A Study On Financial Performance Using Ratio Analysis at Emami LTD

VIVEK COLLEGE OF COMMERCE
CHAPTER - 1 INTRODUCTION
1.1 COMPANY PROFILE Emami Ltd. (EL) is the flagship company of the Kolkata based Emami Group, which is engaged in the business of manufacturing personal care and health care products for over 3 decades and has diversified in the field of real estate, paper, biofuel, cement etc. Some of the major brands of the company are Boroplus Antiseptic Cream, Boroplus Prickly Heat Powder, Fair and Handsome Fairness Cream for men, Navratna Oil, Himani Fast Relief, Mentho Plus balm, Sona Chandi Chyawanprash and Amritprash, amongst others. 1.2 HISTORY OF THE COMPANY
Emami, which started as a cosmetics manufacturing company in the year 1974, advancing with increased momentum has expanded into Emami Group of Companies of today. Even though cosmetics and toiletries continue to be the main thrust area, the other companies in the Emami Group are performing equally brilliantly. From health care institution to medicines, from real estate to retailing and, from paper to writing instruments, Hospital, Emami is creating one success story after another.
1.3 VISION AND MISSION

Vision A company, which with the help of nature, caters to the consumers needs and their inner cravings for dreams of better life, in the fields of personal and health care, both in India and throughout the world.
A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 1
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Mission
To sharpen consumer insights to understand and meet their needs with valueadded differentiated products which are safe, effective & fast.
To integrate our dealers, distributors, retailers and suppliers into the Emami family, thereby strengthening their ties with the company. To recruit, develop and motivate the best talents in the country and provide them with an environment which is demanding and challenging. To strengthen and foster in the employees, strong emotive feelings of oneness with the company. To uphold the principals of corporate governance and move towards
decentralization to generate long term maximum returns for all stake owners. To contribute whole heartedly towards the environment and society and to emerge as a model corporate citizen.
1.4 BOARD OF DIRECTORS

The efficient functioning of this reputed company rests with the following personalities.
Shri R S Agarwal, Executive Chairman Shri Sushil Kr. Goenka, Managing Director Shri Mr K N Memani, Shri Mr Mohan Goenka,Wholetime Director Shri Mr Harsh V Agarwal Shri Mr Amit Kiran Deb Shri Mr Y. P. Trivedi
Shri R S Goenka, Director Shri Mr Viren J Shah, Director Shri Vaidya S Chaturvedi, Shri Mr Aditya V Agarwal Ms. Priti Sureka Shri Mr S. B. Ganguly Shri Sajjan Bhajanka
1.5 PROFILE OF THE ORGANIZATION
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Emami Limited is in the business of manufacturing personal, beauty and health care products. The company manufactures herbal and Ayurvedic products through the use of modern scientific laboratory practices. This blend enables the company to manufacture products that are mild, safe and effective. The company's product basket comprises over 20 products, the major being Boroplus Antiseptic Cream, Navratna Oil, Boroplus Prickly Heat Powder, Sona Chandi Chyawanprash and Amritprash, Mentho Plus Pain Balm, Fast Relief, Golden Beauty Talc, Madhuri Range of Products and others. The products are sold across all states in India and in countries like Nepal, Sri Lanka, and the Gulf countries, Europe, Africa and the Middle East, among others. Manufacturing: Emamis products are manufactured in Kolkata, Puducherry, Guwahati and Mumbai. The company commenced operations at its fully automated manufacturing unit in Amingaon, Guwahati in 2003-04. Network: The company's dispersed manufacturing facilities are complemented with a strong product throughput, facilitated by a robust distribution network of over 2100 direct distributors and 3.9 lakhs retail outlets. With a view to reach its products deeper into the country, direct selling has been extended to rural villages. As a result, rural sales increased substantially in 2003-04 compared to the previous year. Emami is headquartered in Kolkata. The company's branch offices are located across 27 cities in India. Promoters: Emami is promoted by Shri R.S.Agarwal and Shri R.S.Goenka, Kolkata based industrialists. Emamis shares are listed on the Calcutta Stock Exchange, Bombay Stock Exchange and National Stock Exchange.
1.6 IT BACKBONE
A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 3 Page
Integrated Information Technology An efficient information technology network is necessary for a dynamic FMCG company where the market demands change faster than perhaps in any other industry. At Emami, the integration of information technology transpires on a continuous basis. This ensures that the company responds to changing market place realities faster than its competitors and that its products reach retail shelves just when they are required. In turn, this enhances brand loyalty and retains customers. A successful implementation of the ERP in the offices, factories and depots increased the companys overall efficiency. It enabled single-point data entry and multi-point information access. The status of raw materials, packing materials, finished goods, indents and sales information gets constantly updated through ERP. This has become possible due to the Point to Point Leased Line connections. As Emami is growing rapidly, the augmented business requirement calls for a Standard ERP system. This would provide Real-Time information to the Management, which would facilitate to take quick decision. The information could also be available through email and Mobile phones. So Emami would be implementing a Standard ERP system very shortly. Sales Forecasting, Demand Planning, Process Management, Supply Chain Management, Primary and Secondary Sales, I-Supplier, I-Expenses, ISales will be an integral part of the Standard ERP system. Emami adopts the latest Technology for IT and communication system.
1.7 SALES AND DISTRIBUTION NETWORK

Our Marketing and Distribution Network: Wide, penetrative and all encompassing. That is how Emami has planned its distribution network. The success of Emami has been largely due to its superior products that have reached the consumers even in the remotest regions of the country and abroad. Current Distribution Infrastructure:
5 Regions 25 Depots / C&F Agents 2,182 Direct Distributors 899 Distributors for Rural Coverage Over 3,86,940 Retail outlets
Distribution Network Four Mother depots Kolkata Vijayawada Delhi Nagpur
1.8 INTERNATIONAL MARKETING DIVISION

Vision: To contribute profitably to the growth of the company, representing it with pride across the globe, with a single-minded focus and dedication to establishing and building global brands. Global Presence of Emami: Over the last 7 years, Emamis presence has increased from merely few countries in CIS to over 50 countries spanning across SAARC, Gulf, CIS, North America, Europe and Africa. The company now is shifting its focus from broad basing (entering new markets) to increasing the number of successful products in existing markets to improve upon its operational efficiency.
Product Portfolio: The Product Portfolio can be broadly divided into three Umbrellas.
Emami The products under this Umbrella Brand promise care for the skin. The range consists of Skin care, Hair care, Dental care & Mens care products. Himani Products under this Umbrella Brand promise cure. The range consists of OTC medicines. Ayucare A range of new Life style enhancing products comprising of Single ingredient herbs, food supplements, Neem & Aloe Vera range, Ayurvedic tea, Massage oil, Essential oils & blends.
Emma This range comprises of customized products as per the specific needs put-up by the consumer. Typically these are all mass marketed products sold to price conscious buyers. The range presently consists of Creams, Lotions & Shampoos.
Future Strategy: Companys business plan for International market comprises of the following key factors.
Investment in potential markets for key Brands leading to Higher Possibility of Returns in terms of Turnover and Market Development in the long run. Adding new products for various key markets. Customization of product offerings under the same brand clubbing of familiar products under the same brand. Manufacturing facilities in High Tariff markets to make prices more consumerfriendly. Acquisition In certain markets, company may consider buying existing brands instead of trying to build one.
Brand Building Activities: Company spends on Media (TV and/or Press) Advertising in select countries in CIS, SAARC, Indo-China and USA, Australia & UK. All the markets are supported with POPs, Displays and other promotional material as per the requirement.
1.9 INTRODUCTION TO THE STUDY
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Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. Though it was a branch of economics till 1890 as a separate or discipline it is of recent origin. Financial Management is concerned with the duties of the finance manager in a business firm. He performs such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis and funds procurement. The recent trend towards globalization of business activity has created new demands and opportunities in managerial finance. Financial statements are prepared and presented for the external users of accounting information. As these statements are used by investors and financial analysts to examine the firms performance in order to make investment decisions, they should be prepared very carefully and contain as much investment decisions; they should be prepared very carefully and contain as much information as possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from the accounting records maintained by the firm. Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance had been taken up for the study with EMAMI LIMITED as the project. Analysis of Financial performances is of greater assistance in locating the weak spots at the Emami limited eventhough the overall performance may be satisfactory. This further helps in Financial forecasting and planning. Communicate the strength and financial standing of the Emami limited. For effective control of business.
CHAPTER 2
DATA ANALYSIS AND INTERPRETATION

2.1 FINANCIAL PERFORMANCE EVALUATION USING RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as The Indicated Quotient of Two Mathematical Expressions and as The Relationship between Two or More Things. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and financial position of a firm. The relationship between two accounting figures, expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of financial data and to make qualitative about the firms financial performance. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios.
2.2 Significance of Using Ratios:

The significance of a ratio can only truly be appreciated when: 1. It is compared with other ratios in the same set of financial statements. 2. It is compared with the same ratio in previous financial statements (trend analysis). 3. It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.
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2.3 Types of Ratios

2. 3.1 Liquidity Ratios Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation. A. Current Ratio The Current Ratio expresses the relationship between the firms current assets and its current liabilities. Current assets normally include cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages).
Current Ratio =
Current assets ________________ Current liabilities
Significance: It is generally accepted that current assets should be 2 times the current liabilities. In a sound business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its current liabilities in times and when they are due to mature. A higher current ratio is considered to be an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current ratio represents a cushion to short-term creditors, the higher the current ratio, the greater the margin of safety to the creditors.
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Table 2.1 CURRENT RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Assets Rs. in lakhs 22,960.80 20,897.99 41,140.55 51,736.47 62,901.40 Current Liabilities Rs. in lakhs 9,447.73 14,797.21 15,374.66 30,208.83 38,163.51
Ratio 2.43 1.41 2.68 1.71 1.65
(Source: Annual reports) Interpretation: As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the logic that in a worse situation even if the value of current assets becomes half, the firm will be able to meet its obligation. The current ratio represents the margin of safety for creditors. The current ratio has been decreasing year after year which shows decreasing working capital. From the above statement the fact is depicted that the liquidity position of the Emami limited is unsatisfactory because after the year 2010 the current ratio have being decreasing below the standard ratio 2:1. B. Quick Ratio Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its quick assets only (i.e. it ignores stock). The quick ratio is calculated as follows
Quick Ratio =
Quick assets ________________ Current liabilities
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Significance: The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e., current liabilities are more than the liquid assets, the short term financial position of the business shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firms capacity to meet its short-term obligations out of short-term assets.
Table 2.2 QUICK RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Assets Rs. in lakhs 18,950.83 13,578.18 33,279.58 39,545.36 51,960.27 Current Liabilities Rs. in lakhs 9,447.73 14,797.21 15,374.66 30,208.83 38,163.51
Ratio 2.01 0.92 2.16 1.31 1.36
(Source: Annual reports)
Interpretation: As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has been decreasing year after year which indicates a high operation of the business. From the above statement, it is clear that the liquidity position of the Emami limited is satisfactory. Since the entire five years liquid ratio is not below the standard ratio of 1:1.
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C. Cash ratio: This is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This ratio establishes the relationship between absolute liquid assets and current liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable securities. Both the debtors and the bills receivable are exclude from liquid assets as there is always an uncertainty with respect to their realization. In other words, liquid assets minus debtors and bills receivable are absolute liquid assets. The cash ratio is calculated as follows
Cash in hand & at bank + Marketable securities Cash Ratio = ________________________________________ Current liabilities
Significance: This ratio gains much significance only when it is used in conjunction with the first two ratios. The accepted norm for this ratio is 50% worth absolute liquid assets are considered adequate to pay Rs.2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. This test is a more rigorous measure of a firms liquidity position. This type of ratio is not widely used in practice.
Table 2.3 CASH RATIO Year Cash in Hand & at Bank Rs. in lakhs 280.27 1,077.07 15,979.79 20,415.10 27,247.65 Current Liabilities Rs. in lakhs 9,447.73 14,797.21 15,374.66 30,208.83 38,163.51 Ratio
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
0.03 0.07 1.04 0.68 0.71

Interpretation: The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the accepted norm. So the cash position is not utilized effectively and efficiently. 2.3.2 Activity Ratio: If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business. A. 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 quality of debtors, as a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firms credit terms and policy to judge its credit and collection efficiency. An excessively long collection period implies a very liberal and inefficient credit and collection performance. The delay in collection of cash impairs the firms liquidity. On the other hand, too low a collection period is not necessarily favorable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit.
360 days Average collection period = _____________________ Debtors turnover ratio
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Significance: Average collection period indicates the quality of debtors by measuring the rapidity or slowness in the collection process. Generally, the shorter the average collection period, the better is the quality of debtors as a short collection period implies quick payment by debtors. Similarly, a higher collection period implies as inefficient collection performance which, in turn, adversely affects the liquidity or short term paying capacity of a firm out of its current liabilities. Moreover, longer the average collection period, larger is the chances of bad debts.
Table 2.4 AVERAGE COLLECTION PERIOD Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Days Debtors + Bills receivables 3,402.93 5,074.98 7,273.47 9,107.99 7,893.30 Debtors Turnover Ratio Rs. in lakhs 17.15 14.57 13.84 13.2 17.6
Days 20.99 24.71 26.01 27.27 20.45
360 360 360 360 360
(Source: Annual reports) Interpretation: The shorter the collection period, the better the quality of debtors. Since a short collection period implies the prompt payment by debtors. Here, collection period increased in 2010-2011 and decreased in the year 2011-2012. Therefore the average collection period of Emami ltd for the five years is satisfactory. Since the number of days have decreased. B. Inventory Turnover Ratio: This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory.
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Cost of goods sold Inventory Turnover Ratio = ___________________ Average Inventory Significance: This ratio is calculated to ascertain the number of times the stock is turned over during the periods. In other words, it is an indication of the velocity of the movement of the stock during the year. In case of decrease in sales, this ratio will decrease. This serves as a check on the control of stock in a business. This ratio will reveal the excess stock and accumulation of obsolete or damaged stock. The ratio of net sales to stock is satisfactory relationship, if the stock is more than three-fourths of the net working capital. This ratio gives the rate at which inventories are converted into sales and then into cash and thus helps in determining the liquidity of a firm.
Table 2.5 INVENTORY TURNOVER RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Cost of goods sold Rs. in lakhs 24,836.24 30,876.88 38,204.41 34,675.68 41,512.10 Average Inventory Rs. in lakhs 2.429.53 3,780.00 4,234.14 5,662.67 6,040.83
Ratio 10.22 8.17 9.02 6.12 6.87
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Interpretation: A higher turnover ratio is always beneficial to the concern. In this the number of times the inventory is turned over has been decreasing from one year to another year. This decreasing turnover indicates average sales. And in turn activates production process and is responsible for further development in the business. This indicates the inventory policy of the company should be improved. Thus the stock turnover ratios of Emami Limited, for the five years are unsatisfactory. C. Working capital turnover ratio: This ratio shows the number of times the working capital results in sales. In other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales. Working capital means the excess of current assets over current liabilities. In fact, in the short run, it is the current assets and current liabilities which pay a major role. A careful handling of the short term assets and funds will mean a reduction in the amount of capital employed, thereby improving turnover. The following formula is used to measure this ratio: Sales Working capital turnover ratio = _____________________ Net Working Capital Significance: This ratio is used to assess the efficiency with which the working capital has been utilized in a business. A higher working capital turnover indicates either the favorable turnover of inventories and receivables and/or the inadequate of net working capital accompanied by low turnover of inventories and receivables. A low ratio signifies either the excess of net working capital or slow turnover of inventories and receivables or both. This ratio can at best be used by making of comparative and trend analysis for different firms in the same industry and for various periods.
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Table 2.6 WORKING CAPITAL TURNOVER RATIO Sales Rs. in lakhs 58,371.04 73,952.01 100,685.42 1,20,238.04 1,38,981.45 Net Working Capital Rs. in lakhs 13,513.07 6,100.78 25,765.89 21,527.64 24,737.89
Year
Ratio 4.32 12.12 3.91 5.59 5.62
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: The Working Capital Turnover Ratio is decreasing year after year. It can be noted that the change is due to the fluctuation in sales or current liabilities. These lower ratios are indicators of higher investment of working Capital and less profit. Thus, Working Capital Turnover ratios for the five years are unsatisfactory. D. Fixed Assets Turnover Ratio: The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales. It is calculated by dividing the firms sales by its net fixed assets as follows:
Sales Fixed Assets Turnover =________________ Net fixed assets Significance: This ratio gives an ideal about adequate investment or over investment or under investment in fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the possible extent. Under-investment is also equally bad affecting unfavorably the operating costs and consequently the profit. In manufacturing concerns, the ratio is important and appropriate, since sales are produced not only by use of working capital but also the capital invested in fixed assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease in this ratio speaks of unwise and improper investment in fixed assets.
Table 2.7 FIXED ASSETS TURNOVER RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Sales Rs. in lakhs 58,371.04 73,952.01 100,685.42 1,20,238.04 1,38,981.45 Net Fixed Assets Rs. in lakhs 9,129.34 64,927.57 56,705.23 56,242.71 52,847.68
Ratio 6.39 1.14 1.78 2.14 2.63
(Source: Annual reports) Interpretation: The fixed assets turnover ratio is decreasing year after year. The overall lower ratio indicates the inefficient utilization of the fixed assets. Thus the fixed assets turnover ratios for the five years are not satisfactory. 2.3.3 Financial Leverage (Gearing) Ratios
The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners.
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The relationship of owners equity to borrowed funds is an important indicator of financial strength. The debt requires fixed interest payments and repayment of the loan and legal
action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. A. Proprietary Ratio: This ratio is also known as Owners fund ratio (or) Shareholders equity ratio (or) Equity ratio (or) Net worth ratio. This ratio establishes the relationship between the proprietors fund and total tangible assets. The formula for this ratio may be written as follows. Proprietors funds _____________________ Total tangible assets Significance: This ratio represents the relationship of owners funds to total tangible assets, higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. This ratio is of importance to the creditors who can ascertain the proportion of the shareholders funds in the total assets employed in the firm. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of companys liquidation on account of heavy losses.
Proprietary Ratio =
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Table 2.8 PROPRIETARY RATIO Proprietors Fund Rs. in lakhs 28,900.22 29,916.95 61,937.17 68,301.67 69,725.51 Total Tangible Assets Rs. in lakhs 32,090.14 85,825.56 97,845.78 107,979.18 115,749.08
Year
Ratio 0.90 0.35 0.63 0.63 0.60
Ratio (%) 90.00 35.00 63.00 63.00 60.00
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: This ratio is particularly important to the creditors and it focuses on the general financial strength of the business. A ratio of 50% will be alarming for the creditors. As such the proprietary ratio of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc and a better performance of the company.
B. Debt to Equity ratio

This ratio indicates the extent to which debt is covered by shareholders funds. It reflects the relative position of the equity holders and the lenders and indicates the companys policy on the mix of capital funds. The debt to equity ratio is calculated as follows: Total debt Debt to Equity Ratio = ____________ Total Equity Significance: The importance of debt-equity ratio is very well reflected in the words of Weston and brigham which are reproduced here: Debt-equity ratio indicates to what extent the firm depends upon outsiders for its existence. For the creditors, this provides a margin of safety. For the owners, it is useful to measure the extent to which they can gain the benefits of maintaining control over the firm with a limited investment: The debtequity ratio states unambiguously the amount of assets provided by the outsiders for every one rupee of assets provided by the shareholders of the company.
Table 2.9 DEBTS TO EQUITY RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Debt Rs. in lakhs 3,825.82 44,818.98 25,905.71 11,208.01 5,554.88 Total Equity Rs. in lakhs 28,900.22 29,916.95 61,937.17 68,301.67 69,725.51
Ratio 0.13 1.50 0.42 0.16 0.08
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Interpretation: The debt to equity ratio is decreasing year after year. A low debt equity ratio is considered favorable from management. It means greater claim of shareholders over the assets of the company than those of creditors. For the company also, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. Therefore debt to equity ratio is satisfactory to the company.
C. Interest coverage ratio The times interest earned shows how many times the business can pay its interest bills from profit earned. Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings available for such payments. Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt. The ratio is calculated as follows:
EBIT Interest Coverage Ratio = _______________ Interest charges
Significance:
It is always desirable to have profit more than the interest payable. In case profit is either equal or lesser than the interest, the position will be unsafe. It will show that there this nothing left for the shareholders and the position of the lendors is also unsafe. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. From the points of view of creditors, the larger the coverage, the greater the ability of the firm to handle fixed charges liabilities and the more assessed the payment of interest to the creditors. In contrast the low ratio signifies the danger the signal that the firm is highly dependent on borrowings and its earnings cannot meet obligations fully. The standard for this ratio for an industrial undertaking is 6 to 7 times.
Table 2.10 INTEREST COVERAGE RATIO EBIT Rs. in lakhs 9,274.87 10,175.56 20,057.92 26,912.22 29,893.50 Interest on Fixed Loans Rs. in lakhs 3,825.82 44,818.98 25,905.71 11,208.01 5,554.88
Year
Ratio 2.42 0.23 0.77 2.40 5.38
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: The Interest coverage ratio is increasing year after year. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. Therefore this ratio is satisfactory to the company.
2.3.4 Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. Although the profit figure is the starting point for any calculation of cash flow, as already pointed out, profitable companies can still fail for a lack of cash.

A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits, irrespective of social consequences.
The ratios examined previously have tendered to measure management efficiency and risk. A. Gross Profit Margin

Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity. Gross profit Gross Profit Margin = ________________ *100 Sales
Significance: The gross profit ratio helps in measuring the results of trading or manufacturing operations. It shows the gap between revenue and expenses at a point after which an enterprise has to meet the expenses related to the non-manufacturing activities, like marketing, administration, finance and also taxes and appropriations. The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the extent to which the revenue has a potential to generate a surplus. In other words, the gross profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of production or direct expenses or sale at a reasonably good price and decrease in the will mean increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the interest of the business.
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Table 2.11 GROSS PROFIT MARGIN Gross Profit Rs. in lakhs 35,790.84 43,075.13 62,481.01 82,455.39 99,820.00 Net Sales Rs. in lakhs 58,371.04 73,952.01 100,685.42 1,20,238.04 1,38,981.45
Year
Ratio 0.61 0.58 0.62 0.68 0.71
Ratio (%) 61.00 58.00 62.00 68.00 71.00
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: In the year 2007, the Gross Profit Ratio was 61% but then it decreased to 58%, which shows a low profit earning capacity of the business with reference to its sales. But in the year 2010, it increased to 62% which may be due to increase in sales. But thereafter, for the succeeding two years, it has increased considerably, which indicates that the cost of production has reduced. Therefore the Gross Profit Ratio for the five years reveals a satisfactory condition of the business.
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B. Net Profit Margin This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarkets and motorcar dealers. What is more important in any trend is the margin and whether it compares well with similar businesses.
Earnings after interest and taxes Net Profit Margin =______________________________ *100 Net Sales
Significance: An objective of working net profit ratio is to determine the overall efficiency of the business. Higher the net profit ratio, the better the business. The net profit ratio indicates the managements ability to earn sufficient profits on sales not only to cover all revenue operating expenses of the business, the cost of borrowed funds and the cost of merchandising or servicing, but also to have a sufficient margin to pay reasonable compensation to shareholders on their contribution to the firm. A high ratio ensures adequate return to shareholders as well as to enable a firm to with stand adverse economic conditions. A low margin has an opposite implication.
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Table 2.12 NET PROFIT MARGIN Net Profit Before Tax Rs. in lakhs 9,274.87 10,175.56 21,270.72 26,749.47 29,613.50 Sales Rs. in lakhs 58,371.04 73,952.01 100,685.42 1,20,238.04 1,38,981.45
Year
Ratio 0.16 0.14 0.21 0.19 0.19
Ratio (%) 16.00 14.00 21.00 19.00 19.00
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: In the year 2007 the Net Profit is 16%, but in the year 2008-2009 it was decreased to 14% which may due to excessing selling and distribution expenses. But thereafter for the succeeding years it has been increasing which indicates a better performance of the company. Therefore the performance of the management should be appreciated. Thus an increase in the ratio over the previous periods indicates improvement in the operational efficiency of the business.
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C. Return on Investment (ROI) Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements. Investors have placed funds with the managers of the business. The managers used the funds to purchase assets which will be used to generate returns. If the return is not better than the investors can achieve elsewhere, they will instruct the managers to sell the assets and they will invest elsewhere. The managers lose their jobs and the business liquidates. Operating profit Return on Investment = ___________________ Capital Employed
Significance: Return on capital employed shows overall profitability of the business. At first minimum return on capital employed should be determined and then the actual rate of return on capital employed should be determined and compared with the normal return. The return and capital employed is a fair measure of the profitability of any concern with the result that even the result of dissimilar industries may be compared.
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Table 2.13 RETURN ON INVESTMENT Operating Profit Rs. in lakhs 9,274.87 10,175.56 21,270.72 26,749.47 29,613.50 Capital Employed Rs. in lakhs 28,900.22 29,916.95 61,937.17 68,301.67 69,725.51
Year
Ratio 0.32 0.34 0.32 0.39 0.43
Ratio (%) 32.00 34.00 32.00 39.00 43.00
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Interpretation: This ratio indicates that how much of the capital invested is returned in the form of net profit. This ratio is increasing year after year which indicates the capital employed is returned in the form of net profit. In the same manner, returns from capital employed for the succeeding years are good. Thus, the Return on Investment ratio for the five years shows the efficiency of the business which is very much satisfactory.
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D. Return on Equity (ROE) This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders equity includes share capital, share premium, distributable and non-distributable reserves. The ratio is calculated as follows: Net profit after taxes and preference dividend Return on Equity =__________________________________________ Equity capital
Significance: This ratio measures the profitability of the capital invested in the business by equity shareholders. As the business is conducted with a view to earn profit, return on equity capital measures the business success and managerial efficiency. It reveals whether the firm has earned a reasonable profit to its equity shareholders or not by comparing it with its own past records, inter-firm comparison and comparison with the overall industry average. This ratio is of significant use in the ratio analysis from the standpoint of the owners of the firm.
Table 2.14 RETURN ON EQUITY Net Profit after Tax and Preference Dividend Rs. in lakhs 9,274.87 8,751.50 16,540.27 22,749.22 25,681.30 Equity Capital Rs. in lakhs 28,900.22 29,916.95 61,937.17 68,301.67 69,725.51
Year
Ratio 0.32 0.29 0.27 0.33 0.37
Ratio (%) 32.00 29.00 27.00 33.00 37.00
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
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Interpretation: In the year 2008, the return on equity ratio is 32% but in the year 2009 it decreased to 29%, which may due to capital investment. And in the year 20011-2012 it increased to 37%. Therefore the return on equity ratio for the five years reveals a satisfactory condition of the business.
E. Return on Total assets This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship between net profits and assets. As these two terms have conceptual differences, the ratio may be calculated taking the meaning of the terms according to the purpose and intent of analysis. Usually, the following formula is used to determine the return on total assets ratio. Return on total assets = (Net profit after taxes and interest / Total assets) * 100 Significance: This ratio measures the profitability of the funds invested in a firm but doe not reflect on the profitability of the different sources of total funds. This ratio should be compared with the ratios of other similar companies or for the industry as a whole, to determine whether the rate of return is attractive. This ratio provides a valid basis for interindustry comparison.
Table 2.15 RETURN ON TOTAL ASSETS Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Net Profit after Tax and Interest Rs. in lakhs 9,274.87 10,175.56 20,057.92 26,912.22 29,893.50 Total Assets Rs. in lakhs 32,938.94 10,399.08 19,002.75 1,07,979.18 1,15,749.08 Ratio 0.28 0.98 1.06 0.25 0.26
Interpretation: The return on total assets ratio had decreased earlier but again the trend is increasing year after year. This increasing ratio indicates the effective funds invested. Therefore the return on Total Assets ratio for the five years reveals a satisfactory condition of the business. F. Earnings per share: This ratio explains to this point deal with the performance and financial condition of the company. These ratios provide information for the managers (who are interested in evaluating the performance of the company) and for creditors (who are interested in the companys ability to pay its obligations). We will now take a look at ratios that focus on
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the interests of the owners Shareholder ratios. These ratios translate the overall results of operations so that they can be compared in terms of a share of stock. Usually, the following formula is used to determine the Earnings Per Share. NPAT- Pref. Dividend Earnings per share = ______________________________ Number of Equity Shares
Table 2.16 EARNINGS PER SHARE (EPS)

Net Profit after Tax and Preference Dividend Rs. in lakhs 9,274.87 8,751.50 16,540.27 22,749.22 25,681.30
Year
No of Equity Shares
6,21,45,177 6,35,59,074 72,970,941. 00 15,13,11,74 6 15,13,11,74 6
EPS
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
14.92 13.77 22.67 15.03 16.97
Interpretation:
The return on Earning Per Share had decreased during the period of 2008-2009 to 13.77. However the company performed well after the same. The Earnings Per Share increased year after year to 16.97 in 2011-12.
2.4 COMPARATIVE STATEMENT:

Comparative study of financial statement is the comparison of the financial statement of the business with the previous years financial statements and with the performance of other competitive enterprises, so that weaknesses may be identified and remedial measures applied. Comparative statements can be prepared for both types of financial statements i.e., Balance sheet as well as profit and loss account. The comparative profits and loss account will present a review of operating activities of the business. The comparative balance shows the effect of operations on the assets and liabilities that change in the financial position during the period under consideration. Comparative analysis is the study of trend of the same items and computed items into or more financial statements of the same business enterprise on different dates. The presentation of comparative financial statements, in annual and other reports, enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the enterprise. While the single balance sheet represents balances of accounts drawn at the end of an accounting period, the comparative balance sheet represent not nearly the balance of accounts drawn on two different dates, but also the extent of their increase or decrease between these two dates. The single balance sheet focuses on the financial status of the concern as on a particular date, the comparative balance sheet focuses on the changes that have taken place in one accounting period. The changes are the direct outcome of operational activities, conversion of assets, liability and capital form into others as well as various interactions among assets, liability and capital.
Table: 2.17 Comparative Balance Sheets as on 31st March 2007 2008

Change in 31st March Particulars Fixed Assets (A) Investment ( B ) Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds : Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C) and 9,447.73 42,173.77 6,095.40 31,837.82 3,352.33 10,335.95 1,242.90 27,657.32 212.9 28,900.22 1,242.90 21,699.43 258.17 23,200.50 5,957.89 (45.27) 5,699.72 4,009.97 3,402.93 280.27 15,267.63 22,960.80 42,173.77 4,119.85 4,577.19 1,841.81 5,352.26 15,891.11 31,837.82 (109.88) (1,174.26) (1,561.54) 9,915.37 7,069.69 10,335.95 2008 Rs. in lakhs 9,129.34 10,083.63 31st March 2007 Rs. in lakhs 8,128.80 7,817.91 Absolute Figure Rs. in lakhs 1,000.54 2,265.72
3,519.46 306.36 3,825.82
2,281.35 260.57 2,541.92
1,238.11 45.79 1,283.90
Total Liabilities (A+B+C )
Interpretation:
The comparative balance sheet of the company reveals during 2008, that there has been an increase in the fixed assets of Rs. 1,000.54 lakhs, which indicates purchase of fixed assets. The cash or funds paid for purchase of fixed assets have decreased the cash balance of the company. This limited cash balance is utilized for the repayment of loan, which is increased from Rs. 5,352.26 lakhs to Rs. 15,267.63 lakhs for meeting out current liabilities and provision and also for making investment, which has been increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs. The investment has increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs, which indicates the investment has been properly made. The overall financial position of the company for the year (2007-2008) is satisfactory.
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Change in 31st March Particulars Fixed Assets (A) Investment ( B ) Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds : Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C) and 14,797.21 89,533.14 9,447.73 42,173.77 5,349.48 47,359.37 37,306.08 7,512.90 44,818.98 3,519.46 306.36 3,825.82 33,786.62 7,206.54 40,993.16 1,313.11 28,603.84 595.54 29,916.95 1,242.90 27,657.32 212.9 28,900.22 70.21 946.52 382.64 1,016.73 7,319.81 5,074.98 1,077.07 7,426.13 20,897.99 89,533.14 4,009.97 3,402.93 280.27 15,267.63 22,960.80 42,173.77 3,309.84 1,672.05 796.80 (7,841.50) (2,062.81) 47,359.37 2009 Rs. in lakhs 64,927.57 3,707.58 31st March 2008 Rs. in lakhs 9,129.34 10,083.63 Absolute Figure Rs. in lakhs 55,798.23 (6,376.05)
Total Liabilities (A+B+C )
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Interpretation: The comparative balance sheet of the company reveals during 2009, that there has been an increase in the fixed assets of Rs. 55,798.23 lakhs, which indicates purchase of fixed assets. The cash or fund paid for purchase of fixed assets has decreased the cash balance of the company. The current assets have decreased by Rs. (2,062.81) lakhs; this indicates firms better credit policy. Further the current liability also increased by Rs. 5,349.48 lakhs, it indicates that firm do not have good liquidity position therefore they are not able to pay liabilities within stipulated period. The fact depicts that the policy of the company is to pay all liabilities both in current and long-term liabilities within the stipulated period using both current assets and fixed assets. The investment has decreased from Rs. 10,083.63 lakhs to Rs. 3,707.58 lakhs, which indicates the investment is not been properly made. The overall financial position of the company for the year (2008-2009) is unsatisfactory.
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Change in 31st March Particulars Fixed Assets (A) Investment ( B ) Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds : Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C) Total Liabilities (A+B+C ) and 15,374.66 103,217.54 14,797.21 89,533.14 577.45 13,684.40 14,923.35 10,982.36 25,905.71 37,306.08 7,512.90 44,818.98 (22,382.73) 3,469.46 (18,913.27) 1,513.12 60,424.05 695.54 61,937.17 1,313.11 28,603.84 595.54 29,916.95 200.01 31,820.21 100.00 32,020.22 7,860.97 7,273.47 15,979.79 10,026.32 41,140.55 103,217.54 7,319.81 5,074.98 1,077.07 7,426.13 20,897.99 89,533.14 541.16 2,198.49 14,902.72 2,600.19 20,242.56 13,684.40 2010 Rs. in lakhs 56,705.23 5,371.76 31st March 2009 Rs. in lakhs 64,927.57 3,707.58 Absolute Figure Rs. in lakhs (8,222.34) 1,664.18
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Interpretation: The comparative balance sheet of the company reveals during 2010, that there has been a decrease in the fixed assets of Rs. (8,222.34) lakhs, which indicates sale of fixed assets. The cash and bank balance have increased by Rs. 14,902.72 lakhs. This fact indicates that the firm has utilized both current and fixed assets for the repayment of long term loans as such there loan amount has reduced by Rs. (18,913.27) lakhs. The current assets have increased by Rs. 20,242.56 lakhs; this indicates firms flexible credit policy as such the debtors have been increase by Rs. 2,198.49. Further the current liability also increased by Rs. 577.45 lakhs, it indicates that firm has not paid the liabilities within the stipulated period. The investment has increased by Rs. 1,664.18 lakhs, which indicates an outflow of fund. The overall financial position of the company for the year (2009-2010) is satisfactory.
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Change in 31st March Particulars 2011 Rs. in lakhs 48,892.45 16054.99 31st March 2010 Rs. in lakhs 56,705.23 5,371.76 Absolute Figure Rs. in lakhs (7,812.78) 10,683.23
Fixed Assets (A) Investment ( B ) Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds : Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities and Provision( C) Total Liabilities (A+B+C )
12,191.11 9,107.99 20,415.10 10,022.27 51,736.47 116,683.91
7,860.97 7,273.47 15,979.79 10,026.32 41,140.55 103,217.54
4,330.14 1,834.52 4,435.31 (4.05) 10,595.92 13,466.37
1,513.12 66,788.55 1,370.00 68,301.67
1,513.12 60,424.05 695.54 61,937.17
0.00 6,364.50 674.46 6,364.50
15,248.14 2,925.27 18,173.41 30,208.83 116,683.91
14,923.35 10,982.36 25,905.71 15,374.66 103,217.54
324.79 (8,057.09) (7,732.30) 14,834.17 13,466.37
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Interpretation: The comparative balance sheet of the company reveals during 2011, that there has been a decrease in the fixed assets of Rs. (7,812.78) lakhs, which indicates sale of fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,732.30) lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed through the cash received by sale of fixed assets. The current asset has increased by Rs. 10,595.92 lakhs which indicate a firms better credit policy. The current liability has also increased by Rs. 14,834.17 lakhs, which indicates that the payment of liabilities is not made within the stipulated period. The investment has increased by Rs. 10,683.23 lakhs as such the investment of the company on the shares in its subsidiary company has increased, which indicates on outflow of cash. The overall financial position of the company for the year (2010-2011) is satisfactory.
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Change in 31st March Particulars Fixed Assets (A) Investment ( B ) Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds : Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C) Total Liabilities (A+B+C ) and 10,743.23 10.15 10,753.38 38,163.51 118,642.40 15,248.14 2,925.27 18,173.41 30,208.83 116,683.91 (4,504.91) (2,915.12) (7,420.03) 7,954.68 1,958.49 1,513.12 68,212.39 1,450.00 69,725.51 1,513.12 66,788.55 1,370.00 68,301.67 0.00 1,423.84 80.00 1,423.84 10,941.13 7,893.30 27,247.65 16,819.32 62,901.40 118,642.40 12,191.11 9,107.99 20,415.10 10,022.27 51,736.47 116,683.91 (1,249.98) (1,214.69) 6,832.55 6,797.05 11,164.93 1,958.49 2012 Rs. in lakhs 46,662.83 9078.17 31st March 2011 Rs. in lakhs 48,892.45 16054.99 Absolute Figure Rs. in lakhs (2,229.62) (6,976.82)
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Interpretation: The comparative balance sheet of the company reveals during 2012, that there has been a decrease in the fixed assets of Rs. (2,229.62) lakhs, which indicates sale of fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,420.03) lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed through the cash received by sale of fixed assets. The current asset has increased by Rs. 11,164.93 lakhs which indicate a firms better credit policy. The current liability has also increased by Rs. 7,954.68 lakhs, which indicates that the payment of liabilities is not made within the stipulated period. The investment has decreased by Rs. (6,976.82) lakhs as such the investment of the company on the shares in its subsidiary company has decreased, which indicates on outflow of cash. The overall financial position of the company for the year (2011-2012) is satisfactory.
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CHAPTER 4 CONCLUSION
SUMMARY COMBINED RATIOS Current Ratio Quick Ratio Cash Ratio Average Collection Period (Days) Inventory Turnover Ratio Working Capital Turnover Ratio Fixed Assets Turnover Ratio Proprietary Ratio (%) Debts To Equity Ratio Interest Coverage Ratio Gross Profit Margin (%) Net Profit Margin (%) Return On Investment (%) Return On Equity (%) Return On Total Assets Earnings Per Share (EPS) 20072008 2.43 2.01 0.03 20.99 10.22 4.32 6.39 90.00 0.13 2.42 61.00 16.00 32.00 32.00 0.28 14.92 YEAR 200820092009 1.41 0.92 0.07 24.71 8.17 12.12 1.14 35.00 1.50 0.23 58.00 14.00 34.00 29.00 0.98 13.77 2010 2.68 2.16 1.04 26.01 9.02 3.91 1.78 63.00 0.42 0.77 62.00 21.00 32.00 27.00 1.06 22.67 20102011 1.71 1.31 0.68 27.27 6.12 5.59 2.14 63.00 0.16 2.40 68.00 19.00 39.00 33.00 0.25 15.03 20112012 1.65 1.36 0.71 20.45 6.87 5.62 2.63 60.00 0.08 5.38 71.00 19.00 43.00 37.00 0.26 16.97
1. The study is made on the topic financial performance using ratio analysis with five years data in Emami Limited. 2. The current and liquid ratio indicates the short term financial position of Emami Ltd. whereas debt equity and proprietary ratios shows the long term financial position. 3. Similarly, activity ratios and profitability ratios are helpful in evaluating the efficiency of performance in Emami Ltd. 4. The current ratio is above 1 in all the five years. The level of current assets and current liabilities must be improved.
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5. The liquid ratio is increasing year after year. Though the ratio is above 1 in all the five years, it is preferable to improve upon the situation. This may be due to the fact that the stock is major composition of current assets, which excludes liquid assets. The firm should try to clear the stocks. 6. The cash ratio is increasing year after year. So it shows that the cash position is utilized effectively and efficiently. 7. The average collection period is decreasing year after year so it shows the better is the quality of debtors as a short collection period and implies quick payment by debtors. 8. The inventory turnover ratio for the five years indicated an improvement in inventory policy and efficiency of business operations of the company. 9. The working capital turnover ratio has been decreasing during the five years, which indicates that there is higher investment of the working capital and average profit. 10. The proprietary ratio in all the five years is above the satisfactory level, that is, 50%. It indicates the creditors are in a safer side and there is no pressure from them.
11. The debt to equity ratio is decreasing year after year, which indicates, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. 12. The Net Profit for the five years has been increasing which shows that the selling and distribution expenses are under control and there is a good operational efficiency of the business concern.
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13. It can be stated that the working capital management of the company seems to be satisfactory. But in certain years there is decrease in working capital, which is due to higher amount of current liabilities especially, increasing in provision for dividend and taxation and creditors. The company should try to decrease the current liabilities and provision by making timely payment. The financial performance of the company for the five years is analyzed and it is proved that the company is financially sound.
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CHAPTER 6 BIBLOGRAPHY
WEBSITES:
www.encyclopedia.com www.emamigroup.com
BOOKS:
Management Accounting Ainapure Manan Prakashan
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VIVEK COLLEGE OF COMMERCE

1.3 VISION AND MISSION