Ratio Analysis

RATIO ANALYSIS

CHAPTER 1

RESEARCH DESIGN

INTRODUCTIONAKIM, BELLARY Page 1

RATIO ANALYSIS

The RAYATAR SAHAKARI SAKKRE KARKHANE NYIYAMIT (R.S.S.K.N) is a large scale Agro-based

sugar industry. It covers under Co-operative sector.

This factory was registered on 29th July 1982 itself and government has given licensee for

2,500 TCD (Tone Capacity per day).( But it plans to increase capacity 2,500 to 3500) In the same year

government has given registration number is DSK/REG/182-83 dated: 27/07/1982. From that

onwards it started issuing the shares to the public this issuing of shares comes to end in the year

1997. During these periods they purchased 200 acres of land at Timmapur (Mudhol Taluka) village at

a cost of Rs.24 lac. The 1st trial crushing was taken in the month of May from 19/05/1999 to

10/06/1999. .

Ratio Analysis is one of the techniques of financial analysis where ratios are used as a

yardstick for evaluating the financial condition and performance of a firm. Analysis and

interpretation of various accounting ratios gives a better understanding of financial condition and

performance of firm. It provides data for intra-firm comparison. They also revel financially strong

and weak such as overvalued and undervalued of firms. These ratios help to indicate a company’s

efficiency in the past and likely performance in future. It should be noted that computing the ratios

does not add any information in figures of profits and sales. Trend ratios involve a comparison of the

ratios of a firm over a period, that is present ratios involve a comparison of the ratios of a firm. Trend

ratios indicate the direction of change in the performance.

STATEMENT OF PROBLEM:

Accounting ratios are relationship expressed in mathematical terms between the figures

that are connected with each other in some manner. All companies whether big or small will prefer

to be in good financial position.

The balance sheet of a company that has been undertaken for the study furnishes that

the industry is in good financial position.

To evaluate a firm’s financial condition and performance there is a need to check up various

aspects of a firm’s financial health, a tool frequently used during these check up in financial ratio.

The study is conducted to evaluate the performance and market standing of RSSKN in order

to give a better scope to the investors, shareholders, creditors and the management themselves

about rating of RSSKN and its performance in the market.

Objectives of the Study:

AKIM, BELLARY Page 2

RATIO ANALYSIS

1. To study & analyze the short term solvency & liquidity position of the company.

2. To know the impact of various assets & liabilities on financial performance of company.

3. To evaluate the financial performance & operations with the help of financial ratios

Methodology

Study Period

The period covered for the study is five year starting from financial year 2004-05 to 2008-09.

Method of data collection

The collection of the data of this report is segregated into

a. Primary data

It is collected through direct interaction with

Account officer. This includes

The organization chart, various department etc.

b. Secondary data

Source like company annual report


RATIO ANALYSIS

CHAPTER 2

INDUSTRY PROFILE


RATIO ANALYSIS

INDUSTRY PROFILE

The sugar industry is one of the important Ago-based industry of the country India is

the fourth major sugar production in the world. The first three is Russia, Brazil and Cuba. Sugar

industry provides direct employment to nearly 3lakh persons this industry supports about 25 million

agriculturists. It pay’s both to the central government and the state government about Rs.350 crores

by way of different taxes. The capital employed in the industry is of the order of Rs.780 crores. There

are about 414 mills producing sugar, which are spread all over the country.

Sectors No. of factories

Private sector 127

Public sector 60

Co-operative sector 227

Total 414

RATIO ANALYSIS OVERVIEW

Ratio analysis is a powerful tool of financial analysis, the easiest way to evaluate the

performance of the firm.

The ratio defined as expression of quantities relationship between two numbers. In financial

analysis a ratio is used as benchmark for evaluating financial position & performance.


RATIO ANALYSIS

INTRODUCTION

The project is carried out in Ranna sugar industry. The project studies “The

Operational & Financial Health” through ratio analysis.

Ratio analysis is a technique of analysis the financial statement of business or industrial

concerns especially to take output & credit decisions. This technique is quite sophisticated & being

used by business firms in modern days. However ratio analysis is not an end itself. It is only the

means of better understanding of financial strength &weakness of a firm. Just as blood pressure,

pulse & temperature are measured of health of individual, so does the ratio analysis measures the

economic & the financial health of concern.

Ratio analysis is one of the most powerful tools of financial analyses which helps to analysis &

interpret in the health of enterprise. Ratio’s also measured work efficiency & proved to be basic

instruments in the control process & they are backbone in schemes of business forecast.

Three are different parties interested in the ratio analysis for knowing the financial position

of the firm fir different purposes. The supplier of goods on credit, bank, financial institutions,

investors, shareholders & management all make use of ratio analysis as tool in evaluating the

financial position & performance of a firm for granting credit, providing loans, making investment in

the firm. With the help of ratio one can point out poor. The conclusions can also be drawn as to

whether the performance of the company is improving or deteriorating. Thus ratios have wide

application & area of immense use today

With the help of ratio one can determine

1. The ability of the firm to meet its current obligations.

2. The extent to which the firm has used its borrowed funds.

3. The efficiency with which the firm is utilizing in generating sales revenues.

4. The overall operating efficiency & performance of the company.


RATIO ANALYSIS

Significance of ratio analysis

1. Ratio Analysis helps in decision making from the information provided in financial

statement.

2. Ratio Analyses is of much help in financial forecasting & planning.

3. The financial strength & weakness of firm are communicated in a more easy &

understandable manner by the user of ratios.

4. Ratio even helps in co-ordination, which is of utmost importance in effective business

management.

5. Ratio Analysis even helps in working effective control of business.

Limitations of ratio Analysis:

Ratio should be used very carefully & decision should be taken only after done &deep

consideration because they suffer from certain limitations which are given below.

1. The most important limitation of ratio analysis lies in the data adopted for calculating ratios,

every time adopts its own accounting procedure & practices differ from to another. It is

therefore cannot be compared with other firm.

2. Ratios are computed on the past data, such ratio may be reluctant for future forecasting

because of changes in time & price levels.

3. Ratios are not universally applicable; they are not useful to well establish companies as they

do not depend upon external sources of finance.

Classification of Ratios

Ratios can be classified into different categories depending upon the basis of classification.

I. TRADITIONAL CLASSIFICATION

Traditional Classification has been on the basis of financial statements, on which ratio may be

classified as follows.


RATIO ANALYSIS

1. Profit & Loss account ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc

2. Balance sheet ratio.

E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc

3. Composite/Mixed ratio.

E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets

Turnover Ratio etc

II. FUNCTIONAL CLASSIFICATION OF RATIOS

Functional ratios

1. Liquidity ratios

1. Current Ratio

2. Quick Ratio

3. Absolute Liquid Ratio

4. Net Working Capital Ratio

2. Leverage Ratios

1. Total Debt Ratio

2. Debt-equity Ratio

3. Capital Employed Ratio

4. Fixed Asset to Net worth Ratio

5. Current Asset to Proprietor’s fund Ratio


RATIO ANALYSIS

III. PROBABILITY RATIOS

a. Gross profit Ratio

b. Net profit Ratio

c. Operating Ratio

d. Operating profit Ratio

e. Expenses Ratio:

I. Cost of goods sold

II. Administration, selling and others

f. Return on investment

g. Return on Equality

h. ESP (Earning per share)

IV. ACTIVITY RATIO

i. Inventory Turnover Ratio

ii. Debtors turnover Ratio

a. ACP

iii. Asset Turnover Ratio:

1. Net Asset Turnover Ratio

2. Fixed Asset Turnover Ratio

3. Current Asset Turnover Ratio

iv. Working Capital Turnover Ratio.


RATIO ANALYSIS

INTRODUCTION TO SUGAR INDUSTRY

The Indian sugar industry is a key driver of rural development, supporting India's economic growth.

The industry is inherently inclusive supporting over 50 million farmers and their families, along with

workers and entrepreneurs of almost 500 mills, apart from a host of wholesalers and distributors

spread across the country.

The industry is at a cross roads today, where it can leverage opportunities created by global

shifts in sugar trade as well as the emergence of sugarcane as a source of renewable energy, through

ethanol and cogeneration. While some of these opportunities have been well researched in the past,

there was a need to assess the potential for India and to develop a comprehensive and actionable

roadmap that could enable the Indian industry to take its rightful place as a food and energy

producer for one of the world's leading economies.

The sugar industry occupies a prominent place among the organized industries in India.

Sugar industry holds second rank next to cotton textiles industry in importance.

It provides employment to nearly 5lakh people directly. Sugar is essential product in

India. Considerable quantity of sugar is produced since old days. India produces white sugar,

Khandasari, and Jaggery. There are about 506 industries working throughout the country.

Among them 120 are in private sector 235 in cooperative sector and 95 are in public sector. In

Karnataka state there are about 40 sugar industries established. Out of 40, 20 are in private sector,

18 are in co-operative sector, and remaining 2 are in public sector. The sugar industries are located

in rural areas and have an in intrinsic symbiotic relationship with rural masses. Some units are also in

position to supply surplus power to the grid thru Bagass based co-generation system.

India is second largest producer of sugarcane next to Brazil. As per last year data, about 4

million hectares of land is under sugarcane with an average yield of 70 tones per hectare. India is

largest producer of sugar including traditional sugar sweetener, Khandasari and Gur equivalent to 26

million tones raw value followed by Brazil in the second place at 18.5 million tones. Even in respect

of white crystal sugar, India has ranked No position 7 out of last 10 years.


RATIO ANALYSIS

Type of Sectors In India In Karnataka

Cooperative sector 282 18

Private sector 157 19

Public sector

Joint Venture

67 02

01

Total 506 40

The sugar industry contributed to the revenue of central and state govt. a sum of rupees

350 crores in the form of taxes.

GROWTH OF SUGAR INDUSTRY

On 1st July 1990, the government of India issued new guidelines for licensing new sugar

factories and for the expansion of the existing sugar factories.

Under this guideline the licensing policy has been made very liberal so as to boost the

production of sugar.

India is the original home of sugarcane and has a flourishing sugar industry in the ancient

time. But the modern sugar manufacturing industries were established in Bihar. But the real

development of the industry took place only after 1932 when protection was given to this industry

against foreign competition within a short period 2 or 3 years. The number of sugar mills increased

from only 32 in 1931-32, 137 in 1935-36 and the production also increased during the same period.

Government enacted the Sugar Development Fund Act & Rules, which provides for levy of

per quintal of sugar known as Sugar Development Fund (SDF). The SDF is utilized for granting term

loans to sugar mills modernization and grants for research projects in the sugar besides creation of

buffer stocks as and when required to ensuring price stability. Government de-licensed sugar sector

in August 1998. It is now open to entrepreneurs to set up mills without license but at distance of

15kms away from the existing factory. Sugar units free to expand their capacity and also put up

higher capacity new units. This should help to consolidate and expand their capacities wherever

cane potential exists.


RATIO ANALYSIS

NET POSITION

Indian Sugar Industry at glance

No of sugar factories established 506

Total capital employed Rs. 50,000 crores

Total annual turnover Rs. 25,000 crores

Total payment to cane growers Rs. 18,000 crores

Contribution to central & state exchequers Rs. 1700crores+800crores

Direct employment : rural educated Rs. 5.00Lakhs

Farmers/families involved in sugar cane (7.5% of

rural population)

Rs. 45 million

In global economy, the Indian sugar industry has achieved a number of milestones

1. Largest Sugar Producer in 7 out of 10 years

2. Second Largest Area under Cane/Cane production

3. Amongst the cost effective industries with its field cost (Sugar cane) being the second

lowest, despite small land-holding and low productivity

4. Fourth efficient processor of sugar despite low capacity of its sugar plants as compared very

large-size plants in other parts of the world


RATIO ANALYSIS

GOVERNMENT POLICY

The present policy of decontrol 10% of production by each unit is supplied for public

distribution system I as levy sugar at Govt. notified prices admittedly bellow 20% of the actual cost of

production. The levy sugar is I to the public irrespective of their economic status. The balance 90% is

sold in the free market against monthly/ issued by the Government. This policy has been continuing

since 1967-68 except for brief periods of de-control I during the years of surplus production and

accumulated sugar stocks. Government announces the Statutory Minimum price (SMP) for

sugarcane every year based on recommendations of the Commission for Agricultural Cost & Prices

(CACP).

THE PROBLEMS FACED BY THE SUGAR INDUSTRY

Sugar industries are considered as an agro based industries, so these sugar industries mainly depend

upon monsoon. The problems faced by sugar industries are as fallows.

1. Shift in location problem

2. Problem of high price of sugar

3. Need for keen development


RATIO ANALYSIS

CHAPTER 3

COMPANY PROFILE


RATIO ANALYSIS

COMPANY PROFILE:

LOCATION : The RAYATAR SAHAKARI SAKKRE KARKHANE

NYIYAMIT (R.S.S.K.N)

Factory: Timmapur Mudhol, Tq: Mudhol

District: Bagalkot

ESTABLISHED IN : 25/11/1999

REGESTERED NO : DSK/REG/182-83

WEEKLY HOLIDAY : SUNDAY

WORKING SHIFT : 4 am to 12 pm, 12 pm to 8 pm, 8 pm to 4 am

CHAIRMAN : R.S.Talewad

M.D : S.S Pujari

FINANCIAL : The Karnataka State Co-operative sugar Factories

INSTITUTION Ltd, Bangalore

OF THE COMPANY

BANKERS OF THE :IDBI - Bangalore

COMPANY D.C.C Bank Timmapur,

D.C.C.Bank Mudhol

DCC Bank Bijapur


RATIO ANALYSIS

OBJECTIVES OF THE COMPANY

1. To produce entire crystal sugar at international par quantity standards.

2. Optimum utilization of the Raw Material, Time, Manpower & Money.

3. Socio friendly environment, Pollution free condition.

4. Power generation, Petroleum products and even distribution.

5. To make available good working condition and opportunity development with proper

training and high moral.

6. Maintain continuous improvement programs in Technology.

7. Help farmers to increase their yield through research & development.

8. Establish an effective & reliable process control.

9. To produce good quality sugar at acceptable prices to meet the increasing demand

PRODUCTS OF SUGAR INDUSTRY (RSSK)

PRODUCTS : SUGAR

BY-PRODUCTS : There are two types of byproducts

1. Molasses

2. Bagasse

The 1st regular season starts in the year of 1999-2000, from 25th NOV 1999 to 28th

June 2000 (217 days). The progress achieved during this season is as follows:

Total Cane Crushed 4,07,989 MT

Sugar produced 5,10,015 Qtls

Recovery 12.50%

Molasses produced 17,360 NT


RATIO ANALYSIS

The estimated project cost of R.S.S.K.N Sugar factory was Rs.47.25crores as prepared by the

Karnataka State Co-operative sugar Factories Ltd, Bangalore. And this report has been appraised by

the IFCI, New Delhi.

10% Member shares Rs.4,725 crores

30% Government Rs.14,175 crores

60%Term loan from Financial

InstitutionsRs.28,350 crores

Total 47,250 crores

Vision

1. To become one of the dignified company in the country.

2. To give due importance for the development of society.

Mission

To support employee and farmers development for the fullest extent.

Improving our operation activities.

D) Product and service profile:

The product and service profile are very important topic for the each and every organization.

In the R.S.S.K.N they have totally three types of products are producing those are as follows-

1. Sugar (Main product)

2. Molasses ( By product)

3. Bagasses (By product)


RATIO ANALYSIS

In the sugar section that is the main production of the company in sugar they are produce these

types of sugars are producing

This unit is producing two grade of sugar S-30 and M-30.

And they are covering 5 taluks to getting sugar cane and there payment is satisfaction to the

formers.

Chemicals used in production:

1. Washing soda- production

2. Common salt- production

3. Phosphoric Acid- Maintaining pH

4. Ammonium biflouride formalin- Quality maintain and presser vative.

5. Mill samitation chemical Caustic soda- for cleaning purpose

6. To prevent generation of bacteria and germs

E) Area of operation:

The RAYATAR SAHAKARI SAKKRE KARKHANE NIYAMIT Rannanagar Timmapur. The share section is

one of the important sections because more than half of the share capital is collected from the share

holders.

The area of operation-- NATIONNALLY

1. Andra Pradesh

2. Uttar Pradesh

3. Tamilnadu

4. Maharashtra

5. Bihr etc.


RATIO ANALYSIS

Sugar is sold in all over county according to the customer’s requirements.

And they are collecting raw materials from the nearby areas such

1. Mudhol

2. Bagalkot

3. Bilgi

4. Badami and

5. Jamakhandi,etc.

F) Ownership pattern: CO OPERATIVE SECTOR

The R.S.S.K.N Rannanagar Timmapur it is the cooperative sector company. This factory was

registered on 29th July 1982 itself and government has given licensee for 2500 TCD.(now 3500) In the

same year government has given registration number is DSK/REG/182-83 dated 27-071982. From

the onwards it started issuing the shares to the public this issuing of shares comes to end in the year

1997.

The share section is one of the important sections because more than half of the share

capital is collected from the share holders.

G) Competitors information

The degree of competition for R.S.S.K.N is more, as other big organization like

1. Niranis private limited

2. Nandi co operative sector

3. Renuka sugars and

4. Prabhulingeshwar mills ltd

5. Sameerwadi sugars ltd

Sugar is also attracting the minds of the farmers towards them. The sugar produced in this

factory is of good quality and competitive enough in the market.


RATIO ANALYSIS

The overall management R.S.S.K.N is efficient. They make accurate buying from farmers for their

sugar cane and the farmers are satisfied with this.

H) Infrastructure facilities

LOCATION

The Ryatar Sahakari Sakkare Karkhane Niyamit is one of the co-operative sectors in sugar

production, which is located in Rannanagar, at Timmapur and is 16KM away from Mudhol. Which is

a Taluka place and it is located near the Bank of Ghtaprabha River, so the factory has obtained the

permission for lifting water from this river for factory use.

Facilities from the company:

1. Transportation facility

2. Housing facility

3. Guesthouse facility

4. Canteen facility

5. Restroom facility

6. Safety facility

7. Insurance facility

8. Education facility

9. Hospital facility, etc.


RATIO ANALYSIS

The main functional divisions of R.S.S.K.N are as follows .

1. Cane Development and procurement department

2. Production department

3. Account department

4. Administration department

5. share section

6. Purchase section

7. Time office section

8. Sales section

9. Stores section

10. Co-generation section.

11. Computer section

12. Security section

13. Civil section


RATIO ANALYSIS

CANE DEVELOPMENT AND PROURENMENT DEPARTMENT

The structure of this department is as under-

The philosophy of the cane development and marketing is almost common for all the sugar

units. While in following paragraphs, description is for Khatauli but applies generally to Deoband &

Ramkola units as well.


Cane Manager

Cane Department Cane Procurement

Cane Supervisors

RATIO ANALYSIS

OBJECTIVES OF CANE DEVELOPMENT DEPARTMENT

1) To develop the backward area.

2) To improve the variety of can.

3) To provide raw materials to the factory

4) To provide materials to the factory

5) To maintain the raw material (sugar cane) capacity. Which is required by the

factory (i,e 2500TCD)

6) To maintain registration of cane, gang and plantation.

7) To undertake seed distribution programme. The main function cane development

department is to arrange for raw materials, which is required in the factory. For these

bases (i.e. growers that grow sugarcane first in his field) they also provide a loading gang

with 8 to 10 members per village and also a bonded tractor for transportation. In season

150 tractors are engaged and 200 gangs are different villages in a day.


RATIO ANALYSIS

PRODUCTION DEPARTMENT

To utilize the installed capacity of 2500 TCD in proper manner the following personality the

duty to manage the manufacturing department

Production department is the main department of the factory and is classified into two sections:

1. Engineering section.

2. Manufacturing section.


Production Department

Laboratory Incharge

Laboratory Chemist

Laboratory Boys

Deputy Chief Chemist

Manufacturing Chemist

Staff and Workers

RATIO ANALYSIS

Engineering section:

This section maintains all the work connected with plant and machinery. This section area at

enhancement of the feeding capacity of the factory. It is assisted by workshop.

Work shop contains lathe machine, turning machine, welding etc., to repairs the spares and

default machinery’s.

Manufacturing section:

This section is classified into three sub-sections

1. Laboratory

2. Manufacturing process

3. Warehouse.

CHEMICAL USED IN THE PRODUCTION:

1. Caustic soda- for cleaning purpose

2. Washing soda- for cleaning purpose

3. Common salt- for cleaning purpose

4. Phosphoric Acid- Maintaining pH

5. Ammonium biflouride formalin- Quality maintain and presser vative. Mill samitation

chemical- to prevent generation of bacteria

6. Hydros- colour

7. Viscosity reducer-for reducing viscosity.

8. Msopropile Alcohol

9. Commercial HCL


RATIO ANALYSIS

10. Bleaching powder- clearing purpose

11. Led acitate- for lab uses.

And other chemical used are burnt lime, sulphur, othophosphoric acid.

ACCOUNT DEPARTMENT

Structure:

Account Officer

Cane Accountant

General Accountant

Casher

Clerk

Account department is divided into two main sections, they are:

1. General account section

2. Cane account section.


RATIO ANALYSIS

1) General account section:

This section maintains all transactions. Income tax, sales tax and commercial tax procedure are

done by this section. The verities of registers maintained by this section are:

1. Bank registers

2. Contractors registers

3. Depositors registers

4. Fixed assets registers

2) Cane account section:

The main function of this section is to maintain records of supplier’s name, which supplies

sugar cane to the factory and maintains the register of payment.

The register maintained by this section is:

a) Self harvest payment register

b) Harvester bill

ADMINISTRATIVE DEPARTMENT:

Administrative department is classified into five sections share, sales, purchases, store, time

office and security.

a. SHARE SECTION:

The share section is one of the important section because more than half of the share capital

is collected from the share holders.


RATIO ANALYSIS

There are five classes of shares:

“A” Class- Grower members

“B” Class- Co-operative institution

“C” Class- State government

“D” Class- Non grower members

“E” Class- Outside are members.

The person who wants to become a member has to follow the procedure/rules. He has to

fulfill appropriate application given by the share section authority. If the Directors approve the

application, then only he is treated as shareholder of the factory. After the approval he has to

pay the amount equivalent to face value of the share.

There is no transferability of share. If at all he wants to transfer his shares, he has to transfer

to such a person who is the member of the factory. If he transfers to another person it is not valid

and such shares get cancelled. For the identification of its members, the factory issues share

certificates and identity cards to such shareholders.

This section gives identity card only. This section is also send notice to the concerned

members on behalf of the factory. They maintain two types of books of accounts viz.

b. PURCHASE SECTION:

It is also a important section in administrative department in performing the activities of

purchasing. In this section there are two employees, one is purchase manager and another one is

purchase assistant. The purchase manager issues the purchase order from various section of the

factory. He estimates the cost purchase and accordingly he go for direct purchases or purchases

through purchase committee.


RATIO ANALYSIS

RSSKN, HAVE SOME SPECIFIC CONDITON I TO PURCHASE MATERIAL

The material received or any reason what so ever will be returned to the suppliers at their

own cost.

The material should be recently packed if any breakage, leakage it is the responsibilities of

the supplier

All the disputes arising out of the transaction

Sales tax will have refunded if changed extra

The order will be treated as canceled if goods are not supplied then the specific period

If the goods are not supplied according to order specification there in the advance amount

paid by the factory will carry 13 %interest


Managing Director

Superintendent

Senior purchasing officer

Junior purchasing officer

Helpers

RATIO ANALYSIS

C. TIME OFFICE SECTION:

Function-

1) Distribution of salary according to the workers attendance.

2) Sanctioning of leaves to workers.

3) Maintaining working bell.

There are 581 workers working in this factory. As this is a new establishment of all

working on daily wages. Within a few months the management is going to take workers as

permanent at present only on leave in a month is sectioned to the workers.

The factory runs three shifts in a season-

Shift Starting time Closing time

1st Shift 4am 12pm

2nd Shift 12pm 8pm

3rd Shift 8pm 4am

One general shift 8.30am to 5.30pm for both season and off season.


RATIO ANALYSIS

D. SALES SECTION

This section will take care of all the sales transactions like sale of

1.Sugar,

2.Molasses,

3.Bagasse.

4.Scrap material.

SKILL:

The R.S.S.K.N Rannanagar Timmapur is maintaining the On the Job Training:

If the organization is to achieve its goals, it is necessary to have right people with right skills to

accomplish it. Skill references to ability to perform certain task without any difficulty.

At RANNA Sugars: Ranna Sugar has right people with right skilled with reference to

innovation new ideas, up grading the products with latest technology achieving the goal according to

established standards.

Skill Implemented in Ranna Sugars has been divided into three levels, they are

1. Top lever

2. Middle levels

3. Lower levels

Conceptual

Managerial

Technical

1. Top level regress more conceptual skills

2. Middle level requires management skills

3. Lower level requires more technical skills.


RATIO ANALYSIS

Employees are trained through secular training programs. Many employees have participate in

various work shops. Organized at technical association in sugar industry.

A team three engineers and 2 chemists visited sugar refinery. Units in Thailand during 2003

Goods methods of operation and houses keeping have been adopted in the refinery

STYLE:

The style which is portrayed to out side world, is derived from the styles and behaviors

exhibited inside organization. The internal style of the organization effects how staff feels, thinks and

do their jobs. Therefore an organization is reflection of its culture.

At Ranna Sugars : Staff in the company also goal oriented. They are enthusiastic is achieving

the goals, staff are co-operative and completes the assigned jobs within given period of time.

1. Diversify in income by sugar co-products.

2. Operates the county’s largest sugar refinery make up European grade refinery

sugars.

STRATEGY :

The way in which a business aims to improve its position in relation to its competition is

embodied in its strategy

At Ranna Sugars : Introduce the new technologies and products strategic importance in

time with national objective to improve, quality, reliability of products there by attaining the

international standards.

Company advocating a strategies for government action.

1. Additional promotion measures to doubles India’s exports.

2. A buffer stock financed from the sugar development

SYSTEM:


RATIO ANALYSIS

All the formal and informal procedure that make an organization work are system. It uses to

be successful.

At Ranna Sugars : Ranna Sugars has its own system in procuring the raw materials from

formers and qualified vendors, producing out put with qualified out put with quality

inspection of international standards offering the products to customer with fine packaging

and spares and provide good after sales services.

Security System :

Plant security system is contract basis, round the clock security arrangements are provided

for the plaint and quarters security system is of plant is such that no person can enter the premises

without an approved from management.

ACCOUNTING SYSTEM

1. The company has system of accounting on accrual basis bot income and

expenditure.

2. The company has a system of accounting sales of excise duty and other

taxes.

STAFF:

Good hard working citizens play essential role in the development of nation the employee

are responsible for. The success of failure of company.

At Ranna Sugars : Ranna Sugar has employees highly qualified and experienced professionals, its

fully geared face new challenges. Employees are engineering, chemist ,I.T.I. fitters, Electricians,

skilled and unskilled workers the Ranna Sugar have young and motivated team has made large

contribution to company success. Many of engineers and chemist have secured top ranks.

SHARED VALUE :

Employees share the same guiding values mission that is an excellently managed company

has a deriving purpose philosophy that is known and practiced by everyone.


RATIO ANALYSIS

At Ranna Sugars : Ranna Sugar employees practices the same rakes and mission fir the

achievement of the goals.

Environmental policy

Ranna Sugar is committed to comply with the requirements of relevant environmental

management system and continuously effectiveness. Employee should be rained on environmental

aspects to minimize the pollution conserve natural resources.

QUALITY POLICY

Quality leading to customer satisfaction shall be top priority this shall be achieved by

complying with the requirement of the quality management system and continuously improve its

effectiveness.

Employee shall be trained and motivated to achieve the quality of their work competence

skill. Other values

3. Cost and time consciousness.

4. Trust and team spirit

5. Respect for others

6. Integrity

SWOT ANALYSIS

STRENGTHS:

1. It is located in a place where good infrastructure is available.

2. The company’s concentration towards the quality of the product.

3. The technological standard of the company.

4. Modern equipments.

5. High production efficiency.

6. Good sources of raw material.


RATIO ANALYSIS

7. Power generation.

8. Large supply of fertilizers and good quality seeds.

9. Timely payment

WEAKNESS:

The company needs improvement and should concentrate on timely customer service.

1. Labours turnover.

2. The promotion procedure in the organization is too rigid.

3. The company not focus on all department

4. The number of sugar factories near by this factory

5. No schemes and offers.

OPPORTUNITIES:

1. Expansion of projects likes paper unit, ethanol production, bio-fertilizers

2. All these above projects will give the company maximum profits.

THREATS:

1. Stiff competition by brands like , Godavari Sugars, Nirani Sugars and other brands.

2. Government intervention.

3. Over production by all companies


RATIO ANALYSIS

Different Departments in the Organization. Of R.S.S.K.N are as follows.

4. Cane Development and procurement department

5. Production department

6. Account department

7. Administration department

8. share section

9. Purchase section

10. Time office section

11. Sales section

12. Stores section

13. Co-generation section.

14. Computer section

15. Security section

16. Civil section

Each Manager has separate Manager, Deputy Manager, Assistant officer and Supervisor.

It was really a one good experience working in the organization like R.S.S.K.N which is of

great repute of sugar manufacturing in that area. Employees from every corner of the department

helped me in getting the required information for the successful completion of this project.

They cooperated well when we had to disturb them with so many queries in our mind to be

cleared from the concerned person during the visits to the respective departments in the

organization.

Through the all departments I have done my project successfully.


RATIO ANALYSIS

CHAPTER 4

THEORETICAL

FRAMEWORK

RATIO ANALYSIS:


RATIO ANALYSIS

Meaning

Ratio Analysis is a widely used tool of financial analysis. It can be used to compare the risk

and return relationships of firms of different sizes. It is defined as the systematic use of Ratio to

interpret the financial statements, so that the strengths and weaknesses of a firm as well as its

historical performance and current financial condition can be determined.

The Term ‘Ratio’ refers the numerical or quantitative relationship between two

items/variables which help us to draw certain conclusions. The relationship between two

variables/items may be expressed as

a. Percentage.

For example: Net profits are 25% of sales.

b. Fractions.

For example: Net profit is one-fourth of sales.

c. Proportion of numbers.

For example: Relationship between Net profit and sales is 1:4

Steps Involved In Ratio Analysis:

1. Selection of a relevant data from financial statements.

2. Calculation of appropriate ratio based on data selected for the purpose.

3. Comparison of ratio so calculated with those of some form in the past or with the ratio of

some other firm in the industry.

4. Interpretation of ratio.

Need for Accounting Ratios:

1. Accounting Ratio’s are helpful to the Management, investors, creditors, etc..., in their

decision making — which is useful in revealing inter-relations among various accounting

items. They are useful for increasing profits through cost reduction and enhancing

managerial efficiency. The following are the major uses of Accounting Ratio’s:

2. They help us to enquire probable casual relation among various items by means of analyzing

past activities.

3. Ratio’s based on past data are used particularly of planning and budgeting which are used as

a guide to co-ordinate various functions and divisions.


RATIO ANALYSIS

4. By means of Ratio’s idea about trend of business and its ups and downs can be easily

provided to outsiders who are not willing to know the affairs of the business.

5. Departmental activities can be evaluated with the Ratio’s.

6. Ratios provide indication about managerial efficiency.

7. Ratios are considered predictive devices. Ratio’s based on past data are used to predict

future. Sometimes they are used to get indication about whether a firm is going to be sick or

insolvent.

Advantages of Ratio Analysis:

1. Ratio Analysis simplifies the understanding of financial statements.

2. Ratio’s bring out the inter-relationship among various financial figures and bring to light

their financial significance.

3. Ratio Analysis is a device to analyze and interpret the financial health of the enterprise.

4. Ratios contribute significantly towards effective planning and forecasting. A study of a trend

in the past works as a helpful guide for the future.

5. Ratio’s serve as effective control tools. They also facilitate establishment of a standard

costing system and budgeting control.

Limitations of Ratio Analysis:

1. When comparisons of two firms are made, the Ratio analysis may not give satisfactory

result. The two firms may adopt different accounting policies and hence the result may not

be comparable.

2. A study of Ratios in isolations, without studying the actual figures, may lead to wrong

conclusions. Ratios are only supplementary to and not substitutes for absolute figures.

3. Ratios can be only as correct as the data on which they are based. If the original data is not

reliable, then the ratios will be misleading.

4. Ratio analysis suffers from the lack of consistency. Ratios are defined differently by various

experts and hence are prone to manipulation.

5. Ratios fail to reflect the impact of prize level changes, and hence can be misleading.

6. In the absence of well accepted standards, interpretations of ratios become subjective.

7. Ratios are based on past data, and hence can not be reliable guide to future performance.

8. Ratios are only tools of quantitative analysis and fail to take into account the qualitative

aspects of a business.


RATIO ANALYSIS

Ratios are volatile and can be influenced by a single transaction with extreme value.

Types of Ratios:

1. Liquidity (or) Short term solvency Ratios.

2. Activity Ratios.

3. Profitability Ratios.

4. Leverage Ratios.

1) LIQUIDITY RATIOS

Liquidity or Short term solvency analysis aims to determine the ability of a business to meet

its financial obligations during the short term and to maintain its short term debt paying ability. The

aim of liquidity analysis is for a company to have adequate funds on hand to pay bill when they are

due and to meet unexpected needs for cash.

Liquidity Analysis mainly focuses on balance sheet relationships that indicate the ability of a

business to liquidate current and non-current liabilities.

The following are important Liquidity Ratios:

1. Current Ratio.

2. Quick Ratio.

3. Absolute Ratio or Cash Ratio.

4. Inventory to Working Capital Ratio.

a) Current Ratio:

Current Ratio expresses the relationship of Current Assets to Current liabilities. It is widely

used as a broad indicator of a company’s liquidity or short term solvency, that is, its ability to meet

short-term obligations. The Current Ratio is calculated by dividing the total current assets by total

current liabilities.

Formula for calculation:


RATIO ANALYSIS

Interpretation:

The Ideal Ratio in this regard is 2:1.

Current Assets are those assets which in the ordinary course of business can be converted

into cash within a short period of time normally not exceeding one year and includes cash and bank

balance, marketable or short-term securities, bills receivables, sundry debtors, stock of raw

materials, semi-finished goods( work-in-progress), and finished goods, prepaid expenses.

Current Liabilities are those which are payable usually with in a period of one year which

includes bills payable, sundry creditors, bank overdraft, o/s expenses, income received in advance,

proposed dividends, provision for taxation, short term loans and advance.

b) Acid Test Ratio or Quick Ratio:

Quick Ratio is a measure of Liquidity calculated dividing Current Assets minus Inventory and

Prepaid expenses by Current Liabilities. A rupee of cash or debtor is considered more readily

available to meet obligations than a rupee of inventory.


Interpretation:

The Ideal Ratio is 1:1. A ratio of more than one does not always imply sound liquid position.

Ratio of less than one does not always imply bad liquid position.

d) Inventory to Working Capital:

This Ratio shows the relationship between Inventory and Working Capital. It is used to reveal

the proportion of Working Capital covered by Inventories alone. It also indicates whether there is

over stocking or under stocking.

Inventories include closing stock of raw material, Work-in-progress, finished goods. Working

capital is the excess of current assets over current liabilities.


RATIO ANALYSIS


Interpretation:

As per the Standard Inventory to Working Capital Ratio, the inventories should not absorb

more than 75% of Working capital. As such, a low ratio indicates under stocking and a high liquid

position, while a high ratio indicates over stocking and a low liquid position.

2) ACTI VITY RATIOS

The Activity Ratios also known as Efficiency Ratios indicates the operating efficiency of an

enterprise in utilizing its various assets.

These ratios are also called as ‘Turnover ratios’ (or) ‘Performance ratios’ (or) ‘Current assets

movement ratio’, because they measure the speed at which the assets are being converted into

sales. All the ratio coming under this category are calculated with reference to sales or cost of sales

and expressed in number of times say, 6 times, 10 times, etc..,.

Higher the Turnover ratio, better the profitability and use of capital or resources will be.

The important Turnover Ratios are:

1. Inventory or Stock Turnover Ratio.

2. Debtors Turnover Ratio.

3. Creditors Turnover Ratio.

4. Working Capital Turnover Ratio.

5. Current Assets Turnover Ratio.

6. Fixed Assets Turnover Ratio.

7. Total Assets Turnover Ratio.

a) Inventory Turnover Ratio:

This Ratio establishes relationship between Cost of Goods sold during the given period and

the average amount of Inventory held during the given period. It indicates the number of times the


RATIO ANALYSIS

Stock is turned over during the year. It indicates whether there is over stocking or under stocking of

finished goods.

Formula for the calculation:

Cost of goods sold means sales minus gross profit. The average Inventory refers to simple

average of opening and closing inventory or stock.

Interpretation:

This indicates the efficiency of the management in utilizing the inventory. A stock turnover

ratio of 8times is considered Ideal. A high ratio is good from the view point of liquidity and vice

versa. A low ratio would signify that inventory does not sell fast and stays in the warehouse for a

long time.

b) Debtors Turnover Ratio: This Ratio expresses how quickly cash is collected from customers. In other words Debtors

turnover ratio is calculated to measure the efficiency of a credit promotion policy and credit

collection policy.

Debtors Turnover Ratio is determined by dividing Net Credit Sales by Average debtors

outstanding during the year.



RATIO ANALYSIS

Net Annual Credit Sales consists of Gross Annual Credit Sales minus Returns, if any, from

customers. Average debtors are the simple average of debtors at the beginning and at the end of the

year.

Interpretation:

A high ratio is indicative of shorter time lag between Credit sales and Cash collection. A low

ratio shows that debts are not being collected rapidly.

c) Working Capital Turnover Ratio:

This Ratio shows the relationship between the Working Capital and the Sales. This ratio

shows the number of times Working Capital is turned over in a stated period. The ratio indicates the

efficient or in-efficient utilization of the Working Capital of an enterprise.


Interpretation:

The Higher the ratio the lower is the investment in Working Capital and greater are the

profits. However, a very high turnover of working capital is a sign of over trading and may put the

concern in financial difficulties.

e) Current Assets Turnover Ratio:

Current Asset Turnover Ratio is the ratio between Current Assets and Sales. This ratio is the

contribution of current assets to sales.


RATIO ANALYSIS

AssetsurrentC

SalesRatioTurnoverAssetsCurrent

Interpretation:

There is no Ideal or Standard Current assets turnover ratio. Yet, the inference is that a high

current assets turnover ratio is an indication of better utilization of current assets. On the other

hand, a lower current assets turnover ratio suggests that the current assets are not been used

effectively.

f) Fixed Assets Turnover Ratio: This Ratio expresses the number of times Fixed Assets are turned over in a stated period.

This period show how well the fixed assets are being used in the business. It establishes the

relationship between fixed assets and sales.


Interpretation:

The Ideal Ratio is 5 times. The Ratio more than 5 times indicates better utilization of fixed

assets. The ratio less than 5 times indicates poor utilization of fixed assets. The higher the ratio

betters the performance.

g) Total Assets Turnover Ratio:

This ratio expresses the relationship between Total assets (or) Resources (or) Sales. Although

fixed assets are directly converted with the generation of sales, the other assets also contribute to

the production and activities of the firm. Hence, to know whether all the assets are utilize4,properly

or not, this ratio is calculated.



RATIO ANALYSIS

Interpretation:

It indicates the sales generated per rupee of investment in Total assets. Higher the Ratio,

more the revenue. A high ratio is an indicator of over trading of Total assets, while a low reveals

Ideal capacity. The traditional standard for the ratio is 2 times.

3) PROFITABILITY RATIOS:

Profitability Ratio’s reveal the total effect of the business transactions on the profit position

of an enterprise and indicate how far the enterprise has been successful in its aim.

Profitability is an indication of efficiency with which the operations of the business are

carried on. A lower profitability may arise due to the lack of control over the expenses.

Profitability Ratio’s are much important to an enterprise, management, owners, creditors,

employees, government, customers and the country.

The important Profitability Ratio’s:

1. Gross Profit Ratio.

2. Net Profit Ratio.

3. Gross Profit Ratio:

a) Gross Profit Ratio:

It reveals the result of trading operations of the business. This ratio indicates the degree to

which the selling price of goods per unit may decline with out resulting in losses from operations to

the firm. It is the ratio between Gross Profit and Sales.



RATIO ANALYSIS

Interpretation:

There is no standard Gross profit ratio. The higher the ratio, the better will be the

performance of the business. The ratio discloses the Overall margin with in a business undertaking.

The business undertaking must limit its operating expenses to earn sufficient profit. It identifies

whether the average mark-up on the goods has been maintained or not.

b) Net Profit Ratio:

It indicates the result of overall operations of the firm. It is also known as ‘Profit Margin’. It

measures the relationship between Net profit and Sales of the firm. This ratio helps in determining

the efficiency with which affairs of the business are being managed.

Net Profit means final balance of operating and non-operating incomes after meeting all

expenses.


Interpretation:

The higher the ratio, the more profitable is the business. The ratio indicates the quantum of

profits earned by a concern. The main purpose of this ratio is to know the profitability of the firm

reflected by the management’s efficiency in manufacturing, administrating, and selling the products.

3) RETURN ON INVESTMENT RATIO:

The conventional approach of calculating return on investment is to divide PAT (Profit After

Tax) by investment. Investment represents pool of funds supplied by shareholders and lenders, and

PAT represents residue income of shareholders.

4) RETURN ON EQUITY


RATIO ANALYSIS

A return on shareholder’s equity is calculated to see the profitability of owners investment .

The shareholders equity or net worth will include paid – up share capital, share premium and

reserves and surplus. The return on equity is net profit after taxes divided by shareholders equity

which is given by a net worth.

4) LEVERAGE RATIO’S:

Leverage Ratio’s or Capital Structure Ratio’s indicating the relative interests of the Owners

and the Creditor in an enterprise. They help to determine the stake of the creditors, they undertake

in investing funds in an enterprise. There should be an approximate mix of Debt and Owners Equity

in financing the firm’s assets.

Leverage Ratio’s are useful to the management in the proper administration of capital i.e..,

they indicate to the executives as to what extent the practice of trading on equity can be carried on

safely.

Leverage Ratio’s may be calculated from the balance sheet items and from profit and loss

account.

The following are the important Leverage Ratios:

1. Debt — Equity Ratio.

2. Proprietary Ratio.

3. Fixed Assets to Net Worth Ratio.

4. Fixed Assets Ratio.

5. Current Assets to Net worth Ratio.

6. Current Liabilities to Net worth Ratio.

a) Debt — Equity Ratio:

The relationship between borrowed funds and Owner’s Capital is a popular measure of the

Long-term financial solvency of a firm. This relationship is determined by the Debt-Equity ratio. This

ratio reflects the relative claims of Creditors and Shareholders against the assets of the firm.

Alternatively, this ratio indicates the relative proportions of debt and equity in financing the assets of

a firm.

Debt-Equity ratio measures the ratio of Long term or Total debt or shareholders Equity.


RATIO ANALYSIS


or

Long term debt includes Long term liabilities such as Debentures, Mortgage Loans, Liabilities

with fixed percentage of interests etc..,. Shareholders funds includes Equity share capital plus

Preference share capital plus different Reserves plus P&L account Credit balance and different

Capital Incomes.

Interpretation:

The Ideal Ratio in this regard is 2:1. This ratio is the measure of the contribution of the

Owners to the long — term finances of the concern as compared to the contribution of the Long —

term Creditors.

A high ratio is Unfavorable as Debt is more than the accepted norm when compared to

Equity. The company is exposed to higher risk if the Long — term Debt is more than the standard

norm as the firm may not be in a position to service the debt.

b) Proprietary Ratio:

Proprietary Ratio brings out the relationship between Shareholders funds and Total Assets.


Net Worth means the excess of Total assets over Total Liabilities. It means owner or

proprietor’s or shareholders funds. Total Assets includes all Tangible assets, which are real and can


RATIO ANALYSIS

be realized. It is an index of the amount of proprietor’s funds invested on the Total Asset of a

concern.

Interpretation:

A high proprietary ratio indicates the sound financial strength or position of the business and

a low ratio indicates unsound financial position. The Ideal ratio for this is considered to be 5:1. It

indicates the relative risk of Owners and the Creditors of an enterprise.

c) Current Assets to Net Worth Ratio:

This Ratio is calculated to measure the proportion of Current Assets financed by Owner’s

funds.


worthNet

AssetsCurrentRatioworthNettoAssetsCurrent


RATIO ANALYSIS

CHAPTER 5

DATA ANALYSIS &

INTREPRETATION

I. Liquidity Ratio

Liquidity ratio measures the ability of the firm to meet its current obligation (liabilities). In

fact analysis of liquidity needs the preparation of cash budget and cash and fund flow statement but

liquidity ratio, by establishing a relationship between cash and other current asset to current

obligation, to provide a quick measure of liquidity. A firm should ensure that it doesn’t suffer lack of

liquidity and also that it dose not have excess liquidity.


RATIO ANALYSIS

The common liquidity ratios are:-

1. Current Ratio

Current ratio may be defined as the relationship between quick or liquid asset and current

liabilities. This is a measure of general liquidity & is most widely used to make analysis of short-turn

financial position or liquidity of firm. It is calculated by dividing the total current assets by total

current liabilities.

TABLE-1.1 Current Ratio


Year Current Current Ratio

Assets

Amt in Rs.

Liabilities

Amt in Rs

2004-05 430076093.00 141205546.00 3.04

2005-06 343665293.00 224758035.00 1.5

2006-07 336389326.00 802862101.00 0.42

2007-08 417811267.00 868538140.00 0.48

2008-09 349345761.00 774530918.00 0.45

RATIO ANALYSIS

INTERPRETATION

Table 1.1 An arbitrary standard of current ratio is 2:1 indicates that for every one rupee of

current liability two rupee of current assets is available. In the year 2004-05 ratio was 3.04 in the

year 2005-06 ratio was decreases 1.5 in the year 2006-07 decreases0.42 and 2007-08 increases0.48

in the year 2008-09 0.45. this shows that there is no short term solvency of the company .

2. Quick Ratio/Acid Test Ratio

Quick ratio establishes relationship between quick or liquid assets & current liabilities. It is

also known as acid test ratio. An asset is said to be liquid if it can be converted into case within short

period of time without loss of value. The prepaid expenses and stock were excluded.


RATIO ANALYSIS

TABLE-1.2 Quick Ratio

Year Quick Current Ratio

Assets

Amt.in Rs

Liabilities

Amt.in Rs

2004-05 2842892837.00 141205546.00 2.01

2005-06 177992977.00 224758035.00 0.79

2006-07 138313276.00 802862101.00 0.17

2007-08 127813793.00 868538140.00 0.15

2008-09 170711841.00 774530918.00 0.22

INTERPRETATION

Table1.2 reveals that quick ratio of the company is not higher than standard 1:1. This shows

that the firm’s liquidity position is not so good. in the year 2004-05 ratio was 2.01 and 2005-06

decreases 0.79 in the year 2006-07 decreases to 0.17 in the year 2007-08 decreases 0.15 and 2008-

09 increases0.22 .


RATIO ANALYSIS

3. Absolute Quick Ratio/cash Ratio

Cash ratio is the strongest measurement of liquidity. Since cash is the most liquid assets, a

financial analyze may examine cash ratio & its equivalent to current liabilities. Trade investments or

marketable securities are equivalent of cash therefore they may be included in computation of cash

ratio.

To calculate absolute quick ratio we consider cash in hand, cash at bank & marketable

securities.

Cash Ratio = Cash + Marketable securities

Current Liabilities

TABLE-1.3 Absolute Quick Ratio

Year Quick Assets

Amt. In Rs

Current Liabilities

Amt. In Rs

Ratio

2004-05 2576932.00 141205546.00 0.01

2005-06 4896521.00 224758035.00 0.02

2006-07 128313276.00 802862101.00 0.17

2007-08 127813793.00 868538140.00 0.15

2008-09 170711841.00 774530918.00 0.22


ABSOLUTE QUICK RATIO

0.01 0.02

0.17 0.150.22

0

0.05

0.1

0.15

0.2

0.25

2004-05 2005-06 2006-07 2007-08 2008-09

YEAR

RA

TIO

Ratio

RATIO ANALYSIS

INTERPRETATION

Table 1.3 reveals that absolute quick ratio is below the standard ratio i.e. 0.5:1 indicates that

50 paisa worth of absolute liquidity assets are to be maitained to meet one rupee worth of current

liabilities. In the years 2004-05 ratio was 0.01 in the year 2005-06 ratio was 0.02 and 2006-07

increases 0.17 and 2007-08 decreases0.15 in tge year 2008-09 ratio was 0.22 it indicates that there is

no sufficient liquidity in a firm.

4. Net Working capital ratio

Net Working capital ratio is the relationship between net working capital to its net assets.

The different between current asset & current liabilities excluding short term borrowing is called

net working capital (NWC) or net current assets.

NWC = Net Working Capital

Net Assets

TABLE-1.4 Net Working Capital Ratio

Year NWC

Amt. In Rs

Net Asset

Amt. In Rs

Ratio


RATIO ANALYSIS

2004-05 96946913.00 154465865.00 0.09

2005-06 47535001.00 948118650.00 0.05

2006-07 15245938.00 568828076.00 0.07

2007-08 51045769.00 570188858.00 0.11

2008-09 914230.00 571266078.00 0.16

INTERPRETATION

Table 1.4 reveals that ratio is decreasing2004-05 ,to 2005-06. 0.09to 0.05 and in the year

2006-07 ratio was increased 0.07 in the year 2007-08 increased 0.11 and 2008-09 ratio is 0.16.Generally

a high ratio is considered to be good.

II. Leverage Ratios

Leverage ratios are also known as capital structure ratio. These ratios indicate mix of funds

provided by owners & lenders. As a general rule these should be appropriate mix debt & owners

equity in financing the firm’s assets.


RATIO ANALYSIS

Leverage ratios are calculated to judge the long long-term financial position of the company.

Some of the popular leverage ratios are:

a. Total Debt Ratio

Debt ratio may be used to analyze the debt ratio by dividing Total debt (T.D) by dividing Capital

employed (C.E) or net assets (N.A).

The total debt include short and long term borrowing from financial institutions, debentures,

bounds, deferred payments, arrangements for buying capital equipment’s bank borrowings, public

deposits etc.

Debt Ratio = Total Debt

Capital Employed

TABLE-2.1 Total Debt Ratio

Year Total Debt Capital Employed Amt.

In Rs

Ratio


RATIO ANALYSIS

Amt. In Rs

2004-05 554110249.00 6788463.00 0.82%

2005-06 499246293.00 623250062.00 0.80%

2006-07 547168647.00 217530000.00 2.61%

2007-08 565092766.00 218018495.00 2.59%

2008-09 627397167.00 223983274.00 2.80%

INTERPRETATION

Table 2.1 Debt ratio is in the year 2004-05 is0.82 in the year 2005-06 decreased 0.80 in the year

2006-07 increased 2.61 in the year 2.59 and 2008-09 reached at 2.80

b. Debt-Equity Ratio

Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-Equity also

known as External-Internal equity ratio. It is calculated to measure the relative claims of outsiders

against firm assets.


RATIO ANALYSIS

Debt-Equity Ratio = Total Debt

Net Worth

TABLE-2.2 Debt Equity Ratio

Year Total Debt

Amt. In Rs

Net Worth

Amt. In Rs

Ratio

2004-05 554110249.00 43052429.00 0.61

2005-06 499246293.00 63171947.00 0.62

2006-07 547168647.00 568828076.00 0.52

2007-08 565092766.00 570188858.00 0.82

2008-09 627397167.00 571266087.00 0.93

INTREPRETATION


RATIO ANALYSIS

Table 2.2 reveals that in the company the lenders contribution is increasing year by year. In

the year 2004-05 0.61 and 2005-06 0.62 in the year 2006-07decresed 0.52 in the year 2007-08 ratio

is 0.82 in the year 2008-09 increases0.93 year 2006-07 0.52 Ratio shows the relationship describing

the lenders contribution for each rupee of owner’s contribution.

c. Fixed Assets to Net Worth

This ratio establishes the relationship between fixed assets & Shareholders fund i.e.

Share Capital plus reserves & Surplus & retained earnings. The ratio can be calculated as

follows.

Fixed Assets to Net worth Ratio = Fixed Assets (After Depreciation) X 100

Shareholder’s fund

This ratio indicates the extent to which share holders funds are into sunk into fixed assets.

There is no rule thumb to interpret this ratio but 60% to 65% is considered to be satisfactory.

TABLE-2.3 fixed Assets to net worth Ratio


Year

Fixed Assets

Amt. In Rs

Shareholder Fund

Amt. In Rs Ratio

2004-05 563374006.00 217335000.00 2.59

2005-06 564147519.00 217400000.00 2.59

2006-07 568828076.00 27530000.00 2.61

2007-08 570188850.00 218018495.00 2.62

2008-09 571266087.00 223983274.00 2.55

RATIO ANALYSIS

INTREPRETATION

Table 2.3 reveals that percentage of fixed assets value contributed by its owners is increasing

year by year , in the year 2004-05 and 2005-06 ratio is 2.59.in the year 2006-07 increases 2.61 in the

year 2007-08 increases 2.62 in the year 2008-09 decreases 2.55 implies that funds are not sufficient

to finance the fixed assets & the firm has to depends upon outside to finance fixed assets .

d. Current Assets to Proprietor’s funds ratio

This ratio is calculated by dividing total current assets by shareholders funds. It indicates the

extent to which proprietor funds are invested in current assets. There is no rule of thumb for this

ratio & depending upon the nature of the business there may be different ratios for different firms.

CA to PF ratio = Current Assets

Proprietors Fund


RATIO ANALYSIS

TABLE-2.4 Current Assets to Proprietors Fund

Year

Current Assets

Amt. In Rs

Proprietors Fund Amt.

In Rs Ratio

2004-05 430076093.00 217335000.00 1.97

2005-06 343665293.00 217400000.00 1.58

2006-07 336389326.00 217530000.00 1.55

2007-08 417811264.00 21801849.00 1.92

2008-09 349345761.00 223983274.00 1.56

INTREPRETATION

reveals that proprietors fund & investments are increasing & Current assets are decreasing .in

the year 2004-05 ratio was 1.97 in the Year 2005-06 has decreased to 1.58 & next year again

decreased to 1.55 and in the year 2007-08ratio 1.92 and the year 2008-09 decreases 1.56.

1. Profitable Ratios

The primary objective of a business undertaking is to earn profits. Profit is the difference

between revenue & expenses over a period of time. Profit is output of a company & company will

have no further if it fails to make sufficient profit Profits are thus a useful measure of overall

efficiency of a firm.


RATIO ANALYSIS

These ratios are calculated to measure the operating efficiency of the company. Beside

management, creditors, owners are also interested in the profitability of the company. Generally

profitability ratios are calculated either in relation to sales or in relation to investment. The various

profitable ratios are:

In Relation to Sales

Gross Profit Ratio

G.P.Ratio measures the relationship between gross profits & sales; it is usually

represented in percentage. Thus Gross profit margin highlights the production efficiency at a

concern

G.P.Ratio = Gross Profit X 100

Sales

G.P.Ratio indicate the extent to which selling price of goods per unit may decline without resulting in

losses on operations of firm. It reflect efficiency with which firm produces the product.

TABLE-3.1 Gross Profit Ratio

Year Gross Profit

Amt. In Rs

Sales

Amt. In Rs

Ratio

2004-05 32048846.00 269842495.00 0.11

2005-06 119992232.00 622678642.00 0.19

2006-07 81751169.00 592532689.00

13.8


RATIO ANALYSIS

2007-08 98156497.00 453435123.00 21.65

2008-09 79531898.00 736206987.00 10.8


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INRTEPRETATION

Table 3.1 reveals that gross profit of the company has increasing in year by year gross

profit was in the year 2004-05 ratio was -0.11, it increases to 0.19 and in but further gross profit

was increased in 2006-07 ratio was 13.8 in the year 2007-08 increses ratio is 21.65 and in the

year 2008-09 decreses 10.8 The efficiency of firm is not satisfactory

b. Net profit ratio

Net profit ratio establishes the relationship between net profit & sales & indicates

efficiency of management in manufacturing. Selling, administrative & other activities of the firm.

This ratio is used as a measure of overall profitability & it helps in determining the efficiency of

the firm to carry on its business.

Net Profit Ratio= Net Profit after tax X 100

Sales

TABLE-3.2 Net Profit Ratio

ear

Net Profit

Amt. In Rs

Sales

Amt. In Rs Ratio

2004-05 43052429.00 269842495.00 15.95

2005-06 63171947.00 622678642.00 10.14

2006-07 15245938.00 592532689.00 2.57

2007-08 51045764.00 453435123.00 11.26

2008-09 91423.00 736206987.00 0.01242

ALLUM KARIBASAPPA INSTITUTE OF MANAGEMENT BELLARY

R S S K N

INRTEPRETATION

Table 3.2 This ratio indicates firms capacity to face the economic conditions, higher the

ratio better the profitability. From the table it is clear that in 2004-05 ,2005-06, 2006-07

continuously decrease ratio is 15.95, 10.14, 2.57, year by year and in 2007-08 is

increased.11.26. and 2008-09 is decreased 0.01242..so the company is under the loss but profit

was decrease year by year .

c. Operating Ratio

It is the relation between cost of goods sold & operating expenses on one hand & the

sales on the other hand. It measures the cost of operations per rupee of sales.

Operating Ratio = Operating Cost X 100

Sales


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TABLE-3.3 Operating Ratio

Year

Operating Cost

Amt. In Rs

Sales

Amt. In Rs Ratio

2004-05 179620260.00 269842495.00 66.56

2005-06 498590333.00 622678642.00 80.07

2006-07 592997583.00 592532689.00 100.8

2007-08 447200049.00 453435123.00 98.62

2008-09 545311535.00 736206987.00 74.04

INTREPRETATION

Table 3.3 reveals that the operating ratio in the year 2004-05 ratio is 66.56 in the year

2005-06 increased by 80.07 and in the year 2006-07 100.00 means there is an decrease in

profit of company. In the year 2007-08 decreased by 98.62 and in the year ratio 74.04 it is

showing an decrease trend this shows that company is slowly increase the profit.


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d. Expenses Ratio

It indicates the relationship of various expenses to net sales. Expenses ratio are

calculating by dividing each item of expenses or group of expenses with net sales to analyze the

causes for variation in operating ratio.

Administration, office, selling & other Expense Ratio:

This ratio indicates the relationship at administrative, selling & other Expenses to the

sales of the company. Here normally lower the expenses higher the profitability.

Administration, office, selling & other Expenses = Expenses X 100

Sales

TABLE -3.4 Administration, selling & other expenses Ratio

Year

Expenses

Amt. In Rs

Sales

Amt. In Rs Ratio

2004-05 83744275.00 269842495.00 31.03%

2005-06 58700650.00 622678642.00 9.42%

2006-07 68321455.00 592532689.00 11.53%

2007-08 92474395.00 453435123.00 20.39%

2008-09 108276722.00 736206987.00 14.71%


R S S K N

INTREPRETATION

Table 3.4 There is no role of thumb for this ratio, as it may differ from firm to firm

depending upon nature of business. In the year 2004-05 ratio is 31.03% ,in the year 2005-06

ratio is decreased 9.42% in the year 2006-07 ratio increased 11.53% in the year 2007-08 ratio

is20.39% and in the year 2008-09 ratio is decreased by 14.71%

2. Profitability in relation to Investment

a. Return on shareholders Investment:

Return on shareholders investments, popularly known as ROI. It is the relationship

between net profit after tax & shareholders funds. Thus this ratio is considered as affective

indicator of the company’s profitability because it reflects the success of management in the

efficient utilization of the owner’s investment.

ROI = Net Profit after Tax X 100

Shareholders fund


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Return on shareholders investment

INTREPRETATION

Table 3.5 reveals how were the resources of a firm were being used. So higher the ratio

better will be the result in the year 2004-05 20% in the year 2005-06ratio is 29% in the year

2006-07 ratio is decreased .01% in the year 2007-08 ratio is 23.41% and it decreased by 0.04%


Year

Net Profit

Amt. In Rs

Shareholder Fund

Amt. In Rs Ratio

2004-05 43052429.00 217335000.00 20%

2005-06 63171947.00 17400000.00 29%

2006-07 15245938.00 17530000.00 .01%

2007-08 51045767.00 218018495.00 23.41%

2008-09 91423.00 223983274.00 0.04%

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IV. Activity Ratios:

Funds are invested in various assets in business to make sales & earn profit. The

efficiency with which assets are managed directly affects the volume of sales. The better the

management of assets, the larger is the amount of sales & the profit. Activity ratio measures the

efficiency or effectiveness with which a firm manages its resources or assets. These ratios are

also called turnover ratio because they indicate the speed with which assets are converted or

turned over into sales.

The various activity ratios are:

a. Inventory Turnover Ratio:

Inventory turnover ratio indicates the number of times stock has been turned over

during the period & evaluates efficiency with which a firm is able manage inventory.

The ratio is calculated by dividing the net sales divided by average inventory at cost.

ITR = Net Sales

Average Inventory at Cost

Average inventory should be taken for calculating stock turnover ratio. Adding the stock

in the beginning & at the end of period & dividing it by 2 to calculate average inventory.


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TABLE-4.1 Inventory turnover ratio

Year

Net Sales

Amt. In RsAverage Inventory

Amt. In Rs Ratio

2004-05 269842495.00 149040556.00 1.81

2005-06 622678642.00 114404573.00 2.44

2006-07 592532689.00 312640080.00 1.9

2007-08 453435123.00 484623044.00 .94

2008-09 736206987.00 379314434.00 1.94

INTERPRETATION:

Table 4.1Inventory Turnover ratio has increased from 1.81 to 2.44 in the year 2004-

05 to 2005-06 & decreased .in the year 2006-07 ratio is 1.9 in the year 2007-080.94 and in the

year 2008-09.1.94. increased it shows a fall that. which signifies the firms efficiency in producing

and selling is improving


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b. Assets Turnover Ratio:

Assets are used to generate sales. Therefore a firm should manage its assets efficiency to

maximum sales. Assets turnover ratio shows relationship between sales & assets. The various

assets turnover ratio are:

Net Assets Turnover Ratio = Sales

Net asset

TABLE4.2 Net Asset Turnover Ratio


Year Sales

Amt. In Rs

Net Assets

Amt. In Rs

Ratio

2004-05 560320147.00 1306020841.00 0.42

2005-06 548538351.00 1003003055.00 0.55

2006-07 269842495.00 1054465865.00 0.26

2007-08 622678642.00 948118650.00 0.66

2008-09 592532689.00 1175611916.00 0.504

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NET ASSET TURNOVER RATIO

0.420.55

0.26

0.660.504

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2004-05

2005-06

2006-07

2007-08

2008-09

YEAR

RA

TIO

Ratio

INTREPRETATION

Table 4.2In the year 2004-05 to 2005-06 ratio was 0.47, 0.55 respectively which means

firm is able to produce large volume of sales for given amount of net assets. But in the year

2006-07 it is decreased 0.26 due to less volume at sales to the given net assets . In the year

2007-08 increased 0.66, in the year 2008-09 ratio is 0.504 .

TABLE 4.3 Fixed Assets Turnover Ratio

i. Fixed Assets Turnover Ratio = Sales

Fixed Assets

Year Sales

Amt. In Rs

Net Fixed Assets

Amt. In Rs

Ratio

2004-05 269842495.00 523585135.00 0.51


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2005-06 622678642.00 532690595.00 1.16

2006-07 592532689.00 568828676.00 1.04

2007-08 453435123.00 570188858.00 0.80

2008-09 736206987.00 571266087.00 1.29

INTREPRETATION

Table 4.4 reveals in the year 2004-05 0.51 ,2005-06 ratio is 1.16 decreased in the year

2006-07 ratio is 0.80 and again increased in the year 2008-09 1.29 up to the year 2005-06, which

indicates higher degree of efficiency in assets utilization. It is lower in the year 2006-07. and

again it is showing an decreased trend in the year 2007-08 & 2008-09increased to 1.29..

ii. Current Assets Turnover Ratio = Sales

Current Assets

TABLE4.5 Current Assets Turnover Ratio


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INTREPRETATION


Year Sales

Amt. In Rs

Current Assets

Amt. In Rs

Ratio

2004-05 269842495.00 430076093.00 0.62

2005-06 622678642.00 343665293.00 1.81

2006-07 592532689.00 336389326.00 1.76

2007-08 453435123.00 417811264.00 1.09

2008-09 736206987.00 349345761.00 2.11

current asset turnover ratio

0.62

1.81 1.761.09

2.11

0

0.5

1

1.5

2

2.5

2004-05

2005-06

2006-07

2007-08

2008-09

year

rati

o

Ratio

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Table 4.5 reveals that the current assets turnover ratio of the company has improved its

utilization current assets but it was reduced in the year 2004-05 ratio is 0.62 due to in efficiency

utilization of current assets. And in the year 2005-06 increased 1.81, 2006-07 decreased to 1.76,

and again decreased to 1.09 ,and 2008-09 trend up 2.11.

d. Working Capital turnover Ratio:

A firm may also related net current assets to sales. Working capital turnover ratio

indicates the velocity of the utilization of net working capital.

Working Capital Turnover Ratio = Sales

Net Current Assets

TABLE 4.6 Working Capital Turnover Ratio

Year Sales

Amt in Rs

Net Current Asset

Amt. In Rs

Ratio

2004-05 269842495.00 4586424515.00 1.22

2005-06 622678642.00 1625293064.00 3.37

2006-07 592532689.00 2288870547.00 0.12

2007-8 453435123.00 1189072585.00 5.23

2008-09 736206987.00 726908534.00 8.15


Working Capital turnoverRatio

1.22

3.37

0.12

5.23

8.15

0

2

4

6

8

10

2002-03 2003-04 2004-05 2005-06 2006-07

Year

Rati

o

Ratio

R S S K N

INTREPRETATION

Table 4.6 reveals that working capital turnover ratio in the year 2002-03 was 1.22,in the

year 2003-04 it increased to 3.37,in the year 2004-05 it decresed to 0.12,in the year 2005-06

again increased to 5.23,in the year 2006-07 increased to 8.15 indicate the efficient utilization of

working capital. But in the year 2004-05 it was reduced due to the inefficiency in utilization of

working capital.0.12.


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CHAPTER 6

FINDINGS

SUGGESTIONS AND

CONCLUSION

FINDINGS :


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1)In the year 2004-05 current ratio was 3.04 in the subsequent years it doesn’t reach

the standard ratio ,so it is unfavorable of the company.

2) Quick ratio has been continuously decreasing year by year, it shows that company’s

liquidity position is weak.

3) Absolute quick ratio has increased year by year but s still below the standard of 1:1

company position is still weak .

4)Debt Equity Ratio in the year 2004-05, 0.61 subsequent year increased year by year

company position is good.

5) Gross profit in the year 2004-05 ratio 0.11% and in the year 2008-09 ratio is trend up

10.8% company position is favorable.

6) Net profit Ratio in the 2004-05 was 15.95% but in the 2008-09 decreased 0.01.% it

shows un favorable of the company .

SUGGESTIONS


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1. The current ratio and Quick ratio of the company doesn’t reach standard ratio so

company need to concentrate on increasing the current ratio by increasing in current

asset and Quick Assets.

2. debt ratio of the company has been increased year to year . high debt ratio is

unfavorable of the company.

3. Net profit ratio weak try to increase sales and the investment on fixed asset should be

reduced.

4. The company needs to maintain good inventory turnover ratio by increasing the sales.

5. The company needs to increases the working capital turnover ratio for efficiency

utilization of working capital.

CONCLUSION

Study of the ratio analysis of ranna sugars reveals the performance of the company in

terms of financial aspects .it is found that there is an increase in sales ,net profit, gross profit

during 2008-09 the cash balance is also increased for the above said year . it is also observed

that the current ratio is not satisfactory .quick ratio is decreased year by year .as observed

absolute liquid ratio is found there is increasing year by year . net working capital ratio is also

increasing year by year .

Further the company performance and efficiency can be improved by above mentioned

points in the suggestion.


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Ratio Analysis

Documents

ratio analysis chapter

financial year

financial position performance

technique of analysis

firms financial health

firms financial condition

operational financial

financial health of