A Summer Training report on RATIO ANALYSIS of PRATAP SPINTEX PVT. LTD.

Presented to: Ms. Neha Sharma Asst. professor AIMT.

Presented by: Manish Jain MBA (3rd semester) Roll No.- 1714

Contents
Industrial Profile Company Profile Ratio Analysis Objectives Research Design Scope Data Collection Limitations Data Analysis Findings Conclusion Bibliography & Suggestions

INTRODUCTION TO TEXTILE INDUSTRY

The textile industry grew out of the industrial revolution in the 18th Century as mass production of yarn and cloth. Textile industry is one of the oldest industries existing until date. Textile refers to a flexible material comprising of a network of natural or artificial fibers, known as yarn. Textiles are formed by weaving, knitting, crocheting, knotting and pressing fibers together. Around 35 million people are directly employed in the textile manufacturing activities. Indias textile industry is one of the economys largest India is the third largest producer of cotton with the largest area under cotton cultivation in the world.

INTRODUCTION TO TEXTILE INDUSTRY

Introduction To Company
Partap Group of Companies made a humble beginning in mid 70s when late Sh. Ram Partap Bansal, groups Managing Director, set-up Agro based unit in Haryana, earlier engaged in the business of hire-purchase financing/ real-estate investment. The group first setup rice mill in 1977. Then installed first solvent plant in 1979 in Haryana. From 1987 to 2002, the group remained in oil industry business. In nineties this group was the largest oil producer in Northern India. In 2002-03, the group diversified into textile sector with the latest technology Open-End Spinning unit in Punjab. In 2008-09, group entered in the real estate with a magnificent investment. In 2011, the group with numerous expansions turned into the second largest manufacturer of denim fabric in India.

INFRASTRUCTURE OF PARTAP SPINTEX LTD

RING SPINNING PARTAP SPINTEX(DYEING DIVISION) PARTAP SPINTEX (KNITTING DIVISION) Product Line Manufacturing Capacity

Process of Spinning
Sorting Blow Room Mixing Carding Finisher Draw Frame Speed Frame Ring Frame Auto Coner T.F.O Yarn Conditioning

Swot Analysis
STRENGTHS Global bench marking. Well-established marketing network WEAKNESSES: The price of the cotton yarn, which is the major raw material OPPORTUNITIES: Made in India denim fabric Independent researches indicate the global demand is expected to increase by 5% to 6 % annually for another 5 to 10yrs. THREATS: Fashion may change, impacting the demand for cotton yard.

INTRODUCTION TO RATIO ANALYSIS

DEFINITION OF RATIO ANALYSIS Ratio Analysis is a fundamental means of examining the health of a company by studying the relationships of key financial variables. Significance and Usefulness of Ratio Analysis: A useful tool in the hands of analyst: Inter-Firm comparison: Trend Analysis: Decision Making: Financial Forecasting and Planning: Control is more Effective: Usefulness to the Owners/Shareholders: Usefulness to the Creditors:

FOLLOWING ARE THE MAIN ADVANTAGES OF RATIO ANALYSIS:

Helpful in Decision Making Helpful in Financial Forecasting and Planning Helpful in Communication Helpful in Co-ordination Helps in Control Helpful for Shareholder's decision Helpful for Creditors' decisions Helpful for employees' decisions Helpful for Govt. decisions

DIFFERENT TYPES OF RATIOS

The parties interested in financial analysis are short and long term creditors, owners and management. Short term creditors main interest is the liquidity position or short term solvency of the firm. They are classified into 4 categories: Liquidity ratios. Leverage ratios. Activity ratios. Profitability ratios.

OBJECTIVES OF STUDY
Success is achieved by those who try where there is nothing to be loose by trying and a great deal to gain PRIMARY OBJECTIVE:
To analyze the financial position of PARTAP SPINTEX and interpret the

same using financial tool Ratio Analysis. SECONDARY OBJECTIVES: To simplify and summarizes a long arrangement of accounting data and makes them understandable To helps in forecasting and in preparing financial plans for the future. To provide useful financial information to the management To know about the financial position, risk bearing capacity of the company.

TYPES OF RESEARCH

Descriptive Research: Descriptive research has been conducted to describe the various characteristics related to working capital. It includes the facts finding inquiries of different kinds. Analytical Research:In it, we have to use facts and information already available and analysis these to make an evaluation for project. Quantitative Research:Quantitative research is obtained to evaluate the different parameters relating to the working capital management.

SCOPE OF STUDY
Studies due with the details that affect the profit of the company along with that the financial ratios will the help us to know the financial position and liquidity of the company. Examines key information about company for business intelligence. Product & Services which is offered by the company. Opportunities available to the company are sized up and its growth potential assessed .

LIMITATIONS OF STUDY
Six weeks training is not sufficient to know the details of the organization. Manager some time denied disclosing some important financial matters, which can be helpful in the study. The staff members of the company were too much busy in their audit work because that was for audit time.

Ratio Analysis Of Partap Spintex

Current Ratio = Current assets Current Liabilities

2.85 2.8 2.75 2.7 2.65 2.6 2.55 2.5 2011 2.6 YEAR 2.8 CURRENT RATIO

CURRENT RATIO

RATIO

2010

Interpretation: As a convention the minimum of 2:1 ratio is referred to as Bankers Rule of thumb. Since the current ratio of the firm for the past 2 years is more than 2:1, therefore the firm has been in good liquid position.

Liquid Assets Ratio = Liquid Assets Current Liabilities LIQUID RATIO

0.875 0.87 0.865 0.86 0.855 0.85 RATIO 0.845 0.84 0.835 0.83 0.825 0.82 2011 YEAR 2010 0.84 0.87 LIQUID RATIO

Interpretation: As a convention, ratio of 1:1 is considered satisfactory. But the liquid ratio for the past 2 years has been declining & this is due to decreasing cash balance & increasing debtors i.e. the ability of the firm to realize the debtors has been decreased.

Absolute Liquid Ratio = Absolute Liquid Assets Current Liabilities

ABSOLUTE LIQ. RATIO
0.09 0.08 0.07 0.06 0.05 RATIO 0.04 0.03 0.02 0.01 0 2011 YEAR 2010 0.013 0.08 ABSOLUTE LIQ. RATIO

Interpretation: The acceptable norm for this ratio is 0.5:1. This ratio of the firm for the past 2 years is not satisfactory & is showing a decreasing trend. It means that the company is not in a position to meet its short-term obligations.

EFFICIENCY RATIOS :1. Inventory Turnover Ratio = COGS Avg. Inventory

STOCK TURNOVER RATIO
2.85 2.8 2.75

RATIO

2.7
2.65 2.6 2.55 2.5 2011 2010 YEAR 2.63 2.82 STOCK TURNOVER RATIO

Interpretation: In 2010,the ITR was 2.65 and in 2011, the ITR of the company was 2.82 This indicates efficient management of the inventory of the company & over investment in the inventory.

Debtors Turnover Ratio = Net sales Avg. Debtors

DEBTORS TURNOVER RATIO
12

10

RATIO 6 9.66 4 7.47 DEBTORS TURNOVER RATIO

0 2011 2010 YEAR

Interpretation: DTR has increased from 7.47 times to 9.66 which shows that now company has improved in managing its debtors.

Creditors Turnover Ratio = Purchases Avg. Creditors

creditors turnover ratio
6

RATIO 3

5.4
2 3.13 1

creditors turnover ratio

0 2011 2010 YEAR

Interpretation: In 2010, CTR has increased from 3.13 to 5.4, which shows that now company is inefficient in managing creditors.

4. Working Capital Turnover Ratio = Sales Avg. W. Capital

working capital turnover ratio
3.85

3.84

3.83

3.82 RATIO 3.81 3.84 working capital turnover ratio

3.8

3.79

3.8

3.78 2011 2010 YEAR

Interpretation: The working capital has been increasing which shows the efficient utilization of working capital.

SOLVENCY RATIO:
1. Debt Equity Ratio = Outsiders Fund Shareholders Fund
Interpretation: In 2010, it is 1.073:1 & decreased to 1.055:1 in 2011. A low ratio is considered favorable from the long-term creditors point of view. Because a high proportion of owners fund provide a larger margin of safety for them. A high DER indicates that the claims of the outsiders are greater than those of owners, which may not be considered by the creditors; because this gives lesser margin of safety for them at the time of liquidation of the company.

Debt Equity ratio

1.075 1.07 1.065 1.06 RATIO 1.055 1.05 1.045 1.04 2011 2010 YEAR 1.05 1.07 Debt Equity ratio

2. Funded Debt to Total Capitalization Ratio = Funded Debt X 100 Total capitalization
Debt to Capitalisation ratio
43.5 43 42.5 42 RATIO 41.5 41 40.5 40 2011 2010 YEAR 41 43 Debt to Capitalisation ratio

Interpretation: In 2011, it was 41%. Up to 50 % to 55%, this ratio is considered to be tolerable. Since this ratio of the company is below this limit therefore the company is in better solvency position as lesser reliance on outsiders, the better it is for the company.

3. Equity Ratio = Shareholders Fund Total Assets

Equity Ratio
49.2 49 48.8 48.6 48.4 RATIO 48.2 48 49

100

Interpretation: In 2010 & 2011 there was no significant change in ER as it was 48% in 2010 & 49% in 2011. Higher the ER better is the longterm solvency position Equity Ratio of the company otherwise not.

47.8
48 47.6 47.4 2011 2010 YEAR

4. Ratio of Total Liabilities to Total Assets = Total Liab. To outsiders Total Assets
Liabilities to Assets ratio
51.9 51.8 51.7 51.6 51.5 RATIO 51.4 51.8 Liabilities to Assets ratio

100

51.3
51.2 51.3 51.1 51 2011 2010 YEAR

Interpretation: Further in 2010 it was 51.8% & in 2011 it is decreased to 51.3% which means that the ratio of the company has become more satisfactory.

5. Fixed Assets to Net Worth Ratio = Fixed Assets X 100 Shareholders Funds
Fixed assets to Net worth ratio
120

100

80

RATIO 60 99.7 40 81.5

20

0 2011 2010 YEAR

Interpretation: When the ratio is less than 100% it implies that owner funds are more than total fixed assets & a part of working capital is provided by the shareholders. When the Fixed assets to Net worth ratio ratio is more than 100% it implies that owners funds are not sufficient to finance the fixed assets & the firm has to depend upon outsiders to finance fixed assets. In 2010 and 2011 it was below 100%.

6. Fixed Assets Ratio = Fixed Assets X 100 Total Long Term Funds
Fixed assets ratio
58 56 54 52 RATIO 50 48 46 44 42 2011 2010 YEAR 48 56.8 Fixed assets ratio

Interpretation: In 2011 it came down to 48%. Generally, 100% is considered to be satisfactory. But in case of this company the ratio is less than 100%, which implies that a part of working capital requirement is met out of the long-term funds of the firm.

PROFITABILITY RATIOS:-

1. Gross profit Ratio = Gross Profit Net Sales

Gross Profit ratio
30 29 28 27

X 100

RATIO
26 25 24 23 2011 2010 YEAR 25.6 29 Gross Profit ratio

Interpretation:. Finally in 2011 GP Ratio decreased to 25.6% because percentage increase in sales is more than percentage increase in Gross Profit.

2. Net Profit Ratio = Net Profit Net Sales

Net Profit ratio
6

100

RATIO 3 5.04 2 Net Profit ratio

2.19

0 2011 2010 YEAR

Interpretation: In 2010 the NPR of the company was 2.19% & it increased to 5.04% due to increase in NP.

3. Operating Ratio = Operating Cost Net Sales

Operating Ratio
78.5 78 77.5 77 76.5 RATIO 76 78 75.5 75 74.5 75 74 73.5 2011 2010 YEAR Operating Ratio

100

Interpretation: In 2011 OR increased to 78% because % change in OC is higher than percentage change in sales.

Profitability Ratios Based On Investment

1. Return On Investment= Profit before Interest & Taxes X 100 Capital Employed
Return On Investment
40

Interpretation: The Return on Investment should be high. Higher the ROI, better it is for the firm. In 2011 the Return on Investment has increased to 39% (approx.) from 35.43% in 2010.

39
38 37 36 35 34 33 Return On Investment

2011

2010

2. Return On Equity= Net Profit After Interest& taxes Equity/shareholders funds

X 100

Return On Equity

12 10 8 Return On Equity 6 4 2 0 2011 2010

Interpretation: Higher the Return on Equity, more benefits will be enjoyed by the shareholders and the Goodwill of the firm will also increase. In 2011, the ROE has increased to 11% (approx.) from 4% in 2010.

3. Earnings Per Share = Profit After Tax Number of shares

Earning Per Share

90 80 70 60 50 Earning Per Share

Interpretation: Higher the earnings of a firm, the more investors will be attracted to the firm for investment. In 2011, the E.P.S. has increased to Rs. 79/share with 25 lakhs shares from Rs. 37/share with 20 lakhs shares.

40
30 20

10
0 2011 2010

Findings
From the calculated current ratio, we find that it is above the ideal ratio which means firm is having good liquidity position. We found that liquid ratio is below the ideal ratio which occurs due to decreasing cash and increasing debtors. The companys absolute liquidity ratio is below the ideal ratio which means the firm is unable to meet its short term obligations. From the calculated stock turnover ratio, we find that it has been increasing which means that company is efficient in managing its stock. The companys debtors turnover ratio has been increasing which means company is efficient in managing its debtors. We found that creditors turnover ratio has been increasing which means that company is inefficient in managing its creditors

 From the calculated working capital ratio., we find that company is efficiently utilizing its working capital as it is increasing. The equity ratios has been increasing which means that a company is having good solvency position. From the calculated debt equity and funds to capitalization ratio, we find that a company is having a good solvency position as it is decreasing. The companys net profit and operating profit ratio has been increasing which means that a firm is having good profitability.

SUGGESTIONS
Company should raise funds from long term loans or debentures. This will save the amount of tax paid by company Company should concentrate on reducing the manufacturing expenses because this year its sales has increased but gross profit is less as compare to sales. Company should select proper and fast techniques to reduce the excess paperwork

There should be proper coordination between different departments of the organization especially between production and purchase department for the timely availability of required goods Organization should sale the waste on the daily basic because it will not only generate the cash and but also help in the making space in the godown.

BIBLIOGRAPHY
BOOKS: Management accounting by R.K Mittal. Financial Management by Shashi k. Gupta -11th Addition. INTERNET SEARCH: whttp://www.partapgroup.in/index.asp http://www.partapgroup.in/profile.aspx?mpgid=2&pgid=3

Thank You