Hussain Final Project

MBA Programme
RATIO ANALYSIS
A STUDY ON RATIO ANALYSIS

With reference to
JOCIL LIMITED
GUNTUR Project report submitted to Andhra University, Visakhapatnam in partial Fulfillment for the Award of the Degree in
MASTER OF BUSINESS ADMINISTRATION

By
MD. HUSSAIN. ALI Regd.No. 2085 !000"2
Under the esteemed guidance of S#$. %.SRIDE&I

MBA
Faculty in management studies
DE'ARTMENT OF MANAGEMENT STUDIES ADITYA INSTITUTE OF '.G STUDIES

(Affiliated to Andhra University)
SURAM'ALEM
2008(20!0
ADITYA INSTITUTE OF P.G STUDIES
MBA Programme
RATIO ANALYSIS
MBA Programme
RATIO ANALYSIS
ADITYA INSTITUTE OF P.G.STUDIES (Appr !ed "y AI#TE$ A%%iliated t A.U& SU'A(PA)E( * +,,-,. E.G.DIST (AP&
/ONAFIDE #E'TIFI#ATE
This is to certify that the project entitled 0a study n 0'ATIO ANA)YSIS1 In 02O#I) )I(ITED$ GUNTU'1 is the bonafide record of work done by (r. MD. HUSSAIN. ALIRegd.No. 2085 !000"2 during the period 344563474 in partial fulfillment of the requirement for the award of the Degree of (ASTE' OF /USINESS AD(INIST'ATION in Aditya Institute % P.G. # llege affiliated to AND8'A UNI9E'SITY.
Project uide! Smt . :.S'IDE9I $%&%'%

) *aculty in management studies%+
"ead #f the Department! S'I.2.NAGEND'A :U(A' $%&%'%%(

"ead of the Department%
MBA Programme
RATIO ANALYSIS
DE#)A'ATION
- hereby declare that the project work entitled .'ATIO ANA)YSIS1 with reference to 2O#I) )I(ITED$ GUNTU' is originally prepared and submitted by me to AND8'A UNI9E'SITY( /-0'1"'P'T2'$ in partial fulfillment of the requirements for the award of the degree of (ASTE' OF /USINESS AD(INIST'ATION% The empirical findings in the report are based on the data collected by me while preparing this project% -t has not been submitted to any other uni3ersity or publication at any time before%
MD. HUSSAIN. ALI )Regd.No. 2085 !000"2* P)A#E; DATE;
MBA Programme
RATIO ANALYSIS
5"'PT6781
MBA Programme
RATIO ANALYSIS
INT'ODU#TION
FINAN#IA) STATE(ENT ANA)YSIS
Financial statement analysis is largely a study % relati ns<ip am ng t<e !ari us %inancial %act rs in a "usiness and discl sed "y a single set % statements and study % t<e trends at t<ese %act rs as in a series % statements Financial analysis is a pr cess % selecting and e!aluating t<e %inancial %act rs in a "usiness. T<e in% rmati n pr !ided "y t<e %inancial statements <as t "e pr perly analy=ed and pr secuted in rder t<at it can "e e%%ecti!ely used "y t<e !ari us interested parties. T<e m de and tec<ni>ues used in %inancial analysis.
NATU'E OF FINAN#IA) STATE(ENTS

T<e %inancial statements are prepared %r m t<e data$ ?<ic< enc mpasses t<e % ll ?ings; a. 'ec rded %acts ". Acc unting p licies$ c ncepts and c n!enti ns c. Pers nal 2udgment
T<e su"@ect % %inancial (anagement is % immense interest t " t< academicians and practicing managers. It is % great interest t academicians "ecause t<e su"@ect is still de!el ping$ and t<ere are still certain areas ?<ere c ntr !ersies eAist % r ?<ic< n unanim us s luti ns <a!e "een reac<ed as yet. Practicing managers are interested in t<is su"@ect "ecause am ng t<e m st crucial decisi ns % t<e %irm are t< se ?<ic< relate t %inance and an understanding % t<e t<e ry % %inancial management pr !ides t<em ?it< c nceptual and analytical insig<ts
MBA Programme
RATIO ANALYSIS
ANA)YSIS AND INTE'P'ETAION OF FINAN#IA) STATE(ENTS

In t<e "usiness ? rld t<e term 0Financial analysis and interpretati n1 is used t re%er t any Bind % in dept< study % t<e !ari us census and reas ns t<at in%luence t<e %inancial tec<nical t ut c mes % any entity. It is a l in t<e <ands at %inancial eAecuti!e.
Analysis interpretati n % %inancial statements in an attempt t determine t<e signi%icance and meaning at t<e data in t<e %inancial statements s t<at a % recast may "e made % t<e pr spects % r %uture earnings$ l ng term li>uidity and s l!ency at an entities.
TYPES OF FINAN#IA) ANA)YSIS

Financial statements can "e su"@ected t t? types at analysis. T<ey are; 7. Trend analysis r Dynamic Analysis 3. Structural analysis r Static Analysis
7.Trend analysis;
C<ic< is made "y analy=ing t<e %inancial statements !er a peri d % years. T<is indicates t<e trends % suc< !aria"les. EA; Sales trends$ c st trends
3. Structural analysis r static analysis;

C<ic< is made "y analy=ing a single set % %inancial statements as are prepared n particular date. EA; 'ati % net pr %ile t sales
MBA Programme
RATIO ANALYSIS
NEED OF T8E STUDY

-t is known fact that the success of the of any organi<ation depends upon its financial position% 0o it is 3ery important for any organi<ation that they re3iew financial position e3ery year by comparing with the past year records% &ecause finance play a 3ital role in any organi<ation% The financial strength and weakness of a company can be easily understood in an easy manner through use of ratio analysis hence the researcher felt the need to take up the study% The absolute accounting figures 7eported in financial statements do not pro3ide a meaningful understanding of a performance and financial position of the firm% 'n accounting figure con3eys meaning when it is related to some other rele3ant information%
*or e=ample( an 7s%4crore net profit may look impressi3e( but the firm>s performance can be said to be good or bad only when the firm net profit is related firm>s in3estment% 7atios help to summaries large quantities of financial data and to make qualitati3e judgment about the firm>s financial performance%
To compare the current year financial information with pre3ious year financial information to e3aluate the performance of the ?ocil ltd
MBA Programme
RATIO ANALYSIS
O/2E#TI9ES OF T8E STUDY
To know different sources of funds utili<ed% To forecast the contingencies% To compare the achie3ed performance with pre8determined standards% To show the use of financial ratio to get useful information from the financial statements% To e3aluate the liquidity and sol3ency position of the ?ocil Aimited% To know the debtor>s and creditor>s management system of the firm% To know the supply of funds to all parts of the organi<ation or know the system of cash management of the company% To offer suitable suggestions on the basis of findings Bconclusions for better performance of the company%
MBA Programme
RATIO ANALYSIS
$ET8ODO)OGY OF T8E STUDY!

$ethodology is a systematic procedure of collecting information in order to analy<e and 3erify the phenomenon% *or the study of all the objecti3es the following methodology is adopted% The collection of information is adopred%The collection of information is done through two principle sources% 1%Primary 0ource ! The information was collected from personal inter3iews and discussions with 3arious officials in the firm% 2%0econdary 0ource! The rest of the information was collected from financial statements DProfitB loss 'ccount and &alance sheets%
1C
MBA Programme
RATIO ANALYSIS
)I(ITATION OF T8E STUDY

's the study is based on financial 7atios it is only a Euantitati3e analysis and does not the Eualitati3e aspect of ?ocil Atd% 7atios are based on the past data and hence cannot be made reliable guide to future performances( as future is dependent #n 3arious factors% Data pertained to fi3e years was considered( better analysis could be made using data of more number of years% 1% #nly the standards and con3entional formula are considered during the study% "ow e3er( care has been taken to the subjecti3ity of the research% 2% 7atios are only indicators and cannot be taken as ultimate tools for the estimation of financial position of the company whether good or bad% 3% The study is conducted with the a3ailability data of ?ocil Atd annual reports% Due to insufficiency of the time -t become difficultt for the detailed study of the financial information of the company%
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MBA Programme
RATIO ANALYSIS
5"'PT6782
12
MBA Programme
RATIO ANALYSIS
INDUST'Y P'OFI)E
Personal wash market in -ndia is 3ery high% 63eryone is using toilet 0oaps% -t is one of the fast mo3ing consumer products in personal care segment% The consumption percentage of toilet soaps was increased year by year% The total consumption of toilet soaps in -ndia is 4%3 lakh tones per year% The growth rate is 283 percent per annum% &ut the consumption rate of soap used per an -ndian is low( when we compare with Thailand( -taly and &ra<il people% Their consumption rate is ,;C gms( :CC gms and 19C gms per head in a month% There are a number of reputed companies in the toilet soap market% Due to increased competition( along with those companies se3eral small scale manufacturers are also entered in to the market% The crowded market place has also brought to the consumer as marketers of soap ha3e tried to woo consumers through upgraded offerings and better quality soaps% The marketers of toilets> soaps ha3e increased the T*$ FTotal *atty $atterG content in their brands( to offer better quality soaps at a lower price% -ndustry watchers say that the -*$ content on some brands has mo3ed up from the 4C89C per cent earlier to o3er :C per cent of late%
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MBA Programme
RATIO ANALYSIS
A brief profile of the various players in the personal wash market is given below : 8industan Unile!er )td.$ (8U)&
"industan Hnile3er Atd% has become a major player in the -ndian personal wash market% -n -ndia "HA has gained 9CI of share in the total toilet soap market% "HA gi3es its products in se3eral brand names% The brand names of "HA are Airil( Pears( Do3e( Au=( Denim( *air B Ao3ely( 7e=ona( Aifebuoy( "amam( &ree<e( 'yush% Different brands are popular in different regions% "HA ha3e brought a few benefits to the consumer as a marketer of toilet soap ha3e tried to woo% 5onsumers through upgraded offerings and better quality soaps% 's a result of sharp fall in farm disposable incomes( the consumers persuaded low8income households to down trade( that is( switch from high8to8low priced brands% "HA( too appears to endorse the phenomenon of down trading% The major competitors of "HA are 2irma( odrej consumer care and W-P7#(
odrej consumer care has introduced( fairness soap( fairglow which claims to enhance fairness( has been a success too( as against this( spawning a competiti3e response from "HA in the form of *air B Ao3ely soap% "HA offering to combine two benefits in a single tablet( &ree<e 28in81 actually offers a cost8effecti3e replacement to consumers who we hair wash products and soap% "HA claims &ree<e is the largest brand in the discount segment% "HA has increased Aifebuoy>s market share by introducing( Aifebuoy 'cti3e( Aifebuoy discount segment% 2ow8a8days "HA has become a dominant player in the -ndian personal wash market% old( Aifebuoy Plus% "HA has gained major share in
1,
MBA Programme
RATIO ANALYSIS
CIP'O ;
W-P7# has become a major player in the -ndian personal wash market% -n -ndia Wipro has gained 4CI of share in toilet soap market% Wipro gi3es its products in brand names of 0antoor( Wipro &aby 0oap( 5hadrika% -t co3ers 1%9 million outlets across the country for its distribution% 4C percent of Wipro consumer care business comes from the toilet soap category% The biggest brand of Wipro is 0antoor was launched in the late ;C>s% Wipro through 0antoor is the leading 0oap marketer in 'ndhra D Pradesh with 1; percent market share% Wipro baby soft diapers gained almost 94 percent of the business from 2orthern $arkets% Wipro ha3e come out with new mi=es and are confident of deli3ering 3alue% The company introduced 5handrika as a 'yur3edic and herbal product as against $edimi=% The companies further interests in naturalsJ ayur3edic segment of the toiletries market%
The company faces se3eral competition from "HA(
odrej( 2irma( "enko%
-nspite of competition Wipro has generated consumer satisfaction%
Nirma ;
2irma has quickly become a significant player in the domestic toilet soap market% The company>s aggressi3e pricing strategy has been the key behind its performance% Aaunches such as 2irma ha3e paid off because consumers ha3e seen the brand as offering good 3alue for money% The company has managed healthy top line growth in the market% 2irma has gained major market share just a couple of years after its entry% -t tries to made brands such as 2irma a3ailable at least 1C percent lower than its nearest 14
MBA Programme
RATIO ANALYSIS
competitors% The company offers its brands 2irma Aime( 2irma premier( 2irma% The company faces competition from "HA( Wipro( odrej% The 2irma was succeeded within a short period due to its aggressi3e pricing strategy%
G dre@ # nsumer #are ;

With at least three entirely new launches under its belt( odrej consumer care has impro3ed its market share in the personal wash market% The company>s recent restructuring e=ercise( offer which the consumer products business was di3erted from the odrej industries and 3ested with odrej consumer care( has also helped pep up profitability performance% *air low( the fairness soap from odrej 5onsumer 5are( which claims to
enhance fairness( has been a success too% 's a relati3ely small player in the business( the company has managed a robust sales%
(a@ r s ap "rands and its marBet s<are;

$arket share in premium segment! &rand Airil Dettol 5inthol $ysore sandal ?ohnsonBjohnson &aby soap 2 $arket 0hare in percent 12 1C%3 ; @
"HA leads 34 percent of total 7s%1CC crore premium soap market% 0econdly Dettol soap is ha3ing 1C%9 percrnt market share in the premium soap segment% $ysore sandal and 5inthol soaps are ha3ing @ percent and ; percent market share respecti3ely%
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MBA Programme
RATIO ANALYSIS
/rand ass ciati ns!

63ery soap manufacturer is following brand associations to their product( Which boosts promotion of the soap in the market% These will attract the customers towards the product and make them to buy% These brand associations can separate the product from other competiti3e products%
/rand p siti ning!

/rand 0antoor Au= 2irma Airil Dettol P siti ning Kounger looking skin( skin care 0kin care( glamour /alue *reshness ermy check( 1CCI bath
Fatty Acid Industry;

These are compounds of carbon( o=ygen and "ydrogen% -n the fatty acid $olecule the carbon atoms are linked together in the form of a long chain commonly referred to as a hydrocarbon chain% 'ccording to scientific data and nomenclature( long straight chain organic acids with carbon atoms of more than , are called fatty acids( because they are obtained from natural 3egetableJanimal oilsJfats% "owe3er most of the commonly used fatty acids are with carbon chain 982,% These fatty acids are mainly grouped into two categories 3i<( saturated and unsaturated fatty acids% *atty 'cids are ha3ing di3ersified application in 3arious fields of industries like rubber manufacturing industries( Tyres( Plastic( 5osmetics( *oods and Pharmaceuticals%
Present Status % Industry;

Present manufacture of *atty 'cids is dispersed all o3er the country with units in 3arious states% Production of fatty acid in -ndia was insignificant( prior to the period of second world war% Production on a small scale was initially started in the mid forties that too with obsolete equipment% The qualities of fatty acid coming out from these units are far from desirable and reco3ery of glycerine was inefficient% 1:
MBA Programme
RATIO ANALYSIS
-t is in 1@43( the first high pressure *at 0plitting Plant in our country went into stream in &ombay% -t started production as a batch8 operating unit( which was soon con3erted to a semi8continuous one% The industry which started taking shape in the early fifties was established on a firm footing within a decade( acquiring considerable know8how in process technology% -n the year 1@4,( the installed capacity of *atty 'cid Plants was below ,4CC tonnes per annum% The annual production from the four operating units at that time was below 1CCC tonnes per annum% 0ince then the *atty 'cid industry in -ndia has made raid progress during the ne=t two decades%
A /rie% n te n Fatty Acid Industry in AP.

The fatty acid industry is dependent on the a3ailability of oils and oil seeds for e=traction and further processing( as mutton Tallow is banned in -ndia% The industry found that rice bran oil is one such source ha3e chosen rice bran oil as their raw material and rice bran oil e=traction units found their place meant near the raw material source rice bran e3en through the customers are well spread all o3er the country% The consumption pattern of rice bran oil depends on the le3el of free fatty acid content a3ailable as industry grade 3aries from time to time because the rice bran a3ailability is seasonal ha3ing direct relation to the rice cropping and har3esting schedules therefore fluctuations are obser3ed in the rice bran oil prices which are almost fi=ed in the pattern how e3er at times due to climatic conditions and temperature 3ariations the status of the rice bran oil changes from industrial grade to edible grade and 3ice 3ersa% -n 'ndhra Pradesh there are about :C 7ice &ran #il 6=traction Hnits and 9 *atty 'cid manufacturing units% 'nother new unit is coming up% 'mong all these( $Js ?ocil Aimited is the second oldest and its products are well accepted among the customers% The installed capacity sales of 0tearic 'cid by these 'ndhra Pradesh based units account appro=imately for ,; per cent of the all -ndia 0ales 3olume%
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MBA Programme
RATIO ANALYSIS
*atty 'cids for commercial uses are produced by hydroly<ing oils and fats to fatty acid and glycerol and then further purified and modified to suit different industrial applications% -ndia is rich in non edible oils resources and production of fatty acids from these oils upgrades them suitable for manufacture of all sorts> soaps and greases% This ease the situation of edible oils for human consumption there by helping reduces the shortage of edible grades in -ndia% The *atty 'cid manufacturing units in 'ndhra Pradesh are $Js% *ood *ats and *ertili<ers Atd%( $Js% ?ocil Atd%( $Js%0udha 'gro #il and 5hemical -ndustries Atd%( $Js% 0iris 'gro Atd%( $Js% 0ree 7ayalaseema 'lkalies and 'llied 5hemicals Atd%( $Js 0wastik #leochemical Atd%( and $Js% olden 'gro8Tech -ndustries Atd%( are yet to start commercial production% 'll these are manufacturers of 0tearic 'cid and other *atty 'cids% 0ome of them are utili<ing portion of their capacities for capti3e consumption Fon all -ndia basis about 42 per cent of -nstalled capacities is used for capti3e consumption and about 3, per cent is idle capacity% 'bout 1, per cent is used for commercial sales of *atty 'cidsG% The idle capacity of $J0 T#$5#( 10DA and /egetable /itamins and *ats alone is about :3 per cent% 'ndhra Pradesh 0tate is growing industrially and there is ample scope and potential for entry of new industries% Thus( the 0tearic 'cid and other *atty 'cid using -ndustries like P/5( 5hemical( 7ubber 7etreating and related -ndustries are still possible to be set up in 'ndhra Pradesh( is still to( grow( inspite of the competition among the *atty manufacturers% The idle capacity thus( is not a permanent feature%
Types % Fatty Acids!8

1G 0aturated ! $yristic 'cid Palmitic 'cid Aauric 'cid 0tearic 'cid
2G Hnsaturated! #leic 'cid Ainoleic 'cid The abo3e classification is done on the basis of molecular composition%
'a? materials t<at c nstitute %atty acids include t<e % ll ?ing;
1@
MBA Programme 1G 'nimal fats Fusage of animal fats is banned in -ndiaG aG Tallow bG Aard cG -nedible rease 2G /egetable oils aG bG cG dG eG 2eem oil Palm oil 7ice bran 5astor oil 5oconut oil
RATIO ANALYSIS
Stearic Acid Industry;

0tearic 'cid is a saturated fatty acid ha3ing di3ersified applications in 3arious industries like te=tiles( tyres( plastics( rubber( cosmetics( pharmaceuticals etc% $ajor players in -ndian food( surfactants( 0tearic 'cid industry in -ndia are
odrej( ?ocil( //*% The a3erage consumption by different industries is in the range of 9CCCC TP'% 7ubber and P/5 industry constitutes appro=imately ,CI% 0tearic acid user industry is aware of the changes in raw material scenario to quickly adopt and change their input material base to the cheaper one% This has increased pressure on manufactures of stearic acid to be more alert and adapt for sustaining the changing en3ironment%
$ore than a third of the consumption of fatty acidsJ 0tearic 'cid in -ndia comes from ujarat and $aharashtra states% This could be an ad3antage to the fatty acid manufactures( which are located in and around $umbai as transportation cost has become a major input cost for any industry%
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MBA Programme
RATIO ANALYSIS
(A':ET P'OFI)E
P'ESENT (A':ET S8A'E OF STEA'I# A#ID (ANUFA#TU'E'S CISE 2'$6 #* T"6 EH'2T-TK 0"'76 76 -#2 $'2H*'5TH767 $'716T FIG F$%TG
odrej 0oaps Atd //* Aimited ?ocil Aimited *** Aimited 2ahar 'gro 7aj 'gro #5A B Thapar Wipro Aimited 0iris 'gro Aimited 0udha 'gro Aimited 7ayalaseema 'lkalies Atd 0wastik B #leo 5heicals -mports 1:CCC @CCC 1CCCC 9CCC 4CCC 4CCC 2CCC 2CCC 4CCC 2CCC 4CCC :CCC 1CCCC 22 I 12I 13I ;I :I :I 3I 3I :I 3I :I @I 1I 2#7T" 2#7T" '%P% '%P% 2#7T" 2#7T" 2#7T" 1arnataka '%P% '%P% '%P% '%P%
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MBA Programme
RATIO ANALYSIS
SOAP INDUST'Y
8ISTO'Y;
Traditionally( soap has been manufactured from alkali FlyeG and animal fats FtallowG( although 3egetable products such as palm oil and coconut oil can be substituted for tallow% The major uses for soap were in the household( for washing clothes and for toilet soap( and in te=tile manufacturing( particularly for fulling( cleansing( and scouring woolen stuffs% -n1@2Cs three firms had come to dominate the industry! F1G 5olgate8Palmoli3e8 Peet( F2G Ae3er &rothers( an 6nglish company that de3eloped a full line of hea3ily ad3ertised soaps in the nineteenth century and in 1;@: and 1;@@ purchased factories in &oston and PhiladelphiaL and F3G -n 1@33 Procter and amble introduced a pioneer detergent( Dreft( which targeted the dishwashing market because it was too light for laundering clothes% -n urban sales of premium toilet soaps in 1@;,( the Airil brand manufactured by "industan le3er had sales of 34CC $T( representing 2,%,I of the market share %$ysore sandal made by 1arnataka soaps sold 14;; $T or 11I of the market share(and shikakai manufactured by swastika sold 14CC $T representing 1C%9I of the market share for the same year "industan le3er produced the three top brands of popular Toilet soaps8Aife boy with sales of 39CCC$T and 3;%4 market share% Au= with sales 1:9CC $T for 1;%9 I market shareL and 7e=ona( 113CC $T for an 11%@I market share%
G'OCT8;
The 0oaps B Detergents -ndustry is characteri<ed by a number of small scale manufacturers at one end of the spectrum and large companies Fincluding $25MsG at the other end% The market for 0oaps B Detergents has increased manifold with changing lifestyles( growing purchasing power( increased awareness about personal hygiene( responsi3eness of the consumer to brands offering superior 3alue and the spread of audio83isual media% The growth of cities and the te=tile industry in the early nineteenth century increased soap usage and stimulated the rise of soap8making firms%The period between the end of the 5i3il War and 1@CC brought major changes to the soap industry% 'ccording to the report presented at toilet soap seminar conducted by the oil technologists> 'sssociation of -ndia F2orthern NoneG 'pril 2C( 1@;9( the largest growth potential is in rural markets%' report on toilet soap manufacture in india by 1%0% "olla 22
MBA Programme
RATIO ANALYSIS
and 7%7% Press of Tata oil $ills 5o% Atd% notes that toilet soap consumption in -ndia is e=pected to rise about @%4I a year( to 3:,(CCC metric tone F$TG by 1@@C( 4;C(CCCC $t by 1@@4 and @1,(CCCC $T by the year 2CCC%
DE9E)OP(ENTS;
' major change in soap making occurred in the 1;,Cs when manufacturers began to replace lye made from wood ashes with soda ash( a lye made through a chemical process%$any soap makers began to brand their products and to introduce new 3arieties of toilet soap made with such e=otic ingredients as palm oil and coconut oil% 'd3ertising( at first modest but constantly increasing( became the major inno3ation%
'd3ertising pro3ed ama<ingly effecti3e% -n 1@CC soap makers concentrated their ad3ertising ( -t put large soap makers at a competiti3e ad3antage( and by the late 1@2Cs three firms had come to dominate the industry! 5olgate8Palmoli3e8Peet( Ae3er &rothers( Procter and amble%They produced a wide 3ariety of products by 1@,@ acquired :4 percent of the soap and detergent market% Tide had captured 24 percent of the laundry8detergent market% -n the early 2CCCs( the smaller firms within the industry still produced a multitude of speciali<ed cleansers for home and industry( although in the highly important fields of toilet soaps( laundry soaps( and detergents( the big three remained dominant( controlling about ;C percent of the total marketwashing detergents( liquid cleaners( and toilet soap%
-ndian cities ha3e the potential to ha3e o3er 3CC new hypermarkets by 2C11( mostly in tier8- and tier8-- cities( according to a joint study by global auditor 1P$ and the 'ssociated 5hamber of 5ommerce and -ndustry %
(arBet S<are;
The 7s% ,4 billion -ndian 0oaps and Detergents -ndustry has been e=periencing low growth and intense competition in urban areas% The physical market for detergents at about 2%: million tones is one of the largest markets in the world% -t categori<ed popular economy( premium and super premium% -n -ndia( the per capita consumption of detergents is only 1%9 kg( per annum as against o3er 19 kg% Western 6urope% 0oaps 1%,kg( from @3%@, report% -n Taiwan
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MBA Programme
RATIO ANALYSIS
9%2kg( Thailand 32kg( per annum( -ndonesia 2 kg%( 1orea :%3 kg per annum per capita( $alaysia 3%: kg per annum per capita( ?apan ;%@ kg per annum per capita% The per capita consumption of Toilet 0oap in -ndia is at present whole fully low as compared to many de3eloping countries% The industry has made rapid progress after lifting of the price control% The o3erall growth rate of the industry in the recent years has been in the neighborhood of 14I per annum% The total turno3er of toilet soap industry is 7s%1CCC crore% The market is estimated at more than 3 lakh tones and its growth rate is about 14I per annum% The o3erall consumption of toilet soaps in the country has been increasing at the rate of 9%: and at more than 12I per annum in rural areas% The industry faces serious problem on account of inadequate a3ailability of linear ben<ene( which has to be imported on a large scale% The gap between demand and supply of oils for production of toilet soap is a matter of serious concern% The working group has assessed the a3ailability of oils by the year 1@@@ and 2CCC '%D at 9%4 lakhs tones and 12%1 lakh tones respecti3ely whereas the demand would be the order of :%4 lakh tones and 19 lakh tones which will ha3e to be the basis of present reckoning by imports% The soap market is di3ided into sub8popular( popular and premium on the basis of fatty matter% &ut for the purpose of market study( the market is categori<ed into popular and premium% The popular segment constitutes about ;:I while the premium soaps make up the remaining 13I%
Segmentati n % t<e T ilet S ap (arBet;6

Price 7ange 7s%98; Ffor :4gmsG 7s%;812Ffor :4gmsG 7s%12O Ffor :4gmsG 0oap 0egment 0ub8popular popular premium
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MBA Programme
RATIO ANALYSIS
(arBet s<are % premium$p pular$su"6p pular Segment

Premium Popular 0ub8popular
(arBet S<are
FIG 2, ,4 31
Gr ?t<
FIG 3 1 ;
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RATIO ANALYSIS
5"'PT6783
29
MBA Programme
RATIO ANALYSIS
#O(PANY P'OFI)E
8ISTO'Y OF 2O#I) )I(ITED;
?ocil limited was incorporated on 2C th *ebruary( 1@:; as per the 5ertificate of incorporation 2o%229C granted by the 7egister of companies '%P% "yderabad Hnder the name and style of . '2D"7' P7'D60" #-A '2D 5"6$-5'A -2DH0T7-60 A-$-T6DP F'P#5-AG%
P'O(OTE'S OF
T8E #O(PANY;
The unit was promoted as public Aimited 5ompany in joint 3enture by the 'ndhra Pradesh -ndustrial De3elopment 5orporation Aimited( "yderabad F'P-D5G and ?ayalakshmi 5otton and #il Products Pri3ate Aimited( F?5#PG( Perecherla( Dist %5ompany belongs to ?ayalakshmi roup% Title 5hanges ! During the year 1@;2( the share of 'P-D5 in the company has been reduced% 5onsequently the name of the company has been changed to .?'K'A'10"$- #-A '2D 5"6$-5'A -2DH0T7-60 A-$-T6DP F?#5-AG on 12th 'pril( 1@;2 as per the fresh 5ertificate of -ncorporation granted by the 7egister of 5ompanies% 'gain during the year 1@;;( the major shareholding of the company has been acquired by the 'ndhra 0ugars Aimited Tanuku and the 5ompany has become a subsidiary unit of the 'ndhra 0ugars Aimited effecti3e from 2:th #ctober( 1@;;% Aater on to a3ail the benefit of the well noted brand name .?#5-AP and to ha3e a simple( easy pronunciation( the name of the company has been changed to .?#5-AP effecti3ely from 1: th 0eptember( 1@@2( as per *resh 5ertificate of incorporation granted by the 7egister of 5ompanies% untur
INITIA) IN9EST(ENT;
2:
MBA Programme
RATIO ANALYSIS
The 5ompany has set up 7s%3%3 corers *atty 'cid and 0oap Project on turnkey basis through $Js% &allestra F-ndiaG Aimited( &ombay( with technology and equipment of 5%$%&%( -taly%
)O#ATION OF T8E #O(PANY!

?ocil Aimited is located at Dokiparru in medikondur mandal of in the state of '%P%-t is only 14 km from untur and is on untur District untur82arasaraopet
highway( With a total occupied area of about 33'cres% 2ow the company>s geographical area is e=tended upto about 1CC acres% The 7egistered office of the company is within the factory premises% The location was well selected based on the following reasons! '% Dokiparru 3illage comes under the industrially backward area declared by the '%P% state o3ernment under the si= point *ormula and thereby the company is entitled for the benefits like in3estment subsidy( interest free sales ta= and power ta= rebate% &% The land comprises of red soil and gra3el which is useful for construction of buildings and minimi<ed costs% 5% Water resources are a3ailable% D% $an power is a3ailable from neighboring places without loss of time and transportation% 6% The plant is well connected to train and 7oad mo3ements( making the transportation easy and economic% *% The main 7aw $aterial of the point is non8edible commercial oilsJfats oil( 7ice &ran #il( 'cid oil( *atty acids( 5rude palm stearine etc% % The oils are a3ailable within the district limits and also from 1rishna( 6ast and West odha3ari Districts% Palm *atty 'cid Distillate and 5rude Palm 0tearine are being imported by the company% 2;
MBA Programme
RATIO ANALYSIS
'EGIST'ATION OF T8E UNIT

The company has been registered with Directorate De3elopment FD TDG( eneral of Technical o3ernment of -ndia( and 2ew Delhi% 't that time no
-ndustrial Aicense was required for setting up the project since the total cost of the fi=ed assets of the project en3isaged was less than 7s%3%CCcrores% The 5ompany has also obtained the -ndustrial Aicense 2o%-A! 4:F;3G dated 18381@;3 from the ministry of -ndustry( o3ernment of -ndia and 2ew Delhi %what so e3er( due to o3t of -ndia( licensing is abolished for all industrial Aiberali<ation policy by the
undertakings including $7TPJ*67' 5ompanies 3ide notification 2o%,:: F6G dated 248:81@@1 issued under the -ndustries 'ct( 1@41 e=cept the list of industries notified in schedule 11( which are subject to compulsory licensing% The unit comes under the e=empted list for licensing% "owe3er( as per the guidelines of the o3t of -ndia( the unit has obtained the formal appro3al 3ide acknowledgement of memorandum bearing 2o%9@,J3:'JT$#J@, dated 38381@@, before going into further e=pansion of the unit %
EDPANSION OF T8E P)ANT!

The unit has commenced commercial production during the year 1@;1 at the rated capacity of 14 tons per day% During the year 1@;38;, the toilet soap plant and the fatty acid plant were e=panded% 0o the capacities of the plants were increased to 14 tons per day and 2C tons per day respecti3ely% The company has further undertaken the e=pansion of *atty 'cid Plant and the capacity of the plant is 1CC tons per day%
O"@ecti!es % 2 cil!
The main objecti3e of the 5ompany is manufacturing and selling of the following products!
P'ODU#TS
*atty 'cids with 3arious grades 2@
APP)I#ATIONS
7aw $aterials to the
MBA Programme /YP'ODU#TS lycerine Toilet 0oap
RATIO ANALYSIS
-ndustry 7aw $aterial to the -ndustry 5onsumer product%
The company recei3ed letter of intent from department of industrial de3elopment( $inistry of industries( licensed capacity of fatty acids( o3t%of -ndia( Delhi% 6nhancing the annual lycerin and toilet soap% The company has
implemented this letter by increasing installation capacity of fatty acids plant from 9(2C4 $%T% per annum to 14(41C $%T% with effect from *ebruary( 1@@1 this enhanced capacity came into operation% Aater the company enhanced the capacity to 3:4CC$%T%p%a%w%e%f% $arch 1@@4%
O'GANISATIONA) ST'U#TU'E OCNE'S8IP AND (ANAGE(ENT

/OA'D OF DI'E#TO'S;
Dr% $ullapudi "arischandra Prasad ?% $urali $ohan P% 2arendranath 5howdary $ullapudi Thimmaraja K%2arayanarao 5howdary /%0% 7aju 1% 0rini3asa 7ao $% opalakrishna 0ubbarao /%Tipirneni SENIO' EDE#UTI9ES; P%1esa3ulu 7eddy /AN:E'S; 'ndhra &ank 0tate &ank of -ndia AUDITO'S; &rahmayya B 5o%( 3C untur
5hairman $anaging Director Director Director Director Director Director Director Director
President B 0ecretary
untur untur
MBA Programme #OST AUDITO'S; 2arasimha $urthy B 5o%( 'EGISTE'ED OFFI#E E FA#TO'Y; ?#5-A A-$-T6D( Dokiparru( H2TH7 D 422 ,3;( 'ndhra Pradesh%
RATIO ANALYSIS
"yderabad%
S<are < lding pattern as n ,7st (arc<$3445 #ateg ry N . % S<ares <eld

Promoters The'ndhra0ugarsAimited% F"olding5ompanyG -nstitutions B&anks &odies 5orporate Public 2C(,@2 13(3@(:3: Total ,,(,C(4:4 C%,9 3C%1: 1CC%CC 2,(,3(24C 44%C2
F % S<are< lders
9(3:(C@9
1,%34
Pr %ile % 2 cil )imited ;

Type of the 5ompany 8 2ature of the Hnit 0mall 0cale Hnit 8 $anufacturing
31
MBA Programme
RATIO ANALYSIS
Functi ns % 2 cil )imited;

1% To produce( manufacture( refine( process import( sell and generally to deal in all kinds of fatty acids and soaps and in connection there with the construction of factories and workshop% 2% To fabricate manufacture and deal in all kinds of fatty acids plants% 3% To manufacture 3arious brands of soaps under contract basis for "HA% ,% The company organi<es annual general body meeting where it submits all the four quarterly reports regarding the actual performance with standard performance and predicts the courses of 3ariances% 4% To recei3e( consider and adopt the profit B loss aJc for the year ended and prepares balance sheet as at that date% 9% To declare di3idend on equity shares%
32
MBA Programme
RATIO ANALYSIS
Pr ducts % 2 cil ;6
?ocil has set up a modern plant for the manufacturing of fatty acids( toilet soaps and refined glycerin% The major equipments were imported with latest technology% The products manufactures are of international standards to suit different industrial users% ?ocil is manufacturing two types of products% 1% -ndustrial oods F5hemicalsG 2% 5onsumers oods F0oapsG *atty 'cids( refined goods% *atty acids are manufactured from 3egetable oils and fats% There are different types of fatty acids for different industrial applications% The following are the different kinds of fatty acids which can be manufacture in ?#5-A% 1% 5rude *atty 'cids of /egetable 'cids B *ats% 2% Distilled *atty 'cids of /egetable 'cids B *ats% 3% "ydrogenated *atty 'cids of /egetable 'cids B fats% #ut of the abo3e type of *atty 'cids% ?#5-A is manufacturing the following fatty acid which is a major portion of their sales% 1G 0tearic 'cid 2G #leic 'cid 3G Distilled B "ydrogenated *atty acids% lycerin and other *atty 'cids Pitches fall under the
category of industrial goods whereas soaps come under the category of consumers
33
MBA Programme
RATIO ANALYSIS
Stearic Acid;
-n the stearic acid( different grades are produced with standard specifications for different industrial consumers% The following are the different grades of 0tearic acids consumed by different industries in manufacturing their own industrial products%
9A'IOUS G'ADES OF STEA'I# A#IDS

?#T6Q 7'D68?#T6Q 0P65-'A 7'D6 ?#0T7-5 0P65-'A 7'D6 ?#0T7-5 7'D6 ?#0T7-5 @ ?#0T7-5 11 ?#$6A 7H&&67 7'D6 65#2#$K Hsed in drugs( pharmaceuticals( cosmetics( chemicals B plastics 5hemicals( 5alcium carbonate $etal polish( rease( $etallic polish P/5 0tabili<ers and 5hemicals $etal polish( rease( $etallic polish P/5 0tabili<ers and 5hemicals P/5 7ubber( 5ement and Paints 7ubber( $etallic polish 7ubber( $etallic polish( rease
'e%ined Glycerin;
There 3arieties of refined glycerin are produced namely% 1G 5hemically pure grade F5%PG 2G -ndustrial White F-%WG 3G Pale 0traw FP%0G lycerin is used in pharmaceuticals( cosmetics( e=plosi3es( paints stroke ink( chemicals( tooth paste etc%(
3,
MBA Programme
RATIO ANALYSIS
Oleic Acid;
#nly one 3ariety of #leic 'cid namely .5ommercial ?#5-A% manufactures% rade> is manufacture by
-t is used in fertili<ers( cutting oils( liquid soaps and other chemicals
Distilled Fatty Acids;

The *atty 'cids of different oils are tailor made products to suit different industrial users specifications% 't present ?#5-A is manufacturing distilled hydrogenated rice bran fatty acids( distilled cotton seed oils fatty acids( distilled coconut fatty acids% manufacture some more 3arieties of fatty acids in future% Distilled "ydrogenated 7ice &ran *atty 'cids and distilled plam oil fatty acids are acids are also being manufactured for consumption in soap plant for the manufacture of Toilet 0oaps% They plans to
Fatty Acid Pitc<es;

*atty 'cid pitches are obtained during distillation of crude fatty acids% These products are supplied to laundry soaps( grease( foundry chemicals uses%
34
MBA Programme
RATIO ANALYSIS
Pr cess % s ap (anu%acturing!
*atty 'cids 0aponification 7eaction With 5austic soda 2eat soap 0pray dryingFto reduce moisture to desired le3elG 0oap noodles 'malgamationFaddition of colour(perfumeG $i=ingFhomogenationG 6=trusion F5aking of soap barsG 0oap bars 5utting 0tamping Packing *inished soap
S urce; *rom company record%
39
MBA Programme
RATIO ANALYSIS
(ain Plant Suppliers!

&allestraF-ndiaGAtd(&ombay in collaboration of &allestra( 0%P%'%( $ilano F-talyG based on the Technology of 5%$&% 0%P%'%( Pomilla F7omeG ha3e supplied the main plant Bequipment 3i<%( 0plitting Plant( Distillation Plant and "ydrogenation Plant% 1%0% 1rishnan 'ssociates P3t%Atd% 2ew Delhi has supplied the equipment for 0oap and lycerine Plants%
Status % 2 cil !
'ndhra Pradesh is predominantly a 7ice growing 0tate and location of ?ocil is 3ery close to the rice8bowl of 'ndhra Pradesh i%e% 1rishna and There are about :C 7ice &ran processing units in and around oda3ari Districts% untur( the location of
?ocil% -t is for this reason the place has been chosen during 1@:;% 7ice &ran #il has been used by most of the industries until recently% "owe3er( the -ndustry at present is using products made out of 5rude Palm 0teatrine F5P0G( Palm products like Palm *atty 'cid Distillate FP*'DG( which ha3e become much less e=pensi3e%
2 cilGs present capacity utili=ati n is as under;

product -nstalled 5apacity FtonsJdayG Production 2CC:82CC; FtonsJannumG 5apacity Htili<ation FIG
*atty 'cids Toilet 0oap 0oap 2oodles lycerine
2CCtpd 9Ctpd 14Ctpd ,%4tpd
2;@3@ 2,C4 2142: 1113
,; 1, ,; ;2
3:
MBA Programme
RATIO ANALYSIS
OUT )OO:;
7. a& Fatty Acids and S ap
The production of fatty acids( soap noodles and glycerine has come down during the year due to lack of demand from customers to whom we ha3e been manufacturing products on job work% 's a result the capacity utili<ation of fatty acid plant and glycerine plant was low% "ow e3er ( the demand for manufacture of soap noodles and toilet soap on jobwork has impro3ed from ?anuary 2CC; and therefore o3erall capacity utili<ation of soap plant during the year is better than the pre3ious year%&arring unforeseen business conditions the present position in fatty acid and soap industry is e=pected to continue for some more time%
"& /i mass p ?er plant

The a3ailability of field residues like cotton stalks( chilli stalks etc%( has been coming down drastically due to installation of more plants close by requiring the same fuels% The company has established biomass collection centres near the fields to impro3e procurement%"owe3er(due to shortage of labour the quantity procured is not to e=pectations%The power purchase price of 'P Transco is not in pace with the fuel cost and 'P Transco>s restriction to purchase 2%, $w is resulting in low capacity utili<ation and high cost of generation%
c& Cind Energy Generat rs (CEG&

During the year 2R1%94$w W6 0ets generated :;%@9 lakhs untis as against
;3%44 lakhs units in the pre3ious year% -t - s widely e=pected that the demand for non8 con3entional energy will increase in future due to widening gap between generation and demand coupled with fuel shortages% 0ince the policy of the o3ernment is also fa3ourable for promotion of non Dcon3entional energy like wind energy and since the wind projectd are found to be econimially feasible after considering the 5D$ re3enues( the company set up one more W6 of 1%4 $w in $arch 2CC; at 1asturirangapuram
3;
MBA Programme
RATIO ANALYSIS
/illage(T-runel3eli District( Tamil2adu% The plant was commissioned on 1@8C382CC; and 243,, 1W" generated up to 318C382CC; was e=ported to T26&
d& Ne? /usiness Opp rtunities

The 5ompany is e=ploring new business opportunities to e=pand J di3ersify the acti3ities in the areas of business ha3ing growth potential by effecti3e utili<ation of internal generations and for this purpose 3arious alternati3es are being e=plored%
DIS#)OSU'E OF PA'TI#U)A'S CIT8 'ESPE#T TO TE#8NO)OGY A/SO'PTION

'esearc< and De!el pment ('ED&
1% specific areas in which 7BD carried out by the company! 0oap 2oddles colour impro3ement towards whiteness by adopting impro3ed processing techniques% 2% &enefits deri3ed as a result of the abo3e 7BD! 5onser3ation of catalyst consumption at hydrogenation plant by changing the process parameters% 3%*uture plan of action! 5ontinuous stress on quality impro3ement of *atty acids( 0oap noodles B0oap% Technology 'bsorption( 'daptation and -nno3ation ! ,% 6fforts in brief( made towards technology absorption( adaptation and inno3ation! The 5ompany maintains contacts with technical e=perts in the field of soap( *atty 'cids and 6nergy(with this impro3ed producti3ity%
Functi nal Areas;

(arBeting;
The company mainly markets its products from its depots held at $umbai( Delhi( 1olkata and &angalore and directly from the factory% The prices are fi=ed basing on its competitors and the 3ariations in the prices of raw materials% 2o ad3ertising is done for the fatty acids% 's it is an industrial product( the company does not allocate any amount on ad3ertisement and the consumers come to the depots or factory and place their orders% -n the case of soaps( as they are manufacturers on the contract basis of 3@
MBA Programme
RATIO ANALYSIS
"HA no ad3ertising is required% ?ocil leads only with the soap production and the marketing B ad3ertising is taken o3er by "HA% ?ocil markets its products throughout the country through! #wn depots 5B* agents ! at Delhi($umbai ! at 5hennai( Pondichery( 1ottayam( 1o<hikode( 5oimbatore( &anglore 1anpur( &aroda B*aridabad ! from factory without in3ol3ing agents or Dealers ! ?ocil also undertakesthirdpartymanufacturing of Toilet 0oap( 0oap 2oodlesB related Products for which it deals directly with the 5orporate customers%
Direct 0ales 5ontract
Prominent customers ! 0ome of the prominent customers of ?ocil are "industan Hnile3er( 7eckitt &enckiser( 5lariant( ?honsonBjhonson( "enkel 0P-5( &'0*( 5entury Pharma( 2estle etc% Aogistics ! ?ocil stores buffer stocks at untur and also $anages warehouses at all points where depotsJ'gents are present% 0upplies are made both by 7oad B rail transport%
,C
MBA Programme
RATIO ANALYSIS
FINAN#IA) PE'FO'(AN#E;
Financial;
?ocil limited uses both its own 5apital and debt to perform its acti3ities% The company aims at wealth ma=imi<ation( rather earning more profits% The company declares di3idend to its shareholders out of its profits and transfers the rest to general reser3e% 7etained earnings are used for 7e8in3estment such as purchase of fi=ed assets( in3estments in fi=ed deposits and repayment of loans%
2O#I) )I(ITED A##OUNTING PO)I#IES;

7. General
The 'ccounts are prepared on historical cost con3ention and in accordance with normally accepted 'ccounting 0tandards%
3. ,.
FiAed Assets
*i=ed 'ssets are stated at historical cost less accumulated depreciation%
Depreciati n
Depreciation is pro3ided on the written down 3alue method at the rates and in
the manner specified in 0chedule Q-/ of the 5ompanies 'ct( 1@49%
-.
In!estments
Aong term in3estments are stated at cost and income thereon are accounted for
on accrual% Pro3ision towards decline in the 3alue of long term in3estments in made only when such decline is other than temporary%
,1
MBA Programme
RATIO ANALYSIS
+.
In!ent ries
/aluations of in3entories are made as under! iG 7aw materials( work8in8process and finished goods at cost or net reali<able 3alue whiche3er is lower% iiG 0tores and spares at cost%
H.
Sales
0ales are inclusi3e of 6=cise Duty( packing charges and 0ales Ta=%
(arBeta"le Securities;
?ocil Aimited is not holding any sort of marketable securities instead of in3esting in marketable securities it is holding some field deposits which yield an interest amount S 1CI p%a% -f any need of cash is faced these deposits can be easily transferred to cash with a cost of 1I of the amount%
#AS8 (ANAGE(ENT IN 2O#I) )I(ITED;

5ash management in ?ocil is done by preparing a cash budget a3ailing the information from the pay order books( which will in turn( help to eliminate o3er keeping of cash% To reduce the delay of clearing the cheques( ?ocil pro3ides the facility of electronic fund transfer% The cash management helps ?ocil Aimited to estimate the cash requirements and other day8to8day payments% ?ocil Aimited collected the money in the following two ways% FaG FbG 5oncentration &anking 6lectronic *unds transfer
(a&
# ncentrati n /anBing
5oncentration banking is a means of accelerating the flow of funds of the firm by establishing strategic collection centers% -nstead of a single collection center located at the company had quarters multiple collection centers are established
,2
MBA Programme
RATIO ANALYSIS
8U(AN 'ESOU'# EDETAI)S

7ecruitment in ?ocil Atd is mainly through internal sources Pomotion is mainly based on senority%-t has good industrial relations with its workers( go3ernment institutions and credit institutions% 's on 31st $arch( 2CC; the total number of persons employed by the 5ompany( both in factory and office was 924% The $anagement of the company maintains good relations with the employees% 0ince the inception of the 5ompany in 1@;C there ha3e been no labour problems%
'etirement /ene%its ;
The company pro3ides retirement benefits in the form of pro3ident *und( superannuation and ratuity etc% 5ontribution to pro3ident *und( a defined contribution schemes( is made at the prescribed rates to the pro3ident *und 5ommisioner is charged to the profit and loss account% There is no other obligation other than the contribution payable% ratuity( a defined &enefit scheme is co3ered by a roup rautity cum Aife 'ssurance policy with A-5% 'nnual contribution to the fund as determined by A-5 is e=pensed in the year of contribution% The short fall between the accumulated funds a3ailable with A-5 and liability as determined on the basis of acturial 3aluation is pro3ided for as at the year end%The acturial 3aluation is done as per the projected Hnit 5redit method% 'cturialgains Jlosses are immediately taken on profit and Aoss account% 5ontribution to 0uperannuation *und( a defined contribution scheme( is made to the A-5 as per arrangement with them%
,3
MBA Programme
RATIO ANALYSIS
Per% rmance and Ac<ie!ements % 2 cil )imited;

1% ?ocil is a leading manufacturer of all kinds of *atty 'cids% manufactures soaps% 2% ?ocil supplies different grades of 0tearic 'cid and other fatty acids to other manufacturing companies of pharmaceuticals( chemicals( plastic etc% 3% ?ocil supplies *atty 'cids to meet their specific requirement of 0tearic 'cid( #leic 'cid etc% ,% ?ocil manufactures soaps on contract basis to "HA% 4% ?ocil supplies soap noodles of $argo brand to $Js 5alcutta 5hemicals 5ompany% 9% ?ocil>s production of quality goods is due to the following factors! a% Hsage of good quality raw materials like rice bran oils( coconut oils( cotton seed oils etc% b% The processing and purification of fatty acids is done by using latest technology% c% The technology and requirement of ?ocil has been imported from 5%$%&%( -taly% d% $aintenance of quality control by e=perienced and committed operating personnel% e% Toilet 0oaps and lycerin are manufactured as per &-05 Fformerly known as -0-G standards% f% -t uses high quality chemicals for the purification and processing of the fatty acids% g% -t maintains international standards in manufacturing its products so as to suit different kinds of industrial users% This also
,,
MBA Programme
RATIO ANALYSIS
5"'PT678,
,4
MBA Programme
RATIO ANALYSIS
'ATIO ANA)YSIS
Intr ducti n;
*inancial statements are prepared primarily for decision8making% They play a dominant role in setting the framework of managerial decisions %&ut the information pro3ided in the financial statements is not an end in itself as no meaning full conclusions can draw from these statements alone% "owe3er( the information pro3ided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements% *inancial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account% There are 3arious methods or techniques used in analy<ing financial statements( such as comparati3e statements( schedule of changes in working capital( common8si<e percentages( *unds analysis and ratio analysis%
,9
MBA Programme
RATIO ANALYSIS
TYPES OF 'ATIO ANA)YSIS

0o many ratios( calculated from the accounting data can be grouped into 3arious according to financial acti3ity to be e3aluated% The parties interested in financial analysis are short and long creditors( owners and management% 0hort8term creditor>s main interest is in the liquidity position or the short Dterm sol3ency of the firm% Aong8 term sol3ency and profitability of the firm% #wners concentrate on the firm>s profitability and financial condition% $anagement is interested in e3aluating e3ery aspect of the firm>s performance% -n 3iew of the requirement of the 3arious users of ratios( we classify them into the following four important categories% '% Aiquidity 7atios &% Ae3erage 7atios 5% 'cti3ity 7atios D% Profitability 7atios
A. )i>uidity 'ati s;
Aiquidity of an organi<ation refers to its ability to meet its current obligations as and when they fall due for payment o3er a period not e=ceeding one year% The liquidity ratios assess the capacity of the company to repay its short term liability% The liquidity ratios are useful to 3arious parties ha3ing interest in the enterprise o3er a short period% 0uch parties include banks( lenders( suppliers( employees and other interested in the reco3ery of money due to them% ' firm should ensure that it does not suffer from lack of liquidity and that it not has e=cess liquidity% ' 3ery high degree of liquidity is also bad( ideal assets earn nothing% The firm>s funds will be unnecessarily tied up in current assets% Therefore it is necessary to strike a proper balance between high liquidity% Aiquidity means ability of the business to pay its short8term liabilities%
,:
MBA Programme
RATIO ANALYSIS
T<e li>uidity rati s are as % ll ?s;

1% 5urrent 7atio 2% Euick ratio 3% 5ash or 0uper quick 7atio ,% 2et working 5apital 7atio
7. #urrent 'ati !
The current ratio is an acceptable measure of the firm>s short Dterm sol3ency% -t establishes the relationship between total current assets and current liabilities% -t indicates the a3ailability of current assets in rupees for e3ery one rupee of current liability% ' current ratio 2!1 is considered satisfactory% The higher the current ratio( the greater the margin of safetyL The larger the amount of current assets in relation to current liabilities( the more the firm>s ability to meet its obligations% -t is a crude8and Dquick #urrent Assets 5urrent rati I 6666666666666666666666 #urrent lia"ilities
#urrent assets;6
'ccording to the -nstitute of 5hartered 'ccountant of -ndia current assets are .5ash and cash equi3alents that are e=pected to be con3erted into cash or consumed in the production of goods or rendering of ser3ices in the normal course of businessP% 5urrent assets include the following! 5ash in hand( 5ash at bank( 0undry Debtors( &ills recei3ables( -n3entories( Prepaid e=penses and 0hort8term in3estments etc%
#urrent )ia"ilities;6
5urrent liabilities is defined as .liability including loans( deposits and bank o3erdraft which fall due for payment in relati3ely short period( normally not more than twel3e monthsP% 5urrent liabilities include the following!
,;
MBA Programme 0undry creditors( &ills payable( 0hort8term loans( &ank o3er draft( #utstanding e=penses( 5ash credit%
RATIO ANALYSIS
3. JuicB 'ati ;
Euick ratio establishes a relationship between quick( or liquid( assets and current liabilities% 'n asset can be called liquid if it can be con3erted into 5ash immediately or reasonably soon without a loss of 3alue% 5ash is the most liquid asset %-n3entories are considered to be less liquid %-n3entories normally require some time for reali<ing into cashL Their 3alue also has a tendency to fluctuate% Euick 7atio is computed by di3iding quick assets by current liabilities% #urrent Assets6 in!ent ries r >uicB assets JuicB 'ati I 6666666666666666666666666666666666 #urrent lia"ilities enerally a Euick ratio of 1!1 is considered to penetrating test of liquidity than the current ratio( yet it should be used continuously% ' company with a high 3alue of quick ratio can suffer from the shortage of funds if it has slow8paying( doubtful and long duration outstanding debtors% ' low quick ratio may really be prospering and paying its current obligation in time%
,@
MBA Programme
RATIO ANALYSIS
JuicB Assets;
Euick assets are those current assets( which are con3ertible into cash rather rarely( such as cash( marketable securities( and debtors and bills recei3ables% 0ince stock is not likely to be reali<ed early( the same will not be considered as the quick assets% Euick assets can be defined as the following!
JuicB assets Icurrent assets * in!ent ries. #urrent )ia"ilities;

5urrent liabilities is defined as .liability including loans( deposits and bank o3erdraft which fall due for payment in relati3ely short period( normally not more than twel3e monthsP% 5urrent liabilities include the following!8 0undry creditors( &ills payable( 0hort8term loans( &ank o3er draft( #utstanding e=penses( 5ash credit%
4C
MBA Programme
RATIO ANALYSIS
,. #AS8 'ATIO!
5ash is the most liquid asset% ' financial analyst e=amines the cash ratio and its equi3alent to current liabilities to know the firms performance regarding the dealings with cash% Trade in3estments( debtors and marketable securities are equi3alent of cashL therefore they may be included in the computation of cash ratio% -f the company carries a small amount of cash there is nothing to be worried about the lack of cash if the company has reser3es borrowing power% -n -ndia( firms ha3e credit limits sanctions from banks and easily draw cash% 5ash ratio is calculated as cash and marketable securities di3ided by current liabilities% #as< 'ati I #as<K marBeta"le Securities 666666666666666666666666666666666666 #urrent )ia"ilities
5ash ratio includes the following 5ash in hand( 5ash at bank( $arketable securities%
#urrent )ia"ilities;6
5urrent liabilities is defined as .liability including loans( deposits and bank o3erdraft which fall due for payment in relati3ely short period( normally not more than twel3e monthsP% 5urrent liabilities include the following! 0undry creditors( &ills payable( 0hort8term loans( &ank o3er draft( #utstanding e=penses( 5ash credit%
41
MBA Programme
RATIO ANALYSIS
-. Net C rBing #apital 'ati ;6

2et working capital is the difference between current assets and current liabilities% -t should be noted that while calculating net working capital( short term bank borrowings should be e=cluded%2et working capital is used to measure the firm>s liquidity% -f a firm( ha3ing a larger net working capital( it is considered to be making greater current obligations more efficiently% 2et Working 5apital T 5urrent assets D 5urrent liabilities% The ratio between net working capital to its net assets is called .2et Working 5apital 7atioP Net? rBing #apital Net C rBing #apital 'ati T 8888888888888888888888888 Net Assets 2et 'ssets T *i=ed assets O Fcurrent assets8 current liabilitiesG i%e% *i=ed assets O 2et current assets
42
MBA Programme
RATIO ANALYSIS
/.)e!erage 'ati s;6

The short8term creditors like bankers and suppliers of raw material are more concerned with the firm>s current debt paying ability% #n the other hand Aong8term creditors like( debenture holders( financial institutions are more concerned with the firm>s long8term financial strength% To judge the long term financial position of the firm( financial Ae3erage or 5apital 0tructure( and ratios are calculated% These should be an appropriate mi= of debt and owners equity in financing the firm>s assets% The process of magnifying the shareholders return through the use of debt is called .financial le3erageP( or .financial gearingP( or .trading on equityP% Ae3erage ratios are calculated to measure the financial risk and the firm>s ability of using debt to share holder>s ad3antage% This ratio can help the long8term creditors to judge the soundness of the firm on the basis of the long8term financial strength measured in terms of its ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lumps at the time of maturity%
T<e )e!erage 'ati s are as % ll ?s

1% Debt 7atio 2% 6quity 7atio 3% Debt86quity 7atio ,% *i=ed 'ssets 7atio 4% Proprietary 7atio
43
MBA Programme
RATIO ANALYSIS
7. De"t 'ati !8
Debt ratio is used to analy<e the long8term sol3ency of the firm% The firm may be interested in knowing the proportion of the interest8bearing debt Falso called funded debtG in the capital structure% -t may( therefore( compute debt ratio by di3iding total debt by capital employed or 2et assets% Total debt will include short and long8term borrowing from financial institutions( debenturesJbonds( deferred payments arrangement for buying capital equipment( bank borrowings( public deposits and any other interest8bearing and net worth% 5apital employed will include total debt and net worth% T tal De"t De"t 'ati I 6666666666666666666666666666 T tal De"t K Net ? rt< T tal De"t i.e. 6666666666666666666666 #apital empl yed "ere it is to be noted that( capital employed equals net assets% De"t rati I T tal De"t 666666666666666 Net Assets
' high ratio means that claims of creditors are greater than those of owner% ' higher le3el of debt introduces infle=ibility in the firm>s operations due to the increasing interference and pressure from creditors%
3. De"t6 E>uity 'ati !

Debt86quity ratio is used to analy<e the firms> long8term sol3ency% -t is used to know the interest8bearing debt in the total capital structure %5apital structure is the format of a firm>s finance that is distributed in 3arious forms( which has been raised from different forms% This ratio establishes the relationship between the borrowed funds and owner>s capital% Debt equity ratio is directly computed by di3iding total debt by networth%Aower the debt equity ratio higher the degree of the protection% ' Debt equity ratio of 1!2 is considered ideal%
4,
MBA Programme T tal De"t De"t E>uity 'ati I 6666666666666 E>uity De"t!8
RATIO ANALYSIS
Debt means long8term borrowed fund% -t also includes all deferred payment liabilities but it does not include short8term bank borrowing and ad3ances( unsecured deposits or loans from the public( shareholders and employees and unsecured loans and deposits from others% E>uity!8 6quity means share holders funds% 'nd this can be treated as owner>s funds include equity share capital( preference share capital( general reser3es( capital reser3es and surplus and balance in share premium account and other reser3es a3ailable to equity share holders%
,. #apital E>uity 'ati !8

-t is another alternati3e way of e=pressing the basic relationship between debt and equity% 5apital 6quity 7atio indicates how much funds are contributed together by lenders and owners for each rupee of the owner>s contribution% #apital Empl yed #apital E>uity 'ati I 66666666666666666666666 Net ? rt<
44
MBA Programme
RATIO ANALYSIS
-. FiAed Assets 'ati ;6

The ratio establishes the relationship between fi=ed assets and shareholders> funds% The ratio indicates the e=tent to which shareholders funds are sunk into fi=ed assets% FiAed Assets FiAed Assets 'ati I6666666666666666666 #apital Empl yed
FiAed Assets!
*i=ed assets are the assets( which are ha3ing a long life% *i=ed assets are shown in the balance sheet of a firm% The major items under the fi=ed assets are! Aand and buildings( Plant and machinery( Aease hold property( -t is by no mean that there to the total of other fi=ed assets apart from the abo3e stated there are many fi=ed assets are there which can be disclosed on the assets side of the balance sheet of the firm%
#apital empl yed;6

The capital employed refers to the total of owner>s funds and long8term loans% 'nd another way of measuring the capital employed is the sum fi=ed of fi=ed assets and the working capital% 5apital employed T6quity share capital O Preference share capital O 7eser3es and surplus O Debentures and long term loans 8 $isc%e=penditure and losses 8 2on8Trade in3estments%
49
MBA Programme
RATIO ANALYSIS
+. Pr prietary rati ;
' 3ariant to Debt8equity ratio is the proprietary ratio( which is also known as 6quity ratio or shareholders to Total 6quities 7atio or 2et worth to total 'ssets% The ratio establishes the relationship between shareholders funds to total assets of the firm% The components of this ratio are share holders or proprietor funds and Total 'ssets% Pr prietary Funds Pr prietary 'ati I6666666666666666666666 T tal Assets
Pr prietary Funds;
Proprietary funds include 6quity share capital O preference share capital Oreser3es and surplus8 fictitious assets%
T tal Assets;
Total assets include both the current assets and the fi=ed assets of the firm%
4:
MBA Programme
RATIO ANALYSIS
,.A#TI9ITY 'ATIOS ;6
'cti3ity ratios are employed to e3aluate the efficiency with which the firm manages and utili<es its assets% These ratios are also called turno3er ratios because they indicate the speed with which asset are being con3erted or turned o3er into sales% 'cti3ity ratios thus in3ol3e a relationship between sales and assets generally reflect that assets are managed well% 'cti3ity ratios help to judge the effecti3eness of assets utili<ation%
These ratios may be capital assets or working capital or a3erage in3entory% These ratios are usually calculated with reference to sales of cost of goods sold and are e=pressed in terms of rate of times% The acti3ity ratios can also be called as the turno3er ratios or performance ratios% The acti3ity ratios are as follows! 1% -n3entory Turno3er 7atio% 2% 7aw material -n3entory Turno3er 7atio% 3% Work 8in8 process -n3entory Turno3er 7atio% ,% Debtor>s Turno3er 7atio% 4% '3erage 5ollection period% 9% 2et 'ssets Turno3er 7atio% :% Total 'ssets Turno3er 7atio% ;% *i=ed 'ssets Turno3er 7atio% @% 5urrent 'ssets Turno3er 7atio% 1C% Working 5apital Turno3er 7atio%
7. In!ent ry Turn !er 'ati ;6

-n3entory turno3er ratio is also known as stock turno3er ratio( which establishes the relationship between the cost of goods sold during the year and a3erage in3entory held during the year%
4;
MBA Programme
RATIO ANALYSIS
This ratio indicates the efficiency of the firm in producing and selling its product% -t is calculated by di3iding the cost of goods sold by the a3erage in3entory% Sales In!ent ry turn !er rati I 666666666666666666666 A!erage in!ent ry
A!erage in!ent ry;6

enerally in3entory refers to the stock of raw material with the firm% -t may be opening stock( work8in8progress or closing stock% The a3erage in3entory refers to the a3erage of the opening stock and closing stock% This can be shown as! Opening st cB Kcl sing st cB A!erage in!ent ryI 666666666666666666666666666666666666 3
2% 'a? (aterial In!ent ry Turn !er 'ati !

7aw material in3entory turno3er ratio indicates the efficiency with the firm con3erts raw material into work8in8process and work8in8process into finished goods% 7aw material in3entory is related to materials consumed% $aterial consumed can be found out as opening balance of raw material plus purchase minus F8G closing balance of raw material% (aterial # nsumed 'a? (aterial In!ent ry Turn !er 'ati I666666666666666666666666666 A!erage 'a? material
,. C rB6in6pr cess In!ent ry Turn !er 'ati ;

Work8in8process in3entory turno3er ratio indicates the efficiency with the firm con3erts work8in8process into finished goods% The work8in8process should be related to cost of production% 5ost of production is determined as material consumed plus other manufacturing e=penses plus opening balance minus closing balance of work8in8 process% # st % pr ducti n C rB6in6pr cess In!ent ry Turn !er 'ati I 66666666666666666666666666 66 A!erage ? rB6in6pr cess 4@
MBA Programme
RATIO ANALYSIS
-. De"t rs Turn !er 'ati !8

' firm sells goods for cash and credit% 5redit is used as marketing tool by a number of companies% When the firm e=tends credits to its customers( debtors are created in the firm>s accounts% Debtor>s turno3er indicates the number of times debtor>s turno3er( the more efficient is the management credit% Debtor>s turno3er is found by di3iding credit sales by a3erage debtors% The purpose of this ratio is to measure the liquidity of the recei3ables or to find out the period o3er which recei3ables remain uncollected%
This ratio is also called as recei3ables turno3er ratio% #redit Sales De"t rs Turn !er 'ati I 666666666666666666666 A!erage De"t rs
,% A!erage # llecti n peri d!8

The a3erage number of days for which debtors remain outstanding is called '3erage collection period in other words its debtor>s remains outstanding for 12 months% The a3erage collection period measures the quality of debtors since it indicates the speed of their collection% De"t rsL ,H4 I666666666666666666 Sales
A!erage # llecti n Peri d
H. Net Assets Turn !er rati ;

'ssets are used to generate sales therefore a firm should manage its assets efficiency to ma=imi<e sales% The relationship between sales and assets is called assets turno3er% *irm>s ability to produce a large 3olume of sales for a gi3en amount of net assets is the most important aspects of its operating performance%
9C
MBA Programme Sales Net Assets Turn !er 'ati I 666666666666 Net Assets
RATIO ANALYSIS
.. T tal Assets Turn !er 'ati ;6

0ome analysis likes to compute the total assets turno3er in addition to or instead of the net assets turno3er% This ratio shows the firm>s ability in generating sales from all financial resources committed to total assets% Sales T tal Assets Turn !er 'ati I 66666666666 T tal Assets.
5. C rBing #apital Turn !er 'ati !

' firm may also like to relate net current assets or net working capital to sales% Working capital turno3er indicates for one rupee of sales the company needs how many net current assets% This ratio indicates whether or not working capital has been effecti3ely utili<ed in market sales% Net Sales C rBing #apital Turn !er 'ati I 666666666666666666666 C rBing #apital
M. FiAed Assets Turn !er 'ati ;

The firm may wish to know its efficiency of utili<ing fi=ed assets and current assets separately% The use of depreciated 3alue of fi=ed assets in computing the fi=ed assets turno3er may render comparison of firm>s performance o3er period or with other firms%
Sales FiAed Assets Turn !er 'ati I666666666666666666666 Net FiAed Assets
91
MBA Programme
RATIO ANALYSIS
74. #urrent Assets Turn !er 'ati ;6

The firm may wish to know its efficiency of utili<ing current assets in the organi<ation% Sales #urrent Assets Turn !er 'ati I 6666666666666666 #urrent Assets
D .P'OFITA/I)ITY 'ATIOS !8
63ery business enterprise operates with an objecti3e to earn profit% Profit is necessary for the sur3i3al and growth of the business enterprise% Profitability re3enues and e=penses o3er a period of time% Profitability ratios are calculated to measures the operating efficiency of the company% &esides management of the company( creditors and owners are also interested in the profitability of the firm% 5reditors want to get interest and repayment of principle regularly% enerally( two major types of profitability ratios are calculated! Profitability in relation to sales% Profitability in relation to in3estment% 1% ross Profit 7atio% 2% 2et Profit 7atio% 3% #perating 6=penses 7atio% ,% 7eturn on 6quity%F7#6G 4% 6arnings per share%F6P0G ratios measure the profit earning capacity of the firm% Profit is the difference between
92
MBA Programme
RATIO ANALYSIS
7. Gr ss Pr %it 'ati !8
The first profitability ratio in relation to sales is the gross profit margin ratio( it reflects the efficiency with which management produces each unit of product %This ratio indicates the a3erage spread between the cost of goods sold and the sales re3enue% When we subtract the gross profit margin from 1Cpercent( we obtain the ratio of cost of goods sold to sales% ' high gross profit margin ratio is a sign of good management% ' gross margin ratio may increase due to any of the following factors!
"igher sales prices cost of goods sold remaining constant( lower
cost of
goods sold( sales price remaining constant% 'llow gross profit margin may reflect higher cost of goods sold( sales price remaining constant% ' low gross profit margin may reflect higher cost of goods sold due to the firm>s inability to purchase raw material at fa3orable term>s inefficient utili<ation of plant and machinery( or o3er in3estment in plant and machinery( resulting in higher cost of production or due to fall in prices in the market%
Gr ss Pr %it Gr ss Pr %it 'ati I 666666666666666666 Sales
Gr ss Pr %it!8
ross profit refers to the gross margin of the firm( which will be obtained by deducting all the operating and direct e=penses from the sales re3enue%
93
MBA Programme
RATIO ANALYSIS
3. Net Pr %it 'ati !

2et Profit is obtained when operating e=penses( interest and ta=es are subtracted from the gross profit%2et profit margin ratio establishes a relationship between net profit and sales and indicates management>s efficiency in manufacturing( administrating and selling the products% This ratio is the o3erall measures of the firm>s ability to turn each rupee sales into net profit% This ratio also indicates the firm>s capacity to withstand ad3erse economic condition% ' firm with a high net ratio would be in an ad3antageous position to sur3i3e in the face of falling prices( rising% Pr %it a%ter TaA Net pr %it (PAT& 'ati I66666666666666666666666 Sales
Net Pr %it!
2et profit refers to the profit( which is obtained by deducting the all the indirect e=penses from the gross margin of the firm%
,. Operating EApenses 'ati ;

The operating e=penses ratio e=plains the changes in the profit margin ratio% ' higher operating e=penses ratio is unfa3orable since it will lea3e a small amount of operating income meet interest( di3idends% #perating e=penses ratio is a yardstick of operating efficiency( but it should be used cautiously %-t is affected by a number of factors( such as e=ternal uncontrollable factors( internal factors% This ratio is computed by di3iding operating e=penses by sales% Operating EApenses Operating EApenses 'ati I 6666666666666666666666666 Sales #perating 6=penses T 5ost of goods sold O 0elling 6=penses and general administrati3e e=penses
9,
MBA Programme
RATIO ANALYSIS
-. 'eturn n E>uity ('OE&;

' return on shareholder>s equity is calculated to see the profitability of owner>s in3estment% 7#6 indicates how well the firm has used the resources of owner>s% This ratio is one of the most important relationships in financial analysis% The ratio of net profit to owner>s equity reflects the e=tent to which this objecti3e has been accomplished% This ratio is of great interest to the present as well as prospecti3e shareholders and also of great concern to management( which has the responsibility of ma=imi<ing the owner>s welfare% Pr %it a%ter TaAes 'eturn n E>uity I 666666666666666666666 Net C rt<
+. Earnings Per S<are(EPS&;6

The profitability of the common shareholders in3estment can also be measured in many other ways( one measure is to calculate the 6P0% 6arnings per 0hare indicate whether or not the firm>s earnings power on per share has increased or not% 6P0 simply shows the profitability of the firm on a share basis% -t does not reflect how much is paid as di3idend and how much is retained in the business% &ut( as profitability inde=( it is 3aluable and widely used ratio% -t also helps in estimating the company>s capacity to pay di3idend to its equity share holders% Pr %it a%ter TaA * Pre%erence Di!idend 7 Earnings Per S<are I 666666666666666666666666666666666666666666666666 N . % E>uity S<ares
94
MBA Programme
RATIO ANALYSIS
5"'PT6784
99
MBA Programme
RATIO ANALYSIS
A.)IJUIDITY 'ATIOS OF2O#I)

7. #urrent 'ati ;6
The 7atio between all current assets and all current liabilities is another way of e=pressing liquidity% -t is a measure of firm>s short8term sol3ency% -t indicates the a3ailability of current assets in rupees for e3ery one rupee of current liability% ' ratio is greater than one means that the firm has more current assets than current claims against them%
#urrent 'ati I
#urrent Assets 66666666666666666666 #urrent )ia"ilities
#urrent 'ati O% 2 cil % r last %i!e years

year 2CC,82CC4 2CC482CC9 2CC982CC: 2CC:82CC; 2CC;82CC@ 5urrent 'ssets F7sG 92(,,(91(2;4 4C(41(14(@:; 9,(,;(,;(:91 92(,;(99(4:; ;4(,2(CC(C9: 5urrent Aiabilities F7sG 1:(C9(@9(C3C 19(;;(92(312 2C(2;(2@(4@; 1@(C,(:@(4:1 3C(1:(49(CC3 7atio 3%94 2%@@ 3%1: 3%2; 2%;3
9:
MBA Programme
RATIO ANALYSIS
Interpretati n % #urrent 'ati ;

The current ratio represents a margin of safety for creditors% The higher the current ratio the greater the margin of safety% The current ratio measures only total rupees worth of current assets and total rupees worth of current liabilities% -t does not measure the quality of assets% 's a con3entional rule( a current ratio of 2 to1 or more is considered satisfactory% The ?ocil Aimited has as a current ratio of 2%;3!1 in the year 2CC;8C@ therefore it may be interpreted to sufficiently liquid%
9;
MBA Programme
RATIO ANALYSIS
3.JuuicB 'ati !
Euick 7atio is also called 'cid8Test ratio( establishes the relationship between quick or liquid( assets and current liabilities% 'n asset can be called liquid if it can be con3erted into 5ash immediately or reasonably soon without a loss of 3alue% The quick ratio is found out by di3iding quick assets by current liabilities%
#urrent Assets 6In!ent ries JuicB 'ati I 6666666666666666666666666666666666666 #urrent )ia"ilities JuicB 'ati year 2CC,82CC4 2CC482CC9 % 2 cil % r last %i!e years 5urrent Aiabilities F7sG 1:(C9(@9(C3C 19(;;(92(312 7atio 2%;; 2%39
Euick 'ssets F7sG ,@3C49244 3@@;2,4,3
2CC982CC:
41C@C3:3;
2C(2;(2@(4@;
2%41
2CC:82CC;
,;4@,;4,4
1@(C,(:@(4:1
2%44
2CC;U2CC@
9;4232CC9
3C(1:(49(CC3
2%2:
9@
MBA Programme
RATIO ANALYSIS
Interpretati n % JuicB 'ati !8

' quick ratio of 1 to1 is considered to represent a satisfactory current financial position% 'lthough quick ratio is a more penetrating test of liquidity than the current ratio% ' quick ratio of 1to1or more does not necessarily imply sound liquidity position% -t should be remembered that all debtors may not be liquid( and cash may be immediately needed to pay operating e=penses% The ?ocil Aimited has a quick ratio of 2%2:!1 in the year 2CC;8C@ it represents satisfactory position%
:C
MBA Programme
RATIO ANALYSIS
,.#as< rati ;6
5ash 7atio indicates the most liquidity position of the firm% -t can be computed by di3iding the most liquidity items Fcash and marketable securitiesG by current liabilities%
#as< (arBeta"le securities #as< 'ati I 6666666666666666666666666666666666666 #urrent )ia"ilities
#as< 'ati
year 2CC,82CC4 2CC482CC9 2CC982CC: 2CC:82CC; 2CC;82CC@
% 2 cil % r last %i!e years

5urrent Aiabilities F7sG 1:(C9(@9(C3C 19(;;(92(312 2C(2;(2@(4@; 1@(C,(:@(4:1 3C(1:(49(CC3 7atio C%24 C%14 C%4@ C%3, C%:@
5ash B $kt securities F7sG ,(3:(;C(2:4 2(44(@,(3,; 12(1C(3,(;@9 9(,:(@9(:,@ 23(@1(,@(;;1
:1
MBA Programme
RATIO ANALYSIS
Interprati n % #as< rati ;6

-f the company carries a small amount of cash there is nothing to be worried about the lack of cash if the company has reser3es borrowing power% -n -ndia( firms ha3e credit limits sanctioned from banks and easily draw cash% The cash ratio was C%24 in the year 2CC4 and it was increased to the ratio was C%3, and in the year 2CC@ the ratio is increased to C%:@ C%14 in the year 2CC9 and again it was decreased to C%4@ in the year 2CC:% -n the year 2CC;
:2
MBA Programme
RATIO ANALYSIS
-.Net ? rBing #apital 'ati ;6

The difference between current assets and current liabilities e=cluding short8 term bank borrowing is called net working capital or net current assets%
Net C rBing #apital 'ati I
Net ? rBing capital 66666666666666666666666666666 Net Assets
Net C rBing #apital 'ati
Year
2CC,82CC4
Net C rBing #apital ('s&

,43:94244
Net Assets ('s&

;3333,1C2
'ati
C%4,
2CC482CC9
339243999
;9;21,;,,
C%3@
2CC982CC:
,,2C1@193
@2C213,@C
C%,;
2CC:82CC;
,3,3;:CC:
@9323314,
C%,4
2CC;82CC@
442,,,C9,
1C4:1411C4
C%42
:3
MBA Programme
RATIO ANALYSIS
Interpretati n % Net C rBing #apital 'ati !8

2et Working 5apital is sometimes used as a measure of a firm>s liquidity% The larger working capital has the greater ability to meet its current obligations% Working capital ratio indicates how much capital is required to net assets% The working capital ratio of ?ocil is C%4,in 2CC,8C4 and in 2CC9 the ratio was increased to C%3@% 'gain the ratio was increased to C%,; in the year 2CC: and in the year 2CC@ the ratio is C%42%
:,
MBA Programme
RATIO ANALYSIS
/.)E9E'AGE 'ATIOS 7.De"t 'ati ;6

Debt ratio is used to analy<e the long8term sol3ency of the firm% The firm may be interested in knowing the proportion of the interest8bearing debt Falso called funded debtG in the capital structure% T tal De"t De"t 'ati I 6666666666666666666666666666 T tal De"t K Net ? rt< T tal De"t i.e. 6666666666666666666666 #apital empl yed
De"t 'ati
year
Total Debt F7sG
5apital 6mployed F7sG
7atio
2CC,82CC4
19;;@321
;3333,1C2
C%C2
2CC482CC9
349333;,
;9;21,;,,
C%C,
2CC982CC: 2CC:82CC;
3339C439 2:C99C1:
@2C213,@C @9323314,
C%C, C%C3
2CC;82CC@
9C;,C,91
1C4:1411C4
C%C4
:4
MBA Programme
RATIO ANALYSIS
Interpretati n % De"t 'ati ;6

This ratio e=presses the relationship between total debt and net assets% ' high ratio means that claims of creditors are greater than those of owner% ' higher le3el of debt introduces infle=ibility in the firm>s operations due to the increasing interference and pressure from creditors% The debt ratio of ?ocil is C%C4 in the year 2CC@% -t means that lenders ha3e financed 3I of net assets Fcapital employedG% -t ob3iously implies that owner>s ha3e pro3ided the remaining finances%
:9
MBA Programme
RATIO ANALYSIS
3.De"t6 E>uity 'ati !8

Debt 6quity 7atio shows the relationship between borrowed funds and owner>s capital% -t is a popular measure of the long8term financial sol3ency of a firm% This ratio indicates the relati3e proportions of debt and equity in financing assets of the firm% T tal De"t De"t E>uity 'ati I 6666666666666 E>uity
De"t 6E>uity 'ati

Total Debt F7sG 19;;@321

6quity F7sG :922:3;3@
Kear
7atio
2CC,82CC4
C%C2
2CC482CC9
349333;,
:99393:22
C%C4
2CC982CC:
3339C439
:@134139:
C%C,
2CC:82CC;
2:C99C1:
;31C4@;92
C%C3
2CC;82CC@
9C;,C,91
;;9,C339@
C%C9
::
MBA Programme
RATIO ANALYSIS
Interpretati n % De"t E>uity 'ati ;6

The debt equity ratio is an important tool of financial analysis to appraise the financial structure of a firm% -t has important implications from the 3iew point of the creditors( owners and the firm itself% ' high ratio shows a large share of financing by the creditors of the firm( a low ratio implies a smaller claim of creditors% The Debt equity ratio indicates the margin of safety to the creditors% ' debt equity ratio of 1!2 is considered ideal% -t means for e3ery one rupee of outside liability( the firm has two rupees of owner>s capital% The debt 6quity ratio of ?ocil is C%C2 in the year 2CC4% -n the year 2CC9B2CC: it was C%C4BC%C,% -n the year 2CC; it was decreased to C%C3%-n the year 2CC@ the ratio is C%C9( it means there is a low margin of safety%
:;
MBA Programme
RATIO ANALYSIS
,.#apital E>uity 'ati !8

-t is another alternati3e way of e=pressing the basic relationship between debt and equity% 5apital 6quity 7atio indicates how much funds are contributed together by lenders and owners for each rupee of the owner>s contribution% #apital Empl yed #apital E>uity 'ati I 666666666666666666666666 Net ? rt<
#apital E>uity 'ati

2et Worth F7sG
year
5apital employed F7sG
7atio
2CC,82CC4
;3333,1C2
:922:3;3@
1%C@
2CC482CC9
;9;21,;,,
:99393:22
1%13
2CC982CC:
@2C213,@C
:@134139:
1%19
2CC:82CC;
@9323314,
;31C4@;92
1%19
2CC;82CC@
1C4:1411C4
;;9,C339@
1%1@
:@
MBA Programme
RATIO ANALYSIS
Interpretati n % #apital E>uity 'ati ;6

#ne may want to know how much funds are being contributed together by lenders and owners for each rupee of the owner>s contribution% The 5apital 6quity ratio of ?ocil was 1%C@ in 2CC4 it was increased to1%13 in 2CC9%-t was increased from 1%19in 2CC: to 1%19 in the years 2CC;B2CC@ it was increased to 1%1@
;C
MBA Programme
RATIO ANALYSIS
-.FiAed Assets 'ati ;6

The ratio establishes the relation ship between fi=ed assets and shareholders funds% The ratio indicates the e=tent to which shareholders funds are sunk into fi=ed assets% *i=ed 'ssets *i=ed 'ssets 7atioT8888888888888888888 5apital 6mployed
FiAed Assets 'ati
year
2CC,82CC4
FiAed Assets ('s&

3::,3443,:
#apital empl yed ('s&

;3333,1C2
'ati
C%,4
2CC482CC9
42@92,@@;
;9;21,;,,
C%91
2CC982CC:
,:4;4;1,:
@2C213,@C
C%42
2CC:82CC;
4224;@@9:
@9323314,
C%4,
2CC;82CC@
,@;,4C;91
1C4:1411C4
C%,:
;1
MBA Programme
RATIO ANALYSIS
Interpretati n % FiAed Assets 'ati ;6

The fi=ed assets ratio of ?ocil was increased from C%,4 to C%91 in 2CC48C9%-t was decreased to C%42 in 2CC:%-t was increased to C%4, in 2CC;% 'nd the year 2CC@ is C%,:
;2
MBA Programme
RATIO ANALYSIS
+.pr prietary rati ;6

' 3ariant to Debt8equity ratio is the proprietary ratio( which is also known as 6quity ratio or shareholders to Total 6quities 7atio or 2et worth to total 'ssets% The ratio establishes the relationship between shareholders funds to total assets of the firm% The components of this ratio are share holders or proprietor funds and Total 'ssets%
Pr prietary Funds Pr prietary 'ati I6666666666666666666666 T tal Assets
Pr prietary 'ati year
% 2 cil % r last %i!e years T tal Assets ('s&

1CC1;@9932
Pr prietary Funds ('s&

:922:3;3@
'ati
2CC,82CC4
C%:9
2CC482CC9
:99393:22
1C3,:,C@:9
C%:,
2CC982CC:
:@134139:
112C:C9@C;
C%:1
2CC:82CC;
;31C4@;92
11,:,494,4
C%:2
2CC;82CC@
;;9,C339@
134294C@2;
C%94
;3
MBA Programme
RATIO ANALYSIS
Interpretati n % Pr prietary 'ati ;6

' "igh proprietary ratio indicati3e of strong financial position of the business( the higher the ratio and the better it is% Proprietary ratio C%:BC%9 times to the total assets indicate bad le3erage of borrowings% 's this ratio we can understand that owner>s contribution towards total assets is more than 4CI( so the outsider contribution is less than 4CI%
;,
MBA Programme
RATIO ANALYSIS
,. A#TI9ITY 'ATIOS
7.In!ent ry Turn !er 'ati ;6
This ratio indicates the efficiency of the firm in producing and selling its product% -t is calculated by di3iding the cost of goods sold by the a3erage in3entory% # st % G ds S ld In!ent ry turn !er rati I 6666666666666666666666666666 A!erage in!ent ry
In!ent ry Turn !er 'ati
year
5ost of oods sold F7sG
#pening -n3entory F7sG
5losing -n3entory F7sG
'3erage -n3entory F7sG
7atio
2CC,82CC4
4:944C3@
1;;;;9@3:
131,C4C3C
19C1,4@;,
3%9C
2CC482CC9 2CC982CC: 2CC:82CC; 2CC;82CC@
911:9,2,; 9:14;;41; @19:1@;@: 1119:1@;@;
131,C4C3C 1C42@1,34 133@,4C23 143@,412,
1C42@1,34 133@,4C23 13;@1;C33 14;@1:@,2
11;3,;233 11@91;22@ 139,3142; 149,31433
4%1: 4%91 9%:2 :%13
;4
MBA Programme
RATIO ANALYSIS
Interpretati n % In!ent ry Turn !er 'ati ;6

-n3entory Turno3er 7atio indicates how fast the stock is sold% ' high ratio is good from the 3iew point of liquidity y and it is fa3orable to the firm% ' low ratio implies that the in3entory does not sell and stays in ware house for long time% -n3entory turno3er ratio was increased to3%9B4%1: in the years 2CC4B2CC9 %The ratio was increased to 4%91 and 9%:2 in the years 2CC:B2CC;% -n The year 2CC@ the ratio was increased to :%13% The ratio is 3ery less as it is around ,B4L -t should be minimum se3en times%
;9
MBA Programme
RATIO ANALYSIS
3. De"t rs Turn !er 'ati !8

The second major acti3ity ratio is the recei3ables or debtors turno3er ratio% -t shows how quickly recei3ables or debtors are con3erted into cash% -n other words the debtors> turno3er ratio is a test of the liquidity of the debtors of a firm% Sales De"t rs Turn !er 'ati I 666666666666666666666 De"t rs
De"t rs Turn !er 'ati
Kear
0ales F7sG ::22913:9
Debtors F7sG 1391;;:41
7atio
2CC,82CC4
4%9:
2CC482CC9
:3C24;4:2
141C@931:
,%;3
2CC982CC:
;,44;4,@,
1422@1:C;
4%44
2CC:82CC;
112@1@92,,
2C92,4,;3
4%,;
2CC;82CC@
1@3,19:91:
22;::1493
;%,4
;:
MBA Programme
RATIO ANALYSIS
Interpretati n % De"t rs Turn !er 'ati N6

' firm sells goods for cash and credit% 5redit is used as marketing tool by a number of companies% When the firm e=tends credits to its customers( debtors are created in the firm>s accounts% Debtors are con3ertible into cash o3er a short period% The liquidity position of the firm depends on the quality of debtors to a greater e=tent% Debtors Turno3er indicates the number of times debtors turno3er each year% enerally the higher the 3alue of Debtor>s turno3er( the more efficient is the management of credit %-n the year2CC@ the ratio is ;%,4 it indicates 4 times debtors are turno3er are turno3er each year% Debtors Turno3er ratio should impro3e( it should ; times in a year%
;;
MBA Programme
RATIO ANALYSIS
,.A!erage # llecti n peri d!8

The a3erage number of days for which debtors remain outstanding is called '3erage collection period in other words its debtor>s remains outstanding for 12 months% The a3erage collection period measures the quality of debtors since it indicates the speed of their collection% -t tells us how and what time the debtors are collected%
,H4 A!erage # llecti n Peri d I 666666666666666666666666666 De"t rs Turn !er 'ati
A!erage # llecti n Peri d % 2 cil % r last %i!e years
year
Days
De"t rs Turn !er 'ati

4%9: ,%;3 4%44 4%,; ;%,4
A!erage # llecti n peri d (days&

93 :4 94 99 ,3
2CC,82CC4 2CC482CC9 2CC982CC: 2CC:82CC; 2CC;82CC@
39C 39C 39C 39C 39C
;@
MBA Programme
RATIO ANALYSIS
Interpretati n % A!erage # llecti n Peri d!8

The a3erage collection period measures the quality of debtors since it indicates the speed of their collection% The shorter the a3erage collection period( the better the quality of debtors( since a short collection period implies the prompt payments by debtors% The collection period must be minimum ,4 days% '3erage collection period of ?ocil is ,3 days in the year 2CC@% -t has to be impro3ed%
@C
MBA Programme
RATIO ANALYSIS
-.Net Assets Turn !er rati ;6

'ssets are used to generate sales therefore a firm should manage its assets efficiency to ma=imi<e sales% The relationship between sales and assets is called assets turno3er% *irm>s ability to produce a large 3olume of sales for a gi3en amount of net assets is the most important aspects of its operating performance%
Sales Net Assets Turn !er 'ati I 666666666666 Net Assets
Net Assets Turn !er 'ati
year
0ales F7sG ::22913:9
2et 'ssets F7sG ;3333,1C2
7atio
2CC,82CC4
C%@3
2CC482CC9
:3C24;4:2
;9;21,;,,
C%;,
2CC982CC:
;,44;4,@,
@2C213,@C
C%@2
2CC:82CC;
112(@1(@9(2,,
@9323314,
1%1:
2CC;82CC@
1@3(,1(9:(91:
1C4:1411C4
1%;2
@1
MBA Programme
RATIO ANALYSIS
Interpretati n % Net Assets Turn !er 'ati !8

The 2et 'ssets Turno3er 7atio of ?ocil was C%@3 in the year 2CC4% -t was increased to C%;,BC%@2 in the year 2CC9B2CC:% 'nd in the year 2CC@ the ratio is 1%;2( it implies the ?ocil 5ompany is producing 7s 1%;2 of sales for one rupee of capital employed in 2et 'ssets%
@2
MBA Programme
RATIO ANALYSIS
+. T tal Assets Turn !er 'ati ;6

0ome analysis likes to compute the total assets turno3er in addition to or instead of the net assets turno3er% This ratio shows the firm>s ability in generating sales from all financial resources committed to total assets%
Sales T tal Assets Turn !er 'ati I 66666666666 T tal Assets.
T tal Assets Turn !er 'ati
Kear
2et 0ales F7sG
Total 'ssets F7sG
7atio
2CC,82CC4
::22913:9
1CC1;@9932
C%::
2CC482CC9
:3C24;4:2
1C3,:,C@:9
C%:1
2CC982CC:
;,44;4,@,
112C:C9@C;
C%:4
2CC:82CC;
112(@1(@9(2,,
1419C942:;
C%:4
2CC;82CC@
1@3(,1(9:(91:
134294C@2;
1%,2
@3
MBA Programme
RATIO ANALYSIS
Interpretati n % T tal Assets Turn !er 'ati ;6

The Total 'ssets Turno3er 7atio is 1%,2 in the year 2CC@ it implies that ?ocil 5ompany generates a sale of 7s 1%,2 for one rupee in3estment in fi=ed and current assets%
@,
MBA Programme
RATIO ANALYSIS
H.C rBing #apital Turn !er 'ati !8

' firm may also like to relate net current assets or net working capital to sales% Working capital turno3er indicates for one rupee of sales the company needs how many net current assets% This ratio indicates whether or not working capital has been effecti3ely utili<ed in market sales% Net Sales 666666666666666666666 C rBing #apital
C rBing #apital Turn !er 'ati I
C rBing #apital Turn !er 'ati

2et 0ales F7sG ::22913:9

Working 5apital F7sG ,43:94244
Kear
7atio
2CC,82CC4
1%:C
2CC482CC9
:3C24;4:2
339243999
2%1:
2CC982CC:
;,44;4,@,
,,2C1@193
1%@1
2CC:82CC;
112(@1(@9(2,,
,3,3;:CC:
2%9C
2CC;82CC@
1@3(,1(9:(91:
442,,,C9,
3%4C
@4
MBA Programme
RATIO ANALYSIS
Interpretati n % C rBing #apital Turn !er 'ati !8

Working 5apital 7atio of ?ocil was 1%:C in the year 2CC4% -t was increased to 2%1: in 2CC9%'nd in the year 2CC:B2CC; the ratio was fluctuated% -n the year 2CC@ the ratio is 3%4C%
@9
MBA Programme
RATIO ANALYSIS
..FiAed Assets Turn !er 'ati ;6

The firm may wish to know its efficiency of utili<ing fi=ed assets and current assets separately% The use of depreciated 3alue of fi=ed assets in computing the fi=ed assets turno3er may render comparison of firm>s performance o3er period or with other firms%
Sales FiAed Assets Turn !er 'ati I666666666666666666666 Net FiAed Assets
FiAed Assets Turn !er 'ati Year

2CC,82CC4
% 2 cil % r last %i!e years Net FiAed Assets ('s&

3::,3443,:
Net Sales ('s&

::22913:9
'ati
2%C4
2CC482CC9
:3C24;4:2
42@92,@@;
1%3;
2CC982CC:
;,44;4,@,
,:4;4;1,:
1%:;
2CC:82CC;
112(@1(@9(2,,
4224;@@9:
2%19
2CC;82CC@
1@3(,1(9:(91:
,@;,4C;91
3%;;
@:
MBA Programme
RATIO ANALYSIS
Interpretati n % FiAed Assets Turn !er 'ati ;6

*i=ed 'ssets 7atio indicates the e=tent to which the in3estment to fi=ed assets contributes towards sales% ' high fi=ed assets ratio indicates firm>s utili<ation of fi=ed assets is satisfactory% *i=ed 'ssets 7atio of ?ocil was 2%C4 in the year 2CC4%-t was increased from 1%3; to 1%:; in the years 2CC9B2CC:% 'nd it increased to 2%19 in the year 2CC;%and again increased to 3%;; in the year 2CC@
@;
MBA Programme
RATIO ANALYSIS
5. #urrent Assets Turn !er 'ati !8

The firm may wish to know its efficiency of utili<ing current assets in the organi<ation% Sales #urrent Assets Turn !er 'ati I 6666666666666666 #urrent Assets
#urrent Assets Turn !er 'ati
Year
Net Sales ('s&

::22913:9
#urrent Assets ('s&

92(,,(91(2;4
'ati
2CC,82CC4
1%2,
2CC482CC9
:3C24;4:2
4C(41(14(@:;
1%,4
2CC982CC:
;,44;4,@,
9,(,;(,;(:91
1%31
2CC:82CC;
112(@1(@9(2,,
92(,;(99(4:;
1%;1
2CC;82CC@
1@3(,1(9:(91:
;4(,2(CC(C9:
2%29
@@
MBA Programme
RATIO ANALYSIS
Interpretati n % #urrent Assets Turn !er 'ati

The 5urrent 'ssets turno3er ratio indicates how much sales generated when one rupee in3estment in total current assets% The higher the current assets turno3er ratio the more efficient the management and utili<ation of assets% The 5urrent 'ssets Turno3er 7atio is 2%29L it implies the ?ocil limited a sale of 7s 2%29 for one rupee in3estment in current assets%
1CC
MBA Programme
RATIO ANALYSIS
D .P'OFITA/I)ITY 'ATIOS;6
7. Gr ss Pr %it 'ati !8
The first profitability ratio in relation to sales is the gross profit margin ratio( it reflects the efficiency with which management produces each unit of product %This ratio indicates the a3erage spread between the cost of goods sold and the sales re3enue% -t indicates how much profit is earned on your products%
ross Profit ross Profit 7atio T 888888888888888888 0ales
Gr ss Pr %it 'ati Year

2CC,82CC4
% 2 cil % r last %i!e years Net Sales ('s&

::22913:9
Gr ss Pr %it ('s&
1@4:C933:
'ati
C%24
2CC482CC9
11;,@,32,
:3C24;4:2
C%19
2CC982CC:
1:3@@9@:9
;,44;4,@,
C%2C
2CC:82CC;
212,:93,:
112(@1(@9(2,,
C%1@
2CC;82CC@
2;24:94,:
1@3(,1(9:(91:
C%14
1C1
MBA Programme
RATIO ANALYSIS
Interpretati n % Gr ss Pr %it 'ati ;6

There is no standard norm for ross Profit 7atioL it may 3ary from business to business% ' high ratio of gross profit to sales is a sign of good management as it implies that the cost of production of the firm is relati3ely low% ' relati3ely low gross profit margin is definitely a danger signal% ' firm should ha3e reasonable gross profit to ensure adequate co3erage of operating e=penses of the firm and sufficient returns to the owners of the business( which is reflected to the net profit margin% The ross Profit 7atio of ?ocil 5ompany is satisfactory%
1C2
MBA Programme
RATIO ANALYSIS
3.Net Pr %it(PAT& 'ati !8

2et Profit is obtained when operating e=penses( interest and ta=es are subtracted from the gross profit% The 2et Profit $argin is measured by di3iding profit after ta= J sales%
Pr %it a%ter TaA Net pr %it 'ati I 66666666666666666666666 Sales
Net pr %it 'ati Year
% 2 cil % r last %i!e years Net Sales ('s&

::22913:9
Net Pr %it ('s&

111CC,,1;
'ati
2CC,82CC4
C%1,
2CC482CC9
2@,C9:11
:3C24;4:2
C%C,
2CC982CC:
449319C@
;,44;4,@,
C%C:
2CC:82CC;
;9@,;9C1
112(@1(@9(2,,
C%C;
2CC;82CC@
@9@C4413
1@3(,1(9:(91:
C%C4
1C3
MBA Programme
RATIO ANALYSIS
Interpretati n % Net Pr %it 'ati ;6

' "igher net profit margin would ensure adequate return to the shareholders as well as enable the firm to ensure to withstand ad3erse economic conditions when selling price is declined( cost of production is rising and demand for the product is rising% ' low net profit margin indicates a high rate of return on in3estment if it has higher in3entory turno3er% -n the year 2CC4 the net profit is C%1, and it was decreased to C%C, in the year 2CC9% -t was increased to C%C:BC%C; in the year2CC:B2CC;%-n 2CC@ the ratio of 2et profit is C%C4%
1C,
MBA Programme
RATIO ANALYSIS
,.'eturn n E>uity ('OE&;6

2et Worth is the total of 0hare 5apital and 7eser3es B 0urplus% 7eturn on equity is calculated to know the profitability of owner>s in3estment% Profit after Ta=es 7eturn on 6quity T 88888888888888888888 2et Worth
'eturn n E>uity 'ati

Kear 2et Profit F7sG

2et Worth F7sG 7atio
2CC,82CC4
111CC,,1;
:922:3;3@
C%14
2CC482CC9
2@,C9:11
:99393:22
C%C3
2CC982CC:
449319C@
:@134139:
C%C:
2CC:82CC;
;9@,;9C1
;31C4@;92
C%1C
2CC;82CC@
@91@4413
;;9,C339@
C%1C
1C4
MBA Programme
RATIO ANALYSIS
Interpretati n % 'eturn n E>uity;6

7eturn on 6quity indicates how well the firm has the resources of owners% The earnings of a satisfactory return is the most desirable objecti3e of a business% The return on 6quity of ?ocil was C%14 in the year 2CC4%-t was decreased to C%C3in the following year% later the ratio as C%C:BC%C1 in the years 2CC:BC; and in the year 2CC@ the ratio is C%1C%
1C9
MBA Programme
RATIO ANALYSIS
-. Earning Per S<are(Eps&

6arning per 0hare simply implies the profitability of the firm on a Pre8share basis% -t doesn>t reflect how much is paid as di3idend and how much is retained in the business% Pr %it a%ter TaA * Pre%erence Di!idend Earning Per S<are I 666666666666666666666666666666666666666666666666 N . % E>uity S<ares
Earning Per S<are % 2 cil % r last %i!e years Net Pr %it ('s&
Year
N . % s<ares
'ati
2CC,82CC4
111CC,,1;
,,,C4:4
2,%@@
2CC482CC9
2@,C9:11
,,,C4:4
9%92
2CC982CC:
449319C@
,,,C4:4
12%42
2CC:82CC;
;9@,;9C1
,,,C4:4
1@%4;
2CC;82CC@
@9@C4413
,,,C4:4
21%;2
1C:
MBA Programme
RATIO ANALYSIS
Interpretati n % Earning Per S<are;6

6arning per share calculations made o3er years indicate whether the firms earnings power on per share basis has changed o3er that period% The 6arning per share of ?ocil is 21%;2 in the year 2CC@%
1C;
MBA Programme
RATIO ANALYSIS
5"'PT6789
1C@
MBA Programme
RATIO ANALYSIS
Findings;
1% The current ratio of the ?ocil for the last fi3e years is increasing stage% -t shows positi3e sign of liquidity position% The 5urrent ratio of the company to meet its short term obligation% 2% The quick ratio of ?ocil is more than the ideal ratio F1!1G e3ery year%&y this we can understand the short8term financial position of the company is sound% 3% The cash ratio of the ?ocil is fluctuating %The acceptable norm for the cash ratio is4CI or1!2 % The cash position of ?ocil is increased from C%33 to C%42 in the year 2CC:8C; to 2CC;8C@ % -t is in better stage% ,% The Debt ratio of ?ocil is C%C4 in the year 2CC;8C@L-t means that lenders "a3e financed 4I of net assets% -t ob3iously implies that owner>s ha3e pro3iding remaining finances% 4% The Dbt 6auity ratio of the ?ocil is decreased compared to pre3ious year% -n the year 2CC;8C@ the ratio is C%C4 %' Debt 6quity ratio indicates the margin of safety to the creditors% ' Debt 6quity ratio of 1!2 is considered ideal% Therefore there is a low margin of safety% 9% The proprietary 7atio of the ?ocil is increased year by year%'nd this year the ratio C%94I compare to pre3ious year C%:times the total assets indicate good le3erage of borrowings% 's this ratio we can understand that owner>s contribution towards total assets is more than 4CI( so the outsider contribution is less than 4CI% :% -n3entory Turno3er ratio of ?ocil for the last fi3e years is increasing % &ut it is around 4B9 ! -t is not satisfactory because it should be at least se3en times% ;% Debtor>s turno3er ratio of ?ocil is fluctuating year by year% enerally the is 3erymuch satisfactoryL -t is around the ideal ratio F2!1G and the company is able
higher the 3alue of Debtors turno3er the more efficient is the management of 11C
MBA Programme
RATIO ANALYSIS
debtors% -t should also impro3e( the collection policy is all satisfactory( it should be minimum ;times or ,4 days% @% Working capital Turno3er ratio of ?ocil is increased compared to pre3ious year% The ratio re3ealing that turno3er condition is to impro3eL it is also not as much satisfied% 1C% *i=ed 'ssets 7atio indicates the e=tent to which the in3estments to fi=ed assets contribute towards sale% ' high fi=ed assets ratio indicates firm>s utili<ation capacity of assets% *i=ed 'ssets ratio of ?ocil in the year 2CC;8C@ is 3%;; % The ratio is increased compared to the pre3ious years % "ence ?ocil should try to impro3e ratio by proper utili<ation of assets% 11% The ross profit ratio of the ?ocil is decreased compared to the pre3ious years% the
?ocil has to further increase the gross profit ratio by decreasing manufacturing e=penses%
12% 2et profit ratio of the ?ocil is fluctuating % 2et Profit ratio is decreased compared to the pre3ious years% ' higher net profit margin would ensure adequate return to the shareholders and a low net profit margin indicates a high rate of return on in3estment if it has high in3entory turno3er% 13% Debt equity ratio of ?ocil for the last fi3e years is decreasing it means there is a high margin of safety but in this year they will be increase to C%C9 1,% 6arning per share of ?ocil is 21%;2 it will be increased compared to the pre3ious year it indicates wheather the firms earnings power on per share basis has changed o3er the period 14% 7eturn on equity is also considered as satisfactory ratios for the company
111
MBA Programme
RATIO ANALYSIS
Suggesti ns;
7. The company>s cash balance position has not been steady% -t is fluctuating% 0o the company should maintain a proper balance and it leads to negati3e effect towards net working capital% 3. 2et Working 5apital ratio is increasing compared to pre3ious years% The ?ocil ltd company should more into by maintaining proper cash balance% ,. 0tock Turno3er 7atio is 3ery less as it is around 4B9Ll it should be minimum se3en times and so the sales promotion acti3ity should be taken up% -. There must be better coordination among purchase( production marketing and financial di3isions% This will help in achie3ing satisfactory efficiency in in3entory management% +. ?ocil should impro3e the Debtor>s turno3er ratio by re3iewing collection process% The Debt equity ratio of the ?ocil is increased so that they should be decreased the debt equity ratio because it indicates the margin of safety to the creditors% the debt
112
MBA Programme
RATIO ANALYSIS
/I/)IOG'AP8Y
1% 2% 3% ,% 4%
*inancial $anagement *inancial $anagement *inancial $anagement *acts *or Kou *undamentals of *inancial $anagement
8 8 8 8
-%$% Pandey Prasanna 5handra 1han and ?ain 6*K 6nterprises P3t% Atd%(
8 8
?ames 5% /an "ome 0e3ak Publications
9%
5hemical Weekly
113

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MBA Programme

A STUDY ON RATIO ANALYSIS

MASTER OF BUSINESS ADMINISTRATION

Under the esteemed guidance of S#$. %.SRIDE&I

Faculty in management studies

DE'ARTMENT OF MANAGEMENT STUDIES ADITYA INSTITUTE OF '.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

Project uide! Smt . :.S'IDE9I $%&%'%

"ead #f the Department! S'I.2.NAGEND'A :U(A' $%&%'%%(

ADITYA INSTITUTE OF P.G STUDIES

MD. HUSSAIN. ALI )Regd.No. 2085 !000"2* P)A#E; DATE;

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

NATU'E OF FINAN#IA) STATE(ENTS

ADITYA INSTITUTE OF P.G STUDIES

ANA)YSIS AND INTE'P'ETAION OF FINAN#IA) STATE(ENTS

TYPES OF FINAN#IA) ANA)YSIS

3. Structural analysis r static analysis;

ADITYA INSTITUTE OF P.G STUDIES

NEED OF T8E STUDY

ADITYA INSTITUTE OF P.G STUDIES

O/2E#TI9ES OF T8E STUDY

ADITYA INSTITUTE OF P.G STUDIES

$ET8ODO)OGY OF T8E STUDY!

ADITYA INSTITUTE OF P.G STUDIES

)I(ITATION OF T8E STUDY

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

The company faces se3eral competition from "HA(

odrej( 2irma( "enko%

-nspite of competition Wipro has generated consumer satisfaction%

G dre@ # nsumer #are ;

(a@ r s ap "rands and its marBet s<are;

ADITYA INSTITUTE OF P.G STUDIES

/rand ass ciati ns!

/rand p siti ning!

Fatty Acid Industry;

Present Status % Industry;

A /rie% n te n Fatty Acid Industry in AP.

ADITYA INSTITUTE OF P.G STUDIES

Types % Fatty Acids!8

'a? materials t<at c nstitute %atty acids include t<e % ll ?ing;

ADITYA INSTITUTE OF P.G STUDIES

Stearic Acid Industry;

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

Segmentati n % t<e T ilet S ap (arBet;6

ADITYA INSTITUTE OF P.G STUDIES

(arBet s<are % premium$p pular$su"6p pular Segment

ADITYA INSTITUTE OF P.G STUDIES

ADITYA INSTITUTE OF P.G STUDIES

)O#ATION OF T8E #O(PANY!

'EGIST'ATION OF T8E UNIT

EDPANSION OF T8E P)ANT!

MBA Programme /YP'ODU#TS lycerine Toilet 0oap

-ndustry 7aw $aterial to the -ndustry 5onsumer product%

O'GANISATIONA) ST'U#TU'E OCNE'S8IP AND (ANAGE(ENT

S<are < lding pattern as n ,7st (arc<$3445 #ateg ry N . % S<ares <eld

Pr %ile % 2 cil )imited ;