(PROJECT REPORT)

PREPARED BY:
Mohit Garg & Shweta Giri
APEEJAY INSTITUTE OF TECHNOLOGY, SCHOOL OF MANAGEMENT GREATER NOIDA

CONTENTS
S.NO.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

CHAPTER
Organization-At Glance Product Profile Objectives Project-Ratio Analysis Categories of Ratios

Data Source Calculations Graphical Representation

Interpretation Limitations Bibliography

PREFACE
As an integral part of the curriculum, prescribed by UTTAR PRADESH TECHNICAL UNIVERSITY, LUCKNOW, every student of Master of Business Administration (MBA) after 2nd Semester has to go for Summer Training on the topic, which is suggested by the organization based on their and students interest as well. In this corporate world, the institutes are oriented towards providing professional education due to the economic reforms in our country, which enforce the institution to carry out such programmes, which are readily determined to develop potential professionalism. This is the reason, which enforces the universities to add such type of activities in their course curriculum. These works make a student to apply his bookish knowledge into practicality. The ELECTRICAL INDUSTRY, being an area of our interest, we inspired from the various electrical components of HPL Group and domestic and industrial requirement of their products. The HPL Group is using the latest technology and quality components from the best sources across the world, keeping in view all type of consumer segments their nature & requirement. This project focuses the Ratio Analysis of past 3years data of the organization. The project is divided into various chapters, which are mentioned in the contents.

Apeejay Institute of Technology, School of Management Greater Noida, (U.P)

Mohit Garg & Shweta Giri

ACKNOWLEDGEMENT

We would like to take this opportunity to thanks those people without whose contribution this project would not have in its present shape. This formal acknowledgement will hardly be sufficient to express our deep sense of gratitude to all of them. We would like to express our gratitude to CA. Gautam Seth (DirectorFinance, HPL Group) for his expert advice and encouragement during the project. We express our thanks to CA. Pankaj Chabra (G.M. Finance) for his able guidance and invaluable suggestions throughout the project. We are also grateful to Mr. Manish Sharma & Mr. Shiv Kumar for their support and cooperation at each and every step for completion of our project. . At the outset, we would also like to extend our wholehearted appreciation on the concerted efforts of Mrs. Himmi Jain & Mr. Sachin Pandey (HR Deptt.) to have provided us a wonderful stay and co-operation at the organization.

We would like to thank all the faculty members of Apeejay Institute of Technology, School Of Management, Gr.Noida for their support and guidance throughout our summer training.

Date:

Mohit Garg & Shweta Giri

ORGANISATION- AT GLANCE
HPL Group, celebrating its golden jubilee, 1956:2006, has been pursuing vision of
creating a niche, as a major player in Indian Electrical Industry with commitment to state-ofthe-art technological world-class products.

HPL has under its umbrella on going, healthy and growing Joint Venture with SOCOMEC S.A., France MOELLER, Austria ELEKTRA Tailfingen, Germany

HPL Group possess seven most modern manufacturing units, ISO 9001:2000 certified, location at Gurgaon, Noida, New Delhi, Sonipat and Himachal Pradesh having 3,00,000 sq. feet covered area to manufacture products confirming to International and Indian standards.

HPL Product Profile has the following Strategic Business Units:

LV Switchgears LV Protection Devices Metering and Energy Management System Lighting

HPL Products have been tested at CPRI, ERDA, ERTL, and NPL etc according to Indian Standards, whereas MCBs, Rewireable Switches & Electronic Energy Meters carry ISI marking. Further HPL products have approvals from CPWD, State PWDs, MES, BSNL and many more Institutional users. HPL, with a turnover of around Rs.350crores, has a strong work force of over 2700 talented individuals, including Technocrats, Design and R&D Engineers and Marketing Professionals. HPL Group with Head Office at New Delhi has extensive Sales & Marketing Network of 63 Branches, over 600 Authorized Dealers and 4,000 Retailers across country who are committed to provide solutions and services to customers delight. HPL is also exporting its products to Middle East, SAARC and European Countries.

NEW LAUNCH
HPL Group, known for quality product manufacturing, is now entering in the world of LIGHTING with own production of COMPACT FLUORESCENT LAMP. Installing two most modern plants at its works at Sonipat. One of them is SPIRAL tube plant, which is the first of its kind in the country. Using the latest technology and quality components from the best sources across the world.

MANAGEMENTMr. LALIT SETH

(C.M.D.) A visionary entrepreneur endowed with inimitable

dynamism and futuristic sagacity is a keen observer of market trends all over the world. It was his distinctive idea of import substantiation that resulted in growth of HPL, having experience of over 37 years in the Industry.

Mr. RISHI SETH (Director), an MBA has been in business for the past 15 years
looking after the Energy Meter marketing, Production, Planning and General Administration of a few units.

Mr. GAUTAM SETH (Director), a Qualified Chartered Accountant has been in

Business for 12 years and is handling Finance, Accounts, taxation and other related activities.

Mr. R. K. Khanna is the Chief Executive of the Companys plant at Gurgaon. Being
an Electrical Engineer and having 38 years of experience in electrical manufacturing, he looks after the procurement, production, planning and allied activities associated with the manufacture of the product.

Mr. C.P. Jain is an Electrical Engineer with 23 yrs of experience of manufacturing

electrical switchgear and other electrical production. He has worked with leading companies like Jaipur Meters. He has been working with HPL Group for the past four years and in charge of Research, Development and Quality Control.

Product Profile

METERING
Diris A40 Multifunction Energy Meter Emfis Digital Multifunction Panel Mounted Meters Panel Mounted Meter HT Application Meter Single & Three Phase Electronic Energy Meter Trivector Meter Prepaid Meter Meter Box

HPL SWITCHGEARS
Load Break Switch Fuse Links Rotary Switches Fuse Holders & Bases MCB / MCCB Changeover Switch Distribution Systems RCCB

CHANGEOVER SWITCHES
Socomec Changeover Switches Motorized Changeover Switch Digital Programmable Changeover Switch Socomec Load Break Switch

HPL LIGHTING
Non Retrofit Regular Retrofit Mini Retrofit Spiral Retrofit

MOELLER BUILDING AUTOMATION SYSTEMS

Miniature Current Breaker Residual Current Circuit Breaker Moulded Case Circuit Breaker & Switch Disconnector Controlling & Switching Devices Distribution Systems RCBO

OBJECTIVES
The objectives of the project are: (i) 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.

(ii)

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 & weak firms, over-valued and under-valued firms.

(iii) Makes Intra-firm Comparison Possible: 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 part and likely performance in the future.

(iv) Helps in planning: Ratio analysis helps in planning and forecasting. Over a period of time a firm or industry develops certain norms that indicate future success & failure. If the relationship changes in firms data over different time periods, the ratios may provide clues on trends and future problems.

(v)

Review of resources allocation: A projected funds flow statement will help the analyst in finding out how the management is going to allocate the scarce resources for meeting the productive requirements of the business.

PROJECT : RATIO ANALYSIS

AN INTRODUCTION
Ratio Analysis is a very powerful analytical tool for measuring performance of an organization. The ratio analysis concentrates on the inter-relationship among the figures appearing in the aforementioned four financial statements. The ratio analysis helps the management to analyze the past performance of the firm and to make further projections. Ratio Analysis allows interested parties like shareholders, investors, creditors, Government and analysts to make an evaluation of certain aspects of a firms performance. Ratio Analysis is a process of comparison of one figure against another, which make a ratio, and the appraisal of the ratios to make proper analysis about the strengths and weaknesses of the firms operations. The calculation of ratios is a relatively easy and simple task but only the skilled analyst can make the proper analysis and interpretation of the ratios. While interpreting the financial information, the analyst has to be careful in limitations imposed by the accounting concepts and methods of valuation. Information of non-financial nature will also be taken into consideration before a meaningful analysis is made. Ratio Analysis is extremely helpful in providing valuable insight into a companys financial picture. Ratios normally pinpoint a business strengths and weakness in two ways: Ratios provide an easy way to compare todays performance with past. Ratios depict the areas in which a particular business is competitively advantaged or disadvantaged through comparing ratios to those businesses of the same size within the same industry.

CATEGORIES OF RATIOS
i.

Solvency Ratios
Debt-Equity Ratio Capital Gearing Ratio Debt Service Coverage Ratio Current Ratio Quick Ratio

ii.

Activity Ratios
Inventory Turnover Ratio Debtor Turnover Ratio Creditors Ratio Average Collection Period Average Payment Period

iii.

Profitability Ratios
Return on investment (ROI) Earning per share (EPS) Return on assets Gross Profit Ratio Net Profit Ratio

iv.

Market Test Ratios

Dividend payout Ratio Price / Earning Ratio

v.

Operating Ratios
Material Cost Ratio Labour Cost Ratio Factory Overhead Ratio Selling & Distribution Exp. Ratio

1. Current RatioThis ratio indicates the extent of the soundness of the current financial position of an undertaking and the degree of safety provided to the creditors. The higher the current ratio, the larger amount of rupee available per rupee of current liability, the more the firms ability to meet current obligation and greater safety of funds of short term creditors. Current Assets are those assets that can be converted into cash within a year. Current Liabilities & Provisions are those liabilities that are payable within a year. A current ratio of 2:1 indicates a highly solvent position. Banks consider a current ratio of 1.33:1 as minimum acceptable level for providing working capital finance. The constituents of the current assets are as important as the current assets themselves for evaluation of companys solvency position

CURRENT ASSETS CURRENT RATIO = CURRENT LIABILITIES

2.

Quick Ratio-

Quick ratio is a more defined tool to measure liquidity of an organization. It is a better test of financial strength than the current ratio, because it excludes very slow-moving inventories and the items of current assets that cannot be converted into cash easily. This ratio shows the extent of cushion of protection provided from the quick assets to the current creditors. A quick ratio of 1:1 is usually considered satisfactory though it is again a rule of thumb only. This ratio is also called Acid Test Ratio. This ratio serves as a supplement to the current ratio in analyzing liquidity.

LIQUID ASSETS QUICK RATIO = CURRENT LIABILITIES

3.

Debt-Equity Ratio-

Capital is derived from two sources: Shares and Loans. If the proportion of debt to equity is low, a company is said to be low-geared, and vice versa. A Debt-Equity Ratio of 2:1 is the norm accepted by financial institutions for financing of projects. Higher debt-equity ratio may be permitted for highly capital-intensive industries like petrochemicals, power etc. The higher the gearing, the more volatile return to the shareholders. Debt means long-term debt while equity is capital & free reserves. A high ratio indicates large outside borrowings and consequently a larger outside stake in the business.

LONG TERM DEBTS DEBT-EQUITY RATIO = SHARE HOLDERS FUNDS

4.

Return on Investment (ROI)

The strategic aim of a business enterprise is to earn a return on capital. If in any particular case, the return in the long run is not satisfactory, then the deficiency should be corrected or the activity be abandoned for a more favorable one. Measuring the historical performance of an investment centre calls for a comparison of the profit that has been earned with capital employed. The rate of return on investment is determined by dividing net profit or income by the capital employed or investment made to achieve that profit.

ROI analysis provides a strong incentive for optimal utilization of the assets of the company. This encourages managers to obtain assets that will provide a satisfactory return on investment and to dispose of assets that are not providing an acceptable return.

NET OPERATING INCOME RETURN ON INVESTMENT = CAPITAL EMPLOYED

5.

Debtors Turnover Ratio-

Debtors turnover, which measures whether the amount of resources tied up in debtors, is reasonable and whether the company has been efficient in covering debtors into cash. Thus, it is an indicative of efficiency of trade credit management. The lower the debtors turnover ratio, the better the trade credit management and better the quality (liquidity) of debtors i.e. prompt payment by customers. An excessively long collection period, on the other hand, indicates the very liberal, ineffective and inefficient credit and collection policy.

SALES DEBTORS TURNOVER RATIO = AVERAGE RECIEVABLES

6.

Debtors Collection Period-

Average Collection Period, which measures how long it take to collect amounts from Debtors. The actual collection period can be compared with the stated credit terms of the company. If it is longer than those terms, then this indicates some insufficiency in the procedures for collecting debts.

DEBTORS TURNOVER RATIO DEBTORS COLLECTION PERIOD = 365

7.

Creditors Turnover Ratio-

It is similar to Debtors Turnover Ratio. It indicates the speed with which payments for credit purchases are made to the creditors. The term Accounts Payable includes Trade Creditors and Bills Payable. A higher creditors turnover ratio signifies that the creditors are being paid promptly, thus enhancing the creditworthiness of the company. However, a very favorable ratio to this effect also shows that the business is not taking full advantage of credit facility that can be allowed by the creditors. PURCHASES CREDITORS TURNOVER RATIO = AVERAGE PAYABLES

8.

Creditors Payment Period-

The measurement of creditor payment period shows the average time taken to pay for goods and services purchased by the company. In general, the longer the credit period achieved the better, because delays in payment mean that the operations of the company are being financed interest free by suppliers funds. But there will be a point beyond which, if they are operating in a sellers market, may harm the company. If too long a period is taken to pay creditors, the credit rating of the company may suffer, thereby making it more difficult to obtain supplier in the future.

CREDITORS TURNOVER RATIO CREDITORS PAYMENT RATIO = 365

9. Stock Turnover RatioA considerable amount of companys capital may be tied up in the financing of raw materials, work-in-progress and finished goods. It is important to ensure that the level of stocks is kept as low as possible, consistent with the need to fulfill customers order in time. This ratio indicates whether investment in inventory is efficiently used or not. It, therefore, explains whether investment in inventories is with in the proper limit or not. Inventory ratio can be calculated regarding each constituent of inventory. It may thus be calculated regarding raw materials, work-in-progress and finished goods. COST OF GOODS SOLD INVENTORY TURNOVER RATIO = AVERAGE INVENTORY

10. Inventory Holding Period-

The measurement of Inventory Holding Period shows the average period of holding various inventories i.e. raw material, work-in-progress & finished goods. The actual holding period can be compared with the stated investment and sales policy of the company. If it is longer than those terms, then this indicates some insufficiency in the procedures for supply chain management. STOCK TURNOVER RATIO INVENTORY HOLDING PERIOD = 365

11. Material Cost RatioThis ratio is the test of the operational efficiency with which the business is being carried. The material cost ratio should be low enough to leave a portion of sales to give a fair return to investors. The comparison of this ratio will indicate whether the cost component is high or low in the figure of sales. In case the comparison shows that there is increase in this ratio, the reason for such increase should be found out and management be advised to check the increase.

MATERIALS CONSUMED MATERIAL COST RATIO = SALES

12. Net Profit RatioThis ratio reflects net profit margin on the total sales after deducting all expenses but before deducting interest and taxation. This ratio measures the efficiency of operation of the company. The net profit is derived from gross profit after deducting administration, selling & distribution expenses. The non-operating incomes and expenses are ignored in computation of net profit before tax, depreciation and interest. This ratio could be compared with that of the previous years and with that of competitors to determine the trend in net profit margins of the company and its performance in the industry. NET PROFIT NET PROFIT RATIO = NET SALES

13. Gross Profit RatioThe ratio measures the gross profit on the total net sales made by the company. The gross profit represents the excess of sales proceeds during the period under observation over their cost, before taking into account administration, selling & distribution and financing charges. When everything is normal, the gross profit margin should remain unchanged, irrespective of the level of production and sales, since it is based on the assumption that all costs deducted when computing gross profit that are directly variable with sales. A stable gross profit margin is therefore, the norm and any variation from it calls for careful investigations. GROSS PROFIT GROSS PROFIT RATIO = NET SALES

DATA SOURCES:
For computing the various ratios, I have taken the data from: (i) The companys past 3 years audited balance sheets and profit & loss account with various

groupings and schedules provided by the company itself.

(ii)

Moreover, for calculating industrys ratios I have taken the audited past 3 years balance

sheets and profit & loss account with their groupings and schedules of their major competitor Havells India Limited which is available on its website.

HPL SOCOMEC PVT. LTD.

2003-04

2004-05 1.79 1.53 1.39

2005-06IDEAL RATIO 2:1 1.28 1:1

CURRENT RATIO QUICK RATIO

: :

3.50 2.93

COMMENTS & SUGGESTIONS:

liabilities. In the year 2003-04, current ratio was too high. It means so many funds are lying idle. In the next year i.e. 2004-05, the current liabilities increased drastically and the ratio Both the ratios for all the three years were not indicating consistency in current assets/

became satisfactory & nearer to ideal. In 2005-06, the current liabilities were further increased or current assets were utilized. Quick ratio in year 2003-04 was too much. It indicates company made heavy

investments in their liquid assets. In subsequent years quick ratio was satisfactory. Current ratio should further improved by having more current asset or reducing

current liabilities. The company should optimize its current assets/ liabilities level. The company should check its inventory hold-ups.

DEBT EQUITY : RATIO

2003-04 0.33

2004-05 0.31

2005-06 0.29

IDEAL RATIO 2:1

COMMENTS & SUGGESTIONS:

The debt-equity ratio is very low. The debt-equity ratio indicates that the company is less geared and more relying on

equity funds. Company can consider long-term debts to finance further funds.

2003-04

2004-05 0.07

2005-06 0.07

RETURN ON INVESTMENT:

0.10

COMMENTS & SUGGESTIONS:

ROI is not satisfactory for all the 3 years. It is decreasing year by year. There may be some investments that are not generating required return & these

should be disposed off. There may be some unutilized or less utilized assets.

2003-04

2004-05 2.75 133

2005-06 2.59 141

DEBTORS TURNOVER RATIO

1.58 231

DEBTORS COLLECTION PERIOD : COMMENTS & SUGGESTIONS:

debtors.

Debtors turnover ratio is very low & not satisfactory. Its collection period is very high so significant funds are locked up in the form of

It indicates the company has very liberal collection policy. Company should reduce the credit time and collect the debts timely.

2003-04

2004-05 9.51 38

2005-06 4.86 75

CREDITORS TURNOVER RATIO : CREDITORS PAYMENT PERIOD :

5.74 64

COMMENTS & SUGGESTIONS:

Creditors turnover ratio & payment period is satisfactory. It should be maintained like this. Company should try to increase credit period so as to company can get interest free

funds in form of creditors.

2003-04

2004-05 18.98 3.54

2005-06 18.01 2.94

GROSS PROFIT RATIO : NET PROFIT RATIO

:

27.35 6.09

COMMENTS & SUGGESTIONS:

Gross profit ratio and net profit ratio is decreasing year to year. So company should

try find out the reasons behind it. Gross profit should remain same irrespective of production level. Thus, company should check its direct expenses. In 2005-06, the net profit ratio is too low, as compared to previous years.

2003-04

2004-05 0.78

2005-06 0.79

MATERIAL COST RATIO

0.69

COMMENTS & SUGGESTIONS:

worldwide. It should be maintained and try to check further increase. Material cost is increasing but is justified because the cooper rate is increasing

2003-04

2004-05 11.58 32

2005-06 10.72 34

RAW MAT. TURNOVER RATIO RAW MAT. HOLDING PERIOD COMMENTS & SUGGESTIONS:

: :

8.98 41

The raw material turnover ratio is satisfactory. It signifies that company holds sufficient raw material in its store. However, its possible to have some more raw material with them otherwise the

company may face the problem in the form of under stocking.

2003-04

2004-05 236.13 2

2005-06 115.30 3

FIN. GOODS TURNOVER RATIO FIN. GOODS HOLDING PERIOD

: :

133.95 3

COMMENTS & SUGGESTIONS:

It is very low & holds less quantity of finished goods. The company should increase its production level. There is a great possibility that the company face the under stock condition. The company should have about 2 months holding period.

SOCOMEC HPL PVT. LTD.

2003-04

2004-05 0.92 1.11 0.46

2005-06

IDEAL RATIO 2:1

CURRENT RATIO QUICK RATIO

: :

0.73 0.42

0.75

1:1

COMMENTS & SUGGESTIONS:

Both the ratios are not satisfactory because the company have less current assets and

more current liabilities. It indicates bad solvency condition in the short term. Company is not financially sound to pay its short-term liabilities. However, it is improving year by year and should maintain healthy improvement rate.

DEBT EQUITY : RATIO

2003-04 0.00

2004-05 0.00

2005-06 0.00

IDEAL RATIO 2:1

COMMENTS & SUGGESTIONS:

The debt-equity ratio indicates that the company is ungeared and more relying on

equity funds. Company can borrow long-term debts to finance their funds.

2003-04

2004-05 0.14

2005-06 0.15

RETURN ON INVESTMENT

0.15

COMMENTS & SUGGESTIONS:

ROI is better and shows consistency for throughout the three years. It should be maintain like this. It should be further improved by optimum utilization of assets.

2003-04

2004-05 4.94 74

2005-06 4.81 76

DEBTORS TURNOVER RATIO

3.12 117

DEBTORS COLLECTION PERIOD : COMMENTS & SUGGESTIONS:

The ratio is slightly higher.

It indicates the company has liberal collection policy towards their debtors. Company should make efficient and timely efforts to collect their debts. There is a great possibility to have bad & doubtful debts. Significant funds are locked up in debtors.

2003-04

2004-05 2.97 123

2005-06 3.33 110

CREDITORS TURNOVER RATIO : CREDITORS PAYMENT PERIOD :

1.85 197

COMMENTS & SUGGESTIONS:

The creditors turnover is very low; it indicates that creditors are not paid promptly. However, creditors are interest free borrowings but delays in payment may harm the

relationship with suppliers. It may negatively effect the crediting of the company. Thus, timely payment should be made to creditors.

2003-04

2004-05 27.18 8.66

2005-06 22.88 7.74

GROSS PROFIT RATIO : NET PROFIT RATIO

:

30.23 11.61

COMMENTS & SUGGESTIONS:

improve it. The company must make this ratio consistent and try to maintain it. Both the ratios are satisfactory & sound good. But the ratios are decreasing year by year so, company should pay attention in order to

2003-04

2004-05 0.69

2005-06 0.74

MATERIAL COST RATIO

0.65

COMMENTS & SUGGESTIONS:

The material cost is neither too high nor too low. It shows consistency and sounds good. But company should check its further increase.

2003-04

2004-05 6.31 58

2005-06 7.31 50

RAW MAT. TURNOVER RATIO RAW MAT. HOLDING PERIOD COMMENTS & SUGGESTIONS:

: :

5.53 66

The raw material turnover ratio & its holding period are satisfactory. It means company is holding sufficient amount of raw material in stores and should

maintain this level in future. But the holding period shows a declining trend, which demands attention towards it. Sufficient raw material causes low ordering & carrying cost as well and helps to avoid

the condition of over\under stocking.

2003-04

2004-05 32.83 11

2005-06 36.99 10

FIN. GOODS TURNOVER RATIO FIN.GOODS HOLDING PERIOD

: :

31.85 11

COMMENTS & SUGGESTIONS:

The finished goods turnover ratio is high and the holding period is very low. The company should hold more finished goods in its store. Company may face under stocking condition so, should increase its production level. Thus, company should make more investment in their stock, which will improve the

current ratio also.

HPL INDIA LTD.

2003-04

2004-05 0.55 0.32 0.25

2005-06

IDEAL RATIO 2:1

CURRENT RATIO QUICK RATIO

: :

0.49 0.18

0.14

1:1

COMMENTS & SUGGESTIONS:

Both the ratios are very low. It indicates the company has fewer current assets. It shows that company is not financially sound. Company is not able to pay its short-term debts. Company should increase current assets and reduce current liabilities.

DEBT EQUITY RATIO

2003-04 0.00

2004-05 0.00

2005-06 0.00

IDEAL RATIO 2:1

COMMENTS & SUGGESTIONS:

The debt-equity ratio indicates that the company is ungeared and more relying on

equity funds. Company can borrow long-term debts to raise funds. Company can consider for debentures or long-term bank borrowings.

2003-04

2004-05 0.01

2005-06 0.02

RETURN ON INVESTMENT :

0.01

COMMENTS & SUGGESTIONS:

ROI is very poor. It indicates company is not using their assets efficiently. There may be some assets, which are not generating expected return. These should be

disposed off. It shows weak management as far as asset-utilization is concerned. For improvement in ROI assets should be maximum utilized.

2003-04

2004-05 6.35 57

2005-06 5.72 64

DEBTORS TURNOVER RATIO

5.08 72

DEBTORS COLLECTION PERIOD :

COMMENTS & SUGGESTIONS:

The debtors turnover ratio & its collection period are satisfactory. It shows efficient receivable management and timely collection. It should be maintained consistently and check any further variations.

2003-04

2004-05 0.34 1068

2005-06 0.35 1034

CREDITORS TURNOVER RATIO : CREDITORS PAYMENT PERIOD :

0.32 1148

COMMENTS & SUGGESTIONS:

Creditors turnover ratio is very low it means creditors are paid promptly. Creditors payment period is very high & it is beyond the limit. It is required serious steps to be taken. It may cause to suffer credit rating to the company. It may also affect the relationship with suppliers.

2003-04

2004-05 61.98 0.94

2005-06 59.04 1.42

GROSS PROFIT RATIO : NET PROFIT RATIO

:

54.77 0.33

COMMENTS & SUGGESTIONS:

Gross profit ratio is very high & net profit ratio is very poor. It indicates that company is spending huge amount on administrative and selling &

distribution. profit ratio. Company should take serious steps to find out the reasons behind the higher gross

2003-04

2004-05 0.33

2005-06 0.37

MATERIAL COST RATIO

0.39

COMMENTS & SUGGESTIONS:

The material cost is satisfactory. It shows consistency, which is the good sign for company. It should be maintained like this and check further increase.

2003-04

2004-05 1.59 230

2005-06 1.94 188

RAW MAT. TURNOVER RATIO RAW MAT. HOLDING PERIOD COMMENTS & SUGGESTIONS:

: : 315

1.16

Raw material ratio is very low and holding period is very high. It signifies company has locked up significant amount in raw materials stock. It may cause to bear sufficient amount in the form carrying cost. Company should hold appropriate amount of raw material.

2003-04

2004-05 12.38 29

2005-06 14.90 25

FIN. GOODS TURNOVER RATIO FIN. GOODS HOLDING PERIOD COMMENTS & SUGGESTIONS:

: :

7.00 52

Finished goods turnover ratio and its holding period is not satisfactory. It shows inconsistency & varies rapidly which is not good for the company. Initially it is fine but afterwards it reduced to a great extent. The company may suffer the problem of under-stocking. Company should hold sufficient amount of finished goods.

HPL PROTECTION TECHNOLOGIES LTD.

2003-04

2004-05 1.44 0.95 0.95

2005-06

IDEAL RATIO 2:1

CURRENT RATIO QUICK RATIO

: :

0.95 0.77

0.68

1:1

COMMENTS & SUGGESTIONS:

Current ratio and quick ratio is very low and not satisfactory. It indicates that company having fewer amounts of current assets and current

liabilities are comparatively high. liabilities. Reducing the current liabilities and increasing current assets should improve it. It shows that company is not financially sound in short run and not able to pay current

DEBT EQUITY RATIO

2003-04 0.00

2004-05 0.00

2005-06 0.00

IDEAL RATIO 2:1

COMMENTS & SUGGESTIONS:

The debt-equity ratio indicates that the company is ungeared and more relying on

equity funds. Company should take some long-term debts to finance funds.

2003-04

2004-05 0.14

2005-06 0.08

RETURN ON INVESTMENT

0.14

COMMENTS & SUGGESTIONS:

Initially ROI is satisfactory but afterwards it falls drastically. Company should try to find out the reasons behind its falling. Company may be holding some assets that are not giving required return these should

be disposed off. Unutilized or less utilized assets should be used efficiently.

2003-04

2004-05 3.56 103 103

2005-06 3.53

DEBTORS TURNOVER RATIO

3.73 98

DEBTORS COLLECTION PERIOD : COMMENTS & SUGGESTIONS:

Debtors turnover period is high. It means debtors are not making timely payment. Company may have liberal collection policy and should reduce credit period to 2

months (approx) It shows the company blocked its funds with debtors. It may cause to increase bad debts. Company should make a proper debt-collection strategy.

2003-04 CREDITORS TURNOVER RATIO : CREDITORS PAYMENT PERIOD : 1.12 326

2004-05 2.07 176

2005-06 1.82 201

COMMENTS & SUGGESTIONS:

The creditors turnover ratio & payment period is not favorable. Creditors payment period is too high which shows creditors are not paid promptly. This high payment period can harm relationship with creditors so it should be reduced

a paid their amount in time. It may affect negatively on companys credit rating.

2003-04 GROSS PROFIT RATIO : NET PROFIT RATIO : 38.63 11.38

2004-05 11.44 15.31

2005-06 33.06 15.87

COMMENTS & SUGGESTIONS:

Both gross & net profit ratio is favorable. The gross profit ratio inconsistency must be check. Net Profit Ratio shows

consistency. Company should review its operating expenses because it seems slightly higher. Both should be maintained and check any variation.

2003-04 MATERIAL COST RATIO : 0.60

2004-05 0.87

2005-06 0.66

COMMENTS & SUGGESTIONS:

The material cost ratio is inconsistent and tries to maintain consistency. In 2003-04 & 2005-06 ratio is satisfactory but in 2004-05 it was too high. This indicates that wastage of material is quiet noticeable. All the raw materials should be used in a proper manner.

2003-04 RAW MATERIAL TURNOVER RATIO RAW MATERIAL HOLDING PERIOD : : 30.92 12

2004-05 32.51 11

2005-06 12.76 29

COMMENTS & SUGGESTIONS:

The raw material ratio is very high and holding period is very low. It shows that company is holding less amount of raw material. Company may even face the problem of under-stocking. Company should hold

sufficient raw material.

2003-04 FINISHED GOODS TURNOVER RATIO FINISHED GOODS HOLDING PERIOD : : 6.06 60

2004-05 5.88 62 4.31

2005-06 85

COMMENTS & SUGGESTIONS:

too. It should be maintained and try to avoid any further variation. However it shows increasing trend so it should be checked. Sufficient finished goods help to avoid the problem under/ over stocking and avoid Finished goods holding period & its ratio is satisfactory. Somehow it is consistent

the blocking of funds as well.

HAVELLS ELECTRONICS PVT. LTD.

2003-04 CURRENT RATIO : QUICK RATIO : 0.87 0.40 2004-05 0.99 0.49 2005-06 0.79 0.45 IDEAL RATIO 2:1 1:1

COMMENTS & SUGGESTIONS:

Both the ratios are not satisfactory. It shows that company is holding fewer amounts of current assets. In this situation company is not able to pay its short term debts. Company should increase its current assets and reduce current liabilities.

DEBT EQUITY RATIO

2003-04 0.00

2004-05 0.00

2005-06 0.00

IDEAL RATIO 2:1

COMMENTS & SUGGESTIONS:

The debt-equity ratio indicates that the company is ungeared and more relying on

equity funds. Company should consider long term debts to finance further funds.

2003-04 RETURN ON INVESTMENT : 0.04

2004-05 0.05

2005-06 0.07

COMMENTS & SUGGESTIONS:

return. Assets should be used to the fullest and try to increase productivity. ROI is not satisfactory because it is too less. Company should dispose off those assets which are not generating required rate of

2003-04 DEBTORS TURNOVER RATIO : 5.29 69 63 DEBTORS COLLECTION PERIOD :

2004-05 5.81 87

2005-06 4.21

COMMENTS & SUGGESTIONS:

Debt-Turnover ratio and its collection period are satisfactory. It shows the better debt management and timely collection. It should be maintain like this because it avoids the unnecessary locking of funds. In 2005-06 collection period is higher so company should check the further increase.

2003-04 CREDITORS TURNOVER RATIO : CREDITORS PAYMENT PERIOD : 1.20 304

2004-05 1.47 249

2005-06 1.42 258

COMMENTS & SUGGESTIONS:

suppliers. Thus. Creditors should be paid within 2 to 3 months. Creditors turnover ratio and its payment period are not satisfactory. It indicates that creditors are not paid promptly. It may affect the credit rating of the company or may harm the relationship with

2003-04 GROSS PROFIT RATIO : NET PROFIT RATIO : 34.14 1.61

2004-05 26.66 2.59

2005-06 23.81 4.81

COMMENTS & SUGGESTIONS:

Gross profit ratio is satisfactory but it shows the declining trend so company should

review its manufacturing expenses. Initially net profit ratio is not satisfactory but it shows improving trend which is a

good sign for the company. checked. Still the N/P ratio should be further improved. So level of operating expenses should also

2003-04 MATERIAL COST RATIO : 0.50

2004-05 0.60

2005-06 0.65

COMMENTS & SUGGESTIONS:

Material cost ratio is satisfactory and consistent. It shows the better efficiency of purchasing department. It should be maintained and try to remain constant.

2003-04 RAW MATERIAL TURNOVER RATIO RAW MATERIAL HOLDING PERIOD : : 2.29 160

2004-05 3.58 102

2005-06 4.54 80

COMMENTS & SUGGESTIONS:

In 2003-04 & 2004-05 raw material holding period is too much. But in 2005-06 it is

quite appropriate. It shows the declining trend. To the some extent it is good sign for the company. Company should try to reduce the holding period to 45 to 60 days.

2003-04 FINISHED GOODS TURNOVER RATIO FINISHED GOODS HOLDING PERIOD : : 19.65 19

2004-05 16.26 22 12.16

2005-06 30

COMMENTS & SUGGESTIONS:

Finished goods turnover ratio and its holding period is not satisfactory. It shows that company is maintaining lower inventory level of finished goods.

Company may face the problem of under stocking so should try to increase

productivity.

LIMITATIONS OF RATIO ANALYSIS

The following limitations must be taken into account: (i) Ratios are calculated from financial statements, which are affected by the financial bases and policies adopted on such matters as depreciation and the valuation of stocks. (ii) Financial statements do not represent a complete picture of the business, but merely a collection of facts, which can be expressed in monetary terms. These may not refer to other factors, which affect performance. (iii) Over use of ratios as controls on managers could be dangerous, in that management might concentrate more on simply improving the ratio than on dealing with the significant issues. (iv) A ratio is a comparison of two figures, a numerator and a denominator. In comparing ratios it may be difficult to determine whether differences are due to changes in the numerator, or in the denominator or in both. (v) Ratios are inter-connected. They should not be treated in isolation. The effective use of ratios, therefore, depends on being aware of all these limitations and ensuring that, following comparative analysis, they are used as a trigger point for investigation and corrective action rather than being treated as meaningful in themselves. (vi) The analysis of ratios clarifies trends and weakness in performance as a guide to action as long as proper comparisons are made and the reasons for adverse trends or deviations from the norm are investigated thoroughly.

BIBLOGRAPHY

RAVI M. KISHORE

TAXMANNS COST ACCOUNTING & FINANCIAL MANAGEMENT

Dr. S.N. MAHESHWARI

SULTAN CHAND & SONS FINANCIAL & MANAGEMENT ACCOUNTING

C.As STUDY MATERIAL

BOARD OF STUDIES (ICAI) FINANCIAL MANAGEMENT PE (II)

WEBSITES

www.hplindia.com www.havells.com www.investopedia.com www.ventureline.com