A

PROJECT REPORT ON

A STUDY OF RATIO ANALYSIS OF NIWAS IRON & STEEL PVT.

LTD, MUMBAI

SUBMITTED BY

UPASANA RAJKUMAR SHINDE

UNDER THE GUIDANCE OF

PROF. LK SINGH

SUBMITTED TO

SAVITRIBAIPHULE PUNE UNIVERSITY

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARDS

OF THE DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

FOR THE ACADEMIC YEAR 2019-2020

ABEDA INAMDAR SENIOR COLLEGE OF ARTS, SCIENCE AND

COMMERCE.

PUNE-411001

1
 ACKNOWLEDGEMENT

Completing a task is never alone journey. The satisfaction and euphoria that accompany the
successful completion of any task remains incomplete without mentioning the people who make it
possible. It is my proud privilege to release the feelings of my gratitude to several persons who
helped me directly or indirectly to conduct this research project work.

I express my heart full indebtedness and a owe a deep sense of gratitude to my Principal
Dr.ShailaBootwala and faculty guide Assistant. Prof. LK Singh for their sincere guidance and
inspiration in completing this project. she is the one whose constant guidance in several aspects of
this report has made my work successful.

I am extremely thankful to the director Mr. IqbalAhmad. Chowdhary for providing with the
necessary information for conducting this research project. I deeply indebted to my industry guide
for giving me the opportunity to this project under his guidance. I express my sincere gratitude for
the continuous guidance and encouragement that he has provided me to carry out the project work.

I am thankful to all members of management of the college, who provided me to all the information
that I needed to complete this project. This project would have been accomplished without their
valuable support.

I would like to acknowledge the contribution of my parents and all my friends who have been
instrumental in successful completion of the project.

The study has indeed helped me to explore more knowledgeable avenues related to my topic and I
am sure it will help me in my future.

2
 DECLARATION

This is to verify that the research project title A Study On Ratio Analysis at Niwas Iron & Steel
Pvt. Ltd, Thane is carried by Ms. Upasana rajkumar shinde student of TYBBA, Abeda Inamdar
Senior College, Pune, under the supervision of Assistant Prof. LK Singh.

This is an original work carried out by the said student to the best of my knowledge and I
recommend for the submission of this research project.

Place: Pune

Date:

3
 INDEX

SR. NO. TOPIC PAGE NO.

1 EXECUTIVE SUMMARY 5-7

2. COMPANY PROFILE 8-11

3 CONCEPTUAL FRAMEWORK 12-23

4. RESEARCH METHODOLOGY 24-27

5. DATA ANALYSIS & INTERPRETATION 28-37

6. FINDINGS, SUGGESTIONS AND CONCLUSIONS 38-40

Bibliography 41-42

APPENDIX 43

4
EXECUTIVE SUMMARY

5
EXECUTIVE SUMMARY

The term ratio analysis refers to the analysis of the financial statements in conjunction with the
interpretation of financial results of a particular period of operations, derived with the help of ratio.
Ratio analysis is used to determine the financial soundness of a business concern.

In this project, we will introduce ratio analysis what it is used for, what are the advantages, its
applications and its limitations. Ratio analysis is one of the techniques of financial analysis where
ratios are used as a yardstick for evaluating the financial condition and performance of a firm.
Analysis and interpretation of various accounting ratios gives a better understanding of financial
condition and performance of firm. It provides data for intra -firm comparison. They also reveal
financially strong and weak such as over value and undervalue of firms. These ratios help to indicate
a company’s efficiency in the past and likely performance in future.

Ratio analysis is one of the popular tools of financial statement analysis. In simple words, ratio is the
quotient formed when one magnitude is divided by another measured in the same unit. A financial
ratio is defined as a relationship between two variables taken from financial statements of a concern.
It involves the breakdown for the examined financial report into component parts which are then
evaluated in relation to each other and to exogenous standards.

It should be noted that computing the ratios does not add any information in figures of profits and
sales. Trend ratios involve a comparison of the ratios of a firm over a period, that is present ratios
involve a comparison of the ratios of a firm. Trend ratios indicate the direction of change in the
performance.

This report will provide an assessment and analysis of the profitability, liquidity, performance and
financial position of Niwas Iron & Steel Pvt. Ltd using the figures from the financial statements of 4
years.

It has been recommended that the company should look into ways of improving sales in period of
low demand to improve profitability and also increase financing to expand and grow the business.

In the analysis, financial ratios were used to gain a critical review of the specific areas of assessment
of the company’s performance. The ratios were able to provide a clear view of the overall
performance of the company.

6
The purpose of the training was to have practical experience of working in an organisation and to
have exposure to the various management practices in the field of Finance. This training has also
given me an on the job experience of Financial Management.

7
COMPANY PROFILE

8
COMPANY PROFILE

The foundation of Niwas Iron and Steel Private Limited was laid in the year 1950 by Mr Niwas Ali
Chowdhary. The firm started of a Sole proprietory firm and later incorporated into a private limited
company on February 17th 2005. Niwas Iron And Steel Pvt. Ltd consists of two major divisions were
created consisting of Hindustan Iron & Steel, Chowdhary Brothers. Modern steel. The directors of
Niwas Iron And Steel Private Limited are Iqbal Ahmed NiwasaliChowdhary ,Mubarakali
Chowdhary and Abul Wafa Chowdhary in which Iqbal Ahmed Niwasali Chowdhary and Abul Wafa
Chowdhary are the directors as well as the promoters of the company.

It is classified as Non-govt company and is registered at Registrar of Companies, Mumbai. Its

Wholesale of non- agricultural intermediate products, waste and scrap. their product range consists
of M.S.Angles, Angles, Beams, Squares, Flats, C.R., H.R, G.I.S.S. They are also engaged in supply
of all kinds of building material. their customer range spans all over Mumbai and various parts of
Maharashtra.

Niwas Iron And Steel Private Limited's Annual General Meeting (AGM) was last held on 29
September 2017 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was
last filed on 31 March 2017.
Current status of Niwas Iron And Steel Private Limited is - Active.

Company Details :

CIN U51420MH2005PTC151376

Company Name NIWAS IRON AND STEEL PRIVATE

LIMITED

Company Status Active

Division Hindustan Iron Mart

Modern Steel Pvt Ltd

Chowdhary Brothers

Registration Number 151376

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Company Category Company limited by Shares

Company Sub Category Non-govt company

Class of Company Private

Date of Incorporation 17 February 2005

Age of Company 12 years, 11 month, 11 days

Activity Wholesale of non-agricultural intermediate

products, waste and scrap

Number of Members 150

Share Capital & Number of Employees –

Authorised Capital ₹500,000

Paid up capital ₹100,000

Listing and Annual Compliance Details –Director Details –

DIN Director’s Name Designation Appointment Date

00221523 Iqbal Ahmed Niwas Ali Director 17 February 2005

Chowdhary

02525949 Abul Wafa Chowdhary Director 17 February 2005

Items :

M.S ANGLES

ANGLES

FLATS

10
BEAM

SQUARE

C.R.

H.R

G.I.S.S

11
 CHAPTER-1

CONCEPTUAL FRAMEWORK

12
CONCEPTUAL FRAMEWORK

1.1 INTRODUCTION

Ratio analysis is an accounting tool, which can be used to measure the solvency, the profitability,
and the overall financial strength of a business, by analysing its financial accounts (specifically the
balance sheet and the profit and loss account). Accounting ratios are very easy to calculate and they
enable a business to highlight which areas of its finances are weak and therefore require immediate
attention. The term “ratio analysis” refers to the analysis of the financial statements in conjunction
with the interpretations of financial results of a particular period of operations, derived with the help
of ‘ratio’. Ratio analysis is used to determine the financial soundness of a business concern. In this
project, we will introduce ratio analysis, what it is used for, what are the advantages and
disadvantages of it and its limitations.

Ratio analysis is one way to make sense of these corporate data. Looking at ratios is more involved
than simply comparing different figures from the balance sheet , income statement and cash flow
statement. It requires relating these calculated ratios against previous years, other companies, the
industry the company is in, and even the economy at large. Ratios can give you a glimpse into the
relationships among and between individual values that relate to a company’s operations and link
them to how a company has performed in the past, and how it might perform in the future. The result
is a potentially robust method of valuing the shares of a company.

1.2 MEANING AND DEFINITION

Ratio Analysis is a widely used tool for financial analysis. It can be used to compare the risk and
return relationships of firms of different sizes. It can be defined as the systematic use of ratio to
interpret the financial statements so that the strengths and weaknesses 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 variables. This relationship can be expressed
as: Percentages, Fractions and Proportion of numbers.

The rationale of ratio analysis lies in the fact that it makes related information comparable. A single
figure by itself has no meaning but when expressed in terms of a related figure, it yields significant
inferences. Ratio analysis is a conceptual technique which dates back to the inception of accounting,

13
as a concept. Financial analysis as a scientific tool is used to carry out the calculations in the area of
accounting. In order to appraise the valid and existent worth of an enterprise, financial tool comes
handy, regularly. Besides, it also allows the firms to observe the performance spanning across a long
period of time along with the impediments and shortcomings. Financial analysis is an essential
mechanism for a clear interpretation of financial statements. It aids the process of discovering, the
existence of any cross-sectional and time series linkages between various ratios.

Formerly, Security qualified as a major requisite for banks and financial institutions, to consider and
grant loans and advances. However, there’s been a complete paradigm shift in the structure.

Currently, lending is based on the evaluation of the actual need of the firms. Financial viability of a
proposal, as a base to grant loans, is now been given precedence over security. Further, an element of
risk is an imperative in every business decision. Credits, run a higher risk, as a part of any decision
making in business and so, Ratio analysis and other quantitative techniques mitigate the risk to some
extent by providing a fair and rational assessment of risks.

Ratio analysis broadly explains the process of computing, acts as a vital tool in determination and
presentation of the relationship of related items and groups of items of the financial statements.
Financial position of a unit is concretely and clearly encapsulated by the means of ratio analysis. The
significance of Ratio Analysis for a holistic Financial Analysis remains unflinchingly supreme.

Ratio can be used in the form of percentage, Quotient and Rates. In other words, it can be expressed
as a to b; a: b (a is to b) or as a simple fraction, integer and decimal. A ratio is calculated by dividing
one item or figure by another item or figure.

Analysis using ratios can be done in following ways.

● Analysis of an individual (or) Single Ratio

● Analysis of referring to a Group of Ratio

● Analysis of ratios by Trend

● Analysis by inter-firm comparison

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1.3 NATURE OF RATIO ANALYSIS

In financial analysis, ratio is used as an index of yardstick for evaluating the financial position and
performance of the firm. It is a technique of analysis and interpretation of financial statements. Ratio
analysis helps in making decisions as it helps establishing relationship between various ratios and
interpret thereon. Ratio analysis helps analyst to make quantitative judgement about the financial
position and performance of the firm. Ratio analysis involves following steps:

1. Relevant data selection from therelated statements to the objectives of the analysis.

2.Calculation of required ratios from the data and presenting them either in pure ratio form or in
percentage

3. Comparison of derived different ratios with:

i. The ratio of the same concern over a period of years to know upward or downward trend or static
position to help in estimating the future, or

ii. The ratios of another firm in same line, or

iii. The ratios of projected financial statements, or

iv. The ratios of industry average, or

v. The predetermined standards, or

vi. The ratios between the departments of the same concern assessing either the financial position or
the profitability or both.

4. Interpretation of the ratio

Ratio analysis uses financial report and data and summarizes the key relationship in order to appraise
financial performance. The effectiveness will be greatly improved when trends are identified,
comparative ratios are available and inter-related ratios are prepared.

1.4 NEED OF RATIO ANALYSIS

Ratios are critical quantitative analysis tools. One of their most important functions lies in their
capacity to act as lagging indicators in identifying positive and negative financial trends. The
information a trend analysis provides allows to you to make and implement ongoing financial plans
and, when necessary, make course corrections to short-term financial plans. Ratio analysis also

15
provides ways for you to compare the financial state of your business against other businesses within
your industry or between your business and businesses in other industries. The sheer numbers of
available financial ratios makes it important to research and choose ratios most applicable to your
business.

The study has great significance and provides benefits to various parties who directly or indirectly
have significant interest in the company. It is beneficial to the management of the company by
providing crystal clear picture regarding important aspects like liquidity, leverage activity and
profitability. The study is also very beneficial to employees and offers motivation by showing how
actively they contributing for company’s growth.

1.5 ROLE OF RATIO ANALYSIS

The ratio is calculated by dividing one figure by the other figure. It may be expressed in any of the
three ways – ‘times’, ‘proportion’, or ‘percentage’ according to the convenience or suitability.

Actual, for tackling any problem initially one should determine what ratios would be helpful in
throwing light on the situation and compute only such ratios.

Several ratios have some common element (Sales, for example, is used in various turnover ratios)
and some items tend to move in harmony because of some commonly used in financial ratios, it is
somewhat difficult to judge whether a certain ratio is ‘good’ or ‘bad’. Therefore, it is a process
requiring proper care, sophistication, experience etc.

The role of ratios can be summarised as given below:

● It guides management in formulating future financial planning and policies.

● It throws light on the efficiency of the business organisation.

● It permits comparisons of the firm’s figures with data for similar firms, and possibly with
industry- wise data. And permits the data to be measured against yard-stick of performance or
of sound financial conditions.

● It ensures effective cost control.

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 ● It provides greater clarity, perspective or meaning to the data and it brings out information
not otherwise apparent.

● It measures profitability and solvency of a concern.

● It permits monetary figures of many digits to be condensed to two or three digits which
enhances the managerial efficiency.

● It helps in investment decisions.

1.6 IMPORTANCE AND SCOPE:

1. Analyzing Financial Statements

Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful
for understanding the financial position of the company. Different users such as investors,
management. bankers and creditors use the ratio to analyze the financial situation of the company for
their decision-making purpose.

2. Judging Efficiency

Accounting ratios are important for judging the company's efficiency in terms of its operations and
management. They help judge how well the company has been able to utilize its assets and earn
profits.

3. Locating Weakness

Accounting ratios can also be used in locating weakness of the company's operations even though its
overall performance may be quite good. Management can then pay attention to the weakness and
take remedial measures to overcome them.

4. Formulating Plans

Although accounting ratios are used to analyze the company's past financial performance, they can
also be used to establish future trends of its financial performance. As a result, they help formulate
the company's future plans.

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5. Comparing Performance

It is essential for a company to know how well it is performing over the years and as compared to the
other firms of the similar nature. Besides, it is also important to know how well its different divisions
are performing among themselves in different years. Ratio analysis facilitates such comparison.

To illustrate why and how the ratios can be more meaningful and significant than the absolute figures
(contained in the Financial Statement), the following example is cited:

Statement 1:

It will be observed from the above statement that although, in both the years, the absolute difference
between Current Assets and Current Liabilities, i.e., Working Capital (Net) of X Co. Ltd. is equal,
i.e. Rs. 50,000, its current ratio, i.e. relation between Current Assets and Current Liabilities, is
different. Current ratio had been 1.33: 1 in the year 2004 as against 2: 1 in the year 2003.

Thus, despite an identical amount of Working Capital (Net) in both the years, its short-term financial
position so far as it can be read from the current ratio, had been much better in 2003 than in 2004.
This is because, in the year 2003, two rupees of Current Assets were available against each rupee of
Current Liability, whereas, in the year 2004, only one rupee and thirty-three paise of Current Assets
were available against one rupee of Current Liability. Thus, it becomes obvious that ratio
communicates a better information about the financial strength of a firm than can be conveyed by the
absolute figures.

The aforesaid example also indicates how ratio analysis can serve as a better tool for measurement
of the financial health of an enterprise than is possible by the analysis of absolute figures.

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1.7 ADVANTAGES OF RATIO ANALYSIS:

In order to establish a relationship between two accounting figures, application of ratio analysis is
necessary. Application of the same provides the significant information to the management or users
who can analyse business situation. It also facilitates meaningful and productive monitoring of the
annual performance of the firm. Illustrated are below are the advantages of ratio analysis:

1. It simplifies the financial statements.

2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing a single company over a period.
4. It highlights important information in simple form quickly. A user can judge a company by just
looking at few numbers instead of reading the whole financial statements.
5. It facilitates the accounting information to be summarized and simplified in a concise and
concrete form which is comprehensible to the user.
6. Ratio analysis clears all the impediments and inefficiencies related to performance of the firm /
individual.
7. It depicts the inter-relationship between the facts and figures of various segments of business
which are instrumental in taking important financial decisions.
8. It equips the management with the requisite information enables them to take prompt business –
decisions
9. It helps the management in effectively discharging its functions/operations such as planning,
organising, controlling, directing and forecasting.
10. Ratios are an effectual means of communication and informing about financial soundness made
by business concern to the proprietors, investors, creditors and other parties.
11. Ratio analysis aids in accurate determination of performance of liquidity, profitability and
solvency position of the company.
12. It is used as a benchmark for effective control of performance of business activities

1.8 DISADVANTAGES OF RATIO ANALYSIS:

Ratios are calculated from the information recorded in the financial statements. But financial
statements suffer from a number of limitations and may, therefore, affect the quality of ratio analysis.

19
1. Financial statements provide historical information. They do not reflect current conditions.
Hence, it is not useful in predicting the future.

2. Different accounting policies regarding valuation of inventories, charging depreciation etc.

make the accounting data and accounting ratios of two firms non-comparable.

3. No fixed standards can be laid down for ideal ratios. For example, current ratio is said to be
ideal if current assets are twice the current liabilities. But this conclusion may not be
justifiable in case of those concerns which have adequate arrangements with their bankers for
providing funds when they require, it may be perfectly ideal if current assets are equal to or
slightly more than current liabilities.

4. Ratios are tools of quantitative analysis only and qualitative factors are ignored while
computing the ratios. For example, a high current ratio may not necessarily mean sound
liquid position when current assets include a large inventory consisting of mostly obsolete
items.

5. The term ‘window-dressing’ means presenting the financial statements in such a way to show
a better position than what it actually is. If, for instance, low rate of depreciation is charged,
an item of revenue expense is treated as capital expenditure etc. the position of the concern
may be made to appear in the balance sheet much better than what it is. Ratios computed
from such balance sheet cannot be used for scanning the financial position of the business.

6. Fixed assets show the position statement at cost only. Hence, it does not reflect the changes in
price level. Thus, it makes comparison difficult.

7. Proper care should be taken to study only such figures as have a cause-and-effect
relationship; otherwise ratios will only be misleading.

8. Since ratios account for only one variable, they cannot always give correct picture since
several

9. variables such Government policy, economic conditions, availability of resources etc. should
be kept in mind while interpreting ratios.

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 10. Proper care must be taken when interpreting accounting ratios calculated for seasonal
business. For example, an umbrella company maintains high inventory during rainy season
and for the rest of year its inventory level becomes 25% of the seasonal inventory level.
Hence, liquidity ratios and inventory turnover ratio will give biased picture.

1.9 INTERPRETATION OF RATIOS:

One of the most difficult problems confronting the analyst is the interpretation and analysis of
financial ratios an adequate financial analysis involves more than an understanding and
interpretation of each of the individual ratios. The analyst must not undertake the interpretation
and analysis of financial ratios in isolation from other information. The following factors must be
considered while analysing the financial ratios:

a) General economic condition of the firm.

b) Risk acceptance

c) Future expectations

d) Future opportunities

e) Analysis and interpretation system used by other firms in the industry

f) Accounting system of the industry.

The analysis and interpretation of the financial ratios in the light of above listed factors can be
useful, but the analyst must still rely on skill, insight and even intention in order to interpret the
ratios and arrive at a decision. The interpretation of the ratios can be made by comparing them
with :

a. Previous figures - Trend Analysis

b. Similar firms - Inter Firm Comparisons

c. Targets - Individual Ratio set to meet the objective.

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 i. Trend Analysis :

The analyst usually use historical standards for evaluating the performance of the firm. The
historical standards represent the financial ratios computed over a period of time- trend. The
trend analysis provide enough clues to the analyst for proper evaluation of the financial
ratios.

ii. Inter – firm Comparisons:

Inter – firm comparisons may claim the comparisons of similar ratios for a number of
different firms in the same industry. Such an attempt would facilitate the comparative study
of financial position and performance of the firm in the industry. However, the variations in
accounting system and changes in the policies and procedures of the firm in comparison with
the industry have to be taken care of while making use of inter- firm comparisons.

iii. Targets:

Under this method, the interpretation of the ratio is made by comparing it with the standard
set for this purpose, such a standard ratio, based upon well conventions serves as measuring
scale for the evaluation of the ratios. The best example of such standard is the 1:1 ratio which
is to be considered a good ratio for analysing acid- test ratio.

1.10 CLASSIFICATION OF RATIOS

A financial statement gives a financial analyst an excellent picture of a company’s situation and
the trends that are developing. A ratio gains utility by comparison to other data and standards.

Financial ratios quantify many aspects of a business and we are an integral part of financial
statement analysis. Financial ratios are categorized according to the financial aspect of the
business of the ratio measures. Although these categories are not fixed in all over the world
however there are almost the same, just with different names:

1. Profitability ratios which use margin analysis and show the return on sales and capital
employed.

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2. Rate of Return Ratio (ROR) or Overall Profitability Ratio : The rate of return ratios are
thought to be the most important ratios by some accountants and analysts. One reason
why the rate of return ratios is so important is that they are the ratios that we use to tell if
the managing director is doing their job properly.

3. Liquidity ratios measure the availability of cash to pay debt, which give a picture of a
company’s short term financial situation.

4. Solvency or Gearing ratios measures the percentage of capital employed that is financed
by debt and long term finance. The higher the gearing, the higher the dependence on
borrowing and long term financing. The lower the gearing ratio, the higher the
dependence on equity financing. Traditionally, the higher the level of gearing, the higher
the level of financial risk due to the increase volatility of profits. It should be noted that
the term – Leverage is used in some texts.

5. Turnover Ratios or activity group ratios indicate efficiency of organisation to various

kinds of assets by converting them to the form of sales.

6. Investors ratios usually interested by investors.

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 CHAPTER- 2

RESEARCH METHODOLOGY

24
RESEARCH METHODOLOGY

2.1 MEANING

Research methodology is a way to systematically solve the research problem. it may be understood
as a science of studying how research is done scientifically. So, the research methodology not only
talks about the research methods but also considers the logic behind the method used in the context
of the research study. It constitutes of research methods, selection criterion of research methods, used
in context of research study and explanation of a using of a particular method or technique so that
research results are capable of being evaluated either by researcher himself or by others.

Descriptive research is used in this study because it will ensure the minimization of bias and
maximization of reliability of data collected. The researcher had to use fact and information already
available through financial statements of earlier years and analyze these to make critical evaluation
of the available material. Hence by making the type of the research conducted to be both Descriptive
and Analytical in nature. From the study, the type of data to be collected and the procedure to be
used for this purpose were decided.

2.2 Data Collection:

In order to gather sufficient information on the topic, and to get the practical knowledge of the
subject matter and the way it is analysed , both the sources of data, that is both primary source and
secondary source have been used. The required data for the study are basically secondary in nature
and the data are collected from the audited reports of the company.

1 Primary Data:

A Primary data is a data which is collected by the researcher himself, through his discovery and
findings Primary data are those data, which is originally collected afresh .In this project,
Questionnaire Method and Interview Method has been used for gathering required information.
There is no use of primary data as such in this study, as the calculation of ratios is merely based on
the data available at hand.

2 Secondary Data:

25
A Secondary data is a data, which is collected from other sources, where one can take help of
different reference books, or any other person for his research.

3 Descriptive Research:

Descriptive research or statistical research provides data about the population or universe being
studied. It can only describe the “who, what, when, how and where” of a situation, not what caused
it. Therefore, descriptive research is used when the objective is to provide a systematic description
that is as factual and accurate as possible.

2.3 Sources of Data:

The sources of data are from the annual reports of the company from the year 2013-2014 to 2016-
2017 .

2.4 Methods of Data Analysis:

The data collected were edited, classified and tabulated for analysis. The analytical tools used in this
study.

The basic source of these ratios is the company’s financial statements that contain figures on assets,
liabilities, profits and losses.

Information received from Returns to Income, Financial books, Experts and Internet.

2.5 Analytical Tools Applied:

The study employs the following analytical tools:

•Comparative statement.

•Common Size Statement.

Trend percentage.

2.6 OBJECTIVE OF THE STUDY

 To study the conceptual framework of ratio analysis.

 To study the various profitability ratio.
 To identify the problems faced by the company.
 To suggest the measures to improve the profitability in the company.
 To identify the problems faced by the company and to solve the those issues.

26
 To suggest solutions for the difficulties faced by the company.

27
 CHAPTER- 3

DATA ANALYSIS & INTERPRETATION

28
 DATA ANALYSIS

1. CURRENT RATIO:
The two liquidity ratios; the current ratio and the acid test ratio, are the most important ratios in
almost the whole of ratio analysis and they are also the simplest to use. Liquidity ratios provide
information about the firm’s ability to meet its short – term financial obligations. They are of
particular interest to those extending short term credit to the firm. Two frequently – used liquidity
ratios are current and quick ratio.
Current ratio = Current Assets
Current Liabilities

Where, Current assets = Inventories + Cash Receivables + Cash & Bank Accruals +
Loans & Advances + Bills Receivables + Disposable Investments + Marketable Securities
+ WIP + Prepaid Expenses
Current Liabilities = Payable + Short term Loans + Bank overdraft + Cash Credit +
Outstanding expenses + Provision for Taxation + Proposed Dividend

YEAR CURRENT CURRENT RATIO

ASSETS LIABILITIES

2013-2014 61603833 22892135 2.6

2015-2016 54059558 24521783 2.2

2017-2018 49614327 14878268 3.3

2019-2020 46976296 29443120 1.5

29
 70000000

60000000

50000000

40000000 currnt assets

current liabilities
30000000
ratio

20000000

10000000

0
2013-14 2015-16 2017-18 2019-20

ANALYSIS:
As per the figure the company current liabilities are less than company assets, for good financial
position the ratio should be above the one , and here the Niwas Iron & Steel Pvt Ltd current ratio is
more than one during all the 5 years the assets stabilities is more than liabilities.

2. QUICK OR ACID TEST RATIO:

The essence of this ratio is a test that indicates whether a firm has enough short – term assets to cover
its immediate liabilities without selling inventory. So it is the backing available to liabilities that
must be paid almost immediately. There are two terms of liquid asset and liquid liabilities in this
formula. Liquid asset is all current assets except the inventories and prepaid expenses, because
prepaid expenses cannot be converted to cash. The liquid liabilities include all current liabilities
except bank overdraft and cash credit since they are not required to be paid off immediately.

Quick or Acid test Ratio = Quick Assets

Quick Liabilities

Quick Assets = Current Assets – Stock In Trade

Quick Liabilities = Current Liabilities – Bank Overdraft

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 YEAR QUICK ASSETS CURRENT RATIO
LIABILITIES

2013-2014 37221947 22892135 1.6

2015-2016 25698987 24521783 1.0

2017-2018 26117311 14878268 1.7

2019-2020 21422208 29443120 0.7

40000000

35000000

30000000

25000000
Quick assests
20000000
current liabilities

15000000 ratio

10000000

5000000

0
2013-14 2015-16 2017-18 2019-20

ANALYSIS:

The above graph shows that the company has more liquid assets than liquid liabilities, it is a good
sign for the company, company should be able to meet liquid liabilities and should have higher liquid
assets. The company’s liquid assets continuously shows positive impact on liquid liabilities except in
the year 2016 - 2017.

31
3. DEBTOR TURNOVER RATIO

One of the important decisions regarding financial management is about the credit to be granted to
customers. There should be a well- defined credit policy , which should be followed carefully by a
firm. The credit policy followed by a firm is indicated by this ratio. The debt collection period
represents the average number of days for which a firm has to wait before its receivables are
converted into cash.

This ratio is calculated with the help of the following formula :

Debtors Turnover Ratio = Credit Sales / Average Accounts Receivables.

Average Accounts Receivables = Opening Balance of Debtors + Closing Balance of Debtors / 2 and
Opening Balance of Bills Receivable + Closing Balance of Bills Receivables / 2

YEAR NET CREDIT CLOSING DEBTORS

SALES BALANCE TURNOVER
RATIO

2013-2014 155550520 26475169 5.8

2015-2016 114313295 23919495 4.7

2017-2018 102978641 22942543 4.4

2019-2020 101272277 20477163 4.9

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 180000000

160000000

140000000

120000000

100000000 Net Credit sales

Closing Balance
80000000
Debtors Turnover Ratio
60000000

40000000

20000000

0
2013-14 2015-16 2017-18 2019-20

ANALYSIS:

It is the ratio to gauge the number of times a business is able to convert its credit sales to cash during
a financial year. The higher debtors’ turnover ratio indicates faster turnaround and reflects positively
on the liquidity of the company.

4. CREDITORS TURNOVER RATIO

Creditors Turnover Ratio indicates the credit period allowed by the creditors to the firm. In other
words, it is exactly opposite the above ratio. This ratio establishes a relationship between net credit
purchases and average trade creditors. The objective of computing this ratio is to determine the
efficiency with which the creditors are managed.

The formula for calculation is as follows ;

Creditors Turnover Ratio = Credit Purchases / Average Accounts Payable

Average Accounts Receivables = Opening Balance of Debtors + Closing Balance of Debtors / 2 and
Opening Balance of Bills Receivable + Closing Balance of Bills Receivables / 2

33
 YEAR PURCHASES CLOSING CREDITORS
BALANCE TURNOVER
RATIO

13-14 140739998 22417476 6.2

15-16 101747533 24155655 4.2

17-18 96213594 14391167 6.6

19-20 94316409 20823135 4.5

160000000

140000000

120000000

100000000
Purchases
80000000
Closing Balance

60000000 Creditors Turnover Ratio

40000000

20000000

0
2013-14 2015-16 2017-18 2019-20

ANALYSIS:

The higher the value indicates that the business was able to repay its supplier quickly. Some years
like 2013 -2014 and 2015 - 2016 the creditor turnover ratio is satisfactory while the other year it did
not seem to be satisfactory rather it was lower than normal.

5. GROSS PROFIT RATIO :

The gross profit margin ratio tells us the profit a business makes on its cost of sales. It is a very
simple idea and it tells us how much gross profit our business is earning. Gross profit is the profit we
earn before we take off any administration costs, selling costs and so on. So we should have a much

34
higher gross profit margin than net profit margin. High ratios are favourable in this, since it indicates
the business is earning a good return on the sale of its merchandise.

Gross profit ratio = Gross Profit

Net Sales

YEAR GROSS PROFIT NET SALES RATIO

13-14 1142783.37 155550520 0.7

15-16 912319 114313295 0.7

17-18 4390502 102978641 4.2

19-20 501335 101272277 0.4

180000000

160000000

140000000

120000000

100000000 Gross profit

Net sales
80000000
Ratio
60000000

40000000

20000000

0
2013-14 2015-16 2017-18 2019-20

35
ANALYSIS:

Here gross profit is taken as profit before tax. From the above graph the Gross Profit ratio shows the
decrease trend in GP which is a bad sign for the company, company should have to increase or
maintain its high level of GP but it is going in negative way. As compared to year 2015 and 2016,
there is big increase in gross profit in all five years.

6. NET PROFIT RATIO:

This shows the portion of sales available to owners after all expenses. A high profit ratio is higher
profitability of the firm. This ratio shows the earning left for shareholder as percentage of Net sales.
Net Margin Ratio measures the overall efficiency of production, administration, selling, financing,
pricing and Taste Management.

Net Profit Ratio = Net Profit After tax

Net Sales

YEAR NET PROFIT NET SALES RATIO

13-14 772783.37 155550520 4.096805392

15-16 579871.44 114313295 5.007265091

17-18 -31145 102978641 -0.030244136

19-20 342959.86 101272277 3.038651278

36
ANALYSIS:

The graph shows the increase and decrease trend, in first two year it was increasing then it
went down, it indicates decrease in profitability of the shareholders. As compared to first
two year in the second last year it has been decreased.

37
 CHAPTER- 4

FINDINGS & SUGGESTIONS,

CONCLUSION

38
4.1 SUGGESTIONS

1. The company should improve Debtor Turnover Ratio by increasing efficiency of the collections
from debtors; some of it can be done by a dedicated team force. Insisting for a post-dated
cheque, timely reminders etc. can help in aiding faster collection.
2. The company can also generate a report on the aging profile of the debtors; which will highlight
weekly collection due. Such analysis can help focus on the weeks where higher payments are
due and aid in better working capital management.
3. The company can improve Creditor Turnover Ratio pay close attention to seasonal sales trends.
If you are new to business, study industry sales patterns to forecast the amount of money you
need to set aside.
4. Automating payments is another useful strategy to avoid falling behind and to improve accounts
payable turnover. Many providers are happy to set up automated withdrawals to ensure they get
their money more quickly.
5. Talking about gross profit the company can improve it in the following way: To increase gross
margin, you can increase your prices, but you may also try reducing the amount you pay for the
goods you sell as well. This may require negotiating with your suppliers for better deals.
6. forecast and plan your inventory much more efficiently. Many small businesses suffer because
they lose a lot of money due to wasted inventory, spoilage, or even pilfering. Manage your
inventory better, and you’ll have more product to sell.
7. Find the products that offer the highest gross profit margins. Find that your business focus may
change when readjust your mix to find the right combination of profitable products.
8. The company should not have a sufferable cash flow needlessly. Use these options to help
improve gross margin and you may find that your small business starts making more money
right away
9. The company must simply change its focus to become more profitable.

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4.2 CONCLUSION

The project of Ratio analysis in the iron and steel industry is not merely a work of the project. But a
brief knowledge and experience of that how to analyse the financial performance of the firm. The
study undertaken has brought in light some of the conclusion. Finance is the life blood of every
industrial organisation and as well as economic activities. Profit, it is a condition of survival. it is
cost of survival. It is the cost of staying in business. When we analyse its financial performance
through ratios there is recovering from loss whatever they faced in a year. Study of the ratio analysis
of Niwas Iron and Steel Pvt. Ltd reveals the performance of the company in terms of financial
aspects. It is found that there is an increase in sales, net sales, net profit, gross profit during all the
years from 2013, 2014, 2017. During the year 2015 - 2016 the company has faced loss due to
demonetisation. It is also observed that the current ratio is satisfactory, quick ratio is also
satisfactory. In this analysis the gross profit is taken as profit before tax. There is increase and
decrease trend, in first two years of Net Profit Ratio.

Further the company’s performance and efficiency can be improved. By calculating Financial Ratio
we see the financial performance of Niwas Steel and Iron Pvt. Ltd is becoming better.

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4.3 FINDINGS

1. CURRENT RATIOS.
Current ratios tells us the short term solvency of the firm and tells us the ability of the firm
to repay its short term obligations.

.
2 QUICK RATIOS.

Quick ratios measures the firm's ability to pay off the short term obligations without relying on
the sale of inventory.

3.TREND ANALYSIS.
The analyst usually use historical standards for evaluating the performance of the firm.
The historical standards represent the financial ratios computed over a period of time- trend.
The trend analysis provide enough clues to the analyst for proper evaluation of the financial ratios.

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Bibliography

42
BIBLIOGRAPHY

WEBSITES:

● www.google.com
● www.wikipedia.com
● https://www.slideshare.net/ranobirdey07/project-on-ratio-analysis
● https://www.investopedia.com/university/ratio-analysis/using-ratios.asp
● https://www.cliffsnotes.com/study-guides/accounting/...ii/...analysis/ratio-analysis

BOOKS:

● Book on Analysis Of Financial Statements - Dr. N.M Vechalekar

● AAII Journal

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APPENDIX

44