Main Project

ACKNOWLEDGEMENT For completion of any sort of work, efforts of many

different persons are involved similarly this work is no

different.

With feelings of deep gratitude, I am also indebted to

Sh. K.S. Khosla, managing Director for his Immaculate

supervision and assistance in collecting and interpreting

data in presentable form, and under whose able guidance

I learnt all that I did during my training and who provided

me valuable help, encouragement continuously during

this training.

I express my deep gratitude and sincere

feeling of indebtedness to Mr. Kuldeep Vohra, Finance

Controller, SSk Pvt. LTD. who has rendered his valuable

guidance and advice for accomplishing this project report

on Ratio Analysis in SSk PVT LTD.

I am also thankful to the S. Dilbag Singh, Finance

Manager and Mr. Gautam Sharma, Head Accounts

Department for providing a comfortable environment and

a big helping hand in accomplishment of this project.

PUN

EET GUPTA

1

PrefaceFinancial Management is one of the key areas of

managerial functions, as it provides an analytical and

conceptacle framework for financial decisions making. It

covers both the aspects of funds acquiring or acquisition

of funds as well as efficient and wise allocation of funds.

It is concerned with the solution of major problems of

investment, finance and dividend. It deals with the

estimation and procurement of capital and managerial

earnings. Its importance has increased in recent years

due to inflation and clear money policy of govt.

Financial management is concerned with: -

Determination of financial needs of the firm.

Rising of funds.

Allocation of financial resources.

Control of financial data for decision-making.

Financial Management has traveled a long course before

becoming a coordinating and decision-making process.

FINANCIAL ANALYSIS is the process of identifying

the financial strengths and weaknesses of the firm by

properly establishing relationships between the items of

balance sheets and profit and loss accounts. Various

methods of analyzing financial statements are

2

comparative statement, Funds Flow analysis, Ratio

Analysis etc.

This Report attempts to present clear presentation

of different liquidity ratios and general profitability ratios

of Sant Rubbers Limited.

LIST OF CONTENTS

Ch. No. CHAPTER NAME

1. Company Profile

2. Tools for Financial Analysis & Interpretation

3. Ratio Analysis

4. Liquidity Ratios

5. Activity Ratios

6. Profitability Ratios

7. Long-Term Solvency Ratios

8. Observations Suggestions & Conclusion

9. Bibliography

3

PROFILE OF THE COMPANY

Origin and Growth

It is with deep sense of satisfaction that Ess Ess

Kay recalls it’s humble beginnings in the year 1935 at

Lahore at that time, industrial development was a far-off

dream as technology know how was virtually non-

existent. Its founder and ex-managing director Mr. S.S

Khosla after obtaining his electrical engineering degree

from the University of Manchester came back with firm

determination to set up a project for the manufacture of

electrical wiring accessories in India.

With a visionary zeal he commenced the pioneering work

in establishing the first ever-manufacturing unit for

Electrical Wiring Accessories in India in the year 1935.

Starting this new venture was not easy as totally

unskilled workers had to be trained to carry out various

production jobs. There were practically no manufacturers

of raw materials and the company had to totally depend

upon imports. Mr. Khosla motivated entrepreneurs to

start small ancillary units. “That is why our company has

come a long way bringing the latest, manufacturing

techniques by deploying the most modern machines for

4

the manufacturing of electrical wiring accessories.

Traditions are being maintained as each and every

product; whatever be the quality is being tested by our

experts quality control inspectors before being cleared

for packaging. That’s how we offer unlimited guaranty

for our products”, says Mr. Khosla.

HISTORY OF THE ORGANIZATION

Ess Ess Kay Engg. Co. Ltd. is situated at the factory area in

Kapurthala. This firm came into existence in the year 1935. At

Lahore (now in Pakistan) for the manufacturing of electrical

wiring accessories. In the year 1947, during partition the firm

shifted its activities from Lahore to Kapurthala. In the year 1964,

the company under the name of the Ess Ess Kay Engg. (p) Ltd.

came into existence. In the year 1960 its associates concern was

established by name Hindustan hydraulics (p) ltd. At Suranussi,

Jalandhar in the year 1982 it was converted into pvt ltd concern.

The line of manufacturing of this concern is manufacturing of

CNC press breaks and shearing Machines in collaboration with

Darley B.V of Holland. In 1995(p) word was deleted and it

became deemed public company on the basis of turnover

criteria.

This unit was first of its kind in India for the

manufacture of household electrical wiring accessories and since

its establishment the company has always endeavored to keep

pace with the international standards of quality. It is only due to

this that today company is one of the largest units of switches.

Kapurthala based Ess Ess Kay

Engineering Company Ltd. has been setting standards

5

since 1935. Ess Ess Kay is Pioneers in manufacture of

wiring accessories. Ess Ess Kay has maintained its

position of leadership since then. Anticipating the

varying and ever changing requirements, Ess Ess Kay

has been developing better products. Its reputation has

been further enhanced because all Ess Ess Kay products

are manufactured with ISI standards. The complete

range of high quality electrical products, provide a wide

range of wiring accessories, Switchgears, MCB,

distributions boxes and industrial plugs and sockets

combination units. Wiring accessories for domestic use

includes lighting switches, dimmers, lamp holders,

sockets, and plugs; change over switches and many

other products about 300 different items. Majority of its

products are guaranteed which is evident of the steps

that every single product that its factories, will live up to

their customer’s expectations. With an ever-increasing

product range, and over 2000 dealers throughout India,

Ess Ess Kay is better positioned than any of its

competitors to fulfill the varying requirement of their

customers. A dedicated internal sales team with the help

of on-line computers ensures adequate stock and speedy

deliveries. Additional support is available from its project

and technical services department, offering advice on

company’s products, their installation and application.

Competition

6

The main competition in the range of

sophisticated and quality products are M.K India,

Haveli’s north west, Anchor (India), who a part from

having their own manufacturing facilities also procure

the products from the small scale manufacturing and

market the same under their own brand names. The

advantage of SSK (the brand name of the company) is

that they manufacture a wide range of household and

industrial accessories themselves and have an

experience of 65 years in this line of activity.

The other competitors are: -

1. M.K. Electrical (India) Ltd. Chennai – A joint venture with

M.K.Electrical Ltd. U.K.

2. Avanti Kopp Electrical Ltd. - Indo-German Joint Venture in

Collaboration with Heinrich Kopp of Germany

3. C.P.L - Mumbai

4. North West - Faridabad

5. Crabtree by Havell’s Dorman Smith Ltd. Delhi- An Indo-

British joint

venture. Cyclicity

The company is not subject to any cyclic effect

and the products always remain in the demand.

Technology

There is no threat to the company from any alternative

technology. The technology has undergone a change over a

period of time and the traditional technology has given way to

relatively more modern technology is as much as a few of

7

processes has been mechanized. The company has already

deployed the available technology with installation of injection

molding machines. The company has independent R&D

department, which developed products to suit Indian conditions,

and tastes, which are becoming increasingly sophisticated.

Inputs

Raw Material: the raw material required by the company is

molding power, brass/copper sheet, silver contacts, paints,

packing material etc. The company makes bulk purchase from

Bombay, Faridabad and jamunanagar, as the raw materials

procured from these stations are better in quality. No problem is

envisaged in the procurement of raw material.

Power

The company have a connected power load of 697 KW

sanctioned by P.S.E.B which is adequate for caring on the

production. Moreover the company has generating sets of

sufficient capacity as stand by arrangement of continuous

production in case of failure of power supply/tripping etc.

Work Force

The skilled and un-skilled workers are easily available from

the nearby rural areas. The company gives training to the

workers according to their requirements.

Track Record

8

Management has a good steady record of growth and

profitability.

Company’s Associates

The company has two associate concerns namely M/s

Hindustan Hydraulics (p) Ltd., Jalandhar and M/s Woehner-Kay

Ltd., Kapurthala. These companies are also dealing with State

Bank of India and with Oriental Bank of Commerce.

Product Range

The product range of the company are wide and products

are marketed under the brand name of “Euroline Series”,

“Signature Series”,”Royale Auto Color Series”,”Topline Series”,

“Deer Plate Switches “,”Olympia”,”Nova”,”SSK-GARO”

etc.regulators fuses, sockets and plugs in various color

combinations for the aesthetic affect.powertech fuse units,

changeover switches and distribution fuse boxes.”Euroline

Series” and “Signature Series” are the latest state of the art

technology modular switches introduced in India only by SSk.

Lead Bank

State Bank of India is the sole financing loan.

SSK’s strong commitment to consumer’s

satisfaction

ESS ESS Kay’s real strength of course lies in its ability to

anticipate the changing needs of its demanding customers. SSK

9

is better position than any of its competitors to fulfill the varying

needs of customers.

Joint Venture

Recently ESS ESS KAY has moved into global arena with

technological tie-ups with Garo of Sweden for Industrial plugs

and Sockets and joint venture with Wohner of Germany for Bus

Bar System.

Company Operations

SSK’s main work and Regd. Office is situated in

KAPURTHALA and is spread over an area of 10,000 Sq. Mtrs. It

has work force of that 2500 exceeding in the number. The other

production facilities of the company are located at Jalandhar and

Ghazi bad. The sales offices of the company are located at Delhi,

Merrut, Jaipur and Ahmedabad.

Planning

Intuition and creativity are backed by stringent working

methods and by CAD-Computer systems. All the production

planning and material distribution through out the country is

planed with the help of on-line computer.

Testing Lab

ESS ESS KAY has a very well equipped lab, which has

been created in accordance with ISI requirements. This lab works

independently as it draws samples from the various production

lines on daily basis and puts them through the required tests.

10

This ensures constant vigil on quality of products being

produced.

Quality control

Fierce competition as a result of market integration and

growing complexity of installation leave room only for those who

are able to guarantee “total quality” on every technical point. In

SSK every component is inspected while it is in process so that

the quality of final product is ultimate. Each and every item

manufactured is individually tested before it is cleared for

packaging.

Management Board of directors manages the company. The details of the directors are as under.

Designation

Name Age (Yrs.)

Exp. (Yrs.)

Qualification

CMD Sh.K.S.Khosla 60 35 M.Sc. (Phy)CEO Sh. Nitin

Khosla37 17 Graduate

List of DirectorsName of Director

Age (Yrs.) Exp. (Yrs.) Qualification

Sh. M.M.S.Khosla 57 32 B.Tech. (Mech.)

Smt.Sumitra Khosla

80 55 Graduate

Sh. Sunil Khosla 31 10 Graduate

11

ORGANISATION STRUCTURE

The organization structure of any organization depends on

certain factors like size of any organization, history of the

organization, management philosophy of the organization,

availability of managers, pattern of planning control techniques,

decentralized activities of the organization.

Organization is grouping of the people working together towards

common goal and objectives that mutually benefit the

participants and the organization. These goals can be achieved

more suitably if the behavior of workers and composition of the

organization can be predicted.

While referring to the organization chart of Ess Ess Kay we find

that MD has the ultimate authority, which is supported by

Director (production), Director (general administration). These

directors are supported to GM. GM gives orders to Manager

(personnel), Manager (production), Manager (accounts),

Manager (marketing), Manager (general administration), and

Manager (purchase). Senior level authorities then support these

12

executives and assistant level officers then support these senior

officers.

Each subordinate is responsible to his immediate superior and

indirectly to MD. Authority flows top to bottom and responsibility

in turn flows bottom to top.

The structure of Ess Ess Kay is divided into sections. These

sections are listed below with the overview of their workings:

1. Personnel Department

2. Production Department

3. Accounts Department

4. Marketing Department

5. Administration Department

6. Purchase Department

7. Security Department

8. Research & Development Department.

13

ORGANISATION STRUCTURE

The organization structure plays a dominant role in the

effectiveness of operations. Following is the organization

structure of ESS ESS KAY ENGG. CO. Ltd. KAPURTHALA.

Managing Director

Director (Production) Director (Marketing) Director (General adm)

General Manager

Manager Manager Manager Manager Manager Manager (Personal) (Prod.) (Accounts) (Mkt.) (Adm.) (Purchase)

Clerical skilled workers clerical staff sales clerical

clerical

Semi skilled represtatives staff

staff

Unskilled workers

14

PRODUCT RANGE OF THE COMPANY

1. Switchgear: Switch fuse unit, Fuse switch unit,

Change over, Rewire able, Porcelain fuse unit

2. M.C.B. Distribution boxes

3. LT&HT Panels

4. WOEHER-KAY Bus Bar System

5. A Complete Range Of SSK GARO Electrical Distribution

Systems and Industrial Plugs and Sock.

6. M.C.B. Distribution boxes

7. LT&HT Panels

8. WOEHER-KAY Bus Bar System

9. A Complete Range Of SSK GARO Electrical Distribution

Systems and Industrial Plugs and Sock.

15

STRUCTURE OF WORKING CAPITAL IN

SSK

OR

FINANCIAL POSITION OF SSK

Current Assets And Current Liabilities

S.S.K among its assets has primarily Inventories, Cash,

Bank balances, Receivable and other current assets.

Inventory

Comprises of Raw material, Stock in progress, Consumable

stores, Coal and packing goods.

Raw Material Includes

Moldings powder, Brass sheet/wire, Copper sheet/strip,

Silver contracts P.b sheets, Brass terminals. H.B wire,

electronic components for fan, regulators and Electronic

bell. C.R.C sheets D.W sheets, M.S rods, Plate and Patti,

Bakelite tube/sheets, Porcelain Fuse units, China clay,

quartz, Glaze, Cral, Paints/Thinner, Finished goods consists

of electrical, accessories of switches, plug, sockets, lamp

holders, fan regulators, metal clad switches, distribution

fuse boxes etc.

Bank Balances

16

Bank balances include balances with O.B.C, S.B.I, Indian

bank, Punjab National Bank, State Bank Of Patiala, H.D.F.C

Bank & Centurion Bank of Punjab.

Loans and Advances

Loans and advances include staff advances, advances to

suppliers of raw material and advances to suppliers of

capital goods.

SPECIAL STATICS OF ESS ESS KAY ENGG

COMPANY LTD. KAPURTHALA

SETTING INDUSTRIAL STANDARDS SINCE 1935

DEALERS THROUGHOUT INDIA 2000 dealers

DIFFERENT PRODUCTS 300 items

NUMBER OF WORKERS 1200 workers

COVERED AREA 10,000 sq.mtrs.

TOTAL PRODUCTION 80 cores

FULLY COMPUTERIZED COMPANY

FULLY AIR CONDITIONED COMPANY

17

HR POLICIES OF THE COMPANY

Policies followed By Company

The company has the policy of giving medical assistance to its

employees.

The company gives training to its new employee and with the

up gradation of the technology.

Company also gives loans to its employees.

Planning discussions shall be held at least once a year with

each individual employee.

SSK has the policy of hiring people with respect to factors like-

sex, martial status and reservation.

Policies to Be Followed by Employees

Each Employee Shall:

Take Responsibility.

Follow all the policies of the company.

Inform company before taking leave.

Help the management/company in achieving its goal.

18

FUTURE PROSPECTS OF SSK

High Productivity: The main aim of the company is to

Increase

the productivity of the company.

Technology Updating: Now days the main objective of

SSk

is to update the present technology

by adopting the latest technology.

Switch Design Improvement: The company wants to

improve

the design of its products.

Quality Improvement: Quality improvement is the never

ending motive of the

company.

Manpower Development: SSK wants the development

of the employees through

developing its HR department.

19

Growth In Units: The company plans to open one more

Unit in the southern part of the

Country.

Encourage in Exports: The Company wants to

encourage the exports by

producing the products of

international quality.

OBJECTIVES OF STUDY

1. TO REVEALS INTER-RELATIONSHIP

Ratio analysis is useful in. disclosing inter-relationship between

m variables. For example between sales and profits, current

assets and current liabilities: equity & debt etc.

2. TO IMPROVES UNDERSTANDING OF FINANCIAL

STATEMENT

Financial statement contain too much information for an average

person it is very difficult to make any sense out to these. My

study will help to bring which there wise are likely to be

overlooked tin the jungle of information.

3. TO MEASURES SHORT & LONG- TERM! FINANCIAL

POSITION

My study will help to know the; short tem and long term financial

of the business. For example current liquid and turnover ratios

indicate short financial position. Similarly long term financial

position is assessed by calc debt equity ratios.

20

4. TO HELP MANAGEMENT IN BUDGETING AND

FORECASTING

Ratios help in understanding past performance of the business:

They also help in forecasting future trends. Information

generated to forecast plan, coordinate and control the business.

21

ANALYSIS AND INTERPRETATION OF

FINANCIAL STATEMENT

The preparation of financial statements is not the end aim. The

purpose of preparing this, statement is to use them for decision-

making. The statem

ent becomes a tool for future planning & forecasting. The

analysis & interpretation of financial statements is to judge their

meaning and significance. An opinion is formed in respect to tile

financial condition of the concern. The statement are re-

arranged & divided into suitable forms. The analysis of these

statements involves their division according to similar groups

and arranged in a desired form. The interpretation involves the

explanation in financial facts in a simplified manner.

PROCEDURE OF ANALYSIS & INTERPRETATION

The following procedure is adopted for analysis and

interpretation of financial statement:

1. The analysis should acquaint him with the principle and

postulates of accounting. He should know the plans and policies

of the management, so that he may be able to find out whether

these plans are properly executed or not.

2. The extent of analysis should be determined so that the

sphere of work may be decided. If the aim is to find out the

earning capacity of the enterprise, then analysis of income

statement will be undertaken. On the other hand, if financial

position is to be studied then balance sheet analysis will be

necessary.

22

3. The financial data given in the statement should be

reorganized and re-arranged. It will involve the grouping of

similar data under same heads and breaking down of individual

components of statement according to nature. The data is

reduced to a standard form.

4. A relationship is established among financial statements with

the help of tools and techniques of analysis such as ratios,

trends, common size, fund flow etc.

5. The information on is interpreted in a simple and

understandable way the significance and utility of financial data

is explained for helping decision taking.

6. The conclusions drawn from interpretation are presented to

the management in the form of reports.

23

DEVICES OF ANALYSIS &

INTEROPERATION

The analysis & interpretation of financial statements is used to

determine the financial position and results of operations as well

as a number of methods or devices are used to study the

relationship between different statements. An efforts is made to

use those devices which clearly analysis the position of the

enterprise. The following methods of analysis are generally

used:-

1) COMPARATIVE STATEMENTS

2) TREND ANALYSIS

3) COMMON-SIZE STATEMENTS

4) FUND FLOW ANALYSIS

5) RATIO ANALYSIS

1) COMPARATIVE STATEMENTS

The comparative financial statements are statements of the

financial position at different period of time. The elements of

financial position arc shown in a comparative form, so as to give

an idea of financial position at two or more periods. Any

statement prepared. in a comparative form will be covered in

comparative statements from practical point of view.

2) TREND ANALYSIS

The financial statement may be analyzed by computing trends of

series of information. This method determines the direction

upwards or downwards and involves the computations of the

24

percentage relationship that each statement item bears to the

same item in base year. The information for a number of years is

taken up & one year, generally the first year is taken as base

year. The figures of the base year arc taken a 100 and trend

ratios for other year are calculated on the basis of base year.

3) COMMON SIZE STATMENT

The common -size statements, balance sheet & income

statements arc shown in analytical percentages. The figures arc

shown as percentages of total assets, total liabilities & total

sales. The total assets are taken as 100 and different. Assets are

expressed as a percentage of the total. Similarly various

liabilities are taken as a part of total liabilities.

4) FUND ANALYSIS:

Under fund analysis there are two statements are prepared,

these are:

Fund Flow StatementThe funds flow statement is' a statement, which shows the

movement of funds and is a report of the financial operations of

the business undertaking. It indicates the various means by

which funds were obtained during a particular period find the

ways in which these funds were employed. In simple words, it is

statement of sources and applications of funds.

Cash Flow StatementA statement of changes in the financial position of firm on the

basis of cash is called a cash flow statement. Such a statement

25

enumerates net effects of the various business transactions on

cash and takes into account receipts and disbursements of cash.

5) RATIO ANALYSIS

I choose the ratio analysis for the analysis of financial position of

SSK PVT. LTD... There are various methods or techniques used

in analyzing financial statements, but ratio analysis is the must

powerful tool of financial analysis.

26

RATIO ANALYSIS

MEANING OF RATIOA ratio is a simple arithmetical expression of the relationship of

the members to another. It may be defined as the indicated

quotient of two mathematical expressions. In sil1Jpk language

ratio is one number expressed in terms of another and can be

worked out by dividing one number into the other.

INTERPRETATION OF RATIOSBroadly speaking ratios may be interpreted in four different ways

as follows:

1. An individual ratio may have significance of its own. For

example a ratio of 25% of net profit of capital employee' shows a

satisfactory return.

2. Ratios may be interpreted by making comparison over time.

For example ratio of net profit on capital employed is 25%. This

may be compared with similar ratio of net profit on capital

employed is 25%. This may be compared with similar ratio of a

number of past years. Such a comparison will indicate the trend

of rise, decline or stability of the ratio.

3. Ratio of may be interpreted by considering a group of several

related ratios. FOI example the utility of current ratio is

enhanced if it is used along with other related ratios like quick

ratio or acid test ratio, stock turnover ratio etc. Similarly various

profitability ratios may be considered relation to each other.

27

ADVANTAGES & USES OF RATIO ANALYSIS

Ratio analysis is one of the most important tools of financial

analysis. This tool can diagnose financial health of a business.

Such an analysis appears the following advantages:

1. USEFUL ANALYSIS OF FINANCIAL STATEMENTS:

Ratio analysis is most important tool available for analysis the

financial statement i.e. profit and loss account and balance

sheet. Such analysis is made, not only by the management but

also by outsiders 'like bankers, creditors, investors etc

2. USEFULL IN IMPROVING FUTURE PEHFORMANCE:

Ratio analysis indicates the weak spots of the business. This

helps management in overcoming such weaknesses and

improving the overall perfom1ance of the business in future.

3. USEFULL IN INTER -FIRM COMPARISON

Comparison of the performance of one firm with another can be

made only when absolute data is converted into comparable

ratios. If a firm is earning a net profit of Rs 50,000 while another

firm 13 is earning. Rs. 1, 00,000 does not necessarily mean that

firm B is shelter off unless this profit figure is converted into a

ratio and then compared.

4. USEFUL IN JUDGING THE EFFICIENCY OF A BUSINESS:

As stated earlier, accolll1ting ratios help in judging the efficiency

of a business. Liquidity, solvency, profitability etc. of a business

can be easily cvallJ01ted with the help' of various accounting

ratio like current ratio, liquid ratio, debt-equity ratio, net profit

28

ratio etc. Such an evaluations enables the management to judge

the operating efficiency of various aspects of the business.

5. USEFUL IN SIMPLIFYING ACCOUNTILVG FIGURES:

Complex accounting data presented in profit and loss account

and balance sheet is simplified, summarized and systemized

with the help of ratio analysis so as to make it easily

understandable. For example gross profit ratio, net profit ratio,

operating ratio etc. give a more easily understandable picture of

the profitability of a business than the absolute profit figures.

29

CLASSIFICATION OF RATIOS

The use of ratio analysis is not confined to financial manager

only. There are different parties interested in the ratio analysis

for mowing the financial position of a firm for different purpose.

In view of various users of ratios there are many types of ratios,

which can be calculated from the information given in the

financial statements. Various accounting ratios call is classified

as follows: -

A. TRADITIONAL CLASSIFICATION OR STATEMENT RATIOS.

1. Balance Sheet or position statement ratios.

2. Profit. & Loss Account Ratios.

3. Mixed ratios or inter statement ratios.

B. FUNCTIONAL CLASSIFICATION1. Liquidity Ratios.

2. Long Term Solvency and Leverage Ratio.

3. Activity Ratios.

4. Profitability Ratios.

We choose the Functional Classification of ratios for the analysis

purpose of Teak Traders Co. Ltd. Functional Classification of

ratios may be shown by chart.

30

LIQUIDI1Y RATIOS

There are the ratios, which measure the short-term solvency of

financial position of a firm. These ratios are calculated to

comment upon the short-term paying capacity of concern or firm

stability to meet its current obligations. Various liquidity ratios

are current ratio, liquid ratio and absolute liquid ratio.

LONG TERM SOLVENCY & LEVERAGE RATIOS

Long-term solvency ratios convey a firm’s ability to meet the

interest costs and repayment schedules of its long-term

obligations e.g., Debt equity ratio, and Interest Coverage ratio.

Leverage ratios show the preparations of debt and equity in

financing of the firm. These ratios measure the contribution of

financing by owners as compared to financing by outsiders.

ACTIVITY RATIO

Activity ratios are calculated to measure the efficiency with

which the resources of a firm have been employed. These ratios

arc also called turnover ratios because they indicate the speed

wi1l1 which assets arc being turned over into sales e.g. debtor

turnover ratio or stock turnover ratio.

PROFITABILITY RATIOS

These ratios measures the results of business operations or

overall performance and effectiveness of the firm e.g. gross

profit ratio, operating ratio, return or capital employed.

31

BALANCE SHEET (IN LAKHS)

YEARS 2007-

08

2006-

07

2005-

06

2004-

05

2003-

04

CAPITAL 876 800 741 685 634

SECURED LOAN 1400 1434 1465 1350 1365

CREDITORS 215 213 211 217 216

BILLS PAYABLES 355 363 343 318 218

TOTAL 2846 2810 2760 2570 2433

FIXED ASSETS

BUILDING 1500 1530 1454 1399 1477

PLANT & MACHINERY 500 456 443 414 398

BILLS RECEIVABLES 89 86 98 74 60

DEBTOR 321 315 301 68 200

PREPAID EXP. 9 8 8 10 7

CASH & BANK 90 92 86 89 88

MARKETING SECURITIES 70 71 62 68 63

CLOSING STOCK 253 251 249 248 251

TOTAL 2832 2809 2701 2370 2544

32

FINANCIAL RESULTS (IN LAKHS)YEARS 2007-08 2006-07 2005-06 2004-05 2003-04

SALES 4200 4130 4073 3976 3837

LESS COG 3344 3325 3295 3240 3072

GROSS PROFIT 856 805 778 736 765

LESS

OPERATING COST 512 503 477 444 490

OPERATING PROFIT 340 297 301 292 275

LESS

INTEREST 25 25 26 24 24

PROFIT AFTER INTEREST 315 272 277 268 251

33

CURRENT RATIOCurrent ratio may be defined as the relationship between current

assets and current liabilities. This ratio is known as working

capital ratio; it is a measure of general liquidity &is most widely

used to make the analysis of a short-term financial position or

liquidity of a firm. It is calculated by dividing the total of current

assets by total of current liabilities. Thus:

Current Ratio = Current Assets Current Liabilities

Year 2007-

08

2006-

07

2005-

06

2004-

05

2003-

04

Current Assets 834 827 801 757 670

Current Liabilities 570 576 554 535 544

Current Ratio 1.46 1.43 1.44 1.41 1.23

INTERPRETATION OF CURRENT RATIO

A relatively high current ratio is an indication that the firm is

liquid and has the ability to pay its current obligations in time as

and when they because due. One other hand a relatively low

current obligations in time as and when they become the due.

One other hand a relatively low current ratio represents that the

liquidity position of the firm is not good and firm shall not be

able to pay its current liabilities ill time without facing difficulties.

As convention the minimum of two to one ratio is referred as a

banker's rule of thumb. A ratio equal to near to the Thumb of 2:

1 Current Assets double the current liabilities is considered to be

satisfactory so SSK PVT. LTD. position is satisfactory. There

was 1.44, 1.43, 1.46 Current ratio respectively in 2005-06 to

2007-08.

34

CURRENT RATIOYear 2007-08 2006-07 2005-06 2004-05 2003-04Current assets

834 327 801 757 670

Current Liabilities

570 576 554 535 544

Current Ratio

1.46 1.43 1.44 1.41 1.23

(In Rs ’00000)

35

QUICK OR ACID TEST OR LIQUID RATIO

Though current ratio is a valuable indicator of liquidity, yet it may lead to misleading if inventory forms a major component of current assets.Quick ratio is a more server test of short-term solvency, and

measures the ability of a firm to instantaneously discharge its

immediate obligations. This ratio is a refinement of current ratio.

It is calculated by comparing liquid liabilities assets to liquid

liabilities liquid assets may be calculated as:

Liquid Assets = Current Assets – Inventory – Prepaid Expenses

This ratio may be expressed as:Liquid Ratio = Quick Assets

Current Liabilities Some accountants prefer the term “Liquid Liabilities” for “current liabilities” for the purpose of ascertaining this ratio. Liquid liabilities mean liabilities which are payable with in short period. The bank overdraft and cash credit facilities will be executed from current liabilities in such a case it may be expressed as:

Liquid Assets Liquid Liabilities

INTERPRETATION As a rule of thumb or as a convention quick ratio of 1:1 is

considered satisfactory. It is generally thought that if quick

assets are equal to current liabilities then the concern may be

able to meet its short obligations SSK Pvt. LTD. Quick Ratio was

increased to 1:1 in 2005 due to increase in sundry debtors

comparably sundry creditors. But in 2006 is .98 due to minor

increase in sundry liabilities.

36

QUICK RATIO

Year 2007-08 2006-07 2005-06 2004-05 2003-04Quick assets

572 568 544 499 412

Quick Liabilities

570 576 544 535 544

Quick Ratio

1.003 0.988 1 0.937 0.756

37

ABSOLUTE LIQUID RATIO

Although receivables debtors and bills receivables arc generally

more liquid than inventory yet there may be doubts regarding

their realization into cash immediately or in time. Hence some

C1llthoritics are of the opinion that absolute liquid ratio should

also be calculated together with current ratio and acid test ratio

so as to exclude even receivables from the current assets and

find out the absolute liquid assets:-

Absolute Liquid Ratio = Absolute Liquid Assets

Current liabilities

Absolute Liquid Assets include cash in hand, cash at bank and

marketable securities or temporary investments. The acceptable

norm for this ratio is 50% or 5: I or 1: 2 i.e. Rs 1 worth absolute

liquid assets are considered adequate to pay Rs 2 worth current

liabilities in time as all the creditors are not expected to demand

cash at the same time and then cash may also be realized from

debtors and inventories.

Year 2007-08 2006-07 2005-06 2004-05 2003-04Absolute Liquid Assets

162 164 155 157 152

Current Liabilities

570 576 544 535 544

Absolute Liquid Ratio

0.28 0.28 0.29 0.29 0.27

38

INTERPRETATION

The acceptance norm of this ratio is 5:1 i.e. 0.5 worth Liquid.

Assets are considered adequate to pay Rs. 1 worth current

liabilities ill time as the creditors are not expected to demand

cash at the same time and than cash may also be received from

decisions inventories.

In the year 2003-04 and 2004-05 ratio are 0.27 and 0.29

respectively. These are increased due to decrease in creditors in

current liabilities. In the year 2006-07 and 2007-08 are constant,

show that the absolute liquid position of company is satisfactory.

39

ABSOLUTE LIQUID RATIO

Year 2007-08 2006-07 2005-06 2004-05 2003-04Absolute Liquid Assets

162 164 155 157 152

Current Liabilities

570 576 544 535 544

Absolute Liquid Ratio

0.28 0.28 0.29 0.29 0.27

Analysis of Absolute Liquid Ratio

40

SUMMARY OF LIQUIDITY RATIO

Year 2007-08 2006-07 2005-06 2004-05 2003-04Current Ratio

1.46 1.435 1.445 1.414 1.23

Quick Ratio

1.003 0.98 1 0.93 0.75

Absolute Liquid Ratio

0.28 0.28 0.29 0.29 0.27

Summary of Liquidity Ratios

Current Assets Movement of Efficiency / Activity Ratios

Funds are invested in various assets in a business to make sales

41

and earn profits. The efficiency with which assets ale managed

directly affects the volume of sales. The better the management

of assets the large is the amount of sales and profits. Activity

ratios measure the efficiency or effectiveness with which a firm

manages its resources or assets. These ratios are called turnover

ratios because they indicate the rate at which the funds invested

in inventories are converted into sale. Depending upon the

purpose, number or turnover ratios can be calculated as debtor

turnover, stock turnover, capital turnover etc.

Funds are invested in various assets in a business to make sales

and earn profits. The efficiency with which assets arc managed

directly affects the volume of sales. The better the management

of assets the large is the amount of sales and profits. Activity

ratios measure the efficiency or effectiveness with which a firm

manages its resources or assets. These ratios are called turnover

ratios because they indicate the raw at which the funds invested

in inventories are converted into sale. Depending upon the

purpose, a number of turnover ratios can be calculated as debtor

turnover, stock turnover, capital turnover etc.

INVENTORY TURNOVER RATIO

This ratio establishes the relationship between the cost of goods

sold during a given period and the average amount of inventory

42

carried during that period indicates whether stock has been

efficiently used or 'not, the purpose being to check up whether

only the required minimum has been locked up in stocks. It is

usually considered better to work out the turnover against cost

of sale since it includes a clement of profit whereas stock is

usually at cost.

The ratio is calculated as follows: -

Stock turnover Ratio = Cost of Goods Sold

Average Inventory at Cost

Cost of Goods Sold = Opening Stock + Purchase + Direct Exp.-Closing Stock

Generally the cost of goods sold may not he available from

published accounts. In such a case the inventory turnover may

be calculated by dividing net sale by the average inventory at

cost. If average inventory at cost is not known then the

inventory at selling price may be taken as the denominator.

Thus

Inventory turnover Ratio = Net Sales Average Inventory at

Cost

43

Inventory turnover Ratio = Net Sales Average Inventory

at selling price

INVENTORY CONVERSION PERIOD

It may also be of interest to see the average time taken for claiming the stock. This can be possible by calculating inventory conversion period. This period is calculated by dividing the number of days by inventory turnover. The formula may be as follows.

Inventory Conversion Period = Days in a Year

Inventory Turnover Ratio

No. of days = I take 365 days in a year.

Year 2007-08 2006-07 2005-06 2004-05 2003-04

COGS

(A)

3334 3325 3295 3240 3072

Average

Inv. (B)

426 418 407 368 303

I/I Ratio

C (A/B)

7.18 7.94 8.08 8.80 8.40

I/C Ratio

(365/C)

46 52 45 41 43

44

INTERPRETATION

Inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover ratio indicates brisk sales. It also indicates efficient stock control, sound sales policies, trading in quality goods, a reputation in the market and better competitive capacity. A low inventory turnover ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorating in quality. In the year 2003-04 the ratio is 8.4 which is increase to 8.8 in

2004-05 there is slight decrease in year 2005-06 and 2006-007

are 8.08 and 7.94 inventory turn over ratio of the company in

satisfactory and inventory conversion period is increased but in

current year is slight decreased.

45

INVENTORY TURNOVER RATIO

Year 2007-08 2006-07 2005-06 2004-05 2003-04

COGS

(A)

3334 3325 3295 3240 3072

Average

Inv. (B)

426 418 407 368 363

I/I Ratio

C (A/B)

7.18 7.94 8.08 8.80 8.40

I/C Ratio

(365/C)

46 52 45 41 43

46

DEBTOR TURNOVER RATIO

Debtor constitutes an important constituent or current assets and therefore quality or debtor to a great extent determines a firm’s liquidity. Two ratios are used by financial analysis to judge the liquidity of a firm. They arc (I) debtor turnover ratio (ii) debt collection period.

Debtor turnover ratio establishes the relationship between net credit sales and average debtors, of the year. Average debtors arc calculated by dividing the sum of debtors in the beginning and at the end by 2. This is calculated as follows:Debtor Turnover Ratio = Net Credit Sale

Average Account Receivable

The term account receivable includes trade debtors and bills receivable while calculating the debtor's turnovers, it is important to remember that doubtful debts are not deducted from total debtors. In case details regarding opening and closing receivables and credit sale arc not given the ratio may be worked-out as follows:

Debtor turnover Ratio = Total Sales Account Receivables

47

AVERAGE COLLECTION PERIOD

This ratio show the number of days for which normally sales remain uncollected. It indicates the extent two which the debts have been collected in time. In other word, it gives the average debt collection period. This ratio may be calculated as follows:

Debt Collection Period: 365 Days or 360 Days /12 Months

Debtors turnover

Debt collection period is a measure of average credit period enjoyed be customers. It measures the quality of debtors since it measures the rapidity or slowness with which money is collected from them. A short collection period indicates prompt payment by debtors, which reduces the changes of bad debts. In order to measure a firm’s credit and collection efficiency its average collection period should be compared with average of the industry. It should be neither too liberal nor too restrictive. A restrictive policy will result in lower sales, which will reduce profits.

48

DEBTOR TURNOVER RATIO

Year 2007-08

2006-07

2005-06 2004-05 2003-04

Sales 4200 4130 4073 3976 3837

Average

Debtors

405 418 385 301 270

Debtor T/O

Ratio

10.35 9.8 10.56 13.9 14.2

Debt

Collection

Period

35 37 35 28 26

418

49

Debtors

Debtor

T/O

Ratio

10.35 9.8 10.56 13.19 14.2

Debt.

Coll

Period

35 37 35 28 26

INTERPRETATION

This ratio indicate the speed with which debtor are converted into cash. Higher the debtor turnover ratio better it is where as shorter the average collection period betters the quality of debtor. The credit period granted by this company to its debtor is 26 days in 2003-04; the rate is higher in 2004-05 it is increased to 13.19. The debt collection is increased and increased indicate the efficiency of the company for collection of book debt it adversely affect the short-term financial position of the company. It indicates the good condition of the firm collect the debt within month.

PAYABLE (CREDITORS) TURNOVER

50

RATIO

This ratio is calculated roughly as the debtor's turnover ratio. It

indicates the velocity with which the payments, for credit

purchase arc made to creditors. The ratio can be computed as

follows:

Creditor turnover Ratio = Total Credit Purchases Average Accounts Payable

The term accounts payable includes trade creditors and bills

payable. In case the details regarding credit purchases, opening

and closing accounts payable have not been given the, ratio may

be calculated as: Total Purchases Accounts Payable.

INTERPRETATION

Generally higher the creditors turnover ratio and Lower the payment period show the better liquidity of the firm and vice versa. In the year 2003-04 Creditors turnover ratio is 4.47, which is decreased in the year, 2002-03 is 4.21. In the year 2005-06, 2006-07 and 2007-08 the ratios are 4.13, 3.97 and 4.03. It shows that the firm is not able to pay to its creditors in time. Average payment period is also increasing year by year. It will have unfavorable effect on the liquidity position of the firm. Creditors of the firm are turned over in relation to purchase with lower velocity and high payment period.

51

CREDITORS T/O RATIO

2007-08

2006-07

2005-06

2004-05

2004-03

Purchase 2314 2247 2251 2275 2401

Average Creditors 573 565 544.5 539.5 536

Creditors T/O Ratio 4.03 3.97 4.13 4.21 4.47

Payment Period 90 91 88 86 81

52

WORKING CAPITAL TURNOVER RATIO

This ratio indicates the number of times a unit invested in working capital produces sales. In other words this ratio indicates the efficiency or otherwise in the utilization of short term funds in making the sales. The ratio is calculates follows:

Working Capital Turnover Ratio = Cost of Sales Average Working

Capital Where working capital at the beginning is not disclosed, the ratio may be calculated with working capital at the end in place of average working capital.

WORKING CAPITAL = C.A – C.L.

Year 2007-08

2006-07

2005-06

2004-05

2003-04

C.O.G.S. 3334 3325 3295 3240 2072

Working Capital 264 251 247 222 126

Working Capital

Ratio

12 13 13 14 16

INTERPERTATION

A higher working capital indicates effective utilization of working

capital and a low working capital ratio indicate under utilization

of working capital. In the year 2003-04 the ratio was 16 and in

the year 2004-05 it decreased to 14 and constant in 2005-06

and 2006-07 is 13. Ratio increased due to operating efficiency or

the company in utilizing its working capital. Higher will be ratio

higher will be efficiency of the company.

53

WORKING CAPITAL RATIO

YEARS 2007-08

2006-07

2005-06

2004-05

2003-04

C.O.G.S. 3334 3325 3295 3240 2072

Working Capital 264 251 247 222 126

Working Capital

Ratio

12 13 13 13 14

54

SUMMARY OF ACTIVITY RATIOS

The main objective of a Business concern is to earn profits. In

high terms efficiency in business is measured by profitability.

Jaw profitability arise due to lack or control. Over the expenses

Banker's financial institutions and other creditors look at the

profitability ratios as an indicators whether or not the firm earns

substantially more than its pays interest for the use of borrowed

funds and. whether the ultimate repayment of their debt--

appears reasonably certain owners are also interested to know

the profitability as it indicates the return which they can get on

their investments. The following arc the important profitability

ratios.

55

SUMMARY OF ACTIVITY RATIOS

YEARS 2007-08

2006-07

2005-06

2004-05

2003-04

Inventory turnover ratio 7.18 7.94 9.08 8.8 8.4

Inventory conversion

Period

46 52 45 41 43

Debtor turnover ratio 10.35 9.8 10.56 13.19 14.2

Average Debt Collection 35 37 35 28 26

Creditors turnover ratio 4.03 3.97 4.13 4.21 4.47

Average credit period 90 91 88 86 81

Working Capital turnover

ratio

12 13 13 14 16

56

57

GROSS PROFIT RATIO

Gross Profit Ratio measures the relationship of gross profit to net

sales and is usually represented as a percentage. Thus it is

calculated by dividing the G.P. by sales

G.P. Ratio = (Gross Profit/Net Sales) *

100

= (Sales – Cost of Goods Sold)/Sales * 100

YEARS 2007-08

2006-07

2005-06

2004-05

2003-04

Gross Profit 856 805 778 736 765

Sales 4200 4130 4073 3976 3837

Gross Profit Ratio 20.38

%

19.49

%

19.10

%

18.15

%

19%

INTERPRETATION

The ratio established the relationship between gross Profit and

sales. Higher the ratio better it is. There is no standard norm for

judging the ratio however gross profit should be adequate to

cover operating expenses and to provide fixed charges,

dividends and building of reverse. In the year 2003-04 ratios are

19.93 and in the year 2004-05 the retail is 18.51. It is decreased

due to increase in the cost of goods 's0ld in the year 2004-05. In

the year 2006-07 and 2007-08 ratio are 19.49 and 20.38

respectively.

58

GROSS PROFIT RATIO

2007-08

2006-07

2005-06

2004-05

2003-04

Gross Profit 856 805 778 736 765

Sales 4200 4130 4073 3976 3837

Gross Profit Ratio 20.38

%

19.49

%

19.10

%

18.15

%

19%

59

OPERATING NET PROFIT RATIO

Operating net profit is calculated by dividing the operating net profit by sales. This ratio helps in determining the ability of the management in running the business. It is calculated as

(Operating Net Profit /Net Sales) * 100

Operating Profit = Net Sales – Operating Cost

Year 2007-08 2006-07 2005-06 2004-05 2003-04

Operating

Net Profit

(A)

340 297 301 292 275

Sales (B) 4200 4130 4073 3976 3837

Op. Net

Profit Ratios

(A/B)

8.09% 7.19% 7.39% 7.34% 7%

INTERPRETATION

This ratio is very useful as if the ratio is not sufficient the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, low demand etc. obviously higher the ratio the better is the profitability. In our case this ratio is satisfactory which shows the firm position is good.

60

61

NET PROFIT RATIO

Net profit ratio expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitably. Net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. The ratio indicates the position of the net sales is left for the owners of incomes and expenses. The ratio indicates the position of the net sales is left for the owners after all expenses have been met. It is calculated as follows:-Net Profit Ratio = (Net Sales after Tax /Net Sales) * 100

Year 2007-08 2006-07 2005-06 2004-05 2003-04

Net Profit

(A)

315 272 275 268 251

Sales (B) 4200 4130 4073 3976 3837

Net Profit

Ratio (A/B)

7.5% 6.58% 6.75% 6.74% 6%

INTERPRETATION: Higher the net profit ratio higher is the profitability of Business Firm and the firm position is very good. In the year 2003-04 is 6% & current year is 7. 5%

62

OPERATING RATIO

Comparing the cost of the goods sold and other operating expenses with the net sales determine the ratio. Operating ratio is calculated as follows:

Year 2007-08 2006-07 2005-06 2004-05 2003-04

Operating

Cost (A)

199 192 169 161 153

Sales 4200 4130 4073 3976 3837

Operating

Ratio (A/B)

4.73% 4.64% 4.15% 4.05% 3%

((Cost of Goods Sold + Operating Expenses) /Net Sales) *

100

INTERPRETATION: The ratio is a test of efficiency of the management in their business operating. It is a means of operating efficiency. In normal condition the operating ratio should be low enough so as to leave portion of the sales sufficient to give a fair return on the investors. Lower the operating ratio the better is the position. In the case of Teak Trader Firm, these decreases over the time it was 3% in during 2003-04, 4.05% in 2004-05 and in 2005-06 is the 4.15. This rise in the Raito shows the good position of the firm.

63

SUMMARY OF PROFITABLY RATIO

2007-08

2006-07

2005-06

2004-05

2003-04

Op. Net Profit Ratio 8.09 7.19 7.39 7.34 7

Net Profit Ratio 7.5 6.58 6.75 6.74 6

Gross Profit Ratio 20.38

%

19.49

%

19.10

%

18.51

%

19%

Operation Ratio 4.73 4.64 4.15 4.05 3

64

TEST OF LONG TERM SOLVENCY

The long-term financial soundness of any business can be judged by its long-term creditors by testing its ability to pay interest/standing charges regularly and its ability to repay the principal as per schedule. Thus long term financial soundness or solvency of any business is examined by calculating ratios, known as leverage of capital structure ratios. These ratios help to interpret the capacity of the business to (1) repay long–term debt as per installments stipulated in the contract.

1.DEBT-EQUITY RATIO

This ratio is also known as debt to net worth ratio. The relationship between borrowed funds and internal owners fund is measured by debt equity ratio.

Debt Equity Ratio = Total Long Term Debt Capital

Year 2007-08

2006-07

2005-06

2004-05

2003-04

Total long term

debt

1400 1434 1465 1350 1365

Owner Equity 864 800 741 685 634

Debt Equity 1.62 1.79 1.97 1.97 2.15

INTERPRETATION

The debt equity ratio is calculated to measure the extent to which debt financing has been used in the business. The ratio indicates the proportionate claims of owners and outsider against firm’s assets. In the year 2003-04 the ratio is 2.51 which is decrease to 1.97 is 2004-05 which is beneficial from creditor point of view. In the year 2005-06 and 2006-07 ratios are further decrease to 1.97 to 1.79. The ratio of the company is less

65

satisfactory from owner point of view. The firm should improve it. Dept is high in comparison to owner funds it is satisfactory from the Creditor point of view.

2.DEBT SERVICE OR INTEREST COVERAGE RATIO

Measure debt service capacity of a business so far as interest on Long Term Loans is concerned. The ratio is calculated with formula. EBIT/fixed Interest Charges. Year 2007-

082006-

072005-

062004-

052003-

04EBIT 340 297 301 292 275

Fixed Int. Charges 25.2 25.8 26.37 24.3 21.5

Interest Con. Ratio 13.49 11.5 11.4 12.01 11.19

INTERPRETATION

This ratio shows how many times the interest the earning covers charges in the firm interest coverage ratio was 11.19 times in 2003-04 and 12 in 2004-05 and it and it increases over the period because EBIT increases.

66

3. FIXED ASSETS RATIO

It establishes the relationship between long-term funds (equity plus long term loans) and fixed assets. Since financial management advocates that fixed assets should be purchased out of long term funds only. Formula = Long Term Funds Net fixed Assets

Year 2007-08 2006-07 2005-06 2004-05 2003-04

Total Long

Term Debt

1400 1434 1165 1350 1365

Net fixed asset 2001 1983 1919 1183 1873

Fixed Assets

ratios

0.7 0.72 0.75 0.74 0.72

INTERPRETATION

Generally the total of the fixed assets should be equal to the total of long-term funds. In this case net fixed assets exceeds the total of the long term funds it implies that the firm has financial a part of fixed assets out of current funds or working capital which is good financial policy.

67

4. SOLVENCY RATIO

Solvency is a term, which is used to describe the financial position of any business, which is capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship between total liability & total assets:-

Formula = Total Liabilities Total Assets

Year 2007-08 2006-07 2005-06 2004-05 2003-04

Total Liabilities 1970 2010 2019 1885 1909

Total assets 2834 2810 2761 2570 2543

Solvency ratio 0.690 0.71 0.73 0.73 0.75

INTERPRETATION

This ratio is small variant of equity ratio can be simply calculated as 100 equity ratio. Generally lower the ratio of total liabilities to assets more satisfactory as stable is the long-term solvency position of the firm. In a firm solvency ratio is .75 in 2003-04 & constant in 2004-05 & 2005-06. It is almost same over the period of time.

68

SOLVENCY RATIO

YEAR 2007-08

2006-07

2005-06

2005-04

2003-04

Total Liabilities 1970 2010 2019 1885 1909

Total assets 2834 2810 2761 2570 2543

Solvency ratio 0.69 0.71 0.73 0.73 0.75

PROPRIETORY RATIO \EQUITY RATIO

This ratio variably knows as Net worth to total Assets Ratio or

shareholder’s equity to total Equity Ratio. It is an important test

69

to Judge the long-term solvency of concern. It is calculated as

follows.

Equity Ratio = Proprietors funds Equity Ratio Total Assets

Year 2007-08

2006-07 2005-06 2004-05 2003-04

Owner

equity

864 800 741 685 631

Total

Assets

2834 2810 2760 2570 2543

Equity

Ratio

30.48

%

28.46 % 26.84 % 26.65 24 %

INTERPRETATION

The ratio represents the relationship between owner’s funds to

total assets. Higher the ratio better the long-term solvency

position of the company, this ratio indicates the extent to which

assets of the company can be lost without effecting the interest

of the creditor of the company. In the year 2003-04 the ratio is

24, which is increased to 26.8% in 2004-05 and in 2005-06 is

26.84 % & 26.25% respectively. In the current year ratio is

30.48%, which is better from the owner’s point of view.

Higher the share of the shareholders in the total capital of the

company better is the long-term solvency position of the

company.

70

OBSERVATIONS

1) Current ratios are increasing over the period of time but it is

less than the standard ratio 2:1

2). Quick ratios are also increasing yearly but it is less than the

standard.

3). Absolute ratios are increasing. These are more less than

standard.

4). Inventory turnover ratio and inventory conversion period

position is also good.

5). Credit turnover ratio and collection period position is

satisfactory.

6). Firms working capital used for fixed assets, which is a good

policy.

7). Firms solvency position is also satisfactory.

8). Firm’s profitability position is very good. Company is having

profits over the period of time.

9). Workers get good working condition. There is a proper facility

of canteen, water, proper ventilation; coolers, fans, clean

environment proper lighting so the workers can work easily

and their efficiency can be increased.

10). The staff of the firm is well experienced and it becomes

assets for the company.

11). There is centralization in the organization. All the levels

strictly follow the order, which is made by the Top

Management.

12). There is a lack of Cost accounting system in the

organization.

71

13). There is no Professionalization in the organization. The

management itself takes every decision.

72

SUGGESTIONS

1. For good liquidity position firm must increase its current

assets like cash in hand, cash at bank, debtor etc. & it should

reduce current liabilities.

2. It is should try to use its working capital more efficiently for

earning more profits.

3. Firm must try to decrease its expensive.

4. Firm should try to increase its sale for earning profits.

5. Management must adopt a good strategy to meet out the

more profits.

6. Firm should increase its fixed assets and working capital must

not be used for acquiring fixed properties.

7. There should be separate Cost accounting department in the

organization.

8. There should be proper professional in the organization,

professional should be the there and their suggestions should

be properly considered.

9. The firm properly used its idle capacity.

10. The designs and styles should be appearing and fresh. It

should not mere imitation of the present prevalent style of

other.

11. Firm should sale its goods to domestic market to increase the sale. Knowledge

cannot be gained only on the basis of theoretical understanding from books. A

practical insight is necessary for the learning process to complete and

effective. This is especially in case of management education.

73

CONCLUSION

STRONG POINTS

The liquidity ratios i.e. current ratio and quick ratio for all the years show that the firm has been maintaining adequate working capital, but the pledging of sundry debtors may create liquidity problems. Hence, the company has to be cautious. At the same time, the excess working capital also affects profitability of a firm adversely.

NEGAIVE POINTS

1. There is blockage of funds in Debtors in some years as shown by the

debtor’s collection period.

2. The firm has been relying more on borrowed funds.

3. Basic reason for deterioration is profitability of firm seems to the declining

trend in sales of firm. This indicates that the firm has not prepared it to face

the increasing com1petition and has not allowed the market to slip out of

its hands.

4. There is declining trend in operating ratio and increasing trend in Net Profit

Ratio till 2001, which indicates probable inefficiency in Office and Sales

divisions and requires immediate remedial action. Firm is not utilizing its

resources effectively as shown by the trend in turnover ratios.

74

BIBLIOGRAPHY

S. NO. AUTHOR NAME OF BOOK

1. I.M. Pandey Financial management

2. M.Y. Khan & P.K. Jain Financial management

3. R.K. Sharma, Shashi

Gupta

Management accounting

4. S.N. MAHESHWARI Management accounting

5. S.C. Kuchhal Financial Management

75