Final project

INTODUCTION TO FINANCIAL STATEMENTS

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information. It involves recording, classifying and summarizing various business transactions. The end products of the business transactions are the business financial statements comprising primarily the position statement or the balance sheet and the income or the profit and loss account. These statements are the outcome of summarizing process of the accounting and are; therefore, the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of the concern. Financial statements are the basis of decision making by the management as well as other outsiders who are interested in the affairs of the firm such as investors, creditors, customers, suppliers, financial institution, employees, potential investors, government and general public. The analysis and interpretation of the financial statements depends upon the nature and the type of the information available in the statements.

MEANING OF FINANCIAL STATEMENTS

A Financial statement is the collection of the data organized according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of a balance sheet, or many reveal a series of activities over a given period of the time, as in income statement. Thus the term “Financial statements” generally refer to two statements:-

1. The Position statement or the Balance sheet.2. The Income statement or the Profit and Loss account.

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These statements are used to convey to the management and the other interested outsiders the profitability and financial position of the firm.

Financial statements are the outcome of summarizing process of accounting. In other words of John N Myer, “Financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statements showing the results of the operations during a certain period”. Financial statements are prepared as an end result of financial accounting and major sources of financial information of an enterprise.

Smith and Asburne define financial statements as, “the end product of financial accounting of a business enterprise the purport to reveal the financial position of an enterprise, the result of its recent and an analysis of what has been done with earnings.”

Financial statements are also called financial reports. In the words of Anthony, “financial statements essentially are the interim reports, presented annually and reflect a division of the life of an enterprise into more or less arbitrary accounting period – more frequently a year.”

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NATURE OF FINANCIAL STATEMENTS

The Financial statements are prepared on the basis of recorded facts. The recorded facts are those, which can be expressed in monetary terms. The statements are prepared for a particular period of time, generally a year. The transactions are recorded in a chronological order, as and when the events happen. The accounting records and financial statements are prepared from these records are based on historical costs. The Financial statements are by nature, summaries of the items recorded in the business and these statements are prepared periodically generally for a period. The following points explain the nature of financial statements:

1. RECORDED FACTS :

The term “recorded facts” refer to the data taken out from the accounting records. These are maintained on the basis of actual cost data. The original cost or historical cost is the basis of recording various transactions. The figures of various accounts such as cash in hand, cash at bank, bills receivable, sundry debtors, fixed assets etc are taken as per figures recorded in the accounting books. The assets purchased are different times and at different prices are put together and shown at costs prices. As recorded facts are not based on replacements costs, the financial statements do not show the current financial condition of the concern.

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2. ACCOUNTING CONVENTIONS :

Certain accounting conventions are followed while preparing statements. The conventions of valuing inventory at cost or market price, whichever is lower followed. The valuing of assets at cost less depreciation principle for making balance sheet purpose is followed. The convention of materiality is followed in dealing with small items like pencils, pens and postage stamps. The use of accounting conventions makes financial statements realistic, simple and comparable.

3. POSTULATES :

The accountant makes certain assumptions while making accounting records. One of these assumptions is that an enterprise is treated as a going concern. The alternative postulate to this that the concern is to be liquidated another important assumption is presume that the value of the money will remain the same in different periods. The realization postulates assumes that while preparing the profit and loss account, the revenue is treated in the year in which sale was undertaken even though the price may be received in a number of years. Thus preparation of financial statements involves assumptions many of postulates.

4. PERSONAL JUDGEMENTS :

Even though certain standard accounting convections are followed in preparing financial statements but still personal judgment of the accountant plays an important part. For example, in applying the cost or market value whichever is less to inventory valuation the accountant will have to use his judgment in computing the cost in a particular case. Thus we can make out that personal judgment also plays a very important and crucial role in preparation of financial statements.

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OBJECTIVES OF FINANCIAL STATEMENTS

Financial statements are sources of information on the basis of which conclusions are drawn about the profitability and financial position of a concern. They are the major means of employed by firms to present their financial situation of owners, creditors and general public. The primary objective of financial statements is to assist in decision making. The Accounting Principles Broad of America (APB) states that the following objectives of financial statements:

a) To provide reliable financial information about economic resources and obligations of a business firm.

b) To provide other needed information about the changes in such economic resources and obligations.

c) To provide reliable information about changes in net resources (resources less obligations) arising out of business activities.

d) To provide financial information that assists in estimating the earning potentials of business.

e) To disclose, to the extent possible, other information related to financial statement that is relevant to the needs of the users of these statements.

TYPES OF FINANCIAL STATEMENTS

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Financial statements primarily compromise two basic statements:(i) The Position statement or Balance sheet(ii) The Income statement or Profit and Loss account.

However, Generally Accepted Accounting Principles (GAAP) specify that a complete set of financial statements must include :

1. Income Statement or Profit and Loss Account.2. Statement of Financial Position or Balance Sheet.3. Statement of Retained Earnings or Profit and Loss Appropriation Account.4. Statement of Changes of Financial Position(Fund Flow Statement and cash

Flow statement).

Moreover, to supplement the data contained in the financial statements, certain schedules are also prepared, schedule of Fixed Assets, Schedule of Debtors, Schedule of Creditors, Schedule of Inventories, Schedule of Long Term Investments etc. these schedules are considered as a part of financial statements.

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INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT

Profit is the incentive for business; without profit people would not bother. Profit is the reward for taking risk; generally speaking high risk = high reward (or loss if it goes wrong) and low risk = low reward. People won’t take risks without reward. All business is risky (some more than others) so no reward means no business. No business means no jobs, no salaries and no goods and services.

This is an important but simple point. It is often forgotten when people complain about excessive profits and rewards, or when there are appeals for more taxes to pay for eg more policemen on the streets.

Profit also has an important role in allocating resources (land, labour, capital and enterprise). Put simply, falling profits (as in a business coming to an end eg black-and-white TVs) signal that resources should be taken out of that business and put into another one; rising profits signal that resources should be moved into this business. Without these signals we are left to guess as to what is the best use of society’s scarce resources.

People sometimes say that government should decide (or at least decide more often) how much of this or that to make, but the evidence is that governments usually do a bad job of this e.g. the Dome.

The Task of Accounting - Measuring Profit

The main task of accounts, therefore, is to monitor and measure profits.

Profit = Revenue less Costs

So monitoring profit also means monitoring and measuring revenue and costs. There are two parts to this:-

1) Recording financial data. This is the ‘book-keeping’ part of accounting.

2) Measuring the result. This is the ‘financial’ part of accounting. If we say ‘profits are high’ this begs the question ‘high compared to what?’ (You can look at this idea in more detail when covering Ratio Analysis)

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Profits are ‘spent’ in three ways.

1) Retained for future investment and growth.2) Returned to owner’s example a ‘dividend’.3) Paid as tax.

Parts of the Profit and Loss Account

The Profit & Loss Account aims to monitor profit. It has three parts.

1) The Trading Account.

This records the money in (revenue) and out (costs) of the business as a result of the business’ ‘trading’ ie buying and selling. This might be buying raw materials and selling finished goods; it might be buying goods wholesale and selling them retail. The figure at the end of this section is theGross Profit.

2) The Profit and Loss Account proper

This starts with the Gross Profit and adds to it any further costs and revenues, including overheads. These further costs and revenues are from any other activities not directly related to trading. An example is income received from investments.

3) The Appropriation Account. This shows how the profit is ‘appropriated’ or divided between the three uses mentioned above.

Uses of the Profit and Loss Account.

1) The main use is to monitor and measure profit, as discussed above. This assumes that the information recording is accurate. Significant problems can arise if the information is inaccurate, either through incompetence or deliberate fraud.

2) Once the profit (loss) has been accurately calculated, this can then be used for comparison i.e. judging how well the business is doing compared to itself in the past, compared to the managers’ plans and compared to other businesses.

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STATEMENT OF FINANCIAL POSITION OR BALANCE SHEET

A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date - usually the last date of an accounting period.

The balance sheet is split into two parts:

(1) A statement of fixed assets, current assets and the liabilities (sometimes referred to as "Net Assets")

(2) A statement showing how the Net Assets have been financed, for example through share capital and retained profits.

The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies. In reality, all other organisations that need to prepare accounting information for external users (e.g. charities, clubs, partnerships) will also product a balance sheet since it is an important statement of the financial affairs of the organisation.

A balance sheet does not necessary "value" a company, since assets and liabilities are shown at "historical cost" and some intangible assets (e.g. brands, quality of management, market leadership) are not included.

Definition of Assets

An asset is any right or thing that is owned by a business. Assets include land, buildings, equipment and anything else a business owns that can be given a value in money terms for the purpose of financial reporting.

Definition of Liabilities

To acquire its assets, a business may have to obtain money from various sources in addition to its owners (shareholders) or from retained profits. The various amounts of money owed by a business are called its liabilities.

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Long-term and Current

To provide additional information to the user, assets and liabilities are usually classified in the balance sheet as:

- Current: those due to be repaid or converted into cash within 12 months of the balance sheet date;

- Long-term: those due to be repaid or converted into cash more than 12 months after the balance sheet date;

Fixed Assets

A further classification other than long-term or current is also used for assets. A "fixed asset" is an asset which is intended to be of a permanent nature and which is used by the business to provide the capability to conduct its trade. Examples of "tangible fixed assets" include plant & machinery, land & buildings and motor vehicles. "Intangible fixed assets" may include goodwill, patents, trademarks and brands - although they may only be included if they have been "acquired". Investments in other companies which are intended to be held for the long-term can also be shown under the fixed asset heading.

Definition of Capital

As well as borrowing from banks and other sources, all companies receive finance from their owners. This money is generally available for the life of the business and is normally only repaid when the company is "wound up". To distinguish between the liabilities owed to third parties and to the business owners, the latter is referred to as the "capital" or "equity capital" of the company.

In addition, undistributed profits are re-invested in company assets (such as stocks, equipment and the bank balance). Although these "retained profits" may be available for distribution to shareholders - and may be paid out as dividends as a future date - they are added to the equity capital of the business in arriving at the total "equity shareholders' funds".

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STATEMENT OF CHANGES IN OWNER’S EQUITY OR RETAINED EARNINGS

The statement of changes in owners’ equity may also be called the statement of changes in retained earnings, or the statement of changes in capital stock.

This financial statement has something important in common with the income statement, namely that it focuses on a period of time.

There are two main elements of the owners’ equity explained by the statement: paid-in capital and retained earnings.

Paid-in capital is the amount that the entity’s owners have invested in it. (For a publicly traded company, the “owners” will be shareholders.)

Retained income is the net income that the entity retains for use.

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STATEMENT OF CHANGES IN FINANCIAL POSITION

The statement of changes in financial position is one of the four main financial statements, and it is also known as the statement of cash flows. The other three statements are the balance sheet, the retained earnings statement and the income statement. The statement of changes in financial position focuses on reporting changes in the amount of cash that the company holds.

I. Funds Flow Statement : It explains changes in funds or changes in working capital. It explains the working capital position of the company which gives an idea to the top management about the liquidity position of the company.

II. Cash Flow Statement: Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays.

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USE & IMPORTANCE OF FINANCIAL STATEMENTS

The financial statements are mirror, which reflect the financial position and operating strength or weakness of the concern. These statements are useful to management, investors, creditors, bankers, workers and government and public at large. George O may points out the following major uses of financial statements:

1. As a report of stewardship.2. As a basis of fiscal policy.3. To determine the legality of dividends.4. As a guide to advice dividend action.5. As a basis for the granting of credit.6. As an informative for the prospective investors of an enterprise.7. As a guide to the value of investment already made.8. As an aid to government supervision.9. As a basis for price rate and regulation.10. As a basis for taxation.

The utility of financial statements to different parties is as follows:

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1. Management: The financial statements are useful for assessing the efficiency for different costs centers. The management is able to exercise cost control through these statements. The efficient and inefficient spots are brought to the notice of the management. The management is able to decide the course of action to be adopted in future.

2. Creditors: The trade creditors are to be paid in short periods. This liability is met out of current assets. The creditors will be interested in current solvency of the concern. The calculation of the current ratio and liquid ratio will enable the creditors to assess the current financial position of the concern in relation to their debts.

3. Bankers: The banker is interested to see that the loan amount is secure and the customer also able to pay the interest regularly. The banker will analyze the balance sheet to determine the financial strength of the concern and profit and loss account will also be studied to find out the earning position.A banker has a large number of customers and it is not possible to supervise their business activities. It is through the financial statements that a banker can keep a watch on the business plans and performance of its customers. These statements also help the banker to determine the amount of securities it will ask from the customers as a cover for the loans.

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4. Investors:The investors include both short term and long-term investors. They are interested in the security of principle amount of loan and regular interest payment by the concern. The investor will study the long term solvency of the concern with the help of the financial statements. The investors will not only analyze the present financial position but will also study the future prospectus and expansion plans of the concern. The possibility of paying back the loan amount in case of liquidation of the company is also taken into consideration.

5. Government: The Financial statements are used to assess tax liabilities of business enterprises. The Government studies the economic situation of the country from these statements. These statements enable the government to find out whether the business enterprises are following certain rules or not. These statements also become a base for framing and amending various laws for regulation of the business.

6. Trade Associations: These associations provide service and protection to its members. They may analyze the financial statements for the purpose of providing facilities to its members. They may develop standard ratios and design uniform system of accounts.

7. Stock Exchange: The Stock exchange deals in purchase and sale of securities of different companies. The financial statements enable the stock brokers to judge the financial position of different concerns. The fixation of prices for securities, etc is also based on these statements.

LIMITATION OF FINANCIAL STATEMENTS

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Some of the limitations of the financial statements are as follows:

1. As the historical costs and money measurement concepts govern the preparation of the balance sheet and income statements, hence these financial statements are essentially statements reflecting historical facts. It ignore inflationary trend and does not reflect the true current worth of the enterprise,

2. Certain important qualitative elements are omitted from the financial statements because they are incapable of being measured in monetary terms like the quality and reputation of the management team, employee and other,

3. There are still items in the assets side of the balance sheet which has no real value and are merely deferred charges to future incomes like preliminary / pre-incorporation expenses and other.

4. There are still the following issues or challenges in preparing the financial

statements which may amount to overstatement of the accounting profit of an entity.

5. When to and how much to recognize revenue in the Income statement.

6. The constant challenge of when to expense or to capitalize the expenses .

It is important to determine definitely what is revenue expenditure and capital expenditure otherwise the accounting profit will be overstated or understated - for example, capitalization of borrowing costs, etc.

7. Method of depreciations and the rates to depreciate into the income

statement are selected by management to suit their business needs. Are

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the rates intentionally been made lower or the depreciated rates are higher to accelerate the depreciation of the fixed assets.

8. Adequacy of provisions and method of providing for doubtful debts. Are

the trade debtors recoverable and to what extent the accounting method for provision for doubtful debts shows the realistic picture.

9. Basis of valuation of assets- when can costs change to reflect current

values? Using replacement or current costs? Such question arises when assets are valued.

10. Consolidation challenges -what to eliminates to reflects the overall group

performance. Some items might be omitted to show a higher accounting profits.

FINANCIAL STATEMENT ANALYSIS

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Financial statements present a mass of complex data in absolute monetary terms and reveal little about the liquidity, solvency turnover and profitability of the in business. In financial analysis the data given in the financial statements is given into simple groups and a comparison of various groups is made one another to segregate the strong points and weak points of a business. The focus of financial analysis is on key figures in the financial statements and significant relationship that exists between them. The analysis of financial statements is the process of evaluating relationships between components parts of financial statements to obtain a better understanding of the firm’s position and performance. Thus, financial analysis is the process of selection, relation and evaluation.

DEFINITION

In words of Myres, “Financial statements analysis is largely a study of relationship among various financial factors in a business as discovered by a single set of statements and a study the trend of these factors as shown in series of statements.”

In other words of Metcalf and Titard, “Analyzing a financial statements is a process of evaluating the relationship between components parts of a financial statement to obtain a better understanding of a firm’s position and performance.”

STEPS INVOLVED IN THE ANALYSIS OF FINANCIAL STATEMENTS

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From a study of the meaning of analysis of the financial statements, it is clear that work of analysis of financial statements involves three steps or process they are:

1. Analysis2. Comparison3. Interpretation

ANALYSIS

The data shown in the financial statements are either the balances of individual accounts or groups of balances of many accounts. As a result they lack homogenize and comparable data (i.e. inter connected data) for judging the profitability and the financial position of the concern. So, to obtain the desired homogenous and comparable data (i.e. the inter-connected data) the figures founding the financial statements have to be analyzed.

COMPARISON

Mere splitting up or regrouping of the figures found in the financial statements into the desired components parts is not sufficient for judging the profitability and the financial status of an enterprise. After the figures contained in the financial statements are dissected or split into the required comparable compound parts (i.e. the inter-connected figures) must be compared with each other and their relative magnitudes (i.e. their relationship must be measured).

INTERPERTATION

After the financial statements are analyzed or discussed into comparable component parts and the relative magnitudes of the comparable component parts (i.e. the relations hip of the interconnected components parts) is measured through comparison, the results (i.e. the relationship between the interconnected component parts) must be interpreted.

SIGNIFICANCE OF FINANCIAL ANALYSIS

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1. Help in Screening: Financial analysis can serve as a preliminary screening tool in the selection of investments. It greatly helps the investors in studying 3P’s i.e. Prospectus, Payments, and Protection. The prospectus of a firm can be judged by looking to both of its present and future profitability. The capacity can be judged on the basis of present and prospective rigidity of the firm. The protection can be judged on the basis of tangible assets backing, which the firm enjoys.

2. Help on forecasting: It can be used as a forecasting tool for the future profitability and financial soundness of the business.

3. Helps in Diagnosis : It helps the management in identifying the factors responsible for creating managerial, operational and other problems.

4. Helps in Evaluation: IT is an important tool for evaluating the performance of both the management and the organization.

TYPES OF FINANCIAL STATEMENT ANALYSIS

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1. ON THE BASIS OF THE NATURE OF THE ANALYSIS AND THE MATERIALS USED:

a. External Analysis: Those persons who are not connected with the enterprise make it, they do not access to the enterprise, they do not have access I detailed record of the company and have to depend mostly on published statements, such as types of analysis in made by investors, creditors, credit agencies and research scholar.

b. Internal Analysis: Is made by those people who have access to the books of accounts they are the members of the organization. Analysis of financial statements or other financial data for managerial purpose is the internal type of analysis. The internal analyst can give more reliable result than the external analyst can, because every type of information is at his disposal.

2. ACCORDING TO THE OBJECTIVES OF THE ANALYSIS:

a. Long-term analysis: This analysis is made in order to study the long term financial stability, solvency and liquidity as well as profitability and earning capacity of a business concern.

b. Short-term analysis: This is made to determine the short term solvency, stability and liquidity as well as earning capacity of a business concern.

3. ACCORDING TO THE MODUS OPERANDI OF THE ANALYSIS:

a. Horizontal (or Dynamic Analysis):

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This analysis is made to review and analyze financial statements of a number of years and therefore based on financial day taken from several years. This is very useful for long term trend analysis planning. Comparative Financial statement is an example to this type of analysis.

b. Vertical (or static) Analysis:This analysis is made to review and analyze the financial statement of one particular year only. Ration analysis of the financial year relating to a particular accounting year is an example of this type of analysis.

MEATHODS, TOOLS AND TECHNIQUES OF FINANCIAL ANALYSIS

1. Comparative Financial statements (or Analysis)2. Common Measurement statements (or Analysis)3. Trend Percentage Analysis4. Fund Flow Statements (or Analysis)5. Cash Flow Statements (or Analysis)6. Networking Capital Analysis7. Cost-volume - Profit Analysis8. Ratio Analysis

1. COMPARATIVE FINANCIAL STATEMENTS

Comparative financial statements provide information to assess the direction of change in the business. To know whether the business is moving in a

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favorable or unfavorable direction, figures of the current year are compared with those of the previous years. The amount and percentage of increase or decrease is calculated and then compared. In common size statements, the sales figure is assumed to be 100 and all figures are expressed as a percentage of sales in the income statements. In the Balance Sheet, the total of the assets or liabilities is taken as 100 and all the figures are expressed as a percentage of this total. Using the past theory for comparison is called as trend analysis. Trend percentages are calculated only for some important items which can be logically connected with each other. Under this technique, information for a number of years is taken up and one year, which is usually the first year, is taken as the base year. Each item of the base year is taken as 100 and on that basis, the percentage for other years are calculated.

2. Common Measurement statements (or Analysis)

The common-size statement is a financial document that is often utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and other financial statements, the common-size statement does not reflect exact figures for each line item. Instead, the structure of the common size statement uses a common base figure, and assigns a percentage of that figure to each line item or category reflected on the document.

3. Trend Percentage Analysis

This analysis is an important tool of horizontal financial analysis. This method is immensely helpful in making a comparative study of financial statement of

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several years. Under this method trend percentage is calculated for each items of the financial statement taking the figures of the base year as 100. The starting year is usually taken as the base year. The trend percentage shows the relationship of each item with its preceding year’s percentage. This percentage can also be presented in the form of index number showing relative changes in the financial of certain year.

4. Fund Flow Statements (or Analysis)

Fund Flow Statements summarize a firm’s inflow and outflow of funds. Simply put, it tells investors where funds have come from and where funds have gone. The statements are often used to determine whether companies efficiently source and utilize funds available to them.

5. Cash Flow Statements (or Analysis)

In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.

6. Networking Capital Analysi

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including

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governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

7. Cost-volume - Profit Analysis It is an important tool of profit planning. It studies the relationship between cost volume of production sales and profit of course, it is not strictly a technique used for analysis of financial statements.

8. Ratio Analysis

A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

RESEARCH DESIGN

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TITLE OF THE STUDY“A STUDY ON FINANCIAL PERFORMANCE OF RUCHI SOYA LIMITED ON THE BASIS OF RATIO AND TREND ANALYSIS”.

STATEMENT OF THE PROBLEM

For any company, the key to success is the proper distribution of resources. In this competitive era, to be successful requires not only huge investment but also efficient management. Thus it is very important for the company to understand the financial position as on any given day, which makes it very important for the management to do a detailed evaluation of the financial statement. Financial statements contain a large volume of financial figures. From the study of these absolute figures it is not possible to form a precise idea about the financial significance and business position. Performance evaluation is necessary from the point of view of the investors, creditors, public, government and organization. So, why a company does not perform well for years? Why net profit fell down even after greater gross profit and increased sales? Where the raised funds are invested? What about the liquidity and solvency position of the company? The pressure of the company o perform well in the face of severe competition has pressurized them to decrease the margin. So, how to increase the margins? To answer these questions and the form a precise idea about the data contained in various financial statements it is very much necessary to establish a relationship between the financial figures. These relationships can be well established through accounting ratios.

An attempt has been made to evaluate the financial performance of “RUCHI SOYA LIMITED”. With the help of ratios and tried to study its trend over a period of 5 years.

OBJECTIVITY OF THE STUDY1. The primary objective is to analyze the financial position of RUCHI SOYA

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LIMITED for the past 5 years – to analyze, compare and interpret the financial statements using ration analysis.

2. To analyze the liquidity position of the company.

3. To analyze the solvency position of the company.

4. To analyze the profitability position of the company.

5. To draw meaningful conclusions based on the findings.

6. To suggest the means to improve the performance of the company.

SCOPE OF THIS STUDY

Scope of the study is with respect to the interpretation and analysis of the five years (2006-2010) for RUCHI SOYA LIMITED.

SOURCES OF DATA

This project makes extensive use of secondary data collected in the form of audited annual reports of the company, which includes balance sheet, profit and loss account and various other financial data. This being a detailed analytical study, several books also referred to get a comprehensive view of the study. Further, the information was compiled by using the primary data which is collected by means of detailed discussion with the help of the top financial officers of the company.

MEATHODOLOGY

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This analytical study is based primarily on the data provided in the annual reports of the company for the years 2006-2007 to 2009-2010. In addition supplementary information was gathered from the company officials during the personal visits and discussions with them.

Though the company is having multi activities, entire unit was considered as a sample and financial performance was analyzed. Ratio and trend analysis is the technique used to evaluate the company’s overall performance.

The data collected from each of the annual reports and books collected in the form of table and graphs so as to present a readily format and to give a clear understanding of the trend of the company. The ratios of the past 5 years are calculated and the relative trend is elaborated.

TECHNIQUES OF ANALYSIS

In this report the different techniques of ratio analysis has been adopted to know the relative performance of business in relation to liquidity, turnover, profitability and leverages more comprehensive and to arrive at the conclusion.

LIMITATION OF THE STUDY

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1. This study extensively uses the data provided in the financial reports of the company and is basically theoretical in nature.

2. The study is limited to one company only.3. The qualitative aspects in ratio analysis are ignored.4. This being an academic study suffers from time and cost constraint.5. The data was collected for five years only and hence it is not an accurate

measure of the company’s soundness.6. The conclusions of this study may not directly reflect the management

policies as policies are influenced by many factors that are beyond the scope of the study.

7. Different people may have different opinions on the analysis and may interpret the ratios in completely diverse manner.

8. Ratios are one of the means of financial analysis and hence it does not help in giving a comprehensive picture of the company.

HISTORY

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In early 1960s Mr. Mahadeo Shahra created awareness on the potential of soya crop amongst the farmers in the state of Madhya Pradesh in India. He was instrumental in bringing up a small green revolution in the state, by introducing and encouraging soyabean cultivation on a commercial scale. Shahra family was in the business of commodities trading and subsequently entered the business of ginning and oil milling. The family's efforts, along with that of the others, resulted in soya revolution in Madhya Pradesh. Today Madhya Pradesh is considered as Soya bowl of the country, and contributes to approximately 60% of its production.

Despite all odds, Ruchi is now a leading player in the country in edible oils, soya foods and processed foods categories. This is largely due to its strict adherence to quality and continuous innovation to keep with the times. Also, Ruchi has evolved from being a large manufacturing firm to a respected brand, keeping in line with the FMCG players. Its Nutrela and Ruchi Gold brands have captured leading positions in the soya foods and edible oils categories respectively. Ruchi has also ventured into other businesses like bakery specialties, where it foresees a big potential for growth. With its innate manufacturing and logistics advantages, and its foray into the branded sector, one only sees immense potential for the growth of Ruchi in the future

The Company was incorporated on 6th January, 1986. It was promoted by General Goods Pvt. Ltd. and Ruchi Pvt. Ltd; of the Shahra Group of Industries. It manufactures Soya proteins, Speciality Soya products, Soya snack foods and Nutrela.

1986

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During September, the Company offered 4, 46,666, 13.5% convertibledebentures of Rs 150 each on rights/private placement basis, theproportion of rights being 35 debentures for every 100 equityshares held.

Only 1,87,126 debentures were taken up by shareholders. Thebalance 2,59,540 debentures were allotted on private placementbasis. Additional 64,554 debentures were also allotted onprivate placement basis to retain over-subscription. Another22,333 debentures were allotted to employees/workers of theCompany and those of the associated companies on an equitablebasis. A total of 5,32,543-13.5% convertible debentures ofRs 150 each were thus allotted for Rs 7,98,81,450.

As per the terms of the issue, Rs 50 out of each debenturesofRs. 150 was automatically converted into 5 No. of equityshares of Rs 10 each of the Company at par on 20th July, 1987. Thebalance of Rs 100 per debentures shall be redeemed at par inthree annual instalments on the expiry of 7th, 8th and 9thyears from the date of allotment.

70 shares subscribed for by the signatories to the Memorandum ofAssociation, 12,49,930 shares were then issued at par(including 25% retention) of which 4,99,930 shares were reserved andallotted to promoters, directors at par. Out of theremaining 7,50,000 shares, the following shares were reserved forpreferential allotment; (i) 62,500 shares to employees of thecompany (4,500 shares taken up); (ii) 12,000 shares tobusiness associates of the company (all were taken up) and (iii)2,40,000 shares to NRIs (only 2,36,800 shares taken up). The balance 4,35,500 shares along with the unsubscribed portion of 61,200shares out of the preferential quota were offered for publicsubscription during February-March 1986.

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198726,62,715 No. of equity shares allotted at par in partConversion of debentures on 20.07.1987.

1988 The Company proposed to expand its capacity from 6,000 tonnes perannum to 12,000 tonnes per annum.

1989New texturised soya protein plants near Noida, U.P. and nearIndore, M.P. were commissioned.

During November-December, the Company offered 2,69,949-13.5%secured fully convertible debentures of Rs 150 each on `Rightsbasis' in the proportion 1 debenture: 15 No. of equity sharesheld. Additional 19,464 debentures were allotted to retainoversubscription.

Another 1,34,970 - 13.5% debentures were issued to theemployees/workers of the Company and associate companies.

Rs 70 of the face value of each debenture was automatically and compulsorily converted into 5 No. of equity shares of Rs 10each at a premium of Rs 4 per share during 1990-91.

The remaining Rs 80 of the face value of each debenture wasconverted into four equity shares of Rs 10 each, at a premiumof Rs 10 per share, during 1991-92.

1991 The Company increased the texturised soya protein capacityfrom 12,000 TPA to 24,000 TPA and vanaspati from 7,500 TPA to 15,000 TPA.1992

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During August, the Company offered 65,17,432 No. of equityshares of Rs 10 each at a premium of Rs 50 per share on Rights basisin the proportion 1:1. Out of this, 65,07,678 shares wereallotted to shareholders/renounces leaving a balance of 9,754 shares.Application were received for additional shares upto26,94,800 shares from shareholders/renounces, the balance of 9,754Shares were allowed to lapse as the allotment of these shares wouldhave created fractions and odd lots.

1994 The Company embarked upon an expansion programme with emphasison value addition. It was proposed to expand the capacity ofTVP (Nutrela) plant to increase the range of products. Also theadditional capacity of 200 TPD of refininng soya oil usingstate-of-the-art technology was to be commissioned during theyear.

1995 The Company proposed to enter into marketing tie up with areputed international firm. Also, it was proposed to set upa EOU for soya processing with a capacity of 4,50,000 TPA witha view to enhancing the total manufacturing capacity.Steps were taken to set up a captive power plant for optimumutilisation of plant. The Company issued 17.5% - 4,00,000 non-Convertible debentures of Rs 100 each on Private Placement with GIC. These areRedeemable in four equal half yearly instalments commencing at the endOf one and half years from date of allotment i.e. 20.12.1993.Also 1,00,000-19% non-Convertible debentures were partially placedwith UTI. These are redeemable at a premium of 5% of theface value in three equal yearly instalments commencing at the endof 6th years from the date of allotment i.e. 9th January, 1992.

1996

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The company was also planning to set up an oil refinery onthe southern coastal region of India.

1997 1,000,000-12.5% and 1,400,000-13% CR Pref. shares issuedduring the year.

2000 A fire accident occurred on December 25 at the refinerysection of the company located at village Talawali Chanda, DistrictIndore (M.P.), in which the plant and machinery of the refinery section weredamaged.

2001 The Board has allotted 40,98,545 No. of equity shares of Rs 10each at a premium of Rs 32 per share to overseas corporate bodies andIndian companies on preferential basis. Ruchi Soya Industries Ltd introduces high portein defatted soya flour Nutrela Profilo

2004Ruchi Soya Industries Ltd purchases 75000 equity shares of AnejaSolvex Pvt. Ltd. for Rs.201 lacs. Aneja Solvex Pvt. Ltd. becomes awholly owned subsidiary of the company.Ruchi Soya Industries Ltd. has informed that the equity shares ofthe company have been delisted from the Delhi Stock ExchangeAssociation Ltd., w.e.f. February 11, 2004.

2007The Company has splits its face value from Rs10/- to Rs2/-.

Palm Plantation

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Indian edible oil market is the world’s fourth largest after USA, China and Brazil. A growing population with increasing rate of consumption and continuously increasing per capita income are some of the factors accelerating the demand for edible oil in India. This has lead to increased dependence on import of palm oil. To tackle this situation, Government of India has formed an expert committee which has identified suitable land for palm plantation all over India.

Palm plantation has multiple benefits as it has yield and income per hectare are better than other oil seed crops. Once planted, palm trees can be harvested for about 25 years. Reduced dependency on imports conserves country’s foreign exchange reserves and needless to state - Plantations are always environmentally beneficial.

Ruchi has taken the initiative and consolidated its palm plantation activities, by merging ‘Mac Oil Palm Limited’ and ‘Palm Tech India Limited’ into Ruchi Soya Industries Limited. Ruchi has acquired contract farming access to a total land bank of 1,69,000 ha, a 60 tph oil mill capacity for FFB processing and 15 nurseries. Ruchi has palm plantations in Andhra Pradesh, Karnataka, Mizoram, Gujarat, Orissa and Tamil Nadu.

Company is going aggressively in palm oil business for which the company has acquired land in Ethiopia for palm plantation & also in Indonesia.

Locations

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Factory/plant Baikampady Industrial Area Mangalore - Karnataka - India

Factory/plant Village Esambe Taluka Khalapur Raigad District -

Factory/plant Bijoyramchak Ward No. 9 P.O. Durgachak Haldia - West Bengal - India

Factory/plant C - 10, Phase II, Noida - 0Uttar Pradesh - India

Factory/plant Mangliagaon [This plant has the largest processing capacity in the country & is also the largest soya processing plant at single location]Indore - 0Madhya Pradesh - India

Factory/plant Village Butibori Tehsil Nagpur - Maharashtra - India

Factory/plant Akodia Road Industrial Area Shujalpur Shajapur District - Madhya Pradesh - India

Factory/plant Gram Mithi Rohar Dist.Kachchh –

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Gujarat – India

Factory/plant Village Dobhi Dist.Mandla - Madhya Pradesh - India

Factory/plant Village Dobhi Mandi - Himachal Pradesh – India

Factory/plant Village Kamti Narasinghpur - Madhya Pradesh – India

Factory/plant Kannigaiper Village Thiruvallur District - Tamil Nadu – India

Factory/plant RIICO Udyog Vihar Sriganganagar - Rajasthan - India

Factory/plant RIICO Industrial Area Govindpur Bawari Post Talera Bundi District - Rajasthan – India

Factory/plant Village Kamti Thaluka Gadarwada Narasinghpur - Madhya Pradesh - India

Factory/plant Kannigaiper Village Uthukottai Taluk Thiruvallur District - Tamil Nadu – India

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Factory/plant Gram Mithi Rohar Taluka Gandhidham Bhuj -

Registered Office 408 , Tulsiani Chambers Nariman Point Mumbai - 400021

Factory/plant Mangliagaon A.B. Road Indore - 0Madhya Pradesh - India

Head Office 301, Mahakosh House 7/5, South Tukoganj Nath Mandir Road Indore - 452001Madhya Pradesh - India

Factory/plant Kusmoda, A B Road Guna - Madhya Pradesh - India

Factory/plant Kota Road, Baran -

Factory/plant Rani Piparia Hoshangabad District - Madhya Pradesh – India

Factory/plant SIDCO Industrial Estate, Bari Brahmana Jammu - Jammu & Kashmir - India

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Factory/plant Village Daloda Mandsaur - Madhya Pradesh - India

Factory/plant Survey No. 178, Surkandi Road, Wadi - Karnataka – India

Factory/plant Village Dobhi, Dist.Mandla - Madhya Pradesh - India

Factory/plant Bapulapadu Mandal, Ampapuram Village, Krishna District Vijayawada - Andhra Pradesh - India

Factory/plant Survey No. 178, Surkandi Road, Washim - Maharashtra - India

Factory/plant IDA, ADB Road, Peddapuram, East Godavari Distri - Andhra Pradesh - India

EXPORTS

Ruchi Soya Industries Limited is the Flagship Company of Ruchi Group, a pioneer soya processor group, which started operating back in 1972-73 and is the first exporter of Soyabean Meal from India. Over the years, Ruchi has become one of the largest crushers of soyabean in India and presently has installed crushing

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capacity of about 4.1 million tons annually in 12 plants. Being a leading crusher, Ruchi with its annual export of about 6 lacs tons has also become one of the largest exporters of Indian Soyabean Meal accounting for nearly 25% of the total soyabean meal from India. Soyabean meal (de-oiled extractions / cake) is obtained after crushing of seed and extraction of oil by solvent extraction process. Soyabean meal is considered as one of the most valuable raw material for preparing poultry / aqua / animal feed in the world market as it contains a very high percentage of protein. Ruchi produces different grades of soyabean meal viz. de-hulled, high pro and normal FAQ varieties.

Ruchi has been able to create a strong niche in the international market for its soyabean meal which is in high demand particularly by the quality feed producers in South East Asia, Far East and Middle East markets.

Besides, Ruchi is also able to export high end value added products like edible de-fatted soya flour, full fatted edible flour, soya lecithin, soya granules, soya flakes and soya chunks etc.

All the products produced by Ruchi enjoy ready accessibility in the export market namely, Japan, Vietnam, Indonesia, Thailand, Philippines, South Korea, Taiwan, Middle East countries apart from Indian Sub continent countries namely Bangladesh, Pakistan, Nepal, Sri Lanka Iran,etc.

Expansion:-

Ruchi Soya Industries Limited has expanded its refining and crushing capacities. Ruchi now has over 2.2 million metric tons per anum of refining and over 4.1 million metric tons per anum of crushing capacities, spread over strategic locations across India.

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We are one of the few edible oil companies in the country that has a balanced mix of inland and port based refineries. This enables us to optimize production depending upon the availability of various alternatives – local oilseeds or imported crude oil. Moreover, multi- location refineries have reduced road travel costs leading to significant transportation cost advantage. We have 5 refineries at various locations and 12 inland crushing plants out of which most are attached with refinery.

Featuring among the top five FMCG players in India, with a turnover crossing Rs. 13,000 crores, Ruchi Soya Industries Limited is the flagship company of Ruchi Group of Industries. Besides being a leading manufacturer of high quality edible oils, vanaspati, bakery fats and soya foods, Ruchi is also the highest exporter of soya meal and lecithin from India. Nutrela (soya chunks, granules and soya flour) is the largest selling soya foods brand in the country.

Ruchi is a leading branded edible oil supplier. Nutrela Soyumm (Soyabean Oil), Ruchi Gold (Palmolein Oil), Mahakosh, Sunrich (Sunflower Oil) and Mandap (Mustard Oil) and new healthy oil variants like Nutrela Vitamin Sunflower oil and Nutrela Groundnut oil make Nutrela a trusted option in edible oils.

Superior procurement and trading skills, continuous innovation, an endeavor to meet consumer needs and stringent quality control standards have enabled Ruchi to emerge as a highly-respected and admired Indian company.

Over the years, Ruchi Soya Industries Limited has grown to become a multi-million US Dollar company. Two of our strongest brands, Nutrela and Ruchi Gold are category leaders.

Nutrela, the most respected soya foods brand in the country, enjoys sizeable market share. It has enjoyed the trust of consumers for last 24 years now, and continues to expand its range to cater to varying needs of its consumers. It has become generic to the soya category. We have effortlessly strived to educate people about health and goodness of soya as our firm commitment is to provide

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healthy solutions to the consumers.

Our edible oils brands like Ruchi Gold and Nutrela Soyumm enjoy mass acceptability and acclaim from the people. Ruchi Gold is the leader in the palmoline category. As a part of packaged goods thrust, Ruchi Gold was introduced in Chennai. Today, it enjoys leadership position in branded palmoline oil category.

Mahakosh Refined Soyabean Oil is known for its purity and premium taste, its nutritional qualities enhance its health quotient. It contains fats that may help in reducing serum cholesterol levels and omega-3 fatty acids that protect against heart diseases.

Nutrela Soyumm ranks in one of the most popular oils in the category, and continues to strive to reach the top position. Both brands symbolize health and quality.

We are also a leading vanaspati manufacturer with brands like Ruchi No. 1 and have also ventured into bakery and special fats category.

The extensive distribution network, built over the years, is a major strength for Ruchi Soya Industries Limited. Catering nationally through over 6.25 Lac retail stores, with 96 Company depots, over 3200 distributors and a sales staff of over 200, Ruchi has attempted to penetrate depth wise, along with opening new markets. With its emphasis on providing value goods to consumers, dual strategy

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of Ruchi on popular and premium range works well. ‘Ruchi Gold’ and ‘Sunrich’ are our value for money offering but with no compromise in quality. This positioning helps generate large sales volumes for the products. Our Nutrela series is more premium, and offers healthy options in soya foods and edible oils. This dual strategy is based on our cultivated understanding of the Indian consumer psyche.

With undivided focus on new channels of distribution, we have a firm footing in modern retail and prestigious hotel chains. Company has alliances with like Pantaloon and visible presence in all leading national and regional supermarkets.

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Ratio analysis

Is a method or process by which the relationship of items or groups of items in the financial statements are computed, and presented. Is an important tool of financial analysis. Is used to interpret the financial statements so that the strengths and weaknesses of a firm, its historical performance and current financial condition can be determined

Ratio

A mathematical yardstick that measures the relationship between two figures or groups of figures which are related to each other and are mutually inter-dependent. It can be expressed as a pure ratio, percentage, or as a rate.

Words of caution

A ratio is not an end in itself. They are only a means to get to know the financial position of an enterprise. Computing ratios does not add any information to the available figures. It only reveals the relationship in a more meaningful way so as to enable us to draw conclusions there from.

Utility of Ratios

Accounting ratios are very useful in assessing the financial position and profitability of an enterprise. However its utility lies in comparison of the ratios.

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Utility of Ratios

Comparison may be in any one of the following forms:

For the same enterprise over a number of years For two enterprises in the same industry For one enterprise against the industry as a whole For one enterprise against a pre-determined standard For inter-segment comparison within the same organisation

Classification of Ratios

Ratios can be broadly classified into four groups namely:

Liquidity ratios Capital structure/leverage ratios Profitability ratios Activity ratios

Liquidity ratios

These ratios analyse the short-term financial position of a firm and indicate the ability of the firm to meet its short-term commitments (current liabilities) out of its short-term resources (current assets). These are also known as ‘solvency ratios’. The ratios which indicate the liquidity of a firm are:

Current ratio Liquidity ratio or Quick ratio or acid test ratio

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Current ratio

It is calculated by dividing current assets by current liabilities.

Current ratio = Current assets

Current liabilities

Conventionally a current ratio of 2:1 is considered satisfactory

CURRENT ASSETS

Includes:–

Inventories of raw material, WIP, finished goods, stores and spares, sundry debtors/receivables, short term loans deposits and advances, cash in hand and bank, prepaid expenses, incomes receivables and marketable investments and short term securities.

CURRENT LIABILITIES

Include: –

Sundry creditors/bills payable, outstanding expenses,

unclaimed dividend, advances received, incomes received in advance,

provision for taxation, proposed dividend,

instalments of loans payable within 12 months,

bank overdraft and cash credit.

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Quick Ratio or Acid Test Ratio

This is a ratio between quick current assets and current liabilities (alternatively quick liabilities).

It is calculated by dividing quick current assets by current liabilities (quick current liabilities)

Quick ratio = quick assets

Current liabilities (quick liabilities)

Conventionally a quick ratio of 1:1 is considered satisfactory.

QUICK ASSETS & QUICK LIABILITIES

QUICK ASSETS are current assets (as stated earlier)

less prepaid expenses and inventories.

QUICK LIABILITIES are current liabilities (as stated earlier)

less bank overdraft and incomes received in advance.

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Capital structure/ leverage ratios

These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet its long-term commitment with respect to repayment of principal on maturity or in predetermined instalments at due dates and periodic payment of interest during the period of the loan.

The different ratios are:

Debt equity ratio

Proprietary ratio

Debt to total capital ratio

Interest coverage ratio

Debt service coverage ratio

Debt equity ratio

This ratio indicates the relative proportion of debt and equity in financing the assets of the firm. It is calculated by dividing long-term debt by shareholder’s funds.

Debt equity ratio = long-term debts

Shareholders’ funds

Generally, financial institutions favour a ratio of 2:1.

However this standard should be applied having regards to size and type and nature of business and the degree of risk involved.

LONG-TERM FUNDS are long-term loans whether secured or unsecured like – debentures, bonds, loans from financial institutions etc.

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SHAREHOLDER’S FUNDS are equity share capital plus preference share capital plus reserves and surplus minus fictitious assets (eg. Preliminary expenses, past accumulated losses, discount on issue of shares etc.)

Proprietary ratio

This ratio indicates the general financial strength of the firm and the long- term solvency of the business.

This ratio is calculated by dividing proprietor’s funds by total funds.

Proprietary ratio = Proprietor’s funds

Total funds/assets

As a rough guide a 65% to 75% proprietary ratio is advisable

PROPRIETOR’S FUNDS are same as explained in shareholder’s funds.

TOTAL FUNDS are all fixed assets and all current assets.

Alternatively it can be calculated as proprietor’s funds plus long-term funds plus current liabilities.

Debt to total capital ratio

In this ratio the outside liabilities are related to the total capitalisation of the firm. It indicates what proportion of the permanent capital of the firm is in the form of long-term debt.

Debt to total capital ratio =long- term debt

Shareholder’s funds + long- term debt

Conventionally a ratio of 2/3 is considered satisfactory.

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Interest coverage ratio

This ratio measures the debt servicing capacity of a firm in so far as the fixed interest on long-term loan is concerned. It shows how many times the interest charges are covered by EBIT out of which they will be paid.

Interest coverage ratio = EBIT

Interest

A ratio of 6 to 7 times is considered satisfactory. Higher the ratio, greater the ability of the firm to pay interest out of its profits.

Debt service coverage ratio

This is a more comprehensive measure to compute the debt servicing capacity of a firm. It shows how many times the total debt service obligations consisting of interest and repayment of principal in instalments are covered by the total operating funds after payment of tax.

Debt service coverage ratio =

EAT+ interest + depreciation + other non-cash exp

Interest + principal instalment

EAT is earnings after tax.

Generally financial institutions consider 2:1 as a satisfactory ratio.

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Profitability ratios

These ratios measure the operating efficiency of the firm and its ability to ensure adequate returns to its shareholders.

The profitability of a firm can be measured by its profitability ratios.

Further the profitability ratios can be determined in relation to sales and in relation to investments

Profitability ratios in relation to sales:

Gross profit margin

Net profit margin

Expenses ratio

Profitability ratios in relation to investments:

Return on assets (ROA)

Return on capital employed (ROCE)

Return on shareholder’s equity (ROE)

Earnings per share (EPS)

Dividend per share (DPS)

Dividend payout ratio (D/P)

Price earnings ratio (P/E)

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Gross profit margin

This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage.

Gross profit is the result of relationship between prices, sales volume and costs.

Gross profit margin = gross profit x 100

Net sales

A firm should have a reasonable gross profit margin to ensure coverage of its operating expenses and ensure adequate return to the owners of the business i.e. the shareholders.

To judge whether the ratio is satisfactory or not, it should be compared with the firm’s past ratios or with the ratio of similar firms in the same industry or with the industry average.

Net profit margin

This ratio is calculated by dividing net profit by sales. It is expressed as a percentage. This ratio is indicative of the firm’s ability to leave a margin of reasonable compensation to the owners for providing capital, after meeting the cost of production, operating charges and the cost of borrowed funds.

Net profit margin =

net profit after interest and tax x 100

Net sales

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Another variant of net profit margin is operating profit margin which is calculated as:

Operating profit margin =

net profit before interest and tax x 100

Net sales

Higher the ratio, greater is the capacity of the firm to withstand adverse economic conditions and vice versa

Expenses ratio

These ratios are calculated by dividing the various expenses by sales. The variants of expenses ratios are:

Material consumed ratio = Material consumed x 100

Net sales

Manufacturing expenses ratio = manufacturing expenses x 100

Net sales

Administration expenses ratio = administration expenses x 100

Net sales

Selling expenses ratio = Selling expenses x 100

Net sales

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Operating ratio = cost of goods sold plus operating expenses x100

Net sales

Financial expense ratio = financial expenses x 100

Net sales

The expenses ratios should be compared over a period of time with the industry average as well as with the ratios of firms of similar type. A low expenses ratio is favourable.

The implication of a high ratio is that only a small percentage share of sales is available for meeting financial liabilities like interest, tax, dividend etc

Return on assets (ROA)

This ratio measures the profitability of the total funds of a firm. It measures the relationship between net profits and total assets. The objective is to find out how efficiently the total assets have been used by the management.

Return on assets = net profit after taxes plus interest x 100

Total assets

Total assets exclude fictitious assets. As the total assets at the beginning of the year and end of the year may not be the same, average total assets may be used as the denominator.

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Return on capital employed (ROCE)

This ratio measures the relationship between net profit and capital employed. It indicates how efficiently the long-term funds of owners and creditors are being used.

Return on capital employed =

net profit after taxes plus interest x 100

Capital employed

CAPITAL EMPLOYED denotes shareholders funds and long-term borrowings.

To have a fair representation of the capital employed, average capital employed may be used as the denominator.

Return on shareholder’s equity

This ratio measures the relationship of profits to owner’s funds. Shareholders fall into two groups i.e. preference shareholders and equity shareholders. So the variants of return on shareholder’s equity are

Return on total shareholder’s equity =

net profits after taxes x 100

Total shareholder’s equity

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TOTAL SHAREHOLDER’S EQUITY includes preference share capital plus equity share capital plus reserves and surplus less accumulated losses and fictitious assets. To have a fair representation of the total shareholder’s funds, average total shareholder’s funds may be used as the denominator.

Return on ordinary shareholders equity =

net profit after taxes – pref. dividend x 100

Ordinary shareholders equity or net worth

ORDINARY SHAREHOLDERS EQUITY OR NET WORTH includes equity share capital plus reserves and surplus minus fictitious assets.

Earnings per share (EPS)

This ratio measures the profit available to the equity shareholders on a per share basis. This ratio is calculated by dividing net profit available to equity shareholders by the number of equity shares.

Earnings per share =

net profit after tax – preference dividend

Number of equity shares

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Dividend per share (DPS)

This ratio shows the dividend paid to the shareholder on a per share basis. This is a better indicator than the EPS as it shows the amount of dividend received by the ordinary shareholders, while EPS merely shows theoretically how much belongs to the ordinary shareholders

Dividend per share =

Dividend paid to ordinary shareholders

Number of equity shares

Dividend payout ratio (D/P)

This ratio measures the relationship between the earnings belonging to the ordinary shareholders and the dividend paid to them.

Dividend pay out ratio =

total dividend paid to ordinary shareholders x 100

Net profit after tax –preference dividend

OR

Dividend pay out ratio = Dividend per share x 100

Earnings per share

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Price earning ratio (P/E)

This ratio is computed by dividing the market price of the shares by the earnings per share. It measures the expectations of the investors and market appraisal of the performance of the firm.

Price earning ratio = market price per share

Earnings per share

Activity ratios

These ratios are also called efficiency ratios / asset utilization ratios or turnover ratios. These ratios show the relationship between sales and various assets of a firm. The various ratios under this group are:

Inventory/stock turnover ratio

Debtors turnover ratio and average collection period

Asset turnover ratio

Creditors turnover ratio and average credit period

Inventory /stock turnover ratio

This ratio indicates the number of times inventory is replaced during the year. It measures the relationship between cost of goods sold and the inventory level. There are two approaches for calculating this ratio, namely:

Inventory turnover ratio = cost of goods sold

Average stock

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AVERAGE STOCK can be calculated as

Opening stock + closing stock

2

Alternatively

Inventory turnover ratio = sales

Closing inventory

A firm should have neither too high nor too low inventory turnover ratio. Too high a ratio may indicate very low level of inventory and a danger of being out of stock and incurring high ‘stock out cost’. On the contrary too low a ratio is indicative of excessive inventory entailing excessive carrying cost.

Debtors turnover ratio and average collection period

This ratio is a test of the liquidity of the debtors of a firm. It shows the relationship between credit sales and debtors.

Debtors turnover ratio =

Credit sales

Average Debtors and bills receivables

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Average collection period =

Months/days in a year

Debtors turnover

These ratios are indicative of the efficiency of the trade credit management. A high turnover ratio and shorter collection period indicate prompt payment by the debtor. On the contrary low turnover ratio and longer collection period indicates delayed payments by the debtor.

In general a high debtor turnover ratio and short collection period is preferable.

Asset turnover ratio

Depending on the different concepts of assets employed, there are many variants of this ratio. These ratios measure the efficiency of a firm in managing and utilising its assets.

Total asset turnover ratio = sales/cost of goods sold

Average total assets

Fixed asset turnover ratio = sales/cost of goods sold

Average fixed assets

Capital turnover ratio = sales/cost of goods sold

Average capital employed

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Working capital turnover ratio = sales/cost of goods sold

Net working capital

Higher ratios are indicative of efficient management and utilisation of resources while low ratios are indicative of under-utilisation of resources and presence of idle capacity.

Creditors turnover ratio and average credit period

This ratio shows the speed with which payments are made to the suppliers for purchases made from them. It shows the relationship between credit purchases and average creditors.

Creditors turnover ratio =

credit purchases Average creditors & bills payables

Average credit period = months/days in a year

Creditors turnover ratio

Higher creditors turnover ratio and short credit period signifies that the creditors are being paid promptly and it enhances the creditworthiness of the firm.

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LIQUIDITY RATIO

1. CURRENT RATIO = Current ratio = Current assets

Current liabilities

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YEARS

CURRENT ASSETS CURRENT LIABLITIES

CURRENT RATIO(Rs Crore) (Rs Crore)

2006 2,415.83 1,586.50 1.52 : 1

2007 2,919.39 1,700.10 1.71: 1

2008 4,491.38 3,108.93 1.44: 1

2009 4,563.45 3,152.61 1.44: 1

2010 5,278.28 3,228.94 1.63: 1

IDEAL RATIO: The ideal ratio should be 2:1 so that at any given time the entire current liabilities can be off and surplus above 1 is considered as margin of safety.

Graph No.1

Graphical representation of Current Ratio

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2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

CURRENT RATIO

YEARS

RATI

OS

INTERPRETATION OF CURRENT RATIO

Since for all the five years, the Current ratio has been above 1.33 (bench mark level), therefore the company is in a very strong position to pay off all of its’ current obligation in the desired time and is also capable of acquiring several surplus.

2. QUICK RATIO

FORMULA: Quick assets/Current liabilities.

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Quick assets = Current assets – Assets which cannot be realised immediately i.e. Inventory.

YEARS 2006 2007 2008 2009 2010

CURRENT ASSETS 2,415.83 2,919.394,491.38 4,563.45 5,278.28

(less) INVENTORIES 869.91 957.872,138.23 1,509.33 1,587.28

QUICK ASSETS 1,545.92 1,961.52 2,353.15 3,054.12 3,691.00

CURRENT ASSETS 1,586.50 1,700.103,108.93 3,152.61 3,228.94

QUICK RATIO 0.97 : 1 1.15 : 1 0.75 : 1 0.96 : 1 1.14 : 1

Graph no.2Graphical representation of Quick Ratio

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2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

QUICK RATIO

YEAR

RATI

O

INTERPRETATION

If the actual quick ratio is equal to or more than the standard quick ratio of 1:1, the conclusion can be that the company is liquid and it can payoff its short-term liabilities out of its quickly realisable assets without any difficulty. On the other

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hand, if the quick ratio is less than the standard, the conclusion can be that the company is not liquid.

The above table indicates that the company has not taken adequate steps to bring the quick ratio closer to the standard prescribed ratio except in the years 2007 and 2010. However the recent trend has been towards correction as it has now moved to 1.14 in 2010. It should be noted that it is always better to have a quick ratio higher than the prescribed standard than to have a lower ratio as in this case where the ratio is lower than the prescribed limit.

LEVERAGE RATIOS

1. DEBT EQUITY RATIO = LONG TERM DEBT/SHAREHOLDER’S FUND

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YEARSLONG TERM DEBTS SHARE HOLDER'S FUND DEBT EQUITY RATIO

2006 1,076.36 800.05 1.34 : 1

2007 1,469.76 888.39 1.65 : 1

2008 1,559.58 1,106.63 1.40 : 1

2009 1,720.84 1,185.37 1.45 : 1

2010 2,346.36 1,924.79 1.21 : 1

IDEAL RATIO:

The ideal ratio is 1:2. This implies that the share holder’s fund should be twice the long term debt in order to ensure the long-term solvency of the company.

Graph no.3

Graphical representation of Debt Equity Ratio

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2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Debt Equity Ratio

YEARS

RATI

O

INTERPRETATION

The debt equity ratio is an important tool of financial analysis to appraise the financial structure of the company. If this ratio is high, it means that owners are putting in relatively less money of their own. It is a danger signal for creditors because if the project fails, the creditors will lose heavily. This may also lead to

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irresponsible behaviour from the management. Thus, greater the ratio, greater the risk to the creditors. A high proportion of debt in the capital structure would lead to inflexibility in operations of the company as the creditors may interfere in the management. Also a high proportion of debt implies a heavy burden of interest payments.

The long term debt of the company as compared to the shareholder’s fund has not been well contained and the company has a very little leverage to raise further long term from the market. This is because, the debt equity ratio has been constantly high in past 5 years.

2. PROPERIETORY RATIO

FORMULA: SHARE HOLDER’S FUND/TOTAL ASSETS

TOTAL ASSETS = FIXED ASSTES + CURRENT ASSETS

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YEARS SHARE HOLDER'S FUND TOTAL ASSETS PROPREITORY RATIO

2006 800.05 1,876.43 0.42

2007 888.39 2,358.15 0.37

2008 1,106.63 2,666.20 0.41

2009 1,185.37 2,906.22 0.40

2010 1,924.79 4,271.15 0.45

IDEAL RATIO

Generally, a ratio of 0.5:1 is considered ideal. Higher the proprietor ratio, the stronger financial position of the company and vice- versa.

Graph no.4

Graphical representation of Proprietary RATIO :

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2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Proprietary RATIO

YEARS

RATI

O

INTERPRETATION

It can be seen that the ratio over the five years is not in accordance with the ideal ratio i.e. 0.34:1. We can also see that the ratios are tried to keep at their ideal value but still it is rising. This implies that the extent to which the shareholder’s fund is used to finance the assets of the company is decreasing. But, the overall financial position of the company can be considered quite well.

PROFITABILITY RATIO

1. GROSS PROFIT RATIO = (Gross Profit/ Net sales)*100

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YEARSGROSS PROFIT NET SALES

GROSS PROFIT RATIO(%)

2006 233.76 7,498.64 2.14

2007 295.98 8,582.06 2.46

2008 428.5 10,983.92 2.86

2009 283.63 12,148.81 1.39

2010 410.85 13,489.14 2.51

GRAPH NO.5

Graphical representation of Gross Profit ratio:

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2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

Gross Profit ratio

YEARS

RATI

OS

INTERPRETATION

The above graph shows that there has been a heavy downfall in the gross profit ratio from the year 2008 to 2009. But in the year 2010, gross profit ratio has increase substantially from 1.39% to 2.51%.

2.NET PROFIT RATIO

FORMULA=(NET PROFIT/NET SALES)*100

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YEAR NET PROFIT NET SALESNET PROFIT RATIO(%)

2006

82.82

7,498.64 1.09

2007

100.70

8,582.06 1.16

2008

159.23

10,983.92 1.43

2009

93.28

12,148.81 0.76

2010

172.47

13,489.14 1.27

GRAPH NO.6

Graphical representation of Net Profit Ratio:

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2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

NET PROFIT RATIO

NET PROFIT RATIO(%)

YEARS

RATI

O

INTERPRETATION

A high net profit ratio adequate return to the owners as well as enables the company to withstand adverse economic conditions. A high net profit indicates that the profitability of the company is good and vice-versa. The company has been maintaining a healthy trend in net profit ratio, but a downfall in the year 2009 can be seen.

3. OPERATING PROFIT RATIO

FORMULA: (OPERATING PROFIT/NET SALES)*100

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YEARSOPERATING PROFIT NET SALES

OPERATING PROFIT RATIO(%)

2006 203.73 7,498.64 2.71

2007 273.62 8,582.06 3.18

2008 389.74 10,983.92 3.54

2009 255.43 12,148.81 2.1

2010 439.41 13,489.14 3.25

GRAPH NO.7

Graphical representation of Operating Profit ratio:

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2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

OPERATING PROFIT

OPERATING PROFIT

YEARS

RATI

O

INTERPRETATION

Operating profit ratio of the company has been more or less in 2-4% range. But in the year 2010, the operating profit ratio has been substantially increased. This is reflective of the fact that the assets of the company are being put to better use and cost control is exercised efficiently.

RATIOS WHICH ARE IMPORTANT FORM THE POINT OF VIEW OF MARKET INVESTORS – PARTICULARLY FOR LISTED COMAPNIES:

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MEANING OF EARNING PER SHARE, DIVIDEND PER SHARE , BOOK VALUE AND RESERVES.Earnings per share (EPS) is the ratio between net profit available for equity share holders and the number of equity shares. In other words, it means earning received for one equity share. EPS is the widely used ratio in determining the company’s financial standing. Higher EPS, better is the soundness of the company and vice-versa. Hence, every company tries to maximize its EPS. Yet, EPS as a measure of profitability of a company from the owners point of view should be cautiously done as it does not recognize the effect of increase in equity capital as a result of retention of earnings.

EPS= PROFIT AVAILABLE TO EQUITY SHARE HOLDERS

NUMBER OF EQUITY SHARES

YEARSEARNINGS PER SHARE

DIVIDEND PER SHARE

BOOK VALUE PER SHARE

FREE RESERVES PER SHARE

2006 14.88 2.2 10 228.14

2007 18.82 2.4 10 211.32

2008 6.76 0.5 2 51.13

2009 2.3 0.5 2 55.28

2010 5.72 0.5 2 42.3

GRAPH NO.8

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2006 2007 2008 2009 20100

2

4

6

8

10

12

14

16

18

20

EARNINGS PER SHARE

EARNINGS PER SHARE

YEARS

AMO

UNT

GRAPH NO.9

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

DIVIDEND PER SHARE

DIVIDEND PER SHARE

YEARS

AMO

UNT

INTERPRETATION

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The EPS has been consistently going down. But in the year 2010 a growth can be seen.

The Dividend per share has been constant for last 3 years (2008, 2009, 2010) which denotes the smooth running of the company.

The book value of the shares are in line with that of the market price.

The free reserves of the company have been constantly decreasing.

TURNOVER RATIOS

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INVENTROY RUNOVER RATIO

= COST OF GOODS SOLD AVERAGE INVENTORY

AVERAGE INVENTORY =

(CURRENT INVENTORY+PREVIOUS INVENTORY)

2

GRAPH NO. 10

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YEAR COST OF GOODS SOLD AVERAGE INVENTORYINVENTORY TURNOVER RATIO

2006 7,294.90 631.89 8.68

2007 8,308.44 913.89 9.02

2008 10,594.18 1548.05 5.25

2009 11,893.38 1823.78 8.41

2010 13,049.73 1353.08 8.89

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

9

10

INVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO

YEAR

RATI

O

INTERPRETATION

The inventory turnover ratio measures how quickly the inventory is sold. It is test of efficient inventory management. The high ratio of inventory turnover is considered better than a low ratio as it implies good inventory management.

From the analysis, the inventory turnover ratio of the company has been constantly rising since 2009 which indicates better management of current assets yielding better return.

DEBTOR TURNOVER RATIO

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DEBTORS TURNOVER (VELOCITY) RATIO = NET ANNUAL SALES

AVERAGE DEBTORS

YEARS SALES AVERAGE DEBTORS DEBTORS TURNOVER RATIO

2006 7,498.64 581.15 12.9

2007 8,582.06 743.57 11.54

2008 10,983.92 932.02 11.79

2009 12,148.81 1032.27 11.77

2010 13,489.14 1111.82 12.13

GRAPH NO. 11

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2006 2007 2008 2009 201010.5

11

11.5

12

12.5

13

13.5

DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO

INTERPRETATION

There is no ideal ratio for debtors turnover ratio as it may differ from company to company depending upon the nature of business and its activities. Generally, the shorter the average collection period, the better the trade credit management and better the liquidity of the debtors as this would imply prompt payment on the part if the debtors.

From the above table, the debtors outstanding in last 4 years have been consistently low as compared to debtors outstanding in the year 2006.

TOTAL ASSETS TURNOVER RATIO

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FORMULA: NET SALES/TOTAL ASSETS

IDEAL RATIO:

The ideal total assets turnover ratio cannot be defined universally and this varies significantly with each industry. Some of the industries are highly capita intensive reflecting lower ratio whereas some of the activities – particularly trading – are very low capital intensive.

YEAR NET SALESTOTAL ASSETS

TOTAL ASSETS TURNOVER RATIO(in times)

2006 7,498.64 1,876.43 4

2007 8,582.06 2,358.15 3.64

2008 10,983.92 2,666.20 4.13

2009 12,148.81 2,906.22 4.19

2010 13,489.14 4,271.15 3.17

GRAPH NO.12

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2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

4.5

TOTAL ASSETS TURNOVER RATIO

TOTAL ASSETS TURNOVER RATIO

YEARS

RATI

O

INTERPRETATION

As explained above, no definite indicator could be attributed as ideal ratio. However, comparing the past trends the company has been able to put its assets to better use as indicated in the increasing ratio trend.

TOTAL CAPITAL TURNOVER RATIO

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FORMULA: NET SALES/ CAPITAL EMPLOYED

CAPITAL EMPLOYED = TOTAL ASSETS – CURRENT LIABLITIES

YEAR NET SALESCAPITAL EMLPLOYED

TOTAL CAPITAL TURNOVER RATIO(in times)

2006 7,498.64 289.93 25.86

2007 8,582.06 658.05 13.04

2008 10,983.92 442.73 24.80

2009 12,148.81 246.39 49.30

2010 13,489.14 1042.21 12.94

GRAPH NO. 13

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2006 2007 2008 2009 20100

10

20

30

40

50

60

TOTAL CAPITAL TURNOVER RATIO

TOTAL CAPITAL TURNOVER RATIO

YEARS

RATI

O

INTERPRETATION

The table above shows that the total capital turnover ratio has been fluctuating every year, which means that the capital is not being utilised in the business operations efficiently.

The company should continue making efforts to ensure that it uses its capital to the optimum level possible.

FIXED ASSETS TURN OVER RATIO

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FORMULA: SALES/FIXED ASSETS

IDEAL RATIO

Here again are no universal ideal ratio can be defined. If the activity of the company is capital intensive the ratio would be lower. If the activity is low on capital i.e. more in the form of trading etc, the ratio could be very high.

YEAR SALES FIXED ASSETSFIXED ASSTES TURNOVER RATIO(in times)

2006 7,498.64 1,004.10 7.46

2007 8,582.06 1,057.84 8.11

2008 10,983.92 1,178.23 9.32

2009 12,148.81 1,334.76 9.10

2010 13,489.14 1,960.52 6.88

GRAPH NO. 14

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2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

9

10

FIXED ASSTES TURNOVER RATIO

FIXED ASSTES TURNOVER RATIO

YEARS

RATI

O

INTERPRETATION

In operational terms, a high ratio would indicate that the company would have to go in for additional fixed assets to grow and increase its sales, whereas a low ratio would indicate that there is presence of idle capacity in the company and it can expand its activity level without making further capital investment. The ratio may vary from one organisation to another due to capitalized value of fixed assets and its total active production life.

The fixed assets turnover ratio shows a gradual increase till the year 2009.

CURRENT ASSETS TURNOVER RATIO

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FORMULA: NET SALES/CURRENT ASSETS

YEAR SALES CURRENT ASSETSCURRENT ASSETS TURNOVER RATIO(in times)

2006 7,498.64 829.33 9.04

2007 8,582.06 1,219.29 7.03

2008 10,983.92 1,382.45 7.94

2009 12,148.81 1,410.84 8.61

2010 13,489.14 2,049.34 6.58

GRAPH NO.15

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2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

9

10

CURRENT ASSETS TURNOVER RATIO

CURRENT ASSETS TURNOVER RATIO

YEARS

RATI

O

INTERPRETAION

A high current assets turnover ratio is an indication of a better utilisation of current assets. On the other hand, a low ratio suggest that the current assets have not been utilised effectively.

The current assets turnover ratio has been fluctuating and hence, we can say that the current assets utilisation has been done as per the changing market scenario.

FINDINGS

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In this project, the technique of ratio and trend analysis is used to interpret the financial performance of RUCHI SOYA INDUSTRIES LIMITED. The various ratios used to ascertain the performance of the company comprises of Liquidity ratios, Leverage ratios, Profitability as well as Turnover ratios. These ratios are exhaustive to study the health and efficiency of the company. By interpreting the ratios for the five financial years i.e. 2006 to 2010, which is sufficient to cover any business cycle in the industry, the following findings are made:

1. LIQUIDITY RATIO

When we analyse the liquidity ratios such as, Current ratio, Quick ratio and bank Finance to working capital ratio, we observe that though there has been fluctuations in the liquidity position of the company during the five years financial years considered, the changes have been in line with the external factors affecting the working of the company i.e. strikes, lock outs and expansions by way of capital expenditure carried out by the company. Despite the cyclical changes over the 5 years ratio of the company have been fluctuating, but the short-term solvency position of the company is good. It is able to meet its short-term commitments in time.

2. LEVERAGE

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Leverage ratio also called long term solvency ratio refers to ability of the company to meet its long term obligations on time. The long term debts of the firm include the debenture holders, funding from financial institution as well as the creditors.

The debt equity ratio is also used to indicate the long term solvency of the firm. The debts of a company should not be too large because this implies a heavy burden of the interest.

According to this study, the company has always maintained a debt equity ratio of less than 2. This indicates that the company still carries a large leverage for long term funds from the market for funding any future activity. A proper analysis a leverage ratio reveals that the long-term solvency of Ruchi Soya Industries Ltd. is and the company is financially sound.

The lower the debt equity ratio, the better position it is in for negotiating with the lenders and investors. Thus they are in position to negotiate for finer rate of interest.

3. PROFITABILITY

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The primary objective of a business is to earn profits. A business needs payments not only to divide payments but also for expansion and diversification. Profits are a measure of the overall efficiency of a business.

The net profit of the company has been almost doubled in the past 5 years. A ratio which was 1.09% in the year 2006 has jumped to 1.27% in 2010. This clearly states that the company has been earning profits in a very systematic and constant form.

Having achieved higher profitability and profits the company has also been good to its investors. This can be seen from the dividend payout ratio over the last 5 years and also the retention ratios.

This is good for the company as the equity shareholders are confirmed of a good return for the risk undertaken by them.

Overall, Ruchi Soya Industries Ltd. has been posting regular profits and has been giving favourable return to its shareholders, which means that the company is financially sound.

4. TURNOVER

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A look at the inventory turnover ratio indicates that the inventory turnover ratio has been steadily increasing for this company indicating better management of current assets yielding better returns.

Debtors turnover ratio is expressed both in ratio form and in absolute terms as well as in months terms when it is also called debtors velocity. Here in the comparison the debtors velocity concept has been used and from the study, the debtors outstanding in months terms has been consistently improving indicating the efficiency of the collection method adopted by the company. Alternatively, this also indicates the ‘Sellers’ market in which the company is operating wherein it is able to dictate terms to purchase.

Creditors turnover ratio is also expressed both in ratio form and in absolute terms as well as in months’ term when it is also called creditors velocity. Here in the comparison the debtors velocity concept has been used and from the study the company has been consistently able to take advantage of market credit.

The total assets and capital turnover ratios reveal that the company is utilising its capital to its maximum extent and there is optimum utilisation of assets. As far as the efficiency of the usage of working capital is considered, it can be said that the company is ensuring optimum utilisation of working capital resources. Cash turnover ratio of the company is also excellent, huge balances and kept both in forms bank balances and liquid cash. Hence, company can utilise its cash efficiently.

5. REWARDING INVESTORS

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An analysis of the EARNINGS PER SHARE, DIVIDEND PER SHARE, BOOK VALUE AND FREE RESERVES indicate that Earnings per share have been consistently increasing and the results of 2010 show an EPS of Rs. 5.72 which is appropriate in market parlance.

The company has also been increasing the Dividend per share consistently over the years which will attract investors to its portfolio.

The book value of shares are in line with that of market price.

The free reserves of the company in 2010 have been reduced to Rs. 42.3 which means that the company have in fact converted it into equity shares in the ratio of 1:2. Thus the reserves have been converted into capital which enhanced the net worth and added value to the investors.

Thus the company has been very investor friendly and definitely attracts investors for further capital expansion.

SUGGESTIONS

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The industry was going through a rough patch till the year 2005. The overcome this, the company diversified into various other activities. This proved to be a wise decision as the company’s operations improved substantially.

The price earnings ratio and dividend payment records are in the company’s favour as they are in the position to raise further funds from the market to fund this expansion / modernization.

Even the debt equity ratio in the range of 1:1 gives them tremendous leverage to raise further loans/long term borrowings from the market to fund their modernization.

CONCLUSION

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There have been fluctuations in the performance of the company over five years from 2006-2010 mainly due to the combined effect of the internal as well as the external factors, which influence the activities of the company. The company on the whole enjoys a high liquidity position and its short term as well as long term solvency is good.

The company is continuously trying to enhance its financial performance and stability by adopting latest technology and expanding its operation in various other fields.

The company has posted profits and the earnings per share available to the equity shareholders have also increased which is good sign for the company and the wealth maximization for its shareholders. The company is using its resources efficiently.

BIBLIOGRAPHY

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BOOKS

KEY MANAGEMENT RATIOS : CIARAN WALSH

FINANCIAL MANAGEMENT (7TH EDITION) : I.M.PANDEY

COST AND MANAGEMENT ACCOUNTING : S.P.JAIN & K.L.NARANG

MANAGEMENT ACCOUNTING : R.S.PILLA & AGAVATI

WEBSITES

www.moneycontrol.com

www.investorwords.com

www.ruchisoya.com

www.rediff.money.cn

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