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REPORT ON FINANCIAL STATEMENT ANALYSIS AT MANAGALA MARINE EXIM INDIA PVT.

LTD THOPPUMPADY
Project report submitted in partial fulfillment of the requirement for the award of the Bachelors Degree of Commerce to the Mahatma Gandhi University, Kottayam

SUBMITTED BY NIDHIN.T.L NIJAS.K.N NINEESH.K.K : (Reg.no.133872) : (Reg.no.133873) : (Reg.no.133874)

UNDER THE GUIDANCE OF Asst. Prof. LAKSHMISREE.R

DEPARTMENT OF COMMERCE THE COCHIN COLLEGE KOCHI 682002 2009-2012

DECLARATION
We, hereby declare that this project report titled Report on Financial Statement Analysis at Mangala Marine Exim India Private Limited has been prepared by us under the guidance of Asst. Prof. Laksmisree .R, Department of Commerce, The Cochin College, Kochi. We also declare that this project report has not been submitted by us fully or partly for the award of any degree, diploma, and title or recognition earlier.

Nidhin.T.L

Nijas.K.N

Nineesh.K.K

Place: Kochi Date:

CERTIFICATE

This is to certify that this project report on Financial Statement Analysis of Mangala Marine Exim India Pvt. Ltd is a record of original work done by Mr. Nidhin.T.L, Nijas.K.N, and Nineesh.K.K under my supervision and guidance.

Asst. Prof. Lakshmisree.R Department Of Commerce The Cochin College Kochi Counter signed by

Dr. M. C. Dileep Kumar Head of The Dept Of Commerce The Cochin College Kochi

ACKNOWLEDGEMENT
It is my privilege to place a word of gratitude to all persons who have helped me for the successful completion of the dissertation. Firstly, I would like to express our profound gratitude to our guide Assistant Professor Miss. Lakshmisree.R, Faculty Member, Department of Commerce, The Cochin College, Fortkochi, for her expert advice, constant encouragement, her inspiring guidance, valuable suggestions, corrections, and direction at each stage of my work. We also express our sincere gratitude to the Principal of our college Shri. Dr. Rajagopal.M and to Dr. M.C.Dileepkumar, Head of the Department of our college for their encouragement to carry out this dissertation. We would also like to express our sincere thanks to Dr.R.Vasanthgopal sir for his valuable assistance and co-operation and also for furnishing us the required information for the completion of the dissertation. We would also like to thank all the respondents who gave me the necessary data which was helpful for the successful completion of my dissertation. Finally, We would also like to express my sincere thanks to our family and our friends for their valuable help, co-operation and encouragement for the successful completion of this dissertation.

NIDHIN.T.L NIJAS.K.N NINEESH.K.K

TABLE OF CONTENTS

CHAPTER PAGE NO:


1. 2. Introduction Company profile

PARTICULARS

3. 4.

Review of literature Data analysis

5.

Findings, Suggestions, Conclusion and Bibliography

LIST OF TABLES

Table no: 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11

Particulars Current Ratio Quick / Liquid / Acid Test Ratio Absolute Liquid Ratio Inventory Turnover Ratio Debtors Turnover Ratio Working Capital Turnover Ratio Debt-Equity Ratio Fixed Asset To Net worth Ratio Gross Profit Ratio Operating Profit Ratio Net Profit Ratio

Page no:

LIST OF FIGURES

Figure no: 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11

Particulars Current Ratio Quick / Liquid/ Acid Test Ratio Absolute Liquid Ratio Inventory Turnover Ratio Debtors Turnover Ratio Working Capital Turnover Ratio Debt-Equity Ratio Fixed Asset To Net worth Ratio Gross Profit Ratio Operating Profit Ratio Net Profit Ratio

Page no:

CHAPTER -I INTRODUTION

INTRODUCTION
Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium or small, needs finance to carry on its operations and to achieve its targets. In fact, finance is so indispensable today that it is rightly said that it is the life blood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives. A financial manager is a person who is responsible in a significant way to carry out the finance functions. In modern enterprise, the financial manager occupies a key position. He plays a pivotal role in planning quantum and pattern of fund requirements, procuring the desired amount of funds, allocating funds so pooled among profitable outlets and controlling the uses of funds. Finance function in a business is simply the task of providing funds needed by the enterprise on terms that are most favourable in the lights of its objectives. Hence efficient management of every business enterprise is closely linked with efficient management of its finance. Analysis and interpretation of financial statement refers to such a treatment of the information contained in the income statement and balance sheet so as to afford full diagnosis soundness of the business. This study is extended into the financial performance of Mangala Marine Exim India Private Limited, Thoppumpady for the period of 2006-2007 to 2010-2011. The study is completely based on analysis and interpretation of the published accounts of the concern and personal interviews, of the important management people.

1. SCOPE OF THE STUDY The scope of the study is limited to the financial statement analysis. The progress of financial statement analysis involves the compilation and the study of financial and operating data and the preparation and interpretation of measuring devices such as ratios, trend and percentage. Present and past data are used for this purpose. The quantitative relation of the kind represented by ratio analysis is not an end in them but is a means to understand firms financial positions.

2. SIGNIFICANCE OF THE PROBLEM The study is intended to bring to light the efficiency of financial performance of the company. Also this is an attempt to find out the weak areas in the performance of the company and to suggest remedial measures, so as to improve the efficiency of the company. 3. OBJECTIVES OF THE STUDY The main objective of the study is to evaluate the financial performance of the company. Other specific objectives are: 1. To know about the profitability performance of the company. 2. To measure the ability of the firm to meet its current obligations. 3. To study about the debt content in the capital structure and debt servicing capacity of the firm. 4. To examine the source of funds. 5. To examine efficient utilization of the assets of the company. 4. METHODOLOGY The research methodology is a method to solve systematically the research problem. The study exhibits both descriptive and analytical chapter. Regarding the theoretical concepts it is descriptive. Since it interprets and analyses the secondary data in order to arrive at appropriate conclusions it is also analytical chapter. The research methodology refers to the behaviors and instruments used in performing the research operations such as making observations, recording data, and the techniques of processing data and the like. The method and techniques are selected to suit the scope of the study. Hence the techniques of ratio analysis are used. Ratio analysis is a powerful tool for financial analysis. The relationship between two accounting figures expressed mathematically is known as financial ratios. Ratio helps the analyst to make quantitative judgment about the firms financial position and performance. The easiest way to evaluate the performance of the firm is to compare its present ratio with past ratio. Such a comparison would indicate the direction of change and reflects

whether the firms financial position and performance have improved, deteriorated or remain constant. 5. STATISTICAL TOOLS USED Analysis of data can be done through various techniques. Ratio analysis is one of the important tools for the data analysis that helps to get complete idea about the performance of the organization.

6. METHODS OF DATA COLLECTION Following are the main sources of data collection. Primary data: primary data are those, which are collected for the first time and are original in nature. Primary data is collected by way of direct interview with the staff. Secondary data: secondary data on the other hand are those are already been collected and analyzed from someone else. Secondary data is collected from audited annual reports of the company, websites, journals, magazines etc. 7. PERIOD OF STUDY The time utilized for the present study is from January 2012 to March 2012. The present study is to analyze the financial performance of Mangala Marine Exim India Private Limited is for a period of five years from 2006-2007 to 2010-2011. 8. LIMITATIONS OF THE STUDY In this study the main source of financial data is audited financial accounts of the company, as such it is subject to the limitations of secondary data. Financial statements are generally based on historical or original cost. The actual position may be slightly different. The time limitation was one of the constraint, hence in-depth study was not possible. 9. SCHEME OF THE STUDY The whole study contains five chapters:First chapter is the introductory chapter. This chapter out lines the scope of the study, significance of the problem, objective of the study, methodology, statistical tools used, methods of data collection, period of study and the limitations faced.

Second chapter deals with the company profile, profile of Mangala Marine Exim India Private Limited. Third chapter explains the theoretical framework about finance, financial statements and financial analysis. Fourth chapter contains an analysis and interpretation of the financial position of the company by using the technique of ratio analysis. It highlights the important ratios of the firm and its interpretation. It also gives graphical presentation for illustrating the analyzed data. Fifth chapter presents the conclusions derived from the study. A few suggestions also presented to improve the working of the company by highlighting its defects and inefficiencies.

CHAPTER -II COMPANY PROFILE

Name Status

: Mangala Marine EXIM India Private Limited : Company

Address: Bhat Memorial Building, Thoppumpady, Kochi 682005. Nature of: Processing and Export of Marine Products Business Business BRIEF HISTORY The Mangala group of companies began in the year 1967 with a young man named M.V. Ramachandra Bhat. In 1985, Mangala sea products were established at Aroor, Alleppey. Today the hard earned success of the mangalagroup can be clearly ascertained from the fact that it handles about 125000 MT per annum in its own factories and another 2500 MT per annum by trading, doing a total business of nearly US $ 40 Million annually. MANGALA MARINE EXIM INDIA (P). LTD, DIVISIONS 1. Mangala Sea Products, Aroor, Alleppey. HACCP Implemented Approved to export to all countries including EU Holders of USFDA Green list FACILITIES Cold Storage 250 MT Plate Freezer 15 TPD Blast Freezer 5 TPD Flake Ice 20 TPD Block Ice 12 TPD

2. Bhatsons Aquatic Products, Aroor, Alleppey. HACCP Implemented Approved to export to all countries including EU Holder of USFDA Green list FACILITIES Cold Storage 600 MT Plate Freezer 16 TPD Trolley Freezer 15 TPD Flake Ice 50 MT Cryogenic Freezer 500 Kgs / Hr 3. Blue Water Foods & Exports Pvt. Ltd., Mangalore. HACCP Implemented Approved to export to all countries including EU FACILITIES Cold Storage 1200 MT Plate Freezer 17 TPD Trolley Freezer 42 TPD Flake Ice 50 TPD 4. Frozen Freeze, Thoppumpady. FACILITIES Cold STORAGE 800 MT 5. Mangala Marine Exim India Pvt. Ltd., Edakochi. HACCP Implemented Approved to export to all countries including EU Holders of USFDA Green list

FACILITIES Cold Storage 300 MT Full line IQF Raw and cooked Products Capacity 500 Kg/hr 6. Mangala Marine Exim Pvt. Ltd., Gujarat. HACCP Implemented Approved to export to all countries including EU FACILITIES Cold Storage 500 MT Plate FREEZER 17 TPD Blast Freezer 20 TPD Flake Ice 20 TPD 7. Bhatsons Business Associates, Thoppumpady. This is the marketing and trading division of the Group and it provides the market with best possible quality of products. It also gives upcoming suppliers an opportunity to prove their strengths in the global markets with HACCP quality standards.

PRODUCT PORTFOLIO Product portfolio features a broad spectrum of products such as double horse, Top Fish, Royal treat, Srerja & Blue diamond. Mangala Marine Exim India Pvt. Ltd. Export world class products to countries like USA, Europe, Far East, Middle East, Africa etc.

BUSINESS GROWTH:The overall performance of the group displayed 35% growth in 2006-07. In terms of quality, performance is recognized by international markets. In short the performance is encouraging.

GLOBAL EXCELLENCE:In the fast changing global scenarios, successful existence is a challenge sensing the pulse of changes they have implemented high and production practices to maintain feet hold in global scene. All of the production facilities conforms to HACCP and standards. Thats why Mangala Marine Exim India Pvt. Ltd., make head ways in global market. ACHIEVEMENTS:Along with many performance and excellence award received by the Group during the past 35 year. The Best performance award for Marine Export from State Bank of India.OB, Cochin for the last 3 consecutive year and also for excellence in marine product export from India chamber of commerce 7 industry for the last 3 consecutive year.

ORGANISATIONAL CHART OF MANGALA MARINE EXIM INDIA (P) LTD

BOARD OF DIRETORS

DCMN & ADMN (MGR)

FNCE (MGR)

GENERAL MANAGER (OPERATION)

PLT (MGR)
SUPERVISORS

PLT (MGR)
SUPERVISORS

PLT (MGR)
SUPERVISORS

PLT (MGR)
SUPERVISORS

ABBREVIATIONS
DCMN & ADMN (MGR) - DOCUMENTATION AND ADMINISTRTION MANAGER FNCE (MGR) PLT (MGR) - FINANCE MANAGER - PLANT MANAGER

CHAPTER III REVIEW OF LITERATURE

FINANCIAL PERFORMANCE ANALYSIS Introduction Finance is the foundation stone of every business in the present day set up. The success of every business depends upon adequate source of finance. Financial management refers to the part of the management activity which is concerned with the planning and controlling of firms financial resources. The financial resources are always scarce and limited which need proper planning and control to achieve the best result out of the complex situation of risk and uncertainty prevailing in the business world. The financial management deals with finding out various resources for raising funds for the firm. In other words, financial management means the entire efforts devoted to the management of finance both its sources and use of funds also reforms a part of financial management. Financial management is applicable to every type of organization irrespective of its size, kind or nature. It is useful to small concerns as well as big units. The financial management has to take decisions in various fields involving financial implications such as new financingwhether through shares or debentures or temporary borrowings through banks and other sources, inventory management and capital budgeting. Therefore, for analyzing the overall performance of a concern and for studying the past and present position, the financial records are essential in taking various decisions. In short, the technique of financial analysis is typically devoted to evaluate the past, current and projected performance of a firm. Broadly the term is applied to almost every kind of detailed enquiry into financial data like to evaluate the past performance, present financial position, liquidity situation, enquire into profitability of the firm and to plan for future operations. For all we need is to study the relationship among various financial variables in a business as disclosed in various financial statements. The analysis of financial performance is an attempt to determine the significance and meaning of financial statements data so that the forecast may be of the future prospect for earnings, ability to pay interest and debt maturities and profitability.

SCOPE OF FINANCIAL ANALYSIS The term financial analysis, known as analysis and interpretation of financial statements, refers to the process of determining financial strengths and weakness of the firm by establishing strategic relationship between the items of Balance sheet, P&L a/c and other operative data. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. The analysis and interpretation of financial statements is essential to bring out the mystery behind the figures in financial statements so that the forecast may be of the future prospect for earnings, ability to pay interest and debt maturities and profitability. The financial statement analysis includes both analysis and interpretation. While the term analysis is used to mean the simplification of financial data by methodical classification of data given in the financial statements , interpretation meansexplaining,the meaning significance of the data so simplified. Analyzing financial statement is a process of evaluating the relationship between component parts of a financial statement to obtain better understanding of a firms position and performance -Metcalf and Titard In short, the technique of financial analysis is typically devoted to evaluate the past, current and projected performance of a financial firm. Broadly the term is applied to almost every kind of detailed enquiry into financial data like to evaluate the past performance, present financial position, liquidity situation, enquire into profitability of the firm and to plan for future operations OBJECTIVES Financial performance of an organization can be analyzed for different requirements or for different objective. A number of people are interested in getting information about the organization like managers, owners, creditors, employees, and other stakeholders.

Following are the main objectives of analyzing the financial statements To estimate the earning capacity of the firm To gauge financial position and financial performance of the firm To determine the debt capacity of the firm To determine the long term liquidity of funds as well as solvency To decide about the future prospects of the firm PROCEDURE FOR ANALYSIS Financial analysis can be done by taking the following steps:1. DECIDING UPON THE EXTENT OF ANALYSIS:First of all depth, object and extent of analysis will be determined by the analyst. The determination of these basic facts determines the scope of analysis, tools of analysis and the amount and quality of data to be required. For example, to measure the financial position of the firm, the Balance sheet of the firm will be analyzed 2. COLLECTION OF NECESSARY INFORMATION:All other necessary and useful information should be collected from the management, which has been revealed in the published financial statements. 3. GOING THROUGH THE FINANCIAL STATEMENTS:Before analyzing the composing financial ratios, it is necessary for the analyst to go through the various financial statements of the firm. 4. REARRANGING OF FINANCIAL DATA:Before making actual analysis and interpretation the analyst must rearrange the data provided by these statements in a useful manner. The appropriation of figures, reclassification and consolidation of items may be done as preliminary step to actual analysis.

5. FINAL ANALYSIS:A cause effect relationship between various financial data is established after a thorough examination. 6. INTERPRETATION AND PRESENTATION:After analyzing the statements the interpretation made and the inference drawn from the analysis are presented in the shape of reports to the management etc.

TYPES OF FINANCIAL ANALYSIS

Financial Analysis

According to material used in analysis

According to objectives of analysis

According to modus operandi of analysis

External Analysis

Internal Analysis

Long-term Analysis

Short term Analysis

Horizontal Analysis

Vertical Analysis

1. External analysis:Analysis of financial statements may be carried out on the basis of published information that is, information made available in the Annual report of the enterprise or other such available information, such analysis is called external analysis. This analysis is done by outsiders who do not have access to the detailed internal accounting records of the firm such as investors, banks, creditors, credit agencies and general public. 2. Internal analysis:The analysis conducted by persons who have access to the internal accounting records of a business firm is known as internal analysis. Such analysis is a detailed one and is carried on behalf of the management for purpose of providing necessary information for decision making. Such analysis emphasis on the performance appraisal and accessing the profitability of different activities. 3. Long term analysis:In the long term, a company must earn a minimum amount sufficient to maintain a reasonable rate on the investment to provide for the necessary growth and development of the company and to meet cost of capital. Financial planning is also desirable for the continued success of the company. Thus in the long term analysis, the stability and earning potentiality of the concern is analyzed. 4. Short term analysis:It is mainly concerned with the working capital analysis. In the short run a company must have ample funds readily available to meet its current needs and sufficient borrowing capacity to meet the contingencies. In short analysis, current assets and current liabilities are analyzed and liquidity is determined. 5. Horizontal analysis:Horizontal analysis refers to the comparison of data of a company for several years. The figures of this type of analysis are presented horizontally over a number of columns. The figures of various years are compared with standard or the base year. A base year is a year chosen as beginning point. The horizontal analysis makes it possible to focus attention on the items that have changed significantly during the

period under review Comparatative statements and trend percentage are two tools employed in horizontal analysis. 6 .Vertical analysis:Vertical analysis refers to the study of relationship of the various items in the financial statement of one accounting period. In this type of analysis the figures from financial statement of a year are accomplished with a base selected from the same years statement. Common-size financial statements and financial ratios are the tools employed in vertical analysis. Methods or devices of financial analysis 1. Comparatative Statement 2. Trend Analysis 3. Common Size Statement 4. Fund Flow Analysis 5. Cash Flow Analysis 6. Ratio Analysis 7. Cost Volume Profit Analysis 1. Comparatative statement The comparatative financial statements are statements of the financial position at different periods of time. 2. Trend analysis The financial statement may be analysis by computing trends of series of information. This method determines the direction upward or downward and involves the computation of the percentage relationship that each statement item bears to the same item in base year. 3. Common size statement

The common size statements balance sheet and income statement are shown in analytical percentage. The figures are shown as percentage to total sales, total liabilities and total sales.

RATIO ANALYSIS
Ratio analysis is a technique and interpretation of financial statement. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Ratio analysis is done to develop meaningful relationship between the two interrelated accounting figures as gross profit to sales, current asset to current liabilities, loaned capital to owned capital etc. Ratio analysis is not an end in itself. It is only a means of better understanding of financial strength and weakness of a firm. There are a number of ratios which can be calculated from the information given in the financial statement but the analyst has to select the appropriate data and calculate only a few appropriate ratio from the same keeping in mind the objective of analysis. The ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise

Functional classification in view of financial management


1. Liquidity ratios 2. Long term solvency and leverage ratios 3. Activity ratios 4. Profitability ratios

1. Liquidity ratios Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by releasing amount from current, floating or circulating assets. The current obligations are of short term

nature. Liquidity ratios are calculated for testing short term financial position. It include current ratio, acid test ratio or quick ratio and absolute liquid ratio.

a) Current ratio Current ratio may be defined as the relationship liabilities. This ratio, also known as between current assets and current

working capital ratio, is a measure of general

liquidity and is most widely used to make the analysis of short term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities. Current ratio= Current assets Current liabilities

b) Quick or acid test or liquid ratio Quick ratio, also known as acid test or liquid ratio is a more rigorous test of liquidity than the current ratio. The term Liquidity refers to the ability of a firm to pay its shortterm obligations as and when they become due. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. Quick/liquid or acid test ratio= Quick/liquid assets Current liabilities c) Absolute liquid ratio or cash ratio Although receivables, debtors and bills receivables are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence some authorities are of the opinion that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to

exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid ratio= Absolute liquid assets. Current liabilities Cash ratio= cash & bank+ short-term securities Current liabilities

2. Long term Solvency and Leverage ratios Firm should have a strong short as well as long term financial position. To judge the long term financial position of the firm, financial leverage or capital structure, ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. Many variations of these ratios exist but all these ratios indicate the sale thing the extent to which the firm has relied on debt in financing assets. It includes equity ratio, debt-equity ratio, funded debt to total capitalization ratio, solvency ratio and fixed assets ratio a) Proprietory ratio or Equity ratio A variant to the debt-equity ratio is the proprietory ratio which is also known as Equity Ratio or Shareholders to Total Equities Ratio or Net worth to Total Assets Ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total funds (Proprietors + outsiders funds or total funds or total assets) is an important ratio for determining long-term solvency of a firm. The components of this ratio are Shareholdes Funds or Proprietors Funds and Total Assets. The shareholders funds are Equity Share Capital, Preference Share Capital, undistributed profits, and reserves and denote total resources of the concern. The ratio can be calculated as under:

Proprietory Ratio or Equity Ratio = Shareholders Funds Total Assets

b) Debt-Equity ratio Debt-Equity Ratio, also known as External Internal Equity Ratio is calculated to measure the relative claims of outsiders and the owners (i.e., shareholders) against the firms assets. This ratio indicates the relationship between the external equities or the outsiders funds and the internal equities or the shareholders funds, thus: Debt-Equity Ratio = Outsiders Funds Shareholders Funds Or Debt to Equity Ratio = External Equities Internal Equities c) Fonded debt To Total Capitalization ratio

The ratio establishes a link between the long-term funds raised from outsiders and total long-term funds available in the business. The Two words used in this ratio are (i) Funded Debt, and (ii) Total Capitalisation. Funded debt = Debentures + Mortgage loans + Bonds + Other long-term loans. Total Capitalisation = Equity Share Capital+ Preference Share Capital+ Reserves and Surplus+ Other Undistributed Reserves+ Debentures+ Mortgage Loans+ Bonds+ Other long-term loans. Funded debt is that part of total capitalization which is financed by outsiders. Funded Debt to Total Capitalisation Ratio = Funded Debt x 100

Total Capitalisation

Though there is no rule of thumb but still the lesser the reliance on outsiders the better it will be. If this ratio is smaller, better it will be, up to 50% or 55% this ratio may be to tolerable and not beyond.

d) Solvency ratio or The ratio of Liabilities to Total Assets This ratio is small variant of equity ratio and can be simply calculated as 100-equity ratio, i.e., continuing the example taken for the equity ratio, solvency ratio =10066.67 says 33.33%. The ratio indicates the relationship between the total liabilities to outsiders to total assets of a firm and can be calculated as follows: Solvency Ratio = Total Liabilities to Outsiders Total Assets

e) Fixed Assets to Total Long Term Funds or Fixed Assets Ratio A variant to the ratio of fixed assets to net worth is the ratio of fixed assets to longterm funds which is calculated as:

Fixed Assets Ratio

= Fixed Assets (After depreciation) Total Long-term Funds

3. Current asset movement or efficiency/activity ratios Funds are invested in various assets in business to make sales and earn profit. The efficiency with which assets are managed directly affects the volume of sales. The

better the management of assets, the larger is the amount of sales and the profits. Activity ratio measures the efficiency or effectiveness with which a firm manages its resources or assets. These assets are converted or turned over into sales.

a) Inventory Turnover or Stock Turnover Ratio Every firm has to maintain a certain level of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Inventory Turnover Ratio = Cost of Goods Sold Average Inventory at Cost

b) Debtors or Receivable Turnover Ratio and Average Collection Period A Concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. But the effect of a liberal credit policy may result in typing up substantial funds of a firm in the form of trade debtors (or receivables, i.e., debtors plus bills receivables). Trade debtors are expected to be converted into cash within a short period and are included in current assets. Hence, the liquidity position of a concern to pay its short-term obligations in time depends upon the trade debtors. Debtors Turnover Ratio = Total Sales Debtors

c) Creditors/Payable Turnover Ratio In the course of business operations, a firm has to make credit purchases and incur short-term liabilities. A supplier of goods, i.e., creditor, is naturally interested in

finding out how much time the firm is likely to take in repaying its trade creditors. The analysis for creditors turnover is basically the same as of debtors turnover ratio except that in place of trade debtors, the trades creditors are taken as one of the components of the ratio and in place of average daily sales, average daily purchases are taken as the other component of the ratio. Same as debtors turnover ratio, creditors turnover ratio can be calculated in two forms:

Creditors/Payable Turnover Ratio = Net Credit Annual Purchases Average Trade Creditors

Average Payment Period Ratio = Average Trade Craditors (Craditors+Bills Payable) Average Daily Purchases

4. Analysis of Profitability or Profitability Ratios General Profitability Ratios (i) Gross Profit Ratio (ii) Operating Ratio (iii) Operating Profit Ratio (iv) Expenses Ratio (v) Net Profit Ratio (vi) Cash Profit Ratio i. Gross Profit Ratio

Gross profit ratio measures the relationship of gross profit to net sales and usually represented as a percentage. Thus, it is calculated by dividing the gross profit by sales: Gross Profit Ratio = Gross Profit x 100 Net Sales

= Sales-Cost of Goods Sold x 100 Sales

ii.

Operating Ratio

Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the one hand the sales on the other. In other words, it measures the cost of operating per rupee of sales. The ratio is calculated by dividing operating costs with the net sales and its generally represented as a percentage. Operating Ratio = Operating Cost x 100 Net Sales = Cost of goods sold + Operating expenses x 100 Net Sales

iii.

Operating Profit Ratio

This ratio is calculated by dividing operating profit by sales. Operating profit is calculated as: Operating Profits Ratio = Operating Profit x 100 Sales iv. Net Profit Ratio

Net Profit ratio establishes a relationship between net (after taxes) and sales, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This ratio is the overall measure of firms profitability and is calculated as: (i) Net Profit Ratio = Net Profit after tax Net Sales x 100

(ii) Net Profit Ratio

= Net Operating Profit Net Sales

x 100

v.

Cash Profit Ratio

The net profits of a firm are affected by the amount/method of depreciation charged. Further, depreciation being non-cash expense, it is better to calculate cash profit ratio. This ratio measures the relationship between cash generated from operations and net sales. Thus, Cash Profit Ratio = Cash Profit Net Sales x 100

CHAPTER-IV DATA ANALYSIS

RATIO ANALYSIS Current Ratio


Current Ratio = Current Assets Current Liabilities Years 2006-07 2007-08 2008-09 2009-10 2010-11 Current Assets (Rs ) 1270681.3 3115762.04 3666736.08 3831327.37 5259013.63 Current Liabilities Ratio 0.92 1.96 2.05 2.10 2.10

(Rs) 1380958.46 1587402.94 1783518.22 1821005.85 2499218.51 Table no: 4.1

Source: Annual report of the company.


2.5 2

R A 1.5 T 1 I O
0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

Y EAR Figure no: 4.1 Interpretation:-

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay of its current liabilities in time as and when they become due. In this the ratio is increasing year by year.

Quick/Liquid or Acid Test Ratio


Quick/Liquid or acid test Ratio = Quick or Liquid Assets Current Liabilities Years 2006-07 2007-08 2008-09 2009-10 2010-11 Net Sales Inventory Ratio 0.53 0.27 0.35 0.34 0.43

(Rs) (Rs) 744808.03 1380958.46 444224.52 1587402.94 639977.88 1783518.22 633392.03 1821005.85 1075997.56 2499218.51 Table no: 4.2 Source: Annual report of the company.

0.6 0.5

R 0.4 A T 0.3 I 0.2 O


0.1 0 2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

Y EAR Figure no: 4.2 Interpretation: The above table shows that a decreasing trend in quick ratio. It indicates that the firm is not liquid and has no ability to meet its current liabilities or liquid liabilities in time.

Absolute Liquid Ratio


Absolute Liquid Ratio = Absolute Liquid Assets Current Liabilities Years 2006-07 2007-08 2008-09 2009-10 2010-11 Absolute Liquid Current Liabilities Ratio 0.15 0.01 0.08 0.09 0.06

Assets (Rs) (Rs) 27618590.44 1380958.46 15510.33 1783518.22 131573.82 1587402.94 169876.43 1821005.85 174600.58 2499218.51 Table no: 4.3

0.16 0.14

R 0.1 A T 0.08 I 0.06 O


0.04 0.02 0 2006-07 2007-08 2008-09 2009-10 2010-11

0.12

Ratio

Y EAR Figure no: 4.3 Interpretation: In the above table we get a decreasing trend, which is not satisfactory for the company.

Inventory Turnover Ratio


Inventory Turnover Ratio = Net Sales Inventory Years 2006-07 2007-08 2008-09 2009-10 2010-11 Net Sales Inventory Ratio 8.64 7.12 5.78 5.35 4.25

(Rs) (Rs) 13331194.68 154228.80 14027501.95 1969958.48 12636086.32 2182783.61 13051348.59 2437586.98 13786109.14 3237514.82 Table no: 4.4 Source: Annual report of the company.

10 9 8 7 6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11 Ratio

R A T I O

Y EAR Figure no: 4.4 Interpretation: The above graph establishes relationship between net sales during a given period and the amount of inventory held during the period.

Debtors Turnover Ratio

Debtors Turnover Ratio =

Total Sales Debtors

Years 2006-07 2007-08 2008-09 2009-10 2010-11

Total Sales

Debtors

Ratio 28.44 44.86 27.20 28.15 15.29

(Rs) (Rs) 13331194.68 468622.13 14027501.95 312650.70 12636086.32 464467.55 130513348.59 463515.60 13786109.14 901396.98 Table no: 4.5 Source: Annual report of the company

50 45 40 35 30 25 20 15 10 5 0 2006-07 2007-08 2008-09 2009-10 2010-11 Ratio

R A T I O

Y EAR Figure no: 4.5 Interpretation: Debtors turnover ratio is showing a decreasing trend.

Working Capital Turnover Ratio


Working Capital = Sales Net working capital

Years 2006-07 2007-08 2008-09 2009-10 2010-11

Sales

Working Capital

Ratio 8.53 7.18 5.27 4.50 3.73

(Rs) (Rs) 13331194.68 1561886.73 14027501.95 1951058.68 12636086.32 2395895.89 13051348.59 2896190.89 13786109.14 3686559.66 Table no: 4.6 Source: Annual report of the company

9 8 7

R A T I O

6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11 Ratio

Y EAR Figure no: 4.6 Interpretation: The above table depicts the number of times working capital is turned over in a stated period.

Debt-Equity Ratio
Debt-Equity Ratio = Outsiders Fund Shareholders Fund Years 2006-07 2007-08 Outsiders Fund (Rs) 1380958.46 1587402.94 Shareholders Fund (Rs) 615887.96 773190.14 Ratio 2.24 2.05

2008-09 2009-10 2010-11

1783518.22 1005953.6 1821005.85 1640396.47 2499218.51 1476334.84 Table no: 4.7 Source: Annual report of the company.

1.77 1.11 1.69

2.5 2

R A 1.5 T 1 I O
0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

Y EAR Figure no: 4.7 Interpretation: The above table depicts that both shareholders funds and outsiders funds are showing increasing trend.

Fixed Assets to Net Worth Ratio


Fixed Assets to Net worth Ratio = Fixed Assets Share holders Fund Years Fixed Assets (Rs) 2006-07 2007-08 2008-09 1251715.05 1669794.11 1760877.86 Share Holders Fund (Rs) 615887.96 773196.14 1005953.6 2.03 2.15 1.75 Ratio

2009-10 2010-11

2157706.23 1646396.47 2219014.50 1476334.84 Table no: 4.8 Source: Annual report of the company.

1.31 1.50

2.5 2

R A 1.5 T 1 I O
0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

Y EAR Figure no: 4.8 Interpretation: From the above table it is clear that the fixed assets of the company are increasing throughout the years. But the ratio is decreasing.

Gross Profit Ratio


Gross Profit Ratio = Gross Profit x 100 Sales Years 2006-07 2007-08 2008-09 2009-10 2010-11 Gross Profit Sales Ratio 8.02 3.69 9.79 5.35 5.88

(Rs) (Rs) 1070295.54 13331194.68 517637.5 14027501.95 1237647.58 12636086.32 699245.09 13051348.59 811556.8 13786109.14 Table no: 4.9 Source: Annual report of the company.

12 10

R A T I O

8 6 4 2 0 2006-07 2007-08 2008-09 2009-10 2010-11 Ratio

Y EAR Figure no: 4.9 Interpretation: The above table shows the gross profit ratio for five years. Higher the ratio, better the profit position is. Gross profit ratio for 2010-11 is low when compared to that of 2006-07.

Operating Profit Ratio


Operating Profit Ratio = Operating Profit x 100 Sales Years 2006-07 2007-08 2008-09 2009-10 2010-11 Operating Profit Sales Ratio 17.50 11.28 27.76 16.27 15.48

(Rs) (Rs) 2333152.79 13331194.68 1583303.91 14027501.95 3507883.93 12636086.32 2124049.48 13051348.59 2134432.22 137861093.14 Table no: 4.10 Source: Annual report of the company

30 25

R 20 A T 15 I 10 O
5 0 2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

Y EAR Figure no: 4.10 Interpretation: The above table shows a decreasing trend and the operating profit ratio for 2010-11 is low when compared to that of 2006-07.

Net Profit Ratio


Net Profit Ratio = Net Profit after Tax x 100 Net Sales Years 2006-07 2007-08 2008-09 2009-10 2010-11 Net Profit After Tax Net Sales Ratio 4.65 1.04 0.66 1.37 0.96

(Rs) (Rs) 62064.49 1333194.68 146705.92 14027501.95 84093.45 12636086.31 179091.83 13051348.59 132445.78 13786109.14 Table no: 4.11 Source: Annual report of the company

5 4.5 4 R3.5 A 3 T2.5 I 2 O1.5 1 0.5 0 2006-07 2007-08 2008-09 Y EAR Figure no: 4.11 Interpretation: The above table depicts that net profit ratio is reducing throughout the years. The 2009-10 2010-11

Ratio

lower is the net profit per rupee of sales, lower will be the sales efficiency. Higher the ratio, the better it is because it gives ideas of improved efficiency of the concern.

CHAPTER-V

FINDINGS, SUGGESTIONS, CONCLUSION & BIBLOGRAPHY

FINDINGS There is a reduction in gross profit ratio during 2009-10 and 201011

Operating profit ratio is increased to 27.76 in the year 2008-09. After that it is showing decreasing tendency.

Net profit ratio is reduced to 0.96 in the year 2010-11. It is a huge decrease from the year 2006-07 when the ratio was 4.65.

SUGGESTIONS

The company should try to decrease the operating expenses, thereby increasing net profit. The company should try to increase net profit ratio. High net profit ratio shows improved efficiency of the concern. In order to increase the profitability and protect the interest of shareholders, the company should implement a good profit policy and should try to increase their turnover which is presently not up to the expected level. High operating expenses of the company proves a major worry to the company and hence affecting the profitability of the company. All unnecessary expenses should be waived off and only expenses required and which are unavoidable should be encouraged.