Ratio Analysis

A

PROJECT REPORT ON

At

54 MIDC, SATPUR

NASIK - 422 007, INDIA.

Submitted to

PUNE UNIVERSITY

By

Mr. HEMANT VISHNUPANT GUNJAL

MBA [FINANCE]

IMRT, NASHIK

Under the guidance of

PROF.D. D. WALKE

For the Partial Fulfillment of

MASTER OF BUSINESS ADMINISTRATION

2007-08

1

ACKNOWLEDGEMENT

It was a great experience in working with a company like ‘XLO INDIA

LTD.’ Where leadership, meticulousness, informality, focused approach

and lightening speed run concurrently making the organization

unstoppable, resulting in fast growth.

The combined effort of many helps to complete a project successfully.

Through this brief note, I would like to express my gratitude to all those

who contributed to the making of this project. I thank Mr.Satish

Kulkarni (Accounts Manager) without whose able guidance this project

would not have been completed.

My acknowledgement would not be completed without mentioning the

name of the Director of I.M.R.T. Dr.B.B.Rayate for providing me with all

the facilities required in completing this project.

The MBA course at I.M.R.T. gave me a unique opportunity to be in

association with one of the largest organization of the country. I am

extremely grateful to Prof. D.D.Walke and other faculty members at the

institute for encouraging & guiding me in this project.

Myself is grateful to all those who have supported me towards the

successful completion of the project.

Date: - HEMANT V. GUNJAL

2

INDEX

CHAPTER 1 INTRODUCTION PAGE NO.

1.1 Object of Project 06

1.2 Selection of the topic07

1.3 Objectives of the study 08

1.4Methodology of the study 09

1.5Limitations of the project 10

1.6 Utility of the study11

CHAPTER 2 INTRODUCTION TO THE ORGANISATION

2.1 Introduction to the Organization 13

2.2 Organizational Structure 14

2.3 General Information about the Organization 15

CHAPTER 3 INTRODUCTION TO THE TOPIC

3.1 Meaning & Definition18

3.2 Introduction to Ratio Analysis 19

3.3 Analysis of Data & Its Presentation 29

CHAPTER 4 CONCLUSION

Conclusion 56

CHAPTER 5 RECOMMENDATIONS & SUGGESTIONS

Recommendations & Suggestions 58

3

APPENDEXa) Bibliography

59

4

1.1 OBJECT OF THE PROJECT

As per mandatory requirement of Pune University, I have

undertaken this project as a part fulfillment of Master of Business

Administration curriculum within 2 months training at XLO INDIA

LIMITED.

Each management student learns a lot during his 2 years of

MBA program, but the perfection in his learning can’t be even

imagined until & unless there is a practical training. The (summer)

project provides required practical training to student

5

6

1.2 SELECTION OF THE TOPIC FOR STUDY

Topic selection is the one of the most or one of the important

aspects of our project. As it decides the course of action, to be

followed. The topic selected should be such that it helps in

understanding the ratio concepts clearly, as was given the topic by

the company itself.

The topic given by my project guide was “RATIO

ANALYSIS AS PER THE FINACIAL STATEMENT OF XLO INDIA

LTD.” This covers all the things related to the Ratio Analysis

provided by the company.

7

1.3 OBJECTIVE OF THE STUDY

While going through any advertisement for recruitment it is

realized that any organization call for candidates with the main

condition of work experience. It is clear-cut mentioned in such

advertisement that preference would be given to candidates with

experience. This point out that practical exposure is extremely

important. So, right the University of Pune has taken right step by

making it mandatory for the students to do the project work in an

organization. This would help the student to get practical

knowledge along with the theoretical knowledge. The objectives of

the summer training are as follows:

To be able to apply the theoretical knowledge obtained at

the institute in a practical manner in the actual business

environment.

To get the knowledge about organizational problems,

perceptions and challenges.

To get an opportunity of real life business experience.

To interact with the managers of the company and gain

knowledge through their real life experience.

8

1.4 METHODOLOGY OF THE STUDY

The data collected for the project was in the form of written

as well as verbal information regarding ratio analysis of the

company.

1) Primary data: -

The information about the Company is gathered from the

discussion with the employees/staff and from the web site of the

Company.

2) Secondary data:-

The secondary data collected -

The balance sheets as on the date of 31st march for the years-

2003 – 2004

2004 – 2005

2005 - 2006

The methodology of this study has been adopted on the following basis:

Study of various Journals, Notes & Books.

Study through web-sites

Collection of Primary & Secondary data records of the organization.

Analysis of the collected data for its application.

9

1.5 LIMITATION OF THE STUDY

Generally company does not allow outsiders to conduct any

study or research work in company. Therefore, get the project

done in company itself was very difficult.

Due to confidentiality some important information, which are

important for the project, could not be collected.

Some of the information is lack of accuracy, due to which

approximately values were used for the analysis. Hence, the

results also reveal approximate values.

The project is based on theoretical guidelines and as per

situations prevalent at the time of practical training. Hence, it

may not be apply to different situations.

The time span for the project was very short which was of 2

months, which itself acts as a major constraint. Moreover,

studying the guidelines and applied it practically within such

short time span was a task of great pressure.

10

1.6 UTILITY OF THE STUDY

MBA’s are known for their presentation skills and practical touch

to the theoretical knowledge and are counted in the professionals.

A profession is source of livelihood based on substantial body of

knowledge & its formal acquisition through practical training & its test of

success is the services rendered & not the profit earned thereon.

It reveals that the canon of any profession is placed on the ground

of theoretical knowledge as well as practical training.

Thus it becomes evident that the efforts to prepare this project

report are certainly going to be proved as a concrete foundation for our

future career.

Another aspect of this study is to get acquainted with ground

reality in the application of theoretical knowledge & to find out a way to

tackle with the situations.

11

12

2.1 INTRODUCTION TO THE ORGANISATION

Ex-Cell-O India Limited was formed in the year 1958 with

technical and equity participation (70%) from Ex-cell-o Corporation of

U.S.A with the objective of manufacturing machine tools.

The company manufactured these products with the following

technical collaborations -

1) Machine Tools – Ex-cell-o corporation ,U.S.A

2) Propellar Shafts – Hardy Spicer Ltd , U.K

3) Stearing Gears – Ross Gear Division of TRW Inc, U.S.A.

All these collaboration agreements have since expired. The above

three products were being manufactured by XLO INDIA LIMITED at only

one plant located at Thane, 35 kms. North of Bombay city till 1975. As

the country’s Automotive Sector was growing steadily XLO India went

for expansion & steering gears manufacturing activities were shifted

from Thane plant to the new plant at Satpur Industrial Estate at Nashik,

185kms from Bombay in mid -1975 whilethe machine tools & activities

continued in Thane plant itself.

In 1978, the company was Indianised & the name changed to

XLO INDIA LIMITED.

13

2.2 ORGANIZATIONAL STRUCTURE

Mr. S.C .SARAN is the chairman and managing directors of the

company. This organization is headed by Mr. S.C. SARAN who is the

mechanical engineer from CARNEIGE– MELLON UNIVERSITY. U.S.A.

& an MBA (Finance) From COLUMBO UNIVERSITY. All the

companies are run by professional managers.

14

Chairman

M.D.

G.M.HR

G.M.Marketing

G.M. Finance

G.M.Production

DeputyG.M.

Worker

Superintendent

Supervisor

DeputyG.M.

Officer

Staff

DeputyG.M.

Officer

Staff

DeputyG.M.

Officer

Staff

2.3 GENERAL INFORMATION ABOUT THE

ORGANIZATION

HISTORY

- Company founded in 1958 at Mumbai

- Collaboration

YEAR COLLABRATION PRODUCT

1960 Ex-Cell-O Corporation U.S.A. Machine Tools

1961 Hardy Spicer Ltd U.K Universal Joints &

Propeller Shafts

1961 Ross gear & tools company Steering gears

(Division of TRW U.S.A.)

1984 Propeller Shaft division separated Propeller Shaft &

as new company XLO-GWB Universal joint,

cardan steering gears.

Shaft

1985 Machine tools division separated as machine tools

XLO machine tools

15

XLO INDIA LIMITED, Nasik:-

The company plant is located at Satpur Industrial Area, Nasik

about 185 kms North of Bombay city. The total built-up area of this plant

is about 10000 sq. meters. This plant basically started manufacturing

warm and roller type steering gears for application ranging from

passenger cars, tractors, lights and medium duty commercial vehicles

and forklifts. This plant which was setup in 1974 was probably one of

the first to employee group technology in India, successfully. Licensed

capacity of this plant is 120000 steering gear units per annum and the

installed capacity of roller type of steering gears is 100000 nos. per

annum.

Future expansion plan is for power assisted steering gears, as

well as manual rack\pinion steering gear, for O.E. for new cars that are

to be manufactured in India.

16

17

3.1 MEANING & DEFINITION

Ratio is simply one number expressed in terms of another; e.g.

the current assets and current liabilities of one company are Rs. 50000

and Rs. 30000 respectively. So the current assets to current liability

ratio will be 5:3. Thus, ratio is numerical presentation of two relevant

items.

Ratio analysis involves the use of various methods for calculating

and interpreting financial ratios to assess the performance and status of

the business unit. It is a tool of financial analysis, which studies the

numerical or quantitative relationship between two variables or items.

Definition:-

“A ratio analysis is a technique of ascertaining and interpreting the

numerical relationship of the two relevant items presented in the

financial statement.”

18

3.2 INTRODUCTION TO RATIO ANALYSIS

CLASSIFICATION OF RATIOS

Generally ratios are classified on the following basis.

Functional classification.

Now, Functional Classification is discussed brief

FUNCTIONAL CLASSIFICATION:-

The functional classification of ratios considers the basic aspects

of business activity as under:

a) Liquidity Ratio

b) Profitability Ratio

c) Activity Ratio or Turnover Ratio

d) Leverage Ratio or Solvency Ratio

19

Liquidity: -

It’s ability to maintain positive cash flow, while satisfying

immediate obligations.

Profitability:-

It’s ability to earn income and sustain growth in both short term

and long term. A company’s degree of profitability is usually based on

the income statement, which reports on the company’s result of

operations.

Activity Ratio or Turnover Ratio:-

Which measure the efficient utilization of fixed and current assets.

Leverage Ratio or Solvency Ratio:-

It’s ability to maintain positive cash flow, while satisfying

immediate obligations.

20

Each group is discussed in detail as under:-

A) Liquidity Ratio:-

As noted above, these ratios measure the liquidity position

of the company, in liquidity ratio there are two types:-

a) Current Ratio

b) Liquid Ratio or Acid Test Ratio

a) Current Ratio :-

Current ratio measures the inter-relationship between

current assets the current liabilities. It is also known as working

capital ratio.

It is ascertained as under:-

Current Ratio = Current assets / Current liabilities

b) Liquid Ratio:-

The quick ratio is sometimes called the “acid-test” ratio and

is one of the best measures of liquidity. It is figured as shown below:

Quick Ratio = Current Asset - Inventory

---------------------------------------

Current liabilities

21

The quick ratio is a much more exacting measure than the current

ratio. By excluding inventories, it concentrates on the really liquid

assets, with value that is fairly certain. It helps answer the question.

An acid test of 1:1 is considered satisfactory unless the majority of

your “quick ratios” are in accounts receivable, and the pattern of

accounts receivable collection lags behind the schedule for paying

current liabilities.

Acid-test ratio is ascertained as under:-

Acid-test ratio = Liquid assets / Liquid liabilities

B) Profitability ratio:-

Profitability ratios are important because that touch the basic

objective of business activity. Generally following profit ratios are

ascertained for the purpose of interpretation of financial statements.

1. Gross profit ratio: - This is popularly known as G.P ratio, is

ascertained as under:-

G.P. ratio = Gross profit

------------------- x 100

Sale

G.P. = Sales - Cost of goods sold.

22

2. Net profit ratio: - Popularly known as N.P. ratio, considers the net

profits to sales as under:

N.P. ratio = Net profits

------------------ X 100

Sales

Net profit = Sales – operating expenses.

As this is profitability ratio, higher the N.P. ratio better will be the

profitability on sales.

3. Return capital employed: - It is also called as rate of return.

It is ascertained as under:

Rate on capital employed = Net profit – Preference dividend

----------------------------------------- X100

Equity capital

23

C) Activity Ratio or Turnover Ratio:-

Activity ratios are the productivity ratio which measure the

relationship of output (i.e. sales) and Inputs (i.e. individual assets).

The following are the important turnover ratio:

a) Inventory turnover ratio:-

It is also known as stock turnover ratio.

This ratio is measure the average investments in inventory in relation to

cost of goods sold.

It is ascertained as under:

Inventory turnover ratio = Cost of goods sold

--------------------------------

Average inventory

Cost of good sold = sales - Gross profits

Average inventory = Opening inventory + closing inventory

-------------------------------------------------------

2

24

b) Assets turnover ratio:-

This ratio indicates the efficient utilization of all assets; i.e. fixed

assets and current assets. It is also called as “Capital turnover ratio.”

It is ascertained ad under:

Asset turnover = Sales/ Total assets.

Total assets =Fixed assets + Current assets.

c) Fixed asset turnover ratio: -

Among the total capital employed in the form of total assets,

this ratio measures the contribution of fixed assets in sales and the

resultant profitability.


Fixed asset turnover ratio = Sales / Total fixed assets.

D) Leverage ratio:-

Leverage ratio measures the use of fixed-interest-bearing

securities in magnifying the return on equity capital. It is also called as

financial leverage on trading in equity or debt-equity ratio or capital-

gearing ratio.


Debt- Equity ratio = Long term debt/ Equity (net worth)

Thus net worth = Equity capital + Reserves.

25

Proprietary ratio:

This ratio measures the proportionate contribution of

proprietor in the total assets.


Proprietary ratio = Proprietor’s fund/ Total assets.

E) Valuation ratio:-

It is also called as pricing ratio. The following are the important

valuation ratio:

Earning per share (EPS):

EPS is nothing but return on equity as

measured in terms of each share.


EPS = Net profits - Preference dividend

------------------------------------------------

Number of equity shares

26

Concept

1) Gross Profit : Gross Profit is net of Depreciation but before interest.

2) Net Profit : Operating Profit minus provision for Tax.(Profit after Tax)

3) Current Assets :Inventories + Debtors + B.R. + Advances + Cash & Bank Balances

4)Current Liabilities :

Current Liabilities & Provisions + Bank borrowing for working capital.

5)Capital Employed :

Net Fixed Assets + Current Assets - Current Liabilities.

6) Net Worth :Share Capital + Reserve & Surplus - Pre-operative Expenses

7) Turnover : Sales/Assets.

8)Debt/Equity Ratio :

The ratio of debentures & long term borrowings to Net Worth.

9)Proprietary Ratio : Total Assets/Shareholders fund.

27

3.3 Analysis of data and its Presentation

Balance Sheets (In Lacs)

2004 2005 2006

ASSETS : Fixed Assets (Net) 458.73 414.89 388.34

Investments 0.55 0.55 0.55

CURRENT ASSETS, LOANS & ADVANCES : Inventories 139.60 187.66 164.61

Debtors (Excl. B/D) 423.78 450.72 481.64

Bills Receivable 73.37 18.35 14.69

Cash & Bank 87.94 26.74 69.60

Loans & Advances 53.05 77.44 65.69

Misc. Expenses 0.00 6.32 0.00

TOTAL ASSETS 1237.02 1182.67 1185.12

LIABILITIES : Share Capital 149.91 149.91 149.91

Reserves & Surplus 467.53 480.97 504.57

Cash credit 51.33 26.60 22.94


Other Secured Loan 5.58 0.00 0.00

Unsecured Loan 160.95 119.15 120.12

Current Liabilities & Provision 328.35 387.69 372.89

TOTAL LIABIILITIES 1237.02 1182.67 1185.12

CURRENT ASSETS

Inventories 139.60 187.66 164.61

Debtors (Excl. B/D) 423.78 450.72 481.64


Cash & Bank 87.94 26.74 69.60

Loans & Advances 53.05 77.44 65.69

Total Current Assets 777.74 760.91 796.23

QUICK ASSETS

Total Current Assets 777.74 760.91 796.23

Less : Inventory 139.60 187.66 164.61

Total Quick Assets 638.14 573.25 631.62

CURRENT LIABILITIES

Cash credit 51.33 26.60 22.94

Bills Payable 73.37 18.35 14.69

Current Liabilities & Provision 328.35 387.69 372.89

28

Total current liabilities 453.05 432.64 410.52

(In Lacks)

NET WORTH

Share Capital 149.91 149.91 149.91

Reserves & Surplus 467.53 480.97 504.57

617.44 630.88 654.48

Less : Misc.exps W/off 0.00 6.32 0.00

Total Net Worth 617.44 624.56 654.48

CAPITAL EMPLOYED

Net Fixed Assets 458.73 414.89 388.34

Current Assets 777.74 760.91 796.23

1236.47 1175.80 1184.57

Less : Current Liabilities 453.05 432.64 410.52

Misc.exps. W/off 0.00 6.32 0.00

Total capital Employed 783.42 736.84 774.05

TOTAL DEBT

Long term secured loans 5.58 0.00 0.00

Long term unsecured loans 160.95 119.15 120.12

Total Debt 166.53 119.15 120.12

INVENTORY

Raw materials 54.58 107.62 81.64

Work in process 61.14 61.74 59.61

Finished Goods 6.21 9.47 14.01

Stores & spares 17.67 8.83 9.35

Total Inventory 139.60 187.66 164.61

AVERAGE INVENTORY

Raw materials 61.58 81.10 94.63

Work in process 59.39 61.44 60.68

Finished Goods 10.27 7.84 11.74

Stores & spares 20.03 13.25 9.09

Total Average Inventory 151.27 163.63 176.14

AVERAGE DEBTORS 542.22 483.11 482.70

29

Financial Performance (In lacs)

2004 2005 2006 1) FINANCIAL PERFORMANCE : Gross Sales 2727.60 2421.42 2470.35 Net Sales 2255.97 1994.37 2041.62 Other Income 13.65 8.51 6.65 Previous Years Adjustments 7.85 2.22 4.38 Total Income 2277.47 2005.10 2052.65 Profit before int.& Depr (PBDIT) 99.92 81.12 109.46 Gross Profit (PBIT) 47.40 29.60 58.17 Operating Profit (PBT) 27.04 22.43 54.94 Net Profit ( PAT) 21.04 11.43 31.94

30

LIQUIDITY RATIO

1) Current ratio

2) Quick ratio

CURRENT RATIO

The current ratio is another test of a company’s financial strength.

The current ratio by dividing the total current assets by the total current

liabilities.

Current Ratio = Current assets / Current liabilities

Calculation of ratios:-

2004 = 777.74 / 453.04

= 1.72

2005 = 760.91 / 432.64

= 1.76

2006 = 796.23 / 410.52

= 1.96

Reporting of Ratios:-

Particulars 2004 2005 2006

Current Ratio 1.72 1.76 1.96

31

Comment:-

1) Thus it has a moderate and sufficient asset to be

converted into cash in order to the companies debts as and when

required.

2) But it can be seen that the current ratio has been increased

from 1.72 to 1.96.

32

CURRENT RATIO

1.6

1.65

1.7

1.75

1.8

1.85

1.9

1.95

2

2004 2005 2006

YEAR

RA

TIO

Quick Ratio

Quick Ratio = Current Asset - Inventory

---------------------------------------

Current liabilities

Calculation of ratio:-

2004 = 638.14 / 453.05

= 1.41

2005 = 573.25 / 432.64

= 1.33

2006 = 631.62 / 410.52

= 1.54



Quick Ratio 1.41 1.33 1.54

33

Comment:-

1) Quick ratio measures your ability to access cash quickly to support

immediate demands. Also known as the acid test, the quick ratio divides

current assets excluding inventory by current liabilities.

2) In our case, we can see that the ratio is continuously growing and it is

above one which shows high liquidity.

34

QUICK RATIO

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

2004 2005 2006

YEAR

RA

TIO

LEVERAGE RATIOS

1) Debt Equity ratio

2) Proprietary ratio

DEBT EQUITY RATIO:-

Debt- Equity ratio = Long term debt / Equity (net worth)


2004 = 166.53 / 617.44

= 0.27

2005 = 119.15 / 624.56

= 0.19

2006 = 120.12 / 654.48

= 0.18



Debt equity Ratio 0.27 0.19 0.18

35

Comment:-

1) The debt equity ratio shows the relative contribution of creditors

and owners. Lower the ratio higher is the degree of protection enjoyed

by the creditors.

2) Thus we can see that the debt equity ratio of the organization is

decreasing, increasing the protection of creditors.

36

DEBT- EQUITY

0

0.05

0.1

0.15

0.2

0.25

0.3

2004 2005 2006

YEAR

RA

TIO

PROPRIETARY RATIO

Proprietary ratio = Proprietor’s fund / Total assets.


2004 = s617.44 / 1237.02

= 0.50

2005 = 654.56 / 1176.45

= 0.53

2006 = 654.48 / 1158.12

= 0.55



Proprietary ratio 0.50 0.53 0.55

37

Comment:-

1) The proprietary ratio indicates the financial position of the

company.

2) Higher the proprietary ratio stronger the financial position.

3) In our case, proprietary ratio not so stronger but growing

continuously, it means company is moving towards sound

financial position.

38

PROPRIETORY

0.47

0.480.49

0.5

0.510.52

0.53

0.540.55

0.56

2004 2005 2006

YEAR

RA

TIO

PROFITABILITY RATIOS:-

1) Gross profit margin

2) Net profit margin

3) Return on capital employed

GROSS PROFIT:-

G.P. ratio = Gross profit

-------------------- X 100

Sale


2004 = 47.40 / 2255.97 X 100

= 2.10 %

2005 = 29.60 / 1994.37 X 100

= 1.48 %

2006 = 58.17 / 2014.62 X 100

= 2.85 %



Gross Profit 2.10 1.48 2.85

39

Comment:-

1) The G.P. margin should be stable because it is directly with sales.

2) The ratio measure efficiency of the companies operation and this

can also be compared with the previous years.

3) Here, by comparing the performance of G.P. ratio is better than

previous year. It means, the efficiency of operations is increased.

40

GROSS PROFIT

0

0.5

1

1.5

2

2.5

3

2004 2005 2006

Year

Ra

tio

Net profit ratio:-

N.P. ratio = Net profits

--------------------- X 100

Sales

Net profit = Sales – operating expenses.


2004 = s21.04 / 2255.97 X 100

= 0.93 %

2005 = 11.43 / 1994.37 X 100

= 0.57 %

2006 = 31.94 / 2014.62 X 100

= 1.56 %



Net profit 0.93 0.57 1.56

41

NET PROFIT

0

0.20.4

0.6

0.81

1.2

1.41.6

1.8

2004 2005 2006

YEAR

RA

TIO

Comment:-

1) The ratio is design to focus attaintion on net

profit margin arising from business operation.

2) The ratio could be compare with that of the

previous year.

3) So here, we can observe the volatility in N.P.

ratio which was very low in 2005 but good

recovery in 2006.

42

Return capital employed: -

Return on equity capital = Net profit

------------------------------- X 100

Equity Capital


2004 = 21.04 / 149.91 X 100

= 14.04 %

2005 = 11.43 / 141.91 X 100

= 7.62 %

2006 = 31.94 / 149.91 X 100

= 21.31 %



Return capital employed 14.04 7.62 21.31

43

RETURN ON CAPITAL EMPLOYEED

0

5

10

15

20

25

2004 2005 2006

YEAR

RA

TIO

Comment:-

1) The strategic aim of a company is to earn a return on

capital

2) By analyzing the return on capital employeed ratio of the

year 04-05 and 06, we can say that except 2005 the

company has earned good amount of return on

Investments.

44

TURN OVER RATIO

1) Inventory turnover ratio

2) Assets turnover ratio

3) Fixed assets turnover ratio

45

INVENTORY TURNOVER RATIO:-

Inventory turnover ratio = Cost of goods sold

----------------------------

Average inventory

Cost of good sold = Sales - Gross profits

Average inventory = Opening inventory + closing inventory

--------------------------------------------------------

2


2004 = 2255.97 / 151.27

= 14.91

2005 = 1994.37 / 163.63

= 12.19

2006 = 2041.62 / 176.14

= 11.59



Inventory turn over ratio 14.91 12.91 11.59

46

Comment:-

1) Most of the capital is lock up in the inventory of manufacturing

companies.

2) It is important to take at watch on inventory turnover ratio to

ensure the level of the stock which is should be kept as low as

possible.

3) In our case, we can see that day by the ratio is going down

which means the stock turnover period is higher than previous

which may be harmful for the company.

47

INVENTORY TURN OVER

0

2

4

6

8

10

12

14

16

2004 2005 2006

YEAR

RA

TIO

ASSET TURNOVER RATIO:-

This ratio indicates the efficient utilization of all assets; i.e. fixed

assets and current assets.

Asset turnover = Sales / Total assets.

Total assets = Fixed assets + Current assets.


2004 = 2255.97 / 1237.02

= 1.82

2005 = 1994.37 / 1176.35

= 1.70

2006 = 2041.62 / 1185.12

= 1.72



Assets turnover ratio 1.82 1.70 1.72

48

Comment: -

1) This ratio indicate the efficient utilization of all assets; i.e.

fixed assets and current assets. It is also called as “Capital turnover

ratio.”

2) Higher the ratio indicates the over utilization of assets a

medium ratio means an optimum utilization of assets and lower ratio

indicates idle capacity.

3) In our case, the ratio is going down which means there

may be fear of assets remaining idle, if proper utilization is not carried.

49

ASSET TURN OVER

1.641.661.681.7

1.721.741.761.781.8

1.821.84

2004 2005 2006

YEAR

RA

TIO

Fixed asset turnover ratio:-

Fixed asset turnover ratio = Sales / Total fixed assets.


2004 = 2255.97 / 4587.73

= 4.92

2005 = 1994.37 / 451.89

= 4.81

2006 = 2041.62 / 388.34

= 5.26



Fixed assets ratio 4.92 4.81 5.26

50

Comment:-

1) Among the total capital employed in the form of total

assets, this ratio measures the contribution of fixed assets

in sales and the resultant profitability.

2) It is difficult to interpretate ratio as assets value based on

historic cost.

3) Stable ratio can be taken, as a positive indicator in our

case there is no much volatibility.

51

FIXED ASSET TURN OVER

4.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

2004 2005 2006

YEAR

RA

TIO

VALUATION RATIO

EARNING PER SHARE:-

EPS = Net profits - Preference dividend

--------------------------------------------

Number of equity shares


2004 = 21.04 / 15

= 1.40

2005 = 11.43 / 15

= 0.76

2006 = 31.49 / 15

= 2.53



Earning per share 1.40 0.76 2.13

52

Comment:-

1) Higher the EPS is makes the company more attractive.

2) In last year the company was having good EPS. It

means, it can attract more funds from shareholders.

53

E P S

0

0.5

1

1.5

2

2.5

2004 2005 2006

YEAR

RA

TIO

54

Conclusions:

In this project,

I reviewed following areas of financial ratio analysis research:

The functional form of the financial ratios, i.e. the proportionality

discussion

Classification of financial ratios.

It is obvious that the existing main research areas in financial ratio

analysis are fairly separate from each other sometimes with traditions of

their own.

The research on the functional form of financial ratios has been

characterized by theoretical discussions about the ratio format in

financial ratio analysis and empirical testing of the ratio model. We

conclude from the review that the proportionality assumption for

financial ratios is stronger within an industry Moreover; proportionality

varies from ratio to ratio, and between times, periods indicating

problems in temporal stability.

55

56

RECOMMENDATIONS AND SUGGETIONS

Followings are the suggestions made on the basis of study made:

1) The current ratio is means to the near to the standard current ratio

2:1 but still main point management should consider is that there

is very high amount blocked in debtors as well as the current

liabilities and provisions are pending is high.

2) Management used to concentrate on the profitability of the

company as gross profit ratio and net profit ratio indicates very

low profitability.

3) Management also needs to concentrate on sales as indicated low

with respect to turnover ratios.

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APPENDIX

BIBLIOGRAPHY

Financial management –

By, Prof. R.P.RASTOGI

www.xloindia.com

Annual Report 2004-06

58

Ratio Analysis

Documents

project work

object of project

summer project

project reporton

project guide

study topic selection

analysis of data

ratio analysis