CHAPTER-1

INTRODUCTION

INTRODUCTION:
Financial statements are prepared primarily for decision-making. They play a prominent role in
setting the framework of managerial decisions. But the information provided in the financial
statements is not an end in itself as no meaningful conclusions can be drawn from these
statements alone. However, the information provided in financial statements is of immense use
in making decisions through analysis and interpretation of financial statements.
A firm communicates financial information to the users through financial statements, and
reports the financial statement contains summarized information of the firms financial affairs.
Organized and systematic preparation of the financial statement is the responsibility of top
management.
Financial forecasting is an integral part of financial planning. Forecasting uses past data
to estimate the future financial requirements. Ratio analysis is a powerful tool of financial
analysis. A ratio is used as a benchmark for evaluating the financial position and performance
of financial data and to make qualitative judgment about the firms financial performance.
With the help of ratios, one can determine:

The ability of the firm to meet its current obligations.

The extent to which the firm has used its long-term solvency by borrowing funds.

The efficiency with which the firms is utilizing its assets in generating sales
revenue.

The overall operating efficiency and performance of the firms.

Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst,
a better understanding of financial condition and performance of the firm.

Ratio analysis :
is used to evaluate relationships among financial statement items. The ratios are used to
identify trends over time for one company or to compare two or more companies at one point in
time. Financial statement ratio analysis focuses on three key aspects of a business: liquidity,
profitability, and solvency

Need for the study:

The problems, which are common to most of the public sectors under taking, are
materials scarcity. Capacity utilization and mainly working capital requirements and Heritage
Foods (India) Limited. Are no exception. Thus the importance of the study reveals as to how
efficiently the working capital has been used so far in the organization.
Ratio Analysis is one of the key areas of financial decision-making. It is significant because,
the management must see that an excessive investment in current assets should protect the
company from the problems of stock-out. Current assets will also determine the liquidity
position of the firm.
The goal of Ratio Analysis is to manage the firm current assets and current liabilities in such a
way that a satisfactory level of working capital is maintained. If the firm cannot maintain a
satisfactory level of working capital, it is likely to become insolvent and may be even forced
into bankruptcy.

Scope of the study:

The scope of the study is limited to collecting financial data published in the annual
reports of the company every year. The analysis is done to suggest the possible solutions. The
study is carried out for 5 years (2011-15).
A study of the Ratio Analysis involves an examination of long term as well as short term
sources that a company taps in order to meet its requirements of finance. The scope of the study
is confined to the sources that Heritage Foods (India) Limited tapped over the years under
study i.e. 2011-15.

Objectives of the study:

To examine the financial performance of the Heritage Foods (India) Limited for the
period of 2011 to 2015.
To analyses interpret and to suggest the operational efficiency of the Heritage Foods
(India) Limited. By comparing the balance sheet & profit & loss A/c.
To critically analyse the financial performance of the Heritage Foods (India) Limited.
With the help of ratios.
To assess the working capital employed by the Heritage Foods (India) Limited.
To examine feasibility of present system of managing working capital.
To understand how the company finances its working capital
To analyze the financial performance of the company with reference to working capital.
To give some suggestions to the management based on the information studied.

RESEARCH METHODOLOGY
Use and Significance of Ratio Analysis
The ratio is one of the most powerful tools of financial analysis. It is used as a device to
analyze and interpret the financial health of enterprise. Thus ratios have wide applications and
are of immense use today.
Managerial uses of ratio analysis
Helps in decision making
Financial statements are prepared primarily for decision-making. Ratio analysis helps
in

making decision from the, information provided in these Financial

Statements.
a. Helps in financial forecasting and planning
Ratios analysis is of much help in financial forecasting and planning. Planning is
looking ahead and the ratios calculated for a number of years a work as a guide for the
future. Thus, ratio analysis helps in forecasting and planning.
b. Helps in communicating
The financial strength and weakness of a firm are communicated in a more easy and
understandable manner by the use of a ratio. Thus, ratios help in communication and
enhance the value of the financial statements.
c. Helps in co-ordination
Ratios even help in co-ordination, which is of at most importance in effective business
management. Better communication of efficiency and weakness of an enterprise result
in better co-ordination in the enterprise.
d. Helps in control
Ratio analysis even helps in making effective control of business. The weakness is
otherwise, if any, come to the knowledge of the managerial, which helps, in effective
control of the business
e. Utility to shareholders/investors
An investor in the company will like to assess the financial position of the concern where
he is going to invest. His first interest will be the security of his investment and then a
return in form of dividend or interest. Ratio analysis will be useful to the investor in

making up his mind whether present financial position of the concern warrants further
investment or not.
f. Utility of creditors
The creditors or suppliers extent short-term credit to the concern. They are invested to
know whether financial position of the concern warrants their payments at a specified
time or not.
g. Utility to employees
The employees are also interested in the financial position of the concern especially
profitability. Their wage increases and amount of fringe benefits are related to the
volume of profits earned by the concern.
h. Utility to government
Government is interested to know overall strength of the industry. Various financial
statement published by industrial units are used to calculate ratios for determining short
term, long-term and overall financial position of the concerns.
i. Tax audit requirements
Sec44AB was inserted in the income tax act by financial act, 1984. Clause 32 of the
income tax act requires that the following accounting ratios should be given:
a. Gross profit/turnover.
b. Net profit/turnover.
c. Material consumed/finished goods produced.
Further, it is advisable to compare the accounting ratios for the year under consideration
with the accounting ratios for earlier two years so that the auditor can make necessary
enquiries, if there is any major variation in the accounting ratios.
Ratios are classified into following four important categories:
1. Liquidity ratios

short-term financial strength

2. Leverage ratios

long-term financial strength

3. Activity ratios

term of investment utilization

Liquidity ratios measure the firms ability to meet current obligations;

Leverage ratios show the proportions of debt and equity in financing the firms assets; activity
ratios reflect the firms efficiency in utilizing its assets, and Profitability ratios measure overall
performance and effectiveness of the firm.

Data sources
The study is based on secondary data. However the primary data is also collected to fill
the gap in the information.
Primary data will be through regular interaction with the officials of Heritage Foods
(India) Limited.
Secondary data collected from annual reports and also existing manuals and like
company records balance sheet and necessary records.

LIMITATIONS

The study is based on only secondary data.

The period of study was 2011-15 financial years only.

Another limitation is that of standard ratio with which the actual ratios may be
compared generally there is no such ratio, which may be treated as standard for the
purpose of comparison because conditions of one concern differ significantly from
those of another concern.

The accuracy and correctness of ratios are totally dependent upon the reliability of the
data contained in financial statements on the basis of which ratios are calculated.

CHAPTER-2
INDUSTRY PROFILE
&
COMPANY PROFILE

INDURSTRY PROFILE
RETAILING IN INDIA.
The Indian retail industry is one of the fastest growing in the world. Retail industry in India is
expected to grow to US$ 1.3 trillion by 2020, registering a Compound Annual Growth Rate
(CAGR) of 16.7 per cent over 2015-20.
India is the fifth largest preferred retail destination globally. The country is among the highest
in the world in terms of per capita retail store availability. Indias retail sector is experiencing
exponential growth, with retail development taking place not just in major cities and metros,
but also in Tier-II and Tier-III cities. Healthy economic growth, changing demographic profile,
increasing disposable incomes, urbanisation, changing consumer tastes and preferences are the
other factors driving growth in the organised retail market in India.
Indias population is taking to online retail in a big way. The online retail market is expected to
grow from US$ 6 billion to US$ 70 billion during FY15-FY20.
Increasing participation from foreign and private players has given a boost to Indian retail
industry. Indias price competitiveness attracts large retail players to use it as a sourcing base.
Global retailers such as Walmart, GAP, Tesco and JC Penney are increasing their sourcing from
India and are moving from third-party buying offices to establishing their own whollyowned/wholly-managed sourcing and buying offices.
The Government of India has introduced reforms to attract Foreign Direct Investment (FDI) in
retail industry. The government has approved 51 per cent FDI in multi-brand retail and
increased FDI limit to 100 per cent (from 51 per cent) in single brand retail.
The sector can be broadly divided into two segments: Value retailing, which is typically a low
margin-high volume business (primarily food and groceries) and Lifestyle retailing, a high
margin-low volume business (apparel, footwear, etc). The sector is further divided into various
categories, depending on the types of products offered. Food dominates market consumption
with 60% share followed by fashion. The relatively low contribution of other categories

indicates opportunity for organised retail growth in these segments, especially with India being
one of the world's youngest markets.
Transition from traditional retail to organised retail is taking place due to changing consumer
expectations, growing middle class, higher disposable income, preference for luxury goods, and
change in the demographic mix, etc. The convenience of shopping with multiplicity of choice
under one roof (Shop-in-Shop), and the increase of mall culture etc. are factors appreciated by
the new generation. These factors are expected to drive organized retail growth in India over
the long run.
During FY15, the economic backdrop was a key factor impacting the performance of retail
companies across various sub sectors, including that of organized retail. Consumer sentiment
and business confidence continued to be subdued during the year with economic growth
decelerating further. This is attributable mainly to weakening industrial growth in the context of
tight monetary policy followed by the RBI through most of the year, political & policy stability
related concerns and uncertainty in the global economy.
Inflation also was an important concern area. Persistent high inflation and inflation
expectations meant that the RBI was compelled to maintain the benchmark interest rates at a
much higher level than what would be needed to encourage business and economic sentiment.
In the recent quarters consumer sentiment has been varied-with apparel retailers reporting an
improving trend but most other retail formats still witnessing muted off take.

Growth of Indian Retail

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India
retail industry is the most promising emerging market for investment. In 2007, the retail trade
in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it
rose to 12%. It is also expected to reach 22% by 2010.
According to a report by North bride Capita, the India retail industry is expected to grow to
US$ 700 billion by 2010. By the same time, the organized sector will be 20% of the total
market share. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of
the total retail market.

10

Major Retailers in India

Pantaloon:
Pantaloon is one of the biggest retailers in India with more than 450 stores across the country.
Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the
country. It's growing at an enviable pace and is expected to reach 30 million sq. ft by the year
2010. In 2001, Pantaloon launched country's first hypermarket Big Bazaar. It has the
following retail segments:

Food & Grocery: Big Bazaar, Food Bazaar

Home Solutions: Hometown, Furniture Bazaar, Collection-i

Consumer Electronics: e-zone

Shoes: Shoe Factory

Books, Music & Gifts: Depot

Health & Beauty Care: Star, Sitara

E-tailing: Futurebazaar.com

Entertainment: Bowling Co.

Tata Group
Tata group is another major player in Indian retail industry with its subsidiary Trent, which
operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book
and music retailer in India Landmark in 2005. Trent owns over 4 lakh sq. ft retail space across
the country.

RPG Group
RPG Group is one of the earlier entrants in the Indian retail market, when it came into food &
grocery retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy
and beauty care outlets Health & Glow.

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Reliance
Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh
stores and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales to
reach Rs. 90,000 crores by 2010.

AV Birla Group
AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis
Phillipe, Allen Solly, Van Heusen, Peter England are quite popular. It's also investing in other
segments of retail. It will invest Rs. 8000-9000 crores by 2010.

Retail formats in India

Hypermarts/supermarkets: large self-servicing outlets offering products from a variety of
categories.

Mom-and-pop stores: they are family owned business catering to small sections; they
are individually handled retail outlets and have a personal touch.

Departmental stores: are general retail merchandisers offering quality products and
services.

Convenience stores: are located in residential areas with slightly higher prices goods
due to the convenience offered.

Shopping malls: the biggest form of retail in India, malls offers customers a mix of all
types of products and services including entertainment and food under a single roof.

E-trailers: are retailers providing online buying and selling of products and services.

Discount stores: these are factory outlets that give discount on the MRP.

Vending: it is a relatively new entry, in the retail sector. Here beverages, snacks and
other small items can be bought via vending machine.

12

Category killers: small specialty stores that offer a variety of categories. They are
known as category killers as they focus on specific categories, such as electronics and
sporting goods. This is also known as Multi Brand Outlets or MBO's.

Specialty stores: are retail chains dealing in specific categories and provide deep
assortment. Mumbai's Crossword Book Store and RPG's Music World are a couple of
examples.

Challenges facing Indian retail industry

The tax structure in India favors small retail business

Lack of adequate infrastructure facilities

High cost of real estate

Dissimilarity in consumer groups

Restrictions in Foreign Direct Investment

Shortage of retail study options

Shortage of trained manpower

Low retail management skill

The Future
The retail industry in India is currently growing at a great pace and is expected to go up to US$
833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at
a CAGR of 10%. As the country has got a high growth rates, the consumer spending has also
gone up and is also expected to go up further in the future. In the last four year, the consumer
spending in India climbed up to 75%. As a result, the India retail industry is expected to grow
further in the future days. By the year 2013, the organized sector is also expected to grow at a
CAGR of 40%.
Retail consists of the sale of goods or merchandise from a fixed location, such as a department
store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the
purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be
individuals or businesses. In commerce, a "retailer" buys goods or products in large quantities

13

from manufacturers or importers, either directly or through a wholesaler, and then sells smaller
quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at
the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary
part of their overall distribution strategy. The term "retailer" is also applied where a service
provider services the needs of a large number of individuals, such as a public utility, like
electric power.
Shops may be on residential streets, shopping streets with few or no houses or in a shopping
mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or
full roof to protect customers from precipitation. Online retailing, a type of electronic
commerce used for business-to-consumer (B2C) transactions and mail order, are forms of nonshop retailing.
Shopping generally refers to the act of buying products. Sometimes this is done to obtain
necessities such as food and clothing; sometimes it is done as a recreational activity.
Recreational shopping often involves window shopping (just looking, not buying) and
browsing and does not always result in a purchase.

Introduction
The Indian retail industry has emerged as one of the most dynamic and fast-paced industries
due to the entry of several new players. It accounts for over 10 per cent of the countrys Gross
Domestic Product (GDP) and around 8 per cent of the employment. India is the worlds fifthlargest global destination in the retail space.

Market Size
The Boston Consulting Group and Retailers Association of India published a report titled,
Retail 2020: Retrospect, Reinvent, Rewrite, highlighting that Indias retail market is expected
to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015, driven by income
growth, urbanization and attitudinal shifts.
The report adds that while the overall retail market is expected to grow at 12 per cent per
annum, modern trade would expand twice as fast at 20 per cent per annum and traditional trade
at 10 per cent.
14

Retail spending in the top seven Indian cities amounted to Rs 3.58 trillion (US$ 57.6 billion),
with organised retail penetration at 19 per cent as of 2014. Online retail is expected to be at par
with the physical stores in the next five years.
India is expected to become the worlds fastest growing e-commerce market, driven by robust
investment in the sector and rapid increase in the number of internet users. Indias e-commerce
market is estimated to expand to over US$ 100 billion by 2020 from US$ 3.5 billion in 2014.

Investment Scenario
The Indian retail industry in the single-brand segment has received Foreign Direct Investment
(FDI) equity inflows totalling US$ 275.4 million during April 2000May 2015, according to
the Department of Industrial Policies and Promotion (DIPP).
With the rising need for consumer goods in different sectors including consumer electronics
and home appliances, many companies have invested in the Indian retail space in the past few
months.

Paytm plans to set up 30,00050,000 retail outlets where its customers can load cash on
their digital wallets. The company is also looking to enrol retailers mostly kirana
stores as merchants for accepting digital payments.

Mobile wallet company MobiKwik has partnered with Jabong.com to provide mobile
payment services to Jabongs customers.

DataWind partnered with HomeShop18 to expand its retail footprint in the country.
Under the partnership, HomeShop18 and DataWind would jointly launch special sales
programmes across broadcast, mobile and internet media to provide greater access to
the latters tablet range.

FashionAndYou has opened three distribution hubs in Surat, Mumbai and Bengaluru to
accelerate deliveries.

Abu Dhabi-based Lulu Group plans to invest Rs 2,500 crore (US$ 402.0 million) in a
fruit and vegetable processing unit, an integrated meat processing unit, and a modern
shopping mall in Hyderabad, Telangana.

Aditya Birla Retail, a part of the US$ 40 billion Aditya Birla Group and the fourthlargest supermarket retailer in the country, acquired Total hypermarkets owned by
Jubilant Retail.
15

With an aim to strengthen its advertising segment, Flipkart acquired mobile ad network
AdiQuity, which has a history of mobile innovations and valuable experience in the ad
space.

US-based Pizza chain Sbarro plans an almost threefold increase in its store count from
the current 17 to 50 over the next two years through multiple business models.

Amazon, the world's largest online retailer, is readying a US$ 5.0 billion war chest to
make India its biggest market outside the US.

Wal-Mart India Private Ltd, a wholly owned subsidiary of Wal-Mart Stores Inc., plans
to open 500 stores in India in the next 1015 years.

British retail major Tesco invested Rs 850 crore (US$ 133.8 million) in multi-brand
retail trading by forming an equal joint venture with Tata group company Trent; to form
the joint venture, Tesco purchased 50 per cent stake in Trent Hypermarket Ltd (THL).
THL operates the Star Bazaar retail business in India.

Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in India.

IKEA, the worlds largest furniture retailer, bought its first piece of land in India in
Hyderabad, the joint capital of Telangana and Andhra Pradesh, for building a retail
store. IKEAs retail outlets have a standard design and each location entails an
investment of around Rs 500600 crore (US$ 80.496.5 million).

The Government of India has accepted the changes proposed by Rajya Sabha select
committee to the bill introducing Goods and Services Tax (GST). Implementation of
GST is expected to enable easier movement of goods across the country, thereby
improving retail operations for pan-India retailers.

The Government has approved a proposal to scrap the distinctions among different
types of overseas investments by shifting to a single composite limit, which means
portfolio investment up to 49 per cent will not require government approval nor will it
have to comply with sectoral conditions as long as it does not result in a transfer of
ownership and/or control of Indian entities to foreigners. As a result, foreign
investments are expected to be increase, especially in the attractive retail sector.

16

The Road Ahead

E-commerce is expanding steadily in the country. Customers have the ever increasing choice of
products at the lowest rates. E-commerce is probably creating the biggest revolution in the
retail industry, and this trend would continue in the years to come. Retailers should leverage the
digital retail channels (e-commerce), which would enable them to spend less money on real
estate while reaching out to more customers in tier-2 and tier-3 cities.
Both organized and unorganized retail companies have to work together to ensure better
prospects for the overall retail industry, while generating new benefits for their customers.
Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes,
favorable demographics, entry of foreign players, and increasing urbanization.

Types of retail outlets

A marketplace is a location where goods and services are exchanged. The traditional market
square is a city square where traders set up stalls and buyers browse the merchandise. This kind
of market is very old, and countless such markets are still in operation around the whole world.
In some parts of the world, the retail business is still dominated by small family-run stores, but
this market is increasingly being taken over by large retail chains.
Retail is usually classified by type of products as follows:

Food products

Hard goods ("hardline retailers") - appliances, electronics, furniture, sporting goods, etc.

Soft goods - clothing, apparel, and other fabrics.

There are the following types of retailers by marketing strategy:

Department stores - very large stores offering a huge assortment of "soft" and "hard
goods; often bear a resemblance to a collection of specialty stores. A retailer of such
store carries variety of categories and has broad assortment at average price. They offer
considerable customer service.
17

Discount stores - tend to offer a wide array of products and services, but they compete
mainly on price offers extensive assortment of merchandise at affordable and cut-rate
prices. Normally retailers sell less fashion-oriented brands. However the service is
inadequate.;

General merchandise store - a hybrid between a department store and discount store;

Supermarkets - sell mostly food products;

Warehouse stores - warehouses that offer low-cost, often high-quantity goods piled on
pallets or steel shelves; warehouse clubs charge a membership fee;

Variety stores or "dollar stores" - these offer extremely low-cost goods, with limited
selection;

Demographic - retailers that aim at one particular segment (e.g., high-end retailers
focusing on wealthy individuals).

Mom-And-Pop or Kirana Stores: is a retail outlet that is owned and operated by

individuals. The range of products are very selective and few in numbers. These stores
are seen in local community often are family-run businesses. The square feet area of the
store depends on the store holder.

Specialty Stores: A typical specialty store gives attention to a particular category and
provides high level of service to the customers. A pet store that specializes in selling
dog food would be regarded as a specialty store. However, branded stores also come
under this format. For example if a customer visits a Reebok or Gap store then they find
just Reebok and Gap products in the respective stores.

Convenience Stores: is essentially found in residential areas. They provide limited

amount of merchandise at more than average prices with a speedy checkout. This store
is ideal for emergency and immediate purchases.

Hypermarkets: provides variety and huge volumes of exclusive merchandise at low

margins. The operating cost is comparatively less than other retail formats. A classic
example is the Metro in Bangalore.

Supermarkets: is a self service store consisting mainly of grocery and limited products
on non food items. They may adopt a Hi-Lo or an EDLP strategy for pricing. The
supermarkets can be anywhere between 20,000-40,000 square feet. Example: SPAR
supermarket.

18

Malls: has a range of retail shops at a single outlet. They endow with products, food and
entertainment under a roof. Example: Sigma mall and Garuda mall in Bangalore,
Express Avenue in Chennai.

Category Killers or Category Specialist: By supplying wide assortment in a single

category for lower prices a retailer can "kill" that category for other retailers. For few
categories, such as electronics, the products are displayed at the centre of the store and
sales person will be available to address customer queries and give suggestions when
required. Other retail format stores are forced to reduce the prices if a category
specialist retail store is present in the vicinity. For example: Pai Electronics store in
Bangalore, Tata Croma.

E-tailers: The customer can shop and order through internet and the merchandise are
dropped at the customer's doorstep. Here the retailers use drop shipping technique. They
accept the payment for the product but the customer receives the product directly from
the manufacturer or a wholesaler. This format is ideal for customers who do not want to
travel to retail stores and are interested in home shopping. However it is important for
the customer to be wary about defective products and non secure credit card transaction.
Example: Amazon and Ebay.

Vending Machines: This is an automated piece of equipment wherein customers can

drop in the money in machine and acquire the products. For example: Soft drinks
vending at Bangalore Airport.

Some stores take a no frills approach, while others are "mid-range" or "high end",
depending on what income level they target.
Other types of retail store include:

Automated Retail stores are self service, robotic kiosks located in airports, malls and
grocery stores. The stores accept credit cards and are usually open 24/7. Examples
include ZoomShops and Redbox.

Big-box stores encompass larger department, discount, general merchandise, and

warehouse stores.

19

Convenience store - a small store often with extended hours, stocking everyday or
roadside items;

General store - a store which sells most goods needed, typically in a rural area;

Retailers can opt for a format as each provides different retail mix to its customers based on
their customer demographics, lifestyle and purchase behaviour. A good format will lend a hand
to display products well and entice the target customers to spawn sales.
The Heritage Group, founded in the year 1992 by Sri Nara Chandrababu Naidu, is one of the
fastest growing Private Sector Enterprises in India, with five-business divisions viz., Dairy,
Retail, Agri, Bakery and Renewable Energy under its flagship Company Heritage Foods
Limited (Formerly known as Heritage Foods (India) Limited). The annual turnover of Heritage
Foods crossed Rs 2072.97 crores in financial year 2014-15.
Presently Heritages milk products have market presence in Andhra Pradesh,Telangana,
Karnataka, Kerala, Tamil Nadu, Maharastra, Odisha and Delhi and its retail stores across
Bangalore, Chennai and Hyderabad. Integrated agri operations are in Chittoor and Medak
Districts and these are backbone to retail operations and the state of art Bakery division at
Uppal, Hyderabad, Telangana.
In the year 1994, HFIL went to Public Issue to raise resources, which was oversubscribed 54
times and its shares are listed under B1 Category on BSE (Stock Code: 519552) and NSE
(Stock Code: HERITGFOOD)

20

About the founder:

Sri Chandrababu Naidu is one of the greatest Dynamic, Pragmatic, Progressive and Visionary
Leaders of the 21 st Century.
With an objective of "Bringing prosperity into the rural families through co-operative efforts",
he along with a few likeminded, friends and associates promoted "Heritage Foods" in the year
1992 taking opportunity from the Industrial Policy, 1991 of Government of India and he has
been successful in his endeavor. At present, Heritage has market presence in the states of
Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Maharastra, Odisha and Delhi.
More than three thousand villages and three lakh farmers are being benefited in these states. On
the other side, Heritage is serving millions of customers needs, employing more than 3800
employees and generating indirect employment opportunities to more than 10000 people.
Beginning with a humble annual turnover of Rs.4.38 crores in 1993-94, the annual turnover has
crossed Rs 2072.97 crores during the financial year 2014-2015.
Sri Chandrababu Naidu was born on April 20, 1951 in Naravaripally Village , Chittoor District,
Andhra Pradesh , India . His late father Sri N. Kharjura Naidu was an agriculturist and his late
mother Smt. Ammanamma was a housewife. Mr. Naidu had his school education in
Chandragiri and his college education at the Sri Venkateswara Arts College , Tirupati. He did
his Masters in Economics from the Sri Venkateswara University , Tirupati. Sri Naidu is married
to Ms. Bhuvaneswari D/o Sri N T Rama Rao, Ex-Chief Minister of Andhra Pradesh and famous
Star of Telugu Cinema. Mrs. N Bhuvaneswari is presently the Vice Chairperson & Managing
Director of the company.
Mr. Naidu held various positions of office in his college and organised a number of social
activities. Following the 1977 cyclone, which devastated Diviseema taluk of Krishna district,
he actively organised donations and relief material from Chittoor district for the cyclone
victims. Mr. Naidu has been evincing keen interest in rural development activities in general
and the upliftment of the poor and downtrodden sections of society in particular.
Sri Naidu held various coveted and honourable positions including Chief Minister of Andhra
Pradesh, Minister for Finance & Revenue, Minister for Archives & Cinematography, Member
21

of the A.P. Legislative Assembly, Director of A.P. Small Industries Development Corporation,
and Chairman of Karshaka Parishad.
Sri Naidu has won numerous awards including " Member of the World Economic Forum's
Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time Asia ), " Business Person of the
Year " (Economic Times), and " IT Indian of the Millennium " ( India Today).
Sri Naidu was chosen as one of 50 leaders at the forefront of change in the year 2000 by the
Business Week magazine for being an unflinching proponent of technology and for his drive to
transform the State of Andhra Pradesh.

Forward looking statements:

We have grown, and intended to grow, focusing on harnessing our willingness to experiment
and innovate our ability to transform our drive towards excellence in quality, our people first
attitude and our strategic direction.

Mission
Bringing prosperity into rural families of India through co-operative efforts and providing
customers with hygienic, affordable and convenient supply of " Fresh and Healthy " food
products.

Vision
To be a progressive billion dollar organization with a pan India foot print by 2020.
To achieve this by delighting customers with "Fresh and Healthy" food products, those are a
benchmark for quality in the industry.
We are committed to enhanced prosperity and the empowerment of the farming community
through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing career aspirations and
providing innovative avenues for enhanced employee prosperity.

22

Heritage Slogan:
When you are healthy, we are healthy
When you are happy, we are happy
We live for your "HEALTH & HAPPINESS"

Quality policy of HFIL:

We are committed to achieve customer satisfaction through hygienically processed and packed
Milk and Milk Products. We strive to continually improve the quality of our products and
services through upgradation of technologies and systems.
Heritage's soul has always been imbibed with an unwritten perpetual commitment to itself, to
always produce and provide quality products with continuous efforts to improve the process
and environment.
Adhering to its moral commitment and its continuous drive to achieve excellence in quality of
Milk, Milk products & Systems, Heritage has always been laying emphasis on not only
reviewing & re-defining quality standards, but also in implementing them successfully. All
activities of Processing, Quality control, Purchase, Stores, Marketing and Training have been
documented with detailed quality plans in each of the departments.
Today Heritage feels that the ISO certificate is not only an epitome of achieved targets, but
also a scale to identify & reckon, what is yet to be achieved on a continuous basis. Though, it is
a beginning, Heritage has initiated the process of standardizing and adopting similar quality
systems at most of its other plants.

23

Commitments:
Milk Producers:
Change in life styles of rural families in terms of:

Regular high income through co-operative efforts.

Women participation in income generation .

Saved from price exploitation by un-organized sector .

Remunerative prices for milk .

Increase of milk productivity through input and extension activities

Shift from risky agriculture to dairy farming

Heritage

Financial support for purchase of cattle; insuring cattle

Establishment of Cattle Health Care Centers

Supplying high quality Cattle feed

Organizing "Rythu Sadasu" and Video programmes for educating the farmers in dairy
farming

Customers:

Timely Supply of Quality & Healthy Products

Supply high quality milk and milk products at affordable prices

Focused on Nutritional Foods

More than 4 lakh happy customers

High customer satisfaction

24 hours help lines ( <10 complaints a day)

24

Employees:

Enhancing the Technical and Managerial skills of Employees through continuous

training and development

Best appraisal systems to motivate employees

Incentive, bonus and reward systems to encourage employees

Heritage forges ahead with a motto "add value to everything you do"

Returns:
Consistent Dividend Payment since Public Issue (January 1995)

Service:

Highest impotence to investor service; no notice from any regulatory authority since
2001 in respect of investor service

Very transparent disclosures

Suppliers:
Doehlar: technical collaboration in Milk drinks, yogurts drinks and fruit flavoured drinks
Alfa-Laval: supplier of high-end machinery and technical support Focusing on Tetra pack
association for products package.

Society:

Potential Employment Generation

More than 3500 employees are working with heritage

More than 9500 procurement agents got self employment in rural areas

More than 5000 sales agents associated with the company

25

Employment for the youth by providing financial and animal husbandry support for
establishing MINI DAIRIES

Producing highly health conscious products for the society

Qualities of management principles:

1. Customer focus to understand and meet the changing needs and expectations of
customers.
2. People involvement to promote team work and tap the potential of people.
3. Leadership to set constancy of purpose and promote quality culture trough out the
organization.
4. Process approach to assess the efficiency and effectiveness of each process.
5. Systems approach to understand the sequence and interaction of process.
6. Factual approach to decision making to ensure its accuracy.
7. Continual improvement processes for improved business results.
8. Development of suppliers to get right product and services in right time at right place.

26

COMPANY PROFILE
CODE OF CONDUCT AND ETHICS
FOR DIRECTORS & SENIOR MANAGEMENT

PREFACE
This Code of Conduct and Ethics (herein after referred to as the "Code") has been adopted by
the Board of Directors of Heritage Foods (India) Limited (herein after referred to as "the
Company"), to be applicable to all Directors and all members of senior management i.e.,
personnel who are a part of the core management team and including all functional heads of the
company (herein after referred to as the 'Members') with effect from December 23, 2005.
This Code helps the Members maintain good standards of business conduct, foster ethical and
moral conduct and promote a culture of honesty and accountability, so as to set an example to
others in the company.
The Code is not an all-inclusive comprehensive policy and cannot anticipate every situation
that may arise in the course of the company's business. The Members are expected to bear in
mind the essence and substance of the Code in all their dealings / transactions with the
Company.
STRICT COMPLIANCE
All Members shall act within the bounds of the authority conferred upon them and undertake
the duty to make and enact informed, judicious and harmonious decisions and policies in the
best interests of the Company and its shareholders / stakeholders.

27

With a view to maintain the high standards the Company requires, the following rules/ code of
conduct to be observed in all activities. For the purpose of the code, the Company appoints the
Company Secretary as compliance officer, who will be available to Members to answer
questions and help them in complying with the code.

CONFLICT OF INTEREST
The term "Conflict of interest" pertains to situations in which financial or personal
considerations may compromise, or have the appearance of compromising judgment of
professional activities. A conflict of interests exists where the interests or benefits of one person
or entity conflicts with the interests or benefits of the other person/entity/company.
All Members should not engage in any business, relationship or activity, which may be in
conflict with the interest of the Company. Conflict may arise in many situations. It is not
possible to cover every possible conflict situation and at times, it will not be easy to distinguish
between the proper and improper activities. Set forth below, are some of the common
circumstances that may lead to conflict of interest, actual or potential.
i.

Members should not engage in any activity / employment that interfere with your
performance or responsibility to the Company or otherwise in conflict with or prejudicial to

the interests of the Company.

ii. As a general policy, Members should avoid conducting business with a relative or with a firm
/ Company in which a relative / related party is associated in a significant role / position.
iii. Whenever/ wherever the related party transaction is unavoidable Members will fully disclose
their interest in the transaction to the Board or to the CEO of the Company and due records
for such transactions will be maintained as per the statutory requirements.
HONESTY AND INTEGRITY
All Members shall conduct their activities, on behalf of the Company and on their personal
behalf, with honesty, integrity and fairness. They will act in good faith, with responsibility, due
care, competence and diligence, allowing independent judgment to their subordinates.
Members shall act in the best interests of the Company and fulfil their fiduciary obligations.

28

POLICY OF BUSINESS RELATIONSHIP

The Company will conduct business legally and ethically. The quality of company's products
and the efficiency of its services at the most competitive price is the greatest tool in conducting
the business of the company. Profits do not justify unfair/ unethical practices. All Members
should uphold the highest standards of integrity in all the business relationships.

INTELLECTUAL PROPERTY POLICY

All Members have utmost obligation to identify and protect the intellectual properties, trade
secrets and confidential information owned by the Company and its clients or associates as it is
critical to the success of the company. "Intellectual Property Rights" (IPR) means generally
patented or potentially patentable inventions, trademarks, copyrightable subject matters and
trade secrets.
CORPORTE OPPORTUNITIES
Members owe a duty to the Company to advance its legitimate interests when the opportunity
to do so arises and are expressly prohibited from improper use of information / property or
taking improper advantage of their position. PREVENTION OF INSIDER TRADING
Insider trading is prohibited both by the Law as well as by the company policy . Insider trading
generally involves the act of subscribing to or buying or selling of the Company's securities,
when in possession of any Unpublished Price Sensitive Information about the company.
"Price sensitive information is such information, which relates directly or indirectly to the
company and which if published is likely to materially affect the price of securities of the
Company. It is important to note that both positive and negative information could be price
sensitive.
Members shall not derive benefit or assist others to derive benefit or assist them to derive
benefit on their behalf by giving investment advice from the available access to and possession
of information about the Company, which is not in public domain and thus constituting insider
information. Members shall comply with the prevention of insider trading guidelines as issued
by Securities Exchange Board of India (SEBI).
29

SECURITIES MARKET POLICY

The Company is committed to comply with securities laws in all the markets in which the
Company's securities are listed. The company prohibits fraudulent and unfair trade practices
with regard to the securities of the Company by all Members.
CONFIDENTIALITY OF INFORMATION POLICY
The Company's confidential information is a valuable asset. Members shall understand that
protection of all confidential information is essential. Members should undertake and be
committed to protecting business and personal information of confidential nature obtained from
clients, associates and employees.
Any information concerning the Company's business, its customers, suppliers etc which is not
in the public domain and to which the Members have access or possesses such information,
shall be considered confidential and held in confidence, unless authorized to disclose or such
disclosure is required as a matter of law. Members shall not provide any information either
formally or informally, to the press or any other publicity media, unless specially authorized to
do so.
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Members should comply with all applicable laws, rules, and regulations, both in letter and
spirit. In order to assist the Company in promoting the lawful and ethical behavior, Members
have to report any possible violation of law, rules, regulations or the code of conduct to the
Company Secretary.
PROTECTION AND PROPER USE OF COMPANYS ASSETS
All Members have the responsibility to protect the assets of the company, ensure optimal
utilization of assets and to report and record all transactions. Members shall protect the
Company's assets from loss, damages, misuse or theft and assets may only be used for business
30

purposes and other purposes specifically approved by management and must never be used for
any personal or illegal purposes.

COMPETITION POLICY
The Company shall compete only in an ethical and legitimate manner. It prohibits all actions
that are anti- competitive or otherwise contrary to laws that govern competitive practices in the
market place. Members shall uphold the same.

SELECTING SUPPLIERS
The Company's suppliers make significant contribution to its success. The Company's policy is
to purchase / avail supplies based on need, quality, service, price and other commercial terms
and conditions. Suppliers should be selected based on merit, price, quality and performances.
The Company's policy is to select significant suppliers through a competitive bid process
wherever possible. Under no circumstance should the Company or its employee, agent or
contractor attempt to coerce suppliers in any way.

ENVIRONMENT, HEALTH AND SAFETY POLICY

Members shall take environmental consciousness a step further as a company and contribute to
preserving nature as well as safety measures in own respective work areas. All Members are
responsible for conducting safe and environmentally sound operations; this is in the interest of
our own well-being and the quality of life of others. Members shall abide by this policy.
ELIMINATION OF CHILD LABOUR
It is the Company's policy not to support child labour. The Company is committed to
implement the provisions of the Child Labour (Prohibition and Regulation) Act, 1986. To,
promote this the Company encourages its suppliers also to work towards a no child labour
policy in their industries. Members shall strictly observe that no child labour is employed in the
company.

31

ABOLITION OF FORCED LABOUR

The Company strictly prohibits forced or compulsory labour. The Company is committed to
ensuring that employees enter into employment and stay on in the Company of their own free
will. Members shall uphold this policy.
GIFTS & DONATIONS
No Member shall receive or offer, directly or indirectly, any gifts, donations, remuneration,
hospitality, illegal payments and comparable benefits which are intended or perceived to be
intended to obtain business (or uncompetitive) favours or decision for the conduct of the
business. Normal gifts of commemorative nature for special events may be accepted and
reported to the Board.
OTHER DIRECTORSHIPS
The Company feels that serving on the Board of directors of other companies may raise
substantial concerns about potential conflict of interest. Therefore all Directors shall report /
disclose such relationships to the Board on an annual basis. It is felt that service on the Board
of a direct competitor is not in the interest of the Company. Hence all the Directors are barred
in accepting such position without the concurrence of the Board.
ACCOUNTABILITY
The Board of Directors (BOD) shall oversee the Company's adherence to ethical and legal
standards. All employees and members of the BOD shall undertake to stop or prevent actions
that could harm customers or reputation of the Company and to report such actions as soon as
they occur to take corrective steps and see that such actions are not repeated.
COMPLIANCE WITH CODE OF CONDUCT
Each Director and senior management personnel shall adhere to this code of conduct and affirm
compliance with the code on an annual basis as per the Annexure to the Code. Violation of this
Code will lead to appropriate disciplinary action.

32

WAIVER OF THE CODE

Any waiver of the applicability of the Code or waiver of application of any provision of the
Code to any Member shall be approved by the Board of Directors and disclosed as required by
Law or SEBI / Stock Exchange regulations.

BRANCHES OF HFIL:
HFIL has many wings. They are
1. Dairy
2. Retail
1. Dairy:
It is the major wing among all. The dairy products manufactured by HFIL are
Milk, curd, butter, ghee, flavoured milk, paneer, doodhpeda, ice cream.
2. Retail:
In the retail sector HFIL has outlets namely Fresh@. In those stores the products sold are
vegetables, milk& milk products, grocery, pulses, fruits etc.
In Hyderabad 19 retail shops are there. In Bangalore& Chennai, 3&4 respectively are there.
Totally there are 26 retail shops are there.
Fresh@ is a unique chain of retail stores, designed to meet the needs of the modern Indian
consumer. The store rediscovers the taste of nature every day making grocery shopping a never
before experience.
The unique& distinctive feature of Fresh@ is that it offers the widest range of fresh fruits and
vegetables which are directly handpicked from the farms. Freshness lies in their merchandise
and the customers are always welcomed with fresh fruits and vegetables no matter what time
they walk in.
33

The following are the directors of the company:

Sri D.Seetharamaiah
Smt. N. Bhuvaneswari
Sri M. Sivarama Varaprasad
Sri R.S.Bakkannavar
The Company was registered as Non Banking Financial Institution on 5th Day of December
1998 by Reserve Bank of India as a Deposit Taking Company under the category Hire Purchase
Company.
At Present the company is allowing Dairy Loans to Small Farmers under Tie up arrangement
with Heritage Foods (India) Limited. The Company has been earning profits from inception
and functioning in conformity with the rules and directions of Reserve Bank of India.

34

CHAPTER-3
REVIEW OF LITERATURE

35

REVIEW OF LITERATURE
Financial statement have to major uses in financial analysis first, they one used to
present a historical recover of the firms financial development when competed over a number
of years a trained analyst can determine important financial factors that have in the ended the
growth and Current assets of the firm. Second, they are used to here cast a course of action for
the firm.
A performance financial statement is prepared for a future period. It is the financial
managers estimate of the firms future performance.
The operation and performance of a business depends on many individuals are
collective decisions that are continually made by its management team. Every one of these
decisions ultimately causes a financial impact, for better or works on the condition and the
periodic results of the business. In essence, the process of managing involves a series of
economic choices that activates moments of financial resources connected with the business.
Some of the decisions management makes one major, such as investment in a new
facility, raising large amounts of debts or adding a new line of products or services. Most other
decisions are part of the day-to-day process in which every functional area of the business is
managed. The combine of effect of all decisions can be observed periodically when the
performance of the business is judged through various financial statements and special analysis.
These changes have profoundly affected all our lives and it is important for corporate
managers, share holders, tenders, customers and suppliers to investment and the performance of
the corporations on which then relay. All who depend on a corporation for products, services,
or a job must be med about their companys ability to meet their demands time and in this
changing world. The growth and development of the corporate enterprises is reflected in their
financial statement.

36

LIQUIDITY AND PROFITBILITY

Liquidity and profitability are two important demanders in determining the soundness
of an enterprise.
Liquidity means ability of a firm to meet its current obligations when they become due
for payment. It has two aspects quantitative and qualitative. Qualitative aspect implies the
quantum of current assets a firm possesses irrespective of making any difference between
various types of current assets such as inventories, cash and so on. Qualitative aspect reforms
the quality of current in terms of their realization in to cash considering time dimension
involved in maturing different components of current assets.
Profitability is the capacity of earning profits and due most important measure of
performance of affirms. It is generally assumed that there is negative relationship between
liquidity and profitability i.e. higher liquidity results in lower profitability and vice-versa.

Objectives of the Study

To study the growth and development of the company.
To study the behavior of liquidity and profitability of the companies.
To analyze the factors determining the liquidity and profitability.
To comparative study of selected companies on the basis of selected ratios.

Statement of the problem

Development of industries depends on several factors such as financial personnel
technology, quality of the product and marketing art of these. Financial aspects assume a
significant role in determining the growth of industries. All of the companys operations
virtually affect its need for cash. Most of these data covering operations areas are however
outside the direct responsibility of the financial executives. Values top management appreciates
the value of good financial executives to know the profitability and liquidity of the concern.
The firm whose present operations are inherently difficult should try to makes its financial
analysis to enable its management to stay on top of its working position. In this context the
researcher is interested in undertaking on analysis of the financial performance of companies to

37

examine and to understand how management of finance plays a crucial role of the financial
performance analysis of selected companies in India has been undertaken.

FINANCIAL ANALYSIS
A basic limitation of the traditional financial statements comprising the balance sheet
and the profit and loss account is that they dont give all information related to the financial
operations of the firm. Nevertheless, they provide some extremely useful information to the
extent that the balance sheet mirrors the financial position on a particular date in terms of the
structure of assets, liabilities and owners equity and so on, and the profit and loss account
shows the results of operation during a certain period of times in terms of the revenue obtained
and the cost incurred during the year. Thus the financial position and operations statement
provides a summarized a view of the financial position and operations of the firm. The analysis
of financial statement is thus an important aid to financial analysis.
The first task of the financial analyst is to select the information relevant to the
decisions under consideration from the total information from the total information contained in
the financial statements. The second step is arranged the information in the way to highlight
significant relationship.

The final step is interpretation and drawing of inferences and

conclusions. In the brief financial analysis are the processes of selection, relation and
evaluation.
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic
use of ratio to interpret financial statements so that the strength and weakness of a firm as well
as its historical performance and current financial conditions can be determined. The term Ratio
refers to the numerical or quantitative relationship between two items variables.
relationship can be expressed as
Percentages
Fractions
Proportion of numbers

38

The

These alternative methods of expressing items, which are related to each other, are for
purposes of financial analysis refer to as Ratio analysis.

BASIS OF COMPARISION
Ratios are relative figures reflecting the relationship between variables. They enable
analysis to draw conclusion regarding financial operations. The use of ratios as a tool of
financial analysis continuous their comparison, for a single ratio like absolute figure, fails to
reveal the true position.
Trend ratios
Inter firm comparison
Comparison of items single years financial statements of a firm.
Comparison with standards
Trend ratios involve a comparison of the ratios of a firm overtime is present ratios are
compared with past ratios for the same firm. The trend ratios indicate the direction of the
change in performance, improvement, deterioration or constancy over the years. The Inter firm
comparison including comparison of the ratios of a firm with those of others in the same line of
business or the job the industry has a whole reflects the performances in relation to its
competitors.
Other types of comparison may relate to comparison of items within a single years financial
statement of a firm and comparison with standard.
Financial analysis is an important technique of accounting, which makes the financial
statements as user oriented, more understandable and meaningful. Here the term analysis
which is opposite of synthesis in general breaking/separating a thing into its components,
establishing existing relationship, so as to draw meaningful inference.

39

ADVANTAGES OF FINANCAIL ANALYSIS

1. It provides the full diagnosis of the profitability and financial soundness of the business
that is it determines the measure of efficiency of operation and gauze the financial
position of the business.
2. It helps the identifying the weakness and strength of the firm.
3. It enables the management to take decision on logical and scientific method in an
intelligible way.
4. It helps the other to understand the decision easily that is it makes statement as users
oriented.
5. It helps to verify and examine the correctness and accuracy of the decision.
6. It minimizes personal experience and institution in decision-making.
7. It helps in deciding the future prospects of the firm.
8. It investigates the future potentiality of the firm.
9. It considers some useful quantitative aspects also.

DISADVANTAGES OF THE FINANCIAL ANALYSIS

Though the financial statement analysis is an important analysis is an important
accounting tool and makes the statement simple, it has some disadvantages, which have to be
kept in mind while making analysis.
1. The analysis of financial statement requires some specialized knowledge and which
involve costs.
2. The analysis is ineffective when the financial statements itself has some limitations.
3. Analysis should be done very carefully, otherwise wrong conclusions may draw.
4. Analysis becomes difficult as the data for more number of years and or for many
companies is taken.
40

5. Analysis will be less effective when the data and accounting methods are not uniform.
6. The influence of the personal judgment, direction, intention, totally may not be
eliminated which may result in wrong decision making also.

RATIO ANALYSIS
Alexander Wall is considered to be the pioneer of ratio analysis. He presented after a
serious a detailed system of ratio analysis in 1990. He explained that the work of interpretation
could be made easier by establishing quantitative relationships between the facts given in the
financial statements.
The focus of financial analysis is on key figures in the financial statements and
significance relationships that exist between there.

This analysis relationship between

component parts of financial statements to obtain a better understanding of the firms position
and performance.

MEANING OF RATIO
Generally speaking a ratio is simply one figure expressed in terms of another and thus it
is an assessment of one number in relationship must be established on the basis of some
scientific and logical methods. Thus a ratio is a mathematical relationship between two items
and expressed in quantitative form. When this definition of ratio is explained with reference to
the items shown in financial statements, then it called Accounting Ratios. Hence, an
accounting ratio is defined as quantitative relationship between two or more items of the
financial statements.
Thus ratio analysis is widely is used tool of financial analysis. It is defined as the
systematic use of ratio to interpret the financial Statements so that the strengths and weakness
of a firm as well as its historical performance and current financial condition can be
determined. The term ratio refers to the numerical or quantitative relationship between two
item/variable.

41

CLASSIFICATION OF RATIOS TYPES OF RATIOS

The ratios can be classified into four types:

LIQUIDITY RATIOS
Liquidity ratios measure the firms ability to meet current obligations.
I.

Current Ratio

II.

Quick Ratio

III.

Cash Ratio

IV.

Interval Ratio

V.

Net Working Capital Ratio

LEVERAGE RATIOS
Leverage ratios show the proportions of debt and equity in financing the firms assets.
I.

Debt Equity Ratio

II.

Capital Equity Ratio

III.

Proprietary Ratio

ACTIVITY RATIOS
Activity ratios reflect the firms efficiency in utilizing its assets.
I.

Inventory Ratio

II.

Fixed Assets Turnover Ratio

III.

Total Assets Turnover Ratio

IV.

Current Assets Turnover Ratio

V.

Collecting Period of Debtor Ratio

VI.

Working Capital Turnover Ratio

42

OVERALL PROFITABILITY RATIOS

Profitability ratios measure over all performance and effectiveness of the firm.
I.

Return of net worth

II.

Working Capital Turnover

LIQUIDITY RATIOS
Liquidity ratios measure the ability of the firm to meet the current obligations in the short run,
usually one year. Analysis of liquidity needs the preparation of cash budgets,
Cash and fund flow statements.
A firm should ensure that it does not suffer from lack of liquidity and also it does not
suffer from lack of liquidity and also it is not too much highly liquid. Lack of liquidity and also
it is not too much highly liquid. Lack of liquidity leads to the failure of the society to meet its
obligations, results in also bad credit image, idle assets earns nothing. A very high liquidity is
also bad, idle assets earn nothing. Therefore, it is necessary to strike a proper balance between
liquidity and lack of liquidity.

LEVERAGE RATIO
To judge the long-term financial position of the society leverage ratios are calculated.
These ratios indicate mix of funds provided by shareholders and financiers. If the cost of debt
is higher than the societys overall rate of return the earnings of shareholders will be reduced.
These ratios are used to measure the financial risk and societys ability of using debt for the
benefits of shareholders.
There are two types of ratios commonly used to analyze financial leverage:
Structural Ratios
Coverage Ratios

43

Structural ratios are based on the proportion of debt and equity in the financial structure
of the firm.
Coverage ratios show the relationship between debt servicing commitments and sources
for meeting these.

PROFITABILITY RATIOS
Apart from the creditors both short term and long term also interested in the financial
soundness of a firm are the owners and management or the company itself. The management of
the firm is naturally eager to measure its operating efficiency similarly the owners invest their
funds in the expectation of reasonable returns. The operating efficiency of a firm and its ability
to ensure adequate returns to its shareholders depends ultimately on the profit earned by it. The
profitability of a firm can be measured by its profitability ratios. In other words, the profitability
ratios are designed to provide answers to questions such as
Does the profit earned by the firm adequate?
What rate of return does it represent?
What is a rate of profit for various decisions and segments of the firms?
What are the earnings per share?
What was amount paid in dividends?
What is a rate of return to equity holders?

44

ACTIVITY RATIOS
Funds are invested in various assets to generate sales and profits Activity Ratios are employees
to evaluate the efficiency with which the society manges and utilizes in assets. This ratio
indicates the speed with which assets are being converted into sales. Thus ratios indicate the
relationship between sales and assets.
Inventory turnover ratio which identifies the efficiency of the company in selling in
producers the ratio is calculated by dividing cost of goods sold by inventory where cost
off goods sold includes opening stock plus directs wages plus directs wages plus
manufacturing expenses and subtracting closing stock.
Fixed assets turnover ratio shows the companys ability in generating sales for each
rupee of fixed assets it its calculated by dividing sales by fixed assets.
Total assets turnover ratio shows the companys ability in generating sales for each
rupee of assets. It is calculated by dividing sales by total assets.
Current assets turnover ratio shows the companys ability in generating sales for each
rupee of current assets. It is calculated by dividing sales by current assets.
Working capital turnover ratio indicates the velocity of the utilization of net working
capital.

LIQUIDITY RATIOS
It is extremely essential for a firm to be able to meet the obligations as they become due.
Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities).
Infect, analysis of liquidity needs the preparation of cash budgets and cash and funds flow
statements; but liquidity ratios, by establishing a relationship between cash and other current
assets to current obligations, provide a quick measure of liquidity. A firm should ensure that it
does not suffer from lack of liquidity, and also that it does not have excess liquidity. The failure
of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor
credit worthiness, loss of credit worthiness, loss of creditors confidence, or even in legal
tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle

45

assets earn nothing. The firms funds will be unnecessarily tied up in current assets. Therefore,
it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most
common ratios which indicate the extent of liquidity are lack of it, are:
1) Current ratio and
2) Quick ratio.
Other ratios include cash ratio interval measure and networking capital ratio.

1. Current Ratio
Current ratio is calculated by dividing current assets by current liabilities.
Current assets
Current ratio = ----------------------Current liabilities
Current assets include cash and other assets that can be converted into cash within a
year, such as marketable securities, debtors and inventories. Prepaid expenses are also included
in the current assets as they represent the payments that will not be made by the firm in the
future. All obligations maturing within a year are included in the current liabilities. Current
liabilities include creditors, bills payable. Accrued expenses, short-term bank loan, income tax
liability and long-term debt maturing in the current year.
The current ratio is a measure of firms short-term solvency. It indicates the availability
of current assets in rupees for every one rupee of current liability. A ratio is greater than one
means that the firm has more current assets than current claims against them Current liabilities.

2. Quick Ratio
Quick ratio also called Acid Test Ratio, because it is the acid test of concerns financial
soundness. It establishes a relationship between quick, or liquid assets and current liabilities.
An asset is a liquid if it can be converted into cash immediately or reasonably soon without a
loss of value.

46

Cash is the most liquid asset. Other assets that are considered to be relatively liquid and
included in quick assets are debtors and bills receivables and marketable securities (temporary
quoted investments). Inventories are considered to be less liquid. Inventories normally require
some time for realizing into cash; their value also has a tendency to fluctuate. The quick ratio
is found out by dividing quick assets by current liabilities.
Current assets Inventory
Quick ratio = ----------------------------------Current liabilities

3. Cash Ratio
Since cash is the most liquid asset, it may be examined cash ratio and its equivalent to
current liabilities. Trade investment or marketable securities are equivalent of cash; therefore,
they may be included in the computation of cash ratio:
Cash + Marketable securities
Cash ratios = ------------------------------------Current liabilities

4. Interval Measure
Yet another, ratio, which assesses a firms ability to meet its regular cash expenses, is
the interval measure. Interval measure relates liquid assets to average daily operating cash
outflows. The daily operating expenses will
be equal to cost of goods sold plus selling, administrative and general expenses less
depreciation (and other non cash expenditures divided by number of days in a year (say 360).
Current assets Inventory
Interval measure = ----------------------------------------47

Average daily operating expenses

5. Net Working Capital Ratio

The different between current assets and current liabilities excluding short-term bank
borrowings is called net working capital (NWC) or net current assets (NCA).

NWC is

sometimes used as a measure of firms liquidity. It is considered that between two firms the
one having larger NWC as the greater ability to meet its current obligations. This is not
necessarily so; the measure of liquidity is a relationship, rather than the difference between
current assets and current liabilities. NWC, however, measures the firms potential reservoir of
funds. It can be related to net assets (or capital employed):

Net working capital (NWC)

NWC ratio = ------------------------------------(Current liabilities)

6. LEVERAGE RATIO
The short-term creditors, like bankers and suppliers of raw materials, are more
concerned with the firms current debt-paying ability. On other hand, long-term creditors like
debenture holders, financial institutions etc are more concerned with the firms long-term
financial strength. In fact a firm should have a strong short as well as long-term financial
strength. To judge the long-term financial position of the firm, financial leverage, or capital
structure ratios are calculated. These ratios indicate mix of funds provided by owners and
lenders. As a general rule there should be an appropriate, mix of debt and owners equity in
financing the firms assets.
Leverage ratios may be calculated from the balance sheet items to determine the
proportion of debt in total financing. Many variations of these ratios exist; but all these ratios
indicate the same thing the extent to which the firms has relied on debt in financing assets.

48

Leverage ratios are also computed form the profit and loss items by determining the extent to
which operating profits are sufficient to cover the fixed charges.

7. DEBT RATIO
Totaldebt(TD)
Debt ratio = ------------------------------------------Total debt (TD) + Net worth (NW)
Total debt (TD)
= ----------------------------Capital employed (CE)
Debt Ratio
The relationship describing the lenders contribution for each rupee of the owners
contribution is called debt-equity (DE) ratio is directly computed by dividing total debt by net
worth:
Total debt (TD)
Debt equity ratio = ----------------------Net worth (NW)

8. Capital Employed to Net Worth Ratio

It is another way of expressing the basic relationship between debt and equity. One may
want to know: How much funds are being contributed together by lenders and owners for each
rupee of owners contribution? Calculating the ratio of capital employed or net assets to net
worth can find this out:
Total Debt
Debt Equity Ratio = ---------------------Net worth (NW)

49

9 . Activity Ratios
Funds of creditors and owners are interested in various assets to generate sales and
profits. The better the management of assets, the larger the amount of sales. Activity ratios are
employed to evaluate the efficiency with which the firm manages and utilizes its assets. These
ratios are also called turnover ratios because they indicate the speed with which assets are being
converted or turned over into sales. Activity ratios, thus, involves a relationship between sales
and assets.

A proper balance between sales and assets generally reflects that assets are

managed well.

Several activity ratios are calculated to judge the effectiveness of asset

utilization.

10. Inventory Turnover

Inventory turnover indicates the efficiency of the firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average inventory:
Cost of goods sold
Inventory turnover = -------------------------Average inventory
The average inventory is the average of opening and closing balances of inventory. In a
manufacturing company inventory of finished goods is used to calculate inventory turnover.

11.Debtors (Accounts Receivable) Turnover

A firm sells goods for cash and credit. Credit is used as a marketing tool by number of
companies. When the firm extends credits to its customers, debtors (accounts receivable) are
created in the firms accounts. Debtors are convertible into cash over a short period and,
therefore, are included in current assets. The liquidity position of the firm depends on the
quality of debtors to a great extent. Debtors turnover is found out by dividing credit sales by
average debtors:

50

Credit sales
Debtors turnover = ----------------Debtors
Debtors turnover indicates the number of times debtors turnover each year generally, the
higher the value of debtors turnover, the more efficient is the management of credit.
To outside analyst, information about credit sales and opening and closing balances of
debtors may not be available. Therefore, debtors turnover can be calculated by dividing Total
sales by the year-end balances of debtors:
Sales
Debtors turnover = ----------Debtors

12.Total Assets Turnover

Net assets turnover can be computed simply by dividing sales by net sales (NA):
Sales
Total Assets Turnover = -------------Net assets
It may be recalled that net assets (NA) include net fixed assets (NFA) and net current
assets (NCA), that is, current assets (CA) minus current liabilities (CL). Since net assets equal
capital employed, net assets turnover may also be called capital employed, net assets turnover
may also be called capital employed turnover.

13.Current Assets Turnover

A firm may also like to relate current assets (or net working gap) to sales. It may
thus complete networking capital turnover by dividing sales by net working capital:
Sales

51

Current asset turnover =-------------------------

Current assets

PROFITABILITY RATIOS
A company should earn profits to survive and grow over a long period of time. Profits
are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of
concerns for customers, employees, suppliers or social consequences. It is unfortunate
that the word profit is looked upon as a term of abuse since some firms always want to
maximize profits at the cost of employees, customers and society.

Except such

infrequent cases, it is a fact that sufficient profits must be able to obtain funds from
investors for expansion and growth and to contribute towards the social overheads for
welfare of the society. Profit is the difference between revenues and expenses over a
period of time (usually one year). Profit is the ultimate output of a company, and it will
have no future if it fails to make sufficient profits. Therefore, the financial manager
should continuously evaluate the efficiency of the company in terms of profit. The
profitability ratios are calculated to measure the operating efficiency of the company.
Besides management of the company, creditors and owners are also interested in the
profitability of the firm.

Creditors want to get a required rate of return on their

investment. This is possible only when the company earns enough profits.
Generally, two major types of profitability ratios are calculated:
Profitability in relation to sales.
Profitability in relation to investment.

14. Net Profit Margin

52

Net profit is obtained when operating expenses; interest and taxes are subtracted from
the gross profit margin ratio is measured by dividing profit after tax by sales:
Net Profit
Net Profit Ratio = --------------- X 100
Sales
Net profit ratio establishes a relationship between net profit and sales and indicates and
managements in manufacturing, administrating and selling the products. This ratio is the
overall measure of the firms ability to turn each rupee sales into net profit. If the net margin is
inadequate the firm will fail to achieve satisfactory return on shareholders funds.

15.Net Margin Based on NOPAT

The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deducts
able, and therefore, a firm that pays more interest pays less tax. Tax saved on account of
payment of interest is called interest tax shield. Thus the conventional measure of net profit
margin-PAT to sales ratio is affected by firms financial policy. It can mislead if we compare
two firms with different debt ratios. For a true comparison of the operating performance of
firms, we must ignore the effect of financial leverage, viz., the measure of profits should ignore
interest and its tax effect. Thus net profit margin (for evaluating operating performance) may
be computed in the following way:
EBIT (1-T)

NOPAT

Net Profit Margin = ------------------- = --------------Sales

Sales

16.Operating Expense Ratio

The operating expense ratio explains the changes in the profit margin (EBIT to sales)
ratio. This is computed by dividing operating expenses viz., cost of goods sold plus selling
expense and general and administrative expenses (excluding interest) by sales.

53

Operating expenses
Operating expenses ratio = ---------------------------Sales

17. Return on Investment (ROI)

The term investment may refer to total assets or not assets. The funds employed in net assets
are known as capital employed. Net assets equal net fixed assets plus current assets minus
current liabilities excluding bank loans. Alternatively, capital employed is equal to net worth
plus total debt.
The conventional approach of calculating return of investment (ROI) is to divide PAT
by investments. Investment represents pool of funds supplied by shareholders and lenders,
while PAT represent residue income o shareholders; therefore, it is conceptually unsound to use
PAT in the calculation of ROI. Also, as discussed earlier, PAT is affected by capital structure. It
is, therefore, more appropriate to use one of the following measures of ROI for comparing the
operating efficiency of firms:
EBIT (1-T)

EBIT (1-T)

ROI = ROTA = ----------------- = ---------------Total assets

EBIT (1-T)

TA
EBIT (1-T)

ROI = RONA = ---------------- = --------------Net assets

NA

18. Return on Equity (ROE)

Common or ordinary shareholders are entitled to the residual profits. The rate of
dividend is not fixed: the earnings may be distributed to shareholders or retained in the
business.

Nevertheless, the net profits after taxes represent their return.

A return on

shareholders equity is calculated to see the profitability of owners investment.

The

shareholders equity or net worth will include paid-up share capital, share premium, and
reserves and surplus less accumulated losses. Net worth also be found by subtracting total

54

liabilities from total assets.

The return on equity is net profit after taxes divided by

shareholders equity, which is given by net worth:

Profit after taxes

PAT

ROE = ------------------------ = --------Net worth (Equity)

NW

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is
one of the most important relationships in financial analysis. The earning of a satisfactory
return is the most desirable objective of business.
The ratio of net profit to owners equity reflects the extent to which this objective has
been accomplished.

This ratio is, thus, of great interest to the present as well as the

prospective.
Shareholders and also of great concern to management, which has the responsibility of
maximizing the owners welfare.
The return on owners equity of the company should be compared with the ratios of
other similar companies and the industry average. This will reveal the relative performance and
strength of the company in attracting future investments.

19. Earnings per Share (EPS)

The profitability of the shareholders investments can also be measured in many other ways.
One such measure is to calculate the earnings per share. The earnings per share (EPS) are
calculated by dividing the profit after taxes by the total number of ordinary shares
outstanding.

Profit after tax

55

EPS = ------------------------------------Number of share outstanding

20. Dividends per Share (DPS or DIV)

The net profits after taxes belong to shareholders. But the income, which they will
receive, is the amount of earnings distributed as cash dividends. Therefore, a large number of
present and potential investors may be interested in DPS, rather than EPS.
DPS is the earnings distributed to ordinary shareholders dividend by the number of
ordinary shares outstanding.
Earnings paid to shareholders (dividends)
EPS = ---------------------------------------------------Number of ordinary shares outstanding

21. Dividend Payout Ratio

The dividend payout Ratio or simply payout ratio is DPS (OR Total equity dividends)
divided by the EPS (or profit after tax):
Equity dividends
Payout Ratio = ----------------------Profit after tax
Dividends per share

DPS

= --------------------------- = ------56

Earnings per share

EPS

ADVANTAGES OF RATIO ANALYSIS

Ratio analysis simplifies the comprehension of financial statement.
Ratio analysis provides data for inter firm comparison
Ratio analysis helps in planning forecasting trends in cost, sales, profit and other related
facts are revealed by the past ratios and future events can be forecast on the basis of
such trends.
Ratio may be used as an instrument of management control particularly in the area of
sales cost.
A ratio helps in investment decision to make profitable investment.
Ratios also facilitate the function of communication. It can be easily conveyed through
the ratio as what as happened during the two intervening periods.
Ratios may also be used as a measure of efficiency.

LIMITATIONS OF RATIO ANALYSIS

1. The analyst or the user must have comprehensive knowledge and experience about the
concern whose statements have been used for calculating these ratios only the dependable
conclusions may drawn thus ratios are signified tools only in the hands of experts in the
hands of quacks for whom they may prove dangerous tools.
2. Ratios are not an end in themselves but they are a means to achieve a particular end.
Hence it totally depends upon user or analyst as what conclusions is drawn on the basis of
ratios calculated.
3. A single ratio in itself is not imported or as limited value because trends are more
significant in the analysis.

57

4. Another limitation is that of standard ratio with which the actual ratios may be compared
generally there is no such ratio, which may be treated as standard for the purpose of
comparison because conditions of one concern differ significantly from those of another
concern.
5. The accuracy and correctness of ratios are totally dependent upon the reliability of the
data contained in financial statements on the basis of which ratios are calculated.
6. When ratios are used in the comparative study of two concerns there must be uniformity
in the accounting plan used both concerns. Similarly there must be consistency in the
preparation of financial statements and recording these transaction from year to year with
in that concern.
7. analyst must be able to examine the nature of the data carefully. If accounting data lack
uniformity particularly definitional uniformity, then ratio calculated on the basis of them
will be misleading.
8. Ratios become meaningless if detached from the details, which they are deriving and in
fact, they should be used as supplementary to, and not substitution of the original absolute
figures.
9. The utility of ratios is largely dependent upon the method of presentation also.
[

10. Ratios make the comparatives study complicated and misleading on account of changes in
price level.

58

CHAPTER-4
DATA ANALYSIS
&
INTERPRETATION

59

DATA ANALYSIS & INTERPRETATION

.Size and growth of current assets and liabilities and Net working capital of Heritage Foods
(India) Limited during the period 2010-11 to2014-15.
(All amounts are in Cr)
Year
2010-11
2011-12
2012-13
2013-14
2014-15

Current
Assets
144.36
168.78
164.6
208.46
235.20

Growth Rate Current

(%)
Liabilities
100
106.49
116.916043
175.59
97.5234032
170.73
126.646416
185.63
112.827401
190.33

60

Growth Rate Net W.C

(%)
100
37.87
164.888722
-6.81
97.2321886
-6.13
108.72723
22.83
102.531918
44.87

Interpretation:
The current assets of the organization are more as compared with current liabilities but at the
year 2014-2015 the financial position i.e. turnover of current year is high i.e. 44.87.

61

WORKING CAPITAL TURNOVER RATIO

(All amounts are in Cr)
Year
2010-11
2011-12
2012-13
2013-14
2014-15

Sales

Networking Capital

Ratio

1096.18
1393.41
1601.81
1722.04
2,072.97

37.87
-6.81
-6.13
22.83
44.87

28.9458674
-204.612335
-261.306688
75.4288217
46.1994651

Turnover Ratio:
Debtors Turnover Ratio expresses the relationship between debtors and sales. A high Debtors
Turnover Ratio or low Debt collection period is indicative of sound credit management policy.

Table shows Debtors Turnover Ratio of Heritage Foods (India) Limited. during 2010-11 to
2014-15.
(All
amounts are in Cr)
62

Year

Net Credit Sales

Avg. Debt

Ratio

2010-11

1096.18

14.44

75.9127424

2011-12

1393.41

11.20

124.411607

2012-13

1601.81

15.07

106.291307

2013-14

1722.04

16.61

103.674894

2014-15

2072.97

24.24

85.5185643

From the above table, it is observed that the Heritage Foods (India) Limited debtors turnover
ratio shows a good sigh. The company noted a maximum ratio of 124.41 in the year 2011-12
and the minimum ratio in the year of 2010-11.
If we observed the above table the ratio is increasing the year 2010-11 to 75.91 in the year
2011-12 in the year but it is increased to 103.67 in the year 2013-14. It shows a good sign for
the company. present year it is 85.51i.e on 2014-15.
Current Ratio:
It is the ratio of the current assets current liabilities this ratio is used to know the companys
ability to meet its current obligations. The standard norm for the current ratio is 2:1

63

Current ratio = current Assets / Current liabilities.

Table showing current ratio of Heritage Foods (India) Limited during the period 2010-11
to 2014-15

(All amounts are in Cr)

Year

Current Assets

Current Liabilities

2010-11

144.36

106.49

2011-12

168.78

175.59

2012-13

164.60

170.73

2013-14

208.46

185.63

2014-15

235.20

190.33

Ratio
1.35562025
0.96121647
0.96409536
1.12298659
1.235748436

It is observed that the Heritage Foods (India) Limited current rationing a increasing trend;
The companys liquidity position is satisfactory the current ratio increased slightly up to 201112. also in 2014-15 it inclined because of increase in current liabilities and assets, and then it
started to increase as 1.23. If the company maintains to increase the ratio it can meet
obligations.
Quick Ratio:

64

Quick ratio is relation between quick assets and current liabilities. The term quick assets, which
can be converted into cash with a short notice. This category also includes cash bank balances
short term investments and receivables.
Quick ratio = Quick Assets / current liabilities
Table showing quick ratio of Heritage Foods (India) Limited during the period 2010-11 to
2014-15.

(All

amounts are in Cr)

Year

Quick Assets

Current Liabilities

Ratio

2010-11
2011-12
2012-13
2013-14
2014-15

78.29
75.33
82.63
96.68
95.83

106.49
175.59
170.74
185.63
190.33

0.7351864
0.42901076
0.48395221
0.52082098
0.50349393

It is observed from the table that the Heritage Foods (India) Limited Quick Ratio is
satisfactory. The company has noted a maximum ratio of 0.73 in the year of 2010-11.
Except the 2010-11 year, the remaining is below the standard of the norm 1:1. But we observed
the ratio of the company, it is decreasing gradually. i.e 0.50 in the year 2014-15So it is a bad
sign for the company.
Cash ratio:

65

Indicates a conservative view of liquidity such as when a company has pledged its receivables
and its inventory, or the analyst suspects severe liquidity problems with inventory and
receivables.
Cash ratio=

Cash Equivalents + Marketable Securities

Current Liabilities

Year
2010-11
2011-12
2012-13
2013-14
2014-15

Cash
29.29
29.99
32.95
44.42
40.68

Marketable securitys
1.02
1.12
1.12
0.99
0.98

Current Liabilities
106.49
175.59
170.74
185.63
190.33

Ratio
29.2995784
29.9963785
32.9565597
44.4253332
40.685149

It is observed from the table that the Heritage Foods (India) Limited cash Ratio is
satisfactory. The company has noted a maximum ratio of 44.42 in the year of 2013-14.
We observed the ratio of the company, it is decreasing gradually. i.e 40.68in the year 201415So it is a bad sign for the company

8. Net Working Capital Ratio

66

The different between current assets and current liabilities excluding short-term bank
borrowings is called net working capital (NWC) or net current assets (NCA). NWC is
sometimes used as a measure of firms liquidity.
Net working capital (NWC)
NWC ratio = ------------------------------------(Current liabilities)

Year
2010-11

Net working capital

37.87

Current Liabilities
106.49

NWC

2011-12

-6.81

175.59

-3.87835298

2012-13

-6.13

170.74

-3.59025419

2013-14

22.83

185.63

12.2986586

2014-15

44.87

190.33

23.5748437

35.5620246

Interpretation:
The current assets of the organization are more as compared with current liabilities but at the
year 2014-2015 the financial position i.e. networking capital of current year is high i.e. 23.57.
Debt Ratio
The relationship describing the lenders contribution for each rupee of the owners
contribution is called debt-equity (DE) ratio is directly computed by dividing total debt by net
worth:

67

Total debt (TD)

Debt equity ratio = ----------------------Net worth (NW)
Year
2010-11
2011-12
2012-13
2013-14
2014-15

Total Debt
14.44
11.2
15.07
16.61
24.24

Net Worth
86.54
93.13
141.89
178.99
193.01

D/E Ratio
16.6859256
12.0261999
10.6209035
9.27984804
12.5589348

Interpretation:
The current assets of the organization are more as compared with total debt and equity of the
company but at the year 2014-2015 the financial position i.e. D/E of current year is high i.e.
12.55.
Net Profit ratio
Net profit is obtained when operating expenses; interest and taxes are subtracted from
the gross profit margin ratio is measured by dividing profit after tax by sales:
Net Profit

68

Net Profit Ratio = --------------- X 100

Sales
Year
2010-11
2011-12
2012-13
2013-14
2014-15

Net Profit
1.12
9.33
49.96
45.31
28.21

Sales
1096.18
1393.41
1601.81
1722.04
2,072.97

Net Profit Ratio

0.102173
0.66958038
3.11897166
2.63118162
1.36084941

Interpretation:
The current assets of the organization are more as compared with Netprofit and salesof the
company but at the year 2014-2015 the financial position i.e. NPR of current year islow i.e.
1.36.
Composition of current Assets Heritage Foods (India) Limited
(all the amounts are in Cr)
Particulars

2010-11

2011-12

2012-13

2013-14

66.07

93.45

82.09

108.55

14.44

11.20

15.07

16.61

Inventory
Sundry Debtors

69

2014-15

139.37
24.24

Avg.
489.53
81.56

Cash and Bank

26.58

29.99

33.07

44.42

Loans &
Advances

33.41

34.14

34.49

38.88

30.91

171.83

140.5

168.78

164.72

208.46

235.20

917.66

40.68

174.74

Total

The income statement is also called as income statement, it is considered to be the most useful
of all financial statements. It prepared by a business concern in order to know the profit earned
and loss sustained during a specified period. It explains what has happened to a business as a
result of operations between two balance sheet dates. For this purpose it matches the revenues
and cost incurred in the process of earning revenues and shows the net profit earned or loss
suffered during a particular period.

70

The nature of Income which is a focus of the income statement can be well understood if
business is taken as an organization that uses Input to produce Output. The output of the
goods and services that the business provides to its customers. The values of these outputs are
the goods and services that the business provides to its customers. The values of these outputs
art the amounts paid by the customers for them. These amounts are called revenues in the
accounting. The inputs are the economic resources used by the business in providing these
goods and services. These are termed expenses in accounting.

CHAPTER-5
CONCLUSIONS
71

FINDINGS
SUGGESTIONS
BIBLIOGRAPHY

CONCLUSIONS
1. The Heritage Foods (India) Limited Net Profit Ratio is showing profit in the year
2009-10. This event is an expected one because since from the previous two years it is
showing the decline stage in Net Profit Ratio.
2. The Heritage Foods (India) Limited Gross Profit Margin of Heritage Foods (India)
Limited increases in decreases due to the increase in sales
3. Profit Margin of Heritage Foods (India) Limited is decreasing and showing negative
profit because there is increase in the price of copper
4. The Heritage Foods (India) Limited Net Working Capital Ratio is satisfactory.
5. The Heritage Foods (India) Limited return on Total Assets ratio shows a negative sign
in the year 2010-11
6. The Operating Ratio of Heritage Foods (India) Limited increase in the year 2011-12 ,
in the year 2010-11 and reached in the year 2014-15 So the company has to reduce its
operating costs.
7. The Operating Ratio of Heritage Foods (India) Limited isnt satisfactory. Due to
increase in cost of production, this ratio is decreasing. So the has to reduce its office
administration expenses
72

FINDINGS
1. The Heritage Foods (India) Limited net working capital is satisfactory between the
years 2014-15 since it shows decreasing trend ; but after that it is in declining position.
2. The current ratio of Heritage Foods (India) Limited is satisfactory during the period
of study 2010-11 to 2014-15. It is increased but after that it is declining.
3. The average quick ratio of Heritage Foods (India) Limited is not good though the
quick ratio is showing maximum value of 0.50 in the year 2014-15 and then it is
declining to be deal.
4. Fixed assets turnover ratio of Heritage Foods (India) Limited increased. The company
has to maintain this.
5. Inventory turnover ratio of Heritage Foods (India) Limited is also increased gradually,
without any fit falls up to 2010-11. But in the year 2011-12 it is declined, and again it
has increased in the year 2014-15. Good inventory management is good sign for
efficient management
6. Total Assets turnover ratio of Heritage Foods (India) Limited is not satisfactory
because it is always below one, except in the year 2014-15 having a value of 17.58.
7. Return on investment is not satisfactory. This indicates that the companys funds are not
being utilized in a better way.

73

SUGGESTIONS
1.
2.
3.
4.

Improve position funds should be utilized properly.

Better Awareness to increase the sales is suggested.
Cost cut down mechanics can be employed.
Better production technique can be employed.

5. The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
6. Neither too high nor too low inventory turnover ratios may reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to
ensure liquidity.
7. The raw material should be acquired from the right source at right quality and at right
cost.
8. The process that was being used by Heritage Foods (India) Limited with the
purchasing department should undergo changes; so that, it seeks enhance the celerity of
the delivery of a product without compromising its quality by improving the utilization
of materials, labor and equipment.

BIBLIOGRAPHY
BOOKS

Financial Management Written By M.Y. Khan & P.K. Jain

Financial Management Written By Prasanna Chandra
Financial Management Written By I. M. Pandey
Financial Management Written By S. N. Maheswari
Annual reports of the company---2011-2015.

WEB SITES
74

www.heritageindia.com
www.damodaram.com
www.retailindia.com
www.investopedia.com
www.valuebasedmanagement.net

75