Você está na página 1de 3

Ratio Analysis Ratio analysis is an indicated quotient of two mathematical expressions and as th e relationship between two or more things

. Ratio analysis is one of the powerful tools of the financial analysis. One of the techniques of analysis of statement is to calculated ratios. Ratio is the numerical or arithmetical relationship between two figures. It is expressed when one figure is divided by another. Ratio analysis stands for the process of determining and presenting the relationship of items in the financial statements. The ratios provide information that can be us ed by the management to that action.

Nature of Ratio Analysis Ratio analysis is technique of analysis and interpretation of financial statemen ts. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of better un derstanding of financial strengths and weakness of a firm. Interpretation 1. Current ratio The company s current ratio for 2004-05, 2005-06 is 3.09 and 4.1 respectively. The standard norm is 1:1.33. The current ratio current ratio for 2004-05, 2005-06 is above the standard norm. Hence we conclude that the company enjoys sufficient liquidity and there is no s hortage of working capital. 2. Quick ratio It shows a firm s ability to meet current liabilities with its most liquid Assets. The ideal quick ratio in 1:1 because it is wise to keep the liquid assets at least equal to the liabilities at all times. The company had a quick ratio of 2.15:1 in the year 2004-05; and has 3.6:1 in the year 2005-06. This is good indication of growing company. 3. Net working capital turnover ratio There is no standard or ideal working capital turnover ratio. The net working ca pital turnover ratio during the year 2004-05 and 2005-06 is 8.67 and 7.7 respect ively. A high working capital turnover ratio indicates the efficiency and a low workin g capital ratio indicates inefficiency. The ratios reveal that efficiency of the company has decreased during the last two years 4. Debt Equity ratio

The standard ratio for the debt equity ratio is 2:1. If the debt is two times le ss than the equity, the logical conclusion is that the financial structure of th e concern is sound and so the stake or risk of the long term creditors is relati vely less. The debt equity ratio during the last two years is decreasing gradual ly which implies that the financial structure of the company is sound Debt Equity Ratio Ideal ratio : 2:1; It means for every 2 shares there is 1 debt . If the debt is less than 2 times the equity, it means the creditors are relati vely less and the financial structure is sound. If the debt is more than 2 times

the equity, the state of long term creditors are more and indicate weak financi al structure. Outsiders funds Debt equity ratio= Shareholders funds It Is calcul ated to measure the relative claims of outsiders and the owners against the firm s assets. This ratio indicates the relationship between the outsiders funds and t he shareholders funds. . Proprietary ratio There is no standard or ideal proprietary ratio. The proprietary ratio in the ye ar 2004-05 has been 0.43, and in the year 2005-06 it has shown a steady improvem ent and the proprietary ratio went up to 0.55. Proprietary Ratio or Net Worth Ratio Ideal ratio : 0.5:1 Higher the ratio better the long term solvency (financial) position of the company. This ratio indicate s the extent to which the assets of the company can be lost without affecting th e interest of the creditors of the company Proprietary funds Capital employed Pr oprietary ratio= or Total assets Total liabilities It establishes relationship b etween the proprietors fund or shareholders funds and the total assets Fixed asset to net worth ratio The fixed asset to net worth for 2004-05 and 2005-06 is 0.68 and 0.32 respective ly. Generally the purchase of fixed assets should be financed by shareholders eq uity including reserves, surpluses and retained earnings. 44 7. Gross profit ratio As the gross profit is found by deducting cost of goods sold from the net sales, higher the gross better the result. There are no standard norms for gross profi t ratio. It is calculated to know the trading profit made during the year. The g ross profit ratio for the year 2004-05, 2005-06 are 1.47%, 2.13% respectively. 8. Net profit ratio The net profit ratio is calculated to know the actual profit of a concern during the year. The net profit for 2004-05 and 2005-06 are 2.26% and 4.29% respective ly. Usually, while calculating the net profit the investment or capital of the f irm is only in relation to sales. 9. Profit before tax to new worth ratio The standard ratio is about 13%. As such, if the actual net profit to net worth ratio is 13% or more, it is an indication of good return on the shareholders fun d. The profit before tax to new worth ratio for the year 2004-05 is 19.5% and 20 05-06 25.6%. 10. Profit before tax to equity ratio There is no standard for net profit to equity ratio. The ratio is a measure of p roductivity and profitability of the enterprise form the point of view of equity shareholders. This ratio was 34.8% in 2004-05 and 26.0% in 2005-06. 11. Current liability to net worth ratio The standard or ideal proprietary ratio of current liability to net worth ratio is 33% or 1/3, more than this there is no adequate cover for long term creditors . The current liability to net worth ratio in the year 2004-05, and 2005-06 is 0 .28 and 0.14 respectively. By this we can come to the conclusion that there is a dequate cover for long term creditors. 12. Asset turnover ratio There is no standard or ideal for asset turnover ratio. The asset turnover ratio

for the year 2004-05 is 6.59 times and 2005-06 is 4.35times. By this we can con clude that the asset turnover ratio is decreased when compared with 2004-05 and 2005-06. 13. Fixed asset turnover ratio The standard or ideal of fixed asset turnover ratio is 5 times. The fixed asset turnover ratio for the year 2004-05 and 2005-06 are 16.9 times and 16.9 times re spectively by this we can conclude that the fixed assed turnover ratio has been constant for past two years. 14. Sales to net worth ratio There is no standard or ideal for the sales to net worth ratio. The sales to net worth ratio in the year 2004-05 and 2005-06 is 8.6 times and 7.7times respectiv ely. By this we can conclude that the sales to net worth has decreased in the pr evious year. 15. Current asset turnover ratio There is no standard or ideal for current asset turnover ratio. The current asse t turnover ratio for the year 2004-05 and 2005-06 are 5.78 times and 5.83 times respectively. In the year 2005-06 the current asset turnover ratio is the highes t and in the year 2004-05 it is the lowest. By this we can conclude that the cur rent asset turnover ratio is been increasing in recent years.

CHAPTER- 6 LEARNING EXPERENCE Exposure to the company Doing my InPlant Training Kamdhenu Ispat ltd was an experience of a life time. K amdhenu Ispat ltd is one of the manufacturers of the international quality reinf orced steel bars, with a decade long experience in the construction business. 46 I learned a lot about the steel industry focusing on TMT bars. Working at this c ompany was an absolutely great experience. I got the experience of the real work force, and also learnt the different strategy adopted by them. I gained many ne w management skills and also got a chance to learn new things on my own. Throughout my InPlant training, I learned about the skills required, style of le adership, the strategies adopted by the company in order to face the tough compe tition, the order executive system and much more. It was more of a learning expe rience for me. Undergoing the InPlant training in Kamdhenu Ispat ltd helped me i n improving skills like meeting a deadlines, time management, teamwork, and netw orking with fellow employees and handling the market conditions. It also helped me to understand the corporate culture and experience in a better way