Chapter - 1 INTRODUCTION OF RATIO ANALYSIS.I) INTRODUCTION ABOUT
RATIO ANALYSIS:Ratio analysis is the method or process by which the
relationship of items or group of items in the financial statement
are computed, determined and presented. Ratio analysis is an
attempt to derive quantitative measures or guides concerning the
financial health and profitability of a business enterprise. Ratio
analysis can be used in both in trend and static analysis. The
ratio analysis is the most powerful tool of financial analysis.
Several ratios calculated from the accounting data can be grouped
into various classes according to financial activity or function to
be evaluated.II) DEFINITION:The indicate quotient of two
mathematical expressions and as the relationship between two or
more things. It evaluates the financial position and performance of
the firm.As started in the beginning many diverse groups of people
are interested in analyzing financial information to indicate the
operating and financial efficiency and growth of firm. These people
use ratios to determine those financial characteristics of firm in
which they interested with the help of ratios one can determine.
The ability of the firm to meet its current obligations. The extent
to which the firm has used its long-term solvency by borrowing
funds. The efficiency with which the firm is utilizing its assets
in generating the sales revenue. The overall operating efficiency
and performance of firm.The information contained in these
statements is used by management, creditors, investors and others
to form judgment about the operating performance and financial
position of firm. Uses of financial statement can get further
insight about financial strength and weakness of the firm if they
properly analyze information reported in these statements.
Management should be particularly interested in knowing financial
strength of the firm to make their best use and to be able to spot
out financial weaknesses of the firm to take suitable corrective
actions. The further plans firm should be laid down in new of the
firms financial strength and weaknesses. Thus financial analysis is
the starting point for making plans before using any sophisticated
forecasting and planning procedures. Understanding the past is a
prerequisite for anticipating the future.
Chapter - 2 OBJECTIVES AND METHODOLOGY.I) NEED OF THE STUDY:The
prevalent educational system providing the placement training at an
industry being a part of the curriculum has helped in comparison of
theoretical knowledge with practical system. It has led to note the
convergences and divergence between theory and practice.The study
enables us to have access to various facts of the organization. It
helps in understanding the needs for the importance and advantage
of materials in the organization, the study also helps to exposure
our minds to the integrated materials management the various
procedures, methods and technique adopted by the organization. The
study provides knowledge about how the theoretical aspects are put
in the organization in terms of described below: To pay wages and
salaries. For the purchase of raw materials, spares and components
parts. To incur day-to-day expenses. To meet selling costs such as
packing, advertising. To provide credit facilities to customers. To
maintain inventories and raw materials, work-in-progress and
finished stock.
II) SCOPE OF THE STUDY:The scope of the study is limited to
collecting financial data published in the annual reports of the
company every year. The analysis is done to suggest the possible
solutions. The study is carried out for 4 years (2009- 13).Using
the ratio analysis, firms past, present and future performance can
be analyzed and this study has been divided as short term analysis
and long term analysis. The firm should generate enough profits not
only to meet the expectations of owner, but also to expansion
activities.III) OBJECTIVES OF STUDY:1. To study and analyze the
financial position of the Company through ratio analysis.2. To
suggest measures for improving the financial performance of
organization.3. To analyze the profitability position of the
company.4. To assess the return on investment.5. To analyze the
asset turnover ratio.6. To determine the solvency position of
company.7. To suggest measures for effective and efficient usage of
inventory.
IV) REVIEW OF LITERATURE:A. FINANCIAL ANALYSIS:Financial
analysis is the process of identifying the financial strengths and
weakness of the firm. It is done by establishing relationships
between the items of financial statements viz., balance sheet and
profit and loss account. Financial analysis can be undertaken by
management of the firm, viz., owners, creditors, investors and
others. Objectives of the financial analysis:Analysis of financial
statements may be made for a particular purpose in view.1. To find
out the financial stability and soundness of the business
enterprise.2. To assess and evaluate the earning capacity of the
business.3. To estimate and evaluate the fixed assets, stock etc.,
of the concern.4. To estimate and determine the possibilities of
future growth of business.5. To assess and evaluate the firms
capacity and ability to repay short and long term loans. Parties
interested in financial analysis.The users of financial analysis
can be divided into two broad groups.I. Internal users1. Financial
executives2. Top management
II. External users1. Investors2. Creditor.3. Workers4.
Customers5. Government6. Public7. Researchers
Significance of financial analysis:Financial analysis serves the
following purpose:1) To know the operational efficiency of the
business:The financial analysis enables the management to find out
the overall efficiency of the firm. This will enable the management
to locate the weak Spots of the business and take necessary
remedial action.2) Helpful in measuring the solvency of the
firm:The financial analysis helps the decision makers in taking
appropriate decisions for strengthening the short-term as well as
long-term solvency of the firm.
3) Comparison of past and present results:Financial statements
of the previous years can be compared and the trend regarding
various expenses, purchases, sales, gross profit and net profit can
be ascertained.4) Helps in measuring the profitability:Financial
statements show the gross profit, & net profit.5) Inter-firm
comparison:The financial analysis makes it easy to make inter-firm
comparison. This comparison can also be made for various time
periods.6) Bankruptcy and Failure:Financial statement analysis is
significant tool in predicting the bankruptcy and the failure of
the business enterprise. Financial statement analysis accomplishes
this through the evaluation of the solvency position.7) Helps in
forecasting:The financial analysis will help in assessing future
development by making forecasts and preparing budgets.B. METHODS OF
ANALYSIS:A financial analyst can adopt the following tools for
analysis of the financial statements. These are also termed as
methods of financial analysis.1. Comparative statement analysis2.
Common-size statement analysis3. Trend analysis4. Funds flow
analysis5. Ratio analysisC. NATURE OF RATIO ANALYSIS:Ratio Analysis
is a powerful tool of financial analysis. A ratio is defined as
"the indicated quotient of mathematical expression" and as "the
relationship between two or more things". A ratio is used as
benchmark for evaluating the financial position and performance of
the firm. The relationship between two accounting figures,
expressed mathematically, is known as a financial ratio. Ratio
helps to summarizes large quantities of financial data and to make
qualitative judgment about the firm's financial performance.The
persons interested in the analysis of financial statements can be
grouped under three head owners (or) investors who are desired
primarily a basis for estimating earning capacity. Creditors who
are concerned primarily with Liquidity and ability to pay interest
and redeem loan within a specified period. Management is interested
in evolving analytical tools that will measure costs, efficiency,
liquidity and profitability with a view to make intelligent
decisions.D. STANDARDS OF COMPARISONThe ratio analysis involves
comparison for an useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or
unfavorable condition. It should be compared with some standard.
Standards of comparison are:1. Past Ratios2. Competitor's Ratios3.
Industry Ratios4. Projected RatiosPast Ratios: Ratios calculated
from the past financial statements of the same firm.Competitor's
Ratios: Ratios of some selected firms, especially the most
progressive and successful competitor at the same point in
time.Industry Ratios: Ratios of the industry to which the firm
belongs.Projected Ratios: Ratios developed using the projected
financial statements of the same firm.E. TYPES OF RATIOS:Management
is interested in evaluating every aspect of firm's performance. In
view of the requirement of the various users of ratios, we may
classify them into following four important categories:1. Liquidity
Ratio2. Leverage Ratio3. Activity Ratio4. Profitability RatioV)
RESEARCH METHODOLOGY:1. Research Design:In view of the objects of
the study listed above an exploratory research design has been
adopted. Exploratory research is one which is largely interprets
and already available information and it lays particular emphasis
on analysis and interpretation of the existing and available
information. To know the financial status of the company. To know
the credit worthiness of the company. To offer suggestions based on
research finding.
2. Data Collection Methods:A) Primary Data:Information collected
from internal guide and finance manager. Primary data is first hand
information.B) Secondary Data:Company balance sheet and profit and
loss account. Secondary data is second hand information.Data
Collection Tools:To analyze the data acquire from the secondary
sources Ratio Analysis. The scope of the study is defined below in
terms of concepts adopted and period under focus. First the study
of Ratio Analysis is confined only to the Amarraja Batteries
Limited. Secondly the study is based on the annual reports of the
company for a period of 4 years from 2008-09 to 2012-13 the reason
for restricting the study to this period is due time constraint.VI)
LIMITATIONS: The study was limited to only four years Financial
Data. The study is purely based on secondary data which were taken
primarily from Published annual reports of Amararaja batteries
Ltd., There is no set industry standard for comparison and hence
the inference is made on general standards. The ratio is calculated
from past financial statements and these are not indicators of
future. The study is based on only on the past records. Non
availability of required data to analysis the performance. The
short span of the time provided also one of limitations.
Chapter - 3 COMPANY PROFILEAmara Raja Batteries Limited (ARBL)
incorporated under the companies Act, 1956 in 13th February 1985,
and converted into public Limited Company on 6th September 1990.
The chairman and Managing Director of the company is Sri Gala
Ramachandra Naidu, ARBL is a first company in India, which
manufactures Values regulated Lead Acid (VRLA) Batteries. The main
objectives of the company are a manufacturing of good quality of
Sealed Maintenance Free (SMF) acid batteries. The company is
setting up to Rs.1, 920 lakhs plant is in 185 acres in Karakambadi
village, Renigunta Mandal. The project site is notified under B
category.The company has the clear-cut policy of direct selling
without any intermediate. So they have set up six branches and are
operated by corporate operations office located in Chennai. The
company has virtual monopoly in higher A.H.(Amp Hour) rating Market
its product VRLA . It is also having the facility for industrial
and automotive batteries.Amara Raja is 5 S Company and its aim are
to improve the work place environment by using 5S techniques which
is A systematic and rational approach to workplace organization and
methodical house keeping with a sense of purpose, consisting of the
following five elements.
CULTURE AND ENVIRONMENT: Amara Raja is putting a number of HRD
initiatives to foster a spirit of togetherness and a culture of
meritocracy. Involving employees at all levels in building
organizational support plans and in evolving our vision for the
organization. ARBL encourages initiative and growth of young talent
allows the organization to develop innovation solution and ideas.
Benchmark pollution control measures, energy conversation measures,
waste reduction schemes, massive green belt development programs,
employee health monitoring and industrial safety programs have
helped ARBL to take further environment management program. Amara
Raja has now targeted to secure the ISO 14001 certification.QUALITY
POLICY:ARBLs main aim is to achieve customer satisfaction through
the collective commitment of employees in design; manufacture and
marketing of reliable power systems, batteries, allied products and
services.AMARA RAJA GROUP OF COMPANIES: AMARA RAJA POWER SYSTEMS
PRIVATE Ltd. (ARPSL), Karakambadi, Tirupati. MANGAL PRECISION
PRODUCTS PRIVATE Ltd1. (MPPL1), Karakambadi, Tirupati. MANGAL
PRECISION PRODUCTS PRIVATE Ltd2. (MPPL2), Petamitta, Chittoor.
AMARA RAJA ELECTRONICS PRIVATE LIMITED (AREPL), Dighavamgham,
Chittoor. GALLA FOODS PRIVATE LIMITED (GFPL), Puthalapattu Mandal,
Chittoor.INDUSTRIAL BATTERY DIVISION (IBD):Amara Raja has become
the benchmark in the manufacturer of industrial batteries. India is
one of the largest and fastest growth markets for industrial
batteries in the world. Amara Raja is leading in the front, with an
80% market share is stand by VRAL batteries point of view. It is
also having the facility for production plastic components.ARBL is
the first company in India to manufacture VRLA (SMF) Batteries. The
initial investment of the company has Rs.1920 lakhs; the total land
is around 18 acres in Karambadi village, Renigunta Mandal. The
project site is notified under B category.ProductsAmara Raja being
the first entrant in this industry and has the privilege of
pioneering VRLA technology in India.Amara Raja has established
itself as a reliable supplier of high quality products to major
segments like Telecom, Railways and power.CompetitorsThe Major
competitors for Amara Raja Batteries are Exude industries Ltd, and
GNB.CustomersARBL has prestigious OEM (Original Equipment
Manufacturer) clients like FORD, GENERAL MOTORS, DAEWOO MOTORS,
MERCEDES BENZ, DAIMLER CHRYSLER, MARUTI UDYOG LTD., Premier Auto
Ltd., and recent acquired a preference supplier alliance with ASHOK
LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and
SWARAJ MAZDA.
Chapter - 4 DATA ANALYSIS & INTERPRETATIONI. BALANCE SHEET
RATIO:1) Current Ratio:Current ratio is an acceptable measure of
firms short-term solvency Current assets includes cash within a
year, such as marketable securities, debtors and inventors. Prepaid
expenses are also included in current assets as they represent the
payments that will not made by the firm in future. All obligations
maturing within a year are included in current liabilities. These
include creditors, bills payable, accrued expenses, short-term bank
loan, income-tax liability in the current year.Current ratio is
calculated by dividing current assets and current
liabilities.Current Ratio =Current Assets
Current Liabilities
The current ratio is a measure of the firm's short term
solvency. It indicated the availability of current assets in rupees
for every one rupee of current liability. A current ratio of 2:1 is
considered satisfactory. The higher the current ratio, the greater
the margin of safety; the larger the amount of current assets in
relation to current liabilities, the more the firm's ability to
meet its obligations. It is a cured and -quick measure of the
firm's liquidity.
S.NoYearCURRENT ASSETSCURRENTLIABILITIESCURRENT RATIO
1.2009-101,612,642,497638,958,266 2.52
2.2010-112,280,704,1761,181,003,8461.93
3.2011-123,500,193,2941,312,272,6102.67
4.2012-135,975,961,0252,020,744,9522.96
Interpretation:The standard norm for current ratio is 2:1.
During the year 2009 the ratio is 2.52 and it has decreased to 1.93
during the year 2010 and increased to 2.67 in 2011 and it is
increased to 2.67 in the year 2012 andit has increased to 2.96 in
the year 2013. The ratio above was standard except in the year
2011. So the ratio was satisfactory.2) Quick Ratio:Quick Ratio
establishes a relationship between quick or liquid assets and
current liabilities. An asset is liquid if it can be converted into
cash immediately or reasonably soon without a loss of value. Cash
is the most liquid asset, other assets that are considered to be
relatively liquid asset and included in quick assets are debtors
and bills receivables and marketable securities (temporary quoted
investments).Inventories are converted to be liquid. Inventories
normally require some time for realizing into cash; their value
also has a tendency to fluctuate. The quick ratio is found out by
dividing quick assets by current liabilities.Quick Ratio =Quick
Assets
Quick Liabilities
Generally, a quick ratio of 1:1 is considered to represent a
satisfactory current financial condition. Quick ratio is a more
penetrating test of liquidity than the current ratio, yet it should
be used cautiously. A company with a high value of quick ratio can
suffer from the shortage of funds if it has slow- paying, doubtful
and long duration outstanding debtors. A low quick ratio may really
be prospering and paying its current obligation in
time.S.NOYearQUICK ASSETSQUICK LIABILITIESQUICK RATIO
12009-101,171,683,584638,958,2661.83
22010-111,708,741,9551,181,003,8461.45
32011-122,578,479,8791,312,272,6101.96
4.2012-134,032,625,3212,020,744,9521.99
Interpretation:The standard norm for the quick ratio is
1:1.Quick ratio is decreased in the year 2010 to 1.83 from 2.45.
Then, it decreased to 1.45 in the year 2011. And it has increased
to 1.96 in the year 2012 and then it increased to 1.99 in the year
2013.However the ratio was above the standard norm so the ratio was
satisfactory.3) Debt equity ratio:It indicates the relationship
describing the lenders contribution for each rupee of the owner's
contribution is called debt-equity ratio. Debt equity ratio is
directly computed by dividing total debt by net worth. Lower the
debt-equity ratio, higher the degree of protection. A debt-equity
ratio of 2:1 is considered ideal. The debt consists of all short
term as well as long-term and equity consists of net worth plus
preference capital plus Deferred Tax Liability.Debt Equity Ratio
=Long term Debts
Share holder funds (Equities)
S..NoYearTOTAL DEBTNET WORTHD.E.RATIO
1.2009-10233,058,8801,806,848,6710.13
2.2010-11378,672,4272,012,852,9200.19
3.2011-121,407,083,8802,436,657,6770.58
4.2012-133,162,620,5603,331,014,4700.95
Interpretation:The ratio gives results relating to the capital
structure of a firm. Debt equity ratio is 0.09 in the year 2009 and
it increased to 0.13 & 0.19 in the year 2010 and 2011. In the
year 2012 & 2013 the ratio has increased to 0.58 & 0.95. We
can conclude that the company depends on the debt fund is
increasing.4) Interest Coverage Ratio:The interest coverage ratio
or the time interest earned is used to test the firms debt
servicing capacity. The interest coverage ratio is computed by
dividing earnings before interest and taxes by interest charges.
The interest coverage ratio shows the number of times the interest
charges are covered by funds that are ordinarily available for
their payment. We can calculate the interest average ratio as
earnings before depreciation, interest and taxes divided by
interest.Interest Coverage ratio =EBIT
Interest
S.NOYearEBITINTERESTI.C.RATIO
12009-10137,259,5831,448,42794.76
22010-11386,899,73813,435,51528.80
32011-12742,908,74130,924,29324.02
42012-131,588,690,299129,308,87412.29
Interpretation: Interest coverage ratio is 07.56 in the year
2009. It is increased automatically to 94.76 in the year 2010. But,
it is decreased to 28.80 in the year 2011 and decreased to24.02 in
the year 2012 and it again decreased to 12.29 in the year 2013. In
this position outside investors is interested to invest the money
in this company.5) Total Assets turnover ratio: This ratio
expresses relationship between the amounts invested in this assets
and the resulting in terms of sales. This is calculated by dividing
the net sales by total assets. The higher ratio means better
utilization and vice-versa.This ratio shows the firm's ability in
generating sales from all financial resources committed to total
assets.Total assets turnover ratio =Sales
Total Assets
S.NOYearSALESTOTAL ASSETST.A.T. RATIO
12009-102,685,436,0962,809,793,1320.96
22010-114,458,295,7793,692,541,5081.21
32011-127,451,032,9985,292,107,1281.41
42012-1313,499,867,4998,683,886,0371.55
Interpretation:Total assets ratio is 0.83 in the year 2009 and
it gradually increased year by year and reached to 1.55 in the year
2010. It means Total Assets is increased in every year.6) Working
capital turnover ratio:A firm may also like to relate net current
assets or net working capital to sales. Working capital turnover
indicates for one rupee of sales the company needs how many net
current assets. This ratio indicates whether or not working capital
has been effectively utilized market sales.Working capital turnover
ratio =Sales
Working Capital
S.NOYearSALESWORKING CAPITAL W.C.T. RATIO
12009-102,685,436,096973,684,2312.76
22010-114,458,295,7791,099,700,3304.05
32011-127,451,032,9982,187,920,6843.41
42012-1313,499,867,4993,955,216,0733.41
Interpretation:Working capital turnover ratio is 2.41 in the
year 2009 andit is increased to 2.76 in the year 2010. In the year
2011 increased to 4.05. Again it decreased to3.41 in the year 2012
& 2013. The higher the working capital turnover the more
favorable for the company.II. PROFIT AND LOSS ACCOUNT RATIO:1)
Gross profit ratio:First profitability ratio in relation to sales
is the gross profit margin the gross profit margin reflects the
efficiency with which management produces each unit of product.
This ratio indicates the average spread between the cost of goods
sold and the sales revenue. A high gross profit margin is a sign of
good management. A gross margin ratio may increase due to any of
following factors: higher sales prices cost of goods sold remaining
constant, lower cost of goods sold, sales prices remaining
constant. A low gross profit margin may reflect higher cost of
goods sold due to firm's inability to purchase raw materials at
favorable terms, inefficient utilization of plant and machinery
resulting in higher cost of production or due to fall in prices in
market.Gross profit ratio =Gross Profitx100
Net Sales
Gross profit = Net sales-Cost of goods soldCost of goods sold =
Opening stock + material consumed + manufacturing expenses -
closing stock.S.NOYearGROSS PROFITSALESG.P. RATIO (%)
12009-10456,886,2682,685,436,09617
22010-11958,490,5494,458,295,77921.5
32011-122,126,367,8067,451,032,99828.5
42012-133,717,403,51613,499,867,499 27.5
Interpretation:From the above we can say that gross profit ratio
is 16.2% in the year 2009 but it increased to 17 % & 21.5% in
2010 & 2011 and again it increased to 28.5% in the year 2012
and it is decreased to 27.5% in the year 2013. The company is
maintaining proper control on trade activities.2) Net profit
ratio:Net profit is obtained when operating expenses, interest and
taxes are subtracted from the gross profit. Net profit margin ratio
established a relationship between net profit and sales and
indicates management's efficiency in manufacturing, administering
and selling products.This ratio also indicates the firm's capacity
to withstand adverse economic conditions. A firm with a high net
margin ratio would be in an advantageous position to survive in the
face of falling selling prices, rising costs of production or
declining demand for product. This ratio shows the earning left for
share holders as a percentage of net sales. It measures overall
efficiency of production, administration, selling, financing.
Pricing and tax management. Jointly considered, the gross and net
profit margin ratios provide a valuable understanding of the cost
and profit structure of the firm and enable the analyst to identify
the sources of business efficiency / inefficiency.Net Profit Ratio
=Net Profitx100
Net Sales
S.NOYearPROFIT AFTERTAXSALESNET PROFITMARGIN (%)
12009-1086,900,5632,685,436,0963.2
22010-11238,465,7304,458,295,7795.3
32011-12470,434,5757,451,032,9986.3
42012-139,436,315,1113,499,867,4996.99
Interpretation:Duringthe year 2009 the netprofit margin is 0.7
itsuddenly increased to3.2% in the year 2010 because of decreased
in administration and selling expenses. In the next year, it
againincreased to 5.3 in the year 2011 and it again increased to
6.3 in 2012 and to 6.99 in theyear 2013.3) Return on investment:
This is one of the most important profitability ratios. It
indicates the relation of net profit with capital employed in
business. Net profit for calculating return of investment will mean
the net profit before interest, tax, and dividend. Capital employed
means long term funds.Return on investment =E.B.I.Tx100
Capital Employed
S.NOYearEBITCAPITALEMPLOYEDR.O.I. RATIO
12009-10137,259,5832,170,834,8660.06
22010-11386,899,7382,511,537,6620.15
32011-12742,908,7413,979,834,5180.19
42012-131,588,690,2996,663,141,0850.24
Interpretation:Return on Investment is very low in all years.
But, in the year 2009, it reached to6.51 due to less earnings.4)
Stock turnover ratio:Stock turnover ratio indicates the efficiency
of firm in producing and selling its product. It is calculated by
dividing the cost of goods sold by the average stock. It measures
how fast the inventory is moving through the firm and generating
sales.The stock turnover ratio reflects the efficiency of inventory
management. The higher the ratio, the more efficient the management
of inventories and vice versa .However, this may not always be
true. A high inventory turnover may be caused by a low level of
inventory which may result if frequent stock outs and loss of sales
and customer goodwill.Stock turnover ratio =Cost of goods sold
Average stock
Cost of goods sold = Raw materials consumed + payments &
benefits to employees + manufacturing, selling & admin expenses
+ duties & taxes.Average stock =Opening stock + Closing
stock
2
S.NOYearCOST OF GOODSSOLDAVERAGE STOCKSTOCK TURNOVER RATIO
12009-102,228,549,828374,102,2235.96
2
O2010-113,499,805,230506,460,5676.91
32011-125,324,665,192746,837,8187.13
42012-139,782,463,9741,432,524,5596.83
Interpretation: Inventory turnover ratio is 5.57 times in the
year 2009. But, it is increased to 5.96 in the year 2010. Then, it
is increased to 6.91in the year 2011 and again increased to 7.13 in
the year 2012. But, it is decreased to 6.83 in the year 2013.
Inventory turn over ratio increased for year by year that is
company production is also increased. Subsequently sales are also
increased.5) Operating expenses ratio:The Operating expenses ratio
explains the changes in the profit margin ratio. A higher operating
expense is unfavorable since it will leave a small amount of
operating income to meet interest, dividends.Operating expenses
ratio =Operating expenses x100
Net Sales
S.NO
IYearOPERATINGEXPENSESSALESO.E. RATIO
12009-10376,620,6092,685,436,09614.02
22010-11550,626,7564,458,295,77912.35
32011-12767,790,1977,451,032,99810.30
42012-131,388,735,77713,499,867,49910.30
Interpretation:Operating expenses ratio is 17.86% of sales in
the year 2009 it decreased to 14.02% in the year 2010 and decreased
in 2011 to12.35% and again it decreased in the next year 2012 to
10.30% and continued the same way. Then, it reached 10.30% in the
year 2013.6) Manufacturing, Selling and Admin expenses ratio:This
ratio explains the changes in the profit margin ratio. A higher
operating expense is unfavorable since it will leave a small amount
of operating income to meet interest, dividends.Manufacturing,
Selling and Admin expenses ratio =Expenses x100
Net Sales
S.NO
IYearOPERATINGEXPENSESSALESExp. RATIO
12009-10479,509,8802,685,436,09617.86
22010-11750,424,6564,458,295,77916.83
32011-12 1,093,657,4437,451,032,99814.67
42012-131,579,591,22113,499,867,49911.70
Interpretation:Manufacturing, Selling and Admin expenses ratio
is 19.80% of sales in the year 2009 it decreased to 17.86% in the
year 2010 and decreased in 2011 to 16.83% and again it decreased in
the next year 2012 to 14.67% and continued the same way. Then, it
reached 11.70% in the year 2013.III. COMPOSITE RATIO:1) Return on
equity share holders fund:The return on equity share holders fund
explains about the return of share holders with they get on their
investment.Return on equity share holders fund =Profit Available to
Equity Shareholders
Equity share holders fund
S.NOYearProfit Available to Equity ShareholdersEquity
shareholders fund ShareholdersR.O.E.RATIO (%)
12009-1086,900,5631,806,848,6714.8
22010-11238,465,7302,012,852,92011.8
32011-12470,434,5752,436,657,67719.3
42012-13943,631,5113,331,014,47028.33
Interpretation:Return on equity in the year 2009 is 0.8 and it
increased suddenly to 4.8 in the year 2010 and again it increased
to 11.8 in the year 2011. Return on Equity of the company is at
satisfactory level and then it increased to 19.3 in 2012 and again
increased to 28.33 in 2013.2) Debtors turnover ratio: It is found
out by dividing the credit sales by average debtors Debtors
turnover indicates the number of times debtors turnover each
year.Debtors turnover ratio =Sales
Average Debtors
S.NOYearSALESAVERAGEDEBTORSD.T.RATIO
12009-102,685,436,096560,689,8814.79
22010-114,458,295,779753,113,3385.92
32011-127,451,032,9981,158,032,7676.43
42012-1313,499,867,4991,862,113,4987.25
Interpretation: Debtors turnover ratio is 4.31 times in the year
2009 and it is increased to 4.79 times in the year 2010 and
increased to 5.92 times in the year 2011 and it increased to 6.43
times &7.25 times in the years 2012 & 2013.3) Creditors
turnover ratio:The ratio obtained by dividing the annual credit
purchases with average accounts payable.Creditors turnover ratio
=Purchases
Average Creditors
S.NOYearPURCHASESAVERAGECREDITORSC.T. RATIO
12009-101,422,358,585192,242,1967.4
22010-112,244,170,172441,904,9755.1
32011-124,086,818,721591,059,0526.9
42012-138,125,662,2657,081,427,1211.47
Interpretation:Creditors turnover ratio is 6.1 in the year 2009.
It is increased to 7.4 in the year 2010 and it is suddenly
decreased to 5.1 in the year 2011 and it suddenly increased to 6.9
in the year 2012 but increased in the next year 2013 to 11.47.4)
Return on Investment:The conventional approach of calculated ROI is
to divide PAT by investment.Return on investment(ROI) =EBIT
Capital Employed
S.NOYearEBITCAPITALEMPLOYEDR.O.I. RATIO
12009-10137,259,5832,170,834,8660.06
22010-11386,899,7382,511,537,6620.15
32011-12742,908,7413,979,834,5180.19
42012-131,588,690,2996,663,141,0850.24
Interpretation:Return on Investment is very low in all years.
But, in the year 2009, it reached to 6.51 due to less earnings.5)
NET WORKING CAPITAL RATIO: The differencebetween current assetsand
current liabilities excluding short-term bank borrowing is called
net working capital or net current assets.Net working capital ratio
=Net working capital
Net assets
S.NOYearNET WORKINGCAPITALNET ASSETSNET WORKINGCAPITAL RATIO
12009-10973,684,2311,935,207,7140.50
22010-111,099,700,3302,191,397,0060.50
32011-122,187,920,6843,817,892,8620.57
42012-133,955,216,0736,501,134,460 0.61
Interpretation:Net Working Capital ratio is 0.45 in 2009 but
increased to 0.50 in the next year i.e., 2010. From that year the
ratio increased to 0.50 in 2011 and followed in 2012 also and
increased to 0.61 in 2013 but condition of business working capital
is not shortage.
6) Fixed asset turnover ratio:The ratio is supposed to measure
the efficiency with which fixed assets are employed a high ratio
indicates a high degree of efficiency in asset utilization and a
low ratio reflects inefficient use of assets. However, in
interpreting this ratio, one caution should be borne in mind. When
the fixed assets of the firm are old and substantially depreciated,
the fixed assets turnover ratio tends to be high because the
denominator of the ratio is very low.Fixed assets turnover ratio
=Net Sales
Net Fixed Assets
S.NOYearSALESNET FIXEDASSETSF.A.T.RATIO
12009-102,685,436,096948,631,3742.83
22010-114,458,295,7791,043,547,5594.27
32011-127,451,032,9981,568,304,5814.75
42012-1313,499,867,4991,888,508,4757.15
Interpretation:Fixed assets turn over ratio is2.01 in the year
2009and it is increased to 2.83 in the year 2010. In the year 2011
the ratio is 4.27 and it continued up to 4.75 and to 7.15 in the
years 2012 & 2013.
Chapter - 5 FINDINGS & SUGGESTIONS1) FINDINGS: Except in the
year 2011, the company is maintaining current ratio as 2 and more,
standard which indicates the ability of the firm to meet its
current obligations is more. It shows that the company is strong in
working funds management. The company is maintaining of quick
assets more than quick ratio. As the company having high value of
quick ratio. Quick assets would meet all its quick liabilities with
out any difficulty. The company is failed in keeping sufficient
cash & bank balances and marketable securities. In the year
2009 debt equity ratio is 0.08 (8%) but it is increased to 0.11
(11%) & 0.16 (16%) in 2010 and 2011 increased every year. It
shows that the company is losing its condition. Net working capital
ratio is 0.45 in 2009 but also 0.50 in 2010. It is increased very
high but condition of business working capital is not shortage.
Debt Equity ratio is increasing every year. It indicates the
company depends on the debt fund increasing. In the year 2009, the
interest coverage ratio 7.56 which increased to 94.76 in the year
2010 and high fluctuations in the followed years. In this position,
outside investors are interested to invest their money in this
company. Inventory turnover also increased for year by year that is
company production is also increased. Subsequently sales are also
increased. The net profit ratio of the company increasing over the
study period. Hence the organization having the good control over
the operating expenses.2) SUGGESTIONS: The company has to increase
the profit maximization and has to decrease the operating expenses.
By considering the profit maximization in the company the earning
per share, investment and working capital also increases. Hence,
the outsiders are also interested to invest. The company should
maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in
shares, debentures, bonds and other securities. The company must
reduce its debtors collection period from 83 & 84 days to 40
days be adopting credit policy by providing discounts to the
debtors. Return on investment is fluctuates every year. The company
has to make efforts in increasing return on investments by reducing
its administration, selling and other expenses. The company should
increase its interest coverage ratio to serve long term debts. The
net profit of the company is increasing over the study period.
Hence the organization maintaining good control on all expenses.
The dividend per share has observed as raising trend over the study
period, hence it may be suggested Amara Raja Batteries Limited
should take key interest to maximize the share holder wealth by
increasing dividend pay out.3) CONCLUSION: Liquidity ratios, both
current ratio and quick ratio are showing effectiveness in
liquidity as in all the years current ratio is greater than the
standard 2:1 and quick ratio is greater than the standard 1:1
ratio. The firm is maintaining a low cash balance and marketable
securities which means they done cash payments. Debt equity ratio,
solvency ratio and interest coverage ratio are showing an average
increase in the long term solvency of the firm. The proprietary
ratio is showing an average increase which means, the shareholders
have contribute more funds to the total assets. Average payment
period of the firm is showing the credit worthiness of the firm to
its suppliers. Fixed assets turnover ratio is showing that the firm
needs lesser investment in fixed assets to generate sales. The
increasing trend of current assets turnover ratio indicates that
the firm needs more investment in current assets for generating
sales. The gross profit ratio, net profit ratio is showing the
increasing trends. The profitability of the firm the increasing.
Operating ratio of the company has observed decreasing trend, hence
it may be good control over the operating expenses. The interest
that has to be paid is very less when compared to the sales. The
firm is not utilizing the debt conservatively. The company
financial performance is very good and also they will increase
their business year by year by expanding their branches.
Chapter - 6 ANNEXURE & BIBLIOGRAPHYBALANCE SHEET AS AT 31
MARCH 2013
ParticularsSchedule No.As at 31.03.2012As at 31.03.2013
RupeesRupeesRupeesRupees
SOURCES OF FUNDS
Shareholders Funds
Share Capital1113,875,000113,875,000
Reserves & Surplus22,322,782,6773,217,139,470
2,436,657,6773,331,014,470
Loan Funds
Secured Loans31,074,874,0492,266,545,502
Unsecured Loans4332,209,831896,075,058
1,407,083,8803,162,620,560
Deferred Tax liability5136,092,961169,506,055
Total3,979,834,5186,663,141,085
APPLICATION OF FUNDS
Fixed Assets6
Gross Block2,577,786,0733,105,843,108
Less: Depreciation (1,009,481,492) (1,217,334,633)
Net Block1,568,304,5811,888,508,475
Capital Work-in-Progress61,667,597657,409,912
1,629,972,1782,545,918,387
Investments7161,941,656162,006,625
Current Assets, Loans & Advances
Inventories8921,713,4151,943,335,704
Sundry Debtors91,459,544,9772,264,682,019
Cash & Bank Balances10256,000,280511,453,739
Loans, Advances & Deposits11859,824,0541,248,478,477
Other Current Assets123,110,5688,011,086
3,500,193,2945,975,961,025
Less: Current Liabilities & Provisions13
Liabilities735,304,5831,027,373,819
Provisions576,968,02799,371,133
1,312,272,6102,020,744,952
Net Current Assets2,187,920,6843,955,216,073
Misc. Expenditure14 - -
Total3,979,834,5186,663,141,085
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2013
Particulars Schedule No.Year Ended on 31.03.12Year Ended on
31.03.13
RupeesRupees
INCOME
Sales5,958,016,40410,833,256,904
Other Income1597,738,804256,100,643
Increase / (Decrease) in stocks16181,845,189582,065,982
Total6,237,600,39711,671,423,529
Expenditure
Purchase Of Finished Goods 1,190,2126,378,425
Raw Material Consumed173,937,812,4547,794,794,675
Payments & Benefits to Employees
18265,997,094408,078,078
Mfg., Selling Admn., & Other
Expenses191,093,657,4431,579,591,221
Taxes & Licenses2026,007,98949,538,561
Interest2130,924,293129,308,874
Depreciation170,026,464244,452,070
Total5,525,615,94910,212,042,104
Profit Before Taxation711,984,4481,459,381,425
Add: Excess provision of Income Tax - -
Less :Tax Provision for -Current Tax Including Deferred tax,
Earlier Tax, Wealth tax, Fringe benefits
tax241,549,873523,262,294
Profit After Taxation470,434,575943,631,511
Profit brought forward Year from
Previous749,031,6941,125,792,991
Profit available for appropriation1,219,466,2692,069,424,502
Less: Transfer to General Reserve47,043,45894,363,151
Proposed Dividend39,856,25039,856,250
Dividend Tax6,773,5706,773,570
Balance carried to Balance Sheet1,125,792,9911,928,431,531
Basic Earnings per equity share41.3182.87
BIBLOGRAPHY 1. I.M.Pandey: Financial Management2. M.Y.Khan &
P.K.Jai: Financial Management3. S.P. Jain & K.L. Narang: Cost
& Management accounting4. K.Rajeswara rao & G. Prasad:
Accounting & Finance5. P.Kulakarni: Financial
ManagementWeb-site:www.amararaja.co.in Page | 39