INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the process of identifying financial strengths and

weaknesses of the firm by properly establishing relationship between the balance
sheet and the profit and loss account.

There are various methods or techniques that are used in analyzing financial
statements, such as comparative statements, schedule of changes in working capital,
common size percentages, funds analysis, trend analysis, and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for
decision making purposes. They play a dominant role in setting the framework of
managerial decisions. But the information provided in the financial statements is not
an end in itself as no meaningful conclusions can be drawn from these statements
alone.

However, the information provided in the financial statements is of immense use in
making decisions through analysis and interpretation of financial statements.















1

DEFINITION

The financial statements provide a summary of the accounts of a business enterprise,
the balance sheet reflecting the asses, liabilities and capital as on a certain data and the
income statement showing the results of operations during a certain period.
John N. Myer

Define financial statements as, the end product of financial accounting in a set of
financial statements prepared by the accountant of a business enterprise. That purport
to reveal the financial position of the enterprise the result of it is recent activities, and
an analysis of what has been done with earnings.
Smith and Asburne

Financial statements, essentially, are interim reports presented annually and reflect a
division of the life of an enterprise into more or less arbitrary accounting period-more
frequently a year.
Anthony
















2

NEED OF THE STUDY

The project work is done for analyzing the financial position of the Reliance. The
analysis of the financial position gives a better picture of the financial position of the
organization in order to take better decisions. Financial management is very important
for both individuals and organizations because it deals with managing the funds. It
guides a company and individual to make optimum use of money to achieve
maximum returns. Financial analysis helps to an individual / organization to save
more and thus invest more.






















3

OBJECTIVES OF THE STUDY

To study the composition of assets and liabilities of the Reliance
To evaluate financial performance of Reliance life insurance.
To compare the profitability position of the company.
To analyze the liquidity position of the Reliance.
To know the credit worthiness position of the Reliance.
To evaluate the long term solvency position of the Reliance.




























4

SCOPE OF THE STUDY

The current study only moves around the financial statement analysis of the Reliance.
The present study concentrates only on the financial department of the Reliance with
the use of comparative balance statement and ratio analysis.
























5

RESEARCH METHODOLGY

Methodology is systematic procedure of collecting information in order to analyze
and verifying a phenomenon. The collection of data is done through two principle
source viz.

Primary Data
Secondary Data

Primary data

It is the information collected directly. In the study, it was mainly interviews with
concerned officer and staffs individually or collectively. This study does not include
any primary data.

Secondary data

The secondary data was collected from already published sources such as
Pamphlets. Annual reports and internal records. The data includes:

Collection of required data from annual reports of Reliance Life Insurance,
Reference from text books and journals relating to financial management and
articles published in business dairies like the Economic times, business line
etc.,







6

LIMITATIONS OF THE STUDY

The study is mainly based on the secondary data.
While computing ratios, averages and percentages the figures are appropriated
two Decimal places. Therefore sometimes the total may not exactly tally.
Only comparative, common-size statement and ratios analysis has been taken for
the study as a tool of financial and no other techniques is used.
The study is restricted to only 45 days.
The consideration period was limited to five years























7

INDUSTRY PROFILE

The Confederation of Indian Industry states that the insurance sector of the country
has been witnessing a consistent growth rate of late and its present worth is 41 billion
US dollars.
The industry has of late achieved a yearly growth rate within 32 and 34 percent and
this makes it the 5
th
best among emerging economies around the world. The various
entities of the industry are also bringing out newer products on a regular basis to
attract their customers.
As per rules, the upper limit of foreign direct investment permitted in this sector is 26
percent. However, this has to be done through the automatic route and the investor
needs a license from Insurance Regulatory and Development Authority (IRDA).

At present there are 22 life insurers in India. The IRDA has recently taken away the
tariffs of the interest rates and this has provided insurers greater independence when it
comes to deciding the price of their insurance policies. The insurance industry has
also become more competitive as a result.
Yet another important factor affecting this sector has been the recent financial
meltdown.

India insurance industry growth in last few years
The life insurance companies have performed the best when it comes to growth with
an increase of almost 70% in new premium that has been collected in the initial 5
months of 2012.

As per IRDA data, in April-August 2010 the insurance companies earned $11.73
billion in new premium - in the corresponding period in the previous year the amount
stood at 6.9 billion dollars.
8

LIC, a state held insurer, had been the biggest profit maker at that time with an
addition of 88% to their existing business. The privately owned insurers together had
seen a leap of 34% to their policy sales.
ICICI Prudential earned 576.60 million dollars at that time. During April-August
2009 SBI Life had earned $379.20 million in sales of new policies and that figure
went up to $531.87 million in the corresponding period in 2010 making it an increase
of 40%. HDFC Standard Life also experienced a good growth of 54% in new sales.
IRDA data shows that between April and October 2010 the general insurance industry
experienced a year-on-year growth of 22.76% with regards to underwritten gross
premium.

The total value of that premium was 5.29 billion dollars while the same figure stood at
$4.31 billion in April-October 2009. For the public sector companies the year-on-year
growth rate was 21.09 percent between April-October 2010 and April-October 2009.

In the same period the privately held insurers saw an increase of 25.19 percent in
terms of premium collected. Among the publicly owned entities, New India Insurance
was one of the better performers with a premium income of 916.77 million dollars in
April-October 2010.
At the same period in 2009 they had earned 770.25 million dollars which implies a
growth rate of 19.04%. The IRDA Summary Report of Motor Data of Public and
Private Sector Insurers 2009-10 states that in the same period almost 28.4 million
policies were sold and the aggregate worth of premium collected was $2.31 billion.

The health insurance sector, according to the RNCOS' research report named
"Booming Health Insurance in India" posted unprecedented growth rates in 2008-09
and 2009-10. The report also estimates that between the 2009-10 and 2013-14 the
sector would see a compound annual growth rate (CAGR) of at least 25%.


9

India insurance industry - market share of leading companies
The following table shows the market share of top insurers in India in the period till
April 2013:
Company Approximate market share
LIC 50%
ICICI 10%
SBI 5%
Bajaj 4%
Reliance 5%
HDFC 6%
Birla 4%
Max New York 3%
Tata 2%
Met Life 1%
Kotak 2%
Others 8%











10

In terms of policies sold following are the top insurers in India:
Company Policies sold till December 2013 (approximate figure)
LIC 20404281
Future Generali Life 100143
ICICI Prudential 785938
Met Life 98904
Reliance Life 698109
Star Union Dai-ichi 82037
Bajaj Allianz 640483
Shriram Life 73490
Birla Sunlife 589855
Bharti AXA Life 69151
SBI Life 491927
AegonReligare 47332
Max New York 405662
IDBI Federal 45833
HDFC Standard 397408
Canara HSBC OBC Life 44899
Tata AIG 199275
DLF Pramerica 43299
Kotak Life Insurance 199614
IndiaFirst 38498
Aviva 100216
Sahara Life 36228
Edelweiss Tokio 1968



11

INDIA INSURANCE INDUSTRY - SOME KEY FINDINGS


Following are some important findings from World Bank regarding the condition of
insurance industry in India:
Between 2005 and 2010 the yearly GDP growth was approximately 8.56%
At the same time, the ratio of gross savings to GDP was 33%
Middle class saw the quickest growth
The life expectancy rate of people went up and urban development happened
at almost 54%.
In 2010 rate of premium growth came down to 4.2% and compared to global
standards the premium share was pretty low
Major operational issues for insurers were expenditure control, claims
settlement procedures, improving investment yields, and capital requirements
In the 2010-11 fiscal the life insurance industry grew by 4.20% while the
general insurance industry increased by 8.10%.
During that time the paid-up capital (private total) for the life insurance sector
was INR 236.57 billion while the paid-up capital (industry total) was INR
236.63 billion.
In 2010-11 the paid-up capital (private total) for the general insurance sector
was INR 39.56 billion while the paid-up capital (industry total) was INR 67.06
billion.
In 2010-11 the operating costs of privately owned life insurers was INR
159.62 billion while the total life insurance industry expense was INR 329.42
billion.
In the same time the privately owned general insurers spent INR 39.32 billion
from an industry total of INR 106.20 billion.
In 2010-11 the privately held life insurers paid benefits and claims worth INR
312.51 billion while the industry aggregate was INR 1425.24 billion.
At the same time the private general insurers paid benefits and claims worth
INR 99.37 billion while the industry total was INR 295.36 billion.

12

INDIA INSURANCE INDUSTRY COMPOSITION

As per IRDA, the composition of the Indian insurance industry by March 2013 could
be mentioned as such:

General insurance
Category Number of
organizations
publicly owned general insurers 4
private insurers completely owned by an Indian business
organization
1
specialized general insurers 2
private insurers' J V with international insurers 14
Specialized health insurers 3


Life insurance
Category Number of
organizations
publicly owned life insurers 1
private insurers' J V with international insurers 21
private insurers completely owned by an Indian business
organization
2










13

India insurance product composition

Following is an approximate representation of the product composition of India's
insurance industry:

General insurance
Product Percentage
Engineering 4
Motor OD 27.63
Motor TP 14.94
Health 22.58
Aviation 1.08
Liability 2.40
Personal accident 2.63
Fire 10.91
Marine 5.97
Others 7.37


Life insurance
Product Percentage
Non linked life individual 21.70
Non linked gen annuity group 4.33
Non linked gen annuity individual 0.85
Non linked pension group 4.22
Non linked pension individual 0.25
Non linked health 0.09
Linked insurance 55.01
Riders 0.01
Linked life group 13.54
14

India insurance industry major problems
Following are some of the major problems plaguing the insurance industry in India:
Focus on actuarial pricing
Regulatory misunderstanding
Investment regulations
Solvency regulation
Claims settlement procedures
Data clarity
Distribution channel issues
India insurance industry contribution to GDP

Experts are of the opinion that around the world the insurance industry contributes
around 4.5% to national GDPs. They have questioned the logicality of opinions that in
India the contribution can be higher saying that there are other important sectors like
education, defense, and health that cannot be undermined in this context.

They have ruled out possibilities that the sector can contribute 10% to India's GDP.
The Chairman of IRDA, Hari Narayan has ruled out any such possibility asking if
India's GDP growth will be that much in the next few years ahead.

The IRDA states that in India land and gold are more preferred as forms of
investment. Narayan feels that if the insurance sector is to do well in terms of
contribution to GDP then more people should be convinced about its capability to
provide good ROI (return on investment).

Reasons for people taking insurance policies

One of the major reasons for an increasing number of people availing insurance
policies in India is the growing level of awareness. People nowadays value their lives,
their health, and their families even more than before given the tough economic
circumstances and so want to make sure that everything is fine even if they are not
there.
15

Yet another reason for the growing popularity of insurance policies is the benefit of
tax exemption that is provided to family oriented and individual plans. Majority of the
private insurers also provide lucrative returns and are now being availed by a section
of the Indian society with greater disposable earnings.

There is an aspect of psychological comfort attached to the insurance policies as well
- whenever an insurance is availed the policyholder can be more or less assured of a
safe future for that particular part of his or her life.

Top Insurance Policies

Following are the featured insurance policies of various insurers in India:
Company Product
LIC J eevanVaibhav
ICICI Prudential ICICI PruiCare
Reliance General Insurance Reliance Private Car Insurance Reliance Travel
Care for Students
Bajaj Allianz CashRich
Family Floater Health Guard Plan
Car Insurance
HDFC Life Click2Protect
HDFC LIFE SMART WOMAN PLAN
Tata AIG Insurance Tata AIG Motor Insurance
Tata AIG Travel Insurance
Tata AIG Wellsurance Family
Kotak Life Insurance Kotak Assured Protection Plan
Kotak Assured Income Plan
Kotak Assured Investment Plan
Aviva Aviva Health Secure
Aviva i-Life
Future Generali Future Generali Smart Life
Future Generali Health Suraksha
MetLife Retirement Plans
Met Monthly Income Plan
Star Union Dai-ichi Life SurakshaKavach
16

Insurance
Shriram Life Insurance ShriLife
Wealth Plus
Money Back
ShriramUjjwal Life SP
Bharti AXA Bharti AXA Life eProtect
AegonReligare iTerm
IDBI Federal Termsurance
Wealthsurance
Childsurance
Lifesurance
Healthsurance
Incomesurance
Loansurance
Homesurance
Bondsurance
Microsurance
Canara HSBC OBC Life
Insurance
Dream Smart Plan
Grow Smart Plan
Future Smart Plan
Secure Smart Plan
Smart Sanchay Plan
DLF Pramerica Life Insurance Income Rakshak
DLF Pramerica Family Income
DLF Pramerica Family First
DLF Pramerica U-Protect
IndiaFirst Life Insurance IndiaFirstMahaJ eevan Plan
Sahara Life Insurance Sahara Vatsalya-J eevanBima
Apollo Munich Health
Insurance
OptimaRESTORE
Star Health Insurance Family Health Optima
Star Unique Health
Senior Citizen Health Insurance
IFFCO TOKIO General
Insurance
Auto Protector Policy
Individual Medishield Policy
New India Assurance Householder's Policy
Motor Insurance Policy
Overseas Mediclaim Policy
Fire & Machinery Policy
17

Industrial All Risk Policy
Shopkeeper's Policy
Oriental Insurance Oriental's Motor Insurance Policy
Happy Family Floater Scheme
National Insurance Car Insurance
Cholamandalam MS General
Insurance
Chola MS Private Car
Chola MS Student Travel
Chola MS Family Healthline
HDFC Ergo Travel Insurance
HDFC Ergo Health Suraksha
Universal Sompo General
Insurance
Householder's Insurance Policy
Shopkeeper's Insurance Policy
Motor Insurance Policy
Individual Health Bills
L&T Insurance my:healthMedisure Prime Insurance















18

COMPANY PROFILE
Few men in history have made as dramatic a contribution to their countrys economic
fortunes as did the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left
behind a legacy that is more enduring and timeless.
As with all great pioneers, there is more than one unique way of describing the
true genius of Dhirubhai: The corporate visionary, the unmatched strategist, the
proud patriot, the leader of men, the architect of Indias capital markets, the
champion of shareholder interest.
But the role Dhirubhai cherished most was perhaps that of Indias greatest wealth
creator. In one lifetime, he built, starting from the proverbial scratch, Indias
largest private sector enterprise.
When Dhirubhai embarked on his first business venture, he had a seed capital of
barely US$ 300 (around Rs 14,000). Over the next three and a half decades, he
converted this fledgling enterprise into a Rs 60,000 crore colossusan
achievement which earned Reliance a place on the global Fortune 500 list, the first
ever Indian private company to do so.
Dhirubhai is widely regarded as the father of Indias capital markets. In 1977,
when Reliance Textile Industries Limited first went public, the Indian stock
market was a place patronised by a small club of elite investors which dabbled in
a handful of stocks.
Undaunted, Dhirubhai managed to convince a large number of first-time retail
investors to participate in the unfolding Reliance story and put their hard-earned
money in the Reliance Textile IPO, promising them, in exchange for their trust,
substantial return on their investments. It was to be the start of one of great stories
of mutual respect and reciprocal gain in the Indian markets.
Under Dhirubhais extraordinary vision and leadership, Reliance scripted one of
the greatest growth stories in corporate history anywhere in the world, and went
on to become Indias largest private sector enterprise.


19

Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the
Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of Indias leading
private sector financial services companies, and ranks among the top 3 private sector
financial services and banking companies, in terms of net worth. Reliance Capital has
interests in asset management and mutual funds, stock broking, life and general
insurance, proprietary investments, private equity and other activities in financial
services.
Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)
registered with the Reserve Bank of India under section 45-IA of the Reserve
Bank of India Act, 1934.
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services.
Reliance Life Insurance is another step forward for Reliance Capital Limited to
offer need based Life Insurance solutions to individuals and Corporates.

CORPORATE OBJECTIVE

At Reliance Life Insurance, we strongly believe that as life is different at every stage,
life insurance must offer flexibility and choice to go with that stage. We are fully
prepared and committed to guide you on insurance products and services through our
well-trained advisors, backed by competent marketing and customer services, in the
best possible way.
It is our aim to become one of the top private life insurance companies in India
and to become a cornerstone of RLI integrated financial services business in
India.




20

INSURANCE PLANS AVAILABLE
1. Products (Individual Plans)
Savings (Endowment)
2. Reliance Endowment Plan
(formerly Divya Shree)
3. Reliance Special Endowment Plan
(formerly Subha Shree)
4. Reliance Cash Flow Plan
(formerly Dhana Shree)
5. Reliance Child Plan
(formerly Yuva Shree)
6. Reliance Whole Life Plan
(formerly Nithya Shree)
Pensions
7. Reliance Golden Years Plan
(formerly Bhagya Shree)
Investments
8. Reliance Market Return Plan
(formerly Kanaka Shree)
9. Risk / Protection
10. Reliance Term Plan
(formerly Raksha Shree)








21

Products (Group / Corporate Plans)
11. Risk (Protection)
Reliance Group Term Assurance Policy
(formerly Group Term Assurance Policy)
Reliance EDLI Scheme
(formerly EDLI Scheme)
12. Pensions
a. Reliance Group Gratuity Policy
(formerly Group Gratuity Policy)
b. Reliance Group Superannuation Policy
(formerly Group Superannuation Policy)
13. Reliance Money Guarantee Plan















22

VISION & MISSION
VISION
Empowering everyone live their dreams.
MISSION
Create unmatched value for everyone through dependable, effective, transparent and
profitable life insurance and pension plans.
Our Goal
Reliance Life Insurance would strive hard to achieve the 3 goals mentioned below:
Emerge as transnational Life Insurer of global scale and standard
Create best value for Customers, Shareholders and all Stake holders
Achieve impeccable reputation and credentials through best business practice












23

ACHIEVEMENTS
Largest Private Life Insurance in terms of Number of Policies for two
consecutive years as of 31st March 2012
A wide network of 1230 branches and 1,50,000 advisors
Over 9 million policies
RLIC continues to be amongst the foremost Life Insurance companies in
India to be certified ISO 9008:2001
Winner of Best Non-Urban Coverage Award at Indian Insurance
Awards 2011
RLICs Boundaries for Books Campaign won the 'Silver' at the Indian
Digital Media Awards (IDMA) 2012, under Best Integrated Campaign
Social Cause and Best Use of Social Network Social Cause
Amongst the top 3 Most Trusted Service Brands in the Insurance category
as per the Brand Equitys Most Trusted Service Brands 2011 Survey















24

BOARD OF DIRECTORS

Name Role
Mr. Debdatta Sengupta
Director
Mr. Satyapal Talwar
Director
Mr. H. Ansari Director
Mr. Rajendra P. Chitale Director
Mr. Soumen Ghosh Director
Mr. Rakesh J ain Executive Director & CEO





























25

Meaning Of Finance

Finance is the Provide of money when is required Finance is the process of
accumulated funds to productive funds to productive use. Finance has aptly been
called the science of money.Finance may be defined as that administrative area or
set of administrative functions in An organization which relate with the arrangement
cash and credit, so that the organization May have the means to carry out its
objective as satisfactory as possible.

Finance Function

Finance function is the procurement of funds and their effective utilization for
Business.
Establishing asset management politics.
Determining the allocation of net profit.
Establishing and controlling cash flows and outside financing.
Deciding upon needs and sources of new outside financing.
Checking upon financial performance.


Financial Analysis

Financial analysis is the process of evaluating the relationship between component
parts of financial statements to obtain a better understanding of the firms position and
performance
Financial analysis is the identifying strength and weakness of the firm by properly
establishing relationship between the items of balance sheet and the profit and loss
account.




26

Financial Statement

A financial statement is an organized collection of data according to logical and
consistent accounting its purpose is to convey an understanding of some financial
Aspects of a business firm. It may show a position at a movement of time as in the
case of A balance sheet or may reveal a series of activity over a given period of times,
as in the case of an income statement.

TYPES OF FINANCIAL STATEMENT
Income statement: - it explains what has happened to a business as a result of
Operations between two balance sheet dates.
Balance sheet: - it is a statement of financial position of a business at a specified
Moment of time.
Statement of retained earrings: - The term retained earning means the accumulated
excess of earnings over losses and dividend.

STEMENTS OF SHOWING CHANGES IN FINANCIAL POSITION

Changes in the firms working capital
Changes in the firms cash position
Changes in the firms total financial position.
METHOD OR DEVICES OF FINANCIAL ANALYSIS
The analysis and interpretation of financial statement is used to determine the
financial Position and results of operations as well. A number of methods or devices
are used to Study the relationship between different statements. An effort is made to
use those devices which clearly analyze the position of the enterprise.
The following methods of analysis are generally used.
Comparative statements.
Income statement
Common-size statements
Trend analysis
Ratio
27

COMPARATIVE FINANCIAL STATEMENTS

COMPARATIVE STATEMENTS

The comparative statements are statements of the financial position of different
periods of the time.
Similarly comparative figures will indicate the trend and direction of financial
position and operating results. The two comparative statements are

Comparative income sheet
Comparative balance sheet

Comparative Income Statement

The income statement gives the results of the operations of a business comparative
income Statement gives an idea of the progress of a business over a period of time.
The changes in absolute data in money values and percentages can be determined to
analyze the profitability of the business. The comparative income statement has four
columns, the first two columns give figures of various items for two years, and third
and fourth columns are used to show increase or decrease in figure in absolute
amounts and percentages respectively.

Comparative Balance Sheet

The comparative balance 3 sheet analysis is the study of the trend the same items,
groups of tiers and computed items in two or more balance sheets of the same
business enterprises on different dates. The changes in periodic balance sheet items
reflect the conduct of the business. The changes can be observed by the comparison of
the balance sheet at the beginning and at the comparative balance sheet the first two
columns are for the data of original balance sheet. A third column is used to show
increase and decrease4 in figures the fourth column may be added for giving
percentages of Increased or decreases.
28

COMMON SIZE STATEMENT

The common size statement can be used to compare companies of different size. The
comparison of figures in different periods is not useful because total figures may be
affected by a number of factors. The common size statements, balances sheet and
income statement are shown in analytical percentages. The common size statements
are of two types, they are:

Common size income statement
Common size balance sheet

Common size Income Statement

The items in income statements can be shown as percentages of sales to show the
relation of each item to sales. A significant relationship can be established between
items of income statement and volume of sales increases to a considerable extent.
Administrative and financial expenses may go up. In case the sales are declining the
selling expenses should be reduced at once. So, a relationship is establishing between
sale and other items in income statement and this relationship is help full in evaluating
operating activities of the enterprise.

Common Size Balance Sheet

A statement in which balance sheet items are expresses as the ratio of each asset to
total assets and the ratio of each liability is expresses as ratio of total liabilities is
called common size balance sheet.






29

OBJECTIVE OF FINANCIAL ANALYSIS

Accounting ratios calculated for a number of years of the trend of the change of
position the ascertainment of trend helps in making estimate for

Interpretation Of The Ratios

The interpretation of ratios is an important factor. The inherent limitations of ratio
analysis should be kept in mind while interpreting them. The interpretation of ratios
can be made in the following ways.

Single Absolute Ratio

Generally speaking one amount draws conclusions when a single is considered in
isolation. But single ratios may be studied in relation to certain thumb-rules, which
are based upon well proven conventions.

Group Or Ratios

Ratios can be interpreted by calculating a group of related ratio. A single by other
related additional ratios becomes more understandable and meaningful.

Historical Comparison

One of the easiest and most popular ways of evaluating the performance is to compare
to present ratio with the past ratios is called comparison overtime, it gives an
indication of the direction of the change and reflect whether the firms performance
and financial position has improved detrained or remained constant over as period of
time. Nancial statements.

These future ratios are compared with the actual ratios to find variance, if any such
variance helping interpreting and taking corrective actions. The main objectives of
financial analysis are to assess.
30

The present and future earning capacity of the concern.
The operational efficiency of the concern as a whole and of its various parts.
The short term and long term solvency of the concern for the benefit of
debenture holders and trade creditors.
To compare the performance of the company with that of another company or
of the same company with previous performance.

TYPES OF THE FINANCIAL ANALYSIS

The nature of the analyst and the material used by him.
The objective of analysis and
The modus operandi of the analysis

Internal Analysis

The people who have assessed to the books of accounts make the internal analysis.
They are members of the analysis. Analysis of the financial statement or other
financial data for managerial is the internal type of analysis. The internal analyst can
give more reliable result than the external analyst because every type of analysis. The
internal type of analysis can give more reliable than the external analyst because
every type of information is at his disposal.

External Analysis

It is made by those persons who arent connected with the enterprises they dont have
the assess to the detailed record of the company and have to depend mostly on
published statements such analysis is made by investors, credit agencies, agencies,
government agencies and research scholars.




31

THE OBJECTIVE OF THE ANALYSIS

Long Term Analysis

The analysis is made in order to study the long-term financial stability, solvency,
profitability and earning capacity of a company. The purpose of making such type of
analysis is to know whether in the long run the company will be able to earn a
minimum amount, which will be sufficient to maintain a reasonable rate of return of
the investment of the company and to meet it cot of capital.
This type of analysis help the long term financial planning which essential which
essential for the continued success of the company.

Short Term Analysis

This is made to determine the short-term solvency and liquidity of the company. The
purpose of this analysis is to know whether in the short run a company will have
adequate funds readily available to meet its short-term requirements and sufficient
borrowing capacity to meet contingencies in the near future. This analysis is made
with reference to items of current assets and current liabilities (working capital
analysis) to have fairly sufficient knowledge about the companys position which may
be helpful short-term financial planning.










32

MODUS OPERAND OF THE ANALYSIS

Horizontal Analysis

This analysis is made to review and analysis financial statements of a number of years
and therefore based on financial data taken form several years. This is very useful for
long-term analysis and planning.

Vertical Analysis

This analysis is made to review and analyze the financial statement of one particular
year only.

Trend Analysis

The financial statement may be assigned by computing trend series of information.
This method determines the direction upward or downward and involves the
computation of the percentage relationship in each statement item bears to same item
in the base year (base year=100). Generally, first year is taken as base year and trend
ratios for another year are calculated based on base year. The method of trend analysis
is useful analytical device since substitution of percentages for large amounts; the
brevity and readability are achieved, however, trend analysis is not calculated for all
of these items in financial statement. They are usually calculated for major items since
the purpose is import and changes.








33

RATIO

The ratio analysis is one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios. It is with the help of ratio that
the financial statements can be analyzed more clearly and decisions made from such
analysis. A ratio is a simple arithmetical expression of the relationship of one number
to another. It may be defined as the indicated quotient of two mathematical
expressions. According to accountants hand book by wixonkell and Bedford a ratio is
an expression of the quantitative relationship between two numbers. According to
kholer a ratio is the relation of the amount a to another expressed as the ratio of a to or
a simple fraction integer, decimal, percentage.

It is the process of critically examining in detail information given the
financial statement. For the purpose of analysis individual items are studied their
relationship with other related figures established, the data is sometime rearranged to
have better understanding of the information with the help of different techniques or
tools for the purpose. Analyzing financial statements is a process of evaluation
relationship between component parts of financial statement to obtain better
understanding of firms position and performanc

Current ratios

The current ratio is a very popular financial ratio it measures the ability of the firm to
meet the current liabilities current asset gets converted into cash in the operational
cycle of the firm and provide the funds needed to pay the current liabilities current
assets includes cash, advances and prepaid expenses, current liabilities consists of
loans and advances, trade creditors, accrued expenses and provisions.

Current assets
Current Ratio = ----------------------
Current liabilities



34

Quick Ratio

This ratio is also called acid test ratio establishes a relationship between quick or
liquid assets and current liabilities an assets is liquid if it can be converted into cash
immediately without a loss of value. Cash is the most liquid asset other liquid assets
are debtors and bills receivables and marketable securities inventories are considered
to be less liquid quick ratio is found by dividing the quick assets by total current
liabilities.

Quick assets
Quick ratio = ---------------------
Current liabilities


Quick assets =current assets inventory & prepaid expenses
Quick liabilities =current liability HDFC Bank over draft (if there in current
liabilities)


Absolute Liquid Ratio (Super Quick Ratio)

This ratio will give the exact amount, what are the resources they have, in terms of
cash, from those only this will be calculated. Cash is the most liquid current. Cash is
the common denominated to which all current assets can be reduced because other
major liquid assets and inventory get eventually converted into cash,. Cash is both
beginning and end of the transaction. It is the ratio of absolute liquid assets to current
liabilities.


Absolute liquid assets
Absolute liquid ratio = --------------------------
Current Liabilities


Absolute liquid assets =cash at HDFC Bank +short term / temporary investments
35

Debt Equity Ratio

This ratio is calculated to measure the relative claims of out sides against the firms
assets. This ratio indicates the relationship between the external equities (or) the
outside funds and the Outside funds. And the internal equities (or) share holders
funds.
External debt
Debt equity ratio = -----------------
Internal debt

External debt = borrowings, adj., heads by other liabilities, payable a/c
Internal debt = share capital, reserves, deposits.

Profit Ability Ratio

This ratio expresses the relationship between operating profit and sales with the help
of this ratio one ratio one can judge the managerial efficiency which many not be
reflect the net profit ratio.

Gross Profit Ratio

The gross profit reflects the efficiency with management produces each unit of
product. This ratio indicated the average spread between the cost of goods sold and
sale revenue a high gross profit is a sign of good management

Gross profit
Gross profit ratio = ------------------ x 100
Net sales

Gross profit =Net Sales cost of goods sold
Net sales =total sales sales revenue




36

Leverage Ratios
Debt-equity Ratio
This ratio indicates the relative proportions of debt and equity in financing the
assets of a firm. One approach is to express the debt-equity ratio in terms of the
relative proportion of long-term debt and shareholders equity. Thus.
Long-term funds
Debt-equity ratio=..
Shareholders funds
The debt considered here is exclusive of current liabilities. It is an important tool of
financial analysis to appraise the financial structure of a firm. A high ratio shows a
large share of financing by the creditors of the firm, a low ratio implies a smaller
claim of creditors.

Interest Coverage Ratio
These ratios are computed from information available in the profit and loss account. It
is also known as time-interest earned ratio. This ratio measures the debt servicing
capacity of a firm insofar as fixed interest on long-term loan is concerned. It is
determined by dividing the operating profits or earnings before interest and taxes
(EBIT) by the fixed interest charges on loans.

Net profit/loss before interest & tax
Interest= .
Interest charges










37

Proprietary Ratio

This ratio indicates whether the firm is employing a reasonable proportion of debt or
if heavily loaded with debt in which case its solvency is exposed to serious strain.
This ratio relates the owners/proprietors funds with total assets. The ratio indicates
the proportion of total assets financed by owners. The ratio is computed by
Proprietary funds
Proprietary=
Total assets

PROFITABILITY RATIOS

Net profit Ratio

This measures the relationship between net profits and sales of a firm. Depending on
the concept of net profit employed the ration can be computed as
Net profit/loss after interest and tax
Net profit ratio =x100
Sales
A high net profit margin would ensure adequate return as well as enable a firm
to with stand adverse economic conditions when selling price is declining cost of
production is rising and demand for the product is failing. A low net profit merging
would have the opposite implications.










38

Return on Assets

Thus profitability ratio is measured in terms of this relationship between net profit and
assets. This may also be called profit-to-asset ratio.

The concept of net profit may be net profits after taxes net profits after taxes plus
interest and net profits after taxes plus interest minus tax savings. Assets may be
defined as total assets fixed assets and tangible assets. The ratio can be computed by
the formula.
Net profit/loss after taxes+interest
Return on assets=
Average Total assets

Return on capital Employed

The term capital employed refers to long-term funds supplied by the creditors and
owners of the firm. Here the profits are related to the total capital employed. It can be
computed as
Net profit/loss after tax + interest
Return on Capital =x100
Average capital Employed

The capital employed basis provide a test of profitability related to the sources of
long-term funds. The higher the ratio the more efficient is the use of capital employed.
A comparison of this ratio with similar firms with the industry average and over time
would provide sufficient insight into how efficiently the long-term funds of owners
and creditors are being used.






39

Debtors turnover ratio
Debtors turnover ration indicates the number of times the debtors are turned over
during the year. Generally the higher value of debtors turnover the more efficient in
the management of debtors or sales or more liquid debtors. Similarly low debtors or
sales or more liquid debtors.

Net credit sales
Debtors Turnover Ratio = ..x (times)
Average detbors
OTHER RATIOS

Fixed Assets Ratio
This ratio relates the net assets and the long-term funds. Here the ratio
should be high. That is the handling of fixed asset should be grater than the long-term
funds at an appropriate level. This ratio can be computed as given under.
Fixed assets
Fixed Assets ratio = ..
Long term funds


















40

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2007-08
TO 2008-09
Particulars 2007-
2008
(Rupees)
2008-09
(Rupees)
Change
Amount
Percentage
(%)
Sources of funds share
holders funds

Capital 78125 78125 - -
Reserves and Surpluses 237002 277376 40374 17.0
315127 355501 40374 12.8
Deferred revenue on account
against depreciation
271 1591 1320 487.1
LOAN FUNDS
Secured Loans 41226 45844 4618 11.2
Unsecured Loans 90931 108684 17753 19.5
132428 156119 23691 17.9
Deferred tax liability (NET) 44379 52280 7901 17.8
Less: Recoverable 44378 82279 37901 85.4
1 1 - -
TOTAL 447555 511620 64065 14.3
APPLICATION OF
FUNDS

FIXED ASSETS
Gross block 366106 400281 34175 9.3
Less: Depreciation 167456 187736 20280 12.1
41

Net Block 198650 212545 13895 7.0
Capital work in progress 51543 56413 4870 9.4
Construction stores &
advances
12320 18540 6220 50.5
262513 287498 24985 9.5
Investments 36674 173380 136706 372.8

Current assets loan &
advances

Inventories 17712 17380 (332) (1.9)
Sundry debtors 124349 4699 (119650) (96.2)
Cash & Bank balances 5447 6091 644 11.8
Other current assets 25149 80023 54874 218.2
Loans & Advances 21475 27275 5800 27.0
194132 135468 (58664) (30.2)
Less: Current liabilities and
provisions

Liabilities 32202 65244 (33042) (102.6)
Provisions 11648 15697 (4049) (34.8)
43850 80941 37091 84.6
Net Current Assets 150282 54527 95755 63.7
Total 447555 511620 64065 14.3



42

Interpretation:
The company balance sheet of the company during the year 2007-08 reveals
that the current assets have increased by 58664 i.e. 30.2%.
There is increase in current assets we can say the short term solvency of the
company is good.
The current liabilities have increase by 37091 i.e. 84.6%.
Fixed assets have decreased by 24985 i.e. 9.5%
There is increase in share holder funds of company that is why we can say the
long term solvency of the company is good.
















43

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2008-09
TO 2009-10
Particulars 2008-
2009
(Rupees)
2009-10
(Rupees)
Change
Amount
Percentage
(%)
Sources of funds share
holders funds

Capital 78125 82455 4330 5.5
Reserves and Surpluses 277376 335308 57932 20.9
355501 417763 62262 17.5
Deferred revenue on account
against depreciation
1591 3374 1783 112.1
LOAN FUNDS
Secured Loans 45844 44407 (1437) (3.1)
Unsecured Loans 108684 26471 (82213) (75.6)
156119 74252 (81867) (52.4)
Deferred tax liability (NET) 52280 50570 (1710) (3.3)
Less: Recoverable 82279 50569 (31710) (38.5)
1 1 - -
TOTAL 511620 492015 (19605) (3.8)
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 400281 431062 30781 7.7
Less: Depreciation 187736 207914 20178 10.7
Net Block 212545 223148 10603 5.0
44

Capital work in progress 56413 67063 10650 18.9
Construction stores &
advances
18540 67063 13682 73.8
287498 322433 34935 12.2
Investments 173380 207977 34597 20.0

Current assets loan &
advances

Inventories 17380 17777 397 2.3
Sundry debtors 4699 13747 9048 192.6
Cash & Bank balances 6091 60783 54692 897.9
Other current assets 80023 9714 (70309) (87.9)
Loans & Advances 27275 27052 (223) (0.8)
135468 129073 (6395) (4.7)
Less: Current liabilities and
provisions

Liabilities 65244 52306 12938 19.8
Provisions 15697 15161 536 3.4
80941 67467 (13474) (16.6)
Net Current Assets 54527 61606 7079 13.0
Total 511620 492015 (19605) (3.8)




45

Interpretation:
The company balance sheet of the company during the year 2008-09 reveals
that the current assets have increased by -6395 i.e. 4.7%.
There is increase in current assets we can say the short term solvency of the
company is good.
The current liabilities have increase by 13474 i.e. 16.6%.
Fixed assets have decreased by 34935 i.e. 12.15%
There is an increase in capital that is 4330 i.e.5.5%..

















46

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2009-10
TO 2010-11
Particulars 2009-
20010
(Rupees)
2010-11
(Rupees)
Change
Amount
Percentage
(%)
Sources of funds share
holders funds

Capital 82455 82455 - -
Reserves and Surpluses 335308 361132 25824 7.7
417763 443587 25824 6.2
Deferred revenue on account
against depreciation
3374 4408 1034 30.6
LOAN FUNDS
Secured Loans 44407 57327 12920 29.1
Unsecured Loans 26471 144646 118175 446.4
74252 206381 118175 177.9
Deferred tax liability (NET) 50570 53224 2654 5.2
Less: Recoverable 50569 53223 2654 5.2
1 1 - -
TOTAL 492015 649968 157953 32.1
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 431062 460396 29334 6.8
Less: Depreciation 207914 299501 91587 44.1
Net Block 223148 160895 (62253) (27.9)
47

Capital work in progress 67063 103999 36936 55.1
Construction stores &
advances
67063 32341 119 0.4
322433 297235 (25198) (7.8)
Investments 207977 192891 (15086) (7.3)

Current assets loan &
advances

Inventories 17777 23405 5628 31.7
Sundry debtors 13747 8679 (5068) (36.9)
Cash & Bank balances 60783 84714 23931 39.4
Other current assets 9714 10161 447 4.6
Loans & Advances 27052 30287 3235 12.0
129073 157246 28173 21.8
Less: Current liabilities and
provisions

Liabilities 52306 49102 3204 6.1
Provisions 15161 12300 2861 18.9
67467 61402 6065 9.0
Net Current Assets 61606 95844 34238 55.6
Total 492015 649968 157953 32.1




48

Interpretation:
The company balance sheet of the company during the year 2009-10 reveals
that the current assets have increased by 28172 i.e. 22%.
There is increase in current assets we can say the short term solvency of the
company is good.
The current liabilities have increase by 6065 i.e. 9.00%.
Fixed assets have decreased by -25198 i.e. -7.8%
There is increase in share holder funds of company that is why we can say the
long term solvency of the company is good satisfaction.
















49

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2010-11
TO 2011-12
Particulars 2010-
2011
(Rupees)
2011-12
(Rupees)
Change
Amount
Percentage
(%)
Sources of funds share
holders funds

Capital 82455 82455 - -
Reserves and Surpluses 361132 403513 42381 11.7
443587 485968 42381 9.6
Deferred revenue on account
against depreciation
4408 6567 2159 49.0
LOAN FUNDS
Secured Loans 57327 68229 10902 19.0
Unsecured Loans 144646 176615 31969 22.1
206381 251411 45030 21.8
Deferred tax liability (NET) 53224 54427 1203 2.3
Less: Recoverable 53223 54426 1203 2.3
1 1 - -
TOTAL 649968 737379 87411 13.4
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 460396 507273 46877 10.2
Less: Depreciation 299501 250792 (48709) (16.3)
Net Block 160895 256481 95586 59.4
50

Capital work in progress 103999 128567 24568 23.6
Construction stores &
advances
32341 39825 7484 23.1
297235 424873 127638 23.1
Investments 192891 160943 (31948) (16.6)

Current assets loan &
advances

Inventories 23405 25102 1697 7.3
Sundry debtors 8679 12583 3904 45.0
Cash & Bank balances 84714 133146 48432 57.2
Other current assets 10161 10580 419 4.1
Loans & Advances 30287 40476 10189 33.6
157246 221887 64641 41.1
Less: Current liabilities and
provisions

Liabilities 49102 54221 5119 10.4
Provisions 12300 16042 3742 30.4
61402 70236 8861 14.4
Net Current Assets 95844 151624 55780 58.2
Total 649968 737379 87411 13.4




51

Interpretation:
The company balance sheet of the company during the year 2010-11 reveals
that the current assets have increased by 64641 i.e. 41.1%.
There is increase in current assets we can say the short term solvency of the
company is good.
The current liabilities have increase by 8861 i.e. 14.4%.
Fixed assets have increased by 127638 i.e. 42.9%
There is increase in share holder funds of company that is why we can say the
long term solvency of the company is good satisfaction.
















52

I. LIQUIDITY RATIOS
CURRENT RATIO:
CURRENT ASSETS
CURRENT RATIO =
CURRENT LIABILITIES
Table 1
YEAR Current Assets Current
Liabilities
Ratio
2007-08 160756 67324 2.39
2008-09 167799 48146 3.49
2009-10 194132 45850 4.23
2010-11 135468 80941 1.67
2011-12 159073 67467 2.36


Interpretation:
The above table shows that the liquidity position of the firm is very good. The
current assets increased on the whole from 2007-08 to 2009-10. This is because of
continues increases in sundry debtors and decreases in loans and advances. Though
inventory and bank balance fluctuated during these 5 years and the other current
assets increasing by 2011. It also implies a large part of the current assets is idle.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007-08 2008-09 2009-10 2010-11 2011-12
53

QUICK RATIO
QUICK ASSETS
ACID TEST RATIO =
CURRENT LABILITIES
Table 2
YEAR Quick Assets Quick Liabilities Ratio
2007-08 142400 67320 2.12
2008-09 147655 48140 3.07
2009-10 176420 45850 3.85
2010-11 118080 80946 1.46
2011-12 145650 67467 2.16


Interpretation:
The above table shows that the liquidity position of the firm is very good. The
quick assets increased on the whole from 2007-08 to 2009-10. The company should
make sure that it should not increase its ratio more than 1 its not advisable the present
position companies ratio indicates normal liquidity position in the business.


0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007-08 2008-09 2009-10 2010-11 2011-12
54

II. LEVERAGED OR CAPITAL STRUCTURE RATIOS
DEBT & EQUITY RATIO:
Total Debt
Debt equity ratio =
Share holders equity
Table 3
YEAR Long term
Liabilities
Shareholders
fund
Ratio
2007-08 98047 258117 0.38
2008-09 115812 286453 0.40
2009-10 132157 315040 0.42
2010-11 138263 335501 0.41
2011-12 160878 417763 0.39


Interpretations:
From the above it is clear that shareholders fund is more than that of the long
term debt. So, we can infer that the firm assets are financed more by the internal funds
rather than the external funds by which it is using its resources more effective.


0.36
0.37
0.38
0.39
0.4
0.41
0.42
0.43
2007-08 2008-09 2009-10 2010-11 2011-12
55

PROPRIETARY RATIO:
Proprietary or Equity Ratio = Shareholders funds / Total Assets
Table 4
YEAR Net Worth Total Assets Ratio
2007-08 258117 423489 0.61
2008-09 280453 450411 0.62
2009-10 315040 493319 0.64
2010-11 355501 596346 0.60
2011-12 417763 659483 0.63



Interpretation:
As the total debt ratio represents relationship of the owners funds to total
assets, higher the ratio the better the solvency position of the firm. The above ratio
shows that the 5 years ratios more than 50%. So we consider that the long term
solvency of the firm is satisfaction.

0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
2007-08 2008-09 2009-10 2010-11 2011-12
56

FIXED ASSETS RATIO:
Fixed Asset Turnover Ratio = Sales Revenue / Total Fixed Assets
Table 5
YEAR Fixed Assets Capital
Employed
Ratio
2007-08 184450 174657 1.06
2008-09 177697 176781 1.01
2009-10 190019 198650 0.96
2010-11 188178 212545 0.89
2011-12 225069 223148 1.01


Interpretation:
This ratio indicates the mode of financing the fixed assets. A financially well
managed company will have its fixed assets financed by long term funds. Therefore
the fixed assets ratio should never be more than one. The ratio of 0.89 is considered
ideal. Here the companys ratio is ideal in 2010-11 and then it increased in 2011-12,
which indicates that the company reduced financing the fixed assets by a long term
funds.
0.8
0.85
0.9
0.95
1
1.05
1.1
2007-08 2008-09 2009-10 2010-11 2011-12
57

INTEREST COVERAGE/DEBT SERVICE RATIO:
Debt service ratio = Net Operating Income / Total Debt Service
Table 6
YEAR EBIT Fixed Interest Ratio
2007-08 51656 10918 4.73
2008-09 46201 8680 5.32
2009-10 47456 9916 4.79
2010-11 92594 33697 2.75
2011-12 77837 16958 4.59




Interpretation:
The above ratio indicates that the firm covers a good deal of interest liability
with the operation profit of the firm. The ratio of the company is increasing every
year. This indicates the company is earning sufficient profits to pay the interest
charges of the investors.


0
1
2
3
4
5
6
2007-08 2008-09 2009-10 2010-11 2011-12
58

III. ACTIVITY OR TURNOVER RATIOS
INVENTORY RATIO:
Inventory Turnover =
Cost of Goods Sold
Average Inventory
Table 7
YEAR Cost of Goods Sold Average
Inventory
Ratio
2007-08 14103 1975 7.14
2008-09 13830 1962 7.05
2009-10 15024 2096 7.17
2010-11 11250 1605 7.01
2011-12 10525 1512 6.96



Interpretation:
The ratio indicates the efficiency of the firm is selling its products or services.
A high ratio indicates efficient management of inventory. In the above ratio it
indicated that the inventory is getting converted into cash in the five years. This
implies that the management of inventory is satisfied.
6.85
6.9
6.95
7
7.05
7.1
7.15
7.2
2007-08 2008-09 2009-10 2010-11 2011-12
59

DEBT TURNOVER RATIO:
NET CREDIT SALES
DEBT TURNOVER RATIO =
AVERAGE DEBTORS
Table 8
YEAR Cost of Credit Sales Average Debtors Ratio
2007-08 18256 2186 8.35
2008-09 17952 2170 8.27
2009-10 17236 2109 8.17
2010-11 17025 2052 8.30
2011-12 16986 2053 8.27




Interpretation:
The debtors turnover ratio of 11-12 is considered to be ideal. A high ratio is
indicative of a sound credit management policy; this ratio has been fluctuating due to
increase in sales and debtors. The ratio as decreased in 2009-10 but again increased
towards the ideal ratio.
8.05
8.1
8.15
8.2
8.25
8.3
8.35
8.4
2007-08 2008-09 2009-10 2010-11 2011-12
60

CREDITORS TURNOVER RATIO:
NET CREDIT PURCHASES
CREDITORS TURN OVER RATIO =
AVERAGE CREDITORS
Table 9
YEAR Credit Purchase Average
Creditors
Ratio
2007-08 18256 5256 3.47
2008-09 17952 4896 3.67
2009-10 17236 4860 3.55
2010-11 17025 5012 3.40
2011-12 16986 4806 3.53



Interpretation:
The creditors turnover ratio is more indicates the firm is not able to get the
best terms of credit. A low creditors turnover ratio indicates the companies inability
in meeting its obligations in time. The company ratio is fluctuating and low but
satisfactory in meeting its obligations in time.

3.25
3.3
3.35
3.4
3.45
3.5
3.55
3.6
3.65
3.7
2007-08 2008-09 2009-10 2010-11 2011-12
61

WORKING CAPITAL TURNOVER RATIO:

COST OF GOODS SOLD
WORKING CAPITAL TURNOVER RATIO =
WORKING CAPITAL
Table 10
YEAR Sales Working Capital Ratio
2007-08 189450 93427 2.03
2008-09 177697 119651 1.49
2009-10 190019 148282 1.28
2010-11 188178 54527 3.45
2011-12 225069 61606 3.65



Interpretation:
From the above ratio it indicates that utilization of the working capital is not,
so efficient but is satisfactory, as it is turned over at least once in all the five years i.e.
in the year 2009-10, it turned to 3.45 which are satisfactory. In the year 2011-12 it is
3.65.


0
0.5
1
1.5
2
2.5
3
3.5
4
2007-08 2008-09 2009-10 2010-11 2011-12
62

FIXED ASSETS TURNOVER RATIO:
Fixed Asset Turnover Ratio = Sales Revenue / Total Fixed Assets
Table 11
YEAR Sales Fixed Assets Ratio
2007-08 189450 184657 1.03
2008-09 177697 176781 1.01
2009-10 190019 198650 0.96
2010-11 188178 212545 0.89
2011-12 225069 223385 1.01




Interpretations:
The above ratios indicate that the fixed asset turnover ratios are in the
increasing trend, which is satisfactory. It shows that there is a scope for increasing in
production and sales with effective use of fixed assets. But 2010-11 year the ratio is
decreased to 0.89.


0.8
0.85
0.9
0.95
1
1.05
2007-08 2008-09 2009-10 2010-11 2011-12
63

IV. PROFITABILITY RATIOS
GROSS PROFIT RATIO:
Gross Profit Ratio = Gross profit / Net sales 100
Table 12
YEAR Gross Profit Sales Ratio
2007-08 51655 189450 0.27
2008-09 45700 179697 0.25
2009-10 38343 190019 0.20
2010-11 59080 188178 0.31
2011-12 60680 225069 0.26



Interpretation:
This ratio indicates the extent to which selling prices of goods per unit way
decline without resulting losses in operation of a firm. The higher the ratio the better
the results. It lies that the profitability of the firm is satisfactory and it is covering
various operation expenses without incurring losses.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2007-08 2008-09 2009-10 2010-11 2011-12
64

NET PROFIT RATIO:
Net Profit Ratio = (Net profit / Net sales) 100
Table 13
YEAR Net Profit Sales Ratio
2007-08 37338 189450 0.20
2008-09 35396 179697 0.20
2009-10 36078 190019 0.19
2010-11 52608 188178 0.28
2011-12 58070 225069 0.26



Interpretation:
The above ratio shows that the firms earning the constant returns over
its sales. The above table shows that the firm is earning profit over its Net sales,
which is good for any manufacturing concern.




0
0.05
0.1
0.15
0.2
0.25
0.3
2007-08 2008-09 2009-10 2010-11 2011-12
65

OPERATING RATIO:

Table 14
YEAR Operating Profit Sales Ratio
2007-08 51656 189450 0.27
2008-09 46201 179697 0.26
2009-10 47456 190019 0.25
2010-11 92594 188178 0.49
2011-12 77758 225069 0.35




Interpretation:
From the above table we can inter that more than 80% of the sale has been
consumed by the operating profit, only less than 20% is left to cover interest charges,
income tax payments, dividend and the retention of profits as a reserve.


0
0.1
0.2
0.3
0.4
0.5
0.6
2007-08 2008-09 2009-10 2010-11 2011-12
66

OVERALL PROFITABILITY RATIOS
RETURN ON TOTAL ASSETS RATIO:
Return on total assets ratio =
Annual Net Income
Average Total Assets
Table 15
YEAR Profit After Tax Average Total
Assets
Ratio
2007-08 37338 211745 0.18
2008-09 35396 225205 0.16
2009-10 36075 246660 0.15
2010-11 52608 298173 0.18
2011-12 58070 329742 0.18



Interpretation:
With the help of above ratio we can inter that the return on assets is increasing
from year to year which is very good and it reflects that the resources are effectively
utilized

0.135
0.14
0.145
0.15
0.155
0.16
0.165
0.17
0.175
0.18
0.185
2007-08 2008-09 2009-10 2010-11 2011-12
67

RETURN ON CAPITAL EMPLOYED RATIO:
ROCE = Earnings before Income and Tax (EBIT) / Capital Employed
Table 16
YEAR EBIT Capital Employed Ratio
2007-08 51656 174657 0.30
2008-09 46201 176781 0.26
2009-10 47456 198650 0.24
2010-11 92594 212545 0.44
2011-12 77837 223148 0.35




Interpretation:
The above ratio indicate that the profit of the company is in increasing trend
and the capital employed is also increasing which helps in increasing the return on
capital employed.


0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
2007-08 2008-09 2009-10 2010-11 2011-12
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RETURN ON NET WORTH RATIO:
Return on Equity = Net Income/Shareholder's Equity
Table 17
YEAR PAT Net worth Ratio
2007-08 37338 258117 0.14
2008-09 35396 280453 0.13
2009-10 36075 315040 0.11
2010-11 52608 355501 0.15
2011-12 58070 417763 0.14



Interpretation:
The higher the ratio the better it is. It indicates the return which the
shareholders are earning on their resources invested in the business. The investors of
the company are earning high level of returns which are increasing though slightly
decreased in 2011-12.



0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
2007-08 2008-09 2009-10 2010-11 2011-12
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FINDINGS
There is increase in current assets that the short term solvency of the
company is good.
The current liabilities have increased by 8861 i.e. 14.4% in 2011-12
compared to previous year..
Fixed assets have increased by 127638 i.e. 42.9% in the year 2011-2012.
There is increase in share holder funds of company that is why we can say
the long term solvency of the company is good satisfaction.
The liquidity position of the firm is satisfied. The current assets increased
on the whole from 2007-08 to 2009-10. Then decreased in 2010-2011 and
increased in 2011-2012
It is found that the firm assets are financed more by the internal funds
rather than the external funds by which it is using its resources more
effective.
The fixed asset ratio is ideal in the year2010-2011 and then increased in
2011-2012.
The company is earning sufficient profits to pay the interest charges of the
investors.
The management of inventory of organization is satisfied.
It is found that utilization of the working capital is not, so efficient but is
satisfactory.
The fixed asset turnover ratios are in the increasing trend, which is
satisfactory.
The profitability of the firm is satisfactory and it is covering various
operation expenses without incurring losses.
The organization earning the constant returns over its sales. which is good
for any manufacturing concern.




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CONCLUSIONS
The sales to assets ratio is reveals that except in 2007-08, in all the years it is more
than I indicating good sales position of the firm in the market.
The current assets increased on the whole from 2007-08 to 2009-10. Then
decreased in 2010-2011 and increased in 2011-2012
During the study period the working capital position is found to be satisfactory.
The net profit is more in the last year i.e. 63.7% because of the reduced operation
expenses.
It is observed that the total assets are almost same during the same period with a
slight variation of 1% to 3%.
Over all the company current position is good but years 2007-08 & 2006-07 the
company current position not good.
The company paid to the dividend to shareholders in last year 2009-2010 it is the
more than the last 4 years company debt position is good.
The company equity capital in year 2007-08 is 78125 millions but last 3 years
capital is 82455 millions is increase of 5.5%.








71

SUGGESTIONS
Company should maintain adequate liquidity the maintaining ideal current
ratio is 2:1
Company should maintain adequate reserves.
It should control the operating costs further and should also see that the cost of
production will be low.
Company should take some measure to increase the return on investment. It
should try to utilize the funds to the maximum extent.
Company should try to utilize its assets to extent.












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BIBLIOGRAPHY
BOOKS AUTHORES

Financial management I.M.PANDEY
Financial management PRASANNA CHANDRA
Financial accounting & S.P. J AIN&K.L.NARANG
analysis

WEBSITES
www.reliance.com
www.investerspedia.com
www.reliancelife.com

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