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ACKNOWLEDGEMENT
Perseverance inspiration and motivation have always played a key role in success of any venture. I hereby express my deep sense of gratitude to all the personalities involved directly and indirectly in my project work. The 60 days with AZMI PLYWOOD INDUSTRIES has been full of learning and sense of contribution towards the organization. I would like to thanks Mr. Shakeel Ahmed, the Director of Azmi Plywood Industries, for giving me an opportunity of learning and contributing through this project. With immense pleasure, I would like to express my thanks to Prof. Porinita Banerjee (project guide) for having given me this privilege of working under him and completing this study. I would like to express my sincere gratitude to other faculty members who have taught me in my entire MBA curriculum and our Director Prof. Anwar Sheikh who has always been a source of guidance, inspiration and motivation. However, I accept the sole responsibility for any possible errors of omission and would be extremely grateful to the readers of this project report if they bring such mistakes to my notice.
DECLARATION
I Mohammad Azeez, declare that project titled RATIO ANALYSIS of AZMI PLYWOOD INDUSTRIES is an original piece of research work carried out by me under the guidance and supervision of Prof. Porinita Banerjee. The information has been collected from genuine & authentic sources. The work has been submitted in partial fulfillment of the requirement of MBA to our college.
Place: Date
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This is to certify that Mr. Mohammad Azeez who is pursuing his Master in Business Administration (MBA) degree from Poona Institute of Management Sciences and Entrepreneur, Pune has successfully completed his project work on Ratio Analysis in partial fulfillment of his requirement, prescribed by the institute for the academic year 2010-11. He has worked on the project from 10th june 2011 to 10th august 2011.
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INDEX
SR NO.
PAGE NO.
1 2 3 4 5 6 7 8
EXECUTIVE SUMMARY COMPANY PROFILE OBJECTIVES OF THE STUDY RESEARCH METHODOLOGY PROJECT WORK UNDERTAKEN DATA ANALYSIS & PRESENTATION CONCLUSIONS AND SUGGESTIONS BIBLIOGRAPHY
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EXECUTIVE SUMMARY
This study was carried out at Azmi Plywood industries during the month of June to Aug 2011. This report is an outcome of a study undertaken in API on the topic A study on the Ratio Analysis of the Azmi Plywood Industries The analysis of API fills me with academic and industrial exposure.
Figures were obtained from comparative balance sheets and profit and loss statements from the relevant years as well as additional information that were forwarded by the board. This information enabled the development of percentage and ratio analysis, which was then used to create the report.
The investigation revealed that the company had improved its position compared to previous years. The profitability of the company was significantly better whilst the liquidity had remained reasonably steady. The solvency of the company had declined however, which affected the longterm obligations of the business.
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COMPANY PROFILE
Azmi Plywood Industries was established in 1996, with an aim to provide the most durable plywood in the Indian market. The unit was in Chakoli, Uttar Pradesh. The company have large stake in the market as one of the leading Plywood Manufacture and Supplier
Infrastructure
Supported with strong infrastructure the company a huge manufacturing unit, which is installed with latest technology machines. Our Cutting edged technology machines are capable of to manufacture the plywood in bulk orders to fulfill the instant demand of the customers.
Quality assurance
To ensure the quality, we follow stringent procedure right from procuring the raw material to the production of end products. Beside that, we have a very efficient quality check team that surveillance production procedures and randomly checks unit under adverse conditions to ensure the durability of Plywood.
Customer satisfaction
As we are a customer centric company, we give high importance to our customers and their requirements. We offer optimal standard plywood to our valued clients in order to provide enormous satisfaction to them. Valuing our customers time and money, we provide them Plywood at very affordable prices, along with timely and safe delivery assurance.
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Name of CEO/Owner : Mr. Shakeel Ahmed Year of Establishment : 1996 Primary Business Type : Manufacturer & Exporter
Focus Markets : Worldwide Markets Product/Service Offered : All types of Plywood like Film Faced Shuttering Plywood, WBP Marine Plywood & Boards.
LOCATION:
At post Chakoli, Tal. Phoolpur, Dist. Azamgarh.
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VISION
To be most preferred destination for sourcing plywood, boards etc in chosen geographical area.
MISSION
To provide the most durable plywood in the Indian market.
PRODUCTS
Azmi Plywood Industries has made an indelible impression in the hearts of the masses with the unmatchable performance and be the only one to serve complete satisfaction to the clients. Azmi Plywood Industries are proud to proclaim that they are the exclusive brand that sales optimum quality plywood that is rare in other brands. In addition, they are an environment friendly organization and that is why they use only natural material in plywood. They offer widest array of plywood in multifarious patterns and themes. Their plywood is known for their stiffness and ability to hold in diverse dilatations. To make plywood superior, they use the finest raw material availed in the nature. That is why, their plywood is highly demanded in both international and domestic markets.
PLYWOODS
We are a trusted Plywood Supplier in the nation, offering a branded range. The premium Plywood that we offer is known for its durability. Our Plywood is processed using highest quality standards that ensure its optimum quality. The Plywood that we supply is widely acclaimed by the clients owing to its unique and impressive look. In addition, for the convenience of the clients, we offer different dual varieties of this Plywood.
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BLOCK BOARDS
We are the most reliable Supplier of Block Boards that is efficiently tested by experts before their dispatch. This Block Board is highly acclaimed by the clients due to its exceptional durability. The Block Board offered by us has an exceptional strength due to which the clients it is a dependable product for manufacturing furniture, doors, etc. Our Block Board is extremely resistant to termites and moisture and due to that, it is widely used for home and offices.
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1. To evaluate the performance of the company by using ratios analysis yardstick. 2. To analyze the financial strength and weakness of the firm using analytical tools like Ratio Analysis. 3. To understand the financial policies and procedures of the company. 4. To suggest ways and means to improve the financial performance. 5. To make periodic comparison of the firm.
SCOPE
This study was undertaken at Azmi Plywood Industries. The scope of this study is to understand the importance of the annual business plan and financial ratios in the functioning of the company
LIMITATIONS
1. The period of study is limited to data of 3 years 2. The study is based on secondary data provided by the unit. 3. The time available for understanding and comprehending the data in depth was less. 4. During the period of analysis, the companys current financial Information was not available.
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RESEARCH DESIGN
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SAMPLE SIZE
Financial data which is relevant to 3 years is taken as the sample size.
SAMPLE METHOD
Convenience sampling method is used to collect data for the study.
PERIOD OF STUDY
The study was conducted for 60 days.
DATA COLLECTION
The data for the study were collected from secondary and primary sources. The study mainly depends on secondary data.
SOURCES
The primary data have been collected with the help of informal discussion with Account Officers
SECONDARY DATA
Annual Report of Azmi Plywood Industries Informal discussion with Account Officers Journals and Magazines
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INDUSTRY PROFILE
Plywood Manufacture in India
In 1916, Government of India set up a committee to explore the feasibility of manufacturing tea chest plywood in Bengal and Assam and the other in North Bengal were set up in 1917 to manufacture the same, but they stopped production owing to non-availability of suitable bonding materials, indigenous lead lining nails and bands for packing. Both the imported plywood and sawn wood chest were used together. No development took place for some time until two factories in Assam took up the matter as a challenge and started making plywood for tea chest by around 1924 1925. These were resistance from the tea industry for the use of locally made plywood on the ground that quality of timber used was not suitable. Since independence, the plywood industry has regained strength and has grown to a fullpledged industry in spite of some setbacks faced by the industry in the post war period. In 1947, India was a net imports of plywood, mainly tea-chest plywood compared to the plywood production in 1947 which was negligible, the present day production has grown up to 62 Million M2. These have been a steady growth in the plywood industry. Since the last 3-4 years. The plywood industry consumes about 15 million M3 of timber. The other main raw materials used by plywood industry in the synthetic rain, which is available within the country. In Kerala, there are more than 500 plywood industries including large scale industries such as Hindustan New Print and Western India Plywood Ltd. In India Plywood industry are mainly located in Assam, Karnataka, Kerala, Maharashtra, Madhya Pradesh and Andaman & Nicobar Islands.
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Plywood industries have played a significant role in the Socio-economic development of the country. They provided various types of plywood products that are required for various infrastructural developments. This industry means the strategic needs of our country like portion plywood, plywood for pre-fabricated houses required for soldiers on the Himalayan frontiers and other government needs. This industry also means the packaging requirements of the country export. The industry also provides employment to a large number of people directly and indirectly, through various sales outlets.
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and unrest are other factors which adversely affected growth and profitability of these industries. The wood based industry also face strict competition from the metal and plastic make industries.
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banks, financial institutions, investors, shareholders and the management all make use of ratio analysis as a tool of evaluating the financial position and the performance of a firm.
RATIO ANALYSIS
Ratio analysis involves three steeps. First the financial analyst selects from the statements those sets of data which are relevant to his objective of analysis and calculates appropriate ratios for the firm. The second steep involves comparison either with the industry standards or with the ratios of the same firm relating to past. In third steep after such comparisons conclusions may be withdrawn and presented in the shape of reports.
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Ratio analysis is a powerful tool of financial analysis. Ratio is defined as the indicated question of two mathematical expression and as the relationship between two or more things. In financial analysis a ratio is used as a bench mark for evaluating the financial passion and performance of the firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial passion of a firm. The point to note is that a ratio reflecting a quantities relationship helps to form an analytical judgment. Such is due nature of all the financial ratios.
PURPOSE
Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in companys shares. Financial ratios allow for comparisons
between companies between industries between different time periods for one company between a single company and its industry average
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Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition, are usually hard to compare.
3. Turnover ratio:
a) b) c) d) e) f) Inventory turnover ratio Inventory velocity Debtor's turnover ratio Debtors' velocity Fixed assets turnover ratio Working capital turnover ratio
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Traditional Classification
Functional classification
2. Leverage ratios
3. Activity ratios
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2) Current ratio
Another liquidity ratio is the current ratio. the current ratio is the ratio of total current assets total current liabilities. It is calculated by dividing by current assets by current liabilities.
Current Ratio =
The current assets of the firm represents those assets which can be in the ordinary course of business, converted into cash within a short period of time, normally not exceeding one year and include cash and bank balances, marketable securities inventory of raw materials, semi finished (work in progress) and finished goods, debtors net provisions for bad and doubtful debts, bill receivable and prepaid expensed. The current liabilities defined as liabilities which are short term maturing obligations to meet, as originally contemplated, within a year and include trade creditors, bills payable, bank credit, and provision for taxation, dividends payable and outstanding expenses.
SIGNIFICANCE:
Current ratio indicates the solvency of the business, i.e., ability to meet the liabilities of the business as and when they fall due. The current assets are the sources from which the current liabilities have to meet. It is also a major of safety that management maintains in order to allow for the inevitable in the flow of funds through the current asset and liability accounts. Though 2:1 ratio is considered desirable, it is not must it depends upon the nature of the industry. The excessive current ratio is treated as a sign of a managerial efficiency. Window dressing or presence of mounting stocks may show good current ratio. Low ratio suggests the week financial
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policy. In capital reach countries where long term funds from the capital market are available in abundance, firms depends on current liabilities for financing a relatively a small part of their current assets requirements and it is not unusual for a firm to finance to two third to three quarters of its current assets by long term sources.
PRECUTIONS:
A. The ratio is sensitive to a number of factors which must be taken into account if dependable results are to be obtained, some of which are to be given below. B. It must be ascertained whether the current assets and current liabilities are properly valued or not under valuation or over valuation of current assets or current liabilities distorted the ratio to that extend. C. Window dressing: it means to show the financial position better than it actually exists. This is done by resorting to malpractices, such as inflating the value of inventory omitting certain liabilities, treating a short term liability as long term liability etc. the analyst must therefore, get himself assured that such window dressing is not resorted to. D. A company with a high percentage of its current assets in cash is more liquid than one with high percentage inventory. Large stocks may have free accumulated only for seasonal trade.
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Significance:
Normally quick ratio must be 1:1. If there is low liquid ratio, the concern may be put into difficulties at the maturity date of liabilities. A quick ratio 1:1 or more does not necessarily imply sound liquidity position. It should be remembered that all debtors may not be liquid, and cash may be immediately needed to pay operating expenses it should be noted that inventories are not absolutely no liquid. To measurable extent, inventories are available to meet current obligations. Thus a company with high value liquid ratio can suffer from the shortage of funds if it has slow paying, doubtful and long duration outstanding debtors. On the other hand a company with allow value of quick ratio may really be prospering and paying its current obligations in time. Nevertheless, the quick ratio remains unimportant idea of due firms liquidity.
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Structural ratios are debt equity ratio and debt assets ratio. The important coverage ratios are interest coverage ratio, fixed charges coverage and debt service coverage ratio. Leverage ratio help in assessing the risk arising from the use of debt capital. Debt equity ratio shows the relative contributions of creditors and owners.
Debt equity: Long-term, short term and current liabilities. Owners equity: Long term, short term and current liabilities. Significance: This ratio is acceptable as 1:1 .in general, lower the debt equity ratio the higher
the degree of protection enjoyed by the creditors.
2) Debt ratio:
The debt ratio measures the extent to which borrowed fund support the firm assets. It is defined as: Debt Debt ratio = -------------------Assets
The numerator of this ratio includes all liabilities, short term as well as long-term, and the denominator of this ratio is the total of all assets.
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A high ratio means that claims of creditors are greater than those of owners. A high debt company is able to borrow funds on very restrictive terms and conditions. the loan agreement may required a firm to maintain a certain level of working capital or a minimum current ratio, or restrict the payment of dividend or fix limit to the officers and employers salaries and so on .heave indebtedness leads to creditors pressure and constraints on the management independent functioning and energies .when the company earns low profit, and having high debt ratio, it cannot even pay the interest charges of the creditors. A low debt equity ratio implies greater safety for creditors
Interest coverage =
Debit -------------------Interest
Depreciation is a noncash item. Therefore, funds equal to depreciation are also available to pay interest charges. We can thus calculate the interest coverage ratio as earnings before depreciation, interest and taxes (DEBIT) divided by interest. A higher coverage ratio is desirable, but too high a ratio indicates that the firm is very conservative in using debt, and that it is not using credit to the best advantage of share holder. A
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lower ratio indicates excessive use of debt. The firm should make efforts to provide the operating efficiency, or to retire debt to have a comfortable coverage ratio.
A company should earn profit to survive and grow over a long period of time, but it would be wrong to assume that every action initiated by management of company should be aimed at maximizing profit, irrespective of social consequences. It is unfortunate that the word Profit is looked upon as a term of abuse since some firms always want to maximize profit at the cost of employees, costumer and society. Except such infrequent cases, it is a fact that sufficient profits must be earns to sustain the corporations of business to be able to obtain funds from investors for expansion and growth and to contribute towards the society overheads in the welfare of the society.
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shaping the pricing policy of the firms. A high gross profit margin ratio is sign of good management. A gross margin ratio may increase due to any of the following factors. a) Higher sales price, cost of goods sold remaining constant. b) Lower cost of goods sold, sales prices, remaining constant, c) a combination of variation in sales prices and cost, the margin widening, d) An increase in the proportionate volume of higher margin items. The analysis of this sector reveals to management how depressed gross profit margin can be improved. This ratio is calculated by dividing gross profit by net sales.
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 (labour, material and manufacturing overheads) to sales may be studied in detail.
management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and the enable to analyst to find at the sources of efficiency.
An analyst will be able to interpret the firms profitability more meaningfully if evaluates both the ratios gross margin and net margin jointly. To illustrate, if the gross profit margin has increase over years, but the net profit margin has either remained constant or declined, or has not increased as fact as gross margin, this implies that the operation expenses relative to sales have been increasing. The increasing expanses should be identified and controlled. Gross profit margin may decline due to fall in sales price or increase in the cost of production. As a consequence, net profit margin will decline unless operating expenses decrease significantly. Therefore, both the ratios should be jointly analysed and each item of expense should be thoroughly investigated to find out the causes of decline in any or both the ratios.
employed. Though widely used, this is an old measure because the numerator measures the return to share holders (equity and preference) and the denominator represents the contribution of shareholders as well as creditors. To ensure internal consistency, the following formula may be used.
4) Earnings Power:
A measure of operating of profitability the earning power of firm is calculated as follows:
Earnings before Interest and Taxes Earning Power = -------------------------------------------Average Total Asset
The earning power is a measure of business performance which is not affected by tax and payment of interest. It focuses only on operating performance. Hence, it is useful for inter-firm comparison.
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5) Return On Equity:
A measure of great interest to equity share-holders, the return on equity is defined as: Equity Earnings Return on Equity= ---------------------------Average Net Worth
The numerator of this ratio is equal to profit after tax less preference dividends. The denominator includes all contributions made by equity share holders i.e. paid up capital + reserves and surplus. The ratio is also called the return on Net Worth. The Return on Equity measures the profitability of equity funds invested in the firm. This ratio reflects the productivity of the ownership (or risk) capital employed in the firm. This ratio is influenced by several factors: average cost at debt funds, earning power, debt equity ratio and tax rate.
Cost of goods sold+ operating expenses Operating Expenses Ratio = --------------------------------------------------- x 100 Net sales
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Operating expenses consists of: i. ii. Factory expenses like factory rent, wages, factory insurance etc. Administrative expenses like rent, insurance office staff salaries, printing and stationery etc iii. Selling and distribution expense like salesman salaries, traveling expenses, advertising, and delivery van expenses etc. The ratio shows the percentage of net sales that is absorbed by cost of goods sold and operating expenses. Naturally higher the ratio, the less favorable it is because it would become a small margin to meet interest, dividends and other corporate needs. The ratio is an index of the operating efficiency of the enterprise .It is advisable to study the ratio over a number of years so as to view the direction of the operating efficiency.
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Where ROTA & RONA are respectively return on total assets and return on net assets. RONA is equivalent of return on capital employed.
8) Tobins q:
Tobins q is the ratio of the market value of a firms assets (or equity or debt) to its assets replacements costs. Thus Market value of assets Tobins q = ----------------------------------------Replacement cost of assets
This ratio differs from the market value of book value ratio in two respects: it includes both debt and equity in the numerator, and all assets in the denominator, not just the book value of equity. It is argued that firms will have incentive to interest when q is greater 1. They will be reluctant to invest once q becomes equal to 1.
therefore, be defined as a test of the relationship between sales and the various assets of a firm. Activity ratios thus, involve a relationship between sales owned assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of assets utilizations.
1) Inventory Turnover:
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is computed by dividing the cost of goods sold by average inventory. Cost of goods sold Inventory Turnover = -----------------------------Average Inventory
The Average inventory is the average of the opening and closing balances of inventory. When the number of days in year (say 360) is divided by inventory turnover, we obtain days of inventory holdings. (DIH) Average inventory DIH = ------------------------------Cost of goods sold = 360 -------------------------Inventory turnover
The inventory turnover reflects the efficiency of inventory management. The higher ratio, the more efficient, the management of inventories and vice versa. However, this may not always be true. A high inventory turnover may be caused by a low level of inventory which may result in frequent stock-outs and loss of sales and costumer goodwill.
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If the figure if net credit is not available, one may have to make do with the net sales figure. To outside analyst information about credit sales and opening and closing balances of debtors may not be available. Therefore, debtors turnover can be calculated by dividing total sales by the year-end balance of debtor.
Average collection period = the average collection period represents the number of days worth of credit sales that is locked in debtors. It is defined as:
Average accounts receivable Average collection period = --------------------------------------------Average daily credit sales
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If the figure of credit sales is not available, one may have to make do with the net sales figure. The average collection period and the accounts receivable turn over are calculated as follows:
The average collection period may be compared with the firms credit terms to judge the efficiency of credit management. For example, if the credit terms are 2/3, net 45, an average collection period of 85 days means that the collection is slow and an average collection period of 40 days means that collection is prompt. An average collection period which is shorter than the credit period allowed by the firm needs to be interpreted carefully. It may mean efficiency of credit management or excessive conservatism in credit granting that may result in the loss of some desirable sales. The objective of the comparison implied in the debtors turnover ratio is to learn how old accounts are and partly to learn how fast cash will flow from their collection.
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This ratio measures sales per rupee of investment in fixed assets. Again this ratio measures the efficiency in the utilization of fixed assets. This ratio indicates weather the fixed assets are being fully utilized. It is an important measure of the efficient and profit earning capacity of the business. A debtors turnover ratio is an index of the over-trading while a low ratio suggests idle capacity and excessive investment in fixed assets. However, in interpreting this ratio, one caution should be born in mind. When the fixed assets of the firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator of the ratio is very low. The collection period ratio thus helps an analyst in two respects. 1. In determining the collectability of debtors and thus, the efficiency of collection efforts. 2. In ascertaining the firms comparative strength and advantage relative to its credit policy and performance vis--vis the competitors credit policies and performance.
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performance of firm. The use of ratio analysis is not confined to the financial manager or financial analyst only. The bank, credit supplier, leading institutions and experienced investor all use ratio analysis as their initial tool in evaluating the firms as a desirable borrower or as potential investment outlet. It functions as a sort of health test. With the help of ratio analysis financial analyst can measure weather the firm is at present financial healthy or not. The following are some of the advantages/utility of ratio analysis.
1) Trend Analysis:
Ratio analysis enables a firm to take the time dimension into account. It indicates weather the financial position of a firm in improving or deteriorating over the years.
2) Inter-firm Comparison:
Ratio analysis not only shows light on the financial position of a firm but also serves as a stepping stone to remedial measures. This made possible due to inter-firm comparison. Comparison with industry averages. It is expected that of industry to which it belongs. Such comparison demonstrates the relative strength of the firm.
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6) Aid in comparison:
With the help of ratio analysis ideal ratios can be composed and they can be used for comparison of a particular firms progress and performance.
7) Communication Value:
Different financial ratios communicate the strength and financial standing of the firm to the internal and external parties.
9) Helps in Planning:
Ratio analysis helps in planning and forecasting over a period of time a firm develops certain norms that may indicate future success or failure. If relationship changes in firms data over different time periods, the ratios may provide clues on trend and future problems. Thus ratio can assist management in its basic functions of forecasting, planning, co-ordination, control and communication.
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4) Lack of qualitative analysis of the problem: Ratio analysis gives only a good basis for quantitative analysis of financial problems. But it suffers from qualitative aspects. 5) Lack of proper standards:
While making comparisons, it is always a challenging job to find out an adequate standard. For example, current ratio is generally considered to be ideal if current assets are twice the current liabilities. However, in case of those concerns which have adequate arrangements with their bankers for providing funds when they acquire, it may perfectly ideal if current assets are equal to slightly more than current liabilities. It is therefore, necessary to avoid many rules of thumb. Financial analysis is an individual matter and value for a ratio which will be perfectly acceptable for one company or one industry may not be all acceptable in case of another.
6) Window-Dressing:
Firms may resort to window dressing to show a favorable financial position. For example a firm may prepare its balance sheets at a point when its inventory level is very low. As a result, it may appear that the firm has a very comfortable liquidity position and a high turnover of inventories. When window dressing of this kind is suspected. The financial analyst should look at the average level of inventory over a period of time and not the level of inventory of just one point of time.
correctly observed Ratios must be used for what they are financial tools. Too after they are looked upon as ends in themselves rather than as a mean to an end it may be an indication that a firm is weak or strong in a particular area but it must never be taken as proof.
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1. Current ratio Current assets Current ratio = -------------------------Current liabilities Year 2008 2009 2010 Current assets 4561922.67 6621088.14 370864.29 Current liabilities 608171 2365624.64 2908662 Ratio 7.5 2.7 1.28
Comments: The above graph shows that the current ratio for the year 2008-09 is 7.5:1 it indicates that the short term liabilities can be easily paid off but the ratio is above standard i.e. 2:1, it shows that much more capital is blocked in current assets and same is the case with the year 2009-10 but in 2010-11 current ratio is 1.28:1.
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2 Quick ratio
3 2.5 2 Quick Ratio 1.5 1 0.5 0 2008 2009 2010 Quick Ratio Quick Ratio
Comment: The standard liquid Ratios is1:1 the above graph shows in the year 2008-09, 2009-10, 2010-11 the ratios are 2.57:1, 1.11:1 and 1.11:1, which are nearer to the standard Ratio it shows goods management. But still company has to improve its liquid assets
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2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 Inventory Turnover Ratio
Comment: From above table we can see that sales and closing stock is increasing but the sales is increasing in less speed which shows company has to focus on sales.
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Comment: In above table we can see that a sale is increasing but in credit with sales, debtors are also increasing so its not a good sign for company. Hence company has to reduce the period of debtors.
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2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 Fixed Asset Turnover Ratio
Comment: In above table we can see that the sales are increasing but on the other hand fixed assets are decreasing. This is not a good sign company has to concentrate on its fixed assets.
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0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2008 2009 2010 Total Asset Turnover Ratio
Comment: In above table sales as well as total assets are increasing which shows company is in a good position. Sales has shown a good sign almost 200% increase in it.
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25.5 25.48 25.46 25.44 25.42 25.4 25.38 25.36 25.34 2008 2009 2010
Comment: In above table gross profit shows a positive sign it is approximately up to 25% of sales so company should concentrate to increase the gross profit rate.
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Comment:
In above table we can see in the year 2008 net profit was negative but in further years it has shown a good positive comeback. so company is in a good position.
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1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 net working capital turnover ratio
Comment:
In above table we can see that the working capital shows a positive balance which is not good for company. Lots of its current assets is engaged in working capital.
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10
2009
2010
Comment:
In the above table fixed assets as well as current assets shows a positive balance so company can relax. There is no need to think much about the assets.
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SUGGESTIONS
To improve the short term solvency, the company should try to reduce the investment in current assets and try to recover the amount from debtors as early as possible to maintain the current ratio as per the standard. The management should not use the short term loan for acquiring the fixed assets. The management should try to improve their debt Equity ratio to reduce their interest and tax liabilities. Such policy strengthened the long term financial solvency of the company. The company must maintain spindle utilization at maximum possible levels so as to minimize the cost of overheads. The company must ensure that no surplus labour is engaged in any of the departments and the labour productivity should be maintain at maximum possible levels for the type of machine available in the company. Lastly, there should be full co-operation from various suppliers, unsecured creditors and other, who are interested in improvement of financial position of the company and particularly from the employees.
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CONCLUSIONS
Ratios make the related information comparable. A single figure by itself has no meaning, but when expressed in terms of a related figure, it yields significant interferences. Thus, ratios are relative figures reflecting the relationship between related variables. Their use as tools of financial analysis involves their comparison as single ratios, like absolute figures, are not of much use. Ratio analysis has a major significance in analyzing the financial performance of a company over a period of time. Decisions affecting product prices, per unit costs, volume or efficiency have an impact on the profit margin or turnover ratios of a company. accounting data relationships, which give the decision-maker insights into the financial performance of a company. The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firms position and performance. The first task of financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusions. In brief, financial analysis is the process of selection, relation and evaluation. Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end in itself. The reliability and significance attached to ratios will largely hinge upon the quality of data on which they are based. They are as good or as bad as the data itself. Nevertheless, they are an important tool of financial analysis.
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CHAPTER 8 BIBLIOGRAPHY
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BIBLIOGRAPHY
1) By Raiyani J R
Financial Ratios And Financial Statement Analysis Publisher: New Century Publications (Sep 17, 2008) 2) By Bernstein
Analysis Of Financial Statements Publisher: Mcgraw-hill Education India Ltd. (15 March, 2002) 3) M.F.Morley
Financial ratio analysis Publisher: American Institute of Certified Public Accountants, 1983 5) Richard Bull
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WEBLIOGRAPHY
1. http://www.cyberessays.com/search_results.php?query=executive+summary+on+ratio+analysis date 25 sept
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