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RATIO ANALYSIS

INTRODUCTION TO RATIO ANALYSIS


Fundamental analysis has a very broad scope. One aspect looks at the general (qualitative)
factors of a company. The other side considers tangible and measurable factors
(quantitative). This means crunching and analyzing numbers from the financial statements.
If used in conjunction with other methods, quantitative analysis can produce excellent
results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement and cash flow statement. It's comparing the number against previous years,
other companies, the industry or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has performed
in the past, and how it might perform in the future.

For example, current assets alone don't tell us a whole lot, but when we divide them by
current liabilities we are able to determine whether the company has enough money to
cover short-term debts.

In this tutorial, we'll show you how to use ratio analysis to analyze financial reports.
Comparing these ratios against numbers from previous years, other companies, industry
averages and the economy in general can tell you a lot about where a company might be
headed. Valuing a company is no easy task. This tutorial will shed some light on how it can
be done and, ultimately, help you to make more informed choices as an investor.

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RATIO ANALYSIS

INDUSTRY PROFILE
DAIRY INDUSTRY:

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

After stagnating at 80 million tons for 20 years between 1950 and 1970 Indian milk
production began to rise. It crossed 30 million tons in 1980 and 59 million tons in 1992.
Today rank is the world second largest milk produced the U.S

REVIEW OF DAIRY IN INDIA:

The main study of Indian farmers has been agriculture and allied occupations farm
animals especially cattle, have been in part of rural India for thousands of years. During the
year 1920 military farms where established to supply adequate raw milk to the stators.
These military farms were well main tended and even there stages were raising improved
animals. Else were in urban areas, dairying was largely left in hands at traditional producers.

DAIRY SCENARIO:

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


Large number of people depends upon milk as an important source of nourishment. India
with it is vast population gives sentimental attachment to milk as a good food. Milk is the
substance with 1.029 to1.035 specific gravity and contains fat minerals proteins and
vitamins. The government of India encouraged co-operative societies for production of milk
and its products and setting up of process of large milk units.

India is today the second largest producer of the milk in the world. Second only is
the U.S.A. contributing 11% of the world market. The production of milk in India is 577 lakhs
of tons per year. It may be seen that the milk procurement by the organized sector is
presently, a fraction of the total milk available. There is sufficient scope for procurement of
milk and for the growth of the milk sector. With high quality technology and expertise
available indigenously and with the milk and milk products order announce by the
government enabling the private sector to deal directly with the farmer.

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Organized handling of milk would lead to proper procurement measures,


which would it turn be beneficial to farmers. Remunerative price to farmers would lead to
better care of cattle and thereby set in motion a healthy cycle of increased availability of
good milk.

WORLD FOCUS ON INDIA DAIRY:

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

Two main reasons for the world focus on India are one, the low cost economy; and
two the liberalization process initiated since 1991. Other important factors include: low
inflation rate, inexpensive labour the presence of the world’s third largest pool of technical
man power, the world’s largest democracy. Effort to increase milk product by dairy farmers
are strongly influenced by the degree to which demand signals are transmitted through the
marketing system. Co-operatives have played in important role in transmitting the message
of urban market demand to them.

COMPETATIVE ADVANTAGES OF INDIA DAIRY:

In the emerging liberalized global scenario, trade distorting agricultural polices has
been the focus of the GATT multilateral trade negotiation. With the liberalization of
agricultural trade under the new GATT regime, the heavy subsidies prevalent in the dairy
sectors in the countries of the European Union as well as in the US will have to be brought
down in the considered to be substantial. With the substantial and continuous investments
in the building up of milk production. India can emerge as a major exporter of dairy products
at least by the early part of the next century, even though a prospect may meet with
considerable opposition from the advanced dairy nations and this opposition is likely to
focus significantly on quality issue.

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RATIO ANALYSIS

ORIGIN OF DAIRY INDUSTRY IN ANDHRA PRADESH

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

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


 District level --------------- Milk producer cooperative societies
 State level ------------------ Cooperative Federation
PILOT MILK SUPPLY SCHEMES (1960-03) :

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

INTEGRATED MILK PROJECT (1963-71) :

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

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RATIO ANALYSIS
handling capacity of 50,000 litres per day. With in the area of 100 miles, a set of cooling and
chilling centres’ has been established.

DAIRY DEVELOPMENT (1971-73) :

In order to spread the dairying activities throughout the state, government of


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

PROGRESS OF DAIRY IN ANDHRA PRADESH:

The implementation of various dairy development programs has result in the


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

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COMPANY PROFILE
Vijaya dairy Ltd.established in 1969 and located in Nellore. As the year passed,
APDDCF built up the infrastructure needed to meet every requirement of dairying, the
procurement of milk from over 800000 dairy farmers spread across Andhra Pradesh. For
getting it ready for nationwide distribution. It all happened within the vast dairy plant
network of APDDCF through extensive use of high technology and management acumen
honed to steer such a wide spread operation and brought prosperity to the state many
times. The federation has drawn up more comprehensive system for procurement and
processing of milk. A deducted research cell is actively pursuing way and means of bettering
quality. Collaborations with global experts are also being sought, all in an attempt to remain
the forefront of modern dairying in India where QUALITY will be the watch world.

REACHING OUT OF THE WORLD:

APDDCF began its exports efforts thirteen years ago and has gained significant
ground abroad. It has spread its marketing network in the Gulf and is exploring the
possibility of exporting dairy products like Butter, cheese spread, UHT milk, sterilized cream
etc., to other countries. The federation has been meeting the tastes of divergent cultures,
while bringing back the pleasures of home to Non-resident Indians.

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

Product profile:

The surplus milk is converted into various milk products after meeting local fluid milk
demand. The following dairy products are manufactured and marketed all over India in the
brand name of Vijaya. The products currently manufactured are as follows:

Vijaya ghee, Flavoured milk, Khoa, Doodah peda ,Butter milk ,Full cream milk, Curd ,Lassie
,Pannier, Malaikaja Sugarless ,khoa Milk cake &ice creams.

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RATIO ANALYSIS

Manufacturing process of milk:


1. Procuring milk

2. Reception (testing for good or spoiled milk)

3. Chilling 4 to 5c

4. Pasteurization

5. Homogenization

1. Procuring milk

2. Reception:

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

following the information on the milk is recquired.quality,wight ,composition, presence of

contamenants,neutralisers,preservatives etc., and presence of added water.

3. Chilling

Importance of chilling means rapid cooling of raw milk to sufficiently low temperature so

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

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

4. Pasteurization:

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

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

food to a certain temperature and the cooling it.

5. Homogenization

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RATIO ANALYSIS

Homogenised milk is produced by mechanically forcing milk through a small passage at high

velocity. This breaks down the fat globules in milk in to match smaller ones and creates a

stability of fat the mullion. the main Advantages in a union form distribution of fat, no

cream layer on the top.full bodied flavour.

VIJAYA DAIRY AT A GLANCE

Name of the Organization : Vijaya Dairy Limited

Type of the Organization : Government

Basic Raw Materials : Milk

Procuring the Raw material : Co-operative Milk Society Boots.

Year of Establishment : 1969

Plant Location : Venkateshwara Puram, Nellore

Plant Capacity (per day) : 75000 Litters

Promoters : AP Milk Co-operative Society, Hyderabad

DAIRY DEVELOPMENT ACTIVITIES IN NELLORE DISTRICT:

During the year 1969, the Nellore dairy was started with initial capacity of 12,000 liters

per day mostly to collect milk from surrounding villages. After wares due to increases in

procurement the handling capacity was expanded to 40,000 litters per day during the year

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1979. The milk chilling center at Kavali was started during the year 1977with an initial

capacity of 6000 liters per day. Similarly the milk chilling center at Venkatagiri was started

during the year 1981 with the same capacity. During the year 1985, due to the increase in

milk procurement in the district, the handling of milk chilling center Kavali and Venkatagiri

has been increased from 6,000 liters to 12,000 liters per day. In the year 1986 the Nellore

milk union was registered under AP co-op societies Act 1964.

Due to future increases in milk procurement the present handling capacity of Nellore
dairy is expanded to 40,000 liters to 75,000 liters per day and milk chilling center Kavali also
expanded from 12,000 liters to 20,000 liters per day under O.F. ITI programmed in 1993.
Another milk chilling center in the district at duttalur with handling capacity of 10,000 liters
per day was started in month of October 1995 and subsequently expanded 20,000 liters per
day during 1998. At present there are nearly 57,360 milk producers supplying milk to
Nellore union. Out of which there are small farmers 23,960 marginal farmers 8,300. Among
these milk producers there schedule cast 8,152 schedule tribes 692, back ward class 11,612
and the remaining other casts are supplying milk to this union and they are being benefited
financially by sales of milk by an amount of Rs.210 lakhs is being paid the milk producers per
month. The date related to the above development of Nellore dairy has been shown the
following table.

Company details

Name of the org : the Nellore district milk producers mutually

Aided cooperative union limited (vijaya dairy)

Established year : 1969

Registered office : Nellore dairy, venkateswarapuram-524005

Chairman : kondreddy rangareddy

Managing director : k.krishna Mohan (B.sc., (Ag))

Products of the company : whole milk products of the toned milk, 3%fat

8.5%SNF (said not containing fat) butter milk,

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Double toned milk, cream milk and ghee etc.,

Milk coperativesocieties:

At present there are 329 producers co-operative societies have been registered among
them 42 are women cooperative societies 34 are registered as step program 8 are women
cooperative societies and another 8 are wdcs are to be registered under step program.

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RATIO ANALYSIS
ORGANISATION STRUCTURE:
BOARD OF DIRECTORS

MANAGING DIRECTOR

NELLORE DAIRY

Engineering plant accounts administration milk


procurement

Asst.dairy engineer manager asst.accounts junior manager &


inputs

Foreman asst.dairy manager officer senior assistant


manager (p&l)

Plant processing supervisor account junior assistant

Charge men lab assistant superintendent field


supervisor

Compressor weighing clerk UDA’S

Operator workers LDA’S field


assistant

Pre pack computer operators

Operators’ typist

Workers

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RATIO ANALYSIS

PERFORMANCE OF VIJAYA MILK DAIRY IN NELLORE (Dist)

NAME OF THE UNIT CAPACITY PRESENT PEAK ON ANY DAY


OF THE YEAR
PER DAY PER DAY

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

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

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

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

Doravari sathram 5,000 Liters 5,000 Liters 5,000 Liters

Bmcc Nellore palem 5,000 Liters 5,000 Liters 5,000 Liters

Bmcc andum palem 5,000 Liters 5,000 Liters 5,000 Liters

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RATIO ANALYSIS

NEED FOR THE STUDY:


Financial statements contain large number of accounting data, as found in the financial
statements do not convey much information.

If they are analysed and interpreted, we can get a clear picture of the financial adventures
of organization. So, all people including Layman can easily understand it.

SCOPE OF THE STUDY

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RATIO ANALYSIS
 This project is as a reference guide or as a source of information. It gives the idea
about the financial analysis of a firm.

 The main objective of the study was to the study was to put into practical the
theoretical aspect of the study into real life work experience.

 The study aims to study the liquidity position of the firm. Ratio analysis has been
used to analysis the financial position of the firm.

 It deals with analysis an interpretation of data collected through the source


primary and secondary data. Graphs and diagrams and tabulation method are
used to analyze and interpret the data collect.

OBJECTIVES OF THE STUDY


The main objectives of the study were

 To evaluate operational efficiency of the VIJAYA milk dairy limited, Nellore.

 To know the profitability of the funds.

 To know how efficiently the company is using its financial resources.

 The main aim is to study the components of financial performance in respect to


VIJAYA milk dairy limited, Nellore.

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RATIO ANALYSIS

RESEARCH METHODOLOGY

Source of data:
Even though the data is collected in two ways that is primary sources and
secondary sources most of the analysis is based on secondary sources.

Primary sources:
It is one type of data. It is collects from face to face conversations, interviews,
and questionnairs. It is consists high quality than secondary data.

Secondary sources:
It is also one type of data. It is collects from news papers, reports, and
magazins. It is consists low quality than primary data.

As it is financial analysis, secondary sources of data are used in the


study. This includes monthly and yearly production department statements.
They are later consolidated in a way that helps for reaching the objectives. The
lists of these items are prepared with the help of consolidated purchase
statements and payment.

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LIMITATIONS OF THE STUDY

 One serious limitation of ratio analysis is arises out of the difficulty associate with
their comparison to draw inference.

 Most of the data is collected from secondary sources and there may be chances for
bias in case of result obtained.

 This study about the company is useful only where it is compared with standards of
the industry.

 The major source of information for this study is the annual reports the unit. So the
information presented in such reports is subject to statutory obligation, business
practices, accounting concepts and conventions are generally accepted standards, of
disclosure in the interest of the company and such information may sometimes not
reveal true colours of the interest of the financial position on the company.

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RATIO ANALYSIS

THEORETICAL FRAME WORK

RATIO ANALYSIS:
Ratio analysis is the process of determining and interpreting numerical
relationship based financial statements. A ratio is a statistical yard stick that provides a
measure of the relationship between variable of figures. This relationship can be
expressed as a percentage on as quotient.

Ratio analysis is a powerful tool of financial analysis ratio is used as a bench mark of
a firm. The absolute accounting figures reported in the financial statements do provide a
meaning full understanding of the performance and financial position of the firms. Ratio
help summarize full understanding of the performance and financial position of the firms.
Ratio help summarize large quantities of financial date make qualitative judgment about the
firm financial performance.

Ratio analysis is the systematic use of ratio to interpret the “financial statement so that the
strength and weakness of a firm as well as its historical performance and current financial
position can be determined. The relational of ratio analysis lies in the fact that it makes
related information comparable. A single figure by itself has no meaning but when
expressed in terms of related figure. It yields significant inference

Significance of financial management:

Financial management is the managerial activity which is concerned with the planning and
Finance is the process of commission of accumulated funds to productive use. Finance helps
to direct the flow of economic activity and facilitate its smooth operation. Finance is the
agent that produces this result. There are many definitions of finance of all the best was of
Howard and Upton as “that administrative area of set of administrative functions in an
organization which have to do with the management of the flow of cash so that the
organization will have the means to carry out its
objectives as satisfactorily as possible and, at the same time meet its obligations as they
become due.

Finance is concerned with the task of providing funds needed by the enterprise on the term
that are more favourable towards the attainment of the organizational goals and objects.
The function of finance is not merely furnishing funds to the organization. Finance has a
branded meaning and it covers financial planning forecasting of cash receipts and
disbursements, raising of funds, use and allocation of funds and financial control. The area

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RATIO ANALYSIS
of operation of finance manager values from one company to another and industry to
industry et

Controlling of the firm financial resources. The subject of


financial management is of immense interest both to the academicians and the practising
managers. The practicing managers all interested in this subjects became among the most
crucial decisions of the firm all those which result to finance, and an understanding of the
theory of financial management provides them with conceptual and analytical insights to
make these decisions skilfully. As a separate activity as discipline it is of recent Origin, it was
a branch of economics till 1890.Today financial management is recognised as the most
important branch of business administration.

Financial management may be defined as that part of management which is concerned


mainly with raising funds in the most economic and suitable manner; using these funds as
profitably as possible planning future operations, and controlling current performance and
future developments through financial accounting, cost accounting, budgeting statistics and
other means. It guide investment where opportunity is the greatest, producing relatively
uniform yardsticks for judging most of the firms operations and projects and is continually
concerned with achieving an adequate rate of selection on investment as this is necessary
for survival and attracting of new capital.

According to Howard and Upton, financial management involves the application of general
management principles to a particular financial operation.

N.G. Wright says financial management is intimately itself woven into the fabric of the
management itself. Its central role is concerned with the same objectives as those of the
management, which the way in which the resource of the business are employed and how
the business is financed. He divides financial management into their main areas.

1. Decisions on the capital structure.

2. Allocation of available funds to specific uses

3. Analysis and appraisal of problems.

Financial management includes planning of finance, cash budgets and source of


finance. Eras and john PRIGLE insists that financial management must attend to
investment decisions because it is these decisions which affect, in a large measure
the future of a firm. Major financial management is an operational function cloth red
in a special garment. It is involved with financial planning forecasting and providing
of finance as well as the formulation of financial policies. Hunt William and Donald
son have called financial management “as resources management became in a large

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organization, the finance manager is the member of the planning, organising
performing and controlling the financial affairs of the enterprise

Importance of financial management


The financial management is of great importance in the present day corporate
world. It is science of money which permits the authorities to go further. The significance of
financial management can be summarised as: It assists in the assessment of financial needs
of industries large or small and indicates the internal and external resources for meeting
them. It asses the efficiency and effectiveness of financial institutions in mobilising
individual or cooperate savings. It also prescribes various means for such mobilisation of
savings into desirable investment channels. It assists the management while investing the
funds in profitable projects by analysing the viability

Analysis and interpretations of financial Statement


Analysis and interpretation of financial statement therefore refers to such a treatment
of information contained in the income statement and balance sheet so as to afford full
diagnosis of the profitability and financial soundness of the business.

The term “analysis” means methodical classification of the date given in the
financial statement will not help on unless they are put in simplified form. The term
‘interpretation’ means explaining the meaning and significance of the simplified data.
However, both analysis and interpretation are complimentary to each other.

According to MYRES “financial statement analysis is largely a study of the


relationship among the various financial factors in a business as disclosed by the dingle set
of statement and study of the trend of these factors as shown in a series of statement”.

Comparative financial statement:


Comparative financial statements are those statements, which have been designed in such
away so also provide time perspective to the consideration of various elements of financial
position embodied in such statement. In these statements figures for two or more periods
are placed side beside to facilities comparison. Both the income statement and balance
sheet can be prepared in the form of comparative financial statements.

Common-size financial statement:


Common-size financial statements are those in which figures are converted
into percentage to some common basis. In the incomes statement, the sale figure assumed
to be 100 and all the figures are expressed as a percentage of sales, similarly in the balance
sheet the total of assets or liabilities is taken as 100 and all figures are expressed as of this
total.

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RATIO ANALYSIS
Ratio analysis:
This is the most important financial analysis tool. An accounting ratio shows the
relationship in mathematical terms between two inter related accounting figures. For
example, gross profit and sales, current assets and current liabilities etc. No purpose will be
served if ratios calculated between two figures, which are not related to each others like
sales and discount on issue of debentures.

Funds flow analysis:


It has become important tool in the analytical kit of financial analysis, financial manager etc.
Fund flow reveals the changes in working capital position. It tells about the source and from
which working capital was obtained and the purpose for which it was used. It brings out
open, the changes which have taken place behind balanced percentage.

Trend percentage:
Trend percentages are immensely helpful making a comparative study of the
financial statement for several years. The method of calculating trend percentage involves
the calculation of percentage relationship that each item bears to the same item in the base
year. Usually the earliest year 100 on that basis the percentages for each of item of the year
are calculated.

Financial statement analysis:


Financial statements (also known as financial reports, final accounts,
published accounts of annual accounts) are organized collection of financial date
undertaken according to logical and consistent accounting procedure for the purpose of
presenting a periodical review or report on the financial aspects of a business firm, such as
the operating result (i.e., profit) of the firm for a particular period of time and the financial
position of the firm at a particular moment of time. In other words, they are statements
prepared for the purpose of depicting the financial health of the business in terms of profits,
position and prospects as on a certain date. In short, they are statements prepared on a
certain date or giving an accounting picture of a firms operations and financial positions.
The term “financial statements”, as used in accounting included at least two basis
statements, viz.

A) The income statement or the profit and loss account.

b) The position statement or the balance sheet prepared by a concern at the end of every
financial year.

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RATIO ANALYSIS
Income statement or profit and loss account:
It is generally, considered to be the most useful of all the financial statements. It is
a statement, which explains what has happened to a business as a result of operations
between two balance sheet date (i.e., compares ) the revenues (i.e., sales and other
earnings ) of a concern with the cost incurred in earning those revenues (i.e., the cost of
goods sold, administration, selling and distribution and other expenses ) and there by
reveals the net profits (i.e., the excess of revenues over the cost incurred in earning those
revenues ) or the net loss (i.e., the excess of cost over revenue ) or an enterprise for an
accounting year.

In short, it is a statement which indicated the result of the operations ( i.e., the net
profit or loss) of an enterprise for a year)

Position statement or balance sheet:


A balance sheet or a position is a statement which indicates the financial position a
particular date, i.e. As on the last of the accounting year As a balance sheet indicates the
financial position of a business as at a specified moment of time (i.e., as on a particular date,
usually, on the last date oftheaccounting year), it can be regarded as a snapshot of the
financial position of the business as a particular moment of time.

Objectives of the ratio analysis:


The objective of the ratio analysis is as follows;

1. Analysis the financial position of the firm by using the various accounting ration.
2. To know the liquidity position of the firm that is the firm relative strength and weak of
the firm.
3. To know the various sources utilize by the firm.
4. To know the amount of debt in the firm.
5. To provide information to the investors in investment decision.
6. To compare financial position of the firm in the current year with the previous year
financial position.
7. To know the season effects in the firm, that is cost position of the firm between the
profit making and loss making period.
8. To help the management in planning, controlling and decision-making.
9. To find out the solution to the unfavourable financial condition and financial
performance.
10. To take the suitable corrective measure when the firm financial condition and
performance are unfavourable to the firm when compared to other firm in the same
industry.

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RATIO ANALYSIS
Standards of comparison:
The ratio analysis involves comparison for a useful interpretation of the financial
statements.

A single ratio doesn’t indicate favourable condition. It should compare with some standards
of comparison may consist of;

1. The ratio calculated from the past financial statements of firm.


2. Ratios developed using the projected or perform a financial statement of the same
firm.
3. 3 ratios of some selected firm especially the most progressive and successful at some
point of time.
4. Ratio of the industry to which the firm belong.

Importance and significance of ratio analysis:

The ratio analysis is the most powerful tool of financial analysis. Many groups of
people are interested in the analyzing the financial information to indicate the operating
and financial efficiency and growth of the firm. It used to device to analyze and interpret the
financial health of enterprise. “A ratio is known as symptom like blood pressure, the
pulse rate or the temperature of an individual”.

It is with the help of ratios that the financial statement can be analyzed move cleanly
and decision made from such analysis ratios can determine.

1. The ability of the firm to meet its current obligations.


2. The extent to which the firm has used its long term solvency by borrowing funds.
3. The efficiency with which the firm it utilizing its assets in generating sales revenue.
4. The overall operating efficiency and performance of the firm.

Advantages of ratio analysis:


Ratio analysis simplifies the comprehension of the financial statements. Ratio tells
the whole story of the financial
condition of the business.

1. The financial strengths & weaknesses of a firm are communicated in a more easy &
understandable manner by the use of ratio.

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RATIO ANALYSIS
2. Ratio acts as an index of the efficiency of the enterprise. As such they serve as an
instrument of management control. It is an instrument of diagnosis of financial
health of an enterprise.

3. Ratio analysis is decision making financial statements is prepared primarily for


decision making. But the information provided in financial statements is not an end
itself & no meaningful conclusions can be drawn from these statements alone ratio
analysis helps in making decision from the information provided in their financial
statements.
4. Investment decisions can be based on the conditions revealed by certain ratios.

5. Ratio make it possible to estimate other figure if one figure is known.

TYPES OF RATIOS
Several ratios can be calculated from the accounting data contained in the
financial statement. These ratios can be grouped into various classes according to the
financial activity or function to be evaluated; the parties which generally under take the
financial analysis are short-term creditors, long creditors, owners and management. Short-
term creditors main interest is the liquidity position are the short-term solvency and
profitability of the firm. Similarly owners concentrate on firm’s profitability and analysis of
the firm financial conditions. Management is interested in evaluating every activity of the
firm. They have to project interest of all parties and see that the firm grow profitability. In
view of the requirement of various users of ratios we may classify them,

1. Liquidity ratios.
2. Leverage ratios/ capital structure ratios.
3. Activity ratios.
4. Profitability ratios.
1. Liquidity ratios:
It is extremely essential for a firm to be able to meet its obligations as they become due.
Liquidity ratios measure the ability of the firm to meet its current obligations. In fact analysis
of liquidity needs the preparation of cash budgets and cash flow statements, but liquidity
ratio by establishing a relationship between cash and other current assets to current
obligations, provide a quick measure of liquidity.

A firm should ensure it does not suffer from lack of liquidity and also that it is not much
highly liquid which costs the profitability of the firm.

The failure of a company to meet its obligations due to lack of sufficient liquidity, will result
in poor credit worthiness, loss of creditors confidence are even in legal tangles resulting in

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RATIO ANALYSIS
closure of the company. An every 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. The most common ratio’s,
which indicate the extent of liquidity, are

1 A. Current ratios

1 B. Quick ratios

1C. Cash ratio

1D.Net working capital ratio

1A. Current ratio:


The current ratio can be calculated by dividing current assets by current
liabilities expressed by the formula.

Current ratio = Current assets

Current liabilities.

The current assets of a firm represent those assets which can be 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 material, semi-finished and
finished goods, debtors, bill receivables and prepaid expenses.

Current liabilities include creditors, bill payable, accrued expenses short-term


bank loan, income tax liability and long term debt maturing in the current year.

The current ratio is a measure of the firm short term solvency. It indicates the
ability of current assets in rupees for every one rupee of current liability. A ratio of
standard of 2:1 or more is considered satisfactory. The high current ratio

1B. Quick ratio:


Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An assets is liquid it can be converted into cash immediately on reasonable
soon without loss of value. Cash is the most liquid assets. Other assets that are
considered to be relatively liquid and included in quick assets are debtors and bill
receivable and marketable securities. Inventories are considered to be less liquid as they
normally requires some time for realizing into cash and their value also has a tendency
to fluctuate. The quick ratio is calculated by dividing quick assets by current liabilities.

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RATIO ANALYSIS
Quick ratio = current assets-inventories

Current liabilities

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


financial position.

1C. Cash ratio:


Cash is the most liquid assets. Cash ratio is the ratio of cash and its equivalent to
current liabilities. Trade investment or marketable securities are equivalent of cash.
Therefore, they may be included in the computation of cash ratio.

Cash ratio or super quick ratio = Cash +marketable securities

Current liabilities

1D.Net working capital ratio:


The difference between current assets and current liabilities excluding short-term
borrowings is called networking capital (NWC) or net current assets (NCA). Net working
capital measures the firm’s potential reservoir or funds. It is considered that between two
firms, the one having the larger networking capital has greater ability to meet its current
obligations. This is not necessarily so that measure of liquidity is a relationship, rather than
the difference between assets and current liabilities.

Net working capital ratio = Networking capital

Net assets

2. LEVERAGE RATIOS:

The short term creditors like bankers and suppliers of raw materials are more concerned
with the firm’s current debt paying ability. on the other hand, long term creditors, like
debenture holders , financial institution etc., are more concern with the firm’s long term
financial strength.
To judge the long term financial position of the firm, financial leverage or capital structure
ratios are calculated. Leverage ratios may be calculated from the balance sheet items to
determine the proportion of debt in total financing.
The leverage ratios are calculated in five methods. Such as

2 A. Debt ratio

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RATIO ANALYSIS
2 B. Debt-equity ratios

2C. Capital employed to net worth

2D. Interest coverage ratio

2E. Fixed charges coverage ratio

2A. Debt ratio:


Debt ratio is used to analyze the long-term solvency of a firm. It helps in
knowing the proportion of the interest bearing debt in the capital structure. Debt ratio is
computed by dividing total debt by capital employed (CE) or net assets (NA). Total debt
will include short and long-term borrowing from financial institution, debentures bonds,
deferred payment arrangement for buying capital equipment, bank borrowing, public
deposits and any other interest bearing loan. Capital employed will include total debt
and net worth.

Debt ratio = total debt

Total debt+ net worth

2B. Debt equity ratio:


The debt equity ratio shows the relative contribution of creditors and
owner’s equity ratio is measure of the long-term solvency of a firm. This ratio indicated
the relative proportion of debt and equity in financing the assets of the firm.

 The relationship between outsider clam and owners capital can be show
in different ways and accordingly, there are many variants of the debt
equity ratio. One approach is to express the debt equity ratio in term of
the relative proportion of long-term debt and share holder’s equity. Thus

Debt equity ratio =long term debt

Share holders equity

The debt considered here is exclusively of current liabilities. The share holder’s
equity includes,

 Equity and preference share capital


 Past accumulated profits but excludes fictitious assets.

Another approach to the calculation of the debt equity ratio is to relate the
total debt to the shareholders equity.

Debt equity ratio = total debt

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RATIO ANALYSIS
Shareholders’ equity

2C. Capital employed to net worth:


This ratio is another way to express the basic relationship between debt and
equity. Through this ratio one can know the amount of funds that are being contributed
together by and owners for each rupee of the owner’s contribution.

Capital employed to net worth = capital employed

Net worth

2D. Interest coverage ratio:


The interest coverage ratio or the times interest earned is used to test the firm
debt servicing capacity. The interest coverage ratio is computed by dividing earnings before
interest and taxes, (EBIT) by interest charges.

Interest coverage = EBIT (earnings before interest of tax)

Interest

The interest coverage ratio shows the number of times the interest charges are
covered by funds that are ordinarily available for their payment. Depreciation is a non cash
items. Therefore funds available to depreciation interest and taxes (EBIT) divided by
interest.

Interest coverage = EBIT/Interest + repayment of loan/ 1- Tax rate

The ratio measures debt servicing ability comprehensively because it considers both
the interests and the principle repayment obligations. It shows how many times the pre tax
operation. Income covers all fixed financing charges.

3. Activity ratio:
Activity ratios are concerned with measuring the efficiency in assets management.
These ratios are also called efficiency ratios or asset utilization ratios. The efficiency with
which the assets are used would be reflected in the speed and rapidly with which assets are
converted ratio sales. The greater is the rate of turnover or conversion, the more efficient is
the utilization other things being equal. For this reason, such ratios are also designated as
turnover ratios. Turnover is the primary mode for measuring the extent of efficient
employment of assets by relating the assets to sales. An activity ratio may therefore be
defined as a test of the relationship between sales and the various assets of a firm.
Depending upon the various types of assets, they are various types of activity ratios.

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RATIO ANALYSIS
3A. Inventory turnover ratio
3B. Average collection period
3C. Fixed assets turnover
3D. Total assets turnover

3A. Inventory turnover ratio:


This ratio indicates the efficiency of the firm in producing and selling its
product. It is calculates as

Inventory turnover ratio = cost of goods sold

Average work-in-progress

3B. Average collection period:


The average collection period represents the number of days worth credit sales that
is locked in accounts receivable (debtors). It measures the quality of debtors since it
indicates the speed of their collection. The average collection period and accounts
receivables turnover are related as follows.

Average collection period = 365

Accounts receivable turnover

The average collection period may be compared with the firm’s credit term to
judge the efficiency of credit management.

 In determining the credit ability of debtors and thus, the efficiency of


collection efforts.
 In ascertaining the firms comparative strength and advantage relative.
 To its credit policy and performance VIS-a-VIS the competitors credit
policies and performance.

3C. Fixed assets turnover:


Fixed assets turnover ratio measures sales per rupee of investment in fixed assets.
This ratio measures the efficiency with which fixed assets are employed. It is defined as

Fixed assets turnover = Net sales

Fixed assets

3D. Total assets turnover:

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RATIO ANALYSIS
Assets are used to generate sales. A firm should manage it assets efficiency to
maximize sales. The relationship between sales and assets is called assets turnover. Assets
turnover ratio is computed by dividing sales by total assets

Assets turnover = sales

Total assets

4. Profitability ratio:
A company should earn profit to survive and grow over a long period of time.
Profitability reflects the final result of business operations. Profit must be earned to sustain
the operation of the business to be able to funds from investors and for expansion and
growth and to contribute toward social overheads for the welfare of the society. Profit is the
different between revenues and expenses over a period time. Profit is the ultimate output
of the company and it will have no future if it fails to make sufficient profits.

The profitability ratios are calculated to measure the operating efficiency of the
company. Beside management of the company, creditors and owners are also interested in
the profitability of the firm. Creditors want to get interest and repayment of principal
regularly. Owners want to get a required rate of return on their investment of principal
regularly. Owner’s wants to get required rate of return on their investment. This is possible
only when the company earns sufficient profits. Generally two types of profitability ratios
are calculated.

 Profitability in relation to sales


 Profitability in relation to investment

The profitability ratios are as follow

4A. Gross profit margin


4B. Net profit margin
4C. operating expenses ratio
4D. Return on investment
4E. Return on total assets
4F. Dividend per share
4G. Earnings per share
4H. Dividend payout ratio

A. Gross profit margin:


The first profitability ratio in relation to sales is the gross profit margin it is calculated by

Gross profit margin = sales-cost of goods sold

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RATIO ANALYSIS
Sales

Gross profit is the different between net sales and cost of goods sold. The gross
profit margin reflects the efficiency with which the management producers each unit of
product. This ratio indicates the average spread between the cost of goods sold and sales
measures the efficiency of production well as pricing.

B. Net profit margin:


The net profit margin ratio is computed by dividing net profit by sales.

Net profit margin = NET profit

Sales

Net profit margin establishes a relationship between net profit and sales indicated
management’s efficiency in manufacturing administrating and selling the product. This ratio
is the overall measures of the firm’s ability to turn each rupee sales into net profit. A net
profit margin shoes the earning left or shareholders as percentage of net sales. This ratio
also indicates the firm’s capacity to withstand adverse economic condition. Gross and net
profit margin ratios provide evaluable understanding of the cost and profit structure of the
firms and enable to identify the source of business efficiency or inefficiency.

C. Operating expenses ratio:


The operating expenses ratio is a yardstick of operating efficiency. This ratio is
computed by dividing operating expenses by sales.

Operating expenses ratio = operating expenses

Sales.

Operating expenses include cost of goods sold plus selling expenses and general and
administrative expenses. The operating ratio indicates the average aggregate variations in
expenses where some of the expenses may be increasing while others may be increasing
while others may be failing. Operating expenses ratio is effected to by a number of factors
such as internal factors, employees, managerial efficiency and external uncontrollable
factors.

D. Return on investment:

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RATIO ANALYSIS
The term investment may refer to total assets or net assts. The funds employed in
net assets are known as a capital employed. Net assets net fixed assets plus current assets
minus current liabilities excluding bank loans capital employed is equal to net worth plus
debt. Return on investment is calculated by earnings before interest and tax by assets are
capital employed.

Return on investment (ROI) = EBIT (I-T)

Net assets or capital employed

E. Return on equity:
Return on equity is of great interest to equity share holders. Ordinary
shareholders are entitled to the residual profit. If rate of dividend is not fixed the earning
may be distributed to shareholders or retained in the business. A return on share holders
equity is calculated to see the profitability of owner’s investment. The return on equity is
net profit after taxes dividend by share holders equity or net worth.

Return on equity (ROE) = profit after taxes

Net worth

F. Return of assets (ROA) ratio:


The profitability ratio is measured in terms of the relationship between net profits
and assets. The return on assets may also be called profit-to-assets ratio. There various
approach possible to define net profits and assets.

Return on total assets = profit after taxes

Total assets * 100

The return on assets based on this ratio would be an under estimate as the interest
paid the credit of is excluded from the net profits in point of fact the real return on total
assets is the net earnings available to owners and interest as assets are financed by owners
as well as creditors.

G. Earnings per share (EPS) ratio:


Another way of measuring profitability of ordinary share holder investment is earnings
per share. The earnings per share are calculated by dividing the profit after taxes by the
total number of ordinary shares outstanding.

Earnings per share (EPS) = Profit after taxes

Number of ordinary share outstanding

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RATIO ANALYSIS
Earnings per share (EPS) simple show the profitability of firms on a per share basis. It
does not reflect how much is retained in the business. As a profitability index, earnings per
share are a valuable and widely used ratio.

H. Dividend per share ratio:


The net profits belong to share holders but the income that they really receive is
the amount is the amount of earnings distributed as cash dividends. Therefore large number
of presents and potential investors are dividend per share rather than earning per share.
Dividend per share (DPS) is the earning distributed to ordinary shareholders dividend by
number of ordinary shares outstanding.

Dividend per share (DPS) = Earning paid to share holders

Number of ordinary share outstand

I. Dividend-payout ratio:
Dividend-payout is dividend per share dividend by the earning per share.

Payout ratio = dividend per share

Earnings per share.

J. Price earnings ratio:


Price earnings ratio is the most popular financial statistic in stock market. It is widely
used by the security analyst to value the firm’s performance as expected by investors. It
indicates investor judgement or expectations about the firm’s performance. The price ratio
earnings is a summary measures which primarily reflects the following factors, growth
prospect, risk characteristic share holders orientation, corporate image and degree of
liquidity. The price-earnings ratio is defined as

Price earnings ratio = market price per share

Earnings per share

The market price per share may be the price prevailing on a certain day the average
price over a period of time. The earnings per share is profit after taxes less preference
dividend by the number of equity shares outstanding

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RATIO ANALYSIS

DATA ANALYSIS AND INTERPRETATION

CURRENT RATIO:
Current ratio is calculated by dividing the current assets by current liabilities. Current
assets include cash and those assets that can be converted into cash within a year, such as
marketable securities, debtors and inventories. Prepaid expenses Also includes in current
assets. Current liabilities include creditors, bills payable, arrived expenses, short term bank
loan, income tax liability and long term debt mature in the current year.

Current ratio represents a margin of safety for creditors. Current ratio of 2to1 or more
is considered satisfactory. The larger the amount of current assets in ratio to current liabilities
the more the firm’s ability to meet its current obligations.

Current ratio = current assets


Current liabilities

TABLE 1

YEAR CURRENT CURRENT RATIO


ASSETS LIABLITIES
2008-2009 8879.50 3877.84 2.28

2009-2010 8167.50 3509.59 2.32

2010-2011 10725.94 3922.48 2.73

2011-2012 9427.74 5388.52 1.75

2012-2013 27336.10 14506.15 1.88

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RATIO ANALYSIS

INTERPRETATION:-

The standard ratio of current ratio is 2:1. The higher current ratio the

greater the margin of safety. In the year 2008-09, current ratio is (2.28) and 2009-2010, 2.32

from 2010-2011(2.73) year onwards the current ratio is gradually increased. And 2011-2012

this ratio ( 1.75) 2012-2013 the ratio is (1.88). It represent the firm’s ability to meet its

obligations from this w can say that the firm has strong liquidity position to meet the current

obligations.

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RATIO ANALYSIS

QUICK RATIO (OR) ACID TEST RATIO:-


Quick ratio establishes a relationship between quick or liquid, assets
and liabilities. An asset is a liquid if can be converted into cash immediately. Inventories are
considered to be less liquid. The quick ratio is found out by dividing quick assets by current
liabilities. A Quick ratio of 1 to 1 is considered to represent a satisfactory current financial
condition.

Quick Ratio=current Assets-Inventories

Current Liabilities

TABLE 2:

YEAR QUICK ASSETS CURRENT RATIO


LIABLITIES
2008-2009 6597.28 3877.84 1.70

2009-2010 5664.30 3509.59 1.61

2010-2011 7611.37 3922.48 1.94

2011-2012 6538.23 5388.52 1.21


2012-2013 23365.09 14506.15 1.61

G.K.C.E., SULLURPET Page 36


RATIO ANALYSIS

INTRPRETATION
The standard of quick ratio is 1:1. It represents the satisfaction of

accompany. In the 2008-2009 the ratio is 1.70 it has come up to 1.94 in the year 2009-2010

and 2010-2011 it is 1.61 and 2011-12 it 1.61. In 2012-2013 the ratio is 1.21. Hence we can

say that the company has maintained more than ideal quick ratio 1; 1 overall, the 5 financial

years.

G.K.C.E., SULLURPET Page 37


RATIO ANALYSIS

DEBT EQUITY RATIO:-


Debt equity ratio tells the relationship between total debt and capital owned. It is ratio of
amount invested by outsiders to the amount invested by the shareholders. This ratio reflects
the relative claims of shareholders and creditors against the assets of the company. A high
ratio shows the creditors have invested more in the business than shareholders greater the debt
equity ratio, the greater the risk to the creditors. In Indian financial institutions usually permit
debt equity of 2:1 i.e. is RS200 by way of long-term loans for every RS100 of promoter’s
equity.

Debt equity ratio=total debt

Net worth

Net worth=capital reserves

TABLE:3

YEAR TOTAL DEBT NET WORTH RATIO

2008-2009 28089.02 64698.07 0.43

2009-2010 27198.44 64698.07 0.42

2010-2011 25198.62 64689.07 0.38

2011-2012 16555.40 64698.07 0.26

2012-2013 16454.93 80846.56 0.20

G.K.C.E., SULLURPET Page 38


RATIO ANALYSIS

INTERPERTATION:-

Debt equity ratio clears that from the total debt ratio that company’s

lenders have contributed more funds than owners. In the year 2008-2009 to 2012-2013 the

debt equity ratios 0.43, 0.42, 0.38, 0.26, 0.20. The ratio is continuously decreased from 0.20

to 2009-2010. It represents the company should take necessary step to reduce the total debt

ratio. It is a good sign for the company.

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RATIO ANALYSIS

CAPITAL EMPLOYED TO NETWORTH RATIO:-


It is also called “equity ratio it indicated the proportion of total assets
financial by owners. This ratio establishes the relationship between capitals employed to net
worth of the firm. The ratio of capital employed is an important ratio for determining long
term solvency. This ratio is also called proprietary to total equity or net worth to total assets
ratio.

EQUITY RATIO=CAPITALEMPLOYED

NET WORTH.

CAPITAL EMPLOYED=TOTALDEBT+NET WORTH

TABLE 4

YEAR Capital NETWORTH ratio


Employed

2008- 92787.09 64698.07 1.43


2009
2009- 91896.51 64698.07 1.42
2010
2010- 89896.69 64698.07 1.38
2011
2011- 81253.47 64698.07 1.26
2012
2012- 97307.49 80846.56 1.20
2013

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RATIO ANALYSIS

INTERPRETATION:-

The capital employed to net worth ratio represents the basic relationship

between debt and equity. One may want to know much funds are contributed together by

lenders and owners for each rupee of the owner’s contribution. The year 2008-2009 to 2012-

13 the ratio is 1.43, 1.42, 1.38, 1.26, and 1.20. It represents the company capital employed to

net worth ratio is year to year decreasing.

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RATIO ANALYSIS

INVENTORY TURNOVER RATIO (or) STOCK TURNOVER RATIO: -

Inventory turnover ratio is a measure of liquidity. It indicates the speed at which the
inventory is sold out. A high turnover ratio indicates that the inventory is out fast and a low
turnover ratio show a sale of inventory. This ratio indicates the efficiency of the firm in
selling its products.

TABLE 5

Stock turnover ratio= cost of goods sold

Average inventory

YEAR Cost of Goods Average ratio


Sold Inventory
2008-2009 23464.24 2487.69 9.43

2009-2010 27153.59 2392.56 11.34

2010-2011 29725.95 2808.88 10.58

2011-2012 24973.46 3002.04 8.32

2012-2013 36172.58 3430.26 10.54

G.K.C.E., SULLURPET Page 42


RATIO ANALYSIS

INTERPRETATION:-

The high stock turnover ratio is indicating of inventory management. A high

stock turnover indicated that the stocks are fast moving and get converted in to sales very

quickly the year 2008-2009 to 2012-2013 the company inventory turnover ratio s

9.43,11.34,10.58,8.31and 10.54. Over all 5yrs the ratio is increased.

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RATIO ANALYSIS

FIXED ASSESTS TURNOVER RATIO:-


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

Net sales

Fixed assets turnover ratio= ---------------

Fixed assets

TABLE 6

YEAR SALES FIXED ASSESTS RATIO

2008-2009 29021.15 36477.84 0.79

2009-2010 32605.16 33902.75 0.96

2010-2011 39689.62 31958.46 1.24

2011-2012 43921.16 33221.38 1.32

2012-2013 99378.92 80079.84 1.24

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RATIO ANALYSIS

INTERPRETATION:-
A high fixed turnover ratio indicates better utilization of the firm’s. The

above table show that the company as 0.79 times of fixed assets turnover ratio in the 2008-

2009where as it has increased 0.33 time in 20. The fixed turnover ratios are fluting u to

function of satisfaction. The year 2008-2009to 2012-2013

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RATIO ANALYSIS

DEBTOR TURNOOVER RATIO:-

The ratio is a test of liquidity of firm and it measures how fast the debtors

are converted into cash in year. The higher the turnover ratio and lower the collection period.

The better is the liquidity of the firm.

DEBTORS TURNOVER RATIO=CREDIT SALES

DEBTORS

TABLE 7:

YEAR SALES DEBTORS RATIO

2008-2009 29021.15 3109.72 10

2009-2010 32605.16 2467.39 14

2010-2011 39689.62 943.79 42

2011-2012 43921.16 1866.11 24

2012-2013 99378.92 2531.00 40

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RATIO ANALYSIS

DEBTORS TURNOVER RATIO


45
40
35
30
25
20
DEBTORS TURNOVER
15
RATIO
10
5
0

INTERPRETATION:-

Debtors’ turnover ratio indicates the number of time debtors is

converted into sale in each year. Generally the higher the value of debtors turnover the more

efficient in the management of credit. The years 2008-2009 to 2012-2013 ratios are 10, 42,

14, 24 and 40 times. It is increased ratio and the company is inability efficient in the

management of credit.

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RATIO ANALYSIS

GROSS PROFIT RATIO:-


The Gross profit ratio indicates the extent to which sales of goods per unit may decline
without May loss in the operations of the firm. This also known as “Gross Profit Margin” (or)
Gross profit margin on sales. The gross profit is the difference between sales and cost of
goods sold.

Gross profit ratio=gross profit *100

Sales

TABLE 8:

YEAR GROSS PROFIT SALES RATIO

2008-2009 5556.91 29021.15 19%

2009-2010 5451.57 32605.16 16%


2010-2011 9963.67 39689.62 25%
2011-2012 18947.7 43921.16 43%

2012-2013 36172.58 99378.92 36%

G.K.C.E., SULLURPET Page 48


RATIO ANALYSIS

GROS PROFIT RATIO


50%
45%
40%
35%
30%
25%
20%
15% GROS PROFIT RATIO
ta: 10%
5%
0%

INTERPRETATION:-

The gross profit ratio indicates the relationship between total al and cost of

Goods sold. The higher the gross profit margin ratio is a sign of good management. The year

2008-2009 to 2012-2013 the ratio are 19%, 16%, 25%, 43% and 36% overall, 5 year
increasing

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RATIO ANALYSIS

NET PROFIT MARGIN RATIO:-


Net profit is obtained when operating expenses, interest and taxes are subtracted from
the gross profit.

The net profit margin ratio is measured by dividing profit after tax sales. The
ratio indicates the firm’s capacity to withstand adverse economic conditions.

NET PROFIT MARGIN=PROFIT AFTER TAX

SALES

TABLE 9:

YEAR NET PROFIT SALES RATIO

2008-2009 14054.26 29021.15 0.50

2009-2010 16609.18 32065.16 0.50

2010-2011 14344.07 39689.62 0.36

2011-2012 1909.25 43921.16 0.04

2012-2013 16148.49 99378.92 0.16

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RATIO ANALYSIS

NET PROFIT RATIO


0.6

0.5

0.4

0.3
NET PROFIT RATIO
0.2

0.1

0
2005-20062006-20072007-20082008-20092009-2010

INTERPRETATION:-
Net profit margin indicates the management’s ability to earn

sufficient profits on sales not only to cover all revenue operating expenses of the business. In

ZCL during the period 2008-2009 current ratio is 0.50 an 2009-2010 it is 0.50 and 2010-2011

is 0.36 and 2011-012 is 0.04.. And last year 2012-13 it is 0.16. It shows the falling operating

expense and increasing demand for the product.

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RATIO ANALYSIS
3. D. TOTAL ASSETS TURNOVER RATIO:-

The total assets turnover ratio shows the firm’s ability in generation sales from all financial
resources committed total assets. Total assets include net fixed assets and current assets.

Total assets turnover ratio=sales

Total assets

Data:

YEAR SALES TOTAL ASSESTS RATIO


2008-2009 29021.15 45357.34 0.63

2009-2010 32605.16 42070.25 0.77


2010-2011 39689.62 42684.40 0.92

2011-2012 43921.16 42649.12 1.03

2012-2013 99378.92 107415.94 0.93

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RATIO ANALYSIS

INTERPRTATION:-
The total assets turnover ratio shows the firm ability in generating

sales from all resources committed to total sales. The year 2008-2009to 2012-013the ratios

are 0.63, 0.77, 0.92.1.03, 0.93. Will increasing it represents the firms in ability in generating

sales.

G.K.C.E., SULLURPET Page 53


RATIO ANALYSIS
FINDINGS
1. The standard of current ratio is 2:1 the higher the current ratio the grater the margin of
safety.2008-2009, 2.28 from 2009-2010, year onwards the current ratio is gradually
increased. And 2010-2011 this ratio is 1.75. And 2012-2013 the ratio is 1.88. It represents
the firm’s ability to meets its obligation.

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


conditions. VIJAYA MILK DAIRY LIMITED is very high because the company is having a quick
ratio 1.93

3. The debtor’s turnover ratio is the year 2011-2012 is 24.5 and this year increase.

4. The inventory turnover ratio during the year 2009-2010 11.34 in high

5. The gross profit ratio is VIJAYA MILK DAIRY increased in year to year

6. The net profit of VIJAYA MILK DAIRY during the year 2011-2012 very low ratio 0.04

7. In the year 2008-2009 the total debt ratio is 0.30 of financial year. Later year i.e., 2008-
2009 to 2012-13 the ratio are 0.30, 0.29, 0.28, 0.20, and 0.20 it was gradually decreased so
the company is flexibility in the firms operations.

G.K.C.E., SULLURPET Page 54


RATIO ANALYSIS
SUGGETIONS
 The market share of VIJAYA MILK DAIRY, Nellore district only 45% and it should try to
much more market by improving quality, tastes, fat, contents and availability of milk at
reasonable price.

 Inspection and quality checking must be doubled for providing quality milk.

 The debt proportion in the financial structure of VIJAYA MILK DAIRY is rapidly

 Increased last year. So the debt proportion must be decreased to the standard form.

 The gross profit decreased comparatively than previous year. So the gross profit must be
improved.

G.K.C.E., SULLURPET Page 55


RATIO ANALYSIS

CONCLUSION
 This project is as a reference guide or as a source of information.

 It gives the idea about the financial analysis of firm.

 The main objective of the study was to put into practical the theoretical aspect of
the study into real life work experience.

 The study aims to study the liquidity position of the firm.

 Ratio analysis has been used to analysis the financial position of the firm.

 It deals with analysis an interpretation of data collected through the source primary
and secondary data.

G.K.C.E., SULLURPET Page 56


RATIO ANALYSIS
BIBILOGRAPHY
1. FINANCIAL MANAGEMENT, vikas publishing house pvt., ltd., written by I.M.PANDEY New
Delhi, 9Th edition (2002).

2. FINANCIAL ACCOUNTING&ANALYSIS, kalyani publishers, written by S.P.JAIN&K.L.NARANG


Ludhiana.

3. FUNDAMENTALS OF FINANCIAL MANAGEMENT, Tata McGraw-hill publishing company


ltd., written by PRASANNA CHANDRA New Delhi.

4. RESERCH METHODOLOGY&DESIGN, C.R.KOTARL-2008 7TH Edition

WEB SITES:

www.google.com

www.vmd.com

G.K.C.E., SULLURPET Page 57


RATIO ANALYSIS
PROFIT AND LOSS ACCOUNT OF THE YEAR 31st MARCH 2008

S.NO PARTICULARS amount amount


1 INCOME
Sales 29021.15
Other income 236.60
29257.75

2 EXPENDITURE
Purchase of finished goods for resale 155.08
Manufacturing and other expenses 25591.08
Depreciation 2850.33
Interest and other finance charges 2949.46
Decrease in stocks of work-in process and 459.71
finished goods
32005.66
Loss for the year 2747.91
Debit balance brought forward from previous 11756.35
year
Debit balance carried to balance sheet 14504.26

BALANCE SHEET AS ON 31ST MARCH, 2008

G.K.C.E., SULLURPET Page 58


RATIO ANALYSIS

S.No AMOUNT (RS AMOUNT (RS


LAKHS) LAKHS)
PARTICULARS
31-03-2008 31-03-2008

1. SOURES OF FUNDS
1)SHARE HOLDER FUNDS
Share capital 42796.14
Share application money -
Reserves and surplus 21901.93
Total 64698.07
2)Loan funds:
Secured loans 19018.51
Unsecured loans 9070.51
28089.02
Total 92787.09

2 APPLICATION OF FUNDS
1)Fixed assets: -
gross product 53331.74
Less:Depriciation 16982.13
Net product 36349.61
Capital wok-in-progress 128.23
36477.84
2)investments 36525.14
3)current assets:
Inventories 2281.92
Sundry debtors 3109.72
Cash and bank balance 1716.14
Loans and advance 1771.46
8879.50
Less :current liabilities and
current liabilities
provisions 3827.41
Provisions 50.43
3877.84
Net current assets: 501.66
4)Miscellaneous Expenses 278.19
5)profit and loss account 14504.26

Total 92787.09

G.K.C.E., SULLURPET Page 59


RATIO ANALYSIS

PROFIT AND LOSS ACCOUNT OF THE YEAR 31st MARCH 2009

S.NO PARTICULARS amount amount


1 INCOME
Sales 32605.16
Other income 419.40
33024.56

2 EXPENDITURE
Purchase of finished goods for resale 1574.49
Manufacturing and other expenses 28082.30
Depreciation 2839.05
Interest and other finance charges 2333.38
Decrease in stocks of work-in process and 92.77
finished goods
34921.99
Loss before extraordinary item 1897.43
Debit balance brought forward from 14504.26
previous year
Other schemes 207.47
Loss for the year 2104.92
Debit balance carried to balance sheet 16609.18

G.K.C.E., SULLURPET Page 60


RATIO ANALYSIS
BALANCESHEET AS ON 31ST MARCH 2010:

.No AMOUNT (RS AMOUNT (RS


LAKHS) LAKHS)
PARTICULARS
31-03-2007 31-03-2007

1. SOURES OF FUNDS
1)SHARE HOLDER FUNDS
Share capital 42796.14
Share application money -
Reserves and surplus 21901.93
Total 64698.07
2)Loan funds:
Secured loans 17431.03
Unsecured loans 9767.41
27198.44
Total 91896.51

2 APPLICATION OF FUNDS
1)Fixed assets:
gross product 53550.07
Less:Depriciation 19787.74
Net product 33762.33
Capital wok-in-progress 140.42
33902.75
2)investments 36557.57
3)current assets:
Inventories 2503.20
Sundry debtors 2467.39
Cash and bank balance 1290.72
Loans and advance 1906.02
8167.50
Less :current liabilities and
current liabilities
provisions 3381.69
Provisions 127.90
3509.59
Net current assets: 4657.91
4)Miscellaneous Expenses 169.10
5)profit and loss account 16609.18
Total 91896.51

G.K.C.E., SULLURPET Page 61


RATIO ANALYSIS

PROFIT AND LOSS ACCOUNT OF THE YEAR 31st MARCH, 2008

S.NO PARTICULARS amount amount


1 INCOME
Sales 39689.62
Other income 457.41
40147.03

2 EXPENDITURE
Purchase of finished goods for resale 3288.27
Manufacturing and other expenses 29552.25
Depreciation 2859.77
Interest and other finance charges 2234.88
Decrease in stocks of work-in process and 244.60
finished goods
37690.57
Loss before extraordinary item 2456.46
Debit balance brought forward from 126.35
previous year
Other schemes 2265.11
Loss for the year 16609.18
Debit balance carried to balance sheet 14344.07

G.K.C.E., SULLURPET Page 62


RATIO ANALYSIS
BALANCE SHEET AS ON 31ST MARCH, 2009

S.No AMOUNT (RS AMOUNT (RS


LAKHS) LAKHS)
PARTICULARS
31-03-2010 31-03-2010

1. SOURES OF FUNDS
1)SHARE HOLDER FUNDS
Share capital 42796.14
Share application money -
Reserves and surplus 21901.93
Total 64698.07
2)Loan funds:
Secured loans 15330.07
Unsecured loans 9868.55
25198.62
Total 89896.69

2 APPLICATION OF FUNDS
1)Fixed assets:
Gross product 54205.96
Less:Depriciation 22537.12
Net product 31668.84
Capital wok-in-progress 289.62
31958.46
2)investments 36723.60
3)current assets:
Inventories 3114.57
Sundry debtors 943.79
Cash and bank balance 383.351
Loans and advance 5284.23
10725.94
Less :current liabilities and
current liabilities
provisions 3758.62
Provisions 163.86
3922.48
Net current assets: 6803.46
4)Miscellaneous Expenses 67.10
5)profit and loss account 14344.07
Total 89896.69

G.K.C.E., SULLURPET Page 63


RATIO ANALYSIS

PROFIT AND LOSS ACCOUNT OF THE YEAR 31st MARCH, 2009

S.NO PARTICULARS amount amount


1 INCOME
Sales 43921.16
Other income 432.61
44353.77

2 EXPENDITURE
Purchase of finished goods for resale 1753.71
Manufacturing and other expenses 26109.26
Depreciation 2200.41
Interest and other finance charges 990.68
Decrease in stocks of work-in process and 145.11
finished goods
13444.82
Loss before extraordinary item -
Debit balance brought forward from previous 14344.07
year
Other schemes -
Loss for the year 12434.82
Debit balance carried to balance sheet 1909.25

G.K.C.E., SULLURPET Page 64


RATIO ANALYSIS
BALANCE SHEET AS ON 31ST MARCH, 2009

S.No AMOUNT (RS AMOUNT (RS


LAKHS) LAKHS)
PARTICULARS
31-03-2009 31-03-2009

1. SOURES OF FUNDS
1)SHARE HOLDER FUNDS
Share capital 42796.14
Share application money --
Reserves and surplus 21901.93
Total 64698.07
2)Loan funds:
Secured loans 12876.57
Unsecured loans 3678.89
16555.40
Total 89896.69

2 APPLICATION OF FUNDS
1)Fixed assets:
Gross product 53811.03
Less:Depriciation 24043
Net product 29767.78
Capital wok-in-progress 3453.60
33221.38
2)investments 36723
3)current assets:
Inventories 2889.51
Sundry debtors 1866.11
Cash and bank balance 1576.48
Loans and advance 3095.64
9427.74
Less :current liabilities and
current liabilities
provisions 5061.79
Provisions 326.73
5388.52
Net current assets: 4039.22
4)Miscellaneous Expenses -
5)profit and loss account 1909.25
Total 81253.47

G.K.C.E., SULLURPET Page 65


RATIO ANALYSIS

PROFIT AND LOSS ACCOUNT OF THE YEAR 31st MARCH, 2010

S.NO PARTICULARS AMOUNT (Rs


Lakhs 31-03-2010)
1 INCOME
Sales 99378.92
Other income 1832.29
101211.21

2 EXPENDITURE
Cost of gods sold 36172.58
Personal cost 3604.81
Other expenses 25119.28
Depreciation 5204.23
Amotation of goodwill 1799.20
Interest and other finance cost 950.93 72851.03
Loss before extraordinary item 28360.18
Debit balance brought forward from previous 1909.25
year

G.K.C.E., SULLURPET Page 66


RATIO ANALYSIS
BALANCE SHEET AS ON 31ST MARCH, 2009

S.No AMOUNT (RS AMOUNT (RS


LAKHS) LAKHS)
PARTICULARS
31-03-2010 31-03-2010

1. SOURES OF FUNDS
1)SHARE HOLDER FUNDS
Share capital 42796.14
Share application money -
Reserves and surplus 38050.42
Total 80846.56
2)Loan funds:
Secured loans 4168.45
Unsecured loans 12286.48
5659.36
Total 102960.85

2 APPLICATION OF FUNDS
1)Fixed assets:
Gross product 89683.71
Less:Depriciation 29850.93
Net product 59832.78
Capital wok-in-progress 20247.06
80079.84
2)investments 10051.06
3)current assets:
Inventories 3971.01
Sundry debtors 2531.00
Cash and bank balance 12012.16
Loans and advance 8821.96
27336.10
Less :current liabilities and
current liabilities
provisions 13132.52
Provisions 1373.63
14506.15
Net current assets: 12829.95
4)Miscellaneous Expenses -
5)profit and loss account -
Total 102960.85

G.K.C.E., SULLURPET Page 67


RATIO ANALYSIS

G.K.C.E., SULLURPET Page 68