A SUMMER INTERNSHIP REPORT ON RATIO ANLALYSIS AT

Submitted to
L.J. Institute of Computer Application

In requirement of partial fulfillment of

Masters of Business Administration (MBA) 2 year full time Program of Gujarat Technological University

Submitted on:
21th July 2011

Submitted by:
Chandresh Chavada N. Enrolment No. : 107300592038 Batch No. : 2010 - 2012

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CERTIFICATE
It is hereby certified that the work incorporated in the thesis submitted entitled RATIO ANALYSIS submitted by Mr. CHAVADA CHANDRESH comprises the result of independent and original investigation carried out me. The material which obtained (and used) from other sources has been duly acknowledged in the thesis.

Date: Place:

Signature of student

It is certified that the work mentioned above is carried out under my guidance. Date: Place:

Signature of the faculty guide

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PREFACE
This project report is containing in accordance with the Master of Business Administration (M.B.A.) program, prescribed by Gujarat Technological University. Thus, it is our morale and obligatory duty to take this part of our studies with great enthusiasms and seriousness and give it the more importance. The main objective of the project work training is to develop among the student a feel that about industrial environment & business practice in order to develop a practical basis in them as a supplement to theoretical study of the management. The report is based on my elective subject of A STUDY ON RATIO ANALYSIS. As a part of my project work, I had been departed to The Austin Engineering Company Ltd. I have mentioned all the information which is true and useful in some time in business.

Chavada Chandresh N.

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ACKNOWLEDGEMENT
I am pleased to present this report on industrial training undergone at Austin engineering company ltd. I would like to thank Prof. Abhijeet Singh who has guided me in each and every aspect of preparing this report. I also express my gratitude to staff members of Austin Engineering company limited for their valuable cooperation and guidance and sincere thanks to Mr. Amit Joshi, an ISO coordinator for sharing his wonderful experience and give his kind guidelines during my training. A big thanks to my family members and my friends, without whose support this project would have been a distant dream.

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TABLE OF CONTENT
Ch. No. 1 2 3 4 5 6

Chapter name
Executive summary Literature review 3.1.) Bearing industry profile 3.2.) Company information Objective of the study Research methodology Ratio Analysis 6.1) Types of Ratio 6.2) What does ratio analysis tell us? 6.3) Which Ratio for whom 6.4) Advantages of Ratio Analysis 6.5) Limitations of Ratio Analysis Data analysis and interpretation Finding Conclusions and Recommendations Limitations of study Notes and References Annexure

7 8 9 10 11 12

Page no. 1 2 3 5 16 17 19 20 22 23 25 26 27 43 44 45 46 47

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CHAPTER 1 EXECUTIVE SUMMARY

Project title Company name : Ratio analysis : AUSTIN ENGINERING COMPANY LTD.

The training at Austin involved the day to day working at corporate accounts departments with the senior & junior managers and research department in the company. This project helped me to get the deeper understanding of the process of Financial Statement Analysis The topic of my project is RATIO ANALYSIS. It explains financial position of the company and also helps assist management in its basic functions of forecasting, planning, and control. Company will get success when it financially perform well, ratio analyses helps to measure the financial statement and profitability of the company as well as its credit police, reason behind Ratio analysis is to determine strength and weakness of company. The object of this project is to know the company is going on profit or loss, what is situation of the company in present with past years comparison, what changes occurred, Estimate about the trend of the business. Here my objective is to helpful to the company to minimize the financial risk by taking effecting decision, Controlling the companys performance like credit granting, investment decision, making of polices, Main objective in undertaking this project is to supplement academic knowledge with absolute practical exposure to day to day functions of the sector, this project refers to an assessment of the viability, stability and profitability of a business. This report is made with using the information taken from financial statements of the company, for this study five yearscomparative Income Statement & Balance Sheet have been considered. Methodology of the research is secondary data collection. Data was collected through balance sheet of the company which is collected from finance manager in company and other data are collected from Companys site. I was influenced to allocate the aim of this project to study the details about these ratios and their possible effects on the decisions made by not only people inside the company but also the outsiders such as investors.

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CHAPTER 2 LITERATURE REVIEW

Ratio analysis is about the analysis of financial statement. And it explains that how income and expanses of the company affect the capital, reserves, and profit of the company, it also explains that a minor change in any activity comes with major profit or loss for the company, through analyze company can take effective steps to get the success,. It also gives idea about from which situation company is going through and how to manage it, I explain in detailed about ratio of AUSTIN ENGNEERING COMPANY LTD. I calculated the ratio of 5 years, and compared it plus mention the reasons for the differences, for better understanding I used the graphs technique, This analysis also explains the changes which took place in the income and expanses within five years period. Moreover, my research also explains the changes in companys financial position. To get the perfect idea about what type of changes did come in structure because of the actions which we took in operation activities, I have taken this topic for research...

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CHAPTER 3 3.1. INDUSTRY PROFILE

Bearing Industry is likely to witness good time ahead riding on auto sector boom, economic revival and export growth, as demand growth in key user industries is expected to rise sharply, Users of bearing market in India are automobile sector and engineering sector,The automobile industry is the largest user segment for Indian bearing market accounting for almost 45% of total demand, The engineering sector is the second largest user segment for Indian bearing market accounting for 28% of bearing sales, Exports of bearing companies has increased by13% during the last 5years. The domestic players are sensing the outsourcing opportunity and have initiated the process of producing a range of bearings for meeting the requirement of global customers. The Indian bearing industry is estimated at Rs30bn. The Industry has established a highly diversified product range of around 1000 types of bearings, having high volume demand. The domestic industry has almost 70% of total demand for common varieties and sizes of bearings. The remaining demand to the tune of 30% is being imported, Bearing Industry in India can be divided into three segments the organized sector, Unorganized sector and imports.. structure of bearing industry.

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The organized sector primarily caters to the OEM (original equipment market) segment, which is predominantly automotive, railways and other industrial users, the replacement, market is dominated by unorganized sector, the organized sector comprises of 12 leading manufacturers who contribute to over 55% of the total turnover, and unorganized sector includes the small-scale manufacturers and manufacturers of spurious bearings. The unorganized sector contributes to almost 15% of total industry, 30% of total demand for bearing industry is met by imports, duty rates have come down over the last few years, a few countries like China, Russia, Eastern Europe dump their excess production at a very low rate, This leads to a huge price differential between domestic and imported bearings (almost 40-50%), encouraging imports turnover. Most of the big players are having either technical or financial collaboration with leading auto manufacturers. International collaboration gives access to best technology in the world. Indian players are already sensing the opportunity and have initiated the process of manufacturing a range of bearings for meeting the requirements of global customers Threats for bearing industry is import threat, increase in price of raw material, spurious products spurious bearings are of poor quality and are relatively unsafe and unreliable. They use material, which are of inferior quality and the workmanship is also poor

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3.2. COMPANY INFORMATION 3.2.1. INTRODUCTION

Manny industries in India are producing bearing one of them is of which I had undertaken the training of Austin Engineering Co. Ltd. it is on the top of bearing producing company. It is most successfully unit in Gujarat as well as in India. AUSTIN ENGINEERING COMPANY LTD. having the largest range of bearing among the manufactures of it in Asia and about 4000 types of bearings, It has also the largest range in size of bearing. Among them, the smallest is having 10mm ID (Inner Diameter) and 2000mm OD (Outer Diameter). They are also developing 7-8 designs per month. The companys turnover is 50 chores. This company got ISO/TS, This certificate was given by international organization, such certificate is given which companys production material and quality of products is standardized. It gives employment to so many people. The actual picture of Austin Engineering Co. Ltd. can be analyzed by four main departments viz. production department; personnel department, financial department and marketing department are as given in the report.

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3.2.2. HISTORY AND DEVELOPMENT OF THE COMPANY

Austin Engineering Co. Ltd. was established in 1973, at that time a team of 5 top and qualified engineers decided to produce a high quality bearing, It was started by Mr. Bhogayta, Mr. G.B.Modha, Mr. N.C.Vadgama, Mr. R.N.Bhambhania, Mr. S.M.Thanki, Partnership firm. At that time its name was ACCURATE ENGINEERING COMPANY. Due to continuous development and increment in demand of bearing on 27th July, 1978, it was converted into Public Limited Company. The company at that time was located at G.I.D.C. Estate in Junagadh city. The growth and development kept on increasing and on 2nd November, 1985 this company was converted into Public Ltd. Co. under the name AEC Ltd. and purchases the trademark AEC in the year 1994. Due to inappropriate place for expansion, this company has established 2nd unit at Patala, a village which is 30 km. far away from Junagadh. On 15 th February, 1987, It was under developed industrial area so they decided to locate their industry at Patala. In the very beginning the company was producing only 40 to 50 varieties of bearings. At present the company is producing 4500 varieties of bearings. The initial company invest was 530794 and production capacity was 41900 piece p.a. At present, production achieved is 20, 00,000

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3.2.3. COMPANY PROFILE

Name of the unit Year of the Establishment Form of Organization Registered Office :Austin Engineering Company Ltd.

:-

1973

::-

Large Scale Austin Engineering Co. Ltd. Dist: Junagadh Tal. : Bhesan Post: Hadmatiya Patala 362 030

Address of Junagadh Office

:-

101, G.I.D.C. Estate, Vadal Road, Junagadh 362 003. (91-285) 2660144, 2660069 (91-285) 2661505 info@aecbearings.com Dhirubhai Dand & Co. Chartered Accountants Gokul Chamber, Junagadh 362 001. Bank of Baroda, Junagadh.

Phone Numbers Fax Numbers E-mail Address Auditors

::::-

Bankers Registrar & Transfer Agent

:-

:-

Sharepro Services, Satam Estate, 3rd floor, Above Bank of Baroda, Cardinal Gracious Road, Andheri (E), Mumbai 400 099

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3.2.4. BOARD OF DIRECTORS

Mr. N.C.Vadgama Mr. S.M.Thanki : : Chairman & Executive Director Managing Director Joint Managing Director Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director

Mr. R.N.Bambhania : Mr. J.R.Bhogayta Mr. S.V.Vaishnav Mr. B.R.Sureja Mr. K.J.Mehta Mr. D.B.Nakum : : : : :

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3.2.5. ORGANIZATION CHART

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3.2.6. CORPORATE VISION

1) Make company a great place to work. 2) Effective boundary management. 3) Perform social responsibility. 4) Use the best technology. 5) Be an ethical company. 6) Strong and dynamic system. 7) Establish first class brand and corporate image. 8) Sound business operational and performance efficiency. 9) Customer caring, Customer Sharing. 10) Be the best. 11) Make people a source of our improvement.

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3.2.7. SIZE AND FORM OF THE ORGANISATION

The size of the industry can be divided in three main types. Small Scale Organization Medium Scale Organization Large Scale Organization If companys investment in plant & machinery is more than 3 corers, it is under the category of large scale organization. The investment of Austin Engineering Co. Ltd. In fixed assets is Rs. 30 Cr. Therefore it is coming under the category of large scale organization. It also uses manpower, electronic equipment and machines and having 655 employers. The total land area is 27,960 sq. meters; while total built up area is 7093 sq. meters and expansion are available for building is 6000 sq. meters (approx). According to the form of organization, the organization can be divided as follows: Private Sector Unit Public Sector Unit Joint Sector Unit Austin Engineering Co. Ltd. is a Public Ltd. Company. A public company is a company where there are minimum seven members and maximum there is no limit. The company can invite general public to subscribe for its share or debentures and the shares are freely transferable. It has limited liability and wide distribution of risk.

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3.2.8. SWOT ANALYSIS SWOT is a good tool for a manager, The SWOT analysis for AEC Limited is:
STRENGTH: It enables to put your best foot forward. Good brand image. Flexible manufacturing system. Fast development Consumer satisfaction. Single source of all types of bearings.

WEAKNESS: Who doesnt have them? Only when you recognize them can you do something to correct them. Interference of the government. Transportation cost. Heavy import of raw-material. Raw material prices. The company is over capitalized it means it is not utilizing its resources accurately Its performance is not so good at social responsibility

OPPORTUNITIES: Opportunity for the company Advertising to increase sales. It has great opportunity to expand the business by taking benefits of its largest product range in Asia,

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THREATS: Threat are like tickling time bongs, defuse them by anticipating and taking preventive actions. Increase price of raw material in international market, causes variation in Competition from the multinational companies. Fixed financial charges It is not taking the advantage of borrowed capital as much as he can, domestic market.

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3.2.9. ACHIVEMENTS
ISO/TS certification for quality management. Flexible roller bearings. Multi-row cylindrical roller bearings and four row tapered roller bearings for roll neck applications in rolling mills. Flush ground single row angular contact ball bearings. Precision class cylindrical roller bearings for machine tool spindle applications. Thin section series ball bearings: 618.. and 619 series. Engine crank and other application bearing for battle tanks and armored vehicles.

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3.2.10. CONTRIBUTION OF THE UNIT

1) To the industry: Austin Engineering Company Ltd. is having 16% to 20% market share. So it contributes in the total production of the industry. Moreover, it scored 4th rank in bearing industry. 2) To the country: It has trademark of Austin Engineering Company Ltd. through which they exports its products in Italy, Argentina , USA, Sri Lanka, and Newzealand. Thus, they earn the foreign exchange in this way it contributes to the country. 3) To the society The company provides employment to 660 workers of rural as well as urban areas. The Austin Engineering Company Ltd. is situated in backward area and so it is involved in the process of the development of the area. Thus, it contributes to the society by providing employment and developing backward area.

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CHAPTER 4 OBJECTIVES OF THE STUDY:

To find out the efficiency of the firm. To have a firsthand experience of the functioning of a firm. To have a practical experience of the functioning of the Finance Department of a wholesaler firm.. To study how ratio analyses practices plays an important role in supporting other activities in Austin Engineering.. SPECIFIC OBJECTIVES: To gain familiarity with the various components of ratio analysis in Austin Engineering.. To judge the success of the management in carrying on the daily transactions of the firm. To gain an in-depth knowledge of the tricks of managing the financial activities of Austin Engineering.. To find out the difference between the theoretical and practical aspect of finance management.

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CHAPTER 5 RESEARCH METHODOLGY

My research is descriptive research. DESCRIPTIVE RESEARCH: Descriptive research studies are those studies which are concerned with describing the characteristics of a particular individual, or a group or firm. In Austin Engineering Company, I discussed various aspects of ratio analysis with various employees of the organization so that we can understand how financial transactions are managed in Austin Engineering, and also I wanted to relate it with this theory I have studied up to now. Here the more important aspect was the practical implication of the different ratios. How importance they have on a firm. So from that prospective our research methodology was a descriptive one. 5.1 DATA COLLECTION The data which we have collected for making this project is combination of both primary and secondary data. 5.1.1 PRIMARY DATA: This data had been collected through meetings and discussions with various managers and employees of the finance department located in the administrative building. At the same time I had visited various departments for collection of data. The departments that had been visited are as follows: Main Cash Department Billing and Operation Department Budget Department 17
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Pay Section

5.1.2 SECONDARY DATA: Apart from the primary data certain secondary data were required for this project. Following are the sources of secondary data: Annual Reports Cost & Budget Reports Debtors Reports Cash Report Sales Reports The project report titled Ratio Analysis in Austin Engineering required a Comparative analysis of ratio analysis in the organization. The study will assist to evaluate the efficiency of the firm.

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CHAPTER 6 RATIO ANALYSIS

Meaning of Ratio Analysis The most important task of a finance manager is to interpret the financial information in such a manner that it can be well-understood by the people who are not well-versed in financial information figures, the technique by which it is so done is known as Ratio Analysis. Ratio is a relationship between two or more variable expressed in, (i) Percentage, (ii) Rate and (iii) Proportion. These alternative methods of expressing items which are the related to each other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the ratios does not add any information not already inherent in the above figures of profits and sales. What the ratios do is that they reveal the relationship in a more meaningful way so as to enable equity investors; management and lenders make better investment and credit decisions Four types of comparisons are involved: Between companies Between industries. Between different time periods for one company. Between companys actual and standards or plans.

Steps in Ratio Analysis Step1: Collection of information, which are relevant from the financial statements and then to calculate different ratios accordingly. Step2: Comparison of computed ratios of the same organization or with the industry ratios. Step3: Interpretation, drawing of inference and report writing.

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6.1 TYPES OF RATIO

1) Liquidity Ratio Liquidity ratios measure the availability of cash to pay debt, which give a picture of a company's short term financial situation. Current Ratio Quick Ratio 2) Profitability Ratio Profitability ratios which use margin analysis and show the return on sales and capital employed. Gross profit Ratio Net profit Ratio Operating net profit ratio 3) Rate of Return Ratio (ROR) or Overall Profitability Ratio The rate of return ratios are thought to be the most important ratios by some accountants and analysts. One reason why the rate of return ratios is so important is that they are the ratios that we use to tell if the managing director is doing their job properly. Return on Assets Return on capital employed Return on equity 4) Solvency or Gearing ratios Solvency or Gearing ratios measures the percentage of capital employed that is financed by debt and long term finance. The higher the gearing, higher the dependence on borrowing and long 20
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term financing, lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increase volatility of profits. It should be noted that the term Leverage is used in some texts. Debt equity Ratio

5) Turn over Ratios or activity group ratios Turn over Ratios or activity group ratios indicate efficiency of organization to various kinds of assets by converting them to the form of sales. Fixed assets turnover ratio Current assets turnover ratio

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6.2 WHAT DOES RATIO ANALYSIS TELL US After such a discussion and mentioning that these ratios are one of the most important tools that is used in finance and that almost every business does and calculate these ratios, it is logical to express that how come these calculations are so importance. What are the points that those ratios put light on them? And how can these numbers help us in performing the task of management? The answer to these questions is: We can use ratio analysis to tell us whether the business is profitable has enough money to pay its bills and debts could be paying its employees higher wages, remuneration or so on is able to pay its taxes is using its assets efficiently or not has a gearing problem or everything is fine is a candidate for being bought by another company or investor

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6.3 WHICH RATIO FOR WHOM:

As before mentioned, There are varieties of people interested to know and read these information and analyses, however different people for different needs. And it is because each of these groups has different type of questions that could be answered by a specific number and ratio. Therefore we can say there are different ratios for different groups, these groups with the ratio that suits them is listed below Investors: These are people who already have shares in the business or they are willing to be part of it. So they need to determine whether they should buy shares in the business, hold on to the shares they already have or sell the shares they already own. They also want to assess the ability of the business to pay dividends. As a result the Return on Capital Employed Ratio is the one for this group. Lenders: This group consists of people who have given loans to the company so they want to be sure that their loans and also the interests will be paid and on the due time. Gearing Ratios will suit this group. Managers: Managers might need segmental and total information to see how they fit into the overall picture of the company which they are ruling. And Profitability Ratios can show them what they need to know.

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Customers: Are interested to know the Profitability Ratio of the business with which they are going to have a long term involvement and are dependent on the continuance of presence of that.

Employees: The employees are always concerned about the ability of the business to provide remuneration, retirement benefits and employment opportunities for them, therefore this information must be find out from the stability and profitability of their employers who are responsible to provide the employees their need. Return on Capital Employed Ratio is the measurement that can help them. Governments and their agencies: Government and agencies are concerned with the allocation of resources and, the activities of businesses. To regulate the activities of them, determine taxation policies and as the basis for national income and similar statistics, they calculate the Profitability Ratio of businesses. Local community: Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the business and the range of its activities as they affect their area so they are interested in lots of ratios. Financial analysts: They need to know various matters, for example, the accounting concepts employed for inventories, depreciation, bad debts and so on. Therefore they are interested in possibly all the ratios. Researchers: researchers' demands cover a very wide range of lines of enquiry ranging from detailed statistical analysis of the income statement and balance sheet data extending over many years to the qualitative analysis of the wording of the statements depending on their nature of research. Suppliers and other trade creditors: 24
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Businesses supplying goods and materials to other businesses will definitely read their accounts to see that they don't have problems, after all, any supplier wants to know if his customers are going to pay them back and they will study the Liquidity Ratio of the companies.

6.4 ADVANTAGES OF RATIO SMALYSIS Ratio analysis is a very important and useful tool for financial analysis. It serves much purpose and is helpful not only for internal management but also for prospective investors, creditors and other outsiders. The following are the important uses (advantages) of ratio analysis. It is important and useful tool to check upon the efficiency with which the working capital is being used (managed) in a business enterprise. Efficient management of working capital. It helps the management of business concern in evaluating its financial position and efficiency of performance. It serves as a sort of health test of a business firm, because with the help of this analysis financial managers can determine whether the firm is financially healthy or not. It helps in making financial estimates for the future (i.e. in financial forecasting). It helps the task of managerial control to great extent

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6.5 LIMITATION OF RATIO ANALYSIS

Accounting ratios will be correct only if the accounting figures on which they are based is correct. It is mainly a historical analysis or an analysis of the past financial data. In regard to profit of a business concern ratio analysis may in certain circumstances be misleading. Continuous changes in price levels seriously affect the validity or comparison of accounting ratios calculated for different accounting period and makes such comparisons very difficult. A single ratio will not be able to convey much information..

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CHAPTER 7 DATA ANALYSIS AND INTERPRETATION 7.1. LIQUIDITY RATIOS:

Liquidity ratios provide information about a firms ability to meet its short- term financial obligations. They are of particular interest to those extending short term credit to the firm. Complete liquidity ratio analyze can help uncover weaknesses in the financial position of the business. Generally the higher the value of the ratio, higher margin of safety that the company possesses to cover short-term debts. 7.1.1 CURRENT RATIO: This ratio also called working capital ratio, this ratio should be 2:1

Current Assets include Inventory, Debtors, Bills payable, Marketable securities, Cash and Bank balance, Current Liabilities include Creditors, Bills payable, unpaid expanses, Provisions for tax, proposed dividend and bank over draft

Particular Current Assets Current Liabilities Current Ratio

2005-2006 34.11 16.68 2.04

2006-2007 39.66 16.19 2.44

2007-2008 47.72 17.46 2.73

2008-2009 46.36 17.49 2.65

2009-2010 46.35 14.63 3.16

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Interpretation: An ideal current ratio is 2:1 considered as a safe margin of solvency, From the above graph we can see that current ratio of company is always higher than 2, it means company would be capable for paying its obligation,which is good, Short term creditors prefer a high current ratio to reduce their risk, Here companys current ratio is in increase stage,

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7.1.2 QUICK RATIO: Quick ratio is Indicator of a company's financial strength or weakness, Calculated by taking current assets less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity and ability to meet its obligations. This ratio also called the Acid test ratio.

Particular CA Inventory CL Bank OD Quick Ratio

2005-2006 15.89 16.68 0.96

2006-2007 19.37 16.19 1.20

2007-2008 19.25 17.46 1.10

2008-2009 17.79 17.79 1.01

2009-2010 20.92 14.63 1.42

Interpretation: A quick ratio 1:1 is good in business. In Austin company quick ratio is very lower in 2005-2006 and highest in 2009 -2010, Today Company is in position to pay obligation, all years quick ratio is higher than 1 except 2005-2006, but Today Company have good position and company should try to manage it.

7.2. PROFITIBILITY RATIO:

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As the name itself suggests, this ratio is calculated to determine profitability of the firm. The basic objective of almost every business is to earn profit which is essential for survival of the business. A business needs profits not only for its existence but also for its expansion and diversification. The investors want an adequate return on their investments, workers want higher wages, creditors want higher security for interest and loan and the list could continue. It is a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

7.2.1. GROSS PROFIT RATIO: The gross profit margin ratio tells us the profit a business makes on its cost of sales. It is a very simple idea and it tells us how much gross profit our business is earning. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin. High ratios are favorable in this, since it indicates the business is earning a good return on the sale of its merchandise.

Particular Net Sales GP Gross Profit Ratio

2005-2006 55.02 5.91 10.74

2006-2007 65.59 9.75 14.87

2007-2008 74.09 10.62 14.33

2008-2009 82.87 11.05 13.33

2009-2010 68.28 11.08 16.23

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Interpretation: This ratio indicates the relation between production cost and sales in 2009-2010 gross profit was high, reason behind this Austin organization was not able to produce or purchase at a relatively lower cost. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. Here company has achieved very good efficiency in 2009-2010, compared to other financial years.

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7.2.2 NET PROFIT RATIO This shows the portion of sales available to owners after all expenses. A high profit ratio is higher profitability of the firm. This ratio shows the earning left for shareholder as percentage of Net sales. Net Margin Ratio measures the overall efficiency of production, Administration selling, financing, pricing and Taste Management.

Particular Net Sales PAT Net Profit Ratio

2005-2006 55.02 3.20 5.81

2006-2007 65.59 5.45 8.31

2007-2008 74.09 6.51 8.79

2008-2009 82.87 5.14 6.20

2009-2010 68.28 7.06 10.34

Interpretation In 2005-20006 net profit ratio was 5.81,it was very lower point, company improve the net profit ratio and set at the high point in 2009-2010,but the previous years ratio was very lower, higher the ratio better for the company. 7.2.3 32 OPERATING PROFIT RATIO

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This ratio establishes the relation between the net sales and the operating net profit. The concept of operating net profit is different from the concept of net profit operating net profit is the profit arising out of business operations only. This is calculated as follows: Operating net profit = Net Profit + Non operating expenses Non operating income. Alternatively, this profit can also be calculated by deducting only operating expenses from the gross profit.

Particular Net Sales Oper Net Profit Oper.Net Profit Ratio

2005-2006 55.02 7.38 13.41

2006-2007 65.59 10.75 16.39

2007-2008 74.09 12.05 16.26

2008-2009 82.87 14.92 18.00

2009-2010 68.28 10.50 15.38

Interpretation: Higher the ratio,better for the company,From the above graph we can see that in 2008-2009 ratio of operatin net profit was at highest point,later than it decreases,in 2009-2010,company should try to recove,

7.3. RATE OF RETURN

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The ROI is the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. If the ROI is less than the rate of return on an alternative, the owner may be wiser to sell the company, put the money in risk-free investment such as a bank savings account, , and avoid the daily struggles of small business management. These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. The owner may thus determine the business's relative strengths and weaknesses 7.3.1. RETURN ON ASSESTS This ratio actually measures the profitability of the investments in the firm. And the related formula is

. Particular NPAT Total Assets Return on Assets 2005-2006 3.20 31.53 10.14 2006-2007 5.45 38.80 14.04 2007-2008 6.51 46.70 13.94 2008-2009 5.14 47.48 10.82 2009-2010 7.06 49.48 14.2

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Interpretation: This ratio shows the profitability of investment in the firm so higher the ratio, the better is the return to the owners of the company.Return on assest in 05-06 was 10.14 which increases in 2006-2007 by 14.04 percentage, in 2009-2010 return on asseststs reach at highest point,which is good for the company

7.3.2. RETURN ON CAPITAL EMPLOYED This Ratio is considered to be very important. It indicates the percentage of net profits before interest and tax to total capital employed. It reflects the overall efficiency with which capital is used. The ratio of a particular business should be compared with other business firms in the same industry to find out the exact position of the business.

Particular NPBIT 35

2005-2006 2006-2007 5.91 9.75

2007-2008 10.62

2008-2009 2009-2010 11.05 11.08

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Capital Employed ROCE

31.53 18.7

38.22 25.50

46.70 22.74

47.47 23.27

49.50 22.38

Interpretation: Ratio of return on capital employed is continuously decreasing in comparision with is last year,ratio for the year 2006-2007 is the highest,highest the ratio,the better will be the profitability,it generates it measure whether a business generate enough return to pay for ot;s cost of capital. 7.3.3. RETURN ON EQUITY This ratio also known as return on shareholdersfunds or return on proprietorsfunds or return on net worth, indicates the percentage of net profit available for equity shareholders to equity shareholdersfunds and not on total capital employed.here Equity Share Holders Fund = Equity Capital + Reserves and Surplus

Particular NPAT Prfe,Di, Equity S.Holder Fund ROE 36

2005-2006 3.20 19.06 16.7

2006-2007 5.45 26.27 20.74

2007-2008 6.51 30.23 21.53

2008-2009 5.14 33.93 15.14

2009-2010 7.06 40.19 17.6

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Interpretation: This ratio indicates the productivity of the owned funds employed in the firm. However, in judging the profitability of a firm, it should not be overlooked that during inflationary periods, the ratio may show an upward trend because the numerator of the ratio represents current values whereas denominator represents historical values.

7.4. SOLVENVY OR GEARING RATIOS

Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance. It is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. The shareholders and lenders of long term loans may be interested in this ratio. 7.4.1. DEBT EQUITY RATIO This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt equity ratios establishment relationship between borrowed funds and owner capital to measure the long term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity in financing the assets of the firm. The debts side consists of all long term liabilities of the firm. The shareholdersfund is the share capital plus reserve and surpluses. 37
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Lower the debt equity ratio the higher the degree of protection enjoyed by the creditors. The debt equity ratio defined by the controller of capital issue, debt is defined as long term debt plus preference capital which is redeemable before 12 years and shareholdersfund is defined as paid up equity capital plus preference capital which is redeemable after 12 years plus reserves & surpluses. The general norm for this ratio is 2:1, for every Rs 1 equity, maximum Rs 2 debt fund can be raised.

Particular Debt Share holders Fund Debt Equity Ratio

2005-2006 9.31 19.06 0.48

2006-2007 13.54 29.8 0.454

2007-2008 16.47 30.23 0.54

2008-2009 12.55 33.93 0.36

2009-2010 12.47 40.19 0.31

Interpretation: Debt equity ratio is in decreasing form, from the year 2007- 2008 ratio is continuously decreasing, The lower the debt equity ratio the higher the degree of protection enjoyed by the creditors., 38
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7.5. TURN OVER RATIOS

Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis on different companies.

7.5.1. FIXED ASSESTS TURNOVER RATIO

It shows how the company uses its fixed assets to achieve sales. The formula is as follows:

Particular Net Sales Fixed Assets FATOR 39

2005-2006 55.02 11.29 4.87

2006-2007 65.59 12.38 5.27

2007-2008 74.09 13.46 5.43

2008-2009 82.87 16.05 5.16

2009-2010 68.28 14.99 4.55

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Interpretation A High fixed asset turnover ratio indicates the capability of the firm to earn maximum sales with the minimum investing in fixed assets. So it shows that the company cant effectly usein 20092010,,from 2006 to 2009,it was quite stable

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7.5.2. CURRENT ASSESTS TURN OVER RATIO It is almost like the fixed asset turnover ratio, it calculates the capability of organization to earn sales with usage of current assets. So it indicates with what ratio current assets are turned over in the form of sales. This ratio is calculated as:

Particular Net Sales Currents Assets CATOR

2005-2006 55.02 34.11 1.61

2006-2007 65.59 39.66 1.65

2007-2008 74.09 47.72 1.55

2008-2009 82.87 46.36 1.79

2009-2010 68.28 46.35 1.47

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Interpretation A higher current assets turnover ratio is more desirable since it shows the better financial position of company and better usage of these current assets. It can be seen from above figure that the company has shown high ratio in 2005-2006, 2007-2008, and in 2008-2009,in 20092010 current assets turnover ratio is very lower.

CHAPTER 8 FINDING
Liquidity ratios shows that the firm has been facing some problems in 2005-20066 regarding paying short term liabilities for 1 year The usage ratio of the company had followed a comparable pattern. The overall efficiency of the company to use its assets, capital or the working capital had increased from 2005 to 2007. However in the later years, it is declining and falling to a lower level of efficiency, for which we can blame the environmental conditions of the country, and that, involves the economical and political challenges of India and the world. The Company fails to increase its profitability in the last year,

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CHAPTER 9 CONCLUSIONS AND RECOMENDATION

Finance is the blood of the any business or project. Thus, to manage and maintain proper finance is very much necessary, it includes both owners finance and debt finance. The ratio between debt and equity should be managed properly for the smooth and efficient working. Austin Engineering Company LTD knows this fact nicely and gives proper attention on this and this is one of the key elements of the firms success. I would like to conclude that the company is having good financial position even company can make it better by reducing cost and increment in the profit margin,

SUGGESTION

For the betterment of valuation ratio the company needs to work on its market share.

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Company has healthy position but in order to grow fast the company should take moderate risk by investing in good return proposal. Company should increase working capital and properly and manage its their working capital. Company has good profit but still the expenses are high on which organization need to control in order to maintain their position in the market

CHAPTER 10 LIMITATIONS OF RATIO ANALYSIS

Different firms may use these terms in different senses or the same firm may use them to mean different things at different times. Some of the limitations of the ratio analysis are given below. Ratio are tools of quantitative analysis only and normally quantitative factors which may generally influence the conclusions derived, are ignored which computing ratios. A signal ratio would not be able to convey anything. Ratio can be useful only when they are computed in a deficient large number. When inter firm comparison is made they differ substantially in age, size, nature of product etc. At inter firm comparison, these factors are not considered. Therefore, ratio analysis cannot give satisfactory results. Ratio analysis is use for limited purpose i.e. 44
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o For applying judgment o For indicators of bad or good management o For decision making etc. Window dressing means manipulation of accounts in a way so as to conceal vital facts and present the statements in away to show better position than what it actually is by doing so, it is possible to cover up bad financial position. Therefore, ratios based on such figures may not be reliable. It should be clearly noted that ratio are only tools and personal judgment of analyst is more important. Ratios are computed on the bias of past result. Past is not indicator of future. Ratios computed from historical data are used for predicting and projecting the likely events in the future. Ratios are only post mortem of what has happened between two balance sheet dates. The position in the interim period is not revealed by ratio analysis. Due to changes in price level of various years, comparison of ratios of such years cannot give correct conclusions.

CHAPTER 11 NOTES AND REFERENCES

REFFERED BOOKS Gupta Ambrish, Financial Accounting For Managers, Pearson Education

INTERNET SITE www.aec-bearings.com www.wikipedia.com www.moneycontrol.com Annual report of AUSTIN ENGNEERING LTD Secondary data from Austin 45
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CHAPTER 12 ANNEXURE PROFIT AND LOSS ACCOUNT

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BALANCESHEET

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CASH FLOW STATEMENT

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