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EXECUTIVE SUMMARY
I am seema A Jadhav pursuing M.B.A from Visvesvaraya Technological University, Belgaum. I am performing my project on Ratio Analyses at Shree Renuka Sugars Ltd. The various information regarding theories, types, calculations, interpretations, have also been discussed and aspects relating to the Perspective of SHREE RENUKA SUGERS LTD in my study. I have also emphasized more on need and importance of Ratio Analyses. Ratio analyses have been carried out using financial information for last five years. i.e. from 20042008, ratios like liquidity ratio, leverage ratio, profitability ratio, activity ratio and other measures has been calculated and interpretation has been made. After conducting study I have found that the company is in good condition and I have given some suggestions and conclusion on the basis of my project study, which is highlighted, in my study.
financial Analysis
METHODOLOGY
The methodology includes personal interviews. Selection of the sample: Past 5 years data on Profit & Loss Account & the Period: the study covers a period of 5 years data from 2003-04, 2004-05,
Balance Sheet. 2005-06, 2006-07 and 2007-08 to mean an accounting year of the company consisting of 12 months. Framework of Analysis: For the purpose of analyzing liquidity & profitability the study makes use of various accounting ratios.
financial Analysis
INDUSTRY PROFILE
financial Analysis Thus from different historical references and from some Puranas it can be concluded that method of making sugar from sugarcane was known. To the people of Bihar. The historical evidences of sugar industry prospering in ancient India concrete and this has helped to develop and prosper the co-operative sugar movement in India.
financial Analysis
The entrepreneurs have been allowed to set up sugar factories of expand the existing sugar factories as per the techno-economic feasibility of the project. However, they are required to maintain a radial distance of 15 kms from the existing sugar factory. After delicensing, a number of new sugar plants of varying capacities have been set up and the existing plants have substantially increased their capacity. There are 566 installed sugar mills in the country as on March 31st 2005, with a production capacity of 180 lack MTs of sugar, of which only 453 are working. These mills are located in 18 states of the country.
COMPANY PROFILE
financial Analysis
financial Analysis The company's merchant export division is the second largest sugar exporter out of India. This fiscal it is the largest raw sugar importer into India. The Company manufactured and traded over 250,000 MT of sugar in 2002-03 and 350,000mt in 2004-05. Total trade flow puts the Company in the top 10 of sugar producers/marketers in India.
financial Analysis Nature of Business carried by SRSL is involved in the activity of manufacturing white crystal sugar products which is the main product. The process of production involve conversion of Raw sugarcane to sugar, Raw sugar into refined sugar Molasses, Bagasses are its by products. 1) Molasses Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), Yeast and cattle feed. 2) Bagasses Bagasses is usually used as a combustible in the furnaces to produce steam, which in turn is used to generate power; it is also used as raw materials for production of paper and as feedstock for cattle. The company is having rich German technology machines and equipment that are installed in the production area. The power plant machines and Turbines are of Bharath Heavy Electricals Limited and Thriveni made. 3) Power generation plant Power plant uses the fiber of the processed sugar cane (bagasse) as fuel to generate electricity in an environmentally responsible manner. An integrated 11.2 M.W. power generates and supplies electricity to the state grid produced from sugar cane waste used to rotate turbines 7 M.W. power is utilized in the plant remaining power is supplied to KPTCL.
4) Distillery plant
financial Analysis Distillery plant uses by-product of sugar mill viz; Molasses as raw material for production of spirits and alcohol namely rectified spirit, ethanol and extra neutral alcohol. The capacity of plant was 60 KLPD which has been increased up to 120 KLPD in November 2006.
PRODUCT PROFILE
MAIN PRODUCT
WHITE CRYSTAL SUGAR The main product of the sugar manufacturing process is white crystal sugar. This white crystal sugar is manufactured in the following grades: 1) L-30 [Large size sugar] 2) M-30 [Medium size sugar] 3) S1-30 [small size sugar] 4) S2-30 [very small size]
financial Analysis which can be used both for potable purpose as well as an industrial chemical. Further this alcohol can be again purified to produce fuel and ethanol that can be blended with petrol. Ethanol is in turn used to produce portable liquor and downstream value added chemical such as acetone, acetic acid, buttonhole, acetic anhydride, etc. Face stiff competition from production through the petrochemical route. The government controls the export of molasses through export licenses issued for every quarter. Molasses and alcohol-based industries were decontrolled in 993 and are being controlled by respective state government policies. Nearly 70% of the alcohol produced is consumed by the potable alcohol sector. The molasses prices that used to rule a round 200 per ton during early nineties shot up to Rs 1400 per ton as a result of decontrol of the industry in 1993, but with reduction of import duties in 1995 and bumper crop in 1996, the prices came down to Rs 400 level. The increase in excise duty to specific rate of Rs 500 per ton in 1997 budget lead to sharp increase in Molasses price. 2. BAGASSE Bagasse is a fibrous residue of cane stalk that is obtained after crushing an extraction of juice. It consists of water, Fiber an relatively small quantities of soluble solids, the composition of bagasse varies based on the variety of sugarcane, Maturity of cane, Method of harvesting and the efficacy of the sugar mill, the usual bagasse composition is given below. Table no#2 CONTENT Moisture Fiber Soluble solids RANGE % 46-52 43-52 2-6
Bagasse is usually used as a combustible in the furnaces to produce steam, which in turn is used to generate power; it is also used as raw materials for production of paper and as feedstock for cattle.
PG-CENTRE, VTU, Belgaum
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financial Analysis
By making use of bagasses, sugar mills have been successful in reducing dependence on state electric boards for power supply, for example requirement for FY98 from captive generation from steam turbines. Further this bagasse based cogeneration plant is eligible for carbon credit compensation under the Kyoto protocol. The residue product from distillery operation blended with chemicals is being sold as bio-fertilizers. 3. POWER GENERATION PLANT Power plant uses the fiber of the processed sugar cane (bagasse) as fuel to generate electricity in an environmentally responsible manner. An integrated 11.2 M.W. power generates and supplies electricity to the state grid produced from sugar cane waste used to rotate turbines 7 M.W. power is utilized in the plant remaining power is supplied to KPTCL.
4. DISTILLERY PLANT
Distillery plant uses by-product of sugar mill viz; Molasses as raw material for production of spirits and alcohol namely rectified spirit, ethanol and extra neutral alcohol. The capacity of plant was 60 KPLD which has been increased up to 120 KLPD in November 2006
OWNERSHIP PATTERN
Shree Renuka Sugar LTD is one of the privatized sugar manufacturing company. Under the entrepreneur of Vidya Murkumbi, established its branches in various part of Karnataka and Maharashtra with the share capital of 200 millions of Indian Rupees.
ORGANIZATION STRUCTURE
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financial Analysis
ORGANISAT ION ST RUC T URE
C hairperson
Executive Director
Chief Operating
C hief Financial
Vic e president
Engineerin g
T reasury
Derivative s
Ac counts
Distillery
T axation
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financial Analysis The companys vision is to become the most efficient processor of sugar and the largest marketer of sugar and ethanol in the country. Shree Renuka Sugars Ltd. aims To expand its installed capacity, achieve end-to-end integration for all its plants to improve margins and reduce business cycle. Achieve greater raw material security. Increase its focus of corporate and high value consumers. To become the most efficient and market driven integrated processor of sugarcane in the world. While enabling the team to grow in a learning and motivating atmosphere, participating in the all round development of community. Delivering consistently on returns to all its shareholders. Bringing over all productivity and efficiency through out the organization, especially by value addition of its by products in sugar effluent waste etc. Producing the best quality sugar to satisfy the domestic and internal norms.
MISSION
To become a provider of world-class sugar products to the Nation. To enhance shareholders wealth by sustained, profitable anal financially sound growth with prudent risk management systems. To fulfill national and social obligations as a responsible corporate citizen. To create an environment, intellectually satisfying and professionally rewarding to the employees.
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financial Analysis
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financial Analysis
1. To select a proper ratio 2. Not to study a ratio in isolation i.e. indications from two or more ratios can be studied in conjunction. 3. To subject the financial variables to further investigation where acute disproportion is indicated by a ratio. 4. To call for further information relating to a financial data to verify its validity. 5. To be aware of the fact that it is not possible to state as to what constitutes, as a general rule, normal or ideal positions.
1) of the same firm relating to earlier periods 2) of another firm 3) representing industrial averages 4) projected in the budgets 5) set as targets
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financial Analysis
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financial Analysis WHAT IS INDUSTRY RATIO? An industry financial ratio provides the best methodology to judge how well a company or investment is performing. In evaluating and investment it is imperative that the company or investment be compared to the performance of the industry in which it competes. Your industry financial ratios analysis is immediate and available for download or printing at will. Industry financial ratios can reveal much about an industry. However, there are several points to keep in mind about ratios. First, they are "flags" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of an industry, ratio analysis can tell much about that industry. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of-the analyst. Third, financial ratios are meaningful only when they are compared with some Standard, such as another industry trend, ratio trend, a ratio trend for the specific sector being analyzed. In industry trend analysis, industry ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with five years of rations. The second type of ratio analysis, cross-sectional analysis, compares a company's financial ratios to industry ratio averages. Another popular form of cross-sectional analysis compares the financial ratios of two or more companies in similar lines of business. Your industry analysis report is broken down into the various ratio categories: Predictor Ratios indicate the potential for growth or failure. Profitability Ratios, which use margin analysis and show the return on sales and capital employed. Asset Management Ratios, which use turnover, measures to show how efficient the companies within the sector perform in operations and use of assets. Liquidity Ratios, which give a picture of an industry's short-term financial situation or solvency. Debt Management Ratios, which show the extent that debt, is used in the sector's capital structure. ?
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financial Analysis
I.
LIQUIDITY RATIOS
Liquidity Ratios refers to the firms ability to satisfy its short term obligations or
current liabilities as they become due, liability will be usually of one year. It reflects the financial strength/solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity. A failure of company to meet its obligation due to lack of sufficient liquidity, will result in poor credit worthiness. A very high degree of liquidity is also bad because, idle asset earn nothing. The firm funds will be unnecessary tide up in current assets. Therefore, it is in necessary to strike a proper balance between high liquidity and lack of liquidity. The ratios which indicate the liquidity of a firm are i. Current Ratio, ii. Quick Ratio, iii. Interval Ratio, iv Net Working Capital Ratio, v. Absolute Liquidity Ratio.
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financial Analysis i.
Current Ratio
The current ratio is also known as working capital ratio, the current ratio is an
indication of a firms market liquidity, is a measure of firms short-term solvency. It indicates the availability of current assets in rupee for every rupee of current liability. A ratio greater than one means that the firm has more current assets than current liabilities against them. As conventional rule, a current ratio of 2:1 is considered satisfactory. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting is short- term obligations. If the current ratio is too high, then the company may not be efficiently utilizing its current assets. The current ratio is calculated as follows. Current Assets Current Ratio = --------------------------Current Liabilities
iii.
Cash Ratio
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financial Analysis
Since cash is the most liquid assets, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investments or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio.
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financial Analysis Net Working Capital (NWC) NWC Ratio = -------------------------------------------Net Assets (NA) 2. LEVERAGE/ CAPITAL STRUCTURE/ DEBT/ SOLVANCY The second category of financial ratio is Leverage Ratio. The debt position of a company indicates the amount of other peoples money being used to generate profits. The more debt a firm has the greater is the risk creditors claims must be satisfied before the earnings can be distributed to shareholders, lenders are also concerned about the firms indebtedness. To judge the long term financial position of the firm, financial leverage or capital structure ratios are calculated. These ratios indicate mix funds provided by the owners and lenders. As a general rule there should be an appropriate mix of debt and owners equity in financing the firms assets. There are two aspects of the long term solvency of a firm i. Ability to repay the principal when due and interrelated, type of leverage ratios. First ratio which are based on the relationship between borrowed fund and owners capital. These ratios are computed from balance sheet and have variations such as a). debt equity ratio. b) debt asset ratio. c) equity assets ratio and some The second type of capital structure ratio, popularly called coverage ratio, and calculated from the profit and loss account ii. Regular payment of the interest. Accordingly there are 2 different, but mutually dependent
i. Debt Ratio
PG-CENTRE, VTU, Belgaum
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financial Analysis Debt ratio may be used to analyze the long term solvency of a firm. The firm may be interested in knowing the proportion of interest bearing debt in capital structure. Total debt includes long term and short term borrowing. Total Debt Debt Ratio = ---------------------Net Assets Note: Capital Employed = Net Assts
ii.
Debt-equity Ratio
Debt equity measures the ratio of long term or total debt to share holders equity. The
relationship between borrowed funds and owners capital is popular measure of the long term financial solvency of a firm. Total Debt Debt Equity Ratio = -----------------Net Worth Net Worth = share capital + reserve + retained profits.
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financial Analysis
It measures the proportion of total assets financed by the firms creditors. The higher the ratio, the greater the amount of other peoples money being used to generated profits. The ratio is calculated as follows. Total liabilities Debt Ratio = -----------------------Total Assets
v.
the firm is to fulfill its interest obligation. The times interest earned ratio is calculated as follows. EBIT Interest Coverage Ratio = ----------------Interest
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financial Analysis
Activity ratio are concerned with measuring the efficiency in assets management, it measures hoe quickly a firm converts non-cash asset to cash asset (sales). The greater is the rate of turn over or conversion the more efficient is the utilization of assets, other things being equal. For this reason such ratio is also designated as turnover ratio. It may be defined as the test of relationship between sales and various assets of firm. Depending on the various types of assets, there are various types of activity ratio.
i.
products, i.e. the number of times inventory is replaced during they year. Cost of goods sold Inventory Turnover = ----------------------------Average inventory The average inventory is the inventory of opening and closing balance of inventory. Inventory turnover in days can be calculated as follows. No of days in a year Inventory Turnover (in days) = ------------------------------------------------Inventory Turnover of Receivables
ii.
financial Analysis
Debtors turnover indicates the number of times debtors turnover each year, generally, the higher the value of debtors turnover, the more efficient is the management of credit. Credit Sales Debtors Turnover = ---------------------------------------------Average Debtors + Average B/R
To outside analyst information about credit sales and opening and closing balance of debtors may not be available. Therefore, debtors turnover can be calculated by dividing total sales by the year end balance of debtors. Sales Debtors Turnover = --------------------Debtors iii.
Collection Period
The average number of period for which the debtors remain outstanding is called the
average collection period. The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better the prompt payment of debtors. No of Days in a Year Average Collection Period = ------------------------------------Debtors Turnover
iv.
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financial Analysis
The relationship between sales and assets is called the asset turnover. Asset turnover measures the efficiency of a firm in utilizing its assets, the higher the turnover ratio, the more efficient the management and utilization of the assets and vice-a-versa. Several assets turnover ratio can be calculated.
i.
ii.
amount of fixed assets needed for every rupee of sales. Sales Fixed Asset Turnover = ----------------------------Net Fixed Assets
iii.
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financial Analysis It measures the efficiency of utilization of current assets of a firm. Sales Current Assets Turnover = --------------------------Net Current Assets
iv.
v.
Working Capital
A firm may also like to relate net current assets (or net working capital gap) to sales.
Ratio indicated how efficiently the working capital of the firm is being utilized. Sales Working Capital Turnover = ------------------------------Net Working Capital The reciprocal of the above ratio indicates the amount of working capital needed for each rupee of sales.
4. PROFITABILITY RATIOS
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financial Analysis There are many measures of profitability. As group, these measures enable the analyst to evaluate the firms profits with respect to a given level of sales, a certain level of assets, or the owners investment. Owners, creditors and management pay close attention to boosting profits. The management of the firm is naturally eager to measures its operating efficiency. Similarly the owners invest their funds in the expectation of reasonable returns. Profitability ratio measures the firms use of its assets and control of its expenses in order to generate an acceptable rate of return. Following are the ratio designed to provide answers to questions such as, i. Is the profit earned by the firm adequate? ii. What rate of return does it represents? iii. What is the rate of profit for various divisions and segment of firm iv. What is the amount paid in dividends? v. What is the earning per share? vi. What is the rate of return to equity shareholders and so on. Profitability ratios can be determined on the basis of either sales or investment. The profitability ratios in relation to sales are
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financial Analysis
The operating profit margin measures the percentage of each sales rupee remaining after all costs and expenses other than interest, taxes and preferred stock dividends are deducted. It shows the pure profit earned on each sales rupee. A high operating profit margin is preferred. Operating profit Operating Profit Margin = ---------------------------Sales
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financial Analysis A higher operating expenses ratio is unfavorable since it will leave a small amount of income to meet interest, dividends, etc. the operating expenses ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by number of factors such as external uncontrollable factor, internal factor, employee and managerial efficiency all of which are difficult to analyze. Operating Expenses Operating Expenses Ratio = ------------------------------Sales Profitability in relation to investments is measured by following ratios.
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financial Analysis
6. OTHER MEASURES
Other measures are investors ratio or market debt ratio.
i.
common stock not the amount of earnings actually distributed to share holders. EPS simply shows the firms earning power i.e. profitability on per share it does not show that how is paid as dividend and how retained in company. PAT EPS = -----------------------------------------------------------------------Number of Shares of Common Stock Outstanding
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financial Analysis
(Rs. In Millions)
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financial Analysis As at 30th Sep 2004 SOURCES OF FUNDS Shareholders Funds Share capital Reserves and surplus Loan Fund Secured loans Unsecured loans Deferred Tax Liability (net) TOTAL APPLICATION OF FUNDS Fixed Assets Gross block Less: Depreciation Net block Capital work in progress Investments Current Assets, Loans and Advances 155.57 157.09 679.58 224.43 904.01 33.43 1250.10 200.00 437.17 710.41 152.18 862.59 40.46 1540.22 238.10 1986.33 3544.39 166.92 3711.31 56.85 5992.59 310.67 3046.77 6210.91 259.07 6469.98 201.93 10029.35 506.86 5892.56 8275.84 1597.64 9873.48 461.16 16734.06 As at 30th Sep 2005 As at 30th Sep 2006 As at 30th Sep 2007 As at 30th Sep 2008
Inventories Sundry Debtors Cash And Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities and provisions Current Liabilities Provisions Net Current Assets
PG-CENTRE, VTU, Belgaum
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financial Analysis Miscellaneous Expenditure (to the extent not written off or adjusted) TOTAL 1.20 0.68 75.77 21.14 16.13
1250.10
1540.22
5992.59
10029.35
16734.06
(Rupees in Millions)
For The Year Ended 30th Sep 2006 8015.85 50.06 8065.91 3964.05 For The Year Ended 30th Sep 2007 7323.69 114.92 7438.61 3378.51 For The Year Ended 30th Sep 2008 18241.69 4.36 18246.05 5360.81
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financial Analysis Cost of traded goods Increase in inventories Personal expenses Operating and other expenses Managerial commission Depreciation Financial expenses Research and development Profit before taxation Provision for tax Current tax Deferred tax Profit after tax and before prior period items 652.08 (180.71) 35.17 221.35 70.75 113.25 27.83 151.74 8.80 20.23 122.71 1785.60 (57.52) 81.84 461.94 10.07 79.97 133.64 16.31 490.16 75.80 7.03 407.33 2160.81 (128.28) 122.24 899.24 15.45 87.84 187.84 11.19 745.53 164.00 16.39 562.70 1589.18 115.32 237.85 935.67 15.88 249.16 132.89 4.24 779.91 88.40 145.08 544.33 8048.67 23.59 341.27 1562.25 364.84 684.86 1137.01 12 8.82 259.23 745.47
Profit after tax and before prior items Prior period items Depreciation Income tax of earlier period Other- Note No. vi of Schedule 26 Net Profit Balance brought forward from previous year Profit available for appropriation Dividend on preference shares Dividend on equity shares Corporate dividend tax Loan redemption reserve General reserve Capital redemption reserve Surplus carried to balance sheet Basic and Diluted Earnings Per Share (in Rupees)
PG-CENTRE, VTU, Belgaum
122.71
407.33
562.70
544.33
745.47
122.71 15.10 137.81 0.17 13.57 1.80 63.22 50.00 9.06 9.05
7.58 10.00 55.13 334.62 9.06 343.68 0.12 47.72 6.70 100.00 8.50 180.64 23.79
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financial Analysis
Current Ratio
1.8 1.6 1.4 1.2 Ratio 1 0.8 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 1.26 1.08 1.07 1.13 Ratio 1.67
The current ratio of Shree Renuka Sugars Ltd for the financial year 2003-04 to 200708 reveal that the current ratio was higher than the standard in all five years, especially in the year 2008. Although it shows that the company has good liquidity. The company is trying to maintain its current ratio.
b) Quick Ratio
Quick Assets Quick Ratio = -------------------------------------Current Liabilities
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financial Analysis
Quick Ratio
1.2 1 0.8 Ratio 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.58 0.52 0.72 0.79 Ratio 1.09
The quick ratio for the five years shows that the ratios are increasing year by year especially in the year 2007-08 , it is because of high inventory and high current liability, company is trying to maintain as per the standard.
c) Interval Measures
Current Assets - Inventory Interval Measures = --------------------------------------------Avg. Daily Operating Expenses Particulars Current Assets Inventory 160 Avg. Daily 140 Expenses Days
120 100 80 60 40 20 0 98.14 66.6 76.49 77.85 Ratio Ratio
2003- 04 Measures (Days) 06 2005Interval 2004- 05 1063.25 2185.78 2640.15 493.08 1123.46 1121.83 137.87 5.81 15.95 19.85 98.14 66.60 76.49
2004-05
2005-06 Year
2006-07
2007-08
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financial Analysis It is clear from the above ratio that the company has sufficient funds to meet its current obligations. The numbers of days showing the sufficiency of the liquid assets to finance its operations, there is ups and downs in the last five years because of increase in current liabilities.
d)
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financial Analysis
NWC Ratio
0.16 0.14 0.12 Ratio 0.1 0.08 0.06 0.04 0.02 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.08 0.05 0.12 0.11 Ratio 0.15
It is another measures to indicate the liquidity of the company. The ratio of the first three years shows that the company has almost constant Net Working Capital but it is decreased in 2007 by 0.06 and again increased in 2008 by 0.10 because of increase in current liabilities and increase in current assets. Overall it has good net working capital.
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financial Analysis
Debt Ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.87 0.67 0.74
0.8 0.69
Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
As we know that the total debt ratio gives an indicator for proportion of interest bearing debt in the capital structure, it is clear from the above debt ratio that the lenders have financed 69%.
ii.
Debt-equity Ratio
Total Debt Debt Equity Ratio = ------------------------Net Worth
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financial Analysis
Debt-Equity Ratio
3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 1.36 1.73 2.9
As it is clear that the ratio has been increasing and decreasing it is because of increase in total debt and equity. In 2008 the ratio is decreased by 0.39.
iii.
each rupee of owners contribution. Capital Employed CE TO NW = ---------------------------Net Worth OR NTA Net Asset to Net Worth Ratio = ----------------NW
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financial Analysis
Particulars Net Assets Net Worth Net Asset to Net Worth Ratio
NA TO NW Ratio
4 3.5 3 Ratio 2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.01 3.35 2.35 2.42
2.22 Ratio
It is clear that from the above ratio that for every one rupee of owners contribution the company has on average 2.47 rupees contributed together by lenders and owners. The contribution has increasing and decreasing because of loan and increase in profit.
iv.
financial Analysis
Debt Ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.93 0.87 0.85 0.75
0.81
Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
The ratio calculated above indicates that on an average 84% of the total assets are financed by the outsiders. The ratio has been increasing it means the greater the amount of firms creditors money is being used to generated profits.
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financial Analysis
The interest coverage ratio for the year 2004 to 2007 shows that the company is fulfilling its interest obligation in a better way. Interest paying available has decreased in 2008 because of low profitability and high interest.
III. i.
COGS Avg. inventory Inventory Turnover (times) PG-CENTRE, in a year No. of days VTU, Belgaum 360 Days of inventory 64.06 holding
financial Analysis
Inventory turnover ratio indicates the efficiency of the company in producing and selling its products. The number of days of inventory holding is increasing i.e. sales are held in inventory, but in 2008 it has decreased. It means that the company is try to manage its inventory efficiently.
46
financial Analysis
41.78
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
47
financial Analysis
This ratio indicates the number of days in which the debt due is collected from debtors. Lesser the number of days, the better it is. It is clear from the ratios calculated above that the debtors turnover has increased in 2005 and again it has declined in year 2008 so it shows that the company has to try to reduce the collection days in order to fulfill its current obligation.
48
financial Analysis
This ratio indicates the companys ability to produce the volume of sales for a given amount of net assets. From the ratios calculated, it is clear that the assets turnover is decreasing over the past few years, thus company has to utilize its assets efficiently.
49
financial Analysis
From the above ratio it is clear that the ratio is decreasing year by year from last five years.
50
financial Analysis
There is increase in ratio every year but in 2007 there is decrease by o.86 this is because of increase in current assets. Overall company is utilizing its current assets efficiently.
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financial Analysis
1.12
1.12 0.66
1.05
Ratio
There is ups and downs in Total Asset Turnover Ratio. Because of increase and decrease in sales. And increase in total assets. Overall company is utilizing its total assets efficiently.
52
financial Analysis
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
There is decrease in ratios every year, because of increase in net working capital every year compared to sales.
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financial Analysis
A high gross profit margin ratio is a sign of good management. The ratio calculated above shows that there is decrease and increased in ratio, in 2008 it is decreased by 3.5%. it may be due to because of high competition or because of high cost.
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financial Analysis
A high net margin ratio ensures adequate return to the owners as well as enables the company to withstand adverse economic condition. The ratios calculated above indicate that net margin of company is increasing and decreasing from the last five years. In 2008 it has decreased by 0.03 it is because of increase in indirect expenses.
Operating Expenses Operating Expenses = --------------------------------Sales Particulars Sales Operating Expenses Operating Expenses 2003- 04 2260.86 2091.76 0.92 2004- 05 6392.47 5742.83 0.90 2005- 06 8015.85 7146.34 0.89 2006- 07 7323.69 6141.21 0.84 2007- 08 18241.69 16035.75 0.88
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financial Analysis
0.88 Ratio
A higher operating expenses ratio is unfavorable since it will leave a small amount of income to meet interest, dividends, etc. from the above ratio it is clear that the ratio is decreasing from last few years but in 2008 it has decreased by 0.04. overall the company is maintaining its operating expenses
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financial Analysis
ROI
0.45 0.4 0.35 0.3 Ratio 0.25 0.2 0.15 0.1 0.05 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.21 0.16 0.09 0.11 Ratio 0.41
Return on investments measures the profitability of the total investment of the company. It measures the operating efficiency of the company. The ratios calculated from the last five years indicate that the profitability of the company is low.
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financial Analysis
ROE
0.7 0.6 0.5 Ratio 0.4 0.3 0.2 0.1 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.39 0.26 0.16 0.12 Ratio 0.64
This ratio reveals that how profitability the company has utilized the owners funds; it also shows the profitability of the owners investments. It can be observed from the ratios calculated above that the companys ROE is been continuously decreasing over the last five years. Thus, company has to utilize the owners funds efficiently.
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financial Analysis
EPS
30 25 20 Ratio 15 10 5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 9.05 2.78 Ratio 23.79 23.98 21.04
The ratio calculated for the last five years shows that EPS of Shree Renuka Sugars Ltd is increasing and decreasing this is because of increase and decrease in leverage.
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financial Analysis
DPS
3 2.5 2 Ratio 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 0 2007-08 1 2 2 Ratio 2.78
From the above ratio we can observed that in year 2008 the DPS has come down it is because of number of shares are more than the number of shares of last four years and there is decline in profit distribution.
2007- 08 2.78 -
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financial Analysis
Payout Ratio
0.12 0.1 0.08 Ratio 0.06 0.04 0.02 0 2003-04 2004-05 2005-06 Year 2006-07 0 2007-08 0.08 0.11 0.11 0.09
Ratio
This ratio specifies the portion of earnings per share utilized for payment of dividend to the equity shareholders. It can be observed from the ratios calculated that the portion of EPS distributed as dividends is decreased over the years.
2003- 04 EPS 9.05 DPS 1.00 Market Value Earning Yield Ratio Dividend Yield Ratio PG-CENTRE, VTU, Belgaum
Particulars
financial Analysis
Dividend yield and Earning Yield evaluate the shareholders return in relation to the market value of the share
2003- 04 9.05 -
2004- 05 23.79 -
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financial Analysis
P/E Ratio
40 35 30 Ratio 25 20 15 10 5 0 0 2003-04 0 2004-05 2005-06 Year 2006-07 2007-08 Ratio 26.31 37.01 33.57
FINDINGS
During the year 2007- 2008, the current ratio has increased from 1.13 to 1.67, it
means that the company has good liquidity During the year 2007-2008, the net working capital ratio has increased from
0.05 to 0.15, because of increase in current liabilities and increase in current assets. Debt collection period has decreased as there is increase in debtors turnover
rate. It shows that there is efficiency of collection by Renuka Sugars During the year 2007-2008, the interest coverage ratio has decreased from 6.87
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financial Analysis The number of days of inventory holding is increasing over the past few years
i.e. sales are held in inventory, but in 2008 it has decreased. It means that the company is trying to manage its inventory efficiently. Debtors turnover ratio has increased from 15.82 to 41.78. Gross profit margin has decreased from 14.36% to 11.97%. Net profit margin has also decrease from 7.43% to 4.0% There is rapid increase in net profit , because of sudden increase in sales, which
is a positive sign for the company Net working capital has improved, which shows the efficiency of the company
SUGGESTIONS
It needs improvement in case of current assets. This shows there can be further improvement in the utilization of current assets. The management of inventory can be improved further if the company undertakes or makes use of techniques like EOQ analysis and ABC analysis. The current assets to total assets is increased which means the company is paying more attention to its current assets. They should improve the utilization of current assets as it will be required for day to day business.
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financial Analysis The management of cash and bank can also be improved. It has to follow the four motives of cash transaction. Cash is required to improve as it is a common denominator. Shree Renuka Sugars Ltd, Belgaum should try to attain its current assets though it is trying to maintain according to standards. Shree Renuka Sugars Ltd,Belgaum has to utilize the owners funds efficiently.
CONCLUSION
It has been an excellent opportunity for me to carry out the study on Ratio Analysis at Shree Renuka Sugars Ltd, Belgaum. It has helped to a great extent to have an insight into the practical realities of the subject. I try my best effort for the completion of my project study. I have been able to study and I feel it is essential to review the various aspects of my study and sum-up the important observations. As such this concluding part includes the major findings and few suggestions. As according to me the performance of the Shree Renuka Sugars Ltd, is well.
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financial Analysis On the contrary, Renuka Sugars is efficiently managing its working capital. Its net working capital has been increasing in 2007-08 as compared to previous year. The quick ratio shows that the company is in good position and trying to maintain as per standard. Inventory turnover Ratio decline in 2008. EPS is declining every year. Thus, we can conclude that the company is doing well in the working capital.
BIBLIOGRAPHY
Financial Management. I. M Pandey Financial Management..M.Y Khan & P. K Jain www.Google.com www.Renukasugars.com Annual report of the company.
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financial Analysis
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