Copy of Project Report- Ratio

(PROJECT REPORT)

PREPARED BY:

Mohit Garg & Shweta Giri

APEEJAY INSTITUTE OF TECHNOLOGY, SCHOOL OF MANAGEMENT

GREATER NOIDA

CONTENTS

S.NO. CHAPTER

1. Organization-At Glance

2. Product Profile

3. Objectives

4. Project-Ratio Analysis

5. Categories of Ratios

6. Data Source

7. Calculations

8. Graphical Representation

9. Interpretation

10. Limitations

11. Bibliography

PREFACE

As an integral part of the curriculum, prescribed by UTTAR

PRADESH TECHNICAL UNIVERSITY, LUCKNOW, every student of Master of Business

Administration (MBA) after 2nd Semester has to go for Summer Training on the topic,

which is suggested by the organization based on their and student’s interest as well.

In this corporate world, the institutes are oriented towards

providing professional education due to the economic reforms in our country, which

enforce the institution to carry out such programmes, which are readily determined to

develop potential professionalism. This is the reason, which enforces the universities to

add such type of activities in their course curriculum. These works make a student to apply

his bookish knowledge into practicality.

The ELECTRICAL INDUSTRY, being an area of our interest, we

inspired from the various electrical components of HPL Group and domestic and

industrial requirement of their products. The HPL Group is using the latest technology

and quality components from the best sources across the world, keeping in view all type of

consumer segments’ their nature & requirement.

This project focuses the Ratio Analysis of past 3years’ data of the

organization. The project is divided into various chapters, which are mentioned in the

contents.

Apeejay Institute of Technology, Mohit Garg School of Management & Shweta GiriGreater Noida, (U.P)

ACKNOWLEDGEMENT

We would like to take this opportunity to thanks those people without

whose contribution this project would not have in its present shape. This formal

acknowledgement will hardly be sufficient to express our deep sense of gratitude to all of

them.

We would like to express our gratitude to CA. Gautam Seth

(Director- Finance, HPL Group) for his expert advice and encouragement during the

project.

We express our thanks to CA. Pankaj Chabra (G.M. Finance) for his

able guidance and invaluable suggestions throughout the project. We are also grateful to

Mr. Manish Sharma & Mr. Shiv Kumar for their support and cooperation at each and

every step for completion of our project.

.

At the outset, we would also like to extend our wholehearted appreciation

on the concerted efforts of Mrs. Himmi Jain & Mr. Sachin Pandey (HR Deptt.) to have

provided us a wonderful stay and co-operation at the organization.

We would like to thank all the faculty members of Apeejay Institute

of Technology, School Of Management, Gr.Noida for their support and guidance

throughout our summer training.

Date: Mohit Garg

& Shweta Giri

ORGANISATION- AT GLANCE

HPL Group, celebrating its golden jubilee, 1956:2006, has been pursuing vision of

creating a niche, as a major player in Indian Electrical Industry with commitment to state-

of-the-art technological world-class products.

HPL has under its umbrella on going, healthy and growing Joint Venture with

SOCOMEC S.A., France

MOELLER, Austria

ELEKTRA Tailfingen, Germany

HPL Group possess seven most modern manufacturing units, ISO 9001:2000 certified,

location at Gurgaon, Noida, New Delhi, Sonipat and Himachal Pradesh having 3,00,000

sq. feet covered area to manufacture products confirming to International and Indian

standards.

HPL Product Profile has the following Strategic Business Units:

LV Switchgears

LV Protection Devices

Metering and Energy Management System

Lighting

HPL Products have been tested at CPRI, ERDA, ERTL, and NPL etc according to Indian

Standards, whereas MCB’s, Rewireable Switches & Electronic Energy Meters carry ISI

marking. Further HPL products have approvals from CPWD, State PWD’s, MES, BSNL

and many more Institutional users.

HPL, with a turnover of around Rs.350crores, has a strong work force of over 2700

talented individuals, including Technocrats, Design and R&D Engineers and Marketing

Professionals.

HPL Group with Head Office at New Delhi has extensive Sales & Marketing Network of

63 Branches, over 600 Authorized Dealers and 4,000 Retailers across country who are

committed to provide solutions and services to customer’s delight. HPL is also exporting

its products to Middle East, SAARC and European Countries.

NEW LAUNCH

HPL Group, known for quality product manufacturing, is now entering in the world of

LIGHTING with own production of COMPACT FLUORESCENT LAMP. Installing two

most modern plants at its works at Sonipat. One of them is SPIRAL tube plant, which is

the first of its kind in the country. Using the latest technology and quality components

from the best sources across the world.

MANAGEMENT-

Mr. LALIT SETH (C.M.D.) –A visionary entrepreneur endowed with inimitable

dynamism and futuristic sagacity is a keen observer of market trends all over the world. It

was his distinctive idea of import substantiation that resulted in growth of HPL, having

experience of over 37 years in the Industry.

Mr. RISHI SETH (Director), an MBA has been in business for the past 15 years

looking after the Energy Meter marketing, Production, Planning and General

Administration of a few units.

Mr. GAUTAM SETH (Director), a Qualified Chartered Accountant has been in

Business for 12 years and is handling Finance, Accounts, taxation and other related

activities.

Mr. R. K. Khanna is the Chief Executive of the Company’s plant at Gurgaon.

Being an Electrical Engineer and having 38 years of experience in electrical

manufacturing, he looks after the procurement, production, planning and allied activities

associated with the manufacture of the product.

Mr. C.P. Jain is an Electrical Engineer with 23 yrs of experience of manufacturing

electrical switchgear and other electrical production. He has worked with leading

companies like Jaipur Meters. He has been working with HPL Group for the past four

years and in charge of Research, Development and Quality Control.

Product Profile

METERING

Diris A40 Multifunction Energy Meter

Emfis Digital Multifunction Panel Mounted Meters

Panel Mounted Meter

HT Application Meter

Single & Three Phase Electronic Energy Meter

Trivector Meter

Prepaid Meter

Meter Box

HPL SWITCHGEARS

Load Break Switch

Fuse Links

Rotary Switches

Fuse Holders & Bases

MCB / MCCB

Changeover Switch

Distribution Systems

RCCB

CHANGEOVER SWITCHES

Socomec Changeover Switches

Motorized Changeover Switch

Digital Programmable Changeover Switch

Socomec Load Break Switch

HPL LIGHTING

Non Retrofit

Regular Retrofit

Mini Retrofit

Spiral Retrofit

MOELLER BUILDING AUTOMATION SYSTEMS

Miniature Current Breaker

Residual Current Circuit Breaker

Moulded Case Circuit Breaker & Switch Disconnector

Controlling & Switching Devices

Distribution Systems

RCBO

OBJECTIVES

The objectives of the project are: -

(i) Simplifies Financial Statements: Ratio analysis simplifies the comprehension of

financial statements. Ratios tell the whole story of changes in the financial condition of the

business.

(ii) Facilitates Inter-firm Comparison: Ratio Analysis provides data for inter-firm

comparison. Ratios highlight the factors associated with successful and unsuccessful

firms. They also reveal strong firms & weak firms, over-valued and under-valued firms.

(iii) Makes Intra-firm Comparison Possible: Ratio Analysis also makes possible

comparison of the performance of the different divisions of the firm. The ratios are helpful

in deciding about their efficiency or otherwise in the part and likely performance in the

future.

(iv) Helps in planning: Ratio analysis helps in planning and forecasting. Over a period

of time a firm or industry develops certain norms that indicate future success & failure. If

the relationship changes in firm’s data over different time periods, the ratios may provide

clues on trends and future problems.

(v) Review of resources allocation: A projected funds flow statement will help the

analyst in finding out how the management is going to allocate the scarce resources for

meeting the productive requirements of the business.

PROJECT : RATIO ANALYSIS

AN INTRODUCTION

Ratio Analysis is a very powerful analytical tool for measuring performance of an

organization. The ratio analysis concentrates on the inter-relationship among the figures

appearing in the aforementioned four financial statements. The ratio analysis helps the

management to analyze the past performance of the firm and to make further projections.

Ratio Analysis allows interested parties like shareholders, investors, creditors,

Government and analysts to make an evaluation of certain aspects of a firm’s

performance.

Ratio Analysis is a process of comparison of one figure against another, which make a

ratio, and the appraisal of the ratios to make proper analysis about the strengths and

weaknesses of the firm’s operations. The calculation of ratios is a relatively easy and

simple task but only the skilled analyst can make the proper analysis and interpretation of

the ratios. While interpreting the financial information, the analyst has to be careful in

limitations imposed by the accounting concepts and methods of valuation. Information of

non-financial nature will also be taken into consideration before a meaningful analysis is

made.

Ratio Analysis is extremely helpful in providing valuable insight into a company’s

financial picture. Ratios normally pinpoint a business strengths and weakness in two ways:

Ratios provide an easy way to compare today’s performance with past.

Ratios depict the areas in which a particular business is competitively advantaged

or disadvantaged through comparing ratios to those businesses of the same size

within the same industry.

CATEGORIES OF RATIOS

i. Solvency Ratios

Debt-Equity Ratio

Capital Gearing Ratio

Debt Service Coverage Ratio

Current Ratio

Quick Ratio

ii. Activity Ratios

Inventory Turnover Ratio

Debtor Turnover Ratio

Creditors Ratio

Average Collection Period

Average Payment Period

iii. Profitability Ratios

Return on investment (ROI)

Earning per share (EPS)

Return on assets

Gross Profit Ratio

Net Profit Ratio

iv. Market Test Ratios

Dividend payout Ratio

Price / Earning Ratio

v. Operating Ratios

Material Cost Ratio

Labour Cost Ratio

Factory Overhead Ratio

Selling & Distribution Exp. Ratio

1. Current Ratio-

This ratio indicates the extent of the soundness of the current financial position of an

undertaking and the degree of safety provided to the creditors. The higher the current ratio,

the larger amount of rupee available per rupee of current liability, the more the firm’s

ability to meet current obligation and greater safety of funds of short term creditors.

Current Assets are those assets that can be converted into cash within a year. Current

Liabilities & Provisions are those liabilities that are payable within a year. A current ratio

of 2:1 indicates a highly solvent position. Banks consider a current ratio of 1.33:1 as

minimum acceptable level for providing working capital finance. The constituents of the

current assets are as important as the current assets themselves for evaluation of

company’s solvency position

CURRENT ASSETSCURRENT RATIO =

CURRENT LIABILITIES

2. Quick Ratio-

Quick ratio is a more defined tool to measure liquidity of an organization. It is a better test

of financial strength than the current ratio, because it excludes very slow-moving

inventories and the items of current assets that cannot be converted into cash easily. This

ratio shows the extent of cushion of protection provided from the quick assets to the

current creditors. A quick ratio of 1:1 is usually considered satisfactory though it is again a

rule of thumb only.

This ratio is also called Acid Test Ratio. This ratio serves as a supplement to the current

ratio in analyzing liquidity.

LIQUID ASSETSQUICK RATIO =

CURRENT LIABILITIES

3. Debt-Equity Ratio-

Capital is derived from two sources: Shares and Loans. If the proportion of debt to equity

is low, a company is said to be low-geared, and vice versa. A Debt-Equity Ratio of 2:1 is

the norm accepted by financial institutions for financing of projects. Higher debt-equity

ratio may be permitted for highly capital-intensive industries like petrochemicals, power

etc. The higher the gearing, the more volatile return to the shareholders.

Debt means long-term debt while equity is capital & free reserves. A high ratio indicates

large outside borrowings and consequently a larger outside stake in the business.

LONG TERM DEBTSDEBT-EQUITY RATIO =

SHARE HOLDERS’ FUNDS

4. Return on Investment ( ROI ) –

The strategic aim of a business enterprise is to earn a return on capital. If in any particular

case, the return in the long run is not satisfactory, then the deficiency should be corrected

or the activity be abandoned for a more favorable one. Measuring the historical

performance of an investment centre calls for a comparison of the profit that has been

earned with capital employed. The rate of return on investment is determined by dividing

net profit or income by the capital employed or investment made to achieve that profit.

ROI analysis provides a strong incentive for optimal utilization of the assets of the

company. This encourages managers to obtain assets that will provide a satisfactory return

on investment and to dispose of assets that are not providing an acceptable return.

NET OPERATING INCOME RETURN ON INVESTMENT =

CAPITAL EMPLOYED

5. Debtors Turnover Ratio-

Debtors turnover, which measures whether the amount of resources tied up in debtors, is

reasonable and whether the company has been efficient in covering debtors into cash.

Thus, it is an indicative of efficiency of trade credit management. The lower the debtor’s

turnover ratio, the better the trade credit management and better the quality (liquidity) of

debtors i.e. prompt payment by customers. An excessively long collection period, on the

other hand, indicates the very liberal, ineffective and inefficient credit and collection

policy.

SALES DEBTOR’S TURNOVER RATIO =

AVERAGE RECIEVABLES

6. Debtors Collection Period-

Average Collection Period, which measures how long it take to collect amounts from

Debtors. The actual collection period can be compared with the stated credit terms of the

company. If it is longer than those terms, then this indicates some insufficiency in the

procedures for collecting debts.

DEBTORS’ TURNOVER RATIO DEBTORS’ COLLECTION PERIOD =

365

7. Creditors Turnover Ratio-

It is similar to Debtors’ Turnover Ratio. It indicates the speed with which payments for

credit purchases are made to the creditors. The term Accounts Payable includes ‘Trade

Creditors’ and ‘Bills Payable’.

A higher ‘creditors turnover ratio’ signifies that the creditors are being paid promptly, thus

enhancing the creditworthiness of the company. However, a very favorable ratio to this

effect also shows that the business is not taking full advantage of credit facility that can be

allowed by the creditors.

PURCHASES CREDITORS’ TURNOVER RATIO =

AVERAGE PAYABLES

8. Creditors’ Payment Period-

The measurement of creditor payment period shows the average time taken to pay for

goods and services purchased by the company. In general, the longer the credit period

achieved the better, because delays in payment mean that the operations of the company

are being financed interest free by suppliers’ funds. But there will be a point beyond

which, if they are operating in a seller’s market, may harm the company. If too long a

period is taken to pay creditors, the credit rating of the company may suffer, thereby

making it more difficult to obtain supplier in the future.

CREDITORS’ TURNOVER RATIO CREDITORS’ PAYMENT RATIO =

365

9. Stock Turnover Ratio-

A considerable amount of company’s capital may be tied up in the financing of raw

materials, work-in-progress and finished goods. It is important to ensure that the level of

stocks is kept as low as possible, consistent with the need to fulfill customer’s order in

time.

This ratio indicates whether investment in inventory is efficiently used or not. It, therefore,

explains whether investment in inventories is with in the proper limit or not.

Inventory ratio can be calculated regarding each constituent of inventory. It may thus be

calculated regarding raw materials, work-in-progress and finished goods.

COST OF GOODS SOLD INVENTORY TURNOVER RATIO =

AVERAGE INVENTORY

10. Inventory Holding Period-

The measurement of Inventory Holding Period shows the average period of holding

various inventories i.e. raw material, work-in-progress & finished goods. The actual

holding period can be compared with the stated investment and sales policy of the

company. If it is longer than those terms, then this indicates some insufficiency in the

procedures for supply chain management.

STOCK TURNOVER RATIO INVENTORY HOLDING PERIOD =

365

11. Material Cost Ratio-

This ratio is the test of the operational efficiency with which the business is being carried.

The material cost ratio should be low enough to leave a portion of sales to give a fair

return to investors.

The comparison of this ratio will indicate whether the cost component is high or low in the

figure of sales. In case the comparison shows that there is increase in this ratio, the reason

for such increase should be found out and management be advised to check the increase.

MATERIALS CONSUMED MATERIAL COST RATIO =

SALES

12. Net Profit Ratio-

This ratio reflects net profit margin on the total sales after deducting all expenses but

before deducting interest and taxation. This ratio measures the efficiency of operation of

the company. The net profit is derived from gross profit after deducting administration,

selling & distribution expenses. The non-operating incomes and expenses are ignored in

computation of net profit before tax, depreciation and interest.

This ratio could be compared with that of the previous years and with that of competitors

to determine the trend in net profit margins of the company and its performance in the

industry.

NET PROFITNET PROFIT RATIO =

NET SALES

13. Gross Profit Ratio-

The ratio measures the gross profit on the total net sales made by the company. The gross

profit represents the excess of sales proceeds during the period under observation over

their cost, before taking into account administration, selling & distribution and financing

charges.

When everything is normal, the gross profit margin should remain unchanged, irrespective

of the level of production and sales, since it is based on the assumption that all costs

deducted when computing gross profit that are directly variable with sales. A stable gross

profit margin is therefore, the norm and any variation from it calls for careful

investigations.

GROSS PROFITGROSS PROFIT RATIO =

NET SALES

DATA SOURCES:

For computing the various ratios, I have taken the data from:

(i) The company’s past 3 years’ audited balance sheets and profit & loss account with various

groupings and schedules provided by the company itself.

(ii) Moreover, for calculating industry’s ratios I have taken the audited past 3 years’ balance

sheets and profit & loss account with their groupings and schedules of their major competitor

Havell’s India Limited which is available on its website.

HPL SOCOMEC PVT. LTD.

2003-04 2004-05 2005-06 IDEAL RATIO

CURRENT RATIO : 3.50 1.79 1.53 2:1

QUICK RATIO : 2.93 1.39 1.28 1:1

COMMENTS & SUGGESTIONS:

Both the ratios for all the three years were not indicating consistency in current assets/

liabilities.

In the year 2003-04, current ratio was too high. It means so many funds are lying idle.

In the next year i.e. 2004-05, the current liabilities increased drastically and the

ratio became satisfactory & nearer to ideal.

In 2005-06, the current liabilities were further increased or current assets were utilized.

Quick ratio in year 2003-04 was too much. It indicates company made heavy

investments in their liquid assets.

In subsequent years quick ratio was satisfactory.

Current ratio should further improved by having more current asset or reducing

current liabilities.

The company should optimize its current assets/ liabilities’ level.

The company should check its inventory hold-ups.

DEBT – EQUITY: 2003-04 2004-05 2005-06 IDEAL RATIO

RATIO 0.33 0.31 0.29 2:1


The debt-equity ratio is very low.

The debt-equity ratio indicates that the company is less geared and more relying on

equity funds.

Company can consider long-term debts to finance further funds.

2003-04 2004-05 2005-06

RETURN ON INVESTMENT: 0.10 0.07 0.07


ROI is not satisfactory for all the 3 years.

It is decreasing year by year.

There may be some investments that are not generating required return & these

should be disposed off.

There may be some unutilized or less utilized assets.

2003-04 2004-05 2005-06

DEBTORS’ TURNOVER RATIO : 1.58 2.75 2.59

DEBTORS’ COLLECTION PERIOD : 231 133 141


Debtors’ turnover ratio is very low & not satisfactory.

Its collection period is very high so significant funds are locked up in the form of

debtors.

It indicates the company has very liberal collection policy.

Company should reduce the credit time and collect the debts timely.

2003-04 2004-05 2005-06

CREDITORS’ TURNOVER RATIO : 5.74 9.51 4.86

CREDITORS’ PAYMENT PERIOD : 64 38 75


Creditors turnover ratio & payment period is satisfactory.

It should be maintained like this.

Company should try to increase credit period so as to company can get interest free

funds in form of creditors.

2003-04 2004-05 2005-06

GROSS PROFIT RATIO : 27.35 18.98 18.01

NET PROFIT RATIO : 6.09 3.54 2.94


Gross profit ratio and net profit ratio is decreasing year to year. So company should

try find out the reasons behind it.

Gross profit should remain same irrespective of production level.

Thus, company should check its direct expenses.

In 2005-06, the net profit ratio is too low, as compared to previous years.

2003-04 2004-05 2005-06

MATERIAL COST RATIO : 0.69 0.78 0.79


Material cost is increasing but is justified because the cooper rate is increasing

worldwide.

It should be maintained and try to check further increase.

2003-04 2004-05 2005-06

RAW MAT. TURNOVER RATIO : 8.98 11.58 10.72

RAW MAT. HOLDING PERIOD : 41 32 34


The raw material turnover ratio is satisfactory.

It signifies that company holds sufficient raw material in its store.

However, its possible to have some more raw material with them otherwise the

company may face the problem in the form of under stocking.

2003-04 2004-05 2005-06

FIN. GOODS TURNOVER RATIO : 133.95 236.13 115.30

FIN. GOODS HOLDING PERIOD : 3 2 3


It is very low & holds less quantity of finished goods.

The company should increase its production level.

There is a great possibility that the company face the under stock condition.

The company should have about 2 months’ holding period.

SOCOMEC HPL PVT. LTD.

2003-04 2004-05 2005-06 IDEAL RATIO

CURRENT RATIO : 0.73 0.92 1.11 2:1

QUICK RATIO : 0.42 0.46 0.75 1:1


Both the ratios are not satisfactory because the company have less current assets and

more current liabilities.

It indicates bad solvency condition in the short term.

Company is not financially sound to pay its short-term liabilities.

However, it is improving year by year and should maintain healthy improvement

rate.

DEBT – EQUITY: 2003-04 2004-05 2005-06 IDEAL RATIO

RATIO 0.00 0.00 0.00 2:1


The debt-equity ratio indicates that the company is ungeared and more relying on

equity funds.

Company can borrow long-term debts to finance their funds.

2003-04 2004-05 2005-06

RETURN ON INVESTMENT : 0.15 0.14 0.15


ROI is better and shows consistency for throughout the three years.

It should be maintain like this.

It should be further improved by optimum utilization of assets.

2003-04 2004-05 2005-06




The ratio is slightly higher.

It indicates the company has liberal collection policy towards their debtors’.

Company should make efficient and timely efforts to collect their debts.

There is a great possibility to have bad & doubtful debts.

Significant funds are locked up in debtors.

2003-04 2004-05 2005-06




The creditors’ turnover is very low; it indicates that creditors are not paid promptly.

However, creditors are interest free borrowings but delays in payment may harm the

relationship with suppliers.

It may negatively effect the crediting of the company.

Thus, timely payment should be made to creditors.

2003-04 2004-05 2005-06




Both the ratios are satisfactory & sound good.

But the ratios are decreasing year by year so, company should pay attention in order to

improve it.

The company must make this ratio consistent and try to maintain it.

2003-04 2004-05 2005-06



The material cost is neither too high nor too low.

It shows consistency and sounds good.

But company should check its further increase.

2003-04 2004-05 2005-06




The raw material turnover ratio & its holding period are satisfactory.

It means company is holding sufficient amount of raw material in stores and should

maintain this level in future.

But the holding period shows a declining trend, which demands attention towards it.

Sufficient raw material causes low ordering & carrying cost as well and helps to

avoid the condition of over\under stocking.

2003-04 2004-05 2005-06


FIN.GOODS HOLDING PERIOD : 11 11 10


The finished goods turnover ratio is high and the holding period is very low.

The company should hold more finished goods in its store.

Company may face under stocking condition so, should increase its production

level.

Thus, company should make more investment in their stock, which will improve the

current ratio also.

HPL INDIA LTD.

2003-04 2004-05 2005-06 IDEAL RATIO

CURRENT RATIO : 0.49 0.55 0.32 2:1

QUICK RATIO : 0.18 0.25 0.14 1:1


Both the ratios are very low. It indicates the company has fewer current assets.

It shows that company is not financially sound.

Company is not able to pay its short-term debts.

Company should increase current assets and reduce current liabilities.

DEBT – EQUITY : 2003-04 2004-05 2005-06 IDEAL RATIO

RATIO 0.00 0.00 0.00 2:1



equity funds.

Company can borrow long-term debts to raise funds.

Company can consider for debentures or long-term bank borrowings.

2003-04 2004-05 2005-06



ROI is very poor. It indicates company is not using their assets efficiently.

There may be some assets, which are not generating expected return. These should

be disposed off.

It shows weak management as far as asset-utilization is concerned.

For improvement in ROI assets should be maximum utilized.

2003-04 2004-05 2005-06




The debtors’ turnover ratio & its collection period are satisfactory.

It shows efficient receivable management and timely collection.

It should be maintained consistently and check any further variations.

2003-04 2004-05 2005-06




Creditors’ turnover ratio is very low it means creditors are paid promptly.

Creditors’ payment period is very high & it is beyond the limit.

It is required serious steps to be taken.

It may cause to suffer credit rating to the company.

It may also affect the relationship with suppliers.

2003-04 2004-05 2005-06




Gross profit ratio is very high & net profit ratio is very poor.

It indicates that company is spending huge amount on administrative and selling &

distribution.

Company should take serious steps to find out the reasons behind the higher gross

profit ratio.

2003-04 2004-05 2005-06



The material cost is satisfactory.

It shows consistency, which is the good sign for company.

It should be maintained like this and check further increase.

2003-04 2004-05 2005-06




Raw material ratio is very low and holding period is very high.

It signifies company has locked up significant amount in raw material’s stock.

It may cause to bear sufficient amount in the form carrying cost.

Company should hold appropriate amount of raw material.

2003-04 2004-05 2005-06


FIN. GOODS HOLDING PERIOD : 52 29 25


Finished goods turnover ratio and its holding period is not satisfactory.

It shows inconsistency & varies rapidly which is not good for the company.

Initially it is fine but afterwards it reduced to a great extent.

The company may suffer the problem of under-stocking.

Company should hold sufficient amount of finished goods.

HPL PROTECTION TECHNOLOGIES LTD.

2003-04 2004-05 2005-06 IDEAL RATIO

CURRENT RATIO : 0.95 1.44 0.95 2:1

QUICK RATIO : 0.77 0.95 0.68 1:1


Current ratio and quick ratio is very low and not satisfactory.

It indicates that company having fewer amounts of current assets and current

liabilities are comparatively high.

Reducing the current liabilities and increasing current assets should improve it.

It shows that company is not financially sound in short run and not able to pay

current liabilities.


RATIO 0.00 0.00 0.00 2:1



equity funds.

Company should take some long-term debts to finance funds.

2003-04 2004-05 2005-06



Initially ROI is satisfactory but afterwards it falls drastically.

Company should try to find out the reasons behind its falling.

Company may be holding some assets that are not giving required return these

should be disposed off.

Unutilized or less utilized assets should be used efficiently.

2003-04 2004-05 2005-06




Debtors’ turnover period is high. It means debtors are not making timely payment.

Company may have liberal collection policy and should reduce credit period to 2

months (approx)

It shows the company blocked its funds with debtors’.

It may cause to increase bad debts.

Company should make a proper debt-collection strategy.

2003-04 2004-05 2005-06




The creditors’ turnover ratio & payment period is not favorable.

Creditors’ payment period is too high which shows creditors’ are not paid promptly.

This high payment period can harm relationship with creditors so it should be

reduced a paid their amount in time.

It may affect negatively on company’s credit rating.

2003-04 2004-05 2005-06


NET PROFIT RATIO : 11.38 15.31 15.87


Both gross & net profit ratio is favorable.

The gross profit ratio inconsistency must be check. Net Profit Ratio shows

consistency.

Company should review its operating expenses because it seems slightly higher.

Both should be maintained and check any variation.

2003-04 2004-05 2005-06



The material cost ratio is inconsistent and tries to maintain consistency.

In 2003-04 & 2005-06 ratio is satisfactory but in 2004-05 it was too high.

This indicates that wastage of material is quiet noticeable.

All the raw materials should be used in a proper manner.

2003-04 2004-05 2005-06

RAW MATERIAL TURNOVER RATIO : 30.92 32.51 12.76

RAW MATERIAL HOLDING PERIOD : 12 11 29


The raw material ratio is very high and holding period is very low.

It shows that company is holding less amount of raw material.

Company may even face the problem of under-stocking. Company should hold

sufficient raw material.

2003-04 2004-05 2005-06

FINISHED GOODS TURNOVER RATIO : 6.06 5.88 4.31

FINISHED GOODS HOLDING PERIOD : 60 62 85


Finished goods’ holding period & its ratio is satisfactory. Somehow it is consistent

too.

It should be maintained and try to avoid any further variation.

However it shows increasing trend so it should be checked.

Sufficient finished goods help to avoid the problem under/ over stocking and avoid

the blocking of funds as well.

HAVELL’S ELECTRONICS PVT. LTD.

2003-04 2004-05 2005-06 IDEAL RATIO

CURRENT RATIO : 0.87 0.99 0.79 2:1

QUICK RATIO : 0.40 0.49 0.45 1:1


Both the ratios are not satisfactory.

It shows that company is holding fewer amounts of current assets.

In this situation company is not able to pay its short term debts.

Company should increase its current assets and reduce current liabilities.


RATIO 0.00 0.00 0.00 2:1



equity funds.

Company should consider long term debts to finance further funds.

2003-04 2004-05 2005-06



ROI is not satisfactory because it is too less.

Company should dispose off those assets which are not generating required rate of

return.

Assets should be used to the fullest and try to increase productivity.

2003-04 2004-05 2005-06




Debt-Turnover ratio and its collection period are satisfactory.

It shows the better debt management and timely collection.

It should be maintain like this because it avoids the unnecessary locking of funds.

In 2005-06 collection period is higher so company should check the further

increase.

2003-04 2004-05 2005-06




Creditors’ turnover ratio and its payment period are not satisfactory.

It indicates that creditors are not paid promptly.

It may affect the credit rating of the company or may harm the relationship with

suppliers.

Thus. Creditors should be paid within 2 to 3 months.

2003-04 2004-05 2005-06




Gross profit ratio is satisfactory but it shows the declining trend so company should

review its manufacturing expenses.

Initially net profit ratio is not satisfactory but it shows improving trend which is a

good sign for the company.

Still the N/P ratio should be further improved. So level of operating expenses should also

checked.

2003-04 2004-05 2005-06



Material cost ratio is satisfactory and consistent.

It shows the better efficiency of purchasing department.

It should be maintained and try to remain constant.

2003-04 2004-05 2005-06

RAW MATERIAL TURNOVER RATIO : 2.29 3.58 4.54

RAW MATERIAL HOLDING PERIOD : 160 102 80


In 2003-04 & 2004-05 raw material holding period is too much. But in 2005-06 it is

quite appropriate.

It shows the declining trend. To the some extent it is good sign for the company.

Company should try to reduce the holding period to 45 to 60 days.

2003-04 2004-05 2005-06

FINISHED GOODS TURNOVER RATIO : 19.65 16.26 12.16

FINISHED GOODS HOLDING PERIOD : 19 22 30


Finished goods turnover ratio and its holding period is not satisfactory.

It shows that company is maintaining lower inventory level of finished goods.

Company may face the problem of under stocking so should try to increase

productivity.

LIMITATIONS OF RATIO ANALYSIS

The following limitations must be taken into account:

(i) Ratios are calculated from financial statements, which are affected by the financial

bases and policies adopted on such matters as depreciation and the valuation of

stocks.

(ii) Financial statements do not represent a complete picture of the business, but merely

a collection of facts, which can be expressed in monetary terms. These may not refer

to other factors, which affect performance.

(iii) Over use of ratios as controls on managers could be dangerous, in that management

might concentrate more on simply improving the ratio than on dealing with the

significant issues.

(iv) A ratio is a comparison of two figures, a numerator and a denominator. In comparing

ratios it may be difficult to determine whether differences are due to changes in the

numerator, or in the denominator or in both.

(v) Ratios are inter-connected. They should not be treated in isolation. The effective use

of ratios, therefore, depends on being aware of all these limitations and ensuring that,

following comparative analysis, they are used as a trigger point for investigation and

corrective action rather than being treated as meaningful in themselves.

(vi) The analysis of ratios clarifies trends and weakness in performance as a guide to

action as long as proper comparisons are made and the reasons for adverse trends or

deviations from the norm are investigated thoroughly.

BIBLOGRAPHY

RAVI M. KISHORE : TAXMANN’S

COST ACCOUNTING & FINANCIAL

MANAGEMENT

Dr. S.N. MAHESHWARI : SULTAN CHAND & SONS

FINANCIAL & MANAGEMENT

ACCOUNTING

C.A’s STUDY MATERIAL : BOARD OF STUDIES (ICAI)

FINANCIAL MANAGEMENT

PE (II)

WEBSITES : www.hplindia.com

www.havells.com

www.investopedia.com

www.ventureline.com

Copy of Project Report- Ratio

Documents

mohit garg

net profit

trade credit

liberal collection

gross profit

sufficient

debtors turnover

debtors collection