Ratio

CONTENT

1. COMPANY PROFILE

2. FINANCIAL ANALYSIS

3. RATIO ANALYSIS

4. COMPUTATION AND PUPOSE

5. PROFIT AND LOSS ACCOUNT

6. BALANCE SHEET

7. PROFITABILITY RATIO

8. ACTIVITY RATIO

10 FINANCIAL RATIO

11 PROFITABILITY RATIO ANALYSIS

Gross Profit Ratio V/s Net Profit Ratio

Return on Capital Employed

12 TURNOVER RATIO

Average Debtors Collection Period V/s Average

Payment Period

13 RCOMMANDIATIONT AND FINANCIAL ANALYSIS

14 FINANCIAL ANALYSIS OF COMPANY

15 OVERALL SUMARY

16 WORKING NOTE

17 BIBLIOGRAPHY

NARMADA GELATINES LIMITED (formerly known as Shaw Wallace Gelatine Limited)

Company Profile:

Narmada Gelatine Limited formerly known as Shaw Wallace Gelatines Ltd. a Jumbo Group Company,which was segregated from Shaw Wallace w.e.f. 27th May,2005,manufactures a wide range of Gelatines.

# Photographic Gelatine,

# Pharmaeceutical Gelatine,

# Industrial Gelatine,

# Edible Gelatine

History:

Shaw Wallace Gelatines Ltd. (SWGL)now known as Narmada Gelatines Limited (NGL)w.e.f.7th January,2002,was incorporated on 13th Jan 1961,as leiner Knit Gelatines Co. Pvt. Ltd. by P.Leiner & Sons (U.K.)at Jabalpur as a bone mill.In 1962,it was converted into a Public Limited Company and the name was changed to Shaw Leiner.

Organisation:

The company has its Factory & Registered Office at Jabalpur with other Sales offices at Delhi,Mumbai,Chennai,Kolkata,Alwar,Ahmedabad and Bangalore.

Location,Land & Building:

The existing plant of the company is situated 16 kms from Jabalpur in M.P.It is ideally located in the proximity of the sources of major rraw materials such as lime and coal.Situated on Varanasi-Jaipur highway,only 22kms from the railway station it is well

connected by network of railways and roadways.The land and building of Narmada Gelatines Ltd. is spread over an area of 78 acres.

Plant & Machinery:

The plant and machinery includes water-chilling plant,bone-dryer/crushes,effluent treatment plant,generator sets,evaporators,water treatment plant boilers,rotators,etc.

Research and Development:

The research and development department of NGL is well developed to carry out the quality tests of the products being manufactured in the factory.

NARMADA GELATINES LIMITED (formerly known as Shaw Wallace Gelatine Limited

It is ensured that the quality at each stage of manufacturing process is maintained.

Goals and Objectives

To be : Lowest in cost and best in quality

With : Our peole-an asset-we are proud ofThrough : Technological innovation and people’s commitment by ensuring healthy environment.

For : Customer satisfaction and national wealth

To achieve : Rs.100 crores turnover.

Remember : The expectation are high.

Product Profile:

Product Type Uses

1.Gelatine Pharmaceuticals Hard and soft capsules, tablets,blood plasma extender

Edible Table jelly, confectionery, dairy foods ,meat products,

Dietary foods.

Photographic X-Ray and photo films,Bromide paper. Technical Cosmetics, abrasives, culture media paper sizing.

2.Industrial Gelatine Paints, match industry, abrasives, Paper packaging. Intermediate product for gelatine manufacture.

3.Ossein

4.Dicalcium phosphate Cattle and poultry feed supplement

(DCP)-By-Product Animal and poultry feed

5.Enriched DCP (By

product)

6.Organic fertilizer / Organic farming . Self generating bio-fertilizers.

Vermicasting (By

Product)

NARMADA GELATINES LIMITED (formerly known as Shaw Wallace Gelatine Limited

CAPEXIL registered dealers located the states of U.P.,M.P.,Bihar and Orrisa. HCL is procured from Bihar Caustic, Gwalior Chemical Industries .Hukumchand Jute Industries and Grasim Industries Ltd.,etc. Lime comes from local lime quarries situated in the state of M.P. and Rajasthan .Besides this, furnace oil and coal required for the processes involved are procured from Indian Oil Corporation and SECL, respectively.

Major Milestone Events:

1961 Factory Set-up by P.Leiner & Sons as a bone mill

1969 Shaw Wallace got associated, the name changed to Shaw Leiner Ltd.

1970 Gelatine Production started for the first time in India.

1974 Export of Ossein started

1979 Name changed to Shaw Wallace Gelatines Ltd.

1985 Gelatine plant modernization cum expansion started for1000 TPA

1990 Gelatine export started

1995 Phasel expansion to1500 TPA completed

1998 Phasell 1500 to 2000 MT

1998 ISO-9002 certification

2002 Name changed to Narmada Gelatines Ltd.

2003 Registered office shifted fom Kolkata (W.B.) to Jabalpur (M.P.)

2005 USFDA Approval for Export to USA

2006 HACCP Certificate

2008 Credit Rating – SE 1A (From Onicra Credit Rating Agency of India Ltd.)

Awards

1975 CAPEXIL Award for Ossein export

1992 National Award for import substitute from govt. of India

1994 Export Performance Award from M.P. Industrial organization

1995 CAPEXIL Award for Gelatine export

1998 National Award for Outstanding Contribution in Environment to an Employee.

2001 CAPEXIL Award for Gelatine export

2005 CAPEXIL Award for Gelatine export

Present Position

1.Recognised In –house R&D facility

2.All India marketing setup with warehouse at four metros

3.All India purchase set-up with tie-up units/our own bone crushing unit

4.Market share is 24%, holding second position in Domestic market; 6% in exports.

NARMADA GELATINES LIMITED (formerly known as Shaw Wallace Gelatine Limited

SWOT Analysis:

Strengths: *Increased Capacity –2400 Tons

*Availability of necessary certificates, including CAPEXILCertification – will

facilitate exports to the EU.

*Clearance from MPPCB for a production capacity of 3000 TPA.

*Experienced Executives.

Weaknesses: *Poor literacy level of workers.

*Product quality not meeting certain export customer’s specification.

Opportunities: *Expanding Domestic and Export market.

*Sale of Ossein.

Threats: *Location of the Unit near the holy river Narmada.

*Development of Bhedaghat as a tourist spot.

*Nearby residential colony proposed by SAHARA.

FINANCIAL ANALYSIS

MEANING

DEFINITIONS

OBJECTS

TECHNIQUES

PROCEDURE

Financial analysis

MEANING:

Financial statements disclosed the results and financial position of

business activities of any undertaking. These statements generally are merely the aggregates of data only which do not of much for help managements for decision making but when these are analyzed than thy reveals many valuable facts which not only disclose the skill of the managerial performance but also play a noteworthy role in many managerial conclusions.

The analysis of financial statement is based on the objectives of the users. The user may be of any of managers of the undertaking, investors, lenders, creditors, government, etc. In analysis the information of the financial statements are examined systematically.

It is the detail examination of the financial data which evaluate the performance of undertaking and future risk.

DEFINITIONS:

“Financial statement analysis is largely a study of relationship among the various financial factors

in the business as disclosed by a single set of statements and a study of these factors, as shown in

a series of statements.” John. N. Myer

“Analyzing financial statement is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm’s position and Performa”

Metcaff and Titard

OBJECTS OF FINANCIAL ANALYSIS:

The analysis of financial statement is done by different users for different purposes:

1. Objects from point of view of managers : The main object of managers is to increase the profitability of the undertaking and to obtain the predetermined targets in time. Therefore the analysis of financial statements by managers is performed for the following objects:

1. To measure the managerial skill.2. To value the performance of work of the undertaking.3. To make the comparative study of the skill of the different departments

and processes.4. To make the different discretionary decision in between the business

activities.5. To control all the activities of the undertaking properly and for

evaluation of rights and duties of all officers or authorities.

2. From the point of view of managers : The interest of investors or shareholders lies in the profitability and stability of the undertaking. Therefore for the following objects the analysis of financial statements is get done by the shareholders:

(1) To obtain the information about the earning capacity of the undertaking.(2) To obtain the information regarding the safety of the amount invested.(3) To estimate the income received or receivable from the company.(4) To take the decision for retain or sale of shares.

3. From the point of view of lenders : The interest of lenders lies in the safety of the loan given and payment of interest and principal amount in proper time. Therefore, the analysis by the lender is required to be performed for the following objects:

(1) To have the knowledge of the liquidity of the company and of the working capital.

(2) To examine the soundness of financial position of the company.

(3) To estimate the capacity of the undertaking for repayment of long-term loan and interest thereon.

4. From the employee’s angle : The interest of employees implies in their service security, or increase in salary, bonus, working conditions and security of employment, etc. and for related matters the earning capacity and financial position of the undertaking are examined.

5. From the government point of view : Government’s interest lies in receiving the tax and evaluation of the progress of specific industry. Therefore government get the financial statements analyzed for the following purposes:

(1) To determine the policy of taxation on companies.

(2) To have knowledge progress of the whole industry

6. From the point of view of financial institutions : Banks, insurance companies and other financial institutions which provide loan at the very minimum rate of interest

like to get the financial statement examined for the security of their loan and payment of interest and principal amount.

TECHNIQUES OF FINANCIAL ANALYSIS:

The methods used for analysis of financial statement by horizontal or vertical method are called the techniques of financial anal The following techniques are used mainly for financial analysis.

1. Trend Analysis2. Comparative Statement Analysis3. Ratio Analysis4. Fund Flow Analysis5. Cash Flow Analysis

1. Trend Analysis: From the financial statements of different types of any undertaking the trend of change in their each item can be ascertained namely it can be seen that whether the undertaking is progressing or deteriorating. The data of various years are analyzed by the method of trend analysis.

2.Comparative Statement Of Analysis: Under this technique the items of two or more financial statements are comparatively studied. On the basis of study of these conclusions drawn it become easy to make estimates for the future

Under this method the following comparative statements are prepared:

Comparative Balance Sheet. Comparative Profit and Loss Account. Comparative Statement of Production Cost. Comparative Statement of Working Capital. Comparative Statement of Sales Expenses.

3. Ratio Analysis: The mutual relationship between two or more numerical figures is expressed in terms of Ratios. Therefore, when there is some relation between two or more items of financial statements then it is termed as financial ratio. To present in the form of ratio of the items or aggregates of them of the financial statements and the process to draw conclusion from them is called as Ratio Analysis. As the ratio of aggregate of current assets is calculated in between the two items or aggregate of items of profit and loss accounts, items of balance sheet or aggregate of them, or between one of item aggregate of profit and loss account and second item or aggregate of balance sheet.

4. Fund flow Analysis: Funds flow statement describes the changes in the items of Balance Sheets of two periods. Here funds mean the working capital. By this statement the information of the changes in the working capital between periods over another period is ascertained. It gives the knowledge about the soundness of financial position of the undertaking.

5. Cash Flow Analysis: This is an analysis based on a statement depicting the inflow and outflow of cash. As such, Cash Flow Statement is the device for such an analysis. Cash Flow Statement of cash flow which signifies the movement of cash in and out of a business concern. Cash Flow Statement has the same utility as fund flow statement, but at the same time, it may highlight upon those financial facts, which are generally canceled by the Fund Flow Statement.

PROCEDURE OF FINANCIAL ANALYSIS:

The following procedure is applied for analyzing the financial statement by every analyst.

DETERMINATION OF EXTENT OF FINANCIAL ANALYSIS

STUDY OF FINANCIAL STATEMENTS

COLLECTION OF OTHER FINANCIAL INFORMATIONS

RE-ARRANGEMENT OF DATA

COMPARISON

STUDY OF TREND

INTERPRETATION

PRESENTATION

RATIO ANALYSIS:

INTRODUCTION

MEANING

OBJECTIVES

NEED

LIMITATIONS

CLASSIFICATION

RATIO ANALYSIS

INTRODUCTION:

An analysis of financial statements with the help of ‘ratio’ may be termed as ‘ratio-analysis’. It implies the process of computing, determining and presenting the relationship of items or group of items of financial statements. It also involves the comparison and interpretation of these ratios and the use of them for future projections. Alexander Wall is considered to be pioneer of ratio analysis. He presented after a serious thinking a detailed system of ratio- analysis in 1909. He explained that the work of interpretation can be made easier by establishing quantitative relationships between the facts given in the financial statements.

MEANING OF RATIO:

A ratio is a mathematical relationship between two related items expressed in quantitative form. When this definition of ratio is explained with reference to the items shown in financial statements, then it is called ‘accounting ratio is defined as quantitative relationship between two or more items of the financial statements connected with each other. This quantitative relationship (i.e., ratio) may be expressed in either of the following ways:

(a) In proportion: In this form the amounts of the two items are being expressed in a common denominator. The example of this form of expression is the relationship between current assets and current liabilities as “2 : 1”

(b) In Rate or Times or Coefficient: In this form, a quotient obtained by dividing one item by another item is taken as unit of expression. The example of this form if sales divided by stock (as it comes 6); thus 6 times is the ratio between sales and stock. It is important to note that when ratio is expressed in this form, it is called as turnover and is written in times.

(c) In percentage: In this form, a quotient obtained by dividing one item by another is multiplied by one hundred and it becomes the ‘percentage’ form of expression. For example, the relationship between gross profit and sales may be expressed as 25%.

OBJECTIVES OF RATIO ANALYSIS:

In ratio analysis each ratio has some specific utility for a particular use; some general utility of ratio-analysis may be summarized as under:

(i) Trends in costs, sales, profits and related facts are revealed by the past ratios and future vents can be forecasted on the basis of such trends.

(ii) ‘Ideal ratios’ may be constructed and the relationship found between strategic ratios can be used for achieving the ‘desired co-ordination’.

(iii) Ratios may be used as instrument of management control particularly in the areas of sales and costs.

(iv) Ratios also facilitate the function of communication. It can easily be conveyed through the ratios as what has happened during the two intervening periods.

(v) Ratios may also be used as measure of efficiency. Since ratios bring uniformity in the financial data, inter-firm comparison is made possible.

(vi) It helps in investment decisions to make profitable investment.

NEED OR SIGNIFICANCE OF RATIO ANALYSIS:

The need or significance of ratio- analysis due to the following facts:

(1) Business facts shown in financial statements do not carry any importance individually. Their importance lies in the fact that they are inter related. Hence, there is need for establishing relationship between various but related items, if any correct and accurate conclusion is to be drawn by their use.

(2) Ratio- analysis as a tool for the interpretation of financial statements is also significant because ratios help the analyst to have a deep peep into the data given in statements. Figures in their absolute forms shown in financial statements are neither significant nor a compared. In fact, they are basically dumb. Ratios provide power to speak.

LIMITATIONS OF RATIO ANALYSIS:

Undoubtedly, ratios are precious tools in the hands of the analyst but its significance emanates from proper use of these ratios. Misuse or mishandling of these ratios and using them without proper context may lead the analyst or management to a wrong direction. Thus, analyst must take into account these limiting factors in the case of ratio analysis. These limiting factors are:

1. Ratios are not an end in themselves but they are means to achieve a particular end.

2. The accuracy and correctness of ratios are totally dependent upon the reliability of the data contained in financial statements on the basis of which ratios are calculated.

3. Time-lag in calculating the ratios and communicating the same to the concerned persons should not unnecessarily be too much.

4. Ratios may make the comprehensive study complicated and misleading on account of changes in price level.

5. Inter-firm comparison through ratio-analysis should never be under taken in the case of concerns which are not associated or comparable.

6. Ratio analysis is one of the many techniques of analysis and interpretation. Thus, while attempting to draw any conclusion on the basis, other techniques should also be used.

CLASSIFICATION OF RATIOS:

PROFITABILITY RATIOS ACTIVITY RATIOS FINANCIAL RATIOS

Gross Profit Ratio Inventory Turnover Ratio Current Asset Ratio

Operating Ratio Receivables Turnover Ratio Quick Ratio

Expenses Ratio Selling And

Distribution Expenses Ratio

Administration Expenses Ratio

Financial Expenses Ratio

Average Collection Period Super Quick Ratio

Assets Turnover Ratio Total Asset Turnover

Ratio Fixed Assets Turnover

Ratio Current assets turnover

Ratio

Fixed Asset Ratio

Cash Ratio

Proprietary Ratio

Debt Equity Ratio

Capital Gearing Ratio

Working Capital Turnover Ratio

Creditor Turnover RatioAverage Payment Or Disburse Period

Net Profit Ratio

Return On Capital Employed

Return On Equity Capital

Return On Shareholder’s Fund

Earning Per Share

Dividend Per Share

Pay Out Ratio

Dividend Yield Ratio

Earning Yield Ratio

Price Earning Ratio

Interest Cover Ratio

COMPUTATION AND PURPOSE

A summary of management-oriented activity ratio are given below. This describes the ratios and also their main purpose.

RATIO COMPUTATION METHOD PURPOSE

I. Cost of goods sold and gross margin:

Cost of goods sold Cost of gods sold/ provides an idea of ‘gross margin’ Net sales. This in turn would depend on Relationship between prices, Volumes and costs.

Gross Margin Net sales-cost of goods Sold/net sales.

II. Profit analysis

Net Margin Net profit/Net sales Reflects Management’s ability to Operate business to recoup all co Sts & expenses (including depreciation, interest and taxes) and also to provide a compensation to owners.

Operating Margin Net operating income Provide a view of operating Before interest and effectiveness. Taxes/Net sales.

Post-tax margin Net profit after tax but Shows after tax margin to both

Before interest*/Net sales. Owners and lenders.

III. Expense Analysis

Operating Ratio Operating expenses/Net sales Reflects incidence of operating

Expenses(which are defined

Variously for different costing

Systems)

IV. Contribution Analysis

Total contribution Net Sales-directly variable Indicates the total margin Costs/ provided by operations Towards fixed costs and Profit of the period.

V. Management of capital

Gross Assets Net sales/total assets. Effectiveness of the use of all Turnover Assets viz. current and non- Current.

Net Assets Net sales/total assets Effectiveness of assets employ-Turnover current liabilities. Ed on the assumption that current liabilities are available to the business as a matter of

course, and will effectively reduce the assets required to be employed.

Inventory turnover Net sales or cost of Shows the number of times Goods sold/average inventory replenishment is Inventories. Required during an accounti- ng period to achieve a given level of sales.

Receivables turnover Net sales/average Amount of trade credit allo- Receivables wed and revolved during a Year to achieve alevel of sales.

Average turnover Average receivables x 365 Evaluates the effectiveness Net sales of the credit period granted .

NARMADA GELATINES LIMITED

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 st MARCH 2006-2008

PARTICULARS 2006

Amount (Rs. ‘000)

2007

Amount (Rs. ‘000)

2008

Amount (Rs. ‘000)

INCOME

Sales

Less: Excise duty

Net Sales

Other Income

Total

EXPENDITURE

Raw material consumed

Manufacturing, administrative & other overheads

Interest

Depreciation

Less : transfer from revaluation reserve

(Increase)/decrease in stocks

Total

Profit for the year before prior period & extraordinary items

Voluntary retirement scheme cost

557823

54492

583495

54848

625242

63055

503331

12609

528647

11911

562187

13668

515940 540558 575855

19947

4178

255359

226765

4149

15769

(9907)

15720

2697

255789

223066

2701

13023

2541

16202

2585

277059

237861

2860

13617

(23778)

492134

497120 507619

23806

11219

43438

1202

-

Loss on account of impairment of fixed assets

Profit before taxation

Provision for taxation

Current tax

Earlier year tax

Deferred tax

Fringe benefit tax

Profit after taxation

4000

715

(3861)

576

1862 836

-

-

10725

1430

15714

452

1201

238

41400

17605

23010

0

1501

278

68236

24789

9295 23795 43447

Balance brought forward from previous year

Profit available for appropriation

Appropriations :

Transfer to general reserve

Proposed dividend on equity shares

Proposed dividend on preference shares

Tax on proposed dividend

Balance carried to balance sheet

Basic and diluted earnings per share

83077 85288 99575

92372 109083 143022

500

4436

1338

810

85288

1204

6049

1049

1206

99575

3259

8066

603

1473

129621

92373 109083 143022

( Rs.)

1.93 5.60 10.60

NARMADA GELATINES LIMITED

BALANCE SHEET AS AT 31 ST MARCH 2006-2008

PARTICULARS 2006

Amount (Rs. ‘000)

2007

Amount (Rs. ‘000)

2008

Amount (Rs. ‘000)

SOURCES OF FUNDS

SHAREHOLDERS FUNDS

Share capital

Reserves and surplus

LOAN FUNDS

Secured loan

Unsecured loan

DEFERRED TAX LIABILITY (Net)

TOTAL

55199

298627

353826

4651

620

17539

50245

311424

361669

8034

0

18740

45297

341218

386515

18853

0

20241

376636 388443 425609

APPLICATIONS OF FUNDS

FIXED ASSETS

Gross block

Less : Depreciation

Net block

Capital work in progress

INVESTMENTS

CURRENT ASSETS, LOANS & ADVANCES

Interest accrued on deposits

Inventories

Sundry debtors

Cash and bank balances

Loans and advances

LESS : Current liabilities and provisions

Current liabilities

Provisions

NET CURRENT ASSETS

398764

250869

147895

1370

3

227368

400848

265176

135672

10183

3

242585

438440

273439

165001

32819

3

227786

1024

132384

69642

85945

16045

2970

116804

86314

93900

15705

3653

141799

85896

86899

15919

305040

60788

16884

315693

60578

12530

334166

82351

24029

77672 73108 106380

TOTAL

376636 388443 425609

PROFITABILITY

RATIOS

PROFITABILITY RATIOS

These ratios serve as overall measures of the effectiveness of the firm’s management. These ratios can be divided into those that measure profitability in relation to sales and those that measure profitability in relation to investment. All ratios coming in this category are expressed in percentage form. The ratios used for this analysis are-

1. Gross Profit Ratio –This ratio is the percentage of sales left after subtracting the cost of goods sold from net sales. It measures the percentage of sales (remaining after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company.

Significance-A higher gross profit ratio indicates efficiency in production of the unit.

Formula - Gross Profit Ratio= (Gross Profit / Net Sales ) x 100

        Alternatively, since Gross Profit is equal to Sales minus Cost of Goods Sold, it can also be interpreted as below :

Gross Profit Ratio= [ (Sales – Cost of goods sold)/ Net Sales] x 100

Computation -

2005-06 2006-7 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

13.70%14.64%

17.84%

PERCENTAGE

YEAR 2005-06 2006-07 2007-08

FORMULA =76410/557823

X 100

=85403/583495

X 100

111533/625242

X 100

RATIO = 13.7% = 14.64% = 17.84%

Interpretation- Normally, a higher gross profit ratio is always good and serves as index of higher profitability. The ratio shows an increasing trend which indicates increase in profitability of the firm.

2.Operating Ratio - Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. This is closely related to the ratio of operating profit to net sales.

Significance - This ratio is considered to be a yardstick of operating efficiency but it should be used cautiously because it may be affected by a number of uncontrollable factors beyond the control of the firm.

Formula - Operating Ratio = [(Cost of goods sold + Operating expenses) / Net sales] × 100

Computation -

YEAR 2005-06 2006-07 2007-08

FORMULA =(426920+336765+

15769)

/ 557823 X 100

=(443243+223066+

13023)

/ 583495 X 100

=(450653+237861+

13617)

/ 625242 X 100RATIO = 120.01% = 116.42% = 112.3%

2005-06 2006-07 2007-08108.00%

110.00%

112.00%

114.00%

116.00%

118.00%

120.00%

122.00%120.01%

116.42%

112.30%

PERCENTAGE

Interpretation- Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns. The ratio shows a decreasing trend which indicates increase in profitability of the firm.

3.Expense Ratio- Expense ratios indicate the relationship of various expenses to net sales. Expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyse the cause of variation of the operating ratio.

Significance- It gives the cause of variation in the various expenses in relation to operating ratio.

Formula - [Particular Expense = (Particular expense / Net sales) × 100 ]

Computation-

(i) Selling and distribution expense ratio-

YEAR 2005-06 2006-07 2007-08

FORMULA =13028/557823

X 100

=12264/583495

X 100

=12127/625242

X 100

RATIO = 2.34% = 2.10% = 1.94%

2005-06 2006-07 2007-080.00%

0.50%

1.00%

1.50%

2.00%

2.50%2.34%

2.10%1.94%

PERCENTAGE

(ii) Administrative expense ratio-

YEAR 2005-06 2006-07 2007-08

FORMULA = 95400/557823

X 100

= 90075/583495

X 100

= 89654/625242

X 100

RATIO = 17.10% = 15.44% = 14.34%

2005-06 2006-07 2007-0812.50%

13.00%

13.50%

14.00%

14.50%

15.00%

15.50%

16.00%

16.50%

17.00%

17.50% 17.10%

15.44%

14.34%PERCENTAGE

(iii)Financial expense ratio-

YEAR 2005-06 2006-07 2007-08

FORMULA = 4149/557823

X 100

= 2701/583495

X 100

= 2860/624252

X 100

RATIO = 0.74% = 0.46% = 0.46%

2005-06 2006-07 2007-080.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80% 0.74%

0.46% 0.46%

PERCENTAGE

Interpretation- The expense ratios show a decreasing trend indicating the increase in profitability of the concern. However, there is no change in financial expense ratio for the year 2006-07 and 2007-08 as they remain same for both year.

4.Net Profit Ratio- It measures relationship between net profit (before and after tax )and sales and as such is expressed as percentage to sales. It indicates how well the business has managed its operating expenses. It also can indicate whether the business is generating enough sales volume to cover minimum fixed costs and still leave an acceptable profit.

Significance - NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment.

Computation - Net profit ratio-

(i) Before tax= [Net Profit Ratio = [Net profit (before tax) / Net sales] × 100]

YEAR 2005-06 2006-07 2007-08

FORMULA = 10725/557823

X 100

= 41400/583495

X 100

= 68236/625242

X 100

RATIO = 1.92% = 7.09% = 10.91%

2005-06 2006-07 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1.92%

7.09%

10.91%

PERCENTAGE

(ii)After tax = [Net Profit Ratio = [Net profit (after tax) / Net sales] × 100]

YEAR 2005-06 2006-07 2007-08

FORMULA = 9295/557823

X 100

= 23795/583495

X 100

= 43447/624252

X 100

RATIO = 1.67% = 4.08% = 6.95%

2005-06 2006-07 2007-080.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1.67%

4.08%

6.95%

PERCENTAGE

Interpretation - Higher the ratio the better is the profitability. The ratio shows an increasing trend, thus depicting better operational efficiency of the concern. The ratio of all the three years both before and after tax are increasing thus showing growth of the concern.

5.Return On Capital Employed - Return on capital employed establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in the business and it can be used to show the overall profitability and efficiency of the business. Capital employed may be defined in a number of ways. However, two widely accepted definitions are "gross capital employed" and "net capital employed".

Significance - Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business.

Computation - (i) as per gross capital employed –

Return on capital employed = profit before interest and tax /gross capital employed x 100

Gross capital employed = Fixed assets + Investments + Current assets

YEAR 2005-06 2006-07 2007-08

FORMULA = 14874/454308

X 100

= 44101/461551

X 100

= 71096/531989

X 100

RATIO = 3.27% = 9.55% = 13.36%

2005-06 2006-07 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

3.27%

9.55%

13.36%

PERCENTAGE

(ii) As per net capital employed –

Return on capital employed = profit before interest and tax /net capital employed x 100

Net capital employed = fixed assets + investments + working capital

Working capital = current assets – current liabilities

YEAR 2005-06 2006-07 2007-08

FORMULA = 14874/376636

X 100

= 44101/388443

X 100

= 71096/425609

X 100

RATIO = 3.95% = 11.35% = 16.70%

2005-06 2006-07 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

3.95%

11.35%

16.70%

PERCENTAGE

Interpretation - It is used to show the overall profitability and efficiency of the business. The ratio is calculated for three years so as to find a trend as to whether the profitability of the company is improving or otherwise. It can be clearly seen the ratio is increasing year by year thus showing improvement in profitability.

6. Return On Shareholders Fund - It is the ratio of net profit to share holder's investment. It is the relationship between net profit (after tax) and share holder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage.

Significance - As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company.

Formula - Return on shareholders fund = profit after tax / shareholder’s fund x 100

Computation-

YEAR 2005-06 2006-07 2007-08

FORMULA = 9295/353826

X 100

= 23795/361669

X 100

= 43447/386515

X 100

RATIO = 2.63% = 6.58% = 11.24%

2005-06 2006-07 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2.63%

6.58%

11.24%

PERCENTAGE

Interpretation - As the ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. As we can see, the ratio has an increasing trend in all the three given years. The inter firm comparison of this ratio can determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher.

7.Return On Equity Capital - Return on equity capital is the relationship between profits of a company and its equity. Equity share capital should be the total called-up value of equity shares. As the profit used for the calculations are the final profits available to equity shareholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits.

Significance - This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them.

Formula - Return on Equity Capital (ROEC) ratio = [(Net profit after tax − Preference dividend) / Equity share capital] × 100

Computation –

YEAR 2005-06 2006-07 2007-08

FORMULA = (9295-1338)/40331

X 100

= (23795-1049)/40331 X 100

= (43447-603)/40331

X 100

RATIO = 19.73% = 56.40% = 106.23%

2005-06 2006-07 2007-08

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

19.73%

56.40%

106.23%

PERCENTAGE

Interpretation - Interpretation of the ratio is similar to the interpretation of return on shareholder's fund and higher the ratio better is. And, as we can see in all the three years the ratio is increasing with high percentage.

8.Dividend Payout Ratio - The dividend payout ratio shows the portion of earnings distributed to stockholders. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio.

Significance - The payout ratio or the retained earning ratio are the indicators of the amount of earnings that have been ploughed back in the business.

Formula - Dividend payout ratio = Equity dividend /Net profit after tax and preference dividend x 100

Computation –

YEAR 2005-06 2006-07 2007-08

FORMULA = 4436/7957

X 100

= 6049/22746

X 100

= 8066/42844

X 100

RATIO = 55.75% = 26.59% = 18.83%

2005-06 2006-07 2007-080.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00% 55.75%

26.59%

18.83%PERCENTAGE

Interpretation - The lower the payout ratio, the higher will be the amount of earnings ploughed back in the business and vice versa. A lower payout ratio means a stronger financial position of the company.

9. Earnings per share ratio (EPS Ratio) - Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.

Significance - The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm.

Formula - Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares

Computation –

YEAR 2005-06 2006-07 2007-08

FORMULA = 9295-1338/4033 = 23795-1049/4033 = 43447-603/4033

EPS = Rs.1.97 = Rs.5.64 = Rs.10.62

2005-06 2006-7 2007-080

2

4

6

8

10

12

1.97

5.64

10.62

RUPEES

Interpretation – This ratio highlights upon the overall profitability and helps in determining the market price of equity shares. It reflects upon the ability of the concern to pay dividend to its equity shareholders. As it can be seen the EPS of the concern shows an increasing trend.

10. Dividend Per Share - Dividend per share ratio is calculated by dividing the amount of dividend distributed by the number of equity shares. This ratio serves the same purpose as indicated in the case of EPS.

Significance -The dividend per share is a measure of a company's performance, simply because it indicates how profitable a company is over a quarter or year. Companies often compare the performance in each quarter to what it did in the same quarter the last year. This may also include a comparison of the dividend per share from the previous year.

Formula - Dividend per share = Dividends to equity shareholders / No: of equity shares

Computation –

YEAR 2005-06 2006-07 2007-08

FORMULA = 4436/4033 = 6049/4033 = 8066/4033

DPS = Rs. 1.10 = Rs. 1.50 = Rs. 2.00

2005-06 2006-07 2008-090

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1.1

1.5

2

RUPEES

Interpretation - This ratio also highlights upon the overall profitability of the concern but, sometimes it may not reflect the current profitability because dividends are paid out of accumulated profits.

11. Price Earning Ratio - Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company.

Significance - This ratio is useful in financial forecasting. Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price.

Formula - [Price Earnings Ratio = Market price per equity share / Earnings per share]

YEAR 2005-06 2006-07 2007-08

FORMULA = 60/1.97 = 80.85/5.64 = 31.90/10.62

P/E RATIO = 30.46 times = 14.34 times = 3.00 times

2005-06 2006-07 2007-080

5

10

15

20

25

30

35 30.46

14.34

3

TIMES

Interpretation – This ratio helps in knowing whether the share of a company are under or over valued. Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio.

12. Earning Yield Ratio - Earnings yield is the quotient of earnings per share divided by the share price. It is the reciprocal of the P/E ratio. The earnings yield is quoted as a percentage, allowing an easy comparison to going bond rates.

Significance – Earning yield gives potential return on the investment, since it is the earnings out of which dividend is paid.

Formula - [Earning Yield Ratio = Earning per share /market price per share x 100 ]

Computation-

YEAR 2005-06 2006-07 20070-8FORMULA = 1.97/60 X 100 = 5.64/80.85 X 100 = 10.62/31.90 X 100RATIO = 3.28% = 6.98% = 33.29%

2005-06 2006-07 2007-080.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

3.28%

6.98%

33.29%

PERCENTAGE

Interpretation – This ratio reflects the return a majority shareholder can expect on his/her shares in a company. The higher the ratio the more is the return. As it can be seen, the ratio depicts an increasing trend in all the three years.

13. Dividend yield ratio - Dividend yield ratio is the relationship between dividends per share and the market value of the shares. The dividend yield ratio indicates the return that investors are obtaining on their investment in the form of dividends.

Significance - This ratio helps as intending investor in knowing the effective return he is going to get on the proposed investment.

Formula - [Dividend Yield Ratio = Dividend Per Share / Market Value Per Share]

Computation –

YEAR 2005-06 2006-07 2007-08FORMULA = 1.1/60 X 100 = 1.5/80.85 X 100 = 2/31.90 X 100RATIO = 1.83% = 1.86% = 6.27%

2005-06 2006-07 2007-080.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1.83% 1.86%

6.27%

PERCENTAGE

Interpretation – This yield is usually fairly low as the investors are also receiving capital growth on their investment in the form of an increased share price. It is interesting to note that there is strong correlation between dividend yields and market prices.

14. Interest Cover Ratio - Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges.

Significance - The interest coverage ratio is very important from the lender's point of view. It indicates the number of times interest is covered by the profits available to pay interest charges.

Formula - [Interest Coverage Ratio = Net Profit before Interest and Tax / Fixed Interest Charges]

Computation –

YEAR 2005-06 2006-07 2007-08

FORMULA = (10725+4149)/4149 = (41400+2701)/2701 = (68236+2860)/2860

RATIO = 3.58 times = 16.33 times = 24.86 times

2005-06 2006-07 2007-080

5

10

15

20

25

3.58

16.33

24.86

TIMES

Interpretation - It is an index of the financial strength of an enterprise. A high debt service ratio or interest coverage ratio assures the lenders a regular and periodical interest income. But the weakness of the ratio may create some problems to the financial manager in raising funds from debt sources.

WORKING NOTE :

1. Sales are assumed to be net sales.2. Operating expenses include = manufacturing, administration & other overheads +

depreciation.3. Provisions are treated as current liabilities.4. Return on total resources is same as return on capital employed.5. Market prices are taken from BSE source.6. Gross profit has been calculated by taking (gross profit / net sales x 100).7. Return on capital employed has been calculated by taking gross and net capital

employed.8. Net profit ratio has been calculated by taking both profit before and after tax.9. Number of equity shareholders is taken as per schedule 1.10. Cost of goods sold = finished goods + opening stock – closing stock (finished goods).

ACTIVITYRATIOS

ACTIVITY RATIOS

These are also known as ‘turnover ratios’ or ‘efficiency ratios’.On the basis of these ratios the activeness and efficiency of the undertaking can be tested.By these ratios it is judged that to what extent the management of different assets is skillfully done.Under these the following main ratios are calculated:

1.Stock or Inventory Turnover Ratio

This ratio expresses the relationship between cost of goods sold and average stock and symbolizes the cyclical changes in sale of stock.The primary objective of this ratio is to give information to management regarding conversion of stock into sale.It is also known as inventory turnover of Merchandise turnover.

FormulaStock or inventory turnover ratio=Cost of goods sold

Average Stock/Inventory

Interpretation Stock turnover ratio is an indicator for profitability and higher ratio indicates more profit.Higher the ratio,better it is.In contrary to this lower ratio indicates wrong selling policies,depression in business,excessive employment of capital in stock etc.Generally ratio of 5 to 6 times is considered as normal.

Significance

By the stock turnover ratio it is known that how much time purchases were made by the undertaking during the year. In case the stock turnover is high it mean the purchases were made in less quantity times,which indicates the managerial working efficiency.

Calculation For 2005-06: Average Inventory=Rs.132384

Therefore,

Inventory Turnover Ratio=426921

132384

=3.22 Times

For 2006-07: Average Inventory =Rs.132384+116804

2

=Rs.124594

Therefore,

Inventory Turnover Ratio=443243

124594

=3.56 Times

For 2007-08: Average Inventory =Rs.116804+141799

2

=Rs.129302

Therefore,

Inventory Turnover Ratio=450653

129302

=3.49 Times

2005-06 2006-07 2007-08

3

3.1

3.2

3.3

3.4

3.5

3.6

Inventory or Stock Turnover Ratio

Financial Years

Times

2.Receivables or Debtors Turnover Ratio

It is the effort of every undertaking to collect the debtor/book debts and bills receivables as soon as possible.Therefore, the debtors turnover is calculated to know the extent to which the undertaking is successful in collecting the debts.By this turnover the relation between credit sales and average debtors (including bills receivable)is cleared.

FormulaReceivables Turnover ratio=Net Credit Sales

Average Debtors/Average

Trade Receivables

Interpretation Higher ratio indicates good debt realization and is indicator of efficient policy.In contrary to this lower ratio is an indicator of slow debt realization or poor collection policy.This ratio is also calculated to measure the liquidity position of an organization.

Significance If the debtor turnover is high it is considered good for business because in that position the collection period will be less which means that debts are collected in due time.If turnover is low then average collection period will be more which mean that debtors are collected in due time.

ComputationFor 2005-06: Receivables Turnover Ratio=557823

69642

=8 Times

For 2006-07: Average Receivables=Rs.69642+86314

2

=Rs.77978

Receivables Turnover Ratio=583495

77978

=7.48 Times

For 2007-08: Average Receivables=Rs.86314+85896

2

=Rs.86105

Receivables Turnover Ratio=625242

86105

=7.26 Times

2005-06 2006-07 2007-08

6.8

7

7.2

7.4

7.6

7.8

8

Receivables Turnover Ratio

Financial Years

Times

3.Average Collection Period

Average collection period expresses the average time consumed in collection of realization of debts. Rate of cash flow from realization of debts is calculated with the help of this ratio.

FormulaAverage Collection Period=Total or Average Receivables*365 Days

Net Credit Sales

Interpretation and Significance Generally a period is defined for realization of debts by every organization. If average collection period is less than defined period (standard) it is assumed that policy is good ,in contrary to this if collection is delayed it is an indicator of poor realization policy. Some authors are of the view that average collection period should not be more than 1.33 Times of normal collection period.

ComputationFor 2005-06: Average Collection Period =69642*365

557823

=46 Days

For 2006-07: Average Collection Period =77978*365

583495

=48.7 or 49 Days

For 2007-08: Average Collection Period =86105*365

625242

=50 Days

2005-06 2006-07 2007-08

42

44

46

48

50

52

54

Average Collection Period

Financial Years

Days

4.Assets Turnover Ratio

Primarily three ratios are included under this head:

(a) Total Assets Turnover Ratio

This ratio discloses the ratio between total assets and cost of sales of an undertaking .This ratio makes the perception of fact that in operating the activities of the undertaking the assets are utilized properly or not.

FormulaTotal Assets Turnover Ratio=Cost of Goods sold

Total Assets

Interpretation Higher ratio indicates efficient utilization of assets and vice-versa i.e., sales are lesser than compared to amount invested in assets.

Significance This ratio is calculated for the measure of the working skill of the undertaking.By this it is known whether the assets of the undertaking are used by effective method or not.

ComputationFor 2005-06: Total Assets Turnover Ratio= 426921

454308

= 0.94 Times

For 2006-07: Total Assets Turnover Ratio= 443243

461551

=0.960 Times

For 2007-08: Total Assets Turnver Ratio= 450653

531989

=0.847 Times

2005-06 2006-07 2007-08

0.78

0.8

0.82

0.84

0.86

0.88

0.9

0.92

0.94

0.96

Total Assets Turnover Ratio

Financial Years

Times

(b)Fixed Assets Turnover Ratio

This ratio expresses the relation between fixed assets and sales.

FormulaFixed Assets Turnover Ratio=Cost of goods sold

Fixed Assets (Less Depreciation)

Interpretation If this ratio is high then it indicates the skilful and effective use of fixed assets and if it is low then it discloses the inefficiency in use of assets and the position of over-investment in fixed assets.

Significance This ratio is an indication of effective use of fixed assets of an undertaking.It is generally calculated by manufacturing undertakings because in such undertaking the production and sales are effected by the investment in the fixed assets.

ComputationFor 2005-06: Fixed Assets Turnover Ratio= 426921

147895

= 2.89 Times

For 2006-07: Fixed Assets Turnover Ratio= 443243

135672

= 3.26 Times

For 2007-08: Fixed Assets Turnover Ratio= 450653

165001

= 2.73 Times

2005-06 2006-07 2007-082.4

2.5

2.6

2.7

2.8

2.9

3

3.1

3.2

3.3

Fixed Assets Turnover Ratio

Financial Years

Times

(c)Current Assets Turnover Ratio

This Ratio expresses relationship between current assets and sales.Under it by comparison of cost of sales and current assets the effective use and efficiency of current assets are examined.

FormulaCurrent Assets Turnover Ratio = Cost of goods sold

Current assets

Interpretation Higher ratio indicates efficient management of current assets (over trading) and lower ratio indicates inefficient utilization of current assets.

Significance This ratio is very important for non-manufacturing undertaking or for the undertaking making the use of fixed assets at low level.This ratio discloses the capacity of the use of current assets,skill and or under investment in these of an undertaking.

Computation For 2005-06: Current Assets Turnover Ratio= 426921

305040

=1.4 Times

For 2006-07: Current Assets Turnover Ratio= 443243

315693

=1.404 Times

For 2007-08: Current Assets Turnover Ratio= 450653

334166

=1.4 Times

2005-06 2006-07 2007-08

1.32

1.33

1.34

1.35

1.36

1.37

1.38

1.39

1.4

1.41

Current Assets Turnover Ratio

Financial Years

Times

5.Creditors Turnover ratio

This ratio is also known as Payables Turnover ratio.It depicts the relation between credit purchases and average creditors.

FormulaCreditors Turnover Ratio = Net Credit Purchases

Average Creditors/Payables

Average Creditors = Opening Creditors and Bills Payable+Closing Creditors and Bills Payable

2

Interpretation and Significance

This ratio indicates the condition of an organization with regard to payment of creditors.Higher ratio indicates quicker payments and vice-versa.

ComputationFor 2005-06: Average Creditors=Rs.40544

Creditors Turnover Ratio= 278737

40544

= 6.87 Times

For 2006-07: Average Creditors= Rs.40544+35488

2

Creditors Turnover Ratio= 242729

38016

= 6.38 Times

For 2005-06: Average Creditors=Rs.35488+52730

2

Creditors Turnover Ratio= 274755

44109

=6.23 Times

2005-06 2006-07 2007-08

5.9

6

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

Creditors Turnover Ratio

Financial Years

Times

With the help of creditors turnover the Average Payment Period is calculated:-

Average Payment or Disbursement Period This ratio indicates the average period employed in payment of credit purchases. Efficiency or delaying payment can be noticed by comparing average payment period with credit period given by supplier.This is also known as debt payment period.

FormulaAverage Payment Period = Average Payable *365

Net Credit Purchases

ComputationFor2005-06: Average Payment Period = 40544 *365

278737

=53 Days

For2006-07: Average Payment Period = 38016 *365

242729

=57 Days

For2007-08: Average Payment Period = 44109 *365

274755

=58.5 or 59 Days

2005-06 2006-07 2007-08

50

51

52

53

54

55

56

57

58

59

Average Payment Period

Financial Years

Days

6.Working Capital Turnover Ratio

This ratio measures the relation between working capital and sales or cost of goods sold and depicts the efficiency and perfection of use of working capital in business.

FormulaWorking Capital Turnover Ratio = Cost of Goods Sold

Working Capital

Interpretation It is mandatory to keep this ratio at normal level, as higher ratio indicates efficient management of working capital or condition of over trading. In contrary to this,lower ratio indicates poor management or working capital or condition of under-trading is prevalent in business.

Significance This ratio is quite useful for the non-manufacturing organization.This ratio depicts the efficiency and perfection of working capital.

ComputationFor 2005-06: Working Capital Turnover Ratio = 426921

227368

=1.88 Times

For 2006-07: Working Capital Turnover Ratio = 443243

242585

=1.83 Times

For 2007-08: Working Capital Turnover Ratio = 450653

227786

=1.98 Times

2005-06 2006-07 2008-09

1.75

1.8

1.85

1.9

1.95

2

Working Capital Turnover Ratio

Financial Years

Times

Working Notes

1.Cost of goods sold:

2005-06 2006-072007-08

Finished goods produced Rs.430510 Rs.440064Rs.469764

Add:Opening Stock of finished goods Rs. 28889 Rs. 32478Rs.29299

Rs.459399 Rs.473542Rs.499063

Less:Closing stock of finished goods Rs. 32478 Rs. 29299Rs. 48410

Rs.426921 Rs.443243Rs.450653

2.Average Stock /Inventory = Opening Stock+Closing Stock

2

For 2005-06:As Opening inventories are not given.So closing inventories are treated as average inventories (i.e. Rs.132384 )

3.Average Receivables /Debtors = Opening Debtors & Bills Receivables + Closing Debtors & Bills Receivables

2

Bills Receivables are not given . Therefore ,only debtors are taken. Also for the year 2005-06,Opening debtors are not given. So Closing Debtors are treated as Average Debtors.

4.Total Assets includes Net Block, Capital Work in Progress, Investments, Interest Accrued on Deposits, Inventories, Sundry Debtors, Cash and Bank Balances, Loans and Advances.

5.Fixed Assets

2005-06 2006-07 2007-08

Gross Block Rs.398764 Rs.400848 Rs.438440

Less.Depreciation Rs.250869 Rs.265176 Rs.273439

Rs.147895 Rs.135672 Rs.165001

6. Current Assets include Interest Accrued on Deposits ,Inventories, Sundry Debtors, Cash and Bank Balances, Loans and Advances.

7.As net credit purchases are not given. So total purchases are treated as net credit purchases.

8.Opening Creditors are not given for the year 2005-06.So closing creditors are treated as average creditors.

9.Working Capital = Current Assets – Current Liabilities.

10.Total sales are treated as net credit sales as these are not separately mentioned.

FINANCIAL RATIOS

FINANCIAL RATIOS

This category of ratios includes all ratios which highlight upon the financial position of the concern. But the financial position may mean differently to different persons interested in the business concern. Management, banker, trade creditor, investor and auditor all have different views about the concept of the financial position. Thus, each person keeping into account his own interest uses such ratios which may enlighten him about the financial position of the concern. Generally the examination of financial position involves the analysis of facts relating to proper and judicious use of fund, short-term and long term solvency of the concern, safety of the interest of shareholders, etc. The significant ratios used in such type of analysis are as under:

DIFFERENT TYPES OF FINANCIAL RATIOS ARE AS FOLLOWS:

1. CURRENT RATIO:

The ratio of current assets to current liabilities is called ‘current ratio’ or ‘working capital ratio.’

Significance:

It is commonly held that higher is the amount of working capital greater will be the liquidity of the business.

Formulation:

Current Ratio = Current Assets / Current Liabilities

Computation:

For, 2005-06 --------- 305040/ 77672 = 3.93:1

For, 2006-07--------- 315693 / 73108 = 4.32:1

For, 2007-08 --------- 334166 / 106380 = 3.14:1

2005-06 2006-07 2007-080

0.5

1

1.5

2

2.5

3

3.5

4

4.5

3.93

4.32

3.14

current ratio

Interpretation:

It is internationally accepted that the relationship between current assets and current liabilities must be 2: 1, because only in that case the payment of current liabilities would not have any adverse effect upon the business.

2. QUICK RATIO

The current ratio in the study of solvency may be sometimes misleading due to high ratio of stock to current assets. It is suggested that current ratio should be supplemented by another ratio known as ‘quick ratio’. This ratio is the relationship between quick assets and current liabilities.

Significance

Higher the ratio better is the ability to honor current obligations. Since quick assets are also known as liquid assets, quick ratio is also called liquid ratio, or near money ratio or acid test ratio.

Formulation:

Quick assets/Current liabilities

Computation:

For, 2005-06 ----------- 155587 / 77672 = 2.003:1

For, 2006-07 ----------- 180214 / 73108 = 2.47

For, 2007-07 ----------- 172795 / 106380 = 1.62:1

2005-06 2006-07 2007-080

0.5

1

1.5

2

2.5

2.003

2.47

1.62

quick ratio

Interpretation:

A quick ratio of 1:1 is considered to be a satisfactory ratio. However, higher the ratio, better it is. A decline in quick ratio indicates over-trading which is a serious problem of the business enterprise.

3. SUPER QUICK RATIO

It is obtained by dividing the super quick assets by current liabilities. Super quick assets are cash in hand, bank balance and readily saleable securities. In other words, liquid assets minus book debts and B/R are super quick assets.

Formulation:

Super quick assets / Current liabilities

Computation:

For, 2005-06 --------- 85945 / 77672 = 1.1:1

For, 2006-07 --------- 93900 / 73108 = 1.28:1

For, 2007-08 --------- 86899/106380 = 0.82

2005-06 2006-07 2007-080

0.2

0.4

0.6

0.8

1

1.2

1.4

1.1

1.28

0.82

super quick ratio

Interpretation:

A ratio of 0.5:1 is considered as satisfactory absolute liquidity ratio or super quick ratio.

4. FIXED ASSET RATIO:

This ratio is also called as ratio of capital and long term funds to fixed asset. One of the principles of sound financial policy is that fixed assets should be purchased out of long term funds.

Significance:

One of the key principles of financial policy is that fixed assets acquisitions should be financed by long term fund only. Short- term fund should not be used in purchasing the fixed assets.

Formulation:

Capital+ Long Term Liability / Fixed Assets

Computation:

For, 2005-06 --------- 55199 / 147895 = 0.37:1

For, 2006-07 --------- 50245 / 135672 =0.37:1

For, 2007-08 --------- 45297 / 165001 = 0.27:1

2005-06 2006-07 2007-080

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.37 0.37

0.27

fixed asset ratio

Interpretation:

The ideal ratio is 1:1, if it is more than 1:1, it means fixed assets are more than long term funds and in such situation managers should use short term funds along with long term funds in purchasing fixed assets.

5. CASH RATIO

This is the ratio between cash and balances to current liabilities.

Formulation

Cash + Bank/ Current Liabilities

Computation:

For, 2005-06 --------- 85945 / 77672 = 1.1:1

For, 2006-07 --------- 93900 / 73108 = 1.28:1

For, 2007-08 --------- 86899/106380 = 0.82

2005-06 2006-07 2007-080

0.2

0.4

0.6

0.8

1

1.2

1.4

1.11.28

0.82

cash ratio

Interpretation:

Very few companies will have enough cash and cashEquivalence to fully cover current liability which isn’t necessarily a bad thing, so Don’t focus on this ratio, being above 1:1.

6. PROPRIETORY RATIO

It is the ratio of proprietor’s fund to total assets. It is also called net Worth to Total Assets Ratio because proprietor’s fund is also known as Net Worth.

Significance:

It indicates the strength of financial foundation of the concern and serves as a measure of ultimate or long term solvency

Formulation:

Proprietor’s fund / Total Assets

Computation:

For, 2005-06 ---------- 353826 / 454308 = 0.78:1

For, 2006-07 ----------- 361669 / 461551 = 0.78:1

For, 2007-08 ---------- 386515 / 531989 = 0.73:1

2005-06 2006-07 2007-080.7

0.71

0.72

0.73

0.74

0.75

0.76

0.77

0.780.78 0.78

0.73

proprietory ratio

7. DEBT EQUITY RATIO:

This ratio explains the relationship between borrowed funds and owners funds. The owner’s funds are also known as internal equities or shareholders funds. The borrowed funds are termed as outsider’s funds or external equities.

Significance:

This ratio is calculated to measure the extent of debt financing made in the business. In short, this ratio measures the relative dependence of the business concern on external liabilities.

Formulation:

Debt / Equity Capital

Computation:

For, 2005-06 --------------4651 / 40331 = 0.12:1

For, 2006-07 -------------- 8034 / 40331 = 0.20:1

For, 2007-08 ------- ------18853 / 40331 = 0.47:1

2005-06 2006-07 2007-080

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.12

0.2

0.47

debt equity ratio

Interpretation:

The ideal debt equity ratio is 1:1, but in case of large organizations it is 2:1. A debt equity ratio of 1:1 is suggestible. A firm debt equity ratio of 1 or less exposes its creditors to relatively lesser risk.

8. CAPITAL GEARING RATIO

When an organization increases its capital with the sources such as issue of Preference shares, Debentures and long term loans. It is known as capital gearing. This ratio expresses relation between owner’s equity and preference shares debentures and other loans with fixed interest. It is also known as Capital Gearing Ratio or Leverage Ratio.

Significance:

This ratio attempts to measure the capital gearing or capital leverage in the scheme of capitalization.

Formulation:

Equity Share Capital + ReservesPreference Share Capital + Interest Bearing Finance

Computation:

For, 2005-06 --------- 40331 + 298627 / 14861 = 22.8:1

For, 2006-07 --------- 40331 + 311424 / 9907 = 35.5:1

For, 2007-08 --------- 40331 + 341218 / 4959 = 76.9:1

2005-06 2006-07 2007-080

10

20

30

40

50

60

70

80

22.8

35.5

76.9

capital gearing ratio

Interpretation:

When funds of equity shareholders is more than fixed cost bearing capital. It is known as the case of low gearing. In contrary to this i.e., variable cost bearing capital is less than fixed cost bearing capital. It is known as high gearing.

WORKING NOTE

1. Loans and advances are included in current assets.2. Quick assets are taken as debtors and cash & bank balances.3. Super quick assets are cash and bank balances.4. Proprietor’s fund= capital + reserves and surplus.5. Provisions are included in current liabilities.6. Investments are included in total assets.7. Preference share capital is given in schedule.

PROFITABILITY RATIOS ANALYSIS

1. GROSS PROFIT RATIO VS. NET PROFIT RATIO

2005-06 2006-07 2007-080.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

13.70%14.64%

17.84%

1.67%

7.10%

10.91%

GROSS PROFIT RATIO

NET PROFIT RATIO

A higher gross profit ratio is always considered to be good and serves as an index of higher profitability. The gross profit ratio of the company shows an upward trend thus, depicting that the expenses of the company are under control. The expenses in 2005-06 are more than in 2006-07 and have decreased in 2007-08 as compared to other financial years.

The net profit ratio is an indicator of operational efficiency or inefficiency. It should always be higher and net profit ratio of the concern is increasing in each subsequent year. Thus, it depicts operating efficiency of the firm is increasing.

RECOMMENDATION : The company needs to cut its expenses further to increase its gross and net profit ratio . As of now the company maintains a satisfactory position as far as operating efficiency is concerned.

2. RETURN ON CAPITAL EMPLOYED

3.27%

9.55%

1.4%

RETURN ON CAPITAL EMPLOYED

2005-062006-072007-08

ROCE compares earnings with capital invested in the company. It is similar to Return on Assets (ROA), but takes into account sources of financing. It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.

The cost of capital employed is increasing in each of the given years. Return on Capital Employed ratio also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets.

RECOMMENDATION : Firms can increase their Return on Capital Employed Ratio by:

Cutting costs so as to increase the Profit Margin ratio. Buying raw material and other goods at cheaper costs.

Turnover Ratios

Average Debtors Collection Period V/s Average Payment Period

2005-06 2006-07 2007-080

10

20

30

40

50

60

Average Debtors Collection vs Average Payment Period

Average Debtors Col-lection Period

Average Payment Period

Financial Years

Days

The Average Debtor collection Period of the Company has been low in the financial years 2005-06, 2006-07 and 2007-08.The Average Payment Period of the company had been high in the financial years 2005-06, 2006-07 and 2007-08.

Recommendation:

The company has a low Average Debtors Collection Period . The company needs to maintain this ratio. A low Average Debtors Collection Period implies a high trustworthiness and market credibility of the company.

RECOMMENDATION AND FINANCIAL ANALYSIS

CURRENT RATIO VS. QUICK RATIO.

2005-06 2006-07 2007-080

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2

2.47

1.62

3.93

4.32

3.14

QUICK RATIOCURRENT RATIO

Quick Ratio 2 2.47 1.62Current Ratio 3.93 4.32 3.14

The above graph depicts the trend of current ratio and quick ratio in the respective financial years.

The current ratio of the company has an ideal ratio of 2:1 in all the three financial years. It has shown a mixed trend. Further analysis of current assets for the F.Y 2007-08 reveals about 42.43% of current assets belongs to closing stock , 26.00% of cash and bank balances , 25.71% in debtors and 5.85% in other current assets.*

*(loans and advances is taken as current assets.)

The quick ratio of the company has above the ideal ratio of 1:1 in all the three financial years and has shown a mixed trend.

The analysis of quick assets for the financial year 2005-06 reveals that 44.76% of quick assets consist of debtors and 55.24% of cash and bank balance.

The analysis of quick assets for the F.Y.2006-07 shows that 47.91% of quick assets consist of debtors and 52.10% of cash and bank balance.

The analysis of quick assets for the F.Y. 2007-08 depicts that 49.71% of quick assets consist of debtors and 50.29% of cash and bank balance.

RECOMMENDATION:

From the above details we can conclude that the liquidity position of the company was satisfactory in all the three financial years. It means that the financial condition of the company is sound and good.

The company needs to bring its liquidity ratios to near about the ideal norms or standards. A better liquidity creates confidence among the lenders for funding purpose.

FINANCIAL ANALYSIS OF COMPANY

THE LIQUIDITY POSITION:

The liquidity ratios of the company have been satisfactory. The current ratio as well as quick ratio was above the ideal norm in the financial year 2007-08 and stood at 3.14 times & 1.62 times in the Financial Year 2007-08 respectively.

The company has a good ability to meet its short-term obligations.

Overall financial position of the company is satisfactory as well as liquidity position of the company is also good and satisfactory. It shows the ability of the concern to meet its current obligations as and when these are due during the short-term period.

OVERALL SUMMARY:

LIQUIDITY POSITION –

Liquidity is a measure of the quality and adequacy of current assets to meet current obligations as they come due. The current ratio as well as the quick ratio is above the ideal norm. They also show an upward trend in all the three given years.

A sound liquidity position shows that the firm has a satisfactory position to meet its short term requirements.

OPERATING EFFICIENCY & PROFIT PERFORMANCE –

Operating ratios are designed to assist in the evaluation of management performance. The operating efficiency of the firm has been continuously increasing over the period of three given years.

Sales of the concern are increasing with a decrease in expenses and cost of goods sold. To maintain a stable operating position company needs to improve its sales and decrease its expenses.

A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximising profits, irrespective of social consequences.

Thus, the company is earning satisfactory profits for its smooth functioning.

LEVERAGING RATE –

The relationship of owner’s equity to borrowed funds is an important indicator of financial strength. The greater the proportion of equity funds, the greater the degree of financial strength. The company has low financial risk in FY 2005-06 and also in the year 2006-07 and 2007-08.

Overall financial position of the company is moderate and satisfactory to an extent. There is always a scope of improvement. There is a definite increase in sales, net profit and net worth of the company. The liquidity position, operating and profit performance and leverage rate are satisfactory to an extent. Thus, the company can cut short its expenses to increase its profits further.

WORKING NOTE –

1. Selling and distribution expenses (schedule 14 and 15) –

Particulars 2005-06 2006-07 2007-08

Freight and delivery charges

8222 7777 7316

Selling agent’ commission

2917 2710 3100

Rebate and discount

1481 1414 1241

Advertisement 408 363 470

TOTAL 13028 12264 12127

2. Administrative expenses (schedule 14 and 15) –

Particulars 2005-06 2006-07 2007-08

Staff cost 75141 67145 69422

Rates and taxes 755 841 259

Insurance 620 596 1041

Effluent expenses

1824 2051 1783

Repairs 16482 18926 16608

Audit fees 567 500 509

Director’s fees 11 16 32

TOTAL 95400 90075 89654

3. Financial expenses (schedule 15 and 16) –

Particulars 2005-06 2006-07 2007-08

Interest to bank 450 911 1303

Bill discounting charges

3699 1790 1557

TOTAL 4149 2701 2860

4. Creditors (schedule 10 and 11) –

Particulars 2005-06 2006-07 2007-08

Sundry creditors 40544 35488 52730

TOTAL 40544 35488 52730

BIBLIOGRAPHY

1. Annual Report for 2005-06 , 2006-07 and 2007-08 of NARMADA GELATINES LIMITED.

2. www. bse india.com

3. Books-

Management Accounting - Sahitya Bhawan Publication.

Management Accounting – Jawahar Publications.

Management Accounting – Ram Prasad & Sons.