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Study of Financial Analysis of Deepak Plast Pvt. Ltd. Bangalore
Study of Financial Analysis of Deepak Plast Pvt. Ltd. Bangalore
Study of Financial Analysis of Deepak Plast Pvt. Ltd. Bangalore
Submitted by
Aravind Selvakumar
Roll no 05914188813
ACKNOWLEDGEMENT
The main objective of this practical training is to get information about the
financial analysis followed by company.
I am heartily obliged to Mr. Manjeet Singh for guiding and directing during
complete project report. I loved a lot is way of imparting the quality knowledge
and molding me with the complete blend of required skill for tackling the problem
at each and every step. I shall be highly faithful for all his effort.
SUBMITTED TO
Manjeet Singh
(Assistant Professor)
SUBMITTED BY
Aravind Selvakumar
CONTENTS
Description
Page No.
Acknowledgement
List of tables
Declaration
Research Methodology
Objectives
Introduction to topic
Company Profile
10
Product Description
11
Quality policy
22
Literature review
25
Classifications Of Ratios
31
50
Suggestions
51
52
Bibliography
53
List of Tables/Figures
3
S.No
Table Title
Page No
CURRENT RATIO
34
35
CASH RATIO
37
38
DEBT RATIO
39
1
2
3
4
5
DEBT-EQUITY RATIO
40
6
PROPRIETORY RATIO
41
EQUITY RATIO
42
45
10
INVENTORY HOLDING
46
11
47
12
49
7
8
DECLARATION
I hereby declare that the major project report, entitled FINANCIAL ANALYSIS,
is based on my original study and has not been submitted earlier for award of
any degree or diploma to any institute or university.
The work of other authors(s), wherever used, has not been acknowledged at
appropriate place(s).
Candidate signature
Name: Aravind Selvakumar
Enrl.no: 05914188813
METHODOLOGY
Objectives
To access the long term solvency position of the business through the use
of ratios.
The accounting process begins with the recording of transactions in the books
of primary entry. The accounting information resulting from the transactions so
recorded gets posted in to various accounting heads in the ledger. In the ledger
each account is balanced at the end of an accounting period and a summary of
all balances in the various accounting heads from the ledger is prepared which is
known as trial balance from such trial balances and after effecting certain
adjustments considered necessary (which is dependent on the particular
accounting system followed by the organizations) the financial statements
relating to the accounting period are prepared.
There are some questions, which arise from the study of financial statements.
These could be Is Companys profitability adequate? Why is a profit low in spite
of increased sales? Why is there liquidity problem though profitability is good?
Why no reasons for changes in assets, liabilities and equity between two dates?
Why no dividends are paid though there are good profits? From where have
come cash flows and how they are applied? These and many other questions
need answers, which can be possible when the financial statements are suitably
analyzed
10
INDUSTRY PROFILE
Incepted in the year 2007, Deepak plast Pvt. Ltd. is one of the noteworthy
business companies affianced in the area of offering to our customers a supreme
class assortment of Plastic Masterbatch, Masterbatch Additive, Filler Compound
and Plastic Compound. Prepared with excellence, our offered array of products is
highly renowned in the industry because of their reliability, customized packaging
solutions and flawlessness. Also, these are made in line with the changing needs
of our customers using top class material along with modern amenities. Known
for their flawlessness, these products could be availed form us at most affordable
rates.
We understand the importance a team plays in the functionality of a company,
this we have hired a skilled workforce that is from amongst one of the eminent
personnel present in the industry. Working in close coordination with each other,
these assist us in understanding the changing desires of our customers and
ultimately furnishing them. Along with this, their consistent endeavors in
completing all the orders within the promised time have taken our firm towards
newer heights of success and appreciation.
Beneath the capable administration and guidance of our mentor Mr. Akshay
Gupta, we have been eligible to retain for ourselves a leading reputation in the
market. His enormous industry knowledge and proficiency has assisted us in
accomplishing an enormous customer base all over the nation.
11
Our Products
Plastic Masterbatch
Masterbatch Additive
Filler Compound
Plastic Compound
12
Plastic Masterbatch
Standard Color Masterbatch
Reliable
Effective
13
Black Masterbatch
Click to Zoom
Features:
Well packed
Reliable
Safe to use
14
White Masterbatch
Click to Zoom
Faster actions
Reliable
15
Click to Zoom
Features:
Accurate composition
Reliable
16
Masterbatch Additive
Antioxidant Additive
Known amid one of the leading market firms, we are highly active in bringing
forth an extensive spectrum of Antioxidant Additive. Precisely formulated, we
assure that top class inputs and advanced processing techniques are used in
their composition. Well tested, these could be availed form us at enormously
economical rates. Also, we guarantee of delivering a defect free consignment at
the end of our customers.
Features:
Precisely Processed
Reliable
Safe to use
17
Antistatic Agents
Features:
Well packed
Safe to use
18
Features:
Safe to use
Precisely processed
19
Processing Aid
Click to Zoom
Being a customer focused entity; we are affianced in the arena of providing to our
patrons a superior grade consignment of Processing Aid. This range is
formulated under the supervision of knowledgeable employees making use of
optimum-grade ingredients in line with the market set standards & quality
guidelines. Also, their exact composition and non-toxic nature make these a
preferred customer choice.
Features:
Accurate composition
Effectiveness
20
Filler Compound
Features:
Reliable
Temper-proof packaging
Purity
21
Plastic Compound
Features:
Precisely formulated
Reliable
Purity
22
QUALITY POLICY
The quality price of KEC shall be to design, manufacture and market at
competitive prices, products of such quality, which results in customer
satisfaction, quality reputation and market leadership.
MISSION
VALUES
Customer orientation
GUIDING PRINCIPLES
23
GENERAL STORES
To describe the process and procedure followed in stores department. A
guide for effective.
CEO
HOD Stores
SIC Stores
Objective:
The role of stores is to maintain accountability of the materials received,
stored and issued as per the specified requirements.
Scope: Applicable to stores activities.
Responsibility:
The head of stores division is responsible for overall function of the stores
with duties delegated to SIC/FIC as applicable.
Functions:
Preparation
of
25
receipt
memos.
INTRODUCTION
the
financial
statements
you
should
keep
in
mind
the
RATIO ANALYSIS
Ratio Analysis is one of the techniques of financial analysis where
ratios are used as a yardstick for evaluating the financial condition and
performance of a firm. Analysis and interpretation of various accounting ratios
gives a skilled and experienced analyst a better understanding of the financial
condition and performance of the firm.
MEANING AND DEFINITION:A ratio is a simple arithmetic expression of the relationship of one
number to another. Ratio is relationships expressed in mathematical terms
between figures which are connected with each other in some manner.
DEFINITION:Ratio analysis is defined as, The systematic use of ratios to interpret the
financial statements so that the strengths and weaknesses of the firm as well as
its historical performance and current financial condition can be determined.
This relationship can be expressed as: 1) Percentages:- For
example, Assuming that net profits of Rs 25,000 and Sales of Rs 1,00,000. Then
26
of sales. 3)
Liquidity position
Operating efficiency
Overall profitability
Trend analysis.
Liquidity Position
27
ratios which focus on earning power and operating efficiency. Ratio analysis
reveals the strengths and weakness of a firm in this respect.
Operating efficiency
Yet another dimension of the usefulness of the ratio analysis,
relevant from the viewpoint of management, is that it throws light on the degree
of efficiency in the management and utilization of its assets. The various activity
ratios measure this kind of operational efficiency. In fact, the solvency of a firm is,
in the ultimate analysis, dependent upon the sales revenues generated by the
use of its assets total as well as its components.
28
Overall profitability:
Unlike the outside parties which are interested in one aspect of the
financial position of a firm, the management is constantly concerned about the
overall profitability of the enterprise. That is, they are concerned about the ability
of the firm to meet its short term as well as long term obligations to its creditors,
to ensure a reasonable return to its owners and secure optimum utilization of the
assets of the firm. This is possible if an integrated view is taken and all the ratios
are considered together.
Inter- firm comparison
Ratio analysis not only throws light on the financial position of a firm
but also serves as a stepping stone to remedial measures. This is made possible
due to inter-firm comparison and comparison with industry averages. A single
figure of a particular ratio is meaningless unless it is related to some standard or
norm. One of the popular techniques is to compare the ratios of a firm with the
industry average. It should be reasonably expected that the performance of a
firm should be in broad conformity with that of the industry to which it belongs. An
inter-firm comparison would demonstrate the firms position vis--vis its
competitors.
Trend Analysis
Finally, ratio analysis enables a firm to take the time dimension into
account. In other words, whether the financial position of a firm is improving or
deteriorating over the years. This is made possible by the use of trend analysis.
The significance of a trend analysis of ratios lies in the fact that the analysts can
know the direction of movement, that is, whether the movement is favorable or
unfavorable. For example, the ratio may be low as compared to the norm but the
29
trend may be upward. On the other hand, though the present level may be
satisfactory but the trend may be a declining one.
LIMITATION OF RATIO ANALYSIS:Ratio analysis is a widely used tool of financial analysis. Though ratios are simple
to calculate and easy to understand, they suffer from some serious limitations:
Limited use of Single Ratio:-
Lack of Adequate Standards:There are no well accepted standards or rules of thumb for all
ratios which can be accepted as norms. It renders interpretation of the ratio
difficult.
Personal Bias:-
30
Incomparable:Not only industries differ in their nature but also the firms of the similar
business widely differ in their size and accounting procedure etc.. It makes
comparison of ratios difficult and misleading. Moreover, comparisons are made
difficult due to differences in definitions of various financial terms used in the
ratio analysis.
Absolute Figures Distortive:Ratios devoid of absolute figures may prove distortive as ratio analysis
is primarily a quantitative analysis and not a qualitative analysis.
Price Level Changes:While making ratio analysis, no consideration is made to the changes
in price levels and this makes the interpretation of ratios invalid.
31
CLASSIFICATION OF RATIOS:
LIQUIDITY RATIO
Current Ratio
Quick Acid Ratio
Debt-equity Ratio
Proprietary Ratio.
Interest Coverage Ratio
ACTIVITY RATIO:
PROFITABILITY RATIO:
32
These ratios are also termed as working capital or short term solvency
ratio. The importance of adequate liquidity in the sense of the ability of a firm to
meet current/short term obligations when they become due for payment can
hardly be overstressed. In fact, liquidity is a prerequisite for the very survival of a
firm. The short term creditors of the firm are interested in the short term solvency
or liquidity of a firm. But liquidity implies, from the viewpoint of utilization of the
funds of the firm that funds are idle or they earn very little
Leverage/capital structure ratios:
The second category of financial ratios is leverage or capital structure
ratios. These ratios explain how the capital structure of a firm is made up or the
debt-equity mix adopted by the firm. The long term solvency ratio of a firm can be
examined by using leverage or capital structure ratios. The leverage or capital
structure ratios may be defined as financial ratios which throw light on the long
term solvency of a firm as reflected in its ability to assure the long term creditors
with regard to: (1) Periodic payment of interest
during the period of the loan and (2) Repayment of principal on maturity or in pre
determined instalments at due dates.
Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset
management. These ratios are also called efficiency ratios or assets utilization
ratios. The efficiency with which the assets are used would be reflected in the
speed and rapidity with which assets are converted into sales. The greater is the
rate of turnover or conversion, the more efficient is the utilization/management,
other things being equal. For this reason, such ratios are also designated as
turnover ratios.
Profitability Ratios:
33
2004-05
2005-06
2006-07
2007-08
Current
Assets
14,11,798
17,37,753
24,09,647
31,59,775
Current
12,86,103
15,76,507
18,05,200
22,14,785
34
Liabilities
Current
Ratio
1.09
1.10
1.33
1.43
Current Ratios
1.6
1.4
1.2
1
Times
0.8
0.6
0.4
0.2
0
2004-05
2005-06
2006-07
2007-08
Interpretation: - The current ratio of last four years is less than ideal ratio 2:1,
i.e. fluctuating. This indicates that firms commitment to meet its short liabilities
was not so good. In 2007-08 and 2006-07 the current ratios are good compare to
2004-05, 2005-06.
2) QUICK / ACID TEST / LIQUID RATIO:
Liquid ratio is indication of availability of quick assets to honor its
immediate claims. Higher the ratio betters the coverage. And the standard ratio is
1:1.An asset is liquid if is can be converted into cash immediately without loss of
value. Hence cash is most liquid assets after assets which are considered to be
relatively liquid are; Debtors balance, marketable securities etc. inventories
considered to be less liquid therefore they require some time form relishing into
cash and their value also has tendency to fluctuate.
35
Formula:
Quick ratio = Current Assets- Inventories / Current Liabilities
Table-2
Year
2004-05
2005-06
2006-07
2007-08
Quick Assets
12,84,269
15,19,792
21,79,920
27,03,911
Current
Liabilities
12,86,103
15,76,507
18,05,200
22,14,785
Quick Ratio
.99
.96
1.20
1.22
Quick Ratio
1.5
1
Times
0.5
0
2004-05
2005-06
2006-07
2007-08
Interpretation: The ideal ratio is 1:1. The quick ratio is also fluctuating. In 200708 the ratio is satisfactory because it is higher than 1. And it is also good in 200607 and 2007-08.Because it is more than 1.But it has decreased in 2005-06 and
2004-05 i.e. 0.96 and 0.99 respectively. Overall the quick ratio is satisfactory,
means liquidity position of the company is good.
CASH RATIO:
An asset which converts suddenly without doubtful is called as cash ratios.
Here cash balance included trade investment or marketable securities that are
equivalent to cash.
36
Formula:
Cash Ratio=Cash +Marketable Securities /Current Liabilities.
Table- 3:
lakhs)
( Amount in
Year
2004-05
2005-06
2006-07
2007-08
Cash+
marketable
securities
2,17,773
1,39,434
4,13,668
5,24,749
Current
Liabilities
12,86,103
17,37,753
18,05,200
22,14,785
Cash Ratio
.17
.08
.22
.23
Cash Ratio
0.25
0.2
Percent
0.15
0.1
0.05
0
2004-05
2005-06
2006-07
2007-08
Interpretation: In Cash ratio there is no standard ratios for maintained the cash
balance because now a days nothing to be worried about the lack of cash if the
company has reserve borrowing power for its day to days activities. Holding of
Cash in the year 2007-08 was 23% of current liabilities in the 2005-06 it came
down to 8%, in the 2006-07 it again increased to 23%.
37
INTERVAL MEASURES RATIO: The ratio which assesses a firms ability to meet
its regular cash expenses is the interval measures. An interval measure relates to
liquid asset and average daily operating cash flows.
Formula:
Interval Measure ratio = current assets-inventories/average daily operating
expenses /360
Table-4
Year
Current
2004-05
asset 12,84,269
2005-06
15,19,792
2006-07
21,79,920
2007-08
27,03,911
inventories
Average daily 585
644
762
919
operating exp
Interval
2,360
2,860
2,942
2,195
Measures
SOURCE: ANNUAL REPORTS OF COMPANY
Interval Measures
3,500
3,000
2,500
Days
2,000
1,500
1,000
500
0
2004-05
2005-06
2006-07
2007-08
38
LEVERAGE RATIO
LEVERAGE RATIO is also called as capital structure ratio. It relates to the
study of various types of capital structure of firm. The long- term solvency of a
company can be examined by using leverages or capital structure ratios. These
ratios are for long-term creditors to judge the long-term financial strength of the
company.
THE DIFFERENT LEVERAGE RATIOS ARE:
1. Debt Equity Ratio
2. Proprietary Ratio
3. Interest Coverage Ratio
1) DEBT RATIO
Debt ratios are use to analyze the long term solvency of firm. It is the
proportion of the interest bearing debt in the capital structure. Debt ratio is
Calculated by total debt by total debt by capital employed or net asset of the firm.
Formula:
Total debt /Total debt +Net worth
Table-5
Year
2004-05
2005-06
2006-07
2007-08
2,03,121
1,93,574
3,16,343
4,41,152
Shareholders
Funds
13,11,350
13,01,803
11,08,229
12,52,506
Debt-equity
ratio
.15
.14
.28
.35
39
Debt Ratio
0.4
0.35
0.3
0.25
Percentage
0.2
0.15
0.1
0.05
0
2004-05
2005-06
2006-07
2007-08
Interpretation: The debt ratio for the 2007-08 was .35 or 35% of the capital
employed. It indicates owners have provide the remaining finance that is 135=65% of capital employed. From above analysis the firm has lower risk in the
year 2004-05 & 2005-06.But afterwards it has increased its risk in the year 200607 &2007-08.
2) DEBT-EQUITY RATIO
It measures the relation between debt and equity in the capital structure of
the firm. In other words, this ratio shows the relationship between the borrowed
capital and owners capital.
Formula:
Debt equity ratio= Long term debt/Net worth
Table-6
Year
2004-05
2005-06
2006-07
2007-08
1,93,574
3,16,343
4,41,152
40
Net
worth
11,08,229
11,08,229
11,08,229
12,52,506
Debt-Equity
Ratio
.18
.17
.28
.35
Times
2004-05
2005-06
2006-07
2007-08
41
Year
2004-05
2005-06
2006-07
2007-08
Shareholders
Fund
4,32,688
4,32,688
4,32,688
4,52,688
Total Assets
15,39,264
18,56,702
25,25,498
32,92,946
Proprietary
Ratio(%)
.28
.23
.17
.13
Times
0.3
0.25
0.2
Times
0.15
0.1
0.05
0
20004-05
2005-06
2006-07
2007-08
Interpretation: The equity ratio is high in 2004-05 i.e. 28%. It indicates that a
high proprietary ratio relatively little danger to the creditors and it is better for
long-term solvency position of the company. But it has been decreased to 13%
and 17% in the year 2006-07 and 2007-08 respectively. A ratio below 50% is
dangerous to the creditors at the time of winding up of a company.
4) EQUITY RATIO:
Equity Ratio is calculated by dividing capital employed (CE) by Net
worth (NW)
Formula:
Equity Ratio= Capital employed (CE)/Net worth
42
Table-8
Year
2004-05
2005-06
2006-07
2007-08
Capital
employed
4,32,688
4,32,688
4,32,688
4,52,688
Net worth
11,08,229
11,08,299
11,68,229
12,52,506
Equity Ratio
.39
.39
.37
.36
Times
0.4
0.39
0.38
Times
0.37
0.36
0.35
0.34
2004-05
2005-06
2006-07
2007-08
Interpretation: There are no standard rules for maintaining equity ratio. It differs
according to the nature of the business. The lower performance in maintain Net
worth
ratio. Therefore they indicate the speed with which assets are being converted /
turned over in to sales.
Thus an activity ratio involves relationship between sales and assets. A proper
balance between sales and assets generally reflects that assets are managed
well.
In other words, turnover ratio indicates the efficiency with which the capital
employed is rotated in the business.
Higher the ratio of rotation, the greater will be the profitability
OR
Sales
__________
Inventory
Table-9
Year
2004-05
2005-06
2006-07
2007-08
Sales
31,20,434
41,40,246
59,13,957
72,77,768
Inventory
1,27,529
2,17,961
2,29,727
4,55,864
Inventory
turnover ratio
24.4
18.9
25.74
15.96
times
15
10
5
0
2004-05
2005-06
2006-07
2007-08
Interpretation:- In the above chart, the inventory turnover ratio is high in 200607, 2004-05, i.e. 25.7, 24.4 respectively. But it is low in 2007-08 and 2005-06 i.e.
15.9 and 18.9 respectively. Usually, a high inventory turnover indicates efficient
management of inventory because more frequently the stocks are sold.
Table -10
Year
2004-05
2005-06
2006-07
2007-08
Inventory
1,27,529
2,17,961
2,29,727
4,55,864
Sales
31,20,434
41,40,246
59,13,957
72,77,768
18.95
13.98
22.5
Days
inventory
holding
of 14.7
Days
10
5
0
2004-05
2005-06
2006-07
2007-08
46
Debtors
Higher the ratio is better, since it indicate that debts are being collected more
promptly.
Table-11
Year
2004-05
2005-06
2006-07
2007-08
Sales
31,20,434
41,40,246
59,13,957
72,77,768
Debtors
8,25,008
11,26,390
13,78,923
15,98,625
Debtors
turnover
3.78
3.67
4.2
4.5
47
3
2
1
0
2004-05
2005-06
2006-07
2007-08
2004-05
2005-06
2006-07
2007-08
Debtor
8,25,008
11,26,390
13,78,923
15,98,625
Sales
31,20,434
41,40,246
59,13,957
72,77,768
Debtors
95
98
84
79
Collection
Period
48
Days
60
40
20
0
2004-05
2005-06
2006-07
2007-08
Asset turn over ratio indicates Sales for every one rupee which is
invested in fixed and current asset together. Assets are used to generate sales. A
firm should manage its efficiently to masculine sales.
Formula:
Asset turnover ratio= Sales/ Net Asset
Table-13
49
Year
2004-05
2005-06
2006-07
2007-08
Sales
31,20,434
41,40,246
59,13,957
72,77,768
Net Asset
15,39,264
18,56,702
25,25,498
32,92,946
Asset turn
over ratio
2.0
2.2
2.3
2.2
Times
Times
2004-05
2005-06
2006-07
2007-08
Interpretation: The total asset turn over ratio is 2.3 times in the year 2006-07 it
is good. The same is maintained in year 2005-06, 2007-08. In the 2004-05 the
ratio is low. It indicates poor perform.
50
FINDINGS:
Cash ratio of the company is poor hence they will find problem of liquidity
position.
The quick ratio of Deepak plast pvt ltd is showing a increasing trend & it is
also below the standard ratio 1:1.
The current ratio of Deepak plast pvt ltd is not satisfactory but it is below
the standard ratio i.e. 2:1.
Debt equity ratio of the company is far below the standard. They have not
utilized the potential of borrowing for the debts.
51
SUGGESTIONS:
Company should try to maintain its current ratio at the standard 2:1.
The company should reduce its cost of production through adopting new
technology. It will help to increase the sales.
The kecs average collection period is very high. For avoiding the
company should take major techniques to collect the money from debtors.
Company should try to reduce its credit sales through cash discount at the
time of sales. It will helps to meet the current obligation.
The company is in loss due to heavy interest burden to avoid this the
company should plan to adoption of share capital in the business.
52
CONCLUSIO
N:
53
BIBLIOGRAPHY:
54