CONTENTS Executive Summary Literature review Purpose of the study Scope of the study Statement of the problem Objectives

EXECUTIVE SUMMARY
Financial statements provide summarized view of the financial position and operation of the company. Many parties are interested in financial statement analysis to BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 1

know about the financial position of the firm. They include investors, creditors, lenders, suppliers etc. Ratio analysis is the widely used tool of financial analysis. The Project consists of analysis of financial performance on the basis of different ratios. The study will reveal the financial performance of the firm which enables the management to know their financial strengths & weakness of the firm to make their best use. For this purpose financial statements or Annual Reports of recent three years is taken and analyzed with the help of various ratios. The analysis & interpretations, findings, suggestions will facilitate management to take corrective actions if any, for further improvement of the company. PROPOSED OUTCOME: The proposed outcome of the study could be that we understand the liquidity and profitability trend of the company for the period of three years. We will also know the efficiency of the company. Benefits of the study from the point of view of student & company are as follows: The benefits of the study to the student is that the practical application of the subject. It also helps to learn about the organization & its working in detail, as a finance manager how the decisions and responsibilities are carried out is the vital part of learning in the project. The study facilitates the company to know its strengths & weaknesses and the exact financial position for the last 3 years. It also helps the company to take a long term planning/decisions with regard to its optimum utilization of resources and growth of the company.

TITLE: The study of Financial Performance based on Ratio Analysis at VRL

LOGISTICS LTD - VARUR, HUBLI.

BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA)

MANAGEMENT PROBLEM:
The company wants to know the financial strengths in order to make the best use of it and to be able to spot out financial weaknesses of the company.

RESEARCH PROBLEM:
The research problem is to analyze and interpret the past financial performance with the present financial performance based on different ratios for last 3 years i.e 20052007.

NEED FOR STUDY:

The main purpose of study is to analyze and interpret the past financial performance with the present performance based on different ratios for last 3 years i.e 2005-2007. In connection to that, suggesting suitable measures to the company for better improvements so that they reach at greater heights and be the apex in logistics.

SCOPE:
Scope of the study is limited to financial aspects of VRL Logistics Ltd, Hubli for the last 3years i.e. 2005-07.

OBJECTIVES:
1. The Main objective is to study different ratios.

BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA)

2. To determine the liquidity and profitability trend of VRL Logistics Ltd. 3. To assess the long-term viability of the company. 4. To study the efficiency of financial resources of the company. 5. To know the financial performance of the company and suggest suitable measures to management for further improvement.

LITERATURE REVIEW INTRODUCTION

When we have observed the financial statements comprising the balance sheet and the profit and loss account is that they do not give all the information regarding the BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 4

financial operation of a firm, they provide some extremely useful information to the extent the balance sheet shows the financial position on a particular date in terms of structure of assets, liabilities and owners equity and profit & loss account shows the result of operation during the year. Thus the financial statements will provide a summarized view of the financial position and operations of a firm. Therefore in order to learn about the firm from a careful examination of its financial statements as invaluable documents through RATIOS as a tool of financial analysis.

MEANING AND DEFINITION:

Ratio Analysis is one of the powerful techniques which are widely used for interpreting financial statements. financial soundness of the business. The idea of ratio analysis was introduced by Alexander Wall for the first time in 1919. Ratios are quantitative relationship between two or more variables taken from financial statements and can be expressed as (i) Percentages (ii) Fraction (iii) Proportion of numbers. Ratio analysis is defined as, The systematic use of ratio to interpret the financial statement so that the strengths and weaknesses of the firm as well as its historical performance and current financial condition can be determined. In the financial statements we can find many items which are co-related with each other For example: current assets and current liabilities, capital and long term debt, net profit and sales etc., This technique serves as a tool for assessing the

BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA)

Analysis of financial statements through different ratios reveals the soundness of financial position. Such information will be useful for creditors, shareholders, management and all other people who deal with the company.

Advantages of Ratio Analysis:

1. Simplifies Financial Statements: Ratio analysis simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business. 2. To improve future performance: Ratio analysis indicates weak spot of the business. This helps the management in overcoming such weakness and improving the overall performance of the business in future. 3. Facilitates Inter-firm comparison: Ratio analysis provides data for inter firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal strong firms and weak firms, over-valued and under-valued firms. 4. Makes Intra-firm comparison: Ratio analysis also makes possible comparison of the performance of the different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. 5. Helps in planning: Ratio analysis helps in planning and forecasting. Over a period of time a firm or industry develops certain norms that may indicate future success or failure.

BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA)

6. Useful in judging the efficiency of a business: It helps in judging the efficiency of business liquidity, solvency, profitability etc., of a business can be easily evaluated with the help of various accounting ratios like current ratio, liquid ratio, debt equity ratio and net profit ratio etc., such an evaluation enables the management to judge the operating efficiency of the various aspects of business.

Limitations of the Ratio Analysis:

1. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with the past results of the business or with the results of a similar business. However, such a comparison only provides a glimpse of the past performance and forecasts for future may not be correct since several other factors like market conditions, management policies, etc., may affect the future operation. 2. Limitation of financial statement: Ratios are based only on the information which has been recorded in the financial statements and they suffer from number of limitations, the ratios derived there from, therefore, are also subject to those limitations. For example, non-financial changes though important for the business are not revealed by the financial statements. If the management of the company changes, it may have ultimately adverse effects on the future profitability of the company but this cannot be judged by having a glance at the financial statements of the company. Similarly, the management has choice about the accounting policies. Different accounting policies may be adopted by management of different companies regarding valuation of inventories, depreciation, research and development expenditure and BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 7

treatment of deferred revenue expenditure, etc. The comparison of one firm with another on the basis of ratio analysis without taking into account the fact of companies having different accounting policies, will be misleading and meaningless. 3. Ratios alone are not adequate: Ratios are only indicators; they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen. The value of a ratio should not be regarded as good or bad. It may be an indication that a firm is weak or strong in a particular area, but it must never be taken as proof. 4. No fixed standards: No fixed standards can be laid down for ideal ratios. For example, current ratio is generally considered to be ideal if current assets are twice the current liabilities. However, in case of those concerns which have adequate arrangements with their bankers for providing funds when they require, it may be perfectly if current assets are equal to slightly more tan current liabilities. It is therefore, necessary to avoid many rules of thumb. Financial analysis is an individual matter and value for a ratio which is perfectly acceptable for one company or one industry may not be at all acceptable in case of another. 5. Ratios are a composite of many figures: Some cover a time period, others are at an instant of time while still others are only averages. A balance sheet figure shows the balance of the account at one moment of one day. It may, therefore, be concluded that ratio analysis, if done mechanically, is not only misleading but also dangerous STANDARD OF COMPARISON:

BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA)

The ratio analysis involves comparison for a useful interpretation of the financial statement. A single ratio in it self does not indicate favourable or unfavourable condition. It should be compared with some standard. Standards of comparison of may consist of: Time series analysis: When financial ratios over a period of time are compared, it is known as the Time series analysis. Cross-sectional analysis: Another way of comparison is to compare ratios of one firm with some selected firms in the same industry at the same point in time. This kind of comparison is known as the Cross-sectional analysis. This kind of comparison indicates the relative financial position and performance of the firm. Industry analysis: To determine the financial condition and performance of a firm, its ratio may be compared with average ratios of the industry of which the firm is a member. This sort of analysis, known as the industry analysis, helps to ascertain the financial standing and capability of the firm vis--vis other firm in the industry. Industry ratios are important standard in view of the fact that each industry has its characteristics which influence the financial and operating relationships. Pro Forma Analysis: Sometimes future ratios are used as the standard of comparison. Future ratios can be developed from the projected or pro forma, financial statements. The comparison of current or past ratios with future ratios shows the firms relative strengths and weakness in the past and the future. In my project, I am going to take standard of comparison based on Time series analysis, on financial Performance of VRL Logistics Limited, Varur, Hubli of last 3 years. It gives an indication of the direction of change and reflects whether the BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 9

firms financial performance has improved, deteriorated, or remained constant over a time. CLASSIFICATION OF RATIOS: Ratio can be classified into different categories depending upon the basis of classification. The traditional classification has been on the basis of the financial

statement to which the determinants of a ratio belong. On this basis the ratio could be classified as, Profit & loss account ratio Balance sheet ratio Composite ratios However the above basis of classification has been found to be crude & unsuitable because analysis of balance sheet & income statement cannot be done in isolation. They have to be studied together in order to determine the profitability and solvency of the business. In order that ratio serves as a tool for financial analysis, They are now classified as: 1. Liquidity Ratio 2. Capital structure ratio 3. Turnover ratio 4. Profitability ratio LIQUIDITY RATIOS : 1. 2. 3. Current Ratio Quick Ratio Absolute Liquid Ratio / Cash Ratio CAPITAL STRUCTURE RATIOS: BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 10

1. 2. 3. 4.

Debt Ratio Debt Equity Ratio Proprietary Ratio Interest Coverage Ratio TURNOVER RATIOS: 1. Inventory Turnover Ratio 2. Debtors Turnover Ratio 3. Creditors Turnover Ratio 4. Assets Turnover Ratio a. Net Assets Turnover Ratio b. Total Assets Turnover Ratio c. Fixed Assets Turnover Ratio d. Current Assets Turnover Ratio e. Working Capital Turnover Ratio PROFITABILITY RATIO: 1. Profitability in relation to Sales a. b. c. d. Gross Profit ratio Net Profit ratio Operating Expenses Ratio Operating Profit ratio 2. Profitability in relation to Investment a. Return On Investment b. Return on Equity c. Earning Per Share

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TITLE: The study of Financial Performance based on Ratio Analysis at VRL

LOGISTICS LTD, VARUR - HUBLI.

MANAGEMENT PROBLEM:
The company wants to know the financial strengths in order to make the best use of it and to be able to spot out financial weaknesses of the company.

RESEARCH PROBLEM:
The research problem is to analyze and interpret the past financial performance with the present financial performance based on different ratios for last 3 years i.e 20052007.

NEED FOR STUDY:

The main purpose of study is to analyze and interpret the past financial performance with the present performance based on different ratios for last 3 years i.e 2005-2007. In connection to that, suggesting suitable measures to the company for better improvements so that they reach at greater heights and be the apex in logistics.

SCOPE:
Scope of the study is limited to financial aspects of VRL Logistics Ltd, Hubli for the last 3years i.e. 2005-07.

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OBJECTIVES:
1. The Main objective is to study different ratios. 2. To determine the liquidity and profitability trend of VRL Logistics Ltd. 3. To assess the long-term viability of the company. 4. To study the efficiency of financial resources of the company. 5. To know the financial performance of the company and suggest suitable measures to management for further improvement.

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CONTENTS Industry Profile Organization Profile Organization Chart Methodology & Data Collection Method

INTRODUCTION INDUSTRY PROFILE

TRANSPORTATION BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 14

Transportation is a large and varied sector of the economy. Modes of conveyance for goods range from peoples heads (on which loads are balanced) and bicycle rickshaws to trucks and railroad cars. The national railroad was the major freight hauler at

independence, but road transport grew rapidly after 1947. Both rail and road transports remain important. The share of transportation investments in total public investment declined during the period from the early 1950s to the early 1980s; real public transportation investment also declined during much of that period because of the need for funds in the rest of the economy. As a consequence, by the early 1980s the transportation system was barely meeting the needs of the nation or preparing for future economic growth. Many roads, for example, were breaking up because of overuse and lack of maintenance; railroads required new track and rolling stock. Ports needed equipment and facilities, particularly for bulk and container cargo; and at many airports the national civil airlines need supporting equipment, including provision for instrument landings. The government planned to devote 19 percent of the Eighth Five-Year Plan (1992-96) budget to transportation and communications, up from the 16 percent devoted to the sector during the seventh plan. Although there is a large private-sector involvement in transportation, government plays a large regulatory and developmental role. The central government has ministries to handle civil aviation, railroads, and surface transportation. Counterpart agencies are found at the state and union territory level. Critical to improving the entire transportation sector in the late 1990s is the ability of the sector to adjust to the central governments

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national reform initiatives, including privatization, deregulation and reduced subsidies. The sector must also adjust to foreign trade expansion, demographic pressures and increasing urbanization, technological change and obsolescence, energy availability and environmental and public safety concerns.

Logistics & Transportation Industry Each segment of the Logistics & Transportation industry including air transport, motor freight, railroad and water transportation, logistics providers or couriers and

support services is under pressure for meeting greater customer expectations, improving return on assets, minimizing operating costs, optimizing capacity and promoting operational excellence. Companies in these segments have to be at the forefront of adopting new technologies that allow time-specific delivery and electronic tracking of cargo, For example. In-cab mobile computers and transponders, as well as satellites are increasingly being used to monitor goods and vehicles efficiently. Additionally, the increased

adoption of just-in-time inventory management by manufacturers is forcing the freighttransport industry to reshape and meet their demands. In a rapidly changing

environment, it is imperative to ensure that IT investments help rationalize costs and provide the intelligence to optimize inter-modal flows, both from cargo and freight route perspective.

VRL LOGISTICS LIMITED

COMPANY OVERVIEW:
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The credit for the phenomenal growth of VRL goes to the VISION, ZEAL and EFFORT of founder and Chairman Mr.Vijay Sankeshwar. From a single truck in 1976, VRL has grown into a conglomerate having diversified into Travel, Express Cargo, Courier and Power Generation segments.

VRL today embodies Symbol of Service with a fleet of 2,500 Plus vehicles including state-of-the-art buses. The credit to a large extent goes to VRL for introducing comfortable buses at affordable rates for the common man. The Group has wide network of branches spread over the entire nation.

Mr.Vijay Sankeshwar is ably supported by his dynamic son Mr.Anand Sankeshwar as Managing Director and a team of dedicated staff. VRL today is the leader in the parcel transportation business in India in fact the only organised segment player with a clear focus on the parcel segment and has an extensive network of more than 1000 branches throughout the country.

VRL Logistics Ltd., has an owned fleet of over 2500 vehicles, the VRL group finds mention in the Limca Book of Records as the largest individual owner of transport vehicles in India and also ISO 9001-2000 Certified firm.

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VRLs revenue for the year ending March 2006 was Rs.3,579 million. During the year ended March 2006, the Company got 82% of its revenues from goods transportation, 17% from passenger transportation and 1% from other sources. EBITDA for the year ended March 2006 was Rs.393 million. The Companys

THE FOUNDATION OF THE COMPANY: NAME REGISTERED AND ADMN. OFFICE WEBSITE
: VRL LOGISTICS LIMITED : NH4, Bangalore Road, VARUR, HUBLI 581 207 : www.vrllogistics.com

THE VISION:
To become the premier company in transportation of Goods, Parcels, Passengers and Print media in the country.

THE MISSION:
To provide highest quality services to its customers for maximum satisfaction continuously promote teamwork and excellence in all business and provide a good environment to our employees.

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THE VALUES:
INTEGRITY HONESTY LOYALTY CREDIBILITY PUNCTUALITY

QUALITY POLICY:
We are committed to provide Quality Logistics Services consistently at reasonable price and to continually improve the same to achieve customers delight on sustainable basis.

The external view of VRL LOGISTICS LTD - VARUR, HUBLI

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BOARD OF DIRECTORS: Chairman & Managing Director Managing Director Director (Finance) & Company Secretary Director Director Director Director Director Mr. Vijay Sankeshwar Mr. Anand Sankeshwar Mr. R.P.Raichur Mr. Sudhir Ghate Mr. C.Karunakara Shetty Mr. Mallesh Budihal Mr. R.S.Hugar Mr. Suresh Angadi

SERVICES BY VRL LOGISTICS LTD: Express Cargo: "Anywhere, Anytime" On time delivery & Zero excuses. This mantra is the driving force behind the success of VRL Express Cargo. VRL Express Cargo provides its customers with an entire bouquet of value-added services that comprises of road transportation, Express Cargo, warehousing, re-distribution & courier services. Our service now connects customers in the states of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh, Goa, Pondicherry, Western Maharashtra and Gujarat. This network will soon stretch to the other parts of North and East India.

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VRL Courier: ON TIME EVERY TIME Capitalising on the synergy of our transport network that connects most of Southern and Western India, we have now forayed into Courier Services focusing on delivering documents and small parcels in a time bound manner. Highlights: * Strong & Dedicated operation team with dedicated route vehicles * On-line track and trace facility * 7 regional offices, 25 Controlling area offices, 60 plus HUB points

Passenger Transportation:
The group has also established itself as a front runner in the Travel named VIJAYANAND TRAVELS covers more than 200 routes connecting 50 odd destinations with over 230 luxury Buses/Coaches and is supported by a network of 60 branches and 1000 agents. It is the Market Leader in Karnataka in Private Tourist Operator Segment. Salient Feature:

An ISO certified company. A fleet of 230 plus Buses of different configuration to suit the passenger
requirement. 200 plus Routes covering Karnataka and Maharastra. Market Leader in Karnataka in private tourist operator segment A wide network of own and franchise booking offices covering Karnataka and Maharastra.

Cloak room facilities in branches.

On selected routes for high quality audio/video enroute entertainment is provided in the coach BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 21

As a norm spare buses are parked in selected locations to take care of break downs if any.

All the recent buses are fitted with a mobile charger for every row.

Specialties:

Onward and Return Journey Booking and an E-Ticketing facility.

Punctuality in Timing and Separate Seating for women

Well maintained coaches with latest seating provisions

Double Drivers on board for safe and comfortable journey

Vijayanand Travels is committed to quality and safety. In recognition of its efforts to conform its services to the highest standards regarding time-management, passenger conveniences, facilities safety precautions, it was awarded the ISO 9001-2000 Certification for its Quality Management System in June 2005.

Parcel Services: Over the years VRL has devoted itself to provide a safe and reliable delivery network in the field of parcel services. It has expanded its operations into Courier Services and Express Cargo to meet the growing demand for quicker and speedier deliveries of parcels. Today VRL handles over 6000 MT of parcels every day adding up to staggering BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 22

216,000,000 MT of cargo per annum. VRL offers its customers a range of transport services optimized to their specific requirements. With the largest network in India, the VRL parcel services are indispensable for large number of corporate. This network spans 12 states in India and is supported by around 1000 branches, 40 Hubs cum transport yards and about 5000 customers. With its own trans-shipment yard commencing operation at Gurgaon-Delhi in the near future, VRL is now expanding its services to cover location in other North Indian State. The Company is the largest parcel carrier that has a network spanning across the country and it has currently owned 1800 + trucks & LCVs (Light Carrier Vehicles) 250 buses and regularly hires additional trucks from the market to render its services. This makes VRL Logistics the largest individual owner of vehicles in India, giving Company additional flexibility in its operations.

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INFORMATION AND CONTROL FLOWCHART OF VRL FOR PARCEL SERVICES

Head Office Hubli 12 Regional Offices Karnataka Andhra Pradesh Tamil Nadu Kerala Gujarat Rajasthan Punjab New Delhi Maharashtra Madhya Pradesh Haryana 1000 New Branches Offices Goa

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BUSINESS STRATEGY:
The key elements of VRLs business strategy are: 1. Increase its share from the North Indian market and commencing operations at North-East India VRL has already started its business operations like additional booking, delivery offices by establishing various Agency offices in big way at Delhi, Punjab, UP and Haryana. The above initiatives, it is expected, will fetch additional share in North Indian market and the Company has completed a detailed feasibility study and will establish TPT operations at Guwahati marking beginning of its operations in North-East.

2. Increase its thrust on marketing Larger share from the corporate market The Company has shored up its marketing function by hiring senior level personnel to further grow all its business (parcel, passenger and courier) with specific focus on corporate business and express cargo business.

3. Shore up its infrastructure through owned yards One of the key strengths of VRL is its infrastructure in terms of its yards across the country. These yards enable the Company to provide effective service in the parcel segment by aggregating and distributing goods through its hub and spoke model. VRL currently operates these yards out of rental premises, except in Hubli where it owns the yard and has built a modern facility. The Company intends to establish owned premises

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in the rest of the locations through which it can realise significant cost savings through greater operational efficiency. 4. Global Logistics Operations The Company finds huge scope of operations specially that of movement in parcel from India to other countries. In connection therewith, Company is undertaking a preliminary study so as to establish its Branches at Singapore, which would be a major hub for international operations. Strategic alliances are also being explored to have Companys logistics operations on global scale.

C.

COMMENCEMENT OF WAREHOUSING MANAGEMENT

OPERATIONS
As part of integrated and seamless Supply Chain Management Operations, Company wants to make big entry into the business of Warehousing Management. Of course, it will be a long term proposal as the Company will identify land at various strategic places and construct warehouses thereat. Bangalore, Delhi, Goa, Vishakapathnam, Salem, Pune are the initial places being examined for the purpose of establishing warehouses.

OPERATION: Centralized Operations

At the core of the groups transport business is its 40 acre transport cum warehouse complex in Varur, Hubli. This unique facility has all the essential back up services under one roof. The total built up area of complex is 25,00,000 sq. ft. with an additional 1,00,000 sq. ft. of land utilized for sheds and vehicle parking. This complex contains the Head Office Building, Transshipment Godown, Work shop, Canteen, Drivers Rest Room,

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own Petrol Bunk allotted by Indian Oil Corporation, Effluent Treatment Plant with capacity of 1,75,000 liters., and a Rainwater harvesting plant.

Systematic maintenance - Minimum downtime The efficiency of our fleet of trucks hinges on our systematic preventive maintenance measures at our all inclusive state-of-the-art garage cum service complex at Varur. Every track in our fleet passes through this master service facility in Hubli at least once every 2 weeks. The vehicles are peak levels of performance, down time is kept to a minimum, leading to better cost efficiencies and time management.

D.

QUALITY INITIATIVES

The Company has established over the years effective processes to support efficient operations and internal controls. In its efforts to improve the quality of operations, Travel Division and its operations at Hubli and Bangalore are already accredited with ISO 90012000 Certificate.

E.

KEY FEATURES
Leadership position

With revenue in excess of Rs.2610 million from the parcel transportation segment for the year ended March 31, 2006, the VRL Logistics Ltd., is a leader in this segment. The Company further hopes to consolidate its position in this segment by increasing its thrust on marketing and establishing further stations across India to increase its reach. Largest Reach in South India

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VRL Logistics Ltd., has a well established network of branches enabling procuring and distribution of goods across South India. VRL currently has in excess of 350 branches in Karnataka, Tamil Nadu and Kerala making it the transporter with the largest reach in South India. Established infrastructure VRL has well established computerized working system, good infrastructure and agencies & branches currently exceed 1000 throughout the length and breadth of the country. The infrastructure and the operating model increase the operational efficiency and enables improved vehicle utilization. Range of market offerings VRL Logistics Ltd., currently operates in the parcel, courier, express cargo and full truck load segments in transportation. In addition, VRL owns a fleet of 250+ luxury buses for passenger transportation. This makes VRL the largest passenger cum goods transportation company in India. VRL garnered in excess of Rs.620 million of revenues from the passenger transportation business for the year ended March 31, 2006. VRL Logistics Ltd., expects the passenger transportation business to continue with good growth rates in the next few years. The Company is revamping its marketing function with a specific focus on increasing its revenues from the Express Cargo business and revenues from the corporate customers. Significant growth opportunity in South India With its leadership status in the inter-state transport business within South India, VRL hopes to extend its dominance in the Southern region by opening new source of revenue by a greater focus on the intrastate transportation business within South India. BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 28

VRL, already a leader in the intrastate transportation of goods within Karnataka, realizes that the intrastate transportation market in the other Southern states is dominated by fringe players whose control is on the downswing. This leaves a gap for a reliable transporter to provide intrastate service in the other Southern states. Given its

infrastructure, and brand equity in these markets, VRL believes that it is uniquely positioned to fill this need gap. The Company is in the process of expanding its branch network in Kerala, Andhra Pradesh and Tamil Nadu to facilitate its foray in the intrastate transportation of goods. Shift from unorganised to organised sector

Currently, it is estimated that the unorganised sector accounts for over 86% of the goods transport in the country. With the introduction of VAT, significant shift of the business has begun from the unorganised sector to the organised sector (given that sales tax evasion is no longer an attraction under the VAT scheme) and VRL is well poised to take advantage of this shift with its wide network and the image of being a reliable service provider.

F.

COST CONSCIOUSNESS
The VRL Logistics Ltd., lays a lot of emphasis on cost management. The top

management of the Company continuously monitors operations and look for innovative ways of reducing operating costs. This principle has been ingrained throughout the Company. VRL actively encourages employees at every level to come up with

suggestions for cost reduction. The above principle of cost consciousness has driven VRL to innovatively implement several cost saving proposals. As a part of this VRL realised that it could cut BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 29

down on various costs by backward integrating some of the support activities certain operations. As a consequence, VRL has set up its own truck body building division to cater to its truck body building/alteration needs, an internal garage operation to carry out preventive maintenance, an internal software development team to cater to its software and automation needs (the team has developed all the software packages currently being used within the Company). All the above initiatives have reduced operating costs and enabled VRL tops among all organised sector players in terms of operating margins and return on investments.

G.

ENTERPRISING MANAGEMENT TEAM

The top management of the team is a highly proven team in planning and

implementing new plans and consolidating leadership positions in their businesses. The team has over 24 years experience in running a leading transportation business and has been instrumental in not only identifying opportunities in the newspaper business but also establishing Karnatakas leading Kannada daily in that space.

H.

DIVERSIFICATION
With disinvestment of entire Equity and Preference shareholding in Vijayanand

Printers Limited, a sole subsidiary of the Company engaged in print media business, the Company (VRL) has made huge profits in excess of Rs.120.00 Cr. with net realization amounting to Rs.169.00 Cr. To save entire liability of long term capital gains tax arising out of such disinvestment and also as a matter of diversification of its activities, Company, after conducting techno-economic feasibility studies has decided to invest in Wind Power Project. The Company has already executed an agreement for placing order for 44 WTGs with Suzlon Energy Limited. It is also evaluating placement of further BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 30

order for 3 more WTGs. The total Project cost will be Rs.296.00 Cr. of which Rs.60.00 Cr. will be Companys equity while the balance is sought to be met through syndication of term loans. The Companys plans to increase its operations by constructing additional transshipment yards and commence warehousing management activities are already described in the above paragraphs.

SWOT Analysis:

STRENGTHS: Non-Regulated Industry High Entry Barriers The main strength of company is manpower The company is financially sound the turnover for the year Rs.27765.00 lakhs Its efforts to improve quality of operation.

WEAKNESSES: Dependent on economic scenario Have to face the bureaucracy

OPPORTUNITIES: Aviation- Company is moving inwards private domestic air services. To give maximum employment opportunities in the Karnataka state and sincere, hardworking people help to build the companys market share. BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 31

 Backward Integration

THREATS: Economy slowdown Government regulations New technology Increase competition in this segment/industry - due to liberalization there is an increase in number of competitors in last 7 years whereas company has to fight for market share.

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ORGANISATIONAL CHART
Chairman & Managing Director (Vijay Sankeshwar)

Managing Director

Chief Operating Officer

Chief Technical Officer

Chief Executive Officer

Director-Finance

Vice President-Finance Vice President (Cargo) G.M.(Cargo) DG M Vice President (Mktg) DGM Chief Accounts Officer

DGM(COU)

Area Manager Branch Manage r

IT Manager

Works Manager

Accountant

GM (Admn)

G.M (Const) Engineer

GM (OPR)

GM (TVR)

GM (TVR) Branch Manager

GM (HRD)

Interal Audito r

Manager Branch Manager Branch Manager

Dept. Heads

Customer Care Manager

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METHODOLOGY & DATA COLLECTION:

DATA COLLECTION METHOD: 1. PRIMARY DATA: The methodology includes the personal interaction with the head of different departments of VRL Logistics Ltd, Hubli relating to Accounting and Finance.

2. SECONDARY DATA: Selection of data: From the Annual Reports of VRL

Logistics Ltd, Hubli for the last three years i.e. from i. Annual Report for the year 2004-05 ii. Annual Report for the year 2005-06 iii. Annual Report for the year 2006-07 Period: The Study covers a period of three years data from 2004-05, 2005-06, and 2006-07 to mean an Accounting year of the company consisting of 365 working days. METHODOLOGY: TECHNIQUE / STATISTICAL TOOLS: Accounting Ratios. Graphs & Charts

ANALYTICAL TECHNIQUE: Statistical technique used for calculation of ratios is in terms of percentage and proportion of numbers. LIMITATIONS OF THE STUDY: BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 34

The accuracy of the ratios is subject to the validity of information provided

through Balance sheet, Profit and Loss A/c and interactions with Management. The standard for the ratios are suitably modified to prudently reflect the financial

position keeping in mind the peculiarities of the industry / company.

CONTENTS Analysis & Interpretation Findings Suggestions Conclusion

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ANALYSIS OF FINANCIAL RATIOS OF THE COMPANY

FINANCIAL RATIOS OF THE COMPANY INTRODUCTION:

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Financial ratios indicate about the financial position of the company. A company is deemed to be financially sound, if it is in position to carry on its business smoothly and meet all its obligations both long-term as well as short-term without strain. Thus, company financial position has to be judged from two angles long- term as well as shortterm. 1) Financial Ratio/Liquidity Ratio: Current Ratio Quick / Acid test / Liquid Ratio. Absolute liquid / Cash Ratio

2) Leverage Ratio/Capital Structure Ratio : Debt ratio Debt equity Ratio Proprietary Ratio

1) Liquidity Ratios
Liquidity ratio measures the ability of the firm to meet its current obligations. These ratios are also termed as short term solvency ratio. Liquidity ratios establish a relationship between cash and other current assets to current obligations provide a quick measure of liquidity. Current ratio:

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This ratio is an indicator of the firms commitment to meet its short-term liabilities and the ideal current ratio is 2:1. It is expressed as follows: Current assets Current liabilities Current assets are those assets which can, in the ordinary course of business, be converted into cash within a short period of time, normally not exceeding one year, and include cash and bank balances, marketable securities, inventory of raw materials, semifinished (work-in-progress) and finished goods, debtors net of provision for bad and doubtful debts, bills receivable, and pre-paid expenses. The current liabilities defined as liabilities which are short- term maturing obligation to be met, as originally contemplated, within a year, consist of trade creditors, bills payable, bank credit, and provision for taxation, dividends payable and outstanding expenses. TABLE-1 Year Current Assets Current liabilities Current ratio 2004-05 3770.15 2813.03 1.34 2005-06 4655.96 3650.47 1.27 (Amount in Lakhs) 2006-07 8703.77 5230.28 1.66

GRAPH 1:

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1.8 1.6 RATIO IN TIMES 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004-05

Current ratio

1.66 1.34 1.27

2005-06 YEARS

2006-07

NOTE: Working Capital Loan from Bank is added in current liabilities. SOURCE: ANNUAL REPORTS OF COMPANY INTERPRETATION: The current ratio 1.66 times is quite good in 2006-07, when compared to 1.34 times & 1.27 times in the year 2004-05 & 2005-06. The low current ratio indicates that the investment in current assets is less as the standard ratio is 2:1.

Quick ratio: Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid assets. Other assets which are considered to be relatively liquid and included in quick assets are debtors, bills receivables, and marketable securities (temporary quoted investments). Inventories are considered to be less liquid. Inventories normally require some time for realizing into

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cash; their Value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. Current assets--- (Inventories+ Prepaid expenses) Quick ratio = Current liabilities A quick ratio of 1:1 is considered to represent a satisfactory current financial condition. TABLE-2 Year Quick Assets Current Liabilities Quick Ratio 2004-05 3118.68 2813.00 1.11 2005-06 3786.46 3650.47 1.04 (Amount in Lakhs) 2006-07 7743.48 5230.28 1.48

Note: Working Capital Loan from Bank is added in current liabilities.

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SOURCE: ANNUAL REPORTS OF COMPANY GRAPH2:

1 .6 1 .4 1 .2 Ratio in Times 1 0 .8 0 .6 0 .4 0 .2 0 2 0 0 4 -0 5 1 .1 1

Q u ick/Acid Te s t R a tio

1 .4 8 1 .0 4

2 0 0 5 -0 6 Ye a r s

2 0 0 6 -0 7

INTERPRETATION:

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The ideal ratio is 1:1; hence the quick ratio of the company is satisfactory in all the three years as the ratios are more that one. It indicates the liquidity position of the company is good and they can easily meet the current obligations. CASH RATIO: Cash ratio or Absolute liquid ratio or super quick ratio: This ratio is calculated by dividing the super quick assets by the current liabilities of a firm. The super quick current assets are cash bank and marketable securities. The ratio is the most rigorous and conservative test of a firms liquidity position.

Cash + Bank + Marketable securities Cash ratio= Current liabilities TABLE-3 Year 2004-05 2005-06 Absolute Liquid 513.94 708.15 Current liabilities 2813.03 3650.47 Cash ratio 0.18 0.19 Note: Working Capital Loan from Bank is added in current liabilities SOURCE: ANNUAL REPORTS OF COMPANY (Amount in Lakhs) 2006-07 1515.85 5230.28 0.29

GRAPH-3

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P E R C E N T A G E S

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004-05 18.00%

Cash Ratio

29.00% 19.00%

2005-06 Years

2006-07

INTERPRETATION: The Cash Ratio is increasing from the year 2005-2007 i.e. 18%, 19% & 29% respectively. This shows the overall liquidity position is good and also the firms

commitment to meet short-term liabilities. 2) Capital Structure ratio: The second category of financial ratio is leverage or capital structure ratio. The leverages or capital structure ratio may be defined as financial ratios which throw light on the long-term solvency of a firm as its reflected in its ability to assure the long term creditors with regard to: (i) Periodic payment of interest during the period of loan and (ii) Repayment of principal on maturity or in pre-determined installments at due dates. There are two different, but mutually dependent and inter-related, types of leverage ratios. First ratio explains the relationship between borrowed funds and owners capital. These ratios can be computed from the balance sheet and have many variations such as: Debt equity ratio, Proprietary ratio, Interest and leased charge ratio etc.,

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Debt Ratio: It expresses outside liabilities i.e. both long -term and short-term in relation to total capitalization of firm. It is calculated as follows: = Total Debt _____________ Capital Employed

Generally creditors will prefer low debt ratio, since lower the ratio, higher the caution against creditors losses in the event of liquidation. Conversely, owners may prefer high debt ratio either To magnify earnings or Because issuing new share means giving up some degree of control But a high debt ratio may create problem with respect to future financing since creditors may reluctant to lend the firm more money unless equity base is increased.

NOTE:
The following items are taken for calculation. Total Debt = Secured loan + Unsecured loan Capital Employed = Total Debt + Net Worth Net Worth = Equities + Reserve and Surplus + Deferred Tax Liability TABLE-4 Year 2004-05 Total Debt 17114.8 Capital Employed 20632.81 Debt ratio 0.82 SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-4 BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 44 2005-06 19655.47 23656.25 0.83 (Amount in Lakhs) 2006-07 39042.20 54255.24 0.72

84.00% 82.00% RATIO IN PERCENTAGE 80.00% 78.00% 76.00% 74.00% 72.00% 70.00% 68.00% 66.00%

82.00%

83.00%

Debt ratio 72.00%

2004-05

2005-06 YEARS

2006-07

INTERPRETATION:
The ratio of 2004-05 is 82%, 2005-06 is 83% & 2006-07 is 72% resp. It indicates that lenders have financed about two third of net assets and the remaining one third is financed through net assets or by owners of the firm.

Debt equity ratio: The relationship between borrowed funds and owners capital is a popular measure of the long-term financial solvency of a firm. This relationship describing the lenders contribution for each rupee of the owners contribution is called debt-equity ratio. These ratios reflect the relative claims of creditors and shareholders against the assets of the firm. Alternatively, this ratio indicates the relative proportion of debt and equity in financing the assets of a firm. Total Debt Debt equity ratio= Net Worth + Deferred Tax liability

TABLE-5 BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 45

Year 2004-05 2005-06 Total Debt 17114.8 19655.47 Net Worth + Deferred Tax 3518.01 4000.78 Liability Debt Equity ratio 4.86 4.91 SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-5
D Equity ratio ebt 6 5 Times 4 3 2 1 0 2004-05 2005-06 Y ears 4.86 4.91

(Amount in Lakhs) 2006-07 39042.20 15213.04 2.57

2.57

2006-07

INTERPRETATION: It is clear from the Debt-Equity Ratio that lenders have contributed more funds than owners; lenders contribution is 4.86 times, 4.91 times and 2.57 times of owners contribution. It also indicates that the Company depends more on external sources than on internal sources. Proprietary ratio: This ratio relate to the owners / proprietors funds with total assets. This is called the proprietary ratio. The ratio indicates the proportion of total assets financed by owners.

Symbolically it is equal to: BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 46

Proprietors fund Total Assets TABLE-6 Year Proprietors fund Total Assets Proprietary Ratio 2004-05 3518.01 17915.56 0.20 2005-06 4000.78 21331.92 0.19 (Amount in Lakhs) 2006-07 15213.04 57322.08 0.26

SOURCE: ANNUAL REPORTS OF COMPANY Note: Proprietors fund= Net Worth Total Assets= Fixed Assets + Current Assets GRAPH-6
Proprietary Ratio 0.3 0.25 0.2 Times 0.15 0.1 0.05 0 2004-05 2005-06 Years 2006-07 0.2 0.19

0.26

INTERPRETATION: The ratio is 0.20 times in the year 2004-05, 0.19 times in 2005-06 which is decreased and it is negligible, whereas in 2006-07 the ratio has increased to 0.26 times. It indicates that there is increased in proprietors funds to total assets and also shows the financial position of the company is strong in the year 2006-07.

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Coverage ratio: The second category of leverage ratios are coverage ratios. These ratios are computed from information available in the profit and loss account. The soundness of a firm, from the view point of long-term creditors, lies in its ability to service their claims. The interest coverage ratio shows the number of times the interest charges covered by funds that are ordinarily available for their payment. Since taxes are computed after interest, interest coverage is calculated in relation to before tax earnings. Depreciation is non-cash items. Therefore funds equal to depreciation are also available to pay interest charges. EBDIT Interest Coverage Ratio=______________________ Interest TABLE-7 Year EBDIT Interest Interest Coverage Ratio 2004-05 3314.62 1306.93 2.54 2005-06 3900.19 1582.07 2.46 (Amount in Lakhs) 2006-07 17223.2 2175.16 7.92

SOURCE: ANNUAL REPORTS OF COMPANY NOTE: EBDIT - Earnings before Depreciation Interest & Tax (Profit before Taxation+Depreciation+

GRAPH-7 BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 48

Interest Coverage Ratio

9 8 7 6 Times 5 4 3 2 1 0 2004-05 2005-06 Years 2006-07 2.54 2.46 7.92

INTERPRETATION: In the year 2004-05 the ratio is 2.54times, in 2005-06 is 2.46 times decreased in comparison with 2004.05. But in the year 2006-07 the ratio is 7.92 times and it is increased thrice of the previous year. The higher ratio is desirable; it shows number of times the interest charges can be covered for their payment. The lower ratio indicates excessive use of debt.

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ANALYSIS OF TURNOVER RATIOS OF THE COMPANY

TURNOVER RATIO
Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called Activity ratios. Turnover ratios indicate the speed with which assets are being converted or turned over into sales. BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 50

Inventory Turnover ratio: This ratio indicates the number of times inventory is replaced during the year. It measures the relationship between the cost of goods sold and the inventory level. Cost of goods sold Inventory turnover= Average inventory TABLE - 8 Year Cost of goods sold Average inventory Inventory Turnover ratio Inventory Holding Days 2004-05 26549.39 476.07 55.76 6.54 2005-06 34775.24 760.48 45.73 7.98 2006-07 42090.63 914.89 46.00 7.93

SOURCE: ANNUAL REPORTS OF COMPANY

GRAPH -8

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INVENTORY TURNOVER RATIO 60 50 RATIO IN TIMES 40 30 20 10 0 2004-05 2005-06 YEAR 2006-07 55.76 45.73 46

INTERPRETATION: In 2004-05 inventory turnover ratio is 55.76 times and later it decreased to 45.73 times in 2005-06 and increased to 46 times in 2006-07. ITR is very high in the first year and the Inventory holding days is 6.54, indicates the utilization of inventories in generating sales is good in the year 2004-05. Debtors Turnover Ratio: Debtors turnover is found out by dividing credit sales by average debtors. There are three ratios to judge the quality or liquidity of debtors.

(a) Debtors turnover: Debtor turnover indicates the number of times debtors turnover each year. Credit sales Debtors turnover = Average debtors

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(b) Collection period: The average number of days for which debtors remain outstanding is called average collection period, and computed as follows 365 Average collection period = Debtors turnover

(c) Aging schedule: the average collection period measures the quality of debtors in an aggregative way. Through aging schedule breaks down the debtors according to the length of time for which they have been outstanding. Assumption: Lack of Information I assumed sales are on credit basis. Opening + Closing 2) AVERAGE DEBTORS = _______________ 2 TABLE -9
(Amounts in Lakhs)

Year Credit Sales Average debtors D.T.R Debtors Collection Period (days) Note: D.T.R= Debtors Turnover Ratio

2004-05 27664.68 1006.97 27.47 13

2005-06 35760.83 1474.2 24.25 14

2006-07 43737.84 2046.28 21.37 16

SOURCE: ANNUAL REPORTS OF COMPANY

GRAPH-9

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Debtors Turnover Ratio

30 25 RATIO IN TIMES 20 15 10 5 0 2004-05 2005-06 YEARS 2006-07 13 14 16 Debtors Collection Period (days) 27.47 24.25 21.37 Debtors Turnover Ratio

INTERPRETATION: The graph reveals that higher the debtors turnover ratio, the shorter is the average collection period i.e.27.47 times the ratio and collection period is 13 days which shows better trade credit management with the better liquidity of debtors. And also indicates the prompt payment on the part of debtors.

Creditors Turnover Ratio: It is similar to Debtors turnover ratio. It indicates the speed with which the payments for credit purchases are made to the creditors. The ratio can be computed as follows: Credit Purchase = ____________________ Average creditors A higher creditors turnover ratio or lower credit period enjoyed ratio. Signifies that the creditors are being paid promptly thus enhancing the credit worthiness of the company. TABLE- 10 BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 54

Year Credit purchase Average Creditors C.T.R Creditors Payment period in days Note: C.T.R= Creditors Turnover ratio

2004-05 4418.57 942.35 4.69 77

(Amounts in Lakhs) 2005-06 2006-07 4834.40 5306.98 1497.94 1624.01 3.23 3.27 113 111

SOURCE: ANNUAL REPORTS OF COMPANY Assumption: Due to lack of information about credit purchase, assumed that all purchases are on credit basis only. .There is no information about opening stock and closing stock of spares & stores assumed that the consumption of above material are purchased during the year.

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GRAPH -11

Creditors Turnover Ratio

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 4.69 113 3.23 77 111 3.27 120 100 80 60 40 20 0 2004-05 2005-06 Years 2006-07 Days C.T.R Creditors Payment period in days

INTERPRETATION: The graph reveals that creditors turnover ratio is 4.69 times and decreased to 3.23 times in 2005-06 and 3.27 in 2006-07. The creditors payment period is 77 days it signifies that the creditors are being paid promptly. ASSETS TURNOVER RATIO: Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize sales. The relationship between sales and assets is called asset turnover. Several asset turnover ratios can be calculated. BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 56

Times

(i) Net assets turnover: is computed by dividing sales by net assets Net Sales Net assets turnover = Net assets Net assets=Net fixed assets + Net current assets (Current Assets less Current Liabilities)

TABLE-12 Year Net Sales Net Assets Net Assets Turnover Ratio 2004-05 27664.6 8 13281.8 5 2.08 2005-06 (Amount in Lakhs) 2006-07 43737.84 52958.05 0.82

35760.83 17865.4 2.00

SOURCE: ANNUAL REPORTS OF COMPANY GRAPH - 12

2.5 RATIO IN TIMES 2 1.5 1 0.5 0

2.08

2 Net Assets Turnover Ratio

0.82

2004-05

2005-06 YEARS

2006-07

INTERPRETATION: BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 57

The net assets turnover of 2.08times in 2004-05, 2.00times in 2005-06 and 0.82 times in 2006-07 indicates that the company is producing 2.08 times of sales for one rupee of capital employed in net assets. (ii) Total assets turnover: This ratio shows the firms ability in generating sales from all financial resources committed to total assets. Sales Total assets turnover = Total assets Total assets include net fixed assets and current assets TABLE-13 Year 2004-05 Sales 27664.68 Total Assets 15042.04 Total Assets turnover Ratio 1.84 SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-13 (Amounts in Lakhs) 2005-06 2006-07 35760.83 43737.84 20020.01 56032.76 1.79 0.78

2 RATIO IN TIMES 1.5 1 0.5 0

1.84

1.79

0.78

Total Assets turnover Ratio

2004-05

2005-06 YEARS

2006-07

INTERPRETATION: BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 58

This ratio shows the firms ability in generating sales from all financial resources committed to total assets. Here the ratios are 1.84 times in 2004-05, 1.79 times in 200506 and 0.78 times in 2006-07. These ratios imply that VRL Logistics Ltd generates a sale of Rs.1.84 and other ratios for one rupee investment in fixed and current assets together. The lower ratio reveals that assets are not utilized properly by the company.

(iv) Working Capital Turnover: A firm may also like to relate net current assets (net working capital) to sales. This ratio indicates the efficiency or inefficiency in the utilization of working capital in making sales. It is computed as follows: Sales Working capital turnover = Net working capital (Net current assets) TABLE-14 (Amount in Lakhs) Year Sales Net Working Capital W.C.T.R 2004-05 27664.68 2009.96 13.76 2005-06 35760.83 2501.35 14.29 2006-07 43737.84 5629.06 7.77

SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-14

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16 14 12 10 8 6 4 2 0

13.76

14.29 Working Capital Turnover Ratio

RATIO IN TIMES

7.77

2004-05

2005-06 YEARS

2006-07

INTERPRETATION: In 2004-05 net working capital ratio is 13.76 times and it is increased to 14.29 times in 2005-06 and it is decreased to 7.77 times in 2006-07. Overall this ratio indicates that working capital has been effectively utilized in making sales except in 2006-07. Still they have to make better utilization of working capital.

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ANALYSIS OF PROFITABILITY RATIOS OF THE COMPANY

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PROFITABILITY RATIO:
INTRODUCTION: A company should earn profit to survive and grow over a long period of time. Profit is the ultimate output of company and company will have no future if it fails to make sufficient profits. Therefore company should continuously evaluate the efficiency of the company in terms of profits. Profit is the difference between revenue and expenses and the period of time is usually one year. Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profit. The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. Generally, two major types of profitability ratios are calculated: Profitability in relation to sales Profitability in relation to investment.

INTERESTED PARTIES IN PROFITABILITY RATIOS: MANAGEMENT CREDITORS OWNERS Profit ratio related to sales: Indicates the amount of profit per rupee of sales BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 62

Gross profit ratio: This ratio expresses the relationship between gross profit and sales. This ratio indicates the average spread between the cost of goods sold and the sales revenue. Gross profit Gross profit ratio= Sales Gross Profit = Sales ---- Cost of goods sold TABLE-15 Year Sales Gross profit Gross Profit Ratio 2004-05 27664.68 1115.29 4.03 (Amount in Lakhs) 2005-06 2006-07 35760.83 43737.84 985.59 1647.21 2.76 3.77 * 100

SOURCE: ANNUAL REPORTS OF COMPANY GRAPH 15

Gross Profit Ratio

5 4 3 Pe rce nta ges 2 1 0 Gross Profit Ratio 2004-05 4.03 2005-06 2.76 Ye a rs 2006-07 3.77

INTERPRETATION:

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The high gross profit ratio shows that the sales prices & cost of goods sold are increasing. But the low gross profit ratio states, there is an inefficient utilization of plant and machinery. Net profit ratio: Establishes a relationship between net profit and sales and indicates management efficiency in manufacturing, administering and selling the products. This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. Net profit (Profit after tax) Net profit ratio = Net Sales TABLE-16 (Amount in Lakhs) 2006-07 2006-07 Not Including Considering Abnormal Abnormal Profit Profit 8247.76 652.94 43737.84 43737.84 18.85 1.49 * 100

Year

2004-05

2005-06

Profit after tax 385.69 428.37 Sales 27664.68 35760.83 Net profit ratio 1.39 1.20 SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-16
Net profit ratio

20 15 Ratio in 10 percentages 5 0 Net profit ratio

2004-05 1.39

2005-06 1.20 Years

2006-07 18.85

2006-07 1.49

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INTERPRETATION: The higher net profit ratio states that the managements efficiency in rendering services, administering and also indicates the firms capacity to withstand adverse economic conditions. The ratio 1.39% in 2004-05, 1.20% in 2005.06 and 18.85% in 2006-07,but in 2006-07 there is an abnormal profit due to sale of shares & the net profit ratio by not considering abnormal profit is 1.49% and it is decreased when compared to last years profit. These ratios determine the overall measure of the firms ability to turn each rupee sales into net profit. Working Note: Calculation of Profit After Tax by not considering Abnormal Profit on sale of shares of 2006-07 Profit before Extra-ordinary Items & Taxation Less: Tax Rate at 33.99% (Including Education cess, Tax rate & surcharge) Profit After Tax not considering abnormal profit. 989.15 336.69 ______ 652.94

Operating expenses ratio: The operating expenses ratio explains the changes in the profit margin (EBIT to sales) ratio. This ratio is computed by dividing operating expenses viz. cost of good sold, raw material, manufacturing overhead, Administrative over head and salaries to employee by sales. Operative expenses (i) Operative cost/overhead = Net Sales TABLE-17
(Amount in Lakhs)

Year Operative Expenses Sales Ratio in percentages

2004-05 21500 27664.68 77

2005-06 27981.94 35760.83 78

2006-07 32662.25 43737.84 74 65

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SOURCE: ANNUAL REPORTS OF COMPANY

GRAPH-17
Operating Expenses Ratio

78 77 76 Percentages 75 74 73 72 Operating Expenses Ratio 2004-05 77 2005-06 78 Years 2006-07 74

INTERPRETATION: The higher operating expenses ratio is unfavorable since it will leave a small amount of operating income to meet interest, dividends etc., The temporary variations in ratio is due to change in administrative & selling expenses. The lower percentage of ratio is favorable to the company. Operating Profit Ratio: This ratio is calculated as follows: EBIT = ________ * 100 Net Sales

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TABLE-18 Year EBIT Net Sales Operating Profit Ratio 2004-05 534.42 27664.68 1.93 2005-06 652.00 35760.83 1.82 (Amount in Lakhs) 2006-07 989.15 43737.84 2.26

Note: EBIT= Earning before Interest and Tax SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-18
Operating Profit Ratio

2.5 2 1.5 Percentages 1 0.5 0 Operating Profit Ratio 2004-05 1.93 2005-06 1.82 Years 2006-07 2.26

INTERPRETATION: The graph reveals that operating profit for 2004-05 1.93 times and decreased to 1.82 times and again increased to 2.26 times. It means for 100 Rupees of sale the operating profit is Rupees 2.26. The ratios are decreasing due to increase in expenses ratio. NOTES: Net sales = Gross Sales Excise

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 COGS = [Material Consumed (Inventories) +Wages (Employees Cost)+ Operative Cost + Depreciation + Administrative Overhead] Gross Profit = Net Sales COGS Total Assets = Fixed Assets + Current Assets. Net Worth = Capital + Reserves and surplus + Deferred Tax Liability COGS = Cost of Goods Sold Profitability ratios related to Investments Return on Investment = TABLE-19
(Amount in Lakhs)

Profit after Tax _______________ * 100 Total Capital Employed

Year

2004-05

2005-06

2006-07 Including Abnormal Profit 8247.76 54255.24 15.20

Profit after Tax 385.69 428.37 Capital employed 20632.81 23656.25 Return on Investment ratio 1.87 1.81 in % SOURCE: ANNUAL REPORTS OF COMPANY GRAPH-19

2006-07 Not Considering Abnormal Profit 652.94 54255.24 1.20

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Return on Investm ent ratio

20 15 Ratio in 10 percentages 5 0 Return on Investm ent ratio 2004-05 1.87 2005-06 1.81 Years 2006-07 15.20 2006-07 1.20

INTERPRETATION: In 2004-05 return on investment ratio is 1.87% and it is decreased to 1.81% in 2005-06 and in 2006-07 it increased drastically 15.20%. It indicates 100 rupees of investment the company is getting returns of Rs.1.87, Rs.1.81 & Rs.15.20, it shows the company is utilizing its capital employed efficiently. The return on investment is very less by not considering the profit on sale of shares because the company needs time to recover the returns as they are going for expansion. Return on Equity: Common or ordinary shareholders are entitled to the residual profits. The rate of dividend is not fixed; the earnings may be distributed to shareholders or retained in the business. A return on shareholders equity is calculated to see the profitability of owners investment. PAT Return on equity = NW Return on equity indicates how well the firm has used the resources of owners. The shareholders equity or net worth will include paid up share capital, share premium BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 69

and reserves and surplus less accumulated losses. Net worth can also be found by subtracting total liabilities from total assets. TABLE-20 (Amount in Lakhs) 2006-07 Including Abnormal Profit 8247.76 15213.04 54.21 2006-07 Not Considering Abnormal Profit 652.94 15213.04 4.29

Year

2004-05

2005-06

Profit after Tax 385.69 428.37 Net Worth 3518.01 4000.78 Return on Equity Ratio 10.96 10.70 in percentages SOURCE: ANNUAL REPORTS OF COMPANY GRAPH 20
Return on Equity Ratio

60 50 Ratio in percentages 40 30 20 10 0 Return on E quity Ratio 2004-05 10.96 2005-06 10.7 Years 2006-07 54.21 2006-07 4.29

INTERPRETATION: In 2004-05 return on equity ratio is 10.96% and decreased to 10.70% in 2005-06 and increased to 54.21% in 2006-07. This ratio indicates how well the firm has used the resources of owners. If Rs.100 is the shareholders investment then Rs.54.21% (returns

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by considering profit on sale of shares) would be the returns. And 4.29% is the return on equity by not considering abnormal profit. Earning per share (EPS): The profitability of the common shareholders investment can be measured in many other ways. One such measure is to calculate the earning per share. The earnings per share are calculated by dividing the profit after taxes by the total number of common (ordinary) shares outstanding. Profit after tax EPS = Number of common share outstanding EPS shows the profitability of the firm on a per share basis, it does not reflect how much is paid as dividend and how much is retained in the business. But as a profitability index, it is a valuable and widely used ratio. TABLE-21 (Amount in Lakhs) 2006-07 2006-07 Not Excluding Considering Abnormal Abnormal Profit Profit 8247.76 652.94 7000 117.83 7000 9.32

Year Profit after Tax Number of equity share Earning per share

2004-05 385.69 2000 19.28

2005-06 428.37 2000 21.42

SOURCE: ANNUAL REPORTS OF COMPANY

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Earning per share 140 120 100 Rupees 80 60 40 20 0 19.28 2004-05 21.42 2005-06 Year 2006-07 9.32 2006-07 117.83

INTERPRETATION: Earning per share In 2004-05 the earnings per share was Rs.19.28 and increased to Rs.21.42 in 2005-06 and again increased to Rs.117.83 in 2006-07. Earnings per share is showing an increasing trend year by year which means profitability of the firm is increasing on per-share basis & it is good to the company. In 2006-07 the profit is more, earnings per share is Rs.117.83 (including profit on sale of shares). By not considering the profit on sale the EPS would be Rs.9.32

DU PONT ANALYSIS:
Du Pont Analysis was first used by Du Pont Company of the USA. The earning power or the ROI ratio is the central measure of the overall profitability and operational efficiency of the firm. It shows the interaction of the profitability and activity ratios. A change in any of these ratios will change the firms earning power. Du Pont analysis also implies that the performance of the firm can be improved either by generating more sales volume per rupee of investment or by increasing the profit margin per rupee of sales.

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Return on Capital Invested (ROI)

Net Profit Ratio

Multiplied by

Capital Turnover Ratio

Net Profit

Sales

Sales

Assets Turnover Ratio

RETURN ON INVESTMENT Year 2004-05 2005-06 2006-07 Including abnormal profit 18.85 0.82 15.46 2006-07 Not considering abnormal profit 1.49 0.82 1.22

Net Profit Ratio Capital/Investment turnover ratio Rate of Return on Investment

1.39 2.08 2.89

1.20 2.00 2.40

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Rate of Return on Investment 15.46

16 14 12 10 Percentage 8 6 4 2 0

2.89

2.4

1.22 2006-07 Years 2006-07

2004-05

2005-06

Rate of Return on Investment

INTERPRETATION: In 2004-05 the rate of return on investment is 2.89% and decreased to 2.40% in 2005-06 and again increased to 15.46% (returns by considering abnormal profit) in 2006-07. The rate of return on investment shows the overall performance of the company i.e. operating & financing efficiency and retention. In the year 2006-07 the performance of the

company is good in comparison with other years. 1.22% returns in case of eliminating abnormal profit.

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FINDINGS
1. The Liquidity position of VRL Logistics Ltd., is better and also the firms commitment to meet short-term liabilities. Although company has to increase its investments in current assets 2. Debt ratio & Debt equity ratio both indicates, the company depends more on external sources in the year 2004-05 & 2005-06. Whereas, the Proprietary ratio is high in 2006-07 as VRL Logistics has paid the unsecured loan. It indicates that there is increase in proprietors funds to total assets which shows the financial position of the company is strong in the year 2006-07. 3. Interest coverage ratio in the year 2006-07 the ratio is 7.92 times and it is increased thrice of the previous year. The higher ratio is desirable; it reveals number of times the interest charges can be covered for their payment. The lower ratio indicates excessive use of debt. 4. Inventory Turnover Ratio is very high in the first year and the Inventory holding days is 6.54, indicates the utilization of inventories in generating sales is good in the year 2004-05. 5. The VRL Logistics Ltd, Hubli has better trade credit management with the better liquidity of debtors. And the prompt payment on the part of debtors as higher the debtors turnover ratio, the shorter is the average collection period i.e.27.47 times the ratio and collection period is 13 days. 6. In the year 2004-05 Net Assets Turnover ratio is 2.08 times, Total Assets Turnover ratio is 1.84 times. It shows the assets are properly utilized i.e. optimum utilization of resources. And the working capital consumed effectively in making BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 75

sales except in the year 2006-07. Because the operating activities are very less in comparison with other years. In the year 2006-07 optimum utilization of assets is not found. 7. The high gross profit ratio i.e 4.03% shows that the sales prices & cost of goods sold are increasing. But the low i.e. 2.76% gross profit ratio states, there is an inefficient utilization of plant and machinery. 8. In 2006-07 is the Abnormal Year as VRL Logistics has earned profit on sale of shares. Net Profit ratio, Return on Investment, Return on Equity and Earning per share is far above the ground as VRL Logistics has earned abnormal profit or profit on sale of shares. The profitability ratio towards investment is less after deducting the abnormal profit is very low as they are into expansion and time is required to recover the returns. 9. Due to increase in profitability ratio in 2006-07 VRL Logistics have paid the secured loans & Share Capital has been increased from 2000 lakhs to 7000 lakhs. 10. The Company has higher operating expenses ratio which is unfavorable since it will leave a small amount of operating income to meet interest, dividends etc., The temporary variations in ratio is due to change in administrative & selling expenses. 11. The Du Pont analysis has revealed, rate of return on investment shows the overall performance of the company i.e. operating & financing efficiency and retention. In the year 2006-07 returns is 15.46% the performance of the company is good in comparison with other years. 1.22% returns in case of eliminating of abnormal profit. BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 76

SUGGESTIONS
VRL Logistics Ltd., has to renovate the machineries, vehicles, spares in order to utilize assets efficiently. Since the VRL Logistics Ltd has earned huge profits, hence company should concentrate on the expansion of the business and marketing their services in order to gain higher market share. Company instead of depending more on external funds, it can also study the feasibility of equity funds from internal sources, so it can still expand its capacity considering the demand. Company should improve its credit policy for the better management of credit and to earn more profit. As VRL Logistics Ltd., is the leader in parcel services and covered the length & breath of India. The company can go for strategic alliance with logistics that of movement in parcel from India to other countries which facilitates in efficient utilization of total assets and increase the growth rate of logistics operation. In the year 2006-07 the profit is earned by other income. The company is going for expansion and should consider future capital requirement through different means of finance, may be by long-term bank borrowings, Initial Public Offer etc., The Company should increase the operating margin by coming up with different strategies which lead to the growth rate of logistics operations.

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CONCLUSION
VRL Logistics Limited is a renowned, organized having established infrastructure, quality initiatives and finds mention in the Limca Book of Records as the largest individual owner of transport vehicle in India and also ISO 9001-2000 Certified. After the research findings it is concluded that the financial performance of VRL Logistics Ltd is fluctuating yearly and an increase in earnings per share and profits due to sale of shares in other words the company is financially sound. The Liquidity position of VRL Logistics Ltd., is better and also the firms commitment to meet short-term liabilities. The recommendations will facilitate the company to grasp new opportunities and expand the business, improve its profitability

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CONTENTS: Bibliography

BIBLIOGRAPHY
BELGAUM INSTITUTE OF MANAGEMENT STUDIES (MBA) 79

 I.M. Pandey
Financial Management, Vikas Publishing House

KHAN & JAIN

Management Accounting, Tata McGraw-Hill

S.N. Maheshwari
Elements of Management Accounting

WEBSITES:

www.vrlgroup.com www.google.com

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