INTRODUCTION

1.1 INTRODUCTION

Finance may be defined as the provision of money at the time when it is required.
Finance refers to the management of flows of money through an organization. It concerns
with the application of skills ion the manipulation uses and control of money divestment
authorities have interpreted the term finance differently.

Finance is concerned with the task of providing funds to the Enterprises on the term
that is most favourable towards the attainment of the Organizational goal's objects.

The function of finance is not merely Furnishing funds to the organization. Finance
has a broader meaning and it covers financial planning, forecasting of cash receipts and
disbursements, rising of funds, use and allocation of funds and financial control. The area of
operation of finance manager is vague from one compact to another and industry - to -
industry etc.

There are many definitions of finance of all the best was of Howard and Upton. "That
administrative area of set of administrative area of organization will have the means to carry
out as objectives to satisfactorily as possible and at the same time meet its obligations as they
become due".

MEANING OF FUND

The term fund has a variety of meaning such as cash fund, capital fund and working capital
fund.

1. Cash fund – In a narrow sense, fund means only cash. ‘Cash flow statement’ portrays
net effect of the various business transactions on cash into account receipts &
disbursement of cash.

This concept of preparing fund flow statement is not accepted, as there are many such
transactions which do not affect cash but represent the flow of fund.

For example: purchase of furniture on credit does not affect cash but there is flow of fund.
A Project Report On RATIO ANALYSIS

2. Capital fund – Here fund means all financial resources used in the business, whether
in the form of men, money, material, machine & others.
3. Net working capital - Net working capital means difference between current asset and
current liabilities .funds generally refers to cash or cash equivalent or to working
capital

MEANING OF FLOW

 The term ‘flow’ refers to changes or transfer and therefore the ‘flow of funds’
means transfer of economic values from one asset to another, from one liability to
another, from one asset to liabilities or vice-versa or a combination of these. So
flow of fund refers to increase or decrease in net working capital.
 The increase or decrease in net working capital will take place only when one
account, out of two accounts to be affected in a transaction ,is a current account
i.e. current asset or current liabilities and the other account is non current account
i.e. fixed asset or long term liability or capital.
 When a change in non current account is followed by a change in another non
current account, it does not amount to flow of fund. It is because, in such case,
neither the working capital increase nor decrease.
 For example:-
Machinery a/c Dr
To share capital a/c

(Machinery purchase in consideration of share)

In the above transaction both accounts are non current accounts which do not at all affect
current asset and current liability. Therefore working capital will remain unaffected i.e. there
will be no flow of fund.

 When changes in one current account results in a changes in other current account, it
also does not affect working capital i.e. there is no flow of funds.

For example

Cash a/c Dr
To debtor a/c
(Cash received from debtor)

Page 2
A Project Report On RATIO ANALYSIS

It represents an increase of cash –a current asset account and decrease of debtor again
a current asset account .thus there will be no net changes in the amount of working capital,
although the composition of working capital will be affected.

Meaning of fund flow statement:

This statement reveals resources from which funds were obtain by the firm hand the specific
uses to which such funds were applied. The effectiveness of financial management in
procuring funds from various sources & using them effectively for generating income without
sacrificing the financial position of the firm is reflected in fund flow statement.

Definitions of fund flow statement:

According to R.N. Anthony, “Fund Flow is a statement prepared to indicate the increase in
cash resources and the utilization of such resources of a business during the accounting
period.”

According to Smith Brown, “Fund Flow is prepared in summary form to indicate changes
occurring in items of financial condition between two different balance sheet dates.”

1.2 TOPIC CHOSEN FOR STUDY:

A Study On The Ratio analysis with Special Reference asian paints ltd .

Page 3
A Project Report On RATIO ANALYSIS

1.3 NEED OF THE STUDY:

The study has great significance and provides benefits to various parties whom directly or
indirectly with the company. To express the relationship between different financial
aspects in such a way that it allows the user to draw conclusions about the performance,
strengths and weaknesses of the company.
To diagnose the information contained in financial statement so as to
judge the profitability of the firm. The study helps to know a liquidity, solvency,
profitability and turnover position of the company.

Page 4
A Project Report On RATIO ANALYSIS

1.4 OBJECTIVIES OF THE STUDY :

 To Study The liquidity Position Of Asian Paints Company Ltd.

 To Study The solvency Position Of Asian Paint Company Ltd.

 To Study The Turnover Position Of The Asian Paints Company Ltd.

 To Study The probability Position Of Asian Paints Company Ltd.

Page 5
A Project Report On RATIO ANALYSIS

1.5 SCOPE OF THE STUDY:

The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The analysis is done to suggest the possible
solutions. The study is carried out for 5 years (2013–17). The present study is confined to
only ASIAN PAINTS only .
Ratio analysis is perhaps the first financial tools developed to analyze and
interpret the financial statement and still used widely used for this purpose. Financial
performance analysis is a well researched area and innumerable studies have proved the
utility and usefulness of this analytical technique

Page 6
A Project Report On RATIO ANALYSIS

1.6 Research Methodology :

Primary Data

The Primary Data Are Those Which Are Collected Afresh And For The First Time,
And Thus Happen To Be Original In Character. The Tools For Collecting This Primary Data
Are Collected By Questionnaire Method.

Secondary Data

The Secondary Data Are Those Which Have Already Been Collected By Someone
Else And Which Have Already Available In The Firms Internal Records And Business
Magazines, Government Publications, Company Websites, Brochures. In The Project The
Secondary Data Is Collected Through Company Website, Brochures, Journals, Magazines
And Old Records.

1.6LITERATURE REVIEW:
2 John Myer : a renowned authority on Financial Statements Analysis, has referred that in
the initial years of 20th century, the bankers and securities exchange authorities were
extensively relying on the financial statements of the companies for analysis, monitoring
and control of the activities and performance of businesses. The history, principles and
financial statement analysis has been referred by another authority also : Kennedy and
McMullen.4 Literature on Economics also has a reference to accounting and financial
management. The aim of financial management has been linked with (1) the field of basic
economics, and especially micro economics (use of scarce resource). (2) by examining
the many and diverse activities and decisions which occupy financial managers.
3 Long back (1957), EF Donaldson : referred to the importance of business and financial
reporting. He highlighted that the economy depends on the business organizations for
goods and services. United States believes in corporate world. The financial activities of
business enterprises of production and sale is of utmost importance. In his well known
publication (Corporate Finance, 1957) he has referred to all important aspects of business
finance like organization structure, securities, production, capitalization, working capital,
administration of income, expansion and combinations (mergers), reorganization and
readjustments.

Page 7
A Project Report On RATIO ANALYSIS

4 Robert Anthony : Professor of Accounting and Financial Control at Harvard University

has written many authoritative books on accounting 182 and financial management. He
defines Accounting as a means of collecting, summarizing, analyzing and reporting in
monetary terms, information about the business. This simple definition highlights the
importance of accounting and financial information in the business enterprise. There is a
reference to the following accounting principles and scope of the field of accounting and
finance.
5 S.S. Hugar (1986) : studied financial analysis of 19 District Central Co-operative Banks
in Karnatak for the period from 1978-79 to 1982-83. The author used Ratio Analysis
technique to test the working capital position, deposit mobilization, credit disbursed and
recoveries, operating efficiency, cost and profitability of the DCCBS.
6 E.V.K. Padmini and P.K. Lekha (1992) : studied the fmancial performance of Shire
Narayana Powerloom Industrial Co-operative Society, Nadathara in Kerala for the period
from 1980-81 to 1987-88. The performance was evaluated with the help of the selected
ratios namely turnover ratios, financial ratios and liquidity ratios. The relevant parameters
used for the evaluation were: cost of goods sold, administrative expenses, sales, current
assets, current liabilities and fixed assets. The study revealed that the cost of goods ratio
was very high around 70to 80 percent of the value of sales, administrative ratio more or
less remained the same, current and liquidity ratios were found to be low from 1983-84
onwards. The study concluded that the financial performance of the society was not up to
the level.
7 Vasanthamani (1982) : in her study “The Financial Performance of Lakshmi Machine
Works Limited”. The objective of the study was to analyze the financial performance of
Lakshmi machine work with a view to analyze the future of performance potentials. The
study covered the period from 1978-1982. The liquidity position of the company showed
that the company was able to meet the creditors out of its own current assets. The quick
ratio also revealed that the quick liabilities were met at of quick assets without any
difficulty.
8 Parvathi (1990): in her “Financial Performance Analysis Hindustan Photos Films Ooty”
for the year 1990-1996,concluded that the gross profit has shown as increasing trends,
long term solvency of the company, debt equity ratio was not satisfactory’
9 Sankar.T.L & et.al (1995) : in their study entitled, “Financial Performance of State
Level Public Enterprises” suffers from staggering investment, poor profitability,
unnecessary investment, poor project planning and inadequate financial control.
10 Kim & et.al (1996): in Profitability, growth and risk (optimization), an attempt was
made to understand the profitability differentials in terms of simultaneously determined
inter-relational among profitability, growth and risk. The variables are endogenous in
firm profit maximization.
11 Gnanavelu.N (1996) : in his study entitled “Case Study of Financial Performance of
Sakthi Sugars Limited” has proved the financial performance of the company passion is
good. The borrowing by the company was kept at the minimum level its profitability was
expected to increase further. Being the row material in seasonal the fluctuation in
working capital cannot be avoided.

Page 8
A Project Report On RATIO ANALYSIS

12 Gnanavelu.N (1996): in his study entitled “Case Study of Financial Performance of

Sakthi Sugars Limited” has proved the financial performance of the company passion is
good. The borrowing by the company was kept at the minimum level its profitability was
expected to increase further. Being the row material in seasonal the fluctuation in
working capital cannot be avoided.
13 Sardeesh Babu (1999) : in her study “A Study on Financial Performance of Fertilizers
and Chemicals Travancore Limited” .The cost on various overheads can be brought down
by carefully scrutinizing each item and applying cost cutting techniques. The profitability
of the company can be improved by reducing the expenses that do not contribute any
productive use. The current assets can be managed efficiently by examining the material
holding and stock holding procedure and pattern. If the company increase its turnover and
reduces its cost, the profit will increase leading to an increases in the growth rate of sales,
profit before tax and profit after tax.
14 Karthikeyan (2000): “Financial performance of selected automobile companies, An
analytical Study” tried to identify the relationship between the financial performance
variables and to develop simple financial forecasting performance variables are analyzed
to forecast the financial performance a simple cross-section regression analysis was
made. The financial analysis variables considered were net sales, total assets, Gross
profit, Profit before tax, Dividend, Retained earnings, Cash flows and Net worth. He
concluded that the sales have been consistent in all the four year of study. Total asset
have also been consistent in four years under the study.
15 Ashita Raveendran (2003): presented a survey of the Financial Structure and
Performance of the Engineering Industry in Kerala. In her survey data of four engineering
groups, namely, metal products, machinery, electrical and transport products were
analysed. She concluded that the liberalized policy should at the upgradation of the
technology, therby improving the quality and productivity of the engineering industry.
Measures for cost control, modernization, upgradation, computerization and the like. Will
help in strengthening the forward and backward linkages of the engineering industry
within the state.
16 Anshan Lakshmi (2003) : made “A Study of The Financial Performance With Reference
To Steel Industries Kerala Ltd”. This study covered from 1977- 1998 to 2001-2002, the
objectives of the study was to analyze and evaluate the working capital management, to
analyze the liquidity position of the company, to evaluate the receivables, payables and
cash management and to suggest ways and means to improve the present date of working
capital. The major tools used for the analysis say that the working capital management
was every author suggested that the inventory management have to be corrected.
17 Hamsalakshmi and Manickam (2004) : has made “A study on financial performance
analysts of selected software companies” The study has been focused on examining the
structure of liquidity position leverage and profitability. The study has revealed a
favorable liquidity position and working capital position. The study has also pointed out
that the companies rely more on internal financing and the overall profitability has been
increasing at a moderate rate.
18 Aitken Et (2009) : studied “Financial Analysis and Price Discovery”, the bank\
brokerage firm has top-rated financial analysts and high wall street search ranking for

Page 9
A Project Report On RATIO ANALYSIS

their research was significantly related to that firm’s contribution to price discovery of the
process by which information is incorporated into the stock prices. This study related to
cross-sectional characteristics of the quality of brokerage research, the asymmetric
information environment and order flow volume to a microstructure measure of price
discovery developed by Granger and Gonzalo. It measured analysis research quality with
an industry-specific ranking by institutional investors, with an opinion survey of trading
desk personnel and with the number of top three analysts across all industries employed
by the bank/ brokerage firm.
19 Dharmendra S. Mistry(2010) : in this study ”A Comparison of Financial Performance
of Major Gujarat Pharma” players through value added and economic value added”. The
purpose of this study is to classify major Gujarat pharmacy players in cohesive categories
on the basis of their financial characteristic revealed by the financial statements. The
study also revealed that economic value added has also positive correlation with firm
size, funds of proprietors, and funds of money lenders and have significant impact on
economic volue added.
20 Shveta Kapoor (2010): Examines the impact of Corporate Social Responsibility (CSR)
on Corporate Financial Performance (CFP) in terms of profitability and growth after
controlling the effect of other variables on financial performance. Secondary data on CSR
based on 93 companies operating in India have been analyzed by applying content
analysis of annual reports for the year 2005–06. For CFP and control variables, secondary
data have been collected for seven-year period from 1999–2000 to 2005–06 from
Prowess, electronic database developed by Centre for Monitoring Indian Economy
(CMIE), Mumbai. The Statistical tests namely factor analysis and multiple regression
analysis has been applied. The results indicate that a significant positive impact of CSR
on corporate profitability and insignificant positive impact on corporate growth. The
study is helpful for managers in considering the positive impact of CSR on corporate
profitability while taking decisions about investing in CSR areas.
21 Shurveer S. Bhanawat (2011) : in this study “Impact of Financial Crisis on The
Financial Performance of The Indian Automobile Industry” India a country diverse in
culture and religion, strong in will and manpower, large in size and opportunities has
become a highly wooed automobile market. Despite the impact of the financial and
economic crisis, India’s automobile economy is booming. Due to global financial crisis
various sectors of industries were affected. In this connection here we tried to judge the
impact of financial crisis on Indian Automobile Industries with the help of statistical
significant techniques. On the analyses of the t-Test and Analysis of Variance, it is found
that the impact is not significant which proves that though the global economies are
impacted by recession, the Indian Automobile Sector showed resilience and was not
affected significantly by the recession. It goes to show that the Indian automobile market,
though impacted by export income, did not crumble under recession, as the volumes were
significantly met by local demand, 47 thereby proving that the Indian economy is a self
sustaining economy, not significantly impacted by the financial crisis.
22 Nagarajrao B.S and Chandar K (1980) : analyzed the financial efficiency of cement
companies for the selected period of the study 1970 -71 to 1977-78. It can be analyzed
profitability of selected cement companies has been found downward trend from 1970-71

Page 10
A Project Report On RATIO ANALYSIS

to 1974-75 because the reason of inflation, rising of manufacturing cost, continuous fall
in capacity utilization due to many reasons.
23 Srinivasa Rao.G and Indrasena Reddy.P (1995) : in their study, analyzed the financial
strength of paper industry had been improving from year to year. The company's
performance in relation to generating internal funds in the form of reserves and surplus
was excellent and also the company was doing well in mobilizing outsiders' funds. The
liquidity position of the company was sound as revealed by current ratio and quick ratio
which were above the standard. The solvency ratio showed that the company had been
following the policy of low capital gearing from the 1990-91 as these ratios had been
decreasing from this year. The performance of the company in relation to its profitability
was not up to the expected level. The company's ability to utilize assets for generation of
sales had not been improved much during the period of study period as revealed by its
turnover ratios.
24 Nand Kishore Sharma (2002): in his Study on financial appraisal of cement industry in
India, has found that the liquidity position was decreasing, current ratio and quick ratio
showed a decreasing trend and also these ratios varied from time to time. On comparing
the current ratio and quick ratio of cement industry, six companies were found higher
than the industry average and four companies lower than industry average. The solvency
position in term of debt-equity ratio has showed a decreasing trend in the first 4 years of
study, after that, it registered an increasing trend. The ratio of fixed assets to total debt
always showed more than 100 percent which indicated that the claims of outsiders were
covered by the fixed assets of the cement companies.
25 Harshad R. Tandel (2013) : Analyzed that the Financial Analysis of selected Plastic
Manufacturing Industrial Units of Gujarat for the period 2000-01 to 2009-10. The main
objective of this study was to analysis and evaluate the financial performance of selected
companies in particular and the plastic industry in general with the help of composited
such ratios like Profitability, Activity, Liquidity and solvency. He judge the financial
performance with the help of Trend Analysis and Analysis of Variance. He can concluded
that the liquidity and profitability performance was not good, but in terms of activity and
solvency performance of industry was satisfactory.
26 Dr. Abdul Ghafoor Awan, Pervaiz Shahid, Jahanzeb Hassan, Waqas Ahmad
(2014) : have analyzed the impact of Working Capital Management on performance of
cement sector in Pakistan. The period of the study spanning from 2009 to 2013. The
study is totally depend on secondary data collected from the audited financial statements
of these companies which are listed in Karachi Stock Exchange. Return on was used as
the dependent variable in order to test the impact of Working Capital Management on
firm’s profitability and independent variables were, Inventory Turnover in Days, Cash
Conversion Cycle, Current Ratio, Quick Ratio, Gross Working Capital, Average
Payment, size of firm, and Funds allocated by government in Public Sector Development
Program. Panel Data method is used to study the impact of Working Capital Management
on profitability of Cement sector of Pakistan. He can concluded that cash conversion
cycle, Inventory turnover in Days and Average Payment Period have negative relation
with firm performance and their probability is significant. Current Ratio has proved
statistically insignificant and has negative impact on Return on Equity in this study.

Page 11
A Project Report On RATIO ANALYSIS

27 Kennedy and McMullen : Literature on Economics also has a reference to accounting

and financial management. The aim of financial management has been linked with (1) the
field of basic economics, and especially micro economics (use of scarce resource). (2) by
examining the many and diverse activities and decisions which occupy financial
managers
28 Barua, Raghunathan, Varma and Venkatiswaran, 1994 : the choice of financial
products is also dependant on firm specific characteristics. The most important
determinants of financial structure have been asset composition, business risk, growth
rate, earnings rate, industry class, debt service capacity and corporate size.
29 Robert 0 Edmister's (1972) : studies develops and empirically tests a number of
methods of analysis, financials ratio to predict small 103 business failure Using the step-
wise multiple discriminate analysis with independent variables a highly accurate test
sample, was developed. Material analysis found to be useful in the study are 1.)
Classification of borrowers is ratio into quantities relative to other borrows in the sample.
2.) Observation of an-up-or down-trend for a three year period. 3.) Combinational
analysis of a ratio's trend and recent level. 4.) Calculation of the three terms average and
5.) Division of a ratio by its respective industry average ratio. The discriminate function
demonstrates ability as great as those functions recently estimated for much larger firms.
However, the small business function fails to discriminate when only one statement is
available whereas financial statement is sufficient for a highly discriminate function. This
led the author to qualify his conclusions above, with the provisions that at least three
consecutive financial statements be available for analysis of a small business.
30 Vijayakumar A. (1996) : has studied about ‘Assessment of Corporate Liquidity - a
discriminate analysis approach’ in this research he has revealed that the growth rate of
sales, leverage, current ratio, operating expenses to sales and vertical integration was the
important variables which determine the profitability of companies in the sugar industry.
Also he has studied the shortterm liquidity position in twenty-eight selected sugar
factories in co-operative and private sectors. In research a discriminate analysis has been
used by the researcher, to undertaken to distinguish the good risk companies from poor
risk companies based on current and liquidity ratios. In this study discriminating ‘Z’
scores have been calculated with the help of discriminate function and according to the
‘Z’ scores the companies are ranked in the order of liquidity.
31 Rajeswari (2000) : studied about the Liquidity Management of Tamil Nadu Cement
Corporation Ltd. Alangulam-A Case Study. She concluded from the analysis; the
liquidity position of TANCEM was not stable. After the comparative analysis regarding
liquidity ratios, she has found there was too much of liquidity in the first two years of the
study period and also a very high degree of liquidity was also bad as idle assets earn
nothing and affects profitability. In short, she concluded that the liquidity management of
TANCEM is poor and is not satisfactory.

Page 12
A Project Report On RATIO ANALYSIS

1.7 LIMITATIONS:

 The study was limited to only five years Financial Data.

 The study is purely based on secondary data which were taken primarily from
Published annual reports of ASIAN PAINTS LTD.
 There is no set industry standard for comparison and hence the inference is made on
general standards.
 The ratio is calculated from past financial statements and these are not indicators of
future.

Page 13