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Ratio Analysis on Shree New Annapurneshwari Oil Mill & Ginning Factory, Mulagund
CHAPTER – 1
INTRODUCTION
1.1 INTRODUCTION:
Ratio analysis is one of the most useful tools of financial analysis which helps in analyze and
interpretation for health of the firm. The analysis of financial statement is a process of
evaluating the relationship between component parts of financial statements to obtain a better
understanding of the firm’s position and performance. Ratio analysis is not an end but it is
only means of better understanding of financial strength and weakness of firm. An accounting
figure conveys meaning when it is related to some other relevant information. For example,
the firm’s net profit may look impressive, but the firm’s performance can be said to be good
or bad only when the net profit figure is related to the firm’s investment.
Ratio Analysis is a widely-used tool of financial analysis. It can be used to

compare the risk and return relationships of firms of different sizes. Ratio Analysis can be
defined as “the systematic use of ratio to interpret the financial statements so that the
strengths and weaknesses of a firm as well as its historical performance and current financial
condition can be determined.
The relationship between two accounting figures expressed mathematically, is

known as a financial ratio. Ratios help to summarize large number of quantities of financial
data and to make qualitative judgment about the firm’s financial performance. For example,
consider current ratio. It is calculated by dividing current assets by current liabilities. The
ratio indicates a relationship a quantified relationship between current assets and current
liabilities. This relationship is an index or benchmark, which permits a quantitative judgment
to be formed about the firm’s liquidity and vice versa. The point to note is that a ratio
reflecting a quantitative relationship helps to form a qualitative judgment; such is the nature
of all financial ratios.
P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 1

1.2 OBJECTIVE OF THE STUDY:
1. To know the organization structure of the company.
2. To know the profitability and liquidity position of the company.
3. To identify the factors affecting for profit.
1.3 NEED OF THE STUDY:
1. The study helps to know a liquidity and profitability of the company.
1.4 SCOPE OF THE STUDY:
The scope of the study is limited to financial aspect of Shree New Annapurneshwari Oil Mill
& Ginning factory in Mulagund. The study is based on direct interact with manager of the
factory. The study covers 5 years of the data.
1.5 LIMITATIONS OF THE STUDY:
1. Study covers only few aspects and concepts of the financial statements.
2. The project report is confined to previous 5 year data.
3. The conclusion applicable to Shree New Annapurneshwari Oil Mill & Ginning
factory may not applicable other factory.

1.6 RESEARCH METHODOLOGY:
Data collection method-
The data for the study was collected from
 Primary data
Primary data is collected through direct interview with manager and workers
of Shree New Annapurneshwari Oil Mill & Ginning factory.
 Secondary data
Data collected through-
1. Company financial statements of the firm such as balance sheet, profit and loss
account.
2. Textbooks
3. Google.com

CHAPTER – 2
CONCEPTUAL FRAMEWORK
RATIO ANALYSIS
2.1 INTRODUCTION:
When we observed the financial statement comprising the balance sheet and profit and loss
account is that they do not give all the information related to financial operations of firm,
they can provide some extremely useful information to the extent that the balance sheet
shows the financial position on a particular date in terms of structure of assets, liabilities and
partner’s equity and profit and loss account shows the results of operation during the year.
Thus the financial statements will provide a summarized view of the firm. Therefore in order
to learn about the firm the careful examination of a valuable reports and statements through
financial analysis or ratio is required.
2.2 MEANING AND DEFINITION:
Ratio analysis is one of the powerful techniques which are widely used for
interpreting financial statements. This technique serves as a tool for assessing the financial
soundness of the business, it can be used to compare the risk and return relationship of firms
of different sizes. The term ratio refers to the numerical or quantitative relationship between
two items/variables.
The idea of ratio analysis was introduced by Alexander Wall for the first time in
1919. Ratios are quantitative relationship between two or more variables taken from financial
statements.
Ratio analysis is defined as, “the systematic use of ratio to interpret the financial
statement so that the strength and weakness of the firm as well as its historical performance
and current financial condition can be determined.”

In the financial statement we can find many items are co-related with each other for
example current assets and current liabilities, capital and long term debt, gross profit and net
profit, purchase and sales etc…
Ratios are relative figures reflecting between variables. They enable analyst to draw
conclusions regarding financial operations. The use of the ratios, as a tool of financial
analysis involves their comparison, for a single ratio like absolute figures, fails to reveal the
true position. For example, if in the case of a firm, the return on capital employed is percent
in a particular year, what does it indicate? Only if the figure is related to the fact that in the
preceding year the relevant return was 12% or 18%, it can be inferred whether the
profitability of the industry as a whole is 10% or 20%, the profitability of the firm in question
can be evaluated. Comparison with related facts is, therefore, the basis of ratio analysis. Four
types of comparison involved.
A) Trend Ratios:
Trend ratios involve a comparison of the ratios of a firm over time, that is, present ratios are
compared with the past ratio of the same firm. Trend ratio indicates the direction of change in
the performance, improvement, deterioration or constancy over the years. This kind if ratio
particularly applicable to the items of profit and loss account. It is advisable that trends of the
sales and the net income may be studied in the light of two factors; the rate of fixed
expansion or secular trend in the growth of the business and the general price level, it might
be found in practice that a number of firms would show a persistent growth over the period of
the years.
B) Intra firm comparison:
Intra firm comparison involving comparison of the ratio of the firm with those of the others in
the same line of business or for the industry as a whole reflects its performance in relation to
its competitors.
C) Comparison of items within a single year’s financial statement of a firm
D) Comparison with standers or plans

2.3 NATURE OF RATIO ANALYSIS:
Ratio analysis is technique of analysis and interpretation of financial statements. It is the

process of establishing various ratios for helping in making certain decisions. However, ratio
analysis is not an end in itself. It is only a mean better understanding of financial strengths
and weakness of a firm. Calculation of mere ratios does not serve any purpose, unless several
appropriate ratios are analyzed and interpreted. There are number of ratios which can be
calculated from the information given in the financial statements, but the analyst has to select
the appropriate data and calculate only a few appropriate ratios from the same keeping on
mind the objective of analysis.
2.4 FOLLOWING ARE THE FOUR STEPS INVOLVED IN THE RATIO
ANALYSIS:
Selection of relevant data from the financial statements depending upon the objective of the
analysis
1) Calculation of appropriate ratios from the above data.

2) Comparison of the calculated ratios with the ratios of the same firm in the past, or the
ratios developed from the projected financial statements or the ratios of some other firms
or the comparison with ratios of the industry to which the firm belongs.
3) Interpretation of the ratios.
2.5 INTERPRETATION OF THE RATIOS:
The interpretation of the ratios is an important factor. Through the calculation of ratios is also
important but it is only a clerical task where as interpretation needs skill, intelligence and
foresight. The inherent limitations of ratio analysis should be kept in mind while interpreting
them. The impact of factors such as price level changes, change in accounting policies,
window dressing etc… should also keep in mind when attempting to interpret ratios.

2.6 THE INTERPRETATION OF THE RATIOS CAN BE MADE IN THE

FOLLOWING WAYS:
Single absolute ratio:
Generally speaking one cannot draw any meaningful conclusion when a single
ratio is considered in isolation. But single ratios may be studied in relation to certain
rules of thumb which are based upon well proven conventions.
 Collective of ratio:
Ratios may be interpreted by calculating a group of related ratios. Single ratios
supported by other related additional ratios become more understandable and
meaningful.
 Historical comparison:
One of the easiest and most powerful ways of evaluating the performance of
the firm is to compare its present ratios with the past ratios called comparison
overtime. When financial ratios are compared over a period of time, it gives an
indication of the direction of changer and reflects whether the firm’s performance and
financial position has improved or remained constant over a period of time.
 Projected ratio:
Ratios can be calculated for future standards based upon the projected
performance of financial statements. These future ratios may be taken as standard for
comparison and the ratios calculated on actual financial statements can be compared
with the standard ratios to find out the variance and taking corrective action for
improvement in future.
 Inter-firm comparison:
Ratios of one firm can also be compared with the ratios of some other selected
firms in the same industry at the same point of time. This kind of comparison helps in
evaluating relative financial position and performance of the firm. But while making

use of such comparison helps in calculating relative financial position and

performance of the firm. But while making use of such comparison one has to be very
careful regarding the different methods, policies, procedures adopted by different
firms.
2.7 USE AND SIGNIFICATIONS OF RATIO ANALYSIS:
The ratio is one of the most powerful tools of financial analysis.

It is used as a device to analyze and interpret the financial health of enterprise. Ratio analysis
stands for the process of determining and presenting the relationship of items and groups of
items in the financial statements. It is an important technique of the financial analysis. It is
the way by which financial stability and health of the concern can be judged. Thus ratios have
wide applications and are of immense use today. The following are the main points of
importance of ratio analysis:
a) Managerial uses of ratio analysis:-
1. Helps in decision making:-

Financial statements are prepared primarily for decision-making. Ratio analysis helps in
making decision from the information provided in these financial Statements.
2. Helps in financial forecasting and planning:-

Ratio analysis is of much help in financial forecasting and planning. Planning is looking
ahead and the ratios calculated for a number of years a work as a guide for the future. Thus,
ratio analysis helps in forecasting and planning.
3. Helps in co-ordination:-
Ratios even help in co-ordination, which is of at most importance in effective business
management. Better communication of efficiency and weakness of an enterprise result in
better co-ordination in the enterprise.

4. Helps in control:-
Ratio analysis even helps in making effective control of business.The weaknesses are
otherwise, if any, come to the knowledge of the managerial, which helps, in effective control
of the business.
5. Helps in communicating:-
The financial strength and weakness of a firm are communicated in a more easy and
understandable manner by the use of ratios. Thus, ratios help in communication and enhance
the value of the financial statements.
b) Utility to shareholders/investors:-
An investor in the company will like to assess the financial position of the concern where he
is going to invest. His first interest will be the security of his investment and then a return in
form of dividend or interest. Ratio analysis will be useful to the investor in making up his
mind whether present financial position of the concern warrants further investment or not.
c) Utility to creditors: -
The creditors or suppliers extent short-term credit to the concern. They are invested to know
whether financial position of the concern warrants their payments at a specified time or not.
d) Utility to employees:-
The employees are also interested in the financial position of the concern especially
profitability. Their wage increases and amount of fringe benefits are related to the volume of
profits earned by the concern.
e) Utility to government:-
Government is interested to know overall strength of industry. Various financial statement
published by industrial units are used to calculate ratios for determining short term, long term
and overall financial position of the concerns.

f) Tax audit requirement:-

Sec 44AB was inserted in the income tax act by financial act; 1984. Clause 32 of the income
tax act requires that the following accounting ratios should be given:
1. Gross profit/turnover.
2. Net profit/turnover.
3. Stock in trade/turnover.
4. Material consumed/finished goods produced.
Further, it is advisable to compare the accounting ratios for the year under
consideration.
2.8 IMPORTANCE OF RATIO ANALYSIS:
As a tool of financial management, ratios are of crucial significance. The

importance of the ratio analysis lies in the fact that it presents facts on a comparative basis
and enables the drawing of inference regarding the performance of a firm. Ratio analysis is
relevant in assessing the performance of a firm in respect of the following aspects.
1. Liquidity position:
With the help of ratio analysis conclusion can be drawn regarding the
liquidity position of the firm. The liquidity position of the 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 shirt term liabilities if it has sufficient liquidity funds to
pay the interest on its short maturing debts usually within a year as well as to repay
the principal.
2. Long term solvency:

Ratio analysis is equally for assessing the long term viability of a firm. This
aspect of the financial position of a borrower is of concern to long term creditor,
security analysis and the present and potential owners of a business. The long term
solvency is measured by the leverage/capital structure profitability of ratio which
focuses on earning power and operating efficiency. Ratio analysis reveals the strength
and weakness of the firm in this respect.

3. Operating efficiency:
Yet another dimension of the usefulness of the ratio analysis, relevant from the view
point of the management, is that it throws light on the degree of the efficiency in the
management and utilization of its assets. The various activity ratios measure this kind
of operational efficiency. In fact, the solvency of a firm is in the ultimate analysis,
dependent upon the sales generated by the use of its assets- total as well as its
components.
4. Overall profitability:
Unlike the outside parties which are interested in one aspect of the financial position
of a firm, the management is constantly concerned about the ability of the firm to
meet its short term as well as long term obligations utilization of the assets of the
firm. This is possible if an integrated view is taken and all the ratios are considered
together.
5. Inter-firm comparison:
Ratio analysis not only throws the light on the financial position of a firm but also
serves as a stepping stone to remedial measures. This is made possible due to inter-
firm comparison and comparison with the averages. A single figure of a particular
ratio is meaningless unless it is related to some standard or norm. One of the popular
technique to compare the ratio of the firm with the industry average. It should be
reasonably expected that of the industry to which it belongs. An inter-firm
comparison would demonstrate the firm’s position vis-à-vis its competitors.
6. Trend analysis:
Finally, ratio analysis enables a firm to take the time dimension into account. In other
words, whether the financial position of a improving or deteriorating over the years.
This is made possible by the use of the trend analyst can know the direction of
movement, that is, whether the movement if favorable or unfavorable.

2.9 CLASSIFICATION OF RATIOS:
Financial ratios can be classified under the following five groups:

1) Structural
2) Liquidity
3) Profitability
4) Turnover
5) Miscellaneous.
1. Structural group:
The following are the ratios in structural group:
A) Funded debt to total capitalization:

The term ‘total’ capitalization comprises loan term debt, capital stock and reserves and
surplus. The ratio of funded debt to total capitalization is computed by dividing funded debt
by total capitalization. It can also be expressed as percentage of the funded debt to total
capitalization. Long term loans
Total capitalization (Share capital + Reserves and surplus + long term loans)
B) Debt to equity:
Due care must be given to the; computation and interpretation of this ratio. The definition of
debt takes two foremost. One includes the current liabilities while the other excludes them.
Hence the ratio may be calculated under the following two methods:
1. Long term loans + short term credit + Total debt to equity = Current liabilities and
1. Long term loans + short term credit + Total debt to equity = Current liabilities and
provisions Equity share capital + reserves and surplus
provisions Equity share capital + reserves and surplus
(OR)
(OR)
2. Long-term debt to equity = Long – term debt / Equity share capital + Reserves
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C) Net fixed assets to funded debt:

This ratio acts as a supplementary measure to determine security for the lenders. A ratio of
2:1 would mean that for every rupee of long-term indebtedness, there is a book value of two
rupees of net fixed assets:
D) Funded (long-term) debt to net working capital:

The ratio is calculated by dividing the long-term debt by the amount of the net working
capital. It helps in examining creditors’ contribution to the liquid assets of the firm.
2. Liquidity group:
It contains current ratio and Acid test ratio.
A) Current ratio:
It is computed by dividing current assets by current liabilities. This ratio is generally an
acceptable measure of short-term solvency as it indicates the extent to which he claims of
short term creditors are covered by assets that are likely to be converted into cash in a period
corresponding to the maturity of the claims. Current assets / Current liabilities and provisions
+ short-term credit against inventory
B) Acid-test ratio:
It is also termed as quick ratio. It is determined by dividing “quick assets”, i.e., cash,
marketable investments and sundry debtors, by current liabilities. This ratio is a bitterest of
financial strength than the current ratio as it gives no consideration to inventory which may
be very a low- moving.
3. Profitability Group:
It has five ratios, and they are calculated as follows:
Cash and material Investments, sundry debtors,

Loans and advances
Current liability and provisions

1. Operating ratio =
Operating expenses (cost of goods sold + Administrative and selling expenses

X100
Net sales

Operating profit
2. Operating profit to sales =
Net sales
Net profit
3. Net profit to sales = x 100
Net sales
4. Coverage of Earning Before interest and Taxes
EBIT
5. Return on investment = x 100
Capital employed
(OR)
Net profit after preference dividend

=
Net worth
4. Turnover group:
It has four ratios, and they are calculated as follows:
Net sales
1. Assets Turnover =
(Capital turnover) Net fixed assets + Current assets
Net sales
2. Net Working =
(Capital turnover) Net working capital
Sundry debtors
3. Receivables turnover = x 100
(Collection period) Net sales
Sales
4. Inventory turnover= a)
Ending inventory
Cost of Goods sold

b)
Average inventory

5. Miscellaneous group:
It contains four ratio and they are as follows:
EPS
1. Earning price ratio =
MP
MP
2. Price earnings ratio =
EPS
DPS
3. Dividend yield ratio=
MP
DPS
4. Payout ratio =
EPS
Net profit after preference dividend

EPS =
No. of outstanding ordinary shares
Dividends for ordinary shares

DPS =
No. of outstanding ordinary shares
MP = Market price per share

2.10 ADVANTAGES AND DISADVANTAGES OF RATIO ANALYSIS:
Advantages:
 Simplifies financial statements:

Ratio analysis simplifies the comprehension of financial statements. Ratios tell
the story of changes in financial condition of the business.
 Facilitates inter firm comparison:

Ratio analysis provides data for inter company comparison. Ratio highlights
the association with successful and unsuccessful firms. They also reveal strong and
weak companies, overvalued and undervalued companies.
 Makes intra firm comparison possible:
Ratio analysis also makes possible comparison of the performance of different
division of the company. The ratio analysis was helpful in deciding about their
efficiency.
 Helps in planning:
Analysis helps in planning and forecasting over period of time a company
develops certain norms that may indicate future success/failure. If relationship
changes in firms data over different time periods, the ratio may provide clues on
trends and future problems.
 Liquidity position:
With the help of ratio analysis conclusions can be drawn regarding liquidity
position of the company. The liquidity position of the company could be satisfactory
if it is able to meet its current obligations when they become due.
 Long term solvency:

Ratio analysis is equally useful for assessing the long-term financial viability
if a firm. The long-term solvency is measured by the leverage/capital structure and
profitability ratios, which focus on earning power and operating efficiency.

Disadvantages:
Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from
various limitations. The operational implication of this is that while using ratios, the
conclusion should not been taken on their face value. Some of the limitation which
characterizes ratio analysis is;
 Difficulty in comparison:
One serous limitation of ratio analysis arise out of the difficulty associated
with their comparability. One technique that is employed is inter-firm comparison.
But such comparisons are vitiated by different procedures adopted by various firms.
The difference may relate to
 Difference in the basis of inventory valuation.

 Different depreciation methods (i.e. straight line vs. written down basis)
 Estimated working life of the assets, particularly of plant and equipment.
 Amortization of intangible assets like goodwill, patents and so on.
 Amortization of deferred revenue expenditure such as preliminary expenditure
and discount on issue of shares.
 Capitalization of lease.
 Treatment of extraordinary items of income and expenditure and so on.
 Secondly, apart from different accounting procedures, companies may have
different accounting periods, implying differences in the composition of the
assets, particularly the current assets. For these reasons, the ratios of two firms
may not be strictly comparable.
 Impact of inflation:
The second major limitation of the ratio analysis as a tool of financial analysis is
associated with price level changes. This, in fact is a weakness of the traditional
financial statement which are based on historical cost. An implication of this feature
of the financial statements as regards ratio analysis is that assets acquired at different
periods are, in effect, shown at different prices in the balance sheet, as they are not
adjusted for changes in the price level. As a result, ratio analysis will not yield strictly
comparable and therefore, dependable results.

 Conceptual diversity:
Yet another factor which affect the usefulness of ratios is that there is difference of
opinion regarding the various concepts used to compute the ratios, thete is scope for
diversity of opinion as to what constitutes shareholders equity, debt, assets, profit and
so on. Different firms may use these in different sense or the same firm may use them
to mean different things at different times.
Reliance on a single ratio for a particular may not be a conclusive indicator, for
instance, the current ratio alone is not an adequate measure of short-term financial
strength; it should be supplemented by the acid test ratio, debtor’s turnover ratio and
inventory and inventory turnover ratio to have a real insight into the liquidity aspects.

CHAPTER – 3
COMPANY PROFILE
3.1 COMPANY PROFILE:
Name of the organization Shree New Annapurneshwari Oil Mill &

Ginning factory.
Establishment 2000
Types of ownership Partnership
Partners Ashok Sonagoji, Pradeep Sonagoji, Praful
Sonagoji and Venkatesh Sonagoji.
Managing partner Ashok Sonagoji
Investment 5,00,000 each (20,00,000)
Departments Production department, Sales department,
Finance department
Raw material Raw cotton
Product Cotton, Seeds
Total employees 10
Types of wages Daily wages
Yearly sales 1 Crore
Sources of transportation Road transport
Shifts 2
Working hours 8 hours

3.2 INTRODUCTION& HISTORY OF THE COMPANY:
Shree New Annapurneshwari Oil Mill & Ginning factory basically produces cotton. It was
established in the year of 2000, in Mulagund village, Gadag district. This factory follows
partnership firm type of ownership. The main aim of the factory is providing a good quality
of cotton in minimum price.
In the time of establishment of the factory, there are 4 equal partners. They
are Late Subhash Sonagoji, Ashok Sonagoji, Late Devendra Sonagoji & Pradeep Sonagoji.
They established the factory with the equal capital of Rs. 5, 00,000/-(Total capital Rs. 20,
00,000) & distribute the profit or loss as per their investment ratio. After some years Subhash
Sonagoji and Devendra Sonagoji died for some reason, and then the management team
replaces Praful Sonagoji and Venkatesh Sonagoji as partners in the place of Subhash
Sonagoji and Devendra Sonagoji. Praful Sonagoji is son of Subhash Sonagoji and Venkatesh
Sonagoji is son of Ashok Sonagoji. At the beginning Late Subhash Sonagoji was managing
director of the factory. Now, at present Ashok Sonagoji is working as managing director of
the factory.
In the beginning years of the company they produce both Groundnut oil and
cotton ginning. But, after some years they stopped the production of Groundnut oil. New
there is only cotton ginning is going on.
The factory purchases the raw cotton from the local formers. Then they
separates the seeds from the raw cotton and ginning that cotton in ginning machine, and lastly
that ginning cotton pressing in pressing machine. This procedure will be doing in this factory.
An average, this factory daily produces the 20 quintals of cotton. 10 members are working in
this factory and they all are getting a wage on daily wage basis.
This factory’s main source of transportation on is road transportation; they

make transportation through big Lorries and other goods carriage vehicles. This factory sold
the cotton to whole sellers which place they get profit there sell the cotton not proper place to
sell the cotton regularly.

3.3 VISION AND MISSION OF THE COMPANY:
01. Vision
The reason for our existence is articulated by our Mission, our vision reflects aspiration to
continually improve, excel and be the best. Our values characterize us as an organization and
guide our every single action.
 To be a leading global producer of Cotton and Cotton Seed Oil & Mustard Oil
products by delivering exceptional quality products to our customers.
02. Mission
Our aim is to offer our clients the best quality cotton ever, resulting from a very high standard
of performance and years of experience.
 To provide innovative products at competitive price.

 Optimizing customer satisfaction.
 To achieve highest level of productivity and reliability.
 Our mission is to expand our business of cotton ginning and pressing. For that,
we mean to increase best quality processing

3.4 CHARACTERISTICS OF COMPANY
Shree New Annapurneshwari Oil Mill & Ginning factory is a small scale industry; it shows
of the characters to take this type of division. Small scale industries have special features
which are distinguished from large scale industries “small scale industry is beautiful”,
because of the following important characteristics,
01. Partnership
02. Management control
03. Local area operation
04. Simple organization
05. Relationship
06. Product
07. Production
08. Sales
 Partnership :
1. Company has adopted active partnership policy and all the partners of the company
actively involved in the business processes.
2. Every partner of the company have divided the capital and invested in equal amount
when the company in initial stage i.e. Rs. 5, 00,000 each partner.
3. Profit will be divided into equal ratio.
4. Investment for the company will be divided into equal ratio.
 Management control :
In case of small unit the partners are generally in one of them manager.
These units are managed in personalized fashion or manner, the partners actively
participates in all aspects of business. It is similarly in the Shree New
Annapurneshwari Oil Mill & Ginning Factory the whole industry is controlled by Mr.
Ashok Sonagoji manager of the company and in one of the partner of the company,
the whole responsibilities are in his hand.

 Local area operation:

Being a small scale industrial unit Shree New Annapurneshwari Oil Mill &
Ginning Factory soled their products in regional demands. Generally this factory sold
their products locally or regionally because due to the limited resources of small scale
unit.
 Simple organization:
As a small scale unit it has simple organization. A small business
enterprise has few or layers of management. Division of labors or specialization is
low and the resources are limited.
 Relationship:
This Industry has maintained its relationship very well with its customers, raw
material suppliers and workers. Company provides the required products to its
customers to maintain good relationship with them. Company brings the required raw
materials from its suppliers on cash and credit basis. This industry maintained good
relationship with its staff and labours. Because being a small scale industrial unit all
the activities of the company depend upon its workers. It is also beneficial to the
company to maintain the goodwill of the company.
 Product:
Product concept holds that most quality and performance features so for
manager of production organization focus on making of superior products and
improving them at over time. A new or improved product will not necessarily be
successful unless the product is priced and promotes distribution. The production
concept holds that the consumer will favor of those goods that offer most quality
performance therefore your manufacturer also focus in on making superior products
and will improvement in the existing products.

 Production:
Production orientation holds that consumer will always respond to products
which are easily at offer able prices. Therefore manager task of manufacturer is
constantly improving the production. Product improved and proper distribution at
lower prices. This orientation tells that marketing efforts is necessary to promote
sellers and profit so production oriented business concentrate on archiving high
efficiency at low cost of production and mass distribution and promotional activities
such production orientation programs are followed by all developing countries.
 Sales:
The selling concepts holds consumers and business, is practiced most
aggressively with unsold goods that buyers normally not think of buying such
products like insurance and encyclopedia. If a consumer is alone will not buy enough
of the company products so for organization must undertake an aggressive selling
promotional efforts.

3.5 ORGANIZATIONAL HIERARCHIES OF THE COMPANY:
Managing
Director
General
Manager
Finance Human Production Quality

Resource Sales
Manager Manager Control Marketing
Manager Manager
Manager Manager
Financial Tax
Accounting
Analysis Manager Consultant Ginning
Manager
Internal Physical Customer
Cashier Accountant Trade Store Service
Spinning
Finishing

3.6 PRODUCTION PROCESS:
The ginning of cotton has very interesting process. This will be done through different steps.
Different types of machineries and manpower will be used in the production process. Let us
see one by one how the ginning process will happen in the factory.
 STEP 01-
This heap is called as Raw Cotton which is already purchased by the formers. Generally Raw
Cotton purchases from local formers. This is the first step in the production process. In this
step, the raw cotton will be stored in particular place. From here the production process will
be start.
 STEP 02-
This is the second step and very important process in production. This machine
separates the both seeds and cotton from the raw cotton. And the separated seeds and cotton
hoard in particular places. This process is also called as ginning process.
 STEP 03-
This machine separates the waste substances included in the cotton and make the cotton free
from the waste things.
 STEP 04-
After separating the seeds and cotton from the raw cotton the purification process begins.
This machine makes the cotton very smooth and soft and also makes the cotton pure.

 STEP 05-
This is the heap of purified cotton. The purified cotton will be stored in the particular place.
Now the packing process will be start.
 STEP 06-
This machine is called as pressing machine. This machine presses the purified cotton and
makes it as a bundle.

 STEP 07-
These are the bundles of purified cotton and it is called bale. This bale will be ready to sale.
 STEP 08-
This is the heap of cotton seeds which is separated from the raw cotton. It will be sold to the
wholesalers. And it is also used as making oil.

CHAPTER – 4
ANALYSIS AND INTERPRITATION
MEANING AND INTRODUCTION OF ANALYSIS:
A) Introduction
Analysis and interpretation of data refers to the study of the treatment of information
contained in the income statements and balance sheet, so as to afford full diagnosis of the
profitability and the financial soundness of the business.
The study is conducted in Shree New Annapurneshwari Oil Mill & Ginning factory,
mulagund to measure the Ratio analysis of the company. The ratio analysis is the most
important tool of measure the liquidity, profitability and solvency position of the company, so
this study is undertaken to observe the management of financial statement through ratio
analysis like liquidity ratio, profitability ratio etc…
Technique, because ratio analysis is the important tool to measure the financial
performance of the company, so I had taken the 5 years annual report to measure the ratio
analysis of the company
B) Meaning
The process of studying or examining something in an organized way to learn more about it,
or a particular study of something is called as analysis.

I. LIQUIDITY RATIOS:
These are the ratios which measures the short-term paying capacity of a concern or the firm’s
ability to meet its current obligations. The various liquidity ratios are-
4.1 Current Ratio:
Current ratio may be defined as the relationship between current assets and current liabilities.
This ratio, also known as working capital ratio, is a measure of general liquidity and most
widely used to make the analysis of a short-term financial position or liquidity of a firm. It is
calculated by dividing the total of current assets by total of current liabilities.
Current Assets
Current ratio =
Current liabilities
TABLE: 4.1
Current Ratio of the company
(Figures in Rs)
Years Current assets Current Liabilities Ratios
2013 10098566.44 11871918.5 0.851
2014 17899166.49 19361776.8 0.924
2015 19070689.72 21254802.46 0.897

2016 16460546.15 17909096 0.919
2017 4549935.85 9965951 0.456
Source: Primary data

CHART: 4.1
CURRENT RATIO
1
0.9
0.8
0.7
0.6
0.5
Ratio
0.4
0.3
0.2
0.1
0
2013 2014 2015 2016 2017
Source: Table No. 01
Interpretation:
It is evident from the graph which shows the current ratio of the industry. The ratio is 0.851,
0.924, 0.897, 0.919, and 0.456 for 2013, 2014, 2015, 2016 and 2017 respectively. It is has
been fluctuating every year. There is decrease in current ratio in 2017 compared to all the
years.

4.2 Quick Ratio:

The quick ratio is an indicator of a company’s short-term liquidity position and measures a
company’s ability to meet its short-term obligations with its most liquid assets.
It indicates the company’s ability to instantly use its near-cash assets (that is, assets that can
be converted quickly to cash) to pay down its current liabilities, it is also called as the acid
test ratio.
 Formula of Quick ratio
Quick assets
Quick ratio=
Quick liabilities
TABLE: 4.2
Quick Ratio of the company
(Figures in Rs)
Years Quick assets Quick liabilities Ratio
2013 4095599.97 118719118.50 0.034

2014 5957685.47 19361776.80 0.307
2015 7015460.67 21254802.46 0.330
2016 750859.21 17909096 0.042
2017 23031.05 9965951 0.002

CHART 4.2
QUICK RATIO
0.35
0.3
0.25 2013
2014
0.2
2015
0.15 2016
0.1 2017
0.05
0
2013 2014 2015 2016 2017
Source: Table no. 02
Interpretation:
The above diagram shows the quick ratio of the firm. The quick ratio was 0.034, 0.307,
0.330, 0.042 and 0.002 for 2013, 2014, 2015, 2016 and 2017 respectively. There is least
decrease in the year 2017, which indicates the firm is facing loss.

4.3 Absolute Liquid Ratio:

Although receivables, debtors and bills receivables are generally more liquid then
inventories, yet there may be doubts regarding there realization into cash immediately or in
time. Hench, some authorities are of the opinion that the absolute liquid ratio should also be
calculated together which current ratio and acid ratio and acid test ratio so as to exclude even
receivables from the current assets and find out the absolute liquid assets.
Absolute liquid assets

Absolute Liquid Ratio=
Current liabilities
TABLE: 4.3
Absolute liquid ratio of the company
(Figures in Rs.)
Years Absolute liquid assets Current liabilities Ratios
2013 2148967.97 11871918.50 0.181

2014 3312667.10 19361776.80 0.171
2015 1681141.97 21254802.46 0.079
2016 350859.21 17909096.00 0.020
2017 23031.05 9965951.00 0.002
Source: Primary Data

CHART NO: 4.3
ABSOLUTE LIQUID RATIO

0.2
0.18
0.16
0.14
0.12
0.1
Ratio
0.08
0.06
0.04
0.02
0
2013 2014 2015 2016 2017
Interpretation:
The above diagram shows the Absolute liquid ratio of the firm. The absolute liquid ratio was
0.181, 0.171, 0.079, 0.020 and 0.002 for 2013, 2014, 2015, 2016 and 2017 respectively.
There is least decrease in the year 2017, which indicates the firm is facing loss.

4.4Net Working Capital:

Net working capital is the aggregate amount of all current assets and current liabilities. It
is used to measure the short-term liquidity of a business, and can also be used to obtain a
general impression of the ability of company management to utilize assets in an efficient
manner.
 Formula
Net working capital = Current assets – Current liability
TABLE: 4.4
Net working capital of the company
(Figures in Rs)
Year Current assets Current liabilities Amount
2013 10098566.44 11871918.50 (1773352.06)
2014 17899166.49 19361776.80 (1462610.31)
2015 19070689.72 21254802.46 (2184112.74)
2016 16460546.15 17909096 (1448549.85)
2017 4549935.85 9965951 (5416015.15)

CHART: 4.4
NET WORKING CAPITAL
2017
2016
2015
Amount
2014
2013
-6000000 -5000000 -4000000 -3000000 -2000000 -1000000 0
Interpretation:
The above chart shows us the net working capital ratio of the firm. All the year current
liabilities are more than the current assets. So the company’s net working capital position is
in bad way.

Profitability Ratio:
Profitability ratios are a class of financial metrics that are used to assess a business’s ability to
generate earnings relative to its revenue, operating costs, balance sheet assets and
shareholders equity over time, using data form a specific point in time.
4.5Gross Profit Ratio:

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational performance
of the business. The ratio is computed by dividing the gross profit figure by net sales.
Formula:
Gross profit ratio = Gross profit X 100

Net sales
TABLE: 4.5
Gross profit Ratio of the company

(Figures in Rs)
Years Gross Profit Net sales Ratio
2013 4210744.47 23389623 18.00
2014 4632068.55 48057409 9.64
2015 3304570.53 59183307.5 5.58
2016 1845800.89 35517893 5.20
2017 (3566550.14) 13671282 (2.61)

CHART: 4.5
GROSS PROFIT RATIO
20
15
10
Ratio
0
2013 2014 2015 2016 2017
-5
Interpretation:
The above diagram shows that the gross profit ratio of the firm. The company’s gross profit
ratio is decreasing year by year. That is, 18%, 9.64%, 5.58%, 5.20% and -2.61%. So the
company earning lower gross profit.

4.6 Net Profit Margin Ratio:

Net profit margin is the percentage of revenue left after all expenses have been deducted
from sales. The measurement reveals the amount of profit that a business can extract
from its total sales. The net sales part of the equation is gross sales minus all sales
deductions, such as sales allowance.
 Formula
Net profit margin ratio = (Net profits ÷ Net sales) x 100
TABLE 4.6
Net Profit Margin Ratio of the company
(Figures in Rs)
Years Net profit Net sales Ratio
2013 48631.15 4210744.47 1.15

2014 31645.75 4632068.55 0.68
2015 37723.57 3304705.53 1.14
2016 (185452.11) 35517893 (0.50)
2017 (3859997.30) 13671282 (28.23)

CHART: 4.6
Ratio
2013
2014
2015
2016
2017
Interpretation
The above diagram shows that the net profit margin ratio. The ratio of 2013, 2014, 2015,
2016 and 2017 is 1.15%, 0.68%, 1.14%, -0.50% and -28.23% respectively. The net profit
margin ratio is fluctuating every year.

4.7 Stock Turnover Ratio:

The stock turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. This measures
how many times average inventory is “turned” or sold during a period.
In other words, it measures how many times a company sold its total average inventory dollar
amount during the year.
 Formula
Cost of goods sold

Stock turnover ratio =
Average inventory
TABLE: 4.7
Stock Turnover Ratio of the company
(Figures in Rs)
Years Cost of goods sold Average stock ratios
2013 19178878.53 4835533.24 3.97
2014 43425340.45 8972223.75 4.84
2015 55878736.97 11998355.04 4.66
2016 33672092.11 13882457.10 2.43
2017 13671282.00 10118295.87 1.35

CHART: 4.7
Ratios
2017
2016
2015 Ratios
2014
2013
0 1 2 3 4 5
Interpretation:
The above line diagram shows us the stock turnover ratio of the firm. It comes after dividing
cost of goods sold by average inventory. The stock turnover ratio of the firm is fluctuating
every year.

4.8 Comparison of Expenses and Profit or Loss:
TABLE: 4.8
Expenses and profit or loss of the company
(Figures in Rs)
Years Expenses Profit or Loss
2013 3012721.32 48631.15
2014 4286062.80 31645.75
2015 2386869.96 37723.57
2016 1086253.00 (185452.11)
2017 94447.16 (3859997.30)
CHART: 4.8
5000000
4000000
3000000
2000000
1000000 Years
0 Expenses
1 2 3 4 5
-1000000 Profit or Loss
-2000000
-3000000
-4000000
-5000000
Interpretation:
The above diagram compares the total expenses made by the firm with profit or loss of the
firm. This diagram clearly shows us when expenses increase the profit of the firm decreases
and vise versa.

4.9 Comparison of Income and Profit or Loss
TABLE: 4.9
Income and Profit or Loss of the company
(Figures in Rs)
Years Incomes Profit or loss
2013 67858 48631.15
2014 125283 31645.75
2015 0 37723.57
2016 1875800.89 (185452.11)
2017 0 (3859997.30)
CHART: 4.9
3000000
2000000
1000000
0
Years
1 2 3 4 5
-1000000 Incomes
Profit or loss
-2000000
-3000000
-4000000
-5000000
Interpretation:
The above bar diagram shows us the comparison between income and profit or loss of the
firm. It shows us a slight change in income can directly affect the profit or loss of the firm.

4.10 Comparison of Expenses and Incomes :
TABLE:4.10
Expenses and incomes of the company
(figures in Rs)
Expenses Incomes
3012721.32 67858
4286062.80 125283
1386869.96 0
1086253.00 1875800.89
94447.16 0
Source: Primary Data
CHART:4.10
5000000
4500000
4000000
3500000
3000000
2500000 Expenses
2000000 Incomes
1500000
1000000
500000
0
1 2 3 4 5
Interpretation:
The above bar diagram shows us the expenses and incomes of the firm. The five years
expenses is 3012721.32, 4286062.80, 1386869.96, 1086253.00, 94447.16 and five years
income is 67858, 125283, 0, 1875800.89, and 0.
After noticing all the data the expenses are more than the income. It may affect to the total
profit or loss of the firm.

CHAPTER – 05
FINDINGS AND SUGGESTIONS
5.1 FINDING AND SUGGESTIONS:
A) Findings:
The following findings are come from the study
 As per the study the current ratio of Shree Annapurneshwari Oil Mill and Ginning
Factory is fluctuating every year. There is very low current ratio in the year of 2017.
So it is affecting to the firm. In the year of 2014 the current ratio was 0.924 it shows
company was in good position in that year.
 As per the study the quick ratio was very low in the year of 2016 and 2017. On that
year the company faced more loss.
 The absolute liquid ratio of the firm from last five year consistently decreasing and
the reasons are weather condition and due to less rain fall it adversely affected
outcome of cotton and this resulted indirectly loss for the company.
 The net working capital ratio shows the growth of the company but as per the study
all the year current liabilities are more than the current assets. So company’s net
working ratio is very poor. It is not good move for the company.
 Gross profit ratio is always depends upon the net sales. As per the study the net sales
of the firm is increased but the gross profit is in decreasing way.
 Net profit margin ratio is very important aspect for the firm but as per the study the
net profit margin ratio of the firm is not good. It is completely collapsed in the year of
2016 and 2017.
 As per the study the stock turnover ratio of the firm is not good. Except 2014, all the
year the stock turnover ratio is in decreasing way so the company is very poor in
sales.

B) Suggestions:
 The Annapurneshwari Oil Mill and Ginning Factory shouldconcentrate on current

ratio. It should maintain like 2014.
 The company must and should increase their current assets because all the year
current assets are less than current liabilities. Then only they will able to get more
profit.
 The company should increase their net sales and as well as decrease the inventory
level. Then only they able to get good gross profit.
 The firm should maintain good quick ratio by increasing their quick assets.
 The net profit margin ratio is completely zero in the year of 2016 and 2017. So they
should give their concentrate on net profit margin ratio.
 The company should maintain their totals assets high. Because all the year total
assets are less than the total liabilities

C. Conclusion:
The study on the ratio analysis on the Shree New Annapurneshwari Oil Mill and Ginning
Factory, Mulagund reveals that the firms has long term goal. As it’s utilizing its fixed assets
in efficient manner.
To analyses and interpret the financial performance of this factory, the ratio analysis
is the most effective quantitative technique. This assists the firm in the financial structuring
of the organization and also helps in efficient management and decision making process.

D.BIBLIOGRAPHY
 Books
S N.Maheshwari & S K.Maheshwari
- Advanced Accountancy. Volume-2 THENTH ADDITION

(Chapter – Financial statements analysis and interpretation)
S P.Jain & K L.Narang
- Advanced Accountancy. Volume-2 NINETEENTH REVISED ADDITION

(Chapter – Ratio analysis)
 Websites
WWW.google.com

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Ratio Analysis on Shree New Annapurneshwari Oil Mill & Ginning Factory, Mulagund

Ratio Analysis is a widely-used tool of financial analysis. It can be used to

The relationship between two accounting figures expressed mathematically, is

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 1

1.2 OBJECTIVE OF THE STUDY:

1. To know the organization structure of the company.

2. To know the profitability and liquidity position of the company.

3. To identify the factors affecting for profit.

1.3 NEED OF THE STUDY:

1. The study helps to know a liquidity and profitability of the company.

1.4 SCOPE OF THE STUDY:

1.5 LIMITATIONS OF THE STUDY:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 2

1.6 RESEARCH METHODOLOGY:

Data collection method-

The data for the study was collected from

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 3

2.2 MEANING AND DEFINITION:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 4

B) Intra firm comparison:

C) Comparison of items within a single year’s financial statement of a firm

D) Comparison with standers or plans

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 5

2.3 NATURE OF RATIO ANALYSIS:

Ratio analysis is technique of analysis and interpretation of financial statements. It is the

2.4 FOLLOWING ARE THE FOUR STEPS INVOLVED IN THE RATIO

1) Calculation of appropriate ratios from the above data.

2.5 INTERPRETATION OF THE RATIOS:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 6

2.6 THE INTERPRETATION OF THE RATIOS CAN BE MADE IN THE

Single absolute ratio:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 7

use of such comparison helps in calculating relative financial position and

2.7 USE AND SIGNIFICATIONS OF RATIO ANALYSIS:

The ratio is one of the most powerful tools of financial analysis.

a) Managerial uses of ratio analysis:-

1. Helps in decision making:-

2. Helps in financial forecasting and planning:-

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 8

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 9

f) Tax audit requirement:-

2.8 IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. The

2. Long term solvency:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 10

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 11

2.9 CLASSIFICATION OF RATIOS:

Financial ratios can be classified under the following five groups:

A) Funded debt to total capitalization:

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI

C) Net fixed assets to funded debt:

D) Funded (long-term) debt to net working capital:

It has five ratios, and they are calculated as follows:

Cash and material Investments, sundry debtors,

Current liability and provisions

Operating expenses (cost of goods sold + Administrative and selling expenses

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 13

4. Coverage of Earning Before interest and Taxes

Net profit after preference dividend

Cost of Goods sold

P.G.DEPT.OF STUDIES IN COMMERCE KLE’S G.H COLLEGE HAVERI Page 14

Net profit after preference dividend

Dividends for ordinary shares