ACKNOWLEDGEMENT

For completion of any sort of work, efforts of many different persons are involved similarly this work is no different. With feelings of deep gratitude, I am also indebted to Sh. K.S. Khosla, managing Director for his Immaculate supervision and assistance in collecting and interpreting data in presentable form, and under whose able guidance I learnt all that I did during my training and who provided me valuable help, encouragement continuously during this training. I express my deep gratitude and sincere feeling of indebtedness to Mr. Kuldeep Vohra, Finance Controller, SSk Pvt. LTD. who has rendered his valuable guidance and advice for accomplishing this project report on Ratio Analysis in SSk PVT LTD. I am also thankful to the S. Dilbag Singh, Finance Manager and Mr. Gautam Sharma, Head Accounts Department for providing a comfortable environment and a big helping hand in accomplishment of this project.

PUN EET GUPTA

Preface
Financial Management is one of the key areas of managerial functions, as it provides an analytical and conceptacle framework for financial decisions making. It covers both the aspects of funds acquiring or acquisition of funds as well as efficient and wise allocation of funds. It is concerned with the solution of major problems of investment, finance and dividend. It deals with the estimation and procurement of capital and managerial earnings. Its importance has increased in recent years due to inflation and clear money policy of govt. Financial management is concerned with: Determination of financial needs of the firm. Rising of funds. Allocation of financial resources. Control of financial data for decision-making. Financial Management has traveled a long course before becoming a coordinating and decision-making process. FINANCIAL ANALYSIS is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of balance sheets and profit and loss accounts. Various methods of analyzing financial
2

statements

are

comparative Analysis etc.

statement,

Funds

Flow

analysis,

Ratio

This Report attempts to present clear presentation of different liquidity ratios and general profitability ratios of Sant Rubbers Limited.

LIST OF CONTENTS
Ch. No.
1. 2. 3. 4. 5. 6. 7. 8. 9.

CHAPTER NAME
Company Profile Tools for Financial Analysis & Interpretation Ratio Analysis Liquidity Ratios Activity Ratios Profitability Ratios Long-Term Solvency Ratios Observations Suggestions & Conclusion Bibliography

PROFILE OF THE COMPANY

Origin and Growth
It is with deep sense of satisfaction that Ess Ess Kay recalls its humble beginnings in the year 1935 at Lahore at that time, industrial development was a far-off dream as technology know how was virtually nonexistent. Its founder and ex-managing director Mr. S.S Khosla after obtaining his electrical engineering degree from the University of Manchester came back with firm determination to set up a project for the manufacture of electrical wiring accessories in India. With a visionary zeal he commenced the pioneering work in establishing this the first ever-manufacturing was not easy unit for Electrical Wiring Accessories in India in the year 1935. Starting new venture as totally unskilled workers had to be trained to carry out various production jobs. There were practically no manufacturers of raw materials and the company had to totally depend upon imports. Mr. Khosla motivated entrepreneurs to start small ancillary units. That is why our company has come a long way bringing the latest, manufacturing techniques by deploying the most modern machines for

the

manufacturing are

of

electrical

wiring as each

accessories. and every

Traditions

being

maintained

product; whatever be the quality is being tested by our experts quality control inspectors before being cleared for packaging. Thats how we offer unlimited guaranty for our products, says Mr. Khosla.

HISTORY OF THE ORGANIZATION

Ess Ess Kay Engg. Co. Ltd. is situated at the factory area in Kapurthala. This firm came into existence in the year 1935. At Lahore (now in Pakistan) for the manufacturing of electrical wiring accessories. In the year 1947, during partition the firm shifted its activities from Lahore to Kapurthala. In the year 1964, the company under the name of the Ess Ess Kay Engg. (p) Ltd. came into existence. In the year 1960 its associates concern was established by name Hindustan hydraulics (p) ltd. At Suranussi, Jalandhar in the year 1982 it was converted into pvt ltd concern. The line of manufacturing of this concern is manufacturing of CNC press breaks and shearing Machines in collaboration with Darley B.V of Holland. In 1995(p) word was deleted and it became deemed public company on the basis of turnover criteria. This unit was first of its kind in India for the manufacture of household electrical wiring accessories and since its establishment the company has always endeavored to keep pace with the international standards of quality. It is only due to this that today company is one of the largest units of switches. Kapurthala based Ess Ess Kay Engineering Company Ltd. has been setting standards
5

since 1935. Ess Ess Kay is Pioneers in manufacture of wiring accessories. of Ess Ess since Kay has maintained its the position leadership then. Anticipating

varying and ever changing requirements, Ess Ess Kay has been developing better products. Its reputation has been further enhanced because all Ess Ess Kay products are manufactured of wiring with ISI standards. The complete MCB, range of high quality electrical products, provide a wide range accessories, Switchgears, distributions boxes and industrial plugs and sockets combination units. Wiring accessories for domestic use includes lighting switches, dimmers, lamp holders, sockets, and plugs; change over switches and many other products about 300 different items. Majority of its products are guaranteed which is evident of the steps that every single product that its factories, will live up to their customers expectations. With an ever-increasing product range, and over 2000 dealers throughout India, Ess Ess Kay is better positioned than any of its competitors to fulfill the varying requirement of their customers. A dedicated internal sales team with the help of on-line computers ensures adequate stock and speedy deliveries. Additional support is available from its project and technical services department, offering advice on companys products, their installation and application.

Competition

The sophisticated

main and

competition quality

in

the are

range M.K

of

products

India,

Havelis north west, Anchor (India), who a part from having their own manufacturing facilities also procure the products from the small scale manufacturing and market the same under their own brand names. The advantage of SSK (the brand name of the company) is that they manufacture a wide range of household and industrial accessories themselves and have an experience of 65 years in this line of activity. The other competitors are: 1. M.K. Electrical (India) Ltd. Chennai A joint venture with M.K.Electrical Ltd. U.K. 2. Avanti Kopp Electrical Ltd. - Indo-German Joint Venture in Collaboration with Heinrich Kopp of Germany 3. C.P.L 4. North West British joint venture. - Mumbai - Faridabad

5. Crabtree by Havells Dorman Smith Ltd. Delhi- An Indo-

Cyclicity
The company is not subject to any cyclic effect

and the products always remain in the demand.

Technology
There is no threat to the company from any alternative technology. The technology has undergone a change over a period of time and the traditional technology has given way to

relatively more modern technology is as much as a few of processes has been mechanized. The company has already deployed the available technology with installation of injection molding machines. The company has independent R&D department, which developed products to suit Indian conditions, and tastes, which are becoming increasingly sophisticated.

Inputs
Raw Material: the raw material required by the company is molding power, brass/copper sheet, silver contacts, paints, packing material etc. The company makes bulk purchase from Bombay, Faridabad and jamunanagar, as the raw materials procured from these stations are better in quality. No problem is envisaged in the procurement of raw material.

Power The company have a connected power load of 697 KW

sanctioned by P.S.E.B which is adequate for caring on the production. Moreover the company has generating sets of sufficient capacity as stand by arrangement of continuous production in case of failure of power supply/tripping etc.

Work Force
The skilled and un-skilled workers are easily available from the nearby rural areas. The company gives training to the workers according to their requirements.

Track Record
Management has a good steady record of growth and profitability.

Companys Associates
The company has two associate concerns namely M/s Hindustan Hydraulics (p) Ltd., Jalandhar and M/s Woehner-Kay Ltd., Kapurthala. These companies are also dealing with State Bank of India and with Oriental Bank of Commerce.

Product Range
The product range of the company are wide and products are marketed under the brand name of Euroline Series, Signature Series,Royale Auto Color Series,Topline Series, Deer Plate Switches fuses, sockets and ,Olympia,Nova,SSK-GARO and plugs in various color etc.regulators changeover

combinations for the aesthetic affect.powertech fuse units, switches distribution fuse boxes.Euroline Series and Signature Series are the latest state of the art technology modular switches introduced in India only by SSk.

Lead Bank
State Bank of India is the sole financing loan.

SSKs satisfaction

strong

commitment

to

consumers

ESS ESS Kays real strength of course lies in its ability to anticipate the changing needs of its demanding customers. SSK is better position than any of its competitors to fulfill the varying needs of customers.

Joint Venture
Recently ESS ESS KAY has moved into global arena with technological tie-ups with Garo of Sweden for Industrial plugs and Sockets and joint venture with Wohner of Germany for Bus Bar System.

Company Operations
SSKs main work and Regd. Office is situated in KAPURTHALA and is spread over an area of 10,000 Sq. Mtrs. It has work force of that 2500 exceeding in the number. The other production facilities of the company are located at Jalandhar and Ghazi bad. The sales offices of the company are located at Delhi, Merrut, Jaipur and Ahmedabad.

Planning
Intuition and creativity are backed by stringent working methods and by CAD-Computer systems. All the production planning and material distribution through out the country is planed with the help of on-line computer.

Testing Lab
ESS ESS KAY has a very well equipped lab, which has been created in accordance with ISI requirements. This lab works independently as it draws samples from the various production
10

lines on daily basis and puts them through the required tests. This ensures constant vigil on quality of products being produced.

Quality control
Fierce competition as a result of market integration and growing complexity of installation leave room only for those who are able to guarantee total quality on every technical point. In SSK every component is inspected while it is in process so that the quality of final product is ultimate. Each and every item manufactured is individually tested before it is cleared for packaging.

Management
Board of directors manages the company. The details of the directors are as under. Designati on CMD CEO Name Sh.K.S.Khosla Sh. Nitin Khosla Age (Yrs.) 60 37 Exp. (Yrs.) 35 17 Qualificati on M.Sc. (Phy) Graduate

List of Directors Name of Age (Yrs.) Exp. (Yrs.) Director Sh. M.M.S.Khosla 57 32 Smt.Sumitra Khosla Sh. Sunil Khosla 80 31 55 10

Qualificatio n B.Tech. (Mech.) Graduate Graduate

11

ORGANISATION STRUCTURE
The organization structure of any organization depends on certain factors like size of any organization, history of the organization, management philosophy of the organization, availability of managers, pattern of planning control techniques, decentralized activities of the organization. Organization is grouping of the people working together towards common goal and objectives that mutually benefit the participants and the organization. These goals can be achieved more suitably if the behavior of workers and composition of the organization can be predicted. While referring to the organization chart of Ess Ess Kay we find that MD has the ultimate authority, which is supported by Director (production), Director (general administration). These directors are supported to GM. GM gives orders to Manager
12

(personnel),

Manager

(production),

Manager

(accounts),

Manager (marketing), Manager (general administration), and Manager (purchase). Senior level authorities then support these executives and assistant level officers then support these senior officers. Each subordinate is responsible to his immediate superior and indirectly to MD. Authority flows top to bottom and responsibility in turn flows bottom to top.

The structure of Ess Ess Kay is divided into sections. These sections are listed below with the overview of their workings: 1. Personnel Department 2. Production Department 3. Accounts Department 4. Marketing Department 5. Administration Department 6. Purchase Department 7. Security Department 8. Research & Development Department.

13

ORGANISATION STRUCTURE
The organization structure plays a dominant role in the effectiveness of operations. Following is the organization structure of ESS ESS KAY ENGG. CO. Ltd. KAPURTHALA.

Managing Director

Director (Production)

Director (Marketing)

Director (General adm)

General Manager

Manager Manager (Personal) (Purchase)

Manager (Prod.)

Manager (Accounts)

Manager (Mkt.)

Manager (Adm.)

14

Clerical

skilled workers Semi skilled

clerical staff

sales represtatives

clerical staff

clerical staff Unskilled workers

PRODUCT RANGE OF THE COMPANY

1. Switchgear: Switch fuse unit, Fuse switch unit, Change over, Rewire able, Porcelain fuse unit 2. M.C.B. Distribution boxes 3. LT&HT Panels 4. WOEHER-KAY Bus Bar System 5. A Complete Range Of SSK GARO Electrical Distribution Systems and Industrial Plugs and Sock. 6. M.C.B. Distribution boxes 7. LT&HT Panels 8. WOEHER-KAY Bus Bar System 9. A Complete Range Of SSK GARO Electrical Distribution Systems and Industrial Plugs and Sock.

15

STRUCTURE OF WORKING CAPITAL IN SSK OR FINANCIAL POSITION OF SSK Current Assets And Current Liabilities
S.S.K among its assets has primarily Inventories, Cash, Bank balances, Receivable and other current assets.

Inventory
Comprises of Raw material, Stock in progress, Consumable stores, Coal and packing goods.

Raw Material Includes

Moldings powder, Brass sheet/wire, Copper sheet/strip, Silver contracts P.b sheets, Brass terminals. H.B wire, electronic components for fan, regulators and Electronic bell. C.R.C sheets D.W sheets, M.S rods, Plate and Patti, Bakelite tube/sheets, Porcelain Fuse units, China clay, quartz, Glaze, Cral, Paints/Thinner, Finished goods consists of electrical, accessories of switches, plug, sockets, lamp
16

holders, fan regulators, metal clad switches, distribution fuse boxes etc.

Bank Balances
Bank balances include balances with O.B.C, S.B.I, Indian bank, Punjab National Bank, State Bank Of Patiala, H.D.F.C Bank & Centurion Bank of Punjab. Loans and Advances Loans and advances include staff advances, advances to suppliers of raw material and advances to suppliers of capital goods.

SPECIAL STATICS OF ESS ESS KAY ENGG COMPANY LTD. KAPURTHALA

SETTING INDUSTRIAL STANDARDS DEALERS THROUGHOUT INDIA DIFFERENT PRODUCTS NUMBER OF WORKERS COVERED AREA TOTAL PRODUCTION

SINCE 1935 2000 dealers 300 items 1200 workers 10,000 sq.mtrs. 80 cores

FULLY COMPUTERIZED COMPANY

FULLY AIR CONDITIONED COMPANY

17

HR POLICIES OF THE COMPANY

Policies followed By Company
The company has the policy of giving medical assistance to its employees. The company gives training to its new employee and with the up gradation of the technology. Company also gives loans to its employees. Planning discussions shall be held at least once a year with each individual employee. SSK has the policy of hiring people with respect to factors likesex, martial status and reservation.

Policies to Be Followed by Employees

Each Employee Shall: Take Responsibility. Follow all the policies of the company. Inform company before taking leave.

18

 Help the management/company in achieving its goal.

FUTURE PROSPECTS OF SSK

High Productivity: The main aim of the company is to

Increase the productivity of the company.

Technology Updating: Now days the main objective of

SSk is to update the present technology by adopting the latest technology.

Switch Design Improvement: The company wants to

improve the design of its products.

Quality Improvement: Quality improvement is the never

ending motive of the

company.

19

Manpower Development: SSK wants the development

of the employees developing its HR through department.

Growth In Units: The company plans to open one more

Unit in the southern part of the Country.

Encourage
encourage the

in

Exports:

The

Company exports

wants

to by

producing the products of international quality.

OBJECTIVES OF STUDY
1. TO REVEALS INTER-RELATIONSHIP Ratio analysis is useful in. disclosing inter-relationship between m variables. For example between sales and profits, current assets and current liabilities: equity & debt etc. 2. TO IMPROVES UNDERSTANDING OF FINANCIAL

STATEMENT Financial statement contain too much information for an average person it is very difficult to make any sense out to these. My study will help to bring which there wise are likely to be overlooked tin the jungle of information. 3. TO MEASURES SHORT & LONG- TERM! FINANCIAL POSITION My study will help to know the; short tem and long term financial
20

of the business. For example current liquid and turnover ratios indicate short financial position. Similarly long term financial position is assessed by calc debt equity ratios. 4. TO HELP MANAGEMENT IN BUDGETING AND FORECASTING Ratios help in understanding past performance of the business: They also help in forecasting future trends. Information generated to forecast plan, coordinate and control the business.

21

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT

The preparation of financial statements is not the end aim. The purpose of preparing this, statement is to use them for decisionmaking. The statem ent becomes a tool for future planning & forecasting. The analysis & interpretation of financial statements is to judge their meaning and significance. An opinion is formed in respect to tile financial condition of the concern. The statement are rearranged & divided into suitable forms. The analysis of these statements involves their division according to similar groups and arranged in a desired form. The interpretation involves the explanation in financial facts in a simplified manner.

PROCEDURE OF ANALYSIS & INTERPRETATION

The following procedure is adopted for analysis and interpretation of financial statement: 1. The analysis should acquaint him with the principle and postulates of accounting. He should know the plans and policies of the management, so that he may be able to find out whether these plans are properly executed or not. 2. The extent of analysis should be determined so that the sphere of work may be decided. If the aim is to find out the earning capacity of the enterprise, then analysis of income statement will be undertaken. On the other hand, if financial position is to be studied then balance sheet analysis will be necessary. 3. The financial data given in the statement should be
22

reorganized and re-arranged. It will involve the grouping of similar data under same heads and breaking down of individual components of statement according to nature. The data is reduced to a standard form. 4. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios, trends, common size, fund flow etc. 5. The information on is interpreted in a simple and understandable way the significance and utility of financial data is explained for helping decision taking. 6. The conclusions drawn from interpretation are presented to the management in the form of reports.

23

DEVICES OF ANALYSIS & INTEROPERATION

The analysis & interpretation of financial statements is used to determine the financial position and results of operations as well as a number of methods or devices are used to study the relationship between different statements. An efforts is made to use those devices which clearly analysis the position of the enterprise. The following methods of analysis are generally used:1) COMPARATIVE STATEMENTS 2) TREND ANALYSIS 3) COMMON-SIZE STATEMENTS 4) FUND FLOW ANALYSIS 5) RATIO ANALYSIS 1) COMPARATIVE STATEMENTS The comparative financial statements are statements of the financial position at different period of time. The elements of financial position arc shown in a comparative form, so as to give an idea of financial position at two or more periods. Any statement prepared. in a comparative form will be covered in comparative statements from practical point of view. 2) TREND ANALYSIS The financial statement may be analyzed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computations of the
24

percentage relationship that each statement item bears to the same item in base year. The information for a number of years is taken up & one year, generally the first year is taken as base year. The figures of the base year arc taken a 100 and trend ratios for other year are calculated on the basis of base year. 3) COMMON SIZE STATMENT The common -size statements, balance sheet & income statements arc shown in analytical percentages. The figures arc shown as percentages of total assets, total liabilities & total sales. The total assets are taken as 100 and different. Assets are expressed as a percentage of the total. Similarly various liabilities are taken as a part of total liabilities. 4) FUND ANALYSIS: Under fund analysis there are two statements are prepared, these are:

Fund Flow Statement

The funds flow statement is' a statement, which shows the movement of funds and is a report of the financial operations of the business undertaking. It indicates the various means by which funds were obtained during a particular period find the ways in which these funds were employed. In simple words, it is statement of sources and applications of funds.

Cash Flow Statement

A statement of changes in the financial position of firm on the basis of cash is called a cash flow statement. Such a statement

25

enumerates net effects of the various business transactions on cash and takes into account receipts and disbursements of cash.

5) RATIO ANALYSIS I choose the ratio analysis for the analysis of financial position of SSK PVT. LTD... There are various methods or techniques used in analyzing financial statements, but ratio analysis is the must powerful tool of financial analysis.

26

RATIO ANALYSIS
MEANING OF RATIO A ratio is a simple arithmetical expression of the relationship of the members to another. It may be defined as the indicated quotient of two mathematical expressions. In sil1Jpk language ratio is one number expressed in terms of another and can be worked out by dividing one number into the other. INTERPRETATION OF RATIOS Broadly speaking ratios may be interpreted in four different ways as follows: 1. An individual ratio may have significance of its own. For example a ratio of 25% of net profit of capital employee' shows a satisfactory return. 2. Ratios may be interpreted by making comparison over time. For example ratio of net profit on capital employed is 25%. This may be compared with similar ratio of net profit on capital employed is 25%. This may be compared with similar ratio of a number of past years. Such a comparison will indicate the trend of rise, decline or stability of the ratio. 3. Ratio of may be interpreted by considering a group of several related ratios. FOI example the utility of current ratio is enhanced if it is used along with other related ratios like quick ratio or acid test ratio, stock turnover ratio etc. Similarly various profitability ratios may be considered relation to each other.

27

ADVANTAGES & USES OF RATIO ANALYSIS

Ratio analysis is one of the most important tools of financial analysis. This tool can diagnose financial health of a business. Such an analysis appears the following advantages: 1. USEFUL ANALYSIS OF FINANCIAL STATEMENTS: Ratio analysis is most important tool available for analysis the financial statement i.e. profit and loss account and balance sheet. Such analysis is made, not only by the management but also by outsiders 'like bankers, creditors, investors etc 2. USEFULL IN IMPROVING FUTURE PEHFORMANCE: Ratio analysis indicates the weak spots of the business. This helps management in overcoming such weaknesses and improving the overall perfom1ance of the business in future. 3. USEFULL IN INTER -FIRM COMPARISON Comparison of the performance of one firm with another can be made only when absolute data is converted into comparable ratios. If a firm is earning a net profit of Rs 50,000 while another firm 13 is earning. Rs. 1, 00,000 does not necessarily mean that firm B is shelter off unless this profit figure is converted into a ratio and then compared. 4. USEFUL IN JUDGING THE EFFICIENCY OF A BUSINESS: As stated earlier, accolll1ting ratios help in judging the efficiency of a business. Liquidity, solvency, profitability etc. of a business can be easily cvallJ01ted with the help' of various accounting ratio like current ratio, liquid ratio, debt-equity ratio, net profit

28

ratio etc. Such an evaluations enables the management to judge the operating efficiency of various aspects of the business. 5. USEFUL IN SIMPLIFYING ACCOUNTILVG FIGURES: Complex accounting data presented in profit and loss account and balance sheet is simplified, summarized and systemized with the help of ratio analysis so as to make it easily understandable. For example gross profit ratio, net profit ratio, operating ratio etc. give a more easily understandable picture of the profitability of a business than the absolute profit figures.

29

CLASSIFICATION OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for mowing the financial position of a firm for different purpose. In view of various users of ratios there are many types of ratios, which can be calculated from the information given in the financial statements. Various accounting ratios call is classified as follows: A. TRADITIONAL CLASSIFICATION OR STATEMENT RATIOS. 1. Balance Sheet or position statement ratios. 2. Profit. & Loss Account Ratios. 3. Mixed ratios or inter statement ratios. B. FUNCTIONAL CLASSIFICATION 1. Liquidity Ratios. 2. Long Term Solvency and Leverage Ratio. 3. Activity Ratios. 4. Profitability Ratios. We choose the Functional Classification of ratios for the analysis purpose of Teak Traders Co. Ltd. Functional Classification of ratios may be shown by chart.

30

LIQUIDI1Y RATIOS There are the ratios, which measure the short-term solvency of financial position of a firm. These ratios are calculated to comment upon the short-term paying capacity of concern or firm stability to meet its current obligations. Various liquidity ratios are current ratio, liquid ratio and absolute liquid ratio. LONG TERM SOLVENCY & LEVERAGE RATIOS Long-term solvency ratios convey a firms ability to meet the interest costs and repayment schedules of its long-term obligations e.g., Debt equity ratio, and Interest Coverage ratio. Leverage ratios show the preparations of debt and equity in financing of the firm. These ratios measure the contribution of financing by owners as compared to financing by outsiders. ACTIVITY RATIO Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios arc also called turnover ratios because they indicate the speed wi1l1 which assets arc being turned over into sales e.g. debtor turnover ratio or stock turnover ratio. PROFITABILITY RATIOS These ratios measures the results of business operations or overall performance and effectiveness of the firm e.g. gross profit ratio, operating ratio, return or capital employed.

31

BALANCE SHEET (IN LAKHS)

YEARS
CAPITAL SECURED LOAN CREDITORS BILLS PAYABLES TOTAL FIXED ASSETS BUILDING PLANT & MACHINERY BILLS RECEIVABLES DEBTOR PREPAID EXP. CASH & BANK MARKETING SECURITIES CLOSING STOCK TOTAL

200708 876 1400 215 355 2846 1500 500 89 321 9 90 70 253 2832

200607 800 1434 213 363 2810 1530 456 86 315 8 92 71 251 2809

200506 741 1465 211 343 2760 1454 443 98 301 8 86 62 249 2701

200405 685 1350 217 318 2570 1399 414 74 68 10 89 68 248 2370

200304 634 1365 216 218 2433 1477 398 60 200 7 88 63 251 2544

32

FINANCIAL RESULTS (IN LAKHS)

YEARS SALES LESS COG GROSS PROFIT LESS OPERATING COST OPERATING PROFIT LESS INTEREST PROFIT AFTER INTEREST 25 315 25 272 26 277 24 268 24 251 512 340 503 297 477 301 444 292 490 275 2007-08 4200 3344 856 2006-07 4130 3325 805 2005-06 4073 3295 778 2004-05 3976 3240 736 2003-04 3837 3072 765

33

CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is known as working capital ratio; it is a measure of general liquidity &is 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. Thus: Current Ratio = Current Assets Current Liabilities Year Current Assets Current Liabilities Current Ratio
200708 200607 200506 200405 200304

834 570 1.46

827 576 1.43

801 554 1.44

757 535 1.41

670 544 1.23

INTERPRETATION OF CURRENT RATIO A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they because due. One other hand a relatively low current obligations in time as and when they become the due. One other hand a relatively low current ratio represents that the liquidity position of the firm is not good and firm shall not be able to pay its current liabilities ill time without facing difficulties. As convention the minimum of two to one ratio is referred as a banker's rule of thumb. A ratio equal to near to the Thumb of 2: 1 Current Assets double the current liabilities is considered to be satisfactory so SSK PVT. LTD. position is satisfactory. There was 1.44, 1.43, 1.46 Current ratio respectively in 2005-06 to 2007-08.

34

CURRENT RATIO
(In Rs 00000) Year Current assets Current Liabilitie s Current Ratio 2007-08 834 570 1.46 2006-07 327 576 1.43 2005-06 801 554 1.44 2004-05 757 535 1.41 2003-04 670 544 1.23

900 800 700 600 500 400 300 200 100 0 2007-08 2006-07 2005-06 2004-05 2003-04 Analysis of Current Ratio 5 4 3 2 1 1 1.2 1.4 1.23 1.41 1.44 1.43 1.46 1.6 Current Ratio Current assets Current Liabilities

35

QUICK OR ACID TEST OR LIQUID RATIO

Though current ratio is a valuable indicator of liquidity, yet it may lead to misleading if inventory forms a major component of current assets. Quick ratio is a more server test of short-term solvency, and measures the ability of a firm to instantaneously discharge its immediate obligations. This ratio is a refinement of current ratio. It is calculated by comparing liquid liabilities assets to liquid liabilities liquid assets may be calculated as:

Liquid Assets = Current Assets Inventory Prepaid Expenses

This ratio may be expressed as: Liquid Ratio = Quick Assets

Current Liabilities

Some accountants prefer the term Liquid Liabilities for current liabilities for the purpose of ascertaining this ratio. Liquid liabilities mean liabilities which are payable with in short period. The bank overdraft and cash credit facilities will be executed from current liabilities in such a case it may be expressed as:

Liquid Liabilities

Liquid Assets

INTERPRETATION

As a rule of thumb or as a convention quick ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to current liabilities then the concern may be able to meet its short obligations SSK Pvt. LTD. Quick Ratio was increased to 1:1 in 2005 due to increase in sundry debtors comparably sundry creditors. But in 2006 is .98 due to minor increase in sundry liabilities.
36

QUICK RATIO
Year Quick assets Quick Liabilitie s Quick Ratio 2007-08 572 570 1.003 2006-07 568 576 0.988 2005-06 544 544 1 2004-05 499 535 0.937 2003-04 412 544 0.756

600 500 400 300 200 100 0 2007-08 2006-07 2005-06 Year 2004-05 2003-04

Quick Ratio 5 4 3 2 1 0 0.5 1 0.756 0.937 1 0.988 1.003 1.5

37

ABSOLUTE LIQUID RATIO

Although receivables debtors and bills receivables arc generally more liquid than inventory yet there may be doubts regarding their realization into cash immediately or in time. Hence some C1llthoritics are of the opinion that absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets:Absolute Liquid Ratio = Absolute Liquid Assets

Current liabilities
Absolute Liquid Assets include cash in hand, cash at bank and marketable securities or temporary investments. The acceptable norm for this ratio is 50% or 5: I or 1: 2 i.e. Rs 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. Year Absolute Liquid Assets Current Liabilitie s Absolute Liquid Ratio 2007-08 162 570 0.28 2006-07 164 576 0.28 2005-06 155 544 0.29 2004-05 157 535 0.29 2003-04 152 544 0.27

38

INTERPRETATION The acceptance norm of this ratio is 5:1 i.e. 0.5 worth Liquid. Assets are considered adequate to pay Rs. 1 worth current liabilities ill time as the creditors are not expected to demand cash at the same time and than cash may also be received from decisions inventories. In the year 2003-04 and 2004-05 ratio are 0.27 and 0.29 respectively. These are increased due to decrease in creditors in current liabilities. In the year 2006-07 and 2007-08 are constant, show that the absolute liquid position of company is satisfactory.

39

ABSOLUTE LIQUID RATIO

Year Absolute Liquid Assets Current Liabilitie s Absolute Liquid Ratio 2007-08 162 570 0.28 2006-07 164 576 0.28 2005-06 155 544 0.29 2004-05 157 535 0.29 2003-04 152 544 0.27

600 500 400 300 200 100 0 200708 200607 200506 Year 200405 200304

Absolute Liquid Assets Current Liabilities

Analysis of Absolute Liquid Ratio

0.27

0.28

2007-08 2006-07 2005-06 2004-05 2003-04

0.29 0.29

0.28

40

SUMMARY OF LIQUIDITY RATIO

Year Current Ratio Quick Ratio Absolute Liquid Ratio 2007-08 1.46 1.003 0.28 2006-07 1.435 0.98 0.28 2005-06 1.445 1 0.29 2004-05 1.414 0.93 0.29 2003-04 1.23 0.75 0.27

Summary of Liquidity Ratios

2003-04 2004-05 2005-06 2006-07 2007-08 0 0.5 1 1.5 2 2.5 3 Current Ratio Quick Ratio Absolute Liquid Ratio

Funds are invested in various assets in a business to make sales

Current Assets Movement of Efficiency / Activity Ratios

41

and earn profits. The efficiency with which assets ale managed directly affects the volume of sales. The better the management of assets the large is the amount of sales and profits. Activity ratios measure the efficiency or effectiveness with which a firm manages its resources or assets. These ratios are called turnover ratios because they indicate the rate at which the funds invested in inventories are converted into sale. Depending upon the purpose, number or turnover ratios can be calculated as debtor turnover, stock turnover, capital turnover etc. Funds are invested in various assets in a business to make sales and earn profits. The efficiency with which assets arc managed directly affects the volume of sales. The better the management of assets the large is the amount of sales and profits. Activity ratios measure the efficiency or effectiveness with which a firm manages its resources or assets. These ratios are called turnover ratios because they indicate the raw at which the funds invested in inventories are converted into sale. Depending upon the purpose, a number of turnover ratios can be calculated as debtor turnover, stock turnover, capital turnover etc.

INVENTORY TURNOVER RATIO

This ratio establishes the relationship between the cost of goods sold during a given period and the average amount of inventory
42

carried during that period indicates whether stock has been efficiently used or 'not, the purpose being to check up whether only the required minimum has been locked up in stocks. It is usually considered better to work out the turnover against cost of sale since it includes a clement of profit whereas stock is usually at cost.

The ratio is calculated as follows: -

Stock turnover Ratio = Cost of Goods Sold Average Inventory at Cost Cost of Goods Sold = Opening Stock + Purchase + Direct Exp.Closing Stock
Generally the cost of goods sold may not he available from published accounts. In such a case the inventory turnover may be calculated by dividing net sale by the average inventory at cost. If average inventory at cost is not known then the inventory at selling price may be taken as the denominator. Thus

Inventory turnover Ratio

Net Sales Average Inventory at Cost

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Inventory turnover Ratio =

at selling price

Net Sales
Average Inventory

INVENTORY CONVERSION PERIOD It may also be of interest to see the average time taken for claiming the stock. This can be possible by calculating inventory conversion period. This period is calculated by dividing the number of days by inventory turnover. The formula may be as follows.

Inventory Conversion Period = Days in a Year Inventory Turnover Ratio

No. of days = I take 365 days in a year. Year COGS (A) Average 2007-08 2006-07 2005-06 2004-05 2003-04 3334 3325 3295 3240 3072 426 418 7.94 52 407 8.08 45 368 8.80 41 303 8.40 43

Inv. (B) I/I Ratio 7.18 C (A/B) I/C Ratio 46 (365/C)

44

INTERPRETATION
Inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover ratio indicates brisk sales. It also indicates efficient stock control, sound sales policies, trading in quality goods, a reputation in the market and better competitive capacity. A low inventory turnover ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorating in quality. In the year 2003-04 the ratio is 8.4 which is increase to 8.8 in 2004-05 there is slight decrease in year 2005-06 and 2006-007 are 8.08 and 7.94 inventory turn over ratio of the company in satisfactory and inventory conversion period is increased but in current year is slight decreased.

45

INVENTORY TURNOVER RATIO

Year COGS (A) Average 2007-08 2006-07 2005-06 2004-05 2003-04 3334 3325 3295 3240 3072 426 418 7.94 52 407 8.08 45 368 8.80 41 363 8.40 43

Inv. (B) I/I Ratio 7.18 C (A/B) I/C Ratio 46 (365/C)

2003-04 2004-05 Year 2005-06 2006-07 2007-08 0

500

1000

1500

2000

2500

3000

3500

4000

COGS (A)
Analysis Of I/C Ratios

Average Inv. (B)

Analysis Of I/C RAtios

8.4

7.18

2007-08 2006-07 7.94 2005-06 2004-05 2003-04 41

43

46

2007-08 2006-07 2005-06 52 2004-05 2003-04

8.8 8.08

45

46

DEBTOR TURNOVER RATIO

Debtor constitutes an important constituent or current assets and therefore quality or debtor to a great extent determines a firms liquidity. Two ratios are used by financial analysis to judge the liquidity of a firm. They arc (I) debtor turnover ratio (ii) debt collection period. Debtor turnover ratio establishes the relationship between net credit sales and average debtors, of the year. Average debtors arc calculated by dividing the sum of debtors in the beginning and at the end by 2. This is calculated as follows: Debtor Turnover Ratio = Net Credit Sale Average Account Receivable The term account receivable includes trade debtors and bills receivable while calculating the debtor's turnovers, it is important to remember that doubtful debts are not deducted from total debtors. In case details regarding opening and closing receivables and credit sale arc not given the ratio may be worked-out as follows: Debtor turnover Ratio = Total Sales Account Receivables

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AVERAGE COLLECTION PERIOD This ratio show the number of days for which normally sales remain uncollected. It indicates the extent two which the debts have been collected in time. In other word, it gives the average debt collection period. This ratio may be calculated as follows: Debt Collection Period: Months 365 Days or 360 Days /12 Debtors turnover Debt collection period is a measure of average credit period enjoyed be customers. It measures the quality of debtors since it measures the rapidity or slowness with which money is collected from them. A short collection period indicates prompt payment by debtors, which reduces the changes of bad debts. In order to measure a firms credit and collection efficiency its average collection period should be compared with average of the industry. It should be neither too liberal nor too restrictive. A restrictive policy will result in lower sales, which will reduce profits.

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DEBTOR TURNOVER RATIO

Year Sales Average Debtors Debtor Ratio Debt Collection Period
Analysis of D e b t C o lle ction P e riod
26 28 35 37

200708 4200 405 T/O 10.35 35

200607 4130 418 9.8 37

2005-06 4073 385 10.56 35

2004-05 3976 301 13.9 28

2003-04 3837 270 14.2 26

35

Analysis of Debtor T/O Ratio

14.2

10.35

9.8 13.9

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10.56

Year Sales Average Debtors Debtor T/O Ratio Debt. Coll Period

2007-08 4200 405 10.35

2006-07 4130 418 9.8

2005-06 4073 385 10.56

2004-05 3976 301 13.19

2003-04 3837 270 14.2

35

37

35

28

26

INTERPRETATION This ratio indicate the speed with which debtor are converted into cash. Higher the debtor turnover ratio better it is where as shorter the average collection period betters the quality of debtor. The credit period granted by this company to its debtor is 26 days in 2003-04; the rate is higher in 2004-05 it is increased to 13.19. The debt collection is increased and increased indicate the efficiency of the company for collection of book debt it adversely affect the short-term financial position of the company. It indicates the good condition of the firm collect the debt within month.

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PAYABLE (CREDITORS) TURNOVER RATIO

This ratio is calculated roughly as the debtor's turnover ratio. It indicates the velocity with which the payments, for credit purchase arc made to creditors. The ratio can be computed as follows: Creditor turnover Ratio = Total Credit Purchases Average Accounts Payable The term accounts payable includes trade creditors and bills payable. In case the details regarding credit purchases, opening and closing accounts payable have not been given the, ratio may be calculated as: Total Purchases Accounts Payable.

INTERPRETATION
Generally higher the creditors turnover ratio and Lower the payment period show the better liquidity of the firm and vice versa. In the year 2003-04 Creditors turnover ratio is 4.47, which is decreased in the year, 2002-03 is 4.21. In the year 2005-06, 2006-07 and 2007-08 the ratios are 4.13, 3.97 and 4.03. It shows that the firm is not able to pay to its creditors in time. Average payment period is also increasing year by year. It will have unfavorable effect on the liquidity position of the firm. Creditors of the firm are turned over in relation to purchase with lower velocity and high payment period.

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CREDITORS T/O RATIO 2007- 2006- 2005- 2004- 200408 07 06 05 03 Purchase 2314 2247 2251 2275 2401 Average Creditors 573 565 544.5 539.5 536 Creditors T/O Ratio 4.03 3.97 4.13 4.21 4.47 Payment Period 90 91 88 86 81

52

2500 2000 1500 1000 500 0 2007- 2006- 2005- 2004- 200308 07 06 05 04
Year

Purchase Average Creditors

Analysis of Creditors T/O Ratio

Analysis Of Payment Period

4.47 4.21

4.03 3.97 4.13

2007-08 2006-07 2005-06 2004-05 2003-04 86

81

90

2007-08 2006-07 2005-06 91 2004-05 2003-04

88

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WORKING CAPITAL TURNOVER RATIO

This ratio indicates the number of times a unit invested in working capital produces sales. In other words this ratio indicates the efficiency or otherwise in the utilization of short term funds in making the sales. The ratio is calculates follows:

Working Capital Turnover Ratio =

Capital

Cost of Sales Average Working

Where working capital at the beginning is not disclosed, the ratio may be calculated with working capital at the end in place of average working capital. WORKING CAPITAL = C.A C.L. Year C.O.G.S. Working Capital Working Capital Ratio INTERPERTATION A higher working capital indicates effective utilization of working capital and a low working capital ratio indicate under utilization of working capital. In the year 2003-04 the ratio was 16 and in the year 2004-05 it decreased to 14 and constant in 2005-06 and 2006-07 is 13. Ratio increased due to operating efficiency or the company in utilizing its working capital. Higher will be ratio higher will be efficiency of the company. 2007- 2006- 2005- 2004- 200308 07 06 05 04 3334 3325 3295 3240 2072 264 251 247 222 126 12 13 13 14 16

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WORKING CAPITAL RATIO YEARS C.O.G.S. Working Capital Working Capital Ratio 2007- 2006- 2005- 2004- 200308 07 06 05 04 3334 3325 3295 3240 2072 264 251 247 222 126 12 13 13 13 14

Analysis Of Working Capital Ratio

14 13.5 13 12.5 12 11.5 11

Working Capital Ratio 2007- 2006- 2005- 2004- 200308 07 06 05 04 Year

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SUMMARY OF ACTIVITY RATIOS

The main objective of a Business concern is to earn profits. In high terms efficiency in business is measured by profitability. Jaw profitability arise due to lack or control. Over the expenses Banker's financial institutions and other creditors look at the profitability ratios as an indicators whether or not the firm earns substantially more than its pays interest for the use of borrowed funds and. whether the ultimate repayment of their debt-appears reasonably certain owners are also interested to know the profitability as it indicates the return which they can get on their investments. The following arc the important profitability ratios.

56

SUMMARY OF ACTIVITY RATIOS YEARS Inventory turnover ratio Inventory conversion Period Debtor turnover ratio Average Debt Collection Creditors turnover ratio Average credit period Working Capital turnover ratio 2007- 2006- 2005- 2004- 200308 07 06 05 04 7.18 7.94 9.08 8.8 8.4 46 52 45 41 43 10.35 35 4.03 90 12 9.8 37 3.97 91 13 10.56 13.19 35 28 4.13 4.21 88 86 13 14 14.2 26 4.47 81 16

Summary of Activity Ratio

100 90 80 70 60

Year

50 40 30 20 10 0
Inventory turnover ratio Inventory conversion Period Debtor turnover ratio Average Debt Collection Creditors turnover rato Average credit period Working Capital turnover ratio

Ratio 2007-08 2006-07 2005-06 2004-05 2003-04

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GROSS PROFIT RATIO

Gross Profit Ratio measures the relationship of gross profit to net sales and is usually represented as a percentage. Thus it is calculated by dividing the G.P. by sales

G.P. Ratio 100

= (Gross Profit/Net Sales) *

= (Sales Cost of Goods Sold)/Sales * 100 YEARS Gross Profit Sales Gross Profit Ratio 2007- 2006- 2005- 2004- 200308 07 06 05 04 856 805 778 736 765 4200 4130 4073 3976 3837 20.38 19.49 19.10 18.15 19% % INTERPRETATION The ratio established the relationship between gross Profit and sales. Higher the ratio better it is. There is no standard norm for judging the ratio however gross profit should be adequate to cover operating expenses and to provide fixed charges, dividends and building of reverse. In the year 2003-04 ratios are 19.93 and in the year 2004-05 the retail is 18.51. It is decreased due to increase in the cost of goods 's0ld in the year 2004-05. In the year 2006-07 and 2007-08 ratio are 19.49 and 20.38 respectively. % % %

58

GROSS PROFIT RATIO

Gross Profit Sales Gross Profit Ratio

2007- 2006- 2005- 2004- 200308 07 06 05 04 856 805 778 736 765 4200 4130 4073 3976 3837 20.38 19.49 19.10 18.15 19% % % % %

Analysis of Gross Profit Ratio

19%

20.38%

2007-08 2006-07 2005-06

18.15% 19.10%

19.49%

2004-05 2003-04

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OPERATING NET PROFIT RATIO

Operating net profit is calculated by dividing the operating net profit by sales. This ratio helps in determining the ability of the management in running the business. It is calculated as (Operating Net Profit /Net Sales) * 100 Operating Profit = Net Sales Operating Cost Year Operating Net Profit (A) Sales (B) Op. Net Profit Ratios (A/B) 4200 8.09% 4130 7.19% 4073 7.39% 3976 7.34% 3837 7% 2007-08 340 2006-07 297 2005-06 301 2004-05 292 2003-04 275

INTERPRETATION This ratio is very useful as if the ratio is not sufficient the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firms capacity to face adverse economic conditions such as price competition, low demand etc. obviously higher the ratio the better is the profitability. In our case this ratio is satisfactory which shows the firm position is good.

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NET PROFIT RATIO

Net profit ratio expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitably. Net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. The ratio indicates the position of the net sales is left for the owners of incomes and expenses. The ratio indicates the position of the net sales is left for the owners after all expenses have been met. It is calculated as follows:Net Profit Ratio = (Net Sales after Tax /Net Sales) * 100 Year Net Profit (A) Sales (B) Net Profit Ratio (A/B) INTERPRETATION: Higher the net profit ratio higher is the profitability of Business Firm and the firm position is very good. In the year 2003-04 is 6% & current year is 7. 5% 2007-08 315 4200 7.5% 2006-07 272 4130 6.58% 2005-06 275 4073 6.75% 2004-05 268 3976 6.74% 2003-04 251 3837 6%

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OPERATING RATIO
Comparing the cost of the goods sold and other operating expenses with the net sales determine the ratio. Operating ratio is calculated as follows: Year 2007-08 2006-07 2005-06 2004-05 2003-04 Operating 199 192 169 161 153 Cost (A) Sales Operating 4200 4.73% 4130 4.64% 4073 4.15% 3976 4.05% 3837 3%

Ratio (A/B) ((Cost of Goods Sold + Operating Expenses) /Net Sales) * 100 INTERPRETATION: The ratio is a test of efficiency of the management in their business operating. It is a means of operating efficiency. In normal condition the operating ratio should be low enough so as to leave portion of the sales sufficient to give a fair return on the investors. Lower the operating ratio the better is the position. In the case of Teak Trader Firm, these decreases over the time it was 3% in during 2003-04, 4.05% in 2004-05 and in 2005-06 is the 4.15. This rise in the Raito shows the good position of the firm.

SUMMARY OF PROFITABLY RATIO

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2007- 2006- 2005- 2004- 200308 07 06 05 04 Op. Net Profit Ratio 8.09 7.19 7.39 7.34 7 Net Profit Ratio 7.5 6.58 6.75 6.74 6 Gross Profit Ratio 20.38 19.49 19.10 18.51 19% Operation Ratio % 4.73 % 4.64 % 4.15 % 4.05 3

Summary of Profitablity Ratio

9 8 7 6 5 4 3 2 1 0
2007- 2006- 2005- 2004- 200308 07 06 05 04

Data Range

Op. Ner Profit Ratio Net Profit Ratio Gross Profit Ratio Operation Ratio

Ratios

TEST OF LONG TERM SOLVENCY

63

The long-term financial soundness of any business can be judged by its long-term creditors by testing its ability to pay interest/standing charges regularly and its ability to repay the principal as per schedule. Thus long term financial soundness or solvency of any business is examined by calculating ratios, known as leverage of capital structure ratios. These ratios help to interpret the capacity of the business to (1) repay longterm debt as per installments stipulated in the contract.

1.DEBT-EQUITY RATIO
This ratio is also known as debt to net worth ratio. The relationship between borrowed funds and internal owners fund is measured by debt equity ratio. Debt Equity Ratio = Total Long Term Debt Capital Year Total long term 200708 1400 864 1.62 200607 1434 800 1.79 200506 1465 741 1.97 200405 1350 685 1.97 200304 1365 634 2.15

debt Owner Equity Debt Equity INTERPRETATION

The debt equity ratio is calculated to measure the extent to which debt financing has been used in the business. The ratio indicates the proportionate claims of owners and outsider against firms assets. In the year 2003-04 the ratio is 2.51 which is decrease to 1.97 is 2004-05 which is beneficial from creditor point of view. In the year 2005-06 and 2006-07 ratios are further decrease to 1.97 to 1.79. The ratio of the company is less satisfactory from owner point of view. The firm should improve it. Dept is high in comparison to owner funds it is satisfactory from the Creditor point of view.

2.DEBT SERVICE OR INTEREST COVERAGE RATIO

64

Measure debt service capacity of a business so far as interest on Long Term Loans is concerned. The ratio is calculated with formula. EBIT/ fixed Interest Charges. Year 2007- 2006- 2005- 2004- 200308 07 06 05 04 EBIT 340 297 301 292 275 Fixed Int. Charges 25.2 25.8 26.37 24.3 21.5 Interest Con. Ratio 13.49 11.5 11.4 12.01 11.19

INTERPRETATION This ratio shows how many times the interest the earning covers charges in the firm interest coverage ratio was 11.19 times in 2003-04 and 12 in 2004-05 and it and it increases over the period because EBIT increases.

3. FIXED ASSETS RATIO

It establishes the relationship between long-term funds (equity plus long term loans) and fixed assets. Since financial

65

management advocates that fixed assets should be purchased out of long term funds only. Formula = Long Term Funds Net fixed Assets Year Total Term 2007-08 2006-07 2005-06 2004-05 2003-04 Long 1400 1434 1165 1350 1365 Debt 2001 0.7 1983 0.72 1919 0.75 1183 0.74 1873 0.72

Net fixed asset Fixed Assets ratios

INTERPRETATION Generally the total of the fixed assets should be equal to the total of long-term funds. In this case net fixed assets exceeds the total of the long term funds it implies that the firm has financial a part of fixed assets out of current funds or working capital which is good financial policy.

66

4. SOLVENCY RATIO Solvency is a term, which is used to describe the financial position of any business, which is capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship between total liability & total assets:Formula = Total Liabilities Total Assets Year 2007-08 2006-07 2005-06 2004-05 2003-04 Total Liabilities 1970 2010 2019 1885 1909 Total assets 2834 2810 2761 2570 2543 Solvency ratio 0.690 0.71 0.73 0.73 0.75

INTERPRETATION This ratio is small variant of equity ratio can be simply calculated as 100 equity ratio. Generally lower the ratio of total liabilities to assets more satisfactory as stable is the long-term solvency position of the firm. In a firm solvency ratio is .75 in 2003-04 & constant in 2004-05 & 2005-06. It is almost same over the period of time.

67

SOLVENCY RATIO
YEAR 2007- 2006- 2005- 2005- 200308 07 06 04 04 Total Liabilities 1970 2010 2019 1885 1909 Total assets 2834 2810 2761 2570 2543 Solvency ratio 0.69 0.71 0.73 0.73 0.75

2003-04 2004-05

Year

2005-06 2006-07 2007-08

0 500 1000 1500 2000 2500 3000

Total assets Total Liabilities

Analysis Of Solvency Ratio

0.75

0.69

2007-08 2006-07 2005-06 2004-05 2003-04

0.73 0.73

0.71

PROPRIETORY RATIO \EQUITY RATIO

This ratio variably knows as Net worth to total Assets Ratio or shareholders equity to total Equity Ratio. It is an important test

68

to Judge the long-term solvency of concern. It is calculated as follows.

Equity Ratio Year Owner equity Total Assets Equity Ratio 200708 864 2834 30.48 %

Proprietors funds Equity Ratio Total Assets 2005-06 741 2760 26.84 % 2004-05 685 2570 26.65 2003-04 631 2543 24 %

2006-07 800 2810 28.46 %

INTERPRETATION The ratio represents the relationship between owners funds to total assets. Higher the ratio better the long-term solvency position of the company, this ratio indicates the extent to which assets of the company can be lost without effecting the interest of the creditor of the company. In the year 2003-04 the ratio is 24, which is increased to 26.8% in 2004-05 and in 2005-06 is 26.84 % & 26.25% respectively. In the current year ratio is 30.48%, which is better from the owners point of view. Higher the share of the shareholders in the total capital of the company better is the long-term solvency position of the company.

69

OBSERVATIONS
1) Current ratios are increasing over the period of time but it is less than the standard ratio 2:1 2). Quick ratios are also increasing yearly but it is less than the standard. 3). Absolute ratios are increasing. These are more less than standard. 4). Inventory turnover ratio and inventory conversion period position is also good. 5). Credit turnover ratio and collection period position is satisfactory. 6). Firms working capital used for fixed assets, which is a good policy. 7). Firms solvency position is also satisfactory. 8). Firms profitability position is very good. Company is having profits over the period of time. 9). Workers get good working condition. There is a proper facility of canteen, water, proper ventilation; coolers, fans, clean environment proper lighting so the workers can work easily and their efficiency can be increased. 10). The staff of the firm is well experienced and it becomes assets for the company. 11). There is centralization in the organization. All the levels strictly follow the order, which is made by the Top Management. 12). There is a lack of Cost accounting system in the organization.

70

13). There is no Professionalization in the organization. The management itself takes every decision.

71

SUGGESTIONS
1. For good liquidity position firm must increase its current assets like cash in hand, cash at bank, debtor etc. & it should reduce current liabilities. 2. It is should try to use its working capital more efficiently for earning more profits. 3. Firm must try to decrease its expensive. 4. Firm should try to increase its sale for earning profits. 5. Management must adopt a good strategy to meet out the more profits. 6. Firm should increase its fixed assets and working capital must not be used for acquiring fixed properties. 7. There should be separate Cost accounting department in the organization. 8. There should be proper professional in the organization, professional should be the there and their suggestions should be properly considered. 9. The firm properly used its idle capacity. 10. The designs and styles should be appearing and fresh. It should not mere imitation of the present prevalent style of other.
11. Firm should sale its goods to domestic market to increase the sale. Knowledge

cannot be gained only on the basis of theoretical understanding from books. A practical insight is necessary for the learning process to complete and effective. This is especially in case of management education.

72

CONCLUSION
STRONG POINTS The liquidity ratios i.e. current ratio and quick ratio for all the years show that the firm has been maintaining adequate working capital, but the pledging of sundry debtors may create liquidity problems. Hence, the company has to be cautious. At the same time, the excess working capital also affects profitability of a firm adversely. NEGAIVE POINTS 1. There is blockage of funds in Debtors in some years as shown by the debtors collection period. 2.
3.

The firm has been relying more on borrowed funds. Basic reason for deterioration is profitability of firm seems to the declining trend in sales of firm. This indicates that the firm has not prepared it to face the increasing com1petition and has not allowed the market to slip out of its hands.

4.

There is declining trend in operating ratio and increasing trend in Net Profit Ratio till 2001, which indicates probable inefficiency in Office and Sales divisions and requires immediate remedial action. Firm is not utilizing its resources effectively as shown by the trend in turnover ratios.

73

BIBLIOGRAPHY

S. NO. AUTHOR 1. I.M. Pandey 2. M.Y. Khan & P.K. Jain 3. R.K. Sharma, Shashi 4. 5. Gupta S.N. MAHESHWARI S.C. Kuchhal

NAME OF BOOK Financial management Financial management Management accounting Management accounting Financial Management

74