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INTRODUCTION
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RATIO ANANLYSIS
Introduction
The ratio analysis is the most powerful tool of financial analysis. Several ratios
calculated from the accounting data can be grouped into various classes according to financial
activity or function to be evaluated.
DEFINITION:
“The indicate quotient of two mathematical expressions and as “The
relationship between two or more things’’. It evaluates the financial position and performance of
the firm. As started in the beginning many diverse groups of people are interested in analyzing
financial information to indicate the operating and financial efficiency and growth of firm. These
people use ratios to determine those financial characteristics of firm in which they interested with
the help of ratios one can determine.
The ability of the firm to meet its current obligations.
The extent to which the firm has used its long-term solvency by borrowing
funds.
The efficiency with which the firm is utilizing its assets in generating the
sales revenue.
The overall operating efficiency and performance of firm.
Alexander wall is the pioneer of ratio analysis. He presented a
detailed system of ratio analysis in the year 1919. Ratio analysis is important one for all
management accounting for decision making.
Ratio analysis of financial statements stands for the process of determining and
presenting the relationship of items and groups of items in the statements.
Ratio analysis is a powerful tool of financial analysis. It is a process of identifying
the financial strengths and weakness of the firm by properly establishing the relationship
between the different items of balance sheet and profit and loss account for a meaningful
understanding of the financial position and performance of the firm.
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FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and
weakness of the firm. It is done by establishing relationships between the items of financial
statements viz., balance sheet and profit and loss account. Financial analysis can be undertaken
by management of the firm, viz., owners, creditors, investors and others.
Objectives of the financial analysis
Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated
quotient of mathematical expression" and as "the relationship between two or more things". A
ratio is used as benchmark for evaluating the financial position and performance of the firm. The
relationship between two accounting figures, expressed mathematically, is known as a financial
ratio. Ratio helps to summarizes large quantities of financial data and to make qualitative
judgment about the firm's financial performance.
The persons interested in the analysis of financial statements can be grouped under three head
owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors
are the people who are concerned primarily with Liquidity and ability to pay interest and redeem
loan within a specified period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions.
STANDARDS OF COMPARISON
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The ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio in itself does not indicate favourable or unfavourable condition. It should be
compared with some standard. Standards of comparison are:
1. Past Ratios
2. Competitor's Ratios
3. Industry Ratios
4. Projected Ratios
Past Ratios : Ratios calculated from the past financial statements of the same firm.
Competitor's Ratios: Ratios of some selected firms, especially the most progressive
and successful competitor at the same point in time.
Industry Ratios : Ratios of the industry to which the firm belongs.
Projected Ratios : Ratios developed using the projected financial statements of the same
firm.
TIME SERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its present ratios with
past ratios. When financial ratios over a period of time are compared, it is known as the time
series analysis or trend analysis. It gives an indication of the direction of change and reflects
whether the firm's financial performance has improved, deteriorated or remind constant over
time.
CROSS SECTIONAL ANALYSIS
Another way to comparison is to compare ratios of one firm with some selected firms in
the industry at the same point in time. This kind of comparison is known as the cross-sectional
analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected
competitors, who have similar operations.
INDUSTRY ANALYSIS
Its ratio may be compared with average ratios of the industry of which the firm is a
member. This type of analysis is known as industry analysis and also it helps to ascertain the
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financial standing and capability of the firm & other firms in the industry. Industry ratios are
important standards in view of the fact that each industry has its characteristics which influence
the financial and operating relationships.
METHODS OF ANALYSIS:
A financial analyst can adopt the following tools for analysis of the financial statements. These
are also termed as methods of financial analysis.
A. Comparative statement analysis
B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis
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Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking appropriate decisions for
strengthening the short-term as well as long-term solvency of the firm.
Comparison of past and present results:
Financial statements of the previous years can be compared and the trend regarding
various expenses, purchases, sales, gross profit and net profit can be ascertained.
TYPES OF RATIOS:
A.LIQUIDITY RATIOS
It is essential for a firm to be able to meet its obligations as they become due. Liquidity
Ratios help in establishing a relationship between cast and other current assets to current
obligations to provide a quick measure of liquidity. A firm should ensure that it does not suffer
from lack of liquidity and also that it does not have excess liquidity. A very high degree of
liquidity is also bad, idle assets earn nothing. The firm's funds will be unnecessarily tied up in
current assets. Therefore it is necessary to strike a proper balance between high liquidity.
Liquidity ratios can be divided into three types:
Current Ratio
Quick Ratio
Cash Ratio
1. CURRENT RATIO:
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Current ratio is an acceptable measure of firm’s short-term solvency Current assets
includes cash within a year, such as marketable securities, debtors and inventors. Prepaid
expenses are also included in current assets as they represent the payments that will not made by
the firm in future. All obligations maturing within a year are included in current liabilities. These
include creditors, bills payable, accrued expenses, short-term bank loan, income-tax liability in
the current year. The current ratio is a measure of the firm's short term solvency. It indicated the
availability of current assets in rupees for every one rupee of current liability. A current ratio of
2:1 is considered satisfactory. The higher current ratio, greater the margin of safety, the larger the
amount of current assets in relation to current liabilities, then it indicate more the firm's ability to
meet its obligations. It is a cured –and -quick measure of the firm's liquidity. Current ratio is
calculated by dividing current assets and current liabilities.
CURRENT ASSETS
CURRENT RATIO = -------------------------------------------------
CURRENT LIABILITIES
2. QUICK RATIO:
Quick Ratio establishes a relationship between quick or liquid assets and current liabilities.
An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss
of value. Cash is the most liquid asset, other assets that are considered to be relatively liquid
asset and included in quick assets are debtors and bills receivables and marketable securities
(temporary quoted investments). Generally, a quick ratio of 1:1 is considered to represent a
satisfactory current financial condition. Quick ratio is a more penetrating test of liquidity than the
current ratio, yet it should be used cautiously. A company with a high value of quick ratio can
suffer from the shortage of funds if it has slow- paying, doubtful and long duration outstanding
debtors. A low quick ratio may really be prospering and paying its current obligation in time.
QUICK ASSETS
QUICK RATIO = ----------------------------------
QUICK LIABILITIES
GLOSSORY:
Quick assets: current assets-stock-prepaid expenses
Quick liabilities: current liabilities-bank overdraft-cash credit
3. Cash Ratio:
Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its
equivalent current liabilities. Cash and Bank balances and short-term marketable securities are
the most liquid assets of a firm, financial analyst stays look at cash ratio. Trade investment is
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marketable securities of equivalent of cash. If the company carries a small amount of cash, there
is nothing to be worried about the lack of cash if the company has reserves borrowing power.
Cash Ratio is perhaps the most stringent Measure of liquidity. Indeed, one can argue that it is
overly stringent. Lack of immediate cash may not matter if the firm stretch its payments or
borrow money at short notice.
BANK+CASH+MARKETABLE SECURITIES
CASH RATIO= ---------------------------------------------------------------------
CURRENT LIABILITIES
B.LEVERAGE RATIOS:
Financial leverage refers to the use of debt finance while debt capital is a
cheaper source of finance: it is also a riskier source of finance. It helps in assessing the risk
arising from the use of debt capital. Two types of ratios are commonly used to analyze financial
leverage.
1. Structural Ratios &
2. Coverage ratios.
Structural Ratios are based on the proportions of debt and equity in the financial structure of
firm. Coverage Ratios shows the relationship between Debt Servicing, Commit ments and the
sources for meeting these burdens. The short-term creditors like bankers and suppliers of raw
material are more concerned with the firm's current debt-paying ability. On the other hand, long-
term creditors like debenture holders, financial institutions are more concerned with the firm's
long-term financial strength. To judge the long-term financial position of firm, financial leverage
ratios are calculated. These ratios indicated mix of funds provided by owners and lenders. There
should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The
process of magnifying the shareholder's return through the use of Debt is called "financial
leverage" or "financial gearing" or "trading on equity". Leverage Ratios are calculated to
measure the financial risk and the firm's ability of using Debt to share holder's advantage.
1. Debt equity ratio:
It indicates the relationship describing the lenders contribution for each rupee of the
owner's contribution is called debt-equity ratio. Debt equity ratio is directly computed by
dividing total debt by net worth. Lower the debt-equity ratio, higher the degree of protection. A
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debt-equity ratio of 2:1 is considered ideal. The debt consists of all short term as well as long-
term and equity consists of net worth plus preference capital plus Deferred Tax Liability.
TOTAL DEBT
DEBT EQUITY RATIO= -----------------------------------------------------
TOTAL DEBT+ TOTAL EQUITY
The interest coverage ratio or the time interest earned is used to test the firms’ debt
servicing capacity. The interest coverage ratio is computed by dividing earnings before interest
and taxes by interest charges. The interest coverage ratio shows the number of times the interest
charges are covered by funds that are ordinarily available for their payment. We can calculate the
interest average ratio as earnings before depreciation, interest and taxes divided by interest.
EBIT
INTEREST COVERAGE RATIO= -------------------------
INTEREST
3. Proprietary ratio
The total shareholder's fund is compared with the total tangible assets of the
company. This ratio indicates the general financial strength of concern. It is a test of the
soundness of financial structure of the concern. The ratio is of great significance to creditors
since it enables them to find out the proportion of share holders funds in the total investment of
business.
SHAREHOLDERS FUNDS
PROPRIETOTY RATIO= -------------------------------------------
TOTLA ASSETS/FIXED ASSETS
4. DEBT RATIO:
Several debt ratios may used to analyze the long-term solvency of a firm. The
firm may be interested in knowing the proportion of the interest-bearing debt in the capital
structure. It may, therefore, compute debt ratio by dividing total total debt by capital employed
on net assets. Total debt will include short and long-term borrowings from financial institutions,
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debentures/bonds, deferred payment arrangements for buying equipments, bank borrowings,
public deposits and any other interest-bearing loan. Capital employed will include total debt net
worth.
TOTAL DEBTS
DEBT RATIO= ------------------------------------
TOTAL ASSETS
This ratio makes an analysis of capital structure of firm. The ratio shows relationship
between equity share capital and the fixed cost bearing i.e., preference share capital and
debentures.
EQUITY CAPITAL
CAPITAL GEARING RATIO= ------------------------------------------------
P.SHARE CAPITAL +DEBENTTURES +LOANS
C. ACTIVITY RATIOS
Turnover ratios also referred to as activity ratios or asset management ratios, measure how
efficiently the assets are employed by a firm. These ratios are based on the relationship between
the level of activity, represented by sales or cost of goods sold and levels of various assets. The
improvement turnover ratios are inventory turnover, average collection period, receivable turn
over, fixed assets turnover and total assets turnover.
Activity ratios are employed to evaluate the efficiency with which the firm
manages and utilize its assets.
These ratios are also called turnover ratios because they indicate the speed with which assets are
being converted or turned over into sales. Activity ratios thus involve a relationship between
sales and assets. A proper balance between sales and assets generally reflects that asset
utilization.
Activity ratios are divided into four types:
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1. INVENTORY TURNOVER RATIO/STOCK TURNOVER RATIO:
Inventory turnover ratio indicates the efficiency of the firms in producing and selling
its products. It’s calculated by dividing the cost of goods sold by average inventory.
Debtor’s turnover ratio indicates the relationship between sales and average debtors. It’s
calculated by dividing sales by average debtors. Higher the turnover ratio indicates better
performance and lower turnover indicates inefficiency.
NET SALES
DEBTORS TURNOVER RATIO= -------------------------------
AVERAGE DEBTORS
The firm may which to know its efficiency of utilizing fixed assets and current
assets separately. The use of depreciated value of fixed assets in computing the fixed assets
turnover may render comparison of firm's performance over period or with other firms. The
ratio is supposed to measure the efficiency with which fixed assets employed a high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use
of assets. However, in interpreting this ratio, one caution should be borne in mind, when the
fixed assets of firm are old and substantially depreciated the fixed assets turnover ratio tends
to be high because the denominator of ratio is very low.
NET SALES
FIXED ASSETS TURNOVER RATIOS= -----------------------
FIXED ASSETS
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This ratio measures the relationship between working capital and sales. The ratio
shows the number of times the working capital results in sales. Working capital as usual is the
excess of current assets over current liabilities. The following formula is used to measure the
ratio:
SALES
WORKING CAPITAL TURNOVER RATIO= ------------------------------
WORKING CAPITAL
This ratio is calculated by dividing sales into current assets. This ratio expressed the
number of times current assets are being turnover in standard period. This ratio shows how well
the current assets are being used in the business.
NET SALES
CURRENT ASSET TURNOVER RATIO= -----------------------------
CURRENT ASSETS
This ratio expresses relationship between the amount invested in the asset and the result
in term of sales. This is calculated by dividing the net sales by total assets. The higher the
ratio means the better utilization and vice-versa.
NET SALES
TATAL ASSET TURNOVER RATIO= ---------------------------
TOTAL ASSETS
D. PROFITABILITY RATIOS:
A company should earn profits to survive and grow over a long period of time. Profits are
essential but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits. Profit is the difference between revenues and
expenses over a period of time. Profit is the ultimate 'output' of a company and it will have no
future if it fails to make sufficient profits. The financial manager should continuously evaluate
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the efficiency of company in terms of profits. The profitability ratios are calculated to measure
the operating efficiency of company. Creditors want to get interest and repayment of principal
regularly. Owners want to get a required rate of return on their investment. Generally, two major
types of profitability ratios are calculated:
o Profitability in relation to sales
o Profitability in relation to investment
Profitability Ratios can be divided into six types:
First profitability ratio in relation to sales is the gross profit margin the gross profit
margin reflects the efficiency which management produces each unit of product. This ratio
indicates the average spread between the cost of goods sold and the sales revenue. A high gross
profit margin is a sign of good management. A gross margin ratio may increase due to any of
following factors: higher sales prices cost of goods sold remaining constant, lower cost of goods
sold, sales prices remaining constant. A low gross profit margin may reflect higher cost of goods
sold due to firm's inability to purchase raw materials at favourable terms, inefficient utilization of
plant and machinery resulting in higher cost of production or due to fall in prices in market.
This ratio shows the margin left after meeting manufacturing costs. It measures the
efficiency of production as well as pricing. To analyze the factors underlying the variation in
gross profit margin, the proportion of various elements of cost (Labour, materials and
manufacturing overheads) to sale may study in detail.
GROSS PROFIT
GROSS PROFIT RATIO= -------------------------x100
NET SALES
This ratio expresses the relationship between operating profit and sales. It is worked
out by dividing operating profit by net sales. With the help of this ratio, one can judge the
managerial efficiency which may not be reflected in the net profit ratio.
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OPERATING PROFIT
OPERATING PROFIT RATIO = ---------------------------------x100
NET SALES
Net profit is obtained when operating expenses, interest and taxes are subtracted
from the gross profit. Net profit margin ratio established a relationship between net profit and
sales and indicates management's efficiency in manufacturing, administering and selling
products.
This ratio also indicates the firm's capacity to withstand adverse economic conditions. A
firm with a high net margin ratio would be in an advantageous position to survive in the face of
falling selling prices, rising costs of production or declining demand for product this ratio shows
the earning left for share holders as a percentage of net sales. It measures overall efficiency of
production, administration, selling, financing. Pricing and tax management. Jointly considered,
the gross and net profit margin ratios provide a valuable understanding of the cost and profit
structure of the firm and enable the analyst to identify the sources of business efficiency /
inefficiency.
NET PROFIT
NET PROFIT RATIO= ------------------------------x100
NET SALES
4. RETUN ON INVESTMENT :
This is one of the most important profitability ratios. It indicates the relation of net profit
with capital employed in business. Net profit for calculating return of investment will mean the
net profit before interest, tax, and dividend. Capital employed means long term funds.
E.B.I.T
RETURN ON INVESTMENT= ------------------------------------
CAPITAL EMPLOYED
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5. EARNING PER SHARE:
This ratio is computed by earning available to equity share holders by the total amount of
equity share outstanding. It reveals the amount of period earnings after taxes which occur
to each equity share. This ratio is an important index because it indicates whether the
wealth of each share holder on a per share basis as changed over the period.
NET PROFIT
EARNING PER SHARE= ------------------------------------------
NUMBER OF EQUITY SHARES
It explains the changes in the profit margin ratio. A higher operating expenses ratio is
unfavourable since it will leave a small amount of operating income to meet interest, dividends.
Operating expenses ratio is a yardstick of operating efficiency, but it should be used cautiously.
It is affected by a number of factors such as external uncontrollable factors, internal factors. This
ratio is computed by dividing operating expenses by sales. Operating expenses equal cost of
goods sold plus selling expenses and general administrative expenses by sales.
OPERATING EXPENSES
OPERATING EXPENSES RATIO= -----------------------------------x100
SALES
The net profit after tax belongs to shareholders. But the income they really receive is
the amount of earning as cash dividends.
DIVIDEND
DIVIDEND PER SHARE=------------------------
NUMBER OF SHARES
8. DIVIDEND PAYOUT RATIO:
It measures the relationship between the returns available to equity shareholders and
the dividend paid to them. It reveals what portion of earning per share has been used for
paying dividend and what has been retained for sloughing back.
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CHAPTER-II
INDUSTRY
AND
COMPANY PROFILE
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INDUSRTY PROFILE
Sealed maintenance frees SME) batteries technologies are leading the battery industry in the
recent years in automobile and industrial sector around the globe.
SMF batteries come under the rechargeable batteries category so it can be used as life of times of
a battery. SMF batteries are more economical than nickel cadmium batteries. These batteries are
more compact than the west type batteries. It can be used at any position, these batteries are very
popular for portable power requirements and space constraint applications.
VRLA batteries are leak proof; spell proof and explosion-restraint and having life duration of 15-
20 years. These batteries withstand the environment conditions due to high technology, in build
in the batteries.
Classifications of batteries
Batteries are broadly classified into two segments like,
Automotive batteries
Industrial batteries
Automotive batteries
Apart from mopeds all other automobiles including scooters need storage battery So automotive
batteries are plying the predominant role in automobile sector by influencing customers in the
automobile market.
Industrial batteries
The industrial battery segment comprises of two main categories. One comprises of the
stationary segment and the second relating to “motive; power and electrical vehicles”. The
motive power electrical vehicles segment comprising of telecom, railways and power industries
have registered a growth in excess of 20% and this trend is likely to continue in the next five
years.
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Major manufacturers in battery industry in India
The following are the major manufacturer in battery industry in India.
Exide batteries
Standard batteries
Amco batteries
Tudor batteries
Amara raja batteries
Hyderabad batteries
SME batteries are value regulated lead acid (VRLA) technologies are leading the battery
industry in the recent years.
The government policy to increase the capacity from 10 million to 21 million lines by 2020
increasing the demand for storage batteries considerably the value added services like radio
paging and cellular will increase the demand for storage batteries in future considerably.
Railways
In railways the demand estimate is based on the annual coach production this comes to 2500
numbers by railways itself and by various other segments, replacement demand and annual
requirements for railways electrification.
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COMPANY PROFILE
Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13 th
February 1985, and converted into public Limited Company on 6th September 1990.
The chairman and Managing Director of the company is “Sri Gala Ramachandra Naidu”.
ARBL is a first company in India, which manufactures Values regulated Lead Acid (VRLA)
Batteries. The main objectives of the company are a manufacturing of good quality of “Sealed
Maintenance Free” (SMF) acid batteries. The company is setting up to Rs.1, 920 lakhs plant is in
185 acres in Karakambadi village, Renigunta Mandal. The project site is notified under “B”
category.
The company has the clear-cut policy of direct selling without any intermediate. So they
have set up six branches and are operated by corporate operations office located in Chennai. The
company has virtual monopoly in higher A.H. (Amp Hour) rating Market its product VRLA. It is
also having the facility for industrial and automotive batteries.
Amara Raja is 5 ‘S ’Company and its aim are to improve the work place environment by
using 5‘S techniques which is A systematic and rational approach to workplace organization and
methodical house keeping with a sense of purpose, consisting of the following five elements
1. SEIRI - Sort out
2. SEITON -Systematic arrangement
3. SEISO -Spic and span
4. SEIKETSU -Standardization
5. SHITSUKI -Self discipline
Amara Raja is putting a number of HRD initiatives to foster a spirit of togetherness and
a culture of meritocracy. Involving employees at all levels in building organizational
support plans and in evolving our vision for the organization.
ARBL encourages initiative and growth of young talent allows the organization to
develop innovation solution and ideas.
Benchmark pollution control measures, energy conversation measures, waste reduction
schemes, massive green belt development programs, employee health monitoring and
industrial safety programs have helped ARBL to take further environment management
program.
Amara Raja has now targeted to secure the ISO 14001 certification.
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RESEARCH & DEVELOPMENT
Specific areas in which the company carries out R&D are;
1. New product development.
2. Process technology up gradation.
3. Application engineering for new market place.
4. Quality improvement.
MILESYONES OF ARBL
AWARDS
Quality control
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ARBL’s main aim is to achieve customer satisfaction through the collective commitment of
employees in design; manufacture and marketing of reliable power systems, batteries, allied
products and services.
To accomplish above, ARBL focus on
Establishing superior specifications for our products and processes.
Employing state-of-the-art technologies and robust design principles.
Striving for continuous improvements in process and product quality.
Implementing methods and techniques to monitor quality levels.
Providing prompt after sales service.
ARBL comprises of two major divisions wiz, industrial battery division and Automotive battery
division. Total strength of ABRL comes around 1350.
Amara Raja has become the benchmark in the manufacturer of industrial batteries. India
is one of the largest and fastest growth markets for industrial batteries in the world. Amara Raja
is leading in the front, with an 80% market share is stand by VRAL batteries point of view. It is
also having the facility for production plastic components.
ARBL is the first company in India to manufacture VRLA (SMF) Batteries. The initial
investment of the company has Rs.1920 lakhs; the total land is around 18 acres in Karambadi
village, Renigunta Mandal. The project site is notified under ‘B’ category.
PLATE PREPARATION
Using lead oxide production in earlier stage positive and negative paste is prepared with
addition of sulphuric acid and water. These pastes are applied to respective grids using industrial
fasting machines.
CALL ASSEMBLY
Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are
welded and as assembled into a jar or container to form battery cells. Then these cells are
assembled according to the customer’s specification into battery sets or systems.
FORMATION
In this process cells are filled with the electrolyte (surphuric acid) and then the set is charged
and discharged repeatedly, after final charging the battery comes out ready to be used.
Competitors
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The Major competitors for Amara Raja Batteries are “Exude industries Ltd, and GNB”.
ARBL has inaugurated its new automotive plant at Karakambadi in Tirupati on September 24th,
2001. This plan is a part of the most completely integrated battery manufacturing facility in India
with all critical components, including plastics sourced in-house from existing facilities on site.
In this project, Amara Raja’s strategic alliance partners Johnson Control Inc., of USA have
closely worked technology and plant engineering. It is also having the facility for producing
plastic components required for automotive batteries.
Capacity
With an existing production capacity of 5 lakhs units of automotive batteries, the new
Greenfield plant will now be able to produce 1 million batteries per annum. This is the first phase
in the enhancement of Amara Raja’s production capacity, for this the company has invested
Rs.45 crores and the next phase, at an additional cost of Rs.25 crores, for this the production
capacity will be increase to 2 million units and the company has estimated to complete around 3
years, after that ARBL will become the single largest battery of manufacturer in Asia. The fiscal
year 2005-2006’s capacity Of ABD is 2.2 million numbers of batteries per year.
Products
Customers
ARBL has prestigious OEM (Original Equipment Manufacturer) clients like FORD,
GENERAL MOTORS, DAEWOO MOTORS, MERCEDES BENZ, DAIMLER CHRYSLER,
MARUTI UDYOG LTD., premier Auto Ltd., and recent acquired a preference supplier alliance
with ASHOK LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA
and SWARAJ MAZDA.
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COMPETITORS
EXIDE
PRESTOLITE
AMCO.
MAJOR USERS
1. RAILWAYS
Train lighting air conditioning, diesel engine starting, signalling systems, control
systems, emergency breaking systems, and telecommunications.
2. TELECOMMUNICATION
Central office power plants, microwave repeaters station, RAX in public building, emergency
lighting system at airports, fire alarm system etc.,
3. POWER SYSTEMS
Switch gear control systems, powerhouse control systems, rural street lighting etc.
4. TRACTION
Forklift trucks, earth moving machinery, mining locomotives and road vehicles etc.
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CHAPER III
RESEARCH
METHODOLOGY
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NEED OF THE STUDY
1. The study has great significance and provides benefits to various parties whom
directly or indirectly with the company.
2. To express the relationship between different financial aspects in such a way that
it allows the user to draw conclusions about the performance, strengths and
weaknesses of the company.
3. To diagnose the information contained in financial statement so as to judge the
profitability of the firm.
4. The study helps to know a liquidity, solvency, profitability and turnover position
of the company.
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SCOPE OF THE STUDY
The scope of the study is limited to collecting financial data published in the annual
reports of the company every year. The analysis is done to suggest the possible solutions. The
study is carried out for 5 years (2009–14). The present study is confined to only Amara raja
batteries Limited only.
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OBJECTIVE OF THE STUDY
1. To study and analyze the financial position of the Company through ratio analysis
2. To analyze the profitability position of the ARBL.
3. To determine the long term solvency position of ARBL.
4. To suggest the feasible solution to improve the overall efficiency of the ARBL.
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RESEARCH METHODOLOGY
The main aim of the study is to know the financial performance of the Amara raja batteries
limited, Tirupati, Chittoor Dist.
Research
Any efforts which are directed to study of strategy needed to identify the problems and
selection of best solutions for better results are known as research.
Research Design
In view of the objects of the study listed above an exploratory research design has been
adopted. Exploratory research is one which is largely interprets and already available
information and it lays particular emphasis on analysis and interpretation of the existing and
available information.
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LIMITATION OF THE STUDY
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CHAPTER IV
DATA ANALYSIS AND
INTERPRETATION
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1. LIQUIDITY RATIO’S
A. CURRENT RATIO
The current ratio is the between all current assets and all current liabilities; another
way of expressing liquidity. It is a measure of the firm’s short-term solvency. It
indicates the availability of current assets in rupees for every one rupee of current
liability. A ratio of greater than one means that the firm has more current assets than
current claims against them.
CURRENT ASSETS
CURRENT RATIO= -----------------------------------
CURRENT LIABILITIES
Table: 4.1
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CHART: 4.1: CURRENT RATIO
CURRENT RATIO
2.5
2
CURRENT RATIO
1.5 2.96
2.67
2.5 2.52
1 1.93
0.5
0
2009-10 2010-11 2011-12 2012-13 2013-14
current ratio 2.5 2.52 1.93 2.67 2.96
INTERPRETATION:
The standard norm for current ratio is 2:1. During the year 2009 the current ratio is 2.5 and
During the year 2010-11 the ratio is 2.52 and it has decreased to 1.93 during the y ear 2011-12
and increased to 2.67 in 2012-13 and it is increased to 2.67 in the year 2013-14 and it has
increased to 2.96 in the year 2014. The ratio above was standard except in the year 2011. So the
ratio was satisfactory.
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B. QUICK RATIO
Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities.
An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss
of value.
QUICK ASSETS
QUICK RATIO= ------------------------------------------
CURRENT LIABILITIES
TABLE: 4.2
33
CHART4. 2: QUICK RATIO
QUICK RATIOS
1.8
1.6
1.4
QUICK RATIOS
1.2
1 1.96 1.99
1.86 1.83
0.8 1.45
0.6
0.4
0.2
0
2009-10 2010-11 2011-12 2012-13 2013-14
QUICK RATIOS 1.86 1.83 1.45 1.96 1.99
INTERPRETATION:
The standard form of a quick ratio is 1:1. Quick ratio is decreased in the year 2010 to 1.83
from 2.45. Then, it decreased to 1.45 in the year 2011. And it has increased to 1.96 in the
year 2012 and then it increased to 1.99 in the year 2013-14.however the ratio is more than
the standard norms so it is satisfactory.
34
C. CASH RATIO
Cash ratio is the ratio between cash plus marketable securities and current
liabilities.
CASH+BANK+MARKETABLE SECURITIES
CASH RATIO= -----------------------------------------------
CURRENT LIABILITIES
511,453,739
2013-14 2,020,744,952 0.25
35
CHART4.3: CASH RATIO
cash ratio
0.3
0.25
0.2
CASH RATIO
0.15
0.26 0.26 0.25
0.1 0.2
0.17
0.05
0
2009-10 2010-11 2011-12 2012-13 2013-14
cash ratio 0.26 0.26 0.17 0.2 0.25
INTERPRETATION:
In all the above years the absolute quick ratio is very low. The standard norm for absolute
quick ratio is 1:2 the company is failed in keeping sufficient Cash & Bank Balances and
Marketable Securities.
36
2. LEVERAGE RATIOS
TOTAL DEBT
TOTAL DEBT RATIO= ---------------------------------------------
TOTAL DEBT+ NET WORTH
year Total debt Total debt+ net worth Total debt ratio
1,407,083,880
2012-13 3,843,741,557 0.37
37
CHART4.4: TOTAL DEBT RATIO
1.2
0.8
debt ratios
0.6 1.1
0.4
0.2 0.37
0.11 0.11 0.16
0
2009-2010 2010-11 2011-12 2012-13 2013-14
Total debt ratio 0.11 0.11 0.16 0.37 1.1
INTERPRETATION:
This ratio gives results relating to the capital structure of a firm. Debt ratio is 0.08 in the year
2010 it increased to 0.11 & 0.16 in the corresponding years 2011 & 2012. Again it is increased to
0.37 & 1.10 in the year 2013& 2014. From the above in fluctuating trend we can conclude that
the company’s dependence on debt is increasing. It is not better position in collection of debt.
38
B. DEBT EQUITY RATIO
Debt equity ratio indicates the relationship describing the lenders contribution for each
rupee of the owner’s contribution is called debt- equity ratio. Debt equity ratio is computed by
dividing Long term Liabilities divided by Equity. Lower debt – equity ratio higher the degree of
protection. A debt-equity ratio of 2:1 is considered ideal.
2013-14
3,162,620,560 3,331,014,470 0.95
39
CHART NO 4.5: DEBT EQUITY RATIO
D-E RATIO
1
0.9
0.8
0.7
D-E RATIOS
0.6
0.5 0.95
0.4
0.3 0.58
0.2
0.1 0.13 0.19
0.12
0
2009-10 2010-11 2011-12 2012-13 2013-14
D-E RATIO 0.12 0.13 0.19 0.58 0.95
INTERPRETATION:
The ratio gives results relating to the capital structure of a firm. Debt equity ratio is 0.09 in
the year 2010 and it increased to 0.13 & 0.19 in the year 2011 and 2012. In the year 2013 & 2014
the ratio has increased to 0.5 8 & 0.95. We can conclude that the company depends on the debt
fund is increasing.
40
C. INTEREST COVERAGE RATIO
The ratio shows the number of times the interest charges are covered by funds
that are ordinarily available for their payment.
EBIT
INTEREST COVERAGE RATIO=-------------------------
INTERST
1 ,588,690,299
2013-14 129,308,874 12.29
41
CHART 4.6: INTEREST COVERAGE RATIO
100
90
80
70
interest coverage ratio
60
50 94.56 94.76
40
30
20
28.8
24.02
10
12.29
0
2009-10 2010-11 2011-12 2012-13 2013-14
interest coverage ratio 94.56 94.76 28.8 24.02 12.29
INTERPRETATION:
Interest coverage ratio is 07.56 in the year 2009. It is increased automatically to 94.76 in the
year 2010. But, it is decreased to 28.80 in the year 2011 and decreased to 24.02 in the year 2012
and it again decreased to 12.29 in the year 2013-14. In this position outside investors is interested
to invest the money in this company.
42
D. SHAREHOLDERS EQUITY RATIO/PROPRIETORY RATIO:
This ratio indicates the extent to which the total assets of the entity are financed by proprietary
funds.
SHAREHOLDERS FUNDS
PROPRITORY RATIO= -----------------------------------------
TOTAL ASSETS
43
GRAPH 4.7: PROPRIETORY RATIO
propritory ratio
0.7
0.6
0.5
proprietory ratio
0.4
0.64 0.645
0.3 0.54
0.46
0.2 0.38
0.1
0
2009-10 2010-11 2011-12 2012-13 2013-14
propritory ratio 0.64 0.645 0.54 0.46 0.38
INTERPETATION:
The funds financed by the proprietaries in the total funds are continuously decreased from year
2010 to 2014.
44
3. ACTIVITY TATIO :
It indicates the firm efficiency of the firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average inventory.
45
GRAPH 4.8: INVENTORY TURNOVER RATIO
7.2
6.8
inventory turn over ratio
6.6
6.4
6.2 7.13
6.91 6.83
6
5.8
5.4
5.2
2009- 2010- 2011- 2012- 2013-
10 11 12 13 14
inventory turnover ratio 5.97 5.96 6.91 7.13 6.83
INTERPRETATION:
Inventory turnover ratio is 5.57 Times in the year 2009. But, it is increased to 5.96 in the
Year 2010. Then, it is increased to 6.91 in the year 2011 and again increased to 7.13 in the year
2012. But, it is decreased to 6 .83 in the year 2013-14. Inventory turnover ratio increased for year
Year that is company production is also increased. Subsequently sales are also increased.
46
B. DEBTORS TURNOVER RATIO
It is found out by dividing t he credit sales by average debtors. Debtor’s turnover indicates the
number of times debtor’s turnover each year.
sales
Debtors turnover ratio=----------------------------------------
Average debtors
47
GRAPH 9: DEBTORS TURNOVER RATIO
6
DEBTORS TURNOVER RATIO
4
7.25
6.43
3 5.92
4.71 4.79
2
0
2009- 2010- 2011- 2012- 2013-
10 11 12 13 14
DEBTORS TURNOVER RATIO 4.71 4.79 5.92 6.43 7.25
INTERPRETATION:
Debtor’s turnover ratio is 4.71 times in the year 2010 and it is increased to 4.7 9 times in the
year 2011 and increased to 5.92 times in the year 2012 and it increased t o 6.43 times &7.25
times in the years 2013 &2014.
48
C. FIXED ASSET TURNOVER RATIO
The ratio is supposed to measure the efficiency with which fixed assets are employed a high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of
assets. However, in interpreting this ratio, one caution should be borne in mind. When the fixed
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.
NET SALES
FIXED ASSET TURNOVER RATIO=-------------------------------
NET FIXED ASSETS
YEAR NET SALES NET FIXED ASSETS FIXED ASSET TURNOVER RATIO
49
GRAPH 4.10: FIXED ASSET TURNOVER RATIO
7
fixed asset turnover ratio
4
7.15
3
4.75
4.27
2
2.73 2.83
1
0
2009-10 2010-11 2011-12 2012-13 2013-14
fixed asset turnover ratio in times 2.73 2.83 4.27 4.75 7.15
INTERPRETATION:
Fixed assets turnover ratio is 2.83 in the year 2010 and it is increased to in the year 2011. I n
the year 2012 the ratio is 4.27 and it continued up to 4.75 and to 7.15 in the years 2013&2014.
50
D. TOTAL ASSET TUENOVER RATIO
This ratio ensures whether the capital employed has been effectively used or not. This is also test
of managerial efficiency and business performance. Higher total capital turnover ratio is always
required in the interest of the company.
NET SALES
TOTAL ASSET TURNOVER RATIO= -------------------------------------
CAPITAL EMPLOYED
51
GRAPH 4.11: TOTAL ASSET TURNOVER RATIO
1.6
1.4
TOTAL ASSET TURNOVER TATIO
1.2
0.8 1.56
1.41
0.6 1.21
0.93 0.96
0.4
0.2
0
2009-10 2010-11 2011-12 2012-13 2013-14
TOTAL ASSET TURNOVER RATIOS IN
0.93 0.96 1.21 1.41 1.56
TIMES
INTERPRETATION:
Total assets ratio is 0.93 in the year 2010 and it gradually increased year by year and
reached to 1.56 in the year 2014. It means Total Assets is increased in every year.
52
E. WORKING CAPITAL TURNOVER RATIO
A firm may also like to relate net current assets or net working capital to sales. Working capital
turnover indicates for one rupee of sales the company needs how many net current assets. This
ratio indicates whether or not working capital has been effectively utilized market sales.
SALES
WORKING CAPITAL TURNOVER RATIO=---------------------------------------
WORKING CAPITAL
53
GRAPH 4.12: WORKING CAPITAL TURNOVER RATIO
4.5
4
working capital turnover ratio
3.5
3
2.5
2 4.05
3.41 3.41
1.5 2.84 2.76
1
0.5
0
2009-10 2010-11 2011-12 2012-13 2013-14
wirking capital turnover ratio in
2.84 2.76 4.05 3.41 3.41
times
INTERPRETATION:
Working capital turnover ratio is 2.84 in the year 2010 and it is increased to 2.76 in the year
2011. In the year 2012 increased to 4.05. Again it decreased to 3.41 in the year 2013&2014.The
higher the working capital turnover then more favorable for the company.
54
F. NET ASSET TURNOVER RATIO
SALES
NET ASSET TURNOVER RATIO= -----------------------------
NET ASSET
55
GRAPH 4.13: NET ASSET TURNOVER RATIO
2.5
1.5
0
200 201 201 201 201
9-10 0-11 1-12 2-13 3-14
NET ASSET TURNOVER RATIO IN
1.57 1.39 2.03 1.95 2.08
TIMES
INTERPRETATION:
Net Assets turnover ratio is 1.57 in the year 2010 and it is increased to 1.39 in the year
2011 and it is increased to 2.0 3 in the year 2012. And, it decreased to 1.95 in the year 2013 and
it slightly increased to 2.08 in the year 2014.
56
G. CAPITAL TURNOVER RATIO
SALES
CAPITAL ASSEET TURN OVER RATIO= ----------------------------------
CAPITAL EMPLOYED
57
GRAPH 4.14: CAPITAL TURNOVER RATIO
2.5
1.5
2.03
1 1.78 1.87
1.23 1.24
0.5
0
2009- 2010- 2011- 2012- 2013-
10 11 12 13 14
capital turnover ratio in times 1.23 1.24 1.78 1.87 2.03
INTERPRETATION:
Capital turnover ratio is 1.23 in the y ear 2010 and it is increased 1.24 in the year 2011 and it is
increased to 1.7 8 in the year 2012 and again it is increased to 1.87 in the year 2013.Then, it
increased to 2.03 in the year 2014.
58
4. PROFITABILITY RATIOS
This ratio shows that the margin left after meeting manufacturing costs. It measures the
efficiency of production as well as pricing.
GROSS PROFIT
GROSS PROFIT RATIO= ----------------------------
NET SALES
Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock
59
GRAPH 15: GROSS PROFIT RATIO
30
25
gross profit ratios
20
15 28.5 27.5
21.5
10 17
16
0
2009-10 2010-11 2011-12 2012-13 2013-14
gross profit in ratios 16 17 21.5 28.5 27.5
INTERPRETATION:
From the above we can say that gross profit ratio is 16% in the year 2010 but it increased
to 17 % &21.5% in 2011&2012 and a gain it increased to 28.5% in the year 2013 and
it is decreased to 27.5% in the Year 2014.The company is maintaining proper control on
Trade Activities.
60
B. NET PROFIT RATIO
This ratio also indicates the firm's capacity to wit h stand adverse economic conditions. A firm
with a high net margin ratio would be in an advantageous position to survive in the face falling
selling prices, rising costs of production or declining demand for the product.
NET PROFIT
NET PROFIT RATIO= --------------------------
NET SALES
61
GRAPH 4.16: NET PROFIT RATIO
4
6.99
6.3
3
5.3
2
3.08 3.2
0
2009-10 2010-11 2011-12 2012-13 2013-14
net profit in ratios 3.08 3.2 5.3 6.3 6.99
INTERPRETATION:
During the year 2010 the net profit margin is 3.08 it suddenly increased to 3.2% in the year 2011
because of decreased in administration and selling expenses. In the next year, it again increased
to 5.3 in the year 2012 and it again increased to 6.3 in 2013 and to 6.99 in the year 2014.
62
C. OPERATING EXPENSES RATIO:
The Operating expenses ratio explains the changes in the profit margin ratio. A higher
operating expense is unfavourable since it will leave a small amount of operating income to meet
interest, dividends.
OPERATING EXPENSES
OPERATING EXPENSES RATIO=-------------------------------------x100
SALES
63
GRAPH 17: OPERAING EXPENSES RATIO
16
14
operaing expenses in ratios
12
10
8
14.02
12.8 12.35
6
10.3 10.3
4
0
2009- 2010- 2011- 2012- 2013-
10 11 12 13 14
operaing expenses in ratios 12.8 14.02 12.35 10.3 10.3
INTERPRETATION:
Operating expenses ratio is 12.80%of sales in the year 2010 it decreased to 14.02% in
the year 2011 and decreased in 2012 to12.35% and again it decreased in the next year 2013 to
10.30% and continued the same way. Then, it reached 10.30% in the year 2014.
64
D. RETURN ON INVESTMENT
EBIT
RETURN ON INVESTMENT= ------------------------------------
CAPITAL EMPLOYED
65
GRAPH 4.18: RETURN ON INVESTMENT
RETURN ON INVESTMENT
0.25
0.2
RETURN ON INVESTMENT
0.15
0.24
0.1 0.19
0.15
0.05
0.05 0.06
0
2009- 2010- 2011- 2012- 2013-
10 11 12 13 14
RETURN ON INVESTMENT 0.05 0.06 0.15 0.19 0.24
INTERPRETATION:
Return on Investment is very low in all years. But, in the year the 2013-14 in increased to 0.24 .it
was continuously increasing comparing to past years
66
E. RETURN ON EQUITY
The return on equity share holders fund explains about the return of share holders with they get
on their investment.
NET PROFIT
RETURN ON EQUITY= ----------------------------------
EQUITY SHEREHOLDES FUNDS
67
GRAPH 4.19: RETURN ON EUITY SHAREHOLDERS FUNDS
RETURN ON EQUITY
30
25
RETURN ON EQUITY
20
15 28.33
10 19.3
11.8
5
4.7 4.8
0
2009-10 2010-11 2011-12 2012-13 2013-14
RETURN ON EQUITY 4.7 4.8 11.8 19.3 28.33
INTERPRETATION:
Return on equity in the year 2010 is 4.7 and it increased suddenly to 4.8 in the year 2011 and
again it increased to 11.8 in the year 2012. Return on Equity of the company is at satisfactory
level and then it increased to 19.3 in 2013 and again increased to 28.33 in 2014.
68
CHAPTER V
69
FINDINGS
Except in the year 2012, the company is maintaining current ratio as 2 and more, standard
which indicates the ability of the firm to meet its current obligations is more. It shows
that the company is strong in working funds management.
The company is maintaining of quick assets more than quick ratio. As the company
having high value of quick ratio. Quick assets would meet all its quick liabilities without
any difficulty.
The company is failed in keeping sufficient cash & bank balances and marketable
securities.
o In above all current assets and liabilities ratios are better that also it is double the
normal position. Observe the absolute & super quick ratio the company cash
performance is down position.
Debt Equity ratio is increasing every year. It indicates the company depends on the debt
fund increasing.
In the year 2010, the interest coverage ratio 7.56 which increased to 94.76 in the year
2013 and high fluctuations in the followed years. In this position, outside investors are
interested to invest their money in this company.
The net profit of the company is increasing over the study period. Hence the organization
maintaining good control on all trees of expenses.
70
SUGGESTIONS
The company has to increase the profit maximization and has to decrease the operating
expenses.
By considering the profit maximization in the company the earning per share, investment
and working capital also increases. Hence, the outsiders are also interested to invest.
The company should maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in shares, debentures, bonds
and other securities.
The company must reduce its debtors collection period from 83 & 84 days to 40 days be
adopting credit policy by providing discounts to the debtors.
71
CONCLUSION
From the above analysis of the company’s financial statements it’s concluded that the company’s
financial position is good because the company’s leverage, activity and profitability positions are
good and the company have to increase its liquidity position for better performance in future.
72
BIBLOGRAPHY
3. S.P. Jain & K.L. Narang : Cost & Managem ent accounting
Web-sites:
www.amararaja.co.in
www.arbl.com
73