A Project Report Submitted to

PROF. APOORVA RAVAL

P.G.R.I.M.S. MBA College,
(Affiliated With GUJARAT
TECHNOLOGICAL UNIVERSITY)
On
15th FEBURARY, 2010.
In
the Master of Business
Administration Programme.
Submitted by:
HARDIK K SHAH 48

PREFACE
This is a 21st century today every person
wants to be master in the field they are in.
There are many fields to choose master. So,
one has to choose only one field in which he
thinks he can go further deep. If he chooses
one field to go deep, other fields automatically
subdued.
Master of Business Administration [M.B.A.]
is a professional course, so when the student
completes the course he should not have only
theoretical knowledge he should also have
practical knowledge For the purpose of getting
practical knowledge the student are required to
prepared the project report .The project is
prepared on the basis of the financial analysis
of some organization.
The main purpose in the finance field is to
know how the financial analysis is done. We all
know that finance is the blood of any business
and without it no business can run. In the field
of finance you always learn something new,

and if you like challenging work you should

choose finance.
As we like calculative subject and
challenges, we have chosen an organization
that is REAL STRIPS LIMITED where we get
exposure of all type of work and can learn
many things. It is a private company concern
which deals in the single product that is cold
rolled stainless steel coils.
Financial analysis of a company is very
difficult and the most important, most
challenging task and we like challenges so we
have chosen the subject of financial analysis
and
by doing this we are able to know its
financial position and financial structure of the
company.
The most important things required for
analyzing the financial statements is the
annual report of the company. This annual
report contains analysis of the 3 years annual
reports.
Every management student should have
the knowledge of practical application of the
theory that he/she learns in the classroom. So,

this grand project becomes very helpful in

doing so.

Ahmedabad.
3RD November, 2009.

50

NISHANT R. SHAH

EXECUTIVE SUMMARY

This project report is prepared on the financial analysis of

REAL STRIPS LIMITED Situated Bavla Highway, Ahmedabad. This
report consists of mainly three parts that is Organizational profile,
Introduction to the report and the main theme of the report that is the
financial analysis. The grand project is a good learning experience.
By preparing project report we are able to know the different criteria
and different things about the company.
The initial part of this report contains the brief information
about the organization profile that is its History Development &

Achievements, company profile its product, Infrastructure etc. The

second part consists of the introduction to the report.
The practical concern of this report is revealed by learning of
practical business scenario that is the financial analysis .The third
part consist of financial analysis , contains Ratio analysis , Do Pont
Chart , Horizontal Analysis , Vertical Analysis ,Trend Analysis & Cash
flow Analysis etc.
Ratio analysis comprising mainly five types of ratio analysis as
under:
Liquidity / Balance sheet ratio
Liquidity Ratio
Assets turnover Ratio
Finance/Leverage/Capital Ratio
Valuation Ratio
We have done financial analysis of REAL STRIPS
LIMITED and I found that it is well managing its profit, its staff and
achieving more and more height every year. In the year 2004-2005,
they have occurred profit of Rs. 27588062 before tax and net profit is
Rs. 18286469 .The amount carried forward to the Balance Sheet is
Rs. 66373711. Their earning per share (EPS) is 5.58 Rs. Which is
more than 7.52% compare to last year.
For any company financial analysis is very important because
by analyzing company on the financial basis you are able to know its
profit and loss but you can do analysis of their current and liquidity
position. Not only this you are also able to know the financial position
of the company and whether to invest in it or not. You can also know
that it is a good company or making losses.
You can also know its promoters and think that whether to
invest or divest from the company, the company is occurring debt or
equity based. It is declaring dividend or not and what is the pay-out
ratio there. The company is listed and has its auditors.

What is the earning and is the company creditworthy -all this

answers we get from the annual report and from that we can know
financial position of the company. As the level of student or person or
as a company you should always check the financial position of a
company so that your money and job are safe. In the project report I
tried my level best to know more and more about the company, its
position, its network and its profitability.

Table of Contents
CHAPTER
NUMBER

PARTICULAS
Preface
Acknowledgement
Executive Summary
PART: 1 ORGANIZATIONAL PROFILE

Chapter : 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9

Introduction to the Industry

History & Development
Company Profile
Infrastructure
Management
Products
Environment
Pro-forma Of Inquiry Form
Organizational Chart
PART: 2 INTRODUCTION TO THE
REPORT

Chapter:2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8

Introduction of the Financial Statements

Introduction Of Ratio Analysis
Definition Of Ratio
Statement of Comparison
Nature of Ratio
Importance of Ratio Analysis
Limitation Of Ratio Analysis
Various types of Ratios

PAGE NO

Chapter 3:

PART:3 FINANCIAL ANALYSIS

FINANCIAL STATEMENTS

Chapter 4:

RATIO ANALYSIS

4.1
4.2
4.3
4.4
4.5
4.6

Liquidity Ratios
Profitability Ratios
Turnover/Activity ratio
Capital/ Finance/leverage Ratio
Valuation Ratio
Comparisons Of the Ratios Of the Four Years

Chapter 5:

TREND ANALYSIS

5.1
5.2

Trend Analysis of Profit &Loss A/C for 4 Yrs.

Trend Analysis Of Balance Sheet for 4 Years

Chapter 6:

CONCLUSION
BIBLIOGRAPHY

PART - I
CHAPTER-1
SHAPE

\*

MERGEFORMAT

1.1: INTRODUCTION TO THE INDUSTRY:

ndia is a vast market and offers tremendously potential for future.

The per capita consumption of stainless steel in India is still one of
the lowest in the world at 0.70 kg as compared to 14-15 g in the
dev eloped countries but it is growing very rapidly.
The demand for steel products has been a spurt in the
international market. Previously, the domestic utensils sector was the
largest consumer of the companys product. However the end uses
of the companys product is also getting diversified with the greater
awareness on the use of the Stainless Steel in Furniture, Building and
Construction Sector. The modernization programmes of the company
have resulted in the production of high grade Stainless Steels Coil
which finds its place in the Process industries, Chemical Industries &
Food processing industries. With the upward trend in the prices of
Flat Stainless Steel Products.

Expansion cum modernization programmes implemented

during the past few years is now yielding result. Turnover has gone
up from Rs 4064.23Lacs in the previous year to Rs. 4901.95 Lacs in
the year under report. Full utilization of the capacity has resulted into
improved operating margin. Gross profit before depreciation and
interest has gone up to Rs. 869.99 lacs showing an increase of 21%
over the previous year.

(A) FUTURE PROSPECTS:

The company has undertaken an expansion project. One more

rolling mill is being installed. After completion of the same, the
installed capacity will go up from the present 8000 MTPA to 12000
MTPA. It is the endeavor of the directors to complete the expansion
during the third quarter of the current fiscal year. The application of
and particularly stainless steel coil is gaining more and more
acceptance in a variety of industrial and domestic use. New and
innovative uses of the stainless steel coils are being made.
The prices of HR coils, which is the basic raw material of the
company have stabilized. Looking at the international scenario it is
expected that price of HR coils will have declining trend. Any
decrease in the price of Hr coils will be to the benefit of the Company

(B) GREEN ENERGY

Power tariff in the state of Gujarat is one of the highest in the
country. Consumption of power in steel industry is very high. Cost of
power consumption is a major cost of component next to raw material
cost. Cost of the power consumption has been increasing steadily for
the past many years, which has been a cause of concern for the
consumers. The government has also been encouraging the
installation of wind turbine generators. The banks also have been
advancing loan at the lower rate of interest.
Last year Company had installed a wind mill of 1.25 MW
capacities. Encourage by the benefits of wind mill during the year one
or more wind mill of 0.350 MW has been installed. During the year
under review Company had consumed 2404415 unit of electricity.
Where as the wind mill had generated 2447176 units, which are set
off against the energy bill paid to the state electricity Board.

1.2: HISTORY AND DEVELOPMENTS:

Stainless steel production in India has a short history of 20

years. In 1978 government of India allowed production of stainless
steel by the private sector. Before 1978 only 15000 MT of stainless

steel was produced per year by the state owned units and the
demand for cold rolled materials was met by imports again by the
State Trading Corporation.
Stainless steel production has taken a giant leap from a measly
15000 MTPA to 1.4 - 1.5 million MTPA which makes India as one of
the fastest growing market of steel in the world.
Comparing it with aluminum, plastics and steel all along its
ongoing tenure, SS is on the way up, as far as its popularity and the
extent of the use is concerned.

Share of Stainless Steel was more domestic utensil sector was

90% in the year 1990-91 and today it is about 75% where as usage in
industrial sector compared to 36.5% by the developed countries is
mere 10%.
Demand for SS is raising at the rate of 5% p.a. currently the
demand is 1.6 MTPA which is targeted to increase to 2 MT within the
two years which indicates bright prospects for the industry.
Stainless steel production in India is rapidly growing every year.
India has emerged as the largest producer of 200 series low nickel
stales steel in the world. There is greater awareness on the use of
stainless steel in the building and construction sector. Moreover the
uses of stainless steel flat products are also increasing in the Process
Industries, chemical processing, Oil & Gas, Petrochemicals, Food
Processing Industries Auto & Aerospace industries, Railways and
telecommunication industries.

Company has put up wind mills with capacity of 1.25 MW &

0.35 MW respectively, to help the drive of alterative energies and
save power cost for us.
The achievement of your company stands on the ground of the
intellectual and professional commitment that our people brought to
their work. Besides operational efficiency and management skills,
honed under the most demanding and competitive conditions, it is the
spirit of all our employees that are bonded cohesively with the
organization.
The company believes in employees involvement in achieving
the organizational objectives and focuses its efforts to upgrade the
skills of its workforce to take-up the challenges in the present
competition. The training system provides need-based training to our
employees. We are putting efforts to make our appraisal system more
effective to cater the financial and career aspirations of employees to
increase organizational effectiveness and efficiency.

The industrial relations are good and harmonious. Both

Management and Workgroup take positive approach and come to
mutual understanding, wherever necessary for betterment of the
organization.
Our employees are our most valuable asset and we believe that
your companys work force is the pivot around which our success
revolves.

1.3: COMPANY PROFILE

Real Strips Limited, AN ISO 9001 : 2000 Accredited Company

came in to existence in 1994 to cater the demand of Cold rolled flat
products of stainless steel, for quality conscious manufacturer. Real
Strips Limited is situated on out skirt of hub city of Gujarat.

Coils/Strips produced by Real Strips Limited are used in

Automobiles, Food & Dairy Industries, Sugar Industries, Watch
Industries, Pipes & Tubes Industries, Utensils, Furniture,
Architectural Utilities,
Thermo wares, Chemical process Industries,
Electronic Industries, Surgical industries, etc for very specialized
application.

1.4: INFRASTRUCTURE

In our company around 200 workers working in factory.

Our working capacity is 9000 MT per annum.
Our total area is 48560 square meter or 522700 square feet.

1.5: MANAGEMENTS:

A. BOARD OF DIRECTORS:

SHRI A.K. KATARIA

CHAIRMAN

SHRI A.D. SANGHVI

MANAGING DIRECTOR

SHRI UGAMRAJ M. HUNDIA

DIRECTOR

JOINT MANAGING

SHRI P.S. JAIN

DIRECTOR

JOINT MANAGING

SHRI ASHWIN A. KATARIA

SHRI BABULAL S. JAIN

WHOLE-TIME DIRECTOR
DIRECTOR

SHRI CHANDRESH V. SHAH

DIRECTOR

SHRI PAWAN R. MURARKA

DIRECTOR

SHRI AMOL DALAL

DIRECTOR

B. AUDITORS:
M/S MEHTA LODHA & CO.
CHARTERED ACCOUNTANTS

C. CONTACT PERSON:
MR. PRAKASH S. JAIN
MR. RAMESH CHAUDHARY
MANAGER

PUBLIC REL. OFFICER

GENERAL

MR. RAMCHARAN BERIWALA

D. BANKERS:

UNION BANK OF INDIA

STATE BANK OF INDIA

E. REGISTERED OFFICE:

26, MANGAL MURTI COMPLEX,

NEAR SHIV CINEMA,
ASRAM ROAD,
AHMEDABAD - 380009

F. WORKS:

SURVEY NO.245
VILLAGE: SARI
AHMEDABAD-BAVLA HIGHWAY
TALUKA: SANAND
DISTRICT: AHMEDABAD.

FINANCE MANAGER

1.6: PRODUCT

Chemical Composition
Product QualityRequirement
Mechanical Properties of 2D finish coil
Quality
Surface Finish

Real Strips Limited offers a very comprehensive product mix. Most of the
products are tailor made to cater the need of various industrial/Commercial
segments.
Production Facilities
One 4 Hi Mill
One 12 Hi Mill
Skin Pass Mill
Two Slitting Lines
Five Annealing & Pickling Line

Mechanical properties of 2D finish coil

Grade

UTS N/mm2
Minimum

301
304
304-L
316
316-L
321
JSL AUS
J-4

515
515
485
515
485
515
515
515

0.2% pro of
stress
N/mm2
minimum
205
205
170
205
170
205
205
205

% elongation Hardness RB
in 50 mm GI maximum
minimum
40
40
40
40
40
40
35
30

95
92
92
95
95
95
96
98

Quality
Annealed-Pickled (Soft), 1/4 Hand,1/2 Hand, 3/4 Hand, full Hard (As
rolled)
Coil wt. - 50 kg to 2.5 M.T.

Surface finish
CR Strips - Work hardened for specific hardness.
2D -Cold rolled stainless steel strips annelid & pickled.
2B -Cold rolled stainless steel strips annelid & pickled & Skin passed.

Product Quality Requirement

Product
Range & /or Tolerance
Characterist
ics
Grade
301,304,304-L,316,316-L,321,JSL
AUS,J4
Finish
2D Cold rolled stainless steel strips
annealed & pickled 2B, Cold rolled
stainless steel strips annealed & skin
passed\ CR strips (Works Harder for
Specific Hardness)
Width
For Mill edge Range 250 to 610 mm

Thick ness

Tolerance +/10 mm
For Slit edge Range 10 to 610 mm Tolerance.
Thickness Up to 1.00 1.00 to
1.75 to
2.50
->
mm
1.75 mm 2.50 mm to3.00
mm
Width
Width
Width
Width
Width
10 to 50
0.20
0.20
0.30
0.30
50 to 100 0.20
0.20
0.30
0.30
100 to 200 0.25
0.25
0.30
0.30
200 to 300 0.25
0.25
0.30
0.30
300 to 500 0.40
0.40
0.40
0.40
500 to 610 0.50
0.50
0.50
0.50
Coil
Tolerance +/- mm
thickness
in mm
Up to0.25 0.03
0.25 to
0.04
0.70
0.70 to
0.05
1.00
1.00 &
5% of coil thickness
above
Better thickness tolerance on demand. Measurement of
thick ness should be made at distance not less than 20 mm

Weight
Packing
Coil ID

from the edge of the stirs.

Maximum 5.5 kg per mm width of stainless steel strips
depending upon required thickness & width of the coil.
Hessian stainless steel strips or as per customer
requirement.
Min 150 mm to 510 mm max depending on thickness &
width of coil.

1.7: ENVIRONMENT
Real Strips Limited has taken serious note to take care of environment. All
the guidelines issued by Honorable High court and Govt. of India are
thoroughly abided. The liquid waste (effluent) released from our production
unit is treated within our Effluent Treatment Plant. The Effluent Treatment
Plant is fully equipped to treat the effluent up to desired safely level.

Real Strips Limited has started a big drive for tree plantation at our
industrial site. Therefore, Real Strips Limited is proud to call itself

environment friendly organization, believing in environment cleanliness and

industrial safety along with industrial growth.

1.8: PROFORMA OF THE INQUIRY FORM

Name:
Designation:
Company :
Address
City
State
Country:
Zip:
Phone No.
Fax No.
Email Address
INTERESTED IN :
Grade
Thickness
Tolerance:
Width:
Tolerance:
Tensile Strength
Yield Strength
Elongation :
Hardness :
Edge condition
(Unslitted/Slitted) :
Hardness & surface
finish :
Coil wt. :
Coil I.D. :
Quantity :
Place of destination
Comments

1.9: ORGANISATION CHART

PART II

CHAPTER-2
2.1: INTRODUCTION OF FINANCIAL STATEMENT
A Financial statement is an organized collection of data according
to logical and consistent accounting procedures. Its purpose is to convey an
understanding of some financial aspects of a business firm. A firm
communicates financial information to the user through financial statements
and reports. Two basic financial statements prepared for the purpose of
external reporting to owners, investors and creditors are:
(1) Balance sheet
(2) Profit and loss account.
For the internal management purpose that is planning and controlling,
much more information is needed than contained in the published financial
statement is needed. The basic objective of financial statement is decision
making. Much can be learnt about a firm from careful examination of its
financial statements as invaluable documents. Thus, it is an important aid to
financial analysis.

2.2: INTRODUCTION OF THE RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis, where ratios are used
as a yardstick for evaluating the financial condition and performance of a
firm. Analysis and interpretation of various accounting ratios give a skilled

and experienced analysts a better understanding of the financial condition

and performance of the firm that what he could have obtained only through a
persuade of the financial statements. The term ratio refers to the numerical
or quantitive relationship between two items or variables. It can be
expressed as (1) percentages (2) fractions and (3) proportion of numbers.
These alternative methods of expressing items which are related to
each other are, for purpose of financial analysis referred to as ratio analysis.
It should be noted that computing the ratios does not add any information
that already inherited in the figures of profits and sales. What the ratios do is
a more meaningful way so as to enable us to draw conclusions from them.
The systematic use of ratio to interpret the financial statements for knowing
the strength and weakness of a firm as well as its historical performance and
current financial condition.
The ratio analysis as a quantitive tool enables analysists to draw
quantitive information about net profits adequate, efficient uses of assets,
firms currents obligations etc.

2.3: DEFINITION OF RATIO:

The relationship between two accounting figures expressed
mathematically, is known as ratio or financial ratio.
The alternative methods of expressing items which are related to
each other are, for purpose of financial analysis, referred to as ratio
analysis.

2.4: STANDARD OF COMPARISION:

The ratio analysis involves comparison for a useful interpretation of
the financial statements a single ratio in itself does not indicates favorable or

unfavorable condition. Some standards of comparison are useful here, which

may consist of:
Ratio calculated from the past financial statements of the same firm.
Ratio developed using the projected or pro forma, financial statement
of the same year.
Ratios of some selected firms, especially the most progressive and
successful. At the same point of time, and
Ratios of the industry to which the firm belongs.
The easiest way to evaluate the performance of a firm is to compare
its current ratios with the past ratios. It gives an indication of the direction of
change and reflects whether the firms financial performance has improved,
deteriorated or remained constant over time. The change may be affected by
changes in the firms performance.
Sometimes future ratios are used as the standards of comparison of
past ratios with future ratios show the firms relative strengths and
weaknesses in the past and the future. If the future ratio indicates the weak
financial position, corrective actions should be initiated.
In the other way, we can compare ratios of one firm with some
selected firms in the same industry at the same point in time. It is more
useful to compare the firms ratios with ratio of a few carefully selected
competitors, who have similar operations. It indicates the relative financial
position of the firm.
For determining the financial condition and performance of a firm,
this ratio may be compared with average ratios of the industry of which the
firm is a member. It helps to ascertain the financial standing and capability
of the firm in the industry to which it belongs. Industry ratios are important
standards in view of the fact that each has its own characteristics which
influence the financial and operating relationships.

2.5: NATURE OF RATIO ANALYSIS:

Ratio analysis is a powerful tool of financial analysis. A ratio is a

indication quotient of two mathematical expressions, which is used as an
index or yardstick for evaluating the financial position and performance of a
firm. The absolute accounting figures do not provide a meaning
understanding of the performance and financial position of the firm.
An accounting figure conveys meaning when it is related to some
other relevant information. Ratios help to summarize the large quantities of
financial data and to make qualitative judgment about the firms
performance. The greater the ratio, the greater the firms liquidity and the
vice-versa. The point to note is that a ratio indicates a quantitive
relationship, which can be used to make a quantitive judgment. Such is the
nature of all the financial ratios.

2.6: IMPORTANCE OF RATIO ANALYSIS:

The importance of ratio analysis lies in the fact that it represents facts
on a comparative basic and enables the drawings of a inferences regarding
the performance of a firm. In respect of the following aspects, ratio analysis
is relevant.
1.

LIQUIDITY POSITION.

2.

LONG TERM SOLVANCY.

3.

OPERATING EFFICIENCY.

4.

OVER ALL PROFITABILITY.

5.

INTER FIRM COMPARISON.

6.

TREND ANALYSIS.

2.7: LIMITATIONS OF RATIO ANALYSIS:

There are several limitations of ratio analysis.

1.

COMPARATIVE STUDY REQUIRED

2.

LIMITATION OF THE FINANCIAL STATEMENT.

3.

RATIOS ALOME ARE NOT ADQUATE.

4.

WINDOW DRESSING.

5.

PROBLEMS OF PRICE LEVEL CHANGES.

6.

NO FIXED STATEMENTS

7.

RATIOS ARE A COMPOSITE OF MANY FIGURES.

2.8: VARIOUS TYPES OF RATIOS:

There are mainly five kinds of Ratios:
1.
2.
3.
4.
5.

LIQUIDITY RATIO.
PROFITABILITY RATIO.
ASSETS TURNOVER RATIO.
FINANCE / LEVERAGE / CAPITAL RATIO.
VALUATION RATIO.

1. LIQUIDITY RATIO:
(a) CURRENT RATIO:
(b) LIQUIDITY RATIO/ QUICK RATIO
(c) QUICK RATIO
(d) NET WORKING CAPITAL
(e) CASH GENERATED PER RUPPES OF SALES:
(f) BANK FINANCE GAP RATIO:
(g) CAPITAL GEARING RATIO:
2. PROFITABILITY RATIO.
(a) OPERATING PROFIT RATIO:
(b) GROSS PROFIT RATIO:

(c)NET PROFIT RATIO

(d) RATE OF RETURN ON INVESTMENT:
(e) RATE OF RETURN ON EQUITY:
(f) RETURN ON ASSETS:
3. ASSETS TURNOVER RATIO.
(a) INVENTORY / STOCK TURNOVER RATIO:
(b) AVERAGE AGE OF INVENTORIES:
(c) TOTAL ASSETS TURNOVER:
(d) NET FIXED ASSETS TURNOVER
(e) NET WORKING CAPITAL TURNOVER:
(f) DEBTORS TURNOVER:
(g) CREDITORS TURNOVER RATIO:

4. FINANCE / LEVERAGE / CAPITAL RATIO.

(a) PROPRIETORY RATIO:
(b) EQUITY RATIO:
(c) DEBT RATIO
(d) DEBT EQUITY RATIO:
(e) DEBT TO TOTAL ASSETS RATIO
(f) FIXED ASSETS TO NET WORTH RATIO:
(g) INTEREST COVERAGE RATIO:
(h) DEBT SERVICE COVERAGE RATIO:
5. VALUATION RATIO.
(a) EARNING PER SHARE (EPS)
(b) PRICE EARNING RATIO:

PART III

CHAPTER-3

FINAICIAL STATEMENTS
BALANCE SHEET AS ON 31ST MARCH 2003
PARTICULARS

SC. NO. AS ON
31-03-2003

AS ON
31-03-2002

A.SOURCES OF FUNDS
1.SHAREHOLDERS FUNDS
(a) Share capital
(b) Reserves Surplus

1
2

52693000
36374786
89067786

47693000
26044659
73737659

2. LOANS FUNDS
(a) Secured Loans
(b) Unsecured Loans

3
4

80630217
39465899
120096116
18532872

66878603
40189225
107167828
14504643

227696774

195310130

3 DEFERRED TAX
LIABILITY (NET)
TOTAL

B. APPLICATION OF
FUNDS
1. FIXED ASSETS

a. Gross Block

197094844

122451921

55272879

44673102

141821965
2490450

77778819
55502741

144312415

133281560

a. Inventories

27623378

20806262

b. Sundry Debtors

62967085

55291640

534091
6541434

1691649
5099013

97665988

82888564

14948386

21835963

82717602

61052601

Public Issue Expenses

471583

742283

Preliminary Expenses

195174

233686

666757
227696774

975969
195310130

b .Less; Depreciation
NET BLOCK
c. Capital work in progress
2. CURRENT ASSETS,
LOANS & ADVANCES

c. Cash and Bank balances

d. Loans and Advances
Less; Current Liabilities &
Provisions

3.MISCELLANEOUS
EXPENDITURE
(to the extent not written off or
adjusted)

TOTAL

BALANCE SHEET AS ON 31ST MARCH 2004

PARTICULARS

SC. NO.

AS ON
31-03-04

AS ON
31-03-03

A.SOURCES OF FUNDS
1.SHAREHOLDERS
FUNDS
(a) Share capital
(b) Reserves Surplus

1
2

52693000
53408966
106101966

52693000
36374786
89067786

2. LOANS FUNDS
(a) Secured Loans
(b) Unsecured Loans

3
4

117579368
27445889
145025257
21763005

80630217
39465899
120096116
18532872

272890228

227696774

260998679
87645132
173353547
3608547
176962094

197094844
55272879
141821965
2490450
144312415

48238275
56066652

27623378
62967085

3 DEFERRED TAX
LIABILITY (NET)
TOTAL
B. APPLICATION OF
FUNDS
1. FIXED ASSETS
a. Gross Block
B Less; Depreciation
NET BLOCK
C Capital work in progress

2. CURRENT ASSETS,
LOANS & ADVANCES

a. Inventories
b. Sundry Debtors

c. Cash and Bank balances

d. Loans and Advances
Less; Current Liabilities &
Provisions

1086909
10963109
116354945
20784356

534091
6541434
97665988
14948386

95570589

82717602

200883
156662
357545
272890228

471583
195174
666757
227696774

3.MISCELLANEOUS
EXPENDITURE
(to the extent not written off
or adjusted)
Public Issue Expenses
Preliminary Expenses
TOTAL

BALANCE SHEET AS ON 31ST MARCH 2005

PARTICULARS

SC.
NO.

AS ON
31-03-05

AS ON
31-03-04

A.SOURCES OF FUNDS
1.SHAREHOLDERS FUNDS
(a) Share capital
(b) Reserves Surplus

1
2

52696000
67873711
120569711

52693000
53408966
106101966

2. LOANS FUNDS
(a) Secured Loans
(b) Unsecured Loans

3
4

134251287
7745697
141996984
25536719

117579368
27445889
145025257
21763005

288103414

272890228

292880246
129973345
162906901
9661412
172568313

260998679
87645132
173353547
3608547
176962094

82464916
79340547
1717688

48238275
56066652
1086909

3 DEFERRED TAX
LIABILITY (NET)
TOTAL

B. APPLICATION OF FUNDS
1. FIXED ASSETS
a. Gross Block
B .Less; Depreciation
NET BLOCK
C .Capital work in progress
2. CURRENT ASSETS, LOANS
& ADVANCES
a. Inventories
b. Sundry Debtors
c. Cash and Bank balances

d. Loans and Advances

Less; Current Liabilities &
Provisions

3.MISCELLANEOUS
EXPENDITURE
(to the extent not written off or
adjusted)
Public Issue Expenses
Preliminary Expenses

TOTAL

14483978
178007129
62590178

10963109
116354945
20784356

115416951

95570589

0
118150
118150

200883
156662
357545

288103414

272890228

PARTICULARS
INCOME
SALES
other Income
Increase/(decrease)in Stock
EXPENDITURE
Material Cost
Manufacturing and other Exp
Employee Remuneration
Selling &Distribution exp.
Public Issues Expenses Written
Off
Preliminary Expenses Written Off
Financial expenses
Depreciation

Profit For The year (EBIT)

LESS: Provision For Taxation
(1)Current Tax
(2)Deferred Tax
Profit After Tax (PAT)
ADD/(LESS):Income Tax for
Earlier Year
ADD/(LESS): Prior Period
Adjustment

2002-2003

2001-2002
-

335126011
5463812
6421488
347011311

274382684
3874931
-6069143
272188473

254936408
46111777
4978266
4161508
270700

188909295
38261388
4442163
3114995
270700

38512
9881384
11081460

38512
13631989
9113017

331460015
15551296

257782060
14406413

1225000
3590175

1133333
4371341

10736121
0

8835072
-524219

32060

1225

10768181

8312078

ADD; Balance as Per Last Year

LESS: Amount Transferred to
Deferred Liability
Balance Carried Forward To
Balance Sheet

24544659
-438054

13282783
-5231755

34874786

16363106

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED

2002-2003
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED
2003-2004
PARTICULARS
INCOME
SALES
other Income
Increase/(decrease)in Stock
EXPENDITURE
Material Cost
Manufacturing and other Exp
Employee Remuneration
Selling &Distribution exp.
Public Issues Expenses Written Off
Preliminary Expenses Written Off
Financial expenses
Depreciation
conversation charges
Profit For The year (EBIT)
LESS: Provision For Taxation
(1)Current Tax
(2)Deferred Tax
Profit After Tax (PAT)
ADD/(LESS):Income Tax for Earlier
Year
ADD/(LESS): Prior Period Adjustment

2003-2004

2002-2003

401849631
4573285
13074059
419496975

340474777
115046
6208131
346797954

235074403
58442560
5344107
3002163
270700
38512
16087910
32894610
45318032
396472997
23023978

254936408
45870420
4978266
4161508
270700
38512
9881384
11081460
28000
331246658
15551296

2760000
3230133

1225000
3590175

17033845
335

10736121
0

32060

ADD; Balance as Per Last Year

LESS: Amount Transferred to Deferred
Liability
Balance Carried Forward To
Balance Sheet

17034180
34874786
0

10768181
24544659
-438054

51908966

34874786

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDEDS

2004-2005
PARTICULARS
INCOME
SALES
other Income
Increase/(decrease)in Stock
EXPENDITURE
Material Cost
Manufacturing and other Exp
Employee Remuneration
Selling &Distribution exp.
Public Issues Expenses Written Off
Preliminary Expenses Written Off
Financial expenses
Depreciation
conversation charges
Profit For The year (EBIT)
LESS: Provision For Taxation
(1)Current Tax
(2)Deferred Tax
Profit After Tax (PAT)
ADD/(LESS):Income Tax for Earlier
Year
ADD/(LESS): Prior Period Adjustment
ADD; Balance as Per Last Year

2004-2005

2003-2004

474461733
15733162
9918671
500113566

401849631
4573285
13074059
419496975

297453538
77847332
8826607
2211257
200883
38512
15594543
43815952
26536880
472525504
27588062

235074403
58442560
5344107
3002163
270700
38512
16087910
32894610
45318032
396472997
23023978

5315000
3773714

2760000
3230133

18499348
0

17033845
0

-212879
18286469
51908966

335
17034180
34874786

LESS: Amount Transferred to Deferred

Liability
LESS: Dividend Tax
Balance Carried Forward To Balance
Sheet

-3380000

-441724
66373711

0
51908966

CHAPTER-4
RATIO ANALYSIS
4.1: LIQUIDITY RATIO.

t is extremely essential for a firm to be able to meet its

obligation as they become due. Liquidity ratio measures the
ability of the firm to meet its current obligations. Liquidity
ratios by establishing a relationship between cash and other current assets to
current obligations provide a quick measure of liquidity. The failure of a
company to meet its obligations due to lack of sufficient liquidity, will result
in bad credit image or even in law suits resulting in the closure of the
company. Proper balance between liquidity and profitability is required for
efficient management.
The liquidity ratio measures the ability of the firm to meet its
short term obligation and reflect the short term financial strength/ solvency
of a firm. The main ratio which indicates the liquidity of a firm is:
(1) Current Ratio
(2) Liquidity Ratio / Quick Ratio
(3) Acid Test Ratio
(4) Net working capital
(5) Cash generated per rupee of sales
(6) Bank finance gap ratio
(7) Capital Gearing Ratio

1. CURRENT RATIO:
Current ratio is the most widely used ratio which shows the proportion
of current assets to current liability. It is a measure that working capital is
available on time or not.
Current ratio: -

current assets
Current liability

SIGNIFICANCE:
The current ratio is not only a measure of solvency but it is an index
of the working capital available to the margin of safety. It means, it is a
crude and quick measure of the firms liquidity.
(Rs. In million)

EXHIBIT 4.1
YEAR
CURRENT
ASSETS
CURRENT
LIABILITY
RATIO
(C.A/C.L)

2001-2002
8.27

2002-2003
9.77

2003-2004
11.64

2004-2005
17.81

4.51

4.03

5.41

11.25

1.834

2.424

2.152

1.583

INTERPRETATION:
Composition of current ratio is very important at the time of
interpretation. Current ratio indicates the sound short term
finance from the creditors point of view. But on the other
hand the higher ratio indicates blocking of funds in current
assets. As a conventional rule, current ratio of 2:1 or more is
considered satisfactory. To through more light on the quality
of current assets the percentage of the current assets is to be
calculated.
However, an arbitrary standard of 2:1 should not be blindly
followed. Firms wit less then 2:1 current ratios may be
doing well, while firms with 2:1 or even higher may be
finding great difficulties in paying their bills. This is because
the current ratio is a test of quantity not quality.
The current assets were increased in the year 2002-2003 but
it has been decreasing.
The current ratio in the year 2002-2003 &2003-2004 it more
than 2:1 which more than the conventional rule so it is
considered which shows the strong position of firm.
In the year 2004-2005 it is bit lower than the conventional
rule because the cash has been blocked more in inventories.
The firm has good cash and bank balance and other current
assets like, interest on bonds, fixed deposits, and deposit
with banks.

2. LIQUIDITY RATIO/ QUICK RATIO

A variant of current ratio is the liquid ratio or quick ratio which is
designed to show the amount of
cash available to meet immediate
payments. It is obtained by dividing the liquid assets to liquid liabilities.
Liquid assets are obtained by deducting stock -in trade from current
assets.
Liquid liabilities are obtained by deducting bank overdraft from
current liability.
It is also called liquid ratio.
Liquid ratio: -

Liquid Assets
Liquid liability
(Rs.In Millions)

EXHIBIT 4.2
YEAR

2001-2002

2002-2003

2003-2004

LIQUID ASSETS

6.21

7.01

6.81

20042005
9.56

LIQUID
LIABILITIES

4.51

4.03

5.41

11.25

RATIO (L.A/L.L)

1.38

1.74

1.26

0.85

INTERPRETATION:
The ideal liquid ratio is 1:1. The firm has more liquid position and
it is good for the company because the firm should have some
cash on hand to meet daily expense.
The liquidity ratio in the year 2002-2003 was more compared to
other year while in the year 2004-2005 which show decrease in
the ratio to 0.85 that means the liabilities has been increased in
this year which leads to decrease in the ratio So, If the company
wants to be in liquid position The liabilities loan has decreased up
to certain extent. They have to pay more advances and it shows
good creditworthiness and they are easily convertible assets.
It shows good position of firm. It shows good liquidity position.
They are able to meet unplanned expenses because they had more
liquid assets.

3. ACID TEST RATIO

The acid test ratio is the measure of absolute liquidity position of
firm. The satisfactory ratio is 0.5 to 1.00. It is compared by liquid
liability and quick assets.
ACID TEST RATIO: -

QUICK ASSETS

LIQUID LIABILITIES
SIGNIFICANCE: It is measure of a firms ability to service short term
liabilities. The usefulness of the ratio lies in the fact that it is widely
accepted as the best available test of the liquidity position of a firm.

(RS in Millions)

EXHIBIT 4.3
YEAR
2001-2002
QUICK ASSETS 7.425

2002-2003
5.3559

2003-2004
5.9241

2004-2005
5.1414

LIQUID
LIABILITIES
RATIO
(Q.A/L.L)

4.51

4.03

5.41

11.25

1.14

1.47

0.99

0.66

INTERPRETATION:

 Generally a quick ratio of 1:1 is considered to represent a

satisfactory current financial condition. A quick ratio of 1:1 or
more does not necessarily imply sound liquidity position.
A company with a high value of quick ratio can flounder if it has
slow-paying, doubtful and stretched out-in-age receivables. On the
other hand, a company with a low value of quick ratio may be
prospering and paying its current obligation in time, if it has been
managing its inventories very efficiently wit a continuous stability.
The ratio in 2001-2002 it was 1.14 but in the year 2002-2003it was
improved and increase to 1.47due to increase in debtors and also in
the cash and bank balance But in the year 2003-2004 &2004-2005
it was decrease or decline 0.99 & 0.66 respectively because of
decrease in debtors and also in the bank and cash balance. This
may be because of decrease in the sales.

4. NET WORKING CAPITAL

This ratio represent that part of long term funds represented by net
worth and long term debt which are permanently blocked in the current
assets. Certain minimum level of safety stock, permanent customers, unpaid
bills compensatory minimum bank balance and minimum cash balance are
the example of the permanent working capital
NET WORKING CAPITAL:
TOTAL CURRENT ASSETS TOTAL CURRENT LIABILITIES
(RS.
Million)

EXHIBIT 4.4

In

YEAR
CURRENT
ASSETS
CURRENT
LIABILITIES

2001-2002
8.27

2002-2003
9.77

2003-2004
11.64

2004-2005
17.81

4.51

4.03

5.41

11.25

NET
WORKING
CAPITAL

3.76

5.74

6.23

6.56

5. CASH GENERATED PER RUPPES OF SALES:

This ratio shows that percentage of sales which is available in cash

form.
C.G.P.R.O.S.: =
P.A.T + DEPRECIATION+NON CASH EXPENSES

*100

SALES

(Rs. In Million)

EXHIBIT 4.5

YEAR
P.A.T
NON CASH
EXPENSES
C.G.P.R
SALES

2001-2002
12,468,117
34,822,635

2002-2003
10,768,181
21,275,779

2003-2004
17,034,180
49,487,593

2004-2005
1,828,469
56,589,922

47,290,752
411,574,026

32,043,960
335,126,011

66,521,773
401,849,631

58,418,391
474,461,733

RATIO (%)

11.49%

9.56%

16.55%

12.31%

INTERPRETATION:
In the year 2003-2004 the ratio that is percentage was high that is
16.55% which shows that that much percentage of sales which is
available in the cash form .while in the other year it is less than 20032004 that is in the year 2001-2002 2002-2003& 2004-2005 it was
11.49%, 9.56% & 12.31% respectively.

6. BANK FINANCE GAP RATIO:

B.F.G.R. = TOTAL CURRENT ASSET -MPBF UNDER TANDON
COMMITTEE

MPBF indicates Maximum Permissible bank Finance under Tandon

Committee recommendations of 1975. The maximum permissible bank
finance was restricted to 75% of the working capital gap under method of
bank lending.
Method: (a) 75 %( C.A- C.L)
(b) 75% (C.A) - C.L
(c) 75% (C.A.-C.C.A)-C.L

EXHIBIT 4.6
YEAR
RAW
MATERIAL
WORK IN
PROGRESS
FINISHED
GOOD
CORE
CURRENT
ASSET
DEBTORS
CURRENT
ASSET

2001 -2002
2,399,841

2002-2003
2,194,709

2003-2004
9,206,371

2004-2005
31,979,784

10,544,758

15,419,404

25,184,497

31,820,753

5,506,713

7,053,555

10,140,786

14,740,107

18,451,312

24,667,668

44,531,654

78,540,644

55,291,640
73,742,952

62,967,085
87,634,753

56,066,652
100,598,306

79,340,547
157,881,191

CURRENT
LIABILITIE
S
CA-CL
75%(CACL)
75% C.A

21,835,963

75%(C.A)C.L
CA-CCA
75%(CACCA)
75%(C.ACCA)-C.L

14,948,386

20,784,356

62,590,178

51,906,989
72,686,367
79,813,950
38930241.75 54514775.25 59860462.5

95,291,013
71468259.75

55307214

65726064.75 75448729.5

118410893.25

33471251

50777678.75 54664373.5

55820715.25

55291640
41468730

62,967,085
56,066,652
47225313.75 42049989

79,340,547
59505410.25

19632767

32276927.75 21265633

(3084767.75)

7. CAPITAL GEARING RATIO:

It is the ratio of fix dividend gearing capital; to uncertain dividend bearing
capital.
CAPITAL GEARING RATIO =
PREFERENCE CAPITAL + DEBENTURES
EQUITY SHARE CAPITAL

EXHIBIT 4.7
YEAR

2001-2002

2002-2003

2003-2004

2004-2005

PREF. CAP. &

DEBENTURES

54793468

51818405

51066466

43943424

EQ. SHARE
CAPITAL
RATIO ( IN
TIMES)

32693000

32693000

32693000

32696000

1.676

1.585

1.562

1.344

INTERPRETATION:
Higher the ratio greater the proportion of preference share capital and
debentures to equity share capita. In other words the company is said
to be highly geared in such circumstances the equity share of the
company will be speculative in the market because even by the small
increase in the profit the rate of return on the equity capital will
increase substantially. Higher the ratio major share of the profit will
be absorbed by the preference dividend and debenture interest.
In the year 2004-2005 the ratio was the lowest, that is 1.344 times.
Which may due to higher share of the profit absorbed by the
preference dividend and debenture interest?

 In the year 2001-2002 it was the highest i.e.1.676 that means the
position the company is said to be highly geared because of the
increase in small rate of return on equity.

4.2:

PROFITABILITY RATIO:

Profitability is an indication of the efficiency with which the

operations of the business are carried on. Poor operational performance may
indicate poor sales and poor profit. A Lower profitability may arise due to
lack of control over the expenses. Bankers, financial institutions and other
creditors look at the profitability ratios as an indicator whether or not the
firm earns substantially more than it pays interest for the use of borrowed
funds whether the ultimate repayment of their debts appear reasonably
certain. Owners are interested to know the profitability as it indicates the
return which they can get on their investments.

(1) GROSS PROFIT RATIO:

The ideal ratio is 25% for the trading concern while 15% for the
manufacturing concern. This ratio shows the margin left after meeting
manufacturing costs. It measures the efficiency of production as well as
pricing.
Gross profit ratio= Gross profit *100
Sales
(Rs. In Million)

EXHIBIT 4.8
YEAR
GROSS
PROFIT
SALES
RATIO
RATIO (%)

2001-2002
61714287

2002-2003
40499314

2003-2004
75866960

2004-2005
83859554

411574026
0.149947
14.9947

335126011
0.120848
12.0848

401849631
0.1887944
18.87944

474461733
0.1767467
17.67467

INTERPRETATION:
Gross profit margin ratio is good in the year 2003-2004 that is nearly
19% while in the year 2004-2005 it is nearly about 18%.

 It is lower in 2002-2003 because of increase in cost of the good sold

in 2002-2003is 126.31 percent which is more than increase in sales
which is 122.14 %
It is better in 2003-2004 because of the increase in the sale is 46.46%
and increase in the cost of good sold is only 39.76% which is lower
than sales.
In the year 2004-2005 the increase in the sale is 72.92% and the
increase in COGS is 67.47% which is lower.

(2) NET PROFIT RATIO:

The ratio helps in determining the efficiency with which affairs of the
business are being managed. It also indicates the firms capacity to withstand
adverse economic condition.

NET PROFIT RATIO: EARNING AFTER TAX *100

SALES

EXHIBIT 4.9
YEAR
EARNING
AFTER TAX
NET SALES
RATIO
RATIO (%)

2001-2002
12468117

2002-2003
10768181

2003-2004
17034180

2004-2005
18286469

411574026
0.0303
3.03

335126011
0.0321
3.21

401849631
0.0424
4.24

474461733
0.0385
3.85

INTERPRETATION:
The ratio is an effective measure to check the profitability of
business. However, constant increase in the net profit ratio year
after year is a definite indication of improving condition of the
business. If the net margin is inadequate, the firm will fail to
achieve satisfactory return on owners equity.
The profit margin is showing high rate in the year 2003-2004 that
is 4.24% in other year it is showing less rate than 2003 -2004
because of inefficiency of increase in sales.
It is better in the year 2003-2004 because of using of some
favorable conditions like, increase in the sales efforts, use of low
production cost techniques and try to cover more market share
make effect on profit in the year 2003-2004.

(3) OPERATING PROFIT RATIO:

Operating profit ratio can be found out after excluding all nonoperating expenses like interest and taxes that means earning before interest
and tax.

OPERATING PROFIT RATIO = OPERATING PROFIT *100

SALES

EXHIBIT 4.10
YEAR
OPERATING
PROFIT
SALES
RATIO
RATIO (%)

2001-2002
21609619

2002-2003
15551296

2003-2004
23023978

2004-2005
27588062

411574026
0.053
5.250

335126011
0.046
4.640

401849631
0.057
5.730

474461733
0.058
5.815

OPERATING COST RATIO: = OPERATING COST *100

SALES

EXHIBIT 4.11
YEAR
OPERATING
COST
SALE
RATIO
RATIO (%)

2001-2002
386673090

2002-2003
331460015

2003-2004
396472997

2004-2005
472525504

411574026
0.939
93.950

335126011
0.989
98.906

401849631
0.987
98.662

474461733
0.996
99.592

INTERPRETATION
This ratio is giving the overall picture of the firm. As the profit are
high, the firms ability to pay dividend, interest, reserves for debts
etc. is sufficient and the returns on their investments. While low
profit or losses shows inefficiency of the firm to sustain the
operations of the business.
In the year 2001-2002, the operating profit ratio of the firm showed
the ratio of 5.25%. It was slightly decreasing in the year 2002-2003
that is 4.64% that means the company is facing high operational
expenses which directly effect to the profit. The company is able to
earn the profit only when the sales is increase but again in the year
2003-2004 & 2004-2005 it is increasing that is 5.73 %& 5.815% that
means the sale in both year has been increased.

(4) RATE OF RETURN ON INVESTMENT:

It is also known as return on capital employed or return on assets. It
measures how efficiently the capital is employed.
R.O.R.O.I =

EBIT
TOTAL ASSETS

*100

This ratio is spitted into following two parts by inserting sales in the
above formula.
The below split is popularly known as DU PONT split.
ROI =

EBIT *100

X SALES

SALES

PROFIT MARGIN (%)

TOTAL ASSETS

TOTAL ASSETS TURNOVER

EXHIBIT 4.12
YEAR

2001-2002

2002-2003

2003-2004

2004-2005

EBIT

21609619

15551296

23023978

27588062

SALES

411574026

335126011

401849631

474461733

TOTAL ASSETS

194334161

227033017

272532683

287985264

PROFIT MARGIN (%)

TOTAL ASSETS
TURNOVER
R.O.R.O.I

5.25
2.12

4.64
1.48

5.73
1.47

5.81
1.65

11.12

6.85

8.45

9.58

INTERPRETATION:

 The rate of return on investment in the year 2001-2002 was the

highest compare to other year because profit margin 5.25% and the
assets turnover was 2.12 times so the rate of return on investment
was about 11.12%.
In the year 2002-2003 it decreased to 6.85% due decrease in the
profit margin and the asset turnover that is 4.64 % & 1.48 times
respectively.
In the year 2003-2004& 2004-2005 the rate of return on the
investment was increased due to increased in the profit margin and
the assets turnover that is in the year 2003-2004 5.73% & 1.47
times while in the year 2004-2005 5.81% &1.65 times that is the
rate of return on the investments was 8.45 % & 9.58%.

(5) RATE OF RETURN ON EQUITY:

It measures the profitability of equity funds invested in the firm.

Here the profits for the equity will be considered after deducting
preference dividend.
If no preference share capital exists in the balance sheets then net
profit will be taken in the numerator. The formula of rate of return is as
follows:
RATE OF RETURN =
NET PROFIT -PREFERENCE DIVIDEND

* 100

NET WORTH

(Rs. In million)

EXHIBIT 4.13

YEAR
NET
PROFIT
AFTER
DIVIDEND
NET
WORTH
RATIO
RATIO (%)

2001-2002
2.46

2002-2003
3.49

2003-2004
5.19

2004-2005
6.64

7.28

8.84

10.57

12.05

0.34
33.79

0.39
39.48

0.49
49.10

0.55
55.10

INTERPRETATON:
Return on equity of the company has been increasing year by year
that is from 2001-2002 33.79% to 55.15 in the year 2004-2005.
That mean the equity funds invested in the company/ firm is good
which shows that the profitability of the business is increasing year
by year.
(6) RETURN ON ASSETS:
This ratio is helpful in knowing the productivity of the total assets. It
will be proper to include the interest in computing the return on total assets.
The objective of computing the return on the total assets is to find out how
effectively the funds pooled together have been used.
RETURN ON ASSETS = PROFIT AFTER TAX
TOTAL ASSETS

*100

EXHIBIT 4.14
YEAR
PROFIT
AFTER TAX
TOTAL
ASSETS
RATIO
RATIO (%)

2001-2002
12468117

2002-2003
10768181

2003-2004
17034180

2004-2005
18286469

194334161

227033017

272532683

287985264

0.064
6.42

0.047
4.74

0.063
6.25

0.063
6.35

INTERPRETATION:
The business can service only when the return on the capital
employed is more than the cost of capital employed in the
business.
The rate of return on assets was 4.74 during the year 2002-2003
because there is decrease in assets mainly in the current assets
while it was increasing in the year 2003-2004 & 2004-2005 that
to 6.25 & 6.35 respectively because of more profit as the total
assets have also increased. It means the investments in assets
give favorable returns.

4.3: TURN OVER / ACTIVITY RATIO:

Turnover or activity Ratios are employed to evaluate the efficiency

with which the firm manages and utilizes its assets. Funds of creditors and
owners are invested in various assets to generate sales and profit. So, these
ratios are helpful in knowing the speed with which assets are being
compared or turned into sales. It shows relationship between sales and
assets.

(1) A. INVENTORY / STOCK TURNOVER RATIO:

Inventory turnover is a valuable measure of selling efficiency and
inventory quality. It expresses the frequency with which average level of
inventory investment is turned over through operations. It signifies the
liquidity of the inventory.
This ratio indicates how many times in a year the stock is turnover.
Higher the ratio better it is.
STOCK TURNOVER RATIO= COST OF GOOD SOLD
AVERAGE STOCK
WHERE AVERAGE STOCK =
OPENING STOCK + CLOSING STOCK
2

EXHIBIT 4.15
YEAR
COGS
AVERAGE
STOCK
RATIO (In
times)

2001-2002
349859739
20806262

2002-2003
294626697
24214820

2003-2004
325982671
37930826.5

2004-2005
390602179
65351595.5

16.82

12.17

8.59

5.98

INTERPRETATION:
Inventory turnover ratio indicates the relationship between the cost
of good sold and the inventory level. Higher the inventory ratio,
larger the amount of sales, the smaller the amount of the capital
tied up in inventory and the more current the merchandise stock.
Normally 6 to9 is heavy turnover ratio suppose if it is less than this
that means either stock is not sellable or effort for marketing are
lacking.
The ratio is very important in judging the ability of management
with which it can move the stock. Higher the ratio more profitable
the business would be.
In other words if the turnover is higher the organization or the firm
can sell its good with less margin of gross profit conversely low
turnover indicates accumulation of slow moving, absolute or low
quality good which is danger signal to the management.
The chart shows that the stock turnover ratio is decreasing year by
year that is in the year 2001-2002 it was the highest that is 16.82%
which decline to 5.98% in the year 2004-2005.This shows that the
low turnover indicates accumulation of slow moving, absolute or
low quality good .

(1) B. AVERAGE AGE OF INVENTORIES:

This ratio indicates the waiting period of the investments in the
inventories and is measured in days, week or months. Inventory turnover and
average age of the inventories are inversely related. High inventory turnover
ratio is goods but longer age of the inventory is bad as it indicates idle
blocking of money in the inventories.

(Rs. In Million)

EXHIBIT 4.16
YEAR
DAYS
INVENTORY
TURNOVER
AVERAGE AGE OF
INVENTORIES
(IN DAYS)

INTERPRETATION:

2001-2002
360
16.82

2002-2003
360
12.17

2003-2004
360
8.59

2004-2005
360
5.98

21.40

29.58

41.91

60.20

 In the year 2001-2002 it was the lowest that is 21 days and it was
increasing year by year to 30 days 42 days & 60 days in the year
2002-2003, 2003-2004 &2004-2005 respectively which shows or
indicates that idle blocking of money in the inventories year by
year which is not good for the company or firm. To reduce the
average age of the inventories, inventory turnover should be
increased as well as the blocking of the money should be avoided.

(2) TOTAL ASSETS TURNOVER:

The amount invested in business is invested in all assets for earning
profit.
CAUTION:
If the assets are old and more depreciation has been deducted than the
turnover will seen more which in fact does not show efficiency.
TOTAL ASSETS TURNOVER=

SALES
TOTAL ASSETS

Exhibit 4.17
YEAR
SALES
TOTAL
ASSETS
TOTAL
ASSETS
TURNOVER

2001-2002
411574026
194334161

2002-2003
335126011
227033017

2003-2004
401849631
272532683

2004-2005
474461733
287985264

2.12

1.48

1.47

1.65

INTERPRETATION:
Following points should be kept in mind while interpreting
Type of assets whether new or old & by which method
depreciation is provided.
The investment in fixed assets changes in the type of business for
example steel business investment in the fixed assets is very high.
Sales depend upon overall efficiency in the part of management &
not only on the use of fixed assets.
It is not always the case that more the sales more the profit, for this
purpose difference between selling price and cost of sales should
be taken into account.
The method of valuation of assets and in particular method of
valuation of stock must be examined.
Here in the graph in the year 2001-2002 it was higher that is 2.12
than it decreases to 1.48 times in the year 2002-2003 it may due to
high investment in the fixed assets than in the year 2003-2004 &
2004-2005 it increases to 1.47 &1.65 times respectively.
(3)NET FIXED ASSETS TURNOVER
This ratio measures sales per rupees of investment in fixed assets.
This ratio supposed to measure the efficacy with which fixed assets are
employed. A high ratio indicates a high degree of efficacy in assets
utilization and vice-versa.

FIXED ASSETS TURNOVER = NET SALES

NET FIXED ASSETS

EXHIBIT 4.18
YEAR
NET SALES
NET FIXED
ASSETS
RATIO (IN
TIMES)

2001-2002
411574026
133281560

2002-2003
335126011
144312415

2003-2004
401849631
176962094

2004-2005
474461733
172568313

3.09

2.32

2.27

2.75

INTERPRETATION:
A fixed assets turnover ratio has increased reflects the efficient use
of fixed asset.
But in the graph it shows in the year 2001-2002 it was highest that
is 3.09 times and it decreased to 2.32,2.27 &2.75 times in the year
2002-2003, 2003-2004, & 2004-2005 respectively
It is due to decrease in the net sales by 18.57% in the year 20022003 and in the 2003-2004 decreased by 2.36 % by taking the year
2001-2002 as the base year while their was an increase in the
percentage of the sales in the year 2004-2005 by 15.3%.

 It may be due to increase in the fixed assets year by year that is in

the year 2002-2003 it was 8.28% and the year 2003-2004 it was
32.77% and it decreases to 29.48% in the year 2004-2005.
(4) NET WORKING CAPITAL TURNOVER:
This ratio measures sales per rupees of investment in the working
capital. This ratio supposed to measure the efficacy with which working
capital is employed. A high ratio indicates a high degree of efficacy in
working capital utilization and vice-versa.
NET WORKING CAPITAL TURNOVER =
SALES
NET WORKING ASSETS

EXHIBIT 4.19
YEAR
NET SALES
NET
WORKING
ASSETS
N.W.C.T

2001-2002
411574026
82717602

2002-2003
335126011
61052601

2003-2004
401849631
95570589

2004-2005
474461733
115416951

4.98

5.49

4.2

4.11

INTERPRETATION:

 IN 2001-2002 the ratio was 4.98 times and was increased in the
year 2002-2003 to 5.49times than it decreases to 4.2 times & 4.11
times in the year 2003-2004 & 2004-2005.
It is due to decrease in the net sales by 18.57% in the year 20022003 and in the 2003-2004 decreased by 2.36 % by taking the year
2001-2002 as the base year while their was an increase in the
percentage of the sales in the year 2004-2005 by 15.3%.

(5) DEBTORS TURNOVER:

The analysis of the debtors turnover ratio supplements the
information regarding the liquidation of one item of current assets of the
firm. It measures how rapidly debts are collected. It is a measure of
assessing the ability of the company to promote sales with minimum
investments in uncollected debtors. It indicates timely quick collection or
pre-matured collections through cash discounting incentives, bill discounting
or factoring the book-debts.
DEBTORS TURNOVER = CREDIT SALES
AVERAGE DEBTOR

Exhibit 4.20
YEAR
NET SALES
AVERAGE
DEBTORS
DEBTOR
TURNOVER
(IN TIMES )
DAYS
DEBT
COLLECTION
PERIOD

2001-2002
411574026
55291640

2002-2003
335126011
59129362.5

2003-2004
401849631
59516868.5

2004-2005
474461733
67703599.5

7.44

5.67

6.75

7.01

360
48.36

360
63.52

360
53.32

360
51.37

INTERPRETATION:
(a) DEBTORS TURNOVER RATIO:
Debtors constitute an important constituent of current assets and therefore
the quality of debtors to a great extent determines a firms liquidity. The
higher the ratio the better it is, since it would indicate that debts are being
collected more promptly. For measuring the efficiency, it is necessary to set
a figure, a ratio lower than the standard will indicate inefficiency.
(b) DEBT COLLECTION PERIOD:

Debtors collection period measures the quality of debtors since it measures

the rapidity or slowness with which many is collected from them.
A shorter collection period implies prompt payment by debtors. It reduces
the chances of bad debts. A longer collected period implies too liberal and
inefficient credit collection performance. In general, the amount of
receivables should not exceed 3-4 months credit sales.

During year 2001-2002, the debtors turnover ratio was 7.44 which
showed the better collection position of the firm. It means the
outstanding was less and the collection period was short.
But in the year 2002-2003 the ratio declines 5.67time and the
collection period was increased. It shows the less effective
collection policy of the firm. It makes effect to the need for the
working capital. The main reason for declining trend of debt
collection ratio is the low amount of sales and more numbers of
debtors.
In the year 2003-2004 &2004-2005 the graph shows the increase in
the trend of the debtors turnover ratio and decline in the debt
collection period it may be due to the numbers of the debtors may
be decreased and the amount of sales has been increased.

(6) CREDITORS TURNOVER RATIO:

It indicates the speed with which the payments for credit purchase are
made to the creditors. It is also helpful in knowing the policy of cash
payments to the creditors.
CREDITORS TURNOVER RATIO: TOTAL PURCHASES
AVERAGE CREDITORS.

EXHIBIT 4.21
YEAR

2001-2002

2002-2003

2003-2004

2004-2005

PURCHASES
AVERAGE
CREDITORS
RATIO (IN
TIMES)
DAYS
PAYMENT
PERIOD

283363943
13825379

254936408
11860590

235074403
13915518.5

297453538
35650305

20.50

21.49

16.89

8.34

360
17.56

360
16.75

360
21.31

360
43.15

INTERPRETATION:
The creditors turnover ratio indicates about the promptness or
other in making payment of credit purchases. The higher creditors

turnover ratio or a lower credit period enjoyed ratio signifies that

the creditors are being paid promptly. Thus, enhancing the credit
worthiness of the company. However, a very favorable ratio to this
effect also shows that the business is not taking full advantage of
credit facilities which can allow by the creditors.
During the year 2002-2003 & 2001-2002 the ratio was 21.49 &
20.5 times respectively which shows the quick payments for the
credit purchase. It may be because of less credit facilities used by
the firm. But the turnover ratio is decreasing very rapidly during
the year 2003-2004 & 2004-2005 that is to 16.89 & 8.34 times.
The purchases during these years are going on decreasing but the
credit purchase are more? So, the turnover ratios are lows and the
payment periods are become more that is 21 days and 43 days in
the year 2003-2004 and 2004-2005. It makes effect on working
capital requirement of the company.

4.4: CAPITAL/ LEVERAGE / FINANCE

STRUCTURE RATIOS
To judge the long term financial position of the firm, financial
leverage or capital structure ratio is calculated. It indicates mix of the funds
provided by the owners and the lenders. Long-term creditors, like debentures
holders, financial institutions strength. In fact, the firm should have a strong
short term as well as long term financial position.
Leverage can work in opposite direction also. If the cost of debt is
higher than the firms overall rate of return, the earnings of shareholders will
be reduced. If the firm is actually liquidated for non-payment of debtholders dues, the worse suffers will be share holders.
(1) PROPRIETORY RATIO:
The ratio indicates the proportion of total assets financed by owners. It
is a variant of debt equity ratio. It established relationship between the
proprietors funds and the total assets. This ratio focuses the attention on the
general financial strength of the business enterprise. Higher the ratio
stronger the position of enterprises. It indicates that proprietor have provided
more fund to purchase the assets. If it is 100% that is business does not used
any outside fund that is not using its reputation & bringing cash from
outside, bringing more assets & multiplying business. This opportunity is
lost by the conservative approach.
PROPRITEOR RATIO: PROPRIETORS FUND *100
TOTAL ASSETS

EXHIBIT 4.22

YEAR
PROPRIETORS
FUND
TOTAL ASSETS
RATIO (%)

2001-2002
47693000

2002-2003
52693000

2003-2004
52693000

2004-2005
52696000

194334161
24.54

227033017
23.21

272532683
19.33

287985264
18.30

INTERPRETATION
It is a variant of debt equity ratio. The ratio is of particular
importance to the creditors who can find out the proportion of
share holders funds in the total assets employed in the business.
A high ratio will indicate a relatively little danger to the creditors,
etc in the event of forced reorganization or winding up of the
company. A low ratio indicates greater risk to the creditors since in
the events of losses a part of their money may be lost besides loss
to the proprietors of the business. The higher the ratio the better it
is. A ratio below 50% may be alarming for the creditors since they
may have to lose heavily in the event of companys liquidation on
account of heavy losses.
For all the years, the percentage is showing below 50%. It means
the funds are very low as compared to the total assets. In the year
2004-2005, it is the lowest and in the year2001-2002 it shows
24.54% which is the highest in all three years.
(2) EQUITY RATIO:

This ratio can be finding out by dividing net worth to total capital
employed. This ratio focuses the attention on the general financial strength
of the business enterprise. Higher the ratio stronger the position of
enterprise.
EQUITY RATIO:

NET WORTH
TOTAL CAPITAL EMPLOYED

EXHIBIT 4.23
YEAR
NET WORTH
TOTAL
CAPITAL
EMPLOYED
RATIO

2001-2002
72761690
179829518

2002-2003
88401029
208497145

2003-2004
105744421
250769678

2004-2005
120451561
262448545

0.40

0.42

0.42

0.46

(3) DEBT RATIO:

This ratio can be found out by dividing long term debt to total capital
employed .This ratios are calculated to measure the financial risk.
DEBT RATIO = LONG TERM DEBT
TOTAL CAPITAL EMPLOYED

EXHIBIT 4.24
YEAR
2001-2002
LONG
107067828
TERM
DEBTS
TOTAL
179829518
CAPITAL
EMPLOYED
RATIO
0.60

2002-2003
120096116

2003-2004
145025257

2004-2005
141996984

208497145

250769678

262448545

0.58

0.58

0.54

(4) DEBT EQUITY RATIO:

Leverage ratios are calculated to measure the financial risk and the
firms ability of using the debt for the benefit of the share holders. It
determining the extent to which operating profits are sufficient to cover the
fixed charges.
DEBT EQUITY RATIO: LONG TERM DEBTS
NET WORTH

EXHIBIT 4.25
YEAR
LONG
TERM
DEBTS
NET
WORTH
RATIO

2001-2002
107067828

2002-2003
120096116

2003-2004
145025257

2004-2005
141996984

72761690

88401029

105744421

120451561

1.47

1.36

1.37

1.18

INTERPRETATION:
The DEBT EQUITY RATIO has important from the creditors and
owners point of view and also for the firm itself. The ratio can be

taken as ideal if it is 1:1 there cannot be a rigid rule, it will depend

upon the circumstances. High ratio shows a larger share of
financing by the creditors in relation to the customers and low ratio
implies a smaller claim of creditors.
In 2001-2002, the ratio was high as compared to other year
because of high amount of long term debts and less net worth. In
the year 2004-2005, the ratio 1.18 was satisfactory in the creditors
point of view. It shows that company has successfully adopted the
policy of trading of equity which results in a higher return to equity
share holders. In the year 2001-2002 the ratio was highest because
of more amounts of secured loans. It indicates that the company
depends upon the bank loan s and more on equity capital for the
year 2001-2002.

(5) DEBT TO TOTAL ASSETS RATIO

The ratio indicates the effect of the use of fixed interest or dividend
sources of the funds on the earnings available to the equity share holders.
DEBT TO TOTAL ASSETS RATIO=
TOTAL LONG TERM DEBT
TOTAL ASSETS

EXHIBIT 4.26
YEAR
LONG
TERM
DEBTS
TOTAL
ASSETS
RATIO

2001-2002
107067828

2002-2003
120096116

2003-2004
145025257

2004-2005
141996984

194334161

227033017

272532683

287985264

0.55

0.53

0.53

0.49

INTERPRETATION:
This ratio is similar to debt equity ratio in respect of the capital
structure of a firm. Long term creditors are interested in this ratio.
It indicates the extent to which the firm has relied on debt in
financing assets. A firm should have neither a high ratio nor a very
low debt to total assets ratio. High ratio is a burden for creditors
and also a highly debt burden firm will find difficulty in raising
funds from creditors and owners in future.
From the above graph we can see that in all the year , the ratio are
satisfactory because of less proportion of long term debt as
compared to total assets. During the year 2004-2005 was the
lowest because of high increase in the fixed assets and the current
assets where mainly debtors and cash & bank balance are increased
while the bank loans are decreasing. It indicates that the
investment in fixed assets is done through internal sources or from
equity share capital. It means that during the year 2004-2005, the
firm was less dependent on loans.
(6) FIXED ASSETS TO NET WORTH RATIO:
It shows the relationship between the capital held by equity capital,
reserves and the net fixed assets. It means how much equity we needed
against the fixed assets.
FIXED ASSETS TO NET WORTH RATIO =

NET FIXED ASSET

NET WORTH

EXHIBIT 4.27
YEAR
NET FIXED
ASSETS
NET
WORTH
RATIO

2001-2002
133281560

2002-2003
144312415

2003-2004
17696209

2004-2005
172568313

72761690

88401029

105744421

120451561

1.83

1.63

1.67

1.43

INTERPRETATION
The ratio should not be more than 1. If it less than 1, it shows that a
part of the working capital, which is more or less of a fixed nature.
The ideal ratio is 0.67. In other words, the more the shareholders
contribution is tied up in fixed assets the less is the amount
available for the investment in current assets, it means that
creditors have contributed towards large proportion of the net fixed
assets.
The higher the ratio the less the proportion for creditors, where net
fixed assets exceeds net worth. It may be a signal for many
industrial concerns which should plan for an additional equity
capital.
In all the year it is more than the ideal ratio that is 0.67, it means
that funds were blocked in the fixed assets that means the liquidity
position of a firm worse but in the year 2004-2005 which is
showing the ratio of 1.43 is less compare to other year that means

the firm is improving that means there is a small decrease in the

fixed assets while the liquidity position is quite improving.
(7) INTEREST COVERAGE RATIO:
This ratio indicates the debts servicing capacity of a firm in so far as
fixed interest on long term loans is concerned. It shows how many times the
interest charges are covered by the Earning before Interest and Tax (EBIT)
out of which they will be paid.
INTEREST COVERAGE RATIO = EBIT
INTEREST

EXHIBIT 4.28
YEAR
EBIT
INTEREST
RATIO

2001-2002
21609619
20447983
1.06

2002-2003
15551296
9881384
1.57

2003-2004
23023978
16087910
1.43

2004-2005
27588062
15594543
1.77

INTERPRETATION:
The standard for this ratio for an industrial company is that interest
charges should be covered six to seven times. From the creditors
point of view the larger the coverage, the greater the ability of the
firm to handle fixed charges liabilities and the more assured the
payment of interest to the creditors. Too high the ratio may indicate

unused debt capacity. In contrast, a low ratio is a danger signal that

the firm is using excessive debt and does not have the ability to
offer assured payment of interest to the creditors.
From table we can see that the interest coverage is very low in the
year 2001-2002 that is 1.05 and in the year 2002-2003, 2003-2004
& 2004-2005 it was 1.57 1.43 & 1.77times . it means that the
extent of earning available for the payment of interest is not better .
It is because the profit is higher and the interest on fixed loans is
low

(8) DEBT SERVICE COVERAGE RATIO:

This ratio indicates how many times the profit covers the payments of
principal and the interest on loan.
When a creditors or a bank lends money to the business, they always
examine the repaying capacity of the borrower. They will try to ascertain
whether the borrower will able to repay installment of principal amount and
the interest regularly, Debt servicing means payment of principal installment
and interest both. Normally company makes such payment from earned
profit or retained profit of the past profit of the past years. Therefore the
proportion of the net profit as compared to the amount of the principal
installment + interest is ascertained. This proportion or ratio is called DEBT
SERVICE COVERAGE RATIO.
Here the profit = profit available for the payment of the debt.
In other words:
PROFIT = PAT + DEP. + INT. PAYABLE ON LOAN.
D.S.C.R. =

PROFIT (P.A.T. + DEP. +INT.)

INSTALLMENT OF PRINCIPAL SUM + INTEREST

EXHIBIT 4.29

YEAR
PROFIT
PRINCIPAL
+ INT.
RATIO
(IN TIMES )

2001-2002
46585626
127515811

2002-2003
31731025
129977500

2003-2004
66016700
161113167

2004-2005
77696964
157591527

0.37

0.24

0.41

0.49

INTERPRETATION:
The ratio for all the year is not good that means the profit for all
the year is not sufficient for the payment of the debt.
In the year 2001-2002 it was 0.37 and in the year 2002-2003,20032004, 2004-2005 it was 0.24, 0.41 & 0.49 times respectively.

4.5: VALUATION RATIOS:

Valuation ratios are the results of the management of above four

categories of the functional ratios. Valuation ratios are generally presented
on a per share basis and thus are more useful to the equity investors.
(1) EARNING PER SHARE (EPS)
This is the measurement of calculating the profitability of the common
share holders. As a profitability index, it is a valuable and widely used ratio.
Adjustments for bonus or rights issues should be made while comparing
earning per share over a period of time.
EARNING PER SHARE: PROFIT AFTER TAX
NUMBER OF EQUITY SHARE

EXHIBIT 4.29
YEAR
P.A.T
NO. OF EQ.
SHARE
RATIO

2001-2002
12468117
3280000

2002-2003
10768181
3280000

2003-2004
17034180
3280000

2004-2005
18286469
3280000

3.80

3.28

5.19

5.58

INTERPRETATION:

 This ratio shows the profitability of the firm on a per share basis. It
helps in deciding that the equity share capital is being used
effectively or not.
The earning per share during the year 2002-2003 was the lowest
that is 3.28 but in the in the 2003-2004 &2004-2005 it increased to
5.19 & 5.58 because of more profits. It was good for the
shareholders point of view.
(2) PRICE EARNING RATIO:
The ratio indicates the number of times the earning per share is
covered by its market price. It helps the investors in deciding whether to buy
or not to buy share of a company at a particular market price.
PRICE EARNING RATIO =
MARKET PRICE PER EQUITY SHARE CAPITAL
EARNING PER SHARE

EXHIBIT 4.30
YEAR
M.P.P.E.S.C.
E.P.S.
RATIO

2001-2002
8.25
3.80
2.17

INTERPRETATION

2002-2003
5.65
3.28
1.72

2003-2004
9.62
5.19
1.85

2004-2005
29.55
5.58
5.30

 This ratio helps in knowing whether the shares of a company are

under or over valued. It indicates investors judgment or
expectation about the firms performance. It is a rule of thumb that
the equity shares in industrial companies should sell at 10 times of
the earnings. But it is not same for all kind of firms. It depends on
the type and the earning capacity of the firm.
During the year 2004-2005, the price earning ratio was high, which
was showing satisfactory result during this year. But rest of the
year it is nearly about 2 times these indicates the ineffective
earning capacity of the firm.

4.6: COMPARISIONS OF THE RATIO OF THE REAL STRIPS

LIMITED FOR THE FOUR YEAR

EXHIBIT 3.31
SR.
NO
1.
2.
3
4
5

6
(a)
(b)
( c)
7
8
9
10
11
12
13

PARTICULARS
(RATIO)
CURRENT RATIO
LIQUIDITY
RATIO /QUICK
RATIO
ACID TEST
RATIO
NET WORKING
CAPITAL
CASH
GENERATED PER
RUPPES OF
SALES
BANK FINANCE
GAP RATIO:
75%(CA-CL)
75%(C.A)-C.L
75%(C.A-CCA)C.L
CAPITAL
GEARING RATIO
OPERATING
PROFIT RATIO
OPERATING
COST RATIO
GROSSPROFIT
RATIO
NET PROFIT
RATIO
RATE OF
RETURN ON
INVESTMENT
RATE OF

2001-2002

2002-2003

2003-2004

2004-2005

1.834
1.38

2.424
1.74

2.152
1.26

1.583
0.85

1.14

1.47

0.99

0.66

3.76

5.74

6.23

6.56

11.49

9.56

16.55

12.31

38930241.75 54514775.25 59860462.5 71468259.75

33471251
50777678.75 54664373.5 55820715.25
19632767
32276927.75 21265633
(3084767.75)
1.676

1.585

1.562

1.344

5.250

4.640

5.730

5.815

93.950

98.906

98.662

99.592

14.99

12.09

18.88

17.68

3.03

3.21

4.24

3.85

11.12

6.85

8.45

9.58

33.79

39.48

49.10

55.10

14
15
16

RETURN ON
EQUITY
RETURN ON
ASSETS
INVENTORY
TURNOVER
RATIO
AVERAGE AGE
OF
INVENTORIES

6.42

4.74

6.25

6.35

16.82

12.17

8.59

5.98

21.40

29.58

41.91

60.20

17

TOTAL ASSETS
TURNOVER

2.12

1.48

1.47

1.65

18

NET FIXED
ASSETS
TURNOVER

3.09

2.32

2.27

2.75

19

NET WORKING
CAPITAL
TURNOVER

4.98

5.49

4.2

4.11

20

DEBTORS
TURNOVER

7.44

5.67

6.75

7.01

21

DEBT
COLLECTION
PERIOD

48.36

63.52

53.32

51.37

22

CREDITORS
TURNOVER
RATIO
PAYMENT
PERIOD
PROPRIETORY
RATIO

20.50

21.49

16.89

8.34

17.56

16.75

21.31

43.15

24.54

23.21

19.33

18.30

23
24

25

EQUITY RATIO

0.40

0.42

0.42

0.46

26

DEBT RATIO

0.60

0.58

0.58

0.54

27

DEBT EQUITY
RATIO

1.47

1.36

1.37

1.18

28

DEBT TO TOTAL
ASSETS RATIO

0.55

0.53

0.53

0.49

29

FIXED ASSETS
TO NET WORTH
RATIO

1.83

1.63

1.67

1.43

30

INTEREST
COVERAGE
RATIO

1.06

1.57

1.43

1.77

31

DEBT SERVICE
COVERAGE
RATIO

0.37

0.24

0.41

0.49

32

EARNING PER
SHARE (EPS)

3.80

3.28

5.19

5.58

33

PRICE EARNING
RATIO

2.17

1.72

1.85

5.30

CHAPTER 5
TREND ANALYSIS

rend analysis involves calculation of percentage changes in financial

statement items for a number of successive years. It is an extension
of horizontal analysis to several years. Trend analysis is carried out
by first assigning a value of 100 to the financial statements items in a past
financial year used as the base year and then expressing financial statements
items in the following years as percentages of the base year value.
Trend analysis over longer periods helps in identifying certain basic
changes in the nature of the business. Since many large corporations publish
a summary of operating results and selected financial indicators for five
years or more, it is possible to perform trend analysis using published
reports.

5.1:
TREND ANALYSIS
REAL STRIPS LIMITED: SELECTED DATA OF PROFIT AND LOSS
ACCOUNT

EXHIBIT 5.1
PARTICULARS
SALES& OTHER
INCOME
EXPENDITURE
EARNING BEFORE
INT.&TAX
PROVISION FOR
TAXATION
PROFIT AFTER TAX
PROFIT AFTER INT, &
TAX

PARTICULARS

2004-05
500113566

2003-04
419496975

2002-2003
347011311

2001-2002
272188473

472525504
27588062

396472997
23023978

331460015
15551296

257782060
14406413

9088714

5989798

4783115

5571341

18286469
66373711

17034180
51908966

10768181
34874786

8312078
16363106

2004-05

2003-04

SALES& OTHER INCOME 184

154

20022003
127

2001-2002

SEXPENDITURE
EARNING BEFORE
INT.&TAX
PROVISION FOR
TAXATION
PROFIT AFTER TAX
PROFIT AFTER INT, &
TAX

183
191

154
160

129
108

100
100

163

108

86

100

220
406

205
317

130
213

100
100

100

INTERPRETATION:
The sales and the other incomes are increasing that is 1.27, 1.54 &
1.84 times of sales and income of the base year that is 2001-2002.
The trend percentage indicates that the 2004-2005 sales are 1.84
times 2001-2002 sales, a rise of 84 percentages.
Profit after interest and tax rose by a whopping 306 percentage.
The expenditure in shows the rise of 29, 54 & 83 percentage in the
year 2002-2003, 2003-2004 & 2004-2005 respectively.
The trend of the percentage shows that the sales and the
expenditure rose in the same proportion.

5.2:
TREND ANALYSIS
REAL STRIPS LIMITED: BALANCE SHEET

EXHIBIT 5.2
PARTICULARS
Share Capital
Reserves &Surplus
Secured Loan
Unsecured Loan
Deferred Tax Liability
Current Liability
provision
TOTAL FUNDS
ASSETS
Fixed Assets
Inventories
Sundry Debtors
Cash bal. &bank bal.
Loans & Advances
Miscellaneous
Expenditure
TOTAL ASSETS

2004-05
52696000
67873711
134251287
7745697
25536719
62590178

2003-04
52693000
53408966
117579368
27445889
21763005
20784356

2002-03
52693000
36374786
80630217
39465899
18532872
14948386

2001-02
47693000
26044659
66878603
40189225
14504643
21835963

PARTICULARS
Share Capital
Reserves &Surplus
Secured Loan
Unsecured Loan
Deferred Tax Liability
Current Liability
provision
TOTAL FUNDS
ASSETS
Fixed Assets
Inventories

2004-05
110.49
260.61
200.74
19.27
176.06
286.64

2003-04
110.48
205.07
175.81
68.29
150.04
95.18

2002-03
110.48
139.66
120.56
98.2
127.77
68.46

2001-02
100
100
100
100
100
100

161.5

135.24

111.74

100

129.48
396.35

132.77
231.84

108.28
132.76

100
100

350693592 293674584

242645160 217146093

172568313
82464916
79340547
1717688
14483978
118150

144312415
27623378
62967085
534091
6541434
666757

176962094
48238275
56066652
1086909
10963109
357545

350693592 293674584

133281560
20806262
55291640
1691649
5099013
975969

242645160 217146093

Sundry Debtors
Cash bal. &bank bal.
Loans & Advances
Miscellaneous
Expenditure
TOTAL ASSETS

143.49
101.54
284.05
12.11

101.4
64.25
215
36.63

113.88
31.57
128.29
68.32

100
100
100
100

161.5

135.24

111.74

100

TRENDS IN SHARE HOLDERS FUNDS AND LIABILITIES

EXHIBIT 5.3
PARTICULARS
Share Capital
Reserves
&Surplus
Secured Loan
Unsecured Loan
Deferred Tax
Liability
Current Liability
provision
TOTAL FUNDS

2004-05
110.49
260.61

2003-04
110.48
205.07

2002-03
110.48
139.66

2001-02
100.00
100.00

200.74
19.27
176.06

175.81
68.29
150.04

120.56
98.20
127.77

100.00
100.00
100.00

286.64

95.18

68.46

100.00

161.50

135.24

111.74

100.00

INTERPRETATION:
The trend percentage indicates that the reserves and surplus
shows the rise of 39.66, 105.07, and 160.61 percent in the year
2002-2003, 2003-2004 & 2004-2005 respectively.
The secured loans have shown a rise by 20.56, 75.81 & 100.74
percent in the year 2002-2003, 2003-2004 & 2004-2005
respectively.
The unsecured loan shows the reverse trend that mean every it is
decreasing that in the base year it was 100 then it decrease in the
year 2001-2002 to 98.2 and in the year 2002-2003 it again
decrease to 68.29 and in the year 2004-2005 it decreases
drastically to 19.27 percent .
The Deferred liability also show rise by 76.06 % in the year
2004-2005 compare to the base year 2001-2002.
Current liabilities was first decrease to 68.46 percent in 20022003 then it shows slight increase to 95.18 compare to last year
but shows decrease compare to the base year while in the year
2004-2005 it shows an increase of 186.64 that means 2.87 time
compare to base year.
Lastly, the Total funds shows the rise compare to the base year in
the year 2002-2003,2003-2004 & 2004-2005 by 11.74, 35.24 &
61.5 percent respectively.

TRENDS IN ASSETS

EXHIBIT 5.4
PARTICULARS
Fixed Assets
Inventories
Sundry Debtors
Cash bal. &bank bal.
Loans & Advances
Miscellaneous
Expenditure
TOTAL ASSETS

2004-05
129.48
396.35
143.49
101.54
284.05
12.11

2003-04
132.77
231.84
101.4
64.25
215
36.63

2002-03
108.28
132.76
113.88
31.57
128.29
68.32

2001-02
100
100
100
100
100
100

161.5

135.24

111.74

100

INTERPRETATION:
The portion of the fixed assets has show the increase by 8.28 in
the year 2002-2003 and in the next year that is 2003-2004 it
increase to 32.77 % but it decreases by 2.29% in the year
compare to last year but shows the increase of 29.48% compare to
base year.
Unutilized or underutilized assets increase the firms need for costly
financing as well as expenses for maintaince and upkeeps. A high

ratio suggests managements ability to make a good use of its

assets and low ratio suggests the blocking of money in fixed assets.
As the assets are used to generate sales, the firm should manage its
assets efficiently to maximize the sales.
The inventories has shown the increase of 32.76 in the year 20022003 then after in the year 2003-2004 it shows the increase of
131.84 % while in the year 2004-2005 it increase by 296.35%
compare to the base year. The increase in the inventories is far
higher than the increase in sales. This is the reason the inventories
turnover shows decrease every year.
The loans and the advances shows the increasing trend that is by
28.29%, 115% and 184.05% in the year 2002-2003, 2003-2004 and
2004-2005 respectively. It is one of the parts of the current assets
which are used to find out the current ratio.
If the current ratio
of the company is high, this indicates the sound short
term
finance from the creditors point of view. But on the other and the
higher ratio indicates blocking of funds in current assets.
The cash and the bank balance shows the decreasing trend in the
year 2002-2003 it decrease to 31.57% then after it increases to
64.25% compare to the last year but compare to the base year it
shows the decrease in the trend but in the in the year it increases to
101.54% that is by 1.54% in the year 2004-2005.
The miscellaneous expenditure is decreasing every year that is to
68.32%, 32.63% and 12.11% in the year 2002-2003, 2003-2004 &
2004-2005 respectively.
The total Assets shows the rising trend that is by 11.74%, 35.24%
and 61.5% in the year 2002-2003, 2003-2004 & 2004-2005
respectively which shows that the company is efficient with which
affairs of the business are being managed. It also indicates the
firms capacity to withstand adverse economic condition

CHAPTER: 6

CONCLUSION

RATIO ANALYSIS:
The Liquidity position of the company has been decreased this year
because the current ratio & the quick ratio have decreased this year
compared to last year.
The profitability ratios of the company are not so good Infact, the
Gross profit has decrease from 18.88% to 17.68% in current year
which indicates that the cost of sales is high or that purchase is
inefficient while the Net profit has also decrease from 4.24% to 3.85%
which shows that the administrative expenses are slowly rising.
All the leverage ratios were not so good in the last year 2003-2004 but
this year 2004-2005 it has been increase especially interest coverage
ratio from 1.43% to 1.77% and also the debt service coverage ratio
has also increase from 0.41 to 0.49
Inventory turnover ratio is decreasing every year while the debtor
turnover ratio is increasing from the year 2002-2003 to 2004-2005.
Fixed assets turnover ratio is increasing year.
Creditors turnover ratio is decreasing every year that means the
company is not taking the advantage of the credit period allowed to
them.
Valuation ratio has also shown increase especially E.P.S. and also
price earning ratio.

HORIZONTAL ANALYSIS
The growth of the components of the profit and loss account in the
last three year is shown as under:
PARTICULARS

Growth In Percentage (%)

2002-2003 2003-2004 2004-2005

Income
Expenditure
Profit(loss) before interest and tax
Provision For Taxation
Profit(loss) After tax
Profit(loss) carried to Balance Sheet

27.49%
28.58%
7.95%
13.57%
21.52%
113.13%

20.96%
19.69%
48.05%
21.40%
58.19%
49.84%

19.22%
19.88%
19.82%
51.73%
8.6%
27.87%

VERTICAL ANALYSIS:
The following the common size profit and loss for all the year :
PARTICULARS

2004-05

SALES& OTHER INCOME

100

2003-04 2002-2003 20012002

100
100
100

EXPENDITURE
EARNING BEFORE
INT.&TAX
PROVISION FOR
TAXATION
PROFIT AFTER TAX
PROFIT AFTER INT, & TAX

94.48
5.52

94.51
5.49

95.52
4.48

94.71
5.29

1.82

1.43

1.38

2.05

3.66
13.27

4.06
12.37

3.1
10.05

3.05
6.01

 The following is the composition of share holders funds &

liabilities :
SHARE HOLDERS
2001-02
FUNDS&LIABILITIES

2002-03

2003-04

2004-05

Share Capital
Reserves &Surplus
Secured Loan
Unsecured Loan
Deferred Tax Liability

21.96
11.99
30.80
18.51
6.68

21.72
14.99
33.23
16.26
7.64

17.94
18.19
40.04
9.35
7.41

15.03
19.35
38.28
2.21
7.28

Current Liability
provision
TOTAL FUNDS

10.06

6.16

7.08

17.85

100.00

100.00

100.00

100.00

The following the composition of the assets

ASSETS
Fixed Assets
Inventories
Sundry Debtors
Cash bal. &bank
bal.
Loans &
Advances
Miscellaneous
Expenditure
TOTAL ASSETS

2001-02
61.38
9.58
25.46
0.78

2002-03
59.47
11.38
25.95
0.22

2003-04
60.26
16.43
19.09
0.37

2004-05
49.21
23.51
22.62
0.49

2.35

2.70

3.73

4.13

0.45

0.27

0.12

0.03

100.00

100.00

100.00

100.00

TREND ANALYSIS
Following are the selected items of the profit & loss account
PARTICULARS

2004-05

2003-04

SALES& OTHER INCOME 184

154

20022003
127

2001-2002

SEXPENDITURE
EARNING BEFORE
INT.&TAX
PROVISION FOR
TAXATION
PROFIT AFTER TAX
PROFIT AFTER INT, &
TAX

183
191

154
160

129
108

100
100

163

108

86

100

220
406

205
317

130
213

100
100

100

TREND IN SHARE HOLDERS FUNDS & LIABILITIES

PARTICULARS
Share Capital
Reserves
&Surplus
Secured Loan
Unsecured Loan
Deferred Tax
Liability
Current Liability
provision
TOTAL FUNDS

2004-05
110.49
260.61

2003-04
110.48
205.07

2002-03
110.48
139.66

2001-02
100.00
100.00

200.74
19.27
176.06

175.81
68.29
150.04

120.56
98.20
127.77

100.00
100.00
100.00

286.64

95.18

68.46

100.00

161.50

135.24

111.74

100.00

 TREND IN THE ASSETS

PARTICULARS
Fixed Assets
Inventories
Sundry Debtors
Cash bal. &bank bal.
Loans & Advances
Miscellaneous
Expenditure
TOTAL ASSETS

2004-05
129.48
396.35
143.49
101.54
284.05
12.11

2003-04
132.77
231.84
101.4
64.25
215
36.63

2002-03
108.28
132.76
113.88
31.57
128.29
68.32

2001-02
100
100
100
100
100
100

161.5

135.24

111.74

100

BIBLIOGRAPHY
BOOKS:
Narayanaswamy R.: Financial Accounting , 2nd Edition, Prentice Hall
Publication (India), 2005.
Shah Sudhir B.: Advance Accounting & Auditing 4, 16th Edition, Sudhir
Publication, 2004.
Shah Sudhir B.: Accountancy (Company Accounts), 5th Edition, Sudhir
Publication, 2005.

Web-Links:

http://www.real strips .com / Profit.htm.

http://www.real strips .com / about us.htm.
http://www.real strips .com / Org.htm.
http://www.real strips .com / bod.htm.
http://www.real strips .com / Photo gallery .htm.
http://www.real strips .com / Product.htm.
http://www.real strips .com / Environment .htm.
http://www.real strips .com /Inquiry Form.htm.