Yakshya Financial

CHAPTER I

INRODUCTION

Finance is a process of organizing the flow of funds so that a business can carry out its objectives

in the most efficient manner and meet its obligations as they fall due. The main objective of

every business concern is wealth maximization. To attain that goal, the business concern has to

generate wealth. And for this purpose they have to manage their day-to-day activities in a proper

and preplanned way. The ratio analysis is a yardstick to evaluate the progress. Hence the topic

entitled “Financial Analysis of Vimal Oils and Foods Limited” has been undertaken for a

detailed study.

Vimal Oil & Foods Ltd. (VOFL), the flagship company of Vimal Group, was started in 1993

with the holy hand of Param Punjay Pramukh Swami Maharaj (Head BAPS), in Mehsana,

Gujarat, with a small 50-ton refinery, and today it has evolved into a fully integrated and

automatic oil-processing unit with an annual turnover or Rs. 630 crores, listed with Ahmedabad

and Bombay Stock Exchange. VOFL is always committed to quality and integrity, and that’s

what reflects in our products that never fail to delight our customers. With a single goal of

offering our customers a superior range of products that they can choose as per their needs. In

that quest, we have broadened our business horizons by introducing cottonseed oil, groundnut

oil, mustard oil, Soyabean oil, Sunflower oil, Corn oil and table margarine.

VISION:

Our vision is to be a globally recognized company producing and marketing the best world class

quality food products by adopting latest environment friendly technology.

MISSION:

Vimal oils is leading edible oil and food product company in india and our mission is to

discover, develop, innovate and successfully reach to each and every Indian family with the best-

pure healthy oils and food products to fulfill our mission statement “ Healthy u, Happy u.

OBJECTIVE OF THE STUDY:

1. To study the financial position of the firm using ratio analysis as a tool, this includes

calculation and evaluation of various results of the company for the past 5 year.

2. To give suggestions required for the improvement. To put in to practice the theoretical

aspect of ratio analysis.

3. To measure short-term financial position and obligations of the firm in terms of current

assets, current liabilities.

4. Finally to gain knowledge and experience during the study.

SCOPE OF THE STUDY:

1. It also gives an analysis on the financial condition and performance of the organization an

indication of the trend of the organization.

2. The study covers information about the financial statement of the company for the past

three years calculated ratios.

3. Finally this project will save as a foundation document based upon which the

management students and others who may want to broaden their horizon.

LIMITATION OF THE STUDY:

1. The study undertaken is purely on the basis of the date furnished in the financial

statements of the firm over the years.

2. Financial statements represent just one part of the information spectrum.

3. Financial statements are based on historical data and do lack current information.

METHODOLOGY:

The methodology used for the study is data collection method. The study is based on the

secondary data which are collected from the sources such as magazines, newspapers, internet and

books as mentioned in bibliography. The primary data are not taken for the study.

CHAPTER II

COMPANY PROFILE

Vimal Oil & Foods Ltd. (VOFL), the flagship company of Vimal Group, was started in 1993

with the holy hand of Param Punjay Pramukh Swami Maharaj (Head BAPS), in Mehsana,

Gujarat, with a small 50-ton refinery, and today it has evolved into a fully integrated and

automatic oil-processing unit with an annual turnover or Rs. 630 crores, listed with Ahmedabad

and Bombay Stock Exchange.

DETAILS OF VIMAL OILS AND FOODS LIMITED

The details of Vimal Oils and Foods Limited are mentioned below:

Sr. NO. TYPE OF INFORMATION DETAILS1. COMPANY NAME VIMAL OILS AND FOODS

LIMITED2. INDUSTRY EDIBLE OIL INDUSTRY4. INCORPORATION YEAR 1992

5. RESGISTERED OFFICE 4th Floor, Heritage, Near The Grand Bhagwati, Sarkhej-Gandhinagar Highway, Ahmedabad – 380 054.

6. FACTORY At : Village Hanumant Heduva,Nr. Palavasna Railway Crossing,Highway, Mehsana - 384 002.

7. BOARD OF DIRECTORS Shri Jayesh C. Patel Chairman & Managing DirectorShri Mahendra V. PatelShri Mukesh N. PatelShri Harnarayan J. Patel

8. AUDITORS NAME M/s. R R S & AssociatesChartered AccountantsAhmedabad.

9. BANKER/S NAME Bank of IndiaBank of BarodaDena BankIDBI Bank

10. LISTING Bombay Stock Exchange11. WEBSITE www.vimaloil.com

Table 1: Details of Vimal oils and foods limited

ORGANISATION STRUCTURE OF VOFL:

Figure 1: Organizational Chart of Vimal Oils and Foods Ltd.

HISTORY OF THE COMPANY:

Vimal Oil & Foods (Vimal) was incorporated on 14th May 1992. It received the certificate of

commencement of business on 19 May 1992 from the Registrar of Companies; Gujarat. The

company has embarked upon a project for setting up a 200 TPD solvent extraction and 50 TPD

edible refined oil plant at village Hanumant Heduva, Dist. Mehsana (North Gujarat). Presently

the company is engaged in the production of edible oils in its edible oil refinery which

commenced commercial production on 25.09.93. Vimal is promoted by a group of qualified

entrepreneurs viz. Shri Chandubhai I Patel , Shri G K Patel, Shri J C Patel and Shri K S Patel

from Mehsana (Gujarat).In 2003,Members approve delisting from Delhi Stock Exchange. The

Company is engaged in the production of edible oil in its edible oil refinery which commenced

commercial production with a 50 TPD capacity in September, 1993.

Vice President(Purchase )Chandrakant Panchal

Raw Material Team (7)Finance & Account

ManagerJitendra Patel

Account Team (10)

Sales and Marketing Head

Yogesh Patel

Regional Heads (16)

Sales Team (85)

Factory InchargeUmesh Patel

Packaging ManagerSuresh Chaudhary

Production Team (150)

The Company made the Public Issue of 27, 50, 000 Equity Shares of Rs. 10/- for cash at par

aggregating Rs. 2,75,00,000/- in March, 1994 to part finance the project for setting up a 200 TPD

Solvent Extraction Plant which was commenced in December, 1994. In the year 1995, additional

Oil Refinery capacity of 100 TPD was commenced. In the year 1995, the Company has set up a

Wind Mill at Survey No. 128, Mouj: Kalyanpur, Tal: Kalyanpur, Dist: Jamnagar. The Company

has set up a Milk Powder plant in the year 1997 at Village: Hanumant Heduva, Nr. Palvasna

Railway Crossing, Highway and Mehsana. In the year 2003, refining capacity was enhanced to

80,000 TPA (approx. 300 TPD). The said expansion was funded by term loan and internal

accruals. The Company is exporting the De-oiled Cake (DOC), a by-product under the solvent

extraction to various foreign countries. The Company has been presented with the Export

Awards in the years 1998, 1999 and 2001.The Company has obtained One Star Export House

status from the office of the Joint Director General of Foreign Trade, Ahmedabad on 18th

October, 2005 which is valid from 01.04.2005 to 31.03.2009.The Company has adhered to the

Quality Management System Standard of ISO 9001: 2000 issued by the Det Norske Veritas

(DNV).

CHAPTER III

DATA ANALYSIS AND INTERPRETATION

Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm

by properly establishing relationships between the items of the balance sheet and the profit &

loss account / Income statement.

3.1 LIQUIDITY RATIOS

Liquidity ratios measure the ability of the firm to meet its current obligations. In fact analysis of

liquidity needs the preparation of cash budgets and cash and fund flow statements; but liquidity

ratios by establishing a relationship between cash and other current assets to current obligations,

provide a quick measure of liquidity.

3.1.1 Current Ratio:

Definition: Current ratio is the relationship between current assets and current liabilities.

Formula: Current Assets / Current liabilities

2007 2008 2009 2010 2011

CURRENT RATIO 1.18 1.22 1.15 1.19 1.21

1.11

1.13

1.15

1.17

1.19

1.21

1.23

CURRENT RATIO

TIM

ES

Figure: 3.1.1 Current Ratio (Source: capital line database)

Interpretation:

Figure 3.1.1 determines the current ratio. The current ratio should be ideally around 2:1.

However the ideal ratio varies from industry to industry. So the ideal ratio normally varies from

1.5:1 to 2:1. Here we see an increasing trend from 2007 to 2008, decreasing trend from the year

2008 to 2010 and again increased in 2011. But the range of variation lies in the range of ideal

ratio. Current ratio shows the amount of rupees available to meet the current obligations. This

industry is a capital intensive industry. Hence the companies will always have to establish a

tradeoff between the debtors and creditors to manage their working capital. The reason for the

decline seen in the ratio is that the current liabilities are increasing at a greater rate than the

current assets. The increase in current liabilities is due to the lenient credit terms that are

provided to the customers.

3.2ACTIVITY RATIOS Funds of creditors and owners are invested in various assets to generate sales and profits. The

better the management of assets, the larger the amount of sales. Activity ratios are employed to

evaluate the efficiency with the firms manages and utilizes its assets. These ratios are also called

turnover ratios because they indicate the speed with which assets are being converted or turned

over into sales.

3.2.1Fixed Asset Turnover Ratio:

Definition: This ratio shows the firm’s ability in generating sales from all financial resources

committed to total assets.

Formula: Sales / Fixed Assets

3.2.2 Inventory Turnover Ratio:

Definition: It indicates the number of times inventory is replaced during the year. It measures

the relationship between the cost of goods sold and the inventory level. It is a test of efficient

inventory management.

Formula: Cost of goods sold / Average inventory

3.2.3 Debtors Turnover Ratio:

Definition: It shows how quickly receivables or debtors are converted into cash. It is a test of the

liquidity of the debtors of a firm.

Formula: Credit Sales / Average debtors

1 2 3 4 5

FIXED ASSET TURNOVER 21.95 23.75 18.11 17.21 23.72 NaN

INVENTORY TURNOVER 15.03 14.38 15.01 19.81 22.67 NaN

DEBTOR TURNOVER 11.85 13.37 8.78 6.13 5.52 NaN

2.5

7.5

12.5

17.5

22.5

Activity ratio

times

Figure: 3.2 Activity Ratios (Source: capital line database)

Interpretation:

The figure 8 represents the activity ratios in which, Assets turnover ratio measures how

efficiently assets are used to maximize sales. A firm’s ability to produce a large volume of sales

for a given amount of net assets is the most important aspect of its operating performance. The

net assets turnover should be interpreted cautiously. The net assets in the denominator of the

ratio include fixed assets net of depreciation. Thus old assets with lower book values may create

a misleading impression of high turnover without any improvement in sales. For Vimal oil and

foods , the asset turnover ratio is increasing uniformly over the period. For 2011, it is 23.72;

which implies that Rs. 23.72 of sales is produced for one rupee of capital employed in net assets

and the chart reflects there is slowly upward trend up to 2011.

Inventory turnover ratio measures the efficiency of inventory management. Therefore ideally

an increasing trend is expected. Inventory turnover ratio is more stabilize one with less

fluctuation over a period of time which indicates effective inventory management. The chart

reflects there is slowly upward trend up to 2011. We can see that vis-à-vis industry Vimal Oil

and Foods inventory turnover is greater which indicates better management of inventories.

Hence we can say that inventory is converted into sales at a faster pace.

Debtors turnover ratio and collection period measure the speed with which the accounts

receivable are collected. A reduction in collection period would mean faster conversion of

debtors into cash and so the company can meet its working capital requirement in a better

manner. A chart shows slowly decreasing trend of Vimal Oils and Foods debtor turnover ratio

upto 2011.

3.3 CAPITAL STRUCTURE OR LEVERAGE RATIOS

To judge the long-term financial position of the firm, financial leverage, or capital structure

ratios are calculated. These ratios indicate mix of funds provided by owners and lenders.

3.3.1 Interest Coverage Ratio:

Definition: It is used to test the firm’s debt servicing capacity. It shows the number of times the

interest charges are covered by funds that are ordinarily available for their payment.

Formula: EBIT/ Interest

3.3.2 Long term Debt-Equity Ratio:

Definition: It is a relationship describing the long term lenders contribution of each rupee of the

owner’s contribution

Formula: Long term debt / Net Worth

3.3.3 Debt-Equity Ratio:

Definition: It is a relationship describing the lenders contribution of each rupee of the owner’s

contribution.

Formula: Total debt / Net Worth

1 2 3 4 5 6

Long term debt equity ratio 0.04 0.2 0.43 0.64 0.45 1.57

Debt equity ratio 1.53 1.71 2.4 2.58 2.37 NaN

interest coverage ratio 2.03 2.14 1.33 1.57 2.32 NaN

0.25

0.75

1.25

1.75

2.25

2.75

Leverage ratio

times

Figure 3.3 : Leverage Ratios (Source: capital line database)

Interpretation:

In the figure 3.3, Interest coverage ratio indicates the extent to which a fall in EBIT is tolerable

such that the ability of the firm to service its interest payments would not be adversely affected.

For example and interest coverage ratio of 2.32 times in 2011 would imply that even if the

firm’s EBIT were to decline to one-twenty sixth of the present level, the operating profits

available for servicing the interest on loan would still be equivalent to the claims of the lenders.

However too high a ratio implies unused debt capacity. And a lower ratio indicates a firm using

excessive debt. The trend of a ratio of Vimal oil and foods shows that it is increasing but it is

lower than average of industry. Vimal oil and foods is progressing with growing ability to

service its interest payments from 2010 till 2011 with faster rate. So we can say that Vimal oil

and foods is not conservative but is using its debt capacity in a good manner.

Debt to equity ratio is ratio of the total debt to the net worth. If it is high, the claim of the all

creditors is high and if it is low, the claim of all creditors is low. The trend observed in this ratio

is similar to that of the long term debt to equity ratio because here inclusion of just short term

fund provider. This ratio describes the relationship between the all ender’s contribution and the

owner’s contribution. Here for the year 2010, the lender’s contribution is 2.37 times to that of the

owner’s.

3.4 PROFITABILITY RATIOS

The profitability ratios are calculated to measures the operating efficiency of the company.

Generally two major types of profitability ratios are calculated:

Profitability in relation to sales

Profitability in relation to investment

3.4.1 Return on Net worth:

Definition: It is the relationship between profit after tax and net worth.

Formula: EBIT (1-tax rate) / Net Worth

3.4.2 Return on capital employed:

Definition: It is the relationship between profit after tax and total capital employed.

Formula: EBIT (1-tax rate) / Capital employed

2007 2008 2009 2010 2011

ROCE 15.68 17.72 16.96 15.01 13.6

RONW 12.2 17.58 14 23.74 24.25

2.5

7.5

12.5

17.5

22.5

27.5

ProfitabiltyPe

rcen

tage

Figure: 3.4 Profitability Ratios (Source: capital line database)

Interpretation:

Figure 3.4 represents the profitability ratios in which, Return on equity is calculated to see the

profitability of owner’s investment. The shareholder’s equity or new worth will include paid-up

share capital, share premium and reserved and surplus less accumulated losses.

RONW indicates how well the firm has used the resources of owners. Over here the RONW has

increased from 2007 till 2011 but decreasing trend is there with the industry , which is a good

indication for the company. Thus from the overall profitability ratios we can see that the

profitability of the company is increasing.

Return on capital employed is found by dividing EBIT (1-tax rate) by capital employed.

Capital employed represents pool of funds supplied by shareholders and lenders. This ratio

therefore measures what actually a firm has earned in comparison to the investments made. The

movement of this ratio is almost similar to the trend of return on net worth ratio.

3.5 PROFIT MARGIN RATIO:

Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of

profitability. It is calculated by finding the net profit as a percentage of the revenue. The profit

margin is mostly used for internal comparison. A higher profit margin indicates a more profitable

company that has better control over its costs compared to its competitors. Profit margin

is displayed as a percentage.

3.5.1 Gross Profit Margin:

Definition: The first profitability ratio in relation to sales is the gross profit margin.

Formula: Gross profit / sales

3.5.2 Net Profit Margin:

Definition: The net profit margin ratio is measured by dividing profit after tax by sales.

Formula: Profit after tax / Sales

3.5.3 Operating Profit Margin:

Definition: The operating profit margin ratio is measured by dividing Operating Profit by sales.

Formula: Operating Profit / Sales

1 2 3 4 5

operating profit margin 2.15 2.95 1.88 3 2.51

Gross profit Margin 1.92 2.76 1.61 2.71 2.3

Net Profit Margin 0.69 0.87 0.45 0.72 0.9

0.250.751.251.752.252.753.25

Profit marginPe

rcen

tage

Figure: 3.5 Profit Margin ratio (Source Capital line Database)

Interpretation:

Gross Profit Margin, Net Profit Margin and Operating Profit Margin is increasing over the

period of time which shows the sign of good management. Hence it implies that the firm is able

to produce at relatively lower cost and withstand adverse economic condition.

3.6 EPS

Definition: EPS indicates earning power available with share holders. The EPS calculations

made over years indicate whether or not the firm’s earning power on per-share basis has changed

or over that period.

Formula: PAT / Total number of ordinary shares outstanding.

2007 2008 2009 2010 2011

EPS 7.53 12.28 6.22 9.28 9.81

1

3

5

7

9

11

13

EPS

RUPE

ES

Figure 3.6 : Earnings per share (Source: capital line database)

In the figure 3.6, the EPS shows how much rupees available to share holders from net profit.

From chart we can see that EPS has a increasing trend from 2007 till 2008 then it has decreased

in 2009 and again its showing increasing trend from 2010 upto 2011.

3.7 DIVIDEND PAYOUT

Definition: Dividend payout shows how much percentage of earning to be distributed to share

holders in the form of dividends.

Formula: DPS / EPS

2007 2008 2009 2010 2011

Divident Payout ra-tio

15.94 14.66 19.29 16.16 15.29

2.5

7.5

12.5

17.5

22.5

Divident Payout ratio

perc

enta

ge

Figure 3.7: Dividend Payout Ratio (Source: capital line database)

From the figure 3.7, we can say that we can say that Vimal oils and foods is following a very

stable dividend policy. Earning not distributed to shareholders is retained in the business.

3.8 DUPONT ANALYSIS

Return on Net Asset (RONA) or Return on Capital Employed (ROCE) is the measure of the

firm’s operating performance. It indicates the firms earning power. It is a product of the asset

turnover, gross profit margin and operating leverage. All the firms would like to improve their

RONA. In practice competition puts a limit on RONA. Also, firms may have to trade-off

between asset turnover and gross profit margin. To improve profit margin, some firms resort to

vertical integration for cost reduction and synergic benefits.

RONA = Asset turnover * Gross profit margin * Operating Leverage

A firm can convert its RONA into an impressive ROE through financial efficiency. Financial

leverage and debt-equity ratios affect ROE and reflect financial efficiency. ROE is thus a

products of RONA (reflecting operating efficiency) and financial leverage ratios (reflecting

financial efficiency).

ROE = Operating Performance * Leverage Factor

The firm can convert its ROE into growth in equity through retention.

Equity Growth = ROE * Retention Ratio

The combined effect of three aspects - operating efficiency, financial efficiency and retention

shows the overall performance. The computation of ratios clearly shows the interaction between

operating ratios, profitability ratios and leverage ratios for obtaining return on the shareholder’s

earnings.

RATIOS - DUPONT MODEL –Vimal Oils and Foods Ltd

2003 2004 2005 2006 2007 2008 2009 2010 2011 PBIDT/Sales(%) 2.3 2.06 2.56 2.15 2.48 2.77 3.05 3.03 2.54 Sales/Net Assets 6.42 5.53 5.99 7.14 5.45 6.73 5.64 4.67 4.92 PBDIT/Net Assets 0.15 0.11 0.15 0.15 0.14 0.19 0.17 0.14 0.12 PAT/PBIDT(%) 23.57 18.2 16.54 25.86 28.21 31.82 14.83 23.93 35.78 Net Assets/Net Worth 3.69 4.29 3.89 4.18 2.04 4.83 5.31 6.55 3.78 ROE(%) 13.02 9.13 9.97 17.73 12.2 17.58 14 23.74 24.25

Table 14 : Du Pont Analysis (Source: capital line data base)

CONCLUSION:

From financial analysis we can conclude that Vimal Oils and Foods Ltd is having a very strong

financial capability. From the interpretation of Current ratios, activity ratios, liquidity ratios,

profitability ratios, EPS, Dividend payout, DuPont analysis and leverage analysis it is clear that

Vimal Oils and Foods Ltd is financially viable and has a capability to meet contractual obligation

effectively that arise over a period of time. It is advisable to investor to make Investment in

Vimal Oils and Foods Ltd which ensures stable earnings in the form of dividends.

Bibliography:

VOFL. (2012, April 4). about us. Retrieved April 6, 2012, from www.vimaloil.com.

VOFL. (2010-11). ANNUAL REPORT - 2010-11. VOFL.

PANDEY, I. M. (2010). FINANCIAL MANAGEMENT. VIKAS.

Annexure: