An Analysis of MNC Company's Financial Performance

An Evaluation Of Financial Performance
CONTENTS
Sl
No
Chapter Page No
1
2
3
4
5
6
A General Introduction to Proect
!"C Co#pan$ a %rie& pro&ile
Theoretical &ra#e 'or( on &inancial )tate#ent
*ata anal$)i) and interpretation
+inding), )ugge)tion) ,conclu)ion
!i%liograph$
1-4
5-.
/-20
21-40
41-43
St.Thomas Arts & Science College,Puthencruz 1
C1APTE2 3 1
A GENE2A4 INT2O*5CTION
TO P2O6ECT


INT2O*5CTION
Civilizations progress directly associated Financial Management of
people,business,groups and country . Finance is considered as the life blood of
economic activity. Without fianc there is no business. So there is an important
role in business for the financial management. hus financial management
activity !hich is concerned !ith planning and controlling of firms financial
resources. "t deals !ith finding out various sources for raising funds for the firm.
he sources must be suitable and economic for the needs of the business.
he main functions of financial management is to arrange sufficient
finance for meeting short term and long term needs. he funds are procured at
minimum cost so that profitability of the business is ma#imized. With these
things in mind, a financial manager has to concentrate on the follo!ing areas of
finance fi#ation.
1. $stimating short term and long term financial re%uirements of the
business.
&. 'eciding capital structure of the business and the proportion of different
securities for raising funds.
(. Selecting a source of finance !hich include share capital, debentures,
financial institutions, commercial ban)s, public deposits etc.
*. Selecting a pattern of investment.
+. ,n efficient system of financial management necessitate the use of various
financial control, devices such as return on investment, brea) even
analysis, budgetary control, cost control, cost and internal audit.
-. .roper cash management is another function. his function is ensure that
there is no shortage or e#cess in the cash.
STATE7ENT O+ T1E P2O!4E7
he title of the pro/ect is 8&inancial per&or#ance anal$)i) o& !"C
Co#pan$ product)9 through ratio analysis. his study attempts to analyse the
financial position of the firm !ith the help of ratio analysis.
SCOPE O+ T1E ST5*:
his study attempts to the analysis of the financial performance of 01C
Company in the financial area during the year to !hich is great significance.
O!6ECT;ES O+ T1E ST5*:<
1. o study the financial position of 01C Company.
&. o analyse the profitability, li%uidity, coverage and turn over ratio2s
(. o gave a profile of the firm under study
*. o test the long3 term and short3 term li%uidity position of the company.
+. o evaluate the performance and progress made.
-. o evaluate the efficiency of !or)ing capital management.
7ET1O*O4OG: O+ T1E ST5*:
he study is based on secondary data !hich have been collected from the
audited financial statements of the company for the period under study. his data
includes published annual report, audited p4l a4c and 0alance sheet. Whenever
there is a gap in secondary data is filled through primary data is collecting directly
from the officials of the company.
TEC1NI=5ES +O2 E;A45ATION<-
he study made for the analysis of financial performance. he ma/or
techni%ue used for this purpose is ratio analysis, !hich is most popular method of
analysis of financial position
2ATIO ANA4:SIS<-
5atio analysis is the arithmetical e#pression of the relationship bet!een
individual items or group of items usually sho!n in the periodical financial
statements published by the firm.

PE2IO* O+ T1E ST5*:
For attaining the ob/ectives of the study, the pro/ect consumed the data of
last ( years commencing from (1
st
march&667 ending (1
st
march &611
4I7ITATIONS O+ T1E ST5*:
1. he study !as conducted !ithin a short span of time.
&. he study made only from, the point of vie! of the company. "t does not
ta)e in to account outsiders vie!.
(. he period of study is limited from &6673&611
*. he study is mainly based on the secondary data.
SC1E7E O+ T1E ST5*:
Chapter 1. "ntroduction83
his chapter gives an introduction to the study !hich !ith scope of
the study, ob/ectives of the study, methodology, techni%ues, period of the study
and limitations. $tc9..
Chapter &. 01C Company : , 0rief profile
his chapters includes the details of 01C Company. he company
profile deals !ith %uality of the product, product range etc.
Chapter (. heoretical frame !or) of the study
his chapter deals !ith the theoretical frame !or) of financial statement
analysis and also deals !ith description of ratio analysis.
Chapter *83 'ata,nalysis and "nterpretation.
his includes the study and analysis of 01C Company through various
ratios included the ratio analysis.
Chapter + Findings, Suggestions and conclusions83
his includes the findings of problems derived from the study and
suggestions to improve the efficiency of the company and the conclusions of the
study.
C1APTE2-2
!"C CO7PAN: A !2IE+ P2O+I4E
CO2PO2ATE 1ISTO2:
01C Company one of the ;erala2s leading business groups
specialized in the manufacture ,nd e#port %uality and creativity designed
scientific as !ell as medical products.
01C Company has achieved commendable credibility , <ational
reputation .the aim of the company is to spread across the !orld, the goodness of
01C Company range of products or instruments are in ;erala mar)et.
4OCATION O+ T1E CO7PAN:
01C Company has started its operation in ;erala in the year 177&.he
company of 01C =td is located in the green, pollution free !est >engola , near
.erumbavur in ;erala south "ndia. his facility is e%uipped !ith the latest
technology in the !orld for every aspect processing of laboratory instruments
cutting, bending and finally !elding.
P2O*5CT 2ANGE
With more than a decade e#perience and patronage from the satisfied
clients 5ote) constantly improves its product criteria !ith more than 166 products
in all divers field li)e medical diagnostic , agricultural ,pharmaceutical and
industrial ,bio3technology institution etc9.both public and private sectors. he
professionally managed company, observing higher business ethics is committed
to the %uality of its personnel , product and services.
+ACI4ITIES AN* A*;ANTAGE
he factory is state of the art !ith the highest standards of hygiene
and the most modern manufacturing process .01C company is has a prestigious
%uality control using of international standard !ith facility for testing. the
company believes in long term relationship and mutual gro!th as ob/ective . our
%uality control managers test %uality at each stage of pre3production ,production
and supply to the clients only those products that are in accordance !ith the
%uality parameters accepted by international mar)et.
O!6ECTI;ES O+ T1E CO7PAN:
o introduce ne! products.
o encourage e#isting customer to buy more.
o be more competitive in the mar)et.
o promote e#port business.
o introduce %uality control techni%ues for improving the %uality of
finished products.
ECONO7IC O!6ECTI;ES
"ncrease profit.
'ecrease in cost.
.roduction of goods and services.
Create more customers.
"nnovations.
SOCIA4 O!6ECTI;ES
?uality goods and services.
5easonable price.
.rovision of employment.
@tilization of resources properly.
Welfare of the employees.
=5A4IT: ASS52ANCE
he Company is reno!ned for83
Commitment to highest standard of %uality.
Most modern manufacturing process.
State of the art %uality control lab.
5ange of products
@nmatched %uality
Commendable credibility
P2O7OTE2S
he 01C company is a partnership firm. he managing partner of the
company is Mr.M > 0ala)rishnan. ,nd the partner is Mr Charles ,braham.
!IO-*ATA O+ T1E 7ANAGING PA2TNE2
<ame 8 M > 0ala)rishnan
,ddress 8 MugalathuAhB
West >engola
.erumbavur
,ge 8 *C
?ualification 8 Draduated AScienceB
ype of the firm 8 partnership
<ame of the form 8 01C company
$#perience 8 &+
!IO-*ATA O+ T1E PA2TNE2
<ame 8 Charls ,braham
,ddress 8 $lluparambilAhB
West >engola
perumbavur
,ge 8 *C
?ualification 8 0.Com
ype of the firm 8partnership
<ame of the form 801C Company
$#perience 8 &&

C1APTE2-3
T1EO2ETICA4 +2A7E >O2? ON
+INANCIA4 STATE7ENT
INT2O*5CTION
0usiness is an economic activity. "t is a concerned !ith the production and
distribution of goods and services. he main purpose of business is to earn profit.
Finance is regarded as the life blood of a business enterprise. his is
because in the money oriented economy finance is one of the basic foundations of
all )inds of economic activities. "t is the master )eys !hich provide access to all
the sources of being employed in manufacturing and merchandising activities.
7EANING O+ +INANCE
Finance is the provision of money at the time !hen it is re%uired. $very
enterprise, !hether big, medium, or small needs finance to carry on its operations.
Without ade%uate finance no enterprise can possibly accomplish its ob/ectives.
Finance has been traditionally classified in t!o classes8
1. .ublic Finance
&. .rivate Finance
Pu%lic +inance
.ublic finance deals !ith the re%uirements, receipts and disbursement of
funds in the government institutions li)e states, local self3government and central
government.
Pri@ate +inance
.rivate finance is concerned !ith re%uirements, receipt and disbursements
of funds in case of an individual, a profit see)ing business organization and non
profit organization. hus private finance can be classified in toE
1. Per)onal +inance<-
"t deals !ith the analysis of principles and practices involved in managing
oneFs o!n daily needs of funds.
&. !u)ine)) +inance<-
"t deals !ith the study of principles, practices, procedures and problems
concerning financial management of profit ma)ing organizations encaged in the
field of industry, trade and commerce.
(. +inance o& non-pro&it organiAation) <-
"t deals !ith the practices procedures and problem involved is financial
management of charitable, religious, educational, social and other similar
organisations.
Finance
.ublic Finance .rivate Finance
Dovernment "nstitutions .ersonal Finance
State Dovernments 0usiness Finance
=ocal Self3 Dovernments Finance of non3
Central Dovernment profit organizations
*E+INITIONS
'efinitions of the prominent modern scholars are %uoted here to support
our vie!s about finance.
GFinance is the management of the monetary affairs of the company. "
includes determining !hat has to be paid for and !hen raising the money 61 the
best terms available and devoting the available to the best usesG.
PA54BGB1ACIN5S
GFinancing is the process of organizing the flo! of funds. So that i
business can carry out its ob/ectives in the most efficient and meet it8 obligations
as they full dueG.
?ENNET1 7I*4E: AN* 2ONA4* !52NS
GFinance is common demonstrator for a vast range of corporate ob/ectives
and ma/or part of any corporate plan must be e#pressed to financia termG.
AB4B ?NIG1OTT
!u)ine)) +inance
0usiness finance may be defined as the activity concerned !ith planning, raising,
controlling and administering of funds used in the business. Finance is usually
divided in to different categories according to the type of entity or organization
served. he ma/or classification are3public finance and business finance. .ublic
finance deals !ith the re%uirement, receipts and disbursement of fund in the
government.
0usiness finance may be defined as the activity concerned !ith planning,
raising, controlling and administering of funds used in the business.
+inancial 7anage#ent
,ccording to Solomon GFinancial Management is concerned !ith the
efficient used of an important economic resources, namely capital fundsG. he
main aim of financial management is to increase the profit !hich helps to
ma#imize the share value of the firm.
+inancial State#ent
, financial statement is a collection of data organized according to logical
and consistent accounting procedures. his helps to decision ma)ing. , firm
communicates financial information to the users through financial statements and
reports. "t is prepared from the accounting records and boo)s maintained by the
firm. he t!o basic financial statements prepared for the purpose of e#ternal
reporting to o!ners, investors and creditors are8
1. 0alance sheet and
&. .rofit and loss account
+INANCIA4 STATE7ENT ANA4:SIS
Financial analysis is the process of identifying of strengths and !ea)ness
of the company !ith the help of accounting information provided by the profit
and loss account and balance sheet. "t is the process of evaluation of relationship
bet!een component parts of the financial statements to obtain a better
understanding of the firmFs position and performance.
,ccording to Metcalf and itard Financial analysis

is a process of
evaluating the relationship bet!een component parts of a financial statement to
obtain a better understanding of a firmFs position and performanceG.
T:PES O+ +INANCIA4 ANA4:SIS
Financial analysis can be defined in to various types depending upon,
1. Material used and
&. he method of operation follo!ed in the analysis of the modus operandi of
analysis.
T:PES O+ +INANCIA4 ANA4:SIS

iD aB EEternal Anal$)i)
his analysis is done by outsiders such as investors, potential investors,
creditors, potential creditors, government agencies, and the general public. For
financial analysis, these e#ternal parties to the firm depend almost entirely on the
published financial statements as outsiders have no access to the internal
accounting records of the business firm.
iD %B Internal Anal$)i)
his analysis is done by those !ho have access to the boo)s of accounts
and other information relating to the business concern. his type of analysis is
meant for managerial purposes. his is conducted by e#ecutives or employers
of the firm as !ell as government. ,gencies !hich have statutory control over
such firms.
iiD aB 1oriAontal Anal$)i)
Horizontal analysis refers to the comparison of financial data of a company
for several years. he figures for this type of analysis are presented horizontally
over a number of columns. his type of analysis is also )no!n as F'ynamic
,nalysisF as it is based on the data from year to year rather than on data any one
year. Comparative statement and trend percentages are t!o employed in
horizontal analysis.
$#ternal
,nalysis
"nternal
,nalysis
Horizontal
,nalysis
>ertical
,nalysi
s
In the basis of material used In the basis of modus operandi
iiD %B ;ertical Anal$)i)
vertical analysis refers to the study of relationship of the various items in
the financial statements of one accounting period. "t is also )no!n as static
analysis. Common3size financial statements and financial ratios are the t!o tools
employed in vertical analysis. 0ut it is not so effective as it considered data for
one time period only.
7ET1O*S O+ *E;ICES O+ +INANCIA4 ANA4:SIS
, number of techni%ues or devices are used to underta)e financial
analysis. he fundamental ob/ective of any analytical method is simplify the data
to more understandable terms. he follo!ing are the important tools of financial
analysis83
1. Comparative statements.
&. rend analysis
(. Common size statements.
*. 5atio analysis.
+. Fund flo! statements.
-. Cash flo! statements.
J. Cost3 >olume3 .rofit analysis
1B Co#parati@e )tate#ent)
he change in the financial data over a period can be best understood if the
statements of t!o more years are placed side by side to facilitate comparison.
Such statements are prepared in comparative from for financial analysis purpose
balance sheet and income statement. he financial data !ill comparative only
!hen same accounting principles are used in preparing this statement.
2B Trend Anal$)i)
Comparing the past data over a period of time !ith a base year is called
trend analysis. "nformation for number of years is ta)en up and one year is ta)en
as the base year. $ach item of the base year is ta)en as 166 and on that basis the
percentages for other years are calculated. he ob/ect of calculating the trend
percentages is to sho! the direction of the change3up!ard or do!n !ard.
&. Co##on-)iAe )tate#ent
Common3size financial statements are those statements in !hich items are
converted in to percentages ta)ing some common base. hese statements are also
calles G166 percent statementsG or GComponent percentageG because each
statements is reduced to the 166 and each individual item is e#pressed as a
percentage of this total. he above stated tools have a common limitation in that
they are not helpful in understanding the changes that have ta)en place from year
to year in relation to total assets, total liabilities, total capital sales !hich is
covered up by trend analysis.
4B 2atio Anal$)i)
5atio ,nalysis is defined as the systematic use of accounting ratios in
order to !eigh and evaluate the operating performance of a firm. "t is the process
of determining and interpreting various ratios for helping in ma)ing decisions.
5B +und +lo' Anal$)i)
"t is system of preparing fund flo! statement to sho! the changes in
!or)ing capital during a period. Fund flo! statement is a report on the movement
of fund or !or)ing capital. "t e#plains ho! !or)ing capital is raised and used
during an accounting period.
6B Ca)h +lo' Anal$)i)
Cash flo! statement is a statement sho!ing the changes in cash position
from one period to another. Such a statement enumerates net effects of the various
business transactions on cash and its e%uivalents and ta)es in to account receipts
and disbursement of cash.
FB Co)t- Pro&it ;olu#e Anal$)i)
"t is a techni%ue of studying the relationship bet!een cost, volume of sales
and profit. .rofit of an underta)ing depends upon a number of factors such as cost
of manufacture, volume of sales, selling price etc. Cost volume profit relationship
is an important tool used for profit planning for an organization. "t is of an
immense utility to management as it assists in profit planning, cost control and
decision ma)ing.
2ATIO ANA4:SIS
, ratio is a simple arithmetical e#pression of the relationship of one
number to another. "t may be defined as the indicated %uotient of t!o
mathematical e#pressions. 5atio analyzing is defined as the systematic use of
accounting ratio in order to !eight and evaluate the operating performance of a
firm. "t is the process of determining and interpreting various ratios for helping in
ma)ing certain decisions.
A*;ANTAGES O+ 2ATIO ANA4:SIS
he ratio analysis is one of the most po!erful tools of financial analysis.
here are different parties interested in the ratio analysis for )no!ing the
financial position of a firm for different purposes.
aD 7anagerial u)e) o& ratio anal$)i)<-
1B 1elp) in deci)ion- #a(ing
he information provided in financial statements is not an end in itself and
no meaningful conclusion can be dra!n from these statements alone. 5atio
analysis helps in ma)ing decisions from the information provided in these
financial statements.
2B 1elp) in &inancial &oreca)ting and planning
5atios calculated for a number of years !or) as a guise for the future.
Meaningful conclusions can be dra!n for future from these ratios.
3B 1elp) in co##unicating
he financial strength and !ea)ness of a firm are communicated in a more
easy and understandable manner by the use of ratios.
4B 1elp) in Co-ordination
5atios even help in co3ordination !hich is of utmost importance in
effective business management. 0etter communication of efficiency and
!ea)ness of an enterprise results in better co3ordination in the enterprise.
5B 1elp) in control
Standard ratios can be based upon performance statements and variances
or deviations, if any can be found by comparing the actual !ith the standards so
as to ta)e a correctives action at the right time.
6B Other u)e)
"t is essential part of the budgetary control and standard costing. "t helps in
analysis and interpretation of financial statements as they bring the strength or
!ea)ness of a firm.
%D 5tilit$ to )hareholder)
he investors can )no! the financial position of the firm !ith help of the
ratios. So that can ta)e decisions on their investment.
cD 5tilit$ to creditor)
he creditors or supplier e#tent short3term credit to the concern, they are
interested to )no! !hether financial position of the concern !arrants their
payments at a specified time or not.
dD 5tilit$ to e#plo$ee)
he !age increases and amount of fringe benefits are related to the volume
of profits earned by the concern. For this they depend on various ratios to )no!
the financial strength of public as !ell as private sector.
eD 5tilit$ to go@ern#ent
Dovernment may base its future policies on the basis of industrial
information available from various units. he ratios may be used as indicators of
overall financial strength of public as !ell as private sector.
&D TaE Audit 2eGuire#ent)
Clause (& of the income a# ,ct re%uires that the accounting ratio should
be given and can be used for comparing it !ith previous yearFs financial position.
4I7ITATIONS O+ 2ATIO ANA4:SIS
hough ratios are simple to calculate and easy to understand, they suffer
from serious limitations.
1B 4i#ited u)e o& a )ingle ratio
o ma)e a better interpretation a number of ratios have to be calculated
!hich is li)ely to confuse the analyst and a single ratio does not convey much of a
sense.
2B 4ac( o& adeGuate )tandard
here are no !ell accepted standards or rules of thumb for all ratios !hich
can be accepted as norms. "t renders interpretation of the ratios difficult.
3B Inherent li#itation) o& accounting
=i)e financial statements, ratio also suffer from the inherent !ea)ness of
accounting records such as their historical nature. 5atios of the part are not
necessarily true indicators of the future.
4B Change) o& accounting procedure
Changes in accounting procedure by a firm often ma)es ratio analysis
misleading.
$#ample83 , changes in the valuation of methods of inventories, from
F"FI to ="FI increase the cost of sales and reduces considerably the value of
closing stoc)s !hich ma)es stoc) turnover ratio to be lucrative and an
unfavorable gross profit ratio.
5B >indo') dre))ing
Windo! dressing is the practice of improving the current ratio through
manipulation. Financial statement can easily be !indo! dressed to present a
better picture of its financial position to outsiders. So that decisions based on
ratios should be very carefully ta)en.
6B Per)onal %ia)
5atios are only means of financial analysis and not an end in itself. 5atios
have to be interpreted and different people may interpret the same ratio in
different !ay.
J. 5nco#para%le
,s the industry or firms is not similar in its size, accounting procedures,
etc. "t ma)es the comparisons of ratios difficult and misleading.
.B A%)olute &igure) di)torti@e
5atios devoid of absolute figures may prove distortive as ratio analysis is
primarily a %uantitative analysis.
/B Price 4e@el Change)
"n ratio analysis, consideration is made to the changes in price levels and this
ma)es the interpretations of ratios invalid.
10B 2atio) are no )u%)titute)
5atio analysis is a tool of financial statements. Hence, ratios become
useless if separated from the statements from !hich they are computed.
C1APTE2-4
*ATA ANA4:SIS AN* INTE2P2ETATION
PE2+O27ANCE ANA4:SIS O+ !"C CO7PAN:
he performance of the firm can be analyzed using ratio analysis. 5atio
analysis is the financial tool developed to analyze and interpret the financial
statements and is used to evaluate the operating performance of a firm. "t is the
process of determining various ratios for helping in ma)ing certain decisions.
5atio is simply one number e#pressed in terms of another number.
T:PES O+ 2ATIOS
he ratios can be classified on different basis, i.e on the basis of
accounting statements, importance, nature of functions etc. of these the most
important classification is based on nature or functions. he follo!ing are the
four types of different ratios.
1B 4iGuidit$ 2atio)
he term li%uidity refers to the firmFs ability to meets its current liability
!hen they become due. Since li%uidity is the basis of continuous operations of the
firm, it is necessary to determine the degree of li%uidity of the firm. he ratios
!hich reflect the short term solvency of a business unit are current ratio, %uic)
ratio and absolute li%uid ratio.
aB Current 2atio
Current ratio is defined as the ratio of current assets to current liabilities. "t
is the measure of firmFs short term solvency. ,n unusually lo! current ratio
indicates that the firm may have some difficulty in paying off its debts. "t can be
calculated current assets by current liabilities.
Current ratio K Current assets
Current liabilities

Ta%le 4B1
Ta%le )ho'ing Current 2atio
L$,5 Current asset Current liability Current ratio
&66C3&667 176+61( **6J&* *.(&
&6673&616 (***77J 1*6&6*J &.*+
&6163&611 (1J+&(& 16CJ7&( (
Graph 4B1
Graph )ho'ing Current 2atio
Interpretation
he ideal current ratio is &81. here should have neither e#cess nor shortage in
current assets. $#cessive current assets indicate idleness of !or)ing capital and
shortage of current assets indicates absence of li%uidity.he li%uidity ratio is
calculated to find out the debts paying ability of the concern. Here the current
ratio for &66C3&6671&6163&611 is high.. 0ut &6673&616 the current rtio is
decreasing. "f a concern is able to procure additional funds easily and
immediately, then the company can maintain its li%uidity !ith the current
li%uidity ratio.
CA4C54ATION O+ C522ENT 2ATIO
200.-200/
K -&6C7(M*J+6++M&6*++7M-6*+6-
**6J&*
K *.(&81
200/-2010
K (&*(JC7M16(C*&M*J*1&M*J(CM+&1-
1*6&6*J
K (***77J
1*6&6*J
K &.*+81
2010-2011
K &*J+-+CM*&*76&M1C&7++M((C&MCC((+
16CJ7&(
K (1J+&(&
16CJ7&(
K (81
%B =uic( 2atio HAcid Te)t 2atioD
=i%uid ratio or %uic) ratio is the ratio of li%uid assets to currents liabilities.
his ratio is other!ise )no!n as F,cid test ratioF or N=i%uidity 5atio2. =i%uidity
ratio is calculated by dividing li%uid assets by current liabilities.
?uic) 5atio K ?uic) ,ssets
Current liabilities
?uic) ,ssets K Current assets3 Astoc) M prepaid e#penses
Ta%le 4B2
Ta%le )ho'ing =uic( 2atio
$ear =uic( a))et Current a))et =uic( ratio
&66C3&667 1(+-JJ7 **6J&* (.6J
&6673&616 (&7-+*& 1*6&6*J &.(+
&6163&611 &J+6((6 16CJ7&( (

Graph 4B2
Graph )ho'ing =uic( 2atio
Interpretation
he ideal %uic) ratio is 181, ie ?uic) assets should be e%ual to current liabilities.
he %uic) ratio of 01C Company has reached the ideal standard, the ratio is
increase from the year &66C3&667. he %uic) ratio is to be attained the ideal
standard, the firm has to invest more in %uic) assets and can meet the liabilities
!ithout resorting to the sale of stoc).
Calculation o& Guic( ratio
200.-200/
?uic) 5atio K ?uic) ,ssets
Current liabilities
?uic) ,ssets K Current assets3 Astoc) M prepaid e#penses
?uic) asset K176+61(3*J+6++3J(1J7 K1(+-JJ7
?uic) 5atio K 1(+-JJ7
**6J&*
K (.6J81
200/-2010
?uic) asset K (***77J316(C*&3**-1( K (&7-+*&
?uic) 5atio K (&7-+*&
1*6&6*J
K &.(+81
2011-2012
?uic) asset K (1J+&(+3*&*76& K &J+6((6
?uic) 5atio K &J+6((6
16CJ7&(
K (81
2B Acti@it$ 2atio
,ctivity ratios measure the efficiency or effectiveness !ith !hich a firm
manages its resources or assets. hese ratios are also called Furnover ratiosF
because they indicates the speed !ith !hich the assets are converted or turned
over in to sales. 'epending upon the purpose of a number of turnover ratios can
be calculated, as debtor turnover, stoc) turnover, capital turnover etc.
aD In@entor$ Turno@er 2atio
his ratio indicates !hether investment in inventory is efficiently used or
not. he ratio is calculated as follo!s.
"nventory urnover ratio K Cost of goods sold
,verage Stoc)
Cost of goods sold K opening stoc) M purchases M direct e#penses3
closing stoc)
Or
Cost of goods sold K sale3 Dross profit
,verage Stoc) K Ipening stoc) M Closing stoc)
&
Ta%le 4B3
Ta%le )ho'ing In@entor$ Turno@er 2atio
Graph 4B3
Graph )hoing in@entor$ turn o@er ratio
St.Thomas Arts & Science College,Puthencruz
Lear Cost of goods ,verage
"nventory
"nventory
turnover 5atio
&66C3&667 11-C77&C --+7-- 1J.++
&6673&616 11-6(7J* &C7**7 *6
&6163&611 1&&J6+&J (1-((( (C.JC
1
calculation o& in@entor$ turn o@er ratio
200.-200/
"nventory urnover ratio K Cost of goods sold
,verage Stoc)
Cost of goods sold K opening stoc) M purchases M direct e#penses3 closing
stoc)
Or
Cost of goods sold K sale3 Dross profit
,verage Stoc) K Ipening stoc) M Closing stoc)
&
Cost of goods sold K 1&76-67131&1-1-( K 11-C77&C
,verage stoc) K *&C*(CM*J+6++
K --+7--
&
"nventory turn over ratio K 11-C77&C
--+7-- K 1J.++
200/-2010
Cost of goods sold K1(*+C+-131C+*+CJ
K 11-6(7J*
,verage stoc) K *J+6++M16(C*&
&
K &C7**7
"nventory turn over ratio K 11-6(7J*
&C7**7 K *6 times

2010-2011
Cost of goods sold K 1(J*J&7731*J-JJ&
K 1&&J6+&J
,verage stoc) K 16(C*&M*&*7C& K (1-(((
&

"nventory turnover ratio K 1&&J6+&J
(1-((( K (C.JC times
Interpretation
Higher the turnover ratio greater the possibility of earning more profit. he
ideal stoc) turnover varies from concern to concern depending upon a number of
aspects.
he inventory turnover ratio of 01C Company in &66C3&667 is 1J.+ times.
"t is lo!er than the ne#t yearA&6673&616B. 0ut in the last year ratio is higher than
first yearA&66C3&667B and a good signal of using the inventory more efficiently.
Care should be ta)en to increase the ratio more so that the profit can be increased
as sales increases.
%D *e%tor) Turno@er 2atio
his ratio is also called as receivable turnover ratio. his indicates the
number of times the debtors are turned over during a year. "t is the relationship
bet!een accounts receivable and net credit sales of the period.
'ebtors urnover 5atio K <et Credit sale
,verage ,ccounts 5eceivable
Ta%le 4B4
Ta%le )ho'ing *e%tor) Turno@er 2atio
Lear Credit sales ,ccount
5eceivables
'ebtors turnover
5atio
&66C3&667 1&76-671 -&6C7( &6.C
&6673&616 1(*+C+-1 (&*(JC7 *.1*
&6163&611 1(J*J&77 &*J+-+C +.++
Graph 4B4
Graph )ho'ing *e%tor) Turno@er 2atio
Interpretation
, higher turnover ratio indicates prompt payment of debtors, !hile a lo!er
turnover the inefficiency of the credit collection. he ratio is highest in the year
&66C3&667. "t is declining till &6673&616 and increasing after!ard. his sho!s
that the debtor turnover is efficiently managed by 01C Company.
Calculation o& de%tor) turn o@er ratio
'ebtors urnover 5atio K <et Credit sale
,verage ,ccounts 5eceivable
200.-200/
'ebtors urnover 5atio K1&76-671
-&6C7(
&6.C
200/-2010
'ebtors urnover 5atio K 1(*+C+-1
(&*(JC7
K *.1* times
2010-2011
'ebtors urnover 5atio K 1(J*J&77
&*J+-+C
K +.++ times
cB >or(ing Capital turno@er 2atio
his ratio reflects the relationship bet!een net !or)ing capital and
turnover of the business firm. "t is a good overtrading and under trading.
Wor)ing Capital urnover 5atio K <et sales
<et !or)ing capital
<et !or)ing capital Kcurrent asset : current liabilities
Ta%le 4B5
Ta%le )ho'ing >or(ing Capital Turno@er 2atio
Lear <et sales <et !or)ing
capital
Wor)ing capital
urnover 5atio
&66C3&667 1&76-671 1*-*&C7 7
&6673&616 1(*+C+-1 &6*&7+6 J
&6163&611 1(J*J&77 &6CJ(67 J
Graph 4B5
Graph )ho'ing >or(ing Capital Turno@er 2atio
Interpretation
, higher !or)ing capital turnover 5atio indicates efficient utilization of
!or)ing capital and a lo! ratio indicates other!ise. he ratio of 01C Company
is highest in the year &6673&616 ie 7and lo!est in last t!o ie.-. as it increasing
year by year, the !or)ing capital management is efficiently utilizing
Calculation o& 'or(ing capital turn o@er ratio
200.-200/
Wor)ing Capital urnover 5atio K <et sales
<et !or)ing capital
<et !or)ing capital Kcurrent asset : current liabilities
<et !or)ing capital K176+61(3**6J&*
K1*-*&C7
Wor)ing Capital urnover 5atiK 1&76-671
1*-*&C7
K7 times
200/-2010
<et !or)ing capital K (***77J31*6&6*J
K &6*&7+6
Wor)ing Capital urnover 5atio K(*+C+-1
&6*&7+6
K J times
2010-2011
<et !or)ing capital K(1J+&(&316(J7&(
K &6CJ(67
Wor)ing Capital urnover 5atio K 1(J*J&77
&6CJ(67
K -.+C
C1APTE2 ;
+IN*INGS, S5GGESIONS AN* CONC45SION
+IN*INGS
1. he current ratio for &6673&616 and &6113&61& is more than the ideal
standard &81. the firm has to invest more in current assets, so that they can
pay their debt in right time.
&. he %uic) ratio of 01C Company has reached the ideal standard 181. his
firm can easily meet all its current liabilities.
(. he inventory turn over ratio of 01C Company is more than the standard
ratio .this ratio signifies the li%uidity of the inventory a high inventory ratio
indicates not bloc)ing of fund in inventory.
*. he debtors turn over ratio of the 01C Company is high. "t indicates the staff
entrusted !ith collection of boo) debt ..
+. he !or)ing capital turn over ratio of 01C Company is high every year. his
ratio reflects the turn over of the firms net !or)ing capital in the course of the
year. "t is a good messur of over trading and under trading.
S5GGESTIONS
he follo!ing suggestions are given for improving the li%uidity position of
the company.
1 =o! current ratio, %uic) ratio and absolute li%uid ratio reveal that there is
need for more investment in current asset, %uic) asset and in cash. So that
the ratios can be increased. he firm must avoid the problem of shortage
of
cash.
& he company has to improve its li%uidity position as it !ill effect the
profitability of the company.
( he company should ta)e necessary steps to improve the stoc) turnover ratio.
Higher the ratio better it !ill be.
* Step should be ta)en to improve the !or)ing capital turnover. Higher the ratio
indicates efficient management.
+ he debtors turnover ratio is not satisfactory. Higher the turnover better it is. So
the company should try to improve the turnover ratio and maintain optimum
level of debtors in the company.
CONC45SION
From the analysis of 01C Company, it !as found that there is need of
more investment in current asset, %uic) asset and in cash. he li%uidity position of
the firm and the solvency position of the firm is satisfactory .
he turnover ratio of the firm is increasing in the last year. "t is green
signal that the firm is in a gro!th trend. he firm should earn more profit by
e#tending the mar)et or by increasing the advertisement and other selling
techni%ues.
!I!4IOG2AP1:
1 Annual report o& !"C Co#pan$
& *rB ?BGBCB Nair, ICorporate AccountingJ, Chand .ublishers.
( *rB7ahe)'ari SBN, IPrinciple) o& 7anage#ent AccountingJ,
.ublished by Sulthan Chand 1Sons.
* IB7B Pande$,J +inancial 7anage#entJ, Si#th edition, >i)as
.ublishing House.
+ ?ul(arni PB;, I+inancial 7anage#entJ, <e! 'elhi, Himalaya
.ublications House.
- 2B? Shar#a, Sha)hi B?B Gupta, I7anage#ent Accounting 3
Principle) and Practice)J, ;alyani .ublishers, 5a/inder <agar,
=udhiana.
!"C IN*5ST2IES,>B;ENGO4A
T2A*ING " P2O+IT" 4OSS ACCO5NT +O2 T1E :EA2 ENTE* 31
)t
7A2C1 200/
particular) a#ount particular) a#ount
o opening stoc) *&C*(C 0y sales
o purchases J+6CJ&( localsalesta#able J*-6C*J
1&76-671
o casting charges &7*+66 interstate sales +**+&**
o loading and unloading &76+1+ 0y closing stoc) *J+6++
o manufacturing e#pense 71*C+7
o fabrication e#pense -(JC76
o po!der coating charges &6++(-
o carriage in!ards &C-*+6
o !ages J1J+++
o assembling charges J+*7+6
o purchase e#pense 1&++--
o gross profit 1&1-1-*
1((C11*-
1((C11*-
o electricity charges J6C6J 0y gross profit b4d
1&1-1-*
o carriage out!ard &1C(*J 0y CS 1&1C7J
o interest1ban) charges 16-(1C 0y output *O &7JC*&
o postage1telephone *--6* 0y output cess &77J
o printing1stationary +7C*16 0y sales e#pense +&6+6
o sundary e#pense CCC-16
o s.s.i membarship -66
o ta#1license fee *C6J
o travelling e#pense (&++-
o advertisement charges 1(6&116
o $.S." (*6CC
o $...F 7J-&&
o CS paid 7-(-+
o stores1spares &(7C6
o generator e#pense *7+&
o insurance 17J-
o repairs1maintenance 1C--+
o ;>, .aid 7+71C
o input ta# &(&6&(
o input cess 1O 1C+1
o auditors fees 7666
o depreciation !4o +&+716
o interest on capital 1J-J7C
o salary paid to partners J*166
o net profit 1&6(&
total 1-767*16 total
1-767*16
)t
7A2C1 2011
o opening stoc) 16(C*& 0y sales
o purchases JJ76C*C local sales ta#able J&&76++
o casting charges +&&7J+ interstate sales -+CCC1-
o loading charges &&&6J6 1(C1JCJ1
o fabrication e#pense 161*J7+ less8sales returns J6+J&
1(J*J&77
o manufacturing e#pense 7(JJ(6
o carriage in!ards &*JC-* 0y closing stoc) *&*76&
o !ages C(67C+
o assembling charges 16&1(76
o purchase e#pense &7(1
o gross profit 1*J-JJ&
total 1*1J&&61 total
1*1J&&61
o electricity charges -7C-+
o carriage out!ard &C*J66 0y gross profit b4d 1*J-JJ&
o interest1ban) charges C(*6- 0y CS 1&.+O 1&-7+
o postage1telephone 1711J 0y CS *O 1&7J6
o printing1stationary +C6-+ 0y CS &O 1&&66(
o sundary e#pense +1&- 0y out put (7667J
o insurance (-J- 0y out put cess 1O (761
o travelling e#pense &(6(- 0y sales e#pense reimbursed *C6J+
o advertisement charges &(C+1&
o $.S." (7*J(
o $...F 116C(6
o ta#1license fee J6+*
o "SI registration fee *&CC*
o sales ta# paid +(7J7
o CS paid 1(7((7
o stores1spares (J--(
o generator e#pense +C*(
o repairs1maintenance 17-CC
o ;>, .aid 1*+6C7
o outputta# on return &-+
o input ta# &+*+C(
o input cess 1O &*(*
o auditors fees 16666
o interest on capital 17++*C
o salary paid to partners 1(+--7
o depreciation !4o +6&(-
o net profit (6&((
otal &6--+1* otal
&6--+1*
)t
7A2C1 2010
o opening stoc) *J+6++ 0y sales
o purchases -&7-1C* local sales ta#able +7-C-*7
o casting charges +16JC+ interstate sales J+7*+1&
o loading and unloading &761CC 1(+-(1-1
o fabrication e#pense 166J+J- less8 returns 16*-66
1(*+C+-1
o manufacturing e#pense 7&+&66 0y closing stoc) 16(C*&
o carriage in!ards *+*+7+
o !ages -+7(JC
o assembling charges 1666+1+
o purchase e#pense (+*(6
o po!der coating charges +&7616
o gross profit 1C+*+CJ
total 1(+-&*6( total
1(+-&*6(
o electricity charges -11CJ 0y gross profit b4d 1C+*+CJ
o sundary e#pense 1(-* 0y CS 1&.+O +(C
o interest1ban) charge J*1*& 0y CS *O 166*J
o postage1telephone &(*6- 0y CS &O 1**7**
o printing1stationary ((J-1 0y out put (17+-*
o carriage out!ard 16&J**- 0y out put cess 1O (17J
o S.S." membership -66
o ta# 1 license fee &(66
o traveling e#pences &&C1*
o advertisement charges +-*1C
o $.S." (**&1
o $...F C7C71
o C.S. .aid 1*+&&6
o Stores 1 Spares J6&J
o Denerater e#pences -1&6
o 'onation -666
o 5epairs 1 maintance 11&J*
o ;>, .aid 1+C&66
o "nput ta# 1J(&-+
o "nput cess1O 1-17
o ,uditers fee 7666
o deprication W4I (+7*C
o "nterest on capital 11777*
o salary paid &6C(1+
o <et .rofit &(1*J
otal &((&CJC otal &((&CJC
!A4ANCE S1EET AS AT 31
ST
7A2C1, 200/
4IA!I4ITIES A7O5NT ASSET A7O5NT

C,.",= ,CCI@<8 Fi#ed ,ssests 8
M.>. 0ala)rishnan +C+(*+ ,sper Scheduled """ &6J6-7
Charls ,braham (76(-* 7J+J67 ,dvances 1 'eposit
=oans 1 ,dvances 1-7666 ;.S.$.0.'eposit (666
Sundry Creditors **6J&* Security 'eposit (666 -666
Subsidy received 11+16+
@nion 0an) of "ndia (-1++- ,dvance "ncome a# -666
Dold =oan J+666 Security 'eposit 1(C6C
.rovisions8
;>, 1++1C Sundry 'ebtors -&6C7(
C.S. 1C6-+ "SI7664&666 J(1J7
$.F 1(&17 Closing Stoc) *J+6++
$.S." ((-( ".C.".C." 0an) &6*++7
$lectricity charges *7(& Cash in hand -6*+6-
elephone charges CJC
,udit fee 1C666 J(7J+
I,= &&116-7 I,=
&&116-7
ST
7A2C1, 2011

M.>. 0ala)rishnan 161+J6( ,sper Scheduled """ *(1-(J
Charls ,braham 7C17(+ 177J-(C ,dvances 1 'eposit
=oans 1 ,dvances 1&*+66 ;.S.$.0.'eposit 1+JC6
Sundry Creditors 16CJ7&( Security 'eposit (666 1CJC6
@nion 0an) of "ndia (7-7CC Fi#ed 'eposit
&+666
Security 'eposit3 1(C6C
Sundry 'ebtors
&*J+-+C8
.rovisions8
;>, 1CC1 Closing Stoc) *&*76&
C.S. 166C7 ".C.".C." 0an) 1C&7+*
$.F 1C-++ S0" ((C&
$.S." *C61
$lectricity charges 16*+1 Cash in hand CC((+
elephone charges 1+(&
,udit fee 16666 +J*67
I,= (--**+C I,= (--**+C

ST
7A2C1, 2010

M.>. 0ala)rishnan C7C*+7 ,sper Scheduled """
&6-7-1
Charls ,braham -J7+C6 1+JC6(C ,dvances 1 'eposit
=oans 1 ,dvances 1&*+66 ;.S.$.0.'eposit 1+JC6
Sundry Creditors 1*6&6*J Security 'eposit (666
1CJC6
Subsidy received 11+16+
@nion 0an) of "ndia (71*--,dvance "ncome a# -666
Security 'eposit3Chec) .ost 1(C6C
Sundry 'ebtors
(&*(JC7
.rovisions8 "SI7664&666 **-1(
;>, J++C+ Closing Stoc) 16(C*&
C.S. 1+&-( ".C.".C." 0an) CJ*1(
$.F 1*7*& S0" *J(C
$.S." (C66
$lectricity charges **J( Cash in hand +&1-
elephone charges 7*1
,udit fee 7666 1&*66*
I,= (J(+1-1 I,= (J(+1-1


An Analysis of MNC Company's Financial Performance

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