A

PROJECT REPORT
ON
COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE
OF

FORCE MOTORS LTD. PUNE

SUBMITTED TO
UNIVERSITY OF PUNE
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF MASTERS
DEGREE COURSE IN BUSINESS ADMINISTRATION
MBA [FINANCE]
2009-2011
UNDER THE GUIDANCE OF
Prof. SHAILESH RAJHANS
SUBMITTED BY
MR. GORAKH BABAJI BORKAR
MBA II - (FINANCE)
ENIAC INSTITUTE OF COMPUTER APPLICATION,
WAGHOLI, PUNE.

COLLEGE CERTIFICATE
Ref: EICA/

Date:

This to certify that Mr.Gorakh Babaji Borkar, student of this institute, has completed
his project work in Finance specialization titled as:
Comparative Analysis of Financial Performance for FORCE MOTORS LTD.
As per the guidelines given by the University of pune for conducting Course No.308 of
MBA Syllabus 2010-11; under the guidance of Mr.Shailesh Rajhans, Lecturer in Finance
in this institute.

Director

prof. Shailesh Rajhans Sir

Internal guide

ACKNOWLEDGEMENT
Above all, I bow my head before Almighty without whose blessing my present
project would not have existed and I would like to thank GOD for giving me patience and
strength to overcome the difficulties, which crossed my way in the accomplishment of
this endeavor.
It is a pleasant duty to acknowledge the valuable help I received from different
quarters in the completion of my project work. At the very outset, I express my
reverential regards and profound gratitude to Mr. A.B.Bhave, for giving me this
opportunity to undergo summer training in the Finance department of FORCE MOTORS
LTD.
I am highly indebted and owe my deep sense of gratitude and reverential regards
to Mr. A.B.Bhave(Finance Gen. Manager), Mr. Pitaliya (Account Manager) and Mr.
khare without whose guidance and encouragement this project could not have been
completed.
I would like to show my sincere thanks to Prof. Shailesh Rajhans(HOD),
Finance,

ENIAC

INSTITUTE

OF

COMPUTER

APPLICATION,PUNE

UNIVERSITY, for their valuable suggestion and guidance and making it possible for me
to accomplish this project.
Last but not the least; I would like to thank my parents, brother and my
colleagues who instilled confidence and moral support at various stages during the course
of this training.

GORAKH BABAJI BORKAR

DECLARATION

I, Mr. Gorakh Babaji Borkar, hereby declare that the dissertation work entitled
Comparative analysis of financial performance of FORCE MOTORS LTD.
(AKURDI),PUNE. is carried out by me and submitted as under the requirement of
Master of Business Administration (M.B.A) Degree from ENIAC INSTITUTE OF
COMPUTER APPLICATION, WAGHOLI, PUNE UNIVERSITY for the session
2009-11.
I hereby authenticate that all the information furnished by me are true to my knowledge
and information and facts furnished by me are based on my own findings and as per the
information furnished to me by FORCE MOTORS LTD.

(Borkar Gorakh Babaji)

PREFACE
For the modern business world both success and failure are due to
financial management. It has become an important and powerful discipline, as it involves
crucial business decisions on which depends the success or failure of any organization.
Financial analysis is the process of identifying the financial strength and
weaknesses of the firm by properly establishing relationship between items of the balance
sheet and the profit and loss account.
As Finance managers today have to play a very vital and a responsible role,
it is very essential to have adequate knowledge about every aspect of the job, so as to
handle each & every situation effectively for applying theoretical knowledge in practical
life. The summer training which forms a part of the course curriculum helps students to
identify their capabilities & they can decide upon their future course of action. This is the
first step towards the development of future managers.
This summer training helps the students to identify their capabilities &
thereby make needed adjustments. Although there is difference in each student level of
proficiency, the real focus is on suggesting ways for students to further sharpen their
strengths, competencies & other related abilities for becoming effective professionals,
managers & leaders.
The primary educational objective behind this project is to make the
students familiar with working environment & to help to make students understand the
ways in which theoretical aspects can be applied into practice.
The individual object of project is to work effectively, efficiently using his
creativity as well as knowledge for self development.
Financial analysis can be undertaken by the management of the firm or by
parties outside the firm viz. owners, creditors, investors and others. The nature of analysis
differs depending on the purpose of the analyst.

The area covered in this report is Working Capital & financial ratios. It
includes tools and techniques for analysis and interpretation of ratios. I have undertaken
the Working Capital &Ratio Analysis because of the significance of this topic in the
production oriented sector.
On total 12 ratios have been taken by me and a comparative analysis of
FORCE MOTORS LTD., AKURDI performance over the last three years has been done
based on these ratios and changes in Working capital Statements.

INDEX
Chapter
No

Title

1
2
3
4
5
6
7
8
9
10
11

Executive Summary
Objectives of the Study
Company Profile
Research Design and Methodology
Conceptual Background
Data Presentation, Analysis and Interpretation
Findings
Limitations
Suggestions
Conclusion
Bibliography

12

Annexure

Page No

CHAPTER NO: - 1
EXECUTIVE SUMMARY

CHAPTER-1

1.1EXECUTIVE SUMMARY
The project is about COMPARATIVE ANALYSIS OF FINANCIAL
PERFORMANCE OF FORCE MOTORS LTD. AKURDI. project is an opportunity
given to management student where one gets an insight in the practical aspect in the day
to the theoretical knowledge that one acquire in business school. The project was
undertaken to make a study on the various aspect of the Ratio Analysis and Working
capital Management. The project highlights the main aims and object of project report. It
also explains the great importance of Ratio Analysis and Working Capital Management.
It covers specific introduction of

Ratio Analysis and Working Capital Management.

The period covered in project is three financial years i.e. 2007-08, 2008-09 and 2009-10.
Research methodology adopted for getting data is empirical in nature and therefore
release in the companys annual report and financial statements.

1.2

INTRODUCTION OF THE STUDY

Finance is the starting point of every economic activity. It is

called as science of money. Finance is the basic requirement for starting and running
every human activity in an objective manner. Likewise finance is essential in business. It
is treated as life blood of modern business.
Finance denotes money which is essential to initiate and operate business enterprises.
The term finance means provision of money at the time it is required.
The basic finance functions are as follow:
1. To determine the total capital requirement.
2. To decide the source from which the required capital is to be collected; and
3. To utilize the funds collected in purposeful manner.
Financial management:
Management is an activity which is concerned with planning and
controlling of different activities, in order to specific objective. It is also defined as an art
of getting things done through and with people in formally organized groups. If we apply
the concept to financial resources of a firm with a specific objective. In the present
changing scenario, financial management deals with decision making on asset mix,
capital mix, and profit allocation, etc. an understanding of the environment in which the
firm is situated, time value of money, taxation and depreciation policy is essential for
finance manager. Main scope of financial management is concerned with the following
activities, viz.
1. Raising of funds
2. Investing of funds
3. Other decision like dividend decisions.

Comparative Analysis:-

Comparative Analysis is part of financial management.

Through comparative analysis, we will be in position to analyze the statement of
financial position of a business designed to provide time perspective to the consideration
of various element of financial position embodied in such statement. Comparative
analysis reveals the following:
1. Absolute data(money value or rupee amount)
2. Increase or decrease in absolute data in terms of money values.
3. Increase or decrease in absolute data in terms percentages.
4. Comparison in terms of ratios.
5. Percentage of total.
Through Comparative analysis we can evaluate past performance and predict future
performance and both of these are facilitated by comparisons. Comparative analysis
required not only for the managements own evaluation and decision making, but also for
internal control and overall performance of the firm.
Comparative analysis can help in following ways:

Helps to know the exact financial position of the company.

Helps in decision making.

Helps in forecasting.

CHAPTER NO:- 2
OBJECTIVE OF THE
PROJECT
CHAPTER- 2
2.1 OBJECTIVE OF THE PROJECT

The main objective of carrying out this project is to know & gain practical

knowledge

& to know the organization working culture.

1. To study and understand the concept of financial performance.
2. To study the various tools for performance analysis.
3. To examine the financial performance of organization by using tool Ratio analysis
and working capital
4. To draw observation base on the study & suggest suitable measures to overcome
problem and to improve its performance.

CHAPTER NO:- 3
COMPANY PROFILE

CHAPTER- 3
COMPANY PROFILE
3.1 COMPANY HIGHLIGHTS

FORCE MOTORS LTD. (AKURDI) PUNE

COMPANY HIGHLIGHTS:1.
2.
3.

Name of company
Establishment year
Plant Address

FORCE MOTORS LTD. AKURDI

8 Sept 1958
Mumbai-Pune Road
Akurdi , pune
Maharastra- 411035
Tel: 020-776381 776382 776383 776384 / 8
Fax: 020-773017
Website: http://www.forcemotors.com
Group: Firodias Group

7.

Type of Industry

Automobile Industry

3.2 FORCE MOTORS LTD. AKURDI

BOARD OF DIRECTORS

Abhay Firodia
Bharat V Patel
Anita Ramachandran

Chairman / Chair Person

Director
Director

L Lakshman
Vinay Kothari
S A Gundecha

Director
Director
Director

S N Inamdar
Pratap Pawar
S Padmanabhan
Sudhir Mehta

Director
Director
Director
Director

R B Bhandari

Director

Atul Chordia

Additional Director

MANAGENING DIRECTOR
Mr. Prasan Firodia
FINANCE GENERAL MANAGER
Mr. A.B. Bhave
Registered Office
FORCE MOTORS LTD.
Mumbai-Pune Road
Akurdi, pune.
Maharastra- 411035
Tel: 020-776381 776382 776383 776384 / 8
Fax: 020-773017

3.3 COMPANY HISTORY

Company History - Force Motors
1958

- The Company was incorporated on 8th September. The Company manufactured and
assembled 3 & 4 wheeler light commercial vehicles and diesel engines.
1961
- The Company was converted into Public Limited Company on 12th May.
- The object of the company is to Assembly and manufacture of 3 & 4 wheeler light
commercial vehicles and diesel engines.
1965
- In December 1963, 48,645 Bonus shares issued (prop 1:2). 1, 85,000 Right shares
offered at par (prop. 55:20). 1, 77,710 reserved for allotment to collaborators. 2, 90,000
shares offered to the public in February 1964. 400 shares allotted to collaborators.
1966
- 1, 69,078 shares allotted to the foreign collaborators.
1970
- The Company's collaborators M/s. Honomag Henschal Fahrazeuquarrke GmbH
discontinued the production of the diesel engine D301-E2 in Germany and agreed to shift
the entire used machinery and equipment required for the manufacture of components of
the diesel engine
valued at Rs 1.50 crores to the Company.
1972
- 3,500 shares forfeited. 7, 89,163 Bonus Shares issued (prop. 1:1).
1975
- Allotted 13,800 `A' Equity shares (6,495 in 1975-76 and 7,305 in1976-77) at par to
permanent employees of the company.
1977
- 15, 78,326 No. of Equity and 13,800 `A' Equity shares issued as Bonus on prop. 1:1 for
the respective classes.

1978
- The area vacated by body shop and part of the press shop Departments in part No. 1
was utilized for the installation of the new machinery and equipment for the manufacture
of the new OM 16 engine in collaboration with Daimler-Benz of W. Germany.
1982

- The transfer line for the cylinder block of the new OM 616 engine was commissioned.
- A Research & Development workshop was set up in addition to new Research &
Development laboratories.
1983
- The Company entered into a technical collaboration agreement with Daimler Benz AG,
West Germany, for the manufacture of light commercial vehicles such as Mercedes vans,
station wagons and mini buses at Pithampur.
1984
- 1, 15,748 second `A' Equity shares allotted to permanent employees of the Company.
1987
- The licensed capacity was increased from 30,000 to 50,000 numbers Per annum
including 5,000 three-wheelers.
1989
- The production facility for manufacture of various rear axles and and 5-speed Mercedes
gear box was fully established. Latest machinery were installed with a view to expand
the production facility for manufacture of axles and Mercedes gear boxes.
- The Company acquired technology from M/s. Flakt Industrial AB, Sweden for FP
coating of the primer paint.
1990
- During the year, rear wheel driven Matador Max R 307 vehicle was introduced along
with the rear wheel driven bus platform R-407W.
- A new model of a 3-wheeler was developed and test marketed.
- A new commercial tool room was established at the Akurdi, equipped with the latest
CNC 3 dimension die sinking equipment and capable of manufacturing large panel dies
for bodies.
- Also, a modern CAD/CAM facility was established to support the tool room activity.

1991
- New models of Tempo Trax called Challenger and Town & Country, were introduced in
market. Direct injection version of OM 616 engine offering substantial improvement in
fuel economy was expected to be introduced shortly.
- The Company obtained the technical services of Mercedes-Benz A.G., Germany for
panel dies making.

- The total sales of the light commercial vehicles declined due to recession in the
automobile industry.
1992
- In order to enhance the export sales, a new division `Tempo International' was created.
- The Company proposed to undertake modernization of various important facilities such
as engine manufacturing shop, transmission manufacturing shop as also founder paint
shop, etc.
- A new model of a `Pick-up-truck' version of the temptress was developed. Also, a new
TX-17 gearbox and matching hypoid axle were introduced on the tempo trax range of
vehicles.
- The metador range was further extended with the addition of `RA307' model, a further
upgraded puck-up truck with an I-Beam rigid front axle.
1993
- A separate cell was created for `Tractor' development.
- The Company issued 33, 00,000 Rights equity shares of Rs 10 each at a premium of Rs
90 per share in proportion 1:2. (only 32, 52,850 shares were allotted 47,725 shares were
kept in abeyance. (Of these 175 shares were allotted by the Board.)
1995
- The licensed capacity increased from 50,000 to 60,000 number of automobiles per
annum.
- 31,100 No. of Equity shares kept in abeyance issued.
1996
- During the year fully indigenously designed, developed and manufactured Tempo `OX45' Tractor was successfully launched.
- The Company made a Rights issue of 32, 96,446 No. of equity shares of Rs 10 each at a
premium of Rs 90 per share in proportion 1:3 of which, on 27th January 1997, the
Company allotted only 32, 37, 038 shares. Balance 59,408 shares were kept in abeyance.
Only 32, 34,451 shares were taken up.
- Another 13, 75,722 No. of equity shares were to be issued to Jaya Hind Investments
Pvt. Ltd. and Daimler Benz AG, Germany to maintain their holding at 41.69%.
- Sales suffered due to shifting and relocation of various production activities at Akurdi,
labour unrest at Pithampur and softening of demand for company's vehicles.
1997
- Production of vehicle at Pithampur was affected due to a protracted industrial relation
problem resulting in no production from 2nd June to 19th July.
- The Company has launched new products in all four segments in LCV
-`Tempo Excel', utility vehicle-`Trax', Minidor-Auto Rickshaw and pick-up, Tractors, the
`Tempoox' range of tractors.

- The company has entered into an agreement with M/s. Zahnradfabrik parsoan GmbH,
Germany for providing technology for the manufacture of Agricultural Tractors.
- 46,412 shares kept in abeyance issued.
- Bajaj Tempo Ltd. (BTL) the flagship of the Rs.1, 350 crore Firodia group started
operations in 1959 in technical and financial
collaboration with Daimler Benz, the latter owning 26% of the equity.
- Bajaj Tempo Ltd. (BTL) plans to set up a third and possibly a fourth manufacturing
facility.
1998
- Bajaj Tempo will introduce a new generation family of light commercial vehicles
(LCV) in the next few months and phase out the popular Matador model over a period of
time.
- Bajaj Tempo Ltd, the third largest automobile manufacturer in the HCV/LCV segment
has attributed the on-going sluggishness in the domestic markets to the excise duty.
- The company's proposed four wheel military vehicle will be christened
as `Gorkha'.
- The company is also launching a second range of Tempo Trax utility vehicles including
the new 4X4 military and cross country vehicle Trax Gurkha.
- The situation improved from third quarter, mainly due to improved sales of 3-Wheeler
`Minidor' vehicle.
1999
- Bajaj Tempo Ltd, Pune-based light commercial vehicle (LCV) Manufacturer, which
launched its new model, the Excel-4, will launc its variants in June.
- The company, under technical collaboration with Mercedes Benz of Germany.
- The first time in the industry, Bajaj Tempo has introduced mobile service training van
equipped with audio visual aids, special tools, cut section models, to train not only
dealers but also the public.

2000
- The Workers will go on strike from May 26th. Work at the factory has been affected
following a tool down strike by the union which is affiliated to the Bharatiya Kamgaar
Sena.
2001
- The Company will be launching its Minidor three-wheelers running on
CNG during next month.
2003
-Board allots 33% equity shares of Rs.10 each for cash at a premium of Rs.90 per share.

-Agrees to procure technology from MAN Nutzfahrzeuge AG, Germany for 4 and 6
cylinder
Diesel Engines of higher capacities.
-Signs MoU with Punjab Tractors Ltd and Corporation Bank for financing Tractors.
2004
-Automobile manufacturer, Bajaj Tempo Ltd, on January 16, 2004 announced that it
would enter the heavy commercial vehicles (HCV) segment in the next 12 months
following its technology tie-up with MAN of Germany.
-Bajaj Tempo inks pact with Andhra Bank
2005
- The Registrar of Companies (RoCs), Maharashtra, issued the certificate for name
change from Bajaj Tempo Ltd to Force Motors on May 12th and the new name came into
effect immediately.
-Force Motors unveils Minidor CB.
2006
-Force Motors signs MoU with Man to set up unit in MP.
2007
- Force Motors Ltd has informed that Mr. R B Bhandari is appointed as an Additional
Director of the Company w.e.f. June 29, 2007.
-Force Motors Ltd has informed that Mr. L Lakshman is appointed as an Additional
Director of the Company w.e.f. September 29, 2007.
2008
-Force Motors Ltd has appointed Mr. Dinesh Chhabra, as an Additional Director.
-Force Motors Ltd has informed that the Board of Directors of the Company at its
meeting held on June 25, 2008, inter alia, have appointed Mr. Dinesh Chhabra, as an
Additional Director.
2010
- Force Motors Ltd has appointed Mr. Atul Chordia of Pune as an Additional Director of
the Company.

3.4 ORGANIZATION CHART

ORGANIZATION CHART OF FORCE MOTORS LTD.

Chairman/Chair
Person

Managing Director

Director of
HR

Director of
Operation

Director of
Finance

Director of
System

Director of
Marketing

General Manager
(Finance)

HR
Manager

Operation
Manager

Assist. HR
Manager

Assist.
Operation
Manager

Finance
Manager

Assist.
Finance
Manager

System
Manager

Assist.
System
Manager

3.5 PRODUCT OF FORCE MOTORS LTD.

1.

Marketing
Manager

Assist.
Marketing
Manager

CHAPTER NO:-4
RESEARCH METHODOLOGY

Chapter 4

RESEARCH METHODOLOGY

4.1 CONCEPT OF RESEARCH METHODOLY

4.2 STAGES OF RESEARCH METHODOLOGY
4.3 SCOPE OF THE STUDY

4.1 RESEARCH METHODOLOGY

Concept of Research:
Research concerns itself with obtaining information through empirical
observation that can be used to systematically develop logically related prepositions so as
to attempt to establish casual relationships among variables.
Research may mean the first small in an Endeavor to better understand the change
occurring and at times forced upon us as individuals or as a society. Research as a process
involves defining & redefining problems, hypothesis formulation, organizing &
evaluating data, deriving deductions, inferences & conclusions, after careful testing.

4.2 STAGES OF RESEARCH METHODOLOGY

Research Methodology is a process of collecting the information & helps to find
out the solutions to the topic selected by the researcher. It is a systematic way of
presenting information.
Once the research problem is formulated and the research design is determined,
the next task is data collection. Data are facts, figures and other relevant materials past &
present serving as basis for study & analysis. Research Methodology includes Four
Stages. They are as follows:a) Collection of data.
b) Analysis of data.
c) Interpretation of data.
d) Presentation of data.

Collection of data:

The data is collected on the basis of pre-determined set up objectives, scope &
purpose for getting direction. The data is collected in various types as stated below.
Types of data collected:
The different types of data collected are Primary data & Secondary data. The
sources or methods of collecting both the types of data are different. The various methods
of such data collections are as below.
Primary Data:
Data that is collected by the researchers first hand is known as Primary Data. It
can be collected through observational studies, market surveys or experiments. The
provider or the source is termed as Respondent. A respondent may give information
passively i.e. through mere observation of respondent behavior or actively i.e.
through written or spoken response. Basic methods / sources of collecting Primary
data:

Questionnaire Method.

Observation Method,

Interviewing Method,

Experimentation Method, etc.

 Secondary Data:
Data that has been collected earlier for some purpose other than the purpose of the
present study is called as Secondary Data. Secondary sources of data provide a wealth
of information to the researcher. Data can be internal or external. Basic
methods/sources of collecting Secondary Data:
Published Sources:
o Books & magazines.
o Company records.
Unpublished Sources:
o Internet,
o Supplier
o Customer etc.
Analysis of data:
After the data being collected it is very carefully analyzed in order to sort out the
required data & delete the irrelevant data. This gives various parameters on which
evaluation of the research can be done.
Interpretation & presentation of data:
The carefully analyzed and short listed data is then interpreted in the forms of pie
charts and graphs for absolute clarity. This interpretation of data helps in doing the
SWOT analysis of the research topic.

4.3 SCOPE OF THE STUDY

Finance is the life line of every business organization. The title of

project is COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE OF
FORCE MOTORS LIMITED, AKURDI. The financial performance of FORCE
MOTORS LTD is being reviewed for the financial year 2005-2006,2006-07, 2007-08,
and 2008-09. After taken in to consideration each and every financial statement of
FORCE MOTORS, COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE
OF FORCE MOTORS LTD. The review states us various sources of income to various
ways of out flow of cash, types of transaction, how they manage and control their fund
and financial performance of company over last 3 years. This analysis will help
management in making comparison between last 3 years. This will also helps
management to focus on what to do to increase profit and to undertake any new project.

CHAPTER NO:-5
THEROTICAL BACKGROUND

CHAPTER NO 5
THEORITICAL BACKGROUND

5.1 WORKING CAPITAL

Meaning of working capital

Definition of working capital

Types of working capital

Importance of working capital management

Operating cycle

5.2 RATIO ANALYSIS

Meaning of ratio

Objectives of ratio analysis

Significance of ratio analysis

Classification of ratios

5.1 WORKING CAPITAL

(A)

MEANING OF WORKING CAPITAL

One of the most important areas in the day-to-day management of the firm is the
management of working capital.
Working capital refers to the funds invested in current assets, i.e. investment in
stock, sundry debtors, cash and others current assets. Current assets are essential to use
fixed assets profitability. However, the requirements for current assets are usually greater
than the amount of funds available through current liability .In other words, the current
assets are to be kept at a higher level then the current liabilities.

DEFINITION:
Working capital is defined as, the excess of current asset over current
liabilities and provision
Working capital is the amount of funds necessary to cover the cost of operating the
enterprise. Working capital in going concern is revolving fund, it consist receipt from
sales which are used to cover the cost of current operation.
SHUIBN
Working capital is in descriptive of that capital which not fixed but the more common
use of the working capital is to consider it as the difference between the book value of
current assets and current liabilities. HOGLAND

TYPES OF WORKING CAPITAL

GROSS WORKING CAPITAL

It refers to the firms investments in current assets i.e. mainly stock & cash.
NET WORKING CAPITAL
It is difference between current assets & current liabilities it the current assets exceeds the
current liabilities it is a positive one.
PERMANENT WORKING CAPITAL
Every firm is require to maintain minimum balance of cash inventory etc. in order to
meet the business requirement even in the slack season this part of the current assets is
called as permanent working capital it will be around policy if this is finance by long
term sources of finance
TEMPORARY WORKING CAPITAL
Net working capital minus fix working capital will be variable working capital it is also
called fluctuating working capital it varies with seasonal requirement & scale of
operation in a business.
POSITIVE WORKING CAPITAL
The positive net working capital represents the excess of current assets over current
liabilities.
NEGATIVE WORKING CAPITAL
This situation occurs when the current liabilities exceeds the current assets. It is an
indication of crisis to the firm.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Objectives of the management of working capital can be the Maintenance of

working capital at appropriate level and Availability of ample funds as and when they are
needed. Importance of working capital management can be explain as follow:
There is a positive correlation between the sale of product and current assets.
An increase in the sale of the product requires a corresponding increase in current asset. It
is therefore indispensable to manage assets properly and efficiently.
1.

More than half of the capital of the firm is generally invested in current assets.
Therefore, management of working capital attracts the attention of the management.

2.

In emergency fixed asset can be acquired on lease but there is no alternative for
current.

3.

Working capital needs are more often financed through outside source so it is
necessary to utilize them in best way.

4.

In the modern system approach to management, the operations of the firm are viewed
as total is an integrated system. In this sense it is not possible to study one segment of the
firm individually or leave it out completely. Hence overall look on the management of
working capital is necessary.

OPERATING CYCLE CONCEPT

Working capital is the life blood of any business, without which the fixed assets are
inoperative. Working capital circulates in the business, and the current assets changes

from one form to other. Cash is used for procurement of raw material and stores items
and for payment of operating expenses, and then converted in to working in progress,
then to finished goods. When the finished goods are sold on credit terms receivables
balances will be formed. When the receivable are collected, it is again converted in to
cash. The need for working capital arises because of time gap between production of
goods and their actual realization after sales. This time gap is called technically called as
OPERATING CYCLE or WORKING CAPITAL CYCLE.

1.

Raw material purchased

2.

Raw material holding period

3.

Raw material introduce into process

4.

Working in process period

5.

Finished goods completed

6.

Finished goods holding period

7.

Sale of goods on credit

8.

Receivable collection period

9.

Cash received from debtors.

OPERATING CYCLE

ROW MATERIAL
PURCHASED

CASH RECEIVED FROM

DEBTORS

RECEIVABLE COLLECTION
PERIOD

OPERATING CYCLE

ROW MATERIAL HOLDING

PERIOD

ROW MATERIAL INTRODUCE

INTO PROSESS

RAW MATERIAL PURCHASED

SALE OF GOODS
ON
WORKING IN PROCESS
RAW MATERIAL
HOLDING PERIOD
CREDIT
PERIOD

RAW MATERIAL INTRODUCE INTO PROCESS

FINISH GOODS HOLDING

PERIOD

FINISHED GOODS
COMPLETED

3.2 RATIO ANALYSIS

DEFINITIONS:
A ratio is an expression of the quantitative relationship between two numbers

-Wixon,
Beoford

kell

&

Accounting ratio is used to describe significant relationship which exit between

figures shown on a balance sheet, P&L a/c or in a budgetary control system.
- J. Batty
Ratio analysis is a study of relationship among the various financial factors in a
business.
- John.N.Myer
MEANING OF RATIO:
A financial ratio is the relationship between two accounting figure
expressed as a proportion. Ratio provides clues to the financial position of a concern.
These are the pointers or indicators of financial strength, soundness, position or weakness
of an enterprise. Ratio analysis is one of the methods of analyzing financial statements. It
is an attempt to present the information of the financial statements in simplified,
systematized and summarized form. It measures the profitability, efficiency and financial
soundness of the business. Ratio analysis is therefore, a tool to present the figures of
financial statements in simple, concise and intelligible form.
There are a number of ratios, which can be calculated from the
information given in the financial statements, but the analyst has to select the appropriate
data and calculate only a few appropriate ratios from the same.

SIGNIFICANCE OF THE RATIO ANALYSIS

Ratios as a tool of financial analysis provide symptoms with the help of which an
analyst is in a position to diagnose the financial health of the unit. Financial analysis can

be compared with biopsy conducted by the doctor on the patient in order to diagnose the
cases of illness so that treatment may be prescribed to the patient to help in recover. As
there are different groups of interested parties so significance to them are different.
Management
Management needs information regarding the profitability, operational efficiency and
financial soundness of the business, so that weakness of the business may be identified
and effective business plans may be formulated. Ratio analysis helps the management in
decision making, financial forecasting and planning. It helps in communicating the
desired information to the relevant parties and facilitates coordination. Ratios provide
actual basis, which can be compared with the standards, thus helps in effective control.
Shareholders
The shareholders, the virtual owners of business corporate units have an interest in the
welfare and progress of business. They want to know about the profitability and future
prospects of the enterprise. The requisite information is available from the analysis of
financial statements.
Workers
Employees of the business are interested in the profit of business. Workers in the
business are paid bonus on the basis of productivity unprofitability, so they have an
interest in the financial analysis of the business.
Creditors
Creditors of the enterprise are interested in the short term and long term financial
soundness of the business. They want to ensure themselves, whether their funds are safe
and secure and the business is capable of making payment of interest regularly and also
refund of funds as per agreements.

Government
Financial analysis helps government in determining tax liability. The government is also
capable of ascertaining the economic development of the country through the financial
analysis. The government requires the information for formulating effective economic

CLASSIFICATION
OF RATIOS

plans and balanced growth of different sectors and region of the economy.
Potential investor
The potential investors of the business have an interest in the operational efficiency and
profit earning capacity of the business unit. They would like to know how far their
previous investment has been safe and how much the new investment will be safer and
secured.
On the basis
of
liquidity

On the basis of
turnover

Economist and researchers

On the basis
of
Solvency

On the basis of
profitability

These parties are interested in the financial activities of the business, so that they may
study the financial health of the economic structure of the business, study the rate of
economic growth, compare it with other economies and suggest effective measure to

Current ratio
Inventory
accelerate the pace of
growth.
turnover ratio

Quick ratio

Debtors
turnover ratio

Creditor
turnover ratio

Debt equity
ratio

Interest
coverage
ratio
Proprietary
ratio

CLASSIFICATION OF RATIOS

Working
capital
turnover
ratio
Fixed asset
turnover ratio

Net worth to
total assets
ratio

Gross profit
ratio

Net profit
ratio

Return on
capital
employed
Return on
equity

Earning per
share

A. LIQUIDITY RATIO

The importance of adequate liquidity in the sense of the ability of a firm to meet
current/short-term obligations when they become due for payment can hardly be
overstressed. Liquidity implies, from the point of view of utilization of the funds of the
firm, that funds are idle or they earn very little. A proper balance between the two
contradictory requirements, that is, liquidity and profitability, is required for the efficient
financial management.
Liquidity ratios are calculated to measure the short term financial soundness of the
business Liquidity is the basis of survival of any unit and the creditors are more
interested in Liquidity of the business. The ratio assesses the capacity of the company to
repay its short-term liability. Banks and other moneylenders for short period are
interested in the current assets of the company i.e. short-term financial position of the
business. The ratio is also an effective source to ascertain whether the working capital
has been effectively utilized. Liquidity in the ratio means ability to repay loans. Shortterm financial position is calculated to adjudge, whether the current assets of the
company are sufficient to meet its short-term liabilities.

(I) CURRENT RATIO

The Current Ratio of a company shows the ability to pay Short Term creditors from
Current Assets. It represents the margin of safety; higher the ratio higher is the
margin of safety. But higher ratio show the unnecessarily blockage of funds in assets.
Thus ratio of 2:1 is considered satisfactory.
This ratio indicates the short-term financial position of the
company. It judges whether current assets are sufficient to meet the current liabilities.
The company must be able to meet its current obligation out of the current assets. It
should not depend upon its long-term sources to pay its short-term liabilities. The ratio
is calculated on the basis of the following formula:
Current assets
Current ratio = ----------------Current liabilities
This is expressed as the current assets divided by the current liabilities. Current
assets are those assets, which are convertible into cash within a year. It includes cash
in hand, cash at bank, bills receivables, sundry debtors, and inventory etc. The
current liabilities are payable within a year. It includes creditors, bills payable,
outstanding expenses, short-term loans and bank overdraft etc. The higher the current
ratio the higher is the ability of the business to pay its current obligation but such
higher current Ratio indicates assets are kept and profitability of the company
becomes low.

(II) QUICK RATIO

Quick Ratio involves only those current assets, which liquidate immediately. Ratio
of 1:1 is ideal but 0.7 to 1 is considered satisfactory. This indicates the extent to
which current liabilities can be paid without relying on the sale of inventory.
Quick ratio is also known as acid test ratio or liquid ratio. Quick ratio is the ready
means of assessing a firms liquidity position in the real sense. It shows very shortterm liquidity or capacity of the business to meet its obligation at short notice.
Liquid assets are current assets less stock and prepaid expenses. These assets are
called liquid because they can be converted into cash very shortly. The ratio is
calculated by the following formula:
Liquid assets
Quick ratio =
Current liabilities
It is expressed as the liquid assets divided by the current liabilities. The ideal
liquid ratio is 1:1 i.e. liquid assets should be equal to current liabilities. Quick ratio
assess the ability of the business to meet the current liabilities without having wait for
the manufacturing cycle to be completed and sale to take place for inflow of cash.

B. TURNOVER RATIO
Turnover ratios are employed to evaluate the efficiency with which the
firm manages and utilizes its assets. They indicate the speed with which assets are
converted into sales.
A measure of the number of times a company's inventory is replaced during
a given time period. Turnover ratio is calculated as cost of goods sold/turnover divided
by average inventory during the time period. A high turnover ratio is a sign that the
company is producing and selling its goods or services very quickly.
This ratio tells how often a business' inventory turns over during the course of
the year. Because inventories are the least liquid form of asset, a high inventory turnover
ratio is generally positive. On the other hand, an unusually high ratio compared to the
average for your industry could mean a business is losing sales because of inadequate
stock on hand.
When to use it:
If your business has significant assets tied up in inventory, tracking your
turnover is critical to successful financial planning. If inventory is turning too slowly, it
could indicate that it may be hampering your cash flow. Because this ratio judges annual
inventory turns, it is usually conducted once a year.

(I) INVENTORY TURNOVER RATIO

The turnover shows the efficiency of the firm in selling the product.
It indicates the speed with which the stock is rotated into sales or the number of times
the stock is turn into sales during the year. The higher the ratio, the better it is, since it
indicates that stock is selling quickly. In a business where stock turnover ratio is high,
goods can be sold at a long margin of profit and even then the profitability may be
quite high.
This ratio indicates the efficiency of the firm in selling its product, i.e. it indicates the
number of times the inventory has been given the shape of final sales during the year.
It is calculated by dividing the cost of goods by the average inventory.
Net sales
Inventory turnover ratio =
Average inventory

(II) DEBTORS TURNOVER RATIO

The Debtors Turnover measures the number of times Accounts Receivable was
collected during the year. This is also a measure of how well the company collects
sales on credit from its customers, just as Average Collection Period measures this in
days.
This ratio is calculated by dividing sales by average debtors.
Credit sales
Debtors turnover ratio = --------------------------------Average debtors + bills receivable

Importance of Debtors Turnover:

A high debtor turnover ratio indicates a tight credit policy.
Showing the company is successfully executing its credit policies and quickly
turning its Accounts Receivables into cash.
A low or declining debtor turnover ratio indicates a collection problem, part of
which may be due to bad debts.
A possible negative aspect to an increasing Accounts Receivable Turnover is the
company may be too strict in its credit policies and missing out on potential sales.

Average Debt collection period:

The Average Collection Period measures the average number of days it takes for the
company to collect revenue from its credit sales.
Importance of Average Collection Period
This ratio reflects how easily the company
can collect on its customers. It also can be used as a gauge of how loose or tight the
company maintains its credit policies. A particular thing to watch out for is if the Average
Collection Period is rising over time. This could be an indicator that the company's
customers are in trouble, which could spell trouble ahead. This could also indicate the
company has loosened its credit policies with customers, meaning that they may have
been extending credit to companies where they normally would not have. This could
temporarily boost sales, but could also result in an increase in sales revenue that cannot
be recovered, as shown in the Allowance for Doubtful Accounts.

Average Collection Period =

360
Debtors Turnover Ratio

(III)CREDITORS TURNOVER RATIO

This indicates the payment to the creditor by the company. The ideal value depends
on the terms and credit period provided by the creditors. But the higher the ratio, the
better it is, since it indicates that the creditors are being paid more quickly which
increases the credit worthiness of the firm.

Net credit Purchases

Creditor turnover ratio =
Average creditor + Bills payable

Average Payment Period Ratio:

The average payment period ratio represents the average number of days taken by the
firm to pay its creditors.

Importance Of Average Payment Period

This ratio reflects how easily the company can pay of its creditors. Lower the ratio, the
better is the liquidity position of the company and higher the ratio, less liquid is
the position of the firm. But higher payment period may also imply greater credit
period enjoyed by the firm & consequently larger the benefit prepaid from credit
supplies. Also a higher ratio may imply lesser discount facilities available or
higher prices paid for the goods purchased on credit.
360
Average Payment Period =
Accounts Payable Turnover Ratio
(IV) WORKING CAPITAL TURNOVER RATIO

Company uses working capital (current assets - current liabilities) to fund operations and
purchase inventory. These operations and inventory are then converted into sales revenue
for the company. The working capital turnover ratio is used to analyze the relationship
between the money used to fund operations and the sales generated from these
operations. In a general sense, the higher the working capital turnover, the better because
it means that the company is generating a lot of sales compared to the money it uses to
fund the sales.
This ratio is helpful where current assets play a major role in generating sales. This ratio
reveals how efficiently working capital has been utilized in making sales.
Net sales
Working capital turnover ratio =
Working capital

A high or increasing Working Capital Turnover is usually a positive sign, showing the
company is better able to generate sales from its Working Capital. Either the company
has been able to gain more Net Sales with the same or smaller amount of Working
Capital, or it has been able to reduce its Working Capital while being able to maintain its
sales. Efforts to streamline the operations of the company will often show favorably in
this ratio.

D. PROFITABILITY RATIO

Profitability ratios measure the operating efficiency of the company. These ratios are
calculated in relation to sales or investment.
These ratios are designed to provide answers to questions such as

Is the profit earned by the firm is adequate?

What rate of return it represents?

What is the rate of profit for various divisions and segments of the firm?

What are the earnings per share?

What was the amount paid in dividends?

What is the rate of return to equity-holders and so on?

(I) GROSS PROFIT RATIO

The Gross Profit to Net Sales ratio measures how well revenue generated from Net Sales
can cover expenses while gaining a profit.
Importance of Gross Profit to Net Sales:
A decreasing Gross Profit to Net Sales ratio is a negative sign, indicating the company is
becoming less profitable. The company may even have an increasing Net Sales, but the
cost to the company to generate those extra sales may be degrading profits. This ratio
varies wildly between companies and industries, so the best knowledge from this ratio
can be gained by measuring it over several periods.

Gross profit
Gross Profit ratio =

* 100.
Sales

(II) NET PROFIT RATIO

The Net Profit Margin measures the Net Earnings in relation to the Net Sales. After all
the bills are paid and expenses covered, this ratio measures how much net profit remains
out of total sales. This ratio is important to calculate, but you need to look at Gross Profit
Margin and Operating Profit Margin as well as Net Profit Margin provides you with the
big picture of how well the company is doing.
It indicates management efficiency in manufacturing, administering and selling. It
reflects the overhead expenses of a firm.
Net profit
Net Profit ratio = -----------------* 100
Net sales

Importance of Net Profit Margin:

As with the other margin ratios, the higher the Net Profit Margin, the better. Taxes,
Interest, and expenses not associated with operations will lower this ratio compared to the
other margin ratios.

CHAPTER NO:-6
DATA PRESENTATION
ANALYSIS & INTERPRETATION

Chapter 7

DATA PRESENTATION
ANALYSIS & INTERPRETATION

7.1 Working Capital Management

STATEMENT OF WORKING CAPITAL OF FORCE MOTORS, PUNE.
ON 31ST MARCH 2008, 2009, 2010.
PARTICULARS
Current Assets:
Sundry Debtors

2007-08
1,199,040,359

2008-09
1,251,881,270

2009-10
1,228,929,055

Cash& Bank
stock (r/m,wip&f.g)
(A)Total

179,820,994
2,039,226,649
3,418,088,002

Current liabilities:
Creditors
(B)Total
Working capital
(A-B)

171,100,395
2,406,705,717
3,829,687,382

163,621,566
1,960,316,668
3,352,867,289

2,655,304,527

2,906,789,347

2,576,470,253

2,655,304,527
762,783,475

2,906,789,347
922,898,035

2,576,470,253
776,397,036

EXPLANATION WITH COMPARISION:

Working capital means capital required to carry on the
business on day to day basis smoothly. Current asset is also called as gross working
capital. So current asset less current liabilities we get working capital, which can also be
seen in above table. From above table it shows that, in 2007-08, total current asset are Rs.
3,418,088,002 and current liabilities are Rs. 2,655,304,527. So working capital available
for business is Rs. 762,783,475. In 2008-09, as business turnover increases working
capital also increase by 20.99 % as compared to last year which is Rs. 922,898,035. In
2009-10, as turnover of business decrease working capital also decrease by 18.87% as
compared to last year which is Rs. 776,397,036. The better a company manages its
working capital, the less the company needs to borrow. Without adequate working capital
there can be no progress. A business must expand and assert itself in a competitive world.

Statement showing changes in working capital for the year 2008-2009

Particulars

2008

2009

Increase

Decrease

Current
Assets:Stock

2,039,226,649

2,406,705,717

367,479,068

Debtors

1,199,040,359

1,251,881,270

52,840,911

179,820,994

171,100,395

3,418,088,002

3,829,687,382

2,655,304,527

2,906,789,347

Cash
Total
Current

8,720,599

Liabilities:Creditors

251,484,820

Bank loan
Total
2,655,304,527
2,906,789,347
Total
671,804,799
Changes in net working capital: - 671804799 - 8,720,599
Increase in working capital: - 663,084,200.

EXPLANATION:

8,720,599

The statement of change in working capital shows how the working capital has been
change as compare to last years working capital.
From above statement it shows that there is net increase in working capital by
Rs. 663, 084,200.

Total current asset was Rs. 3,418,088,002 in 2008 which increase in to Rs. 3,829,687,382
in 2009.

Total current liabilities were Rs. 2,655,304,527 in 2008 which increase to

Rs. 2,906,789,347 in 2009.

Gross increase in working capital was Rs. 671,804,799 and decrease in working capital
was Rs. 8,720,599. Therefore net increase in working capital was Rs. 663, 084,200.
It shows that due to increase in turnover of the company, working capital requirement of
the company also increase over the period of time as compare to last year.

Statement showing changes in working capital for the year 2009-2010

Particulars

2009

2010

Increase

Decrease

Current
Assets:Stock

2,406,705,717 1,960,316,668

446,389,049

Debtors

1,251,881,270 1,228,929,055

22,952,215

171,100,395 163,621,566

7,478,829

Cash

Total
Current

3,829,687,382 3,352,867,289

Liabilities:-

Creditors

2,906,789,347

2,576,470,253

Total

2,906,789,347

2,576,470,253

Total

330,319,094

807,139,187

Changes in working capital: 807, 139, 18

Decrease in working capital: - 807,139,18

EXPLANATION:
The statement of change in working capital shows how the working
capital has been change as compare to last years working capital.

From above statement it shows that there is net decrease in working capital by Rs.
807,139,18

Total current asset was Rs. 3,829,687,382 in 2009 which decrease to Rs. 3,352,867,289.
in 2010.

Total current liabilities were Rs. 2,906,789,347 in 2008 which decrease Rs.
2,576,470,253 in 2010.

Gross decrease in working capital was Rs. 807,139,187. Therefore net decrease in
working capital was Rs. 807,139,187.

It shows that due to decrease in turnover of the company and recession period the
working capital requirement of the company also decrease over the period of time as
compare to last year.

5.2 RATIO ANALYSIS

(1) CURRENT RATIO
Current assets

Current ratio = ----------------Current liabilities

(In Rs.)
YEARS

CURRENT ASSETS

2007-08
2008-09
2009-10

3,418,088,002
3,829,687,382
3,352,867,289

CURRENT
LIABILITIES
2,655,304,527
2,906,789,347
2,576,470,253

RATIOS
1.29
1.32
1.30

Interpretation:
As stated before the ideal current ratio is 2:1 .If we see the last 3 year figures we
would notice that in the year 2007-08 the current ratio was 1.29:1 as compared to
2008-09 (1.32:1) and 2009-10 (1.30:1). If we compare 2007-08 and 2008-09 with
2009-10, we can see that current ratio has been increased drastically. It represents the
margin of safety. Higher the ratio, higher is the margin of safety. But higher ratio
show the unnecessarily blockage of funds in assets. This is same in case we are
referring. So there is need to manage working capital properly. Thus ratio of 2:1 is
considered satisfactory. we would see that the there is a excess working capital which
is against the health of the company.
(B) QUICK RATIO
Current assets - Stock
Quick ratio =

---------------------------Current liabilities- bank o/d

(In Rs.)
YEARS
2007-08
2008-09
2009-10

QUICK ASSETS
1,378,861,353
1,422,981,665
1,392,550,621

QUICK LIABILITIES
1,209,527,502
1,293,619,695
1,243,348,768

RATIOS
1.14
1.10
1.12

Interpretation:
This ratio basically aims at to meet its current obligations. The ideal quick ratio is
considered to be 1:1. From the above data table we could see that in the year 2007-08
the quick ratio was1.14:1 as compared to 1.10:1 in 2008-09 and 1.12:1 in 2009-10.
The same scenario is seen here too as in case of current ratio. It depicts that the
companys liquidity position has deterioted as compared to the financial year 200708. It shows that company has unnecessary liquidity which is not utilized properly.
The company needs to revise its policies so as to reach the desired state of 1:1.
(B) PROFITABLITY RATIOS
(I) NET PROFIT RATIO
Net profit
Net Profit ratio = -----------------* 100
Net sales

(In Rupees)

YEARS
2007-08
2008-09
2009-10

NET PROFIT
1,191,941,303
582,836,940
2,754,693,923

NET SALES
9,811,450,013
9,305,432,768
7,744,836,790

RATIOS
12.15%
6.26%
35.57%

Interpretation:
This ratio indicates the firms capacity to face adverse economic conditions
such as price competition, low demand etc. a constant rise in above ratio year after year
is a definite sign of improving condition of the business . From the above chart we could
see that the ratio has decrease from 12.15% in 2007-08 to 6.26% in the year 2008-09 and
increase to 35.57%. Percentage of net profit is quite good. Although the increase
percentage is not too appreciable but still an improvement is seen and the company
should try to bring some major changes to increase.

(II) GROSS PROFIT RATIO

Gross profit
Gross Profit ratio = -----------------* 100
Net sales
(In Rupees)

YEARS
2007-08
2008-09
2009-10

GROSS PROFIT
1,735,202,263
707,120,996
4,036,464,371

NET SALES
9,811,450,013
9,305,432,768
7,744,836,790

RATIOS
17.69%
7.60%
52.12%

Interpretation:
Higher ratio indicates higher efficiency of production activities & lower ratio
indicates lower efficiency of production activities.
As seen in the above graph it indicates that the gross profit ratio is Fluctuating. it
indicate Fluctuating efficiency of production activities.
From the above chart we could see that the ratio has increased considerably from
17.69 % in 2007-08 to 7.60% in the year 2008-09 and decrease to 52.12%. . Although the
increase % is not too appreciable but still an improvement is seen and the company
should try to bring some major changes to increase this ratio.
(C) TURNOVER RATIOS
(a) WORKING CAPITAL TURNOVER RATIO
Net sales
Working capital turnover ratio = ------------------------------Working capital
(Amount in Rupees)
YEARS

SALES

WORKING

RATIO

2007-08
2008-09
2009-10

CAPITAL
762,783,475
922,898,035
776,397,036

9,811,450,013
9,305,432,768
7,744,836,790

12.86 times
10.08 times
9.98 times

INTERPRETATION:
This is calculated to see how efficiently the working capital is being
used to improve the turnover. The higher the working capital turnover, the better the
position of company. In the above chart we could see that the scenario was quite
decrease in 2007-08 with 12.86:1 as compared to 10.08:1 that of 2008-09 and 2009-10
with 9.98:1. . This shows that the working capital has been used in the most optimized
way which is expected to be continued in future too.

(b) DEBTORS TURNOVER RATIO

Credit sales
Debtors turnover ratio = --------------------------------Average debtors + bills receivable
YEARS

SALES

(In Rs.)
Average Debtors +B/R

RATIO

2007-08
2008-09
2009-10

9,811,450,013
9,305,432,768
7,744,836,790

498,043,148
429,019,491
372,527,022

19.70 times
21.69 times
20.79 times

INTERPRETATION:
Generally the higher the value of debtor turnover the more efficient
is the management of the debtors or more liquid is the debtors. In the above scenario
it shows that in the year 2007-08 the ratio was 19.70 which increased to 21.69 in the
year 2008-09 also again declined to the level of 20.79 in the year 2009-10.
(c)AVERAGE COLLECTION PERIOD
365
Average Collection Period = ---------------------------Debtors Turnover Ratio
YEARS

Days in a year

Debtor turnover ratio

2007-08
2008-09
2009-10

365
365
365

19.70
21.69
20.79

Average
collection
period(D.C.P.)
19 Days
17 Days
18 Days

INTERPRETATION:
From above table and scheduled it shows that company was giving
average credit period of 18 days to their customers. In course for the purpose of facing
high competition in industry credit period. This ratio reflects how easily the company can
collect on its customers. It also can be used as a gauge of how loose or tight the company
maintains its credit policies. A particular thing to watch out for is if the Average
Collection Period is rising over time.
(d)CREDITORS TURNOVER RATIO
Net credit purchases
Creditor turnover ratio = ---------------------------Average creditor + Bills payable
YEARS

PURCHASES

2007-08
2008-09
2009-10

26,048,537,410
37,003,428,387
39,162,347,846

( in Rupees)
Average Creditors
RATIO
+B/P
2,655,304,527
9.81 times
2,906,789,347
12.73 times
2,576,470,253
15.20 times

INTERPRETATION:From the above diagram and scheduled we can analyze that creditors turnover in 200708 is 9.81, which Increases to 12.73 in 2008-09
And 15.20 in 2009-10. Higher the ratio, the better it is, since it indicates that the
creditors are being paid more quickly which increases the credit worthiness of the firm.
But in the year 2007-08. Creditors turnover ratio was less which increases in subsequent
year, which is matter of discuss.

(e) AVERAGE PAYMENT PERIOD

Average Payment Period =

365
-------------------------Creditors Turnover Ratio

YEARS

Days in a year

Creditors turnover ratio

2007-08
2008-09
2009-10

365
365
365

9.81
12.73
15.20

Average payment
period(A.P.P.)
37 Days
29 Days
24 Days

INTERPRETATION:
From above table and scheduled it shows that company is
making payment to creditors within 30 days (1 Month) which create good
creditworthiness. It plays vital role for the purpose of facing high competition in industry.
Average payment period is increasing over the period of time which is profitable for the
company.

(f) STOCK TURNOVER RATIO

Cost of good sold (sales)
Stock turnover ratio = -----------------------------------Average stock

YEARS
2007-08
2008-09
2009-10

SALES
9,811,450,013
9,305,432,768
7,744,836,790

Average stock
282,343,885
231,651,301
205,106,907

(In Rs.)
RATIO
34.75 times
40.17 times
37.76 times

INTERPRETATION:
This ratio measures the number of time stock is replace during the year.
From the above diagram and schedule we can analyze that Stock turnover in
2007-08 is 34.75, which increases to 40.77 in 2008-09 and Decreases again to 37.76in
2009-10.

(g) STOCK HOLDING PERIOD

360
Stock holding Period = ---------------------------Stock Turnover Ratio
YEARS

No. of months in year

Stock turnover ratio

2007-08
2008-09
2009-10

12
12
12

34.75
40.77
37.76

Stock holding
period(S.H.P.)
11 Days
9 Days
10 Days

INTERPRETATION
Stock holding period shows whether the inventory is moving fast or not.
In 2007-08 Force motors had hold stock more time because of it starting year but in
2008-09 not holding stock for 9 days & also in each year there is a decrease in the stock
holding period. Which show that inventory is moving fast.

(h) FIXED ASSET TURNOVER RATIO

Net sales
Fixed Asset turnover ratio = --------------------------------Net Fixed asset

YEARS
2007-08
2008-09
2009-10

SALES
9,811,450,013
9,305,432,768
7,744,836,790

Net Fixed Asset

2,547,203,997
2,856,216,828
2,892,541,740

(In Rupees)
RATIO
3.85 times
3.26 times
2.68 times

INTERPRETATION:
This ratio indicates the amount of sales realized per rupee of investment
in fixed assets. In above graph shows that fixed asset turnover ratio is 3.85 times in year
2007-08 it decrease to 3.26 times and 2.68 times in 2008-09 and 2009-10 respectively

6.2 STATEMENT SHOWING ALL THE RATIOS

SR.NO.
A
1
2
B
I
II
C

PARTICULARS
LIQUIDITY RATIO
CURRENT RATIO
QUICK RATIO
PROFITABLITY RATIO

2007-08

2008-09

2009-10

1.29
1.14

1.32
1.10

1.30
1.12

NET PROFIT RATIO

GROSS PROFIT RATIO

12.15%
17.69%

6.26%
7.60%

35.57%
52.15%

TURNOVER RATIOS

W.C.TURNOVER RATIO

12.86 times

10.08 times

9.98 times

DEBTORS TURN .RATIO

19.70 times

21.69 times

20.79 times

AVE.
PERIOD

19 days

17 days

18 days

12.73 times

15.20 times

37 days
34.75 times

29 days
40.17 times

24 days
37.76 times

11 days

9 days

10 days

3.85 times

3.26 times

2.68 times

D
9

COLLECTION

CREDITORS
TURN.
RATIO
AVE.PAYMENT PERIOD

10

STOCK TURN. RATIO.

11

STOCK
HOLDING
PERIOD
F.ASSET TURN. RATIO

9.81 times

CHAPTER NO:-7
FINDINGS

CHAPTER NO 7
FINDINGS
After proper analysis, it has been observed that if we compare increase in sales in the
year 2007-08 as compare to 2006-07. It means growth in sales is nearly increase by Few
times as compare to last year. And the sales are also increased in 2008-09. Here increase
in sales is better but growth proportion is not good comparatively.
Current asset are higher than standard ratio which is 2:1. It represents the margin of
safety. Higher the ratio, higher is the margin of safety. But higher ratio show the
unnecessarily blockage of funds in assets.
In the year 2006-07 the quick ratio was 1.44:1 as compared to 1.40:1 in 2007-08 and
1.42:1 in 2008-09. It shows that company has unnecessary liquidity which is not utilized
properly. The company needs to revise its policies so as to reach the desired state of 1:1.

 It has been observed that the Average Collection Period is rising over time.
It is also observed that the average payment period is very lengthy. It shows that company
is utilizing its credit period clearly.
Companys net profit ratio is 1.03 to 3.13% which needs to increase over period of time.

CHAPTER NO:-8
LIMITATIONS

CHAPTER NO 8
LIMITATON OF THE STUDY
The time allotted to complete the project was restricted to 60 day only. But time
required for completing the project of comparative analysis with respect to ratio
analysis and working capital is large as compared to the analysis of any other
project.
The director has informed to sit with chartered accountant of the company, but
chartered accountant was not comfortable with researcher in sharing the
information.

 To maintain the secrecy of the organization many statements were not available to
the researcher at time of research.

CHAPTER NO:-9
SUGGESTIONS

CHAPTER NO 9
SUGGESTIONS
Finance is life blood of every business organization. There should well qualified and
expert people in finance department which is to be guided by director or next senior.
There should be regular maintenance and disclosure of every book of accounts.
The standard current ratio is 2:1. There is need to manage current asset to avoid
unnecessary blockage of fund, which may profitability of company.

 Companys average collection period is very high. It shows that company has loose credit
collection policy to face market competition but it will affect financial condition of
company. Company has to take action for collection of receivable.
Company has to try to minimize the duration of operating cycle. This will help to
minimize the working capital need of company.

CHAPTER NO:-10
CONCLUSIONS

CHAPTER NO:-10
CONCLUSIONS
Because of increasing volume of Business and increasing turnover the current
asset, current liabilities and working capital also increases. They are increases in
proportion of turnover of company. Increases in current asset means increases in
investment in current asset.
The companys current ratio is above the standard ratio which is 2:1. Company
has ability to meet the current liabilities. Ratio is going on increasing which is
good, which represent Margin of safety. Higher the ratio, higher is the Margin of
safety. But higher ratio shows unnecessarily blockage of fund which not healthy
for profitability.

 Increase in average collection period and other factor affects operating cycle.
Companys average collection period is very high. It shows that company has
loose credit collection policy to face market competition but it will affect financial
condition of company. Company has to take action for collection of receivable.
As per the ratios of company it seen and concluded that the year 2008-09 was
better than the year 2009-10.
During the year 2009-10 company had reduced expenses which shown the
increment in net profit.

CHAPTER NO:-11

BIBILOGRAPHY

CHAPTER NO 11
BIBLIOGRAPHY

WEBSITES:

www.google.com
www.forcemotors.com
www.bseindia.com
www.nseindia.com
http://en.wikipedia.org/wiki/Financial_statement

BOOKS:

Principles of Financial Management - Satish M. Inamdar

Fundamentals of Financial Management Prof. A.P.Rao
Introduction to Financial Accounting- Horngren
Introduction to Management Accounting- Grey Sundem

CHAPTER NO:- 12
ANNEXURE

CHAPTER NO 12
ANNEXURE

ANNUAL REPORT
BALANCE SHEET OF FORCE MOTORS LIMITED, AKURDI
AS ON 31st MACH 2008,2009,2010
PARTICULARS
Schedule Amount as at
Amount as at
no.
31-03-2008
31-03-2009
A. Sources of fund:
1) Shareholders funds:
a)Share capital
b)Reserves & surplus
2)Loan funds:
a)Secured loans
b)unsecured loans
3)Deferred Tax Adjustment
a)Deferred Tax Liabilities

Amount as at
31-03-2010

1
2

131,790,000
1,734,307,277

131,790,000
897,800,000

131,790,000
2,143,401,245

3
4

1,747,234,634
745,972,516

1874,700,650
1,784,421,907

940,443,126
668,412,577

168,651,998

200,655,610

259,261,303

b)Less Deferred Tax Asset

TOTAL

48,436,098

57,139,973

53,138,257

4,479,520,327

4,832,228,194

4,090,169,994

7,874,638,620
5,327,434,623
2,547,203,997
719,806,986
725,923,654

8,560,517,127
5,704,300,299
2,856,216,828
534,403,241
726,001,564

9,012,008,935
6,119,467,195
2,892,541,740
528,041,714
571,598,632

2,039,226,649
1,199,040,359
179,820,994
90,629,905
942,731,122
4,451,449,029

2,406,705,717
1,251,881,270
171,100,395
83,285,474
1,061,892,743
4,974,865,599

1,960,316,668
1,228,929,055
163,621,566
74,680,357
1,635,913,988
5,063,461,634

3,540,406,037
456,843,648
3,997,249,685
454,199,344

3,875,719,130
445,513,680
4,321,232,810
653,632,789

3,435,293,671
663,784,423
4,099,078,094
964,383,540

4,479,520,327

4,832,228,194

4,090,169,994

B.Aplication of funds
1)Fixed assets
a)Gross block
b)Less: Depreciation
c)Net Block
d)Capital Work in progress
2)Investments
3)Current assets, Loans &
Advances
a)Inventories
b)Sundry debtors
c)cash &Bank balance
d)Other Current Assets
e)Loans& Advances
Total of CA, Loans
&Advances
Less: Current Liabilities &
Provisions
a) Current Liabilities
b)Provisions
Total of CL & Provisions
Net Current Assets
Total

6
7

PROFIT & LOSS A/C OF FORCE MOTORS LIMITED, AKURDI

FOR THE YEAR ENDED 31st MARCH 2008,2009,2010
PARTICULAR
For the year
For the year
ended 31st
ended 31st
march 2008
march 2009
INCOME
Sales(gross)
Less: excise duty
Net Sales
Sales Of Shares ,Units Of Mutual Funds
Operating Income
Other Income
EXPENDITURE
Material Consumed, Purchase Of Shares,
Units Of Mutual Funds & Manufacturing
Expenses

For the year

ended 31st
march 2010

11,438,443,102
1,626,993,089
9,811,450,013
158,554,835
9,970,004,848
618,170,366
10,588,175,214
806,271,222
11,394,446,436

10,927,172,097
1,621,739,329
9,305,432,768
180,750,415
9,486,183,183
537,087,816
10,023,270,999
395,809,978
10,419,080,977

8,907,105,151
1,162,268,361
7,744,836,790
214,100,083
7,958,936,873
987,825,527
8,946,762,400
3,410,646,669
12,357,409,069

7,452,037,567

7,351,173,217

6,257,969,825

Employees Remuneration & Benefits

Other Expenses
Interest &Finance Charges
Depreciation
PROFIT BEFORE TAXATION
Provision For Taxation
Current TaxIncome Tax / MAT
Wealth Tax
Fringe Benefits Tax
Deferred Tax
PROFIT AFTER TAXATION

ADJUSTMENTS IN RESPECT OF
EARLIER YEARS:
Taxation , net
Profit After Taxation Prior Period
Adjustments
Balance brought forward from previous
year
PROFIT AVAILABLE FOR
APPROPRIATION
Transferred to General Reserve
Proposed Dividend
Tax On Above Dividend
BALANCE CARRIED TO BALANCE
SHEET
EARNINGS PER SHARE OF RS 10/EACH:
Net Profit (after tax &adjustment in respect
of earlier years)
Number of shares issued & subscribed
Basic & diluted Earnings per share
Notes forming part of the financial
statements

1,348,908,727
244,446,822
199,017,853
414,833,204
9,659,244,173
1,735,202,263

1,430,488,396
194,859,805
345,276,398
390,162,165
9,711,959,981
707,120,996

1,205,577,841
85,263,460
353,817,085
418,316,307
8,320,944,698
4,036,464,371

532,100,000
751,100
9,037,740
7,496,355
549,385,195
1,185,817,068

112,231,000
447,600
6,250,000
8,311,384
127,239,984
579,881,012

1,273,500,000
933,100
9,575,860
6,700,263
1,290,709,223
2,745,755,148

6,124,235
1,191,941,303

2,955,928
582,836,940

8,938,775
2,754,693,923

2,938,627,082

2,711,866,099

2,074,995,505

4,130,568,385

3,294,703,039

4,829,689,428

212,500,000
98,003,600
8,360,212
318,863,812
3,811,704,573

122,500,000
74,365,600
6,741,934
203,607,534
3,091,095,505

366,000,000
116,548,400
9,112,900
491,661,300
4,338,028,128

1,191,941,303

582,836,940

2,754,693,923

13,176,000
90.46

13,176,000
44.23

13,176,000
209.07