INTRODUCTION

OBJECTIVE:
To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm.

RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analy ing numbers from the financial statements. !f used in con"unction with other methods# quantitative analysis can produce e$cellent results. %atio analysis isn&t "ust comparing different numbers from the balance sheet# income statement# and cash flow statement. !t&s comparing the number against previous years# other companies# the industry# or even the economy in general. %atios look at the relationships between individual values and relate them to how a company has performed in the past# and might perform in the future.

MEANING OF RATIO:
A ratio is one figure e$press in terms of another figure. !t is a mathematical yardstick that measures the relationship two figures# which are related to each other and mutually interdependent. %atio is e$press by dividing one figure by the other related figure. Thus a ratio is an e$pression relating one number to another. !t is simply the quotient of two numbers. !t can be e$pressed as a fraction or as a decimal or as a pure ratio or in absolute figures as ' so many times(. As accounting ratio is an e$pression

relating two figures or accounts or two sets of account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS:

%atio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed# determined and presented. %atio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. %atio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the ob"ective of analysis. )hile a detailed e$planation of ratio analysis is beyond the scope of this section# we will focus on a technique# which is easy to use. !t can provide you with a valuable investment analysis tool. This technique is called cross-sectiona ana !sis. *ross+sectional analysis compares financial ratios of several companies from the same industry. %atio analysis can provide valuable information about a company&s financial health. A financial ratio measures a company&s performance in a specific area. For e$ample# you could use a ratio of a company&s debt to its equity to measure a company&s leverage. ,y comparing the leverage ratios of two companies# you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor&s has more debt per equity. -ou can use this information to make a "udgment as to which company is a better investment risk. .owever# you must be careful not to place too much importance on one ratio. -ou obtain a better indication of the direction in which a company is moving when several ratios are taken as a group.

OBJECTIVE OF RATIOS
%atio is work out to analy e the following aspects of business organi ation+

A) /olvency+ 0) 1ong term 2) /hort term 3) !mmediate ,) /tability *) 4rofitability 5) Operational efficiency 6) *redit standing F) /tructural analysis 7) 6ffective utili ation of resources .) 1everage or e$ternal financing

FORMS OF RATIO:
/ince a ratio is a mathematical relationship between to or more variables 8 accounting figures# such relationship can be e$pressed in different ways as follows 9 A" As a #$re ratio: For e$ample the equity share capital of a company is %s. 2:#::#::: ; the preference share capital is %s. <#::#:::# the ratio of equity share capital to preference share capital is 2:#::#:::= <#::#::: or simply >=0. B" As a rate o% ti&es: !n the above case the equity share capital may also be described as > times that of preference share capital. /imilarly# the cash sales of a firm are %s. 02#::#::: ; credit sales are %s. 3:#::#:::. so the ratio of credit sales to cash sales can be described as 2.< ?3:#::#:::802#::#:::@ or simply by saying that the credit sales are 2.< times that of cash sales. C" As a #ercenta'e: 3

!n such a case# one item may be e$pressed as a percentage of some other item. For e$ample# net sales of the firm are %s.<:#::#::: ; the amount of the gross profit is %s. 0:#::#:::# then the gross profit may be described as 2:A of sales ? 0:#::#:::8<:#::#:::@

STE(S IN RATIO ANALYSIS

The ratio analysis requires two steps as follows= 0@ *alculation of ratio 2@ *omparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industryBs average ratio or a pro"ected ratio or the ratio of the most successful firm in the industry. !n interpreting the ratio of a particular firm# the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

TY(ES OF COM(ARISONS
The ratio can be compared in three different ways 9 )" Cross section ana !sis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. /o it involves the comparison of two or more firmBs financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the ma"or operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm. *" Ti&e series ana !sis: 4

The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. ,y comparing the present performance of a firm with the performance of the same firm over the last few years# an assessment can be made about the trend in progress of the firm# about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long+term goals or not. The Time series analysis looks for (0) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of dataC +" Co&,ine- ana !sis: !f the cross section ; time analysis# both are combined together to study the behavior ; pattern of ratio# then meaningful ; comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For e$ample# the ratio of operating e$penses to net sales for firm may be higher than the industry average however# over the years it has been declining for the firm# whereas the industry average has not shown any significant changes.

The combined analysis as depicted in the above diagram# which clearly shows that the ratio of the firm is above the industry average# but it is decreasing over the years ; is approaching the industry average.

(RE-RE.UISITIES TO RATIO ANALYSIS

!n order to use the ratio analysis as device to make purposeful conclusions# there are certain pre+requisites# which must be taken care of. !t may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them ; can be used for any ratio but meaningful ; correct interpretation ; conclusion can be arrived at only if the following points are well considered. 0) The dates of different financial statements from where data is taken must be same. 2) !f possible# only audited financial statements should be considered# otherwise there must be sufficient evidence that the data is correct. 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted. >) One ratio may not throw light on any performance of the firm. Therefore# a group of ratios must be preferred. This will be conductive to counter checks. <) 1ast but not least# the analyst must find out that the two figures being used to calculate a ratio must be related to each other# otherwise there is no purpose of calculating a ratio.

CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO

,A/65 OD F!DAD*!A1 /TAT6F6DT

,A/65 OD FED*T!OD

,A/65 OD E/6%

0@ ,A1AD*6 /.66T %AT!O 2@ %6H6DE6 /TAT6F6DT %AT!O 3@ *OF4O/!T6 %AT!O

0@ 1!GE!5!T- %AT!O 2@ 16H6%A76 %AT!O 3@ A*T!H!T- %AT!O >@ 4%OF!TA,!1!T%AT!O <@ *OH6%A76 %AT!O

0@ %AT!O/ FO% /.O%T T6%F *%65!TO%/ 2@ %AT!O FO% /.A%6.O156% 3@ %AT!O/ FO% FADA76F6DT >@ %AT!O FO% 1OD7 T6%F *%65!TO%/

BASED ON FINANCIAL STATEMENT

Accounting ratios e$press the relationship between figures taken from financial statements. Figures may be taken from ,alance /heet # 4; 4 A8*# or both. One+way of classification of ratios is based upon the sources from which are taken. )" Ba ance s/eet ratio: !f the ratios are based on the figures of balance sheet# they are called ,alance /heet %atios. 6.g. ratio of current assets to current liabilities or ratio of debt to equity. )hile calculating these ratios# there is no need to refer to the %evenue statement. These ratios study the relationship between the assets ; the liabilities# of the concern. These ratio help to "udge the liquidity# solvency ; capital structure of the concern. ,alance sheet ratios are *urrent ratio# 1iquid ratio# and 4roprietory ratio# *apital gearing ratio# 5ebt equity ratio# and /tock working capital ratio. *" Re0en$e ratio:

%atio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability ; the sales of the concern. %evenue ratios are 7ross profit ratio# Operating ratio# 6$pense ratio# Det profit ratio# Det operating profit ratio# /tock turnover ratio. +" Co&#osite ratio: These ratios indicate the relationship between two items# of which one is found in the balance sheet ; other in revenue statement. There are two types of composite ratios+ a) /ome composite ratios study the relationship between the profits ; the investments of the concern. 6.g. return on capital employed# return on proprietors fund# return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios# creditors turnover ratios# dividend payout ratios# ; debt service ratios

BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to liquidity ratios# leverage ratios# activity ratios# profitability ratios ; turnover ratios. )" Li1$i-it! ratios: !t shows the relationship between the current assets ; current liabilities of the concern e.g. liquid ratios ; current ratios. *" Le0era'e ratios: !t shows the relationship between proprietors funds ; debts used in financing the assets of the concern e.g. capital gearing ratios# debt equity ratios# ; 4roprietory ratios. +" Acti0it! ratios: !t shows relationship between the sales ; the assets. !t is also known as Turnover ratios ; productivity ratios e.g. stock turnover ratios# debtors turnover ratios.

2" (ro%ita,i it! ratios: a) !t shows the relationship between profits ; sales e.g. operating ratios# gross profit ratios# operating net profit ratios# e$penses ratios b) !t shows the relationship between profit ; investment e.g. return on investment# return on equity capital. 3" Co0era'e ratios: !t shows the relationship between the profit on the one hand ; the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios ; debt service ratios.

BASED ON USER:
)" Ratios %or s/ort-ter& cre-itors: *urrent ratios# liquid ratios# stock working capital ratios *" Ratios %or t/e s/are/o -ers: %eturn on proprietors fund# return on equity capital +" Ratios %or &ana'e&ent: %eturn on capital employed# turnover ratios# operating ratios# e$penses ratios 2" Ratios %or on'-ter& cre-itors: 5ebt equity ratios# return on capital employed# proprietor ratios.

LI.UIDITY RATIO: 1iquidity refers to the ability of a firm to meet its short+term (usually up to 0 year) obligations. The ratios# which indicate the liquidity of a company# are *urrent ratio# Guick8Acid+Test ratio# and *ash ratio. These ratios are discussed below

CURRENT RATIO
Meanin':

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This ratio compares the current assests with the current liabilities. !t is also known as Iworking capital ratioB or I solvency ratioB. !t is e$pressed in the form of pure ratio. 6.g. 2=0 For&$ a: C$rrent assets C$rrent ratio 4 C$rrent ia,i ities The current assests of a firm represents those assets which can be# in the ordinary course of business# converted into cash within a short period time# normally not e$ceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met# as originally contemplated# with in a year. *urrent ratio (*%) is the ratio of total current assets (*A) to total current liabilities (*1). *urrent assets include cash and bank balancesJ inventory of raw materials# semi+ finished and finished goodsJ marketable securitiesJ debtors (net of provision for bad and doubtful debts)J bills receivableJ and prepaid e$penses. *urrent liabilities consist of trade creditors# bills payable# bank credit# provision for ta$ation# dividends payable and outstanding e$penses. This ratio measures the liquidity of the current assets and the ability of a company to meet its short+term debt obligation. *% measures the ability of the company to meet its *1# i.e.# *A gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for *1. The higher the current ratio# the greater the short+term solvency. This compares assets# which will become liquid within appro$imately twelve months with liabilities# which will be due for payment in the same period and is intended to indicate whether there are sufficient short+term assets to meet the short+ term liabilities. %ecommended current ratio is 2= 0. Any ratio below indicates that the entity may face liquidity problem but also %atio over 2= 0 as above indicates over trading# that is the entity is under utili ing its current assets.

LI.UID RATIO:

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Meanin': 1iquid ratio is also known as acid test ratio or quick ratio. 1iquid ratio compare the quick assets with the quick liabilities. !t is e$pressed in the form of pure ratio. 6.g. 0=0. The term quick assets refer to current assets# which can be converted into# cash immediately or at a short notice without diminution of value. For&$ a: .$ic5 assets Li1$i- ratio 4 .$ic5 ia,i ities Guick %atio (G%) is the ratio between quick current assets (GA) and *1. GA refers to those current assets that can be converted into cash immediately without any value strength. GA includes cash and bank balances# short+term marketable securities# and sundry debtors. !nventory and prepaid e$penses are e$cluded since these cannot be turned into cash as and when required. G% indicates the e$tent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets# which are highly liquid. !nventories are e$cluded from the numerator of this ratio because they are deemed the least liquid component of current assets. 7enerally# a quick ratio of 0=0 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments.

CAS6 RATIO
Meanin': This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. For&$ a:

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Cas/ 7 Ban5 7 Mar5eta, e sec$rities Cas/ ratio 4 Tota c$rrent ia,i ities /ince cash and bank balances and short term marketable securities are the most liquid assets of a firm# financial analysts look at the cash ratio. !f the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.

INVESTMENT 8 S6ARE6OLDER

EARNING (ER SA6RE:Meanin': 6arnings per /hare are calculated to find out overall profitability of the organi ation. An earnings per /hare represents earning of the company whether or not dividends are declared. !f there is only one class of shares# the earning per share are determined by dividing net profit by the number of equity shares. 64/ measures the profits available to the equity shareholders on each share held.

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For&$ a: N(AT Earnin' #er s/are 4 N$&,er o% e1$it! s/are The higher 64/ will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. ,ut remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business

DIVIDEND (ER S6ARE:Meanin':

54/ shows how much is paid as dividend to the shareholders on each share held. For&$ a: Di0i-en- (ai- to Or-inar! S/are/o -ers Di0i-en- #er S/are 4 N$&,er o% Or-inar! S/ares

DIVIDEND (AYOUT RATIO:Meanin': 5ividend 4ay+out %atio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders.

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For&$ a: Di0i-en- #er s/are

Di0i-en- (a! o$t ratio 4

Earnin' #er s/are

9)::

584 ratio shows the percentage share of net profits after ta$es and after preference dividend has been paid to the preference equity holders.

GEARING

CA(ITAL GEARING RATIO:Meanin': 7earing means the process of increasing the equity shareholders return through the use of debt. 6quity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The *apital+gearing ratio shows the relationship between two types of capital vi = + equity capital ; preference capital ; long term borrowings. !t is e$pressed as a pure ratio.

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For&$ a: (re%erence ca#ita 7 sec$re- oan Ca#ita 'earin' ratio 4 E1$it! ca#ita ; reser0e ; s$r# $s *apital gearing ratio indicates the proportion of debt ; equity in the financing of assets of a concern.

(ROFITABILITY
These ratios help measure the profitability of a firm. A firm# which generates a substantial amount of profits per rupee of sales# can comfortably meet its operating e$penses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios= 7ross 4rofit Fargin and Det 4rofit Fargin.

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GROSS (ROFIT RATIO:Meanin': This ratio measures the relationship between gross profit and sales. !t is defined as the e$cess of the net sales over cost of goods sold or e$cess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. !t measures the efficiency of production as well as pricing. This ratio helps to "udge how efficient the concern is ! managing its production# purchase# selling ; inventory# how good its control is over the direct cost# how productive the concern # how much amount is left to meet other e$penses ; earn net profit. For&$ a: Gross #ro%it Gross #ro%it ratio 4 Net sa es NET (ROFIT RATIO:Meanin': Det 4rofit ratio indicates the relationship between the net profit ; the sales it is usually e$pressed in the form of a percentage. For&$ a: N(AT Net #ro%it ratio 4 Net sa es This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. !t measures the overall efficiency of production# administration# selling# financing# pricing and ta$ management. Kointly 9 ):: 9 )::

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considered# the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm. RETURN ON CA(ITAL EM(LOYED:Meanin': The profitability of the firm can also be analy ed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long+term source of funds. !t means that the capital employed comprises of shareholder funds plus long+term debts. Alternatively it can also be defined as fi$ed assets plus net working capital. *apital employed refers to the long+term funds invested by the creditors and the owners of a firm. !t is the sum of long+term liabilities and owner&s equity. %O*6 indicates the efficiency with which the long+term funds of a firm are utili ed. For&$ a: N(AT Ret$rn on ca#ita e&# o!e- 4 Ca#ita e&# o!e9)::

FINANCIAL
These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utili ation ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio# average collection period# inventory8stock turnover ratio# fi$ed assets turnover ratio# and total assets turnover ratio. These are described below=

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DEBTORS TURNOVER RATIO <DTO= Meanin': 5TO is calculated by dividing the net credit sales by average debtors outstanding during the year. !t measures the liquidity of a firm&s debts. Det credit sales are the gross credit sales minus returns# if any# from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the 5TO# the better it is for the organi ation. For&$ a: Cre-it sa es De,tors t$rno0er ratio 4 A0era'e -e,tors

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INVENTORY OR STOC> TURNOVER RATIO <ITR= Meanin': !T% refers to the number of times the inventory is sold and replaced during the accounting period. For&$ a: COGS Stoc5 T$rno0er Ratio 4 A0era'e stoc5 !T% reflects the efficiency of inventory management. The higher the ratio# the more efficient is the management of inventories# and vice versa. .owever# a high inventory turnover may also result from a low level of inventory# which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating !T%# the average of inventories at the beginning and the end of the year is taken. !n general# averages may be used when a flow figure (in this case# cost of goods sold) is related to a stock figure (inventories). FI?ED ASSETS TURNOVER <FAT= The FAT ratio measures the net sales per rupee of investment in fi$ed assets. For&$ a: Net sa es Fi@e- assets t$rno0er 4 Net %i@e- assets This ratio measures the efficiency with which fi$ed assets are employed. A high ratio indicates a high degree of efficiency in asset utili ation while a low ratio reflects an inefficient use of assets. .owever# this ratio should be used with caution because when the fi$ed assets of a firm are old and substantially depreciated# the fi$ed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

(RO(RIETORS RATIO:

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Meanin': 4roprietary ratio is a test of financial ; credit strength of the business. !t relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. !n other words# 4roprietary ratio determines as to what e$tent the ownerBs interest ; e$pectations are fulfilled from the total investment made in the business operation. 4roprietary ratio compares the proprietor fund with total liabilities. !t is usually e$pressed in the form of percentage. Total assets also know it as net worth. For&$ a: (ro#rietar! %$n(ro#rietar! ratio 4 Tota %$nOR

S/are/o -ers %$n(ro#rietar! ratio 4 Fi@e- assets 7 c$rrent ia,i ities STOC> AOR>ING CA(ITAL RATIO: Meanin': This ratio shows the relationship between the closing stock ; the working capital. !t helps to "udge the quantum of inventories in relation to the working capital of the business. The purpose of this ratio is to show the e$tent to which working capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. !t is e$pressed as a percentage. For&$ a: Stoc5 Stoc5 Bor5in' ca#ita ratio 4 Aor5in' Ca#ita /tock working capital ratio is a liquidity ratio. !t indicates the composition ; quality of the working capital. This ratio also helps to study the solvency of a concern. !t is a

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qualitative test of solvency. !t shows the e$tent of funds blocked in stock. !f investment in stock is higher it means that the amount of liquid assets is lower. DEBT E.UITY RATIO: MEANING: This ratio compares the long+term debts with shareholders fund. The relationship between borrowed funds ; owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively# this ratio indicates the relative proportion of debt ; equity in financing the assets of the firm. !t is usually e$pressed as a pure ratio. 6.g. 2=0 For&$ a: Tota on'-ter& -e,t De,t e1$it! ratio 4 Tota s/are/o -ers %$n5ebt equity ratio is also called as leverage ratio. 1everage means the process of the increasing the equity shareholders return through the use of debt. 1everage is also known as IgearingB or Itrading on equityB. 5ebt equity ratio shows the margin of safety for long+term creditors ; the balance between debt ; equity. RETURN ON (RO(RIETOR FUND: Meanin': %eturn on proprietors fund is also known as Ireturn on proprietors equityB or Ireturn on shareholders investmentB or I investment ratioB. This ratio indicates the relationship between net profit earned ; total proprietors funds. %eturn on proprietors fund is a profitability ratio# which the relationship between profit ; investment by the proprietors in the concern. !ts purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to "udge how efficient the concern is in managing the ownerBs fund at disposal. This ratio is of practical importance to prospective investors ; shareholders.

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For&$ a: N(AT Ret$rn on #ro#rietors %$n- 4 (ro#rietors %$n9 )::

CREDITORS TURNOVER RATIO: !t is same as debtors turnover ratio. !t shows the speed at which payments are made to the supplier for purchase made from them. !t is a relation between net credit purchase and average creditors Net cre-it #$rc/ase Cre-it t$rno0er ratio 4 A0era'e cre-itors

Mont/s in a !ear A0era'e a'e o% acco$nts #a!a, e 4 Cre-it t$rno0er ratio

,oth the ratios indicate promptness in payment of creditor purchases. .igher creditors turnover ratio or a lower credit period en"oyed signifies that the creditors are being paid promptly. !t enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.

IM(ORTANCE OF RATIO ANALYSIS:

As a tool of financial management# ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis ; enables the drawing of interference regarding the performance of a firm. %atio analysis is relevant in assessing the performance of a firm in respect of the following aspects=

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0@ 1iquidity position# 2@ 1ong+term solvency# 3@ Operating efficiency# >@ Overall profitability# <@ !nter firm comparison L@ Trend analysis. )" LI.UIDITY (OSITION: )ith the help of %atio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short+term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit analysis by bank ; other suppliers of short term loans.

*" LONG TERM SOLVENCY: %atio analysis is equally useful for assessing the long+term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long+term creditors# security analyst ; the present ; potential owners of a business. The long+term solvency is measured by the leverage8 capital structure ; profitability ratio %atio analysis s that focus on earning power ; operating efficiency. %atio analysis reveals the strength ; weaknesses of a firm in this respect. The leverage ratios# for instance# will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is e$posed to serious strain. /imilarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved. +" O(ERATING EFFICIENCY:

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-et another dimension of the useful of the ratio analysis# relevant from the viewpoint of management# is that it throws light on the degree of efficiency in management ; utili ation of its assets. The various activity ratios measures this kind of operational efficiency. !n fact# the solvency of a firm is# in the ultimate analysis# dependent upon the sales revenues generated by the use of its assets+ total as well as its components. 2" OVERALL (ROFITABILITY: Enlike the outsides parties# which are interested in one aspect of the financial position of a firm# the management is constantly concerned about overall profitability of the enterprise. That is# they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors# to ensure a reasonable return to its owners ; secure optimum utili ation of the assets of the firm. This is possible if an integrated view is taken ; all the ratios are considered together. 3" INTER C FIRM COM(ARISON: %atio analysis not only throws light on the financial position of firm but also serves as a stepping+stone to remedial measures. This is made possible due to inter firm comparison ; comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry average. !t should be reasonably e$pected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position vice+versa its competitors. !f the results are at variance either with the industry average or with the those of the competitors# the firm can seek to identify the probable reasons ; in light# take remedial measures. D" TREND ANALYSIS: Finally# ratio analysis enables a firm to take the time dimension into account. !n other words# whether the financial position of a firm is improving or deteriorating over

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the years. This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement# that is# whether the movement is favorable or unfavorable. For e$ample# the ratio may be low as compared to the norm but the trend may be upward. On the other hand# though the present level may be satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of significant accounting data relationships# which give the decision+maker insights into the financial performance of a company. The advantages of ratio analysis can be summari ed as follows= %atios facilitate conducting trend analysis# which is important for decision making and forecasting. %atio analysis helps in the assessment of the liquidity# operating efficiency# profitability and solvency of a firm. %atio analysis provides a basis for both intra+firm as well as inter+firm comparisons. The comparison of actual ratios with base year ratios or standard ratios helps the management analy e the financial performance of the firm.

LIMITATIONS OF RATIO ANALYSIS

%atio analysis has its limitations. These limitations are described below= )" In%or&ation #ro, e&s %atios require quantitative information for analysis but it is not decisive about analytical output .

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 The figures in a set of accounts are likely to be at least several months out of date# and so might not give a proper indication of the companyBs current financial position. )here historical cost convention is used# asset valuations in the balance sheet could be misleading. %atios based on this information will not be very useful for decision+making. *" Co&#arison o% #er%or&ance o0er ti&e )hen comparing performance over time# there is need to consider the changes in price. The movement in performance should be in line with the changes in price. )hen comparing performance over time# there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. *hanges in accounting policy may affect the comparison of results between different accounting years as misleading.

+" Inter-%ir& co&#arison *ompanies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis. /elective application of government incentives to various companies may also distort intercompany comparison. comparing the performance of two enterprises may be misleading.

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 !nter+firm comparison may not be useful unless the firms compared are of the same si e and age# and employ similar production methods and accounting practices. 6ven within a company# comparisons can be distorted by changes in the price level. %atios provide only quantitative information# not qualitative information. %atios are calculated on the basis of past financial statements. They do not indicate future trends and they do not consider economic conditions.

(UR(OSE OF RATIO ANLYSIS: 0@ To identify aspects of a businesses performance to aid decision making 2@ Guantitative process 9 may need to be supplemented by qualitative Factors to get a complete picture. 3@ < main areas=+ Li1$i-it! 9 the ability of the firm to pay its way In0est&ent8s/are/o -ers 9 information to enable decisions to be made on the e$tent of the risk and the earning potential of a business investment Gearin' 9 information on the relationship between the e$posure of the business to loans as opposed to share capital (ro%ita,i it! 9 how effective the firm is at generating profits given sales and or its capital assets Financia 9 the rate at which the company sells its stock and the efficiency with which it uses its assets

ROLE OF RATIO ANALYSIS:

!t is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure ; information# which is already appearing in the

28

financial statement. At the same time# it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. %atio analysis helps to appraise the firm in terms of their profitability ; efficiency of performance# either individually or in relation to those of other firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something# as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison# inter firm comparison or comparison with standard ratios. Thus proper comparison of ratios may reveal where a firm is placed as compared with earlier period or in comparison with the other firms in the same industry. %atio analysis is one of the best possible techniques available to the management to impart the basic functions like planning ; control. As the future is closely related to the immediate past# ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. %atio analysis also helps to locate ; point out the various areas# which need the management attention in order to improve the situation. As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity# solvency# activity# profitability ; overall performance# it enables the interested persons to know the financial ; operational characteristics of an organisation ; take the suitable decision.

EVALUATION OF A(LAB LIMITED T6ROUG6 RATIO

29

COM(ANY (ROFILE T6E COM(ANY C A41A, 1imited is a professionally managed 4ublic 1imited company quoted on the ,ombay /tock 6$change. /ince its inception in 0ML2# A41A, has been serving the global market with wide range of electronic products meeting the international standards for safety and reliability such as E1# H56 etc. They speciali e in Test and Feasurement 6quipment# 4ower *onversion and E4/ /ystems# /elf+/ervice Terminals for ,anking /ector and Fuel 5ispensers for 4etroleum /ector. A41A, en"oys worldwide recognition for the quality of its products# business integrity and innovative engineering skills.

ABOUT A(LAB: Aplab started its operation in October 0ML2.

30

 !t is a professionally managed >: years old public limited company. !t is quoted on ,OF,A- /TO*N 6O*.AD76. !t serves customer global customer par e$cellence. !t speciali ed in Test ; measurement instruments# power conversion# ; E4/ ; fuel dispensers for petroleum sector. !t en"oys worldwide recognition for the quality of its business integrity ; innovative engineering skills. MISSION: To deliver high quality# carefully# engineered products# on time# with in budget# as per the customer specification in a manner profitable to both# our customers ; so to us. VISION: To be a global player# recogni ed for quality ; integrity. To be the TO4 !D5!AD *OF4AD- as conceived by our customers. To be ' T.6 ,6/T ( company to work for# as rated by our employees. GOAL: 7oal at Aplab is e$tract ordinary customer service as we provide our customer needs in the personal service industry. COR(ORATE MISSION C 0@ To achieve healthy and profitable growth of the company in the interest of our customers ; the shareholders. 2@ To encourage teamwork# reward innovation and maintain healthy interpersonal relations within the organi ation.

31

3@ To e$pand knowledge and remain at the leading edge in technology to serve the global market. >@ To understand the customerBs needs and provide solutions than merely selling products. <@ To create intellectual capital by investing in hardware and embedded software development. VALUES ; BELIEFS: Their values ; beliefs required that they + Treat employees with respect ; give them an opportunity for input on how to continuously improve their service goals. Offer opportunities for growth# professional development ; recognition. 4rovide most effective ; corrective action# to resolve customer service issues# to ensure customer satisfaction. Foster an open door policy# which encourages interaction# discussion ; ideas to improve work environment ; increase productivity. ' 5o it right the first time ; every time( is their team commitment P our way of doing business# it ensures as growth ; prosperity. T6E *)ST CENTURY SUCCESS C A41A, had planned to enter the 20st *entury with a program for a fast and healthy growth in the global market based on companyBs high technology foundation and the reputation of four decades for prompt customer service and as a reliable solution provider. After completing three years in the new era# we can say with pride that we have been delivering our promises to our customers and the shareholders. A41A, has entered the field of 4rofessional /ervices starting with the ,anking and the 4etroleum !ndustry. Focus on developing embedded system software has been

32

also enhanced. )e believe that professional services sector is poised to grow at a very rapid pace. .UALITY IS OUR AOR> CULTURE - ISO E::):*::: Guality at A41A, is a part of our peopleBs attitude. 6ntire organi ation is committed to create an environment that encourages individual e$cellence and a personal commitment to quality. !n A41A,# 'Guality is everybodyBs responsibility( and all strive to 'do it right the first time(. !t is therefore natural that A41A, 1imited is certified for quality with !/O M::0=2::: registration. .UALITY (OLICY: Aplab will deliver to its customer products ; services that consistently meet or e$ceed their requirement. Aplab will achieve this by total commitment ; involvement of every individual. Aplab will encourage its employees ; suppliers to develop quality products prevent defects ; make continual improvement in all processes. .UALITY OBJECTIVE: Aplab is an !/O M::0=2::: certifies company. 0::A customer satisfaction. On time delivery every time reduction is out going 44F to 0:#::: ?> sigma@

33

%6/6A%*. AD5 56H61O4F6DT 5eveloping innovative products with the latest technology is the core strength of A41A,. The /cience ; Technology Finistry of the 7ovt. of !ndia accredits our %;5 1aboratories. )e have a large team of dedicated# highly qualified skilled engineers who e$cel in the latest state+of+the+art+technology. A41A, is recogni ed not only for manufacturing standard products but also in providing solutions and services as per the customer specifications. )e spend more than >A of the company revenue in %esearch ; 5evelopment activities. /pecific areas in which the company carries out %;5 0. 5evelopment of new product especially hi+tech intelligent product ; electronic transaction control system. 2. !mprovement in the e$isting products ; production processes# import substitution. 3. 5evelopment of products to suit e$ports markets. >. *ustomi ing the products to the customerBs specifications ; adaptation of imported technology. The company has achieved its position of leadership in the !ndian instrumentation industry ; continuous to maintain it through its strong grip of technology. Almost all the products manufactured by the company are import substitution items# which are fully developed in house. !t has resulted in considerable saving of foreign e$change. )ith the company# %;5 is an ongoing process. The ministry of science ; technology# 7overnment of !ndia# recogni es the companyBs %;5. Through a continuous interaction with production; Guality Assurance 5epartment takes up redesign of e$isting products. This is done to achieve state of the art in our design ; to bring about improvement to get ma$imum performance 8 cost ratio. FUTURE (LAN OF ACTION Fa"or %;5 activity is concentrated around up gradation of product design ; re+ alignment of production processes to bring about improved quality at lower cost. This

34

will greatly help the company in facing competition in local markets from foreign companies. 6O4O%T A41A, currently e$ports over 2<A of its production to )estern 6urope# *anada ; E/A. Over 3: million E./. 5ollars worth of 4ower /ystems and Test !nstruments from A41A, are today operational in EN# 7ermany# France# /weden# ,elgium# *anada# and E/A ; Australia.

A(LABFS ORGANISATION C6ART E?ECUTIVE C6AIRMAN

35

MANAGING DIRECTOR DIRECTOR GTEC6NICAL - (E" GENERAL MANAGER MAE>ETING DIRECTOR REGIOAL HEAD: MUMBAI NEWDELHI SECUNDARABAD BANGLORE CHENNAI

FINANCE MANAGER

GHM (RODH ; DESIGN

GHMH MAR>ETING

MATERIAL MANAGER

GHMH ELTRAC (RODH

GHMH DESIGN ; DEVLO(MENT

OFFICERS STAFF AOR>ERS

(RODUCTS OF A(LAB: a. T6/T ; F6A/E%6F6DT !D/T%EF6DT/

36

b. .!7. 4O)6% A* /-/T6F/ (E4/# Frequency *onverter# !nverter# !solation Transformer) c. .!7. 4O)6% 5* /-/T6F/ (5* 4ower /upply# 5* Eninterruptible 4ower /upply) d. ATF !D/TA*A/. e 4O)6% /E441!6/# A*+5* 4O)6% /E441-# 5*85* *ODH6%T6%/# /F4/# !DH6%T6%/# /TA,!1!Q6%# 1!D6 *OD5!T!OD6%# !/O1AT!OD T%AD/FO%F6% ATM INSTACAS6 The ,anking Automation 5ivision of A41A, was launched in 0MM3# when we introduced !D/TA*A/.+!ndiaBs first indigenously manufactured ATF !D/TA*A/. demonstrated A41A,Bs skills in design# hardware manufacturing and software integrations. Our in house %;5 group is constantly striving to scan the rapidly changing technology and offer suitable end to end solutions. )e are into /elf /ervice 5elivery /ystems# F!*% *heque 4rocessing and /mart *ard based solutions. The latest is !FA766DA,165 *heque 4rocessing solution+ GE!*N*16A%.

A(LAB LIMITED
BALANCE S6EET AS AT +)ST MARC6 *::I (%/.B:::) AS AT +)ST *::* AS AT +)ST *::I SOURCES OF FUNDS S6ARE6OLDERS FUND 37

/hare capital %eserves and surplus LOANS /ecured Ensecured DEFFERED TA? LIABILITY <NET= TOTA1 A((LICATION OF FUNDS FI?ED ASSETS 7ross block 1ess= depreciation Det block *apital work in progress INVESTMENT CURRENT ASSESTSJ LOANS ; ADVANCES !nventories /undary debtors *ash ; bank balances 1oan ; advances CURRENT LIABLITIES ; (ROVISIONS *urrent liabilities 4rovisions NET CURRENT ASSESTS MISCELLANEOUS E?(ENDITURE Tota

<#::#:: 0L#2M#LM 20#2M#LM 02#03#>R 3#LS#MM 0<#R0#>S 0#:L#R< +IJ)IJ:)

0<#M:#33 0:#32#ML <#<S#3S <>#3L L#00#S3 )J**J+*

0M#:M#SS 0R#>M#3< 3#30#32 <#R:#3L >L#S:#R:

0<#3L#:M <S#<S 0<#M3#LL 3:#SS#0> L#R> +I)IJ:)

(ROFIT ; LOSS ACCOUNT FOR T6E ENDED +)ST MARC6 *::I (%/.B:::) A/ AT 30+3+ 2::2 AS AT +)-+-*::I INCOME: /ales and operating earnings Other income Hariation in stock 38 >R#0M#0M R:#<: 0#30#:S

3:J+:JKD E?(ENCES: Faterials consumed 4urchase of trading goods 4ayments to ; provision for employees Fanufacturing e$penses 6$cise duty Other e$penses !nterest ; finance charges 5epreciation 1ess= transferred to revaluation (ROFIT BEFORE TA? (RIOR YEAR ADJUSTMENT <NET= (ROVISION FOR TA?ATION *urrent ta$ 5eferred ta$ liability 8 (Assets) (ROFIT AFTER TA? ,alance brought forward from previous year Ba ance a0ai a, e %or a##ro#riation A##ro#riations: 7eneral reserve /urplus 8 (loss) carried to ,8/ 4roposed dividend Ta$ on proposed dividend Basic earnin' #er s/are <r$#ee= :H2) :H2) 0R#MS#2R R#L0#S< M#M<#:> 2#20#3S L<#:< <#SL#S0 2#L:#22 0#:<#3S 0#0< 0#:>#22 2EJI)JD2 >M#02

2>#>2 >#:2 *:JDI 0 *:JDE

2:#LR 0

*:JDE

BALANCE S6EET AS AT +)ST MARC6 *::E (%/.B:::) AS AT +)-+- *::+ AS AT +)-+- *::E SOURCES OF FUNDS S6ARE6OLDERS FUND /hare capital %eserves and surplus 39

<#::#:: 0L#<<#0M

20#<<#0M LOANS /ecured Ensecured DEFFERED TA? LIABILITY <NET= TOTA1 A((LICATION OF FUNDS FI?ED ASSETS 7ross block 1ess= depreciation Det block *apital work in progress INVESTMENT CURRENT ASSESTSJ LOANS ; ADVANCES !nventories /undary debtors *ash ; bank balances 1oan ; advances CURRENT LIABLITIES ; (ROVISIONS *urrent liabilities 4rovisions NET CURRENT ASSESTS MISCELLANEOUS E?(ENDITURE TOTA1 0:#2S#<< >#<3#0L 0>#R:#S0 RS#20 +KJ*+J))

0S#>:#MS 00#>:#M3 L#::#:> 2M#S> L#2M#SR 0#>S#2L

0M#:2#SM 0M#:<#SL 3#M<#2< R#MR#L2 <0#:2#>2

2:#>0#<L 0#2:#SL 20#L2#32 2M#>:#0: <#MS +KJ*+J))

(ROFIT ; LOSS ACCOUNT FOR T6E ENDED +)ST MARC6 *::E (%/.B:::) A/ AT 30+3+ 2::3 AS AT +)-+- *::E INCOME: /ales and operating earnings Other income Hariation in stock E?(ENCES: 40 <M#L2#22 0<#:> (<M#2S) 3EJ)KJEE

Faterials consumed 4urchase of trading goods 4ayments to ; provision for 6mployees Fanufacturing e$penses 6$cise duty Other e$penses !nterest ; finance charges 5epreciation 1ess= transferred to revaluation (ROFIT BEFORE TA? (RIOR YEAR ADJUSTMENT <NET= (ROVISION FOR TA?ATION *urrent ta$ 5eferred ta$ liability 8 (Assets) (ROFIT AFTER TA? ,alance brought forward from previous year Ba ance a0ai a, e %or a##ro#riation A##ro#riations: 7eneral reserve /urplus 8 (loss) carried to ,8/ 4roposed dividend Ta$ on proposed dividend Basic earnin' #er s/are <r$#ee=

22#>0#L: 0:#3S#<2 0:#L3#ML 2#LM#MM S2#LM S#L2#23 2#3L#<S 0#:S#MS 0#:3 0#:L#M> 3KJE)J3: 0#2L#>M

L3#0M (0M#L>) R2#M> 0 I*JE3

2L#<: > <:#:: L#>0 I*JE3 )HDD

BALANCE S6EET AS AT +)ST MARC6 *:): (%/.B:::) AS AT +)-+- *::2 AS AT +)-+- *:): SOURCES OF FUNDS S6ARE6OLDERS FUND /hare capital %eserves and surplus LOANS /ecured Ensecured 41

<#::#:: 0S#>2#<M 22#>2#<M 00#3R#RL <#<R#2M

DEFFERED TA? LIABILITY <NET= TOTA1 A((LICATION OF FUNDS FI?ED ASSETS 7ross block 1ess= depreciation Det block *apital work in progress INVESTMENT CURRENT ASSESTSJ LOANS ; ADVANCES !nventories /undary debtors *ash ; bank balances 1oan ; advances CURRENT LIABLITIES ; (ROVISIONS *urrent liabilities 4rovisions NET CURRENT ASSESTS TOTA1

0L#MS.0< M<#33 2:J+3J:K

0R#>0#<R 02#>:#:3 L#:0#<< 0<#2M L#0L#R> 0#>R#3>

20#>L#2: 0M#<0#<L >#>M#S> R<:#<R <3#MR#:R

0R#0L#0S 3#02#:2 20#2R#0M 32#LM#RM 2:J+3J:K

(ROFIT ; LOSS ACCOUNT FOR T6E ENDED +)ST MARC6 *:): (%/.B:::) A/ AT 30+3+ 2::> AS AT +)-+-*:): INCOME: /ales and operating earnings Other income Hariation in stock E?(ENCES: Faterials consumed 4urchase of trading goods S3#M:#>S 30#3M <3#MM K2JK3JI3 2R#<0#>: 0>#:3#33

42

4ayments to ; provision for employees Fanufacturing e$penses 6$cise duty Other e$penses !nterest ; finance charges 5epreciation 1ess= transferred to revaluation (ROFIT BEFORE TA? (RIOR YEAR ADJUSTMENT <NET= (ROVISION FOR TA?ATION *urrent ta$ 5eferred ta$ liability 8 (Assets) (ROFIT AFTER TA? ,alance brought forward from previous year Ba ance a0ai a, e %or a##ro#riation A##ro#riations: 7eneral reserve /urplus 8 (loss) carried to ,8/ 4roposed dividend Ta$ on proposed divident Basic earnin' #er s/are <r$#ee=

02#M>#>S 3#:S#<0 S:#:R M#0S#M> 2#>L#3: 0#0:#RM M3 0#:M#ML S2#::#MM 2#S>#RL 2<#S0 0#0M#<: R#03 0S2M> > )JK*JEI

RR#3: S S<#:: M#L0 )JK*JEI +H2D

BALANCE S6EET AS AT +)ST MARC6 *:)) (%/.B:::) AS AT +)-+- *::3 AS AT +)-+- *:)) SOURCES OF FUNDS S6ARE6OLDERS FUND /hare capital %eserves and surplus LOANS /ecured Ensecured DEFFERED TA? LIABILITY <NET= TOTA1 43

<#::#:: 0M#0>#M0 2>#0>#M0 0S#23#02 <#3L#RM 22#L:#:0 M2#:2 >S#LL#M>

A((LICATION OF FUNDS FI?ED ASSETS 7ross block 1ess= depreciation Det block *apital work in progress INVESTMENT CURRENT ASSESTSJ LOANS ; ADVANCES !nventories /undary debtors *ash ; bank balances 1oan ; advances CURRENT LIABLITIES ; (ROVISIONS *urrent liabilities 4rovisions NET CURRENT ASSESTS TOTA1

20#L>#RM 03#>3#:< R#20#R> + R#20#R> 2#32#M0

0M#32#RR 23#:L#LS L#:>#L> 0:#:>#:2 <R#>R#20

0L#<<#0< >#R:#RS 20#3L#:2 3S#02#0M >S#LL#0M

(ROFIT ; LOSS ACCOUNT FOR T6E ENDED +)ST MARC6 *:)) (%/.B:::) A/ AT 30+3+ 2::< AS AT +)-+ *:)) INCOME: /ales and operating earnings Other income Hariation in stock E?(ENCES: Faterials consumed 4urchase of trading goods 4ayments to ; provision for employees Fanufacturing e$penses 6$cise duty Other e$penses 44 S>#2:#30 >0#LM (3R#><) S>#23#<< 2<#M0#R3 0<#20#:: 03#<>#0< 2#S0#>0 S<#>0 R#>>#SR

!nterest ; finance charges 5epreciation 1ess= transferred to revaluation (ROFIT BEFORE TA? (RIOR YEAR ADJUSTMENT <NET= (ROVISION FOR TA?ATION *urrent ta$ 5eferred ta$ liability 8 (Assets) (ROFIT AFTER TA? ,alance brought forward from previous year Ba ance a0ai a, e %or a##ro#riation A##ro#riations: 7eneral reserve /urplus 8 (loss) carried to ,8/ 4roposed dividend Basic earnin' #er s/are <r$#ee=

2#0<#R2 0#2L#LR R> 0#2<#R> S:#::#2> >#23#30

0#<:#R> (3#30) 2#S<#SR S *JK3JI3

0#S3#2: 3 M:#:: *JK3JI3 3H3*

CALCULATIONS AND INTER(RETATION OF RATIOFS )" CURRENT RATIO:

For&$ a: C$rrent assets C$rrent ratio 4 C$rrent ia,i ities YEAR C$rrent assets C$rrent ia,i ities C$rrent ratio COMMENTS: *::)-*::* >L#S:#R: 0<#M3#LL 2.M3 *::*-*::+ <0#:R#3M 20#L2#32 2.3L *::+-*::2 <3#MR#:R 20#2R#0M 2.<3 *::2 -*::3 <R#2R#20 20#3L#:2 2.S2

45

!n Aplab company the current ratio is 2.S2=0 in 2::>+2::<. it means that for one rupee of current liabilities# the current assets are 2.S2 rupee are available to the them. !n other words the current assets are 2.S2 times the current liabilities. Almost > years current ratio is same but current ratio in 2::>+2::< is bit higher# which makes company more sound. The consistency increase in the value of current assets will increase the ability of the company to meets its obligations ; therefore from the point of view of creditors the company is less risky. The available working capital with the company is in increasing order. 2::0+2::2 + 3:#SS#0> 2::2+2::3 + 2M#>L#:S 2::3+2::> + 32#LM#RM 2::>+2::< + 3L#M2#0M The company has sufficient working capital to meets its urgency8 obligations. A company has a high percentage of its current assets in the form of working capital# cash that would be more liquid in the sense of being able to meet obligations as ; when they become due. From this working capital# the company meets its day+to+day financial obligations. Thus# the current ratio throws light on the companyBs ability to pay its current liabilities out of its current assets. The Aplab *ompanyBs has a very good liquidity position of company.

*" LI.UID RATIO:

For&$ a: .$ic5 assets Li1$i- ratio 4 .$ic5 ia,i ities YEAR .$ic5 assets .$ic5 ia,i ities Li1$i- ratio *::)-*::* 20#R:#LS 0<#M3#LL 0.3L *::*-*::+ 23#:0#:0 20#L2#32 0.:L *::+-*::2 2>#:0#3: 20#2R#0M 0.02 *::2 -*::3 2M#00#30 20#3L#:2 0.3L

46

COMMENTS: The liquid or quick ratio indicates the liquid financial position of an enterprise. Almost in all > years the liquid ratio is same# which is better for the company to meet the urgency. The liquid ratio of the Aplab *ompany has increased from 0.02 to 0.3L in 2::>+2::<. 5ay to day solvency is more sound for company in 2::>+2::< over the year 2::3+2::>. This indicates that the dependence on the short+term liabilities ; creditors are less ; the company is following a conservative working capital policy. 1iquid ratio of *ompany is favorable because the quick assets of the company are more than the quick liabilities. The liquid ratio shows the companyBs ability to meet its immediate obligations promptly.

+" (RO(RIETORY RATIO:

For&$ a: (ro#rietar! %$n(ro#rietar! ratio 4 Tota %$nS/are/o -ers %$n(ro#rietar! ratio 4 Fi@e- assets 7 c$rrent ia,i ities OR

YEAR (ro#rietar! %$nTota %$n(ro#rietar! ratio COMMENTS:

*::)-*::* 20#2M#LM <2#R2#<3 >:

*::*-*::+ 20#<<#0M <S#3R#0S 3S.<<

*::+-*::2 22#>2#<M LL#0>#M2 33.M:

*::2 -*::3 2>#0>#M0 LL#S:#:< 3L.2:

The 4roprietary ratio of the company is 3L.2:A in the year 2::>+2::<. !t means that the for every one rupee of total assets contribution of 3L paise has come from owners fund ; remaining balance LL paise is contributed by the outside creditors. This shows that the contribution by outside to total assets is more than the owners fund. This 4roprietary ratio of the *ompany shows a downward trend for the last > years. As the

47

4roprietary ratio is not favorable the *ompanyBs long+term solvency position is not sound.

2" STOC> AOR>ING CA(ITAL RATIO:

For&$ a: Stoc5 Stoc5 Bor5in' ca#ita ratio 4 Aor5in' Ca#ita YEAR Stoc5 Aor5in' Ca#ita Stoc5 Bor5in' ca#ita ratio COMMENTS: This ratio shows that e$tend of funds blocked in stock. The amount of stock is increasing from the year 2::0+2::2 to 2::3+2::>. .owever in the year 2::>+2::< it has declined to <2A. !n the year 2::>+2::< the sale is increased which affects decrease in stock that effected in increase in working capital in 2::>+2::<. !t shows that the solvency position of the company is sound. *::)-*::* 0M#:M#SS 3:#SS#0> L2.:L *::*-*::+ 0M#:2#SM 2M#>L#:S L>.<R *::+-*::2 20#>L#2: 32#LM#RM L<.L3 *::2 -*::3 0M#32#RR 3S#02#0M <2.:L

3" CA(ITAL GEARING RATIO:

For&$ a: (re%erence ca#ita 7 sec$re- oan

Ca#ita 'earin' ratio 4

E1$it! ca#ita ; reser0e ; s$r# $s

YEAR Sec$re- oan E1$it! ca#ita ; reser0es ; s$r# $s Ca#ita 'earin' ratio

*::)-*::* 02#03#>R 20#2M#LM <L.MS

*::*-*::+ 0:#2S#<L 20#<<#0M >S.LS

*::+-*::2 00#3R#RL 22#>2#<M <:.SR

*::2 -*::3 0#S2#302 2#>0#>M0 S0

48

COMMENTS: 7earing means the process of increasing the equity shareholders return through the use of debt. *apital gearing ratio is a leverage ratio# which indicates the proportion of debt ; equity in the financing of assets of a company. For the last 3 years ?i.e.2::0+2::2 TO 2::3+2::>@ *apital gearing ratio is all most same which indicates# near about <:A of the fund covering the secured loan position. ,ut in the year 2::>+2::< the *apital+gearing ratio is S0A. !t means that during the year 2::>+2::< company has borrowed more secured loans for the companyBs e$pansion.

D" DEBT E.UITY RATIO:

For&$ a: Tota on' ter& -e,t De,t e1$it! ratio 4 Tota s/are/o -ers %$nYEAR Lon' ter& -e,t *::K-*::I 0<#R0#>S *::I-*::E 0>#R:#S: 20#<<#0M :.LR *::E-*::): 0L#MS#0< 22#>2#<M :.S< *:): -*:)) 22#L:#:0 2>#0>#M0 :.M3

S/are/o -ers 20#2M#LM %$nDe,t E1$it! Ratio :.S> COMMENTS:

The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company. !t e$presses the relation between the e$ternal equities ; internal equities. This ratio is very important from the point of view of creditors ; owners. The rate of debt equity ratio is increased from :.S> to :.M3 during the year 2::0+ 2::2 to 2::>+2::<. This shows that with the increase in debt# the shareholders fund also increased. This shows long+term capital structure. The lower ratio viewed as favorable from long term creditors point of view.

K" GROSS (ROFIT RATIO:

49

For&$ a: Gross #ro%it Gross #ro%it ratio 4 Net sa es 9 )::

YEAR Gross #ro%it Net sa es Gross #ro%it Ratio

*::)-*::* 2>#<>#>R >3#><#>L <L.>R

*::*-*::+ 3S#L<#M: <0#:2#3S S3.R:

*::+-*::2 ><#<S#>< LR#SL#RM LL.2S

*::2 -*::3 >2#3S#<2 LR#:M#SR L2.22

7ross profit %atio R: L: >: 2: : 2::0+ 2::2 2::2+ 2::3 2::3+ 2::> 2::> + 2::< 7ross profit %atio

COMMENTS: The gross profit is the profit made on sale of goods. !t is the profit on turnover. !n the year 2::0+2::2 the gross profit ratio is <L.>RA. !t has increased to S3.R:A in the year 2::2+2::3 due to increase in sales without corresponding increase in cost of goods sold. .owever the gross profit ratio decreased to LL.2SA in the year 2::3+2::>. !t is further declined to L2.22A in the year 2::>+2::<# due to high cost of purchases ; overheads. Although the gross profit ratio is declined during the year 2::2+ 2::3 to 2::>+2::<. The net sales and gross profit is continuously increasing from the year 2::0+2::2 to 2::>+2::<.

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I" O(ERATING RATIO:

For&$ a: COGS7 o#eratin' e@#enses

O#eratin' ratio 4
Net sa es YEAR COGS 7 O#eratin' e@#enses Net sa es O#eratin' ratio *::)-*::* 0R#M:#MR T 2#20#3S T <#SL#S0 >3#><#>L L0.RRA *::*-*::+ 20#ML#32 T 2#LM#MR T S#L2#23 <0#:2#3S L3.2SA

9)::
*::+-*::2 2R#33#:2 T 3#:S#<0 T M#0S#M> LR#SL#RM <MA *::2 -*::3 2#<S#22LT 2S#0>0T R>#>SR L#R:#MSR <>.0LA

COMMENTS: The operating ratio shows the relationship between costs of activities ; net sales. Operating ratio over a period of > years when compared that indicate the change in the operational efficiency of the company. The operating ratio of the company has decreased in all > year. This is due to increase in the cost of goods sold# which in 2::0+2::2 was L0.RRA# in 2::2+2::3 was L3.2SA# in 2::3+2::> was <MA ; in 2::>+2::< it is <>.0LA. though the cost has increased in 2::2+2::3 as compared to 2::0+2::2# it is reducing continuously over the ne$t two years# indicate downward trend in cost but upward 8 positive trend in operational performance. E" E?(ENSE RATIO: The ratio of each item of e$pense or each group of e$pense to net sales is known as I6$pense ratioB. The e$pense ratio brings out the relationship between various elements of operating cost ; net sales. 6$pense ratio analy es each individual item of e$pense or group of e$pense; e$presses them as a percentage in relation to net sales. A" MANUFACTURING E?(ENSES: For&$ a:

51

Man$%act$rin' e@#enses Man$%act$rin' e@#ense ratio 4 Net sa es YEAR Man$%act$rin' e@#enses Net sa es Man$%act$rin' e@#enses ratio *::)-*::* 2#20#3S >3#><#>L <A *::*-*::+ 2#LM#MR <0#:2#3S <.2MA *::+-*::2 3#:S#<0 LR#SL#RM >.>SA 2004 -2005 2!71!41 68!09!78 3 98" 9)::

COMMENTS: The manufacturing e$pense is shows the downward trend. 5uring the year 2::092::2 to 2::2+2::3 the manufacturing e$pense increased because there is increase in the charges like labour# rent # power ; electricity# repair to plant ; machinery ; miscellaneous works e$penses. The manufacturing e$pense during the year 2::0+ 2::2 to 2::>+2::< is decreased from <A to 3.MLA. This indicates that the company has control over the manufacturing e$pense. B" OT6ER E?(ENSES: For&$ a: Ot/er e@#enses Ot/er e@#ense ratio 4 Net sa es YEAR Ot/er e@#enses Net sa es Ot/er e@#enses ratio *::)-*::* <#SL#S0 >3#><#>L 03.2A *::*-*::+ S#L2#23 <0#:2#3S 0>.M3A *::+-*::2 M#0S#M> LR#SL#RM 03.3>A *::2 -*::3 R#>>#SR 68!09!78 02.>:A 9)::

COMMENTS:

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The other e$pense of company is increased during the 2::0+2::2 to 2::3+2::># because increase in the charges of rent of office# equipment lease rental# printing ; stationary# advertisement ; publicity# transport outward ; other charges. ,ut during the year 2::>+2::< the other e$penses is decrease from 03.3>A to 02.>:A. ,ecause decrease in equipment lease rental# advertisement ; publicity# transport charges# commission ; discount# sales ta$ ; purchase ta$ . This indicates that the company also controlling the other e$penses.

):= NET (ROFIT RATIO

For&$ a: N(AT Net #ro%it ratio 4 Net sa es YEAR N(AT Net sa es Net #ro%it ratio *::)-*::* 2:#MR >3><>L :.>R *::*-*::+ R2#M> <0#:2#3S 0.L *::+-*::2 0#S2#M> LR#SL#RM 2.< *::2 -*::3 2#S<#SR LR#:M#SR >.:> 9 )::

NET (ROFIT
< > 3 2 0 : 2::0+2::2 2::2+2::3 2::3+2::> 2::>+2::<

COMMENTS:

53

The net profit ratio of the company is low in all year but the net profit is increasing order from this ratio of > year it has been observe that the from 2::0+2::2 to 2::>+2::< the net profit is increased i.e. in 2::3 it is increased by 0.02 in 2::3+2::> by :.M ; in 2::>+2::< by 0.<>. 4rofitability ratio of company shows considerable increase. *ompanyBs sales have increased in all > years ; at the same time company has been successful in controlling the e$penses i.e. manufacturing ; other e$penses. !t is a clear inde$ of cost control# managerial efficiency ; sales promotion.

))" STOC> TURNOVER RATIO:

For&$ a: COGS Stoc5 T$rno0er Ratio 4 A0era'e stoc5 YEAR COGS A0era'e stoc5 Stoc5 T$rno0er Ratio COMMENTS: /tock turnover ratio shows the relationship between the sales ; stock it means how stock is being turned over into sales. The stock turnover ratio is 2::0+2::2 was 3.> times which indicate that the stock is being turned into sales 3.> times during the year. The inventory cycle makes 3.> round during the year. !t helps to work out the stock holding period# it means the stock turnover ratio is 3.> times then the stock holding period is 3.< months ?0283.>U3.<months@. This indicates that it takes 3.< months for stock to be sold out after it is produced. *::)-*::* 0R#M:#MR <#>M#M: 3.> *::*-*::+ 20#ML#32 <#MS#<R 3.L *::+-*::2 2R#33#:2 L#S3#00 >.2: *::2 -*::3 2<#S2#2L L#RM#3: 3.S3

54

For the last > years stock turnover ratio is lower than the standard but it is in increasing order. !n the year 2::0+2::2 to 2::>+2::< the stock turnover ratio has improved from 3.> to 3.S3 times# it means with lower inventory the company has achieved greater sales. Thus# the stock of the company is moving fast in the market.

)*" RETURN ON CA(ITAL EM(LOYED:

For&$ a: N(AT

Ret$rn on ca#ita e&# o!e- 4

YEAR N(AT Ca#ita e&# o!eRet$rn on ca#ita e&# o!eCOMMENTS: *::)-*::* 2:#LR 3R#0R#:0 :.<>

9)::
Ca#ita e&# o!e*::*-*::+ *::+-*::2 R2#M> 0#S2#M> 3S#23#00 >:#3<#:S 2.23 >.2R *::2 -*::3 2#S<#SR >S#LL#M3 <.SM

The return on capital employed shows the relationship between profit ; investment. !ts purpose is to measure the overall profitability from the total funds made available by the owner ; lenders. The return on capital employed of %s.< indicate that net return of %s.< is earned on a capital employed of %s.0::. this amount of %s.< is available to take care of interest# ta$#; appropriation. The return on capital employed is show+increasing trend# i.e. from :.<> to <.SM. All of sudden in 2::0+2::2 the return on capital employed increased from :.<> to <.SM. This indicates a very high profitability on each rupee of investment ; has a great scope to attract large amount of fresh fund.

)+" EARNING (ER S6ARE:

For&$ a: N(AT

Earnin' #er s/are 4

N$&,er o% e1$it! s/are

55

YEAR N(AT NoHo%e1$it! s/are Earnin' #er s/are COMMENTS:

*::)-*::* 2:#MR#::: <:#::#::: :.>0

*::*-*::+ R2#M>#::: <:#::#::: 0.LL

*::+-*::2 0#S2#M>#::: <:#::#::: 3.>L

*::2 -*::3 2#S<#SR#::: <:#::#::: <.<2

6arning per share is calculated to find out overall profitability of the company. 6arning per share represents the earning of the company whether or not dividends are declared. The 6arning per share is <.<2 means shareholder gets %s. <.<2 for each share of %s. 0:8+. !n other words the shareholder earned %s. <.<2 per share. The net profit after ta$ of the company is increasing in all years. Therefore the shareholders earning per share is increased continuously from 2::0+2::2 to 2::>+2::< by :.>0 to :<.<2. This shows it is continuous capital appreciation per unit share by :.>0 to :<.<2.

The above diagram shows the 6arning per share and 5ividend per share is increasing rapidly. !t is beneficial to the shareholders and prospective investor to invest the money in this company.

)2" DIVIDEND (AYOUT RATIO:

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For&$ a: Di0i-en- #er s/are

Di0i-en- (a! o$t ratio 4

Earnin' #er s/are YEAR Di0i-en#er s/are Earnin' #er s/are Di0i-en- #a!o$t ratio COMMENTS: *::)-*::* + :.>0 + *::*-*::+ 0 0.LL L:.2>

9 )::
*::+-*::2 0.<: 3.>L >3.3< *::2 -*::3 0.R: <.<2 32.L:

!n the year 2::2+2::3 and 2::3+2::> the 5ividend pay out ratio is L:.2> and >3.3< respectively. !n the year 2::2+2::3 the company has declared the dividend L:.2> and the balance 3M.SL is retained with them for the e$pansion. The company has not earned more profit in the year 2::0+2::2 hence the company has not declared dividend in the year 2::0+2::2. .owever the company has declared more dividends in the year 2::2+2::3 as the company has sufficient profit. !n the year 2::> the company has declared 0.<: dividends per share hence the earning per share has doubled. From this one can say that the company is more conservative for e$pansion.

)3" COST OF GOODS SOLD:

For&$ a: COGS Cost o% 'oo-s so - Ratio 4 Net sa es YEAR COGS Net sa es Cost o% so - ratio *::)-*::* 0R#M:#MR >3#><#>L 'oo-s >3.<0 *::*-*::+ 20#ML#32 <0#:2#3S >3.:> *::+-*::2 2R#33#:2 LR#SL#RM >0.0M *::2 -*::3 2<#S2#2L LR#:M#SR 3S.SS 9 )::

COMMENTS: This ratio shows the rate of consumption of raw material in the process of production. !n the year 2::0+2::2 the cost of goods sold ratio is >3.<0A so the gross 57

profit is <L.>MA. it indicates that in 2::0+2::2# the >3A of raw material is consumed in the process of production. 5uring the last > years the rate of cost of goods sold ratio is continuously decreasing however the gross profit ; sales is increased during the same period.

)D" CAS6 RATIO:

For&$ a: Cas/ 7 Ban5 7 Mar5eta, e sec$rities Cas/ ratio 4 Tota c$rrent ia,i ities YEAR Cas/ 7 Ban5 7 Mar5eta, e sec$rities Tota c$rrent ia,i ities Cas/ ratio COMMENTS: This ratio is called as super quick ratio or absolute liquidity ratio. !n the year 2::0+2::2 the cash ratio is :.2: ; then it is decreased to :.0R in the year 2::2+2::3. Then again it is increased to :.20 in the year 2::3+2::> ; :.2R in the year 2::>+2::<. This shows that the company has sufficient cash# bank balance# ; marketable securities to meet any contingency. *::)-*::* 3#30#32 0<#M3#LL :.2: *::*-*::+ 3#M<#2< 20#L2#32 :.0R *::+-*::2 >#>M#S> 20#2R#0M :.20 *::2 -*::3 L#:>#L> 20#3L#:2 :.2R

)K" RETURN ON (RO(RIETORS FUND:

For&$ a: N(AT Ret$rn on #ro#rietors %$n- 4 (ro#rietors %$n9 )::

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YEAR N(AT (ro#rietors %$nRet$rn on #ro#rietors %$n-

*::)-*::* 2:#LR 20#2M#LM :.MS

*::*-*::+ R2#M> 20#<<#0M 3.R>

*::+-*::2 0#S2#M> 22#>2#<M S.S0

*::2 -*::3 2#S<#SR 2>#0>#M0 00.>0

COMMENTS: %eturn on proprietors fund shows the relationship between profits ; investments by proprietors in the company. !n the year 2::2+2::3 the return on proprietors fund is 3.R>A it means the net return of %s. 3 appro$imately is earned on the each %s. 0:: of funds contributed by the owners. 5uring the last > years the rate of return on proprietors fund is in increasing order. The return on proprietors fund during the year 2::0+2::2 to 2::>+2::< is increased from :.MSA to 00.>0A. !t shows that the company has a very large returns available to take care of high dividends# large transfers to reserve etc. ; has a great scope to attract large amount of fresh fund from owners.

)I" RETURN ON E.UITY:

For&$ a: N(AT Ret$rn on e1$it! s/are ca#ita 4 NoH o% e1$it! s/are YEAR N(AT NoH o% e1$it! s/are Ret$rn on e1$it! s/are ca#ita COMMENTS: This ratio shows the relationship between profit ; equity shareholders fund in the company. !t is used by the present 8 prospective investor for deciding whether to purchase# keep or sell the equity shares. *::)-*::* 2:#LR 50!000 4 13 *::*-*::+ R2#M> 50!000 16 5 *::+-*::2 0#S2#M> 50!000 34 58 *::2 -*::3 2#S<#SR 50!000 55 9 )::

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!n the year 2::2+2::3 the return on proprietors fund is 0L.<A# which means the net return of %s. 0L# is earned on the each %s.0:: of the funds contributed by the equity shareholders. The rate of return on equity share capital is increased from>.03A to <<A during the year 2::0+2::2 to 2::>+2::<. This shows that the company has a very large returns available to take care of high equity dividend# large transfers to reserve# ; also company has a great scope to attract large amount to fresh funds by issue of equity share ; also company has a very good price for equity shares in the ,/6.

)E" O(ERATING (ROFIT RATIO:

For&$ a: O#eratin' #ro%it O#eratin' #ro%it ratio 4 Net sa es COMMENTS: Operating profit ratio shows the relationship between operating profit ; the sales. The operating profit is equal to gross profit minus all operating e$penses or sales less cost of goods sold and operating e$penses. The operating profit ratio of S.00A indicates that average operating margin of %s.S is earned on sale of %s. 0::. this amount of %s. S is available for meeting non operating e$penses. !n the other words operating profit ratio S.00A means that S.00A of net sales remains as operating profit after meeting all operating e$penses. 5uring the last > years the operating profit ratio is increased from S.00A to M.3RA. !t indicates that the company has great efficiency in managing all its operations of production# purchase# inventory# selling and distribution and also has control over the direct and indirect costs. Thus# company has a large margin is available to meet non+ operating e$penses and earn net profit. 9)::

*:" CREDITORS TURNOVER RATIO:

For&$ a:

60

Net cre-it #$rc/ase Cre-it t$rno0er ratio 4 A0era'e cre-itors

Mont/s in a !ear A0era'e a'e o% acco$nts #a!a, e 4 Cre-it t$rno0er ratio YEAR Net cre-it #$rc/ase A0era'e cre-itors Cre-it t$rno0er ratio A0era'e a'e o% acco$nts #a!a, e COMMENTS: The creditors turnover ratio shows the relationship between the credit purchase suppliers for the purchase made from them. The credit turnover ratio of ># indicate that the creditors are being turned over >times during the year. !t indicates the number of rounds taken by the credit cycle of payables during the year. There is no standard ratio in absolute term. The creditors ratio for the year 2::0+ 2::2 and 2::2+2::3 as good as the same# but it is increased by 3.L to > in 2::3+ 2::>.this means the company has settled the creditors dues very fastly than the previous year. DEBTORS TURNOVER RATIO: For&$ a: Cre-it sa es De,tors t$rno0er ratio 4 A0era'e -e,tors and average trade creditors. !t shows the speed with which the payments are made to the *::)-*::* 20#20#>3 <#RR#>2 3.L times 3.3 months *::*-*::+ 22#S0#R: S#M0#20 3.L times 3.3 months *::+-*::2 2M#:R#L0 L#ML#RL > times 3 months *::2 -*::3 2<#2M#:> S#R:#3M 3 times > months

61

Da!s in a !ear De,t co ection #erio- 4 De,torFs t$rno0er YEAR Cre-it sa es A0era'e -e,tors De,tors t$rno0er ratio De,t co ection #erioCOMMENTS: 5ebtorBs turnover ratio is alternative known as ' Accounts %eceivable Turnover %atio(. This ratio measures the collectibility of debtors ; other accounts receivable# it means the rate at which the trade debts are being collected. The 5ebtors turnover ratio of 2.< indicates that the debtors are being turned over 2.< times during the year. !t means that the credit cycle of debtors makes 2.< rounds during the year. !t helps to workout the debt collection period i.e. 0>L days ?3L<8 2.< U 0>L@. This indicates that it take0>L days on an average for the debtors to be settled. 5ebt collection period indicates the duration of the credit cycle of the debtors. The 5ebtors turnover ratio is almost same during the year 2::0+2::2 to 2::>+2::<# which indicates that the debts are being collected at a fast speed during the year. The operating cycle of the debtors is short. !n other words the debts collection period is short which result into less chance of bad debts. *::)-*::* >S#SS#>R 0R#>M#3< 2.< times 0>L days *::*-*::+ <<#20#33 0M#:<#SL 2.R times 03: days *::+-*::2 S>#RS#3L 0M#<0#<L 3.R times ML days *::2 -*::3 LR#:M#SR 23#:L#LS 2.M times 02< days

62

SUMMARY OF FINANCIAL (OSITION OF A(LAB LIMITED

After going through the various ratios# ! would like to state that= The short+term solvency of the company is quite satisfactory. !mmediate solvency position of the company is also quite satisfactory. The company can meet its urgent obligations immediately. *redit policies are effective. Over all profitability position of the company is quite satisfactory. /tock turnover rate is satisfactory. /tock of the company is moving fast in the market. The company is paying promptly to the suppliers. The return on capital employed is satisfactory.

The management should take care of inventory management and speed up the movement of stock. 6ffective selling technique or product modification may be adopted to face the competitors and to improve the financial position of the company by taking appropriate decisions.

63

CONCLUSION:
The focus of financial analysis is on key figures contained in the financial statements and the significant relationship that e$its. The reliability and significance attach to the ratios will largely on hinge upon the quality of data on which they are best. They are as good for as bad as the data it self. Financial ratios are a useful by product of financial statement and provide standardi ed measures of firms financial position# profitability and riskiness. !t is an important and powerful tool in the hands of financial analyst. ,y calculating one or other ratio or group of ratios he can analy e the performance of a firm from the different point of view. The ratio analysis can help in understanding the liquidity and short+term solvency of the firm# particularly for the trade creditors and banks. 1ong+term solvency position as measured by different debt ratios can help a debt investor or financial institutions to evaluate the degree of financial risk. The operational efficiency of the firm in utili ing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analy ed with the help of profitability ratios. .owever the ratio analyses suffers from different limitations also. The ratios need not be taken for granted and accepted at face values. These ratios are numerous and there are wide spread variations in the same measure. %atios generally do the work of diagnosing a problem only and failed to provide the solution to the problem.

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BIBLIOGRA(6Y
REFERENCE BOO>S C FINANCIAL MANAGEMENT Theory# *oncepts ; problems RH(HRUSTAGI FINANCIAL MANAGEMENT Te$t and problems MHYH >6AN AND (H >H JAIN MANAGEMENT ACCOUNTING AINA(URE FINANCIAL MANAGEMENT LHNH C6O(DE DHNH C6OUD6ARI SHLH C6O(DE ANAUAL RE(ORTS OF A(LAB LIMITED *::)-*::* *::*-*::+ *::+-*::2 *::2-*::3

AEBSIDES BBBH,iL-HacH$58co&#%act8ratio BBBHcec$ncHor'Hco&8,$siness8%inancia

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BBBHLero&i ionHco&H,$siness8%inancia

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