I INTRODUCTION

(i) INTRODUCTION

Finance is the life blood and nerve center of any business. It has become
so much important for every business undertaking that all managerial
activities are connected with it. In our present day economy, finance is
defined as the provision of money at the time when it is required. Every
enterprise whether it is big, medium, or small needs finance to carry on
its operations and to achieve the targets. Almost all kind of business
activities directly or indirectly involve in acquisition and use of funds. In
fact, finance is so indispensable today that it is rightly said to be the life
blood of the enterprise. Without adequate finance, no enterprise can
possibly accomplish its objectives. Everybody associated with the
business like employees, bankers, creditors, government, shareholders,
management and society want to know what is the company’s liability,
where they have invested, what is their sales, profit, cost of value added
and thousands of question like this.

Globalization had matured financial functions with the

paradigm shift in the focus from the production centric to customer
centric. Resources in a business organization are seen as value creators
and not cost enablers. The contemporary economic growth is putting
tremendous pressure on resources availability. To ensure sustainable
growth it is very essential that we focus on improving productivity of our
resources. Unsustainable and shortsighted corporate vision exacerbates
the environmental impacts. Manufacturers are forced to seek a minimum
amount of cost effective inputs to be able to provide customers with a
maximum amount of functional value. The offering will be successful if it
delivers value and satisfaction to the targeted buyers and enlightened
them. The companies striving to compete in today’s economy
shouldmanage waste not cost. By reducing waste in activities,
companies can forestall the tradeoff cost, quality and flexibility managing
waste in activities involves developing measures that track the
company’s success at eliminating generators of delay, excess and
unevenness.

Technology is an important resources and it ought to be

managed effectively. Effective management of technology has enabled
organizations to make niche for themselves in the market place.
Technology is a major stimulus for change and has become synonymous
with economic development. The strategic nature of technology, call for
management of this resource as a part of overall business planning
process to gain higher competitive advantage and customer retention.
Ideas of innovations are delivered from market needs and its speedy
execution is the most essential factor for satisfying customer needs and
perception about product development.

Financial Analysis is the process of identifying the

financial strengths and weaknesses of the firm, by properly establishing
the relationships between the items of the profit and loss account and
balance sheet. These financial statements provide valuable insights into
a firm’s performance. Financial analysis may be done for a variety of
purposes, which may range from a simple analysis of the short –term
liquidity position of the firm to comprehensive assessment of strengths
and weaknesses of the firm in various areas. It is helpful in assessing
corporate excellence, judging credit worthiness, forecasting bond ratings,
predicting bankruptcy and assessing market risk. Financial Ratios
calculated with the help of information extracted from the financial
statements play an important role in analyzing the financial performance
of a firm. In this study, the financial performance for the last 5 years is

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assessed through ‘Ratio analysis’ and the required data are obtained
from the annual accounts of NAI, AUSTRALIA.

(ii) STATEMENT OF THE PROBLEM

The study is an identification and analysis of the financial strengths
and weaknesses of NEW APPROACH INTERNATIONAL LIMITED,
Australia.Ratio Analysis enables the business owner/manager to spot
trends in a business and to compare its performance and condition with
the average performance of similar businesses in the same industry. To
do this compare your ratios with the average of businesses similar to
yours and compare your own ratios for several successive years, watching
especially for any unfavorable trends that may be starting. Ratio analysis
may provide the all-important early warning indications that allow you to
solve your business problems before your business is destroyed by them.

(iii) OBJECTIVES OF THE STUDY

The study is intended to analyze the financial strength and

weakness of NEW APPROACH INTERNATIONAL LIMITED,
AUSTRALIA.

The major objectives of the study are:

• To analyze the financial strength and weakness of NEW

APPROACH INTERNATIONAL LIMITED, AUSTRALIA.
• To suggest improvements in the existing systems to improve the
financial performance

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Sub-objectives:

• To study the liquidity position of the firm.

• To study the inventory turnover of the firm
• To assess the capacity of the firm to pay off its interest liabilities.

(iv) RESEARCH METHODOLOGY

(a) Area of Study

The work tries to analysis financial position and its impact on

profitability with reference to NEW APPROACHINTERNATIONAL Limited,
Australia.

(b) Data collection Method

Information for this work has been collected from previous records viz.
profit and loss and Balance sheet of the past five years. The secondary
data is used for the study.

• Secondary Data
Secondary data are existing information that is useful for the purpose of
specific study. Secondary data was collected from the published records
like annual reports, financial statements, similar project reports and
similar documents. Data’s was also collected from web sites and other
journals and magazines.

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(c) Data Analysis
The researcher has used various financial techniques for the study. The
techniques include ratio analysis, Common size balance sheet. The ratio
analysis mainlyincludes current ratio, quick ratio, absolute ratio, efficiency
ratio, working capital ratio, profitability ratios, net profit ratio, etc.

(d)Financial tools
Comparative statement analysis
Ratio analysis
(v) SIGNIFICANCE OF THE STUDY

• It is useful in financial position analysis

• It is useful in assessing the operational efficiency of the concern

• It is useful in forecasting purposes

• It is useful in locating the weak spot of the business

• Useful in comparison of performance with another firm having the

same business .

(vi) LIMITATIONS OF THE STUDY

The study of Financial Analysis is having its own limitations as detailed

below:

• The study is limited for a maximum period of 5 years.

• Financial Analysis is based on the statement of the Company,
which suffers from their inherent limitations.

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 • Only audited records are considered for analysis.
• Non-monetary factors like human behavior, their relations etc. are
not considered.
• The study does not take into account the other areas of Finance
such as Capital Budgeting, costing and Cash Management etc.
• While evaluating the financial performance, ratio analysis is used
as a tool to analyze, limitations of ratios holds good for the study.
• Time is the main limiting factor in the study and within the time
allowed it is not possible to study all aspects in detail.

III REVIEW OF LITERATURE

Every enterprise whether it is big, medium, or small needs finance to carry

on its operations and to achieve the targets.Almost all kind of business
activities directly or indirectly involve in acquisition and use of
funds.Without adequate finance, no enterprise can possibly accomplish its
objectives.Financial analysis may be done for a variety of purposes, which
may range from a simple analysis of the short –term liquidity position of

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the firm to comprehensive assessment of strengths and weaknesses of
the firm in various areas.

Ratio analysis is one of the Powerful tools of the financial Analysis.

A ratio can be defined as “the indicated quotient of two mathematical
expressions”, and as “the Relationship between two or more things”. A
ratio is the relationship between two accounting items expressed
mathematically. Ratio analysis helps the analyst to make quantitative
judgment with regard to Concerns financial position and performance.

According to Metcalf and Titard Financial statement analysis is a

process of evaluating the relationship between component parts of a
financial statements to obtaining a better understanding of a firm.

IV COMPANY PROFILE:

NEW APPROACH INTERNATIONAL (NAI) is a private limited

company .It has been in operation for over 25 years. It expanded its
activities to a dedicated facility in Ringwood where it manufactured and
distributed a variety of air hygiene and cleaning products. In 2005 the
company relocated to more modern Warehouse and office facilities in

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Hallam and discontinued manufacturing locally in favour of offshore
production.
In 2007 the company was purchased by the Waite Family and
began trading as New Approach International in conjunction with a Joint
Venture Chinese manufacturing partner. Now our Chinese SGS quality
assured facility and sourcing service allows us deliver market focused
product, direct to our wholesale customer’s distribution facilities anywhere
in the world. In Australia they offer the flexibility of distributing via their
national warehousing facilities located in Hallam, Victoria. The company is
committed to envisage within itself best policies for the healthy
development of its members strengthen its position both in domestic and
international markets and strive for continuous improvement in all spheres
of its activities to create values that can be sustained over a long term.

At New Approach International their focus is on monitoring and

analysing market trends. Their internal structure is highly flexible and they
can quickly convert an identified market opportunity to a new product on
shelf with each and every product that they are involved. Their core
philosophy of addressing environmental biocompatibility issues for each
and every product that they are involved with is taken very seriously by
their company – Family and Staff alike.

Company's Export has been spread across 25 countries including

USA and EU. NAI has recorded a steady market support from all these
markets. NAI has been very successful in building confidence of the
buyer basically due to

• The Quality of the Product

• Well experienced sales arms
• Very low lead-time for shipments.

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 The company has its own marketing personnel positioned at Victoria,
Queensland, New South wales to meet the needs of the customer.

Research and Development

NAI operates on one fundamental principle: uncompromised
quality. It is their first priority in all that they do. From the first production
step to the final delivery, NAI maintains the most stringent quality control,
with independent research and development. NAI constantly seeks new
ways to increase usage and efficiency while improving value for their
customers.

NAI fully-equipped chemical laboratory uses sophisticated

electronic facilities and precise instrument to check purity and chemical
stability of raw material, freshness, mineral content, bacterial
contamination, dilution and other factors to ensure only the best products.

NAI is awarded for effective implementation and maintenance of Pollution

Control measures during the year.

Eco-Friendliness
Environmental considerations continue to receive the utmost
priority and attention of our company. Company has set up state of the art
in house effluent treatment and reduction plant to recycle waste water
after treatment thus reducing effluent load. The company maintains the
standards acceptable by The State Pollution control department and these
are being monitored continuously.

Quality control

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 NAI has a comprehensive physical laboratory that operates around
the clock, day and night. Every stage of production is checked and
counter-checked very carefully. Samples of finished products are then
tested meticulously by experienced quality-control officers.
This rigorous testing process at every stage of production ensures
consistent quality and uncompromised standards for NAI’s chemical
product.

PRODUCT PROFILE
NAI is here to make the product to suit the customer's requirement.

Main Products:

• Clensel Cleaner
• Eco Clens Leather Cleaner
• Toilet flush:
• Eco Werxs Breathe Easy Shower Cleaner
• Eco Clens Carpet Cleaner
• Eco Clens Dishwashing Liquid
V DATA ANALYSIS AND INTERPRETATION

The term analysis refers to the computation of certain measures

along with searching for pattern of relationship that exist among the data
groups

Financial Analysis isthe process of identifying the strengths and weakness

of the company with the help of accounting information provided by the
profit and loss account and balance sheet.It is the process of evaluation of
relationship between component parts of financial statements to obtain a

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better understanding of the firm’s position and performance.It is a
technique of X-raying the financial position as well as progress of a firm.
Financial analysis will give the management considerable insight into the
levels and areas of strength or weakness.
In this chapter, analysis and interpretation of the data collected from
the company are made. Accounting data for the period from 2004 to 2008
is subjected to the under mentioned tools and techniques of analysis.

• Common size statement

• Ratio analysis

3.1 COMMON SIZE STATEMENT

The common size statement, balance sheet and income statement are
shown in analytical percentage. The figures are shown as percentage of
total asset, total liabilities and total sales. The total assets are taken as
100 and different assets are expressed as a percentage of the total.
Similarly, various liabilities are also taken as component percentage or
100 percent statements because every individual items is stated as a
percentage of the total 100. The common size statement may be prepared
in the following ways.
 The total of assets or liabilities are taken as 100

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  The individual assets are expressed as a percentage of total
assets, ie 100 and different liabilities are calculated in relation to
total liabilities

The common size balance sheet highlights the composition or structure of

the total current assets and liabilities. Such an examination can identify
the weightage of each component of working capital and hence its relative
importance. It is seem from the statement that sundry debtors constitute a
predominant part of current assets.

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 COMMON SIZE BALANCE SHEET OF NAI FOR THE YEAR 2003-2008
PARTICULARS 31/6/2004 31/6/2005 31/6/2006
Amount % Amount % Amount %
CURRENT
ASSETS 95.63 21.77 85.66 23.32 112.63 32.97
Inventories 190.54 43.37 175.00 47.65 112.86 33.04
Sundry Debtors 99.26 22.6 59.57 16.22 53.98 15.71
Cash and bank 44.01 10.02 35.01 9.53 58.54 17.14
balance 9.81 2.23 12.02 3.27 3.61 1.06
Loans and
advances
Other current 439.25 100.0 367.26 100.0 341.62 100.0
Assets 0 0 0

TOTAL CURRENT
ASSETS 26.00 26.00 26.00
0.44 0.43 0.42
FIXED ASSETS 137.34 99.82 72.59
Net Block 1876.00 2.36 2352.28 1.66 2794.06 1.18
Miscellaneous 32.13 39.14 45.33
expenditure 5837.87 6010.93 6163.82
Unit A/C (DEBIT) 100.0 100.0 100
6277.65 0 6378.8 0 6505.96
TOTAL FIXED
ASSETS

TOTAL ASSETS 3168.37 3168.37 3168.37 56.35

9.89 9.89 9.89 0.18
LIABILITIES AND 2153.93 57.75 2067.38 58.69 2087.87 37.13
CAPITAL 153.90 0.18 152.56 0.18 356.32 6.34
capital 39.26 38.3
Reserves and 5486.09 2.81 5398.2 2.83 5622.45 100
surplus
Secured Loans 100 100
Unsecured Loans 786.18 975.22 878.13 99.39
5.38 5.38 5.38 0.61
TOTAL LOAN FUND 99.32 99.45
0.68 0.55
CURRENT 791.56 980.6 883.51 100
LIABILITIES
Current Liabilities 100 100
Provisions 6277.6 6378.8 6505.96

TOTAL CURRENT
LIABILITIES

TOTAL CAPITAL
AND LIABILITIES

COMMON SIZE BALANCE SHEET OF NAI FOR THE YEAR 2003-2008

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3.2 COMMON SIZE BALANCE SHEET OF THE COMPANY

Percentage of current assets to total asset and current liabilities to total

liabilities.

% of current % of
Year assets current liabilities

2003-04 6.99 12.61

2004-05 5.76 15.3

2005-06 5.25 13.58

2006-07 5.77 12.56

2007-08 4.48 8.99

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3.3 RATIO ANALYSIS

Ratio Analysis is the one of the powerful tools of the financial analysis. A
ratio can be defined as “the indicated quotient of two mathematical
expressions”, and as “the relationship between two or morethings”. Ratio
is thus, the numerical or an arithmetical relationship between two figures.
It is expressed where one figure is defined by another. If 4000 is divided
by 10000,the ratio can be expressed as .4 or 2:5 or 40%.A ratio can be
used as a yard stick for evaluating the financial position and performance
of a concern, because the absolute accounting data cannot provide
meaningful understanding and interpretation. A ratio is the relationship
between two accounting items expressed mathematically. Ratio analysis
helps the analyst to make quantitative judgment with regards to concern’s
financial position and performance.

Absolute figures are valuable but they standing alone convey no

meaning unless compared with another. Accounting ratios show inter-
relationships which exist among various accounting data.When

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relationships among various accounting data supplied by financial
statements are worked out.

IMPORTANCE OF RATIO ANALYSIS

Ratio analysis stands for the process of determining and presenting

the relationship of items and groups of items in the financial statements. It
is an important technique of financial analysis. It is a way which financial
stability and health of a concern can be judged. The following are the main
points of importance of ratio analysis.
1)Use full in financial position analysis-Accounting ratios reveal the
financial position of the concern. This helps the banks, insurance
companies and other financial institutions in lending and making
investment decisions.
2)Useful in simplifying accounting figures-accounting ratios simplify,
summarize and systematize the accounting figures in order to make them
more understandable and in lucid form. They highlight the inter-
relationships which exist between various segments of the business as
expressed by accounting statements. Of
Ten the figures alone cannot help them convey any meaning and ratios
help to relate with other figures.

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3) Useful in assessing the operational efficiency-Accounting ratios help to
have an idea of the working of a concern. The efficiency of the firm
becomes evident when analysis is based on accounting ratios. They
diagnose the financial health by evaluating liquidity, solvency,
profitabilityetc. This helps the management to assess financial
requirements and the capabilities of various business units.
4) Useful in forecasting purposes-If accounting ratios are calculated for a
number of years, then a trend is established. This trend helps in setting up
future plans and forecasting. For example expenses as a percentage of
sales can be easily forecasted on the basis of sales and expenses of the
past years
5) Useful in locating the weaks spots of the business-Accounting ratios are
of great assistance in locating the weak spots in the business even though
the overall performance may be efficient. Weakness in financial structure
due to incorrect policies in the past or present are revealed through
accounting ratios. Forexample, if a firm finds that increase in distribution
expenses is more than proportionate to the situation.
6) Useful in comparison of performance-Through accounting ratios
comparison can be made between one department of a firm with another
of the same firm in order to evaluate the performance of various
departments in the firm. Manager is naturally interested in such
comparison in order to know the proper and smooth functioning of such
departments. Ratios also help him make any change in the organization
structure.

LIMITAIONS OF ACCOUNTING RATIOS

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Soundness of the business. But in spite of its advantages it has some
limitations which restrict its use. These limitations should be kept in mind
while making use of ratio analysis for interpreting the financial statements.
The following are the main limitations of the accounting ratios:

1)False results if based on incorrect accounting data-.Accounting ratios

can be correct only if the data are correct. Sometimes ,the information
given in the financial statements is affected by window dressing, I.e.,
showing position better than what actually is .for example ,if inventory
values are inflated or depreciation is not charged on fixed assets, not only
will one have an optimistic view of profitability of look out for signs of
window dressing ,if any.

2)No idea of probable happenings in future-Ratios are an attempt to make

an days keeping in view the complexities of the business, it is important to
have an idea of the probable happenings in future.

3) Variation in accounting methods –The two firms results are comparable

with the help of accounting ratios only if they follow the same accounting
methods or bases. Comparison will become difficult if the two concerns
follow the different method of providing depreciation or valuing stock.
Similarly, if the two following two different standards and methods, an
analysis by reference to the ratios would be misleading. Moreover
utilization of inbuilt facilities, availability of facilities and scale of operation
would affect financial statements of different firms. Comparison of financial
statements of such firms by means of ratios is bound to be misleading.

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4)Price level changes-changes in price level make comparison for various
years is difficult. For example the ratio of sales to total assets in 1996
would be much higher than in 1976 due to rising prices, fixed assets being
shown at cost and not at market price.

5)Only one method of analysis-Ratio analysis is only a beginning and

gives just a comprehensive analysis of financial statements, ratios should
be used with other methods of analysis
.
6)No common standards-it is very difficult to lay down a common standard
for comparison because circumstances differ from concern to concern
and the nature of each industry is different. For example a business with
current ratio of more than 2:1 might not be in a position to pay current
liabilities in time because of an unfavorable distribution of current assets in
relation to liquidity. On the other hand ,another business with a current
ratio of even less than 2:1 might not be experiencing any difficulty in
making the payment of current liabilities in time because of its favorable
distribution of current assets in relation to liquidity.

7) Different meanings assigned to the same term- Different firms, in order

to calculate ratio may assign different meanings. Forexample, profit for the
purpose of before tax but after interest or profit after interest and tax.
This may affect the calculation of ratio in different firms and such ratio
when used for comparison may lead to wrong conclusions.

8)Ignores qualification factors-Accounting ratios are tools of quantitative

analysis only. But sometimes qualification factors may surmount the
quantitative aspects. The calculation derived from the ratio analysis under

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such circumstances may get distorted. Regarding his financial position
,yet the grant of credit ultimately depends on debtor’s
character,honesty,past record and his managerial ability.

9)No use if ratios are worked out for insignificant and unrelated figures-
Accounting ratios may be worked for any two in significant and unrelated
figure as ratio of sales and investment in government securities, such ratio
may be misleading. Ratios should be calculated on the basis of cause and
effect relationship. One should be clear as to what is cause and what is
effect before calculating a ratio between two figures.

CLASSIFICATION OF RATIOS
Ratios may be classified in a number of ways keeping in view the
particular purpose. Ratios indicating profitability are calculated on the
basis of the profit and loss account; those indicating financial position are
computed on the basis of the balance sheet and those which show
operating efficiency or productivity or effective use of resources are
calculated on the basis of figures in the profit and loss account and the
balance sheet. This classification is rather crude and unsuitable to
determine the profitability and financial position of the business. To
achieve this purpose effectively, ratios may be classified as ;
1) Financial Ratios
2) Coverage ratios
3) Turnover ratios
4) Profitability Ratios
5) Leverage ratios

I) FINANCIAL RATIOS

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 These ratios are calculated to Judge the financial position of the
concern from long terms as well as Short term solvency point of view.
These Ratios can be divided into two categories:
a) .Liquidity Ratios
b). Stability Ratios

a). Liquidity Ratios-If it is decided to study the liquidity position of the

concerns, in order to highlight the relative strength of the concerns in
meeting their current obligations to maintain sound liquidity and to
pinpoint the difficulties if any in it, then liquidity ratios are calculated. The
important liquidity ratios are
1) Current Ratio or Working Capital Ratio
This is the most widely used ratio. It is the ratio of current assets to current
liabilities. It shows a firms ability to cover its current liabilities with its
current assets. It is expressed as follows:

Current Ratio=Current Assets/Current Liabilities

Generally 2:1 is considered ideal for a concern i.e., current assets should
be twice of the current liabilities
2) Liquid (or Acid Test or Quick) Ratio
This is the ratio of liquid assets to liquid liabilities. It shows a firms ability to
meet current liabilities with its most liquid assets. 1:1 Ratio is considered
ideal ratio for a concern because it is wise to keep the liquid assets at
least equal to the liquid liabilities at all times.

Liquid ratio = Liquid Assets /Liquid Liabilities

3) Absolute Liquid (super quick) Ratio

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Though Receivables are generally more liquid than inventories, there may
be debts having doubt regarding their real stability in time. Absolute
Liquidity Ratio is calculated as follows:
Cash in hand and at bank+ Short term marketable securities/Current
liabilities
The desirable norm for this ratio is 1:2

4) Ratio of Inventory to Working capital

In order to ascertain that there is no overstocking, the ratio of
inventory to working capital should be calculated. It is calculated as
follows:
Inventory/Working capital
b) Stability Ratios
These ratios help in ascertaining the long term solvency of a firm
which depends on firm’s adequate resources to meet its long term funds
Requirements, appropriate debt equity mix to raise long term funds and
earning to pay interest and installment of long term loans in time. The
following ratios can be calculated for this purpose:
1) Fixed Assets Ratio
This ratio explains whether the firm has raised adequate long term funds
to meet its fixed assets requirements and is calculated as under:
Fixed Assets/Capital employed
If the ratio is less than one it is good for the concern. The ideal ratio is .
67.
2) Ratio of Current Assets to Fixed Assets
This Ratio is worked out as: Current Assets/Fixed Assets

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This ratio will differ from industry to industry and, therefore, no standard
can be laid down.
3) Debt Equity Ratio
It measures the extent of equity covering the debt. This ratio is calculated
to measure the relative proportions of outsiders’ funds and shareholders
funds invested in the company. It is calculated as follows:
Debt Equity Ratio= Long term debts/Shareholders’ Funds

4) Proprietary Ratio
A variant of debt to equity is the proprietary ratio which shows the relation
ship between shareholders’ funds and total tangible assets. This ratio is
worked out as follows:
Shareholders’ funds/Total tangible assets
The ratio should be 1:3
5) Capital Gearing Ratio
This ratio establishes the relationship between the fixed interest
bearing securities and equity shares of a company. It is calculated as
follows:
Fixed interest-bearing securities/Equity shareholders’ fund

Current Ratio or Working Capital Ratio

Current Ratio measures the company’s ability to meet its short term
obligations, the ideal situation is that the current assets are almost
double the current liabilities i.e.,2:1. the current assets get converted into
cash and provide funds needed to pay the current liabilities .

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 A relatively very high ratio indicates slackness of management
practices, it reflected in excessive holding of current assets. On the other
hand, a low ratio indicates an inadequate margin of safety between
current resources and short term obligation.

Current Ratio= current assets ÷ current liabilities

Current assets include cash, stock, debtors, bill of exchange and
investments which are held by the business for immediate conversion
into cash. Current liabilities include sundry creditors, bills payable,
provision for taxation, outstanding expenses etc….. Those are expected
to mature with in a period of 12 months.
TABLE 1

CURRENT RATIO

YEAR CURRENT CURRENT CURRNT

ASSETS LIABILITIES RATIO

2003-2004 439.25 791.56 0.55

2004-2005 367.34 980.60 0.37

2005-2006 341.62 883.51 0.38

2006-2007 387.21 838.56 0.5

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 2007-2008 354.20 357.13 0.9

CHART 1
CURRENT RATIO

INFERENCE
Generally 2:1 is considered as ideal for a concern.Here the ratios are
less than 2, difficulty may be experienced in the payment of current
liabilities and day to day operations may suffer.

LIQUID RATIO (ACID TEST OR QUICK RATIO)

Quick ratio is a more refined tool to measure the liability of an
organization. It is a better test of financial strength than current ratio,
because it excludes very slow moving inventories and those assets
which cannot convert into cash easily. This ratio shows the extent of
cushion of protection provided from the quick assets to the current

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liabilities. A quick ratio of 1:1 is considered satisfactory though it is only a
rule of thumb.
Liquid Ratio = Liquid Asset
Current Liabilities
Liquid Assets= Current Assets - (Inventories + Prepaid
expenses)
TABLE 2
LIQUID RATIO

YEAR LIQUID ASSETS LIQUID LIQUID

LIABILITIES RATIO

2003-2004 343.62 791.56 0.4

2004-2005 281.68 980.60 0.3

2005-2006 228.99 883.51 0.25

2006-2007 291.30 838.56 0.3

2007-2008 289.65 357.13 0.8

CHART 2
LIQUID RATIO

INFERENCE

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 Generally 1:1 is considered as ideal ratio for a concern.But here the
ratios are less than 1 so it can’t keep the liquid asset equal to the liquid
liabilities.

ABSOLUTE LIQUID OR CASH RATIO

This ratio is called cash ratio or super quick ratio. It plays an
important role, in determining the short term solvency of the firm.
Absolute liquid assets include cash in hand and at bank and marketable
securities, here the absolute liquid assets are cash and bank balances
only. This ratio is calculated by using the formulas:
Cash ratio= [cash + marketable securities] / current liabilities.
This ratio is most rigorous and conservative. The liquidity
measure also takes into account the ‘reserve borrowing power’ as the
firm’s real debt paying ability depends not only on cash resources
available with it but also its capacity to borrow from the market at short
notice.
TABLE3
ABSOLUTE LIQUID RATIO
YEAR CASH IN CURRENT CASH
HAND AND LIABILITIES RATIOS
AT BANK

2003-2004 99.26 791.56 0.1

2004-2005 59.57 980.60 0.06

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 2005-2006 53.98 883.51 0.06

2006-2007 74.78 838.56 0.09

2007-2008 54.39 357.13 0.15

CHART 3
ABSOLUTE LIQUID RATIO

INFERENCE
The absolute liquid asset ratio shows that the firm may have problems in
meeting its short-term obligations. This is because, the cash component
of the current assets is at a very low level.After the year 2003-2004 the
ratio shows large decrease in the following years. Hence, the firm has
got more of convertible liquid assets and less of immediately liquid
assets, as it carries a small amount of cash.

RATIO OF CURRENT ASSETS TO FIXED ASSETS

This ratio is worked out as:

Current Assets / Fixed assets
TABLE 4
RATIO OF CURRENT ASSETS TO FIXED ASSETS

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 YEAR CURRENT ASSETS FIXED ASSETS RATIOS

2003-2004 439.25 3798.53 0.11

2004-2005 367.34 3532.83 0.10

2005-2006 53.98 883.51 0.06

2006-2007 387.21 2996.99 0.12

2007-2008 354.20 2742.51 0.12

CHART 4
RATIO OF CURRENT ASSETS TO FIXED ASSETS

INFERENCE
Then the current assets to fixed assets of NAI Limited showing a
difference in each year.A decrease in the ratio may mean that trading is
slack or more mechanisation has been put through.An increase in the ratio
may reveal that inventories and debtors have unduly increased or fixed

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assets have been intensively used.An increase in ratio, accompanied by
increase in profit,indicates the business is expanding .

DEBT EQUITY RATIO

It measures the extent of equity covering the debt. This ratio is calculated
to measure the relative proportions of outsiders’ funds and shareholders’
funds invested in the company. It is calculated as follows:

TABLE 5
DEBT EQUITY RATIOS

YEAR EXTERNAL INTERNAL RATIO

EQUITY EQUITY

2003-2004 2313.21 5054.26 0.45

2004-2005 2225.32 5530.54 0.40

2005-2006 2449.57 5972.32 0.41

2
 2006-2007 2700.01 6433.65 0.41

2007-2008 4024.36 7957.63 0.50

CHART 5
DEBT EQUITY RATIOS

INFERENCE
The Debt Equity Ratio of NAI Limited shows a decrese in trend.A low ratio
is generally viewed as favourable from long term creditors point of
view.,because a large margin of protection provides safety for the
creditors.The same low ratio may be taken as quite unsatisfactory by the
shareholders because they find neglected opportunity for using low cost
outsider’s funds to acquire fixed assets that could earn a high return.

II) COVERAGE RATIOS

The ratios indicate the extent to which the interest of the persons
entitled to get a fixed return Or a scheduled repayment as per agreed
terms are safe.The higher the cover, the better it is. Under this category
the following ratios are calculated:
1) Fixed interest cover
Fixed interest cover =Net profit before interest and tax/Interest charges

2
2) Fixed dividend cover
Fixed dividend cover=Net profit after interest and tax/Preference dividend
3) Debt service coverage ratio
Debt service coverage ratio=
Net profit before interest and tax/interest+ Principal payment
installment/1-tax rate

INTEREST COVERAGE RATIO

Interest coverage ratio is also known as ‘time-interest earned
ratio’. This ratio measures the debt-servicing capacity of the company
insofar as fixed interest on long term loan in concerned. It shows the
relationship between debt-servicing commitments and sources of
meeting these burdens. It indicates whether the business would earn
sufficient profits to pay periodically the interest charges, It is determined
by dividing the operating profit or earnings before interest and taxes
(EBIT) by the fixed interest charges on loans.
INTEREST COVERAGE RATIO= EBIT / INTEREST
CHARGES.

TABLE 6
INTEREST COVERAGE RATIO

YEAR EBIT INTEREST INTEREST

CHARGES COVERAGE
RATIO

2003-2004 1427.3 386.44 3.6

2004-2005 742.42 136.61 5.43

2
 2005-2006 592.64 150.86 3.92

2006-2007 796.68 335.35 2.37

2007-2008 2111.55 577.68 3.65

CHART 6
INTEREST COVERAGE RATIOS

INFERENCE

The Interest coverage Ratio of NAI limited showing a high

Trend.The higher the ratio, the more secured the lenders will be in respect
of their periodical interest income.

2
III) TURNOVER RATIOS
These ratios are very important for a concern to judge how facilities
at the disposal of the concern are being used or to measure the
effectiveness with which a concern uses its resources at its disposal. In
short, these will indicate position of assets usage. These ratios are usually
calculated on the basis of sales or cost of sales and are expressed in
number of times rather than as a percentage. Such ratios should be
calculated separately for each type of asset. The greater the ratio more
will be efficiency of asset usage. The lower ratio will reflect the under
utilization of the resources available at the command of the concern. The
concern must always plan for efficient use of the assets to increase the
overall efficiency. The following are the important turnover ratios usually
calculated by a concern.
1) Sales to capital employed Ratio
This ratio shows the efficiency of capital employed in the business by
computing period how many times capital employed is turned-over in a
stated period. The ratio is ascertained as follows:
Sales/Capital employed (Shareholders fund+ Long term liabilities)
The higher the ratio, the greater are the profits

2) Sales to fixed asset Ratio

This ratio expresses the number of times fixed assets are being Turned-
over in a stated period. It is calculated as under:
Sales/Net fixed assts(Fixed assets less depreciation)
The higher the ratio the better is the performance
3) Sales to working capital Ratio

2
 This Ratio shows the number of times working capital is turned-
over in a stated period: It is calculated as follows:
Sales/Net working capital (current asset-current liabilities)
4) Total assets turnover ratio
This Ratio is calculated by dividing the net sales by the value of
the total assets (i.e., Net sales/Total assets).A high ratio is an indicator of
over-trading of total assets while a low ratio reveals idle capacity.The
traditional standard for the Ratio is two times
5) Stock turnover Ratio
It denotes the speed at which the inventory will be converted into
sales, thereby contributing for the profits of the concern. This ratio is
calculated as follows:
Stock Turnover Ratio=Cost of goods sold/Average stock held during the
period
6) Receivable Turnover ratio
It indicates the numbers of times on the average the receivable
are turn over in each year. The higher the value of the ratio, the more is
the efficient management of debtors. It is calculated as follows:
Receivable turnover ratio=Net credit sales/Average Debtors
7) Creditors turnover ratio
This ratio gives the average credit period enjoyed from the creditors and is
calculated as under:
Credit purchases/Average accounts payable
A high ratio indicates that creditors are not paid in time while a low ratio
gives an idea that the business is not taking full advantage of credit
period allowed by the creditors.

1
INVENTORY TURNOVER RATIO
Inventory turnover ratio is also known as Stock Velocity indicates the
number of times the stock has been turned over during the period and
evaluate the efficiency with which a firm is able to manage its inventories
be kept as low as possible consistent with the need of fulfill customer’s
order on time. The higher the stock turn over rate or lower the stock
turnover period the better through it is subject to variation between
companies.
Inventory turnover ratio= sales .
Average Inventory
Average inventory=Opening stock+ Closing stock
2
TABLE 7
INVENTORY TURNOVER RATIO

YEAR SALES AVERAGE INVENTORY

INVENTORY TURN OVER
RATIO

2003-2004 1978.41 143.08 13.83

2004-2005 2342.07 90.64 25.84

2005-2006 2855.64 99.14 28.80

2006-2007 3165.19 104.27 30.35

2
 2007-2008 2464.55 80.23 30.72

CHART 7
INVENTORY TURNOVER RATIOS

INFERENCE
The inventory Turnover ratio is shown in increasing trend.Greater the
turnover of inventory more will be efficiency of management.Higher the
ratio,the better it is because it shows that finished stock is rapidly turned
over.A low stock turnover ratio is not desirable because it reveals the
accumulation of obsolete stock,or the carrying of too much stock.

DEBTORS TURNOVER RATIO

A concern may sell goods on cash as well as credit. Credit
is one of the important elements of sales promotion. The volume of sales
can be increased by following a liberal credit policy. This ratio shows the
extent of trade credit granted and the efficiency in the collection of debts.
It indicates the number of times the average debtors are turned over
during a year. It is indicative of efficiency of trade credit management. A
higher ratio means prompt payment by debtors where as a lower one
indicates very liberal, infective and inefficient credit and collection policy.

2
 Debtors turnover ratio= Sales
Average Trade Debtors
Average Trade Debtors=Opening Debtors + Closing Debtors
2
TABLE 8
DEBTORS TURNOVER RATIOS

YEAR SALES AVERAGE DEBTORS

TRADE TURNOVER
DEBTORS RATIO

2003-2004 1978.41 294.48 6.72

2004-2005 2342.07 261.99 8.94

2005-2006 2855.64 143.93 19.84

2006-2007 3165.19 125.8 25.16

2007-2008 2464.55 143.33 17.19

CHART 8
DEBTORS TURNOVER RATIOS

INFERENCE
The Debtors Turnover Ratio is shown in increasing nature. Generally, the
higher the value of Debtors turnover the more efficient is the
management of sales/debtors or more liquid are the debtors. Similarly,
low debtors turnover ratio implies inefficient management of
sales/debtors and less liquid debtors. Debtors turnover of the unit is not

2
at all favorable over the period. Its impact is clearly highlighted in the
debt collection period.

AVERAGE COLLECTION PERIOD

The average collection period represent the average number of

days for which a firm has to wait before its receivables are converted into
cash. The ratio can be calculated as follows.
Average Collection Period= 365 / Debtor’s turnover ratio

TABLE 9
AVERAGE COLLECTION PERIOD

YEAR DEBTORS AVERAGE

TURNOVER COLLECTION
RATIO PERIOD

2003-2004 6.72 54

2004-2005 8.94 41

2005-2006 19.84 19

2
 2006-2007 25.16 15

2007-2008 17.19 21

CHART 9
AVERAGE COLLECTION PERIOD

INFERENCE
Average collection period is shorter in nature. A shorter collection
period indicates prompt payment of debtors, while a longer period
indicates the inefficiency of the credit collection. Last 5 years average
collection period shows a shorter period for credit collection.Average
collection period is satisfied to the management.

CREDITORS TURNOVER RATIO

CREDITORS TURNOVER RATIO is a ratio between net

credit purchase & average amount of creditors. It implies the credit
period enjoyed by the firm in paying creditors. It is computed by using the
following formula.

2
CREDITORS TURNOVER RATIO =Net credit purchases /Sundry
creditors

TABLE 10
CREDITORS TURNOVER RATIO

YEAR PURCHASES AVERAGE CREDITORS

CREDITORS TURNOVER
RATIO

2003-2004 1534.84 786.18 1.95

2004-2005 1739.52 975.22 1.78

2005-2006 2253.64 878.13 2.57

2006-2007 2400.59 833.18 2.88

2007-2008 1782.57 711.33 2.50

CHART 10
CREDITORS TURNOVER RATIOS

INFERENCE
The Creditors turn over Ratios is increase in trend.A high ratio indicates
that creditors are not paid in time while a low ratio gives an idea that the

1
business is not taking full advantage of credit period allowed by the
creditors.

CREDITORS PAYMENT PERIOD

Creditors payment period measures the time taken by

the firm to make payments for it’s purchases. This ratio measures the
average credit period enjoyed from the creditors. It is calculated by using
the formula:

CREDITORS PAYMENT PERIOD = 365 / CREDITORS

TURNOVER
OR = [CREDITORS / CREDIT PURCHASES] * 365

TABLE 11
CREDITORS PAYMENT PERIOD

YEAR CREDITORS CREDITORS

TURNOVER RATIO PAYMENT PERIOD

2003-2004 1.95 187

2004-2005 1.78 205

2005-2006 2.57 142

2
 2006-2007 2.88 127

2007-2008 2.50 146

CHART 11
CREDITORS PAYMENT PERIOD

INFERENCE
The Creditors payment period shows a decrease in Trend. A shorter
period indicates that creditors are being paid promptly, while a longer
period reflects liberal credit terms granted by suppliers.

WORKING CAPITAL TURNOVER RATIO

This ratio is computed to test the efficiency with which the net working
capital is utilized. In other words, this ratio indicates whether working
capital is effectively used in making sales. It is calculated as follows:
WORKING CAPITAL TURNOVER RATIO = NET SALES .
NET WORKING CAPITAL
TABLE 12
WORKING CAPITAL TURNOVER RATIOS

2
 YEAR NET SALES NET WORKING WORKING
CAPITAL CAPITAL TURN
OVER RATIOS

2003-2004 1978.41 352.31 5.6

2004-2005 2342.07 613.26 3.81

2005-2006 2855.64 541.89 5.27

2006-2007 3165.19 451.35 7.01

2007-2008 2464.55 357.13 6.9

CHART 12
WORKING CAPITAL TURNOVER RATIO

INFERENCE
The Working capital turnover ratio of NAI Limited is showing a decreasing
and increasing trend.When compared to the general norms it is good. A
high Working capital turnover ratio may reflect an adequacy of working
capital and higher turnover of inventories.During the year 06-07 the ratio
shows a very good working capital turnover.But during the year 04-05 the
ratio shows a very low working capital. A low Working capital turnover

2
ratio may reflect an inadequacy of working capital and lower turnover of
inventories. for this management action is initiated

ASSET TURNOVER
Assets are utilized for generating sales and to earn profits,
therefore, a firm should manage its assets efficiently and effectively to
maximize sales. The relationship between sales and assets is called
asset turnover. The ratio shows the firm’s ability in generating sales from
all financial resources committed towards assets.
TOTAL ASSETS TURNOVER
TOTAL ASSETS TURNOVER = NET SALES / TOTAL
ASSETS
TABLE 13
TOTAL ASSETS TURNOVER RATIOS

YEAR NET SALES TOTAL ASSETS TOTAL ASSETS

TURN OVER
RATIOS

2003-2004 1978.41 6277.65 0.32

2004-2005 2342.07 6378.8 0.36

2005-2006 2855.64 6505.96 0.44

2006-2007 3165.19 6711.45 0.47

2
 2007-2008 2464.55 7904.07 0.31

CHART 13
TOTAL ASSETS TURNOVER RATIOS

INFERENCE
. The Total Assets Turnover Ratio of NAI Limited is showing a decrease
in trend.A high ratio is an indicator of over-trading of total assets while a
low ratio reveals idle capacity.

FIXED ASSETS TURNOVER RATIO

Fixed assets turnover ratio shows the relationship between sales and
fixed assets. It shows whether fixed assets are fully utilized. To be more
clearly, this ratio measures the efficiency with which a firm is utilising its
fixed assets in generating sales.
It is computed as follows:
Fixed assets turnover ratio = sales .
Fixed assets
The term fixed assets for this ratio is the depreciated value of fixed
assets i.e. the amount of depreciation is deducted from the value of fixed
assets.
TABLE 14

2
 FIXED ASSETS TURNOVER RATIOS

YEAR SALES FIXED ASSETS FIXED ASSETS

TURN OVER
RATIOS

2003-2004 1978.41 3824.53 0.51

2004-2005 2342.07 3558.83 0.65

2005-2006 2855.64 3297.17 0.87

2006-2007 3165.19 3022.99 1.04

2007-2008 2464.55 2742.51 0.89

CHART 14
FIXED ASSETS TURNOVER RATIO

INFERENCE
The Fixed Asset turnover ratio of NAILimited was decreasing and
increasing trend. This ratio measures the efficiency in the utilisation of
fixed assets. A high ratio reflects overtrading. On the other hand, a lower
ratio indicates ideal capacity and excessive investment in fixed assets.
Generally, a standard or ideal ratio is 5 times. So we can say that firm
achieved the standard ratio.

1
IV) PROFITABILITY RATIOS
Profitability is the overall measure of the companies with regard to
efficient and effective utilization of resources at their command. It indicates
in a nutshell the effectiveness of the decision taken by the management
from time to time.
Profitability ratios are of utmost importance for a concern .These
ratios are calculated to enlighten the end results of business activities
which is the sole criterion of the overall efficiency of a business concern.
The following are the important profitability ratios:
1) Gross profit ratio-This ratio tells gross margin on trading and is
calculated as under:
Gross Profit Ratio=Gross Profit / Net Sales*100
For example, if gross profit is Rs.42,000 and net sales are
Rs.3,00,000, the gross profit ratio will be 14%(i.e.,42,000/ 3,00,000*100).
Higher the ratio, the better it is. A low ratio indicates unfavorable trends
in the form of reduction in selling prices not accompanied by proportionate
decrease in cost of goods or increase in cost of production.
2) Operating Ratio-This ratio indicates the proportion that the cost of
sales bears to sales. Cost of sales includes direct cost of goods sold as
well as other operating expenses, (i.e., administration, selling and
distribution expenses) which have matching relationship with sales. It
excludes income and expenses which have no bearing on production and
sales i.e., non- operating income and expenses as interest and dividend
received on investment, interest paid on long-term loans and debentures,
profit or loss on sale of fixed assets or long-term investments. It is
calculated as follows:

3
Cost of goods sold +operating expenses / net sales*100
For example ,if cost of goods sold Rs.3.10,000 are given, then operating
expenses Rs.2,00,000 and net sales Rs.6,80,000 are given ,then
operating ratio will be 75%
(i.e., Rs.3,10,000+Rs.2,00,000/Rs.6,80,000*100)
Lower the ratio, the better it is. Higher the ratio, the less favorable it is
because it would have a smaller margin of operating profit for the
payments of dividends and the creation of reserves. This ratio should be
analyses further to throw light on the levels of efficiency prevailing in
different elements of total cost.
3)Expense Ratios-These are calculated to ascertain the relationship that
exist between operating expenses and volume of sales.The following
ratios will help in analyzing operating ratio.
a)Material consumed ratio-
=material consumed/net sales*100
b)Conversation cost ratios-
=labour expenses+ manufacturing expenses/net sales*100

c) Administrative expenses ratio

=Administrative expenses ratio/net sales*100

d)Selling and distribution expenses Ratio

=Selling and distribution expenses/net sales*100

The total of these four ratios will be equal to operating ratio

1
4) Operating profit ratio-This ratio establishes the relationship between
operating profit and sales and is calculated as follows:

Operating profit ratio=Operating profit/net sales*100

This indicates the portion remaining out of every rupee worth of sales
after all operating costs and expenses have been met. Higher the ratio the
better it is.
5) Net profit ratio-This ratio explains per rupee profit generating capacity
of sales. If the cost of sales is lower, then the net profit will be higher and
then we divide it with the net sales, the result is the sales efficiency. If
lower is the net profit per rupee of sales, lower will be the sales efficiency.
The concerns must try for achieving greater sales efficiency for
maximizing the RIO.This ratio is very useful to the proprietors and
prospective investors because it reveals the overall profitability of the
concern. This is the ratio of net profit after taxes to net sales and is
calculated as follows:

Net profit Ratio=Net profit after tax/Net sales*100

This ratio differs from the operating profit ratio in as much as it is
calculated after deducting non-operating expenses, such as loss on sale
of fixed assets etc., from operating profit and adding non-operating income
like interest or dividends on investments, profit on sale of investment or
fixed assets, etc., to such profit. Higher the ratio, the better it is, because it
gives idea of improved efficiency of the concern.
6) The return on capital employed-This ratio is an indicator of the
earning capacity of the capital employed in the business. The ratio is
calculated as follows

2
 Return on capital employed=operating profit/capital employed*100

This ratio is considered to be the most important ratio because it

reflects the overall efficiency with which capital is used. This ratio is a
helpful tool for making capital budgeting decisions.; a project yielding high
return is favored. For example, if the capital employed is Rs.1,00,000 and
operating profit before interest and tax is Rs.15,000,the return on capital
employed will be 15%(i.e., 15,000/1,00,000*100).
7)Return on shareholder’s fund-When it is desired to work out the
profitability of the company from the shareholder’s point of view,then it is
calculated by the following formula.

Return on share holder’s fund=

Net profit after interest and tax/Shareholders fund*100
For example, if net profit after interest and tax is Rs.2, 00,000 and
Shareholders fund Rs.10,00,000, then the ratio will be 20%
(Rs.2,00,000/10,00,000*100)
The ratio of net profit to share holders funds shows the extent to which
profitability objective is being achieved. Higher the ratio, the better it is.
8)Return on equity shareholders fund-This ratio is a measure of the
percentage of net profit to equity shareholders fund. The ratio is
expressed as follows:
Return on Equity share holders fund=
Net profit after tax, Interest and preference dividend/Equity shareholders
fund
Suppose profit after interest,taxes and preference dividend is Rs.5,00,000
and equity shareholders is Rs.25,00,000.The return on equity
shareholders funds will be 20%[i.e.,(Rs.5,00,000/RS.25,00,000)*100]

1
9)Return on Total Asset-This ratio is calculated to measure the profit
after tax against the amount invested in total assets to ascertain whether
assets are being utilized properly or not.It is calculated as under:
Return on total assets=Net profit after tax/Total assets*100
10)Earning per share-This helps in Determining the market price of
equity shares of the company and in estimating the company’s capacity to
pay dividend to its equity shareholders. It is calculated as follows:
Earnings per share=
Net profit after tax and preference dividend/Number of equity shares

2
GROSS PROFIT MARGIN
Gross profit is defined as a difference between net sales and
cost of goods sold. Gross profit is the result of relationship between
prices, sales volumes and cost. The gross profit margin reflects the
efficiency with which management produces each unit of the product.
Here, NET SALES = SALES – SALES RETURN

GROSS PROFIT MARGIN = (NET SALES – COST OF GOODS

SOLD)*100
NET SALES
TABLE 15
GROSS PROFIT MARGIN

YEAR NET SALES CGS GROSS PROFIT

MARGIN

2003-2004 1978.41 3065.39 54.9

2004-2005 2342.07 3009.51 28.4

2005-2006 2855.64 3368.39 17.9

2006-2007 3165.19 3687.12 16.4

2007-2008 2464.55 4075.02 65.3

CHART 15
GROSS PROFIT MARGIN

1
INFERENCE
The Gross profit margin of NAI Limited is showing a decreasing and also
increasing trend.The profit margin for 03-04 was 54.9%, but it was
decreased in the year 04-05 to 28.4%. Where as in the year 05-06 it was
reduced to 17.9%.Again it was reduced in the year 06-07 to 16.4%.But it
was increased in the year 07-08 to 65.3%. The decrease in gross profit
was due to drastic reduction in selling price, sales volume and stiff
competition in the market.

NET PROFIT RATIO

Net profit ratio is the ratio of net profit to net sales. It is known as
profit margin. It is usually expressed as percentage. It is calculated as
follows:

N/P Profit = Net Profit *100

Net Sales
Here, net profit is the balance of profit and loss account after
adjusting interest and taxes and all non-operating expenses like loss on
sale of fixed assets, provision for contingent liability etc. and all non-
operating incomes like profit on sale of assets, interest on investment,
dividend received etc.
TABLE 16
NET PROFIT RATIO

YEAR NET PROFIT NET SALES NET PROFIT

MARGIN

3
2003-2004 1876.01 1978.41 94.82

2004-2005 2352.28 2342.07 100.43

2005-2006 2794.06 2855.64 97.84

2006-2007 3255.39 3165.19 101.02

2007-2008 4789.26 2464.55 101.94

CHART 16
NET PROFIT RATIO

INFERENCE
The net profit ratio of NAI limited is showing a unstable trend.The net profit
margin for 03-04 was 94.82,but it was increased in the year 04-05 to
100.43.Where as in the year 05-06 it was decreased in to 97.84.But it was
increased in the year 06-07 to 101.02 then it was slight increase 101.94

A high N/P ratio would indicate higher overall efficiency of the

business, better utilisation of limited resources and reasonable return to
owners. A low N/P ratio would mean low efficiency and inadequate return
to owners

IV.IFINDINGS OF THIS STUDY

• The Current Ratio of NAI international Limited showing a
decreasing and increasing trend.This indicates that there is no

2
 better margin of safety for the creditors. A high ratio indicates that
funds are not economically used in the firm. A low ratio indicate
that firm may have some difficulty in paying off its debts.
• The Liquid Ratio of this company shows a low in trend. A high ratio
indicates that firm is liquid and has the ability to meet its current or
liquid liabilities. A low ratio indicates that firm’s liquidity position is
not good.
• The Absolute Liquid Ratio shows a very low in this case. This is
because the company carries a less cash balance and absolutely
no marketable securities.
• The Ratio of current Assets To fixed Assets shows a decrease in
trend.A decrease in the ratio mean that the trading is slack or more
mechanisation has been put through.
• The Debt Equity Ratio is shown in less in trend.A low ratio is
generally viewed as favaourable from long term creditors point of
view,because a large margin of protection provides safety for the
creditors.The same low ratio may be taken as quite unsatisfactory
by the shareholders because they find neglected opportunity for
using low cost outsiders funds to acquire fixed assets that could
earn a high return.
• The company has got a fixed interest coverage Ratio at high level.It
really measures the ability of the concerns to service the
debt.Itindicates whether the business would earn sufficient profits to
pay periodically the interest charges.
• The Inventory turnover ratio is shown higher in Trend.The greater
the turnover of inventory more will be efficiency of its management.
Further,it will be higher when sales are maximum the average
inventory is minimum.

2
 • Debtors turnover ratio of the unit is not at all satisfactory for the last
5 years.The debtors Turnover ratio is very high in this case.It
causes ,more the chances of bad debts.
• The Average Collection period shows the quality of debtors since it
ventilates the speed at which the debtors are collected.
• The Creditors Turnover Ratios shown a decrease and also increase
in trend.A high ratio indicates that creditors are not paid in time
while a low ratio gives that the business is not taking full
advantages of credit period allowed by the creditors.
• The Working Capital Turnover Ratios is lower in trend.The low
working Capital Turnover Ratio is indicates that working capital is
not properly used.
• The Total Asset Turnover Ratio is lower in trend.The low ratio
reveals that the idle capacity.
• The Fixed Assets Turnover Ratios are decrease in trend because it
reveals that the fixed Assets are not being efficiently used.
• The Gross Profit Ratio is Decrease in Trend. The decrease in gross
profit was due to drastic reduction in selling price, sales volume and
stiff competition in the market.
• The Net profit Ratio is shown a higher in trend.Higher the ratio,the
better it is because it gives idea of improved efficiency of the
concern.

IV.IISUGGESTIONS
From the data analysis and interpretation, the following suggestion are put
forward to the company and their implementation will definitely be
beneficial to the company.

1
• Take proper attention to be taken for either increasing current
assets or decreasing current liabilities for the purpose of improving
the short term liquidity position of the company.
• The current assets and quick assets are showing a continuous
down ward trend, it is an alarming signal to the management for
initiating necessary preventive action.
• The debtors occupy a significant proportion of current assets hence
management of debtors deserve special attention.
• The management of inventory should ensure that no inventories
are lying in stock for long time.
• The management should give more attention to maintain& keep
minimum cash and bank balance as much as possible.
• The company should make prompt payment to the suppliers’ leads
to getting raw materials in timely and also enhancing the goodwill of
the company.
• The management should pay attention towards increasing working

capital turnover by minimizing the investment in inventories and

receivables.

• There should not be excessive inventories or large idle cash

balance.

• The company should ensure that funds are using economically.

• There should be always a good inventory management.

• Good relation with the bank should be maintained.

• Fixed assets must be utilized fully.

1
 • Managing innovation effectively has become the key to the growth
in the context of increasing competition owing to the globalization
and emergence of disruptive technologies across the world.

IV.IIICONCLUSION

Finance is the king-pin of any business enterprise. Every part of an

enterprise production, distribution, management, etc. requires finance.
Finance is rightly described as the lifeblood of any industrial or commercial
undertaking. The main object of every business enterprise is to maximize
shareholders wealth. Without profit any firm can exist.

All business organization has to be profit oriented as profits are

essential for the very survival of the organization and are also needed for

1
its growth. In the present highly competitive buyer dominated situation, the
market forces are determining the selling price. Therefore, if a suppliers’
organization has to achieve the profit objectives, it has now to earn profit
by controlling cost price. The major component which makes cost price is
cost of materials, energy and human resources.

This study reveals the impact of financial analysis in the profitability of

the NAI International Limited. It also highlights the liquidity and efficiency
of the NAI International Limited.The study undertakes various efforts to
analyze all of them in great details. From the study the researcher was
able to find out the financial efficiency of the firm through a detailed
analyzes of the different ratios’ for the last five years. The study gives a
clear idea of the financial position of the company over the last five years.
From the study thus it becomes clear that the overall financial position of
the company have to be improved.

2
 BIBILIOGRAPHY

www.Studyfinance.com
www.investopedia.com
www.newapproach.com.au
Introduction to COST ACCOUNTING (Calicut University)-S.P.JAIN
K.L.NARANG

NEW APPROACH INTERNATIONAL LIMITED

BALANCE SHEET FOR THE PERIOD FROM 2003-2004 TO 2007-2008

PARTICULARS 31/6/2004 31/6/2005 31/6/2006 31/6/2007 31/6/2008

1
SOURCES OF FUNDS:
1)Share Holder’s Funds
a)Share Capital 3168.37 3168.37 3168.37 3168.37 3168.37
9.89 9.89 9.89
b)Reserves and Surplus 9.89
2067.38 2087.87 2342.42 3684.50
2)Loan Funds
2153.93 152.56 356.32 352.21 339.86
a)Secured Loans
153.90 5398.20 5622.45 5872.89 7192.74
b)Unsecured Loans
Total 5486.09 5374.51 5387.19 5386.69 5396.16
APPLICATION OF FUNDS 1841.68 2116.03 2389.70 2653.65
1)Fixed Assets 3532.83 3271.17 2996.99 2742.51
5365.99 26.00 26.00 26.00
a)Gross Block 1567.46
b)Less:Depreciation 3798.53 0.53 0.53 0.53
c)Net Block 26.00
d)Capital work-in-progress 85.66
2)Investments 0.53 175.00 112.63 95.91 64.55
3)Current Assets,Loans and 59.57 112.86 138.74 147.92
95.63 12.02 53.98 74.78 54.39
Advances
190.54 35.09 3.61 2.11 1.00
a)Inventories 99.26 58.54 75.67 86.34
b)Sundry Debtors 9.81 367.34
c)Cash and bank balances 44.01
d)Other current Assets 341.62 387.21 354.26
e)Loans and Advances 439.25 975.22
5.38
Total 878.13 833.18 711.33
786.18 613.26 5.38 5.38
Less:Current Liabilities and 5.38
Provisions 99.82 541.89 451.35 357,13
a)Current Liabilities 352.31
b)Provisions 2352.28 72.59 45.33 18.03
Net Current Assets 137.34 5398.20
4)Miscellaneous Expenditure 2794.06 3255.39 4789.26
1876.00 5622.45 5872.89 7192.74
(to the extent not written off or adjusted) 5486.09
Profit and Loss Account
Total

Significant Accounting policies and notes on

accounts

RUBFILA INTERNATIONAL LIMITED

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 2003-2004 TO 2007-2008

PARTICULARS 31/3/2004 31/3/2005 31/3/2006 31/3/2007 31/3/2008

1
INCOME:
Sales 1978.41 2342.07 2855.64 3165.19 2464.55
Other Income 46.12 61.63 70.97 60.61 76.60

Total 2024.53 2403.70 2926.61 3225.80 2541.15

EXPENDITURE:
Variation in stock 65.70 0.37 4.21 11.46 29.72
Consumption of Raw material
and Consumables 1534.84 1739.52 2253.64 2400.59 1782.57
Manufacturing Expenses 293.20 311.60 391.41 351.58 322.33
Administrative Expenses 199.38 206.59 239.16 220.09 197.99
Marketing Expenses 139.06 149.16 47.47 64.21 38.24
Interest And Financial charges 386.44 136.61 150.86 335.35 577.68
Depreciation 281.24 276.68 274.83 275.41 273.30
Preliminary/Deferred revenue
expenditure 36.34 37.52 27.24 27.24 27.24
Prior Period Expenditure 129.19 0.63 27.34 8.43 821.87
Provision For Contingent - 151.56 15.33 9.62 4.10
Liabilities

Total 3065.39 3009.51 3368.39 3687.12 4075.02

NET PROFIT/(LOSS) BEFORE TAX 1040.86 605.81 441.78 461.33 1533.87

AND EXTRAORDINARY ITEMS
ADJUSTED

Deffered Tax 620.33 ---- --

Interest Waiver -- 129.53 --

NET PROFIT/(LOSS) BEFORE 420.53 476.28 441.78

EXTRA ORDINARY ITEMS

NET PROFIT/(LOSS) 420.53 476.28 441.78 461.33 1533.87

Balance brought From last year 1455.48 1876.00 2352.28 2794.06 3255.39

Balance carried to the Balance sheet 1876.01 2352.28 2794.06 3255.39 4789.26

Notes attached to and forming part of

the accounts