Summer Project

On
RATIO ANALYSIS
NAINITAL DUGDH UTPADAK
SAHKARI SANGH LALKUA

Submitted in partial fulfillment of the requirement for

the degree of Integrated Masters of Business
Administration (MBA) of DEPARTMENT OF
MANAGEMENT STDUIES, BHIMTAL(NAINITAL)

PROJECT GUIDE: SUBMITTED BY :

Mr. AJAY KWEERA KALPANA KARNATAK

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 PREFACE

A professional course like five year Management program demand both

conceptual and practical theory of knowledge. Hence there is a provision of
project. By this the students learn through their own experience, real
situation of corporate world, and its protocols and to put his/her theoretical
knowledge into practice. This experience is very valuable for the student
and plays a leading as well as vital role in the professional life of the
management student.

The report on NAINITAL DUGDH UTPADAK SAHKARI SANGH

LALKUAN was a complete experience in itself, which has provided me
with the understanding, which has become an inseparable part of my
knowledge of management being learned in Management Program. An
opening experience to the concepts of FINANCE department helped me in
understanding the concepts that are applied for managing financial
resources in the organization.

Implementing & learning the concepts of Finance in a work place provides

an opportunity to learn practically. I got a chance to apply the theory &
acquaint myself with the functioning of financial methodology. Real
learning places its worth only when it gives sweet fruits in future. Project
report is one way to learn at work. I enjoyed the interesting experience &
every part of it.

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 DECLARATION

I KALPANA KARNATAK, a student of Integrated MBA of

DEPARTMENT OF MANAGEMENT STUDIES, KAMAUN
UNIVERSITY NAINITAL do hereby declare that the Summer Training
Project Report entitled “Ratio Analysis of Nainital Dugdh Utpadak
Sahkari Sangh Ltd Lalkuan” is the outcome of my own work and
submitted by me for the partial fulfillment of the requirement of the degree
of Integrated MBA. The record is my own work and was neither published
nor submitted before for the award of any degree or any Professional
diploma to any other University or Institute.

Date: KALPANA KARNATAK

Place:

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 ACKNOWLEDGEMENT

I take this opportunity to express my gratitude to the Management

of NDUSS for providing me the opportunity to get on exposure of their
esteemed unit.
I am sincerely thankful to Finance Department for coordinating
my training and explicitly express my thanks to (Mr. AJAY KWEERA)
and all the officers at Finance Department for their continued help and
guidance during my stay there.
Last but not the least, I express my deep gratitude to my HOD
(Mr. P.C. KAVIDAYAL) for sending me to a large integrated
NAINITAL DUGDH UTPADAK SAHKARI SANGH LALKUAN and
giving me a chance to acquire experience of the life time.

(KALPANA KARNATAK)

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 LIMITATIONS OF THE STUDIES

 The present study is limited to one Co., i.e. NAINITAL DUGDH

UTPADAK SAHKARI SANGH LALKUA, and covers a period of 45
days due to limitation of time and accessibility to data base.

 The authenticity of the suggestions and recommendations depend upon

the rationality of the data provided to me.

 Have to rely upon the data supplied.

 Executives are not ready to part with the information beyond a limit.

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 NEED FOR THE STUDY

The study has great significance and provides benefits to various

parties whom directly or indirectly interact with the company.

It is beneficial to management of the company by providing crystal

clear picture regarding important aspects like liquidity, leverage,
activity and profitability.

The study is also beneficial to employees and offers motivation by

showing how actively they are contributing for company’s growth.

The investors who are interested in investing in the company’s

shares will also get benefited by going through the study and can
easily take a decision whether to invest or not to invest in the
company’s shares.

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 TABLE OF CONTENTS

1. COMPANY PROFILE
 Introduction
 Investment services
 Activities of dairy
 Average milk handling
 Selling
2. FINANCIAL MANAGEMENT
 Introduction
 Roles of Finance Manager
 Need for Study
 Methodology
3. RATIO ANALYSIS
 Introduction
 Users of financial analysis
 Standards of Comparison
 Objectives, importance, limitation
PROJECT REPORT ON RATIO ANALYSIS
 Classification of Ratios
 Data Analysis and Interpretation
 Findings

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 Introduction-

 The Nainital Dugdh Utpadak Sahkari Sangh Ltd, Lalkuan was

established on 12th March, 2001 with the registration no. 555.

 It is known as Uttaranchal Co-operative Dairy Federation Ltd.

(UCDFL) in India, and as ‘Aanchal’ in the Kumaun region of
Uttarakhand.

 The organization has a dairy, producing 50,000 Liter milk daily.

 It has four chilling Centers: One at Bhowali, having capacity of

5,000 liters; Second at Choi (Ram Nagar); having capacity of 8,000
liters; Third at Khansyun region in Okhalkanda Block, with 3,000
liters capacity; and the Fourth one in Betalghat with 1,000 litres
capacity.
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  The Cooperative Organization is working with the help of 404
Committees in eight Development Blocks.

 The Organization has arranged the head load to collect the milk from
remote areas.

 The organization is working hard to get an ISO. 9001:2000

Certificate.

The dairy industry in India is going through major challenges as a result of

liberalization policies of the govt. and restrictions in the economy since
liberalization has bought a greater participation of private sector.

After stagnating at 20 million tons for 20 years between 1950 and 1970
India’s milk production started to rise crossing 30 Million tons in 1980 and
596 Million tons 1997. The annual growth rate rose from 4.5% in 70% in
80’s. Today India ranks as world’s 2nd largest producer after US.

Ever since the dairy sector was relicensed in late 1991, there has been
significant activity in private sector with many companies making a bid to
enter the field in addition the private sector is also directly competing with
govt. and cooperative sector in the supply of the Milk of consumer in urban
areas.

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 INVESTMENT SERVICES-

 The Organization is continuously working for providing investment

services at the committee level.

 Various Programmes are implemented in the rural areas,

Some of them are:

oemergency veterinary services;

oNatural fertilization;

oArtificial fertilization;

oVaccination;

oPrevention of sterilization in cattle;

oEmbryo transplantation balanced cattle feed distribution,

fodder (seed) distribution.

 In the year 2006-2007, 22,437 cattle were given treatment in 400

veterinary camps.

 28,113 cattle have been vaccinated against serious diseases and

7,600 cattle have been treated under emergency.

 Besides it, Primary Veterinary medicines worth Rupees 15 Lacks

were distributed to Dairy Committees during last year.
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 The organization is providing high quality feed supplement at low
prices to the milk producers.

ACTIVITIES OF DAIRY-

 The milk is bought from various dairy committees in the rural areas
and various dairy associations under SMG to the Dairy at Lalkuan.
Here it is processed through various proceedings and is converted to
Pasteurized liquid milk and other milk products.

 These products are sent to the urban areas of district and also outside
the district, according to demand.

 The organization has also made the arrangement under SMG for
sending the remaining Dairy Products to Dairy Association Meerut,
Shri Nagar, Chamoli, Almora and Mother Dairy Delhi.

 In the year 2006-07, the handling of Dairy Association was 63,562

kg per day.

 52,140 kg of this milk was collected from committees;

 7,231 kg was collected through state Milk Grid; and

 4,272 kg was prepared daily from the milk powder.

 The comparative description of handling is as following

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 AVERAGE MILK HANDLING (THOUSAND LITER/DAY)

SELLING

 In the year 2006-07, 16 selling routes and 09 sub-routes have been

conducted for the selling process.

 Milk association has established Milk parlors under IIDP, in the

various cities of district.

 This would make sure the supply of dairy products to the remote
regions, and would increase the urban sale of dairy products.

 In the year 2006-07, the dairy products were sold through 620
Agents and 14 Milk Parlors in various cities of Nainital district.
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  Following is the description of growth of selling-

DESCRIPTION OF SELLING GROWTH

S.No. Description 2002- 2003- 2004- 2005- 2006-07

03 04 05 06

1 Number of Selling Agents 410 458 500 570 620

2 SMG/NMG milk sale 29255 25546 15350 15084 8230

(Liters/day)

3 Ghee sale (Kilos/day) 488 475 433 474 414

4 Butter Sales (Kilos/day) 77 72 122 145 132

5 Cheese sale (Kilos/day) 226 257 300 368 369

6 Flavored milk sale (liters/day) 151 136 155 142 10

7 Urban Sale of milk (Liter/day) 32128 35930 39671 44097 49706

8 Curd sale (Metric tones) 34.68 46.47 73.01 275.13 460.85

MINI DAIRY PROJECT

 A highly ambition and employment generating Mini Dairy Project

has been started since April 2004, for the next five years.

 An aim of establishing 7,450 units of mini dairy, in next 5 years has

been set up.

WOMEN DAIRY DEVELOPMENT PROJECT-

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  The women dairy development in Nainital district was started in
1994.

 It has helped in improving the financial and social condition of rural

women by introducing them with cooperative frame work.

THE DAIRY PRODUCTS PRODUCED BY AANCHAL-

 ‘Aanchal’ is a household name in the Kumaun region of Uttaranchal.

 It produces a complete Line of Dairy product.

 The various members of this product Line are:

 MILK
o Standardized Milk
o Toned milk
o Double toned milk
o Skimmed milk
 Curd
 Ghee
 Butter
 Cheese (cubes)
 Cream
 Flavored
 Butter milk
 Mattha
 Yoghurt
 Chocolate (bal-mithai)

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FLOW DIAGRAM OF MILK PROCESSING: -

RAW MATERIAL

DUMP TANK

CLARIFICATION

COOLING & STORING

PREHEATING

STANDARDIZATION

LIQUID MILK CREAM BUTTER

HOMOGENIZATION

PASTEURIZATION

GHEE

COLD STORAGE

DISTRIBUTION

WHOLE MILK (6%FAT)

STANDARD MILK (4.5% FAT)
TONED MILK (3% FAT)
DOUBLE TONED MILK (1.5% FAT)

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RAW MATERIAL FOR THE CORPORATION-

 Raw milk is the raw material for the corporation.

 Daily around 37,000litres of raw milk is collected from the 409

committees formed in the rural areas. Each committee has 30 to 100
members as milk producers.

 This raw milk is collected with the help of vans, twice a day, through
29 routes.

 It is collected in the chilling machines and here its quality is

measured.

 Weekly payment is made to the bank accounts of committees.

 This raw milk is sent to the processing Department of Aanchal, and

after getting processed, it is sold in the market in the form of
pasteurized milk and other milk products.

ESSENTIAL SECTIONS OF A MILK PROCESSING PLANT-

The milk processing plant shall have the following essential facilities-

a. Raw milk Reception Dock (RMRD)- Consisting of can conveyor,

can washer, weighing balance, dump tank etc.

b. Processing hall- cream separator, chiller, homogenize, pasteurizes

and other related machinery are installed.

c. Storage area- for milk storage tanks.

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d. Products manufacturing area- depends upon the type of products and

the quantity of milk handled, the required equipment needs to be

installed.

e. Packing area- for packing of liquid milk and other products.

f. Cold storage- for keeping the milk and milk products before sending

to market.

g. Quality control laboratory- for testing the quality of milk and milk

products.

h. Utilities area- for installing boiler, generator set, water – treatment

plant, maintenance and store area for spaces.

i. Waste water treatment plant area- for treating the dairy effluents

before releasing to the fields.

j. Quarters and office area- for all the essential staff.

k. Vehicle parking area- both for the milk procurement and distribution

vehicles.

l. Input supply Area- for providing veterinary service, supply of feed,

fodder – seeds etc.

Production Process in Aanchal

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 MANAGEMENT AND SR.EXECUTIVE OF THE COMPANY AT LALKUA
Board of Director's
Mr. G.P.Pathak Finance Controller / Senior Manager (Finance & Accounts)

UTTARAKHAND COOPERATIVE DAIRY FEDERATION LTD. ,

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HALDWANI(NAINITAL)

BOARD OF DIRECTOR'S

S.N. Name Designation

1- Dr. Mohan Bisht Chairman
2- Mr. Vinod Fonia Managing Director/Member Secretary
3- Mr. Bhag Singh Chauhan Vice Chairman
4- Mr. Kunvar Singh Gusain Member
5- Mr. Arjun Singh Rautela Member
6- Mr. Gulab Rai Member
7- Mr. Hari Ram Member
8- Mrs. Nirmala Rawat Member/ nominated by state govt.
9- Mr. Karn singh Bhandari Member
10- Mrs. Haru Devi Member
11- Mrs. Janki Devi Member
12- Member/Representative of Director, Dairy
Mr. Sanjay Upadhyay
Development

UTTARAKHAND COOPERATIVE DAIRY FEDERATION LTD. ,

HALDWANI(NAINITAL)

OFFICER,S NAME

S.N. Name Designation

1- Mr. Vinod Fonia Managing Director.
2- Dr. Kamal Singh Add. Managing Director.
3- Mr. A.K.Negi General Manager, Administration,Operation.
4- Dy. General Manager, (Engineering, Marketing, Special
Mr. R.M.Tiwari
Projects)
5- Dr. L.M.Joshi Senior Manager, P&I, MIS, OSD to Hon. Chairman
6- Mr. G.P.Pathak Finance Controller
7- Mr. Ajay Kweera / Senior Manager (Finance & Accounts)
8. Mr. G. Joshi Manager Q/C
9. Mr. P.C.Dumka Assistant Manager, Store-purchase.

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 Introduction

Financial Management is the specific area of finance dealing with

the financial decision corporations make, and the tools and analysis used to
make the decisions. The discipline as a whole may be divided between
long-term and short-term decisions and techniques. Both share the same
goal of enhancing firm value by ensuring that return on capital exceeds
cost of capital, without taking excessive financial risks. Capital investment
decisions comprise the long-term choices about which projects
receive investment, whether to finance that investment with equity or debt,
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and when or whether to pay dividends to shareholders. Short-term
corporate finance decisions are called working capital management
and deal with balance of current assets and current
liabilities by managing cash, inventories, and short-term borrowings and
lending (e.g., the credit terms extended to customers). Corporate finance is
closely related to managerial finance, which is slightly broader in scope,
describing the financial techniques available to all forms of business
enterprise, corporate or not.

Role of Financial Managers:

The role of a financial manager can be discussed under the following
heads:
1. Nature of work
2. Working conditions
3. Employment
4. Training, Other qualifications and Advancement
5. Job outlook
6. Related occupation

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FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths

and weaknesses of the firm by properly establishing relationship between
the items of the balance sheet and the profit and loss account. Financial
analysis can be undertaken by management of the firm, or by parties
outside the firm, viz... Owners, creditors, investors and others. The nature
of analysis will differ depending on the purpose of the analyst.

 Trade creditors are interested in the firm’s ability to meet their

claims over a very short period of time. Their analysis will,
therefore, confine to the evaluation of the firm’s liquidity position.
 Suppliers of the long-term debt, on the other hand, are concerned
with the firm’s long term solvency and survival. They analyse the
firm’s profitability over time, its ability to generate gash to be able
to pay interest and repay principal and the relationship between
various sources of funds (capital structure relationship). Long term
creditors do analyse the historical financial statements, but they
place more emphasis on the firm’s projected, or proforma, financial
statements to make analysis about its future solvency and
profitability.
 Investors, who have invested their money in the firm’s shares, are
most concerned about the firm’s earnings. They restore more
confidence in those firms that show stead growth in earnings. As
such, they concentrate on the analysis of the firm’s present and
future profitability. They are also interested in the firm’s financial
structure to the extent it influences the firm’s earnings ability and
risk.
 Management of the firm would be interested in every aspect of the
financial analysis. It is their overall responsibility to see that the
resources of the firm are used most effectively and efficiently, and
that the firm’s financial condition is sound.

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 RATIO ANALYSIS

Meaning of Ratio:- A ratio is simple arithmetical expression of the

relationship of one number to another. It may be defined as the indicated
quotient of two mathematical expressions.

According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio

is an expression of the quantitative relationship between two numbers”.

Ratio Analysis:- Ratio analysis is the process of determining and

presenting the relationship of items and group of items in the statements.
According to Batty J. Management Accounting “Ratio can assist
management in its basic functions of forecasting, planning coordination,
control and communication”.

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 It is helpful to know about the liquidity, solvency, capital structure and
profitability of an organization. It is helpful tool to aid in applying
judgement, otherwise complex situations.

Ratio analysis can represent following three methods.

Ratio may be expressed in the following three ways:

1. Pure Ratio or Simple Ratio: - It is expressed by the simple

division of one number by another. For example, if the current assets
of a business are Rs. 200000 and its current liabilities are Rs.
100000, the ratio of ‘Current assets to current liabilities’ will be 2:1.

2. ‘Rate’ or ‘So Many Times: - In this type, it is calculated how

many times a figure is, in comparison to another figure. For example
, if a firm’s credit sales during the year are Rs. 200000 and its
debtors at the end of the year are Rs. 40000 , its Debtors Turnover
Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5
times in comparison to debtors.

3. Percentage: - In this type, the relation between two figures is

expressed in hundredth. For example, if a firm’s capital is
Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in
term of percentage, is 200000/1000000*100 = 20%

STEPS IN RATIO ANALYSIS

• The first task of the financial analysis is to select the

information
relevant to the decision under consideration from the statements and
Calculates appropriate ratios.
• To compare the calculated ratios with the ratios of the
same firm
relating to the pas6t or with the industry ratios. It facilitates in
assessing success or failure of the firm.
• Third step is to interpretation, drawing of inferences and
report
Writing conclusions are drawn after comparison in the shape of report
Or recommended courses of action.

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 BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They
enable analyst to draw conclusions regarding financial operations. They
use of ratios as a tool of financial analysis involves the comparison with
related facts. This is the basis of ratio analysis. The basis of ratio analysis is
of four types.
• Past ratios, calculated from past financial statements of
the firm.
• Competitor’s ratio, of the some most progressive and
successful
competitor firm at the same point of time.
• Industry ratio, the industry ratios to which the firm
belongs to
• Projected ratios, ratios of the future developed from the
projected or
Pro forma financial statements
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 NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios
for helping in making certain decisions. It is only a means of understanding
of financial strengths and weaknesses of a firm. There are a number of
ratios which can be calculated from the information given in the financial
statements, but the analyst has to select the appropriate data and calculate
only a few appropriate ratios. The following are the four steps involved in
the ratio analysis.
• Selection of relevant data from the financial statements
depending
upon the objective of the analysis.
• Calculation of appropriate ratios from the above data.
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• Comparison of the calculated ratios with the ratios of the
same firm in
the past, or the ratios developed from projected financial statements or the
ratios of some other firms or the comparison with ratios of the industry to
which the firm belongs.

INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent 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 also be kept in mind when
attempting to interpret ratios. The interpretation of ratios can be made in
the following ways.
• Single absolute ratio
• Group of ratios
Historical comparison
• Projected ratios
• Inter-firm comparison

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GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS
The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting
various ratios are

• Accuracy of financial statements

• Objective or purpose of analysis

• Selection of ratios

• Use of standards

• Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

• Aid to measure general efficiency • Aid to measure

financial solvency • Aid in forecasting and planning

Facilitate decision making
• Aid in corrective action
• Aid in intra-firm comparison
• Act as a good communication
• Evaluation of efficiency
• Effective tool

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 LIMITATIONS OF RATIO ANALYSIS

• Differences in definitions

• Limitations of accounting records

• Lack of proper standards

• No allowances for price level changes

• Changes in accounting procedures

• Quantitative factors are ignored

• Limited use of single ratio

• Background is over looked

• Limited use
• Personal bias
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 ADVANTAGE OF RATIO ANALYSIS
1. Helpful in analysis of Financial Statements.

2. Helpful in comparative Study.

3. Helpful in locating the weak spots of the business.

4. Helpful in Forecasting.

5. Estimate about the trend of the business.

6. Fixation of ideal Standards.

7. Effective Control.

8. Study of Financial Soundness.

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 CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There
are different parties interested in the ratio analysis for knowing the
financial position of a firm for different purposes. Various accounting ratios
can be classified as follows:

1. Traditional Classification 2. Functional Classification 3. Significance

ratios

1. Traditional Classification

It includes the following.

• Balance sheet (or) position statement ratio: They deal

with the
relationship between two balance sheet items, e.g. the ratio of current
assets to current liabilities etc., both the items must, however, pertain to the
same balance sheet.
• Profit & loss account (or) revenue statement ratios: These
ratios deal
with the relationship between two profit & loss account items, e.g. the
ratio of gross profit to sales etc.,
• Composite (or) inter statement ratios: These ratios
exhibit the relation
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between a profit & loss account or income statement item and a

balance sheet items, e.g. stock turnover ratio, or the ratio of total
assets to sales.
2. Functional Classification
These include liquidity ratios, long term solvency and leverage
ratios, activity ratios and profitability ratios.

3. Significance ratios
Some ratios are important than others and the firm may classify them as
primary and secondary ratios. The primary ratio is one, which is of the
prime importance to a concern. The other ratios that support the primary
ratio are called secondary ratios.

CLASSIFICATION OF RATIO
Ratio may be classified into the four categories as follows:

A. Liquidity Ratio

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

B. Leverage or Capital Structure Ratio

a. Debt Equity Ratio

b. Debt to Total Fund Ratio

c. Proprietary Ratio

d. Fixed Assets to Proprietor’s Fund Ratio

e. Capital Gearing Ratio

f. Interest Coverage Ratio

C. Activity Ratio or Turnover Ratio

a. Stock Turnover Ratio

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 b. Debtors or Receivables Turnover Ratio

c. Average Collection Period

d. Creditors or Payables Turnover Ratio

e. Average Payment Period

f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio

D. Profitability Ratio or Income Ratio

(A) Profitability Ratio based on Sales :

a. Gross Profit Ratio

b. Net Profit Ratio

c. Operating Ratio

d. Expenses Ratio

(B) Profitability Ratio Based on Investment :

I. Return on Capital Employed

II. Return on Shareholder’s Funds :

a. Return on Total Shareholder’s Funds

b. Return on Equity Shareholder’s Funds

c. Earning Per Share

d. Dividend Per Share

e. Dividend Payout Ratio

f. Earning and Dividend Yield

g. Price Earnings Ratio

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 LIQUIDITY RATIO

(A) Liquidity Ratio:- It refers to the ability of the firm to meet its current
liabilities. The liquidity ratio, therefore, are also called ‘Short-term
Solvency Ratio’. These ratios are used to assess the short-term financial
position of the concern. They indicate the firm’s ability to meet its current
obligation out of current resources.

In the words of Saloman J. Flink, “Liquidity is the ability of the firms to

meet its current obligations as they fall due”.

Liquidity ratio include two ratio :-

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

a. Current Ratio:- This ratio explains the relationship between current

assets and current liabilities of a business.

Formula:CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITES

Current Assets:-‘Current assets’ includes those assets which can be

converted into cash with in a year’s time.

Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term

Investment + Debtors (Debtors – Provision) + Stock (Stock of Finished
Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses.

Current Liabilities: - ‘Current liabilities’ include those liabilities which

are repayable in a year’s time.

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for

Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding
Expenses + Loans Payable within a Year.

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Significance: - According to accounting principles, a current ratio of 2:1 is
supposed to be an ideal ratio.

It means that current assets of a business should, at least, be twice of its

current liabilities. The higher ratio indicates the better liquidity position;
the firm will be able to pay its current liabilities more easily. If the ratio is
less than 2:1, it indicate lack of liquidity and shortage of working capital.

The biggest drawback of the current ratio is that it is susceptible to

“window dressing”. This ratio can be improved by an equal decrease in
both current assets and current liabilities.

YEARS C.ASSESTS C.LIABILITIES RATIO

2010 1594.02 1008.76 1.580

2011 1934.06 1377.13 1.404

Interpretation=As compared to 2010 inventory level and sundry debtors

increased but cash and bank balance is decreasing and the
current liabilities are highly increasing .so the overall impact
is the current ratio is decreasing

b. QUICK RATIO: Quick ratio indicates whether the firm is in a position

to pay its current liabilities within a month or immediately.

Formula:QUICK RATIO=LIQUID ASSETS/CURRENT LIABILITIES

‘Liquid Assets’ means those assets, which will yield cash very shortly.

Liquid Assets = Current Assets – Stock – Prepaid Expenses

Significance: - An ideal quick ratio is said to be 1:1. If it is more, it is considered to

be better. This ratio is a better test of short-term financial position of the company.

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YEARS QUICK ASSETS LIABLITIES RATIO

2010 923.45 1008.76 0.915

2011 1065.55 1377.13 0.773

Interpretation: Liquid ratio of company has declined.since the ratio is

below the standard of 1, the capacity of the company to meets its short-
term liabilities is not satisfactory.

LEVERAGE OR CAPITAL STRUCTURE RATIO

(B) Leverage or Capital Structure Ratio :- This ratio disclose the firm’s
ability to meet the interest costs regularly and Long term indebtedness at
maturity.

These ratios include the following ratios:

DEBT-EQUITY RATIO: This ratio can be expressed in two ways: First
Approach: According to this approach, this ratio expresses the

Long Term Loans:- These refer to long term liabilities which mature after
one year. These include Debentures, Mortgage Loan, Bank Loan, and Loan
from Financial institutions and Public Deposits etc.

Shareholder’s Funds: - These include Equity Share Capital, Preference

Share Capital, Share Premium, General Reserve, Capital Reserve, Other
Reserve and Credit Balance of Profit & Loss Account.

Second Approach: According to this approach the ratio is calculated as

follows:-
Formula:

DEBT-EQUITY RATIO=LTL/NET WORTH

Debt equity ratio is calculated for using second approach.

Significance :- This Ratio is calculated to assess the ability of the firm to

meet its long term liabilities. Generally, debt equity ratio of is considered
safe.

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If the debt equity ratio is more than that, it shows a rather risky financial
position from the long-term point of view, as it indicates that more and
more funds invested in the business are provided by long-term lenders.
The lower this ratio, the better it is for long-term lenders because they are
more secure in that case. Lower than 2:1 debt equity ratio provides
sufficient protection to long-term lenders.

YEARS LTL NET WORTH RATIO

2010 1758.29 1495.52 1.176

2011 2366.79 1775.20 1.333

Interpretation: It is clear that from the debt equity ratio that company in
the year 2010 which is more than 2009.The long term financial position of
the company is more than shareholder fund.

C.Proprietory ratio: This ratio indicates the proportion of total funds

provide by owners or shareholders.

Formula: PROPRIETORTY RATIO: SHAREHOLDERS FUNDS/ TOTAL

ASSETS

YEARS S.FUNDS ASSETS RATIO

2010 1495.52 1594.02 0.93
2011 1775.20 1934.06 0.91
Interpertation: This ratio is decreasing from .93 to .91 which shows the
financial position of a company is not satisfactory.

Significance: - This ratio should be 33% or more than that. In other

words, the proportion of shareholders funds to total funds should be
33% or more.

A higher proprietary ratio is generally treated an indicator of sound

financial position from long-term point of view, because it means that
the firm is less dependent on external sources of finance.

If the ratio is low it indicates that long-term loans are less secured and
they face the risk of losing their money.

F.Interest coverage ratio:- This ratio is also termed as ‘Debt Service

Ratio’. This ratio is calculated as follows:

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 Formula: EBIT/INTREST

YEARS EBIT INTREST RATIO

2010 346.95 103.01 3.368
2011 523.53 100.53 5.208

Interpretation: The lender of the company have sufficient margin of

cover.In the year 2010 the Interest coverage ratio is 5.208 where it should
not be ideally be 6 or7 times

Significance: - This ratio indicates how many times the interest charges are
covered by the profits available to pay interest charges.

This ratio measures the margin of safety for long-term lenders.

This higher the ratio, more secure the lenders is in respect of payment of
interest regularly. If profit just equals interest, it is an unsafe position for
the lender as well as for the company also, as nothing will be left for
shareholders.

An interest coverage ratio of 6 or 7 times is considered appropriate.

ACTIVITY RATIO OR TURNOVER RATIO

(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the
bases of ‘cost of sales’ or sales, therefore, these ratio are also called as
‘Turnover Ratio’. Turnover indicates the speed or number of times the
capital employed has been rotated in the process of doing business. Higher
turnover ratio indicates the better use of capital or resources and in turn lead
to higher profitability.

It includes the following:

a. Stock turnover ratio;This ratio indicates the relationship between the

cost of goods during the year and average stock kept during that year.

Formula: SALES/AVERAGE STOCK

Here, Cost of goods sold = Net Sales – Gross Profit

Average Stock = Opening Stock + Closing Stock/2

Significance:- This ratio indicates whether stock has been used or not. It
shows the speed with which the stock is rotated into sales or the number
of times the stock is turned into sales during the year.
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 The higher the ratio, the better it is, since it indicates that stock is selling
quickly. In a business where stock turnover ratio is high, goods can be
sold at a low margin of profit and even than the profitability may be quite
high.

YEARS SALES A.STOCK RATIO

2010 4215.91 670.57 6.287
2011 4833.22 868.51 5.565

Interpretation:Stock turnover ratio has dropped. It indicates that the

BSNL is not rapidly turning the stock into sales.Unsaleable items have
been purchased which are include in the stock of the company

b. Debtors Turnover Ratio: - This ratio indicates the relationship

between credit sales and average debtors during the year:

Formula:Debtors turnover ratio=credit sales/avg.receivable

While calculating this ratio, provision for bad and doubtful debts is not
deducted from the debtors, so that it may not give a false impression that
debtors are collected quickly.

Significance: - This ratio indicates the speed with which the amount is
collected from debtors. The higher the ratio, the better it is, since it
indicates that amount from debtors is being collected more quickly. The
more quickly the debtors pay, the less the risk from bad- debts, and so the
lower the expenses of collection and increase in the liquidity of the firm.

By comparing the debtors turnover ratio of the current year with the
previous year, it may be assessed whether the sales policy of the
management is efficient or not.

YEARS CREDIT.SALES AVG.REC RATIO

2010 4215.91 670.57 6.287
2011 4833.22 868.51 5.564

Interpretation: The debtors turnover ratio of the company also declining.It

indicates excessive blockage of working capital with debtors which
increases the chances of bad debts.

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 d. Fixed Assets Turnover Ratio: - This ratio reveals how efficiently
the fixed assets are being utilized.

Formula:-SALES/NET FIXED ASSETS

Here, Net Fixed Assets = Fixed Assets – Depreciation

Significance:- This ratio is particular importance in manufacturing

concerns where the investment in fixed asset is quit high. Compared with
the previous year, if there is increase in this ratio, it will indicate that there
is better utilization of fixed assets. If there is a fall in this ratio, it will show
that fixed assets have not been used as efficiently, as they had been used in
the previous year.

YEAR SALES N.FIXED RATIO

ASSET
2010 4215.91 2808.04 1.501
2011 4833.22 3771.75 1.281

Interpretation:Fixed assets are used in the business for producing goods

to be sold.Increased production and reduced cost.Higher ratio indicates
better performance . Examing the above fixed assets turnover ratio of
company in the year 2009 which is more than 2010.

e.Working Capital Turnover Ratio :- This ratio reveals how efficiently

working capital has been utilized in making sales.

Formula :-SALES/NET WORKING CAPITAL

Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage +

Wages + Other Direct Expenses - Closing Stock

Working Capital = Current Assets – Current Liabilities

Significance :- This ratio is of particular importance in non-manufacturing

concerns where current assets play a major role in generating sales. It
shows the number of times working capital has been rotated in producing
sales.

A high working capital turnover ratio shows efficient use of working

capital and quick turnover of current assets like stock and debtors.

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A low working capital turnover ratio indicates under-utilisation of working
capital.

YEAR SALES N.W.CAPITAL RATIO

2010 4215.91 585.26 7.203
2011 4833.22 556.93 8.678

Interpretation:It is clear that from the Net working capital ratio that
company in the year 2010 which is more than 2009 .This ratio measures
the relationship between working capital and sales.

Profitability Ratios or Income Ratios

(D) Profitability Ratios or Income Ratios:- The main object of every

business concern is to earn profits. A business must be able to earn
adequate profits in relation to the risk and capital invested in it. The
efficiency and the success of a business can be measured with the help of
profitability ratio.

Profitability ratios are calculated to provide answers to the following

questions:

i. Is the firm earning adequate profits?

ii. What is the rate of gross profit and net profit on sales?

iii. What is the rate of return on capital employed in the firm?

iv. What is the rate of return on proprietor’s (shareholder’s)

funds?

v. What is the earning per share?

Profitability ratio can be determined on the basis of either sales or

investment into business.

(A) Profitability Ratio Based on Sales :

b) Net Profit Ratio:- This ratio shows the relationship between net profit
and sales. It may be calculated by two methods:

Formula: PROFIT AFTER TAX/SALES*100

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Here, Operating Net Profit = Gross Profit – Operating Expenses such as
Office and Administrative Expenses, Selling and Distribution Expenses,
Discount, Bad Debts, Interest on short-term debts etc.
Significance :- This ratio measures the rate of net profit earned on sales. It
helps in determining the overall efficiency of the business operations. An
increase in the ratio over the previous year shows improvement in the
overall efficiency and profitability of the business.
YEAR PAT SALES RATIO
2010 264.80 4215.91 6.280%
2011 256.16 4833.22 5.299%
Interpretation:Net profit ratio has gone down from 6.280% to 5.299%
which is an indicates that net profit is not improvement in the overall
efficiency and profitability of the firm.

(B) Profitability Ratio Based on Investment in the Business:-

These ratio reflect the true capacity of the resources employed in the
enterprise. Sometimes the profitability ratio based on sales are high
whereas profitability ratio based on investment are low. Since the capital is
employed to earn profit, these ratios are the real measure of the success of
the business and managerial efficiency.

These ratio may be calculated into two categories:

I. Return on Capital Employed

II. Return on Shareholder’s funds

I.Return on Capital Employed :- This ratio reflects the overall

profitability of the business. It is calculated by comparing the profit earned
and the capital employed to earn it. This ratio is usually in percentage and
is also known as ‘Rate of Return’ or ‘Yield on Capital’.

Formula: PROFIT AFTER TAX/CAPITAL EMPLOYED*100

Where, Capital Employed = Equity Share Capital + Preference Share

Capital + All Reserves + P&L Balance +Long-Term Loans- Fictitious
Assets (Such as Preliminary Expenses OR etc.) – Non-Operating Assets
like Investment made outside the business.

Capital Employed = Fixed Assets + Working Capital

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 Advantages of ‘Return on Capital Employed’:-

 Since profit is the overall objective of a business enterprise, this ratio is

a barometer of the overall performance of the enterprise. It measures how
efficiently the capital employed in the business is being used.

 Even the performance of two dissimilar firms may be compared with

the help of this ratio.

 The ratio can be used to judge the borrowing policy of the enterprise.

 This ratio helps in taking decisions regarding capital investment in new

projects. The new projects will be commenced only if the rate of return
on capital employed in such projects is expected to be more than the rate
of borrowing.

 This ratio helps in affecting the necessary changes in the financial

policies of the firm.

 Lenders like bankers and financial institution will be determine whether

the enterprise is viable for giving credit or extending loans or not.

 With the help of this ratio, shareholders can also find out whether they
will receive regular and higher dividend or not.

YEAR PAT C.EMPLOYED RATIO

2010 264.80 3253.81 8.138%
2011 356.16 4141.99 8.598%

Interpretation:Return on capital employed has gone up from 8.138%

to8.598% which indicates that capital employed is used efficiently.

II. Return on Shareholder’s Funds :-

Return on Capital Employed Shows the overall profitability of the funds

supplied by long term lenders and shareholders taken together. Whereas,
Return on shareholders funds measures only the profitability of the funds
invested by shareholders.

These are several measures to calculate the return on shareholder’s funds:

(b) Return on Equity Shareholder’s Funds:-

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 Equity Shareholders of a company are more interested in knowing the
earning capacity of their funds in the business. As such, this ratio measures
the profitability of the funds belonging to the equity shareholder’s.

Formula:PROFIT AFTER TAX/EQUITY

Significance:- This ratio measures how efficiently the equity

shareholder’s funds are being used in the business. It is a true measure of
the efficiency of the management since it shows what the earning capacity
of the equity shareholders funds. If the ratio is high, it is better, because in
such a case equity shareholders may be given a higher dividend.

YEAR PAT EQUITY RATIO

2010 264.80 1495.52 0.17
2011 356.16 1775.20 0.20

Interpretation:Return on equity has gone up from 0.17% to0.20% which

indicates that shareholder’s fund are being efficiently.There are better
prospects of declaration of dividend and creation of reserves

FINDINGS & SUGGESTIONS

This chapter deals with the concluded aspects of the study carried out on
“RATIO ANALSIS”. The basic objective for which the study was carried
out has been fulfilled in the earlier chapter, based on the objective
interview schedule was designed. Data collected based on schedule was
analyzed and some findings have emerged.

FINDINGS
:
 Current assets comprise a significant portion of total investment in
assets of the company. There is fluctuation and rather decrease in
working capital which shows management in-efficiency in managing
working capital in relation to total investment.

 The ratio used for analysis of liquidity position are current ratio and
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 quick ratio. These ratio reveals that company has sound liquidity
position throughout the period of study..

 The ratios used for cash management are cash to current assets ratio,
cash to current liabilities ratio. Cash to current liabilities also shows
decreasing trend and cash to current assets ratio also shows
decreasing trend. All these ratios reveals that management has no
definite cash policy.

SUMMARY

 1) After the analysis of Financial Statements, the company status is

better, because the working capital turnover of the company is
increasing in the present year.

 2) The company profits are huge in the current year; it is better to

declare the dividend to shareholders..

 3) The company is utilising the fixed assets, which majorly help to

the growth of the organisation. The company should maintain that
perfectly.
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 4) The company fixed deposits are raised from the inception, it gives
the other income i.e., interest on fixed deposits.

CONCLUSION

The company’s overall position is declining as the profits are at

decline position. Particularly the current year’s position is not
satisfying from the last year position. It is better for the organization
to diversify the funds to different sectors in the present market
scenario and also the Shareholder’s should utilize their funds
effectively.

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 BIBLIOGRAPHY

BOOKS& REFERENCES:

 S.P.Gupta
 V.K.Bhalla
 Pandey I.M. Financial Management
 Business Today
 Company’s Published Journal
 Annual Report

WEBSITES:

www.google.com

www.yahoo.com
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www.wikipedia

www.indiaexpress.com