INTRODUCTION

Financial statements are prepared primarily for decision-making. They play a

dominant role in setting the framework of managerial decisions. But the information
provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone. However, the information
provided in the financial statements is of immense use in making decisions. Financial
analysis is “the process of identifying the financial strengths and weakness of the firm
by properly establishing relationship between the items of the balance sheet and profit
and loss account”.

The purpose of financial analysis is to diagnose the information

contained in financial statements to judge the profitability and financial soundness of
the firm. The analysis and interpretation of financial statements is essential to bring
out the mystery behind the figures in financial statements. Financial analysis of
statements is an attempt to determine significance and meaning of the financial
statement data so that forecast may be made of the future earnings, ability to pay
interest and debt maturities a (both current and long term) and profitability of a sound
dividend policy.

The purpose of “financial statement analysis” includes both analysis

and interpretation. A distinction therefore, is made between the two terms. While
classification of the data given in the financial statements, Interpretation means,
“explaining the meaning and significance of the data so simplified. However, analysis
is useless without interpretation and interpretation without analysis is difficult or even
impossible. Financial analysis can be done on the basis of different aspects. On the
basis if material used financial analysis can be of two types.

1. External Analysis.

2. Internal Analysis.

Outsiders who do not have access to the detailed internal accounting

records of the firm do external analysis. These outsiders include Investors potential
investors, creditors, potential creditors, government agencies, credit agencies and the

1
public. This analysis of external parties to the firm depends almost entirely on the
published financial statements. The recent changes in the Government regulation
requiring business firms to make available information that is more detailed to the
public through audited published A/c’s have considerably improved the position of
the external analysis.

Persons who have access to the internal accounting records

of a business firm generally conduct internal analysis. Executives and employees of
the organization as well as government agencies perform internal analysis. The
internal type of analysis that can be affected depends upon the purpose to be achieved.
According to the method of operation followed in the analysis, financial analysis can
also be of two types

 Horizontal analysis
 Vertical analysis

Horizontal analysis

Horizontal analysis refers to the comparison of the various

items in the financial data of a company for several years. The figures of analysis are
called as “Dynamic Analysis”. It is based on the data from year to year rather than on
data of any one year. The horizontal analysis makes it possible to focus attention on
items. Comparative Statements and trend percentages are two tools employed in
horizontal analysis.

Vertical Analysis

Vertical analysis refers to the study of relationship of the

various items in the financial statements of one Accounting period. In this type of
analysis, the figures from financial statement of a year are compared with a base
selected from the same year’s statement. It is also known as static analysis.

Horizontal analysis was more effective and meaningful.

2
Tools of Financial Analysis

The analysis and interpretation of financial statements is used to determine

the financial position and results of operations. There are number of methods and
devices which clearly analyze the position of the enterprise.

The following methods of analysis are generally used:

1) Comparative Statements

2) Trend analysis

3) Common-size statements

4) Funds flow analysis

5) Cash flow analysis

6) Ratio analysis

3
 NEED FOR THE STUDY

The need for financial analysis of any business understanding in general or in

particular hardly needs of any emphasis. Notably as a potent instrument, proper
financial analysis not only helps largely in finding goal deviation of a business
enterprise but also guides, ensuring effective and efficient utilization of available
resource both physical and financial.

1. The study has great significance and provides benefits to various parties whom
directly or indirectly with the company.
2. To express the relationship between different financial aspects in such a way
that it allows the user to draw conclusions about the performance, strengths
and weaknesses of the company.
3. To diagnose the information contained in financial statement so as to judge the
profitability of the firm.
4. The study helps to know a liquidity, solvency, profitability and turnover
position of the company.

4
 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The analysis is done to suggest the possible
solutions. The study is carried out for 5 years (2013–18). The present study is
confined to only Andhra Sugars Limited only.

5
 OBJECTIVES OF THE STUDY

The study namely, ‘FINANCIAL ANALYSIS’ of Andhra Sugars Limited is carried

with the following objectives.

 To know the liquidity position of the firm during the period of the study.
 To know the profitability of the firm during the period of the study.
 To know the long-term solvency of the company during the period of the
study.
 To know the efficiency in assets utilization.
 To know the overall financial performance.
 To suggest measure for improving financial performance of the firm.

6
 METHODOLOGY OF THE STUDY

The data obtained for the study can be divided into two groups.

 Primary Data
 Secondary Data

PRIMARY DATA:

Primary data consists of information from the discussion with the heads of the
departments, official and staff.

SECONDARY DATA:

The secondary data comprises of information obtained from the annual report
documents maintained by the Andhra Sugars Limited.The basic understanding of the
objective referred from different publication from professional institution in study one
fourth of the total information obtained from primary data and rest from secondary
data.

7
 LIMITATIONS OF THE STUDY

The study namely, “FINANCIAL ANALYSIS OF ANDHRA SUGARS

LIMITED” is subjected to the following limitations.

 The study is conducted with the available data gathered from the annual
reports of Andhra Sugars Limited and the analysis was made accordingly.

 The study is conducted in a short period. During this limited period, the study
may not be clear in all aspects.

 The study evaluation is based on some of the related working capital ratios.

 The present study covers only for a period of five years from 2013-2014 to
2017-2018.

 Ratio analysis comparison is based on industry norms as presented in the

table.

8
 THEORETICAL FRAMEWORK

FINANCIAL ANALYSIS:

Financial statements are prepared primarily for decision-making. They play a

dominant role in setting the framework of managerial decisions. But the information
provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone. However, the information
provided in the financial statements is of immense use in making decisions. Financial
analysis is “the process of identifying the financial strengths and weakness of the firm
by properly establishing relationship between the items of the balance sheet and profit
and loss account”.

The purpose of financial analysis is to diagnose the information

contained in financial statements to judge the profitability and financial soundness of
the firm. The analysis and interpretation of financial statements is essential to bring
out the mystery behind the figures in financial statements. Financial analysis of
statements is an attempt to determine significance and meaning of the financial
statement data so that forecast may be made of the future earnings, ability to pay
interest and debt maturities a (both current and long term) and profitability of a sound
dividend policy.

The purpose of “financial statement analysis” includes both analysis

and interpretation. A distinction therefore, is made between the two terms. While
classification of the data given in the financial statements, Interpretation means,
“explaining the meaning and significance of the data so simplified. However, analysis
is useless without interpretation and interpretation without analysis is difficult or even
impossible. Financial analysis can be done on the basis of different aspects. On the
basis if material used financial analysis can be of two types.

9
1. External Analysis.

2. Internal Analysis.

Outsiders who do not have access to the detailed internal accounting

records of the firm do external analysis. These outsiders include Investors potential
investors, creditors, potential creditors, government agencies, credit agencies and the
public. This analysis of external parties to the firm depends almost entirely on the
published financial statements. The recent changes in the Government regulation
requiring business firms to make available information that is more detailed to the
public through audited published A/c’s have considerably improved the position of
the external analysis.

Persons who have access to the internal accounting records

of a business firm generally conduct internal analysis. Executives and employees of
the organization as well as government agencies perform internal analysis. The
internal type of analysis that can be affected depending upon the purpose to be
achieved. According to the method of operation followed in the analysis, financial
analysis can also be of two types

 Horizontal analysis
 Vertical analysis

Horizontal analysis

Horizontal analysis refers to the comparison of the various

items in the financial data of a company for several years. The figures of analysis are
called as “Dynamic Analysis”. It is based on the data from year to year rather than on
data of any one year. The horizontal analysis makes it possible to focus attention on
items. Comparative Statements and trend percentages are two tools employed in
horizontal analysis.

10
Vertical Analysis

Vertical analysis refers to the study of relationship of the

various items in the financial statements of one Accounting period. In this type of
analysis, the figures from financial statement of a year are compared with a base
selected from the same year’s statement. It is also known as static analysis.

Horizontal analysis was more effective and meaningful.

Tools of Financial Analysis

The analysis and interpretation of financial statements is used to determine

the financial position and results of operations. There are number of methods and
devices which clearly analyze the position of the enterprise.

The following methods of analysis are generally used:

1) Comparative Statements

2) Trend analysis

3) Common-size statements

4) Funds flow analysis

5) Cash flow analysis

6) Ratio analysis

Comparative Statements

The comparative financial statements are statements of the

financial position at different periods, of time. The elements of financial position are
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 generally, two financial
statements (Balance sheet and income statement) are prepared in comparative form
for financial analysis purposes. Not only the comparison of the figures of two periods
but also the relationship between the balance sheet and income statement enables in

11
depth study of financial position and operative results of the firm. The comparison
may show:

1. Absolute figures.

2. Changes in absolute figures (i e) increase or decrease in absolute Figures.

3. Absolute data in terms of percentages.

4. Increase or decrease in percentages.

The financial data will be comparative only when some accounting

principles are used in preparing these statements. This fact must be mentioned at the
foot of financial statements and the analyst should be careful in using these
statements.

The two comparative statements are

 Comparative Balance sheet.

 Comparative Income statement.

Comparative Balance Sheet Analysis

The comparative balance sheet analysis is the study of the trend of the
same items, group of items and computed items in two or more balance sheets of the
same business enterprise on different dates. The changes in periodic balance sheet at
the beginning and at the end of the period and these changes can help in forming an
opinion about the progress of an enterprise. The comparative balance sheet has two
columns for the data of original balance sheets. A third column is used to show
increases in figures. The fourth column may be added for giving percentages of
increases or decreases.

Interpretation of Comparative Balance Sheet

Comparative Balance sheet the interpreter is

expected to study the following aspects.

12
1) Current financial position and liquidity position.

2) Long - term financial position.

3) Profitability of the concern.

1. Current financial position and liquidity position

For studying current financial position or short-term financial position

of a concern, one should see the working capital in both the years. The excess of the
current assets over current liabilities will give the figure of working capital. The
increase of working capital means improvement in the current financial position of the
business. An increase in current assets accompanied by increase in current liabilities
of the same amount will not show an improvement in the short -term financial
position.

2. Long-term financial position

The long-term financial position can be analyzed by studying the

changes in fixed assets, long term liabilities and capital. The proper financial policy of
a concern will be to finance fixed assets by issue of long term securities such as
bonds, debentures, loans from financial institutions or issue of fresh capital. An
increase in fixed assets should be compared to increase in fixed assets is more than
the increase in long term securities then part of fixed assets is more than the increase
in fixed assets then fixed assets have only been financed from long-term sources.

3. Profitability of the Concern

The next aspect to be studied in comparative balance sheet is the

profitability of the concern. The study of increase or decrease in retained earnings,
various sources and surpluses, etc. will enable the interpreter to see whether the
profitability has improved or not. An increase in the profit and loss account and other
resources created from profits will mean increase in profitability of the concern.

Comparative Income Statement Analysis

13
 The income statement gives the results of a business. The comparative
income statement gives the idea of the progress of a business over a period of time.
The changes in absolute data in money values and percentages can be determined to
analyze the profitability of the business like Comparative balance sheet, income
statement also has four columns. First two columns give figures of various items of
two years. Third and fourth columns are used to show increase or decrease in figures
in absolute amounts and percentages respectively.

Interpretation of income statements

The interpretation of income statements will have following steps

1. The increase or decrease in sales should be compared with the increase or decrease
in cost of goods sold. An increase in sales will not always mean in increase in profit.
The profitability will improve if increase in sales is more than the increase in cost of
goods sold. The amount of gross profit should be studied in the first step.

2. The second step of analysis should be the study of operational profits. The
operating expenses such as office and administrative expenses. Selling & distribution
expenses should be deducted from gross profit to find out operating profits. An
increase in sales position. A decrease in operating profit will result from decrease in
sales.

3. The increase or decrease in net profit will give an idea about the overall
profitability of the concern. Non-operating expenses such as interest paid, payment of
tax, losses from sale of assets, writing off differed expenses etc. decrease the figure of
operating profit. When all non-operating expenses are deducted from operational
profit, we get a figure of net profit. An increase in net profit will gave an idea about
the progress of the concern.

4. The profitability of the concern should be mentioned whether the overall

profitability is good or not.

14
Ratio Analysis

The ratio analysis is one of the most powerful tools of financial analyses.
It is the process of establishing and interpreting various ratios (quantitative
relationship between figures and group of figures). It is with the help of ratios that the
financial statements can be analyzed more clearly and decisions made from such
analysis.

A ratio is a simple arithmetical expression of the relationship of one

member to another. It may be defined as the indicated quotient of two mathematical
expressions. According to accounts Hand Book Luxion, Kell and Badford, a ratio “is
an expression of the quantitative relationship between two numbers”. According to
Kohler, ratio is the relation, of the amount, a to another b, expressed as the ratio of a
to b, a:b (a is to b) : or as a simple fraction, integer, decimal, fraction or percentage.”
In simple language ratio is one number expressed in terms of another and can be
worked out by dividing one number into another.

A financial ratio is the relationship between the accounting figures

expressed mathematically. A ratio analysis is a technique of analysis and
interpretation of financial statements to the process of establishing and interpretation
of financial statements to the process of establishing and interpreting various for
helping in making decisions. However, Ratio analysis is not and ends in itself. It is
only a means of better understanding of financial strengths and weaknesses of a firm.
Calculation of mere ratios does not serve any purpose, unless several appropriate
ratios, which can be calculated from the information given in the financial statements,
but the analyst has to select the appropriate data and calculate in mind the objective of
analysis.

1) Selection of relevant data from the financial statement depending upon

the objective of the analysis.

15
2) Calculation of appropriate ratios from the above data.

3) Comparison of the calculated ratios with the ratios of the same firm in the past, or
the ratios developed for projected financial statements or the ratios developed for
projected financial statements or the ratios of some other firms or the comparison with
the ratios of industry to which the firm belongs.

Interpretation of the ratios.

The interpretation of ratios is an important factor limitations of ratio

analysis should be kept in mind while interpreting them. The impact of factors such as
price level changes, change in accounting policies, window dressing etc. should keep
in mind when attempting to interpret ratios.

A single ratio in itself does not convey much of the sense. To make ratios
useful for further interpret. The use of ratio is confined to financial managers. As
discussed earlier there are different parties interested in the ratio analysis for knowing
the financial position of a firm for different purposes. The suppliers of good on credit,
banks, financial institutions, investors, shareholders and mgt all make use of ratio
analysis as a tool in evaluating the financial position and performance of a firm for
granting credit, providing loans or making investments in the firm.

With the use of ratio, analysis one can measure the financial condition of a firm
can point out whether the condition is strong, good, questionable or poor. The
conclusions can also be drawn as to whether the performance of the firm is improving
or deteriorating. Thus, ratios have wide applications and are of immense use today

16
Managerial Uses of Ratio Analysis

1. Helps in decision-making

Financial statements are prepared primarily for decision-making. However,

the information provided in financial statements is not end in itself and no meaningful
conclusion can be drawn from these statements alone. Ratio analysis helps in making
decisions from the information provided in these financial statements.

2. Helps in forecasting and planning

Ratio analysis is of much help in financial forecasting and planning.

Planning is looking ahead and the ratios calculated for a number of year’s work as a
guide for the future. Meaningful conclusions can be drawn for future from these
ratios. Thus, ratio analysis helps in planning and forecasting.

3. Helps in Communicating

The financial strength and weakness of a firm are communicated in a

more easy and understandable manner by the use of ratios. The information contained
in the financial statements id conveyed in a meaningful manner to the one for meant.
Thus, ratios help in communication and enhance the value of the financial statements.

4. Helps in Co-ordination

Ratio evens help in co- ordination, which is of almost importance in

effective business mgt. better communication of efficiency and weakness of an
enterprise results in better co-ordination in the enterprise.

17
5. Helps in Control

Ratio analysis even helps in making effective control of the

business. Standard ratios can be based upon perform a financial statements variances
or deviations of any; can be found by comparing the actual with the standards to take
a corrective action at the right time. The weakness or otherwise it any come to the
knowledge of the mgt which helps in effective control of the business.

In view of requirements of the various users of ratios, we may classify them into the
following four important categories.

1. Liquidity ratios.

2. Leverage ratios.

3. Activity ratios.

4. Profitability ratios.

Liquidity ratios measure the firm ability to meet current obligations.

Leverage ratios show the proportions of debt and equity in financing the firm assets.
Activity ratios reflect the firms efficiency in utilizing its assets and Profitability ratios
measure overall performance and effectiveness of the firm.

1. Liquidity Ratios

The most common ratios, which indicate the extent of liquidity, are:

Current Ratio, Quick Ratio, other ratios include Cash Ratio, internal measure and Net
Working Capital Ratio.

Current Ratio: current assets

current liabilities

Quick Ratio: current assets-Inventories

18
 current liabilities

Cash Ratio: cash + marketable securities

current liabilities

Net Working Capital Ratio: Net Working Capital

Net Assets

1. Leverage Ratios

Leverage ratios may be calculated from the balance sheet items to

determine the proportion of debt in total financing. Many variations of these ratios
exist; but all these ratios indicate the same thing – the extent to which the firm has
relied on debt in financing assets.

Debt Equity Ratio: Outsiders funds

Shareholders’ funds

Proprietor’s Ratio: Shareholders funds

Total Assets

Capital gearing ratio: Fixed interest bearing securities

Equity shareholders funds

19
(Fixed interest bearing securities= preference capital+ debentures+ loans)

Inventory Turnover Ratio: Cost Of Goods Sold

Average Inventory at cost

Return On Capital Employed: Net profit

Capital Employed

3. Activity Ratios

Activity ratios are employed to evaluate the

efficiency with which the firm manages and utilizes its assets. A proper balance
between sales and assets generally reflects that assets are managed well. Several
activity ratios can be calculated to judge the effectiveness of the asset utilization.

Debtors Turnover Ratio: Credit Sales

Average debtors

Collection Period: 360

Debtors Turnover

Net Assets Turnover Ratio: Sales

Net Sales

20
Total Assets Turnover Ratio: Sales

Total Assets

Fixed Assets Turnover Ratio: Sales

Net Fixed Assets

Current Assets Turnover Ratio: Sales

Current Sales

Working Capital Turnover Ratio: Sales

Net Current Asse

4. Profitability Ratios

The profitability ratios are calculated to measure the operating

efficiency of the company in term of profits. Generally two major types of
profitability ratios are calculated.

 Profitability in relation to sales.

 Profitability in relation to investment.

Gross Profit Ratio: Gross Profit

Sales

21
Net Profit Ratio: Profit After Tax

Sales

Operating Expenses Ratio: Operating Profit

Sales

Operating Net Profit Ratio: Operating Profit

Net Sales

Operating profit = Gross profit –All operating expenses

Limitations of Ratio Analysis

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

management. However, ratios are simple to calculate and easy to understand, they
suffer from some serious limitations.

1. Limited Use of a Single Ratio

22
 A single ratio is usually, does not convey much of a sense. To make a better
interpretation a number of ratios have to be calculated which is likely to calculated
which is likely to confuse the analyst than help him in making any meaningful
conclusion.

2. Lack of Adequate Standards

There are no well- accepted standards or rules of for all ratios that can be
accepted as norms. It renders interpretation of the ratios difficult.

3. Inherent limitations of Accounting

Like financial statement, ratios also suffer from the inherent weakness of
accounting records such as their historical nature. Ratios of the part are not
necessarily true indicators of the future.

4. Change of Accounting Procedure

Change in accounting procedure by a firm often

makes ratio analysis mislead e.g., a change in the valuation methods of inventories,
FIFO to LIFO increases the cost of sales and reduces considerably the value of
closing stocks which makes stock turnover ratio to be lucrative and an unfavorable
gross profit ratio.

5. Window Dressing

Financial statement can easily be window dressing

to present a better picture of its financial and profitability position to outsiders. Hence,
one has to be very careful in making a decision from ratios calculated from such
financial statements. However, it may be very difficult for an outsider to know about
the window dressing made by a firm.

23
6. Personal Bias

Ratio is only means of financial analysis and not an

end in itself. Ratios have to be interpreted and different people may interpret the same
ratio in different ways.

7. Absolute figures Distortive

Ratio devoid of absolute figures may prove

distortive, as ratio analysis is primarily a quantitative analysis and not a qualitative
analysis.

8. Incomparable

Industries in their nature but also the firms of the similar business widely
not only differ in their size and accounting procedures, 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.

9. 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.

10. No substitutes

Ratio analysis is merely a tool financial statement. Hence, ratio becomes

useless if separated from the statements from which they are computed.

Funds Flow Statement

24
 The two important financial statements are balance sheet
and profit and loss account. A balance sheet shows the values of various assets and
liabilities on a particular date. It gives the financial status of a company. It gives a
static picture of the company. A profit and loss account shows the net profit earned or
net loss sustained during a particular period. Simply by seeing a balance sheet we
cannot understand the causes for changes values of assets and liabilities from time to
time.

At the same time, there are so many transactions, which are not affected
trough profit and loss account. Hence, it is essential to prepare another statement
called a funds flow statement.

A funds flow statement is a statement of sources of funds and

applications of funds, sources mean the different ways by which company secured
(obtained) funds. The application of funds means for raised funds are used.

Meaning of funds

In a narrow sense

In a narrow sense funds mean include only cash and cash payments.

In a broader sense

In a broader sense funds include all the items which have a monetary
value. For Example: labor, material, machinery etc.

In a popular sense

In a popular sense funds mean working capital. working capital

means excess of current assets over current liabilities.

25
Meaning and Concept of Funds Flow Statement

Flow means movement. Flow may be inflow or outflow.

Movement of funds means changes in working capital. So a funds flow statement
means a working capital movement statement.

Sources of funds

If any transaction results in an increase in the working capital it is

a source of funds or in other words it is inflow of funds.

Preparation of funds flow statement

Preparation of funds flow statement involves preparation of the following two

statements.

1. Schedule of changes in working capital.

2. Funds flow statement.

Schedule of changes in working capital

In this statement all the current assets and current year and previous year
and previous year are recorded and increases or decreases in all of them are also
recorded and their effect on working capital is also recorded and finally net increase
or decrease in working capital is found out.

Funds flow statement

Funds flow statement is prepared in two formats.

1). Report form

2). T- form or an Account form

26
Application of funds

If any transaction results in a decrease in working capital, it is called

an application of funds or outflows of funds.

No Flow

If any transaction does not affect the working capital, it means there is no
change in the working capital or there is no flow of funds.

When does funds flow take place?

1. If a transaction is in between two current accounts -- there is no funds flow.

2. If a transaction is in between two non current accounts -- there is no funds flow.

3. If a transaction is in between a current account and a non current account- there

will be change in the working capital and there will be funds flow

Cash Flow Statement

An analysis of cash flows is useful for short-run planning. A Firm

needs sufficient cash to pay debts maturing in the near future, to pay interest and other
expenses and to pay dividends to share holders. The firm can make projections of
cash inflows and outflows for the near future to determine the availability of cash. A
historical analysis of cash flows provides insight to prepare reliable cash flow
projections for the immediate future.

A statement of changes in financial position on cash basis,

commonly known as the cash flow statement, summarizes the causes of changes in
cash position between dates of two balance sheets. It indicates the sources and uses of

27
cash. The cash flow statement is similar to the funds flow statement except that it
focuses attention on cash.

Sources and Uses of funds

The following are the sources of cash:-

1. The profitable operations of the firm.

2. Decrease in assets (except cash).

3. Increase in liabilities (including debentures or bonds).

4. Sale proceeds from an ordinary or preference share issue.

The uses of cash are:

1. The loss from operations.

2. Increase in assets (except cash).

3. Decrease in liabilities (including redemption of debentures or bonds).

4. Redemption of redeemable preference shares and

5. Cash dividends.

The easiest and the direct method of preparing a statement

of changes in cash position is to only record inflows and outflows of cash and find out
the net change in the cash balance has to be found out from the income statement and
comparative balance sheets, adjustments for the non cash items are made. These
adjustments are made in the same way as in preparing funds flow statement.

28
 DATA ANALYSIS & INTERPRETATION

RATIO ANALYSIS

A).Current Ratio = Current Assets

Current Liabilities

A relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time has and when they become due. As a
convention of minimum of 2:1 is referred to as a banker’s rule of thumb standard of
liquidity for a firm.

TABLE -4.1
YEAR CURRENT CURRENT CURRENT
ASSETS LIABILITIES RATIO
2013-2014 77060.89 42658.26 1.80
2014-2015 61000.33 28982.83 2.10
2015-2016 57479.23 23774.39 2.41
2016-2017 69443.41 29593.22 2.34
2017-2018 61634.94 23550.77 2.61

29
 CHART-4.1

CURRENT RATIO

3 2.61
2.41 2.34
2.5 2.1
1.8
2

1.5

0.5

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:
The current ratios of Andhra Sugars Ltd were 1.80, 2.10, 2.41, 2.34 and 2.61 by
comparing 2013-2014 and 2017-2018 we come to know that the current Ratio is
increased.

30
(b) Quick Ratio (or) Acid Test Ratio :-

Quick Ratio = Quick Assets

Current Liabilities

Quick Assets = Current Assets-Inventory

Usually a high acid-test ratio is a indication that the firm is liquid and has the
ability to meet its current liabilities in time & on the other hand a low quick ratio
represents that the firms liquidity position is not good. As a rule of thumb, 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-term obligations.

TABLE -4.2
YEAR QUICK CURRENT QUICK
ASSETS LIABILITIES RATIO
2013-2014 35062.67 42658.26 0.82
2014-2015 31941.63 28982.83 1.10
2015-2016 36653.74 23774.39 1.54
2016-2017 39200.62 29593.22 1.32
2017-2018 33624.51 23550.77 1.42

31
 CHART- 4.2

QUICK RATIO
1.54
1.6 1.42
1.32
1.4
1.1
1.2
1 0.82
0.8
0.6
0.4
0.2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The quick ratios of Andhra Sugars Ltd were 0.82, 1.1, 1.54, 1.32 and 1.42
by comparing 2013-2014 and 2017-2018 we come to know that the Quick Ratio is
fluctuating.

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(c) Absolute Liquidity Ratio:-

Absolute Liquid Assets

Absolute Liquidity Ratio = -----------------------------------
Current Liabilities

ABSOLUTE LIQUID ASSETS = CASH IN BANK + CASH AT HAND + SHORT

TERM INVESTIMENTS

The acceptable norm for this ratio is 50% or 2:1 that is Rs.1/- worth
absolute liquid assets is considered adequate to pay Rs 2/- worth current liabilities in
the 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. The ideal absolute quick ratio
is taken as 2:1 or 5:1.

TABLE -4.3

YEAR ABSOLUTE CURRENT ABSOLUTE

LIQUID ASSETS LIABILITIES LIQUIDITY
RATIO
2013-2014 3007.46 42658.26 0.07
2014-2015 3174.07 28982.83 0.10
2015-2016 2582.94 23774.39 0.10
2016-2017 14242.9 29593.22 0.48
2017-2018 7842.57 23550.77 0.33

33
 CHART -4.3

ABSOLUTE LIQUIDITY RATIO

0.48
0.5

0.4 0.33

0.3

0.2
0.1 0.1
0.07
0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:
The absolute liquidity ratios of Andhra Sugar Ltd were 0.07, 0.1, 0.1, 0.48,
and 0.33. It is also indicate that the firm has adequate worth.

34
(2)LEVERAGE (or) CAPITAL STRUCTURE

(a)Debt - Equity Ratio

Long Term Debt

Debt – Equity Ratio= --------------------------------
Shareholders fund

Debt-equity Ratio depends primarily upon the financial policy of the firm and
the firm’s nature of business a ratio of 1:1 is usually considered satisfactory of ratio
although there cannot be any rule of thumb for all types of business.

TABLE -4.4
Year Long Term Share Holders Debt- Equity
Debt Fund Ratio
2013-2014 31943.73 66915.24 0.47
2014-2015 31479.56 82463.21 0.38
2015-2016 30566.79 78343.51 0.39
2016-2017 39956.98 93275.06 0.42
2017-2018 39956.91 98745.42 0.40

35
 CHART-4.4

Debt- Equity Ratio

0.47
0.5
0.42
0.39 0.4
0.38
0.4

0.3

0.2

0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

: INTERPRETATION:
The debt equity ratios of Andhra Sugars Ltd were 0.47, 0.38, 0.39, 0.42and
0.4. It is indicate that the firm financial worth is stronger than the Debt

36
(b) Proprietary Ratio

Shareholders’ funds
Proprietary Ratio = -----------------------------
Total assets

It is the ratio of funds belonging to the shareholders to the total assets of

the company. This ratio indicates the extent to which the assets of company can be
lost without affecting the interest of creditors of company.
TABLE -4.5

YEAR SHARE TOTAL PROPRIETARY

HOLDERS’ ASSETS RATIO
FUNDS
2013-2014 66915.24 148220.22 0.45
2014-2015 82463.21 163244.91 0.50
2015-2016 78343.51 171634.78 0.45
2016-2017 93275.06 141528.98 0.65
2017-2018 98745.42 149952.30 0.65

37
 CHART -4.5

PROPRIETARY RATIO
0.65 0.65
0.7
0.6 0.5
0.45 0.45
0.5
0.4
0.3
0.2
0.1
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The proprietary ratios of Andhra Sugars Ltd were 0.45, 0.50, 0.45, 0.65 and
0.65.Here the proprietary ratio is increased considered two periods that is 2013-14,
2017-18.

38
c) Fixed Assets Ratio

Fixed Assets
Fixed Assets Ratio = ----------------------------
Capital Employed

The ratio of fixed assets to total assets indicates the extent to which total
assets are sunk in to the fixed assets. Generally, assets should finance the purchase of
fixed assets. If the ratio is less than 100% it implies that the total assets are, more tan
fixed assets and assets provide a part of the working capital. If the ratio is more than
100%, it implies that the total assets are not sufficient to finance the fixed assets and
the firm depends upon the outsiders to finance the fixed assets.
TABLE -4.6

YEAR FIXED CAPITAL FIXED ASSETS

ASSETS EMPLOYEES RATIO
2013-2014 56750.93 105561.96 0.53
2014-2015 52160.06 120969.47 0.43
2015-2016 51066.71 117754.59 0.43
2016-2017 65727.41 142041.56 0.46
2017-2018 64888.48 139694.13 0.46

39
 CHART -4.6

FIXED ASSETS RATIO

0.6 0.53
0.46 0.46
0.5 0.43 0.43

0.4

0.3

0.2

0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The fixed assets ratio of Andhra Sugars Ltd were 0.53, 0.43, 0.43,
0.46 and 0.46considered 2013-14 and 2017-18 years the assets ratio is decreased
.From 2016-17 to 2017-18years the assets ratio is no change.

40
(3) Activity Turn Over Ratio

(a)Inventory Turnover Ratio

Inventory turnover ratio =Cost of goods sold

Average Inventory
COST OF GODS SOLD=NET SALES-GROSS PROFIT

AVERAGE INVENTORY= (Opening stock+ Closing Stock) 1/2

A low inventory turnover ratio indicates an inefficient management of

inventory. A low inventory turnover ratio implies over investment in inventories, dull
business and poor quality of goods and low profits as compared to total investments.

TABLE -4.7

YEAR COST OF AVERAGE INVENTORY

GOODS SOLD STOCK TURNOVER
RATIO
2013-2014 17969.18 38371.85 0.46
2014-2015 5473.0 40228.22 0.13
2015-2016 7313.9 36275.94 0.20
2016-2017 14308.05 64336.45 0.22
2017-2018 12359.21 58253.22 0.21

41
 CHART -4.7

INVENTORY TURNOVER RATIO

0.5 0.46

0.4

0.3
0.22 0.21
0.2
0.2 0.13

0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:
The inventory turnover ratio of Andhra Sugars Ltd was 0.46, 0.13,
0.20, 0.22, and 0.21 for the years 2013-14, 2014-15,2015-16,2016-17, and
2017-18 respectively.

42
(b) Debtors turnover Ratio

Sales
Debtors turnover Ratio = -----------------
Debtors

A higher debtor turnover ratio is considered favorable as it indicates the

efficient management of debtors
TABLE – 4.8

YEAR SALES DEBTORS DEBTORS

TURNOVER
RATIO
2013-2014 120187.01 13572.01 8.85
2014-2015 120258.64 9662.31 12.44
2015-2016 135771.59 9075.02 14.96
2016-2017 137951.43 18488.56 7.46
2017-2018 133250.06 17637.99 7.55

43
 CHART – 4.8

DEBTORS TURNOVER RATIO

14.96
16
14 12.44
12
10 8.85
7.46 7.55
8
6
4
2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:
The inventory turnover ratio of Andhra Sugars Ltd was 8.85, 12.44, 14.96,
7.46, and 7.55 for the years 2013-14, 2014-15,2015-16,2016-17, and 2017-18
respectively.

44
(c) Fixed Asset Turnover Ratio

Fixed assets turnover ratio = Net Sales

Fixed Assets

Fixed assets are used in business for producing goods to be sold. The ratio
shows the firm’s ability in generating sales from all financial resources committed to
total assets. The ratio indicates that the amount of sales for on Rs. Investment in fixed
assets.

TABLE – 4.9

YEAR NET SALES FIXED ASSETS FIXED ASSETS

TURNOVER
RATIO
2013-2014 109906.18 56750.93 1.93
2014-2015 110746.19 52160.06 2.12
2015-2016 135771.59 51066.71 2.65
2016-2017 137951.43 65727.41 2.09
2017-2018 133250.06 64888.48 2.05

45
 CHART -4.9

FIXED ASSETS TURNOVER RATIO

3 2.65

2.5 2.12 2.09 2.05

1.93
2

1.5

0.5

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:
The fixed assets turnover ratio of Andhra Sugars Ltd were 1.93,2.12,2.65,2.09
and 2.05considering 2013-2014, 2015-16 periods the fixed assets turnover ratio is
increased.
However, in the year 2017-18 the fixed assets turnover ratio was decreased.

46
(d) WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio = Net sales

Net working capital

NET WORKING CAPITAL=CURRENT ASSETS – CURRENT LIABILITIES

The reciprocal of this ratio indicated the amount of net current assets
needed to sale on rupee. The ratio shows the no of time the working capital results
into sales. A high ratio indicates efficient utilizations of working capital and a low
ratio indicates inefficient utilization of working capital but a very high turnover ratio
is not a good situation for any firm and hence care must be taken while interpreting.

TABLE -4.10

YEAR NET SALES NET WORKING WORKING

CAPITAL CAPITAL
TURNOVER
RATIO
2013-2014 109906.18 34402.63 3.19
2014-2015 110746.19 32017.5 3.45
2015-2016 135771.59 33504.8 4.05
2016-2017 137951.43 39850.14 3.46
2017-2018 133250.06 38084.17 3.49

47
 CHART -4.10

WORKING CAPITAL TURNOVER RATIO

4.5 4.05
4 3.45 3.46 3.49
3.19
3.5
3
2.5
2
1.5
1
0.5
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The working capital turnover ratio of Andhra Sugars Ltd was 3.19, 3.45, 4.05,
3.46 and 3.49. From this we can understand that the working capital turnover ratio is
increasing 2015-2016. In the year 2016-2017, 2017-2018 working capital turnover
ratio is decreasing while compared to 2015-2016.

48
4. PROFITABILITY RATIOS:

(a)Gross Profit

Gross Profit
Gross Profit Ratio = ---------------------------
Net sales

Gross Profit = Net sales – Cost of Goods sold

Net Sales = Total sales – Sales returns

There is no ideal or standard gross profit ratio. The higher the ratio, the
better will be the performance however; gross profit ratio of the current year must be
compared with previous year to know the change in performance.

TABLE – 4.11

YEAR GROSS PROFIT NET SALES GROSS PROFIT

RATIO
2013-2014 91937.0 109906.18 0.83
2014-2015 105273.19 110746.19 0.95
2015-2016 128457.69 135771.59 0.94
2016-2017 123643.38 137951.43 0.89
2017-2018 120890.85 133250.06 0.90

49
 CHART – 4.11

GROSS PROFIT RATIO

0.95
0.96 0.94
0.94
0.92 0.9
0.89
0.9
0.88
0.86 0.83
0.84
0.82
0.8
0.78
0.76
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The gross profit ratio of Andhra Sugars Ltd was 0.83, 0.95, 0.94, 0.89
and 0.90. The gross profit ratio of 2013-14 is 0.83 and increased in 2014-15,
decreased in 2015-16 and decreased in 2016-17.Finally it was decreased in 2017-18.

50
(c)Net Profit Ratio

Profit after Tax

Net Profit Ratio = -------------------------- × 100
Net Sales

The ratio is the overall measure of the firm’s ability to turn each rupees sale in to net
profit.

TABLE -4.12

YEAR PROFIT AFTER NET SALES NET PROFIT

TAX RATIO
2013-2014 5659.79 109906.18 5.14
2014-2015 337.60 110746.19 0.30
2015-2016 5621.07 135771.59 4.14
2016-2017 12477.36 137951.43 9.04
2017-2018 11854.97 133250.06 8.89

51
 CHART – 4.12

NET PROFIT RATIO

10 9.04 8.89

6 5.14
4.14
4

2
0.3
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The net profit ratio of Andhra Sugars Ltd was 5.14, 0.30, 4.14, 9.04 and
8.89. The net profit ratio of 2013-14 is 5.14 and increased in 2016-17, decreased in
2014-15,2015-2016 and 2017-18.

52
 FINDINGS

 It is found that Current ratio fluctuating every year. It indicates an improper

Working capital management.
 It is observed that the company is not maintaining proper Current liabilities.
 It is observed that Inventory turnover ratio is fluctuating which shows the
company is not utilizing the inventory.
 It is found the Net profit ratio is fluctuating and it reaches the highest value
9.04 in the year 2016-2017.
 It is found that the company has been maintaining Debt-equity ratio
constantly.

53
 SUGGESTIONS

 The Current position of the company is showing a decreasing trend, which

means the company is not utilizing their Current assets properly, hence it is
suggested to maintain effectively and efficiently.
 It is recommended to company to adopt the ideal ratio (2:1) principals.
 It is suggested to the company to follow the optimum level of production, the
surplus Current assets can be used in long-term investments to have
profitable re back.
 It is recommended to the company to maintain the Inventory efficiently and
effectively.
 It is suggested to the company to control its selling and administrative
expenses in order to improve its Net profit ratio.
 It is suggested t o the company should repay the principal amount.

54
 CONCLUSION

This project of Ratio analysis of concern is not merely a work of the project.
But a brief knowledge and experience should know how to analyze the financial
performance of a company. The study undertaken has brought in to the light of the
following conclusions. According to this project I came to know that from the
analysis of financial statements it is clear that Andhra Sugars Limited have been
decreasing the profit during the period of study. So the firm should focus on getting of
more profits in the coming years by taking care internal as well as external factors.
And with regard to resources, the company is taking utilization of the assets properly.

Finance is the life blood of every business. Without effective financial

management a company cannot survive in this competitive world. A Prudent financial
Manager has to measure the working capital policy followed by the company.

The company’s overall position is at a good position. Through the profits

have decreased in the FY 2014-15, they were able to come out of it successfully and
regain into increased profitable scenario. Particularly the last two year’s position is
not so well due to fall in the profit level from the FY 2015 to FY 2016. It is better for
the firm to diversify the funds to different sectors in the present market scenario.

55
 BIBLIOGRAPHY

TEXT BOOKS

 JC Varshney, Financial Management, Wisdom, Delhi

 I M Pandey - Financial Management, Vikas, New Delhi
 Khan & Jain - Financial Management, Tata McGraw Hill.

OTHER SOURCES

 Annual Reports of Andhra Sugars Limited

WEBSITES:

www.andhrasugars.com

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