Company.

LIMITATION OF THE STUDY:

 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.

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 LIMITATION OF THE RESEARCH

 The study is done only on the Balance sheet and profit and Loss A/c.

 The limitation of ratio analysis is itself a limitation in achievement the set

objective.
 It communicates only a relative picture. Every organization in one way or other
way is unique and comparison may not be valid.

 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.

 Inflation distorts financial ratio analysis. Changes in reported performance of a

company may be entirely due to inflation and not due to management.

 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.

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 INTRODUCTION
FINANCIAL ANALYSIS

Financial Analysis is the selection, evaluation, and interpretation of financial data,

along with other pertinent information, to assist in investment and financial decision
making. Financial analysis may be used to evaluate to issues such as employee
performance, the efficiency of operations, and credit policies, and externally to
evaluate potential investments and the credit worthiness of borrowers, among other
things.

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.

Some of the other objectives are stated below.

 Measuring the profitability.

 Intra-firm and inter-firm comparison of the performance.

 Indicating the trend of achievement.

 Simplified, systematic and intelligible presentation of facts.

 Measuring short and long term financial position.

 Judging the operational efficiency of the business.

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THEORETICAL FRAME WORK

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 FINANCIAL ANALYSIS

Accounting has been defined as:

“The art of recording, classifying, and summarizing in a significant manner and

in terms of money, transactions and events which are, in part at least, of
financial character, and interpreting the results thereof.”(AICPA)

Financial Statements

Financial Statements represent a formal record of the financial activities of an entity.

These are written reports that quantify the financial strength, performance and
liquidity of a company. Financial Statements reflect the financial effects of business
transactions and events on the entity.

Financial Accounting, or financial reporting, is the process of producing

information for external use usually in the form of financial statements. Financial
Statements reflect an entity's past performance and current position based on a set of
standards and guidelines known as GAAP (Generally Accepted Accounting
Principles). GAAP refers to the standard framework of guideline for financial
accounting used in any given jurisdiction. This generally includes accounting
standards (e.g. International Financial Reporting Standards), accounting conventions,
and rules and regulations that accountants must follow in the preparation of the
financial statements.

Business as we know is concerned with the financial activities. In order to

ascertain the financial status of the business prepares certain statements, known as
financial statement. In the same way Gross Profit/Gross Loss of the business we
prepare Trading Account. In the same way Net Profit/Net Loss is determined by the
preparation of Profit and Loss Account. The Trading and Profit & Loss Account,
Jointly known as Income Statement. Information regarding assets and liabilities of the
business are available from the Balance Sheet, known as Position Statement. In this
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way, we prepare the following two statements at the accounting period (normally one
year):-

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.

Purpose/Importance of Income Statement:-

Income statements are prepares to achieve the following purposes:

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.

3. Establishing relationship of direct expenses with the gross profit.

4. Ascertaining profitability of the business by establishing relationship of gross profit

and net profit with 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

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liabilities include creditor’s equities and proprietor’s equities. It is traditionally known
as Balance sheet.

Purpose of Position Statement:-

The special purposes of preparing Position Statement are as under:

1. Understanding the short term and long term financial position of the business.
2. Ascertaining the value of proprietor equity and calculating proprietary ratio by
establishing relationship between proprietor equity and total assets.
3. Making arrangement of probable losses.
4. Calculating working capital.
5. Calculating financial ratios.

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FINANCIAL ANALYSIS

MEANING: -

Financial Analysis is the systematic numerical calculation of the

relationship of one financial fact with the other to measure the profitability,
operational efficiency, solvency and the growth potential of the business. The analysis
serves the interests of shareholders, debenture-holders, potential investors, creditors,
bankers, journalists, legislators and etc. The analysis of financial statements makes it
simple, intelligible and meaningful for all the concerned parties. Financial statements
are split into simple statements by the process of rearranging, regrouping and the
calculations of various ratios. The analysis simplifies, summarizes and systematizes
the monotonous figures.

Financial analysis in this way is the purposeful and systematic presentation of

financial statements. Various items of income and position statement are compared
and their inter-relationship is established. Financial analysis, as such presents
meaningful, expression of the relationship between different items, such as
relationship between gross profits and net sales.

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DEFINITIONS:

According to Myers,

“Financial Analysis is a study of relationship among various financial factors in a

business, as disclosed by a single set of statements and a study of the trend of these
factors as shown in the series of statements.”

According to Kennedy and Mamallaz,

“The analysis and interpretation of financial statements are an attempt to determine

the significance and meaning of financial statements data, so that a forecast may be
made of the prospects for future earning, ability to pay interest and debt
maturities(both current and long term) and profitability of sound dividend policy.”

 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.

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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 .

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 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 .

7. ECONOMIST AND RESEARCHERS:-

These partied are interested In the financial activities of the business ,so that they
may study the financial health of the economic structure of the business, study the rate
of economic growth, compare it with other economics and suggest effective measure
to accelerate the pace of growth.

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.

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TYPES OF FINANCIAL ANALYSIS
The following are the two types of financial analysis:

1. Trend analysis or Dynamic 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.

2. Structural or Static analysis

It analyses a single set of financial statement. Relationship between the two
variables of the same statement is studied. Establishing relationship between gross
profit and sales or current assets and current liabilities etc. are its examples.

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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:

1. Measuring the profitability

Financial statements show the gross profit, net profit and other expenses. The
relationship of these items can be established with sales. Gross profit, net profit,
expenses and operating ratios may be calculates and the profitability of the
business ascertained. In case of improving profitability ratios, the cause responsible
for this performance should be reinforced.

2. Judging the solvency of the understanding

Creditors are always interested in knowing the solvency i.e., the capacity of
the business to repay their loans. The following facts are ascertained for findings of
Liquidity:
 Whether current assets are sufficient to meet current liabilities.
 Proportion of liquid assets to current assets.
 Futures prospects of the business.
 Whether debentures and other loans are secures or not.
 Managerial efficiency of the company.

3. Assessing the growth potential of the business

The trend and dynamic analysis of the business provide us sufficient information
indicating the growth potential of the business. If the trend predicts gloomy picture,
effective measures can be applied as remedial measures. If cost of production is rising
without corresponding increase in sales price, efforts should be made to reduce the
cost of production.

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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.

5. Forecasting, budgeting and deciding future line of action

Analysis of financial statements predicts the growth potential of the business.
Comparison of actual performance with desired performance shows our shortcomings.
The analysis provides sufficient information regarding the profitability, performance
and financial soundness of the business on the basis of the information’s we can make
effective forecasting, budgeting and planning.

6. Indicating the trend of achievement

It is very significant that the company must know the operational efficiency of the
management. We analyse the financial statements, match the amount of all expenses
of the current year with the corresponding expenses of the previous We can judge the
operational affiance of the business by calculating profitability ratios.

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TOOLS OF FINANCIAL ANALYSIS

The following tools are used to measure the operational efficiency and financial
soundness of the enterprise:

1. Comparative Statements

2. Common Size Statements

3. Trend Analysis

4. Ratio Analysis

5. Fund Flow Statement

6. Cash Flow Statement

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LIMITATION OF FINANCIAL ANALYSIS

In spite of all significance of analysis of financial statements as discussed above, it has

the following drawbacks:

1. Suffering from the limitation of financial statements

Financial statements suffer from variety of weakness. Balance Sheet is prepared
on historical record of the value of assets. It is just possible that assets may not have
the same value. Financial statements are prepared according to certain conventions at a
point of time; whereas the investor is concerned with the present and future of the
company. Certain assets and liabilities are not disclosed. Personal judgment plays an
important role in determining the figures of the balance sheet.

2. Absence of Standard universally accepted terminology

Accounting is not an exact science. It does not have standard, universally
accepted terminology. Different meanings are given to a particular term. There are
different methods of providing depreciation. Interest may be charged on different
statements have to suffer.

3. Ignoring Price level changes

The results shown by financial statements may be misleading, if price level
changes have not been accounted for. The ratio may not improve with the increase in
price, whereas the actual efficiency may not improve. Ratios of the two years will not
be meaningful for comparison, if the prices of commodities are different. Change in
prices affects cost of commodities, sales and values of assets and as consequences
comparability of ratios also suffers.

4. Ignoring Qualitative aspect

Financial analysis does not measure the qualitative aspects of the business. It does
not show the skill, technical knowhow and the efficiency of its employees and
managers. It is the qualitative measurement of the performance. It means that analysis
of financial statements measures only the one sided performance of the business. It
completely ignores human resource.

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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.

6. Financial Analysis is only a tool, not the final remedy

Analysis of statement is a tool to measure the profitability, efficiency and
soundness of the business. It should be noted that personal judgment of the analyst is
more important in financial analysis. We should not rely on single ratio. Before
reaching any conclusion, we should calculate several ratios. Accountant should not be
biased in the calculation of ratios. It should not be calculated on the basis of the
personal contention.

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.

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 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.

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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.

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.

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.

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FACTORS TO BE CONSIDERED WHILE DOING OF RATIO
ANALYSIS:-

1. Accuracy of Financial statement

The ratios are calculated from the data available in financial statements. The
reliability of ratio is linked to the accuracy of information of these statements. Before
calculating ratios one should be aware whether proper concepts and conversation have
been used for preparing financial or not.

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.

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TECHNIQUES OF RATIO ANALYSIS
There are vital two techniques of ratio analysis which are explaines as follows:-

1. Horizontal Analysis

Horizontal analysis is an industry jargon for comparison of the same ratio

over time. Once a ratio is calculated, it is compared with what the value was in
the previous quarter, the previous years, or many years in case the analyst is
trying to make a trend. This provides more information of two grounds. They
are:

 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

Cross sectional ratio analysis is the industry jargon used to denote

comparison of ratios with other companies. The other companies may or may
not belong to the same industry. There are many variations of cross sectional
analysis. They are as follows:

 Industry Average: The most popular method is to take the industry

average and compare it with the ratios of the firm.
 Industry Leader: Many companies and analysts are not satisfied with
being average. They want to be the industry leader and therefore
benchmark against them.
 Best Practice: In case, the company is the industrial leader, then it usually
crosses the industry border and seeks inspiration from anyone anywhere in
the world. They benchmark with the best practices across the globe.

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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:-

1. Helpful in Decision Making

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.

2. Helpful in Financial Forecasting and Planning

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 is more important from communication point of view. Suppose, we

have to appoint new sales agents for our company, at that time, we can communicate
them by using our company's sales and profit related ratios. By just telling this ratio,
we can understand whether our company is growing or falling.

4. Helpful for Shareholder's decisions

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.

5. Helpful for Creditors' decisions

Creditors are those persons who provide goods on credit to company or provides
short period loan to company. All the creditors are interested to know whether
company will repay their debt or not.

6. Helpful for employees' decision

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.

7. Helpful for Govt. decisions

Different companies analyze their accounting ratios and publish on the net and
print newspapers. Govt. collects all these information. On this basis, Govt. makes
policies. If ratios will wrong, Govt. policies will become wrong. For example, Govt.
collects income data of all companies in different industries for calculation the
national income.

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:-

1. Comparative study required

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.

2. Limitations of financial statements

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.

3. Ratios alone are not adequate

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

The term window dressing means manipulation of accounts in a way as to conceal

vital facts and present the financial statements in a way to show a better position than
what it actually is. On account of such a situation, presence of particular ratio may not
be a definite indicator of good or bad management.

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.

6. Ratios are composite of many figures

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 Users are as follows:-

 Management: Turnover and Operating Performance Ratios

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: Cash Flow and Liquidity

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.

 Credit Rating Agencies: Solvency

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:-

The ratio analysis requires two steps as follows:

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:-

Since a ratio is a mathematical relationship between two or more variables /

accounting figures, such relationship can be expressed in different ways as
follows –

 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:

In such a case, one item may be expressed as a percentage of some other

items. For example, net sales of the firm are Rs.50,00,000 & the amount of the
gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of
sales [ 10,00,000/50,00,000]

39
CLASSIFICATION OF RATIO

Accounting ratios can be classified from different point of view. Ratios

may be used to evaluate the company's liquidity, efficiency, leverage and
profitability. The ratios may be classified as following.

CLASSIFICATION OF RATIO

1. BASED ON FINANCIAL STATEMENT

 Balance sheet ratio

 Revenue statement ratio
 Composite ratio

2. BASED ON FUNCTION

 Liquidity ratio
 Leverage ratio
 Activity ratio
 Profitability ratio

3. BASED ON USER

 Ratio from short term creditors

 Ratio from shareholder
 Ratio from management
 Ratio from long term creditors

40
Explanation of above stated ratios

1. BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from financial
statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of
classification of ratios is based upon the sources from which are taken.

A. Balance sheet ratio:

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:

A. Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratio.

42
B. Ratios for the shareholders:

Return on proprietors fund, return on equity capital.

C. Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratio.

D. Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratio.

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 objectives of the projects are follows:-

 To know about Various Ratios analysis formulae.

 To know the importance of financial analysis of the organization.
 To know about the various aspects of financial analysis.
 To know about the financial tools adopted by the company.

The study is limited to financial analysis technique used by DPIL and hoe these
were utilized by the company.

Methodology:-

The study is conducted on the secondary Data Collected.

 Interacting with financial department of the company.

 Past data regarding the company.
 The employees are source for gathering the data.
 The books and websites are also sources of data.
 Collection of data regarding financial tools and risk factors.
 Data regarding the financial aspects of the company.
 Data regarding the financial and the responsibilities of the financial
department.

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.

Financial Current Quick Cash

year Ratio Ratio Ratio

2008-2009 2.19 2.04 0.43

2009-2010 2.15 1.54 0.75

2010-2011 3.01 2.85 0.57

2011-2012 1.82 1.69 0.45

2012-2013 11.32 8.41 3.43

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 Ratio = Current Assets

Current Liabilities
47
Financial year Current Assets Current Liabilities Current Ratio

2008-2009 3,03,37,038 1,38,17,090 2.19

2009-2010 1,69,76,298 78,82,926 2.15

2010-2011 2,35,46,599 78,06,902 3.01

2011-2012 4,50,41,007 2,47,04,584 1.82

2012-2013 2,59,87,964 22,95,200 11.32

Current assets & Liabilities

50000000
45000000
40000000
35000000
Amount

30000000
25000000
20000000
15000000
10000000
5000000
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Year

Current Assets Current Liabilities

Comments:-The standard current ratio which should be 2:1 in every

companies in India has not been be fulfilled by this particular, perhaps the
current ratio of the company has been increased in 2008-09, later it has
increased majorly in 2010-2011, leading to show the idleness of funds.

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.

Quick Ratio = Current Assets – Stock

Current Liabilities

Current Assets – Current

Financial year Stock Liabilities Quick Ratio

2008-2009 2,83,24,453 1,38,17,090 2.04

2009-2010 1,22,00,780 78,82,926 1.54

2010-2011 2,22,86,951 78,06,902 2.85

2011-2012 4,19,31,526 2,47,04,584 1.69

2012-2013 1,93,23,267 22,95,200 8.41

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

Comments:-The standard quick ratio which should be 1:1 in every companies

in India has not been be fulfilled by this particular, perhaps the ratio of the
company has been increased in 2008-09, later it has increased majorly in
2010-2011, leading to show the idleness of funds.

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.

Cash Ratio = Cash & 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

2009-2010 59,77,887 78,82,926 0.75

2010-2010 45,09,499 78,06,902 0.57

2010-2011 1,13,20,949 2,47,04,584 0.45

2012-2013 78,84,491 22,95,200 3.43

100000000

10000000

1000000

100000

10000 Cash & Marketable

Securities
1000 Current Liabilities

100 Cash Ratio

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:-

These ratios are concerned with measuring the efficiency in assets

management. The turnover with which assets are managed/ used is reflected in
the speed and rapidity with which they are converted into sales. Thus, the
turnover ratio is the taste of relationship between sales/cost of goods sold and
assets.

The most common ratio which indicates the efficiency of the business is
as follows.

1) Inventory turnover ratio

2) Working capital turnover ratio
3) Fixed turnover ratio
4) Total assets turnover ratio

1. Inventory Turn Over Ratio:-

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.

Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory

53
 Inventory Turn
Financial year COGS Avg. Inventory Over Ratio

2008-2009 26,71,85,393 2,00,71,575 13.31

2009-2010 11,93,20,586 33,94,052 35.15

2010-2011 16,23,79,947 30,17,583 53.81

2011-2012 21,89,21,007 2,184,565 100.21

2012-2013 33,49,31,080 48,87,089 68.53

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

COGS AVG Inventory Inventory Turnover Ratio

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

2009-2010 12,18,81,399 90,93,372 13.40

2010-2011 16,79,93,982 1,57,39,697 10.67

2011-2012 22,11,85,579 2,03,36,423 10.87

2012-2013 34,60,06,259 2,36,92,764 14.60

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

Inventory Turnover Ratio Working Capital Turnover Ratio

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 Turnover = Net Sales

Fixed Asset

Fixed Assets
Financial year Net Sales Fixed Assets Turnover Ratio

2008-2009 27,08,16,847 1,23,04,773 22.00

2009-2010 12,18,81,399 1,24,97,432 9.75

2010-2011 16,79,93,982 1,25,37,432 13.39

2011-2012 22,11,85,579 1,44,61,900 15.29

2012-2013 34,60,06,259 1,65,87,581 20.85

57
 1E+09

100000000

10000000

1000000

100000

10000

1000

100

10

1
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Net Sales Fixed Assets Fixed Assets Turnover Ratio

Comments:-This ratio indicates the fixed assets contributing towards making or

generating the sales; therefore on calculation it is found that in the year 2006-
07 the fixed assets played a vital role in increasing the turnover or sales of the
company.

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 Turnover Ratio = Net Sales

Total Assets

Total
Assets
Turnover Fixed Assets
Financial year Net Sales Total Assets Ratio Turnover Ratio

2008-2009 27,08,16,847 4,26,41,811 6.35 22.00

2009-2010 12,18,81,399 2,94,73,730 4.13 9.75

2010-2011 16,79,93,982 3,60,84,031 4.65 13.39

2011-2012 22,11,85,579 5,95,02,907 3.71 15.29

2011-2013 34,60,06,259 4,25,75,545 8.12 20.85

59
 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

Comments:-This ratio indicates the total assets contributing towards making or

generating the sales; therefore on calculation it is found that in the year 2006-
07 the total assets played a vital role in increasing the turnover or sales of the
company.

Interpretation & Analysis of 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.

60
3. LEVERAGE RATIOS: -

This is calculated to judge the long-term financial position of the firm.

These ratios indicate mix of fund provided by owners and lenders. These ratios
indicate the extent to which the interest of the person entitled to get a fixed
return or a scheduled repayment s per the agreed term, are safe. The higher
the cover the better it is.

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 Assets to Net-Worth Ratio = Net Assets

Net-Worth
Net Assets to Net-
Financial year Net Assets Net – Worth Worth Ratio

2008-2009 4,26,41,811 3,51,60,045 1.21

2009-2010 2,94,73,730 4,15,65,781 0.70

2010-2011 3,60,84,031 4,54,62,100 0.79

2010-2012 5,95,02,907 5,08,87,190 1.16

2012-2013 4,25,75,545 5,79,73,561 0.73

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

Net - Worth Net Asstes

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.

63
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.

Various profitability Ratios are,

1) Gross Profit
2) Net Profit Ratio
3) Return on Assets
4) Return on Equity
5) Return on capital Employed

Gross Profit Ratio:-

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.

64
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:-

A return on shareholder equity is calculated to see the profitability of owner’s

investment. Return on equity indicates how well the firm has used the resources of owners.
This ratio is, thus, of great interest to the present as well as the prospective shareholder and
also of great concern to management, which has the responsibility of maximizing the
owners’ welfare.

65
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.

66
  Gross Profit Ratio = Gross Profit X 100
Sales

Financial year Gross Profit Sales Gross Profit Ratio

2008-2009 36,31,454 27,08,16,847 1.34

2009-2010 25,60,813 12,18,81,399 2.10

2010-2011 56,14,035 16,79,93,982 3.34

2011-2012 22,64,572 22,11,85,579 1.02

2012-2013 1,10,75,179 34,60,06,259 3.20

 Net Profit Ratio = Net Profit X 100

Sales

Net Profit
Financial year Net Profit Sales Ratio

2008-2009 57,54,435 27,08,16,847 2.12

2009-2010 33,53,355 12,18,81,399 2.75

2010-2011 53,73,147 16,79,93,982 3.19

2011-2012 64,68,693 22,11,85,579 2.92

2012-2013 1,35,80,075 34,60,06,259 3.92

67
 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

Gross Profit Ratio Net Profit Ratio

Interpretation & Analysis of GP & NP Ratio:

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.

 Return on Assets = PAT X 100

Total Assets

68
 Return On
Financial year PAT Total Assets Assets

2008-2009 57,54,435 4,26,41,811 13.49

2009-2010 33,53,355 2,94,73,730 11.37

2010-2011 53,73,147 3,60,84,031 14.89

2011-2012 64,68,693 5,95,02,907 10.87

2012-2013 1,35,80,075 4,25,75,545 31.89

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

Interpretation & Analysis of 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.

69
 Return on Equity = PAT X 100
Net Worth

Return On
Financial year PAT Net – Worth Equity

2008-2009 57,54,435 3,51,60,045 16.36

2009-2010 33,53,355 4,15,65,781 8.06

2010-2011 53,73,147 4,54,62,100 11.81

2011-2012 64,68,693 5,08,87,190 12.71

2012-2013 1,35,80,075 5,79,73,561 23.42

 Return on capital employed= PAT X 100

capital employed

Capital
Financial year PAT Employed ROCE Ratio

2008-2009 57,54,435 2,88,24,721 19.96

2009-2010 33,53,355 2,15,90,804 15.53

2010-2011 53,73,147 2,82,79,192 19

2011-2012 64,68,693 3,47,98,323 18.58

2012-2013 1,35,80,075 4,02,80,345 33.71

70
 40

35

30

25

20 ROE RATIO
ROCE RATIO
15

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Interpretation & Analysis of Return on capital employed : -

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.

71
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.

3) The company is failed to maintain the margin of covering the administrative,

selling and distribution expenses. The company shows the lower gross profit
ratio hence it is not good for company to maintain its financial position.

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.

5) There is also problem of capacity utilization of fixed assets as is no consistency

in the fixed assets turnover to generate the maximum profit. It shows the up
and down trend over the five years.

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.

73
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.

75
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.

4. According to inventory ratio it is found the operation cycle of organization is

short and has a huge inventory ratio.

5. The working capital is utilized in proper manner to increase the sales.

6. It is also found that the assets are perfectly used for increasing sales. The
fixed assets are contributing a healthy for the sales.

77
ANNEXURE

78
 Annexure

Balance sheet for the years 2006-07 to 2010-11

Balance sheet 2008-2009

Liabilities Amount Assets Amount

Authorized Capital 2,00,000 Cash At Bank & 6048281

400 Shares of Rs.500/- Cash in Hand

each

Paid up Capital 195500 Investment 3828893

391 Shares of Rs.500/-

each

Reserve & Surplus 34764545 Other income 30337038

Other Liabilities 13817090 Current Assets 12304773

Profit & loss A/c. 5754435 Stock 2012585

Total 54531570 Total 54531570

79
 Balance sheet 2009-2010

Liabilities Amount Assets Amount

Authorized Capital 200000 Cash At Bank 5977887

400 Shares of Rs.500/- Cash in Hand

each

Paid up Capital 195500 Investment 12374927

391 Shares of Rs.500/-each

Reserve & Surplus 41170281 Other income 16976298

Other liabilities 7882926 Current Assets 12497432

Profit and loss a/c. 3353355 Stock 4775518

TOTAL 52602062 TOTAL 52602062

80
 Balance sheet 2010-2011

Liabilities Amount Assets Amount

Authorized Capital 200000 Cash At Bank 5409499

400 Shares of Rs.500/- Cash in Hand

each

Paid up Capital 195500 Investment 15688971

391 Shares of Rs.500/-

each

Reserve & Surplus 45066600 Other income 23546599

Other liabilities 7826902 Current Assets 12537432

Profit and loss a/c. 533373147 Stock 1259648

TOTAL 58442149 TOTAL 58442149

81
 Balance sheet 2011-2012

Liabilities Amount Assets Amount

Authorized Capital 200000 Cash At Bank 11320949

400 Shares of Rs.500/- Cash in Hand

each

Paid up Capital 194500 Investment 9477042

391 Shares of Rs.500/-

each

Reserve & Surplus 50492690 Other income 45041007

Other liabilities 24704584 Current Assets 14461900

Profit and loss a/c. 6468693 Stock 31109481

TOTAL 83410379 TOTAL 83410371

82
 Balance sheet 2012-2013

Liabilities Amount Assets Amount

Authorized Capital 200000 Cash At Bank 7884491

400 Shares of Rs.500/- Cash in Hand

each

Paid up Capital 194500 Investment 17912123

391 Shares of Rs.500/-

each

Reserve & Surplus 57579061 Other income 25987964

Other liabilities 2295200 Current Assets 16587581

Loan 1388020 Stock 6664697

Profit and loss a/c. 13580075

TOTAL 75036856 TOTAL 75036856

83
REFERENCES

84
REFERENCES

 T.S Grewal, Booking Keeping & financial accounting.

 Prasana Chandra, Financial Management.

 S.A Siddiqui, Financial Accountancy.

 Annual Report of the company.

 Websites:-

 www.indiaonestop.com

 www.dukesindia.com

85