CHAPTER

1
 INTRODUCTION
Fund is a significant capacity in any business as cash is required to help its different
exercises. Account is considered as the life-blood of any business. It is characterized as the
arrangement of cash at the time it is required. It has brought forth "Money related
Management" to as a different subject. Budgetary Management is the administrative
movement which is worried about the arranging and control of the company's monetary
assets.

Money related administration is the administrative action, which is worried about the
arranging and control of the company's monetary assets. It was a part of financial aspects till
1890, and as a different order, it is of late starting point. Still it has no one of a kind collection
of information of its own, and draws vigorously on financial aspects for its hypothetical ideas
even today.

The subject of money related administration is of huge enthusiasm to the two academicians
and rehearsing administrators. It is of incredible enthusiasm to academicians in light of the
fact that the subject is as yet creating, and there are as yet certain regions where discussions
exist for which no consistent arrangements have been come to up 'til now.

MEANING OF FINANCIAL MANAGEMET:

It is characterized as the arrangement of cash at the time it is required. From the different
meanings of the term business, it very well may be reasoned that the term business. Account
for the most part includes, ascending of assets, and their compelling use keeping in view the
general targets of the firm.

Monetary Administration means arranging, sorting out, coordinating and controlling the
money related exercises, for example, acquirement and usage of assets of the undertaking. It
means applying general administration standards to monetary assets of the undertaking.

DEFINITIONS OF FINANCE:

“Business finance can be defined as the activity concerned with planning, raising, controlling
and administrating of the funds used in the business”. - GUTHMEN & DOUGELL

“Financial management is the application of the planning and controlling of the finance
functions”. - ARCHER & AMBROCIO

“Financial management is concerned with the efficient use of important economic sources
namely “capital funds”. - SOLOMAN

2
NATURE OF FINANCE:

Budget summary are set up to present a periodical audit or report by the administration and
manage the condition of interest in business and genuine accomplished during the period
under survey.
From this plainly budget summaries are influenced by three things.
1. Recorded Realities
2. Accounting Shows
3. Personal Decisions
SCOPE OF FINANCE:

What is fund? What are an association's monetary exercises? How are they identified with the
association's different exercises? Firms make fabricating capacities with regards to generation
of products. Some give administrations to clients. They offer their products or administrations
to procure benefit. They raise assets to get fabricating and different offices. Consequently the
three most significant exercises of a business firm are:
1. Generation
2. Showcasing
3. Account
Money related administration as a basic piece of by and large administration isn't absolutely
autonomous territory. It draws intensely on related teaches and fields of concentrate, For
example, Financial matters, Bookkeeping, Advertising, Generation and Quantitative
techniques.
FINANCE FUNCTIONS:

The money capacities from the creation showcasing and different capacities yet the capacities
themselves can be promptly recognized. The elements of raising assets, putting them in
resources and conveying returns earned from advantages for investors are separately known
as account choice, Venture choice and profit choices.

FINANCING DECISION:

Financing capacity is a second significant capacity to be performed by the money related

director. Extensively the person must choose when, where from and how to get assets to meet
the association's speculation needs.

3
INVESTMENT DECISION:

A firms investment decisions involve capital expenditures. They are, therefore,

referred as capital budgeting decisions.
(a) Long - term Assets:
Which yield a return over a period of time in future?
(b) Short – term or Current Assets:
Defined as those assets which in the normal course of business are
convertible into without dimension in value, usually within a year.

DIVIDEND DECISION:

Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distribute all profits or retain them, of distribute a portion and
retain the balance.

LIQUIDITY DECISION:

Investment in current assets affects the firm profitability and liquidity. Current
assets management that affects a firm’s liquidity is yet another important finance function.
Current assets should be managed efficiently for safe guarding the firm against the risk of
liquidity.

RATIO ANALYSIS:

The ratio analysis is the most powerful tool of financial analysis. Several ratios
calculated from the accounting data can be grouped into various classes according to
financial activity or function to be evaluated.

DEFINITION:

“The indicate quotient of two mathematical expressions and as the relationship

between two or more things. It evaluates the financial position and performance of the firm.”

As started in the beginning many diverse groups of people are interested in

analyzing financial information to indicate the operating and financial efficiency and growth
of firm. These people use ratios to determine those financial characteristics of firm in which
they interested with the help of ratios one can determine.

4
 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 firm is utilizing its assets in generating the sales revenue.

 The overall operating efficiency and performance of firm.

The information contained in these statements is used by management, creditors,

investors and others to form judgment about the operating performance and financial position
of firm. Uses of financial statement can get further insight about financial strength and
weakness of the firm if they properly analyze information reported in these statements.
Management should be particularly interested in knowing financial strength of the firm to
make their best use and to be able to spot out financial weaknesses of the firm to take suitable
corrective actions. The further plans firm should be laid down in new of the firm’s financial
strength and weaknesses. Thus financial analysis is the starting point for making plans before
using any sophisticated forecasting and planning procedures. Understanding the past is a
prerequisite for anticipating the future.

5
CHAPTER
2

6
 INDUSTRY PROFILE

The dairy industry in India is going through major changes with the liberalization
policies of the government and the restructuring of the Economy. These have brought greater
participation of the private sector. This is also consistent with global trends which could
hopefully lead greater integration at Indian dairying with the world market for milk and milk
product.

After stagnating to 80 million tones for 20 years between 1950 and 1970 Indian
Milk production began to rise. Crossing 30 million tones in 1980 and 59 million tons in 1992.
Today India Ranks as the world second largest milk producer after the U.S.

REVIEW OF DAIRYING IN INDIA:

The main study of Indian farmers has been agriculture and allied occupations farm
animals especially cattle, have been an integral part of rural India for thousand of years.

During the year 1920 military farms were established to supply adequate Raw
Milk to the stators. These military farms were well maintained and even their stages were
raising improved animals. Else were in urban areas, dairying was largely left in hands at
traditional producers, middlemen and debates of private vendors.

DAIRY SCENARIO:

Milk is an important nutritious food. It is more important to infants and old

people. Large number of people depends upon milk as an important source of nourishment.
India with its vast population gives sentimental attachment to milk as a good food. Milk is
substance with 1.029 to 1.035 specific gravity and contains fat minerals proteins and
vitamins. The government of India encouraged Co-operative societies for production of milk
and its products and setting up of process of large milk units.

India is today the second largest producer of the milk in the world. Second only is
the U.S.A. contributing 11% of the world market. The production of milk in India is 577
lakhs of tones per year. It may be seen that the milk procurement by the organized sector is
presently, a fraction of the total milk available. There is sufficient scope for procurement of
milk and for the growth of the milk sector. With high quality technology and expertise
available indigenously and with the milk and milk products order announce by the
government enabling the private sector to deal directly with the farmer. Organized handling
of milk would lead to proper procurement measures, which would in turn be beneficial to
farmers. Remunerative price to farmers would lead to better care of cattle and thereby set in
motion a healthy cycle of increased availability of good milk.

7
WORLD FOCUS ON INDIAN INDUSTRY:

Indian dairying is emerging as a Sunrise Industry India represents one of the world’s
largest and fastest growing markets for milk and milk products due to the increasing
disposable incomes among the 250 million strong classes.

Two main reasons for the world focus on India are:

1. The low cost economy

2. The liberalization process initiated since 1991.

Other important factors include:

1. Low inflation rate

2. Inexpensive labor

3. The presence of the world’s third largest pool of technical man power

4. The world’s largest democracy.

Efforts to increase milk product by dairy farmers are strongly influenced by the
degree to which demand signals are transmitted through the marketing system. Co-operatives
have played an important role in transmitting the message of urban market demand to them.

Table: 1.1:- India’s Milk Product Mix

Fluid Milk 46.0%

Ghee 27.5%

Butter 6.5%

Curd 7.0%

Cova 6.5%

Milk Powder’s including IMF 3.5%

Pannier 2.0%

Others Including Ice Cream 1.0%

8
COMPEITIVE ADVANTAGES OF INDIAN DAIRY:

In the emerging liberalized global scenario, trade distorting agricultural policies has
been the focus of the GATT multilateral trade negotiation. With the liberalization of
agricultural trade under the new GATT regime, the heavy subsidies prevalent in the dairy
sectors in the countries of the European Union as well as in the US will have to be brought
down in the next few years.

The competitive advantages of the Indians diary industry are then considered to be
substantial. With the substantial and continued investments in building up milk production.
India can emerge as a major exporter of dairy products, at least by the early part of the next
century, even though prospects may meet with considerable opposition from the advanced
dairy nations and this opposition is likely to focus significantly on quality issues.

It is therefore necessary to evolve a long-term dairy industry policy that will not only
sustain but also enhance production and productive levels. This would require ensuring
remunerative and increased returns. To the farmer while ensuring supply of increased fluid
milk needs of the urban population at reasonable prices.

ORIGIN OF DAIRY INDUSTRY IN ANDHRA PRADESH:

Organization dairy industry in Andhra Pradesh has its roots on pilot milk supply
scheme in 1960, as prelude for its growth into integrated milk project under organization
UNICEF. It turned into a public sector corporation in 1974to function as a business
organization. It was converted into dairy development corporation. federation in 1981 to
implemented operation flood programs on An and pattern through a the tire cooperative
structure i.e., a system through which the infrastructure of the milk production, procurement
and processing, marketing are owned and managed by the producers themselves to protect
their interest with participative management under cooperative concept as:

 Village level --------------- Milk produce cooperative societies

 District level --------------- Milk producer cooperative societies

 State level ------------------ Cooperative Federation

PILOT MILK SUPPLY SCHEMES (1960-63):

This scheme was implemented to overcome the tow problems there are availability of
milk to consume and marketing of milk from rural producers. In the year 1960, it was
effectively succeed in the areas. But the important constrain of this scheme was that it was
limited to the supply of milk to the consumers in Hyderabad, secunderabad in the areas but

9
the important constrain of this scheme was that it was limited to supply of milk to the
consumer in Hyderabad, secunderabad and Vijayawada. The success of this scheme gives
scope to integrate.

INTEGRATED MILK PROJECT (1963-71):

Integrated milk project was the first major public sector dairy enterprises with an
investment of Rs.4.35 cores. The aim of the project was to make adequate quantity of milk to
the consumer of twin cities by utilizing the surplus milk of fertile districts like Krishna,
Guntur, West Godavari, Telegana, Mehaboob Nagar Nalagonda and Medak. It comprises two
units, a milk powder factory at vijawada with the handling capacity of 1.25 lakh liters per
day, established in 4969 and the central dairy at Hyderabad established in 1967 with a
handling capacity of 50,000 litres per day. With in the area of 100 miles, a set of cooling and
chilling centers has been established.

DAIRY EVELOPMENT (1971-73):

In order to spread the dairying activities throughout the state, government of Andhra
Pradesh constituted the dairying development department in 1971-72 a number of district
dairies, chilling centers and cooling canters were established. Government of Andhra Pradesh
established intensive cattle development block in Telengana area around twin cities. The
main hurdle before the farmers was neither thy have good milk animals to maintain
economical nor they finance to invest on purchasing milk animals. The hurdle was crossed
over by the state government by initiating vigorous programs of advancing loans for the
purchase of milk and animals.

PROGRESS OF DAIRY IN ANDHRA PRADESH:

The implementation of various dairy development programs has result in the

spectacular growth of dairy industry in A.P, which could be understood from milk
procurement, sales, production, employment generation and so on.

10
 ORGANIZATION PROFILE
As the years passed, APDDCF LTD built up the infrastructure needed to meet every
requirement of dairying, the procurement of milk from over 800,000 dairy farmers spread
across Andhra Pradesh and getting it ready for nationwide distribution. It all happened
within the vast Dairy plant network of APDDCF through extensive use of high technology
and management acumen honed to steer such a widespread operation and brought prosperity
to the State many times.

The Federation has drawn up more comprehensive system for procurement and
processing of milk.

A dedicated research cell is actively pursuing way and means of bettering quality.
Collaborations with global experts are also being sought, all in an attempt to remain at the
forefront of modern dairying in India where QUALITY will be the watch word.

REACHING OUTTO THE WORLD:

APPDDCF began its exports efforts thirteen years ago and has gained significant
ground abroad. It has spread its marketing network in the Gulf and is exploring the possibility
of exporting dairy products like Butter, Cheese Spread, UHT Milk, Sterilized Cream etc., to
other Countries. The Federation has been meeting the tastes of divergent cultures, while
bringing back the pleasures of home to Non - Resident Indians.

Today, APDDCF is in the process of acquiring capabilities to join the big league in
dairy technology from USA, UK, Australia, New Zealand and the Netherlands.

Products of the company:

 Milk
 Doodh peda (cova)
 Curd
 Ghee
 Badam milk
 Pista milk
 Mali kaja

Branches of company:

 Nellore Dairy

 MCC Kavali (Milk Chilling Centre)

 MCC venkatagiri

11
  MCC Duthaluru

 BMCC Dorvarisatram (Bulk Milk Chilling Center)

 BMCC Nellore palem

 BMCC Adhurupali

Competitors of the company:

 Heritage
 Thirumala
 Dodla
 Sangam

Table 1.2:- Performance of Dairy in Nellore (Dist)

Peak on any day of

Name of the Unit Capacity Per Day Present Per day
the year

Nellore Dairy 75,000 Liters 36,000 Liters 43,000 Liters

Kavali Dairy 30,000 Liters 12,000 Liters 17,000 Liters

Venkatagiri Dairy 12,000 Liters 12,000 Liters 12,000 Liters

Duttalur Dairy 22,000 Liters 22,000 Liters 22,000 Liters

SOURCE: All related Milk Chilling Centers in NDMPMACU Ltd.

12
DAIRY DEVELOPMENT ACTIVITIES IN NELLORE DISTRICT:

During the year 1969, the Nellore dairy was started with initial capacity of 12,000
liters per day mostly to collect milk from surrounding villages. After wares due to increase in
procurement the handling capacity was expanded to 40,000 liters per day during the year
1979. The Milk Chilling Centre at Kavali was started during the year 1977 with an initial
capacity of 6,000 liters per day. Similarly the Milk chilling Center at Venkatagiri was started
during the year 1981 with the same capacity.

During the year 1985, due to the increase in Milk Procurement in the District they
started handling of milk Chilling Centre Kavali and Venkatagiri has been increased from
6,000 liters to 12,000 per day. In the year 1986, the Nellore Milk Union was register under
AP Co.op Societies Act 1964.

Due to further increase in Milk Procurement the present handling capacity of Nellore
dairy is expanded to 40,000 ltrs to 75,000 ltrs per day and Milk Chilling Center Kavali also
expended from 12,000 Liters 20,000 liters per day. Under O.F. III Programmed in 1993,
another Milk Chilling Center in the District at Duttalur with handling capacity of 10,000 liter
per day was started in month of October 1995 and subsequently expanded 20,000 liters per
day during 1998.

At present there are nearly 57,360 milk producers supplying Milk to Nellore Union,
out of which there are small farmers 23,960 and marginal farmers 8,300. Among these milk
producers there are schedule cast 8,152, schedule tribes 697, back ward class 11,612 and the
remaining other casts are supplying milk to this union and they are being benefited
financially by sales of milk by an amount of Rs.210 Lakhs is being paid the Milk Producers
per month.

PRODUCT PROFILE OF MILK:

"A product is a basic need which can satisfy the customer wants ". Now we are discussing
product is "milk product".

This product came from the Vijaya Milk Dairy. This milk product came from the company
are "Vijaya Milk Dairy."There are various types of milk products obtained from the company
are as follows. They are:

 skim milk
 double toned milk
 toned milk

13
  standardized milk
 gold milk
The above milk products are available in the market.

EXPLANATIONS OF THE MILK PRODUCTS:

1. SKIM MILK:

It is the one milk products from Vijaya milk dairy. In this milk fat content is 0%.

This milk is sold as:

1000ml: Rs 35-00

500ml: Rs 20-00

2. DOUBLE TONED MILK:

It is one milk products from Vijaya milk dairy; In this milk fat content is 1.5%

This milk is sold as:

1000ml: Rs 35-00

500ml: Rs 20-50

200ml: Rs 10.00

3. TONED MILK:

It is another milk product from Vijaya milk dairy. In this milk fat content
is 3%.

This milk is sold as:

1000ml: Rs 35-00

500ml: Rs 20-00

200ml: Rs 10-00

4. STANDARDIZED GOLD MILK:

It is also another product from Vijaya milk dairy. In this milk fat
content is 4.5%.
14
This milk is sold as:

1000ml: Rs 40-00

500ml: Rs 30-00

200ml: Rs 20-00

5. GOLD MILK:

This is the last product from the Vijaya milk dairy. In this milk fat content is 6%.

This milk is sold as:

1000ml: Rs 44-00

500ml: Rs 22-00

15
MANUFACTURING PROCESS OF MILK:

1. Procuring milk

2. Reception (testing for good or spoiled milk)

3. Chilling 4 to 5c

4. Pasteurization

5. Homogenization

1. Procuring milk:

2. Reception:

Milk is brought from the farm to the dairy for processing. When recurred at the

dairy , the following the information on the milk is required quality, weight ,composition,

presence of contaminants, neutralizers, preservatives etc., and presence of added water.

3. Chilling:

16
 Importance of chilling means rapid cooling of raw milk to sufficiently low

temperature so that the growth of micro organisms present in milk checked. In chilling

process the temperature of milk should be less than 10c. Preferable 3 to 4c.

4. Pasteurization:

Developed concerns adopted pasteurization of milk in order to prevent such disease and loss

of life. Pasteurization slows the growth of bacteria in foods (usually liquids) by heating the

food to a certain temperature and the cooling it.

5. Homogenization:

Homogenized milk is produced by mechanically forcing milk through a small

passage at high velocity. This breaks down the fat globules in milk in to match smaller ones

and creates a stability of fat the mullion. The main Advantages in a union form distribution of

fat, no cream layer on the top full bodied flavor.

17
 VIJAYA DAIRY AT A GLANCE

Name of the Organization : Vijaya Dairy Limited

Nature of the Business : Liquid Milk, Ghee, Butter Milk,

And Butter etc..

Basic Raw Materials : Milk

Procuring the raw Material : Co-Operative Milk

Society Boots.

Year of Establishment : 1969

Plant Location : Venkateswarapuram,

Nellore

Plant Capacity (per day) : 75000 Liters

Promoters : AP Dairy Development Co – Operative

Federation, Hyderabad

Chairman & key persons : K. Ranga Reddy(Chairman)

K. Krishna Mohan (MD)

Number of Employees : Male – 151

Female - 30

18
ORGANISATION STRUCTURE:

BOARD OF DIRECTORS

MANAGING DIRECTOR

NELLORE DAIRY

Engineering plant accounts administration milk

procurement

Asst.dairy engineer manager asst.accounts junior manager Procurement

&inputs

Foreman asst.dairy manager officer senior assistant

manager (p&l)

Plant processing supervisor account junior assistant

Charge men lab assistant superintendent

supervisor

Compressor weighing clerk UDA’S

Operator workers LDA’S

assistant

Pre pack computer operators

Operators typist

Workers

19
CHAPTER
3

20
NEED OF THE STUDY:

 The study has great significance and provides benefits to various stakeholders of the
firm.
 It is to express the relationship between different financial aspects in a way that it
allows to draw conclusions about the performance, strengths and weakness of the
company.
 To diagnose the obtained information so as to judge the profitability of the firm.
 This study also helps to know the liquidity, solvency and turnover position of the
company.

SCOPE OF 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 4 years.

Using the ratio analysis, firms past, present and future performance can be
analyzed and this study has been divided as short term analysis and long term analysis. The
firm should generate enough profits not only to meet the expectations of owner, but also to
expansion activities.

OBJECTIVES OF STUDY:

 To study and analyze the financial position of the company through ratio analysis.
 To suggest measures for improving the financial performance of the organization.
 To analyze the profitability position of the company.
 To assess the return on investment.
 To analyze the asset turnover ratio.
 To determine the solvency position of the company.
 To suggest measures for effective and efficient usage of inventory.

21
LIMITATIONS OF STUDY:

 Most of the data is collected through secondary sources from annual financial
statements and there may be chances for bias in case of result obtained.
 The study of the company is useful only when there is set of standards and is
comparable.
 As the major source of data is annual reports, the information presented in such
reports is subject to statutory obligation, business practices, accounting concepts and
conventions and are generally accepted standards which may sometimes not reveal
true colours of the interest of the financial position of the company.

22
CHAPTER
4

23
REVIEW OF LITERATURE:

FINANCIAL ANALYSIS:

Financial analysis is the process of identifying the financial strengths and weakness of
the firm. It is done by establishing relationships between the items of financial statements
viz., balance sheet and profit and loss account. Financial analysis can be undertaken by
management of the firm, viz., owners, creditors, investors and others.

NATURE OF RATIO ANALYSIS:

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the

indicated quotient of mathematical expression" and as "the relationship between two or more
things". A ratio is used as benchmark for evaluating the financial position and performance of the
firm. The relationship between two accounting figures, expressed mathematically, is known as a
financial ratio. Ratio helps to summarizes large quantities of financial data and to make qualitative
judgment about the firm's financial performance.

The persons interested in the analysis of financial statements can be grouped under three
head owners (or) investors who are desired primarily a basis for estimating earning capacity.
Creditors who are concerned primarily with liquidity and ability to pay interest and can redeem
loan within a specified period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions.

SIGNIFICANCE OF FINANCIAL ANALYSIS:

Financial analysis serves the following purpose:-

To know the operational efficiency of the business:

The financial analysis enables the management to find out the overall efficiency of the firm. This will
enable the management to locate the weak Spots of the business and take necessary remedial action.

Helpful in measuring the solvency of the firm:

The financial analysis helps the decision makers in taking appropriate decisions for strengthening the
short-term as well as long-term solvency of the firm.

Comparison of past and present results:

Financial statements of the previous years can be compared and the trend regarding various
expenses, purchases, sales, gross profit and net profit can be ascertained.

Helps in measuring the profitability:

Financial statements show the gross profit, & net profit.

24
Inter‐firm comparison:

The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made
for various time periods.

Bankruptcy andFailure:

Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the
business enterprise. Financial statement analysis accomplishes this through the evaluation of the
solvency position.

Helps inforecasting:

The financial analysis will help in assessing future development by making forecasts and
preparing budgets.

OBJECTIVES OF FINANCIAL ANALYSIS:

Analysis of financial statements may be made for a particular purpose in view.

 To find out the financial stability and soundness of the business enterprise.
 To assess and evaluate the earning capacity of the business.
 To estimate and evaluate the fixed assets, stock etc., of the concern.
 To estimate and determine the possibilities of future growth of business.
 To assess and evaluate the firm’s capacity and ability to repay short and long term
loans.

PARTIES INTERESTED IN FINANCIAL ANALYSIS:

The users of financial analysis can be divided into two broad groups.

INTERNAL USERS:

 Financial executives
 Top management

EXTERNAL USERS:

 Investors
 Creditor.
 Workers
 Customers
 Government

25
  Public

 Researchers
METHODS OF ANALYSIS:

A financial analyst can adopt the following tools for analysis of the financial statements. These are also
termed as methods of financial analysis.

 Comparative statement analysis

 Common-size statement analysis
 Trend analysis
 Funds flow analysis
 Ratio analysis

STANDARDS OFCOMPARISON:

The ratio analysis involves comparison for an useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should
be compared with some standard. Standards of comparison are:

 Past Ratios
 Competitor's Ratios
 Industry Ratios
 Projected Ratios

 Past Ratios: Ratios calculated from the past financial statements of the same firm.
 Competitor's Ratios: Ratios of some selected firms, especially the most progressive and
successful competitor at the same point in time.
 Industry Ratios: Ratios of the industry to which the firm belongs.
 Projected Ratios: Ratios developed using the projected financial statements of the
same firm.

TYPES OF ANALYSIS:

TIME SERIES ANALYSIS:

The easiest way to evaluate the performance of a firm is to compare its present ratios
with past ratios. When financial ratios over a period of time are compared, it is known as the time

26
series analysis or trend analysis. It gives an indication of the direction of change and reflects
whether the firm's financial performance has improved, deteriorated or remind constant over time.

CROSS SECTIONAL ANALYSIS:

Another way to comparison is to compare ratios of one firm with some selected firms in
the industry at the same point in time. This kind of comparison is known as the cross-sectional
analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected
competitors, who have similar operations.

INDUSTRY ANALYSIS:

To determine the financial conditions and performance of a firm. Its ratio may be
compared with average ratios of the industry of which the firm is a member. This type of analysis is
known as industry analysis and also it helps to ascertain the financial standing and capability of the
firm & other firms in the industry. Industry ratios are important standards in view of the fact that
each industry has its characteristics which influence the financial and operating relationships.

CLASSIFICATION OF RATIOS:

Management is interested in evaluating every aspect of firm's performance. In view

of the requirement of the various users of ratios, we may classify them into following four
important categories:

 Liquidity Ratio
 Leverage Ratio
 Activity Ratio/Efficiency Ratio
 Profitability Ratio
THEORITICAL BACKGROUND:

Liquidity Ratio:

It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios help
in establishing a relationship between cast and other current assets to current obligations to 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. A very high degree of liquidity is also bad, idle assets
earn nothing. The firm's funds will be unnecessarily tied up in current assets. Therefore it is
necessary to strike a proper balance between high liquidity. Liquidity ratios can be divided into three
types:

 Current Ratio
 Quick Ratio
 Cash Ratio

27
Current Ratio:

Current ratio is an acceptable measure of firm’s short-term solvency Current assets includes cash
within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also
included in current assets as they represent the payments that will not made by the firm in future.
All obligations maturing within a year are included in current liabilities. These include creditors,
bills payable, accrued expenses, short-term bank loan, income-tax liability in the current year.

The current ratio is a measure of the firm's short term solvency. It indicated the availability of
current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is considered
satisfactory. The higher the current ratio, the greater the margin of safety; the larger the amount of
current assets in relation to current liabilities, the more the firm's ability to meet its obligations. It is
a cured and quick measure of the firm's liquidity.

Current ratio is calculated by dividing current assets and current liabilities.

Current Assets
Current Ratio= ----------------------------------
Current Liabilities

Quick Ratio:

Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset, other assets that are considered to be relatively liquid asset
and included in quick assets are debtors and bills receivables and marketable securities (temporary
quoted investments).

Inventories are converted to be 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 - Inventories

Quick Ratio =

Current Liabilities

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial

condition. Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be
used cautiously. A company with a high value of quick ratio can suffer from the shortage of
funds if it has slow- paying, doubtful and long duration outstanding debtors. A low quick ratio may
really be prospering and paying its current obligation in time.

28
Cash Ratio:

Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent current
liabilities. Cash and Bank balances and short-term marketable securities are the most liquid assets of
a firm, financial analyst stays look at cash ratio. Trade investment is marketable securities of
equivalent of cash. If the company carries a small amount of cash, there is nothing to be worried
about the lack of cash if the company has reserves borrowing power. Cash Ratio is perhaps the
most stringent Measure of liquidity. Indeed, one can argue that it is overly stringent. Lack of
immediate cash may not matter if the firm stretch its payments or borrow money at short notice.

Cash and bank balances + Current Investment

Cash Ratio= --------------------------------------------------------------------

Current Liabilities

Leverage Ratio:

Financial leverage refers to the use of debt finance while debt capital is a cheaper source of finance:
it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt
capital. Two types of ratios are commonly used to analyze financial leverage:

 Structural Ratios
 Coverage ratios
Structural Ratios are based on the proportions of debt and equity in the financial structure of firm.

Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources
for meeting these burdens.

The short-term creditors like bankers and suppliers of raw material are more concerned with the
firm's current debt-paying ability. On the other hand, long-term creditors like debenture
holders, financial institutions are more concerned with the firm's long-term financial strength.
To judge the long-term financial position of firm, financial leverage ratios are calculated. These
ratios indicated mix of funds provided by owners and lenders.

There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The
process of magnifying the shareholder's return through the use of Debt is called "financial
leverage" or "financial gearing" or "trading on equity". Leverage Ratios are calculated to
measure the financial risk and the firm's ability of using Debt to share holder's advantage.

29
Leverage Ratios can be divided into five types.

 Debt equity ratio.

 Debt ratio.
 Interest coverage ratio
 Proprietary ratio.
 Capital gearing ratio

Debt equityratio:

It indicates the relationship describing the lenders contribution for each rupee of the owner's
contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total
debt by net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity
ratio of 2:1 is considered ideal. The debt consists of all short term as well as long-term and equity
consists of net worth plus preference capital plus Deferred Tax Liability.

Long term Debts

Debt Equity Ratio = ------------------------------

Share holder funds (Equities)

Debt ratio:

Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be
interested in knowing the proportion of the interest-bearing debt in the capital structure. It may,
therefore, compute debt ratio by dividing total debt by capital employed on net assets. Total debt
will include short and long-term borrowings from financial institutions, debentures/bonds, deferred
payment arrangements for buying equipments, bank borrowings, public deposits and any other
interest-bearing loan. Capital employed will include total debt net worth.

Debt
Debt Ratio = ----------
Equity

Interest CoverageRatio:

The interest coverage ratio or the time interest earned is used to test the firms’ debt servicing
capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by
interest charges. The interest coverage ratio shows the number of times the interest charges are
covered by funds that are ordinarily available for their payment. We can calculate the interest
average ratio as earnings before depreciation, interest and taxes divided by interest.

30
 EBIT
Interest Coverage ratio = --------------
Interest

Proprietary ratio:

The total shareholder's fund is compared with the total tangible assets of the company. This ratio
indicates the general financial strength of concern. It is a test of the soundness of financial structure
of the concern. The ratio is of great significance to creditors since it enables them to find out the
proportion of share holders funds in the total investment of business.

Shareholder’s funds
Proprietary Ratio= --------------------------------------------
Total Assets

Capital Gearing Ratio:

This ratio makes an analysis of capital structure of firm. The ratio shows relationship between
equity share capital and the fixed cost bearing i.e., preference share capital and debentures.

Equity capital

Capital gearing ratio = -----------------------------------------------

P.S capital +Debentures +Loans

ACTIVITY RATIOS:

Turnover ratios also referred to as activity ratios or asset management ratios, measure how
efficiently the assets are employed by a firm. These ratios are based on the relationship between the
level of activity, represented by sales or cost of goods sold and levels of various assets. The
improvement turnover ratios are inventory turnover, average collection period, receivable turn
over, fixed assets turnover and total assets turnover.

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize 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 involve a relationship
between sales and assets. A proper balance between sales and assets generally reflects that asset
utilization.

31
Activity ratios are divided into four types:

 Total capital turnover ratio

 Working capital turnover ratio
 Fixed assets turnover ratio
 Stock turnover ratio

Total capital turnover ratio:

This ratio expresses relationship between the amounts invested in this assets and the resulting in terms
of sales. This is calculated by dividing the net sales by total sales. The higher ratio means better
utilization and vice-versa.

Some analysts like to compute the total assets turnover in addition to or instead of net assets
turnover. This ratio shows the firm's ability in generating sales from all financial resources
committed to total assets.

Sales

Total assets turnover = ----------------------------

Capital employed.

Working capital turnover ratio:

This ratio measures the relationship between working capital and sales. The ratio shows the
number of times the working capital results in sales. Working capital as usual is the excess of
current assets over current liabilities. The following formula is used to measure the ratio:

Sales

Working capital turnover ratio = -------------------------------

Working capital

Fixed assets turnover ratio:

The firm may which to know its efficiency of utilizing fixed assets and current assets separately.
The use of depreciated value of fixed assets in computing the fixed assets turnover may render
comparison of firm's performance over period or with other firms.

The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of
assets. However, in interpreting this ratio, one caution should be borne in mind, when the fixed

32
assets of firm are old and substantially depreciated the fixed assets turnover ratio tends to be high
because the denominator of ratio is verylow.

Net sales
Fixed assets turnover ratio = ------------------------
Fixed assets

Stock turnover ratio:

Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average stock. It measures how fast the
inventory is moving through the firm and generating sales.

The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio, the
more efficient the management of inventories and vice versa .However, this may not always is true.
A high inventory turnover may be caused by a low level of inventory which may result if frequent
stock outs and loss of sales & customer goodwill.

Cost of goods sold

Stock turnover ratio = ----------------------------------------------
Average stock

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. Profit is the difference between revenues and expenses over a period of
time.

Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient
profits. The financial manager should continuously evaluate the efficiency of company in terms of
profits. The profitability ratios are calculated to measure the operating efficiency of company.
Creditors want to get interest and repayment of principal regularly. Owners want to get a required
rate of return on their investment.

Generally, two major types of profitability ratios are calculated:

1. Profitability in relation to sales

2. Profitability in relation to investment

33
Profitability Ratios can be divided into six types:

 Gross profit ratio

 Operating profit ratio
 Net profit ratio
 Return on investment
 Earns per share
 Operating expenses ratio

GROSS PROFIT RATIO:

The efficiency with which management produces each unit of product. This ratio indicates the
average spread between the cost of goods sold and the sales revenue. A high gross profit margin is
a sign of good management. A gross margin ratio may increase due to any of following factors:
higher sales prices cost of goods sold remaining constant, lower cost of goods sold, sales prices
remaining constant. A low gross profit margin may reflect higher cost of goods sold due to firm's
inability to purchase raw materials at favorable terms, inefficient utilization of plant and machinery
resulting in higher cost of production or due to fall in prices in market.

This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of
production as well as pricing. To analyze the factors underlying the variation in gross profit margin,
the proportion of various elements of cost (Labor, materials and manufacturing overheads) to sale
may studied in detail.

Gross profit
Gross profit ratio = -------------------------------------------x100
Net sales

Operating profit ratio:

This ratio expresses the relationship between operating profit and sales. It is worked out by dividing
operating profit by net sales. With the help of this ratio, one can judge the managerial efficiency
which may not be reflected in the net profit ratio.

Operating profit
Operating profit ratio = ---------------------------------x100
Net sales

Net profit ratio:

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross
profit. Net profit margin ratio established a relationship between net profit and sales and indicates
management's efficiency in manufacturing, administering and selling products.

34
This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with a
high net margin ratio would be in an advantageous position to survive in the face of falling selling
prices, rising costs of production or declining demand for product

This ratio shows the earning left for share holders as a percentage of net sales. It measures overall
efficiency of production, administration, selling, financing. Pricing and tax management. Jointly
considered, the gross and net profit margin ratios provide a valuable understanding of the cost and
profit structure of the firm and enable the analyst to identify the sources of business efficiency /
inefficiency.

Net profit
Net profit ratio = ----------------------------x100
Net sales

Return on investment:

This is one of the most important profitability ratios. It indicates the relation of net profit with
capital employed in business. Net profit for calculating return of investment will mean the net
profit before interest, tax, and dividend. Capital employed means long term funds.

E.B.I.T

Return on investment = ---------------------------------------- x 100

Capital employed

Earnings per share:

This ratio is computed by earning available to equity share holders by the total amount of equity
share outstanding. It reveals the amount of period earnings after taxes which occur to each equity
share. This ratio is an important index because it indicates whether the wealth of each share holder
on a per share basis as changed over the period.

Net profit
Earnings per share = -----------------------------x100
No. of equity shares

35
Operating expensesratio:

It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavorable
since it will leave a small amount of operating income to meet interest, dividends. Operating
expenses ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected
by a number of factors such as external uncontrollable factors, internal factors. This ratio is
computed by dividing operating expenses by sales. Operating expenses equal cost of goods sold
plus selling expenses and general administrative expenses by sales.

Operating expenses
Operating expense ratio = -------------------------------------------x100
Sales

36
CHAPTER
5

37
 RESEARCH METHODOLOGY

Research Design:

In view of the objects of the study listed above an exploratory research design has been
adopted. Exploratory research is one which is largely interprets an already available
information and lays particular emphasis on analysis and interpretation of the existing and
available information.

Data Collection:

Data collected for this study is mainly through primary and secondary data sources.

Primary Sources:

Primary data is first hand information. Information collected from staff and finance manager.

Secondary Sources:

Data is collected through the sources like profit and loss account and balance sheet.

38
CHAPTER
6

39
 DATA ANALYSIS

and

ITERPRETATION

CURRENT RATIO:

This ratio attempts to measure the ability of a firm to meet its current obligations or the
liquidity of the business. In any operating concern, the current ratio should be 2:1.

Year wise Current assets, Current liabilities and Current ratio of NDMPMACU LTD.,
NELLORE

Year Current Assets Current liabilities Ratio

2014-2015 83894876.78 87960797.45 0.95

2015-2016 48056514.13 29182143.20 1.64

2016-2017 36167676.43 45947938.00 0.78

2017-2018 35220972.11 50397750.47 0.69

Ratio
2

1.5

1
Ratio
0.5

0
2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

From the above calculations we can say that 2017-18 has the good current ratio when
compared to previous years and it has nearer to the best level of 2:1.

40
QUICK RATIO:

This ratio is a more severe and stringent test of a firm’s ability to meet current obligation. It
supplements the current ratio. The firm should have a quick ratio of 1: 1.

Year wise Quick assets, Current liabilities and Quick ratio

Year Quick Assets Current liabilities Ratio

2014-2015 83584407.78 87960797.45 0.95

2015-2016 44841733.13 29182143.20 1.54

2016-2017 88066481.09 45947938.00 1.92

2017-2018 89467990.15 50397750.47 2.21

Ratio
2.5

1.5

Ratio
1

0.5

0
2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

The Quick ratio is 0.95 in the year 2014-2015, 1.54 in 2015-2016, 1.92 in the year 2016-
2017, 2.21 in 2017-2018. It was very nearer to 1:1 in the year 2014-15 and was far away in
the coming years.

41
CASH RATIO:

It measures the short term debt paying ability. This ratio is obtained by dividing cash and
trade investment or marketable securities by current liabilities.

Year wise Cash + Marketable securities, current liabilities and Cash ratio

Year Cash on bank & hand Current liabilities Ratio

2014-2015 55008914.00 87960797.45 0.63

2015-2016 7371902.80 29182143.20 0.25

2016-2017 64766644.55 45947938.00 1.41

2017-2018 51405567.87 50397750.47 1.27

Ratio
1.6
1.4
1.2
1
0.8
Ratio
0.6
0.4
0.2
0
2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

The Cash ratio is 0.63 in the year 2014-2015, 0.25 in 2015-2016, 1.41 in the year 2016-2017,
1.27 in 2017-2018.

42
DEBTORS TURNOVER RATIO:

It is also called receivable turnover ratio. It also measures the liquidity of the company. The
purpose of this ratio is to discuss the credit collection power and policy at the firm it indicates
the number of terms debtors turnover each year higher the ratio lowers avg. debtors to the
lower credit sales.

Year wise Total debtors, Annual credit sales, and Debtors turnover ratio

Year Net Credit Sales Total debtors Ratio

2017-2018 275910250.00 21928393.68 12.58

2018-2017 3749955097.00 30074845.43 124.69

2017-2018 3749955097.00 31216832.93 120.13

2018-2017 464026378.60 12161114.43 38.16

2017-2018 437810912.50 13319452.43 32.87

Ratio
140

120

100

80

60 Ratio

40

20

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Debtors turnover ratio is 12.58 in the year 2017-2018, 124.69 in 2018-2017, 120.13 in
2017-2018, 38.16 in the year 2018-2017, 32.87 in 2017-2018.

NET WORKING CAPITAL RATIO:

The difference between current assets and current liabilities excluding short term borrowings
is called Net working capital ratio. It is sometimes used as a measure of a firm’s liquidity.

43
Year wise Net working capital, Net assets and Net working capital ratio

Year Net working capital Net assets Ratio

2013-2014 4065920.77 243182238.20 0.02

2014-2015 17796814.98 231074188.59 0.08

2015-2016 18876370.93 224458626.52 0.08

2016-2017 50219738.43 240505996.05 0.21

2017-2018 58092758.33 250476583.68 0.23

Ratio
0.25

0.2

0.15

Ratio
0.1

0.05

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Net working capital ratio is 0.02 in the year 2013-2014, 0.08 in 2014-2015, 0.08 in 2015-
2016, 0.21 in the year 2016-2017, 0.23 in 2017-2018.

TOTAL ASSETS TURNOVER RATIO:

A firm’s ability to produce a large volume of sales for a given amount of assets is the most
important aspect of its pertaining performance. Unutilized and underutilized assets increase
the firms need for costly financing as well as expenses for maintenance and up keep.

44
 Year wise Sales, Total assets and Total assets turnover ratio

Year Sales Total Assets Ratio

2013-2014 275910250.00 243182238.20 1.13

2014-2015 3749955097.00 231074188.59 16.22

2015-2016 3749955097.00 224458626.52 16.70

2016-2017 464026378.60 240505996.05 1.92

2017-2018 437810912.50 250476583.68 1.74

Ratio
18
16
14
12
10
8 Ratio
6
4
2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Total assets turnover ratio is 1.13 in the year 2013-2014, 16.22 in 2014-2015, 16.70 in
2015-2016, 1.92 in the year 2016-2017, 1.74 in 2017-2018.

GROSS PROFIT RATIO:

It is the relationship between gross profit and sales. This ratio can be obtained by deducting
cost of goods sold from sales. Cost of goods sold from in the case of trading concern is
derived stock at finished goods plus purchase and direct expenses less closing stock.

45
 Year wise Gross profit, Sales and Gross profit ratio

Year Gross Profit Sales Ratio %

2014-2015 86290932.00 275910250.00 31.28

2015-2016 62744646.17 3749955097.00 1.67

2016-2017 67461148.34 464026378.60 14.54

2017-2018 927557773.49 437810912.50 2.45

Ratio %
35

30

25

20

15 Ratio %

10

0
2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Gross profit ratio is 31.28 in the year 2014-2015, 1.67 in 2015-2016, 14.54 in the year
2016-2017, 2.45 in 2017-2018.

NET PROFIT RATIO:

This ratio relates net profit to sales and indicates net margin on sales. This is also expressed
in percentages and is also known as net profit margin or net profit margin on sales.

46
 Year wise Net profit, Sales and Net profit ratio

Year Net Profit Sales Ratio %

2014-2015 45351090.94 275910250.00 16.44

2015-2016 7977074.19 3749955097.00 0.21

2016-2017 3742330.34 464026378.60 0.81

2017-2018 3369179.52 437810912.50 0.77

Ratio %
18
16
14
12
10
8 Ratio %
6
4
2
0
2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Net profit ratio is 16.44 in the year 2014-2015, 0.21 in 2015-2016, 0.81 in the year 2016-
2017, 0.77 in 2017-2018.

RETURN ON TURNOVER RATIO:

The objective of computing the return on total assets is to find out how effectively the funds
pooled together have been used .return on total assets indicates the productivity of total
assets,

47
 Year wise Profit after tax, Total assets and Return on total assets

Year Profit after tax Total Assets Ratio %

2013-2014 45351090.94 243182238.20 18.65

2014-2015 7977074.19 231074188.59 3.45

2015-2016 7977074.19 224458626.52 3.55

2016-2017 3742330.34 240505996.05 1.56

2017-2018 3369179.52 250476583.68 1.35

Ratio %
20
18
16
14
12
10
Ratio %
8
6
4
2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Return on turnover ratio is 18.65 in the year 2013-2014, 3.45 in 2014-2015, 3.55 in
2015-2016, 1.56 in the year 2016-2017, 1.35 in 2017-2018.

WORKING CAPITAL TURNOVER RATIO:

This is also known as working capital leverage ratio indicates whether as not working capital
has been efficiently utilized in marketing sales this ratio indicates the number at turns the
working capital is turned over in course of a year a big ratio indicates utilization at working
capital.

Year wise Sales, Net working capital and Working capital turnover ratio

48
Year Sales Net working capital Ratio

2014-2015 275910250.00 4065920.77 67.86

2015-2016 3749955097.00 18876370.93 198.66

2016-2017 464026378.60 50219738.43 9.24

2017-2018 437810912.50 58092758.33 7.54

Ratio
250

200

150

Ratio
100

50

0
2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Working capital turnover ratio is 67.86 in the year 2014-2015, 198.66 in 2015-2016, 9.24
in the year 2016-2017, 7.54 in 2017-2018.

INVENTORY TURNOVER RATIO:

Every from has to maintain a certain level of inventory of finished goods so as to be able to
meet the requirements of the business but the level of inventory should neither be too high
nor too low is it harmful to hold more inventory for the following reasons. It unnecessarily
blocks capital which can otherwise be profitably used somewhere else

Year wise Cost of goods sold, Avg. Inventory and Inventory turnover ratio

49
Year Cost of goods sold Avg. Inventory Ratio (Times)

2014-2015 275910250.00 87960797.45 3.14

2015-2016 3749955097.00 29180143.20 128.51

2016-2017 464026378.60 45947938.00 10.10

2017-2018 437810912.50 40397750.47 10.84

Ratio (Times)
140

120

100

80

60 Ratio (Times)

40

20

0
2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Inventory turnover ratio is 3.14 in the year 2014-2015, 128.51 in 2015-2016, 10.10 in the
year 2016-2017, 10.84 in 2017-2018.

FIXED ASSETS TURNOVER RATIO:

Fixed assets turnover ratio is the relationship between sales or cost of goods sold and fixed
capital assets employed in a business.

50
Year wise Net sales, Fixed assets and fixed assets Turnover ratio

Year Net Sales Fixed Assets Ratio

2014-2015 275910250.00 93136200.10 2.96

2015-2016 3749955097.00 115529827.69 32.46

2016-2017 464026378.60 74706674.47 6.21

2017-2018 437810912.50 94114964.27 4.65

Ratio
35

30

25

20

15 Ratio

10

0
2014-2015 2015-2016 2016-2017 2017-2018

INTERPRETATION:

The Fixed assets turnover ratio is 2.96 in the year 2014-2015, 32.46 in 2015-2016, 6.21 in the
year 2016-2017, 4.65 in 2017-2018.

51
CHAPTER
7

52
 FINDINGS

 Generally a quick ratio 1:1 is considered to represent satisfactory current financial

conditions. NDMPMACU Ltd is not healthy because the company is having a quick
ratio 2.21.
 I Interpret that the current ratio is 0.95 in the year 2014-2015, 1.64 in 2017-2018, 2.09
in the year 2016-2017, 2.43 in 2017-2018.
 I Interpret that the Quick ratio is 0.95 in the year 2014-2015, 1.54 in 2015-2016, 1.92
in the year 2016-2017, 2.21 in 2017-2018.
 I Interpret that the Cash ratio is 0.63 in the year 2014-2015, 0.25 in 2015-2016, 1.41
in the year 2016-2017, 1.27 in 2017-2018.
 I Interpret that the Debtors turnover ratio is 12.58 in the year 2013-2014, 124.69 in
2014-2015, 120.13 in 2015-2016, 38.16 in the year 2016-2017, 32.87 in 2017-2018.
 I Interpret that the Net working capital ratio is 0.02 in the year 2013-2014, 0.08 in
2014-2015, 0.08 in 2015-2016, 0.21 in the year 2016-2017, 0.23 in 2017-2018.
 I Interpret that the Total assets turnover ratio is 1.13 in the year 2013-2014, 16.22 in
2014-2015, 116.70 in 2015-2016, 1.92 in the year 2016-2017, 1.74 in 2017-2018.
 I Interpret that the Gross profit ratio is 31.28 in the year 2013-2014, 1.67 in 2014-
2015, 1.67 in 2015-2016, 14.54 in the year 2016-2017, 211.86 in 2017-2018.
 I Interpret that the Net profit ratio is 16.44 in the year 2013-2014, 0.21 in 2012-2013,
0.21 in 2013-2014, 0.81 in the year 2014-2015, 0.77 in 2017-2018.
 I Interpret that the Return on turnover ratio is 18.65 in the year 2013-2014, 3.45 in
2014-2015, 3.55 in 2015-2016, 1.56 in the year 2016-2017, 1.35 in 2017-2018.
 I Interpret that the Working capital turnover ratio is 54.06 in the year 2013-2014,
15.61 in 2014-2015, 16.60 in 2015-2016, 3.89 in the year 2016-2017, 3.42 in 2017-
2018.
 I Interpret that the Inventory turnover ratio is 3.14 in the year 2013-2014, 112.54 in
2014-2015, 128.51 in 2015-2016, 10.10 in the year 2016-2017, 10.84 in 2017-2018.
 I Interpret that the Fixed assets turnover ratio is 2.96 in the year 2013-2014, 33.78 in
2014-2015, 32.46 in 2015-2016, 6.21 in the year 2016-2017, 4.65 in 2017-2018.

53
 SUGGESTIONS

 The market share of NDMPMACU Ltd is only 45% and it should try to capture much
more market by improving quality, taste, fat content, and availability of milk at
reasonable price.
 Inspection and quality checking must be doubled for providing quality milk.
 The cash reserves in NDMPMACU are not standard maintaining. The cash ratio is
lower for some year and very excess for some other years. So the cash reserves must
be standardized.
 The debt proportion in the financial structure of NDMPMACU is rapidly increased
last year. So, the debt proportion must be decreased to the standard from.
 The Gross profit decreased comparatively than previous year. So, the Gross profit
must be improved.
 The utilization of assets to be improved.
 The Net profit of the company should be improved as the company so far losses from
the last 2 years.
 The Return on equity capital should be improved by overcoming the losses for the last
2 years.

54
 CONCLUSION

The company is having efficient management, in gross profits but it is not concentrating on
net profits, which leads to high operating cost. The company has to lower its operating costs
for better profitability position. The liquidity position of the company is also satisfactory; it
has to improve the cash balance position and to maintain the financial soundness of the
company in a satisfactory level. The company is weak at inventory maintenance and efficient
in managing working capital turnover ratio also.

The overall financial performance of the NDMPMACU LTD is satisfactory. Hence the
management has to work to take measures in order to further improve the performance of
company through various other ratios.

55
CHAPTER
8

56