CHAPTER – 1 INTRODUCTION

1.1 Fundamental Analysis

Financial analysts can also use percentage analysis which involves reducing a series of
figures as a percentage of some base amounts. For example, a group of items can be
expressed as a percentage of net income. When proportionate changes in the same
figure over a given time period expressed as a percentage is known as horizontal
analysis. Vertical or common-size analysis reduces all items on a statement to a
common size as a percentage of some base value which assists in comparability with
other companies of different sizes. As a result, all Income Statement items are divided
by Sales, and all Balance Sheet items are divided by Total Assets. Another method is
comparative analysis. This provides a better way to determine trends. Comparative
analysis presents the same information for two or more time periods and is presented
side-by-side to allow for easy analysis.
Key investigation is the examination of the basic powers that influence the prosperity of
the economy, business gatherings, and organizations. Similarly, as with most
investigation, the objective is to determine a gauge and benefit from future value
developments. At the organization level, crucial investigation may include examination
of money related information, the board, business idea and rivalry. At the business
level, there may be an examination of free market activity powers for the items
advertised. For the national economy, essential investigation may concentrate on
monetary information to evaluate the present and future development of the economy.
To conjecture future stock costs, essential examination joins monetary, industry, and
friend‗s investigation to infer a stock‘s present reasonable esteem and gauge future
esteem. On the off chance that reasonable esteem isn‘t equivalent to the present stock
value, essential investigators trust that the stock is either exaggerated or underestimated
and the market cost will at last float towards reasonable esteem.
Fundamentalists don‘t regard the counsel of the arbitrary walkers and trust that business
sectors are feeble structure effective. By trusting that costs don‘t precisely mirror all
accessible data, principal examiners hope to gain by apparent value disparities.

1.1.1. Goals: -
Fundamental analysis often assesses the following elements of a firm:

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 1. Profitability – its ability to earn income and sustain growth in both the short-
and long-term. A company‘s degree of profitability is usually based on the
income statement, which reports on the company‘s results of operations.
2. Solvency – its ability to pay its obligation to creditors and other third parties in
the long-term.
3. Liquidity – its ability to maintain positive cash flow, while satisfying
immediate obligations
4. Stability - the firm's ability to remain in business in the long run, without having
to sustain significant losses in the conduct of its business. Assessing a
company's stability requires the use of the income statement and the balance
sheet, as well as other financial and non-financial indicators. etc.

1.1.2. Methods: -
Fundamental analysts often compare financial ratios (of solvency, profitability, growth,
etc.)
Past Performance - Across historical time periods for the same firm (the last 5 years for
example)
Future Performance - Using historical figures and certain mathematical and statistical
techniques, including present and future values, this extrapolation method is the main
source of errors in financial analysis as past statistics can be poor predictors of future
prospects.

Comparative Performance - Comparison between similar firms.

These ratios are calculated by dividing a (group of) account balance(s), taken from the
balance sheet and / or the income statement, by another, for example:

• Net income / equity = return on equity (ROE)

• Net income / total assets = return on assets (ROA)
• Stock price / earnings per share = P/E ratio

Comparing financial ratios is merely one way of conducting financial analysis.

Financial ratios face several theoretical challenges:
They say little about the firm's prospects in an absolute sense. Their insights about
relative performance require a reference point from other time periods or similar firms.
One ratio holds little meaning. As indicators, ratios can be logically interpreted in at

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least two ways. One can partially overcome this problem by combining several related
ratios to paint a more comprehensive picture of the firm's performance. Seasonal
factors may prevent year-end values from being representative.
A ratio's values may be distorted as account balances change from the beginning to the
end of an accounting period. Use average values for such accounts whenever possible.
Financial ratios are no more objective than the accounting methods employed. Changes
in accounting policies or choices can yield drastically different ratio values. Financial
analysts can also use percentage analysis which involves reducing a series of figures as
a percentage of some base amount. For example, a group of items can be expressed as a
percentage of net income.
When proportionate changes in the same figure over a given time period expressed as a
percentage is known as horizontal analysis. Vertical or common-size analysis, reduces
all items on a statement to a common size‖ as a percentage of some base value which
assists in comparability with other companies of different sizes. As a result, all Income
Statement items are divided by Sales, and all Balance Sheet items are divided by Total
Assets. Another method is comparative analysis. This provides a better way to
determine trends. Comparative analysis presents the same information for two or more
time periods and is presented side-by-side to allow for easy analysis.

1.2 FINANCIAL STATEMENTS

The financial statements are indicators of the two significant factors:
1. Profitability and 2. Financial soundness Analysis and interpretation of financial
statement therefore, refers to such a treatment of the information contained in the
Income Statement and Balance Sheet so as to afford full diagnosis of the profitability
and financial soundness of the business.

1.2.1 Balance sheet

A balance sheet is the basic financial statement. It presents data on a company‘s
financial conditions on a particular date, based on conventions and generally accepted
principles of accounting. The amount shown in the statements on the balances, at the
time it was prepared in the various accounts listed in the company‘s accounting records,
is considered to be a fundamental accounting statement. The income statement
summarizes the business operations during the specific period and shows the results of

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such operations in the form of net income or net loss. By comparing the income
statements of successive periods, it is possible to determine the progress of a business.
A statement is supplemented by a comparative statement of the cost of goods
manufactured and sold. It is prepared at regular intervals and shows what a business
enterprise owns and what it owes. It provides information which helps in the
assessment of the three main aspects of an enterprise position and its profitability,
liquidity and solvency.
Of these, the latter two are concerned with an enterprises ability to meet its liabilities,
while profitability is the most useful overall measure of its financial conditions, the
balance sheet is a statement of assets, liabilities capital on specified date. It is therefore
a static statement, indicating resources and the allocation of these resources to various
categories of asset. It is so to say financial photography finance. Liabilities show the
claims against its assets.
The shareholders equity comprises the total ownership claims in a firm. This claim
includes net worth of shareholders equity and preferred stock. The traditional company
balance sheet statement of assets valued on the basis of their original cost and the
means by which they have been financed by its shareholders, lenders, suppliers and by
the retention of income. This tool suffers from the following limitations:
A balance sheet gives only a limited picture of the state of affairs of a company,
because it includes only those items which can be expressed in monetary terms.. The
values shown on the balance sheet for some of the assets are never accurate. A balance
sheet assumes that the real value of money remains constant.. On the basis of the
balance sheet, it is not possible to arrive at any conclusion about the success of an
enterprise in the future. It is a detailed statement of the financial structure of a business.

1.2.2 Income statement

The results of operations of a business for a period of time are presented in the income
statement. From the accounting point of view, an income statement is subordinate to
the balance sheet because the former simply presents the details of the changes in the
retained earnings in balance sheet accounts. However, if vital source of financial
information an income statement summarizes the results of business operations during
specific period and shows in the form of net income or net loss by comparing income
statements for successive periods, it is possible to observe the progress of the business

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the statement is supplemented by a comparative statement of cost of goods
manufactured and sold. It summarizes firms operating results for the past period.

1.2.3 Comparative balance sheet

Financial statements are sometimes recast for the facility of scrutiny. The effects of the
conductor businesses are reflected in its balance sheet by changes in assets and
liabilities and in its net worth. The comparative income presents a review of operating
activities in business. A comparative balance sheet shows the effect of the operations
on the assets and liabilities. The practice of presenting comparative statements in the
annual report is now becoming widespread because it is a connection between balance
sheet and income statement. Considerations like price levels and accounting methods
are given due weight at the time of comparison.

1.2.4 Cash Flow Statement

A cash flow statement is a financial statement that provides aggregate data regarding all
cash inflows a company receives from its ongoing operations and external investment
sources. It also includes all cash outflows that pay for business activities and
investments during a given period.
A company's financial statements offer investors and analysts a portrait of all the
transactions that go through the business, where every transaction contributes to its
success. The cash flow statement is believed to be the most intuitive of all the financial
statements because it follows the cash made by the business in three main ways—
through operations, investment, and financing. The sum of these three segments is
called net cash flow.
These three different sections of the cash flow statement can help investors determine
the value of a company's stock or the company as a whole.

1.2.5 Common- size statement:

The percentage balance sheet is often known as the common size balance sheet. Such
balance sheet are, in a broad sense ratio analysis general items in the profit and loss
accounts and in the balance sheet are expressed in analytical percentages when
expressed in the form, the balance sheet and profit and loss account are referred to as a

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common size statement. Such statements are useful in comparative analysis of the
financial position in operating results of the business.

1.3 RATIO ANALYSIS

1.3.1. MEANING
Ratio analysis has emerged as the principal technique of analysis of financial
statements. The system of analysis of financial statements by means of ratio was first
made in 1919 by Alexander wall. It is an attempt to present the information of the
financial statements in simplified, systemized and summarized form by establishing the
quantitative relationship of the items or group of items of financial statements.

A ratio is a sample arithmetical expression of the relationship of one number to another

and is obtained by dividing the former by the later, In other words, ratios are simply a
means of highlighting, in arithmetical terms, the relationship between figure drawn
from financial statements, whereas ratio analysis if the process of determining and
presenting the relationship of items or groups of items in financial statements.

A ratio may be defined as the indicated quotient of two mathematical expressions.

According to the accountant's handbook by Wixon, Kell and Bedford, a ratio is ―an
expression of the quantitative relationship between two numbers‖. Ratio analysis is a
process of determining and presenting the relationship of items or group of items in the
financial statements.

The relationship may be of two types:

• Associate relationship
• Cause / effect relationship

For example there is an associated relationship between cost of goods sold and cost of
raw material, whereas, there is a cause/ effect relationship between sales and profits,
both the relationships are expressed in terms of ratios.
Normally, the ratios may be expressed in percentage, in times and in proportion. In
financial analysis, these ratios highlight the financial position of the business, and hence

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known as financial ratios, they are also called structural ratios because they measure
relative importance of the items expressed in financial statements.

1.3.2 Steps in Ratio analysis The

ratio analysis requires two steps: i)
Calculation of ratios
ii) Comparing the ratio with some predetermined standard The standard ratio may be
the past ratio of the same firm industry‘s average ratio of a projected ratio or the ratio
of the most successful firm in the industry.

Ratio analysis refers to the analysis and interpretation of the figures appearing in the
financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow
statement etc.)

It is a process of comparison of one figure against another. It enables the users like
shareholders, investors, creditors, Government, and analysts etc. to get a better
understanding of financial statements.

The term ratio analysis is the systematic use of ratios to interpret the financial
statements so that the strengths and weaknesses of a firm as well as its historical
performance and current financial conditions can be determined.

Ratio analysis is a very powerful analytical tool useful for measuring performance of an
organisation. Accounting ratios may just be used as symptoms like blood pressure,
pulse rate, body temperature etc. The physician analyses this information to know the
causes of illness. Similarly, the financial analyst should also analyses the accounting
ratios to diagnose the financial health of an enterprise

1.3.3 ADVANTAGES OF RATIO ANALYSIS -

The ratio analysis is one of the most powerful tools of financial analysis. It is used as a
device to analyze and interpret the financial health of enterprises. A ratio is known as a
symptom like blood pressure, the pulse rate of the temperature of an individual. It is
with the help of ratios that the financial statements can be analysed more clearly and

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decision made from such analysis. The use of ratios is not analysis for knowing the
financial position of a firm like supplier, banks, investors, shareholders, financial
institutions etc. The ratio analysis provides guides and clues especially in spotting
trends towards better or poor performance. In the words of J. Batty ―ratio can also
assist management in its basic functions of foresting, planning, coordination control
and communication.‖

The importance of ratios analysis is discussed below:

1. Forecasting and Planning:
The trend in costs, sales, profits and other facts can be known by computing ratios of
relevant accounting figures of the last few years. This trend analysis with the help of
ratios may be useful for forecasting and planning future business activities.

2. Budgeting:
Budget is an estimate of future activities on the basis of past experience. Accounting
ratios help to estimate budgeted figures. For example, a sales budget may be prepared
with the help of analysis of past sales.

3. Measurement of Operating Efficiency:

Ratio analysis indicates the degree of efficiency in the management and utilisation of its
assets. Different activity ratios indicate the operational efficiency. In fact, solvency of a
firm depends upon the sales revenues generated by utilizing its assets.

4. Communication:
Ratios are effective means of communication and play a vital role in informing the
position of and progress made by the business concern to the owners or other parties.

5. Control of Performance and Cost:

Ratios may also be used for control of performances of the different divisions or
departments of an undertaking as well as control of costs.

6. Inter-firm Comparison:

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Comparison of performance of two or more firms reveals efficient and inefficient firms,
thereby enabling the inefficient firms to adopt suitable measures for improving their
efficiency. The best way of inter-firm comparison is to compare the relevant ratios of
the organisation with the average ratios of the industry.

7. Indication of Liquidity Position:

Ratio analysis helps to assess the liquidity position i.e., short-term debt paying ability of
a firm. Liquidity ratios indicate the ability of the firm to pay and help in credit analysis
by banks, creditors and other suppliers of short-term loans.

8. Indication of Long-term Solvency Position:

Ratio analysis is also used to assess the long-term debt-paying capacity of a firm. Long-
term solvency position of a borrower is a prime concern to the long-term creditors,
security analysts and the present and potential owners of a business. It is measured by
the leverage/capital structure and profitability ratios which indicate the earning power
and operating efficiency. Ratio analysis shows the strength and weakness of a firm in
this respect.

9. Indication of Overall Profitability:

The management is always concerned with the overall profitability of the firm. They
want to know whether the firm has the ability to meet its short-term as well as longterm
obligations to its creditors, to ensure a reasonable return to its owners and secure
optimum utilisation of the assets of the firm. This is possible if all the ratios are
considered together.

10. Signal of Corporate Sickness:

A company is sick when it fails to generate profit on a continuous basis and suffers a
severe liquidity crisis. Proper ratio analysis can give signals of corporate sickness in
advance so that timely measures can be taken to prevent the occurrence of such
sickness.

11. Aid to Decision-making:

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Ratio analysis helps to take decisions like whether to supply goods on credit to a firm,
whether bank loans will be made available etc.

12. Simplification of Financial Statements:

Ratio analysis makes it easy to grasp the relationship between various items and helps
in understanding the financial statements.

1.3.4 DISADVANTAGES OF RATIO ANALYSIS

The technique of ratio analysis is a very useful device for making a study of the
financial health of a firm. But it has some limitations which must not be lost sight of
before undertaking such analysis. Ratio analysis is one of the most powerful tools of
financial evaluation of business firms. But it should be kept in view that ratios are only
a guide in analyzing the financial statements, and not a conclusive end in themselves. If
these ratios are misused, the results will be incorrect and misleading. Therefore, the
analyst should be aware of the weaknesses and limitations of ratio analysis while
analyzing financial statements on the basis of these ratios. The important limitations are
as follows-

1. Limitations of Financial Statements:

Ratios are calculated from the information recorded in the financial statements. But
financial statements suffer from a number of limitations and may, therefore, affect the
quality of ratio analysis.

2. Historical Information:
Financial statements provide historical information. They do not reflect current
conditions. Hence, it is not useful in predicting the future.

3. Different Accounting Policies:

Different accounting policies regarding valuation of inventories, charging depreciation
etc. make the accounting data and accounting ratios of two firms noncomparable.

4. Lack of Standard of Comparison:

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No fixed standards can be laid down for ideal ratios. For example, the current ratio is
said to be ideal if current assets are twice the current liabilities. But this conclusion may
not be justifiable in case of those concerns which have adequate arrangements with
their bankers for providing funds when they require, it may be perfectly ideal if current
assets are equal to or slightly more than current liabilities.
5. Quantitative Analysis:
Ratios are tools of quantitative analysis only and qualitative factors are ignored while
computing the ratios. For example, a high current ratio may not necessarily mean sound
liquid position when current assets include a large inventory consisting of mostly
obsolete items.

6. Window-Dressing:
The term ‗window-dressing‘ means presenting the financial statements in such a way to
show a better position than what it actually is. If, for instance, a low rate of depreciation
is charged, an item of revenue expense is treated as capital expenditure etc. the position
of the concern may be made to appear in the balance sheet much better than what it is.
Ratios computed from such a balance sheet cannot be used for scanning the financial
position of the business.

7. Changes in Price Level:

Fixed assets show the position statement at cost only. Hence, it does not reflect the
changes in price level. Thus, it makes comparison difficult.

8. Causal Relationship Must:

Proper care should be taken to study only such figures as have a cause-and-effect
relationship; otherwise ratios will only be misleading.

9. Ratios Account for one Variable:

Since ratios account for only one variable, they cannot always give the correct picture
since several other variables such Government policy, economic conditions, availability
of resources etc. should be kept in mind while interpreting ratios.

10. Seasonal Factors Affect Financial Data:

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Proper care must be taken when interpreting accounting ratios calculated for seasonal
business. For example, an umbrella company maintains high inventory during the rainy
season and for the rest of the year its inventory level becomes 25% of the seasonal
inventory level. Hence, liquidity ratios and inventory turnover ratio will give biased
pictures.

1.3.5 USERS OF RATIO ANALYSIS

Financial ratio analysis is aimed to assess the financial performance and determine the
financial position of an organization through its profitability, liquidity, activity,
leverage and other relevant indicators. There are many groups and individuals with
diverse and conflicting interests but want to know about the business performance or
position. In the following table major users of financial statements with their areas of
interest are described.

(1) Bankers and Lenders:

Use profitability, liquidity and investment because they want to know the ability of the
borrowing business in regular scheduled interest payments and repayments of principal
loan amount.

(2) Investors:
Use profitability and investment because they are more interested in profitability
performance of business and safety & security of their investment and growth potential
of their investment.

(3) Government:
Use profitability because the government may use profit as a basis for taxation, grants
and subsidies.

(4) Employees:
Use profitability, liquidity and activity because employees will be concerned with job
security, bonus and continuance of business and wage bargaining.

(5) Customers:
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Use liquidity because customers will seek reassurance that the business can survive in
the short term and continue to supply.

(6) Suppliers:
Use liquidity because suppliers are more interested in knowing the ability of the
business to settle its short-term obligations as and when they are due.

(7) Management:
Use all ratios because management is interested in all aspects i.e., both financial
performance and financial condition of the business.

1.3.6. TYPES OF RATIO ANALYSIS

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
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
I. Profitability Ratio based on Sales

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 a) Gross Profit Ratio
b) Net Profit Ratio
c) Operating Ratio
d) Expenses Ratio
II. Profitability Ratio Based on Investment
1. Return on Capital Employed
2. Return on Shareholder‘s Funds

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 a) Return on Total Shareholder‘s Funds
b) Return on Equity Shareholder‘s Funds
c) Earnings Per Share
d) Dividend per Share
e) Dividend Payout Ratio
f) Earnings and Dividend Yield
g) Price earnings Ratio

A. Liquidity Ratio:-
It refers to the ability of the firm to meet its current liabilities. The liquidity
ratio, therefore, is 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.

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.
Current Assets: - ‗Current assets‘ includes those assets which can be
converted into cash within 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
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

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

Taxation + 14
Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans
Payable within a Year

firm will be able to pay its current liabilities more easily. If the ratio is less
than 2:1, it indicates 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.

b) Quick Ratio: - Quick ratio indicates whether the firm is in a position to

pay its current liabilities within a month or immediately.

‗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 the short-term financial
position of the company.

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 ratio include the following ratios:

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a) Debt Equity Ratio: - This ratio can be expressed in two ways:
First Approach: According to this approach, this ratio expresses the
relationship between long term debts and shareholder‘s fund.

Debt Equity Ratio = Long term Loans / Shareholder‘s Funds or Net Worth

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:-
Debt Equity Ratio=External Equities/internal Equities

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

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

b) Debt to Total Funds Ratio: - This Ratio is a variation of the debt equity
ratio and gives the same indication as the debt equity ratio. In the ratio, debt
is expressed in relation to total funds, i.e. both equity and debt.

Debt to Total Funds Ratio = Long

-term Loans / Shareholder‘s funds + Long term
Loans

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Significance: - Generally, debt to total funds ratio of 0.67:1 (or 67%) is
considered satisfactory. In other words, the proportion of long term loans
should not be more than 67% of total funds.
A higher ratio indicates a burden of payment of large amounts of interest
charges periodically and the repayment of large amounts of loans at
maturity.
Payment of interest may become difficult if profit is reduced. Hence, good
concerns keep the debt to total funds ratio below 67%. The lower ratio is
better from the long term solvency point of view.
c) Proprietary Ratio: - This ratio indicates the proportion of total funds
provided by owners or shareholders.

Proprietary Ratio = Shareholder‘s Funds/Shareholder‘s Funds + Long

term loans

A higher proprietary ratio is generally treated as 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.

d) Fixed Assets to Proprietor’s Fund Ratio: - This ratio is also

known as fixed assets to net worth ratio.

Fixed Asset to Proprietor‘s Fund Ratio = fixed assets

proprietors fund

Significance: - The ratio indicates the extent to which proprietor‘s

(Shareholder‘s) funds are sunk into fixed assets. Normally, the purchase of
fixed assets should be financed by proprietor‘s funds. If this ratio is less
than 100%, it would mean that proprietor‘s funds are more than fixed assets

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and a part of working capital is provided by the proprietors. This will
indicate the long-term financial soundness of business.

e) Capital Gearing Ratio: - This ratio establishes a relationship

between equity capital (including all reserves and undistributed profits) and
fixed cost bearing capital.

Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L

Balance /
Fixed cost Bearing

Whereas, Fixed Cost Bearing Capital = Preference Share Capital +

Debentures +
Long Term Loan

Significance:-If the amount of fixed cost bearing capital is more than the
equity share capital (including reserves an undistributed profits), it will be
called high capital gearing and if it is less, it will be called low capital
gearing
The high gearing will be beneficial to equity shareholders when the rate of
interest/dividend payable on fixed cost bearing capital is lower than the rate
of return on investment in business.
Thus, the main objective of using fixed cost bearing capital is to maximize
the profits available to equity shareholders.

f) Interest Coverage Ratio:-This ratio is also termed as ‗Debt Service

Ratio‘. This ratio is calculated as follows:

Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed
Interest Charges

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.

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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.

(C)Activity Ratio or Turnover Ratio: - These ratios are calculated on the

bases of
‗cost of sales‘ or sales, therefore, these ratios are also called ‗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 leads to higher profitability.

a) Stock Turnover Ratio: - This ratio indicates the relationship between

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

Stock Turnover Ratio = Cost of Goods Sold / 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
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 then the profitability may be quite high.

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

credit sales and average debtors during the year.

Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average

B/R

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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 debtor‘s 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.

c) Average Collection Period: - This ratio indicates the time within which
the amount is collected from debtors and bills receivables.

Average Collection Period = Debtors + Bills Receivable / Credit Sales per

day

Here, Credit Sales per day = Net Credit Sales of the year / 365

Second Formula:

Average Collection Period = Average Debtors *365 / Net Credit Sales

Average collection period can also be calculated on the basis of ‗Debtors

Turnover
Ratio‘.

Average Collection Period = 12 months or 365 days / Debtors Turnover

Ratio

Significance: - This ratio shows the time in which the customers are paying
for credit sales. A higher debt collection period is thus, an indicator of the
inefficiency and negligence on the part of management. On the other hand,

21
if there is decrease in debt collection period, it indicates prompt payment
by debtors which reduces the chance of bad debts.

d. Creditors Turnover Ratio: - This ratio indicates the relationship

between credit purchases and average creditors during the year.

Creditors Turnover Ratio = Net credit Purchases / Average Creditors +

Average B/P

Significance: - This ratio indicates the speed with which the amount is
being paid to creditors. The higher the ratio, the better it is, since it will
indicate that the creditors are being paid more quickly which increases the
credit worthiness of the firm.

e. Average Payment Period: - This ratio indicates the period which is

normally taken by the firm to make payment to its creditors.

Average Payment Period = Creditors + B/P/ Credit Purchase per day

Significance: - The lower the ratio, the better it is, because a shorter
payment period implies that the creditors are being paid rapidly.
f. Fixed Assets Turnover Ratio: - This ratio reveals how efficiently
the fixed assets are being utilized.

Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets

Here, Net Fixed Assets = Fixed Assets – Depreciation

Significance: - This ratio is of particular importance in manufacturing

concerns where the investment in fixed assets is quite high. Compared with
the previous year, if there is an 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

22
show that fixed assets have not been used as efficiently, as they had been
used in the previous year.

g. Working Capital Turnover Ratio: - This ratio reveals how

efficiently working capital has been utilized in making sales.

Working Capital Turnover Ratio = Cost of Goods Sold / 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. A low
working capital turnover ratio indicates underutilization of working capital.

(D)Profitability Ratio or Income Ratio: - 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 ratio can be determined on the basis of
either sales or investment into business.
1) Profitability Ratio Based on Sales
1) Gross Profit Ratio: - This ratio shows the relationship between
gross profit and sales.

Gross Profit Ratio = Gross profit / Net sales × 100

Here, Net Sales = Sales – Sales Return

23
Significance:-This ratio measures the margin of profit available on sales.
The higher the gross profit ratio, the better it is. No ideal standard is fixed
for this ratio, but the gross profit ratio should be adequate enough not only
to cover the operating expenses but also to provide for depreciation, interest
on loans, dividends and creation of reserves.

2) Net Profit Ratio:-This ratio shows the relationship between net

profit and sales. It may be calculated by two methods:

Net Profit Ratio = Ne t Profit / Net sales *100

Free free Net Profit = Operating Net Profit / Net Sales *100

Here, Operating Net Profit = Gross Profit – Operating Expenses

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.

3) Operating Ratio:-This ratio measures the proportion of an

enterprise cost of sales and operating expenses in comparison to its sales.

Operating Ratio = Cost of Goods Sold + Operating Expenses *100 / Net

sales

Where, ‗Operating Ratio‘ and ‗Operating Net Profit Ratio‘ are interrelated.
Total of

Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages +

Other Direct Expenses – Closing Stock

24
 Operating Expenses = Office and Administration Exp. + Selling and
Distribution Exp. + Discount + Bad Debts + Interest on Short- term loans.

both these ratios will be 100.

Significance:-Operating Ratio is a measurement of the efficiency and

profitability of the business enterprise. The ratio indicates the extent of
sales that is absorbed by the cost of goods sold and operating expenses.
Lower the operating ratio is better, because it will leave a higher margin of
profit on sales.

4) Expenses Ratio:-These ratios indicate the relationship between expenses

and sales. Although the operating ratio reveals the ratio of total operating
expenses in relation to sales, some of the expenses included in the
operating ratio may be increasing while some may be decreasing. Hence,
specific expenses ratio are computed by dividing each type of expense with
the net sales to analyze the causes of variation in each type of expense.

The ratio may be calculated as :

a) Material Consumed Ratio = Material Consumed/Net Sales*100
b) Direct Labour cost Ratio = Direct labour cost / Net sales*100
c) Factory Expenses Ratio = Factory Expenses / Net Sales *100
d) (a), (b) and (c) mentioned above will be jointly called cost of goods sold
ratio.

Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100

e) Office and Administrative Expenses Ratio = Office and Administrative

Exp./
Sales*100
f) Selling Expenses Ratio = Selling Expenses / Net Sales *100
g) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100

Significance:-Various expenses ratio when compared with the same ratios

of the previous year give a very important indication whether these
25
expenses in relation to sales are increasing, decreasing or remain stationary.
If the expenses ratio is lower, the profitability will be greater and if the
expenses ratio is higher, the profitability will be lower.

2) Profitability Ratio Based on Investment in the Business

These ratios reflect the true capacity of the resources employed in the
enterprise. Sometimes the profitability ratio based on sales is high whereas
profitability ratio based on investment is 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:

⮚ Return on Capital Employed
⮚ 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‘.

Return on Capital Employed = Profit before interest, tax and dividends /

Capital
Employed *100

Where, Capital Employed = Equity Share Capital + Preference Share

Capital + All Reserves + P&L Balance +Long-Term Loans- Fictitious
Assets – Non-Operating Assets like Investment made outside the business.

Capital Employed = Fixed Assets + Working Capital

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

26
measures only the profitability of the funds invested by shareholders. These
are several measures to calculate the return on shareholder‘s funds:

a. Return on total Shareholder’s Funds:-For calculating this ratio

‗Net Profit after Interest and Tax‘ is divided by total shareholder‘s funds.

Return on Total Shareholder‘s Funds = Net Profit after Interest and

Tax / Total
Shareholder‘s Funds

Where, Total Shareholder‘s Funds = Equity Share Capital + Preference

Share Capital + All Reserves + P&L A/c Balance – Fictitious Assets

Significance: - This ratio reveals how profitably the proprietor‘s funds have
been utilized by the firm. A comparison of this ratio with that of similar
firms will throw light on the relative profitability and strength of the firm.

b. Return on Equity Shareholder’s Funds: - 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 shareholders.

Return on Equity Shareholder‘s Funds = Net Profit (after int., tax &
preference dividend) / Equity Shareholder‘s Funds *100

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 shareholder‘s funds is. If the ratio is high, it is better, because
in such a case equity shareholders may be given a higher dividend.

c. Earnings per Share (E.P.S):- This ratio measures the profit

available to the equity shareholders on a per share basis. All profit left after

27
payment of tax and preference dividend are available to equity
shareholders.

Earnings per Share = Net Profit – Dividend on Preference Shares / No. of

Equity
Shares

Significance: - This ratio helpful in the determining of the market price of

the equity share of the company. The ratio is also helpful in estimating the
capacity of the company to declare dividends on equity shares.

d. Dividend per share (D.P.S.):- Profits remaining after payment of

tax and preference dividend are available to equity shareholders. But these
are not distributed among them as dividend .Out of these profits are
retained in the business and the remaining is distributed among equity
shareholders as dividend. D.P.S. is the dividend distributed to equity
shareholders divided by the number of equity shares.

D.P.S. = Dividend paid to Equity Shareholders *100 No. of Equity

Shares

e. Dividend Payout Ratio (D.P):- It measures the relationship

between the earning available to equity shareholders and the dividend
distributed among them.

D.P. = D.P.S. / E.P.S. *100

f. Earnings and Dividend Yield: - This ratio is closely related to

E.P.S. and D.P.S. While the E.P.S. and D.P.S. are calculated on the basis of
the book value of shares, this ratio is calculated on the basis of the market
value of share.

28
g. Price Earning (P.E.) Ratio: - Price earnings ratio is the ratio
between market price per equity share & earnings per share. The ratio is
calculated to make an estimate of appreciation in the value of a share of a
company & is widely used by investors to decide whether or not to buy
shares in a particular company.

Significance: - This ratio shows how much is to be invested in the market

in this company‘s shares to get each rupee of earning on its shares. This
ratio is used to measure whether the market price of a share is high or low.

1.4 LOGISTICS INDUSTRY IN INDIA

The logistics industry in India is highly fragmented with a large number of
unorganized players. While there is a need for the highly fragmented Indian
logistics market to get more organised, there is also a need to reduce
logistics cost to 10 per cent by 2022 from about 14 per cent now. Only 10-
15 percent of the $215-billion Indian logistics market is owned by
organised players.
Blue Dart operates in the express logistics industry which caters to multiple
sectors as well as individual customers by providing time definite services.
Express delivery services are used for various products such as securitised
documents, electronic products, automotive components, temperature
controlled shipments, trade samples, lifesaving drugs, mobile phones, etc.
The Indian logistics industry has been gaining traction in the last few years
and plays a very important role in facilitating trade and thereby propelling
the growth of the Indian economy. Despite the enhancement in the logistics
performance index from the 54th Rank in 2016 to the 35th rank in 2018,
India has substantial potential for improvement. The Indian logistics sector
provides livelihood to more than 22 million people and improving the
sector will facilitate a 10 % decrease in indirect logistics cost leading to the
growth of 5 to 8% in exports.
The growth in logistics sector is expected to be driven by increasing
penetration of products into more cities and towns, as well as the growth of
economic activity and manufacturing moving to these towns.The logistics

29
industry is highly fragmented and consists of over 1,000 active players
which include large scale domestic players, leading entities of global
players, the express arm of the government postal service and emerging
start-ups specialising in e-commerce deliveries.

The Ministry of Commerce & Industry, estimates that presently the country
spends about 14% of its GDP on logistics which is much higher than Japan
(11%) and the USA (9-10%). During the Union Budget 2020-21, the
Government of India announced that a National Logistics Policy will be
released soon clarifying the roles of the Union Government, State
Governments and key regulators. Policy also talks about reduction in the
logistics cost to less than 10% of GDP by 2022. With the implementation
of GST, the Indian logistics market is expected to reach about USD 215
billion in 2020, growing at a CAGR of 10.5 per cent.

1.5 TOP LOGISTICS COMPANIES IN INDIA

● Blue Dart Express Ltd.

● Allcargo Logistics Ltd. Allcargo Logistics Ltd

● Container Corporation of India Ltd.

● DHL Express India Pvt.

● FedEx Express TSCS India Pvt.

● Gati Ltd.

● Transport Corporation of India.

● Sical Logistics Ltd.

● Adani Logistics Company

● Gateway Distripark Limited

1.6 COMPANY PROFILE

30
Blue Dart Express Ltd., South Asia's premier express air and integrated
transportation & distribution company, offers secure and reliable delivery
of consignments to over
35,000 locations in India. As part of the DPDHL Group‘s (DHL Express,
DHL Global Forwarding & DHL Supply Chain) Post - E-commerce -
Parcel (PeP) division, Blue Dart accesses the largest and most
comprehensive express and logistics network worldwide, covering over
220 countries and territories and offers an entire spectrum of distribution
services including air express, freight forwarding, supply chain solutions
and customs clearance.

The Blue Dart team drives market leadership through its motivated people
force, dedicated air and ground capacity, cutting-edge technology, wide
range of innovative, vertical specific products and value-added services to
deliver unmatched standards of service quality to its customers. Blue Dart's
market leadership is further validated by numerous awards and recognitions
from customers for exhibiting reliability, superior brand experience and
sustainability which include recognition as one of ‗India's Best
Companies to Work For‘ by The Great Place to Work® Institute, amongst
the Top 25 Best Employers in India 2016 by AON Hewitt, voted as a
Superbrand, listed as one of
Fortune 500‘s India's Largest Corporations and Forbes India's Super 50
Companies and voted Reader‘s Digest Most Trusted Brand to name a few.

Blue Dart accepts its social responsibility by supporting climate protection

(GoGreen), disaster management (GoHelp) and education (GoTeach).

Our vision is to establish continuing excellence in delivery capabilities

focused on the individual customer. In pursuit of sustainable leadership in
quality services, we have evolved an infrastructure unique in the country
today:

31
 ● State-of-the-art Technology, indigenously developed, for Track and
Trace, MIS, ERP, Customer Service, Space Control and
Reservations.
● Blue Dart Aviation, dedicated capacity to support our time-definite
morning deliveries through night freighter flight operations.
● A countrywide Surface network to complement our air services.
● Warehouses at 85 locations across the country as well as bonded
warehouses at the 7 major metros of Ahmedabad, Bangalore,
Chennai, Delhi, Mumbai, Kolkata and Hyderabad.
● ISO 9001:2015 countrywide certification by Lloyd's Register
Quality Assurance for our entire operations, products and services.
● E-commerce B2B and B2C initiatives including partnering with
some of the prime portals in the country.

1.7 COMPANY’S VISION

To be the best and set the pace in the express air and integrated
transportation and distribution industry, with a business and human
conscience. We commit to develop, reward and recognise our people who,
through high quality and professional service, and use of sophisticated
technology, will meet and exceed customer and stakeholder expectations
profitably.

We will:
• Treat each other fairly and with respect and dignity.

• Encourage freedom in communication of thoughts and ideas in all our

interactions.

• Value integrity and be uncompromising in upholding it at all times.

• Give due importance to the health, safety and well-being of our people.

• Ensure that our ‗People First‘ philosophy serves as a driving force behind
the success of our organization.

• Encourage and inculcate in all a winning attitude.

32
• Encourage learning, self-development and building effective leadership.

• Expect our people to be accountable for all their actions related to the
company.

• Provide a workplace where each and every employee is nurtured and who,
in turn, will nurture the organization, thereby creating wealth for
stakeholders.

• Drive the ‗First Time Right‘ concept to achieve 100% Quality and
Customer Satisfaction.

• Encourage passion and enthusiasm for Work, Service Quality and

Customer Care.

• Project a positive, caring and professional image of ourselves and our

service at all times.

• Avoid waste by being conscious of the impact of all our actions on the
environment.

• Continue to be a law-abiding, apolitical and secular company.

1.8 HISTORY OF BLUE DART EXPRESS LIMITED

Blue Dart Express Ltd is South Asia's leading integrated air express carrier
and premium logistics-services provider. The company has the most
extensive domestic network covering over 35476 locations in India. As part
of the Deutsche Post DHL Group (DHL Express DHL Global Forwarding
& DHL Supply Chain) Post - ecommerce - Parcel (PeP) division Blue Dart
Express accesses the largest and most comprehensive express and logistics
network worldwide covering over 220 countries and territories and offers
an entire spectrum of distribution services including air express freight
forwarding supply chain solutions and customs clearance.

During the year ended 31 March 2018 Blue Dart handled over 1958.86 lac
domestic shipments, 9.15 lac international shipments and over 696961
tonnes of documents and parcels across the nation and 220 countries
worldwide. Started as a partnership firm in 1983 under the name Blue Dart

33
Courier Service the company was registered as a private limited company
with the new name Blue Dart Express Pvt Ltd in 1990.

The company was incorporated on April 05 1991 and became a public

limited company in 1994.The company is the global service participant of
Federal Express International US with exclusive rights for pick-up and
delivery services in India. Federal Express which has an extensive service
network in around 220 countries is recognized all over the world for its
innovation in the air-express business.

In August 2017 Blue Dart launched Blue Dart Rakhi Express a unique
customized service for secure and timely delivery of Rakhis.

On 30 October 2017 Blue Dart Express launched electric vehicles in

Gurugram, another step towards operating its last mile e-tail delivery
service with clean pick-up and delivery solutions. The electric vehicles are
being piloted in Gurugram and will be subsequently inducted across Blue
Dart country.

During the year 2018 the Company received repayment of Loan from its
wholly owned subsidiary company only cargo airline Blue Dart Aviation
Limited (BDAL) of Rs 2441 Lakhs. The Company paid Rs 8735 Lakhs as
Inter-Corporate Deposit to BDAL and the same was fully repaid as on
March 31 2018.

During the year 2018 Blue Dart Aviation Limited (BDAL) uplifted 91471
tons on its network and also handled 38 charters.

During the year 2019 Blue Dart Aviation Limited (BDAL) expanded its
footprint across airports in Chennai Delhi and Mumbai relocating to new
state of the art dedicated facilities constructed at these airports. These long-
term purpose-built facilities are unique to Blue Dart's operations and help
to establish much needed critical infrastructure to secure its operations and

34
ensure sustainability over the long term to meet growing demand
productivity and service quality enhancement.

1.9 SWOT Analysis of Blue Dart Express Limited

SWOT = Strengths, Weakness, Opportunity, and Threats

1.9.1. COMPANY
STRENGTHS 1)
Strong Brand Image:
In 1997, it became the global express transportation company to obtain
simultaneous system-wide ISO 9001 certification in international quality
standards. It has also developed their own quality system that matches their
customer‘s standards.

2) Globalism:
It operates on a global scale. They have such a large market in which to
operate, and thus realize tremendous revenues. They can also achieve
global economies of scale.

3) E-Services and Technology:

It uses and continues to search for new technology. They spend nearly 10%
of total revenues, for information technology. It also has excellent
eServices that provide access to systems that ensure customers have control
and visibility of their supply chains at all times. Products can be tracked,
queried and ordered online.

4) Corporate symbiosis:
It has developed its own organizational structure to serve the global market,
which it has called ―corporate symbiosis.‖ This approach encompasses the
empowerment of the its personnel at a local level, at the same time
recognizing the interdependence of the parts of it as a corporate whole.

5) Smart-Truck Project:

35
It is the programme which allows it to deliver faster. The data are
transmitted directly to the dynamic route planning system, which
recalculates the routes,depending on the current order situation and volume
of traffic.

1.9.2 COMPANY WEAKNESSES

1) High Prices:
It‘s prices are above their competitors. This can be a weakness if their
customers do not perceive a difference between Blue Dart and its
competitors‘ services.

2) Mistakes in Market-Share Estimate:

The biggest weakness is market-share estimate. It is difficult to estimate
even when the market is stagnant and contains few competitors, and all
market-share estimates should be viewed with circumspection.

3) Weak Visibility:
It has weak visibility in the community compared with its potential

1.9.3 COMPANY OPPORTUNITIES

1) Expansion Globally:
It can continue to expand globally.

2) Joint-Ventures:
It can form joint ventures to enjoy the growth of integrating their customer
bases.

3) Expansion of e-commerce:
It already has a major presence of shipping online.They should keep
finding Internet companies to contract delivery of their products. Since the
growth of e-commerce is rapid now, it could enjoy both profits and brand
name recognition from this kind of expansion.

36
 4) Increase In The Number Of Manufactured Goods:
The World Trade Organization Estimates that the rate of world trade in
manufactured goods will increase exponentially.

1.9.4 COMPANY THREATS

1) Relations with Foreign Countries :
Through its expansions globally, they are subject to laws and regulations of
all foreign countries. There could be major problems in this area, stunting
growth and raising costs. Everywhere, it goes, they are at risk for
regulations that hinder their operations or efficiency.

2) Economic and Political Conditions :

It is subject to the entire world‘s economic and political condition in the
areas of fuel prices and supply, customer purchase of their services, and
relations with foreign countries. As a global company, they are subject to
much more risk than domestic companies.

3) Economic Slow-down:
Economic slow-down is decreasing the number of products that are
produced.

4) Price of fuel can go up:

Even if the price of fuel goes up, it can pass that along to the customer but
fuel is always a concern both in price and availability.

37
 CHAPTER - 2 REVIEW OF LITERATURE

(JEVONS LEE, 1987) The fundamental analysis approach assumes that

each security has an intrinsic value that can be decided on the basis of such
information like accounting earnings, dividends, growth factors, and
debt/equity ratios etc. Technical experts determine the intrinsic value on the
basis of these fundamentals and compare this value with the current market
price to determine if the security is underpriced or overpriced.

Mark P.Bauman (1996) has outlined the development of a fundamental

valuation model and reviewed related empirical work First, an accounting-
based expression for a firm‘s equity value has been developed into a rich
theoretical framework. They varied its descriptive validity regarding their
mapping of accounting numbers into stock prices. This paper identified
three major issues associated with practical implementation of the model;
the prediction of future profitability, the length of appropriate forecast
horizon, and the determination of the appropriate discount rate.

Jim Berg (1999) examined that fundamental analysis looks at the

fundamental issues that drive the value of the particular company. These
issues include its financial position, its industry sector, and the current
economic environment. The objective was to identify companies that may
be considered undervalued in the market with a view to investing when the
time is right. In this study, Jim Berg outlined more about what fundamental
analysis is and how it could be used.

38
Persson and Virum (2001) categorized LSPs strategically as third-party
logistics operators, logistics integrators and logistics agents on the basis of
their available physical assets.

Delfmann et al. (2002) stated LSPs as ―Companies which perform

logistics activities on behalf of others‖.

(Bagchi and Larsen, 2003) India being a developing country; logistics

sector is even not considered as an organized sector. Apart from
infrastructure and shortage of skilled manpower, coordination among all
supply chain stakeholders is an unavoidable barrier in delivering
committed services. The use of IT in the logistics sector is rapidly
increasing but it is largely limited to the big size organizations.

Chandra and Sastry (2004) have pointed towards two key areas that
require attention in managing the logistics chains across the Indian business
sectors – cost and reliable value add services. Logistics costs (i.e.,
inventory holding, transportation, warehousing, packaging, losses and
related administration costs) have been estimated at 13-14 per cent of
Indian GDP which is higher than the 8 percent of the USA's and lower than
the 21 percent of China‘s GDP.

(Dobberstein et. Al 2005) Service reliability of the logistics industry in

emerging markets, like India, has been referred to as slow and requiring
high engagement time of the customers, thereby, incurring high indirect
variable costs.

(Srinivas, 2006) The Indian economy has been growing at an average rate
of more than 8 per cent over the last four years putting enormous demands
on its productive infrastructure. Whether it is the physical infrastructure of
roads, ports, water, power etc. or the digital infrastructure of broadband
networks, telecommunication etc. or the service infrastructure of logistics
– all are being stretched to perform beyond their capabilities. Interestingly,

39
this is leading to an emergence of innovative practices to allow business
and public service to operate at a higher growth rate in an environment
where the support systems are getting augmented concurrently. In this
paper, we present the status of the evolving logistics sector in India,
innovations therein through interesting business models and the challenges
that it faces in years to come.
Broadly speaking, the Indian logistics sector, as elsewhere, comprises the
entire inbound and outbound segments of the manufacturing and service
supply chains. Of late, the logistics infrastructure has received a lot of
attention both from business and industry as well as policy makers.
However, the role of managing this infrastructure (or the logistics
management regimen) to effectively compete has been slightly
underemphasized. Inadequate logistics infrastructure has an effect of
creating bottlenecks in the growth of an economy, the logistics
management regimen has the capability of overcoming the disadvantages
of the infrastructure in the short run while providing cutting edge
competitiveness in the long term. It is here that exist several challenges as
well as opportunities for the Indian economy. There are several models
that seem to be emerging based on the critical needs of the Indian economy
that can stand as viable models for other global economies as well.

Huo et al. (2008) revised the definition by stating LSPs as ―a relationship

between a shipper and a third party which, compared with the basic
services, has more customized offerings, encompasses a broad number
of service functions and is characterized by a long-term, more mutually
beneficial relationship‖.

(Preeti, 2009) examines whether fundamental analysis involves two types

of approaches like traditional and growth. Fundamentally powerful firms
earn excess mean returns in comparison to fundamentally weak firms. It
helps in differentiating between the overvalued firms and firms with growth
potential.

40
(Bodie et Al, 2009) Fundamental analysis is one method which evaluates
securities in order to measure the intrinsic value such as earnings and
dividend in regard to economic, financial, and other related quantitative and
qualitative factors. Fundamental analysis examines related factors which
affect the securities including macro-economic factors such as gross
domestic production growth industry analysis such as typical life cycle of
an industry to specific factors in the perspective of a company such as
financial condition and management.

(Pinto, et Al. 2010) In regard to assessing a company's past performance,

analysts rely on the financial report of the company which involves
accounting information and financial disclosures. Accounting information
and financial disclosures which could be found easily in terms of publicly
traded companies, however there is some concern in regards to accuracy of
the published report. The information that companies disclose can vary
substantially with respect to the accuracy of the reported accounting results
as reflections of economic performance and the detail in which results are
disclosed.

Tezuka (2011) highlights the three characteristics of service providers as

integrated, contract and consulting service providers.

(Kumar et al., 2012) The popularity of logistics outsourcing arises from a

number of reasons. The role of logistics service providers is very essential
in conducting smooth flow of material and information in both upstream
and downstream of the supply chain.

(Roy, 2015) done Fundamental analysis and stated that one should examine
the economic environment, industry performance and company
performance before making an investment decision. One of the livelier and
long-lasting debates in research is the relative merits of fundamental
research and technical research.

41
(Shruti Agrawal1, 9 May 2020) ―Effect of COVID-19 on the Indian
Economy and
Supply Chain‖. It tells us about the peak of Novel Coronavirus that has
affected and forced thousands of industries to shut down their operations
completely because their supply chains were badly affected and hence, they
could not run their operations effectively and efficiently. The paper also
mentions a few barriers that affect the supply chains in India.

42
 CHAPTER - 3
RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the problems. It

may be understood to study how research is done scientifically. In this, we
study various steps that are generally adopted by the researcher in studying
research problems along with the logic behind them, to understand why we
are using a particular method or technique so that the research results are
capable of being evaluated. During my project, I have used a lot of data to
understand the concept of Ratio analysis. The data collected was
interpreted and then used as information in the project.

2.1. OBJECTIVE OF THE STUDY:

1) To measure the profitability of Blue Dart Express Limited company.

2) To analyze the factors influencing the profitability of Blue Dart Express

Limited company.

3) To draw the overall financial strength and weaknesses and compare the
previous year‘s ratios to see the progress of the company.

4) To draw the meaningful conclusion from all ratios of the company and
evaluate the operational efficiency and liquidity position.

2.2. NEEDS OF THE STUDY:

1. To interpreting the financial statement and other financial data is
essential for all stakeholders of an entity. Ratio analysis hence becomes a
vital tool for financial analysis and financial management.

2. The study has great significance and provides benefits to various parties.

3. To express the relationship between different financial aspects in such a

way that it allows the users to draw conclusions about the performance,
strength and weaknesses of the company.

4. To diagnose the information contained in financial statements as to judge

the profitability of the firm.

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5. The study helps to know the liquidity, solvency, profitability and
turnover position of the company.

2.3. SCOPE OF THE STUDY:

The present study aims at assessing the profitability position of Blue Dart
Express Limited from calculating all ratios. The study could help the
company as well as the investors to understand its financial efficiency. It
aims to help the management to find out its financial problems at present
and the specific areas in the business, which might need some efforts for
more effective and efficient utilization of its resources.

Data for this project is collected through Secondary sources. Secondary

data is collected with the help of following—

1. Annual report

Majority of information gathered from data exhibited in the annual reports

of the company. These include annual reports of the year 2014 to 2020.

2. Reference Books

Theory relating to the subject matter and various concepts taken from
various financial reference books.

The study contains secondary data i.e. data from books, authenticated
websites and journals for the latest updates just to gain an insight for the
views of various experts.

2.4. LIMITATIONS OF THE STUDY:-

Though, everyone tries to fulfill the objective of the study but still there are
some limitations:-

● Ratios are tools of quantitative analysis only. Normally

qualitative factors are needed to draw conclusions.

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 ● Ratio analysis is only the beginning as it gives only a
little information for the purpose of decision making.
● A Price level change often makes the comparison of
figures difficult over a period of time." Change in price
affects the value."

2.5. HYPOTHESIS
● Ho: The Company‘s financial performance has increased
over the years.
● H1: The Company‘s financial performance has not
increased over the years.

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